Sampath Bank | Annual Report 2013

(d) Group - as at 31st December 2012 Neither past due nor impaired High Standard Sub- Un Exposures Past due Individually Total grade grade standard Rated not subject but not impaired Rs 000 Rs 000 Rs 000 grade Rs 000 to ratings impaired Rs 000 Rs 000 Rs 000 Rs 000Financial Assets 10,398,351 43,908 - - - - - 10,442,259Cash & cash equivalentsBalances with Central Bank of Sri Lanka 17,200,792 - - - - - - 17,200,792Placements with banksReverse repurchase agreements 7,624,376 1,163,751 - - - - - 8,788,127Derivative financial instrumentsFinancial assets held for trading 3,300,373 - - - - - - 3,300,373Financial assets held for trading pledged 279,022 - - - - - - 279,022 as collateralsLoans & receivables to banks 34,786,299 287,108 - 107,677 - - - 35,181,084Loans & receivables to other customersOther loans & receivables 2,856,321 - - - - - - 2,856,321 - 826,674 - - - 1,943 - 828,617 36,007,948 7,666,734 14,117,376 55,052,825 73,281,865 4,206,565 219,590,729 29,257,416 - 1,509,123 - - 10,224,474 8,715,351 - -Financial investments available for sale 179,175 - - - - - - 179,175 Quoted - Government debt securities - - - 1,686,021 - - - 1,686,021 Quoted - Other equity securities - - - 58,484 - - - 58,484 Unquoted - Equity securities 9,765 - ---- - 9,765Financial investments held to maturity - - 1,558,102 - 300,174 1,858,276 Quoted - Government debt securities -- 7,666,734 17,478,681 56,610,927 73,283,808 4,506,739 312,483,519Other assets 114,607,241 38,329,389TotalAge Analysis of past due(i.e. facilities in arrears of 1 day and above) but not impaired loans by Class of Financial Assets Past due but not impaired Less than 31 to 60 61 to 90 More than Total 30 days days days 90 daysLoans & receivables to banks 1,943 - - - 1,943Loans & receivables to other customers 48,543,126 8,450,802 12,705,415 3,582,522 73,281,865Total 48,545,069 8,450,802 12,705,415 3,582,522 73,283,808 Annual Report 2013 Sampath Bank PLC 299

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.2.5 Credit Risk Exposure For Each Internal Credit Risk RatingIt is the Bank’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates focused management of theapplicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system issupported by a variety of qualitative as well as quantitative variables for the measurement of counterparty risk. All internal risk ratings aretailored to various categories and are derived in accordance with the Bank’s Rating Policy. The risk ratings of the business borrowers areupdated at least annually or earlier if required. The table below shows the Bank’s internal credit rating of the loans & advances to banks andloans & advances to other customers.Bank’s Internal Credit Rating Bank Fitch Historical Total Historical Total rating rating default 2013 default 2012 rate 2013 Rs 000 rate 2012 Rs 000 % %High grade A+ AAA to AA+ 0.54 12,274,726 0.31 5,729,576Risk rating class 1 A AA to AA- 0.52 20,512,627 0.46 8,158,629Risk rating class 2 A- A+ to A 0.56 30,304,098 0.59 20,107,485Risk rating class 3 B+ A- to BBB+ 1.84 26,238,481 1.95 13,549,461Risk rating class 4Standard Grade B BBB to BBB- 1.46 46,682,504 0.84 33,538,712Risk rating class 5 B- BB+ to BB 2.22 22,039,465 1.95 15,609,176Risk rating class 6 C+ BB- to B+ 2.20 20,985,233 1.60 25,162,285Risk rating class 7Sub standard grade C B to B- 3.39 9,416,453 1.71 12,096,134Risk rating class 8 C- CCC to CC 3.25 2,968,738 1.73 3,646,729Risk rating class 9Unrated 1.65 18,896,263 1.08 19,448,164Impaired D C to D 1.40 6,089,161 1.37 3,912,763Risk rating class 10Exposures not subject for rating 53,469,185 54,946,225Pawning 142,965 106,600OthersGrand Total 270,019,899 216,011,939300

47.2.6 Analysis of Risk ConcentrationRisk concentrations: maximum exposure to credit risk without taking into account of any collateral and other credit enhancements.The Concentration risk is monitored/managed through borrower/group, Sector, product etc. Maximum exposure of both funded and nonfunded facilities to a company and a group as at the reporting date was Rs 3,106 Mn (Limit: Rs 4,425 Mn) and Rs 5,767 Mn (Limit: Rs 6,192Mn) respectively. The following tables show the maximum exposure to credit risk for the components of the Statement of Financial Position,including geography of counterparty, and sector.47.2.6.1 Country Risk - Geographical Analysis(a) Bank - as at 31st December 2013 Sri Lanka Europe America South Asia Asia Pacific Middle East Total Rs 000 Rs 000 Rs 000 & Africa Rs 000 361,929 Rs 000 Rs 000 Rs 000 -Financial Assets 7,102,023 - 489,052 123,819 214,610 11,143 8,302,576Cash & cash equivalents 15,766,967 - - - - - 15,766,967Balances with Central Bank of Sri Lanka - - 1,791,329Placements with banks - 3,047 459,868 - 1,331,461 - 18,043,918Reverse repurchase agreements 18,043,918 - - - - - 230,517Derivative financial instruments - - - - 46,974,516Financial assets held for trading 227,019 - - - 451 - 3,496,141Financial assets held for trading pledged as collaterals 46,974,516 - - - - 638,244Loans & receivables to banks 156,679 - -Loans & receivables to other customers ** 3,496,141 - 1,196,656 - 273,727 259,401,578Other loans & receivables 638,244 - 11,279 - - 12,150,588Financial investments available for sale - - 515,589 - 2,393,118Financial investments held to maturity 257,247,648 - - 2,254,030 - - 1,845,903Other assets 12,150,588 - - - - 1,751,374Total 139,088 521,655 - - 1,845,903 9,275 - 284,870 372,786,769 1,742,099 960,199 3,583,780 2,062,111 365,374,154** Provincial breakdown for loans & receivables to other customers within Sri LankaProvince Rs 000Central 12,726,298 Annual Report 2013 Sampath Bank PLCEastern 6,296,590North Central 7,824,376North WesternNorthern 12,449,626Sabaragamuwa 7,423,214Southern 6,412,026UvaWestern 13,901,359Total 4,442,236 185,771,923 257,247,648 301

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.2.6.1 Country Risk - Geographical Analysis(b) Bank - as at 31st December 2012 Sri Lanka Europe America South Asia Asia Pacific Middle East Total Rs 000 Rs 000 Rs 000 Rs 000 & Africa Rs 000 Rs 000 Rs 000Financial Assets 8,157,220 1,187,296 178,341 556,175 347,020 6,083 10,432,135Cash & cash equivalents 17,200,792 - - - - - 17,200,792Balances with Central Bank of Sri Lanka - 8,788,127Placements with banks 25 924,034 2,142,763 1,163,751 4,557,554 - 3,300,817Reverse repurchase agreements 3,300,817 - - - - - 279,022Derivative financial instruments - - 35,181,084Financial assets held for trading 200,732 253 77,511 - 526 - 2,856,321Financial assets held for trading pledged as collaterals 35,181,084 - - - - - 816,119Loans & receivables to banks - - - -Loans & receivables to other customers ** 2,856,321 - - - 1,248,263 208,184,369Other loans & receivables 816,119 697,368 - 10,515,756Financial investments available for sale 77,722 12,744 - 497,498 - 1,923,624Financial investments held to maturity 205,650,774 - - - --Other assets 10,515,756 - - 1,721,339 - - 1,399,091Total 202,285 - - - - - - - - - 1,254,346 300,877,257 1,399,091 2,189,305 2,411,359 4,138,633 5,402,598 285,481,016** Provincial breakdown for loans & receivables to other customers within Sri LankaProvince Rs 000Central 9,719,171Eastern 5,775,007North Central 5,777,983North Western 9,677,606Northern 6,473,367Sabaragamuwa 5,380,717Southern 11,262,684Uva 3,273,863Western 148,310,376Total 205,650,774302

(c) Group - as at 31st December 2013 Sri Lanka Europe America South Asia Asia Pacific Middle East Total Rs 000 Rs 000 Rs 000 & Africa Rs 000 361,929 Rs 000 Rs 000 Rs 000 -Financial Assets 7,140,285 - 489,052 123,819 214,610 11,143 8,340,838Cash & cash equivalents 15,766,967 - - - - - 15,766,967Balances with Central Bank of Sri Lanka - - 1,791,329Placements with banks - 3,047 459,868 - 1,331,461 - 18,043,918Reverse repurchase agreements 18,043,918 - - - - - 230,517Derivative financial instruments - - - - 46,974,516Financial assets held for trading 227,019 - - - 451 - 3,496,141Financial assets held for trading pledged as collaterals 46,974,516 - - - - 638,244Loans & receivables to banks 156,679 - -Loans & receivables to other customers ** 3,496,141 - 1,196,656 - 273,727 265,909,593Other loans & receivables 638,244 - 11,279 - - 12,150,588Financial investments available for sale - - 515,589 - 2,393,174Financial investments held to maturity 263,755,663 - - 2,254,030 - - 1,845,903Other assets 12,150,588 - - - - 2,222,016Total 139,144 521,655 - - 1,845,903 9,275 - 284,870 379,803,744 2,212,741 960,199 3,583,780 2,062,111 372,391,129** Provincial breakdown for loans & receivables to other customers within Sri LankaProvince Rs 000Central 14,173,255Eastern 7,093,562North Central 8,096,752North WesternNorthern 13,290,704Sabaragamuwa 7,439,369Southern 6,581,796UvaWestern 14,369,503Total 4,442,236 188,268,486 263,755,663 Annual Report 2013 Sampath Bank PLC 303

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.2.6.1 Country Risk - Geographical Analysis(d) Group - as at 31st December 2012 Sri Lanka Europe America South Asia Asia Pacific Middle East Total Rs 000 Rs 000 Rs 000 Rs 000 & Africa Rs 000 Rs 000 Rs 000Financial Assets 8,167,344 1,187,296 178,341 556,175 347,020 6,083 10,442,259Cash & cash equivalents 17,200,792 - - - - - 17,200,792Balances with Central Bank of Sri Lanka - 8,788,127Placements with banks 25 924,034 2,142,763 1,163,751 4,557,554 - 3,300,373Reverse repurchase agreements 3,300,373 - - - - - 279,022Derivative financial instruments - - 35,181,084Financial assets held for trading 200,732 253 77,511 - 526 - 2,856,321Financial assets held for trading pledged as collaterals 35,181,084 - - - - - 816,119Loans & receivables to banks - - - -Loans & receivables to other customers ** 2,856,321 - - - 1,248,263 212,480,041Other loans & receivables 816,119 697,368 - 10,224,474Financial investments available for sale 77,722 12,744 - 497,498 - 1,923,680Financial investments held to maturity 209,946,446 - - - - 9,765Other assets 10,224,474 - - 1,721,339 - - 1,858,276Total 202,341 - - - - 9,765 - - - - 1,254,346 305,360,333 1,858,276 2,189,305 2,411,359 4,138,633 5,402,598 289,964,092** Provincial breakdown for loans & receivables to other customers within Sri LankaProvince Rs 000Central 11,159,908Eastern 7,116,714North Central 5,987,912North WesternNorthern 10,723,463Sabaragamuwa 6,526,017Southern 5,583,497UvaWestern 11,827,562Total 3,273,863 147,747,510 209,946,446304

47.2.6.2 Industry AnalysisThe following tables show the risk concentration by industry for the components of the Statement of Financial Position(a) Bank - as at 31st December 2013 Agriculture Manufacturing Tourism Transport Construction Traders Banks, Government Infrastructure Other Consumers Total & Fishing Rs 000 Services Rs 000 Financial & Business Services Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets - -- - - - 8,302,576 - -- - 8,302,576Cash & cash equivalents - -- - -- - 15,766,967 -- - 15,766,967Balances with Central - -- - - - 1,791,329 - -- - 1,791,329 Bank of Sri LankaPlacements with banks - -- - - - 10,035,819 8,008,099 -- - 18,043,918Reverse repurchase agreementsDerivative financial instruments - -- - - 13,194 217,323 - -- - 230,517Financial assets held for trading - -- - -- - 45,962,143 -- - 45,962,143 Government debt securities - 221,159 -- - 1,012,373 Quoted equities - 40,879 - - 750,335 -Financial assets held for trading pledged as collaterals - -- - -- - 3,496,141 -- - 3,496,141Loans & receivables to banksLoans & receivables to other - -- - - - 12,377 625,867 -- - 638,244 customersOther loans & receivables 34,447,250 35,648,616 13,476,931 3,924,506 26,401,964 59,381,313 17,851,608 201,229 8,291,865 7,343,645 52,432,651 259,401,578Financial investments available for sale - -- - - - 3,095,878 9,054,710 -- - 12,150,588 Government debt securities Other equity securities - -- - -- - 100,462 -- - 100,462Financial investments held to maturity - -- - - - 2,254,030 - - 38,626 - 2,292,656Other assetsTotal - -- - -- - 1,845,903 - - - 1,845,903 - -- - - 34,447,250 35,689,495 13,476,931 3,924,506 -- - - 8,291,865 1,751,374 - 1,751,374 26,401,964 59,615,666 44,311,275 85,061,521 9,133,645 52,432,651 372,786,769(b) Bank - as at 31st December 2012 Agriculture Manufacturing Tourism Transport Construction Traders Banks, Government Infrastructure Other Consumers Total & Fishing Rs 000 Services Rs 000 Financial & Business Services Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets - -- - - - 10,432,135 - -- - 10,432,135Cash & cash equivalents - -- - -- - 17,200,792 -- - 17,200,792Balances with Central - -- - - - 8,788,127 - -- - 8,788,127 Bank of Sri LankaPlacements with banks - -- - - - 3,300,817 - -- - 3,300,817Reverse repurchase agreementsDerivative financial instruments - -- - - - 279,022 - -- - 279,022Financial assets held for trading - -- - -- - 34,182,709 -- - 34,182,709 Government debt securities - 10,236 14,291 -- - 998,375 Quoted equities - 4,853 282,474 686,521 -Financial assets held for trading pledged as collaterals - -- - - - 2,856,321 - -- - 2,856,321 Annual Report 2013 Sampath Bank PLCLoans & receivables to banksLoans & receivables to - -- - - - 1,943 814,176 -- - 816,119 other customersOther loans & receivables 23,211,855 28,146,897 7,132,717 2,617,179 20,710,856 40,352,210 11,271,223 47,061 6,613,877 6,474,852 61,605,642 208,184,369Financial investments available for sale 458,159 -- - - 726,016 2,173,931 7,157,650 -- - 10,515,756 Government debt securities Other equity securities - -- - -- - 179,175 -- - 179,175Financial investments held to maturity - -- - - - 1,721,339 - - 23,110 - 1,744,449Other assetsTotal - -- - -- - - - --- - -- - -- - - - 23,670,014 28,157,133 7,147,008 2,617,179 20,715,709 41,360,700 41,511,379 59,581,563 6,613,877 1,399,091 - 1,399,091 7,897,053 61,605,642 300,877,257 305

