1.1 Corporate information

Bank of Ceylon (“The Bank”) is a Government-owned bank domiciled in Sri Lanka, duly incorporated on 1 August 1939 under the Bank of Ceylon Ordinance No. 53 of 1938. It is a licensed commercial bank established under the Banking Act No. 30 of 1988 and amendments thereto. The Registered Office of the Bank is situated at “BoC Square”, No. 01, Bank of Ceylon Mawatha, Colombo 01, Sri Lanka. The debentures issued by the Bank are listed on the Colombo Stock Exchange. The staff strength of the Bank as at 31 December 2022 was 8,209 (2021- 8,337).

1.2 Consolidated financial statements

The Consolidated Financial Statements are prepared as at and for the year ended 31 December 2022 comprise the Bank (“Parent”), its Subsidiaries (together referred to as the “Group” and individually as (“Group Entities”) and the Group’s interests in its Associate companies. The Financial Statements of the companies in the Group have a common financial year which ends on 31 December, except the Associate companies, Transnational Lanka Records Solutions (Private) Limited and Ceybank Asset Management Limited. The Bank is the ultimate parent of the Group.

1.3 Principal activities

1.3.1 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 wealth management, treasury operations, correspondent banking and money remittances, Islamic banking, bancassurance, pawning, credit card facilities, foreign currency operations and other financial services.

1.3.2 Subsidiaries

The principal activities of the Subsidiaries of the Bank are as follows:

Name of the Company	Principal Business Activities
Property Development Limited	Own, maintain and manage, develop and sustain the utility and value of the Bank of Ceylon head office building.
Merchant Bank of Sri Lanka & Finance PLC	Leasing, hire purchase, corporate and retail credit facilities, corporate advisory services, capital market operations, margin trading, microfinancing, agricultural credit facilities, real estate, pawning, Islamic finance and accepting deposits.
Bank of Ceylon (UK) Limited	Authorised commercial bank by the Prudential Regulation Authority and regulated by the Financial Conduct Authority in England and Wales, engages in retail and corporate banking, treasury operations, correspondent banking services and trade financing activities.
BoC Property Development & Management (Private) Limited	Renting of office space of BoC Merchant Tower in Colombo 03 and Ceybank House in Kandy.
BoC Travels (Private) Limited	Engages in travel related services.
Hotels Colombo (1963) Limited	Provides hotel services.
Ceybank Holiday Homes (Private) Limited	Managing, operating and maintaining of travel rests/hotels/rest houses/guest houses.
MBSL Insurance Company Limited	Carrying on insurance business, both life and non-life insurance.
BoC Management & Support Services (Private) Limited	Not in operation.

1.3.3 Associates

The principal activities of the Associates of the Bank are as follows:

Name of the Company	Principal Business Activities
Ceybank Asset Management Limited	Management of unit trust funds and other institutional and private portfolios.
Lanka Securities (Private) Limited	Registered stock broker, trading in equity and debt securities, equity debt security brokering and undertaking placement of equity and debt securities.
Transnational Lanka Records Solutions (Private) Limited	Renting buildings and hiring other assets.
Southern Development Financial Company Limited.	Not in operation and in the process of liquidation.

BoC Management & Support Services (Private) Limited (MSS) has not carried out its core business activities since 2007. Southern Development Financial Company Limited (SDFCL) is also not in operations. The Board of Directors of SDFCL has decided to wind-up the company and it is in the process of liquidation.

2.1 Preparation and presentation of the financial statements

The Board of Directors is responsible for the preparation and presentation of the Financial Statements of the Bank and its Subsidiaries and Associates in compliance with the requirements of the Bank of Ceylon Ordinance No. 53 of 1938 and its amendments, Banking Act No. 30 of 1988 and its amendments thereto and Sri Lanka Accounting Standards (SLFRSs and LKASs). These Financial Statements comprise.

• Statement of Profit or Loss
• Statement of Comprehensive Income
• Statement of Financial Position
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes to the Financial Statements

2.2 Approval of financial statements

The Financial Statements for the year ended 31 December 2022 were authorised for issue on 24 February 2023 by the Board of Directors.

3.1 Statement of compliance

The Consolidated Financial Statements of the Group and the separate Financial Statements of the Bank have been prepared in accordance with Sri Lanka Accounting Standards comprising Sri Lanka Financial Reporting Standards (SLFRSs) and Sri Lanka Accounting Standards (LKASs) laid down by the Institute of Chartered Accountants of Sri Lanka (together referred to as SLFRSs in these Financial Statements).

The preparation and presentation of these Financial Statements are in compliance with the requirements of the Bank of Ceylon Ordinance No. 53 of 1938, the Banking Act No. 30 of 1988, the Companies Act No. 07 of 2007 and regulatory guidelines issued by the Central Bank of Sri Lanka (CBSL). The Group has prepared Financial Statements which comply with SLFRSs applicable for the year ended 31 December 2022, together with the comparative year data as at and for the year ended 31 December 2021, as described in the accounting policies.

The formats used in the preparation and presentation of the Financial Statements and the disclosures made therein also comply with the specified formats prescribed by the Central Bank of Sri Lanka (CBSL) in the Circular No. 02 of 2019 on “Publication of Annual and Quarterly Financial Statements and Other Disclosures by Licensed Banks”.

3.2 Basis of measurement

The Financial Statements have been prepared on the basis of historical cost convention and no adjustments have been made for inflationary factors which has been applied on a consistent basis, except for the following:

• Derivative financial instruments are measured at fair value (Notes 26 and 41)
• Financial assets recognised through profit or loss – measured at fair value (Note 27)
• Financial assets measured at fair value through other comprehensive income (Note 30)
• Owner-occupied freehold land and buildings and buildings on leasehold lands are measured at revalued amount less any subsequent accumulated depreciation and impairment losses (Note 34)
• Defined benefit obligations are actuarially valued and recognised at the present value of the defined benefit obligation less total of the fair value of plan assets (Note 48)
• Cash flow hedge reserve, accounted as per the hedge accounting (Note 53)

3.3 Presentation of financial statements

Items in the Statement of Financial Position of the Bank and the Group are grouped by nature of such item and presented broadly in order of their relative liquidity and maturity pattern. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in Note 60 – “Maturity Analysis of Assets and Liabilities”.

3.3.1 Functional and presentation currency

Items included in the Financial Statements are measured and presented in Sri Lankan Rupees (“LKR”) which is the functional currency of the primary economic environment in which the Bank operates.

3.3.2 Accrual basis of accounting

The Financial Statements, except for information on Statement of Cash Flows have been prepared following the accrual basis of accounting.

3.3.3 Offsetting

Financial assets and financial liabilities are generally reported gross in the Statement of Financial Position. They are only offset and reported net when, in addition to having an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event, the parties also intend to settle on a net basis in all of the following circumstances:

• The normal course of business.
• The event of default.
• The event of insolvency or bankruptcy of the Bank/Group and/or its counterparties.

Income and expenses are not offset in the Statement of Profit or Loss unless required or permitted by any accounting standard or interpretation and as specifically disclosed in the accounting policies of the Group.

3.3.4 Comparative information

The comparative information is provided in narrative and descriptive nature, if it is relevant to understand the current period’s Financial Statements and reclassified wherever necessary to conform to the current year’s presentation.

3.3.5 Materiality and aggregation

In compliance with LKAS 1 – “Presentation of Financial Statements”, each material class of similar items are presented separately in the Financial Statements. Items of dissimilar nature or functions are presented separately unless they are immaterial.

3.3.6 Rounding

The amounts in the Financial Statements have been rounded-off to the nearest Rupees thousands, except where otherwise indicated as permitted by the LKAS 1 – “Presentation of Financial Statements”.

3.3.7 Statement of cash flows

The Statement of Cash Flows is prepared by using the “Indirect Method” in accordance with the LKAS 7 – “Statement of Cash Flows” whereby the profit is adjusted to derive the cash flows from operating activities. Cash and cash equivalents comprise cash in hand, other short term highly liquid investments with maturity less than seven days from date of acquisition and bank overdrafts.

3.3.8 Use of significant accounting judgements, estimates and assumptions

The preparation of the Financial Statements requires Management to exercise judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The judgements, estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances and reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and/or in future periods if the revision affects future periods too. In the process of applying the Group’s accounting policies, Management has made the following judgements, estimates and assumptions, which have the most significant effect on the amounts recognised in the Financial Statements. The accounting policies which are most sensitive to the use of judgements, estimates and assumptions are specified below.

3.3.8.1 Going concern

The Management has made an assessment on the Group’s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis. Accordingly, the Management satisfied itself that the going concern basis is appropriate.

3.3.8.2 Commitment and contingent liabilities

All discernible risks are accounted for in determining the amount of all known and measurable liabilities. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognised in the Statement of Financial Position but are disclosed unless its considered remote that the Group will be liable to settle the possible obligation.

3.3.8.3 Fair value of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where the classification of a financial asset or liability results in it being measured at fair value, wherever possible, the fair value is determined by reference to the quoted bid or offer price in the most advantageous active market to which the Group has immediate access. An adjustment for credit risk is also incorporated into the fair value as appropriate. Fair value for a net open position that is a financial liability quoted in an active market is the current offer price, and for a financial asset the bid price, multiplied by the number of units of the instrument held or issued. Where no active market exists for a particular asset or liability, the Group uses a valuation technique that include the use of mathematical models to arrive at the fair value, including the use of transaction prices obtained in recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques based on market conditions and risks existing at reporting date. In doing so, fair value is estimated using a valuation technique that makes maximum use of observable market inputs and places minimal reliance upon entity-specific inputs. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises the difference between the transaction price and the fair value in profit or loss on initial recognition (i.e. on day one). The valuations of financial instruments are described comprehensively in Note 63. Determination of the fair value of financial instruments of the Group were not materially affected by the significant volatility in financial markets created by the COVID–19 pandemic.

3.3.8.4 Impairment charge for loans and advances

The measurement of impairment charge under SLFRS 9- “Financial Instruments” requires judgement by Management in identification and estimation of the amount and timing of future cash flows when determining an impairment charge for loans and advances. Accordingly, the Group reviews its individually significant loans and advances at each reporting date to assess whether an impairment charge should be provided in the Statement of Profit or Loss. In particular, the Management’s judgement is required in identification and estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgements about the borrower’s financial position, the net realisable value of collateral and other related factors. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the impairment allowance. A collective impairment provision is established for the groups of homogeneous loans and advances that are not considered individually significant and groups of loans that are individually significant but that were not found to be individually impaired. A collective assessment of impairment takes into account the data from loan portfolio (such as credit quality, levels of arrears, credit utilisation, etc.), concentrations of risk and economic data (including levels of unemployment, inflation, GDP growth rate and country rating) and the performance of different individual group. The impairment requirements in SLFRS 9 – “Financial Instruments” are based on an expected credit loss (ECL) model and it is reflected the general pattern of deterioration or improvement, in the credit quality of financial instruments. The Group calculates ECLs either on a collective or an individual basis. The amount of ECLs recognised as a loss allowance or provision depends on the extent of credit deterioration since initial recognition and measured under following bases:

• 12-month ECLs (Stage 1), which apply to all items as long as there is no significant deterioration in credit risk.
• Lifetime ECLs (Stages 2 and 3), which apply when a significant increase in credit risk has occurred on an individual or collective basis.

Further, the Group makes additional judgements and estimates with regard to the following under ECL model.

• The Group’s criteria for assessing if there has been a significant increase in credit risk and so impairment for financial assets should be measured on a lifetime ECL basis.
• Development of ECL models, including various formula and the choice of inputs.
• Determination of association between macroeconomic inputs, such as GDP growth, inflation, interest rates, exchange rates and unemployment with the effect on probability of default (PDs), exposure at default (EAD) and loss given default (LGD).
• Selection of forward-looking macroeconomic scenarios and their probability weightings to derive the economic inputs into the ECL model.

The economic scenarios and forward-looking macroeconomic assumptions underpinning the collective provision calculation are outlined in Note 4.4.11

As per SLFRS 9 – “Financial Instruments”, the collective provision for groups of homogeneous loans is established using statistical methods or, a formula approach based on historical loss rate experience, using the statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgement to ensure that the estimate of loss arrived at, on the basis of historical information is appropriately adjusted to reflect the economic conditions and portfolio factors as at the reporting date. The loss rates are regularly reviewed against, actual loss experience. It has been the Group’s policy to regularly review its model in the context of actual loss experience and adjust when necessary. The accuracy of the provision depends on the model assumptions and parameters used in determining the impairment. Details of impairment losses on loans and advances are given in Note 14.

3.3.8.5 Impairment of investment in subsidiaries, other financial assets and non-financial assets

The Group and the Bank follow the guidance of LKAS 36 – “Impairment of Assets” and SLFRS 9 – “Financial Instruments” in determining whether an investment or a financial asset is impaired. Determination and identification of impairment indicators require the Group and the Bank to evaluate duration and extent to which the fair value of an investment for a financial asset is less than its cost and the financial stability of the near term business outlook of the investment or the financial asset, considering the factors such as performance of the sector and industry, technology and operational environmental changes along with future cash flows. This process involves with significant judgement in aforesaid areas.

3.3.8.6 Defined benefit obligation

The cost of the defined benefit pension plans and other post- employment benefit plans are determined using an actuarial valuation. An actuarial valuation involves making various assumptions determining the discount rates, expected rates of return on planned assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. In determining the appropriate discount rate, the Group considers the interest rates of Sri Lanka Government Bonds with maturities corresponding to the expected duration of the Defined Benefit Obligation. The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are based on inflation rate and salary increase rates of the Group. All assumptions are reviewed at each reporting date and assumptions used in the year are given in Note 48.

3.3.8.7 Fair value of land and buildings

The freehold land and buildings and the buildings on leasehold land of the Group are reflected at fair value less accumulated depreciation. The Group engaged independent valuation specialists to determine fair value of such properties in terms of the SLFRS 13 – “Fair Value Measurement”. The details of valuation of freehold land and buildings and the buildings on leasehold land are given in Note 34.

3.3.8.8 Useful life of the property, plant and equipment and intangible assets

The Group reviews the residual values, useful lives and methods of depreciation of property, plant and equipment and intangible assets at each reporting date. Judgement of the Management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty. The details of the depreciation methods and rates used for each assets category are given in Note 34.

3.3.8.9 Classification of investment properties

Management is required to use its judgement to determine whether a property qualified as an investment property. A property that is held to earn rentals or for capital appreciation or both and which generates cash flows largely independently of the other assets held by the Group are accounted for as investment properties. On the other hand, properties that are used for operations or for the process of providing services or for administration purposes and which do not directly generate cash flows as stand-alone assets are accounted as property, plant and equipment.

3.3.8.10 Determination of control over investees

Subsidiaries are entities that are controlled by the Bank, control is achieved when the Bank is exposed, or has rights to variable returns from its involvement with the invitee and has the ability to affect the returns of those investees through its power over the investee. The Management applies its judgements to determine the Bank controls over its investees.

3.3.8.11 Taxation

The Group is subject to income tax, value added tax (VAT) and other applicable taxes. A judgement is required to determine the total provision for current, deferred and other taxes due to the uncertainties that exists with respect to the interpretation of the applicable tax laws at the time of preparing these Financial Statements. The details on the applicable tax rates and other information are given under Notes 4.8 , 18, and 37. The Group is subject to transfer pricing regulations and it is necessitated using management judgement to determine the impact of transfer pricing regulations. Accordingly, critical judgements and estimates were used in applying the regulations in aspects including but not limited to identifying associated undertakings, estimation of the respective arm’s length prices and selection of appropriate pricing mechanism. The current tax charge is subject to such judgements. Differences between estimated income tax charge and actual payable may arise as a result of variances between Management’s interpretation and application of tax regulation.

The significant accounting policies applied by the Bank and the Group in preparation of its Financial Statements are included below and have been consistently applied to all periods presented in the Financial Statements of the Group and the Bank, unless otherwise indicated.

4.1 Basis of consolidation

The Group’s Financial Statements comprise consolidation of the Financial Statements of the Bank and its Subsidiaries in terms of SLFRS 10 – “Consolidated Financial Statements” and LKAS 27 – “Consolidated and Separate Financial Statements” and the proportionate share of the profit or loss and net assets of its Associates in terms of the Sri Lanka Accounting Standard LKAS 28 – “Investments in Associates and Joint Ventures”. The Bank’s Financial Statements comprise the amalgamation of the Financial Statements of the Domestic Banking Unit, the Off-shore Banking Unit and the Overseas Operations of the Bank. The detailed accounting policies pertaining to the consolidation of subsidiaries and associates are given in the Notes 31 and 32.

4.1.1 Business combinations

The Group determines whether a transaction or other event is a business combination by applying the definition in SLFRS 3 – “Business Combinations”, which requires that the assets acquired and liabilities assumed constitute a business. Business combinations are accounted for using the acquisition method. As of the acquisition date, the amount of non-controlling interest is measured either at fair value or at the non-controlling interests’ proportionate share of the acquirer’s identifiable net assets. Acquisition related cost are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees, advisory, legal, accounting, valuation, other professional consulting fees, general administrative costs including the cost of maintaining an Internal Acquisition Department and cost of registering and issuing debt and equity securities. Acquisition related costs, other than those associated with the issue of debt or equity securities are expensed in the periods in which the costs are incurred and the services are received. The Group elects on a transaction by transaction basis whether to measure non-controlling interests at its fair value or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination are expensed as incurred.

