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BRAC Lanka Finance PLC Annual Report 2016/17
Financial and operational highlights 1Profiles of the directors 2
Financial review 4
Corporate governance report 8
Risk management 32
Report of the board of directors 35
Directors’ statement on internal Control over financial reporting 37
Directors’ responsibility for financial reporting 38
Chief executive officer’s and Chief financial officer’s responsibility statement 39
Report of the related party Transactions review committee 40
Report of the audit committee 41
Report of the integrated risk Management committee 42
Report of the remuneration committee 43
Financial and Operational Highlights
GovernanceReports
Profiles of theDirectors
Risk management
Financial Review
Financial Statements
01
08
02
32
04
45
Financial statements
Independent auditors’ report 45
Statement of financial position 46
Statement of profit or loss and
Other comprehensive income 47
Statement of changes in equity 48
Statement of cash flows 49
Notes to the financial statements 50
Shareholders’ information 93
Ten years summary 95
Quarterly financial statements 97
Investor information 99
Other disclosures 100
Notice of meeting 102
Form of proxy 103
Corporate information inner back cover
1
BRAC Lanka Finance PLC Annual Report 2016/17
Financial and Operational Highlights
Rs.3.39Bn +82%
+45%Rs.219.93Mn
Revenue
+35%Rs.352.79Mn Profit Before Tax
Net Profit After Tax
Change in 2017 - %
2017 Change in 2016 - %
2016
Results for the year (Rs.'000)
Interest income (Rs.'000) 81.73 3,385,930 257.01 1,863,179
Profit before VAT on financial services and income tax (Rs.'000) 36.26 476,665 54.28 349,816
Profit before income tax (PBT) (Rs.'000) 35.49 352,792 33.00 260,385
Income tax expense (Rs.'000) 22.05 132,865 498.76 108,864
Profit after tax (PAT) (Rs.'000) 45.15 219,927 (14.68) 151,521
At the year end (Rs'000)
Shareholders' funds (capital and reserves) (Rs.'000) 24.35 1,123,861 18.02 903,761
Total deposits (Rs.'000) 138.21 2,813,322 1,163.68 1,181,016
Total loans and advances (total portfolio) (Rs.'000) 41.68 11,332,333 164.47 7,998,723
Total assets (Rs.'000) 35.71 12,899,695 152.25 9,505,225
Information per ordinary share (Rs.)
Earnings (basic) 45.45 2.08 (17.90) 1.43
Net assets value per share 24.30 10.63 13.84 8.55
Market value at the year end- ordinary voting shares 100.00 9.30 - -
Key ratios
Return on shareholders' funds (%) 16.70 19.57 (36.06) 16.77
Return on assets (%) 6.92 1.70 (74.41) 1.59
Price earnings (times) - ordinary voting shares 100.00 4.47 - -
Price to book value (times) 100.00 0.88 - -
Statutory Ratios
Liquid assets to deposits (%) 190.85 237.84 (99.49) 81.77
Capital Adequacy Ratio
Tier 1 (%) - minimum requirement - 5% (13.46) 9.71 (43.64) 11.22
Total capital ratio (%) - minimum requirement - 10% (5.76) 10.96 (42.24) 11.63
BRAC Lanka Finance PLC Annual Report 2016/17
2
Profiles of the Directors
Mr. I. C. Nanayakkara
Mr. Ishara Nanayakkara is a prominent entrepreneur serving on the Boards of many corporates and conglomerates in the region. He initially ventured into the arena of financial services with a strategic investment in Lanka ORIX Leasing Company PLC and was appointed to the Board in 2002. Today, he is the Deputy Chairman of LOLC and the Executive Deputy Chairman of LOLC Finance PLC, holding directorships in many of its subsidiaries and associate companies.
Backed by over a decade of professional experience in the industry, Mr. Nanayakkara holds the role of Chairman of Commercial Leasing & Finance PLC, one of Sri Lanka’s leading financial service providers for over 28 years, as well as LOLC Life Assurance Limited. He is also Deputy Chairman of Seylan Bank PLC, a premier commercial bank in the country. His vision to cater to the entire value chain of the finance sector manifested in the development of Micro Finance, Islamic Finance, factoring through LOLC Factors, LOLC Life & General Insurance Companies and stock broking through LOLC Securities Ltd.
Leveraging LOLC Group’s expertise in the SME sector, the expansion into the Micro Sector was spearheaded by Mr. Nanayakkara, who is the Chairman of their Micro Credit Companies: LOLC Micro Credit Company Ltd, the only private sector microfinance institution in the country with foreign equity, and BRAC Lanka Finance PLC. He also holds a directorship at PRASAC, the largest microfinance Company in Cambodia. Mr. Nanayakkara’s interest in microfinance led to the inauguration of LOLC Myanmar Micro Finance Company Ltd, a green field investment in Myanmar in which he was the founding Chairman, and currently serves as a Director. His proficiency in micro finance in the region is further demonstrated by his involvement at a strategic level in LOLC Cambodia Ltd (Previously known as Thaneakea Phum Ltd); the 5th largest microfinance company in Cambodia. He was also recently appointed as a director in LOLC International Private Limited & LOLC Private Limited.
Mr. Nanayakkara’s motivation to expand into various growth peripheries is further illustrated through his role as the Executive Chairman of Browns Investments PLC. Through various strategic investments, he is committed to catalyzing development in the growth sectors of the Sri Lankan economy. Mr. Nanayakkara’s involvement in the Boards of Agstar Fertilizers PLC, Associated Battery Manufacturers (Cey) Ltd and Sierra Constructions Ltd, reflects this business philosophy.
Endorsing his entrepreneurial spirit, Mr. Ishara Nanayakkara received the prestigious ‘Young Entrepreneur of the Year’ Award at the Asia Pacific Entrepreneurship Awards (APEA) in 2012. He holds a diploma in Business Accounting from Australia.
Other Directorships held
Chairman: Brown & Company PLC, Commercial Leasing & Finance PLC, LOLC Micro Credit Ltd, Browns Investments PLC and LOLC Life Assurance Limited
Deputy Chairman: Lanka ORIX Leasing Co. PLC, LOLC Finance PLC and Seylan Bank PLC
Director: Agstar Fertilizers PLC, Sierra Constructions (Pvt) Ltd, PRASAC Micro Finance Institution, LOLC Myanmar Microfinance Co Ltd, Associated Battery Manufacturers (Cey) Ltd, B Commodities ME FZE, LOLC International Private Limited and LOLC Private Limited
Mr. W. D. K. Jayawardena
Mr. Kapila Jayawardena holds a MBA in Financial Management and is a fellow member of the Institute of Bankers and an Associate Member of the Institute of Cost and Executive Accountants, London. He served as Country Head and CEO (Sri Lanka and Maldives) of Citibank NA from 1998 to 2007.
With his varied experience in the fields of Investment Banking, Banking Operations, Audit, Relationship Management, Corporate Finance, Corporate Banking and Treasury Management, He served in the following Boards/Committees:
• Chairman of the Sri Lanka Banks’ Association (SLBA) in 2003/04
• President of the American Chamber of Commerce in Sri Lanka in 2006/2007
• Member of the Financial Sector Reforms Committee (FSRC)
• Member of the National Council of Economic Development (NCED)
• Board Member of the United States - Sri Lanka Fulbright Commission.
Mr. Jayawardena joined LOLC in the year 2007 as the Group Managing Director/CEO and is the Chairman of the following companies and is also on the Boards of the subsidiaries of the LOLC Group.
3
BRAC Lanka Finance PLC Annual Report 2016/17
Chairman
Eden Hotel Lanka PLC
LOLC General Insurance Ltd
LOLC Securities Ltd
Palm Garden Hotels PLC
Browns Capital PLC
Director
LOLC Micro Credit Ltd
BRAC Lanka Finance PLC
Commercial Leasing & Finance PLC
Brown & Company PLC
Riverina Resorts (Pvt) Ltd
Browns Capital PLC
LOLC International (Pvt) Ltd
Browns Investments PLC
Seylan Bank PLC
Mr. R. D. Tissera
Mr. Ravi Tissera joined the LOLC Group in 1993 and is a Development Finance Specialist. He introduced microfinance to the LOLC Group which has now expanded outside Sri Lanka in Myanmar, Cambodia and Pakistan. Mr. Tissera has obtained his Post Graduate Diploma in Marketing and is a member of the Chartered Institute of Marketing UK. He has followed Strategic Leadership Training in micro finance at Harvard Business School. He is the Director / Chief Executive Officer of LOLC Micro Credit Limited and he serves as a Director in LOLC Myanmar Microfinance Company Limited, LOLC Cambodia PLC., LOLC Micro Investments Ltd and Sundaya Lanka (Pvt) Ltd.
Mr. A. J. L. Peiris
Mr. Luxman Peiris retired as Additional Director of the Central Bank of Sri Lanka (“CBSL”). His career at the CBSL spanned 25 years, during which he worked in several different departments in the CBSL, including Economic Research, Management Development Centre, Governor’s Office (Chief Protocol Officer), Domestic Operations and Payments and Settlements.
Mr. Peiris holds a BSc (Physical Science) with a First Class honours from the University of Kelaniya, Sri Lanka an MSc and a Postgraduate Diploma in Agricultural Economics from the University of Reading, UK and an MSc and a Postgraduate Diploma in Quantitative Development Economics from the University of Warwick, UK.
Mr. Peiris served as the Vice President of the Clearing Association of Bankers (CAB). He was also the Co-coordinator - CBSL SEACEN Financial Statistics. He is a member of the Sri Lanka Economic Association. He served in the the Sri Lanka Army Volunteer Force attached to the 2nd Sri Lanka Army Service Corps as a Commissioned Officer too.
Mr. W. R. A. Dharmaratne
Apart from two years spent overseas in Postgraduate studies, Mr. Dharmaratne has an unbroken service record at the Central Bank of Sri Lanka (‘CBSL’) from 1990.
While at the CBSL he worked in several different departments including Economic Research, Currency, Management Audit, Financial Sector Research and Human Resource.
Mr. Dharmaratne holds an MA in Economics from the University of Essex, UK, a BA in Development Studies (Special) Statistics from the University of Sri Jayawardenapura, a Postgraduate Diploma in Economic Development from the University of Colombo and a Postgraduate Diploma in Computer Technology from the University of Colombo.
Mr. W. A. R. Kumara
Mr. Rohana Kumara joined the LOLC Group in 1998. Since then he has served at Lanka ORIX Leasing Company PLC for 12 years and LOLC Micro Credit Ltd for 4 years.
With 16 years of experience in marketing, branch management and microfinance in these two companies he joined BRAC Lanka Finance PLC (another LOLC Group company) in December 2015 as Deputy Chief Executive Officer.
He was appointed Chief Executive Officer in August 2016.
Mr. Kumara holds an MBA from the University of Cardiff Metropolitan University and he is a member of the Chartered Institute of Marketing and the Institute of Bankers of Sri Lanka.
BRAC Lanka Finance PLC Annual Report 2016/17
4
Financial Review
Interest income reached Rs.3.3Bn level during the year which is the highest income level achieved in the Company history. Total interest income of the Company improved by Rs.1.5Bn (82%) while the 95% of interest income was generated through Micro Finance Loans. Growth was supported by growth in loans and advances, rising interest rates and reaching new customer bases during the year.
Overview
Year ended 31 March 2017 has been a remarkable year for BRAC which surpasses healthy levels in all financial and operational aspects. Portfolio growth, mobilization of deposit products and strategic rebalancing of assets have been the key driver throughout the year. Since acquisition by the LOLC Group, the Company geared its Micro Finance driven business for aggressive overall growth recording strong growth surpassing the industry growth and becoming a key player in Micro Finance industry.
Income Statement Analysis
Net Interest Income
Interest income reached Rs.3.3Bn level during the year which is the highest income achieved in the Company history. Total interest income improved by Rs.1.5Bn (82%) and 95% of interest income was generated through Micro Finance Loans. The increase is contributed by, growth in loans and advances, rising interest rates and reaching new customer bases during the year. Income from government securities and deposits also reported a notable growth of Rs.93Mn (379%) as a result of improved treasury operations.
However, Net Interest Margin ratio (NIM) declined from 68.81% to 62.09% due to challenging economic environment, with steady rise in the interest rates increasing borrowing cost and interest expense on savings deposits.
Assets
Rs.3.4Bn
YoY 36%PAT
Rs.68.4Mn
YoY 45%Deposits
Rs.1.6Bn
YoY 138%Loans and Advances
Rs.3.3Bn
YoY 42%ROE
20%YoY 16.7%ROA
1.70% YoY 6.92%
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BRAC Lanka Finance PLC Annual Report 2016/17
“Despite the challenging environment the profitability of the Company was resilient and was able to sustain its profitability. PAT growth of 45.15% in 2017 to Rs.220Mn was supported by higher net interest income, remains the key contributor to the profitability of the Company.”
Impairment Charges
Reflecting the restructuring of the existing loan book and high Micro Finance portfolio growth, impairment charges significantly increased by Rs.274Mn (423%) during the year including Rs.230Mn loan written off done..
Collective impairment charges, which considers the Probability of Default (PD) and the Loss Given Default (LGD) of each product portfolio, also reflected market conditions specially in the Micro Finance portfolio.
During the year the Company made adequate provisions on individual impairment basis, impairment indications were identified on specific products and Branches.
Total balance sheet provision as a percentage of total loan portfolio was slightly increased from 1.21% to 1.84% during the year.
Impairment ExpenseRs. Mn.
2017
2016
2015
2014
Collective ImpairmentIndividual Impairment
Operating Expenses
All components of operating expenses increased during the year due to efforts taken in supporting growth of the Company, especially in the areas of upgrading the branch network and human resources, resulting in an overall increase of 47% over the previous year.
The Company’s Cost to Income ratio, which stood at 61.37% as at end 2017 (67.99% - 2016), reflects the focus on delivering operational excellence and the initiatives implemented. Personnel costs increased by 47% as head count, remuneration and staff development activities increased during the year. Other expenses reflect a similar trend linked to growth and supported by productivity.
Profitability
Despite the challenging environment the profitability of the Company was resilient and maintained profitability ratios. PAT growth of 45.15% in 2017 to Rs.220Mn was supported by higher net interest income derived from the portfolio of lending.
The ability to retain and grow the profits made in the previous period can be primarily attributed to the ability of the management to make timely decisions and the ability of the organization to adopt to challenging economic conditions.
BRAC Lanka Finance PLC Annual Report 2016/17
6
Financial Review
PBT & PATRs. Mn.
2017
2016
2015
2014
PBTPAT
ROA and ROE
The return ratios recorded improvement over the previous year . The return on equity (ROE) stood at 19.57% and the return on assets (ROA) stood at 1.70% for the year compared to 16.77% (ROE) and 1.59% (ROA) in the previous year respectively.
Improving ROE and ROA shows the effectiveness of the Company’s equity and its assets management.
ROA & ROE%
2017
2016
2015
2014
ROAROE
Balance Sheet Analysis
Assets
The Company reached Rs.12.9Bn in total assets, a growth of Rs.3.39Bn (35.71%) compared to last year by signifying the sustained growth of the Company year to year. The growth in the loan portfolio resulted in 86.23% representation in the total assets. However, the asset composition did not see a significant change during the year.
Further, concentration on developing a superior branch network led the Company to commit on a higher level of capital expenditure and as a result, property plant and
equipment grew by Rs.70.25Mn (94.95%) compared to year 2016. The investments in Treasury Bills and Fixed Deposits grew by 604Mn during the year.
Asset GrowthRs. Mn.
2017
2016
Loans and adavancesOther interest earning assets
Other assets
Loan Growth and Asset Quality
capitalising on the Micro Finance initiatives, the Company achieved Rs.11.20Bn in Micro Finance while the total portfolio stood at Rs.11.33Bn. Total number of customer base reported as 239,243 (2016- 241,464). Following factors can be considered as key drivers of this growth.
• Expertise of micro–finance operations to the field staff through multi-phased credit trainings. Moreover, new Management offered several apprenticeships to the staff including leadership development programmes and outbound trainings.
• Prudential documentation: Loan documentations realigned to achieve higher level of effectiveness and efficiency.
• Performance based incentive schemes and bonus payments which fostering a performance driven culture within the Company.
• Improved travelling facilities provided for field staff achieving higher level of productivity . Balance of portfolio quality while achieving strong portfolio growth through Improved loan appraisal process maintaining strong NPA levels 2017- 0.58%, 2016- 0.82%. Further, while focusing on Micro Finance industry, expanding its products offering the management is to other lending products.
7
BRAC Lanka Finance PLC Annual Report 2016/17
Gross Loan PortfolioRs. Mn.
2017
2016
Hire-PurchaseLease
Loan and Advances
Liabilities
With the financing requirement of total assets, total liabilities grew by Rs.3.17Bn (36.90%) during the year. The main contributor to the borrowing structure of the company were Intercompany borrowings, other bank borrowings and Deposits. Company is focusing on growing the deposit base and strong growth is envisaged in this area broad basing the funding options. Deposit base grew by Rs.1.63Bn in 2017 compared to 2016, mainly due to deposits from institutional investors. However, the Company is now in the process of concentrating on the granular deposits from individuals as a major funding source to the Company.
Debt to equity ratio with deposit liabilities and bank overdrafts increased to 9.98 times from 8.95 times as at the end of the year. However, with the Right Issue of Rs.1.3Bn done after the reporting date, debt to equity ratio has been improved significantly.
Capital, Funding and Liquidity
Managing capital, funding and liquidity is key to optimising returns to shareholders while ensuring sufficient liquidity to meet foreseeable demands.
Capital Adequacy Ratio (CAR)
Equity improved by 24.35% in 2017 supported by growth in profits the period enhanced the core capital of the company. Consequently, the Tier I / Core capital adequacy ratio (Minimum 5%) of the Company was 9.71% (2016 – 11.22%) and the Total Risk Weighted Capital Ratio (Minimum 10%) was 10.96% (2015/16- 11.63%). Despite the challenging growth in risk weighted assets, the Company managed to maintain CAR within regulatory levels throughout the year. However, with the capital infusion of Rs.1.3Bn after the reporting date current CAR is well above than the regulatory required levels.
Liquid assets
The liquid assets of the Company stood at Rs.1,182Mn which was well above the required minimum amount of Rs.1,133Mn. The liquid assets are maintained in government securities and deposits with banks and other financial institutions optimizing returns to the Company.
The Company is optimistic on the future and the strategies adopted during the year is expected to have a positive effect and is expected to result in higher profitability in the future periods.
Upgrading of existing branch network, deposit mobilizing and product diversification will be the main key initiatives for the medium term supported by improvements in technology, facilitating the Company’s move towards a mobile driven loan appraisals, disbursements, collections and deposit schemes platform.
BRAC Lanka Finance PLC Annual Report 2016/17
8
Corporate Governance Report
Good Corporate Governance benefits all stakeholders and contributes towards the sustainability of the Company. The Board of Directors therefore support the principles of good corporate governance, and processes are in place to ensure regular monitoring to facilitate continuous improvement and maintenance of good governance.
The chart below gives more details on the Company’s compliance.
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
2 The Responsibilities of the Board of Directors
2.1 The Board of Directors shall strengthen the safety and soundness of the finance company by:
a. approving and overseeing the finance company’s strategic objectives and corporate values and ensuring that such objectives and values are communicated throughout the finance company;
The Company has Board approved vision, mission and corporate values and these have been communicated throughout the Company.
b. approving the overall business strategy of the finance company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years;
The Company has a Three Year Business Plan. Having approved this plan, the Directors will be monitoring performance at the monthly Board meetings.
The Company has a Board approved risk policy and procedures.
c. identifying risks and ensuring implementation of appropriate systems to manage the risks prudently;
The Board has approved an annual plan submitted by the Enterprise Risk Management Division, which covers both internal audit and risk management. In line with the Risk policy, ERM reports are submitted to the Integrated Risk Management Committee or the Audit Committee, which then reviews the risk and agrees on appropriate mitigation methods. Where necessary, the participation of relevant offices, and /or the obtaining of additional information is called for.
d. approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;
A Board approved Stakeholder Communication Policy which covers all stakeholders is in place.
e. reviewing the adequacy and the integrity of the finance company’s internal control systems and management information systems;
The Board has delegated this function to the Audit Committee, which is a sub-committee of the Board. This facilitates detailed study of the systems, including the IT systems. The approved minutes of the Audit Committee meetings are tabled at a subsequent Board Meeting, enabling the Board as a whole to be kept informed.
9
BRAC Lanka Finance PLC Annual Report 2016/17
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
f. identifying and designating key management personnel, who are in a position to:
(i) influence policy;
(ii) direct activities; and
(iii) exercise control over business activities, operations and risk management;
The Board has identified KMPs.
g. defining the areas of authority and key responsibilities for the Board and for the key management personnel;
A Board approved, documented description of the role of the Board defines the powers and duties of the Board of Directors.
Each of the identified KMPs has his or her individual appropriate job description.
h. ensuring that there is appropriate oversight of the affairs of the finance company by key management personnel, that is consistent with the finance company’s policy;
The Chief Executive Officer works with the Chief Financial Officer to ensure robust systems and procedures are in place. These, together with regular reporting to the Board, facilitate prevention and /or early detection of any deviations. The effectiveness of this oversight is reviewed by the Enterprise Risk Management Division.
i. periodically assessing the effectiveness of its governance practices, including:
(i) the selection, nomination and election of directors and appointment of key management personnel;
(ii) the management of conflicts of interests; and
(iii) the determination of weaknesses and implementation of changes where necessary;
Confirmations of compliance with governance requirements are called for periodically and new requirements are noted for compliance as and when they arise.
There is a Board approved procedure for appointment of Directors. Directors are selected on the basis of their skills and experience, which will enable them to play an effective role and add value to the discussion and decision making of the Board.
The Board has approved a procedure relating to related party transactions, which addresses conflicts of interest. At each meeting, directors declare other companies in which they are directors or significant shareholders.
Discussions at Board meeting, based on follow up of previous decisions and information provided in board papers, enable the Directors to detect weakness and strengthen controls and/or improve processes where necessary.
j. ensuring that the finance company has an appropriate succession plan for key management personnel;
A succession plan has been approved by the Board.
BRAC Lanka Finance PLC Annual Report 2016/17
10
Corporate Governance Report
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
k. meeting regularly with the key management personnel to review policies, establish lines of communication and monitor progress towards corporate objectives;
The Chief Executive Officer and the Chief Financial Officer are invited to be present at Board meetings. Other KMPs are invited to be present at Board or Board sub committee meetings where risk or other issues relevant to them are discussed.
l. understanding the regulatory environment; The Board at its regular meetings updates and refreshes its understanding of the regulatory environment. This is facilitated by the board papers, which include any new regulations covering either operations or governance. Discussions with the External Auditors deepens this understanding.
The Company also participates in industry-specific associations, which facilitates dialogue with regulators.
m. exercising due diligence in the hiring and oversight of external auditors.
The Auditors of the Company are KPMG, a reputed audit firm and one of the globally recognized audit firms.
It is one of the tasks of the Audit Committee, to annually review the effectiveness and independence of the Auditors.
Based on the recommendation of the Audit Committee, the Board is recommending to the shareholders that the auditors be re-appointed for 2017/18.
2.2 The Board shall appoint the Chairman and the Chief Executive Officer and define and approve the functions and responsibilities of the Chairman and the Chief Executive Officer in line with paragraph 7 of this Direction.
The Board has appointed a Non-Executive Chairman and a Chief Executive Officer.
The role of the Chairman and CEO have been documented and approved by the Board.
2.3 There shall be a procedure determined by the Board to enable directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the finance company’s expense. The Board shall resolve to provide separate independent professional advice to directors to assist the relevant director(s) to discharge the duties to the finance company.
Provision for Directors to obtain independent professional advice has been included in a documented and Board approved policy on the Role of the Board.
2.4 A director shall abstain from voting on any Board resolution in relation to a matter in which he or any of his relatives or a concern in which he has substantial interest, is interested, and he shall not be counted in the quorum for the relevant agenda item at the Board meeting.
