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We are Solutions - Colombo Stock Exchange

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					                   Annual Report 2011




We are Solutions
We are Solutions...
Obstacles, problems appear from nowhere when you
least expect them. And, they come in different shapes,
hues and in between.

They, are not symetrical and sometimes the same that
was solved sometime ago does not react positively to that
‘time tested’ formula...

The shape does not fit the creavice of the same shape
any more.

And that type of issue demands creative thinking...how
to fit the round pegs in square holes. You need people
who think beyond the status quo. The people who will
explore, imagine and discover....a new way...forward,

...and that’s us.
Foreword...


We met the challenges of 2011 with strategies
and actions that reflected our core strengths and values.
We assure that your Company today, stands stronger and
firmly rooted than ever before.

In addition to providing financial services, we ventured
keenly into advisory role for the needy entrepreneurs,
because... thought leadership is our DNA.

We do not always rely on existing solutions, but continually
strive to find new and creative ways that can be adopted to solve
the challenges and obstacles that growing companies experience
in an ever vibrant and evolving competitive marketplace.
We guide them discover their unique strengths and find their
‘niche’ in the corporate corridors, classy superstores or the
hyperactive bazaar. If they have the will, we will provide them
with the knowledge and the tools.

Our professionals are both pioneers and stewards of the products
and services we provide, and the industries we serve...because
in the overall scheme of things, we believe that...

Markets change. Businesses evolve. Values endure.


                                        Board of Directors and Staff
 Following Pages




 Business Profile            Corporate Profile

4                            8
Vision, Mission and Values   Board of Directors



5                            10
                             Chairman’s Review
Our Products and Services

                             14
6                            Chairman’s Review - Sinhala
Financial Highlights
                             17
                             Chairman’s Review - Tamil


                             20
                             Message from Chairman -
                             Bank of Ceylon


                             22
                             Corporate Management


                             24
                             CEO’s Report
Corporate Reporting            Financial Reporting

28                             65                                88
                                                                 Notes to the Financial Statements
Management Discussion &        Annual Report of the Board of
Analysis                       Directors on the Affairs of the
                               Company
                                                                 114
34                             68                                Share & Debenture Information

                               Directors’ Responsibility for
Risk Management                Financial Reporting               116
36                             69
                                                                 Decade at a Glance


Sustainability Report          Report of the Remuneration
                               Committee                         118
46                                                               Statement of Value Added
                               70
Corporate Governance
                               Audit Committee Report
                                                                 119
61                                                               Economic/ Financial Indicators
                               71
Directors’ Statement on
Internal Control
                               Independent Auditors’ Report      120
                                                                 Contact Information
                               72
63                             Income Statement                  122
Independent Assurance Report                                     Our Team
                               73
                               Balance Sheet                     127
                                                                 Glossary of Financial Terms

                               74
                               Statement of Changes in Equity
                                                                 128
                                                                 Notice of Meeting

                               75                                Form of Proxy
                               Cash Flow Statement


                               76
                               Accounting Policies
Our      Vision
To be the most dependable and diversified Merchant Bank to the nation




Our     Mission
To   enhance our clients' wealth through optimal and sustainable solutions,
To   enhance shareholder value,
To   enhance knowledge and skills of employees to facilitate service excellence
To   foster mutually beneficial relationships with our business partners,
To   remain focused on our responsibilities towards social and national development,




Our     Values
In all our endeavours we will uphold the accepted norms, ethics and best policies,
Our quest for excellence will be guided by prudence and national interests,
We will foster intrapreneurship amongst our employees and create an atmosphere
where caring, openness and integrity will be valued.
Our Products & Services

 * Financial Lease * Hire Purchase * Operating Lease




 * Bills Discounting * Cheque Discounting * Term Loans
 * Project Loans * Bank Guarantees * Personal Loans
 * Real Estate/Property Development




 * Project Financing * Margin Trading Facilities
 * Debt & Equity Syndications * Project Structuring & Promotions
 * Corporate/Financial Restructuring * Feasibility Studies
 * Company/Business Valuations * Independent Opinions
 * Mergers and Acquisitions Management and Leverage Buy-outs
 * Employee Share Ownership Plans
 * Corporate & Business Plans * Consultancy Services
 * Structuring of Public Private Partnerships




 * Structuring and Acting as Managers & Registrars to
    Public Share/Debt Issues * Listing through Introductions
 * Private Placement of Equity and Debt
 * Rights Issues, Share Splits & Stock Dividends
 * Mandatory Offers * Underwriting * Listing of Debentures/Bonds
 * Islamic Capital Market Products * Managing De-listings
 * Portfolio Management/Investment Plans for Corporates & Individuals
 * Asset Securitization * Trustee Services




 * Incorporation of Companies
 * Share Ledger Management
 * Management of Dividend Payments
 * Acting as Registrars to Rights, Debt & Bonus Issues
AccomplishmIncome




                                              2,808
  LKR Mn
                                                      LKR Mn
                                                               Total Assets
   3,000




                                     2,596
                                                      25,000




                                                                                                  19,236
                            2,332
   2,500

                                                      20,000




                                                                                         14,424
                    1,648
   2,000
            1,444



                                                      15,000




                                                                                11,832
   1,500




                                                                        7,589
                                                      10,000
   1,000




                                                                6,803
    500                                                5,000



      0
            07      08      09      10*      11*          0
                                                                07      08      09       10       11

  * Includes only continuing operations
ments
 LKR Mn
          Interest Income
                                              2,309




                                                        LKR
                                                                 Net Assets per Share                    (Group)




                                                                                                      22.84
 2,500                                                      25




                                                                                             21.47
                                                                          20.42
                              1,996



                                      1,931




                                                                  18.93




                                                                                     18.65
 2,000                                                      20
                      1,550




 1,500                                                      15
              1,310




 1,000                                                      10




   500                                                       5




     0                                                       0
              07      08      09      10*     11*                 07      08         09      10        11


    * Includes only continuing operations




                                                                                                Company                                Group
                                                                                 2011              2010                2011             2010
                                                                               LKR'000           LKR'000             LKR'000          LKR'000


      Income                                                              1,559,222              1,522,980          2,807,560 *     2,595,680 *
      Interest income                                                     1,335,948              1,107,121          2,309,171 *     1,930,807 *
      Profit before taxation                                                443,367                650,708            591,043 *       795,608 *
      Net Profit after taxation                                             332,355                449,671           398,418          540,977
      Profit attributable to equity holders of the parent                   332,355                449,671           353,141          492,345



      Total    equity attributable to equity holders of the Company       2,842,798              2,679,193          3,082,790      2,898,399
      Total    liabilities                                                7,094,039              4,503,408         15,628,085     11,237,268
      Total    borrowings                                                 6,325,869              3,896,512         11,501,394      9,722,728
      Total    assets                                                     9,936,837              7,182,601         19,236,035     14,424,350
      Total    lending portfolio                                          7,638,959              5,383,538         12,667,040     10,515,274



      Return on equity                                                            11.69%             16.78%           11.46%           16.99%



      Earnings per ordinary shares (LKR)                                            2.46               3.33              2.62             3.65
      Net assets per ordinary shares (LKR)                                         21.06              19.85             22.84            21.47
      Share price (LKR)                                                            39.60              45.80             39.60            45.80

                                                                                                          * Includes only continuing operations
Chairman’s Review


My Dear Shareholder,

It is great to meet you once again to present your Company’s positive results of
2011. The year in general was conducive for business and we continued with a
cohesive business plan, though yet diverging at times, to adapt to changes in
the market place to capitalise on opportunities in core banking business that       ' The opportunities
offered sustainable development. For me, and my colleagues of the Board
and our staff, it was a synergistic harnessing of our collective imagination and    were already there
expertise to bring these results to you.
                                                                                    and, in order to be
Since taking over the responsibilities of Chairman I laid the foundation for good
governance and transparency as our ethos of operations, with prime responsibi -     ‘in place and visible’,
lity to Shareholders, Company, Employees and Stakeholders, and of course with
direct alignment to Government’s policy for national development.
                                                                                    we had to ‘jump start’
These are the fundamental principles that should govern any publicly or
                                                                                    a program to deploy
privately held organisation, but practiced only at several organizations. If
applied entirely and sincerely, I believe, the results will be awesome.
                                                                                    ourselves rapidly into
                                                                                    the market place...'
We pressed on our galloping run from 2010 into 2011 and reached several
milestones with diversified, but carefully identified objectives, and continued
2011 with increasing top line to historic levels, exclusively in core banking
businesses and raised the benchmark of efficiency to epic proportions that
none can match.

MBSL - Your Company

During 2011, MBSL revenue rose to LKR 1.6 billion and the profit stood at LKR 332
million, while Group Revenue amounted to LKR 2.8 billion and the Group profits
stood at LKR 353 million.

These results were good, but there were many factors; some considered and
some beyond our control, which hindered the bottom line we desired. One factor
was the unexpected collapse of the stock market and our fee based income
diminished due to handing over of the resurrected finance companies that we
rescued. The other was our own branch expansion, which you know that, we had
only eight branches by May 2010, but the capacity was lacking to compete
effectively. Lending rates were reduced to remain in the competitive market.
Although the interest margin thinned, it did result in an enhanced business
portfolio.

With the emergence of peace the climate for business changed
for better and our presence closer to the customers became
imperative. The opportunities were already there and, in order to be
‘in place and visible’, we had to ‘jump start’ a program to deploy
ourselves rapidly into the market place. By the end of 2011 we were
able to expand the network to 14 branches with an ambitious plan
to set up at least 30 Branches during year 2012 and I am pleased
to state that we achieved this task by 11th April. This exercise cost us
considerably and obviously, the immediate returns will be low and
slow. But, looking from hindsight, I am sure you will agree that this will
auger very well for the Company’s book balance in the longer run.
Our cumulative income will multiply in many folds during the years
to come. The other factor that caused escalation of costs was the
restructuring of the employee remuneration package, which they
richly deserved in order to eliminate prevailing anomalies and the expansion of
the corporate structure.

These steps were taken after careful deliberation, considering the future
betterment of the Company, shareholders, employees and the country. Instead of
focusing on short - term satisfaction of generating higher profits, we are
confident that the tangible long - range results will be far more attractive, and
the opportunities will be immense.


Group performance

The entire Group is now galvanised into a centric policy and it is heartwarming
to notice the success level rising at a steady rate as every member of the family
began shouldering the wheel collectively.
MBSL Insurance - a special note...

I am also very pleased to state that the performance of our subsidiary MBSL Insurance was exceptionally remarkable. Within a
short period they have raised the Company from dilapidated status to unprecedented profitability and especially the manner they
have risen to the occasion is applaudable. We at the Board take pride in acknowledging this fact and also would like to record the
astute and exemplary leadership of Mr. Sydney Gajanayake, and also in the same vein, our appreciation to those untiring young
men and women for their relentless discharge of duties at an admirable pace.

In the meantime, we have been able to successfully conclude a Private Placement of LKR 200 million, which will be an additional
benefit towards the progress of the business.

MBSL Savings Bank

Although, we have been able to manage the liquidity crisis of the MBSL Savings Bank and sustain the customer confidence, the
fast tracking of the resurrection could not be achieved within the expected time frame, due to inadequate capital requirement.
In the meantime, we have been able to enter into a Memorandum of Understanding with a consortium led by M/s Navara
Capital Limited to dispose our shareholding, who have confirmed to the Central Bank of Sri Lanka of their ability to meet the
capital requirement as required by the Central Bank regulations. This transaction will not only contribute to the bottom-line of
your company a sum of LKR 325 million, but also take care of the capital adequacy and the progress of the Savings Bank as well.

Improving efficiency and performance

As a measure of value addition to our services we took several strategic steps by setting up an Internal Audit Division, and employed
an AGM to head this division in order to gauge our performance consistently. In addition to maintaining proper accounting this
division will keep our books in strict adherence to statutory financial regulations to ensure good governance and transparency.

Also, we have set up a Marketing Division as well and a DGM in charge of Marketing to devise methods to sell our products and
services effectively in a hotly contested market place. We believe that these measures will help sustain profitability and continuity
in a broader sense.

It is true that as a business we must be profitable and sustain the momentum with care in application and of course, be vigilant
for opportunities and the risks as well. At the same time we must be mindful of the bigger picture: the national perspective.

To get closer to the needy who otherwise have no recourse

I firmly believe that our efforts must be focused in an egalitarian manner thus the fruits of labour will benefit not only the shareholders
and stakeholders, but will trickle down to the very grass roots of the nation.

There are many people who have ideas and talent but neither collateral for financing nor infrastructure to take off. We focused
into this segment as we noticed phenomenal promise. We have all assets that are necessary: be it project financing, knowledge
dissipation, or corporate advisory, which they will need as they progress.

From November 2010, a mere 43 personnel of Agro Development Financial Services (Pvt) Ltd, located at 13 places around the
country, with whom we have a MOU for joint operations to uplift micro financing, reached almost 3,000 customers mainly in
fishing, agriculture and small cottage industries disbursing over - LKR. 150 million. Amazingly, the recovery level, at the year - end
stood at 100%, with no defaulters. From any perspective or yardstick these are very good statistics. We are keenly looking at this
segment with plans to expand our services to a wider clientele of this sector. Be it a fisherman in Puttalum, a coconut cultivator in
Kurunegala, a poultry farmer in Kundasale or a batik designer in Hikkaduwa, they are same to us: Important.

They will be the new money in the emerging economy, and their contribution will be sizable. We are planning to be with them from
the very start of their enterprise and will stand by them, come what may. With the prevailing peaceful environment this segment
will grow faster than expected as the government’s domestic agenda is directly addressing this audience. The infrastructure
development drive will generate more and more cottage industrialists who were denied opportunities due to vagaries of war.

The Micro finance project was launched taking our obligations towards the nation’s development into account, and it had a
direct impact on our bottom line in 2011. However, the value added to over three thousand downtrodden people will manifestly
accrue to the real income of the economy in a broader and realistic perspective.

Today people of these parts have emerged with either their traditional trade crafts or many new enterprises that will have a
potential market place either locally or internationally. Our personnel will perpetually be with them solving their problems and
assisting their growth as our policy is to make steady gains serving the entire nation while making reasonable profits from this
promising and fast growing segment.

30 Branches: 30th Anniversary

As we celebrate our 30th Anniversary in March 2012, our rapid branch expansion that took place was a culmination of a considered
business plan executed with meticulous precision.

It is imperative that we should be where the real action is: wide across the country. We now have put the mechanism in place to
locate ourselves near the customer and several key centres are already identified for immediate deployment.

We are also looking forward to rejuvenate an alliance we had with SBI Capital (a subsidiary of State Bank of India) to give a new
lease of life to our Fee Based Income activities. Our joint operations will mainly focus on the short listed projects of the Government’s
National Physical Plan to conduct feasibility studies and find investors. This will open doors for us to invest into government projects,
and in addition to help the Macro - economy of the country in a more grand scale. These projects undoubtedly will assist the
Government’s plans to elevate the income and living standards of the rural folks, who otherwise and by default depend on
Government subsidies.
In this endeavour we wish to express our gratitude to the Secretary and the Officials of the Ministry of Finance for
their unstinted support and working ‘hand - in - hand’ with us using our expertise and resources to help materilaise
those projects.


Social Responsibility

This is one area we have been somewhat active but not enough, I believe. We have helped many causes but the
engagement was, noticeably, few and far apart.

It is time that we took steps to be of service to the nation purely as a socially responsible entity per se. Making profits
and sharing dividends with the shareholder is the fundamental, but not the only purpose that a business venture
should stand for. No doubt, you will agree with me that there are times that direct intervention on a national cause
is a considered spending.

As of late we have identified a rural hospital in Kabithigollawa (former Army Hospital), which was falling apart, to be
transformed in to a full-scale central hospital for the people of that area. We have engaged competent personnel
to execute this venture without delay. Also, plans are underway to identify several schools that are in dire need of
uplifting.

‘Co – opertition’…we expect to be a profitable and also be a True Corporate Citizen.

I also have another dream that I pursue relentlessly. I expect to see a day, which we in the business, compete fairly
in the market place as adversaries, not as enemies. I expect to see the day that we all can cross check and cross
deck our resources to elevate the financial industry to higher moral plateau. That is the day I believe, we all can say
that we have come of age as a ‘Fair Trading Culture’. This I know is a lofty thought, but I hope that when honourable
Business Captains can sit and achieve ‘meeting of minds through co - opertition’ my dream may well become a
reality.


In conclusion.

As always our staff have measured up fully to the task and delivered tremendously. As it is my nature I always will
fight their corner to give them encouragement, due recognition and look forward to see them excel in their career
goals. I would like to take this moment to thank my colleagues of the Board for their immense wisdom helping me
charting the Company’s path to success, the CEOs of the Group for their tenacity in directing staff to achieve desired
results and our Shareholders; our greatest strength who have been with us through comfortable and difficult times
without hesitation.

I also would like to take this opportunity to thank the Chairman, the Board, and the Senior Officials of Bank of Ceylon
for their sound advice and boundless support.

My sincere gratitude is extended to the Merchant Bank Branch of the CBEU, who played a pivotal role in assisting the
Company to achieve its goals. The unselfish manner they discharged their duties, I believe, is applaudable.

As you know we are on a roll, and will continue further. I will do everything that is humanly possible, not only to make
MBSL profitable, but also achieve revered status among the Sri Lankan corporate sector.

Looking forward to meet you next year representing MBSL proudly, which indubitably will be a truly respected
Corporate Citizen of Sri Lanka.




M.R.Shah
Chairman
iNdm;s;=udf.a iudf,dapkh
jiytupd; kPsha;T
vd; md;gpw;Fupa gq;FupikahsHfNs!


2011 k; Mz;bl;fhd ngUNgWfis Kd;itg;gjw;F cq;fis kPz;Lk; re;jpg;gijapl;L ehk; ngU kfpo;r;rp milfpd;Nwd;. nghJthf fle;j
Mz;L tHj;jf eltbf;iffSf;F rhjfkhdnjhU Mz;lhfNt ,Ue;jJ. ehKk; cWjpahd jpl;lq;fSld;> re;ijapy; Vw;gl;L te;j
Vw;wjho;TfisAk; ftdj;jpy; nfhz;l tz;zk;> epiyahd tsHr;rpia vkf;F ngw;Wj; je;j ekJ tq;fpr; nraw;ghLfs; ekf;F mspj;j
tha;g;Gfis kpf rpwg;ghf gad;gLj;jp mjp $ba gad;fis mile;J nfhz;Nlhk;. FOf;fshf rpe;jpf;fg;gl;l tplaq;fs; epGzj;Jt mwpTld;
rpwe;j Kiwapy; xd;wpizf;fg;gl;ljd; ntspg;ghlhfNt ehDk;> ,af;FdH rigAk; vkJ mYtyH FOTk; ,t;ntw;wpia fhz;fpd;Nwhk;.

ehd; jiytuhf nghWg;Ngw;wJ Kjy; epWtdj;jpd; gq;F cupikahsHfs; kw;Wk; gzpGwpNthH cl;gl;l midtuJ eyidAk; ftdj;jpy;
nfhz;lthW Njrpa mgptpUj;jpapd; ghy; mf;fiw nrYj;jp tUk; murpd; nfhs;iffSld; xd;wpize;jthW rpwe;j epHthfk;> xopTkiwtw;w
jd;ik Nghd;w tplaq;fs; vkJ nraw;ghLfspd; Kf;fpa mk;rq;fshf njhlHe;Jk; ,Ug;gjw;Fj; Njitahd mbj;jyj;ij cUthf;f ehd;
ghLgl;L te;Njd;.

mur epWtdq;fsfl;Lk; my;yJ jdpahH Jiw epWtdq;fshfl;Lk;> mit ntw;wpfukhf nraw;gLtjw;F mDgtg+Ht epajpfs; rpy cs;sd.
,Ug;gpDk;> mtw;iw kpf nrhw;gkhd epWtdq;fNs gpd;gw;Wfpd;wd. mt;twpTiufs; rupahd Kiwapy; gpd;gw;wg;gl;lhy; gpuk;khz;lkhd
ntw;wpfis milayhk; vd;gJ vd;Dila jplkhd ek;gpf;ifahFk;.

2010 Muk;gk; Kjy; 2011 Mz;bl;Fs; gpuNtrpg;gJ tiu ,Ue;j vk;Kila Ntfkhd ntw;wpg; gazj;ij njhlHe;jthW> ,dq;fhzg;gl;l
,yf;Ffis Nehf;fp ehk; tPW eil Nghl;Nlhk;. mt;ntw;wpg; gazj;ij 2011 Mz;L KOtJk; njhlHe;jthW tq;fpj;Jiwapd; fPo; kw;Wk; Nky;
jsq;fspy; tuyhW fhzhj rhjidfis Gwpe;j tz;zk; nraw; jpwDf;fhd Gjpa tiutpsf;fzq;fis ehk; cUthf;fpNdhk;.

MBSL - cq;fs; epWtdk;

2011 k; Mz;by; MBSL tUkhdk; & 1.6 gpy;ypadhf ,Ue;jJld; mt;thz;L ngw;w ,yhgk; & 332 kpy;ypadhf ,Ue;jJ. mNj Ntis
FOkj;jpd; nkhj;j tUkhdk; &. 2.8 gpy;ypadhfTk; ,yhgk; &. 353 kpy;ypadhfTk; gjpthfpaJ.


,g;ngUNgWfs; XusT jpUg;jpfukhf ,Ue;j NghjpYk; ftdj;jpy; nfhs;s Ntz;ba rpy tplaq;fSk; ,Ue;jd. mt;tplaq;fs; njhlHghd
fl;Lg;ghLfspy; rpy ek;Kila MSiff;F cl;gl;bUe;jJld; NkYk; rpy vk;Kila MSiff;F mg;ghl;gl;bUe;jd. ,jdhy; Vw;gl;l rpy
jilfs; fhuzkhf ,f;fhyl;lj;jpy; ehk; vjpHghHj;jpUe;j tsHr;rpfis fPo; kl;l nraw;FOtpdhy; mila Kbahky; NghdJ. gq;Fr; re;ijapy;
Vw;gl;l vjpHghuhj tPo;r;rp kw;Wk; ek;khy; kPl;fg;gl;L Gj;JapH mspf;fg;gl;l epjp epWtdq;fs; rpytw;iw kPs xg;gilj;jjd; fhuzkhf fl;lzk;
t#opf;Fk; Jiwapy; ekf;F Vw;gl;l tUtha; ,og;G Mfpatw;iw mj;jilfspy; rpyjhf ,q;F Fwpg;gplyhk;. ,tw;Wld; kw;WnkhU Kf;fpa
tplaj;ijAk; ,q;F Fwpg;gpl Ntz;Lk;. mJ> ekJ fpis tiyaikg;ig tpupthf;Ftjw;F ehk; Nkw;nfhz;l nraw;ghlhFk;. 2010 k; Mz;lstpy;
vkf;F nrhe;jkhf ,Ue;j fpisfspd; vz;zpf;if ntWk; 8 Mf ,Ue;jij ePq;fs; mwptPHfs;. NkYk; nraw; jpwDld; ,j;Jiwapy;
nraw;gLtjw;F ,t;ntz;zpf;if NghJkhdjhf ,Uf;ftpy;iy. ,j;Jld; Jiwapy; ePbj;jpUg;gjw;fhf vk;Kila tl;b tPjq;fis Fiwf;Fk;
fl;lhaKk; vkf;F Vw;gl;l xU vjpHkiw epiyahFk;. ,jd; fhuzkhf tl;b msT rpwpjhd NghJk;> mjdhy; FOkj;jpd; xl;L nkhj;j tiuglk;
NkYk; ftHr;rpfukhf khwpaJ vd;gijAk; ,q;F ftdj;jpy; nfhs;s Ntz;bAs;sJ.


ehl;by; rkhjhdk; Njhd;w Muk;gpj;jTld; tHj;jfj; JiwAk; Gj;JapH ngw Muk;gpj;jik fhuzkhf thbf;ifahsHfSf;F ,d;Dk; rkPgkhFtJ
ekf;F rhj;jpakhapw;W. mjd; NghJ gy Gjpa tha;g;Gf;fSk; cUthfpajhy; rupahd ,lj;jpy; rupahd jUzj;jpy; vk;ik epiy epWj;jpf;
nfhs;tJ ,d;wpaikahjjhfpaJ. ,jd; epkpj;jk; mtru jpl;lg; gzpnahd;iw nraw;gLj;JtJk; mtrpakhapw;W.

2012 Kbtpy; Fiwe;j gl;rk; 30 fpisfisNaDk; mikg;gJ vd;w ,yl;rpaj;Jld; 2011 Mz;bw;Fs; 14 Mf vkJ fpisfspd; vz;zpf;if
caHj;jg;gl;lJ. vdpDk; ,j;jpl;lg; gzpf;fhf ehk; ngUksT epjpia nryT nra;a Ntz;bapUe;jJld; mjd; ngUNgWfis ehk; ngUtjw;Fk;
rpy fhyk; nry;Yk; vd;gijAk; kWg;gjw;fpy;iy. ,Ue;j NghjpYk;> J}uNehf;Fld; Nkw;nfhs;sg;gl;l ,t;tpupthf;fy; nraw;ghL ePz;l fhy
mbg;gilapy; vkJ epWtdj;jpd; gyj;ij NkYk; mjpfupf;fr; nra;Ak; vd;gjpy; khw;W fUj;J ,Uf;f KbahJ. NkYk; ,jd; fhuzkhf
vjpHfhyj;jpy; vkJ tUkhdk; gy klq;F caHtilAk; vd;gJk; epr;rak;.



epjp nrytplg;gl;l kw;WnkhU gpupthf gzpahsH nfhLg;gdT nghjpia ,q;F Fwpg;gplyhk;. ,Ue;jhYk;> jw;NghJs;s rpy khw;wq;fi
,y;yhnjhopg;gjw;Fk;> vk;Kila epWtdf; fl;likg;ig NkYk; tpupthf;Ftjw;Fk;> vkJ gzpahsHfspd; ed;ikia fUj;jpy; nfhs;Sk; NghJk;
,k;Kd;ndLg;G xU fl;lha eltbf;if vd;gjpy; fUj;J NtWghL ,Uf;f KbahJ.

NkYk;> mjpf ,yhgk; <l;lf; $ba Mdhy; FWq;fhy nraw;ghLfSf;F gjpyhf epWtdj;jpd;> mjd; gq;FjhuHfspd; kw;Wk; mjd; gzpahsHf-
spd; ePz;L epiyj;jpUf;ff; $ba vjpHfhy ed;ik fUjpNa ,k;KbTfs;> gythW MNyhridfs; nra;jjd; gpd; kpff; ftdkhf vLf;fg;gl;ld.
,jd; %yk; vjpHfhyj;jpy; ehk; milAk; ew;gad;fs; kpfTk; ftHr;rpfukhditahf ,Ug;gJ kl;Lkd;wp mit vz;zpf;ifapYk; mjpfkhtJk;
jpz;zk;.

FOkr; nraw;jpwd;

xUq;fpizf;fg;gl;l xNu Fwpf;Nfhis Nehf;fkhff; nfhz;L jw;rkak; FOkk; KOtJk; jd;id jpir jpUg;gp ,Uj;jy; fhuzkhf ekJ
ntw;wpapd; msTfs; njhlHr;rpahd tsHr;rpia fhl;b tUtJ vkf;F kpf kfpo;r;rpia jUfpd;wJ.

MBSL ,d;#ud;]; gw;wpa xU tpNrlf; Fwpg;nghd;W…

vkJ Jiz epWtdkhd MBSL ,d;#ud;]pd; fle;j epjp Mz;bl;fhd nraw;ghL ghuhl;Lk; tpjj;jpy; ,Ue;jikia ,q;F Fwpg;gpl;lhf
Ntz;Lk;. kpfTk; gytPdkhd xU epWtdkhf ,Ue;j MBSL ,d;#ud;]; epWtdj;ij xg;gPl;L mbg;gilapy; FWfpa fhyj;jpw;Fs; xU
ntw;wpfukhd fhg;GWjp epWtdkhf caHj;Jtjpy; mjd; mjpfhupfs; ntw;wp fz;Ls;sdH. Fwpg;ghf MBSL ,d;#ud;]pd; epiwNtw;w ,af;fdH
jpU. rpl;dp f[dhaf;f mtHfspd; Kd;khjpupahd epHthfk; kw;Wk; mtUila kjpEl;gkk; kpf;f nraw;ghl;L Mw;wiy ehk; ghuhl;Lfpd;Nwhk;.
mNj Nghd;W xg;Gtik mw;w <Lghl;Lld; me;epWtdj;jpd; ,sk; gzpahsHfs; nraw;gl;L tUk; tpjj;ijAk; ehk; ,q;F tpNrlkhf Fwpg;gpl
tpUk;Gfpd;Nwhk;.
       nraw;ghl;ilAk; nraw;jpwidAk; Nkk;gLj;jy;
nraw;ghl;ilAk; nraw;jpwidAk; Nkk;gLj;jy;
       ,Nj Ntis vkJ nraw;ghLfSf;F ngWkjp NrHf;Fk; eltbf;iffs; rpyTk; ,f;fhyfl;lj;jpw;Fs; vLf;fg;gl;ld. vkJ epWtdq;fspd;
       nraw;ghLfis ,iltplhJ fz;fhzpg;gjw;F cs;sf fzf;fha;T gpupnthd;iw ehk; epWtp mjw;F Jizg; nghJ KfhikahsH xUtiuAk;
,Nj Ntis vkJ nraw;ghLfSf;F ngWkjp NrHf;Fk; eltbf;iffs; rpyTk; ,f;fhyfl;lj;jpw;Fs; vLf;fg;gl;ld. vkJ epWtdq;fspd;
       epakzk; nra;jikAk; ,jpy; cl;gLk;. ek; epWtdq;fs; muR epHzapj;Js;s tHj;jf rl;l jpl;lq;fs; mbg;gilapy; rpwpJk; gprfhky;
nraw;ghLfis ,iltplhJ fz;fhzpg;gjw;F cs;sf fzf;fha;T gpupnthd;iw ehk; epWtp mjw;F Jizg; nghJ KfhikahsH xUtiuAk;
       nrayhw;Wtij cWjp nra;J tUtJ ,g;gpuptpd; gpujhd flikahFk;.
epakzk; nra;jikAk; ,jpy; cl;gLk;. ek; epWtdq;fs; muR epHzapj;Js;s tHj;jf rl;l jpl;lq;fs; mbg;gilapy; rpwpJk; gprfhky;
nrayhw;Wtij cWjp nra;J tUtJ ,g;gpuptpd; gpujhd flikahFk;.
       mNj rkak; tpw;gid gpupT xd;iwAk; ehk; epWtpAs;sNjhL mjd; nghWg;ig xU gjpy; nghJ KfhikahsUf;F je;Js;Nshk;. ehSf;F ehs;
       jPtpukile;J tUk; Nghl;b #oypy; vkJ jahupg;Gfs; kw;Wk; NritfSf;fhd Nfs;tp njhlHe;J ,Ug;gij cWjp nra;tJ ,g;gpuptpd;
mNj rkak; tpw;gid . gpupT xd;iwAk; ehk; epWtpAs;sNjhL mjd; nghWg;ig xU gjpy; nghJ KfhikahsUf;F je;Js;Nshk;. ehSf;F ehs;
       nraw;ghlhFk;
jPtpukile;J tUk; Nghl;b #oypy; vkJ jahupg;Gfs; kw;Wk; NritfSf;fhd Nfs;tp njhlHe;J ,Ug;gij cWjp nra;tJ ,g;gpuptpd;
nraw;ghlhFk;. Nehf;Fs;s xU tHj;jf mikg;G vd;w mbg;gilapy; ngUNgWfs; gw;wp mjpfk; ftdk; nrYj;JtjhdJ ,j;Jiwapy;
       ,yhg
        epiyj;jpUg;gjw;Fj; Njitahd xU Kf;fpa tplak; vd;wpUe;j NghjpYk; Gjpa tha;g;Gfs; gw;wpAk; - mit XusT Mgj;Js;sitahf
        Nehf;Fs;s ehk; tHj; hzpg; mikg;G vd;   mbg;gilapy; ngUNgWfs; gw;w mjpfk; ftdk; nrYj; pAk; ehk;
,yhg ,Ue;jhYk; - xU fz;fjf Gld; ,Uj;jy; wmtrpakhFk;. mj;Jld; Njrpa Nehf;Fp vd;w tpupthd rpj;jpuk; gw;wJtjhdJvd;,j;Jiwapy; Gld;
                                                                                                                     Wk; mtjhdpg;
        ,Uj;jy; fl;Njitahd
epiyj;jpUg;gjw;Fj; lhakhFk;. xU Kf;fpa tplak; vd;wpUe;j NghjpYk; Gjpa tha;g;Gfs; gw;wpAk; - mit XusT Mgj;Js;sitahf
,Ue;jhYk; - ehk; fz;fhzpg;Gld; ,Uj;jy; mtrpakhFk;. mj;Jld; Njrpa Nehf;F vd;w tpupthd rpj;jpuk; gw;wpAk; ehk; vd;Wk; mtjhdpg;Gld;
,Uj;jy; fl;lhakhFk;.
       khw;W topaw;NwhUf;F cjtp nra;jy;

                         cjtp nra;j
khw;W topaw;NwhUf;Fnraw;ghLfSk;y; gf;frhHgw;witahf rdehaf mbg;gilapy; cs;sitahf ,Uj;jy; Ntz;Lk; vd;gJ vd;Wk; vd;Dila
         ekJ rfy
         epiyg;ghlhf ,Ue;J te;Js;sJ. ekJ epWtdj;jpd; ngUNgWfs; mjd; gq;fhsHfis khj;jpuk; nrd;wilahky; r%fj;jpy; filepiyapy;
         cs; shiuAk; nrd; gf;frhHgw;witahf
ekJ rfy Nnraw;ghLfSk;wiljy; mtrpakhFk;. rdehaf mbg;gilapy; cs;sitahf ,Uj;jy; Ntz;Lk; vd;gJ vd;Wk; vd;Dila
epiyg;ghlhf ,Ue;J te;Js;sJ. ekJ epWtdj;jpd; ngUNgWfs; mjd; gq;fhsHfis khj;jpuk; nrd;wilahky; r%fj;jpy; filepiyapy;
         rpwg;g nrd;w lq;fSk; Mw;wy;fSk; jk;kplk; ,Ue;Jk; mtw;iw ntspg;gLj;Jtjw;Fj; Njitahd epjp cl;gl;l Vida xj;Jiog;Gfs;
cs;NshiuAk;hd jpl;iljy; mtrpakhFk;.
         toq;FNthH ,y;yhjjd; fhuzkhf tpuf;jpAw;w epiyapy; ,Ug;gtHfs; gyH ekJ r%fj;jpy; cs;sdH. mt;thwhdtHfSf;Fj; Njitahd epjp
           jpl;l jpl;l    Mw;w jYf;f   epGzj; ,Ue; Nghd;w gy trrjpfs; ek; Jtjw;Fj; Njitahd jFjp cilnahUf;F xj;Jiog;Gfs;
rpwg;ghd kw;Wk; q;fSk;topelj;y;fSk;hdjk;kplk; Jtk; Jk; mtw;iw ntspg;gLj;kplk; cs;sJ. mtw;iw epjp cl;gl;l Vida nfhLj;J cjTtjhy;
         kiwe;J yhjjd; fhuzkhf tpuf;jpAw;w wp ek; epWtdKk; gy gyH ekJ r%fj;jpy; tha;g dH. gy hwhdtHfSf;Fj; Njitahd epjp
toq;FNthH ,y;s;s mj;jpwikrhypfs; kl;Lkpd;epiyapy; ,Ug;gtHfs; mD$yq;fis ngWk; cs;s;Gfs; mt;tcs;sd.
kw;Wk; jpl;l topelj;jYf;fhd epGzj;Jtk; Nghd;w gy trrjpfs; ek;kplk; cs;sJ. mtw;iw jFjp cilnahUf;F nfhLj;J cjTtjhy;
         ,t; mj; g pwikrhypfs; kl;Lkpd;w ek; ehk; Muk; k; mD$yq; epjp ngWk; tha; ;Gfs; gy cs;sd.
kiwe;Js;s tbg;jilapy; 2010 k; etk;gH p khjk;epWtdKk; ggy nra;j Ed; fis nraw;ghl;by;gJtf;fj;jpy; ,yq;ifapd; xU rpy gFjpfisr; NrHe;j 43
         rpW njhopyhd;ikahsHfNs ,ize;jhYk;> mJ jw;NghJ RkhH 3000 njhopyhd;ikahsHfisf; nfhz;l> &. 150 kpy;ypaidAk; fle;Js;s
         epjpg;Gsf; 2010 k; s xU ghupa nraw;ghlhf nra;j Ed; ehlshtpa tpjj; Jtf; d;gpb> ,yq;ifapd; xU njhopy; Nghd; gy Jiwfspy;
,t;tbg;gilapy; fk; cs;etk;gH khjk; ehk; Muk;gk; khwpAs;sJ. epjp nraw;ghl;by;jpy;> kPfj;jpy; tptrhak;> Fbirj;rpy gFjpfisr;w NrHe;j 43
rpW njhopyhd;ikahsHfNs j,ize;jhYk;> mJ jw;NghJJ RkhH 3000 njhopyhd;ikahsHfisf; nfhz;l> &. 150 kpy;ypaidAk; fle;Js;s
         nraw;gLgtHfs; ,j; plj;jpd; Clhf gad; mile; tUfpd;wdH.
epjpg;Gsf;fk; cs;s xU ghupa nraw;ghlhf khwpAs;sJ. ehlshtpa tpjj;jpy;> kPd;gpb> tptrhak;> Fbirj; njhopy; Nghd;w gy Jiwfspy;
         ,jpy; cs;s kw;WnkhU tpNrlk; mile;J tUfpd;w Ed;
nraw;gLgtHfs; ,j;jplj;jpd; Clhf gad; vd;dntdpy;> ekJ dH. epjpr; Nrit %yk; mD$yk; ngw;w vtUNk jd;Dila jtidfis nrYj;Jk;
         tplaj;jpy; jtwpaJ fpilahJ vd;gjhFk;. mjhtJ flid kPs; nrYj;jy; tPjhrhuk; 100 % vd;w tPjj;jpy; ,Ue;J tUfpd;wJ ,jd;
         fUj; kw;W vt;t tpNrlk; vd;dntdpy;> ekJ rhjid vd;Nw $w mD$yk; ngw;w                   NkYk; cw;rhfk; jtidfis ekJ k;
,jpy; cs;sjhFk;.nkhU hW Nehf;fpdhYk; ,ij xU Ed;epjpr; Nrit %yk; Ntz;Lk;. ,jdhy;vtUNk jd;Dila mile;j ehk;> nrYj;JEd;epjpr;
         Nraw;ghLfis NkYk; vd;gjhFk;. F tpupthf;f jpl; kPs; nrYj; .
tplaj;jpy; jtwpaJ fpilahJgy JiwfSf;mjhtJ flidlkpl;Ls;Nshk;jy; tPjhrhuk; 100 % vd;w tPjj;jpy; ,Ue;J tUfpd;wJ ,jd;
fUj;jhFk;. vt;thW Nehf;fpdhYk; ,ij xU rhjid vd;Nw $w Ntz;Lk;. ,jdhy; NkYk; cw;rhfk; mile;j ehk;> ekJ Ed;epjpr;
         Gj;jsj;NkYk; gy k; xU kPdtuhfl;Lk;f jpl;lkpl;Ls; cs;.
Nraw;ghLfis jpy; ,Uf;FJiwfSf;F tpupthf;> FUdhfypy; Nshk;s xU njq;F cw;gj;jpahsH Mfl;Lk; my;yJ xU Fz;lrhiy tptrhapNah>
         `pf;fLitapy; ,Uf;Fk; \gbf;| fiyQH Mfl;Lk; mtHfs; midtUk; vk;ik nghWj;j tiuapy; xNu tpj Kf;fpaj;Jtk; cs;s kpfTk;
         ngWkjptha;e thbf;ifahsHfNs. Kd;Ndw;w mile;J njq; ek; ehl;Lg; nghUshjhuj;j my;yJ xU Fz; rhiy tptrhapNah>
Gj;jsj;jpy; ,Uf;Fk; ;jxU kPdtuhfl;Lk;> FUdhfypy; k;cs;s xU tUk; F cw;gj;jpahsH Mfl;Lk; pd; vjpHfhy gyNk l,tHfNsahtJld;> Njrpa
         nghUshjhuj; Fk; ,tHfSila Mfl;Lk; kpfTk; midtUk; vk;i ,Uf;Fk; j tiuapy; xNu tpj Muk;gk; Kjw; cs;s mtHfSld;
`pf;fLitapy; ,Uf;jpw;F \gbf;| fiyQH gq;fspg;Gk; mtHfs;gpuk;khz;lkhdjhf k nghWj;vd;gJk; epr;rak;. vdNtKf;fpaj;Jtk; nfhz;L kpfTk;
         rkPgkhf ,Ue;J mtHfSf;F Kd;Ndw;wk; rfy xj; tUk; ek; kw;Wk; nghUshjhuj; is toq;f ehk; jpl; ,tHfNsahtJld;> Njrpa
ngWkjptha;e;j thbf;ifahsHfNs. j; Njitahdmile;J Jiog;Gfs; ehl;Lg; top elj;jy;fjpd; vjpHfhy gyNklkpl;Ls;Nshk;.
nghUshjhuj;jpw;F ,tHfSila gq;fspg;Gk; kpfTk; gpuk;khz;lkhdjhf ,Uf;Fk; vd;gJk; epr;rak;. vdNt Muk;gk; Kjw;nfhz;L mtHfSld;
          ,Ue; tUk; rkhjd Njitahd rfy xj;Jiog;G Jiw Wk; mjpfk; jy; l;Ls; toq; ehk; jpl;lkpl;Ls;Nshk;.
rkPgkhf epytp J mtHfSf;Fj;#oypy; murpd; ftdKk; ,j;fs; kw;kPJ top elj;Vw;gfissjhy;>f rpW njhopyhd;ikahsHfs; JiwahdJ xU rpyH
         vz;Ztijg; Nghyy;yhky; ghupa tsHr;rp fhZk; vd nghUshjhu epGzHfs; vjpHT njuptpf;fpd;wdH. Aj;j #oy; mtHfSf;F ju kWj;jpUe;j
         gy rkhjd #oypy; murpd; ftdKk; ,j;Jiw kPJ cUthfpAs; l;jhy; ntF rpW njhopyhd; pfukhd Fbirj; njhopy;f xU rpyH
epytp tUk; tha;g;GfisAk; trjpfisAk; jw;NghJ ngWk; epiy mjpfk; Vw;gsLs;sjhy;> tpiutpy; ntw;wikahsHfs; JiwahdJ spd; vz;zpf;if
         mjpfupf;Fk; yhky; ek;gpf; tsHr;rp fhZk; vd wJ.
vz;Ztijg; Nghyy;vdTk; ghupa if njuptpf;fg;gLfpd;nghUshjhu epGzHfs; vjpHT njuptpf;fpd;wdH. Aj;j #oy; mtHfSf;F ju kWj;jpUe;j
gy tha;g;GfisAk; trjpfisAk; jw;NghJ ngWk; epiy cUthfpAs;sjhy; ntF tpiutpy; ntw;wpfukhd Fbirj; njhopy;fspd; vz;zpf;if
         ,t; vdTk; ek;g Njrj;jpd; fg;gLfpd;w
mjpfupf;Fk; tbg;gilapy;pf;if njuptpf;nghUshjhuJ. nraw;ghl;bl;fhd ekJ gq;fspg;ghfTk; Kd;ndLf;fg;gl;l ,r;nraw;ghlhdJ> 2011 ekJ epjp
         nraw;ghLfspYk; Fwpg;gplj;jf;fNjhU khw;wj;ij NeubahfNt Vw;gLj;jpAs;sJ. ,j;Jld; nghUshjhu uPjpahf xJf;fg;gl;bUe;j RkhH 3000
         NgUf;F Njrj;jpd; Mj;k jpUg; nraw;ghl;bl; ngw; Nkyjpf ,yhgkhFk;
,t;tbg;gilapy; cjtp Gwpe;j nghUshjhu gjpahdJ ehk;fhd wekJ gq;fspg;ghfTk; . Kd;ndLf;fg;gl;l ,r;nraw;ghlhdJ> 2011 ekJ epjp
nraw;ghLfspYk; Fwpg;gplj;jf;fNjhU khw;wj;ij NeubahfNt Vw;gLj;jpAs;sJ. ,j;Jld; nghUshjhu uPjpahf xJf;fg;gl;bUe;j RkhH 3000
         cjtp ehk; Mj;k toq; jpahdJ ehk; ngw;w Nkyjpf mtutuJ
NgUf;F jw;NghJGwpe;j Ed;epjp jpUg;gfpAs;s njhopyhd;ikahsHfs; ,yhgkhFk;.Gtpg; gpuNjrq;fSf;Nf cupj;jhd njhopy; nraw;ghLfspy; Nghd;Nw Gjpa
         njhopy; jpl;lq;fspYk; <Lgl;L tUfpd;wdH. ,tHfsJ cw;gj;jpfSf;F cs;ehl;by; kw;Wkpd;wp ntsp ehLfspYk; re;ij tha;g;Gfis ngWk;
          ehk; ,Ug;g toq;fpAs;s njhopyhd;i Njrj;jpw;      ekf;Fs; Gtpg; gpuNjrq;fSf;Nf cupj;jhd njhopy; nraw; ,j;njhopyhd;i Nw Gjpa
jw;NghJ epiy Ed;epjp Jk; fz;lwpag;gl;Ls;sJ. kahsHfs;FmtutuJ s flg;ghLfis epiwNtw;Wk; mbg;gilapy;> ghLfspy; Nghd;kahsHfSf;Fj;
         jpl;lq;fspYk; <Lgl; J tUfpd;wdH. vkJ epGzHfs; jpfSf; ehk; njhlHe;J toq;fp wp ntsp ehLfspYk; re;ij tha;g;Gfis ngWk;
njhopy; Njitahd rfy xj;L iog;GfisAk; ,tHfsJ cw;gj;Clhf F cs;ehl;by; kw;Wkpd;tUfpd;Nwhk;.
epiy ,Ug;gJk; fz;lwpag;gl;Ls;sJ. Njrj;jpw;F ekf;Fs;s flg;ghLfis epiwNtw;Wk; mbg;gilapy;> ,j;njhopyhd;ikahsHfSf;Fj;
         30 rfy xj;J 30 tJ Mz;L epiwT
Njitahd tJ fpis iog;GfisAk; vkJ epGzHfs; Clhf ehk; njhlHe;J toq;fp tUfpd;Nwhk;.

