Corporate Governance Report

Complied.

The Board approved an overall five year business strategy containing measurable goals for the period 2014-2018 after detailed discussions had with the senior management of the Bank in October 2013.

Risk management policies and procedures have been approved as required by the Direction.

Complied.

The Board is responsible for the overall risk framework of the Bank. The Board constituted the Integrated Risk Management Committee (IRMC) and tasked the IRMC to define the risk appetite of the Bank, identify key risks, set governance structures and implement systems to measure, monitor and manage principal risks. The following reports provide further insights in this regard.

• Risk Management Report.
• The Integrated Risk Management Committee Report under Board Committee Report section

Complied.

The Bank has in place a Board approved Communication Policy which was revised and updated in 2014 aimed at encouraging effective communications with all stakeholders including staff, customers, creditors, shareholders, partners, general public and regulators which is communicated to all members of staff through the ‘NDB Cloud’.

Complied.

The Board reviews the adequacy and integrity of the Bank’s internal control system by way of internal audit reports submitted to the Board through the Board Audit Committee on a quarterly basis.

The Bank has in place a Management Information Systems Policy which was approved by the Board. The implementation of the policy and the integrity and effectiveness of the Bank’s Management Information Systems were reviewed by the Internal Audit Department and discussed with the Board Audit Committee in October 2014. Thereafter the Board at its meeting held in February 2015 reviewed the adequacy of the Bank’s Management Information Systems based on the monthly MIS pack submitted to the Board each month and the integrity of the Management Information Systems based on the process audit carried out by Internal Audit Department.

Complied.

Key Management Personnel of the Bank have been identified by the Board having considered the Banking Act determination No. 3 of 2010 on officers performing executive functions of the Bank, the International Accounting Standards and the Sri Lanka Accounting Standards and presently include the following:

1. Board of Directors
2. The Leadership Team
3. Company Secretary
4. Compliance Officer
5. Employees holding Director positions in subsidiaries

Complied.

Areas of authority and key responsibilities of the Directors have been set out in the Bank’s Internal Code of Corporate Governance.

Areas of authority and key responsibilities of Key Management Personnel are defined in the Job Descriptions and selection criteria which were reviewed at the Nomination Committee and noted by the Board.

Further, delegations of authority levels have been clearly defined by the Board for Key Management Personnel.

Complied.

Oversight by the Board over Key Management Personnel takes place at Board meetings and through Board Committees. Key Management Personnel make regular presentations to the Board on matters under their purview and are also called in by the Board to explain matters relating to their areas. Key Management Personnel responsible for the areas of Risk, Internal Control and Compliance attend every meeting of the Integrated Risk Management Committee and the Board Audit Committee.

Complied.

The effectiveness of the Board’s governance practices are reviewed periodically. Please refer Corporate Governance Report of this Report for details on the assessment process.

The Board has in place a Board approved ‘Procedure for Selection and Appointment of Directors’ which the Nomination Committee (NC) follows with regard to the selection, nomination and election of Directors. The Human Resources and Remuneration Committee and the NC follow a Board approved policy and process with regard to the selection and appointment of Key Management Personnel.

The process adopted for the management of Conflicts of Interest is detailed under Corporate Governance Report of this Report. Directors’ interests are disclosed to the Board and Directors who have a particular interest abstain from voting and are not counted in the quorum.

The Board appraises its own performance by responding to a self-assessment questionnaire by each Director. The responses are collected by the Company Secretary and submitted to the Chairman and Deputy Chairman for their review who then discuss areas of weaknesses and recommend changes where necessary at detailed discussions at a Board meeting pursuant to the self-evaluation. The process was followed in 2013 and is ongoing for the year 2014.

During 2014, the Bank announced its intention to enter into merger discussions with DFCC. During the merger implementation it was expected that a new organizational chart for the destination bank together with a succession plan would be formalized by the new Board and hence, the Board deliberated and deferred the finalization of an appropriate succession plan for Key Management Personnel. An interim succession plan was however approved by the Nomination Committee and Board.

Complied.

Key Management Personnel regularly present or are called in for discussions at the meetings of the Board and its sub-committees on policy and other matters relating to their areas. Progress towards corporate objectives is a regular agenda item for the Board and Key Management Personnel are regularly involved in Board level discussions on the same.

Complied.

Directors are briefed about developments in the regulatory environment at Board meetings and are provided with a quarterly update of all directions issued by the Central Bank of Sri Lanka in order to ensure that the Board is updated regularly to facilitate the effective discharge of their responsibilities. In addition, the Directors, the Chief Executive Officer and Key Management Personnel of the Bank maintain a dialogue with the regulators on an ongoing basis.

Complied.

The Board Audit Committee carries out the necessary due diligence regarding the hiring of the External Auditor and makes recommendations to the Board. Oversight of the External Auditor is carried out by the Board Audit Committee and the Board is briefed of any concerns in this regard if the necessity arises.

Complied.

The Board has appointed the Chairman and the Chief Executive Officer (CEO) and has approved their functions. There is a clear division of responsibilities between the Chairman and the CEO maintaining the balance of power between the two roles. Functions and responsibilities of the Chairman and CEO are included in the Board approved Internal Code of Corporate Governance in line with this Direction.

Complied.

There have been 12 routine Board meetings during 2014.

The attendance of Directors for Board and Committee meetings is set out in the table under Board Composition and Idependence section.

17 Circular Resolutions were passed during the year 2014. Circulation of Board papers to obtain Board’s consent is minimized and resorted to only when absolutely necessary. These decisions are in any event tabled at the immediately succeeding Board meeting.

Complied.

The Internal Code of Corporate Governance includes a provision to indicate that all Directors are entitled to include such matters and proposals in the agenda for Board meetings. In practice all Directors are able to include matters and proposals in the agenda for regular Board meetings and they can present their proposals at the meetings. During the year 2014 Directors have requested for discussions on matters and same have been minuted.

Complied.

Notice of meetings, the agenda and Board papers related to each Board meeting is circulated to all Directors at least 7 days in advance of the Board meeting. Therefore, adequate notice is given to Directors providing them with an opportunity to attend.

Complied.

The Company Secretary monitors the attendance register to ensure compliance. All Directors have attended at least two thirds (2/3) of the meetings held during 2014 and no Director has been absent from three consecutive meetings during 2014.

Complied.

The Board has appointed a Company Secretary who is an Attorney-at-Law and who satisfies the provisions of Section 43 of the Banking Act. She is responsible to the Board for ensuring that Board procedures are followed and that applicable laws, rules and regulations are complied with.

Complied

All Directors have access to the advice and services of the Company Secretary. For the year 2014, the Company Secretary has provided assistance to the Directors when requested. The Bank’s Internal Code of Corporate Governance also includes this provision.

