Management Discussion and Analysis

Investor relations

Constructive dialogue with investors is key to good governance, providing inputs to strategy formulation for long-term value creation. We are proud of our track record of active engagement with our shareholders and seek to provide relevant and sufficient information within this report to facilitate informed and constructive dialogue at the forthcoming Annual General Meeting.
This segment of the report provides information on the performance of the Bank’s listed securities.

1. Our Listed Securities

The ordinary shares of the Bank are listed on the Main Board of the Colombo Stock Exchange (CSE) under the ticker symbol ‘COMB’. All debentures issued are also listed on the CSE.

Summary of trading activity and daily prices of shares and debentures are published in most daily newspapers, including the Daily News, Daily FT, The Island and Daily Mirror under the abbreviation of Commercial Bank or COMB (Table 13).

Security Type Number in Issue as at Ticker Symbol
31.12.2016 31.12.2015
Equity
Ordinary Shares – Voting 833,521,887 820,567,115 COMB.N0000
Ordinary Shares – Non-Voting 57,212,653 56,299,686 COMB.X0000
Debt
Fixed Rate Debentures
March 2016/21 		44,303,400 – COMB-BD- 08/03/21- C2341-10.75%
Fixed Rate Debentures
March 2016/26 		17,490,900 – COMB-BD- 08/03/26- C2342-11.25%
Fixed Rate Debentures
October 2016/21 		50,718,000 – COMB-BD- 27/10/21- C2360-12.00%
Fixed Rate Debentures
October 2016/26 		19,282,000 – COMB-BD- 27/10/26- C2359-12.25%
Newswire Codes
Bloomberg
Dow Jones
Reuters

Table 13

Share Price Trend Over Last Five Years

2016 2015 2014 2013 2012
Ordinary Shares Voting
Highest price (Rs.) 151.90 194.00 179.90 126.00 119.50
Lowest price (Rs.) 115.00 139.90 113.50 103.20 96.80
Last traded price (Rs.) 145.00 140.20 171.00 120.40 103.00
Ordinary Shares Non-Voting
Highest price (Rs.) 123.00 149.00 125.50 102.00 99.50
Lowest price (Rs.) 101.50 122.10 91.30 87.00 73.00
Last traded price (Rs.) 115.00 123.00 125.10 93.00 91.10

2. Performance of Securities and Return to Shareholders

Market performance moderated during the year reflecting the weak investor appetite, moderating economic growth, rising interest rates and inflation during the year. The All Share Price Index and the S&P SL 20 Index remained in the doldrums as domestic and foreign activity declined sharply by 38.28% and 14.59% respectively. Foreign and local companies were net purchasers albeit at reduced volumes while foreign and local individuals were net sellers. The Banking, Finance and Insurance sectors also reflected a downward trend during the year.

Despite the bleak market performance, the ordinary voting shares of the Bank performed creditably, increasing by 3.42% from Rs. 140.20 at the end of 2015 to Rs.145.00 as at the end of 2016 (Table 15). The number of shares in both categories increased during the year as the Bank continued with its policy of issuing scrip dividends and operationalised the ESOP (Section 3.1). Accordingly, market capitalisation increased from Rs.115 Bn. in 2015 to Rs.118 Bn. in 2016 accounting for 4.31% of the total market capitalisation. Movement of the non-voting share price followed the trend of the voting shares during most part of 2016.

Graph 59

Graph 60

Information on Shareholders’ funds and Market Capitalisation

As at December 31, Shareholders’ Funds Commercial Bank’s Market Capitalisation(*) Total Market Capitalisation of the CSE Commercial Bank’s Market Capitalisation as a % of CSE Market Capitalisation Commercial Bank’s Market Capitalisation Ranking
Rs. Bn. Rs. Bn. Rs. Bn. % Rank
2016 78 118 2,745 4.31 3
2015 70 115 2,938 3.92 3
2014 71 139 3,105 4.46 3
2013 61 96 2,286 4.18 4
2012 53 80 2,168 3.71 5
2011 44 77 2,269 3.37 6
2010 34 92 2,281 4.03 4
2009 28 44 1,092 4.06 5
2008 26 16 489 3.20 4
2007 24 34 821 4.17 4

*Commercial Bank’s market capitalisation includes only Ordinary Voting Shares
Table 17

Graph 61

Graph 62
Market indices for Banks, Finance and Insurance were available only from the second half of 2016.

Graph 63

Graph 64

The number of shares traded in both voting and non-voting shares declined during the year (Graph 63) as many investors adopted a holding strategy on the stock in view of its performance. Interestingly, the number of transactions in ordinary voting shares (Graph 64) was similar to 2015 pointing to sustained interest in the shares (Table 18).

Ordinary Voting Shares Ordinary Non-Voting Shares
2016 2015 2016 2015
Number of transactions 15,189 15,575 3,721 5,073
Number of shares traded 96,145,515 117,372,662 5,395,928 9,552,654
Value of shares traded (Rs. Bn.) 12.86 19.39 0.62 1.28

Table 18

The total return to shareholders during the year amounted to Rs. 11.30 per share comprising cash and scrip dividends of Rs. 6.50 and capital gains of Rs. 4.80. This amounts to a return to shareholders of 11.25% for the year. Total return over the last
five years is approximately 10.14% on the same basis.

3. Stated Capital

The Bank continued with its policy of issuing scrip dividends and the movement in our issued capital over the past three decades is given below in accordance with Rule 7.6 (ix) of the Listing Rules of the CSE. Accordingly, 11,818,040 voting shares and 912,967 non-voting shares were issued during the year as approved by shareholders at the Annual General Meeting (AGM) held in March 2016. The ESOP approved by shareholders in 2016 was operationalised during the year which together with ESOP introduced in 2008 contributed to increase the number of shares in issue by 1,136,732.