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.2.6.2 Industry Analysis(c) Group - as at 31st December 2013 Agriculture Manufacturing Tourism Transport Construction Traders Banks, Government Infrastructure Other Consumers Total & Fishing Rs 000 Services Rs 000 Financial & Business Services Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets - -- - - - 8,340,838 - -- - 8,340,838Cash & cash equivalents - -- - -- - 15,766,967 -- - 15,766,967Balances with Central - -- - - - 1,791,329 - -- - 1,791,329 Bank of Sri LankaPlacements with banks - -- - - - 10,035,819 8,008,099 -- - 18,043,918Reverse repurchase agreementsDerivative financial instruments - -- - - 13,194 217,323 - -- - 230,517Financial assets held for trading -- - - -- 45,962,143 -- - 45,962,143 Government debt securities - 40,879 - - - 221,159 750,335 -- - 1,012,373 Quoted equitiesFinancial assets held for - -- - -- - 3,496,141 -- - 3,496,141 trading pledged as collateralsLoans & receivables to banks - -- - - - 12,377 625,867 -- - 638,244Loans & receivables to other customers 35,042,331 35,648,616 13,476,931 4,140,536 26,608,580 62,158,426 16,175,023 201,229 8,291,865 11,288,506 52,877,550 265,909,593Other loans & receivablesFinancial investments - -- - - - 3,095,878 9,054,710 -- - 12,150,588 available for sale Government debt securities - Other equity securitiesFinancial investments held - -- - -- - 100,462 -- - 100,462 to maturityOther assets - -- - - - 2,254,030 - - 38,682 - 2,292,712Total - -- - -- - 1,845,903 -- - 1,845,903 - -- - 35,042,331 35,689,495 13,476,931 4,140,536 -- - - - 2,222,016 - 2,222,016 26,608,580 62,392,779 42,672,952 85,061,521 8,291,865 13,549,204 52,877,550 379,803,744(d) Group - as at 31st December 2012 Agriculture Manufacturing Tourism Transport Construction Traders Banks, Government Infrastructure Other Consumers Total & Fishing Rs 000 Services Rs 000 Financial & Business Services Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets - -- - - - 10,442,259 - -- - 10,442,259Cash & cash equivalents - -- - -- - 17,200,792 -- - 17,200,792Balances with Central - -- - - - 8,788,127 - -- - 8,788,127 Bank of Sri LankaPlacements with banks - -- - - - 3,300,373 - -- - 3,300,373Reverse repurchase agreementsDerivative financial instruments - -- - - - 279,022 - -- - 279,022Financial assets held for trading - -- - -- - 34,182,709 -- - 34,182,709 Government debt securities - 10,236 14,291 -- - 998,375 Quoted equities - 4,853 282,474 686,521 -Financial assets held for trading pledged as collaterals - -- - - - 2,856,321 - -- - 2,856,321Loans & receivables to banksLoans & receivables to - -- - - - 1,943 814,176 -- - 816,119 other customersOther loans & receivables 23,756,525 28,146,897 7,132,717 2,752,208 20,888,013 42,325,045 11,271,223 47,061 6,613,877 9,045,289 60,501,186 212,480,041Financial investments available for sale 458,159 -- - - 726,016 1,882,649 7,157,650 -- - 10,224,474 Government debt securities Other equity securities - -- - -- - 179,175 -- - 179,175Financial investments held to maturity - -- - - - 1,721,339 - - 23,166 - 1,744,505Other assetsTotal - -- - - - 9,765 - -- - 9,765 - -- - 24,214,684 28,157,133 7,147,008 2,752,208 -- - - - 1,858,276 - 1,858,276 20,892,866 43,333,535 41,239,542 59,581,563 6,613,877 10,926,731 60,501,186 305,360,333306

47 RISK MANAGEMENT CONTD.47.2.7 Commitments and ContingenciesTo meet the financial needs of customers, the Bank enters into various commitments and contingent liabilities. Even though these obligationsmay not be recognised on the Statement of Financial Position, they do contain credit risk and are, therefore, part of the overall risk of the Bank.The table below shows the Bank’s maximum credit risk exposure for commitments and contingencies. The maximum exposure to credit riskrelating to a financial guarantee is the maximum amount the Bank should have to pay if the guarantee is called upon. The maximum exposureto credit risk relating to a loan commitment is the full amount of the commitment. In both cases, the maximum risk exposure is significantlygreater than the amount recognised as a liability in the Statement of Financial Position. Bank Group 2013 2012 2013 2012 Rs 000 Rs 000 Rs 000 Rs 000Commitments 37,346,053 27,340,066 37,464,520 27,543,720Commitment for unutilised facilities (direct advances)Contingent Liabilities 7,871,824 6,308,188 7,871,824 6,308,188Acceptances 12,014,404 11,310,366 12,014,404 11,310,366Documentary credit 28,333,570 21,993,951 28,333,570 21,993,951GuaranteesBills sent for collection 164,448 129,388 164,448 129,388Others 14,791 352,396 14,791 352,396Sub Total 40,094,289 40,094,289 48,399,037 48,399,037Forward exchange contracts 37,093,136 28,684,448 37,093,136 28,684,448Currency SWAPs 22,728,550 19,806,940 22,728,550 19,806,940Sub Total 59,821,686 48,491,388 59,821,686 48,491,388Total Commitments & Contingencies 145,566,776 115,925,743 145,685,243 116,129,39747.3 Liquidity Risk and Funding Management Annual Report 2013 Sampath Bank PLCLiquidity risk is the risk that the Bank will encounter difficulties in meeting its financial commitments that are settled by delivering cash oranother financial asset. Hence the Bank may be unable to meet its payment obligations when they fall due under both normal and stresscircumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted apolicy of continuously managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The Bank hasdeveloped internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cashflows and the availability of high grade collateral which could be used to secure additional funding if required.The Bank maintains a portfolio of highly marketable and diverse assets assumed to be easily liquidated in the event of an unforeseeninterruption of expected cash flow. The Bank also has committed lines of credit that could be utilized to meet liquidity needs. Further, the Bankmaintains a statutory deposit with the Central Bank of Sri Lanka equal to 6% (2012: 8%) of rupee deposits. In accordance with the Bank’spolicy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both themarket in general and specific to the Bank. The most important of these is to maintain the required ratio of liquid assets to liabilities, to meetthe regulatory requirement. Liquid assets consist of cash, short–term bank deposits and liquid debt securities available for immediate sale.Further the Statutory Liquid Assets Ratio of the Bank for the month of December 2013 is as follows.47.3.1 Statutory Liquid Assets RatioFor the month of December 2013: 27.62% (2012: 22.40%) 307

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.3.2 Due to Banks and Due to Other Customers (Deposits) to Loans and Receivables to Banks and Other Customers (Advances) RatioThe Bank is aware of the importance of due to banks and other customers as a source of funds for its lending operations.This is monitored using the following ratio, which compares loans and receivables to customers as a percentage of due to banks and due toother customers (Deposits).Due to banks and due to other customers to loans and receivables to banks and other customers RatioAs at 31 December 2013 : 89.28% (2012 : 88.68%)47.3.3 Analysis of Financial Assets and Liabilities by Remaining Contractual MaturitiesThe tables below summarise the maturity profile of the undiscounted cash flows of the Bank’s financial assets and financial liabilities as at31st December 2013. Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Bankexpects that many customers will not request repayment on the earliest date it could be required to pay and the table does not reflect theexpected cash flows indicated by its deposit retention history.Contractual Maturities of Undiscounted Cash Flows of Financial Assets and Financial Liabilities(a) Bank - as at 31st December 2013 Up to 3 3 - 12 1-3 3-5 Over 5 Total Months Months Years Years Years Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets 8,302,576 - - - - 8,302,576Cash & cash equivalents 10,794,345 4,747,900 89,843 134,134 745 15,766,967Balances with Central Bank of Sri LankaPlacements with banks 1,792,729 - - - - 1,792,729Reverse repurchase agreements 18,068,169 - - - - 18,068,169Derivative financial instruments 114,106 - - - 230,517Financial assets held for trading 116,411 25,698,608 - - - 48,537,588Financial assets held for trading pledged 22,838,980 as collaterals 2,123,708 1,455,247 - - - 3,578,955Loans & receivables to banks 69,450 184,447 438,535 91,448 - 783,880Loans & receivables to other customers 54,699,890 25,492,354 20,050,799Other loans & receivables 160,989,565 39,856,325 10,511,802 1,799,277 - 301,088,933Financial investments available for sale 526,313 1,091,020 38,625 13,928,412Financial investments held to maturity - - - - 2,394,819Other assets 2,356,194 1,975,000 - - 1,606,351 1,975,000Total Financial Assets - 16,688 31,218 28,547 21,696,520 1,751,374 65,771,288 27,545,760 68,570 75,139,341 418,199,919 228,047,010Financial Liabilities 2,220,536 - - - - 2,220,536Due to banks 594,231 44,493 - - - 638,724Derivative financial instruments 915,347 - - -Securities sold under re-purchase agreements 2,515,772 96,812,366 1,969,163 3,859,509 40,826 3,431,119Due to other customers 206,346,742 1,897,396 5,587,306 14,689,848 6,457,849 309,028,606Debt issued & other borrowed funds - - -Unclaimed dividend 18,022,769 - 6,239 5,705 12,217 46,655,168Other liabilities 54,981 3,335 7,562,708 18,555,062 6,510,892 54,981Total Financial Liabilities 37,205 99,672,937 64,701 229,792,236 362,093,835Total Net Financial Assets / (Liabilities) (1,745,226) (24,533,596) 58,208,580 8,990,698 15,185,628 56,106,084308

(b) Bank - as at 31st December 2012 Up to 3 3 - 12 1-3 3-5 Over 5 Total Months Months Years Years Years Rs 000Financial Assets Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Cash & cash equivalentsBalances with Central Bank of Sri Lanka 10,504,835 - - - - 10,504,835Placements with banks 12,805,701 4,205,300 121,924 67,030 837 17,200,792Reverse repurchase agreements 1,177,646Derivative financial instruments 7,624,456 - - - 8,802,102Financial assets held for trading 3,300,817 - - - - 3,300,817Financial assets held for trading pledged 124,332 - - - 279,022 154,690 - - - 35,181,084 as collaterals 35,181,084 -Loans & receivables to banksLoans & receivables to other customers 2,858,321 - - - - 2,858,321Other loans & receivables 73,872 235,811 540,622 253,211 - 1,103,516Financial investments available for sale 54,887,118 40,384,278 17,043,168 16,041,516 254,457,064Financial investments held to maturity 126,100,984 3,598,266 5,598,952 - 11,526,570Other assets 2,329,352 - 23,110 1,923,624Total Financial Assets 1,900,514 - - - - - - - - 1,399,091 -Financial Liabilities - - - - 17,464,554 1,399,091Due to banks 64,228,473 46,645,776 17,363,409 348,536,838Derivative financial instruments 202,834,626Securities sold under 625,051 - - - - 625,051 re-purchase agreementsDue to other customers 360,835 21,003 - - - 381,838Debt issued & other borrowed fundsUnclaimed dividend 2,164,530 642,856 - - - 2,807,386Other liabilities 184,844,334 66,808,610 2,586,230 1,490,651 310,693 256,040,518Total Financial Liabilities 1,621,902 9,754,206 5,695,072 9,336,177 7,406,830 33,814,187Total Net Financial Assets / (Liabilities) 49,185 - - - - 49,185 41,084 6,889 6,300 13,492 71,448 3,683 4,215,021 11,251,157 6,019,257 197,421,196 74,882,982 293,789,613 5,413,430 (10,654,509) 42,430,755 6,112,252 11,445,297 54,747,225 Annual Report 2013 Sampath Bank PLC 309

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.3.3 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities(c) Group - as at 31st December 2013 Up to 3 3 - 12 1-3 3-5 Over 5 Total Months Months Years Years Years Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets 8,340,838 - - - - 8,340,838Cash & cash equivalents 10,794,345 4,747,900 89,843 134,134 745 15,766,967Balances with Central Bank of Sri LankaPlacements with banks 1,792,729 - - - - 1,792,729Reverse repurchase agreements 18,068,169 - - - - 18,068,169Derivative financial instruments 114,106 - - - 230,517Financial assets held for trading 116,411 25,698,608 - - - 48,537,588Financial assets held for trading pledged 22,838,980 as collaterals 2,123,708 1,455,247 - - - 3,578,955Loans & receivables to banks 69,450 184,447 438,535 91,448 - 783,880Loans & receivables to other customers 58,690,249 26,446,860 20,064,406Other loans & receivables 162,456,165 42,319,707 10,511,802 1,799,277 - 309,977,387Financial investments available for sale 526,313 1,091,020 38,625 13,928,412Financial investments held to maturity - - - - 2,394,819Other assets 2,356,194 1,975,000 - - 1,563,719 1,975,000Total Financial Assets - 185,829 113,141 32,693 21,667,495 2,222,016 69,843,570 28,504,412 326,634 77,771,864 427,597,277 229,809,936Financial Liabilities 2,243,757 15,600 - - 65,754 2,325,111Due to banks 594,231 44,493 - - - 638,724Derivative financial instruments 907,069 - - -Securities sold under re-purchase agreements 2,189,620 96,812,366 1,969,163 3,859,509 3,096,689Due to other customers 206,346,742 3,106,340 7,592,396 15,528,955 40,826 309,028,606Debt issued & other borrowed funds - - 6,489,356Unclaimed dividend 19,828,748 - 6,239 5,705 52,545,795Other liabilities 54,981 3,335 9,567,798 19,394,169 - 54,981Total Financial Liabilities 37,205 100,889,203 12,217 64,701 6,608,153 231,295,284 367,754,607Total Net Financial Assets / (Liabilities) (1,485,348) (23,117,339) 60,275,772 9,110,243 15,059,342 59,842,670310

(d) Group - as at 31st December 2012 Up to 3 3 - 12 1-3 3-5 Over 5 Total Months Months Years Years Years Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets 10,514,958 - - - - 10,514,958Cash & cash equivalents 12,805,701 4,205,300 121,924 67,030 837 17,200,792Balances with Central Bank of Sri Lanka 1,177,646Placements with banks 7,624,456 - - - 8,802,102Reverse repurchase agreements 3,300,373 - - - - 3,300,373Derivative financial instruments 124,332 - - - 279,022Financial assets held for trading 154,690 - - - 35,181,084Financial assets held for trading pledged 35,181,084 - as collaterals 2,858,321 - - - - 2,858,321Loans & receivables to banks 73,872 235,811 540,622 253,211 - 1,103,516Loans & receivables to other customers 55,024,254 42,834,308 17,878,723 16,050,410 259,076,232Other loans & receivables 127,288,537 3,598,266 5,598,952 - 11,235,287Financial investments available for sale 2,038,069 - 23,166 1,923,680Financial investments held to maturity 1,900,514 - - - -Other assets 2,400 7,365 - - 1,858,276 9,765Total Financial Assets - - - 17,932,689 1,858,276 - 49,095,806 18,198,964 353,343,408 203,742,975 64,372,974Financial Liabilities 668,466 - - - - 668,466Due to banks 360,835 21,003 - - - 381,838Derivative financial instruments 2,158,745 642,856 - - - 2,801,601Securities sold under re-purchase agreements 184,601,578 66,808,610 2,586,230 1,490,651 310,693 255,797,762Due to other customers 10,409,607 8,299,300 2,897,110 9,906,081 5,695,072 37,207,170Debt issued & other borrowed funds - - -Unclaimed dividend 49,185 - 6,889 6,300 13,492 49,185Other liabilities 41,084 3,683 5,490,229 11,403,032 6,019,257 71,448Total Financial liabilities 198,289,500 75,775,452 296,977,470Total Net Financial Assets / (Liabilities) 5,453,475 (11,402,478) 43,605,577 6,795,932 11,913,432 56,365,938 Annual Report 2013 Sampath Bank PLC 311

