General

The Directors have pleasure in presenting to the shareholders the Annual Report of the SANASA Development Bank PLC together with the Audited Financial Statements for the year ended 31 December 2022 and the Auditors’ Report on those Financial Statements conforming to all relevant statutory requirements. This Report provides the information as required by the Companies Act No. 07 of 2007, Banking Act No. 30 of 1988 and amendments thereto and the Directions issued thereunder including the Banking Act Direction No. 12 of 2007 on “Corporate Governance for Licensed Specialised Banks in Sri Lanka” and subsequent amendments thereto, the Listing Rules of the Colombo Stock Exchange (the CSE) and the recommended best practices.

The Financial Statements of the Bank for the year ended 31 December 2022, including the comparatives for 2021 were approved and authorized for issue by the Board of Directors on 12th April 2023 in accordance with the Resolution of the Directors. The appropriate number of copies of the Annual Report will be submitted to the CSE and to the Sri Lanka Accounting and Auditing Standards Monitoring Board within the statutory deadlines.

SANASA Development Bank PLC (“The Bank”) is a licensed specialized bank registered under the Banking Act No. 30 of 1988 and was incorporated as a public limited liability company in Sri Lanka on 6 August 1997 under the Companies Act No. 17 of 1982. The Bank was reregistered as per the requirements of the Companies Act No. 07 of 2007 (“Companies Act”) on 30 October 2007. The reregistration number of the Bank is PB 62 PQ. The Registered Office as well as the Head Office of the Bank is at No. 12, Edmonton Road, Kirulapone, Colombo 6, Sri Lanka.

The ordinary voting shares of the Bank are listed on the Main Board of the Colombo Stock Exchange since May 2012. The Bank has been assigned a National Long-Term Rating of BB+(lka) by Fitch Ratings Lanka Ltd.

Vision, Mission, Goals, Values and Corporate Conduct

The Bank’s Vision and Mission statements are exhibited on page 07 of the Annual Report.

The business activities of the Bank are conducted in keeping with the highest level of ethical standards in achieving its Vision and Mission.

The Bank issues a copy of its Code of Ethics to each and every staff member and all employees are required to abide by the Bank’s Code of Conduct.

Principal Business Activities

The principal activities of the Bank include accepting deposits at competitive rates of interest and the investment of these deposits in community-based lending programs, with a special focus on Cooperative Societies, their members, and other micro-enterprises, and issuing local and international debit cards. The Bank’s range of products includes Special Deposits, Credit, Pawning, Leasing, and Re-finance Loan Schemes.

At the end of 2022, the Bank has established 94 delivery points (2021 – 94) across all districts of the country.

Review of Operations

The “Chairperson’s Review” on pages 18 to 21 the “Chief Executive Officer’s Review” on pages 22 to 25, and the “How we create value” on pages 50 and 51, together with the Audited Financial Statements provide an overall review of business performance and the state of affairs of the Bank together with important events that took place during the year as required by the Section 168 of the Companies Act No. 07 of 2007 and the recommended best accounting practices.

Future Developments

The Bank intends to expand its network of delivery channels by employing a client-focused strategy with effective management of capital, liquidity, and risks. Please refer to sections on “Chairperson’s Review”, “Chief Executive Officer’s Review” on pages 18 to 25, and “How we create value” on pages 50 and 51 for initiatives taken in this regard.

Financial Statements

The Financial Statements of the Bank have been prepared in accordance with Sri Lanka Accounting Standards (SLFRSs/ LKASs) laid down by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and they comply with the requirements of Companies Act No. 07 of 2007 and Banking Act No. 30 of 1988. The Financial Statements of the Bank for the year ended 31 December 2022 duly signed by the Chief Financial Officer and Chief Executive Officer, two Directors of the Bank, and the Company Secretary are given on pages 172 to 271, which form an integral part of the Annual Report of the Board of Directors.

