Notes to the Financial Statements

1.1 Corporate information

Commercial Bank of Ceylon PLC (the Bank) is a public limited liability company listed on the Colombo Stock Exchange (CSE), incorporated on June 25, 1969 under the Companies Ordinance No. 51 of 1938, and domiciled in Sri Lanka. It is a licensed commercial bank regulated under the Banking Act No. 30 of 1988 and amendments thereto (Banking Act). The Bank was re-registered under the Companies Act No. 07 of 2007 on January 23, 2008, under the Company Registration No. PQ 116. The registered office of the Bank is situated at “Commercial House”, No. 21, Sir Razik Fareed Mawatha, Colombo 01, Sri Lanka.

The ordinary shares of the Bank (both Ordinary Voting and Non-Voting shares) have a primary listed on the CSE. The unsecured subordinated debentures and green bonds of the Bank are also listed on the CSE.

The staff strength of the Group and the Bank was as follows: Table – 100

As at December 31,	2025	2024
Group	6,799	6,300
Bank	5,726	5,461

Corporate information is presented in the inner back cover of this Annual Report.

1.2 Consolidated Financial Statements

The Consolidated Financial Statements as at and for the year ended December 31, 2025, comprise the Bank (Parent Company) and its Subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in its Associate (which was divested after reporting date).

The Bank does not have an identifiable parent of its own. The Bank is the ultimate parent of the Group.

1.3 Principal business activities, nature of operations of the Group and ownership by the Bank in its subsidiaries and associate

(*) As per the Companies Act No. 07 of 2007, CBC Finance PLC (formerly known as CBC Finance Limited) was listed on the Colombo Stock Exchange, through the listing of its Debentures, with effect from December 11, 2025. However, shares of the CBC Finance PLC remain unlisted.

(**) During the year 2025, Commercial Insurance Brokers (Pvt) Limited became a fully owned subsidiary of the Bank as disclosed in Note 36 on page 376.

(***) Subsequent to the reporting date, the Bank divested its entire equity interest of Equity Investments Lanka Limited as disclosed in Note 42 on page 400.

Principal business activities and nature of business operations of the Group Table – 101

Entity	Principal business activities
Commercial Bank of Ceylon PLC	Banking and related activities covering a comprehensive range of products including dealing in government securities and treasury-related products, bancassurance and Islamic banking products and services etc.
Local subsidiaries
Commercial Development Company PLC (CDC)	Property development, related ancillary services and providing manpower needs for various support services which are unrelated to providing core banking services to the customers of the Bank (parent).
Orysys Limited	Providing Information & Communication Technology (ICT) related products, services and solutions to the corporate sector.
CBC Finance PLC	Granting of lease facilities, hire purchase, mortgage loans and other credit facilities and accepting deposits.
Commercial Insurance Brokers (Pvt) Limited (CIBL)	Providing professional service and handling all insurance portfolios of individuals as well as many leading and reputed organisations in Sri Lanka engaged in diverse business activities.
Foreign subsidiaries
Commercial Bank of Maldives Private Limited (CBM)	Offering of an extensive range of banking and related financial including dealing in government securities and treasury-related products etc.
CBC Myanmar Microfinance Company Limited	Operating as a non-deposit taking microfinance institution throughout Myanmar providing micro financial services to the lower segment of the market, and to engage in all activities reasonably allowed by the Microfinance Supervisory Authority of Myanmar.
Local associate
Equity Investments Lanka Limited	Project financing in the form of Equity, Quasi Equity and other corporate debt instruments of new and existing ventures in Sri Lanka. Subsequent to the reporting date, the Bank divested its entire equity interest of Equity Investments Lanka Limited as disclosed in Note 42 on page 400.

2.1 Statement of compliance

The Consolidated Financial Statements of the Group and the separate Financial Statements of the Bank, have been prepared in accordance with the Sri Lanka Accounting Standards (Accounting Standards), laid down by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). These Financial Statements, except for information on cash flows have been prepared following the accrual basis of accounting.

The Accounting Standards comprise:

• Sri Lanka Financial Reporting Standards (SLFRS);
• Sri Lanka Accounting Standards (LKAS);
• Statements of Recommended Practices (SoRPs);
• Statement of Alternate Treatment (SoATs) and
• Financial Reporting Guidelines issued by CA Sri Lanka.

These Accounting Standards along with FAQs issued are available at the website of CA Sri Lanka – www.casrilanka.com.

Details of the Material Accounting Policies followed by the Group during the year are given in Notes 6 to 10 on pages 329 to 339.

2.2 Responsibility for Financial Statements

The Board of Directors of the Bank is responsible for the preparation and presentation of the Financial Statements of the Group and the Bank as per the provisions of the Companies Act and Sri Lanka Accounting Standards.

The Board of Directors acknowledges its responsibility for Financial Statements as set out in the “Annual Report of the Board of Directors”, “Statement of Directors’ Responsibility for Financial Reporting” and the certification on the Statement of Financial Position on pages 4, 264 and 309, respectively.

These Financial Statements include the following components:

• Income Statement and a Statement of Profit or Loss and Other Comprehensive Income (OCI) – which provides the information on the financial performance of the Group and the Bank for the year under review. Refer pages 307 and 308;
• Statement of Financial Position (SOFP) – which provides the information on the financial position of the Group and the Bank as at the year end. Refer page 309;
• Statement of Changes in Equity- which depicts all changes in shareholders’ funds during the year under review of the Group and the Bank. Refer pages 310 to 317;
• Statement of Cash Flows – which provides the information to the users, on the ability of the Group and the Bank to generate cash and cash equivalents and utilisation of those cash flows. Refer page 318;
• Notes to the Financial Statements comprising Material Accounting Policies and other explanatory information. Refer pages 319 to 470.

2.3 Approval of Financial Statements by the Board of Directors

The Financial Statements of the Group and the Bank for the year ended December 31, 2025 (including comparatives for 2024), were approved and authorised for issue by the Board of Directors in accordance with Resolution of the Directors on February 26, 2026 (The Financial Statements of the Group and the Bank for the year ended December 31, 2024, were approved and authorised for issue by the Board of Directors on February 28, 2025).

2.4 Basis of measurement

The Financial Statements of the Group have been prepared on the historical cost basis except for the following material items stated in the SOFP.

Basis of measurement Table – 104

Items	Basis of measurement	Note Number/s
Financial instruments measured at fair value through profit or loss including derivative financial instruments	Fair value	31, 32 & 44
Financial assets measured at fair value through other comprehensive income	Fair value	35
Land and buildings	Measured at cost at the time of acquisition and subsequently at revalued amounts which are the fair values at the date of revaluation	38
Investment Property	Measured at cost at the time of acquisition and subsequently at fair value	39
Defined benefit obligation	Net liability for defined benefit obligations are recognised as the present value of the defined benefit obligation, less net total of the plan assets, plus unrecognised actuarial gains, less unrecognised past service cost, and unrecognised actuarial losses	48
Equity settled share-based payment arrangements	Fair value on grant date	52

2.5 Going concern basis of accounting

These financial statements have been prepared on a going concern basis, which assumes that the Group will be able to discharge its liabilities.

The Group has recognised a profit after tax of Rs. 60.938 Bn. for the year ended December 31, 2025 and, as at the date total assets exceeds the total liabilities by Rs. 337.586 Bn.

The Management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. In making this assessment, the Group has considered any material uncertainties associated with the economic conditions and its possible impact on the business operations, projections of profitability, regulatory capital requirements and funding needs.

Considering a wide range of factors including history of profitable operations, strong liquidity positions and the availability of stable external funding sources, diversified lending profile and the initiatives taken to strengthen risk monitoring at borrower level, the Management is satisfied that the going concern basis is appropriate.

During the reporting period, improved macro-economic conditions in Sri Lanka have supported prudent credit expansion across the Bank’s core portfolios, resulting in increased profitability and enhanced financial resilience. These factors further support the Management’s conclusion that the Group/Bank has adequate resources to continue on a going concern basis for the foreseeable future.

Further, the Management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the Financial Statements of the Group continue to be prepared on a going concern basis.

2.6 Functional and presentation currency

Items included in these Financial Statements are measured using the currency of the primary economic environment in which the Bank operates (the functional currency).

Each entity in the Group determines its own functional currency and items included in the Financial Statements of these entities are measured using that functional currency. There was no change in the Group’s presentation and functional currency during the year under review.

These Financial Statements are presented in Sri Lankan Rupees, the Group’s functional and presentation currency.

The information presented in US Dollars in the Section on “Investor information and performance trends” on pages 210 and 211 does not form part of the Financial Statements and is made available solely for the information of stakeholders.

2.7 Presentation of Financial Statements

These Financial Statements have been presented in compliance with the requirements of the Companies Act No. 07 of 2007 and amendments thereto (Companies Act) and the Banking Act and provide appropriate disclosures as required by the Listing Rules of the CSE.

The formats used in the preparation and presentation of the Financial Statements and the disclosures made therein also comply with the specified formats prescribed by the CBSL in the Circular No. 05 of 2024 dated December 31, 2024, on “Publication of Annual and Quarterly Financial Statements and Other Disclosures by Licensed Banks”. The Bank also published annual and quarterly financial information and other disclosures in the Annual Report, Press and the Website in compliance with the aforementioned Circular.

The assets and liabilities of the Group presented in the SOFP are grouped by nature and listed in an order that reflects their relative liquidity and maturity pattern.

No adjustments have been made for inflationary factors affecting the Financial Statements.

An analysis on recovery or settlement within 12 months and more than 12 months from the reporting date is presented in >Note 60 on pages 426 and 427.

2.8 Rounding

The amounts in the Financial Statements have been rounded-off to the nearest rupees thousands, except where otherwise indicated as permitted by the Sri Lanka Accounting Standard – LKAS 1 on “Presentation of Financial Statements” (LKAS 1).

2.9 Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the SOFP, only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the Income Statement, unless required or permitted by an Accounting Standard or Interpretation (issued by the IFRS Interpretations Committee and Standard Interpretations Committee) and as specifically disclosed in the Material Accounting Policies of the Group.

2.10 Materiality and aggregation

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 as permitted by the LKAS 1 and amendments to the LKAS 1 on “Disclosure Initiative” which was effective from January 01, 2016.

2.11 Comparative information

Comparative information including quantitative, narrative and descriptive information is disclosed in respect of the previous period in the Financial Statements in order to enhance the understanding of the current period’s Financial Statements and to enhance the inter period comparability. The presentation and classification of the Financial Statements of the previous year are amended, where relevant for better presentation and to be comparable with those of the current year.

2.12 Use of judgements and assumptions & estimates

In preparing these Financial Statements in conformity with Accounting Standards, the Management has made judgements, estimates and assumptions about the future, including climate related risks and opportunities which 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 reviewed on an ongoing basis and are consistent with the Group’s risk management and climate related commitments where appropriate.

Revisions to accounting estimates are recognised prospectively.

Significant areas of critical judgements, assumptions and estimation uncertainty, in applying the Accounting Policies that have material effects on the amounts recognised in the Financial Statements of the Group and the Bank are as follows:

A. Judgements

Information about judgements made in applying the Accounting Policies that have material effects on the amounts recognised in these Financial Statements is included in Notes 2.12.1 to 2.12.4 below.

2.12.1 Determination of control over investees

Management applies its judgement to determine whether the control indicators set out in Note 36 on page 376 indicates that the Group controls the investees.

2.12.2 Classification of financial assets and liabilities

The Material Accounting Policy Information of the Group provides scope for financial assets to be classified and subsequently measured into different categories, namely, at Amortised Cost (AC), Fair Value through Other Comprehensive Income (FVOCI) and Fair Value Through Profit or Loss (FVTPL) based on the following criteria;

• The Group’s business model for managing the financial assets as set out in Note 7.1.3.1 on page 331.
• The contractual cash flow characteristics of the financial assets as set out in Note 7.1.3.2 on page 331.

2.12.3 Classification of investment property

Management uses its judgment to determine whether a property qualifies as an investment property. A property that is held either to earn rental income or for capital appreciation or both and thus generates cash flows largely independently of the other assets held by the Group are classified as Investment Property. On the other hand, a property used in the production or supply of goods and services or for administrative purposes and thus generates cash flows that are attributable not only to that property but also to other assets used in the production or supply process are classified as Property, Plant & Equipment. The Group assesses on an annual basis, the accounting classification of its investment properties, taking into consideration the current use of such properties.

2.12.4 Determination of Expected Credit Loss (ECL)

Management uses judgement in establishing the criteria for determining whether credit risk on financial assets has increased significantly since initial recognition, determining the methods for incorporating forward looking information into the measurement of ECL and selection and approval of models used to measure ECL.

B. Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in material adjustments are included in Notes 2.12.5 to 2.12.15 below.

2.12.5 Fair value of financial instruments with significant unobservable inputs

The fair values of financial assets and financial liabilities recognised on the SOFP, for which there is no observable market price are determined using a variety of valuation techniques that include the use of mathematical models. The Group measures fair value using the fair value hierarchy that reflects the significance of input used in making measurements. Methodologies used for valuation of financial instruments and fair value hierarchy are stated in Note 27 on pages 356 to 360.

2.12.6 Impairment losses on financial assets

The measurement of impairment losses across the categories of financial assets under Sri Lanka Accounting Standard – SLFRS 9 on "Financial Instruments" (SLFRS 9) requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses.

Accordingly, the Group reviews its individually significant loans and advances portfolio at each reporting date to assess whether an impairment loss should be recognised in the Income Statement. In particular, the Management’s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, Management makes judgements about a borrower’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable. These estimates are based on assumptions about a number of factors and hence actual results may differ, resulting in future changes to the impairment allowance made. A collective impairment provision is established for groups of homogeneous loans and advances that are not considered individually significant.

As per SLFRS 9, the Group’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the Group’s ECL models that are considered accounting judgements and estimates include:

• Criteria for qualitatively assessing whether there has been a Significant Increase in Credit Risk (SICR) and if so, allowances for financial assets measured on a Life Time Expected Credit Loss (LTECL) basis.
• Segmentation of financial assets when their ECL is assessed on a collective basis.
• Various statistical formulas and the choice of inputs used in the development of ECL models.
• Associations between macro-economic inputs, such as GDP growth, inflation, interest rates, exchange rates and unemployment and the effect of these inputs on Probability of Default (PDs), Loss Given Default (LGD) and Exposure at Default (EAD).
• Forward-looking macro-economic scenarios and their probability weightings.

As such, the accuracy of the impairment provision depends on the model assumptions and parameters used in determining the ECL calculations.

Early observations of payment behaviour of expiries for this year were considered in the assessment of the changes in the risk of default occurring over the expected life of a financial instrument when determining staging and is a key input in determining migration.

Refer Note 18 on page 345 for details.

2.12.7 Impairment of non-financial assets

The Group assesses whether there are any indicators of impairment for an asset or a Cash Generating Unit (CGU) at each reporting date or more frequently, if events or changes in circumstances necessitate to do so. This requires the estimation of the Value In Use (VIU) of such individual assets or the CGUs. Estimating VIU requires the Management to make an estimate of the expected future cash flows from the asset or the CGU and also to select a suitable discount rate in order to calculate the present value of the relevant future cash flows. This valuation requires the Group to make estimates about expected future cash flows and discount rates and hence, they are subject to uncertainty.

Refer Note 7.6 on page 335 for details.

2.12.8 Revaluation of property, plant and equipment

The Group measures land and buildings at revalued amounts with changes in fair value being recognised in Equity through OCI. The Group engages independent professional valuers to assess fair value of land and buildings in terms of Sri Lanka Accounting Standard – SLFRS 13 on “Fair Value Measurement” (SLFRS 13). The key assumptions used to determine the fair value of the land and building and sensitivity analyses are provided in Notes 38.5 (b) and 38.5 (c) on pages 386 to 391.

2.12.9 Useful lifetime of the property, plant and equipment

The Group reviews the residual values, useful lives and methods of depreciation of Property, Plant and Equipment at each reporting date. Judgement of the Management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty.

Refer Note 20 on page 350.

2.12.10 Fair valuation of investment property

Fair valuation of the investment property is ascertained by independent valuations carried out by Chartered valuation surveyors, who have recent experience in valuing properties at similar locations and categories. They have made reference to market evidence of transaction prices for similar properties, with appropriate adjustments for size and location. The key assumptions used to determine the fair value of investment property are provided in detail in Note 39 on page 393.

2.12.11 SLFRS 16 – leases

2.12.11.1 Determination of the lease term for lease contracts with renewal and termination options (Group as a lessee)

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease.

2.12.11.2 Estimating the incremental borrowing rate

As the Group cannot readily determine the interest rate implicit in the lease, it uses its Incremental Borrowing Rate (“IBR”) to measure the lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (or when they need to be adjusted to reflect the terms and conditions of the lease). The Group estimates the IBR using observable input when available and is required to make certain entity-specific adjustments.

2.12.12 Recognition of Deferred tax assets

Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profit will be available and can be utilised against such tax losses. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax-planning strategies.

Refer Note 41 on page 398 for details.

2.12.13 Key actuarial assumptions relating to Defined benefit obligation

The costs of the defined benefit plans are determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates, future pension increase, etc. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.

The Bank generally uses similar long-term treasury bond rate as the discount rate for the purpose of assessing the present value of future obligations.

Refer Note 48 on pages 404 to 413 for the assumptions used.

2.12.14 Impact of climate risk

Climate risks can lead to potential negative impact on the Group arising from climate change. Climate related risks have an impact on principal risk categories such as credit, liquidity, market and operational risks,
but due to pervasive nature has been identified and managed by the Group on an overall basis.

The Group distinguishes between physical and transition risks. Physical risks arise as the result of acute weather events and transition risks arise as a result of measures taken to mitigate the effects of climate change and transition to a low carbon economy.

The Group and its customers are exposed to the physical risks from climate change and risks of transitioning to a net-zero economy. Most climate-related physical risks are expected to manifest over a term that is generally longer than the maturity of most of the outstanding exposures. The following balances may be impacted by physical and transition risks:

ECL : Customers and portfolios with exposure to climate risk may have a resultant deterioration in creditworthiness, which has an impact on ECL. On the whole, the Group is of the view that the counterparties who have exposures to climate risk are not expected to be materially impacted by physical or transition risks associated with climate change. To address the potential adverse impact on ECL arising from customers affected by the Cyclone Ditwah that occurred in Sri Lanka in November 2025, the Bank performed comprehensive assessments and incorporated the necessary modelled and post model adjustments to its ECL estimates as at the reporting date. Further details are disclosed in Note 18 on pages 345 to 349.

Fair value measurement : The Bank has assumed that any climate change variables incorporated in fair value measurement are those that market participants would consider when pricing the asset or liability, in line with SLFRS 13.

