Sampath Bank Annual Report 2013

Country SWIFT Code Country SWIFT Code Country SWIFT CodeNordea Bank Denmark AS NDEADKKK 24. Israel 34. Norway14. Egypt Bank Leumi le – Israel BM LUMIILIT DnB Nor Bank ASA DNBANOKKArab International Bank ARIBEGCX 25. Italy Nordea Bank Norge ASA NDEANOKKMashreq Bank MSHQEGCA BancaIntesaSpA BCITIT22 Scandinevinska Enskilda ESSENOKX Banken15. Finland BancaNazionale del BNLIITRR LavoroSpANordea Bank Finland PLC NDEAFIHH 35. OmanDanske Bank DABAFIHX Banca UBAE SPA UBAIITRR HSBC Bank Middle BBMEOMRX East LtdDnB NOR Bank ASA DNBAFIHX Commerzbank AG COBAITMMSkandinevinska ESSIFIHX HSBC Bank PLC MIDLITMX 36. PakistanEnskildaBanken UnicreditSpA UNCRITMM The Hongkong& Shanghai HSBCPKKX Banking Corporation Ltd16. France BancaPopolareSoc Coop BAPPIT22 Standard Chartered BankBNP Paribas SA BNPAFRPP 26. Japan (Pakistan) Ltd SCBLPKKXUnion de BanquesArabes UBAFFRPP Australia and New Zealand ANZBJPJX 37. Philippineset Francaises (UBAF) Banking Group Ltd Citibank NA CITIPHMXDeutsche Bank AG DEUTFRPP Citibank Japan Ltd CITIJPJT Deutsche Bank AG DEUTPHMMCommerze Bank AG COBAFRPX Commerzbank AG, Tokyo COBAJPJX The Hongkong & Shanghai17. Germany Deutsche Bank AG DEUTJPJT Banking Corporation Ltd HSBCPHMMUnicredit Bank AG HYVEDEMM The Hongkong and 38. Poland(Hypovereinsbank) Shanghai Banking HSBCJPJT Bank Handlowy w Warszawie SACommerzbank AG COBADEFF Corporation Ltd CITIPLPXDeutsche Bank AG DEUTDEMM Mizuho Bank Ltd MHBKJPJT Nordea Bank Polska SA NDEAPLP2DnB Nor Bank ASA DNBADEHX Standard Chartered Bank SCBLJPJT 39. Portugal18. Greece Sumitomo Mitsui Banking SMBCJPJT BNP Paribas Portugal BNPAPTPL CorporationNational Bank of ETHNGRAA 40. QatarGreece SA The Bank of Tokyo – Mitsubishi UFJ Ltd BOTKJPJT HSBC Bank Middle19. Hong Kong East Ltd BBMEQAQXBNP Paribas BNPAHKHH JP Morgan Chase Bank NA CHASJPJT Mashreq Bank MSHQQAQACitibank NA CITIHKHX Wells Fargo Bank NA PNBPJPJX 41. RomaniaCommerzbank AG COBAHKHX 27. Jordan Romanian Commercial BankDeutsche Bank AG DEUTHKHH HSBC Bank Middle East BBMEJOAX RNCBROBU LtdHongkong& Shanghai HSBCHKHH 42. Saudi ArabiaBanking Corporation Ltd Standard Chartered Bank SCBLJOAX Saudi Hollandi Bank AAALSARIJP Morgan Chase Bank NA CHASHKHH 28. Kuwait The National CommercialStandard Chartered Bank SCBLHKHH Citibank NA CITIKWKW Bank NCBKSAJE(Hong Kong) Ltd National Bank of Kuwait NBOKKWKW The Saudi British Bank SABBSARIUBAF (Hong Kong) Ltd UBAFHKHX 29. Malaysia Al Ra jhi Bank RJHISARIWells Fargo Bank NA PNBPHKHH Citibank Berhad CITIMYKL 43. Singapore20. Hungary Deutsche Bank (Malaysia) DEUTMYKL The Bank of Tokyo- Bhd Mitsubishi UFJ LtdCIB Bank Ltd CIBHHUHB BOTKSGSXCommerzbank AG COBAHUHX HSBC Bank Malaysia HBMBMYKL Citibank NA CITISGSG Berhad21. India Commerzbank AG COBASGSXBank of Ceylon BCEYIN5M Standard Chartered Bank DBS Bank Ltd DBSSSGSG Malaysia BhdCitibank NA CITIINBX SCBLMYKX Deutsche Bank AG DEUTSGSGDeutsche Bank AG DEUTINBB 30. Maldives The Hongkong & Shanghai HSBCSGSG Banking Corporation LtdThe Hongkong& Shanghai HSBCINBB Bank of Ceylon BCEYMVMVBanking Corporation Ltd Bank of Maldives PLC MALBMVMV JP Morgan Chase Bank NA CHASSGSGICICI Bank Ltd ICICINBBCTS The Hongkong& Shanghai Mizuho Corporate MHCBSGSGMashreq Bank MSHQINBB Banking Corporation Ltd HSBCMVMV Bank Ltd Annual Report 2013 Sampath Bank PLCStandard Chartered Bank SCBLINBB 31. Nepal Oversea-Chinese Banking OCBCSGSG Corporation LtdState Bank of India SBININBB Standard Chartered Bank Nepal Ltd22. Indonesia SCBLNPKA Standard Chartered Bank SCBLSGSGCitibank NA CITIIDJX 32. Netherlands Union de BanquesArabes UBAFSGSX et Francaises (UBAF)Deutsche Bank AG DEUTIDJA Commerzbank AG COBANL2XThe Hongkong and Deutsche Bank AG DEUTNL2A United Overseas Bank Ltd UOVBSGSGShanghai Banking HSBCIDJA ING Bank NV INGBNL2A 44. South AfricaCorporation Ltd 33. New Zealand ABSA Bank Ltd ABSAZAJJPT Bank Mandiri BMRIIDJA ANZ National Bank Ltd ANZBNZ22 FirstRand Bank Ltd FIRNZAJJ(Persero) Bank of New Zealand BKNZNZ22 Ned Bank Ltd NEDSZAJJStandard Chartered Bank SCBLIDJX Citibank NA CITINZ2X Standard Chartered Bank SCBLZAJJ23. Ireland 45. South KoreaBank of Ireland BOFIIE2D The Hongkong& Shanghai HSBCNZ2A Citibank Korea Inc CITIKRSX Banking Corporation LtdCitibank Europe PLC CITIIE2X Deutsche Bank AG DEUTKRSE 99

CORRESPONDENT BANKSANDEXCHANGE COMPANIESCountry SWIFT Code Country SWIFT CodeThe Hongkong & Shanghai HSBCKRSE The Hongkong& Shanghai MIDLGB22Banking Corporation Ltd Banking Corporation LtdJP Morgan Chase Bank NA CHASKRSX JP Morgan Europe Ltd CHASGB2LStandard Chartered First SCBLKRSE Standard Chartered Bank SCBLGB2LBank Korea Ltd Wells Fargo Bank NA PNBPGB2LUnion de BanquesArabes UBAFKRSX 54. United States of Americaet Francaises (UBAF) Citibank NA CITIUS33Wells Fargo Bank NA PNBPKRSX Deutsche Bank AG DEUTUS3346. Spain Deutsche Bank Trust BKTRUS33 Company AmericasBanco Bilbao BBVAESMMVizcayaArgentaria SA HSBC Bank USA NA MRMDUS33Banco Santander SA BSCHESMM JP Morgan Chase Bank NA CHASUS33Commerzbank AG COBAESMX MashreqBank PSC MSHQUS3347. Sweden Standard Chartered Bank SCBLUS33Danske Bank A/S DABASESX Wells Fargo Bank NA PNBPUS3NNYCSkandinaviska Enskilda ESSESESGBankenSvenskaHandelsbanken HANDSESG48. SwitzerlandCredit Suisse CRESCHZZUBS AG UBSWCHZH49. TaiwanCitibank NA CITITWTXDeutsche Bank AG DEUTTWTPThe Hongkong & Shanghai HSBCTWTPBanking Corporation LtdJP Morgan Chase Bank NA CHASTWTXMizuho Corporate Bank MHCBTWTPLtdStandard Chartered Bank SCBLTWTP(Taiwan) LtdWells Fargo Bank NA PNBPTWTP50. ThailandCiti Bank NA CITITHBXDeutsche Bank AG DEUTTHBKThe Hongkong & Shanghai HSBCTHBKBanking Corporation LtdKasikornbank Public KASITHBKCompany LtdStandard Chartered Bank SCBLTHBX(Thai) PCL51. TurkeyHSBC Bank AS HSBCTRIXTurk EkonomiBankasi AS TEBUTRISING BANK INGBTRIS52. United Arab EmiratesCitibank NA CITIAEADHSBC Bank Middle East BBMEAEADLtdMashreqBank PSC BOMLAEADStandard Chartered Bank SCBLAEADHabib Bank AG Zurich HBZUAEAD53. United KingdomBank of Ceylon(UK) Ltd BCEYGB2LBarclays Bank PLC BARCGB22Citibank International PLC CITIGB2L100

Country Name of Exchange Company Country Name of Exchange CompanyAustralia Kapruka Pvt Ltd UAE UAE Exchange Centre L L CBahrain Remittance Plus Pty Ltd Habib Exchange Company L L C Colombo Money Transfer Services Pty Ltd Cyprus Wall Street Exchange Centre L L C Lanka Currency Converter UK/Canada Alfalah Exchange Company L L C HCH Holdings ( Ausi Spices ) Singapore LeelaMegh Exchange Co L L C TSS World Wide Money transfer Al Ahalia Money Exchange Bureau Moneygram Al Ansari Exchange Est Bahrain Financing Company Emirates India International Exchange National Finance & Exchange Co W L L Al Rostamani Int’l Ex Co Zenj Exchange Co W L L Lulu Exchange Turbo Caash ARY Forex Limited Travelex Currency Exchange Mawarid Exchange Sharaf Exchange L L CItaly National Exchange Company S R L U remit InternationalJordan Placid Delma Exchange CompanyKuwait Money Exchange S A Prabhu Money TransferMalaysia Alawne Exchange International Money ExpressNew Zealand ARY Forex Limited Multinet Trust ExchangeOman Moneygram Arab Link Almulla International Exchange Co K S C C Joyalukkas ExchangeQatar Baharain Exchange Company Travelex Currency Exchange IME (M) SDN BHD Money Exchange S ASpain Prabhu Money Transfer Money to Money Placid Placid Kapruka New Zealand Ltd Moneygarm Moneygram International Money Express Oman & UAE Exchange Centre & Co Prabhu Money Transfer LLC Placid Purshottam Kanji Exchange Travelex Currency Exchange Sampath Bank PLC also acts as an agent of following Al Jadeed Exchange Global Companies; Doha Bank Money Gram International AlFardan Exchange Company Co L L C Sigue Global Services City Exchange Co W L L Xpress Money Services Ltd Islamic Exchange Co W L L Ez Remit Al Zaman Exchange W L L ARY Speedremit Lari Exchange Co Instant Cash Global Money Transfer Al Dar Exchange Works Ria Financial Services Gulf Exchange Co Prubu Group INC Al Mana Ex Doha Exchange Annual Report 2013 Sampath Bank PLC Al Saad Exchange Habib Exchange Prabhu Money Transfer International Money Express Al Mirqab Exchange Al Jazeera Exchange Travelex Currency Exchange Money Exchange NEC Money Transfer SA SpainSaudi Arabia Moneygram Tahweel Al Ra jhi 101

CORPORATEGOVERNANCEChairman’s Statement Risk management continues to be a key area of focusCorporate Governance at Sampath Bank is for the Board and the subcommittee tasked withembedded into how we do business through our oversight of the risk management function meetsvalues, the policy framework of the Bank and the once in two months to ensure that sufficient attentiongovernance structures in place which adhere to, and is given to this vital area.go beyond, statutory requirements and the voluntaryCode of Best Practice on Corporate Governance. We The Board has focussed on succession planningare committed to maintaining the highest standards for Key Management Personnel and the Boardof Corporate Governance in the Bank and accordingly, Nomination Committee and Board HR & Remunerationhave taken note of the revised Code of Best Practice Committee have been tasked with addressing theon Corporate Governance issued during 2013 jointly concerns of the Board. Accordingly, a framework forby the Institute of Chartered Accountants of Sri Lanka managing talent and a succession plan has beenand the Securities and Exchange Commission of Sri drawn up.Lanka for implementation in the near future. It is alsonecessary to ensure that similar standards of conduct The Board also sanctioned a donation to the Colomboare upheld throughout the Group and actions General Hospital totalling Rs 49.8 Mn in responsehave been taken to ensure harmonising of Group to the urgency of the need which will benefit manyCorporate Governance practices. people in the communities we operate in.Our commitment to shareholder engagement We will continue to revise, review and update ourremains unparalleled in the country and these policies and governance structures that facilitateactivities are spearheaded by a separate Board Sub good governance with the objective of ensuring thatCommittee which facilitates communication with high standards relevant to the industry are upheldshareholders using an inclusive approach. Our Annual by the Sampath Bank Group in line with our statedReport is printed in Sinhala and English with excerpts values.made available in Tamil. Concerns raised have beenaddressed and responses include priority service. We Dhammika Pereraare encouraged by the participation of shareholders Chairmanat the Annual General Meetings and continue tofacilitate participation through the Shareholders Colombo, Sri LankaRelations Forum held immediately after to provide 18th February 2014a forum for raising concerns and discussions. Wepropose to further enhance shareholder engagementin the future with Regional Shareholder RelationsForums to provide a more conducive environment fordialogue in 2014.Diversity is key to good Corporate Governance andour commitment to maintaining diverse views isevident in the mix of skills and experience within theBoard which includes entrepreneurs, professionalsand academics. Gender representation at Boardlevel is one of the highest in the country with threeeminent female professionals on the Board who arekey contributors at Board Meetings. We also continueto maintain the learning culture within the Board withregular briefings by management, participation atDirector Forums and through guest presentations onkey topics which provide an outside perspective.102