Director’s Responsibility for Financial Reporting

The Directors are responsible for the preparation of the Financial Statements of the Bank, which reflect a true and fair view of the financial position and performance of the Bank. The Directors are of the view that the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, Significant Accounting Policies, and Notes thereto appearing on pages 172 to 271 have been prepared in conformity with the requirements of the SLFRSs and LKASs as mandated by the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Companies Act No. 07 of 2007. Further, these Financial Statements also comply with the requirements of the Banking Act No. 30 of 1988 and amendments thereto and the Listing Rules of the Colombo Stock Exchange. The “Statement of Directors’ Responsibility” appearing on page 167 forms an integral part of this Report.

Auditors’ Report

The External Auditors’ of the Bank are Messrs Ernst and Young, Chartered Accountants. Messrs Ernst & Young, Chartered Accountants carried out the Audit on the Financial Statements of the Bank for the year ended 31 December 2022 and their report on these Financial Statements, as required by the Section 168 (1) (c) of the Companies Act is given on page 169 of this Annual Report. The Auditors’ remuneration details are stated in Note 16 to the Financial Statements on page 202. As per the knowledge of the Directors, the Auditors are independent and do not have any relationships or any interest in contracts with the Bank.

As per the knowledge of the Directors the Auditors are independent and do not have any relationships or any interest in contracts with the Bank.

Significant Accounting Policies

The Significant Accounting Policies adopted in the preparation of the Financial Statements are given on pages 176 to 193 and comply with Section 168 (1) (d) of the Companies Act No. 07 of 2007.

Going Concern

The Directors have made an assessment of the Bank’s ability to continue as a going concern and are satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern, such as restrictions or plans to curtail operations.

Financial Results and Appropriations

Gross Income

The gross income of the Bank for 2022 was LKR 24.03 Bn (2021: LKR 15.48 Bn). An analysis of the gross income is given in Note 06 to the Financial Statements on pages 194.

Profits and Appropriations

The net profit before tax of the Bank amounted to LKR 96.96 Mn. in 2022 (2021: LKR 1,329.8 Mn) and this has reduced by 92.7% when compared to 2021. Further, the net profit after tax of the Bank amounted to LKR 61.17 Mn. in 2022 (2021: LKR 883.28 Mn.) and this was a decrease of 93% when compared to 2021. A detailed breakup of profits and appropriations of the Bank is given below:

Taxation

The Bank applied the revised rate of 30% and other amendments in line with the Inland Revenue Amendment Act No. 45 of 2022 to calculate the income tax and deferred tax assets/liabilities as of 31st December 2022. An increased tax rate was applicable for six months of the year of assessment.

First six months of the year of assessment commencing on April 1, 2022, the rate was 24% and for the second six months of the same year of assessment the rate was 30%.

Bank applied the revised rate of 30% to compute the deferred tax as of 31st December 2022.

Surcharge tax relevant for the year of assessment 2020/2021 paid during the financial year 2022 amounting to Rs. 521.6Mn adjusted to retained earnings.

Statutory Payments

The Directors, to the best of their knowledge and belief, are satisfied that all statutory payments (including all taxes, duties, and levies payable by the Bank) due to the Government, other regulatory institutions, and related to the employees have been made on time or where relevant provided for.

Reserves

A summary of the Bank’s reserves position is given below:

Information on the movement of reserves is given in the Statement of Changes in Equity on page 174 and in Notes 36 to 38 to the Financial Statements on page 231.

CAPITAL EXPENDITURE

The total capital expenditure on the acquisition of property plant and equipment of the Bank amounted to LKR 137,227,904 (2022) LKR 495,986,096 (2021). Details are given in Note 25 to the Financial Statements.

CAPITAL COMMITMENTS

The contracted and approved capital expenditure as at the date of the reporting is given in Note 39 to the Financial Statements.

Property, Plant and Equipment, Intangible Assets and Leasehold Property

Information on property, plant and equipment and leasehold property of the Bank are given in Note 25 to the Financial Statements on page 216. Particulars of intangible assets are given in Note 28 to the Financial Statements on page 221.

Investment properties of the Bank are disclosed in accordance with Sri Lanka Accounting Standard – 40 – “Investment Property”. Specific information on extent, location of the land and buildings held by the Bank are given under Note 27 to the Financial Statements on page 221.

