1. General
The Board of Directors of Bank of Ceylon takes pleasure in presenting their Report on the affairs of the Bank together with the Audited Consolidated Financial Statements for the year ended 31 December 2022 of the Bank and the Group and the Auditor General’s Report on those Financial Statements, conforming to the requirements of the Bank of Ceylon Ordinance No. 53 of 1938 and Banking Act No. 30 of 1988 and amendments thereto. The Report also includes certain disclosures laid down by the Colombo Stock Exchange Listing Rules and certain disclosures required to be made under the Banking Act Direction No. 11 of 2007 on Corporate Governance for licensed commercial banks issued by the Central Bank of Sri Lanka and subsequent amendments thereto. The Directors reviewed and approved the Financial Statements on 24 February 2023.
Bank of Ceylon is a licensed commercial bank under the Banking Act No. 30 of 1988 and amendments thereto and was duly incorporated on 1 August 1939 under Bank of Ceylon Ordinance No. 53 of 1938. The Bank is wholly owned by the Government of Sri Lanka. The unsecured subordinated redeemable debentures issued by the Bank are listed on the Colombo Stock Exchange.
2. Review of the business
2.1 Principal activities of the Bank
The principal activities of the Bank during the year were personal banking, corporate banking, development banking, off-shore banking, trade financing, lease financing, primary dealing, investment banking and treasury operations, correspondence banking and money remittances, islamic banking, bancassurance, pawning, credit card facilities, foreign currency operations and other financial services.
2.2 Subsidiaries and associates
The principal activities of subsidiaries and associates are given under Notes to the Financial Statements. There were no significant changes in the nature of the principal activities of the Bank and the Group during the year under review, other than changes mentioned under accounting policies.
2.3 Changes to the Group structure
During the year, Property Development PLC (Currently known as Property Development Limited), which is a subsidiary of Bank of Ceylon has been delisted from the official list of the CSE with effect from 27 October 2022. A total of 1,573,272 shares have been re-purchased by the Property Development PLC for a total consideration of LKR 287.9 million under the de-listing process. As at 31 December 2022, the issued and fully paid number of ordinary shares stood at 64,426,728.
In line with the de-listing, the shareholding of BoC adjusted to 97.89% from 95.55%. In the Consolidated Financial Statements necessary adjustments were made to record this shareholding change.
Notes to the Financial Statements No. 31 and 32 of this Annual Report give details about the Group.
2.4 Vision, Mission and Corporate Conduct
The Bank’s Vision, Mission and Value Statement are given in the second inner back cover of this Annual Report. The Bank maintains high ethical standards in its activities whilst pursuing the objectives stated under “Vision”, “Mission” and “Value Statements”.
2.5 Review of the year’s performance
The Chairman’s Message deals with the year’s performance of the Bank/Group and on the Sri Lankan economy. The General Manager’s Review provides a detailed description of the operations of the Bank during the year under review. The section titled “Financial Review” provides a detailed analysis of business operations of the Bank. These reports that provide a fair review of the Bank’s affairs form an integral part of the Annual Report.
2.6 Branch expansion
Enhancing the digital adoption, the Bank expanded its network by 75 CRMs during the year across the island, bringing out the total direct customer contact points to 2,166. This number does not include peer banks’ ATMs through which customers of Bank of Ceylon can transact and School “Sansada” and Mobile saving units.
Due to the economic downturn prevailed in the country, capital expenditure of the Bank was closely monitored in line with the guidelines issued by the Ministry of Finance and the Central Bank of Sri Lanka. During the year 2022, one branch has been added to the brick and mortar network of the Bank.
2.7 Corporate donations
The Bank has donated LKR
2.8 Directors’ responsibility for financial reporting
The Directors are responsible for the preparation of Financial Statements that will reflect a true and fair view of the state of affairs. The Directors are of the view that these Financial Statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Banking Act No. 30 of 1988 and its amendments, Bank of Ceylon Ordinance No. 53 of 1938 and its amendments and the Listing Rules of the Colombo Stock Exchange. In the case of subsidiaries, the Financial Statements are also prepared in accordance with the provisions of the Companies Act No. 07 of 2007. The Statement of “Directors’ Responsibility for Financial Reporting” is given in the section on Directors’ Responsibility forFinancial Reporting of this Annual Report and forms an integral part of this Report of the Directors.