Governance Structure Subsidiaries Board of Directors - Shareholders External Auditors Board Audit Committee Subsidiaries Board of Directors - Board Committees Board HR & Remuneration Committee Siyapatha Finance LtdLeasing, Factoring and Accepting Bank Board Nomination Committee Board Risk Management Committee Fixed & Saving Deposits Managing Director Board Credit Committee Sampath Centre Ltd - Board Strategic Planning Committee Renting of Commercial Property Board Shareholder Relations Committee SC Securities (Pvt) Ltd - Board Treasury committee Stock Broking Board Marketing Committee Sampath Information Technol- ogy Solutions Ltd - DevelopingSoftware Solutions & Maintenance of HardwareExecutive Director / Senior DGM - Senior DGM - Group Chief Personal Banking International & Commercial Credit Financial Officer DGM - DGM - Market- DGM HR DGM - GroupSenior DGM - Treasury ing & Business Corporate Chief Risk Finance & Development Planning Credit OfficerDGM - Finance AGM - AGM - AGM AGM AGM - AGM - Group Company Head of Operations Administration Br.Cr I Br.Cr II Recoveries Corporate Secretary Internal Finance Head of IT Audit Chief Legal Group Officer Compliance Officer Treasury Operations Logistics & Regional Regional Trade Treasury Recoveries Legal Unit Corporate IT/EDP Treasury ComplianceBack Office Premises Offices Offices Services Front Office Finance Middle Unit Central Cash IT/Systems Office Finance Branches Branches International Primary Development Network Operations Dealer Unit Risk Unit Planning Service Data Ware- Centre Commercial Foreign house Unit Credit Currency Marketing & Banking Development Deposit Banking Unit Mobilisation Annual Report 2013 Sampath Bank PLC Card Centre Remittances Management Committees Electronic (1) Asset & Liability Committee Banking (2) Deposit Mobilization Committee (3) Investments Committee Unit (4) IT Steering Committee (5) Credit Policy Committee (6) Procurement Committee (7) IFRS Steering Committee (8) Internal Control Steering Committee 103

CORPORATEGOVERNANCEThe Board of Directors of the Bank and its risk appetite and has oversightSampath Bank is a public listed company and its responsibility of the Corporate Management Teamaffairs are governed by the Board of Directors. which is responsible for managing the performanceDirectors are elected by shareholders at the Annual of the Bank on a day-to-day basis. Strategic plans,General Meeting after the necessary approvals from governance structures, policies and proceduresthe Board Nomination Committee, Board and the are approved by the Board and its sub-committeesCentral Bank of Sri Lanka except for casual vacancies to provide a framework for decision making.which are filled by the Board with necessary Implementation of the strategies approved by theapprovals from the Central Bank of Sri Lanka until Board is delegated to the Corporate Management ledthe next Annual General Meeting in accordance with by the Managing Director. Processes to address needsthe Articles of Association. The main responsibility of other significant stakeholders are embedded intoof the Board is to deliver sustainable value to our the organisation policy frameworks and proceduresshareholders over the short, medium and long to ensure that there is long term value created forterm. The Board determines the strategic direction all stakeholders. Highlights - 2013 Re-election of the following Directors at the Annual General Meeting Mr Dhammika Perera Mr Sanjiva Senanayake Prof Malik Ranasinghe Mrs Dhara Wijayatilake Mrs Saumya Amarasekera The Board appointed Alternate Directors to facilitate the smooth operation of business and minimise the bottlenecks that may arise due to temporary physical unavailability of Directors in the country due to overseas travel commitments. Re-appointment of Messrs Ernst & Young, Chartered Accountants, as Auditors of the Company. Engaging Messrs Ernst & Young, Chartered Accountants, to assess compliance with the Banking Act Direction No 11 of 2007 on Corporate Governance for Licensed Commercial Banks and subsequent amendments thereto. Engaging Messrs Ernst & Young to provide assurance on the Directors’ Report on Internal Controls Over Financial Reporting on page 213. Driving a programme to ensure succession planning for Key Management Personnel within the Bank.104

OUR COMMITMENT TO SHAREHOLDERENGAGEMENT REMAINS UNPARALLELED INTHE COUNTRY AND THESE ACTIVITIES ARESPEARHEADED BY A SEPARATE BOARD SUBCOMMITTEEComposition and Structure Sri Lanka. The Board looks to international best Annual Report 2013 Sampath Bank PLCThe Board comprises the Chairman, Deputy practice to go beyond mere compliance in ourChairman and ten other directors, which we governance and in discharging our responsibilities.believe is the optimal number required to function We are also in the process of reviewing additionaleffectively with a right balance of diversity and requirements set out in the revised Code of Bestskills. The Chairman and Deputy Chairman are Non Practice on Corporate Governance issued jointly byExecutive Directors as are eight other Non Executive the ICASL and SEC in 2013 to ensure compliance byDirectors who bring a variety of skills and a wealth its effective date, 1st January 2014.of experience to the Board. Five of the Non ExecutiveDirectors are Independent Directors. The Managing Role of Chairman and Managing DirectorDirector and Group Chief Financial Officer are the The effectiveness of the Board is enhanced by theonly Executive Directors who are both employees segregation of the position of the Chairman and theof the Bank and part of the Corporate Management. MD to maintain a balance of power and authority.The greater number of Non Executive Directors The Chairman is a Non Executive Director while theon the Board provides an outside perspective for MD is an Executive Director. The Bank has developedconstructive debate of the items on the agenda. It a formal terms of reference during 2012 for thealso enhances participation in providing strategic Chairman which includes all aspects specified indirection, setting goals and targets, evaluating the Code, the continuing listing requirements of theperformance of Corporate Management, and CSE and the Banking Act Direction No 11 of 2007.monitoring the risk profile and reporting of Accordingly, the Chairman provides leadership toperformance. Non Executive Directors spend not less the Board and ensures its effectiveness by ensuringthan 76 hours per annum on matters of the Bank and that all Directors are properly briefed and makemembers of the Board Audit Committee and Board an active contribution in the best interests of theRisk Management Committee spend not less than Bank. He is also responsible for ensuring compliance26 hours per annum on matters of the Bank. with statutory requirements and ensuring that shareholder views are addressed by the Board.Compliance with Codes on CorporateGovernance How we operateThe Board has voluntarily adopted the Code of Best The Board determines the strategic direction, thePractice on Corporate Governance issued jointly by risk appetite of the Bank and sets in place a robustthe Institute of Chartered Accountants of Sri Lanka governance structure and an appropriate policyand the Securities and Exchange Commission of Sri framework to guide the management. It providesLanka in 2008. We also comply with the Continuing leadership by oversight of performance of the BankListing Requirements on Corporate Governance and reviews reports on progress in implementingRules for Listed Companies issued by the Colombo strategic plans, risk management, key performanceStock Exchange. The Bank’s compliance with these indicators and stakeholder relations. It also reviewsrequirements is detailed on pages 112 to 125 of this policies, procedures, strategic plans, risk appetitereport. The Board complies with the Banking Act and internal controls of the Bank to effectivelyDirection No 11 of 2007 and subsequent amendments discharge its duties. The Board has appointed 9thereto on Corporate Governance for Licensed Board Sub Committees to provide more detailedCommercial Banks issued by the Central Bank of Sri guidance and exercise oversight over areas deemedLanka as reported on pages 126 to 140. Our External to be sufficiently important to warrant furtherAuditors, Messrs Ernst & Young, have provided the attention. Chairpersons of the Board Sub CommitteesCentral Bank with a Certificate of Compliance on provide feedback to the Board on the activities ofthe requirements of the Banking Act Direction No the Committees. The Board receives regular reports11 of 2007 on Corporate Governance for Licensed and presentations on strategy and developments inCommercial Banks issued by the Central Bank of the operating environment for key business areas 105

CORPORATEGOVERNANCEfrom the Managing Director and other members of The Blue Book encapsulates the Bank’s values, ethicsthe Corporate Management. Regular reports are also and code of conduct and sets out the expectationsprovided to the Board and Board Sub Committees on from all employees to ensure that high standardsthe Group’s risk appetite profile, risk management, of conduct are maintained throughout the Bankcredit exposures & the Group’s loan portfolio, asset & in conduct of business and our interactions withliability management, liquidity, litigation, compliance stakeholders. A Whistle Blowing Policy is in place toand reputational issues. The agenda and supporting ensure that high standards of conduct are upheldpapers are distributed in advance of all Board and and to serve as a channel of early identification ofBoard Sub Committee meetings to allow time for corporate fraud or risk management. This policyappropriate review and to facilitate full discussion at facilitates voluntary escalation of legitimate concernsthe meetings. All Directors have full and timely access on any potential “wrong doing” occurring withinto all relevant information and may take independent the Bank by any staff member to the notice of theprofessional advice if necessary at the Company’s Chairman of the Audit Committee. The procedure isexpense. Directors have free and open contact with clearly set out in the intranet to ensure that all staffmanagement at all levels and Key Management members are aware of the procedure.Personnel regularly make presentations to the Boardon matters relating to their work. Setting Strategic Direction The Board is responsible for setting the strategicDirectors keep themselves updated on matters that direction of the Bank and has appointed a separateimpact the Bank which include regulatory changes, Committee of the Board to ensure that sufficienteconomic factors, demographic changes, social attention is devoted to the Strategic Planning Process.trends and other matters that impact the business The Bank has a three year Revolving Strategicof the Bank. Additionally, Corporate Management Planning model which has been in force since 2009.briefings and external seminars including Central The process involves an assessment of the Bank’sBank Director Forums which are attended by competitive strengths and areas for improvement, amembers of the Board ensure that they are regularly review of the operating environment with emphasisupdated on matters that impact the Bank from a on emerging trends in the local market and globalregulatory perspective. industry trends with the overall objective of delivering sustainable stakeholder value through earnings,The Directors also attend external briefings, growth, stability and operational efficiency. Theconferences and seminars which provide them strategic plan formulated is used to prepare thewith insights into developing trends in business Annual Budget used to set the Key Performanceand banking. Indicators for the year to commence. The BoardFinancial KPIs Business Growth Earnings Growth Credit Quality Return on Assets after Tax > 2%Non Financial KPIs Deposits growth > 15% Return on Equity > 20% NPA Ratio (Net of IIS) < 2% Net Interest Margin > 4% Credit Growth > 20% Effective Tax & VAT rate < 34% Open Credit Position Cost to income ratio < 55% Exposure < 8% Assets growth > 15% Dividend Payout Ratio > 25% Infrastructure Growth Minimum Dividend per share > Rs 6.00 Enhance online banking Risk Management Human Resource Development services % of Completion of Risk & Control Self Assessment for Strategic % Core areas of expertise to be Enhance mobile banking Business Units covered in training services % of credit facilities risk ratings/ Increase ATM access points proposals reviewed by RMU prior % training objectives met through partnerships with to granting other banks Quarterly Market Risk Stress New staff recruitment cost vs current Testing staff skill enhancement cost to fill a capability gap106

monitors progress against Strategic Plan 2013 – 2015 the Central Bank Directions, the Code of Corporateand the Budget for 2013 during the year using the Governance and international best practice. TheKey Performance Indicators in the above table. The Audit Committee reviews the activities of the InternalStrategic Plan for 2014-2017 has been reviewed and Audit Department and has communications withapproved by the Board along with the Budget for the External Auditors to ensure that concerns are2014 using the same model. addressed and that there is a sufficiently robust system of internal controls within the Bank. It hasStrategic Risk Management also reviewed the Bank’s statement on InternalThe Board recognises the importance of Risk Control prior to its endorsement by the Board andManagement in delivering sustained growth and the policies and processes for identifying, assessingvalue creation to stakeholders and has appointed and managing business models.a Committee on Risk Management to ensure thatsufficient attention is devoted to this key function The Directors’ undertake an annual assessment ofof the Board. The Board sets the risk appetite for the effectiveness of Internal Control Over Financialthe Bank and receives regular reports from the Sub Reporting (ICOFR) in accordance with the BankingCommittee on Risk Management which has oversight Act Direction No 11 of 2007. As required by theresponsibility for the risk management of the Bank Direction, the Bank has obtained a report from theand the compliance function. The risk management Bank’s External Auditors, Messrs Ernst & Young, forframework and activities are more fully described the Internal Control Over Financial Reporting for thein the Risk Management Report on pages 160 to year ended 31st December 2013.187 and the Report of the Board Risk ManagementCommittee on pages 150 to 152 of this Annual Report. Other Aspects of Corporate GovernanceAdditionally, the Board has noted and complied with The Board has approved a governance frameworkthe directions and guidelines issued by CBSL during which maps out the internal approvals processes2013 and also engaged consultants to advise and and those matters which may be delegated.facilitate implementation of systems to identify, These matters principally relate to the operationalmeasure and monitor risks. management of the Bank’s operation and include predetermined authority limits delegated by theInternal Control Board to the Bank’s Managing Director for furtherAn effective system of Internal Controls that delegation by him in respect of matters whichsupports business operations, ensures compliance are necessary to enable effective day-to-daywith regulations, internal policies and procedures Operations. Additionally, Management Committeesensures reliable reporting which is necessary to have been established as principal standingfacilitate the effective discharge of duties by the committees with written terms of reference which areBoard. The Board Audit Committee of the Board has regularly reviewed by the Board. These committeesbeen tasked with the oversight responsibility for are key elements of the Bank’s Operationalthis key function in line with the requirements of Governance framework.Additional Governance CommitteesAdditional Governance Purpose and Tasks Annual Report 2013 Sampath Bank PLCCommitteesAsset and Liability Formulates monitors and reviews all asset and liability management strategiesCommittee (ALCO) and their implementation. These include decisions on advances and liabilities pricing, maintaining the appropriate mix of assets and liabilities, introductionInvestment Committee of new asset and liability products, fixed versus floating interest rate structures, debt structures, the magnitude of the interest rate and liquidity risks, buying and selling of securities, foreign exchange exposures and regulatory compliance. Investment Committee evaluates and decides on the approval or rejection of new investment proposals received by the Committee, if within their limits, or else, submits recommendations to the Board, where the Board is the approving authority. Investment in Equity Stocks listed in the Colombo Stock Exchange (CSE) Investment in Debentures Investment in Sri Lanka Development Bonds (SLDB) Other special investments such as Securitisations, private equity and venture capital investments. 107