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.3.4 Contractual Maturities of Commitments and ContingenciesThe table below shows the contractual expiry by maturity of the Bank’s contingent liabilities and commitments. Each undrawn loan commitmentis included in the time band containing the earliest date it can be drawn down. For issued financial guarantee contracts, the maximum amountof the guarantee is allocated to the earliest period in which the guarantee could be called.(a) Bank - as at 31st December 2013 On Less than 3 to 12 1 to 5 Over 5 Total Demand 3 Months Months Years Years Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Contingencies 2,355,104 8,094,295 10,640,169 4,907,427 2,336,575 28,333,570Financial guarantees 3,586 4,742,739 3,085,529 39,970 - 7,871,824Acceptance - - - 164,448Bills sent for collection 164,448 - - -Forward contracts - 44,570,612 15,251,074 - - 59,821,686Documentary credit 4,033,691 - - 12,014,404Others 1,413,586 6,567,127 -Total Contingencies 14,791 - 4,947,397 2,336,575 14,791 33,010,463 108,220,723 3,951,515 63,974,773Commitments 23,162,860 - - - - 23,162,860Undrawn OD 3,035,935 - - - - 3,035,935Undrawn loans 1,801 - - - - 1,801Undisbursed cash loans - - - -Undrawn credit card limits 11,145,457 - - - - 11,145,457Total Commitments 37,346,053 63,974,773 33,010,463 4,947,397 2,336,575 37,346,053Total Commitments & Contingencies 41,297,568 145,566,776(b) Bank - as at 31st December 2012 On Less than 3 to 12 1 to 5 Over 5 Total Demand 3 Months Months Years Years Rs 000Contingencies Rs 000 Rs 000 Rs 000Financial guarantees Rs 000 Rs 000AcceptanceBills sent for collection 1,070,979 6,651,724 7,627,451 4,360,012 2,283,785 21,993,951Forward contracts 4,802,347 1,160,280 345,561 - - 6,308,188Documentary credit - - - 129,388Others 129,388 - - -Total Contingencies - 44,553,202 3,938,186 - - 48,491,388 3,222,603 - - 11,310,366Commitments 1,147,619 6,940,144Undrawn OD 352,396 - - 4,360,012 2,283,785 352,396Undrawn loans 15,133,801 88,585,677Undisbursed cash loans 7,502,729 59,305,350Undrawn credit card limitsTotal Commitments 18,034,987 - - - - 18,034,987Total Commitments & Contingencies 1,489,301 - - - - 1,489,301 3,981 - - - - 3,981 7,811,797 - - - - 7,811,797 - - - - 27,340,066 59,305,350 15,133,801 4,360,012 2,283,785 27,340,066 34,842,795 115,925,743312

(c) Group - as at 31st December 2013 On Less than 3 to 12 1 to 5 Over 5 Total Demand 3 Months Months Years Years Rs 000Contingencies Rs 000 Rs 000 Rs 000Financial guarantees Rs 000 Rs 000AcceptanceBills sent for collection 2,355,104 8,094,295 10,640,169 4,907,427 2,336,575 28,333,570Forward contracts 3,586 4,742,739 3,085,529 39,970 - 7,871,824Documentary credit - - - 164,448Others 164,448 - - -Total Contingencies - 44,570,612 15,251,074 - - 59,821,686 4,033,691 - - 12,014,404Commitments 1,413,586 6,567,127 -Undrawn OD 14,791 - 4,947,397 2,336,575 14,791Undrawn loans 33,010,463 108,220,723Undisbursed cash loans 3,951,515 63,974,773Undrawn credit card limitsUndrawn commitments factoring 23,162,860 - - - - 23,162,860Total Commitments 3,035,935 - - - - 3,035,935Total Commitments & Contingencies 1,801 - - - - 1,801 - - - - 11,145,457 - - - - 11,145,457 118,467 - - - - 118,467 63,974,773 33,010,463 4,947,397 2,336,575 37,464,520 37,464,520 41,416,035 145,685,243(d) Group - as at 31st December 2012 On Less than 3 to 12 1 to 5 Over 5 Total Demand 3 Months Months Years Years Rs 000Contingencies Rs 000 Rs 000 Rs 000Financial guarantees Rs 000 Rs 000AcceptanceBills sent for collection 1,070,979 6,651,724 7,627,451 4,360,012 2,283,785 21,993,951Forward contracts 4,802,347 1,160,280 345,561 - - 6,308,188Documentary credit - - - 129,388Others 129,388 - - -Total Contingencies - 44,553,202 3,938,186 - - 48,491,388 3,222,603 - - 11,310,366Commitments 1,147,619 6,940,144Undrawn OD 352,396 - - 4,360,012 2,283,785 352,396Undrawn loans 15,133,801 88,585,677Undisbursed cash loans 7,502,729 59,305,350Undrawn credit card limitsUndrawn commitments factoring 18,034,987 - - - - 18,034,987 Annual Report 2013 Sampath Bank PLCTotal Commitments 1,489,301 - - - - 1,489,301Total Commitments & Contingencies 3,981 - - - - 3,981 7,811,797 - - - - 7,811,797 203,654 - - - - 203,654 - - - - 27,543,720 59,305,350 15,133,801 4,360,012 2,283,785 27,543,720 35,046,449 116,129,397 313

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.4 Market RiskMarket risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such asinterest rates, foreign exchange rates, commodity prices and equity prices. The Bank classifies exposures to market risk into either trading ornon trading portfolios and manages each of those portfolios separately.47.4.1 Interest Rate RiskInterest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.The Bank’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintainedwithin prudential levels.The following tables demonstrate the sensitivity of the Bank’s Income Statement as at 31st December 2013 and 31st December 2012 to areasonable possible change in interest rates, with all other variables held constant.Rate Sensitive Assets (RSA) & Rate Sensitive Liabilities (RSL) as at 31st December 2013 2012 Rs 000 Rs 000Rate Sensitive Assets (RSA)*Rate Sensitive Liabilities (RSL)* 319,727,891 262,645,830GAP (RSA - RSL) 318,306,901 253,343,129* Only the capital amounts 1,420,990 9,302,701Impact on Income Statement due to Interest Rate Shocks as at 31st December 2013 2012 Rs 000 Rs 000Interest Rate Shock 0.50% 401,629 310,267 1.00% 803,257 620,534 (0.50%) (401,629) (310,267) (1.00%) (803,257) (620,534)314

Interest Rate Sensitivity AnalysisThe tables below analyse the Bank’s interest rate risk exposure on financial assets and financial liabilities. The Bank’s assets and liabilities areincluded at carrying amount and categorised by the earlier of contractual re–pricing or maturity dates.(a) Bank - as at 31st December 2013 Up to 3 3 - 12 1-3 3-5 over 5 Non Total Months Months Years Years Years Interest Rs 000 Bearing Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets - - - - - 8,302,576 8,302,576Cash & cash equivalents - - - - -Balances with Central Bank of Sri Lanka 1,791,329 - - - - 15,766,967 15,766,967Placements with banks 18,043,918 - - - -Reverse repurchase agreements - - - - - - 1,791,329Derivative financial instruments 45,962,143 - - - -Financial assets held for trading 2,105,489 1,390,652 - - - - 18,043,918Financial assets held for trading pledged as collaterals 48,862 136,745 366,850 85,787 -Loans & receivables to banks 152,759,327 31,288,470 41,068,421 19,531,035 14,754,325 230,517 230,517Loans & receivables to other customers 1,890,417 8,555,405 903,271 801,495 -Other loans & receivables 100,462 - - - - 1,012,373 46,974,516Financial investments available for sale - 1,845,903 - - -Financial investments held to maturity - - - - - - 3,496,141Other assets 222,701,947 43,217,175 42,338,542 20,418,317 14,754,325Total Financial Assets - 638,244 - 259,401,578 - 12,150,588 2,292,656 2,393,118 - 1,845,903 1,751,374 1,751,374 29,356,463 372,786,769Financial Liabilities 1,879,072 - - - - 332,209 2,211,281Due to banks - - - - -Derivative financial instruments 880,141 - - - 638,724 638,724Securities sold under re-purchase agreements 2,509,543 91,487,819 1,664,420 2,477,906 21,711Due to other customers 185,853,118 1,991,184 1,721,366 7,762,764 2,923,448 - 3,389,684Debt issued & other borrowed funds - - - -Unclaimed dividend 24,463,569 - - - - 19,044,376 300,549,350Other liabilities - 94,359,144 3,385,786 10,240,670 2,945,159Total Financial Liabilities - - 38,862,331 214,705,302 54,981 54,981 64,701 64,701 20,134,991 345,771,052Interest Rate Sensitivity Gap 7,996,645 (51,141,969) 38,952,756 10,177,647 11,809,166 9,221,472 27,015,717 Annual Report 2013 Sampath Bank PLC 315

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.4.1 Interest Rate Risk(b) Bank - as at 31st December 2012 Up to 3 3 - 12 1-3 3-5 over 5 Non Total Months Months Years Years Years Interest Rs 000 Bearing Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets 3,012,734 7,419,401 10,432,135Cash & cash equivalentsBalances with Central Bank of Sri Lanka 17,200,792 17,200,792Placements with banksReverse repurchase agreements 7,624,376 1,163,751 - - - 8,788,127Derivative financial instruments 3,300,817 - -Financial assets held for trading - - - - 3,300,817Financial assets held for trading pledged as collaterals - - - 224,380 -Loans & receivables to banks 34,182,709 8,294,387 8,768,851 279,022 279,022Loans & receivables to other customers 150,120 400,320 - -Other loans & receivables 2,856,321 38,282,470 19,193,251 998,375 35,181,084Financial investments available for sale 41,299 8,518,767 8,768,851Financial investments held to maturity 7,657,631 632,247 2,856,321Other assets 133,645,410Total Financial Assets 2,225,878 816,119 179,175 - 208,184,369 10,515,756 1,744,449 1,923,624 - 1,399,091 1,399,091 187,068,719 47,253,972 20,225,818 29,041,130 300,877,257Financial Liabilities 244,038 - 380,746 624,784Due to banks - -Derivative financial instruments 610,590 - - - 381,838 381,838Securities sold under re-purchase agreements 2,146,527 59,582,186 - - -Due to other customers 165,203,292 6,925,955 1,905,895 880,847 149,847 - 2,757,117Debt issued & other borrowed funds 1,138,035 7,931,551 3,605,530Unclaimed dividend 9,223,958 15,608,923 243,330,990Other liabilities - - -Total Financial Liabilities 3,043,930 8,812,398 3,755,377 - 28,825,029 49,185 49,185 -- 71,448 71,448 176,817,815 67,118,731 16,492,140 276,040,391Interest Rate Sensitivity Gap 10,250,904 (19,864,759) 17,181,888 (293,631) 5,013,474 12,548,990 24,836,866316

(c) Group - as at 31st December 2013 Up to 3 3 - 12 1-3 3-5 over 5 Non Total Months Months Years Years Years Interest Rs 000 Bearing Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets - - - - - 8,340,838 8,340,838Cash & cash equivalents - - - - -Balances with Central Bank of Sri Lanka 1,791,329 - - - - 15,766,967 15,766,967Placements with banks 18,043,918 - - - -Reverse repurchase agreements - - - - - - 1,791,329Derivative financial instruments 45,962,143 - - - -Financial assets held for trading 2,105,489 1,390,652 - - - - 18,043,918Financial assets held for trading pledged as collaterals 48,862 136,745 366,850 85,787 -Loans & receivables to banks 153,892,732 32,933,853 43,975,252 20,336,465 14,771,291 230,517 230,517Loans & receivables to other customers 1,890,417 8,555,405 903,271 801,495 -Other loans & receivables 100,462 - - - - 1,012,373 46,974,516Financial investments available for sale - 1,845,903 - - -Financial investments held to maturity - - - - - - 3,496,141Other assets 223,835,352 44,862,558 45,245,373 21,223,747 14,771,291Total Financial Assets - 638,244 - 265,909,593 - 12,150,588 2,292,712 2,393,174 - 1,845,903 2,222,016 2,222,016 29,865,423 379,803,744Financial Liabilities 1,902,563 15,600 - - - 332,209 2,250,372Due to banks - - - - -Derivative financial instruments - - - 638,724 638,724Securities sold under re-purchase agreements 2,183,391 871,866 1,664,420 2,477,906 21,711Due to other customers 185,713,304 91,487,819 1,707,726 7,519,541 2,923,448 - 3,055,257Debt issued & other borrowed funds - - -Unclaimed dividend 30,436,043 2,161,772 - - - 19,016,626 300,381,786Other liabilities - - 3,372,146 9,997,447 2,945,159Total Financial Liabilities - - - 44,748,530 220,235,301 94,537,057 54,981 54,981 64,701 64,701 20,107,241 351,194,351Interest Rate Sensitivity Gap 3,600,051 (49,674,499) 41,873,227 11,226,300 11,826,132 9,758,182 28,609,393 Annual Report 2013 Sampath Bank PLC 317

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.4.1 Interest Rate Risk(d) Group - as at 31st December 2012 Up to 3 3 - 12 1-3 3-5 over 5 Non Total Months Months Years Years Years Interest Rs 000 Bearing Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Rs 000Financial Assets 3,045,165 - - - - 7,397,094 10,442,259Cash & cash equivalents - - - - -Balances with Central Bank of Sri Lanka 1,163,751 - - - 17,200,792 17,200,792Placements with banks 7,624,376 - - - -Reverse repurchase agreements 3,300,373 - - - - - 8,788,127Derivative financial instruments - - - -Financial assets held for trading - - - - - - 3,300,373Financial assets held for trading pledged as collaterals 34,182,709 150,120 400,320 224,380 -Loans & receivables to banks 39,284,010 21,500,688 8,753,830 8,663,050 279,022 279,022Loans & receivables to other customers 2,856,321 7,657,631 632,247 - -Other loans & receivables 41,299 - - - - 998,375 35,181,084Financial investments available for sale 2,400 7,365 - -Financial investments held to maturity 134,278,463 - - - - - 2,856,321Other assets 1,934,596 48,257,912 22,540,620 8,978,210 8,663,050Total Financial Assets 179,175 - 816,119 - - - 212,480,041 187,442,477 - 10,224,474 1,744,505 1,923,680 - 9,765 1,858,276 1,858,276 29,478,064 305,360,333Financial Liabilities 287,451 - - - - 380,747 668,198Due to banks - - - - -Derivative financial instruments 610,590 - - - 381,838 381,838Securities sold under re-purchase agreements 2,140,742 59,582,186 1,905,895 880,847 149,847Due to other customers 165,116,048 7,469,415 2,040,387 7,707,314 3,605,530 - 2,751,332Debt issued & other borrowed funds - - - -Unclaimed dividend 11,395,368 - - - - 15,453,413 243,088,236Other liabilities - 67,662,191 3,946,282 8,588,161 3,755,377Total Financial Liabilities - - 32,218,014 178,939,609 49,185 49,185 71,448 71,448 16,336,631 279,228,251Interest Rate Sensitivity Gap 8,502,868 (19,404,279) 18,594,338 390,049 4,907,673 13,141,433 26,132,082318

