Pushing the Pace in
a Resurgent Sri Lanka
a Resurgent Sri Lanka
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 was incorporated and with effect from that date, the National Development Bank of Sri Lanka Act No. 2 of 1979 was repealed except for certain provisions contained therein.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’). The Bank was re-registered in terms of the new Companies Act 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 number of branches of the Bank as at 31 December 2014 was 83 (2013 - 78) and the number of staff employed as at 31 December 2014 was 1,744 (2013 - 1,583).
The principal activities of the Bank consist of retail banking, small and medium enterprise (SME) banking, corporate banking, project and infrastructure financing, investment banking, leasing, housing finance, cash management, correspondent banking, remittance services, margin trading, pawning, treasury and investment services, bancassurance and card operations.
The principal activities of the Group companies comprising of the subsidiaries and the associate companies are summarised below:
| Holding % - 2014 | Holding % - 2013 | |||||
| Name of Group Company | Country of Incorporation |
Direct | Indirect | Direct | Indirect | Principal Activities |
| Subsidiaries | ||||||
| NDB Capital Holdings PLC (de-listed with effect from 26 January 2015) |
Sri Lanka | 99.9 | 99.6 | Full service investment banking | ||
| NDB Investment Bank Ltd. | Sri Lanka | – | 99.9 | – | 99.6 | Investment banking |
| NDB Wealth Management Ltd. | Sri Lanka | – | 99.9 | – | 99.6 | Wealth management |
| NDB Securities (Pvt) Ltd. | Sri Lanka | – | 99.9 | – | 99.6 | Investment advisory and securities trading |
| Development Holdings (Pvt) Ltd. | Sri Lanka | 58.7 | 58.7 | Property management | ||
| NDB Capital Ltd. | Bangladesh | 77.8 | 77.8 | Investment banking | ||
| NDB Zephyr Partners Ltd. | Mauritius | – | 59.8 | – | – | Management of private equity funds |
| Associate Companies | ||||||
| Ayojana Fund (Pvt) Ltd. (under liquidation) | Sri Lanka | 50 | 50 | Venture capital | ||
| NDB Venture Investments (Pvt) Ltd. (under liquidation) | Sri Lanka | 50 | 50 | Venture capital | ||
The Consolidated Financial Statements for the year ended 31 December 2014 comprise of the Bank (parent company) and the subsidiaries and associate companies.
The Bank does not have an identifiable parent company and is the ultimate parent of the NDB Group.
The Consolidated Financial Statements of the Group and
the separate Financial Statements of the Bank as at
31 December 2014 which comprise the Statement of Financial Position, Statement of Profit or Loss, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flow, Accounting Policies and Notes,
have been prepared in accordance with Sri Lanka Accounting Standards (SLFRs and LKASs, hereinafter referred to as ‘SLFRSs’) 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 is also in compliance with the requirements of the 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.
The Financial Statements of the Bank and the Group are presented in Sri Lankan Rupees which is the currency of the primary economic environment in which the Bank and the Group operates. Financial information presented in Sri Lankan Rupees has been rounded to the nearest thousand unless indicated otherwise.
The Board of Directors is responsible for the preparation and presentation of the Financial Statements of the Bank and the Group, in compliance with the provisions of the Companies Act No. 07 of 2007 and SLFRSs.
The Board of Directors acknowledge their responsibility as set out in the ‘Annual Report of the Board of Directors’, ‘Statement of Directors Responsibility’ and the certification given on the ‘Statement of Financial Position’.
These Financial Statements include-
The Financial Statements of the Bank and the Group for the year ended 31 December 2014 (including comparatives) have been approved and authorized for issue by the Board of Directors on 13 February 2015.
The Financial Statements of the Bank and the Group have been prepared on a historical cost basis, except for the following material items in the Statement of Financial Position:
The Bank and the Group presents their 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 51 to the Financial Statements.
In compliance with Sri Lanka Accounting Standards - 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 is reported in the Statement of Financial Position of the Bank and the Group 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 liabilities simultaneously.
Income and expenses are not offset in the Statement of Profit or Loss of the Bank and the Group unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the Notes to the Financial Statements of the Bank and the Group.
The Consolidated Financial Statements comprise the Financial Statements of the Bank and its subsidiaries and associates for the year ended 31 December 2014. The Financial Statements of the Bank’s subsidiaries are prepared for the same reporting year as the Bank, using consistent Accounting Policies.
All intra-group balances, income and expenses and unrealized 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 Statement of Profit or Loss and within equity in the Consolidated Statement of Financial Position, but separate from Parent shareholders’ equity.
All foreign currency transactions are translated into the functional currency, which is Sri Lankan Rupees, using the exchange rates prevailing at the dates the transactions were affected.
Monetary assets and liabilities denominated in foreign currencies are retranslated 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 Statement of Profit or Loss.
The Board of Directors of the Bank and its Group companies 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, the Board of Directors is not aware of any material uncertainties that may cast significant doubt upon the ability of the Bank and its Group companies to continue as a going concern. Therefore, the Financial Statements of the Bank and the Group continue to be prepared on the going concern basis.
In the process of applying the accounting policies of the Bank and the Group the management is required to make judgments, which may have significant effects on the amounts recognized in the Financial Statements. Further, the management is also required to consider key assumptions concerning the future and other key sources of estimation of uncertainty at the date of the Statement of the Financial Position 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 for each type of assets, liabilities, income and expenses along with the respective carrying amounts of such items are given in the Notes to the Financial Statements.
All financial assets and liabilities are initially recognized on the trade date, i.e., the date that the Bank and the Group become 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.
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 as per LKAS 39 on ‘Financial Instruments: Recognition and Measurement’.
At inception, a financial asset is classified into one of the following categories:
The subsequent measurement of the financial assets depends on their classifications.
Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at fair value though profit or loss. Financial liabilities are classified as ‘Held-for-Trading’ if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short-term profit or position taking. This category includes derivative financial instruments entered into by the Bank and the Group that are not designated as hedging instruments in hedge relationships as defined in LKAS 39 on ‘Financial Instruments: Recognition and Measurement’.
Gains or losses on liabilities held-for-trading are recognised in the Statement of Comprehensive Income.
The Bank and the Group has not designated any financial liabilities upon recognition, at fair value though Profit or Loss.
Financial instruments issued by the Bank and the Group 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 and the Group 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, amounts due to banks, due to other customers, debt securities and other borrowed funds and subordinate debts.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the Effective Interest Rate (EIR).
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when -
When the Bank and the Group have transferred their rights to receive cash flows from an asset or have entered into a pass-through arrangement, and have 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 and the Group could be required to repay.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. 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 the Statement of Profit or Loss.
The Bank and the Group reclassify non-derivative financial assets out of the ‘held-for-trading’ category and into the ‘Available-for-Sale’, ‘loans and receivables’, or ‘held-to-maturity’ categories as permitted by the Sri Lanka Accounting Standard - LKAS 39 on ‘Financial Instruments: Recognition and Measurement’. Further, in certain circumstances, the Bank and the Group are permitted to reclassify financial instruments out of the ‘Available-for-Sale’ category and into the ‘loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortized cost.
For a financial asset with a fixed maturity, reclassified out of the ‘Available-for-Sale’ category, any previous gain or loss on that asset that has been recognized in Equity is amortized to the Statement of Profit or Loss over the remaining life of the asset using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. In the case of a financial asset does not have a fixed maturity, the gain or loss is recognized in the Statement of profit or loss when such financial asset is sold or disposed of. If the financial asset is subsequently determined to be impaired, then the amount recorded in Equity is recycled to the Statement of Comprehensive Income.
The Bank and the Group may reclassify a non-derivative trading asset out of the ‘held-for-trading’ category and in to the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Bank and the Group have the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Bank and the Group subsequently increase their estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate. Reclassification is at the election of management, and is determined on an instrument-by-instrument basis.
The Bank and the Group does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. Further, the Bank and the Group does not reclassify any financial instrument out of the fair value through profit or loss category if upon initial recognition it was designated as at fair value through profit or loss.
The Bank and the Group assess 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 Bank and the Group make 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 recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Bank and the Group estimate the asset's or cash-generating unit's recoverable amount. A previously recognised 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 recognised. 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 recognised for the asset in prior years. Such reversal is recognised in the Statement of Profit or Loss.
Investments in subsidiary companies are accounted for using the purchase method of accounting in the Consolidated Financial Statements. 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 Statement of Profit or Loss 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 asset 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 Statement of Profit or Loss.
The amendments to LKAS 1 introduce a grouping of items presented in Other Comprehensive Income. Items that will be reclassified (‘recycled’) to profit or loss at a future point in time (e.g., net loss or gain on Available-for-Sale financial assets) have to be presented separately from items that will not be reclassified (e.g., revaluation of freehold land and buildings). The amendments affect presentation only and have no impact on the Bank’s or Group’s financial position or performance.
Amendments to SLFRS 7 requires an entity to disclose information about rights to set-off financial instruments and related arrangements (e.g., collateral agreements).
The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with LKAS 32. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether the financial instruments are set off in accordance with LKAS 32. The necessary disclosures required by the new amendment have been included in the Notes to the Financial Statements.
SLFRS 10 establishes a single control model that applies to all entities including special purpose entities. SLFRS 10 replaces the parts of previously existing LKAS 27 Consolidated and Separate Financial Statements that dealt with Consolidated Financial Statements and SIC - 12 Consolidation - Special Purpose Entities. SLFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in SLFRS 10, all three criteria must be met, including:
SLFRS 10 had no impact on the consolidation of investments held by the Bank and the Group.
SLFRS 11 replaces LKAS 31 - ‘Interests in Joint Ventures’ and SIC - 13 Jointly-controlled Entities - Non-monetary Contributions by Venturers. SLFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture under SLFRS 11 must be accounted for by using the equity method. SLFRS 10 had no impact on the consolidation of investments held by the Bank and the Group.
SLFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. Necessary disclosures required by the new Standard have been included in the Notes to the Financial Statements.
SLFRS 13 - establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under SLFRS when fair value is required or permitted. The application of SLFRS 13 has not materially impacted the fair value measurements carried out by the Bank and the Group.
SLFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including SLFRS 7 - ‘Financial Instruments: Disclosures’. Necessary disclosures required by the new Standard have been included in the Notes to the Financial Statements.
The standards and interpretations that are issued but not yet effective up to the date of issuance of the Bank and Group financial statements are disclosed below. The Bank and the Group intend to adopt these standards, if applicable, when they become effective.
SLFRS 9, 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 01 January 2018. However the effective date has been deferred subsequently.
The scope of this standard is limited to first-time adopters of SLFRS that already recognise regulatory deferral account balances in their financial statements. Consequently, the financial statements of rate regulated entities that already apply SLFRS, or that do not otherwise recognise such balances, will not be affected by this standard. This standard is effective for the annual periods beginning on or after 01 January 2016.
SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction Contracts and International Financial Reporting Interpretations Committee (IFRIC) 13 Customer Loyalty Programmes. This standard is effective for the annual periods beginning on or after 01 January 2017.
None of these new standards and interpretations is expected to have an effect on the Consolidated Financial Statements of the Bank and the Group Financial Statements of the Company, except for SLFRS 9 and 15. Pending the detailed review of such standards and interpretations, the extent of the impact has not been determined by the management.
Gross income is recognized to the extent that it is probable that the economic benefits will flow to the Bank and the Group and the revenue can be reliably measured. The specific recognition criteria, for each type of gross income, are given under the respective income notes.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Interest Income | 20,974,578 | 20,603,610 | 21,151,976 | 20,765,842 |
| Fee and commission income | 1,866,242 | 1,614,106 | 2,564,095 | 2,411,273 |
| Net gains/(losses) from trading | 910,027 | 953,325 | 910,027 | 953,325 |
| Net gains/(losses) from financial investments | 716,507 | 318,303 | 1,330,407 | 914,968 |
| Other operating income | 494,591 | 6,167,076 | 248,121 | 257,897 |
| Total | 24,961,945 | 29,656,420 | 26,204,626 | 25,303,305 |
For all financial instruments measured at amortized cost and interest-bearing financial assets classified as Available-for-Sale, interest income or expense is recorded using the Effective Interest Rate (EIR).
The carrying amount of the financial assets or financial liabilities is adjusted if the Bank and the Group revise their estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR. The Amortized cost is calculated by taking into account any discount or premium on an acquisition and fees and costs that are an integral part of the EIR. The change in the carrying amount is recorded as ‘Interest income’ for financial assets and ‘interest expenses’ for financial liabilities.
Once the recorded value of financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
5.1 Interest Income |
||||
| Loans and receivables - to banks | 36,175 | 68,735 | 36,175 | 68,735 |
| Loans and receivables - to other customers | 16,771,450 | 17,006,117 | 16,738,861 | 16,437,695 |
| Placements with banks | 139,101 | 683,723 | 147,687 | 686,785 |
| Financial assets - held-for-trading | 397,010 | 821,202 | 397,010 | 821,202 |
| Financial investments - held-to-maturity | 725,817 | 1,064,839 | 870,688 | 1,652,929 |
| Financial investments - Available-for-Sale | 890,669 | 53,649 | 890,669 | 53,649 |
| Financial investments - loans and receivables | 1,759,359 | 790,575 | 1,759,359 | 926,606 |
| Other interest income | 254,997 | 114,770 | 311,527 | 118,241 |
| Total Interest Income (a) | 20,974,578 | 20,603,610 | 21,151,976 | 20,765,842 |
5.2 Interest Income from Sri Lanka Government Securities |
||||
| Interest income | 3,397,890 | 3,346,578 | 3,397,890 | 3,346,578 |
5.3 Interest Income on Impaired Financial Assets |
||||
| Interest income on impaired loans and receivables to other customers | 217,067 | 147,702 | 217,067 | 147,702 |
5.4 Interest Expenses |
||||
| Due to banks | 204,532 | 260,403 | 216,832 | 312,341 |
| Due to other customers | 8,748,429 | 10,462,783 | 8,748,429 | 10,462,783 |
| Debt securities issued and other borrowed funds | 2,794,957 | 2,749,268 | 2,721,251 | 2,660,091 |
| Subordinated term debts | 1,552,059 | 319,049 | 1,552,059 | 319,049 |
| Total Interest Expenses (b) | 13,299,977 | 13,791,503 | 13,238,571 | 13,754,264 |
| Net Interest Income (a)-(b) | 7,674,601 | 6,812,107 | 7,913,405 | 7,011,578 |
In the ordinary course of business, the Bank and the Group issue 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 the initial recognition, the Bank’s and the Group’s liability under each guarantee is measured at the higher of the amount initially recognized less cumulative Amortization recognized in the Statement of Profit or Loss and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.
Any increase in the liability relating to financial guarantees is recorded in the Statement of Profit or Loss in ‘Fee and Commission Income’ on a straight-line basis over the lifetime of the guarantee.
Fees for underwriting, advisory work, loan syndication, management of funds and all other fees and commissions are recognized on an accrual basis.
The rental income is recognized on an accrual basis.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Cards | 74,322 | 75,860 | 74,322 | 75,860 |
| Due to other customers | 133,983 | 142,707 | 133,983 | 142,707 |
| Guarantees | 267,216 | 270,596 | 267,216 | 270,596 |
| Loans and receivables to other customers | 522,602 | 347,139 | 522,602 | 347,139 |
| Remittances | 195,189 | 173,329 | 195,189 | 173,329 |
| Trade finance | 567,054 | 543,888 | 567,054 | 543,888 |
| Bancassuarance | 64,622 | 44,638 | 64,622 | 44,638 |
| Fees related to investment banking and wealth management | – | – | 411,026 | 521,309 |
| Brokerage | – | – | 130,119 | 122,042 |
| Rental income | 10,040 | 9,160 | 143,529 | 133,709 |
| Others | 31,214 | 6,789 | 54,433 | 36,056 |
| Total | 1,866,242 | 1,614,106 | 2,564,095 | 2,411,273 |
Net gains/(losses) from trading represent income from foreign exchange and include gains and losses from spot and forward contracts and other currency derivatives.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Income from foreign exchange | ||||
| - With Banks | 591,484 | 648,588 | 591,484 | 648,588 |
| - With Customers | 318,543 | 304,737 | 318,543 | 304,737 |
| Total | 910,027 | 953,325 | 910,027 | 953,325 |
All gains and losses from changes in fair value and dividend income from investments ‘held-for-trading’ or as ‘Available-for-Sale’ are included under Net Gain/(Losses) from Financial Investments.
‘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 | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Equities | – | – | 108,502 | 877 |
| Debt Securities | 568,573 | 213,227 | 568,573 | 213,434 |
| Unit Trusts | 147,934 | 105,076 | 653,332 | 700,657 |
| Total | 716,507 | 318,303 | 1,330,407 | 914,968 |
Other Operating income includes capital gains/(losses), dividend income, foreign exchange gains, gains from property, plant & equipment and gains from investment properties.
Dividend income from group investments in subsidiary companies and associate companies and other investments in shares held for other than trading purposes, are recognized when the Bank’s and the Group’s right to receive the payment, is established.
Capital gains from the sale of securities and from the sale of group investments represent the difference between the sales proceeds from sale of such investments and the carrying value of such investments.
The change in exchange rate differences arising from the valuation of the retained profits held in foreign currency is included under ‘foreign exchange gains’.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Dividend income from securities | ||||
| - Quoted investments | 348 | – | 348 | 17,969 |
| - Non-quoted investments | 17,637 | 18,258 | 17,637 | 41,864 |
| Dividend income from group investments | ||||
| - Quoted investments | 275,767 | 659,136 | – | – |
| - Non-quoted investments | 46,200 | 41,067 | – | – |
| Capital gains from sales of securities | 7,500 | 9,685 | 7,500 | 43,194 |
| Capital gains from sale of group investments | 96,125 | 5,372,060 | – | – |
| Foreign exchange gains | 33,494 | 60,449 | 33,494 | 60,449 |
| Gains on sale of property, plant & equipment | 15,951 | 2,408 | 19,451 | 2,408 |
| Gains on investment properties | – | – | 162,000 | 88,000 |
| Others | 1,569 | 4,013 | 7,691 | 4,013 |
| Total | 494,591 | 6,167,076 | 248,121 | 257,897 |
The Bank and the Group recognize the changes in the impairment provisions for loans and receivables to banks and other customers, which are assessed as per the LKAS 39 - Financial Instruments: Recognition and Measurement. The methodology adopted by the Bank and the Group is explained in Note 25.5 to these Financial Statements. The Bank also makes provisions/write-backs for impairment of investments in subsidiary and associate companies and other financial assets when there is a permanent diminution in the carrying value of these investments.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Loans and receivables | ||||
| - To other customers | 464,839 | 1,184,420 | 464,839 | 1,184,420 |
| - Capital write-offs | 63,869 | 76,345 | 63,869 | 76,345 |
| 528,708 | 1,260,765 | 528,708 | 1,260,765 | |
| Investments in subsidiaries | 37,295 | 20,879 | – | – |
| Investments in associates | – | (43,442) | – | – |
| Total | 566,003 | 1,238,202 | 528,708 | 1,260,765 |
Personnel expenses include salaries and bonus, terminal benefit charges, share-based payments and other related expenses. The provisions for bonus is recognized when 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 on the amount of the obligation.
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 contribute 12% and 3% to Central Bank of Sri Lanka for eligible employees for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions respectively.
Contributions to defined benefit plans are recognized in the Statement of Profit or Loss based on an actuarial valuation carried out for the gratuity liability and the pension fund of the Bank in accordance with LKAS 19 - ‘Employee Benefits’.
Share-based payments represent the Bank’s cost on the Equity Linked Compensation Plan and the Employee Share Option Plan, which is more fully described in Note 43.2 and 46.4 to these Financial Statements.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Salary and bonus | 2,212,888 | 1,895,144 | 2,542,696 | 2,138,517 |
| Contribution to Employees’ Provident Fund | 187,917 | 164,154 | 200,146 | 181,132 |
| Contribution to Employees’ Trust Fund | 37,583 | 32,835 | 38,702 | 36,488 |
| Contribution to defined benefit plan | ||||
| - Pension Fund | 7,163 | 5,449 | 7,163 | 5,449 |
| - Gratuity (Note 40.1) | 44,101 | 40,990 | 53,487 | 42,370 |
| Share-based payments | 46,504 | 32,323 | 46,504 | 32,323 |
| Others | 336,582 | 218,249 | 283,689 | 224,002 |
| Total | 2,872,738 | 2,389,144 | 3,172,387 | 2,660,281 |
Operating expenses are recognized in the Statement of Profit or Loss 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 the Statement of Profit or Loss in arriving at the profit for the year.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Directors’ emoluments | 32,360 | 28,586 | 36,870 | 32,191 |
| Auditors’ remuneration | 8,388 | 8,019 | 10,872 | 10,008 |
| Non-audit fees to auditors | 6,262 | 18,176 | 6,262 | 18,176 |
| Professional and legal expenses | 58,571 | 33,295 | 72,051 | 42,716 |
| Office administration and establishment expenses | 1,000,622 | 938,032 | 1,176,810 | 999,135 |
| Depreciation of property, plant & equipment | 246,400 | 223,297 | 291,140 | 293,571 |
| Amortization of intangible assets | 77,190 | 78,807 | 94,050 | 91,068 |
| Deposit insurance expenses | 127,935 | 117,530 | 127,935 | 117,530 |
| Others | 878,726 | 1,109,317 | 922,238 | 1,299,199 |
| Total | 2,436,454 | 2,555,059 | 2,738,228 | 2,903,594 |
Directors, emoluments include fees paid to Non-Executive Directors. Remunerations paid to Executive Directors are included under salary and bonus in Note 11.
Taxes on Financial Services include Value Added Tax on Financial Services and Nation Building Tax. The base for the computation of Value Added Tax on Financial Services is the accounting profit before emoluments paid to employees and income tax, which is adjusted for the depreciation computed on the prescribed rates. The current regulatory tax rate is 12% (2013 - 12%).
The same base is also applied for the computation of the Nation Building Tax which was effective from 1 January 2014 and the regulatory tax rate is 2%.
| BANK & GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
||
| Value Added Tax on Financial Services | 882,444 | 910,500 | |
| National Building Tax on Financial Services | 146,806 | – | |
| Total | 1,029,250 | 910,500 | |
The Group’s share of profit/(loss) of an investment in an associate company which is recognized as per the equity method, is shown on the face of the Statement of Profit or Loss. This is the profit/(loss) attributable to equity holders of the associate company and, therefore, is profit/(loss) after tax and non-controlling interests in the subsidiaries of the associate.
| GROUP | |||
| Percentage Holding
2014/2013 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Maldives Finance Leasing Co. (Pvt) Ltd. (Note 31.1) | 35.00% | 97,274 | 49,220 |
| Total | 97,274 | 49,220 | |
As per the Sri Lanka Accounting Standard - LKAS 12 - ‘Income Taxes’, the tax expense/tax income is the aggregate amount included in determination of profits or loss for the year in respect of income tax and deferred tax. The tax expense/income is recorded in the Statement of Profit or Loss except to the extent it relates to items recognized directly in Equity or Statement of Comprehensive Income (OCI), in which case it is recognized in OCI.
The tax rates and laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. The regulatory income tax rate for the year was 28% (2013 - 28%).
The components of the income tax expense for the years ended 31 December 2014 and 2013 are:
| BANK | GROUP | ||||
| Note | 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Income tax expense | |||||
| Current year | 1,128,858 | 982,551 | 1,171,176 | 1,088,985 | |
| Adjustment in respect of current income tax of prior years | 83,708 | (128,223) | 72,265 | (128,223) | |
| a | 1,212,566 | 854,328 | 1,243,441 | 960,762 | |
| Deferred tax expense | |||||
| Temporary differences | b | 126,893 | 194,448 | 105,343 | 190,131 |
| Total tax charged to the Statement of Profit or Loss | 1,339,459 | 1,048,776 | 1,348,784 | 1,150,893 | |
| Effective tax rate (%) | 23 | 11 | 24 | 24 | |
| Reconciliation of the total tax expense | |||||
a. Income Tax |
|||||
| Profit before tax | 5,786,773 | 9,682,512 | 6,526,732 | 4,724,401 | |
| Income tax for the year (accounting profit @ applicable tax rate) | 1,620,260 | 2,711,103 | 1,838,144 | 1,318,486 | |
| Tax effect of exempt income | (446,132) | (1,881,884) | (661,795) | (392,927) | |
| Adjustment in respect of current income tax of the prior year | 83,708 | (128,223) | 72,265 | (127,691) | |
| Add: Tax effect of expenses that are not deductible for tax purposes |
1,138,532 | 1,210,519 | 1,180,876 | 1,235,509 | |
| (Less): Tax effect of expenses that are deductible for tax purposes | (1,186,083) | (1,049,995) | (1,198,531) | (1,065,423) | |
| Tax effect of leasing/tax losses | 2,281 | (7,192) | 12,482 | (7,192) | |
| Tax expenses for the year | 1,212,566 | 854,328 | 1,243,441 | 960,762 | |
Any company which derives income from secondary market transactions involving any security or treasury bonds or treasury bills on which the income tax has been deducted at the rate of 10% at the time of issue of such security, is entitled to a notional tax credit at 10% of the grossed up amount of net interest income from such secondary market transactions to an amount of one ninth of the same. Accordingly, the net interest income earned by the Bank from such transactions has been grossed up in the Financial Statements for the year ended 31 December 2014 and the notional tax credit amounts to LKR 293.8 million (2013 - LKR 224.5 million).