A Board approved procedure on Related Party Transactions provides for Directors to declare their interests and refrain from participating in the discussions or decision making. This is also detailed in the Board approved policy on the Role of the Board.
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BRAC Lanka Finance PLC Annual Report 2016/17
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
2.5 The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the finance company is firmly under its authority.
The role of the Board has been defined, documented and approved by the Board. This includes details of the Board’s responsibilities and the matters which are specifically reserved to it for approval.
At its meetings the Board discusses both performance and compliance, ensuring that control is exercised.
2.6 The Board shall, if it considers that the finance company is, or is likely to be, unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action.
In the unlikely event of such a situation occurring, the Board will ensure that the Company complies with all requirements.
2.7 The Board shall include in the finance company’s Annual Report, an annual corporate governance report setting out the compliance with this Direction.
This report fulfills the said requirement
2.8 The Board shall adopt a scheme of self-assessment to be undertaken by each director annually, and maintain records of such assessments.
The Board has adopted such a scheme, which is carried out annually and records maintained.
3. Meetings of the Board
3.1 The Board shall meet at least twelve times a financial year at approximately monthly intervals. Obtaining the Board’s consent through the circulation of written or electronic resolutions/papers shall be avoided as far as possible.
The Board met 12 times during the year.
On rare occasions, Board decisions were sought through circular resolutions. These resolutions are subsequently tabled at the following Board meeting.
3.2 The Board shall ensure that arrangements are in place to enable all directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the finance company.
A Board approved Policy on the Board’s relationship with the Company Secretary provides for all directors to include matters and proposals in the agenda for regular board meetings.
As notice of a meeting is given in advance, any director is able to request the inclusion of matters on the agenda in time for such item to be discussed at the meeting.
BRAC Lanka Finance PLC Annual Report 2016/17
12
Corporate Governance Report
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
3.3 A notice of at least 7 days shall be given of a regular Board meeting to provide all directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given.
The process in place ensures that Directors receive an annual schedule of meetings, a monthly reminder and seven days’ notice prior to the meeting.
Reasonable notice is given for any other meetings.
3.4 A director who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a director. Provided that participation at the directors’ meetings through an alternate director shall, however, be acceptable as attendance.
Alternate directors will be appointed where necessary to satisfy this requirement.
3.5 The Board shall appoint a Company Secretary whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.
LOLC Corporate Services (Pvt) Ltd have been appointed Secretaries.
3.6 If the Chairman has delegated to the Company Secretary the function of preparing the agenda for a Board meeting, the Company Secretary shall be responsible for carrying out such function.
Preparing the agenda for Board Meetings has been delegated to the Company Secretaries.
3.7 All Directors shall have access to advice and services of the Company Secretary with a view to ensuring that Board procedures and all applicable laws, directions, rules and regulations are followed.
All directors have access to the advice/services of the Company Secretaries, and this is also documented in the Board approved policy on the Board’s relationship with the Company Secretary.
3.8 The Company Secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any director
The Minutes are in the custody of the Company Secretaries, who can provide them to any director for inspection at any reasonable time, on reasonable notice by any director. This is also provided for in the policy on the Board’s relationship with the Company Secretary.
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BRAC Lanka Finance PLC Annual Report 2016/17
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
3.9 Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following:
(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 which may illustrate whether the Board was carrying out its duties with due care and prudence;
(d) the explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations;
(e) the Board’s knowledge and understanding of the risks to which the finance company is exposed and an overview of the risk management measures adopted; and
(f) the decisions and Board resolutions.
Detailed minutes are kept covering the given criteria.
4. Composition of the Board
4.1 The number of directors on the Board shall not be less than 5 and not more than 13.
During the financial year under review, the Board comprised 5 members. A sixth director was appointed in July 2017
4.2 The total period of service of a director other than a director who holds the position of chief executive officer or executive director shall not exceed nine years. The total period in office of a Non-Executive Director shall be inclusive of the total period of service served by such director up to the date of this Direction.
None of the Non-Executive Directors have completed 9 years of service during the financial year
4.3 Subject to the transitional period an employee of a finance company may be appointed, elected or nominated as a director of the finance company (hereinafter referred to as an “executive director”) provided that the number of executive directors shall not exceed one-half of the number of directors of the Board. In such an event, one of the executive directors shall be the Chief Executive Officer of the company.
During the financial year under review, none of the Directors were executive directors. In July 2017 the CEO was appointed a director.
BRAC Lanka Finance PLC Annual Report 2016/17
14
Corporate Governance Report
Direction No.
Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
4.4 Subject to the transitional period the number of independent Non-Executive Directors of the Board shall be at least one fourth of the total numbers of directors. A Non-Executive Director shall not be considered independent if such director:
a) has shares exceeding 2% of the paid up capital of the finance company or 10% of the paid up capital of another finance company;
b) has or had during the period of two years immediately preceding his appointment as director, any business transactions with the finance company as described in paragraph 9 hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the finance company as shown in its last audited balance sheet;
c) has been employed by the finance company during the two year period immediately preceding the appointment as director;
d) has a relative, who is a director or chief executive officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.
e) represents a shareholder, debtor, or such other similar stakeholder of the finance company;
f) is an employee or a director or has a share holding of 10% or more of the paid up capital in a company or business organization:
(i) which has a transaction with the finance company as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or
The Board comprises two Independent Directors; Mr. A. J. L. Peiris (who is also the Senior Independent Director) and Mr. W. R. A. Dharmaratne
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(ii) in which any of the other directors of the finance company is employed or is a director or holds shares exceeding 10% of the capital funds as shown in its last audited balance sheet of the finance company; or
(iii) in which any of the other directors of the finance company has a transaction as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds, as shown in its last audited balance sheet of the finance company.
4.5 In the event an alternate director is appointed to represent an independent Non-Executive Director, the person so appointed shall also meet the criteria that apply to the independent Non-Executive Director.
In the event any alternate directors are appointed for independent Non-Executive Directors, this will be complied with.
4.6 Non-Executive Directors shall have necessary skills and experience to bring an objective judgment to bear on issues of strategy, performance and resources.
Directors profiles are provided on pages 2 to 3.
4.7 A meeting of the Board shall not be duly constituted, although the number of directors required to constitute the quorum at such meeting is present, unless at least one half of the number of directors that constitute the quorum at such meeting are Non-Executive Directors.
Board meetings are constituted accordingly.
4.8 The independent Non-Executive Directors shall be expressly identified as such in all corporate communications that disclose the names of directors of the finance company. The finance company shall disclose the composition of the Board, by category of directors, including the names of the chairman, executive directors, Non-Executive Directors and independent Non-Executive Directors in the annual corporate governance report which shall be an integral part of its Annual Report.
The Directors for the year under review are:
I. C. Nanayakkara - Non-Executive Chairman
W. D. K. Jayawardena - Non-Executive Director
R. D. Tissera - Non-Executive Director
Appointed with effect from 6 April 2016
A. J. L. Peiris - Senior Independent Director
W. R. A. Dharmaratne - Independent Director
Appointed with effect from 26 July 2017
W. A. R. Kumara - Executive Director/CEO
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Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
4.9 There shall be a formal, considered and transparent procedure for the appointment of new directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.
There is a Board approved procedure for appointment of a Director. In addition, the Board ensures that all regulatory and statutory requirements are complied with.
4.10 All directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.
The Company has ensured compliance in all such situation.
In terms of Articles 74, Mr. R D Tissera and Mr. I C Nanayakkara and in terms of Articles 69, Mr. W. A. R. Kumara will be retiring by rotation at the Annual General Meeting to be held in September 2017, and offering themselves for re-election.
4.11 If a director resigns or is removed from office, the Board shall announce to the shareholders and notify the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka, regarding the resignation of the director or removal and the reasons for such resignation or removal, including but not limited to information relating to the relevant director’s disagreement with the Board, if any.
The Company has ensured compliance in the past and will ensure compliance in the future if such a situation arises.
5. Criteria to assess the fitness and propriety of directors
5.1 Subject to the transitional provisions contained herein, a person over the age of 70 years shall not serve as a director of a finance company
None of the Directors are over 70 years of age. All the Directors have been assessed as fit and proper in terms of section 3 (3) and (4) of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 3 of 2011
5.2 A director of a finance company shall not hold office as a director or any other equivalent position in more than 20 companies/societies/bodies corporate, including associate companies and subsidiaries of the finance company.
No director holds directorships of more than 20 companies /entities/ institutions inclusive of subsidiaries or associate companies.
6. Delegation of Functions
6.1 The Board shall not delegate any matters to a board committee, chief executive officer, executive directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.
The Board has approved policies on delegation of authority by the directors to the CEO and Management, and on oversight of the affairs of the company by KMPs.
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6.2 The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the finance company.
Delegated authority is reviewed periodically by the Board.
7. The Chairman and the Chief Executive Officer
7.1 The roles of Chairman and Chief Executive Officer shall be separated and shall not be performed by the one and the same person.
The roles of Chairman and CEO are separate and held by two different individuals, appointed by the Board.
7.2 The Chairman shall be a Non-Executive Director. In the case where the chairman is not an independent Non-Executive Director, the Board shall designate an independent Non-Executive Director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the finance company’s Annual Report.
The Chairman is a Non-Executive Director. To bring in a greater element of independence, Mr. A J L Peiris has been appointed the Senior Independent Director
7.3 The Board shall disclose in its corporate governance report, which shall be an integral part of its Annual Report, the name of the Chairman and the Chief Executive Officer and the nature of any relationship [including financial, business, family or other material/ relevant relationship(s)], if any, between the Chairman and the Chief Executive Officer and the relationships among members of the Board.
There is no financial, business, family or other relationship between the Chairman, Mr. Ishara Nanayakkara and the Executive Director/CEO Mr. Rohana Kumara.
There is no financial, business, family or other material relationship between any other members of the Board except for some Directors serving together on other Boards.
7.4 The Chairman shall:
(a) provide leadership to the Board;
(b) ensure that the Board works effectively and discharges its responsibilities; and
(c) ensure that all key issues are discussed by the Board in a timely manner.
In giving effect to this requirement, the Chairman ensures that all directors participate in discussion and decision making, that relevant information is made available and that relevant officers (including the CEO) are invited to the meeting to provide clarifications and additional information.
7.5 The Chairman shall be primarily responsible for the preparation of the agenda for each Board meeting.
The Chairman may delegate the function of preparing the agenda to the company secretary.
The Chairman has delegated this function to the Company secretaries.
This has been included in the “Policy on Board’s relationship with the Company Secretary” approved by the Board.
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7.6 The Chairman shall ensure that all directors are informed adequately and in a timely manner of the issues arising at each Board meeting.
The Company Secretaries, through the authority delegated by the Chairman, ensure that the agendas of Board meetings notify all directors of the issues to be discussed, with supporting board papers containing further information.
As Minutes of previous month’s Board meeting are among the agenda items and Board papers, issues can be discussed to a satisfactory conclusion.
7.7 The Chairman shall encourage each director to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the finance company.
The Chairman ensures that all Directors participate in discussions.
7.8 The Chairman shall facilitate the effective contribution of Non-Executive Directors in particular and ensure constructive relationships between executive and Non-Executive Directors.
All but one of the Directors are Non-Executive Directors, and the Chairman facilitates their effective contribution by ensuring that they have received the relevant papers and other information in a timely manner.
7.9 The Chairman shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.
The Chairman is a Non-Executive Director and does not engage in any executive activities
7.10 The Chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.
The Board has approved a policy on communication with stakeholders.
The Annual General Meeting of the Company provides a forum for shareholder communication. Periodic announcements made to the Colombo Stock Exchange also contribute towards keeping all stakeholders informed and updated on significant actions of the Company.
7.11 The Chief Executive Officer shall function as the apex executive-in-charge of the day-to-day-management of the finance company’s operations and business.
The Executive Director/CEO is currently the apex executive-in charge of the Company’s business operations.
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8. Board appointed Committees
8.1 Every finance company shall have at least the two Board committees set out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly to the Board.
Each committee shall appoint a secretary to arrange its meetings, maintain minutes, records and carry out such other secretarial functions under the supervision of the chairman of the committee.
The Board shall present a report on the performance, duties and functions of each committee, at the annual general meeting of the company.
The Company has established an Audit Committee and an Integrated Risk Management Committee. These Committees report to the Board.
The Board has also appointed a Remuneration Committee and a Related Party Transactions Review Committee, in compliance with the Listing Rules of the Colombo Stock Exchange.
The Company’s secretaries are LOLC Corporate Services (Pvt) Ltd, and they perform all these functions.
Please refer the Committee reports on pages 40 to 43.
8.2 Audit Committee Please refer page 41 for the Committee Report
a. The Chairman of the committee shall be a Non-Executive Director who possesses qualifications and experience in accountancy and/or audit.
Mr. W. D. K. Jayawardena has been appointed as the Chairman of the Audit Committee by the Board.
His qualifications are as follows:
MBA in Financial Management
Fellow Member of the Institute of Bankers
Over 30 years of Banking (of which 9 years was as CEO of Citibank Sri Lanka)
Associate of the Institute of Cost and Executive Accountants.
b. The Board members appointed to the committee shall be Non-Executive Directors.
The members of the Audit Committee are:
W. D. K. Jayewardene - (Committee Chairman) Non-Executive Director
A. J. L. Peiris - Non-Executive Independent Director
W. R. A. Dharmaratne - Non-Executive Independent Director
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c. The committee shall make recommendations on matters in connection with:
(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;
(iii) the application of the relevant accounting standards; and
(iv) the service period, audit fee and any resignation or dismissal of the auditor, provided that the engagement of an 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 term.
The Committee makes recommendations on these matters to the Board.
The Board has approved Terms of Reference for the Audit Committee.
d. The committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices.
The Committee performs this function and annually makes a determination on the External Auditor’s independence.
The External Auditors report direct to the Audit Committee.
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e. The committee shall develop and implement a policy with the approval of the Board on the engagement of an external auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an external auditor of non-audit services does not impair the external auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non-audit services, the committee shall consider:
(i) whether the skills and experience of the auditor make it a suitable provider of the non-audit services;
(ii) whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the external auditor; and
(iii) whether the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the auditor, pose any threat to the objectivity and/or independence of the external auditor.
The Board has approved a policy for engagement of the external auditors for providing non-audit services.
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Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
f. The committee shall, before the audit commences, discuss and finalize with the external auditors the nature and scope of the audit, including:
(i) an assessment of the finance company’s compliance with Directions issued under the Act and the management’s internal controls over financial reporting;
(ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and
(iii) the co-ordination between auditors where more than one auditor is involved.
The Audit Committee carries out this function.
g. The committee shall review the financial information of the finance company, in order to monitor the integrity of the financial statements of the finance company, its annual report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s annual report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on:
(i) major judgemental areas;
(ii) any changes in accounting policies and practices;
(iii) significant adjustments arising from the audit;
(iv) the going concern assumption; and
(v) the compliance with relevant accounting standards and other legal requirements.
This has been included in the Board approved Terms of Reference for the Audit Committee and is carried out quarterly.
h. The committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.
This has been done by the Audit Committee.
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i. The committee shall review the external auditor’s management letter and the management’s response thereto.
This has been done by the Audit Committee.
j. The committee shall take the following steps with regard to the internal audit function of the finance company:
(i) Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;
(ii) Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department;
(iii) Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department;
(iv) Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function;
(v) Ensure that the committee is apprised of resignations of senior staff members of the internal audit department including the chief internal auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning;
(vi) Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care;
This has been done by the Audit Committee.
k. The committee shall consider the major findings of internal investigations and management’s responses thereto;
This is done by the Audit Committee.
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Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
l. The Chief Finance Officer, the Chief Internal Auditor and a representative of the external auditors may normally attend meetings. Other Board members and the Chief Executive Officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the executive directors being present.
The CEO, CFO and CRO are invited to be present at meeting of the Audit Committee. The Committee also met with the external auditors without the
Executive officers being present.
m. The committee shall have:
(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.
The Board approved Terms of Reference of the Audit Committee ensure that the Committee has the authority as required.
n. The committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities.
According to the annual schedule and agenda, the Committee will meet quarterly, with provision for the Committee Chairman to convene additional meetings if deemed necessary.
o. The Board shall, in the Annual Report, disclose in an informative way,
(i) details of the activities of the audit committee;
(ii) the number of audit committee meetings held in the year; and
(iii) details of attendance of each individual member at such meetings.
Please refer the Audit Committee Report on page 41
p. The secretary to the committee (who may be the company secretary or the head of the internal audit function) shall record and keep detailed minutes of the committee meetings
LOLC Corporate Services (Pvt) Ltd, Secretaries to the Company, function as Secretaries to the Audit Committee. Minutes of the Meetings of the Committee are recorded and maintained by them.
Corporate Governance Report
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Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
q. The committee shall review arrangements by which employees of the finance company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the finance company’s relations with the external auditor.
A whistleblowing policy has been approved and a whistleblowing hotline has been publicised to all employees.
8.3 Integrated Risk Management Committee Please refer page 42 for the Committee Report
a. The committee shall consist of at least one Non-Executive Director, CEO and key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The committee shall work with key management personnel closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the committee.
For the financial year under review The Integrated Risk Management Committee comprised the following;
R. D. Tissera - Non-Executive Director, Committee Chairman
W. A. R. Kumara - Executive Director/CEO
Mrs. S Wickremasekera - Group Chief Risk Officer
L Pieris - Head of IT
G. Herath - Assistant Manager - Finance/ Compliance Officer
C. Wijewarnasooriya - Chief Manager, Channels
H. Senarathne - Head of Treasury Operations
C. Karunathilaka - Chief Manager - Credit Risk Management
S. Perera - Manager, Collection & Recoveries
b. The committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the finance company on a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on the finance company basis and group basis.
The Terms of reference of the Committee have been approved by the Board. The Risk Review Reports submitted by the Enterprise Risk Management Division cover these risks.
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c. The committee shall review the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee.
During the year under review, Minutes of the Meetings of the Asset Liability Committee (“ALCO”) were submitted to the IRMC.
d. The committee shall take prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the finance company’s policies and regulatory and supervisory requirements.
At its meetings, the Committee reviews any such risks and takes the necessary prompt action.
e. The committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans.
4 meetings were held during the financial year 2016/17.
f. The committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.
If such instances are identified, appropriate steps will be taken.
g. The committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions.
This report is submitted.
h. The committee shall establish a compliance function to assess the finance company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.
A Compliance Officer has been appointed, having obtained the approval of the Central Bank of Sri Lanka, to carry out these functions.
9. Related party transactions
9.1 The following shall be in addition to the provisions contained in the Finance Companies (Lending) Direction, No. 1 of 2007 and the Finance Companies (Business Transactions with Directors and their Relatives) Direction, No. 2 of 2007 or such other directions that shall repeal and replace the said directions from time to time.
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Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
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9.2 The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the finance company with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:
a) A subsidiary of the finance company;
b) Any associate company of the finance company;
c) A director of the finance company;
d) A key management personnel of the finance company;
e) A relative of a director or a key management personnel of the finance company;
f) A shareholder who owns shares exceeding 10% of the paid up capital of the finance company;
g) A concern in which a director of the finance company or a relative of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest.
The Board has approved a procedure on related party transactions.
Further, at each Board meeting the Directors individually declare any companies in which they have a significant influence, which facilitates avoidance of conflicts of interest. The existing process and reporting system have been noted and approved by the Board and documented.
9.3 The transactions with a related party that are covered in this Direction shall be the following:
a) Granting accommodation,
b) Creating liabilities to the finance company in the form of deposits, borrowings and investments,
c) providing financial or non-financial services to the finance company or obtaining those services from the finance company,
d) creating or maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party.
The Board has approved a procedure on related party transactions.
Further, at each Board meeting the Directors individually declare any companies in which they have a significant influence, which facilitates avoidance of conflicts of interest. The existing process and reporting system have been noted and approved by the Board and documented.
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Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008
The Company’s level of compliance
9.4 The Board shall ensure that the finance company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” than that is accorded to other similar constituents of the finance company. For the purpose of this paragraph, “more favourable treatment”
shall mean:
a) Granting of “total net accommodation” to a related party, exceeding a prudent percentage of the finance company’s regulatory capital, as determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the finance company’s share capital and debt instruments with a remaining maturity of 5 years or more.
b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty;
c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/ commissions, that extends beyond the terms granted in the normal course of business with unrelated parties;
d) Providing or obtaining services to or from a related-party without a proper evaluation procedure;
e) Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party, except as required for the performance of legitimate duties and functions.
The existing process and reporting system have been noted and approved by the Board and documented.
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10. Disclosures
10.1 The Board shall ensure that: (a) annual audited financial statements and periodical financial statements are prepared and published in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards, and that (b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.
The financial statements are prepared in accordance with the new Sri Lanka Accounting Standards (SLFRSs/LKASs) and the formats prescribed by the regulators.
Annual financial statements are disclosed in the annual report; biannual (unaudited) financial statements are published in newspapers in all three languages and the quarterly statements are posted on CSE website
10.2 The Board shall ensure that at least the following disclosures are made in the Annual Report:
a. A statement to the effect that the annual audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.
The Annual Audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.
b. A report by the Board on the finance company’s internal control mechanism that confirms that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements has been done in accordance with relevant accounting principles and regulatory requirements.
Please refer the Directors Statement on Internal Controls Over Financial Reporting on page 37.
c. The external auditor’s certification on the effectiveness of the internal control mechanism in respect of any statements prepared or published after March 31, 2010.
The Company has obtained a certification from KPMG Chartered Accountants on the effectiveness of the internal controls over financial reporting
d. Details of directors, including names, transactions with the finance company.
Directors names and details are given on pages 2 to 3. Please refer Note 37.2 to the Financial Statements, on page 88.
e. Fees/remuneration paid by the finance company to the directors in aggregate, in the Annual Reports published after 1 January, 2010.
Directors Remuneration is disclosed in the notes to the financial statements.
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f. Total net accommodation as defined in paragraph 9(4) outstanding in respect of each category of related parties and the net accommodation outstanding in respect of each category of related parties as a percentage of the finance company’s capital funds.
Please refer Note 37.3 to the Financial Statements, on page 89.
g. The aggregate values of remuneration paid by the finance company to its key management personnel and the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the finance company.
Please refer Note 37.2 to the Financial Statements, on page 88.
h. A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non - compliances.
The Company has not engaged in any activity that contravenes any applicable law or regulation, and to the best of the knowledge of the Directors the Company has been in compliance with all prudential requirements, regulations and laws.
i. A statement of the regulatory and supervisory concerns on lapses in the finance company’s risk management, or non compliance with the Act, and rules and directions that have been communicated by the Director of the Department of Supervision of Non-Bank Financial Institutions, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns.
There were no significant supervisory concerns / lapses in the Company’s risk management and compliance with this direction to be directed by the Monetary Board to be disclosed to the public.
j. The external auditor’s certification of the compliance with the Act and rules and directions issued by the Monetary Board in the annual corporate governance reports published after January 1, 2011
The Company has engaged the services of the external auditors to assess the company’s level of compliance with the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board.
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Section No.
Rules of the Colombo Stock Exchange The Company’s Level of compliance
7.10 Corporate Governance
7.10 Statement confirming that as at the date of the annual report that the Company is in compliance with these rules.
The Company is compliant with the corporate governance requirements of the Listing Rules of the Colombo Stock Exchange.
7.10.1 Non-executive DirectorsThe Board of Directors of a listed entity shall include at least: two Non-Executive Directors; or such number of Non-Executive Directors equivalent to one third of the total number of directors whichever is higher
As at 31st March 2017 the Board comprised 5 directors of whom all are Non-Executive Directors. In July 2017 the Chief Executive Officer was appointed a director.
7.10.2 Independent DirectorsWhere the constitution of the Board of Directors includes only two Non-Executive Directors in terms of 7.10.1, both such Non-Executive Directors shall be independent. In all other instances two or 1/3rd of the no executive directors appointed to the Board, whichever is higher shall be independent.
The Board comprised 2 Independent Non-Executive Directors.
