Corporate Governance

Chairman’s Message on Corporate Governance

Corporate governance is a critical aspect of Bank of Ceylon’s operations, and the Bank’s governance framework is of paramount importance, in the face of myriad operational and market challenges.

The Bank's stringent systems and processes comply with the protocols required of a state bank, and are in line with regulatory requirements and best practices. They also reflect the Bank’s values, and are geared toward meeting the short and long-term strategic goals of the Bank, while upholding the needs of our stakeholders. The governance framework enabled the Bank to function with agility and responsibility in the dynamic and disruptive business environment that Sri Lanka experienced in the last year.

The Bank's Board comprises a team of accomplished professionals. The strategic leadership, stringent oversight, and compliance-based controls exercised by the Board were pivotal in ensuring stability of the Bank during the year.

Compliance

This Report and the Compliance Annexes outline the Bank’s approach to governance in practice and continued compliance with corporate governance regulations and best practices.

Ronald C Perera PC
Chairman

24 February 2023
Colombo

Governance Outcomes and Highlights in 2022

In 2022, in line with the Country's fiscal and macroeconomic circumstances, Bank of Ceylon and the financial sector faced unprecedented challenges. In this context, the Bank’s governance procedures were tested, and were pivotal in allowing the BoC to navigate difficult conditions while providing concerted support to customers and other stakeholders. The Board upheld its supervisory duties by intensifying engagement, reinforcing risk management practices, and proactively monitoring the operating environment.

In response to significant changes to the operating environment and newly introduced internal processes, the Bank reviewed and updated all policies during the year, including a review of the proposals made to amend Bank of Ceylon Ordinance, in consideration of input from the Central Bank of Sri Lanka (CBSL).

In-depth Consultation on Forex and Rupee Liquidity

In light of sovereign default, fluctuating exchange rate, and newly imposed high-interest rate regime, the Board consulted closely on FOREX and rupee liquidity of the Bank. New measures were instituted to manage liquidity by close monitoring and diligent oversight that helped secure Bank of Ceylon’s financial position. Special supervisory committees were established to scrutinise foreign currency outflows, revisit and revise counterparty and country limits, manage FCY/LCY liquidity, and closely monitor the Bank’s liquidity position.

Risk Management

Alongside continued investment in the Bank’s Risk Management operations, a major feature of the Bank’s governance involved closer monitoring and oversight through the Risk Committee and the ICAAP Steering Committee; ensuring stress testing was conducted regularly and effectively in line with the Stress Testing Policy, and risk appetite was adhered to in the form of limits and guidelines. The Bank also widened the scope of monitored risks to increase focus on liquidity risk, interest risk, and environmental and social risks. Risk reporting to the Board was strengthened, with special focus on the liquidity and interest rate risk.

Strategic Oversight

The annual strategy workshop was held and short-to-medium term strategic targets and action plans were refined in line with the market conditions. The Board reviewed performance of the Bank against the Corporate Plan.

Environmental and Social Sustainability

Environmental and social screening practices were expanded during the year, to cover all project financing facilities. The Bank’s ESMS Policy was reviewed in line with changes to the operating context and global best practices.

Governance Philosophy and Framework

Bank of Ceylon, as an integral part of Sri Lanka's social fabric and financial sector, acknowledges its responsibility to ensure the smooth operation of the Country's banking system while meeting the needs of diverse stakeholders. The Bank’s goal of becoming a digitally enabled, future-proof organisation is supported by a sound governance philosophy, which focuses on understanding risks, managing resource allocation, and creating sustainable value.

The Bank’s governance framework is in line with regulatory requirements and global best practices, while also addressing the varied needs of stakeholders and balancing short and long-term outcomes, especially as a state-owned Domestic Systemically Important Bank.

Primary Responsibility of Leadership

Key Elements of the Governance Framework

Governance Structure

The Board of Directors is supported by subcommittees that provide oversight on matters delegated to them, including audit, nominations, remuneration, risk management, and information and communication technology, among other areas. This arrangement enables the Board to focus on strategic agenda items. The Chairperson of each committee reports on their respective activities and recommendations during Board meetings, and these are approved by the Board. The day-to-day management of the Bank is delegated to the Management Team, which is led by the General Manager. In addition, the Bank has established several executive-level committees with clearly defined mandates and responsibilities. For more information on the Board subcommittees and executive committees, refer page 125.

