258 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
the bank’s operations. It should be flexible while ensuring that the liquidity strategy approved
by the BOD can be effectively implemented.
2.2 Liquidity Measurement –  Liquidity measurement is a difficult task and can be measured
through stock or flow approaches.
 (a) Stock Approach – Under the stock approach, liquidity is measured in terms of key ratios
which portray the liquidity stored in the balance sheet. Banks should calculate and analyse
following ratios during their risk management process:
 i. Net loans to total assets
 ii. Loans to customer deposits
 iii. Liquid assets to short-term liabilities
 iv . Lar ge liabilities (minus) temporary investments to earning assets (minus) temporary
investments, where large liabilities represent wholesale deposits which are market
sensitive and temporary investments which are those maturing within one year and
those investments which are held in the trading book and are readily sold in the
market.
 v . Purchased funds to total  assets, where purchased funds include the entire
inter-bank and other money market borrowings, including certificates of deposits and
institutional deposits.
 vi. Commitments to total loans, where the commitment in the nature of Letter of Credits
(LCs), guarantees and acceptances.
 (b) Flow approach –  Banks should prepare a statement of Maturities of Assets and Liabilities
(MAL) placing all cash inflows and outflows in the time bands according to the residual
time to maturity. A format for the MAL is attached. (Attachment – 1). The time bands may
be distributed as under:
 i. Up to one month
 ii. Over one month and up to 3 months
 iii. Over 3 months and up to 6 months
 iv . Over 6 months and up to 9 months
 v . Over 9 months and up to 1 year
 vi. Over 1 year and up to 3 years
 vii. Over 3 years and up to 5 years
 viii. Over 5 years


vi. Over 1 year and up to 3 years
 vii. Over 3 years and up to 5 years
 viii. Over 5 years
  (Assumptions to be made –  Some of the assets and liability items like overdraft, savings
and current deposits etc., lack any definite contractual maturity. Similarly, a part of
time deposits are also rolled over on maturity while the consumer loans are topped-up
at frequent intervals. Thus, while determining the likely cash inflows/outflows, banks
should make a number of assumptions according to the behaviour of assets and liabilities.
At least, assumptions should be validated, bi-annually. Such assumptions may be
fine-tuned, over a period, to facilitate near reality predictions about future behaviour of
on/off-balance sheet positions).
 (c) Net funding requirement –
 i. The difference between cash inflows and outflows in each time band, the excess or
deficit of funds, becomes a starting point for a measure of a bank’s future liquidity
surplus or deficit, at a series of points in time.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  259
 ii. While the mismatches up to one year would be relevant as these provide early warning
signals of impending liquidity problems, the main focus should be on mismatches up
to three months.
 iii. Banks, however, are expected to fix prudential mismatch limits appropriate to the
size, complexity and financial conditions across all time bands.
 iv . The liquid ity position should be measured in all major currencies in which banks deal
at both individual and aggregate levels. Banks which are reliant on short-term funding
should, however, concentrate primarily on managing their liquidity in the very
short-term horizons and preferably on a day-to-day basis.
 (d) Alternate Scenarios –
 i. Banks should evaluate liquidity profile under different stress situations, viz. normal
situation, bank specific crisis and market crisis scenarios.
 ii. Under each scenario, banks should account for any significant positive or negative
liquidity swings that could occur on account of factors that are both internal (bank
specific) and external (market-related).
 i ii. In this regard, banks must assign the timing of cash flows for each type of asset
and liability by assessing the probability of the behaviour of those cash flows under
alternative scenarios.
 iv . For each funding source, banks would have to decide whether a liability would be
(a) repaid in full at maturity, (b) gradually run off over the next few weeks or
(c) virtually certain to be rolled over or available, if tapped.
 (e) Contingency Plan –
 i. Banks should prepare liquidity contingency plans to measure their ability to withstand
bank-specific or market crisis scenarios.
 ii. The blue-print for assets sales, market access, capacity  to restructure the maturity and
composition of assets and liabilities should be clearly documented and alternative


composition of assets and liabilities should be clearly documented and alternative
options of funding in the event of the bank’s failure to raise liquidity from existing
sources should be clearly articulated.
 i ii. Liquidity from CBSL, as the lender of last resort, should not be reckoned for
contingency plans.
 iv . A vailability of back-up liquidity support in the form of committed lines of credit,
reciprocal arrangements, liquidity support from other external sources, liquidity of
assets etc. should also be clearly established.
F. Inter est Rate Risk Management
1. Management Oversight
 Management of interest rate risk should be one of the critical components of market risk management
of banks. The BOD should clearly articulate interest rate risk management policies, procedures,
review mechanisms and reporting systems.
 Policies and prudential limits should include the following.
(a) Clear policies with regard to volume, maximum maturity, holding period, duration, position
limits, stop loss, rating standards, etc. for classifying securities in the trading book.


260 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
(b) Bank-wide VaR exposure limits to the trading portfolio (including Forex derivatives and
commodities, if any, etc .).
(c) Loss making tolerance limits for trading book.
2. Risk Management
2.1 Forms of Risk –  The Net Interest Income (NII) or Net Interest Margin (NIM) of banks are
dependent on the movements of interest rates. Any mismatches in the cash flows (fixed rate
assets or liabilities) or re-pricing dates (floating rate assets or liabilities) expose banks’ NII
or NIM to variations. As financial intermediaries, banks encounter interest rate risk in many
forms:
 (a) Gap or Mismatch Risk
 (b) Basis Risk
 (c) Embedded Option Risk
 (d) Y ield Curve Risk
 (e) Price Risk
 (f) Reinvestment Risk
 (g) Net Interest Position Risk
2.2 Measuring Risk – Before the interest rate risk (IRR) is to be managed, same should be
identified and quantified. In this regard, banks need to adopt an IRR measurement system which
should:
 (a) Address all material sources of interest rate risk including gap or mismatch, basis,
embedded option, yield curve, price, reinvestment and net interest position risks,
exposures associated with assets, liabilities and off-balance sheet positions.
 (b) T ake into account the specific characteristics of each individual interest rate sensitive
position.
 (c) Capture the full range of potential movements in interest rates, in detail.
 (d) Use dif ferent techniques, ranging from the traditional maturity Gap Analysis (to measure
the interest rate sensitivity of earnings), Duration (to measure interest rate sensitivity of
capital), Simulation and VaR.
 (e) Match on a daily basis the potential loss in Present Value Basis Points (PVBP) vis-à-vis
prudential limits for trading book.
 (f) Undertake scenario analysis with specific possible stress situations by linking hypothetical,


(f) Undertake scenario analysis with specific possible stress situations by linking hypothetical,
simultaneous and related changes in multiple risk factors present in the trading portfolio
to determine the impact of moves on the rest of the portfolio.
 (g) Adopt VaR as an analytical tool for measuring and managing currency risk in the Banking
Book.
2.3 Measuring Techniques –
 (a) Maturity Gap Analysis – The simplest analytical technique for calculating IRR exposure
begins with Maturity Gap analysis that distributes interest rate sensitive assets, liabilities
and off-balance sheet positions into a number of pre-defined time-bands according to
their residual term to maturity (fixed rate) or residual term for their next re-pricing
(floating rate). Gaps may be identified in the following time bands:
 i. Up to one month
 ii. Over one month and up to 3 months


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  261
 iii. Over 3 months and up to 6 months
 iv . Over 6 months and up to 1 year
 v . Over 1 year and up to 2 years
 vi. Over 2 years and up to 3 years
 vii. Over 3 years and up to 4 years
 viii. Over 4 years and up to 5 years
 ix. Over 5 years and up to 7 years
 x. Over 7 years and up to 10 years
 xi. Over 10 years and up to 15 years
 xii. Over 15 years and up to 20 years
 xiii. Over 20 years
 xiv . Non-sensitive
  V arious items of rate sensitive assets and liabilities and off-balance sheet positions may be
classified in line with their sensitivity to interest rates. A reporting format for Sensitivity of
Assets and Liabilities (SAL) for interest rate sensitive assets and liabilities is also attached
(Attachment – 2).
 (b) Duration Gap Analysis –  Matching the duration of assets and liabilities, instead of
matching the maturity or re-pricing dates, is a more effective way to protect the economic
values of banks from exposure to IRR than the simple gap model.
 (c) Simulation – Simulation is a popular tool among banks to gauge the effect of market
interest rate variations on reported earnings/economic values over different time zones.
Simulation techniques attempt to overcome the limitation of gap analysis and duration
approach by computer modelling the bank’s interest rate sensitivity.
G. Str ess Testing
1. Management Oversight
(a) BOD or a committee formed under the Board with delegated authority should put in place a
‘Stress Testing Framework’ as a part of integrated risk management system with approved
‘Stress Testing Policy’, procedures to be followed and the methodology to be adopted.
(b) BOD and the Senior Management should regularly review the results of stress tests, including
major assumptions that underpin them.
(c) BOD and Senior Management should put in place appropriate fall-back mechanisms for


(c) BOD and Senior Management should put in place appropriate fall-back mechanisms for
mitigating tail-end risks, considering an organised approach to manage extreme systemic risks.
1.1 Stress Testing Policy should include the following aspects:
 (a) Frequency and procedure for identifying the principal risk factors, which affect the bank’s
portfolio and required to be stressed.
 (b) Methodology for constructing stress tests.
 (c) Procedure for setting the stress tolerance limits.
 (d) Process of monitoring the stress loss limits.
 (e) Necessary remedial/trigger actions to be taken at various risk levels as revealed by the
stress tests.
 (f) Delegation of authority to ensure timely execution of remedial/trigger action.