7.10.3-4 Directors disclosuresAnnual determination as to the independence or non-independence of each Non-Executive Director
The Directors have submitted the relevant declaration, as prescribed by the Colombo Stock Exchange.
7.10.5 Remuneration CommitteeShall comprise of a minimum of two independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher
As at 31st March 2017 the Committee comprised 3 Non-Executive directors, of whom 2 are independent.
Please refer the Committee’s report on page 43.
7.10.6 Audit Committee
Shall comprise of a minimum of two independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher
As at 31st March 2017 the Committee comprised 3 Non-Executive directors, of whom 2 are independent.
Please refer the Committee’s report on page 41.
BRAC Lanka Finance PLC Annual Report 2016/17
32
Risk Management
Enterprise Risk Management
Risk Management is a dynamic and evolving process and it is imperative that it adopt to the changing business landscape. Therefore, we believe that the Risk Governance structures should be geared to respond to organization dynamics in an efficient and effective manner. Risk Management at BRAC Lanka Finance Plc is a group level (LOLC group) centralized function. The risk governance structures in place allows for group level policies and decisions taken with regard to Risk management initiatives cascade down to entities in the group with
minimum lead time and any structural changes and process level changes can be replicated at any entity in the group. This strategy allows us to optimizing our resource utilization.
The Risk governance structures adopted at BRAC reflect the commitment for Risk management initiatives at the highest level with both the Risk Management functions and Audit functions given total independence via their operational and reporting lines
This allows the board of management to be appraised of the organizational risks in an unbiased manner and this boosts the confidence the board has on the internal control structures implemented and their effectiveness. The board of management drives the risk governance effort via the Integrated risk management committee and the audit committee.
Board of Management
Audit Committee
Internal Audit Functions
Integrated Risk Management Committee
Information Systems Audit Functions
Risk Management Functions
Risk Governance structures implemented at BRAC are a combination of Risk Management, Internal Audit and IS audit functions which forms the Enterprise Risk Management Department (ERM) while the compliance department functions separately. The Audit function and the Risk Management function works in cohesion to derive the best possible synergies
The Risk Management function identify possible risks which have a reasonable probability to hinder the realization of our strategic and tactical objectives. It appraises the management of the impacts on crystallization of identified risks and the mitigation strategies available. The Integrated risk management committee (IRMC) evaluates the possible impacts and in consultation with the risk owners decides on the best possible risk mitigation strategies and the internal controls to be adopted. The board of directors are kept informed through regular communications of the activities of the IRMC.
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BRAC Lanka Finance PLC Annual Report 2016/17
Enterprise risk management is a collaborative effort of all stake holders and the views and the perception of risk of the process owners are taken in to account by compulsory reporting requirements established, which requires them to submit risk related information to ERM on a monthly basis for further analysis and onward submission to the board of Directors while the IRMC is conveyed every quarter for a more detailed analysis of the risk landscape of the company.
Enterprise Risk Management at BRAC Lanka Finance is an organization wide process where every employee has a responsibility to manage risks with in their scope of functions. our vision in risk management “Building an organizational Culture where Protection, Assurance, Reliability, Accountability, Transparency and Confidentiality are treasured and lasting values “, require us to inculcate within all stake holders the appropriate risk culture. Enterprise risk management department firmly believes proper risk awareness facilitates the appropriate risk response. Therefore, dissemination of risk & response related knowledge to all employees is a critical success factor. The Enterprise risk management department continues to engage in structured training in co-ordination with the human resource department and other business units to enhance the knowledge and skills of staff engaged in critical operational activities in the organization.
We strongly believe that there is no limits to improvements and risk management process is also no exception. In order to add value to the business we incorporated risk department participations in an advisory capacity for major product or process formulations in an effort to formulate appropriate risk control and internal control structures within the organization.
The Internal Audit is entrusted with providing the management a reasonable assurance of the reliability, consistency and effectiveness of the internal control frame work. The audit teams adopt a three pronged strategy and consists of teams that engages in process level /department level audits, branch based audits and field based audits. This strategy has allowed us to maintain a more frequent presence in different levels of operations at any given time. The data analytics techniques are used for auditing purposes which facilitate the analysis of the entire audit universe rather than sampling.
Information Systems Audit function reviews information systems and critical system infrastructure and plays a supporting role to general audits in reviewing the relevant processes and controls which are supported by computer systems.
A Corporate whistle blower hotline is available for employees to report any irregularity or suspicious activities and a customer feedback line too is operational for customers to escalate any dissatisfaction of any fact which needs the attention of the management, These lines are operated by ERM and any information provided are treated confidentially. All complains are followed up until resolution.
Continuous quality, Knowledge and skill improvements are prerequisite of an effective risk management strategy and the ERM staff are continuously trained and opportunities/facilities provided for enhancement of their skills and knowledge inventory. An internal quality assurance system is well operational within the department which enable us to maintain consistent and uniformity in our processes.
Risk Profile
The following is based on the perceived risk and is a high level categorisation of risk used only for the illustration purposes of this report.
Risk Levels Risk Score
Very High 5
High 4
Medium 3
Low 2
Very Low 1
BRAC Lanka Finance PLC Annual Report 2016/17
34
Currency Risk
Market Risk
Liquidity RiskSeries 1
Credit Risk
CapitalAdequacy Risk
Profitability& Income
Asset &Liability Risk
Financial Risks
Interest rate Risk
01
23
45
Technology Risk
Business Strategy Risk
Internal Systems &Operational
Risk
Mismanagement&
Fraud Risk
Operational Risks
3
45
0
12
Series 1
Business Risks
Legal Risk
Systemic Risk
Image Risk
Industry Risk
Policy Risk
Financial Infrastructure
Risk
2
3
4
5
0
1
Series 1Disaster
Management & Business
Event Risk
Contagion Risk
Exogenous Risk
12
3
4
5
0
Event Risk
Series 1
Risk Management
35
BRAC Lanka Finance PLC Annual Report 2016/17
Report of the Board of Directors
The Directors have pleasure in presenting their Annual Report for the year ended 31st March 2017, and trust that the financial statements and all our other reports provide you with a comprehensive view of the performance and progress of your Company over the last financial year.
Principal activity
The Company’s principal activities are to provide financial products and services, with a focus on micro finance, and the mobilization of public deposits.
Directorate
The Directors of the Company are as follows:
I. C. Nanayakkara Non-Executive Chairman
W. D. K. Jayawardena (and alternate director to I. C. Nanayakkara)
Non-Executive Director
A. J. L. Peiris Senior Independent Director (Appointed 6th April 2016)
W. R. A. Dharmaratne Independent Director (Appointed 6th April 2016)
R. D. Tissera Non-Executive Director
W. A. R. Kumara Executive Director/CEO (Appointed 26th July 2017)
The Directors’ profiles are given on pages 2 to 3.
Directors’ shareholdings
The Directors’ shareholdings are as given below:
As at 31.03.2017
As at 31.03.2016
I. C. Nanayakkara - -
W. D. K. Jayawardena - -
A. J. L. Peiris - -
W. R. A. Dharmaratne - -
R. D. Tissera - -
Directors’ Interests
The Directors have made the declarations required by the Companies Act No. 07 of 2007. These have been noted by the Board, recorded in the Minutes and entered into the Interest Register which is maintained by the Company.
Related Party Transactions are disclosed in the Notes to the Financial Statements
Directors’ Remuneration
The Company has a Board approved Remuneration Policy. This policy stipulates that remuneration should be linked to competence and contribution, while serving to incentivize and motivate. This policy has been taken into account when determining remuneration for both staff and directors. Directors Remuneration is disclosed on page 89. The Report of the Remuneration Committee is on page 43.
Recommendations for re-election of Directors
In terms of Article 74 of the Articles of Association Mr. Dhammika Ravindra Tissera and Mr. Ishara Chinthaka Nanayakkara will retire by rotation at the Annual General Meeting of the Company and offer themselves for re-election. The Board recommends their re-election.
In terms of Article 69 of the Articles of Association Mr. Wanni Achchige Rohana Kumara will retire by rotation at the Annual General Meeting of the Company and offer himself for re-election. The Board recommends their re-election.
The re-election of these Directors, subject to shareholder approval, has been approved by the Central Bank of Sri Lanka.
Board sub committees
The Board had appointed the following Board sub committees:
• Audit Committee
• Remuneration Committee
• Integrated Risk Management Committee
• Related Party Transactions Review Committee
These Committees assist the Board with its role of oversight of the Company’s performance and conformance. Minutes of the meetings of these Committees are tabled at the next Board meeting, enabling the Board to benefit from the focused review of these Committees on the areas and issues within their purview.
The Reports of these Committees can be found on pages . 40 to 43.
Compliance with Laws and Regulations
The Company has not engaged in any activity that contravenes any applicable law or regulation, and to the best of the knowledge of the Directors the Company has been in compliance with all prudential requirements, regulations and laws. The Company is in compliance with all applicable Corporate Governance requirements. The Corporate Governance report is on page 8.
BRAC Lanka Finance PLC Annual Report 2016/17
36
Corporate Governance
The Company is compliant with the Corporate Governance Requirements of the Listing Rules of the Colombo Stock Exchange, and with the requirements of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 (and subsequent amendments thereto) issued by the Central Bank of Sri Lanka.
The Corporate Governance Report is on page 8.
Directors’ responsibility for financial reporting
The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs .The Directors are of the view that the financials have been prepared in accordance with the requirements of the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007 and amendments/additions thereto, the Finance Business Act No. 42 of 2011 and amendments/additions thereto , the Listing Rules of the Colombo Stock Exchange, and all relevant directions of the Central Bank of Sri Lanka.
Significant Accounting Policies
The Accounting Policies adopted in the preparation of the financial statements and any changes thereof where applicable have been included in the Notes to the financial statements.
Transactions with Related Parties
Details of related party transactions are disclosed in the financial statements.
Statutory Payments
For the year under review, all known statutory payments have been made and all retirement, gratuities have been provided for. Further, all management fees and payments to related parties for the year under review have been reflected in the accounts.
Going concern
The Directors believe that the Company is in a position to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared on the basis that the Company is a going concern.
Responsibility statements
The Chief Executive Officer’s and Chief Financial Officer’s responsibility statement appears on page 39.
Financial Statements and Auditor’s Report
The Financial Statements together with the Auditors Report and Notes thereon, found on pages 45 to 92 are in compliance with Sri Lanka Accounting Standards and the requirements of the Companies Act No. 7 of 2007 .
Auditors
M/s KPMG, the Auditors of the Company retire and offer themselves for reappointment. The Board recommends their re-appointment for the year 2017/18 at a fee to be decided upon by the Board.
During the year under review, the Auditors were paid Rs. Rs. 660,000/- as audit fees.
As far as the Directors are aware, the Auditors do not have any other relationship with the Company nor do they have any interest in contracts with the Company.
The Report of the Auditors is given on page 45.
Shareholding Structure
The stated capital of the Company as at 31st March 2017 was Rs. 171,180,454/- divided into 105,752,566 shares. More details on the shareholders can be found on pages 93 to 94.
Events after the reporting date
Rights Issue
In April 2017 the Company received shareholder approval for a Rights Issue of shares. 132,190,708 new ordinary shares were offered in the proportion of five (05) new ordinary shares for every four (04) ordinary shares held, at a price of Rupees Ten (Rs 10/- ) per share.
At the completion of this issue, Lanka ORIX Leasing Company PLC (“LOLC”) held 55.55 % of the shares in issue.
Annual General Meeting
The Notice of the Annual General Meeting is included in this Annual Report. If you are unable to be present at the Meeting, please complete and return the proxy form to the Company, as instructed thereon.
On behalf of the board of Directors
Mr. Ishara Nanayakkara Mr. Kapila Jayawardena Non-Executive Chairman Non-Executive Director
Report of the Board of Directors
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BRAC Lanka Finance PLC Annual Report 2016/17
Directors’ Statement on Internal Control over Financial Reporting
Responsibility
In line with the section 10(2)(b) of the Finance Companies Direction No. 03 of 2008 as amended by the Direction No. 06 of 2013, the Board of Directors present this report on Internal Control over Financial Reporting.
The Board of Directors (“the Board”) is responsible for the adequacy and effectiveness of the internal control mechanism in place at BRAC Lanka Finance PLC. (“the Company”).
The Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Company and this process includes the system of Internal Control over Financial Reporting. The process is regularly reviewed by the Board.
The Board is of the view that the system of Internal Control over Financial Reporting in place is sound and adequate to provide reasonable assurance regarding the reliability of Financial Reporting and that the preparation of Financial Statements for external purposes is in accordance with relevant accounting principles and regulatory requirements.
The management assists the Board in the implementation of the Board’s policies and procedures pertaining to Internal Control over Financial Reporting. In assessing the Internal Control System over Financial Reporting, identified officers of the Company collated all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Company and continue to review and update every year. These in turn are being observed and checked by the Internal Audit Department of the Company for suitability of design and effectiveness on an on-going basis.
Confirmation
Based on the above processes, the Board confirms that the Financial Reporting System of the Company has been designed to provide reasonable assurance regarding the reliability of Financial Reporting and the preparation of Financial Statements for external purposes and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.
External Auditor’s Certification
The External Auditors have submitted a certification on the process adopted by the Directors on the system of internal controls over financial reporting. The matters addressed by the External Auditors in this respect, will be taken in to consideration and appropriate steps will be taken to incorporate same, where applicable.
By order of the Board
Kapila JayawardenaNon Executive Director/Chairman-Audit Committee
Ishara Nanayakkara Chairman/ Non- Executive Director
31 May 2017
BRAC Lanka Finance PLC Annual Report 2016/17
38
Directors’ Responsibility for Financial Reporting
Auditors’ Responsibility
The Directors confirm that the Company’s Financial Statements for the year ended 31st March 2017, are prepared and presented in conformity with the requirements of the Sri Lanka Accounting Standards, the Regulations and Directions of the Central Bank of Sri Lanka, the Listing Rules of the Colombo Stock Exchange and the Companies Act No. 07 of 2007. They believe that the Financial Statements present a true and fair view of the state of the affairs of the Company as at the end of the financial year. The Financial Statements comprise the Statement of Financial Position as at 31st of March 2017, the Statement of Profit or Loss and other Comprehensive Income, Statement of Changes in Equity and the Cash Flow Statement for the year then ended and notes thereto.
The Directors also accept responsibility for the integrity and accuracy of the Financial Statements presented and confirm that appropriate accounting policies have been selected and applied and reasonable and prudent judgment has been exercised so as to accurately report transactions. The Directors have taken reasonable steps to safeguard the assets of the Company, to prevent, deter and detect fraud, and to ensure the integrity, accuracy and safeguarding of operational and financial records.
The Directors confirm that to the best of their knowledge, all statutory payments due in respect of the Company as at the reporting date have been paid for, or where relevant, provided for.
The External Auditors, Messrs KPMG, were provided with the opportunity to make appropriate inspections of financial records, minutes and other documents to enable them to form an opinion of the Financial Statements. The Report of the Auditors is set out on page 45.
W. D. K. JayawardenaDirector
31 May 2017
39
BRAC Lanka Finance PLC Annual Report 2016/17
Chief Executive Officer’s and Chief Financial Officer’s Responsibility StatementThe financial statements are prepared incompliance with the Sri Lankan Financial Reporting Standards (SLFRS/LKAS) issued by the institute of Chartered Accountant of Sri Lanka. The requirements of the Companies Act No.7 of 2007, the Finance Business Act No.42 of 2011 and the Listing Rules of the Colombo Stock Exchange.
Accordingly, the Company has prepared financial statements which comply with SLFRSs/ LKASs and related interpretations applicable for period ended 31 March 2017, together with the comparative period data as at and for the year ended 31 March 2016, as described in the accounting policies.
We accept responsibility for the integrity and accuracy of these financial statements. Significant accounting policies have been applied consistently. Application of significant accounting policies and estimates that involve a high degree of judgment and complexity were discussed with the Audit Committee and the external auditors. Estimate and judgment relating to the financial statements were made on a prudent and reasonable basis, in order to ensure that the financial statements are true and fair. To ensure this, our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company were consistently followed.
We confirm that to the best of our knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial position, results of operations and cash flows of the company as of, and for, the periods presented in this annual report.
We are responsible for establishing and maintaining internal controls and procedures. We have designed such controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the company is made known to us and for safeguarding the company’s assets and preventing and detecting fraud and error. We have evaluated the effectiveness of the company’s internal controls and procedures and are satisfied that the controls and procedures were effective as of the end of the period covered by this annual report. We confirm, based on our evaluations that there were no significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud that involves management or other employees.
The financial statements were audited by Messrs. KPMG, Chartered Accountants, the Independent Auditors. The Audit Committee pre - approves the audit and non-audit services provided by KPMG in order to ensure that the provision of such services does not impair KPMG’s independence and objectivity. The Audit Committee also reviews the external audit plan and the management letters and follows up on any issues raised during the statutory audit. The Audit Committee also meets with the external and internal auditors to review the effectiveness of the audit.
We confirm that the Company has complied with all applicable laws and regulations and guidelines and that there are no material litigations that are pending against the Company other than those arising in the normal course of conducting business.
Ms Sunjeevani KotakadeniyaChief Financial Officer - LOLC Group
Mr. Rohana KumaraChief Executive Officer
31 May 2017
BRAC Lanka Finance PLC Annual Report 2016/17
40
Report of the Related Party Transactions Review Committee
The Related Party Transaction Review (“RPTR”) Committee comprises the following directors:
A. J. L. Peiris - Non Executive Independent Director (Committee Chairman)
W. R. A. Dharmaratne - Non Executive Independent Director
W. D. K. Jayawardena - Non-Executive Director
As the Committee was re-constituted this year, the members re-visited the Committee’s role, which served to provide them with clarity and direction. While studying “the Code of Best Practices on related party transactions” the Committee also discussed and agreed on its scope and the guidelines which had been drawn up previously.
The Committee noted the definition of “related parties” as laid down in the relevant accounting standards, and also took note of the parties consequently considered as related to the Company. The Committee has accepted as suitable the Company’s recording process and reporting system. This process includes regular disclosures by the Directors of any entities to whom they can be considered as related. The system captures relevant transactions made with these entities or other related entities. The resultant Report gives details of the related party transacted with and the nature of the transaction. All these elements work together to facilitate review of Related Party Transactions.
The Committee meets regularly at least once a quarter, and the Related Party Transactions Report is submitted at each Committee Meeting. Discussion of this report, and a review of the previous meeting’s minutes enable the Committee to clarify transactions and seek further information where necessary. To enrich these discussions, the Chief Executive Officer and the Chief Financial Officer are invited to attend the meetings.
For greater control, the Committee requires that the Report include a confirmation that all relevant statutory and regulatory requirements have been complied with when entering into a related party transaction. Where necessary, a disclosure on a related party transaction is made on the Colombo Stock Exchange. This is supported by relevant Board approval.
Through these methods, the Committee reviews the related party transactions entered into during the financial year. By submitting the Committee minutes to the Board at the next Board meeting, the Committee ensures that it’s comments and observations are communicated to the Board.
The Committee met four times in the financial year.
A. J. L. PeirisCommittee Chairman - Related Party Transaction Review Committee
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BRAC Lanka Finance PLC Annual Report 2016/17
The Audit Committee comprises the following directors:
W. D. K. Jayawardena - Non-Executive Director (Committee Chairman)
A. J. L. Peiris - Non Executive Independent Director
W. R. A. Dharmaratne - Non Executive Independent Director
The Audit Committee enhances the Board’s role of oversight by giving greater focus to the financial recording and reporting systems of the Company. To facilitate this, the Committee works closely with the Internal and External Auditors and the Chief Financial Officer.
The role of the Audit Committee, as envisioned by regulators, has been taken into account when drafting the Committee’s Terms of Reference (“ToR”). Guided by the Board approved ToR, the Audit Committee has embedded certain functions into the annual agenda of meetings. This ensures that time and attention is given to identified critical aspects of financial performance and conformance.
When reviewing the interim financial statements and the Management Letter, the Committee takes the opportunity to meet with the External Auditors to discuss any aspect of operations which need to be improved. This also enables the Committee to review the effectiveness of the audit process and the efficiency and independence of the External Auditors themselves. The Committee reviews the Audit fees, before recommending them to the Board for approval.
The Chief Risk Officer submits an annual internal audit plan for the Committee’s information. When discussing the periodic Internal Audit Reports submitted, the Committee sometimes invites relevant operational management to be present, to clarify issues and reach consensus on methods for rectifying deficiencies. While there is an annual pre -agreed schedule of Committee meetings, the Committee is empowered to convene extra meetings to discuss Internal Audit reports if felt necessary.
Report of the Audit Committee
As and when appropriate, the Committee invites the Chief Executive Officer, Compliance Officer and Chief Financial Officer to be present at Committee meetings.
The Committee met six times during the financial year.
W. D. K. JayawardenaCommittee Chairman - Audit Committee
BRAC Lanka Finance PLC Annual Report 2016/17
42
Report of the Integrated Risk Management Committee
The Integrated Risk Management Committee is chaired by Mr. R. D. Tissera, a Non-Executive Director of the Company. As stipulated by the Central Bank of Sri Lanka, the other members of the Committee are officers of the Company overseeing key identified risk areas. They include the CEO, the Chief Risk Officer, the Head of Finance / Compliance Officer, and officers handling Credit Evaluation, Treasury, Recoveries, IT and Channels. The Independent Directors may choose to attend if they wish, and in most cases have done so. When and where deemed necessary, the Committee is empowered to invite other officers to enhance discussion and decision making.
The scope of the Committee has been documented in its Terms of Reference (“ToR”). While this ToR provides a framework for the Committee’s responsibilities, it is broad enough to enable the Committee to take whatever steps are necessary to be effective in its duties.
The Committee regularly reviews reports which cover all areas of risk, including reports which confirm that all current risks have been identified and mitigated. In a dynamic environment, having these reports updated and submitted for each meeting enables the management to be constantly alert to any new or emerging risk.
Referring to minutes of previous meetings enables the Committee to ensure that decisions taken were implemented, and that any follow up action is being pursued.
The Committee met four times during the financial year.
R. D. TisseraCommittee Chairman - Integrated Risk Management Committee
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BRAC Lanka Finance PLC Annual Report 2016/17
Report of the Remuneration Committee
The Remuneration Committee comprises the following Directors:
W. R. A. Dharmaratne - Non Executive Independent Director (Committee Chairman)
A. J. L. Peiris - Non Executive Independent Director
W. D. K. Jayawardena - Non-Executive Director
The Company’s Remuneration policy has been noted by the Committee, which is satisfied that the policy facilitates incentivizing and rewarding performance, and keeping remuneration at competitive levels. These ensure both recruitment and retention of talent.
As the Board had been regularly reviewing operational improvements, the Committee agreed that it would extend its focus to staff. For this purpose, the Committee invited the Chief Executive Officer to report on changes introduced.
The changes have been two fold. Firstly, the working environment has been improved. Branch offices and facilities have been upgraded, security has been strengthened for both offices and staff making field visits, and field work has been made easier by providing motor bikes and fuel. Improved systems, increased automation and better procedures have all combined to make daily operations easier.
Secondly, the management has sought to build employee capacity and raise morale. To this end the management has taken steps to identify knowledge / skill gaps and provide necessary training in order to mitigate the skill gaps. Company sponsored and organized social events have helped foster team work and demonstrate management commitment to worker welfare. Improved remuneration packages and an appraisal system that enables performance to be measured and rewarded have also been introduced.
The Committee, which met once during the year, is satisfied that human resources and talent development are being optimized.
W. R. A. DharmaratneCommittee Chairman - Remuneration Committee
44
Financial Statements
Financial Reports
Independent auditors’ report 45
Statement of financial position 46
Statement of profit or loss and
Other comprehensive income 47
Statement of changes in equity 48
Statement of cash flows 49
Notes to the financial statements 50
45
BRAC Lanka Finance PLC Annual Report 2016/17
Independent Auditors’ Report
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF BRAC LANKA FINANCE PLC
Report on the Financial Statements
We have audited the accompanying financial statements of BRAC Lanka Finance PLC, (“the Company”), which comprise the statement of financial position as at March 31, 2017, and the statements of profit or loss and other comprehensive income, changes in equity and, cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information set out on pages 46 to 92 of the Annual Report.