2.9 Auditor’s report
The Auditor General is the Auditor of Bank of Ceylon in terms of the provisions of Article 154 of the Constitution of the Democratic Socialist Republic of Sri Lanka.
Report of the Auditor General on the Financial Statements of the Bank and the Consolidated Financial Statements of the Bank and its subsidiaries as at 31 December 2022 is given in the section on Report of the Auditor General of this Annual Report.
2.10 Accounting policies
The Group and the Bank prepared their Financial Statements in accordance with Sri Lanka Accounting Standards (LKASs) and Sri Lanka Financial Reporting Standards (SLFRSs).
The accounting policies adopted in the preparation of Financial Statements are given in the section on Notes to the Financial Statements.
3. Planned developments
An overview of the developments planned by the Bank for the future is presented in the incoming Chairman’s and General Manager’s outlook of this Annual Report.
4. Total income
The total income of the Group for the year 2022 was LKR 520,891.2 million as against LKR 297,620.8 million in the previous year. The Bank’s total income accounted for 99% (2021 – 98%) of the total income of the Group. The main income of the Group is interest income, which comprises 89% (2021 – 90%) of the total income.
5. Dividends and reserves
5.1 Profit and appropriations
The Bank has recorded a profit before tax of LKR 30,976.6 million in 2022 reflecting a notable decrease of 28%, compared to LKR 43,189.5 million recorded for the previous year.
After reversal of LKR 995.8 million (2021 – tax charge of LKR 5,599.4 million) for income tax, the Bank has recorded Profit After Tax (PAT) for the year 2022 amounting to LKR 31,972.4 million, which is a 15% decrease compared to LKR 37,590.1 million PAT reported in 2021.
Details of the profit relating to the Bank and the Group are given in the table below:
| Bank | Group | |||
| For the year ended 31 December | 2022 LKR million |
2021 LKR million |
2022 LKR million |
2021 LKR million |
| Profit for the year after payment of all expenses, providing for depreciation, amortisation, impairment on loans and other losses, contingencies and before taxes | 42,289.9 | 52,216.7 | 42,372.2 | 53,843.1 |
| Taxes on financial services | (11,313.3) | (9,027.2) | (11,442.5) | (9,339.7) |
| Share of profits/(losses) of associate companies net of tax | – | – | 122.8 | 133.7 |
| Profit before income tax | 30,976.6 | 43,189.5 | 31,052.5 | 44,637.1 |
| Income tax expense | 995.8 | (5,599.4) | 796.5 | (5,953.7) |
| Profit for the year | 31,972.4 | 37,590.1 | 31,849.0 | 38,683.4 |
| Other comprehensive income for the year, net of tax | 27,806.9 | 8,356.8 | 32,230.3 | 9,566.6 |
| Total comprehensive income for the year | 59,779.3 | 45,946.9 | 64,079.3 | 48,250.0 |
| Appropriations | ||||
| Transfers to permanent reserve fund | (640.0) | (752.0) | (640.0) | (752.0) |
| Dividends | (346.4) | (1,846.4) | (346.4) | (1,846.4) |
After reversal LKR 796.5 million of income tax (2021 – tax charge of LKR 5,953.7 million), the profit after tax for the year of the Group is LKR 31,849.0 million in 2022 (2021 – LKR 38,683.4 million).
5.2 Dividends
The Bank pays dividends to its sole shareholder; the Government of Sri Lanka, as per the Dividend Policy of the Bank in consultation with the Government, prudently based on profits after deduction of tax, loan loss provision and any such portion for reserves. Accordingly, a sum of LKR 346.4 million has been paid out by the Bank as dividends for the year 2022 (2021 – LKR 1,846.4 million).