        2012   Mz;L khHr; epiwT
30 tJ fpisk;30 tJ Mz;L30 k; jpfjp vkJ FOkjj;jpd; 30 tJ Mz;L tpohit nfhz;lhLk; mNj Ntis vkJ 30 tJ fpisia jpwg;gjw;fhd
        Vw;ghLfisAk; ehk; Nkw;nfhz;L tUfpd;Nwhk;. ,J kpfTk; ftdkhfTk; rPupa Nehf;FlDk; Nkw;nfhs;sg;glTs;sJ. ekJ nraw;ghLfis
        jpwikahf Nkw; jpfjp vkJ nghWj;jkhd jUzj;j L           nghWj; nfhz; ,lj;jpy; ehk; epiynfhz;b fpisia jpwg;gjw;fhd
2012 k; Mz;L khHr; 30 k;nfhs;tjw;F FOkjj;jpd; 30 tJ Mz;py; tpohit jkhd lhLk; mNj Ntis vkJ 30 tJ Ug;gJ fl;lhakhFk;. vkJ
        thbf;i ehk; Nkw;nfhz;L rkPgkhf ,Ug;gjw; hd xU jpl;lk; jw;N rPupa Nehf;F gl;Ls; Nkw;nfhs;sg;glTs; ehk; ekJ nraw;ghLfis
Vw;ghLfisAk; fahsHfSf;F kpf tUfpd;Nwhk;. ,J fkpfTk; ftdkhfTk; ghNj tFf;fg;lDk; sJld;> mtrukhf sJ. epiynfhz;bUf;f Ntz;ba
        Nfe; Nkw;n faj;Jtk;
jpwikahf jpu Kf;fhs;tjw;F tha;e;j gFjpfs; rpy ,dq;fhzg;gl;Ls;sd.
                              nghWj;jkhd jUzj;jpy; nghWj;jkhd ,lj;jpy; ehk; epiynfhz;bUg;gJ fl;lhakhFk;. vkJ
thbf;ifahsHfSf;F kpf rkPgkhf ,Ug;gjw;fhd xU jpl;lk; jw;NghNj tFf;fg;gl;Ls;sJld;> mtrukhf ehk; epiynfhz;bUf;f Ntz;ba
         ,Nj Ntis> tha;e;j mwtpLk; mbg; ,dq;fhzg;gl;L NritfSf;F Gj;JapH mspf;Fk; Nehf;Fld; ,e;jpa mur tq;fpapd; xU Jiz epWtd-
Nfe;jpu Kf;faj;Jtk; fl;lzk; gFjpfs; rpy gilapyhd vkJs;sd.
         khd SBI nfgply; epWtdj;Jld; vkf;fpUe;j $l;Lwit GJg;gpg;gjw;fhd eltbf;iffSk; jw;NghJ Nkw;nfhs;sg;gl;L tUfpd;wd. mjd;NghJ
         vk;Kila xUq;fpizf;fg;gl;l Kd;ndLg;Gfshf ekJ murpd; Njrpa mgptpUj;jpj; jpl;lq;fshf gl;bayplg;gl;Ls;s jpl;lq;fSf;fhd
,Nj Ntis> fl;lzk; mwtpLk; mbg;gilapyhd vkJ NritfSf;F Gj;JapH mspf;Fk; Nehf;Fld; ,e;jpa mur tq;fpapd; xU Jiz epWtd-
         rhj;jpaf;$Wfis fzpg;gPL nra;J mjw;fhd KjyPl;lhsHfis Njbailtjw;F ftdk; nrYj;jg;gLk;. ,jd; %yk; mur jpl;lq;fSld;
khd SBI nfgply; epWtdj;Jld; vkf;fpUe;j $l;Lwit GJg;gpg;gjw;fhd eltbf;iffSk; jw;NghJ Nkw;nfhs;sg;gl;L tUfpd;wd. mjd;NghJ
         ,izAk; tha;g;Gk; ekf;Ff; fpilg;gNjhL> Njrj;jpd; ghupa mstpyhd mgptpUj;jpg; gzpfSf;F gq;fspg;G nra;Ak; re;jHg;gKk; vkf;Ff; fpl;Lk;.
vk;Kila xUq;fpizf;fg;gl;l Kd;ndLg;Gfshf ekJ murpd; Njrpa mgptpUj;jpj; jpl;lq;fshf gl;bayplg;gl;Ls;s jpl;lq;fSf;fhd
rhj;jpaf;$Wfis fzpg;gPL nra;J mjw;fhd KjyPl;lhsHfis Njbailtjw;F ftdk; nrYj;jg;gLk;. ,jd; %yk; mur jpl;lq;fSld;
         NkYk; jq;fSila capH tho;jYf;fhf vd;Wk; murpd; rYiffisAk; cjtpfisAk; vjpHghHj;jpUf;Fk; kd epiyapy; ,Ue;J ngUk;ghd;ik
,izAk; tha;g;Gk; ekf;Ff; fpilg;gNjhL> Njrj;jpd; ghupa mstpyhd mgptpUj;jpg; gzpfSf;F gq;fspg;G nra;Ak; re;jHg;gKk; vkf;Ff; fpl;Lk;.
         fpuhkg;Guj;J kf;fis tpLtpj;J mtHfSila Kd;Ndw;wj;jpw;fhd Kaw;rpfis mtHfNs Nkw;nfhs;Sk; tpjj;jpyhd jpl;lq;fis muR
         tbtikj;J tUtNjhL mt;thwhd Ranjhopy; Kaw;rpfSf;F ,j;jpl;lq;fs; Cf;Ftpg;ghf ,Uf;Fk; vd;gJ jpz;zk;.
NkYk; jq;fSila capH tho;jYf;fhf vd;Wk; murpd; rYiffisAk; cjtpfisAk; vjpHghHj;jpUf;Fk; kd epiyapy; ,Ue;J ngUk;ghd;ik
fpuhkg;Guj;J kf;fis tpLtpj;J mtHfSila Kd;Ndw;wj;jpw;fhd Kaw;rpfis mtHfNs Nkw;nfhs;Sk; tpjj;jpyhd jpl;lq;fis muR
tbtikj;J tUtNjhL mt;thwhd Ranjhopy; Kaw;rpfSf;F ,j;jpl;lq;fs; Cf;Ftpg;ghf ,Uf;Fk; vd;gJ jpz;zk;.
Nkw;gb jpl;lq;fspy; vkJ mDgt mwpitAk; <LgLj;Jtjw;fhd toptiffisAk; nra;J je;J vk;ikAk; mr;nraw;ghl;by; ,izj;J nfhz;l
epjp mikr;rpd; nrayhsH kw;Wk; mt;tikr;rpd; rpNu~;l mjpfhupfSf;F vk;Kila tpNrl ed;wpfis njuptpj;Jf; nfhs;s ,r;re;jHg;gj;ij
gad; gLj;jpf; nfhs;fpd;Nwhk;.

r%f nghWg;G

vd;Dila vz;zj;jpd; gb ehk; <L gl;L tUk; mk;rq;fspy; ek;Kila gq;fspg;G NghJkhdjhf ,y;yhj xU mk;rkhfNt ,ij ehd;
fhz;fpd;Nwd;. gy nghJ ifq;fupaq;fSf;F ehk; Njhy; nfhLj;Js;Nshk; vd;w NghjpYk; mjd; msT NghJkhdjhf ,y;iy vd;gNjhL
mitfSf;F ,ilNa ,Ue;j ,ilntspAk; kpfTk; mjpfk; vd;Nw ehd; fUJfpd;Nwd;. r%fj; njhz;bYk; <LgLk; xU epWtdk; vd;w
nrhw;nwhlUf;F cz;ikahd nghUs; fw;gpj;jtHfshf ekJ nghJg; gzpfis tpupthf;Ftjw;F ,JNt ey;y jUzk; vd;W ehd; ek;Gfpd;Nwd;.
,yhgk; <l;LtJk; mij ek;kpy; KjyPL nra;Js;stHfspilNa gq;fpLtJk; xU tHj;jf epWtdk; vd;w mbg;gilapy; Kf;fpa
nraw;ghLfshFk; vd;gjpy; re;Njfk; ,y;iy. ,Ue;j NghjpYk;> xU ntw;wpfukhd epWtdj;jpd; xNu Fwpf;Nfhs; ,yhgk; <l;Ltjhf khj;jpuk;
,Uj;jy; $lhJ vd;w vd;Dila fUj;ij ePq;fSk; Vw;gPHfs; vd ehd; jplkhf ek;Gfpd;Nwd;.

nfgpjpnfhy;yhitapy; gy FiwghLfSld; ftiyf;fplkhd epiyapy; cs;s xU kUj;Jtrhiy vkJ ftdj;jpw;F nfhz;L tug;gl;Ls;sJ.
Kd;G xU ,uhZt kUj;Jtkidahf ,Ue;j ,k;kUj;Jt epiyaj;ij rPuikj;J> etPd trjpfs; nfhz;lnjhU kUj;Jkidahf khw;wp
,g;gpuNjrtho; kf;fspd; gaDf;fhf ifaspf;fj; jpl;lkplg;gl;L mjw;fhd eltbf;iffs; Nkw;nfhs;sg;gl;L tUfpd;wd. NkYk;> ,J Nghd;w>
rPuikg;Gj; Njitg;gLk; fpuhkg;Gu ghlrhiyfs; rpytw;iwAk; ,dq;fz;L mtw;iw rPuikj;J Nkk;gLj;jpf; nfhLf;fTk; ehk; jpl;lkpl;Ls;Nshk;.

,yhgk; <l;LtNjhL kl;Lkpd;wp ey;ynjhU epWtdkhtJk; ek;Kila Fwpf;NfhshFk;.

ehd; ePz;l ehl;fshf fhZk; xU fdnthd;Wz;L. vk;Kila Jiwapy; tHj;jf eltbf;iffspy; <Lgl;Ls;s epWtdq;fs;; xUtiu xUtH
vjpupfshf ghHf;fhky; rfhf;fshf ghHf;f Ntz;Lk; vd;gNj mf;fdthFk;. mJ Nghd;wnjhU kdg;ghq;F %yk; ek; midtuplKk; cs;s
tsq;fis xUq;fpizf;fTk; ek;Kila jfty;fis gfpHe;J nfhs;sTk; mjd; Clhf tq;fpj; Jiwia jw;NghJ ,Ug;gij tpl xU gz;gl;l>
caupa ,yl;rpaKs;snjhU Jiwahf khw;wTk; ehk; Kaw;rpf;fyhk;. mt;thwhd xU ehspNyNa> rpwg;ghdnjhU tHj;jf fyhrhuj;ij ehk;
mile;Js;Nshk; vd;W ehk; ngUkpjk; nfhs;s ,aYk;. ,J mrhj;jpakhdnjhU Nguhir vd ehNd rpy Ntis vz;ZtJz;L. ,Ug;gpDk;>
xj;Jiog;G %yk; vz;zq;fis ,uz;luf;fyg;gJ gw;wp ek; ehl;L tHj;jf [hk;gthd;fs; xd;whf mkHe;J Ngrj; jahuhFk; xU ehspy; ,f;fdT
edthFk; vd ehd; ek;Gfpd;Nwd;.

Kbthf…

toik Nghy vkJ mYtyHfs; midtUk; jj;jkJ flikfis rpwg;ghf nra;Js;shHfs;. vd;Dila Rghtj;jpw;F Vw;wthW mtHfSf;F
Cf;fk; mspg;gjw;fhfTk; jFjp tha;e;jtHfSf;Fupa me;j];j;Jf;fis mtHfs; ngw cjtp nra;tjw;fhfTk; ehd; vd;Wk; ghLgLNtd;.

mNj Ntis ekJ FOkj;ij ntw;wpapd; ghijapy; top elj;jpa tz;zk; ntw;wp ,yf;Ffis milaj; Njitahd rfy tpj
xj;Jiog;GfisAk; je;J tUk; ,af;FdH rigapd; vd;Dila rfhf;fSf;Fk; FOkj;jpd; epWtdq;fspd; epiwNtw;W mjpfhupfSf;Fk;
vd;Dila cskhHe;j ed;wpfis njuptpj;Jf; nfhs;fpd;Nwd;. mj;Jld; kfpo;r;rpapy; Nghd;Nw Jf;fj;jpYk; mire;J nfhLf;fhJ vk;Kld;
cWjpahf epd;W jaf;fkpd;wp rfy xj;Jiog;Gf;fisAk; je;J te;j gq;F cupikahsHfSf;Fk; vd;Dila tpNrl ed;wpfs; cupj;jhFk;.

mNj Nghd;W> ,yq;if tq;fpapd; jiytH> ,af;FdH rig kw;Wk; me;epWtdj;jpd; mjpfhupfs;                  vkf;F   mspj;J   te;j   cjtp
xj;jhirfSf;fhfTk; vd;Dia ed;wpfis njuptpf;f ,r;re;jHg;gj;ij gad; gLj;jpf; nfhs;fpd;Nwd;.

NkYk; vk;Kila ,yf;Ffis mile;J nfhs;tjw;F jd;dyk; ghuhJ vy;iyfis mwpahJ jhuhskhd cjtpfis nra;j CBEU mikg;gpd;
kHrd;l; Ngq;f; fpisf;Fk; vd;Dila ed;wpfs; cupj;jhFk;.

ePq;fs; vy;NyhUk; mwpe;Js;sNj Nghd;W ek;Kila ,g;gazk; Kw;Wg;ngwhj xU gazkhFk;. MBSL FOkj;ij ,yhgk; <l;Lk; xU tHj;jf
mikg;ghf khj;jpukd;wp ,yq;ifapy; tq;fpj; Jiwapy; ed;kjpg;G ngw;wnjhU epWtdkhf caHj;Jtjw;F kdpj Mw;wypd; vy;iyfSf;Nf ehd;
nry;tjw;Fj; jahuhf ,Ug;gij ,q;F $wpf;nfhs;s tpUk;Gfpd;Nwd;.

MBSL FOkj;ij gpujpepjpj;Jtk; nra;jthW mLj;j Mz;bYk; cq;fs; midtiuAk; re;jpg;gij ehd; vjpHghHj;jpUg;gNjhL mjd; NghJ
,yq;if tho; midtupdJjk; ngU kjpg;G ngw;w xU xg;gw;w epWtdkhf ek;Kila epWtdk; khwp ,Uf;Fk; vd jplkhf ek;Gfpd;Nwd;.




vk;. MH. ~h
jiytH
Message from Chairman - Bank of Ceylon




It gives me great pleasure to report to the shareholders on the much improved performance of our subsidiary company Merchant
Bank of Sri Lanka PLC.

Thirty years ago, MBSL was incorporated to provide specialised merchant banking services to the Sri Lankan corporate sector and
since then MBSL, whilst having been totally focused in that business has successfully diversified its portfolio into other sectors such as,
Leasing, Hire-purchase and Trade Finance.

I am proud to say that MBSL has today come a long way pioneering numerous products and services from capital funding, corporate
advisory, trade financing to corporate secretarial services etc, and today they have expanded the parameters to include micro
financing to the small and medium business entrepreneurs that will most decisively influence the overall national economy.

Present and past Chairmen and the Boards of Directors have nurtured MBSL to what it is today and their exemplary efforts and
transparent policies on good governance have been the epicentral fact of MBSL’s corporate success.

The present Board has added a new dimension to MBSL’s corporate objectives, by expanding its services to the very grass roots of
the nation who have had limited success due to the lack of financial support for their skills. The efforts of this overall scheme, not only
enhance the income and lifestyle of the downtrodden people but will also help supply the consumer with quality produce. This will
add a throbbing pulse to the already vibrant Sri Lankan economy.

Yet another important factor that I must underline is the Management and the staff of MBSL. In the recent past, the management and
staff have delivered unprecedented results by their sheer hard work and perseverance. In today’s competitive market this is no easy
task, and I am certain that they will walk the distance with pride.

As the parent what we value most is the manner in which they have conducted business in the market place. In addition to
consolidating their corporate strength, they have reached out to salvage and restore ailing businesses, which otherwise could have
caused an adverse impact on the financial industry.

I together with my Board of Directors at Bank of Ceylon, am immensely proud of MBSL; for their success and the purpose they stand for.
We know that at the age of dynamic thirty, their focus is sharp, resolve is steadfast and the commitment is total…and trust me, the
best is yet to come.

I am pleased to note that in the recent years, MBSL has contributed significant dividend income to the Bank of Ceylon and it has also
added value to the strengthening of the asset base of Bank of Ceylon.

I wish them every success for the future in achieving their business goals for they are not only a business enterprise, but also a pivotal
cog in the national development drive.



Dr. Gamini Wickramasinghe

Chairman
Bank of Ceylon.
 We know that at the
age of dynamic thirty,
  their focus is sharp,
  resolve is steadfast
and the commitment
              is total…
         and trust me,
     the best is yet to
                  come.
   Corporate Management

                                                                  Lakshman Kaluarachchi
                                                                  Chief Executive Officer- (Acting)

                                                                  Mr. Kaluarachchi is a holder of a B.Com Special Degree
                                                                  from the University of Kelaniya and has over 26 years
                                                                  experience in a wide range of Finance activities including
                                                                  17 years experience in Merchant Banking.




                                                                            Ranjith Siriwardena
                                                   Deputy General Manager – Strategic Planning &
                                                        Risk management/Head of Trade Finance

                                                           Mr. Siriwardena holds a B.Sc (Business
                                                         Administration) Degree from the University
                                                                 of Sri Jayawardenapura and is an
                                                              Associate member of the Institute of
                                                             Chartered Accountants of Sri Lanka.
                                                               He has over 20 years experience in                                       Shyamalie Amaratunga
                                                            Merchant Banking, Strategic Planning                                          Deputy General Manager –
                                                                            and Risk Management.                                             Merger Implementation

                                                                                                                                              Ms. Amaratunga holds a
                                                                                                                                              MBA from Postgraduate
                                                                                                                                      Institute of Management (PIM),
                                                                                                                                         Postgraduate Diploma Level
                                                                                                                                      Certificate for Modern Banking
                                                                                                                                         from PIM, and B.Com (Spe-
                                                                                                                                       cial) Degree from University of
                                                                                                                                        Sri Jayewardenepura. Her 21
                                                                                                                                      years of experience in banking
                                                                                                                                       covers Treasury Management,
A M A Cader                                                                                                                            Corporate and Retail Banking,
Deputy General Manager - Corporate Advisory & Capital Markets                                                                                Trade Finance, Recovery,
                                                                                                                                       CRM, Strategic Planning, Bal-
Mr. A M A Carder is a Fellow of The Chartered Institute of Management                                                                 anced Scorecard Performance
Accountants, London (FCMA). He also holds an MSc in Information                                                                          Management, M&A Process
Management from Sri Lanka Institute of Information Technology (SLIIT) and                                                                  Management and Financial
Masters in Business Studies (MBS) from University of Colombo.                                                                                           Management.
Mr Cader obtained Postgraduate Diplomas in Business Administration and
Economic Development (University of Colombo). He has completed the
Certificate and Diploma in Marketing at the Chartered Institute of Marketing,
London and Post Graduate Diploma in Information Technology by SLIIT and
CIMA London. Mr. Cader is a Fellow member of Certified Management                                                                            Jude A R Gamalath
Accountants of Sri Lanka an Associate member of the Institute of                                                               Deputy General Manager – Group
Financial Accountants of London.                                                                                               Marketing & Product Development

He presently functions as the Deputy General                                                                                    Mr. Gamalath holds a Diploma in
Manager – Corporate Advisory & Capital Markets                                                                                   Marketing and a member of the
as the Head of Division. He has an experience of                                                                                 Chartered Institute of Marketing
over 21 years at Bank in Corporate Advisory,                                                                                    (CIM-UK). Obtained an MBA from
Capital Markets and Fund Management and                                                                                            the University of Colombo and
36 years of total experience in Financial                                                                                          currently reading for his PhD in
Management, Service Marketing, Business                                                                                             Economics at the University of
Administration and Investment Banking.                                                                                                   Colombo, Department of
                                                                                                                                       Economics. He also counts
                                                                                                                                   for over 14 Years of experience
                                                                                                                                           in Brand Management,
                                                                                                                                           Marketing and Product
                                                                                                                                                  Management in
                                                                                                                                                 multiple industries.
Priyantha Herath
Assistant General Manager                                                             Marina Phillips
- Finance & Treasury Management                                                       Assistant General Manager/
                                                                                      Company Secretary
Mr. Herath is an Associate member of                                                  - MBSL Group
the Institute of Chartered Accountants
of Sri Lanka and an Associate member                                                  Ms. Marina Phillips is an
of the Certified Management Accoun-                                                   Attorney-at-Law, Notary Public
tants of Sri Lanka. He holds a B.Sc                                                   with over 18 years of experi-
(Business Administration) Degree from                                                 ence in all aspects of Corporate
the University of Sri Jayawardenapura                                                 Secretarial practice. She is also
and Master of Business Administration                                                 widely experienced in Capital
from University of Colombo, Sri Lanka.                                                Market operations.
He counts over 12 years of experience
in the field of finance.




                                                         Amitha Samarasinghe
                                                        Assistant General Manager/       Senaka Uduwawala
                                                          Group Human Resources          Assistant General Manager – Leasing &
                                                                                         Administration

                                                       Ms. Samarasinghe holds a          Mr. Uduwawala accounts for over
                                                    Bachelor of Arts Degree from         29 years of experience in the Banking
                                                  University of Peradeniya and a         industry. His area of speciality covers
                                                  Diploma in Human Resources             Credit and Branch operations.
                                                    from the National Institute of
                                                   Business Management. She is
                                                     a member of the Institute of
                                                        Personnel Management.

                                                   She possesses over 25 years of
                                                     experience in the field of Hu-
                                                 man Resource Management in
                                                 diverse business such as manu-
                                                  facturing, service and banking.




                                Shalintha Fernando
                                Assistant General Manager –
                                Group Internal Audit

                                Mr. Shalintha Fernando is a member
                                of the Institute of Internal Auditors
                                (U.S.A) and is a Certified Internal
                                Auditor – (U.S.A). He counts over
                                13 years of experience in the field
                                of internal auditing in local
                                conglomerates, as well as
                                multinational companies.
                                                                                   Chief Executive Officer’s Report

Since assuming the office of acting CEO, this is my first review of operations of your
Company and it gives me immense pleasure to meet you at the annual general meeting.
(AGM) Having served you from 1994, first as a Senior Manager and subsequently as an
AGM and DGM – Leasing, it was an illuminating experience that expanded my horizons
of business knowledge.

As we all know Mr. Gamini Karunathilake, after a distinct stint of sixteen years relinquished
duties at the end of 2011. He served with boundless spirit for the betterment of the
Company and his knowledge inspired us in no small measure.


The economic outlook

Asian Development Bank (ADB) remains upbeat on Sri Lanka retaining its growth forecast            ' The tasks we face
unchanged for 2011 and 2012 though revising South Asian regions figure in its latest
update. Accordingly ADB forecast that Sri Lanka would record second highest economic              are challenging, and
growth in Asia this year.
                                                                                                  demands more than
Releasing its Asian Development Outlook Update, ADB indicated Sri Lanka’s 8% growth
forecast for 2011 and 2012 is intact and is in line with its original estimate. This is on
                                                                                                  the best we can do.
account of robust exports and tourism. ADB said favourable export prices kept growth              They demand creative
brisk in Sri Lanka enjoying benefits of revival in tourism as well.
                                                                                                  thinking and allow me
The stable political climate has contributed immensely to this fact as it has created
opportunities in all markets. Several segments of economy are performing well,                    to assure you that we
encouraging increase in borrowings, capital enhancement and increased growth rate
while maintaining inflation at a single digit rate. Devaluation of Sri Lankan Rupee also will     are ‘up to speed’ to
expect to strengthen exports.
                                                                                                  handle them.'
The tasks we face are challenging, and demands more than the best we can do. They
demand creative thinking and allow me to assure you that we are ‘up to speed’ to
handle them.

Your Company

Your Company recorded its highest income of LKR 1.6 billion, an increase by 2% over the
last year. Consequent to strategic expansion of investments and effective management
of fiscal activities in 2011, your Company recorded a profit before tax of LKR 443.4 million.
Total assets of the Company as at 31 December 2011 was LKR 10 billion reporting a
growth of 38% compared to the previous year, and Total equity capital increased by 6%
to LKR 2.8 billion.

Most of the income realized from Leasing and hire purchase businesses, whilst income
from investment in quoted shares was not as desired. Net interest income of LKR 790
million increased by 15% compared to LKR 688 million for 2010. This was direct result of
reduced borrowing costs and increase in the investments in lending portfolio and other
investments.

Operating expenses increased significantly during the year with personnel and logistical
costs due to business and branch expansion. These expenses were mandatory, as our
business plans envisage getting closer to customers where it is absolutely necessary, and
these expenses are carefully monitored to stay proportionately in line with our revenue.
Provisions for loans reduced by 6% as a result of efficient recovery of non - performing loans.
Our new scheme to assist entrepreneurs of the grass root level performed brilliantly and
the zero default rate is encouraging. In addition, a general provision of 0.5% is provided
annually until it reaches 2.5% of the net portfolio to meet the future contingencies, if the
need should arrive.

The Company’s Return on Equity stood at 11.69% and Price earnings ratio at the end
of year was 16.09 compared to that of the previous year indicating an increase of 17%.

Group performance

Merchant Credit of Sri Lanka Limited - focused on the SME corporate sector. MCSL’s
Leasing and hire purchase generated more than 56% of the total income generated
by the company. Net Interest income has increased by 27%, which by any yardstick is
a significant achievement. This was mainly due to increase in disbursements in core
business areas and better management of cost of funds. MCSL has achieved LKR 120
million Profit after tax, which is the highest in their history surpassing the previous highest
profit achievements.
MBSL Insurance recorded a noteworthy come back by contributing to the bottom line
in year 2011 too and is on its way. MBSL Savings Bank Ltd was expected to break even
in 2011, but still not fully on its own. The overall Group performance was not as expected
but I am sure that during 2012 all issues will be addressed to increase profitability.

Branch expansion

Despite stiff competition all our Branches are performing well deploying efficient strategy
to gain market share in those areas. Also, plans are already underway to double our
network to get closer to the emerging markets and many new custom products are
formulated to address the diverse needs of those markets. Our teams are encroaching
into untapped areas and clienteles with great success. We will reap the dividends of
these efforts in the near future.

As you know we have products that assist our customers with funding options, but
our services extend far more than that. We offer knowledge and advice to plan and
organize or restructure businesses to stay healthy. We believe that our advisory role has
immense potential in the modern context. In addition to funding customer’s needs, we
will advice them how to generate high returns. In that context we have many faceted
talent in abundance to assist customers to increase productivity and add value to their
organisations. We are committed to enhance our customer’s wealth, which indubitably
will contribute to the overall wealth of the nation, thus economy.

Moving ahead...

I take this moment to sincerely thank the Chairman and the Board of Directors for their
vote of confidence in me for appointing to this esteemed post.This is not a single handed
performance, but a collective of many enterprising personnel whom we are fortunate to
have with us. I am certain that they will give me their best to take your Company forward.

I also wish to thank Mr. Gamini Karunathilake, our former CEO on a personal note for
the friendship extended to me whilst wishing him good health and success in his future
endeavours.

And, finally our shareholders and stakeholders who have stood with us always. I look
forward to share your wisdom and support in the future.




Lakshman Kaluarachchi.
Chief Executive Officer (Acting).
          1
Our time tested strategy:


   Acquire the best talent




          2
inspire them through training
        and motivation




          3
         Repeat...



   and keep repeating
Management Discussion & Analysis

Economic Review

Outlook of Sri Lankan economy in year 2011 represented                    Leasing in Sri Lanka has emerged as a popular method
favourable political and economic conditions and                          of financing the acquisition of vehicles and plant and
experienced a massive development in the country that                     machineries, agricultural equipment for primarily commercial
emerged through the total eradication of civil strife two years           and personal usage. During the past few years it has recorded
ago.Young and better educated population, existing industrial             a remarkable growth and this upward movement will continue
base and access to natural resources also contributed to the              despite the recent changes in the economic environment that
favourable growth in economy paving path to long - term                   took place due to exchange rate fluctuations, rise in interest
sustainable development in Sri Lanka. This lead to Sri Lanka              rates and fuel prices. Banking Sector also has entered in to
being recognized as a growing economy that is moving                      leasing arrangements along with their other banking related
toward a middle-income nation, successfully.
                                                                          activities due to higher interest margin available in the Leasing
                                                                          and Hire Purchase industry, thus making the industry further
The key factors that contributed to this strong performance
                                                                          competitive.
were the peaceful domestic environment, improved investor
confidence, favourable macroeconomic conditions, and of
course, the gradual recovery of global economy from the                   During the year, MBSL also performed well in par with the
recession.                                                                industry trend, expanding its operations and lending portfolio.
                                                                          During 2011 The Company opened three new branches in
There were significant inflows of capital since the end of                Batticaloa, Hatton and Chillaw, together with a ‘One Stop
civil war. Capital market has improved due to free cross -                Shop’ opened in the Head Office ground floor. MBSL continued
border capital flows (both in and out of Sri Lanka), easier               to expand its portfolio in Financial Leases, Operating Leases
equity market listing, fairer tax treatment of corporate debt             & Hire-purchases portfolio amidst turbulent and highly
securities, reduced tax burden on unit trusts and proposed                competitive market conditions and recorded a substantial
expansion of pension funds to fund future retirement costs.               increase of 43% during the year. A Corporate brand campaign
These deepened Sri Lanka’s capital markets, which helped                  was launched in the fourth quarter of 2011 followed by
Sri Lankan businesses to grow, profitably. Government policy              Product communications campaign to increase awareness,
on interest and exchange rates and the development of the                 contributed to the highest ever disbursements in a month
long - term debt market contributed positively in accelerating            recorded in December 2011.
the country’s growth.
                                                                          The Company’s Performance
During the year, commercial loans growth increased due to
relatively low interest rate, and proactive economic growth               Profitability
prospects. Low interest rates resulted in an overall decrease             Profit after tax
in the market interest rates and improvements in the business
appetite to make further investments and lower funding cost               MBSL has always maintained prudent growth and with no
for borrowers while assuring a sound business environment.
                                                                          difference in 2011, earned an after tax profit of LKR. 332 million.
                                                                          Looking at the performance of the Company, one can see
The    favourable      macroeconomic     environment and
                                                                          a strong organic growth in its business volume amidst highly
the supportive supervisory and regulatory framework
                                                                          competitive environment through Leasing, Hire Purchase,Trade
strengthened financial system’s stability and helped the
financial sector to display an improved performance.                      Finance, Investments, Share issue management etc.The growth
                                                                          of MBSL was characterized by diversified sources of income
Industry Overview                                                         across new products, new customers, and new locations while
                                                                          acquiring businesses from every business segments.
Leasing has now become as an attractive mode of financing
the acquisition of the assets around the world and great
potential for growth as it is perceived as a useful financing
tool for assisting Small and Medium Entrepreneurs.



         Net Profit                                         Income                                                           Shareholders' Fund
                                                                                                            2,808




                      (Group)                                                   (Group)                                                                       (Company)
LKR Mn                                           LKR Mn                                                             LKR Mn
                                                                                                                                                                 2,843




                                                   3,000
                                                                                                   2,596




 1,000                                                                                                               3,200
                                                                                                                                                      2,679




  900
                                                                                                                                              2,331
                                                                                          2,332




                                                                                                                     2,800
                                                  2,500
  800
                                                                                                                     2,400
  700
                                                                        1,648




                                                  2,000
                                                                                                                                      1,680
                                                               1,444




                                                                                                                              1,565




                                                                                                                     2,000
  600
                                492




  500                                             1,500                                                              1,600
                                      353




  400
                                                                                                                     1,200
          264




                          229




                                                  1,000
                224




  300
                                                                                                                      800
  200
                                                    500
  100                                                                                                                 400


    0                                                 0                                                                 0
          07    08       09     10    11                       07       08            09          10*      11*                07       08     09      10         11


                                                           * Includes only continuing operations
Income                                                                    in the Company as a core sector by 62%. Loans and advances
                                                                          from Trade finance division contributed 25% while Investment
The overall income of the Company grew by 2% in 2011                      in government securities contributed 10% to the total lending
compared to the previous year due to the increase in                      mix in 2011.
interest income from all sources of income except from bill
discounting. The Company reported an interest income of LKR               The total leasing portfolio during the year under review
421 million from finance lease during the year, which is 48%              increased by 43% from LKR 3,817 million in 2010 to LKR
more than the previous year. This is mainly due to the increase           5,467 million in 2011 with overall lending across the product
in disbursements resulted through the widespread marketing                spectrum increased due to the market awareness programs
campaign that took place during the year coupled with                     carried throughout the year coupled with the expansion of
the rise in interest rates. Treasury bills and money market               operations.
income grew by 50% which is a commendable performance
considering the relatively stable interest rates witnessed during         Shareholders' Fund
the year. Interest received from Margin trading too witnessed
a notable growth representing 144 % increase in 2011 due                  Shareholders’ funds grew by 6% during the year 2011,
to trade related income taking centre stage as local capital              enhanced primarily by retained profits. The fund base grew
market started activities to pickup after a dismal year in 2009.          from LKR 2,680 million to LKR 2,843 million during the year,
                                                                          giving more value to share holders. Net asset value per share
The Company managed to earn a net interest income of LKR                  was LKR 21.06 on 31st December 2011 while it was LKR 19.85
790 million, which is 15% more than the previous year, as a               on 31st December 2010.
result of the skilful management of its margins and deposit
mix.                                                                      The Company recorded a 58% growth in the total liability
                                                                          during 2011 which stood at LKR 7,094 million compared to
Operating Expenses                                                        LKR 4,503 million in 2010. During the period Company issued
                                                                          unsecured redeemable debentures amounting to LKR 1,000
The overall operating expenses for the year increased by a                million to fund the cash flow requirements due to expansion
mere 18% to stand at LKR 630 million, where staff expenses and            of business.
salaries affected the increase mainly. In appreciation of the
employees contributions, Company revised their salaries. The              Leasing
increase in the number of employees due to expansion took
place during the year also contributed to this increase. The              Leasing division being the highest income earner of the
Company had to make general provision for quoted shares                   Company for the year 2011 has performed remarkably well
amounting to LKR 71 million due to the poor performance in                surpassing all budgetary targets set for the division in 2011.
the stock market.                                                         Year 2011, in general has been a record year for majority of the
                                                                          units in the backdrop of a highly conducive environment that
The Company’s total asset value increased by 38% to a                     prevailed in the country for Leasing & Hire purchase business.
value of LKR 9,937 million in comparison to LKR 7,183 million             According to Motor Traffic Department there were over 500,000
in 2010. The Company successfully managed its asset mix to                new registrations for the year 2011. The main growth sectors
optimise asset growth and stability. With loans and advances              were the construction & transport industry while a fair share of
distributed across the spectrum - from Retail, Micro, SME to              lending has gone to self - employment development as well.
Corporate – the Company focused on the management of a                    The corporate & the public sector have been equally serviced
quality portfolio while paying close attention to growth.                 thus catering to the majority segments of the economy. The
                                                                          economic development of the country, which is on the fast
Total lending portfolio comprising lease & hire purchase                  track since end of war has helped achieving, desired targets
receivable, loans & advances, investment on securities &                  with ease. At times the competition become fierce when the
properties and government securities have increased by                    interest rates were at rock bottom, with commercial banks
41% compared to last year. In 2011 also Leasing division                  offering very low rates to capture business.The Leasing Division
represented the highest contributor as against other portfolio            however, combated such scenarios to capture more business



LKR Mn
         Profit Before Tax    (Company)
                                                LKR Mn
                                                         Total Assets          (Group)
                                                                                                           LKR
                                                                                                            LKR
                                                                                                                  Net Assets per Share                (Group)
                                                                                                                                                   22.84




 1,000                                          25,000                                                      25
                                                                                                                                           21.47
                                                                                                  19,236




                                                                                                                           20.42
                                                                                                                   18.93




                                                                                                                                   18.65




  900

  800                                           20,000                                                      20
                               651




                                                                                         14,424




  700

  600                                           15,000                                                      15
                                                                             11,832
                                          443




  500
                                                                  7,589




  400                                           10,000                                                      10
          273




                        254




                                                          6,803
                203




  300

  200                                            5,000                                                       5

  100

    0                                                                                                        0
                                                    0                                                              07      08      09      10       11
          07    08     09      10         11              07      08         09          10       11
while retaining the existing clientele. Towards the end of the                  Operations will be further strengthened in 2012 to improve
year when the rates were on the rise, the Leasing Division                      the NPA and to reduce the bad debt provisioning in 2012.
capitalized by offering reasonable rates rather than offering                   The division also made policy changes in recovering overdue
high rates to expand the portfolio. During the latter part of the               interest from leasing division which brought in a healthy
year the division did more business comparative to the first 6                  income of LKR 93 million over the budget of LKR 65 million
months of the year though rates of interest were on an upward                   recording a surplus of LKR 28 million over the budget. While
trend. It is noteworthy to state that there are more than 74                    stressing the point that the contribution of the division
organizations fighting for a fair share of the business available               reached LKR 336 million over the budget of LKR 250 million,
with the lead role always taken by the commercial banks with                    the highest in the history of MBSL with a good surplus of LKR
their ability to offer very low rates as opposed to the others.                 86 million.
We were able to expand our branch network to three more
locations in 2011 with the first being opened at Batticaloa and                 Micro Finance
the rest two at Chilaw and Hatton. With the addition of the
customer service centers to three more locations the network                    MBSL Commenced providing Micro Lending Facilities to rural
increased to fourteen branches.                                                 sector in November 2010 with the aim of making contribution
                                                                                to enhance the national production and to make the living
The Leasing Division was originally assigned with a target of                   of a large number of persons of the low income category
3.0 billion but was later revised to 3.2 billion during mid year                better. This scheme is branded as “Siyath Saviya”. MBSL for
when there were clear signs that the division was performing                    this purpose joined hands with Agro Development Financial
well above the projected target. The division ended up with                     Services (Pvt.) Ltd (ADFSL) through a signing of memorandum
a total new business acquired during the year amounting to                      of understanding.
almost LKR 3.8 billion. However, the market share of MBSL in
the leasing industry still remain below 1% with the statistics                  This affiliation allowed the Company to take the “Siyath
available during third quarter of the year. Plans are afoot to                  Saviya” Micro Lending Facilities closer to the more rural areas
capture a 3% share of the market during year 2012 with a                        through wide spread branch network of ADFSL in the areas of
rapid branch expansion during the first 3 months of the year.                   Kekirawa, Thambuttegama,Hingurakgoda,Wattegama,Badur
More changes and improvements to the prevailing systems                         aliya,Narammala, Ambalanthota,Bandarawela,Yakkalamulla
in practice will be incorporated during 2012 in order to make                   ,Galnewa and Galenbindunuwewa.
“service excellence” & “24 hour leasing” more real. Lease
and Hire Purchase collections by far has been the best over                     Although the facilities under this scheme are considered
the years and kept improving month by month over the past                       without being over depended on security/collateral the
3 years with many non - performing Lease & Hire Purchase                        Company does a comprehensive evaluation of the project
contracts being settled in the process. The division also                       and the repayment capacity in order to ensure zero level
recorded a healthy NPA ratio of 4% at the end of the year                       default rates.
down by 1.39% over the previous year. The division has not                      The “Siyath Saviya” Loan scheme was launched at Kuda
encouraged reschedulements of bad facilities as a policy                        Galenbindunuwewa village in Galenbindunuwewa area to
but maintained good credit controls to avoid such requests.                     commemorate the assumption of office for the second term
However, the endeavour anticipated to reach the industry                        of his Excellency President Mahinda Rajapakse.
average of 3%.
                                                                                Micro lending facilities were provided to the farmers of the
Main area of focus had been credit control when granting                        said village for the purpose of the coconut cultivation.
new facilities over the past few years and the leasing division
has especially focused on quality credit and not on the                         By December 2011 the loans scheme has been extended to
quantity it actually disbursed during 2011, which really paid                   the sectors of;
rich dividends throughout the year.
                                                                                *   Vegetable/fruit cultivation
The bad debt provision budgeted at LKR 70.6 million ended                       *   Dairy farming
with LKR 54.8 million, and the majority being shared between                    *   Horticulture
disposal and general provision. The specific provision was                      *   Fishing industry
very minimal and negligible as against the budget. This was                     *   Tea and coconut cultivation
mainly due to healthy portfolio build up and recovery on time                   *   Small businesses
and the special recovery drive to collect rental arrears, which                 *   Brick /pottery industry
lasted during the entire year.
                                                                                The Management is already looking into broad basing the
                                                                                facilities offered up to the requirement of land, vehicles, three-




                                Interest Income                                              Net Interest Income
                                                                        2,309




                                                             (Group)                                                    (Group)
                       LKR Mn
                                                                                    LKR Mn
                                                                                                                        1,288




                        2,500
                                                                                     1,400
                                                     1,996



                                                             1,931




                                                                                                                1,081




                                                                                     1,200
                        2,000
                                            1,550




                                                                                     1,000

                        1,500
                                                                                                          721
                                   1,310




                                                                                              649




                                                                                      800
                                                                                                    628




                        1,000                                                         600



                                                                                      400
                         500

                                                                                      200


                           0
                                   07       08      09       10*        11*             0     07    08    09    10*     11*

                                * Includes only continuing operations
wheelers and other small commercial vehicles.                          with extra efforts on fee - based income, while margin trading
One of our main initiative in February 2011 was to provide new         income clinched a prominent portion from the fund based
fishing nets and related equipment to fishermen who were               income.
the members of Miridiya corporative society in Minneriya .133                                       2010         2011    Change
fisher folks who fish in the tanks of Minneriya and Girithale                                LKR million    LKR million          %
benefitted by this scheme and by December 2011 had paid
back 75% of their undertakings.                                        Fee based income              32             32            -
                                                                       Fund based income            238            140         (41)
The signs are very encouraging as the loan disbursements               Total                        270            172         (36)
up to 31 December was LKR. 155 million and the number of
borrowers amounted to 3,000. It is with pleasure we state that
                                                                       Though the division couldn’t contribute the same as 2010, but
the borrowers have paid 99.81% the loans outstanding as at 31
December 2011. The commitment of field staff attached to the           backed LKR 172 million to the top-line in 2011. Capital gains of
ADFSL and the proper evaluation helped this commendable                LKR 99 million and dividends of LKR 5 million were worthy on
achievement.                                                           the division’s performance. Nevertheless, provisioning for the
                                                                       share portfolio from fall in value of securities increased, with
Steps will be taken to provide more financial facilities to sectors    the stock market downturn that was recorded in the second
screened after their social and environmental risks. Self - Help       half of the year.
Groups (SHG) will be encouraged to use “Siyath Saviya”
financial facilities to multiplying the loan portfolio.                The successful completion of The Finance Company PLC share
                                                                       issue brought stability to the financial services industry and
                                                                       to the Company in the light of its financial restructure. Fees
Trade Finance                                                          generated from a Business Proposal to secure supplies in the
                                                                       mineral sands industry was a novelty for the division towards
Business activities of the Trade Finance Division witnessed            building Public Private Partnership models.
another successful year recording a higher disbursement
compared to the previous year. Cumulative disbursements                Revival of SBI Capital Markets Limited business partnership
for the year reached LKR 853 million, which is 30.8% over the          with Merchant Bank of Sri Lanka PLC was a milestone in the
budgeted target of LKR 652 million.                                    Company’s history. This is anticipated to deliver more revenue
                                                                       in the future in the form of fee based income in addition to
Total product portfolio of the division increased to LKR 1,765         investments in equity and debt financing. Therefore, close
million from LKR 1,652 million in the preceding year recording a
                                                                       monitoring of Government projects that SBI Capital Markets
portfolio growth of 6.8 % during the year under review. However,
                                                                       Limited could get involved by financing or in advisory capacity
net portfolio increased only by LKR 113 million despite LKR
                                                                       is the main aim for the revival of the strategic alliance.
853 million disbursements achieved during the year, due to
settlement of few large facilities by the customers for interest
advantage. Term Loans and Bills Discounting portfolio formed           During the year, a restructuring plan was presented for an
a major source of revenue to the division. During the year             Activated Carbon Company and a valuation for a hotel chain
the division recorded revenue of LKR 282 million, which is             was also carried out to increase revenue from fee based
equivalent to 18.1% of the Company’s turnover.                         activities. Reports prepared for the independent opinions and
                                                                       mandatory offers also contributed in the division’s revenue.
Out of the total annual disbursement of trade finance division,
8.3% was contributed by the branches, which was a significant          As Corporate Social Responsibility acts, the Company
improvement when compared with the previous year’s                     organised three seminars for the business community.
contribution.                                                          The seminars on “How to take your Company Public and
                                                                       Success Stories of Listed Companies in the Share market”,
The Division made aggressive and effective recovery efforts to         “Implementation of International Financial Reporting
control and maintain NPL within the accepted level. Despite            Standards” were of great success. In addition, MBSL partook in
the efforts made during the year, one large facility amounting         the Investor Day in October as an educative session for new
to LKR 150 million fell into NPL category in the last quarter          investors, school children and many other new entrants to the
resulting an increase in NPL. Nonetheless, the net increase in         market. A local yogurt producer 'Ranwan' was restructured
NPL was limited to LKR 94 million due to recovery of overdue           during the year and revenue to the division is expected from
facilities to the value of LKR 55 million during the year. Moreover,   this assignment in 2012.
the division was able to reach several successful amicable
settlements with past due customers avoiding further legal             A Situational Analysis was carried out for the Sri Lanka
costs to the division.                                                 Cricket Board in the latter part of the year on a nationalistic
                                                                       perspective for Sri Lanka Cricket. This analysis report focused
The division actively participated in disposing investment             on the stern financial revival plans and other operational
properties of the Company and as a result was able to dispose
                                                                       recommendations required for the Board to recover from
an investment property to the value of LKR 266.7 million during
                                                                       its crisis situation and stressing on tourism related branding
the year, thereby strengthening the Company’s bottom line
and improving cash flows.                                              strategy for Sri Lanka Cricket.

An impressive growth of product portfolio is expected to               Corporate Secretarial Services
achieve during the ensuing year with the planned activities
to increase lending through the branch network. Significant            During the year under review, the Corporate Secretarial Division
infrastructure developments and human resource allocations             functioned as Secretaries/Registrars to several subsidiaries of
have been made during the last quarter of the year in order to         the MBSL Group & Bank of Ceylon. The Division also extended
increase Trade finance activities through the Branch network.          secretarial services to several external companies.
Furthermore, professional training and on the job training have
been provided to newly recruited staff assigned to branches            The Services provided by the Division are;
specifically to handle trade finance activities to harness the         •	 Share	Ledger	Management
benefit created by increased demand for trade finance                  •	 Payments	of	Dividends	to	Shareholders
products and services that resulted through aggressive                 •	 Payment	of	Interest	to	Debenture	holders
marketing activities undertaken by the Company.                        •	 Coordinating	the	release	of	financial	statements	of			
                                                                          the Company to regulatory authorities and share
Corporate Advisory & Capital Markets                                      holders within stipulated time line
                                                                       •	 Incorporation	of	Companies
The investment banking and advisory division of the Company            •	 Registration	of	trade	marks
contributed with many transactions reaching its completion
during the year under review. Fee based income improved                Also the Division continues to focus on providing Registrars ac-
                                                                       tivities to listed companies.
Group Marketing and Product Development Division                   Subsidiaries and Associates

Group Marketing and Product Development Division was               Merchant Credit of Sri Lanka Limited.
established in fourth quarter of 2011 with an objective of
integrating the marketing activities across MBSL group of          Overall performance of the year
companies. The Division extends its services to all subsidiaries   Disbursements
of MBSL while focusing on increasing the overall “brand
equity”. While planning and executing the marketing                The Company has achieved the unprecedented land mark
strategy of the group, main functions of the Division include      of LKR 3 billion for the first time in total disbursements for the
new product development, brand building, business/market           company which is the highest in the history. It should be noted
expansion and promotional activities. A corporate brand            that there is a significant growth in leasing as a product.
campaign was launched in fourth quarter of 2011 followed           Effectively the portfolio of the company has grown by 27%
by product communications to increase awareness, which             compared to the last year.
resulted in highest ever disbursements in a month recorded
in December 2011.                                                  Profits

Further, a new area that is focused through the Division is to     The company has achieved LKR 120 million, Profit after tax
carry out joint activities within the MBSL group to establish      while achieving LKR 150 million of profit before tax which is
synergies. To be in line with this, a new branch concept,          the highest in the history surpassing the previous highest profit
“One Stop Shop (OSS)” was launched in December 2011.               achievement of 2010.
The first OSS was opened in the Head Office ground floor.
OSS provides a broad array of services under one roof              Even though there is a significant increase in income, profits of
which includes some of the products and services of MBSL           the company does not represent the same proportionally as
subsidiaries as well. The concept aims to differentiate MBSL       the margins shrank during the year with reduction of interest
branch network from traditional bank branch networks. Also         rates and unavailable capital gains from share portfolio with
Marketing department is geared to implement aggressive             mark to market losses.
plans in 2012 to further expand the MBSL presence in the
Market.                                                            Income

IT Division                                                        The cumulative income of LKR 993 million also shows 11%
                                                                   growth over the last year while leasing and hire purchase
The Company’s IT Department plays a premier role in                counts for more than 57% of the total income which are
facilitating efficient and effective services to all departments   core businesses of the company. The core business income
thus providing ‘real time’ information to the top management       represents 94% of the total income of the company.
whilst supporting existing product distribution and lending
growth.                                                            Net Interest income has also increased by 27% from LKR.
                                                                   367 million in 2010 to Rs. 466 million, which is a significant
In the view of an extensive expansion of branch network, the       achievement.This was mainly due to increase in disbursements
IT Steering Committee has recommended venturing into a             in core business areas and better management of cost of
fully automated core banking application system. This would        funds.
enable better functional and operational controls; with
high degree of system security features, securing statistical      Non Performing Advances
approach for making decisions based on risk management
measurements.                                                      The Non performing advances are stated at 9.2 % against the
                                                                   total portfolio up to the month of December 2011, counts for
As an initial phase, KPMG Ford Rhodes Thornton & Co. would         LKR 485 million in value compared to the Total Net outstanding
conduct a “Functional Requirement Specification” (FRS)             amount of LKR 5.4 billion. Comparatively for the same period
study on the current activities and future requirements of the     last year was at 9.77 % which is a 57 basis points reduction
Company. Subsequently a “Request for Proposal” (RFP) would         year on year.
be submitted and upon, procedures will be formulated to
evaluate a new core banking application system.                    Review of operations

The revolution in information technology compels to redefine       Finance leasing and hire purchase businesses are the major
the existing IT security practices. With the increased use of      areas of the business of MCSL and they represents 55% of the
Information Technology, Company’s IT Division has formulated       total accommodations granted at the end of 2011. The main
a well defined IT Security Policy and Procedure to protect and     core products of the company, Leasing and hire purchase
safe guard the important data and assets of the Company            generated the highest income of LKR 527 Million, which counts
whilst undertaking to spread Information Security awareness        for more than 57% of the total income generated buy the
among all staff. Also, as a physical security measures, CCTV       company.
Security Camera System has been implemented at all
branches.                                                          Pawning is a new product which has launched by the company
                                                                   in 2009 and was developed in 2011 and has a portfolio of LKR
During the year 2011, Company expanded its IT infrastructure       104 Million which is year on year growth of 100%, amounting
with the addition of three more branches providing on-line         to LKR 53 million has generated a cumulative income of more
access to the core banking system. Presently, the Company’s        than LKR 14.3 Million compared to previous year LKR 6.7 million.
IT Division is preparing for an implementation of 8 new
Branches and 8 Extension Offices.                                  Other achievements

                                                                   Merchant Credit of Sri Lanka Limited was recognized by The
                                                                   Institute of Chartered Accountants of Sri Lanka at their Annual
                                                                   Report competition for 2010 as one of the five companies
                                                                   to be complied among the Registered Finance Company
                                                                   category by awarding a certificate of compliance for the
                                                                   second consecutive year.
MBSL Insurance Company Limited.                                     Key Areas of Strategic Focus

Overall performance of the year                                     MBSL Insurance is thinking beyond local boundaries and
Financial Results                                                   wants to be a global insurance player by year 2020. Therefore,
                                                                    in order to strengthen the mission towards the vision, the
It is noteworthy that both lines of business recorded high          Company firstly planning to increase present network of
growth rates which are very significantly higher than the           50 branches into 100 branches with the regional level
industry growth rate in Life and General Businesses. During         decentralized operation of that new 50 branches, 25 units will
the year ended 31st December 2011, MBSL Insurance was               be completed at the end of 2012.
able to enjoy gross written premium in general business of
LKR 680 million and life gross written premium of LKR 143.1         Since the Company has identified Life Insurance as a potential
million recording growth of 43% in general business and 59%         contributor to the company’s growth and also with the vision
in life business respectively. The total top line achieved by the   of giving risk transfer mechanism to rural mass of less privilege
company was LKR. 823 million compared to LKR 565 million            at affordable cost, the rest of the branches will be established
achieved in year 2011 which is 46% growth year to year.             in rural areas in the island.

