The National Development Bank of Sri Lanka was incorporated under the National Development Bank of Sri Lanka Act No. 02 of 1979. In 2005, pursuant to the provisions of the National Development Bank of Sri Lanka (consequential provisions) Act No. 01 of 2005, a company by the name of ‘National Development Bank Ltd.’ was incorporated for the purpose 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was incorporated and with effect from that date, the National Development Bank of Sri Lanka Act No. 02 of 1979 was repealed except for certain provisions contained therein.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 2015 was 93 (2014 – 83) and the number of staff employed as at 31 December 2015 was 1,960 (2014 – 1,744).
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 % - 2015 | Holding % - 2014 | |||||
| Entity | Country of Incorporation |
Principal Activities | Direct | Indirect | Direct | Indirect |
| Subsidiaries | ||||||
| NDB Capital Holdings Ltd | Sri Lanka | Full service investment banking | 99.9 | – | 99.6 | – |
| NDB Investment Bank Ltd. | Sri Lanka | Investment banking | – | 99.9 | – | 99.6 |
| NDB Wealth Management Ltd. | Sri Lanka | Wealth management | – | 99.9 | – | 99.6 |
| NDB Securities (Pvt) Ltd. | Sri Lanka | Investment advisory and securities trading | – | 99.9 | – | 99.6 |
| Development Holdings (Pvt) Ltd. | Sri Lanka | Property management | 58.7 | – | 58.7 | – |
| NDB Capital Ltd. | Bangladesh | Investment banking | 77.8 | – | 77.8 | – |
| NDB Zephyr Partners Ltd. | Mauritius | Management of private equity funds | – | 60.0 | – | – |
| NDB Zephyr Partners Lanka (Private) Ltd. | Sri Lanka | Management of private equity funds | – | 60.0 | – | – |
| Associate Companies | ||||||
| Ayojana Fund (Pvt) Ltd. (under liquidation) | Sri Lanka | Venture capital | 50.0 | – | 50.0 | – |
| NDB Venture Investments (Pvt) Ltd. (under liquidation) | Sri Lanka | Venture capital | 50.0 | – | 50.0 | – |
The Consolidated Financial Statements for the year ended 31 December 2015 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 2015 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 Responsibilities on Financial Reporting’ and the certification given on the ‘Statement of Financial Position’.
The Financial Statements of the Bank and the Group for the year ended 31 December 2015 (including the comparative figures) have been approved and authorised for issue by the Board of Directors in accordance with the resolution of the Directors on 12 February 2016.
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:
| Item | Basis of Measurement | Note Numbers |
| Derivative Financial instruments | Fair value | 22 |
| Financial Assets – Held-for-Trading | Fair value | 23 |
| Financial Investment – Available-for-Sale | Fair value | 27 |
| Investment Property | Fair value | 32 |
| Freehold land and building | Measured at cost at the time of acquisition and subsequently measured at revalued amounts which represented the fair value at the date of revaluation . | 34 |
| Employee benefit liabilities | Recognized at the present value of the defined benefit obligations less the fair value of the assets of the plan. | 40 |
The Bank and the Group present their Statement of Financial Position broadly in order of liquidity. An analysis regarding the recoveries and settlements within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note 50 to the Financial Statements.
In compliance with Sri Lanka Accounting Standards – LKAS 01on ‘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 comparative information is reclassified wherever necessary to conform to the current year’s presentation the details of which are given in Note 54.
The Consolidated Financial Statements comprise the Financial Statements of the Bank and its subsidiaries and associates for the year ended 31 December 2015. 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 the equity of the parent.
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 effected.
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.
Given below are the general accounting policies adopted in the presentation of Financial Statements. The specific accounting policies and the basis of measurement adopted by the Bank for each item in the Statement of Profit or Loss and each class of assets and liabilities in the Statement of Financial Position are presented along with the notes to the Financial Statement.
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.
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.
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 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 recognized 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).
Effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.
The calculation of effective interest rate takes into account all contractual terms of the financial instruments (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instruments and are an integral part of the effective interest rate, but not future credit losses.
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when –
The Bank and the Group have transferred their rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either,
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 Bank and 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 Bank and 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, which has been 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 that 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 fromthe 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 do not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. Further, the Bank and the Group do 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.
Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Income and expenses are presented on a net basis only when permitted under SLFRSs, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.
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 recognized 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 deter mined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized 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 following Sri Lanka Accounting standards have been issued by the Institute of Chartered Accountants of Sri Lanka which are not yet effective as at 31 December 2015.
The Objective of this Standards is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subjected to rate regulation.
SLFRS 14 will become effective on 1 January 2016. The impact on the implementation of the above standard has not been quantified yet.
The Objective of this standard is to establish the principles that an entity shall apply to report useful information to users of Financial Statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.
SLFRS 15 will become effective on 1 January 2018. The impact on the implementation of the above standard has not been quantified yet.
This standard will replace Sri Lanka Accounting Standard – LKAS 39 on ‘Financial Instruments: Recognition and Measurement’. The improvements introduced by SLFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting which are detailed below:
SLFRS 9 will become effective on 1 January 2018. The impact on the implementation of the above standard has not been quantified yet.
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 notes.
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).
Effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.
The calculation of effective interest rate takes into account all contractual terms of the financial instruments (for example, prepayment option) and includes any fees or incremental costs that are directly attributed to the instruments and are an integral part of the effective interest rate, but not future credit losses.
The carrying amount of 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.
In line with requirement of the Sri Lanka Accounting Standard – LKAS 18 on ‘Revenue’, the Bank discontinued the re-cognition of interest income of loan facilities if the arrears position is equal or more than three instalments. The basis was decided upon after a comprehensive review of the risk profile and the assets quality of the Bank’s loans and receivables to other customers. The change in the basis was effective from 1 July 2015 and did not result in retrospective adjustments as the amount involved is not material.
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 | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Interest income | 3,732,743 | 3,397,890 | 3,732,743 | 3,397,890 |
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 national 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 2015 and the notional tax credit amounted to LKR 196.9 million (2014 – LKR 293.8 million).
| BANK | GROUP | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Interest income on impaired loans and receivables to other customers | 316,636 | 217,067 | 316,636 | 217,067 |
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 liability of the Bank and the Group 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.
Net gains/(losses) from trading represent income from foreign exchange and include gains and losses from spot and forward contracts and other currency derivatives.
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.
Income from Equities – includes the results of buying and selling, and changes in the fair value of equity securities.
Income from Debt Securities – includes the realized and unrealized gains of debt securities.
Income from Unit Trusts – includes the change in the fair value of unit trust investments.
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/(losses) 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’.
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.
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 the 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 are more fully described in Notes 43.2 and 46.3 to these Financial Statements.
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. Other expenses excluding depreciation of property, plant & equipment and amortization of intangible assets are recognised on an accrual basis.
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 and Nation Building Tax on financial services. 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 11% (2014 – 12%).
The same base is also applied for the computation of the Nation Building Tax on financial services which was effective from 1 January 2014 and the regulatory tax rate is 2%.
| BANK & GROUP | ||
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Value Added Tax on financial services | 770,441 | 882,444 |
| National Building Tax on financial services | 140,001 | 146,806 |
| Total | 910,442 | 1,029,250 |
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 of the subsidiary companies and the associate, if any.
| GROUP | |||
| Percentage Holding 2015/2014 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Maldives Finance Leasing Co. (Pvt) Ltd. (Note 14.1) | 35.00% | – | 97,274 |
| Resus Energy PLC (Note 14.2 ) (Equity accounted profit up to 17 September 2015) | 32.40% | 77,818 | – |
| Total | 77,818 | 97,274 | |
14.1 The Board of Directors of NDB, 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 97 million.
14.2 In April 2015, Resus Energy PLC was accounted as an Investment in Associate which was a 32% owned associate company of NDB Capital Holdings Ltd. However, NDB Capital Holdings Ltd. divested part of its 32% owned investment in Resus Energy PLC on 17 September 2015 and subsequently the investment was reclassified as ‘Available for Sale’ Investments in September 2015. As such the LKR 77.8 million was recognized as an equity accounted profit for the period in which the investment was accounted as an Investment in Associate.
As per the Sri Lanka Accounting Standard – LKAS 12 – ‘Income Taxes’, the tax expense/tax income is the aggregate amount included in the 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 that it relates to items recognized directly in Equity in which case it is recognized in Other Comprehensive Income.
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% (2014 – 28%).
The components of the income tax expense for the years ended 31 December 2015 and 2014 are:
| BANK | GROUP | ||||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
||
| Income tax expense | |||||
| Current year | 676,943 | 1,128,858 | 841,929 | 1,171,176 | |
| Adjustment in respect of current income tax of prior years | 194,714 | 83,708 | 196,314 | 72,265 | |
| a. | 871,657 | 1,212,566 | 1,038,243 | 1,243,441 | |
| Deferred tax expense | |||||
| Origination and reversal of temporary differences | c. | 154,345 | 126,893 | 174,321 | 105,343 |
| Total tax charged to the Statement of Profit or Loss | 1,026,002 | 1,339,459 | 1,212,564 | 1,348,784 | |
| Effective tax rate (including deferred tax) | 19% | 23% | 21% | 21% | |
| Effective tax rate (excluding deferred tax) | 16% | 21% | 18% | 19% | |
| BANK | GROUP | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Operating profit before tax on financial services | 5,447,875 | 5,786,773 | 5,715,283 | 6,526,732 |
| Income tax for the year (accounting profit @ applicable tax rate) | 1,525,404 | 1,620,260 | 1,764,835 | 1,838,144 |
| Tax effect of exempt income | (606,978) | (446,132) | (744,446) | (661,795) |
| Adjustment in respect of current income tax of the prior year | 194,714 | 83,708 | 196,314 | 72,265 |
| Add: Tax effect of expenses that are not deductible for tax purposes | 1,602,917 | 1,138,532 | 1,684,243 | 1,180,876 |
| Less: Tax effect of expenses that are deductible for tax purposes | (1,968,908) | (1,186,083) | (1,973,240) | (1,198,531) |
| Tax effect of leasing/tax losses | 124,508 | 2,281 | 110,537 | 12,482 |
| Income tax expense for the year | 871,657 | 1,212,566 | 1,038,243 | 1,243,441 |
The applicable income tax rates of the Bank and the subsidiary companies for the years 2015 and 2014 are as follows:
| GROUP | |||
| 2015 % |
2014 % |
||
| National Development Bank PLC | 28 | 28 | |
| NDB Capital Holdings Ltd. | 28 | 28 | |
| Development Holdings (Pvt) Ltd. | On rental income | 2 on turnover | 2 on turnover |
| On other income | 28 | 28 | |
| NDB Investment Bank Ltd. | 28 | 28 | |
| NDB Securities (Pvt) Ltd. | 28 | 28 | |
| NDB Wealth Management Ltd. | On unit trust income | 10 | 10 |
| On other income | 28 | 10 | |
| NDB Zephyr Partners Ltd.* | 15 | 15 | |
| NDB Capital Ltd. | 0.3 | 0.3 | |
*The Company is however, entitled to a tax credit equivalent to the higher of actual foreign tax suffered or 80% of the Mauritius tax chargeable on its foreign source income.