5.3 Reserves
The total reserves of the Group stood at LKR 245,743.6 million as at 31 December 2022 (2021 – LKR 188,807.3 million). The Group reserves consist of the following:
| Group | ||
| As at 31 December | 2022 LKR million |
2021 LKR million |
| Permanent reserve fund | 15,131.0 | 14,491.0 |
| Cash flow hedge reserve | 25,620.6 | 3,239.3 |
| Revaluation reserve | 27,558.1 | 26,302.6 |
| Free reserve | 366.7 | 366.7 |
| Exchange translation reserve | 14,304.4 | 4,461.2 |
| FVOCI reserve | 2,584.4 | 1,483.4 |
| Statutory reserve | 358.9 | 358.9 |
| Retained earnings | 159,819.5 | 138,104.2 |
| Total | 245,743.6 | 188,807.3 |
6. Property, plant and equipment
The total capital expenditure incurred by the Group on the addition of property, plant and equipment and intangible assets during the year amounted to LKR 4,195.2 million (2021 – LKR 2,371.9 million) the details of which are given in Notes 34 and 36 of Financial Statements of this Annual Report.
7. Value of freehold properties
The value of freehold properties owned by the Group as at 31 December 2022 is included in Note 34 of the Financial Statements at LKR 31,125.9 million (2021 – LKR 29,560.0 million).
8. Stated capital and shareholding
8.1 Stated capital
The total issued and fully paid-up capital of the Bank as at 31 December 2022 was LKR 25,000 million (2021 – LKR 25,000 million). During the year Government Treasury infused LKR 730.0 million as capital contribution to the Bank and as at end 31 December 2022 this amount has been recorded under capital pending for the allotment.
8.2 Shareholding
The Government of Sri Lanka is the sole shareholder of the Bank.
9. Issue of subordinated debentures/bond
During the year, the Bank successfully raised LKR 6,490.0 million (2021 – LKR 5,400.0 million) through the issue of Basel III compliant, unlisted, rated, unsecured, subordinated, debentures to support Tier 2 capital base.
The details of debentures outstanding as at the date of Statement of Financial Position are given in Note 49 of the Financial Statements.
10. Share information
The basic earnings per share and net assets value per share of the Group were LKR 1,279.8 (2021 – LKR 1,539.6) and LKR 10,858.9 (2021 – LKR 8,552.3) respectively, for the year under review.
11. Corporate sustainability and responsibility
The programs carried out under Corporate Sustainability and Responsibility (CSR) are detailed under the section titled “Community and Environment”.
12. Directors
Details of Directors who held the office during the year 2022 and holding the office as of the sign-off date of this Annual report is given in the section on Board of Directors. The Directors of the Bank do not hold any executive positions in the Bank. They bring wide range of skills and experience to the Bank. The qualifications and experience of the Directors are given in the section on Board of Directors of this Annual report. As of the Annual Report sign- off date, the number of Directors holding office is four (4). During the year 2022, the Board consisted of the following members;
12.1 List of Directors
Mr Kanchana Ratwatte
Independent Non-Executive Director/Chairman (Appointed w.e.f. 02 January 2020, ceased to be a Director w.e.f. 1 January 2023).
Mr R M Priyantha Rathnayake
Non-Executive Ex officio Director (Appointed w.e.f. 28 April 2020)
Mr G Harsha Wijayawardhana
Independent Non-Executive Director (Appointed w.e.f. 14 January 2020, ceased to be a Director w.e.f. 13 January 2023).
Mr A C Manilka Fernando
Independent Non-Executive Director (Appointed w.e.f. 21 April 2020).
Major General (Rtd.) G A Chandrasiri VSV
Independent Non-Executive Director (Appointed w.e.f. 8 January 2021).
Mr Jayampathy Molligoda
Independent Non-Executive Director (Resigned w.e.f. 31 January 2022)
The Directors are classified as Independent Directors on the basis given in Banking Act Direction No. 11 of 2007 on Corporate Governance for licensed commercial banks issued by the Central Bank of Sri Lanka.
12.2 Board subcommittees
The Board has formed five subcommittees complying with the aforesaid Banking Act Direction No. 11 of 2007 and to ensure oversight control over affairs of the Bank. The subcommittee composition is given under Board Subcommittee Reports of this Annual Report.
12.3 Directors’ meetings
Attendance of Directors at Board and subcommittee meetings are given in the section on Corporate Governance of this Annual Report.
