3 (1) |
Responsibilities of the Board |
|
|
The Board has strengthened the safety and the soundness of the Bank in the following manner: |
|
| a. |
Setting strategic objectives and corporate values
The Bank’s strategic objectives and corporate values are determined by the Board. These are communicated to all levels of employees through structured meetings and reinforced monthly at team meetings which review performance vis-à-vis strategic goals. The corporate values are included in the Code of Conduct and Business Ethics which is communicated to all employees in hard copy, via the Bank’s intranet, through orientation programmes and reinforced at meetings. |
 |
| b. |
Approving overall business strategy including risk policy and management
The Board provides direction and guidance for preparation of the five year Corporate Strategic Plan from 2017-2021 which was approved by the Board after discussing related issues in detail with the Corporate Management. It is aligned to the overall Risk Strategy of the Bank through involvement of the Independent Risk Management Committee. The risk appetite of the Bank is embedded throughout the corporate plan in allocation of capital, adoption of risk matrix to measure the risk levels and in defining key performance indicators which include both quantitative and qualitative criteria. Additionally, governance and compliance are embedded into the Bank’s Risk Management Policy Framework and included in the strategic goals.
The Bank’s Strategic Plan for 2018-2022 was approved on December 22, 2017 by the Board. |
|
| c. |
Risk management
The BIRMC is tasked with approving the Bank’s Risk Policy, defining the risk appetite, identifying principal risks, setting governance structures and implementing systems to measure, monitor and manage the principal risks. Managing Risk:
An Overview and the Report of the BIRMC in the section on Governance and Risk Management provide further insights on risk management policies and processes of the Bank. |
|
| d. |
Communication with all stakeholders
The Board has approved and implemented the following communication policies: |
|
|
- Shareholders – The Shareholder Communication Policy of the Bank explicitly provides for effective and timely communication to shareholders of material matters and performance. Interim Financial Statements are made available to shareholders within 45 days for the first three quarters and within two months for the last quarter from the end of the relevant quarter and a quarterly press release is issued providing a review of the Bank’s performance on a quarterly basis. Performance of the Bank is set out in the Annual Report of the Bank which is circulated to shareholders 15 working days prior to the AGM. The AGM is the key forum for contact with shareholders and the Bank has a history of well attended AGMs where shareholders take an active role in exercising their rights. Additionally, the Investor Relations page on the Bank’s website contains the Interim Financial Statements and Annual Reports together with key disclosures on risk management. The Bank also provides information to equity analysts to facilitate high quality information in research reports which are made available to investors by the stockbrokers.
|
|
- Customers – Customers include inter alia depositors and borrowers. The Bank’s Customer Complaint Handling Policy has been printed in all three languages and disseminated to all customer contact points of the Bank. This document outlines the complaints handling policy of the Bank, provides contact numbers of the Bank for this purpose and also of the Financial Ombudsman. There is a 24-hour trilingual customer hotline set up for this purpose and reports are reviewed by the BIRMC.
|
|
- Staff – Employees and representatives of the trade unions are given unrestricted access to the Management to discuss their concerns. The Deputy General Manager – Human Resource Management coordinates communication between the Board and the employees.
|
|
| e. |
Internal control system and management information systems
The Board is assisted in this regard by the BAC who reviews the adequacy and the integrity of the Bank’s internal control system and management information system. The BAC has reviewed reports from the Internal Audit Department and the External Auditors in carrying out this function and also reviewed management responses on same during the year. |
|
| f. |
Key Management Personnel (KMPs)
KMPs are defined in the Sri Lanka Accounting Standards, who significantly influence policy, direct activities and exercise control over business activities, operations and risk management. All appointments of designated KMPs are recommended by the BNC and approved by the Board.