47.4.2 Currency RiskCurrency risk arises as a result of fluctuations in the value of a financial instrument due to changes in foreign exchange rates. The Board hasset limits on positions by currency. In accordance with the Bank’s policy, positions are monitored on a daily basis and hedging strategies areused to ensure positions are maintained within established limits.The tables below indicate the currencies to which the Bank had significant exposures as at 31st December 2013 and 31st December 2012and the effect to the Gains/Losses in case of a market exchange rates up/drop by 5 % and 10%. The analysis calculates the effect of areasonably possible movement of the currency rate against the LKR, with all other variables held constant, on the Income Statement (due tothe fair value of currency sensitive non trading monetary assets and liabilities) and equity (due to the change in fair value of currency swaps andforward foreign exchange contracts used as cash flow hedges). A negative amount in the “Impact on Income Statement “ Column of the tablereflects a potential net reduction in Income Statement or Equity, while a positive amount reflects a net potential increase.Foreign Exchange Position as at 31st December 2013 2012 Net Overall Net Overall Net Overall Net Overall Long Short Long Short Rs 000 Rs 000 Rs 000 Rs 000Currency 317,016 - - (184,320)USD 19,296 - 28,004 -GBP - 173,023 -EUR 129,358 - -JPY 14,585 - 7,539 -AUD 47,094 - 47,334 -CAD 9,168 - -CHF 11,160 - 7,850 -SGD 12,697 - 27,827 -HKD 5,675 -Sub Total (6,956) 5,851 (184,320)Other Currencies 566,049 (6,956) 5,293 -Grand Total 151,990 302,721Higher of Long or Short 718,039 127,761 (184,320) 718,039 430,482 430,482Impact on Income Statement due to 2013 2012Exchange Rate Shocks Net Open Impact on Net Open Impact onExchange Rate Shock Position Income Position Income (After Rate Statement (After Rate Statement Shocks) as at 31st Shocks) as at 31st December 2013 December 2012 Rs 000 Rs 000 Rs 000 Rs 0005% 753,941 35,902 452,007 21,524 Annual Report 2013 Sampath Bank PLC10% 789,843 71,804 473,531 43,048-5% 682,137 (35,902) 408,959 (21,524)-10% 646,235 (71,804) 387,435 (43,048)47.4.3 Equity Price RiskEquity price risk is the risk that the fair value of equities decreasing as a result of changes in the level of equity indices and individual stocks.Investment Committee reviews and approves all equity investment decisions. The market value of the Bank’s equity portfolio as of31st December 2013 is Rs 1,012,373,000/- (2012: Rs 998,375,000/-). 319

NOTES TO THE FINANCIAL STATEMENTS47 RISK MANAGEMENT CONTD.47.5 Operational RiskOperational risk is the risk of losses arising from failed internal processes, systems failure, human error, fraud or external events. When controlsfail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. Strategic andReputational Risks are not covered in Operational Risk.Operational Risks of the Bank are mitigated and managed through a Board approved Operational Risk Management Policy control frameworkwhich consists of monitoring and responding to potential risks such as segregation of duties, access, authorisation and reconciliation procedures,staff education and assessment processes, Business Continuity Planning etc. Operational Risk Management Unit reports to Group Chief RiskOfficer and the Board Risk Management Committee maintains a high level overall supervision of managing Operational Risks of the Bank.48 MATURITY ANALYSIS(a) Maturity Gap Analysis as at 31st December 2013 Within 12 Bank Total as at Within 12 Group Total as at Months 31.12.2013 Months 31.12.2013 Rs 000 After 12 Rs 000 After 12 Months Rs 000 Months Rs 000 Rs 000 Rs 000Assets 8,302,576 - 8,302,576 8,340,838 - 8,340,838 15,542,245 224,722 15,766,967 15,542,244 224,723 15,766,967Cash & cash equivalentsBalances with Central Bank of Sri Lanka 1,791,329 - 1,791,329 1,791,329 - 1,791,329Placements with banks 18,043,918 - 18,043,918 18,043,918 - 18,043,918Reverse repurchase agreements - -Derivative financial instruments 230,517 - 230,517 230,517 - 230,517Financial investments held for trading 46,974,516 46,974,516 46,974,516 46,974,516Financial assets held for trading 3,496,141 - 3,496,141 3,496,141 - 3,496,141 pledged as collaterals 185,607 452,637 638,244 185,607 452,637 638,244Loans & receivables to banks 75,353,781 79,011,711Loans & receivables to other customers 184,047,797 11,071,078 259,401,578 186,897,882 11,071,078 265,909,593Other loans & receivables 1,079,510 12,150,588 1,079,510 12,150,588Financial investments available for sale 2,354,493 38,625 2,393,118 2,354,493 38,681 2,393,174Financial investments held to maturity 1,845,903 - 1,845,903 1,845,903 - 1,845,903Investment in subsidiaries - 1,059,921 - - -Property, plant & equipment - 1,059,921 5,134,731 - 8,327,019Intangible assets - 5,134,731 297,359 - 8,327,019 313,305Deferred tax assets - 308,816 9,457 313,305 332,949Other assets 449,012 297,359 4,205,442 949,039 323,492 4,748,913Total Assets 308,816 284,343,564 3,756,430 382,041,664 287,741,394 3,799,874 391,303,914 97,698,100 103,562,520Liabilities 2,211,281 - 2,211,281 2,250,372 - 2,250,372 638,724 - 638,724 638,724 - 638,724Due to banks - -Derivative financial instruments 3,389,684 4,134,562 3,389,684 3,055,257 4,134,562 3,055,257Securities sold under re-purchase agreements 296,414,788 20,275,478 300,549,350 296,247,224 23,146,755 300,381,786Due to other customers - -Debt issued & other borrowed funds 18,586,853 2,116,467 38,862,331 21,601,775 2,116,467 44,748,530Unclaimed dividend 54,981 - 54,981 54,981 59,034 54,981Current tax liabilities 441,209 457,100Deferred tax liabilities 575,398 2,003,262 2,691,865 636,871 2,011,718 2,753,338Other provisions - 28,970,978 - - 31,925,636 59,034Other liabilities - -Total Liabilities 441,209 457,100 2,780,725 4,783,987 3,133,501 5,145,219 324,652,434 353,623,412 327,618,705 359,544,341Maturity Gap (40,308,870) 68,727,122 28,418,252 (39,877,311) 71,636,884 31,759,573Cumulative Gap (40,308,870) 28,418,252 - (39,877,311) 31,759,573 -320

(b) Maturity Gap Analysis as at 31st December 2012 Within 12 Bank Total as at Within 12 Group Total as at Months 31.12.2012 Months 31.12.2012 Rs 000 After 12 Rs 000 After 12 Months Rs 000 Months Rs 000 Rs 000 Rs 000Assets 10,432,135 - 10,432,135 10,442,259 - 10,442,259Cash & cash equivalents 17,011,002 189,790 17,200,792 17,011,002 189,790 17,200,792Balances with Central Bank of Sri LankaPlacements with banks 8,788,127 - 8,788,127 8,788,127 - 8,788,127Reverse repurchase agreements 3,300,817 - 3,300,817 3,300,373 - 3,300,373Derivative financial instruments - -Financial investments held for trading 279,022 - 279,022 279,022 - 279,022Financial assets held for trading pledged 35,181,084 35,181,084 35,181,084 35,181,084 as collaterals 2,856,321 - 2,856,321 2,856,321 - 2,856,321Loans & receivables to banks 191,419 624,700 816,119 191,419 624,700 816,119Loans & receivables to other customers 54,005,037 56,836,244Other loans & receivables 154,179,332 5,099,997 208,184,369 155,643,797 5,099,998 212,480,041Financial investments available for sale 5,415,759 10,515,756 5,124,476 10,224,474Financial investments held to maturity 1,900,513 23,111 1,923,624 1,900,513 23,167 1,923,680Investment in subsidiaries - - - 9,765 - 9,765Property, plant & equipment - 1,059,921 - - -Intangible assets - 1,059,921 4,559,806 3,551 6,764,372Deferred tax assets - 4,559,806 311,758 - 6,760,821 316,412Other assets - - 3,778 316,412 12,328Total Assets 2,066,629 311,758 4,000,674 2,532,210 8,550 4,459,859 - 241,602,160 309,410,325 243,267,697 1,927,649 315,055,028 1,934,045 71,787,331 67,808,165Liabilities 624,784 - 624,784 668,198 - 668,198Due to banks 381,838 - 381,838 381,838 - 381,838Derivative financial instruments 2,757,117 - 2,757,117 2,751,332 - 2,751,332Securities sold under re-purchase agreements 240,394,402 2,936,588 243,330,990 240,151,645 2,936,591 243,088,236Due to other customers 16,149,912 12,675,117 28,825,029 18,115,813 14,102,201 32,218,014Debt issued & other borrowed funds - -Unclaimed dividend 49,185 2,105,259 49,185 49,185 2,105,259 49,185Current tax liabilities 936,000 357,474 3,041,259 967,984 388,201 3,073,243Deferred tax liabilities 342,636 355,358Other provisions - 3,781,732 357,474 - 3,775,072 388,201Other liabilities - 22,198,806 342,636 - 23,662,682 355,358Total Liabilities 273,756 4,055,488 487,247 4,262,319 261,566,994 283,765,800 263,573,242 287,235,924Maturity Gap (19,964,834) 45,609,359 25,644,525 (20,305,545) 48,124,649 27,819,104 Annual Report 2013 Sampath Bank PLCCumulative Gap (19,964,834) 25,644,525 - (20,305,545) 27,819,104 321

INCOME STATEMENT INUS$ Bank GroupFor the year ended 31st December 2013 2012 2013 2012 (US$ 000) Restated* (US$ 000) Restated*Gross Income (US$ 000) (US$ 000)Interest income 355,836 303,926 367,619 311,224Less : Interest expenseNet interest income 312,975 249,761 323,673 256,263 203,102 158,789 208,226 161,950Fee & commission income 109,873 115,447Less : Fee & commission expense 90,972 94,313Net fee & commission income 22,965 21,964 23,703 22,536Net trading income 3,513 5,129 3,675 5,289Other operating incomeTotal operating income 19,452 16,835 20,029 17,247Impairment charge / (reversal) for loans & other losses (533) 49 (533) 49Net operating income 20,430 32,152 20,776 32,376 149,221 140,008 155,719 143,985Less: Operating expensesPersonnel expenses 26,693 508 27,335 628Other operating expenses 122,528 139,500 128,384 143,357Total operating expenses 33,783 31,409 35,734 32,753Operating profit before Value Added Tax (VAT) 47,546 41,043 48,901 41,436 81,328 72,451 84,635 74,189Less : Value Added Tax on Financial ServicesOperating profit after Value Added Tax (VAT) 41,199 67,049 43,748 69,168Less : Income tax expense 6,848 9,073 7,121 9,214Profit for the year 34,351 57,976 36,627 59,954Attributable to: 8,114 17,001 8,805 17,337Equity holders of the Bank 26,237 40,975 27,822 42,617Non controlling interest 26,237 40,975 27,801 42,591Earnings per share: Basic (US$) - - 21 26Earnings per share: Diluted (US$)Dividend per share: Gross (US$) 26,237 40,975 27,822 42,617Dividend per share: Net (US$) 0.17 0.26 0.17 0.25 0.06 0.09 0.06 0.09Exchange rate of US$ was Rs 130.75 as at 31st December 2013 (Rs 127.65 as at 31st December 2012 and Rs 113.90 as at 31stDecember 2011).* Certain amounts shown here do not correspond to the Financial Statements - 2012 and reflect adjustments made based on the newly adopted Sri Lanka Accounting Standards: refer Note 6.4322

STATEMENT OFCOMPREHENSIVEINCOME INUS$ Bank GroupFor the year ended 31st December 2013 2012 2013 2012 (US$ 000) Restated* (US$ 000) Restated*Profit for the year (US$ 000) (US$ 000)Other comprehensive income / (expenses) net of taxGains & Losses arising on re-measuring available 26,237 40,975 27,822 42,617 for sale financial assets 3,782 (2,733) 3,782 (2,733)Exchange difference in translation 51 126 51 126Actuarial gains & losses on defined benefit plans 3,833 (2,607) 3,833 (2,607)Deferred tax effect on above (3,523) 96 (3,535) 96Surplus from revaluation of Property, plant & equipment 986 (27) 986 (27)Deferred tax effect on above 69 69 (2,536) (2,549)Gains & losses arising from cash flow hedges (21) (21)Other comprehensive income net of tax 3,177 - 10,548 -Total comprehensive income for the year net of tax (195) (195)Attributable to: 2,982 (21) (21)Equity holders of the Bank 10,353Non controlling interest (1,285) - - (1,285) 2,995 (2,558) (2,558) 29,231 38,417 10,352 40,058 38,174 29,231 38,417 40,032 - - 37,943 26 231 29,231 38,417 40,058 38,174Exchange rate of US$ was Rs 130.75 as at 31st December 2013 (Rs 127.65 as at 31st December 2012 and Rs 113.90 as at 31stDecember 2011).* Certain amounts shown here do not correspond to the Financial Statements - 2012 and reflect adjustments made based on the newly adopted Sri Lanka Accounting Standards: refer Note 6.4 Annual Report 2013 Sampath Bank PLC 323

STATEMENT OFFINANCIALPOSITIONINUS$ Bank GroupAs at 31st December 31st December 1st January 31st December 31st December 1st January 2013 2012 2012 2013 2012 2012ASSETSCash & cash equivalents (US$ 000) Restated* Restated* (US$ 000) Restated* Restated*Balances with Central Bank of Sri Lanka (US$ 000) (US$ 000) (US$ 000) (US$ 000)Placements with banksReverse repurchase agreements 63,500 81,725 94,262 63,792 81,804 94,352Derivative financial instruments 120,589 134,750 116,173 120,589 134,750 116,173Financial assets held for tradingFinancial assets held for trading 13,700 68,845 46,858 13,700 68,845 46,858 138,003 25,858 40,404 138,003 25,855 40,439 pledged as collateralsLoans & receivables to banks 1,763 2,186 1,789 1,763 2,186 1,789Loans & receivables to other customers 359,270 275,606 202,397 359,270 275,606 202,397Other loans &receivablesFinancial investments available for sale 26,739 22,376 35,143 26,739 22,376 35,143Financial investments held to maturity 4,881 6,393 3,880 4,881 6,393 3,880Investment in SubsidiariesProperty, plant & equipment 1,983,951 1,630,900 1,489,740 2,033,725 1,664,552 1,509,894Intangible assets 92,930 82,380 50,362 92,930 80,098 50,362Deferred tax asset 18,303 15,070 17,781 18,303 15,070 17,781Other assets 14,118 - 90 14,118 76 170Total assets 8,106 8,303 9,262 - - - 39,271 35,721 39,752 63,687 52,992 58,746LIABILITIES 2,274 2,442 591 2,396 2,479 644Due to banks 2,362 - - 2,546 97 21Derivative financial instruments 32,164 31,341 25,862 36,321 34,938 30,018Securities sold under re-purchase agreementsDue to other customers 2,921,925 2,423,896 2,174,345 2,992,764 2,468,116 2,208,668Debt issued and other borrowed fundsUnclaimed dividend 16,912 4,895 10,322 17,211 5,235 10,322Current tax liabilities 4,885 2,991 2,730 4,885 2,991 2,730Deferred tax liabilities 21,599 21,554Other provisions 25,925 1,906,236 36,004 23,367 1,904,334 36,004Other liabilities 2,298,657 1,713,741 2,297,375 1,712,857Total Liabilities 225,813 252,393 297,226 385 173,435 342,245 385 188,678EQUITY 421 326 421 326Stated capital 23,825 24,076Reserves 20,588 2,800 16,258 21,058 3,041 16,516 - 2,684 2,899 452 2,784 3,037 Statutory Reserves 2,667 2,782 Other Reserves 3,374 31,770 3,496 33,391 Retained Profit 36,589 2,222,999 28,574 39,352 2,250,184 30,758Total equity attributable to equity holders 2,704,577 1,986,956 2,749,861 2,004,010 of the BankNon controlling interest 34,113 27,921 24,089 34,113 27,921 24,089Total EquityTotal liabilities and equity 28,097 21,174 12,575 28,833 21,618 12,835 136,014 131,748 131,637 154,030 142,868 144,099Net asset value per share ( US $)Commitments and contingencies 19,124 20,054 19,087 25,246 25,045 23,109 217,348 200,897 187,388 242,222 217,453 204,132 - - - 681 480 526 217,348 200,897 187,388 242,903 217,933 204,658 2,921,925 2,423,896 2,174,345 2,992,764 2,468,116 2,208,668 1.30 1.20 1.17 1.44 1.30 1.27 1,113,321 908,153 1,061,868 1,114,227 909,749 1,061,868Exchange rate of US$ was Rs 130.75 as at 31st December 2013 (Rs 127.65 as at 31st December 2012 and Rs 113.90 as at 31st December 2011).* Certain amounts shown here do not correspond to the Financial Statements - 2012 and reflect adjustments made based on the newly adopted Sri Lanka Accounting Standards: refer Note 6.4324