Complied.

The Company Secretary maintains detailed Board minutes and circulates minutes to all Directors. The minutes are approved at the subsequent Board meetings. The Bank’s Internal Code of Corporate Governance also provides that minutes are open for inspection at any reasonable time, on reasonable notice by any Director. Additionally, copies have been provided of previous meetings to Directors when requested.

Complied.

Independent professional advice is available, on request, to all Directors at the expense of the Bank. The Bank’s Internal Code of Corporate Governance has put in place a procedure which enables independent professional advice to be obtained jointly or severally by a Director or Directors where such advice is necessary to enable the fulfilment of the obligations imposed on a member of the Board. The Directors have obtained professional advice during the year.

Complied.

The Directors are conscious of their obligation to deal with situations where there is a conflict of interest in accordance with the Articles of Association of the Bank and the Corporate Governance Direction No. 11 of 2007 (as amended). The Bank’s Internal Code of Corporate Governance has put in place a procedure to ensure that Directors avoid conflicts of interest, or the appearance of conflicts of interest.

Accordingly, any interests are disclosed at the Board meeting and duly minuted. Directors abstain from participating in the discussions, voicing their opinion or approving in situations where there is a conflict of interest. Additionally, such Director is not counted in the quorum in such instances.

Complied.

A formal schedule of matters has been specifically reserved for the decision of the Board and detailed in the Bank’s Internal Code of Corporate Governance.

Complied.

Monthly and quarterly compliance reports have been submitted to the Board which contains the Capital Adequacy Ratio (CAR). The Bank is fully-compliant with the Capital Adequacy requirements stipulated by the Central Bank of Sri Lanka.

Complied.

The composition as required under this Direction was met during the year 2014. The Bank’s Board comprised of 10 Directors during the year 2014.

Complied.

No formal alternate Directors have been appointed. Directors appoint alternate Directors within the Rules and Articles of the Bank as and when required for a particular meeting and the persons so appointed during the year 2014 have met the criteria to ensure that the independent profile of the respective Director is met.

Complied.

The Non-Executive Directors of the Bank are persons with credible track records and have necessary skills and experience to bring an independent judgment to bear on issues of strategy, performance and resources. Please refer the profiles of the Non-Executive Directors detailed under Board of Directors section of this Report. The Bank has a documented Board approved process in place for appointing Directors.

Complied.

Attendance of Directors is monitored by the Company Secretary and is strictly observed. It was noted that more than one-half (1/2) of Directors present at each meeting of the Board convened in the year 2014 were Non-Executive Directors.

Complied.

The Independent Non-Executive Directors are expressly identified as such in all corporate communications that disclose the names of Directors of the Bank. The composition of the Board, by category of Directors, including the names of the Chairman, Executive Directors, Non-Executive Directors and Independent Non-Executive Directors are given under Board Composition and Independence section.

Complied.

The Board has established a Nomination Committee in conformity with the requirements of this Direction. All new appointments and re-election of Directors are on the recommendations of the Nomination Committee. Central Bank approval is obtained in terms of the Banking Act for the appointment of a new Director. The Bank has a documented Board approved process in place for appointing Directors.

Complied.

Appointment to fill a casual vacancy is made by the Board on the recommendations of the Nomination Committee. A person so appointed would stand for re-election at the next Annual General Meeting in accordance with the Articles of Association.

No Directors were appointed in 2014 to fill casual vacancies.

Complied.

Resignations of Directors and the reasons are informed to the regulatory authorities and shareholders as per CSE requirements together with a statement confirming whether or not there are any matters that need to be brought to the attention of shareholders. No Directors resigned during 2014.

Complied.

There are no Directors who are over 70 years of age.

Complied.

The roles of Chairman and Chief Executive Officer of the Bank are held by separate individuals. In addition, there is a clear division of responsibilities between the Chairman and the Chief Executive Officer thereby maintaining the balance of power between the two roles.

Complied.

There is a process in place which requires all Directors to declare to Board any relationship/s they may have with the Chairman, the CEO or among members of the Board. Based on the above declarations the Board can state that no relationship/s (including financial, business, family or other material/relevant relationships) exist between the Chairman and Chief Executive Officer and among the other members of the Board other than Directors who sit together on some of the Boards of the Bank’s subsidiaries.

Complied.

The Chairman is responsible for the running of the Board, preserving order and ensuring that proceedings at meetings are conducted in a proper manner. Further, he ascertains the views of the Directors on the issues being discussed before decisions are taken. The self-evaluation process carried out by the members of the Board each year assists the Chairman in effectively carrying out his responsibilities by providing him the required feedback.

Complied.

The Chairman draws up the agenda for Board meetings in consultation with the Chief Executive Officer and Company Secretary which ensures that management viewpoints are included. The Bank’s Internal Code of Corporate Governance also casts this responsibility with the Chairman.

Complied.

The Directors are adequately briefed in the course of discussions by the Chairman, Chief Executive Officer and Officers of the management in respect of matters that are taken up by the Board. The following procedures are in place to ensure this: Board papers are circulated in advance among the Directors, relevant Key Management Personnel are on hand for explanations and clarifications. Management information is provided on a regular basis to enable Directors to assess the performance and stability of the Bank and Directors are able to seek independent professional advice on a needs basis at the Bank’s expense.

Complied.

The Chairman ensures that all members effectively participate as a team in Board decisions and Directors’ concerns and comments are duly recorded in the minutes.

Complied.

9 of the 10 Board members are Non-Executive Directors which encourages active participation by the Non-Executive Directors. All Non-Executive Directors participate in Board Committees providing further opportunity for active participation.

In addition, the self-evaluation process carried out by the Board assesses the contribution of Non-Executive Directors as well.

Complied.

The Chairman is a Non-Executive Director and not involved in the day-to-day operations of the Bank

Complied.

The Chairman together with the CEO ensures effective communication with shareholders through investor’s forums held each year and through continuous engagements with our institutional investors. Members of the Board are apprised of the views of major investors and other key stakeholders pursuant to these meetings.

The Board has established a Corporate Governance and Legal Affairs Committee, a Strategic Issues Committee and a Related Party Transactions Review Committee in addition to the four Board Committees required in terms of this Direction namely, Audit Committee, Human Resources and Remuneration Committee, Nomination Committee and Integrated Risk Management Committee.

Recommendations of such committees are addressed directly to the Board for decision and minutes of Committee meetings are tabled and discussed at the main Board meetings.

This Annual Report includes individual reports of each such committee (except of the Related Party Transactions Review Committee as the same was constituted in December 2014) Under Board Committee Report section which reports include a summary of duties, roles and performance of each of the committees.