3.1 Information on Movement in Number of Shares Represented by the Stated Capital
(As per Rule No. 7.6 (ix) of the Listing Rules of the CSE)

No. of Shares
Year Details Basis No. of Shares Issued/ (Redeemed) Ordinary Shares Voting Ordinary Shares Non-voting Cumulative Redeemable Preference Shares
1987 As at December 31, 1987 3,000,000 – –
1988 Bonus Issue Voting 2 for 3 2,000,000 5,000,000 – –
1990 Bonus Issue Voting 1 for 1 5,000,000 10,000,000 – –
1993 Rights Issue Voting 1 for 4 2,500,000 12,500,000 – –
1996 Bonus Issue Voting 3 for 5 7,500,000 20,000,000 – –
Rights Issue Voting 1 for 4 5,000,000 25,000,000 – –
Share Swap Non-voting 894,275 25,000,000 894,275 –
Bonus Issue Non-voting 3 for 5 536,565 25,000,000 1,430,840 –
Rights Issue Non-voting 1 for 4 357,710 25,000,000 1,788,550 –
1998 Bonus Issue Voting 3 for 10 7,500,000 32,500,000 1,788,550 –
Bonus Issue Non-voting 3 for 10 536,565 32,500,000 2,325,115 –
2001 Bonus Issue Voting 1 for 5 6,500,000 39,000,000 2,325,115 –
Bonus Issue Non-voting 1 for 5 465,023 39,000,000 2,790,138 –
Issue of Cumulative Redeemable Preference Shares 90,655,500 39,000,000 2,790,138 90,655,500
2003 Bonus Issue Voting 1 for 3 13,000,000 52,000,000 2,790,138 90,655,500
Rights Issue Voting 1 for 4 13,000,000 65,000,000 2,790,138 90,655,500
Bonus Issue Non-voting 1 for 3 930,046 65,000,000 3,720,184 90,655,500
Rights Issue Non-voting 1 for 4 930,046 65,000,000 4,650,230 90,655,500
Issue of Cumulative Redeemable Preference Shares 100,000,000 65,000,000 4,650,230 190,655,500
2004 ESOP Voting 29,769 65,029,769 4,650,230 190,655,500
2005 ESOP Voting 1,361,591 66,391,360 4,650,230 190,655,500
Bonus Issue Voting 1 for 1 66,389,162 132,780,522 4,650,230 190,655,500
Bonus Issue Non-voting 1 for 1 4,650,230 132,780,522 9,300,460 190,655,500
2006 ESOP Voting 737,742 133,518,264 9,300,460 190,655,500
Redemption of Cumulative Redeemable Preference Shares (90,655,500) 133,518,264 9,300,460 100,000,000
2007 Rights Issue Voting 3 for 10 40,288,996 173,807,260 9,300,460 100,000,000
Bonus Issue Voting 1 for 3 58,204,268 232,011,528 9,300,460 100,000,000
ESOP Voting 919,649 232,931,177 9,300,460 100,000,000
Rights Issue Non-voting 3 for 10 2,790,138 232,931,177 12,090,598 100,000,000
Bonus Issue Non-voting 1 for 3 4,030,199 232,931,177 16,120,797 100,000,000
2008 Redemption of Cumulative Redeemable Preference Shares (100,000,000) 232,931,177 16,120,797 –
ESOP Voting 350,049 233,281,226 16,120,797 –
2009 ESOP Voting 540,045 233,821,271 16,120,797 –
2010 Share Split Voting 1 for 2 117,402,608 351,223,879 16,120,797 –
Share Split Non-voting 1 for 2 8,060,398 351,223,879 24,181,195 –
ESOP Voting 2,081,508 353,305,387 24,181,195 –
2011 Scrip issue for final dividend 2010 Voting 2,277,195 355,582,582 24,181,195 –
Scrip issue for final dividend 2010 Non-voting 255,734 355,582,582 24,436,929 –
ESOP Voting 1,457,645 357,040,227 24,436,929 –
Rights Issue Voting 1 for 14 25,502,433 382,542,660 24,436,929 –
Rights Issue Non-voting 1 for 14 1,745,494 382,542,660 26,182,423 –
Share Split Voting 1 for 1 382,542,660 765,085,320 26,182,423 –
Share Split Non-voting 1 for 1 26,182,423 765,085,320 52,364,846 –
2012 Scrip issue for final dividend 2011 Voting 13,587,144 778,672,464 52,364,846 –
Scrip issue for final dividend 2011 Non-voting 1,108,902 778,672,464 53,473,748 –
ESOP Voting 1,341,768 780,014,232 53,473,748 –
2013 Scrip issue for final dividend 2012 Voting 13,076,189 793,090,421 53,473,748 –
Scrip issue for final dividend 2012 Non-voting 1,069,474 793,090,421 54,543,222 –
ESOP Voting 1,445,398 794,535,819 54,543,222 –
2014 Scrip issue for final dividend 2013 Voting 12,504,344 807,040,163 54,543,222 –
Scrip issue for final dividend 2013 Non-voting 1,036,724 807,040,163 55,579,946 –
ESOP Voting 3,237,566 810,277,729 55,579,946 –
2015 Scrip issue for final dividend 2014 Voting 8,118,773 818,396,502 55,579,946 –
Scrip issue for final dividend 2014 Non-voting 719,740 818,396,502 56,299,686 –
ESOP Voting 2,170,613 820,567,115 56,299,686 –
2016 Scrip issue for final dividend 2015 Voting 11,818,040 832,385,155 56,299,686 –
Scrip issue for final dividend 2015 Non-voting 912,967 832,385,155 57,212,653 –
ESOP Voting 1,136,732 833,521,887 57,212,653 –