Stated Capital

The stated capital of the Bank as at 31 December 2022 amounted to LKR 11,287,765,221 consisting of 160,698,832 ordinary voting shares.

Debt capital

The Bank has issued Rated Guaranteed Redeemable Debentures of LKR 100 each in 2015 which are guaranteed by Sampath Bank PLC and Seylan Bank PLC to the total outstanding value of LKR 1,013,899,072 and it was fully paid off on 3 January 2021. The details of the debentures outstanding as at 31 December 2020 are given in Note 32 to the Financial Statements.

Distribution Schedule of Shareholdings

Substantial Shareholdings

Equitable Treatment to Shareholders

The Bank has at all times ensured that all shareholders are treated equitably.

Information On The Directors of the Bank

The Board of Directors of the Bank consists of Thirteen (31/12/2022) Directors with wide financial and commercial knowledge and experience. The names of the Directors of the Bank as at 31 December 2022 are given below as per Section 168 (1) (h) of the Companies Act. Their brief profiles appear on pages 28 to 31 of the Annual Report.

The classification of Directors into Executive Director (ED), Non- Executive Director (NED) and Independent Director (ID), Non- Independent Director (NID) is given against the names as per Listing Rules and Corporate Governance Rules of Colombo Stock Exchange and Banking Act Direction No. 12 of 2007 issued by the Central Bank of Sri Lanka.

Further, at the 25th AGM held on 30 May 2022 Director Mr B R A Bandara who represented the Polgahawela Sanasa Socities Union Ltd and Director Mr Conrd Dias who represented LOLC Investment Holdings One (Private) Limited were re-elected and Director Mr Romani De Silva who represented the Alliance Finance Company PLC and Director Mr Senthi Aathavan who represented the Senthilverl Holdings Private Limited were elected as Non- Executive, Non- Independent Directors.

Retirement by Rotation and Re-Election/ Re-Appointment of Directors

• In terms of Article 6(4) (i) and (ii) the following Directors shall retire by rotation at the 26th AGM, and the Board recommended their re-election.
  • Mr Sarath Nandasiri
  • Dr Mahesha Ranasoma
  • Mr Romani De Silva


• Dr Mahesha Ranasoma was appointed to the Board on 28th April 2023 to fill a casual vacancy arisen during the year 2022. He shall resign at the 26th Annual General Meeting and is eligible for re-election in terms of the Article 6(4) (ii).

Board Subcommittees

The Board of Directors of the Bank formed four mandatory Board Subcommittees namely, the Board Selection and Nomination Committee, the Board Human Resources and Remuneration Committee, the Board Integrated Risk Management Committee and the Board Audit Committee as required by the Banking Act Direction No. 12 of 2007 on “Corporate Governance for Licensed Specialised Banks in Sri Lanka” issued by the CBSL.

The Board formed a Board Related Party Transactions Review Committee in 2014 to assist the Board in reviewing all related party transactions carried out by the Bank, by early adopting the Code of Best Practice on Related Party Transactions as issued by the Securities and Exchange Commission of Sri Lanka (the SEC) which became mandatory from 1 January 2016.

The Board of Directors also has formed seven other voluntary Board Subcommittees to assist the Board. These committees play a critical role in order to ensure that the activities of the Bank at all times are conducted with the highest ethical standards and in the best interest of all its stakeholders. The Terms of Reference of these Subcommittees confirm to the recommendations made by various regulatory bodies, such as the Central Bank of Sri Lanka, The Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission, and the Colombo Stock Exchange.

The composition of both mandatory and voluntary Board Subcommittees, as at 31 December 2022 and the details of the attendance by Directors at meetings are tabulated on pages 157 while the reports of these subcommittees are found on pages 132 to 143 in this Report.