4.1.2 Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest (NCI) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Further, the Bank’s share of components previously recognised in Other Comprehensive Income (OCI) is reclassified to profit or loss or retained earnings as appropriate. Any surplus or deficit arising on the loss of control is recognised in the profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or in accordance with the Group’s accounting policy for financial instruments depending on the level of influence retained.

4.2 Foreign currency translations

4.2.1 Foreign currency transactions and balances

At the initial recognition, transactions in foreign currency are translated into the functional currency of the operation which is Sri Lankan Rupees (LKR) at the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the reporting date are retranslated into the functional currency at the spot exchange rate at that date and all differences arising on non-trading activities are taken to “Net other operating income” (Note 13) in the Statement of Profit or Loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial recognition. Non-monetary assets and liabilities denominated in foreign currency that are measured at fair value are retranslated into the functional currency at the spot exchange rate including any exchange gain or loss component at the date on which the fair value is determined. Gain or loss on a non-monetary item including exchange component is recognised in Other Comprehensive Income. Forward exchange contracts are valued at the forward market rates ruling on the reporting date and resulting net unrealised gains or losses are dealt within the Statement of Profit or Loss.

4.2.2 Foreign operations

The results and financial position of foreign operations, whose functional currencies are not Sri Lankan Rupees, are translated into Sri Lankan Rupees as follows:

The assets and liabilities of foreign operations are translated into Sri Lankan Rupees at spot exchange rate as at the reporting date.

The income and expenses of foreign operations are translated at average rate for the period. Foreign currency differences on the translation of foreign operations are recognised in Other Comprehensive Income.

When a foreign operation is disposed off, the relevant amount in the translation reserve is transferred to the profit or loss as part of the profit or loss on disposal in other operating income or other operating expenses.

4.2.3 Hedge accounting

The Bank enters into hedging arrangements with the counterparties in order to mitigate the foreign exchange risk from foreign currency transactions. According to the SLFRS 9, an entity may designate an item in its entirety or a component of an item as the hedged item in a hedging relationship. A hedging relationship qualifies for hedge accounting only if the hedging relationship consists only of eligible hedging instruments and eligible hedged items.

At the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements, including its analysis of the sources of hedge ineffectiveness and how it determines the hedge ratio. SLFRS 9 – “Financial Instruments” enables hedge accounting for three different designated categories, namely cash flow hedge (designated for a highly probable forecasted transaction, a firm commitment (not recorded on the balance sheet), foreign currency cash flows of a recognised asset or liability, or a forecasted intercompany transaction). Fair value hedge (designated for a firm commitment (not recorded) or foreign currency cash flows of a recognised asset or liability). Net investment hedge (designated for the net investment in a foreign operation). The Bank accounts the similar transactions, under hedge accounting treatment specified in the SLFRS 9 – “Financial Instruments” and were valued using forward exchange rates as of each reporting date of such instruments.

4.3 Classification of financial instruments between debt and equity

Classification of financial instruments between debt and equity depends on following characteristics of such instruments:

• Name or labels given to the instruments
• Presence or absence of a fixed maturity date
• Life of the instrument
• Source of payments
• Right to enforce payments
• Rights to participate in Management
• Risk involved in the instruments
• Volatility of cash flows
• Securities given as collaterals

4.4 Financial assets and financial liabilities

4.4.1 Recognition and derecognition of financial instruments

All financial assets and liabilities are initially recognised on the settlement date, i.e. the date that the Group becomes a party to the contractual provisions of the instrument. This includes; “regular way trades”. Regular way trade means purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Loans and receivables are recognised when cash is advanced (or settled) to the borrowers. Financial assets at fair value through profit or loss are recognised initially at fair value. All other financial assets are recognised initially at fair value plus directly attributable transaction costs.

The Group derecognises a financial asset when the contractual cash flows from the asset expire or it transfers its rights to receive contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in the Statement of Profit or Loss.

4.4.2 Classification of financial assets and financial liabilities

As per SLFRS 9 – “Financial Instruments”, the classification depends on the Group’s business model for managing financial assets and the contractual terms of the financial assets’ cash flows. The following diagram depicts how the Bank classifies the financial assets.

4.4.2.1 At the inception, the financial assets are classified in one of the following categories

• Financial assets measured at fair value through profit or loss (Notes 4.4.7 and 27)
• Financial assets at amortised cost

  – Financial assets at amortised cost – loans and advances (Note 28)

  – Financial assets at amortised cost - debt and other instruments (Notes 4.4.8 and 29)

• Financial assets measured at fair value through other comprehensive income (Notes 4.4.9 and 30).

4.4.2.2 At the inception, the financial liabilities are classified in one of the following categories

• Financial liabilities at amortised cost

  – Financial liabilities at amortised cost – due to depositors (Note 42)

  – Financial liabilities at amortised cost – other borrowings and subordinated liabilities (Notes 43 and 49)

4.4.3 Initial measurements of financial instruments

Financial assets and liabilities are initially measured at their fair value plus transaction cost, except in the case of financial assets and liabilities recorded at fair value through profit or loss. Transaction cost in relation to financial assets and liabilities at fair value through profit or loss are dealt with in the Statement of Profit or Loss.

4.4.4 “Day One” profit or loss

When the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognises the difference between the transaction price and fair value (a “Day One” profit or loss) in the Statement of Profit or Loss. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the Statement of Profit or Loss over the life of the instrument.

4.4.5 Business model assessment

With effect from 1 January 2018, as per SLFRS 9 – “Financial Instrument”, the Group classifies all of its financial assets based on the business model and makes an assessment of the objective of a business model in which an asset is held at a portfolio level and not assessed on instrument by – instrument basis because this best reflects the way the business is managed and information is provided to management. The information considered includes:

• The stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether Management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
• How the performance of the portfolio is evaluated and reported to the Bank’s management;
• The risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
• How managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
• The frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Bank’s stated objective for managing the financial assets is achieved and how cash flows are realised.

The business model assessment is based on reasonably expected scenarios without taking “worst case” or “stress case” scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Bank’s original expectations, the Bank does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

4.4.6 Assessment of whether contractual cash flow characteristics are met the Solely Payments of Principal and Interest (SPPI test)

As a second step of assets classification process, the Group assesses the contractual terms of financial assets to identify whether they meet the SPPI test.

For the purposes of this assessment, “principal” is defined as the fair value of the financial asset on initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount).

“Interest” is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as profit margin.

In contrast, contractual terms that introduce a more than de minimise exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. In such cases, the financial asset is required to be measured at fair value through profit and loss.

In assessing whether the contractual cash flows are solely payments of principal and interest on principal amount outstanding, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:

• Contingent events that would change the amount and timing of cash flows
• Leverage features;
• Prepayment and extension terms;
• Terms that limit the Group’s claim to cash flows from specified assets; and
• Features that modify consideration of the time value of money

4.4.7 Financial assets measured at fair value through profit or loss

Items at fair value through profit or loss comprise:

• Items held for trading purpose;
• Items specifically designated as fair value through profit or loss on initial recognition; and
• Debt instruments with contractual terms that do not represent solely payments of principal and interest.

Financial instruments held at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the Statement of Profit or Loss as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the Statement of Profit or Loss as they arise. Where a financial asset is measured at fair value, a credit valuation adjustment is included to reflect the credit worthiness of the counterparty, representing the movement in fair value attributable to changes in credit risk.

4.4.7.1 Financial instruments held for trading purpose

A financial instrument is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative not in a qualifying hedge relationship. Trading derivatives and trading securities are classified as held for trading and recognised at fair value in the Statement of Financial Position. Changes in fair value are recognised in “Net gains/(losses) from trading” (Note 10) and “Net fair value gains/(losses) from financial instruments at fair value through profit or loss” (Note 11). Interest income from financial instruments held for trading is recorded under “Net interest income” (Note 8) while dividend income is recorded in “Net gains/(losses) from trading” (Note 10) when the right to payment has been established.

4.4.7.2 Financial instruments designated and measured at fair value through profit or loss

Upon initial recognition, financial instruments may be designated and measured at fair value through profit or loss. A financial asset may only be designated at fair value through profit or loss if doing so eliminates or significantly reduces measurement or recognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arise from measuring financial assets or liabilities on a different basis. A financial liability may be designated at fair value through profit or loss if it eliminates or significantly reduces an accounting mismatch or:

• If a host contract contains one or more embedded derivatives; or
• If financial assets and liabilities are both managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy. Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in the Group’s own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income. As of 31 December 2022, there were no any financial liability designated at fair value through profit or loss.

4.4.7.3 Debt instruments with contractual terms that do not represent the solely payments of principal and interest

Financial debt instruments which are not meet solely payments of principal and interest test will be classified as fair value through profit or loss.

4.4.8 Financial assets measured at amortised cost-debt instruments

Investments in debt instruments are measured at amortised cost where they have:

• Contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the principal amount outstanding; and
• Are held within a business model whose objective is achieved by holding to collect contractual cash flows.

These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using effective interest rate (EIR). The measurement of credit impairment is based on the three stage expected credit loss model described below in Note 4.4.11 Impairment of financial assets.

4.4.9 Financial assets measured at fair value through other comprehensive income

4.4.9.1 Debt instruments

Investments in debt instruments are measured at fair value through other comprehensive income where they have:

• Contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the principal amount outstanding; and
• Are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in Other Comprehensive Income within a separate component of equity. Impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in profit or loss. Upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from other comprehensive income to profit or loss.

The measurement of credit impairment is based on the three stage expected credit loss model as applied to financial assets at amortised cost. The expected credit loss model is described below in Note 4.4.11 Impairment of financial assets.

4.4.9.2 Equity instruments

Investment in equity instruments that are neither held for trading nor contingent consideration recognised by the Group in a business combination to which SLFRS 3 – “Business Combination” applies, are measured at fair value through other comprehensive income, where an irrevocable election has been made by management. For portfolios where management does not consider an irrevocable election of adopting fair value through other comprehensive income, by default such investments shall be measured at fair value through profit or loss.

Upon derecognition, the cumulative gain or loss recognised in Other Comprehensive Income are not transferred to profit or loss. However, cumulative gain or loss recognised full derecognition will be transferred from Other Comprehensive Income reserve to retained earnings within the equity. Dividends on such investments are recognised in “Net other operating income” (Note 13) in the profit or loss.

4.4.10 Reclassification of financial assets

The Group reclassifies its financial assets when, and only when, the Group changes its business model for managing financial assets. If the Group reclassifies financial assets which were measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss, the Group applies the reclassification prospectively from the reclassification date. The Group does not restate any previously recognised gains, losses (including impairment losses) or interest.

The table below summaries the treatment of gains and losses on reclassification:

Initial Measurement	Measurement after reclassification	Treatment on reclassification
Fair value through profit or loss	Amortised cost	Fair value at the reclassification date becomes its new gross carrying amount. The effective interest rate is calculated on the basis of that amount. For the purpose of applying the impairment requirements, the reclassification date is treated as the date of initial application.
Fair value through profit or loss	Fair value through other comprehensive income	The fair value of the financial asset at the reclassification date becomes its new carrying amount and the effective interest rate is determined on the basis of the fair value of the asset at the reclassification date.
Fair value through other comprehensive	Amortised cost	The cumulative gain or loss previously recognised in Other Comprehensive Income is removed from equity and adjusted against the fair value of the financial asset at the reclassification date. The effective interest rate and the measurement of expected credit losses are not adjusted as a result of the reclassification.
Fair value through other comprehensive income	Fair value through profit or loss	The fair value of the financial asset at the reclassification date becomes its new carrying amount. The cumulative gain or loss previously recognised in Other Comprehensive Income is reclassified from equity to profit or loss as a reclassification adjustment at the reclassification date.
Amortised cost	Fair value through profit or loss	Any gain or loss arising from a difference between the previous amortised cost of the financial asset and fair value at the reclassification date is recognised in profit or loss.
Amortised cost	Fair value through other comprehensive income	Any gain or loss arising from a difference between the previous amortised cost of the financial asset and fair value at the reclassification date is recognised in Other Comprehensive Income. The effective interest rate and the measurement of expected credit losses are not adjusted as a result of the reclassification.

4.4.10.1 Upgrading of financial instruments

According to the Direction No. 14 of 2021, the Bank can upgrade Financial Instruments from a higher stage in accordance with a policy approved by the Board of Directors. Therefore, the Bank will upgrade the Financial Instruments to a higher stage with the consent of the Chief Risk Officer with the proper rational for such upgrade.

4.4.11 Impairment of financial assets

The Group applies a three-stage approach in measuring expected credit loss (ECL) for the following categories of financial assets that are not measured at fair value through profit or loss:

• Debt instruments measured at amortised cost and fair value through other comprehensive income;
• Loan commitments; and
• Financial guarantee contracts.

No ECL is recognised on equity investments.

The Group performs an assessment at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. Based on this process financial assets migrate through the following three stages based on the change in credit risk since initial recognition.

4.4.11.1 Stage 1: 12 months ECL

For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised. The Bank determines 12 months ECL from customers whom are not significantly credit deteriorated.

4.4.11.2 Stage 2: Lifetime ECL

For exposures where there has been a significant increase in credit risk since initial recognition but are not credit impaired, a lifetime ECL (i.e. reflecting the remaining lifetime of the financial asset) is recognised.

4.4.11.3 Stage 3: Lifetime ECL

Exposures are assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred. For exposures that have become credit impaired, a lifetime ECL is recognised and interest revenue is calculated by applying the effective interest rate to the amortised cost (net of provision) rather than the gross carrying amount.

4.4.11.4 Calculation of ECL

The Group calculates ECL based on a three probability weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the effective interest rate (EIR). A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The mechanics of the ECL calculations of the Group are outlined below and the key elements are, as follows:

Probability of default (PD)

PD is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously recognised and is still in the portfolio. The concept of PDs is further explained in Note 28.

Exposure at default (EAD)

EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. The EAD is further explained in Note 28.

Loss given default (LGD)

LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral. It is usually expressed as a percentage of the EAD. The LGD is further explained in Note 28.

4.4.11.5 Determining the stage for impairment

At each reporting date, the Group assesses whether there has been a significant increase in credit risk for exposures since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition. The Group considers reasonable and supportable information that is relevant and available without undue cost or effort for this purpose. This includes quantitative and qualitative information and also, forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates. If, in a subsequent period, asset quality improves and also reverses any previously assessed significant increase in credit risk since origination, then the provision for doubtful debts reverts from lifetime ECL to 12 months ECL. Exposures that have not deteriorated significantly since origination, or where the deterioration remains within the Group’s investment grade criteria, or which are less than 30 days past due, are considered to have a low credit risk. The impairment provision for these financial assets is based on a 12 months ECL.

The Group assesses whether the credit risk on an exposure has increased significantly on an individual or collective basis. For the purposes of a collective evaluation of impairment, financial instruments are grouped on the basis of shared credit risk characteristics, taking into account of instrument type, credit risk ratings, collateral type, date of initial recognition, remaining term to maturity, industry, geographical location of the borrower and other relevant factors.

4.4.11.6 Impairment calculation for loans and advances

The Bank uses rebuttable presumption in calculating the impairment for loans and advances which is permitted under SLFRS 9 – “Financial Instruments” . The loan portfolio is classified into three stages based on the past due days as follows and the level of applicability of 12 months ECL and lifetime ECL depends on the stages. The value and type of security obtained against the credit facilities are not considered when determining the classification status of a credit facility. In cases where a borrower has several current accounts with overdraft limits with the Bank, the aggregate sanctioned limit and the daily outstanding aggregate balance on all such accounts shall be considered for the purposes of classification of overdrafts.

4.4.11.6.1 Performing credit facilities

(a) All the credit facilities classified as Stage 1 under SLFRS 9 – “Financial Instruments” and

(b) All credit facilities identified as significant increase in credit risk facilities and classified as Stage 2 under SLFRS 9 – “Financial Instruments” ( Under-performing credit facilities)

4.4.11.6.2 Non-performing credit facilities (NPCF)

Non-performing credit facilities (NPCF) shall mean all credit facilities where;

(a) Contractual payments of a customer are past due for more than 90 days (the number of days past due shall be calculated starting from the contractual due date of the payment).

(b) Sanctioned limit has remained in excess for more than 90 days.

(c) Any other credit facilities classified as Stage 3 as per SLFRS 9 – “Financial Instruments” (facilities classified as NPCF based on potential risk and impaired assets at origination).

Performing		Non-performing credit facilities (NPCF)
Stage 01	Stage 02	Stage 03
30 days or less than 30 days past due	31 to 89 days past due	90 days or more than 90 days past due
All credit facilities, which are not categorised under Stages 2 or 3	All restructured loans, which are restructured up to two times, other than credit facilities upgraded and under the satisfactory performing period of a minimum 90 days from the due date of the 1st capital and/ or interest instalment post-restructure. Under-performing credit facilities/ exposures as significant credit deterioration identified based on the deterioration factors given under the Note 28 – “Loans and advances to customers”.	All restructured loans, which are restructured more than twice, other than credit facilities/exposures upgraded and under the satisfactory performing period of a minimum 90 days from the due date of the 1st capital and/or interest installment post-restructure. All rescheduled loans, other than credit facilities/exposures. All credit facilities/customers classified as non-performing as per CBSL Directions. Customers identified with significant credit deterioration as per the deterioration factors given under Note 28 – “Loans and advances to customers”.