Complied.

Mr T L F W Jayasekera is the Chairman of the Board Audit Committee (BAC) and is an Independent Non-Executive Director who possesses the required qualifications and experience. The members of the Board Audit Committee are detailed under Board Committee Report section of this Report.

Complied.

All members of the Board Audit Committee are Non-Executive Directors.

Complied.

The matters referred to in this section are reviewed and appropriate recommendations are made by the BAC.

• Appointment of the External Auditor for audit serviceshas been recommended by the BAC. In addition, the BAC has discussed the audit plan and methodology with the External Auditors.
• BAC has discussed the implementation of the Central Bank Guidelines issued to Auditors from time to time.
• The application of the relevant accounting standards.
• The external audit partner was rotated in 2013 as per the five year rotation requirement, in order to ensure the independence of the Auditor and to comply with the requirements of this Direction.

External Auditor’s fee has been discussed at the BAC and agreed to recommend the fee to the Board for approval.

Refer the ‘Report of the Board Audit Committee’ given under Board Committee Report section.

Complied.

The BAC obtains representations from the External Auditor on their independence and that the audit is carried out in accordance with the Sri Lanka Accounting Standards (SLFRSs/LKASs).

(f) The Committee shall, before the audit commences, discuss and finalize with the External Auditors the nature and scope of the audit, including:

• an assessment of the Bank’s compliance with the relevant Directions in relation to corporate governance and the management’s internal controls over financial reporting;
• the preparation of Financial Statements for external purposes in accordance with relevant accounting principles and reporting obligations; and
• the co-ordination between firms where more than one audit firm is involved.

(g) The Committee shall review the financial information of the Bank, in order to monitor the integrity of the Financial Statements of the Bank, its Annual Report, accounts and quarterly reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the Bank’s Annual Report and accounts and quarterly reports before submission to the Board, the Committee shall focus particularly on:

• major judgmental areas;
• any changes in Accounting Policies and Practices;
• significant adjustments arising from the audit;
• the going concern assumption; and
• the compliance with relevant accounting standards and other legal requirements.

Complied.

The Board approved strategy was cascaded for the year 2014 to the CEO and Key Management Personnel. The goals and targets set for the CEO and Key Management Personnel were reviewed and approved by the HRRC and noted/approved by the Board.

Goals and targets for the Directors, for the year 2014 have been deliberated in detail at Board and HRRC level. The Board has noted that specific goals and targets for Directors could not be set for 2014 due to the discussions that commenced with DFCC and DFCC Vardhana Bank on a proposed merger and taking into account the level of extensive involvement of the Board in this matter. The Board decided that a list of achievements/work carried out in the year 2014 will be tabulated to record these developments.

Complied.

The Nomination Committee (NC) has implemented a procedure to select new Directors. A Board approved procedure to select CEO and KMPs has been in place since December 2008.

(b) The Committee shall consider and recommend (or not recommend) the re-election of current Directors, taking into account the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities.

Complied.

The NC determines the Directors who will be re-elected every year pursuant to taking into account the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities. The Committee has considered and recommended the re-election of current Directors.

(c) The Committee shall set the criteria such as qualifications, experience and key attributes required for eligibility to be considered for appointment or promotion to the post of CEO and the key management positions.

Complied.

The NC has set a procedure to assess eligibility including criteria such as qualifications, experience and key attributes, for appointment or promotion to Key Management Positions including the position of the CEO. The Committee is guided by applicable statutes in considering the suitable criteria for each appointment/promotion.

(d) The Committee shall ensure that Directors, CEO and Key Management Personnel are fit and proper persons to hold office as specified in the criteria given in Direction 3 (3) and as set out in the statutes.

Complied.

The annual declarations from Directors and Key Management Personnel are submitted to the NC to ensure that they are fit and proper persons to hold office as specified in the criteria given in Direction 3 (3) and as set out in the statutes was obtained for 2015 and submitted to the NC.

(e) The Committee shall consider and recommend from time to time, the requirements of additional/new expertise and the succession arrangements for retiring Directors and Key Management Personnel.

The NC considers Board vacancies based on the expertise required by the Bank and recommends suitable candidates when necessary in accordance with the Board approved procedure for selection and appointment of Directors.

The NC also approves the succession plans for Key Management Personnel. During 2014, the Bank announced its intention to enter into merger discussions with DFCC and it was expected that during the ongoing merger implementation, a new organizational chart for the destination bank together with a succession plan would be formalized by the new Board. An interim succession plan for Key Management Personnel has however been approved by the NC and Board.

(f) The Committee shall be Chaired by an Independent Director and preferably be constituted with a majority of Independent Directors. The CEO may be present at meetings by invitation.

Complied.

The NC is chaired by the Chairman of the Bank who is an Independent Director and is constituted by a majority of Independent Directors. The CEO is present only if invited.

Integrated Risk Management Committee - Composition and Responsibilities

Please refer Integrated Risk Management Committee Report for the composition and responsibilities of the Integrated Risk Management Committee (IRMC). The Terms of Reference of the IRMC was reviewed and updated in 2014.

(a) The Committee shall consist of at least three Non-Executive Directors, Chief Executive Officer and Key Management Personnel supervising broad risk categories - i.e., credit, market, liquidity, operational and strategic risks. The Committee shall work with Key Management Personnel very closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the Committee.

Complied.

The composition of the IRMC complies with the provisions of this Direction. Please see detailed Report of the IRMC under Integrated Risk Management Committee Report of this Report.

(b) The Committee shall assess all risks - i.e., credit, market, liquidity, operational and strategic risks to the Bank on a monthly basis through appropriate risk indicators and management information. In the case of Subsidiary Companies and associate Companies, risk management shall be done, both on a Bank basis and Group basis.

Complied.

The IRMC assesses all risks of the Bank and Group on a monthly basis through Key Risk Indicators, Risk Dashboards and through the quarterly risk assessment report done for the Bank and its Group as well. The Bank has formed seven management committees to assess risks on a monthly basis and their findings are submitted to the IRMC and the summary of the minutes of the IRMC and quarterly risk assessment reports are submitted to the main Board.

(c) The Committee shall review the adequacy and effectiveness of all management level committees such as the Credit Committee and the Asset Liability Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the Committee.

The adequacy of effectiveness of all management level committees was carried out for the year 2014 by all members carrying out self-assessments. The feedback was reviewed by the Chairman of the respective management committee and a report based on the review together with an action plan was submitted to the IRMC for discussion and follow up.

(d) The Committee shall take prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the Committee on the basis of the Bank’s policies and regulatory and supervisory requirements.

Complied.