Performance in general insurance.                                   With the 75 branches in 2012, we will continuously consolidate
                                                                    into a higher rank in the industry while focus of capturing siz-
Team General took the company general GWP up from LKR               able percentage of the market shares both Life and General
475 million in year 2010 to LKR. 680 million in year 2011 which     Insurance as a composite insurance company. Further the
is a very strong indicator of future direction of the general       Western Province operations will be further strengthened by
insurance business towards the achieving LKR. 1 billion mark in     introducing fully fledged City Office in addition to the existing
year 2012. Motor class achieved highest growth of 36% rallying      branch network and Corporate Business Development Unit.
with non - motor growth of 60%. Within non motor classes
miscellaneous class recorded 32% and fire and marine classes        We will continuously focus on our top line of business in
recorded a growth of 262% and 40% respectively.                     coming years in order to capture sizable market share while
                                                                    maintaining a positive bottom line moderately. Therefore
During the year under review combined ratio was 113%                despite severe competition and the pressure in the short term
compared to 111% is a marginal increase mainly due to               on the underwriting results we will continuously engage in
increase in administrative expenditure as a result of branch        improving of risk and pricing functions in order to achieve our
network expansion and more recruitment in underwriting and          objective without compensating bottom line to top line.
sales personnel. We were able maintain positive underwriting
results even with rapid expansion of branch network despite         Lanka Securities (Pvt) Limited (LSL).
the fact majority of the insurance firms in the industry were
recorded negative underwriting results. General profit before       Overall performance of the year
tax was LKR.7.7 million which is commendable achievement            Profitability
after second year of acquisition of failed insurance company
by providing provisions for previous years mismanaged               Our associate company Lanka Securities (Pvt) Ltd, recorded
business transactions.                                              a profit of LKR 155 million for the year 2011 despite the unex-
                                                                    pected collapse in the stock market.
Performance in life insurance
                                                                    Revenue & Expenses
Team Life was not second to team general and recorded
GWP of LKR.143.1 million compared to LKR.90 million in 2010.        Revenue which represented brokerage income charged from
Companies flagship product 'Vinvida' contributed highest            clients for shares bought and sold on their behalf, amounted
among other products which is a very unique products with the       to LKR 333 million was 11% less than that of previous year
combination of investment, protection and retirement benefits       mainly due to the poor performance in the stock market as
contributing 85% of the total GWP and rest was contributed by       we have stated above.
'Sisumina, Uththunga, Naya Sahana and Group life'.
                                                                    Finance cost for the year decreased by 34% to LKR 1.3 million
                                                                    whilst the company recorded a favourable growth in its interest
Financial Strength and Stability                                    income by 76% to LKR 24 million at the end of year.

The Company took a bold step to increase its Share Capital          The overall operating expenses for the year increased only by
by way of Private Placement in order to meet proposed               a mere 16 % to stood at LKR 210 million. This was mainly due to
minimum capital requirement and to divest shareholding              bad debts provision made during the year amounting to LKR
of MBSL Bank as single shareholder. The Private Placement           12.8 million in addition to the general increase in price levels.
was fully subscribed demonstrating the confidence of the
business community towards Company’s future prospects               The corporate tax charge for LSL dropped by 46 % reflecting
despite negative investment sentiment that prevailed during         the reduction in taxable income.
the period of last quarter of 2011.
                                                                    Share holders’ fund
The strength and the stability further evident that close to 10%
of the shareholding was purchased by MAS Holdings which             Share holder’s fund showed a slight growth of 9 % from LKR
is one of the largest apparel manufacturing company in the          419 Million to LKR 458 million in 2011, whilst paying a dividend
world and one of the privately owned blue chip company in           amounting to LKR 116 million.
Sri Lanka. It is vital important that insurance companies must
have strong capital base and strong reinsurance panel to            Assets
demonstrate ability to underwrite large risks and while MBSL
Insurance qualifying both criteria over and above regulatory        Total asset base increased by 1%, whereas long term
requirements and we are proud and boast ourselves, we are           investments increased by 632 % from LKR 16 million to LKR
the only privately held insurance company that shareholder’s        114 million significantly during the year 2011. During the year
assets are more than LKR 1 Trillion.                                Company invested in PPE mostly in computer and accessories
                                                                    amounting to LKR 17 million. Treasury bills investment has
                                                                    increased by 633% compared to last year end and trade
                                                                    receivable have increased by 74%.
Risk Management
Composition of the Committee


The following members served on the Integrated Risk Management Committee (IRMC) during the year under review.

Mr V Kanagasabapathy                                 Director                                                      Chairman
Mr Gamini Karunathilake                              Chief Executive Officer (resigned w.e.f. 31 December 2011)    Member
Mr Lakshman Kaluarachchi                             Acting Chief Executive Officer                                Member
Mr Ranjith Siriwardena                               Deputy General Manager –
                                                     Strategic Planning & Risk Management /Trade Finance           Member
Mr Priyantha Herath                                  Assistant General Manager - Finance and                       Member
                                                     Treasury Management
Mr Senaka Uduwawala                                  Assistant General Manager - Leasing                           Member
Ms Shyamalie Amaratunga                              Deputy General Manager –
                                                     Merger Implementation                                         Member
Mr A M A Cader                                       Deputy General Manager –
                                                     Corporate Advisory and Capital Market                         Member

The Company Secretary functions as the secretary to the Committee. The other senior management staff members are invited to
attend the meeting when their presence is required.

Role and scope of the Committee
The primary purpose of the Integrated Risk Management Committee (IRMC) is to assist the Board in fulfilling its oversight responsibilities
for all aspects of risk management practices adopted by the Company.

The role and scope of the IRMC are as follows :

-        To assess all risks faced by MBSL, through appropriate risk indicators and management information.
-        To supervise broad risk categories, ie credit, market, liquidity, operational and strategic risks and work with key management
         personnel closely and make decisions on behalf of the Board within the frame work of the authority and responsibility a
         signed to the committee.
-        To review the adequacy and effectiveness of all management level committees such as the credit committee and the asset
         and liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as
         specified by the Committee.
-        To recommend prompt corrective action to mitigate the effects of specific risks whenever they rise beyond the prudent levels
         defined by the committee on the basis of Bank’s policies and regulatory and supervisory requirements.
-        To recommend appropriate actions against officers responsible for failure to identify specific risks and take prompt corrective
         actions as recommended by the Committee, and /or as directed by the Director of the Department of Supervision of Non-
         Bank Financial Institutions of the Central Bank of Sri Lanka.
-        To submit a risk assessment report after each meeting to the Board seeking the Board’s views, concurrence and/or specific
         directions.
-        To establish a compliance function to assess the relevant establishment’s compliance with laws, regulations, directions, rules,
         regulatory guidelines, internal controls and approved policies on all areas of business operations.

Activities carried out by the IRMC under review are summarized below.

•	       Introduced	a	Risk	Management	Framework	to	achieve	Company's	objectives,	set	forth	in	following	four	categories:

•	       Strategic			       	–	       high-level	goals,	aligned	with	and	supporting	its	mission
•	       Operations	        	–		      effective	and	efficient	use	of	its	resources
•	       Reporting	         	–		      timely	and	reliability	of	reporting
•	       Compliance	        	–		      compliance	with	applicable	laws	and	regulations

          Board of Directors                             Board of Directors                              Board of Directors



      Integrated Risk Management                     Remuneration Committee                                AGM - Group HR
               Committee


                                                       DGM - Risk Management


                                                          Credit Committee


                                                                  ALCO
                  CEO

                                                          Senior Management
                                                              Committee

                                                         Investment Committee
•	   Formulated	Credit	Policy	manual	to	improve	the	credit	quality	and	apply	uniform	practices	on	evaluation	and	granting	credits	
     across the all branches.
•	   Strengthen	the	staff	of	risk	management	division	with	Head	of	the	unit	at	DGM	level	on	full	time	basis.
•	   Established	Assets	and	Liability	Management	Committee	(ALCO)	with	defined	Terms	of	Reference	reviewed	the	functions	of	ALCO.
•	   Investment	Policy	was	reviewed	and	recommended	for	the	approval	of	the	Board.

The Company was in the process of establishing an independent Risk Management unit and introducing a formal Risk Management
framework. The committee noted that in the absence of a formal mechanism to identify, assess, manage and mitigate the risk, the
Company has been adopting informal practices and following control systems to mitigate the risk.



     Risk                                                            Risk mitigation action

     Credit risk                                                     •	    Centralised	credit	appraisal	process
                                                                     •	    Segregation	of	credit	execution	and	approvals
     The risk of possible loss being incurred as the result of       •	    Established	credit	approval	limits
     a borrower or counter party failing to meet its financial       •	    Approval	of	high	value	facilities	by	the	Board	of	
     obligations.                                                          Directors
                                                                     •	    Asset	category	base	exposure	limits
                                                                     •	    Single	client	exposure	limits
                                                                     •	    Product	based	pricing
                                                                     •	    Close	monitoring	of	performances
                                                                     •	    Maintaining	healthy	provisioning	policy
                                                                     •	    Obtaining	adequate	collateral

     Market risk                                                     •	    Matching	the	duration	of	the	assets	and	liabilities	
                                                                           and review by ALCO
     The risk of potential loss arising from adverse effects on      •	    Timely	re-pricing	of	products
     interest rates, foreign-currency exchange rates, equity         •	    Maintaining	healthy	gearing	ratio
     prices etc.                                                     •	    Scenario	analysis	and	sensitivity	analysis	to	assess	the		
                                                                           impact to earning due to interest rate changes
                                                                     •	    Changes	to	investment	limits	base	on	market	condition

     Liquidity risk                                                  •	    Monitor	Balance	Sheet	liquidity	and	make	improve	
                                                                           ments to maintain healthy gearing ratio and review
     The risk of MBSL being unable to fund assets or meet ob-              by ALCO
     ligations at a reasonable level, in case of extreme market      •	    Prepare	projected	cashflow	statements	regularly	
     volatilities.                                                   •	    Daily	monitoring	of	disbursement	and	collections
                                                                     •	    Timely	re-pricing	of	products
                                                                     •	    Maintain	additional	lines	of	credit	to	use	as	a	buffer
                                                                     •	    Maintain	strong	institutional	Rating
                                                                     •	    Prepare	gap	anlysis	and	take	prompt	actions
                                                                     •	    Close	interaction	between	Finance	division	and	
                                                                           business units for respective cash projections on
                                                                           continual basis

     Operational risk                                                •	    Established	processes	with	internal	controls
                                                                     •	    Segregation	of	duties	between	front	line	employees		
     The risk of loss resulting from inadequate or failed internal         and back office employees
     processes, people and systems or from external events.          •	    Approved	delegated	authority	limits
                                                                     •	    Computer	generated	MIS	for	management	review	on		
                                                                           monthly basis
                                                                     •	    Conduct	Senior	management	meetings	on	regular		
                                                                           basis
                                                                     •	    Internal	audit	department	
                                                                     •	    Maintain	off-site	data	backup	as	per	Disaster	Recovery		
                                                                           Plan requirement
                                                                     •	    Wide	Area	Network	connection	for	all	branch	network		
                                                                           to have real time data
                                                                     •	    Regular	review	on	compliance	with	Statutory	
                                                                           requirement and Central Bank Directions.

     Strategic risk                                                  •	    Preparation	of	Corporate	Plan	and	monthly	budget	for		
                                                                           the financial year
     The risk associated with business plans and strategies          •	    Monthly	review	of	the	performance	with	the	budget		
     including plans for entering new business lines.                      and take corrective actions
                                                                     •	    Prepare	detailed	analysis	on	feasibility	and	profitability		
                                                                           of new activities before implementation
                                                                     •	    Review	industry	trends	and	take	prompt	actions	to	suit		
                                                                           the Company.




V. Kanagasabapathy
Chairman
Integrated Risk Management Committee
Sustainability Report
                                                                             Preserve: Customer
                                                                         Customer success is of paramount importance...

                                                                         At the macro scale…

Sustainable future…                                                      We have assisted our customers to elevate their businesses to
We have strong commitment to provide our customers with                  public scale and increase workforce providing much sought
products and services of unrivalled quality, reliability and             employment in the country. In addition these have enhanced
assurance, which results in improved efficiency and performance          production and in some cases exports as well. While providing
of their businesses.                                                     Capital Market services we also provide comprehensive
                                                                         knowledge through seminars and workshops to educate the
Through applying both our knowledge and experience, together             business sector with proper methods as to improve their levels of
with responsive service attitude of never letting customer down,         production and services.
we are able to develop innovative and seamlessly integrated
success oriented solutions that our customers can depend upon.           Imparting knowledge...

These solutions help increase customers’ productivity and                At the same time we work closely with our clients disseminating
profitability, thus showing that we are not just elevating businesses,   our knowledge through get together events and workshops to
but help accelerate the entire economy.                                  help them understand the modern day challenges before they
                                                                         are faced with them. We have conducted many seminars on
Customer Centricity.                                                     leadership, good governance, public relations, proper accounting
                                                                         and responsibility sharing etc.
Our unique customer centric framework is so designed that a
constant interaction and dialogue between us keeps both parties          These events were patronised by many types of customers who
‘up to speed’ at all times. Periodic ‘Get together’ events have          acknowledged that our efforts enlightening and encouraging. As
enormously helped us to address their needs and problems and             a result they have reoriented some of their activities and have
the resulting trust and confidence has moved both MBSL and the           seen immediate results with high productivity ratio and greater
customers forward.                                                       employee participation.

Integrated enterprise.
                                                                         At the micro scale…
Seamless integration between all parties is at the core of our
operations. Be it funding or knowledge dissemination we have             In November 2010, MBSL commenced providing Micro Lending
been and shall be with them through out. From mega scale                 Facilities to rural sector with the aim of making a contribution to
projects to ‘home businesses’ our personnel, together with our           uplift the living standards of a large number of persons of below
strategic partners keep close contact with our customers as we           poverty line and thus, national production. This scheme, branded
try to ensure uninterrupted running of their businesses.                 as ‘Siyath Saviya’ and MBSL for this purpose joined hands with
                                                                         Agro Development Financial Services (Pvt.) Ltd (ADFSL) through
                                                                         a signing of memorandum of understanding to take it across the
                                                                         country.

                                                                         The “Siyath Saviya” Loan scheme was launched at Kuda
                                                                         Galenbindunuwewa       village   in     Galenbindunuwewa       to
                                                                         commemorate the assumption of office for the second term of his
                                                                         Excellency President Mahinda Rajapakse. Micro Lending facilities
                                                                         were provided to the farmers of this village for the expansion of
                                                                         coconut cultivation.

                                                                         This affiliation helped the Company to take the ‘Siyath Saviya’
                                                                         directly to the real rural areas through wide spread branch network
                                                                         of ADFSL in areas i.e: Kekirawa,Thambuttegama, Hingurakgoda,
                                                                         Wattegama,         Baduraliya,       Narammala,      Ambalanthota,
                                                                         Bandarawela, Yakkalamulla,Galnewa and Galenbindunuwewa.

                                                                         The facilities under this scheme are considered strictly on non -
                                                                         security /collateral basis, but on a comprehensive evaluation
                                                                         of the project and the repayment capacity in order to ensure
                                                                         successful recovery rate.

                                                                         By December 2011 the loans schemes were extended to many
                                                                         other sectors such as vegetable/fruit cultivation,dairy farming,
                                                                         horticulture, fishing industry, tea and coconut cultivation, home
                                                                         businesses and brick /pottery industry.

                                                                         The Company is studying possibilities to extend these facilities for
                                                                         three-wheelers and other small commercial vehicles as well.
development trickling to the very core of the nation
Sustainability Report... cont'd/                                            Preserve: Employee
We are as good as our personnel…

The very success of MBSL Bank over the years has been its
people. The Company recognises that employee engagement
is the key success factor driven towards the positive mind set of
employees who believe that they can make a difference in their
working environment by adding dynamic values to the services
provided by them. Hence the Bank employees work towards
the achievement of mutual beneficial objectives, with personal
goals aligned to overall business goals. The dedication and
commitment by the MBSL Team has taken the Company to newer
heights. The Company’s sterling performance would not have
been possible if not for the concerted team effort that focused
in achieving the Bank’s vision through applying the ideas of the
mission that the Bank has identified.

We recruit the best…

Recruitment Policy has been re-designed giving due consideration
to create equal opportunities in selecting people, maintaining
the consistency and transparency in the selection process, which
is available on-line and awareness is created among employees
at recruitments and at promotions.

As a policy, our aim is to first look internally to fill vacancies
and if needed from external sources. The Company believes
that internal career progression motivates the employees to
develop competencies demand for future growth and employee
sustainability & retention in the Company.

In keeping with our recruitment policy, we have filled the following
vacancies throughout the year.

Grade                          Number

Deputy General Manager               01
Manager                              01
Deputy Manager                       02
Assistant Manager                    01
Executive                            06
Management Trainees                  14
Junior Executive                     05
Staff Assistant                      14
Office Assistant                     06
Total                                50


        Gender-wise                                    Age-wise              Service - wise Analysis of Employees




             Male                                         <25                                  <5
             Female                                        25     -    30                       5    -    10
                                                           31     -    35                      10    -    15
                                                           35     -    40                      15    -    20
                                                          41      -    45                      20    -    25
                                                          46      -    50                      25>
                                                          51      -    56
                                                          56>
                                                          Our Equality Policy Gender - wise

                                                          Employee Productivity Indicators   2010                      2011
              Revenue per Employee                                                        LKR' 000                  LKR'000
              (Company)




                                          9,175
    LKR'000
   10,000
                                                          Revenue per employee                    9,175                7,719




                                  7,862




                                                  7,719
                                                          Net profit per employee                 2,709                1,645




                          7,502
                                                          Value added per employee                5,753                3,629




                6,871
    8,000
                                                          Total Assets per employee              43,271               49,192

    6,000                                                 The Company actively strives towards the creation of a culture of
                                                          learning and nurturing people to understand the future objec-
                                                          tives of the Company. Hence the Company utilizes training & de-
    4,000                                                 velopment as a tool to create a high level functional capabilities
                                                          and emotional balance.

    2,000                                                 The Company’s training needs analysis is based on the data
                                                          gathered in respect of each and every employee from the
                                                          Heads of the Departments. The annual training plan is prepared
         0                                                for the development of the work force in terms of co-banking,
                07        08      09      10       11
                                                          managerial, technical and specially in the areas of knowledge
                                                          and skills development needed.

                                                          Local Training

                                                          A streamlined process of nominating employees for training in
                                                          external institutions has been a regular practice at the Company.
                                                          Such trainings are based on the needs of the Company and
                                                          individual developments and 72 employees were nominated for
                                                          such programmes during the year.

                                                          We also conducted a series of training to enhance practical
                                                          skills of sales & marketing workforce with the assistance of Sri
                                                          Lanka Foundation Institute to further improve skill levels of the
                                                          marketing staff. The Company posses highly experienced internal
                                                          resource personnel in various specialised areas of Banking,
                                                          who perpetually conduct a wide array of in-house training
                                                          programmes. The Company is giving special emphasis on “On-
                                                          the-job-training” to new recruits under the guidance of experts
                                                          specialized in respective areas.

                                                          Overseas Training

                                                          Overseas training opportunities are availed to those deserving
                                                          employees with aspirations of furthering their career skills.

                                                          Name                       Name                           Country
                                                                                     of the Workshop
                                                                                     /Programme

                                                          Ms Chamathi Perera         Course on Advanced             India
                                                                                     Contract Drafting,
                                                                                     Negotiation and
                                                                                     Dispute Management –
                                                                                     3/3/2011 to 4/3/2011

                                                          Ms Fahima Ishar            - Do -                         India


                                                          Mr Charith Wijesuriya      Lending Strategies to MSEs”    India
                                                                                     4/7/2011 to 8/7/2011


                                                          Ms Chandima Weerasekera - Do -                            India

                                                          Two Year Training Programme for Management Trainees :

                                                          This programme is specially designed to serve the purpose of
                                                          training and developing the Management Trainees recruited to
                                                          the Company.They are envisaged to be engaged at managerial
                                                          positions in the future. The Sri Lanka Foundation Institute was
                                                          awarded to carry out this assignment with a collaboration of
                                                          MBSL Bank. It is especially noteworthy to state that the institute has
                                                          carefully and sufficiently added ‘quality value’ and meticulously
                                                          blended the technical sessions accompanying soft skills in
                                                          designing a two year programme.




endless options for career advancement...
Sustainability Report... cont'd/
                                                   Preserve: Employee
                                                   Bank’s Anniversary

                                                   The Bank’s anniversary that falls on 4th March and the 29th
                                                   Anniversary was celebrated with religious ceremonies invoking
                                                   the blessings of all religions. The employees who completed 10
                                                   years and 20 years were recognised at this ceremony.

                                                   Anniversary is an event that every member await with much
                                                   enthusiasm for it is the day that they physically interact with
                                                   distant branch companions once a year. It is the day they put
                                                   all heartburns behind and engage in casual banter and make
                                                   merry. This event has always helped to create an atmosphere of
                                                   camaraderie.

                                                   From Chairman and Board of Directors to the support staff rejoice
                                                   at this event and all are looking forward to 30th Anniversary in
                                                   2012 with much fanfare and spirit.

                                                   Welfare Activities :

                                                   Monthly Meeting with the staff are held by the Departments and
                                                   Branches where they discuss issues and find solutions pertaining
                                                   to customer services, business development, general problem
                                                   solving and grievances with greater effectiveness.

                                                   The Company organizes different social activities including
                                                   religious ceremonies and recreational programmes throughout
                                                   the year to motivate the staff and promote interaction of families
                                                   of staff members in the Company. The Welfare & Recreation Club
                                                   of the Company organised the “Annual Get-Together” which was
                                                   held on 9th December 2011 at Hotel Ramada.

                                                   Recognition

                                                   Every year the Company recognises the true performers and
                                                   managerial prospects. In 2011 also we identified several and are
                                                   hand picked for suitable career advancements.
 MBSL employees enjoying organic food produce...
                                                   Organic foods for employees...

                                                   In order to provide our staff members and their families with
                                                   nutritious food products MBSL Welfare & Recreation Club together
                                                   with United Nation’s Development Program (UNDP) has initiated
                                                   a program to sell indigenous and organic food item at very
                                                   affordable rates. These produce are directly supplied by farmers
                                                   and are branded as ‘Mihirasa’ and genuine treacle/ palmyrah
                                                   products, varieties of organic rice, vegetables, grains and grams,
                                                   fruits, sweetmeats, spices, dried fish products etc are available for
                                                   purchase.

                                                   Community relations - Scholarships for Ranaviru families.

                                                   As a mark of gratitude for our fallen war heroes, In 2009 we joined
                                                   hands with MCSL to establish a Trust Fund to help 50 children of
                                                   those bereaved families.

                                                   This fund will provide financial assistance to them until they
                                                   complete their ordinary level examination. This gesture also is
                                                   a part of our CSR activities to cultivate potential future human
                                                   assets that will be useful to the nation’s needs.

                                                   This is one of our corporate endeavours that will continue until the
                                                   children sit for their G.C.E Ordinary Level examination.




                                    rejoice...	at	the	annual	‘Get Together’
Sustainability Report... cont'd/

                                   Preserve: Community




assistance to whom, ...who needs assistance
Dissemination of knowledge                                         Assistance to terminally ill people

During 2011 the Institute of Chartered Accountants of Sri Lanka    As a humane gesture, the Company donated medical supplies to
(CA Sri Lanka) recognized Merchant Bank of Sri Lanka PLC as a      the Cancer Hospital recently and also offered monetary assistance
Strategic Level training partner.                                  to an individual to support his medical treatment for speedy
We as a training partner, provide practical training to students   recovery.
of CA Sri Lanka, to groom future finance professionals, which in
turn will assists the long term development of the accountancy
profession in the country.




Customer focused workshops

We continued our closer interactive relationships with our         Compliance with Regulatory Requirements
customers with many seminars and workshops focusing on
educating them to conduct their businesses with proper             The Company is fully committed to required regulatory directives
knowledge and understanding at different locations around the      and comply with the monthly and quarterly reporting requirements
country.                                                           to Central Bank of Sri Lanka. The Company also adheres to
                                                                   Central Bank of Sri Lanka – Direction No.5 on Finance Leasing
                                                                   (Reserve Fund) by maintaining a Reserve Fund equivalent to
                                                                   7% of profit for the year.

                                                                   The Company also comply with tax and other reporting requirements
                                                                   set by the respective regulatory authorities.




We also conducted a Seminars and Practical session on Neuro
Linguistic approach to leadership, How to take your company
public and Success stories of Listed Companies in the Share
Market and a session on IFRS Implementation.

Helping Hands

Master Samitha Yohan was elected to represent Sri Lanka at the
Asia Inter cities Teenagers Mathematics Olympiad competition
held in Nepal last year and was presented with a sponsorship for
passage.
Sustainability Report... cont'd/



                                                                          Preserve: Environment




          The peak of ‘Pinnawala Water Fall’ Balangoda - Bogawantalawa Road, Sri Lanka...




                                                                  our efforts to protect,
                                                                  preserve and nurture
                                                                      environment and
                                                             reduce waste of resources
                                                                     will continue with
                                                                            much more
                                                                       determination...
Respect for individuality

Our core tradition of respecting individuality without discrimination
as to race, religion or else is paramount and adherence to
national traditions are always observed in all our endeavours.
Every special event is graced by the blessings from all faiths and
national traditions are upheld where appropriate.

Environment relations…Effective waste management

The environmentally sound initiatives we have established has
become a complete success, as every member is now mindful
of their obligations. The energy saving, waste minimizing and
recycling efforts has become a second nature and the tangible
results are heart warming. The new environment conscious culture
and practices have now extended to their homesteads and
neighbourhoods too.

Their support, be it going green for official or personal purposes,
automatic switch off of unused power sources, not only using trash
bins for discards but constant clearing them for recycling and
supporting every effort that will heal the impaired globe is showing
significantly in the balance sheet.

The upside of this ambitious venture is that the system is now
performing on its own and breeding voluntary commitment from
all sides.
Corporate Governance

Corporate Governance which is identified as an integral part of business operations, encompasses key elements such as
integrity, transparency, equity and adoption of highest standards of business ethics to benefit the interest of stakeholders.
At MBSL, we endeavour to observe and maintain highest standards of corporate governance in all business transactions
to meet stakeholder aspirations.

The Board continuously emphasize on strong financial discipline in the interest of long term stability of the Company on
the one hand and towards building long –term shareholder value on the other.
The Board believes the Company has a sound corporate governance framework, good processes for the accurate and
timely reporting of financial position and results of operations and an effective and vigorous system of internal control.

The Company complies with Listing Rules issued by the Colombo Stock Exchange as well as the Finance Leasing
(Corporate Governance) Direction No.4 of 2009 issued by the Central Bank of Sri Lanka under section 34 of the Finance
Leasing Act No.56 of 2000.




      Compliance with Listing Requirements on Corporate Governance Rules for Listed Companies issued by
                                        the Colombo Stock Exchange




    CSE Rule No.             Governance Requirement                                   Compliance status


    7.10.1                   Non-Executive Directors

                             Non-Executive Directors                                  All eight directors who comprise the
                                                                                      Board are Non-executive Directors
                             a.     The board of directors of a Listed Entity shall
                                    include at least,
                             -      two non-executive directors; or
                             -      such number of non-executive directors
                                    equivalent to one third of the total number
                                    of directors which ever is higher

                                 b. The total number of directors is to be calcu
                                     lated based on the number as at the
                                     conclusion of the immediately preceding
                                     Annual General Meeting

                                 c. any change occurring to this ratio shall be
                                    rectified within ninety (90) days from the
                                    date of the change.


    7.10.2                   Independent Directors

                                 a. Where the constitution of the board of            Five out of the eight Directors are inde-
                                    directors includes only two non-executive         pendent in terms of the criteria defined
                                    directors in terms of Rule 7.10.1 above, both     by CSE Rule 7.10.4 on Corporate Govern-
                                    such non-executive directors shall be “inde       ance
                                    pendent “.In all other instances two or1/3rd
                                    of non-executive directors appointed to the
                                    board of directors which ever higher shall
                                    be “independent”

                                 b. The board shall require each non-executive        All non-executive directors have submit-
                                    director to submit a signed and dated             ted their declarations on Independence
                                    declaration annually of his/her independ          in conformity with Appendix 7A
                                    ence or non-independence against the
                                    specified criteria.
CSE Rule No.   Governance Requirement                                      Compliance status


7.10.3         Disclosure relating to Directors

               a.   The board shall make a determination annually          The Board reviewed the declarations
                    as to the independence or non-independence             on independence of directors and
                    of each non-executive director based on such           determined their independence.
                    declaration and other information available to
                    the board and shall set out in the annual report
                    the names of directors determined to be inde
                    pendent

               b.   In the event a director does not qualify as “          As the Board has adequate number
                    inde pendent” against any of the criteria set out      of independent directors, there was
                    below but if the board, taking into account all        no requirement to specify a director
                    the circumstances, is of the opinion that the          as independent beyond the criteria
                    director is nevertheless “independent” the board       set out by the CSE.
                    shall specify the criteria not met and the basis for
                    its determination in the annual report.

               c.   In addition to disclosures relating to the independ    Resume of each Director is given on
                    ence of a director set out above, the board shall      pages 8 and 9 of the Annual Report.
                    publish in its annual report a brief resume of each
                    director on its board which includes information
                    on the nature of his/her expertise in relevant func
                    tional areas.

               d.   Upon appointment of a new director to its board,       There were no new appointments
                    the Entity shall forthwith provide to the Exchange     to the Board during the year under
                    a brief resume of such director for dissemination      review
                    to the public. Such resume shall include informa
                    tion on the matters itemized in paragraphs (a),(b)
                    and (c) above.



7.10.5         Remuneration Committee

               a. Composition

               The Remuneration Committee shall comprise ;                 Remuneration Committee consists of
               of a minimum of two independent non-executive               four Non-executive Directors, three of
               directors (in instances where an Entity has only two        whom are independent.
               directors on its Board);
                   or
                of non-executive directors a majority of whom shall
               be independent, which ever is higher.

               One non-executive director shall be appointed as
               Chairman of the committee by the board of directors

               b.   Functions

               The Remuneration Committee shall recommend the              Please refer the Report of the Remu-
               remuneration payable to the executive directors and         neraton Committee on page 69 of
               Chief Executive Officer of the Listed Entity and/or         the Annual Report
               equivalent position thereof, to the board of the Listed
               Entity which will make the final determination upon
               consideration of such recommendations.


               c.   Disclosure in the Annual Report

               The annual report should set out the names of               The names of the members of the
               directors (or persons in the parent company’s               Remuneration Committee are given
               committee in the case of a group company)                   in the Report of the Remuneraation
               comprising the remuneration committee, contain              Committee on page 69. Fees paid
               a statement of the remuneration policy and set out          to Directors are disclosed in Notes to
               the aggregate paid to executive and non-executive           Financial Statements on page 112 of
               directors.                                                  the Annual Report.
Corporate Governance...cont’d/
   CSE Rule No.    Governance Requirement                                 Compliance status/


   7.10.6          Audit Committee

                   a. Composition
                                                                          The Audit Committee was reconsti-
                    The audit committee shall comprise;                   tuted with Five Non- executive Direc-
                    of a minimum of two independent non-executive         tors with a view to ensure effective
                   directors (in instances where an Entity has only       functioning of the Committee. The
                   two directors on its board);                           Chairman of the Committee is the
                                                                          alternate director and Chairman of
                    or                                                    the Audit Committee of the parent
                                                                          company. He is the only member on
                   of non-executive directors a majority of whom          the Board having membership in a
                   shall be independent, which ever shall be higher.      professional accounting body.
                   One non-executive director shall be appointed as
                   the Chairman of the committee by the board of
                   directors

                   Unless otherwise determined by the audit
                   committee, the Chief Executive Officer and the
                   Chief Financial Officer of the Listed Entity shall
                   attend audit committee meetings.
                   The Chairman or one member of the committee
                   should be a Member of a recognized professional
                   accounting body.

                   b.    Functions

                        Shall include,

                   (i) Overseeing of the preparation, presentation,
                   and adequacy of disclosures in the financial state-
                   ments of a Listed Company, in accordance with
                   Sri Lanka Accounting Standards.

                   (ii) Overseeing of Entity’ s compliance with finan-
                   cial reporting requirements, information require-
                   ments of the Companies Act and other relevant          The functions of the Audit Committee
                   financial reporting related regulations and require-   are given in the Report of the Audit
                   ments.                                                 Committee on page 70.

                   (iii) Overseeing the processes to ensure that the
                   Entity’s internal controls and risk management are
                   adequate to meet requirements of the Sri Lanka
                   Auditing Standards.

                    (iv) Assessment of the independence and per-
                   formance of the Entity’s external auditors.

                   (v) To make recommendations to the board
                   pertaining to appointment, re-appointment and
                   removal of the external auditors.

                   c.    Disclosure in the Annual Report

                   The names of the directors (or persons in the
                   parent company’s committee in the case of a
                   group company) comprising the audit committee          The names of members of the Audit
                   should be disclosed in the annual report.              Committee and its Report are given
                                                                          on page 70.
                   The committee shall make a determination of the
                   independence of the auditors and shall disclose
                   the basis for such determination in the annual         The Audit Committee reviews the
                   report.                                                performance of the external auditors
                                                                          and is of the view they are independ-
                   The annual report shall contain a report by            ent and do not have any interest
                   the audit committee setting out the manner of          in contracts of the company or its
                   compliance by the Entity in relation to the above,     subsidiaries and / or its associate
                   during the period to which the annual report           company.
                   relates.
          FINANCE LEASING (CORPORATE GOvERNANCE) dIRECTION N0.4 0F 2009 FOR
                       REGISTEREd FINANCE LEASING ESTABLIShMENTS

Section      Governance Requirement                                       Compliance status


2            The Responsibilities of the Board


             (1) The Board of Directors (hereinafter referred             The Board is responsible for formulat-
             to the Board) shall strengthen the safety and                ing overall strategies of the Company,
             soundness of the relevant establishment by-                  reviewing & updating risk management
                                                                          mechanisms and ensuring adequacy
             a) approving and overseeing the relevant estab-              and effectiveness of internal systems &
             lishment’s strategic objectives and corporate                controls.
             values and ensuring that such objectives and
             values are communicated throughout the relevant
             establishment;

             b) approving the overall business strategy of the            The Board has also established appro-
             relevant establishment, including the overall risk           priate processes to cover the following:
             policy and risk management procedures and
             mechanisms with measurable goals, for at least               (i) identification of key management
             immediate next three years;                                  personnel who could influence policy,
                                                                          direct initiatives , exercise control over
             c) identifying risks and ensuring implementation of          business operations & activities and risk
             appropriate systems to manage the risks prudently;           management.

             d) approving policy of communication with all                (ii) identification of authority and key
             stake holders, including lenders, creditors, share-          responsibilities of the Board and those
             holders ad borrowers;                                        of the Senior Management

             e) reviewing the adequacy and the integrity of the           (iii) oversight of affairs of the Company
             relevant establishment's internal control systems            to assess the effectiveness of the Com-
             and management information systems;                          pany’ s governance practices

             f) identifying and designing key management                  (iv) review of policy and progress to-
             personnel who are in a position to (i) significantly         wards corporate objectives
             influence policy ;(ii) direct initiatives; and (iii) exer-
             cise control over business activities, operations and        (v) importance of adhering to regula-
             risk managements;                                            tory requirements

             g) defining the areas of authority and key respon-           Since there was no recruitment policy
             sibilities for the Board and for the key management          in the Company focused on a succes-
             personnel                                                    sion plan, the Company has formulated
                                                                          a Board approved recruitment policy
             h) ensuring that there is appropriate oversight of           and subsequently recruited a team of
             the affairs of the relevant establishment by key             management trainees together with
             management personnel, that is consistent with the            officials to the Senior Management in
             relevant establishment’s policy;                             order to outline a succession plan on a
                                                                          long term basis. Similarly over a period
             i) periodically assessing the effectiveness of its           of time, recruitment to the senior man-
             governance practices, including                              agement positions will be effected to
                                                                          address the short term succession plan.
             (i) the selection, nomination and election of
             directors and appointment
             of key management personnel; (ii) the
             management of conflicts of interests; and

             (iii) the identification of weaknesses and
             implementation of changes where necessary;
             j)ensuring that the relevant establishment has an
             appropriate succession plan for key management
             personnel;

             k) meeting regularly with the key management
             personnel to review policies, establish lines of com-
             munication and monitor progress towards corpo-
             rate objectives;

             l) understanding the regulatory environment

             m) exercising due diligence in the hiring and
             oversight of external auditors

             (2) The Board shall appoint the Chairman and                 Chairman and the Chief Executive
             chief executive officer (CEO)and define and                  Officer are appointed in terms of the
             approve the functions and responsibilities of the            paragraph 7 of the Direction.
             chairman and CEO in line with paragraph 7 of the
             Direction
Corporate Governance...cont’d/
   Section         Governance Requirement                                     Compliance status/



                   (3) There shall be procedure determined by the             The Company obtains independent pro-
                   Board to enable directors, upon reasonable                 fessional advice where necessary.
                   request, to seek independent professional advice
                   in appropriate circumstances, at the relevant
                   establishment’s expense. The Board shall resolve
                   to provide separate independent professional ad-
                   vice to directors to assist the relevant director(s) to
                   discharge the duties to the relevant establishment.

                   (4) A Director shall abstain from voting on any            No such circumstances arose in the Board
                   Board resolution in relation to matter to which he         during the financial year under review.
                   or any of his relatives or a concern, in which he
                   has substantial interest, is interested and he shall
                   not be counted in the quorum for the relevant
                   agenda item at the Board meeting.

                   (5) The Board shall have a formal schedule of mat-         Matters to be referred to the Board are
                   ters specifically reserved to it for decision to ensure    listed in the Delegated Authority Manual.
                   that the direction and control of the relevant
                   establishment is firmly under its authority.

                   (6) The Board shall, if it considers that the relevant     N/A
                   establishment is, or is likely to be, unable to meet
                   its obligations or is about to become insolvent or
                   is about to suspend payments due to lenders and
                   other creditors, forthwith inform the Director of the
                   Department of Supervision of Non-Bank Financial
                   Institutions of the situation of the relevant establish-
                   ment prior to taking any decision or action.

                   (7) The Board shall include in the relevant estab-         Corporate Governance Report is included
                   lishment’s Annual Report, an annual corporate              in the Annual Report in page 46.
                   governance report setting out the compliance
                   with this Direction.

                   (8) The Board shall adopt a scheme of self –as-            The Board has initiated action to adopt a
                   sessment to be undertaken by each director an-             scheme of self assessment
                   nually, and maintain records of such assessment.



   3               Meetings of the Board

                   (1) The Board shall meet at least twelve times a           The Board met twenty five times during the
                   financial year at approximately monthly intervals.         financial year under review.
                   Obtaining the Board’s consent through the circula-
                   tion of written or electronic resolution/papers shall
                   be avoided as far as possible.

                   (2) The Board shall ensure that arrangements are           Although the arrangements are in place,
                   in place to enable all directors to include matters        no such proposals have emerged.
                   and proposals in the agenda for regular Board
                   meetings where such matters and proposals
                   relate to the promotion of business and the man-
                   agement of risks of the relevant establishment.

                   (3) A notice of at least 7 days shall be given of a        Adequate notice is given to Directors to
                   regular Board meeting to provide all directors an          attend regular meetings and reasonable
                   opportunity to attend. For other Board meetings,           notice for special meetings.
                   reasonable notice shall be given.

                   (4) A director who has not attended at least two-          The attendance of Directors at meetings
                   thirds of the meetings in the period of 12 months          has been regular.
                   immediately preceding or has not attended the
                   immediately preceding three consecutive meet-
                   ings held, shall cease to be a director. Provided,
                   that participation at the director’s meetings
                   through an alternate director shall, however, be
                   acceptable as attendance.
Section   Governance Requirement                                     Compliance status


          (5) The Board shall appoint a company secretary             The Board has appointed the Company
          whose primary responsibilities shall be to handle the      Secretary who carries out secretarial services
          secretarial services to the Board and shareholder          to the Board and shareholder meetings and
          meetings and to carry out other functions specified        other functions specified in the statutes and
          in the statutes and other regulations.                     other regulations.

          (6) If the chairman has delegated to the company           The agenda for Board meetings are prepared
          secretary the function of preparing the agenda for         by the Company Secretary under the advice
          a Board meeting, the company secretary shall be            of the Chairman.
          responsible for carrying out such function.

          (7) All directors shall have access to advice and          The Company Secretary provides all neces-
          services of the company secretary with a view to           sary assistance to directors.
          ensuring that Board procedures and all applicable
          laws, directions, rules and regulations are followed.

          (8) The company secretary shall maintain the               Minutes of Board meetings are available for
          minutes of Board meetings and such minutes shall           inspection upon reasonable notice.
          be open for inspection at any reasonable time, on
          reasonable notice by any director.

          (9) Minutes of Board meetings shall be recorded in         The Board minutes contain all relevant infor-
          sufficient detail so that it is possible to gather from    mation and data considered by the Board for
          the minutes, as to whether the Board acted with            deliberations, explanations and confirmations
          due care and prudence in performing its duties. The        given by officers of the Company relating to
          minutes of Board meeting shall clearly contain or          compliance with relevant laws and regula-
          refer to the following: (a) a summary of data and in-      tions, views and opinions expressed by direc-
          formation used by the Board in its deliberations; (b)      tors on various aspects of matters which
          the matters considered by the Board; (c) the fact          were deliberated including risk mitigation
          finding discussions and the issues of contention or        measures etc.
          dissent which may illustrate whether the Board was
          carrying out its duties with due care and prudence;
          (d) the explanations and confirmations of relevant
          executives which indicate compliance with the
          Board’s strategies and policies and adherence to
          relevant laws and regulations; (e) the Board’s knowl-
          edge and understanding of the risks to which the
          relevant establishment is exposed and an overview
          of the risk management measures adopted; and(f)
          the decisions and Board resolutions.


          Composition of the Board
4
          (1)Subject to the transitional provisions contained        The Board including the Chairman, comprises
          herein, the number of directors on the Board shall         of eight Non –executive Directors.
          not be less than 5 and not more than 9.

          (2) Subject to paragraph 5(1) and the transitional         N/A
          provisions contained herein, the total period of
          service of a director other than a director who holds
          position of chief executive officer or executive direc-
          tor shall be inclusive of total period of service served
          by such director up to the date of this direction.

          (3) Subject to the transitional provisions contained       The Company has not appointed any execu-
          herein, an employee of a relevant establishment            tive directors.
          may be appointed, elected or nominated as a
          director of the relevant establishment (hereinafter
          referred to as an “executive director”) provided that
          a number of executive directors shall not exceed
          one-half of the number of directors of the Board. In
          such an event, one of the executive directors shall
          be the chief executive officer of the company.

          (4) Commencing 01.01.2013, the number of                   Noted for compliance
          independent non-executive directors of the board
          shall be at least one fourth of the total number of
          directors.
Corporate Governance...cont’d/
   Section         Governance Requirement                                      Compliance status


                   (5) In the event an alternate director is appointed         No alternate directors have been appoint-
                   to represent an independent non-executive director.         ed to the Board.
                   The person so appointed shall also meet the criteria
                   that apply to the independent non-executive direc-
                   tor.

                   (6) Non-Executive directors shall have necessary            Directors qualifications and experience are
                   skills and experience to bring an objective judg-           given in pages 8 and 9.
                   ment to bear on issues of strategy, performance and
                   resources.

                   (7) Commencing 01.01.2013, a meeting of the                 Noted for compliance
                   board shall not be duly constituted, although the
                   number of directors required to constitute the quo-
                   rum at such meeting is present, unless at least one
                   third of the number of directors that constitute the
                   quorum at such meeting are non-executive directors

                   (8)The independent non-executive directors shall be         Noted for compliance
                   expressly identified as such in all corporate com-
                   munications that disclose the names of directors of
                   the relevant establishment. The relevant establish-
                   ment shall disclose the composition of the board,
                   by category of directors, including the names of the
                   chairman, executive directors, non-executive direc-
                   tors and independent non-executive directors in the
                   annual corporate governance report which shall be
                   an integral part of its annual report.

                   (9) There shall be a formal, considered and transpar-       N/A
                   ent procedure for the appointment of new directors
                   to the board. There shall also be procedures in place
                   for the orderly succession of appointments to the
                   board.

                   (10)All directors appointment to fill a casual vacan-       All directors appointed to fill casual vacan-
                   cy shall be subject to election by shareholders at the      cies on the Board (except nominee direc-
                   first general meeting after their appointment.              tors) are subject to election by shareholders
                                                                               at the general meeting following their
                                                                               appointment.

                   (11) If a director resigns or is removed from office, the   There were no resignations from the directo-
                   Board shall announce to the shareholders and notify         rate during the year under review.
                   the Director of the Department of Supervision of
                   Non-Bank Financial Institutions regarding resignation
                   of the director or removal and the reasons for such
                   resignation or removal, including but not limited to
                   information relating to the relevant director’s disa-
                   greement with the Board ,if any.


   5               Criteria to assess the fitness and propriety of             All the Directors are below the age of 70
                   directors                                                   years.


                   (1)Subject to the transitional provisions contained
                   herein, a person over the age of 70 years shall not
                   serve as a director of a relevant establishment.

                   (2) A director of a relevant establishment shall not        Not relevant.
                   hold office as a director or any other equivalent
                   position in more than 20 companies/societies/
                   bodies/corporate, including associate companies
                   and subsidiaries of the relevant establishment.
                   Provided that such director shall not hold office of
                   a director or any other equivalent position in more
                   than 10 companies that are classified as Specified
                   Business Entities in terms of the Sri Lanka Accounting
                   and Auditing Standards Act No.15 of 1995.
Section   Governance Requirement                                    Compliance status

6         Management functions delegated to the Board

          (1) The Board shall not delegate any matters to a         Complied with
          board committee, chief executive officer, execu-
          tive directors or key management personnel, to
          an extent that such delegation would significantly
          hinder or reduce the ability of the Board as a whole
          to discharge its functions.

          (2) The Board shall review the delegation of proc-        The Board regularly reviews the delegation
          esses in place on a periodic basis to ensure that         process.
          they remain relevant to the needs of the relevant
          establishment.

7         The Chairman and the Chief Executive Officer

          (1) The roles of the chairman and the chief execu-        The positions of the Chairman and the
          tive officer shall be separated and shall not be          Chief Executive Officer are held by two dif-
          performed by the one and the same person after            ferent individuals.
          three years commencing from January 1, 2010.

          (2) The chairman shall be a non-executive director.       Complied with.
          In the case where the chairman is not an inde-
          pendent non-executive director, the Board shall
          designate an independent non-executive director
          as the Senior Director with suitably documented
          terms of reference to ensure a greater independent
          element. The designation of the Senior Director shall
          be disclosed in the relevant establishment’s Annual
          Report.

          (3) The Board shall disclose in its corporate govern-     The name of the chairman and the acting
          ance report, which shall be an integral part of its       chief executive officer are stated in pages
          Annual Report, the name of the chairman and               8 and 22 of the Annual Report.
          the chief executive officer and the nature of any
          relationship [including financial, business, family
          or other material /relevant relationship(s)], if any,
          between the chairman and the chief executive
          officer and the relationships among members of
          the Board.

          (4) The chairman shall :                                  The Chairman ensures that all important
          (a) provide leadership to the Board;                      matters concerning the Company are
                                                                    deliberated by the Board of Directors in
          (b) ensure that the Board works effectively and           a timely manner in order that the Board
          discharges its responsibilities; and                      works effectively and discharges its respon-
                                                                    sibilities The Directors have continuous
          (c) ensure that all key issues are discussed by the       access to Company’s information from a
          Board in a timely manner.                                 variety of sources. All relevant information
                                                                    and documents required by the Directors
          (5) The chairman shall be primarily responsible           are provided for deliberations. The Directors
          for the preparation of the agenda for each Board          dedicate adequate time to discharge their
          meeting. The chairman may delegate the function           duties and responsibilities. The agenda
          of preparing the agenda to the company secretary.         for board meetings is prepared by the
                                                                    company secretary as directed by the
          (6) The chairman shall ensure that all directors are      chairman.
          informed adequately and in a timely manner of
          the issues arising at each Board meeting.
                                                                    The chairman briefs the directors of all
          (7) The chairman shall encourage each director            issues arising at Board meetings sufficiently
          to make full and active contribution to the Board’s       and on time.
          affairs and take the lead to ensure that the Board
          acts in the best interests of the relevant establish-
          ment.                                                     There are no executive directors on the
                                                                    Board at present.
          (8) The chairman shall facilitate the effective contri-
          bution of non-executive directors in particular and
          ensure constructive relationships between execu-
          tive and non-executive directors.

          (9) Subject to the transitional provisions contained      The Chairman does not supervise the
          herein, the chairman shall not engage in activities       operations and business of the Company.
          involving direct supervision of key management
          personnel or any other executive duties whatsoever.
Corporate Governance...cont’d/
   Section         Governance Requirement                                Compliance status


                   (10) The chairman shall ensure that appropriate       The Annual General Meeting (AGM), Annual
                   steps are taken to maintain effective                 Report and Interim Financial Statements of
                   communication with shareholders and that the          the Company are the principal means of
                   views of the shareholders are communicated to         communication with shareholders. The Board
                   the Board.                                            invites the shareholders to raise their concerns
                                                                         on the affairs of the Company at the AGM
                                                                         as a means of maintaining an appropriate
                                                                         dialogue with them. The external Auditors
                                                                         and Lawyers are also present at the AGM to
                                                                         answer any queries raised by shareholders.

                   (11) The chief executive officer shall function       The acting chief executive officer is in charge
                   as the apex executive-in-charge of day-to-day         of the Company’s day to day operations and
                   management of the relevant establishment’s            business.
                   operations and business.




   8               Board appointed Committees

                   (1)Every relevant establishment shall have at         The Audit Committee, Remuneration Com-
                   least two board committees set out in paragraph       mittee and the Integrated Risk Management
                   8(2) and 8(3) hereof. Each committee shall            Committee which are Board appointed sub
                   report directly to the board. Each committee          committees, regularly report to the Board.
                   shall appoint a secretary to arrange its meetings,
                   maintain minutes, records and carryout such
                   other secretarial functions under the supervision
                   of the chairman of the committee. The board
                   shall present a report on the performances, duties
                   and functions of each committee, at the annual
                   general meeting of the relevant establishment.