262 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
1.2 Roles and responsibilities of the persons involved in the exercise must be defined by well
constituted organisational structure and they should be independent.
1.3 An effective Management Information System (MIS) is necessary to ensure flow of information
to take necessary measures to avoid certain difficult conditions by the Senior Management.
2. Fr equency of Stress Testing
 Banks may apply stress tests at varying frequencies dictated by their respective business
requirements, relevance and cost. In general, stress tests on market-sensitive portfolios should be run
more frequently (eg.: daily, weekly). These may include trading portfolios in marketable securities,
foreign exchange and interest rate exposures. Other portfolios which are less volatile in nature could
be stress-tested at longer intervals ( eg.: monthly, quarterly). Further, ad-hoc  stress tests may be
warranted when there are any special circumstances.
3. Scope of Str ess Tests
 Stress testing can and should be applied to the full range of material risks that a bank runs both at
business unit level and on an aggregated group basis. Stress testing can be commonly used for interest
rate, equity, liquidity, foreign exchange, credit and market instruments. Further, it is also important to
introduce stress testing for operational risk. There are three different hypothetical scenarios that can
be used in stress testing:
(a) Major Level Shocks: It involves large shocks to all the risk factors and is also defined for
separately for each risk factor.
(b) Moderate Level Shocks: It involves medium level shocks and the level is defined for each risk
factor separately.
(c) Minor Level Shocks: It involves small shocks to risk factors.
4. Methodology and Calibration of Shocks
4.1 Credit Risk
 Stress test for credit risk assesses the impact of increase in the level of non-performing loans of


the bank on Capital Adequacy Ratio (CAR). This involves three types of shocks, namely;
 (a) T ype One deals with the increase in the Non-Performing Loans (NPLs) and the respective
provisioning.
 (b) T ype Two deals with the negative shift in the NPL categories and hence the increase in
respective provisioning.
 (c) T ype Three deals with the fall in the Forced Sale Value (FSV) of mortgaged collateral.
4.2 Liquidity Risk
 Stress test for liquidity risk evaluates the resilience of the banks towards the fall in liquid
liabilities. The ratio “liquid assets to liquid liabilities” should be calculated before and after
the shocks by dividing the liquid assets with liquid liabilities. They include cash and balances
with banks, call money lending, lending under repo and investment in government securities.
Liquid liabilities include deposits and borrowings.
4.3 Equity Price Shock
 Stress test for equity price risk assesses the impact of the fall in the stock market index.
The impact of resultant loss should be calculated after shocks on current market value of all the
on-balance sheet and off-balance sheet securities listed on stock exchanges including shares,
mutual funds, etc. and it should be calibrated in terms of the CAR.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  263
4.4 Exchange Rate Risk
 Stress test for exchange rate assesses the impact of change in exchange rate on the value of
equity. To model direct foreign exchange risk, only, the overall Net Open Position (NOP) of the
bank including the on-balance sheet and off-balance sheet exposures should be given adverse
shocks. The overall NOP is measured by aggregating the sum of net short positions or the sum
of net long positions, whichever is greater regardless of sign. The impact of the respective
shocks should be calibrated in terms of the CAR. The revised CAR should be calculated after
adjusting total loss from the risk-weighted assets of the bank.
4.5 Interest Rate Risk
 I nterest rate risk is the potential that the value of the on-balance sheet and the off-balance
sheet positions of the bank would be negatively affected with the change in the interest rates.
The vulnerability of an institution towards the adverse movements of the interest rate can be
gauged by using duration gap analysis. Banks should follow the under mentioned steps in
carrying out the interest rate stress tests.
 (a) Estimate the market value of all on-balance sheet rate sensitive assets and liabilities of the
bank to arrive at market value of equity.
 (b) Calculate the durations of each class of asset and the liability of the on-balance sheet
portfolio.
 (c) Arrive at the aggregate weighted average duration of assets and liabilities.
 (d) Calculate the duration gap by subtracting aggregate duration of liabilities from that of
assets.
 (e) Estimate the changes in the economic value of equity due to change in interest rates on
on-balance sheet positions along the three interest rate changes.
 (f) Ca lculate surplus/(deficit) on off-balance sheet items under the assumption of three
different interest rate changes, i.e., 1%, 2%, and 5%.


different interest rate changes, i.e., 1%, 2%, and 5%.
 (g) Estimate the impact of the net change (both for on-balance sheet and off-balance sheet) in
the market value of equity on the CAR.
 (h) Market value of the assets or liabilities should be assessed, by calculating its present value
discounted at the prevailing interest rate. The outstanding balances of assets and liabilities
should be taken along with their respective maturity or reprising period, whichever is
earlier.
4.6 Interpretation of Stress Testing Results
 (a) Before interpretation of stress testing results, it is important to the banks to be aware of
its limitations as stress testing is influenced by the judgment and experience of the risk
managers designing the stress tests. Therefore, the effectiveness of the stress tests will
depend upon whether banks have identified their major risks and they have chosen the
right level of stress/stress scenarios.
 (b) Senior Management should review the results of the various stress tests and report to the
Board. It is important to document the results of each of the sensitivity tests and scenario
analysis undertaken and should also document, as part of the details of those tests and
analyses, the key assumptions including the aggregation of the results. These should be
preserved for a considerable period as mentioned in the policy document.
4.7 Review & Update
 (a) Regular review  and updating is important to ensure effectiveness of the stress testing
programme of the bank.


264 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (b) Such review should be done at least once a year or more frequently if the portfolio or the
environment changes are significant. Following should be covered in the review process.
 i. The integrity of the management information system.
 ii. Completeness and accuracy of the data used.
 iii. Consistency , timeliness and reliability of data sources.
 iv . The approval process for the stress testing programme.
 v . Integration of stress testing into risk management.
 vi. Interpretation of stress testing results.
H. Disclosur e Requirements
1. Principles
1.1 Banks should adopt a formal disclosure policy approved by the BOD that addresses the bank’s
approach for determining what disclosures to be made and internal controls over the disclosure
process.
1.2 Banks should implement a process for assessing the appropriateness of their disclosures,
including validation and frequency of them.
1.3 In order to enhance the role of market discipline, banks should take into account the following
norms to improve their disclosure practices.
 (a) A  balance between quantitative and qualitative disclosures - Disclosures should be
consistent with banks’ own risk management practices.
 (b) Banks should endeavour to disclose information about inter -period exposures –
particularly in the form of high, median and low observations – which could provide a
more meaningful view of licensed banks’ risk profile than period end data alone.
1.4 Banks should decide relevant disclosures based on the materiality concept.
1.5 Qual itative disclosures such as bank’s risk management objectives and policies, reporting
systems and definitions set out here should be made at least bi-annually .
2. Disclosur e Requirements
2.1 Risk Exposure and Assessment
 (a) General Qualitative Disclosure Requirement
  For each separate risk area viz. credit, market, operational, liquidity etc.. Licensed banks


For each separate risk area viz. credit, market, operational, liquidity etc.. Licensed banks
should describe their risk management objectives and policies, including:
 – strategies and policies;
 – structure and nature of the relevant risk management function;
 – scope and nature of risk reporting and/or management system;
 – policies for hedging and/or mitigating risk and strategies and processes for monitoring
the continuing effectiveness of hedges / mitigants.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  265
Table - 1
Credit Risk – General Disclosures
Qualitative
Disclosures(a) Definition of past due and  impaired (for LKAS 32 & 39 purposes).
(b) Description of approaches followed for specific and general loan loss provisioning
and statistical methods.
(c) Discussion of the bank’ s credit risk management policy.
(d) Policies and processes for, and an indication of the extent to which the bank makes
use of, on-balance sheet and off-balance sheet netting.
(e) Policies and processes for  collateral valuation and management.
(f) A  description of the main types of collateral taken by the bank.
(g) Main types of guarantor/c redit derivative counterparty and their creditworthiness.
(h) Information about (market or credit) risk concentrations within the mitigation taken.
Quantitative
Disclosures(a) Total gross credit risk exposures, plus average gross exposure over the period broken
down by major types of credit exposure.
(b) Geographic distribution of exposures, broken down in significant areas by types of
credit exposure.
(c) Industry or counter -party type distribution of exposures, broken down by major types
of credit exposure.
(d) Residual contractual maturity breakdown of the whole credit portfolio, by major types
of credit exposure.
(e) By major industry or coun terparty types:
   – Amount of past due loans and if available impaired loans, provided separately ,
   – Specific and general loan loss provisioning, and
   – Char ges for specific loan loss provisions and charges-offs during the reporting
period.
(f) Amount of past due loans and, if available, impaired loans provided separately broken
down by significant geographic area including the amount of specific and general loan
loss provisions related to each geographical area.
(g) Reconciliation of changes  in the provisions for loan losses/impairment.


266 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Table - 2
Market Risk – General Disclosures
Qualitative
Disclosures (a) The general qualitative di sclosure requirement described in Para 2.1( a) above.
(b) Dif ferentiation between holdings on which capital gains are expected and those
taken under other objectives including for relationship and strategic reasons.
(c) Discussion of important policies covering the valuation and accounting of equity
holdings in the Banking Book. This includes the accounting techniques and
valuation methodologies used, including key assumptions and practices affecting
valuation as well as significant changes in these practices.
Quantitative
Disclosures(a) Interest rate risk, including Interest Rate Sensitivity Gap Analysis of local and
foreign currency denominated assets and liabilities in the format given in Attach -
ment – 1&2.
(b) Equity position risk –
• V alue disclosed in the balance sheet of investments, as well as the fair value
of those investments; for quoted securities, a comparison to publicly quoted
share value where the share price is materially different from fair value.
• T ypes and nature of investments, including the amount that can be classified
as:
– Publicly traded; and
– Privately held.
• The cumulative realised gains (losses) arising from sales and liquidations in
the reporting period.
• T otal unrealised gains (losses).
• T otal latent revaluation gains (losses).
• Any amounts of the above included in Tier 1 and/or Tier 2 capital.
(c) Foreign exchange risk, including statements of foreign exchange position
(Attachment – 3), Maturity Gap Analysis of foreign currency denominated assets
and liabilities.
(d) Commodity risk.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  267
Table - 3
Operational Risk – General Disclosures
Qualitative
Disclosures (a) The general qualitative di sclosure requirement described in Para 2.1( a) above.
(b) Description of the use of insurance for the purpose of mitigating operational risk.
(c) Details of activities that have been outsourced together with parties and basis for
payment for such services.
(d) Details of investment in appropriate information technology, if any, and other risk
mitigation techniques taken during the reporting period.
(e) Details of due diligence te sts of third party service providers.
(f) Details of a contingency p lan in place to handle failure situations.
Quantitative
Disclosures(a) Major operational viz. system or human, failures and financial losses incurred by
the bank due to such failures during the reporting period.

Table - 4
Liquidity Risk – General Disclosures
Qualitative
Disclosures (a) The general qualitative di sclosure requirement described in Para 2.1( a) above.
(b) Details of a liquidity contingency plan in place to bridge unforeseen liquidity
difficulties.
Quantitative
Disclosures(a) T rends in the following indicators:
• Net loans to total assets
• Loans to customer deposits
• Liquid assets to short term liabilities
• Lar ge liabilities (minus) temporary investments to earning assets (minus)
temporary investments
• Purchased funds to total assets.
• Commitments to total loans.
(Please refer to  Section 1.4 of Appendix for definitions)
(b) Maturities of Assets and Liabilities (MAL) in the format given in Attachment-1.