For the above classification purpose, facility is considered as restructured facility if original repayment terms have been amended due to deterioration in credit quality and “Credit Forbearance Policy” of the Bank should be referred in identifying the restructured facilities. As per the Credit Forbearance Policy of the Bank, following changes/criteria are recognised as changes to the original repayment terms of a credit facility

• Change of Interest Rate
• Change of Tenor (Maturity)
• Changes to the Grace Period
• Interest Waivers

4.4.11.6.3 Subcategorisation of non-performing credit facilities (NPCF)

NPCF are further categorised into four categories based on the past due days and level of potential risk identified as follows:

Category	Past due days	Potential risk criteria
Special mention	>90 and < = 180	Exhibits potential weaknesses where, if not corrected in a timely manner, may adversely affect repayment ability of the customer in future.
Substandard	> 180 and < = 270	Exhibits definable weaknesses, either in respect of the business, cash flow or financial position of the customer that may jeopardize repayment on existing terms and uncertainty on the repayment.
Doubtful	> 270 and > = 360 days	Exhibit a high risk or partial default or where full collection is improbable and there is a high risk of default.
Loss	> 360 days	Deemed to be uncollectable or are almost certain repayment will not be done and all other NPCF which are not included under above categories.

4.4.11.7 Upgrading of credit facilities

Upgrading of credit facilities among the stages will be done based on the level of improvement in credit deterioration at the later assessment dates comparing to the initial point.

The Bank will upgrade the credit facilities in accordance with the guidelines provided under the Credit Risk Management Policy pertaining to the upgrading of credit facilities.

4.5 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell or its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly-traded subsidiaries or other valuable fair value indicators.

4.6 Fiduciary services

The Group provides fiduciary services to third parties that result in holding of the assets on behalf of its customers. Assets held in fiduciary capacity are not recognised in the Financial Statements, as the Group is not the beneficial owner or does not control such assets.

4.7 Provisions

A provision is recognised as a result of a past event, when the Group has a present (legal or constructive) obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognised is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation at that date. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is determined based on the present value of those cash flows. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured as the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.

4.8 Income tax expense and other taxes

4.8.1 Income tax expense

Income tax expense comprises current and deferred tax. More details are given in Note 18.

4.8.2 Value added tax (VAT) on financial services

The base for value added tax computation is arrived by aggregating the accounting profit before income tax and emoluments of employees, which is adjusted for the depreciation computed on prescribed rates. During the year, the Group’s total value addition was subjected to 18% with effect from 1 January 2022(2021 – 15%) as per the Value Added Tax Act No. 14 of 2002 and amendments thereto. Also the Group is following value attributable method to compute VAT on financial services.

4.8.3 Crop insurance levy (CIL)

As per the provisions of the Finance Act No. 12 of 2013, the CIL was introduced with effect from 1 April 2013 and is payable 1% of the profit after tax to the National Insurance Trust Fund Board.

4.8.4 Social security contribution levy (SSCL)

In terms of the Social Security Contribution Levy Act No. 25 of 2022, the Bank is liable for Social Security Contribution Levy on financial services with effect from 1 October 2022 on the value addition attributable to financial services at the rate of 2.5%. Further, SSCL on non-financial services are made liable on the turnover at the rate of 2.5%.

4.8.5 Withholding tax (WHT) on dividends distributed by the Bank, Subsidiaries and Associates

Withholding tax on dividends distributed by the Bank

The Bank distributed dividend to its sole shareholder, the Government of Sri Lanka. As per the third schedule of Inland Revenue Act No 24 of 2017 and amendments thereto, amounts derived by the Government of Sri Lanka is exempted from income tax. Accordingly, no withholding tax is deducted on dividend payments made to the Government of Sri Lanka.

WHT on dividends distributed by the subsidiaries and associates

As per the Inland Revenue (Amendment) Act No 10 of 2021, requirement to deduct WHT on dividends from residents had been removed effective from 1 January 2020. Dividends paid to non-residents had been exempted from income tax. The dividend income received from Subsidiaries and Associates was liable for income tax at 14% until 30 September 2022.

Accordingly, income tax rate of 14% was applied on the dividend income for the first half of the financial year ended 31 December 2022 and dividend income received during the second half was liable at the rate of 15%.

As per Inland Revenue (Amendment) Act No. 45 of 2022, WHT on dividends has been introduced with effect from 1 January 2023. Accordingly, dividend income received from Subsidiaries and Associate companies will be liable for WHT at the rate of 15% and will be a final withholding tax.

5.1 Reinsurance

The Group cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract. Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in the Statement of Profit or Loss. Premiums and claims are presented on a gross basis for reinsurance. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party.

5.2 Insurance receivables

Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration receivable. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the Statement of Profit or Loss.

5.3 Deferred expenses

5.3.1 Deferred acquisition costs (DAC)

The costs of acquiring new businesses including commission, underwriting, marketing and policy issue expenses which vary with and directly related to production of new businesses and/or investment contracts with discretionary participation features (DPF), are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. Subsequent to initial recognition, DAC for general insurance is amortised over the period on the basis unearned premium is amortised. The reinsurances’ share of deferred acquisition cost is amortised in the same manner as the underlying assets amortisation is recorded in the Statement of Profit or Loss. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the assets are accounted for by changing the amortisation period and are treated as a change in an accounting estimate. DAC are derecognised when the related contracts are either expired or cancelled.

5.4 Reinsurance commissions

Commissions receivable on outwards reinsurance contracts are deferred and amortised over the period of reinsurance.

5.5 Investment contract liabilities

Investment contracts are classified between contracts with and without DPF. The accounting policies for investment contract liabilities with DPF are the same as those for life insurance contract liabilities. Investment contract liabilities without DPF are recognised when contracts are entered into and premiums are charged. These liabilities are initially recognised at fair value being the transaction price excluding any transaction costs directly attributable to the issue of the contract. Subsequent to initial recognition, investment contract liabilities are measured at fair value through profit or loss. Deposits and withdrawals are recorded directly as an adjustment to the liability in the Statement of Financial Position. Fair value adjustments are performed at each reporting date and are recognised in the Statement of Profit or Loss. Fair value is determined through the use of prospective discounted cash flow techniques. For unitised contracts, fair value is calculated as the number of units allocated to the policyholder in each unit linked fund multiplied by the unit price of those funds at the reporting date. The fund assets and fund liabilities used to determine the unit prices at the reporting date are valued on a basis consistent with their measurement basis in the Statement of Financial Position adjusted to take account of the effect on the liabilities of the deferred tax on unrealised gains on assets in the fund. Non-utilised contracts are subsequently carried at fair value, which is determined by using valuation techniques such as discounted cash flows and stochastic modelling. Models are validated, calibrated and periodically reviewed by an independent qualified person.

The liability is derecognised when the contract expires, is discharged or is cancelled. For a contract that can be cancelled by the policyholder, the fair value cannot be less than the surrender value. When contracts contain both a financial risk component and a significant insurance risk component and the cash flows from the two components are distinct and can be measured reliably, the underlying amounts are unbundled. Any premiums relating to the insurance risk component are accounted for on the same bases as insurance.

5.6 Discretionary participation features (DPF)

A DPF is a contractual right that gives holders of these contracts the right to receive as a supplement to guaranteed benefits, significant additional benefits which are based on the performance of the assets held within the DPF portfolio. Under the terms of the contract, surpluses in the DPF funds can be distributed to policyholders and shareholders on a 90/10 basis. The Group has the discretion over the amount and timing of the distribution of these surpluses to policyholders. All DPF liabilities including unallocated surpluses, both guaranteed and discretionary, at annually are held within insurance or investment contract liabilities as appropriate.

5.7 Unearned premium reserve

Unearned premium reserve represents the portion of the premium written in the year but relating to the unexpired term of coverage. Unearned premiums are calculated on the 1/24th basis.

6.1 New Accounting Standards issued during the year/changes to already existing accounting standards.

6.1.1 SLFRS 3 – “Business Combinations”

The amendment replaced a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements.

The effective date is 1 January 2022.

This amendment had no material impact on the Financial Statements of the Bank/Group.

6.1.2 LKAS 37 – “Provisions, Contingent Liabilities and Contingent Assets”

The amendment specified the costs that an entity needs to include when assessing whether a contract is onerous or loss-making.

The effective date is 1 January 2022.

This amendment had no material impact on the Financial Statements of the Bank/Group.

6.1.3 LKAS 16 – “Property, Plant and Equipment”

The amendment prohibits entities from deducting any proceeds from selling items produced, while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management, from the cost of an item of property, plant and equipment.

The effective date is 1 January 2022. This amendment had no material impact on the Financial Statements of the Bank/Group.

6.2 New accounting standards issued but not effective as at the reporting date

The following Sri Lanka Accounting Standards were issued by The Institute of Chartered Accountants of Sri Lanka which is effective for the annual period beginning on or after 1 January 2023. Accordingly, these accounting standard has not been applied in the preparation of the Financial Statements for the year ended 31 December 2022. We have identified following Standards where this applies to the Group and further details are set out below:

6.2.1 Amendments to LKAS 8 - “Accounting Policies, Changes in Accounting Estimates and Errors”

The amendments clarify the following.

• Distinction between changes in accounting estimates, changes in accounting policies and the correction of errors.
• How entities use measurement techniques and inputs to develop accounting estimates.
• A change in an input or a change in a measurement technique are changes in accounting estimates if they do not result from the correction of prior period errors.

The effective date is 1 January 2023.

These amendments have no material impact on the Financial Statements of the Bank/Group.

6.2.2 Amendments to LKAS 1 – “Presentation of Financial Statements”

These amendment:

• replaces the requirement for entities to disclose their “significant” accounting policies with a requirement to disclose “material” accounting policies.
• provides guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
• specify the requirements for classifying liabilities as current or non-current.

The effective date is 1 January 2023

These amendments have no material impact on the Financial Statements of the Bank/Group.

6.2.3 Amendments to LKAS 12 – “Income Taxes”

The amendments introduce an exception to the initial recognition exemption in LKAS 12 – “Income Taxes”. The effect of these amendments essentially mean that the initial recognition exemption is not available for transactions which involve the recognition of both an asset and liability which in turn leads to equal and opposite temporary differences. Therefore, deferred taxes are calculated and booked for both temporary differences, at initial recognition and subsequently.

The effective date is 1 January 2023.

These amendments have no material impact on the Financial Statements of the Bank/Group.

6.2.4 SLFRS 17 – “Insurance contracts”

SLFRS 17 – “Insurance Contracts” establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of SLFRS 17 –“Insurance Contracts” is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of Financial Statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows. SLFRS 17 – “Insurance Contracts” is effective for annual periods beginning on or after 1 January 2025. The Group is assessing the potential impact on its Financial Statements resulting from the application of SLFRS 17 – “Insurance Contracts”.

Accounting policy

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank/Group and the revenue can be reliably measured.

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Interest income	8.1	456,267,458	260,513,393	463,203,346	266,565,137
Fee and commission income	9.1	22,837,771	17,649,434	23,165,682	17,931,406
Net gains/(losses) from trading	10	17,602,384	4,742,396	17,678,455	4,813,011
Net fair value gains/(losses) from financial instruments at fair value through profit or loss	11	(804,438)	1,347,097	(956,745)	1,309,021
Net gains/(losses) from derecognition of financial assets	12	861,349	393,920	877,853	466,392
Net other operating income	13	16,384,811	5,716,254	16,922,573	6,535,886
Total income		513,149,335	290,362,494	520,891,164	297,620,853

Accounting policy

Interest income and expense are recognised in the Statement of Profit or Loss using the Effective Interest Rate (EIR).

Interest income and expense presented in the Statement of Profit or Loss include interest on;

Financial assets recognised through Profit or Loss – Measured at Fair Value (FVTPL)

Financial assets measured at Fair Value Through Other Comprehensive Income (FVTOCI)

Financial assets and financial liabilities measured at Amortised Cost (AC)

Effective Interest Rate (EIR)

The “EIR” is the rate that exactly discounts the estimated future cash payments and receipts throughout the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the EIR, the Group estimates future cash flows, considering all contractual terms of the financial instruments.

The calculation of the EIR includes any discount or premium on acquisition of financial instrument, transaction costs and fees paid or received that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

For impaired financial assets, adjusted EIR is calculated using estimated future cash flows and if the financial assets cures and no longer credit impaired, the bank reverts to calculating interest income on gross basis.

The expected cashflows on financial asset are revised for reasons other than credit risk, the adjustment is made to carrying value of the assets in Statement of financial position with an adjustment to interest income or similar income in the income statement.

8.1 Interest income

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Cash and cash equivalents	595,465	272,710	881,761	405,801
Placements with banks	396,817	172,817	405,672	251,279
Securities purchased under resale agreements	96,718	55,892	75,167	45,731
Financial assets recognised through profit or loss measured at fair value	444,197	169,781	447,726	188,636
Financial assets at amortised cost
Loans and advances	310,238,562	193,128,913	316,070,181	198,647,188
Debt and other instruments	143,777,962	65,712,624	144,543,793	65,828,219
Financial assets measured at fair value through OCI	717,737	1,000,656	779,046	1,198,283
Total interest income	456,267,458	260,513,393	463,203,346	266,565,137

Interest income on loans and advances includes interest on credit impaired loans and advances amounting to LKR 1,745.7 million for the year 2022 (2021 – LKR 1,964.7 million).

8.2 Interest expenses

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Due to banks	477,472	991,872	511,004	992,644
Securities sold under repurchase agreements	36,443,268	4,858,029	36,438,543	4,901,475
Financial liabilities at amortised cost
Due to depositors	231,793,666	124,010,868	234,767,352	125,770,916
Other borrowings	52,848,179	12,086,260	53,413,547	12,306,268
Debt securities issued	–	–	–	293,983
Subordinated liabilities	8,358,495	7,314,423	8,304,008	7,310,224
Total interest expenses	329,921,080	149,261,452	333,434,454	151,575,510
Net interest income	126,346,378	111,251,941	129,768,892	114,989,627

8.3 Net interest income from Sri Lanka Government Securities

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Interest income	119,745,901	49,697,311	119,805,011	49,986,610
Less: Interest expenses	36,443,268	4,858,029	36,438,543	4,901,475
Net interest income from Sri Lanka Government Securities	83,302,633	44,839,282	83,366,468	45,085,135

Accounting policy

Fee and commission income comprises with the fee and commission earned by the Group, providing diverse range of services. Those can be divided into following two main categories.

(i) Fee and commission income earned from services that are provided over a certain period of time;

Fees earned from the provision of services over a period of time are accrued over that period. These fees include commission income and private wealth and asset management fees, custody and other management and advisory fees.

(ii) Fee and commission income from providing transaction services and earned on the execution of a specific act;

Fees and commission arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement/participation or negotiation of the acquisition of shares or other securities, or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

Fees and commission expenses relating to transactions are expensed as the services are received and are recognised on an accrual basis.

9.1 Fee and commission income

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Trade services	3,931,144	3,237,924	4,060,300	3,326,981
Debit and credit cards	8,876,177	5,376,831	8,876,177	5,376,831
Travel and remittances services	3,744,864	2,026,849	3,753,231	2,026,849
Custodial services	60,667	75,966	60,667	75,966
Retail banking services	3,890,089	4,789,654	4,057,370	4,928,836
Guarantees and related services	1,582,641	1,390,197	1,582,641	1,390,869
Other financial services	752,189	752,013	775,296	805,074
Total fee and commission income	22,837,771	17,649,434	23,165,682	17,931,406

9.2 Fee and commission expense

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Debit and credit cards	5,830,252	2,927,581	5,830,252	2,927,581
Travel and remittances services	266,482	143,994	266,482	143,994
Retail banking services	360,240	360,347	379,445	365,774
Guarantees and related services	10,728	11,587	10,728	11,587
Other financial services	18,427	26,523	18,427	59,683
Total fee and commission expenses	6,486,129	3,470,032	6,505,334	3,508,619
Net fee and commission income	16,351,642	14,179,402	16,660,348	14,422,787

Accounting policy

Net gains/(losses) from trading comprises foreign exchange gains or losses arising from trading activities, gains/(losses) arising from changes in fair value of derivative financial instruments, dividend income from trading equities.

Dividend income is recognised when the Group’s right to receive the dividend is established.

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Foreign exchange
From banks	6,494	(60,506)	76,071	(46,699)
From customers and others	17,522,608	4,727,110	17,529,102	4,733,553
Equities
Dividend income	73,282	75,792	73,282	126,157
Net gains/(losses) from trading	17,602,384	4,742,396	17,678,455	4,813,011

Accounting policy

Net gains/(losses) on financial instruments at fair value through profit or loss includes unrealised gains or losses from investment in equities and debt instruments classified at fair value through profit or loss due to changes in fair value of such instruments.