                   (2) Audit Committee
                   The following shall apply in relation to the Audit
                   Committee:

                   a)The chairman of the committee shall be a non-       The Chairman of the Audit Committee
                   executive director who possesses qualifications       is a non-executive director with required
                   and experience in accountancy and/or audit.           qualifications & experience.

                   b) The majority of the board members appointed        Complied with.
                   to the committee shall be non-executive directors.

                   c) The committee shall make recommendations           Complied with.
                   on matters in connection with: (i) the appointment
                   of the external auditor for audit services to
                   be provided in compliance with the relevant
                   statutes; (ii) the implementation of the Central
                   Bank guidelines issued to external auditors from
                   time to time, (iii) the application of the relevant
                   accounting standards; and (iv) the service period,
                   audit fee and any resignation or dismissal of the
                   external auditor, provided that the engagement of
                   an audit partner shall not exceed five years, and
                   that the particular audit partner is not re-engaged
                   for the audit before the expiry of three years from
                   the date of the completion of the previous term.

                   d) The committee shall review and monitor the         Complied with.
                   external auditor’s independence and objectivity
                   and the effectiveness of the audit processes in
                   accordance with applicable standards and best
                   practices.
Section   Governance Requirement                                   Compliance status


          e) The committees shall develop and implement            The external auditors do not provide any
          a policy with the approval of the board on the           non audit services to the Company.
          engagement of an external auditor to provide
          non-audit services that are permitted under the
          relevant statutes, regulations, requirements and
          guidelines. In doing so, the committee shall ensure
          that provision by an external auditor of non-audit
          services does not impair the external auditor’s
          independence or objectivity. When assessing the
          external auditors independence or objectivity in
          relation to the provision of non-audit services, the
          committee shall consider:

          (i)Whether the skills and experience of the auditor
          make it a suitable provider of the non-audit
          services;

          (ii))Whether there are safeguards in place to
          ensure that there is no threat to the objectivity
          and/or independence in the conduct of the audit
          resulting from the provision of such services by the
          external auditor; and

          (iii)Whether the nature of the non-audit services,
          the related fee levels individually and in aggregate
          relative to the auditor, pose any threat to the objec-
          tivity and/or independence of the external auditor.

          f) The committee shall, before the audit                 Complied with.
          commences, discuss and finalize with the external
          auditors the nature and scope of the audit,
          including: (i) an assessment of the relevant
          establishment’s compliance with directions
          issued under the Act and the management’s
          internal controls over financial reporting; (ii) the
          preparation of financial statements in accordance
          with relevant accounting principles and reporting
          obligations; and (iii) the coordination between
          auditors where more than one auditor is involved.

          g) The committee shall review the financial              The Committee reviews Company’s
          information of the relevant establishment, in order      financial statements including the quarterly
          to monitor the integrity of the financial statements     unaudited financial statements and the
          of the relevant establishment, its Annual Report,        audited financial statements prior to
          accounts and periodical reports prepared for             recommending same to the Board for
          disclosure, and the significant financial reporting      approval.
          judgments contained therein. In reviewing the
          relevant establishment's Annual Report and
          accounts and periodical reports before submission
          to the Board, the committee shall focus particularly
          on: (i) major judgmental areas; (ii) any changes in
          accounting policies and practices; (iii) significant
          adjustments arising from the audit; (iv) the going
          concern assumption; and (v) the compliance with
          relevant accounting standards and other legal
          requirements.

          h)The committee shall discuss issues, problems           Necessity not arisen.
          and reservations arising from the interim and final
          audits, and any matters the auditor may wish to
          discuss including those matters that may need to
          be discussed in the absence of key management
          personnel, if necessary.
Corporate Governance...cont’d/

   Section         Governance Requirement                                       Compliance status


                   i) The committee shall review the external audi-             The external auditor’s management letter
                   tor's management letter and the management's                 and the management response thereto
                   response thereto                                             were discussed by the Committee with ex-
                                                                                ternal auditors in attendance. Please refer
                   j) The committee shall take the following steps with
                   regard to the internal audit function of the relevant        the Audit Committee report on page 70 for
                   establishment:                                               further details.

                   (i)Review the adequacy of the scope, functions and           The Audit Committee reviews the scope,
                   resources of the internal audit department, and              functions and resources of the internal au-
                   satisfy itself that the department has the necessary         dit division periodically. The Committee also
                   authority to carry out its work;                             monitors and reviews the coverage of the
                                                                                annual audit plan, follow up action taken
                   (ii) Review the internal audit programme and results
                   of the internal audit process and, where necessary,          on recommendation of the internal audit
                   ensure that appropriate actions are taken on the             etc. The Committee endeavours to ensure
                   recommendations of the internal audit department;            that the internal audit functions independ-
                                                                                ently, impartially and professionally.
                   (iii)Review any appraisal or assessment of the per-
                   formance of the head and senior staff members of
                   the internal audit department;
                   (iv)Recommend any appointment or termination
                   of the head, senior staff members and outsourced
                   service providers to the internal audit function;

                   (v) Ensure that the committee is apprised of resigna-
                   tions of senior staff members of the internal audit
                   department including the chief internal auditor and
                   any outsourced service providers, and to provide an
                   opportunity to the resigning senior staff members
                   and outsourced service providers to submit reasons
                   for resigning;

                   (vi) Ensure that the internal audit function is
                   independent of the activities it audits and that it
                   is performed with impartiality, proficiency and due
                   professional care;

                   k) The committee shall consider the major find-              Significant findings of the Internal Audit
                   ings of internal investigations and management's             are deliberated by the Committee with the
                   responses thereto;
                                                                                Management and recommendations are
                                                                                referred to the Board.

                   l) The chief finance officer, the chief internal auditor     Please refer the Audit Committee Report on
                   and a representative of the external auditors may            page 70 for details.
                   normally attend meetings. Other Board members
                   and the chief executive officer may also attend
                   meetings upon the invitation of the committee. How-
                   ever, at least once in six months, the committee shall
                   meet with the external auditors without the executive
                   directors being present.

                   m)The committee shall have: (i) explicit authority to
                   investigate into any matter within its terms of refer-
                   ence; (ii) the resources which it needs to do so; (iii)
                   full access to information; and (iv) authority to ob-
                   tain external professional advice and to invite outsid-
                   ers with relevant experience to attend, if necessary.

                   n) The committee shall meet regularly, with due              The Committee meets once a month with
                   notice of issues to be discussed and shall record            due notice of the agenda containing
                   its conclusions in discharging its duties and                matters for discussion. Special meetings are
                   responsibilities.                                            also convened when required.
                   o) The Board shall, in the Annual Report, disclose in        Please refer page 60 of this report for
                   an informative way, (i) details of the activities of the     details of attendance of each individual
                   audit committee; (ii) the number of audit committee
                   meetings held in the year; and (iii) details of attend-      member at committee meetings.
                   ance of each individual member at such meetings.

                   p) The secretary to the committee (who may be the            The company secretary records and main-
                   company secretary or the head of the internal audit          tains proceedings of committee meetings.
                   function) shall record and keep detailed minutes of
                   the committee meetings.

                   q)The committee shall review arrangements by                 The Company has introduced a “whistle
                   which employees of the relevant establishment may,           blowing policy” to enable employees to
                   in confidence, raise concerns about possible impro-          report any irregularities of the Company.
                   prieties in financial reporting, internal control or other   In the event of any improprieties being
                   matters. Accordingly, the committee shall ensure             reported, the Internal Audit is authorised
                   that proper arrangements are in place for the fair
                   and independent investigation of such matters and            to carry out an immediate inquiry into the
                   for appropriate follow-up action and to act as the           matter and report its observations to the
                   key representative body for overseeing the relevant          Chairman and the Audit Committee.
                   establishment's relations with the external auditor.
Section   Governance Requirement                                     Compliance status


          (3) Integrated Risk Management Committee                   Please refer the Report of the Integrated Risk
                                                                     Management Committee on pages 34 and
          The following shall apply in relation to the Integrated    35 for details.
          Risk Management
          Committee:

          a) The committee shall consist of at least one
          non-executive director, chief executive officer
          and key management personnel supervising
          broad risk categories, i.e., credit, market, liquidity,
          operational and strategic risks. The committee
          shall work with key management personnel closely
          and make decisions on behalf of the Board within
          the framework of the authority and responsibility
          assigned to the committee.

          b) The committee shall assess all risks, i.e, credit,
          market, liquidity, operational and strategic risks
          to the relevant establishment on a monthly
          basis through appropriate risk indicators and
          management information. In the case of subsidiary
          companies and associate companies, risk
          management shall be done, both on the relevant
          establishment basis and group basis.

          c) The Committee shall review the adequacy and
          effectiveness of all management level committees
          such as the credit committee and the asset –liability
          committee to address specific risks and to manage
          those risks within quantitative risk limits as specified
          by the committee.

          d) The committee shall take prompt corrective
          action to mitigate the effects of specific risks in the
          case such risks are at levels beyond the prudent
          levels decided by the committee on the basis of the
          relevant establishment’s policies and regulatory and
          supervisory requirements.

          e) The Committee shall, at least quarterly, assess all
          aspects of risk management including updated
          business continuity plans.

          f) The committee shall take appropriate actions
          against officers responsible for failure to identify
          specific risks and take prompt corrective actions
          as recommended by the committee, and/or as
          directed by the Director of the Department of
          Supervision of Non-Bank Financial Institutions of the
          Central bank of Sri Lanka.

          g) The Committee shall submit a risk assessment
          report within a week of each meeting to the Board
          seeking the Board’s views, concurrence and/or
          specific directions.

          h) The committee shall establish a compliance
          function to assess the relevant establishment’s
          compliance with laws, regulations, directions, rules ,
          regulatory guidelines, internal controls and ap-
          proved policies on all areas of business operations.
          A dedicated compliance officer selected from
          key management personnel shall carry out the
          compliance function and report to the committee
          periodically.

9         Related Party Transactions
                                                                     Necessary steps are being taken to avoid
          (2) The Board shall take necessary steps to avoid
          any conflicts of interest that may arise from any          any conflict of interest with related parties.
          transaction of the relevant establishment with
          any person, and particularly with the following
          categories of persons who shall be considered
          as “related parties” for the purposes of this Direction:

          a)A subsidiary of the relevant establishment;

          b)Any associate company of the relevant establish-
          ment;

          c)A director of the relevant establishment;
Corporate Governance...cont’d/
   Section         Governance Requirement                                   Compliance status


                   d)A key management personnel of the relevant
                   establishment;

                   e)A relative of a director or a key management
                   personnel of the relevant establishment ;




                   (4)The Board shall ensure that the relevant estab-       Complied with
                   lishment does not engage in transactions with a
                   related party in a manner that would grant such
                   party “more favourable treatment” than that is ac-
                   corded to an unrelated comparable counterparty
                   of the relevant establishment. For the purpose of this
                   paragraph "more favourable treatment” shall mean:

                   a) Granting of "total net accommodation” to a
                   related party, exceeding a prudent percentage
                   of the relevant establishment's regulatory capital,
                   as determined by the Board. The "total net
                   accommodation" shall be computed by deducting
                   from the total accommodation, the cash collateral
                   and investments made by such related party in the
                   relevant establishment's share capital and debt
                   instrument with a remaining maturity of 5 years..

                   b) Charging a rate of interest lower than the relevant
                   establishment's best lending rate or paying a rate of
                   interest exceeding the rate paid for a comparable
                   transaction with an unrelated comparable
                   counterparty. outstanding in respect of each
                   category of related parties as a percentage capital
                   funds of the relevant establishment'

                   c) Providing preferential treatment, such as
                   favourable terms, covering trade losses and/or
                   waiving fees/commissions, that extends beyond the
                   terms granted in the normal course of business with
                   unrelated parties;

                   d) Providing or obtaining services to or from a
                   related-party without a proper evaluation procedure;

                   e) Maintaining reporting lines and information flows
                   between the relevant establishment and any relate
                   party which may lead to share proprietary, confiden-
                   tial or otherwise sensitive information that may give
                   benefits to such related party, except as required for
                   performance of legitimate duties and functions.


                   Disclosures
   10
                   (1) The Board shall ensure that annual audited           The annual audited financial statements
                   financial statements and periodical financial            and interim financial statements of the
                   statements are prepared and published in accord-         Company are published in compliance
                   ance with the requirements of the regulatory and         with accounting standards and applicable
                   supervisory authorities and applicable accounting        laws.
                   standards.


                   (2) The Board shall ensure that at least the following   Please refer Directors' responsibility for
                   disclosures are made in the Annual Report:               financial reporting on page 68.
                   a) A statement to the effect that the annual audited
                   financial statements have been prepared in line with
                   applicable accounting standards and regulatory
                   requirements , inclusive of specific disclosures.
Section   Governance Requirement                                 Compliance status/
                                                                 level of compliance
          b) A report by the Board on the relevant               Please refer page 61 for the relevant report
          establishment’s internal control mechanism that        by the Board.
          confirms that the financial reporting system has
          been designed to provide a reasonable assurance
          regarding the reliability of financial reporting,
          and that the preparation of financial statements
          has been done in accordance with relevant
          accounting principles and regulatory requirements.

          c) The external auditors certification on the          Please refer page 63 for the external
          effectiveness of the internal control mechanism in     auditor’s certification.
          respect of any statements prepared or published
          after 1 January 2011

          d) Details of directors, including names,              Please refer pages 111 and 112 of the
          transactions with the relevant establishment.          Annual report for details.

          e) Fees/remuneration paid by the relevant              Please refer page 112 of the Annual Report
          establishment to the directors in aggregate, in the    for details.
          Annual Report s published after January 1,2011.

          f) Total net accommodation as defined in               Please refer Note 41 under Notes to the
          paragraph 9(7) outstanding in respect of               Financial Statements on page 111 of the
          each category of related parties and the net           Annual Report.
          accommodation outstanding in respect of each
          category of related parties as a percentage of
          capital funds of the relevant establishment.

          g) The aggregate values of remuneration paid by        Please refer Note 41 under Notes to the
          the relevant establishment to its key management       Financial Statements on page 111 of the
          personnel and the aggregate values of the              Annual Report.
          transactions of the relevant establishment with
          its key management personnel during the
          financial year, set out by broad categories such as
          remuneration paid, accommodation granted and
          borrowing through debt instruments or investments
          made in the relevant establishment.

          h) A report setting out the details of the compli-     Please refer the Annual Report of the Board
          ance with prudential requirements, regulations, laws   of Directors on the Affairs of the Company
          and internal controls and measures taken to rectify    and the Statement of Directors’ Responsibili-
          any non-compliance.                                    ties for financial reporting on pages 65 and
                                                                 68 respectively for details.

          i) The external auditor’s certification of the         Please refer page 71 of the Annual Report
          compliance with the Act and directions issued by       for the external auditor’s certification
          the Director of Department of Supervision of           of compliance with the Act and the
          Non-Bank Financial Institutions in the annual          Directions.
          corporate governance reports published after
          January 1, 2012.
Corporate Governance...cont’d/



     Attendance at Meetings of the Board & Sub-committees

     Meetings held during the FY 2011



     Name of Director                               Board               Audit           Remuneration                  Risk
                                                                     Committee            Committee               Committee


     No. of Meetings held

     M R Shah /NED                                     25                       -                    02                       -

     Ms. W A Nalani/NED                                16                     10                       -                      -

     M S S Paramananda/NED                             23                     03                       -                      -

     Lakshman Perera/NED                               25                       -                    02                       -

     P G Rupasinghe/NED                                25                     05                     02                       -

     V .Kanagasabapathy/NED                            22                     14                       -                    03

     Prof. Ranjith Bandara/NED                         24                     16                     02                       -

     Lalith De Silva /NED                              21                       -                      -                      -

     Note: The Audit Committee was reconstituted in September 2011 and Mr. M S S Paramananda and Mr. P G Rupasinghe were appointed
     as members.


     NED      -Non Executive Director


     Senior Management Committee

     The Senior Management Committee (SMC) consists of professionals possessing vast experience in their respective fields.
     The SMC Meetings are held on a regular basis. The representatives of the Company’s Union also attend these Meetings
     by invitation. The SMC implements Board decisions, prepares the annual budget and monitors performance against the
     Budget, ensures Statutory & Regulatory compliance, evaluates risks and return on investments etc. several members of
     the SMC also serve on sub-committees of the SMC which operate under delegated authority of the Board. The Credit
     Committee evaluates credit proposals, conducts periodic reviews on the status of the lending portfolio to determine
     adequacy of provisioning, maintenance of solvency margins and ratios etc. The Asset & Liability Committee (ALCO), the
     Purchasing Committee and Training Committee are other sub committees of the SMC.

     Report from External Auditors

     The external auditors have performed procedures set out in Sri Lanka Standards on Related Services 4400 issued by
     the Institute of Chartered Accountants of Sri Lanka (SLSRS 4400), to meet the compliance requirement of the Corporate
     Governance directive. Their findings presented in their report dated 24 April 2012 addressed to the Board are consistent
     with the matters disclosed above and did not identify any inconsistencies to those reported above by the Board.
Directors’ Statement on Internal Control



    The Board of Directors is pleased to present the Directors’ Statement on Internal Control in line with the Finance Leasing
    Direction No. 4 of 2009, section 10 (2) (b).

    RESPONSIBILITY

    The Board of Directors (“Board”) is responsible for the adequacy and effectiveness of Merchant Bank of Sri Lanka PLC’s
    (MBSL) system of internal controls. However, such a system is designed to manage the MBSL’s key areas of risk within an
    acceptable risk profile, rather than eliminate the risk of failure to achieve the policies and business objectives of MBSL.
    Accordingly, the system of internal controls can only provide reasonable but not absolute assurance against material
    misstatement of management and financial information and records or against financial losses or fraud.

    The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by
    MBSL and this process includes enhancing the system of internal controls as and when there are changes to business
    environment or regulatory guidelines.

    The process is regularly reviewed by the Board and accords with the guidance for directors of Banks on the Directors’
    Statement of Internal Control issued by the Institute of Chartered Accountants of Sri Lanka. As per the said guidance,
    significant processes affecting significant accounts of MBSL were assessed along with the key risk areas of MBSL.

    The management assists the Board in the implementation of the Board’s policies and procedures on risk and control
    by identifying and assessing the risks faced by MBSL and in the design, operation and monitoring of suitable internal
    controls to mitigate and control these risks.

    The Board is of the view that the system of internal controls in place is sound and adequate to provide reasonable
    assurance regarding the reliability of financial reporting, and that the preparation of financial statements for external
    purposes is in accordance with relevant accounting principles and regulatory requirements.

    KEY FEATURES OF THE PROCESSES ADOPTED IN THE INTERNAL CONTROL SYSTEM ON FINANCIAL REPORTING

    The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls
    with respect to financial reporting include the following:

    •   Internal audit department established by the Board is to assist the Board to ensure that MBSL complies with policies
        and procedures, evaluate the effectiveness of the internal control system in place and highlights significant findings
        in respect of any non-compliance on an ongoing basis. Internal audits are carried out on all departments and
        branches, the frequency of which is determined by the level of risk assessed, to provide an independent and objective
        report on operational and management activities of these units and branches. The annual audit plan is reviewed
        and approved by the Audit Committee and the findings of the audits are submitted to the Audit Committee for review
        at their periodic meetings.

    •   The Audit Committee of MBSL, review internal control issues identified by the internal audit division, external auditors,
        regulatory authorities and management, and evaluate the adequacy and effectiveness of the risk management
        and internal control systems. Further it highlights the areas that need more internal controls while suggesting
        improvements to existing internal controls. The minutes of the Audit Committee meetings are tabled to the Board on
        a periodic basis. Further details of the activities undertaken by the Audit Committee of MBSL are set out in the Audit
        Committee Report on page 70.

    •   Operational committees are established by the Board with appropriate empowerment to assist the Board in ensuring
        the effectiveness of MBSL’s daily operations and that the MBSL’s operations are in accordance with the corporate
        objectives, strategies and the annual budget as well as the policies and business directions that have been approved.
        These committees include the Credit Committee, the Senior Management Committee, the Purchasing Committee,
        the Investment Committee, and the Information Technology Steering Committee.

    •   In assessing the internal control system, identified officers of MBSL collated all procedures and controls that are
        connected with significant accounts and disclosures of the Financial Statements of MBSL.These in turn were observed
        and checked by the Internal Audit department for effectiveness on an ongoing basis.



    THE CONFIRMATION BY THE BOARD

    Based on the above processes, the Board confirms that the financial reporting system of MBSL has been designed to
    provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
    for external purposes has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements
    of the Central Bank of Sri Lanka.
REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS

The external auditors have reviewed the above Directors’ Statement on Internal Control in accordance with Sri Lanka Standard
on Assurance Engagements (SLSAE) 3050 – Assurance Report for Banks on Directors’ Statement on Internal Controls issued by
The Institute of Chartered Accountants of Sri Lanka.

Based on the procedures performed, the external auditors have reported to the Board that nothing has come to their attention
that causes them to believe that this Statement is inconsistent with their understanding of the process Board has adopted in
the review of the design and effectiveness of the internal control of MBSL. The Independent Assurance Report of the Auditors
confirming the above is given on Page 63 of this Annual Report.

For and on behalf of the Board,




Mr.	M.R.	Shah	    	        	        Prof.	Ranjith	Bandara	     	        Mr.	V.	Kanagasabapathy

Chairman                            Director                            Chairman
                                                                        Audit Committee

Colombo
30 March 2012.
Independant Assurance Report


                                                                                                                           Independent    Cor respondent Fir m to


                                                                                                                                                     SJMS Associates
                                                                                                                                             Chartered Accountants
                                                                                                                                                 No. 02, Castle Lane,
                                                                                                                                            Colombo - 04. Sri Lanka.
                                                                                                                                  Tel: + 94 (11) 2 580409, 2 503262,
                                                                                                                                              Fax: +94 (11) 2 582452,

                                                                                                                                  Restructure & Corporate Recovery
                                                                                                                             Tel: 5 364293, 5 444420, Fax: 5 364295,

                                                                                                                                  E-mail: sjms@sjmsassociates.com
                                                                                                                                   Website: www.sjmsassociates.lk




Independent Assurance Report
To the Board of Directors of Merchant Bank of Sri Lanka PLC

Introduction

We were engaged by the Board of Directors of Merchant Bank of Sri Lanka PLC (“Bank”) to provide assurance on the Directors’
Statement on Internal Control (“Statement”) included in the annual report for the year ended 31st December 2011.

Management’s responsibility

Management is responsible for the sufficiency and reliability of internal controls in place at the bank as specified in the Finance
Leasing Direction No. 4 of 2009, section 10 (2) (b). Management is also responsible to prepare and present the Statement in
accordance with the “Guidance for Directors of Banks on the Directors’ Statement on Internal Control” issued in compliance with
the section 3(8)(ii)(b) of the Banking Act Direction No. 11 of 2007, by the Institute of Chartered Accountants of Sri Lanka.

Our responsibilities and compliance with SLSAE 3050

Our responsibility is to issue a report to the board on the Statement based on the work performed. We conducted our engagement
in accordance with Sri Lanka Standard on Assurance Engagements SLSAE 3050 – Assurance Report for Banks on Directors’ State-
ment on Internal Control issued by the Institute of Chartered Accountants of Sri Lanka.

Summary of work performed

Our engagement has been conducted to assess whether the Statement is both supported by the documentation prepared by
or for directors and appropriately reflects the process the directors have adopted in reviewing the system of internal control for the
Bank.

•	   SLSAE	3050	does	not	require	us	to	consider	whether	the	Statement	covers	all	risks	and	controls,	or	to	form	an	opinion	on	the	
     effectiveness of the Bank’s risk and control procedures.

•	   SLSAE	3050	also	does	not	require	us	to	consider	whether	the	processes	described	to	deal	with	material	internal	control	aspects	
     of any significant problems disclosed in the annual report will, in fact, remedy the problems.

Our conclusion

Based on the procedures performed, nothing has come to our attention that causes us to believe that the Statement included in
the annual report is inconsistent with our understanding of the process the Board of Directors have adopted in the review of the
design and effectiveness of internal control of the Bank.




SJMS Associates
Chartered Accountants
Colombo
30 March 2012




                     P. E. A. Jayewickreme. M. B. Ismail, Ms. A. M. J. Patrick, T. Krishnakumar, Ms. S. L . Jayasuriya, D. S. W. Andradi
                          G. J. David, Ms. F. M. Marikkar, Ms. M. S. J. Henry, Ms. A. U. M. Keppetipola, R.H.M Minfaz, Ms S.Y. Kodagoda
65                                88
                                  Notes to the Financial Statements
Annual Report of the Board of
Directors on the Affairs of the
Company
                                  114
68                                Share & Debenture Information

Directors’ Responsibility for
Financial Reporting               116
                                  Decade at a Glance
69
Report of the Remuneration
Committee                         118
                                  Statement of Value Added
70
Audit Committee Report
                                  119
                                  Economic/ Financial Indicators
71
Independent Auditors’ Report      120
                                  Contact Information
72
Income Statement                  122
                                  Our Team
73
Balance Sheet                     127
                                  Glossary of Financial Terms

74
Statement of Changes in Equity
                                  128
                                  Notice of Meeting

75                                Form of Proxy
Cash Flow Statement


76
Accounting Policies
Annual Report of the Board of Directors on the Affairs of the Company
The Directors have pleasure in presenting to the members their Report together with the Audited Financial Statements for the
year ended 31 December 2011 of Merchant Bank of Sri Lanka PLC (MBSL), a public limited liability company incorporated on
04th March 1982 under the Companies Ordinance (Cap.145) and quoted in the Colombo Stock Exchange. The Company was
re-registered on 4th May 2007 as required under the provisions of the Companies Act No.07 of 2007.

The Audited Financial Statements of the Company and the Group included in this Annual Report have been prepared and
presented with the relevant disclosures in accordance with the Sri Lanka Accounting Standards and other applicable regulatory
requirements.

RAM Ratings Lanka Limited has reaffirmed AA- rating with a stable outlook for the Company.

PRINCIPAL ACTIVITIES
MBSL is a registered finance leasing establishment under the provisions of the Finance Leasing Act No. 56 of 2000. MBSL has three
subsidiaries and an associate company, namely, Merchant Credit of Sri Lanka Limited, MBSL Insurance Company Limited, MBSL
Savings Bank Limited and Lanka Securities (Private) Limited respectively, which together constitute the Group.

The principal activities of the Company are Leasing & Hire Purchase, Trade Finance, Corporate Advisory and Capital Market
activities. The Company has also diversified its business activities to cover lending to SMEs mainly in the Agriculture Sector. There
has been no material change to the activities of the Company or any of the subsidiaries during the period under review.

REVIEW OF OPERATIONS
A review of the operations of the MBSL during the financial year 2011 and results of those operations are contained in the
Chairman’s Review (pages 10 to 19) the Acting Chief Executive Officer’s Report (pages 24 to 26) and Management Discussion
and Analysis (pages 28 to 33). These reports form an integral part of the Annual Report.

During the year under review, an aggressive growth plan was formulated to be implemented through an expanded branch
network, strengthening the provincial presence of MBSL. Potential geographical locations were identified to increase the branch
network to thirty branches. With the economy indicating stability and growth momentum, leasing and hire purchase continued
to dominate our product portfolio during the year 2011 as well. Considering the increase in business activities, the Company
is optimistic of good opportunities for lending in the foreseeable future. The Company also expanded micro credit lending to
empower small and medium enterprises to enhance their contributions towards the national economy.

Your Board of Directors decided to discontinue with the proposed amalgamation of MBSL with Merchant Credit of Sri Lanka
Limited, Ceylease Financial Services Limited and MBSL Savings Bank Limited. The Central Bank of Sri Lanka which granted
provisional approval for a Specialized Banking License to MBSL, required the discontinuation of its merchant banking activities,
consequent to the merger. Being the pioneer in the industry, the Board of Directors did not consider appropriate to restrict its
core merchant banking activities, the purpose for which it was initially established. Hence, the Board decided to set aside its
earlier proposal for a merger with other entities and instead to continue MBSL with greater focus on merchant banking activities.

STATED CAPITAL
The Company’s Stated Capital stood at LKR 1,607,000,000.00 as at 31 December 2011.

INFORMATION ON SHARES & DEBENTURES
Information relating to holdings of shares and debentures is given on pages 114 and 115 of the Annual Report.

FINANCIAL STATEMENTS
The Audited Financial Statements of the Company and of the Group for the year ended 31 December 2011 duly signed by
the Assistant General Manager, Finance & Treasury Management, the Acting Chief Executive Officer and two Directors of the
Company, are given on pages 72 to 113 and form an integral part of the Annual Report of the Board.

SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted by the Company and the Group in the preparation of the Financial Statements are given on
pages 76 to 87. There has been no changes in the accounting policies adopted by the Company and the Group during the
period under review.

INCOME, PROFIT & APPROPRIATIONS
Provided below is a summary of the Consolidated Financial Results of the Group operations.

                                                                              2011                          2010
                                                                                                    Re-presented *
                                                                           LKR’000                       LKR’000

Income                                                                    2,807,560                     2,595,680
Operating profit before taxation                                            591,043                       795,608
Taxation                                                                  (143,572)                     (233,700)
Loss from discontinued operations                                          (49,053)                      (20,931)
Net Profit after taxation                                                   398,418                       540,977
Minority interest                                                            45,277                        48,632
Equity holders of the parent                                                353,141                       492,345
Balance brought forward from previous year                                1,142,160                       803,922
Adjustment due to change in depreciation method                                    -                      (9,962)
Profit available for appropriation                                        1,495,301                     1,286,305

Less: Appropriations
Transfer to statutory reserve fund                                         (35,545)                      (42,895)
Transfer to investment fund                                                (68,163)                             -
Dividends on Ordinary Shares
Dividends paid                                                            (168,750)                     (101,250)
Annual Report of the Board of Directors on the Affairs of the Company...cont’d/
INCOME, PROFIT & APPROPRIATIONS...cont'd/
                                                                               2011                          2010
                                                                            LKR’000                       LKR’000

Balance carried forward                                                   1,222,843                      1,142,160

Proposed dividend                                                           168,750                        168,750

*Comparative figures have been re - presented to reflect the results of discontinued operations as explained in Note 12 to the
Financial Statements.

POST BALANCE SHEET EVENTS
No circumstances have arisen since the balance sheet date that would require adjustments to, or disclosure in the accounts,
except those disclosed under Note 42 to the Financial Statements.

DIVIDENDS
Having satisfied the solvency test requirements under the Companies Act No.7 of 2007, the Directors recommend a first an final
dividend of LKR 1.25 per share for the year 2011 (2010- LKR 1.25 per share) to be paid to holders of 135,000,000 ordinary shares
issued by the Company.

CORPORATE DONATIONS
During the year under review, the Company has made donations amounting to LKR 61,000.00 (2010 – LKR 797,000.00) in terms of
the resolution passed at the last Annual General Meeting. This amount excludes contributions towards the Company’s Corporate
Social Responsibility initiatives.

TAXATION
The Company is liable for income tax at the rate of 28% and VAT on Financial Services at 12 %.

STATUTORY PAYMENTS
The Board of Directors confirms that to the best of their knowledge and belief, statutory payments to all relevant regulatory and
statutory authorities have been paid by the Company.

PROPERTY & EQUIPMENT
The details of property and equipment of the Company are given on page 102 under Notes 24 to the Financial Statements.

OUTSTANDING LITIGATIONS
In the opinion of the Directors and the Company’s lawyers, pending litigation against the Company disclosed under Note 38.2
of the Financial Statements will not have a material impact on the financial position of the Company or on its future operations.

GOING CONCERN
After considering the Financial position, operating conditions, regulatory and other factors and such matters, required to be
addressed in terms of the Finance Leasing (Corporate Governance) Direction No. 04 of 2009 issued by the Central Bank of
Sri Lanka, and the continuing Listing Rules of the Colombo Stock Exchange of Corporate Governance, the Directors have a
reasonable expectation that the Company possesses adequate resources to continue in operation for the foreseeable future.
For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

DIRECTORATE
The names of the Board of Directors of the Company as at 31 December 2011 are given below and their attendance at the
board meetings during the year is given on page 60 of the Annual Report.

M R Shah(Chairman)                                                                         Non Executive Director
Ms. W A Nalani                                                                             Non Executive Director
M S S Paramananda                                                                          Non Executive Director
Lakshman Perera                                                                            Non Executive Director
P G Rupasinghe                                                                             Non Executive Director
V Kanagasabapathy                                                                          Non Executive Director
Prof. Ranjith Bandara                                                                      Non Executive Director
Lalith De Silva                                                                            Non Executive Director

In terms of Article 88 of the Articles of Association of the Company Mr. P G Rupasinghe retires by rotation and being eligible, offers
himself for re election.

INTERESTS REGISTER
In terms of the Companies Act No.7 of 2007, an Interests Register is maintained by the Company. Directors have made general
declarations as provided for in section 192(2) of the Companies Act No.7 of 2007. Arising from these, details of contracts in which
they have an interest are given under Note No. 41 to the Financial Statements on page Nos. 111 112 of the Annual Report, deal-
ing with related party disclosures.

DIRECTORS’ REMUNERATION
Directors’ fees and emoluments paid during the year are as follows:

                                                                    Company                      Group
                                                                    LKR.                         LKR.

Directors’ Fees and Emoluments                                      4.9 million                  14.9 million*

* Includes only fees and emoluments paid from continuing operations.
Details of Directors’ fees and other emoluments paid during the year 2011 are provided under Note No. 41 to the Financial
Statements on page 111.

DIRECTORS’ INTEREST IN SHARES OF THE COMPANY
None of the Directors of the Board held shares of the Company during the year under review.

DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING
The Statement of Directors’ Responsibility for financial reporting given on page 68 forms an integral part of the Annual Report of
the Board of Directors.

ENVIRONMENT
The Company has used its best endeavours to comply with the relevant environmental laws and regulations. The Company has
not engaged in any activity that is harmful or hazardous to the environment.

CORPORATE GOVERNANCE
The Company’s status of compliance with corporate governance principles and practices is set out in the Corporate Governance
Report on pages 46 to 60 of the Annual Report.

REPORT ON COMPLIANCE WITH PRUDENTIAL REQUIREMENTS, REGULATIONS, LAWS, INTERNAL CONTROL SYSTEMS AND
PROCEDURES

The Company has complied with all the regulatory and prudential requirements arising from the provisions of statutes applicable
to the Company such as the Companies Act No.07 of 2007, Directions issued by the Department of Supervision of Non Bank
Financial Institutions of the Central Bank of Sri Lanka, Sri Lanka Accounting and Auditing Standards Act. No.15 of 1995, Listing
Rules of the Colombo Stock Exchange, Securities and Exchange Commission Act No.36 of 1987, Finance Leasing Act No.56 of
2000, Payment of Gratuity Act No.12 of 1983, Employees’ Provident Fund Act No.15 of 1958, Employees’ Trust Fund Act No.46 of
1980 etc. and amendments to such statutes.

The Company has established and maintained an effective system of internal controls which is improved on a continuous basis
based on the recommendations of the Internal Audit Division and the observations of the Central Bank of Sri Lanka and the
external auditors during their inspections and audits.

HUMAN RESOURCES
The Company continued to implement appropriate Human Resource Management Policies to develop employees and optimize
their contribution towards the achievement of corporate objectives. These policies and procedures ensure the equitable
treatment of all employees which has resulted in high motivation.

AUDITORS
The Company’s Auditors, M/s SJMS Associates, Chartered Accountants were paid LKR 715,000.00 as Audit Fees for the year 2011
as authorized by the Board. (The Auditors were paid LKR 715,000.00 as Audit Fees for the year 2010).

The retiring Auditors, M/s SJMS Associates, Chartered Accountants, have expressed their willingness to continue in office for the
financial year 2012.

A resolution to re-appoint M/s SJMS Associates and to authorize the Directors to determine their remuneration will be proposed
at the Annual General Meeting to be held on 20 June 2012.

ANNUAL GENERAL MEETING
The Annual General Meeting will be held at the Grand Ballroom, Galle Face Hotel, Colombo on 20 June 2012. The Notice of the
Meeting relating to the Thirtieth Annual General Meeting is given on page 128.

This Annual Report is signed for and on behalf of the Board of Directors by:




M R Shah                                       Prof.	Ranjith	Bandara	      	         Ms.	Marina	Phillips	
Chairman                                       Director                              Company Secretary


Colombo
08 May 2012.
Directors’ Responsibility for Financial Reporting

The Directors of the Company are responsible for the preparation and presentation of the Company’s financial
statements to the shareholders in accordance with the relevant provisions of the Companies Act No.07 of 2007
and other statutes which are applicable in the preparation of financial statements. The responsibilities of the
External Auditors in relation to the Financial Statements are set out in the Auditors’ Report in page 71 of the Annual
Report.

The Financial Statements comprise of:

*    A Balance Sheet, which presents a true and fair view of the state of affairs of the company and its subsidiaries
     as at 31 December 2011; and

*    An Income Statement, which presents a true and fair view of the profit or loss of the Company and its
     subsidiaries for the year then ended.

In preparing the financial statements of the Company and its subsidiaries for the year ended 31 December
2011, the Directors confirm that appropriate accounting policies have been selected and applied consistently.
Reasonable and prudent judgments and estimates have been made and applicable accounting standards
have been followed.

The Directors are of the view that the Company and its subsidiaries have adequate resources to continue in
business for the foreseeable future and have applied the going concern basis in the preparation of these financial
statements.

The Directors have also taken such reasonable steps to safeguard the assets of the Company and its subsidiaries
to prevent and detect frauds and other irregularities. In this context, the Directors have given due consideration to
the establishment of appropriate internal control systems.

The Directors are responsible to ensure that the Company and its subsidiaries maintain sufficient accounting
records enabling to disclose, with reasonable accuracy , the financial position of the entities and also to be able
to ensure that the Financial Statements of the Company and its subsidiaries meet with the requirements of the
Companies Act, Listing Rules of the Colombo Stock Exchange, Directions issued by the Central Bank of Sri Lanka
and generally accepted accounting policies and principles.

The Directors have provided the external auditors with every opportunity to carry out any reviews and tests which
they consider appropriate and necessary for the performance of their responsibilities.

The Directors also confirm to the best of their knowledge that all taxes, levies and financial obligations of the
Company and the subsidiaries have been either paid or adequately provided for in the Financial Statements.

The Directors are of the view that they have discharged their responsibilities as set in this Statement.

By Order of the Board




Ms. Marina Phillips
Company Secretary
27 April 2012
Report of the Remuneration Committee
The Remuneration Committee consists of Mr. M R Shah (Chairman), Prof. Ranjith Bandara, Mr. Lakshman Perera and Mr. P G
Rupasinghe, all of whom are Non executive Directors. The Committee held two meetings during the year under review.

The Company had adopted a structured remuneration policy together with performance based incentive schemes, focusing
on employee motivation and increasing business volumes. The salary anomalies which existed in the Company until 2009 have
been rectified in 2010. There were no significant changes in the salary packages of employees of the Company in 2011. However
with the aggressive expansion of the branch network and the resultant increase in business opportunities, the Company has
taken steps to upgrade a section of employees in order to accommodate growing business volumes.




Mr. M R Shah
Chairman
Audit Committee Report


The Audit Committee of the MBSL functions as a sub-committee of the Main Board, assists the Main Board in fulfilling its oversight
responsibilities. The Committee was reconstituted during the year under review with five Non executive directors, namely Mr.
V Kanagasabapathy (Chairman), Ms. W A Nalani, Prof. Ranjith Bandara, Mr. M S S Paramananda and Mr. Rupasinghe. The
Chairman of the Audit Committee is a fellow of the Institute of Chartered Accountants of Sri Lanka. The Chief Executive Officer,
Head of Finance and the Group Internal Auditor attend meetings by invitation. The Company Secretary is the Secretary to the
Committee. A total of 16 meetings were held during the year 2011.


Key Responsibilities of the Committee

•	       Reviewing	and	monitoring	the	adequacy	and	effectiveness	of	the	internal	control	systems	to	ensure	integrity	of	the	
         financial statements

•	       Evaluation	of	the	independence	and	objectivity	of	the	External	Auditors	and	the	effectiveness	of	the	audit	process

•	       Review	of	performance	of	the	Internal	Audit	Function,	audit	reports	and	follow	up	on	recommendations

•	       Review	and	recommendation	of	interim	and	annual	financial	statements	of	the	Company

•	       Ensuring	Company’s	compliance	with	statutory	and	regulatory	requirements

Activities of the Committee during the year

•	       Reports	received	from	the	Internal	Audit	Division	covering	audits	and	investigations	were	reviewed	and	discussed	with	
         the Management and the recommendations made were followed up and implemented.

•	       The	quarterly	and	annual	financial	statements	of	the	Company	were	reviewed	and	discussed	with	the	Management	
         and the External Auditors, prior to dissemination to the public, including the extent of compliance with Sri Lanka
         Accounting Standards and the adequacy of disclosures required by other applicable laws, rules and guidelines.

•	       The	Committee	regularly	discussed	the	performance	and	future	prospects	of	the	Company	with	the		Management.

•	       Risks	attached	to	Company’s	business	and	operations	were	deliberated	and	where	necessary,	risk	mitigatory	measures	
         were recommended.

•	       The	report	submitted	by	the	Management	on	the	state	of	compliance	with	the	relevant	laws,	regulations	and	settlement	
         of statutory payments was reviewed and discussed.

Internal Audit Function

During the year, the Committee reviewed the performance of the internal audit function, the findings of the audits completed
during the year and the Divisions’ resource requirements and also approved the Internal Audit Plan for the year 2012.

External Auditors

Prior to commencement of the Audit, the Audit Committee met with the External Auditors, M/s SJMS Associates to review and
discuss the External Auditors’ Letter of Engagement including the scope of the audit, process and procedures. The Committee
also discussed the Management Letter issued by the External Auditors and the Management response thereto. The Committee
also met with the External Auditors to discuss all audit issues /concerns and agreed on their treatment.

The Audit Committee has approved the extension of the period of engagement of the External Auditors by one year and
recommended to the Board their re-appointment for the financial year ending 31 December 2012.

The Audit Committee confirms that the responsibilities of the Audit Committee in terms of the Direction No.4 of 2009 on Corporate
Governance issued by the Central Bank and the Listing Rules of the Colombo Stock Exchange have been complied with.




Mr. V Kanagasabapathy
Chairman - Audit Committee
08 May 2012
Independent Auditors’ Report


                                                                                                                   Independent     Cor respondent Fir m to


                                                                                                                                              SJMS Associates
                                                                                                                                      Chartered Accountants
                                                                                                                                          No. 02, Castle Lane,
                                                                                                                                     Colombo - 04. Sri Lanka.
                                                                                                                           Tel: + 94 (11) 2 580409, 2 503262,
                                                                                                                                       Fax: +94 (11) 2 582452,

                                                                                                                           Restructure & Corporate Recovery
                                                                                                                      Tel: 5 364293, 5 444420, Fax: 5 364295,

                                                                                                                           E-mail: sjms@sjmsassociates.com
INDEPENDENT AUDITOR’S REPORT
                                                                                                                            Website: www.sjmsassociates.lk
TO THE SHAREHOLDERS OF MERCHANT BANK OF SRI LANKA PLC

Report on the Financial Statements
We have audited the accompanying financial statements of Merchant Bank of Sri Lanka PLC, and the consolidated financial
statements of the Company and its subsidiaries, which comprise the balance sheet as at 31st December 2011, the income
statement, the statement of changes in equity and the cash flow statement for the year then ended, and a summary of
significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri
Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.

Scope of Audit and Basis of Opinion
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with Sri Lanka Auditing Standards.Those standards require that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the
purpose of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Opinion - Company
In our opinion, so far as appears from our examination, the Company has maintained proper accounting records for the year
ended 31st December 2011, and the financial statements give a true and fair view of the Company’s state of affairs as at 31st
December 2011, and of its profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards.

Opinion – Group
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31st December 2011,
and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company
and of its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company.

Report on Other Legal and Regulatory Requirements
These financial statements of the Company and the group also comply with the requirements of Sections 151(2) and 153(2) to
153(7) of the Companies Act No. 07 of 2007.




SJMS ASSOCIATES
Chartered Accountants
Colombo
24 April 2012




                  P. E. A. Jayewickreme. M. B. Ismail, Ms. A. M. J. Patrick, T. Krishnakumar, Ms. S. L . Jayasuriya, D. S. W. Andradi
                       G. J. David, Ms. F. M. Marikkar, Ms. M. S. J. Henry, Ms. A. U. M. Keppetipola, R.H.M Minfaz, Ms S.Y. Kodagoda
Income Statement
                                                                         Company                                       Group

For the year ended 31 December                                   2011            2010     Change            2011        2010   Change
                                                                                                                 Re-presented*
                                                  Note      LKR ‘ 000       LKR ‘ 000             %     LKR ‘ 000   LKR ‘ 000       %

CONTINUING OPERATIONS
INCOME                                                2     1,559,222       1,522,980             2    2,807,560       2,595,680              8
Interest income                                       3     1,335,948       1,107,121            21    2,309,171       1,930,807             20
Less: Interest expense                                4       545,888         419,041          (30)    1,021,158         850,177           (20)
Net interest income                                           790,060         688,080            15    1,288,013       1,080,630             19
Insurance premium income                                             -               -             -     198,471         140,615             41
Fee and commission income                             5        47,605         109,034          (56)       54,480          99,646           (45)
Dividend income                                                14,460           8,481            70        7,229          11,425           (37)
Other income                                          6       161,209         298,344          (46)      238,209         413,187           (42)
Operating income                                            1,013,334       1,103,939           (8)    1,786,402       1,745,503              2


Less:
OPERATING EXPENSES                         7
Personnel expenses                         8                  229,809         174,893          (31)      472,898         365,929           (29)
Premises, equipment and establishment expenses                 50,462          44,486          (13)       89,795          74,840           (20)
Fee and commission expenses                                    11,183           4,331         (158)       22,356           1,337        (1,572)
Provision for staff retirement benefits                        45,485          15,795         (188)       58,733          25,403          (131)
Provision for loan losses                  9                   62,030          65,787             6      120,648         112,515            (7)
Provision for fall in value of investments                     71,298                -             -      96,521           3,640          2,552
Value added tax on financial services                          46,671         119,461            61       73,800         172,507             57
Other overhead expenses                                       113,277         111,117           (2)      320,856         276,363           (16)
                                                              630,215         535,870          (18)    1,255,607       1,032,534           (22)


PROFIT FROM OPERATIONS                                        383,119         568,069          (33)       530,795        712,969           (26)

Share of Associate Company’s profit
  before taxation                                    10        60,248          82,639          (27)        60,248         82,639           (27)

PROFIT BEFORE TAXATION                                        443,367         650,708          (32)       591,043        795,608           (26)
Less: Income tax expense                             11       111,012         201,037            45       143,572        233,700             39
PROFIT FROM CONTINUING OPERATIONS                             332,355         449,671          (26)       447,471        561,908           (20)


DISCONTINUED OPERATIONS
Loss from discontinued operations
  (net of income tax)                                12              -               -                   (49,053)       (20,931)          (134)
PROFIT FOR THE YEAR                                           332,355         449,671          (26)       398,418        540,977           (26)
Attributable to:

         Equity holders of the parent                         332,355         449,671          (26)       353,141        492,345           (28)
         Minority interest                                           -               -                     45,277         48,632            (7)

PROFIT FOR THE YEAR                                           332,355         449,671          (26)       398,418        540,977           (26)

BASIC / DILUTED EARNINGS
 PER SHARE (LKR.)                                    13           2.46            3.33         (26)           2.62           3.65          (28)

BASIC / DILUTED EARNINGS PER SHARE
 CONTINUING OPERATIONS (LKR.)                        13           2.46            3.33         (26)           2.87           3.76          (24)


* Comparative figures are re - presented to reflect the results of the discontinued operation as explained in Note 12 to the Financial Statements.