268 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Attachment 1
Maturities of Assets and Liabilities (MAL)
(Currency ..................) *
Heads of Accounts Upto 1
month1–3 months 3–6 months 6–9 months 9–12 months 1–3 years 3–5 years Over 5 years
Sr. Item
A Inflows
1.Cash on hand
2,Deposits with CBSL
3.Balances due from Head Office, Affiliates and Own Branches
4.Balances due from Other Banks
5.Investments (Net of provisions)
6.Bills of Exchange
7.Overdraft
8.Loans and Advances
9.NPLs
10. Net Inter-Branch Transactions
11. Other Assets
12. Lines of credit committed from institutions
13. Other – Please Specify ,
Total (a) xx xx xx xx xx xx xx xx
B Outflows
1.Demand Deposits
2.Savings Deposits
3.Balances due to Head Office / Affiliates / Own Branches
4.Balances due from Other Banks
5.Time Deposits
6.Certificates of Deposits, Borrowings and Bonds
7.Net Inter-branch Transactions
8.Bills Payable
9.Interest Payable
10.Provisions other than for loan losses and depreciation in the
value of investment portfolio
11. Other Liabilities
12. Lines of credit committed to institutions
13. Unutilized portion of Overdraft, Loans and Advances
14. Letters of Credit / Guarantees / Acceptances
15. Repo / Bills Rediscounted / Swaps / Forward contracts
16. Other – Please Specify
Total (b) xx xx xx xx xx xx xx xx
Gap = (a) - (b) xx xx xx xx xx xx xx xx
Cumulative Gap xx xx xx xx xx xx xx xx
Cumulative Liabilities xx xx xx xx xx xx xx xx
Cumulative gap as a % of cumulative liabilities x% x% x% x% x% x% x% x%
* Separate returns for LKR, USS and all other major currencies should be prepared.( …… Million )


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  269
Attachment 1 (A)
Maturities of Assets and Liabilities
Guidelines 	on	Classification 	of	Assets	and	Liabilities 	into	Time	Bands
Sr. Heads of Accounts Details sought
AInflows
1.Cash on Hand Up to one-month time band.
2.Deposits with CBSL While the excess balance in the Clearing Account over the
required statutory reserves could be placed under the ‘up to
one-month’ time band, the statutory reserve against deposit should
be distributed amongst various time bands, corresponding to the
behavioral maturity profile of deposits.
3.Balances due from the Head
Office,	Affiliates 	and	own
branches Demand balances may be placed under the ‘up to one-month’
time band, all other balances should be distributed across the time
bands as per the respective residual maturities.
4.Balances due from Other
BanksRespective maturity time bands.
5.Investments
(Net of provisions)Respective residual maturities. Investment ‘held-for-trading’ may
be placed in the first three time bands, on the basis of liquidity
profile of the instruments, irrespective of their residual maturities.
6.
7.
8.Advances (performing)
(a) Bills of Exchange and
promissory notes
(b) Overdraft
(c) Loans and Advances
(a) Respective residual maturities bands.
(b) 7.5% each of the outs tanding should be distributed under
one-month, 1-3 months, 3-6 months, 6-9 months, and
9-12 months time bands, respectively and the balance 62.5%,
being the core component, should be shown equally under
1-3 years, 3-years and over 5 years time bands, respectively.
(c) Respect ive residual maturities. However, 50% of the consumer
loans, including credit cards, should be shown under over
5 years time band. The balance amount of 50% should be
shown under respective time bands, on the basis of residual
maturities.
9.NPLs 25% and 75% of the balances, net of reserved interest and specific


maturities.
9.NPLs 25% and 75% of the balances, net of reserved interest and specific
loan loss provisions should be shown in the 9-12 months and over
five years time bands, respectively.
10. Net Inter-Branch
TransactionsUp to one-month time band.
11. Other Assets As per pattern of cash flows. However, intangible assets and assets
not representing cash receivables should be shown in over five
years time band.


270 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Sr. Heads of Accounts Details sought
BOutflows
1.Demand Deposits 75% of the balances in demand deposits should be distributed
under the first five time bands, at the rate of 20%, 20%, 15%,
10% and 10%, respectively and the balance of 25% in over 5
years time band.
2.Savings Deposits 25% of the saving deposits should be distributed equally under
one-month, 1-3 months, 3-6 months, 6-9 months, and 9-12
months, respectively, and the balance of 75%, being the core
component, should be shown equally under 1-3 years, 3-5 years
and over 5 years time bands, respectively.
3.Balances 	due	to	Head	Office/
Affiliates/Own 	BranchesRespective residual maturity time bands.
4.Balances due to other Banks Respective residual maturity time bands.
5.Time Deposits 30% of the time deposits from individual depositors and pension
funds, irrespective of their residual maturities, should be shown
under over 5 years time band. The balance amount of 70%
should be shown under respective time bands, on the basis of
residual maturities.
6.Certificates 	of	Deposits,
borrowings and Bonds
(including subordinated debts)Respective residual time bands. Where call/put options are
built into the issue structure of any instrument/s, the call/put
date/s should be reckoned as the residual maturity date/s and
the balance should be shown in the respective residual maturity
time bands.
7.Net Inter-branch Transactions Up to one month time band.
8.Bills Payable Up to one month time band.
9.Interest Payable Respective residual maturity time bands.
10. Provisions other than for loan
losses and depreciation in the
value of investment portfolioRespective residual maturity time bands depending on the
purpose.
11. Other Liabilities Respective maturity time bands. Items not representing cash
payables ( i.e., income received in advance etc.) should be placed
over 5 years time band.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  271
Sr. Heads of Accounts Details sought
CContingent 	Liabilities/Lines 	of	credit	committed/available 	and	other	in-flows	&	out-flows
12. Lines of Credit Committed
to institutions and other
borrowersUp to one month time band
13. Unutilized portion of
Overdraft, Loans and
AdvancesProbable disbursements should be shown in the respective time
bands on the basis of historical databases.
14. Letters of credit /guarantees /
acceptancesProbable funding obligations should be shown in the respective
time band on the basis of past experiences.
15. Repo / Bills Rediscounted /
Swaps / Forward contracts
(LKR against Other
Currencies)Respective maturity bands.


272 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Attachment 2
Sensitivity of Assets and Liabilities (SAL)
(Currency*)
Name of Bank  : ………………………………………………………………
Period Ended  : ………………………………………………………………
No. Assets and OBSUp to
1 month1 – 3
months3 – 6
months6 – 12
months1 – 2
years2 – 3
years3 – 4
years4 – 5
years5 – 7
years7 – 10
Years10 – 15
years15 – 20
yearsOver
20 yearsNon
SensitiveTotal
1. Cash on Hand
2. Deposits with CBO
3. Balances due from HO / Affiliates / Branches
4. Balances due from Other Banks
5. Investments
6. Bills of Exchange and Promissory Notes
7. Overdrafts
8. Loans and Advances
9. Non Performing Loans
10. Fixed Assets
11. Net Inter-branch Transactions
12. Accrued Interest
13. Other Assets
14. Reverse Repos
15. FRAs
16. Swaps
17. Futures
18. Options
19. Others (Specify)
Total
Liabilities and OBS
1. Demand Deposits
2. Savings Deposits
3. Time Deposits
4. Other Deposits
5. Balances due to HO / Affiliates / Branches
6. Balance due to other Banks
7. Certificate of Deposits
8. Other Borrowings
9. Net Inter-branch Transactions
10. Bills Payable
11. Interest Payable
12. Provisions (others)
13. Capital
14. Reserves
15. Retained Earnings
16. Subordinated Debts
17. Other (Specify)
18. Repos
19. FRAs
20. Futures
21. Swaps
22. Options
Total
Gap
*  Separate returns for LKR, US$ and all other major currencies should be prepared.( …… Million )


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  273
Sensitivity of Assets and Liabilities
Guidelines 	on	Classification 	of	Assets	and	Liabilities 	into	Time	Bands
Sr. Heads of Accounts Rate Sensitivity and Time Band
AInflows
1.Cash on Hand Non-sensitive
2.Deposits with CBSL Non-sensitive
3.Balances 	due	from	head	office,
Affiliates 	and	Own	branches 	Interest payable portion is sensitive and should be shown
under the time band corresponding to the remaining term
to maturity or repricing. The non-interest paying portion is
non-sensitive.
4.Balances due from Other Banks Interest payable portion is sensitive and should be shown
under the time band corresponding to the remaining term
to maturity or repricing. The non-interest paying portion is
non-sensitive.
5.Investments (Net of provisions)
(a) Fixed rate/Zero coupons.
(b) Floating rate
(c) Shares and investments in
units(a) Se nsitive and should be shown under the time band
corresponding to residual term to maturity.
(b) Se nsitive and should be shown under the time band
corresponding to residual term to maturity.
(c) Non-sensitive.
6.
7.
8.Advances (performing)
(a) Bills of Exchange and pr om-
issory notes
(b) Overdraft/loans (Fixed
rates)
(c) Overdraft/ Loans and
Advances (Floating rates)
(a) Sensitive on maturity .
(b) S ensitive and should be shown under the time bands
corresponding to the interim and final cash flows.
(c) Se nsitive and should be shown under the time band
corresponding to the interim and final cash flows.
9.NPLs
(a) Special mentioned
(b) Substandard
(c) Doubtful
(d) Loss(a) Over 1-2 years time band
(b) Over 3-5 years time bands
(c) Over 5 years time band
(d) Non-sensitive
10. Fixed Assets Non-sensitive
11. Net Inter-Branch Transactions Non-sensitive
12. Accrued interest Non-sensitive
13. Other Assets
(a) Leased assets
(b) Other(a) Sensitive on interim and final cash flows. The amount
should be distributed to the respective maturity bands


should be distributed to the respective maturity bands
corresponding to the cash flows.
(b) Non-sensitive
14. Reverse repos, Swaps, (Buy/sell),
and bills discountedSensitive on maturity.Attachment  2(A)


274 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
15.
16.
17.FRAs
Futures
OptionsThese instruments should be treated as a combination of loan
(assets) and short (liabilities) positions. The maturity of a
Future or a FRA will be the period until delivery or exercise
of the contract. The corresponding positions should undergo
changes with passage of time.
Swaps should be treated as two notional positions with
relevant maturities. For e.g. an interest rate swap under
which a bank is receiving floating rate of interest and paying
fixed will be treated as long floating rate position of maturity
equivalent to the period until the next interest fixing and a
short position of maturity equivalent to the residual life of
the swap.
The notional underlying of the given option should be placed
under the respective time band.
Sr. Heads of Accounts Rate Sensitivity and Time Band
1.Demand Deposits Non-sensitive
2.Savings Deposits Sensitive and reprices when interest rate is reset.
3.
4.
7.Time Deposits,
Certificate 	of	Deposits, 	and
Other DepositsSensitive and reprices on maturity. The amounts should be
distributed to different time bands on the basis of remaining
term to maturity. However, in case of floating rate term
deposits, the amounts should be shown under the time band
when deposits contractually become due for repricing.
5.Balances 	due	to	Head	Office	/
Affiliates/Own 	BranchesInterest payable portion is sensitive and should be shown
under the time band corresponding to the remaining term
to maturity or repricing. The non-interest paying portion is
non-sensitive.
6.Balances due to other Banks Interest payable portion is sensitive and should be shown
under the time band corresponding to the remaining term
to maturity or repricing. The non-interest paying portion is
non-sensitive.
8.Borrowings
(a) Fixed rate borr owings
(b) Floating rate borr owings
(c) Zer o Coupon borrowings


8.Borrowings
(a) Fixed rate borr owings
(b) Floating rate borr owings
(c) Zer o Coupon borrowings
(d) Borr owings from CBSL(a) Sensitive and reprices on maturity. The amounts should
be distributed to different time bands on the basis of
remaining term to maturity.
(b) Se nsitive and reprices when interest rate is reset. The
amounts should be distributed to the appropriate time
bands, coinciding with the contracted repricing date.
(c) Sensitive and reprices on maturity. The amounts should
be distributed to the respective maturity bands.
(d) Up to one month time band.
9.Net-inter branch transactions Non-sensitive
10. Bills Payable Non-sensitive


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  275
11. Interest Payable Non-sensitive
12. Provisions Non-sensitive
13. Capital Non-sensitive
14. Reserves Non-sensitive
15. Retained earnings Non-sensitive
16. Sub-ordinated debts Please refer to Item (8) above.
17. Reverse Repos, and other
derivatives instrumentsReprices only on maturity and should be distributed to
respective maturity bands.
Sr. Heads of Accounts Details sought
CContingent 	Liabilities 	/	Lines	of	credit	committed 	/	available 	and	other	inflows	&	out	flows
3.Lines of Credit Committed to
institutions and other borrowersUp to one month time band.
4.Unutilized portion of Overdraft,
Loans and Advances.Probable disbursements should be shown in the respective
time bands on the basis of historical databases.
5.Letters of credit / guarantees /
acceptancesProbable funding obligations should be shown in the
respective time band on the basis of past experiences.
6.Repo / Bills Rediscounted /
Swaps / Forward Contracts
(LKR against other currencies)Respective maturity bands.