Approach to Governance

The Bank’s approach to governance is reflected through four key elements of the Bank’s corporate governance framework: People, Purpose, Processes, and Performance.

People

The Bank ensures the right people are appointed to the right places, and equipped with the right tools to ensure operationalising of sound corporate governance. In this regard, the following section details the experience, capacity, and measure of independence of the Board, delineation of roles and responsibilities, and processes for board appointment, induction, and director training.

Composition of the Board

The Board of Directors should consist of six Directors but in the year 2022, the Board consisted of four Directors from February 2022. The Directors on the Board however brought a diverse mix of skills, experiences, and expertise. All Directors serve in a Non-Executive capacity, with one of them, an Ex officio position on the Board held by a representative from the Ministry in charge of finance only being non-independent. The composition of the Board is established in the Ordinance, and the relevant Minister responsible for state banks appoints the Directors. The Board remained unchanged throughout the year, ensuring continuity of vision, collective thinking, and approach during a challenging period. Two Directors completed their terms and ceased to be Directors in January 2023. A new Chairman and a Director was appointed and another nomination made is pending the approval of the Central Bank of Sri Lanka.

Quality of the Board

The profiles of the Board are given in the section on Board of Directors.

Separation of Roles and Responsibilities

Bank of Ceylon guarantees clarity in roles and effective segregation of responsibilities through the Board Charter, which explicitly outlines the roles and responsibilities of the Board. The Chairman of the Board is a Non-Executive Director and provides leadership to the Board, while the General Manager leads the executive leadership team and does not hold a Board position. This separation ensures clarity in roles and effective decision-making. Additionally, no single Director holds unrestricted power in the decision-making process.

Independence of the Board

Assessment of independence of Directors follows guidelines set forth by the CBSL. As at the end of 2022, three Directors of the four members were considered independent.

Board Appointment and Induction

The Minister responsible for state banks appoints Board members, subject to approval from the CBSL in line with criteria for fitness and propriety. Under the new Securities and Exchange Commission of Sri Lanka (SEC) Act No. 19 of 2021, the SEC also approves new Board appointments. Any resignations or removals of Directors are also brought to the attention of the same Minister, while the CBSL and Colombo Stock Exchange (CSE) are kept informed of any changes to the Board. A Policy of Appointment of Directors is in place as adopted by the Bank and shared with the appointing authority indicating the required skills, experience etc. to the Board.

Board Induction and Director Training

All new Directors receive a tailored induction that focuses on the Bank’s governance framework, culture and values, structure, operations, and strategy. There were no changes to the Board induction process in 2022.

• Induction packs include an overview of the Bank, details on the governance framework (such as organisational structures, charters, etc.), regulatory frameworks, and details of the corporate management team and Board support framework, among others.
• A presentation by the General Manager details the Bank’s history, business model, organisational structure, business verticals, and support functions.
• Further one-on-one meetings and departmental visits are scheduled as necessary or on request.

The Bank ensures Directors have access to training programmes that equip them with the necessary knowledge to effectively carry out their responsibilities. These programs typically include refreshers on relevant laws and regulations, updates on standards and codes, and emerging trends in the industry.

However in year 2022, Directors did not attend any external training programmes.

The Board remained informed of relevant developments through active engagement with the management team, who were invited to provide input at Board meetings, as well as through the circulation of board papers and other pertinent information via an electronic system. The Policy for Directors' Access to Independent Professional Advice also allows for external expert input at the Bank's expense.

Processes

A core element of the Bank’s governance framework are the processes and procedures that promote effective leadership and control, while also fostering accountability, transparency, and integrity.

Policy Framework

The Bank has a comprehensive policy framework in place to ensure uniform treatment of strategic and operational aspects. The framework is regularly reviewed and updated to ensure alignment with changing internal and external factors. The Bank’s policies cover various areas, including HR, Risk Management, Governance and Board procedures, digitalisation, investments, and more.

In 2022, apart from a review and update of all existing policies, the Board approved a new policy on remote-working/Work-From-Home (WFH), reflecting changes to the world of work in the post-pandemic era.