The following table shows the deferred tax expense recorded in the Statement of Profit or Loss and the Other Comprehensive Income due to the changes in the deferred tax assets and liabilities:
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’:
| BANK & GROUP | ||||
| Dividend per Share LKR |
2015 LKR ’000 |
Dividend per Share LKR |
2014 LKR ’000 |
|
| Final dividend paid for the prior year | 4.00 | 660,376 | 5.00 | 824,245 |
| Interim dividend paid for the current year | 7.00 | 1,156,171 | 7.00 | 1,155,587 |
| Gross dividends paid during the year | 11.00 | 1,816,547 | 12.00 | 1,979,832 |
| Reversal of dividends declared in prior years | – | (1,097) | – | (2,297) |
| 1,815,450 | 1,977,535 | |||
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 2015.
| 2015 LKR |
2014 LKR |
|
| Total dividend per share | 11.00 | 11.00 |
| As at 31 December 2015 | BANK | ||||
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivables LKR ’000 |
Available-for-Sale LKR ’000 |
Total LKR ’000 |
|
| Assets | |||||
| Cash and cash equivalents | – | – | 11,821,503 | – | 11,821,503 |
| Balances with the Central Bank of Sri Lanka | – | – | 6,999,898 | – | 6,999,898 |
| Placements with banks | – | – | 1,153,619 | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | – | – | 1,903,573 |
| Financial assets held-for-trading | 2,985,262 | – | – | – | 2,985,262 |
| Loans and receivables to banks | – | – | 102,632 | – | 102,632 |
| Loans and receivables to other customers | – | – | 209,602,069 | – | 209,602,069 |
| Financial investments – loans and receivables | – | – | 35,830,311 | – | 35,830,311 |
| Financial investments – available-for-sale | – | – | – | 28,501,518 | 28,501,518 |
| Financial investments – held-to-maturity | – | 4,436,973 | – | – | 4,436,973 |
| Total Financial Assets | 4,888,835 | 4,436,973 | 265,510,032 | 28,501,518 | 303,337,358 |
| Held-for-Trading LKR ’000 |
Amortized Cost LKR ’000 |
Total LKR ’000 |
|
| Liabilities | |||
| Due to banks | – | 11,620,003 | 11,620,003 |
| Derivative financial instruments | 639,272 | – | 639,272 |
| Due to other customers | – | 184,933,230 | 184,933,230 |
| Debt Securities issued and other borrowed funds | – | 60,527,844 | 60,527,844 |
| Subordinated term debts | – | 19,573,883 | 19,573,883 |
| Other financial liabilities | – | 2,889,783 | 2,889,783 |
| Total Financial Liabilities | 639,272 | 279,544,743 | 280,184,015 |
| As at 31 December 2015 | Group | ||||
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivables LKR ’000 |
Available-for-Sale LKR ’000 |
Total LKR ’000 |
|
| Assets | |||||
| Cash and cash equivalents | – | – | 11,848,575 | – | 11,848,575 |
| Balances with the Central Bank of Sri Lanka | – | – | 6,999,898 | – | 6,999,898 |
| Placements with banks | – | – | 1,153,619 | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | – | – | 1,903,573 |
| Financial assets held-for-trading | 5,229,493 | – | – | – | 5,229,493 |
| Loans and receivables to banks | – | – | 102,632 | – | 102,632 |
| Loans and receivables to other customers | – | – | 209,665,561 | – | 209,665,561 |
| Financial investments – loans and receivables | – | – | 37,368,705 | – | 37,368,705 |
| Financial investments – available-for-sale | – | – | – | 28,964,820 | 28,964,820 |
| Financial investments – held-to-maturity | – | 5,660,868 | – | – | 5,660,868 |
| Total Financial Assets | 7,133,066 | 5,660,868 | 267,138,990 | 28,964,820 | 308,897,744 |
| Held-for-Trading LKR ’000 |
Amortized Cost LKR ’000 |
Total LKR ’000 |
|
| Liabilities | |||
| Due to banks | – | 11,620,003 | 11,620,003 |
| Derivative financial instruments | 639,272 | – | 639,272 |
| Due to other customers | – | 184,152,280 | 184,152,280 |
| Debt securities issued and other borrowed funds | – | 60,497,844 | 60,497,844 |
| Subordinated term debts | – | 19,573,883 | 19,573,883 |
| Other financial liabilities | – | 2,893,671 | 2,893,671 |
| Total Financial Liabilities | 639,272 | 278,737,681 | 279,376,953 |
| As at 31 December 2014 | Bank | ||||
| Held-for-Trading LKR ’000 |
Held-to-Maturity LKR ’000 |
Loans and Receivables LKR ’000 |
Available-for-Sale LKR ’000 |
Total LKR ’000 |
|
| Assets | |||||
| Cash and cash equivalents | – | – | 3,104,391 | – | 3,104,391 |
| Balances with the Central Bank of Sri Lanka | – | – | 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 | 235,044,819 |
| As at 31 December 2014 | Group | ||||
| Held-for- Trading LKR ’000 |
Held-to- Maturity LKR ’000 |
Loans and Receivables LKR ’000 |
Available- for-Sale LKR ’000 |
Total LKR ’000 |
|
| Assets | |||||
| Cash and cash equivalents | – | – | 3,274,036 | – | 3,274,036 |
| Balances with the Central Bank of Sri Lanka | – | – | 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 |
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 both local currency and foreign currency.
The balances of the cash in hand are recorded at book value and the balances with banks are carried at amortised cost in the Statement of Financial Position. For the purpose of the Statement of Cash Flow, cash and cash equivalents consist of cash and short-term deposits as defined above, net of unfavourable Nostro balances.
Balances with the Central Bank of Sri Lanka includes the cash balance that is required as per the provisions of Section 93 of the Monetary Law Act.
The minimum cash reserve requirement was 6.0% of the rupee deposit liabilities as at 31 December 2015 (6.0% as at 31 December 2014). 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.
The current reserve requirement was revised to 7.5% by the Central Bank of Sri Lanka with effect from 16 January 2016.
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 | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Placements – within Sri Lanka | 1,153,619 | 2,721,891 | 1,153,619 | 2,721,891 |
| Total | 1,153,619 | 2,721,891 | 1,153,619 | 2,721,891 |
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 are 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 accounting policy used for initial recognition, 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 the 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 the 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 are 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.
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 2015 and are indicative of neither the market risk nor the credit risk.
The Bank raised USD 125 million on 16 April 2014 through foreign borrowings for a period of one year and 7 years, against for which a SWAP arrangement was entered into with the Central Bank of Sri Lanka for 75% of the borrowing value.
The Bank also raised USD 75 million on 21 July 2014 through foreign borrowings for a period of seven years, against which a SWAP arrangement (SWAP Agreement 02) was entered into with the Central Bank of Sri Lanka for 50% of the borrowing value with the same maturity on 15 July 2021.
As per Sri Lanka Accounting Standard – LKAS 39 ‘Financial Instruments: Recognition and Measurement’, the Bank identified this particular transaction as a ‘Cash Flow Hedge’ after documenting the hedge relationship.
The objective of the hedge was 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 SWAP arrangements are given below:
The above SWAP arrangement was cancelled on 31 March 2015, as the Bank opted to repay the 1 year USD denominated borrowing of USD 105 million, which had a roll over option for a maximum period of 12 months.
| Less than One Year LKR million |
More than One Year LKR million |
|
| Forecast receivable cash flow | 5,370 | – |
| Forecast payable cash flow | (710) | (15,840) |
| 4,660 | (15,840) |
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 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 gains/(losses) from financial investments’. Dividend income is recorded in ‘Net Gains/(Losses) from financial investments’ according to the terms of the contract, or when the right to receive the payment has been established.
There were no securities purchased under Resale Agreements which were pledged as collateral for borrowings under repurchase agreements as at 31 December 2015 (2014 – LKR 532 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’.
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 Receivables (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 and receivables 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 as ‘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.
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 to other customers 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 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, loans and receivables to other customers 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 |
Islamic Banking LKR ’000 |
Staff Loans LKR ’000 |
Total LKR ’000 |
|
| As at 1 January 2015 | 1,304,096 | 1,203,015 | 1,300,513 | 410,404 | 535,360 | 149,383 | 32,425 | 69,378 | – | 9,629 | 5,014,203 |
| Charges/(reversals) for the year | 26,242 | 901,599 | 187,673 | 205,492 | (97,322) | 93,377 | 12,799 | (54,649) | 691 | (5,370) | 1,270,532 |
| Amounts written-off | (88,942) | (104,859) | (470,229) | (147,264) | (63,061) | – | – | – | – | – | (874,355) |
| As at 31 December 2015 | 1,241,396 | 1,999,755 | 1,017,957 | 468,632 | 374,977 | 242,760 | 45,224 | 14,729 | 691 | 4,259 | 5,410,380 |
| Individual impairment | 309,331 | 1,634,915 | 343,229 | 305,481 | – | 15,676 | – | 9,000 | – | 3,711 | 2,621,343 |
| Collective impairment | 932,065 | 364,840 | 674,728 | 163,151 | 374,977 | 227,084 | 45,224 | 5,729 | 691 | 548 | 2,789,037 |
| Total | 1,241,396 | 1,999,755 | 1,017,957 | 468,632 | 374,977 | 242,760 | 45,224 | 14,729 | 691 | 4,259 | 5,410,380 |
| Gross amount of loans individually determined to be impaired, before deduction of individually assessed impairment allowances | 3,394,490 | 7,296,870 | 1,988,631 | 7,368,552 | – | 92,048 | – | 19,318 | 3,711 | 20,163,620 | |
| Gross amount of loans individually impaired, before deduction of individually assessed impairment allowances | 1,474,979 | 3,040,103 | 403,712 | 827,472 | – | 15,676 | – | 19,318 | 3,711 | 5,784,971 | |
| Gross amount of loans individually impaired, after deduction of individually assessed impairment allowances | 1,165,648 | 1,405,188 | 60,483 | 521,991 | – | – | – | 10,318 | – | 3,163,628 | |
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 as impairment for loans and receivables 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.
The securities purchased under resale agreements which were pledged as collateral for borrowings under repurchase agreements amounted to LKR 12,831 million as at 31 December 2015 (2014 – Nil).
Available-for-sale investments include equity and Government 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.
Government 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 gains/(losses) 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 consider impairment adjustments if the impairment is more than 20% of the carrying value of the investment.
Financial investments available-for-sale, pledged as collateral for borrowings under repurchase agreements amounted to LKR 12,791 million as at 31 December 2015 (2014 – LKR 16,960 million).
The majority of non-quoted ordinary shares include share investments that have been made primarily for regulatory purposes. Such investments are recorded at cost due to the 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 up 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 as ‘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.
Financial investments held-to-maturity, pledged as collateral for borrowings under repurchase agreements amounted to LKR 1,044 million as at 31 December 2015 (2014 – LKR 7,052 million).
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 was passed by the Board of Directors of the Company to wind-up the affairs voluntarily and appointed a liquidator, for the distribution of the assets.
The amount shown in the Statement of Financial Position is the fair value of the investment which the Bank will receive at the time of concluding the liquidation process and an impairment provision has not been made as sufficient liquid assets are available in the Financial Statements of the Company based on the liquidation Financial Statements prepared as at 31 December 2015.
| BANK | GROUP | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| NDB Venture Investments (Pvt) Ltd. | 18,526 | 18,526 | 33,302 | 33,302 |
| Total | 18,526 | 18,526 | 33,302 | 33,302 |
Investments in subsidiary companies are accounted at cost less allowance for 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 loss in net assets.
NDB Capital Holdings Ltd. (previously known as NDB Capital Holding PLC) was officially de-listed from the Colombo Stock Exchange on 26 January 2015.
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| As at 1 January | 106,674 | 69,380 |
| Charge to Statement of Profit or Loss | – | 37,294 |
| As at 31 December | 106,674 | 106,674 |
30.3 NDB Capital Holdings Ltd. 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. Accordingly, the equity investment took place on 2 January 2015.
The Group’s investments in its associate companies are accounted for by 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 the loss of significant influence and the fair value of the retained investment and proceeds from disposal are recognized in the Statement of Profit or Loss.
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. 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 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 appreciation has 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 engaged 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.
Owner occupied portion of an Investment property is recognized and measured in line with the accounting policy used for property, plant & equipment of the Bank and the Group and are presented under ‘Property, Plant & Equipment’ in the Financial Statements.
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.
Investment properties are stated at fair value, which has been determined based on valuations performed by a Professional Valuer 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’.
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 years ended 31 December 2015 and 2014 are given below:
| Period | % per Annum | |
| Computer software | 5 years | 20 |
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.
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 or the fair value of the asset can be reliably measured.
An item of property, plant & equipment excluding freehold land and buildings 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 engaged an Independent Valuer to determine the fair value of freehold land and buildings. In estimating the fair values, the Independent Valuer considered current market prices of similar assets. The valuation was carried out as at 31 December 2015 and 31 December 2014 by professional valuer Mr. A A M Fathihz, B.Sc (Hons.) EMV, FIV Sri Lanka.
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, in which the asset is derecognized.
Depreciation is calculated on a straight-line basis over the useful life of the assets, commencing from the date 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. Judgement 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 2015 and 2014, are as follows:
| Class of Assets | Period | % Per Annum |
| Freehold buildings | 20 years | 5 |
| Leasehold buildings | 5 Years | 20 |
| Motor vehicles | 4 years | 25 |
| Office Equipment and Furniture | 5 years | 20 |
| Computer equipment | 5 years | 20 |
The depreciation rates are determined separately for each significant part of the assets and depreciation is provided proportionately for the completed number of months for which 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 buildings are amortized over the lower of the useful life and the lease period of the respective assets.
The carrying amount of the Bank’s revalued freehold land and buildings that would have been included in the Financial Statements at cost less depreciation is as follows:
* Revaluation adjustment includes the revaluation gain of the owner occupied portion of the property, which has been accounted and classified as ‘Investment Property’ (Note 32).
The initial cost of fully depreciated property, plant & equipment and intangible assets as at 31 December 2015, which are still in use as at 31 December 2015, are as follows:
The Bank and the Group classify all their other assets as ‘other financial assets’ and ‘other non-financial assets’. Other assets mainly comprise 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 cost 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 a 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 | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Investment control account | – | 54,450 | – | 54,450 |
| – | 54,450 | – | 54,450 | |
Due to banks, include call money borrowings and unfavourable 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’.