276 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
(Rs. million)Attachment 3
Foreign Exchange Position
Bank  : …………………………………………
As at end of  ………………………………………… :
Currency
(1)Spot Forward (a)Net
Open
Position
(8)Net
position
in other
exchange
contracts
(b)
(9)Overall
exposure
in respec-
tive foreign
currency
(10)Overall
exposure in
Sri Lankan
rupees(d)
(11)Assets
(2)Liabilities
(3)Net
(4) = (2) -
(3)Assets
(5)Liabilities
(6)Net
(7) = (5) -
(6)
US Dollars
Pound Sterling
Euro
Japanese Yen
Indian Rupee
Australian Dollar
Canadian Dollar
Other currencies(c)
Total Exposure (e)
Total capital funds as per the latest audited financial statements
Total exposure as a % of total capital funds as per the latest audited financial statements (should not exceed 30%) X%
(a) Unsettled tom and spot transactions also should be included under  forward operations
(b) Report the net for eign exchange position in other foreign exchange contracts such as currency options, futures etc.
(c) The Sri Lankan rupee equivalent of other  currencies should be shown under column 11.
(d) Column 1 1 should show the Sri Lankan rupee equivalent of column 10.
(e) The exposur e indicated against each currency in column 11 should be added ignoring signs to arrive at exposure under (e).


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  277
Determinations made by the Monetary Board of the Central Bank of Sri Lanka under
Section 44A of the Banking Act, No.30 of 1988, as amended.
Sgd. Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka
Colombo
24 November 2010
BANKING ACT, DETERMINATION NO. 3 OF 2010
ASSESSMENT OF FITNESS AND PROPRIETY OF
OFFICERS PERFORMING EXECUTIVE FUNCTIONS IN
LICENSED COMMERCIAL BANKS
1. This Determination may be cited as the Banking Act, Determination No.3
of 2010. The Sections referred to in this Determination will be those of the
Banking Act, No. 30 of 1988, as amended.
2.1 In terms of Section 44A of the Banking Act, officers of a licensed commercial
bank performing executive functions as may be determined by the Monetary
Board shall be fit and proper persons. Section 42(2) of the Act shall apply in
determining whether officers performing executive functions are fit and proper
persons.
2.2 In addition, criteria s et out in the Direction No.11 of 2007 on Corporate
Governance for Licensed Commercial Banks in Sri Lanka will also be
applicable.
3. Officers holding following designations  / positions are determined as officers
performing executive functions in a licensed commercial bank:
 (i) Additional General Manager
 (ii) Senior Deputy General Manager
 (iii) Deputy General Manager
 (iv) Assistant General Manager
 (v) Chief Operating Officer
 (vi) Chief Risk Officer
 (vii) Chief Accountant
 (viii) Chief Financial Officer
 (ix) Chief Internal Auditor
 (x) Compliance Officer
 (xi) Head of Treasury
 (xii) Head of Legal
 (xiii) Head of Information Technology
 (xiv) Board SecretaryCitation.
Empowerment.
Officers
Performing
Executive
Functions.


278 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (xv) Officers serving as consultants  / advisor to the Board or bank
 (xvi) Any other officers falling under the definition of section 3(1)( i)(f) of the
Banking Act Direction No. 11 of 2007 on Corporate Governance for
Licensed Commercial Banks in Sri Lanka.
4.1 Fitness and propriety of such officers performing executive functions shall be
assessed and decided by the Director of Bank Supervision as has been provided
for in the Banking Act and be applicable to those officers:
 (i) currently in office,
 (ii) at the time of appointment on a permanent or contract basis,
 (iii) at the time of renewal of employment contracts, and
 (iv) at any other time where there are supervisory concerns in respect of any
officer as may be determined by the Director of Bank Supervision.
4.2 Each bank shall obtain from the respective officers an affidavit and a declaration
as in Annex I and Annex II, respectively, and submit to the Director of Bank
Supervision.
4.3 In addition, at the time of first appointment of an officer, a letter from the former
employer immediately preceding the appointment (if the former employer is
not a licensed bank in Sri Lanka) regarding the level of performance of duties
assigned to him  / her in the particular institution should be submitted to the
Director of Bank Supervision.
4.4 In the case of expatriate officers appointed to branches of banks incorporated
outside Sri Lanka (foreign banks), a letter obtained from the home country
regulator with regard to any supervisory concerns on the suitability of such
officers should be submitted.
4.5 W ith respect to officers, currently performing executive functions, banks shall
obtain and submit affidavits and declarations to Director of Bank Supervision
before 31 December 2010.Procedure to
be followed in
assessing the
fitness and
propriety.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  279
Annex I
Name of Bank :  …………………………………………………………………………………………
Affidavit 	to	be	submitted 	by	officers	performing 	executive 	functions 	in
Licensed Commercial Banks in terms of Section 44 A of the Banking Act
I, ……………………………………………………………………………………………… ( full name)
holder of National Identity Card No.  / Passport No. ……………….………..……..……..……………… of
………………….………………………………………………………………………………. (address)
being a (Buddhist  / Hindu do hereby solemnly, sincerely and truly declare and affirm  / Christian  / Catholic  /
Muslim make oath and state) as follows :
1. I am the [affirmant  / deponent] above named and I am the …………………………… ( designation )
of
 … ……………………………………………………………………………………………. ( name
of bank) which is a commercial bank licensed under the Banking Act, No. 30 of 1988.
2. I [affirm  / state] that I possess the following academic and  / or professional qualification  / s:
  ………………………………………………………………………………………………………
  ………………………………………………………………………………………………………
3. I [af firm  / state] that the ef fective experience that I possess in banking, finance, business or
administration or of any other relevant discipline is as follows:
  ………………………………………………………………………………………………………
  ………………………………………………………………………………………………………
4. I [affirm  / state] that there is no finding of any regulatory or supervisory authority, professional
association, any Commission of Inquiry, tribunal or other body established by law in Sri Lanka or
abroad, to the effect that I have committed or have been connected with the commission of, any act
which involves fraud, deceit, dishonesty or any other improper conduct.
5. I [affirm  / state] that I am not subject to an investigation or inquiry consequent upon being served
with notice of a charge involving fraud, deceit, dishonesty or other similar criminal activity, by any
regulatory authority, supervisory authority, professional association, any Commission of Inquiry,


regulatory authority, supervisory authority, professional association, any Commission of Inquiry,
tribunal or other body established by law, in Sri Lanka or abroad.
6. I [affirm  / state] that I have not been convicted by any Court in Sri Lanka or abroad in respect of
a crime committed in connection with financial management or of any offence involving moral
turpitude.
7. I [affirm  / state] that I am not an undischarged insolvent nor have I been declared a bankrupt in Sri
Lanka or abroad.


280 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
8. I [affirm  / state] that I have not failed, to satisfy any judgment or order of any Court whether in Sri
Lanka or abroad, or to repay a debt.
9. I [affirm  / state] that I have not been declared by a Court of competent jurisdiction in Sri Lanka or
abroad, to be of unsound mind.
10. I [affirm  / state] that I have not been removed or suspended by an order of a regulatory or supervisory
authority from serving in a licensed bank or any other financial institution or corporate body, in Sri
Lanka or abroad.
11. I [affirm  / state] that I have not been a Director, Chief Executive Officer or held any other position of
authority in any bank or financial institution –
 (i) Whose license has been suspended or cancelled; or
 (ii) Which has been wound up or is being wound up, or which is being compulsorily liquidated;
whether in Sri Lanka or abroad.
12. I [affirm  / state] that to the best of my knowledge I am a fit and proper person to hold office as
……………………………………………………….. (designation ) of a licensed commercial bank
in terms of the provisions of section 44 A of the Banking Act.
The averments contained
herein were read over to
the [affirmant/deponent]
who having understood
the contents hereof and
having accepted same as
true, affirmed/swore to and
placed his/her signature at
Colombo on this ……… day
of …………………..
                            JUSTICE OF THE PEACEAffix Stamps
as applicable
Before me


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  281
Annex II
Name of Bank:  …………………………………………………………………………………………
Declaration 	to	be	submitted 	by	officers	performing 	executive 	functions
in Licensed Commercial Banks in terms of the Banking Act
(with enclosures as appropriate as of ………………….)
1. Personal Details
 1.1 Full name:  ………………………………………………………………………………………
 1.2 NIC / Passport number:  …………………………………………………………………………
 1.3 Date of birth :  …………………………………………………………………………………
 1.4 Permanent address :  ……………………………………………………………………………
 1.5 Present address :  ………………………………………………………………………………
2. Appointment to the Bank
 2.1 Date of appointment to the present position:
  (please attach a certified copy of the appointment letter)
 2.2 Designation :  ……………………………………………………………………………………
 2.3 Local or expatriate :  ……………………………………………………………………………
3. Personal Details of Close Relations in terms of Section 86 of the Banking Act
 3.1 Full name of spouse :  ……………………………………………………………………………
 3.2 NIC / Passport number :  ………………………………………………………………………
 3.3 Names of dependant children :  …………………………………………………………………
Full name NIC/ Passport number
3.3.1
3.3.2
3.3.3
3.3.4
4. Backgr ound and Experience
 Name/s of licensed bank/s, its subsidiaries in terms of the Banking Act and associates if any, in which
he / she is or has been employed as an officer performing executive functions:
Name of the institution Period of office Designation