TEN YEARSAT A GLANCE SLAS SLFRS Rs Mn 2007 2013Year 2004 2005 2006 2008 2009 2010 2011 2012Profit Performance 6,953 8,704 12,340 17,400 22,243 25,213 24,333 27,577 38,796 46,526Income 5,412 7,227 9,997 14,950 19,451 20,970 18,477 21,111 31,882 40,921Interest income 2,859 3,913 5,890 12,801 13,165 12,168 20,269 26,556Interest expenses 2,553 3,314 4,107 9,947 9,953 11,613 14,366Net interest income 646 5,003 6,650 7,805 8,525 8,943Exchange income 617 192 1,697 647 774 964 2,154 520Other income 924 1,284 6,450 505 498 4,104 2,671Total operating income 4,094 4,790 4,183 1,944 2,144 3,469 5,357 4,351 17,872 19,511Operating expenses & impairment losses 2,308 3,493 2,268 7,452 9,441 12,048 14,380 14,572 9,313 14,124Profit before tax 965 1,297 1,240 5,234 6,877 9,878 7,401 4,491Income tax expense 344 1,028 2,218 2,564 8,072 4,502 9,578 2,170 1,061Profit after tax 621 476 1,167 1,150 3,976 1,199 4,994 5,230 3,430 821 1,052 1,414 1,878 3,303 1,606Year 2004 2,098 3,387 2013 2005 2008 2010Assets SLAS 2009 SLFRSCash & cash equivalents including placementsBills of exchange 2006 2007 2011 2012Loans and advancesLease rentals receivable 4,813 5,848 8,814 9,108 6,923 5,868 6,048 16,073 19,220 10,094Loans and receivables to banks 2,424 2,748 2,572 2,947 2,827 2,985 - - - -Loans and receivables to other customers 43,548 54,043 67,061 83,695 87,380 92,189 - - - -Investment in associates & subsidiaries 1,972 3,304 6,337 6,788 5,448 3,511 - - - -Property, plant & equipment -Total assets - - - - - - 442 816 638 - - - - - - 124,067 169,681 208,184 259,402Liabilities 452 862 1,096 970 970 992 992Due to banks & other customers (Deposits Only) 1,183 1,435 1,823 3,080 3,289 3,420 1,055 1,060 1,060Refinance borrowings 67,483 84,811 109,550 133,196 138,539 156,162 4,278 4,528 4,560 5,135Other liabilities evidenced by paper 191,314 247,658 309,410 382,042Borrowings from banks & debt issued and 53,305 65,900 81,432 99,419 107,380 126,091 153,310 195,900 243,575 302,429 other borrowed funds 1,564 1,900 2,774 4,157 4,592 4,819 - - - -Other liabilities including income & deffered tax liabilities 2,196 2,491 2,734 4,433 4,514 3,102 - - - -Total liabilities - - - - - - 8,702 20,225 29,206 39,194Shareholders’ Fund 6,501 8,889 15,984 16,618 12,276 10,304 8,311 10,189 10,985 12,000Stated capital 63,566 79,180 102,924 124,627 128,762 144,316 170,323 226,314 283,766 353,623Reserves 517 689 1,582 1,582 1,582 1,582 1,786 2,744 3,564 4,460Investor Information 3,401 4,943 5,044 6,987 8,195 10,265 19,204 18,600 22,080 23,958Dividend paid/proposedDividend cover (times) 88.6 137.8 172.2 206.7 275.6 473.6 1,235.8 1,427.0 1,954.1 1,342.3Net assets per share (Rs) 7.0 6.0 6.0 5.1 5.1 4.4 2.7 2.4 2.6 2.6Market price per share (Rs)-MaxMarket price per share (Rs)-Min 75.82 81.75 96.17 124.39 141.92 77.52 131.18* 129.00* 152.96* 169.37*Market price as at 31 December (Rs) 105.00 114.00 117.25 135.00 120.00 205.00 550.00 307.00 216.00 242.00 100.00 201.00 191.00 148.50 161.60Other Information 60.25 61.00 75.25 120.00 65.00 65.00 271.90 195.00 200.50 171.90Exchange rate (US $) 62.75 90.00 109.75 68.00 204.25Number of staff as at 31 DecemberNumber of branches as at 31 December 104.60 102.10 107.52 108.65 113.00 114.47 110.95 113.90 127.65 130.75 Annual Report 2013 Sampath Bank PLC 1,702 1,875 2,039 2,213 2,364 2,388 2,688 3,230 3,455 3,688Ratios 71 83 96 105 112 131 171 206 209 212Growth of income (%)Cost to income ratio (%) 15.0 25.2 41.8 41.0 27.8 13.4 (3.5) 9.9 40.7* 19.9*Growth of deposits (%) 60.1 60.0 58.0 56.8 59.6 57.0 55.8 61.5* 58.2* 59.1*Growth of advances (%) 25.9 23.6 23.5 22.4 17.5 19.4 27.8* 24.3* 24.2*Dividend per share 27.3 25.3 26.4 23.0 8.1 30.3 37.1* 22.9* 24.4*Return on assets (after tax) (%) 2.00 2.00 2.50 3.00 2.4 3.2 8.09 9.00 12.00 8.00Return on equity (after tax) (%) 1.02 1.08 1.06 0.87 4.00 6.25 1.94 1.55* 1.88* 0.99*Fixed assets to shareholders’ fund (%) 17.02 17.20 16.78 13.84 1.04 1.42 24.59 16.17* 22.26* 12.69*Total assets to shareholders’ fund (Times) 30.2 25.5 28.9 35.9 15.41 19.41 20.4 21.2 17.8 18.1 17.2 15.1 17.4 15.5 33.6 28.9 11.6 12.1 13.4(As specified in Banking Act No. 30 of 1988) 14.2 13.2 9.1Liquid Assets Ratio (%) 23.6 25.3 31.3 29.0 29.5 30.5 26.3 25.0 22.4 27.6Capital Adequacy Ratios (%)- TIER I 9.14 10.14 8.38 7.58 8.10 10.40 10.71 10.24 11.80* 10.08*- TIER I+II 13.30 13.53 10.82 11.58 11.95 13.45 12.91 11.45 13.61* 14.22**Based on SLFRSs and LKASs 325

VALUE ADDITIONEconomic Value Addition 2013 2012 Rs Mn Rs Mn 23,494Shareholders’ funds 27,031 7,012Provision for Impairment Losses 9,980 30,506 5,231 37,011 65Profit attributable to shareholders 3,431 (105)Impairment charge / (reversal) 3,490 5,191Amounts written off (326) 6,595 14 4,277Economic cost % (12 months average Treasury Bill rate plus 2% risk premium) 12.6Economic cost 4,675 914Economic value addition 1,920 %The economic value created by the Bank to its shareholders’ credit during the period is reflected in the above analysis. 30.0Financial Value Addition 2013 % 2012 30.0 Rs Mn Rs Mn 16.2Value Added 41.8 14.6Income earned by providing 46,325 41.8 38,649Banking services 32,464 15.5 25,371 1.6Cost of services 13,861 12.7 13,278 24.7Value added by banking services 16.1Non-banking income 200 2.8 147Provision for Impairment Losses (3,490) 23.8 (65) 8.6 10,571 15.4 13,361 29.1Value allocated 24.5To employees 4,417 8.5 4,009Salaries, wages and other benefits 4,417 18.8 4,009 4.3 19.8 0.3To providers of capital 1,643 2,164 100.0Dividend to shareholders 1,342 5.4 1,954Interest to Debenture holders (6.3) 301 100.0 210To governmentIncome Tax 2,519 3,304Value Added Tax 1,624 2,146 1,158To expansion and growth 895Retained income 3,883Depreciation 1,992 3,276Deferred taxation 2,088 579 570 27 (666) 10,571 13,361326

SOURCES & DISTRIBUTION OF INCOMEFor the year ended 31st December 2013 2012 Rs Mn Rs MnSources of IncomeInterest Income 40,921 31,882Net Fee & Commission Income 3,003 2,804Net Trading Income (70) 6Other Operating Income 2,671 4,104Distribution of Income 46,526 38,796To Depositors/ Borrowers/Debenture HoldersInterest Paid 27,015 20,924Fee & Commission Paid 26,556 20,269To Employees 459 655Personnel Expenses 4,417 4,009To Suppliers / Depreciation set aside 4,417 4,009Depreciation & Amortisation 9,707 5,304Impairment ProvisionOther Expenses 570 579 3,490 65To Government 5,647Value Added Tax on Financial Services 4,660Income Tax Expense (including deferred tax) 1,956 895 3,328To Shareholders 1,158Dividend 1,061 2,170Retained Profit 3,430 5,230 1,342 1,954 2,088 3,276 46,526 38,796 Annual Report 2013 Sampath Bank PLC 327

INVESTOR RELATIONSValue Creation for Shareholders 2013 2012 Change % 169.37 152.96 10.72 Net Assets per Share (Rs) 21.67 32.57 Earnings per Share - Group (Rs) 8.00 12.00 (33.46) Dividend per Share (Rs) 171.90 200.50 (33.33) Market Price per Share - Year End (Rs) (14.26)Sampath Bank Market DDiPvSidend Per Share - Earnings and HighestCapitalisation Rank Market Price per Share Rs 12 Rs Rs 550 307 216 24215 8 8 22.3 16 13 9 23.0 16 32.6 21.72010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 Earnings Per Share (EPS) Group Highest Market Price Per Share (HMPS)Bank’s Market Capitalisation in Comparison to CSE - As at December 31Sampath Bank Market Capitalisation (Rs Mn) 2013 2012 2011 2010 2009Increase/ Decrease % in Market Capitalisation 28,843 32,628 30,587 41,548 14,070CSE Market Capitalisation (Rs Mn) (12%) 7% (26%) 195% 200%As a % of CSE Market Capitalisation 2,213,873Market Capitalisation Rank 2,459,900 2,167,581 2,210,452 1,092,137 1.17 % 1.50% 1.38% 1.88% 1.29% 16 13 16 15 19Shareholders' Fund Composition of Share Sampath Bank Return Ownership - 2013 on Equity & MarketRs Mn (No of shareholders) Interest Rates 20,990 55 50 %% 21,344 40 24.6 25,645 22.3 28,418 16.2 12.7 8.6 9.2 7.5 8.2 12.0 11.1 10.6 13.1 2010 Shares 500 & Less 2010 2011 Shares 501 - 5,000 2011 2012 Shares 5,001 - 10,000 2012 2013 More than 10,000 Shares 2013 Average 12 T.B. Rate AWFDR ROE328

Analysis of ShareholdersResident / Non-Resident 31st December 2013 31st December 2012 No of No of % No of No of % Shareholders Shares Shareholders Shares 85.02 94.39 14.98 5.61Resident Shareholders 17,595 142,649,505 100.00 17,216 153,613,404Non-Resident Shareholders 305 25,138,100 302 9,123,261 100.00 17,900 167,787,605 17,518 162,736,665Individuals / Institutions 31st December 2013 31st December 2012 Individuals / Public No of No of % No of No of % Institutions Shareholders Shares Shareholders Shares 35.40 7.21 64.60 92.79 17,331 59,392,666 100.00 9,081 11,728,136 100.00 569 108,394,939 8,437 151,008,529 17,900 167,787,605 17,518 162,736,665Composition of Share Ownership 31st December 2013 31st December 2012 No of % No of % No of % No of % Shareholders Shares Shareholders SharesShares 500 & Less 8,916 49.81 1,738,236 1.04 8,813 50.31 1,711,831 1.05 7,113 39.74 10,986,610 6.55 7,359 42.01 11,020,135 6.77Shares 501-5,000 864 4.83 3.69 3.74 4,467,234 2.75 6,197,624 656Shares 5,001-10,000More than 10,000 1,007 5.62 148,865,135 88.72 690 3.94 145,537,465 89.43Shares 17,900 100.00 167,787,605 100.00 17,518 100.00 162,736,665 100.00Sampath Bank Market Composition of Share Share Trading -Capitalisation Ownership - 2013 Sampath Bank PLC (No of shares)Rs Mn No of Shares 1 Traded Mn 441,548 68 30,587 6 48 32,628 89 192009 27 28,843 2010 29 20112010 Shares 500 & Less 2012 2011 Shares 501 - 5,000 2013 2012 Shares 5,001 - 10,000 Annual Report 2013 Sampath Bank PLC 2013 More than 10,000 Shares 329

INVESTORRELATIONSShare Trading 2013 2012 2011 2010 2009Market 1,421,303 1,857,384 4,579,352 3,355,126 1,266,299 24,543,700,782 No of Transactions 9,054,193,822 9,691,236,634 18,489,195,424 4,928,999,666 No of Shares Traded Value of Shares Traded 200,468 213,827 546,255 570,326 142,463 (Rs Mn)Bank 2013 2012 2011 2010 2009 19,212 13,473 15,335 20,154 8,578 No of Transactions Number of Shares Traded 47,891,453 28,871,254 26,951,903 67,672,164 19,077,355 As a % of Total Shares in Issue 28.54 17.74 17.18 44.20 27.69 Average Daily Turnover (Rs Mn) 39.75 22.55 90.78 10.41 Value of Shares Traded (Rs Mn) 30.23 9,620.18 5,457.94 7,225.70 20,427.00 2,457.52Sampath Share Price Fluctuation 2013 2012 2011 2010 2009 161.60 148.50 191.00 201.00 65.00 Minimum Market Price (Rs) 216.00 307.00 550.00 Maximum Price (Rs) 242.00 205.00 Price as at 31st December 200.50 195.00 271.90 (Closing Price) (Rs) 171.90 204.25 Gross Dividend Shareholding of Individuals & Rs Mn Institutions as at 31st December 1,235.9 1,427.0 % 1,954.1 1,342.3 2010 88.3 2011 90.8 2012 92.8 2013 64.6 2010 35.4 2011 11.7 9.2 7.2 2012 2013 Individuals / Public Institutions330