2.12.15 Provisions for liabilities, commitments and contingencies

The Group receives legal claims in the normal course of business. Management has made judgements as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depends on the due processes in respective legal jurisdictions.

Information about significant areas of estimation uncertainty and critical judgements in applying Accounting Policies other than those stated above that have material effects on the amounts recognised in the Consolidated Financial Statements are described in Notes 7.10 to 7.15 on pages 337.

2.13 Events after the reporting period

Events after the reporting period are those events, favourable and unfavourable, that occur between the reporting date and the date when the Financial Statements are authorised for issue.

In this regard, all material and important events that occurred after the reporting period have been considered and appropriate disclosures are made in Note 68 on page 470, where necessary.

3.1 Introduction and overview

Like any other business model, risk is inherent in the Bank’s activities too and attempts to manage through a process of ongoing identification, measurement and monitoring, subject to risk limits and controls are adopted to mitigate possible consequences arising out of volatile and fluid outcomes in the internal and external environment.

The process of risk management is identified as critical to maintain Bank’s continuing profitability. Managing the changing stakeholder dynamics whilst preserving culture and value system of the Bank is considered as a priority in the business operation.

The Group has exposure mainly to the following broad risk categories arising out of its business activities that are undertaken in its day to day functions:

• Strategic and business risk;
• Credit risk;
• Liquidity risk;
• Market risk;
• Operational risk;
• Conduct risk and reputational risk;
• Environmental, social risk and climate risk.


3.2 Bank’s risk management framework



The Board of Directors of the Bank has the overall responsibility for the establishment and oversight of the Group/Bank’s Risk Management Framework.

The Risk Management Framework of the Group/Bank translates overall risk appetite on business activities in a holistic approach to provide the guidance required for convergence of strategic and risk perspectives of the Group/Bank.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls to monitor risks and adherence to limits. The Risk Management Policy Framework constitutes the Credit Policy, Lending Guidelines, Credit Risk Review Policy, ALM Policy including Contingency Funding Plan, Foreign Exchange Policy, Operational Risk Policy, IT Risk Policy, Market Risk Policy, Stress Testing Policy, Financial & Risk Management Disclosure Policy, Group Conduct Risk Management Policy, Group Environmental and Social Policy and Group Reputational Risk Management Policy etc., which have been firmly established to provide control and guidance for decision-making throughout the Group in a uniform manner.

The Committee structure embedded to the Risk Management Framework acts as a fact finding and decision-making authority through deliberations and arriving at consensus arising out of multiple points
of views.

The Risk Management Committees effectively deliberate on matters at hand to provide guidance to the business lines with a view to managing risk in accordance with the strategic goals and risk appetite of the Bank.

The Board of Directors of the Bank has formed the Board Integrated Risk Management Committee (BIRMC) as a mandatory Board sub-Committee, as per Banking Act Directions No. 05 of 2024 on Corporate Governance. The performance of the Committee and the duties and roles of members are reviewed by the Board annually or more frequently, if warranted.

The Management has set up Executive Integrated Risk Management Committee (EIRMC) before the BIRMC. The meetings of the EIRMC are conducted on a monthly basis to discuss Credit, Operational, Market, IT and Environmental and Social risk matters of the Bank. Assets and Liabilities Committee (ALCO), that convene at least once a fortnight, gives priority for liquidity, funding and profitability in line with the changes taken place in the market.

Risk Control Self-Assessment (RCSA) framework is adopted to identify risks involved in business activities of the Bank and to implement appropriate risk mitigatory measures after assessing criticality of such risks. The Integrated Risk Management Department (IRMD) carries out semi-annual and quarterly Bank-wide RCSA exercise focusing on adherence to laws, regulations, and regulatory guidelines as well as internal controls and approved policies.

Further, the Internal Audit function of the Bank independently monitors and evaluates the risk management function of the Bank and provides its views on the adequacy of the Risk Management Framework to the Board Audit Committee (BAC).

Strategic and business risk

Bank’s inability to keep up with the evolving market dynamics, resulting in loss of market share and failure to achieve strategic goals in line with its Vision and Mission is identified as Strategic risk.

Business risk refers to any risk that arises from the Bank’s long-term business strategies and affects its profitability, and relatively short term in nature.

Management of strategic and business risk

Corporate planning and budgeting process and continuous evaluation of their alignment with the Bank’s Vision, Mission and the risk appetite facilitate management of strategic risk. In the annual Internal Capital Adequacy Assessment Process (ICAAP) exercise of the Bank, detailed scorecard-based qualitative models are used to measure and monitor strategic risk of the Bank. This scorecard-based approach takes a number of variables into account, including the size and sophistication level of the Bank, the nature and complexity of its operations and highlights the areas that require focus to mitigate potential strategic risks.

Business risk of the Bank is managed through its day-to-day decisions made by the line managers and also at different Management Committees in identifying, assessing and remediating such risks.

Also, in line with the Banking Act Direction No. 09 of 2021, commencing from 2022, the Bank being the largest private sector bank in the industry designated as a Domestic Systemically Important Bank (D-SIB), has developed its Recovery Plan (RCP). The Bank has commenced the review of RCP on a quarterly basis commencing from 2023. This plan outlines the Bank's transition from Business-As-Usual (BAU) to different degrees of elevated risk conditions, highlighting the preparedness to the recovery actions, if the financial deterioration occurs and is not rectified.

Credit risk

The risk that the Bank will incur a loss due to its customers or counterparties failing to discharge their contractual obligations, is considered generally under the credit risk assessment.

The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties, groups of counterparties, geographies, business sectors, and industries by monitoring exposures and possible adverse external factors in relation to such limits.

Management of credit risk

Lending Guidelines of the Bank have been formulated based on evolving practices of lending to provide expected granularity of credit assessment and thereby, to ensure strict attention to risks emanating from lending proposals at the time of initiation, analysis, and approval. In addition, Lending Guidelines ensures objective assessment of acceptability of collateral as well as limits on exposures and concentration levels to various sectors, counterparties, geographies and segments etc.

A robust risk grading system in line with the Basel guidelines on rating of facilities and counterparties is adopted by the Bank for evaluation of credit proposals. This risk grading framework consists of 10 grades of gradually escalating continuum of risks as indicators for the Lending Officers to evaluate and arrive at suitable risk reward trade-offs in their propositions. These risk grades were validated by internationally accepted consultants and are reviewed by the IRMD regularly.

Credit Risk Review function covers over 30% of the advances portfolio, including non performing credit facilities of the Bank using the Loan Review Mechanism (LRM). This continuous exercise provides reasonable assurance that all major credit risks embedded in the operation of lending is carried out in line with the stipulated guidelines and within the risk appetite framework of the Bank.

Early Warning Signals (EWS) system which is currently being adopted based on Machine Learning/Regression analysing, Prediction model to assist Lending Officers. This will facilitate the detection of problematic advances, while also providing insights to identify potential lending opportunities. This tool is used to maintain the quality of the Loan Book of the Bank.

Portfolio level credit risk analyses are taken up at monthly EIRMC meetings as well as quarterly at BIRMC meetings. Individual credit proposals evaluated by the Lending Officers are approved by the Authorising Officers within the hierarchy in delegated authority levels whilst ensuring a minimum of the Four Eyes Principle, when approving them. Approval levels are escalated based on delegated authority levels attached to exposure levels, final risk ratings, and changes of risk appetite for specific industries as well as negative deviation of performance levels as compared to previous facilities extended to borrowers.

The Executive Credit Committee (ECC) and the Board Credit Committee (BCC) are responsible for approving credit facilities with high value while the Board will be the ultimate authority for approving facilities exceeding predetermined threshold levels. Deliberations take place at the BCC level on facilities being considered for approval beyond the specified threshold and recommendations for approval of the Board are made based on quantum of exposures at various levels.

The IRMD provides risk approval for individual proposals above predetermined threshold levels, consequent to a rigorous independent risk evaluation guided by Credit Policy, Lending Guidelines, and Circular Instructions within a limit framework stemming from risk appetite of the Bank.

The Expected Credit Loss (ECL) model introduced under the SLFRS 9 replaced the Incurred Loss Model, which was considered inadequate in recognising credit losses in a proactive manner and had failed in accurately estimating the credit losses during economic stress conditions. Accordingly, the Bank also had duly adopted the ECL modelling in impairment computations. IRMD involves in independent oversight on Individually Significant Loans (ISLs) to improve accuracy of cash flow projections bringing in a more robust and specific approach to the classification, recognition and measurement of credit facilities. The Bank has also taken into consideration the guidance included in the Banking Act Directions No. 13 of 2021 issued by the CBSL. Upgrading of restructured and rescheduled credit facilities shall only be carried out by the IRMD and shall be independent from the credit facility review mechanism.

Liquidity risk

The risk that the Bank will encounter difficulty in meeting obligations associated with the financial liabilities that are settled by delivering cash or another financial asset is focused on this risk domain. Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment obligations or not receiving what is due to the Bank when they fall due under both normal and stress circumstances.

To limit this risk, Management has arranged diversified funding sources in addition to its core deposit base and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis. The Bank has reviewed and strengthened its internal control processes and contingency plans for managing liquidity risk.

Management of liquidity risk

Market Risk Management Policy and the ALM Policy of the Bank approved by the Board of Directors set the tone for managing liquidity risk of the Bank. Liquidity risk of the Bank is given utmost priority when managing a wide range of other risks because it is considered as the most critical risk for any financial institution.

The Bank’s Treasury Department is entrusted with managing liquidity of the Bank on a real time basis to ensure smooth functioning of business activities of all other business units of the Bank. Additionally, a team of members of the Corporate Management, comprising the Deputy General Manager - Treasury, Assistant General Manager - Treasury and the Chief Risk Officer, carefully analyse liquidity position of the Bank taking in to consideration, both short-term and medium-term cash flow gaps, more frequently.

Access to a substantial stable Current Account and Savings Account (CASA) base due to its wide branch network and the top of the mind perception created among the depositors, provide immense strength to the Bank in managing liquidity. Also, the growing balance sheet size, higher rating and continuous rapport maintained with local and international counterparty banks have helped immensely to the Bank to maintain adequate foreign currency liquidity amidst stressed market conditions.

Having an adequate buffer of High Quality Liquid Assets (HQLA) at the disposal of the Bank is another plus factor for the Bank. The strength of such portfolio is amply reflected in the Basel III computation the Bank carries out for arriving at Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as per the CBSL Directions that recorded very healthy results as compared to regulatory minimum threshold levels.

The Bank has experienced accumulation of rupee liquidity above the minimum regulatory requirements as a result of sluggish economic performance of the country since 2020. However, having adopted many strategies to invest excess liquidity at optimum yields but in staggered maturities and thereby to minimise the negative impact on the bottom line as well as liquidity, the Bank is mindful about the excessive exposure to the Government by way of the Government Securities. As such, the Bank has focused on revitalising the steady expansion of its Loan Book throughout year 2025.

Contingency funding plans are in force, constant monitoring of salient liquidity ratios and scenario-based stress testing being carried out regularly would enable the Bank to take proactive measures towards overcoming an adverse liquidity position that may arise on a future date. The regular stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions.

Market risk

The risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices comes under the ambit of Market risk. The market risk management is to manage and control market risk exposure within acceptable parameters to ensure the Group’s solvency while optimising the return on risk. The Bank classifies exposures to Market Risk into either Trading or Non-Trading portfolios (Banking Book) and manages each of those portfolios separately.

The Market risk for the Trading portfolio is monitored and managed closely having paid attention to the changes on the prices of market.

Management of market risk

Market Risk Management Policy, ALM Policy and Foreign Exchange Risk Policy are the three main policies that constitute the framework governing the Market Risk Management function of the Bank. Due to business model adopted by the Bank, exposure to equity and commodity risk was kept at bay throughout the year.

However, Interest Rate Risk arising from the Banking Book as well as Trading Book and Foreign Exchange Risk arising from dealing in assets and liabilities denominated in currencies other than local currency, continued to expose the Bank to associated risk elements.

Declining interest rates throughout 2025 posed challenges to the Net Interest Margin (NIM), despite a renewed appetite for advances driven with the recent economic reforms introduced in the country.

Interest Rates of the Banking Book is subjected to varying degrees of rate shocks to stimulate and identify impact on earnings perspective in such rate scenarios. The results of such predictions could assist the Bank in formulating strategies to manage the financial position in an effective manner with the limited choices available in the local market.

Trading Book too was subjected to Value at Risk (VaR) framework internally carried out by the Bank on a regular basis. The Bank also carried out sensitivity analysis on a regular basis to ascertain the impact on portfolios maintained, mainly in Government Securities and marking to market of such portfolios to reflect fair value of underlying assets for the decision-making process.

The Bank acknowledges inherent limitations in VaR, particularly within the volatile Sri Lankan market where price movements may deviate from standard economic fundamentals. The framework’s reliance on historical data may fail to capture rapid market shifts, while calculations can be skewed by transitory, non-permanent triggers. Furthermore, as VaR represents only a fraction of potential unrealised gains or losses and significant portfolios are not held for speculative purposes, divestment decisions are based on a holistic portfolio view rather than VaR metrics alone.

Forex positions are subjected to continuous sensitivity analysis to provide insights to possible losses arising from currency appreciation/depreciation, as the reporting currency of the Bank, being Sri Lankan Rupees.

Operational risk

The risk that the Bank will incur a loss due to failure of systems, processes, human errors, frauds or external events is focused on this risk domain. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications or lead to financial loss. The Bank cannot expect to eliminate all operational risks, but it endeavours to manage these risks through a control framework and by monitoring, escalating, reporting and responding to potential risks.

Circular Instructions and Operational Risk Management Policy play a major part in bringing together business practices with accepted benchmarks to ensure minimum disruption to processes, personnel, technology and infrastructure.

Internal Control Framework and audit function with firmly established “three lines of defences” serve the Bank to manage operational risk at current acceptable levels.

The Bank defines IT Risk as the exposure to loss resulting from technological disruptions or cyber-attacks. To mitigate this, Bank IT Risk Management policy directly supports Financial Risk Management objectives. It ensures that the systems governing assets and liabilities remain reliable, available, and untampered with, thereby preventing operational incidents from escalating into systemic financial crises.

Management of operational risk

The Bank maintains a strong internal operational risk culture overseen by the Board of Directors and Corporate Management, utilising a robust internal control framework defined by the “three lines of defences” model. The first line, Business Line Management, is responsible for implementing robust controls such as checking and authorising transactions at the source. The second line, the Risk Management function, reviews the effectiveness of these controls and monitors Key Risk Indicators (KRIs), while the third line, Internal Audit, provides independent review and challenge. Specific control standards implemented across the Group include the effective segregation of duties, dual authorisations for high-value and important transactions, strict access controls for systems, and regular end of day reconciliation and balancing.

Compliance with these standards is supported by:

• Documentation of Procedures: Operational execution is guided by a hierarchy of Board approved Policies, Operation Manuals, and Circular Instructions to ensure clear lines of management responsibility and accountability.
• Risk Transfer: For low probability, high impact events, the Bank adopts a risk transfer strategy by obtaining insurance policies against uncontrollable risks such as natural disasters and fraud, which are reviewed annually by the Operational Risk Management Unit.
• Ethical Standards: The control environment is reinforced by the upkeep of high standards of ethics and integrity, supported by continuous staff training to build a risk-aware culture across all cross-sections of the Bank.

Management of IT related operational risk

IT Risk of the Bank is managed through strict monitoring of key IT risk Indicators defined in IT Risk management policy covering following six key IT risk indicators.

1. Governance
2. Critical System Availability
3. Cybersecurity
4. Change Management
5. DR/BCP Planning
6. Third-Party Service Failures

In alignment with the CBSL Directions No. 16 of 2021 and No. 02 of 2025, IT risk exposures and cybersecurity incidents are reviewed monthly and reported to the EIRMC and BIRMC.

Bank IT Risk exposure also review annually by external assessment including ISO 27001:2022, ISO 20000:2018, PCIDSS etc. Controls included to effective segregation of duties, access authorisation procedures, staff education and assessment processes.

Outsourcing risk related to IT services is managed through regular monthly reviews of IT incidents and system downtime attributable to outsourced service providers, together with bi-annual Risk RCSAs of third-party IT service providers.

Conduct risk and reputational risk

A well-established framework, developed over decades, mitigates risk associated with mis-selling, unethical business practices, professional misbehaviour and governance deficiencies etc.

The risk that the Bank’s reputation will be damaged by one or more than one reputation event, as reflected from negative publicity about the Bank’s business practices, conduct or financial condition. Such negative publicity, whether true or not, may impair public confidence in the Bank, result in costly litigation, or lead to a decline in its customer base, business or revenue.

Management of the Conduct and Reputational risk is underpinned by a comprehensive policy framework approved by the Board of Directors.

Refer Note 66 on pages 437 to 469 for “Financial risk review”.

Environmental and social risk

The Bank’s Environmental and Social Management System (ESMS) is a mature and well-established framework that integrates Environmental and Social (E&S) considerations into lending and investment decisions. Aligned with the E&S related country regulations and CBSL’s Sustainable Finance Roadmap, the ESMS addresses key factors such as resource efficiency, pollution prevention, labour practices, community health and safety, biodiversity conservation, and governance, supporting both financial stability and long-term sustainability.

Guided by internationally recognised standards such as the IFC Performance Standards, the Bank evaluates Environmental, Social & Governance (ESG)and climate-related impacts of financed activities and considers their implications for borrowers’ financial performance and resilience. The outcomes of these assessments inform credit structuring decisions, including promoter equity requirements, lending terms, covenants, and pricing, where appropriate.

Climate risk

In line with the effective adoption of SLFRS S1 and SLFRS S2 which are Disclosure Standards in year 2025, the Bank has strengthened its approach to climate-related risk management through a dedicated Climate Risk Assessment and Management Framework. Climate risks are assessed in two categories in line with Disclosure standards:

Physical Risks – Arising from acute and chronic climate events such as floods, droughts, rising temperatures, and sea-level rise.

Transition Risks – Resulting from the shift to a low-carbon economy, including changes in regulation, technology, market preferences, and reputational considerations.

Climate-related risks may affect the Bank’s portfolio through higher credit losses arising from climate-induced disruptions to borrower operations, volatility in asset and collateral valuations, changes in risk-weighted assets, and shifts in sector-level exposures, particularly in climate-sensitive or carbon-intensive sectors.

ESG and climate risk assessments are conducted at borrower and asset levels and aggregated to develop an integrated portfolio-level ESG and climate risk view, supporting regulatory disclosures and strategic risk management. The Bank is also in the process of developing qualitative models to assess the linkage between borrowers’ financial performance and climate-related risks. These models will rely on expert judgment, scorecards, sector heat maps, questionnaires, and narrative assessments, with the objective of progressively incorporating climate risk considerations into internal credit assessments, subject to data availability, model validation, and governance approvals. By leveraging its mature ESMS and advancing climate risk analytics, the Bank remains committed to responsible financing and building a climate-resilient portfolio.