The IRMC takes prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the IRMC on the basis of the Bank’s policies and regulatory and supervisory requirements. The Key Risk Indicators designed by the IRMC was approved by Board.

(e) The Committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans.

Complied.

The Committee has met 5 times in the year 2014.

(f) The Committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the Committee, and/or as directed by the Director of Bank Supervision.

Complied.

At the Bank specific risks and the limits are identified by relevant Committees such as ALCO, Credit Committee etc. and as such decisions are taken collectively and appropriate action taken as per the Bank's Human Resources policy.

(g) The Committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific Directions.

Complied.

A detailed report is submitted to the Board subsequent to the IRMC meeting seeking the Board’s views, concurrence and/or specific directions.

3 (7) (i)

The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the Bank with any person, and particularly with the following categories of persons who shall be considered as ‘related parties’ for the purposes of this Direction:

• Any of the Bank’s Subsidiary companies;
• Any of the Bank’s associate companies;
• Any of the Directors of the Bank;
• Any of the Bank’s Key Management Personnel;
• A close relation of any of the Bank’s Directors or Key Management Personnel;
• A shareholder owning a material interest in the Bank;
• A concern in which any of the Bank’s Directors or a close relation of any of the Bank’s Directors or any of its material shareholders has a substantial interest.

Complied.

Steps have been taken by the Board to avoid any conflicts of interest that may arise in terms of this Direction.

Using information submitted to the Bank by Directors and by information obtained from the Secretarial Department and HR Department, the Bank maintains a register of the names of Related Parties set out in the Direction and this list is circulated to all relationship managers of all business units and to all branch staff in terms of the Bank’s internal circular on related party transactions which has been introduced to ensure that the Bank avoids ‘Conflicts of Interest’ which may arise from any transaction of the Bank with any person, particularly with ‘Related Parties’.

A documented Related Party Transaction Policy was approved by the Board in 2014 which lays down processes to identify, approve, monitor and disclose all related party transactions of the Bank coming within these guidelines.

3 (7) (ii)

The type of transactions with related parties that shall be covered by this Direction shall include the following:

• The grant of any type of accommodation, as defined in the Monetary Board’s Directions on maximum amount of accommodation;
• The creation of any liabilities of the Bank in the form of deposits, borrowings and investments;
• The provision of any services of a financial or non-financial nature provided to the Bank or received from the Bank;
• The creation or maintenance of reporting lines and information flows between the Bank and any related parties which may lead to the sharing of potentially proprietary, confidential or otherwise sensitive information that may give benefits to such related parties.

Complied.

All transactions defined in this Directions come within the scope of the Related Party Transaction Policy of the Bank

The Board shall ensure that the Bank does not engage in transactions with related parties as defined in Direction 3 (7) (i) above, in a manner that would grant such parties ‘more favourable treatment’ than that accorded to other constituents of the Bank carrying on the same business. In this context, ‘more favourable treatment’ shall mean and include treatment, including the:

(a) Granting of ‘total net accommodation’ to related parties, exceeding a prudent percentage of the Bank’s regulatory capital, as determined by the Board. For purposes of this sub-direction:

1. ‘Accommodation’ shall mean accommodation as defined in the Banking Act Directions No. 07 of 2007 on Maximum Amount of Accommodation.
2. The ‘total net accommodation’ shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related parties in the Bank’s share capital and debt instruments with a maturity of 5 years or more.

(b) Charging of a lower rate of interest than the Bank’s best lending rate or paying more than the Bank’s deposit rate for a comparable transaction with an unrelated comparable counterparty;

(c) Providing of preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/commissions, that extend beyond the terms granted in the normal course of business undertaken with unrelated parties;

(d) Providing services to or receiving services from a related party without an evaluation procedure;

(e) Maintaining reporting lines and information flows that may lead to sharing potentially proprietary, confidential or otherwise sensitive information with related parties, except as required for the performance of legitimate duties and functions.

3 (7) (iv)

A Bank shall not grant any accommodation to any of its Directors or to a close relation of such Director unless such accommodation is sanctioned at a meeting of its Board of Directors, with not less than two-thirds of the number of Directors other than the Director concerned, voting in favour of such accommodation. This accommodation shall be secured by such security as may from time to time be determined by the Monetary Board as well.

Complied.

The Board ensures compliance with this Direction when accommodation is granted to Directors and their Close Relations or any concerns in which the Director/Close Relations has a substantial interest.

(a) Where any accommodation has been granted by a bank to a person or a close relation of a person or to any concern in which the person has a substantial interest, and such person is subsequently appointed as a Director of the Bank, steps shall be taken by the Bank to obtain the necessary security as may be approved for that purpose by the Monetary Board, within one year from the date of appointment of the person as a Director.

(b) Where such security is not provided by the period as provided in Direction 3 (7) (v) (a) above, the Bank shall take steps to recover any amount due on account of any accommodation, together with interest, if any, within the period specified at the time of the grant of accommodation or at the expiry of a period of eighteen months from the date of appointment of such Director, whichever is earlier.

(c) Any Director who fails to comply with the above sub-directions shall be deemed to have vacated the office of Director and the Bank shall disclose such fact to the public.

(d) This sub-direction, however, shall not

apply to a Director who at the time of the grant of the accommodation was an employee of the Bank and the accommodation was granted under a scheme applicable to all employees of such Bank.

3 (7) (vi)

A Bank shall not grant any accommodation or ‘more favourable treatment’ relating to the waiver of fees and/or commissions to any employee or a close relation of such employee or to any concern in which the employee or close relation has a substantial interest other than on the basis of a scheme applicable to the employees of such bank or when secured by security as may be approved by the Monetary Board in respect of accommodation granted as per Direction 3 (7) (v) above.

Complied.

No favourable treatment or accommodation is provided to Bank employees other than staff benefits. Employees of the Bank are informed through operational circulars to refrain from granting favourable treatment to other employees or their close relations or to any concern in which an employee or close relation has a substantial interest.

3 (8) (i)

The Board shall ensure that: (a) Annual Audited Financial Statements and Quarterly Financial Statements are prepared and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable accounting standards; and that (b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied.

The Financial Statements for the year ended 31 December 2014 and Quarterly Financial Statements are in conformity with all rules and regulations. These statements have been published in the newspapers in all three languages.

(a) A statement to the effect that the annual audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied.

Compliance with applicable accounting standards and regulatory requirements has been reported under the ‘Statement of Directors’ Responsibility for Financial Reporting’, the ‘CEO’s and CFO’s Responsibility Statement’ and Note No. 1.4 (Statement of Compliance) of Notes to the Financial Statements section .

(b) A report by the Board on the Bank’s internal control mechanism that confirms that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements.

Complied.