Board’s Responsibility for the Financial Statements
The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of the Company as at March 31, 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.
Report on Other Legal and Regulatory Requirements
As required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:
a) The basis of opinion and scope and limitations of the audit are as stated above.
b) In our opinion we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company and the financial statements of the Company, comply with the requirements of section 151 of the Companies Act.
CHARTERED ACCOUNTANTSColombo
31 May 2017
BRAC Lanka Finance PLC Annual Report 2016/17
46
As at 31 March 2017 2016
Note Rs. Rs.
ASSETSCash and Cash Equivalents 12 87,570,777 594,238,040 Investment in Fixed Deposits 349,077,329 -Investment in Government Securities 13 1,107,390,343 852,809,992 Investment Securities - Unquoted 14 11,000 11,000 Rentals Receivable on Hire-Purchase 15 9,522,875 16,052,586 Rentals Receivable on Lease 16 99,003,982 73,954,736 Loan and Advances 17 11,015,224,285 7,811,840,971 Amount due from Related Companies 18 4,189,200 143,825 Other Receivables 19 83,450,073 80,130,318 Inventory 20 - - Deferred Tax Assets 28 - 2,048,359 Property, Plant and Equipment 21 144,254,924 73,995,375 Total Assets 12,899,694,788 9,505,225,202
EQUITY AND LIABILITIESLiabilitiesBank Overdraft 12 414,237,336 424,109,313 Deposits from Customers 22 2,813,322,351 1,181,016,450 Interest Bearing Loans and Borrowings 23 2,050,139,173 1,932,052,416 Current Tax Liabilities 24 107,112,352 124,447,948 Amount due to Related Companies 25 6,275,427,381 4,833,891,523 Accrued Charges and Other Payables 26 81,177,909 85,191,138 Employee Benefits 27 23,595,217 20,755,104 Deferred Tax Liabilities 28 10,821,573 - Total Liability 11,775,833,292 8,601,463,892
EquityStated Capital 29 171,180,454 171,180,454 Reserves 30 83,296,702 74,262,150 Revenue Reserves 31 869,384,340 658,318,706 Total Equity 1,123,861,496 903,761,310
Total Equity and Liabilities 12,899,694,788 9,505,225,202
The annexed notes to the financial statements on pages 50 through 92 form an integral part of these financial statements. Figures in brackets indicate deductions.
These Financial Statements are prepared and presented in accordance with the requirements of the Companies Act No 07 of 2007.
(Mrs.) S. S. KotakadeniyaChief Financial Officer-LOLC Group
The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Approved and signed for and on behalf of the Board of BRAC Lanka Finance PLC;
W. D. K. Jayawardena R. D. Tissera Director Director
31 May 2017Colombo
Statement of Financial Position
47
BRAC Lanka Finance PLC Annual Report 2016/17
For the year ended 31 March 2017 2016
Note Rs. Rs.
Interest Income 4 3,385,929,995 1,863,178,981
Interest Expense 5 (1,283,578,463) (581,161,462)
Net Interest Income 2,102,351,532 1,282,017,519
Other Operating Income 6 9,083,471 13,055,079
Personnel Expenses (510,089,816) (347,153,793)
General & Administration Expenses (770,810,558) (522,979,493)
Depreciation and Amortization (14,975,538) (10,365,728)
Allowance for Impairment & Write Offs 7 (338,894,294) (64,757,825)
Profit from Operations 476,664,797 349,815,759
Value Added Tax (VAT) on Financial Services and NBT 8 (123,872,402) (89,430,784)
Profit Before Tax 9 352,792,395 260,384,975
Income Tax Expense 10 (132,865,385) (108,864,214)
Profit for the Year 219,927,010 151,520,761
Other Comprehensive Income
Items that will never be reclassified to profit or loss
Actuarial Gain/ (Losses) on defined benefit plan 27.1.3 2,965,243 (13,311,338)
Items that are or may be reclassified to profit or loss
Net change in fair value of available-for-sale financial assets 13.3 (1,961,799) (242,523)
Income tax recognised in other comprehensive income 28.1 (830,268) -
Total Other Comprehensive Income, net of tax 173,176 (13,553,861)
Total Comprehensive Income for the year 220,100,186 137,966,900
Basic and Diluted Earnings Per Share 11 2.08 1.43
The annexed notes to the financial statements on pages 50 through 92 form an integral part of these financial statements
Figures in brackets indicate deductions.
Statement of Profit or Loss and other Comprehensive Income
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Capital Reserves Revenue Reserves
For the year ended 31 March Stated Capital
Statutory Reserve Fund
Fair Value Reserve on
AFS
Retained Earnings
Total Equity
Rs. Rs. Rs. Rs. Rs.
Balance as at 1 April 2015 171,180,454 67,075,582 (146,947) 527,685,321 765,794,410
Comprehensive income for the year
Profit for the Year - - - 151,520,761 151,520,761
Actuarial losses on defined benefit plan - - - (13,311,338) (13,311,338)
Net change in fair value of available-for-sale financial assets - - (242,523) - (242,523)
- - (242,523) (13,311,338) (13,553,861)
Total comprehensive income for the year - - (242,523) 138,209,423 137,966,900
Transactions recorded directly in equity
Transfer to/ (from) during the year - 7,576,038 - (7,576,038) -
Total transactions recorded directly in equity - 7,576,038 - (7,576,038) -
Balance as at 31 March 2016 171,180,454 74,651,620 (389,470) 658,318,706 903,761,310
Balance as at 1 April 2016 171,180,454 74,651,620 (389,470) 658,318,706 903,761,310
Comprehensive income for the year
Profit for the Year - - - 219,927,010 219,927,010
Actuarial gain on defined benefit plan - - - 2,965,243 2,965,243
Net change in fair value of available-for-sale financial assets - - (1,961,799) - (1,961,799)
Tax on Other Comprehensive Income - - - (830,268) (830,268)
- - (1,961,799) 2,134,975 173,176
Total Comprehensive income for the year - - (1,961,799) 222,061,985 220,100,186
Transactions recorded directly in equity
Transfer to/ (from) during the year - 10,996,351 - (10,996,351) -
Total transactions recorded directly in equity - 10,996,351 - (10,996,351) -
Balance as at 31 March 2017 171,180,454 85,647,971 (2,351,269) 869,384,340 1,123,861,496
The annexed notes to the financial statements on pages 50 through 92 form an integral part of these financial statements
Figures in brackets indicate deductions.
Statement of Changes in Equity
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Cash Flow Statement
For the year ended 31 March 2017 2016
Note Rs. Rs.
Cash Flows from Operating ActivitiesProfit Before Tax 352,792,395 260,384,975 Adjustment for:Gain on sale of Property, Plant and Equipment - (1,470,000)Depreciation and amortization 21 14,975,538 10,365,728 Provision for employee benefits 27.1.2 6,055,060 4,311,599 Net impairment loss on financial assets 7 341,546,357 64,757,825 Investment Income 4 (117,411,272) (24,507,428)Interest Expense 5 1,283,578,463 577,931,525 Dividend Income 6 (64,350) (59,400)Provision made /(reversal) for repossess vehicles 7 (2,652,063) 3,570,578 Operating profit before working capital changes 1,878,820,128 895,285,401
Working capital changesIncrease in trade and other payables 1,458,758,062 3,960,338,597 (Increase)/decrease in investment in leases and hire purchases (4,152,684) 6,303,514 (Increase) in investment in advances and other loans (3,559,296,522) (4,925,460,253)Decrease in inventories 1,723,443 2,867,740 Decrease in trade and other receivables 7,916,467 475,727,187 Increase in deposits from customers 1,632,305,901 323,182,659 Cash generated from operations 1,416,074,795 738,244,846
Finance cost paid (1,296,618,476) (521,427,519)Income tax and Economic Service Charge paid 24 (138,161,317) (20,668,000)Employee Benefits Paid 27.1.1 (249,704) (3,137,604)Net cash (used in)/ generated from operating activities (18,954,702) 193,011,723
Cash Flows from Investing ActivitiesPurchase and acquisition of Property, Plant and Equipment 21 (85,650,928) (57,592,618)Net additions to investment securities (256,542,150) (745,606,303)Net investment in term deposits (349,077,329) -Proceeds from the sale of Property, Plant and Equipment/write off 415,843 3,066,439 Interest received 103,058,295 24,507,428 Dividend received 64,350 59,400Net cash flow used in investing activities (587,731,919) (775,565,654)
Cash Flows from Financing ActivitiesProceeds from long-term interest bearing loans and borrowings 200,000,000 2,234,118,997 Repayments of long-term interest bearing loans and borrowings 23 (90,108,666) (1,501,129,079)Net cash generated from financing activities 109,891,334 732,989,918
Net (decrease)/increase in cash and cash equivalents during the year (496,795,287) 150,435,987 Cash and cash equivalents at the beginning of the year 170,128,728 19,692,741 Cash and cash equivalents at the end of the year 12 (326,666,559) 170,128,728
Analysis of cash and cash equivalents at the end of the yearCash in hand and favourable bank balances 87,570,777 594,238,040 Unfavourable bank balances used for cash management purposes (414,237,336) (424,109,313)
(326,666,559) 170,128,728
The annexed notes to the financial statements on pages 50 through 92 form an integral part of these financial statements
Figures in brackets indicate deductions.
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Notes to the Financial Statements For the year ended 31 March
1. General
1.1 Corporate Information
BRAC Lanka Finance PLC was incorporated in January 1961 (Formerly known as Nanda Investment PLC) and registered under the Companies Act No. 07 of 2007 and Finance Leasing Act No 56 of 2000.The company has obtained license to carry on finance business under the finance business act no.42 of 2011 The Company’s registered office is No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya, Sri Lanka and the current principal place of business is situated at No.481 T.B. Jaya Mawatha, Colombo 10.
The Company is registered with the Central Bank of Sri Lanka as a Finance Company under the provision of the Finance Business Act No. 42 of 2011.
1.2 Parent entity and Ultimate Parent Company
The Company’s immediate parent entity is Commercial Leasing & Finance PLC and ultimate parent entity is Lanka Orix Leasing Company PLC, which are incorporated in Sri Lanka.
1.3 Principal Activities and Nature of Operations
The principal activities of the Company comprised of leasing, hire purchase, secured loans, Micro finance, property mortgaged loans and mobilization of public deposits. The company has more focus on Micro finance business during the financial year under review.
There were no significant changes in the nature of principal activities of the Company during the financial year under review.
1.4 Number of Employees
The staff strength of the company as at 31st March 2017 was 729 (31.03.2016 – 683).
2. Basis of Preparation
2.1 Statement of Compliance
The Financial Statements of the Company have been prepared in accordance with the Sri Lanka Accounting Standards (LKASs/SLFRSs) laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.7 of 2007.
The presentation of these Financial Statements is also in compliance with the requirements of the Finance Business Act no 42 of 2011 and the listing rules of the Colombo Stock Exchange.
2.2 Presentation of Financial Statements
The assets and liabilities of the company presented in the Statement of Financial Position are grouped by nature and listed in-order to reflect their relative liquidity and maturity pattern. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current) is presented in note 38 (Maturity analysis).
Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to off-set the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses are not offset in the Statement of Profit or Loss unless required or permitted by an accounting standard or an interpretation, and as specially disclosed in the accounting policies of the Company.
2.3 Basis of Measurement
The Financial Statements of the Company have been prepared on the historical cost basis and applied consistently with no adjustments being made for inflationary factors affecting the financial Statements, except for the following material items in the Statement of Financial Position;
• Non-derivative financial instruments classified as ‘Loans and receivables’ and ‘other financial liabilities’ measured at amortised cost.
• Financial instruments at Fair Value through Profit or Loss are measured at fair value.
• Derivative financial instruments are measured at fair value.
• Available-for-sale financial assets are measured at fair value.
• The liability for defined benefit obligations are measured at present value, based on an actuarial valuation as explained in note 27.
Land and buildings are measured at the revalued amounts.
2.4 Functional and presentation currency
The functional currency is the currency of the primary economic environment in which the entity operates. These Financial Statements are presented in Sri Lankan Rupees (LKR), which are the Company’s functional currency and the
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presentation currency. All financial information has been rounded to the nearest Rupee unless stated otherwise.
2.5 Use of Significant Judgments, Estimates and Assumptions
The preparation of the financial statements in conformity with SLFRSs/LKASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The respective carrying amounts of assets and liabilities are given in the related Notes to the Financial Statements.
Information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes to these Financial Statements;
Critical accounting estimate/judgment
Disclosure reference
Note
Financial Instruments – fair value
3.4.5
Useful lives of property, plant and equipment
3.9.1.7
Measurement of Deferred Tax Liability
28
Employee Benefits 27
Allowance for impairment 15.2 , 16.2 & 17.2,17.3
2.6 Comparative Information
The accounting policies have been consistently applied by the Company and are consistent with those used in the previous period. Comparative information has not been reclassified or restated.
2.7 Materiality and Aggregation
As per LKAS – 01 “Presentation of Financial Statements”, each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.
2.8 Going Concern
The Board of Directors is satisfied that the Company has adequate resources to continue its operations in the foreseeable future and management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, going-concern basis has been adopted in preparing these Financial Statements.
2.9 Directors’ Responsibility for the Financial Statements
The Board of Directors is responsible for the preparation and fair presentation of these Financial Statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
These Financial Statements include the following components;
• A Statement of Financial Position providing the information on the financial position of the Company as at the year-end;
• A Statement of Profit or Loss providing the information on the financial performance of the Company for the year under review;
• A Statement of Other Comprehensive Income providing the information of the other comprehensive income of the Company;
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Notes to the Financial Statements
• A Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Company;
• A Statement of Cash Flows providing the information to the users, on the ability of the Company to generate cash and cash equivalents and the needs of entities to utilize those cash flows, and
• Notes to the Financial Statements comprising Accounting Policies and other explanatory information.
2.10 Approval of Financial Statements by the Board of Directors
The Financial Statements of the Company for the year ended 31 March 2017 (including comparatives) were approved and authorized for issue by the Board of Directors on 31 May 2017.
2.11 New Accounting Standards Issued but Not Effective at Reporting Date
Certain new accounting standards and amendments / improvements to existing standards have been published, that are not mandatory for 31 March 2017 reporting periods. None of those have been early adopted by the Company.
SLFRS 9 Financial Instruments
Summary of the Requirements
SLFRS 9, replaces the existing guidance in LKAS 39 – Financial Instruments: Recognition and Measurement. SLFRS 9 contains three principal classification categories for financial assets – i.e. measured at amortised cost, fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL). The existing LKAS 39 categories of Held-to-maturity, Loans and receivables and Available-for-sale are removed.
SLFRS 9 replaces the ‘incurred loss’ model in LKAS 39 with an ‘expected credit loss’ model. The new model applies to financial assets that are not measured at FVTPL.
The model uses a dual measurement approach, under which the loss allowance is measured as either:
- 12 month expected credit loss; or
- Lifetime expected credit losses.
The measurement basis will generally depend on whether there has been a significant increase in credit risk since initial recognition.
A simplified approach is available for trade receivables, contract assets and lease receivables, allowing or requiring the recognition of lifetime expected credit losses at all times. Special rules apply to assets that are credit impaired at initial recognition. The new standard carries guidance on new general hedge accounting requirements.
SLFRS 9 introduces new presentation requirements and extensive new disclosure requirements. Effective date of SLFRS 9 is for period beginning on or after January 01, 2018.
Possible Impact on Financial Statements
The company has completed the initial high level assessment of the potential impact on its Financial Statements resulting from the application of SLFRS 9.
As the next step the company will establish a business model test and cash flow characteristics test to identify the categories of financial assets.
For the purpose of determining impairment the company needs to build a model with appropriate methodologies and controls to ensure that proper judgment is exercised to assess recoverability of loans and make robust estimates of expected credit losses and point at which there is significant increase in credit risk. Judgment will need to be applied to ensure that the measurement of expected credit losses reflects reasonable and supportable information.
Given the nature of the company’s operations, this standard is expected to have a pervasive impact on the company’s financial statements. In particular, calculation of impairment of financial instruments on an expected credit loss model is expected to result in an increase in the overall level of impairment allowances.
SLFRS 15 Revenue from Contracts with Customers
Summary of the Requirements
SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
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SLFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
Possible Impact on Financial Statements
The Company does not expect significant impact on its Financial Statements resulting from the application of SLFRS 15
SLFRS 16 – ‘Leases’
Summary of the Requirements
SLFRS 16 eliminates the current dual accounting model for lessees which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead there will be a single on-balance sheet accounting model that is similar to current finance lease accounting.
SLFRS 16 is effective for annual Reporting periods beginning on or after January 01, 2019.
Possible Impact on Financial Statements
The Company is assessing the potential impact on its Financial Statements resulting from the application of SLFRS 16.
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these Financial Statements unless otherwise indicated.
3.1 Reporting Date
The Company financial year end is 31st March.
3.2 Foreign Currency
3.2.1 Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective functional currency (Sri Lankan Rupees-LKR) at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items are the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising on retranslation are recognized in Statement of Profit or Loss.
3.3. Financial Assets and Financial Liabilities
3.3.1. Non-derivative financial assets
3.3.1.1. Initial recognition of financial assets
Date of recognition
The Company initially recognizes loans and receivables and deposits with other financial institutions on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
Initial measurement of financial assets
The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. All financial instruments are measured initially at their fair value plus transaction costs that are directly attributable to acquisition or issue of such financial instrument, except in the case of financial assets at fair value through profit or loss as per the Sri Lanka Accounting Standard – LKAS 39 on ‘Financial Instruments: Recognition and Measurement’.
Transaction cost in relation to financial assets at fair value through profit or loss are dealt with through the statement of profit or loss.
‘Day 1’ profit or loss on employee loans below market rates.
When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Company recognises the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in ‘Interest Income and Personnel Expenses’.
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Notes to the Financial Statements
In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the profit or loss when the inputs become observable, or when the instrument is derecognised. The ‘Day 1 loss’ arising in the case of loans granted to employees at concessionary rates under uniformly applicable schemes is deferred and amortised using Effective Interest Rates (EIR) over the remaining service period of the employees or tenure of the loan whichever is shorter.
3.3.1.2. Classification of financial assets
The Company classifies non-derivative financial assets into the following categories:
• financial assets at fair value through profit or loss;
• held-to-maturity financial assets;
• loans and receivables; and
• available- for-sale financial assets.
3.3.1.3. Subsequent measurement of financial assets
The subsequent measurement of financial assets depends on their classification.
Financial assets at fair value through profit or loss
A financial asset is classified as fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s investment strategy. Attributable transaction costs are recognized in statement of profit or loss as incurred.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of profit or loss.
Financial assets at fair value through profit or loss comprises of quoted equity instruments and unit trusts unless otherwise have been classified as available-for-sale.
Held-to-maturity financial assets
Financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Company has the
positive intention and ability to hold it to maturity. Held-to-maturity financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held to-maturity financial assets are measured at amortized cost using the effective interest method, less any impairment losses.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (EIR). The EIR amortization is included in interest income in the Statement of Profit or Loss and Other Comprehensive Income. The losses arising from impairment are recognized as impairment cost in the Statement of Profit or Loss and Other Comprehensive Income. The Company has not classified any instrument as held to maturity.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.
Loans and receivables comprise of cash and cash equivalents, deposits with banks and other financial institutions, investments in Standing Deposit Facilities (REPO’s), lease receivables, hire purchase receivables, advances and other loans granted amount due from related parties and other receivables.
- Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments.
- Finance leases and hire purchase
When the Company is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the asset to the lessee, the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognized. Amounts
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receivable under finance leases are included under “Rentals receivable on leased assets”. Leasing balances are stated in the statement of financial position after deduction of initial rentals received, unearned lease income and the provision for impairment losses.
- Advances and other loans to customers
Advances and other loans to customers comprised of revolving loans and loans with fixed instalment. Loans to customers are reflected in the Statement of Financial Position at amounts disbursed less repayments and provision for impairment losses.
- Financial guarantees
Financial guarantees are contracts that require the Company to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. The Company in its normal course of the business issues guarantees on behalf of the depositors, holding the deposit as collateral.
Available-for-sale financial assets
‘Available-for-sale investments’ are non-derivative investments that are designated as available-for-sale or are not classified as another category of financial assets. Available-for-sale investments comprise equity securities and debt securities. Unquoted equity securities whose fair value cannot be measured reliably are carried at cost. All other available-for-sale investments are measured at fair value after initial recognition.
Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Company becomes entitled to the dividend. Impairment losses are recognised in profit or loss.
Other fair value changes, other than impairment losses, are recognised in OCI and presented in the AFS reserve within equity. When the investment is sold, the gain or loss accumulated in equity is reclassified to profit or loss.
3.3.2 Non-derivative financial liabilities
Classification and subsequent measurement of financial liabilities
The Company initially recognizes non-derivative financial liabilities on the date that they are originated.
The Company classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Other financial liabilities comprise of bank overdrafts, interest bearing borrowings, customer deposits, trade payables, accruals & other payables and amounts due to related parties:
- Bank overdrafts
Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
- Deposits and bank borrowings
classified as other financial liabilities carried at amortized cost Deposits and bank borrowings are the Company’s sources of debt funding. The Company classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. Subsequent to initial recognition deposits and bank borrowings are measured at their amortized cost using the effective interest method.
3.3.3. Reclassification of financial assets and liabilities
The Company reclassifies non-derivative financial assets out of the ‘held-for-trading’ category and into the ‘available-for-sale’, ‘loans and receivables’, or ‘held-to-maturity’ categories as permitted by the Sri Lanka Accounting Standard – LKAS 39 on ‘Financial Instruments: Recognition and Measurement’. Further, in certain circumstances, the Company is permitted to reclassify financial instruments out of the ‘available-for-sale’ category and into the ‘loans and receivables’ category.
Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost. Reclassification is at the election of the Management and is determined on an instrument-by-instrument basis. The Company does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. Further, the Company does not reclassify any financial instrument out of the fair value through profit or loss category if upon initial recognition it was designated as at fair value through profit or loss.
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Notes to the Financial Statements
No reclassifications of financial instruments were done during the year.
3.4. De-recognition of financial assets and financial liabilities
3.4.1. Financial assets
The Company derecognises a financial asset when the rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either.
(a) The Company has transferred substantially all the risks and rewards of the asset, or
(b) The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of;
(i) The consideration received (including any new asset obtained less any new liability assumed) and
(ii) Any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.
3.4.2. Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expired.
3.4.3. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Income and expenses are presented on a net basis only when permitted under SLFRSs, or for gains and losses arising from a group of similar transactions such as in the company’s trading activity.
3.4.4. Amortized cost measurement
The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.
3.4.5. Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.
When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Company establishes fair value using valuation techniques. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and other equity pricing models.
The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Company, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between
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this price and the value initially obtained from a valuation model is subsequently recognized in Statement of Financial position.
3.4.6 Valuation of Financial Instruments
The Company measures the fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.
Level 1 – Quoted market price (unadjusted) in an active market of an identical instrument.
Level 2 – Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices), this category included instruments valued using: quoted market prices in active markets similar instruments; quoted prices for identical or similar instruments in markets are considered less than active: or other valuation techniques where all significant inputs are directly observable from market data.
Level 3 – Valuation techniques use significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques.
Valuation techniques include comparison to similar instruments for which market observable prices exist, other equity pricing models and other valuation models.
The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.
The Company widely recognized valuation models for determining the fair value of common and more simple financial instruments. Observable prices and model inputs are usually available in the market for listed debt and equity securities. Availability of observable market inputs reduces the need of management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets are is prone to changes based on specific events and general conditions in the financial markets.
3.5. Impairment of Financial Instruments
At each reporting date the Company assesses whether there is objective evidence that financial assets not carried at fair value through Profit or Loss are impaired. A financial asset or a Group of financial assets is (are) impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include:
• significant financial difficulty of the borrower or issuer,
• default or delinquency by a borrower
• restructuring of a loan or advance by the Company on terms that the Company would not otherwise consider
• indications that a borrower or issuer will enter bankruptcy,
• the disappearance of an active market for a security
• other observable data relating to a Group of assets such as adverse changes in the payment status of borrowers or issuers in the Company of economic conditions that correlate with defaults in the Company.