Key Policies Introduced/Revised

Board Subcommittees

The Board subcommittees' responsibilities and procedures are outlined in their respective Terms of Reference. Chairpersons of these subcommittees are responsible for ensuring they function effectively and report on their activities to the Board. In the year under review, all subcommittee Terms of Reference were reviewed and updated.

Audit Committee

Reviews the Bank’s financial reporting process including internal controls, internal and external audit. Refer for the Report of the Audit Committee.

Information and Communication Technology (ICT) Committee

The committee maintains oversight responsibility for IT products, services, policies, practices and infrastructure. Refer for the Report of the ICT Committee.

Nominations and Corporate Governance Committee

Responsible for implementing procedures to select or appoint Senior Management persons, implement the code of ethics, and improve corporate governance practices. Refer for the Report of the Nominations and Corporate Governance Committee.

Integrated Risk Management Committee (IRMC)

Responsible for risk management including credit, market, operational, liquidity, cyber/IT, strategic, reputational risks, and ESG risk, and ensuring compliance with the risk management policy framework and relevant laws and regulations. Refer for the Report of the IRMC, and the Bank’s Risk Management Report.

Human Resource and Remuneration Committee

Responsible for the Remuneration Policy, setting objectives and evaluating performance of Key Management Personnel (KMP), and determining the Bank’s HR policy. Refer for the Report of the HR and Remuneration Committee.

Executive Committees

Bank of Ceylon Executive Committees
Assets and Liabilities Management Committee (ALCO)		Committee dealing with Operational Losses		Damage Assessment and Restoration Committee (DARC)		Committee for Investment in Government Securities
Branches Division Credit Committee		Corporate Information Security Committee		HR Policy Committee		IT Steering Committee
Business Continuity Coordinating Committee		Corporate Management Committee		Idle Assets Committee		Marketing Committee
Business Continuity Implementation Committee		Corporate Strategies Review Committee		Internal Capital Adequacy Assessment Process Steering Committee		Non-Performing Assets Review Committee (NPAC)
Business Continuity Management Alternative Committee (BCMAC)		Credit Committee		Investment Committee		Operational Risk Management Executive Committee
Reward and Recognition Policy Committee (RRPC)		Scholarship Programme Selection Committee (Review Committee)		Scholarships Committee		Sustainability Committee
Steering Committee of tvBoC		Working Committee of tvBoC		Technical and Operational Committee		Foreign currency outflow Management Committee

Risk Oversight

The Board is responsible for formulating robust risk management policy and overseeing the Bank's risk management and internal control frameworks. The Integrated Risk Management Committee (IRMC) and Audit Committee assist the Board in fulfilling its risk management and internal control obligations. In light of prevailing economic stresses in 2022, the Board prioritised the Bank's credit risk, liquidity risk, interest risk, and environmental and social risk management functions.

Risk-related Functions

Board Meetings

The Board held regular meetings during the year, ensuring the continuity of operations despite disruptions to mobility brought on by fuel shortages in the Country. The Company Secretary/ Secretary to the Board ensures all necessary procedures are followed in setting meeting agendas, circulating information, facilitating Board meetings, and recording minutes. Special attention is given to ensuring the Board devotes sufficient time to matters such as strategic planning, risk management, compliance, and governance. Throughout the year, a total of 24 Board meetings and 41 Board subcommittee meetings were held.

Attendance at Board and Subcommittee Meetings

		Board meeting (24)		Audit Committee meeting (9)		Human Resources and Remuneration Committee meeting (4)		Nomination and Corporate Governance Committee meeting (11)		Integrated Risk Management Committee meeting (8)		ICT Committee meeting (9)
Mr Kanchana Ratwatte Chairman		24/24		–		–		–		–		–
Mr R M Priyantha Rathnayake Ex-Officio Director		24/24		9/9		4/4		10/11		8/8		–
Mr G Harsha Wijayawardhana Non-Executive Director		24/24		9/9		–		7/11		7/8		9/9
Mr A C Manilka Fernando Non-Executive Director3		24/24		9/9		4/4		11/11		1/1		9/9
Major General (Rtd) G A Chandrasiri VSV Non-Executive Director2		23/24		9/9		4/4		4/4		0/1		2/2
Mr Jayampathy Molligoda Non-Executive Director1		2/2		8/9		–		2/2		1/1		1/1

1. Resigned w.e.f 31 January 2022

2. Appointed to ICT Committee w.e.f 5 October 2022, Integrated Risk Management Committee w.e.f. 19 October 2022 and Nomination and Corporate Governance Committee w.e.f. 7 July 2022

3. Attended Integrated Risk Management Committee meeting by invitation

Company Secretary

The Company Secretary/Secretary to the Board plays a key role in the Bank's Corporate Governance framework and ensures that Board procedures comply with applicable laws, rules, and regulations. The Secretary regularly reviews the Bank’s governance framework in view of emerging best practices, regulatory changes, and stakeholder interests. All Directors have access to the advice and services of the Company Secretary.