3.2 Information on Share Splits and Scrip Issues

Year/Month Details
2016 April Issue of ordinary shares to satisfy a part of the final dividend for 2015 of Rs. 2.00 per ordinary share
2015 April Issue of ordinary shares to satisfy a part of the final dividend for 2014 of Rs. 2.00 per ordinary share
2014 April Issue of ordinary shares to satisfy a part of the final dividend for 2013 of Rs. 2.00 per ordinary share
2013 April Issue of ordinary shares to satisfy a part of the final dividend for 2012 of Rs. 2.00 per ordinary share
2012 April Issue of ordinary shares to satisfy a part of the final dividend for 2011 of Rs. 2.00 per ordinary share
2011 September Share split of one ordinary share for every one ordinary share held immediately after the right issue
2011 August Rights issue of one ordinary share for every fourteen ordinary shares held
2011 April Issue of ordinary shares to satisfy a part of the final dividend for 2010 of Rs. 2.00 per ordinary share
2010 June Share split of one ordinary share for every two ordinary shares held
2007 June Bonus issue of one ordinary share for every three ordinary shares held
2007 April Rights issue of three ordinary shares for every ten ordinary shares held
2005 June Bonus issue of one ordinary share for every one ordinary share held
2003 October Rights issue of one ordinary share for every four ordinary shares held
2003 May Bonus issue of one ordinary share for every three ordinary shares held

4. Dividends

Dividends are declared balancing the needs of shareholders for a return on investment and the business needs of the Bank. The Bank paid two interim dividends totalling to Rs. 4.50 per share in cash for the year 2016. The Board of Directors of the Bank has now recommended a final dividend of Rs. 2.00 per ordinary share, to be satisfied in the form of issue and allotment of new shares for both voting and non-voting shareholders of the Bank for the year ended December 31, 2016 for approval by the shareholders at the 48th AGM, to be held on March 30, 2017. (The Bank declared a final dividend of Rs. 5.00 per share for the year ended December 31, 2015 which consists of a cash dividend of Rs. 3.00 per share and balance entitlement of Rs. 2.00 per share satisfied in the form of issue and allotment of new shares).

Dividends 2016 2015
Cash – Rs. per share
First interim paid 1.50 1.50
Second interim paid 3.00 –
Final proposed/paid – 3.00
Total 4.50 4.50
Scrip – Rs. per share
Final proposed/allotted 2.00 2.00
Total 6.50 6.50
Dividend payout ratio (%)
Cash 27.64 33.15
Total (Cash and Shares) 39.92 47.89

Table 19

Graph 65

5. Shareholders

Commercial Bank has a total of 9,610 Ordinary voting shareholders as at December 31, 2016, an increase of 2.10% over 2015, expanding our shareholder base (Table 20). The percentage of ordinary voting shares held by the 20 largest shareholders has increased from 66.77% in 2015 to 69.01% in 2016 with four new investors joining its ranks. Non-voting ordinary shares held by the 20 largest shareholders have increased even more sharply from 38.45% in 2015 to 42.90% in 2016 with three new investors making significant purchases during 2016 of which two were foreign investors (Section 5.3). However, the total number of foreign shareholders declined during the year primarily due to weak market performance that prevailed during 2016.

Number of Ordinary Shareholders

2016 2015
Voting shareholders 9,610 9,412
Non-voting shareholders 4,191 4,216
Total 13,801 13,628

Table 20

5.1 Composition of Shareholders

As at December 31, 2016 As at December 31, 2015
No. of Shareholders % No. of Shares % No. of Shareholders % No. of Shares %
Ordinary Shares – Voting
Resident 9,314 96.92 587,487,079 70.48 9,094 96.62 558,973,595 68.12
Non-resident 296 3.08 246,034,808 29.52 318 3.38 261,593,520 31.88
Total 9,610 100.00 833,521,887 100.00 9,412 100.00 820,567,115 100.00
Individuals 9,058 94.26 193,603,082 23.23 8,847 94.00 187,853,981 22.89
Institutions 552 5.74 639,918,805 76.77 565 6.00 632,713,134 77.11
Total 9,610 100.00 833,521,887 100.00 9,412 100.00 820,567,115 100.00
Ordinary Shares – Non-Voting
Resident 4,107 98.00 43,843,846 76.63 4,128 97.91 44,666,354 79.34
Non-resident 84 2.00 13,368,807 23.37 88 2.09 11,633,332 20.66
Total 4,191 100.00 57,212,653 100.00 4,216 100.00 56,299,686 100.00
Individuals 3,970 94.73 32,320,757 56.49 3,997 94.81 32,174,283 57.15
Institutions 221 5.27 24,891,896 43.51 219 5.19 24,125,403 42.85
Total 4,191 100.00 57,212,653 100.00 4,216 100.00 56,299,686 100.00

5.2 Distribution Schedule of the Number of Holders and Percentage of Holding in each Class of Equity Securities
(As per Rule No. 7.6 (x) of the Listing Rules of the CSE)