The Accounting Policies and Notes to the Financial Statements from page 76 to 113 form an integral part of the Financial Statements.
Balance Sheet
                                                                   Company                                         Group

As at 31 December                                             2011              2010     Change           2011          2010     Change
                                               Note       LKR ‘ 000         LKR ‘ 000         %       LKR ‘ 000     LKR ‘ 000         %


ASSETS

Cash in hand and at bank                          14         97,260           71,097           37       238,050       146,956            62
Other Investments                                 15               -                -                   250,000              -             -
Government treasury bills/ bonds                  16        871,088          279,765          211     1,670,391     1,626,575             3
Dealing securities                                17        277,766          331,752         (16)       378,096       464,851          (19)
Investment securities                             18         10,024           10,024             -       10,034        10,044           (0)
Bills receivable                                19.1        632,128          619,395            2       632,357       619,624             2
Loans                                           19.2      1,539,704          947,639           62     3,253,646     3,340,952           (3)
Lease / hire purchase receivable                19.3      5,467,127        3,816,504           43     8,781,037     6,554,698            34
Assets classified as held for sale                20        237,186                 -            -    2,708,372       257,041           954
Real estate stock                                                  -                -            -       28,157        30,288           (7)
Other assets                                    20.1        311,402          211,567           47       744,053       610,870            22
Investment in associate                           21        132,774          121,617            9       132,774       121,617             9
Investments in subsidiaries                       22        259,524          446,710         (42)              -             -             -
Investment properties                             23         47,654          281,124         (83)       165,876       386,869          (57)
Property and equipment                            24         50,757           44,047           15       132,589       145,426           (9)
Intangible assets                                 25          2,443            1,360           80       110,603       108,539             2
Total assets                                              9,936,837        7,182,601           38    19,236,035    14,424,350            33

LIABILITIES

Deposits from customers                           26               -                -            -    4,724,433     5,676,955          (17)
Borrowings                                        27      5,014,069        3,179,712           58     5,465,161     3,311,089            65
Insurance provision - Life                        28               -                -            -      106,682        66,937            59
Insurance provision - Non Life                    29               -                -            -      328,252       252,774            30
Current tax liability                             30        125,871          172,970         (27)       125,871       172,970          (27)
Debentures                                        31      1,311,800          716,800           83     1,311,800       734,684            79
Deferred tax liability                            32         74,834           20,994          256        74,834        20,994           256
Retirement benefit obligation                     33        114,073           74,396           53       153,133       105,421            45
Other liabilities                                 34        453,392          338,536           34       793,869       895,444          (11)
Liabilities directly associated with assets
  classified as held for Sale                     35                -                -           -    2,544,050              -             -

Total liabilities                                         7,094,039        4,503,408           58 15,628,085       11,237,268            39

EQUITY
Stated capital                                    36      1,607,000        1,607,000             -    1,607,000     1,607,000              -
Statutory reserves                              37.1        170,504           91,261           87       252,947       149,239            69
Retained earnings                               37.2      1,065,294          980,932            9     1,222,843     1,142,160             7

Total equity attributable to the equity
 holders of the Company                                   2,842,798        2,679,193            6     3,082,790     2,898,399             6

Minority interest                                                   -                -           -      525,160       288,683            82

Total equity                                              2,842,798        2,679,193            6     3,607,950     3,187,082            13

Total liabilities and equity                              9,936,837        7,182,601           38 19,236,035       14,424,350            33

Commitments and contingencies                     38         48,793             7,117        586        101,155        36,967          174

Net assets value per ordinary share (LKR)                     21.06             19.85           6          22.84        21.47             6

The Accounting Policies and Notes to the Financial Statements from page 76 to 113 form an integral part of the Financial Statements.
These Financial Statements are in compliance with the requirements of the Companies Act No. 7 of 2007




Priyantha Herath                                                        Lakshman Kaluarachchi
Asst. General Manager - Finance & Treasury                              Chief Executive Officer (Acting)

The Directors are responsible for the preparation and presentation of these Financial Statements.
Approved and signed for and on behalf of the Board




M R Shah                                                                V Kanagasabapathy
Chairman                                                                Director
24 April 2012, Colombo, Sri Lanka
Statement of Changes in Equity
                                                                    Stated           Statutory        Retained            Total
                                                                   Capital           Reserves         Earnings
                                                                  LKR ‘ 000          LKR ‘ 000        LKR ‘ 000      LKR ‘ 000


Company
Balance as at 01.01.2010                                          1,607,000            59,784           663,988      2,330,772
Profit for the year                                                        -                 -          449,671        449,671
Transfers to statutory reserve fund                                        -           31,477          (31,477)               -
Dividend paid                                                              -                 -        (101,250)      (101,250)
Balance as at 31.12.2010                                          1,607,000            91,261           980,932      2,679,193

Profit for the Year                                                        -                 -          332,355        332,355
Transfers to statutory reserve fund                                        -           23,265          (23,265)               -
Transfers to investment fund                                               -           55,978          (55,978)               -
Dividend paid                                                              -                 -        (168,750)      (168,750)
Balance as at 31.12.2011                                          1,607,000           170,504         1,065,294      2,842,798




                                                             Stated      Statutory       Retained         Minority        Total
                                                            Capital      Reserves        Earnings         Interest
                                                           LKR ‘ 000     LKR ‘ 000       LKR ‘ 000       LKR ‘ 000   LKR ‘ 000
Group


Balance as at 01.01.2010                                   1,607,000      106,344          803,922        207,823    2,725,089
Profit for the year                                                 -            -         492,345         48,632      540,977
Adjustment due to change in depreciation method (Note 24 )          -            -         (9,962)        (4,211)     (14,173)
Transfers to statutory reserve fund                                 -      42,895         (42,895)               -            -
Rights issue                                                        -            -                -        32,428       32,428
Disposal of subsidiary                                              -            -                -         4,011        4,011
Dividend paid                                                       -            -       (101,250)               -   (101,250)
Balance as at 31.12.2010 (Restated)                        1,607,000      149,239        1,142,160        288,683    3,187,082

Profit for the Year                                                 -            -         353,141         45,277      398,418
Transfers to statutory reserve fund                                 -      35,545         (35,545)               -            -
Transfers to investment fund                                               68,163         (68,163)               -            -
Share issue                                                         -            -                -       201,000      201,000
Dividend paid                                                       -            -       (168,750)        (9,800)    (178,550)
Balance as at 31.12.2011                                   1,607,000      252,947        1,222,843        525,160    3,607,950


Statutory reserves represent the reserve fund of the company in terms of Direction No.05 of 2006 issued by the Central Bank of
Sri Lanka under Section No.34 of the Finance Leasing Act No.56 of 2000 and the statutory reserve of the subsidiary, Merchant
Credit of Sri Lanka represents its reseve fund in terms of Direction No.01 of 2003 issued by the Central Bank of Sri Lanka under
Section No.46 of the Finance Companies Act No. 23 of 1991.

Further this includes the investment fund account, which consist of the 8% of the profit calculated for the payment of Value
Added Tax on financial services and 5% of the profit before tax calculated for payment of Income Tax purpose during the
year.
Cash Flow Statement
                                                                               Company                                   Group

For the year ended 31 December                                               2011               2010               2011             2010
                                                                         LKR ‘ 000          LKR ‘ 000          LKR ‘ 000        LKR ‘ 000




Cash flow from operating activities
Interest and commission receipts                                         1,122,110          1,023,330         2,405,357         2,150,877
Interest payments                                                        (490,069)          (563,855)       (1,007,326)       (1,040,177)
Receipts from other operating activities                                   175,669            306,825           431,500           600,866
Cash payments to employees and suppliers                                 (327,853)          (245,831)         (750,029)         (394,655)
Payments for other operating activities                                  (117,243)          (186,791)         (501,357)         (690,580)

Operating profit before changes in
       operating assets/liabilities                                        362,614            333,678           578,145           626,331

(Increase)/Decrease in operating assets
       Operating assets                                                   (78,724)           (57,970)         (408,587)          (40,743)
       Funds advanced to customers                                     (2,255,420)        (1,281,181)       (4,040,545)       (2,165,801)

Increase/(Decrease) in operating liabilities
       Operating liabilities                                               114,855           (48,644)           228,679           120,517
       Deposits from customers                                                    -                 -         1,176,109           711,199
Net cash from operating activities before income tax                   (1,856,675)        (1,054,117)       (2,466,199)         (748,497)
Income tax paid                                                          (109,103)           (46,623)         (121,140)          (60,949)
Net cash inflow/(outflow) from operating activities                    (1,965,778)        (1,100,740)       (2,587,339)         (809,446)

Cash flows from investing activities

Purchase of property & equipment                                          (23,345)           (18,327)          (97,895)          (55,399)
Dividend received                                                           44,790             33,110            37,483            35,506
Investments                                                              (598,492)          (733,024)       (2,480,102)       (1,039,036)
Proceeds from sale of property & equipment                                     167              7,940            27,096            30,353
Proceeds from sale of investments                                          949,538            872,427         2,806,140         1,100,244
Investments in subsidiary companies                                       (50,000)          (200,000)                  -                 -
Net cash inflow/(outflow) from investing activities                        322,658           (37,874)           292,722            71,668

Cash flows from financing activities

Proceeds from issue of shares                                                     -                  -          201,000            32,428
Dividend paid                                                            (168,750)          (101,250)         (179,570)         (101,250)
Cash inflow from long term borrowings                                    2,437,000            909,995         2,437,000           909,995
Repayment of long-term borrowings                                        (894,143)          (966,237)         (909,076)       (1,043,837)
Cash inflow from short-term borrowings                                   6,930,672          3,643,962         7,218,172         3,693,962
Repayment of short-term borrowings                                     (6,163,111)        (2,474,773)       (6,163,111)       (2,454,773)

Net cash inflow/(outflow) from financing activities                      2,141,668          1,011,697         2,604,415         1,036,525

Net increase / (decrease) in cash and cash equivalents                     498,548          (126,917)           309,798           298,747

Cash and cash equivalents at the beginning of the period
                                               ( Note 1 )                  286,082            412,999         1,677,374         1,378,627

Cash and cash equivalents at the end of the period
                                                ( Note 1 )                 784,630            286,082         1,987,172         1,677,374

Note 1
         Reconciliation of cash and cash equivalents
         Government treasury bills                                         871,088            279,765         1,670,391         1,626,575
         Cash in hand and at bank ( Note. 14 )                              97,260             71,097           238,050           146,956
         Bank overdrafts ( Note. 27 )                                    (183,718)           (64,780)         (372,310)          (96,157)
         Cash at banks and short-term deposits attributable
           to discontinued operation                                              -                  -          451,041                  -
                                                                           784,630            286,082         1,987,172         1,677,374

The Accounting Policies and Notes to the Financial Statements from page 76 to 113 form an integral part of the Financial Statements.
Accounting Policies
1.    REPORTING ENTITY

Merchant Bank of Sri Lanka PLC is a public quoted company incorporated and domiciled in Sri Lanka. The registered office
and principal place of business of the Company is located at the Bank of Ceylon Merchant Tower, No. 28, St Michael’s Road,
Colombo 03. The shares of the Company are listed in the Colombo Stock Exchange.

The staff strength of the Company and group as at 31st December 2011 was 202 and 941 respectively. (166 and 744 as at
31st December 2010)

The Consolidated Financial Statements of the Bank for the year ended 31st December 2011 comprise the Bank (parent
company) and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’) and the company’s
interest in its Associate Company. The Financial Statements of all companies in the Group have a common financial year
which ends on December 31.

In the opinion of the Directors, the Company’s parent enterprise and its ultimate parent enterprise is Bank of Ceylon.

The consolidated financial statements for the year ended 31st December 2011 were authorized for issue on 24 April 2012 in
accordance with the resolution of the Directors passed on 24th April 2012.


1.2   PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS

1.2.1 Company
The principal activities of the Company are leasing and hire purchase, trade financing, corporate advisory services, capital
market operations, fund management, corporate secretarial services and micro financing & agricultural credit facilities.

1.2.2 Subsidiaries
The principal activities of the Company’s subsidiaries, namely, Merchant Credit of Sri Lanka Ltd, MBSL Savings Bank Ltd, and
MBSL Insurance Company Ltd are leasing and hire purchase, trade financing, accepting of fixed deposits and certificates of
deposit, real estate development, and banking and insurance services.

1.2.3 Associate
The principal activities of the Company’s associate company, Lanka Securities (Pvt) Ltd, are trading in equity and debt
securities, equity and debt security brokering and undertaking placement of equity and debt securities.

There were no significant changes in the nature of the principal activities of the Company and Group during the financial
year under review.

1.3   RESPONSIBILITY FOR FINANCIAL STATEMENTS

The Board of Directors is responsible for the preparation and presentation of the financial statements of the Company and its
subsidiaries as per the provisions of the Companies Act No. 07 of 2007 and Sri Lanka Accounting Standards.

The Board of Directors acknowledges this responsibility as set out in the ‘Annual Report of the Board of Directors on the affairs
of the Company ’, ‘Directors’ Responsibility for financial reporting’ and in the statement following the Balance Sheet on pages
65, 68 and 73 respectively, of this Annual Report.

These financial statements include the following components:

•	    An	Income	Statement	providing	information	on	the	financial	performance	of	the	Company	and	the	Group	for	the	year	
      under review (Refer page 72 of this Annual Report)

•	    A	Balance	Sheet	providing	information	on	the	financial	position	of	the	Company	and	the	Group	as	at	the	year-end	
      (Refer page 73 of this Annual Report)

•	    A	 Statement	 of	 Changes	 in	 Equity	 depicting	 all	 changes	 in	 shareholders’	 equity	 during	 the	 year	 under	 review	
      (Refer page 74 of this Annual Report)

•	    A	Cash	Flow	Statement	providing	the	information	to	the	users,	on	the	ability	of	the	Company	and	the	Group	to	generate	
      cash and cash equivalents and the needs to utilize those cash flows (Refer page 75 of this Annual Report) and

•	    Notes	 to	 the	 Financial	 Statements	 comprising	Accounting	 Policies	 used	 and	 other	 Notes	 (Refer	 pages	 76	 to	 113	 of	
      this Annual Report)

1.4   STATEMENT OF COMPLIANCE

The balance sheet, income statement, statement of changes in equity and cash flow statement, together with accounting
policies and notes (the “financial statements”) of the Company and the Group are prepared in accordance with Sri Lanka
Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka, and comply with the requirements of the
Companies Act No 07 of 2007 and the Finance Leasing Act No 56 of 2000, the Finance Companies Act No 78 of 1988 and the
Banking Act No 30 of 1988 and amendments thereto.
1.5   COMPARATIVE INFORMATION

The accounting policies adopted by the Group are applied consistently with those of the previous financial years. However,
wherever the presentation or classification of items in the financial statements is amended, comparative amounts are also
reclassified to conform to the current year’s presentation.

1.6   CHANGES TO THE ACCOUNTING POLICIES

There were no changes to the accounting policies adopted by the Group during the year under review.

New Accounting Standards issued but not effective as at Balance Sheet Date

The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards which have
become applicable for financial periods beginning on or after 1st January 2012.

Accordingly, these Standards have not been applied in preparing these financial statements as they were not effective for
the year ended 31st December 2011. These Sri Lanka Accounting Standards comprise Accounting Standards prefixed both Sri
Lanka Financial Reporting Standards (corresponding to International Financial Reporting Standards) and LKAS (corresponding
to International Accounting Standards). Application of Sri Lanka Accounting Standards prefixed Sri Lanka Financial Reporting
Standards and LKAS for the first time shall be deemed an adoption of Sri Lanka Financial Reporting Standards.

The said new / revised standards have become applicable to the Company from 1st January 2012 and accordingly the
reporting framework for the year ending 31st December 2012 will be LKAS / SLFRS. Given the complexities and technical expertise
required in the process of convergence, the Company carried out an initial impact analysis with the assistance of an external
consultant based on the 2010 balances. Using the same methodology the Company has extended its impact analysis to 2011
to approximately assess the potential impact on the financial statements had these said standards been applied for the year
ended 31st December 2011. As this is only a preliminary assessment of the potential effects of these Standards, it is based on a
few assumptions and approximation.

Below table sets out the key impact areas for the Company in 2012 with the adoption of LKAS/SLFRS.


Accounting Standard               Key requirement in the Standard                      Preliminary assessment of potential
                                                                                       impact for MBSL

LKAS 32 - “Financial              For the purpose of measuring a financial             Impact from categorisation / measure-
Instruments: Presentation”        asset LKAS 39 requires the financial assets to       ment of investments
                                  be classified into the following four categories
LKAS 39 - “Financial              and subsequently measured as follows;                The categorisation of investments in the
Instruments: Recognition                                                               Company will determine whether and
and Measurement”                  - Fair value through profit and loss - meas-         where the re-measurement will be rec-
                                  ured at fair value with changes in fair value        ognised in the Company's Financial
SLFRS 7 - “Financial              taken to Income Statement                            Statements.
Instruments: Disclosures”
                                  - Available-for-sale investments - meas-             Based on our initial assessment of poten-
                                  ured at fair value with changes in fair value        tial impact on subsequent measurement,
                                  taken to the Other Comprehensive Income              equity as at 31st December 2011 has
                                  Statement.                                           been decreased by LKR 38.93 million.

                                  - Held to maturity investments -measured at          The above quantification has been based
                                  amortised cost; and                                  on few initial assumptions and the Com-
                                                                                       pany is in the process of refining the same
                                  - Loans and receivables - measured at am-            to arrive at more accurate results.
                                  ortised cost using effective interest method


                                  Financial     liabilities   are    subsequently      Impact from measurement of borrowings
                                  measured at amortized cost except certain
                                  financial liabilities which are presented at fair    Based on our preliminary assessment of
                                  value.                                               potential impact on subsequent meas-
                                                                                       urement, equity as at 31st December 2011
                                                                                       has been increased by LKR 6.46 million.

                                                                                       The above quantification has been based
                                                                                       on few initial assumptions and the Bank is
                                                                                       in the process of refining the same to ar-
                                                                                       rive at more accurate results.


SLFRS 1 – “First-time             This Standard applied to the Company when            The Company is in the process of prepar-
adoption of Sri Lanka             it first applied SLFRS /LKAS. The opening SLFRS      ing the financial statements under SLFRS
Accounting                        statements of financial position at the date         and will provide an explanation how the
Standards (SLFRSs)”               of transition to SLFRSs need to be prepared.         transition from SLAS to SLFRSs affected
                                  The same accounting policies should be               its reported financial position, financial
                                  used in its opening SLFRS Statements of              performance and cash flows.
                                  financial position and throughout all periods
                                  presented in its first SLFRS financial statements.
Accounting Policies
In addition to the above, there may be some impact with the adoption of other new / revised accounting standards which have
become effective from 1st January 2012, and the Company does not expect any material impact.

The Company will also experience changes in presentation and disclosure requirements under the new / revised accounting
standards from the year ending 31st December 2012 onwards.

1.7    BASIS OF PREPARATION

1.7.1 Basis of measurement

These financial statements have been prepared on an accrual basis under historical cost convention and applied consistently
with no adjustment being made for inflationary factors affecting the financial statements except the dealing securities, which
are stated at lower of cost and market value on an aggregate portfolio basis.

Assets and liabilities are grouped by their nature and are listed in an order that reflect their relative liquidity. An analysis regarding
recovery or settlement within 12 months after the Balance Sheet date (current) and more than 12 months after the Balance
Sheet date (non–current) is presented in note 39.

The accounting principles are applied consistently other than where specially disclosed with due regard to prudence, materiality
and substance over form criteria as explained in Sri Lanka Accounting Standard No. 03- Presentation of Financial Statements
(Revised 2005). Where appropriate, the accounting policies are disclosed in the succeeding notes.

1.7.2 Functional and presentation currency.

The financial statements are presented in Sri Lankan rupees, which is the Group’s functional currency. All the financial information
presented in Sri Lankan rupees has been rounded to nearest thousands, unless otherwise stated.
There were no change in the Group’s presentation and functional currency during the year under review.

1.7.3	 Significant	accounting	judgments,	estimates	and	assumptions.

The preparation of financial statements requires the management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to an accounting estimate are recognised
in the period in which the estimate is revised and in any future periods affected. The key items which involve these judgments,
estimates and assumptions are discussed below:

       (a) Defined benefit plans

The cost of the defined benefit plan is determined using an actuarial valuation which involves making assumptions about
discount rates, future salary increases and mortality rates. Due to the nature of these plans being long-term, such estimates are
subject to significant uncertainty. All assumptions are reviewed at each reporting date. See Note 33.2 for the assumptions used.

       (b) Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of “the value in use” of the cash-generating units to which
goodwill has been allocated. The “value in use” calculation requires the directors to estimate the future cash flows expected to
arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Estimation of expected
future cash flows and selection of discount rates require a high degree of judgment and hence, are subject to uncertainty.

       (c) Deferred tax

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profits will be available
against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred
tax assets that can be recognised, based on the likely timing and level of future taxable profits, together with future tax planning
strategies.

1.7.4 Materiality and aggregation

Each material class of similar items is presented separately in the financial statements. Items of dissimilar nature or function are
presented separately unless they are immaterial, in accordance with Sri Lanka Accounting Standard No.03 - Presentation of
Financial Statements.

1.7.5 Offsetting

Assets and liabilities, and income and expenses, are not offset unless required or permitted by a Sri Lanka Accounting Standard.

1.8    SIGNIFICANT ACCOUNTING POLICIES

1.8.1 Basis of consolidation

The financial statements of all the entities controlled by the Company are consolidated in the Group’s financial statements in terms
of the Sri Lanka Accounting Standard No. 26 (Revised) - Consolidated and Separate Financial Statements, and proportionate
share of the profit/loss of its associates in terms of Sri Lanka Accounting Standard No. 27 - Investment in Associates.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line
with those used by other members of the Group.

(a)   Subsidiaries

Subsidiaries are the entities that are controlled by the Company. The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control is effectively transferred to the Company until the date that
control effectively ceases. Control exists when the Company has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.

Minority interests represent the share of profit or loss and net assets not owned, directly or indirectly by the company and are
presented separately in the consolidated income statement and consolidated balance sheet within equity, separately from
the equity attributable to the equity-holders of the parent Company.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions.
The carrying amounts of the Group’s interests and the Minority interests are adjusted to reflect the changes in their relative
interests in the subsidiaries. Any difference between the amount by which the Minority interests are adjusted and the fair value
of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

(b)    Associate

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a
joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies.

The consolidated financial statements include the company’s share of the total recognised gains and losses of the associates
under the equity method, from the date that significant influence effectively commences until the date that significant
influence effectively ceases.

Under the equity method, investment in the Associate is carried in the Balance Sheet at cost plus post-acquisition changes in
the Company’s share of net assets of the Associate, less any impairment in the value of individual investments.

1.8.2 Transactions eliminated on consolidation

All intra-group balances, transactions and any unrealised gains arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements. Unrealised gains arising from transactions with Associate are eliminated to
the extent of the Group’s interest in Associate. Unrealised losses are eliminated in the same way as unrealised gains.

1.8.3 Going concern

The company’s management has made an assessment of the company’s ability to continue as a going concern and is
satisfied that the company has the resources to continue in business for the foreseeable future. Furthermore, management is
not aware of any material uncertainties that may cast significant doubt upon the company’s ability to continue as a going
concern. Therefore, the financial statements continue to be prepared on the going concern basis.

1.8.4 Foreign currency transactions

Transactions in foreign currencies are initially recorded using the exchange rate of the functional currency ruling at the date
of the transaction.

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to Sri Lankan
rupees at the middle rate of exchange ruling at that date.

Non-monetary items denominated in foreign currencies that are stated at historical cost at the balance sheet date are
translated to Sri Lankan rupees at the foreign exchange rate ruling at the date of the initial transaction.

Exchange differences arising on settlement of monetary items and retranslation of monetary items, are recognised in profit or
loss in the year in which they arise.

1.9   ASSETS AND BASIS OF THEIR VALUATION

1.9.1 Cash and cash equivalents

Cash and cash equivalents include cash in hand, demand deposits and short-term highly liquid investments which are
readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. There were no cash
and cash equivalent balances held by the Group companies that were not available for use by the Group.

1.9.2 Investments/Securities

(a)   Investment in Treasury bills and bonds

Investment in treasury bills and treasury bonds are reflected at the value of bills / bonds purchased and the discount/premium
accrued thereon. Discount received / premium paid is taken to the income statement based on the pattern reflecting a
constant periodic rate of return.
Accounting Policies...cont’d/
(b)   Dealing securities

Dealing securities are marketable securities acquired and held with the intention of resale over a short period of time. Such
securities are stated at the lower of cost and market value on an aggregate portfolio basis in accordance with Sri Lanka
Accounting Standard No.22 - Accounting for Investments.

(c)   Investment securities

Investment securities are acquired and held for yield or capital growth in the medium / long term with the positive intent and
ability to hold until maturity. Such securities are carried at cost. Changes in market values of these securities are not taken into
account, unless it is considered to be a diminution in value which is other than temporary.

(d)   Investment in subsidiaries

Investment in subsidiaries is stated at cost in the Company’s financial statements in accordance with the Sri Lanka Accounting
Standard No 26 - Consolidated and Separate Financial Statements.

(e)   Investment in associate

Investment in associate is accounted under the equity method in the consolidated and separate financial statements.

Under the equity method, the investments in Associate is initially accounted for at cost, and the carrying amount is adjusted for
post acquisition changes in the Group’s share of net assets of the Associate less any impairment in the Group’s net investment
in the Associate.

(f)   Non - current assets held for sale

Non - current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the non-current asset (or disposal group) is available for immediate sale in its present condition.

Non - current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying
amount and fair value less costs to sell.

1.9.3 Loans and advances to customers

Loans and advances to customers are stated in the balance sheet at the recoverable amount represented by the gross value of
the outstanding balance adjusted for provision of loan losses and interest in suspense (interest that is not accrued to revenue).

(a)   Non - performing loans

Loans, advances and finance leases that are 06 months or more in arrears of due capital and / or interest are classified as
Non Performing Loans (NPL). Provision for possible loan losses are made on the basis of a continuous review of all advances to
customers, in accordance with the directions issued by the Central Bank of Sri Lanka, and Sri Lanka Accounting Standard No.
33 - Revenue Recognition and Disclosures in the Financial Statements of the Finance Companies.

(b)   Provision for loan losses

Full provision has been made for all the loans and advances outstanding for more than 6 months, net of the realisable value
on securities.

Provisions for loans are made after giving credit to the forced sale value (FSV) of the mortgaged immovable property by
applying the Haircut Discount rate on the forced sale value according to their age of the debt as given below.

Age of arrears                        Haircut % (discount rate)

3 months to 1 year                    0%
1 – 2 years                           20%
2 – 3 years                           25%
3 – 4 years                           30%
4 – 5 years                           35%
5 years above                         40% or at discretion of management

1.9.4 Leased assets and Hire Purchase assets.

(a) Rental receivable on Leased assets and Hire Purchase assets

Assets leased to customers, which transfer substantially all the risks and rewards associated with ownership other than legal
title, are accounted as finance leases in accordance with Sri Lanka Accounting Standard No. 19 - Leases (Revised 2005) and
reflected in the balance sheet as balance capital recoverable after deducting unearned interest income, rental collections and
provision for doubtful debts.

Assets hired to customers under the hire purchase agreements, which transfer the risks and rewards incidental to ownership
as well as the legal title at the end of such contractual period are classified as hire purchase receivables. Such assets are
accounted for in a similar manner as finance leases.
(b) Provision for loan losses on rental receivables
A specific provision for possible losses is made on the amount of outstanding rental receivable net of realisable security value
(net exposure at risk) in accordance with the directions issued by the Central Bank of Sri Lanka and disclosures are made as
required by the Sri Lanka Accounting Standard No. 33 on Revenue Recognition and Disclosure in the Financial Statements of
Finance Companies. Such provisions are subject to the minimum of:

*     Twenty percent (20%) on all receivables (net of unearned income) which are in arrears for a period of 6 to 12 months.
*     Fifty percent (50%) on all receivables (net of unearned income) which are in arrears for a period of 12 to 18 months.
*     Hundred percent (100%) on all receivables (net of unearned income) which are in arrears for a period of 18 months or
      more.
*     Hundred percent (100%) on all receivables where installments are not paid on a monthly basis, whenever the company
      has realized that installments will not be paid on the due dates.

1.9.5 Bills Receivable

Bills receivable are reflected at the value of the bills initially paid to the customers and the discount / premium accrued thereon.
Discount is taken to the income statement based on a pattern reflecting a constant periodic rate of return.

(a)   Provision for bills receivable

Bills receivable outstanding for more than 6 months are provided in full after deducting the realisable value on securities.

1.9.6 General provision

In addition to the specific provision made, a further general provision is made as a measure of prudence against potential credit
losses that are specifically not identified. This general provision will be created by providing annually a minimum 0.5% of the
aggregate value of net loan portfolio (i.e. leasing, hire purchase, bills receivable & loans) after the specific provisions, subject to
a cumulative general provision not exceeding 2.5% of the net portfolio. This provision can be utilised in unexpected situations
with the approval of Board of Directors.

1.9.7 Property & Equipment

Property and equipment are stated at cost less subsequent accumulated depreciation and any subsequent accumulated
impairment losses. The cost of property and equipment is the cost of purchase or construction of the assets and all such
expenditure incidental to bringing the asset to its present condition and location. All items of property and equipment are
initially recorded at cost. The Group revalues land at least once in every five years for disclosure purpose.

Items of property and equipment are derecognised upon disposal or when no future economic benefits are expected from
their use. Any gain or loss arising on de-recognition of an asset is included in the income statement in the year the asset is
derecognised.

(a)   Depreciation

Provision for depreciation is calculated by using a straight-line method on the cost of all property and equipment, other than
freehold land, in order to write off such amounts over the estimated useful economic lives of such assets.

The estimated useful lives of such assets are as follows:

      Motor vehicles                             04 - 05 years
      Computers & accessories                    04 - 05 years
      Building                                   20 years
      Other assets                               07 - 08 years

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any
changes in estimate accounted for on a prospective basis.

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as
held for sale and the date that the asset is derecognized.

1.9.8 Intangible assets
1.9.8.1 Basis of recognition.

Intangible assets are recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the
entity and the cost of the assets can be measured reliably in accordance with Sri Lanka Accounting Standard No. 37 - Intangible
Assets. Accordingly, these assets are stated in the balance sheet at cost less accumulated amortisation and impairment losses.

(a)   Goodwill

Goodwill arising on the acquisition represents the excess of the cost of the acquisition over the Group’s interest in the fair value
of the acquiree’s identifiable assets, liabilities and contingent liabilities at the date of acquisition. Upon transition to revised Sri
Lanka Accounting Standard No. 25 - Business Combinations, goodwill will no longer be amortised. Instead, goodwill will be
tested for impairment annually and assessed for any indication of impairment at each reporting date to ensure that its carrying
amount does not exceed its recoverable amount. If an impairment loss is identified, it will be recognised immediately in the
income statement.
Accounting Policies...cont’d/
(b)   Computer software

All computer software costs incurred which are not integrally related to associated hardware which can be clearly identified,
reliably measured, and it is probable that they will lead to future economic benefits, are classified as intangible assets in the
balance sheet and stated at cost less accumulated amortisation and any accumulated impairment loss.

(c)   Subsequent expenditure

Subsequent expenditure on an intangible asset is capitalised only when it increases the future economic benefits embodied in
these assets. All other expenditure is expensed as incurred.

(d)   Amortisation

The useful lives of intangible assets are assessed to be either finite or infinite. Intangible assets with finite lives are amortised
over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful
life are reviewed at least each financial year-end. Changes in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method as
appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite
lives is recognised in the income statement in the expenses category consistent with the function of the intangible asset. The
estimated useful life of software is four years.

1.9.9 Investment properties

Investment properties are properties held either to earn rental income or for capital appreciation or for both.

(a)   Basis of recognition

Investment property is recognised if it is probable that future economic benefits that are associated with the investment property
will flow to the company and cost of the investment property can be measured reliably.

(b)   Measurement

An investment property is measured initially at its cost. The cost of a purchased investment property comprises of its purchase
price and any directly attributable expenditure.The Company adopts the cost model for subsequent measurement of investment
properties in accordance with Sri Lanka Accounting Standard No. 40 - Investment Property (Revised 2005). Accordingly, land
classified as investment property is stated at cost, and buildings classified as investment property are stated at cost less any
accumulated depreciation and any accumulated impairment losses. Provision for depreciation is made over the period of
20 years at the rate of 5% per annum using the straight-line method for buildings classified as investment property. Land is not
depreciated.

The Group revalues investment properties at least once in every five years for disclosure purpose.

1.9.10     Impairment
Non - financial assets

The group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable
amount. Asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value
in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of
those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is
considered as impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. Impairment losses are recognised in the income statement

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. Previously recognised impairment losses other than in respect of goodwill,
are reversed only if there has been an increase in the recoverable amount of the asset. Such increase is recognised to the extent
of the carrying amount had no impairment losses been recognised previously.

1.10. LIABILITIES AND PROVISIONS.

(a)   Borrowings

Borrowings include Call money borrowings, Commercial papers, Bank overdrafts and long term borrowings from financial
institutions and are shown at the gross value of the outstanding balance.

(b)   Debentures

These represent the funds borrowed by the Company for long term funding requirements. These liabilities are recorded in the
balance sheet at amounts expected to be payable at the Balance Sheet date.

(c)    Provisions for liabilities

Provisions are recognised when the Company / Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that the outflow of economic benefits will be required to settle the obligation and a reliable estimate can
be made of the amount of the obligations in accordance with Sri Lanka Accounting Standard No. 36 - Provisions, Contingent
Liabilities and Contingent Assets.

(d)   Defined contribution plan – Employees’ Provident Fund and Employees’ Trust Fund

Employees are eligible for Employees’ Provident Fund contributions and Employees’Trust Fund contributions in line with respective
statutes and regulations. The Company / Group and employees contribute 12% and 8% of gross emoluments of employees to
Employees’ Provident Fund. The Company / Group contributes 3% of gross emoluments of employees to the Employees’ Trust
Fund.

(e)   Defined benefit plan – Gratuity

Gratuity is a defined benefit plan. Provision has been made in the accounts for retiring gratuities. An actuarial valuation of the
retirement benefit is performed by a qualified actuary as at the balance sheet date using the projected unit credit (PUC) meth-
od in terms of Sri Lanka Accounting Standard No 16 (Revised 2006) - Employee Benefits. The provision is not externally funded.

Actuarial gains or losses are recognized in the Income Statements in the period in which they arise. The past service cost is
recognized as an expense on a straight line basis over the period until the benefits become vested.

However, as per the payment of Gratuity Act No.12 of 1983, the liability arises only upon completion of five years of continued
service.

(f)   Commitments and contingencies

All discernible risks are accounted for in determining the amount of all known liabilities.The Company’s share of any contingencies
and capital commitments of a Subsidiary or an Associate for which the Company is also liable severally or otherwise is included
with appropriate disclosures.

Contingent liabilities are possible obligations whose existence will be confirmed only by occurrence or non-occurrence of
uncertain future events not wholly within the control of the entity or present obligations where the transfer of economic benefit
not probable or cannot be reliably measured. Contingent liabilities are disclosed as a note to the financial statement, unless the
possibility of an outflow of resources embodying economic benefits is remote.

1.11     INCOME STATEMENTS
1.11.1   Revenue recognition
(a) Interest income

Interest income is recognised on accrual basis except for the interest receivable on term loans. Interest ceased to be taken into
revenue when the recovery of interest and / or principal is in arrears for six months or more. Interest receivable on advances
classified as non-performing is accounted for on cash basis. Interest falling due on non-performing advances is credited to
interest in suspense account. In addition, interest accrued up to 6 months on such non-performing advances is also eliminated
from the interest income and transferred to interest in suspense.

(b)   Income from Finance Lease and Hire Purchase

The excess of aggregate lease contracts receivable over the cost of the leased assets constitutes the total unearned income at
the commencement of the lease contract.

The unearned income is recognised as income over the term of the lease commencing from the month the lease is executed
in proportion to the declining investment in lease.

Non- performing leases are those where the rentals are overdue for 6 months or more. Lease income accrued is suspended
from the date on which a lease is classified as non-performing and credited to the interest in suspense. Thereafter such income
is recognised on cash basis.

Income from hire purchase is recognised in the same way income from finance lease is recognised.

(c)   Income from discounting of bills of exchange and cheques

Interest income from discounted trade bills and cheques is recognized proportionately from the date of discount to the maturity
date.

(d)   Dividend income on shares

Dividend income from shares is recognised when the company’s right to receive the payment is established.

(e)   Fees and commission income

Fees and commission income including insurance agency commission and commission on bank guarantees are recognised
as the related services are performed.

(f)   Overdue interest

Default charges for late payment of finance lease and hire purchase rentals, and for delayed redemption of bills of
exchange, are recognised as income on collection.
Accounting Policies...cont’d/
(g)      Share issue management fee

Income from management of initial public offerings and private placement of shares of clients is recognised on an accrued
basis.

(h)      Management fees

Fee received from the companies which are managed by Merchant Bank of Sri Lanka has been classified as consultancy fees
and are recognized in the income statement on an accrual basis.

(i)      Interest income from loans and margin trading.

Interest income from staff loans and margin trading is recognised on an accrual basis. However income from term loans and
personal loans are recognised on a cash basis.

(j)	     Gain	/	Loss	on	sale	of	equity	investments	and	PPE

Gain / Loss on sale of equity investments and PPE is accounted for in the income statement, after deducting from the net sales
proceeds on disposal of the carrying amount of such assets.

1.11.2       Expenditure recognition

Expenses are recognised in the income statement on the basis of a direct association between the cost incurred and the
earning of specific items of income. All expenditure incurred in running the business and in maintaining property and equipment
in a state of efficiency has been charged to the income statement.

(a)      Interest expenses

In terms of the provisions of Sri Lanka Accounting Standard No 33 - Revenue Recognition and Disclosures in the Financial
Statements of Finance Companies, interest and other expenses payable are recognised on an accrual basis.

(b)      Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that normally take a
substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time
the assets are substantially ready for their intended use or sale. Income earned from temporarily investing specific borrowings
pending their expenditure on a qualifying asset is deducted from the borrowing costs eligible to be added to the carrying
amount. All other borrowing costs are recognised in profit or loss in the year in which they are incurred in accordance with Sri
Lanka Accounting Standard No. 20 - Borrowing Costs.

(c)      Income taxes

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement.

(c.i) Current tax

Current tax assets and liabilities consist of amounts expected to be recovered from or paid to the taxation authorities in respect
of the current as well as prior years. The tax rates and tax laws used to compute the amount are those that are enacted or
subsequently enacted by the Balance Sheet date. Accordingly, provision for taxation is made based on the profit for the year
adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments
thereto, at the rates specified in Note 11 to the financial statements.

(c.ii) Deferred tax

Deferred tax is provided on temporary differences at the balance sheet date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all temporary differences,
except:

*        Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that
         is not a business combination and, at the time of the transaction, affects neither the accounting profits nor taxable prof
         its or loss; and

*        In respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing
         of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not
         reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible differences, carry forward of unused tax credits and unused tax losses, to
the extent that it is probable that taxable profits will be available against which the deductible temporary differences and the
carry forward of unused tax credits and unused tax losses can be utilised, except:

*        Where the deferred tax assets relating to the deductible temporary difference arises from the initial recognition of an as
         set or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the
         accounting profit nor the taxable profit or loss; and
*      In respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax
       assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable
       future and taxable profits will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised
deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable
that future taxable profits will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the year when the assets are realised, or the liabilities are settled, based on tax rates and
tax laws that have been enacted or substantially enacted at the balance sheet date in accordance with Sri Lanka Accounting
Standard No 14. - Income Taxes.

(c.iii) Value Added Tax on Financial services.

The bases for the computation of value added tax on financial services is the accounting profit before income tax adjusted
for the economic depreciation, computed on prescribed rates and emoluments of employees based on “Value addition
attributable method”.

(c.iv) Withholding tax on dividends, distributed by the Company, Subsidiaries and Associates

•	     Withholding	tax	on	dividends	distributed	by	the	Company
       Withholding tax that arises from the distribution of dividends by the Company is recognized at the time the liability to
       pay the related dividend is recognized.

•	     Withholding	tax	on	dividends	distributed	by	the	Subsidiaries	and	Associates	Dividends	received	by	the	company	from	its		
       subsidiaries and associates, have attracted a 10% deduction at source.

1.12     CASH FLOW STATEMENT

The cash flow statement has been prepared by using the “direct method” of preparing cash flows in accordance with the Sri
Lanka Accounting Standard No. 09 – Cash Flow Statements, whereby gross receipts and gross cash payments on operating
activities, investing activities and financing activities are recognised. For the purpose of cash flow statement, cash and cash
equivalents consist of cash in hand and treasury bills net of outstanding bank overdrafts.

1.13     SEGMENTAL INFORMATION

The Group’s internal organization and management is structured based on individual products and services, which are similar
in nature and process and where the risk and return are similar. The primary segments represent this business structure.

The secondary segments are determined based on the Group’s geographical spread of operations. The geographical analysis
of turnover and profits are based on location of customers and assets respectively.

The activities of each of the reported business segments of the Company and the group are detailed in Note 40.

1.14    EVENTS AFTER THE BALANCE SHEET DATE

Events after the Balance Sheet date are those events, favourable and unfavourable, that occur between the Balance Sheet date
and the date when the Financial Statements are authorized for issue.

All material events that occurred after the balance sheet date have been considered, and appropriate disclosures are made
in Note 42 to the financial statements, where necessary.


1.15 SIGNIFICANT ACCOUNTING POLICIES THAT ARE SPECIFIC TO THE BUSINESS OF THE SUBSIDIARY
     MBSL INSURANCE COMPANY LIMITED

1.15.1Non - Life Insurance Business
 (a) Gross Written Premium

Premium is generally recognised as written upon inception of the policy. Upon inception of the contract, premium is recorded
as written and is earned primarily on a pro-rata basis over the term of the related policy coverage . However, for those contracts
for which the period of risk differs significantly from the contract period, premium is earned over the period of risk in proportion
to the amount of insurance protection provided.

(b)    Reinsurance Premium

Reinsurance Premium expense is accounted for in the same accounting period as the Gross Written Premium to which it relates
or in accordance with the pattern of reinsurance services received.

(c)    Unearned Premium

Unearned premium is the portion of gross written premium and reinsurance premium written in the current year in respect of risk
related to subsequent periods. Unearned premium is calculated on the 1/24th basis in accordance with the rules made by the
Insurance Board of Sri Lanka under the Regulation of Insurance Industry Act, No. 43 of 2000.
Accounting Policies...cont’d/
(d)   Unexpired Risk

Provision is made where appropriate for the estimated amount required over and above unearned premiums to meet future
claims and related expenses on the business in force as at the reporting date.

(e)   Deferred Acquisition Expenses

Acquisition costs, represents commissions and other underwriting expenses, which vary with and are directly related to the
production of business, are deferred and amortized over the period in which the related written premium is earned. Reinsurance
Commission is also treated in the same manner with deferred acquisition costs and it is calculated on the 24th basis in accord-
ance with the rules made by the Insurance Board of Sri Lanka under the Regulation of Insurance Industry Act No. 43 of 2000

(f)   Premiums Receivable

Collectability of premiums and other debts are reviewed on an ongoing basis. Debts that are known to be uncollectible are
written off. A provision for doubtful debts is raised when some doubt as to collection exists.

(g)   Reinsurance Receivable

Reinsurance assets include the balances due from reinsurance companies for paid and unpaid losses and loss adjustment
expenses. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the
reinsured policy. Reinsurance is recorded gross in the Balance Sheet unless a right to offset exists.

If a reinsurance asset is impaired, the company reduces the carrying amount accordingly and recognizes a loss in the statement
of income. A reinsurance asset is impaired if there is objective evidence, as a result of an event that occurred after he initial
recognition of the reinsurance asset, that the company may not receive all amounts due to it under the terms of the contract,
and the event has a reliably measurable impact on the all amounts due to it under the terms of the contract, and the event has
a reliably measurable impact on the amount that company will receive from the reinsurer.

(h)   Claims

Claims expense and a liability for outstanding claims are recognised in respect of direct and inward reinsurance business. The
liability covers claims reported but not yet reported claims(IBNR) and the anticipated direct and indirect costs of settling those
claims. Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate costs of
settling claims,IBNRs and settlement costs using statistics based on past experience and trends.

Actuarial valuations are performed on an annual basis. While the Directors consider that the provision for claims is fairly stated
on the basis of information currently available, the ultimate liability will vary as a result of subsequent information and events.
This may result in adjustments to the amounts provided. Such amounts are reflected in the financial statements for that period.
The methods used and the estimates made are reviewed regularly.

1.15.2  Life Insurance Business
(a) Gross Written Premiums

Premium from traditional life insurance contracts, including participating contracts and annuity policies with life contingencies,
is recognised as revenue when cash is received from the policyholder. Benefits and expenses are provided against such revenue
to recognise profits over the estimated life of the policies. Moreover, for single premium contracts, premium is recorded as
income when received with any excess profit deferred and recognised in income in a constant relationship to the insurance
in-force or, for annuities, the amount of expected benefit payments.

(b)   Reinsurance Premium

Outward reinsurance premiums are recognised when payable. Reinsurance recoveries are credited to match the relevant gross
claims.

(c)   Benefits, losses and expenses

Death claims are recorded on the basis of notifications received. Surrenders, maturities and annuity payments are recorded
when due. Claims payable include direct costs of settlement.
Interim payments and surrenders are accounted for only at the time of settlement.

(d)   Actuarial valuation for long-term insurance provision

The directors agree to the long term-insurance provision for the Company at the year-end on the recommendations of the
Consultant Actuary following his annual investigation of the life insurance business. The actuarial valuation takes into account
all liabilities and is based on assumptions recommended by the Consultant Actuary.

1.16 SIGNIFICANT ACCOUNTING POLICIES THAT ARE SPECIFIC TO THE BUSINESS OF THE SUBSIDIARY
     MBSL SAVINGS BANK LIMITED.
(a) Non - performing loans and advances

The loans and advances are classified as Non-Performing Advances (NPA) based on the period in arrears of due capital and/
or interest, Credit facilities repayable in monthly installments when more than 02 months principal and / or interest in arrears are
recognized as Non-Performing, in accordance with the criteria set out in Directions issued by the Central Bank of Sri Lanka on “
Classification of Loans and Advances, income recognition and provisioning.
Provision for possible loan losses are made on the basis of a continuous review of all loans and advances to customers in
accordance with the Sri Lanka Accounting Standard 23 - Revenue Recognition and Disclosures in the Financial Statements of
the Banks, and Directions issued by the Central Bank of Sri Lanka and disclosed in the financial statements of the Group.

(b)        Provision for loan losses

(b.i)      Specific provisions for loan losses are made as follows:

In accordance with the Directions issued by the Central Bank of Sri Lanka on “Classification of Loans and Advances,Income
Recognition and Provisioning” specific provisions on NPL are made as follows.

              Period outstanding         Category of NPA                            Minimum specific
                                         Credit quality                       Provision Requirements

              5-11 Months                Sub-standard                                              20%
              11-17 Months               Doubtful                                                  50%
              > 17 Months                Loss                                                     100%

The provision made relates to all categories of Loans and Advances identified as substandard, doubtful and loss.

Where necessary specific provisions have been made over and above the minimum percentages stipulated above, on a case
by case basis.

Values assigned to collateral held for non-performing loans secured by properties are determined based on the realisable
values of the properties, being the forced sale value provided by independent parties/valuers.

(b.ii) General Provision

The Direction issued by the Monetary Board of the Central Bank of Sri Lanka on 8th May 2008, in terms Section 46 of the Banking
Act No 30 of 1988, as amended, in “Requirement to Maintain a General Provision for Advances” requires all licensed specialized
banks to maintain a general provision of 1% of the total on-balance sheet performing loans and advances, net of interest in
suspense and credit facilities secured by cash deposits, gold or Government securities with the same bank.

The Direction referred to above was replaced by the Direction issued on 27th September 2010, thereby the banks are required
to make general provision of 0.5% of total outstanding on-balance sheet performing loans and total outstanding of special
mention on-balance sheet credit facilities commencing on 1st January 2012. According to the said Direction, banks shall reduce
the existing general provision requirements of 1% to 0.5% at a rate of 0.1 per quarter during the five quarters commencing 1st
October 2010.

1.16.1 Revenue recognition on non-performing loans

When an advance is classified as non-performing Loans and Advances if due capital and/or interest were in arrears for more
than 2 months the interest ceases to be accrued and is taken to income thereafter on cash basis in accordance with directions
issued by the Central Bank of Sri Lanka.

1.16.2 Liabilities and provisions
(a)   Deposits from customers

Deposits include savings deposits, term deposits, deposits redeemable at call and certificates of deposits. They are brought to
account at the gross value of the outstanding balance. Interest paid is charged to the Income statement.

(b)     Securities sold under Re-purchase agreements

Securities sold under agreements to re-purchase are recorded separately in the Financial Statements. The difference between
the sale and the purchase price represents interest expense, which is recognised in the Income statement over the period of
the re-purchase agreements.

1.16.3 Revenue recognition
(a) Interest income

Interest income from loans and advances is recognized on an accrual basis. Interest ceases to be accrued when the recovery
of interest or principal is in arrears for more than two (2) months. Interest on non-performing advances is accounted for on a
cash basis.

Interest on Non-Performing debts is credited to the ‘Interest in suspense account’ which is netted in the Balance Sheet against
the relevant balance.