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Gains/(losses) on marked to market valuation of
Fixed income securities	29,671	(13,032)	29,671	(84,274)
Equities	(691,331)	304,671	(843,638)	337,325
Unit trust	(142,778)	1,055,458	(142,778)	1,055,970
Net gains/(losses) on financial assets at fair value through profit or loss	(804,438)	1,347,097	(956,745)	1,309,021

Net gains/(losses) from derecognition of financial assets include profit or loss on sale of debt instruments classified as fair value through profit or loss, amortised cost and fair value through other comprehensive income and profit or loss on sale of equity instrument classified as fair value through profit or loss.

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Recognised at:
Fair value through profit or loss	751,322	322,145	766,423	384,418
Amortised cost	–	–	–	–
Fair value through other comprehensive income	110,027	71,775	111,430	81,974
Net gains/(losses) from derecognition of financial assets	861,349	393,920	877,853	466,392

Accounting policy

Dividend income

Dividend income is recognised when the Bank’s right to receive the dividend is established.

Gains/(losses) from disposal of non-financial assets

Net gains/(losses) arising from the disposal of property, plant and equipment and other non current assets including investments in subsidiaries and associates are accounted for in the Statement of Profit or Loss after deducting the carrying amount of such assets and the related selling expenses from the proceeds on disposal.

Foreign exchange income

Foreign currency positions are revalued at each reporting date. Gains/(losses) arising from changes in fair value are included in the Statement of Profit or Loss in the period in which they arise.

Rental income

Rental income is recognised on an accrual basis. This includes rent recovered from the Bank's premises and safety lockers etc..

Gross insurance premium

Gross recurring premiums on life and investment contracts with Discretionary Participation Features (DPF) are recognised as revenue when receivable from the policyholder. For single premium business, revenue is recognised on the date on which the policy is effective.

Gross general insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognised on the date on which the policy commences.

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Dividend income from financial assets measured at fair value through OCI		377,695	226,772	441,973	264,099
Dividend income from subsidiaries and associates		107,430	394,454	–	–
Dividend income from units in unit trust		–	–	171	982
Gains/(losses) on revaluation of foreign exchange		15,450,104	4,529,610	15,450,104	4,529,610
Gains/(losses) on sale of property, plant and equipment		(7,950)	(16,120)	(7,410)	(3,597)
Gains/(losses) on sale of foreclosed properties		23,507	36,655	23,507	36,655
Rental income		235,980	236,974	232,728	308,545
Service income		–	–	280,468	98,710
Profit from sale of gold bullion		6,069	15,777	–	15,777
Miscellaneous income		131,581	209,262	84,685	911,335
Gross insurance premium		–	–	355,952	290,900
Net income from Islamic banking	13.1	60,395	82,870	60,395	82,870
Net other operating income		16,384,811	5,716,254	16,922,573	6,535,886

13.1 Net income from islamic banking

	Bank/Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000
Income from islamic banking operations	266,617	155,774
Less: Profit paid to investors	206,222	72,904
Net income from islamic banking	60,395	82,870

Accounting policy

The Bank and Group recognise the changes in the impairment provisions for financial instruments, which are assessed as per Sri Lanka Accounting Standard – SLFRS 9 - “Financial Instruments”. Details are given under “Financial assets at amortised cost – loans and advances” (Note 28). Further, the Bank/Group recognises an impairment loss when the carrying amount of a non-financial asset exceeds the estimated recoverable amount of that asset as per Sri Lanka Accounting Standard – LKAS 36 - “Impairment of Assets”.

The table below shows the provision made in the Statement of Profit or Loss during the year on identified Expected Credit Losses (ECL) on financial instruments for the year.

		Bank				Group
For the year ended 31 December	Note	2022				2022
		Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000	Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000
Cash and cash equivalents	22.2	11,952	–	–	11,952	10,356	–	–	10,356
Placements with banks	24.2	319,416	–	–	319,416	317,348	–	–	317,348
Financial assets measured at amortised cost – loans and advances	28.2	15,135,491	10,344,926	45,280,265	70,760,682	15,204,835	10,365,092	45,174,250	70,744,177
Financial assets measured at amortised cost – debt instruments	29.3	(13,446,853)	29,510,499	–	16,063,646	(13,287,475)	29,510,499	–	16,223,024
Impairment charge/(reversal) for loans and other losses		2,020,006	39,855,425	45,280,265	87,155,696	2,245,064	39,875,591	45,174,250	87,294,905

		Bank				Group
For the year ended 31 December	Note	2021				2021
		Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000	Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000
Cash and cash equivalents	22.2	935	–	–	935	1,001	–	–	1,001
Placements with banks	24.2	139	–	–	139	206	–	–	206
Financial assets measured at amortised cost – loans and advances	28.2	12,675,143	3,521,857	19,230,413	35,427,413	12,593,052	3,415,965	19,339,245	35,348,262
Financial assets measured at amortised cost – debt instruments	29.3	8,305,244	–	–	8,305,244	8,316,912	–	–	8,316,912
Financial assets measured at fair value through OCI	30.4	–	–	–	–	(4,416)	–	–	(4,416)
Impairment charge/(reversal) for loans and other losses		20,981,461	3,521,857	19,230,413	43,733,731	20,906,755	3,415,965	19,339,245	43,661,965

Note: The Bank has recognised an impairment charge of LKR 29,510.5 million on account of Sri Lanka Development Bonds and Sri Lanka Sovereign Bonds during the year, following the downgrade of the sovereign rating with the announcement made by the Government to restructure it's external debts.

Accounting policy

Personnel expenses include staff emoluments, contribution to defined contribution and benefit plans and other related expenses. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short term cash bonus, if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Employees are eligible for contribution to defined contribution and benefit plans in accordance with the respective internal and external statutes and regulations.

Defined benefit plans are recognised in the Statement of Profit or Loss based on actuarial valuations carried out in accordance with Sri Lanka Accounting Standard – LKAS 19 on “Employee Benefits”.

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Staff emoluments		23,859,475	19,002,785	25,693,378	20,495,207
Contributions to defined contribution plans	15.1	2,048,765	1,705,848	2,229,393	1,869,174
Contributions to defined benefit plans	15.2	1,455,762	2,927,193	1,539,682	2,991,611
Other personnel expenses		1,627,427	1,346,114	1,890,525	1,569,263
Total personnel expenses		28,991,429	24,981,940	31,352,978	26,925,255

15.1 Contributions to defined contribution plans

A Defined Contribution Plan (DCP) is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an expense in the Statement of Profit or Loss when they are due in respect of service rendered before the end of the Reporting period. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

Bank of Ceylon Provident Fund

All employees of the Bank are members of the “Bank of Ceylon Provident Fund” to which the Bank contributes 12% of employees' monthly gross salary while employees contribute 8%. This fund is an approved fund, which is independently administered.

Employees’ Provident Fund

The subsidiaries and their employees (other than Bank of Ceylon and its employees) contribute 12% (15% by Property Development Limited and Hotel Colombo Limited) and 8% (10% by Property Development Limited’s and Hotel Colombo Limited’s employees) respectively on monthly gross salary of each employee to Employees’ Provident Fund, in terms of the Employees’ Provident Fund Act No. 15 of 1958 and subsequent amendments thereto. The respective fund is managed by the Central Bank of Sri Lanka.

Employees’ Trust Fund

All employees of the Bank and its subsidiaries are members of the Employees’ Trust Fund to which the Bank and the Group contributes 3% of the employee’s monthly gross salary, in terms of Employees’ Trust Fund Act No. 46 of 1980.

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Employers’ contribution to:
Bank of Ceylon/Employees’ Provident Fund	1,643,180	1,366,978	1,792,776	1,498,129
Employees’ Trust Fund	405,585	338,870	436,617	371,045
Total contributions to defined contribution plans	2,048,765	1,705,848	2,229,393	1,869,174

15.2 Contributions to defined benefit plans

A Defined Benefit Plan (DBP) is a post-employment benefit plan other than a DCP. The Group’s net obligation in respect of DBP is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods and discounting that benefit to determine its present value and then deducting the fair value of any plan assets. The discount rate is the yield at the reporting date on long-term treasury bond rate for discount rates actually used that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified Actuary using the "Projected Unit Credit method".

The Group recognises all actuarial gains and losses arising from DBP in the OCI and the expenses related to DBP under personnel expenses in the Statement of Profit or Loss. Details of defined benefit plans are given in “Employee retirement benefit plans” (Note 48).

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Net expenses recognised in the profit or loss
Bank of Ceylon Pension Trust Fund	48.1.1	2,514,177	2,001,768	2,514,177	2,001,768
Bank of Ceylon Widows'/Widowers' and Orphans' Pension Fund	48.2.1	(1,319,754)	(810,350)	(1,319,754)	(810,350)
Terminal gratuity	48.3	105,253	80,769	180,221	136,445
Bank of Ceylon Pension Fund – 2014	48.4.1	83,081	1,588,741	83,081	1,588,741
Provision for encashment of medical leave	48.5	73,005	66,265	73,005	66,265
Pension fund – Bank of Ceylon (UK) Limited		–	–	8,952	8,742
Total contributions to defined benefit plans		1,455,762	2,927,193	1,539,682	2,991,611

The Group provides depreciation from one date. The assets are available for use upto the point the assets can be used for economic activities. Depreciation of the assets ceases at the point of the date that the asset is classified held for sale or the date that the asset is derecognised. Depreciation does not ceases when the asset become idle or is retired from active use unless asset is fully depreciated.

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Depreciation of investment properties	33	–	119,478	2,906	6,666
Depreciation of property, plant and equipment	34	1,894,960	2,054,485	2,717,917	2,812,815
Amortisation of right of use asset/leasehold properties	35	1,759,054	1,489,358	990,918	901,285
Amortisation of intangible assets	36	632,885	482,935	795,627	518,867
Total Depreciation and amortisation expenses		4,286,899	4,146,256	4,507,368	4,239,633

Accounting policy

Other expenses have been recognised in the Statement of Profit or Loss as they are incurred in the period to which they relate. All expenditure incurred in the operation of the business and in maintaining the capital assets in a state of efficiency has been charged to revenue in arriving at the Group’s profit for the year. Provisions in respect of other expenses are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources emboding economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Deposit insurance premium

As per the Sri Lanka Deposit Insurance and Liqudity Support Scheme introduced under the Banking Act Direction No. 6 of 2010, the Group is required to make quarterly payments of 0.1% or 0.125% on the eligible deposit liabilities, from 1 October 2010. The premium rate depends on the Capital Adequacy Ratio (CAR) of the immediate preceeding Audited Financial Statements.

Reinsurance premium, claims and other benefits

Gross benefits and claims for life insurance contracts and for investment contracts with Discretionary Participation Features (DPF) include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims and policyholder bonuses declared on DPF contracts, as well as changes in the gross valuation of insurance and investment contract liabilities with DPF. Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded when due. Interim payments and surrenders are accounted at the time of settlement.

General insurance include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

Claims expenses and liabilities for outstanding claims are recognised in respect of direct and inward reinsurance business. The liability covers claims reported but not yet paid, Incurred But Not Reported (IBNR) claims and the anticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate cost of settling claims. The provision in respect of IBNR is actuarially valued on an annual basis to ensure a more realistic estimation of the future liability based on past experience and trends.

While the Directors consider that the provision for claims is fairly stated on the basis of information currently available, the ultimate liability will vary as a result of subsequent information and events. This may result in adjustment to the amounts provided. Such amounts are reflected in the Financial Statements for that period. The methods used and the estimates made are reviewed regularly.

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Directors’ emoluments	4,200	4,388	13,748	11,609
Auditors’ remuneration
Audit fees	35,504	29,872	78,277	57,258
Non-audit fees	–	–	766	596
Deposit insurance premium	3,111,665	2,515,002	3,146,594	2,545,766
Professional and legal expenses	158,948	126,562	242,892	187,420
Net revaluation (gain)/loss on lands and buildings	(3,200)	–	(3,200)	(392)
Fixed assets maintenance expenses	3,737,614	4,222,646	3,408,364	4,006,182
Reinsurance premium, claims and other benefits	–	–	291,024	319,715
Office administration and establishment expenses	6,973,430	5,653,923	8,245,501	6,738,662
Total other expenses	14,018,161	12,552,393	15,423,966	13,866,816

18.1 Taxes on financial services

Taxes on financial services includes Value Added Tax (VAT) and Social Security Contribution Levy (SSCL) calculated based on the value addition made on financial services.

	Bank		Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Value added tax	11,031,979	9,027,173	11,155,847	9,339,679
Social security contribution levy	281,313	–	286,658	–
Total taxes on financial services	11,313,292	9,027,173	11,442,505	9,339,679

18.2 Income tax expense

Current tax and deferred tax are recognised in the Statement of Profit or Loss except to the extent that it relates to items recognised directly in equity or in Other Comprehensive Income (OCI).

Current taxation

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The amount of current tax receivable or payable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes if any.

Accordingly, provision for taxation is made on the basis of the accounting profit for the year, as adjusted for taxation purposes, in accordance with the provisions of the Inland Revenue Act, No. 24 of 2017, effective from 1 April 2018, Inland Revenue (Amendment) Act, No. 10 of 2021 and Inland Revenue (Amendment) Act No. 45 of 2022. As required by the Sri Lanka Accounting Standard – LKAS 12 on "Income Taxes", the effective tax rates and reconciliation between the profit before tax and tax expense is given in Note 18.2.2.

Provision for taxation on the overseas operations is made on the basis of the accounting profit for the year, as adjusted for taxation purposes, in accordance with the provisions of the relevant laws and regulations in those countries, using the tax rates enacted or substantively enacted as at the reporting date.

Deferred taxation

Reconciliation of Deferred tax assets and liabilities on temporary differences is given on Note 37.

18.2.1 Components of income tax expense

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Current tax expense
Income tax on current year profit		13,403,667	10,291,645	13,627,737	10,806,382
Adjustments in respect of prior years		146,793	(932,283)	146,793	(1,029,018)
Deferred tax expense
Charge/(reversal) of deferred tax expense	37	(14,546,219)	(4,236,608)	(14,571,046)	(4,293,544)
Adjustment in respect of rate differences of prior years	37	–	476,656	–	469,839
Total income tax expense for the year		(995,759)	5,599,410	(796,516)	5,953,659

18.2.2 Reconciliation of accounting profit and income tax expense

		Bank		Group
For the year ended 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Accounting profit before income tax		30,976,649	43,189,517	31,052,501	44,637,053
Add: Dividend income from subsidiaries and associates		–	–	107,430	394,454
		30,976,649	43,189,517	31,159,931	45,031,507
Add: Disallowable expenses		74,023,401	62,807,607	74,916,711	65,459,476
		105,000,050	105,997,124	106,076,642	110,490,983
Less: Allowable expenses		27,313,674	42,285,920	27,527,907	44,410,960
Less: Tax exempt income		26,607,014	20,583,744	26,607,015	20,770,875
Taxable income		51,079,362	43,127,460	51,941,720	45,309,148
Taxable income at the rate 24% and 30% (2021 – 24%)		50,561,160	42,459,428	51,292,184	44,552,442
Taxable income at the rate 14% and 15% (dividend received) (2021 – 14%)		518,202	668,032	649,536	756,706
Current tax at rate of 24% and 30% (2021 – 24%)		13,314,547	10,190,263	13,519,805	10,692,586
Tax on dividend received at rate of 14% and 15% (2021 – 14%)		75,072	93,525	93,884	105,939
Effect of different tax rates in other countries		14,048	7,857	14,048	7,857
Adjustment in respect of prior years		146,793	(932,283)	146,793	(1,029,018)
Charge/(reversal) of deferred tax	37	(14,546,219)	(4,236,608)	(14,571,046)	(4,293,544)
Adjustment in respect of rate differences of prior years	37	–	476,656	–	469,839
Income tax expense for the year		(995,759)	5,599,410	(796,516)	5,953,659
The effective tax rate (including deferred tax) (%)		(3.2)	13.0	(2.6)	13.3
The effective tax (excluding deferred tax) (%)		43.7	22.8	44.4	23.0

Revision of tax rates

As per the Inland Revenue (Amendment) Act No. 45 of 2022, the corporate income tax rate has been revised from 24% to 30% with effect from 1 October 2022. Accordingly, income tax rate of 30% was applied on the taxable income of the Bank for the second half of the financial year ended 31 December 2022.

18.2.3 The tax liabilities of resident companies are computed at the standard rate of 30% from 1 July 2022 (up to 30 June 2022: 24%, except the following operations of the Bank and subsidiary companies which enjoy full or partial exemptions and concessions)

For the year ended 31 December	2022		2021
	From 1 July 2022 %	Up to 30 June 2022 %	%
Tax rates applicable on local operations
Hotels Colombo (1963) Limited	30.00	14.00	14.00
Ceybank Holiday Homes (Private) Limited	30.00	14.00	14.00

For the year ended 31 December	2022 %	2021 %
Tax rates applicable on foreign operations
Banking operations in Malé	25.00	25.00
Banking operations in Chennai	40.00	40.00
Banking operation in Seychelles
Up to SCR 1,000,000	25.00	25.00
Balance	33.33	33.33
Bank of Ceylon (UK) Limited	19.00	19.00

Note: Investment income of the Hotels Colombo (1963) Limited and Ceybank Holiday Homes (Private) Limited is subject to 24% up to 30 June 2022.