As at December 31, 2016 As at December 31, 2015
No. of Shareholders % No. of Shares % No. of Shareholders % No. of Shares %
Ordinary Shares Voting
1 – 1,000 4,827 50.23 1,107,910 0.13 4,683 49.77 1,187,812 0.14
1,001 – 10,000 3,081 32.06 11,064,002 1.33 3,014 32.02 11,163,309 1.36
10,001 – 100,000 1,406 14.63 40,096,730 4.81 1,432 15.21 41,917,942 5.11
100,001 – 1,000,000 227 2.36 63,821,779 7.66 211 2.24 59,390,754 7.24
Over 1,000,000 69 0.72 717,431,466 86.07 72 0.76 706,907,298 86.15
Total 9,610 100.00 833,521,887 100.00 9,412 100.00 820,567,115 100.00
Ordinary Shares Non-Voting
1 – 1,000 2,248 53.64 544,686 0.94 2,235 53.01 567,113 1.00
1,001 – 10,000 1,354 32.30 4,513,800 7.89 1,370 32.50 4,474,887 7.95
10,001 – 100,000 492 11.74 13,932,010 24.35 506 12.00 13,724,725 24.38
100,001 – 1,000,000 90 2.15 21,600,494 37.77 98 2.32 23,079,473 41.00
Over 1,000,000 7 0.17 16,621,663 29.05 7 0.17 14,453,488 25.67
Total 4,191 100.00 57,212,653 100.00 4,216 100.00 56,299,686 100.00

5.3 The Names, Number and Percentage of Shares Held by Twenty Largest Shareholders
(As per Rule No. 7.6 (iii) of the Listing Rules of the CSE)

As at December 31, 2016 2015 (*)
Ordinary Shares-Voting No. of Shares   % No. of Shares %
1. DFCC Bank A/C 1 122,747,994   14.73 121,005,515 14.75
2. Mr. Y.S.H.I. Silva 82,635,230   9.91 81,388,992 9.92
3. Employees’ Provident Fund 80,741,135   9.69 79,594,968 9.70
4. Sri Lanka Insurance Corporation Ltd. – Life Fund 41,854,996   5.02 41,260,840 5.03
5. CB NY S/A International Finance Corporation 37,206,040   4.46 36,677,879 4.47
6. Sri Lanka Insurance Corporation Ltd. – General Fund 35,989,537   4.32 35,478,645 4.32
7. Melstacorp Ltd. 28,295,305   3.39 19,879,375 2.42
8. Mrs. L.E.M. Yaseen 16,603,339   1.99 15,380,000 1.87
9. HSBC International Nominees Ltd. – JPMLU – Franklin Templeton Investment Fund 14,791,566   1.77 24,352,909 2.97
10. HSBC International Nominees Ltd. – SNFE – NT Asian Discovery Master Fund 13,929,632   1.67 – –
11. HSBC International Nominees Ltd. – SSBT – Morgan Stanley Institutional Fund,
Inc. Frontier Emerging Markets Portfolio 		12,998,068   1.56 13,434,182 1.64
12. HSBC International Nominees Ltd. – SSBT – Morgan Stanley Asset Management SA Acting on behalf of Morgan Stanley Galaxy Fund 12,732,186   1.53 11,731,336 1.43
13. HSBC International Nominees Ltd. – BPSS – LUX – Aberdeen Global Asia
Pacific Equity Fund 		11,172,854   1.34 11,014,249 1.34
14. Employee’s Trust Fund Board 10,723,987   1.29 6,475,327 0.79
15. Mercantile Investments & Finance PLC 10,661,077   1.28 10,509,737 1.28
16. HSBC International Nominees Ltd. – BPSS – LUX – Aberdeen Global –
Asian Smaller Companies Fund 		9,368,066   1.12 10,319,466 1.26
17. HSBC International Nominees Ltd. – SSBT – First State Investments
ICVC-Stewart Investors Indian Subcontinent Fund 		8,886,230   1.07 7,037,883 0.86
18. HSBC International Nominees Ltd. – SSBT – BMO Investments II (Ireland) Public
Limited Company 		8,522,701   1.02 7,208,955 0.88
19. BNYMSANV RE-CF Ruffer Total Return Fund 8,399,814   1.01 8,280,574 1.01
20. HSBC International Nominees Ltd. – BP2S – London – Aberdeen Asia Smaller
Companies Investment Trust 		6,944,006   0.83 6,845,432 0.83
Sub total 575,203,763   69.01 547,876,264 66.77
Other shareholders 258,318,124   30.99 272,690,851 33.23
Total 833,521,887   100.00 820,567,115 100.00

As per Rule No. 7.6 (iv) of the Listing Rules of the CSE, percentage of public holding of voting shares as at December 31, 2016
was 99.73% (99.64% as at December 31, 2015).

As per Rule No. 7.13.1 of the Listing Rules of the CSE, number of shareholders representing public holding as at December 31,
2016 – 9,578 (9,383 as at December 31, 2015).

* Comparative shareholdings as at December 31, 2015 of the twenty largest shareholders as at December 31, 2016.