The following table shows the deferred tax expense recorded in the Statement of Profit or Loss and the Statement of Comprehensive Income due to the changes in the deferred tax assets and liabilities:
| Deferred Tax
Assets 2014 LKR ’000 |
Deferred Tax
Liabilities 2014 LKR ’000 |
Statement of
Profit or Loss 2014 LKR ’000 |
Statement of
Comprehensive Income 2014 LKR ’000 |
Deferred Tax
Assets 2013 LKR ’000 |
Deferred Tax
Liabilities 2013 LKR ’000 |
Statement of
Profit or Loss 2013 LKR ’000 |
Statement of
Comprehensive Income 2013 LKR ’000 |
|
| BANK | ||||||||
| Provisions | (6,455) | – | 34,988 | – | (41,443) | – | (34,452) | – |
| Revaluation of financial investments Available-for-Sale | – | 7,791 | – | (33,691) | – | 41,482 | – | 41,482 |
| Other temporary differences | (146,304) | 764,434 | 91,905 | 213,832 | (109,846) | 422,239 | 228,900 | (3,372) |
| Total | (152,759) | 772,225 | 126,893 | 180,141 | (151,289) | 463,721 | 194,448 | 38,110 |
| GROUP | ||||||||
| Provisions | (6,455) | – | 34,988 | – | (41,443) | – | (34,452) | – |
| Revaluation of financial investments Available-for-Sale | – | 24,881 | – | (33,691) | – | 58,572 | – | 58,572 |
| Other temporary differences | (176,234) | 767,742 | 70,355 | 213,832 | (116,749) | 424,071 | 224,583 | (3,372) |
| Total | (182,689) | 792,623 | 105,343 | 180,141 | (158,192) | 482,643 | 190,131 | 55,200 |
The Group presents Basic and Diluted Earnings per Share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting both the profit or loss attributable to the ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees as required by the Sri Lanka Accounting Standard No. 33 (LKAS 33) - ‘Earnings per Share’:
| GROUP | ||
| 2014 | 2013 | |
| Amount used as the numerator | ||
| Profit attributed to ordinary shareholders (LKR ’000) | 4,133,932 | 2,641,925 |
| Amount used as the denominator | ||
| Ordinary shares in issue for basic EPS calculation | 164,600,914 | 160,559,308 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for basic EPS calculation | 164,469,003 | 160,316,441 |
| Weighted average basic Earnings per Share (LKR) | 25.14 | 16.48 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for basic EPS calculation | 164,469,003 | 160,316,441 |
| Effect of outstanding share option schemes | 148,971 | 54,847 |
| Number of ordinary shares including share options | 164,617,974 | 160,371,288 |
| Weighted average number of ordinary shares as at the date of the Statement of Financial Position for diluted EPS calculation | 164,617,974 | 160,371,288 |
| Weighted average diluted Earnings per Share (LKR) | 25.11 | 16.47 |
The Board of Directors of the Bank has recommended the payment of a final dividend of LKR 4.00 per share for the year ended 31 December 2014.
| 2014
LKR |
2013
LKR |
|
| Dividend per share | 11.00 | 10.00 |
| Held-for-
Trading LKR ’000 |
Held-to-
Maturity LKR ’000 |
Loans and
Receivables LKR ’000 |
Available-
for-Sale LKR ’000 |
Total
LKR ’000 |
|
(a) Bank - Current Year (2014) |
|||||
| Assets | |||||
| Cash and cash equivalents | – | – | 3,104,391 | – | 3,104,391 |
| Balances with Central Bank | – | – | 6,740,590 | – | 6,740,590 |
| Placements with banks | – | – | 2,721,891 | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | – | – | 1,903,781 |
| Financial assets held-for-trading | 2,785,277 | – | – | – | 2,785,277 |
| Loans and receivables to banks | – | – | 311,144 | – | 311,144 |
| Loans and receivables to other customers | – | – | 175,175,203 | – | 175,175,203 |
| Financial investments - loans and receivables | – | – | 38,302,428 | – | 38,302,428 |
| Financial investments - Available-for-Sale | – | – | – | 17,060,302 | 17,060,302 |
| Financial investments - held-to-maturity | – | 8,970,963 | – | – | 8,970,963 |
| Other financial assets | – | – | 54,450 | – | 54,450 |
| Total Financial Assets | 4,689,058 | 8,970,963 | 226,410,097 | 17,060,302 | 257,130,420 |
| Held-for-
Trading LKR ’000 |
Amortized
Cost LKR ’000 |
Total
LKR ’000 |
|||
| Liabilities | |||||
| Due to banks | – | 7,029,342 | 7,029,342 | ||
| Derivative financial instruments | 663,186 | – | 663,186 | ||
| Due to other customers | – | 151,823,715 | 151,823,715 | ||
| Debt Securities issued and other borrowed funds | – | 61,955,460 | 61,955,460 | ||
| Subordinated term debts | – | 11,149,439 | 11,149,439 | ||
| Other financial liabilities | – | 2,423,677 | 2,423,677 | ||
| Total Financial Liabilities | 663,186 | 234,381,633 | 235,044,820 |
| Held-for-
Trading LKR ’000 |
Held-to-
Maturity LKR ’000 |
Loans and
Receivables LKR ’000 |
Available-
for-Sale LKR ’000 |
Total
LKR ’000 |
|
(b) Group - Current Year (2014) |
|||||
| Assets | |||||
| Cash and cash equivalents | – | – | 3,274,036 | – | 3,274,036 |
| Balances with Central Bank | – | – | 6,740,590 | – | 6,740,590 |
| Placements with banks | – | – | 2,721,891 | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | – | – | 1,903,781 |
| Financial assets held-for-trading | 6,028,558 | – | – | – | 6,028,558 |
| Loans and receivables to banks | – | – | 311,144 | – | 311,144 |
| Loans and receivables to other customers | – | – | 175,235,906 | – | 175,235,906 |
| Financial Investments - loans and receivables | – | – | 38,683,476 | – | 38,683,476 |
| Financial investments - Available-for-Sale | – | – | – | 18,057,852 | 18,057,852 |
| Financial investments - held-to-maturity | – | 10,167,325 | – | – | 10,167,325 |
| Other financial assets | – | – | 54,450 | – | 54,450 |
| Total Financial Assets | 7,932,339 | 10,167,325 | 227,021,493 | 18,057,852 | 263,179,009 |
| Held-for-
Trading LKR ’000 |
Amortized
Cost LKR ’000 |
Total
LKR ’000 |
|||
| Liabilities | |||||
| Due to banks | – | 7,029,342 | 7,029,342 | ||
| Derivative financial instruments | 663,186 | – | 663,186 | ||
| Due to other customers | – | 151,485,201 | 151,485,201 | ||
| Debt securities issued and other borrowed funds | – | 61,925,802 | 61,925,802 | ||
| Subordinated term debts | – | 11,149,439 | 11,149,439 | ||
| Other financial liabilities | – | 2,423,677 | 2,423,677 | ||
| Total Financial Liabilities | 663,186 | 234,013,461 | 234,676,647 |
| Held-for-
Trading LKR ’000 |
Held-to-
Maturity LKR ’000 |
Loans and
Receivables LKR ’000 |
Available-
for-Sale LKR ’000 |
Total
LKR ’000 |
|
(a) Bank - Previous 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 |
| 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 |
| Held-for-
Trading LKR ’000 |
Amortized
Cost 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 | ||
| Other financial liabilities | – | 701,912 | 701,912 | ||
| Total Financial Liabilities | 817,310 | 177,088,519 | 177,905,829 |
| Held-for-
Trading LKR ’000 |
Held-to-
Maturity LKR ’000 |
Loans and
Receivables LKR ’000 |
Available-
for-Sale LKR ’000 |
Total
LKR ’000 |
|
(b) Group - Previous 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 |
| 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 |
| Held-for-
Trading LKR ’000 |
Amortized
Cost 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 | – | 24,390,818 | 24,390,818 | ||
| Subordinated term debts | – | 11,682,674 | 11,682,674 | ||
| Other financial liabilities | – | 701,912 | 701,912 | ||
| Total Financial Liabilities | 817,310 | 176,650,303 | 177,467,613 |
Cash and cash equivalents for the purpose of reporting in the Statement of Financial Position, comprise of cash in hand and balances with banks. The cash in hand comprises of both local currency and foreign currency.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Local currency in hand | 1,775,925 | 1,737,799 | 1,776,011 | 1,794,986 |
| Foreign currency in hand | 68,510 | 125,169 | 68,518 | 125,169 |
| Balances with banks | 1,259,956 | 748,107 | 1,429,507 | 748,107 |
| Total | 3,104,391 | 2,611,075 | 3,274,036 | 2,668,262 |
The minimum cash reserve requirement was 6.0% of the Rupee deposit liabilities as at 31 December 2014 (6.0% as at 31 December 2013). 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 | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Statutory balances with Central Bank of Sri Lanka | 6,740,590 | 5,339,000 | 6,740,590 | 5,339,000 |
| Total | 6,740,590 | 5,339,000 | 6,740,590 | 5,339,000 |
Placements with Banks include short-term deposits placed in banks and are subjected to insignificant risk of changes in fair value, and are used by the Bank and the Group in the management of its short-term commitments. They are recorded in the Financial Statements at their face values or the gross values, where appropriate.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Money Market Placements - in Sri Lanka | 2,721,891 | 130,751 | 2,721,891 | 130,751 |
| Total | 2,721,891 | 130,751 | 2,721,891 | 130,751 |
Derivatives are financial instruments that derive their values in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, credit risk and indices. Derivatives are categorized as ‘trading’ unless they are designated as hedging instruments.
The Bank and the Group use derivatives such as currency SWAPs, forward foreign exchange contracts and currency options. Derivatives are recorded at fair value and recorded as assets when their fair value is positive and as liabilities when their fair value is negative. The derivatives are valued using valuation techniques which consider current market interest rates, forward interest rates and spot and forward exchange rates. Where the initially recognized fair value of a derivative contract is based on a valuation model that uses inputs that are not observable in the market, it follows the same initial recognition accounting policy as for other financial assets and liabilities.
The changes in the fair value of derivatives are included in ‘Net Gains/(Losses) from financial investments'.
It is assumed that the SWAP arrangement that the Bank has, with Central Bank of Sri Lanka, would be renewed annually.
All derivatives are initially recognized and subsequently measured at fair value with all revaluation gains recognized in the Statement of Profit or Loss (except where cash flow of the net investment hedging has been achieved in which case the effective portion of changes in fair value is recognized within Other Comprehensive Income).
The method of recognizing the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument and if so, the nature of the item being hedged. The Bank only has hedges of highly probable future cash flows attributable to a recognized asset or liability or a forecast transaction (cash flow hedge).
Hedge Accounting is used for derivatives designated in this way, provided certain criteria are met. At the inception, the Bank and the Group document the transaction, the relationship between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking various hedge transactions. The Bank and the Group also document their assessment, both at the inception of the hedge and on an ongoing basis, if the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The effective portion of the changes in the fair value of derivatives that are designated and qualify as cash flow hedging instruments is recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the Statement of Profit or Loss.
The amounts accumulated in Equity are reclassified to the Statement of Profit or Loss in the periods in which the hedged items, affect, Profit or Loss. When a hedging instrument is expired or is sold, or when a hedge no longer meets the criteria for hedge accounting. Any cumulative gain or loss existing in Equity at that time remains in Equity and is recognized when the forecast transaction is ultimately recognized in the Statement of Profit or Loss. When a forecast transaction is no longer expected to occur, the cumulative gains or losses that were reported in Equity are immediately transferred to the Statement of Profit or Loss.
The changes in the fair value of any derivative instrument which do not qualify for hedge accounting are recognized immediately in the Statement of Profit or Loss.
| BANK & GROUP | ||||
| Financial
Assets 2014 LKR ’000 |
Financial
Liabilities 2014 LKR ’000 |
Financial
Assets 2013 LKR ’000 |
Financial
Liabilities 2013 LKR ’000 |
|
| Currency options | 1,556 | 1,556 | 5,895 | 5,895 |
| Forward foreign exchange contracts | 908,197 | 609,153 | 1,143,646 | 811,415 |
| Currency SWAPs | 994,028 | 52,477 | – | – |
| Total | 1,903,781 | 663,186 | 1,149,541 | 817,310 |
The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts.
The notional amounts indicate the volume of transactions outstanding as at 31 December 2014 and are indicative of neither the market risk nor the credit risk.
| BANK & GROUP | |||||||
| As at 31 December
|
Assets
2014 LKR ’000 |
Liabilities 2014 LKR ’000 |
Notional
Amount 2014 LKR ’000 |
Assets 2013 LKR ’000 |
Liabilities 2013 LKR ’000 |
Notional
Amount 2013 LKR ’000 |
|
| Currency options | - Sales | – | 1,556 | 579,708 | – | 5,895 | 5,134,238 |
| - Purchases | 1,556 | – | 579,708 | 5,895 | – | 5,134,238 | |
| Forward foreign exchange contracts | - Sales | 782,496 | 78,599 | 83,183,409 | 976,108 | 119,739 | 79,844,817 |
| - Purchases | 125,701 | 530,554 | 83,573,782 | 167,538 | 691,676 | 80,102,293 | |
| Currency SWAPs | - Sales | – | – | – | – | – | – |
| - Purchases | 994,028 | 52,477 | 131,250 | – | – | – | |
| Total | 1,903,781 | 663,186 | 168,047,857 | 1,149,541 | 817,310 | 170,215,586 | |
The Bank raised USD 125 million on 16 April 2014 through foreign borrowings for a period of one year and 7 years, against which a SWAP arrangement has been entered into with the Central Bank of Sri Lanka for 75 percent of the borrowing value with the same maturity on 15 January 2021.
The Bank has also raised USD 75 million on 21 July 2014 through foreign borrowings for a period of seven years, against which a SWAP arrangement has been entered into with the Central Bank of Sri Lanka for 50 percent of the borrowing value with the same maturity on 15 July 2021.
As per Sri Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition & Measurement), the Bank has identified this particular transaction as a ‘Cash Flow Hedge’ after documenting the hedge relationship.
The objective of the hedge is to reduce the variability of the cash flows of a foreign currency denominated above mentioned borrowing (only the capital portion) attributable to changes in LKR/USD exchange rate.
A brief description of the hedge is give below:
| Details | Description of the Hedge | |
| Hedged instrument | SWAP contract | |
| Counterparty - Central Bank of Sri Lanka | ||
| Notional Amount - USD 93.75 million - 75 percent of the total hedge items. |
||
| Hedged item | 1 year USD denominated borrowing - USD 105 million with an option to roll over for a maximum 12 months period. Capital is repayable in full on 31 March 2015. |
|
| 7 year USD denominated borrowing - USD 20 million with a grace period of 5 years, repayment periods are as follows: |
||
| 15 July 2019 | USD 5 million | |
| 15 January 2020 | USD 5 million | |
| 15 July 2020 | USD 5 million | |
| 15 January 2021 | USD 5 million | |
| The periods when the cash flows are expected to occur | 16 April 2015 | |
| The amount recognized in Other Comprehensive Income during the year
|
LKR 299 million credit to the cash flow hedge reserve |
|
| Fair value of the Hedged item as at 31 December 2014 | LKR 16,487.5 million | |
| Fair value of the Hedged instrument as at 31 December 2014 | LKR 116.29 million | |
| Any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur | None | |
| The amount that was reclassified from equity to profit or loss as a reclassification adjustment | None | |
| Details | Description of the Hedge | |
| Hedged instrument | SWAP contract - Renewable every year | |
| Counterparty - Central Bank of Sri Lanka | ||
| Notional Amount - USD 37.5 million. 50 percent of the total hedge items. | ||
| Hedged item | 7 year USD denominated borrowing - USD 15 million with a grace period of 3.5 years. Repayment periods are as follows: |
|
| 15 January 2018 | USD 1.875 million | |
| 15 July 2018 | USD 1.875 million | |
| 15 January 2019 | USD 1.875 million | |
| 15 July 2019 | USD 1.875 million | |
| 15 January 2020 | USD 1.875 million | |
| 15 July 2020 | USD 1.875 million | |
| 15 January 2021 | USD 1.875 million | |
| 15 July 2021 | USD 1.875 million | |
| 7 year USD denominated borrowing - USD 60 million with a grace period of 5 years. Repayment periods are as follows: |
||
| 15 July 2019 | USD 15 million | |
| 15 January 2020 | USD 15 million | |
| 15 July 2020 | USD 15 million | |
| The periods when the cash flows are expected to occur | 15 January 2021 | USD 15 million |
| As given above | ||
| The amount recognized in Other Comprehensive Income during the year | LKR 98.8 million credit to the cash flow hedge reserve |
|
| Fair Value of the Hedged item as at 31 December 2014 | LKR 9,892.5 million | |
| Fair Value of the Hedged instrument as at 31 December 2014 | LKR 825.26 million | |
| Any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur |
None
|
|
| The amount that was reclassified from equity to profit or loss as a reclassification adjustment |
None | |
Total amount recognized in the Statement of Comprehensive Income relating to the currency SWAPs.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| SWAP Agreement 01 | 98,836 | – | 98,836 | – |
| SWAP Agreement 01 | 299,016 | – | 299,016 | – |
| Total | 397,852 | – | 397,852 | – |
The expected impact to the Statement of Profit or Loss on the Hedge is as follows:
| Less than One Year
LKR million |
More than One Year
LKR million |
|
| Forecast receivable cash flow | 17,265 | – |
| Forecast payable cash flow | (14,473) | (19,284) |
| 2,792 | (19,284) | |
Financial assets held-for-trading consist of quoted equity securities, Unit Trust Investments and Government Debt Securities, that have been acquired principally for the purpose of selling or repurchasing in the near term, and are recorded at fair values using assumptions that a market participant would make, when valuing such instruments. The quoted equity securities and the Unit Trust Investments 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 investments in Government Securities.
The changes in the fair value are recognized in ‘Net Gain/(Loss) from financial investments’. Dividend income is recorded in ‘Net Gain/(Loss) from financial investments’ according to the terms of the contract, or when the right to receive the payment has been established.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Sri Lanka Government Securities - Treasury Bills | 51,534 | 5,061,675 | 51,534 | 5,061,675 |
| Sri Lanka Government Securities - Treasury Bonds | 480,732 | 4,053,939 | 480,732 | 4,053,939 |
| Equity Securities | – | – | 713,868 | 336,293 |
| Investment in Unit Trusts | 2,253,011 | 1,605,075 | 4,782,424 | 4,742,234 |
| Total | 2,785,277 | 10,720,689 | 6,028,558 | 14,194,141 |
Financial assets held-for-trading pledged as collateral amounted to LKR 532 million as at 31 December 2014 (2013 - LKR 9,115 million).
Loans and receivables to Banks include refinance lending to other banks with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables to banks are subsequently measured at amortized cost using the EIR, less allowance for impairment. The Amortization is included in ‘interest income’ in the Statement of Profit or Loss. The losses arising from impairment are recognized in the Statement of Profit or Loss as ‘impairment for loans and receivables and other losses’.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Gross loans and receivables - Refinance loans in local currency | 311,144 | 641,628 | 311,144 | 641,628 |
| (Less): Allowance for impairment charges | – | – | – | – |
| Net loans and receivables - Refinance loans in local currency | 311,144 | 641,628 | 311,144 | 641,628 |
Loans and receivables to other customers include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:
After initial measurement, ‘loans and receivables to other customers' are subsequently measured at amortized cost using the EIR, less allowance for impairment. The Amortization is included in ‘interest income’ in the Statement of Profit or loss. The losses arising from impairment are recognized in the Statement of Profit or Loss as ‘impairment for loans and receivables and other losses’.
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.
Where possible, the Bank and the Group seek 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. The 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.
The Bank and the Group seek to use collateral, where possible, to mitigate their risks on loans and receivables to other customers. 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 Bank and the Group use active market data for valuing financial assets, held as collateral. Other financial assets which do not have a 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.
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 and Hire purchase rentals receivable in the Statement of Financial Position include total lease and hire purchase payments due net of unearned interest income not accrued to revenue and allowance for impairment.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Gross loans and receivables to other customers | 180,189,406 | 141,009,004 | 180,250,109 | 141,069,185 |
| (Less): Allowance for impairment charges for loans and receivables (Note 25.5) (a) | 5,014,203 | 4,187,472 | 5,014,203 | 4,187,472 |
| Net loans and receivables to other customers | 175,175,203 | 136,821,532 | 175,235,906 | 136,881,713 |
25.1 Loans and Receivables to Other Customers - By Product |
||||
| Long-term loans | 39,723,175 | 25,231,706 | 39,723,697 | 25,231,706 |
| Medium and short-term loans | 43,261,887 | 33,566,630 | 43,261,887 | 33,566,630 |
| Overdrafts | 24,275,911 | 18,459,862 | 24,259,447 | 18,443,398 |
| Trade finance loans | 34,177,923 | 32,776,432 | 34,177,923 | 32,776,432 |
| Consumer loans | 18,934,195 | 14,620,469 | 18,934,195 | 14,620,469 |
| Leasing and hire purchases (Note 25.6) | 11,612,539 | 8,428,409 | 11,612,539 | 8,428,409 |
| Housing loans | 6,403,174 | 4,764,297 | 6,403,174 | 4,764,297 |
| Pawning | 416,594 | 2,232,748 | 416,594 | 2,232,748 |
| Staff loans | 1,052,993 | 928,451 | 1,129,638 | 1,005,096 |
| Islamic loans | 331,015 | – | 331,015 | – |
| Total | 180,189,406 | 141,009,004 | 180,250,109 | 141,069,185 |
25.2 Loans and Receivables to Other Customers - By Currency |
||||
| Sri Lanka Rupee | 135,682,065 | 107,171,530 | 135,742,768 | 107,231,710 |
| United States Dollar | 43,330,879 | 32,632,514 | 43,330,879 | 32,632,514 |
| Sterling Pound | 5,213 | 264,378 | 5,213 | 264,378 |
| Euro | 1,146,721 | 918,679 | 1,146,721 | 918,679 |
| Australian Dollar | 1,798 | 1,921 | 1,798 | 1,921 |
| Others | 22,730 | 19,982 | 22,730 | 19,983 |
| Total | 180,189,406 | 141,009,004 | 180,250,109 | 141,069,185 |
| BANK | ||||
| 2014 | 2013 | |||
| LKR ’000 | % | LKR ’000 | % | |
25.3 Loans and Receivables to Other Customers - By Industry |
||||
| Food, beverages and tobacco | 7,352,472 | 4.1 | 6,147,979 | 4.4 |
| Agriculture, agro-business and fisheries | 25,825,680 | 14.3 | 23,822,627 | 16.9 |
| Textiles and garments | 18,576,296 | 10.3 | 15,762,846 | 11.2 |
| Wood and paper products | 1,712,788 | 1.0 | 1,411,804 | 1.0 |
| Leather and plastic products | 3,421,065 | 1.9 | 2,068,823 | 1.5 |
| Metals, chemicals and engineering | 9,951,950 | 5.5 | 10,464,249 | 7.4 |
| Hotels and tourism | 5,637,670 | 3.1 | 3,442,992 | 2.4 |
| Utilities | 9,707,923 | 5.4 | 4,968,585 | 3.5 |
| Constructions and housing finance | 18,950,619 | 10.5 | 11,500,264 | 8.2 |
| Services | 24,338,304 | 13.5 | 17,081,395 | 12.1 |
| Transport | 5,137,648 | 2.9 | 3,778,090 | 2.7 |
| Consumer | 33,568,891 | 18.6 | 24,792,450 | 17.6 |
| Trading | 15,958,787 | 8.9 | 15,725,082 | 11.2 |
| Others | 49,313 | 0.0 | 41,818 | 0.0 |
| Total | 180,189,406 | 100.0 | 141,009,004 | 100.0 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
25.4 Loans and Receivables to Other Customers - By Province |
||||
| Western Province | 157,093,779 | 124,579,550 | 157,154,482 | 124,639,731 |
| Southern Province | 4,985,666 | 3,632,923 | 4,985,666 | 3,632,923 |
| North-Western Province | 4,266,750 | 3,404,250 | 4,266,750 | 3,404,250 |
| Central Province | 4,372,669 | 2,932,843 | 4,372,669 | 2,932,843 |
| Northern Province | 3,151,333 | 906,496 | 3,151,333 | 906,496 |
| Sabaragamuwa Province | 2,741,651 | 2,113,614 | 2,741,651 | 2,113,614 |
| North-Central Province | 1,447,569 | 1,195,847 | 1,447,569 | 1,195,847 |
| Eastern Province | 1,022,989 | 1,515,788 | 1,022,989 | 1,515,788 |
| Uva Province | 1,107,000 | 727,693 | 1,107,000 | 727,693 |
| Total | 180,189,406 | 141,009,004 | 180,250,109 | 141,069,185 |
The province-wise disclosure is made based on the location of the branch from which the facilities have been disbursed.