CORPORATEGOVERNANCEAdditional Governance CommitteesAdditional Governance Purpose and TasksCommitteesIT Steering Committee Takes responsibility for the feasibility, business case and the achievement of outcomes of operations, infrastructure, automation, development, procurementCredit Policy, Risk and and security activities related to Information Technology at Sampath Bank, inPortfolio Review Committee line with the strategic vision and long term goals as stipulated by the BoardProcurement Committee of Directors. The Steering Committee will monitor and review the strategic alignment of the Bank’s overall vision and goals with that of the IT Department, as well as provide oversight of the deliverables and rollout of such strategies. Determines the Credit Policy of the Bank. The Credit Policy Committee has the authority to make a final decision on approval or rejection of proposed transactions as well as to establish personal limits and client limits in accordance with its powers. Evaluates and make recommendations to the Board with the concurrence of the MD, on the capital expenditure proposals, where the Board is the approving authority. The Committee also acts as the approving authority on capital expenditure projects and purchases within certain delegated limits.IT Governance about compliance of IT with the Bank’s policies,The business of banking relies on information and standards, procedures, and overall objectives.communication technologies for originating andrecording transactions and for producing information Resource management - Regular assessmentsused for regulatory reporting and decision making. ensures that IT has sufficient, competent andAdditionally, the investments in IT are among the efficient resources to meet the Bank’s demands.most significant investments made by the Bank andare directly linked to the Bank’s overall strategy. Risk management – Risk Management principlesTherefore, it is vital that sound governance practices embedded in the responsibilities of the Bank,are put in place to ensure that there is value creation ensure that the Bank and IT regularly assessin line with the strategic objectives of the Bank. and report IT-related risks and organisationalIT governance of the Bank ensures that the impacts.investments in IT generate value, avoid failure andmitigate IT-associated risks by ensuring well defined Strategic alignment – A shared understandingroles and responsibilities for IT stakeholders including between the Bank’s management and the ITInformation System Auditors, within an organisational department, enables the Board and seniorstructure that adequately defines the role of management to understand strategic IT issues.information, business processes, applications andinfrastructure. Such a framework ensures that Value delivery - The benefits achieved fromIT investments are aligned and delivered in each IT investment is assessed prior to and afteraccordance with corporate objectives and strategies. implementation to ensure that expected valueThe following best practices in IT Governance have has been delivered.been successfully implemented by the Bank: Performance management reporting- Accurate, High-level framework – Defines leadership, timely, and relevant portfolio, programme, processes, roles and responsibilities, information and IT project reports to senior management, requirements, and organisational structures. provide a thorough review of the progress being made towards the identified objectives of the Independent assurance - Internal / external IT project. audits (or reviews), provide timely feedback108

Membership of Sub-Committees of the BoardDirectors Board Audit Committee Board Human Resources and Remuneration Committee Board Nomination Committee Board Risk Management Committee Board Credit Committee Board Strategic Planning Committee Board Shareholder Relations Committee Board Treasury Committee Board Marketing CommitteeMr Dhammika ü ü ü ü ü Chairman Chairman Chairman ChairmanPerera ü ü ü ü ü Chairman ü ü ü üMr Channa ü Chairperson Chairperson Chairman ü üPalansuriya ü Available ü Chairman ü ü ü ü ü Bi-annually üMr Sanjiva ü ü üSenanayake Available ü Available ü 1 ü Available Quarterly Need Available ü ü 7 days OnceMr Deepal Available basis Once ü prior Available in twoSooriyaarachchi 12 Need 5 in two ü Once 7 days basis 7 days Available ü in two monthsProf Malik prior 3 prior months Need 5Ranasinghe 7 days 8 basis Available months prior 13 Bi-annually 6 7 daysMrs Dhara 7 days 7 days priorWijayatilake prior prior 2 7 days 7 days priorMiss Annika priorSenanayakeMr DeshalDe MelMr RanilPathiranaMrs SaumyaAmarasekeraMr AravindaPereraMr RanjithSamaranayakeTerms ofReferencePlannedFrequency ofMeetingsActual No ofMeetingsCirculation ofagenda andpapersThe Group Company Secretary Mr S Sudarshan is Focus Area % Annual Report 2013 Sampath Bank PLCthe Secretary for all the Board Sub-Committees and Main Banking Operations 40the minutes of meetings are available in his custody. Performance Review 12Written Terms of Reference that comply with the Strategy and Budget 12Code of Best Practice on Corporate Governance and Risk Related Items 12Central Bank requirements are available for the Sub Governance 10Committees with the Group Company Secretary. Succession Planning Shareholder Matters 5Board Meetings Others 5The Board of Directors met 19 times during the year 4and its Sub Committees met 55 times. Their mainfocus areas and attendance at meetings are given inthe following table. 109

CORPORATEGOVERNANCE Directors Board Meetings Board Audit Committee Board Human Resources and Remuneration Committee Board Nomination Committee Board Risk Management Committee Board Credit Committee Board Strategic Planning Committee Board Shareholder Relations Committee Board Treasury Committee Board Marketing CommitteeMr Dhammika Perera 17 42Mr Channa Palansuriya 18Mr Sanjiva Senanayake 19 3 5 7 821Mr Deepal Sooriyaarachchi 19 3Prof Malik Ranasinghe 19 12 8 13 2 6Mrs Dhara Wijayatilake 19 11 3Miss Annika Senanayake 19 11 3 5Mr Deshal De Mel 18 12Mr Ranil Pathirana 16 3 13 2 6Mrs Saumya Amarasekera 18 10 3Mr Aravinda Perera 18 8Mr Ranjith Samaranayake 19 12Total No of Meetings 19 5 12 5 10 2 1 65 0 55 6 13 2 5 7 13 2 6 5 8 13 2 1 6 5Stakeholders’ Rights Framework which encourages active co-operation betweenThe Board recognises the rights of all stakeholders, Bank and stakeholders. The Commitment of the Bankestablished by law or through mutual agreements towards this aspect, is as follows:and has in place a Corporate Governance frameworkStakeholder Bank’s CommitmentShareholdersCustomers The Bank is committed to enhancing long term shareholder value and facilitate theEmployees exercise of shareholders’ rightsCommunity The Bank is committed to providing fair returns, stability, security and be fair in dealing with them to provide superior service. The Bank is committed to building a work environment where people can make a difference both as individuals and as part of a team. The Bank is committed to meeting its corporate responsibility and decisions on social and economic issues concerning activities of the Bank are developed and adopted by its governing bodies with the participation of Bank personnel.110

Special resolutions passed at the last Annual General Annual Report 2013 Sampath Bank PLCMeeting (AGM)There were no matters that required passing ofspecial resolutions at the AGM held on 4th April 2013.Means of CommunicationWe communicate with our stakeholders through thefollowing mechanisms: The quarterly results are published in the Newspapers in all three languages and released to the Colombo Stock Exchange [CSE] The financial results are displayed on www.sampath.lk in an area of the website devoted to Investor Relations Financial results and business strategies of the Bank are explained to investors, Business leaders and media personnel through Investor forums and press releases. Management Discussion and Analysis (pages 40 to 101).Statutory Compliance and PenaltiesThe Company has complied with the requirements ofthe Stock Exchange on all matters related to capitalmarkets during the year. No penalties have beenimposed on the Company by the authorities.DeclarationI Aravinda Perera, Managing Director of SampathBank PLC, hereby declare that all the members ofthe Board of Directors and the Senior Managementpersonnel have affirmed compliance with the Codeof Conduct, applicable to them as laid down by theBoard of Directors in terms of Section 3(8)(ii)(g) ofthe Banking Act Direction No 11 of 2007, for the yearended 31st December 2013.For Sampath Bank PLCAravinda PereraManaging DirectorColombo, Sri Lanka18th February 2014 111

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best Requirements PracticeBoard of Directors The Board of Directors comprises 12 Directors of whomEffective Board ten are Non Executive including the Chairman. The two A1 Executive Directors are the Managing Director and theRegular meetings Group Chief Financial Officer who are also part of the A1.1 Corporate Management to whom the day-to-day running of the organisation has been delegated. The Board has appointed Sub Committees to assist in the discharge of their collective duties and also approve policies, governance structures and the delegation of authority to provide a conducive business environment for effective performance of the Bank. Additionally, the Board is closely involved in developing strategy and setting the short, medium and long term goals of the Bank and regularly monitors performance against pre-determined Key Performance Indicators which include both quantitative and qualitative measures on a regular basis. Board Meetings are held monthly while special Board meetings are convened as the need arises. During 2013 the Board held 19 scheduled meetings, and 2 Strategic meetings. Additionally the following Sub Committees also met regularly: Board Audit Committee Board Human Resources & Remuneration Committee Board Nomination Committee Board Risk Management Committee Board Credit Committee Board Strategic Planning Committee Board Shareholder Relations Committee Board Treasury Committee Board Marketing Committee This year the Board was provided with iPads to access Board papers via secure connections. Details of Board Meetings, Sub Committee Meetings and attendance are given on page 110 of this report.Board’s responsibilities: The following procedures are carried out to strengthenthe safety and soundness of the BankEnsure the The Board is responsible for setting strategy, policies and A1.2formulation and for monitoring performance against agreed goals andimplementation KPIs. During the year, the Board had 2 strategic planningof sound business sessions where they reviewed the proposals of thestrategy Corporate Management and re-aligned strategy112

Principle Compliance and Implementation Code CSE Listing of Best Requirements PracticeEnsure that the The Board Nomination Committee ensures that the BoardChief Executive Members and Key Management Personnel have the A1.2Officer (CEO) required skills, experience and knowledge to implementand management strategy. A1.2team possess theskills, experience A succession plan has been recommended by the Board A1.2and knowledge Nomination Committee and approved by the Board duringto implement the the year and is in place. A1.2strategy Refer to Director’s Statement on Internal Control, A1.2Ensure effective Board Audit Committee and Board Risk ManagementCEO and senior Committeemanagementsuccession There will be a separate Compliance function reportingstrategy Directly to the Board Sub Committee on risk which will have responsibility for compliance. Head of ComplianceEnsure effective will report directly to the Board Risk Managementsystems to Committee.secure integrity The Memorandum and Articles of the Bank require theof information, Directors to make decisions taking into account theinternal interests of the customers, shareholders, employees andcontrols and risk the community. Additionally, there is a Customer Charter,management a Shareholder Relations Committee and HR Policy also which sets out the Bank’s commitment to uphold theEnsure interests of these key stakeholders.compliance withlaws, regulationsand ethicalstandardsEnsure allstakeholderinterests areconsideredin corporatedecisionsEnsure that the The Board Audit Committee and the Board review A1.2 Annual Report 2013 Sampath Bank PLCcompany’s values accounting policies annually to ensure that they are in A1.2and standards are line with the business model of the Bank and evolvingset with emphasis international and local accounting standards and industryon adopting best practice.appropriateaccounting The Board is committed to fulfilling their functions in linepolicies and with the law, regulations and good governance practicesfostering adopted by the Bank.compliancewith financialregulationsFulfill such otherBoard functionsas are vital, giventhe scale, natureand complexityof the businessconcerned 113

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best Requirements PracticeAct in accordance The Board has put in place a framework of policies,with laws procedures and a risk management framework to ensure A1.3relevant to the compliance with relevant laws, CBSL guidelines andorganisation international best practice with regards to the operations A1.4and procedure of the Bank. The Board obtains independent professionalfor Directors advice as and when necessary in accordance with theto obtain Board approved policy on independent professionalindependent advice and these functions are co-ordinated through theprofessional Group Company Secretary. Independent professionaladvice at services were sought on matters during the year inCompany accordance with the above provision in 2012.expense All Directors have the opportunity to obtain the adviceAccess to and and services of the Group Company Secretary, Mr Sappointment Sudarshan, who is a Chartered Corporate Secretaryor removal which is an approved qualification under the Companiesof Company Act No 7 of 2007. He is responsible for ensuring followSecretary up of Board procedures, compliance with rules and regulations, directions and statutes, keeping and maintaining minutes and relevant records of the Bank.Independent The Articles of the Company specify that the appointment A1.5judgement and removal of the Company Secretary should be by A1.6 resolution involving the whole Board.Dedicate A1.7adequate time The Directors of the Bank have no vested interests andand effort to take decisions on matters before them using independentmatters of the judgement.Board and theCompany, Dates of regular Board meetings and Board Sub- Committee meetings are scheduled well in advance andTraining for the relevant papers are circulated a week prior to theDirectors meeting. It is estimated that Non Executive Directors dedicate not less than 24 days per annum for the affairs of the Bank and those Directors who are also on Sub Committees dedicate not less than 30 days for the affairs of the Bank. The attendance at meetings for the Board and its Sub Committees are given in page 110 The Group Company Secretary draws up the training curricula in consultation with the Chairman. The first item of the agenda is devoted to hearing an outside expert views on matters relevant to the Bank. During 2013 the following areas were covered; Directors’ responsibilities State of the economy and future outlook114

Principle Compliance and Implementation Code CSE Listing of Best Requirements Practice Additionally, the Board encourages knowledge sharing among the Directors. They also participate in the sessions A2 organised by professional bodies and the Sri Lanka Institute of Directors. The annual self- A3 assessment by Directors also covers aspects on training to identify training needs. A4Division of Responsibilities between Chairman and CEOChairman’s role The positions of the Chairman and the MD have beenin preserving separated in line with best practice in order to maintain agood corporate balance of power and authority. The Chairman is a Non-governance Executive Director while the MD is an Executive Director.Role of ChairmanConduct Board The Bank has developed a formal terms of reference inproceedings in a 2012 for the Chairman which includes all aspects specifiedproper manner in the Code, the continuing listing requirements of the CSE and the Banking Act Direction No 11 of 2007.Financial AcumenAvailability of Financial acumen has been a key attribute of successfulfinancial acumen careers of the following Directors who have held seniorand knowledge to management positions related to finance in other leadingoffer guidance on financial institutions:matters of finance 1. Mr Sanjiva Senanayake 2. Mr Deepal Sooriyaarachchi 3. Mr Ranil Pathirana 4. Mr Ranjith Samaranayake Additionally the Chairman, Mr Dhammika Perera has served on the Boards of a number of financial institutions.Board Balance Two Directors, including the MD have MBAs and one A5 Section 1Non Executive Director is a Fellow Member of the Chartered Institute ofDirectors of Management Accountants, UK. A5.1sufficient calibre andand The Board comprises 10 Non Executive Directors A5.2number including the Chairman and 2 Executive Directors who are the Managing Director and the Group Chief Financial A5.3 Section 2 Annual Report 2013 Sampath Bank PLCIndependence of Officer. The Non Executive Directors are professionals/Non Executive academics/business leaders, holding senior positions A5.4 Section 2Directors in their respective fields and therefore deemed to be of sufficient calibre. As the ma jority of the Board comprisesAnnual Non Executive Directors, their opinions and views carrydeclarations of significant weight in the Board decisions.independencefrom Directors 5 Non Executive Directors are independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement. Annual declarations of independence or Non Independence have been obtained from the Directors for 2013. 115