The aggregate of the Group’s share of profit or losses of associates is shown in the Statement of Profit or Loss under the equity method of accounting.

	Group
For the year ended 31 December	2022 LKR ’000	2021 LKR ’000
Ceybank Asset Management Limited	26,394	58,715
Lanka Securities (Private) Limited	70,240	54,105
Transnational Lanka Records Solutions (Private) Limited	26,213	20,857
Total share of profits/(losses) of associate companies, net of tax	122,847	133,677

20.1 Basic earnings per share

In accordance with the Sri Lanka Accounting Standard – LKAS 33 "Earnings Per Share", basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank (the numerator) by the weighted average number of ordinary shares in issue (the denominator) during the year.

		Bank		Group
For the year ended 31 December	Note	2022	2021	2022	2021
Profit attributable to ordinary shareholder of the Bank (LKR ’000)		31,972,408	37,590,107	31,994,638	38,490,392
Weighted average number of ordinary shares in issue	20.1.1	25,000,000	25,000,000	25,000,000	25,000,000
Basic earnings per share (LKR)		1,278.90	1,503.60	1,279.79	1,539.62

20.1.1 Weighted average number of ordinary shares in issue

	Bank		Group
For the year ended 31 December	2022	2021	2022	2021
Number of ordinary shares in issue as at 1 January	25,000,000	25,000,000	25,000,000	25,000,000
Weighted average number of ordinary shares issued during the year	–	–	–	–
Weighted average number of ordinary shares in issue as at 31 December	25,000,000	25,000,000	25,000,000	25,000,000

20.2. Diluted earnings per share

Diluted earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholder of the Bank (the numerator) by the weighted average number of ordinary shares in issue during the year after adjusting for effect of all dilutive potential ordinary shares (the denominator).

	Note	Bank		Group
For the year ended 31 December		2022	2021	2022	2021
Profit attributable to ordinary shareholders of the Bank (LKR ’000)		31,972,408	37,590,107	31,994,638	38,490,392
Weighted average number of ordinary shares after adjusting for dilution	20.2.1	25,134,000	25,000,000	25,134,000	25,000,000
Diluted earnings per share (LKR)		1,272.08	1,503.60	1,272.96	1,539.62

20.2.1 Weighted average number of ordinary shares after adjusting for dilution

	Bank		Group
For the year ended 31 December	2022	2021	2022	2021
Weighted average number of ordinary shares in issue	25,000,000	25,000,000	25,000,000	25,000,000
Weighted average number of potential ordinary shares under pending allotment during the year	134,000	–	134,000	–
Weighted average number of ordinary shares after adjusting for dilution	25,134,000	25,000,000	25,134,000	25,000,000

20.3 Dividend per share

Dividend per share is calculated by dividing the total dividend allocated to shareholder (the numerator) by the weighted average number of ordinary shares in issue (the denominator) during the year.

	Note	Bank		Group
For the year ended 31 December		2022	2021	2022	2021
Total dividend allocated to shareholder during the year (LKR ’000)		346,410	1,846,410	346,410	1,846,410
Weighted average number of ordinary shares in issue	20.1.1	25,000,000	25,000,000	25,000,000	25,000,000
Dividend per share (LKR)		13.86	73.86	13.86	73.86

All financial assets and liabilities are measured under the following headings as per the SLFRS 9 – "Financial Instruments".

21.1 Bank

As at 31 December	2022
	Fair value through profit or loss LKR ’000	Fair value through OCI LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial assets
Cash and cash equivalents	–	–	128,401,532	128,401,532
Balances with central banks	–	–	70,494,529	70,494,529
Placements with banks	–	–	16,459,303	16,459,303
Securities purchased under resale agreements	–	–	1,480,403	1,480,403
Derivative financial instruments	57,155,486	–	–	57,155,486
Loans and advances	–	–	2,325,594,329	2,325,594,329
Debt instruments	7,892,241	3,361,267	1,555,897,307	1,567,150,815
Equity Instruments	2,387,814	5,329,535	–	7,717,349
Total financial assets	67,435,541	8,690,802	4,098,327,403	4,174,453,746

As at 31 December	2022
	Fair value through profit or loss LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial liabilities
Due to banks	–	11,514,897	11,514,897
Securities sold under repurchase agreements	–	180,218,543	180,218,543
Derivative financial instruments	921,033	–	921,033
Financial liabilities at amortised cost
Due to depositors	–	3,334,774,261	3,334,774,261
Other borrowings	–	390,489,543	390,489,543
Subordinated liabilities	–	63,758,191	63,758,191
Total financial liabilities	921,033	3,980,755,435	3,981,676,468

As at 31 December	2021
	Fair value through profit or loss LKR ’000	Fair value through OCI LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial assets
Cash and cash equivalents	–	–	82,647,406	82,647,406
Balances with central banks	–	–	74,121,781	74,121,781
Placements with banks	–	–	4,957,417	4,957,417
Securities purchased under resale agreements	–	–	2,074,474	2,074,474
Derivative financial instruments	4,342,531	–	–	4,342,531
Loans and advances	–	–	2,413,762,291	2,413,762,291
Debt instruments	6,503,801	13,321,766	1,082,179,876	1,102,005,443
Equity Instruments	2,726,221	4,980,790	–	7,707,011
Total financial assets	13,572,553	18,302,556	3,659,743,245	3,691,618,354

As at 31 December	2021
	Fair value through profit or loss LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial liabilities
Due to banks	–	17,936,070	17,936,070
Securities sold under repurchase agreements	–	162,156,413	162,156,413
Derivative financial instruments	380,328	–	380,328
Financial liabilities at amortised cost
Due to depositors	–	2,866,894,010	2,866,894,010
Other borrowings	–	444,107,977	444,107,977
Subordinated liabilities	–	64,358,855	64,358,855
Total financial liabilities	380,328	3,555,453,325	3,555,833,653

21.2 Group

As at 31 December	2022
	Fair value through profit or loss LKR ’000	Fair value through OCI LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial assets
Cash and cash equivalents	–	–	135,230,827	135,230,827
Balances with central banks	–	–	70,494,529	70,494,529
Placements with banks	–	–	17,811,665	17,811,665
Securities purchased under resale agreements	–	–	1,463,368	1,463,368
Derivative financial instruments	57,155,486	–	–	57,155,486
Loans and advances	–	–	2,355,978,333	2,355,978,333
Debt instruments	7,953,955	3,361,267	1,562,373,679	1,573,688,901
Equity Instruments	2,682,235	7,388,777	–	10,071,012
Total financial assets	67,791,676	10,750,044	4,143,352,401	4,221,894,121

As at 31 December	2022
	Fair value through profit or loss LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial liabilities
Due to banks	–	11,547,714	11,547,714
Securities sold under repurchase agreements	–	179,938,744	179,938,744
Derivative financial instruments	921,033	–	921,033
Financial liabilities at amortised cost
Due to depositors	–	3,358,198,424	3,358,198,424
Other borrowings	–	397,083,583	397,083,583
Debt securities issued	–	58,807	58,807
Subordinated liabilities	–	63,498,599	63,498,599
Total financial liabilities	921,033	4,010,325,871	4,011,246,904

As at 31 December	2021
	Fair value through profit or loss LKR ’000	Fair value through OCI LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial assets
Cash and cash equivalents	–	–	82,313,908	82,313,908
Balances with central banks	–	–	74,121,781	74,121,781
Placements with banks	–	–	5,342,369	5,342,369
Securities purchased under resale agreements	–	–	2,976,664	2,976,664
Derivative financial instruments	4,342,531	–	–	4,342,531
Loans and advances	–	–	2,446,330,329	2,446,330,329
Debt instruments	6,663,099	16,680,902	1,082,837,662	1,106,181,663
Equity instruments	2,977,714	6,198,908	–	9,176,622
Total financial assets	13,983,344	22,879,810	3,693,922,713	3,730,785,867

As at 31 December	2021
	Fair value through profit or loss LKR ’000	Amortised cost LKR ’000	Total LKR ’000
Financial liabilities
Due to banks	–	18,646,339	18,646,339
Securities sold under repurchase agreements	–	161,668,335	161,668,335
Derivative financial instruments	380,328	–	380,328
Financial liabilities at amortised cost
Due to depositors	–	2,886,237,094	2,886,237,094
Other borrowings	–	447,875,002	447,875,002
Debt securities issued	–	2,107,182	2,107,182
Subordinated liabilities	–	64,105,970	64,105,970
Total financial liabilities	380,328	3,580,639,922	3,581,020,250

Accounting policy

Cash and cash equivalents include local and foreign currency notes and coins in hand, unrestricted balances held with central banks, balances with other banks and highly liquid financial assets with original maturities of less than seven days, which are subject to insignificant risk of changes in their fair value and are used by the Group to manage its short-term commitments. Cash and cash equivalents are carried at amortised cost. The losses arising from impairment are recognised in "Impairment charge/(reversal) for loans and other losses" (Note 14) in the Statement of Profit or Loss.

		Bank		Group
As at 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Local currency in hand		52,787,832	46,231,509	53,079,306	46,414,486
Foreign currency in hand		4,903,650	1,588,213	4,903,650	1,601,562
Balances with banks		41,947,117	33,081,008	42,335,121	33,642,667
Money at call and short notice		28,787,088	1,758,879	34,936,920	669,007
Gross cash and cash equivalents		128,425,687	82,659,609	135,254,997	82,327,722
Less: Accumulated impairment	22.2	24,155	12,203	24,170	13,814
Net cash and cash equivalents		128,401,532	82,647,406	135,230,827	82,313,908

22.1 Analysis of cash and cash equivalents based on exposure to credit risk

Bank

As at 31 December	2022				2021
	Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000	Total LKR ’000
Balances with banks	41,947,117	–	–	41,947,117	33,081,008
Money at call and short notice	28,787,088	–	–	28,787,088	1,758,879
	70,734,205	–	–	70,734,205	34,839,887
Less: Accumulated impairment	24,155	–	–	24,155	12,203
Net cash equivalents	70,710,050	–	–	70,710,050	34,827,684

Group

As at 31 December	2022				2021
	Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000	Total LKR ’000
Balances with banks	42,335,121	–	–	42,335,121	33,642,667
Money at call and short notice	34,936,920	–	–	34,936,920	669,007
	77,272,041	–	–	77,272,041	34,311,674
Less: Accumulated impairment	24,170	–	–	24,170	13,814
Net cash equivalents	77,247,871	–	–	77,247,871	34,297,860

22.2 Movement in provision for impairment during the year

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in Stage 1 impairment
Balance as at 1 January	12,203	11,268	13,814	12,813
Charge/(write back) to income statement	11,952	935	10,356	1,001
Balance as at 31 December	24,155	12,203	24,170	13,814

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in total impairment
Balance as at 1 January	12,203	11,268	13,814	12,813
Charge/(write back) to income statement	11,952	935	10,356	1,001
Balance as at 31 December	24,155	12,203	24,170	13,814

Accounting policy

Balances with central banks are carried at amortised cost in the Statement of Financial Position.

	Bank		Group
As at 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Statutory balances with central banks
Central Bank of Sri Lanka	63,270,482	68,797,576	63,270,482	68,797,576
Other central banks	7,224,047	5,324,205	7,224,047	5,324,205
Total balances with central banks	70,494,529	74,121,781	70,494,529	74,121,781

23.1 Central Bank of Sri Lanka (CBSL)

In terms of the provisions of Section 93 of the Monetary Law Act No. 58 of 1949, the Bank is required to maintain a cash reserve with Central Bank of Sri Lanka. The minimum cash reserve requirement as of 31 December 2022 was 4.0% (2021 – 4.0%) of Sri Lankan Rupee deposit liabilities. There is no reserve requirement for foreign currency deposit liabilities maintained by domestic branches and the deposit liabilities of the Off-shore Banking Division in Sri Lanka (2021 – Nil).

23.2 Reserve Bank of India (RBI)

In terms of the provisions of Section 42 (1) of the Reserve Bank of India (RBI) Act No. 02 of 1934, the branch in Chennai is required to maintain a cash reserve with RBI. The minimum cash reserve as of 31 December 2022 was 4.5% on its demand and term deposit liabilities. (2021 – 4.0%).

23.3 Maldives Monetary Authority (MMA)

In accordance with the prevailing regulations of Maldives Monetary Authority (MMA), the branch in Maldives is required to maintain a reserve deposit based on 10.0% of the branch's commercial deposits and liabilities to the public in the Maldives in Maldivian Rufiyaa and 10.0% of the branch’s commercial deposits and liabilities to the public in the Maldives in United States Dollar. (2021 – 10.0% for Maldivian Rufiyaa and 5.0% for United States Dollar seperately).

23.4 Central Bank of Seychelles (CBS)

In accordance with the regulations of Central Bank of Seychelles, the branch in Seychelles is required to maintain a reserve deposit based on 13.0% on rupee deposits of the branch's commercial deposits liabilities to the public in Seychelles and 13% for foreign currency deposits of the branch's commercial deposits liabilities to the public in Seychelles (2021– 10.0% for Seychelles Rupee and 13.0% for foreign currency deposits).

Accounting policy

Placements with banks include balances with other banks with original maturities of more than seven days which are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• Those that intends to sell immediately or in the near term and those that the Bank, upon initial recognition, designates as at fair value through profit or loss
• Those that upon initial recognition, designates as fair value through other comprehensive income
• Those for which may not recover substantially all of its initial investment, other than due to credit deterioration

Placement with banks are initially measured at fair value. After initial measurement, they are subsequently measured at amortised cost using the Effective Interest Rate (EIR), less allowance for impairment. Interest income from placement with banks is included in “Interest income” (Note 8.1) in the Statement of Profit or Loss. The losses arising from impairment are recognised in “Impairment charge/(reversal) for loans and other losses” (Note 14) in the Statement of Profit or Loss. Certain placements with banks are written off when they are determined to be uncollectible.

		Bank		Group
As at 31 December	Note	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Within Sri Lanka		680,503	–	784,185	184,016
Outside Sri Lanka		16,098,749	4,957,950	17,347,429	5,160,954
Gross placements with banks		16,779,252	4,957,950	18,131,614	5,344,970
Less: Accumulated impairment	24.2	319,949	533	319,949	2,601
Net placements with banks		16,459,303	4,957,417	17,811,665	5,342,369

24.1 Analysis of placements with banks based on exposure to credit risk

Bank

As at 31 December	2022				2021
	Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000	Total LKR ’000
Within Sri Lanka	680,503	–	–	680,503	–
Outside Sri Lanka	16,098,749	–	–	16,098,749	4,957,950
	16,779,252	–	–	16,779,252	4,957,950
Less: Accumulated impairment	319,949	–	–	319,949	533
Net placements with banks	16,459,303	–	–	16,459,303	4,957,417

Group

As at 31 December	2022				2021
	Stage 1 LKR ’000	Stage 2 LKR ’000	Stage 3 LKR ’000	Total LKR ’000	Total LKR ’000
Within Sri Lanka	784,185	–	–	784,185	184,016
Outside Sri Lanka	17,347,429	–	–	17,347,429	5,160,954
	18,131,614	–	–	18,131,614	5,344,970
Less: Accumulated impairment	319,949	–	–	319,949	2,601
Net placements with banks	17,811,665	–	–	17,811,665	5,342,369

24.2 Movement in provision for impairment during the year

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in Stage 1 impairment
Balance as at 1 January	533	394	2,601	2,395
Charge/(reversal) during the year	319,416	139	317,348	206
Balance as at 31 December	319,949	533	319,949	2,601

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in total impairment
Balance as at 1 January	533	394	2,601	2,395
Charge/(reversal) during the year	319,416	139	317,348	206
Balance as at 31 December	319,949	533	319,949	2,601

Accounting policy

Securities purchased under resale agreements (reverse repos) are purchased with an agreement to sell them at a higher price at a specific future date. The consideration paid and accrued interest (measured by using the EIR) are recorded in the Statement of Financial Position, reflecting the transaction’s economic substance as an advance granted by the Group. The difference between the purchase price and resale price is recognised as "Interest income" (Note 8.1) and is amortised over the life of the agreement.

	Bank		Group
As at 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
With banks	1,480,403	2,074,474	1,463,368	2,938,095
With customers	–	–	–	38,569
Total securities purchased under resale agreements	1,480,403	2,074,474	1,463,368	2,976,664

Accounting policy

Derivatives are financial instruments that derive their value in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, credit risk, indices etc. Derivatives are categorised as trading unless they are designated as hedging instruments. All derivatives are initially recognised and subsequently measured at fair value, with all revaluation gains or losses recognised in the Statement of Profit or Loss under “Net gains/(losses) from trading” (Note 10). Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Fair value is determined using the forward market rates ruling on the reporting date.

	Bank		Group
As at 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Foreign currency derivatives
Forward exchange contracts	3,045	27,558	3,045	27,558
Currency SWAPs	57,152,441	4,314,973	57,152,441	4,314,973
Total derivative financial instruments	57,155,486	4,342,531	57,155,486	4,342,531

Accounting policy

Financial instruments are classified as financial assets measured at fair value through profit or loss if they have been acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short term profit or position taking. Further as per SLFRS 9, “Financial Instruments” financial assets recognised through profit or loss includes all financial assets other than those classified under FVTOCI and amortised cost.