The Bank and the Group assess at each Reporting date, whether there is any objective evidence that loans and receivables to other customers are impaired. Loans and receivables to other customers are 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 loans and receivables that can be reliably estimated.
The Bank and the Group review their individually-significant loans and receivables at each reporting date to assess whether an impairment loss should be recorded in the Statement of Profit or Loss. In particular, the 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 to other customers 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 a 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 into account 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 criteria used to determine that there is such objective evidence includes:
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the carrying amount of the asset 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 Statement of Profit or Loss. 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. Such interest income is recorded as part of ‘interest 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 credit risk characteristics such as asset type, industry, past-due status and other relevant factors.
Impairment is assessed on a collective basis in two circumstances:
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.
| 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 &
Hire Purchases LKR ’000 |
Housing
Loans LKR ’000 |
Pawning
LKR ’000 |
Staff
Loans LKR ’000 |
Total
LKR ’000 |
|
| As at 1 January 2014 | 803,478 | 913,571 | 1,231,378 | 620,062 | 359,588 | 84,441 | 36,698 | 128,688 | 9,568 | 4,187,472 |
| Charges/(reversals) for the year | 500,618 | 289,444 | 91,205 | (209,658) | 175,772 | 64,942 | (4,273) | (59,310) | 61 | 848,801 |
| Amounts written-off | – | – | (22,070) | – | – | – | – | – | – | (22,070) |
| As at 31 December 2014 | 1,304,096 | 1,203,015 | 1,300,513 | 410,404 | 535,360 | 149,383 | 32,425 | 69,378 | 9,629 | 5,014,203 |
| Individual impairment | 268,304 | 910,763 | 788,786 | 261,757 | – | 1,085 | – | 49,741 | 9,154 | 2,289,590 |
| Collective impairment | 1,035,792 | 292,252 | 511,727 | 148,647 | 535,360 | 148,298 | 32,425 | 19,637 | 475 | 2,724,613 |
| Total | 1,304,096 | 1,203,015 | 1,300,513 | 410,404 | 535,360 | 149,383 | 32,425 | 69,378 | 9,629 | 5,014,203 |
| Gross amount of loans individually determined to be impaired, before deduction of individually assessed impairment allowances | 3,222,626 | 6,341,040 | 1,880,602 | 5,849,401 | – | 191,551 | – | 179,955 | 9,154 | 17,674,329 |
| Gross amount of loans individually impaired, before deduction of individually assessed impairment allowances | 1,450,046 | 1,753,998 | 896,769 | 1,141,446 | – | 7,370 | – | 128,766 | 9,154 | 5,387,549 |
| Gross amount of loans individually impaired, after deduction of individually assessed impairment allowances | 1,181,742 | 843,235 | 107,983 | 879,689 | – | 6,285 | – | 79,025 | – | 3,097,959 |
| 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 &
Hire Purchases 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 | 359,588 | 81,208 | 36,698 | 118,554 | 440 | 2,359,407 |
| Total | 803,478 | 913,571 | 1,231,378 | 620,062 | 359,588 | 84,441 | 36,698 | 128,688 | 9,568 | 4,187,472 |
| Gross amount of loans individually determined to be impaired, before deduction of individually assessed impairment allowances | 2,356,833 | 2,635,835 | 1,049,859 | 1,780,766 | – | 178,814 | – | 14,886 | 9,128 | 8,026,121 |
| Gross amount of loans individually impaired, before deduction of individually assessed impairment allowances | 705,826 | 1,278,155 | 661,878 | 600,480 | – | 8,084 | – | 14,886 | 9,128 | 3,278,437 |
| Gross amount of loans individually impaired, after deduction of individually assessed impairment allowances | 511,517 | 560,410 | 108,942 | 259,900 | – | 4,851 | – | 4,752 | – | 1,450,372 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
25.5 (b) Movements in the Allowances for Individual and Collective Impairment Charges during the year for Loans and Receivables to Other Customers |
||||
| Individual Impairment | ||||
| As at 1 January | 1,828,065 | 979,186 | 1,828,065 | 979,186 |
| Charge/(reversals) to Statement of Profit or Loss | 461,525 | 1,179,935 | 461,525 | 1,179,935 |
| Write-off during the year | – | (331,056) | – | (331,056) |
| As at 31 December | 2,289,590 | 1,828,065 | 2,289,590 | 1,828,065 |
| Collective Impairment | ||||
| As at 1 January | 2,359,407 | 1,943,936 | 2,359,407 | 1,943,936 |
| Charge/(reversals) to Statement of Profit or Loss | 387,276 | 415,471 | 387,276 | 415,471 |
| Write-off during the year | (22,070) | – | (22,070) | – |
| As at 31 December | 2,724,613 | 2,359,407 | 2,724,613 | 2,359,407 |
| Total | 5,014,203 | 4,187,472 | 5,014,203 | 4,187,472 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
25.6 Leasing and Hire Purchases |
||||
| Gross lease and hire purchase rentals receivables | 14,671,685 | 10,468,941 | 14,671,685 | 10,468,941 |
| Less: Unearned income | 3,059,146 | 2,040,532 | 3,059,146 | 2,040,532 |
| Total lease and hire purchase rentals receivables | 11,612,539 | 8,428,409 | 11,612,539 | 8,428,409 |
| (Less): Allowance for impairment charges [Note 25.6.(a)] | 149,383 | 84,441 | 149,383 | 84,441 |
| Total | 11,463,156 | 8,343,968 | 11,463,156 | 8,343,968 |
| BANK & GROUP | ||
| 2014
LKR ’000 |
2013
LKR ’000 |
|
25.6 (a) Allowance for Impairment Charges |
||
| As at 1 January | 84,441 | 49,735 |
| Charges for the year | 64,942 | 34,706 |
| As at 31 December | 149,383 | 84,441 |
| Individual impairment | 1,085 | 3,233 |
| Collective impairment | 148,298 | 81,208 |
| Total | 149,383 | 84,441 |
| Gross amount of loans individually determined to be impaired, before deduction of the individually assessed impairment allowance | 191,551 | 178,814 |
| Gross amount of loans individually impaired, before deduction of the individually assessed impairment allowance | 7,370 | 8,084 |
| Gross amount of loans individually impaired, after deduction of the individually assessed impairment allowance | 6,285 | 4,851 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
25.6 (b) Movements in Individual and Collective Impairment Provision during the year for Lease & Hire Purchase Rentals Receivables |
||||
| Individual Impairment | ||||
| As at 1 January | 3,233 | – | 3,233 | – |
| Charge to Statement of Profit or Loss | (2,148) | 3,233 | (2,148) | 3,233 |
| As at 31 December | 1,085 | 3,233 | 1,085 | 3,233 |
| Collective Impairment | ||||
| As at 1 January | 81,208 | 49,735 | 81,208 | 49,735 |
| Charge/(write back) to Statement of Profit or Loss | 67,090 | 31,473 | 67,090 | 31,473 |
| As at 31 December | 148,298 | 81,208 | 148,298 | 81,208 |
| Total | 149,383 | 84,441 | 149,383 | 84,441 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
25.7(a) Gross Lease and Hire Purchase Rentals Receivables within One Year |
||||
| Total rental receivables | 602,767 | 412,692 | 602,767 | 412,692 |
| (Less): Allowance for impairment charges | (48,123) | (29,265) | (48,123) | (29,265) |
| Interest in suspense | (82,559) | (68,242) | (82,559) | (68,242) |
| Unearned income | (22,829) | (11,848) | (22,829) | (11,848) |
| Net rentals receivables within one year | 449,256 | 303,337 | 449,256 | 303,337 |
25.7(b) Gross Lease and Hire Purchase Rentals Receivables afte One Year |
||||
| Total rental receivables | 14,197,184 | 10,164,395 | 14,197,184 | 10,164,395 |
| (Less): Allowance for impairment charges | (101,260) | (55,176) | (101,260) | (55,176) |
| Interest in suspense | (45,707) | (39,904) | (45,707) | (39,904) |
| Unearned income | (3,036,317) | (2,028,684) | (3,036,317) | (2,028,684) |
| Net rentals receivables after one year | 11,013,900 | 8,040,631 | 11,013,900 | 8,040,631 |
| Total | 11,463,156 | 8,343,968 | 11,463,156 | 8,343,968 |
Financial investments - Loans and receivables include government securities, unquoted debt instruments and securities purchased under resale agreements and quoted debentures. After initial measurement, these are subsequently measured at amortized cost using the EIR, less provision for impairment. The Amortization is included in interest income in the Statement of Profit or Loss. The losses arising from impairment are recognized in the Statement of Profit or Loss in impairment charges for loans and other losses.
The Bank and the Group purchase a financial asset and simultaneously enter into an agreement to resell the asset (or similar asset) at a fixed price at a future date. The arrangement is accounted for as a financial asset in the Financial Statements of the Bank and the Group, reflecting the transactions economic substance as a loan granted by the Bank and the Group. Subsequent to initial recognition, these are measured at their amortized cost using the EIR method with the corresponding interest receivable being recognized in the Statement of Profit or Loss.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Sri Lanka Development Bonds | 13,662,172 | 10,781,368 | 13,662,172 | 10,781,369 |
| Redeemable cumulative preference shares | 69,421 | 136,262 | 69,421 | 136,262 |
| Securitizations | – | – | – | 91,698 |
| Quoted debentures | – | – | 381,048 | 854,943 |
| Securities purchased under resale agreements | 24,570,835 | 4,919,825 | 24,570,835 | 4,927,429 |
| Total | 38,302,428 | 15,837,455 | 38,683,476 | 16,791,701 |
There were no securities purchased under resale agreements which were pledged as collateral for borrowings under repurchase agreements as at 31 December 2014. (2013 - LKR 4,920 million).
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 Bank and the Group have 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 Statement of Profit or Loss in ‘net gain/(loss) from financial investments’. Where the Bank and the Group hold 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 Statement of Profit or Loss 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 Statement of Profit or Loss in ‘impairment for loans and receivables and other losses’ and is removed from the ‘Available-for-Sale Reserve’.
The Bank and the Group review their debt securities classified as Available-for-Sale investments to assess whether they are impaired by performing a counter party risk assessment at each Reporting date.
The Bank and the Group also record 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 and the Group identify facilities which have been impaired for more than six months and considers impairment adjustments if the impairment is more than 20% of the carrying value of the investment.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Sri Lanka Government Securities - Treasury Bills | 5,068,917 | 582,449 | 5,068,917 | 582,449 |
| Sri Lanka Government Securities - Treasury Bonds | 11,891,025 | 4,889,272 | 11,891,025 | 4,889,272 |
| Sovereign Bonds | – | 505,939 | – | 505,939 |
| Quoted ordinary shares | – | – | 812,550 | – |
| Non-quoted ordinary shares | 100,360 | 4,790 | 285,360 | 189,790 |
| Total | 17,060,302 | 5,982,450 | 18,057,852 | 6,167,450 |
Financial investments Available-for-Sale, pledged as collateral amounted to LKR 16,960 million as at 31 December 2014 (2013 - LKR 2,657 million).
The majority of non-quoted ordinary shares include share investments that have been made primarily for the regulatory purpose. Such investments are recorded at cost due to unavailability of information to value such investments at fair value.
Financial investments - held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Bank and the Group have the intention and ability to hold to maturity. After initial measurement, financial investments - held-to-maturity are subsequently recorded at amortized cost using the EIR, less impairment. The Amortization is included in ‘interest income’ in the Statement of Profit or Loss.
If the Bank and 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 and the Group would be prohibited from classifying any financial asset as held-to-maturity during the following two years.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Sri Lanka Government Securities - Treasury Bills | – | 5,620,318 | – | 5,620,318 |
| Sri Lanka Government Securities - Treasury Bonds | 7,052,992 | 10,379,471 | 7,052,992 | 10,379,471 |
| Debentures | 1,917,971 | 1,602,460 | 3,114,333 | 2,460,802 |
| Total | 8,970,963 | 17,602,249 | 10,167,325 | 18,460,591 |
Financial Investments held-to-maturity, pledged as collateral amounted to LKR 7,052 million as at 31 December 2014 (2013 - Nil).
Non-current assets and disposal groups (including both the assets and liabilities of the disposal groups) are classified as Investments - ‘held-for-sale’ when their carrying amounts will be recovered principally through sale, they are Available-for-Sale in their present condition and their sale is highly probable. Non-current assets held-for-sale and disposal groups are measured at the lower of their carrying amount and fair value less cost to sell, except for those assets and liabilities that are not within the scope of the measurement requirements of SLFRS 5 - ‘Non-current Assets Held-for-Sale and Discontinued Operations’ such as deferred taxes, financial instruments, investment properties, insurance contracts and assets and liabilities arising from employee benefits. These are measured in accordance with the accounting policies described above. Immediately before the initial classification as ‘held-for-sale’, the carrying amounts of the asset (or assets and liabilities in the disposal group) are measured in accordance with applicable SLFRSs. On subsequent remeasurement of a disposal group, the carrying amounts of the assets and liabilities noted above that are not within the scope of the measurement requirements of SLFRS 5 are remeasured in accordance with applicable SLFRSs before the fair value less costs to sell of the disposal group is determined.
Investments - Held-for-Sale includes the investment in NDB Venture Investment (Pvt) Ltd., an associate company, which is under liquidation. A special resolution has been passed by the Board of Directors of the Company to wind up the affairs voluntarily and appointed the liquidator, for the distribution of the assets during the year 2015. The amount shown in the Statement of Financial Position is the fair value of the investment which the Bank will receive at the disposal date an impairment provision has not been made as sufficient liquidity assets are available in the Financial Statements of the Company as at 31 December 2014.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| NDB Venture Investments (Pvt) Ltd. | 18,525 | – | 33,301 | – |
| Total | 18,525 | – | 33,301 | – |
Investments in subsidiaries are accounted at cost less impairment in the Financial Statements of the Bank. The net assets of each subsidiary company are reviewed at each Reporting date to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amount of the investment is estimated and the impairment loss is recognized to the extent of its net assets loss.
| Corporate Status | Percentage
Holding % |
2014
Cost LKR ’000 |
Percentage
Holding % |
2013
Cost LKR ’000 |
|
30.1 Bank |
|||||
| NDB Capital Holdings PLC | de-listed | 99.9 | 1,748,141 | 99.6 | 1,748,142 |
| Development Holdings (Pvt) Ltd. | Non-quoted | 58.7 | 228,150 | 58.7 | 228,150 |
| NDB Capital Ltd. | Non-quoted | 77.8 | 130,673 | 77.8 | 130,673 |
| Less: Allowance for impairment of investments (Note 30.2) | (106,674) | (69,380) | |||
| Total | 2,000,290 | 2,037,585 |
NDB Capital Holdings PLC was officially de-listed from the Colombo Stock Exchange on 26 January 2015. Accordingly the change in the name of the Company would come into effect upon the issuance of the new certificate of Incorporation from the Registrar of Companies.
| 2014
LKR ’000 |
2013
LKR ’000 |
|
30.2 Movement in the Allowance for Impairment of Investments |
||
| As at 1 January | 69,380 | 48,500 |
| Charge to Statement of Profit or Loss | 37,294 | 20,880 |
| As at 31 December | 106,674 | 69,380 |
| Total | NDB
Investment Bank Ltd. |
NDB Capital
Ltd. |
NDB Capital
Holdings PLC |
NDB Securities
(Pvt) Ltd. |
Development
Holdings (Pvt) Ltd. |
NDB Wealth
Management Ltd. |
|
| 2014 | |||||||
| Total assets | 10,082,798 | 564,784 | 47,917 | 6,167,361 | 516,325 | 2,215,899 | 570,512 |
| Total liabilities | 437,375 | 32,378 | 17,555 | 70,187 | 201,212 | 69,004 | 47,039 |
| Net assets | 9,645,423 | 532,406 | 30,362 | 6,097,174 | 315,113 | 2,146,895 | 523,473 |
| Gross income | 1,797,518 | 169,912 | 22,872 | 755,126 | 166,539 | 335,746 | 347,323 |
| Profits | 1,159,406 | 60,329 | (51,901) | 664,864 | 25,555 | 288,449 | 172,110 |
| 2013 | |||||||
| Total assets | 9,633,423 | 602,217 | 98,563 | 5,745,245 | 779,609 | 2,006,019 | 401,770 |
| Total liabilities | 759,964 | 107,017 | 16,992 | 46,403 | 489,151 | 59,994 | 40,407 |
| Net assets | 8,873,459 | 495,200 | 81,571 | 5,698,842 | 290,458 | 1,946,025 | 361,363 |
| Gross income | 1,802,517 | 376,290 | 58,666 | 784,331 | 107,744 | 256,211 | 219,275 |
| Profits | 1,151,031 | 176,671 | 6,279 | 681,216 | 6,764 | 193,484 | 86,617 |
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.
NDB Capital Holdings PLC entered into a shareholders’ agreement with NDB Zephyr Partners Ltd. on 15 December 2014 to invest LKR 49.61 million in 60% ordinary shares and 60% redeemable preference shares in NDB Zephyr Partners Ltd., a Management Company based in Mauritius, which manages Sri Lanka's largest country dedicated private equity fund. Accordingly, the equity investment took place on 2 January 2015.
The Group’s investments in its associate companies are 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 in 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 Statement of Profit or Loss 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 recognizes its share of any changes and discloses this, when applicable, in the Statement of Changes in Equity. Unrealized gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.
The Financial Statements of the associate companies 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 associate companies profits/(losses)’ in the Statement of Profit or Loss.
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 the Statement of Profit or Loss.
| Corporate Status | Percentage
Holding % |
2014
Cost LKR ’000 |
Percentage
Holding % |
2013
Cost LKR ’000 |
|
31.1 Bank |
|||||
| Maldives Finance Leasing Co. (Pvt) Ltd. | Non-quoted | – | – | 35 | 165,462 |
| NDB Venture Investments (Pvt) Ltd. | Under liquidation | – | – | 50 | 18,525 |
| Ayojana Fund (Pvt) Ltd. | Under liquidation | 50 | 100 | 50 | 100 |
| Less: Allowance for impairment of investments (Note 31.2) | (100) | (122,120) | |||
| Total | – | 61,967 |
The Board of Directors of the Bank, at its meeting held on 20 March 2014, approved the divestiture of its investment in 224,875 shares amounting to 35% of the shares in Maldives Finance Leasing Company (Pvt) Ltd. to Tree Top Investments (Pvt) Ltd., a company incorporated in the Republic of Maldives. Accordingly, the divestment took place during April 2014. The net realized gain by the Bank on the divestment amounted to LKR 96 million.
| 2014
LKR ’000 |
2013
Cost LKR ’000 |
|
31.2 Movement in the Allowance for Impairment of Investments |
||
| As at 1 January | 122,120 | 165,562 |
| Reversal to Statement of Profit or Loss | (122,120) | (43,442) |
| As at 31 December | – | 122,120 |
| Corporate Status | Percentage
Holding % |
As at
31.12.2014 LKR ’000 |
As at
31.12.2013 LKR ’000 |
|
31.3 Group |
||||
| Maldives Finance Leasing Co. (Pvt) Ltd. | Non-quoted | 35 | – | 43,443 |
| NDB Venture Investments (Pvt) Ltd. (under liquidation) | Non-quoted | 50 | – | 33,301 |
| Total | – | 76,744 |
| 2014
LKR ’000 |
2013
Cost LKR ’000 |
||||
31.4 Summarized Financial Information of the NDB Group’s Investments in its associate companies |
|||||
| Total assets | – | 397,232 | |||
| Total liabilities | – | 206,497 | |||
| Net assets | – | 190,724 | |||
| Gross income | – | 116,204 | |||
| Profits | – | 49,220 | |||
The Bank and the Group determine whether a property qualifies as an 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), the Bank and the Group account for the portions separately. If the portions cannot be sold separately, the property is accounted for as an investment property only if as an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. The Bank and the Group consider each property separately in making its judgment.
The Land and Building of Development Holdings (Pvt) Ltd., which is held to earn rental income and for capital appreciations have been classified as an ‘investment property’, and is reflected at fair value.
Investment properties are initially recognized at cost. Subsequent to the initial recognition, the investment properties are stated at fair values. The Bank and the Group engage an External Independent Valuer, having appropriate recognized professional qualifications and recent experience in the location and category of property being valued, to determine the fair value of land and building. In estimating the fair values, the Independent Valuer considers current market prices of similar assets, so as to reflect market conditions at the Reporting date. Gains or losses arising from changes in the fair values are included in the Statement of Profit or Loss, 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 Statement of Profit or Loss in the year of retirement or disposal.
| GROUP | ||
| 2014
LKR ’000 |
2013
LKR ’000 |
|
| As at 1 January | 1,383,693 | 1,295,693 |
| Change in the fair value during the year | 162,000 | 88,000 |
| As at 31 December | 1,545,693 | 1,383,693 |
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 SLFRS 13 - ‘Fair Value measurements’.
- Outgoing at 40% of estimated rent (2013 - 40%)
- Capitalize YP at 16% (2013 - 6.35%)
The intangible assets of the Bank and the Group include the value of computer software and software under development. 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 Bank and 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 the 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 and the useful life for the year ended 31 December 2014 and 2013 is 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 is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is included in the Statement of Profit or Loss in the year in which the asset is derecognized.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
33.1 Computer Software |
||||
| Cost/Valuation | ||||
| As at 1 January | 507,344 | 485,769 | 572,407 | 548,728 |
| Additions during the year | 67,330 | 23,330 | 92,138 | 25,573 |
| Disposals during the year | (4,129) | (1,755) | (5,844) | (1,894) |
| Transfers/adjustments | (5,539) | – | (5,539) | – |
| As at 31 December | 565,006 | 507,344 | 653,162 | 572,407 |
| Depreciation/Amortization | ||||
| As at 1 January | 292,128 | 213,455 | 320,938 | 230,004 |
| Charge for the year | 77,190 | 78,807 | 94,050 | 91,068 |
| Disposals during the year | (3,966) | – | (5,418) | – |
| Transfers/Adjustments | – | (134) | – | (134) |
| As at 31 December | 365,352 | 292,128 | 409,570 | 320,938 |
| Net book value as at 31 December (a) | 199,654 | 215,216 | 243,592 | 251,469 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
33.2 Software Under Development |
||||
| Cost/Valuation | ||||
| As at 1 January | 45,209 | – | 45,209 | – |
| Additions during the year | 63,621 | 48,285 | 63,621 | 48,285 |
| Transfers/Adjustments | (55,352) | (3,076) | (55,352) | (3,076) |
| As at 31 December (b) | 53,478 | 45,209 | 53,478 | 45,209 |
| Net book value of total intangible assets (a) + (b) | 253,132 | 260,425 | 297,070 | 296,678 |
The Bank and the Group reassessed their accounting policy for property, plant & equipment with respect to measurement of certain classes of property, plant & equipment after initial recognition. The Bank and Group have previously measured all property, plant & equipment using the ‘cost model’ as set out LKAS 16.30, whereby after initial recognition of the asset classified as property, plant & equipment, the asset was carried at cost less accumulated depreciation and accumulated impairment losses.
However, during the current year the Bank and the Group elected to change the method of accounting for freehold land and buildings classified under property, plant & equipment to the ‘revaluation model’, since the Bank and Group believe that the revaluation model, more effectively demonstrates the financial position of freehold land and buildings.
After the initial recognition, the Bank and the Group use the revaluation model, whereby, land and buildings will be measured at fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The Bank and the Group applied the exemptions in LKAS 8; ‘Accounting Policies and changes in Accounting Estimates and Errors’, which exempts this change in accounting policy from retrospective application and extensive disclosure requirements.
Property, plant & equipment are recognized, if it is probable that future economic benefits associated with the asset will flow to the Bank and the Group and the cost of the asset can be reliably measured.
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.
The Bank and the Group apply the ‘Cost Model’ to all property, plant & equipment other than freehold land and buildings and record at cost of purchase together with any incidental expenses thereon, less accumulated depreciation and any accumulated impairment losses.
The Bank and the Group adopted the revaluation model for the entire class of freehold land and buildings for measurement during the year 2014. Such properties are carried at revalued amounts, being their fair value at the reporting date, less any subsequent accumulated depreciation on land and buildings and any accumulated impairment losses charged subsequent to the date of the valuation.
Freehold land and buildings of the Bank and the Group are revalued every three years or more frequently if the fair values are substantially different from their carrying amounts to ensure that the carrying amounts do not differ from the fair values at the Reporting date.
The Bank and the Group engage an Independent Valuer to determine the fair value of freehold land and buildings. In estimating the fair values, the Independent Valuer considers current market prices of similar assets.
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 Bank and the Group and it can be reliably measured.
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 Statement of Profit or Loss in the year, the asset is derecognized.
Depreciation is calculated on a straight-line basis over the useful life of the assets, commencing from when the assets are available for use, since this method closely reflects the expected pattern of consumption of the future economic benefits embodied in the assets.