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best RequirementsAnnual evaluation The Board makes an annual evaluation of independence Practiceof independence of the Directors based on the submission of the annual Section 2 declarations. Based on these, the following Directors are A5.5 deemed to be independent: Mr Sanjiva Senanayake Mr Deepal Sooriyaarachchi Prof Malik Ranasinghe Mrs Dhara Wijayatilake Miss Annika SenanayakeSenior There were no Directors deemed independent where all A5.6Independent criteria was not met. andDirector Mr Sanjiva Senanayake has been appointed as Senior A5.7 Independent Director in view of the requirements of the A5.8Chairman to hold Banking Act Direction No 11 of 2007.meetings with During 2013, the Non Executive Directors and the A5.9Non Executive Chairman met once without the Executive Directors.Directors, withoutExecutive Board Minutes are prepared in order to record anyDirectors being concerns of the Board as a whole or those of individualpresent Directors regarding matters placed for their approval/ guidance/action. These Minutes are circulated andRecording formally approved at the subsequent Board meeting,of Directors’ Additionally, Directors have access to the past Boardconcerns in Board papers and Minutes in case of need via electronic meansMinutes at all times. If a Director resigns over an unresolved issue, the Chairman will bring the issue to the attention of the Board. The Director concerned is also required to provide a written statement to the Chairman for circulation to the Board.Supply of Relevant InformationProvision of The management provides comprehensive information A6.1appropriate including both quantitative and qualitative informationand timely for the monthly Board Meetings generally 7 days prior toinformation the Board/Sub Committee meetings. The Directors also have free and open access to Management at all levels to obtain further information or clarify any concerns they may have. As described above, they also have the right to seek independent professional advice at the Company’s expense and copies of advice obtained in this manner are circulated to other Directors who request it.116

Principle Compliance and Implementation Code CSE Listing of Best RequirementsChairman All Directors are adequately briefed on matters arising Practiceto ensure all at Board Meetings through comprehensive Board papers.Directors are Additionally, the relevant members of the Management A6.1properly team are on standby for further clarifications as may bebriefed on issues required by Directors or will make presentations at Boardarising at Board Meetings.Meetings Any Director who does not attend a Meeting is updated on proceedings prior to the next Meeting through: Formally documented Minutes of discussions. Matters arising from previous Meetings are taken up as a separate agenda item and a Board Paper. Archived Minutes and Board Papers accessible electronically at the convenience of the Directors. Non Executive Directors have an open invitation to attend the meetings of the Management Committees and have the opportunity to interact with senior management during and after Board Meetings.Board Papers and As described above, Board Papers are generally circulated A6.2agenda to be 7 days before the Meeting. There is practice which is A7.1circulated 7 days rarely used where of urgent papers are circulated withinprior to Meetings. a shorter time frame and also for approval of matters by A7.2 circulation but such instances are the exception and not A7.3 the rule.Appointments to the BoardFormal and The Board has established a Nomination Committeetransparent whose Terms of Reference comply with the Specimenprocedure for new given in the Code. Membership of this important Boardappointments Sub Committee is given on page 109 of the Annual Report.through an Accordingly, new Directors including the MD and Groupestablished Board CFO are appointed by the Board upon consideration ofNomination recommendations by the Board Nomination Committee.CommitteeAnnually The Board annually assesses its composition to ascertainassess Board whether the combined knowledge and experience of thecomposition Board match the strategic demands facing the Company and is satisfied that it complies with the criteria.Disclosure of All new appointments are communicated to theinformation to shareholders via the Colombo Stock Exchange bothshareholders upon in English and Sinhala languages in keeping with the Annual Report 2013 Sampath Bank PLCappointment of traditions of the Bank. The profiles of the current Directorsnew Directors are given on pages 22 to 28 in this report which has also been translated into Sinhala. 117

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best Requirements PracticeRe-Election As per the Articles, 1/3rd of the Directors should retire A8 at each Annual General Meeting and be subject to re-All Directors election. Such Directors who retire are those who heldshould submit office for the longest time period since the election/themselves for re- re-appointment. In accordance with this provision, theelection at regular following Directors retire and offer themselves for re-intervals election: Mr Channa Palansuriya Mr Deshal De Mel Miss Annika Senanayake Mr Ranil Pathirana A brief resume of Directors standing for re-election is provided in English and Sinhala to enable shareholders to make an informed decision.Non Executive The Board and the Board Nomination Committee is A8.1Directors are actively engaged in succession planning for both A8.2appointed for Executive and Non Executive roles to ensure that Boardspecified terms composition is periodically renewed and that the Board A9.1subject to retains its effectiveness at all times.re-election Non Executive Directors are appointed with Central Bank approval and stand for re election at the next AnnualAll Directors General Meeting (AGM).includingChairman to be Described in response to A8 above.subject to re-election at firstopportunity afterappointmentand re-electionat least every 3years thereafterAppraisal of Board PerformanceAppraisal of Board The Board annually appraises its own performancePerformance to ensure that it is discharging itsresponsibilities satisfactorily. This process requires each Director to fill a Board Performance Evaluation Form in line with the provisions of this section of the Code. The responses are reviewed by the Group Company Secretary who compiles a report which is discussed at a Board Meeting.118

Principle Compliance and Implementation Code CSE Listing of Best Requirements PracticeAppraisal of Board The Board Sub Committees follow the same process andSub Committees the reports are retained by the respective Committee A9.2 A 10.1 Chairpersons. A11.1Disclosure of Information in Respect of Directors A11.2Annual Report to Information specified in the Code with regard to Directorsdisclose specified are disclosed within this Annual Report as follows: B1.1information Name, qualifications, expertise, material businessregardingDirectors interests and brief profiles on pages 22 to 28. Related party transactions are given in Note No 43 to the Financial Statements on pages 285 to 288. Membership of Sub Committees and attendance at Board Meetings and Sub Committee meetings on pages 109 & 110.Appraisal of Chief Executive OfficerSet reasonable The Board discussed and set financial and non-financialfinancial and non- targets to be achieved during the year by the MD withfinancial targets reference to the short, medium and long term objectivesto be met by the of the Bank at the beginning of 2013. The targets for 2014CEO have also been set at the time of reporting.Evaluate The Managing Directors’ performance is evaluated by theperformance of Board HR and Remuneration Committee with reference tothe CEO with targets and goals achieved by the Bank.reference totargetsDirectors’ RemunerationAppointment of The Board has established a HR and Remunerationa Remuneration Committee to develop policy and determine remunerationCommittee for the Directors, Management and Executive staff. No Director is involved in deciding his own remuneration. The Terms of Reference complies with Schedule C of the Code, other investor guidelines and requires the Committee to ensure that the Company adopts a remuneration policy which rewards Directors, Management and Executive Staff for their contribution to sustainably and responsibly enhancing shareholder value.Remuneration Further information regarding the Board HR and B1.2 Section 4 Annual Report 2013 Sampath Bank PLCCommittee Remuneration Committee is given in the Board HR and andto comprise Remuneration Committee Report on pages 146 and 147. B1.3exclusivelyNon Executive The Board HR and Remuneration Committee comprises B1.4Directors the following Directors who are all Non Executives except B1.5 Mr Aravinda Perera the Managing Director :Remuneration for Mr Deepal Sooriyaarachchi (Chairman)Non Executive Mr Channa PalansuriyaDirectors Miss Annika SenanayakeRemuneration Mr Deshal De Melof Executive Mr Aravinda PereraDirectors Remuneration of Non Executive Directors is recommended by the Board HR and Remuneration Committee for approval of the Board in line with market practice. Remuneration of Executive Directors is determined by the Board HR and Remuneration Committee which have access to professional advice from within or outside the Company in formulating their proposals which then are discussed with the Chairman. 119

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best Requirements PracticeLevel and Make-up of Remuneration B2.1Remuneration Remuneration for Executive Directors is designed to &for Executive attract, retain and motivate the Executive Directors asDirectors should determined by the Board HR & Remuneration Committee. B2.2attract, retain and The Board HR & Remuneration Committee takes intomotivate account market practices and seeks professional advice B2.3 when required in order to discharge its responsibilities. B2.4Positioning The Board HR and Remuneration Committee reviews thecompany Bank’s remuneration levels in relation to other Banks in the B2.5remuneration country annually. B2.6levelsrelative to other B2.7companies B2.8Performance- There are no performance-related elements ofrelated elements remuneration for Executive Directors.of remunerationfor ExecutiveDirectorsShare option The employees have a uniform employee share optionschemes scheme based on grade and salary of the employee. This scheme expires on 30th June 2014.Designing No schemes of performance-related remuneration haveschemes of been implemented in the Bank.performance-relatedremunerationCompensation There are no provisions for compensation for earlycommitments in termination in the letters of contract/appointment.the event However, the Directors would determine this on aof early case-by-case basis.terminationDealing with early Directors determine this on a case-by-case basis.terminationLevels of The Board HR and Remuneration Committee determines B2.9remuneration for the levels of remuneration for Non Executive DirectorsNon Executive taking into account the time commitment andDirectors responsibilities of their role and market practices. Remuneration for Non Executive Directors does not include share options.120

Principle Compliance and Implementation Code CSE Listing of Best RequirementsDisclosure of Remuneration Practice Section 4Composition of The composition of the Board HR & Remuneration B3.1Remuneration Committee and its policy is given on pages 146 & 147.Committee, The aggregate remuneration to Executive and Non C1Remuneration Executive Directors are given in Note No 14 to thePolicy and Financial Statements on page 245.disclosure ofaggregateremunerationpaid to DirectorsRelations with ShareholdersConstructive use The Annual General Meeting is the main forum of contactof the AGM and between small shareholders and the Board. A separateother General Sub Committee of the Board, (Board ShareholderMeetings Relations Committee) has been set up for the purpose of building up relations with the shareholders and addressing their concerns. This Committee conducts an open session with the shareholders immediately after the AGM each year. The Annual Report is circulated to all shareholders 15 working days prior to the AGM and a Sinhala version is published each year to meet the needs of a diverse group of shareholders. Additionally, the Chairman’s and MD’s messages are translated into Tamil each year.Count of all proxy In line with market practice, the MD has regular contact C1.1 Annual Report 2013 Sampath Bank PLCvotes lodged with the ma jor shareholders and the Chairman also C1.2 participates in many such meetings. C1.3Separate All proxy votes lodged, together with the votes ofresolutions for shareholders present at the AGM are considered for each C1.4each substantially resolution.separate issue A separate resolution is proposed at the AGM for each C1.5 substantially separate issue. The adoption of the reportAvailability of and accounts is proposed as a separate resolution.Board Sub-Committee All Board Sub Committee Chairpersons are present at theChairpersons at AGM to answer any questions raised at the AGM and willAGM respond when requested to do so by the Chairman.Circulation of Notice of the AGM and related papers are sent tonotice of AGM and shareholders at least 15 working days prior to the meetingrelated in accordance with the regulations.documents toshareholders A summary of the procedures governing voting at the AGM is provided in the proxy form, which is circulated toSummary of shareholders 15 working days prior to the AGM.proceduresgoverning votingat the AGM 121

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best Requirements PracticeDisclosure of ma jor transactionsDisclosure The Company’s future strategies and their potential C2of ma jor impact have been disclosed in the following sections oftransactions this Annual Report. Chairman’s Statement on pages 8 to 11 Managing Director’s Review on pages 12 to 21 Management Discussion and Analysis on pages 40 to 101Disclosure of The Bank will comply with the regulation in case of need C2.2all facts of but the situation has not arisen. `D1transactions D1.1which have amaterial impacton netassetsAccountability and AuditPresent a The Company’s position and prospects have beenbalanced and discussed in detail in the following sections of this Annualunderstandable Report.assessment of theCompany’s Chairman’s Statement on pages 8 to 11financial position, Managing Director’s Review on pages 12 to 21performance and Management Discussion and Analysis on pages 40 toprospects 101Interim reports, Interim reports were circulated within 45 days ofprice-sensitive each quarter end and included information to assistpublic reports, shareholders gain an understanding of the state of affairsregulatory reports of the Bank.and statutoryinformation Price sensitive information was disclosed in arequirements comprehensive but concise manner to the Colombo Stock Exchange on a timely basis.Declaration in Reports required by the regulators including Central Bank, D1.2Directors’ Report Inland Revenue, Registrar of Companies, Colombo Stock Exchange were all filed in a timely manner in compliance with their requirements and these provided a sufficient information for the user to obtain a balanced assessment of the Bank`s operations. The Annual Report of the Board of Directors on pages 200 to 210 contains the declarations as required by the Code.122

Principle Compliance and Implementation Code CSE Listing of Best Requirements PracticeResponsibilities of The Statement of Directors’ Responsibility and Report Annual Report 2013 Sampath Bank PLCthe Board for the of the Auditors which includes statements about their D1.3preparation and reporting responsibilities are provided on pages 215 to 216presentation of and 217 respectively. D1.4FinancialStatements and The Management Discussion and Analysis is set out on D1.5Statement by the pages 40 to 101 and covers the information specified in D1.6Auditors about the Code as given below D2.1their reportingresponsibilities industry structure and developments; D2.2Include a opportunities and threats;Management risks and concerns;Discussion and internal control systems and their adequacy;Analysis social and environmental protection activitiesDeclaration of carried out by the Company;the Directors that financial performance;the business is a material developments in human resource / industrialgoing concernNotify relations andshareholders in prospects for the future.case net assets of This information is provided in the Annual Report of thethe company fall Board of Directors on pages 200 to 210.below 50%Internal Control This situation has not arisen.Maintain asound system of The Board is responsible for formulating andinternal control to implementing appropriate and adequate internal controlsafeguard systems. The Board Audit Committee has responsibility toshareholders’ the Board to ensure that the system of internal controlsinvestments and is sufficient and effective. Reviews of the adequacy andthe Company’s effectiveness of these internal control systems are carriedassets. out by the Internal Audit Department which reports on aReview need for regular basis to the Board Audit Committee.Internal Audit As the Bank has an Internal Audit function, this is notFunction applicable. 123