Further, for corporate governance reporting and monitoring purposes, the Bank has included selected members of the Corporate Management in addition to the KMPs identified for financial reporting purposes. |
|
| g. |
Define areas of authority and key responsibilities for Directors and KMPs
The Board Charter sets out the matters specifically reserved for Board, defining the areas of authority and key responsibilities of the Board of Directors. Areas of authority and key responsibilities for members of the Corporate Management are stated in the job descriptions of each member. |
|
| h. |
Oversight of affairs of the Bank by KMPs
The Board reviews the performance of the Bank vis-à-vis the strategic plan and receives reports from its subcommittees on financial reporting, internal control, risk management, changes in KMPs and other relevant matters delegated to them. Additionally, KMPs make regular presentations to the Board on matters under their purview and are also called in by the Board to explain matters relating to their areas. |
|
| i. |
Assess effectiveness of own governance practices
Completed Board evaluation forms were received from all Board members for 2017 and the responses were discussed at a BNC meeting and at a subsequent Board meeting. Matters of concern noted are followed-up and improved upon during the year to continuously improve the governance practices of the Bank. |
|
| j. |
Succession plan for KMPs
There is a formal succession plan in place with named successors for KMPs together with development plans to ensure their readiness. The succession plan for the CEO and KMPs was reviewed by the BNC and approved by the Board during 2017. |
|
| k. |
Regular meetings with KMPs
Progress towards corporate objectives is a regular agenda item for the Board and KMPs are regularly involved in the Board level discussions on the same. Additionally, they make presentations on key agenda items or are called in for discussions at the meetings of the Board and its subcommittees on policy and other matters relating to their areas on a regular basis. |
|
| l. |
Regulatory environment and maintaining an effective relationship with regulator
Directors are briefed about regulatory developments at Board meetings by the KMPs to facilitate effective discharge of their responsibilities. Members of the BAC and the BIRMC are also briefed on regulatory developments at their meetings by the Heads of Internal Audit, Risk, and Compliance. All Board members attend the Director Forums arranged by the Central Bank
of Sri Lanka as well. |
|
| m. |
Hiring External Auditors
The Board has adopted a policy of rotation of auditors, once in every five years, in keeping with the principles of good corporate governance. At the end of the five-year period, quotations are called from suitable audit firms, prior to the recommendation of new auditors as per the rotation policy. In addition to this, External Auditors submit a statement annually confirming their independence as required by Section 163 (3) of the Companies Act No. 07 of 2007 in connection with external audit. |
|
| 3 (1) (ii) |
Appointment of Chairman and CEO and defining and approving their functions and responsibilities |
|
|
Positions of the Chairman and the Managing Director (MD)/Chief Executive Officer (CEO) are separated in the Board Charter to maintain a balance of power. Further, functions and responsibilities of the Chairman and the CEO are properly defined and approved in line with Section 3 (5) of this Direction. |
|
| 3 (1) (iii) |
Regular Board meetings |
|
|
Board meetings are held on the last Friday of each month on a regular basis and special meetings are scheduled as and when the need arises at which Directors present actively participate in deliberating matters set before the Board. Attendance at Board meetings is given in the section on How We Govern under Governance and Risk Management together with the number of meetings of the Board and its Subcommittees. We have minimised obtaining approval via circular resolutions and it is done only on an exceptional basis and such resolutions are ratified by the Board at the next meeting. |
|
| 3 (1) (iv) |
Arrangements for Directors to include proposals in the agenda |
|
|
Notice of Meeting is circulated two weeks prior to the meeting and Directors may submit proposals for inclusion in the agenda on discussion with the Chairman on matters relating to the business of the Bank. |
|
| 3 (1) (v) |
Notice of Meetings |
|
|
Notice of Meetings, together with the agenda and Board papers for the Board meetings are circulated to the Directors seven days prior to the meeting giving Directors time to attend and submit any urgent proposals. |
|
| 3 (1) (vi) |
Directors’ attendance |
|
|
The Directors are apprised of their attendance in accordance with the Articles of Association of the Company and the Corporate Governance Code. Details of the Directors’ attendance are set out in the section on How We Govern under Governance and Risk Management. No Director has been absent from three consecutive meetings. |
|
| 3 (1) (vii) |
Appointment and setting responsibilities of the Company Secretary |
|
|
The Board appoints and sets responsibilities of the Company Secretary in accordance with the Companies Act, Banking Act, Directions, and the Articles of Association of the Company under advisement of the BNC. |
|
| 3 (1) (viii) |
Directors’ access to advice and services of Company Secretary |
|
|
All Board members have full access, to the advice and services of the Company Secretary to ensure that proper Board procedures are followed and all applicable rules and regulations are complied with. |
|
| 3 (1) (ix) |
Maintenance of Board minutes |
|
|
Company Secretary maintains the minutes of the Board meetings and circulates same to all Board members after review by the CEO and the Chairman. The minutes are reviewed and approved at the next Board meeting after incorporating any amendments/inclusions proposed by other Directors. Additionally, the Directors have access to the past Board papers and minutes through a secure electronic link. |
|
| 3 (1) (x) |
Minutes to be of sufficient detail and serve as a reference for regulators and supervisory authorities |
|
|
The minutes of the meetings include:
-
a summary of data and information used by the Board in its deliberations;
- the matters considered by the Board;
- the fact-finding discussions and the issues of contention or dissent;
- the testimonies and confirmations of relevant executives with regard to the Board’s strategies and policies and adherence to relevant laws and regulations;
- matters regarding the risks to which the Bank is exposed and an overview of the risk management measures including reports of the BIRMC; and
- the decisions and Board resolutions including reports of all Board Subcommittees.
|
|
| 3 (1) (xi) |
Directors’ ability to seek independent professional advice |
|
|
Directors can obtain independent professional advice, as and when necessary, in discharging their responsibilities according to a procedure approved by the Board. This function is coordinated by the Company Secretary. |
|
| 3 (1) (xii) |
Dealing with conflicts of interest |
|
|
The Directors make declarations of their interests at appointment, annually and whenever there is a change in the same and a quarterly report is sent to the Board on possible areas of conflict (if any). Directors abstain from participating in the discussions, voicing their opinion or approving in situations where there is a conflict of interest. Additionally, such Director’s presence is disregarded in counting the quorum in such instances. Key appointments of the Directors are included in their profiles in the section on How We Govern under Governance and Risk Management. |
|
| 3 (1) (xiii) |
Formal schedule of matters reserved for Board decision |
|
|
The Board has put in place systems and controls to facilitate the effective discharge of Board functions.