The Bank and the Group 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.
The estimated useful lives of the assets for the year ended 31 December 2014 and 2013, are as follows:
| Buildings/improvements | 20 years |
| Motor vehicles | 4 years |
| Furniture and office equipment | 5 years |
| Computer equipment | 5 years |
The depreciation rates are determined separately for each significant part of the assets and 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.
Depreciation methods, useful lives and residual values are reassessed at each reporting date and is adjusted, as appropriate.
Leasehold assets are amortized over the lower of the useful life and the lease period of the respective assets.
| 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 |
|
34.1 The Movement in Property, Plant & Equipment - Bank |
|||||||
(a) Cost or Valuation |
|||||||
| 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 |
| Additions during the year | – | 30,913 | 89,567 | 198 | 81,566 | 59,802 | 262,046 |
| Disposals during the year | – | (1,429) | (7,543) | (19,159) | (6,066) | – | (34,197) |
| Revaluation adjustment during the year | 266,484 | 817,701 | – | – | – | – | 1,084,185 |
| Transfers/adjustments | – | (301,216) | – | – | – | (44,173) | (345,389) |
| As at 31 December 2014 | 431,500 | 1,214,685 | 673,634 | 185,105 | 607,464 | 19,052 | 3,131,440 |
(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 |
| Charge for the year | – | 57,361 | 80,525 | 39,896 | 68,618 | – | 246,400 |
| On disposals | – | (605) | (7,526) | (19,159) | (5,855) | – | (33,145) |
| Transfers/adjustments | – | (301,216) | – | – | – | – | (301,216) |
| As at 31 December 2014 | – | 202,650 | 458,347 | 126,812 | 416,135 | – | 1,203,944 |
| Net book value as at 31 December 2014 | 431,500 | 1,012,035 | 215,287 | 58,293 | 191,329 | 19,052 | 1,927,496 |
| Net book value as at 31 December 2013 | 165,016 | 221,606 | 206,262 | 97,991 | 178,592 | 3,423 | 872,890 |
| 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 |
34.2 Freehold Land and Buildings |
||||||||
| Head Office - Dharmapala Mawatha
No. 103A, Dharmapala Mawatha, Colombo 7 |
20.00 | 420,000 | 41,143 | 320,166 | 740,166 | 2,583 | 737,583 | 54.1 |
| Head Office - Navam Mawatha
No. 40, Navam Mawatha, Colombo 02 |
1.43 | 11,500 | 95,343 | 621,981 | 633,481 | 6,522 | 626,959 | 45.9 |
| 21.43 | 431,500 | 136,486 | 942,147 | 1,373,647 | 9,105 | 1,364,542 | 100.0 | |
| Add: Improvement to buildings of the Bank branches | 272,538 | 193,545 | 78,993 | |||||
| Net book value as at 31 December 2014 | 1,646,185 | 202,650 | 1,443,535 | |||||
The carrying amount of Bank’s revalued freehold land and buildings that would have been included in the Financial Statements and the assets being carried at cost less depreciation is as follows:
| Location | Cost
2014 LKR ’000 |
Accumulated
Depreciation 2014 LKR ’000 |
Net Book
Value 2014 LKR ’000 |
Cost
2013 LKR ’000 |
Accumulated
Depreciation 2013 LKR ’000 |
Net Book
Value 2013 LKR ’000 |
| Class of assets | ||||||
| Freehold land | 165,016 | – | 165,016 | 165,016 | – | 165,016 |
| Freehold buildings | 698,200 | 500,887 | 197,313 | 668,716 | 447,110 | 221,606 |
| Total | 863,216 | 500,887 | 362,329 | 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 |
|
34.4 The Movement in Property, Plant & Equipment - Group |
|||||||
(a) Cost or Valuation |
|||||||
| As at 1 January 2013 | 165,016 | 923,053 | 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 | 165,016 | 973,216 | 638,199 | 265,330 | 669,675 | 3,423 | 2,714,859 |
| Additions during the year | – | 30,913 | 98,210 | 41,424 | 93,768 | 59,802 | 324,117 |
| Disposals during the year | (1,429) | (10,816) | (19,159) | (4,506) | – | (35,910) | |
| Revaluation adjustment during the year | 266,484 | 817,701 | – | – | – | – | 1,084,185 |
| Transfers/adjustments | – | (301,216) | – | – | – | (44,173) | (345,389) |
| As at 31 December 2014 | 431,500 | 1,519,185 | 725,593 | 287,595 | 758,937 | 19,052 | 3,741,862 |
(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 |
| Charge for the year | – | 77,586 | 86,019 | 51,965 | 75,570 | – | 291,140 |
| On disposals | (605) | (10,731) | (20,339) | (7,402) | – | (39,077) | |
| Disposals during the year | (301,216) | – | – | – | – | (301,216) | |
| As at 31 December 2014 | – | 223,058 | 499,576 | 176,405 | 590,176 | – | 1,489,215 |
| Net book value as at 31 December 2014 | 431,500 | 1,296,127 | 226,017 | 111,190 | 168,761 | 19,052 | 2,252,647 |
| Net book value as at 31 December 2013 | 165,016 | 525,923 | 213,911 | 120,551 | 147,667 | 3,423 | 1,176,491 |
The initial cost of fully depreciated property, plant & equipment as at 31 December 2014, which are still in use as at 31 December 2014 are as follows:
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Computer equipment | 247,999 | 209,304 | 278,814 | 218,254 |
| Buildings | 119,357 | 195,573 | 119,550 | 208,073 |
| Motor vehicles | 37,050 | 33,758 | 45,882 | 33,758 |
| Office equipment and furniture | 256,062 | 224,556 | 353,140 | 232,081 |
| Total | 660,468 | 663,191 | 797,386 | 692,166 |
The Bank and the Group classify all their other assets as ‘other financial assets’ and ‘other non-financial assets’. Other assets mainly comprises of deposits and prepayments, unamortized staff costs and sundry receivables. Deposits are carried at historical cost less provision for impairment. Prepayments are amortized during the period in which they are utilized and are carried at historical less provision for impairment.
As all staff loans granted at below market interest rates, are recognized at fair value, the difference between the fair value and the amount disbursed was treated as day 1 difference. The Day 1 difference is classified as ‘unamortized staff cost’ and is amortized over the loan period by using the EIR. The staff loans are subsequently measured at amortized costs.
Other financial assets and other non-financial assets included under other assets are summarised below:
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Other financial assets (Note 35.1) | 54,450 | – | 54,450 | – |
| Other non-financial assets (Note 35.2) | 1,399,283 | 1,189,391 | 1,821,885 | 1,458,737 |
| Total | 1,453,733 | 1,189,391 | 1,876,335 | 1,458,737 |
35.1 Other Financial Assets |
||||
| Investment control account | 54,450 | – | 54,450 | – |
| 54,450 | – | 54,450 | – | |
35.2 Other Non-Financial Assets |
||||
| Sundry receivables | 635,310 | 333,160 | 994,923 | 591,602 |
| Deposits and prepayments | 232,286 | 244,312 | 273,269 | 301,886 |
| Unamortized staff cost (Note 35.3) | 529,883 | 541,525 | 551,889 | 565,249 |
| Employees Share Ownership Plan (Note 35.4) | – | 68,747 | – | – |
| Others | 1,804 | 1,647 | 1,804 | – |
| Total | 1,399,283 | 1,189,391 | 1,821,885 | 1,458,737 |
35.3 Unamortized Staff Cost |
||||
| As at 1 January 2014 | 541,525 | 445,842 | 565,249 | 466,562 |
| Add: Adjustment for new grants and settlements | 66,059 | 168,728 | 68,757 | 178,290 |
| Charged to personnel expenses | (77,701) | (73,045) | (82,117) | (79,603) |
| As at 31 December 2014 | 529,883 | 541,525 | 551,889 | 565,249 |
The Colombo Stock Exchange (CSE), by Listing Rule 5.6 amended the rules relating to Employee Share Option Schemes (ESOS) and Employee Share Purchase Schemes (ESPS), by mandating that such schemes should result in the shares being offered to eligible employees for ‘purchase’ or ‘subscription’ in the case of ESOS and ‘acquisition’ in the case of ESPS, specifically prohibiting open ended schemes. In compliance with this ruling and the Transitional Provisions thereto, the Board of Directors of National Development Bank PLC (Bank) approved the dissolution of the NDB Employee Share Option Plan (ESOP) and the distribution of the ESOP shares amounting to 4,133,726 to the eligible employees of the Bank. Accordingly the unamortized cost on the ESOP has been charged to the Statement of Profit or Loss.
Due to banks include call money borrowings and credit balances in Nostro accounts. Subsequent to initial recognition, these are measured at their amortized cost using the EIR method. Interest paid/payable on these dues are recognized in the Statement of Profit or Loss under ‘Interest Expenses’.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Borrowings from local banks | 6,498,487 | 9,053,574 | 6,498,487 | 9,053,574 |
| Due to foreign banks | 530,855 | 1,399,512 | 530,855 | 1,399,512 |
| Total | 7,029,342 | 10,453,086 | 7,029,342 | 10,453,086 |
36.1 Due to Banks - By Currency |
||||
| Local currency | 3,450,598 | 505,918 | 3,450,598 | 505,918 |
| Foreign currency | 3,578,744 | 9,947,168 | 3,578,744 | 9,947,168 |
| Total | 7,029,342 | 10,453,086 | 7,029,342 | 10,453,086 |
Due to other customers include non-interest bearing deposits, savings deposits, term deposits, margins and other deposits. Subsequent to initial recognition, deposits are measured at their amortized cost using the EIR method. Interest paid/payable on deposits are recognized in the Statement of Profit or Loss under ‘Interest Expenses’.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
37.1 Due to Other Customers - By Products |
||||
| Savings deposits | 24,056,643 | 20,737,295 | 24,056,642 | 20,737,295 |
| Time deposits | 115,167,079 | 97,457,473 | 114,866,084 | 97,100,708 |
| Demand deposits | 12,291,825 | 11,099,605 | 12,254,307 | 11,048,154 |
| Margins | 237,751 | 489,251 | 237,751 | 489,251 |
| Other deposits | 70,417 | 46,405 | 70,417 | 46,405 |
| Total | 151,823,715 | 129,830,029 | 151,485,201 | 129,421,813 |
| BANK | GROUP | |||||||
| 2014
LKR ’000 |
% | 2013
LKR ’000 |
% | 2014
LKR ’000 |
% | 2013
LKR ’000 |
% | |
37.2 Due to Other Customers - By Currency |
||||||||
Local Currency Deposits |
||||||||
| Savings deposits | 18,291,268 | 12 | 14,419,607 | 11 | 18,291,268 | 12 | 14,419,607 | 11 |
| Time deposits | 86,689,126 | 57 | 76,149,198 | 59 | 86,388,131 | 57 | 75,792,434 | 59 |
| Demand deposits | 10,073,086 | 7 | 9,081,419 | 7 | 10,035,568 | 7 | 9,029,968 | 7 |
| Margins | 181,050 | – | 462,539 | – | 181,050 | – | 462,539 | – |
| Other deposits | 29,031 | – | 16,681 | – | 29,030 | – | 16,680 | – |
| Sub total | 115,263,561 | 76 | 100,129,444 | 77 | 114,925,047 | 76 | 99,721,228 | 77 |
Foreign Currency Deposits |
||||||||
| Savings deposits | 5,765,375 | 4 | 6,317,688 | 5 | 5,765,375 | 4 | 6,317,688 | 5 |
| Time deposits | 28,477,953 | 19 | 21,308,275 | 16 | 28,477,953 | 19 | 21,308,275 | 16 |
| Demand deposits | 2,218,739 | 1 | 2,018,186 | 2 | 2,218,739 | 1 | 2,018,186 | 2 |
| Margins | 56,701 | – | 26,712 | – | 56,701 | – | 26,712 | – |
| Other deposits | 41,386 | – | 29,724 | – | 41,386 | – | 29,724 | – |
| Sub total | 36,560,154 | 24 | 29,700,585 | 23 | 36,560,154 | 24 | 29,700,585 | 23 |
| Total | 151,823,715 | 100 | 129,830,029 | 100 | 151,485,201 | 100 | 129,421,813 | 100 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
37.3 Due to Other Customers - By Province |
||||
| Western Province | 137,661,581 | 118,274,186 | 137,323,068 | 117,865,969 |
| North-Western Province | 3,400,871 | 2,819,643 | 3,400,871 | 2,819,644 |
| Southern Province | 2,681,806 | 2,104,254 | 2,681,806 | 2,104,254 |
| Central Province | 2,683,919 | 2,374,189 | 2,683,919 | 2,374,189 |
| Sabaragamuwa Province | 2,596,387 | 1,926,321 | 2,596,387 | 1,926,321 |
| Eastern Province | 671,416 | 617,021 | 671,416 | 617,021 |
| Northern Province | 850,963 | 657,371 | 850,963 | 657,371 |
| North-Central Province | 524,847 | 544,081 | 524,847 | 544,081 |
| Uva Province | 751,925 | 512,963 | 751,924 | 512,963 |
| Total | 151,823,715 | 129,830,029 | 151,485,201 | 129,421,813 |
Debt Securities issued and other borrowed funds represent the funds borrowed by the Bank and the Group for long-term and short-term liquidity funding requirements and include borrowings from concessionary credit lines, institutional borrowings, securities sold under repurchase agreements and non-quoted debentures. Subsequent to initial recognition, these are measured at their amortized cost using the EIR method. Interest paid/payable on debt securities and borrowed funds are recognized in the Statement of Profit or Loss, under ‘Interest Expenses’.
The Bank and the Group sell a financial asset and simultaneously enter into an agreement to repurchase the asset (or similar asset) at a fixed price at a future date. Such an arrangement is accounted for as a financial liability and the underlying asset continues to be recognized in the Financial Statements of the Bank and the Group, as the Bank and the Group retain substantially all risks and rewards of ownership. Subsequent to initial recognition, these are measured at their amortized cost using the EIR method with the corresponding interest paid/payable being recognized in the Statement of Profit or Loss, under ‘Interest Expenses’.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Concessionary credit lines | 2,343,544 | 3,553,877 | 2,343,544 | 3,553,877 |
| Refinance borrowings | 3,398,459 | 3,460,599 | 3,398,459 | 3,460,599 |
| Foreign borrowings | 31,155,496 | 5,207,343 | 31,155,496 | 5,207,343 |
| Securities sold under repurchase agreements | 24,630,586 | 11,771,598 | 24,630,928 | 11,771,598 |
| Local borrowings | 27,290 | 27,290 | 27,290 | 27,290 |
| Non-quoted debentures - (Note 38.1) | 400,085 | 400,111 | 370,085 | 370,111 |
| Total | 61,955,460 | 24,420,818 | 61,925,802 | 24,390,818 |
Non-quoted debentures consist of 400,000 unlisted unsecured redeemable debentures of LKR 1,000/- each issued by the Bank in 2011 of which details are given below:
| BANK | GROUP | ||||||
| Interest Payable
Frequency |
Issue
Date |
Maturity
Date |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
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 | 200,085 | 200,111 | 170,085 | 170,111 |
| 400,085 | 400,111 | 370,085 | 370,111 | ||||
The maturity of the non-quoted debentures are given below:
| Due within one year | 85 | 111 | 85 | 111 | |||
| Due after one year | 400,000 | 400,000 | 370,000 | 370,000 | |||
| Total | 400,085 | 400,111 | 370,085 | 370,111 |
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:
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:
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.
The carrying amount of deferred tax assets is reviewed at each reporting 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 reporting 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 for 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.
| BANK | GROUP | |||
| Reconciliation of Net Deferred Tax Liability | 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
| Deferred Tax Liabilities | ||||
| Accelerated depreciation for tax purposes | 80,670 | 71,502 | 83,977 | 73,334 |
| Revaluation of surplus on freehold buildings | 230,729 | – | 230,729 | – |
| Finance leases | 453,037 | 350,737 | 453,037 | 350,737 |
| Gains on financial investments - Available-for-Sale | 7,791 | 41,482 | 24,881 | 58,572 |
| Total | 772,227 | 463,721 | 792,624 | 482,643 |
| Deferred Tax Assets | ||||
| Defined benefit plans | 69,273 | 47,603 | 76,577 | 46,915 |
| Carry forward loss on leasing business | 64,929 | 62,243 | 64,929 | 62,243 |
| Loss on other operations | – | – | 22,625 | 7,591 |
| Deferred expenses to be claimed in income tax liability of future years | 12,103 | – | 12,103 | – |
| Allowance for impairment charges | 6,455 | 41,443 | 6,455 | 41,443 |
| Total | 152,760 | 151,289 | 182,689 | 158,192 |
| Net deferred Tax Liability | 619,467 | 312,432 | 609,935 | 324,451 |
| Statement of Profit or Loss | Statement of Comprehensive Income | |||||||
| BANK | GROUP | BANK | GROUP | |||||
| Deferred tax charge to the statement of Profit or Loss and the statement of Comprehensive Income |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
| Deferred tax charge to the Statement of Profit or Loss and the Statement of Comprehensive Income | ||||||||
| Deferred Tax Liabilities | ||||||||
| Accelerated depreciation for tax purposes | 9,167 | 14,489 | 10,643 | 15,999 | – | – | – | – |
| Revaluation of buildings at fair value | – | – | – | – | 230,729 | – | 230,729 | |
| Finance leases | 102,298 | 112,169 | 102,298 | 112,169 | – | – | – | – |
| Gains on financial investments - Available-for-Sale | – | – | – | – | (33,691) | 41,482 | (33,691) | 58,572 |
| Total | 111,465 | 126,658 | 112,941 | 128,168 | 197,038 | 41,482 | 197,038 | 58,572 |
| Deferred Tax Assets | ||||||||
| Defined benefit plans | (4,772) | (10,017) | (12,765) | (8,253) | (16,897) | (3,372) | (16,897) | (3,372) |
| Carry forward loss on leasing business | (2,686) | 42,026 | (2,686) | 42,026 | – | – | – | – |
| Loss on other operations | – | 70,233 | (15,034) | 62,642 | – | – | – | – |
| Deferred expenses to be claimed in income tax liability of future years | (12,103) | – | (12,103) | – | – | – | – | – |
| Provision for impairment losses | 34,988 | (34,452) | 34,988 | (34,452) | – | – | – | – |
| Total | 15,427 | 67,790 | (7,600) | 61,963 | (16,897) | (3,372) | (16,897) | (3,372) |
| Net impact | 126,892 | 194,448 | 105,341 | 190,131 | 180,141 | 38,110 | 180,141 | 55,200 |
Employee benefit liabilities include the provisions made for retirement gratuity and pension fund.
The costs of retirement gratuities are determined by a qualified actuary using projected unit credit method. Actuarial gains and losses are recognized as income or expense in the Statement of Comprehensive Income during the financial year in which it arose.
The Bank operates an approved employee non-contributory pension fund 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. Up to 31 December 2002, annual contributions to the pension fund 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 carried out each year.
The cost of the defined benefit plans (retirement gratuity and pension fund) 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 is given in Note 40.1 (b) and 40.2 (b).
In determining the appropriate discount rate, the 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 are based on expected future inflation rates and the Bank’s and the Group’s policy on salary revisions.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
40.1 Provision for Retirement Gratuity |
||||
| As at 1 January | 170,008 | 122,191 | 214,830 | 165,633 |
| Provision made during the year | ||||
| Statement of Profit or Loss [Note 40.1 (a)] | 44,101 | 40,990 | 53,487 | 42,370 |
| Statement of Comprehensive Income [Note 40.1 (a)] | 60,348 | 12,042 | 60,348 | 12,042 |
| Contribution made for retirement gratuity | 104,449 | 53,032 | 113,835 | 54,412 |
| Benefits paid by the plan | (27,446) | (5,215) | (27,446) | (5,215) |
| As at 31 December | 247,011 | 170,008 | 301,219 | 214,830 |
40.1 (a) Contribution Made for Retirement Gratuity |
||||
| Current service cost | 25,400 | 23,246 | 25,400 | 23,246 |
| Interest cost | 18,701 | 17,744 | 28,087 | 19,124 |
| Amount recognised in the Statement of Profit or Loss | 44,101 | 40,990 | 53,487 | 42,370 |
| Recognition of transitional liability/(asset) | 38,540 | 25,672 | 38,540 | 25,672 |
| Liability experience loss/(gain) | 21,808 | 3,942 | 21,808 | 3,942 |
| Liability loss/(gain) due to changes in assumptions | – | (17,572) | – | (17,572) |
| Amount recognised in the Statement of Comprehensive Income | 60,348 | 12,042 | 60,348 | 12,042 |
An actuarial valuation of the retirement gratuity liability was carried out as at 31 December 2014 and 31 December 2013 by Messrs Piyal S Goonetilleke and associates, a professional actuary.
The valuation method used by the Actuary to value the Liability is the ‘Projected Unit Credit Actuarial Cost Method’, recommended by LKAS 19 - ‘Employee Benefits’.
| 31 December 2014 | 31 December 2013 | |
Actuarial Assumptions |
||
| Discount rate | 9% | 11% |
| Salary increment rate | 7% | 8% |
| Mortality | UP 1984 | UP 1984 |
| Mortality Table | Mortality Table | |
| Retirement age | Normal retirement age or age on valuation date, if greater | Normal retirement age or age on valuation date, if greater |
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 Statement of Profit or Loss and the 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 | |||||
| 2014 | 2013 | ||||
| Increase/(Decrease)
in Discount Rate |
Increase/(Decrease)
in Salary Increment Rate |
Sensitivity Effect on the
Statement of Profit or Loss Increase/(Reduction) in Results for the year LKR million |
Sensitivity Effect
on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR million |
Sensitivity Effect on
Statement of profit or loss Increase/(Reduction) in results for the year LKR million |
Sensitivity Effect
on Employment Benefit obligation Increase/(Decrease) in the Liability LKR million |
| 1% | 21.79 | (21.79) | 15.47 | (15.47) | |
| (-1%) | (25.27) | 25.27 | (17.93) | 17.93 | |
| 1% | (24.78) | 24.78 | (17.75) | 17.75 | |
| (-1%) | 21.76 | (21.76) | 15.58 | (15.58) | |
| 2014
LKR ’000 |
2013
LKR ’000 |
|
| Within the next 12 months | 18,052 | 15,108 |
| Between 2 and 5 years | 176,414 | 132,492 |
| Beyond 5 years | 325,703 | 278,448 |
The expected benefits are estimated based on the same assumptions used to measure the benefit obligation of the Bank 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 (2013 - 12.5 years).
The amount recognized in the Statement of Financial Position is as follows:
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Present value of funded obligation as at 31 December | 604,818 | 533,685 | 604,818 | 533,685 |
| Fair value of plan assets as at 31 December | (670,398) | (634,172) | (670,398) | (634,172) |
| Retirement Benefit (Asset)/Liability* | (65,580) | (100,487) | (65,580) | (100,487) |
* The over payment is recognized as pre-paid expenses in Other Assets.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
40.2 (a) Contribution made to the Pension Fund |
||||
| Current service cost | 18,753 | 18,233 | 18,753 | 18,233 |
| Interest cost | (11,590) | (12,784) | (11,590) | (12,784) |
| Amount recognized in the Statement of Profit or Loss | 7,163 | 5,449 | 7,163 | 5,449 |
| Assets loss/(gain) arising during the year | 23,508 | 5928 | 23,508 | 5,928 |
| Liability experience loss | 10,612 | 6,313 | 10,612 | 6,313 |
| Liability loss/(gain) due to changes in assumptions | 16,751 | 11,160 | 16,751 | 11,160 |
| Difference between the return on plan assets | (6,391) | – | (6,391) | – |
| Effect of net assets recognition in the pension fund | 34,907 | – | 34,907 | – |
| Amount recognised in the Statement of comprehensive Income | 79,387 | 23,401 | 79,387 | 23,401 |
An actuarial valuation of the Pension Fund was carried out as at 31 December 2014 and 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’.
| 2014 | 2013 | |
| Actuarial Assumptions | ||
| Discount rate | 10% | 11% |
| Salary increment | 6% | 8% |
| Annual return on assets rate | 7% | 10% |
| Mortality | UP 1984 | UP 1984 |
| Mortality Table | Mortality Table | |
| Retirement age | Normal retirement age | Normal retirement age |
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 Statement of Profit or Loss and Statement of Financial Position is the effect of the assumed changes in discount rate and salary increment rate and the life expectancy on the profit or loss and employment benefit obligation for the year.
| BANK | |||||
| 2014 | 2013 | ||||
| Increase/(Decrease)
in Discount Rate |
Increase/(Decrease)
in Salary Increment Rate |
Sensitivity Effect on
Statement of profit or loss Increase/(Reduction) in Results for the Year LKR million |
Sensitivity Effect
on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR million |
Sensitivity Effect on
Statement of Profit or Loss Increase/(Reduction) in Results for the Year LKR million |
Sensitivity Effect
on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR million |
| 1% | 54.73 | (54.73) | 47.87 | (47.87) | |
| (-1%) | (64.26) | 64.26 | (56.13) | 56.13 | |
| 1% | (21.03) | 21.03 | (20.31) | 20.31 | |
| (-1%) | 19.57 | (19.57) | 18.77 | (18.77) | |
| 2014 | 2013 | |||
| Increase/(Decrease) in Life Expectancy
|
Sensitivity Effect on
Statement of profit or loss Increase/(Reduction) in Results for the Year LKR million |
Sensitivity Effect
on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR million |
Sensitivity Effect on
Statement of Profit or Loss Increase/(Reduction) in results for the year LKR million |
Sensitivity Effect
on Employment Benefit Obligation Increase/(Decrease) in the Liability LKR million |
| +1 Year | (7.81) | 7.81 | (3.19) | 6.19 |
| - 1 Year | 8.10 | (8.10) | 6.43 | (6.43) |
The major categories of plan assets of the fair value of the total plan assets are as follows:
| 2014
LKR ’000 |
2012
LKR ’000 |
|
| Investments in Government Securities | 537,270 | 515,276 |
| Investment in fixed deposits | 113,500 | 112,893 |
| 650,770 | 628,169 |
| Within the next 12 months | 32,866 | 33,958 |
| Between 2 and 5 years | 202,991 | 156,983 |
| Beyond 5 years | 432,625 | 321,421 |
The expected benefits are based on the same assumptions used to measure the Bank’s and the Group'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 24 years as at 31 December 2014 (2013 - 26.6 years).