Directors’ Report on the effectiveness of the internal control system over financial reporting is given under the ‘Statement of Internal Control’ section of this Annual Report.

(c) The Assurance Report issued by the Auditors under “Sri Lanka Standard on Assurance Engagements on SLSAE 3050 - Assurance Report for Banks on Directors’ Statement on Internal Control”.

Complied.

The Assurance Report issued by the External Auditor on the Internal Control over Financial Reporting based on the auditing framework issued by ICASL which is detailed on Independent Assurance Report of this Report.

(d) Details of Directors, including names, fitness and propriety, transactions with the Bank and the total of fees/remuneration paid by the Bank.

Complied.

Please refer ‘Board of Directors’, ‘Directors’ Interest in Contracts with NDB’ and Directors’ Remuneration.

(e) Total net accommodation as defined in 3 (7) (iii) granted to each category of related parties. The net accommodation granted to each category of related parties shall also be disclosed as a percentage of the Bank’s regulatory capital.

Complied.

The net accommodation granted to related parties as a percentage of the Bank's regulatory capital is 0.31.

(f) The aggregate values of remuneration paid by the Bank to its Key Management Personnel and the aggregate values of the transactions of the Bank with its Key Management Personnel, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the Bank.

Complied.

The aggregate value of transactions of the Bank with its Key Management Personnel are disclosed below:

Compensation - LKR 282.9 million

Accommodation - LKR 76.2 million

Deposits and investments - LKR 450.9 million

The aggregate values of transactions involving entities controlled/jointly controlled by Directors and Close Relations are disclosed below:

Deposits and investments - LKR 575.6 million

(g) A confirmation by the Board of Directors in its Annual Corporate Governance Report that all the findings of the ‘Factual Findings Reports’ of Auditors issued under ‘Sri Lanka Related Services Practice Statement 4750’ have been incorporated in the Annual Corporate Governance Report, provide that Auditors confirm to the Director of Bank Supervision to this effect.

Complied.

Certification has been provided by the External Auditors as required by the Direction.

(h) A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any material non-compliances.

Complied.

There were no material non-compliance to prudential requirements, regulations, laws and internal controls affecting the Bank.

A.1.1 Board meetings should be held at least once in every quarter of a financial year.

Complied.

The Bank is headed by an effective Board of Directors who are responsible and accountable for the functions of the Bank. The Board usually meets on monthly intervals, but meets more frequently whenever it is necessary. The Board met twelve (12) times during the year. Scheduled Board and Committee meetings were arranged well in advance and all Directors were expected to attend each Board meeting. The attendance at Board meetings held in 2014 is set out under Corporate Governance Report.

A.1.2 Role of the Board - provide entrepreneurial leadership within a framework of prudent and effective control risks to be assessed and managed.

• formulation and implementation of a sound business strategy;.

Complied.

The Board is responsible for setting strategy, policies and for monitoring performance against agreed goals and Key Performance Indicators. A five year business strategy is in place and has been detailed under Section 3 (1) (i) (b) of the CBSL table uner Corporate Governance Report of this Report.

• the Chief Executive Officer (CEO) and management team possess the skills, experience and knowledge to implement the strategy

Complied.

The Human Resources and Remuneration Committee (HRRC) ensures that the CEO and Key Management Personnel have the required skills, experience and knowledge to implement strategy. The CEO and the Senior Management Team consist of senior bankers with an average experience of 20 years in the field of banking and finance.

• the adoption of an effective CEO and Key Management Personnel succession strategy;

Complied.

Please see our comments on the succession strategy detailed under Section 3 (1) (i) (j) of the CBSL table under Corporate Governance Report of this Report.

• An effective system to secure integrity of information, internal controls, business continuity and risk management;

Complied.

There is in place an adequate system of internal control. Policies relating to securing information, business continuity and risk management have been approved by the Board. These policies have been reviewed by either Integrated Risk Management Committee or Board Audit Committee. Our Business Continuity Plan was rehearsed twice during the year. Refer Directors’ Statement on Internal Control, Board Audit Committee Report and Integrated Risk Management Committee Report.

• compliance with laws, regulations and ethical standards;

Complied.

There is a separate Compliance Department which reports directly to the Board Integrated Risk Management Committee.

There is a procedure in place where every head of department provides the Compliance Officer with a comprehensive sign off at the end of each quarter on the status of compliance with laws and regulations impacting the Bank. The annual compliance programme of the Bank is approved by the Integrated Risk Management Committee at the beginning of each year. The compliance team carries out reviews, assessments on the Bank's products and the accuracy of regulatory returns based on the annual programme to determine the Bank's compliance with laws and regulations and ethical standards. The Compliance Officer submits a status report to the Integrated Risk Management Committee setting out the laws and regulations complied and any breaches that have occurred at the end of each quarter.

There is also in place a Board approved Compliance Policy and Code of Conduct.

• all stakeholder interests are considered in corporate decisions

Complied.

The Board of Directors consider the views/impact on all stakeholders of the Bank when decisions are made at Board meetings.

• recognising sustainable business development in Corporate Strategy, decisions and activities;

Complied.

Sustainable business development is one of the key areas of focus considered by the Board when taking decisions.

• Board approved accounting and compliance with financial regulations;

Complied.

The Board Audit Committee and the Board review accounting policies annually to ensure that they are in line with the business model of the Bank and evolving international and local accounting standards and industry best practices. The Board ensures that the approved accounting standards and financial regulations are complied with when Financial Statements are being prepared.

• fulfilling such other Board functions as are vital, given the scale, nature and complexity of the business concerned

Complied.

The Board is committed to fulfilling their functions in line with the laws, regulations and good governance practices adopted by the Bank.

A.1.3 Approved procedure of the Board to seek independent professional advice

Complied.

Independent professional advice is available, on request, to all Directors at the expense of the Bank. The Board approved Internal Code of Corporate Governance contains the procedure to be followed where a Director or Board wishes to obtain independent professional advice on any matter. Independent professional services were sought on matters during the year in accordance with the above provision.

A.1.4 All Directors of the Board to have access to the advice and services of the Company Secretary

Complied.

All Directors have access to the advice and services of the Company Secretary. For the year 2014, the Company Secretary has provided assistance to the Directors when requested.

A.1.5 All Directors to bring independent judgment to matters submitted to the Board for its decisions.

Complied.

All Directors bring their independent judgement to matters discussed at Board meetings. Details of Directors deliberations are contained in the minutes maintained by the Company Secretary.

A.1.6 Every Director to dedicate adequate time and effort to matters of the Board

• sufficient time before a meeting to review Board papers.
• facilitate call for additional information and clarification.
• follow up on issues consequent to the meeting.
• This should be supplemented by a time allocation for familiarization with business changes, operations, risks and controls.