Management of environmental and social risks & climate risk

Environmental, social, and climate-related risks are managed within the Bank’s overall Risk Management Framework through clearly defined governance structures, roles, and responsibilities.

A team within the IRMD oversees implementation, supported by continuous training for credit analysts and access to sector-specific expertise and analytical tools.

The Bank actively monitors portfolio exposure to climate-related physical and transition risks, as well as environmentally sensitive and carbon-intensive sectors, applying sector specific guidelines and mitigation measures where necessary.

Emerging E&S and climate risk trends are continuously incorporated into risk screening, monitoring, and portfolio analysis processes to enhance resilience and support sustainable growth.

Transparency, continuous improvement, and stakeholder engagement underpin the Bank’s approach.

A detailed description of governance, identification, assessment, monitoring, reporting, and mitigation of environmental, social, and climate-related risks is provided in the section “Risk Governance and Management” on pages 273 to 296.

“Fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted pricing in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. External professional valuers are involved for valuation of significant assets such as land and buildings.

An analysis of fair value measurement of financial and non-financial assets and liabilities is provided in Note 27 on pages 356 to 360.

There were no new or amended standards and interpretations that were required to be incorporated into the Financial Statements with effect from January 01, 2025.

Material Accounting Policies

The Material Accounting Policies set out in Notes 6 to 10 on pages 329 to 339 below have been applied consistently to all periods presented in the Financial Statements of the Group except as specified in Note 2.11 on page 322.

These Accounting Policies have been applied consistently by the Group and there were no changes to Material Accounting Policies. The Group has adopted Sustainability Disclosure Standard – SLFRS S1 on “General Requirements for Disclosure of Sustainability-related Financial Information” (SLFRS S1) and SLFRS S2 on “Climate-related Disclosures” (SLFRS S2) during the year.

As these are Disclosure Standards, the related disclosures have been disclosed in the relevant sections of this Annual Report as appropriate and they do not form part of these Financial Statements.

Set out below is an index of Material Accounting Policies, the details of which are available on the pages that follow:

Index of Material Accounting Policy Information Table – 103

Note	Description	Reference to the Notes in Financial Statements
6	Material Accounting Policies – General
6.1	Basis of consolidation
6.2	Foreign currency
7	Material Accounting Policies – Recognition of assets and liabilities
7.1	Financial instruments – Initial recognition, classification and subsequent measurement	26
7.2	Non-current assets (or disposal groups) classified as held for sale	42
7.3	Property, plant and equipment	38
7.4	Investment property	39
7.5	30.1 Movement in provision for impairment during the year	40
7.6	Impairment of non-financial assets	36.1
7.7	Dividends payable	25
7.8	Employee benefits	48.2 to 48.5
7.9	Other liabilities and provisions	48
7.10	Restructuring
7.11	Onerous contracts
7.12	Bank levies
7.13	Financial guarantees, letters of credit and undrawn loan commitments	57
7.14	Commitments	57
7.15	Contingent liabilities and commitments	57
7.16	Stated capital and reserves	51,53,54 & 55
7.17	Earnings per Share (EPS)	24
7.18	Operating segments	61
7.19	Fiduciary assets
8	Material Accounting Policies – Recognition of income and expense
8.1	Interest income and interest expense	13
8.2	Fee and commission income and fee and commission expense	14
8.3	Net gains/(losses) from trading	15
8.4	Net gains/(losses) from derecognition of financial assets	16
8.5	Dividend income	15 & 17
8.6	Leases	33.3, 38 & 48.1
8.7	Rental income and rental expenses	17 & 21
9	Material Accounting Policies – Taxes and levies
9.1	Income tax expense	23,41 & 47
9.2	Crop Insurance Levy (CIL)
9.3	Withholding Tax (WHT) on dividends distributed by the Bank, subsidiaries and associate	25
9.4	Taxes on Financial Services	22
9.5	Value Added Tax (VAT) and Social Security Contribution Levy (SSCL)
9.6	Introduction of New Tax Reforms
10	Material Accounting Policies – Statement of cash flows
10.1	Statement of Cash Flows

6.1 Basis of consolidation

The Group’s Financial Statements comprise, Consolidated Financial Statements of the Bank and its Subsidiaries in terms of the Sri Lanka Accounting Standard – SLFRS 10 on “Consolidated Financial Statements” (SLFRS 10) and the proportionate share of the profit or loss and net assets of its associate in terms of the Sri Lanka Accounting Standard – LKAS 28 on “Investments in Associates and Joint Ventures” (LKAS 28). The Bank’s Financial Statements comprise the amalgamation of the Financial Statements of the Domestic Banking Unit, the Offshore Banking Centre and the international operations of the Bank.

6.1.1 Business combinations

Business combinations are accounted for using the acquisition method when control is transferred to the Group as per Sri Lanka Accounting Standard – SLFRS 3 on “Business Combinations” (SLFRS 3). In determining whether a particular set of activities and assets is a business, the Bank assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has ability to produce outputs. The consideration transferred in the acquisition and identifiable net assets acquired are measured at fair value. Any goodwill that arises is tested annually for impairment (Refer Note 7.6 on page 335). Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

6.1.2 Non-Controlling Interests (NCI)

Details of NCI are given in Note 56 on page 423.

6.1.3 Subsidiaries

Details of the Bank’s subsidiaries, how they are accounted in the Financial Statements of the Bank and their contingencies are set out in Notes 36 and 57.4 (a) on pages 376 to 377 and 425.

6.1.4 Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

Subsequently, it is accounted for as an associate or in accordance with the Group’s accounting policy for financial instruments depending on the level of influence retained.

6.1.5 Associates

Details of the associate, how it is accounted in the Financial Statements of the investee, together with its fair values and the Group’s share of contingent liabilities of the associate is set out in Notes 37 and 57.4 (b) on pages 378 to 379 and 425.

6.1.6 Transactions eliminated on consolidation

Intra-group balances, transactions and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions are eliminated in preparing the Consolidated Financial Statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

6.2 Foreign currency

6.2.1 Foreign currency transactions and balances

Foreign currency transactions are translated into the functional currency, which is Sri Lankan Rupees, using the exchange rates prevailing at the dates of the transactions. In this regard, the Bank’s practice is to use the middle rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies as at the reporting date are translated into the functional currency at the middle exchange rate of the functional currency ruling as at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency as at the beginning of the year adjusted for effective interest and payments during the year and the amortised cost in foreign currency translated at the exchange rate as at the reporting date.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the transaction.

Foreign currency differences arising on translation are generally recognised in profit or loss. However, foreign currency differences arising from the translation of the following items are recognised in OCI:

• Equity instruments in respect of which an election has been made to present subsequent changes fair value through other comprehensive income
• A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and
• Qualifying cash flow hedges to the extent that the hedge is effective.

6.2.2 Foreign currency translations

The Group’s Consolidated Financial Statements are presented in Sri Lankan Rupees, which is also the Bank’s Functional Currency. The Financial Statements of the Offshore Banking Centre of the Bank and the Financial Statements of the foreign operations of the Bank have been translated into the Group’s Presentation Currency as explained under Notes 6.2.3 and 6.2.4 below.

6.2.3 Transactions of the offshore banking centre

These are recorded in accordance with Note 6.2.1 above, except the application of the annual weighted average exchange rate for translation of the Income Statement and the Statement of Profit or Loss and Other Comprehensive Income. Net gains and losses are dealt through the profit or loss.

6.2.4 Foreign operations

The results and financial position of foreign operations that have a functional currency different from the Bank’s presentation currency are translated into the Bank’s presentation currency as follows:

• Assets and liabilities, including goodwill and fair value adjustments arising on acquisition, are translated at the rates of exchange ruling as at the reporting date.
• Income and expenses are translated at the average exchange rate for the period, unless this average rate is not a reasonable approximation of the rate prevailing at the transaction date, in which case income and expenses are translated at the exchange rates ruling at the transaction date.
• All resulting exchange differences are recognised in the OCI and accumulated in the Foreign Currency Translation Reserve (Translation Reserve), which is a separate component of Equity, except to the extent that the translation difference is allocated to the NCI.

When a foreign operation is disposed of such that the control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, then the relevant proportion of the cumulative amount of the translation reserve is reattributed to NCI.

7.1 Financial instruments – initial recognition, classification and subsequent measurement

7.1.1 Date of recognition

The Group initially recognises loans and advances, deposits and subordinated liabilities, etc., on the date on which they are originated. All other financial instruments (including regular-way purchases and sales of financial assets) are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument.

7.1.2 Initial measurement of financial instruments

The classification of financial instruments at initial recognition depends on their cash flow characteristics and the business model for managing the instruments. Refer Notes 7.1.3 and 7.1.4 for further details on classification of financial instruments.

A financial asset or financial liability is measured initially at fair value plus or minus transaction costs that are directly attributable to its acquisition or issue, except in the case of financial assets and financial liabilities at fair value through profit or loss as per SLFRS 9 and trade receivables that do not have a significant financing component as defined in Sri Lanka Accounting Standard – SLFRS 15 on “Revenue from contracts with customers” (SLFRS 15).

Transaction cost in relation to financial assets and financial liabilities at fair value through profit or loss are dealt with through the Income Statement.

Trade receivables that do not have a significant financing component are measured at their transaction price at initial recognition as defined in SLFRS 15.

When the fair value of financial instruments (except trade receivables that do not have a significant financing component) at initial recognition differs from the transaction price, the Group accounts for the Day 1 profit or loss, as described below.

7.1.2.1 “Day 1” profit or loss

When the transaction price of the instrument differs from the fair value at origination and fair value is based on a valuation technique using only inputs observable in market transactions, the Group recognises the difference between the transaction price and fair value in net gains/(losses) from trading. In those cases, where the fair value is based on models for which some inputs are not observable, the difference between the transaction price and the fair value is deferred and is only recognised in 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) in ‘Interest income’ and ‘Personnel expenses’ over the remaining service period of the employees or tenure of the loan whichever is shorter in line with SLFRS 9 and Sri Lanka Accounting Standard – LKAS 19 on “Employee Benefits” (LKAS 19).

Refer Notes 13 and 19 on pages 340 and 349.

7.1.3 Classification and subsequent measurement of financial assets

As per SLFRS 9, the Group classifies all of its financial assets based on the business model for managing the assets and the assets’ contractual terms. Accordingly, the financial assets are measured at either;

• Amortised cost
• Fair value through other comprehensive income (FVOCI)
• Fair value through profit or loss (FVTPL)

The subsequent measurement of financial assets depends on their classification.

7.1.3.1 Business model assessment

The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level and not assessed on instrument-by-instrument basis because this best reflects the way the business is managed and information is provided to management. The information considered includes:

• the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
• how the performance of the portfolio is evaluated and reported to the Group’s management;
• the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
• how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
• the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group’s stated objective for managing the financial assets is achieved and how cash flows are realised.

The business model assessment is based on reasonably expected scenarios without taking “worst case” or “stress case” scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Group’s original expectations, the Group does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

7.1.3.2 Assessment of whether contractual cash flows are Solely Payments of Principal and Interest (SPPI test)

As a second step of its classification process the Group assesses the contractual terms of financial assets to identify whether they meet the SPPI test.

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount).

‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as profit margin.

In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. In such cases, the financial asset is required to be measured at FVTPL.

In assessing whether the contractual cash flows are solely payments of principal and interest on principal amount outstanding, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:

• contingent events that would change the amount and timing of cash flows;
• leverage features;
• prepayment and extension terms;
• terms that limit the Group’s claim to cash flows from specified assets; and
• features that modify consideration of the time value of money.

The Group holds a portfolio of long-term fixed rate loans for which the Group has the option to propose to revise the interest rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty. The Group has determined that the contractual cash flows of these loans are solely payments of principal and interest because the option varies the interest rate in a way that is consideration for the time value of money, credit risk, other basic lending risks and costs associated with the principal amount outstanding.

Non-recourse loans

In some cases, loans made by the Group that are secured by collateral of the borrower, limit the Group’s claim to cash flow of the underlying collateral (non-recourse loans). The Group applies the adjustment in assessing whether the non-recourse loans meet the SPPI criterion. The Group typically considers the following information when making the judgements:

• whether the contractual arrangement specifically defines the amounts and dates of the cash payments of the loan;
• the fair value of the collateral relative to the amount of the secured financial asset;
• the ability and willingness of the borrower to make contractual payment, notwithstanding a decline in the value of collateral;
• whether the borrower is an individual or a substantive operating entity or is a special- purpose entity;
• the Group’s risk of loss on the asset relative to a full-recourse loan;
• the extent to which the collateral represents all or substantial portions of the borrower’s assets
• whether the Group will benefit from any upside from the underlying assets.

Refer Notes 7.1.3.3 to 7.1.3.5 below for details on different types of financial assets recognised on the SOFP.

7.1.3.3 Financial assets measured at amortised cost

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets measured at amortised cost are given in Notes 7.1.3.3.1 to 7.1.3.3.6 below.

7.1.3.3.1 Loans and advances to other customers

Loans and advances to other customers include amounts due from loans and advances and lease receivables from the customers of the Group.

Details of “Loans and advances to other customers” are given in Note 33 on pages 368 to 371.

7.1.3.3.2 Securities purchased under resale agreements (reverse repos)

When the Group purchases a financial asset and simultaneously enters into an agreement to resale the asset (or a similar asset) at a fixed price on a future date (reverse repo), the arrangement is accounted for as a financial asset in the SOFP reflecting the transaction’s economic substance as a loan granted by the Group. Subsequent to initial recognition, these securities issued are measured at amortised cost using the EIR with the corresponding interest income/ receivable being recognised as interest income in profit or loss.

Details of “Securities purchased under resale agreements” are given in the SOFP on page 309.

7.1.3.3.3 Debt and other financial instruments measured at amortised cost

Details of “Debt and other financial instruments measured at amortised cost” are given in Note 34 on page 371.

7.1.3.3.4 Cash and cash equivalents

Details of “Cash and cash equivalents” are given in Note 28 on page 360.

7.1.3.3.5 Balances with central banks

Details of “Balances with central banks” are given in Note 29 on page 361.

7.1.3.3.6 Placement with banks

Details of “Placement with banks” are given in Note 30 on page 362.

7.1.3.4 Financial assets measured at FVOCI

Financial assets at FVOCI include debt and equity instruments measured at fair value through other comprehensive income.

For financial assets measured at FVOCI refer Notes 7.1.3.4.1 and 7.1.3.4.2.

7.1.3.4.1 Debt instruments measured at FVOCI

Debt instruments are measured at FVOCI if they are held within a business model whose objective is to hold for collection of contractual cash flows and selling financial assets, where the asset’s contractual cash flows represent payments that are solely payments of principal and interest on principal outstanding. Details of “Debt instruments at FVOCI” are given in Note 35 on page 374.

7.1.3.4.2 Equity instruments designated at FVOCI

Upon initial recognition, the Group elects to classify irrevocably some of its equity instruments held for strategic and regulatory purposes as equity instruments at FVOCI. Details of “Equity instruments at FVOCI” are given in Note 35 on page 374.

7.1.3.5 Financial assets measured at FVTPL

All financial assets other than those classified at amortised cost or FVOCI are classified as measured at FVTPL. Financial assets measured at FVTPL include financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell. Details of “Financial assets measured at FVTPL” are given in Note 7.1.3.5.1 below.

7.1.3.5.1 Financial assets held for trading

Details of “Financial Assets held for trading” are given in Note 32 on pages 363 to 367.

7.1.3.5.1.1 Derivatives recorded at FVTPL

Details of “Derivative financial assets” recorded at fair value through profit or loss are given in Note 31 on page 362.

7.1.4 Classification and subsequent measurement of financial liabilities

The Group classifies financial liabilities, other than financial guarantees and loan commitments into one of the following categories:

• Financial liabilities at FVTPL, and within this category as –
  • Held-for-trading; or
  • Designated at FVTPL;
• Financial liabilities measured at amortised cost.

The subsequent measurement of financial liabilities depends on their classification.

Refer Notes 7.1.4.1 and 7.1.4.2 as detailed below:

7.1.4.1 Financial liabilities at FVTPL

Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVTPL. Refer Note 7.1.4.1.1 below.

7.1.4.1.1 Financial liabilities held for trading

Details of “Derivative financial liabilities” classified under financial liabilities held for trading are given in Note 44 on page 401.

7.1.4.2 Financial liabilities at amortised cost

Financial liabilities of the Group that are not measured at FVTPL are classified as financial liabilities at amortised cost under “Due to banks”, “Securities sold under repurchase agreements”, “Due to depositors”, “Other borrowings” or “Subordinated liabilities” as appropriate, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instrument.

After initial recognition, such financial liabilities are subsequently measured at amortised cost using the EIR method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR.

The EIR amortisation is included in “Interest expense” in profit or loss. Gains and losses too are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

7.1.4.2.1 Due to banks

Details of “Due to banks” are given in Note 43 on page 401.

7.1.4.2.2 Securities sold under repurchase agreements (repos)

When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset (or a similar asset) at a fixed price on a future date (repos), the arrangement is accounted for as a financial liability in the SOFP reflecting the transaction’s economic substance as a deposit. Subsequent to initial recognition, these securities are measured at amortised cost using the EIR with the corresponding interest payable being recognised as “Interest expense” in profit or loss.

Details of “Securities sold under repurchase agreements (repos)” are given in the SOFP on page 309.

7.1.4.2.3 Due to depositors

Details of “Due to depositors” are given in Note 45 on page 402.

7.1.4.2.4 Other Borrowings

Details of “Other Borrowings” are given in Note 46 on page 403.

7.1.4.2.5 Subordinated liabilities

Details of “Subordinated liabilities” are given in Note 50 on page 414.

7.1.5 Derivatives held for risk management purposes and hedge accounting

Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets and liabilities. Derivatives held for risk management purposes are measured at fair value in the SOFP.

The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument and hedged item, including risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at inception of the hedge relationship and on an ongoing basis, of whether the hedging instrument is expected to be highly effective in offsetting the changes in fair value or cash flow of the respective hedged item during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80% to 125%. The Group makes an assessment for a cash flow hedge of a forecast transaction, of whether the forecast transaction is highly probable to occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss.

7.1.6 Reclassification of financial assets and liabilities

Financial assets are not reclassified subsequent to their initial recognition, except and only in those rare circumstances when the Group changes its objective of the business model for managing such financial assets which may include the acquisition, disposal or termination of a business line.

