Glossary

Accrual Basis

Recognising the effects of transactions and other events when they occur without waiting for receipt or payment of cash or cash equivalent.

Capital Adequacy Ratio

The percentage of risk-adjusted assets supported by capital as defined by the Central Bank of Sri Lanka.

Capital Reserve

Capital reserves consist of revaluation reserves arising from revaluation of properties owned by the Company and reserve fund set aside for specific purposes defined under the Finance Companies Act No. 78 of 1988.

Cash Equivalents

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

Contingent Liabilities

Conditions or situations at the Balance Sheet date, the financial effect of which are to be determined by the future events which may or may not occur.

Cost Income Ratio

Operating expenses as a percentage of net income.

Deferred Tax

Sum set aside in the Financial Statements for taxation that may become payable in a financial year other than the current financial year.

Earnings Per Share

Profit attributable to ordinary shareholders, divided by the number of ordinary shares in issue.

Fair Value

Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction.

General Provisions

General provisions are established for leasing transactions, housing loans, pawning advances and others for anticipated losses on aggregate exposures where credit losses cannot yet be determined on an individual facility basis.

Impairment

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

Intangible Asset

An identifiable non-monetary asset without physical substance held for use in the production/supply of goods/services or for rental to others or for administrative purposes.

Interest Margin

Net interest income as a percentage of average interest earning assets.

Interest Spread

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

Key Management Personnel

Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

Liquid Assets

Assets that are held in cash or in a form that can be converted to cash readily, such as deposits with other banks, bills of exchange and Treasury Bills.

Market Rates

This refers to the possibility of loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates, credit spreads and other asset prices.

Net Assets Value Per Share

Shareholders’ funds divided by the number of ordinary shares in issue.

Net Interest Income

The difference between what Company earns on assets such as loans and securities and what it pays on liabilities such as deposits and borrowings.

Non-Performing Loans

All loans are classified as non-performing when a payment is 6 months in arrears.

Non-Performing Loans Cover (NPL Cover)

Cumulative loan provision as a percentage of total non-performing advances (net of interest in suspense).

NPL Ratio

Total non-performing advances (net of interest in suspense) divided by total advances portfolio (net of interest in suspense).

Operational Risk

This refers to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

Provision for Bad and Doubtful Debts

A charge to income which is added to the allowance for loan losses. Specific provisions are established to reduce the book value of specific assets (primarily loans) to estimated realizable values.

Return on Average Assets (ROA)

Net income expressed as a percentage of average total assets, used along with ROE, as a measure of profitability and as a basis of intra-industry performance comparison.

Return on Average Equity

Net income expressed as a percentage of average ordinary shareholders’ equity.

Revenue Reserve

Reserves set aside for future distribution and investment.

Risk Adjusted Assets

Used in the calculation of risk-based capital ratios. The face amount of lower risk assets is discounted using risk weighting factors in order to reflect a comparable risk per Rupee among all types of assets. The risk inherent in Off-Balance sheet instruments is also recognised, first by adjusting notional values to balance sheet (or credit) equivalents and then by applying appropriate risk weighting factors.

Shareholders’ Funds

Shareholders’ funds consist of stated capital plus capital and revenue reserves.

Subsidiary

A subsidiary is an entity that is controlled by another entity (known as the Parent).

Tier I Capital

Consists of the sum total of paid-up ordinary shares, non-cumulative, non-redeemable preference shares, share premium, statutory reserve fund, published retained profits, general and other reserves, less goodwill.

Tier II Capital

Consists of the sum total of revaluation reserves, general provisions, hybrid capital instruments and approved subordinated debentures.

Total Capital

Total capital is the sum of Tier I capital and Tier II capital.

Value Added

Value added is the wealth created by providing banking services less the cost of providing such services. The value added is allocated among the employees, the providers of capital, to Government by way of taxes and retained for expansion and growth.

Mark-to-Market Adjustment

Mark-to-Market adjustment is the difference between the market value of a quoted security and the cost.

Staff Turnover Ratio

Staff turnover ratio is computed as the number of employees who resigned during the financial period under review divided by the average number of employees in that particular reference period.