Due to other customers include non-interest bearing deposits, savings deposits, term deposits, margin deposits 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 | |||||||
| 2015 LKR ’000 |
% |
2014 LKR ’000 |
% |
2015 LKR ’000 |
% |
2014 LKR ’000 |
% |
|
| Local Currency Deposits | ||||||||
| Savings deposits | 24,032,428 | 13 | 18,291,268 | 12 | 24,032,427 | 13 | 18,291,268 | 12 |
| Time deposits | 97,558,696 | 53 | 86,689,126 | 57 | 96,802,717 | 53 | 86,388,131 | 57 |
| Demand deposits | 11,770,327 | 6 | 10,073,086 | 7 | 11,745,357 | 6 | 10,035,568 | 7 |
| Margin deposits | 425,098 | – | 181,050 | – | 425,098 | – | 181,050 | – |
| Other deposits | 36,097 | – | 29,031 | – | 36,097 | – | 29,030 | – |
| Sub Total | 133,822,646 | 72 | 115,263,561 | 76 | 133,041,696 | 72 | 114,925,047 | 76 |
| Foreign Currency Deposits | ||||||||
| Savings deposits | 6,950,576 | 4 | 5,765,375 | 4 | 6,950,576 | 4 | 5,765,375 | 4 |
| Time deposits | 39,459,695 | 21 | 28,477,953 | 19 | 39,459,695 | 21 | 28,477,953 | 19 |
| Demand deposits | 4,614,516 | 3 | 2,218,739 | 1 | 4,614,516 | 3 | 2,218,739 | 1 |
| Margin deposits | 37,837 | – | 56,701 | – | 37,837 | – | 56,701 | – |
| Other deposits | 47,960 | – | 41,386 | – | 47,960 | – | 41,386 | – |
| Sub total | 51,110,584 | 28 | 36,560,154 | 24 | 51,110,584 | 28 | 36,560,154 | 24 |
| Total | 184,933,230 | 100 | 151,823,715 | 100 | 184,152,280 | 100 | 151,485,201 | 100 |
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’.
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:
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 profits 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:
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 profits 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 profits 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.
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.
| BANK | GROUP | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Deferred Tax Liabilities | ||||
| Accelerated depreciation for tax purposes | 74,753 | 80,670 | 84,046 | 83,977 |
| Revaluation surplus on freehold buildings | 230,729 | 230,729 | 230,729 | 230,729 |
| Finance leases | 702,435 | 453,037 | 702,435 | 453,037 |
| Gains on financial investments – available-for-sale | – | 7,791 | 17,090 | 24,881 |
| Total (a) | 1,007,917 | 772,227 | 1,034,300 | 792,624 |
| Deferred Tax Assets | ||||
| Defined benefit plans | 70,791 | 69,273 | 82,895 | 76,577 |
| Carry forward losses on leasing business | 151,442 | 64,929 | 151,442 | 64,929 |
| Losses on other operations | – | – | 3,834 | 22,625 |
| Deferred expenses to be claimed in income tax liability of future years | 12,040 | 12,103 | 12,040 | 12,103 |
| Losses on financial investments – available-for-sale | 70,968 | – | 70,968 | – |
| Allowance for impairment charges | 298 | 6,455 | 298 | 6,455 |
| Total (b) | 305,539 | 152,760 | 321,477 | 182,689 |
| Net deferred tax liability (a) - (b) | 702,378 | 619,467 | 712,823 | 609,935 |
Employee benefit liabilities include the provisions made for retirement gratuity and pension funds.
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 uncertainties. All assumptions are reviewed at each reporting date. The assumptions used to arrive at the defined benefit obligation, is given in Notes 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 policies on salary revisions.
An actuarial valuation of the retirement gratuity liability was carried out as at 31 December 2015 and 31 December 2014 by Messrs Piyal S Goonetilleke and Associates, a professional Actuary.
The valuation method used by the Actuary to value the Liability was the ‘Projected Unit Credit Actuarial Cost Method’, recommended by LKAS 19 – ‘Employee Benefits’.
| 31 December 2015 | 31 December 2014 | |
| Actuarial Assumptions | ||
| Discount rate | 10.75% | 9% |
| Salary increment rate | 8% | 7% |
| Mortality | UP 1984 Mortality Table | UP 1984 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.
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Within the next 12 months | 38,521 | 18,052 |
| Between 2 and 5 years | 188,656 | 176,414 |
| Beyond 5 years | 412,265 | 325,703 |
The expected benefits are estimated, based on the same assumptions used to measure the benefit obligation of the Bank and the Group, 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 (2014 – 12.5 years).
The amount recognized in the Statement of Financial Position is as follows:
* The overpayment is recognized as prepaid expenses in Other Assets.
An actuarial valuation of the Pension Fund was carried out as at 31 December 2015 and 31 December 2014 by Messrs Piyal S Goonetilleke Associates, a professional Actuary.
The valuation method used by the Actuary to value the Fund is the ‘Projected Unit Credit Actuarial Cost Method’, recommended by LKAS 19 – ‘Employee Benefits’.
| 31 December 2015 | 31 December 2014 | |
| Actuarial Assumptions | ||
| Discount rate | 11.80% | 10% |
| Salary increment | 8% | 6% |
| Annual return on assets rate | 6% | 7% |
| Mortality | UP 1984 Mortality Table | UP 1984 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 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 | |||||
| 2015 | 2014 | ||||
| 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 | 50.29 | (50.29) | 54.73 | (54.73) | |
| (-1) | (58.24) | 58.24 | (64.26) | 64.26 | |
| 1 | (19.86) | 19.86 | (21.03) | 21.03 | |
| (-1) | 18.60 | (18.60) | 19.57 | (19.57) | |
| 2015 | 2014 | |||
| Increase/(Decrease) in Life Expectancy | 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 Year | (6.79) | 6.79 | (7.81) | 7.81 |
| - 1 Year | 7.08 | (7.08) | 8.10 | (8.10) |
The fair value of the total plan assets are as follows:
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Investment in Government Securities | 35,000 | 537,270 |
| Investment in Fixed Deposits | 123,459 | 113,500 |
| 158,459 | 650,770 |
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Within the next 12 months | 41,804 | 32,866 |
| Between 2 and 5 years | 210,926 | 202,991 |
| Beyond 5 years | 506,011 | 432,625 |
The expected benefits are based on the same assumptions used to measure the Bank’s benefit obligation at the end of the year and include benefits attributable to estimated future employee service.
The average duration of the defined benefit obligation was 24 years as at 31 December 2015 (2014 – 24 years).
Other liabilities include other financial liabilities and other non-financial liabilities. Other non-financial liabilities include fees, expenses and 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 summarized below:
41.2. (a) Other liabilities include the amounts due to the staff Pension Fund and Sundry Creditors.
Reversal of dividends declared in previous years, represent unclaimed dividends which are written back after six years.
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. 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 | ||
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| As at 1 January | 11,149,439 | 11,682,674 |
| Additions during the year | 8,922,617 | – |
| Redemptions during the year | (511,650) | (563,082) |
| Balance before adjusting for amortized interest | 19,560,406 | 11,119,592 |
| Net effect on amortized interest payable | 13,477 | 29,847 |
| As at 31 December (Note 42.1) | 19,573,883 | 11,149,439 |
| BANK & GROUP | |||||||
| Repayment Terms |
Issued Date |
Maturity Date |
Rate of Interest % |
Amount In FCY | 2015 LKR ’000 |
2014 LKR ’000 |
|
42.1 (a) Term LoansNederland’s Financierings Maatschappij Voor Ontwikkelingslanden N.V. (FMO) |
|||||||
| FMO Loan I | Semi Annually | 20 Jan. 2006 | Fully settled on Feb. 2015 | AWDR 6 months +5% | EUR 7,500,000 | – | 190,797 |
| 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 | 666,877 | 1,000,911 |
| Total (a) | 666,877 | 1,191,708 | |||||
| BANK | GROUP | |||||||
| Number of Shares |
2015 LKR ’000 |
Number of Shares |
2014 LKR ’000 |
Number of Shares |
2015 LKR ’000 |
Number of Shares |
2014 LKR ’000 |
|
| Issued and fully paid | 165,093,922 | 1,225,162 | 164,693,034 | 1,172,904 | 164,600,914 | 1,145,353 | 160,559,308 | 943,746 |
| Adjustment on Employee Share Ownership Plan | – | – | – | – | – | – | 4,131,850 | 229,158 |
| Adjustment on Equity Linked Compensation Plan | – | – | – | – | – | – | (491,132) | (79,809) |
| Transfer from share based payment reserve | – | 5,653 | – | – | – | 5,653 | – | – |
| Issue of shares under the Equity Linked Compensation Plan [Note 43.2 (d)] | 73,420 | 11,957 | 400,888 | 52,258 | 73,420 | 11,957 | 400,888 | 52,258 |
| Total | 165,167,342 | 1,242,772 | 165,093,922 | 1,225,162 | 164,674,334 | 1,162,963 | 164,600,914 | 1,145,353 |
| BANK & Group | ||||
| Number of Shares |
2015 LKR ’000 |
Number of Shares |
2014 LKR ’000 |
|
| 43.1 Stated Capital | 165,167,342 | 1,242,772 | 165,093,922 | 1,225,162 |
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 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 are 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.
| 2015 | 2014 | |||||
| General Reserve LKR ’000 |
Retained Earnings LKR ’000 |
Total LKR ’000 |
General Reserve LKR ’000 |
Retained Earnings LKR ’000 |
Total LKR ’000 |
|
| Bank | ||||||
| As at 1 January | 5,805,707 | 12,819,737 | 18,625,444 | 5,805,707 | 9,847,553 | 15,653,260 |
| Super Gain Tax | – | (732,081) | (732,081) | – | – | – |
| Adjusted opening balance as at 1 January | 5,805,707 | 12,087,656 | 17,893,363 | 5,805,707 | 9,847,553 | 15,653,260 |
| Total comprehensive income for the year | – | 3,598,459 | 3,598,459 | – | 3,295,226 | 3,295,226 |
| Transferred from investment fund account | – | – | – | – | 1,706,751 | 1,706,751 |
| Transferred to statutory reserve fund | – | (231,987) | (231,987) | – | (52,258) | (52,258) |
| Dividends to equity holders | – | (1,815,450) | (1,815,450) | – | (1,977,535) | (1,977,535) |
| As at 31 December | 5,805,707 | 13,638,678 | 19,444,385 | 5,805,707 | 12,819,737 | 18,625,444 |
| BANK | GROUP | |||||
| Current Year 2015 | Opening Balance LKR ’000 |
Movement/ Transfers LKR ’000 |
Closing Balance LKR ’000 |
Opening Balance LKR ’000 |
Movement/ Transfers LKR ’000 |
Closing Balance LKR ’000 |
| Revaluation reserve (Note 46.1) | 853,456 | – | 853,456 | 853,456 | 95,339 | 948,795 |
| Available-for-sale reserve (Note 46.2) | 105,250 | (312,527) | (207,277) | 162,355 | (301,914) | (139,559) |
| Share based payment reserve (Note 46.3) | 20,243 | (5,653) | 14,590 | 60,148 | 20,950 | 81,098 |
| Cash flow hedge reserve [Note 22.1 (c)] | 397,852 | (287,692) | 110,160 | 397,852 | (287,692) | 110,160 |
| Total | 1,376,801 | (605,872) | 770,929 | 1,473,811 | (473,317) | 1,000,494 |
The Bank carried out a revaluation of all its freehold lands and buildings as at 31 December 2014 and the resulting revaluation surplus was LKR 1,084 million as at 31 December 2015 (Note 34).
The available-for-sale reserve comprises the cumulative net change in fair value of financial investments available-for-sale, until such investments are derecognized or impaired.
The share based payment reserve represents the fair value of the options available as per the Equity Linked Compensation Plan (Note 43.2).
Non-controlling interests represent the portion of profit or 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 it is 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.
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 of that loans/contingent liabilities and are not recognized in the Statement of Financial Position but are disclosed unless they are remote.
The capital expenditure approved by the Board of Directors for which provision has not been made in the Financial Statements is as follows:
In the normal course of business, the Bank is a party to various types of litigation, including litigation with borrowers who are in default in terms of their loan agreements. As at the date of the Statement of Financial Position, twenty-four 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 tax assessments are outstanding, against which the Bank/Group Companies have duly appealed.
The Bank and the Group Companies are of the view that the above assessments will not have any material adverse impact on the Financial Statements.