Pre-set agenda of meetings ensures the direction and control of the Bank are firmly under Board’s control and authority in line with regulatory codes, guidelines and international best practice. |
|
| 3 (1) (xiv) |
Inform Central Bank if there are solvency issues |
|
|
The Bank is solvent and no situation arisen where its solvency has been in doubt. A Board approved procedure is in place to inform the Director of Bank Supervision prior to taking any decision or action if the Bank is about to become insolvent or about to suspend payments to its depositors and other creditors. |
|
| 3 (1) (xv) |
Capital adequacy |
|
|
The Board monitors capital adequacy and other prudential measures to ensure compliance with regulatory requirements, and the Bank’s defined risk appetite. The Bank is in compliance with the minimum capital requirements. |
|
| 3 (1) (xvi) |
Publish Corporate Governance Report in this Annual Report |
|
|
This Report forms part of the Corporate Governance Report of the Bank which is set out in the section on How We Govern and
Annex 2: Governance. |
|
| 3 (1) (xvii) |
Self-assessment of Directors |
|
|
The Bank has adopted a system of self-assessment, to be undertaken by each Director, annually. Each member of the Board carried out a self-assessment of his/her own effectiveness as an individual as well as the effectiveness of the Board as
a whole. Further, each Director carries out an assessment of “fitness and propriety” to serve as a Director. |
|
| 3 (2) |
Board Composition |
|
| 3 (2) (i) |
Number of Directors |
|
|
As per CBSL Governance Direction and Articles of Association of the Bank the number of Directors should not be less than seven and not more than 13. The Bank’s Board comprised 12 Directors as at December 31, 2017. |
|
| 3 (2) (ii) |
Period of service of a Director |
|
|
The period of service of a Director is limited to nine years excluding the Executive Directors as per the Corporate Governance Code for Licensed Commercial Banks. Details of their tenures of service are given in the section on How We Govern under Governance and Risk Management. |
|
| 3 (2) (iii) |
Board balance |
|
|
There are two Executive Directors and eight NEDs which is compliant with the requirement to limit the number of Executive Directors to one-third of the total. |
|
| 3 (2) (iv) |
Independent NEDs |
|
|
The Board has nine Independent Directors which is well above the regulatory requirement to satisfy the criteria for
determining independence. |
|
| 3 (2) (v) |
Alternate Independent Directors |
|
|
There are no alternate Directors. |
|
| 3 (2) (vi) |
Criteria for Non-Executive Directors |
|
|
NEDs are persons with proven track records and necessary skills and experience to bring independent judgement to bear on, issues of strategy, performance and resources and appointed by the Board.
Directors nominate names of eminent professionals or academics from various disciplines to the BNC who peruses the
profiles and recommend suitable candidates to the Board. |
|
| 3 (2) (vii) |
More than half the quorum to comprise Non-Executive Directors |
|
|
This requirement is strictly observed and it is noteworthy that the majority of the Board are NEDs. |
|
| 3 (2) (viii) |
Identify Independent Non-Executive Directors in communications and disclose categories of Directors in this Annual Report |
|
|
The Independent NEDs are expressly identified as such in all corporate communications that disclose the names of
Directors of the Bank. The composition of the Board, by category of Directors, including the names of the Chairman,
Executive and Non-Executive Directors and Independent and Non-Independent Directors are given in the section on How We Govern under Governance and Risk Management. |
|
| 3 (2) (ix) |
Formal and transparent procedure for appointments to the Board |
|
|
The Board has established a BNC, whose Terms of Reference comply with the specimen given in the Code of Best Practice on Corporate Governance. Accordingly, new Directors including the CEO and COO are appointed by the Board upon consideration of recommendations by the BNC. The Board has also developed a succession plan together with the BNC to ensure the orderly succession of appointments to the Board. |
|
| 3 (2) (x) |
Re-election of Directors filling casual vacancies |
|
|
All Directors appointed to the Board are subject to re-election by shareholders at the first AGM after their appointment. |
|
| 3 (2) (xi) |
Communication of reasons for removal or resignation of Director |
|
|
Resignations of Directors and the reasons are promptly informed to the regulatory authorities and shareholders as per CSE’s Continuing Listing Requirements together with a statement confirming whether or not there are any matters that need to be brought to the attention of shareholders. |
|
| 3 (2) (xii) |
Prohibition of Directors or employees of a bank becoming a Director of another bank |
|
|
The Board and the BNC take into account this requirement in their deliberations when considering appointments of Directors. None of the Directors are directors or employees of any other bank. |
|
| 3 (3) |
Criteria to assess fitness and propriety of Directors |
|
| 3 (3) (i) |
Age of Director should not exceed 70 |
|
|
There are no Directors who are over 70 years of age. |