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Retirement Gratuity [Note 40.2 (a)] | 79,387 | 23,401 | 79,387 | 23,401 |
| Pension Fund [Note 40.1 (a)] | 60,348 | 12,042 | 60,348 | 12,042 |
| Total | 139,735 | 35,443 | 139,735 | 35,443 |
Other liabilities include other financial liabilities and other non-financial liabilities. Other non-financial liabilities include fees, expenses and other amounts payable for deposit insurance, dividend payable and other provisions. These liabilities are recorded at amounts expected to be payable at the reporting date.
Provisions are recognized when the Bank and the Group have 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.
Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the Board of Directors.
Other financial liabilities and other non-financial liabilities included under other liabilities are summarised below:
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Other financial liabilities (Note 41.1) | 2,423,677 | 701,912 | 2,423,677 | 701,912 |
| Other non-financial liabilities (Note 41.2) | 3,752,970 | 2,983,753 | 3,937,165 | 3,148,377 |
| Total | 6,176,647 | 3,685,665 | 6,360,842 | 3,850,289 |
41.1 Other Financial Liabilities |
||||
| Unpresented cheques/pay orders | 2,387,210 | 667,182 | 2,387,210 | 667,182 |
| Others | 36,467 | 34,730 | 36,467 | 34,730 |
| Total | 2,423,677 | 701,912 | 2,423,677 | 701,912 |
41.2 Other Non-Financial Liabilities |
||||
| Accrued expenses | 571,246 | 575,079 | 772,389 | 631,942 |
| Provision for deposit insurance | 34,250 | 34,500 | 34,500 | 34,500 |
| Dividend payable (Note 41.3) | 51,428 | 40,656 | 51,428 | 40,656 |
| Other liabilities | 3,096,046 | 2,333,518 | 3,078,848 | 2,441,279 |
| Total | 3,752,970 | 2,983,753 | 3,937,165 | 3,148,377 |
| BANK & GROUP | ||
| 2014
LKR ’000 |
2013
LKR ’000 |
|
41.3 Dividend Payable |
||
| Balance as at 1 January | 40,656 | 249,201 |
| Interim dividend declared for the prior year | – | 821,010 |
| Final dividend declared for the prior year | 824,245 | 1,642,019 |
| Interim dividend declared for the current year | 1,155,587 | 823,465 |
| Reversal of dividends declared in prior years [Note 41.3.1 (a)] | (2,298) | (64,560) |
| Dividend paid | (1,966,762) | (3,430,479) |
| As at 31 December | 51,428 | 40,656 |
Reversal of dividends declared in previous years represents unclaimed dividends which are written back after six years and cancellation of dividends of unregistered shareholders.
Subordinated term debts represent the funds borrowed by the Bank and the Group for long-term and short-term funding requirements and include foreign institutional borrowings and quoted debentures. Subsequent to initial recognition, these are measured at their amortized cost using the EIR method. Interest paid/payable on subordinated debts are recognized in the Statement of Profit or Loss. The direct costs attributable to these term debts are amortized over the term of the loan and are offset, in the presentation of the subordinate term debts in the Statement of Financial Position.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| As at 1 January | 11,682,674 | 2,188,350 | 11,682,674 | 2,188,350 |
| Additions during the year | – | 9,954,542 | – | 9,954,542 |
| Redemptions during the year | (563,082) | (511,650) | (563,082) | (511,650) |
| Balance before adjusting for amortized interest | 11,119,592 | 11,631,242 | 11,119,592 | 11,631,242 |
| Net effect on amortized interest payable | 29,847 | 51,432 | 29,847 | 51,432 |
| As at 31 December (Note 42.1) | 11,149,439 | 11,682,674 | 11,149,439 | 11,682,674 |
| BANK | GROUP | ||||||||
| Repayment
Terms |
Issued
Date |
Maturity
Date |
Rate of
Interest % |
Amount In FCY | 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
42.1 (a) Term LoansNederland’s Financierings Maatschappij Voor Ontwikkelingslanden N.V. (FMO) |
|||||||||
| FMO Loan I | Semi
Annually |
20 Jan. 2006 | 1 Oct 2015 | AWDR +5% | EUR 7,500,000 | 190,797 | 384,467 | 190,797 | 384,467 |
| FMO Loan II | Semi
Annually |
18 Dec. 2007 | 15 Oct 2017 | Avg (6 months
AWDR, 6 months T Bill rate) + 3% |
USD 15,000,000 | 1,000,911 | 1,343,665 | 1,000,911 | 1,343,665 |
| Total (a) | 1,191,708 | 1,728,132 | 1,191,708 | 1,728,132 | |||||
| BANK | GROUP | ||||||
| Interest Payable
Frequency |
Issued Date | Maturity Date | 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
42.1 (b) Debentures |
|||||||
| Fixed Rate Debenture | |||||||
| Type A - 13.0% - (60 Months) | Semi Annually | 19 December 2013 | 18 December 2018 | 1,242,526 | 1,237,065 | 1,242,526 | 1,237,065 |
| Type B - 13.40% - (60 Months) | Annually | 19 December 2013 | 18 December 2018 | 1,522,148 | 1,521,968 | 1,522,148 | 1,521,968 |
| Type C - 13.90% - (120 Months) | Annually | 19 December 2013 | 18 December 2023 | 3,620,874 | 3,620,995 | 3,620,874 | 3,620,995 |
| Type D - 14.00% - (144 Months) | Annually | 19 December 2013 | 18 December 2025 | 3,572,183 | 3,574,514 | 3,572,183 | 3,574,513 |
| Total (b) | 9,957,731 | 9,954,542 | 9,957,732 | 9,954,542 | |||
| Total subordinated term debts (a)+(b) | 11,149,439 | 11,682,674 | 11,149,439 | 11,682,674 | |||
The maturity of the subordinated term debts are given below: |
|||||||
| Due within one year | 511,650 | 511,650 | 511,650 | 511,650 | |||
| Due after one year | 10,637,789 | 11,171,024 | 10,637,789 | 11,171,024 | |||
| 11,149,439 | 11,682,674 | 11,149,439 | 11,682,674 | ||||
| BANK & GROUP | ||||
| 2014
Number of Shares |
2014
LKR ’000 |
2013
Number of Shares |
2013
LKR ’000 |
|
43.1 Stated Capital |
165,093,922 | 1,225,162 | 164,693,034 | 1,172,904 |
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 created 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.
The details of the share grant and the share options made available to the relevant staff members are given below:
| 2014 | 2013 | |
| 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 | 491,132 |
| Total number of shares granted under the share grant scheme | 982,264 | 982,264 |
| Share Option | ||
| Award 01 - (01 July 2010) - exercisable from 1 July 2011 to 30 June 2014 | ||
| Number of shares allocated at a price of LKR 124.21 | 491,132 | 491,132 |
| Number of shares exercised at a price of LKR 124.21 | 337,146 | – |
| Number of shares cancelled | 153,986 | – |
| Award 04 - (01 July 2013) - exercisable from 1 July 2014 to 30 June 2017 | ||
| Number of shares allocated at a price of LKR 162.86 | 491,132 | 491,132 |
| Number of shares exercised at a price of LKR 162.86 | 63,742 | – |
| Number of shares to be exercised | 427,390 | – |
43.2 (b)Expense arising from ELCP recognised in the Statement of Profit or Loss |
46,504 | 32,323 |
43.2 (c)The following tables list the inputs to the models used for the award 4 (option plan) |
||
| Expected volatility (%) - | 2% | |
| Risk-free interest rate (%) | 7.50% | |
| Expected life of share options (years) | 3 | |
| Exercise share price | 162.86 |
Number of shares issued to the eligible staff members during the year as per the ELCP is given below:
| BANK & GROUP | ||||
| 2014
Number of Shares |
2014
LKR ’000 |
2013
Number of Shares |
2013
LKR ’000 |
|
| Award 01 - (1 July 2010) | 337,146 | 41,877 | 491,132 | 79,809 |
| Award 04 - (1 July 2013) | 63,742 | 10,381 | – | – |
| Total | 400,888 | 52,258 | 491,132 | 79,809 |
The Statutory Reverse Fund is maintained as per the requirements under Section 20 (1) of the Banking Act No. 30 of 1988. Accordingly, the fund is built up by allocating a sum equivalent to not less than 5% of the profit after tax, but before declaring any dividend or any profits that our transferred to elsewhere until the reserve is equal to 50% of the Bank's stated capital and thereafter a further sum equivalent to 2% of such profit until the amount of said reserve fund is equal to the stated capital of the Bank.
The balance in the Statutory Reserve Fund will be used only for the purposes specified in the Section 20 (2) of the Banking Act No. 30 of 1988.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| As at 1 January | 958,527 | 878,718 | 958,527 | 878,718 |
| Transferred from retained earnings (Note 45) | 52,258 | 79,809 | 52,258 | 79,809 |
| As at 31 December | 1,010,785 | 958,527 | 1,010,785 | 958,527 |
| 2014 | 2013 | |||||
| General
Reserve LKR ’000 |
Retained
Earnings LKR ’000 |
Total
LKR ’000 |
General
Reserve LKR ’000 |
Retained
Earnings LKR ’000 |
Total
LKR ’000 |
|
(b) Group |
||||||
| As at 1 January | 5,805,707 | 14,926,094 | 20,731,801 | 5,805,707 | 16,410,347 | 22,216,054 |
| Total comprehensive income for the year | – | 4,011,426 | 4,011,426 | – | 2,599,908 | 2,599,908 |
| Transferred from/(to) Investment Fund Account | – | 1,706,751 | 1,706,751 | – | (782,419) | (782,419) |
| Adjustment on Employee Share Ownership Plan | – | (161,060) | (161,060) | – | – | – |
| Adjustment on Equity Linked Compensation Plan | – | (13,301) | (13,301) | – | – | – |
| Transferred to Statutory Reserve Fund | – | (52,258) | (52,258) | – | (79,809) | (79,809) |
| Dividends paid and reversals of dividends of prior years | – | (1,977,535) | (1,977,535) | – | (3,221,933) | (3,221,933) |
| As at 31 December | 5,805,707 | 18,440,117 | 24,245,824 | 5,805,707 | 14,926,094 | 20,731,801 |
| BANK | GROUP | |||||
| Opening
Balance LKR ’000 |
Movement/
Transfers LKR ’000 |
Closing
Balance LKR ’000 |
Opening
Balance LKR ’000 |
Movement/
Transfers LKR ’000 |
Closing
Balance LKR ’000 |
|
46. Other Reserves |
||||||
46. (a) Current Year 2014 |
||||||
| Revaluation Reserve (Note 46.1) | – | 853,456 | 853,456 | – | 853,456 | 853,456 |
| Available-for-Sale Reserve (Note 46.2) | 106,669 | (1,419) | 105,250 | 150,614 | 11,741 | 162,355 |
| Investment Fund Account (Note 46.3) | 1,706,751 | (1,706,751) | – | 1,706,751 | (1,706,751) | – |
| Share Based Payment Reserve (Note 46.4) | 22,367 | (2,124) | 20,243 | 22,367 | 37,781 | 60,148 |
| Cash Flow Hedge Reserve [Note 22.1 (c)] | – | 397,852 | 397,852 | – | 397,852 | 397,852 |
| Total | 1,835,787 | (458,986) | 1,376,801 | 1,879,732 | (405,921) | 1,473,811 |
| BANK | GROUP | |||||
| Opening
Balance LKR ’000 |
Movement/
Transfers LKR ’000 |
Closing
Balance LKR ’000 |
Opening
Balance LKR ’000 |
Movement/
Transfers LKR ’000 |
Closing
Balance LKR ’000 |
|
46. (b) Previous Year 2013 |
||||||
| Available-for-Sale Reserve (Note 46.2) | 106,669 | 106,669 | – | 150,614 | 150,614 | |
| Investment Fund Account (Note 46.3) | 924,332 | 782,419 | 1,706,751 | 924,332 | 782,419 | 1,706,751 |
| Share Based Payment Reserve (Note 46.4) | – | 22,367 | 22,367 | – | 22,367 | 22,367 |
| Total | 924,332 | 911,455 | 1,835,787 | 924,332 | 955,400 | 1,879,732 |
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
46.1 Revaluation Reserve |
||||
| Surplus on revaluation of freehold land and building | 1,084,185 | – | 1,084,185 | – |
| Deferred tax effect on revaluation surplus on freehold building | (230,729) | – | (230,729) | – |
| Net Revaluation Reserve | 853,456 | – | 853,456 | – |
46.2 Available-for-Sale Reserve |
||||
| As at 1 January | 148,151 | – | 209,186 | – |
| Net gains/(losses) on re-measuring financial investments - Available-for-Sale | 459,062 | 148,151 | 472,222 | 209,186 |
| Reclassification of retained earnings to Available-for-Sale Reserve | (494,172) | – | (494,172) | – |
| As at 31 December | 113,041 | 148,151 | 187,236 | 209,186 |
| Less tax on Available-for-Sale Reserve | (7,791) | (41,482) | (24,881) | (58,572) |
| Net Available-for-Sale Reserve | 105,250 | 106,669 | 162,355 | 150,614 |
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 with the concurrence of the Commissioner General of Inland Revenue.
However, as per the circular issued by the Central Bank of Sri Lanka dated 31 July 2014, the operation of the Fund ceased with effect from 01 October 2014 and therefore the balance available in the Investment Fund Account was transferred to the retained earnings by the Bank on this date.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| As at 1 January | 1,706,751 | 924,332 | 1,706,751 | 924,332 |
| Transferred from retained earnings | 124,983 | 782,419 | 124,983 | 782,419 |
| Transferred to retained earnings | (1,831,734) | – | (1,831,734) | – |
| As at 31 December | – | 1,706,751 | – | 1,706,751 |
The loans disbursed by utilizing the Investment Fund Account balance, are included under Long-term loans in Note 25, Loans and Receivable to Other Customers.
| BANK & GROUP | ||||||||||||
| Interest
Rates % |
Tenure
Years |
Number of
Loans Granted |
2014
Total LKR '000 |
Interest
Rates % |
Tenure
Years |
Number of
Loans Granted |
2013
Total LKR '000 |
|||||
Sector |
||||||||||||
| a. Cultivation of agriculture/plantation crops | 222 | 25 | 89,558 | 29 | 124,039 | |||||||
| b. Factory/mills modernization | 35 | 159,134 | 39 | 215,022 | ||||||||
| c. Small and medium enterprises | 9.0 - 18.0 | 5 - 7 | 285 | 1,169,271 | 253 | 1,226,571 | ||||||
| d. Information technology and BPO | – | – | 11.0 - 18.0 | 5 - 7 | 1 | 1,514 | ||||||
| e. Infrastructure development | 1 | 497 | 2 | 3,125 | ||||||||
| f. Education | 1 | 2,308 | 1 | 3,295 | ||||||||
| i. Construction of hotels | 10 | 42,994 | 15 | 103,255 | ||||||||
| 357 | 1,463,762 | 340 | 1,676,821 | |||||||||
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
46.4 Share Based Payment Reserve |
||||
| As at 1 January | 22,367 | – | 22,367 | – |
| Adjustments | (2,124) | 22,367 | (2,124) | 22,367 |
| Transferred during the year | – | – | 39,905 | – |
| As at 31 December | 20,243 | 22,367 | 60,148 | 22,367 |
The share based payment reserve represents the fair value of the options available as per the Equity Linked Compensation Plan (Refer Note 43.2).
Non-controlling interests represent the portion of profit and loss and net assets of subsidiaries not owned directly or indirectly by the Bank. Any losses applicable to the non-controlling interests are allocated against the interests of the non-controlling interests even if this resulting in a deficit balance. Acquisitions of non-controlling interests are accounted for using the parent entity extension method, whereby the difference between the consideration and the fair value of the share of net assets acquired is recognized as equity. Therefore no goodwill is recognized as a result of such transactions.
| GROUP | ||
| 2014
LKR ’000 |
2013
LKR ’000 |
|
| NDB Wealth Management Ltd. | 1,989 | 1,373 |
| NDB Capital Holdings PLC (de-listed) | 23,169 | 21,663 |
| NDB Capital Ltd. | 6,740 | 17,336 |
| Development Holdings (Pvt) Ltd. | 887,528 | 804,486 |
| NDB Securities (Pvt) Ltd. | 2,023 | 1,901 |
| NDB Investment Bank Ltd . | 1,197 | 1,089 |
| Total | 922,646 | 847,848 |
All discernible risks are accounted for in determining the amount of all known liabilities.
Commitments and contingencies represent 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.
To meet the financial needs of customers, the Bank and the Group enter into various irrevocable commitments and contingent liabilities. These consist of the financial guarantees, letters of credit and forward foreign exchange contracts and other undrawn commitments to lend. The letters of credit and guarantees commit the Bank and the Group to make payments on behalf of customers in the event of a specific act, generally related to import or export of goods. The guarantees and standby letters of credit carry a similar credit risk to loans/contingent liabilities and are not recognised in the Statement of Financial Position but are disclosed unless they are remote.
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
48.1 Business Commitments |
||||
| Undisbursed financing commitments | 93,937,028 | 63,999,574 | 93,940,238 | 63,999,574 |
| Guarantees | 15,584,522 | 15,723,292 | 15,586,541 | 15,723,292 |
| Performance and bid bonds | 6,503,688 | 3,930,319 | 6,503,688 | 3,930,319 |
| Letters of credit | 7,521,595 | 7,287,156 | 7,521,595 | 7,287,156 |
| Forward foreign exchange contracts | 100,448,034 | 79,844,817 | 100,448,034 | 79,844,817 |
| Acceptances | 7,148,766 | 6,415,082 | 7,148,766 | 6,415,082 |
| Total | 231,143,633 | 177,200,240 | 231,148,862 | 177,200,240 |
The capital expenditure approved by the Board of Directors for which provision has not been made in the Financial Statements is as follows:
| BANK | GROUP | |||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Approved and contracted for | 85,240 | 57,700 | 85,240 | 57,700 |
| Approved and not contracted for | 104,160 | – | 104,160 | – |
| Total | 189,400 | 57,700 | 189,400 | 57,700 |
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 of the date of the Statement of Financial Position, twenty six clients have filed cases against 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.
The following is a description of how fair values are determined for financial Instruments and non-financial instruments which are recorded at fair value using valuation techniques. These incorporate the Bank’s and the Group’s estimate of assumptions that a market participant would make when valuing the instruments.
Derivative products are foreign exchange contracts and foreign exchange options which are valued using market observable inputs.
Financial assets - held-for-trading are measured at fair value and include government securities, equity securities and investments in unit trusts. The government securities are valued based on the market rates published by the money brokers. For equity securities, the Bank uses quoted market prices in active markets as at the reporting date. The unit trust investments are valued at unit prices published in active markets.
Financial investments - Available-for-Sale consist of non-quoted equities and government securities. The government securities are valued based on the market rates of the money brokers as at the reporting date and non-quoted equities are valued using valuation techniques available for similar investments.
The fair value of the freehold land and building presented in the Financial Statements is provided by an independent valuer based on the valuations carried out at the reporting date of 30 September 2014.
Freehold land - valuations performed by the valuer are based on the market approach (direct comparison method), for similar properties in the same location and conditions.
Freehold buildings - valuations performed by the valuer are based on the cost approach (current replacement cost).
The freehold land and buildings of the Bank and the Group are revalued every three years to ensure that the carrying amount does not differ materially from the fair values at the reporting date.
Level 1 - quoted market price (unadjusted): financial instruments with quoted prices in active markets
Level 2 - valuation techniques using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments are valued using models where all significant inputs are observable.
Level 3 - valuation techniques with significant unobservable inputs: This category includes all instruments valued using valuation techniques where one or more significant inputs are unobservable.
The following table shows an analysis of financial instruments recorded at fair value by the level of the fair value hierarchy:
| BANK Fair Value Measurement Using |
||||
| 31 December 2014 | Quoted Prices in
Active Markets Level 1 LKR ’000 |
Significant
Observable Inputs Level 2 LKR ’000 |
Significant
Unobservable Inputs Level 3 LKR ’000 |
Total
LKR ’000 |
| Financial Assets | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 1,556 | – | 1,556 |
| Forward foreign exchange contracts | – | 908,198 | – | 908,198 |
| Currency SWAP | – | – | 994,028 | 994,028 |
| Financial Assets – Held-for-Trading | ||||
| Treasury bills | 51,534 | – | – | 51,534 |
| Treasury bonds | 480,732 | – | – | 480,732 |
| Investment in unit trusts | 2,253,011 | – | – | 2,253,011 |
| Financial Investments – Available-for-Sale | ||||
| Treasury bills | 5,068,917 | – | – | 5,068,917 |
| Treasury bonds | 11,891,025 | – | – | 11,891,025 |
| Non-quoted ordinary shares | – | 100,360 | – | 100,360 |
| Total Financial Assets | 19,745,219 | 1,010,114 | 994,028 | 21,749,361 |
| Financial Liabilities | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 1,556 | – | 1,556 |
| Forward foreign exchange contracts | – | 609,153 | – | 609,153 |
| Currency SWAP | – | – | 52,477 | 52,477 |
| Total Financial Liabilities | – | 610,709 | 52,477 | 663,186 |
| BANK Fair Value Measurement Using |
||||
| 31 December 2013 | Quoted Prices in
Active Markets Level 1 LKR ’000 |
Significant
Observable Inputs Level 2 LKR ’000 |
Significant
Unobservable Inputs Level 3 LKR ’000 |
Total
LKR ’000 |
| Financial Assets | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward foreign exchange contracts | – | 1,143,646 | – | 1,143,646 |
| Financial Assets - Held-for-Trading | ||||
| Treasury bills | 5,061,675 | – | – | 5,061,675 |
| Treasury bonds | 4,053,939 | – | – | 4,053,939 |
| Investment in unit trusts | 1,605,075 | 1,605,075 | ||
| Financial Investments - Available-for-Sale | ||||
| Treasury bills | 582,449 | – | – | 582,449 |
| Treasury bonds | 4,889,272 | – | – | 4,889,272 |
| Non-quoted ordinary shares | – | 4,790 | – | 4,790 |
| Sovereign bonds | 505,939 | – | – | 505,939 |
| Total Financial Assets | 16,698,349 | 1,154,331 | – | 17,852,680 |
| Financial Liabilities | ||||
| 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 Fair Value Measurement Using |
||||
| 31 December 2014 | Quoted Prices in
Active Markets Level 1 LKR ’000 |
Significant
Observable Inputs Level 2 LKR ’000 |
Significant
Unobservable Inputs Level 3 LKR ’000 |
Total
LKR ’000 |
| Financial Assets | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 1,556 | – | 1,556 |
| Forward foreign exchange contracts | – | 908,198 | – | 908,198 |
| Currency SWAP | – | – | 994,028 | 994,028 |
| Financial Assets - Held-for-Trading | ||||
| Treasury bills | 51,534 | – | – | 51,534 |
| Treasury bonds | 480,732 | – | – | 480,732 |
| Equity securities | 713,868 | – | – | 713,868 |
| Investment in unit trusts | 4,782,424 | – | – | 4,782,424 |
| Financial Investments - Available-for-Sale | ||||
| Treasury bills | 5,068,917 | – | – | 5,068,917 |
| Treasury bonds | 11,891,025 | – | – | 11,891,025 |
| Quoted ordinary shares | 812,550 | – | – | 812,550 |
| Non-quoted ordinary shares | – | 100,360 | 185,000 | 285,360 |
| Total Financial Assets | 23,801,050 | 1,010,144 | 1,179,028 | 25,990,192 |
| Financial Liabilities | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 1,556 | – | 1,556 |
| Forward foreign exchange contracts | – | 609,153 | – | 609,153 |
| Currency SWAP | – | – | 52,477 | 52,477 |
| Total Financial Liabilities | – | 610,709 | 52,477 | 663,186 |
| Group Fair Value Measurement Using |
||||
| 31 December 2013 | Quoted Prices in
Active Markets Level 1 LKR ’000 |
Significant
Observable Inputs Level 2 LKR ’000 |
Significant
Unobservable Inputs Level 3 LKR ’000 |
Total
LKR ’000 |
| Financial Assets | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward Foreign Exchange contracts | – | 1,143,646 | – | 1,143,646 |
| Financial Assets - Held-for-Trading | ||||
| Treasury bills | 5,061,675 | – | – | 5,061,675 |
| 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 | ||||
| Treasury bills | 582,449 | – | – | 582,449 |
| Treasury bonds | 4,889,272 | – | – | 4,889,272 |
| Sovereign bonds | 505,939 | – | – | 505,939 |
| Non-quoted ordinary shares | – | 4,790 | 185,000 | 189,790 |
| Total Financial Assets | 20,171,801 | 1,154,331 | 185,000 | 21,511,132 |
| Financial Liabilities | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 5,895 | – | 5,895 |
| Forward foreign exchange contracts | – | 811,415 | – | 811,415 |
| Total Financial Liabilities | – | 817,310 | – | 817,310 |
The level of the fair value hierarchy of financial instruments and non-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 instruments and non-financial instruments which are recorded at fair value.