All financial assets under this category are initially and subsequently measured at fair value. Upon initial recognition, transaction cost are directly attributable to the acquisition are recognised in the Statement of Profit or Loss. Interest income is recorded in “Interest income” (Note 8.1) according to the terms of the contract. Dividend are recognised in “Net gains/(losses) from trading” (Note 10). Changes in fair value are recognised in “Net fair value gains/(losses) from financial instruments at fair value through profit or loss” (Note 11).

	Note	Bank		Group
As at 31 December		2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Measured at fair value
Sri Lanka Government securities
Treasury bills		3,408,566	2,308,810	3,408,566	2,308,810
Treasury bonds		459,119	27,656	459,119	131,378
Quoted equities	27.2	2,387,814	2,726,221	2,681,665	2,977,714
Units in unit trusts	27.3	4,024,556	4,167,335	4,086,840	4,222,911
Financial assets recognised through profit or loss		10,280,055	9,230,022	10,636,190	9,640,813

27.1 By currency

	Bank		Group
As at 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Sri Lankan Rupee	10,280,055	9,230,022	10,636,190	9,640,813
Total	10,280,055	9,230,022	10,636,190	9,640,813

27.2 Quoted equities

27.2.1 Sector wise composition of quoted equities

As at 31 December	2022			2021
Sector	Cost of investment LKR ’000	Market value LKR ’000	Sector wise composition of market value %	Cost of investment LKR ’000	Market value LKR ’000	Sector wise composition of market value %
Bank (Note 27.2.2)
Banks	9,902	5,253	0.2	9,739	8,830	0.3
Capital goods	1,551,926	1,085,204	45.4	1,500,551	1,265,377	46.4
Consumer durables and apparel	144,930	87,402	3.7	107,586	107,866	4.0
Consumer services	697,470	312,240	13.1	712,023	337,726	12.4
Diversified financials	107,566	23,524	1.0	108,747	40,345	1.5
Energy	142,739	34,547	1.4	142,739	59,859	2.2
Food and staples retailing	23,200	23,475	1.0	31,733	24,181	0.9
Food, beverage and tobacco	554,882	319,510	13.4	526,183	367,076	13.5
Health care equipment and services	–	–	–	34,751	32,356	1.2
Materials	423,762	225,475	9.4	385,967	297,046	10.9
Real estate	20,981	14,271	0.6	20,981	18,390	0.7
Retailing	160,669	92,487	3.9	150,490	102,192	3.7
Telecommunication services	7,496	14,552	0.6	7,496	8,303	0.3
Transportation	200,963	111,601	4.7	–	–	–
Utilities	62,026	38,273	1.6	41,736	56,674	2.0
Quoted equity Bank	4,108,512	2,387,814	100.0	3,780,722	2,726,221	100.0
Group (Note 27.2.3)
Banks	9,902	5,253	0.2	72,446	45,541	1.5
Capital goods	1,681,285	1,153,085	43.0	1,542,631	1,301,427	43.7
Commercial and professional services	693	512	0.0	–	–	–
Consumer durables and apparel	154,544	92,873	3.5	132,305	132,075	4.4
Consumer services	767,267	365,083	13.6	771,351	392,630	13.2
Diversified financials	185,302	61,155	2.3	146,921	67,397	2.3
Energy	144,615	35,633	1.3	144,470	61,566	2.1
Food and staples retailing	24,562	24,458	0.9	31,733	24,181	0.8
Food, beverage and tobacco	621,800	361,749	13.5	563,717	389,400	13.1
Health care equipment and services	669	526	0.0	35,651	33,256	1.1
Insurance	10,683	11,232	0.4	2,683	2,533	0.1
Materials	472,128	252,995	9.4	408,081	315,088	10.6
Real estate	40,412	24,700	0.9	32,937	30,040	1
Retailing	166,860	96,396	3.6	153,503	105,117	3.5
Software and services	1,277	1,020	0.0	–	–	–
Telecommunication services	7,496	14,552	0.5	7,896	8,691	0.3
Transportation	217,454	123,536	4.6	–	–	–
Utilities	85,618	56,907	2.1	47,800	68,772	2.3
Quoted equity Group	4,592,567	2,681,665	100.0	4,094,125	2,977,714	100.0

27.2.2 Quoted equities – Bank

	Bank
As at 31 December	2022				2021
	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000
Banks
Hatton National Bank PLC	66,584	9,902	78.90	5,253	65,406	9,739	135.00	8,830
Total of bank sector		9,902		5,253		9,739		8,830
Capital goods
Access Engineering PLC	2,376,286	74,164	10.70	25,426	926,286	25,024	31.90	29,549
Aitken Spence PLC	2,050,067	202,690	128.00	262,409	2,596,230	256,689	82.40	213,929
Brown & Company PLC	234,241	38,480	118.00	27,640	284,241	46,694	369.50	105,027
Colombo Dockyard PLC	897,625	201,955	59.00	52,960	897,625	201,955	79.40	71,271
Hayleys PLC	250,000	25,956	68.00	17,000	400,000	41,530	130.00	52,000
Hemas Holdings	1,127,296	99,068	56.40	63,579	1,127,296	99,068	66.90	75,416
John Keells Holdings PLC	4,088,677	683,389	135.25	552,994	3,988,677	668,099	150.00	598,302
Lankem Ceylon PLC	72,400	32,702	91.20	6,603	72,400	32,702	47.80	3,461
Renuka Holdings PLC	1,255,887	40,123	13.80	17,331	1,211,821	39,639	19.40	23,509
Royal Ceramics Lanka PLC	850,000	64,218	28.30	24,055	250,000	19,475	78.10	19,525
The Colombo Fort Land & Building PLC	149,500	10,307	28.30	4,231	149,500	10,307	25.40	3,797
UNISYST Engineering PLC	1,673,758	27,116	5.70	9,540	1,315,380	19,777	21.90	28,807
Vallibel One PLC	712,143	51,758	30.10	21,436	561,758	39,592	72.60	40,784
Total of capital goods sector		1,551,926		1,085,204		1,500,551		1,265,377
Consumer durables and apparel
Ambeon Holdings PLC	385,000	23,273	35.30	13,591	385,000	23,273	48.90	18,827
Hayleys Fabric PLC	1,259,527	49,543	22.60	28,465	1,390,612	54,698	41.20	57,293
Hela Apparel Holdings PLC	548,400	8,226	8.50	4,661	–	–	–	–
Regnis Lanka PLC	300,000	25,500	42.10	12,630	–	–	–	–
Teejay Lanka PLC	885,000	38,388	31.70	28,055	715,000	29,615	44.40	31,746
Total of consumer durables and apparel sector		144,930		87,402		107,586		107,866
Consumer Services
Aitken Spence Hotel Holdings PLC	2,547,424	232,670	50.80	129,409	2,547,424	232,670	42.30	107,756
Asian Hotels and Properties PLC	2,367,741	225,788	37.40	88,554	2,367,741	225,788	44.10	104,417
Citrus Leisure PLC	100,000	10,112	6.00	600	100,000	10,112	8.90	890
Eden Hotel Lanka PLC	775,550	41,864	17.60	13,650	775,550	41,864	33.30	25,826
Hayleys Leisure PLC	1,186,240	53,020	21.10	25,030	1,186,240	53,020	22.50	26,690
John Keells Hotels PLC	–	–	–	–	893,487	14,553	14.70	13,134
Tal Lanka Hotels PLC	447,400	30,043	16.40	7,337	447,400	30,043	22.10	9,888
Tangerine Beach Hotels PLC	50,000	5,056	59.10	2,955	50,000	5,056	66.00	3,300
The Fortress Resorts PLC	1,461,100	50,510	15.90	23,231	1,461,100	50,510	13.40	19,579
Trans Asia Hotels PLC	477,200	48,407	45.00	21,474	477,200	48,407	55.00	26,246
Total of consumer services sector		697,470		312,240		712,023		337,726

	Bank
As at 31 December	2022				2021
	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000
Diversified financials
Ceylon Guardian Investment Trust PLC	107,248	32,506	62.80	6,735	107,847	32,747	104.00	11,216
Ceylon Investment PLC	538,124	75,060	31.20	16,789	543,451	76,000	53.60	29,129
Total of diversified financials sector		107,566		23,524		108,747		40,345
Energy
Laugfs Gas PLC - Non-voting	3,420,538	142,739	10.10	34,547	3,420,538	142,739	17.50	59,859
Total of Energy Sector		142,739		34,547		142,739		59,859
Food and Staples Retailing
Cargills (Ceylon) PLC	100,000	23,200	234.75	23,475	100,000	23,200	215.25	21,525
Ceylon and Foreign Trades PLC	–	–	–	–	830,100	8,533	3.20	2,656
Total of food and staples retailing sector		23,200		23,475		31,733		24,181
Food, beverage and tobacco
Agalawatte Plantations PLC	–	–	–	–	700,113	35,169	53.70	37,596
Bukit Darah PLC	119,257	83,965	291.75	34,793	119,257	83,965	402.50	48,001
Carson Cumberbatch PLC	313,352	141,328	269.75	84,527	313,352	141,328	307.00	96,199
Ceylon Tobacco Company PLC	143,175	137,098	625.00	89,484	143,175	137,098	878.00	125,708
Horana Plantations PLC	465,700	39,720	61.90	28,827	465,700	39,720	30.10	14,018
Kahawatte Plantations PLC	371,164	15,013	24.50	9,094	708,674	28,666	27.60	19,559
Kotagala Plantations PLC	729,997	34,709	7.70	5,621	729,997	34,709	7.70	5,621
Lucky Lanka Milk Processing PLC – Non-voting	91,900	276	0.80	74	91,900	276	0.80	74
Lucky Lanka Milk Processing PLC – Voting	1,000,000	6,000	1.10	1,100	1,000,000	6,000	1.10	1,100
Melstacorp PLC	713,504	41,825	46.20	32,964	342,238	19,252	56.10	19,200
Sunshine Holdings PLC	949,010	54,948	34.80	33,026	–	–	–	–
Total of food, beverage and tobacco sector		554,882		319,510		526,183		367,076
Health care equipment and services
Asiri Hospital Holdings PLC	–	–	–	–	300,000	9,742	32.50	9,750
The Lanka Hospital Corporation PLC	–	–	–	–	411,773	25,009	54.90	22,606
Total of health care equipment and services sector		–		–		34,751		32,356
Materials
ACL Plastics	–	–	–	–	5,146	2,431	570.75	2,937
Alumex PLC	2,254,360	34,864	7.20	16,231	–	–	–	–
Chemanex PLC	118,179	18,563	72.00	8,509	101,263	16,618	77.30	7,828
Chevron Lubricants Lanka PLC	1,272,121	161,138	96.50	122,760	1,272,121	161,138	113.00	143,750
CIC Holdings PLC – Voting	–	–	–	–	300,000	12,094	65.00	19,500
Dipped Products PLC	676,913	39,302	29.10	19,698	676,913	39,302	50.70	34,319
Lanka Cement PLC	7,265,828	63,576	2.50	18,165	7,265,828	63,576	2.50	18,165
Swisstek (Ceylon) PLC	567,798	26,441	15.70	8,914	237,175	10,930	46.00	10,910
Tokyo Cement Co Ltd.	1,199,941	79,878	26.00	31,198	1,199,941	79,878	49.70	59,637
Total of materials sector		423,762		225,475		385,967		297,046
Real estate
Overseas Realty (Ceylon) PLC	957,794	20,981	14.90	14,271	957,794	20,981	19.20	18,390
Total of real estate sector		20,981		14,271		20,981		18,390
Retailing
Diesel and Motor Engineering PLC	61,054	63,661	599.00	36,571	81,054	84,515	618.00	50,091
Hunters & Company PLC	17,989	14,552	707.00	12,718	18,000	14,561	650.00	11,700
John Keells PLC	250,200	22,758	65.10	16,288	250,200	22,758	71.90	17,989
Odel PLC	222,295	9,325	17.30	3,846	222,295	9,325	25.20	5,602
R I L Property PLC	2,478,566	34,176	5.70	14,128	–	–	–	–
Sathosa Motors PLC	13,194	5,111	130.25	1,719	13,194	5,111	201.50	2,659
United Motors Lanka PLC	118,500	11,086	60.90	7,217	152,000	14,220	93.10	14,151
Total of retailing sector		160,669		92,487		150,490		102,192
Telecommunication services
Sri Lanka Telecom PLC	214,000	7,496	68.00	14,552	214,000	7,496	38.80	8,303
Total of telecommunication services sector		7,496		14,552		7,496		8,303
Transportation
Expolanka Holdings PLC	612,352	200,963	182.25	111,601	–	–	–	–
Total of transportation sector		200,963		111,601
Utilities
Laugfs Power PLC – Non-voting	1,297,831	–	6.80	8,825	1,297,831	–	8.50	11,032
Panasian Power PLC	1,029,200	6,402	3.40	3,499	1,029,200	6,402	5.50	5,661
Resus Energy PLC	1,066,031	37,729	11.80	12,579	977,527	35,334	40.90	39,981
Windforce PLC	897,300	17,895	14.90	13,370	–	–	–	–
Total of utilities sector		62,026		38,273		41,736		56,674
Total quoted equities		4,108,512		2,387,814		3,780,722		2,726,221

27.2.3 Quoted equities – Group

	Group
As at 31 December	2022				2021
	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000
Banks
Hatton National Bank PLC – Voting	66,584	9,902	78.90	5,253	65,406	9,739	135.00	8,830
National Development Bank PLC	–	–	–	–	20,000	3,504	68.90	1,378
Nations Trust Bank PLC	–	–	–	–	209,949	19,546	55.00	11,547
Sanasa Development Bank PLC	–	–	–	–	98,770	9,029	43.00	4,247
Seylan Bank PLC – Non-voting	–	–	–	–	205	8	33.30	7
Seylan Bank PLC – Voting	–	–	–	–	443,912	30,620	44.00	19,532
Total of banks sector		9,902		5,253		72,446		45,541
Capital goods
Access Engineering PLC	2,851,278	90,552	10.70	30,509	951,286	25,887	31.90	30,346
ACL Cables PLC	54,000	4,980	70.10	3,785	–	–	–	–
Aitken Spence PLC	2,050,067	202,690	128.00	262,409	2,596,230	256,689	82.40	213,929
Brown and Company PLC	331,079	67,958	118.00	39,067	284,241	46,694	369.50	105,027
Central Industries PLC	10,000	949	58.00	580	–	–	–	–
Colombo Dockyard PLC	947,625	206,451	59.00	55,910	897,625	201,955	79.40	71,271
E B Creasy & Company PLC	5,000	285	20.60	103	5,000	285	26.50	133
Hayleys PLC	324,275	33,113	68.00	22,051	400,000	41,530	130.00	52,000
Hemas Holdings PLC	1,212,811	106,862	56.40	68,403	1,177,296	104,246	66.90	78,761
John Keells Holdings PLC	4,152,544	693,008	135.25	561,632	4,095,048	684,131	150.00	614,257
Kelani Cables PLC	250	110	259.76	65	–	–	–	–
Lanka Tiles PLC	7,500	734	46.10	346	–	–	–	–
Lankem Ceylon PLC	72,400	32,702	91.20	6,603	72,400	32,702	47.80	3,461
Mackwoods Energy PLC	1,200,000	3,848	2.50	3,000	1,200,000	3,848	2.90	3,480
MTD Walkers PLC	165,000	6,751	–	–	165,000	6,751	14.80	2,442
Renuka Holdings PLC	2,077,204	55,101	13.80	28,665	1,288,306	41,135	19.40	24,993
Renuka Holdings PLC – Non-voting	156	2	12.80	2	–	–	–	–
Richard Pieris & Company PLC	60,000	1,609	24.10	1,446	–	–	–	–
Royal Ceramics Lanka PLC	1,032,000	74,742	28.30	29,206	250,000	19,475	78.10	19,525
Serendib Engineering	–	–	–	–	164,900	1,136	7.00	1,154
The Colombo Fort Land & Building PLC	149,500	10,307	28.30	4,231	149,500	10,307	25.40	3,797
Unisyst Engineering PLC	1,673,758	27,116	5.70	9,540	1,315,380	19,777	21.90	28,807
Vallibel One PLC	848,223	61,415	30.10	25,532	661,758	46,083	72.60	48,044
Total of capital goods sector		1,681,285		1,153,085		1,542,631		1,301,427