Meetings

Details of the Meetings of the Board of Directors which comprises with Board Meetings, Board Audit Committee Meetings, Board Selection and Nomination Committee Meetings, Board Human Resources and Remuneration Committee Meetings, Board Credit Committee Meetings, Board Integrated Risk Management Committee Meetings, Board Strategic Planning Committee Meetings, Board Related Party Transactions Review Committee Meetings, Board Co-operative Rural Enterprise and Livelihood Development Committee Meetings, Board Subcommittee on Sustainability Meetings, Board IT Steering Committee Meetings and Board Procurement and Assets Disposal Committee Meetings and the attendance of Directors at these meetings are given below:

* BP & ADC was formally constituted w.e.f 27/09/2022

*P - Present *Ex – Excused *N/A – Not Applicable

Mr L Abeysekera

Retired from the Board, BIRMC, BS & NC, BSPC and BSCS w.e.f. 29.04.2022

Ms D Ratnayake

Appointed as Chairperson of the Board and BS & NC w.e.f. 29.04.2022 Appointed to the BIRMC w.e.f. 24.06.2022 Resigned from the BCC w.e.f. 24.06.2022 Resigned from the Chairmanship of the BITSC w.e.f. 28.10.2022

Prof S Amaratunge

Appointed to the BHRRC w.e.f. 24.06.2022

Mr P Subasinghe

Resigned from the Board and BSPC w.e.f. 31.12.2022 Resigned from the BCC w.e.f. 18.02.2022

Mr L Thilakarathne

Retired from the Board, BCC and BCRELDC w.e.f. 30.05.2022

Mr P Premaratna

Appointed to the BP & ADC w.e.f. 29.08.2022

Mr B R A Bandara

Appointed as the Chairman of BCRELDC and Member of BCC w.e.f. 24.06.2022 Resigned from the BIRMC w.e.f. 24.06.2022

Mr J A L G Jayasinghe

Retired from the Board, BAC and BHRRC w.e.f. 30.05.2022 Retired from the Chairmanship of BCRELDC w.e.f. 30.05.2022

Mr T Wijemanna

Appointed to the BP & ADC w.e.f. 29.08.2022 and appointed as the Chairman of BP & ADC w.e.f. 27.12.2022 Appointed to the BRPTRC w.e.f. 28.10.2022

Mr C Dias

Appointed as the Chairman of BITSC w.e.f. 28.10.2022

Mr N Sooriyarachchi

Appointed to the BAC w.e.f. 24.06.2022 Appointed to the BP & ADC w.e.f. 29.08.2022 Resigned from the BITSC w.e.f. 24.06.2022

Mr R De Silva

Appointed to the Board, BCC, BCRELDC and BSCS w.e.f. 24.06.2022

Mr S Aathavan

Appointed to the Board w.e.f. 24.06.2022 Appointed to the BITSC w.e.f. 28.10.2022

Mr C Dissanayake

Appointed to the Board w.e.f. 26.07.2022 Appointed to the BP & ADC w.e.f. 29.08.2022 Appointed to the BHRRC, BIRMC and BSCS w.e.f. 28.10.2022

Disclosure of Directors’ Dealing in Shares

Individual ordinary voting shareholdings of persons who were Directors of the Bank at any time during the financial year are as follows:

Number of Shares

Directors’ Shareholding Percentage

Events After the Reporting Period

No event of material significance that require adjustments to the Financial Statements, has occurred subsequent to the reporting period, other than those disclosed in Note 41 to the Financial Statements on page 234.

Appointment of Auditors and Their Remuneration

The Bank’s Auditors during the period under review were Messrs Ernst & Young, Chartered Accountants. Audit fees and reimbursement of expenses paid to Ernst & Young during the year under review by the Bank amounted to LKR 1,970,000(2021: LKR 2,464,000). Further LKR 1,933,451 (2021: LKR 921,334 were paid by the Bank for audit-related and non-audit services including reimbursement of expenses.
Details of the audit fees paid are given on Note 16 to the Financial Statements on page 202.
Based on the declaration provided by Messrs Ernst & Young, and as far as the Directors are aware, the Auditors do not have any relationship or interest with the Bank that in our judgement, may reasonably be thought to have a bearing on their independence within the meaning of the Code of Professional Conduct and Ethics issued by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), applicable on the date of this Report.
The retiring Auditors, Messrs Ernst & Young, have expressed their willingness to continue in office. Hence they may come up for reelection at the Annual General Meeting, with the recommendation of Board Audit Committee and the Board of Directors. In accordance with the Companies Act, a resolution proposing the re-appointment of Messrs Ernst & Young, Chartered Accountants, as Auditors is being proposed at the Annual General Meeting

Information on Ratios, Market Prices of Shares and Credit Ratings

Information that requires disclosures as per Rule 7.6 (xi) of the Listing Rule of the CSE are given in the Section on “Investor Relations” on pages 277 to 289.

