ACCEPTANCES
The signature on a Bill of Exchange indicates that the person on whom it is drawn accepts the conditions of the Bill. In other words a Bill of Exchange that has been accepted.

ACCOUNTING POLICIES
The specific principles, bases, conventions, rules, and practices adopted by an entity in preparing and presenting Financial Statements.

ACCRUAL BASIS
Recognition of the effects of transactions and other events when they occur without waiting for receipt or payment of cash or its equivalents.

ACTUARIAL ASSUMPTIONS
An entity’s unbiased and mutually compatible best estimates of the demographic and financial variable that will determine the ultimate cost of providing post-employment benefits.

ADDITIONAL TIER I (AT I) CAPITAL
It is a supplementary form of Tier I capital. AT I includes capital instruments other than the instruments included in CET I capital.

AMORTISATION
The systematic allocation of the depreciable amount of an intangible asset over its useful life.

AMORTISED COST
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability.

ASSET AND LIABILITY MANAGEMENT COMMITTEE (ALCO)
An Asset and Liability Management (ALM) Committee is a group within a financial institution responsible for overseeing the management of assets and liabilities to ensure a balance between risk and profitability. Its primary role is to monitor and control the risks associated with mismatches between the maturity, interest rates, and currency composition of assets and liabilities. The committee aims to optimise the institution’s financial performance while safeguarding against potential risks, such as interest rate risk and liquidity risk.

ASSOCIATE COMPANY
An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

AVERAGE WEIGHTED DEPOSIT RATE (AWDR)
AWDR is calculated by the Central Bank monthly based on the weighted average of all outstanding interest bearing deposits of commercial banks and the corresponding interest rates.

AVERAGE WEIGHTED PRIME LENDING RATE (AWPLR)
AWPLR is calculated by the Central Bank weekly based on commercial banks’ lending rates offered to their prime customers during the week.

BASEL III
The Basel Committee on Banking Supervision (BCBS) issued the Basel III rules, which presents the details of strengthened global regulatory standards on bank capital adequacy and liquidity.

BILLS SENT FOR COLLECTION
A bill of exchange drawn by an exporter usually at a term, on an importer overseas and brought by the exporter to his bank with a request to collect the proceeds.

BRANCH BENCH STRENGTH (BBS)
The competence and number of employees ready to fill vacant leadership and other positions.

CAPITAL ADEQUACY RATIO
The percentage of risk-weighted assets supported by capital as defined under the framework of risk-based capital standards developed by the Bank for International Settlement (BIS) and as modified to suit local requirements by the Central Bank of Sri Lanka.

CAPITAL CONSERVATION BUFFER (CCB)
It is designed to ensure that banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred.

CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

CASH FLOWS
Cash flows are inflows and outflows of cash and cash equivalents.

COLLECTIVELY ASSESSED LOAN IMPAIRMENT PROVISIONS
Also known as portfolio impairment provisions. Impairment assessment on a collective basis for homogeneous groups of loans that are not considered individually significant and to cover losses that has been incurred but has not yet been identified at the reporting date. Typically assets within the consumer banking business (housing, personal, vehicle loans, credit cards etc) are assessed on a portfolio basis.

COMMERCIAL PAPER (CP)
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. The debt is usually issued at a discount, reflecting prevailing market interest rates.

COMMITMENTS
Credit facilities approved but not yet utilised by the clients as at the reporting date.

COMMON EQUITY TIER I (CET I) CAPITAL
Consists of stated capital, other capital and revenue reserves. CET I is the element of capital which has the highest quality and the most effective in absorbing losses.

CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

CONTINGENCIES
A condition or situation, the ultimate outcome of which (gain or loss) will be confirmed only on the occurrence or non-occurrence of one or more uncertain future events.

CONTRACT
An agreement between two or more parties that creates enforceable rights and obligations.

CONTROL
An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

CORPORATE GOVERNANCE
The process by which corporate entities are governed. It is concerned with the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others.

CORRESPONDENT BANK
A bank in a foreign country that offers banking facilities to the customers of a bank in another country.

COST METHOD
A method of accounting whereby the investment is recorded at cost. The Income Statement reflects income from the investment only to the extent that the investor receives distributions from accumulated net profits of the investee arising subsequent to the date of acquisition.