Ms Janaki Senanayake Siriwardane serves as the Secretary to the Board and has been appointed in accordance with the requirements of the Banking Act and relevant amendments.

Purpose

The Bank’s governance framework ensures that the conduct of Directors and Management aligns with BoC's long-term purpose, corporate values, and Code of Ethics. In fulfilling their duties, Board members are expected to demonstrate integrity, transparency, and accountability; thereby establishing an ethical standard at the highest level of the Bank. Home page outlines Bank of Ceylon’s vision, mission, and values, which together provide impetus for the Bank’s purpose.

Activities in 2022

1. Focus on multi-stakeholder value creation by balancing stakeholder interests.

2. Creating the right tone at the top, including a culture of integrity and transparency.

3. Strengthening credit risk management practices.

4. Strengthening the governance framework.

5. Approval for the Corporate Plan for 2023-2025 and the Corporate Budget for 2023.

6. Review of research and development work at the Bank.

Further actions taken by the Bank in alignment with the corporate values and overarching strategic objectives are outlined in the Business Line reviews and the Stakeholder Outcomes.

Value-based Culture

The Board establishes an ethical standard at the highest level and gives impetus to the Bank’s efforts to foster a culture of ethics and integrity based on corporate values. This approach emphasises treating customers responsibly and fairly and conducting business with ethics in mind.

The Director’s Code of Business Conduct Ethics and Employee Code of Ethics serve as a blueprint for promoting a culture of responsible and ethical behavior, which is supported by the Bank’s Whistleblowing Policy and anti-corruption measures.

Code of Conduct and Ethics

Directors’ Code of Ethics

The Board is bound by the Code of Business Conduct and Ethics and are required to submit an annual confirmation on their compliance with the provisions of the code. The Code aims to propagate a strong culture of integrity, transparency and anti-corruption while encouraging Directors to act in the best interests of the Bank.

Employee Code of Ethics

Applicable to all employees, this clearly sets out the Bank’s expectations in dealing with internal and external stakeholders, behaviour, bribery and corruption.

Whistleblowing Policy

A Board-approved Whistleblowing Policy encourages employees or non-employees to report complaints pertaining to suspected theft/fraud, corruption, misuse of the Bank’s assets or any other actions that are considered unethical or illegal. Complaints are directed and overseen by the Chief Internal Auditor while complaints made against employees of the DGM grade or above are submitted to the Chairman of the Audit Committee.

Anti-corruption

The Bank takes a zero-tolerance approach to bribery and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships wherever the Bank operates and implementing and enforcing effective systems to counter bribery. The Bank’s policy with regard to anti-corruption and bribery is clearly communicated to all employees during the induction programmes and reinforced through regular training and awareness sessions.

Anti Money-Laundering (AML) and Combating Terrorist Financing (CTF)

Instances of Non-compliance

Date of penalty		Date of payment		Type of penalty		Related regulation/law		Reason for the penalty		Amount LKR
13 October 2022		14 November 2022		Administrative		Paragraph 5 of the United Nations Regulation No. 1 of 2012 and the order published in the Extraordinary Gazette Notification No. 1853/25 dated 22.05.2014 by the competent authorities, Ministry of Defence and Urban Development.		Failure to identify a customer out of all business relationships as per the said regulations		3,000,000.00

During the year under review, other than the above, there were no other monetary losses arising as a result of legal proceedings associated with fraud, insider trading, anti-trust, anti-competitive behavior, market manipulation, malpractice, or other related financial industry laws or regulations.

Responsible Corporate Citizenship

The Board of Directors oversees the Bank’s impact and its role as a responsible corporate citizen, as this directly affects the Bank's legitimacy and social license to operate. BoC's approach to sustainability is centered on the belief that "Sustainability is a Lifestyle," with a focus on three key aspects of sustainability: Economic, Environmental, and Social. While the Board provides oversight on all matters related to sustainability, a Sustainability Committee, led by the General Manager, is responsible for implementing the policy.