Complied.

Board Papers are circulated to the Board at least seven days prior to each Board meeting. Any requests for additional information is made to the Company Secretary. Relevant member of staff is informed by the Company Secretary and the requisite information is forwarded. All matters that require follow up are discussed at the immediately succeeding Board meeting under ‘Matters Arising’. Business Heads regularly update the Board on developments in their respective fields.

The CEO on a regular basis updates the Board on business changes, operational risks and controls relevant to the Bank.

A.1.7 Training for New and Existing Directors

Complied.

New Directors are provided with a comprehensive induction pack on appointment to the Board and an induction programme is conducted to facilitate their introduction to the business, activities and senior management of the Bank.

Principle A.2 There are two key tasks at the top of every public company - conducting the business of the Board, and facilitating executive responsibility for management of the Company’s business. There should be a clear division of responsibilities at the head of the Company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision.

A.2.1 There should be a clear division of responsibilities at the head of the Company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision.

Complied.

The posts of Chairman and CEO of the Bank are held by two separate persons and there is a clear division of responsibilities between them, thereby maintaining the balance of power between the two roles.

Principle A.3 The Chairman’s role in preserving good Corporate Governance is crucial. As the person responsible for running the Board, the Chairman should preserve order and facilitate the effective discharge of Board functions.

A.3.1 The Chairman should conduct Board proceedings in a proper manner and ensure, inter-alia, that:

• the effective participation of both Executive and Non-Executive Directors are secured;
• all Directors are encouraged to make an effective contribution, within their respective capabilities, for the benefit of the Company;
• a balance of power between Executive and Non-Executive Directors is maintained;
• the views of Directors on issues under consideration are ascertained; and
• the Board is in complete control of the Company’s affairs and alert to its obligations to all shareholders and other stakeholders.

Complied.

The Board approved Internal Code of Corporate Governance formally details the role of the Chairman. The Chairman ensures that the affairs of the Board are conducted in an effective manner. He encourages Directors to share their views on matters discussed, ensures the participation of both Executive and Non-Executive Directors and maintains a balance of power between Executive and Non-Executive Directors.

Principle A.4 The Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance.

A.4.1 Financial Acumen and Knowledge.

Complied.

6 of the 10 Directors of the Board have a finance background and as such there is sufficient financial acumen and knowledge on the Board.

A.5.1 Non-Executive Directors - The Board should include at least two Non-Executive Directors or such number of Non-Executive Directors equivalent to one-third of total number of Directors, which ever is higher.

Complied.

9 of the 10 Directors on the Board are Non-Executive Directors.

A.5.2 - A.5.5 Independent Non-Executive Directors -

Two or one third of Non-Executive Directors appointed to the Board of Directors whichever is higher should be ‘Independent’.

For a Director to be ‘Independent’, such Director should be Independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgment

A Declaration to be obtained from each Non-Executive Director against the criteria set out in in the Code of Best Practice issued by ICASL and the SEC.

Based on the said declaration and other information available to the Board, the Board is required to annually make a determination as to the independence or non-independence of each Non-Executive Director.

The Board should specify the criteria not met and basis of its determination in the Annual Report.

Complied.

Annual declarations of independence or non-independence have been obtained from the Directors for 2014.

Based on the annual declarations, there are 9 Non-Executive Directors on the Board as at 31st December 2014. Of them 5 are Independent Non-Executive Directors in terms of the criteria set out in this Code.

The Non-Executive Directors are detailed under Corporate Governance Report section of this Report. Accordingly, the number of Independent Non-Executive Directors exceeds one-third of the total number of Directors on the Board.

A.5.6 Alternate Directors -

Executives of the Bank shall not be appointed as alternate Directors of Non-Executive Directors of the Bank.

Any alternate of an Independent Director should also meet the criteria of independence.

The minimum number of Independent Directors should be be complied with

Complied.

No formal alternate Directors have been appointed. Directors appoint alternate Directors within the rules and Articles of the Bank as and when required for a particular meeting. An alternate Director of an Independent Director is also Independent.

A.5.7-A.5.8

The appointment of a Senior Independent Director -

A Senior Independent Director is required to be appointed where CEO and Chairman are one and the same person.

Such a Senior Independent Director should make himself available for discussions with other Directors.

The CEO and Chairman are not one and the same person. As such there is no requirement to appoint a Senior Independent Director.

A.5.9 Chairman to meet only with Non-Executive Directors as necessary and at least once each year.

Complied.

If required, the Chairman has discussions with/ meets Non-Executive Directors.

A.5.10 Recording of a dissenting view - Any dissenting view to be minuted where a matter is not resolved unanimously.

Complied.

Dissenting views are recorded in the minutes in detail.

A.6.1 The Board to be provided appropriate and timely information by management.

Complied.

The management provides comprehensive information including both quantitative and qualitative information for the monthly Board meetings generally 7 days prior to the Board/Committee meetings. The Directors also have access to management to obtain further information or clarify any concerns they may have. As described above, they also have the right to seek independent professional advice at the Bank’s expense.

A.6.2 Agenda, Board Papers and Minutes of previous meetings to be circulated 7 days in advance of a meeting.

Complied.

Papers are circulated at least 7 days in advance of each meeting of the Board.

A.7.1 and A.7.2

A Nomination Committee to be established to make recommendations on new appointments.

Complied.

The Board has established a Nomination Committee to make recommendations on new appointments to the Board. There is in place a board approved policy and process for appointments of Directors to the Board.

Please refer Board Committee Report section for the Report of the Nomination Committee

A.7.3 Disclosure to shareholders on new appointments to the Board.

Complied.

Disclosures are made to shareholders in terms of the Listing Rules issued by the Colombo Stock Exchange (CSE)

Principle A.8 Re-election

All Directors should be required to submit themselves for re-election at regular intervals and at least once in every three years.

A.8.1 Non-Executive Directors should be appointed for specified terms and re-election should not be automatic.

Complied.

As per the Articles, one-third of the Directors (except for the CEO and any Nominee Director of the Ministry of Finance) should retire at each Annual General Meeting and be subject to re-election. Such Directors who retire are those who held office for the longest time period since the election/reappointment. In accordance with this provision, the following Directors retire and offer themselves for re-election.

Mrs Kimarli Fernando

Mr Trevine Jayasekera

A.8.2 Re-election of Non-Executive Directors

Principle A.9 Appraisal of Board Performance

Boards should periodically appraise their own performance in order to ensure that Board responsibilities are satisfactorily discharged.

The Board should annually appraise itself on its performance and that of its sub-committees

Complied.