COST TO INCOME RATIO
Operating expenses excluding impairment charge for loans and other losses as a percentage of total operating income.

COUNTRY RISK
The risk that a foreign government will not fulfil its obligations or obstructs the remittance of funds by debtors, either for financial reasons (transfer risk) or for other reasons (political risk).

CREDIT RATING
An evaluation of a corporate’s ability to repay its obligations or likelihood of not defaulting, carried out by an independent rating agency.

CREDIT RISK
Credit risk is the risk of financial loss to the Bank if a customer or counter party to a financial instrument fails to meet its contractual obligations, and arises principally from the loans and advances to customers and other banks and investment in debt securities.

CREDIT RISK MITIGATION
A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants such as collateral, guarantee and credit protection.

CURRENCY RISK
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

CURRENCY SWAPS
The simultaneous purchase of an amount of a currency for spot settlement and the sale of the same amount of the same currency for forward settlement.

CUSTOMER DEPOSITS
Money deposited by accountholders. Such funds are recorded as liabilities.

DEFERRED TAX
Sum set aside in the financial statements for taxation that may become payable/receivable in a financial year other than the current financial year. It arises because of temporary differences between tax rules and accounting conventions.

DELINQUENCY
A debt or other financial obligation is considered to be in a state of delinquency when payments are overdue. Loans and advances are considered to be delinquent when consecutive payments are missed. Also known as ‘Arrears’.

DEPRECIATION
The systematic allocation of the depreciable amount of an asset over its useful life.

DERECOGNITION
Derecognition is the removal of a previously recognised financial asset or financial liability from an entity’s statement of financial position.

DERIVATIVES
A derivative is a financial instrument or other contract, the value of which changes in response to some underlying variable (e.g. an interest rate), that has an initial net investment smaller than would be required for other instruments that have a similar response to the variable, and that will be settled at a future date.

DISCOUNT RATE
A rate used to place a current value on future cash flows. It is needed to reflect the fact that money has a time value.

DIVIDEND COVER
Profit after tax divided by gross dividend. This ratio measures the number of times dividend is covered by the current year’s distributable profits.

DIVIDEND YIELD
Dividend earned per share as a percentage of its market value.

DOCUMENTARY LETTERS OF CREDIT (LCS)
Written undertakings by a bank on behalf of its customers, authorising a third party to draw on the Bank up to a stipulated amount under specific terms and conditions. Such undertakings are established for the purpose of facilitating international trade.

DOMESTIC SYSTEMICALLY IMPORTANT BANKS (D-SIBS)
D-SIBs are defined by CBSL annually, according to the Banking Act direction No. 10 of 2019.

EARNINGS PER SHARE (EPS)
The profit attributable to each ordinary share in the Bank, based on the profit for the period after tax and after deducting minority interest and preference share Dividend.

ECONOMIC VALUE ADDED (EVA)
A measure of productivity which takes into consideration cost of total invested equity.

EFFECTIVE INTEREST RATE (EIR)
Rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

EFFECTIVE TAX RATE (ETR)
Provision for taxation excluding deferred tax divided by the profit before taxation.

EQUITY INSTRUMENT
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

EQUITY METHOD
The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

ESOP (EMPLOYEE SHARE OWNERSHIP PLAN)
A method of giving employees shares in the business for which they work.

EVENTS AFTER THE REPORTING PERIOD
Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue.

EXPECTED CREDIT LOSSES (ECLS)
ECLs are probability-weighted estimate of the present value of cash shortfalls (i.e. the weighted average credit losses, with respective risks of defaults occurring in a given time period used as the weights). ECL measurements are unbiased (i.e. neutral, not conservative and not biased towards optimism or pessimism) and are determined by evaluating a range of possible outcomes.

EXPOSURE
A claim, contingent claim or position which carries a risk of financial loss.

EXPOSURE AT DEFAULT (EAD)
This is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal & interest and expected drawdowns of committed facilities.

FAIR VALUE
Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

FINANCE LEASE
A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.

FINANCIAL GUARANTEE CONTRACT
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

FINANCIAL INSTRUMENT
Financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

FIRM COMMITMENT
A firm commitment is a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.