Interest income from investments is recognised on an accrual basis.
Notes to the Financial Statements
                                                                                      Company                                        Group

For the year ended 31 December                                            2011                  2010                 2011          2010
                                                                                                                          Re-presented*
                                                                      LKR ‘ 000            LKR ‘ 000            LKR ‘ 000      LKR ‘ 000

2        INCOME
         Interest income (Note 03)                                   1,335,948             1,107,121            2,309,171           1,930,807
         Fee & commission income (Note 05)                              47,605               109,034               54,480              99,646
         Dividend income                                                14,460                 8,481                7,229              11,425
         Other income (Note 06)                                        161,209               298,344              238,209             413,187
         Insurance income                                                     -                     -             198,471             140,615
                                                                     1,559,222             1,522,980            2,807,560           2,595,680
3        INTEREST INCOME
         Gross earnings under
                Finance leases                                         420,553               283,693              609,141             385,340
                Hire purchase                                          491,465               480,565              830,011             787,425
         Loans                                                         149,280               132,419              446,490             412,343
         Bills discounting                                              67,164                68,550               67,164              68,550
         Treasury bills and bonds                                       44,076                29,308              111,583             116,829
         Overdue interest                                              118,294                94,699              184,274             139,718
         Others                                                         45,116                17,887               60,508              20,602
                                                                     1,335,948             1,107,121            2,309,171           1,930,807
4        INTEREST EXPENSES
         Customer deposits                                                    -                     -             432,394             424,382
         Borrowings                                                    543,721               416,336              575,558             421,006
         Cash margins                                                    1,302                 1,456                1,302               1,456
         Overdraft and others                                              865                 1,249               11,904               3,333
                                                                       545,888               419,041            1,021,158             850,177

5        FEE AND COMMISSION INCOME
         Insurance commission                                            14,770               12,875               22,262               6,109
         Commission on bank guarantee                                     2,206                1,541                2,206               1,541
         Fee and consultancy income                                      30,629               94,618               30,012              91,996
                                                                         47,605              109,034               54,480              99,646

6        OTHER INCOME
         Proceeds from lease contracts written-off                       5,271                 5,323               20,557              10,091
         Gain on sale of quoted investments                             99,129               215,282              114,953             280,711
         Gain on sale of un-quoted investments                                -               25,629                     -             21,463
         Service charges on hire-purchase                                8,922                14,527                8,922              14,103
         Gain on disposal of Leased/Hire purchased assets                  691                   172                  691                 172
         Miscellaneous income                                            8,452                 3,355               53,566              32,292
         Income from seminars                                            1,318                   512                1,318                 512
         Gain/(Loss) on disposal of fixed assets                       (2,329)                 5,336                (251)               5,540
         Gain/(Loss) on sale of real estate                                   -                     -             (1,302)               (560)
         Gain on sale of treasury bills/bonds                            5,713                22,315                5,713              34,170
         Gain on disposal of Investment properties                      34,042                 5,893               34,042              14,693
                                                                       161,209               298,344              238,209             413,187

7        OPERATING EXPENSES
         Operating expenses, among others, include the following:
         Legal expenses                                                   3,365                7,974                4,335              12,237
         Depreciation of property and equipment                          12,152                8,927               34,168              39,255
         Amortization of intangible assets                                  904                  656                1,744               2,278
         Depreciation of investment properties                              762                  853                3,285               3,073
         Directors’ emoluments (Note 7.1)                                 4,949                4,568               14,883               9,975
         Auditors’ remuneration (Note 7.2)                                1,077                  859                2,168               1,771
         Donations                                                           61                  797                  211               1,242

         7.1 Directors’ emoluments
         Emoluments to the Chairman                                         772                  498                3,012                1,378
         Emoluments to Non-Executive Directors                            4,177                4,070               11,871                8,597
                                                                          4,949                4,568               14,883                9,975

         7.2 Auditors’ remuneration
         Statutory Audit Services                                           715                   715                1,712               1,577
         Audit Related Services                                             362                   144                  456                 194
                                                                          1,077                   859                2,168               1,771

* Comparative figures are re - presented to reflect the results of the discontinued operation as explained in Note 12 to the Financial Statements.
                                                                                       Company                                        Group
For the year ended 31 December                                            2011                  2010                 2011          2010
                                                                                                                          Re-presented*
                                                                      LKR ‘ 000            LKR ‘ 000            LKR ‘ 000      LKR ‘ 000

8        PERSONNEL EXPENSES
         Salary                                                        185,143               127,820              391,338             285,544
         Defined contribution plan - EPF                                16,533                11,459               35,975              27,074
         Defined contribution plan - ETF                                 4,133                 2,864                9,706               5,840
         Bonus                                                          24,000                32,750               35,879              47,471
                                                                       229,809               174,893              472,898             365,929

9        PROVISION FOR LOAN LOSSES
         Specific provision/ (reversal) on bills receivable               (383)              (1,910)                (383)             (1,910)
         General provision / (reversal) on bills receivable                (10)                4,591                 (10)               4,591
         Specific provision on loans and advances                         1,930                1,307               19,586              11,609
         General provision on loans and advances                          5,728                7,009                5,728               7,009
         Specific provision on lease/hire-purchase receivable            22,448               30,558               51,415              44,596
         General provision on lease receivable                           32,317               24,232               44,205              30,232
         Total provisions made during the year                           62,030               65,787              120,541              96,127
         Written off                                                           -                    -                 107              16,388
                                                                         62,030               65,787              120,648             112,515

10       SHARE OF ASSOCIATE COMPANY’S PROFIT BEFORE TAXATION

         Name of the Company                         Holding %

         Lanka Securities (Pvt) Ltd                            29        60,248               82,639               60,248              82,639

11       INCOME TAX EXPENSE

         11.1 (a) Current tax expense
         Income tax on profit for the year                               57,172              128,913               86,877             162,076
         Under-provision in the previous years                                 -              74,846                2,855              74,346
                                                                         57,172              203,759               89,732             236,422

         (b) Deferred tax expense
         Provision / (Reversal) of deferred taxation (Note 32.1)        53,840               (2,722)               53,840             (2,722)
         Total income tax expense                                      111,012               201,037              143,572             233,700

         11.2 Reconciliation of accounting profit and taxable income:
         Accounting profit                                     443,367                       650,708              591,043             795,608
         Add: Disallowed expenses                            1,424,255                     1,181,133            2,176,493           1,335,941
         Less:- Capital allowance and other income           1,767,013                     1,395,602            2,553,398           1,551,158
         Adjusted trade profit                                 100,609                       436,239              214,138             580,391
         Less:-Tax savings on the utilisation of tax losses/
                                     qualifying payments        84,903                       152,711              142,028             203,509
         Add: Tax loss on Leasing business                     148,540                              -             189,046                    -
         Taxable income                                        164,246                       283,528              261,156             376,882

         Income tax charged at:
         Income tax at 28%                                               45,989               99,235               75,694             131,909
         Social responsibility levy at 1.5%                                 690                1,489                  690               1,978

         Notional tax credit                                           (4,897)               (3,226)              (4,897)             (3,226)
         Current & deferred tax share of associate company              15,390                31,415               15,390              31,415
         Deferred tax charge / (reversal)                               53,840               (2,722)               53,840             (2,722)
         Under provision in the previous years                                -               74,846                2,855              74,346
         Total income tax expense                                      111,012               201,037              143,572             233,700


         11.3 The applicable tax rate for the Company and the Group is at 28.00%

* Comparative figures are re - presented to reflect the results of the discontinued operation as explained in Note 12 to the Financial Statements.
Notes to the Financial Statements ...cont’d/
12    DISCONTINUED OPERATIONS
      In October 2011, the company accepted an offer made by a consortium of investors led by M/s Navara Capital
      (Pvt) Ltd to purchase the company’s 68% holding in MBSL Savings Bank Limited comprising 87,185,520 ordinary vot-
      ing shares and 100,000,000 ordinary non-voting shares at a price of Rs. 3.75 per voting share and Rs. 2.35      per
      non voting share, subject to the approval of the Central Bank. In January 2012, the Monetary Board granted approval
      to the consortium of investors led by M/s Navara Capital (Pvt) Ltd to purchase the company’s holding in MBSL Savings
      Bank Limited for a consideration of Rs. 562 Mn, out of which Rs. 100 million was paid in October 2011. The Company
      executed a share transfer agreement on 30 March 2012 for this transaction.

                                                                     2011            2010
                                                                 LKR ‘ 000        LKR ‘ 000

      Total income                                                373,608          394,374
      Total expense                                               422,661          415,305

      Results of Operating Activities before tax                  (49,053)        (20,931)
      Income tax expense                                                 -               -
      Results of Operating Activities                             (49,053)        (20,931)

      Basic / Diluted earnings / (loss) per share                   (0.36)          (0.16)

      Cash flows from (used in) discontinued operation
      Net cash used in operating activities                       (60,586)       (215,799)
      Net cash from investing activities                             6,733          27,322
      Net cash from financing activities                            60,066         159,228
      Net cash generated from discontinued operation                 6,213        (29,249)

13    13.1 BASIC / DILUTED EARNINGS PER ORDINARY SHARE
      Basic Earnings Per Share (EPS) has been calculated by dividing the profit attributable to equity holders of the
      Company by the weighted average number of ordinary shares in issue during the year.
                                                                               Company                                Group
      For the year ended 31 December                               2011              2010                2011          2010

      Profit attributable to ordinary shareholders (LKR ‘000)     332,355          449,671             353,141       492,345
      Number of ordinary shares used as denominator (‘000)        135,000          135,000             135,000       135,000
      Basic / Diluted Earnings per ordinary share (LKR)              2.46             3.33                2.62          3.65


      13.2 BASIC / DILUTED EARNINGS PER ORDINARY SHARE
               FROM CONTINUING OPERATIONS
      Profit attributable to ordinary shareholders (LKR ‘000) 332,355              449,671             387,621       507,057
      Number of ordinary shares used as denominator (‘000)    135,000              135,000             135,000       135,000
      Basic / Diluted Earnings per ordinary share (LKR)          2.46                 3.33                2.87          3.76


      13.3 DIVIDEND PER SHARE
      Final dividend proposed (LKR’ 000)                          168,750          168,750             168,750       168,750
      Dividend per ordinary share (LKR)                              1.25             1.25                1.25          1.25

      The directors recommended a final dividend of LKR 1.25 per share for the year ended 31 December 2011 for approval
      by the share holders’ at the Annual General Meeting to be held on 20 June 2012. As stipulated by SLAS 12 (revised)
      Events occurring after the balance sheet date, this proposed dividend is not recognized as a liability as at 31 December
      2011.

      However, for the purpose of computing dividend per share, the proposed final dividend has been taken into
      consideration.
                                                                       Company                          Group
      As at 31 December                                      2011          2010               2011       2010
                                                          LKR'000       LKR'000           LKR'000     LKR'000
14    CASH IN HAND AND AT BANK
      Cash in hand                                             316           259               6,771    11,809
      Cash at bank                                          96,944        70,838            231,279    135,147
                                                            97,260        71,097            238,050    146,956

15    OTHER INVESTMENTS
      Fixed deposits                                                      -               -            225,000              -
      Debentures                                                          -               -             25,000              -
                                                                          -               -            250,000              -

16    GOVERNMENT TREASURY BILLS / BONDS
      Treasury bills / bonds                                      871,088          279,765           1,560,046     1,626,575
      Treasury Bills - Re - Purchase agreements                          -                -            110,345              -
                                                                  871,088          279,765           1,670,391     1,626,575
                                                                   2011                             2010
       Company                                       No.of         Cost      Market       No.of     Cost         Market
                                                  Ordinary                    value    Ordinary                   value
       As at 31 December                            Shares     LKR ‘ 000   LKR ‘ 000     Shares LKR ‘ 000      LKR ‘ 000

17    DEALING SECURITIES
17.a. Quoted Shares

Bank, Finance and Insurance
       Hatton National Bank PLC                           -            -           -       5,500        818       2,199
       Hatton National Bank PLC-Non Voting         102,300       13,886       8,511       75,100     15,291      16,116
       National Development Bank PLC                50,100        8,705       6,919       14,600      3,560       5,103
       Commercial Bank of Ceylon PLC                14,600        1,528       1,460       14,300      2,503       3,717
       Development Finance Corporation of Ceylon    21,600        2,406       2,439       61,800      6,883      12,372
       Seylan Bank PLC                              99,700        8,762       6,740       37,900      3,207       3,707
       Pan Asia Banking Corporation PLC                 66            2           2          333          7          17
       Janashakthi Insurance Company PLC           442,000        8,732       6,630      805,100     11,413      12,882
       People’s Leasing Finance PLC                 35,700        2,376       1,274             -          -           -
       Nations Trust Bank PLC                       61,400        5,062       3,500       61,400      5,062       5,121
       Nanda Finance PLC                            27,500          610         338             -          -           -
       Sampath Bank PLC                             15,000        4,141       2,925             -          -           -
       Commercial Bank of Ceylon PLC-Non Voting     90,000        7,927       6,705             -          -           -
       Lanka Orix Leasing Co. PLC                   60,000        7,638       4,998             -          -           -
       Lanka Ventures PLC                          587,400       25,943      22,439             -          -           -
       Ceylinco Insurance Co PLC                          -            -           -      13,800      3,143       5,258
       CF Venture Fund PLC                                -            -           -     537,000     11,099      10,203
       Seylan Merchant Bank PLC                           -            -           -      50,000         82          95
       Seylan Merchant Bank PLC-Non Voting                -            -           -   1,600,000      1,465       1,600
       SMB Leasing PLC W2016                     1,340,000        2,029         938    1,600,000           -        960
       SMB Leasing PLC W2015                              -            -           -   2,000,000      1,818       1,600
                                                                 99,747      75,817                  66,351      80,950

Diversified Holdings
       John Keells Holdings PLC                            -           -           -     135,300     25,670      40,374
       Browns Investment PLC                      1,571,800       8,091       6,602             -          -           -
       Richard Pieris & Company PLC                        -           -           -   1,854,200      9,984      19,469
       The Colombo Fort Land & Building PLC          92,900       7,685       4,552             -          -           -
       Expo Lanka PLC                               100,000       1,208         900             -          -           -
       Hemas Holdings PLC                           297,500      12,604       9,818             -          -           -
       Vallibel One Limited                         261,000       6,525       6,212             -          -           -
       Free Lanka Capital Holdings PLC              698,900       3,472       2,167             -          -           -
       CT Holdings PLC                               20,000       4,206       3,580       22,200      2,360       4,056
       Colombo Dockyard PLC                                -           -           -       5,300      1,488       1,458
                                                                 43,791      33,830                  39,502      65,356
Information & Technology
      PC House PLC                                         -           -           -    400,000       4,400       4,520
                                                                       -           -                  4,400       4,520
Beverages, Food & Tobacco
      Distilleries Co of Sri Lanka PLC               81,000      13,951      11,915     129,800      18,476      23,091
      Lanka Milk Foods (CWE) PLC                           -           -           -     81,903       8,285       9,255
      Bairaha Farms PLC                              10,000       3,084       2,103            -           -           -
      The Lion Brewery Ceylon PLC                    42,300      10,422       8,037            -           -           -
      Coco Lanka PLC                                       -           -           -        105           5           7
                                                                 27,457      22,055                  26,765      32,353

Hotels and Travel
       Asian Hotels & Properties PLC                110,900       9,105       8,473       65,900     10,821      12,785
       Keells Hotels PLC                                   -           -           -     883,333     18,285      17,667
       Stafford Hotels PLC                                 -           -           -      22,800        631       1,395
       Ceylon Hotels Corporation PLC                       -           -           -      55,100      1,841       2,011
       The Fortress Resorts PLC                            -           -           -     120,000      1,939       2,472
       Confifi Hotel Holdings PLC                     2,300         721         533             -          -           -
       Marawila Resorts PLC                                -           -           -       6,300         41          93
       Eden Hotel Lanka PLC                         100,000       2,842       3,800      270,800      7,130      15,598
       Galadari Hotels (Lanka) PLC                         -           -           -     167,900      6,336       6,011
       Amaya Leisure PLC                             16,700       2,006       1,361             -          -           -
       Aitken Spence Hotel Holdings PLC              14,000       1,586         973             -          -           -
       Hotel Services Ceylon PLC                  2,669,400      57,877      54,189    2,992,300     64,884      77,800
                                                                 74,137      69,329                 111,907     135,832
Notes to the Financial Statements ...cont’d/                                  2011                               2010
                                                     No.of        Cost      Market       No.of     Cost        Market
                                                  Ordinary                   value    Ordinary                  value
         As at 31 December                          Shares    LKR ‘ 000   LKR ‘ 000     Shares LKR ‘ 000     LKR ‘ 000

Manufacturing
     ACL Cables PLC                                    300          27          22       4,900        397         417
     Abans Electricals PLC                           6,100       1,576       1,160            -          -           -
     Pelwatte Sugar Industries PLC                  41,600       1,799         978      30,800      1,122         844
     Hayleys Exports PLC                             2,400         100          86      62,600      2,738       2,567
     Printcare PLC                                  25,000       1,293         923            -          -           -
     Tokyo Cement Co.(Lanka) PLC                          -           -           -      6,250        186         344
     Tokyo Cement Co.(Lanka) PLC - Non Voting       40,400       1,672       1,232       7,500           -        302
     Royal Ceramic Lanka PLC                        10,000       1,598       1,415            -          -           -
     Lanka Cement PLC                               60,400       2,106       1,196      60,400      2,106       1,691
     Orient Garments PLC                             5,000         189         156            -          -           -
     Lake House Printers and Publishers PLC          3,600         493         488            -          -           -
     Textured Jersey PLC                            60,800         816         620            -          -           -
     Piramal Glass Company PLC                     986,300      10,827       7,792            -          -           -
     Ceylon Leather Products PLC                    10,000       1,004         996     113,600     10,748      10,519
     Central Industries PLC                         36,000       2,793       3,035     200,100     15,529      18,009
                                                                26,293      20,097                 32,825      34,693
Trading
       Brown & Company PLC                                -           -           -      93,100    10,803      22,986
       Ceylon Foreign Trades PLC                   930,400       9,573       8,746             -         -           -
       C.W.Mackie & Co. PLC                               -           -           -         300        13          26
       Tess Agro PLC                                      -           -           -       2,900         5           8
                                                                 9,573       8,746                 10,821      23,020
Telecommunication
      Dialog Axiata PLC                                   -           -           -    103,600        898       1,222
      Sri Lanka Telecom PLC                               -           -           -     24,900      1,136       1,220
                                                                      -           -                 2,034       2,443
Power and Energy
       Lanka IOC PLC                                      -           -           -     108,300     2,296       2,047
      Hemas Power PLC                               21,400         616         571             -         -           -
      Laugfs Gas PLC                                      -           -           -     166,100     3,820       4,302
      Laugfs Gas PLC - Non Voting                         -           -           -     227,100     3,407       4,201
      Pan Asian Power PLC                                 -           -           -   1,876,600     5,630       5,630
                                                                   616         571                 15,153      16,180
Health Care
       Nawaloka Hospitals PLC                             -           -           -    100,000        360         370
      Asiri Hospitals PLC                                 -           -           -    260,200      2,325       2,290
                                                                      -           -                 2,685       2,660
Land and Property
      York Arcade PLC                                     -           -           -     25,000        745         603
      Onally Holdings PLC                            8,700         714         632            -          -           -
      Colombo Land PLC                             100,000       7,028       5,490            -          -           -
      CT Land Development PLC                        8,100         227         234      33,500        770         938
      East West Properties PLC                            -           -           -      1,200         16          15
      Overseas Realty (Ceylon) PLC                 483,500       7,976       6,769     383,500      6,808       5,868
                                                                15,945      13,126                  8,339       7,424
Chemical & Pharmaceuticals
     Chemical Industries (Colombo) PLC                    -           -           -       5,000       302         704
     Chemical Industries (Colombo) PLC - Non Voting 10,000         908         770        9,600       374         959
     Chemanex PLC                                    1,000         159         120        1,000       159         122
     Haycarb PLC                                    30,200       5,282       4,681       30,200     5,282       5,089
                                                                 6,349       5,571                  6,117       6,874
Plantation
       Kegalle Plantations PLC                            -           -           -         600        44          97
       Balangoda Plantations PLC                    22,800       1,545         657             -         -           -
       Maskeliya Plantations PLC                     4,000         130          80        4,000       130         111
                                                                 1,675         737                    174         208
Footwear & Textile
      Hayleys MGT Knitting Mills PLC                      -           -           -       4,000       148         128
                                                                      -           -                   148         128
Investment Trust
       Envi.Resources PLC                           83,300       2,594       1,574             -         -           -
       Renuka Holding PLC                          356,446      27,409      19,212             -         -           -
                                                                30,003      20,787                       -           -
Motors
         Sathosa Motors PLC                         20,000       7,511       5,200             -         -           -
         United Motors Lanka PLC                    10,000       1,590       1,460             -         -           -
                                                                 9,101       6,660                       -           -
Unit Trusts
        Namal Acquity VF                            28,300       2,715       2,547       28,300     2,715       2,547
                                                                 2,715       2,547                  2,715       2,547
                                                                                         2011                                2010
                                                             No.of           Cost      Market       No.of     Cost         Market
                                                          Ordinary                      value    Ordinary                   value
        As at 31 December                                   Shares       LKR ‘ 000   LKR ‘ 000     Shares LKR ‘ 000      LKR ‘ 000

       Total gross carrying value of dealing securities                   347,402     279,872                 329,936     415,186

       Provision for fall in value of dealing securities ( Note 17.1 )     71,298            -                       -           -

       Total net carrying value of dealing securities                     276,104     279,872                 329,936     415,186

17.b. Listed debentures
       Bank of Ceylon                                         8,700         1,083       1,045        8,700      1,083       1,175
       Seylan Bank Debenture - 1                              2,000           215         200        2,000        215         200
       Seylan Bank Debenture - 2                              3,400           364         340        3,400        364         340
       Seylan Bank Debenture - 3                                   -             -           -       1,500        154         150
      Total net carrying value of listed debentures                         1,662       1,585                   1,816       1,865

       Total net carrying value of dealing securities
                                    and investments                       277,766     281,457                 331,752     417,051

Group
17.c. Quoted Shares

Bank, Finance and Insurance
       Hatton National Bank PLC                                    -             -           -      14,800      2,893       4,195
       Hatton National Bank PLC-Non Voting                  126,150        17,201      10,521       75,100     15,291      16,116
       National Development Bank PLC                         50,100         8,705       6,919       14,600      3,560       5,103
       Commercial Bank of Ceylon PLC                         14,600         1,528       1,460       14,300      2,503       3,717
       Commercial Bank of Ceylon PLC-Non Voting             131,526        11,538       9,799             -          -           -
       DFCC PLC                                              21,600         2,406       2,439       61,800      6,883      12,372
       Seylan Bank PLC                                      209,566        19,024      14,167      168,500     16,943      16,479
       Seylan Bank PLC - Non Voting                                -             -           -      41,700      2,120       2,043
       Pan Asia Banking Corporation PLC                          66             2           2        2,833        108         147
       Janashakthi Insurance Company PLC                    518,800        10,376       7,797      805,100     11,413      12,882
       People’s Leasing Finance PLC                          35,700         2,376       1,274             -          -           -
       Nations Trust Bank PLC                                61,400         5,062       3,500       72,500      5,947       6,047
       Nations Trust Bank PLC -W2010                               -             -           -      20,000        644       1,152
       Nanda Finance PLC                                     27,500           610         338             -          -           -
       Sampath Bank PLC                                      15,000         4,141       2,925             -          -           -
        Lanka Orix Leasing Co. PLC                           60,000         7,638       4,998             -          -           -
       Lanka Ventures PLC                                   640,400        28,143      24,463             -          -           -
       Ceylinco Insurance Co PLC                                   -             -           -      14,300      3,257       5,449
       CF Venture Fund PLC                                         -             -           -     760,000     15,566      14,390
       Seylan Merchant Bank PLC                              43,600         3,823       2,987       86,800        168         132
       Seylan Merchant Bank PLC-Non Voting                   72,500         3,100       2,233    1,600,000      1,465       1,600
       Merchant Bank of Sri Lanka PLC                              -             -           -      17,000        917         779
       Seylan Development PLC                                      -             -           -      10,000        218         168
       SMB Leasing PLC W2016                              3,237,600         3,927         938    1,600,000           -        960
       SMB Leasing PLC W2015                              1,897,600         2,878       1,328    2,000,000      1,818       1,600
       DFCC Bank PLC                                          4,300           617         485             -          -           -
       Amana Takaful PLC                                     36,900            74          89      195,800        655         587
       Asia Capital PLC                                       1,100            76          71       12,200        558         573
       First Capital Holdings PLC                            27,800           596         448       95,000      1,742       1,805
       People’s Merchant Bank PLC                            42,500           904         672        6,200        200         182
       Union Bank of Colombo PLC                            137,200         4,262       2,607             -          -           -
       Chilaw Finance PLC                                     3,300           107          74             -          -           -
       HNB Assurance PLC                                     22,466         1,689       1,281             -          -           -
       Singer Finance PLC                                       700            18          19             -          -           -
                                                                          140,821     103,834                  94,869     108,478
Diversified Holdings
       John Keells Holdings PLC                              13,368         3,076       2,275      167,926     35,240      50,110
       Browns Investment PLC                              1,571,800         8,091       6,602             -          -           -
       Richard Pieris & Company PLC                         121,300         1,576       1,092    1,854,200      9,984      19,469
       The Colombo Fort Land & Building PLC                  92,900         7,685       4,552             -          -           -
       Expo Lanka PLC                                       100,000         1,208         900             -          -           -
       Hemas Holdings PLC                                   344,700        14,867      11,375        3,900        183         174
       Vallibel One PLC                                     261,000         6,525       6,212             -          -           -
       Free Lanka Capital Holdings PLC                    1,096,800         5,577       3,440             -          -           -
       CT Holdings PLC                                       20,000         4,206       3,580       32,200      4,016       5,883
       Colombo Dockyard PLC                                   6,100         1,817       1,457             -          -           -
       CW Mackie PLC                                         33,100         3,504       2,962             -          -           -
       Aitken Spence PLC                                      6,100           891         763             -          -           -
                                                                           59,023      45,210                  49,423      75,636
Notes to the Financial Statements ...cont’d/                    2011                             2010
                                                  No.of         Cost      Market       No.of     Cost         Market
                                               Ordinary                    value    Ordinary                   value
As at 31 December                                Shares     LKR ‘ 000   LKR ‘ 000     Shares LKR ‘ 000      LKR ‘ 000

Information & Technology
      E-Channeling PLC                                  -           -           -     13,300         301         293
      PC House PLC                                      -           -           -    483,100       5,314       5,459
                                                                    -           -                  5,615       5,752
Beverages, Food & Tobacco
      Distilleries Co of Sri Lanka PLC            81,000      13,951      11,915     129,800      18,476      23,091
      Lanka Milk Foods (CWE) PLC                        -           -           -     81,903       8,285       9,255
      Bairaha Farms PLC                           24,200       7,333       5,089            -           -           -
      The Lion Brewery Ceylon PLC                 42,300      10,422       8,037      63,000      12,197      11,661
      Coco Lanka PLC                               3,500         230         193       5,105         263         329
      Kotmale Holdings PLC                              -           -           -    228,200       5,774       9,858
      Three Acre Farms PLC                         7,200         911         748            -           -           -
                                                              32,847      25,982                  44,995      54,194
Hotels and Travel
       Asian Hotels & Properties PLC             152,900      13,243      11,682       68,900     11,283      13,367
       Keells Hotels PLC                         269,900       5,730       3,644    1,286,633     26,848      25,733
       Stafford Hotels PLC                              -           -           -      22,800        631       1,395
       Ceylon Hotels Corporation PLC                    -           -           -      55,100      1,841       2,011
       The Fortress Resorts PLC                         -           -           -     123,700      2,022       2,548
       Confifi Hotel Holdings PLC                  2,300         721         533             -          -           -
       Marawila Resorts PLC                           50           1           1       11,300        122         167
       Eden Hotel Lanka PLC                      131,100       4,744       4,982      312,300      9,775      17,988
       Galadari Hotels (Lanka) PLC                      -           -           -     219,100      8,455       7,844
       Amaya Leisure PLC                          16,700       2,006       1,361        4,214        337         383
       Aitken Spence Hotel Holdings PLC           14,000       1,586         973             -          -           -
       Hotel Services Ceylon PLC               2,680,250      58,203      54,411    3,027,150     65,821      78,706
       Amaya Leisure PLC                              14           1           1             -          -           -
       The Lighthouse PLC                          4,900         321         262        4,600        305         290
       Mahaweli Reach Hotels PLC                        -           -           -       8,100        306         284
       Renuka Hotels PLC                          70,719       5,253       3,812             -          -           -
       Hotel Sigiriya PLC                          1,800         162         133             -          -           -
                                                              91,971      81,794                 127,746     150,716
Manufacturing
     ACL Cables PLC                                  300          27          22       4,900         397         417
     Abans Electricals PLC                         9,500       2,370       1,806            -           -           -
     Pelwatte Sugar Industries PLC                68,400       2,925       1,608      30,800       1,122         844
     Hayleys Exports PLC                           2,400         100          86      62,600       2,738       2,567
     Printcare PLC                                25,000       1,293         923            -           -           -
     Tokyo Cement Co. (Lanka) PLC                  5,600         354         246       6,250         186         344
     Tokyo Cement Co(Lanka) PLC-Non Voting        40,400       1,672       1,232       7,500            -        302
     Royal Ceramic Lanka PLC                      10,000       1,598       1,415            -           -           -
     Lanka Cement PLC                             60,400       2,106       1,196      60,400       2,106       1,691
     Lanka Tiles PLC                                    -           -           -      2,400         241         322
     Lanka Walltile PLC                                 -           -           -      2,000         212         278
     Orient Garments PLC                           5,000         189         156            -           -           -
     Lake House Printers and Publishers PLC        3,600         493         488            -           -           -
     Textured Jersey PLC                          60,800         816         620            -           -           -
     Piramal Glass Company PLC                 1,086,300      11,797       8,582     200,000         788       1,560
     Ceylon Leather Products PLC                  12,000       1,279       1,195     245,800      22,813      22,761
     Central Industries PLC                      240,100      18,633      20,240     431,700      33,503      38,853
     Raigam Wayamba Salterns PLC.                       -           -           -     47,500         118         190
     Bogala Graphite PLC                          12,100         811         472            -           -           -
     Laxapana Batteries PLC                        1,300          15          15            -           -           -
                                                              46,477      40,301                  64,224      70,129
Trading
       Brown And Company PLC                       2,900         767         681     109,300      14,046      26,986
       C.W.Mackie & Co. PLC                             -           -           -        300          13          26
       Tess Agro PLC                                    -           -           -    139,900         380         378
       Ceylon & Foreign Trades PLC             1,241,500      12,814      11,670     100,000         703         770
       Odel PLC                                   20,000         927         648            -           -           -
                                                              14,508      12,999                  15,142      28,160
Telecommunication
      Sri Lanka Telecom PLC                             -           -           -     24,900       1,136       1,220
      Dialog Axiata PLC                           33,100         332         261     103,600         898       1,223
                                                                 332         261                   2,034       2,443
                                                                          2011                             2010
                                                          No.of           Cost      Market       No.of     Cost        Market
                                                       Ordinary                      value    Ordinary                  value
         As at 31 December                               Shares       LKR ‘ 000   LKR ‘ 000     Shares LKR ‘ 000     LKR ‘ 000

Power and Energy
      Lanka IOC PLC                                             -             -           -     108,300     2,296       2,047
      Hemas Power PLC                                     78,200         2,328       2,094       15,000       487         443
      Laugfs Gas PLC                                      91,000         4,589       3,458      166,100     3,820       4,302
      Laugfs Gas PLC - Non Voting                               -             -           -     227,100     3,407       4,201
      Pan Asian Power PLC                                       -             -           -   1,905,800     5,718       5,718
                                                                         6,917       5,552                 15,728      16,711
Health Care
      Nawaloka Hospitals PLC                                      -           -           -    470,000      1,826       1,739
      Asiri Hospitals PLC                                         -           -           -    295,200      2,640       2,598
      Asiri Surgical Hospital PLC                                 -           -           -     39,900        359         347
                                                                              -           -                 4,825       4,684
Land and Property
      York Arcade PLC                                          -              -           -     45,800      1,368       1,104
      Onally Holdings PLC                                 8,700            714         632            -          -           -
      Colombo Land PLC                                  100,000          7,028       5,490      20,000        505         388
      CT Land Development PLC                             8,100            227         234      33,500        770         938
      East West Properties PLC                           12,700            616         319       1,200         16          15
      Overseas Realty (Ceylon) PLC                      503,600          8,429       7,052     403,500      7,258       6,174
      Lankem Development PLC                              5,500            183          90            -          -           -
                                                                        17,196      13,818                  9,917       8,619
Chemical & Pharmaceuticals
     Chemical Industries (Colombo) PLC                   -                    -           -     45,000      5,883       6,332
     Chemical Industries (Colombo) PLC - Non Voting 10,000                 908         770       9,600        374         959
     Chemanex PLC                                   1,000                  159         120       1,000        159         121
     Haycarb PLC                                   30,200                5,282       4,681      30,200      5,282       5,088
     Colombo Dockyard PLC                                                     -           -           -     3,900       3,686
                                                                         6,349       5,571                 15,598      16,186
Plantation
       Kahawatta Plantations PLC
       Kegalle Plantations PLC                                  -             -           -        600         44          97
       Balangoda Plantations PLC                          22,800         1,545         657            -          -           -
       Maskeliya Plantations PLC                           4,000           130          80       4,000        130         111
       Balangoda Plantations PLC                                -             -           -     21,500      1,412       1,234
       Kotagala Plantations PLC                                 -             -           -     12,300      1,183       1,437
       Agalawatta Plantation PLC                           3,400           180         170            -          -           -
       Horana Plantation PLC                              11,600           772         438            -          -           -
                                                                         2,627       1,345                  2,769       2,879
Footwear & Textile
      Hayleys MGT Knitting Mills PLC                              -           -           -     65,600      2,330       2,100
                                                                              -           -                 2,330       2,100
Investment Trust
       Environment Resources Investments PLC            141,300          7,193       3,901      35,000      4,137       3,007
       Renuka Holding PLC                               356,446         27,409      19,212            -          -           -
       Equity One PLC                                    30,900          2,255       1,573      40,600      3,244       2,274
       Equity Two PLC                                                                           18,200        539         442
       Touchwood Investment PLC                           62,500         1,906       1,344      25,000        864         708
       Gurdian Capital Partners PLC                        4,500           783         625            -          -           -
                                                                        39,546      26,655                  8,784       6,431
Motors
         Sathosa Motors PLC                               21,900         8,252       5,694            -          -           -
         United Motors Lanka PLC                          10,000         1,590       1,460            -          -           -
                                                                         9,842       7,154                       -           -
Unit Trusts
        Namal Acquity VF                                  28,300         3,140       2,850      28,300      3,140       2,952
        First Capital Asset Management Ltd                 4,725         5,000       5,119            -          -           -
                                                                         8,140       7,969                  3,140       2,952

Total gross carrying value of dealing securities                       476,595     378,443                467,139     556,070
Less: Cost of dealing securities of MBSL Savings Bank                         -           -                23,317            -
Add: Market value of dealing securities of MBSL Savings Bank                  -           -                22,853            -
Total gross carrying value of dealing securities                       476,595     378,443                466,675     556,070
Provision for fall in value of dealing securities ( Note 17.1 )        100,161            -                 3,640            -
Total net carrying value of dealing securities                         376,434     378,443                463,035     556,070

17.d Listed debentures
        Bank of Ceylon                                     8,700         1,083       1,045       8,700      1,083       1,175
        Seylan Bank Debenture - 1                          2,000           215         200       2,000        215         200
        Seylan Bank Debenture - 2                          3,400           364         340       3,400        364         340
        Seylan Bank Debenture - 3                               -             -           -      1,500        154         150
Total net carrying value of listed debentures                            1,662       1,585                  1,816       1,865

Total net carrying value of dealing securities and investments         378,096     380,028                464,851     557,935
Notes to the Financial Statements ...cont’d/

                                                                                               Company                            Group
                                                                                           2011           2010         2011          2010
       As at 31 December                                                                LKR’000        LKR’000       LKR’000      LKR’000

       17.1 Provision for fall in value of dealing securities
       Balance as at 01 January                                                                 -              -          3,640          -
       Add: Provision / (reversal) for the year                                           71,298               -         96,521     3,640
       Balance as at 31 December                                                          71,298               -        100,161     3,640

18     INVESTMENT SECURITIES
       18. a. Company
                                                                                                       2011                        2010
                                                                              No of         Cost    Market      No of     Cost   Market
                                                                             Shares                  Value/    Shares            Value/
                                                                                                  Directors’                  Directors’
                                                                                                  Valuation                   Valuation
                                                                                        LKR ‘ 000 LKR ‘ 000          LKR ‘ 000 LKR ‘ 000

       Mega Containers Limited                                             1,000,000      10,000      5,000 1,000,000 10,000        5,000
       Ceylinco Investment Company Limited (Note 18.1)                       500,000       5,000      5,000 500,000 5,000           5,000
       Credit Information Bureau of Sri Lanka Limited                            240          24         24       240       24         24
                                                                                          15,024     10,024          - 15,024      10,024
       Provision for fall in value of investment securities (Note 18.2 )                 (5,000)           -         - (5,000)           -
       Total net investment in investment securities                                      10,024     10,024          - 10,024      10,024

       18. b. Group
                                                                                                       2011                        2010
                                                                              No of         Cost    Market      No of     Cost  Market
                                                                             Shares                  Value/    Shares            Value/
                                                                                                  Directors’                  Directors’
                                                                                                  Valuation                   Valuation
                                                                                        LKR ‘ 000 LKR ‘ 000         LKR ‘ 000 LKR ‘ 000

       Mega Containers Limited                                             1,000,000      10,000      5,000 1,000,000 10,000        5,000
       Ceylinco Investment Company Limited (Note 18.1)                       500,000       5,000      5,000 500,000 5,000           5,000
       Credit Information Bureau of Sri Lanka Limited                            340          34         34       440     44           44
       San Michele Limited                                                          -           -          -   50,000    500             -
                                                                                          15,034     10,034           15,544       10,044

       Provision for fall in value of investment securities (Note 18.2 )                 (5,000)           -            (5,500)           -

       Total net investment in investment securities                                      10,034     10,034             10,044     10,044

       18.1
       Although the company has acquired 46.35% equity capital of Ceylinco Investment Company Limited, the investment
       has not been classified as an associate company due to pending court decision on the ownership structure of the
       company.

       18.2 Movement in provision for fall in value of investment securities

                                                                                                     Company                       Group
                                                                                           2011          2010           2011         2010
                                                                                        LKR’000       LKR’000        LKR’000      LKR’000

       Balance on 1 January                                                                5,000          5,000          5,500      5,500
       Transferred to Assets held for sale                                                      -              -         (500)           -
       Balance as at 31 December                                                           5,000          5,000          5,000      5,500


       According to share valuation carried out by the Company’s Corporate Finance Division, the value of an ordinary share
       of Mega Containers Ltd as of 31 December 2011 based on the net asset value method was LKR.18.57

       The percentage of shares held by Merchant Bank of Sri Lanka PLC in Mega Containers Limited was 6.80% as at 31
       December 2011.

       However, the Directors are of the view that the provision made in year 2004 for fall in value of investments should
       remain unchanged as of 31 December 2011.
                                                                Company                    Group
                                                       2011          2010        2011         2010
As at 31 December                                   LKR’000       LKR’000     LKR’000      LKR’000


19.1 BILLS RECEIVABLE
Bills discounted                                    661,621       649,442     662,122      649,943
Less: Deferred income                                 4,101         4,262       4,101        4,262
                                                    657,520       645,180     658,021      645,681
Less: Loan loss provision (Note 19.1.1)              25,392        25,785      25,664       26,057
                                                    632,128       619,395     632,357      619,624

19.1.1Movement in provision for bills receivable
      Specific provision
Balance on 1 January                                  11,809        13,719      11,854       13,764
Add : Amount provided/(reversed)                       (383)       (1,910)       (383)      (1,910)
Balance on 31 December                                11,426        11,809      11,471       11,854

       General provision
Balance on 1 January                                  13,976        9,385       14,203        9,612
Add: Amount provided / (reversed)                       (10)        4,591         (10)        4,591
Balance on 31 December                                13,966       13,976       14,193       14,203
Total provision                                       25,392       25,785       25,664       26,057


19.2 LOANS


Term loans                                         1,056,694      676,871    2,494,592    2,301,620
Personal loans                                        36,382       22,932       36,382       22,932
Cheque discounting                                    40,082       82,394       40,082       82,394
Commercial papers                                           -            -            -      68,208
Pawning                                                     -            -     104,457      108,369
Real estate loans                                           -            -       9,486       12,382
Loans against fixed deposits                                -            -     165,848      159,546
Housing loans                                               -            -            -     402,961
Micro Finance                                        132,597             -     132,597             -
Margin trading                                       236,846      165,299      236,846      165,299
Staff loans                                           85,760       41,142      129,103      106,377
Textile debt recovery fund                             1,735        1,735        1,735        1,735
Susahana loan scheme                                   1,742        1,742        1,742        1,742
                                                   1,591,838      992,115    3,352,870    3,433,565
Less: Loan loss provision (Note 19.2.1)               52,134       44,476       99,224       92,613
Loans and advances after provision                 1,539,704      947,639    3,253,646    3,340,952


19.2.1 Movement in provision for Loan losses
         Specific provision
Balance on 1 January                                  16,184       14,877       59,433       44,838
Less: Transferred to Assets held for sale                   -            -      13,815             -
Add : Amount provided/(reversed)                       1,930        1,307       19,586       11,609
Add : Provision from the discontinued operation             -            -            -       2,986
Balance on 31 December                                18,114       16,184       65,204       59,433

        General provision
Balance on 1 January                                  28,292       21,283       33,180       26,171
Less: Transferred to Assets held for sale                   -            -       4,888             -
Add : Amount provided                                  5,728        7,009        5,728        7,009
Balance on 31 December                                34,020       28,292       34,020       33,180
Total provision                                       52,134       44,476       99,224       92,613
Notes to the Financial Statements ...cont’d/
                                                                                           Company                                   Group
       As at 31 December                                                       2011                2010                2011              2010
                                                                           LKR ‘ 000           LKR ‘ 000          LKR ‘ 000         LKR ‘ 000

       19.3 LEASE AND HIRE PURCHASE RECEIVABLE
       19.3 a. Finance leases/hire purchase receivable within one year from balance sheet date

       Total Lease rental receivable                                      7,388,150           5,280,026          11,726,071         8,995,381
       Less:Lease rental receivable after one year                        3,693,094           3,061,520           6,520,548         5,387,315
       Lease rental receivable within one year from the
                                       balance sheet date                 3,695,056           2,218,506           5,205,523         3,608,066
       Less :Unearned lease income                                          813,438             695,649           1,285,904         1,170,880
             Loan loss provision                                            158,216             109,909             183,391           136,318
                                                                          2,723,402           1,412,948           3,736,228         2,300,868

       19.3.b Finance leases/hire purchase receivable after one year from balance sheet date

       Lease rental receivable after one year from the
                                    balance sheet date                    3,693,094           3,061,520           6,520,548         5,387,315
       Less :Unearned lease income                                          791,237             506,290           1,246,019           929,945
             Loan loss provision                                            158,132             151,674             229,720           203,540
                                                                          2,743,725           2,403,556           5,044,809         4,253,830
       Net investment in leases and hire purchase                         5,467,127           3,816,504           8,781,037         6,554,698

       19.3.c Movement in the provision for bad and doubtful lease and hire purchase receivable:

       Specific provision
       Balance on 1 January                                                   172,272           141,714             233,245           310,230
       Less: Transferred to Assets held for sale                                     -                 -             25,381                  -
       Add : Amount provided                                                   22,448            30,558              51,415            44,596
       Less: Written-off                                                                                                   -          135,386
       Add: Provision from the discontinued operation                                -                 -                   -           13,805
       Balance on 31 December                                                 194,720           172,272             259,279           233,245

       General provision
       Balance on 1 January                                                    89,311            65,079             106,613            76,264
       Less: Transferred to Assets held for sale                                     -                 -            (3,014)                  -
       Add : Amount provided / (reversed)                                      32,317            24,232              44,205            30,232
       Add: Provision from the discontinued operation                                -                 -                   -              117
       Balance on 31 December                                                 121,628            89,311             153,832           106,613
       Total provision                                                        316,348           261,583             413,111           339,858


       19.4 Non-performing loans and advances
       Net exposure on non-performing loans and advances as at 31 December, before discounting the value of the securities
`      obtained is given below:

       Bills receivable                                                       236,199           139,755             236,199           139,755
       Loans and advances                                                     363,694           118,540             670,568           409,290
       Lease / Hire purchase receivable                                       232,774           217,180             409,787           555,265
       Gross non-performing loans and advances                                832,667           475,475           1,316,554         1,104,310
       Less: Provision for bad and doubtful debts                             393,874           331,844             537,999           458,528
       Net exposure                                                           438,793           143,631             778,555           645,782
       Percentage of net non-performing loans                                  10.37%             8.32%               9.97%            10.06%
       Percentage of net exposure                                               5.74%             2.67%               6.15%             6.14%

        19.5 Concentration of Credit Risk

        Sector wise analysis of the loans and advances portfolio reflecting the exposure to credit risk in the various sectors are given below:

                                                                                     Company                                      Group
                                                                      2011                2010                  2011                2010
                                                                  LKR ‘ 000     %     LKR ‘ 000     %       LKR ‘ 000     %     LKR ‘ 000    %

        Tourism & allied                                            502,038   6            708,373  12        660,316     5       793,751   7
        Industrial                                                  185,067   2            137,746   2        933,551     7       697,640   6
        Agricultural & fishing                                      487,772   6            958,958  17      1,016,918     8     1,400,164  13
        Commercial trading                                        1,328,913 17             618,639  11      1,554,696    12       916,870   8
        Import & export                                              58,537   1            313,514   5         59,183     0       313,514   3
        Property development                                        250,570   3             85,275   1        253,335     2        85,275   1
        Financial                                                   195,128   2             67,472   1        197,281     1        67,472   1
        Manufacturing                                             1,647,119 21           1,178,771  21      1,665,295    13     1,178,771  11
        Housing & construction                                      715,597   9            105,011   2      1,069,556     8       793,564   7
        Transport                                                 1,800,906 22           1,093,736  19      2,600,785    20     2,430,276  22
        Others                                                      861,186 11             447,887   8      3,194,123    24     2,296,505  21
        Total loans & advances                                    8,032,833 100          5,715,382 100     13,205,039   100    10,973,802 100
                                                                                          Company                                  Group

     As at 31 December                                                           2011           2010                  2011            2010
                                                                              LKR’000        LKR’000               LKR’000         LKR’000


20   ASSETS CLASSIFIED AS HELD FOR SALE

     Investment in MBSL Savings Bank Ltd                Note 20 a.             237,186                  -                  -              -
     Assets classified as held for sale during the year Note 20 b.                    -                 -         2,708,372               -
     Non current assets classified as held for sale                                                                                257,041
     Balance as at 31 December                                                 237,186                  -         2,708,372        257,041

     20 a. In October 2011, the company accepted an offer made by a consortium of investors led by M/s Navara
     Capital (Pvt) Ltd to purchase the company’s 68% holding in MBSL Savings Bank Limited comprising 87,185,520
     ordinary voting shares and 100,000,000 ordinary non-voting shares at a price of Rs. 3.75 per voting share and
     Rs. 2.35 per non voting share, subject to the approval of the Central Bank. In January 2012, the Monetary Board granted
     approval to the consortium of investors led by M/s Navara Capital (Pvt) Ltd to purchase the company’s holding in MBSL
     Savings Bank Limited for a consideration of Rs. 562 million, out of which Rs. 100 million was paid in October 2011.
     The Company executed the share transfer agreement on 30th March 2012 for this transaction.

     In accordance with SLAS 38, Non Current Assets held for sale and discontinued operations the Company classified the
     investment in MBSL Savings Bank Limited as assets held for sale and the directors are of the view that the Company will
     be able to sell above investment by year 2012.

     20 b. Assets classified as held for sale in the Group
           The major classes of assets of MBSL Savings Ltd classified as held for sale                              Group
           are as follows:                                                                                            2011
                                                                                                                   LKR’000

     Cash in hand and at bank                                                                                        49,602
     Government treasury bills                                                                                      424,704
     Dealing securities                                                                                              11,472
     Investment securities                                                                                               10
     Loans                                                                                                          815,441
     Lease / hire purchase receivable                                                                             1,012,065
     Real Estate Stock                                                                                              237,281
     Other assets                                                                                                   113,681
     Property, plant and equipment                                                                                   44,116
                                                                                                                  2,708,372


20.1 OTHER ASSETS
                                                                                            Company                                 Group
                                                                                 2011           2010                  2011            2010
                                                                              LKR’000        LKR’000               LKR’000         LKR’000

     Amounts due from subsidiary companies                                       5,693          5,175                      -              -
     ACT on dividends                                                           32,826         32,826                32,826         32,826
     Insurance receivable                                                       16,884         27,225               236,122        171,974
     Economic Service Charge                                                    39,288         15,697                55,073         74,270
     Interest receivable                                                        16,507         10,015                41,716         67,414
     Other debtors and receivables                                              25,516         46,597                25,516         46,597
     Advance payments                                                           15,990         14,403                50,212         37,264
     Others                                                                    158,698         59,629               302,588        180,525
                                                                               311,402        211,567               744,053        610,870


21     INVESTMENTS IN ASSOCIATE COMPANY
       Company/Group                                                                                2011                              2010

                                           Country of       Principal     No. of Holding    Net asset       Directors’ Net asset Directors’
                                        Incorporation        activity    Shares        %       Value        Valuation     Value Valuation
                                                                                            LKR ‘ 000        LKR ‘ 000 LKR ‘ 000 LKR ‘ 000

       Unquoted
       Lanka Securities (Pvt) Limited        Sri Lanka Share Brokering 5,067,750   29.00%     132,774         132,774    121,617     121,617
       Balance at the end of the year                                                         132,774         132,774    121,617     121,617

       21.1 Movement in investments in Associate company
                                                                                                                          2011        2010
                                                                                                                        LKR'000     LKR'000

       Net asset as at 1 January                                                                                        121,617      95,022
       Add: Profit accruing to the Group (After tax)                                                                     44,858      53,961
       Less: Dividend received                                                                                           33,701      27,366
       Net asset as at 31 December                                                                                      132,774     121,617
 21     INVESTMENTS IN ASSOCIATE COMPANY ...Cont’d/
        Company/Group                                                                                            2011                                 2010
Notes to the Financial Statements ...cont’d/
                                             Country of      Principal       No. of   holding       Net asset          directors’ Net asset directors’
                                                                                                                                   Company/Group
                                          Incorporation       activity      Shares          %          value           valuation     value valuation
                                                                                                    LKR ‘ 000                      2011
                                                                                                                        LKR ‘ 000 LKR ‘ 000  2010
                                                                                                                                            LKR ‘ 000
                                                                                                                                LKR ‘ 000      LKR‘000

 21.2   Summarised Financial Information of Associate company
        For the year ended 31 December
        Income                                                                                                                       332,567       372,808
        Less :Expenses                                                                                                               124,817        87,847
        Profit before taxation                                                                                                       207,750       284,961
        Less :Income tax expense                                                                                                      53,069        98,890
        Net profit for the period                                                                                                    154,681       186,071




        Total Assets as at 31 December                                                                                               711,358       705,854
        Total Liabilities as at 31 December                                                                                          253,515       286,483

 22     INVESTMENTS IN SUBSIDIARIES                                                                                                            Company
        As at 31 December                                                                                 2011                                         2010


                                          Country of       Principal         No. of Holding %              Cost        Directors’         Cost     Directors’
                                          Incorporation     activity        Shares                                     Valuation                  Valuation
                                                                                                        LKR’000            LKR’000     LKR’000      LKR’000
        Unquoted
        Merchant Credit
        of Sri Lanka Ltd        Voting    Sri Lanka          Note -1      5,099,977       51.00          20,918             20,918       20,918       20,918
        MBSL Savings Bank
        Ltd                     Voting    Sri Lanka          Note -2     87,185,520       68.00                                          87,186       87,186
                                Non-voting                             100,000,000                  -            -               -     150,000      150,000
        MBSL Insurance Ltd      Voting    Sri Lanka        Insurance 237,848,702          78.02         238,606            238,606     188,606      188,606
        Balance at the end of the year                                                                  259,524            259,524     446,710      446,710


        Note-1 Activities of a registered finance company
        Note-2 Activities of a specialized licensed bank
                                                                                                                                                  Company
        22 a. Investment in MBSL Savings Bank Ltd                                                         2011                                         2010
                                                                               No. of Shares            LKR’000               No. of Shares         LKR’000


        Balance at 01 January                                                    187,185,520            237,186                100,000,000          100,000
        Investments in non-voting shares                                                    -                    -             100,000,000          150,000
        Less: Disposal of voting shares                                                     -                    -              12,814,480            12,814
        Less: Assets classified as Held For Sale                                 187,185,520            237,186                            -                  -
        Balance at 31 December                                                              -                    -             187,185,520          237,186



        22 b. Investment in MBSL Insurance Ltd


        Balance as at 01 January                                                 187,848,702            188,606                137,848,702          138,606
        Investments in voting shares                                              50,000,000             50,000                 50,000,000            50,000
        Balance as at 31 December                                                237,848,702            238,606                187,848,702          188,606


 23     INVESTMENT PROPERTIES                                                                            Company                                     Group
        As at 31 December                                                                  2011               2010                     2011           2010
                                                                                       LKR ‘ 000          LKR ‘ 000              LKR ‘ 000        LKR ‘ 000


        Cost as at 1 January                                                             284,775            286,914                  394,775        396,914
        Additions /Improvements                                                                 -             2,659                   15,000          2,659
        Disposals                                                                      (235,185)            (4,798)              (235,185)          (4,798)
        Cost as at 31 December                                                            49,590            284,775                  174,590        394,775



        Accumulated depreciation as at 01 January                                          3,651              3,150                    7,906          5,185
        Charge for the year                                                                 762                      853               3,285          3,073
        Disposals                                                                        (2,477)              (352)                  (2,477)          (352)
        Accumulated depreciation as at 31 December                                         1,936              3,651                    8,714          7,906


        Net book value as at 31 December                                                  47,654            281,124                  165,876        386,869
23.1 Investment Properties held by the Company

       As at 31 December 2011                                                      Cost/Carrying amount                  Fair value
                                                 Building         Extent     Land         Building      Total    Land Building      Total
                                                     sq.ft        perches    LKR ‘ 000   LKR ‘ 000 LKR ‘ 000 LKR ‘ 000 LKR ‘ 000 LKR ‘ 000

      No. 64 & 66, Nonagama Road,                         -        16.61p       1,750           -     1,750     13,000      N/A      13,000
       Pallegama, Embilipitiya.
      Lot No. 2 & 3,                                      -         20.4p         714           -       714      1,000      N/A       1,000
       of Muttuweowita.
      No 300/8, Thalawathugoda Road,                2,478          16.15p       2,465      2,635      5,100     13,727     1,000     14,727
       Madiwela, Kotte.
      No 385/1, Kotte Road,                         2,896          19.01p       2,958      1,730      4,688      3,343     1,955      5,298
       Pitakotte.
      No 116,116/1,118,120,                               -        12.35P       1,249           -     1,249      1,249      N/A       1,249
       1st Cross Street, Colombo 01.
      No 43.45.49.51 & 53,                                -           7.5P      9,950           -     9,950     75,000      N/A      75,000
       New Olcott Mawatha, Colombo 11.
      No 102 & 104, Dam Street,                     7,925         1R-10.7P     17,970      4,989     22,959     44,065    11,964     56,029
       Colombo 12.(Note. 23.1.a)
      Kumbuththukuliya watte,
       Bangadeniya Road, Puttalam.                        -          2.0A         600           -       600      3,400      N/A       3,400
      Mirissawelawatta hena; Thekka watta
       Dambadeniya                                        -    1A-0R-28.0P        162           -       162       600       N/A        600
      Rukgahakottunuwa, Gehenuwala,
       Meepe                                              -        38.33P       2,418           -     2,418       890       N/A         890
                                                                               40,236      9,354     49,590   156,274     14,919    171,193
      23.1.a
      The company has entered in to an agreement with 71 tenants to sell the lease hold rights of the property at No. 102 & 104, Dam
      Street, Colombo 12 subject to the approval of Urban Development Authority (UDA). The date of the completion of this sale and the
      execution of the Deed of Transfer in favour of the purchaser in respect of lease hold rights of the premises shall be fixed subsequent
      to the registration of the said premises as a Condominium unit and upon a Condominium Deed of Declaration being executed
      and obtaining all necessary approvals from the UDA for such registration within five years from the execution of said agreement.
      The MBSL shall expeditiously affect the Transfer Deeds contemplated by the agreement after having obtained the registration
      of the Condominium Plan and the Condominium Declaration and any other statutory approval from UDA and upon the balance
      payment of the purchase consideration settled in full. The company has already received advance / part payments amounting to
      LKR 26, 560,976.90 from tenants.