As at December 31, 2016 2015 (*)
Ordinary Shares – Non-Voting No. of Shares   % No. of Shares %
1. Employees’ Trust Fund Board 4,167,636   7.28 4,101,132 7.28
2. HSBC International Nominees Ltd. – JPMLU – Franklin Templeton Investment Fund 3,309,627   5.78 3,256,814 5.78
3. Citi Bank NY S/A Norges Bank Accounts 2 3,228,072   5.64 1,265,623 2.25
4. CB NY S/A Salient International Dividend Signal Fund 1,802,572   3.15 1,781,807 3.16
5. GF Capital Global Ltd. 1,591,203   2.78 1,565,812 2.78
6. BNYMSANV RE-Butterfield Trust (Bermuda) Ltd. 1,419,594   2.48 1,396,941 2.48
7. Mr. J.D. Bandaranayake 1,102,959   1.93 1,085,359 1.93
8. M.J.F. Exports Ltd. 978,724   1.71 963,107 1.71
9. Mr. M.F. Hashim 800,417   1.40 767,339 1.36
10. Saboor Chatoor (Pvt) Ltd. 781,100   1.37 763,000 1.36
11. Beta Holdings Ltd. 765,030   1.34 727,971 1.29
12. Mrs. L.V.C. Samarasinha 650,000   1.14 607,769 1.08
13. Union Assurance PLC – No – 01A/C 581,706   1.02 572,424 1.02
14. Akbar Brothers (Pvt) Ltd. A/C No 1 576,809   1.01 567,605 1.01
15. Dr. A.K.A. Jayawardene 505,035   0.88 496,976 0.88
16. Mr. J.G. De Mel 485,284   0.85 420,000 0.75
17. Mr. G.R. Mallawaaratchy/Mrs. B.G.P. Mallawaaratchy 479,764   0.84 462,309 0.82
18. Mr. W.R.H.Perera 452,051   0.79 444,838 0.79
19. Mr. T.W.A. Wickamasinghe 436,759   0.76 335,000 0.60
20. Alpex Marine (Pvt) Ltd. 430,605   0.75 423,734 0.75
Sub total 24,544,947   42.90 22,005,560 39.08
Other shareholders 32,667,706   57.10 34,294,126 60.92
Total 57,212,653   100.00 56,299,686 100.00

As per Rule No. 7.6 (iv) of the Listing Rules of the CSE, percentage of public holding of non-voting shares as at December 31, 2016
was 99.79% (99.79% as at December 31, 2015).

As per Rule No. 7.13.1 of the Listing Rules of the CSE, number of shareholders representing public holding as at December 31,
2016 – 4,182 (4,207 as at December 31, 2015).

* Comparative shareholdings as at December 31, 2015 of the twenty largest shareholders as at December 31, 2016.

5.4 Directors’ Shareholding Including the Chief Executive Officer’s Shareholding
(As per Rule No. 7.6 (v) of the Listing Rules of the CSE)

Ordinary Shares-Voting Ordinary Shares-Non-Voting
As at December 31, 2016 2015 2016 2015
Mr. K.G.D.D. Dheerasinghe – Chairman 21,159 20,859 Nil Nil
Mr. M.P. Jayawardena – Deputy Chairman Nil Nil Nil Nil
Mr. J. Durairatnam – MD/CEO 470,770 412,056 Nil Nil
Mr. S. Swarnajothi Nil Nil 8,738 8,599
Mr. S. Renganathan 197,647 191,936 10,488 10,321
Prof. A.K.W. Jayawardane Nil Nil Nil Nil
Mr. K. Dharmasiri Nil Nil Nil Nil
Mr. L.D. Niyangoda (appointed w.e.f. August 26, 2016) Nil N/A Nil N/A
Ms. N.T.M.S. Cooray (appointed w.e.f. September 19, 2016) Nil N/A Nil N/A
Mr. G.S. Jadeja (appointed w.e.f. September 19, 2016) Nil N/A Nil N/A
Mr. H.J. Wilson (resigned w.e.f. August 29, 2016) N/A Nil N/A Nil

6. Engaging with Shareholders

The Bank has a shareholder communication policy enumerating formal channels for engagement with shareholders which has been complied with during the year. This covers the timely communication of quarterly performance set out from page 117 to 119 and significant events that are reasonably expected to impact the share price. Please refer to the Financial Calendar set out on page 179 for more details.

7. Material Foreseeable Risk Factors

(As per Rule No. 7.6 (VI) of the Listing Rules of the CSE)

Information pertaining to the material foreseeable risk factors, that require disclosures as per the Rule No. 7.6 (vi) of the Listing Rules
of the CSE are discussed in the Section on ‘Managing Risk: An Overview’ on pages 172 to 175.

8. Material Issues Pertaining to Employees and Industrial Relations Pertaining to the Bank

(As per Rule No. 7.6 (VII) of the Listing Rules of the CSE)

There were no material issues pertaining to employees and industrial relations pertaining to the Bank that occurred during the year under review which require disclosure.

9. Quarterly Performance – 2016 Compared to 2015

The Bank duly submitted the Interim Financial Statements for the year 2016 to the CSE within applicable statutory deadlines as required by the Rule No. 7.4 (a) (i) of the Listing Rules of the CSE. (The Bank duly complied with this requirement for 2015).

The Audited Income Statement for the year ended December 31, 2016 and the Audited Statement of Financial Position as at December 31, 2016 will be submitted to the CSE within three months from the year end, which is well within the required deadline as required by the Rule No. 7.5 (a) of the Listing Rules of the CSE (The Bank duly complied with this requirement for 2015).

The full Annual Report together with Audited Financial Statements and the Interim Financial Statements are available on the Bank’s website (http://www.combank.lk/newweb/investor-relations). Alternatively, shareholders are able to elect to receive a mailed hard copy of the Annual Report on request. The Company Secretary of the Bank will respond to individual letters received from shareholders.