FOREIGN EXCHANGE INCOME
The realised gain recorded when assets or liabilities denominated in foreign currencies are translated into Sri Lankan Rupees on the reporting date at prevailing rates which differ from those rates in force at inception or on the previous reporting date. Foreign exchange income also arises from trading in foreign currencies.

FORWARD EXCHANGE CONTRACT
Agreement between two parties to exchange one currency for another at a future date at a rate agreed upon today.

GLOBAL REPORTING INITIATIVE (GRI)
GRI is a leading organisation in the sustainability field. GRI promotes the use of sustainability reporting as a way for organisations to become more sustainable and contribute to sustainable development.

GOING CONCERN
The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

GROSS DIVIDEND
The portion of profits distributed to the shareholders including the tax withheld.

GROUP
A group is a parent and its subsidiaries.

GUARANTEES
A promise made by a third party (guarantor), who is not a party to a contract between two others, that the guarantor will be liable if the guarantee fails to fulfil the contractual obligations.

HEDGING
A strategy under which transactions are effected with the aim of providing cover against the risk of unfavourable price movements (interest rate, foreign exchange rate, commodity prices, etc).

HIGH LOSS ABSORBENCY (HLA) REQUIREMENT
The additional capital buffer requirement for D-SIBs.

HIGH QUALITY LIQUID ASSETS (HQLA)
HQLA are assets that can be easily and immediately converted into cash at little or no loss of value, that can be readily sold or used as collateral to obtain funds in a range of stress scenarios and are unencumbered, i.e., without legal, regulatory or operational impediments.

IMPAIRED LOANS
Impaired loans are loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later than they are contractually due.

IMPAIRMENT
This occurs when recoverable amount of an asset is less than its carrying amount.

IMPAIRMENT PROVISIONS
Impairment provisions are provisions held on the Statement of Financial Position as a result of the raising of a charge against profit for the incurred loss.

INDIVIDUALLY SIGNIFICANT LOAN IMPAIRMENT PROVISION (SPECIFIC IMPAIRMENT PROVISION)
Impairment is measured individually for assets that are individually significant to the Group.

INTANGIBLE ASSET
An intangible asset is an identifiable non-monetary asset without physical substance.

INTEREST COVER
A ratio showing the number of times interest charges is covered by earnings before interest and tax.

INTEREST RATE RISK
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

INTEREST RATE SWAP
An agreement between two parties where one stream of future interest payments is exchanged for another stream of future interest payments based on a specified principal amount.

INTEREST SPREAD
This represents the difference between the average interest rate earned and the average interest rate paid on funds.

INVESTMENT PROPERTIES
Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative services; or sale in the ordinary course of business.

KEY MANAGEMENT PERSONNEL
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity.

LEVERAGE RATIO
The Leverage Ratio is a transparent, simple, non-risk-based ratio and is calculated by dividing Total Tier I capital from the Bank’s total exposures of all assets and off balance sheet items.

LIFETIME EXPECTED CREDIT LOSSES
The expected credit losses that result from all possible default events over the expected life of a financial instrument.

LIQUIDITY COVERAGE RATIO (LCR)
Banks are required to maintain an adequate level of unencumbered High Quality Liquid Assets (HQLA) that can be converted into cash to meet their liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. LCR is computed by dividing the stock of HQLA by the total net cash outflows over the next 30 calendar days.

LIQUIDITY RISK
The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

LOSS GIVEN DEFAULT (LGD)
LGD is the percentage of an exposure that a lender expects to lose in the event of obligor defaults. It is based on the difference between the contractual cash flows due and those that the lender would receive including any collateral.

MARKET CAPITALISATION
The value of a company obtained by multiplying the number of ordinary shares in issue by its market value as at a date.

MARKET RISK
Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Bank’s income or the value of its holdings of financial instruments.

MATERIALITY
The relative significance of a transaction or an event, the omission or misstatement of which could influence the decisions of users of financial statements.

NET ASSET VALUE PER SHARE
Shareholders’ funds divided by the number of ordinary shares in issue.

NET-INTEREST INCOME (NII)
The difference between what a bank earns on assets such as loans and securities and what it pays on liabilities such as deposits, refinance funds and inter-bank borrowings.