282 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
1/ “Business transaction” shall mean any accommodations, borrowings, investments and deposits.5. Shar eholdings in Banks and their Related Companies
 Share ownerships in licensed banks, their subsidiaries and associates if any , presently held:
Name of the institution No. of shares Percentage holding
6. Business Transactions 1/
 Any business transaction the officer performing executive functions presently has with the bank and
its subsidiaries and associates if any.
Name
of the
institutionDate of
tran-
saction Amount as at
………………….
(Rs. mn)Classification
(performing/
non-
performing)Type and
value of
collateral
(Rs. mn)% of Bank’ s
regulatory
capital
Limit Out-standing
Accommodations
Investments
Deposits
7. Appointment, Shar eholdings and Business Transactions of Close Relations
7.1 Any close relations presently employed as officers performing executive functions in licensed
banks their subsidiaries and associates if any.
Name of the bank Full name of the close relation Position held


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  283
7.2 Direct or indirect share ownership in the bank, its subsidiaries and associates if any, presently
held by any close relation.
Full name of the close relationNo. of Shares Percentage holding
Direct Indirect Direct Indirect
7.3 Any business transaction, the close relation currently has with the bank, its subsidiaries and
associates if any.
Full name
of the close
relationNature of
business
transactionDate of
tran-
saction Limit
as at
……………
(Rs. mn)Out-
standing as
at
…………
(Rs. mn)Type and
value of
collateral
(Rs. mn)% of
Bank’ s
regulatory
capital
8. Any other explanation/info rmation in regard to the information furnished above and other information
considered relevant for assessing the suitability of the officer performing executive functions in the
bank.
DECLARATION:
I confirm that the above information is to the best of my knowledge and belief true and complete.
I undertake to keep the bank fully informed, as soon as possible, of all events, which take place
subsequently, which is relevant to the information provided above.
I state that I am not prevented by any Statute from being appointed to the above post.
Date : ……………  …………………………………………………………………………
 Signatur e of Officer Performing Executive Functions in the Bank
TO BE FILLED BY THE CHIEF EXECUTIVE OFFICER
1. Any other explanation  / information in regard to the information furnished above and other information
considered relevant for assessing the suitability of the person performing executive functions in the
bank.
2. I confirm that, in terms of Section 44 A of the Banking Act, the officer referred to above is fit and proper
to carry out executive functions of the bank.
Date : ……………  …………………………………………………………………………
 Signatur e of Chief Executive Officer
 and the official stamp


284 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Our Ref. : 02  / 17 / 600 / 0036  / 001
Bank Supervision Department
17 July 2012
To : Chief Executive Officers of
       all locally incorporated licensed banks
Dear Sir / Madam,
SPECIAL PAYMENTS  / BENEFITS TO DIRECTORS AT THEIR RETIREMENT
Having	observed	that	exorbitant	special	payments 	/	benefits	have	been	made	in	the	form	of	gratuity
to	retiring	directors	of	some	banks	and	that	such	payments 	/	benefits	are	not	prudent	in	terms	of	good
governance, 	the	Monetary 	Board	has	decided	to	require	licensed	banks	to	obtain	prior	approval	of
shareholders 	for	any	special	payments 	/	benefits	made	to	bank	directors	at	their	retirement 	in	addition	to
normal remuneration.
Accordingly, 	all	locally	incorporated 	licensed	banks	are	requested 	to:
(1) i ncorporate such special payments  / benefits to its directors at their retirement to the
remuneration policy;
(2)	 obtain 	prior	approval	of	the	shareholders 	for	any	special	payments 	/	benefits	made	to	directors
at their retirement in addition to normal remuneration;
(3)	 ensure 	that	all	special	payments 	/	benefits	are	extended	on	arm’s	length	basis;	and
(4)	 disclose 	separately 	the	aggregate 	value	of	total	special	payments 	/	benefits	made	to	retiring
directors	during	the	respective 	financial	year	in	the	Annual	Report.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision
Cc :  Chairmen of all locally incorporated licensed banks


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  285
Ref. No. : 02  / 17 / 550 /002 / 003
Bank Supervision Department
29 March 2012
To : CEOs of all Licensed Banks and
 Panel of Qualified Auditors
Dear Sir  / Madam,
DISCLOSURES IN ANNUAL REPORTS
BANKING ACT DIRECTIONS ON CORPORATE GOVERNANCE
We write to inform you that, the Monetary Board has approved of accepting the following as
substitutes for compliance with the Directions 3(8)( ii)(c) and 3(8)(ii)(g) of the Banking Act, Directions
No. 11 and 12 of 2007.
Direction Disclosure Requirements Substitute Disclosure Requirements
3(8)(ii)(c) The external auditor’s
certification on the
effectiveness of the internal
control mechanism reported
by the board of directorsThe Assurance Report issued by the auditors under
“Sri Lanka Standard on Assurance Engagements
SLSAE 3050 – Assurance Reports for Banks on
Directors’ Statements on Internal Control”.
3(8)(ii)(g) The external auditor’s
certification of the compliance
with Corporate Governance
Directions in the annual
corporate governance reports
published in the annual reportA confirmation by the Board of Directors in its Annual
Corporate Governance Report that all the findings
of the “Factual Findings Reports” of auditors issued
under “Sri Lanka Related Services Practice Statement
4750” have been incorporated in the Annual Corporate
Governance Report, provided that auditors confirm to
the Director of Bank Supervision to this effect.
Accordingly, you are required to adhere to the above requirements.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


286 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 600 /0017  / 001
Bank Supervision Department
27 August 2010
To : CEOs of all Licensed Banks;
Dear Sir  / Madam,
APPOINTMENT OF DIRECTORS
Reference our letter No. 02/04/002/0012/002 dated 31 March 2005 on the above subject.
We enclose herewith a revised declaration, which incorporates additional information, to enable the
licensed banks to ascertain compliance with the provisions of the Direction on Corporate Governance by
Directors of banks.
Please replace Annex 2 of the letter under reference with the revised declaration effective from
01.09.2010.
Yours faithfully,
Sgd, (Mrs.)T M J Y P Fernando
Director of Bank Supervision
Encl.
c.c. -  Mr . Upali De Silva
 Secretary General – Sri Lanka Banks’  Association
 Level 8, Ceylinco House
 No. 69, Janadhipathi Mawatha
 Colombo 01.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  287
Annex 2
Name of Bank:  …………………………………………………………………………………………
Declaration to be submitted in terms of Section 42 of the Banking Act
by persons proposed to be appointed  / elected  / nominated as a Director of
a Licensed Bank
(with enclosures as appropriate as of ………………….)
1. Personal Details
 1.1 Full name:  ………………………………………………………………………………………
 1.2 NIC / Passport number:  …………………………………………………………………………
 1.3 Date of birth :  …………………………………………………………………………………
 1.4 Age :  ……………………………………………………………………………………………
 1.5 Permanent address :  ……………………………………………………………………………
 1.6 Present address :  ………………………………………………………………………………
 1.7 Occupation :  ……………………………………………………………………………………
2. Appointment as a Dir ector of the Bank
 2.1 Date of initial appointment as a Director to the Board of Directors of the bank :  ………………
2.2 Nature of the appointment (Executive Director  / Independent Director  / Non-independent
Director  /Non-executive Director  / Alternate Director). :  ……………………………………
3. Personal Details of Close Relations 1/ in terms of Section 86 of the Banking Act
 3.1 Full name of spouse :  ……………………………………………………………………………
 3.2 NIC / Passport number :  ………………………………………………………………………
 3.3 Names of dependant children :  …………………………………………………………………
Full name NIC/ Passport number
3.3.1
3.3.2
3.3.3
3.3.4
4. Backgr ound and Experience
4.1 Name/s of Licensed Bank/s, its subsidiaries 2/ in terms of the Banking Act and associates if any,
in which he  / she is or has been a member of the Board of Directors:
Name of the institution Period of office
1/ “Close relation” shall mean the spouse or financially dependant children.
2/ “Subsidiary” as defined by Section 17(3) of the Banking Act.


288 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
4.2 Names of entities in which he/she presently is a Director:
4.2.1  Names of specified business entities in terms of the Sri Lanka Accounting and Auditing
Standards Act, No. 15 of 1995.
(a)
(b)
(c)
(d)
4.2.2  Names of other institutions  / entities
(a)
(b)
(c)
(d)
4.3 Name/s of Licensed Bank/s, its subsidiaries 2/ and associates if any, in which he  / she is or has
been employed as an officer performing executive functions:
Name of the institution Position  / Designation Period of office
5. Shar eholdings in Banks and their Related Companies
5.1 Direct or indirect share ownerships in licensed banks, their subsidiaries 2/ and associates if any,
presently held:
Name of the institutionNo. of Shares Percentage holding
Direct Indirect Direct Indirect
2/ “Subsidiary” as defined by Section 17(3) of the Banking Act.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  289
6. Business Transactions 3/
6.1 Any business transaction the Director  / proposed Director currently has  / had with the licensed banks,
their subsidiaries 2/ and associates if any, and finance and leasing companies registered with Central
Bank of Sri Lanka during the last two years immediately preceding the appointment as Director.
Name
of the
institutionDate of
tran-
saction Amount as at
………………….
(Rs. mn)Classification
(performing/
non-performing)Type and
value of
collateral
(Rs. mn)% of
Bank’ s
regulatory
capital Limit Outstanding
Accommodations
Borrowings
Investments
Deposits
6.2 Any business transaction  the Director  / proposed Director currently has  / had during the last two
years immediately preceding the appointment as Director, with “related parties” as defined by
Section 3(7)(i) of the Banking Act, Direction No.11 and 12 of 2007 on Corporate Governance
for Licensed Banks in Sri Lanka.
Name
of the
institutionDate of
transac-
tion Amount as at
………………….
(Rs. mn)Classification
(performing/
non-
performing)Type and
value of
collateral
(Rs. mn)% of
Bank’ s
regulatory
capitalLimit Outstanding
Accommodations
Borrowings
Investments
Deposits
3/ “Business transaction” shall mean any accommodations, borrowings, investments and deposits.