12.4 Directors’ interests in contracts
Directors’ interests in contracts with the Bank, both direct and indirect are given in the section on Directors’ Interestin Contracts. These interests have been declared at meetings of the Board of Directors. Except for the contracts given therein, the Directors do not have any direct or indirect interest in other contracts or proposed contracts with the Bank.
12.5 Directors’ interests in debentures issued by the Bank/Group
There were no debentures registered in the name of any Director.
12.6 Directors’ allowances/fees
The allowances/fees payable to the Board of Directors are made in terms of the provisions/contents in the Public Enterprises Circular No. PED 3/2015 dated 17 June 2015 and PED 01/2020 dated 27 January 2020 issued by the Department of Public Enterprises of the Ministry of Finance and Bank of Ceylon Ordinance No. 53 of 1938 and its amendments. The Directors’ remuneration in respect of the Bank and the Group for the financial year ended 31 December 2022 are given in Note 17.
13. Risk management and system of internal controls
13.1 Risk management
The Board of Directors assumes overall responsibility for managing risks. The specific measures which were taken by the Bank in mitigating the risks are detailed in the section on Risk Management of this Annual Report.
13.2 Internal control
The Board of Directors has ensured the implementation of an effective and comprehensive system of internal controls in the Bank through the Audit Committee.
The Audit Committee helps the Board of Directors to discharge their fiduciary responsibilities. The Report of the Chairman of the Audit Committee is contained in the section on Audit Committee Report of this Annual Report. The Directors are satisfied with the effectiveness of the system of internal controls during the year under review and up to the date of the Annual Report and the Financial Statements.
The Board has issued a statement on the internal control mechanism of the Bank as per Direction No. 3 (8) (ii) (b) of Banking Act Direction No. 11 of 2007 on Corporate Governance for licensed commercial banks. The above report is given in the section on Directors’ Statement on Internal Control Over Financial Reporting of this Annual Report. The Board has confirmed 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 reporting purposes has been done in accordance with relevant accounting principles and regulatory requirements.
The Board has obtained an Assurance Report from the Auditor General on Directors’ Statement on Internal Control and it is given in the section on Independent Assurance Report of this Annual Report.
14. Corporate governance
The Board of Directors is committed towards maintaining an effective corporate governance structure and process. The financial, operational and compliance functions of the Bank are directed and controlled effectively within corporate governance practices. These procedures and practices that are in conformity with Corporate Governance Directions issued by the Central Bank of Sri Lanka under Banking Act Direction No. 11 of 2007 and the Code of Best Practice on Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka, are described in the section titled “Corporate Governance” of this Annual Report.
The Board has obtained a report from the Auditor General on the compliance with the provisions of the above mentioned Direction No. 11 of 2007.
15. Human resources
One of the most valuable assets of the Bank is its employees and it is important for the Bank to develop them. Several measures were taken to strengthen the much valued human capital in order to optimise their contribution towards the achievement of corporate objectives. The Bank’s human resource management policies and practices are detailed in the section titled “Employees” of this Report.
16. Compliance with laws and regulations
The Directors, to the best of their knowledge and belief confirm that the Group has not engaged in any activities contravening the laws and regulations except what has been disclosed under non-compliance in the section on Corporate Governance of this Report.
Details of the Bank’s compliance with laws and regulations are given under the section titled “Compliance Annexes” which forms an integral part of this Report.
17. Outstanding litigation
In the opinion of the Directors and as confirmed by the Bank’s lawyers, the litigation currently pending against the Bank will not have a material impact on the reported financial results or future operations of the Bank.
18. Statutory payments
The Board confirms that all statutory payments due to the Government and in relation to employees have been made on time.
19. Environmental protection
The Bank has not engaged in any activity, which has caused detriment to the environment. Further, precautions taken to protect the environment are given in the section titled “Community and Environment”.
20. Post-balance sheet events
The Directors are of the view that no material events have arisen in the interval between the end of the financial year and the date of this Report that would require adjustments or disclosures.
21. Going concern
The Directors are confident that the resources of the Bank are adequate to continue its operations. Therefore, it has applied the going concern basis in preparing the Financial Statements.
By order of the Board,
Janaki Senanayake Siriwardane
Secretary Bank of Ceylon/
Secretary to the Board
Colombo