NET INTEREST MARGIN (NIM)
Net interest income expressed as a percentage of the average of total assets.

NET STABLE FUNDING RATIO (NSFR)
NSFR is defined as the amount of Available Stable Funding (ASF) relative to the amount of Required Stable Funding (RSF).

NOSTRO ACCOUNT
A bank account held in foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate the settlement of foreign exchange trade transactions.

NON-CONTROLLING INTEREST
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly to a parent.

OPERATIONAL RISK
Operational risk refers to the losses arising from fraud, negligence, oversight, human error, process errors, system failures, external events, etc.

PARENT
A parent is an entity that controls one or more entities.

POWER
The Power is the existing rights that give the current ability to direct the relevant activities.

PRICE EARNINGS RATIO (P/E RATIO)
The current market price of the share is divided by the earnings per share of the Bank.

PROBABILITY OF DEFAULT (PD)
PD is an estimate of likelihood of default over a given time horizon.

PROJECTED UNIT CREDIT METHOD (PUC)
An actuarial valuation method that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method).

PRUDENCE
Inclusion of a degree of caution in the exercise of judgment needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

REPURCHASE AGREEMENT
This is a contract to sell and subsequently repurchase government securities at a given price on a specified future date.

RETURN ON AVERAGE ASSETS (ROA)
Profit after tax expressed as a percentage of average total assets, used along with ROE, as a measure of profitability and as a basis of intra-industry performance comparison.

RETURN ON AVERAGE EQUITY (ROE)
Profit after tax less preferred share dividends if any, expressed as a percentage of average ordinary shareholders’ equity.

REVENUE RESERVES
Reserves set aside for future distribution and investment.

REVERSE REPURCHASE AGREEMENT
Transaction involving the purchase of government securities by a bank or dealer and resale back to the seller at a given price on a specific future date.

RIGHTS ISSUE
Issue of shares to the existing shareholders at an agreed price, generally lower than market price.

RIGHT-OF-USE ASSET (ROU)
ROU asset is a lessee’s right to use an asset over the life of a lease. The asset is calculated as the initial amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received.

RISK-WEIGHTED ASSETS
Used in the calculation of risk-based capital ratios. The face amount of assets is discounted using risk weighting factors in order to reflect a comparable risk per rupee among all types of assets. The risk inherent in commitment & contingencies is also recognised, first by adjusting notional values to Statement of Financial Position (or credit) equivalents and then by applying appropriate risk weighting factors.

SEGMENTAL ANALYSIS
Analysis of financial information by segments of an enterprise specifically, the different industries and the different geographical areas in which it operates.

SHAREHOLDERS’ FUNDS
Total of issued and fully paid share capital and capital and revenue reserves.

STATUTORY RESERVE FUND
A capital reserve created as per the provisions of the Banking Act No. 30 of 1988.

SUBSIDIARY
A Subsidiary is an entity that is controlled by another entity.

SUBSTANCE OVER FORM
The consideration that the accounting treatment and the presentation in financial statements of transactions and events should be governed by their substance and financial reality and not merely by legal form.

TOTAL CAPITAL (CAPITAL BASE)
Capital base is summation of the core capital (Tier I) and the supplementary capital (Tier II).

TOTAL TIER I CAPITAL
Total Tier I Capital consists of Common Equity Tier I Capital (CET I) and Additional Tier I Capital (AT I).

TWELVE MONTH EXPECTED CREDIT LOSSES
The portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

UNIT TRUST
An undertaking formed to invest in securities under the terms of a trust deed.

USEFUL LIFE
Useful life is the period over which an asset is expected to be available for use by an entity or the number of production or similar units expected to be obtained from the asset by an entity.

VALUE ADDED
Wealth created by providing banking and other services less the cost of providing such services. The value added is allocated among the employees, the providers of capital, to government by way of taxes and retained for expansion and growth.

VOSTRO ACCOUNT
A local currency account maintained by a local bank for a foreign (correspondent) bank. For the foreign bank, it is a Nostro account. The domestic bank acts as custodian or manages the account of a foreign counterpart.

YIELD TO MATURITY
Discount rate at which the present value of future payments would equal the security’s current price.