Risk Management and Internal Control

The Bank has an ongoing process in place to identify, evaluate and manage the risks that are faced by the Bank. The Directors continuously review this process through the Board Integrated Risk Management Committee. Specific steps taken by the Bank in managing both banking and non- banking risks are detailed in the Section on “Managing our Risks” on pages 84 to 94 and in Note 41 to 47 to the Financial Statements on pages 244 to 260.
The Directors have taken reasonable steps open to them to safeguard the assets of the Bank and to prevent and detect frauds and any other irregularities. For this purpose the Directors have instituted effective and comprehensive systems of Internal controls for identifying, recording, evaluating and managing the significant risks faced by the Bank throughout the year and it is being under regular review of the Board of Directors. This comprises internal reviews, Internal Audit and the whole system of financial and other controls required to carry on the operations in an orderly manner, safeguard the assets, prevent and detect the frauds and other irregularities and secure as far as practicable the accuracy and reliability of the records.

Board of Directors on the Affairs of the Company

The Board has issued a report on the internal control mechanism of the Bank as per Section 3 (8) (ii) (b) of Banking Act Direction No. 12 of 2007 on Corporate Governance. The Board has confirmed that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of the financial reporting, and that the preparation of Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements. The above report, which forms an integral part of the Annual Report of the Board of Directors, is given on pages 148 and 171.

The Board has obtained an assurance report from the External Auditors on Directors’ Statement on Internal Control which is given on page 164 of the Annual Report.

Outstanding Litigations

In the opinion of the Directors and the Bank’s Lawyers, pending litigation against the Bank disclosed in Note 39.2 of the Financial Statements given on pages 232 and 233 will not have a material impact on the financial position of the Bank or its future operations.

Corporate Governance

Directors’ declarations:

• the Bank complied with all applicable laws and regulations in conducting its business and have not engaged in any activity contravening the relevant laws and regulations. Officers responsible for ensuring compliance with the provisions in various laws and regulations, confirm compliance in each quarter to the Board Integrated Risk Management Committee;
• the Directors have declared all material interests in contracts involving the Bank and refrained from voting on matters in which they were materially interested;
• all endeavours have been made to ensure that shareholders in each category have been treated equitably in accordance with the original Terms of Issue;
• the business is a going concern with supporting assumptions or qualifications as necessary, and that the Board of Directors has reviewed the Bank’s Corporate/Business Plans and is satisfied that the Bank has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements of the Bank are prepared based on the going concern assumption; and
• they have conducted a review of internal controls covering financial, operational and compliance controls, risk management and have obtained a reasonable assurance of their effectiveness and proper adherence. The measures taken and the extent to which the Bank has complied with the Code of Best Practice on Corporate Governance issued by the CA Sri Lanka and the SEC, the CSE and the CBSL are given on pages 100 to 131.

Annual General Meeting and the Notice of Meeting

The 26th Annual General Meeting of the Bank will be held at the Board Room of SANASA Development Bank PLC, No 12, Edmonton Road, Kirulapone, Colombo 06 through an “Online-Virtual” platform by using “ audio-visual” tools on 19 May 2023 at 10.00 a.m.

Acknowledgement of the Contents of the Report

As required by Section 168 (1) (k) of the Companies Act No. 07 of 2007, the Board of Directors hereby acknowledges the contents of this Annual Report.

For and on behalf of the Board of Directors,

Dinithi Ratnayake
Chairperson

Tamarika Rodrigo
Company Secretary

12 April 2023
Colombo, Sri Lanka