CORPORATEGOVERNANCEThe Code of Best Practice on Corporate Governance issued jointly by the Institute of CharteredAccountants of Sri Lanka and the Securities and Exchange Commission of Sri LankaPrinciple Compliance and Implementation Code CSE Listing of Best RequirementsAudit Committee Practice Section 5Establish The Bank has established the Board Audit Committee in D3arrangements keeping with good governance since 1997. The principalfor selection responsibility of the Board Audit Committee was oversight D3.1and application over financial reporting, internal controls and monitoringof accounting Auditor independence. Its duties include gaining D3.2policies, financial assurance on the control over financial processes andreporting and the integrity of the Bank’s Financial Reports, monitoring D3.3internal control the performance, objectivity and independence of the D3.4principles External Auditor and reviewing work of the internal D4.1 auditor. The Board Audit Committee Report is given on pages 142 o 145 of the Annual Report.Composition The Board Audit Committee consists of Non-Executiveand Terms of Directors. Members are selected to provide a broad setReference for of financial, commercial and other relevant experienceBoard Audit to meet the Committee’s objectives. The MD, CFO, DGMCommittee Finance, Head of Internal Audit, Senior Manager Systems Audit and representatives of the External Auditors are invited to attend the meetings.Review of External The Committee has a key oversight role in relation toAudit function and the External Auditor, Ernst & Young, whose primaryrelationship with relationship is with the Committee. The Bank’s AuditorExternal Auditors Independence Policy ensures that the independence and objectivity of the Auditor are not impaired. The Committee has responsibility for recommending to the Board the appointment/re-appointment of the External Auditors and reviewing the nature, scope and results of the annual external audit. The audit fee is determined by the Board Audit Committee which also assesses the effectiveness and the independence of the External Auditors.Terms of The Terms of Reference for the Board Audit CommitteeReference complies with the Code of Best Practice on Corporate Governance issued by the ICASL and the SEC and the Code of Best Practice on Audit Committees issued by ICASL. This document is available with the Group Company Secretary.Disclosures The Annual Report of the Board of Directors on pages 200regarding Audit to 210 provides the following disclosures:Committee The composition of the Board Audit Committee A statement regarding the independence of the AuditorsCode of Business Conduct & EthicsCode of business Codes of conduct are in place as per Blue Book.conductand ethics124

Principle Compliance and Implementation Code CSE Listing of Best Requirements PracticeAffirmative This will be implemented along with the Code of Conduct.declaration by D4.2Chairman ofcompliance with D5.1Code of BusinessConduct and E1Ethics E1.1 E1.2Corporate Governance Disclosures F1Corporate The Corporate Governance Report on pages 102 to 140Governance provides information regarding Corporate GovernanceReport practices in the Bank which are in compliance with the Code of Best Practice on Corporate Governance.Shareholders – Institutional InvestorsEncourage voting The Bank has a history of active shareholder involvementat AGM at general meetings and all shareholders are regularly encouraged to state their intentions to vote and translate it into practice.Regular structured The MD has regular structured meetings with institutionaldialogues with shareholders and the Chairman often participates in suchinstitutional meetings. Board members are briefed about the mattersinvestors discussed at such meetings.Encourage Institutional investors are kept apprised of the Bank’sinstitutional governance practices through the Annual Report andinvestors to any new initiatives are highlighted at regular meetingsgive due weight to ensure that due weightage is given to good Corporateto relevant Governance.governancearrangementsShareholder Relations – Individual ShareholdersIndividual The Annual Report contains sufficient information for ashareholders potential investor to carry out his/her own analysis. Theare encouraged Annual Report is published in both Sinhala and Englishto do their own to facilitate better understanding by retail investors. This,analysis or seek together with the Interim Financial Statements providedindependent each quarter, provide sufficient information to enable theadvice retail investors to make informed judgements regarding the performance of the Bank.Encourage Additionally, there is a separate part of the company F2 Annual Report 2013 Sampath Bank PLCshareholders to website dedicated to Investor Relations which providesparticipate and this information online to all investors/Shareholders.vote at the AGM It is a tradition of Sampath Bank to encourage retail investors to participate and vote at the AGM. Additionally, they are encouraged to do so through the Board Shareholder Relations Committee 125

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3 (1)a. Responsibilities of the Boardb. The Board has strengthened the safety and the soundness of the Bank in the following manner:c. Strategic objectives The Bank’s strategic objectives and corporate values are determined by and corporate values the Board. These are communicated to all levels of staff through regular briefing sessions and reinforced by the Corporate Management Team. Overall Business The Bank strategy is set by the Board in consultation with the Corporate Strategy including Management and the Strategic Plan for the period 2014 -2016 has been Risk Policy and approved by the Board. The risk appetite, policy, management framework Management and mechanisms have also been approved by the Board in line with the strategic plan. Measurable goals for the Bank as a whole have been set and performance is measured in line with these goals regularly at monthly Board Meetings. Risk management The Board has appointed a Board Risk Management Committee tasked with approving the Bank’s Risk Policy, defining the risk appetite, identifying principal risks, setting governance structures and implementing systems to measure, monitor and manage the principal risks. The following reports provide further insights in this regard: Risk Management Report on pages 160 to 187. Board Risk Management Committee Report on pages 150 to 152.d. Communication with The Board has approved and implemented the following communication all stakeholders policies: Shareholders – The Board has appointed a Sub Committee on Shareholder Relations tasked with identifying and addressing the shareholders concerns. It is the first listed company in Sri Lanka to have such a Committee. This Committee conducts an annual Shareholder Relations Forum to identify shareholder concerns. Additionally, the AGM is also a key forum for contact with shareholders and the Bank has a proud history of well attended AGMs where shareholders take an active role in exercising their rights. The Annual Report is translated into Sinhala and the Chairman’s and MD’s Messages are translated into Tamil as well to facilitate greater communication with shareholders. Customers – Customers include depositors, creditors and borrowers. The Bank has a Customer Complaint Handling Policy which has been printed in all three languages and disseminated to all customer contact points of the Bank. This document outlines the complaints handling policy of the Bank, provides contact numbers of the Bank for this purpose and also of the Financial Ombudsman. There is customer hotline set up for this purpose and reports are reviewed by the Board Risk Management Committee. Additionally, a customer satisfaction survey is carried out by external consultants to evaluate service levels provided by the Bank. Staff – Staff members who are members of the Sampath Bank Employees Association and their representatives are given access to the Management to voice their concerns.126

Section Principle Compliance and Implementatione. Internal Control The Board Audit Committee is tasked with reviewing the adequacy and System and the integrity of the Bank’s internal control systems and managementf. Management information systems. Accordingly this Sub Committee reviews reports from Information Systems the Internal Audit Department which reports directly to the Board Auditg. Committee and also the External Auditors in carrying out this function. The Key Management Management Information Systems will be reviewed by the Board Audith. Personnel Committeei. The Board has identified Key Management Personnel, as defined in the Define areas of International Accounting Standards and the Sri Lanka Accounting Standards, authority and Key who significantly influence policy, direct activities and exercise control over Responsibilities business activities, operations and risk management. All appointments of for Directors and designated Key Management Personnel are recommended by the Board Key Management Nomination Committee and approved by the Board. Personnel Areas of authority and key responsibilities have been defined for the Oversight of affairs Directors and Key Management Personnel during the year 2013. of the Bank by Key Management Key Management Personnel make regular presentations to the Board on Personnel matters under their purview and are also called in by the Board to explain Assess effectiveness of matters relating to their areas. the Board of Directors’ own Governance Selection, nomination and election of Directors are made by the Board practices Nomination Committee based on their field of expertise Directors’ interests are disclosed to the Board and such a Director who has a particular interest abstained from voting and he/she is not counted in the quorum The Board appraises its own performance by submission of Self Evaluation Form by each Director in relation to business strategy and contributions of board members. The responses are collected by the Group Company Secretary and submitted to the Board for their review.j. Succession plan for A succession plan for the Key Management Personnel are being reviewed key management by the Board Nomination Committee and will be approved by the Board. personnelk. Regular meetings with Key Management Personnel regularly present or are called in for Key Management discussions at the meetings of the Board and its Sub Committees on Personnel policy and other matters relating to their areas. Progress towards corporate objectives is a regular agenda item for the Board and the Key Management Personnel are regularly involved in the Board level discussions on the same.l. Regulatory Directors are briefed about developments in the regulatory environment Annual Report 2013 Sampath Bank PLC environment and at Board Meetings to ensure that their knowledge is updated regularly to maintaining an facilitate effective discharge of their responsibilities. effective relationship with regulator Compliance Reports submitted to CBSL which includes all returns to regulators are presented to the Board quarterly and monitored closely by the Board. The Chairman and the MD meet CBSL officials with regard to strategic decisions of the Bank when need arises.m Hiring External The Board Audit Committee carries out the necessary due diligence Auditors regarding the hiring of the External Auditor and makes recommendations to the Board. Oversight of the External Auditor is carried out by the Board Audit Committee and the Board is briefed of any concerns in this regard if the necessity arises. 127

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3.1. (ii) Appointment of Chairman and MD The Board has appointed the Chairman and the Managing Director and3.1. (iii) and defining and also approved their functions and responsibilities maintaining the balance3.1.(iv) approving their of power between the two roles.3.1.(v) functions and3.1 (vi) responsibilities Regular monthly Board Meetings are held and special meetings are3.1 (vii) Regular Board scheduled as and when the need arises. The Board met on 19 occasions3. 1 (viii) Meetings during 2013. We have minimised obtaining approval via circular resolutions and it is done only on an exceptional basis and such3.1 (ix) Arrangements for resolutions are ratified by the Board at the next meeting.3.1 (x) Directors to include proposals in the Monthly meetings are scheduled and informed to the Board at the agenda beginning of each calendar year to enable submission of proposals in the Notice of Meetings agenda for regular meetings where such matters and proposals relate to the promotion of business and the management of risk of the Bank. Directors’ Attendance Notice of Meetings, Agenda and Board Papers for the Board meetings are Company Secretary circulated to the Directors 7 days prior to the meeting giving Directors time to attend and submit any urgent proposals. Additionally Notice, Directors’ access to Agenda and all related Board Papers are loaded through a secure link to advice and services of the iPad for the Directors to access. Company Secretary The Directors are apprised of their attendance in accordance with the Maintenance of Board Articles of the Company and the Corporate Governance Code. Detail of the Minutes Directors attendance is set out on page 110. No Director has been absent from 3 consecutive meetings and all Directors have attended at more than Minutes to be of 2/3 of the meetings for the year sufficient detailed and serve as a reference The Board has re-designated Company Secretary as Group Company for regulators and Secretary w.e.f. June 2012 who satisfies the provisions of Section 43 of the supervisory authorities Banking Act No 30 of 1988 and whose primary responsibilities shall be to handle the secretariat services to the Board and Shareholder Meeting and carry out other functions specified in the statutes and other regulations. The Board approved processes in place to enable all Directors to have access to advice and services of the Group Company Secretary All members of the Board have opportunity to obtain advice and services of the Group Company Secretary who is a Chartered Corporate Secretary and who is responsible to the Board for follow up on Board Procedures, Compliance with Rules and Regulations, Directions and Statutes and keeping and maintaining Minutes and relevant records of the Bank. The Group Company Secretary maintains the minutes of the Board Meetings and circulates to all Board Members. The Minutes are approved at the subsequent Board Meeting. Additionally, the Directors have access to the past Board Papers and Minutes through a secure electronic link. The Minutes of the Meetings include: (a) a summary of data and information used by the Board in its deliberations; (b) the matters considered by the Board; (c) the fact-finding discussions and the issues of contention or dissent (d) the testimonies and confirmations of relevant executives with regard to the Board’s strategies and policies and adherence to relevant laws and regulations;128

Section Principle Compliance and Implementation (e) matters regarding the risks to which the Bank is exposed and an overview of the risk management measures including reports of the Board Risk Management Committee; and (f) the decisions and Board resolutions including reports of all Board Sub Committees3.1 (xi) Directors’ ability to The Board Sub Committees and various professionals in Corporate and seek independent Senior Management advice the Board on various matters relevant to professional advice them. In addition, Directors are able to obtain independent professional advice, as and when necessary, in discharging their responsibilities. These functions are co-ordinated by the Group Company Secretary.3.1 (xii) Dealing with Conflicts The Directors are conscious of their obligation to deal with situations of Interest where there is a conflict of interest in accordance with the Articles of Association of the Bank and the Corporate Governance Direction No 11 of 2007. The Bank maintains an electronic register of Director’s and Key Management Personnel Interests which is regularly updated and includes interests of the spouse, children under 18 years of age and their business concerns. Directors abstain from participating in the discussions, voicing their opinion or approving in situations where there is a conflict of interest. Additionally he/she is not counted in the quorum in such instances.3.1 (xiii) Schedule of matters The Board has a schedule of matters specifically reserved to it defined in reserved for Board the Articles for its decision to ensure that the direction and control of the decision Bank is within its authority in line with regulatory codes, guidelines and international best practice.3.1 (xiv) Inform Central Bank The Board is aware of the need to inform the Director of Banking if there are solvency Supervision prior to taking any decision or action if the Bank is about to issues become insolvent or about to suspend payments to its depositors and other creditors and such a situation has not arisen during the year.3.1 (xv) Capital adequacy The Board monitors capital adequacy and other prudential regulatory requirements, the Bank’s defined risk appetite and industry benchmarks on a monthly basis. The Bank is in compliance with the minimum capital requirements.3. 1 (xvi) Publish Corporate The Board publishes the Corporate Governance Report in the Bank’s Governance Report in Annual Report. Annual Report3.1 (xvii) Self-assessment of The Board has adopted a scheme of self-assessment to be undertaken Directors by each Director annually and records are maintained with the Group Company Secretary. The Chairman discusses relevant matters, if any, with the Directors individually.3.(2) The Boards composition3.(2) (i) Number of Directors As per CBSL Governance Direction, the number of Directors should not be less than 7 nor more than 13. The Bank’s Board comprised of 12 Directors during the year 2013.3.(2) (ii) Period of service of a The period of services of a Director excluding the Managing Director is Annual Report 2013 Sampath Bank PLC Director limited to 9 years as per the Corporate Governance Code for Licensed Commercial Banks. There are no Directors whose tenure of service has exceeded 9 years on the Board. Details of their tenures of service are given on pages 22 to 28.3.(2) (iii) Board Balance There are 2 Executive Directors and 10 Non Executive Directors which is well within the requirement to limit the number of Executive Directors to 1/3rd of the total.3.(2) Independent Non The Board has five Independent Directors as at the year end which(iv) Executive Directors complies with the requirement.3.(2) (v) Alternate Independent Four Directors have been appointed as alternate Directors from the Directors existing Directors during the year. They maintain similar independent profiles as required as at the year end. 129