|
| 3 (3) (ii) |
Directors should not be Directors of more than 20 companies and not more than 10 companies classified as specified business entities |
|
|
No Director holds directorships of more than 20 companies/entities/institutions inclusive of subsidiaries or associates of
the Bank. |
|
| 3 (4) |
Management functions delegated by the Board |
|
| 3 (4) (i) |
Understand and study delegation arrangements |
|
| 3 (4) (ii) |
Extent of delegation should not hinder the Board’s ability to discharge its functions |
|
| 3 (4) (iii) |
Review delegation arrangements periodically to ensure relevance to operations of the Bank |
|
|
The Board reviews and approves the delegation arrangements of the Bank annually and ensures that the extent of delegation addresses the business needs of the Bank whilst enabling the Board to discharge their functions effectively. Consequently, the Board takes time to study and understand the delegation arrangements as referred to in the Section 3 (4) (i), (ii) and (iii) above. |
|
| 3 (5) |
The Chairman and Chief Executive Officer |
|
| 3 (5) (i) |
Separation of roles |
|
|
There is a clear separation of duties between the roles of the Chairman and the CEO, thereby preventing unfettered powers
for decision-making being vested with one person. |
|
| 3 (5) (ii) |
A Non-Executive Independent Director as the chairman or if not independent, designation of an Independent Director
as the Senior Director |
|
|
The Chairman is an Independent Non-Executive Director. |
|
| 3 (5) (iii) |
Disclosure of identity of Chairman and CEO and any relationships with the Board members |
|
|
The identity of the Chairman and the CEO are disclosed in the Annual Report in the section on Board of Directors and Profiles.
The Board is aware that there are no relationships whatsoever, including financial, business, family, any other material/relevant relationship between the Chairman and the CEO. Similarly, no relationships prevail among the other members of the Board. |
|
| 3 (5) (iv) |
Chairman to provide leadership to the Board |
|
|
Board approved List of Functions and Responsibilities of the Chairman includes, “Providing leadership to the Board” as a responsibility of the Chairman. The Board’s Annual Assessment Form includes an area to measure the “Effectiveness of the Chairman in facilitating the effective discharge of Board functions”.
All key and appropriate issues are discussed by the Board on a timely basis. |
|
| 3 (5) (v) |
Responsibility for agenda lies with chairman but may be delegated to Company Secretary |
|
|
The Company Secretary draws up the agenda for the meetings in consultation with the Chairman. |
|
| 3 (5) (vi) |
Ensure that Directors are properly briefed and provided adequate information |
|
|
The Chairman ensures that the Board is sufficiently briefed and informed regarding the matters arising at Board meetings.
The following procedures ensure that:
- Circulation of Board papers including minutes of the previous meeting seven days prior to meeting
- Clarification of matters by KMPs when required
|
|
| 3 (5) (vii) |
Encourage active participation by all Directors and lead in acting in the interests of the Bank |
|
|
This requirement is addressed in the list of functions and responsibilities of the Chairman approved by the Board. |
|
| 3 (5) (viii) |
Encourage participation of Non-Executive Directors and relationships between Non-Executive and Executive Directors |
|
|
Ten members of the Board are NEDs which creates a conducive environment for active participation by the NEDs. Additionally, NEDs Chair the subcommittees of the Board providing further opportunity for active participation. |
|
| 3 (5) (ix) |
Refrain from Direct Supervision of Key Management Personnel and executive duties |
|
|
The Chairman does not get involved in the supervision of KMPs or any other executive duties. |
|
| 3 (5) (x) |
Ensure effective communication with shareholders |
|
|
The Bank historically has active shareholder participation at the Annual General Meeting. At the Annual General Meeting the shareholders are given the opportunity to take up matters for which clarification is needed. These matters are adequately clarified by the Chairman and/or CEO and/or any other officer. |
|
| 3 (5) (xi) |
CEO functions as the apex executive in charge of the day-to-day operations |
|
|
The day-to-day operations of the Bank have been delegated to the CEO. |
|
| 3 (6) |
Board appointed committees |
|
| 3 (6) (i) |
Establishing Board Committees, their functions and reporting |
|
|
The Board has established eight committees with written terms of reference for each of which five are mandatory with the remainder appointed to meet the business needs of the Bank. Each committee has a Secretary to arrange the meetings and maintain minutes, records, etc., under the supervision of the Chairman of the Committee. The reports of the Subcommittees are included in the Annual Report as follows:
- Board Audit Committee in the section on How We Govern under Governance and Risk Management.
- Board Integrated Risk Management Committee in the section on How We Govern under Governance and Risk Management.
- Board Nomination Committee in the section on How We Govern under Governance and Risk Management.