Sampath Share Price Share Trading - %Fluctuation Sampath Bank PLCRs 30,000 25,000600 20,000 15,000500 10,000400 5,000 0300200100 0 Maximum Price Minimum Market Price Price as at 31st December2009 2010 2011 2012 2013 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Volume Traded (No' 000) Turnover (Rs' 000)Sampath Bank PLC - Ordinary SharesFrequency Distribution of Shareholders as at 31 December 2013 RESIDENT NON RESIDENT TOTALShare Range No of Shareholders % No of Shares % No of Shareholders % No of Shares % No of Shareholders % No of Shares % 1-250 4,518 25.24 352,137 0.2099 57 0.32 5,403 0.0032 4,575 25.56 357,540 0.2131 251-500 4,298 24.01 4,341 24.25 1,380,696 0.8229 501-1,000 2,999 16.75 1,365,843 0.8140 43 0.24 14,853 0.0089 3,049 17.03 2,071,813 1.2348 1,001-2,000 2,214 12.37 2,258 3,212,441 2,001-5,000 1,762 9.84 2,036,354 1.2136 50 0.28 35,459 0.0211 1,806 12.61 5,702,356 1.9146 5,001-10,000 4.72 10.09 6,197,624 3.3986 10,001-20,000 845 3,151,635 1.8783 44 0.25 60,806 0.0362 864 4.83 8,039,194 3.6937 20,001-30,000 563 3.15 580 4,155,834 4.7913 30,001-40,000 164 0.92 5,552,915 3.3095 44 0.25 149,441 0.0891 170 3.24 2,520,918 2.4768 40,001-50,000 0.37 0.95 1,330,038 1.5024 50,001-100,000 67 0.16 6,077,566 3.6222 19 0.11 120,058 0.0716 72 0.40 4,060,303 0.7927 100,001-1,000,000 29 0.32 30 0.17 22,841,637 2.4199 1,000,001-Over 57 0.38 7,811,941 4.6559 17 0.09 227,253 0.1354 59 0.33 105,917,211 13.6134Total 68 0.06 80 0.45 167,787,605 63.1258 98.30 4,008,342 2.3889 6 0.03 147,492 0.0879 16 0.09 100.0000 11 17,900 100.00 17,595 2,339,115 1.3941 5 0.03 181,803 0.1084 1,286,903 0.7670 1 0.01 43,135 0.0257 3,923,641 2.3385 2 0.01 136,662 0.0814 17,831,115 10.6272 12 0.07 5,010,522 2.9862 86,911,998 51.7988 5 0.03 19,005,213 11.3269 142,649,505 85.0179 305 1.70 25,138,100 14.9821 Annual Report 2013 Sampath Bank PLC 331

INVESTORRELATIONSSAMPATH BANK PLC (ORDINARY SHARES)Top 20 Shareholders as at 31st December 2013No Shareholder Name Shareholding Ratio 25,107,454 14.961 VALLIBEL ONE PLC 16,745,012 9.98 16,738,207 9.982 EMPLOYEES PROVIDENT FUND 11,496,342 6.853 MR Y S H I SILVA 7,050,493 4.204 ROSEWOOD (PVT) LIMITED-ACCOUNT NO 3 4,706,155 2.80 4,468,022 2.665 HSBC INTL NOM LTD-BBH-MATTHEWS INTERNATIONAL FUNDS- MATTHEWS ASIA GROWTH FUND 4,375,557 2.616 NORTHERN TRUST CO S/A CARAVEL FUND ( INTERNATIONAL ) LTD. 4,067,943 2.42 2,735,145 1.637 EMPLOYEES TRUST FUND BOARD 1,663,598 0.998 HSBC INTL NOM LTD-STATE STREET LUXEMBOURG C/O SSBT -ABN 1,513,159 0.90 AMRO MULTI -MANAGER FUNDS 1,437,278 0.869 VARNERS INTERNATIONAL (PRIVATE) LIMITED 1,388,010 0.83 1,359,849 0.8110 SAMPATH BANK PLC ACCOUNT NO 04 (SAMPATH BANK PENSION FUND) 1,064,987 0.63 0.5811 MR B A MAHIPALA 979,243 0.57 950,000 0.4912 NORTHERN TRUST CO S/A-NORTHERN TRUST FIDUCIARY SERVICES 0.45 (IRELAND) LTD AS TRUSTEE TO BARING ASEAN FRONTIERS FUND 816,155 65.21 750,00013 AIA INSURANCE LANKA PLC A/C NO 07 109,412,60914 KEYSTONE (PRIVATE) LIMITED15 MELLON BANK N.A.-UPS GROUP TRUST16 CEYLON GUARDIAN INVESTMENT TRUST PLC A/C NO 0117 CEYLON INVESTMENT PLC A/C NO 0118 BNY-CF RUFFER INVESTMENT FUNDS : CF RUFFER PACIFIC FUND19 HSBC INTL NOM LTD-BBH-MATTHEWS EMERGING ASIA FUND20 THE CEYLON GUARDIAN INVESTMENT TRUST PLC A/C NO 02 Total No. of Shares Registered 167,787,605 100.00 Total No. of Shares Unregistered - - Total No. of Shares Issued 167,787,605 100.00 Shares held by Directors 99,568* 0.06 Shares held by Institutions 108,394,939 64.60 Balance held by Public 59,293,098 35.34 Total No. of Shares Issued 167,787,605 100.00 % Shares held by Public - 84.98% % Shares held by Directors and Related Parties - 15.02%* Mr. Dhammika Perera is the Chairman of Vallibel One PLC as well as Sampath Bank PLC, total shares held by Vallibel One PLC iscategorised under institutions.332

Dividend Payment DetailsYear Total Dividend Paid Dividend per Share Net Profit after Tax Dividend Pay Out Ratio  Rs Mn Rs  Rs Mn  2000/2001 58.70 1.752001/2002 52.14 1.75 402 14.60%2002/2003 88.57 2.002003 (Interim) 59.78 322 16.19%2003 (Final) 21.99 2.002004 (Interim) 65.98 441 20.08%2004 (Final) 34.30 2.00 2005 (Interim) 87.14 561 14.58%2005 (Final) 32.21 2.002006/2007 155.47 621 16.15%2007/2008 206.66 2.502008/2009 256.65 3.00 821 14.54%2009/2010 436.19 4.002010/2011 1,235.86 6.25 1,028 15.12%2011/2012 1,426.98 8.09 1,052 19.64%2012/2013 1,954.10 9.00 1,414 18.15%2013/2014 12.00 2,098 20.79%(Proposed) 3,303 37.42% 3,819 37.37% 5,230 37.36% 1,342.30  8.00  3,430  39.13% Record of Scrip Issues Year Issue Basis New No of Stated Capital Reason for Issue Shares (Rs Mn)2010 Scrip Dividend 1 for 120.74 627,5962010 Scrip Dividend 1 for 43.39 1,786.25 Increase Stated Capital2011 Scrip Dividend 1 for 43.06 3,521,2942012 Scrip Dividend 1 for 33.12 2,701.79 Increase Stated Capital 3,682,039 3,523.87 Increase Stated Capital 4,916,007 4,457.89 Increase Stated CapitalRecord of SubdivisionsYear Issue Basis New No of Stated Capital Reason for Issue 11 for 10 Shares (Rs Mn) 1 for 1 6,888,7622010 Consolidation and 1,581.65 Increase in Liquidity Subdivision 76,403,9862010 Subdivision 1,786.25 Gift Benefit to Shareholders Annual Report 2013 Sampath Bank PLCEmployee Share Option Plan 2010 Year Issue Basis New No of Stated Capital Reason for Issue Shares (Rs Mn)20112012 ESOP 2% of Issued Shares 524,924 2,743.78 Benefit for Staff Members2013 ESOP 2% of Issued Shares ESOP 2% of Issued Shares 2,200,436 3,564.17 Benefit for Staff Members 134,933 4,460.34 Benefit for Staff Members 333

INVESTORRELATIONSDEBENTURE INFORMATION(a) Market ValuesDebentures - 2007/2012 *  Highest Lowest Period EndFixed - 17.5% 2013 2012 2013 2012 2013 2012Fixed - 15.5%Floating rate N/A N/T N/A N/T N/A N/T N/A N/T N/A N/T N/A N/T N/A N/T N/A N/T N/A N/TN/A - Not Applicable and N/T - Not Traded*Debentures were redeemed on 29th August 2012 Debentures - 2012/2017  Highest Lowest Period End Fixed - 16.5% 2013 2012 2013 2012 2013 2012 Fixed - 15.0% Floating rate 107.00 100.00 95.00 100.00 107.00 100.00N/T - Not Traded 103.00 100.00 90.00 100.00 100.00 100.00 N/T N/T N/T N/T N/T N/TDebentures - 2013/2018  Highest Lowest Period EndFixed - 13.4% 2013 2012 2013 2012 2013 2012Fixed - 13.0% 101.21 N/A 101.21 N/A 101.21 N/A N/T N/A N/T N/A N/T N/AN/A - Not Applicable and N/T - Not Traded(b) Interest Rates 2013 2012 Debentures - 2007/2012  Coupon Rate Effective Rate Coupon Rate Effective Rate Fixed - 17.5% N/A N/A 17.50% 17.50% Fixed - 15.5% Floating rate N/A N/A 15.50% 16.65%N/A - Not Applicable N/A N/A --Debentures - 2012/2017  2013 2012Fixed - 16.5% Coupon Rate Effective Rate Coupon Rate Effective RateFixed - 15.0%Floating rate      16.50% 16.50% 16.50% 16.50% 15.00% 16.08% 15.00% 16.08% ----334

Debentures - 2013/2018 2013 2012 Fixed - 13.4% Coupon Rate Effective Rate Coupon Rate Effective Rate Fixed - 13.0%N/A - Not Applicable 13.40% 13.40% N/A N/A 13.00% 13.42% N/A N/ADebentures - 2007/2012Floating rate is equivalent to the 3 month Treasury Bill rate (Gross) plus 1.5% pa payable quarterly. Thesedebentures were redeemed on 29th August 2012.Debentures - 2012/2017Floating rate is equivalent to the six month Treasury Bill rate (Gross) plus 2.0% pa payable half yearly.(c ) Interest Rate of Comparable Government Securities - Gross Rates 2013 2012 9.21% 11.11% 3 Month Treasury Bill 9.59% 12.58% 6 Month Treasury Bill(d) Current Yield and Yield to maturity Fixed Fixed Floating Debentures - 2007/2012 ‘16.50% ‘15.00% Current yield 2013 2012 2013 2012 2013 2012 Yield to maturity of last trade N/A N/TN/A - Not Applicable and N/T - Not Traded N/A N/T N/A N/T N/A N/T N/A N/T N/A N/T Fixed Fixed FloatingDebentures - 2012/2017 ‘16.50% ‘15.00%Current yield 2013 2012 2013 2012 2013 2012Yield to maturity of last trade N/A N/A 15.42% N/A 15.00% N/A N/T N/A 13.98% N/A 16.01% N/AN/A - Not Applicable and N/T - Not Traded Fixed Fixed Debentures - 2013/2018 13.40% 13.00% Current yield 2013 2012 2013 2012 Annual Report 2013 Sampath Bank PLC Yield to maturity of last tradeN/A - Not Applicable and N/T - Not Traded 13.24% N/A N/A N/A(e) Ratios 13.04% N/A N/A N/A Debt to Equity Ratio (%) 2013 2012 Interest Cover (Times) 28.1% 12.4% Quick Asset Ratio (%) 34.9 18.9 104.7% 95.6% 335

CAPITALADEQUACYCapital adequacy is the key financial indicator At present, the calculations with regard to capitalwhich illustrates the soundness and the stability of adequacy are prepared as per the “BASEL Accord”a bank by measuring the adequacy of its capital to which is an universally accepted frameworkmeet unexpected losses arising from various risks, put forward by the “Basel Committee on Bankassociated with the business of banking, such as Supervision” of the Bank for International Settlementscredit risk, market risk, operational risk etc. Hence (BIS).the capital of a bank acts as a “cushion” or “buffer”to the extent of its size, in absorbing potential losses The Basel Committee on Banking Supervisionarising from these risks, thereby safeguarding the (BCBS)depositors’ funds, at least to that extent. Hence, The Basel Committee on Banking Supervision is thecapital adequacy is an essential requisite for banks to International body for Central Bankers, set up bymaintain over and above the stipulated requirements the Central Banks of the Group of Ten (G10), the 10under the integrated risk management system. wealthiest nations of the world and located in the City of “Basel”, Switzerland.Capital Adequacy Ratios (CARs) are a measure of theamount of a bank’s capital expressed as a percentage The Basel Committee is the primary global standard-of its Risk-Weighted Assets. setter for the prudential regulation of banks and provides a forum for cooperation on bankingCAR is defined as: supervisory matters. Its mandate is to strengthen the regulation, supervision and practices of banksCAR = Tier I capital + Tier II capital worldwide with the purpose of enhancing financial Risk Weighted Assets stability.Tier 1 Capital Basel IThe Tier 1 Capital mainly consists of Stated Capital, In 1988, the Basel Committee on Banking Supervisionnon redeemable and non cumulative preference (BCBS) published a set of minimum capitalshares and other capital and revenue reserves requirements for banks. This is also known as theafter deducting the total value of intangible assets 1988 Basel Accord, and was enforced by law in theand 50% of the investments made in shares and Group of Ten (G-10) countries in 1992. The Baseldebentures of banks and financial companies and Accord well known as “Basel I“ was followed by Sriunconsolidated banking and financial subsidiary Lankan Banks to compute the Capital Adequacycompanies. ratios up to 31st December 2007.Tier 11 Capital A new set of rules known as Basel II was laterTier 11 Capital includes Revaluation Reserves developed to replace the Basel I accords by the Baselapproved by CBSL, General Loan Loss Provision and Committee.subordinated term debts approved by CBSL afterdeducting totals of intangible assets, 50% of the Basel IIinvestments made in shares and debentures of banks The Basel Committee on Banking Supervision (BCBS)and financial companies and unconsolidated banking published the International Convergence of Capitaland financial subsidiary companies. Measurement and Capital Standards: a Revised Framework (Basel II) in June 2004 and as amendedRisk Weighted Assets (RWA) in June 2006. This is the basis currently used byRisk weighted assets is a measure of the amount of Sri Lankan Banks for the computation of the Capitalthe bank’s assets, adjusted for risk. RWAs are Bank’s Adequacy Ratio effective from 1st January 2008.assets and off-balance sheet exposures, weightedaccording to the risk. Different classes of assets have Basel II comprises three mutually reinforcing pillars,different risk weights associated with them. Pillar 1 - Minimum capital requirements Pillar 2 - Supervisory review Pillar 3 - Market discipline336

Pillar 1 – Minimum Capital Requirement Pillar 1. (e.g.: Credit concentration risk, Liquidity risk,The pillar 1 deals with maintenance of regulatory business and strategic risk etc). It also covers thecapital calculated for three ma jor components of risk Stress Tests which are used to measure the impactthat a bank faces: credit risk, operational risk, and on possible adverse movements in different marketmarket risk. Other risks are not considered fully at scenarios.this stage. Sampath Bank has so far successfully met theThe credit risk component can be calculated in three time targets set by CBSL with regard to ICAAPdifferent ways of varying degrees of sophistication, implementation.namely standardized approach, Foundation IRB(Internal Rating-Based), Advanced IRB Approach. In Pillar 3 – Market Disciplineaccordance with the current regulatory framework in Pillar 3 presents a number of disclosurethe country, the Bank has adopted the Standardized requirements. The objective is to raise the level ofApproach for calculating credit and market risk market discipline by giving external stakeholdersas well as Basic Indicator Approach for calculating a better understanding of bank’s capital adequacyoperational risk. calculations and the procedures involved. This Pillar is seen as particularly important because underPlans are underway to migrate to Advanced IRB the advanced approaches of Basel 11, banks areApproach for credit risk and standarised Approach allowed to rely more heavily on internal methods forfor Operational Risk in 2014. determining risk, giving them greater discretion in determining their capital needs.Pillar 2 – Supervisory Review ProcessPillar 2 sets forth the framework for the Supervisory Basel IIIReview Process (SREP) and the framework for bank’s Basel III is the Third Basel Accord issued by BaselInternal Capital Adequacy Assessment Process Committee in 2010 which is a global, voluntary(ICAAP). Pillar II concerns bank’s risks in a wider regulatory standard on bank capital adequacy, stresssense, including risks not captured and accounted by testing and market liquidity risk. Basel III – Financial Stability Pillar 1 Pillar 2 Pillar 3 Minimum Capital and Supervisory Review Market DisciplineLiquidity Requirements Calculation of Regulatory Disclosure Annual Report 2013 Sampath Bank PLC Credit, Market framework for requirements and Operational banks (ICAAP of bank Risk through and Risk (transparency of standard and/or Management) risk position and internal approach comparability of Supervisory banks for market Liquidity framework participants) measurement (evaluation of internal systems and review of compliance) 337