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, are as follows:
| Bank | |||
| As at 31 December 2015 | Within 12 Months LKR ’000 |
After 12 Months LKR ’000 |
Total LKR ’000 |
| Assets | |||
| Cash and cash equivalents | 11,821,503 | – | 11,821,503 |
| Balance with the Central Bank of Sri Lanka | 6,805,961 | 193,937 | 6,999,898 |
| Placements with banks | 1,153,619 | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | 1,903,573 |
| Financial assets held-for-trading | 2,985,262 | – | 2,985,262 |
| Loans and receivables to banks | 64,397 | 38,235 | 102,632 |
| Loans and receivables to other customers | 121,569,050 | 88,033,019 | 209,602,069 |
| Financial investments - loans and receivables | 35,830,311 | – | 35,830,311 |
| Financial investments – available-for-sale | 28,501,518 | – | 28,501,518 |
| Financial investments – held-to-maturity | 1,388,981 | 3,047,992 | 4,436,973 |
| Investments – held-for-sale | 18,526 | – | 18,526 |
| Investments in subsidiary companies | – | 2,104,117 | 2,104,117 |
| Intangible assets | – | 240,234 | 240,234 |
| Property, plant & equipment | – | 2,030,005 | 2,030,005 |
| Other assets | 705,770 | 721,595 | 1,427,365 |
| Total Assets | 212,748,471 | 96,409,134 | 309,157,605 |
| Liabilities | |||
| Due to banks | 11,620,003 | – | 11,620,003 |
| Derivative financial instruments | 639,272 | – | 639,272 |
| Due to other customers | 179,809,515 | 5,123,715 | 184,933,230 |
| Debt securities issued and other borrowed funds | 30,367,708 | 30,160,136 | 60,527,844 |
| Tax liabilities | 486,503 | – | 486,503 |
| Deferred tax liabilities | – | 702,378 | 702,378 |
| Employee benefit liabilities | – | 252,825 | 252,825 |
| Other liabilities | 5,190,512 | 2,530,297 | 7,720,809 |
| Subordinated term debts | 304,815 | 19,269,068 | 19,573,883 |
| Total Liabilities | 228,418,328 | 58,038,419 | 286,456,747 |
| Net | (15,669,857) | 38,370,715 | 22,700,858 |
| Bank | |||
| As at 31 December 2014 | 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 the Central Bank of Sri Lanka | 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 | 18,526 | – | 18,526 |
| 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 | 661,901 | 791,831 | 1,453,732 |
| 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 |
| GROUP | |||
| As at 31 December 2015 | Within 12 Months LKR ’000 |
After 12 Months LKR ’000 |
Total LKR ’000 |
| Assets | |||
| Cash and cash equivalents | 11,848,575 | – | 11,848,575 |
| Balance with the Central Bank of Sri Lanka | 6,805,961 | 193,937 | 6,999,898 |
| Placements with banks | 1,153,619 | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | 1,903,573 |
| Financial assets held-for-trading | 5,229,493 | – | 5,229,493 |
| Loans and receivables to banks | 64,397 | 38,235 | 102,632 |
| Loans and receivables to other customers | 121,561,396 | 88,104,165 | 209,665,561 |
| Financial investments – loans and receivables | 35,875,665 | 1,493,040 | 37,368,705 |
| Financial investments – available-for-sale | 28,964,820 | – | 28,964,820 |
| Financial investments – held-to-maturity | 1,874,998 | 3,785,870 | 5,660,868 |
| Investments – held-for-sale | 33,302 | – | 33,302 |
| Investments Property | – | 1,672,000 | 1,672,000 |
| Intangible assets | – | 274,746 | 274,746 |
| Property, plant & equipment | – | 2,454,883 | 2,454,883 |
| Other assets | 1,299,463 | 721,595 | 2,021,058 |
| Total Assets | 216,615,262 | 98,738,471 | 315,353,733 |
| Liabilities | |||
| Due to banks | 11,620,003 | – | 11,620,003 |
| Derivative financial instruments | 639,272 | – | 639,272 |
| Due to other customers | 179,028,565 | 5,123,715 | 184,152,280 |
| Debt securities issued and other borrowed funds | 30,337,708 | 30,160,136 | 60,497,844 |
| Tax liabilities | 524,020 | – | 524,020 |
| Deferred tax liabilities | – | 712,823 | 712,823 |
| Employee benefit liabilities | – | 297,152 | 297,152 |
| Other liabilities | 5,405,442 | 2,530,297 | 7,935,739 |
| Subordinated term debts | 304,815 | 19,269,068 | 19,573,883 |
| Total Liabilities | 227,859,825 | 58,093,191 | 285,953,016 |
| Net | (11,244,563) | 40,645,280 | 29,400,717 |
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 2015 and 2014.
The Bank does not have an identifiable parent of its own.
The Bank carries out transactions with Key Management Personnel 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 which are 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. Key Management Personnel include the members of the Board of Directors of the Bank (including the Executive and Non-Executive) and the Group Chief Financial Officer.
The Bank is the ultimate parent of the subsidiaries listed out the Notes to the Financial Statements. The Board of Directors of the Bank has the authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly. Accordingly, the Board of Directors of the Bank (including Executive and Non-Executive) and the Group Chief Financial Officer are also KMPs of the Group.
52.3.1 Compensation to Key Management Personnel of the Bank and the Group.
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Short-term employee benefits | 81,819 | 55,500 |
| Directors’ fees and allowances | 27,905 | 32,360 |
| Post-employment benefits (defined benefit plan) | 7,086 | 4,968 |
| 116,810 | 92,828 |
The amounts disclosed above are the amounts recognised as an expense during the reporting period relating to Key Management Personnel.
In addition to the remuneration, the Bank has also provided non-cash benefits to Key Management Personnel in line with the approved benefit plan of the Bank.
52.3.2 Share Based Payments to Key Management Personnel of the Bank.
| 2015 | 2014 | |
| Share Grant | ||
| Award 04 – (1 July 2013) | ||
| No. of ordinary shares awarded and to be vested | 23,452 | 23,452 |
Share options held by Key Management Personnel under the Equity Linked Compensation Plan (ELCP) to purchase ordinary shares have the following expiry dates and exercise prices.
| Issue date | Expiry date | Exercise Price |
2015 | 2014 | |
| Award 04 | 01.07.2013 | 30.06.2017 | 162.86 | ||
| No. of shares allocated and outstanding | 23,452 | 23,452 |
52.3.3 Key Management Personnel of the Bank and their Close Family Members had the following related party transactions during the year.
| Limit | Outstanding Balance | Average Balance | ||||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Items in the Statement of Financial Position | ||||||
| Assets | ||||||
| Loans and receivables | 4,559 | – | 4,559 | – | 3,437 | 3 |
| Credit cards | 1,500 | 1,000 | 236 | – | 158 | 65 |
| 6,059 | 1,000 | 4,795 | – | 3,595 | 68 | |
| Liabilities | ||||||
| Deposits | 280,535 | 222,346 | 247,825 | 187,543 | ||
| Debt securities and other borrowings | 52,432 | 82,936 | 105,657 | 58,190 | ||
| 332,967 | 305,282 | 353,482 | 245,733 | |||
| Items in the Statement of Profit or Loss | ||||||
| Interest income | 114 | – | ||||
| Interest expenses | 24,718 | 30,142 | ||||
| Fee and commission income | 103 | 16 | ||||
| Dividends paid | 44,060 | 47,939 | ||||
Share investments in the Bank, by the Key Management Personnel of the Bank and their Close Family Members are given below:
| Number Outstanding | ||
| 2015 | 2014 | |
| Investments in ordinary shares (including the shares held in the slash account) | 4,004,974 | 3,994,906 |
52.3.4 Transactions involving entities which are controlled/jointly controlled by the Key Management Personnel of the Bank and their Close Family Members.
| Outstanding Balance | Average Balance | |||
| 2015 LKR’000 |
2014 LKR’000 |
2015 LKR’000 |
2014 LKR’000 |
|
| Items in the Statement of Financial Position | ||||
| Assets | ||||
| Loans and receivables | 1 | 35 | 173 | 26,732 |
| Liabilities | ||||
| Deposits | 13,436 | 343,123 | 51,657 | 264,476 |
| Debt securities and other borrowings | 120,000 | 232,500 | 47,426 | 68,292 |
| 133,436 | 575,623 | 99,083 | 332,768 | |
| Items in the Statement of Profit or Loss | ||||
| Interest income | 75 | 7,804 | ||
| Interest expenses | 3,323 | 34,431 | ||
| Fee and commission income | 225 | 607 | ||
| Capital expenditure and services rendered | 83,137 | 75,846 | ||
| Dividends paid | 121,486 | 132,530 | ||
Share investments in the Bank, by the entities which are controlled/jointly controlled by the Key Management Personnel of the Bank and their Close Family Members are given below:
| Number Outstanding | ||
| 2015 | 2014 | |
| Investments in ordinary shares | 11,044,177 | 11,044,177 |
The Bank enters into transactions, arrangements and agreements with the Government of Sri Lanka and its related entities.
52.4.1 The financial dealings carried out with the Government of Sri Lanka and its related entities for the year and as of the date of the Statement of Financial Position are disclosed on a collective basis as follows.
| Outstanding Balance | Average Balance | |||
| 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
|
| Items in the Statement of Financial Position | ||||
| Assets | ||||
| Loans and receivables | 4,758,986 | 4,214,129 | 4,209,193 | 3,421,419 |
| Liabilities | ||||
| Deposits | 6,678,149 | 3,621,031 | 4,569,477 | 2,441,659 |
| Debt securities and other borrowings | 20,305,950 | 13,471,978 | 12,478,110 | 11,195,621 |
| 26,984,099 | 17,093,009 | 17,047,587 | 13,637,280 | |
| Commitments and Contingencies | ||||
| Guarantees and letters of credit | 104,891 | 286,422 | 128,339 | 134,022 |
| Forward exchange contracts | 1,726,600 | 902,029 | 2,298,467 | 2,457,811 |
| Commitments | 2,561,921 | 4,205,485 | 3,803,151 | 3,240,617 |
| 4,393,412 | 5,393,936 | 6,229,957 | 5,832,450 | |
| Items in the Statement of Profit or Loss | ||||
| Interest income | 1,393,786 | 1,848,069 | ||
| Interest expenses | 1,064,600 | 989,889 | ||
| Other income | 3,121 | 10,338 | ||
| Dividends paid | 616,159 | 709,755 | ||
52.4.2 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:
The Bank uses an internal assessments methodology in order to identify significant transactions with the Government of Sri Lanka and Government related entities in accordance with the disclosure requirements of LKAS 24. Accordingly the individually significant transactions for the year ended 31 December 2015 are as follows.
52.4.3.1 The Bank raised USD 125 million on 16 April 2014 through foreign borrowings for a period of 1 year and 7 years, against which a SWAP arrangement has been entered into with the Central Bank of Sri Lanka for 75% of the borrowing value. However ,the Bank opted to repay the 1 year USD 105 million on 31 March 2015 and hence the aforesaid SWAP arrangement was cancelled on 31 March 2015. 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. The SWAP arrangement will be renewed annually over the tenor of the borrowing.
52.4.3.2 The Bank has approved a term loan facility of LKR 8,353 million to the Road Development Authority which is Guaranteed by the Government Treasury of Sri Lanka and the Capital outstanding balance of the facility as at the reporting date was LKR 5,983 million.
52.4.3.3 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 the 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 a total of USD 299 million during 2014 and 2015, and the balance outstanding as at 31 December 2015 was USD 191 million.
52.5.1 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 as follows:
| Subsidiaries of the Bank* | Associates of the Bank* | |||||||
| Outstanding Balance | Average Balance | Outstanding Balance | Average Balance | |||||
| Items in the Statement of Financial Position | 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
| Assets | ||||||||
| Loans and receivables | 64 | 1 | 5,190 | 4 | – | – | 45,834 | – |
| Investments | 2,407,328 | 2,253,011 | 2,300,569 | 1,811,415 | – | – | – | – |
| Group company receivables | 705 | 1,804 | 413,511 | 24,435 | – | – | – | – |
| Investment in ordinary shares net of allowance for impairment | 2,104,117 | 2,000,290 | 2,066,707 | 2,030,019 | 18,526 | 18,526 | 18,526 | 53,873 |
| Liabilities | ||||||||
| Deposits | 783,638 | 427,689 | 794,363 | 334,099 | – | – | – | – |
| Debt securities and other borrowings | 30,000 | 30,000 | 31,309 | 32,017 | – | – | – | – |
| Other payables | – | – | – | – | 2,403 | – | 2,403 | 1,802 |
| Commitments and Contingencies | ||||||||
| Guarantees | 835,000 | – | 46,212 | – | – | – | – | – |
* Refer Note 30 and Note 31 for details of subsidiary and associate companies.
| Items in the Statement of Profit or Loss | 2015 LKR ’000 |
2014 LKR ’000 |
2015 LKR ’000 |
2014 LKR ’000 |
| Gross income received/(paid) – Net | (17,581) | (61,406) | 1,424 | – |
| Rent and utilities received/(paid) | (17,204) | 1,898 | – | – |
| Expenses and fees paid | 43,467 | 4,834 | – | – |
| Dividends received | 894,925 | 321,967 | – | – |
| Capital gains | – | – | 164,397 | 96,125 |
52.5.2 The contribution made by the Bank and the employees for EPF is managed as a separate fund by the Bank. The Bank had the undermentioned financial dealings during the year with the NDB Provident Fund.
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Deposits | 53,930 | 40,264 |
| Interest paid on deposits during the year | 6,170 | 2,938 |
| Contribution made by the Bank | 214,508 | 187,974 |
52.5.3 NDB Wealth Management Ltd., a subsidiary of the Bank had the undermentioned financial dealings with the NDB Provident Fund.