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3.(2) Criteria for Non Non Executive Directors are persons with credible track records and have(vi) Executive Directors necessary skills and experience to bring an independent judgment to bear on issues of strategy, performance and resources. These are detailed on pages 22 to 28. The Bank has a specific documented Board approved process in place for appointing Independent Directors. Directors nominate names of eminent professionals or academics from various disciplines to the Board Nomination Committee who peruse the profiles and recommend suitable candidates to the Board.3.(2) More than half the This requirement is strictly observed and it is noteworthy that the ma jority(vii) quorum to comprise are Non Executive Directors.3.(2) Non Executive(viii) Directors3.(2)(ix) Identify independent The Independent Non Executive Directors are expressly identified as such Non Executive in all corporate communications that disclose the names of Directors of3.(2)(x) Directors in the Bank. The composition of the Board, by category of Directors, including3.(2) (xi) communications the names of the Chairman, Executive Directors, Non Executive Directors disclose categories and Independent Non Executive Directors are given on pages 22 to 28 &3.(2)(xii) of Directors in Annual 204 of the Corporate Governance Report. Report3.(3)3.(3)(i) Succession planning The Board has established a Board Nomination Committee whose Terms3.(3)(ii) and appointments to of Reference comply with the Specimen given in the Code of Best Practice the Board on Corporate Governance. Accordingly, new Directors including the MD and GCFO are appointed by the Board upon consideration of recommendations by the Board Nomination Committee. The Board is to develop a succession plan together with the Board Nomination Committee to ensure that the members are from various skills and disciplines Re-election of Directors appointed to the Board since the AGM will stand for election Directors filling casual at the next AGM in accordance with the provisions in the Articles of vacancies Association. Communication of Resignations of Directors and the reasons are informed to the regulatory reasons for removal or authorities and shareholders as per CSE requirements together with a resignation of Director statement confirming whether or not there are any matters that need to be brought to the attention of shareholders. Prohibition of Directors The Board and the Board Nomination Committee take into account this or Employees of a requirement in their deliberations when considering appointments of Bank becoming a Directors. The Employee Code of Ethics (Blue Book) prohibits employees to Director at another be elected/nominated as a Director of another bank. Bank Criteria to Assess Fitness and Propriety of Directors Age of Director should There are no Directors who are over 70 years of age. not exceed 70 Directors should not None of the Directors hold office as a Director of more than 20 companies. be Directors of more than 20 companies130

Section Principle Compliance and Implementation3.(4)3.(4) (i) Management Functions delegated by the Board3.(4)(ii)3.(4)(iii) Understand and The Board periodically reviews and approves the delegation arrangements study delegation in place and ensures that the extent of delegation address the needs of3.(5) arrangements the Bank whilst enabling the Board to discharge their functions effectively.3.(5)(i)3.(5)(ii) Extent of delegation should not hinder3.(5)(iii) Board’s ability to discharge its functions3 (5)(iv) Review delegation arrangements3 (5) (v) periodically to ensure relevance to3 (5) operations of the Bank(vi) The Chairman and Chief Executive Officer Separation of roles The roles of the Chairman and MD are separate. Non Executive The Chairman is a Non Executive Director and not an Independent Director Chairman and as he holds more than 1% of share capital. The Board has appointed appointment of a Mr Sanjiva Senanayake as Senior Director who has become an Senior Independent Independent Director as at 24.12.2013 and there is a documented Terms of Director Reference for the Senior Independent Director Disclosure of identity The identity of the Chairman, Board members and MD are disclosed in the of Chairman and CEO Annual Report on pages 22 to 28 & 204. and any relationships with the Board There are no material financial, business or family relationships between members the Chairman, Managing Director and other members of the Board as per the annual declarations and the register of directors Interests is updated regularly. Chairman to provide The Board approved the key roles and responsibilities of the Chairman (a) leadership to the and this document includes the matters identified in relevant guidelines Board; and codes. (b) ensure that the Board works effectively and discharges its responsibilities; (c) ensure that all key and appropriate issues are discussed by the Board in a timely manner. Responsibility for The Group Company Secretary draws up the agenda for the Meetings in agenda lies with consultation with the Chairman. Chairman but may be delegated to Annual Report 2013 Sampath Bank PLC Company Secretary Ensure that Directors The Chairman ensures that the Board is adequately briefed and informed are properly briefed regarding the matters arising at the Board. The following procedures are in and provided place to ensure this: adequate information Board papers are circulated 7 days prior to the Board Meetings Relevant members of the Management team are on hand for explanations and clarifications Management information is provided in agreed formats on a regular basis to enable Directors to assess the performance and stability of the Bank Directors are able to seek independent professional advice on a needs basis at the Bank’s expense 131

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3 (5)(vii) Encourage active This requirement is addressed in the Chairman’s Responsibilities participation by all document approved by the Board.3.(5) Directors and lead in(viii) acting in the interests of the Bank3(5)(ix) Encourage Ten of the twelve member Board are Non Executive Directors which3(5)(x) participation of Non creates a conducive environment for active participation by the Non Executive Directors Executive Directors. All Non Executive Directors participate in Sub3(5)(xi) and relationships Committees of the Board providing further opportunity for active between Non participation. The Bank has also appointed a Senior Independent Director3.(6) Executive and which supports the participation of the Non Executive Directors.3 (6)(i) Executive Directors Refrain from direct The Chairman does not get involved in the supervision of Key supervision of Management Personnel or any other executive duties. key management personnel and executive duties Ensure effective The Bank historically has active shareholder participation at the Annual communication with General Meeting and at the Shareholder Relations Meeting which is held shareholders immediately after the AGM where shareholder issues are discussed. A Board Sub Committee has been appointed to ensure that there is effective communication with shareholders. CEO functions as the Day to day operations of the Bank have been delegated to the MD. apex executive in charge of the day-to- day operations Board appointed committees Establishing Board Nine Sub Committees have been established by the Board with written Sub Committees, terms of reference for each. The Group Company Secretary serves as their functions and the Secretary for all Sub Committees and maintains minutes and records reporting with oversight by the respective Chairpersons. The reports of the Sub Committees are included in the Annual Report Board Audit Committee on pages 142 to 145 Board Human Resources & Remuneration Committee on pages 146 & 147 Board Nomination Committee on pages 148 & 149 Board Risk Management Committee on pages 150 to 152 Board Credit Committee on pages 153 & 154 Board Strategic Planning Committee on page 155 Board Shareholder Relations Committee on pages 156 & 157 Board Treasury Committee on page 158 Board Marketing Committee on page 159 The Chairpersons of the Sub Committees are in attendance at the AGM to clarify any matters that may be referred to them by the Chairman.132

Section Principle Compliance and Implementation3 (6) (ii) The Chairman of the Board Audit Committee is a Non Independent Nona. Audit Committee Executive Director who is a Fellow member of the Chartered Institute of Management Accountants, UK.b. Chairman to be an independent Non All members of the Board Audit Committee are Non Executive Directors.c. Executive Director with qualifications In accordance with the Terms of Reference, the Board Audit Committee has and experience in made the following recommendations: accountancy and/or audit Committee to comprise solely of Non Executive Directors Audit Committee functions (i) the appointment of the External Auditor for audit services to be provided in compliance with the relevant statutes; (ii) the implementation of the Central Bank guidelines issued to auditors from time to time; (ii) the application of the relevant accounting standards; and (iv) the service period, audit fee and any resignation or dismissal of the Auditor (v) The Board Audit Committee ensures that the service period of the engagement of the External Audit partner shall not exceed five years, and that the particular Audit partner is not re-engaged for the Audit before the expiry of three years from the date of the completion of the previous termd. Review and monitor The Board Audit Committee obtains representations from the External external auditor’s Auditor on its independence and that the Audit is carried out in independence and accordance with the Sri Lanka Accounting Standards. External Auditor is objectivity and the independent since he/she report direct to the Board Audit Committee of effectiveness of the the Bank. audit processese. Provision of non-audit When such services are obtained from External Auditors prior approval is services by external obtained from the Board Audit Committee in accordance with regulations. auditor Further, there is a process in place approved by the Board in this regardf. Determines scope of The Committee discussed and finalised with the External Auditors the external audit nature and scope of the Audit to ensure that it includes: (i) an assessment of the Bank’s compliance with the relevant Directions Annual Report 2013 Sampath Bank PLC in relation to Corporate Governance and the management’s Internal Controls Over Financial Reporting; (i) the preparation of Financial Statements for external purposes in accordance with relevant accounting principles and reporting obligations; As all audits within the Group are carried out by the same External Auditor, there was no requirement to discuss arrangements for co-ordinating activities with other auditors. 133

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3 (6) (ii)g. Audit Committee The Board Audit Committee reviews the financial information of the Bank, Review financial in order to monitor the integrity of the Financial Statements of the Bank, information of the its Annual Report, accounts and quarterly reports prepared for disclosure, Bank and the significant financial reporting judgments contained therein. The review focuses on the following:h. Discussions with External Auditor on (i) ma jor judgmental areas; interim and final audits (ii) any changes in accounting policies and practicesi. Review of (iii) significant adjustments arising from the Audit Management Letter and Bank’s response (iv) the going concern assumptionj. Review of Internal (v) the compliance with relevant accounting standards and other legal Audit function requirements. The Board Audit Committee makes its recommendations to the Board on the above on a quarterly basis. The Board Audit Committee discusses issues, problems and reservations arising from the interim and final audits with the External Auditor. The Committee met once with the External Auditors in the absence of executive staff of the Bank. The Board Audit Committee has reviewed the External Auditor’s management letter and the management’s response thereto. The Board Audit Committee has oversight of the Internal Audit function and carries out the following duties with regard to the same: (i) Reviews the adequacy of the scope, functions and resources of the Internal Audit Department, and ensures that the Department has the necessary authority to carry out its work; (ii) Reviews the Internal Audit programme and results of the audits and ensures that appropriate actions are taken on the recommendations of the Internal Audit Department; (iii) Reviews appraisals of the performance of the head and senior staff members of the Internal Audit Department; (iv) Recommends any appointment or termination of the head, senior staff members (v) Ensures that the Committee is appraised of resignations of senior staff members of the Internal Audit Department including the Chief Internal Auditor, and provides an opportunity to the resigning senior staff members to submit reasons for resignation; (vi) Ensures that the Internal Audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care There are no outsourced functions of the Internal Audit at present and provisions in this regard are not applicable.134

Section Principle Compliance and Implementationk. Internal Investigations The Board Audit Committee has reviewed the ma jor findings of internall. investigations and management’s responses thereto. It has also ensured Attendees at Audit that the recommendations of such investigations are implemented.m. Committee Meetings The MD, Group CFO, the Chief Internal Auditor and representatives of the External Auditors generally attend meetings. Members of the Corporate Explicit authority, Management may also attend meetings upon invitation of the Committee. resources and access The Committee met with the External Auditors without the Executive to information Directors being present. The Board Audit Committee has: (i) explicit authority to investigate into any matter within its terms of reference; (ii) the resources which it needs to do so; (iii) full access to information; and (iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary.n. Regular Meetings The Board Audit Committee has scheduled regular quarterly meetings and additional meetings are scheduled as and when required. Accordingly, the Committee met 12, times during the year. Members of the Boad Audit Committee are served with due notice of issues to be discussed and the conclusions in discharging its duties and responsibilities are recorded in the Minutes of the meetings maintained by the Group Company Secretary.o. Disclosure in Annual The Report of the Board Audit Committee on pages 142 to 145 includes the Report following: (i) details of the activities of the Board Audit Committee; (ii) the number of Board Audit Committee Meetings held in the year; and (iii) details of attendance of each individual Director at such meetings are given on page 110.p. Maintain Minutes of The Group Company Secretary serves as the Secretary for the Board Audit Meetings Committee and maintains minutes of the Committee Meetings.q. Whistle blowing policy The Bank has a Board approved whistle blowing policy whereby an and relationship with employee of the Bank may, in confidence, raise concerns about possible External Auditor improprieties in financial reporting, internal control or other matters. The Group Company Secretary forwards all communications received in this regard, including anonymous communications, to the Chairman of the Audit Committee who addresses the issue in an appropriate manner. Policy is being further reviewed by the Board Risk Management Committee and will be submitted for approval by the Board. The Board Audit Committee is the key representative body for overseeing Annual Report 2013 Sampath Bank PLC the Bank’s relations with the External Auditor and meets the Auditor on a regular basis to discharge this function.3 (6) (iii) Board Human Resources and Remuneration Committee(a) Policy to determine The Committee has revised the basis for Director’s fees and monthly the remuneration of emoluments and will develop a policy to determine the remuneration for Directors, MD and the MD and the KMPs KMPs(b) Goals and targets for Goals and targets for the MD and the Key Management Personnel are the Directors, MD and documented under the Strategic plan/ Action plan for the year the key management 135