Summary of the Income Statement

2016 2015
1st Quarter Mar. 31 2nd Quarter Jun. 30 3rd Quarter Sep. 30 4th Quarter Dec. 31 Total 1st Quarter Mar. 31 2nd Quarter Jun. 30 3rd Quarter Sep. 30 4th Quarter Dec. 31 Total
Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn.
Group
Net interest income 8,173.1 8,065.6 8,223.6 8,665.9 33,128.2 7,286.0 7,588.9 7,681.0 8,011.5 30,567.4
Net fee and commission
income 		1,463.0 1,515.6 1,805.5 2,305.1 7,089.2 1,258.1 1,219.5 1,335.4 1,597.3 5,410.3
Other operating income
(Net) 		1,429.1 496.7 1,080.1 1,174.9 4,180.8 1,213.2 527.1 1,889.4 1,926.5 5,556.2
Less: Impairment
charges for loans and
other losses 		1,000.3 567.7 252.8 (237.5) 1,583.3 1,334.2 753.7 1,097.0 914.9 4,099.8
Net operating income 10,064.9 9,510.2 10,856.4 12,383.4 42,814.9 8,423.1 8,581.8 9,808.8 10,620.4 37,434.1
Less: Expenses 5,425.7 5,174.7 5,830.6 6,275.8 22,706.8 4,792.8 4,724.3 5,071.4 5,723.2 20,311.7
Operating profit 4,639.2 4,335.5 5,025.8 6,107.6 20,108.1 3,630.3 3,857.5 4,737.4 4,897.2 17,122.4
Add: Share of profits/
(losses) of associates 		0.8 1.2 3.8 0.7 6.5 2.3 2.8 4.8 3.7 13.6
Profit before income tax 4,640.0 4,336.7 5,029.6 6,108.3 20,114.6 3,632.6 3,860.3 4,742.2 4,900.9 17,136.0
Less: Income tax expense 1,376.5 1,083.3 1,351.5 1,836.9 5,648.2 1,095.7 1,213.3 1,491.4 1,476.4 5,276.8
Profit for the period 3,263.5 3,253.4 3,678.1 4,271.4 14,466.4 2,536.9 2,647.0 3,250.8 3,424.5 11,859.2
Quarterly profit as a % of
the profit after tax 		22.6 22.5 25.4 29.5 100.0 21.4 22.3 27.4 28.9 100.0
Cumulative quarterly profit
as a % of the profit
after tax 		22.6 45.0 70.5 100.0 21.4 43.7 71.1 100.0
Bank
Net interest income 8,112.9 7,997.9 8,144.3 8,568.5 32,823.6 7,232.7 7,534.9 7,630.2 7,947.8 30,345.6
Net fee and commission
income 		1,460.0 1,508.9 1,798.1 2,248.5 7,015.5 1,256.4 1,217.5 1,333.3 1,566.8 5,374.0
Other operating income
(Net) 		1,405.8 496.6 1,077.6 1,281.4 4,261.4 1,192.6 543.2 1,889.2 1,937.2 5,562.2
Less: Impairment charges
for loans and other
losses 		995.0 551.2 257.4 (273.8) 1,529.8 1,329.7 729.9 1,055.6 828.0 3,943.2
Net operating income 9,983.7 9,452.2 10,762.6 12,372.2 42,570.7 8,352.0 8,565.7 9,797.1 10,623.8 37,338.6
Less: Expenses 5,404.0 5,136.4 5,770.9 6,208.2 22,519.5 4,772.8 4,701.8 5,049.7 5,670.7 20,195.0
Profit before income tax 4,579.7 4,315.8 4,991.7 6,164.0 20,051.2 3,579.2 3,863.9 4,747.4 4,953.1 17,143.6
Less: Income tax expense 1,345.2 1,062.1 1,328.5 1,802.9 5,538.7 1,070.5 1,204.6 1,489.4 1,475.9 5,240.4
Profit for the period 3,234.5 3,253.7 3,663.2 4,361.1 14,512.5 2,508.7 2,659.3 3,258.0 3,477.2 11,903.2
Quarterly profit as a % of
the profit after tax 		22.3 22.4 25.2 30.1 100.0 21.1 22.3 27.4 29.2 100.0
Cumulative quarterly
profit as a % of the profit
after tax 		22.3 44.7 69.9 100.0 21.1 43.4 70.8 100.0

Summary of Statements of Financial Position

2016 2015
As at Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn.
Group
Cash and cash equivalents 26,041.8 33,510.9 26,332.8 32,924.2 25,668.2 26,117.8 19,311.9 20,107.1
Placements with banks 4,301.3 8,426.8 14,061.6 11,718.5 13,275.0 6,149.5 10,362.5 17,193.5
Securities purchased under resale agreements 9,002.0 80.0 350.1 – 10,266.1 6,001.0 1,944.4 8,002.1
Other financial assets – Held-for-trading 10,539.6 8,670.5 12,085.4 4,987.8 9,501.5 12,392.0 12,624.0 7,656.3
Loans and receivables to banks and other
customers 		539,906.8 554,878.6 578,642.4 620,753.9 439,122.3 456,915.4 484,416.1 509,923.1
Financial investments – Available-for-sale 168,306.5 168,810.7 171,516.3 160,092.5 215,671.3 206,166.1 236,351.0 204,262.0
Financial investments – Held-to-maturity 35,911.1 36,124.7 37,001.2 63,626.6 – – – –
Financial investments – Loans and receivables 66,464.2 61,741.8 52,060.8 51,824.0 50,249.3 50,684.2 58,030.1 57,724.4
Other assets 66,641.6 61,250.5 65,741.8 75,056.1 45,719.8 51,481.1 52,391.1 57,314.7
927,114.9 933,494.5 957,792.4 1,020,983.6 809,473.5 815,907.1 875,431.1 882,183.2
Due to banks 39,095.2 36,937.4 33,417.8 71,098.4 30,445.8 16,008.3 34,661.1 31,789.4
Securities sold under resale agreements 115,628.0 95,083.4 87,040.9 69,629.0 115,936.1 119,539.1 137,403.1 112,249.7
Due to other customers/deposits from customers 652,934.5 679,948.2 710,389.5 743,310.6 549,003.3 568,954.3 588,803.5 624,021.2
Other borrowings 9,881.9 9,603.9 9,578.5 9,270.2 11,359.3 10,116.4 10,045.9 9,985.6
Subordinated liabilities 18,541.0 17,957.8 17,979.1 24,849.5 11,415.0 11,324.1 12,106.1 11,988.3
Other liabilities 25,475.6 23,169.4 22,093.6 23,010.5 24,734.5 18,943.3 21,078.3 21,135.2
Shareholders’ funds 65,558.7 70,794.4 77,293.0 79,815.4 66,579.5 71,021.6 71,333.1 71,013.8
927,114.9 933,494.5 957,792.4 1,020,983.6 809,473.5 815,907.1 875,431.1 882,183.2
Quarterly Growth (%)
Loans and receivables to banks and
other customers 		5.88 2.77 4.28 7.28 8.02 4.05 6.02 5.27
Due to other customers/deposits from customers 4.63 4.14 4.48 4.63 3.73 3.63 3.49 5.98
Total assets 5.09 0.69 2.60 6.60 1.53 0.79 7.30 0.77