- Board Human Resources and Remuneration Committee in the section on How We Govern under Governance and Risk Management.
- Board Related Party Transactions Review Committee in the section on How We Govern under Governance and Risk Management.
- Board Credit Committee in the section on How We Govern under Governance and Risk Management.
- Board Investments Committee in the section on How We Govern under Governance and Risk Management.
- Board Technology Committee in the section on How We Govern under Governance and Risk Management.
The Chairpersons of the Subcommittees are available at the AGM to clarify any matters that may be referred to them by
the Chairman. |
|
| 3 (6) (ii) |
Audit Committee |
|
| a. |
Chairman to be an Independent Non-Executive Director with qualifications and experience in accountancy
and/or audit |
|
|
Chairman of the Committee, Mr S Swarnajothi is an Independent Non-Executive Director. He is a Fellow of The Institute of Chartered Accountants of Sri Lanka and a Fellow of the Certified Management Accountants of Sri Lanka and also a member of the Institute of Certified Management Accountants of Australia. A former Auditor General of Sri Lanka, he has the required skills and experience to function effectively in this capacity. |
|
| b. |
Committee to comprise solely of Non-Executive Directors |
|
|
All members of the BAC are independent NEDs. |
|
| c. |
Audit committee functions
In accordance with the Terms of Reference, the BAC has made the following recommendations:
- the appointment of the External Auditor for audit services to be provided in compliance with the relevant statutes;
- the implementation of the Central Bank Guidelines issued to Auditors from time to time;
- the application of the relevant Accounting Standards; and
- the service period, audit fee and any resignation or dismissal of the Auditor.
The BAC ensures that the service period of the engagement of the external audit partner shall not exceed five years, and that the particular audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term. |
|
| d. |
Review and monitor External Auditor’s independence and objectivity and the effectiveness of the audit processes |
|
|
The Board has adopted a policy of rotation of Auditors, once in every five years, in keeping with the principles of good corporate governance. |
|
| e. |
Provision of non-audit services by External Auditor |
|
|
Following action is taken prior to the assignment of non-audit services to External Auditor’s by the Bank:
- If the Management is of the view that the independence is likely to be impaired with the assignment of any
non-audit services to External Auditors, no assignment will be made to obtain such services.
-
Further, relevant information is obtained from External Auditors to ensure that their independence is not impaired, as a result of providing any non-audit services.
Assigning such non-audit services to External Auditors is discussed at BAC meetings and required approval is
obtained to that effect. |
|
| f. |
Determines scope of audit |
|
|
The Committee discussed the Audit Plan and scope of the audit with External Auditors to ensure that it includes:
- an assessment of the Bank’s compliance with the relevant Directions in relation to corporate governance and the management’s internal controls over financial reporting; and
-
the preparation of Financial Statements for external purposes in accordance with relevant accounting principles and reporting obligations.
As all audits within the Group are carried out by the same External Auditor, there was no requirement to discuss arrangements for coordinating activities with other auditors. |
|
| g. |
Review financial information of the Bank |
|
|
The BAC reviews the financial information of the Bank, in order to monitor the integrity of the Financial Statements of the Bank, its Annual Report, accounts and quarterly reports prepared for disclosure, and the significant financial reporting judgements contained therein. The review focuses on the following:
-
major judgemental areas;
-
any changes in accounting policies and practices;
- significant adjustments arising from the audit;
- the going concern assumption; and
- compliance with relevant Accounting Standards and other legal requirements.
The BAC makes their recommendations to the Board on the above on a quarterly basis. |
|
| h. |
Discussions with External Auditor on interim and final audits |
|
|
The BAC discusses issues, problems and reservations arising from the interim and final audits with the External Auditor.
The Committee met on two occasions with the External Auditors in the absence of executive staff of the Bank. |
|
| i. |
Review of management letter and Bank’s response |
|
|
The BAC has reviewed the External Auditor’s Management Letter and the Management’s response thereto. |
|
| j. |
Review of internal audit function |
|
|
The Annual Audit Plan prepared by the Internal Audit Department is submitted to the BAC for approval. This Plan covers the scope and resource requirement relating to the Audit Plan.
The services of five audit firms have been obtained to assist the Internal Audit Department to carry out the audit function.
Prior approval of the BAC has been obtained in this regard.
The Committee reviewed the reports submitted by Internal Audit Department and ensures that appropriate action is taken
on the recommendations.
The Assistant General Manager – Management Audit, who leads the Internal Audit Department, reports directly to the BAC
and his performance appraisal is reviewed by the BAC.
The BAC is kept apprised of terminations/resignations of senior internal audit staff members and recommends
their appointment.
The above processes ensure that audits are performed with impartiality, proficiency and due professional care. |
|
| k. |
Internal investigations |
|
|
Major findings of internal investigations and Management’s responses thereto are reviewed by the BAC. It has also ensured that the recommendations of such investigations are implemented. |
|
| l. |
Attendees at Board Audit Committee meetings |
|
|
The CEO, CFO, AGM – Management Audit and a representative of the External Auditors normally attend meetings.