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3 (6) (iii)(c) Human Resources & Remuneration Committee Evaluations of the Performance evaluation process of the MD and the KMPs has been initiated performance of the MD by the Committee from year 2013. and Key Management Personnel against the set targets and goals(d) “Terms of Reference” Terms of Reference of the Committee approved by the Board provides for provides MD is not this.3(6) (iv) present at meetingsa. when matters relatingb. to the MD are beingc. discussed Board Nomination Committee Select/appoint new Board Nomination Committee has implemented a procedure to select new Directors, CEO and Directors. A procedure will be implemented to select CEO and KMPs KMPs Re-election of Board makes recommendations regarding the re-election of current Directors Directors, taking into account the performance and contribution made by the Director concerned towards the overall discharge of the Board’s responsibilities. Eligibility criteria for The Committee sets the eligibility criteria to be considered, including appointments to key qualifications, experience and key attributes, for appointment or managerial positions promotion to key managerial positions including the position of the MD. including MD The committee considers the applicable statutes and guidelines in setting the criteria. These have been documented during 2012 and job descriptions completed for the MD and Key Management Personnel approved by the Committee.d. Fit & Proper persons The Committee obtains annual declarations from directors, MD and Keye. Management Personnel to ensure that they are fit and proper persons to hold office as specified in the criteria given in Direction 3(3) and as set outf. in the Statutes.3 (6) (v)a. Succession Plan and The need for new expertise may be identified by the Board or its new expertise committees and brought to the attention of the Board Nomination Committee which will take appropriate action. Structural changes of the Bank are being currently reviewed by the Board Nomination Committee and thereafter the Committee and the Board will approve the succession plan for KMPs. Composition of the The Committee is chaired by an Independent Director as of 12.12.2013. Committee Among the other members one Director is Independent and other two members are Non Independent Board Integrated Risk Management Committee/Board Risk Management Committee Composition of Board The Committee comprises three Non Executive Directors, MD, Group Chief Risk Management Risk Officer and Group Compliance Officer and other Key Management Committee Personnel supervising credit, market, liquidity, operational and strategic risk. The Committee works closely with Key Management Personnel within the framework of authority and responsibility assigned to the Committee.136

Section Principle Compliance and Implementationb. Risk Assessment of the Bank and the The Committee has approved the policies on Credit Risk Management,c. Subsidiary companies Market Risk Management and Operational Risk Management whichd. provides a framework for management and assessment of risks.e. Review of Accordingly, monthly information on pre-established risk indicators isf. Management Level reviewed by the Committee in discharging its responsibilities as per the Committees on risk Terms of Reference. The Committee has a process to asses and evaluateg. all risks of the Bank and the findings and issues are submitted to the Boardh Corrective action for their review and action if any. The Committee will initiate action to to mitigate risks evaluate the risk management of Subsidiary companies both on a Bank exceeding prudential basis and Group basis. levels The Committee reviews the reports of the management level committees Frequency of meetings such as Credit Policy, Risk and Portfolio Review Committee and the Asset and Liability Management Committee to assess their adequacy and Actions against effectiveness in addressing specific risks and managing the same within the officers responsible quantitative and qualitative risk limits set by the respective Committees. for failure to identify specific risks or The Committee takes prompt corrective action to mitigate the effects implement corrective of specific risks in the case such risks are at levels beyond the prudent action levels decided by the Committee on the basis of the Bank’s policies and Risk assessment regulatory and supervisory requirements. The key risk indicators designed report to Board by the Committee will be approved by the Committee and by the Board Compliance function The Committee has regular quarterly meetings and schedules additional meetings when required. The agenda covers matters assessing all aspects of risk management including updated business continuity plans. At the Bank specific risks and the limits are identified by relevant Committees such as ALCO, Credit Committee and Investment Committee and as such decisions are taken collectively A detailed report of the meeting is submitted to the Board after each Committee meeting by the Secretary of the Committee for their information, views, concurrence or specific directions. A compliance function has been established to assess the Bank’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. This function is headed by a dedicated Group Compliance Officer who reports to the Committee and is responsible for providing the following: (i) A detailed quarterly report on statutory and mandatory reporting requirements indicating the status of compliance to the Board (ii) A monthly compliance certificate with sign-off from all business unit heads to the Committee3 (7) Related Party Transactions3 (7) (i) Categories of related There is a documented process approved by the Board in January Annual Report 2013 Sampath Bank PLC parties and avoid 2012 identifying related parties, type of related party transactions and conflict of interest favourable treatment granted to said parties in order for Board members to avoid any conflict of interest in this regard. Directors who have related party transactions are individually requested to declare their transactions to the Bank on a quarterly and annual basis. 137

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3 (7) (ii) Related party Definitions of related party transactions covered by the above Board transactions covered process and declarations by Directors and Key Management Personnel by direction include: a) The grant of any type of accommodation, as defined in the Monetary Board’s Directions on maximum amount of accommodation, b) The creation of any liabilities of the Bank in the form of deposits, borrowings and investments, c) The provision of any services of a financial or non-financial nature provided to the Bank or received from the Bank, d) The creation or maintenance of reporting lines and information flows between the Bank and any related parties which may lead to the sharing of potentially proprietary, confidential or otherwise sensitive information that may give benefits to such related parties.3 (7)(iii) Monitoring of related The Bank has implemented a Board approved process to monitor such party transactions related party transactions and to ensure that the Bank does not engage defined as more in such transactions in a manner that would grant such related parties favourable treatment “more favorable treatment” as mentioned than that accorded to other constituents of the Bank carrying on the same transaction with the Bank. Additionally, the staff concerned are informed through operational circulars to refrain from granting accommodations as defined in the Banking Act Direction No 11 of 2007. Bank will further strengthen the monitoring process to avoid granting of favourable treatment to such related parties as required by the Direction3 (7) Granting A procedure is in place for granting accommodation to Directors or to(iv) accommodation to close relations of Directors. Such accommodation requires approval at a a Director or close meeting of the Board of Directors, by not less than 2/3rds of the number relation to a Director of Directors other than the Director concerned, voting in favour of such accommodation. The terms and conditions of the facility include a proviso that it will be secured by such security as may from time to time be determined by the Monetary Board as well.3. (7) Accommodations The Group Company Secretary obtains declarations/affidavits from all(v) granted to persons, or Directors prior to their appointment and they are requested to declare any concerns of persons, further transactions. or close relations of persons, who Employees of the Bank are aware of the requirement to obtain necessary subsequently are security as defined by the Monetary Board if the need arises. appointed as Directors of the Bank This situation has not arisen in the Bank to date.3.(7)(vi) Favourable treatment No favourable treatment / accommodation is provided to Bank employees or accommodation other than staff benefits. Employees of the Bank are informed through to Bank employees or operational circulars to refrain from granting favourable treatment to other their close relations employees or their close relations or to any concern in which an employee or close relation has a substantial interest.3.(7)(vii) Remittance of Such a situation has not arisen in the Bank to date. accommodations subject to Monetary Board approval138

Section Principle Compliance and Implementation3 (8) Disclosures3.(8) (i) Publish annual and Annual Audited Financial Statements and quarterly Financial Statements quarterly Financial are prepared and published in accordance with the formats prescribed3. (8) Statements by the supervisory and regulatory authorities and applicable accounting(ii) standards, Annual and Quarterly Financial Statement are published ina. Disclosures in Annual Sinhala and English. Further quarterly Financial Statements are also Report published in Tamil.b. A statement to the effect that the Annual A statement to this effect is included in the following: Audited Financial Statements have Directors’ Responsibility to Financial Reporting on pages 215 & 216 been prepared in Annual Report of the Board of Directors on pages 200 to 210 line with applicable Managing Director’s and Group Chief Financial Officer’s Responsibility accounting standards and regulatory Statement on page 214 requirements, inclusive of specific The Annual Report includes the following reports where the Board disclosures. confirms that the financial reporting system has been designed to provide Report by the Board reasonable assurance regarding the reliability of financial reporting, on the Bank’s internal and that the preparation of Financial Statements for external purposes control mechanism has been done in accordance with relevant accounting principles and regulatory requirements: Statement of Directors’ Responsibility on pages 215 & 216 Annual Report of the Board of Directors on pages 200 to 210c. Assurance Report The Board has obtained an assurance report on the effectiveness of issued by the Internal Controls Over Financial Reporting which is published on page 213 Auditors under “Sri Lanka Standard on Assurance Engagements SLSAE 3050d. Details of Directors Details of Directors are given on pages 22 to 28. and remuneration/ Directors interests in contracts with the Company are given on pages 209 fees paid by the Bank & 210. Remunerations paid by the Bank are given in Note No 14 to the Financial Statements on page 245e Total net Related Party Transactions are given in Note 43 to the Financial Statement accommodations on pages 285 to 288 granted to each Annual Report 2013 Sampath Bank PLC category of related Direct and Indirect accommodation granted to each category of Related parties and as a Parties is given below percentage of the Bank’s regulatory Category of Related Party Transactions Amount % capital (Rs Mn) Key Managerial personnel (KMP) 59,877 0.2 Subsidiaries 1,763,675 5.5 Entities control by KMPs and their close 3,531,454 10.9 Family Members 139

CORPORATEGOVERNANCEThe Banking Act Direction No 11 of 2007 and subsequent amendments thereto on CorporateGovernance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri LankaSection Principle Compliance and Implementation3. (8) Disclosures in Annual(ii) Report The aggregate values of remuneration paid to KMPs are given in Notef. Aggregate values of 43 to the Financial Statement on page 286 and the aggregate value of remuneration paid , transactions of the Bank with KMPs are given in Note 43 to the Financialg. and transactions with Statements on pages 285 to 288. Key Managementh. Personnel Board has confirmed on the Annual Report of the Board of Directors on Confirmation by the the Affairs of the Company that all findings of the Factual Findings Reporti. Board on the annual of Auditors have been incorporated in the Annual Corporate Governance Corporate Governance Report on page 208.3.(9) report The Statement of Directors’ Responsibility for Financial Reporting on Report confirming pages 215 & 216 clearly sets out details regarding compliance with compliance prudential requirements, regulations, laws and internal controls. There with prudential were no instances of material non-compliance to report on corrective requirements, action taken during the year. regulations, laws and internal controls There were no supervisory concern lapses in the Bank’s Risk Management Non-compliance Systems or non-compliance with these directions that have been pointed Report out by the Director of the Banks Supervision Department of the CBSL and therefore there is no disclosure required in this regard. Transitional and other The Bank has complied with the transitional provisions general provisions140

OUR RELATIONSHIP WITHSAMPATH BANK HASGROWN FROM STRENGTHTO STRENGTH. ITS SOLIDPARTNERSHIP HAS GIVEN USTHE CONFIDENCE TO OPENOUR THIRD PROCESSINGFACILITY IN THE NORTHERNREGION. THANK YOU, SAMPATHBANK.MARIO DE ALWISMANAGING DIRECTOR(MA’S TROPICAL FOODPROCESSING PVT LIMITED)17TH FEBRUARY 2014

BOARD AUDITCOMMITTEE REPORTComposition of the Board Audit Committee Duties and Role of the Board Audit Committee(BAC) The BAC is responsible for:The BAC comprises of five Non Executive Directors, Reviewing financial information of the Bank, inwho conduct Committee proceedings in accordancewith the Terms of Reference approved by the Board. order to monitor the integrity of the FinancialThe following members serve in the BAC: Statements of the Bank, its Annual Report, accounts and quarterly reports prepared forMr Ranil Pathirana (Chairman) (NED) disclosure;Mr Sanjiva Senanayake (IND/NED) Reporting to the Board on the quality and acceptability of the Bank’s accounting policiesMr Deepal Sooriyaarachchi (IND/NED) and practices;Prof Malik Ranasinghe (IND/NED) Reviewing accounting and financial reporting, risk management processes and regulatoryMrs Dhara Wijayatilake (IND/NED) compliance;(IND - Independent Director and NED - Non Executive Reviewing of the Financial Statements (including quarterly interim statements) prior toDirector) publication to ensure compliance with statutory provisions, accounting standards and accountingThe Chairman of the BAC, Mr Ranil Pathirana who is policies which are consistently applied;a Non Executive Director, is a Fellow Member of theChartered Institute of Management Accountants, UK, Reviewing internal audit reports and liaising withand counts many years of experience in the financial Corporate Management in taking precautionaryservices industry. Brief profiles of the members are measures to minimise control weaknesses,given on pages 22 to 28 of the Annual Report. procedure violations, frauds, and errors;The Group Company Secretary functions as the Assessing the independence and monitoring theSecretary of the BAC. performance and functions of Internal Audit, including overseeing the appointment of theTerms of Reference Head of Internal Audit.The Charter of the BAC clearly defines the Terms ofReference of the Committee. The Board periodically Overseeing the appointment, compensation,reviews the BAC Charter as and when required. The resignation, dismissal of the External Auditor,Committee is responsible to the Board of Directors including review of the external audit, its costand reports on its activities regularly. BAC also and effectiveness and monitoring of the Externalassists the Board in its general oversight of financial Auditor’s independence;reporting, internal controls and functions relating tointernal and external audits. Reviewing effectiveness of the Bank’s systems of internal control over financial reportingRegulatory Compliance to provide reasonable assurance regardingThe roles and functions of the BAC are regulated the reliability of financial reporting and theby the Banking Act Direction No 11 of 2007, on the preparation of Financial Statements for externalmandatory Code of Corporate Governance for purposes has been done in accordance withLicensed Commercial Banks in Sri Lanka, issued by applicable accounting standards and regulatorythe Central Bank of Sri Lanka, the Rules on Corporate requirements; andGovernance as per section 7.10 of Listing Rules issuedby the Colombo Stock Exchange and the Code of Engaging independent advisors on specialisedBest Practice on Corporate Governance issued jointly functions where it is deemed necessary.by the Securities and Exchange Commission (SEC)and the Institute of Chartered Accountants of SriLanka (ICASL).142

