Supplementary Information

Disclosures as per Pillar III of Banking Act No. 1 of 2016, Capital Requirements under Basel III

Template 1

Key regulatory ratios – Capital and liquidity

Item	As at 31 December 2022 LKR ‘000	As at 31 December 2021 LKR ‘000
Regulatory capital (LKR'000)
Common Equity Tier 1 (CET I) capital	12,519,755	13,491,315
Tier 1 capital	12,519,755	13,491,315
Total capital	14,895,615	16,174,114

Regulatory capital ratio (%)
Common Equity Tier 1 capital ratio (Minimum requirement - 2022: 6.50 2021: 6.50%)	12.92	13.16
Tier 1 Capital Ratio (Minimum requirement - 2022: 8.00 2021: 8.00%)	12.92	13.16
Total capital ratio (Minimum requirement - 2022: 12.00%, 2021: 12.00%)	15.37	15.78

Leverage ratio (%) (Minimum requirement - 3%)	7.87	9.11

Regulatory liquidity
Statutory liquid assets (LKR' 000)	23,309,484	20,694,877
Statutory liquid assets ratio (Minimum requirement - 20%)
Domestic banking unit (%)	23.51	22.37
Off-shore banking unit (%)	-	-
Total stock of high-quality liquid assets (LKR' 000)	20,100,093	12,782,663
Liquidity coverage ratio (%) (Minimum requirement - 2022: 100%, 2021 - 90%)
Rupee (%)	191.22	134.82
All currency (%)	191.31	134.82
Net stable funding ratio (%) (Minimum requirement - 100%)	241.61	137.61

Template 2

Basel III computation of capital ratios

Item	As at 31 December 2022 LKR ‘000	As at 31 December 2021 LKR ‘000

Common Equity Tier 1 (CET1) capital after adjustments	12,519,755	13,491,315
Common Equity Tier 1 (CET1) capital	13,659,214	14,129,697
Equity capital (stated capital) /assigned capital	11,287,765	11,287,765
Reserve fund	317,231	314,173
Published retained earnings/(accumulated retained losses)	1,767,576	2,500,153
Published accumulated other comprehensive income (OCI)	-	-
General and other disclosed reserves	286,642	27,605
Unpublished current year's profit/(losses) and gains reflected in OCI	-	-
Ordinary shares issued by consolidated banking and financial subsidiaries of the Bank and held by third parties	-	-
Total adjustments to CET1 capital	1,139,459	638,381
Goodwill (net)	-	-
Intangible assets (net)	538,831	338,933
Deferred tax assets (net)	600,628	299,448
Investments in the capital of banking and financial institutions	-	-
Additional Tier 1 (AT1) capital after adjustments	-	-
Additional Tier 1 (AT1) capital	-	-
Qualifying additional Tier 1 capital Instruments	-	-
Instruments issued by consolidated banking and financial subsidiaries of the Bank and held by third parties	-	-
Total adjustments to AT1 capital	-	-
Investment in own shares	-	-
Others	-	-
Tier 2 capital after adjustments	2,375,860	2,682,799
Tier 2 capital	2,375,860	2,682,799
Qualifying Tier 2 capital instruments	1,053,785	1,763,878
Revaluation gains	-	-
Loan loss provisions	1,322,075	918,921
Instruments issued by consolidated banking and financial subsidiaries of the Bank and held by third parties	-	-
Total adjustments to Tier 2	-	-
Investment in own shares	-	-
Investments in the capital of banking and financial institutions	-	-
CET 1 capital	12,519,755	13,491,315
Total Tier 1 capital	12,519,755	13,491,315
Total capital	14,895,615	16,174,114

Total risk weighted assets (RWA)	96,919,305	102,517,659
RWAs for credit risk (Template 7 and 8)	87,382,372	94,318,069
RWAs for market risk (Template 9)	702,570	25,975
RWAs for operational risk (Template 10)	8,834,363	8,173,615

CET 1 capital ratio (including capital conservation buffer, countercyclical capital buffer and surcharge on D-SIBs) (%)	12.92	13.16
of which: capital conservation buffer (%)	-	-
of which: countercyclical buffer (%)	-	-
of which: capital surcharge on D-SIBs (%)	-	-
Total Tier 1 capital ratio (%)	12.92	13.16
Total capital ratio (including capital conservation buffer, countercyclical capital buffer and surcharge on D-SIBs) (%)	15.37	15.78
of which: capital conservation buffer (%)	-	-
of which: countercyclical buffer (%)	-	-
of which: capital surcharge on D-SIBs (%)	-	-