Other Board members may also attend meetings upon the invitation of the Committee. The Committee met with the
External Auditors without the Executive Directors being present on two occasions during the year. |
|
| m. |
Explicit authority, resources and access to information |
|
|
The Terms of Reference for the BAC includes:
-
explicit authority to investigate into any matter within its Terms of Reference;
-
the resources which it needs to do so;
- full access to information; and
authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary.
Refer the BAC Report in the section on How We Govern under Governance and Risk Management. |
|
| n. |
Regular meetings |
|
|
The BAC has scheduled regular quarterly meetings and additional meetings are scheduled when required. Accordingly,
the Committee met eleven times during the year. Members of the BAC are served with due notice of issues to be discussed and the conclusions in discharging its duties and responsibilities are recorded in the minutes of the meetings maintained by the Secretary of the BAC. |
|
| o. |
Disclosure in annual report
The Report of the BAC in the section on How We Govern under Governance and Risk Management includes the following:
- details of the activities of the Audit Committee;
-
the number of BAC meetings held in the year; and
-
details of attendance of each individual Director at such meetings.
|
|
| p. |
Maintain minutes of meetings |
|
|
AGM – Management audit serves as the Secretary for the BAC and maintains minutes of the Committee meetings. |
|
| q. |
Whistle-blowing policy and relationship with External Auditor |
|
|
The Bank has a whistle-blowing policy which has been reviewed and approved by the BAC and the Board of Directors.
Board’s responsibility towards encouraging communication on any non-compliance and unethical practices are addressed
in the Board Charter.
A process is in place and proper arrangements are in effect to conduct fair and independent investigation and appropriate follow-up action regarding any concerns raised by the employees of the Bank, in relation to possible inappropriate financial reporting, internal controls or other matters.
The BAC is the key representative body for overseeing the Bank’s relations with the External Auditor and meets the Auditor
on a regular basis to discharge this function. |
|
| 3 (6) (iii) |
Human Resources and Remuneration Committee |
|
|
Charter of the Committee |
|
|
The HR and Remuneration Committee (BHRRC) is responsible for:
-
determining the remuneration policy relating to Directors, CEO and KMPs;
-
setting goals and targets for the Directors, CEO and KMPs; and
-
evaluating performance of the CEO and KMPs against agreed targets and goals and determining the basis for revising remuneration, benefits and other payments of performance based incentives.
The CEO attends all meetings of the Committee, except when matters relating to the CEO are being discussed. |
|
| 3 (6) (iv) |
Nomination Committee |
|
| a. |
Appointment of Directors, CEO and KMP |
|
|
The Committee has developed and implemented a procedure to appoint new Directors, CEO and KMPs.
The Committee is chaired by the Chairman of the Bank and comprises three other NEDs, two of whom are independent.
The CEO may be present at meetings by invitation. Refer the BNC Report in the section on How We Govern under Governance and Risk Management. |
|
| b. |
Re-election of Directors |
|
|
The Committee makes recommendations regarding the re-election of current Directors, considering the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities also considering the requirements of the Articles of Association. |
|
| c. |
Eligibility criteria for appointments to key managerial positions including CEO |
|
|
The Committee sets the eligibility criteria to be considered, including qualifications, experience and key attributes,
for appointment or promotion to key managerial positions including the position of the CEO. The Committee considers the applicable statutes and guidelines in setting the criteria. |
|
| d. |
Fit and proper persons |
|
|
The Committee obtains annual declarations from Directors, CEO and COO to ensure that they are fit and proper persons
to hold office as specified in the criteria given in the Section 3 (3) of this Direction and as set out in the statutes.
Further, the BHRRC obtains declaration from KMPs to ensure that they too are fit and proper persons to hold office as specified in the said Direction. |
|
| e. |
Succession plan and new expertise |
|
|
The Committee has developed a succession plan for the Directors whilst succession planning for KMPs is carried out by the BHRRC. The need for new expertise may be identified by the Board or its Subcommittees and brought to the attention of the BNC who will take appropriate action. |
|
| f. |
Committee to be chaired by an independent Director |
|
|
The Committee was chaired by an Independent Non-Executive Director and the CEO was presented at the
meetings by invitation. |
|
| 3 (6) (v) |
Integrated Risk Management Committee/Board Risk Management Committee |
|
| a. |
Composition of Integrated Risk Management Committee
The Committee comprises NEDs, the CEO and the Chief Risk Officer who serves as the Secretary to the Committee. Other KMPs supervising credit, market, liquidity, operational, and strategic risks are invited to attend the meetings on a regular basis. |
|
| b. |
Risk assessment |
|
|
The Committee has approved the policies on Credit Risk Management, Market Risk Management and Operational Risk Management, which provide a framework for management and assessment of risks. Accordingly, monthly information on
pre-established risk indicators is reviewed by the Committee in discharging its responsibilities as per the Terms of Reference. |
|
| c. |
Review of management level committees on risk |
|
|
The Committee reviews the reports of the management level Credit Policy Risk and Portfolio Review Committee and the Asset and Liability Management Committee (ALCO) to assess their adequacy and effectiveness in addressing specific risks and managing same within the quantitative and qualitative risk limits set out in the Risk Appetite Statement reviewed and approved by the Board on a regular basis.