| Bank | ||||||
| Included in | At 1 January
2014 LKR ’000 |
Additions/
Disposals during the year LKR ’000 |
Total gains/
(Losses) Recorded in Statement of Profit or Loss LKR ’000 |
Total Gains/
(Losses) Recorded in Equity LKR ’000 |
At 31 December
2014 LKR ’000 |
|
| Financial Assets | ||||||
| Currency SWAP | Derivative financial instruments | – | 596,176 | – | 397,852 | 994,028 |
| Non-Financial Assets | ||||||
| Freehold land | Property, plant & equipment | 165,016 | – | – | 266,484 | 431,500 |
| Freehold building | Property, plant & equipment | 221,606 | (27,272) | – | 817,701 | 1,012,035 |
| 386,622 | 568,904 | – | 1,482,037 | 2,437,563 | ||
| Financial Liabilities | ||||||
| Currency SWAP | Derivative financial instruments | – | 52,477 | – | – | 52,477 |
| – | 52,477 | – | – | 52,477 | ||
| group | ||||||
| 31 December 2014 | Included in | At 1 January
2014 LKR ’000 |
Additions/
Disposals during the year LKR ’000 |
Total gains/
(Losses) Recorded in Statement of Profit or Loss LKR ’000 |
Total gains/
(Losses) Recorded in Equity LKR ’000 |
At 31 December
2014 LKR ’000 |
| Financial Assets | ||||||
| Currency SWAP | Derivative financial instruments | – | 596,176 | – | 397,852 | 994,028 |
| Non-Financial Assets | ||||||
| Freehold land | Property, plant & equipment | 165,016 | – | – | 266,484 | 431,500 |
| Freehold building | Property, plant & equipment | 525,923 | (47,497) | – | 817,701 | 1,296,127 |
| Investment property | Investment property | 1,383,693 | – | 162,000 | – | 1,545,693 |
| Financial Assets | ||||||
| Non-quoted equity Securities | Financial investments - Available-for-Sale |
185,000 | – | – | – | 185,000 |
| 1,955,325 | 568,894 | 162,000 | 1,482,037 | 4,168,256 | ||
| Financial Liabilities | ||||||
| Currency SWAP | Derivative Financial Instruments | – | 52,477 | – | – | 52,477 |
| – | 52,477 | – | – | 52,477 | ||
The table below sets out information about significant unobservable inputs used at 31 December 2014 in measuring non-financial instruments categorized as Level 3 in the fair value hierarchy:
| BANK | |||||
| Type of Instrument | Fair Values at 31 December 2014 |
Valuation Technique | Significant Unobservable Inputs | Range of Estimates (Weighted Average) for Unobservable Inputs | Fair Value
Measurement Sensitivity to Unobservable Inputs |
| Navam Mawatha | |||||
| Land | LKR 11.5 million | Direct comparison method | Per perch value | Per perch - LKR 8 million | Positive impact to the fair value |
| Building | LKR 612.5 million | Current replacement cost | Replacement cost/depreciation factor rate | LKR 13,500 per square feet and discount factor - 0.48 | Positive impact to the fair value from both factors |
| Dharmapala Mawatha | |||||
| Land | LKR 420 million | Direct comparison method | Per perch value | Per perch - LKR 7 million | Positive impact to the fair value |
| Building | LKR 320 million | Current replacement cost | Replacement cost/depreciation factor rate | LKR 12,500 per square feet and discount factor - 0.62 | Positive impact to the fair value from both factors |
| group | |||||
| Type of Instrument | Fair Values at 31 December 2014 |
Valuation Technique | Significant Unobservable Inputs | Range of Estimates (Weighted Average) for Unobservable Inputs | Fair Value
Measurement Sensitivity to Unobservable Inputs |
| Navam Mawatha | |||||
| Land | LKR 11.5 million | Direct comparison method | Per perch value | Per perch - LKR 8 million | Positive impact to the fair value |
| Building | LKR 612.5 million | Current replacement cost | Replacement cost/depreciation factor rate | LKR 13,500 per square feet and discount factor - 0.48 | Positive impact to the fair value from both factors |
| Dharmapala Mawatha | |||||
| Land | LKR 420 million | Direct comparison method | Per perch value | Per perch - LKR 7 million | Positive impact to the fair value |
| Building | LKR 320 million | Current replacement cost | Replacement cost/Depreciation Factor Rate | LKR 12,500 per square feet and discount factor - 0.62 | Positive impact to the fair value from both factors |
| Navam Mawatha | |||||
| Investment Property | LKR 1,850 million | Income approach | Rent per square feet | Rentable area at LKR 148/- | Positive impact to the fair value |
| Non-rentable area at LKR 88.50 | |||||
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 | |||||
| 2014 | 2013 | ||||
| Fair Value
Classification |
Carrying
Amount LKR ’000 |
Fair Value
LKR ’000 |
Carrying
Amount LKR ’000 |
Fair Value
LKR ’000 |
|
| Financial Assets | |||||
| Cash and cash equivalents | Note 49 (d) | 3,104,391 | 3,104,391 | 2,611,075 | 2,611,075 |
| Balances with Central Bank | Note 49 (d) | 6,740,590 | 6,740,590 | 5,339,000 | 5,339,000 |
| Placements with banks | Note 49 (d) | 2,721,891 | 2,721,891 | 130,751 | 130,751 |
| Loans and receivables to banks | Level 2 | 311,144 | 313,781 | 641,628 | 650,235 |
| Loans and receivables to other customers | Level 2 | 175,175,203 | 177,054,711 | 136,821,532 | 140,694,797 |
| Financial investments - loans and receivable | Level 2 | 38,302,428 | 38,302,428 | 15,837,455 | 15,837,455 |
| Financial investments - held-to-maturity | Level 1 | 8,970,963 | 8,903,391 | 17,602,249 | 17,440,886 |
| Other financial assets | Note 49 (d) | 54,450 | 54,450 | – | – |
| Total Financial Assets | 235,381,060 | 237,195,633 | 178,983,690 | 182,704,199 | |
| Financial Liabilities | |||||
| Due to banks | Note 49 (d) | 7,029,342 | 7,029,342 | 10,453,086 | 10,453,086 |
| Due to other customers | Level 2 | 151,823,715 | 149,393,839 | 129,830,029 | 130,000,256 |
| Debt securities issued and other borrowed funds | Level 2 | 61,955,460 | 61,955,460 | 24,420,818 | 24,420,818 |
| Subordinated term debts | Level 2 | 11,149,439 | 11,149,439 | 11,682,674 | 11,682,674 |
| Other financial liabilities | Note 49 (d) | 2,423,677 | 2,423,677 | 701,912 | 701,912 |
| Total Financial Liabilities | 234,381,633 | 231,951,757 | 177,088,519 | 177,258,746 | |
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:
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.
The fixed rate financial instruments include the Loans and receivables to banks and other customers, Financial Investments - loans and receivables and Due to customers, Due to banks, Debt securities issued and other borrowed funds and Subordinated term debts.
The fair value of fixed rate financial assets and liabilities carried at amortized 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.
The fair value of financial investments held-to-maturity is estimated by comparing market interest rates when they were first recognised with current market rates for similar financial instruments.
| GROUP | |||||
| 2014 | 2013 | ||||
| Fair value
Classification |
Carrying
Amount LKR ’000 |
Fair Value
LKR ’000 |
Carrying
Amount LKR ’000 |
Fair Value
LKR ’000 |
|
| Financial Assets | |||||
| Cash and cash equivalents | Note 49 (d) | 3,274,036 | 3,274,036 | 2,668,262 | 2,668,262 |
| Balances with Central Bank | Note 49 (d) | 6,740,590 | 6,740,590 | 5,339,000 | 5,339,000 |
| Placements with banks | Note 49 (d) | 2,721,891 | 2,721,891 | 130,751 | 130,751 |
| Loans and receivables to banks | Level 2 | 311,144 | 313,781 | 641,628 | 650,235 |
| Loans and receivables to other customers | Level 2 | 175,235,905 | 176,994,008 | 136,881,713 | 140,694,797 |
| Financial investments - loans and receivable | Level 2 | 38,683,476 | 38,683,476 | 16,791,701 | 16,791,701 |
| Financial investments - held-to-maturity | Level 1 | 10,167,325 | 10,099,754 | 18,460,591 | 18,421,094 |
| Other financial assets | Note 49 (d) | 54,450 | 54,450 | – | – |
| Total Financial Assets | 237,188,817 | 238,881,986 | 180,913,646 | 184,695,840 | |
| Financial Liabilities | |||||
| Due to banks | Note 49 (d) | 7,029,342 | 7,029,342 | 10,453,086 | 10,453,086 |
| Due to other customers | Level 2 | 151,485,201 | 149,055,326 | 129,421,813 | 130,000,256 |
| Debt securities issued and other borrowed funds | Level 2 | 61,925,802 | 61,925,802 | 24,390,818 | 24,390,819 |
| Subordinated term debts | Level 2 | 11,149,439 | 11,149,439 | 11,682,674 | 11,682,674 |
| Other financial liabilities | Note 49 (d) | 2,423,677 | 2,423,677 | 701,912 | 701,912 |
| Total Financial Liabilities | 234,013,461 | 231,583,586 | 176,650,303 | 177,228,747 | |
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. The Bank’s and the Group’s risk strategy focuses on managing principal risks faced by the Bank and the Group while striking a fair balance between the risk return trade-off and the efficient capital allocation across the risk exposures.
The Bank and the Group are 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 and the Group’s is strategic planning process.
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 and the 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 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 of the Chief Executive Officer, Group Chief Financial Officer, 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.
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:
As part of its overall risk management, the Bank obtains various types of collateral and establishes maximum prudential limits.
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 -
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 and the Group assess whether there is objective evidence of a specific loss event.
The Bank determines the allowances appropriate for each individually significant loan or receivable 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.
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, and level of arrears).
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.
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:
The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Bank’s and the Group's classification of assets. The amounts presented are gross of impairment allowances.
The Bank and the Group consider that any amount uncollected one day or more beyond their contractual due date is ‘past due’.
| As at 31 December 2014 - LKR ’000 | |||||||||
| Products | Neither Past Due nor Impaired |
Past Due but not Impaired | Individually Impaired |
Total | |||||
| Less than
1 Month |
1-3
Months |
3-6
Months |
6-12
Months |
12-18
Months |
More than
18 Months |
||||
| Cash and cash equivalents | 3,104,391 | – | – | – | – | – | – | – | 3,104,391 |
| Balances with Central Bank | 6,740,590 | – | – | – | – | – | – | – | 6,740,590 |
| Placements with banks | 2,721,891 | – | – | – | – | – | – | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | – | – | – | – | – | – | 1,903,781 |
| Financial assets – held-for-trading | 2,785,277 | – | – | – | – | – | – | – | 2,785,277 |
| Loans and receivables to banks | 311,144 | – | – | – | – | – | – | – | 311,144 |
| Loans and receivables to other customers | 137,050,818 | 18,215,777 | 11,612,326 | 584,913 | 377,622 | 1,884,382 | 2,351,406 | 3,097,959 | 175,175,203 |
| Financial investments - loans and receivables | 38,302,428 | – | – | – | – | – | – | – | 38,302,428 |
| Financial investments – Available-for-Sale | 17,060,302 | – | – | – | – | – | – | – | 17,060,302 |
| Financial investments – held-to-maturity | 8,970,963 | – | – | – | – | – | – | – | 8,970,963 |
| Other financial assets | 54,450 | – | – | – | – | – | – | – | 54,450 |
| As at 31 December 2013 - LKR ’000 | |||||||||
| Products | Neither Past Due nor Impaired |
Past Due but not Impaired | Individually Impaired |
Total | |||||
| Less than
1 Month |
1-3
Months |
3-6
Months |
6-12
Months |
12-18
Months |
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 |
| 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 | 101,716,882 | 21,496,340 | 8,702,203 | 1,474,693 | 567,275 | 103,873 | 1,309,894 | 1,450,372 | 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 |
| As at 31 December 2014 - LKR ’000 | |||||||||
| Products | Neither Past Due nor Impaired |
Past Due but not Impaired | Individually Impaired |
Total | |||||
| Less than
1 Month |
1-3
Months |
3-6
Months |
6-12
Months |
12-18
Months |
More than
18 Months |
||||
| Cash and cash equivalents | 3,274,036 | – | – | – | – | – | – | – | 3,274,036 |
| Balances with Central Bank | 6,740,590 | – | – | – | – | – | – | – | 6,740,590 |
| Placements with banks | 2,721,891 | – | – | – | – | – | – | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | – | – | – | – | – | – | 1,903,781 |
| Financial assets – held-for-trading | 6,028,558 | – | – | – | – | – | – | – | 6,028,558 |
| Loans and receivables to banks | 311,144 | – | – | – | – | – | – | – | 311,144 |
| Loans and receivables to other customers | 137,111,521 | 18,215,777 | 11,612,326 | 584,913 | 377,622 | 1,884,382 | 2,351,406 | 3,097,959 | 175,235,906 |
| Financial investments - loans and receivables | 38,683,476 | – | – | – | – | – | – | – | 38,683,476 |
| Financial investments – Available-for-Sale | 18,057,852 | – | – | – | – | – | – | – | 18,057,852 |
| Financial investments – held-to-maturity | 10,167,325 | – | – | – | – | – | – | – | 10,167,325 |
| Other financial assets | 54,450 | – | – | – | – | – | – | – | 54,450 |
| As at 31 December 2013 - LKR ’000 | |||||||||
| Products | Neither Past Due nor Impaired |
Past Due but not Impaired | Individually Impaired |
Total | |||||
| Less than
1 Month |
1-3
Months |
3-6
Months |
6-12
Months |
12-18
Months |
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 |
| 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 | 101,777,063 | 21,496,340 | 8,702,203 | 1,474,693 | 567,275 | 103,873 | 1,309,894 | 1,450,372 | 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 |
| As at 31 December 2014 - LKR ’000 | ||
| Products | Maximum Exposure to Credit Risk | Exposure Net of Collateral |
| Balances with Central Bank | 6,740,590 | 6,740,590 |
| Placements with banks | 2,721,891 | 2,721,891 |
| Derivative financial instruments | 1,903,781 | 1,903,781 |
| Financial assets – held-for-trading | 2,785,277 | 2,785,277 |
| Loans and receivables to banks | 311,144 | 311,144 |
| Loans and receivables to other customers | ||
| Corporate lending | 105,745,797 | 51,597,695 |
| Branch lending | 22,798,330 | 4,259,230 |
| Consumer lending | 36,695,622 | 26,961,574 |
| Residential mortgages | 6,351,011 | – |
| Others | 3,584,443 | 1,612,297 |
| 175,175,203 | 84,430,796 | |
| Financial investments - loans and receivables | 38,302,428 | 13,731,594 |
| Financial investments – Available-for-Sale | 17,060,302 | 17,060,302 |
| Financial investments – held-to-maturity | 8,970,963 | 8,970,963 |
| Other financial assets | 54,450 | 54,450 |
| As at 31 December 2013 - LKR ’000 | ||
| Products | Maximum Exposure
to Credit Risk |
Exposure Net of
Collateral |
| 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 |
| 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 | ||
| Corporate lending | 88,178,349 | 39,992,851 |
| Branch lending | 17,630,781 | 2,909,105 |
| Consumer lending | 25,542,828 | 12,754,869 |
| Residential mortgages | 4,708,688 | – |
| Others | 760,886 | 177,144 |
| 136,821,532 | 55,833,969 | |
| Financial investments - loans and receivables | 15,837,455 | 10,917,630 |
| Financial investments – Available-for-Sale | 5,982,450 | 5,982,450 |
| Financial investments – held-to-maturity | 17,602,249 | 17,602,249 |
| As at 31 December 2014 - LKR ’000 | ||
| Products | Maximum Exposure
to Credit Risk |
Exposure Net of
Collateral |
| Balances with Central Bank | 6,740,590 | 6,740,590 |
| Placements with banks | 2,721,891 | 2,721,891 |
| Derivative financial instruments | 1,903,781 | 1,903,781 |
| Financial assets – held-for-trading | 6,028,558 | 6,028,558 |
| Loans and receivables to banks | 311,144 | 311,144 |
| Loans and receivables to other customers | ||
| Corporate lending | 105,745,797 | 51,597,695 |
| Branch lending | 22,798,330 | 4,259,230 |
| Consumer lending | 36,695,622 | 26,961,574 |
| Residential mortgages | 6,351,011 | – |
| Others | 3,645,146 | 1,612,297 |
| 175,235,906 | 84,430,796 | |
| Financial investments - loans and receivables | 38,683,476 | 14,112,642 |
| Financial investments – Available-for-Sale | 18,057,852 | 18,057,852 |
| Financial investments – held-to-maturity | 10,167,325 | 10,167,325 |
| Other financial assets | 54,450 | 54,450 |
| As at 31 December 2013 - LKR ’000 | ||
| Products | Maximum Exposure
to Credit Risk |
Exposure Net of
Collateral |
| 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 |
| 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 | ||
| Corporate lending | 88,178,349 | 39,992,851 |
| Branch lending | 17,630,781 | 2,909,105 |
| Consumer lending | 25,542,828 | 12,754,869 |
| Residential mortgages | 4,708,688 | – |
| Others | 821,067 | 161,397 |
| 136,881,713 | 55,818,222 | |
| Financial investments - loans and receivables | 16,791,701 | 11,864,272 |
| Financial investments – Available-for-Sale | 6,167,450 | 6,167,450 |
| Financial investments – held-to-maturity | 18,460,591 | 18,460,591 |
The Bank and the Group analysis of credit risk concentration by sector is shown in the table below:
| As at 31 December 2014 | Agriculture
& Fishing LKR ’000 |
Food &
Beverages LKR ’000 |
Trading
LKR ’000 |
Metals,
Chemicals & Engineering LKR ’000 |
Retail
LKR ’000 |
Services
LKR ’000 |
Textiles &
Garments LKR ’000 |
Government*
LKR ’000 |
Others
LKR ’000 |
Total
LKR ’000 |
| Cash and cash equivalents | – | – | – | – | – | 3,104,391 | – | – | – | 3,104,391 |
| Balances with Central Bank | – | – | – | – | – | – | – | 6,740,590 | – | 6,740,590 |
| Placements with banks | – | – | – | – | – | 2,721,891 | – | – | – | 2,721,891 |
| Derivative financial instruments | – | – | – | – | – | 1,903,781 | – | – | – | 1,903,781 |
| Financial assets - held-for-trading | – | – | – | – | – | – | 526,888 | 2,258,389 | 2,785,277 | |
| Loans and receivables to banks | – | – | – | – | – | 311,144 | – | – | – | 311,144 |
| Loans and receivables to other customers | 24,152,261 | 7,257,860 | 15,753,429 | 9,823,887 | 40,273,565 | 28,792,112 | 18,337,256 | – | 30,784,833 | 175,175,203 |
| Financial investments - loans and receivables | – | – | – | – | – | – | – | 38,233,007 | 69,421 | 38,302,428 |
| Financial investments - Available-for-Sale | – | – | –– | – | – | – | – | 16,655,702 | 404,600 | 17,060,302 |
| Financial investments - held-to-maturity | – | 833,521 | 204,729 | – | – | 879,721 | – | 7,052,992 | – | 8,970,963 |
| Other financial assets | – | – | – | – | – | – | – | – | 54,450 | 54,450 |
*Government refers to the investments held with Central Bank of Sri Lanka and the current account balance with Central Bank of Sri Lanka.
| As at 31 December 2013 | Agriculture
& Fishing LKR ’000 |
Food &
Beverages LKR ’000 |
Trading
LKR ’000 |
Metals,
Chemicals & Engineering LKR ’000 |
Retail
LKR ’000 |
Services
LKR ’000 |
Textiles &
Garments LKR ’000 |
Government*
LKR ’000 |
Others
LKR ’000 |
Total
LKR ’000 |
| 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 |
| Financial assets – held-for-trading | – | – | – | – | – | 1,605,075 | – | 9,115,614 | – | 10,720,689 |
| 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 - loans and receivables | – | – | – | – | 74,235 | – | – | 15,763,220 | – | 15,837,455 |
| Financial investments – Available-for-Sale | – | – | – | – | – | 4,790 | – | 5,977,660 | – | 5,982,450 |
| Financial investments – held-to-maturity | – | 520,000 | – | – | – | 842,819 | – | 15,999,789 | 239,641 | 17,602,249 |
*Government refers to the investments held with Central Bank of Sri Lanka and the current account balance with Central Bank of Sri Lanka.
| As at 31 December 2014 | Agriculture
& Fishing LKR ’000 |
Food &
Beverages LKR ’000 |
Trading
LKR ’000 |
Metals,
Chemicals & Engineering LKR ’000 |
Retail
LKR ’000 |
Services
LKR ’000 |
Textiles &
Garments LKR ’000 |
Government*
LKR ’000 |
Others
LKR ’000 |
Total
LKR ’000 |
| Cash and cash equivalents | – | – | – | – | – | 3,274,036 | – | – | – | 3,274,036 |
| Balances with Central Bank | – | – | – | – | – | – | 6,740,590 | – | 6,740,590 | |
| Placements with banks | – | – | – | – | – | 2,721,891 | – | – | – | 2,721,891 |
| Derivative financial instruments | – | – | – | – | – | 1,903,781 | – | – | – | 1,903,781 |
| Financial assets – held-for-trading | – | – | – | – | – | – | – | 526,888 | 5,501,670 | 6,028,558 |
| Loans and receivables to banks | – | – | – | – | – | 311,144 | – | – | – | 311,144 |
| Loans and receivables to other customers | 24,152,261 | 7,257,860 | 15,753,429 | 9,823,887 | 40,273,565 | 28,792,112 | 18,337,256 | – | 30,845,536 | 175,235,906 |
| Financial investments - loans and receivables | – | – | – | – | – | – | – | 38,233,007 | 450,469 | 38,683,476 |
| Financial investments – Available-for-Sale | – | – | – | – | – | – | – | 16,655,702 | 1,402,150 | 18,057,852 |
| Financial investments – held-to-maturity | – | 833,521 | 204,729 | – | – | 879,721 | – | 7,052,991 | 1,196,363 | 10,167,325 |
| Other financial assets | – | – | – | – | – | – | – | – | 54,450 | 54,450 |
*Government refers to the investments held with Central Bank of Sri Lanka and the current account balance with Central Bank of Sri Lanka.
| As at 31 December 2013 | Agriculture
& Fishing LKR ’000 |
Food &
Beverages LKR ’000 |
Trading
LKR ’000 |
Metals,
Chemicals & Engineering LKR ’000 |
Retail
LKR ’000 |
Services
LKR ’000 |
Textiles &
Garments LKR ’000 |
Government*
LKR ’000 |
Others
LKR ’000 |
Total
LKR ’000 |
| 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 |
| Financial assets – held-for-trading | – | – | – | – | – | 5,078,527 | – | 9,115,614 | – | 14,194,141 |
| 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 - loans and receivables | – | – | – | – | 74,235 | 91,699 | – | 15,763,220 | 862,547 | 16,791,701 |
| Financial investments – Available-for-Sale | – | – | – | – | – | 4,790 | – | 5,977,660 | 185,000 | 6,167,450 |
| Financial investments – held-to-maturity | – | 520,000 | – | – | – | 842,819 | – | 15,999,789 | 1,097,983 | 18,460,591 |
*Government refers to the investments held with Central Bank of Sri Lanka and the current account balance with Central Bank of Sri Lanka.
The table below shows the Bank’s and the Group's maximum credit risk exposure for commitments and contingencies.