Template 3

Computation of leverage ratio

Item	As at 31 December 2022 LKR ‘000	As at 31 December 2021 LKR ‘000

Tier 1 capital	12,519,755	13,491,315
Total exposures	159,109,857	148,090,672
On-balance sheet items (excluding derivatives and securities financing transactions, but including collateral)	158,381,572	147,180,535
Derivative exposures	-	-
Securities financing transaction exposures	-	-
Other off-balance sheet exposures	728,285	910,137
Basel III leverage ratio (%) (Tier 1/total exposure)	7.87	9.11

Template 4

Basel III computation of liquidity coverage ratio

Item	Amount (LKR' 000)
	As at 31 December 2022		As at 31 December 2021
	Total un-weighted value	Total weighted value	Total un-weighted value	Total weighted value

Total stock of high-quality liquid assets (HQLA)	20,100,093	20,100,093	12,833,982	12,782,663
Total adjusted level 1 assets	20,100,093	20,100,093	12,520,743	12,520,743
Level 1 assets	20,100,093	20,100,093	12,520,743	12,520,743
Total adjusted level 2A assets	-	-	300,858	255,730
Level 2A assets	-	-	300,858	255,730
Total adjusted level 2B assets	-	-	12,381	6,190
Level 2B assets	-	-	12,381	6,190

Total cash outflows	99,635,041	16,144,959	95,959,343	16,449,004
Deposits	70,931,957	7,093,196	66,115,337	6,611,534
Unsecured wholesale funding	26,888,013	7,933,118	28,163,505	9,019,801
Secured funding transactions	32,592	32,592.40	27,140	27,140
Undrawn portion of committed (irrevocable) facilities and other contingent funding obligations	1,782,478	1,086,053	1,653,361	790,530
Additional requirements	-	-	-	-

Total cash inflows	16,182,267	5,633,256	14,580,754	6,967,439
Maturing secured lending transactions backed by collateral	-	-	3,196,417	51,190
Committed facilities	7,600,000	-	2,100,000	-
Other inflows by counterparty which are maturing within 30 days	6,707,807	4,696,027	9,109,337	6,828,748
Operational deposits	-	-	-	-
Other cash inflows	1,874,460	937,230	175,000	87,500

Liquidity coverage ratio (%) (stock of high quality liquid assets/total net cash outflows over the next 30 calendar days) * 100		191.22		134.82

Template 5

Main features of regulatory capital instruments

Description of the capital instrument	Stated capital	Subordinated term debt (2016)	Subordinated term debt (2019)	Subordinated term debt (2019)
Issuer	Sanasa Development Bank PLC	SBI FMO Emerging Asia Financial Sector Fund PTE. LTD	Stichting Fondsbeheer DGGF Lokaal MKB duly represented by Triple Jump B.V	Belgian Investment Company for Developing Countries NV/SA - (BIO)
Unique identifier	LK0412N00003	N/A	N/A	N/A
Governing Law of the instrument	Companies Act, No. 07 of 2007, Colombo Stock Exchange Regulations	Companies Act, No. 07 of 2007, Colombo Stock Exchange Regulations, Banking Act Directions	Companies Act No. 07 of 2007, Colombo Stock Exchange Regulations, Banking Act Directions	Companies Act No. 07 of 2007, Colombo Stock Exchange Regulations, Banking Act Directions
Original date of issuance (agreement signed date for subordinated term debts)	May 2012	December 2016	March 2019	September 2019
Par value of instrument (LKR)	100	N/A	N/A	N/A
Perpetual or dated	Perpetual	Dated	Dated	Dated
Original maturity date, if applicable	N/A	December 2021	March 2024	September 2024
Amount recognised in regulatory capital (in LKR '000 as at 31st December 2022)	11,287,765	-	497,817	555,968
Accounting classification (equity/liability)	Equity	Liability	Liability	Liability
Issuer call subject to prior supervisory approval
Optional call date, contingent call dates and redemption amount (LKR ‘000)	N/A	N/A	N/A	N/A
Subsequent call dates, if applicable	N/A	N/A	N/A	N/A
Coupons/Dividends
Fixed or floating dividend/coupon	Floating dividend	Floating coupon	Floating coupon	Floating coupon
Coupon rate and any related index (%)	N/A	6 months T-bill rate + 450bps	6 months T-bill Rate + 700bps	6 months LIBOR + 550bps
Non-cumulative or cumulative	Non-cumulative	Cumulative	Cumulative	Cumulative
Convertible or non-convertible	Non-convertible	Convertible	Convertible or write off	Convertible
If convertible, conversion trigger(s)	N/A	N/A	Conversion trigger(s) applicable as per Banking Act Direction No. 1 of 2016	Conversion trigger(s) applicable as per Banking Act Direction No. 1 of 2016
If convertible, fully or partially	N/A	Fully or partially subject to a maximum of 15% of the issued share capital	Fully or partially subject to a maximum of 15% of the issued share capital	Fully or partially subject to a maximum of 15% of the issued share capital
If convertible, mandatory or optional	N/A	Optional	Mandatory upon the occurrence of a trigger event	Mandatory upon the occurrence of a trigger event
If convertible, conversion rate	N/A	LKR 140 or 1.1 x of book value per share which ever is lower in the event if Bank issues new shares to any new investor	Simple average of the daily volume weighted average price (VWAP) of an ordinary voting share of the borrower as published by the colombo stock exchange during the three (3) months period, immediately preceding the date of the trigger event	Simple average of the daily volume weighted average price (VWAP) of an ordinary voting share of the borrower as published by the colombo stock exchange during the three (3) months period, immediately preceding the date of the trigger event