290 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
7. Appointment, Shar eholdings and Business Transactions of Close Relations
7.1 Any close relation presently appointed as a Director or Chief Executive Officer or a member of
the key management of licensed bank/s their subsidiaries and associates if any.
Name of the bank Full name of the close relation Position held
7.2 Direct or indirect share ownership in licensed banks, its subsidiaries and associates if any ,
presently held by any close relation.
Name of the institutionFull name of the close
relationNo. of Shares Percentage holding
Direct Indirect Direct Indirect
7.3 Any business transaction, the close relation currently has or had with licensed banks its
subsidiaries and associates if any during the last two years immediately preceding the
appointment as Director.
Name
of the
institutionFull name
of the close
relationNature of
business
transactionDate of
tran-
saction Limit
as at
……………
(Rs. mn)Outstanding
as at
…………
(Rs. mn)Type and
value of
collateral
(Rs. mn)% of
Bank’ s
regulatory
capital
8. Any other explanation  / information in regard to the information furnished above and other information
considered relevant for assessing the suitability of the Director  / proposed Director.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  291
Declaration:
I confirm that the above information is to the best of my knowledge and belief true and complete.
I undertake to keep the bank fully informed, as soon as possible, of all events, which take place
subsequently, which is relevant to the information provided above.
I state that I am not prevented by the Articles of Association of the Company and or by any other Statute
from being appointed to the above post.
Date : ……………  ……………………………………………………
 Signatur e of Director  / Proposed Director
To	be	filled	by	the	Company 	Secretary
1. Any other explanation  / information in regard to the information furnished above and other information
considered relevant for assessing the suitability of the Director  / proposed Director
2. Submitted to the Board of Directors of the Bank.
Date : ……………  …………………………………………………………………………
 Signatur e of Company Secretary
 and the official stamp


292 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 04 / 0012  / 002
Bank Supervision Department
12 April 2005
To : CEOs of all Licensed Commercial Banks and
       all Licensed Specialised Banks;
Dear Sirs,
APPOINTMENT OF DIRECTORS OF BANKS
I refer to my letter of 31 March 2005 on the above subject, enclosing the affidavit and the declaration
to be submitted in respect of directors of banks.
Enclosed please find a fresh affidavit which incorporates the Committee stage amendments to the
Banking (Amendment) Bill. Please replace the affidavit attached to the above letter with this version.
Yours faithfully,
Sgd, Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  293
Affidavit 	to	be	submitted 	in	terms	of	Section	42(2)	of	the	Banking	Act
I, …………………………………………………….. of ……………………………. Being a [Buddhist
/ Hindu solemnly, sincerely and truly declare and affirm / Christian / Catholic / Muslim make oath and
state] as follows :
 (a) I am the [af firmant / deponent] above named and I [am a director / have been elected as a
director / have been nominated as a director] of ……………………………… which is a licensed
commercial bank / licensed specialised bank, licensed under the Banking Act, No.30 of 1988.
 (b) I [af firm/state] that I possess the following academic and / or professional qualifications :
 (c) I [a ffirm/state] that the effective experience that I possess in banking, finance, business or
administration or of any other relevant discipline is as follows :
 (d) I [af firm/state] that there is no finding of any regulatory or supervisory authority, professional
association, any Commission of Inquiry, tribunal or other body established by law in Sri Lanka or
abroad, to the effect that I have committed or have been connected with the commission of, any
act which involves fraud, deceit, dishonesty or any other improper conduct;
 (e) I [af firm/state] that as such I am not subject to any investigation or inquiry consequent upon
being served with notice of a charge involving fraud, deceit, dishonesty or other similar criminal
activity, by any regulatory authority, supervisory authority, professional association, Commission
of Inquiry, tribunal or other body established by law, in Sri Lanka or abroad;
 (f) I [af firm/state] that I have not been convicted by any Court in Sri Lanka or abroad in respect of
a crime committed in connection with financial management or of any offence involving moral
turpitude;
 (g) I [af firm/state] that I am not an undischarged insolvent nor have I been declared a bankrupt in Sri
Lanka or abroad;


294 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (h) I [af firm/state] that I have not failed, to satisfy any judgment or order of any court whether in Sri
Lanka or abroad, or to repay a debt;
 (i)  I [af firm/state] that I have not been declared by a court of competent jurisdiction in Sri Lanka or
abroad, to be of unsound mind;
 (j) I [af firm/state] that I have not been removed or suspended by an order of a regulatory or
supervisory authority from serving as a director, Chief Executive Officer or other officer in any
bank or financial institution or corporate body, in Sri Lanka or abroad;
 (k) I [af firm/state] that I have not been a director, Chief Executive Officer or held any other position
of authority in any bank or financial institution –
 (i) whose license has been suspended or cancelled; or
 (ii) which has been wound up or is being wound up, or which is being compulsorily liquidated;
whether in Sri Lanka or abroad.
 (l) I [affirm/state] that to the best of my knowledge I am a fit and proper person [to hold office as
a director / to be appointed, nominated or elected as a director] of a licensed commercial bank /
licensed specialised bank in terms of the provisions of Section 42 of the Banking Act as amended
by Banking (Amendment) Act, No. 2 of 2005.
The averments contained herein  ]
were read over to the [affirmant/deponent  ]
who having understood the contents  ]
hereof and having accepted same as  ] Before me
true, affirmed/swore to and placed  ]
his / her signature at Colombo  ]
on this ……………… day  ]
of ………………  ]
                                                              JUSTICE OF THE PEACE


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  295
Ref. No. : 02  / 04 / 002 / 0012  / 002
Bank Supervision Department
31 March 2005
To : The CEOs of all Licensed Commercial Banks (Domestic) and
 all Licensed Specialised Banks
Dear Sirs,
APPOINTMENT OF DIRECTORS OF BANKS
(SECTION 42 OF THE BANKING ACT, NO.30 OF 1988 AS AMENDED)
 In terms of Section 42(1) of the Banking Act a person who is to be appointed, elected or
nominated as a director of a licensed commercial bank or who continues as a director of such bank
must be a fit and proper person to hold such office and should not be prevented from doing so by the
provisions of the Banking Act or by any other written law. The Act also sets out specific matters to be
taken into consideration in determining whether a person is fit and proper .
 Further , in terms of Section 42(4) of the Act, all banks are required to notify the Director
of Bank Supervision, details of proposed/appointed/elected/nominated directors for approval under
Section 42(5). Boards of licensed commercial banks should ensure that adequate information relating
to any person who is to be appointed, elected or nominated to the Board of Directors is made available
to the Board before such appointment, election or nomination takes place. Furthermore, it is necessary
that relevant information in respect of current directors should also be available to the Board of
Directors.
 For this purpose we annex hereto a draft affidavit to be obtained from all directors and
persons nominated for election or appointment as directors of the bank or to be nominated to
the Board. In addition to the affidavit, a declaration may also be obtained from such person to
enable the bank to ascertain compliance by directors of the bank with other provisions of the
Act. For this purpose a draft declaration as in Annex 2 may be used. The Secretary of each


Act. For this purpose a draft declaration as in Annex 2 may be used. The Secretary of each
bank shall submit a copy of the affidavit and the declaration in respect of each such person to
be appointed, to the Director of Bank Supervision, together with the information specified in
sub-section (4) of Section 42, by the bank when approval for appointment, election or nomination of a
director is sought.
 W ith respect to current directors, the declaration and affidavit should be obtained and copies
furnished to the Central Bank in respect of each director holding office, by 30 April 2005. Thereafter,
the declaration and affidavit should be obtained and copies furnished to the Central Bank annually,
before the Annual General Meeting of the respective bank in respect of every continuing director.
Yours faithfully,
Sgd, Director of Bank Supervision
cc – Mr . Upali De Silva
 Secretary-General – Sri Lanka Bankers’  Association
 Level 8, Ceylinco House, 69, Janadhipathi Mawatha
 Colombo 01.


296 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Affidavit to be submitted in terms of Section 42(2) of the Banking Act
I, …………………………………………………….. of ……………………………. Being a [Buddhist
solemnly, sincerely and truly declare and affirm / Christian / Catholic make oath and state / Muslim
make oath and state] as follows :
 (a) I am the [af firmant / deponent] abovenamed and I [am a director / have been elected as a director
/ have been nominated as a director] of ……………………………… which is a licensed
commercial bank / licensed specialized bank, licensed under the Banking Act, No.30 of 1988.
 (b) I [af firm / state] that I possess the following academic and/or professional qualifications :
 (c) I [af firm / state] that the effective experience that I possess in banking, finance, business or
administration or of any other relevant discipline is as follows :
 (d) I [af firm / state] that there is no finding of any regulatory or supervisory authority, professional
association, any Commission of Inquiry, tribunal or other body established by law in Sri Lanka or
abroad, to the effect that I have committed or have been connected with the commission of, any
act which involves fraud, deceit, dishonesty or any other improper conduct;
 (e) I [af firm / state] that as such I am not subject to any investigation or inquiry in Sri Lanka or
elsewhere by any regulatory authority, or supervisory authority, professional association, any
Commission of Inquiry, tribunal or other body established by law in Sri Lanka or abroad, that I
have committed or have been connected with the commission of, any act which involves fraud,
deceit, dishonesty or any other improper conduct;
 (f) I [af firm / state] that I have not been convicted by any Court in Sri Lanka or abroad in respect of
a crime committed in connection with financial management or of any offence involving moral
turpitude;


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  297
 (g) I [affirm / state] that I am not an undischarged insolvent nor have I been declared a bankrupt in
Sri Lanka or abroad;
 (h) I [af firm / state] that I have not failed, to satisfy any judgment or order of any court whether in Sri
Lanka or elsewhere, or to repay a debt;
 (i)  I [af firm / state] that I have not been declared by a competent court in Sri Lanka or abroad, to be
of unsound mind;
 (j) I [af firm / state] that I have not been removed or suspended by an order of a regulatory or
supervisory authority from serving as a director, Chief Executive Officer or other officer in any
bank or financial institution or corporate body, in Sri Lanka or abroad;
 (k) I [af firm / state] that I have not been a director, Chief Executive Officer or held any other position
of authority in any bank or financial institution –
 (i) whose license has been suspended; or
 (ii) which has been wound up or is being wound up, or which is being compulsorily liquidated;
whether in Sri Lanka or elsewhere.
 (l) I [af firm / state] that to the best of my knowledge I am a fit and proper person [to hold office as
a director  / to be appointed, nominated or elected as a director] of a licensed commercial bank /
licensed specialised bank in terms of the provisions of Section 42 of the Banking Act as amended
by Banking (Amendment) Act, No. 2 of 2005.
The averments contained herein  ]
were read over to the [affirmant/deponent  ]
who having understood the contents  ]
hereof and having accepted same as  ] Before me
true, swore to and placed his/her signature  ]
at Colombo on this ……………… day  ]
of ………………………  ]
    JUSTICE OF THE PEACE


298 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Annex 2
Name of Bank: …………………………………………………
Declaration to be submitted in terms of Section 42 of the Banking Act
by persons proposed to be / appointed / elected / nominated as a Director of a Licensed Bank
(with enclosures as appropriate as of ………………….)
1. Personal Details
1.1 Full name:
1.2 NIC No. / Passport No.:
1.3 Permanent Address:
1.4 Present Address:
1.5 Occupation:
2. List of close r elations in terms of Section 86 of the Banking Act:
2.1 Name in full of spouse:
 NIC No./Passport No. :
2.2 Names of dependent children:
  Full Name     NIC No. / Passport No.
1.
2.
3.
4.
3. List of entities in which director / prospective director has a substantial interest in terms of Section
86 of the Banking Act


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  299
4. Name/s of Licensed Bank/s in which he / she is or has been a member of the Board of Directors
(give details of period during which such office was held)
5. Accomodation, if any, presently availed by him / her or by his close relations at 2 above, and by
entities at 3 above from the bank, and collateral
Declaration:
I confirm that  the  above information is to the best of my knowledge and belief true and complete.
I undertake to keep the bank fully informed, as soon as possible, of all events  which take place
subsequently which are relevant to the  information provided above.
Signature:
Date:
Any other explanation / information in regard to the information furnished above and other information
considered relevant for assessing the suitability of the proposed / appointed director.
Remarks of Board of Directors of the Bank
Date:                                                                                Signature of Company Secretary