Financial liabilities are not reclassified as such reclassifications are not permitted by SLFRS 9.

7.1.6.1 Timing of reclassification of financial assets

Consequent to the change in the business model, the Bank reclassifies all affected assets prospectively following the change in the business model (the reclassification date). Accordingly, prior periods are not restated.

7.1.7 Derecognition of financial assets and financial liabilities

7.1.7.1 Financial assets

The Group derecognises a financial asset (or where applicable a part of thereof) when the contractual rights to the cash flows from the financial asset expire or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.

However, cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit or loss on derecognition of such securities.

Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability.

7.1.7.2 Financial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

7.1.8 Modification of financial assets

If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value.

If the cash flows of the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset and recognises the amount arising from adjusting the gross carrying amount as a modification gain or loss in profit or loss. If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses measured using a pre modification interest rate. In other cases, it is presented as interest income.

7.1.9 Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the SOFP if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise 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 Group’s trading activity.

7.1.10 Amortised cost and gross carrying amount

The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the EIR method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any ECL allowance.

The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any ECL allowance.

7.1.11 Fair value of financial instruments

Fair value measurement of financial instruments including the fair value hierarchy is explained in Notes 4 and 27 on pages 328 and 356.

7.1.12 Identification and measurement of impairment of financial assets

7.1.12.1 Overview of the ECL principles

The Group records an allowance for ECL for loans and advances to other customers, debt and other financial instruments measured at amortised cost, debt instruments measured at FVOCI, any other financial assets measured at amortised cost, loan commitments and financial guarantee contracts.

SLFRS 9 outlines a “three-stage” model for impairment based on changes in credit quality since initial recognition.

• Stage 1: A financial asset that is not originally credit impaired on initial recognition is classified in Stage 1. Financial instruments in Stage 1 have their ECL measured at an amount equal to the proportion of lifetime expected credit losses (LTECL) that result from default events possible within next 12 months (12M ECL).
• Stage 2: If a significant increase in credit risk (SICR) since origination is identified, the financial asset is moved to Stage 2 and the Group records an allowance for LTECL. Refer Note 7.1.12.2 for a description on how the Group determines when a SICR has occurred.
• Stage 3: If a financial asset is credit-impaired, it is moved to Stage 3 and the Group recognises an allowance for LTECL, with probability of default at 100%. Refer Note 7.1.12.3 for a description on how the Group defines default and credit impaired assets.

The key judgements and assumptions adopted by the Group in addressing the requirements of SLFRS 9 are discussed below:

7.1.12.2 Significant Increase in Credit Risk (SICR)

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information analysis, based on the Group’s historical experience and expert credit assessment and including forward looking information.

The Group considers an exposure to have significantly increased credit risk when contractual payments of a customer are more than 30 days past due in accordance with the rebuttable presumption in SLFRS 9.

The Group individually reviews at each reporting date, loans and advances above a predefined threshold to identify whether the credit risk has increased significantly since origination, before an exposure is in default. Such indicators include, inter-alia:

• When the risk rating of a customer or an instrument has been downgraded to B+ by an external credit rating agency and/or when there is a two-notch downgrade in the banks internal rating system.
• When reasonable and supportable forecasts of future economic conditions directly affect the performance of a customer/group of customers, portfolios or instruments.
• When there is a significant change in the geographical locations or natural catastrophes that directly impact the performance of a customer/group of customers or an instrument.
• When the value of collateral is significantly reduced and/or realisability of collateral is doubtful.
• Frequent changes in the Board of Directors and senior management of an institutional customer.
• Delay in the commencement of business operations/projects by more than two years from the originally agreed date.
• ;A fall of 50% or more in the turnover and/or profit before tax of the customer when compared to the previous year for two consecutive years.
• Adverse financial ratios compared to the industry norms.
• Erosion in net-worth by more than 25% when compared to the previous year.
• Number of times credit facilities are restructured.
• Modification of terms resulting in concessions, including extensions, deferment of payments, waiver of covenants etc., due to credit deterioration.
• Any other indicator that the Group believes which indicate an SICR as per expert credit judgement.

Credit facilities/exposures which have one or more of the above indicators are treated as facilities with SICR and assessed accordingly in ECL computations. The Group also considers the conditions stipulated in the Directions issued by the CBSL on identifying SICR criteria for assessing credit facilities for ECL computations. The Group regularly monitors the effectiveness of the criteria used to identify SICR to confirm that the criteria is capable of identifying SICR before an exposure is in default.

For debt instruments having an external credit rating, which are measured at amortised cost or at FVOCI, the Group determines SICR based on the generally accepted investment/non-investment grade definitions published by international rating agencies. Debt instruments are moved to stage 2, if their credit risk increases to the extent that they are no longer considered under investment grade.

7.1.12.3 Definition of default and credit impaired assets

The Group considers loans and advances to other customers be defaulted when:

• The borrower is unlikely to pay its obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or
• The borrower becomes 90 days past due on its contractual payments.
• The borrower is deceased/insolvent.

In addition, the Group classifies the financial investments under stage 3 when the external credit rating assigned to the particular investment is “default”.

In assessing whether a borrower is in default, the Group reviews its individually significant loans and advances above a predefined threshold at each reporting date. Further, as per “CBSL Banking act Directions No. 13 of 2021”, Non-Performing credit facilities (NPCF) mean all the credit facilities where the contractual payments of a customer are past due for more than 90 days or has remained in excess of the sanctioned limit for more than 90 days, and any other credit facilities classified as stage 3 credit facility under SLFRS 9.

7.1.12.4 Movement between the stages

Financial assets can be transferred between the different categories (other than POCI) depending on their relative change in credit risk since initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly increased since initial recognition based on the assessments described in Note 7.1.12.2 and also as per the Policy on Upgrading of Credit Facilities of the Bank. Financial instruments are transferred out of stage 3 when they no longer exhibit any evidence of credit impairment as described in Note 7.1.12.3 and also as per the Policy on Upgrading of Credit Facilities of the Bank. The Bank has developed a comprehensive Policy on Upgrading of Credit Facilities in line with the CBSL Banking act Directions No. 13 of 2021. Accordingly, credit facilities other than restructured and rescheduled facilities are upgraded to a better stage if all due contractual payments associated with such credit facility as at the date of upgrading are fully settled. Restructured and rescheduled facilities are gradually upgraded upon satisfactory repayment for a stipulated period according to the policy while exercising prudence principle.

7.1.12.5 Grouping financial assets measured on collective basis

The Group calculates ECL either on a collective or an individual basis. Asset classes where the Group calculates ECL on individual basis include:

• Credit impaired facilities and facilities identified with SICR which are impaired based on the individual impairment assessment
• The treasury, trading and interbank relationships (such as due from Banks, money at call and short notice, placements with Banks, government securities, investments in debentures etc.)

Those financial assets for which, the Group determines that no provision is required under individual impairment are then collectively assessed for ECL. For the purpose of ECL calculation on collective basis, financial assets are grouped on the basis of similar risk characteristics. Loans and advances to other customers are grouped in to homogeneous portfolios, based on a combination of product and customer characteristics.

Details of the ECL calculation are given in Note 18 on pages 345 to 349.

7.2 Non-current assets (or disposal groups) classified as held for sale

The Group intends to recover the value of non-current assets (or disposal groups) classified as held for sale as at the reporting date principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, the asset or disposal group is available-for-sale in its present condition, the management has committed to the sale, and the sale is expected to have been completed within one year from the date of classification.

As per the Sri Lanka Accounting Standard – SLFRS 5 on “Non-current Assets Held for Sale and Discontinued Operations”, (SLFRS 5) these assets are measured at the lower of the carrying amount and fair value, less costs to sell. Thereafter, the Group assesses at each reporting date or more frequently if events or changes in circumstances indicate that the investment or a group of investment is impaired. The Group recognises an impairment loss for any initial or subsequent write down of the assets to fair value less costs to sell and also recognises a gain for any subsequent increase in fair value less costs to sell of an asset, only to the extent of the cumulative impairment losses that have been recognised previously. Impairment loss is first allocated to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to financial assets, deferred tax assets or employee benefit assets which continue to be measured in accordance with the Group’s other accounting policies. As a result, once classified, the Group neither amortises nor depreciates the assets classified as held for sale.

In the Income Statement of the reporting period and of the comparable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Group retains an NCI in a subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the Income Statement.

7.3 Property, plant and equipment

Details of “Property, plant and equipment” are given in Note 38 on pages 380 to 392.

7.3.1 Depreciation

Details of “Depreciation” are given in Note 20 on page 350.

7.3.2 Borrowing costs

As per the Sri Lanka Accounting Standard – LKAS 23 on “Borrowing Costs” (LKAS 23), the Group capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of the asset. A qualifying asset is an asset which takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are recognised in the profit or loss in the period in which they occur.

7.4 Investment property

Investment properties are initially measured at cost, including transaction costs. The Group subsequently measures investment properties under fair value model. Any gain or loss arising from a change in fair value and the rental income from the investment property is recognised under “Net other operating income”.

Details of “Investment Property” are given in Note 39 on pages 393 to 396.

7.5 Intangible assets

Details of “Intangible assets” are given in Note 40 on pages 396 and 397.

Amortisation recognised during the year in respect of intangible assets is included under the item of “Amortisation of intangible assets” under “Depreciation and amortisation” in profit or loss.

Refer Note 20 on page 350.

7.6 Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than investment properties and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.

The “recoverable amount” of an asset or CGU is the greater of its VIU and its fair value less costs to sell. VIU is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

The Group’s corporate assets do not generate separate cash inflows and are used 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 assets are allocated.

Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, 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 amortisation, if no impairment loss had been recognised.

7.7 Dividends payable

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are recommended and declared by the Board of Directors and approved by the shareholders. Interim dividends are deducted from Equity when they are declared and no longer at the discretion of the Bank.

Dividends for the year, that are approved after the reporting date and not provided for, are disclosed as an event after the reporting period in accordance with the Sri Lanka Accounting Standard – LKAS 10 on “Events after the reporting period” (LKAS 10) in Note 68 on page 470.

7.8 Employee benefits

7.8.1 Defined Benefit Plans (DBPs)

A DBP is a post-employment benefit plan other than a Defined Contribution Plan (DCP) as defined in LKAS 19.

7.8.1.1 Defined benefit pension plans

7.8.1.1.1 Description of the plans and employee groups covered

The Bank operates two types of Defined Benefit Pension Plans for its employees as described below:

(a) The Bank has an approved Pension Fund, which was established in 1992. As per the Deed of Trust, only those employees who were less than 45 years of age as at January 01, 1992 were covered by the Pension Fund in order to leave a minimum contribution for a period of 10 years before they are eligible to draw pension from the Pension Fund. Further, only the employees those who joined the Bank before January 01, 2000, became eligible for this pension scheme.

During 2006, the Bank offered a restructured pension scheme to convert the DBP to a DCP for the pensionable employees of the Bank and over 99% of them accepted it. As a result, the above Pension Fund now covers only those employees who did not opt for the restructured pension scheme and those employees who were covered by the Pension Fund which was established in 1992, but retired before the restructured pension scheme came into effect;

(b) Provision for pensions has been made for those employees who retired before January 01, 2000, and on whose behalf the Bank could not make contributions to the Retirement Pension Fund for more than 10 years. This liability although not funded has been provided for in full in the Financial Statements;

The subsidiaries of the Bank do not operate Pension Funds.

The Bank’s net obligation in respect of Defined Benefit Pension Plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets, as per LKAS 19 as detailed in Note 48 on pages 404 to 413.

The past service cost is recognised as an expense on a straight-line basis over the period until the benefits become vested. If the benefits are already vested following the introduction of, or changes to, a pension plan, past service cost is recognised immediately.

7.8.1.1.2 Recognition of actuarial gains or losses

Actuarial gains or losses are recognised in the OCI in the period in which they arise.

7.8.1.1.3 Recognition of retirement benefit obligation

The defined benefit asset or liability comprises the present value of the defined benefit obligation, less past service cost not yet recognised and the fair value of the plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognised and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

The calculation of defined benefit obligations is performed annually by a qualified actuary using the Projected Unit Credit Method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurement of the net defined benefit liability, which comprises actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in OCI. The Group determines the net interest expense/ (income) on the net defined benefit liability/ (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net-defined benefit liability/(asset), taking into account any changes in the net-defined benefit liability/(asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to DBPs are recognised in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a DBP when the settlement occurs.

Amounts recognised in profit or loss as expenses on DBPs and provisions made on DBPs together with the details of valuation methods are given in Notes 19 and 48 on pages 349 and 350 and 404 to 413, respectively.

7.8.2 Defined Contribution Plans (DCPs)

A DCP is a post-employment plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay a further amount. Obligations to DCPs are recognised in the profit or loss as the related service is provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. The Group has four such plans as explained in Notes 7.8.2.1, 7.8.2.2, 7.8.2.3 and 7.8.2.4.

Amounts recognised in profit or loss as expenses on DCPs are given in Note 19 on page 349.

7.8.2.1 Defined contribution pension plan

As explained in Note 7.8.1.1.1 (a), during 2006, the Bank restructured its pension scheme which was a DBP to a DCP. This restructured plan was offered on a voluntary basis to the eligible employees of the Bank. The scheme provides for lump sum payments instead of commuted/monthly pensions to the eligible employees at the point of their separation, in return for surrendering their pension rights. The lump sum offered consisted of a past service package and a future service package. The shortfall on account of the past service package in excess of the funds available in the Pension Fund was borne by the Bank in 2006.

The future service package includes monthly contributions to be made by the Bank for the employees who accepted the offer, to be made during their remaining period of service, at predetermined contribution rates to be applied on their salaries, which are estimated to increase for this purpose at 10% p.a. based on the salary levels that prevailed as at the date of implementation of this scheme. In addition, interest to be earned on the assets of the DCP is also allocated to the employees who opted for the restructured pension scheme.

The assets of this Fund are held separately from those of the Bank and are independently administered by the Trustees as per the provisions of the Trust Deed.

7.8.2.2 Employees’ Provident Fund

The Bank and employees contribute to an approved Private Provident Fund at 12% and 8% respectively, on the salaries of each employee. In addition, the employees may voluntarily contribute an excess amount. Other local entities of the Group and their employees contribute at the same percentages as above to the Employees’ Provident Fund managed by the CBSL.

7.8.2.3 Employees’ Trust Fund

The Bank and other local entities of the Group contribute at the rate of 3% of the salaries of each employee to the Employees’ Trust Fund managed by the CBSL.

7.8.2.4 Defined Contribution Pension Fund (DCPF)

Defined Contribution Pension Fund (DCPF) was established on March 01, 2020, which is managed by a Board of Trustees consisting of representatives of Employee Organisations and the Management.

Employees who joined since the year 2000, and who are not covered under the Restructured Pension Scheme of the Bank and are in the service of the Bank as at March 01, 2020 are eligible for the new DCPF. The initial lump sum, based on Gratuity entitlement as at February 29, 2020, is being transferred to the accounts opened in the names of individual eligible employees. Further, all the eligible employees who joined the Bank on or after March 01, 2020 are also covered under this DCPF.

The Bank contributes monthly, a percentage equivalent of 7.5% of the monthly salary of each eligible employee starting from March 01, 2020 until cessation of employment to the DCPF.

Employees cannot withdraw money from the DCPF before cessation of employment. In the event of early separation prior to retirement (excluding death), eligible employees are entitled to withdraw the accumulated amounts in their respective DCPF accounts. However, the eligible employees are not entitled to receive any DCPF payment where the completed service is less than 5 years (similar to the Gratuity payments are done in case of a separation as per the Gratuity Act at the point of termination and separation). In the event of death of an employee whilst in service, the accumulated funds in the members account will be released in full to the nominated parties/legal heirs as the case may be, where the completed service is more than 5 years.

7.8.3 Terminal benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be wholly settled within 12 months of the reporting date, then they are discounted.

7.8.4 Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group 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.

7.8.5 Share-based payment arrangements

Share-based payment arrangements in which the Bank receives services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Bank. Executive Employees of the Bank receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). The Group does not operate any cash-settled share-based payment transactions.

The Group applies the requirements of the Sri Lanka Accounting Standard – SLFRS 2 on “Share-based Payment” (SLFRS 2) in accounting for equity-settled share-based payment transactions, if any, that were granted after January 01, 2012 and had not vested at the same date. As per SLFRS 2, on the grant date, fair value of equity-settled share-based payment awards (i.e., share options) granted to employees is recognised as personnel expense, with a corresponding increase in equity, over the period in which the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of share awards for which the related service and non-market performance vesting conditions are expected to be met, so that the amount ultimately recognised as an expense is based on the number of share awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The Employee Share Option Plans – 2023, which were granted are subjected to the above accounting treatment.

The details of Employee Share Option Plans are given in Note 52 on pages 417 to 419.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share as disclosed in Note 24.1 and Note 24.2 on pages 353 and 354.

7.9 Other liabilities and provisions

Details of “Other liabilities and provisions” are given in Note 48 on pages 404 to 413.

7.10 Restructuring

Provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses arising on such restructuring are not provided for.

The Group does not have any provision for restructuring as at the reporting date.

7.11 Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

The Group does not have any onerous contracts as at the reporting date.

7.12 Bank levies

A provision for bank levies is recognised when the condition that triggers the payment of the levy is met. If a levy obligation is subject to a minimum activity threshold so that the obligating event is reaching a minimum activity, then a provision is recognised when that minimum activity threshold is reached.

7.13 Financial guarantees, letters of credit and undrawn loan commitments

“Financial guarantees” are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. Undrawn loan commitments and letters of credits are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified terms to the customer.

Financial guarantees are initially recognised in the Financial Statements (within other liabilities and provisions) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the income statement and ECL provision, if appropriate.

The premium received is recognised in profit or loss in Note 14.1 on “Fee and commission income” on a straight-line basis over the life of the guarantee.

The nominal contractual value of financial guarantees including performance bond guarantees, letters of credit and undrawn loan commitments, where the loan agreed to be provided is on market terms, are not recorded on in the SOFP, but included as part of contingent liabilities and commitments. The nominal values of these instruments together with the corresponding ECLs are disclosed in Note 57 on page 423.

Loan commitments at below market interest rates are initially measured at fair value and subsequently measured at the higher of the amount of the ECL allowance and the amount initially recognised less the cumulative amount of income recognised, when appropriate.

7.14 Commitments

All discernible risks are accounted for in determining the amount of known liabilities as explained in Note 7.9 above.

Details of the Commitments are given in Note 57 on page 423.

7.15 Contingent liabilities and commitments

A detailed list of “Contingent liabilities and commitments” and “Litigation against the Bank” are given in Notes 57 and 59 on pages 423 and 425.