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
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Notes to the Financial Statements
3.5.1 Impairment of Financial Assets carried at Amortized Cost
The Company considers evidence of impairment for loans and advances at both a specific and collective basis. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified.
Loans and advances that are not individually significant are collectively assessed for impairment by grouping them together with similar risk characteristics based on product types.
In assessing collective impairment the Company uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly taken into account to ensure that they remain appropriate.
Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognized in Profit or Loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through Profit or Loss.
3.5.2. Impairment of Financial Investments - Available for Sale
Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss
recognised previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.
In the case of equity investments classified as available for sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the Statement of profit or loss is removed from equity and recognized in the Statement of Profit or Loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in Other Comprehensive Income as reversal of impairment loss.
If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in Profit or Loss, the impairment loss is reversed, with the amount of the reversal recognized in Profit or Loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in Other Comprehensive Income. The Company writes off certain loans and advances and investment securities when they are determined to be uncollectible.
3.6 Accounting for Derivative Financial Instruments
Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, or using valuation techniques. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
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3.7. Reclassification of Financial Instruments
The Company reclassifies non-derivative financial assets out of the ‘held for trading’ category and into the ‘available-for-sale’, ‘loans and receivables’ or ‘held to maturity’ categories as permitted by LKAS 39. Further, in certain circumstances, the Company is permitted to reclassify financial instruments out of the ‘available-for-sale’ category and into the ‘loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.
For a financial asset with a fixed maturity reclassified out of the ‘available-for-sale’ category, any previous gain or loss on that asset that has been recognized in equity is amortised to Profit or Loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using EIR. In the case of a financial asset does not have a fixed maturity, the gain or loss is recognized in the Profit or Loss when such a financial asset is sold or disposed of. If the financial asset is subsequently determined to be impaired, then the amount recorded in equity is recycled to the Statement of Comprehensive Income.
The Company may reclassify a non-derivative trading asset out of the ‘held for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Company subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate. Reclassification is at the election of management, and is determined on an instrument-by-instrument basis.
3.8 Leases
The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement at the inception and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
3.8.1. Finance Leases
Finance leases – Company as a lessee
Finance leases that transfer to the Company substantially all of the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance cost in the statement of profit or loss.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Finance leases – Company as a lessor
When the Company is the lessor under finance leases the amounts due under the leases, after deduction of unearned charges, are included in “Rentals receivable on leased assets”. The finance income receivable is recognised in ‘interest income’ over the periods of the leases so as to give a constant rate of return on the net investment in the leases.
3.8.2. Operating Leases
Leases that do not transfer substantially all the risks and benefits incidental to ownership of the leased items to the lessee are operating leases.
Operating leases – Company as a lessee
Operating lease payments are recognized as an expense in the statement of profit or loss on a straight line basis over the lease term. Contingent rent payable is recognized as an expense in the period in which they are incurred.
Operating leases – Company as a lessor
Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
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Notes to the Financial Statements
3.9 Property, Plant and Equipment
3.9.1 Freehold Property, Plant & Equipment
3.9.1.1 Basis of Recognition
Property, plant and equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the Company and cost of the asset can be reliably measured.
3.9.1.2 Basis of Measurement
Items of property, plant and equipment are measured at cost/revaluation less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
3.9.1.3 Cost Model
The Company applies the cost model to all property, plant and equipment except freehold land and buildings; which records at cost of purchase together with any incidental expenses thereon less any accumulated depreciation and accumulated impairment losses if any.
3.9.1.4 Revaluation Model
The Company revalues its land and buildings which are measured at its fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.
On revaluation of lands and buildings, any increase in the revaluation amount is credited to the revaluation reserve through other comprehensive income in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognized in the Statement of Profit or Loss. A decrease in value is recognized in the Statement of Profit or Loss where it exceeds the increase previously recognized in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to
retained earnings and is not taken into account in arriving at the gain or loss on disposal
3.9.1.5 Subsequent Costs
Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance are expensed as incurred.
3.9.1.6 Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognized in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognized and presented in the revaluation reserve in equity. Any loss is recognized immediately in profit or loss.
3.9.1.7 Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Lands are not depreciated.
Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is de-recognized. Depreciation methods, useful life values are assessed at the reporting date. The estimated useful lives for the current year are as follows:
Free hold building 10 years
Furniture and Fittings 10 years
Office Equipment 10 years
Free-hold motor Vehicles 04 years
Plant and Machinery 03 years
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3.9.1.8 De-recognition
An item of property, plant and equipment is de-recognized upon disposal or when no future economic are expected from its use or disposal.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognized net within other income/other expenses in the Statement of Profit & Loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.
3.10 Impairment of Non-financial Assets
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.
The Company’s corporate assets do not generate separate cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the corporate asset is allocated.
Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.
An impairment loss recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
3.11 Tax expense
Tax expense comprises current, deferred tax and other statutory taxes. Income tax and deferred tax expense is recognized in Statement of Profit or Loss except to the extent that it relates to items recognized in the Statement of Other Comprehensive Income or Statement of Changes in Equity.
3.11.1 Current tax expense
Current tax is the expected tax payable or recoverable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the tax on dividend income.
The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act. No 10 of 2006 and subsequent amendments thereto.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue.
3.11.2 Deferred tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
• temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the extent that the company is able to control the timing of the reversal of the temporary difference, it is probable that they will not reverse in the foreseeable future; and
• taxable temporary differences arising on the initial recognition of goodwill.
• taxable temporary differences arising on subsidiaries, associates or joint ventures who have not distributed their entire profits to the parent or investor.
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Notes to the Financial Statements
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are not discounted.
The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognized as deferred tax expense and conversely any net decrease is recognized as reversal to deferred tax expense, in the Statement of Profit or Loss.
3.11.3 Withholding Tax on Dividends
Dividend distributed out of taxable profit of the local companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognized at the same time as the liability to pay the related dividend is recognized.
3.11.4 Economic Service Charge (ESC)
As per the provisions of Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the five subsequent years as per the relevant provision in the Act.
3.11.5 Nation Building Tax (NBT)
As per the provisions of the Nation Building Tax Act, No. 9 of 2009 and the subsequent amendments
thereto, Nation Building Tax should be payable at the rate of 2% with effect from 1 January 2011 on the liable turnover as per the relevant provisions of the Act.
3.11.6 Value Added Tax on Financial Services (VAT on FS)
VAT on Financial Services is calculated in accordance with the amended VAT Act No. 7 of 2003 and subsequent amendments thereto. The base for the computation of VAT on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees. VAT on financial services is computed on the prescribed rate of 15%.
The VAT on Financial service is recognized as expense in the period it becomes due.
3.11.7 Crop Insurance Levy (CIL)
As per the provisions of the Section 14 of the Finance Act No. 12 of 2013, the CIL was introduced with effect from April 01, 2013 and is payable to the National Insurance Trust Fund. Currently, the CIL is payable at 1% of the profit after tax.
3.12. Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalized as part of the assets.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.
3.13 Other Non-Financial Liabilities and Provisions
Liabilities are recognized in the Statement of Financial Position when there is a present obligation as a result of a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Obligations payable at the demand of the creditor within one year of the reporting date are treated as current liabilities. Liabilities payable after one year from the reporting date are treated as non-current liabilities.
3.14 Deposits due to Customers
Deposits include term deposits and saving deposits. They are stated in the Statement of Financial Position at amount payable. Interest paid
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/ payable on these deposits based on effective interest rate is charged to the Statement of Profit or Loss.
3.15 Deposit Insurance Scheme
In terms of the Finance Companies Direction No 2 of 2010 “Insurance of Deposit Liabilities” issued on 27th September 2010, all Registered Finance Companies are required to insure their deposit liabilities in the Deposit Insurance Scheme operated by the Monetary Board in terms of Sri Lanka Deposit Insurance Scheme Regulations No 1 of 2010 issued under Sections 32A to 32E of the Monetary Law Act with effect from 1st October 2010.
Deposits to be insured include time and savings deposit liabilities and exclude the following.
• Deposit liabilities to member institutions
• Deposit liabilities to Government of Sri Lanka
• Deposit liabilities to shareholders, directors, key management personnel and other related parties as defined in Finance Companies Act Direction No 03 of 2008 on Corporate Governance of Registered Finance Companies
• Deposit liabilities held as collateral against any accommodation granted
• Deposit liabilities falling within the meaning of dormant deposits in terms of the Finance Companies Act, funds of which have been transferred to Central Bank of Sri Lanka
Registered Finance Companies are required to pay a premium of 0.15% on eligible deposit liabilities as at end of the month to be payable within a period of 15 days from the end of the respective month.
3.16 Debt Securities Issued
These represent the funds borrowed by the Company for long-term funding requirements. Subsequent to initial recognition debt securities issued are measured at their amortised cost using the effective interest method, except where the Company designates debt securities issued at fair value through profit or loss. Interest paid/payable is recognised in profit or loss.
3.17 Other Liabilities
Other liabilities are recorded at amounts expected to be payable at the Reporting date.
3.18 Employee Benefits
3.18.1 Defined Contribution Plans
A Defined Contribution Plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in the Statement of Comprehensive Income in the periods during which services are rendered by employees.
3.18.1.1 Employees’ Provident Fund (EPF)
The Company and employees contribute 15% and 10% respectively on the salary of each employee to the above mentioned funds.
3.18.1.2 Employees’ Trust Fund (ETF)
The Company contributes 3% of the salary of each employee to the Employees’ Trust Fund.
3.18.2 Defined Benefits Plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted.
The calculation is performed every year by a qualified actuary using the projected unit credit method. For the purpose of determining the charge for any period before the next regular actuarial valuation falls due, an approximate estimate provided by the qualified actuary is used.
When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss.
The Company recognizes all actuarial gains and losses arising from the defined benefit plan in other comprehensive income (OCI) and all other expenses related to defined benefit plans are recognize as personnel expenses in Statement of Profit or Loss. This retirement benefit obligation is not externally funded.
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Notes to the Financial Statements
However, according to the Payment of Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company.
3.18.2.1 Short-term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus, if the company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
3.19 Provisions, Contingent Assets and Contingent Liabilities
Provisions are made for all obligations (legal or constructive) existing as at the reporting date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. The amount recognized is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation at that date.
All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.
Statement of Profit or Loss and Other Comprehensive Income
3.20 Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment.
3.20.1 Interest Income on Leases, Hire Purchases, Loans and Advances
Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial
asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.
The calculation of the effective interest rate includes all transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.
Interest income and expense presented in the Statement of Profit or Loss includes,
• interest on financial assets and financial liabilities measured at amortized cost calculated on an effective interest basis
• interest on available for sale investment securities calculated on an effective interest basis
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Company’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.
Fair value changes on other derivatives held for risk management purposes, and other financial assets and liabilities carried at fair value through profit or loss, are presented in net income from other financial instruments at fair value through profit or loss in the Statement of Profit or Loss.
The excess of aggregated contract receivable over the cost of the assets constitutes the total unearned income at the commencement of a contract. The unearned income is recognized as income over the term of the facility commencing with the month that the facility is executed in proportion to the declining receivable balance, so as to produce a constant periodic rate of return on the net investment.
3.20.2 Service charge and facility fee from micro finance facilities
Collection on service charge and facility fee from micro finance facilities are accounted on cash basis.
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3.20.3 Fees and Other Income
Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees are recognized as the related services are performed.
Profit or loss on contracts terminated, collections on contracts written off, interest on overdue rentals, interest earned on property sale and buy back agreements are accounted for on cash basis.
3.20.4 Net income from other financial instruments at fair value through Profit or Loss
Net income from other financial instruments at fair value through profit or loss relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedge relationships and financial assets and liabilities designated at fair value through profit or loss, and include all realized and unrealized fair value changes, interest, dividends and foreign exchange differences.
3.20.5 Other Income
Rent income and non-operational interest income are accounted for on accrual basis.
Dividend income is recognized when the right to receive payment is established.
Gain on disposal of property, plant and equipment and other non-current assets, including investments held by the Company have been accounted for in the Statement of Profit or Loss, after deducting from the net sales proceeds on disposal of the carrying amount of such assets.
3.21 Expenses Recognition
Expenses are recognized in the Statement of Profit or Loss on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant & equipment in a state of efficiency has been charged to income in arriving at the profit for the year.
For the presentation of the Statement of Profit or Loss the Directors are of the opinion that the nature of the expenses method present fairly the
element of the Company’s performance, and hence such presentation method is adopted.
3.22 Earnings per Share
The Company presents basic earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.
3.23 Statement of Cash Flow
The Statement of Cash Flows has been prepared using the ‘Indirect Method’ of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 7 “Cash Flow Statements.” Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
Cash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.
3.24 Movement of Reserves
Movement of Reserves is disclosed in the Statement of Changes in Equity.
3.25 Related Party Transactions
Transactions with related parties are conducted on normal business terms. The relevant disclosures are given in Notes 37 to the Financial Statements.
3.26 Transactions with Related Parties
The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 24.
3.26.1 Transactions with Key Management Personnel
According to Sri Lanka Accounting Standard 24 “Related Party Disclosures”, Key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the company has pre-defined approved list of key management personnel.
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Notes to the Financial Statements
3.27 Operating Segments
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments operating results are reviewed regularly by Board of Directors of the Company to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.
Accordingly, the segment comprises of financial services are described in Note 38.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Expenses that cannot be directly identified to a particular segment are allocated on bases decided by the management and applied consistently throughout the year.
3.28 Subsequent Events
All material subsequent events have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements.
3.29 Commitments and Contingencies
All discernible risks are accounted for in determining the amount of all known liabilities. Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent Liabilities are not recognized in the statement of financial position but are disclosed unless they are remote.
3.30. Financial risk management
3.30.1. Overview
The Company has exposure to the following risks from its use of financial instruments:
- Credit risk
- Liquidity risk
- Market risk
This note presents information about the Company’s exposure to each of the above risks, the
Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.
Further quantitative disclosures are included throughout these Financial Statements.
3.30.2. Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has established the Integrated Risk Management Committee (IRMC), which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
The Company’s risk management policies are established to identify and analyses the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. All the Company level risks are escalated to the parent company IRMC and the Board. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.
The Company Audit Committee oversees the reports submitted by the Enterprise Risk Management and monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced. The Company Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
3.30.3. Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to financial instruments fails to meet its contractual obligations. Credit risk is mainly arising from Company’s receivable from customers and investment in debt securities.
a) Allowances for impairment
Credit risk is managed by evaluating the credit worthiness and by periodical review on the credit granted.
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The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of customer receivables. The Company policy on impairment consists of allowance for individual impairment that identified based on specific loss event and a collective impairment established for similar receivables in term of their Credit risk on product basis where the loss event have incurred but not yet identified. The collective impairment is determined based on the historical data of payments statistics for similar financial assets.
a) Write-off policy
The Company writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when the Board of Directors determines that the loan or security is uncollectible. This determination is made after considering information such as occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, write-off decisions generally are based on a product-specific past due status.
The Company holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral usually is not held against investment securities, and no such collateral was held as at 31 March 2017 (2016: no collateral held).
An estimate made at the time of borrowing / at the time of impairment evaluation, of the fair value of collateral and other security enhancements held against loans and advances to customers is shown below;
Fair value of collaterals at the time of borrowings
2017 2016
Rs. Mn Rs. Mn
Against collectively impaired
211 434
Value of the possession of collaterals
8 4
Total 219 438
c) Management of credit risk
The Board of Directors has delegated responsibility for the oversight of credit risk to its Company Credit Department. Credit department, reporting to the Company Credit Committee, is responsible for management of the Company’s credit risk, including:
1. Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment and reporting, documentary and legal procedures and compliance with regulatory and statutory requirements.
2. Establishing the authorization structure for the approval and renewal of credit facilities. Authorization limits are allocated to business unit Credit Officers. Larger facilities require approval by Credit Committee and the board of directors as appropriate.
3. Reviewing and assessing credit risk. Company Credit assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.
4. Monitoring limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances).
5. Reviewing compliance of business units with agreed exposure limits, including those for selected industries, and product types.
6. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Company in the management of credit risk.
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Notes to the Financial Statements
3.30.3.1. Credit quality by class of financial assets
As at 31 March 2017 Current Overdue Individually impaired
Total Gross carrying amount (Net of
provision)
Net exposure
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Assets
Cash and cash equivalents 88 - - 88 88 88
Investment securities 1,107 - - 1,107 1,107 1,107
Finance lease receivables and hire purchases (Gross)
120 16 - 137 109 5
Advances and other loans (Gross) 11,000 196 (80) 11,196 11,015 11,184
Trade and other current assets 77 - - 77 77 77
Total financial assets 12,392 212 (80) 12,605 12,396 12,461
Age analysis of facilities considered for collective impairment as at 31 March 2017
Overdue
Description Less than 30 days
30 to 60 days
60 to 90 days
More than 90 days
Total
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Finance lease receivables and hire purchases 1 1 1 13 16
Advances and other loans 22 55 23 95 196
Total 23 57 24 108 212
3.30.3.2. Credit quality by class of financial assets
As at 31 March 2016 Current Overdue Individually impaired
Total Gross carrying amount (Net of
provision)
Net exposure
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Assets
Cash and cash equivalents 594 - - 594 594 594
Investment securities 853 - - 853 853 853
Finance lease receivables and hire purchases (Gross)
96 36 - 132 90 -90
Advances and other loans (Gross) 7,312 554 - 7,866 7,812 7,655
Trade and other current assets 70 - - 70 70 70
Total financial assets 8,925 590 - 9,515 9,419 9,082
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BRAC Lanka Finance PLC Annual Report 2016/17
Age analysis of facilities considered for collective impairment as at 31 March 2016
Overdue
Description Less than 30 days
30 to 60 days
60 to 90 days
More than 90 days
Total
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Finance lease receivables and hire purchases 2 3 2 30 36
Advances and other loans 453 40 11 49 554
Total 455 43 13 79 590
3.30.4. Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.
The Company uses the maturity analysis all the financial instruments to manage the liquidity risk.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking the financial position of the Company while maintaining regulatory requirements and debt covenants agreed with the fund providers. The treasury manages the liquidity position as per the treasury policies and procedures.
The treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, funding arrangements, to ensure that sufficient liquidity
is maintained within the Company. The liquidity requirements of business units are discussed at Company ALCO meetings (Asset Liability Committee) and are arranged by the Treasury.
The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by ALCO. Daily reports cover the liquidity position of the Company. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO.
The Company relies on issued debt securities such as borrowing as its primary sources of funding. Company actively manages this risk through maintaining competitive pricing and constant monitoring of market trends.
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Notes to the Financial Statements
The maturity analysis of financial liabilities based on undiscounted gross outflow is reflected below,
As at 31 March 2017 Carrying amounts
Gross nominal(outflows)/
inflows
Up to 3 months
3 to 12 months
More than 1 year
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Cash and Cash Equivalents 88 88 88 - -
Investment Securities 1,107 1,107 575 530 3
Finance Lease Receivables and Hire Purchases 109 137 69 13 54
Advances and Other Loans 11,015 11,196 4,284 5,297 1,615
Trade and Other Current Assets 88 - - 83 4
12,406 12,527 5,016 5,923 1,676
Bank overdraft 414 414 414 - -
Deposit from customers 2,813 2,813 2,025 613 176
Interest bearing borrowings 2,050 2,050 1,706 345 -
Trade and other payables 6,357 6,357 2,094 1,053 3,210
11,634 11,634 6,238 2,011 3,385
Liquidity gap 893 (1,222) 3,912 (1,709)
As at 31 March 2016 Carrying amounts
Gross nominal(outflows)/
inflows
Up to 3 months
3 to 12 months
More than 1 year
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Cash and Cash Equivalents 594 594 594 - -
Investment Securities 853 853 850 - 3
Finance Lease Receivables and Hire Purchases 90 132 34 28 70
Advances and Other Loans 7,812 7,866 2,667 4,884 316
Trade and Other Current Assets 80 80 - 80 -
9,429 9,525 4,121 4,992 388
Bank overdraft 424 424 424 - -
Deposit from customers 417 417 95 202 120
Interest bearing borrowings 1,936 1,936 502 - 1,434
Trade and other payables 5,670 5,670 825 1,580 3,265
8,446 8,446 1,846 1,782 4,819
Liquidity gap 1,056 2,276 3,211 (4,430)
3.30.5. Market risk
The Company is exposed to market risk due to changes foreign exchange rates and interest rates. Company exposure to foreign currency is mainly due to the loans and borrowings obtained from foreign funding partners. The Company manages its exposure to the foreign exchange rates by entering in to forward rate contracts with
the banks. In this way the Company eliminates substantial exposure on foreign currency risk. The Company ensures the mix of variable and fixed rate borrowings to manage the exposure due to interest rate movement in the market. These are monitored by the Group treasury division.
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BRAC Lanka Finance PLC Annual Report 2016/17
3.30.5.1. Sensitivity Analysis
An analysis of the Company’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position for 2017, is as follows.
Item Up to 3 months
4 to 12 months
1 to 5 years
More than 5 years
Total as at 31 March 2017
Interest earning assets
Cash and cash equivalents 88 - - - 88
Investment in securities 575 530 3 - 1,107
Finance lease receivables and hire purchases (Gross) 69 13 54 - 137
Advances and other loans (Gross) 4,284 5,297 1,613 2 11,196
Total interest earning assets 5,016 5,839 1,670 2 12,528
Interest bearing liabilities
Bank overdraft 414 - - - 414
Interest bearing borrowings 1,706 345 - - 2,050
Deposit from customers 2,025 613 175 0.2 2,813
Related party payable 2,066 1,000 3,210 - 6,275
Total interest bearing liabilities 6,211 1,957 3,385 0.2 11,552
Gap in interest earning assets and interest bearing liabilities - net assets / (liabilities) (1,194) 3,882 (1,714) 1.80 975
Effect on profitability by 1 percent increase in interest rates - increase / (decrease) in profits - annualized effect (11) 38 (17) 0.18
Effect on profitability by 1 percent decrease in interest rates - increase / (decrease) in profits - annualized effect 11 (38) 17 -0.18
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Notes to the Financial Statements
3.30.5.2. Sensitivity Analysis
An analysis of the Company’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position for 2016, is as follows.
Item Up to 3 months
4 to 12 months
1 to 5 years
More than 5 years
Total as at 31 March 2016
Interest earning assets
Cash and cash equivalents 594 - - - 594
Investment in Securities 850 - 3 - 853
Finance lease receivables and hire purchases (Gross) 34 28 70 0 132
Advances and other loans (Gross) 2,667 4,884 312 4 7,866
Total interest earning assets 4,145 4,912 384 4 9,446
Interest bearing liabilities
Bank Overdraft 415 - - - 415
Interest Bearing Borrowings 502 - 1,434 - 1,936
Deposit from Customers 95 202 120 - 417
Related Party Payable 602 1,000 3,232 4,834
Total interest bearing liabilities 1,614 1,202 4,786 - 7,601
Gap in interest earning assets and interest bearing liabilities - net assets/ (liabilities) 2,531 3,711 (4,401) 4
Effect on profitability by 1 percent increase in interest rates - increase /(decrease) in profits - annualized effect 25 37 (44) 0.4
Effect on profitability by 1 percent decrease in interest rates - increase/ (decrease) in profits - annualized effect (25) (37) 44 (0.4)
3.31. Capital Management
The Company’s capital management is performed primarily considering regulatory capital.
The Company’s lead regulator, the Central Bank of Sri Lanka (CBSL) sets and monitors capital requirements for the Company.
The Company is required to comply with the provisions of the Finance Companies (Capital Funds) Direction No.01 of 2003, Finance Companies (Risk Weighted Capital Adequacy Ratio) Direction No.02 of 2006 and Finance Companies (Minimum Core Capital) Direction No.01 of 2011 in respect of regulatory capital.