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Portfolio under management | 1,705,719 | 1,574,818 |
52.5.4 The Bank had the undermentioned financial dealings with the NDB Pension Fund during the year.
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Deposits | 123,460 | 113,500 |
| Interest paid on deposits during the year | 11,131 | 11,977 |
| Contribution made by the Bank | (10,355) | 51,644 |
52.5.5 The Bank had the undermentioned financial dealings with the NDB Employee Share Ownership Plan during the year.
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 Ownership Plan and the distribution of the ESOP shares amounting to 4,133,726 to the eligible employees of the Bank in the year of 2014.
(a) On 12 February 2016 the Bank declared a final dividend of LKR 4.00 per share for the financial year 2015 (2014 – final dividend of LKR 4.00 per share). Out of the final dividend LKR 3.79 per share will be liable to a dividend tax at 10%, and the balance LKR 0.21 per share will be paid out of dividend income.
(b) As per the Government Budget 2016 passed in the Parliament, the banks are required to cease leasing business with effect from 1 June 2016. However, this will be effective after the same will be legally enacted by the Government.
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:
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 such instruments.
Where the fair values of financial assets and financial liabilities recorded on the Statement of Financial Position cannot be derived from active market, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values.
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 debt securities. The Government debt 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 buildings presented in the Financial Statements are provided by an independent valuer based on the valuations carried out at the reporting date.
Freehold land – valuations are performed by the valuer are based on the market approach (direct comparison method), for similar properties in the same location and conditions (Note 34).
Freehold buildings – valuations are performed by the valuer are based on the cost approach (current replacement cost – Note 34).
Investment Property – valuations are performed based on the income approach using the current market rents by the valuer to value the Investment Property (Income approach – Note 32).
Fair values of financial instruments and non-financial instruments are determined according to the following hierarchy:
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 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.
The following table shows an analysis of financial instruments and non-financial instruments recorded at fair value in the Statement of Financial Position by the level of the fair value hierarchy in accordance with disclosure requirements LKAS 13:
| BANK | ||||
| Fair Value Measurement Using | ||||
| 31 December 2015 | 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 | – | 1,912 | – | 1,912 |
| Forward foreign exchange contracts | – | 1,060,248 | – | 1,060,248 |
| Currency SWAP | – | – | 841,413 | 841,413 |
| Financial Assets – Held-for-Trading | ||||
| Treasury Bills | 969 | – | – | 969 |
| Treasury Bonds | 576,964 | – | – | 576,964 |
| Investment in unit trusts | 2,407,329 | – | – | 2,407,329 |
| Financial Investments – Available-for-Sale | ||||
| Treasury Bills | 12,981,321 | – | – | 12,981,321 |
| Treasury Bonds | 13,936,379 | – | – | 13,936,379 |
| Quoted ordinary shares | 1,568,673 | – | – | 1,568,673 |
| Non-quoted ordinary shares | – | 15,145 | – | 15,145 |
| Total Financial Assets | 31,471,635 | 1,077,305 | 841,413 | 33,390,353 |
| Non-Financial Assets | ||||
| Freehold land | – | – | 431,500 | 431,500 |
| Freehold buildings | – | – | 913,231 | 913,231 |
| Total Non-Financial Assets | – | – | 1,344,731 | 1,344,731 |
| Financial Liabilities | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 1,912 | – | 1,912 |
| Forward foreign exchange contracts | – | 637,360 | – | 637,360 |
| Total Financial Liabilities | – | 639,272 | – | 639,272 |
| 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 |
| Quoted ordinary shares | 85,215 | – | – | 85,215 |
| Non-quoted ordinary shares | – | 15,145 | – | 15,145 |
| Total Financial Assets | 19,830,434 | 924,899 | 994,028 | 21,749,361 |
| Non-Financial Assets | ||||
| Freehold land | – | – | 431,500 | 431,500 |
| Freehold buildings | – | – | 935,485 | 935,485 |
| Total Non-Financial Assets | – | – | 1,366,985 | 1,366,985 |
| 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 2015 | 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 | – | 1,912 | – | 1,912 |
| Forward foreign exchange contracts | – | 1,060,248 | – | 1,060,248 |
| Currency SWAP | – | – | 841,413 | 841,413 |
| Financial Assets – Held-for-Trading | ||||
| Treasury Bills | 969 | – | – | 969 |
| Treasury Bonds | 576,964 | – | – | 576,964 |
| Equity securities | 336,769 | – | – | 336,769 |
| Investment in unit trusts | 4,314,791 | – | – | 4,314,791 |
| Financial Investments – Available-for-Sale | ||||
| Treasury Bills | 12,981,321 | – | – | 12,981,321 |
| Treasury Bonds | 13,936,379 | – | – | 13,936,379 |
| Quoted ordinary shares | 1,846,977 | – | – | 1,846,977 |
| Non-quoted ordinary shares | – | 15,145 | 185,000 | 200,145 |
| Total Financial Assets | 33,994,170 | 1,077,305 | 1,026,413 | 36,097,887 |
| Non-Financial Assets | ||||
| Freehold land | – | – | 431,500 | 431,500 |
| Freehold buildings | – | – | 1,292,662 | 1,292,662 |
| Investment property | – | – | 1,672,000 | 1,672,000 |
| Total Non-Financial Assets | – | – | 3,396,162 | 3,396,162 |
| Financial Liabilities | ||||
| Derivative Financial Instruments | ||||
| Currency options | – | 1,912 | – | 1,912 |
| Forward foreign exchange contracts | – | 637,360 | – | 637,360 |
| Total Financial Liabilities | – | 639,272 | – | 639,272 |
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 | ||||||
| 31 December 2015 | Included in | As at 1 January 2015 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 |
As at 31 December 2015 LKR ’000 |
| Financial Assets | ||||||
| Currency SWAP | Derivative financial instruments | 994,028 | 135,077 | – | (287,692) | 841,413 |
| Non-Financial Assets | ||||||
| Freehold land | Property, plant & equipment | 431,500 | – | – | – | 431,500 |
| Freehold buildings (Note 34) | Property, plant & equipment | 935,485 | (22,254) | – | – | 913,231 |
| 2,361,013 | 112,823 | – | (287,692) | 2,186,144 | ||
| Financial Liabilities | ||||||
| Currency SWAP | Derivative financial instruments | 52,477 | (52,477) | – | – | – |
| 52,477 | (52,477) | – | – | – | ||
| GROUP | ||||||
| 31 December 2015 | Included in | As at 1 January 2015 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 |
As at 31 December 2015 LKR ’000 |
| Financial Assets | ||||||
| Currency SWAP | Derivative financial instruments | 994,028 | 135,077 | – | (287,692) | 841,413 |
| Non-quoted ordinary shares | Financial investments – Available-for-sale | 185,000 | – | – | – | 185,000 |
| Non-Financial Assets | ||||||
| Freehold land | Property, plant & equipment | 431,500 | – | – | – | 431,500 |
| Freehold buildings (Note 34) | Property, plant & equipment | 1,219,577 | (22,254) | – | 95,339 | 1,292,662 |
| Investment property | Investment property | 1,545,693 | – | 126,307 | – | 1,672,000 |
| 4,375,798 | 112,823 | 126,307 | (192,353) | 4,422,575 | ||
| Financial Liabilities | ||||||
| Currency SWAP | Derivative financial instruments | 52,477 | (52,477) | – | – | – |
| 52,477 | (52,477) | – | – | – | ||
| BANK | ||||||
| 31 December 2014 | Included in | As 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 |
As 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 buildings (Note 34) | Property, plant & equipment | 144,015 | (26,231) | 817,701 | 935,485 | |
| 309,031 | 569,945 | – | 1,482,037 | 2,361,013 | ||
| Financial Liabilities | ||||||
| Currency SWAP | Derivative Financial instruments | – | 52,477 | – | – | 52,477 |
| – | 52,477 | – | – | 52,477 | ||
| GROUP | ||||||
| 31 December 2014 | Included in | As 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 |
As at 31 December 2014 LKR ’000 |
| Financial Assets | ||||||
| Currency SWAP | Derivative financial instruments | – | 596,176 | – | 397,852 | 994,028 |
| Non-quoted ordinary shares | Financial investments – Available-for-sale | 185,000 | – | – | – | 185,000 |
| Non-Financial Assets | ||||||
| Freehold land | Property, plant & equipment | 165,016 | – | – | 266,484 | 431,500 |
| Freehold buildings (Note 34) | Property, plant & equipment | 448,332 | (46,456) | – | 817,701 | 1,219,577 |
| Investment property | Investment property | 1,383,693 | – | 162,000 | – | 1,545,693 |
| 2,182,041 | 549,720 | 162,000 | 1,482,037 | 4,375,798 | ||
| Financial Liabilities | ||||||
| Currency SWAP | Derivative Financial instruments | – | 52,477 | – | – | 52,477 |
| – | 52,477 | – | – | 52,477 | ||
The tables below set out information about significant unobservable inputs used as at 31 December 2015 and as at 31 December 2014 in measuring the non-financial instruments categorized as Level 3 in the fair value hierarchy:
| BANK | |||||
| Type of Instrument | Fair Values at 31 December 2015 | Valuation Technique | Significant Unobservable Inputs | Range of Estimates (Weighted Average) for Unobservable Inputs | Fair Value Measurement Sensitivity to Unobservable Inputs |
| Navam Mawatha | |||||
| Freehold Land | LKR 11.5 million | Direct comparison method | Per perch value | Per perch – LKR 8 million | Positive impact to the fair value |
| Freehold Building | LKR 621.5 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 | |||||
| Freehold Land | LKR 420 million | Direct comparison method | Per perch value | Per perch – LKR 7 million | Positive impact to the fair value |
| Freehold 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 2015 |
Valuation Technique | Significant Unobservable Inputs | Range of Estimates (Weighted Average) for Unobservable Inputs | Fair Value Measurement Sensitivity to Unobservable Inputs |
| Navam Mawatha | |||||
| Freehold Land | LKR 11.5 million | Direct comparison method | Per perch value | Per perch – LKR 8 million | Positive impact to the fair value |
| Freehold Building | LKR 621.5 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 | |||||
| Freehold Land | LKR 420 million | Direct comparison method | Per perch value | Per perch – LKR 7 million | Positive impact to the fair value |
| Freehold 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 2,000 million(Including the fair value of owner occupied portion of LKR 328 million) | Income approach | Rent per square feet | Rentable area at LKR 160/- Non-rentable area at LKR 95/- | Positive impact to the fair value |
| 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 | |||||
| Freehold Land | LKR 11.5 million | Direct comparison method | Per perch value | Per perch – LKR 8 million | Positive impact to the fair value |
| Freehold Building | LKR 621.5 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 | |||||
| Freehold Land | LKR 420 million | Direct comparison method | Per perch value | Per perch – LKR 7 million | Positive impact to the fair value |
| Freehold 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 | |||||
| Freehold Land | LKR 11.5 million | Direct comparison method | Per perch value | Per perch – LKR 8 million | Positive impact to the fair value |
| Freehold Building | LKR 621.5 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 | |||||
| Freehold Land | LKR 420 million | Direct comparison method | Per perch value | Per perch – LKR 7 million | Positive impact to the fair value |
| Freehold 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 (Including the fair value of owner occupied portion of LKR 328 million) | Income approach | Rent per square feet | Rentable area at LKR 148/- Non-rentable area at LKR 88.50 | Positive impact to the fair value |
Set out below is a comparison, by class, of the carrying amounts and fair values of the Bank’s financial assets and financial liabilities that are not carried at fair value in the Statement of Financial Position. This table does not include the fair values of non-financial assets and non-financial liabilities.