300 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 550 / 002 / 002
Bank Supervision Department
03 January 2011
To : Chief Executive Officers of
 Branches of For eign Banks
Dear Sir,
DISCLOSURES IN TERMS OF THE
BANKING ACT DIRECTION ON CORPORATE GOVERNANCE
All branches of foreign banks are requested to adhere to the following with respect to Directions
3(8) and 3(9) of the Banking Act Direction No. 11 of 2007 on Corporate Governance:
 (i) Direction 3(8)( ii) – All disclosures except on Direction 3(8)( ii)(d) are required to be
submitted along with annual audited financial statement to the Director of Bank Supervision.
(a) Directions 3(8)( ii)(b) and (h) – The required reports shall be prepared by the Board of
Directors or the Head of the Office supervising  Sri Lankan operations.
(b) Direction 3(8)( ii)(g) – The bank shall submit a copy of the parent bank’s annual
corporate governance report to the Director of Bank Supervision.
 (ii) Direction 3(9)( iii) – A summary of the parent bank’s annual corporate governance report
shall be published in the press in Sinhala, Tamil and English along with the publication of
annual audited financial statements.
We hereby withdraw the Circular dated 29 December 2010 issued on the above subject.
Yours faithfully,
(Mrs). T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  301
Ref. No. : 02  / 17 / 550 /002 / 003
Bank Supervision Department
24 December 2010
To : CEOs of all Licensed Commer cial Banks;
 Licensed Specialised Banks, and
 Auditors conducting Bank Audits
Dear Sir  / Madam,
REQUIREMENTS UNDER
THE CORPORATE GOVERNANCE DIRECTION
We write to inform you that the Institute of Chartered Accountants of Sri Lanka (ICASL) has issued
guidelines on the internal control mechanism and annual corporate governance report to be followed
by banks in relation to Directions 3(8)(ii) (b), (c) and (g) of the Corporate Governance Direction dated
26.12.2007 issued by the Central  Bank of Sri Lanka.
Please find the guidelines in the website of the ICASL.  The link is as follows:
http://www.icasrilanka.com/Technical/Central%20Bank%20Internal%20Control%20-%20
         Final%20printed%20uploaded.pdf
Yours faithfully,
N W G R D Nanayakkara
Addl. Director of Bank Supervision
c.c. -  President
 Institute of Chartered Accountants of Sri Lanka
 30A  Malalasekera Mawatha
 Colombo 7.


302 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 600 / 0017  / 001
Bank Supervision Department
08 August 2011
To : CEOs of Licensed Commer cial Banks
Dear Sirs,
ASSESSMENT OF FITNESS AND PROPRIETY OF
CHIEF EXECUTIVE OFFICERS OF
LICENSED COMMERCIAL BANKS
In terms of Section 44 A of the Banking Act, Chief Executive Officers (CEOs) of Licensed
Commercial Banks (LCBs) are required to be fit and proper persons to perform executive functions in a
LCB.
Accordingly, we enclose herewith formats for the affidavit and the declaration to be submitted by
the CEOs of LCBs and a guidance note to duly complete such affidavits and the declarations.
Annex I  :  Affidavit to be submitted by CEOs of LCBs
Annex II  :  Declaration to be submitted by CEOs of LCBs
Annex III  :  Guidance Note
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  303
Annex I
Name of Bank :  …………………………………………………………………………………………
Affidavit 	to	be	submitted 	by	Chief	Executive 	Officers	of
Licensed Commercial Banks in terms of Section 44 A of the Banking Act
I, ……………………………………………………………………………………………… ( full name)
holder of National Identity Card No.  / Passport No. ……………….………..……..……..……………… of
………………….………………………………………………………………………………. (address)
being a [Buddhist  / Hindu do hereby solemnly, sincerely and truly declare and affirm  / Christian  / Catholic  /
Muslim make oath and state] as follows :
(a) I am the [affirmant  / deponent] above named and I am the [ Chief Executive Officer  / proposed Chief
Executive Officer] of …………………………………………………………………………………
……………. (name of bank ) which is a commercial bank, licensed under the Banking Act, No. 30
of 1988.
(b) I [affirm  / state] that I possess the following academic and  / or professional qualification/s:
  ………………………………………………………………………………………………………
  ………………………………………………………………………………………………………
(c) I [af firm  / state] that the ef fective experience that I possess in banking, finance, business or
administration or of any other relevant discipline is as follows:
  ………………………………………………………………………………………………………
  ………………………………………………………………………………………………………
(d) I [affirm  / state] that there is no finding of any regulatory or supervisory authority, professional
association, any Commission of Inquiry, tribunal or other body established by law in Sri Lanka or
abroad, to the effect that I have committed or have been connected with the commission of, any act
which involves fraud, deceit, dishonesty or any other improper conduct.
(e) I [affirm  / state] that I am not subject to an investigation or inquiry consequent upon being served
with notice of a charge involving fraud, deceit, dishonesty or other similar criminal activity, by any


regulatory authority, supervisory authority, professional association, any Commission of Inquiry,
tribunal or other body established by law, in Sri Lanka or abroad.
(f) I [affirm  / state] that I have not been convicted by any Court in Sri Lanka or abroad in respect of
a crime committed in connection with financial management or of any offence involving moral
turpitude.
(g) I [affirm  / state] that I am not an undischarged insolvent nor have I been declared a bankrupt in Sri
Lanka or abroad.


304 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
(h) I [affirm  / state] that I have not failed, to satisfy any judgment or order of any Court whether in Sri
Lanka or abroad, or to repay a debt.
(i) I [affirm  / state] that I have not been declared by a Court of competent jurisdiction in Sri Lanka or
abroad, to be of unsound mind.
(j) I [affirm  / state] that I have not been removed or suspended by an order of a regulatory or supervisory
authority from serving as a director, Chief Executive Officer or other officer in any licensed bank or
financial institution or corporate body, in Sri Lanka or abroad.
(k) I [affirm  / state] that I have not been a Director, Chief Executive Officer or held any other position of
authority in any bank or financial institution –
 (i) whose license has been suspended or cancelled; or
 (ii) which has been wound up or is being wound up, or which is being compulsorily liquidated;
whether in Sri Lanka or abroad.
(l) I [affirm  / state] that to the best of my knowledge I am a fit and proper person [to hold office as a Chief
Executive Officer  / to be appointed as a Chief Executive Officer] of a licensed commercial bank in
terms of the provisions of Section 76 H read with Section 44 A of the Banking Act.
The averments contained
herein were read over to
the [affirmant  / deponent]
who having understood the
contents hereof and having
accepted same as true,
affirmed  / swore to and
placed his  / her si gnature at
…………………..… on this
……………………… day of
…………………..
JUSTICE OF THE PEACE  /
COMMISSIONER FOR OATHSAffix Stamps
as applicable
Before me


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  305
Annex II
Name of Bank:  …………………………………………………………………………………………
Declaration 	to	be	submitted 	by	Chief	Executive 	Officers	of
Licensed Commercial Banks in terms of Section 44 A of the Banking Act
(with enclosures as appropriate as of ………………….)
1. Personal Details
 1.1 Full name:  ………………………………………………………………………………………
 1.2 NIC / Passport number:  …………………………………………………………………………
 1.3 Date of birth :  …………………………………………………………………………………
 1.4 Permanent address :  ……………………………………………………………………………
 1.5 Present address :  ………………………………………………………………………………
2. Appointment to the Bank
 2.1 Date of appointment :
  (please attach a certified copy of the appointment letter)
 2.2 Designation :  ……………………………………………………………………………………
 2.3 Local or expatriate :  ……………………………………………………………………………
3. Backgr ound and Experience
 Name/s of licensed bank/s, its subsidiaries in terms of the Banking Act and associates if any, in
which he  / she is or has been employed as Chief Executive Officer, Director or an officer performing
executive functions:
Name of the institution Period of office Designation
4. Shar eholdings in Banks and their Related Companies
 Share ownerships in any licensed banks, their subsidiaries and associates, if any , presently held:
Name of the institution No. of shares Percentage holding


306 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
5. Business Transactions1/
 Any business transactions the Chief Executive Officer  / proposed Chief Executive Officer presently
has with the bank and its subsidiaries and associates, if any.
Name
of the
institutionDate of
tran-
saction Amount as at
………………….
(Rs. mn)Classification
(performing/
non-performing)Type and
value of
collateral
(Rs. mn)% of Bank’ s
capital
Limit Out-standing
Accommodations
Investments
Deposits
6. Personal Details of Close Relations in terms of Section 86 of the Banking Act
 6.1 Full name of spouse :  ……………………………………………………………………………
 6.2 NIC / Passport number :  ………………………………………………………………………
 6.3 Names of dependant children :  …………………………………………………………………
Full name NIC / Passport number
6.3.1
6.3.2
6.3.3
6.3.4
7. Appointments, Shar eholdings and Business Transactions of Close Relations
7.1 A ny close relations presently employed as Chief Executive Officers, Directors or officers
performing executive functions in any licensed banks, their subsidiaries and associates, if any.
Name of the bank Full name of the close relation Position held
1/ “Business transaction” shall mean any accommodations, investments and deposits and in the case of
foreign banks, only the business transactions with Sri Lankan operations.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  307
7.2 Direct or indirect share ownership in the bank, its subsidiaries and associates, if any, presently
held by any close relation.
Full name of the close relationNo. of Shares Percentage holding
Direct Indirect Direct Indirect
7.3 Any business transaction, the close relation currently has with the bank, its subsidiaries and
associates, if any.
Name
of the
institutionDate of
tran-
saction Amount as at
………………….
(Rs. mn)Classification
(performing/
non-performing)Type and
value of
collateral
(Rs. mn)% of Bank’ s
regulatory
capital
Limit Out-standing
Accommodations
Investments
Deposits
8. Any other explanation  / information in regard to the information furnished above and other
information considered relevant for assessing the suitability of the Chief Executive Officer  / proposed
Chief Executive Officer  of the bank.