7.16 Stated capital and reserves

Details of the “Stated capital and reserves” are given in Notes 51, 53, 54 and 55 to the Financial Statements on pages 416 to 417 and 419 to 422.

7.17 Earnings per Share (EPS)

Details of “Basic and Diluted EPS” are given in Note 24 on page 353.

7.18 Operating segments

Details of “Operating segments” are given in Note 61 on pages 428 and 429.

7.19 Fiduciary assets

The Bank provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity are not reported in these Financial Statements as they do not belong to the Bank.

Details of “Income and expense” are given in Notes 12 to 21 on pages 340 to 351.

8.1 Interest income and interest expense

Details of “Interest income and Interest expense” are given in Note 13 on pages 340 to 342.

8.2 Fee and commission income and fee and commission expense

Details of “Fee and commission income and commission expense” are given in Note 14 on page 343.

8.3 Net gains/ (losses) from trading

Details of “Net gains/ (losses) from trading” are given in Note 15 on page 344.

8.4 Net gains/(losses) from derecognition of financial assets

Details of “Net gains/ (losses) from derecognition of financial assets” are given in Note 16 on page 344.

8.5 Dividend income

Dividend income is recognised when the right to receive income is established. Usually, this is the ex-dividend date for quoted equity securities.

Dividends are presented in net gains/(losses) from trading, net other operating income based on the underlying classification of the equity investment.

Details of “Dividend income” are given in Notes 15 and 17 on pages 344 and 345.

8.6 Leases

The Group assesses at the inception of a contract, whether a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration as per the guidelines of SLFRS 16. This assessment considers whether, throughout the period of use, the lessee has both the right to obtain all of the economic benefits from the use of the identified asset and the right to direct how and for what purpose the identified asset is used.

After the assessment of whether a contract is, or contains, a lease, the Group determines whether it contains additional lease or non-lease (service) components based on the detailed guidance provided in SLFRS 16. Accordingly, the right to use of an identifying asset is a separate lease component if the lessee can benefit from the use of underlying asset either on its own or together with other resources readily available to the lessee and the underlying asset is neither highly dependent on, nor highly interrelated with, the other underlying assets in the contract.

8.6.1 Group as a lessee

As per SLFRS 16, when the Group has determined that a contract contains a lease component and one or more additional lease components or non-lease components, the consideration in the contract is allocated to each lease component on the basis of relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

At the commencement date, the Group recognises right-of-use of an asset and a lease liability which is measured at the present value of the lease payments that are payable on that date. Lease payments are discounted using the IBR.

After initial recognition, the Group applies cost model for the right-of-use of an asset and depreciate the asset from commencement date to the end of the useful life of the underlying asset. Where the right does not transfer the ownership of the asset, the Group depreciates it from commencement date to the earlier of the end of the useful life of the right-of-use asset or end of the lease term. In addition, interest expense on the lease liability is recognised in the profit or loss.

Details of “Right-of-use asset” and “Lease liability” are given in Notes 38 and 48 respectively, on pages 380 and 404.

8.6.2 Group as a lessor

Similar to above, at the commencement of the contract, the Group determines whether the contract contains a lease component and one or more additional lease components or non-lease components. When there is one or more additional lease or non-lease component, the Group allocates consideration based on the guidelines given in SLFRS 15.

8.6.2.1 Finance leases – Group as a lessor

As per SLFRS 16, a lease which transfers substantially all the risks and rewards incidental to ownership of an underlying asset is classified as a finance lease. At the commencement date, the Group recognises assets held under finance lease in the SOFP and present them as a lease receivable at an amount equal to the net investment in the lease. Net investment in the lease is arrived at by discounting lease payments receivable at the interest rate implicit in the lease, i.e. the rate of interest which causes present value of lease payments to equal to the fair value of the underlying asset and initial direct costs. The Group’s net investment in lease is included in Note 33 “Loans and advances to other customers”. The finance income receivable is recognised in “interest income” over the periods of the leases so as to achieve a constant rate of return on the net investment in the leases.

8.6.2.2 Operating leases – Group as a lessor

As per SLFRS 16, a lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset. The Group recognises lease payments from operating leases as income on straight-line basis. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and are 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.

8.7 Rental income and rental expenses

Rental income and rental expense are recognised in profit or loss on an accrual basis.

9.1 Income tax expense

9.1.1 Current tax

Details of “Income tax expense” are given in Note 23 on pages 352 and 353.

9.1.2 Deferred tax

Details of “Deferred tax assets and liabilities” are given in Note 41 on pages 398 and 399.

9.1.3 Tax exposures

In determining the amount of current and deferred tax, the Group considers the favourable/adverse impact to the current tax liability and deferred tax liability due to assessments, revision to legislature etc. Such changes to tax liabilities could impact the tax expense in the period in which such revision is considered, as an over or under provision.

9.2 Crop Insurance Levy (CIL)

In accordance with the provisions of Section 14 of Finance Act No. 12 of 2013, the CIL is payable to the National Insurance Trust Fund by institutions licensed under the Banking Act No. 30 of 1988. The levy is calculated at a rate of 1% of the net profit after tax.

9.3 Withholding Tax (WHT) on dividends distributed by the Bank, subsidiaries and associate

9.3.1 WHT on dividends distributed by the Bank

A prevailing Withholding Tax (WHT) rate of 15% applies to all dividend distributions made by the Bank to both resident and non-resident shareholders. Under the existing tax regulations, dividend paid will be exempt in the hands of shareholders to the extent that such dividend payment is attributable to, or derived from dividend received by the Bank or another resident company. Dividend paid out of profit is liable to 15% WHT and will not be subjected to income tax, further.

9.3.2 WHT on dividends distributed by the subsidiaries and associate

Dividend income derived by the Bank from its subsidiaries and associate is subject to WHT at the rate of 15%, which will be a final tax for the Bank.

9.4 Taxes on Financial Services

Value Added Tax on Financial Services (VAT FS) and Social Security Contribution Levy on Financial Services (SSCL FS) is calculated in accordance with Value Added Tax Act No. 14 of 2002, Social Security Contribution Levy Act No. 25 of 2022 and amendments thereto and the Government Gazette No. 2316/13 dated January 24, 2023 (the Gazette).

The value addition attributable to the Taxes on supply of Financial Services is derived by adjusting the accounting profit (before Taxes on Financial Services and Income Tax) with staff emoluments (both monetary and non-monetary benefits) and economic depreciation determined as per rates prescribed in the Gazette. Prevailing statutory VAT FS and SSCL FS rates are 18% and 2.5% respectively.

Pursuant to the Social Security Contribution Levy (Amendment) Act, No. 24 of 2025 dated December 17, 2025, the SSCL FS is slated for abolition, upon the rate of VAT FS increasing to 20.5%. However, the corresponding amendment to the VAT Act has not yet been enacted.

The amount of VAT FS and SSCL FS charged in determining the profit or loss for the period is given in Note 22 on page 351.

9.5 Value Added Tax (VAT) and Social Security Contribution Levy (SSCL)

Non-Financial Services are made liable on the turnover to VAT and SSCL at the rate of 18% and 2.5% respectively.

The VAT rate has been increased from 15% to 18% with effect from January 01, 2024.

Further, certain goods and services which were previously exempt from VAT has been made liable at the rate of 18% effective January 01, 2024.

As per Value Added Tax (Amendment) Act No.04 of 2025, Simplified Value Added Tax (SVAT) scheme was abolished with effect from October 01, 2025 and replaced by a Risk Based Refund Scheme (RBRS). Consequently, customers previously registered under the SVAT scheme have been treated as standard VAT registered persons and VAT is being charged at the rate of 18%.

9.6 Introduction of New Tax Reforms

As per Government Budget proposals for 2026 announced in Parliament on November 06, 2025, a proposal to reduce existing VAT and SSCL registration threshold to Rs. 36 Mn. from Rs. 60 Mn. per annum, effective from April 01, 2026. Aforementioned proposal pending enactment is likely to increase the overhead cost of the Bank.

10.1 Statement of Cash Flows

The Statement of Cash Flows is prepared using the “Indirect Method” of preparing cash flows in accordance with the Sri Lanka Accounting Standard – LKAS 7 on “Statement of Cash Flows” (LKAS 7). Gross cash and cash equivalents comprise of 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 as referred to in the Statement of Cash Flows are comprised of those items as explained in Note 28 on page 360.

The Statement of Cash Flows is given on page 318.

The following new or amended standards and interpretations have been issued, but not yet effective, as at the reporting date of the Consolidated Financial Statements. These are not expected to result in material impact to the Group on adoption.

Sri Lanka Accounting Standard – SLFRS 18 on “Presentation and Disclosure in Financial Statements” (SLFRS 18)

SLFRS 18 is a new accounting standard for presentation and disclosure in Financial Statements with effect from January 01, 2027. SLFRS 18 will replace the Sri Lanka Accounting Standard – LKAS 1 on “Presentation of Financial Statements” and applies to the Group effective from January 01, 2027. The new accounting standard introduces the following key new requirements.

• Entities are required to classify all income and expenses into five categories in the Statement of Profit or Loss, namely operating, investing, financing, discontinued operations and income tax categories. Entities are also required to present a newly defined operating profit sub totals. Entities’ net profit will not change.
• Management – defined Performance Measures (MPMs) are disclosed in a single note in the Financial Statements.
• Enhanced guidance is provided on how to group information in the Financial Statements.

In addition, all entities are required to use the operating profit subtotals as the starting point for the Statement of Cashflows when presenting operating cashflows under indirect method.

The Group is still in the process of assessing the impact of the new accounting standards, particularly with respect to the structure of the Group’s Income Statement, the Statement of Cashflows and the additional disclosures required for MPMs. The Group is also assessing the impact on how information is grouped in the Financial Statements including items currently labelled as ‘other’.

Sri Lanka Accounting Standard – SLFRS 19 on “Subsidiaries without Public Accountability” (SLFRS 19)

SLFRS 19 is a new accounting standard for subsidiaries to apply the recognition, measurement, and presentation requirements of full SLFRS Standards while applying a reduced set of disclosure requirements in Financial Statements with effect from January 01, 2027. The Group does not expect this will result in a material impact on its Consolidated Financial Statements. However, this may have an impact on the separate Financial Statements of the subsidiaries of the Bank as appropriate.

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Interest income	13.1	301,366,595	275,217,117		293,614,476	269,596,222
Fee and commission income	14.1	42,592,091	34,480,523		40,958,424	33,246,118
Net gains/(losses) from trading	15	272,311	(2,201,010)		272,311	(2,201,010)
Net gains/(losses) from derecognition of financial assets	16	2,808,159	(41,016,836)		2,808,159	(41,016,836)
Net other operating income	17	18,141,736	8,026,916		17,157,967	7,319,151
Total		365,180,892	274,506,710		354,811,337	266,943,645

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Interest income	13.1	301,366,595	275,217,117		293,614,476	269,596,222
Less: Interest expense	13.2	160,406,053	157,082,433		157,320,369	155,037,883
Net interest income		140,960,542	118,134,684		136,294,107	114,558,339

13.1 Interest income

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Cash and cash equivalents		550,281	1,125,854		549,013	1,125,232
Balances with central banks		111,642	110,417		78,211	88,365
Placements with banks		7,346,786	7,130,174		7,113,945	7,051,124
Securities purchased under resale agreements		2,364,546	2,684,252		2,271,382	2,667,926
Financial assets recognised through profit or loss		10,220,744	8,035,069		10,220,744	8,035,069
Derivative financial instruments		39,362	57,329		39,362	57,329
Other financial instruments		10,181,382	7,977,740		10,181,382	7,977,740
Financial assets at amortised cost – Loans and advances to other customers		173,971,386	142,983,240		168,470,184	138,967,018
Financial assets at amortised cost – Debt and other financial instruments(*)		85,196,026	80,585,703		83,500,118	79,372,456
Financial assets measured at fair value through other comprehensive income		20,552,184	29,320,257		20,490,647	29,194,610
Interest accrued on impaired loans and advances to other customers	33.2 (a) & 33.2 (b)	1,053,000	3,242,151		920,232	3,094,422
Total		301,366,595	275,217,117		293,614,476	269,596,222

(*) This includes interest accrued on the USD Step-Up Bond and PDI Bond at the EIR following the restructuring and derecognition of SLISBs in 2024. Refer Note 16.1 on page 344.

13.2 Interest expense

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Due to banks		1,693,813	1,378,050		1,166,376	1,257,854
Derivative financial liabilities		54,177	77,988		54,177	77,988
Securities sold under repurchase agreements		9,151,158	10,835,036		9,153,289	10,836,964
Financial liabilities at amortised cost – due to depositors		138,781,237	136,232,636		136,263,447	134,314,759
Refinance borrowings		825,777	759,123		825,777	759,123
Subordinated liabilities		9,230,001	7,242,090		9,219,413	7,242,090
Interest expense on lease liabilities	48.1	669,890	557,510		637,890	549,105
Total		160,406,053	157,082,433		157,320,369	155,037,883

13.3 Net interest income from Government Securities

Interest income and interest expense on Government Securities given in the Notes 13.3 (a), 13.3 (b) and 13.3 (c) have been extracted from interest income and interest expense given in Notes 13.1 and 13.2 respectively and disclosed separately, as required by the guidelines issued by the CBSL.

13.3 (a) Net interest income from Sri Lanka Government Securities

	GROUP		BANK
For the year ended December 31,	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Interest income	100,429,429	106,784,031	100,274,728	106,642,058
Securities purchased under resale agreements	347,708	535,494	254,544	519,168
Financial assets recognised through profit or loss	487,318	257,248	487,318	257,248
Financial assets at amortised cost – Debt and other financial instruments	79,042,219	76,671,032	79,042,219	76,671,032
Financial assets measured at fair value through other comprehensive income	20,552,184	29,320,257	20,490,647	29,194,610
Less: Interest expense	9,150,509	10,834,199	9,152,640	10,836,127
Securities sold under repurchase agreements	9,150,509	10,834,199	9,152,640	10,836,127
Net interest income	91,278,920	95,949,832	91,122,088	95,805,931

13.3 (b) Net interest income from Bangladesh Government Securities

	GROUP			BANK
For the year ended December 31,	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Interest income	15,031,687	11,943,617		15,031,687	11,943,617
Securities purchased under resale agreements	2,016,838	2,148,758		2,016,838	2,148,758
Financial assets recognised through profit or loss	9,694,064	7,720,492		9,694,064	7,720,492
Financial assets at amortised cost – Debt and other financial instruments	3,320,785	2,074,367		3,320,785	2,074,367
Less: Interest expense	649	837		649	837
Securities sold under repurchase agreements	649	837		649	837
Net interest income	15,031,038	11,942,780		15,031,038	11,942,780

13.3 (c) Net interest income from Maldives Government Securities

	GROUP			BANK
For the year ended December 31,	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Interest income	1,696,728	1,208,172		–	–
Financial assets at amortised cost – Debt and other financial instruments	1,696,728	1,208,172		–	–
Net interest income	1,696,728	1,208,172		–	–

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Fee and commission income	14.1	42,592,091	34,480,523		40,958,424	33,246,118
Less: Fee and commission expense	14.2	13,616,570	10,834,345		13,462,222	10,716,909
Net fee and commission income		28,975,521	23,646,178		27,496,202	22,529,209

14.1 Fee and commission income

	GROUP			BANK
For the year ended December 31,	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Loans and advances related services	4,379,316	2,790,229		3,840,275	2,443,884
Credit and debit cards related services	19,940,099	16,483,201		19,762,230	16,362,344
Trade and remittances related services	9,133,412	8,866,944		8,576,635	8,347,892
Deposits related services	2,777,363	1,735,944		2,750,614	1,703,661
Guarantees related services	1,645,653	1,587,025		1,643,047	1,581,554
Other financial services	4,716,248	3,017,180		4,385,623	2,806,783
Total	42,592,091	34,480,523		40,958,424	33,246,118

14.2 Fee and commission expense

	GROUP		BANK
For the year ended December 31,	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Loans and advances related services	125,202	108,119	110,406	85,951
Credit and debit cards related services	12,943,655	10,343,217	12,830,197	10,256,276
Trade and remittances related services	167,677	103,075	141,583	94,748
Other financial services	380,036	279,934	380,036	279,934
Total	13,616,570	10,834,345	13,462,222	10,716,909

	GROUP				BANK
For the year ended December 31,	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Derivative financial instruments	(1,806,984)	(3,504,340)		(1,806,984)	(3,504,340)
Net foreign exchange losses from banks and other customers	(1,808,732)	(3,544,959)		(1,808,732)	(3,544,959)
Net mark-to-market gains	1,748	40,619		1,748	40,619
Financial assets recognised through profit or loss – measured at fair value
Government Securities	802,921	352,179		802,921	352,179
Net mark-to-market gains	603,473	334,715		603,473	334,715
Net capital gains	199,448	17,464		199,448	17,464
Equities	1,276,374	951,151		1,276,374	951,151
Net mark-to-market gains	841,852	846,874		841,852	846,874
Net capital gains	333,316	34,519		333,316	34,519
Dividend income	101,206	69,758		101,206	69,758
Total	272,311	(2,201,010)		272,311	(2,201,010)

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Financial assets measured at fair value through other comprehensive income
Government Securities		2,808,159	4,090,697		2,808,159	4,090,697
Net capital gains		2,808,159	4,090,697		2,808,159	4,090,697
Financial assets at amortised cost – Debt and other financial instruments
Government Securities		–	(45,107,533)		–	(45,107,533)
Derecognition loss on restructuring of SLISBs	16.1	–	(45,107,533)		–	(45,107,533)
Total		2,808,159	(41,016,836)		2,808,159	(41,016,836)

16.1 Derecognition loss on restructuring of SLISBs

Sri Lanka’s economic downturn, which began in 2019, led the country to seek IMF support to restore macroeconomic stability, conditional on a debt restructuring programme. As part of this process, the restructuring of SLISBs was completed on December 20, 2024. Eligible bondholders were given a choice to select either the Global Bonds Option or the Local Bonds Option.

The Bank chose the Local Bonds Option as it offered a significantly lower principal haircut compared to the Global Bonds Option, albeit with lower coupon rates and extended maturities. Before restructuring, the Bank’s SLISBs had a face value of USD 517.080 Mn. and past due interest (PDI) of USD 82.411 Mn.

Under the Local Bonds Option, 30% of the portfolio was converted into LKR Bonds amounting to Rs. 45.033 Bn., while the remaining 70% was converted into a USD Step-Up Bond of USD 325.760 Mn., after a 10% haircut. The Step-Up Bond allows repayment in LKR if USD servicing is not feasible. To settle past due interest, a USD-denominated PDI Bond of USD 68.420 Mn. was issued, along with an Exchange Fee Bond of USD 9.602 Mn. for consenting to the restructuring. As the modification was considered substantial as per SLFRS 9, the existing SLISBs were derecognised and the new bonds were recognised at the fair value. The resulting derecognition loss of Rs. 45.108 Bn. was recognised in the Income Statement during the year 2024.