| BANK | |||||
| 2015 | 2014 | ||||
| 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 55 (e) | 11,821,503 | 11,821,503 | 3,104,391 | 3,104,391 |
| Balances with the Central Bank of Sri Lanka | Note 55 (e) | 6,999,898 | 6,999,898 | 6,740,590 | 6,740,590 |
| Placements with banks | Note 55 (e) | 1,153,619 | 1,153,619 | 2,721,891 | 2,721,891 |
| Loans and receivables to banks | Level 2 | 102,632 | 102,714 | 311,144 | 313,781 |
| Loans and receivables to other customers | Level 2 | 209,602,069 | 210,444,878 | 175,175,203 | 177,054,711 |
| Financial investments – loans and receivable | Level 2 | 35,830,311 | 35,792,766 | 38,302,428 | 37,954,272 |
| Financial investments – held-to-maturity | Level 1 | 4,436,973 | 4,572,341 | 8,970,963 | 8,693,340 |
| Total Financial Assets | 269,947,005 | 270,887,719 | 235,326,610 | 236,582,976 | |
| Financial Liabilities | |||||
| Due to banks | Note 55 (e) | 11,620,003 | 11,620,003 | 7,029,342 | 7,029,342 |
| Due to other customers | Level 2 | 184,933,230 | 184,889,633 | 151,823,715 | 149,393,839 |
| Debt securities issued and other borrowed funds | Level 2 | 60,527,844 | 60,527,844 | 61,955,460 | 61,955,460 |
| Subordinated term debts | Level 2 | 19,573,883 | 22,004,203 | 11,149,439 | 13,434,176 |
| Other financial liabilities | Note 55 (e) | 2,889,782 | 2,889,783 | 2,423,677 | 2,423,677 |
| Total Financial Liabilities | 279,544,742 | 281,931,466 | 234,381,633 | 234,236,494 | |
| Group | |||||
| 2015 | 2014 | ||||
| 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 55 (e) | 11,848,575 | 11,848,575 | 3,274,036 | 3,274,036 |
| Balances with the Central Bank of Sri Lanka | Note 55 (e) | 6,999,898 | 6,999,898 | 6,740,590 | 6,740,590 |
| Placements with banks | Note 55 (e) | 1,153,619 | 1,153,619 | 2,721,891 | 2,721,891 |
| Loans and receivables to banks | Level 2 | 102,632 | 102,714 | 311,144 | 313,781 |
| Loans and receivables to other customers | Level 2 | 209,665,561 | 210,522,603 | 175,235,906 | 176,994,008 |
| Financial investments – loans and receivable | Level 2 | 37,368,705 | 37,390,608 | 38,683,476 | 38,335,320 |
| Financial investments – held-to-maturity | Level 1 | 5,660,868 | 6,036,352 | 10,167,325 | 9,889,702 |
| Total Financial Assets | 272,799,858 | 274,054,369 | 237,134,368 | 238,269,328 | |
| Financial Liabilities | |||||
| Due to banks | Note 55 (e) | 11,620,003 | 11,620,003 | 7,029,342 | 7,029,342 |
| Due to other customers | Level 2 | 184,152,280 | 185,671,700 | 151,485,201 | 149,055,326 |
| Debt securities issued and other borrowed funds | Level 2 | 60,497,844 | 60,497,844 | 61,925,802 | 61,925,802 |
| Subordinated term debts | Level 2 | 19,573,883 | 22,004,203 | 11,149,439 | 13,434,176 |
| Other financial liabilities | Note 55 (e) | 2,893,671 | 2,893,671 | 2,423,677 | 2,423,677 |
| Total Financial Liabilities | 278,737,681 | 282,687,421 | 234,013,461 | 233,868,323 | |
Given below are 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 Financial investments – held-to-maturity, Due to other 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 instruments issued, the fair values are determined based on quoted market prices. For instruments 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.
The following disclosures are made in accordance with the SLFRS 7 – ‘Financial Instruments Disclosures’.
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 risk strategy focuses on managing principal risks faced by the Bank while, striking a fair balance between the risk return trade-off and the efficient capital allocation across risk exposures.
The Bank is mainly exposed to credit risk, liquidity risk, market risk and operational risk. Market risk could be further subdivided into trading and non-trading risks. Exposure to country risk and any risks due to changes in environment, technology and industry is managed through the Bank’s strategic planning process.
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s Risk Management Framework. The Board has delegated its authority to the Integrated Risk Management Committee (IRMC) for the overall Risk Management approach and for approving the risk management strategies and principles. IRMC meets quarterly to review and assess the Bank’s overall risks and to focus on policy recommendations and strategies in an integrated manner and the Board of Directors are duly updated of its activities.
The Bank’s risk management policies are established to identify and analyze the risks faced by the Bank/Group to set appropriate risk limits and controls and to monitor adherence to established limits.
The Bank’s Assets and Liabilities Committee (ALCO) reviews all market and liquidity related exposures, excesses on a monthly basis and decisions are made to facilitate the business requirements. These decisions are further reviewed at IRMC and by the Board.
The Credit and Market Risk Policy Committee and Operational Risk Policy Committee are in operation to formulate policies and to focus more clearly on defined risk areas. The membership of these committees comprises the CEO, CFO, the Heads of Business Units, Treasury and representatives of 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 defines the –
The Bank has in place a detailed impairment policy, which was approved by the Board of Directors.
For accounting purposes, the Bank uses an incurred loss model for the recognition of losses on impaired financial assets. At each reporting date the Bank/Group 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 analysis 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 for impairment 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 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 in the individual loans assessments. The collective assessment takes account of data from the loans and receivables (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 in 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 considers that any amount uncollected one day or more beyond their contractual due date is ‘past due’.
| BANK | |||||||||
| As at 31 December 2015 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 |
||||
| LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | |
| Cash and cash equivalents | 11,821,503 | – | – | – | – | – | – | – | 11,821,503 |
| Balances with the Central Bank of Sri Lanka | 6,999,898 | – | – | – | – | – | – | – | 6,999,898 |
| Placements with banks | 1,153,619 | – | – | – | – | – | – | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | – | – | – | – | – | – | 1,903,573 |
| Financial assets – held-for-trading | 2,985,262 | – | – | – | – | – | – | – | 2,985,262 |
| Loans and receivables to banks | 102,632 | – | – | – | – | – | – | – | 102,632 |
| Loans and receivables to other customers | 141,839,265 | 29,933,996 | 20,445,024 | 3,421,651 | 2,574,338 | 1,382,527 | 6,841,640 | 3,163,628 | 209,602,069 |
| Financial investments – loans and receivables | 35,830,311 | – | – | – | – | – | – | – | 35,830,311 |
| Financial investments – available-for-sale | 28,501,518 | – | – | – | – | – | – | – | 28,501,518 |
| Financial investments – held-to-maturity | 4,436,973 | – | – | – | – | – | – | – | 4,436,973 |
| GROUP | |||||||||
| As at 31 December 2015 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 |
||||
| LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | |
| Cash and cash equivalents | 3,104,391 | – | – | – | – | – | – | – | 3,104,391 |
| Balances with the Central Bank of Sri Lanka | 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 |
| GROUP | |||||||||
| As at 31 December 2015 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 |
||||
| LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | |
| Cash and cash equivalents | 11,848,575 | – | – | – | – | – | – | – | 11,848,575 |
| Balances with the Central Bank of Sri Lanka | 6,999,898 | – | – | – | – | – | – | – | 6,999,898 |
| Placements with banks | 1,153,619 | – | – | – | – | – | – | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | – | – | – | – | – | – | 1,903,573 |
| Financial assets – held-for-trading | 5,229,493 | – | – | – | – | – | – | – | 5,229,493 |
| Loans and receivables to banks | 102,632 | – | – | – | – | – | – | – | 102,632 |
| Loans and receivables to other customers | 141,902,757 | 29,933,996 | 20,445,024 | 3,421,651 | 2,574,338 | 1,382,527 | 6,841,640 | 3,163,628 | 209,665,561 |
| Financial investments – loans and receivables | 37,368,705 | – | – | – | – | – | – | – | 37,368,705 |
| Financial investments – available-for-sale | 28,964,820 | – | – | – | – | – | – | – | 28,964,820 |
| Financial investments – held-to-maturity | 5,660,868 | – | – | – | – | – | – | – | 5,660,868 |
| GROUP | |||||||||
| As at 31 December 2015 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 |
||||
| LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | LKR ’000 | |
| Cash and cash equivalents | 3,274,036 | – | – | – | – | – | – | – | 3,274,036 |
| Balances with the Central Bank of Sri Lanka | 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 |
The following table shows the maximum exposure to credit risk and net exposure to credit risk by class of financial asset.
| As at 31 December 2015 | BANK | |
| Maximum Exposure to Credit Risk LKR ’000 |
Exposure Net of Collateral LKR ’000 |
|
| Balances with the Central Bank of Sri Lanka | 6,999,898 | 6,999,898 |
| Placements with banks | 1,153,619 | 1,153,619 |
| Derivative financial instruments | 1,903,573 | 1,903,573 |
| Financial assets – held-for-trading | 2,985,262 | 2,985,262 |
| Loans and receivables to banks | 102,632 | 102,632 |
| Loans and receivables to other customers (net) | ||
| Corporate lending | 120,646,375 | 62,367,197 |
| Branch lending | 29,778,809 | 8,450,093 |
| Consumer lending | 47,852,802 | 35,961,558 |
| Residential mortgages | 8,758,937 | – |
| Others | 2,565,146 | 1,539,260 |
| 209,602,069 | 108,318,108 | |
| Financial investments – loans and receivables | 35,830,311 | 21,298,039 |
| Financial investments – available-for-sale | 28,501,518 | 28,501,518 |
| Financial investments – held-to-maturity | 4,436,973 | 4,436,973 |
| As at 31 December 2014 | BANK | |
| Maximum Exposure to Credit Risk LKR ’000 |
Exposure Net of Collateral LKR ’000 |
|
| Balances with the Central Bank of Sri Lanka | 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 (net) | ||
| 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 2015 | GROUP | |
| Maximum Exposure to Credit Risk LKR ’000 |
Exposure Net of Collateral LKR ’000 |
|
| Balances with the Central Bank of Sri Lanka | 6,999,898 | 6,999,898 |
| Placements with banks | 1,153,619 | 1,153,619 |
| Derivative financial instruments | 1,903,573 | 1,903,573 |
| Financial assets – held-for-trading | 5,229,493 | 5,229,493 |
| Loans and receivables to banks | 102,632 | 102,632 |
| Loans and receivables to other customers (net) | ||
| Corporate lending | 120,646,375 | 62,367,197 |
| Branch lending | 29,778,809 | 8,450,093 |
| Consumer lending | 47,852,802 | 35,961,558 |
| Residential mortgages | 8,758,937 | – |
| Others | 2,628,638 | 1,602,752 |
| 209,665,561 | 108,381,600 | |
| Financial investments – loans and receivables | 37,368,705 | 22,836,434 |
| Financial investments – available-for-sale | 28,964,820 | 28,964,820 |
| Financial investments – held-to-maturity | 5,660,868 | 5,660,868 |
| As at 31 December 2014 | GROUP | |
| Maximum Exposure to Credit Risk LKR ’000 |
Exposure Net of Collateral LKR ’000 |
|
| Balances with the Central Bank of Sri Lanka | 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 (net) | ||
| 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 |
The Bank monitors concentration of credit risk by sector. An analysis of risk concentration by industry for the financial assets is given below:
| As at 31 December 2015 | BANK | |||||||||
| 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 | – | – | – | – | – | 11,821,503 | – | – | – | 11,821,503 |
| Balances with the Central Bank of Sri Lanka | – | – | – | – | – | – | – | 6,999,898 | – | 6,999,898 |
| Placements with banks | – | – | – | – | – | 1,153,619 | – | – | – | 1,153,619 |
| Derivative financial instruments | – | – | – | – | – | 1,903,573 | – | – | – | 1,903,573 |
| Financial assets – held-for-trading | – | – | – | – | – | 2,407,328 | – | 577,934 | – | 2,985,262 |
| Loans and receivables to banks | – | – | – | – | – | 102,632 | – | – | – | 102,632 |
| Loans and receivables to other customers (net) | 24,612,175 | 7,670,692 | 20,124,022 | 12,980,130 | 40,138,496 | 36,622,318 | 24,027,169 | – | 43,427,067 | 209,602,069 |
| Financial investments – loans and receivables | – | – | – | – | – | – | – | 35,830,311 | – | 35,830,311 |
| Financial investments – available-for-sale | – | – | – | – | – | 1,483,458 | – | 26,917,700 | 100,359 | 28,501,518 |
| Financial investments – held-to-maturity | – | 797,980 | 196,000 | – | – | 1,328,650 | – | 1,044,602 | 1,069,741 | 4,436,973 |
*Government refers to the investments held with the Central Bank of Sri Lanka.
| As at 31 December 2014 | BANK | |||||||||
| 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 the Central Bank of Sri Lanka | – | – | – | – | – | – | – | 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 (net) | 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 the Central Bank of Sri Lanka and the current account balance with the Central Bank of Sri Lanka.
| As at 31 December 2015 | GROUP | |||||||||
| 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 | – | – | – | – | – | 11,848,575 | – | – | – | 11,848,575 |
| Balances with the Central Bank of Sri Lanka | – | – | – | – | – | – | – | 6,999,898 | – | 6,999,898 |
| Placements with banks | – | – | – | – | – | 1,153,619 | – | – | – | 1,153,619 |
| Derivative financial instruments | – | – | – | – | – | 1,903,573 | – | – | – | 1,903,573 |
| Financial assets – held-for-trading | – | 6,794 | 55,527 | 2,910 | – | 2,671,240 | 1,775 | 577,933 | 1,913,314 | 5,229,493 |
| Loans and receivables to banks | – | – | – | – | – | 102,632 | – | – | – | 102,632 |
| Loans and receivables to other customers (net) | 24,612,175 | 7,670,692 | 20,124,022 | 12,980,130 | 40,138,496 | 36,622,318 | 24,027,169 | – | 43,490,559 | 209,665,561 |
| Financial investments – loans and receivables | – | – | 83,221 | – | – | 857,045 | – | 35,830,311 | 598,128 | 37,368,705 |
| Financial investments – available-for-sale | – | – | – | – | – | 1,483,458 | – | 26,917,700 | 563,662 | 28,964,820 |
| Financial investments – held-to-maturity | – | 797,980 | 528,940 | – | – | 1,976,197 | – | 1,044,602 | 1,313,149 | 5,660,868 |
*Government refers to the investments held with the Central Bank of Sri Lanka.
| As at 31 December 2014 | GROUP | |||||||||
| 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 the Central Bank of Sri Lanka | – | – | – | – | – | – | – | 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 (net) | 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 the Central Bank of Sri Lanka and the current account balance with the 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 guarantees and contingencies is the maximum amount the Bank has to pay if the guarantees and commitments are called upon.
| As at 31 December | BANK | |
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Guarantees and bonds | 21,862,258 | 17,719,368 |
| Shipping guarantees | 4,058,389 | 3,503,056 |
| Advance documents endorsed | 963,966 | 865,787 |
| Letters of credit | 8,132,261 | 7,521,595 |
| Acceptances | 7,620,960 | 7,148,766 |
| Undrawn overdrafts and credit cards | 14,836,720 | 10,745,651 |
| Commitments | 95,813,207 | 83,191,376 |
| Forward foreign exchange contracts | 84,460,652 | 100,448,034 |
| Total | 237,748,413 | 231,143,633 |
| As at 31 December | Group | |
| 2015 LKR ’000 |
2014 LKR ’000 |
|
| Guarantees and bonds | 21,027,258 | 17,721,386 |
| Shipping guarantees | 4,058,389 | 3,503,056 |
| Advance documents endorsed | 963,966 | 865,787 |
| Letters of credit | 8,132,261 | 7,521,595 |
| Acceptances | 7,620,960 | 7,148,766 |
| Undrawn overdrafts and credit cards | 14,836,720 | 10,745,651 |
| Commitments | 97,489,367 | 83,194,587 |
| Forward foreign exchange contracts | 84,460,652 | 100,448,034 |
| Total | 238,589,573 | 231,148,862 |
Financial assets and financial liabilities are offset and the net amount is presented in the Statement of Financial Position when the Group has the right to set off the recognized amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
Amounts that do not qualify for offsetting in the Statement of Financial Position include netting arrangements that only permit outstanding transactions with the same counterparty to be offset in an event of default or occurrence of their predetermined events. Such netting arrangements include repurchase agreements and other similar secured lending and borrowing arrangements.