2016 2015
As at Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn. Rs. Mn.
Bank
Cash and cash equivalents 25,995.1 33,475.1 24,647.9 30,193.6 25,640.4 26,097.7 19,286.7 20,043.5
Placements with banks 4,301.3 8,426.8 14,061.6 11,718.5 13,275.0 6,149.5 10,362.5 17,193.5
Securities purchased under resale agreements 9,002.0 80.0 350.1 – 10,266.1 6,001.0 1,944.4 8,002.1
Other financial assets – Held-for-trading 10,539.6 8,670.5 12,085.4 4,987.8 9,501.5 12,392.0 12,624.0 7,656.3
Loans and receivables to banks and other
customers 		537,473.3 551,891.7 575,081.6 616,642.7 438,037.6 455,430.4 482,511.5 508,716.2
Financial investments – Available-for-sale 168,288.5 168,741.5 171,446.0 160,023.5 215,654.5 206,149.1 236,333.6 204,244.3
Financial investments – Held-to-maturity 35,911.1 36,124.7 37,001.2 60,981.3 – – – –
Financial investments – Loans and receivables 66,464.2 61,741.8 52,060.8 51,824.0 50,249.3 50,684.2 58,030.1 57,724.4
Other assets 66,599.5 61,222.2 66,564 75,829.8 45,227.5 50,937.1 51,830.2 56,224.8
924,574.6 930,374.3 953,298.6 1,012,201.2 807,851.9 813,841.0 872,923.0 879,805.1
Due to banks 37,185.2 34,401.0 30,419.2 67,608.8 30,069.9 15,174.1 33,373.7 30,319.1
Securities sold under resale agreements 115,831.1 95,288.0 87,275.7 69,867.5 116,096.1 119,679.7 137,535.5 112,384.8
Due to other customers 653,039.5 680,057.5 710,457.9 739,563.5 549,111.2 569,082.1 588,917.5 624,101.8
Other borrowings 9,881.9 9,603.9 9,578.5 9,270.2 11,346.3 10,104.4 10,045.9 9,985.6
Subordinated liabilities 18,526.0 17,942.8 17,979.1 24,849.5 11,197.2 11,106.3 11,888.3 11,973.3
Other liabilities 25,256.2 22,989.7 21,824.8 22,688.0 24,215.3 18,432.7 20,579.4 20,699.7
Shareholders’ funds 64,854.7 70,091.4 75,763.4 78,353.7 65,815.9 70,261.7 70,582.7 70,340.8
924,574.6 930,374.3 953,298.6 1,012,201.2 807,851.9 813,841.0 872,923.0 879,805.1
Quarterly Growth (%)
Loans and receivables to banks and
other customers 		5.65 2.68 4.20 7.23 8.04 3.97 5.95 5.43
Due to other customers/Deposits from customers 4.64 4.14 4.47 4.10 3.73 3.64 3.49 5.97
Total assets 5.09 0.63 2.46 6.18 1.54 0.74 7.26 0.79

10. Debt Securities

The Bank had two debenture issues during the year to strengthen its Tier II capital which were over-subscribed. Trading on debentures is minimal with many debenture holders opting to hold on to the instruments until maturity. Market activity on debentures in issue are
as follows:

The price of debentures issued in March 2016 have declined as market interest rates moved up during the year. Debentures issued in October 2016 have maintained their par value as at the close of the year.

(a) Debenture Composition

Fixed Interest Rate Floating Interest Rate
2016 2015 2016 2015
Type of issue Public Public Public Public Private Public – Public
Debenture type Type ‘A’ Type ‘B’ Type ‘A’ Type ‘B’ N/A Type ‘A’ – Type 'D'
CSE listing Listed Listed Listed Listed Not listed Listed – Listed
Issue date Mar. 2016 Mar. 2016 Oct. 2016 Oct. 2016 May 2006 Dec. 2006 – Dec 2006
Maturity date Mar. 2021 Mar. 2026 Oct. 2021 Oct. 2026 May 2016 Dec. 2016 – Dec 2016
Interest payable frequency Biannually Biannually Biannually Biannually Annually Annually – Annually
Offered interest rate 10.75% p.a. 11.25% p.a. 12.00% p.a. 12.25% p.a. 13.25% p.a. 14.00% p.a. – 12 Months TB Rate (Gross) + 1% p.a.
Amount (Rs. Mn.) 4,430.340 1,749.090 5,071.800 1,928.200 505.000 467.260 – 0.400
Market Values
- Highest (Rs.) Not traded during the year Not traded during the year Not traded during the year Not traded during the year Not traded during the year Not traded during the year – Not traded during the year
- Lowest (Rs.)
- Year-end (Rs.)
Interest Rates
- Coupon rate (%) 10.75 11.25 12.00 12.25 13.25 14.00 – 7.68
- Effective annual yield (%) 11.04 11.57 12.36 12.63 13.25 14.00 – 7.68
Interest rate of comparable
Government security 		12.05 12.45 12.15 12.50 6.65 7.60 – 9.10
Other Ratios as at Date of Last Trade
- Interest yield (%) N/A N/A N/A N/A N/A Not traded during the year – Not traded during the year
- Yield to maturity (%) N/A N/A N/A N/A N/A