The Company’s regulatory capital consists of tier 1 capital, which includes ordinary share capital, retained earnings and statutory reserves. Other negative reserves are included under prudence basis.
The Company’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Company recognizes the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.
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BRAC Lanka Finance PLC Annual Report 2016/17
The Company’s regulatory capital under the CBSL guidelines is as follows;
Capital element As at 31-03-2017
As at 31-03-2016
Rs. Mn Rs. Mn
Ordinary share capital 171 171
Statutory reserve 86 75
Retained earnings 869 658
Other negative reserve (AFS) (2.4) (0.4)
Tier I capital 1,124 904
Approved Subordinated Term Debt 88 33
Tier II capital 1,212 937
Total capital 1,212 937
3.32. Financial assets and liabilities
3.32.1. Accounting classifications and carrying value
As at 31 March 2017 Fair value – derivatives
Fair value through other
comprehensive income – available
for sale
Amortized cost - Loans and
receivable
Total carrying amount
Fair value Fair valuehierarchy
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Cash and cash equivalents - - 88 88 88 -
Investment securities
-Measured at fair value ( Level II)
- 532 - 532 532 Level II
-Measured at fair value (Level III) - 0.011 - 0.011 0.011 Level III
-Measured at amortized cost - - 575 575 575 -
Finance lease receivables and hire purchases - - 109 109 149 -
Advances and other loans - - 11,015 11,015 11,286 Level -III
Trade and other current assets
- - 83 83 83 -
Total financial assets - 532.011 11,870 12,402.011 12,713.011
Bank overdrafts - - 414 414 414 -
Deposit from customers - - 2813 2,813 2,813 -
Interest bearing borrowings - - 2,050 2,050 2,050 -
Trade and other payables - - 6,357 6,357 6,357 -
Total Financial liabilities - - 11,634 11,634 11,634
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74
Notes to the Financial Statements
3.32. Financial assets and liabilities (Contd.)
3.32.1. Accounting classifications and carrying value (Contd.)
As at 31 March 2016 Fair value – derivatives
Fair value through other
comprehensive income – available
for sale
Amortized cost - Loans and
receivable
Total carrying amount
Fair value Fair valuehierarchy
Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn Rs. Mn
Cash and cash equivalents - - 594 594 594 -
Investment securities
-Measured at fair value ( Level II) - 3 - 3 3 Level - II
-Measured at fair value (Level III) - - - - 9 -
-Measured at amortized cost - - 850 850 850 -
Finance lease receivables and hire purchases - - 90 90 99 Level - III
Advances and other loans - - 7,812 7,812 7,655 -
Trade and other current assets - -
80 80 80
Total financial assets - 3 9,426 9,429 9,281 -
Bank overdrafts - - 424 424 424 -
Deposit from customers - - 417 417 421 -
Interest bearing borrowings - - 1,936 1,936 1,936 -
Trade and other payables - - 5,670 5,670 5,670
Total Financial liabilities - - 8,447 8,447 8,451
3.32.2. Valuation Technique
Level 2 fair value – market comparison technique
- Government securities - fair value is based on bid prices of government securities at the year-end published by the Central Bank of Sri Lanka.
- Derivative assets and liabilities / Forward exchange contracts – fair value is based on broker quotes of similar contracts and the quotes reflect the actual transaction in similar instrument
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BRAC Lanka Finance PLC Annual Report 2016/17
4. Interest income
For the year ended 31 March 2017 2016
Rs. Rs.
Interest on loans & advances 3,224,739,047 1,812,522,414
Interest on hire purchases 962,086 9,471,391
Interest on leases 23,961,692 13,788,958
Interest on overdue rentals and others 18,855,899 2,888,361
Interest income on government securities and deposits with banks (Note 4.1) 117,411,272 24,507,857
3,385,929,995 1,863,178,981
4.1 Notional credit for withholding tax on government securities on secondary market transactions
Section 137 of the Inland Revenue Act No. 10 of 2006 provides that a company which derives interest income from the secondary market transactions in government securities be entitled to a notional tax credit (being one ninth of the net interest income), provided such interest income forms part of the statutory income of the company for that year of assessment.
For the year ended 31 March 2017 2016
Rs. Rs.
5. Interest expense
Interest on customer deposits 81,425,227 39,922,791
Interest on borrowings 287,874,210 102,907,199
Interest on related party loans 914,279,026 438,331,472
1,283,578,463 581,161,462
6. Other operating income
Profit on sale of property plant and equipment / investment property - 1,470,000
Documentation and arrangement fees 3,255,687 8,437,771
Other income from micro finance 4,799,034 -
Rent income - 148,104
Commissions received on insurance 8,343 121,213
Loss on sale of re-processed assets - (1,318,994)
Exchange gain 419,672 1,014,476
Dividend received 64,350 59,400
Sundry income 536,385 3,123,109
9,083,471 13,055,079
7. Allowance for impairment & write offs
Impairment (reversal)/provision for lease rental receivable (note 16.2) (2,846,422) 11,774,322
Impairment (reversal)/provision for hire purchase rental receivable (note 15.2)
(11,520,429) 49,861
Impairment provision for loan rental receivable (note 17.1 ) 126,074,944 40,189,488
Impairment provision for terminated contracts - 12,744,155
Impairment reversal for re-possessed assets (2,652,063) -
Loans and advances write offs 229,838,264 -
338,894,294 64,757,825
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76
8 Value Added Tax and NBT
For the year ended 31 March 2017 2016
Rs. Rs.
Value added tax on financial services 103,112,718 70,008,865
Nation Building tax on financial services 20,759,684 19,421,919
123,872,402 89,430,784
The value base for Value Added Tax for the Company is the adjusted accounting profit before tax and emoluments paid to employees. The adjustment to the accounting profit before tax is for economic depreciation computed on prescribed rates, instead of the rates adopted in the financial statements. The tax rate of 11% commencing from 25th October 2014 was increased to 15%.
For the year ended 31 March 2017 2016
Rs. Rs.
9 Profit before income tax
Profit Before Tax is stated after charging all the expenses including the fol-lowing,
Directors' Emoluments 1,792,522 10,405,501
Auditors' Remuneration
- Statutory Audit 660,000 600,000
- Audit related services 550,000 561,500
Donations 127,870 56,795
Depreciation & Amortization 14,975,538 10,365,728
Inventory provision (2,652,063) 3,570,578
Staff related cost;
Salaries, Wages and Bonus 441,800,395 302,523,786
Defined Contribution Plan Cost -EPF/ETF 28,481,047 23,263,524
Defined Benefit Plan Cost - Employee Benefits 3,089,818 4,311,599
Staff Welfare 29,372,086 17,054,884
10 Income Tax Expense
The major components of income tax expense for the year ended 31 March are as follows:
Current tax 120,825,721 109,933,296
Current tax (Note 10.1) 120,825,721 109,933,296
Deferred tax
Deferred tax reversal (Note 28.1) 12,039,664 (1,069,082)
Income tax expense reported in statement of profit or loss 132,865,385 108,864,214
Notes to the Financial Statements
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BRAC Lanka Finance PLC Annual Report 2016/17
10.1 Numerical reconciliation of accounting profits to income tax expense,
For the year ended 31 March 2017 2016
Rs. Rs.
Accounting profit before income tax expense 352,792,395 260,384,975
(+)Disallowable expenses 220,540,472 205,115,324
(-)Allowable expenses (88,402,214) (55,687,277)
(-) Tax exempt income (38,496,801) (21,641,900)
(-)Tax losses utilized (6,264,905) -
(+)Taxable profit/ (loss) of sale of free hold asset (311,882) 2,024,040
(-) Loss on termination/ expiries/ transfers of lease assets (8,336,636) 2,423,752
Taxable income 431,520,429 392,618,913
Income tax at 28 % 120,825,721 109,933,296
Current income tax expense 120,825,721 109,933,296
11 Basic and Diluted Earnings per Share
The calculation of earnings per share is based on the profit attributable to ordinary shareholders for the year divided by the weighted average number of ordinary shares outstanding during the year and is calculated as follows;
For the year ended 31 March 2017 2016
Rs. Rs.
Net profit attributable to the ordinary shareholders for the year (Rs.) 219,927,010 151,520,761
Weighted average number of ordinary shares outstanding during the year 105,752,566 105,752,566
Earnings per share (Rs.) 2.08 1.43
12 Cash and Cash Equivalents
As at 31 March 2017 2016
Rs. Rs.
Favourable balance
Cash at bank 75,082,551 527,282,807
Cash in hand 12,488,226 66,955,233
87,570,777 594,238,040
Unfavourable balance
Bank overdraft (414,237,336) (424,109,313)
Cash and cash equivalents for the purpose of statement of cash flow (326,666,559) 170,128,728
13 Investment in government securities
Financial instruments classified as loans and receivables (Note 13.1) 575,000,000 850,000,000
Financial instruments classified as available for sale - carried at fair value (Note 13.2) 532,390,343 2,809,992
1,107,390,343 852,809,992
BRAC Lanka Finance PLC Annual Report 2016/17
78
Notes to the Financial Statements
13.1 Financial instruments classified as loans and receivables
2017 2016
As at 31 March Carrying value Fair value Carrying value Fair value
Rs. Rs. Rs. Rs.
Investment in government standing Deposit facilities (REPO’s)
575,000,000 575,000,000 850,000,000 850,000,000
575,000,000 575,000,000 850,000,000 850,000,000
13.2 Financial instruments classified as available for sale - carried at fair value
Treasury bills 90,072,643 90,072,643 - -Treasury bond 442,317,700 442,317,700 2,809,992 2,809,992
532,390,343 532,390,343 2,809,992 2,809,992
13.3 Fair value adjustments recognized in other comprehensive income
As at 31 March 2017 2016
Rs. Rs.
Treasury bills and treasury bonds (1,961,799) (242,523)
14 Investment securities - unquoted
110 shares of Rs.100/- each in credit investment bureau of Sri Lanka 11,000 11,000
20,000 shares of Rs.10/- each in finance houses consortium (Pvt) Ltd 200,000 200,000
211,000 211,000
Less :- impairment provision
20,000 shares of Rs.10/- each in finance houses consortium (Pvt) Ltd (200,000) (200,000)
11,000 11,000
15 Receivable on Hire - Purchase
Rentals Receivable 20,034,158 40,445,663
Less : Un-earned Finance Income (1,645,602) (4,006,967)
Net rentals receivable (Note 15.1) 18,388,556 36,438,696
Allowance for impairment (Note 15.2) (8,865,681) (20,386,110)
Total Receivable 9,522,875 16,052,586
15.1 Net Rentals Receivable
Receivable from one to five years 2,017,818 14,144,493
Rentals receivable (233,166) (3,619,719)
Unearned income 1,784,652 10,524,774
Receivable within one year
Rentals receivable 12,481,013 8,682,313
Unearned income (1,412,436) (387,248)
11,068,577 8,295,065
Overdue
Rentals receivable 5,535,327 17,618,857
5,535,327 17,618,857
18,388,556 36,438,696
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BRAC Lanka Finance PLC Annual Report 2016/17
15.2 Individually non significant impairment (Collective impairment)
As at 31 March 2017 2016
Rs. Rs.
Balance as at 1st of April 20,386,110 20,336,249
Provision/ (reversal) for the year (11,520,429) 49,861
Balance as at 31st March 8,865,681 20,386,110
16 Receivable on Lease
Rentals Receivable 184,099,087 140,202,859
Less : un-earned finance income (53,502,408) (41,831,813)
Net rentals receivable (Note 16.1) 130,596,679 98,371,046
Deposits received from lessees (12,449,937) (2,427,128)
Allowance for impairment (Note 16.2) (19,142,760) (21,989,182)
Total receivable 99,003,982 73,954,736
16.1 Net rentals receivable
Receivable from one to five years
Rentals receivable 77,394,310 107,336,646
Unearned income (24,729,036) (41,321,032)
52,665,274 66,015,614
Receivable within one year
Rentals receivable 95,936,699 14,080,999
Unearned income (28,773,372) (510,781)
67,163,327 13,570,218
Overdue
Rentals receivable 10,768,078 18,785,214
10,768,078 18,785,214
130,596,679 98,371,046
16.2 Individually non significant impairment (Collective impairment)
Balance as at 1st of April 21,989,182 10,214,860
Provision/ (reversal) for the year (2,846,422) 11,774,322
Balance as at 31st March 19,142,760 21,989,182
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Notes to the Financial Statements
17 Loan and Advances
Receivable on Advances & Loan
As at 31 March 2017 2016
Rs. Rs.
Rentals Receivable 12,897,222,540 8,090,455,977
Less : Un-earned Finance Income (1,897,430,033) (778,588,573)
Overdue Rent Receivable 196,005,638 554,472,483
Allowance for Non Significant Impairment (Note 17.2) (100,636,160) (54,498,916)
Allowance for Significant Impairment (Note 17.3) (79,937,700) -
Total Receivable 11,015,224,285 7,811,840,971
17.1 Impairment provision for the year
Individually non significant impairment 46,137,244 40,189,488
Individually significant impairment 79,937,700 -
126,074,944 40,189,488
17.2 Individually non significant impairment (Collective impairment)
Balance as at 1st of April 54,498,916 14,309,428
Provision for the year 46,137,244 40,189,488
Balance as at 31st March 100,636,160 54,498,916
17.3 Individually significant impairment (specific impairment)
Balance as at 1st of April - -
Provision for the year 79,937,700 -
Balance as at 31st March 79,937,700 -
18 Amount due from related companies
LOLC Motors Limited - 143,825
Browns & Company PLC 4,189,200 -
4,189,200 143,825
19 Other receivables
Value Added Tax recoverable - 58,043,978
Notional tax receivable 7,925,008 -
Shop rent receivable - 1,003,521
Interest receivable on treasury bond/treasury bills & repo 12,365,262 24,129
Interest receivable on fixed deposits 2,327,183 -
Advances paid for fixed assets 20,326,410 1,719,254
Others 921,666 557,981
Rent paid in advance 33,515,506 13,952,987
Other prepayments 6,069,038 4,828,467
83,450,073 80,130,318
20 Inventory
Re-possessed assets 5,737,993 7,461,436
Less: provision for decrease in value (5,737,993) (7,461,436)
- -
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BRAC Lanka Finance PLC Annual Report 2016/17
21 Property, Plant and Equipment
21.1 Cost
For the year ended 31 March Balance as at 1-Apr- 2016
Additions during the year
Disposals/ transfer/ write off
during the Year
Balance as at 31- Mar-2017
Rs. Rs. Rs. Rs.
Motor vehicles - freehold 8,824,973 - - 8,824,973
Furniture and fittings 28,379,758 3,858,167 (367,001) 31,870,924
Office equipments 61,662,916 72,071,009 (152,802) 133,581,123
Plant and machinery 2,186,033 9,721,752 - 11,907,785
Total Cost 101,053,680 85,650,928 (519,803) 186,184,805
21.2 Accumulated Depreciation
For the year ended 31 March Balance as at 1-Apr-16
Charge for the year
Disposals/ transfer/ write off
during the year
Balance as at 31-Mar-17
Rs. Rs. Rs. Rs.
Motor vehicles - freehold 5,098,237 1,422,375 - 6,520,612
Furniture and fittings 9,652,677 2,793,733 (73,400) 12,373,010
Office equipments 10,121,357 9,692,379 (30,560) 19,783,176
Plant and machinery 2,186,033 1,067,051 - 3,253,084
Total Accumulated Depreciation 27,058,305 14,975,538 (103,960) 41,929,882
Carrying Value 73,995,375 144,254,924
Property, plant and equipment pledged as security for liabilities
There were no property, plant and equipment pledge as a security for liabilities of the Company as at 31st March 2017 and 31st March 2016.
Temporarily idle property, plant and equipment
There were no property, plant and equipment idle as at 31st March 2017 and 31st March 2016.
Fully depreciated property, plant and equipment
There were property, plant and equipment, cost of Rs. 8,564,831 fully depreciated as at 31st March 2017. (Rs. 43,566,861 in 2016)
Written off property, plant and equipment
There were property,plant and equipment, net book value amounting to Rs.415,842 (cost-Rs.519,803,accumulated depreciation-Rs.103,961) written off as at 31st March 2017 and no written off as at 31st March 2016.
BRAC Lanka Finance PLC Annual Report 2016/17
82
Notes to the Financial Statements
22 Deposits from Customers
As at 31 March 2017 2016
Rs. Rs.
Fixed Deposits 1,742,930,222 392,190,753
Add: Interest accrued - Fixed Deposit 11,196,556 24,450,535
Savings - Loan Security Deposit 1,059,195,573 764,375,162
2,813,322,351 1,181,016,450
22.1 Deposits based on maturity
Deposits maturing within one year 2,637,286,561 1,061,235,876
Deposits maturing after one year 176,035,790 119,780,574
2,813,322,351 1,181,016,450
23 Interest Bearing Loans and Borrowings
23.1 Long-term borrowings
Balance at the beginning of the year 1,932,052,416 1,202,788,040
Add: Loans obtained during the year 200,000,000 2,234,118,997
Add: Loans interest payable 9,508,157 1,722,958
2,141,560,573 3,438,629,995
Less: Loans repaid during the year (90,108,666) (1,501,129,079)
Less: Unamortised finance cost (1,312,734) (3,725,542)
Balance at the end of the year 2,050,139,173 1,932,052,416
Long-term borrowings - current 2,050,139,173 501,722,958
Long-term borrowings - non-current (Note 23.2) - 1,430,329,458
2,050,139,173 1,932,052,416
23.2 Analysis of non-current portion of long-term borrowings
Repayable within 1-3 years - 430,329,458
Repayable after 3 years - 1,000,000,000
- 1,430,329,458
24 Income Tax Payable
Tax Payable as at 1st April 124,447,948 35,182,652
Current tax expense for the year (note 10) 120,825,721 109,933,296
Tax paid during the year (138,161,317) (20,668,000)
Tax payable as at 31st March 107,112,352 124,447,948
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BRAC Lanka Finance PLC Annual Report 2016/17
A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:
As at 31 March 2017 2016
% Rs. % Rs.
Profit before Income tax 352,792,395 260,384,975
Tax effect at the statutory income tax rate of 28% 28% 98,781,870 28% 72,907,793
Tax effect of other allowable credits -11% (39,707,482) -8% (21,652,170)
Tax effect of non deductible expenses 18% 61,751,333 23% 58,677,672
Income tax expense 34% 120,825,721 42% 109,933,296
25 Amount due to Related Companies
As at 31 March 2017 2016
Rs. Rs.
Commercial Leasing & Finance PLC 1,000,000,000 1,000,000,000
Lanka Orix Leasing Company PLC 1,714,342,538 318,897,267
LOLC Life Insurance Limited 12,240,344 -
LOLC Factors Limited 3,224,240,314 3,231,808,924
LOLC Micro Credit Limited 191,990 18,667
Lanka Orix Finance PLC 32,884,957 3,400
Lanka ORIX Information Technology Services Limited 290,430,677 283,163,265
LOLC Corporate Services (Private) Limited 1,051,335 -
LOLC Motors Limited 45,226 -
6,275,427,381 4,833,891,523
26 Accrued Charges and Other Payables
BRAC Lanka (Guarantee ) Limited 27,724,962 27,724,962
Bonus Provision - 32,034,513
Rent Received in Advance 18,775 1,022,296
Stamp Duty Payable 430,768 534,118
VAT Payable on Financial services 270,428 -
Payable to suppliers 1,467,800 3,796,945
NBT Payable 767,719 767,719
Other Payables 48,609,482 18,376,248
Withholding Tax payable 1,887,975 934,338
81,177,909 85,191,138
BRAC Lanka Finance PLC Annual Report 2016/17
84
Notes to the Financial Statements
27 Employee Benefits
27.1 Defined benefit plan
27.1.1 Movement in the present value of the defined benefit Obligation
As at 31 March 2017 2016
Rs. Rs.
Balance as at 1st April 20,755,104 6,269,771
Current Service Cost (Note 27.1.2) 3,771,999 3,684,622
Interest Cost (Note 27.1.2) 2,283,061 626,977
Actuarial (Gains)/ Losses (Note 27.1.3) (2,965,243) 13,311,338
23,844,921 23,892,708
Benefits paid (249,704) (3,137,604)
Liability for Defined benefit obligation as at 31st March 23,595,217 20,755,104
27.1.2 Expense recognized in Profit or Loss
Current service cost 3,771,999 3,684,622
Interest cost 2,283,061 626,977
6,055,060 4,311,599
27.1.3 Expense recognized in Statement of Other Comprehensive Income
Actuarial (gains) (2,965,243) 13,311,338
(2,965,243) 13,311,338
The employee benefit liability as at 31 March 2017 amounting to Rs.23,595,217 (2016- Rs.20,755,104) is made based on actuarial valuation carried out by a professionally qualified actuary of Actuarial and Management Consultants (Pvt) Ltd . As recommended by the Sri Lanka Accounting Standards (LKAS 19) - Employee benefit, “the Project Unit Credit (PUC)” method has been used in this valuation.
The principal assumption used are :
As at 31 March 2017 2016
Rs. Rs.
(i) Discount Rate (per annum) 12% 11%
(ii) Rate of Salary Increase (per annum) 9% 10%
(iii) Age of Retirement (years) 55 55
(iv) Staff Turnover Factor (per annum) (%) 18% 19%
Assumptions regarding future mortality are based on published statistics and mortality tables. The liability is not externally funded.
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BRAC Lanka Finance PLC Annual Report 2016/17
27.1.4 Sensitivity analysis of the defined benefit obligation
Reasonable possible changes at the reporting date, 31st March 2017 to one of relevant actuarial assumptions, holding other assumptions constant, would have affected the defined retirement obligation as shown below;
As at 31 March 1% Increase 1% Decrease
Rs. Rs.
Discount rate (891,604) 970,798
Future salary growth 1,095,091 (1,021,287)
27.1.5 Distribution of present value of defined benefit obligation in future years (Rs.)
(Maturity Profile of Defined Benefit Obligation)-Present Value of Expected benefit Payments
As at 31 March 2017
Rs.
Within the next 12 months 4,952,355
Between 1 and 2 years 6,465,120
Between 2 and 5 years 6,032,351
Between 5 and 10 years 4,304,356
Beyond next 10 years 1,841,035
23,595,217
28 Deferred Tax Assets
Deferred Tax is provided using the Liability Method, for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes at the rate of 28%.
As at 31 March 2017 2016
Rs. Rs.
Balance at the beginning of the Year 2,048,359 979,277
Origination/ (reversal) during the year (12,869,932) 1,069,082
Balance at the end of the year asset/(liability) (10,821,573) 2,048,359
28.1 Origination/ (reversal) during the year
Recognized in;
Profit or loss (12,039,664) 1,069,082
Other comprehensive income (830,268) -
(12,869,932) 1,069,082
BRAC Lanka Finance PLC Annual Report 2016/17
86
Notes to the Financial Statements
Deferred tax asset as at the year end is made up as follows,
2017 2016
As at 31 March TemporaryDifference
Tax Effect onTemporary Difference
Temporary Difference
Tax Effect onTemporary Difference
Rs. Rs. Rs. Rs.
On Property, Plant & Equipment (60,419,888) (16,917,569) 24,757,436 6,932,082
On Leased Assets (1,823,804) (510,665) 3,313,235 927,706
On Employee benefits 23,595,217 6,606,661 (20,755,104) (5,811,429)
(38,648,475) (10,821,573) 7,315,567 2,048,359
29 Stated capital
As at 31 March 2017 2016
Rs. Rs.
Balance at the beginning of the year (105,752,566 no. of Ordinary Shares) 171,180,454 171,180,454
Balance at the end of the year (105,752,566 no. of Ordinary Shares) 171,180,454 171,180,454
29.1 Rights, preference and restrictions of classes of capital
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to have one vote per individual present at meetings of the shareholders or one vote per share in case of a poll. They are entitled to participate in any surplus assets of the Company in winding up. There are no preferences or restrictions on Ordinary Shares.
30 Reserves
As at 31 March 2017 2016
Rs. Rs.