The amount of the financial collateral received or pledged subject to netting arrangements but not qualified for offsetting are disclosed below:
Market Risk function is attached to the Group Risk Management Unit and operates within a well-defined Policy framework, which ensures that the Bank operates within the pre defined risk appetite of the Bank. Guided by these policies and Regulatory directions; we have set internal prudential limits, taking in to account the balance sheet size, structure and the business model; thereby business units optimize the risk and reward relationship without exposing the Bank to unexpected losses.
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. Whilst the Trading portfolios are fair valued through the Statement of Profit or Loss; AFS (available-for-sale) portfolios are fair valued through the Other Comprehensive Income, of which realised capital gains/losses are recognised in the Statement of Profit or Loss.
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 of the Bank’s Statement of Financial Profit or Loss.
| 2015 | BANK | |||
| Portfolio Size LKR. ’000 |
Increase/ Decrease in Basis Points |
Sensitivity of Profit or Loss Bank LKR. ’000 |
Sensitivity of Profit or Loss Group LKR. ’000 |
|
| Held-for-Trading Portfolio | 560,908 | +100/(100) | (7,377)/7,377 | (7,377)/7,377 |
| 2014 | BANK | |||
| Portfolio Size LKR. ’000 |
Increase/ Decrease in Basis Points |
Sensitivity of Profit or Loss Bank LKR. ’000 |
Sensitivity of Profit or Loss Group LKR. ’000 |
|
| Held-for-Trading Portfolio | 504,799 | +100/(100) | (846)/846 | (846)/846 |
Fair value of the AFS portfolio is recognized in the Other Comprehensive Income – OCI (Reserves) 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.
| 2015 | BANK | |||
| Increase/ Decrease in Basis Points |
Sensitivity on Bank LKR. ’000 |
Sensitivity on Group LKR. ’000 |
||
| Available-for-Sale Portfolio | 26,997,647 | +100/(100) | (281,080)/281,080 | (281,080)/281,080 |
| 2014 | BANK | |||
| Portfolio Size LKR. ’000 |
Increase/ Decrease in Basis Points |
Sensitivity on Bank LKR. ’000 |
Sensitivity on Group LKR. ’000 |
|
| Available-for-Sale Portfolio | 16,345,863 | +100/(100) | (226,776)/226,776 | (226,776)/226,776 |
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 2015.
The tables below analyse the Bank’s and the Group’s interest rate risk exposure on financial assets and liabilities as at 31 December 2015.
| As at 31 December 2015 | BANK | ||||||
| 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 cash equivalents | – | – | – | – | – | 11,821,503 | 11,821,503 |
| Balances with the Central Bank of Sri Lanka | – | – | – | – | – | 6,999,898 | 6,999,898 |
| Placements with banks | 1,619 | 1,152,000 | – | – | – | – | 1,153,619 |
| Financial assets held-for-trading | 2,985,262 | – | – | – | – | – | 2,985,262 |
| Loans and receivables to banks | 3,469 | 40,169 | 20,759 | 38,235 | – | – | 102,632 |
| Loans and receivables to other customers | 33,178,038 | 61,409,854 | 26,981,158 | 66,305,160 | 21,727,859 | – | 209,602,069 |
| Financial assets – loans and receivables | 274,039 | 29,220,272 | 6,336,000 | – | – | – | 35,830,311 |
| Financial assets – available-for-sale | 26,917,702 | – | – | – | – | 1,583,816 | 28,501,518 |
| Financial assets – held-to-maturity | 145,761 | – | 1,243,220 | 3,047,992 | – | – | 4,436,973 |
| Total Financial Assets | 63,505,890 | 91,822,295 | 34,581,137 | 69,391,387 | 21,727,859 | 20,405,217 | 301,433,785 |
| Liabilities | |||||||
| Due to banks | 49,366 | 11,127,600 | 443,037 | – | – | – | 11,620,003 |
| Due to other customers | 34,765,742 | 72,410,382 | 55,701,557 | 3,917,124 | 1,206,591 | 16,931,834 | 184,933,230 |
| Debt securities issued and other borrowed funds | 658,115 | 25,924,483 | 3,785,111 | 23,656,543 | 6,503,592 | – | 60,527,844 |
| Subordinated term debts | – | – | 304,815 | 12,012,698 | 7,256,370 | – | 19,573,883 |
| Other financial liabilities | 2,889,783 | – | – | – | – | – | 2,889,783 |
| Total Financial Liabilities | 38,363,006 | 109,462,465 | 60,234,520 | 39,586,365 | 14,966,553 | 16,931,834 | 279,544,743 |
| Total Interest Sensitivity Gap | 25,142,884 | (17,640,170) | (25,653,383) | 29,805,022 | 6,761,306 | 3,473,383 | 21,889,042 |
| As at 31 December 2014 | BANK | ||||||
| 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 cash equivalents | – | – | – | – | – | 3,104,391 | 3,104,391 |
| Balances with the Central Bank of Sri Lanka | – | – | – | – | – | 6,740,590 | 6,740,590 |
| Placements with banks | – | 2,721,891 | – | – | – | – | 2,721,891 |
| Financial assets held-for-trading | 2,785,277 | – | – | – | – | – | 2,785,277 |
| 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 | 16,959,942 | – | – | – | – | 100,360 | 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 | 53,617,464 | 99,243,849 | 26,484,376 | 51,214,334 | 14,721,275 | 9,945,341 | 255,226,639 |
| 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 | 18,344,451 | 24,134,980 | (47,092,394) | 31,631,703 | (3,870,866) | (2,302,868) | 20,845,006 |
| As at 31 December 2015 | GROUP | ||||||
| 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 cash equivalents | – | – | – | – | – | 11,848,575 | 11,848,575 |
| Balances with the Central Bank of Sri Lanka | – | – | – | – | – | 6,999,898 | 6,999,898 |
| Placements with banks | 1,619 | 1,152,000 | – | – | – | – | 1,153,619 |
| Loans and receivables to banks | 5,229,493 | – | – | – | – | – | 5,229,493 |
| Financial assets – held-for-trading | 3,468 | 40,169 | 20,759 | 38,235 | – | – | 102,632 |
| Loans and receivables to other customers | 33,154,376 | 61,414,552 | 26,992,468 | 66,353,399 | 21,750,766 | – | 209,665,561 |
| Financial assets – loans and receivables | 319,393 | 29,220,272 | 6,336,000 | 1,408,317 | 84,724 | – | 37,368,705 |
| Financial assets – available-for-sale | 26,917,700 | – | – | – | – | 2,047,120 | 28,964,820 |
| Financial assets – held-to-maturity | 201,448 | – | 1,673,550 | 3,785,870 | – | – | 5,660,868 |
| Total Financial Assets | 65,827,497 | 91,826,993 | 35,022,777 | 71,585,821 | 21,835,490 | 20,895,593 | 306,994,171 |
| Liabilities | |||||||
| Due to banks | 49,366 | 11,127,600 | 443,037 | – | – | – | 11,620,003 |
| Due to other customers | 34,660,880 | 71,759,264 | 55,701,557 | 3,917,124 | 1,206,591 | 16,906,864 | 184,152,280 |
| Debt securities issued and other borrowed funds | 658,115 | 25,924,483 | 3,755,111 | 23,656,543 | 6,503,592 | – | 60,497,844 |
| Subordinated term debts | – | – | 304,815 | 12,012,698 | 7,256,370 | – | 19,573,883 |
| Other financial liabilities | 2,893,671 | – | – | – | – | – | 2,893,671 |
| Total Financial Liabilities | 38,262,032 | 108,811,347 | 60,204,520 | 39,586,365 | 14,966,553 | 16,906,864 | 278,737,681 |
| Total Interest Sensitivity Gap | 27,565,465 | (16,984,354) | (25,181,743) | 31,999,456 | 6,868,937 | 3,988,729 | 28,256,490 |
| As at 31 December 2014 | GROUP | ||||||
| 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 |
Total LKR ’000 |
|
| Assets | |||||||
| Cash and cash equivalents | – | – | – | – | – | 3,274,036 | 3,274,036 |
| Balances with Central Bank of Sri Lanka | – | – | – | – | – | 6,740,590 | 6,740,590 |
| Placements with banks | – | 2,721,891 | – | – | – | – | 2,721,891 |
| Financial assets held-for-trading | 6,028,558 | – | – | – | – | – | 6,028,558 |
| 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 | 16,959,942 | – | – | – | – | 1,097,910 | 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 | 56,860,745 | 99,260,800 | 26,592,590 | 52,691,140 | 14,757,417 | 11,112,536 | 261,275,228 |
| Financial 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 | 16,631,746 | 29,689,938 | (46,984,180) | 33,138,509 | (3,834,724) | (1,379,522) | 21,261,767 |
Trading and AFS (available-for-sale) portfolios of Fixed Income Securities (Treasury Bills/Bonds), Foreign Exchange positions 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 reviewed at monthly ALCO and the IRMC 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 the 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 indicate, the currencies to which the Bank had significant exposure as at 31 December 2015 and 31st December 2014 on its currency exposures. The analysis calculates the sensitivity of each currency position to the increase in the exchange rate against the Sri Lankan Rupees (functional currency) with all other variables held constant on the Statement of Profit or Loss and equity. A negative amount in the table reflects a potential net reduction in the Statement of Profit or Loss or 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 functional currency. An equivalent decrease in below currencies against the Sri Lankan Rupees would have resulted in an equivalent but opposite impact.
| Currency | Spot Rate Shock % |
Effect on Profit 2015 LKR ’000 |
Effect on Equity 2015 LKR ’000 |
Effect on Profit 2014 LKR ’000 |
Effect on Equity 2014 LKR ’000 |
| United States Dollar | 2.50 | 3,996 | 3,996 | 3,050 | 3,050 |
| Great Britain Pound | 2.50 | 10 | 10 | 144 | 144 |
| Euro | 2.50 | (236) | (236) | 275 | 275 |
| Japanese Yen | 2.50 | (1,749) | (1,749) | (3,297) | (3,297) |
| Australian Dollar | 2.50 | (20) | (20) | 11 | 11 |
Equity price risk is the risk that the fair value of equity decreases as a result of changes in the level of equity indices and individual stocks. The Bank did not hold an equity trading portfolio for the year concerned. 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:
| 2015 | 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 | 1,458,609 | 72,930 | 145,861 | 218,791 |
| Group | 2,073,681 | 103,224 | 206,448 | 309,673 |
| 2014 | 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 |
The Bank’s and the Group’s investments in Unit trust fund 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.
| 2015 | 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 | 2,407,804 | 120,390 | 240,780 | 361,171 |
| Group | 4,315,266 | 215,763 | 431,527 | 647,290 |
| 2014 | 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 |
The Bank’s 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:
| BANK | |||||
| 2015 | 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 | 395 | 15,076 | 14,775 | 14,322 | 13,870 |
| Biscuit | 113 | 55,507 | 54,397 | 52,732 | 51,067 |
| 2014 | BANK | ||||
| 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 |
Country risk is the risk that an occurrence within a country could have an adverse effect on the Bank directly by impairing the value of the Bank or indirectly through an obligor’s ability to meet its obligations to the Bank. Generally these occurrences relate. but are not limited to: sovereign events such as defaults or restructuring; political events such as contested elections; restrictions on currency movements; non-market currency convertibility; regional conflicts; economic contagion from other events such as sovereign default issues or regional turmoil; banking and currency crisis and natural disasters.