Further, adequacy and effectiveness of all management level risk-related committees such as Executive Integrated Risk Management Committee, ALCO, Credit Policy Committee and Executive Committee on Monitoring NPAs are reviewed by the BIRMC annually. |
|
| d. |
Corrective action to mitigate risks exceeding prudential levels |
|
|
Actual exposure levels under each risk category are monitored against the tolerance levels when preparation of
“Risk Profile Dashboard” of the Bank, which is circulated among members of the BIRMC monthly and discussed in detail at quarterly meetings.
The Committee takes prompt corrective action to mitigate the effects of specific risks in the case, such risks are at levels beyond the prudent levels decided by the Committee on the basis of the Bank’s policies and regulatory and
supervisory requirements. |
|
| e. |
Frequency of meetings |
|
|
The Committee has regular quarterly meetings and schedules additional meetings when required. The agenda covers matters assessing all aspects of risk management including updated business continuity plans. The Committee met five times during 2017. |
|
| f. |
Actions against officers responsible for failure to identify specific risks or implement corrective action |
|
|
The Committee refers such matters, if any, to the Human Resources Department for necessary action. |
|
| g. |
Risk Assessment Report to Board |
|
|
A comprehensive report of the meeting is submitted to the Board after each Committee meeting by the Secretary of the Committee for their information, views, concurrence or specific directions. |
|
| h. |
Compliance function |
|
|
A compliance function has been established to assess the Bank’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. This function is headed by a dedicated Compliance Officer who reports to the BAC and the BIRMC. The Compliance Officer submits a Positive Assurance Certificate on Compliance with mandatory banking and other statutory requirements on a quarterly basis to BAC and BIRMC. |
|
| 3 (7) |
Related Party Transactions |
|
| 3 (7) (i) |
Avoid conflict of interest |
|
|
The BRPTRC is tasked with the oversight of the processes relating to this subject and their Report is in the section on How We Govern under Governance and Risk Management.
All members of the Board are required to make declarations of the positions held with related parties at the time of appointment and annually thereafter. This information is provided to the Finance Department, enabling them to capture relevant transactions. In the event of any change (during the year), the Directors are required to make a further declaration to the Company Secretary.
Directors refrain from participating at relevant sessions, in which lending to related entities are discussed to avoid any kind of an influence and conflict of interest.
Transactions carried out with related parties as defined by LKAS 24 on “Related Party Disclosures”, in the normal course of business, are disclosed in Note 64 to the Financial Statements on “Related Party Disclosures”.
Directors’ interest in contracts, which do not fall into the definition of related party transactions as per LKAS 24, are reported separately in the Annual Report, outside the Financial Statements. Refer the section on Directors’ Interest in Contracts with the Bank under Governance and Risk Management for more details. |
|
| 3 (7) (ii) |
Related party transactions covered by direction |
|
|
The Related Party Transactions Policy approved by the Board, covers the following transactions:
- The grant of any type of accommodation, as defined in the Monetary Board’s Directions on maximum amount of accommodation;
-
The creation of any liabilities of the Bank in the form of deposits, borrowings and investments;
-
The provision of any services of a financial or non-financial nature to the Bank or received from the Bank;
-
The creation or maintenance of reporting lines and information flows between the Bank and any related parties, which may lead to sharing of potentially proprietary, confidential or otherwise sensitive information that may give benefits to such related parties.
|
|
| 3 (7) (iii) |
Prohibited transactions |
|
|
The Bank’s Related Party Transactions Policy prohibits transactions, which would grant related parties more favourable treatment than that accorded to other customers. These include the following:
- Granting of “total net accommodation” to related parties, exceeding a prudent percentage of the Bank’s regulatory capital;
-
Charging of a lower rate of interest than the Bank’s best lending rate or paying more than the Bank’s deposit rate for a comparable transaction with an unrelated comparable counterparty;
-
Providing of preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/commissions, that extend beyond the terms granted in the normal course of business undertaken with unrelated parties;
-
Providing services to or receiving services from a related party without an evaluation procedure;
-
Maintaining reporting lines and information flows that may lead to sharing potentially proprietary, confidential or otherwise sensitive information with related parties, except as required for the performance of legitimate duties and functions.
|
|
| 3 (7) (iv) |
Granting accommodation to a Director or close relation of a Director |
|
|
A procedure is in place for granting accommodation to Directors or to close relations of Directors. Such accommodation requires approval at a meeting of the Board of Directors, by not less than two-thirds of the number of Directors, other than the Director concerned, voting in favour of such accommodation or through circulation of papers, which require approval by all. The terms and conditions of the facility include a proviso that it will be secured by such security, as may from time to time be determined by the Monetary Board as well. |
|
| 3 (7) (v) |
Accommodations granted to persons, concerns of persons, or close relations of persons, who subsequently are appointed as Directors of the Bank |
|
|
The Company Secretary obtains declarations/affidavits from all Directors prior to their appointment and they are requested to declare any further transactions.