Statutory reserve (Note 30.1) 85,647,971 74,651,620
Available for sale investment reserve (Note 30.2) (2,351,269) (389,470)
Total 83,296,702 74,262,150
30.1 Statutory reserve
Balance at the beginning of the year 74,651,620 67,075,582
Transferred during the year 10,996,351 7,576,038
Balance at the end of the year 85,647,971 74,651,620
The reserve is created according to Direction No.1 of 2003 issued under the Finance Business Act No.42 of 2011. The Company transferred 5% (2015/16 - 5%) of its annual net profit after tax to this reserve in compliance with this direction.
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BRAC Lanka Finance PLC Annual Report 2016/17
30.2 Available for Sale Investment Reserve
As at 31 March 2017 2016
Rs. Rs.
Balance at the beginning of the year (389,470) (146,947)
Fair value changes during the year - increase / (decrease) (Note 13.3) (1,961,799) (242,523)
Balance at the end of the year (2,351,269) (389,470)
This reserve is maintained to recognize the fair value changes of Available for Sale Financial Assets.
31 Retained Earnings
As at 31 March 2017 2016
Rs. Rs.
Balance brought forward 658,318,706 527,685,321
Transfers to statutory reserves (10,996,351) (7,576,038)
Net profit for the year 219,927,010 151,520,761
Other comprehensive income 2,965,243 (13,311,338)
Tax on other comprehensive income (830,268) -
Balance at the end of the year 869,384,340 658,318,706
The carrying amount of the retained earnings represent the undistributed earnings held by the Company. This could be used to absorb future losses and dividend declaration.
32 Capital Commitments
There are no material capital commitments which would require adjustments to or disclosures in the Financial Statements.
33 Contingent Liabilities and Litigations and claims
There are no material contingent liabilities which would require adjustments or disclosures in the Financial Statements.
There were no material litigations or claims to be disclosed as at the reporting date.
34 Events Occurring After The Reporting Period
Right issue of ordinary shares after reporting date
Subsequent to the reporting date the Company has issued ordinary shares by a way of a Right Issue of shares,entitlement for 5 new ordinary shares for every 4 ordinary shares held at a price of Rs.10.00 per share. For this Right Issue Lanka Orix Leasing Company PLC (LOLC) has subscribed fully. Accordingly LOLC will become the immediate parent of the company from May 2017. After the rights issue the stated capital has increased by Rs.1,321,907,080/- and the number of shares increased to 237,943,274.
No circumstance have arisen since the reporting date which would require adjustments or disclosures in the Financial Statements other than disclosed.
BRAC Lanka Finance PLC Annual Report 2016/17
88
Notes to the Financial Statements
35 Comparative Information
The presentation and classification of the following items in these Financial Statements are amended to ensure the comparability with the current year.
General &Administration
Expenses
Premises, Equipment
and Establishment
Expenses
Deposits from Customers
Accrued charges and
other payables
As previously reported in the published financial statements for the year ended 31 March 2016 (495,104,014) (27,875,479) 416,641,288 849,566,300
Adjustment made on loan security deposit (27,875,479) 27,875,479 764,375,162 (764,375,162)
Adjusted balance in the published financial statements for the year ended 31 March 2017 (522,979,493) - 1,181,016,450 85,191,138
36 Assets pledged
The following assets have been pledged as security for liabilities.
Nature of Assets Nature of Liability
Carrying Amount Pledged
Carrying Amount Pledged
2017 2016
Rs. Rs.
Investment in Fixed Deposits Short term borrowing 349,077,329 -
These financial assets are pledged against the borrowings made. The lender has the right over the term deposits in the event of non payment.
37 Related Party Disclosures
37.1 Parent and Ultimate Controlling Party
The Company’s immediate parent is Commercial Leasing & Finance PLC and ultimate controlling party is Lanka Orix Leasing Company PLC.
37.2 Transactions with Key Management Personnel
Key Management Personnel (KMP) are those persons having authority and responsibility for planning, directing and controlling the activities directly or indirectly. Accordingly the KMP include members of the Board of Directors and identified senior management personnel of the Company and its ultimate Parent Company Lanka ORIX Leasing Co. PLC . Close Family Members (CFM) of a KMP are those family members who may be expected to influence, or be influenced by, that KMP in their dealings with the Company.
(i) Loans to Directors
No loans have been given to the Directors of the company.
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BRAC Lanka Finance PLC Annual Report 2016/17
(ii) Key Management Personnel Compensation
The following are the details of Key Management Personnel compensation.
For the year ended 31 March 2017 2016
Rs. Rs.
Directors EmolumentsSalary - -Directors Fees 1,792,522 10,405,501
37.3 Transactions with Related Parties
Name of the Company Relationship Nature of Amount
Transaction 2017 2016
Rs. Rs.
Commercial Leasing &Finance PLC
Parent Company
Interest on Loan 148,833,370 12,671,233
Loan received - 1,128,204,535 Loan settlement - 140,875,768 Loan Payable 1,000,000,000 1,000,000,000
Lanka Orix Leasing Company PLC
Ultimate parent
Interest on Loan 335,591,238 152,240,403
Fund transfers in 10,677,000,000 3,760,660,000 Fund transfers out 9,947,735,100 5,718,609,536 Guarantee fee 15,000,000 -Expense reimbursements 208,602,417 1,255,679,675
LOLC Factors Limited Fellow subsidiary
Interest on Loan 429,854,418 273,419,836
Loan received - 2,709,500,000 Loan Payable 3,209,500,000 3,209,500,000 Interest Payable 14,740,314 18,701,221
Lanka ORIX Information Technology Services Limited
Fellow subsidiary
IT Service Fee 35,513,133 39,960,000
System Implementation Fee - 283,163,265
LOLC Life Insurance Limited Fellow subsidiary
Insurance premium payment 187,174,061 -
LOLC Motors Limited Fellow subsidiary
Balance receivable/ (Pay-able)
45,226 143,825
Lottery Collection Income - 6,646,250
Lanka ORIX Finance PLC Fellow subsidiary
FD investment - 600,000,000
Interest Expense - 2,441,096 FD withdrawal - 602,441,096 Settlement of expenses 32,884,957 3,400
LOLC Micro Credit Limited Fellow subsidiary
Transfer of funds - 69,079
Settlement of expenses 191,990 87,745
All of the above transactions (including borrowing and lending transactions) with related parties are on arms length basis and are on terms that are generic to non related parties.
BRAC Lanka Finance PLC Annual Report 2016/17
90
Notes to the Financial Statements
37 Related Party Disclosures (Contd.)
(iv) Receivable from Related party
For the year ended 31 March 2017 2016
Rs. Rs.
Amount due from Related party (Rs.) 4,189,200 143,825
Amount due from as a Percentage from capital Fund 0.46% 0.02%
37.4 Transactions, arrangements & agreements involving Key Management Personnel (KMP) and their close family members (CFM)
CFMs of a KMP are those family members who may be expected to influence or be influenced by that KMP in their dealing with the entity. That may include; KMP’s domestic partner and children and dependants of the KMP or the KMP’s domestic partner. The transactions are carried out on an arm’s length basis. There were no such transactions have been taken place during the year.
38 Segment Reporting
For the year ended 31 March 2017
Advances & Other Loans
FinanceLease
Hire Purchase
Others Total
Rs. Rs. Rs. Rs. Rs.
Revenue 3,251,649,668 23,961,692 962,086 1,028,750 3,277,602,195
Investment Income - - - 117,411,272 117,411,272
3,251,649,668 23,961,692 962,086 118,440,022 3,395,013,467
Percentage 95.78% 0.74% 0.03% 3.49% 100%
Expenditure
Interest Expenses 1,229,375,826 9,059,378 363,743 44,779,516 1,283,578,463
Depreciation - - - 14,975,538 14,975,538
Unallocated Expenses - - - 1,280,900,373 1,280,900,373
Allowance for impairment & write offs 351,236,272 (13,554,433) 1,212,455 - 338,894,294
Total Expenses 1,580,612,098 (4,495,055) 1,576,198 1,340,655,428 2,918,348,669
Profit Before Tax 1,671,037,570 28,456,746 (614,112) (1,222,215,406) 476,664,798
VAT on FS (123,872,402)
Profit on Ordinary Activities before Income Tax 352,792,395
Income Tax on Profit on Ordinary Activities (132,865,385)
Profit After Income Tax 219,927,010
Total assets 11,015,224,285 99,003,983 9,522,875 1,775,943,646 12,899,694,788
Total liabilities 10,055,543,716 90,378,448 8,693,212 1,621,217,915 11,775,833,292
91
BRAC Lanka Finance PLC Annual Report 2016/17
For the year ended 31 March 2016
Advances & Other Loans
FinanceLease
Hire Purchase
Others Total
Rs. Rs. Rs. Rs. Rs.
Revenue 1,812,522,414 13,788,958 9,471,391 2,888,361 1,838,671,124
Investment Income - - - 37,562,936 37,562,936
1,812,522,414 13,788,958 9,471,391 40,451,296 1,876,234,060
Percentage 96.60% 0.74% 0.50% 2.16% 100%
Expenditure
Interest Expenses 561,426,849 4,271,115 2,933,753 12,529,745 581,161,462
Depreciation - - - 10,365,728 10,365,728
Unallocated Expenses - - - 870,133,286 870,133,286
Allowance for impairment & write offs 52,933,643 11,774,322 49,861 - 64,757,825
Total Expenses 614,360,492 16,045,436 2,983,614 893,028,759 1,526,418,301
Profit Before Tax 1,198,161,923 (2,256,478) 6,487,777 (852,577,462) 349,815,759
VAT on FS (89,430,784)
Profit on Ordinary Activities before Income Tax 260,384,975
Income Tax on Profit on Ordinary Activities (108,864,214)
Profit After Income Tax 151,520,761
Total assets 7,811,840,971 73,954,736 16,052,586 1,603,376,909 9,505,225,202
Total liabilities 7,069,087,435 66,923,085 14,526,299 1,450,927,074 8,601,463,892
BRAC Lanka Finance PLC Annual Report 2016/17
92
Notes to the Financial Statements
39 Maturity of Assets and Liabilities
An analysis of the total assets employed and total liabilities as at the year end, based on the remaining period at the reporting date to the respective contractual maturity dates are given below.
As at 31 March Less than 3 Months
3 - 12Months
1 - 3Years
Over 3 Years
Total2017
Total2016
Rs. Rs. Rs. Rs. Rs. Rs.
Assets
Cash and Cash Equivalents 87,570,777 - - - 87,570,777 594,238,040
Fixed Deposits with banks 349,077,329 - - 349,077,329 -
Investment in Government Securities 575,000,000 529,603,414 2,786,929 - 1,107,390,343 852,809,992
Investment Securities - unquoted - - - 11,000 11,000 11,000
Rental Receivable on Hire-Purchase 5,688,336 2,049,887 1,784,652 - 9,522,875 16,052,586
Rentals Receivable on Lease 35,578,444 10,760,263 39,777,400 12,887,875 99,003,982 73,954,736
Rentals Receivable on Advances & Loans 4,103,731,957 5,296,765,597 1,612,262,340 2,464,391 11,015,224,285 7,811,840,971
Other Receivables - 43,865,529 - - 43,865,529 61,348,864
Deposits and Prepayments - 39,584,544 - - 39,584,544 18,781,454
Property, Plant and Equipment - - - 144,254,924 144,254,924 73,995,375
Amount due from related Companies - - - 4,189,200 4,189,200 143,825
4,807,569,514 6,271,706,563 1,656,611,321 163,807,390 12,899,694,788 9,505,225,202
Liabilities
Bank Overdraft 414,237,336 - - - 414,237,336 424,109,313
Deposits from Customers 2,024,748,398 612,601,185 175,010,973 961,796 2,813,322,352 1,181,016,450
Interest Bearing Loans and Borrowings 1,705,598,048 344,541,125 - - 2,050,139,173 1,932,052,416
Amount due to related Companies 2,065,927,381 1,000,000,000 3,209,500,000 - 6,275,427,381 4,833,891,523
Accrued Charges and Other Payables - 53,452,947 - - 53,452,947 57,466,176
Retirement Benefit Obligations - 4,952,355 6,465,120 12,177,742 23,595,217 20,755,104
Trade Payables 27,724,962 - - - 27,724,962 27,724,962
Income Tax Payable 107,112,351 - - - 107,112,351 124,447,948
6,345,348,476 2,015,547,612 3,390,976,092 13,139,539 11,765,011,719 8,601,463,892
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BRAC Lanka Finance PLC Annual Report 2016/17
Shareholders’ Information
1) Shareholdings
The 20 largest shareholders of the Company as at 31st March 2017 were as follows:
2017
Name of the Shareholder No. of shares %
1. COMMERCIAL LEASING & FINANCE PLC 105,499,048 99.76
2. FIRST CAPITAL MARKETS LTD/ MR.N.A. SELLAHEWA 104,698 0.10
3. S. MANNANAYAKE 50,000 0.05
4. MR. N.A. SELLAHEWA (DECEASED) 29,640 0.03
5. MR. F.J.P. RAJ 26,200 0.02
6. K.P.C. ABEYRATNA 15,000 0.01
7. MR. D.G.W. KUMARA 4,600 -
8. D.P. FERNANDO 2,730 -
9. MR. A.P.N. JAYAWARDENA 2,000 -
10. S.M.S. SAMARAWEERA 1,890 -
11. S.M. SAMARAWEERA 1,890 -
12. S.M.S. SAMARAWEERA 1,890 -
13. S.M.V. SAMARAWEERA 1,890 -
14. S.M. SAMARAWEERA 1,890 -
15. MR. C.K.L. GUNEWARDENA 1,158 -
16. MR. W.K.J.D. SILVA 1,000 -
17. MR. H.T.U.R. SIRIWARDANA 1,000 -
18. MR. M.F. SAMSUDEEN 1,000 -
19. MR. P.P.U. ANANDASIRI 1,000 -
20. M. WEERASEKARA 500 -
105,749,024 99.97
OTHERS 3,542 0.03
Total 105,752,566 100
2) Public Shareholding
As at 31st March 2017, 0.24% of the issued ordinary shares were held by 38 shareholders.
BRAC Lanka Finance PLC Annual Report 2016/17
94
Shareholders’ Information
3) Shareholding Summary as at 31st March
2017
No of shareholders
No of shares % of shares
1 - 1,000 24 8,042 0.01
1,001 - 10,000 9 19,938 0.02
10,001 - 100,000 4 120,840 0.11
100,001 - 1,000,000 1 104,698 0.1
Over 1,000,000 Shares 1 105,499,048 99.76
Total 39 105,752,566 100
4) Categories of Shareholders
2017
No of shareholders
No of shares % of shares
Local Individuals 37 148,820 0.14
Local institutions 2 105,603,746 99.86
Foreign Individuals - - -
Foreign institutions - - -
39 105,752,566 100.00
5) Market Information on Ordinary Shares of the Company
2017 2016
Rs. Rs.
Market price per share as at the last trading date - -
Highest during the year - -
Lowest during the year - -
Earnings per share 2.08 1.43
Net asset per share 10.63 8.55
Dividend payout ratio - -
95
BRAC Lanka Finance PLC Annual Report 2016/17
Financial Information for Last 10 YearsStatement of Financial Position
As a
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31.0
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1,189
48,62
2,160
35,08
0,267
13,19
1,087
Loan
and
adv
ance
s 1
1,01
5,22
4,28
5 7
,811,8
40,97
1 2,9
51,13
8,544
908,7
37,17
686
,675,3
7682
,697,9
1342
,443,4
026,1
44,17
25,4
92,05
65,8
04,55
2Am
ount
due
from
rela
ted
com
pani
es 4
,189
,200
1
43,82
5 2,8
00,00
0 -
--
-Ot
her r
eceiv
able
s 8
3,45
0,07
3 6
1,348
,864
527,1
90,50
86,6
86,48
94,2
22,25
58,5
85,52
33,1
00,26
93,6
99,30
51,3
99,36
591
2,950
Depo
sits a
nd p
repa
ymen
ts 1
8,781
,454
12,37
0,168
1,471
,190
1,677
,223
1,376
,641
540,3
0245
6,110
913,9
6626
4,209
Inco
me t
ax re
ceiva
ble
- -
-2,5
15,00
8-
-In
vent
ory
- 6,4
38,31
813
,256,1
552,2
42,22
2-
225,5
65De
ferr
ed ta
x ass
ets
2,04
8,359
97
9,277
- -
--
Prop
erty,
pla
nt a
nd eq
uipm
ent
144
,254
,924
7
3,995
,375
28,36
4,924
99,85
5,538
84,82
7,594
88,32
0,840
82,34
4,627
76,97
7,101
67,99
4,771
45,46
5,829
Inta
ngib
le a
sset
s -
- 1,0
72,83
41,1
45,33
81,2
20,41
71,2
92,92
11,3
65,41
91,4
37,91
7-
Inve
stm
ent p
rope
rty -
- 23
6,291
,712
238,9
87,60
423
5,137
,706
228,7
49,95
020
0,185
,699
196,2
45,77
417
5,040
,413
Tota
l ass
ets
12,
899,
694,
788
9,50
5,225
,202
3,76
8,143
,986
1,94
7,576
,516
668
,524,6
03
592
,833,5
67
556
,688,4
92
441
,533,4
40
398
,471,8
72
326
,378,7
58
LIAB
ILIT
IES
Bank
over
draf
t 4
14,2
37,3
36
424
,109,3
13
15,64
3,977
49,86
8,105
-45
4,324
--
--
Depo
sits f
rom
cust
omer
s 2
,813
,322
,351
41
6,641
,288
93,45
8,629
111,6
60,08
710
4,314
,714
57,64
2,145
40,21
4,199
42,46
9,307
31,92
1,135
22,05
2,317
Oblig
ation
und
er fi
nanc
e lea
se-
--
--
251,9
0292
2,235
1,464
,423
1,878
,480
Inte
rest
bea
ring
loan
s and
bor
row
ings
2,0
50,1
39,1
73
1,932
,052,4
161,2
02,78
8,040
667,2
18,58
21,8
80,38
63,8
97,72
43,2
05,06
44,1
09,28
7-
-In
com
e tax
pay
able
107
,112
,352
12
4,447
,948
35,23
7,139
1,819
,076
-81
6,131
6,327
,932
7,710
,681
7,643
,154
3,181
,768
Amou
nt d
ue to
rela
ted
com
pani
es 6
,275
,427
,381
4,8
33,89
1,523
1,376
,641,4
48-
--
-Tr
ade P
ayab
les
27,72
4,962
25,24
2,962
481,9
88,82
9-
--
Accr
ued
char
ges a
nd o
ther
pay
able
s 8
1,17
7,90
9 82
1,841
,338
247,0
67,61
019
,034,7
5118
,508,3
9313
,917,9
636,3
34,66
05,0
01,79
65,8
50,92
13,9
16,09
3M
ICRO
fina
nce f
und
acco
unt
--
2,583
,200
--
-Em
ploy
ee b
enefi
ts 2
3,59
5,21
7 20
,755,1
046,2
69,77
16,7
45,76
73,5
40,28
53,3
37,52
23,4
99,63
42,0
00,61
71,7
74,37
91,9
69,11
9De
ferr
ed ta
x liab
ilities
10,
821,
573
--
18,23
0,163
9,442
,517
12,02
5,097
11,55
2,460
16,82
2,181
16,56
3,443
16,54
2,908
Tota
l lia
bilit
ies
11,
775,
833,
293
8,60
1,463
,892
3,002
,349,5
761,3
59,14
8,560
137,6
86,29
592
,090,9
0671
,385,8
5179
,036,1
0465
,217,4
5549
,540,6
85
SHAR
EHOL
DER'
S FU
NDS
Stat
ed ca
pita
l 1
71,1
80,4
54
171,1
80,45
417
1,180
,454
171,1
80,45
412
5,857
,930
125,8
57,93
012
5,857
,930
45,51
3,180
24,52
8,180
24,52
8,180
Rese
rves
83,
296,
702
74,26
2,150
66,92
8,635
192,0
14,01
713
3,746
,869
119,8
96,39
611
0,050
,345
316,9
84,15
630
8,726
,237
252,3
09,89
4Re
venu
e res
erve
s 8
69,3
84,3
40
658,3
18,70
652
7,685
,321
225,2
33,48
527
1,233
,509
254,9
88,33
424
9,394
,366
Tota
l equ
ity1,
123,
861,
496
903,7
61,31
076
5,794
,410
588,4
27,95
653
0,838
,308
500,7
42,66
048
5,302
,641
362,
497,
336
333,2
54,41
727
6,838
,074
Tota
l lia
bilit
ies a
nd eq
uity
12,
899,
694,
788
9,50
5,225
,202
3,76
8,143
,986
1,94
7,576
,516
668
,524,6
03
592
,833,5
67
556
,688,4
92
441
,533
,440
3
98,47
1,872
3
26,37
8,758
2011
- 2
017
Sta
tem
ent o
f Fin
anci
al P
ositi
on is
pre
pare
d ba
sed
on L
KA
S/S
LFR
S. P
rior
per
iods
are
pre
pare
d ba
sed
on S
LAS
’s.
BRAC Lanka Finance PLC Annual Report 2016/17
96
Statement of Profit or LossFo
r the
year
ende
d31
.03.
2017
31.0
3.20
1631
.03.
2015
31.0
3.20
1431
.03.
2013
31.0
3.20
1231
.03.
2011
31.0
3.20
1031
.03.
2009
31.0
3.20
08
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Inte
rest
inco
me
3,3
85,9
29,9
95
1,86
3,178
,981
521
,883,4
06
100
,896
,204
68
,878,5
0454
,889,5
2648
,111,5
3742
,643
,344
35,47
2,681
26,86
0,346
Inte
rest
expe
nse
-1,2
83,5
78,4
63
(581
,161,4
62)
(162
,545,4
58)
(20,3
28,87
0) (1
3,051
,073)
(5,99
1,070
) (6
,775,3
52)
(7,14
1,758
) (2
,870,9
69)
(3,47
8,782
)
Net I
nter
est i
ncom
e 2
,102
,351
,532
1,2
82,01
7,519
359,3
37,94
880
,567,3
3355
,827,4
3148
,898,4
5641
,336,1
8535
,501,5
8632
,601,7
1223
,381,5
64
Chan
ge in
fair
valu
e of i
nves
tmen
t pro
perty
--
1,507
,808
3,849
,898
6,387
,756
28,56
4,251
-
Rent
Inco
me
--
--
4,691
,124
5,490
,928
-
Othe
r inc
ome
9,0
83,4
71
13,05
5,079
210,2
82,64
010
,392,5
6510
,573,7
7375
4,660
4,465
,365
11,05
6,962
26,80
6,186
4,881
,560
2,1
11,4
35,0
02
1,295
,072,6
2956
9,620
,588
92,46
7,706
70,25
1,102
60,73
1,996
79,85
6,729
46,55
8,548
59,40
7,898
28,26
3,124
Staff
cost
-5
10,0
89,8
16
(347
,153,7
93)
(183
,452,5
17)
(26,6
73,58
9) (1
5,697
,863)
(12,9
07,89
1) (9
,318,4
85)
(6,65
7,154
) (6
,957,9
07)
(6,38
3,073
)
Prem
ises,
equi
pmen
t and
esta
blish
men
t exp
ense
s -
(27,8
75,47
9) (1
,331,2
05)
(6,25
4,241
) (6
,632,0
72)
- -
Esta
blish
men
t exp
ense
s -
- -
- -
(5,85
6,126
) (5
,290,9
50)
Depr
eciat
ion a
nd a
mor
tizat
ion
-14,
975,
538
(10,3
65,72
8) (3
7,263
,345)
(4,63
4,790
) (5
,341,6
82)
(4,71
2,887
) (4
,457,3
71)
(2,39
7,082
) (1
,849,1
99)
(1,63
9,525
)
(Pro
vision
) / R
ever
sal f
or lo
sses
on
loan
s and
in
vent
ory
-338
,894
,294
(6
4,757
,825)
(32,1
93,88
3) (5
,009,5
42)
- -
-
Gene
ral &
adm
inist
ratio
n ex
pens
es
-770
,810
,558
(4
95,10
4,014
) (8
8,645
,651)
(23,8
58,52
2) (1
3,565
,909)
(8,28
7,012
) (9
,439,2
35)
(11,7
69,41
7) (9
,785,5
55)
(9,75
7,872
)
-1,6
34,7
70,2
06
(945
,256,8
70)
(342
,886,6
01)
(66,4
30,68
5) (4
1,237
,526)
(31,7
63,91
6) (2
8,506
,041)
(20,8
23,65
3) (1
8,592
,661)
(17,7
80,47
0)
Profi
t fro
m op
erat
ions
4
76,6
64,7
97
349
,815,7
59
226
,733,9
87
26,0
37,02
2 2
9,013
,576
28,9
68,08
0 5
1,350
,688
25,7
34,89
5 4
0,815
,237
10,4
82,65
4
Valu
e add
ed ta
x on
finan
cial s
ervic
es a
nd N
BT
-123
,872
,402
(8
9,430
,784)
(30,9
57,07
9) (4
,265,7
11)
- -
- (3
,737,5
22)
(3,82
2,246
) (2
,528,3
24)
(Pro
vision
)/ Re
vers
al fo
r los
ses o
n lo
ans a
nd
adva
nces
-
--
1,02
9,286
(7
,064,4
76)
(2,44
9,557
) (2
,806,0
70)
(47,8
82)
(244
,902)
Profi
t bef
ore t
ax
352
,792
,394
2
60,38
4,975
1
95,77
6,908
2
1,771
,311
30,0
42,86
2 2
1,903
,604
48,9
01,13
1 1
9,191
,303
36,9
45,10
9 7
,709,4
28
Inco
me t
ax ex
pens
e -1
32,8
65,3
85
(108
,864,2
14)
(18,1
81,63
1) (7
,854,9
53)
4,83
8,365
(2
,422,7
16)
678
,468
(7,91
7,355
) (7
,301,1
05)
(4,56
2,045
)
Profi
t for
the y
ear
219
,927
,009
1
51,52
0,761
1
77,59
5,277
1
3,916
,358
34,8
81,22
7 1
9,480
,888
49,5
79,59
9 1
1,273
,948
29,6
44,00
4 3
,147,3
83
2012
-201
7 P
rofit
s ar
e de
term
ined
bas
ed o
n LK
AS
/SLF
RS
. Pro
fits
prio
r to
that
are
det
erm
ined
in li
ne w
ith S
LAS
’s.