| 31 December 2015 | BANK | ||||||
| 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 | 2,773,122 | 1,539,976 | 7,008,139 | 434,738 | 7,708 | 57,820 | 11,821,503 |
| Balances with the Central Bank of Sri Lanka | 6,999,898 | – | – | – | – | – | 6,999,898 |
| Placements with banks | 1,153,619 | – | – | – | – | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | – | – | – | – | 1,903,573 |
| Financial assets – held-for-trading | 2,985,262 | – | – | – | – | – | 2,985,262 |
| Loans and receivables to banks | 102,632 | – | – | – | – | – | 102,632 |
| Loans and receivables to other customers | 209,602,069 | – | – | – | – | – | 209,602,069 |
| Financial Investments – loans and receivables | 35,830,311 | – | – | – | – | – | 35,830,311 |
| Financial Investments – available-for-sale | 28,501,518 | – | – | – | – | 28,501,518 | |
| Financial Investments – held-to-maturity | 4,436,973 | – | – | – | – | – | 4,436,973 |
| Total Financial Assets | 294,288,977 | 1,539,976 | 7,008,139 | 434,738 | 7,708 | 57,820 | 303,337,358 |
| 31 December 2014 | BANK | ||||||
| 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 the Central Bank of Sri Lanka | 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 2015 | GROUP | ||||||
| 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 | 2,800,194 | 1,539,976 | 7,008,139 | 434,738 | 7,708 | 57,820 | 11,848,575 |
| Balances with the Central Bank of Sri Lanka | 6,999,898 | – | – | – | – | – | 6,999,898 |
| Placements with banks | 1,153,619 | – | – | – | – | – | 1,153,619 |
| Derivative financial instruments | 1,903,573 | – | – | – | – | – | 1,903,573 |
| Financial assets held-for-trading | 5,229,493 | – | – | – | – | – | 5,229,493 |
| Loans and receivables to banks | 102,632 | – | – | – | – | – | 102,632 |
| Loans and receivables to other customers | 209,665,561 | – | – | – | – | – | 209,665,561 |
| Financial Investments – loans and receivables | 37,368,705 | – | – | – | – | – | 37,368,705 |
| Financial Investments – available-for-sale | 28,964,820 | – | – | – | – | – | 28,964,820 |
| Financial Investments – held-to-maturity | 5,660,868 | – | – | – | – | – | 5,660,868 |
| Total Financial Assets | 299,849,363 | 1,539,976 | 7,008,139 | 434,738 | 7,708 | 57,820 | 308,897,744 |
| 31 December 2014 | GROUP | ||||||
| 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 the Central Bank of Sri Lanka | 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 |
Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment obligations when they fall due under both normal and stress circumstances.
The Bank has set forth policies on Liquidity Risk Management and Liquidity Contingency Funding Plan approved by the Board for effective management of liquidity. In addition to the Regulatory limits on liquidity, the Bank’s internal prudential limit framework ensures that the exposures are managed and monitored at prudent levels.
In accordance with the Bank’s 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. This ensures the maintenance of the liquid asset ratio at required levels. Liquid assets consist of cash, short-term bank deposits and liquid debt securities available for immediate sale. The Bank is in possession of reciprocal Liquidity Contingency Funding Agreements signed up with Licensed Commercial Banks to deal in crisis situations.
The table below summarizes the maturity profile of the undiscounted cash flows of the Bank’s and the Group’s financial assets and liabilities as at 31 December 2015 and 31 December 2014.
| As at 31 December 2015 | bank | ||||||
| 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 cash equivalents | 11,821,503 | – | – | – | – | – | 11,821,503 |
| Balances with the Central Bank of Sri Lanka | 6,999,898 | – | – | – | – | – | 6,999,898 |
| Less: Restricted balance | (6,999,898) | – | – | – | – | – | (6,999,898) |
| Placements with banks | – | – | 1,154,104 | – | – | – | 1,154,104 |
| Derivative financial instruments | – | 1,903,573 | – | – | – | – | 1,903,573 |
| Financial assets held-for-trading | 2,985,262 | – | – | – | – | – | 2,985,262 |
| Loans and receivables to banks | 3,468 | – | 41,401 | 22,943 | 40,783 | – | 108,595 |
| Loans and receivables to other customers | 33,030,237 | – | 62,783,612 | 30,642,200 | 85,289,432 | 32,496,643 | 244,242,124 |
| Other financial assets classified as loans and receivables | – | – | 29,516,807 | 6,478,074 | – | – | 35,994,881 |
| Financial assets – available-for-sale | 28,501,518 | – | – | – | – | – | 28,501,518 |
| Financial assets – held-to-maturity | – | – | 89,654 | 1,594,061 | 3,905,614 | – | 5,589,329 |
| Total Undiscounted Financial Assets | 76,341,988 | 1,903,573 | 93,585,578 | 38,737,278 | 89,235,829 | 32,496,643 | 332,300,889 |
| Financial Liabilities | |||||||
| Due to banks | 16,891 | – | 11,172,037 | 452,538 | – | – | 11,641,466 |
| Derivative financial instruments | – | 639,272 | – | – | – | – | 639,272 |
| Due to other customers | 48,792,521 | – | 74,538,114 | 59,192,048 | 5,313,208 | 1,636,588 | 189,472,479 |
| Debt securities issued and other borrowed funds | – | – | 26,672,790 | 5,106,707 | 27,483,576 | 9,339,611 | 68,602,684 |
| Subordinated term debts | – | – | – | 2,418,040 | 20,179,192 | 11,260,126 | 33,857,358 |
| Other financial liabilities | 2,889,783 | – | – | – | – | – | 2,889,783 |
| Total Undiscounted Financial Liabilities | 51,699,195 | 639,272 | 112,382,941 | 67,169,333 | 52,975,976 | 22,236,325 | 307,103,042 |
| Net Undiscounted Financial Assets and Liabilities | 24,642,793 | 1,264,301 | (18,797,363) | (28,432,055) | 36,259,853 | 10,260,318 | 25,197,847 |
| 31 December 2014 | bank | ||||||
| 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 cash equivalents | 3,104,391 | – | – | – | – | – | 3,104,391 |
| Balances with the Central Bank of Sri Lanka | 6,740,590 | – | – | – | – | – | 6,740,590 |
| Less: restricted balance | (6,740,590) | – | – | – | – | – | (6,740,590) |
| Placements with banks | 1,514 | – | 2,722,129 | – | – | – | 2,723,643 |
| Derivative financial instruments | – | 1,903,781 | – | – | – | – | 1,903,781 |
| Financial assets held-for-trading | 2,802,515 | – | – | – | – | – | 2,802,515 |
| 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 | 18,032,271 | – | – | – | – | – | 18,032,271 |
| Other financial assets | 54,450 | – | – | – | – | – | 54,450 |
| Total Undiscounted Financial Assets | 57,288,850 | 1,903,781 | 103,685,842 | 34,444,986 | 67,244,083 | 29,300,355 | 293,867,897 |
| 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 | 15,775,997 | 1,240,595 | 22,470,481 | (42,069,711) | 36,756,685 | 4,556,207 | 38,730,254 |
| As at 31 December 2015 | group | ||||||
| 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 cash equivalents | 11,848,575 | – | – | – | – | – | 11,848,575 |
| Balances with the Central Bank of Sri Lanka | 6,999,898 | – | – | – | – | – | 6,999,898 |
| Less: Restricted balance | (6,999,898) | – | – | – | – | – | (6,999,898) |
| Placements with banks | – | – | 1,154,104 | – | – | – | 1,154,104 |
| Derivative financial instruments | – | 1,903,573 | – | – | – | – | 1,903,573 |
| Financial assets held-for-trading | 5,229,493 | – | – | – | – | – | 5,229,493 |
| Loans and receivables to banks | 3,468 | – | 41,401 | 22,943 | 40,783 | – | 108,595 |
| Loans and receivables to other customers | 33,027,847 | – | 62,788,334 | 30,653,678 | 85,341,281 | 32,522,158 | 244,333,298 |
| Other financial assets classified as loans and receivables | – | – | 29,516,807 | 6,478,074 | 2,164,910 | 156,655 | 38,316,446 |
| Financial assets – available-for-sale | 28,964,820 | – | – | – | – | – | 28,964,820 |
| Financial assets – held-to-maturity | – | – | 89,654 | 2,221,544 | 5,061,213 | – | 7,372,411 |
| Total Undiscounted Financial Assets | 79,074,203 | 1,903,573 | 93,590,300 | 39,376,239 | 92,608,187 | 32,678,813 | 339,231,315 |
| Financial Liabilities | |||||||
| Due to banks | 16,891 | – | 11,172,037 | 452,538 | – | – | 11,641,466 |
| Derivative financial instruments | – | 639,272 | – | – | – | – | 639,272 |
| Due to other customers | 48,663,526 | – | 73,879,166 | 59,192,048 | 5,313,208 | 1,636,588 | 188,684,536 |
| Debt securities issued and other borrowed funds | – | – | 26,672,121 | 5,076,039 | 27,483,576 | 9,339,611 | 68,571,347 |
| Subordinated term debts | – | – | – | 2,418,040 | 20,179,192 | 11,260,126 | 33,857,358 |
| Other financial liabilities | 2,893,671 | – | – | – | – | – | 2,893,671 |
| Total Undiscounted Financial Liabilities | 51,574,088 | 639,272 | 111,723,324 | 67,138,665 | 52,975,976 | 22,236,325 | 306,287,650 |
| Net Undiscounted Financial Assets and Liabilities | 27,500,115 | 1,264,301 | (18,133,024) | (27,762,426) | 39,632,211 | 10,442,488 | 32,943,665 |
| 31 December 2014 | group | ||||||
| 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 cash equivalents | 3,274,036 | – | – | – | – | – | 3,274,036 |
| Balances with Central Bank of Sri Lanka | 6,740,590 | – | – | – | – | – | 6,740,590 |
| Less: restricted balance | (6,740,590) | – | – | – | – | – | (6,740,590) |
| Placements with banks | 1,514 | – | 2,722,129 | – | – | – | 2,723,643 |
| Derivative financial instruments | – | 1,903,781 | – | – | – | – | 1,903,781 |
| Financial assets held-for-trading | 6,045,796 | – | – | – | – | – | 6,045,796 |
| 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 | 18,047,046 | – | – | – | – | – | 18,047,046 |
| Other financial assets | 54,450 | – | – | – | – | – | 54,450 |
| Total Undiscounted Financial Assets | 60,716,551 | 1,903,781 | 103,703,136 | 34,447,157 | 67,350,036 | 30,188,717 | 298,309,378 |
| 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 | (19,541,871) | 1,240,595 | 22,487,775 | (42,067,540) | 36,862,638 | 5,474,569 | 43,539,908 |
The table below summarises the maturity profile of the Bank’s and the Group’s commitments and contingencies as at 31 December 2015 and 31 December 2014.
| 31 December 2015 | bank | |||||
| 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 | 110,649,926 | – | – | – | – | 110,649,926 |
| Guarantees | – | 5,201,238 | 8,841,725 | 7,814,944 | 5,026,707 | 26,884,614 |
| Commitments on account of letters of credit | – | 5,925,841 | 1,742,216 | 464,204 | – | 8,132,261 |
| Forward foreign exchange contracts | – | 51,558,561 | 32,758,091 | 144,000 | – | 84,460,652 |
| Acceptances | – | 5,106,522 | 2,514,438 | – | – | 7,620,960 |
| 110,649,926 | 67,792,162 | 45,856,470 | 8,423,148 | 5,026,707 | 237,748,413 | |
| 31 December 2014 | bank | |||||
| 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 2015 | group | |||||
| 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 | 112,326,086 | – | – | – | – | 112,326,086 |
| Guarantees | – | 4,366,238 | 8,841,725 | 7,814,944 | 5,026,707 | 26,049,614 |
| Commitments on account of letters of credit | – | 5,925,841 | 1,742,216 | 464,204 | – | 8,132,261 |
| Forward foreign exchange contracts | – | 51,558,561 | 32,758,091 | 144,000 | – | 84,460,652 |
| Acceptances | – | 5,106,522 | 2,514,438 | – | – | 7,620,960 |
| 112,326,086 | 66,957,162 | 45,856,470 | 8,423,148 | 5,026,707 | 238,589,573 | |
| 31 December 2014 | group | |||||
| 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 | |
The Group realizes the importance of managing capital as it restricts the business growth unlike any other commercial organizations. 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 utilized for lending activities, thereby improving the net interest income of the Group. Further, the Group also maintains an effective balance between dividend payment and retention of profits, ensuring sufficient plough back of profits.
The detailed capital adequacy computation for the Bank and the Group as at 31 December 2015 and 31 December 2014 is given under Capital Adequacy section.