308 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
DECLARATION:
I confirm that the above information is to the best of my knowledge and belief true and complete.
I undertake to keep the bank fully informed, as soon as possible, of all events, which take place
subsequently, which is relevant to the information provided above.
I state that I am not prevented by any Statute from being appointed as the Chief Executive Officer of
Licensed Commercial Bank.
Date : ……………  …………………………………………………………………………
 Signature of Chief Executive Officer  /
 Proposed Cheif Executive Officer
TO BE FILLED BY THE CHAIRMAN / REGIONAL HEAD (in the case of foreign banks)
1. Any other explanation  / information in regard to the information furnished above and other
information considered relevant for assessing the suitability of the Chief Executive Officer  / proposed
Chief Executive Officer of the bank.
2. I confirm that, in terms of Section 76 H read with Section 44 A of the Banking Act, No. 30 of 1988,
the officer referred to above is fit and proper to carry out functions of the Chief Executive Officer of
…………………………… .
Date : ……………  …………………………………………………………………………
 Signature of the Chairman / Regional Head
 and the official stamp


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  309
Annex III
GUIDANCE TO DULY COMPLETE THE AFFIDA VITS AND
DECLARATIONS TO BE SUBMITTED BY CHIEF EXECUTIVE OFFICERS OF
 LICENSED COMMERCIAL BANKS
A. PURPOSE OF  OBTAINING AFFIDA VITS AND DECLARATIONS
• T he purpose of obtaining affidavits and declarations of Chief Executive Officers (CEOs) of
Licensed Commercial Banks (LCBs) is to enable the Bank Supervision Department to assess the
fitness and propriety of such officers in terms of the provisions of the Banking Act. Accordingly,
the Bank Supervision Department requires comprehensive information to evaluate the experience,
qualifications, integrity and compliance with other requirements specified in the Banking Act, to
assess the suitability of the CEOs of the LCBs.
• Further , these should be legally binding documents in the event of any dispute.
• This guidance is issued to ensure that sufficient information is provided by banks for assessing the
fitness and propriety of the CEOs.
B. AFFIDA VITS
1. It is preferable that the affidavit is prepared as a fresh document, based on the format provided by the
Bank Supervision Department, so as to avoid inclusion of unnecessary words. However, if the given
format is filled, all alterations, erasures and interlineations should be initialed by the Commissioner
for Oaths.
2. Academic/professional qualifications
• Relevant qualification should be mentioned clearly with:
 – Qualification obtained
 – Name of the Institution/University
 – Y ear of obtaining the qualification
 – Name of the Professional body where he/she is a member
3. Ef fective experience should include:
• Institution
• Designation
• Period
4. Complete all blank spaces and clauses appropriately. ( Eg., Name in full, NIC No. / Passport No.,
Address, Chief executive officer/proposed chief executive officer, Name of the Bank, etc.)
5. Appropriate words should be used based on the religion of the person


5. Appropriate words should be used based on the religion of the person
5.1 Delete/strike out inappropriate words
Eg.
• Buddhist/Hindu:  affirm/affirmant/solemnly , sincerely and truly declare and affirm.
• Christian/Catholic/Muslim:  deponent/state/make oath and state/ swear .
• If a person refrains/objects to disclose his/her religion:   affirm/affirmant/solemnly, sincerely
and truly declare and affirm. In this event, a confirmation should be submitted by the officer
stating that:
– he/she is an atheist or belongs to a religion not mentioned in this affidavit;   or
– he/she objects to disclosing his/her religion.


310 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
5.2 If the inappropriate words are stricken out, the Commissioner for Oaths/Justice of the Peace
should place his initials immediately after all such amendments.
6. If the person is a foreigner and signs the affidavit while overseas:
– signature of the person should be attested by a Commissioner for Oaths or an equivalent in the
country in which he places his signature.
– a ttestation should be made in front of the Sri Lankan High Commissioner in the respective
country.
7. Affix a stamp for a sum of Rs.25/- and the signature of the person. In the case of future affidavits,
the denomination of the stamp should be changed according to the value applicable as at the date of
signing the affidavit.
8. Attest by a Commissioner for Oaths/Justice of the Peace immediately after the signature of the person
at ‘Before me’.
C. DECLARATIONS
1. Declarations:
– should be duly completed : All the sections (1-8) should be completed (full name, date etc.) and
irrelevant sections stated as Not applicable/nil/none or cancelled out.
– should be signed and dated.
2. The last section should be completed, dated and signed with official stamp/seal by the Chairman/
Regional Head (in the case of foreign banks). If there is no comment it should be stated as Not
applicable/nil/none.
3. T erms of appointment (including designation, date of appointment, duties, responsibilities and
remuneration package) should be attached.
D. INTERPRET ATION
1. “Close relation” means spouse or dependent child.
2. “Business Transaction” shall means any accommodations, investment and deposits and in the case
of foreign banks, only the business transactions with Sri Lankan operations.
3. “Accommodation” means any loan, overdraft or advance or such other facility as may be determined
by the Monetary Board or any commitment to grant any loan, overdraft or advance or such other


by the Monetary Board or any commitment to grant any loan, overdraft or advance or such other
facility as may be determined by the Monetary Board, including a commitment to accept a contingent
liability.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  311
Explanatory Note: 1  / 2012
Bank Supervision Department
AUTHORITY OF THE MONETARY BOARD
TO ISSUE DIRECTIONS TO LICENSED BANKS REAFFIRMED BY THE
COURT OF APPEAL
The Monetary Board of the Central Bank of Sri Lanka (CBSL) issued Directions on corporate
governance 	to	licensed	banks	on	26	December 	2007.	The	Directions 	were	issued	in	terms	of	the	Banking
Act	requiring, 	inter alia, 	fitness	and	propriety	of	bank	directors,	limiting	the	age	of	a	director	of	a	bank
to	70	years,	the	term	of	office	of	a	director	to	be	not	more	than	9	years,	etc.
Consequent 	to	issuing	these	Directions, 	the	authority	of	the	Monetary 	Board	of	the	CBSL	to
issue such Directions was challenged in the Court of Appeal CA (Writ) Application No. 330 /2008 by
K.C. Vignarajah, the Petitioner.
As per the Court of Appeal judgment of the above action delivered on 28 March 2012, it was held
that, inter-alia , the Banking Act, No. 30 of 1988 falls within the category of legislation referred to as
Administrative Legislation, and that a necessary aspect of such legislation is one of delegating powers
to an extraneous body of persons to act at Parliament’s bidding. The Court further held that, accordingly,
the Banking Act is a Primary Legislation for the purpose of providing for any aspect of banking business
and of business of such banks and includes the right to control the existing systems and functions of banks,
and therefore that the Monetary Board has been delegated with the power to make directions which had the
approval, licence or stamp of a legislative power. On that basis, the Court of Appeal ruled that Direction
No.11	of	2007	on	Corporate 	Governance 	of	26	December 	2007	is	within	the	powers	prescribed 	in	the
Banking Act, No. 30 of 1988, as amended.


312 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
My No. : 02  / 17 / 800 / 0005  / 01
Bank Supervision Department
20 August 2008
To : CEOs of all Licensed Commercial Banks
Dear Sirs,
PERMITTING LICENSED COMMERCIAL BANKS TO TRADE IN
THE INTERNATIONAL SOVEREIGN BONDS ISSUED IN 2007 BY
THE GOVERNMENT OF SRI LANKA
 This is to inform you that the Monetary Board of the Central Bank of Sri Lanka with the
concurrence of the Minister of Finance and Planning has authorised, in terms of the provisions of the
Banking (Off-shore Banking Scheme) Order 2000 made under sections 23, 25 and 26 of the Banking
Act, No.30 of 1988 as amended, for licensed commercial banks (LCBs) to invest in the international
sovereign bonds issued by the Government of Sri Lanka in 2007, in the secondary market.
Yours faithfully,
B D W A Silva
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  313
Ref. No. : 02  / 17 / 600 / 0034  / 001
Bank Supervision Department
08 November, 2011
To :  The CEOs of all Licesed Commer cial Banks
AMENDMENT TO BANKING ACT,
OFF-SHORE BANKING SCHEME ORDER, 2000
 T his is to inform you that the Clause 5 of the Banking Act (Off-Shore Banking Scheme),
Order 2000 dated 7 April 2000 made under Sections 23, 25 and 26 of the Banking Act, No. 30 of 1988
has been amended.
 The Banking Order , No. 2 of 2011 on the above mentioned amendment is attached.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


314 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Order made by the Monetary Board of the Central Bank of Sri Lanka with the approval of the Minister,
made under Sections 23, 25 and 26 of the Banking Act, No. 30 of 1988, as amended.
Sgd. K G D D Dheerasinghe
Senior Deputy Governor
Central Bank of Sri Lanka
Colombo
08 November, 2011.
BANKING ACT, ORDER NO. 2 OF 2011
BANKING (OFF-SHORE BANKING BUSINESS SCHEME) ORDER
Citation. 1. This Order may be cited as the Banking Act, Order No.2 of 2011. The Sections
referred to in this Order will be those of the Banking Act, No.30 of 1988,
as amended.
2. T he following new Clause replaces the Clause 5 in the Banking (Off-Shore
Banking Business Scheme) Order, 2000, dated 7th April 2000.
5. An account maintained by a non-resident in an
off-shore unit shall be credited with funds received on
inward remittances and fund transfers in any designated
currency from the Domestic Banking Units on all
current account transactions falling under the general
or specific permission of the Controller of Exchange.’Amendment to
Clause 5 in the
Banking
(Off-shore
Banking
Business) Order,
2000 issued on
7th April 2000.‘Permitted
deposits in an
account of a
non-resident.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  315
Ref. No. : 02  / 17 / 600 / 0009  / 002
Bank Supervision Department
27 October, 2011
To :  The CEOs of all Licesed Commer cial Banks
DESIGNATED FOREIGN CURRENCIES
 This is to inform you that the Monetary Board of the Central Bank of Sri Lanka, with the approval
of the Minister, has specified the Chinese Renminbi as a designated currency for foreign exchange
transactions in both Domestic Banking Units and Off-shore Banking Units of Licensed Commercial Banks.
 Accordingly , the Banking (Off-Shore Banking Business Scheme) Order No. 1 of 2008 dated
12 September, 2008, made under sections 23, 25 and 26 of the Banking Act, No. 30 of 1988, is hereby
amended to include the Chinese Renminbi as a designated currency.
 The Banking Act, Order No. 1 of 2011 which contains the amended Schedule of Designated Foreign
Currencies, is attached.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


316 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Order made by the Monetary Board of the Central Bank of Sri Lanka with the approval of the Minister,
made under Sections 23, 25 and 26 of the Banking Act, No. 30 of 1988, as amended.
Sgd. K G D D Dheerasinghe
Senior Deputy Governor
Central Bank of Sri Lanka
Colombo
27 October, 2011.
BANKING ACT, ORDER NO. 1 OF 2011
BANKING (OFF-SHORE BANKING BUSINESS SCHEME) ORDER
Citation. This order may be cited as the Banking Act, Order No. 1 of 2011. The Sections
referred to in this Order will be those of the Banking Act, No. 30 of 1988, as
amended.
The foreign currencies set out in the Schedule below in this Order are determined as
the Designated Foreign Currencies under the Banking (Off-Shore Banking Business
Scheme) Order.
The Schedule in this Order, replaces the Schedule in the Banking (Off-Shore
Banking Business Scheme) Order No. 1 of 2008, dated 12 September, 2008.
schedule
Designated Foreign Currencies
 1. Australian Dollar
 2. Canadian Dollar
 3. Chinese Renminbi
 4. Danish Kroner
 5. Euro
 6. Hongkong Dollar
 7. Japanese Yen
 8. New Zealand Dollar
 9. Norwegian Kroner
 10. Pound Sterling
 11. Singapore Dollar
 12. Swedish Kroner
 13. Swiss Franc
 14. United States DollarDesignated
Foreign
Currencies.