CAPITALADEQUACYBasel III is supposed to strengthen bank capital Net Stable Funding Ratio (NSFR)requirements by increasing bank liquidity and The NSFR is defined as the amount of availabledecreasing bank leverage. It also demands banks stable funding relative to the amount of requiredto maintain much higher capital buffers compared stable funding. This ratio should be equal to at leastto traditional capital adequacy levels. The main 100% on an on-going basis. “Available stable funding”objective of BASEL III is to minimize the possibility is defined as the portion of capital and liabilitiesand severity of occurrence of financial crisis. expected to be reliable over the time horizon considered by the NSFR, which extends to one year.To achieve these objectives BASEL III has introducednew stringent rules covering key areas such as Global Systematically Important FinancialCapital, liquidity and risk weighted assets of the Bank. Institutions (G-SIFIs) One of the key elements of Basel III is theIncreasing the Quantity and the Quality of requirement for “Global Systematically Important“Capital” Financial Institutions” (G-SIFIs) to have a higher lossBasel III has tightened the definition of “capital”, absorbing capacity to prevent the risks that posethus increasing the quality of capital buffers held to the financial systems as a whole. The additionalby banks. In terms of “quantity”, Basel III greatly buffer for G-SIFIs would be met with a progressivefocuses on common equity and the minimum to be common equity Tier I capital requirement, rangingraised up to 4.5% of risk weighted assets (RWA) after from 1% to 2.5%, depending on the systemicdeductions. Capital Conversion Buffer comprising of importance of each bank.common equity of 2.5% of RWA expects to bring thetotal common equity to 7% from the present level of The Central Bank of Sri Lanka is expecting to issue2%. directions for Liquidity / Capital Standards under Basel 111 from 1st quarter 2014.Increase in Risk CoverageBasel III framework targets at capturing the types At present, the Core Capital Ratio as well as the Baseof risk that were not properly covered by Basel II. It Capital Ratio maintained by the Bank comfortablyextends the risk coverage to capture counterparty exceeds the regulatory requirements set by CBSL.exposures as well.Controlling the leverage of assets through“Leverage Ratio”The expectation is that the capital of the bank shouldat least be 3% of the total assets including on and offbalance sheet assets, before risk weighting. Improving Liquidity StandardsThe excessive Liquidity risk arising from tenormismatches between assets and liabilities mayultimately lead to a financial crisis unless it has beenproperly addressed. Basel III intends addressing thisarea by introducing two liquidity ratios.Liquidity Coverage Ratio (LCR)The Liquidity Coverage Ratio (LCR) requires theBank to have sufficient high quality liquid assets towithstand a 30 day stressed potential liquidity crisis.The banks may need to hold low yielding assets suchas government securities to meet the LCR.338

Computation of Capital Adequacy Ratios - Basel 11 Bank Group 2013 2012 2013 2012Risk Weighted Assets For Credit Risk Assets Risk Assets Risk Assets Risk Assets Risk Weighted Weighted Weighted Weighted Assets Assets Assets Assets Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs MnClaims on Central Government & 44,178.3 - 27,215.1 - 44,502.9 - 27,224.8 - Central Bank of Sri Lanka 708.3 272.5 544.4 108.6 708.3 272.5 544.4 108.6 1,620.1 3,948.6 1,620.1 3,948.7Claims on Public Sector Entities 3,847.3 7,637.4 14,456.7 5,610.4 3,847.4 6,844.3 14,457.0 4,639.4Claims on Banks Exposures 13,824.9 143,366.0 8,029.6 101,067.3 12,238.8 149,590.6 7,058.6 105,367.4Claims on Financial Institutions 147,471.8 27,866.8 29,420.8 153,696.4 27,866.8 29,420.8Claims on Corporates 37,155.7 9,051.5 102,803.2 6,572.4 37,155.7 9,051.5 107,103.4 6,572.4Retail claims 14,074.2 2,868.4 39,227.8 1,322.1 14,074.2 3,124.4 39,227.8 1,342.5Claims Secured by Residential Property 254.5 9,354.1 206.7 254.5 9,354.1 206.7Past Due Loans 2,074.7 952.5 2,330.7 972.9Past Due Residential Mortgage Loans 269.3 50.5 222.1 33.8 269.3 50.5 222.1 33.8Cash / Gold Against Loans 7,056.2 80,184.2 6,072.7 12,725.1 80,184.4 9,336.0Other Assets 81,625.9 200,043.9 6,072.7 154,363.4 81,626.1 211,400.3 9,336.0 160,976.3 7,056.2 12,725.1 289,062.4 363,174.9 295,685.5 352,286.6 Bank Group 2013 2012 2013 2012Off-balance sheet Items Credit Principal Credit Principal Credit Principal Credit Principal Credit Conversion Factor (%) amount of equivalent amount equivalent amount equivalent amount equivalent Off-balance of Off- of Off- of Off- of Off- of Off- of Off- of Off- sheet items balance balance balance balance balance balance balance sheet items sheet items sheet items sheet items sheet items sheet items sheet items Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs Mn Rs MnDirect Credit Substitutes 14,655.2 14,655.2 11,818.1 11,818.1 14,655.2 14,655.2 11,818.1 11,818.1 14,655.2 14,655.2 11,818.1 11,818.1 14,655.2 14,655.2 11,818.1 11,818.1General Guarantees of Indebtedness 100.0 8,349.2 4,758.6 7,169.0 4,089.9 8,349.2 4,758.6 7,169.0 4,089.9Transaction-related Contingencies 6,013.0 3,006.5 4,922.7 2,461.3 6,013.0 3,006.5 4,922.7 2,461.3 2,336.2 1,752.1 2,246.3 1,628.6 2,336.2 1,752.1 2,246.3 1,628.6Performance Bonds, Bid Bonds & Warranties 50.0 21,662.8 3,724.2Others 75/72.5 1,776.6 200.5Short-Term Self-Liquidating Trade-Related 12,014.4 2,262.1 7,871.8 1,261.6Contingencies 4,332.6 18,620.9 3,724.2 21,662.8 4,332.6 18,620.9 34,787.8 355.3 1,002.3 200.5 1,776.6 355.3 1,002.3 -Shipping Guarantees 20.0 34,787.8 2,402.9 11,310.4 2,262.1 12,014.4 2,402.9 11,310.4 -Documentary Letters of Credit 20.0 1,574.4 6,308.2 1,261.6 7,871.8 1,574.4 6,308.2 3,033.3 848.5Trade Related Acceptances 20.0 3,033.3 848.5 61,211.6 955.7Other Commitments with an Original maturity of 61,211.6 955.7 143,699.9 21,436.4up to one year or which can be unconditionallycancelled at any time - 25,846.8 - 34,787.8 - 25,846.8Undrawn Overdraft Facilities/UnusedCredit Card Lines 0.0 - 25,846.8 - 34,787.8 - 25,846.8Other Commitments with an OriginalMaturity of over one year 1,516.6 1,493.3 746.6 3,033.3 1,516.6 1,696.9 Annual Report 2013 Sampath Bank PLC 1,516.6 1,493.3 746.6 3,033.3 1,516.6 1,696.9Undrawn Term Loans 50.0 1,224.2 47,786.0 955.7 61,211.6 1,224.2 47,786.0 1,224.2 47,786.0 955.7 61,211.6 1,224.2 47,786.0Foreign Exchange Contracts 26,487.2 112,734.1 21,334.5 143,699.9 26,487.2 112,937.7Original Maturity-less than one year 2.0 339

CAPITAL Bank 2012 Group 2012ADEQUACY Rs Mn Rs Mn 2013 2013Risk-weighted amount for Market Risk Rs Mn Rs MnInterest Rate Risk 61.88 194.95 61.88 194.95General Risk 61.88 194.95 61.88 194.95Specific RiskEquity Risk - - - -General Risk 43.06 56.42 43.06 56.42Specific Risk 26.20 32.53 26.20 32.53Foreign Exchange and Gold Risk 16.86 23.89 16.86 23.89Total Capital Charge for Market Risk 71.88 43.05 71.88 43.05Total Risk-weighted amount for Market Risk 176.82 294.42 176.82 294.42 (Total Capital Charge X 10) 1,768.23 2,944.13 1,768.23 2,944.13Risk-weighted Amount for Operational Risk Bank 2012 Group 2012 Rs Mn Rs MnAverage net Income for last three financial years 2013 2013Deductions: Rs Mn Rs MnRealised profits from the sale of securities 17,317.3 15,607.1 17,955.2 16,095.0 (average of last three financial years) - - - -Extraordinary / irregular item of income 286.8 937.3 926.8 926.8 (average of last three financial years)Gross Income 8.3 10.0 19.9 19.9Total Capital Charge for Operational Risk 17,022.2 14,659.8 17,008.5 15,148.3 (Gross Income X 15%) 2,553.3 2,199.0 2,551.3 2,272.2Total Risk-weighted amount for Operational risk 25,533.3 21,989.8 25,512.6 22,722.3 (Total Capital Charge for Operational Risk X 10) 200,043.9 154,363.4 211,400.3 160,976.3Computation of Total Risk weighted amount 1,768.2 2,944.1 1,768.2 2,944.1Risk-weighted assets for credit riskRisk-weighted amounts for market risk 25,533.3 21,989.8 25,512.6 22,722.3Risk-weighted amounts for operational risk 227,345.4 179,297.3 238,681.1 186,642.7Total Risk-Weighted Amount340

Bank GroupComputation of Capital Base 2013 2012 2013 2012 Rs Mn Rs Mn Rs Mn Rs MnCore Capital (Tier 1) 4,460.3 3,564.2 4,460.3 3,564.2Stated Capital 3,673.6 2,702.9 3,769.9 2,759.6Statutory Reserve Fund 2,184.8 2,016.2 2,937.5 2,653.4Published Retained Profits 13,971.0 13,895.8 13,971.0 13,895.8General and Other ReservesNon controlling interest - - 89.0 61.2Deductions/Adjustments-Tier 1Goodwill - - - 5.3Net Deferred Tax Assets 308.8 - 332.9 -Other Intangible Assets 297.4 311.0 313.350% of investments in unconsolidated banking and 315.6 262.5 262.5 - financial subsidiary companies -50% investments in the capital of other banks and 511.2 454.7 511.2 22,909.8 21,150.9 24,070.3 454.7 financial institutions 22,158.6Total Core CapitalSupplementary Capital (Tier II) 426.6 405.1 426.6 405.1Revaluation Reserves (as approved by CBSL) 2,064.0 694.0 2,064.0 694.0General Provisions 7,694.0 2,868.7 7,694.0 2,868.7Approved Subordinated Term DebtDeductions-Tier II 262.5 262.5 - -50% of investments in unconsolidated banking and 511.2 454.7 511.2 454.7 financial subsidiary companies 9,410.9 3,250.6 9,673.4 3,513.150% investments in the capital of other banks and 32,320.7 24,401.5 33,743.7 25,671.7financial institutionsEligible Tier II CapitalBase Capital (Tier I + Tier II)LIMITS :(i) Approved subordinated Term Debt is limited to 50% of Total Tier 1 Capital.(ii) The total of Tier 11 Supplementary Elements should not exceed a maximum of 100% of Tier 1 Elements.(iii) General Provision should not exceed 1.25% of Risk Weighted Assets. 2013 Bank Group 2012 2012 2013Core Capital Ratio (Minimum Ratio - 5%) 22,909.8 x 100 21,150.9 x 100 24,070.3 x 100 22,158.6 x 100 Core Capital (Tier 1) x 100 227,345.4 179,297.3 Total Risk-weighted Assets 238,681.1 186,642.7Total Capital Ratio (Minimum Ratio - 10%) 32,320.7 x 100 24,401.5 x 100 33,743.7 x 100 25,671.7 x 100 Annual Report 2013 Sampath Bank PLC Capital Base x 100 227,345.4 179,297.3 238,681.1 186,642.7 Total Risk-weighted AssetsCore Capital (Tier 1) Ratio ( % ) 10.08 11.80 10.08 11.87Total Capital Ratio ( % ) 14.22 13.61 14.14 13.75 341

GLOSSARY OFBFAINNAKNINCGIALTEARNMDSA Available For Sale (AFS) Financial AssetsAcceptances Non derivative financial assets that are designatedThe signature on a Bill of Exchange indicates that the as available for sale or are not classified as (a) loansperson on whom it is drawn accepts the conditions and receivables, (b) held-to-maturity investments orof the bill. In other words a bill of exchange that has (c) financial assets at fair value through profit or loss.been accepted. BAccounting Policies Bills of CollectionThe specific principles, bases, conventions, rules A bill of exchange drawn by an exporter usually atand practices adopted by an entity in preparing and a term, on an importer overseas and brought by thepresenting Financial Statements. exporter to his Bank with a request to collect the proceeds.Accrual BasisRecognition of the effects of transactions and other BIS Surplusevents when they occur without waiting for receipt or The total Capital Adequacy in excess of the minimumpayment of cash or its equivalents. stipulated by Basel International Standards and as modified to suit local requirements by the CentralAmortisation Bank of Sri Lanka.The systematic allocation of the depreciable amountof an intangible asset over its useful life. C Capital Adequacy RatioAmortised Cost The percentage of risk-adjusted assets supportedThe amount at which the financial asset of financial by capital as defined under the framework of risk-liability is measured at initial recognition minus based capital standards developed by the Bank forprincipal repayments, plus or minus the cumulative International Settlement (BIS) and as modified to suitamortisation using the effective interest rate method local requirements by the Central Bank of Sri Lanka.of any difference between that initial amount and thematurity amount, and minus any reduction (directly Capital Gain (Capital Profit)or through the use of an allowance account) for The gain on the disposal of an asset calculated byimpairment or uncollectability. deducting the cost of the asset from the proceeds received on its disposal.Associate CompanyAn associate is an entity in which the investor has Capital Reservessignificant influence and which is neither a subsidiary Capital Reserves consist of revaluation reservesnor an interest in a joint venture. arising from revaluation of properties owned by the Bank and Reserve Fund set aside for specificAsset and Liability Committee (ALCO) purposes defined under the Banking Act, No 30 ofA risk-management committee in a bank that 1988 and shall not be reduced or impaired withoutgenerally comprises the senior-management levels the approval of the Monetary Board.of the institution. The ALCO’s primary goal is toevaluate, monitor and approve practices relating to Cash Equivalentsrisk due to imbalances in the capital structure. Among Short-term highly liquid investments that are readilythe factors considered are liquidity risk, interest rate convertible to known amounts of cash and whichrisk, operational risk and external events that may subject to an insignificant risk of changes in value.affect the bank’s forecast and strategic balance-sheetallocations.342