      23.1.b
      The fair value of the investment properties as at 31 December 2011 was based on market valuations carried out in the year 2010 by
      Mr D N Dhammika Baranage RICS (UK), DIV AIS (SL) and Mr H A W Perera B.Sc. Estate Mgt & Valuation (Special) who is an independent
      valuers not connected with the Company. The Directors have reviewed the values of the investment properties as at 31.12.2011 and
      concluded that there was no impairment.



      23.2 Investment Property held by Subsidiary Company - Merchant Credit of Sri Lanka Ltd.

                                                                                      Cost/Carrying amount                    Fair Value
                                             Building              Extent        Land   Building      Total    Land Building        Total
                                                 sq.ft            perches    LKR ‘ 000 LKR ‘ 000 LKR ‘ 000 LKR ‘ 000 LKR ‘ 000 LKR ‘ 000

      No 50/21, Old Kesbawa Road,               44,877        2A 1R 04.35P     65,604     44,396    110,000   136,600     92,475    229,075
      Raththanapitiya, Boralesgamuwa.

      Alankare, in Angamu Koraleof Dewanedi      5,936    01A -01R-00.5P        2,445     10,555     13,000      4,010    17,309     21,319
      Hathpattuwa,Kurunegala District.

      No 498, Homagama Road, Athurugiriya.               00A -00R-21.75P        2,000           -     2,000     2,610           -     2,610
                                                                               70,049     54,951    125,000   143,220    109,784    253,004

      Total Investment Property held by Group                                 110,285     64,305    174,590   299,494    124,703    424,197

      Professional valuation has been carried out by Mr. A G Gunarathna, B.Sc(Estate Management and Valuation), F.I.V (Sri Lanka), Incor
      porated valuer, on the basis of Market Approach (Direct Comparison Method) on 23rd and 24th July 2009.
Notes to the Financial Statements ...cont’d/
24     PROPERTY ANd EQUIPMENT

       24.a Company                                               Land     Building     Motor Computer                Office       2011       2010
                                                                                      vehicles Equipment         Equipment         Total      Total
                                                                                                                 & Furniture
                                                           LKR ‘ 000 LKR ‘ 000        LKR ‘ 000     LKR ‘ 000      LKR ‘ 000    LKR ‘ 000 LKR ‘ 000
       Cost
       Balance as at 01 January                                   9,961      2,943      16,535        61,759          40,392     131,590 123,886
       Additions during the year                                       -          -      7,501         6,940           6,917      21,358   17,734
       Disposals during the year                                       -          -    (6,846)              -               -    (6,846) (10,030)
       Balance as at 31 December                                  9,961      2,943      17,190        68,699          47,309     146,102 131,590

       Accumulated Depreciation
       Balance as at 01 January                                        -       724       4,511        53,559          28,749      87,543    86,042
       Charge for the year                                             -       147       5,058         4,337           2,610      12,152     8,927
       Disposals                                                                       (4,350)              -               -    (4,350)   (7,426)
       Balance as at 31 December                                       -       871       5,219        57,896          31,359      95,345    87,543

       Net book value as at 31.12.2011                            9,961      2,072      11,971        10,803          15,950      50,757

       Net book value as at 31.12.2010                            9,961      2,219      12,024         8,200          11,643                44,047


       24 b. Group

       Cost
       Balance as at 01 January                                   9,961      2,943      45,494       207,406         143,466   409,270 372,169
       Additions during the year                                       -          -     14,623        21,528          29,306    65,457   51,674
       Disposals during the year                                       -          -    (9,547)         (135)            (60)   (9,742) (14,573)
       Transfer to Non Current Assets Held For Sale                    -              (12,155)      (95,194)        (35,098) (142,447)         -
       Balance as at 31 December                                  9,961      2,943      38,415       133,605         137,614   322,538 409,270

       Accumulated Depreciation
       Balance as at 01 January                                        -       724      17,787       149,675          81,485   263,844 221,245
       Prior year adjustment                                           -          -        954        11,323           1,896          -  14,173
       Charge for the year                                             -       147       9,341        13,237          11,443    34,168   39,255
       Disposals                                                       -          -    (7,008)              -           (55)   (7,063) (10,829)
       Transfer to Non Current Assets Held For Sale                               -    (6,354)      (73,657)        (20,989) (101,000)         -
       Balance as at 31 December                                       -       871      14,720       100,578          73,780   189,949 263,844

       Net book value as at 31.12.2011                            9,961      2,072      23,695        33,027          63,834     132,589

       Net book value as at 31.12.2010                            9,961      2,219      26,753        46,408          60,085               145,426

       Market value of the lands of the company as at 31.12.2011 was LKR 34,400,000.00 as per the valuation carried out in the year 2010
       by Mr. D N Baranage RICS (UK), DIV AIV (SL). Based on the assessment of potential impairment carried out internally by the Board of
       Directors as at 31 December 2011, no provision was required to be made in the financial statements as at the Balance Sheet date.

       	 djustment	due	to	Change	in	depreciation	method
       A
       The Management has identified that the MBSL Savings Bank’s depreciation policy which has been adopted since inception needs
       to be changed to reflect the actual useful life of the assets. Accordingly Bank changed it’s accounting policy from reducing
       balance to straight line method with effect from 01.01.2011.

       The effect of this change has been accounted retrospectively as per the SLAS 10, “ Accounting policies, changes in Accounting
       Estimates and Errors” and the effect of re-statement is summarized below,


                                                                                                      2011          2010            2011      2010
       Impact on profit and loss                                                                  LKR ‘ 000     LKR ‘ 000       LKR ‘ 000 LKR ‘ 000

       Current year additional depreciation charge                                                        -             -          3,540              -
       Adjustment to retained earnings b/f from 2010                                                      -             -         14,173              -


25    INTANGIBLE ASSETS

      Cost as at 1 January                                                                          19,642        19,049        150,212     148,626
      Additions and improvements during the year                                                     1,987           593          3,808       1,586
      Cost as at 31 December                                                                        21,629        19,642        154,020     150,212

      Accumulated amortization as at 1 January                                                      18,282        17,626         41,673      26,426
      Share of goodwill on disposal of investment in subsidiary                                           -             -              -     12,969
      Amortization for the year                                                                        904           656          1,744       2,278
      Accumulated amortization as at 31 December                                                    19,186        18,282         43,417      41,673
      Net book value as at 31 December                                                               2,443         1,360        110,603     108,539

      Intangible assets include followings (at cost)

      Computer Software                                                                             21,629        19,642         47,552      30,775
      Goodwill                                                                                            -             -       106,468     119,437
                                                                                                    21,629        19,642        154,020     150,212
26       DEPOSITS FROM CUSTOMERS                                                                                                       Group

     As at 31 December                                                                                                2011              2010
                                                                                                                  LKR ‘ 000         LKR ‘ 000

     Time deposits                                                                                               4,724,433          5,182,822
     Savings and other deposits                                                                                           -           494,133
                                                                                                                 4,724,433          5,676,955

27   BORROWINGS
                                                                                                 Company                               Group

      As at 31 December                                                               2011            2010            2011              2010
                                                                                  LKR ‘ 000       LKR ‘ 000       LKR ‘ 000         LKR ‘ 000

      Call money borrowings                                                        968,383          150,030      1,230,883            250,030
      Commercial papers                                                          2,377,368        2,428,159      2,377,368          2,428,159
      Overdrafts                                                                   183,718           64,780        372,310             96,157
      Long-term borrowings                                                       1,484,600          536,743      1,484,600            536,743
                                                                                 5,014,069        3,179,712      5,465,161          3,311,089

28       INSURANCE PROvISION - LIFE

      This note indicates the liability on account of policyholders which has been actuarially valued and claims/benefits due to life policy
      holders, which remain unclaimed to the balance sheet date.
                                                                                                                         Group

         As at 31 December                                                                                            2011              2010
                                                                                                                  LKR ‘ 000         LKR ‘ 000
         Insurance provision - Life           28 a & 28 b                                                          105,978            66,365
         Unclaimed benefits                                                                                             704               572
                                                                                                                   106,682            66,937

         28 a.   Insurance provision - Life

      Long-term insurance contract liabilities included in the Life Insurance Fund result primarily from traditional non-participating life nsurance
      products. Short-duration contract liabilities are primarily accident and health insurance products. The insurance provision has been
      established based upon the following:

     -      Interest rates which vary by product and as required by regulations issued by the Insurance Board of Sri Lanka.

     -      Mortality rates based on published mortality tables adjusted for actual experience as required by regulations issued by the
            Insurance Board of Sri Lanka.

     -      Surrender rates based upon actual experience by geographic area and modified to allow for variations in policy form.

      The valuation of the insurance provision – life insurance business, as at 31 December 2011 was made by Mr. M Poopalanathan of
      Actuarial & Management Consultants (Pvt) Limited for and on behalf of MBSL Insurance Company Ltd. In accordance with the consultant
      actuary’s report, the reserve for the year amounts to LKR 105,978,000.00 (2010 - LKR 66,365,000). In the opinion of consultant actuary, the
      reserve is adequate to cover the liabilities pertaining to the life insurance business. Further, the actuary has estimated that the solvency
      margin required under the relevant regulation of Insurance Industry Act, No 43 of 2000 at LKR 4,787,000.00 (2010 LKR 32,000,000.00). This
      solvency margin is maintained in the long-term insurance fund.

     28 b. Movement in Insurance Provision Fund                                                                               Group
                                                                                                                      2011              2010
                                                                                                                  LKR ‘ 000         LKR ‘ 000
     Balance as at 1 January                                                                                        66,365            41,336
     Increase in Life Fund                                                                                          39,613            25,029
     Balance as at 31 December                                                                                     105,978            66,365


29   INSURANCE PROVISION - NON-LIFE

      This note details the provisions related to the non-life insurance. Refer accounting policy 1.15.1(d) on page 86. The reserve for net
      unearned premium indicates the amount of premium (net of reinsurance) which is attributable to policies written as at 31 December
      2011, but covering periods after 31 December 2011. The reserve for net deferred acquisition cost refers to the commission adjustment (net
      of reinsurance) linked to the above reserve.

      The reserve for gross outstanding claims refer to the amount of claims which remain unclaimed as at 31 December 2011. This reserve
      includes a reserve for claims incurred but not reported (IBNR).

     Reserve for net unearned premium                                                         29 a                293,141              188,504
     Reserve for net deferred acquisition cost                                                29 b               (14,596)             (11,717)
     Reserve for gross outstanding claims                                                     29 c                 49,707               75,987
     Balance as at 31 December                                                                                    328,252              252,774

     29 a. Reserve for Net Unearned Premium
     Balance as at 1 January                                                                                      188,504              157,059
     Increase during the year                                                                                     104,637               31,445
     Balance as at 31 December                                                                                    293,141             188,504

     29 b. Reserve for Net Deferred Acquisition Cost
     Balance as at 1 January                                                                                     (11,717)             (11,080)
     Increase / (Decrease) during the year                                                                        (2,879)                (637)
     Balance as at 31 December                                                                                   (14,596)             (11,717)
Notes to the Financial Statements ...cont’d/
                                                                                                                                                                Group
       29 c. Reserve for Gross Outstanding Claims                                                                                               2011             2010
                                                                                                                                         LKR ‘ 000             LKR ‘ 000

       Balance as at 1 January                                                                                                            64,943               30,479
       Claims incurred during the year                                                                                                   315,563              242,814
       Claims paid during the year                                                                                                     (338,608)             (208,350)
       Balance as at 31 December                                                                                                          41,898               64,943
       IBNR & IBNER claims reserve as at 1 January                                                                                        11,044                5,111
        Increase in IBNR & IBNER claims reserve                                                                                          (3,235)                5,933
       IBNR & IBNER claims reserves as at 31 December                                                                                      7,809               11,044
       Total Gross Outstanding Claims                                                                                                     49,707               75,987


       Directors are of the opinion that the total of future claims and related expenses will not exceed the unearned premium and premium
       related to unexpired risks. IBNR/IBNER claims reserves are determined based on information currently available. However, it is inherent
       to the nature of the business that the ultimate liability may vary as a result of subsequent developments.

       The incurred but not reported (IBNR) claim reserve and incurred but not enough reported (IBNER) claim reserve have been actuarially
       computed by Mr.N.K. Parikh of M/s K.A. Pandit Consultants & Actuaries. The valuation is based on internationally accepted actuarial
       methods, and is performed on an annual basis.

       29 d. General Insurance Technical Reserve                                                                                                2011              2010
                                                                                                                                         LKR ‘ 000             LKR ‘ 000
       General insurance provision                                                                                                       328,252                252,774
       Reinsurance receivable on outstanding claims                                                                                      (5,285)               (18,833)
                                                                                                                                         322,967                233,941
30     CURRENT TAX LIABILITY

                                                                                                                    Company                                    Group
       As at 31 December                                                                                  2011           2010              2011                  2010
                                                                                                      LKR ‘ 000      LKR ‘ 000         LKR ‘ 000             LKR ‘ 000

       Balance on 1 January                                                                            172,970          45,511           172,970                45,511
       Add: Provision for taxation                                                                      41,782         169,622           128,182               202,285
       Less : Paid / Sett off during the year                                                           88,881          42,163           175,281                74,826
       Balance as at 31 December                                                                       125,871         172,970           125,871               172,970

31     DEBENTURES                                                                                                                                              Company
       31.a Company
       Investor                          Purpose of          Security      Interest       Allotment    Term of                  Interest rate          2011         2010
                                         debenture                        payable         date         redemption
                                                                        frequency                                        2011          2010       LKR ‘ 000      LKR ‘ 000

       Employees’ Trust Fund Board       To replace short-term    Nil   Bi Annually       10-Jan-10    10-Jan-11                     11.24%                        50,000
         Unlisted Debenture              money market                                     10-Jan-10    10-Jul-11                     11.24%                        25,000
                                         borrowings.                                      10-Jan-10    10-Jan-12        9.51%        11.24%         25,000         25,000
                                                                                          10-Jan-10    10-Jul-12        9.51%        11.24%         25,000         25,000
                                                                                          10-Jan-10    10-Jan-13        9.51%        11.24%         25,000         25,000
                                                                                          10-Jan-10    10-Jul-13        9.51%        11.24%         25,000         25,000
                                                                                          10-Jan-10    10-Jan-14        9.51%        11.24%         25,000         25,000
       National Savings Bank             To replace short-term    Nil   Bi Annually       05-Dec-09    05-Dec-11                     10.39%                       330,000
         Unlisted Debenture              money market
                                         borrowings.
       Ceylon Hospital PLC               To fund the              Nil   Bi Annually       31-Mar-10    31-Mar-13        9.51%        11.64%            6,800        6,800
                                         leasing business
       Asian Alliance Insurance PLC      To fund the              Nil   Bi Annually       31-Mar-10    31-Mar-13       13.00%        13.00%         80,000         80,000
                                         leasing business
       Sri Lanka Insurance               To fund the              Nil   Bi Annually       31-Aug-10    31-Aug-13       13.00%        13.00%        100,000        100,000
             Corporation Ltd             leasing business
       Unsecured Redeemable              To fund the              Nil   Bi Annually       16-Nov-11    16-Nov-14       11.60%                      731,880
         Listed Debentures               leasing business                                 16-Nov-11    16-Nov-15       11.80%                      268,080
                                                                                          16-Nov-11    16-Nov-14        9.76%                            40
                                                                                                                                                  1,311,800        716,800
       31 .b Debentures held by Subsidiary Company

        MBSL Savings Bank                                                                                                                                          Group

         Investor                     Purpose of       Security     Interest          Allotment   Term of                                          2011            2010
                                      debenture                     payable           date        redemption
                                                                    frequency                                                                   LKR ‘ 000       LKR ‘ 000

         Unsecured subordinated       Enhancement      Nil          -                 -           -                                                      -        17,884
         redeemable                   of Leasing and
                                      Housing Loan
                                      Portfolio
                                                                                                                                                         -        17,884

         Total debentures held by Group                                                                                                           1,311,800      734,684



32       DEFERRED TAXATION                                                                                                     Company                            Group
                                                                                                                       2011           2010            2011          2010
                                                                                                                   LKR ‘ 000      LKR ‘ 000       LKR ‘ 000     LKR ‘ 000

         Deferred tax liability                                                                                     74,834         20,994          74,834        20,994
                                                                                                                    74,834         20,994          74,834        20,994
        32.1 Deferred tax liability                                         Company                                                  Group

         As at 31 December                     2011                           2010                        2011                        2010
                                         Temporary            Tax       Temporary           Tax     Temporary            Tax    Temporary            Tax
                                         Difference        Effect       Difference       Effect     Difference        Effect    Difference        Effect
                                           LKR ‘ 000    LKR ‘ 000         LKR ‘ 000   LKR ‘ 000       LKR ‘ 000    LKR ‘ 000      LKR ‘ 000    LKR ‘ 000

         As at beginning of the year     74,979               20,994        67,761      23,716          74,979        20,994        67,761       23,716
         Amount originating/(reversing)
          during the year               192,285               53,840       (9,722)      (2,722)        192,285        53,840       (9,722)       (2,722)
         Effect of change of tax rate          -                    -       16,940             -              -             -       16,940              -
                                        267,264               74,834        74,979       20,994        267,264        74,834        74,979        20,994

         Deferred tax liability consisted of the following:

         Leased assets                    (700,094)     (196,026)        (391,829)    (109,712)       (700,094)    (196,026)     (391,829)     (109,712)
         Retirement gratuity                114,074        31,941           74,396       20,831         114,074       31,941        74,396        20,831
         Fixed assets                       (5,666)       (1,587)          (5,450)      (1,526)         (5,666)      (1,587)       (5,450)       (1,526)
         Tax losses                         324,422        90,838          247,904       69,413         324,422       90,838       247,904        69,413
                                          (267,264)      (74,834)         (74,979)     (20,994)       (267,264)     (74,834)      (74,979)      (20,994)

         Carried forward tax loss of the Company as at 31 December 2011 was LKR 531,255,984 (31 December 2010 LKR 458,470,158).
         It would create a deferred tax asset of LKR 148,751,675. Recognition of the total unutilized tax loss would result in an additional credit
         of LKR 148,751,675 to the income statement which will cause wide fluctuations in the income statement this year. Therefore, a deferred
         tax asset of LKR 90,838,186 was created after considering only 60% of accumulated tax loss.

33       RETIREMENT BENEFIT OBLIGATION                                                                            Company                        Group
                                                                                                                                         Re - presented*
                                                                                                          2011         2010          2011          2010
                                                                                                      LKR ‘ 000    LKR ‘ 000     LKR ‘ 000     LKR ‘ 000

         Present Value of unfunded Obligation                                                          114,073        74,396       153,133      105,421
         Balance as at 31 December                                                                     114,073        74,396       153,133      105,421

         33.1 Movement in present value of the defined benefit obligations

         Balance on 1 January                                                                           74,396        58,601       105,421       79,652
         Add: Current service cost                                                                       7,503         6,015         9,119        6,911
                Interest cost                                                                            8,570         8,900         8,836        9,120
                Recognition of actuarial loss/(gain)                                                    29,412           880        40,778        9,372
         Add: Pre-payments                                                                                 514              -          514             -
         Less : Payments made during the year                                                            6,322              -        7,083          887
         Transfer to Assets classified as Held for sale/ discontinued operation expenses                      -             -      (4,452)        1,253
         Balance as at 31 December                                                                     114,073        74,396       153,133      105,421

         33.2 Retirement benefit expense is calculated as follows:
         Current service cost                                                                            7,503        6,015          9,119        6,911
         Interest cost                                                                                   8,570        8,900          8,836        9,120
         Recognition of actuarial loss/(gain)                                                           29,412          880         40,778        9,372
         Retirement benefit expense for the year                                                        45,485       15,795         58,733       25,403

         As at 31 December 2011 the Group’s gratuity liability, execpt MBSL Savings Bank, was actuarially valued under the projected unit
         credit method by Chartered Actuary Mr. M. Poopalanathan and MBSL Savings Bank’s gratuity liability was valued under the same
         way by Mr. Piyal S. Goonetilleke on the same date. The liability is not externally funded.

         Principal assumptions used were as follows:

         Discount rate                                                                                                               9.55%        9.55%
         Salary increase                                                                                                               10%          10%
         The company will continue in business as a going concern
                                                                                                                  Company                      Group
34       OTHER LIABILITIES                                                                               2011          2010            2011      2010
                                                                                                     LKR ‘ 000     LKR ‘ 000       LKR ‘ 000 LKR ‘ 000

         Accruals                                                                                      271,036      126,648         548,900     572,052
         Prepaid loan installments                                                                      52,712       28,648          52,712      34,198
         Cash margin                                                                                    55,840      121,391          55,840     121,391
         Others                                                                                         73,804       61,849         136,417     167,803
                                                                                                       453,392      338,536        793,869      895,444
35       LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS
          CLASSIFIED AS HELD FOR SALE

         Deposits from customers                                                                                                   2,213,871
         Borrowings                                                                                                                  148,264
         Retirement benefit obligation                                                                                                 5,630
         Other liabilities                                                                                                           176,285
                                                                                                                                 2,544,050
36       STATED CAPITAL
         As at 31 December
         Issued and fully paid                                                                       1,607,000     1,607,000    1,607,000      1,607,000


         No of shares in issue                                                                     135,000,000 135,000,000 135,000,000 135,000,000
* Comparative figures are re - presented to reflect the results of the discontinued operation as explained in Note 12 to the Financial Statements.
Notes to the Financial Statements ...cont’d/
37       RESERVES                                                                                    Company                         Group
         As at 31 December                                                                     2011          2010          2011      2010
                                                                                           LKR ‘ 000     LKR ‘ 000     LKR ‘ 000 LKR ‘ 000
         37.1 Statutory reserves
         Opening balance                                                                      91,261        59,784       149,239      106,344
         Add: Transfer during the year                                                        23,265        31,477        35,545       42,895
         Transfers to investment fund                                                         55,978              -       68,163             -
         Closing balance                                                                     170,504        91,261       252,947      149,239

         37.2 Retained earnings
         Opening balance                                                                     980,932       663,988    1,142,160   803,922
         Less: Dividend paid                                                                 168,750       101,250      168,750   101,250
         Less: Transfer to reserves                                                           23,265        31,477       35,545    42,895
         Less: Transfers to investment fund                                                   55,978              -      68,163          -
         Add: Profit for the year                                                            332,355       449,671      353,141   492,345
         Less: Adjustment due to change in depreciation method (Note 24)                                                            9,962
         Closing balance                                                                   1,065,294       980,932    1,222,843 1,142,160

38       COMMITMENTS AND CONTINGENCIES

         38.1 Contingent Liabilities
         Guarantees to the customers                                                          48,793         7,117        88,660       36,967
         Financial Commitments                                                                      -             -       12,495             -
         Total commitments and contingencies                                                  48,793         7,117       101,155       36,967

         In the normal course of business, the Company makes various irrevocable commitments and incurs certain contingent
          liabilities with legal recourse to its customers. Even though these obligations may not be recognized on the balance sheet,
         they do contain credit risk and ‘therefore form part of the overall risk of the Company. No material losses are anticipated
         as a result of these transactions.

38.2 Pending Litigations
     In the normal course of business, the Company incurs certain contingent liabilities with legal recourse to its customers
     and would be party to litigation due to its operations.

 No         Case No.                                                     Remarks


     1      D.C Col 17969 / MR                       The Plaintiff claims damages in the sum of LKR 25 Million for unlawful repossession of his
                                                     vehicle by the Bank.

     2      S.C Appeal 81 / 2010                     The Bank obtained possession of the subject Mortgage Property through Writ of
                                                     Ejectment Occupants, obtained a stay order and took possession. Bank filed special
                                                     Leave to Appeal.

     3      D.C Kandy 487 / SPL                      Declaration of Title sought to set aside the judgment on the Title Deed in favour of MBSL-
                                                     ( Bank has already disposed the property )

     4      D.C Colombo 19426 / L                    Owner of the property denies having placed the signature on the Bond

     5      D.C Kandy 14789 / P                      A Third Party claims an interest in Mortgaged property and has filed a Partition case
                                                     adding the bank also as a party.

     6      D.C Empilipitiya 9473 / L                Seeks the declaration of Title on the property that was mortgaged to the Bank. Bank ac-
                                                     quired ownership through a Court auction. Seeks damages in the Sum of LKR. 500,000

     7      C.A Res 198 / 07                         Restitio in integrum Action to set aside the judgment of Commercial High Court dated
                                                     01 /09 /2003 which was in favour of the Bank Restraining order against the Bank in
                                                     operation.

     8      D.C Negombo 7300 / L                     Declaration of Title sought by petitioner through an injunction. Enjoining Order Dissolved.

     9      D.C Mt.Lavinia 2357 / 07/ L              Third party seeks a declaration of title on the property that was mortgaged to the Bank
                                                     by the Borrower where judgment has been entered in favour of the Bank.

 10         D.C Colombo 19433 / L                    Plaintiff Denies the transfer of the property to MBSL (his value of the property claimed)
                                                     Judgment in favour of the Bank. Plaintiff has Appealed.

 11         43156 / MR Colombo                       This Case has been filed against MBSL for releasing the leasing article to the third party
                                                     who was authorized in writing by the lessee to receive the certificate of registration etc.
                                                     from MBSL. After releasing the vehicle the lessee filed this case against MBSL claiming
                                                     damages thus disputing his own letter of authority. The lessee in fitting a losing battle as
                                                     his own signature has now been referred to the Examiner in to Questioned Documents
                                                     by Court.
No    Case No.                                                                Remarks


12     4124 / M Gampaha                                The lessee / Plaintiff filed this action claiming damages for wrongful re-possession of
                                                       the vehicle. However the injunction sought by the lessee / plaintiff preventing MBSL from
                                                       disposing the vehicle in issue was disallowed.

13     23840 /M DC-A’pura                              The lessee / Plaintiff filed this action claiming damages for wrongful re-possession of
                                                       the vehicle and a declaration that the MBSL has violated the provision of the Lease
                                                       Agreement and MBSL has violated the provisions of the Lease Agreement and MBSL is
                                                       in the process of filling answer.

14     CA Application No. 810 /2003 [HC (Civil)        This is an Application where seeking Writs of Certiorari and Mandamus challenging,
       Case No. 15/2002/2]                             inter alia, the decision of the Controller of Exchange with regard to the validity of the
                                                       transfer of ordinary shares held by MBSL in a Sri Lankan Company to a non resident for
                                                       a sum of LKR 40 Million.



39   MATURITY ANALYSIS
     Definition of Maturity
     An analysis of assets and liabilities of the Company as at 31 December 2011, based on the remaining period at the Balance Sheet
     date to the respective contractual maturity dates are given below:

     39.1 Company
     39.1.a Assets
                                                                                                                                              Total
     As at 31 December                                Up to      1 month to       3 month         1 year   More than         2011             2010
                                                   1 month         3 months      to 1 year    to 5 years      5 years
                                                   LKR’000          LKR’000       LKR’000       LKR’000      LKR’000      LKR’000          LKR’000

     Interest earning assets

     Government treasury bills
             and other securities                          -      450,000                       184,949      236,139       871,088          279,765
     Loans and advances                           1,271,783       228,079         166,672       505,262           36     2,171,832        1,567,034
     Leases & hire purchase
              rentals receivable                    258,834       276,535        2.188.033    2.741.607        2,118     5,467,127        3,816,504
                                                  1,530,617       954,614        2.354.705    3.431.818      238,293     8,510,047        5,663,303

     Non interest earning assets

     Cash in hand and at bank                        97,260                                                                 97,260           71,097
     Investment securities                                                                       10,024                     10,024           10,024
     Dealing securities                            277,766                                                                 277,766          331,752
     Investments in associate                                                                                132,774       132,774          121,617
     Investments in subsidiaries                                                                             259,524       259,524          446,710
     Investment properties                                                                       47,654                     47,654          281,124
     Assets classified as Held for Sale                                           237,186                                  237,186                 -
     Property and equipment                                                                      50,757                     50,757           44,047
     Intangible assets                                                                            2,443                      2,443            1,360
     Other assets                                   278,810        32,592                                                  311,402          211,567
                                                    653,836        32,592          237,186      110,878      392,298     1,426,790        1,519,298
     Total Assets                                 2,184,453       987,206        2,591,891    3.542.696      630,591     9,936,837        7,182,601

     Percentage                                     21.98%          9.93%          26.08%        35.65%        6.36%

     39.1.b Liabilities                                                                                                           Total

     As at 31 December                                Up to        1 month        3 month         1 year   More than         2011             2010
                                                   1 month     to 3 months       to 1 year    to 5 years      5 years
                                                   LKR’000         LKR’000        LKR’000       LKR’000      LKR’000      LKR’000          LKR’000
     Interest-bearing Liabilities



     Customers’ deposits                                   -             -                -            -             -            -                -
     Borrowings                                   1,141,604       562,344        1,854,820    1,455,301                  5,014,069        3,179,712
     Debentures and other securities                 25,000              -          25,000    1,261,800                  1,311,800          716,800
                                                  1,166,604       562,344        1,879,820    2,717,101              -   6,325,869        3,896,512

     Non-Interest bearing Liabilities

     Current tax liability                                -               -       125,871              -             -    125,871          172,970
     Deferred tax liability                               -               -              -       74,834              -     74,834           20,994
     Retirement benefit obligation                        -               -              -      114,073              -    114,073           74,396
     Other liabilities                             265,935          85,164        102,293              -             -    453,392          338,536

                                                    265,935        85,164          228,164      188,907              -     768,170          606,896
     Shareholders’ Fund                                    -             -                -            -    2,842,798    2,842,798        2,679,193
     Total liabilities and shareholders’ funds    1,432,539       647,508        2,107,984    2,906,008     2,842,798    9,936,837        7,182,601

     Percentage                                     14.42%          6.52%          21.21%        29.24%       28.61%
Notes to the Financial Statements ...cont’d/

       39.2 Group

       39.2.a Assets
                                                                                                                                                             Total
       As at 31 December 2011                                Up to          1 month        3 months            1 year      More than            2011         2010
                                                          1 month       to 3 months        to 1 year       to 5 years         5 years
                                                           LKR’000          LKR’000         LKR’000          LKR’000         LKR’000         LKR’000      LKR’000


       Government treasury bills
             and other securities                          110,346           489,614         266,867         545,090          258,474       1,670,391    1,626,575
       Other Investments                                          -           35,000         190,000           25,000                  -     250,000             -
       Loans and advances                                1,288,397           274,320         422,273        1,888,741          12,272       3,886,003    3,960,576
       Leases & Hire purchase
           rentals receivable                              328,732           446,878       2,912,833        5,090,477           2,117       8,781,037    6,554,698
                                                         1,727,475         1,245,812       3,791,973        7,549,308         272,863      14,587,431   12,141,849
       Non-Interest earning assets


       Cash in hand and at bank                            238,050                  -               -                -                 -     238,050      146,956
       Investment securities                                      -                 -               -          10,034                  -      10,034       10,044
       Dealing securities                                  322,470            41,135          14,491                 -                 -     378,096      464,851
       Investments in associate                                   -                 -               -                -        132,774        132,774      121,617
       Investments in subsidiaries                                -                 -               -                -                 -            -            -
       Investment properties                                      -                 -        118,222           47,654                  -     165,876      386,869
       Investment in real estate                                  -                 -         13,796           14,361                  -      28,157       30,288
       Assets classified as Held for Sale                         -                 -      2,708,372                                        2,708,372     257,041
       Property and equipment                                     -                 -               -          79,257          53,332        132,589      145,426
       Intangible assets                                          -                 -               -        110,603                   -     110,603      108,539
       Other assets                                        301,831           283,701         115,738           36,903           5,880        744,053      610,870
                                                           862,351           324,836       2,970,619         298,812          191,986       4,648,604    2,282,501
       Total assets                                      2,589,826         1,570,648       6,762,592        7,848,120         464,849      19,236,035   14,424,350
       Percentage                                           13.46%             8.17%         35.16%           40.80%            2.42%




       39.2.b Liabilities

       As at 31 December 2011                                Up to          1 month         3 month            1 year      More than            2011         2010
                                                          1 month       to 3 months        to 1 year       to 5 years         5 years
                                                           LKR’000          LKR’000         LKR’000          LKR’000         LKR’000         LKR’000      LKR’000
       Interest-bearing liabilities


       Customers’ deposits                                 448,845           558,641       3,240,527         476,420                   -    4,724,433    5,676,955
       Interest bearing borrowings                       1,380,196           599,844       1,967,320        1,517,801                  -    5,465,161    3,311,089
       Debentures and other securities                      25,000                  -         25,000        1,261,800                  -    1,311,800     734,684
                                                         1,854,041         1,158,485       5,232,847        3,256,021                  -   11,501,394    9,722,728


       Non Interest bearing liabilities


       Current tax liability                                      -                 -        125,871                 -                 -     125,871      172,970
       Deferred tax liability                                     -                 -               -          74,834                  -      74,834       20,994
       Retirement benefit obligation                              -                 -          2,033         127,630           23,470        153,133      105,421
       Long-term insurance fund                                   -                 -               -                -        106,682        106,682       66,937
       Non-Life insurance reserve                                 -                 -               -        328,252                   -     328,252      252,774
       Other liabilities                                   357,709           203,565         215,867           16,728                  -     793,869      895,444
       Liabilities directly associated with
        assets classified as Held for Sale                        -                 -      2,544,050                 -                 -    2,544,050            -
                                                           357,709           203,565       2,887,821         547,444          130,152       4,126,691    1,514,540
       Shareholders’ fund                                         -                 -               -                -      3,082,790       3,082,790    2,898,399
       Minority interest                                          -                 -               -                -        525,160        525,160      288,683
       Total liabilities and shareholders’ funds         2,211,750         1,362,050       8,120,668        3,803,465       3,738,102      19,236,035   14,424,350
       Percentage                                           11.50%             7.08%         42.22%           19.77%           19.43%




       Notes
       Matured loans & advances and lease & hire purchase rentals receivable have been classified into “up to 1 month category”. However, a major part of this
       has been provided for bad and doubtful debts, whereas un-matured loans & advances and lease & hire purchase rentals receivable have been classified
       according to the respective contractual maturity dates. Loans and advances are shown net of interest in suspense and provision for bad and doubtful debts.
       Total shareholders’ funds are classified into over 5 years category” since no contractual date of maturity can be identified.
40        SEGMENT REPORTING

40.1 Company
                                                     Leasing                             Trade                  Corporate                     Money                          Eliminations /                      Total
                                                                                      Finance                    Advisory                     Market                         Unallocated
For the year ended 31 December
                              2011                      2010            2011              2010        2011            2010         2011         2010               2011           2010           2011            2010
                           LKR’000                   LKR’000         LKR’000           LKR’000     LKR’000         LKR’000      LKR’000      LKR’000            LKR’000        LKR’000        LKR’000         LKR’000
Revenue from external customers

Interest                            89,939            67,870          245,935          229,048      36,201          14,839       49,460       29,308               2,394          1,734         423,929       342,799
Lease income                       912,019           764,322                 -                -           -               -            -            -                   -              -        912,019       764,322
Commission                          14,770            12,875            2,206            1,541            -               -            -            -                   -              -         16,976        14,416
Others                              14,885            21,459           34,077            8,823     135,551         256,045        5,713       47,944              16,072         67,172         206,298       401,443
Total revenue from
   external customers            1,031,613           866,526          282,218          239,412     171,752         270,884       55,173       77,252              18,466         68,906    1,559,222 1,522,980

Inter-segment revenue                         -                -               -              -             -              -            -              -                 -             -               -             -

Segment results                    336,218           244,150           46,138           31,354      (4,470)        156,686       55,173       77,252              10,308       141,266          443,367       650,708



Profit before interest, tax and associate company’s profit                                                                                                                                   929,007   987,110
Interest expense                                                                                                                                                                           (545,888) (419,041)
Income from associate company                                                                                                                                                                 60,248    82,639
Income tax expense                                                                                                                                                                         (111,012) (201,037)

Net profit for the year                                                                                                                                                                         332,355       449,671

Other information

Segment assets             5,634,697 3,977,281                      1,764,799        1,652,056     525,949         565,794 1,040,834         360,877            578,260         58,266     9,544,539 6,614,274
Investment in associate /subsidiaries         -                              -                -           -               -         -               -           392,298        568,327       392,298   568,327

Total assets                     5,634,697 3,977,281                1,764,799        1,652,056     525,949         565,794 1,040,834         360,877            970,558        626,593     9,936,837 7,182,601

Segment liabilities                100,356            72,164           50,122          132,165          1,029                  6,533,532    3,992,379           409,000        306,700     7,094,039 4,503,408

Total liabilities                  100,356            72,164           50,122          132,165          1,029              - 6,533,532      3,992,379           409,000        306,700     7,094,039 4,503,408

Information on cash flows

Cash flows from
  operating activities         (1,391,133) (711,488)                (268,533)        (181,308)    (70,312)          14,485      (18,671)     (88,047)         (217,129)        (75,297) (1,965,778) (1,100,740)
Cash flows from
  investing activities                        -                -               -              -    386,656         172,512      (40,820)    (200,000)                    -             -        345,836       (27,488)
Cash flows from
  financing activities                        -                -               -              -             -              -   2,141,668 1,011,697                    -               -    2,141,668 1,011,697
Capital expenditure                           -                -               -              -             -              -           -          -            (23,178)        (13,456)     (23,178) (10,386)


40.2 Group
                                                   Leasing                        Trade             Corporate                    Money             Insurance                     Eliminations /                          Total
                                                                               Finance              Advisory                     Market                                          Unallocated
For the year ended 31 December
                                    2011             2010            2011        2010          2011    2010          2011         2010        2011    2010               2011          2010          2011            2010
                                  LKR’000          LKR’000         LKR’000     LKR’000       LKR’000 LKR’000       LKR’000      LKR’000     LKR’000 LKR’000            LKR’000       LKR’000       LKR’000         LKR’000

Revenue from external customers
Interest                        89,939               67,870        559,113     488,458        36,201 14,839          78,491      107,947     43,289         29,425      12,031         6,226    819,064             714,766
Lease income                 1,490,107            1,216,042               -           -             -       -              -            -          -              -           -             - 1,490,107           1,216,042
Commission                      14,770               12,875          2,206       1,077              -       -              -            -          -              -           -             -    16,976              13,952
Premium received                      -                    -              -           -             -       -              -            -   198,471        140,615            -             -   198,471             140,615
Others                          56,168               53,105         36,860       6,910       135,550 254,905          5,713       59,799     23,806         25,903      24,845       109,683    282,942             510,305
Total revenue from
    external customers       1,650,984            1,349,892        598,179     496,445       171,751 269,744         84,204      167,746    265,566        195,943      36,876       115,909 2,807,560            2,595,680
Inter-segment revenue                 -                    -              -           -             -       -              -            -          -              -           -             -         -                    -

Segment results                    385,312         415,119          76,199         (9,700)    (4,470) 156,686        79,881       74,440      7,160          9,978      46,961       149,085       591,043         795,608

Profit before interest,tax and associate company’s profit                                                                                                                                         1,551,953       1,563,146
Interest expense
Financing costs                                                                                                                                                                                 (1,021,158)       (850,177)
Income from associate company                                                                                                                                                                        60,248          82,639
Loss from discontinued operations                                                                                                                                                                  (49,053)        (20,931)
Income tax expense                                                                                                                                                                                (143,572)       (233,700)
Minority interest                                                                                                                                                                                  (45,277)        (48,632)
Net profit for the year                                                                                                                                                                             353,141         492,345

Other information

Segment assets                   9,960,672        6,732,890    4,222,450      3,940,214      537,431 565,794 1,886,652         1,467,731 1,003,570         632,413    1,492,486       963,691   19,103,261       14,302,733
Investment in Associate                   -                -            -              -            -       -          -                -         -               -     132,774       121,617      132,774          121,617
Total assets                     9,960,672        6,732,890    4,222,450      3,940,214      537,431 565,794 1,886,652         1,467,731 1,003,570         632,413    1,625,260     1,085,308   19,236,035       14,424,350
Segment liabilities              2,989,900        2,100,330    1,482,037      1,436,755        1,029        - 9,219,605        6,368,924   610,180         493,928    1,325,334       837,331   15,628,085       11,237,268
Total liabilities                2,989,900        2,100,330    1,482,037      1,436,755        1,029        - 9,219,605        6,368,924   610,180         493,928    1,325,332       837,331   15,628,085       11,237,268

Information on cash flows

Cash flows from
       operating activities    (2,673,486) (1,249,298) (618,368) (250,650)                   (70,312)    14,485     917,663      499,541      1,897        223,005 (144,733)         (46,529) (2,587,339)         (809,446)
Cash flows from
       investing activities               -                -              -              -   393,500 225,609               -            -   (29,979) (142,335)                  -     13,440       363,521           96,714
Cash flows from
     financing activities                 -                -              -              -          -           - 2,403,415      881,697     201,000             -            -       154,828 2,604,415           1,036,525
Capital expenditure                       -                -              -              -          -           -          -                (19,622)       (5,840)     (51,177)      (19,206) (70,799)             (25,046)
Notes to the Financial Statements ...cont’d/
40.3     SECONdARY SEGMENT INFORMATION

         (Based on Geographical location)

         40.3 a Company

                          Western      Sothern      Central       North        North       North    Eastern        Total
                                                                Central      Western
                          LKR’000      LKR’000      LKR’000     LKR’000      LKR’000     LKR’000    LKR’000     LKR’000

Revenue

Leasing                   440,789      117,516      109,235      77,939      226,307      22,545     37,282    1,031,613
Trade Finance             264,150          406        7,834       5,404        3,673         124        627      282,218
Corporate Advisory        171,752             -            -           -            -           -          -     171,752
Money market               55,173                          -           -            -           -          -      55,173
Others                     14,501          619          761         416        1,243         306        620       18,466
                          946,365      118,541      117,830      83,759      231,223      22,975     38,529    1,559,222

Assets

Leasing                  2,503,273     590,370      592,595     416,685    1,172,461     152,119    207,194    5,634,698
Trade Finance            1,662,498       3,455       43,653      19,520       21,292       1,238     13,143    1,764,799
Corporate Advisory         525,949            -            -           -            -           -          -     525,949
Money market             1,040,834            -            -           -            -           -          -   1,040,834
Others                     911,117      12,577       13,885       7,994       16,189       2,931      5,865      970,558
                         6,643,671     606,402      650,133     444,199    1,209,942     156,288    226,202    9,936,837

Liabilities

Leasing                     51,057      11,759         8,260      5,281        13,860      6,601      3,538      100,356
Trade Finance               45,023       2,982         1,984          4           337         31      (239)       50,122
Corporate Advisory           1,029            -             -          -             -          -          -       1,029
Money market             6,533,532            -             -          -             -          -          -   6,533,532
Others                     407,641            -        1,351           -             -         8          0      409,000
                         7,038,282      14,741        11,595      5,285        14,197      6,640      3,299    7,094,039


SECONdARY SEGMENT INFORMATION
(Based on Geographical location)


         40.3 b Group

                          Western     Sothern     Central/       North       North         North    Eastern        Total
                                                   Sabara-      Central     Western
                                                  gamuwa
                          LKR’000     LKR’000      LKR’000      LKR’000     LKR’000      LKR’000    LKR’000     LKR’000
Revenue

Leasing                    735,204    179,115      223,111       77,939     366,915       31,418     37,282    1,650,984
Trade Finance              447,108      7,416       49,456        5,404      86,810        1,358        627      598,179
Corporate Advisory         171,751           -            -            -           -            -          -     171,751
Money market                78,682        431        2,679             -      2,398           14           -      84,204
Others                     296,716        779        1,608          416       1,990          313        620      302,442
                         1,729,461    187,741      276,854       83,759     458,113       33,103     38,529    2,807,560

Assets

Leasing                  4,963,098     914,274    1,185,836     434,267    1,978,258     277,745    207,194 9,960,672
Trade Finance            3,393,627      70,669      272,383      30,382      418,231      24,016     13,142 4,222,450
Corporate Advisory         537,431            -            -           -            -           -          -   537,431
Money market             1,886,652            -            -           -            -           -          - 1,886,652
Others                   2,434,943      42,092       41,768      10,170       75,043      18,951      5,863 2,628,830
                        13,215,751   1,027,035    1,499,987     474,819    2,471,532     320,712    226,199 19,236,035

Liabilities


Leasing                  2,352,260     63,238      326,251        5,281     228,585       10,747      3,538 2,989,900
Trade Finance            1,262,042      6,853       99,002            4     112,916        1,459      (239) 1,482,037
Corporate Advisory           1,029           -            -            -           -            -          -     1,029
Money market             9,219,605           -            -            -           -            -          - 9,219,605
Others                   1,541,555    158,595       46,917             -     82,783      105,664           - 1,935.514
                        14,376,491    228,686      472,170        5,285     424,284      117,870      3,299 15,628,085
41      RELATEd PARTY dISCLOSURE

        The Company carried out transactions in the ordinary course of business with parties who are defined as related
        parties in Sri Lanka Accounting Standard 30 (revised 2005)- Related Party disclosures, the details of which are reported
        below.

        41 a. Transactions with key management personal (KMP)
              According to Sri Lanka Accounting Standard (revised 2005) “related party disclosures”, Key Management
              Personnel are those having authority and responsibility for planning and directing and controlling the activities
              of the entity. Accordingly, the directors of the Company (including Executive and non-executive directors) and
              their immediate family members have been classified as KMP of the Company.
              Therefore, officers who are only directors of the Subsidiaries and not of the Company have been classified as KMP
              of that respective subsidiary only.

        41 b. Compensation paid to KMP                              Company                             Group
              Short term benefit (LKR. 000’)                        4,949                               14,883*
              * Includes only compensation paid from continuing operations.