Read together, the Operating Context outlined in the section on Operating Context approach to Embedding Sustainability described in detail in the section on Embedding Sustainability, and value delivered to stakeholders described in the Stakeholder Outcomes, provide a comprehensive view of Bank of Ceylon’s actions as a responsible corporate citizen.

Corporate Reporting

The Board bears ultimate responsibility for ensuring the accuracy and integrity of all external reports, which are approved by the Board before release.

• Annual Integrated Report:
  the primary publication to shareholders, which offers a comprehensive and unbiased overview of how the Bank generates value for its stakeholders.
• Annual Financial Statements:
  Containing the Group's complete audited annual financial statements and accompanying notes.

Stakeholder Relations

The Bank’s Communication Policy serves as a guide for maintaining effective communication with internal and external stakeholders, with the aim of cultivating open and lasting relationships. The policy outlines the Bank’s value proposition to each stakeholder. The Bank’s performance in this regard is described in detail in the Stakeholder Outcomes section.

Customers: Relevant products delivered through convenient channels, underpinned by trust and stability.

Employees: Opportunities for career and skill development in a rewarding and conducive work environment.

Shareholder and fund providers: Generation of sustainable returns commensurate with risks undertaken

Community and environment: Contribute to national socio-economic development, financial inclusion, and local and global environmental challenges.

Business partners: Create opportunities for mutual growth.

Regulators: Ensure full compliance to relevant regulatory and statutory requirements.

Performance

Bank of Ceylon engages in continuous assessment and measurement of the effectiveness of the Board, its Subcommittees, and the Bank’s overall Corporate Governance practice.

Monitoring Board Performance

The Bank utilises a structured self-appraisal mechanism developed in coordination with an external resource in order to assess the effectiveness of the Board. Each Director is obliged to fill out a performance evaluation form, which is then combined and presented to the Board through the Nomination and Corporate Governance Committee. Additionally, subcommittees perform a comparable assessment.

Remuneration Review

As part of building a high-performance team and a culture of excellence, the Bank ensures remuneration is equitable and competitive, but also tied to performance by way of incentives and other measures.

Approach to Remuneration

BoC’s Remuneration Policy is designed to provide employees with the necessary resources, recognition, compensation, and motivation that supports their role in advancing the Bank’s strategic objectives and creating value for the Bank and its stakeholders. To encourage long-term sustainable performance, the policy emphasizes fairness and competitiveness in the reward package offered.

The Bank’s Remuneration Policy follows the principles of Competitiveness, Equity, Transparency, and Inclusivity.

Remuneration Structures

Directors' remuneration is determined in accordance with the Directors' Remuneration Policy, which adheres to circulars and requirements of the Government of Sri Lanka, as well as The Ordinance and its amendments. No Director is involved in setting their own remuneration.

Remuneration of the General Manager (GM) and Key Management Personnel (KMP) is based on the Board-approved Remuneration Policy for Key Management Personnel. The Board Human Resource and Remuneration Committee (HR&RC) makes recommendations to the Board, which provides feedback to the relevant Minister for final approval, as required by The Ordinance and its amendments. Remuneration of the GM and KMP is reviewed every three years.

The Bank’s remuneration structure involves the following essential components:

Fixed remuneration: Base salary and other fixed components, determined on role and employee grade

Variable remuneration: Incentive bonus

Other non-cash benefits: Post-employment benefits, loans under special schemes, credit cards, etc.

For details of Directors’ remuneration, refer Notes to the Financial Statements and Compliance Annexes for details of remuneration of KMP. Additionally, the Report of the HR&RC is in the section on Human Resources and Remuneration Committee Report.

Appraisal of the General Manager (GM) and Key Management Personnel (KMP)

The Board, assisted by the HR&RC, conducts an annual assessment of the performance of the GM and KMP, against financial and non-financial objectives and performance indicators as established in the Corporate Plan. The criteria for assessment are determined in collaboration with the GM and KMP at the start of the year to ensure a clear understanding of the Board's expectations. The appraisal takes into account the changing nature of the business environment and feedback obtained from the appraisee.