97
BRAC Lanka Finance PLC Annual Report 2016/17
2017
2016
As a
t30
.06.
2016
30.0
9.20
1631
.12.
2016
31.0
3.20
1730
.06.
2015
30.0
9.20
1531
.12.
2015
31.0
3.20
16
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
ASSE
TSCa
sh a
nd ca
sh eq
uiva
lent
s 1
,065
,294
,989
7
34,9
05,8
67
123
,395
,985
8
7,57
0,77
7 26
3,703
,242
417,5
39,00
054
8,776
,000
594,2
38,04
0De
posi
ts w
ith b
anks
and
oth
er fi
nanc
ial i
nstit
utio
ns 4
35,9
07,0
73
332
,652
,015
3
51,4
04,5
11
--
--
Inve
stm
ent i
n go
vern
men
t sec
uriti
es
1,1
08,6
74,6
80
1,1
18,2
96,0
99
1,1
88,6
51,6
75
1,1
16,7
19,5
55
14,56
6,701
14,67
0,000
760,0
29,00
085
2,809
,992
Inve
stm
ent s
ecur
ities
- un
quot
ed
11,0
0011
,000
11,0
00.0
011
,000
Rece
ivabl
e on
hire
-pur
chas
e 1
1,13
9,26
6 8
,804
,531
9
,357
,576
9
,522
,875
30
,227,5
55-
-16
,052,5
86Re
ceiva
ble
on le
ase
75,
106,
533
73,
798,
486
73,
046,
681
99,
003,
982
35,1
29,9
1448
,571
,000
80,46
6,000
73,95
4,736
Loan
and
adv
ance
s 9
,086
,435
,629
1
0,44
3,99
0,77
6 1
1,43
1,48
8,36
5 1
1,01
5,22
4,28
7 4,5
45,88
0,712
6,405
,829,0
007,9
25,90
5,000
7,811
,840,9
71Am
ount
due
from
rela
ted
com
pani
es2,
800,
000
620,
000
-14
3,825
Othe
r rec
eivab
les
87,
905,
344
235
,491
,740
1
41,6
46,4
00
75,
993,
657
17,73
1,673
19,05
6,000
29,69
2,000
51,15
8,105
Depo
sits
and
pre
paym
ents
--
-18
,781
,454
Inco
me t
ax re
ceiva
ble
--
--
Inve
ntor
y 4
,960
,936
4
,851
,436
7,9
36,79
21,9
40,00
05,3
10,00
0-
Defe
rred
tax
asse
ts-1
1,97
2,94
4 -
979,
000
9790
002,
048,
359
Prop
erty
, pla
nt a
nd e
quip
men
t 7
7,78
2,96
5 9
3,06
8,86
1 1
27,5
57,2
11
144
,254
,923
49
,535
,790
51,98
8,000
55,00
7,000
73,99
5,375
Inta
ngib
le a
sset
s-
--
-In
vest
men
t pro
pert
y-
--
-To
tal a
sset
s 1
1,50
5,32
7,39
8 1
3,14
9,11
4,86
9 1
3,42
7,79
5,90
8 1
2,89
9,69
4,56
7 4,
967,
523,
379
6,961
,203,0
009,4
06,17
5,000
9,495
,034,4
43
LIAB
ILIT
IES
Bank
ove
rdra
ft 8
78,8
77,7
21
1,1
01,1
16,9
71
346
,611
,832
4
14,2
37,3
36
13,3
24-
413,
846,
000
424,
109,
313
Depo
sits
from
cus
tom
ers
2,0
35,8
36,6
93
1,3
74,3
24,3
13
1,1
80,8
64,5
66
2,8
13,3
22,3
52
84,5
45,7
401,
022,
365,
000
492,
051,
000
416,
641,
288
Oblig
atio
n un
der fi
nanc
e le
ase
--
--
Inte
rest
bea
ring
loan
s an
d bo
rrow
ings
2,9
61,6
94,3
55
2,9
58,8
92,2
59
3,0
67,3
04,1
58
2,0
66,1
92,2
21
1,20
0,00
0,`0
0070
0,00
0,00
01,
130,
695,
000
1,93
5,77
7,95
8In
com
e ta
x pa
yabl
e 1
77,4
48,7
98
178
,039
,625
1
13,8
28,5
96
107
,112
,351
50
,683
,245
77,4
96,0
0010
6,20
8,00
012
4,44
7,94
8Am
ount
due
to re
late
d co
mpa
nies
2,40
3,17
5,42
04,
116,
756,
000
5,40
3,30
4,00
04,
833,
891,
523
Trad
e Pa
yabl
es 4
,409
,707
,396
6
,429
,554
,990
7
,582
,000
,348
6
,340
,552
,348
40
1,81
1,25
2-
-27
,724
,962
Accr
ued
char
ges
and
othe
r pay
able
s-
124,
442,
000
8210
5300
080
7,92
5,03
7M
ICRO
fina
nce
fund
acc
ount
--
--
Empl
oyee
ben
efits
22,
346,
511
23,
985,
972
25,
654,
794
23,
595,
217
7,62
4,96
08,
282,
000
8,80
0,00
020
,755
,104
Defe
rred
tax
liabi
litie
s 1
1,97
2,94
4 1
1,72
9,55
9 1
0,82
1,57
3 -
--
-To
tal l
iabi
litie
s 1
0,48
5,91
1,47
5 1
2,07
7,88
7,07
3 1
2,32
7,99
3,85
4 1
1,77
5,83
3,39
8 4,
147,
853,
941
6,04
9,34
1,00
08,
375,
957,
000
8,59
1,27
3,13
3
EQUI
TYSt
ated
capi
tal
171
,180
,454
1
71,1
80,4
54
171
,180
,454
1
71,1
80,4
54
171,
180,
454
171,
180,
000
171,
180,
000
171,
180,
454
Rese
rves
74,
234,
216
74,
319,
590
74,
608,
614
83,
296,
235
67,0
65,2
6066
8620
0066
,906
,000
74,2
62,1
50Re
venu
e re
serv
es 7
74,0
01,2
53
825
,727
,754
8
54,0
12,9
86
869
,384
,479
58
1,42
3,72
467
3,82
0,00
079
2,13
3,00
065
8,31
8,70
6To
tal e
quity
1,0
19,4
15,9
23
1,0
71,2
27,7
98
1,0
99,8
02,0
54
1,1
23,8
61,1
68
819,
669,
438
911,
862,
000
1,03
0,21
9,00
090
3,76
1,31
0To
tal l
iabi
litie
s an
d eq
uity
11,
505,
327,
398
13,
149,
114,
869
13,
427,
795,
908
12,
899,
694,
567
4,96
7,52
3,37
96,
961,
203,
000
9,40
6,17
6,00
09,
495,
034,
443
Quarterly Financial Statements Statement of Financial Position
BRAC Lanka Finance PLC Annual Report 2016/17
98
2017
2016
Quar
ter E
nded
30.0
6.20
1630
.09.
2016
31.1
2.20
1631
.03.
2017
30.0
6.20
1530
.09.
2015
31.1
2.20
1531
.03.
2016
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Inte
rest
Inco
me
688
,272
,774
1
,490
,691
,390
.31
2,3
83,5
30,2
75.8
9 3
,268
,518
,995
.35
262
,687
,415
4
08,0
79,4
67
549
,782
,042
6
18,1
22,6
29
Inte
rest
Exp
ense
s-2
39,3
77,5
85
-541
,068
,984
.00
-919
,722
,198
.00
-1,2
83,5
78,4
63.6
5 -6
4,37
6,48
8 -1
12,1
11,9
63
-191
,548
,588
-2
09,8
94,4
86
Net I
nter
est I
ncom
e 4
48,8
95,1
89
949
,622
,406
1
,463
,808
,078
1
,984
,940
,532
1
98,3
10,9
27
295
,967
,504
3
58,2
33,4
54
408
,228
,143
Othe
r Ope
ratin
g In
com
e 1
8,16
3,01
1 5
8,27
5,94
0.00
8
4,81
8,31
7.00
1
26,4
94,7
42.3
2 3
,958
,115
6
,643
,807
1
4,73
3,45
1 1
2,26
2,31
3
Tota
l Inc
ome
467
,058
,200
1
,007
,898
,346
1
,548
,626
,395
2
,111
,435
,274
2
02,2
69,0
42
302
,611
,311
3
72,9
66,9
05
420
,490
,456
Oper
atin
g Ex
pens
es
Prov
isio
n fo
r dou
btfu
l deb
ts &
writ
e-off
s-4
4,01
5,72
6 -1
27,1
28,5
75.3
1 -2
97,9
43,4
57.8
9 -3
38,8
94,2
94.2
5 -6
,377
,961
-4
36,9
44
-12,
161,
353
-26,
398,
045
Pers
onne
l Exp
ense
s-9
9,68
6,11
1 -2
26,6
64,1
30.0
0 -3
48,4
36,3
84.7
5 -5
10,0
89,8
15.5
5 -8
0,15
6,39
5 -8
3,31
5,16
9 -8
7,43
5,39
5 -9
6,24
6,83
5
Depr
ecia
tion
-3,7
54,6
37
-6,2
90,1
74.0
0 -1
1,26
5,90
0.00
-1
4,97
5,53
8.11
-2
,325
,880
-2
,412
,761
-2
,459
,731
-3
,167
,356
Gene
ral &
Adm
inis
tratio
n ex
pens
es-9
5,52
2,92
4 -3
42,1
90,3
33.0
0 -5
18,0
71,4
10.0
0 -7
70,8
10,5
57.8
6 -2
9,16
7,66
9 -4
7,79
9,59
6 -7
2,64
2,00
3 -2
05,9
70,1
49
Profi
t fro
m o
pera
tions
224
,078
,802
3
05,6
25,1
34
372
,909
,242
4
76,6
65,0
68
84,
241,
137
168
,646
,842
1
98,2
68,4
23
88,
708,
072
Valu
e ad
ded
tax
on fi
nanc
ial s
ervi
ces
-31,
335,
328
-45,
690,
545.
00
-66,
865,
753.
00
-123
,872
,402
.48
-15,
002,
200
-31,
906,
498
-33,
171,
058
-12,
036,
369
Profi
t bef
ore
inco
me
tax
expe
nses
192
,743
,474
2
59,9
34,5
89
306
,043
,489
3
52,7
92,6
66
69,
238,
937
136
,740
,344
1
65,0
97,3
64
76,
671,
703
Inco
me
tax
expe
nses
-77,
060,
928
-92,
525,
541.
00
-110
,349
,208
.27
-132
,865
,383
.96
-15,
500,
534
-44,
480,
809
-46,
784,
645
-2,0
98,2
26
Profi
t for
the
perio
d 1
15,6
82,5
46
167
,409
,048
1
95,6
94,2
81
219
,927
,282
5
3,73
8,40
3 9
2,25
9,53
5 1
18,3
12,7
19
74,
573,
477
Othe
r Com
preh
ensi
ve In
com
e
Defin
ed b
enefi
t pla
n ac
tuar
ial g
ain/
lose
- -
- 2
,965
,243
.44
--
--1
3,31
1,33
8
Avai
labl
e-fo
r-sa
le fi
nanc
ial a
sset
s :
Net c
hang
e in
fair
valu
e-2
7,93
3.75
5
7,44
0.00
3
46,0
00.0
0 -1
,961
,799
.00
136
,625
-6
6,75
5 4
4,00
0 -2
19,4
59
Inco
me
tax
reco
gnis
ed in
oth
er c
ompr
ehen
sive
inco
me
-830
,268
.04
-27,
934
57,
440
346
,000
1
73,1
76
136
,625
-6
6,75
5 4
4,00
0 -1
3,53
0,79
7
Tota
l Com
preh
ensi
ve In
com
e 1
15,6
54,6
12
167
,466
,488
1
96,0
40,2
81
220
,100
,458
5
3,87
5,02
8 9
2,19
2,78
0 1
18,3
56,7
19
61,
042,
680
Quarterly Financial Statements Statement of Comprehensive Income
99
BRAC Lanka Finance PLC Annual Report 2016/17
Investor Information
Statement of value added
2017 2016
Rs. % Rs. %
Value added
Income 3,385,929,995 1,863,178,981
Other income 9,083,471 13,055,079
Cost of borrowings (1,283,578,463) (581,161,462)
General & administration expenses (770,810,558) (522,979,493)
Allowance for impairment & write-offs (338,894,294) (64,757,825)
1,001,730,152 707,335,280
Distribution of Value added
To Employees 510,089,816 51 347,153,793 49
Remuneration and other benefits 510,089,816 347,153,793
To Government 256,737,788 26 198,294,998 28
Indirect taxes 123,872,402 89,430,784
Direct taxes 132,865,385 108,864,214
To Expansion and Growth 234,902,548 23 161,886,489 23
Retained profits 219,927,010 151,520,761
Depreciation and amortisation 14,975,538 10,365,728
1,001,730,152 100 707,335,280 100
BRAC Lanka Finance PLC Annual Report 2016/17
100
Non
rec
urre
nt R
elat
ed P
arty
Tra
nsac
tion
s
No
non
recu
rren
t tra
nsac
tions
exc
eedi
ng th
e th
resh
old
took
pla
ce d
urin
g th
e fin
anci
al y
ear.
Rec
urre
nt R
elat
ed P
arty
Tra
nsac
tions
Nam
e of
the
Com
pany
Rel
atio
nshi
pN
atur
e of
the
Tran
sact
ion
“Agg
rega
te v
alue
of t
he r
elat
ed p
arty
tr
ansa
ctio
ns e
nter
ed in
to d
urin
g th
e fin
anci
al y
ear”
“Val
ue o
f the
rel
ated
pa
rty
tran
sact
ions
as
a %
of N
et A
sset
s”
Com
mer
cial
Lea
sing
& F
inan
ce P
LCPa
rent
Com
pany
Inte
rest
on
Loan
148
,833
,370
13
%
Loan
Pay
able
1,0
00,0
00,0
00
89%
Lank
a O
rix
Leas
ing
Com
pany
PLC
Ulti
mat
e pa
rent
Inte
rest
on
Loan
335
,591
,238
30
%
Fund
tran
sfer
s in
10,
677,
000,
000
950%
Fund
tran
sfer
s ou
t 9
,947
,735
,100
88
5%
Gua
rant
ee fe
e 1
5,00
0,00
0 1%
Expe
nse
reim
burs
emen
ts 2
08,6
02,4
17
19%
LOLC
Fac
tors
Lim
ited
Fello
w s
ubsi
diar
yIn
tere
st o
n Lo
an 4
29,8
54,4
18
38%
Inte
rest
Pay
able
14,
740,
314
1%
Lank
a O
RIX
Info
rmat
ion
Tech
nolo
gy
Ser
vice
s Li
mite
dFe
llow
sub
sidi
ary
IT S
ervi
ce F
ee 3
5,51
3,13
3 3%
LOLC
Life
Insu
ranc
e Li
mite
dFe
llow
sub
sidi
ary
Insu
ranc
e pr
emiu
m p
aym
ent
187
,174
,061
17
%
LOLC
Mot
ors
Lim
ited
Fello
w s
ubsi
diar
yB
alan
ce r
ecei
vabl
e/ (P
ayab
le)
45,
226
0%
Lott
ery
Colle
ctio
n In
com
e-
Lank
a O
RIX
Fin
ance
PLC
Fello
w s
ubsi
diar
yS
ettle
men
t of e
xpen
ses
32,
884,
957
3%
LOLC
Mic
ro C
redi
t Lim
ited
Fello
w s
ubsi
diar
yTr
ansf
er o
f fun
ds-
Set
tlem
ent o
f exp
ense
s 1
91,9
90
0%
Other Disclosures
101
BRAC Lanka Finance PLC Annual Report 2016/17
Notes
BRAC Lanka Finance PLC Annual Report 2016/17
102
Notice of Meeting
NOTICE IS HEREBY GIVEN THAT THE FIFTY SIXTH ANNUAL GENERAL MEETING of the Company will be held on Wednesday, 20th September 2017 at 11.30 a.m. at the LOLC Auditorium, 100/1, Sri Jayawardenapura Mawatha, Rajagiriya for the following purposes:
1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2017 with the Report of the Auditors thereon.
2. To re-elect as a Director Mr. I. C. Nanayakkara who retires by rotation in terms of Article 74 of the Articles of Association of the Company.
3. To re-elect as a Director Mr. R. D. Tissera who retires by rotation in terms of Article 74 of the Articles of Association of the Company.
4. To re-elect as a Director Mr. W. A. R. Kumara who retires by rotation in terms of Article 69 of the Articles of Association of the Company.
5. To re-appoint as auditors KPMG, Chartered Accountants at a remuneration to be agreed by the Directors.
By order of the BoardBRAC Lanka Finance PLC
Miss Chrishanthi EmmanuelDirector - LOLC Corporate Services (Pvt) LtdSecretaries
25th August 2017Rajagiriya (in the greater Colombo)
NOTE:
1) A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.
2) The completed Form of Proxy should be received by the Company at its registered office, 100/1 Sri Jayawardenapura Mawatha Rajagiriya, not later than 11.30 a.m. on 18th September 2017.
3) A Form of Proxy accompanies this Notice.
103
BRAC Lanka Finance PLC Annual Report 2016/17
Form of Proxy
I/We.............................………………………………....……………………..……………………………………………………………………………….………………………...........of
..……………..…………………………………………………………………………………………………………………….……………………………………......................…...........…
being a member/members of the above named Company hereby appoint …………………………………………………………………………………
.…..……………………………………………………………………………………………………………..…….………………………......................................................………...of
………………………………………………………………………………………………………......................................................................................... whom failing;
Ishara Chinthaka Nanayakkara of Colombo or failing him
Waduthantri Dharshan Kapila Jayawardena of Colombo or failing him
Ravindra Dhammika Tissera of Colombo or failing him
Annakkarage Jayantha Luxman Peiris of Colombo or failing him
Wijesingha Rajapaksha Arachchige Dharmaratne of Colombo or failing him
Wanni Achchige Rohana Kumara of Colombo
as my/our proxy to represent me/us and vote on my/our behalf at the Fifty Sixth Annual General Meeting of the Company to be held on Wednesday, 20th September 2017 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.
For Against
1 To re-elect as a Director Mr. I. C. Nanayakkara who retires by rotation in terms of Articles 74 of the Article of Association of the Company.
2 To re-elect as a Director Mr. R. D. Tissera who retires by rotation in terms of Articles 74 of the Article of Association of the Company.
3 To re-elect as a Director Mr. W. A. R. Kumara who retires by rotation in terms of Articles 69 of the Articles of Association of the Company
4 To re-appoint as auditors KPMG, Chartered Accountants at a remuneration to be fixed by the Directors.
dated this …………………. day of ………………………..2017
………………………………....……… Signature of Shareholder
NOTE:
1) a proxy need not be a member of the company
2) Instruction as to completion appear on the reverse hereof
BRAC Lanka Finance PLC Annual Report 2016/17
104
INSTRUCTIONS AS TO COMPLETION
1 Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.
2 The completed Form of Proxy should be deposited at the registered office of the Company, 100/1, Sri Jayawardenapura Mawatha, Rajagiriya not less than 48 hours before the time appointed for the holding of the Meeting.
Corporate Information
Name of the Company : Brac Lanka Finance PLC
Date of Incorporation : 13th January 1961
Legal Form : A Public Quoted Company with limited liability
Company Registration No. : PB 263 PQ
Stock Exchange Listing : The Ordinary shares of the Company are listed on the Colombo Stock Exchange
Directors I. C. Nanayakkara - Non-Executive ChairmanW. D. K. Jayawardena - Non-Executive DirectorR. D. Tissera - Non-Executive Director A. J. L. Peiris - Independent Director W. R. A. Dharmaratne - Independent DirectorW. A. R. Kumara - Executive Director/CEO (Appointed Director w.e.f. 26 July 2017)
Audit Committee W. D. K. Jayawardena - Non-Executive Director, Committee Chairman A. J. L. Peiris - Independent Director W. R. A. Dharmaratne - Independent Director
Remuneration Committee W. R. A. Dharmaratne - Independent Director, Committee Chairman A. J. L. Peiris - Independent Director W. D. K. Jayawardena - Non-Executive Director
Related Party Transactions Review Committee A. J. L. Peiris - Independent Director, Committee ChairmanW. R. A. Dharmaratne - Independent DirectorW. D. K. Jayawardena - Non-Executive Director
Integrated Risk Management Committee R. D. Tissera - Non-Executive Director, Committee ChairmanW. A. R. Kumara - Executive Director/CEO Mrs. S Wickremasekera - Group Chief Risk OfficerL Pieris - Head of ITG. Herath - Assistant Manager - Finance/ Compliance Office (from 20 October 2016)C. Wijewarnasooriya - Chief Manager, Channels H. Senarathne* - Head of Treasury OperationsC. Karunathilaka* - Chief Manager - Credit Risk ManagementS. Perera* - Manager, Collection & Recoveries
Registered Office : No. 100/1, Sri Jayawardenapura Mawatha Rajagiriya, Sri Lanka Tel: +94 11 5880880 Fax: +94 11 2865606
Business Address : No. 481, T B Jayah Mawatha, Colombo 10 Tel: +94 11 5889300 Fax: +94 11 2662875
Company Secretaries : LOLC Corporate Services (Pvt) Ltd
Auditors : KPMG, Chartered Accountants
Registrars : SSP Corporate Services (Pvt) Ltd
Bankers : Commercial Bank of Ceylon PLC People’s Bank Seylan Bank PLC Hatton National Bank PLC Bank of Ceylon* Appointed to the Committee 21 April 2017
Designed & produced by
Printed by Printage (Pvt) Ltd
BR
AC Lanka Finance P
LC
Annual R
eport 2016/17