        41 c. directors Interest in Contracts/Transactions with Related Parties
              Mr M R Shah, Ms. W A Nalani, Mr. M S S Paramananda, Mr. Lakshman Perera, Mr. P G Rupasinghe,
              Mr. V Kanagasabapathy, Prof. Ranjith Bandara and Mr. Lalith De Silva were Directors of the Company as at
              31.12.2011


Related party transactions
Company              Name of the director           Position                 Relationship               Nature of transaction

Bank of Ceylon       Mr M R Shah                    Nominee Director of      BOC holds 72% of the       BOC has advanced loans and
                                                    BOC on the Board of      share capital of MBSL      granted normal banking facilities
                                                    MBSL as Chairman                                    including a Term Loan of LKR 800
                                                                                                        million, O/D facility of LKR 110 mil-
                                                                                                        lion Money Market Loan Facility
                     Ms W A Nalani                  General Manager of                                  of LKR 100 million balances of
                                                    BOC and Nominee                                     which as at 31.12.2011 are Term
                                                    Director of BOC                                     Loan Facility LKR 595.32 million
                                                    on the Board of MBSL                                and O/D balance of LKR 183.72
                                                                                                        Mn. There is no balance against
                     Mr V Kanagasabapathy           Alternate Director of                               the Money Market Loans.MBSL
                                                    BOC and Nominee                                     acts as Registrars to BOC Deben-
                                                    Director of BOC on the                              ture Issue of 2008/2013 and has
                                                    Board of MBSL                                       received a fee of LKR 360,000.00
                                                                                                        and LKR 383,815.00 as reimburs-
                                                                                                        able expenses.


Merchant Credit of   Mr M R Shah                    Director                 MBSL holds 51% of the      MBSL provided secretarial ser-
Sri Lanka Limited                                                            ordinary share capital     vices to MCSL and has received
                                                                             of MCSL                    a fee of LKR 190,500.00 and
                     Mr Lalith De Silva                                                                 LKR 12,539.20 as reimbursable
                                                    Chairman                                            expenses.

                     Prof. Ranjith Bandara
                                                    Director

                     Mr V Kanagasabapathy
                     (Resigned w.e.f. 01.01.2011)   Director


MBSL Insurance       Mr M R Shah                    Chairman                 MBSL holds 78.02% of       MBSL provided secretarial
Company Limited                                                              the ordinary share capi-   services to MBSL insurance
                                                                             tal of MBSL Insurance      and has received a fee of LKR
                     Prof. Ranjith Bandara          Director                 Company Limited            360,000.00 and LKR 383,815.00
                                                                                                        as re-imbursable expenses.
                                                                                                        Further MBSL has received LKR
                     Mr P G Rupasinghe              Director                                            600,000.00 as consultancy
                                                                                                        Income and LKR 14.77Mn as In-
                                                                                                        surance Agency Commission. The
                     Mr Lakshman Perera             Director                                            outstanding Insurance Agency
                                                                                                        Commission is LKR3,603,665.11


Lanka Securities     Mr M R Shah                    Director                 MBSL holds 29% of the      MBSL provided secretarial
(Pvt)                                                                        ordinary share capital     services to Lanka Securities
Limited                                                                      of LSL                     (Pvt) Limited and has received
                                                                                                        a fee of LKR 103,400.00 and
                                                                                                        LKR 12,900.80 as re-imbursable
                                                                                                        expenses. MBSL has received LKR
                                                                                                        33.70 million as dividends from
                                                                                                        Lanka Securities (Pvt) Limited.
Notes to the Financial Statements ...cont’d/
Related party transactions...cont'd/

Company               Name of the director               Position     Relationship         Nature of transaction

MBSL Savings Bank     Mr M R Shah                        Chairman     MBSL holds 68% of    LKR 100 million as a Fixed Deposit.
Limited                                                               the Ordinary share
                                                                      capital of
                      Prof. Ranjith Bandara                           MBSL Savings Bank
                                                         Director     Limited

                      Mr P G Rupasinghe
                                                         Director

                      Mr M S S Paramananda
                                                         Director


Credit Information    Ms W A Nalani                      Director                          MBSL has invested LKR 23,300.00
Bureau of Sri Lanka                                                                        in shares of CRIB and LKR
Limited                                                                                    13,500.00 was received as
                                                                                           dividend. MBSL obtained
                                                                                           services of the CRIB for a fee of
                                                                                           LKR 2,524,396

BOC Travels (Pvt)     Ms W A Nalani                      Director                          MBSL Provided secretarial
Ltd                                                                                        services to BOC Travels (Pvt) Ltd
                                                                                           and has received a fee of LKR
                                                                                           71,000.00 and LKR 42,067.00 as
                                                                                           re-imbursable expenses.

Hotels Colombo        Ms W A Nalani                      Director                          MBSL Provided secretarial servic-
(1963) Limited                                                                             es to Hotels Colombo (1963) Lim-
                                                                                           ited and has received a fee of
                                                                                           LKR 95,000.00 and LKR 44,969.60
                                                                                           as re-imbursable expenses.

BOC Property          Ms W A Nalani                      Director                          BOC PDML provided rent and
Development and                                                                            maintenance services to MBSL
Management                                                                                 Head Office and during the year
Company Limited                                                                            Company has paid LKR. 28.39
                                                                                           million for those services. MBSL
                                                                                           provided secretarial services to
                                                                                           BOC PDML and has received a
                                                                                           fee of LKR. 85, 000.00

Sri Lanka             Prof. Ranjith Bandara              Chairman                          Sri Lanka Foundation provided
Foundation                                                                                 training to MBSL staff members
                                                                                           amounting to LKR. 3.06 million.


Directors fees and emoluments paid by the Company                       ‘LKR

Mr. M R Shah                                  Chairman               772,500
Ms. W.A. Nalani                               Director               472,500
Prof. Ranjith Bandara                         Director               702,000
Mr. M.S.S. Paramananda                        Director               544,500
Mr. Lakshman Perera                           Director               679,607
Mr. P.G. Rupasinghe                           Director               625,500
Mr. V. Kanagasabapathy                        Director               679,500
Mr. Lalith De Silva                           Director               472,500

                                                                    4,948,607
42   EvENTS AFTER ThE BALANCE ShEET dATE
     No circumstances have arisen since the Balance Sheet date which would require adjustments to or disclosure in the
     Financial Statements other than those disclosed below.

     a.    In October 2011, the company accepted an offer made by a consortium of investors led by M/s Navara Capital
           (Pvt) Ltd to purchase the company’s 68% holding in MBSL Savings Bank Limited comprising 87,185,520 ordinary
           voting shares and 100,000,000 ordinary non-voting shares at a price of Rs. 3.75 per voting share and Rs. 2.35
           per non voting share, subject to the approval of the Central Bank. In January 2012, the Monetary Board granted
           approval to the consortium of investors led by M/s Navara Capital (Pvt) Ltd to purchase the company’s holding
           in MBSL Savings Bank Limited for a consideration of Rs. 562 Mn, out of which Rs. 100 Mn was paid in October 2011.
           The Company executed the share transfer agreement on 30 March 2012 for this transaction.

     b.    The Company opened 8 new branches and 8 service centres on 11th April 2012, in different parts of Sri Lanka, to
           expand business activities of the Company.

     c.    The Directors recommended a final dividend of LKR. 1.25 per share for the year ended 31 December 2011 for
           approval by the shareholders at the Annual General Meeting to be held on 20 June 2012.
Share & Debenture Information


1. Stock Exchange Listing
The issued ordinary shares of Merchant Bank of Sri Lanka PLC are listed on the Colombo Stock Exchange


2. Ordinary Shareholders as at 31 december 2011

                                 Resident                                                  Non - Resident                    Total
  Range of                            No.of          No.of             %           No.of            No.of        % of         No.of         No.of         % of
  Shareholding                  Shareholders        Shares   Shareholding   Shareholders           Shares Shareholding Shareholders        Shares Shareholding

1                 -     1,000        7,822       2,059,761          1.53            172           37,162          0.03       7,994   2,096,923           1.55
1,001             -    10,000        1,931       6,383,788          4.73            132          594,039          0.44       2,063   6,977,827           5.17
10,001            - 100,000            296       7,976,512          5.91             70        2,491,513          1.84         366 10,468,025            7.76
100,001           - 1,000,000           26       5,767,631          4.27             20        4,602,848          3.41          46 10,370,479            7.68
1,000,001        &      Above            0               0          0.00              3      105,086,746         77.84           3 105,086,746          77.84
TOTALS                              10,075      22,187,692         16.44            397      112,812,308         83.56      10,472 135,000,000         100.00


                  Individual                                 Company                                                         Total
Range of                              No.of          No.of             %           No.of            No.of        % of         No.of         No.of         % of
Shareholding                    Shareholders        Shares   Shareholding   Shareholders           Shares Shareholding Shareholders        Shares Shareholding

1                 -     1,000        7,958       2,088,016          1.55             36             8,907         0.01       7,994   2,096,923           1.55
1,001             -    10,000        2,038       6,859,868          5.08             25           117,959         0.09       2,063   6,977,827           5.17
10,001            - 100,000            348       9,640,825          7.14             18           827,200         0.61         366 10,468,025            7.76
100,001           - 1,000,000           41       8,740,979          6.47              5         1,629,500         1.21          46 10,370,479            7.68
1,000,001        &      Above            3     105,086,746         77.84              0                 0         0.00           3 105,086,746          77.84
TOTALS                              10,388     132,416,434         98.08             84         2,583,566         1.92      10,472 135,000,000         100.00

•	   The	percentage	of	shares	held	by	the	public	as	at	31	December	2011	was	27.86.	(31	December	2010	-	27.86%)
•	   The	Total	Number	of	Shareholders	as	at	31	December	2011	was	10,472	(31	December	2010	–	11,507)
•	   The	number	of	Shares	in	issue	as	at	31	December	2011	were	135,000,000



3. Book Value as at 31 December                                                                  2011                                                2010

Net Asset per share                                                                              21.06                                               19.85

4. Share Prices (LKR)

Lowest                                                                      28.00 (25/11/2011)                                        16.75 (13/01/2010)
Highest                                                                     58.00 (10/02/2011)                                        59.70 (23/09/2010)
Last Transaction                                                            39.60 (30/12/2011)                                        45.80 (31/12/2011)

5. Share Trading

No. of Transactions                                                                        20,772                                                 43,787
No. of Shares traded                                                                   33,613,600                                             84,879,700
Value of Shares traded                                                              1,568,639,620                                          2,942,506,810

6. Earnings as at 31 December (LKR)

Earnings per share                                                                                2.46                                                3.33
Price earning ratio                                                                              16.09                                               13.75

7. Performance at the Colombo Stock Exchange

(a) Market Capitalisation of MBSL
Value (LKR)                                                                         5,346,000,000                                         6,156,000,000
Rank                                                                                           88                                                    69

(b) Price Movement
All Share price Index                                                                        6,074.42                                           6,635.87
Milanka Price Index                                                                          5,229.16                                           7,061.46
MBSL Midcap Index                                                                           10,131.77                                          12,257.07
8. Directors Shareholding
The number of Shares held by the directors as at                            31/12/2011         31/12/2010

Mr. M R Shah                                                                        Nil                  Nil
Ms. W A Nalini                                                                      Nil                  Nil
Mr. M S S Paramananda                                                               Nil                  Nil
Mr. Lakshman Perera                                                                 Nil                  Nil
Mr. P G Rupasinghe                                                                  Nil                  Nil
Mr. V Kanagasabapathy                                                               Nil                  Nil
Prof. Ranjith Bandara                                                               Nil                  Nil
Mr. Lalith De Silva                                                                 Nil                  Nil

9. Shares held by CEO (Mr. Gamini Karunathilake retired w.e.f 01.01.2012)           Nil                  Nil

10. Major Shareholders as at 31 december 2011

Name of the Shareholder                                                          2011          %               2010              %

1    Bank of Ceylon No. 01 Account                                          97,392,136      72.14      97,392,136            72.14
2    Bank of Ceylon A/C Ceybank Unit Trust                                   6,443,410       4.77       2,386,410              2.1
3    DFCC Vardena Bank Ltd/ Mr. E P I Fernando                               1,251,200       0.93         282,400 *           0.21
4    Dr. S Yaddehige                                                           672,700       0.50                -                -
5    Mr. M M Udeshi                                                            570,876       0.42         887,276             0.65
6    Merrill J Fernando & Sons (Pvt) Ltd                                       526,165       0.39         538,065             0.40
7    Mr. M Premjayanth                                                         500,001       0.37         551,001             0.41
8    Mr. N Balasingam                                                          381,400       0.28         698,800             0.52
9    Mr. C P De Silva                                                          335,000       0.25                -                -
10   Mr. A Chelliah                                                            333,800       0.25         333,800             0.25
11   Thurston Investments Limited                                              325,000       0.24                -                -
12   Chemanex PLC A/C No 1                                                     300,000       0.22         210,000             0.16
13   Bartleet Produce Marketing (Pvt) Ltd                                      300,000       0.22                -                -
14   Waldock Mackenzie Ltd/Mr. L P Hapangama                                   300,000       0.22         261,500             0.19
15   Seylan Bank Limited/Dinesh Nagendra Sellamuttu                            286,301       0.21         286,301             0.21
16   Mr. C R D Fernando                                                        268,300       0.20                -                -
17   Gnanam Imports (Pvt) Ltd                                                  259,800       0.19                -                -
18   Commercial Bank of Ceylon PLC/W T L Anandawansa                           255,010       0.19                -                -
19   Seylan Bank Limited/Priyani Dharshani Ratnagopal                          238,100       0.18                -                -
20   DFCC Vardena Bank Ltd/Sithlanka (Pvt) Ltd                                 235,000       0.17         235,000 **          0.17

* In 2010 – First Capital Markets Limited/ Mr. E P I Fernando
** In 2010 – Sithlanaka (Private) Limited

11. Debentures as at 31 December 2011

Unsecured Redeemable Unlisted Debentures of LKR 100/- each
The Debentures were categorized as Types A, B C, and D as described below;

1. Type A -   3 year debentures carrying a Fixed Interest rate of 13% payable bi annually
2. Type B -   4 year debentures carrying a Fixed Interest rate of 13% payable bi annually
3. Type C-    3 year debentures carrying a Floating Interest rate payable bi annually
4. Type D-    4 year debentures carrying a Floating Interest rate payable bi annually

The Bank has issued 1,800,000 unsecured redeemable three year debentures (Type A) of LKR 100/- each carrying a Fixed
Interest Rate of 13% to the value of LKR 180.0 Mn in the year 2010.

The Bank has also issued 68,000 unsecured redeemable four year debentures (Type D) of LKR 100/- each carrying a Floating
Interest Rate to the value of LKR 6.8 Mn in the year 2010. The Bi Annual Interest rate for these debentures was 9.34% during 2011.

Floating rates of interest is calculated bi annually on the basis that the effective rate of interest per annum in respect of
Debentures of Type C and D is equivalent to one and half percentage points (1.5%) above the simple average of the six (06)
months Weighted Average Treasury Bill Rate (before withholding tax) at the last four (04) primary auctions held prior to the date
of determination/ renewal of the Interest Rate.

Unsecured Redeemable Listed Debentures of LKR 100/- each
The Debenture issue which was held in November 2011 fully subscribed and the Debentures were catergorised as Types A, B & C.
1.    Type A – 3 year debentures carrying a Fixed Interest rate of 11.6% payable bi-annually
2.    Type B – 4 year debentures carrying a Fixed Interest rate of 11.8% payable bi-annually
3.    Type C – 3 year debentures carrying a Floating Interest rate payable bi-annually

The Bank has issued 7,318,800 unsecured redeemable three year debentures (Type A) of LKR 100/- each carrying a Fixed
Interest Rate of 11.6% to the value of LKR 731,880,000 and 2,680,800 unsecured redeemable four year debentures (Type B) of
LKR 100/- each carrying a Fixed Interest Rate of 11.8% to the value of LKR 268,080,000.

The Bank has also issued 400 unsecured redeemable three year debentures (Type C) of LKR 100/- carrying a Floating Interest
Rate to the value of LKR 40,000/-

Floating rate of interest is calculated bi-annually on the basis that the effective rate of interest per annum in respect of Debentures
of Type C is equivalent to one point six percent (1.6%) above the simple average of six months weighted average Treasury Bill
rate (before withholding tax) at the last four (04) primary auctions as announced/published by the Central Bank of Sri Lanka
immediately prior to the date of determination/renewal of the interest rate.
Decade at a Glance
Company

For the year ended 31 December                        2011        2010        2009        2008        2007        2006        2005        2004        2003        2002
                                                   LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000

Operating Results
Income                                            1,559,222   1,522,980   1,155,731   1,035,227     872,598     704,355    539,001      434,969     386,645     346,641
Interest expenses                                   545,888     419,041     584,247     547,386     333,204     189,017    185,914      148,969     150,565     196,135
Operating expenses & provisions                     630,215     535,870     345,720     300,898     273,261     257,190    188,207      163,370     176,480     149,252
Share of Associate Company                           60,248      82,639      28,500      16,471       7,136      11,033     22,450        5,340      16,271       5,821
Profit before income tax                            443,367     650,708     254,264     203,414     273,269     269,181    187,330      127,970      75,871       7,075
Income tax on profit                                111,012     201,037      53,286     (1,664)      34,799      59,638     28,903        3,204       4,378              -
Profit after income tax                             332,355     449,671     200,978     205,078     238,470     209,543    158,427      124,766      71,493       7,075
Net profit for the year                            332,355     449,671     200,978     205,078     238,470     209,543     158,427     124,766      71,493       7,075


Balance Sheet Information
Assets
Government Treasury Bills and Bonds                 871,088     279,765     387,847     131,084      41,735           -    193,516        2,214         577      56,219
Investments on Securities & Properties              335,444     622,900     511,217     395,616     410,456     185,641    121,930       76,655      88,656     203,413
Loans and advances                                2,171,832   1,567,034   1,143,361     807,469     570,618     485,594    629,908      461,447     481,588     640,435
Lease receivable                                  5,467,127   3,816,504   2,958,996   3,128,124   3,154,198   2,628,564   2,117,444   1,764,896   1,399,246   1,091,034
Property & Equipment                                 50,757      44,047      37,844      30,519      24,517      26,344     29,232       31,361      25,115      30,441
Investments in associate & Subsidiary companies     392,298     568,327     354,546     103,895      95,543      51,944     55,365       40,213      44,463      36,395
Other Assets                                        648,291     284,024     185,114     171,421     107,015     125,610    125,501       98,655      88,564     107,714
TOTAL ASSETS                                      9,936,837   7,182,601   5,578,925   4,768,128   4,404,082   3,503,697 3,272,896     2,475,441   2,128,209   2,165,651




Liabilities
Debentures                                        1,311,800     716,800   1,074,160   1,144,160   1,327,510   1,260,600   1,400,600   1,303,350   1,150,000   1,200,000
Borrowings                                        5,014,069   3,179,712   1,658,985   1,553,949   1,079,083     400,370    242,000      157,735      98,258     201,258
Other liabilities & Deferred Taxation               768,170     606,896     515,008     390,225     432,773     426,481    356,092      273,398     263,759     219,695
                                                  7,094,039   4,503,408   3,248,153   3,088,334   2,839,366   2,087,451   1,998,692   1,734,483   1,512,017   1,620,953


Net Assets                                        2,842,798   2,679,193   2,330,772   1,679,794   1,564,716   1,416,246 1,274,204      740,958     616,192     544,698


Capital Employed
Stated Capital                                    1,607,000   1,607,000   1,607,000   1,067,000   1,067,000   1,067,000   1,067,000     617,000   2,070,000   2,070,000
Retained Profit/(Loss) & Reserve fund             1,235,798   1,072,193     723,772     612,794     497,716     349,246    207,204      123,958 (1,453,808) (1,525,302)
                                                  2,842,798   2,679,193   2,330,772   1,679,794   1,564,716   1,416,246 1,274,204      740,958     616,192     544,698


Ratios and Related Information

Company

For the year ended 31st December                      2011        2010        2009        2008        2007        2006       2005         2004        2003       2002

Operating Ratios


Return on Net Assets - %                            11.69%      16.78%       8.62%      12.21%      15.24%      14.80%      12.43%      16.84%      11.60%       1.30%
Net Profit - %                                      21.32%      29.53%      17.39%      19.81%      27.33%      29.75%      29.39%      28.68%      18.49%       2.04%
Cost to Income Ratio - %                            49.03%      42.58%      54.95%      53.30%      41.14%      42.32%      46.73%      51.36%      49.19%     61.46%
Income Growth - %                                    2.38%      31.78%      11.64%      18.64%      23.89%      30.68%      23.92%      12.50%      11.54%     -18.51%
Profit Growth - %                                   -26.09%    123.74%       -2.00%     -14.00%     13.80%      32.26%      26.98%      74.51%     910.50%    -113.38%
Assets Growth - %                                   38.35%      28.75%      17.00%       8.27%      25.70%       7.05%      32.21%      16.32%      -1.73%      -8.72%
Net Assets Growth - %                                6.11%      14.95%      38.75%       7.35%      10.48%      11.15%      71.97%      20.25%      13.13%       1.32%


Gearing Ratios
Debt to Equity - Times                                 2.23        1.45        1.17        1.61        1.54       1.17        1.29         1.97     (11.14)     (8.62)
Interest Cover - Times                                 1.81        2.55        1.44        1.37        1.82       2.42        2.01         1.86       1.50        1.04


Liquidity Ratios
Quick Ratio - Times                                    1.38        0.93        1.04        1.19        1.57       0.91        1.61         2.62       2.85        2.19


Investors Ratios
Market value of a voting share - LKR.                 39.60       45.80       19.50        7.25       14.25      16.25       14.25         9.25       9.00        6.00
Basic earnings per share - LKR.                        2.46        3.33        1.49        2.28        2.65       2.33        1.76         2.08       0.55        0.05
Net assets value per share - LKR.                     21.06       19.85       17.26       18.66       17.39      15.74       14.16        12.35       4.74        4.19
Price earnings ratio - Times                          16.09       13.75       13.09        3.18        5.38       6.97        8.10         4.45      16.36      120.00
Earning yield - %                                    6.21%       7.27%       7.64%      31.45%      18.60%      14.33%      12.35%      22.49%       6.11%       0.83%
Dividend per share - LKR.                              1.25        1.25        0.75        1.00        1.00       1.00        0.75         0.50           -          -
Dividend Cover - Times                                 1.97        2.66        1.98        2.28        2.65       2.33        2.35         4.16           -          -
Dividend yield ratio - %                             3.16%       2.73%       3.85%      13.79%       7.02%       6.15%       5.26%       5.41%            -          -
Dividend Payout ratio - %                           50.81%      37.54%      50.34%      43.86%      37.74%      42.92%      42.61%      24.04%            -          -
Group

For the year ended 31 December                          2011         2010         2009        2008        2007        2006        2005        2004        2003        2002
                                                     LKR.000      LKR.000      LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000     LKR.000
Operating Results
Income                                              2,807,560* 2,595,680*     2,332,321   1,647,537   1,443,925   1,163,678    905,927      776,966     759,131     683,967
Interest expenses                                   1,021,158*     850,177*   1,274,896     921,486     658,647     440,614    368,701      316,227     352,091     416,419
Operating expenses & provisions                     1,255,607* 1,032,534*       727,000     494,628     464,824     429,735    332,336      320,244     327,848     232,656
Share of Associate Company                             60,248       82,639       28,500      16,471       7,136      11,033     22,450        5,340      16,271       5,821
Profit before income tax                              591,043*     795,608*     358,925     247,894     327,590     304,362    227,340      145,835      95,463      40,713
Income tax on profit                                  143,572*     233,700*      73,592       4,908      38,134      59,737     30,037        6,945       3,187       4,634
Profit after income tax                               398,418      540,977      285,333     242,986     289,456     244,625    197,303      138,890      92,276      36,079
Minority interest                                      45,277       48,632       55,771      18,574      24,984      19,693     21,050        7,116      11,083      14,212
Net profit for the year                              353,141      492,345      229,562     224,412     264,472     224,932     176,253     131,774      81,193      21,867


Balance Sheet Information
Assets
Government Treasury Bills and Bonds                 1,670,391    1,626,575    1,291,653     446,084     362,499     323,054    485,110      239,041     411,332     236,000
Investments on Securities & Others                    582,163      892,052      768,975     430,930     452,165     230,839    183,766      143,860     148,082     351,086
Loans and advances                                  3,886,003    3,960,576    3,435,815   1,672,490     887,570     805,632    725,016      742,370     820,513     967,780
Lease receivable                                    8,781,037    6,554,698    5,035,167   4,660,299   4,814,920   4,471,315   3,615,485   2,994,126   2,595,780   2,087,155
Property & Equipment                                  132,589      145,426      150,924      44,466      37,360      43,528     49,446       47,342      42,438      43,863
Investments in associate                              132,774      121,617       95,022      82,977      74,625      31,026     34,447       19,295      23,545      15,477
Other Assets/ Assets classified as Held for Sale    4,051,078    1,123,406    1,054,916     251,782     173,608     185,807    349,255      127,360     110,747     254,011
TOTAL ASSETS                                       19,236,035 14,424,350 11,832,472       7,589,028   6,802,747   6,091,201 5,442,525     4,313,394   4,152,437   3,955,372


Liabilities
Deposits from customers                             4,724,433    5,676,955    4,897,367   2,199,270   1,813,329   2,142,949   1,848,626   1,587,357   1,766,390   1,499,140
Debentures                                          1,311,800      734,684    1,169,644   1,144,160   1,327,510   1,260,600   1,400,600   1,303,350   1,150,000   1,200,000
Borrowings                                          5,465,161    3,311,089    1,733,170   1,682,372   1,240,575     490,384    242,000      157,735      98,258     211,258
Other liabilities & Deferred Taxation               4,126,691    1,514,540    1,307,202     553,314     564,407     539,798    466,051      347,907     359,634     357,330
                                                   15,628,085 11,237,268      9,107,383   5,579,116   4,945,821   4,433,731 3,957,277     3,396,349   3,374,282   3,267,728
Minority Interest                                     525,160      288,683      207,823     172,208     153,634     128,650    113,859       96,728      89,612      80,294
Net Assets                                          3,082,790    2,898,399    2,517,266   1,837,704   1,703,292   1,528,820 1,371,389      820,317     688,543     607,350


Capital Employed
Stated Capital                                      1,607,000    1,607,000    1,607,000   1,067,000   1,067,000   1,067,000   1,067,000     617,000   2,070,000   2,070,000
Retained Profit/(Loss) & Reserve fund               1,475,790    1,291,399      910,266     770,704     636,292     461,820    304,389      203,317 (1,381,457) (1,462,650)
                                                    3,082,790    2,898,399    2,517,266   1,837,704   1,703,292   1,528,820 1,371,389      820,317     688,543     607,350


Ratios and Related Information

Group
For the year ended 31st December                        2011         2010         2009        2008        2007        2006        2005        2004        2003        2002
Operating Ratios
Return on Net Assets - %                              11.46%       16.99%        9.12%      12.21%      15.53%      14.71%      12.85%      16.06%      11.79%       3.60%
Net Profit - %                                        14.19%       20.84%       12.23%      14.75%      20.05%      21.02%      21.78%      17.88%      12.16%       5.27%
Cost to Income Ratio - %                              58.13%       52.50%       70.44%      55.15%      45.21%      46.64%      53.93%      51.27%      46.53%      62.66%
Income Growth - %                                      8.16%*      11.29% *     41.56%      14.10%      24.08%      28.45%      16.60%       2.35%      10.99%       1.81%
Profit Growth - %                                     -20.37%      96.93%       17.43%      -16.05%     18.33%      23.98%      42.06%      50.52%     155.76%     -221.75%
Assets Growth - %                                     33.36%       21.90%       55.92%      11.56%      11.68%      11.92%      26.18%       3.88%       4.98%       8.12%
Net Assets Growth - %                                  6.36%       15.14%       36.98%       7.89%      11.41%      11.48%      67.18%      -19.14%     42.15%      10.19%


Gearing Ratios
Debt to Equity - Times                                   3.73         3.34         3.10        2.73        2.57        2.55        2.55        3.72     (34.23)     (19.26)
Interest Cover - Times                                   1.58         1.94         1.28        1.27        1.50        1.69        1.62        1.46        1.27        1.10


Liquidity Ratios
Quick Ratio - Times                                      0.93         0.69         0.85        0.87        1.00        0.70        0.87        1.03        1.00        1.38
Investors Ratios
Market value of a voting share - LKR.                   39.60        45.80        19.50        7.25       14.25       16.25      14.25         9.25        9.00        6.00
Basic earnings per share - LKR.                          2.62         3.65         1.70        2.49        2.94        2.50        2.80        2.63        1.62        0.44
Net assets value per share - LKR.                       22.84        21.47        18.65       20.42       18.93       16.99      21.74        13.67        5.30       -1.48
Price earnings ratio - Times                            15.11        12.55        11.47        2.91        4.85        6.50        5.09        3.52        5.56       13.64
Earning yield - %                                      6.62%        7.97%        8.72%      34.34%      20.63%      15.38%      19.65%      28.43%      18.00%       7.33%
Dividend per share - LKR.                                1.25         1.25         0.75        1.00        1.00        1.00        1.07        0.60           -           -
Dividend Cover - Times                                   2.09         2.92         2.27        2.49        2.94        2.50        2.61        4.39           -           -
Dividend yield ratio - %                               3.16%        2.73%        3.85%      13.79%       7.02%       6.15%       7.53%       6.49%            -           -
Dividend Payout ratio - %                             47.11%       34.25%       44.12%      40.16%      34.01%      40.10%      38.30%      22.81%            -           -
* Include only continuing operations
Statement of Value Added



Value Added                                2011     2010                                        Value Allocation
                                         LKR Mn   LKR Mn
                                                                                                       Payments
Gross Value added                         1,619    1,605                                               to Employees
                                                                       22%
Cost of borrwoings & support services     (824)    (584)
                                                                                          31%
Provision for bad debts & investments      (62)     (66)                                               Dividends to
                                            733      955    2%                                         Shareholders
Value Allocated
                                                                                                       Government Tax
Payments to Employees                       230      175         22%
                                                                                                       Depreciation
Dividends to share holders                  169      101                           23%
Government Tax                              158      320                                               Retained
Depreciation                                 13       10
Retained                                    163      349
                                            733      955

Sources & Utilization of Income                                                                 Sources of income
                                           2011     2010
                                         LKR Mn   LKR Mn                 1%
Sources of Income                                                                                      Interest Income
                                                                           4%
                                                                  10%
                                                                                                       Fee & Commission
Interest Income                           1,336    1,107    3%
                                                                                                       Income
Fee & Commision income                       48      109
Other Income                                161      298                                               Other Income
Dividend Income                              14        8
Share of profit of Associate Company         60       83                                               Dividend Income
                                          1,619    1,605                                 82%
                                                                                                       Share of Profit of
Utilization of Income
                                                                                                       Associate Company

Payment to lenders                          546      419
Payments to employees                       230      175
Support services                            278      165
Depreciation & Amortization                  13       10                                        Utilisation of Income
Provisions for bad debts & Investments       62       66
Government Taxes                            158      320
                                                                                                       Payments to lenders
Dividends                                   169      101
Retained Profit                             163      349                                               Payments to
                                          1,619    1,605                                               Employees
                                                                 10%                34%
                                                                                                       Support services

                                                                                                       Depreciation &
                                                           10%
                                                                                                       Amortization

                                                                                                       Provisions for
                                                           10%               1%                        bad debts
                                                                                     14%
                                                                                                       & Investments
                                                                  4%
                                                                             17%                       Government Taxes

                                                                                                       Dividends

                                                                                                       Retained Pofit
Economic / Financial Indicators




                                                        2011         2010

GDP Growth Rate                                           8.4          8.0


Inflation- Annual Average Rate                            6.7          6.2


Exchange Rate                      US $                113.90      110.10
                                   Yen                   1.46        1.33
                                   S. Pound             177.6       173.4
                                   Euro                150.08      146.86


Rate of Change against LKR %

                                   US $                  2.5%         -2.9%
                                   Yen                   9.6%          4.5%
                                   S. Pound              2.4%         -7.1%
                                   Euro                  2.2%       -13.7%


Interest Rate                      T-Bills Rate :

                                   3-Months            8.68%        7.24%
                                   6-Months            8.71%        7.35%
                                   12-Months           9.31%        7.55%


Overnight repurchase rate                                 7%        7.25%
Commercial Bank AWDR*                                  7.24%        6.23%
Commercial Bank AWLR**                                15.35%       13.60%

Stock Market ( as at year end)

ASPI                                                 6,074.40     6,635.87
MPI                                                  5,229.16     7,061.46
MBSL Midcap                                         10,131.77    12,257.07
Change in API %                                         -8.46%      96.01%
Change in MPI %                                       -25.95%       83.44%
Change in MIDCAP %                                    -17.34%       70.37%
Market capitalization LKR ( Billion)                 2,213.90      2210.45
Annual Turnover LKR (Billion)                          546.25       570.30


* AWDR      (Avaerage Weighted Deposit Rate)
** AWLR     (Avaerage Weighted Lending Rate)
Contact @ MBSL
CORPORATE                               TELEPhONE            FAX       E-MAIL

General                                 4711711              2565666   mbslbank@mbslbank.com
                                        2565636

Mr. Lakshman Kaluarachchi               4711700              4711704   lakshmank@mbslbank.com
Chief Executive Officer (Acting)

CORPORATE SECRETARIAL SERVICES                                         karnikaj@mbslbank.com
Ms. K. Jayathilake                      4711766              4711704
Company Secretary

STRATEGIC PLANNING & RISK MANAGEMENT
Mr.	Ranjith	Siriwardena                 4711762                        ranjiths@mbslbank.com
Deputy General Manager

HUMAN RESOURCES & ADMINISTRATION
Ms. Amitha Samarasinghe                 4711712                        amithas@mbslbank.com
Assistant General Manager

LEASING                                 4711722 (Hot Line)   4711759
                                        4711703

Mr. Senaka Uduwawala                    4711751                        senakau@mbslbank.com
Assistant General Manager
Mr.	Sanjaya	Ranathunga                  4711734                        sanjayar@mbslbank.com
Senior Manager
Mr. Ananda Attanayake                   4711750                        anandaa@mbslbank.com
Manager (Legal)
Mr. Sarath Ediriarachchi                4711733                        sarathe@mbslbank.com
Manager
Mr. Priyalal Pathirana                  4711797                        priyalalp@mbslbank.com
Manager

TRADE FINANCE
Mr.	Ranjith	Siriwardena                 4711762              4711739   ranjiths@mbslbank.com
Deputy General Manager
Mr. Amitha Athulathmudali               4711709                        amithaa@mbslbank.com
Senior Manager
Ms. Mihirun Jayasinghe                  4711781                        mihirunj@mbslbank.com
Senior Manager (Legal)

CORPORATE ADVISORY & CAPITAL MARKETS
Mr. A M A Cader                         4711769              4711741   cader@mbslbank.com
Deputy General Manager
Ms. Lalangi Goonawardena                4711746                        lalangig@mbslbank.com
Manager
Ms. Fahima Ishar                        4711747                        fahimat@mbslbank.com
Manager (Legal)
Mr.	Hemendra	Wijekoon                   4711761                        hemendraw@mbslbank.com
Manager (Portfolio & Investments)

FINANCE & TREASURY MANAGEMENT
Mr. Priyantha Herath                    4711749              4711765   priyanthah@mbslbank.com
Assistant General Manager
Mr. Ruwan Piyadasa                      4711732                        ruwanp@mbslbank.com
Manager

INFORMATION TECHNOLOGY
Mr. Senthilkumar Sevagan                4711711              4711714   senthilk@mbslbank.com
Acting Manager

INTERNAL AUDIT
Mr. Shalintha Fernando                  4711764                        shalinthaf@mbslbank.com
Assistant General Manager
Mr. Lakshman Perera                     4711763                        lakshmanp@mbslbank.com
Manager

MERGER IMPLEMENTATION
Ms. Shyamalie Amaratunga                4711706                        shyamalia@mbslbank.com
Deputy General Manager

GROUP MARKETING & PRODUCT DEVELOPMENT
Mr. Jude Gamalath                       4711726                        judeg@mbslbank.com
Deputy General Manager
BRANCh OFFICES              TELEPhONE     FAX           E-MAIL

Galle                       091-4924312   091-2234750   ratnasirim@mbslbank.com
Mr. Rathnasiri Mayakaduwa   091-2234751
Senior Manager              091-4924913

Kandy                       0812224820    081-4481701   keerthir@mbslbank.com
Mr. Keerthi Ramanayake      081-4481702
Senior Manager              0812224818
                            081-2224819

Kurunegala                  037-4692006   037-4692006   samanp@mbslbank.com
Mr. Saman Pathmadeera       037-2224215   037-2224215
Manager                     037-2223916   037-2223916
                            037-4939836

Maharagama                  0114-306096   0112-745451   janakaf@mbslbank.com
Mr. Janaka Fernando         0114-306097
Manager                     0112-745431

Anuradhapura                025-4580507   025-4580508   ranganas@mbslbank.com
Mr. Rangana Sampath         025-2234485
Branch Manager

Negombo                     031-4933922   031-2228466   anomav@mbslbank.com
Ms. Anoma Vanhoff           031-4932230
Manager

City                        0114-361571   0112-328688   roshanm@mbslbank.com
Mr. Roshan Henadeera        0114-361581
Officer - In Charge

Trincomalee                 026-4928888   026-2226784   chareendrad@mbslbank.com
Mr. Chareendra De Silva     026-4595151
Branch Manager

Ambalantota                 047-4933661   047-2225610   nirmalatha@mbslbank.com
Mr. Nirmalath Fernando      047-4933660
Manager

Vavunia                     024-4925475   024-2226108   saravananr@mbslbank.com
Mr.R. Saravanan             024-4588685
Manager

Batticaloa                  065-4926799   065-2228575   nivarajp@mbslbank.com
Mr.P. Nivaraj               065-4926787
Branch Manager

Chilaw                      032-4928791   032-2224033   shyamank@mbslbank.com
Mr. Shyaman Karunanayake    032-4928790
Branch Manager              032-4928793

Hatton                      051-4924641   051-2224375   chamindaa@mbslbank.com
Mr. Chaminda Amarasinghe    051-4924642
Branch Manager
Our Team

Chairman’s & CEO’s Office                                               Corporate Secretarial




  Maleesha, Shyamalie (DGM), Fareesha, Sriyani                       Roshini, Marina (AGM), Dinuka,Darshani



Finance & Treasury
Standing (Left): Ruwan (Manager), Priyantha (AGM)
Seated: Lasitha, Nadhuni, Prabath, Chaminda, Agra, Nimali, Sandamali, Nadeesha, Leonard, Suganya, Dilip, Geethanjalie, Gayan
Standing (Far Right): Ajantha, Wasantha, Liyanage,Shrimali, Harshana, Ushantha
  Human Resources                                                       Information Technology




Nirmala, Harshani, Judith, Amitha (AGM) Amanda,   Damitha, Senthil (Manager), Deshapriya, Chinthaka (Manager),
Nishantha                                         Prasanna, Risintha, Roshan, Amila


Group Internal Audit
Chamara, Janaka, Nishani,
Lakshman (Manager), Hansini,
Shalintha (AGM), Sanjeewa, Sampath,
Jeewani,Pradeep, Thushara,
Lakshika




Marketing                                                                            Administration




                                                  Lalith, Athula, Jayarathna, Dhammika (Dep. Mgr),
                                                  Chandrakumara, Sagara, Mahinda, Amarasinghe, Tharanga



Jude (DGM) , Kosala,Madonna, Suranga, Udaya
     Leasing
Sanjaya (Snr. Manager), Ajith, Sangeeth, Niluka, Chinthka, Chintha                Janaka, Devika, Madhawa, Munasinghe,
                                                                                  Hemali, Krishani




         Niranjala, Bhashini, Lakshman DGM - Leasing( ActingCEO), Senaka (AGM)

        Leasing                 Micro Finance                        Legal                       Leasing




                                                                                                   Isanka,
                                                                                                   Premalal, (Manager),
 Chamara, Nimashi,        Chrishanthi, Chandima, Charith Nimali, Sivapalan (Manager), Subhani,     Sulani, Chandima, Chandana,
 Janithri, Sanjeev,                                      Premalal, Ananda (Manager), Chamathi      Lasantha, Chandima, Pathirana
                                                                                                   (Manager) Sarath (Manager)




    Trade Finance




    Monika, Mihirun (Senior Manager), Janith, Bhagya, Sunil, Priyaratne, Nirani, Amitha
    (Snr. Mgr),Ranjith (DGM), Shanaka, Madusha, Sadathana, Senaka
     Corporate Advisory & Capital Markets                             Seated:
                                                                      Hemendra (Manager), Lalangi (Manager), Jayawardena,
                                                                      Cader (DGM), Fahima, (Manager) Dayani, Ruweena,
                                                                      Standing: Hijas, Nadeeraka, Karthigan, Angelo, Dishan




   Anuradhapura                                                       Ambalantota
    Thilina, Chamara, Emil, Rangana, Pradeep,Buddhika,                                                             From Left:
    Asanka, Nishantha                                                                                              Nirmalath
                                                                                                                   (Manager),
                                                                                                                   Pramod
                                                                                                                   Bhagya,
                                                                                                                   Navoda,
                                                                                                                   Madushan




  Batticaloa                                      City                                                             Chilaw




Christable, Janarthanan, Nivaraj (Br. Manager),
Chaminda,Srilaxshan, Jashitha                     Narmada, Rachitha,                      Chaminda, Damith, Shanaka, Shyaman
                                                  Roshan (Br. Manager),Indika,            (Br. Manager), Nimantha
                                                  Dinesh, Nishani

 Galle                                                                   Hatton
                                                  Nilanga, Dayani,
                                                  Vinitha, Erani,
                                                  Vajira, Ratnasiri
                                                  (Snr. Manager)
                                                  Roshan, Indika



                                                                            Drashani, Lakmal, Sanjeewa, Pushpkumar,
                                                                            Seated: Chaminda (Br, Manager)
 Kandy                                                           Kurunegala




                                                                 Seated: Lakmal, Sampath, Nishantha, Saman (Manager),
                                                                 Susantha, Jude, Sulakshi,
                                                                 Standing: Dinusha, Kamal, Hasintha, Chandani
  Keerthi (Snr. Manager), Priyanga, Sanjeewa, Milinda, Janaka,
  Shashikala, Dasanthi, Asanthi, Kaushalya, Susil



 Maharagama                                            Negombo




Viranga, Janaka (Manager), Uthpala,
Chathura, Kosala, Chamara                              Anoma (Manager), Viraj, Pradeep, Dinithi, Dilanga, Asanka



       Trincomalee                                  Vavuniya




                                                      Prasad, Balajanarthan, Saravanan (Manager), Thusijanthan

Siyahul Haq, Chareendra, (Br. Manager)
Reyaz, Kalpa
Glossary of Financial Terms
Associate Company                                                     Market Capitalisation
A company other than a subsidiary in which a holding                  The market value of a company at a given date obtained
company has a participating interest and exercises a                  by multiplying the share price by the number of issued
significant influence over its operating and financial policies.      shares.
discounting of Bills of Exchange                                      Net Assets per Share
To advance cash on a bill of exchange prior to its maturity           Net assets (total assets less total liabilities) divided by the
after deducting a sum for interest.                                   number of ordinary shares in issue. This represents the
Capital Reserves                                                      theoretical value per share if the company is broken up.
The profits of a company that for various reasons are not             Net Interest Income
regarded as distributable to shareholders as dividends.               The difference between what a bank earns on assets such
These include gains on the revaluation of capital assets and          as loans and securities and what it pays on liabilities such
share premium.                                                        as deposits, refinance funds and inter-banking borrowings.
Contingent Liabilities                                                Operating Lease
Conditions or situations prevailed as at the balance sheet            Any form of lease other than finance lease, i.e., one that
date, the financial effects of which are to be determined by          does not transfer all the benefits and risks of ownership to
future events which may or may not occur.                             the lessee.
Corporate Governance                                                  Portfolio
The process by which corporate entities are governed. It is           A combination of income generating assets such as loans,
concerned with the way in which power is exercised over               finance leases, investment securities and bills discounted.
the management and direction of entity, the supervision of            Post Balance Sheet Events
executive actions and accountability to owners and others.            Significant events that occur between the balance sheet
Cost method                                                           date and the date on which financial statements are
A method of accounting whereby the investment is                      approved by the Board of Directors.
recorded at cost. The income statement reflects income                Price Earnings Ratio
from the investment only to the extent that the investor              Market price of an ordinary share divided by annual
Receives distributions from accumulated net profits of the            earnings per share.
investee arising subsequent to the date of acquisition.               Provisions for Bad & doubtful debts
Cost to Income                                                        Specific provisions made for possible loan losses according
Operating expenses excluding provision for bad & doubtful             to the period of non-performance and the exposure over
debts as a percentage of total operating income net of                the collateral.
interest cost.                                                        Related Party
deferred Tax                                                          An individual, partnership of company that has the ability
Sum set aside for tax in the accounts of an organization              to control or exercise significant influence over another
that will become payable in a period other than that under            organization.
review.                                                               REPOs
Gross dividend                                                        Repurchase Agreements : The securities sold to creditors
Portion of current and retained earnings, inclusive of tax            (who lend money for funding purposes), with the intention
withheld, distributed to shareholders.                                of buying them back at a set price.
Earnings per Share                                                    Return on Average Assets (ROAA)
Profit after tax divided by the number of ordinary shares in          Profit after tax as a percentage of Average Assets.
issue.                                                                Return on Equity (ROE)
Equity method                                                         Profit after tax as a percentage of Average Equity.
A method of accounting whereby the investment is initially            Return on shareholders’ Funds
recorded at cost and adjusted thereafter for the post                 Profit after tax divided by average shareholders’ funds (total
acquisition change in the investor’s share of net assets of           of share capital and reserves).
the investee. The income statement reflects the investor’s            Return on Total Assets
share of the results of operations of the investee.                   Profit after tax divided by average total assets.
Finance Lease                                                         Revenue Reserves
A contract whereby a lessor conveys to the lessee the right           Reserves which may be distributed to shareholders as
to use an asset for rent over an agreed period of time which          dividends.
is sufficient to amortise the capital outlay of the lessor.           Segment Reporting
The lessor retains ownership of the asset but transfers               Segment reporting indicates the contribution to the
substantially all the risks and rewards of ownership to the           revenue derived from business segments such as banking
lessee.                                                               operations, leasing operations, stock broking & securities
Floating Rate Note                                                    dealings, property and insurance.
A debt security carrying a floating rate of interest which is         Shareholders’ Funds
reset at regular intervals, typically quarterly or half-yearly, in    Shareholders’ funds consist of issued and fully paid
relation to some predetermined reference rate, typically              ordinary share capital plus capital and revenue reserves.
Guarantee                                                             Subsidiary Company
A promise made for fee by a third party (guarantor), who              A company is a subsidiary of another company if the parent
is not a party to the contract between two others, that the           company holds more than 50% of the nominal value of its
guarantor will be liable if one of the parties fails to fulfill the   equity capital or holds some shares in it and controls the
contractual obligations.                                              composition of its board of directors.
Interest Earning Assets                                               value Added
Assets, which earn interest – the total of Advances, Bills,           Value added is the wealth created by providing banking
Leases, Government Bills & Bonds, Call Money and                      services less the cost of providing such services. The value
Placements with other institutions.                                   added is allocated among the employees, the providers
Interest in Suspense                                                  of capital, to government by way of taxes and retained for
Interest income of Non Performing Loans; these are                    expansion and growth.
accrued but not considered as profits.
Notice of Meeting




NOTICE IS HEREBY GIVEN that the Thirtieth Annual General Meeting of Merchant Bank of Sri Lanka PLC will be
held at the Grand Ballroom, Galle Face Hotel, Colombo on 20 June 2012 at 10 30 h for the following purposes;


1.   To receive and consider the Annual Report of the Board of Directors and the Audited Financial Statements
     of the Company for the year ended 31 December 2011 together with the Report of the Auditors thereon.

2.   To declare a final dividend of LKR 1.25 per ordinary share for the year ended 31 December 2011 as
     recommended by the Directors.

3.   To re-elect Mr. P G Rupasinghe as a Director pursuant to his retirement by rotation in terms of article 88 of the
     Articles of Association of the Company.

4.   To re-appoint M/s SJMS Associates, Chartered Accountants, as the Company’s Auditors for the ensuing year
     and to authorise the Directors to determine their remuneration.

5.   To authorize the Directors to determine donations for the year 2012.



By Order of the Board of
MERCHANT BANK OF SRI LANKA PLC




Company Secretary
Colombo
08 May 2012.

NOTES:
      1. A Form of Proxy is attached hereto, for use if necessary, in which event, it should be completed and
          returned to the Registered Office of the Company not less than 48 hours before the time appointed for
          the holding of the meeting.
      2. A Shareholder entitled to attend and vote is entitled to appoint a Proxy to attend and vote instead of
          him/her. A proxy need not be shareholder.
      3. The instrument appointing a proxy may be by writing under the hand of the appointer or of his/her
          Attorney, duly authorized in writing, or if such appointer is a corporation under its common seal or the
          hand of its Attorney or duly authorized person. The instrument appointing a proxy should be deposited
          together with the proxy at the Registered Office of the Company
Form of Proxy




I/We…………………………………………………………………………………………………..................................................
of…………………………………....………………………………………………………………..................................................

being a member/members of the Merchant Bank of Sri Lanka PLC, hereby appoint...............................................
………………………………………………………………………………………………………................................................of
………………………………………………………………………………………………….......................................................or
failing him/her any one of the Directors as *my/our Proxy, to represent * me/us, to speak and to vote on *my/
our behalf at the Annual General Meeting of the Company to be held at the Grand Ballroom, Galle Face Hotel,
Colombo on 20 June 2012 and at any adjournment thereof and at every poll which may be taken in
consequence thereof. *I/We the undersigned hereby authorize my/our Proxy to vote on *my/our behalf in
accordance with the preference indicated below:

                                                                                              For            Against

          1. To receive and consider the audited financial statements
             for the year ended 31 December 2011 and the Auditors’
             Report thereon

          2. To declare a final dividend of LKR 1.25 per ordinary share

          3. To re-elect Mr. P G Rupasighe as a Director

          4. To re-appoint M/s SJMS Associates as the Company’s Auditors

          5. To authorize the Directors to determine donations
             For the financial year 2012


Signed this……………..day of………………Two Thousand and Twelve.




                                                                        …………………………..
                                                                        Signature
Notes

         1. * Please delete the inappropriate words.
         2. A proxy so appointed shall have the right to vote on a show of hands or on a poll and to speak at
            the Meeting
Mr. Lakshman Kaluarachchi

         lakshmank@mbslbank.com

Group Hed of Legal / Company Secretary :
Ms. Karnika Dayanganie Jayatilake

				
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