Template 6

Summary Discussion on Adequacy/Meeting Current and Future Capital Requirements

Overview

A proper “capital management process” is vital in ensuring the long-term stability of the business, the capital adequacy ratio is a measure used to determine whether the Bank has sufficient capital to withstand unexpected losses arising from various risks during the course of the business. Therefore, it acts as a layer of cushion in absorbing potential losses arising from the course of the business and safeguarding the depositors’ funds. At present, capital adequacy position of the banks are computed based on banking Act Direction No. 01 of 2016 and subsequent amendments thereto issued by Central Bank of Sri Lanka. SANASA Development Bank has continued to maintain capital adequacy ratios at healthy levels by keeping a significant margin over and above the regulatory minimum requirements.

Capital Management Process

In order to comply with the new Basel III guidelines, SANASA Development Bank’s capital management process is under supervision of Board Strategic Planning Committee. The three year (2020-2022) capital management plan rolled out has been integrated with the Internal Capital Adequacy Assessment Process (ICAAP) as well as the Bank’s Strategic Plan. Efforts have taken to comply with the Basel III regulations saw the Bank increases its capital levels by issuing Basel III compliant Tier - II debt instruments. Steps were also taken to optimize the capital ratios by rebalancing the risk weighted assets (RWA).

Moving Forward

Moving forward with the capital management plan, the Bank will execute specific medium term and long term strategies to raise both Tier I and Tier II capital in line with Basel III minimum regulatory requirements. In addition, timely actions have been identified and will be executed during the coming years to optimize the risk weighted assets for the purpose of improving the capital allocation of the Bank.

Template 7

Credit risk Under Standardized Approach - Credit Risk Exposures and Credit Risk Mitigation (CRM) Effects

Asset class	Amount (LKR' 000) as at 31 December 2022
	Exposures before credit conversion factor (CCF) and CRM		Exposures post CCF and CRM		RWA and RWA density (%)
	On- balance sheet amount	Off-balance sheet amount	On- balance sheet amount	Off-balance sheet amount	RWA	RWA density (%)

Claims on Central Government and CBSL	19,717,154	-	19,717,154	-	-	0%
Claims on foreign sovereigns and their Central Banks	-	-	-	-	-	-
Claims on public sector entities	-	-	-	-	-	-
Claims on official entities and multilateral development banks	-	-	-	-	-	-
Claims on banks exposures	20,453,751	-	20,453,751	-	4,090,750	20%
Claims on financial institutions	1,905,738	-	1,905,738	-	952,869	50%
Claims on corporates	165,727	-	165,727	-	165,727	100%
Retail claims	100,529,508		88,772,445	-	66,184,691	75%
Claims secured by residential property	3,268,586	-	3,268,586	-	2,211,013	68%
Claims secured by commercial real estate	-	-	-	-	-	-
Non-performing assets (NPAs)	8,219,067	-	8,219,067	-	9,300,040	113%
Higher-risk categories	-	-	-	-	-	-
Cash items and other assets	4,778,146	728,285	4,778,146	289,390	4,477,281	88%
Total	159,037,678	728,285	147,280,615	289,390	87,382,372	59%

Template 8

Credit Risk Under Standardized Approach - Exposures by Asset Classes and Risk Weights

Description		Amount (LKR' 000) as at 31 December 2022 (Post CCF & CRM)
Asset classes	Risk weight	0%	20%	35%	50%	60%	75%	100%	150%	>150%	Total credit exposures amount