During the year ended 31st December 2013 the the successful implementation of this task a steering Annual Report 2013 Sampath Bank PLCprincipal activities of the BAC were as follows: committee headed by the Executive Director/Group Chief Financial Officer comprising of CorporateBAC Meetings Management and other relevant DepartmentThe Committee met twelve times during the year. Heads was formulated in 2010 with the guidance ofAttendance by the Committee members of these the Bank’s External Auditor (Ernst & Young) whichmeetings is given in the table on page 110 of the continued to function in 2013 as well. The InternalAnnual Report. The Managing Director, Executive Audit Department carried out walk through testsDirector/Group Chief Financial Officer, Deputy on the documented processes to establish theirGeneral Manager – Finance, Head of Internal Audit, adequacy and commented where necessary.Senior Manager - Systems Audit and the ExternalAuditors also attended these meetings by invitation. Based on Internal Auditors’ and External Auditors’Four of these meetings were held to consider and assessments, the Board has concluded that, as ofrecommend to the Board of Directors the Bank’s 31st December 2013, the Bank’s internal control overquarterly and annual Financial Statements. The financial reporting is effective. Directors’ Report onCommittee met the External Auditors and the the Bank’s Internal Control over Financial ReportingInternal Auditors once during the year without the is provided on pages 211 & 212. The Bank’s Externalpresence of MD and the Corporate Management Auditors have audited the effectiveness of theto ensure that there was no limitation of scope in Bank’s internal control over financial reporting andrelation to the Audit and to allow for full disclosure have reported to the Board that nothing has comeof any incident which could have had a negative to their attention that causes them to believe thatimpact on the effectiveness of the external/internal the financial reporting is inconsistent with theiraudits, and concluded that there was no cause for understanding of the processes adopted by theconcern. Board in the review of the design and effectiveness of the internal control system of the Bank. ExternalFinancial Reporting Auditor’s Report on the Bank’s Internal Control overThe Committee, as part of its responsibility to Financial Reporting is provided on page 213.oversee the Bank’s financial reporting process onbehalf of the Board of Directors, has reviewed and Annual Corporate Governance Reportdiscussed with the Management and the External As required by Section 3(8)(ii)(g) of the Banking ActAuditors the quarterly and the annual Financial Direction No 11 of 2007, on Corporate Governance forStatements prior to their release. The review Licensed Commercial Banks issued by the Centralincluded the quality and acceptability of accounting Bank of Sri Lanka, the Annual Corporate Governancepolicies and practices, the clarity of the disclosures Report for 2013 is provided on pages 102 to 140.and the extent of compliance with financial reporting The External Auditors of the Bank have performedstandards, the Companies Act No 07 of 2007, procedures set out in Sri Lanka Related Servicesthe Banking Act No 30 of 1988 and amendments Practice Statement 4750 issued by the Institutethereto and other relevant financial and governance of Chartered Accountants of Sri Lanka (SLRSPSreporting requirements. To facilitate their review, the 4750), to meet the compliance requirement of theBAC considered reports from the Executive Director/ Corporate Governance directive. Their findingsGroup Chief Financial Officer and also reports from presented in their report dated 18th February 2014the External Auditors on the outcome of their half- addressed to the Board are consistent with theyear review and annual audit. matters disclosed above and did not identify any inconsistencies to those reported by the Board onInternal Control over Financial Reporting (ICOFR) pages 102 to 140.The Bank is required to comply with Section 3(8)(ii)(b) of the Banking Act Direction No 11 of 2007 on Internal AuditCorporate Governance for Licensed Commercial The BAC monitored and reviewed the scope, extentBanks issued by the Central Bank of Sri Lanka and and effectiveness of the activity of the Bank’sassess the effectiveness of internal control over Internal Audit Department. This included reviewingfinancial reporting as of 31st December 2013. of updates on audit activities and achievements against the Bank’s audit plan, advising corporateThe Bank assessed the effectiveness of its internal management to take precautionary measures oncontrol over financial reporting as of 31st December significant audit findings and assessment of resource2013 based on the criteria set out in the Guidance requirements of the Internal Audit Department. Thefor Directors of Banks on ‘The Directors’ Statement of BAC had necessary interactions with the Head ofInternal Control’, issued by the Institute of Chartered Internal Audit throughout the year.Accountants of Sri Lanka (ICASL) in 2010. During the year, BAC reviewed the internal audit planThe Bank’s assessment was based on processes and monitored the implementation of it on a regulardocumented by the respective process owners. For basis. The sections covered and the regularity of 143

BOARD AUDITCOMMITTEE REPORTaudits depends on the risk level of each section, with Met with the External Auditors to discuss theirhigher risk sections being audited more frequently. audit approach and procedure, including matters relating to the scope of the audit andThe Internal Audit Department comprises three broad Auditor’s independence.areas namely: Branch/Department/Relationship Manager Reviewed the audited Financial Statements with the External Auditor who is responsible for Audits; expressing an opinion on its conformity with the Trade Finance, Forex and Treasury Audits; and Sri Lanka Accounting Standards. Forensic and Fraud Investigations. Reviewed the Management Letters issued byThe Branch/Department/Relationship Manager Audits the External Auditor together with managementare distributed among 8 teams. responses thereto.In 2013 BAC reviewed internal audit reports of 127 Met the External Auditor twice during thebranches, 34 departments, 3 Subsidiaries and 13 year without the Executive Directors and theRelationship Managers. Audit findings presented Corporate Management to ensure that therein the reports are prioritised based on the level of was no limitation of scope in relation to therisk. The Committee followed up on Internal Audit Audit and to allow for full disclosure of anyrecommendations with the Corporate Management. incidents which could have had a negativeInternal Audit reports are made available to External impact on the effectiveness of the externalAuditors as well. audit. It was concluded that there was no cause for concern.The Internal Audit Department has maintained anaverage audit cycle of 15.4 months per audit. Reviewed the Non-Audit Services provided by the External Auditor and was of the view thatTrade Finance, Forex and Treasury Audits are such services were not within the category ofassigned with equal prominence and emphasis services identified as prohibited under:considering its complexities and importance in thecontext of current economic environment. 1. the guidelines issued by the Central Bank of Sri Lanka, for External Auditors, relatingThe Forensic and Fraud Investigation process has to their statutory duties in terms of Sectionleaped into new approaches and is fast evolving with 39 of the Banking Act No 30 of 1988 andthe documentation of a procedure for Audit Inquiries amendments thereto.hitherto not available. 2. the Guideline for Listed Companies onAlong with the significant findings the Internal Audit Audit and Audit Committees issued by theDepartment has been engaged in sharing and Securities and Exchange Commission of Sriproviding knowledge through regular training to the Lanka.Bank’s staff on better control awareness. In keepingwith BAC recommendations the Internal Audit has Reviewed the Letter of Representation issued toalso provided inputs to the Corporate Management the External Auditors by the Board.for effective control and prevention of fraud, whichare regularly addressed to stay on course. Reviewed the Letter of Independence Confirmation issued by the External AuditorExternal Auditors as required by the Companies Act No 7 ofWith regard to the external audit function of the 2007, confirming that they do not have anyBank, the role played by the Committee is as follows: relationship or interest in the company, which Undertook the annual evaluation of the may have a bearing on their independence within the meaning of the Code of Conduct and independence and objectivity of the External Ethics of the Institute of Chartered Accountants Auditor and the effectiveness of the audit of Sri Lanka. process.144

The BAC has recommended to the Board of Directorsthat Messrs Ernst and Young, Chartered Accountants,be reappointed for the financial year ending31st December 2014 subject to the approval ofshareholders at the next Annual General Meeting.Whistle BlowingSampath Bank’s Whistle Blowing Policy is intendedto serve as a channel of corporate fraud riskmanagement. The policy allows any Team Memberwho has a legitimate concern on an existing orpotential “wrong doing”, done by any person withinthe Bank, to come forward voluntarily, and bring suchconcern to the notice of an independent designatedauthority. Concerns raised are investigated and theidentity of the person raising the concern is keptconfidential, as even anonymous complaints arelooked at. This procedure is being monitored by theBAC.Professional AdviceThe BAC has the authority to seek externalprofessional advice on matters within its purview;and from time to time during the year consultationswere done with various parties.Board Audit Committee EvaluationThe annual evaluation of the BAC was conductedby the Board Audit Committee during the year andconcluded that its performance was effective.On behalf of the Board Audit CommitteeRanil PathiranaChairman - Board Audit CommitteeColombo, Sri Lanka18th February 2014 Annual Report 2013 Sampath Bank PLC 145

BOARD HUMANRREEMSOUUNRECRAETSIOANNDCOMMITTEE REPORTComposition of the Board Human Resources and Act Direction No 11 of 2007 Corporate GovernanceRemuneration Committee for Licensed Commercial Banks in Sri Lanka, theThe Board Human Resources and Remuneration Committee at its meeting held on 9th August 2011Committee comprises four Non Executive Directors decided on the following scope and responsibility:and one Executive Director. The Directors who servein the Committee are: Scope and Responsibility The Committee shall determine theMr Deepal Sooriyaarachchi - Chairman (IND/NED) remuneration policies (salaries, allowances andMr Channa Palansuriya (NED) other financial payments) relating to Directors, Managing Director (MD) and Key ManagementMiss Annika Senanayake (IND/NED) Personnel of the Bank.Mr Deshal De Mel (NED) The Committee shall set goals and targets for Directors, MD and Key Management Personnel.Mr Aravinda Perera (ED) The Committee shall evaluate the performance(IND - Independent Director, NED - Non Executive of the MD and Key Management Personnel against set targets and goals periodically andDirector and ED - Executive Director) determine the basis for revising remuneration, benefits and other payments of performanceBrief profiles of the members are given on pages 22 based incentives.to 28 of the Annual Report The Committee shall take on any other areasThe Group Company Secretary functions as the and enlarge its scope which in its view or in theSecretary of the Board Human Resources and Board’s view is desirable if it were handled byRemuneration Committee. the Committee.Meetings The Committee shall advise the DGM - HumanDuring the financial year ended 31st December 2013, Resources of the Bank with regard to revisionthree meetings were held. The attendance of the of salaries of Bank staff and of any ma jormembers of these meetings is given on page 110 of organisational changes needed for the Bank’sthe Annual Report. The Group Chief Financial Officer purpose.& Deputy General Manager Human Resources as wellas other executive staff attend meetings by invitation Performance during the year/ key HR initiativesto assist in their deliberations by providing relevant During the year under review the Committee hasinformation and participating in the analysis of provided the strategic direction for the following keyinformation, except when their own compensation initiatives.packages or other matters relating to them arereviewed. 1. Career & Succession Planning The framework and guidance were provided toDuties and Roles develop a sustainable succession plan for the keyThe overall scope of the Committee is to provide Managerial positions of the Bank and to set up astrategic direction to build an effective and efficient continuous process to manage talent.HR organisation for the Bank.Based on the Direction issued by the Monetary Boardof the Central Bank of Sri Lanka under Section 46(1),Banking Act No 30 of 1988 as amended and Banking146

2. Review of HR policies and Scorecard Annual Report 2013 Sampath Bank PLCConsidering the current business contextand probable challenges, HR philosophy andpolicies were reviewed and directions weregiven accordingly. These policies now reflect thebest practices in the industry comparable withinternational bench marks.HR Scorecard was redesigned to monitor key HRperformance indicators regularly and updates aresubmitted to the Board of Directors for review.3. Leadership DevelopmentInstitutionalising the Leadership Development atall levels - a comprehensive “Sampath LeadershipAcademy” was set up.4. Employee RelationsThe Committee regularly reviews the multi-facetedinternal communication programme of the Bank5. Performance ManagementAn objective-based Performance ManagementSystem (PMS) was designed and implemented forExecutive and higher grades.Ownership of 11,621,688 shares was transferred to 921eligible team members under ESOP scheme 2000.Special RecognitionIn recognition of key HR initiatives, the Bank securedtwo special category awards at the National HRConference 2013 organised by Institute of PersonnelManagement in Sri Lanka:1. Award for People Development in recognition of exceptional contribution towards nurturing and developing Human Resources2. Award for Talent Management for unleashing the true potential of Human ResourcesOn behalf of the Board Human Resources andRemuneration CommitteeDeepal SooriyaarachchiChairman – Board Human Resources andRemuneration CommitteeColombo, Sri Lanka18th February 2014 147

BOARD NOMINATIONCOMMITTEE REPORT Composition of the Nomination Committee The Functions of the CommitteeThe Board Nomination Committee consists of four Continuously reviews the structure andNon Executive Directors as at 31st December 2013.The following Directors serve in the Board Nomination composition of the Board. The CommitteeCommittee: also reviews the skills, knowledge, expertise and experience the Board of Directors requireMiss Annika Senanayake - Chairperson - w.e.f. 12th in comparison to the current position of the banking environment. The Committee alsoDecember 2013 (IND/NED) makes recommendations to the Board with regard to any changes they think fit for theMrs Saumya Amarasekera - Chairperson up to 11th progress and success of the Bank.December 2013 (NED) Recommends suitable persons to the Board after careful consideration of the competencyMr Dhammika Perera (NED) required for a particular job.Mr Channa Palansuriya (NED) Considers and recommends from time to time the requirements of additional/new expertise of(IND - Independent Director and NED - Non Executive existing Directors and to create succession plans for Directors resigning or relinquishing theirDirector) positions.Mrs Saumya Amarasekera who served on the Board Carefully reviews management progression andNomination Committee as its Chairperson from 1st succession plan for the top management. TheDecember 2012 to 11th December 2013 stepped down committee ensures that management personnelin compliance of Central Bank of Sri Lanka’s rule on of high calibre are appointed to guide the BankCorporate Governance for Bank’s on ceasing to be to achieve greater heights.an Independent Director and continues as a memberof the Committee. The Committee is now chaired The Committee sets criteria such asby Miss Annika Senanayake. The Managing Director qualification, experience and key attributesattends these meetings by invitation. required for eligibility to be considered for appointment or promotion to the post ofBrief profiles of the members are given on pages 22 Managing Director and other Key Managementto 28 of the Annual Report. Personnel.The Group Company Secretary acts as the Secretary The Committee is also responsible forto the Board Nomination Committee. nominating members to the Board for Board approval when and if a Board vacancy occurs.Committee Meetings It is mandatory for the Board to evaluateDuring 2013 the Committee held five meetings. The the balance of skill, knowledge and generalattendance of the Committee members at each of experience on Board matters before any suchthese meetings is given in the table on page 110 of appointment is finalised. The Committee isthe Annual Report. accountable to make a description of the role that is vacated and should clearly analyse theScope of Work capabilities and skill set required for a particularThe roles and functions of the Board Nomination appointment.Committee are regulated by the Banking Act DirectionNo 11 of 2007, the mandatory Code of CorporateGovernance for Licensed Commercial Banksissued by the Central Bank of Sri Lanka. The BoardNomination Committee has the power and authorityto seek any needed information from any officer oremployee in connection with matters coming underits purview. The Committee also has the authority toseek external professional advice on matters withinits purview.148