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Net gains/(losses) on sale of property, plant and equipment	17.1	25,515	15,939		13,487	2,197
Net gains/(losses) on revaluation of foreign currency assets and liabilities		16,369,100	6,956,434		16,036,081	6,534,955
Dividend income from subsidiaries		–	–		75,600	93,600
Dividend income from other equity securities		64,334	72,612		64,086	72,383
Gain on fair valuation of investment properties	39	10,400	3,500		–	–
Loss on sale of investment property		(2,900)	(3,225)		–	–
Rental and other income	17.2	1,675,287	981,656		968,713	616,016
Total		18,141,736	8,026,916		17,157,967	7,319,151

17.1 Net gains/(losses) on sale of property, plant and equipment

17.2 Rental and other income

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Loans and advances to other customers	33.2 (a) & 33.2 (b)	23,314,734	23,254,356		22,687,763	22,816,296
Other financial assets		1,809,708	(86,756,674)		1,818,159	(87,221,649)
Off-balance sheet credit exposures	57.3 (a) & 57.3 (b)	(1,729,262)	83,687		(1,732,758)	79,414
Receivables from Special Incentive Schemes	42.1	(770,597)	935,789		(770,597)	935,789
Total impairment charges/(reversal)	18.1 & 18.2	22,624,583	(62,482,842)		22,002,567	(63,390,150)
Assets classified as held for sale	37.1	30,997	–		17,199	–
Recoveries o/a loans written off (*)		(494,328)	(469,104)		(422,462)	(387,935)
Direct write-offs		955,245	188,028		908,811	175,081
Total		23,116,497	(62,763,918)		22,506,115	(63,603,004)

(*) For a better presentation and to be comparable with the current year classification, the Group and the Bank have netted off the Recoveries o/a loans written off for the year ended December 31, 2024 amounting to Rs. 469.104 Mn. and Rs. 387.935 Mn. of the Group and the Bank respectively, within “Impairment charges/(reversal) and other losses”. Until December 31, 2024, this amount had been reported separately under “Net other operating income”.

18.1 Impairment charges/(reversal) to the Income Statement – Group

For the year ended December 31,		2025				2024
	Note	Stage 1 Rs. ’000	Stage 2 Rs. ’000	Stage 3 Rs. ’000	Total Rs. ’000	Stage 1 Rs. ’000	Stage 2 Rs. ’000	Stage 3 Rs. ’000	Total Rs. ’000
Cash and cash equivalents	28.1	25,353	–	–	25,353	(6,109)	–	–	(6,109)
Balances with Central Banks	29.1	(98,577)	–	–	(98,577)	128,013	–	–	128,013
Placements with banks	30.1	196,730	–	–	196,730	109,235	–	–	109,235
Financial assets at amortised cost – loans and advances to other customers	33.2 (a)	2,314,506	7,353,906	13,646,322	23,314,734	(2,344,783)	(5,373,860)	30,972,999	23,254,356
Financial assets at amortised cost – debt and other financial instruments	34.1 (a)	28,345	(36,026)	–	(7,681)	226,709	(87,214,522)	–	(86,987,813)
Financial assets measured at fair value through other comprehensive income	35.2	–	1,693,883	–	1,693,883	–	–	–	–
Receivables from Special Incentive Schemes	42.1	–	(770,597)	–	(770,597)	–	935,789	–	935,789
Contingent liabilities and commitments	57.3 (a)	84,931	(108,046)	(1,706,147)	(1,729,262)	(573,063)	(194,861)	851,611	83,687
Total		2,551,288	8,133,120	11,940,175	22,624,583	(2,459,998)	(91,847,454)	31,824,610	(62,482,842)

18.2 Impairment charges/(reversal) to the Income Statement – Bank

For the year ended December 31,	Note	2025				2024
	Note	Stage 1 Rs. ’000	Stage 2 Rs. ’000	Stage 3 Rs. ’000	Total Rs. ’000	Stage 1 Rs. ’000	Stage 2 Rs. ’000	Stage 3 Rs. ’000	Total Rs. ’000
Cash and cash equivalents	28.1	25,403	–	–	25,403	(6,746)	–	–	(6,746)
Balances with Central Banks	29.1	–	–	–	–	–	–	–	–
Placements with banks	30.1	149,614	–	–	149,614	(3,547)	–	–	(3,547)
Financial assets at amortised cost – loans and advances to other customers (*)	33.2 (b)	2,249,761	7,101,344	13,336,658	22,687,763	(2,314,729)	(5,484,152)	30,615,177	22,816,296
Financial assets at amortised cost – debt and other financial instruments	34.1 (b)	(14,715)	(36,026)	–	(50,741)	3,166	(87,214,522)	–	(87,211,356)
Financial assets measured at fair value through other comprehensive income	35.2	–	1,693,883	–	1,693,883	–	–	–	–
Receivables from Special Incentive Schemes	42.1	–	(770,597)	–	(770,597)	–	935,789	–	935,789
Contingent liabilities and commitments	57.3 (b)	81,435	(108,046)	(1,706,147)	(1,732,758)	(577,336)	(194,861)	851,611	79,414
Total		2,491,498	7,880,558	11,630,511	22,002,567	(2,899,192)	(91,957,746)	31,466,788	(63,390,150)

(*) In order to address the potential impact to the ECL following the effects of Cyclone Ditwah, the Bank applied required adjustments when projecting cash flows under the individual impairment assessment.

Under the collective assessment, the Bank provided additional impairment provisions as a management overlay for the customers in specific product portfolios classified under stage 1 and stage 2 who could have possibly impacted as a result of the aforementioned Cyclone Ditwah. Accordingly, the impairment charges of the Bank increased by Rs 1.159 Bn.

As explained on page no 347 under post-model adjustments, the Bank’s cumulative additional impairment provision under management overlays for loans in risk elevated industries and loans under review post moratoriums as of December 31, 2025 was Rs 0.630 Bn. (Rs. 0.852 Bn. as at December 31, 2024).

Accordingly, the total of the aforementioned management overlays are amounted to Rs 1.789 Bn.(Rs. 0.852 Bn. as at December 31, 2024).

Further, the Bank performed a comprehensive assessment of individually significant customers as at December 31, 2025, and based on the assessment, those customers who have been impaired due to the SICR or default indicators were moved from Stage 1 to Stage 2 or Stage 3 based on the higher credit risk, as applicable. The Bank continued to review the key assumptions used in the impairment computation against individually significant customers classified under Stages 2 and 3 during the year.

Accordingly, the impairment charge on loans and advances during the year 2025 amounted to Rs. 22.688 Bn (Rs. 22.816 Bn in 2024).

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Salary and bonus	19.1	23,743,524	22,083,675		22,569,108	21,215,708
Contributions to defined contribution plans		2,782,798	2,548,342		2,715,444	2,502,984
Contributions to defined benefit plans - Funded schemes		103,533	83,650		103,533	83,650
Gratuity fund	48.5.3 (d)	83,959	75,640		83,959	75,640
Pension fund	48.5.1 (d)	15,927	6,877		15,927	6,877
W&OP Fund	48.5.2 (d)	3,647	1,133		3,647	1,133
Contributions to defined benefit plans – Unfunded schemes		73,870	73,310		28,550	31,395
Gratuity fund	48.2 (b)	45,320	41,915		–	–
Pension fund and W&OP Fund	48.3 (c)	28,550	31,395		28,550	31,395
Equity-settled share-based payment expense	19.2 & 55.5	16,861	22,180		16,861	22,180
Other expenses	19.3	3,466,496	3,096,301		3,407,443	3,057,953
Total		30,187,082	27,907,458		28,840,939	26,913,870

19.1 Salary, bonus, and pension costs

Salary, bonus, and contributions to defined contribution/benefit plans, reported above also include amounts paid to and contribution made on behalf of Executive Directors.

19.2 Share-based payment

The Bank has equity-settled share-based compensation plans, the details of which are given in Note 52 on page 417.

19.3 Other expenses

This includes expenses such as overtime payments, leave encashment benefits, medical and hospitalisation charges, expenses incurred on staff training/recruitment and staff welfare activities, etc.

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Depreciation of property, plant and equipment	38.1 to 38.4	2,628,980	2,205,505		2,450,814	2,043,168
Depreciation of right-of-use assets	38.1 to 38.4	1,935,030	1,415,409		2,067,807	1,539,983
Amortisation of computer software	40.1	1,327,680	1,116,289		1,300,782	1,086,580
Total		5,891,690	4,737,203		5,819,403	4,669,731

		GROUP		BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Directors’ fees	21.1	189,060	155,128	128,920	101,522
Auditors’ remuneration		54,681	47,852	46,335	38,644
Audit fees and expenses		30,484	26,138	23,638	19,665
Audit-related fees and expenses		14,213	12,281	13,061	11,970
Non-audit fees and expenses		9,984	9,433	9,636	7,009
Professional and legal expenses		2,545,641	1,971,740	3,562,457	2,788,721
Deposit insurance premium paid to the Central Banks		2,154,596	1,879,248	2,135,103	1,863,529
Donations including contribution made to the CSR Trust Fund		351,213	220,888	351,160	220,791
Establishment expenses		3,924,662	3,898,218	3,545,138	3,542,512
Maintenance of property, plant, and equipment		4,992,103	4,468,786	4,979,407	4,466,572
Office administration expenses		7,212,270	6,551,837	5,182,117	5,047,481
Total		21,424,226	19,193,697	19,930,637	18,069,772

21.1 Directors’ fees

Directors' fees represent the fees paid to both Executive and Non-Executive Directors of the Group and the Bank.

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Value Added Tax	9.4	15,706,847	17,306,021		15,534,038	17,215,756
Social Security Contribution Levy	9.4	2,043,844	2,400,654		2,019,843	2,388,117
Total		17,750,691	19,706,675		17,553,881	19,603,873

Entity-wise breakup of income tax expense in the Income Statement is as follows:

		Applicable tax rate		GROUP			BANK
For the year ended December 31,	Note	2025 %	2024 %	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Current tax				33,534,655	20,281,459		32,486,616	19,561,899
Sri Lanka operation		30	30	20,833,939	7,744,334		20,833,939	7,744,334
Sri Lanka operation		15(*)	–	1,137,826	–		1,137,826	–
Bangladesh operation		40	40	9,632,838	11,179,539		9,632,838	11,179,539
Head office cost remittance tax of Bangladesh operation		35	35	857,117	619,211		857,117	619,211
Withholding tax on dividends received		15	15	24,896	18,815		24,896	18,815
Commercial Development Company PLC		30	30	126,009	104,609		–	–
Orysys Limited		30	30	73,571	39,953		–	–
CBC Finance PLC		30	30	157,223	–		–	–
Commercial Bank of Maldives Private Limited		25	25	645,714	552,016		–	–
CBC Myanmar Microfinance Company Limited		22	22	17,442	–		–	–
Commercial Insurance Brokers (Pvt) Limited		30	30	28,080	22,982		–	–
Under/(over) provision	47			(21,362)	70,942		(23,161)	70,265
In respect of prior years				(21,362)	70,942		(23,161)	70,265
Deferred tax impact	41.1			(1,663,389)	21,769,544		(1,572,975)	21,828,943
Net (Origination) and reversal of deferred tax assets				(1,520,306)	21,394,869		(1,425,410)	21,505,240
Net Origination and (reversal) of deferred tax liabilities				(143,083)	374,675		(147,565)	323,703
Total				31,849,904	42,121,945		30,890,480	41,461,107
Effective tax rate (including deferred tax) (%)				34.33	43.07		34.56	43.40
Effective tax rate (excluding deferred tax) (%)				36.12	20.81		36.32	20.55

(*) The Inland Revenue (Amendment) Act No. 02 of 2025, repealed the previous tax exemption on "foreign-source income" and "service exports". Accordingly, gains and profits derived from services rendered to persons outside Sri Lanka or from any foreign source, are taxable at a concessionary rate of 15% from Year of Assessment 2025/2026, provided the payments are received in foreign currency and remitted to Sri Lanka through the banking system.

23.1 Reconciliation of the accounting profit to income tax expense

A reconciliation between taxable income and the accounting profit multiplied by the statutory tax rates is given below:

–

		GROUP			BANK
For the year ended December 31,	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Accounting profit before tax from operations		92,787,421	97,808,357		89,377,771	95,534,611
Tax effect at the statutory income tax rate		28,631,290	33,284,692		27,656,457	32,559,566
Sri Lankan operation of the Bank		18,085,058	21,797,660		18,085,058	21,797,660
Bangladesh operation of the Bank		9,571,399	10,761,906		9,571,399	10,761,906
Subsidiaries		974,833	725,126		–
Tax effect of exempt income		(1,764,622)	(4,105,876)		(1,720,567)	(3,960,568)
Tax effect of non-deductible expenses		16,958,099	20,279,548		16,406,923	20,036,586
Tax effect of tax deductible expenses		(11,172,125)	(29,814,931)		(10,738,210)	(29,711,711)
Head office cost remittance tax of Bangladesh operation		857,117	619,211		857,117	619,211
Under/(over) provision of taxes in respect of prior years	47	(21,362)	70,942		(23,161)	70,265
Withholding tax on dividends received		24,896	18,815		24,896	18,815
Deferred tax impact	41.1	(1,663,389)	21,769,544		(1,572,975)	21,828,943
Net (Origination) and reversal of deferred tax assets		(1,520,306)	21,394,869		(1,425,410)	21,505,240
Net Origination and (reversal) of deferred tax liabilities		(143,083)	374,675		(147,565)	323,703
Income tax expense reported in the Income Statement at the effective income tax rate		31,849,904	42,121,945		30,890,480	41,461,107

Details of Basic and Diluted EPS are given below:

24.1 Basic and diluted earnings per ordinary share

		GROUP			BANK
	Note	2025	2024		2025	2024
Amount used as the numerator:
Profit for the year attributable to equity holders of the Bank (Rs. ’000)		60,110,183	55,073,240		58,487,291	54,073,504
Number of ordinary shares used as the denominator:
Weighted average number of ordinary shares for Basic EPS	24.2	1,630,737,051	1,451,581,210		1,630,737,051	1,451,581,210
Weighted average number of ordinary shares for Diluted EPS	24.2	1,637,426,012	1,453,756,779		1,637,426,012	1,453,756,779
Basic earnings per ordinary share (Rs.)		36.86	37.94		35.87	37.25
Diluted earnings per ordinary share (Rs.)		36.71	37.88		35.72	37.20

24.2 Weighted average number of ordinary shares for basic and diluted Earnings Per Share

	Note	Outstanding number of shares			Weighted average number of shares
		2025	2024		2025	2024
Number of shares in issue as at January 01,		1,610,298,304	1,314,121,128		1,610,298,304	1,314,121,128
Add: Number of shares satisfied in the form of issue and allotment of new shares from first & final dividend for 2023	51.1	–	24,845,073		–	24,845,073
Add: Number of shares satisfied in the form of issue and allotment of new shares from first & final dividend for 2024	51.1	18,902,458	–		18,902,458	18,902,458
Add: Number of shares exercised in the form of Right issue in 2024	51.1	–	268,201,389		–	92,331,626
		1,629,200,762	1,607,167,590		1,629,200,762	1,450,200,285
Add: Number of shares issued under ESOP – 2019	51.1	–	2,407,265		–	1,223,888
Add: Number of shares issued under ESOP – 2023	51.1	6,302,872	723,449		1,536,289	157,037
Number of ordinary shares for basic earnings per ordinary share calculation		1,635,503,634	1,610,298,304		1,630,737,051	1,451,581,210
Add: Bonus element on number of outstanding options under ESOP 2023 as at the year end		–	–		6,688,961	2,175,569
Number of ordinary shares for diluted earnings per ordinary share calculation		1,635,503,634	1,610,298,304		1,637,426,012	1,453,756,779

		GROUP and Bank
		Cash dividend			Scrip dividend			Total
	Note	2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000		2025 Rs. ’000	2024 Rs. ’000
Dividends for 2023
First and final dividend	25.1	–	5,913,644		–	2,628,286		–	8,541,930
Dividends for 2024
First and final dividend	25.2	12,079,859	–		3,221,296	–		15,301,155	–
Total amount paid during the year								15,301,155	8,541,930

25.1 Dividends for 2023

The Bank did not declare cash dividends during the year 2023 (for the year ended December 31, 2023), in conformity with the restrictions imposed by the Central Bank of Sri Lanka on payment of cash dividends for the financial year 2023, as per the instructions given in the Banking Act Direction No. 01 of 2023, dated February 2, 2023, on “Restrictions on Discretionary Payments of Licensed Banks”.

The Board of Directors of the Bank recommended and paid a first and final dividend of Rs. 6.50 per share to be paid and satisfied in the form of Rs. 4.50 per share in cash and Rs. 2.00 per share in the form of issue and allotment of new shares for both voting and non-voting ordinary shareholders' of the Bank for the year ended December 31, 2023, and these new shares were listed on April 15, 2024.

This dividend was recommended and paid after the Financial Statements for the year 2023 were finalised and audited by the Bank's external auditors and in compliance with the instructions given in the Banking Act Direction No. 01 of 2023.

25.2 Dividends for 2024

The Board of Directors of the Bank recommended and paid a first and final dividend of Rs. 9.50 per share, consisting of Rs. 7.50 per share in cash (a regular cash dividend of Rs. 5.50 per share and a special cash dividend of Rs. 2.00 per share) and Rs. 2.00 per share in the form of the issue and allotment of new shares to both voting and non-voting ordinary shareholders of the Bank for the year ended December 31, 2024, and these new shares were listed on April 11, 2025.

25.3 Dividends for 2025

The Board of Directors of the Bank has recommended the payment of a first and final dividend of Rs. 10.50 per share to be paid and satisfied in the form of Rs. 8.00 per share in cash and Rs. 2.50 per share in the form of issue and allotment of new shares for both voting and non-voting ordinary shareholders of the Bank for the year ended December 31, 2025, subject to the applicable WHT as disclosed in Note 9.3.1 on page 339.

The above first and final dividend recommended by the Board of Directors is to be approved at the forthcoming Annual General Meeting to be held on March 31, 2026 and in accordance with provisions of LKAS 10, the first and final dividend referred to above has not been recognised as a liability as at the year end as disclosed in Note 7.7 on page 335.