Cash Flow Hedge Cost Method Annual Report 2013 Sampath Bank PLCA cash flow hedge is a hedge of the exposure to the A method of accounting whereby the investmentvariability in cash flows that (i) is attributable to a is recorded at cost. The Income Statement reflectsparticular risk associated with a recognised asset or income from the investment only to the extent thatliability (such as all or some future interest payments the investor receives distributions from accumulatedon variable rate debt) or a highly probable forecast net profits of the investee arising subsequent to thetransaction and (ii) could affect profit or loss. date of acquisition.Collectively Assessed Loan Impairment Provisions Cost-Push InflationAlso known as portfolio impairment provisions. A continuous increase in average price levels due toImpairment assessment on a collective basis an increase in production costs.for homogeneous groups of loans that are notconsidered individually significant and to cover Cost to Income Ratiolosses that has been incurred but has not yet been Operating expenses as a percentage of net income.identified at the reporting date. Typically assetswithin the Consumer Banking business (Housing, Country Riskpersonal, vehicle loans etc) are assessed on a The risk that a foreign government will not fulfill itsportfolio basis. obligations or obstructs the remittance of funds by debtors, either for financial reasons (transfer risk) orCollectively Assessed Impairment for other reasons (political risk).Impairment assessment on a collective basisfor homogeneous groups of loans that are not Credit Ratingconsidered individually significant and to cover An evaluation of a corporate ability to repay itslosses which have been incurred but have not obligations or likelihood of not defaulting carried outyet been identified on loans subject to individual by an independent rating agency.assessment. Credit RiskCommercial Paper (‘CP’) Credit risk is the risk of financial loss to the BankAn unsecured, short-term debt instrument issued by if a customer or counter party to a financiala corporation, typically for the financing of accounts instrument fails to meet its contractual obligations,receivable, inventories and meeting short-term and arises principally from the loans and advancesliabilities. The debt is usually issued at a discount, to customers and other banks and investment debtreflecting prevailing market interest rates. securities.Commitments Credit Risk MitigationCredit facilities approved but not yet utilized by the A technique to reduce the credit risk associated withclients as at the Reporting date. an exposure by application of credit risk mitigants such as collateral, guarantee and credit protection.ContingenciesA condition or situation, the ultimate outcome of Currency Riskwhich, gain or loss, will be confirmed only on the The risk that the fair value or future cash flowsoccurrence or non-occurrence of one or more of a financial instrument will fluctuate because ofuncertain future events. changes in foreign exchange rates.Corporate Governance Currency SWAPsThe process by which corporate entities are The simultaneous purchase of an amount of agoverned. It is concerned with the way in which currency for spot settlement and the sale of thepower is exercised over the management and same amount of the same currency for forwarddirection of entity, the supervision of executive settlement.actions and accountability to owners and others. Customer DepositsCorrespondent Bank Money deposited by account holders. Such funds areA bank in a foreign country that offers banking recorded as liabilities.facilities to the customers of a bank in anothercountry. 343

GLOSSARY OFFINANCIAL ANDBANKING TERMSD Documentary Letters of Credit (LCs)Dealing Securities Written undertakings by a bank on behalf of itsThese are marketable securities acquired and held customers, authorising a third party to draw on thewith the intention to resale over a short period of Bank up to a stipulated amount under specific termstime. and conditions. Such undertakings are established for the purpose of facilitating international trade.Deferred TaxSum set aside in the Financial Statements that may Ebecome payable/ receivable in a financial year other Earnings Per Share (EPS)than the current financial year. It arises because The profit attributable to each ordinary share in theof temporary differences between tax rules and Bank, based on the profit for the period after tax andaccounting conventions. after deducting minority interest and preference share Dividend.DelinquencyA debt or other financial obligation is considered Economic Value Added (EVA)to be in a state of delinquency when payments are A measure of productivity which takes intooverdue. Loans and advances are considered to be consideration cost of total invested equity.delinquent when consecutive payments are missed.Also known as ‘Arrears’. Effective Interest Rate (EIR) Rate that exactly discounts estimated future cashDepreciation payments or receipts through the expected life of theThe systematic allocation of the depreciable amount financial instruments or when appropriate a shorterof an asset over its useful life. period to the net carrying amount of the financial asset or financial liability.DerecognitionRemoval of a previously recognised financial asset Effective Tax Rate (ETR)or financial liability from an entity’s statement of Provision for taxation excluding deferred tax dividedfinancial position. by the profit before taxation.Derivatives ESOP (Employee Share Ownership Plan)A derivative is a financial instrument or other A method of giving employees shares in the businesscontract, the value of which changes in response to for which they work.some underlying variable (e.g., an interest rate), thathas an initial net investment smaller than would be Equity Instrumentrequired for other instruments that have a similar An equity instrument is any contract that evidencesresponse to the variable, and that will be settled at a a residual interest in the assets of an entity afterfuture date. deducting all of its liabilities.Discount Rate Equity MethodA rate used to place a current value on future cash The equity method is a method of accountingflows. It is needed to reflect the fact that money has whereby the investment is initially recognised ata time value. cost and adjusted thereafter for the post-acquisition changes in the investor’s share of net assets of theDividend Cover investee. The profit or loss of the investor includes theProfit after tax divided by gross Dividend. This ratio investor’s share of the profit or loss of the investee.measures the number of times dividend is covered bythe current year’s distributable profits. Equity Risk The risk arising from positions, either long or short,Dividend Yield in equities or equity-based instruments, which createDividend earned per share as a percentage of its exposure to a change in the market price of themarket value. equities or equity instruments.344

Events after the Reporting Period Financial Instrument Annual Report 2013 Sampath Bank PLCTransactions that are not recognised as assets or Financial Instrument is any contract that gives rise toliabilities in the Statements of Financial Position, but a financial asset of one entity and a financial liabilitywhich give rise to contingencies and commitments. or equity instrument of another entity.Expected Loss (EL) Financial LiabilityA regulatory calculation of the amount expected to A contractual obligation to deliver cash or anotherbe lost on an exposure using a 12 month time horizon financial asset to another entity.and downturn loss estimates. EL is calculated bymultiplying the Probability of Default (a percentage) Foreign Exchange Contractby the Exposure at Default (an amount) and Loss Agreement between two parties to exchange oneGiven Default (a percentage). currency for another at a future date at a rate agreed upon today.ExposureA claim, contingent claim or position which carries a Foreign Exchange Incomerisk of financial loss. The realised gain recorded when assets or liabilities denominated in foreign currencies are translatedF into Sri Lankan Rupees on the reporting date atFair Value prevailing rates which differ from those rates inFair Value is the amount for which an asset could be force at inception or on the previous reporting date.exchanged between a knowledgeable, willing buyer Foreign exchange income also arises from trading inand a knowledgeable, willing seller in an arm’s length foreign currencies.transaction. Firm CommitmentFair Value Adjustment A Firm Commitment is a binding agreement for theAn adjustment to the fair value of a financial exchange of a specified quantity of resources at ainstrument which is determined using a valuation specified price on a specified future date or dates.technique (level 2 and level 3) to include additionalfactors that would be considered by a market Gparticipant that are not incorporated within the General Provisionsvaluation model. General provisions are established for loans and advances for anticipated losses on aggregateFinance Lease exposures where credit losses cannot yet beA lease in which the lessee acquires all the financial determined on an individual facility basis.benefits and risks attaching to ownership ofwhatever in being leased. Gross Dividend The portion of profits distributed to the shareholdersFinancial Asset including the tax withheld.Any asset that is cash, an equity instrument ofanother entity or a contractual right to receive cash Groupor another financial asset from another entity. A group is a parent and all its subsidiaries.Financial Asset or Financial Liability at Fair Value Guaranteesthrough Profit or Loss A promise made by a third party (Guarantor), whoFinancial asset or financial liability that is held for is not a party to a contract between two others, thattrading or upon initial recognition designated by the the guarantor will be liable if the guarantee fails toentity as ‘at fair value through profit or loss’. fulfil the contractual obligations.Financial Guarantee Contract HA Financial Guarantee Contract is a contract that Hedgingrequires the issuer to make specified payments to A strategy under which transactions are effectedreimburse the holder for a loss it incurs because a with the aim of providing cover against the riskspecified debtor fails to make payment when due in of unfavourable price movements (Interest Rate,accordance with the original or modified terms of a Foreign exchange rate, commodity prices, etc)debt instrument. 345

GLOSSARY OFFINANCIAL ANDBANKING TERMSHeld To Maturity (HTM) Financial Assets Interest SpreadHeld-to-maturity investments are non-derivative This represents the difference between the averagefinancial assets with fixed or determinable payments interest rate earned and the average interest rateand a fixed maturity that an entity has the positive paid on funds.intention and ability to hold to maturity. Investment PropertiesI Investment property is property (land or a building -Impairment or part of a building – or both) held (by the owner orThis occurs when recoverable amount of an asset is by the lessee under a finance lease) to earn rentals orless than its carrying amount. for capital appreciation or both, rather than for use or sale.Impaired LoansLoans where the Group does not expect to collect all Investment Securitiesthe contractual cash flows or expects to collect them Securities acquired and held for yield or capitallater than they are contractually due. growth purposes and are usually held to maturity.Impairment Allowances JManagement’s best estimate of losses incurred in the Joint Controlloan portfolios at the reporting date. Joint control is the contractually agreed sharing of the control over an economic activity, and exists onlyIndividually Assessed Impairment when the strategic financial and operating decisionsExposure to loss is assessed on all individually relating to the activity require the unanimous consentsignificant accounts and all other accounts that do of the parties sharing control.not qualify for collective assessment. Joint VentureIntangible Asset A joint venture is a contractual arrangement wherebyAn identifiable non-monetary asset without physical two or more parties undertake an economic activitysubstance held for use in the production / supply that is subject to joint control.of goods / services or for rental to others or foradministrative purposes. K Key Management PersonnelInterest Cover Key Management Personnel are those persons havingA ratio showing the number of times interest charges authority and responsibility for planning, directingis covered by earnings before interest and tax. and controlling the activities of the entity, directly or indirectly, including any Director (whether ExecutiveInterest in Suspense or otherwise) of that entity.Interest suspended on non-performing loans andadvances. L Level 1 – Quoted Market PriceInterest Margin Financial instruments with quoted prices for identicalNet interest income expressed as a percentage of instruments in active markets.interest earning assets. Level 2 – Valuation Technique Using ObservableInterest Rate Risk InputsThe risk that the fair value or future cash flows of a Financial instruments with quoted prices for similarfinancial instrument will fluctuate because of changes instruments in active markets or quoted prices forin market interest rates. identical or similar instruments in inactive markets and financial instruments valued using models whereInterest Rate SWAP all significant inputs are observable.Arrangement whereby one party exchanges one setof interest payments for another.346

Level 3 –Valuation Technique With Significant N Annual Report 2013 Sampath Bank PLCUnobservable Inputs Net Asset Value Per ShareFinancial instruments valued using valuation Shareholders’ Funds divided by the number oftechniques where one or more significant inputs are ordinary shares in issue.unobservable. Net-Interest Income (NII)Liquid Assets The difference between what a bank earns on assetsAssets that are held in cash or in a form that can such as loans and securities and what it pays onbe converted to cash readily, such as deposits with liabilities such as deposits refinance funds and inter-other banks, Bills of Exchange and Treasury Bills and bank borrowings.Bonds. Non-Performing Advances (NPA)Liquidity Risk All loans are classified as nonperforming when aThe risk that an entity will encounter difficulty payment is 90 days in arrears.in meeting obligations associated with financialliabilities Non-Performing Advances Cover (NPA Cover) Cumulative loan loss provision as a percentage ofLoan Losses and Provisions total Non-Performing Advances (net of Interest inAmounts set aside against possible losses on Suspense).loans, advances and other credit facilities as aresult of such facilities becoming partly or wholly NPA Ratiouncollectible. Total non-performing advances (net of Interest in Suspense) divided by total advances portfolio (net ofLoans and Receivables Interest in Suspense).Non derivative financial assets with fixed ordeterminable payments that are not quoted in Non Controlling Interestan active market other than those intends to sell Non controlling interest is the equity in a subsidiaryimmediately or in the near term and designated as not attributable, directly or indirectly to a parent.fair value through profit or loss or available sale oninitial recognition. O Open Credit Exposure RatioLoans Payable Total net non-performing loans and advancesLoans payable are financial liabilities, other than expressed as a percentage of regulatory capitalshort term trade payables on normal credit terms. base.Loss Given Default (‘LGD’) Operational RiskThe estimated ratio (percentage) of the loss on an Operational risk refers to the losses arising fromexposure to the amount outstanding at default (EAD) fraud, negligence, oversight, human error, processupon default of counterparty. errors, system failures, external events, etc.M Other Price RiskMarket Capitalisation The risk that the fair value or future cash flowsThe value of a company obtained by multiplying the of a financial instrument will fluctuate because ofnumber of issued shares by its market value as at a changes in market prices (other than those arisingdate. from interest rate risk or currency risk), whether those changes are caused by factors specific to theMarket Risk individual financial instrument or its issuer, or factorsMarket risk is the risk that changes in market affecting all similar financial instruments traded inprices, such as interest rates, equity prices, foreign the market.exchange rates and credit spreads (not relating tochanges in the obligor’s/issuer’s credit standing) will Paffect the Bank’s income or the value of its holdings Parentof financial instruments. A parent is an entity that has one or more subsidiaries.MaterialityThe relative significance of a transaction or anevent, the omission or misstatement of whichcould influence the decisions of users of FinancialStatements. 347

GLOSSARY OFFINANCIAL ANDBANKING TERMSPast Due Return On Average Equity (ROE)A financial asset is past due when a counterparty has Net income, less preferred share Dividend if any,failed to make a payment when contractually due. expressed as a percentage of average ordinary shareholders’ equity.Price Earnings Ratio (P/E Ratio)The current market price of the share is divided by Revaluation Reservethe earnings per share of the Bank. Part of the shareholders’ equity that arises from changes in the current value of property, plant andProbability of Default (‘PD’) equipment.The probability that an obligor will default within aone-year time horizon. Revenue Reserves Reserves set aside for future distribution andProvision for Bad and Doubtful Debts investment.A charge to income statement which is added tothe allowance for loan losses. Specific provisions Reverse Repurchase Agreementare established to reduce the book value of specific Transaction involving the purchase of governmentassets (primarily loans) to estimated realisable securities by a bank or dealer and resale back to thevalues. seller at a given price on a specific future date.Provision Cover Rights IssueTotal provisions for loan losses expressed as a Issue of shares to the existing shareholders at anpercentage of net non-performing loans and agreed price, generally lower than market price.advances before discounting for provisions on non-performing loans and advances. Risk Weighted Assets Used in the calculation of risk-based capital ratios.Prudence The face amount of lower risk assets is discountedInclusion of a degree of caution in the exercise of using risk weighting factors in order to reflect ajudgment needed in making the estimates required comparable risk per rupee among all types of assets.under conditions of uncertainty, such that assets or The risk inherent in Committment & Contingenciesincome are not overstated and liabilities or expenses is also recognised, first by adjusting notionalare not understated. values to Statement of Financial Position (or credit) equivalents and then by applying appropriate riskR weighting factors.Related PartiesParties where one party has ability to control the Sother party or exercise significant influence over Segmental Analysisthe other party in making financial and operating Analysis of financial information by segments of andecisions, directly or indirectly. enterprise specifically, the different industries and the different geographical areas in which it operates.Repurchase AgreementThis is a contract to sell and subsequently repurchase Shareholders’ Fundsgovernment securities at a given price on a specified Total of issued and fully paid share capital and capitalfuture date. and revenue reserves.Return On Average Assets (ROA) Single Borrower LimitNet income expressed as a percentage of average 30% of Tier II Capital.total assets, used along with ROE, as a measureof profitability and as a basis of intra-industry Statutory Reserve Fundperformance comparison. A capital reserve created as per the provisions of the Banking Act No. 30 of 1988.348