The Board annually appraises its own performance to ensure that it is discharging its responsibilities satisfactorily. The Board has in place a self assessment process which has been detailed under Section 3 (1) (i) (i) of the CBSL table under Corporate Governance Report of this Report. Commencing from 2014 all Board Committees carried out a self-evaluation process to determine the effectiveness of their performance and areas for improvement.

Principle A.10 Disclosure of Information in Respect of Directors

Principle A.10 Shareholders should be kept advised of relevant details in respect of Directors.

A.10.1 Disclosures on Directors in the Annual Report -

The Annual Report of the Company should set out the following information in relation to each Director:

• name, qualifications and brief profile;
• the nature of his/her expertise in relevant functional areas;
• immediate family and/or material business relationships with other Directors of the Company;
• whether Executive, Non-Executive and/or Independent Director;
• names of listed companies in Sri Lanka in which the Director concerned serves as a Director;
• names of other companies in which the Director concerned serves as a Director, provided that where he/she holds directorships in companies within a Group of which the Company is a part, their names need not be disclosed; it is sufficient to state that he/she holds other directorships in such companies;
• number/percentage of Board meetings of the Company attended during the year;
• the total number of Board seats held by each Director indicating listed and unlisted Companies and whether in an executive or non-executive capacity;
• names of Board Committees in which the Director serves as Chairman or a member; and
• number/percentage of committee meetings attended during the year.

Please refer Board of Directors for Directors’ Profiles.

Details of directorship held by each Director are found under the Directors’ Report.

Attendance of Directors at Board meetings are given under Corporate Governance Report of this Report.

Attendance of Directors at sub-committee meetings are detailed in the respective sub-committee reports found under Board Committee Report section.

Principle B.1 - B.2

Companies should establish a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors.

Remuneration Policy for Directors and Key Management Personnel

Complied.

The Board has established a Human Resources and Remuneration Committee (HRRC) to develop policy and determine remuneration for the Directors and Key Management Personnel. There is in place, a Board approved Remuneration Policy for Directors and Key Management Personnel. Additionally the HRRC makes recommendations on remuneration payable to Directors and Key Management Personnel of the Bank.

Please refer Board Committee Report for the Report of the HRRC.

C.1.1 Companies should count all proxy votes and should indicate the level of proxies lodged on each resolution and the balance for and against the resolution and withheld, after it has been dealt with on a show of hands, except where a poll is called.

Complied.

All proxy votes lodged together with the votes of shareholders present at the AGM are considered for each resolution and duly recorded in the minutes.

C.1.2 Separate resolutions to be obtained for substantially separate issues and adoption of Annual Report and Accounts.

Complied.

Separate resolutions are obtained for substantially separate issues.

C.1.3 Chairpersons of all Board sub-committees to be available to respond to questions of any shareholder at AGM.

Complied.

All the Directors of the Board are present at the AGM in order to respond to questions raised at the AGM.

C.1.4 - C.1.5 Adequate notice of all meetings to Shareholders together with the summary of the procedure to be adopted by shareholders.

Complied.

Notice to shareholders and relevant papers are circulated to shareholders in compliance with the provisions for notice under the Companies Act No. 7 of 2007.

C.2.2 - C.2.3 The Company to disclose the policy and methodology for communication with shareholders and how it is implemented. The process for responding to shareholder matters should be formulated by the Board and disclosed.

Complied.

The Board approved Disclosure Policy and Communications Policy deals with communications with shareholders. Additionally contact details were provided in the website & in the Annual Report. Please refer Stakeholders section of this Report for details relating to engagement with stakeholders.

Complied.

Shareholder correspondence on major issues are handled by the Chairman who will communicate to the Board of Directors as an when necessary.

There should be a process to make all Directors aware of major issues and concerns of shareholders, and this process has to be disclosed by the Company.

D.1.1 The Board’s responsibility to present a balanced and understandable assessment extends to interim and other price-sensitive public reports and reports to regulators, as well as to information required to be presented by statutory requirements.

Complied.

Please refer Annual Report of the Board of Directors on the State of Affairs of National Development Bank.

D.1.2 The Directors’ Report, which forms part of the Annual Report, should contain declarations by the Directors to the effect that:

• the Company has not engaged in any activity, which contravenes laws and regulations;
• the Directors have declared all material interests in contracts involving the Company and refrained from voting on matters in which they were materially interested;
• the Company has made all endeavours to ensure the equitable treatment of shareholders;
• the business is a going concern, with supporting assumptions or qualifications as necessary; and
• they have conducted a review of the internal controls, covering financial, operational and compliance controls and risk management and have obtained reasonable assurance of their effectiveness and successful adherence therewith, and, if it is unable to make any of these declarations, to explain why it is unable to do so.

Complied.

Please refer Annual Report of the Board of Directors on the State of Affairs of National Development Bank

D.1.3 The Annual Report to contain a report/statement

• setting out the responsibilities of the Board for the preparation and presentation of Financial Statements, together with a Statement by the Auditors about their reporting responsibilities; and
• on Internal Control.

Complied.

Please refer Statement of Directors' Responsibilities for Financial Reporting

Please refer Independent Auditors' Report

Please refer Directors' Statement on Internal Control

D.1.4 The Annual Report should contain a ‘Management Discussion & Analysis’, discussing, among other issues:

• industry structure and developments;
• opportunities and threats;
• risks and concerns;
• internal control systems and their adequacy;
• social and environmental protection activities carried out by the Company;
• financial performance;
• material developments in human resource/industrial relations; and
• prospects for the future.

Complied.

Please refer Management Discussion & Analysis section.

D.1.5 The Directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary.

Complied.

Please refer Annual Report of the Board of Directors on the State of Affairs on National Development Bank PLC

D.1.6 In the event the net assets of the Company fall below 50% of the value of the Company’s shareholders’ funds, the Directors shall forthwith summon an Extraordinary General Meeting (EGM) of the Company to notify shareholders of the position and of remedial action being taken.

Likelihood of such occurrence is remote. However, should the situation arise, an EGM will be called for and shareholders will be notified.

D.1.7 The Board should adequately and accurately disclose the related party transactions in its Annual Report:

• Each related party should submit signed and dated declaration quarterly mentioning whether they have related party transactions with the Company as defined in this Code;
• It should be the responsibility of the Company Secretary to keep a record on related party transactions and make necessary disclosures accordingly;
• There should be a process to capture related parties and related party transactions. This process needs to be operationalized and related party transactions should be properly documented. Further, a report should be presented by the Audit Committee to the Board on identified related parties and related party transactions on a regular basis;
• A record/register either in hard or soft form on related party and related party transaction should be maintained by the Company;
• This record should ensure that the Company captures information to comply with the respective related party disclosure requirements imposed by SEC/Accounting Standards/Auditing Standards and similar regulations.