The tables below provide a reconciliation between line items in the Statement of Financial Position and categories of financial assets and financial liabilities of the Group and the Bank:

26.1 Classification of financial assets and financial liabilities – Group

		As at December 31, 2025					As at December 31, 2024
		Financial instruments recognised through profit or loss (FVTPL)	Financial instruments at amortised cost (AC)	Financial instruments at fair value through other comprehensive income (FVOCI)	Total		Financial instruments recognised through profit or loss (FVTPL)	Financial instruments at amortised cost (AC)	Financial instruments at fair value through other comprehensive income (FVOCI)	Total
	Note	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000		Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial assets
Cash and cash equivalents	28	–	88,857,011	–	88,857,011		–	89,615,459	–	89,615,459
Balances with Central Banks	29	–	47,890,989	–	47,890,989		–	55,989,574	–	55,989,574
Placements with banks	30	–	110,223,171	–	110,223,171		–	101,104,941	–	101,104,941
Securities purchased under resale agreements		–	21,746,102	–	21,746,102		–	28,655,962	–	28,655,962
Derivative financial assets	31	5,422,850	–	–	5,422,850		4,264,271	–	–	4,264,271
Financial assets recognised through profit or loss – measured at fair value	32	111,753,532	–	–	111,753,532		91,677,346	–	–	91,677,346
Financial assets at amortised cost – loans and advances to other customers	33	–	1,958,360,596	–	1,958,360,596		< –	1,421,004,171	–	1,421,004,171
Financial assets at amortised cost – debt and other financial instruments	34	–	732,853,697	–	732,853,697		–	701,751,287	–	701,751,287
Financial assets measured at fair value through other comprehensive income	35	–	–	219,011,462	219,011,462		–	–	303,218,395	303,218,395
Total financial assets		117,176,382	2,959,931,566	219,011,462	3,296,119,410		95,941,617	2,398,121,394	303,218,395	2,797,281,406
Financial liabilities
Due to banks	43	–	43,098,281	–	43,098,281		–	25,376,564	–	25,376,564
Derivative financial liabilities	44	1,263,165	–	–	1,263,165		837,497	–	–	< 837,497
Securities sold under repurchase agreements		–	107,950,168	–	107,950,168		–	112,461,472	–	112,461,472
Financial liabilities at amortised cost – due to depositors	45	–	2,700,027,141	–	2,700,027,141		–	2,306,079,421	–	2,306,079,421
Financial liabilities at amortised cost – other borrowings	46	–	14,426,414	–	14,426,414		–	14,273,156	–	14,273,156
Subordinated liabilities	50	–	74,586,565	–	74,586,565		–	57,707,677	–	57,707,677
Total financial liabilities		1,263,165	2,940,088,569	–	2,941,351,734		837,497	2,515,898,290	–	2,516,735,787

26.2 Classification of financial assets and financial liabilities – Bank

			As at December 31, 2025				As at December 31, 2024
		Financial instruments recognised through profit or loss (FVTPL)	Financial instruments at amortised cost (AC)	Financial instruments at fair value through other comprehensive income (FVOCI)	Total	Financial instruments recognised through profit or loss (FVTPL)	Financial instruments at amortised cost (AC)	Financial instruments at fair value through other comprehensive income (FVOCI)	Total
	Note	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial assets
Cash and cash equivalents	28	–	84,937,446	–	84,937,446	–	86,848,291	–	86,848,291
Balances with Central Banks	29	–	38,802,321	–	38,802,321	–	45,702,086	–	45,702,086
Placements with banks	30	–	102,457,000	–	102,457,000	–	99,300,303	–	99,300,303
Securities purchased under resale agreements		–	20,353,118	–	20,353,118	–	28,655,962	–	28,655,962
Derivative financial assets	31	5,422,850	–	–	5,422,850	4,264,271	–	–	4,264,271
Financial assets recognised through profit or loss – measured at fair value	32	111,753,532	–	–	111,753,532	91,677,346	–	–	91,677,346
Financial assets at amortised cost – loans and advances to other customers	33	–	1,903,430,445	–	1,903,430,445	–	1,384,524,660	–	1,384,524,660
Financial assets at amortised cost – debt and other financial instruments	34	–	689,347,677	–	689,347,677	–	667,709,691	–	667,709,691
Financial assets measured at fair value through other comprehensive income	35	–	–	217,991,351	217,991,351	–	–	301,584,142	301,584,142
Total financial assets		117,176,382	2,839,328,007	217,991,351	3,174,495,740	95,941,617	2,312,740,993	301,584,142	2,710,266,752
Financial liabilities
Due to banks	43	–	29,724,059	–	29,724,059	–	21,306,752	–	21,306,752
Derivative financial liabilities	44	1,263,165	–	–	1,263,165	837,497	–	–	837,497
Securities sold under repurchase agreements		–	110,462,494	–	110,462,494	–	112,470,392	–	112,470,392
Financial liabilities at amortised cost – due to depositors	45	–	2,608,851,844	–	2,608,851,844	–	2,236,566,800	–	2,236,566,800
Financial liabilities at amortised cost – other borrowings	46	–	14,426,414	–	14,426,414	–	14,273,156	–	14,273,156
Subordinated liabilities	50	–	73,322,023	–	73,322,023	–	57,707,677	–	57,707,677
Total financial liabilities		1,263,165	2,836,786,834	–	2,838,049,999	837,497	2,442,324,777	–	2,443,162,274

27.1 Assets and liabilities measured at fair value and fair value hierarchy

The following table provides an analysis of assets and liabilities measured at fair value as at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. These amounts were based on the values recognised in the Statement of Financial Position:

		GROUP				BANK
As at December 31, 2025	Note	Level 1 Rs. ’000	Level 2 Rs. ’000	Level 3 Rs. ’000	Total Rs. ’000	Level 1 Rs. ’000	Level 2 Rs. ’000	Level 3 Rs. ’000	Total Rs. ’000
Non-financial assets
Property, plant and equipment
Land and buildings	38	–	–	17,756,895	17,756,895	–	–	16,081,182	16,081,182
Investment properties	39	–	–	775,060	775,060	–	–	–	–
Total non-financial assets at fair value		–	–	18,531,955	18,531,955	–	–	16,081,182	16,081,182
Financial assets
Derivative financial assets		–	5,422,850	–	5,422,850	–	5,422,850	–	5,422,850
Currency swaps		–	4,986,665	–	4,986,665	–	4,986,665	–	4,986,665
Forward contracts		–	433,638	–	433,638	–	433,638	–	433,638
Spot contracts		–	2,547	–	2,547	–	2,547	–	2,547
Financial assets recognised through profit or loss – measured at fair value	32	111,753,532	–	–	111,753,532	111,753,532	–	–	111,753,532
Government securities		106,521,563	–	–	106,521,563	106,521,563	–	–	106,521,563
Equity shares		5,231,969	–	–	5,231,969	5,231,969	–	–	5,231,969
Financial assets measured at fair value through other comprehensive income	35	217,858,559	–	1,152,903	219,011,462	216,840,953	–	1,150,398	217,991,351
Government securities		217,423,347	–	–	217,423,347	216,405,741	–	–	216,405,741
Equity securities		435,212	–	1,152,903	1,588,115	435,212	–	1,150,398	1,585,610
Total financial assets at fair value		329,612,091	5,422,850	1,152,903	336,187,844	328,594,485	5,422,850	1,150,398	335,167,733
Total assets at fair value		329,612,091	5,422,850	19,684,858	354,719,799	328,594,485	5,422,850	17,231,580	351,248,915
Financial liabilities
Derivative financial liabilities	44	–	1,263,165	–	1,263,165	–	1,263,165	–	1,263,165
Currency swaps		–	769,839	–	769,839	–	769,839	–	769,839
Forward contracts		–	492,025	–	492,025	–	492,025	–	492,025
Spot contracts		–	1,301	–	1,301	–	1,301	–	1,301
Total liabilities at fair value		–	1,263,165	–	1,263,165	–	1,263,165	–	1,263,165

		GROUP				Bank
As at December 31, 2024	Note	Level 1 Rs. ’000	Level 2 Rs. ’000	Level 3 Rs. ’000	Total Rs. ’000	Level 1 Rs. ’000	Level 2 Rs. ’000	Level 3 Rs. ’000	Total Rs. ’000
Non-financial assets
Property, plant and equipment
Land and buildings	38	–	–	18,419,003	18,419,003	–	–	16,238,809	16,238,809
Investment properties	39	–	–	743,900	743,900	–	–	–	–
Total non-financial assets at fair value		–	–	19,162,903	19,162,903	–	–	16,238,809	16,238,809
Financial assets
Derivative financial assets	31	–	4,264,271	–	4,264,271	–	4,264,271	–	4,264,271
Currency swaps		–	3,777,948	–	3,777,948	–	3,777,948	–	3,777,948
Forward contracts		–	483,255	–	483,255	–	483,255	–	483,255
Spot contracts		–	3,068	–	3,068	–	3,068	–	3,068
Financial assets recognised through profit or loss – measured at fair value	32	91,677,346	–	–	91,677,346	91,677,346	–	–	91,677,346
Government securities		87,741,168	–	–	87,741,168	87,741,168	–	–	87,741,168
Equity shares		3,936,178	–	–	3,936,178	3,936,178	–	–	3,936,178
Financial assets measured at fair value through other comprehensive income	35	302,215,830	–	1,002,565	303,218,395	300,583,935	–	1,000,207	301,584,142
Government securities		301,882,131	–	–	301,882,131	300,250,236	–	–	300,250,236
Equity securities		333,699	–	1,002,565	1,336,264	333,699	–	1,000,207	1,333,906
Total financial assets at fair value		393,893,176	4,264,271	1,002,565	399,160,012	392,261,281	4,264,271	1,000,207	397,525,759
Total assets at fair value		393,893,176	4,264,271	20,165,468	418,322,915	392,261,281	4,264,271	17,239,016	413,764,568
Financial liabilities
Derivative financial liabilities	44	–	837,497	–	837,497	–	837,497	–	837,497
Currency swaps		–	394,036	–	394,036	–	394,036	–	394,036
Interest rate swaps – LKR		–	1,748	–	1,748	–	1,748	–	1,748
Forward contracts		–	437,278	–	437,278	–	437,278	–	437,278
Spot contracts		–	4,435	–	4,435	–	4,435	–	4,435
Total liabilities at fair value		–	837,497	–	837,497	–	837,497	–	837,497

27.2 Level 3 fair value measurement

Property, Plant and Equipment (PPE)

Reconciliation from the beginning balance to the ending balance for the land and buildings in the Level 3 of the fair value hierarchy is given in Notes 38.1 to 38.4 on pages 381 to 384.

Reconciliation of Revaluation Reserve pertaining to land and buildings categorised as Level 3 in the fair value hierarchy is given in the Statement of Changes in Equity on pages 310 to 317.

Note 38.5 (b) on page 386 provides information on significant unobservable inputs used in measuring fair value of land and buildings categorised as Level 3 in the fair value hierarchy.

Note 38.5 (c) on page 391 provides details of valuation techniques used and sensitivity of fair value measurement to changes in significant unobservable inputs.

Investment properties

Reconciliation from the beginning balance to the ending balance for the investment properties in the Level 3 of the fair value hierarchy is available in Note 39 on page 393.

Note 39.1 (b) on page 395 provides information on significant unobservable inputs used in measuring fair value of investment properties categorised as Level 3 in the fair value hierarchy.

Note 39.1 (c) on page 396 provides details of valuation techniques used and sensitivity of fair value measurement to changes in significant unobservable inputs.

Equity securities – Unquoted shares

The Bank used net asset based valuation technique in measuring the fair value of unquoted shares measured at FVOCI as at December 31, 2025. Refer Note 35.3 on pages 375 and 376.

27.3 Financial instruments not measured at fair value and fair value hierarchy

Methodologies and assumptions used to determine fair value of financial instruments which are not recorded at fair value in the Statement of Financial Position are as follows:

Fixed rate financial instruments

The fair value of fixed rate financial assets and liabilities carried at amortised cost (e.g. fixed rate loans and advances, due to depositors, subordinated liabilities) are estimated based on the Discounted Cash Flow approach. This approach employs the current market interest rates of similar financial instruments in measuring the fair value.

Financial instruments for which fair value approximates carrying value

For financial assets and liabilities with short-term maturities or with short-term re-pricing intervals, it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits and savings deposits which do not have a specific maturity.

The following table sets out the fair value of financial assets and liabilities not measured at fair value and related fair value hierarchy used:

		GROUP					BANK
As at December 31, 2025	Note	Level 1	Level 2	Level 3	Total fair value	Total carrying amount	Level 1	Level 2	Level 3	Total fair value	Total carrying amount
		Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial assets
Cash and cash equivalents	28	–	88,857,011	–	88,857,011	88,857,011	–	84,937,446	–	84,937,446	84,937,446
Balances with Central Banks	29	–	47,890,989	–	47,890,989	47,890,989	–	38,802,321	–	38,802,321	38,802,321
Placements with banks	30	–	110,223,171	–	110,223,171	110,223,171	–	102,457,000	–	102,457,000	102,457,000
Securities purchased under resale agreements		–	21,746,102	–	21,746,102	21,746,102	–	20,353,118	–	20,353,118	20,353,118
Financial assets at amortised cost – loans and advances to other customers	33	–	1,931,967,208	–	1,931,967,208	1,958,360,596	–	1,877,037,057	–	1,877,037,057	1,903,430,445
Financial assets at amortised cost – debt and other financial instruments (*)	34	638,070,961	118,406,062	–	756,477,023	732,853,697	594,564,941	118,406,062	–	712,971,003	689,347,677
Total financial assets		638,070,961	2,319,090,543	–	2,957,161,504	2,959,931,566	594,564,941	2,241,993,004	–	2,836,557,945	2,839,328,007
Financial liabilities
Due to banks	43	–	43,098,281	–	43,098,281	43,098,281	–	29,724,059	–	29,724,059	29,724,059
Securities sold under repurchase agreements		–	107,950,168	–	107,950,168	107,950,168	–	110,462,494	–	110,462,494	110,462,494
Financial liabilities at amortised cost – due to depositors	45	–	2,701,943,812	–	2,701,943,812	2,700,027,141	–	2,610,768,515	–	2,610,768,515	2,608,851,844
Financial liabilities at amortised cost – other borrowings	46	–	14,426,414	–	14,426,414	14,426,414	–	14,426,414	–	14,426,414	14,426,414
Subordinated liabilities	50	–	83,842,986	–	83,842,986	74,586,565	–	82,578,444	–	82,578,444	73,322,023
Total financial liabilities		–	2,951,261,661	–	2,951,261,661	2,940,088,569	–	2,847,959,926	–	2,847,959,926	2,836,786,834

(*) USD Step-Up Bond, PDI Bond and Domestic Dollar Bond (DDB) were reported under level 2 as at December 31, 2025. Total fair value of the Bonds amounted to Rs. 82.644 Bn. (Carrying value – Rs. 80.391 Bn.)

		GROUP					BANK
As at December 31, 2024	Note	Level 1	Level 2	Level 3	Total fair value	Total carrying amount	Level 1	Level 2	Level 3	Total fair value	Total carrying amount
		Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000	Rs. ’000
Financial assets
Cash and cash equivalents	28	–	89,615,459	–	89,615,459	89,615,459	–	86,848,291	–	86,848,291	86,848,291
Balances with Central Banks	29	–	55,989,574	–	55,989,574	55,989,574	–	45,702,086	–	45,702,086	45,702,086
Placements with banks	30	–	101,104,941	–	101,104,941	101,104,941	–	99,300,303	–	99,300,303	99,300,303
Securities purchased under resale agreements		–	28,655,962	–	28,655,962	28,655,962	–	28,655,962	–	28,655,962	28,655,962
Financial assets at amortised cost – loans and advances to other customers	33	–	1,405,823,539	–	1,405,823,539	1,421,004,171	–	1,369,344,028	–	1,369,344,028	1,384,524,660
Financial assets at amortised cost – debt and other financial instruments(*)	34	642,152,910	102,241,490	–	744,394,400	701,751,287	608,111,314	102,241,490	–	710,352,804	667,709,691
Total financial assets		642,152,910	1,783,430,965	–	2,425,583,875	2,398,121,394	608,111,314	1,732,092,160	–	2,340,203,474	2,312,740,993
Financial liabilities
Due to banks	43	–	25,376,564	–	25,376,564	25,376,564	–	21,306,752	–	21,306,752	21,306,752
Securities sold under repurchase agreements		–	112,461,472	–	112,461,472	112,461,472	–	112,470,392	–	112,470,392	112,470,392
Financial liabilities at amortised cost – due to depositors	45	–	2,311,417,549	–	2,311,417,549	2,306,079,421	–	2,241,904,928	–	2,241,904,928	2,236,566,800
Financial liabilities at amortised cost – other borrowings	46	–	14,273,156	–	14,273,156	14,273,156	–	14,273,156	–	14,273,156	14,273,156
Subordinated liabilities	50	–	66,484,748	–	66,484,748	57,707,677	–	66,484,748	–	66,484,748	57,707,677
Total financial liabilities		–	2,530,013,489	–	2,530,013,489	2,515,898,290	–	2,456,439,976	–	2,456,439,976	2,442,324,777

(*) USD Step-Up Bond and PDI Bond were reported under level 2 as at December 31, 2024. Total fair value of the Bonds amounted to Rs. 79.890 Bn. (Carrying value – Rs. 73.801 Bn.)

27.4 Valuation techniques and inputs in measuring fair values

The table below provides information on the valuation techniques and inputs used in measuring the fair values of derivative financial assets and liabilities in the Level 2 of the fair value hierarchy, as given in Note 27.1 on page 357.

Type of financial instruments	Fair value as at December 31, 2025 (Rs. ’000)	Valuation technique	Significant valuation inputs
Derivative financial assets	5,422,850	Adjusted forward rate approach This approach considers the present value of projected forward exchange rate as at the reporting date as the fair value. The said forward rate is projected, based on the spot exchange rate and the forward premium/discount calculated using extrapolated interest rates of the currency pairs under consideration. In computing the present value, interest rate differential between two currencies under consideration is used as the discount rate.	Spot exchange rate
Derivative financial liabilities	1,263,165		Interest rate differentials between currencies under consideration

		GROUP		BANK
As at December 31,	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Cash in hand		59,072,000	50,582,374	56,761,194	49,202,117
Coins and notes held in local currency		48,402,213	43,711,424	48,053,650	43,604,057
Coins and notes held in foreign currency		10,669,787	6,870,950	8,707,544	5,598,060
Balances with banks		24,277,356	38,966,215	22,667,643	37,578,353
Local banks		951	85,076	–	–
Foreign banks		24,276,405	38,881,139	22,667,643	37,578,353
Money at call and at short notice		5,542,054	75,016	5,542,054	75,016
Gross cash and cash equivalents (*)		88,891,410	89,623,605	84,970,891	86,855,486
Less: Provision for impairment	28.1	34,399	8,146	33,445	7,195
Net cash and cash equivalents		88,857,011	89,615,459	84,937,446	86,848,291

(*) Gross cash and cash equivalents are reported in the Statement of Cash Flows.