Claims on Central Government and CBSL		19,717,154	-	-	-	-	-	-	-	-	19,717,154
Claims on foreign sovereigns and their Central Banks		-	-	-	-	-	-	-	-	-	-
Claims on public sector entities		-	-	-	-	-	-	-	-	-	-
Claims on official entities and multilateral development banks		-	-	-	-	-	-	-	-	-	-
Claims on banks exposures		-	20,453,751	-	-	-	-	-	-	-	20,453,751
Claims on financial institutions		-	-	-	1,905,738	-	-	-	-	-	1,905,738
Claims on corporates		-	-	-	-	-	-	165,727	-	-	165,727
Retail claims		318,593	5,064,384	-	-	-	72,870,615	10,518,853			88,772,445
Claims secured by residential property		-	-	1,627,035	-	-	-	1,641,551	-	-	3,268,586
Claims secured by commercial real estate		-	-	-	-	-	-	-	-	-	-
Non-performing assets (NPAs)			-	-	275,371	-	-	5,506,379	2,437,317	-	8,219,067
Higher-risk categories		-	-	-	-	-	-	-	-	-	-
Cash items and other assets		559,905	37,937	-		-		4,469,694			5,067,536
Total		20,595,653	25,556,072	1,627,036	2,181,109	-	72,870,615	22,302,204	2,437,317	-	147,570,005

Template 9

Market risk Under Standardised Measurement Method

Item	RWA amount (LKR’ 000) As at 31 December 2022

(a) RWA for interest rate risk	-
General interest rate risk	-
(i) Net long or short position	-
(ii) Horizontal disallowance	-
(iii) Vertical disallowance	-
(iv) Options	-
Specific interest rate risk	-

(b) RWA for equity	-
(i) General equity risk	-
(ii) Specific equity risk	-

(c) RWA for foreign exchange and gold	87,821

Capital charge for market risk {(a) +(b) + (c) } * CAR	702,570

Template 10

Operational risk Under Basic Indicator Approach

Business lines	Capital charge factor	Gross income (LKR' 000) as at 31 March 2022			Amount (LKR' 000)
Business lines	Capital charge factor	1st Year	2nd Year	3rd Year	Amount (LKR' 000)

The basic indicator approach	15%	7,781,388	7,458,891	6,845,630
Capital charges for operational risk (LKR' 000) The basic indicator approach					1,104,295
Risk-weighted amount for operational risk (LKR' 000) The basic indicator approach					8,834,363

Template 11

Differences Between Accounting and Regulatory Scopes and Mapping of Financial Statement Categories with Regulatory Risk Categories

Item	Amount (LKR '000 as at 31 December 2022)
	a	b	c	d	e
	Carrying values as reported in published financial statements	Carrying values under scope of regulatory reporting	Subject to credit risk framework	Subject to market risk framework	Not subject to capital requirements or subject to deduction from capital

Assets
Cash and cash equivalents	3,072,845	3,072,845	3,072,845	-	-
Placements with banks	18,205,196	18,205,196	18,205,196		-
Financial assets fair value through profit or loss	1,905,738	1,905,738	1,905,738	-
Financial assets at amortised cost
- Loans and receivables to other customers	110,525,450	110,525,450	111,847,526	-	1,322,075
- Debt and other instruments	19,819,736	19,819,736	19,819,736	-	-
Financial assets measured at fair value through other comprehensive income	56,939	56,939	56,939	-	-
Investment in subsidiaries	6,163	6,163	6,163	-	-
Property, plant and equipment	1,093,191	1,093,191	1,093,191	-	-
Right of use assets	609,201	609,201	609,201	-	-
Investment properties	43,566	43,566	43,566	-	-
Intangible assets	538,831	538,831	538,831		538,831
Differed tax assets	600,628	600,628	600,628	-	600,628
Other assets	3,043,547	3,043,547	3,043,547	-
Total assets	159,521,032	159,521,032	160,843,107	-	2,461,535

Liabilities
Due to banks	-	-	-	-	-
Due to other customers	107,533,002	107,533,002	-	-	-
Other borrowings	30,704,548	30,704,548	-	-	-
Subordinated term debts	5,055,590	5,055,590	-	-	-
Retirement benefit obligations	714,077	714,077	-	-	-
Current tax liabilities	182,245	182,245	-	-	-
Other liabilities	1,672,355	1,672,355.12	-	-	-
Total liabilities	145,861,817	145,861,817	-	-	-

Off–balance sheet liabilities
Guarantees	249,175	249,175	249,175	-	-
Undrawn loan commitments	479,110	479,110	479,110	-	-
	-
Shareholders' equity
Equity capital (stated capital)/ assigned capital	11,287,765	11,287,765
of which amount eligible for CET 1	11,287,765	11,287,765	-	-	-
of which amount eligible for AT 1	-	-	-	-	-
Retained earnings	1,767,576	1,767,576	-	-	-
Accumulated other comprehensive income	317,231	317,231	-	-	-
Other reserves	286,642	286,642	-	-	-
Total shareholders' equity	13,659,215	13,659,215	-	-	-