Complied.

Please see Note 55 under Notes to the Financial Statements section of this Report

A declaration is obtained from related parties quarterly.

The Finance Department at the Bank keeps a record of all related party transactions and discloses the same to the Company Secretary.

A detailed Board approved documented process is available and has been circulated to all staff through the NDB Cloud for compliance.

In addition to the interest register maintained by the Company Secretary, a system generated related party transaction report is available at the Finance Department. Finance Department uses this report for disclosure purposes.

The Bank has in place an internal system to capture information relating to related party transactions, in line with SEC and ICASL requirements.

D.2.1 Directors to conduct an annual review of Internal Controls through the Board Audit Committee.

Complied.

The Board’s Statement on the effectiveness of Bank’s Internal Control Mechanism as reviewed by the Board Audit Committee is presented under the caption “Directors’ Statement on Internal Control” in this Annual Report. The Board also reviewed the External Auditors' assurance report in this regard, pursuant to the independent audit conducted by them in accordance with Sri Lanka Standards on Assurance Engagement SLSAE 3050 - Assurance Report for Banks on Directors’ Statement on Internal Control as given in the Annual Report.

D.2.2 The Bank should have an internal audit function.

Complied.

The Bank has a fully-fledged Internal Audit Department which reports to the Board Audit Committee.

D.2.3 The Board should require the Audit Committee to carry out reviews of the process and effectiveness of risk management and internal controls and to document to the Board and Board takes the responsibility for the disclosures on internal controls.

Complied.

The Board Audit Committee Report and the Integrated Risk Management Committee Report specified the process carried out in relation to reviewing the effectiveness of Risk Management and Internal Control.

D.2.4 The Schedule K to this document contains guidance on the responsibilities of Directors in maintaining a sound system of internal control and the contents of the Statement of Internal Control.

Complied

Please refer the Board Audit Committee Report and the Directors Statement on Internal Control in relation to compliance with this requirement.

D.3.1 Composition of Audit Committee

Complied.

All members of the Board Audit Committee, including the Chairman are Non-Executive Directors.

Please refer the Board Audit Committee report which details the composition.

D.3.2 The duties of the Audit Committee

Complied.

As stated in the Report of the Board Audit Committee of the Bank on the Annual Report, Board Audit Committee regularly reviews the scope, results and effectiveness of the audits carried out. It also ensures the balance amongst objectivity, independence and value for money of the services provided by the Bank’s External Auditors, with special attention to provision of non-audit services by the External Auditors.

D.3.3 Terms of Reference of the Audit Committee

Complied.

Terms of Reference of the Board Audit Committee is clearly defined in the Charter of the Audit Committee approved by the Board of Directors, which was last revised and updated in 2014. This clearly explains the purpose of the Committee, its duties and responsibilities together with the scope and functions of the Committee. The Committee mainly deals with the matters pertaining to statutory and regulatory compliance in financial reporting and matters with regard to the External Auditors and Internal Audit.

D.3.4 Disclosures regarding Audit Committee.

Complied.

Please refer Board Audit Committee report.

D.4.1 Code of Conduct to be developed for Directors and Senior Management.

Complied.

The Board approved Internal Code of Corporate Governance details matters relating to Directors and Key Management Personnel and best practices relating to their business conduct and ethics.

In addition the Board approved Compliance Policy and Code of Conduct ensures that the Bank stays ahead of best practice related to business conduct and ethics.

D.4.2 Affirmative declaration by Chairman of compliance with Code of Business Conduct & Ethics.

Is complied by this Report.

Principle E.1 Institutional shareholders have a responsibility to make considered use of their votes and should be encouraged to ensure their voting intentions are translated into practice.

E.1 Shareholders voting

Complied.

The Annual General Meeting is used as an effective channel to create a dialogue between the shareholders and the Board of Directors. Also The Chairman and CEO have regular structured meetings with institutional shareholders. Board members are briefed about the matters discussed at such meetings.

Principle F.1 Individual shareholders, investing directly in shares of companies should be encouraged to carry-out adequate analysis or seek independent advice in investing or divesting decisions.

F.1 Investing/Divesting decisions

Complied.

The Annual Report contains sufficient information for a potential investor to carry out his/her own analysis. Further, Interim Financial Statements provided each quarter, provides sufficient information to enable the retail investors to make informed judgements regarding the performance of the Bank.

Additionally, there is a separate part of the Bank’s website dedicated to Investor Relations which provides this information online to all investors/shareholders.

Principle G.1.1 The principle of Economic Sustainability Governance recognizes how organizations take responsibility for impacts of their strategies, decisions and activities on Economic Performance and Corporate Citizenship in their sphere of influence (including geographic) and how this is integrated throughout the organization.

G.1.1 Economic Sustainability

Complied.

Please refer Management Discussion & Analysis.

Principle G.1.2 Environmental Governance of an organisation should adopt an integrated approach that takes into consideration the direct and indirect economic, social, health and environmental implications of their decisions and activities, including pollution prevention, sustainable resource use, climate change, protection of environment, bio-diversity and restoration of national resources.

G.1.2 Environmental Governance

Complied.

Please refer Social & Environmental Capital section for details.

Principle G.1.3 Labour Practices Governance of an organisation encompass all policies and practices relating to work performed by or on behalf of the organization.

G.1.3 Labour Practice

Complied.

Please refer Customer Capital section for details.

Principle G.1.4 Society Governance encompasses support for and building a relationship with the community and striving for sustainable development including responsible public policy participation, fair competition and responsible community involvement.

G.1.4 Society Governance

Complied.

Please refer Social & Environmental Capital section for details.

Principle G.1.5 Product Responsibility Governance includes manufacturing quality products and distributing them and ensuring that the products are safe for the consumers and the environment and also communicating clearly with consumers so that they can make an informed choice including factual unbiased information and fair contractual practices and consumer data protection and privacy.

G.1.5 Product Responsibility

Complied.

Please refer Investor Capital section for details.

Principle G.6 Stakeholder Identification, Engagement & Effective communication. Internal and external stakeholder groups should be identified in relation to the Company’s sphere of influence, impact and implication. Communications should be proactive and transparent. The communication with stakeholders should include reporting on economic, social and environmental issues and be relevant, material, comparable with past performance and should be well presented focusing on substance over form.

G.1.6 Stakeholder identification, engagement & effective communication

Complied.

Please refer Stakeholders section for details.

Principle G.7 Sustainable Reporting and Disclosure should be formalized as part of the Company’s reporting processes and take place on a regular basis.

G.7 Sustainable Reporting and Disclosures

Complied.

Please refer Management Discussion & Analysis section and GRI Content Index page for details.