	Group
As at 31 December	2022				2021
	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000
Consumer durables and apparel
Ambeon Capital	80,000	1,004	9.90	792	–	–	–	–
Ambeon Holdings PLC	385,000	23,273	35.30	13,591	385,000	23,273	48.90	18,827
Blue Diamonds Jewellery Worldwide PLC – Non-voting	5,250,000	3,125	0.30	1,575	250,000	125	0.50	125
Dankotuwa Porcelain PLC	–	–	–	–	1,000,000	15,395	14.60	14,600
Hayleys Fabric PLC	1,359,527	53,472	22.60	30,725	1,390,612	54,698	41.20	57,293
Hayleys Fibre PLC	–	–	–	–	34,741	2,768	81.30	2,824
Hela Apparel Holdings PLC	641,354	9,708	8.50	5,452	–	–	–	–
Regnis Lanka PLC	300,000	25,500	42.10	12,630	–	–	–	–
Singer Industry	1,486	74	35.90	53	–	–	–	–
Teejay Lanka PLC	885,000	38,388	31.70	28,055	865,000	36,046	44.40	38,406
Total of consumer durables and apparel sector		154,544		92,873		132,305		132,075
Commercial and professional services
E M L Consultants PLC	131,352	693	3.90	512	–	–	–	–
Total of commercial and professional services		693		512		–		–
Consumer services
Aitken Spence Hotel Holdings PLC	2,547,424	232,670	50.80	129,409	2,547,424	232,670	42.30	107,756
Anilana Hotels & Properties PLC	750,000	1,106	0.90	675	1,000,000	1,475	1.40	1,400
Asian Hotels and Properties PLC	2,367,741	225,788	37.40	88,554	2,367,741	225,788	44.10	104,417
Beruwala Resorts PLC	250,000	350	1.20	300	–	–	–	–
Browns Beach Hotel PLC	10,000	135	12.70	127	–	–	–	–
Citrus Leisure PLC	251,086	11,310	6.00	1,507	136,296	10,502	8.90	1,213
Dolphin Hotels PLC	–	–	–	–	15,000	630	37.20	558
Eden Hotel Lanka PLC	903,293	45,541	17.60	15,898	903,293	45,541	33.30	30,080
Galadari Hotels (Lanka) PLC	50,000	724	12.50	625	–	–	–	–
Hayleys Leisure PLC	1,254,106	54,708	21.10	26,462	1,229,106	54,113	22.50	27,655
Hikkaduwa Beach Resort PLC	194,353	1,252	5.00	972	–	–	–	–
John Keells Hotels PLC	–	–	–	–	893,487	14,553	14.70	13,134
Palm Garden Hotels PLC	35,000	2,341	55.30	1,936	28,000	2,052	121.50	3,402
Tal Lanka Hotels PLC	447,400	30,043	16.40	7,337	447,400	30,043	22.10	9,888
Tangerine Beach Hotels PLC	52,500	5,256	59.10	3,103	52,500	5,256	66.00	3,465
The Fortress Resorts PLC	1,461,100	50,510	15.90	23,231	1,461,100	50,510	13.40	19,579
The Kandy Hotels Company (1938) PLC	215,006	1,972	7.20	1,548	175,000	1,617	8.40	1,470
The Kingsbury PLC	3,875,454	41,834	8.50	32,941	3,875,454	41,834	9.50	36,817
The Lighthouse Hotel PLC	124,467	4,704	30.00	3,734	–	–	–	–
Trans Asia Hotels PLC	477,200	48,407	45.00	21,474	477,200	48,407	55.00	26,246
Waskaduwa Beach Resort PLC	2,100,000	8,616	2.50	5,250	1,500,000	6,340	3.70	5,550
Total of consumer services sector		767,267		365,083		771,351		392,630
Diversified financials
Asia Asset Finance PLC	399,999	4,056	7.70	3,080	399,999	4,252	8.40	3,360
Asiya Siyaka PLC	–	–	–	–	750,000	2,528	3.20	2,400
Associated Motor Finance Company PLC	50,000	643	8.10	405	–	–	–	–
Capital Alliance PLC	30,000	669	19.90	597	–	–	–	–
Central Finance Company PLC	73,205	8,172	62.50	4,575	48,205	5,722	93.00	4,483
Ceylon Guardian Investment Trust PLC	107,248	32,506	62.80	6,735	107,847	32,747	104.00	11,216
Ceylon Investment PLC	603,169	81,740	31.20	18,819	610,425	82,411	53.60	32,719
Commercial Leasing & Finance PLC	–	–	–	–	59,835	2,323	29.90	1,789
First Capital Holdings PLC	10,000	260	22.90	229	–	–	–	–
Galle Face Capital Partners PLC	32,500	1,026	16.10	523	–	–	–	–
Guardian Capital Parteners PLC	18,472	1,006	16.10	297	18,472	1,006	34.20	632
HNB Finance PLC-Non Voting	25,000	259	4.20	105	25,000	259	9.60	240
Lanka Credit & Business Finance PLC	836,561	3,408	2.30	1,924	500,000	2,260	3.90	1,950
LB Finance PLC	25,000	1,867	40.00	1,000	–	–	–	–
LOLC Development Finance PLC	–	–	–	–	2,000	960	325.25	651
LOLC Finance PLC	898,277	16,758	8.20	7,366	200,000	5,168	20.00	4,000
LOLC Holdings PLC	25,346	20,293	398.00	10,088	–	–	–	–
Orient Finance PLC	–	–	–	–	30,000	378	16.00	480
People's Leasing & Finance PLC	477,768	5,186	5.00	2,389	211,538	3,000	10.70	2,263
People's Merchant Finance PLC	–	–	–	–	50,000	375	6.80	340
Shaw Wallace Investments PLC	20,213	238	7.10	144	–	–	–	–
SMB Finance PLC – Non-voting	5,000,000	3,000	0.30	1,500	–	–	–	–
Softlogic Finance PLC	122,056	4,215	11.30	1,379	67,215	3,532	13.00	874
Total of diversified financials sector		185,302		61,155		146,921		67,397
Energy
Laugfs Gas PLC – Non-voting	3,528,038	144,615	10.10	35,633	3,518,038	144,470	17.50	61,566
Total of energy sector		144,615		35,633		144,470		61,566
Food and staples retailing
Cargills (Ceylon) PLC	100,000	23,200	234.75	23,475	100,000	23,200	215.25	21,525
Ceylon and Foreign Trades PLC	–	–	–	–	830,100	8,533	3.20	2,656
Tess Agro PLC	733,224	1,048	1.10	807	–	–	–	–
Tess Agro PLC – Non-voting	220,353	314	0.80	176	–	–	–	–
Total of food and staples retailing sector		24,562		24,458		31,733		24,181

	Group
As at 31 December	2022				2021
	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000	Number of ordinary shares	Cost of investment LKR ’000	Market price per share LKR	Market value LKR ’000
Food, beverage and tobacco
Agalawatte Plantations PLC	147,500	7,895	31.90	4,705	700,113	35,169	53.70	37,596
Browns Investments PLC	2,440,262	29,811	7.00	17,082	–	–	–	–
Bukit Darah PLC	119,257	83,965	291.75	34,793	119,257	83,965	402.50	48,001
Carson Cumberbatch PLC	313,352	141,328	269.75	84,527	313,352	141,328	307.00	96,199
Ceylon Cold Stores PLC	187,000	12,200	36.90	6,900	17,500	11,653	530.00	9,275
Ceylon Tobacco Company PLC	143,175	137,098	625.00	89,484	143,175	137,098	878.00	125,708
Distilleries Company of Sri Lanka PLC	75,000	1,512	13.20	990	75,000	1,512	17.00	1,275
Elpitiya Plantations PLC	3,830	396	86.00	329	–	–	–	–
Horana Plantations PLC	465,700	39,720	61.90	28,827	465,700	39,720	30.10	14,018
HVA Foods PLC	160,000	1,342	3.70	592	150,000	1,302	6.70	1,005
Kahawatte Plantations PLC	371,164	15,013	24.50	9,094	708,674	28,666	27.60	19,559
Kotagala Plantations PLC	764,997	35,014	7.70	5,890	729,997	34,709	7.70	5,621
Kotmale Holdings PLC	2,296	952	386.25	887	633	253	444.25	281
Lucky Lanka Milk Processing PLC – Non-voting	91,900	276	0.80	74	91,900	276	0.80	74
Lucky Lanka Milk Processing PLC – Voting	1,000,000	6,000	1.10	1,100	3,514,546	20,958	1.10	3,866
Malwatte Valley Plantations PLC – Voting	–	–	–	–	25,000	700	28.00	700
Melstacorp PLC	893,504	51,679	46.20	41,280	467,238	26,402	56.10	26,212
Renuka Agri Foods PLC	210,000	1,436	5.60	1,176	–	–	–	–
Raigam Wayamba Salterns PLC	50,000	391	5.80	290	–	–	–	–
Sunshine Holdings PLC	969,221	55,772	34.80	33,729	211	6	45.40	10
Total of food, beverage and tobacco sector		621,800		361,749		563,717		389,400
Healthcare equipment and services
Asiri Hospital Holdings PLC	5,000	210	25.70	129	300,000	9,742	32.50	9,750
Asiri Surgical Hospital PLC	25,000	387	13.00	325	–	–	–	–
Nawaloka Hospitals PLC	10,000	72	7.20	72	–	–	–	–
Singhe Hospital PLC	–	–	–	–	300,000	900	3.00	900
The Lanka Hospital Corporation PLC	–	–	–	–	411,773	25,009	54.90	22,606
Total of health care equipment and services sector		669		526		35,651		33,256
Insurance
Arpico Insurance PLC	10,000	300	22.70	227	–	–	–	–
Janashakthi Insurance Company PLC	14,634	480	31.70	464	82,500	2,683	30.70	2,533
Softlogic Capital PLC	1,035,000	9,843	10.10	10,454	–	–	–	–
Softlogic Life Insurance PLC	1,000	60	86.60	87	–	–	–	–
Total of insurance sector		10,683		11,232		2,683		2,533
Materials
ACL Plastics	–	–	–	–	5,146	2,431	570.75	2,937
Alumex PLC	2,914,070	42,790	7.20	20,981	–	–	–	–
Bogala Graphite Lanka PLC	39,002	3,099	45.80	1,786	–	–	–	–
Chemanex PLC	118,179	18,563	72.00	8,509	101,263	16,618	77.30	7,828
Chevron Lubricants Lanka PLC	1,341,521	168,708	96.50	129,457	1,272,121	161,138	113.00	143,750
CIC Holdings PLC – Voting	–	–	–	–	300,000	12,094	65.00	19,500
CIC Holdings PLC – Non-voting	5,000	368	55.60	278	–	–	–	–
Dipped Products PLC	841,913	49,954	29.10	24,500	826,913	49,477	50.70	41,924
Ex-Pack Corrugated Cartons PLC	47,500	752	13.10	622	–	–	–	–
Haycarb PLC	57,500	5,503	57.60	3,312	55,000	5,333	76.80	4,224
Industrial Asphalts (Ceylon) PLC	500,000	200	0.30	150	–	–	–	–
JAT Holdings PLC	25,000	574	12.40	310	–	–	–	–
Lanka Cement PLC	7,265,828	63,576	2.50	18,165	7,265,828	63,576	2.50	18,165
Pelwatte Sugar Industries PLC	68,400	2,925	–	–	–	–	–	–
Swisstek (Ceylon) PLC	567,798	26,441	15.70	8,914	237,175	10,930	46.00	10,910
Tokyo Cement Co Ltd	1,285,043	83,390	26.00	33,411	1,324,941	86,484	49.70	65,850
Tokyo Cement Company (Lanka) PLC – Non-voting	100,000	5,285	26.00	2,600	–	–	–	–
Total of materials sector		472,128		252,995		408,081		315,088
Real estate
City Housing and Real Estate Co. PLC	–	–	–	–	38,435	190	3.60	138
Colombo Land and Development Company PLC	77,639	2,756	15.70	1,219	77,639	2,756	34.40	2,671
East West Properties PLC	500,000	6,014	8.00	4,000	350,000	4,243	10.40	3,640
Lanka Realty Investments PLC	245,000	5,881	10.10	2,475	–	–	–	–
Millennium Housing Developers PLC	–	–	–	–	500,000	2,660	6.20	3,100
Overseas Realty (Ceylon) PLC	996,735	21,577	14.90	14,851	1,007,794	22,031	19.20	19,350
Prime Lands Residencies PLC	150,000	1,995	6.50	975	–	–	–	–
Property Development PLC	–	–	–	–	8,547	1,057	133.50	1,141
Seylan Developments PLC	100,000	2,189	11.80	1,180	–	–	–	–
Total of real estate sector		40,412		24,700		32,937		30,040
Retailing
Ceylon Tea Brokers PLC	35,000	176	4.20	147	–	–	–	–
Diesel and Motor Engineering PLC	61,054	63,661	599.00	36,571	81,054	84,515	618.00	50,091
Eastern Merchants PLC	–	–	–	–	325,000	3,013	9.00	2,925
Hunters and Company PLC	17,989	14,552	707.00	12,718	18,000	14,561	650.00	11,700
John Keells PLC	276,198	24,687	65.10	17,980	250,200	22,758	71.90	17,989
Odel PLC	222,295	9,325	17.30	3,846	222,295	9,325	25.20	5,602
R I L Property PLC	2,818,566	37,987	5.70	16,066	–	–	–	–
Singer (Sri Lanka) PLC	15,751	275	8.40	132	–	–	–	–
Sathosa Motors PLC	13,194	5,111	130.25	1,719	13,194	5,111	201.50	2,659
United Motors Lanka PLC	118,500	11,086	60.90	7,217	152,000	14,220	93.10	14,151
Total of retailing sector		166,860		96,396		153,503		105,117
Software and Services
hSenid Business Solutions PLC	60,000	1,277	17.00	1,020	–	–	–	–
Application software		1,277		1,020		–		–
Telecommunication services
Sri Lanka Telecom PLC	214,000	7,496	68.00	14,552	224,000	7,896	38.80	8,691
Total of telecommunication services sector		7,496		14,552		7,896		8,691
Transportation
Expolanka Holdings PLC	677,839	217,454	182.25	123,536	–	–	–	–
Total of transportation sector		217,454		123,536		–		–
Utilities
Laugfs Power PLC – Non-voting	1,375,680	714	6.80	9,355	1,397,831	917	8.50	11,882
Panasian Power PLC	1,279,200	7,661	3.40	4,349	1,179,200	7,272	5.50	6,486
Resus Energy PLC	1,321,031	41,136	11.80	15,588	1,211,334	38,741	40.90	49,544
Vallibel Power Erathna PLC	750,000	5,205	6.30	4,725	100,000	870	8.60	860
Vidullanka PLC	1,450,000	11,885	6.10	8,845	–	–	–	–
Vidullanka PLC – Non-voting	150,000	1,121	4.50	675	–	–	–	–
Windforce PLC	897,300	17,895	14.90	13,370	–	–	–	–
Total of utilities sector		85,618		56,907		47,800		68,772
Total quoted equities		4,592,567		2,681,665		4,094,125		2,977,714

27.3 Units in unit trusts

As at 31 December	2022			2021
	Number of units	Cost of investment LKR ’000	Market value LKR ’000	Number of units	Cost of investment LKR ’000	Market value LKR ’000
Bank
Ceybank Unit Trust	111,307,627	1,738,215	3,432,727	111,307,627	1,738,215	3,466,120
Ceybank Century Growth Fund	7,539,256	132,952	591,756	7,539,256	132,952	701,151
Ceybank Surekum Gilt Edged Fund	4,921	50	73	4,921	50	64
Total units in unit trusts		1,871,217	4,024,556		1,871,217	4,167,335
Group
Ceybank Unit Trust	111,307,627	1,738,215	3,432,727	111,307,627	1,738,215	3,466,120
Ceybank Century Growth Fund	7,539,256	132,952	591,756	7,539,256	132,952	701,151
Ceybank Surekum Gilt Edged Fund	4,921	50	73	4,921	50	64
Comtrust Money Market Fund	313,271	–	4,186	289,530	2,777	3,597
First Capital Asset Management Limited	8,179	–	8,736	29,387	40,778	51,979
First Capital Money Market Fund	21,207	–	49,362
Total units in unit trusts		1,871,217	4,086,840		1,914,772	4,222,911

Accounting policy

Loans and advances include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• Those that the Bank intends to sell immediately or in the near term and those that the Bank, upon initial recognition, designates as at fair value through profit or loss
• Those that the Bank, upon initial recognition, designates as fair value through OCI
• Those for which the Bank may not recover substantially all of its initial investment, other than due to credit deterioration

“Loans and advances” are initially measured at fair value and subsequently measured at amortised cost using the Effective Interest Rate (EIR), less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in “Interest income” (Note 8.1) in the Statement of Profit or Loss. The losses arising from impairment are recognised in "Impairment charge/(reversal) for loans and other losses" (Note 14) in the Statement of Profit or Loss.

Write-off of loans and receivables

Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised. If a write-off is later recovered, the recovery is recognised in the “Net other operating income” (Note 13).

Collateral valuation

The Group seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, gold, securities, letters of credit/guarantees, real estate, inventories, other non-financial assets and credit enhancements such as netting arrangements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the guidelines issued by Central Bank of Sri Lanka, there on.

Non-financial collaterals, including immovable and movables, are valued based on data provided by the independent professional valuers and Audited Financial Statements.

Collaterals repossessed

The Group’s policy is to dispose of repossessed properties through parate execution or fiscal conveys (Foreclosed properties) in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed properties for business use.

Renegotiated loans (Restructured or rescheduled)

Where possible, the Group seeks to renegotiate loans rather than take possession of collateral. This may involve extending the payment arrangements and agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms. The management continously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR. Further the Bank may consider modifications for original terms and conditions to retain customer, support customer or/and expansions.

Expected credit loss (ECL)

The Bank's impairment provisioning method has fundamentaly changed due to the adoption of SLFRS 9 by replacing LKAS 39 – “Financial Instruments Recognition and Measurement” incurred loss approach with forward looking expected loss approach as mentioned in Note 4.4.11 to this Financial Statements. Accordingly, the Bank has recorded an expected credit loss allowance for all loans and other debt financial assets except which are held at FVPL, together with loan commitments and financial guarantee contracts which are commonly referred to as "financial instruments".