28.1 Movement in provision for impairment during the year

		GROUP		BANK
	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Movement in Stage 1 impairment
Balance as at January 01,		8,146	14,951	7,195	14,585
Charge/(reversal) to the Income Statement	18.1 & 18.2	25,353	(6,109)	25,403	(6,746)
Exchange rate variance on foreign currency provisions		900	(696)	847	(644)
Balance as at December 31,		34,399	8,146	33,445	7,195

The maturity analysis of cash and cash equivalents is given in Note 60 on pages 426 and 427.

		GROUP		BANK
As at December 31,	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Statutory balances with Central Banks
Balances with Central Bank of Sri Lanka		18,339,681	19,727,132	18,339,681	19,727,132
Balances with Bangladesh Bank		19,762,501	20,373,800	19,762,501	20,373,800
Balances with Maldives Monetary Authority		4,938,069	5,147,458	–	–
Non-statutory balances with Central Banks
Balances with Central Bank of Sri Lanka		700,139	5,601,154	700,139	5,601,154
Balances with Maldives Monetary Authority		4,180,906	5,264,718	–	–
Total		47,921,296	56,114,262	38,802,321	45,702,086
Less: Provision for impairment	29.1	30,307	124,688	–	–
Net balances with central Banks		47,890,989	55,989,574	38,802,321	45,702,086

29.1 Movement in provision for impairment during the year

		GROUP		BANK
	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Movement in Stage 1 impairment
Balance as at January 01,		124,688	–	–	–
Charge/(reversal) to the Income Statement	18.1 & 18.2	(98,577)	128,013	–	–
Exchange rate variance on foreign currency provisions		4,196	(3,325)	–	–
Balance as at December 31,		30,307	124,688	–	–

The maturity analysis of balances with Central Banks is given in Note 60 on pages 426 and 427.

Balances with Central Bank of Sri Lanka

The Monetary Law Act requires that all commercial banks operating in Sri Lanka to maintain a statutory reserve on all deposit liabilities denominated in Sri Lankan Rupees. As required by the provisions of Section 93 of the Monetary Law Act, a cash balance is maintained with the Central Bank of Sri Lanka. As at December 31, 2025, the minimum cash reserve requirement was 2.00% of the rupee deposit liabilities and this rate was applicable from August 16, 2023. There is no reserve requirement for foreign currency deposits liabilities in Sri Lanka.

Balances with Bangladesh Bank

The Bank’s Bangladesh operation is required to maintain the Statutory Liquidity Requirement on time and demand liabilities (both local and foreign currencies), partly in the form of a Cash Reserve Requirement and the balance by way of foreign currency and/ or in the form of unencumbered securities held with the Bangladesh Bank. As per the Bangladesh Bank regulations, the Statutory Liquidity Requirement as at December 31, 2025, was 17.00% for Domestic Banking Unit (DBU) and 13.00% for Off-shore Banking Unit (OBU) (17.00% for DBU and 13.00% for OBU in 2024) on time and demand liabilities (both local and foreign currencies), which includes a Cash Reserve Requirement of 4.00% only to the DBU (4.00% on DBU in 2024) and the balance 13.00% is permitted to be maintained in foreign currency and/or also in unencumbered securities held with the Bangladesh Bank for both DBU and OBU (13.00% for both DBU and OBU in 2024).

Balances with Maldives Monetary Authority

According to the Banking Act No. 24 of 2010, the CBM is required to maintain a statutory reserve for all deposit liabilities denominated in both foreign and local currencies, excluding interbank deposits of other banks in the Maldives, letters of credit, and margin deposits. As per the regulations set by the Maldives Monetary Authority (MMA), the Minimum Reserve Requirement (MRR) as of December 31, 2025, was 10.00% for deposits denominated in Maldivian Rufiyaa and 5.00% for deposits denominated in USD (10.00% for Maldivian Rufiyaa and 7.50% for USD in December 31, 2024).

		GROUP		BANK
As at December 31,	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Placements – Within Sri Lanka		11,265,208	4,836,942	6,968,880	4,836,942
Placements – Outside Sri Lanka		99,310,398	96,415,672	95,675,598	94,501,028
Gross placements with banks		110,575,606	101,252,614	102,644,478	99,337,970
Less: Provision for impairment	30.1	352,435	147,673	187,478	37,667
Net placements with banks		110,223,171	101,104,941	102,457,000	99,300,303

30.1 Movement in provision for impairment during the year

		GROUP		BANK
	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Movement in Stage 1 impairment
Balance as at January 01,		147,673	41,565	37,667	41,396
Charge/(reversal) to the Income Statement	18.1 & 18.2	196,730	109,235	149,614	(3,547)
Exchange rate variance on foreign currency provisions		8,032	(3,127)	197	(182)
Balance as at December 31,		352,435	147,673	187,478	37,667

The maturity analysis of placements with banks is given in Note 60 on pages 426 and 427.

			GROUP			BANK
As at December 31,			2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Derivative financial assets – Held for trading
Foreign currency derivatives			5,422,850	4,264,271	5,422,850	4,264,271
Currency swaps			4,986,665	3,777,948	4,986,665	3,777,948
Forward contracts			433,638	483,255	433,638	483,255
Spot contracts			2,547	3,068	2,547	3,068
Total			5,422,850	4,264,271	5,422,850	4,264,271

The maturity analysis of derivative financial assets is given in Note 60 on pages 426 and 427.

		GROUP		BANK
As at December 31,	Note	2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Government securities	32.1	106,521,563	87,741,168	106,521,563	87,741,168
Equity securities		5,231,969	3,936,178	5,231,969	3,936,178
Equity securities – Sri Lanka	32.2	4,983,180	3,936,178	4,983,180	3,936,178
Equity securities – Bangladesh	32.3	248,789	–	248,789	–
Total		111,753,532	91,677,346	111,753,532	91,677,346

The maturity analysis of financial assets recognised through profit or loss is given in Note 60 on pages 426 and 427.

32.1 Government securities

			GROUP			BANK
As at December 31,			2025 Rs. ’000	2024 Rs. ’000	2025 Rs. ’000	2024 Rs. ’000
Government securities – Sri Lankan Rupee			8,230,993	2,082,562	8,230,993	2,082,562
Treasury Bonds			8,230,993	2,082,562	8,230,993	2,082,562
Government securities – Bangladesh Taka			98,290,570	85,658,606	98,290,570	85,658,606
Treasury Bills			52,777,079	78,506,332	52,777,079	78,506,332
Treasury Bonds			45,513,491	7,152,274	45,513,491	7,152,274
Total			106,521,563	87,741,168	106,521,563	87,741,168

32.2 Equity securities – Sri Lanka – Group and Bank

	As at December 31, 2025					As at December 31, 2024
Sector/Name of the Company	Number of shares	Market price	Market value	Cost of the investment		Number of shares	Market price	Market value	Cost of the investment
		Rs.	Rs. ’000	Rs. ’000			Rs.	Rs. ’000	Rs. ’000
Application Software
hSenid Business Solutions Limited	1,520,900	17.50	26,616	29,080		1,520,900	12.20	18,555	29,080
Subtotal			26,616	29,080				18,555	29,080
Automobiles and Components
Kelani Tyres PLC	305,500	89.60	27,373	23,425		305,500	83.50	25,509	23,425
Subtotal			27,373	23,425				25,509	23,425
Banks
Cargills Bank PLC	3,500,000	9.60	33,600	34,836		–	–	–	–
DFCC Bank PLC	4,211	148.00	623	277		4,156	113.75	473	270
Hatton National Bank PLC	548,858	398.50	218,720	94,439		436,706	319.75	139,637	60,937
Hatton National Bank PLC (Non-voting)	412,944	318.75	131,626	82,743		264,967	256.75	68,030	28,281
National Development Bank PLC	598,763	141.25	84,575	69,094		614,391	113.25	69,580	65,827
Nations Trust Bank PLC	233,296	313.00	73,022	14,635		460,102	186.50	85,809	28,004
Sampath Bank PLC	901,682	146.50	132,096	83,178		634,640	118.25	75,046	28,937
Seylan Bank PLC	1,314	105.00	138	60		1,314	77.90	102	60
Seylan Bank PLC (Non-voting)	–	–	–	–		275,000	57.00	15,675	12,375
Subtotal			674,400	379,262				454,352	224,691
Capital Goods
Access Engineering PLC	–	–	–	–		500,000	34.50	17,250	12,557
Central Industries PLC	–	–	–	–		40,000	151.50	6,060	5,096
Colombo Dockyard PLC	–	–	–	–		75,000	65.90	4,943	16,685
Hemas Holdings PLC	5,000,000	34.70	173,500	73,787		1,350,000	103.25	139,388	99,612
John Keells Holdings PLC	4,830,000	21.70	104,811	81,664		4,030,000	22.60	91,078	63,635
Renuka Holdings PLC	124,434	48.90	6,085	3,275		124,434	18.40	2,290	3,275
Renuka Holdings PLC (Non-voting)	285,445	39.50	11,275	5,175		285,445	13.90	3,968	5,175
Subtotal			295,671	163,901				264,977	206,035
Consumer Durables and Apparel
Hayleys Fabric PLC	680,789	40.70	27,708	30,361		161,839	55.00	8,901	7,606
Teejay Lanka PLC	1,406,491	34.90	49,087	61,267		1,000,000	52.40	52,400	43,459
Subtotal			76,795	91,628				61,301	51,065
Consumer Services
Galadari Hotels Lanka PLC	388,455	18.50	7,186	7,039		361,675	18.20	6,582	6,796
John Keells Hotels PLC	267,608	22.90	6,128	3,473		267,608	20.60	5,513	3,473
Tal Lanka Hotels PLC	212,390	40.90	8,687	6,625		212,390	22.10	4,694	6,625
Subtotal			22,001	17,137				16,789	16,894
Diversified Financials
Central Finance Company PLC	564,000	268.00	151,152	92,229		644,898	190.00	122,531	70,062
Ceylon Investment PLC	25,000	124.00	3,100	1,344		301,403	73.40	22,123	16,199
Citizen Development Business Finance PLC (Non-voting)	105,390	300.25	31,643	3,398		105,390	172.25	18,153	3,398
LOLC Holdings PLC	24,236	560.00	13,572	13,730		10,000	690.25	6,903	4,391
LB Finance PLC	150,000	155.25	23,288	12,847		278,272	89.50	24,905	23,267
People’s Leasing & Finance PLC	1,333,484	25.00	33,337	16,563		2,186,316	17.00	37,167	28,113
VISA Inc.	19,424	USD.350.71	2,111,779	–		19,424	USD.316.04	1,798,657	–
Subtotal			2,367,871	140,111				2,030,439	145,430
Energy
Lanka IOC PLC	525,000	129.00	67,725	66,592		200,000	125.75	25,150	24,236
Subtotal			67,725	66,592				25,150	24,236
Food and Staples Retailing
Cargills (Ceylon) PLC	120,000	767.00	92,040	27,724		179,920	420.00	75,566	41,568
Subtotal			92,040	27,724				75,566	41,568
Food, Beverage and Tobacco
Ceylon Cold Stores PLC	1,428,135		155,667	86,605		1,400,000	83.60	117,040	78,893
Ceylon Grain Elevators PLC	150,000	400.00	60,000	10,893		250,000	189.50	47,375	18,156
Kotagala Plantations PLC	302,625	10.10	3,057	9,172		302,625	8.90	2,693	9,172
Lanka Milk Foods (CWE) PLC	1,100,000	67.80	74,580	13,328		2,500,000	46.80	117,000	28,933
Lion Brewery Ceylon PLC	92,000	1,693.75	155,825	85,352		50,000	1,185.25	59,263	32,256
Melstacorp PLC	245,960	174.00	42,797	9,814		245,960	123.00	30,253	9,814
Pelwatte Sugar Industries PLC	12,300	0.10	1	351		12,300	0.10	1	351
Subtotal			491,927	215,515				373,625	177,575
Health Care Equipment and Services
Ceylon Hospitals PLC	131,728	270.00	35,567	13,974		131,728	115.00	15,149	13,974
Ceylon Hospitals PLC (Non-voting)	64,918	199.25	12,935	4,766		64,918	99.90	6,485	4,766
Subtotal			48,502	18,740				21,634	18,740
Insurance
Ceylinco Holdings PLC	95,500	1,796.50	171,566	99,372		95,500	1,374.25	131,241	99,372
HNB Assurance PLC	710,884	114.75	81,574	45,476		613,000	80.10	49,101	35,031
Subtotal			253,140	144,848				180,342	134,403
Materials
Chevron Lubricants Lanka PLC	773,242	184.00	142,277	79,518		639,880	160.00	102,381	61,341
CIC Holdings PLC (Non-voting)	2,040,500	26.10	53,257	7,391		408,100	67.00	27,343	7,391
Dipped Products PLC	250,000	61.10	15,275	8,661		250,000	54.50	13,625	8,661
Ex-pack Corrugated Cartons PLC	2,502,285	14.10	35,282	35,746		2,227,285	16.30	36,305	31,878
Haycarb PLC	205,630	106.75	21,951	3,055		205,630	85.30	17,540	3,055
JAT Holdings PLC	1,000,000	48.20	48,200	22,999		1,000,000	25.00	25,000	22,999
Subtotal			316,242	157,370				222,194	135,325
Real Estate
Overseas Realty Ceylon PLC	183,320	38.70	7,094	2,717		183,320	24.50	4,491	2,717
Subtotal			7,094	2,717				4,491	2,717
Retailing
Singer (Sri Lanka) PLC	–	–	–	–		370,911	26.00	9,644	5,676
Subtotal	–	–	–	–				9,644	5,676
Telecommunication Services
Dialog Axiata PLC	1,516,500	29.80	45,192	14,771		4,515,672	11.70	52,833	40,273
Subtotal			45,192	14,771				52,833	40,273
Transportation
Digital Mobility Solutions Lanka PLC	1,100,000	149.25	164,175	47,204		1,400,000	67.50	94,500	60,077
Subtotal			164,175	47,204				94,500	60,077
Utilities
LVL Energy Fund PLC	648,100	9.90	6,416	6,481		648,100	6.60	4,277	6,481
Subtotal			6,416	6,481				4,277	6,481
Total			4,983,180	1,546,506				3,936,178	1,343,691
Net mark to market gains/(losses)				3,436,674					2,592,487
Market value of equity securities				4,983,180					3,936,178

32.3 Equity securities - Bangladesh – Group and Bank

	As at December 31, 2025					As at December 31, 2024
Sector/Name of the Company	Number of shares	Market price	Market value	Cost of the investment		Number of shares	Market price	Market value	Cost of the investment
		Rs.	Rs. ’000	Rs. ’000			Rs.	Rs. ’000	Rs. ’000
Banks
City Bank PLC	602,209	24.40	37,276	36,634		–	–	–	–
Prime Bank PLC	700,847	28.70	51,026	50,632		–	–	–	–
Subtotal			88,302	87,266				–	–
Fuel & Power
MJL Bangladesh PLC	95,293	90.50	21,878	21,533		–	–	–	–
Subtotal			21,878	21,533				–	–
Pharmaceuticals & Chemicals
Marico Bangladesh Ltd.	5,253	2,673.50	35,627	36,675		–	–	–	–
Square Pharmaceuticals PLC	110,504	198.60	55,673	58,334		–	–	–	–
Subtotal			91,300	95,009				–	–
Telecommunication
Robi Axiata PLC	344,653	28.20	24,656	24,800		–	–	–	–
Subtotal			24,656	24,800				–	–
Textile
Envoy Textiles Limited	184,114	48.50	22,653	22,575		–	–	–	–
Subtotal			22,653	22,575				–	–
Total			248,789	251,183				–	–
Net mark to market gains/(losses)				(2,394)					–
Market value of equity securities				248,789					–

32.4 Industry/Sector composition of equity securities – Sri Lanka – Group and Bank

	As at December 31, 2025				As at December 31, 2024
Industry/Sector	Market value	Cost of the investment			Market value	Cost of the investment
	Rs. ’000	Rs. ’000	%		Rs. ’000	Rs. ’000	%
Application Software	26,616	29,080	0.53		18,555	29,080	0.47
Automobiles and Components	27,373	23,425	0.55		25,509	23,425	0.65
Banks	674,400	379,262	13.53		454,352	224,691	11.54
Capital Goods	295,671	163,901	5.93		264,977	206,035	6.73
Consumer Durables and Apparel	76,795	91,628	1.54		61,301	51,065	1.56
Consumer Services	22,001	17,137	0.44		16,789	16,894	0.43
Diversified Financials	2,367,871	140,111	47.53		2,030,439	145,430	51.58
Energy	67,725	66,592	1.36		25,150	24,236	0.65
Food and Staples Retailing	92,040	27,724	1.85		75,566	41,568	1.92
Food, Beverage and Tobacco	491,927	215,515	9.87		373,625	177,575	9.49
Health Care Equipment and Services	48,502	18,740	0.97		21,634	18,740	0.55
Insurance	253,140	144,848	5.08		180,342	134,403	4.58
Materials	316,242	157,370	6.35		222,194	135,325	5.64
Real Estate	7,094	2,717	0.14		4,491	2,717	0.11
Retailing	–	–	0.00		9,644	5,676	0.25
Telecommunication Services	45,192	14,771	0.91		52,833	40,273	1.34
Transportation	164,175	47,204	3.29		94,500	60,077	2.40
Utilities	6,416	6,481	0.13		4,277	6,481	0.11
Subtotal	4,983,180	1,546,506	100.00		3,936,178	1,343,691	100.00
Net mark to market gains/(losses)		3,436,674				2,592,487
Market value of equity securities	4,983,180	4,983,180	100.00		3,936,178	3,936,178	100.00

32.5 Industry/Sector composition of equity securities – Bangladesh – Group and Bank

	As at December 31, 2025				As at December 31, 2024
Industry/Sector	Market value	Cost of the investment			Market value	Cost of the investment
	Rs. ’000	Rs. ’000	%		Rs. ’000	Rs. ’000	%
Banks	88,302	87,266	35.49		–	–	–
Fuel & Power	21,878	21,533	8.79		–	–	–
Pharmaceuticals & Chemicals	91,300	95,009	36.70		–	–	–
Telecommunication	24,656	24,800	9.91		–	–	–
Textile	22,653	22,575	9.11		–	–	–
Subtotal	248,789	251,183	100.00		–	–	–
Net mark to market gains/(losses)		(2,394)				–
Market value of equity securities	248,789	248,789	100.00		–	–	–