The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Bank and the Group would have to pay if the guarantee is called upon.
| LKR ’000 | 2014 | 2013 |
| Guarantees and bonds | 17,719,368 | 15,529,639 |
| Shipping guarantees | 3,503,056 | 2,162,432 |
| Advance docs endorsed | 865,787 | 1,961,540 |
| Letters of credit | 7,521,595 | 7,287,156 |
| Acceptances | 7,148,766 | 6,415,082 |
| Undrawn overdrafts and credit cards | 10,745,651 | 7,004,968 |
| Commitments | 83,191,376 | 56,994,606 |
| Forward foreign exchange contracts | 100,448,034 | 79,844,817 |
| Total | 231,143,633 | 177,200,240 |
| LKR ’000 | 2014 | 2013 |
| Guarantees and bonds | 17,721,386 | 15,529,639 |
| Shipping guarantees | 3,503,056 | 2,162,432 |
| Advance docs endorsed | 865,787 | 1,961,540 |
| Letters of credit | 7,521,595 | 7,287,156 |
| Acceptances | 7,148,766 | 6,415,082 |
| Undrawn overdrafts and credit cards | 10,745,651 | 7,004,968 |
| Commitments | 83,194,587 | 56,994,606 |
| Forward foreign exchange contracts | 100,448,034 | 79,844,817 |
| Total | 231,148,862 | 177,200,240 |
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’s market risk exposures are classified into trading and non-trading portfolios and are managed separately. Sensitivity analysis of portfolios is carried out together with mark to market valuations and duration analysis that reflects the portfolio sensitivity to the market volatility.
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 fixed income securities (treasury bills and bonds), with all other variables held constant in the Bank’s Statement of Profit or Loss.
| Increase/
Decrease in Basis Points |
Sensitivity of Profit
or Loss Bank LKR ’000 |
Sensitivity of Profit
or Loss Group LKR ’000 |
|
| Trading Portfolio | +100/(100) | (846)/846 | (846)/846 |
| Increase/
Decrease in Basis Points |
Sensitivity of Profit
or Loss Bank LKR ’000 |
Sensitivity of Profit
or Loss Group LKR ’000 |
|
| Trading Portfolio | +100/(100) | (46,151)/46,151 | (46,151)/46,151 |
The AFS portfolio fair value is recognized in the Statement of Comprehensive Income - until the asset is derecognized in which case the price sensitivity does not have a direct impact to the Bank’s Statement of Profit or Loss.
| Increase/
Decrease in Basis Points |
Sensitivity
on Bank LKR ’000 |
Sensitivity
on Group LKR ’000 |
|
| AFS Portfolio | +100/(100) | (226,776)/226,776 | (226,776)/226,776 |
| Increase/
Decrease in Basis Points |
Sensitivity
on Bank LKR ’000 |
Sensitivity
on Group LKR ’000 |
|
| AFS Portfolio | +100/(100) | (170,221)/170,221 | (170,221)/170,221 |
The sensitivity of the Statement of Profit or Loss 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 2014.
| As at 31 December 2014 | 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 |
Non-Interest
Bearing LKR ’000 |
Carrying
Amount LKR ’000 |
| Assets | |||||||
| Cash and balances with Central Bank | 9,550,989 | – | – | – | 293,992 | – | 9,844,981 |
| Placements with banks | – | 2,721,891 | – | – | – | – | 2,721,891 |
| Loans and receivables to banks | 6,601 | 61,023 | 152,275 | 91,245 | – | – | 311,144 |
| Loans and receivables to other customers | 33,811,194 | 56,653,959 | 21,861,701 | 48,127,074 | 14,721,275 | – | 175,175,203 |
| Financial assets - loans and receivables | – | 37,304,647 | 997,781 | – | – | – | 38,302,428 |
| Financial assets – Available-for-Sale | – | 17,060,302 | – | – | – | – | 17,060,302 |
| Financial assets – held-to-maturity | – | 2,502,329 | 3,472,619 | 2,996,015 | – | – | 8,970,963 |
| Other financial assets | – | 54,450 | – | – | – | – | 54,450 |
| Total Financial Assets | 43,368,784 | 116,358,601 | 26,484,376 | 51,214,334 | 15,015,267 | – | 252,441,362 |
| Liabilities | |||||||
| Due to banks | – | 7,029,342 | – | – | – | – | 7,029,342 |
| Due to other customers | 26,815,563 | 43,909,914 | 62,228,206 | 6,621,823 | – | 12,248,209 | 151,823,715 |
| Debt securities issued and other borrowed funds | 6,033,773 | 24,169,613 | 10,810,104 | 9,535,818 | 11,406,152 | – | 61,955,460 |
| Subordinated term debts | – | – | 538,460 | 3,424,990 | 7,185,989 | – | 11,149,439 |
| Other financial liabilities | 2,423,677 | – | – | – | – | – | 2,423,677 |
| Total Financial Liabilities | 35,273,013 | 75,108,869 | 73,576,770 | 19,582,631 | 18,592,141 | 12,248,209 | 234,381,633 |
| Total Interest Sensitivity Gap | 8,095,771 | 41,249,732 | (47,092,394) | 31,631,703 | (3,576,874) | (12,248,209) | 18,059,729 |
| 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 | 30,610,642 | 47,022,378 | 17,091,779 | 34,870,695 | 7,226,038 | 136,821,532 |
| Financial assets - loans and receivables | – | 5,502,693 | 130,750 | 10,067,750 | 136,262 | 15,837,455 |
| Financial assets – Available-for-Sale | – | 641,634 | 1,305,810 | 485,103 | 3,549,903 | 5,982,450 |
| Financial assets – held-to-maturity | – | 4,992,124 | 4,251,453 | 8,358,671 | – | 17,602,248 |
| Total Financial Assets | 38,454,658 | 58,401,417 | 23,043,278 | 54,034,862 | 11,031,924 | 184,966,139 |
| Liabilities | ||||||
| Due to banks | – | 8,491,836 | 1,961,250 | – | – | 10,453,086 |
| Due to other customers | 42,950,979 | 39,212,301 | 44,975,018 | 2,691,731 | – | 129,830,029 |
| 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 | – | – | – | 4,487,165 | 7,195,509 | 11,682,674 |
| Other financial liabilities | 701,912 | – | – | – | – | 701,912 |
| Total Financial Liabilities | 48,855,016 | 52,228,845 | 50,918,044 | 16,359,526 | 8,727,088 | 177,088,519 |
| Total Interest Sensitivity Gap | (10,400,358) | 6,172,572 | (27,874,766) | 37,675,336 | 2,304,836 | 7,877,620 |
| As at 31 December 2014 | 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 |
Non-Interest
Bearing LKR ’000 |
Carrying
Amount LKR ’000 |
| Assets | |||||||
| Cash and balances with Central Bank | 9,720,726 | – | – | – | 293,900 | – | 10,014,626 |
| Placements with banks | – | 2,721,891 | – | – | – | – | 2,721,891 |
| Loans and receivables to banks | 6,601 | 61,023 | 152,275 | 91,245 | – | – | 311,144 |
| Loans and receivables to other customers | 33,811,194 | 56,670,911 | 21,866,104 | 48,130,280 | 14,757,417 | – | 175,235,906 |
| Financial assets - loans and receivables | – | 37,304,647 | 997,781 | 381,048 | – | – | 38,683,476 |
| Financial assets – Available-for-Sale | 997,550 | 17,060,302 | – | – | – | – | 18,057,852 |
| Financial assets – held-to-maturity | – | 2,502,328 | 3,576,430 | 4,088,567 | – | – | 10,167,325 |
| Other financial assets | – | 54,450 | – | – | – | – | 54,450 |
| Total Financial Assets | 44,536,071 | 116,375,552 | 26,592,590 | 52,691,140 | 15,051,317 | – | 255,246,670 |
| Liabilities | |||||||
| Due to banks | – | 7,029,342 | – | – | – | – | 7,029,342 |
| Due to other customers | 31,771,208 | 38,371,906 | 62,228,206 | 6,621,823 | – | 12,492,058 | 151,485,201 |
| Debt securities issued and other borrowed funds | 6,034,114 | 24,169,614 | 10,810,104 | 9,505,818 | 11,406,152 | – | 61,925,802 |
| Subordinated term debts | – | – | 538,460 | 3,424,990 | 7,185,989 | – | 11,149,439 |
| Other financial liabilities | 2,423,677 | – | – | – | – | – | 2,423,677 |
| Total Financial Liabilities | 40,228,999 | 69,570,862 | 73,576,770 | 19,552,631 | 18,592,141 | 12,492,058 | 234,013,461 |
| Total Interest Sensitivity Gap | 4,307,072 | 46,804,690 | (46,984,180) | 33,138,509 | (3,540,824) | (12,492,058) | 21,233,209 |
| 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 |
| Assets | ||||||
| Cash and balances with Central Bank | 7,887,586 | – | – | – | 119,676 | 8,007,262 |
| Placements with banks | – | 130,750 | – | – | – | 130,750 |
| 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 | 42,834,905 | 17,151,959 | 34,870,695 | 7,226,039 | 136,881,713 |
| Financial assets - loans and receivables | 141,300 | 5,502,693 | 130,750 | 10,655,695 | 361,263 | 16,791,701 |
| Financial assets – Available-for-Sale | 185,000 | 641,634 | 1,305,810 | 485,103 | 3,549,903 | 6,167,450 |
| Financial assets – held-to-maturity | 17,493 | 4,992,124 | 4,251,454 | 9,199,520 | – | 18,460,591 |
| Total Financial Assets | 43,043,111 | 54,213,943 | 23,103,459 | 55,463,656 | 11,256,926 | 187,081,095 |
| Financial Liabilities | ||||||
| Due to banks | – | 8,491,836 | 1,961,250 | – | – | 10,453,086 |
| Due to other customers | 42,898,458 | 38,946,017 | 44,975,018 | 2,602,320 | – | 129,421,813 |
| Debt securities issued and other borrowed funds | 5,202,125 | 4,524,708 | 3,981,776 | 9,150,630 | 1,531,579 | 24,390,818 |
| Subordinated term debts | – | – | – | 4,487,165 | 7,195,509 | 11,682,674 |
| Other financial liabilities | 701,912 | – | – | – | – | 701,912 |
| Total Financial Liabilities | 48,802,495 | 51,962,561 | 50,918,044 | 16,240,115 | 8,727,088 | 176,650,303 |
| Total Interest Sensitivity Gap | (5,759,384) | 2,251,382 | (27,814,585) | 39,223,541 | 2,529,838 | 10,430,792 |
Trading portfolios of fixed income securities (treasury bills and treasury bonds) and foreign currency options are subject to mark to market exercise on a daily basis to derive the economic value of portfolios and are monitored against the set stop loss limits. Prompt management action is taken where necessary to ensure minimum loss situations to the portfolios.
Mark to Market results are being monitored against the Board approved stop-loss limits on a daily basis and is reviewed at the monthly Assets Liability Committee Meeting and the Integrated Risk Management Committee on a quarterly basis to assess the portfolio performance and investment decisions.
Currency risk is the risk that the value of a financial instrument denominated in foreign currency will fluctuate due to changes in exchange rates other than the functional currency in which they are measured. Board approved limits are in place on currency positions and 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 as at 31 December 2014 and 2013 on its currency exposures. The analysis calculates the sensitivity of each currency position to the increase in the exchange rate against the LKR (functional currency) with all other variables held constant on the Statement of Profit or Loss and Statement of Changes in Equity. A negative amount in the table reflects a potential net reduction in Statement of Profit or Loss, Statement of Changes in Equity, while a positive amount reflects a net potential increase depending on the side of the currency position.
With regard to the Group companies, there are no direct open exposures in foreign currency other than in the functional currency. An equivalent decrease in the currencies shown below against the LKR would have resulted in an equivalent but an opposite impact.
| Currency | Spot Rate
Shock % |
Effect
on Profit 2014 LKR ’000 |
Effect
on Equity 2014 LKR ’000 |
Effect
on Profit 2013 LKR ’000 |
Effect
on Equity 2013 LKR ’000 |
| USD | 2.50 | 3,050 | 3,050 | 6,493.96 | 6,493.96 |
| GBP | 2.50 | 144 | 144 | (825.41) | (825.41) |
| EUR | 2.50 | 275 | 275 | (544.64) | (544.64) |
| JPY | 2.50 | (3,297) | (3,297) | 127.23 | 127.23 |
| AUD | 2.50 | 11 | 11 | (1,700.01) | (1,700.01) |
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 following table demonstrates the sensitivity to a reasonably possible change in quoted equity indices, with all other variables held constant of the Bank’s and the Group's Statement of Profit or Loss:
| Magnitude of Shock and the Fall in Value of Equities - LKR ’000 | ||||
| Entity | Portfolio
Value |
Scenario 1
5% |
Scenario 2
10% |
Scenario 3
15% |
| Bank | – | – | – | – |
| Group | 1,526,419 | 72,346 | 144,692 | 283,253 |
| Magnitude of Shock and the Fall in Value of Equities - LKR ’000 | ||||
| Entity | Portfolio
Value |
Scenario 1
5% |
Scenario 2
10% |
Scenario 3
15% |
| Bank | – | – | – | – |
| Group | 336,293 | 16,815 | 33,629 | 50,444 |
The Bank's and the Group's investment in unit trusts could have the following impact due to an adverse impact in the unit trust prices. The impact is monitored under three scenarios mid moderate and adverse conditions.
| Magnitude of Shock and the Fall in Value of Equities - LKR ’000 | ||||
| Entity | Portfolio
Value |
Scenario 1
5% |
Scenario 2
10% |
Scenario 3
15% |
| Bank | 2,253,417 | 112,671 | 225,342 | 338,013 |
| Group | 4,782,830 | 239,141 | 478,283 | 717,424 |
| Magnitude of Shock and the Fall in Value of Equities - LKR ’000 | ||||
| Entity | Portfolio
Value |
Scenario 1
5% |
Scenario 2
10% |
Scenario 3
15% |
| Bank | 1,606,969 | 80,348 | 160,697 | 241,045 |
| Group | 4,744,128 | 237,206 | 474,413 | 711,619 |
The Banks investment on the gold buffer stock could have the following impact due to an adverse impact in the gold prices in the market. The mark to market impact on the Statement of Profit or Loss is monitored and the sensitivity of the portfolio is monitored under three scenarios mid moderate and adverse conditions:
| Change in Value due to Decrease in Market Price - LKR ’000 | |||||
| ITEM | No. of Units | Present Value at
Market Price |
Scenario 1
2% |
Scenario 2
5% |
Scenario 3
8% |
| Coin | 411 | 16,019 | 15,699 | 15,219 | 14,738 |
| Biscuit | 106 | 53,173 | 52,110 | 50,515 | 48,919 |
| Change in Value due to Decrease in Market Price - LKR ’000 | |||||
| ITEM | No. of Units | Present Value
at Market Price |
Scenario 1
2% |
Scenario 2
5% |
Scenario 3
8% |
| Coin | 386 | 15,199 | 14,895 | 14,439 | 13,983 |
| Biscuit | 102 | 51,689 | 50,656 | 49,105 | 47,555 |
Country Risk is the risk that an occurrence within a country could have an adverse effect on the Bank and the Group directly by impairing the value of the Bank and the Group or indirectly through an obligor’s ability to meet its obligations to the Bank and the Group. 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.
| 31 December 2014 | Sri Lanka
LKR ’000 |
Europe
LKR ’000 |
America
LKR ’000 |
Asia
LKR ’000 |
Middle East
LKR ’000 |
Australia-
New Zealand LKR ’000 |
Total
LKR ’000 |
| Cash and cash equivalents | 1,927,075 | 314,878 | 386,484 | 395,711 | 6,686 | 73,557 | 3,104,391 |
| Balances with Central Bank | 6,740,590 | – | – | – | – | – | 6,740,590 |
| Placements with banks | 2,721,891 | – | – | – | – | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | – | – | – | – | 1,903,781 |
| Financial assets – held-for-trading | 2,785,277 | – | – | – | – | – | 2,785,277 |
| Loans and receivables to banks | 311,144 | – | – | – | – | – | 311,144 |
| Loans and receivables to other customers | 175,175,203 | – | – | – | – | – | 175,175,203 |
| Financial Investments - loans and receivables | 38,302,428 | – | – | – | – | – | 38,302,428 |
| Financial Investments – Available-for-Sale | 17,060,302 | – | – | – | – | – | 17,060,302 |
| Financial Investments – held-to-maturity | 8,970,963 | – | – | – | – | – | 8,970,963 |
| Other Financial Assets | 54,450 | – | – | – | – | – | 54,450 |
| Total Financial Assets | 255,953,104 | 314,878 | 386,484 | 395,711 | 6,686 | 73,557 | 257,130,420 |
| 31 December 2013 | Sri Lanka
LKR ’000 |
Europe
LKR ’000 |
America
LKR ’000 |
Asia
LKR ’000 |
Middle East
LKR ’000 |
Australia-
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 |
| 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 | 196,130,115 | 178,290 | 241,868 | 278,833 | 583 | 6,681 | 196,836,370 |
| 31 December 2014 | Sri Lanka
LKR ’000 |
Europe
LKR ’000 |
America
LKR ’000 |
Asia
LKR ’000 |
Middle East
LKR ’000 |
Australia-
New Zealand LKR ’000 |
Total
LKR ’000 |
| Cash and cash equivalents | 2,096,720 | 314,878 | 386,484 | 395,711 | 6,686 | 73,557 | 3,274,036 |
| Balances with Central Bank | 6,740,590 | – | – | – | – | – | 6,740,590 |
| Placements with banks | 2,721,891 | – | – | – | – | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | – | – | – | – | 1,903,781 |
| Financial assets held-for-trading | 6,028,558 | – | – | – | – | – | 6,028,558 |
| Loans and receivables to banks | 311,144 | – | – | – | – | – | 311,144 |
| Loans and receivables to other customers | 175,235,906 | – | – | – | – | – | 175,235,906 |
| Financial Investments - loans and receivables | 38,683,476 | – | – | – | – | – | 38,683,476 |
| Financial Investments – Available-for-Sale | 18,057,852 | – | – | – | – | – | 18,057,852 |
| Financial Investments – held-to-maturity | 10,167,325 | – | – | – | – | – | 10,167,325 |
| Other financial assets | 54,450 | – | – | – | – | – | 54,450 |
| Total Financial Assets | 262,001,693 | 314,878 | 386,484 | 395,711 | 6,686 | 73,557 | 263,179,009 |
| 31 December 2013 | Sri Lanka
LKR ’000 |
Europe
LKR ’000 |
America
LKR ’000 |
Asia
LKR ’000 |
Middle East
LKR ’000 |
Australia-
New Zealand LKR ’000 |
Total
LKR ’000 |
| Cash and cash equivalents | 1,962,007 | 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 |
| 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 | 201,718,523 | 178,290 | 241,868 | 278,833 | 583 | 6,681 | 202,424,778 |
Liquidity risk is defined as the risk that the Bank and the Group 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 and the Group might be unable to meet their payment obligations when they fall due under both normal and stress circumstances. Liquidity mismatch limits are set based on the structure and the Statement of Financial Position size to manage the funding requirements.
In accordance with the risk management 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 and specific to the Bank and the Group. This ensures the maintenance of the liquid asset ratio at required levels. Net liquid assets consist of cash, short-term bank deposits and liquid debt securities available for immediate sale.
The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s and the Group's financial assets and liabilities as at 31 December 2014 and 2013.
| As at 31 December 2014 | 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 |
| Financial Assets | |||||||
| Cash and bank balances with Central Bank | 9,844,981 | – | – | – | – | – | 9,844,981 |
| Less: Restricted balance | (6,894,073) | – | – | – | – | – | (6,894,073) |
| Placements with banks | 1,514 | – | 2,722,129 | – | – | – | 2,723,643 |
| Financial assets held-for-trading | – | – | 2,478,362 | 300,471 | 23,682 | – | 2,802,515 |
| Derivative financial instruments | – | 1,903,781 | – | – | – | – | 1,903,781 |
| Loans and receivables to banks | 6,601 | – | 65,999 | 160,919 | 98,842 | – | 332,361 |
| Loans and receivables to other customers | 33,287,108 | – | 60,564,939 | 29,523,471 | 63,603,525 | 29,298,052 | 216,277,095 |
| Other financial assets classified as loans and receivables | – | – | 37,520,022 | 1,013,643 | – | – | 38,533,665 |
| Financial assets – held-to-maturity | – | – | 2,812,753 | 3,746,953 | 3,541,716 | 2,303 | 10,103,725 |
| Financial assets – Available-for-Sale | – | – | 2,244,399 | 11,672,535 | 4,097,513 | 17,824 | 18,032,271 |
| Other financial assets | – | – | 54,450 | – | – | – | 54,450 |
| Total Undiscounted Financial Assets | 36,246,131 | 1,903,781 | 108,463,053 | 46,417,992 | 71,365,278 | 29,318,179 | 293,714,414 |
| Financial Liabilities | |||||||
| Due to banks | 135,123 | – | 6,885,049 | 11,757 | – | – | 7,031,929 |
| Derivative financial instruments | – | 663,186 | – | – | – | – | 663,186 |
| Due to other customers | 38,954,053 | – | 43,293,873 | 63,132,602 | 7,688,653 | – | 153,069,181 |
| Debt securities issued and other borrowed funds | – | – | 30,349,058 | 12,064,680 | 13,976,722 | 12,475,550 | 68,866,010 |
| Subordinated term debts | – | – | 687,381 | 1,305,658 | 8,822,023 | 12,268,598 | 23,083,660 |
| Other financial liabilities | 2,423,677 | – | – | – | – | – | 2,423,677 |
| Total Undiscounted Financial Liabilities | 41,512,853 | 663,186 | 81,215,361 | 76,514,697 | 30,487,398 | 24,744,148 | 255,137,643 |
| Net Undiscounted Financial Assets and Liabilities | (5,266,722) | 1,240,595 | 27,247,692 | (30,096,705) | 40,877,880 | 4,574,031 | 38,576,771 |
| 31 December 2013 | On Demand
LKR ’000 |
Trading
Derivative 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 |
| Financial 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 | 136,263 | 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 | 61,159,489 | 34,897,583 | 69,158,288 | 16,558,753 | 219,208,919 |
| Financial Liabilities | |||||||
| Due to banks | 2,891,711 | – | 8,492,120 | 1,987,691 | – | – | 13,371,522 |
| Derivative financial instruments | – | 817,310 | – | – | – | – | 817,310 |
| Due to other 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 | 24,633,550 |
| Subordinated term debts | – | – | 123,029 | 1,901,570 | 10,191,683 | 13,215,124 | 25,431,406 |
| Other financial liabilities | 701,912 | – | – | – | – | – | 701,912 |
| Total Undiscounted Financial Liabilities | 43,473,528 | 817,310 | 59,480,992 | 56,988,026 | 23,144,401 | 14,746,703 | 198,650,960 |
| Net Undiscounted Financial Assets and Liabilities | (7,188,263) | 332,231 | 1,678,497 | (22,090,443) | 46,013,887 | 1,812,050 | 20,557,959 |
| As at 31 December 2014 | 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 |
| Financial Assets | |||||||
| Cash and bank balances with Central Bank | 10,014,626 | – | – | – | – | – | 10,014,626 |
| Less: Restricted balance | (6,894,073) | – | – | – | – | – | (6,894,073) |
| Placements with banks | 1,514 | – | 2,722,129 | – | – | – | 2,723,643 |
| Financial assets held-for-trading | – | – | 5,721,643 | 300,471 | 23,682 | – | 6,045,796 |
| Derivative financial instruments | – | 1,903,781 | – | – | – | – | 1,903,781 |
| Loans and receivables to banks | 6,601 | – | 65,999 | 160,919 | 98,842 | – | 332,361 |
| Loans and receivables to other customers | 33,287,108 | – | 60,582,233 | 29,525,642 | 63,605,667 | 29,301,063 | 216,301,713 |
| Other financial assets classified as loans and receivables | – | – | 37,520,022 | 1,013,643 | – | 222,838 | 38,756,503 |
| Financial assets – held-to-maturity | – | – | 2,812,753 | 3,746,953 | 3,645,527 | 664,816 | 10,870,049 |
| Financial assets – Available-for-Sale | 14,775 | – | 2,244,399 | 11,672,535 | 4,097,513 | 17,824 | 18,047,046 |
| Other financial assets | – | – | 54,450 | – | – | – | 54,450 |
| Total Undiscounted Financial Assets | 36,430,551 | 1,903,781 | 111,723,628 | 46,420,163 | 71,471,231 | 30,206,541 | 298,155,895 |
| Financial Liabilities | |||||||
| Due to banks | 135,123 | – | 6,885,049 | 11,757 | – | – | 7,031,929 |
| Derivative financial instruments | – | 663,186 | – | – | – | – | 663,186 |
| Due to other customers | 38,615,539 | – | 43,293,873 | 63,132,602 | 7,688,653 | – | 152,730,667 |
| Debt securities issued and other borrowed funds | 341 | – | 30,349,058 | 12,064,680 | 13,976,722 | 12,445,550 | 68,836,351 |
| Subordinated term debts | – | – | 687,381 | 1,305,658 | 8,822,023 | 12,268,598 | 23,083,660 |
| Other financial liabilities | 2,423,677 | – | – | – | – | – | 2,423,677 |
| Total Undiscounted Financial Liabilities | 41,174,680 | 663,186 | 81,215,361 | 76,514,697 | 30,487,398 | 24,714,148 | 254,769,470 |
| Net Undiscounted Financial Assets and Liabilities | (4,744,129) | 1,240,595 | 30,508,267 | (30,094,534) | 40,983,833 | 5,492,393 | 43,386,425 |
| 31 December 2013 | On Demand
LKR ’000 |
Trading
Derivative 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 |
| Financial Assets | |||||||
| Cash and bank balances with Central Bank | 8,007,262 | – | – | – | – | – | 8,007,262 |
| Less: restricted balance | (5,554,021) | – | – | – | – | – | (5,554,021) |
| Placements with banks | – | – | 130,751 | – | – | – | 130,751 |
| Financial assets held-for-trading | – | – | 7,101,067 | 7,492,096 | – | – | 14,593,163 |
| 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 | 20,806,116 | 47,905,028 | 11,736,540 | 160,353,426 |
| Other financial assets classified as loans and receivables | – | – | 5,467,989 | 133,103 | 10,836,900 | 361,263 | 16,799,255 |
| Financial assets – held-to-maturity | – | – | 5,164,518 | 4,782,287 | 9,873,049 | – | 19,819,854 |
| Financial assets – Available-for-Sale | – | – | 959,888 | 1,459,526 | 1,699,655 | 4,685,905 | 8,804,974 |
| Total Undiscounted Financial Assets | 36,342,452 | 1,149,541 | 64,976,734 | 34,957,763 | 70,587,082 | 16,783,753 | 224,797,325 |
| Financial Liabilities | |||||||
| Due to banks | 2,891,711 | – | 8,492,120 | 1,987,691 | – | – | 13,371,522 |
| Derivative financial instruments | 817,310 | – | – | – | – | 817,310 | |
| Due to other customers | 39,827,624 | – | 40,761,814 | 49,014,929 | 3,682,677 | – | 133,287,044 |
| Debt securities issued and other borrowed funds | – | – | 9,837,505 | 4,083,836 | 9,150,630 | 1,531,579 | 24,603,550 |
| Subordinated term debts | – | – | 123,029 | 1,901,570 | 10,191,683 | 13,215,124 | 25,431,406 |
| Other financial liabilities | 701,912 | – | – | – | – | – | 701,912 |
| Total Undiscounted Financial Liabilities | 43,421,247 | 817,310 | 59,214,468 | 56,988,026 | 23,024,990 | 14,746,703 | 198,212,744 |
| Net Undiscounted Financial Assets and Liabilities | (7,078,795) | 332,231 | 5,762,266 | (22,030,263) | 47,562,092 | 2,037,050 | 26,584,581 |
The table below summaries the maturity portfolio of the commitments and contingencies of the Bank and the Group as at 31 December 2014 and 2013.