(b) Other Ratios

2016 2015
Debt equity ratio (%) 37.92 23.20
Net assets value per share (Rs.) 87.97 80.22
Interest cover (Times) 12.77 27.87
Liquid assets ratio (%) (Minimum 20%) 27.41 27.72

(c) Credit Ratings

  • The Bank’s credit rating, AA (lka) was reaffirmed by Fitch Ratings Lanka Ltd. in 2016
  • The Bank’s Bangladesh Operation’s credit rating was reaffirmed as AAA by Credit Rating Information Services Ltd. in 2016

(d) Credit Ratings – Debentures

  • The credit rating of the Bank’s Subordinated Debentures affirmed in 2016 as AA (lka) by Fitch Ratings Lanka Ltd.

Compliance Report on the Contents of Annual Report in Terms of the Listing Rules of the CSE

We are happy to inform you that the Bank has fully complied with all applicable requirements of the Section 7.6 of the Listing Rules of the CSE on the contents of the Annual Report and Accounts of a listed entity.

The table below provides reference to the relevant sections of this Annual Report where specified information is disclosed together with page references for the convenience of the readers of the Annual Report.

Rule No. Disclosure Requirement Section/Reference Page/s
7.6 (i) Names of persons who held the position of Directors during the financial year
  • Annual Report of the Board of Directors
 159
7.6 (ii) Principal activities of the Bank and its Subsidiaries during the year and any changes therein
  • Note 1.3 of the Accounting Policies
  • Group Structure
 191 & 192 442
7.6 (iii) The names and the number of shares held by the
20 largest holders of voting and non-voting shares and the percentage of such shares held as at the end of the year
  • Item 5.3 of the ‘Investor Relations’
 114 & 115
7.6 (iv) The public holding percentage
  • Item 5.3 of the ‘Investor Relations’
 114 & 115
7.6 (v) Directors’ and Chief Executive Officer’s holding in shares at the beginning and at the end of the financial year
  • Item 5.4 of the ‘Investor Relations’
  • Annual Report of the Board of Directors
 116 153-163
7.6 (vi) Information pertaining to material foreseeable risk factors
  • Item 7 of the ‘Investor Relations’
 116
7.6 (vii) Details of material issues pertaining to employees and industrial relations
  • Item 8 of the ‘Investor Relations’
 116
7.6 (viii) Extents, locations, valuations and the number of buildings
of the land holdings and investment properties as at the end
of the year
  • Note 39.5 (a) & (b) to the Financial Statements on ‘Property, Plant & Equipment’
 270-275
7.6 (ix) Number of shares representing the stated capital as at the end of the year
  • Note 53 to the Financial Statements on ‘Stated Capital’
  • Item 3 of the ‘Investor Relations’
 296 & 297 110-112
7.6 (x) A distribution schedule of the number of holders in each class of equity securities and the percentage of their total holdings as at the end of the year
  • Item 5.2 of the ‘Investor Relations’
 113
7.6 (xi) Ratios and market price information:
  • Equity – Dividend per share, dividend payout ratio, net asset value per share, market value per share
  • Debt – Interest rate of comparable Government Securities, debt/equity ratio, interest cover and quick asset ratio, market prices and yields during the year
  • Any changes in credit rating
  • Items 4 and 10 (b) and highlights of the ‘Investor Relations’
  • Items 10 (a) and 10 (b) of the ‘Investor Relations’
  • Items 10 (c) and 10 (d) of the ‘Investor Relations’
 108, 112 & 120 120 121
7.6 (xii) Significant changes in the Bank or its Subsidiaries fixed assets and the market value of land, if the value differs substantially from the book value as at the end of the year
  • Note 39.5 (b) to the Financial Statements on ‘Property, Plant & Equipment’
 271-275
7.6 (xiii) Details of funds raised through Public Issues, Rights Issues and Private Placements during the year
  • Note 53 to the Financial Statements on ‘Stated Capital’
 296 & 297
7.6 (xiv) Information in respect of Employee Share Option Schemes
  • Total number of shares allotted during the financial year, price at which shares were allotted and the details of funding granted to employees (if any)
  • Notes 53.2 and 54 to the Financial Statements on ‘Employee Share Option Plans’
 297 & 298-300
  • Highest, lowest and closing price of the share recorded during the financial year
  • ‘Highlights’ under the ‘Investor Relations’
 108
7.6 (xv) Disclosures pertaining to Corporate Governance practices in terms of Rules 7.10.3, 7.10.5 (c) and 7.10.6 (c) of Section 7
of the Listing Rules
  • Not applicable since the Bank received an exemption in terms of Section 7.10 (c) of the Listing Rules
7.6 (xvi) Disclosures on Related Party Transactions exceeding 10% of the Equity or 5% of the total assets of the Entity as per Audited Financial Statements, whichever is lower
  • The Bank did not have any related party transactions exceeding this threshold as
    at end 2016
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