The ECL allowance is based on the credit losses expected to arise over the life of the asset, the Lifetime Expected Credit Loss (LTECL) as outlined in Notes 4.4.11.2 and 4.4.11.3, if there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit loss (12mECL) as outlined in Note 4.4.11.1 to the Financial Statements. The Bank’s policies for determining whether there has been a significant increase in credit risk are set out in this Note.

Both LTECLs and 12mECLs are calculated either on an individual basis or on collective basis, depending on the nature and size of the underlying portfolio of financial instruments. The Bank’s policy for grouping financial instruments measured on a collective basis is explained in Note 4.4.11.5.

The Bank has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Based on the above process, the Bank grouped its loans into Stage 1, Stage 2 and Stage 3 as described in Note 4.4.11.1 to 4.4.11.3 to this Financial Statements.

For financial assets in respect of which the Bank has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is reduced.

The componenets of the ECL calculation is outlined under Note 4.4.11.4 to this Financial Statements and when estimating the ECLs, the Bank considers three economic scenarios (base case, best case and worst case). Each of these scenarios are associated with different loss rates.

For all products the Bank considers the maximum period over which the credit losses are determined is the contractual life of a financial instrument.

Impairment losses and reversals are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.

The methodology used for calculation of the ECL are summarised below:

Stage	Classification criteria		ECL measurement
Stage 1	Includes financial assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. For these financial assets, 12mECLs are recognised i.e. the expected credit losses which result from default events that are possible within 12 months after the reporting date. It is not the expected cash shortfalls over the 12-month period but the entire credit loss on an asset weighted by the probability that the loss will occur in the next 12 months.		12 months’ expected credit loss ECL12 = EAD X PD12 m X LGDT X EFA12m (1 + EIR)n
Stage 2	Includes financial assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment. For these assets, LTECLs are recognised. LTECLs are the expected credit losses that result from all possible default events over the remaining maturity period of the loan from the reporting date. Expected credit losses are the weighted average credit losses with the probability of default (“PD”) as the weight.		Life time expected credit loss ECLLT = ∑t EADLT X PDLT X LGDT X EFAn + … + EADLT + PD(LT-t) X LGDT X EFAn (1 + EIR) (1 + EIR)n
Stage 3	Includes financial assets that have objective evidence of impairment at the reporting date which shows a significant credit risk. Lifetime ECLs are recognised based on the 100% probability.		Life time expected credit loss with probability of default at 100%. ECLLT = EADT X 100% X LGDT

Loan commitments

When estimating ECLs for undrawn loan commitments, the Bank estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down, based on a probability-weighting of the three scenarios. The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan. For credit cards and revolving facilities, that include both a loan and an undrawn commitment, ECLs are calculated and presented together with the loan and loan commitments.

Financial guarantee contracts

The Bank's liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the statement of profit or loss, and the ECL provision. For this purpose, the Bank estimates ECLs based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs. The shortfalls are discounted by the risk adjusted interest rate relevant to the exposure. The calculation is made using a probability-weighting of the three scenarios.

Revolving facilities

The Bank’s product offering includes a variety of corporate and retail facilities, in which the Bank has the right to cancel and/or reduce the facilities with one day’s notice (eg: Overdraft and Credit Card). The Bank does not limit its exposure to credit losses to the contractual notice period, but, instead calculates ECL over a period that reflects the Bank’s expectations of the customer behaviour, its likelihood of default and the Bank’s future risk mitigation procedures, which could include reducing or cancelling the facilities.

The ongoing assessment of whether a significant increase in credit risk has occurred for revolving facilities is similar to other lending products. This is based on shifts in the customer’s delinquency.

The calculation of ECLs, including the estimation of the expected period of exposure and discount rate is made on an individual basis for individually significant loans and on a collective basis for other loans. The collective assessments are made separately for portfolios of facilities with similar homogeneous characteristics.

Forward looking information

In its ECL models, the Bank relies on a broad range of forward looking information as economic inputs, such as:

• GDP growth
• Interest rate
• Inflation
• Exchange rate
• Unemployment rates

To reflect the economic uncertainties in the calculation of expected credit losses, the Bank also revisited the weightages assigned for multiple economic scenarios during the year. Weightages assigned for each scenario is given below along with the weightages used in 2021.

	2022	2021
Base case	20%	30%
Best case	0%	20%
Worse case	80%	50%

Impairment assessment

Definition of default and upgrade

The Bank considers a financial instrument defaulted and therefore assessed in Stage 3 (as credit-impaired) for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments or the credit facility/customer is classified as a non performing advance in accordance with CBSL directions.

As a part of a qualitative assessment of whether a customer is in default, the Bank also considers a variety of instances that may indicate unlikeliness to pay. When such events occur, the Bank carefully considers whether the event should result in treating the customer as defaulted and therefore assessed as Stage 3 for ECL calculations or whether Stage 2 is appropriate. Such events include:

• Credit rating of a borrower has been subsequently downgraded to B+ or below under the Sri Lankan National Rating scale by External Credit Assessment Institution (EACI)
• A two-notch downgrade under the Bank's internal rating
• Reasonable and supportable forecasts of future economic conditions show a direct negative on the future performance of a customer/group of customers.
• A significant change in the geographical locations or natural catastrophes that directly impact the performance of a customer/group of customers.
• The value of collateral is significantly reduced and/or realisability of collateral is doubtful.
• Frequent changes in the Board of Directors and Senior Management of an institutional customer.
• Delay in commencement of business operations/projects by more than two years from the originally agreed date.
• Modification of terms resulting in concessions, including extensions, deferment of payments, waiver of covenants and other restructuring of credit facilities.
• A fall of 50% or more in the turnover and/or profit before tax of the borrower when compared to the previous year for two consecutive years and/or erosion of net-worth of the borrower by more than 25% (other than due to changes in equity structure and dividend policy) when compared to the previous financial year, and reduction will effect to the settlement of future contractual payments.
• The borrower is subject to litigation that significantly affects the performance of the credit facility
• Unable to contact or find the borrower
• Claims made under obligation of Letter of Guarantee
• The borrower is deceased/insolvent
• Any other criteria that, materially impacted for recoverability.

It is the Bank’s policy to consider a financial instrument as “upgraded” and therefore re-classified out of Stage 3 when none of the default criteria is no longer present. The decision whether to classify an asset as Stage 2 or Stage 1 once upgraded depends on the updated credit grade, at the time of the upgrade, and whether there has been a significant increase in credit risk compared to initial recognition. Further restructured facilities are considered as “upgraded” once a satisfactory performing period of a minimum 90 days subsequent to the first capital and/or interest installment post-restructure is in place, while upgrading of rescheduled facilities,branch/business unit should obtain the approval from the Chief Risk Officer confirming the customer's ability of servicing debt obligation up to a forseeable future.

Probability of default estimation process

The Bank estimates the probability of default (PD) based on historical information with regard to delinquency of loans and advances. In this process historical information pertaining to 3-5 years have been used depending on the nature of the product.

Exposure at default

The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability to increase its exposure while approaching default and potential early repayments too.

To calculate the EAD for a Stage 1 loan facilities, the Bank assesses the possible default events within 12 months in the calculation of the 12mECL. For Stage 2, Stage 3 and Purchase or Credit impaired (POCI) financial assets, the exposure at default is considered for events over the lifetime of the instruments.

The Bank determines EADs by modelling the range of possible exposure outcomes at various points in time. PDs are then assigned to the EAD so derived.

Loss given default

The Bank segments its lending portfolio into homogeneous portfolios, based on key characteristics that are relevant to the estimation of future cash flows. The loss given default is estimated based on historically collected loss data.

Significant increase in credit risk

The Bank continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12mECL or LTECL, the Bank assesses whether there has been a significant increase in credit risk since initial recognition. The Bank considers an exposure to have significantly increased in credit risk when the borrower becomes 30 days past due from the contractual due date.

The Bank also applies a secondary qualitative method for triggering a significant increase in credit risk for an asset, such as moving a customer/facility to the watch list, or reschedulement or restructure. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition.

When estimating ECLs on a collective basis for a group of similar assets, the Bank applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition.

Grouping financial assets measured on an individual basis/collective basis

ECLs are calculated either on a collective or an individual basis, depends on the following factors.

The Bank calculates ECL on an individual basis for loans and advances above the threshold are identified as individually significant loans. All other exposures other than the above together with individually significant exposures not attracting an ISL provision are assessed for ECL on a collective basis. The Bank groups these exposures into smaller homogeneous portfolios, based on product types, sectors and customer segments.

28.1 Financial assets at amortised cost – loans and advances

	Note	Bank		Group
As at 31 December		2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Gross loans and advances		2,584,778,967	2,576,668,173	2,617,905,189	2,612,567,332
Stage 1		1,986,928,070	2,170,496,529	2,002,738,770	2,186,408,859
Stage 2		273,220,831	155,013,917	277,121,666	159,836,766
Stage 3		324,630,066	251,157,727	338,044,753	266,321,707
Less: accumulated provision for impairment under:		259,184,638	162,905,882	261,926,856	166,237,003
Stage 1	28.2	39,710,949	24,417,936	39,904,019	24,541,662
Stage 2	28.2	25,419,553	15,122,165	25,564,731	15,247,177
Stage 3	28.2	194,054,136	123,365,781	196,458,106	126,448,164
Net loans and advances		2,325,594,329	2,413,762,291	2,355,978,333	2,446,330,329

28.1.1 Analysis of gross loans and advances – by product

		Bank
As at 31 December		2022			2021
	Note	Local currency loans LKR ’000	Foreign currency loans LKR ’000	Total LKR ’000	Local currency loans LKR ’000	Foreign currency loans LKR ’000	Total LKR ’000
Term loans		746,658,700	788,273,917	1,534,932,617	683,740,104	505,852,356	1,189,592,460
Housing loans		78,125,880	46,205	78,172,085	79,420,418	367,703	79,788,121
Trade finance		39,846,557	73,328,306	113,174,863	41,550,553	46,478,224	88,028,777
Personal loans		413,928,850	–	413,928,850	446,225,539	–	446,225,539
Overdrafts		146,415,234	67,382,222	213,797,456	552,351,927	35,597,630	587,949,557
Credit cards		7,483,788	–	7,483,788	6,151,267	–	6,151,267
Lease rental receivables	28.4	20,673,590	–	20,673,590	24,150,424	–	24,150,424
Pawning		116,879,501	–	116,879,501	82,975,731	–	82,975,731
Foreclosed properties		3,325,096	8,624	3,333,720	3,084,102	5,135	3,089,237
Staff loans		26,186,008	32,490	26,218,498	23,528,091	16,247	23,544,338
Other		47,861,160	8,322,839	56,183,999	40,217,888	4,954,834	45,172,722
Gross loans and advances		1,647,384,364	937,394,603	2,584,778,967	1,983,396,044	593,272,129	2,576,668,173

		Group
As at 31 December		2022			2021
	Note	Local currency loans LKR ’000	Foreign currency loans LKR ’000	Total LKR ’000	Local currency loans LKR ’000	Foreign currency loans LKR ’000	Total LKR ’000
Term loans		755,678,340	795,933,677	1,551,612,017	688,030,779	510,774,683	1,198,805,462
Housing loans		78,155,920	46,205	78,202,125	79,459,457	367,703	79,827,160
Trade finance		40,077,612	73,328,306	113,405,918	45,133,465	48,231,867	93,365,332
Personal loans		415,315,733	–	415,315,733	448,254,975	–	448,254,975
Overdrafts		146,223,589	67,622,802	213,846,391	552,155,012	35,912,095	588,067,107
Credit cards		7,483,788	–	7,483,788	6,151,267	–	6,151,267
Lease rental receivables	28.4	29,509,308	–	29,509,308	37,846,935	–	37,846,935
Pawning		122,545,263	–	122,545,263	88,230,314	–	88,230,314
Foreclosed properties		3,325,096	8,624	3,333,720	3,084,102	5,135	3,089,237
Staff loans		26,420,658	46,269	26,466,927	23,737,202	19,619	23,756,821
Other		47,861,160	8,322,839	56,183,999	40,217,888	4,954,834	45,172,722
Gross loans and advances		1,672,596,467	945,308,722	2,617,905,189	2,012,301,396	600,265,936	2,612,567,332

28.1.2 Analysis of gross loans and advances – by currency

	Bank		Group
As at 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Sri Lankan Rupees	1,647,384,364	1,983,396,044	1,672,596,467	2,012,301,396
United States Dollar	888,791,091	571,296,516	888,791,091	573,050,159
Great Britain Pound	1,110,713	657,919	9,024,833	5,898,083
Maldivian Rufiyaa	27,629,480	11,333,591	27,629,480	11,333,591
Euro	2,641,218	1,082,920	2,641,218	1,082,920
Indian Rupee	14,344,266	7,572,335	14,344,266	7,572,335
Seychellois Rupee	2,871,299	1,294,368	2,871,299	1,294,368
Other	6,536	34,480	6,535	34,480
Gross loans and advances	2,584,778,967	2,576,668,173	2,617,905,189	2,612,567,332

28.2 Movement in provision for Impairment during the year

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in Stage 1 impairment
Balance as at 1 January	24,417,936	11,640,862	24,541,662	11,846,679
Charge/(reversal) during the year	15,135,491	12,675,143	15,204,835	12,593,052
Amount recovered/reversal during the year	–	–	–	–
Exchange rate variance on foreign currency impairment	347,791	101,931	347,791	101,931
Amount written-off during the year	–	–	–	–
Other movements	(190,269)	–	(190,269)	–
Balance as at 31 December	39,710,949	24,417,936	39,904,019	24,541,662

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in Stage 2 impairment
Balance as at 1 January	15,122,165	11,447,964	15,247,177	11,678,868
Charge/(reversal) during the year	10,344,926	3,521,857	10,365,092	3,415,965
Amount recovered/reversal during the year	–	–	–	–
Exchange rate variance on foreign currency impairment	687,473	152,344	687,473	152,344
Amount written-off during the year	–	–	–	–
Other movements	(735,011)	–	(735,011)	–
Balance as at 31 December	25,419,553	15,122,165	25,564,731	15,247,177

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in Stage 3 impairment
Balance as at 1 January	123,365,781	103,706,911	126,448,164	106,828,208
Charge/(reversal) during the year	49,602,382	26,393,611	49,496,367	26,502,443
Amount recovered/reversal during the year	(4,322,117)	(7,163,198)	(4,322,117)	(7,163,198)
Exchange rate variance on foreign currency impairment	24,289,327	428,457	24,289,327	428,457
Amount written-off during the year	(18,554)	(76,971)	(18,554)	(76,971)
Other movements	1,137,317	76,971	564,919	(70,775)
Balance as at 31 December	194,054,136	123,365,781	196,458,106	126,448,164

	Bank		Group
	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Movement in total impairment
Balance as at 1 January	162,905,882	126,795,737	166,237,003	130,353,755
Charge/(reversal) during the year	75,082,799	42,590,611	75,066,294	42,511,460
Amount recovered/reversal during the year	(4,322,117)	(7,163,198)	(4,322,117)	(7,163,198)
Exchange rate variance on foreign currency impairment	25,324,591	682,732	25,324,591	682,732
Amount written-off during the year	(18,554)	(76,971)	(18,554)	(76,971)
Other movements	212,037	76,971	(360,361)	(70,775)
Balance as at 31 December	259,184,638	162,905,882	261,926,856	166,237,003

28.3 Sensitivity factors used to calculate impairment provision

		Sensitivity effect on impairment provisions
	Sensitivity	2022 LKR ’000	2021 LKR ’000
Change in Loss Given Default (LGD)	1%	5,600,134	5,233,770
	-1%	(5,600,134)	(5,233,770)
Change in Economic Factor Adjustment (EFA)	Worst case degrades by 5%	402,585	379,797
	Worst case upgrades by 5%	(402,585)	(379,160)
Change in deemed closed period	Advanced by one year	2,826,569	2,702,782
	Deferred by one year	(2,826,569)	(1,809,974)

28.4 Lease rentals receivables

Accounting policy

Assets leased to customers, which transfer substantially all the risks and rewards associated with ownership, other than legal title, are classified as finance leases. Amounts receivable under finance leases are classified as lease and hire purchase receivables and presented within loans and receivables to customers in the Statement of Financial Position, after deduction of unearned lease income and the impairment for rentals doubtful of recovery.

	Bank		Group
As at 31 December	2022 LKR ’000	2021 LKR ’000	2022 LKR ’000	2021 LKR ’000
Gross lease rentals receivable
Within one year	12,339,150	11,920,246	15,170,120	18,608,059
One to five years	14,505,542	17,919,803	18,531,230	22,730,883
More than five years	53,441	102,794	333,620	409,228
	26,898,133	29,942,843	34,034,970	41,748,170
Less: Unearned finance income	6,224,543	5,792,419	4,525,662	3,901,235
Gross lease rentals receivables	20,673,590	24,150,424	29,509,308	37,846,935
Less: Provision for impairment losses	777,902	736,549	1,901,977	2,486,316
Net lease rentals receivables	19,895,688	23,413,875	27,607,331	35,360,619