| 31 December 2014 | 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 | 93,937,028 | – | – | – | – | 93,937,028 |
| Guarantees | 452,895 | 7,638,665 | 9,138,647 | 4,853,652 | 4,351 | 22,088,210 |
| Commitments on account of letters of credit | 329,071 | 6,551,102 | 641,422 | – | – | 7,521,595 |
| Forward foreign exchange contracts | – | 51,856,305 | 48,432,484 | 159,245 | – | 100,448,034 |
| Acceptances | – | 4,956,445 | 2,164,754 | 27,567 | – | 7,148,766 |
| 94,718,994 | 71,002,517 | 60,377,307 | 5,040,464 | 4,351 | 231,143,633 |
| 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 | 4,128,233 | 19,653,611 |
| Commitments on account of letters of credit | 736,312 | 5,589,470 | 961,374 | – | – | 7,287,156 |
| Forward foreign exchange contracts | 9,331,460 | 38,813,787 | 31,699,570 | – | – | 79,844,817 |
| Acceptances | 230,023 | 4,096,632 | 2,088,427 | – | – | 6,415,082 |
| 75,241,629 | 52,345,783 | 41,563,470 | 3,921,125 | 4,128,233 | 177,200,240 |
| 31 December 2014 | 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 | 93,940,238 | – | – | – | – | 93,940,238 |
| Guarantees | 454,914 | 7,638,665 | 9,138,647 | 4,853,652 | 4,351 | 22,090,229 |
| Commitments on account of letters of credit | 329,070 | 6,551,102 | 641,423 | – | – | 7,521,595 |
| Forward foreign exchange contracts | – | 51,856,304 | 48,432,484 | 159,246 | – | 100,448,034 |
| Acceptances | – | 4,956,445 | 2,164,754 | 27,567 | – | 7,148,766 |
| 94,724,222 | 71,002,516 | 60,377,308 | 5,040,465 | 4,351 | 231,148,862 |
| 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 | 4,128,233 | 19,653,611 |
| Commitments on account of letters of credit | 736,312 | 5,589,470 | 961,374 | – | – | 7,287,156 |
| Forward foreign exchange contracts | 9,331,460 | 38,813,787 | 31,699,570 | – | – | 79,844,817 |
| Acceptances | 230,023 | 4,096,632 | 2,088,427 | – | – | 6,415,082 |
| 75,241,629 | 52,345,783 | 41,563,470 | 3,921,125 | 4,128,233 | 177,200,240 |
The Bank realises the importance of managing capital as it restricts the business growth unlike any other commercial organization. All large credit proposals are evaluated with the capital charge and lending decisions are taken on the basis of sufficient return on capital. Even the expansion projects in terms of new buildings and software purchases are evaluated against sufficient return on capital. The Bank always maintains a relatively higher level of free capital which will be utilised for lending activities thereby improving the net interest income of the Bank. Further, the Bank also maintains an effective balance between dividend payment and retention of profits ensuring sufficient plough back of profits.
An analysis of the assets and liabilities based on the remaining period as at the date of the Statement of Financial Position to the respective contractual maturity dates, is as follows:
| Within 12 Months
LKR ’000 |
After 12 Months
LKR ’000 |
Total
LKR ’000 |
|
| Assets | |||
| Cash and cash equivalents | 3,104,391 | – | 3,104,391 |
| Balance with Central Bank | 6,474,384 | 266,206 | 6,740,590 |
| Placements with banks | 2,721,891 | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | 1,903,781 |
| Financial assets held-for-trading | 2,785,277 | – | 2,785,277 |
| Loans and receivables to banks | 219,900 | 91,244 | 311,144 |
| Loans and receivables to other customers | 112,326,853 | 62,848,350 | 175,175,203 |
| Financial investments - loans and receivables | 38,302,428 | – | 38,302,428 |
| Financial investments – Available-for-Sale | 17,060,302 | – | 17,060,302 |
| Financial investments – held-to-maturity | 5,974,947 | 2,996,016 | 8,970,963 |
| Investments – held-for-sale | 18,525 | – | 18,525 |
| Investments in subsidiary companies | – | 2,000,290 | 2,000,290 |
| Intangible assets | – | 253,132 | 253,132 |
| Property, plant & equipment | – | 1,927,496 | 1,927,496 |
| Other assets | 661,902 | 791,831 | 1,453,733 |
| Total Assets | 191,554,581 | 71,174,565 | 262,729,146 |
| Liabilities | |||
| Due to banks | 7,029,342 | – | 7,029,342 |
| Derivative financial instruments | 663,186 | – | 663,186 |
| Due to other customers | 145,201,892 | 6,621,823 | 151,823,715 |
| Debt securities issued and other borrowed funds | 41,013,490 | 20,941,970 | 61,955,460 |
| Tax liabilities | 826,687 | – | 826,687 |
| Deferred tax liabilities | – | 619,467 | 619,467 |
| Employee benefit liabilities | – | 247,011 | 247,011 |
| Other liabilities | 4,397,536 | 1,779,111 | 6,176,647 |
| Subordinated term debts | 538,460 | 10,610,979 | 11,149,439 |
| Total Liabilities | 199,670,593 | 40,820,361 | 240,490,954 |
| Net | (8,116,012) | 30,354,204 | 22,238,192 |
| 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 |
| 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 | 328,864 | 860,527 | 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 | 266,127 | – | 266,127 |
| Deferred tax liabilities | 288,532 | 23,900 | 312,432 |
| Employee benefit liabilities | – | 170,008 | 170,008 |
| Other liabilities | 1,981,974 | 1,703,691 | 3,685,665 |
| Subordinated term debts | 563,082 | 11,119,593 | 11,682,675 |
| Total Liabilities | 155,051,971 | 26,586,179 | 181,638,150 |
| Net | (17,676,390) | 37,296,868 | 19,620,478 |
| Within 12 Months
LKR ’000 |
After 12 Months
LKR ’000 |
Total
LKR ’000 |
|
| Assets | |||
| Cash and cash equivalents | 3,274,036 | – | 3,274,036 |
| Balance with Central Bank | 6,474,384 | 266,206 | 6,740,590 |
| Placements with banks | 2,721,891 | – | 2,721,891 |
| Derivative financial instruments | 1,903,781 | – | 1,903,781 |
| Financial assets held-for-trading | 6,028,558 | – | 6,028,558 |
| Loans and receivables to banks | 219,900 | 91,244 | 311,144 |
| Loans and receivables to other customers | 112,348,461 | 62,887,445 | 175,235,906 |
| Financial investments - loans and receivables | 38,302,428 | 381,048 | 38,683,476 |
| Financial investments – Available-for-Sale | 18,057,852 | – | 18,057,852 |
| Financial investments – held-to-maturity | 6,078,758 | 4,088,567 | 10,167,325 |
| Investments – held-for-sale | 33,301 | – | 33,301 |
| Investment property | – | 1,545,693 | 1,545,693 |
| Intangible assets | – | 297,070 | 297,070 |
| Property, plant & equipment | – | 2,252,647 | 2,252,647 |
| Other assets | 1,084,508 | 791,827 | 1,876,335 |
| Total Assets | 196,527,858 | 72,601,747 | 269,129,605 |
| Liabilities | |||
| Due to banks | 7,029,342 | – | 7,029,342 |
| Derivative financial instruments | 663,186 | – | 663,186 |
| Due to other customers | 144,863,378 | 6,621,823 | 151,485,201 |
| Debt securities issued and other borrowed funds | 41,013,831 | 20,911,971 | 61,925,802 |
| Tax liabilities | 806,220 | – | 806,220 |
| Deferred tax liabilities | – | 609,935 | 609,935 |
| Employee benefit liabilities | – | 301,219 | 301,219 |
| Other liabilities | 4,581,732 | 1,779,110 | 6,360,842 |
| Subordinated term debts | 538,460 | 10,610,979 | 11,149,439 |
| Total Liabilities | 199,496,149 | 40,835,037 | 240,331,186 |
| Net | (2,968,291) | 31,766,710 | 28,798,419 |
| 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 |
| 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 | 40,862,236 | 136,881,712 |
| 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 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 | 64,515,759 | 206,817,120 |
| 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 liabilities | 298,033 | 26,418 | 324,451 |
| Employee benefit liabilities | – | 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 | 154,941,362 | 26,514,105 | 181,455,467 |
| Net | (12,640,001) | 38,001,654 | 25,361,653 |
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 Senior Management 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 Group has identified four operating segments based on products and services, as follows:
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 2014 or 2013.
| Banking | Capital Markets | Property Investment | Others | Consolidated | ||||||
| For the year ended 31 December | 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
| Revenue | ||||||||||
| External income | 25,176,348 | 24,608,797 | 678,249 | 469,772 | 252,080 | 145,468 | – | – | 26,106,677 | 25,224,037 |
| Inter-segment income | – | – | 56,130 | 23,319 | 41,818 | 55,949 | – | – | 97,948 | 79,268 |
| Total income | 25,176,348 | 24,608,797 | 734,379 | 493,091 | 293,898 | 201,417 | – | – | 26,204,625 | 25,303,305 |
| Segment expenses | (19,076,472) | (20,008,519) | (560,674) | (496,230) | (40,748) | (74,154) | – | – | (19,677,894) | (20,578,903) |
| Segment results | 6,099,876 | 4,600,278 | 173,705 | (3,139) | 253,150 | 127,263 | – | – | 6,526,731 | 4,724,402 |
| Share of associate companies profit before taxation | – | – | – | – | – | – | 97,274 | 49,220 | 97,274 | 49,220 |
| Taxation | (1,348,784) | (1,150,893) | ||||||||
| VAT on financial services | (1,029,250) | (910,500) | ||||||||
| Profit after taxation | 4,245,970 | 2,712,229 | ||||||||
| Other information | ||||||||||
| Segment assets | 262,689,239 | 201,189,884 | 4,796,767 | 4,091,993 | 1,610,299 | 1,458,500 | – | – | 269,096,305 | 206,740,377 |
| Investment in associates | – | – | – | – | – | – | 33,301 | 76,744 | 33,301 | 76,744 |
| Consolidated total assets | 269,129,606 | 206,817,121 | ||||||||
| Segment liabilities | 24,011,008 | 181,192,251 | 155,925 | 207,262 | 64,257 | 55,956 | – | – | 240,331,190 | 181,455,469 |
| Consolidated total liabilities | 240,331,190 | 181,455,469 | ||||||||
| Segmental cash flows | ||||||||||
| Cash flows from operating activities | (9,321,209) | 4,512,521 | 15,158 | (226,615) | 123,558 | 96,879 | – | – | (9,182,493) | 4,382,785 |
| Cash flows from investing activities | (17,240,344) | (17,739,829) | 6,939 | 189,301 | (7,830) | (60,097) | – | – | (17,241,235) | (17,610,622) |
| Cash flows from financing activities | 30,915,369 | 8,323,143 | 62,211 | (60,088) | (87,578) | (36,779) | – | – | 30,890,002 | 8,226,276 |
The classification of the following items in the Statement of Profit or Loss and the Statement of Financial Position were amended to ensure proper presentation in the Financial Statements:
| BANK | GROUP | BANK | GROUP | |||
| As reported Previously | Current Presentation | 2014
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2013
LKR ’000 |
|
| Profit or Loss | ||||||
| Net gains/(losses) from Trading | Net gains/(losses) from financial investments | (Note 8) | 716,507 | 1,330,407 | 318,303 | 914,968 |
| Assets | ||||||
| Securities purchased under resale agreements | Financial Investments - loans and receivables | (Note 26) | – | – | 4,919,825 | 4,927,429 |
| Lease rentals receivables | Loans and Receivables to other customers | (Note 25) | – | – | 8,428,409 | 8,428,409 |
| Investments in associates | Investments held-for-sale | (Note 29) | 18,525 | 33,301 | – | – |
| Liabilities | ||||||
| Securities sold under repurchase agreements | Debt Securities issued and other borrowed funds | (Note 38) | – | – | 11,771,598 | 11,771,598 |
The Bank does not have an identifiable Parent of its own.
The Bank carries out transactions with Key Management and their related concerns and other related entities 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.
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, including the Chief Executive Officer.
| 2014
LKR ’000 |
2013
LKR ’000 |
|
55.3.1 Compensation to Key Management Personnel of the Bank |
||
| Short-term employee benefits | 69,860 | 62,496 |
| Post-employment benefits (defined benefit plan) | 4,968 | 3,399 |
| 74,828 | 65,895 |
The amounts disclosed above are the amounts recognized as expenses during the reporting period relating to Key Management Personnel. In addition to the remuneration, the Bank has also provided non-cash benefits for Key Management Personnel in line with the approved benefit plan of the Bank.
Key Management of the Bank and their close family members had the following transactions with the Bank:
| Limit | Outstanding Balance | Average Balance | ||||
| 31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
|
| Items in the Statement of Financial Position | ||||||
| Assets | ||||||
| Loans and receivables | – | – | – | – | 3 | 1,408 |
| Credit cards | 1,000 | 1,000 | – | – | 65 | 20 |
| 1,000 | 1,000 | – | – | 68 | 1,428 | |
| Liabilities | ||||||
| Deposits | 222,346 | 155,987 | 187,543 | 99,126 | ||
| Investment in debentures and Repo investments |
82,936 | 1,000 | 58,190 | 1,000 | ||
| 305,282 | 156,987 | 245,733 | 100,126 | |||
| Items in the Statement of Profit or Loss | ||||||
| Interest income | – | 64 | ||||
| Interest expenses | 30,142 | 15,614 | ||||
| Fee and commission income | 16 | – | ||||
| Dividends paid | 47,939 | 81,363 | ||||
Key Management of the Bank and their close family members have invested in 3,994,906 ordinary shares as at 31 December 2014 (3,994,906 ordinary shares as at 31 December 2013) which includes shares held in a slash account.
Transactions involving entities which are controlled/jointly controlled by the Key Management Personnel and their close family members.
| Outstanding Balance | Average Balance | |||
| 31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
|
| Items in the Statement of Financial Position | ||||
| Assets | ||||
| Loans and receivables | 35 | 1,967,742 | 26,732 | 1,460,456 |
| 35 | 1,967,742 | 26,732 | 1,460,456 | |
| Liabilities | ||||
| Deposits | 343,123 | 685,903 | 264,476 | 465,872 |
| Repo investments | 232,500 | – | 68,292 | 47,442 |
| 575,623 | 685,903 | 332,768 | 513,314 | |
| Off-Balance Sheet Items | ||||
| Commitments and contingencies | – | 549,317 | 19,954 | 678,652 |
| Forward foreign exchange contracts | – | 1,307,500 | – | 1,521,119 |
| – | 1,856,817 | 19,954 | 2,199,771 | |
| Limits approved on facilities | – | 3,609,085 | ||
| Items in the Statement of Profit or Loss | ||||
| Interest income | 7,804 | 234,578 | ||
| Interest expenses | 34,431 | 60,989 | ||
| Fee and commission income | 607 | 19,134 | ||
| Capital expenditure and services rendered | 75,846 | 79,104 | ||
A number of entities in which the Government of Sri Lanka has an interest have a significant interest in the Bank.
The Bank enters into transactions, arrangements and agreements with the Government of Sri Lanka and its related entities. The financial dealings on a collective basis for the year and as at the date of the Statement of Financial Position are as follows:
| Outstanding Balance | Average Balance | |||
| 31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
31.12.2014
LKR ’000 |
31.12.2013
LKR ’000 |
|
| Items in the Statement of Financial Position | ||||
| Assets | ||||
| Loans and receivables | 7,973,433 | 2,546,153 | 5,975,747 | 1,713,866 |
| 7,973,433 | 2,546,153 | 5,975,747 | 1,713,866 | |
| Liabilities | ||||
| Deposits | 3,621,031 | 57,534 | 2,441,659 | 56,720 |
| Repo investments | 2,658,000 | 2,294,000 | 1,269,894 | 5,524,252 |
| Borrowings | 2,569,000 | 1,546,000 | 355,317 | 546,663 |
| Debentures | 2,623,950 | 2,455,890 | 2,623,950 | 2,455,890 |
| Concessionary credit lines | 5,621,028 | 6,389,534 | 6,946,460 | 7,602,061 |
| 17,093,009 | 12,742,958 | 13,637,280 | 16,185,586 | |
| Off-Balance sheet items | ||||
| Guarantees and letters of credit | 286,422 | 67,066 | 134,022 | 90,700 |
| Forward foreign exchange contracts | 902,029 | 4,214,929 | 2,457,811 | 6,498,736 |
| 1,188,451 | 4,281,995 | 2,591,833 | 6,589,436 | |
| Items in the Statement of Profit or Loss | ||||
| Interest income | 2,122,017 | 1,164,400 | ||
| Interest expenses | 989,889 | 1,014,397 | ||
| Fee and commission income | 41,067 | 5,466 | ||
Further transactions as detailed below, relating to the ordinary course of business, are entered into with the Government of Sri Lanka and its related entities:
Individually Significant Transactions
The Bank uses internal assessments methodology in order to identify significant transactions with the Government of Sri Lanka and Government related entities. Accordingly individually significant transactions are reported below:
The Bank raised USD 125 million on 16 April 2014 through foreign borrowings for a period of one year and seven years, against which a SWAP arrangement has been entered into with the Central Bank of Sri Lanka for 75% of the borrowing value with the same maturity on 15 January 2021. The Bank has also raised USD 75 million on 21 July 2014 through foreign borrowings for a period of seven years, against which a SWAP arrangement has been entered into with the Central Bank of Sri Lanka for 50% of the borrowing value with the same maturity on 15 July 2021.
The Bank utilized the approval given by the Central Bank of Sri Lanka for licensed commercial banks to borrow up to USD 50 million and the specific approval given to National Development Bank PLC to Borrow up to USD 250 million in excess of the 15% of the Bank's capital by direction dated 17 April 2013, circular Ref 2/19/150/0104/001. Accordingly the Bank raised USD 224 million as at 31 December 2014.
The Bank had the undermentioned financial dealings during the year and as of the date of the Statement of Financial Position with the subsidiaries and associates of the Bank are as follows:
| Subsidiaries of the Group* | associates of the Group* | |||||||
| Outstanding Balance | Average Balance | Outstanding Balance | Average Balance | |||||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|
| Items in the Statement of Financial Position | ||||||||
| Assets | ||||||||
| Loans and receivables | 1 | 1 | 4 | 1 | – | – | – | – |
| Group company receivables | 1,804 | 1,646 | 24,435 | 63,242 | – | – | – | – |
| Investment in ordinary shares net of provisions for impairment | 2,000,291 | 2,037,585 | 2,030,019 | 2,136,408 | 18,525 | 61,968 | 53,873 | 22,146 |
| Disposal of investments | – | 582,714 | – | 582,714 | 165,462 | – | 165,462 | – |
| Liabilities | ||||||||
| Deposits | 457,689 | 289,937 | 366,116 | 216,264 | – | – | – | – |
| Other payables | – | 204 | – | 17 | – | – | 1,802 | – |
| During the Year | During the Year | |||||||
| 2014
LKR ’000 |
2013
LKR ’000 |
2014
LKR ’000 |
2013
LKR ’000 |
|||||
| Items in the Statement of Profit or Loss | ||||||||
| Interest received/(paid) - Net | (61,406) | (44,476) | – | – | ||||
| Rent and utilities received | 20,525 | 20,136 | – | – | ||||
| Rent and utilities paid | 18,627 | 18,305 | – | – | ||||
| Management fees received/(paid) - Net | 4,812 | (23,120) | – | – | ||||
| Bankassurance income | 22 | – | – | – | ||||
| Share Brokerages paid | – | 7,436 | – | – | ||||
| Dividends received | 321,967 | 700,203 | – | – | ||||
| Capital gains | – | 5,372,060 | 96,125 | - | ||||
The Board of Directors of the Bank, at its meeting held on 20 March 2014, approved the divestiture of its investment in 224,875 shares amounting to 35% of the shares in Maldives Finance Leasing Company (Private) Ltd. to Tree Top Investments (Private) Ltd., a company incorporated in the Republic of Maldives. Accordingly, the divestment took place during April 2014, and the net realized gain to the Bank amounted to LKR 96 million.
* Refer Note 30 and Note 31 for details of subsidiary and associate companies.
The Bank had the undermentioned financial dealings during the year with the NDB Provident Fund.
| 2014
LKR ’000 |
2013
LKR ’000 |
|
| Deposits | 40,264 | 51,661 |
| Interest paid on deposits during the year | 2,938 | 2,585 |
| Contribution made by the Bank | 187,974 | 163,732 |
NDB Wealth Management Ltd., a subsidiary of the Bank had the undermentioned financial dealings with the NDB Provident Fund.
| 2014
LKR ’000 |
2013
LKR ’000 |
|
| Portfolio under management | 1,574,818 | 1,340,823 |
The Bank had the undermentioned financial dealings with the NDB Pension Fund during the year.
| 2014
LKR ’000 |
2013
LKR ’000 |
|
| Deposits | 113,500 | 112,893 |
| Interest paid an deposits during the year | 11,977 | 16,348 |
| Contribution made by the Bank | 51,644 | 28,850 |
The Bank had the undermentioned financial dealings with the NDB Employee Share Ownership Plan during the year.
| 2014 | 2013 | |
| No. of ordinary shares held | 4,133,726 | 4,133,726 |
| Distribution of ESOP shares to the eligible employees of the Bank | 4,131,850 | – |
| No. of ordinary shares pending transfer to an eligible employee | 1,876 | 4,133,726 |
| Dividends paid by the Bank (LKR ’000) | 20,718 | 82,675 |
The Colombo Stock Exchange (CSE), by listing Rule 5.6 has amended the rules relating to Employee Share Option Schemes (ESOS) and Employee Share Purchase Schemes (ESPS), by mandating that such schemes should result in the shares being offered to eligible employees for ‘purchase’ or ‘subscription’ in the case of ESOS and ‘acquisition’ in the case of ESPS, specifically prohibiting open ended schemes. In compliance with this ruling and the Transitional Provisions thereto, the Board of Directors of National Development Bank PLC (NDB) approved the dissolution of the NDB Employee Share Option Plan (ESOP) and the distribution of the ESOP shares amounting to 4,133,726 to the eligible employees of the Bank.