Employees of the Bank are aware of the requirement to obtain necessary security, as defined by the Monetary Board, if the need arises.
Processes for compliance with this regulation is also monitored by the Compliance Unit. |
|
| 3 (7) (vi) |
Favourable treatment or accommodation to bank employees or their close relations |
|
|
No favourable treatment/accommodation is provided to Bank employees, other than staff benefits. Employees of the Bank are informed through operational circulars, to refrain from granting favourable treatment to other employees or their close relations or to any concern in which an employee or close relation has a substantial interest. |
|
| 3 (7) (vii) |
Remittance of accommodation subject to Monetary Board approval |
|
|
No such situation has arisen during the year. |
|
| 3 (8) |
Disclosures |
|
| 3 (8) (i) |
Publish annual and quarterly Financial Statements |
|
|
Annual Audited Financial Statements and Interim Financial Statements of the Bank were prepared and published during 2017 in the newspapers (in Sinhala, Tamil and English), in accordance with the formats prescribed by the Supervisory and Regulatory Authorities and applicable accounting standards. |
|
| 3 (8) (ii) |
Disclosures in Annual Report |
|
| a. |
A statement to the effect that the Annual Audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures |
|
|
Disclosures on the compliance with the applicable accounting standards and regulatory requirements in preparation of the Annual Audited Financial Statements, have been made in the “Statement of Directors’ Responsibility”, “Managing Director’s and Chief Financial Officer’s Statement of Responsibility”. Refer the section on Statement of Directors’ Responsibility under Governance and Risk Management. |
|
| b. |
Report by the Board on the Bank’s internal control mechanism |
|
|
The Annual Report includes the reports where the Board confirms that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements:
- Directors’ Statement on Internal Control in the chapter on Governance and Risk Management
- Statement of Director’s Responsibility in the chapter on Governance and Risk Management
- Annual Report of the Board of Directors in the chapter on Governance and Risk Management
|
|
| c. |
External Auditor’s Certification on the Effectiveness of the Internal Control Mechanism |
|
|
The Bank has obtained a Certificate on the Effectiveness of Internal Controls over financial reporting, which is published in the chapter on Governance and Risk Management. |
|
| d. |
Details of Directors, including names, fitness and propriety, transactions with the Bank and the total of fees/remuneration paid by the Bank
- Profiles of Board Members are given in the Strategic Report
- Directors’ Interests in Contracts with the Company is given in the Governance and Risk Management
- Remunerations paid by the Bank are given in Note 21 to the Financial Statements
|
|
| e. |
Total accommodations granted to each category of related parties and as a percentage of the Bank’s
regulatory capital |
|
|
The net accommodations granted to each category of related parties as a percentage of the Bank’s Regulatory Capital are given below:
Direct and indirect accommodation to related parties:
| Category of related party |
Percentage of the regulatory capital |
| 2017 |
2016 |
| KMP and CFM |
3.62 |
0.52 |
| Subsidiaries |
0.77 |
0.88 |
| Associates |
0.00 |
0.00 |
|
|
| f. |
Aggregate values of remuneration to and transactions with Key Management Personnel |
|
|
The aggregate values of remuneration paid and transactions with the Bank by KMPs for financial reporting purposes, are given in Note 64 to the Financial Statements.
The total deposits and repurchase agreements held and total direct and indirect facilities obtained, as at December 31, 2017 by the KMPs (Board and selected members of Corporate Management) amounted to Rs. 357.7 Mn. (Rs. 200.3 Mn. in 2016) and Rs. 152.2 Mn. (Rs. 156.1 Mn. in 2016), respectively. |
|
| g. |
External Auditors Certification of Compliance |
|
|
The factual findings report has been issued by the External Auditor on the level of compliance with the requirements of these regulations.
The findings presented in their report addressed to the Board did not identify any inconsistencies to those reported above. |
|
| h. |
Report confirming compliance with prudential requirements, regulations, laws and internal controls |
|
|
The Statement of Directors’ Responsibility clearly sets out details regarding compliance with prudential requirements, regulations, laws and internal controls. There were no instances of non-compliance during the year. |
|
| i. |
Non-compliance Report |
|
|
There were no supervisory concern lapses in the Bank’s Risk Management Systems or non-compliance with these directions that have been pointed out by the Director of the Bank Supervision Department of the CBSL and therefore, there is no disclosure in this regard. |
|
| 3 (9) |
Transitional and other general provisions |
|
|
The Bank has complied with the transitional provisions. |
|
