We are grateful for the sustained support and patronage of our customers and recognise that our plans for the future depend on our serving them well.

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2 It is a pleasure to present to you the Annual Report of the Bank of Ceylon for the financial year During the year, the Bank marked 70 years of exemplary banking services. It is now envisaging the future course of value creation, given that Sri Lanka is poised to attain a new economic growth trajectory in the post-war era. The economic environment prevalent over the past year presented both opportunities and challenges, while confirming the relative strength and stability of the Bank. During this challenging time for the financial services industry worldwide, the Bank continued to demonstrate the prudent management capacity that its stakeholders count on. The Bank s liquidity position remains one of its great strengths. It is also well-capitalised, amply justifying the AA(lka) credit rating from Fitch Ratings. The juxtaposition of events, the cessation of conflict tempered by a slowly improving economy, opens up a world of unprecedented opportunity for Sri Lanka and the Bank of Ceylon. This is why we ve taken a searching look at the psyche of the Bank, its people, processes, products and stakeholders, even as we enact the strategies that seek to maximise the unfolding opportunities. The Economic and Banking Environment The global financial crisis as well as a simultaneous recession in many economies impacted the Sri Lankan economy to a moderate extent. However, as the year passed, mixed signs of recovery were seen in some economies relative to year 2008, restraining the indirect negative impacts on our economy. Notwithstanding several challenges, the Sri Lankan economy remained resilient. Its financial institutions and the private corporate sector also remained stable and solvent. The Central Bank of Sri Lanka further accommodated monetary easing, periodically cutting Repo and reverse Repo rates over the year. Taking cues from the reduction in policy rates and easing liquidity conditions, Bank of Ceylon revised lending rates for both new and existing loans and spearheaded economic revival. Such rate revisions although coming at an opportunity cost of approximately Rs. 1.3 billion to the bottom line were intended to revitalise business activity across the island. With the end of the civil conflict, Sri Lanka has entered into an intermediary phase; one that creates new opportunities for value addition and exponential growth. The opening up of the North and the East is presenting avenues to revive hitherto sub-optimal economic sectors. An increasing interest in the Sri Lankan capital market and an enhanced propensity for foreign direct investment is also witnessed. Financial Performance In spite of depressed credit demand, the Bank has registered satisfactory progress in many important areas not limited to deposits, inward remittances, recovery of impaired assets, profitability and geographical presence. I am pleased to report that the Bank s total turnover for the year ended 31 December 2009 was Rs billion. Deposits have increased to Rs billion at the end of year 2009 from the previous year s Rs billion, recording a growth of 29%. Advances were recorded at Rs. 275 billion. The Bank made a Profit Before Tax of Rs. 4.2 billion. Considerable efforts were made during the year to mitigate the burden of non-performing loans. The NPA ratio stood at 5.7% at the end of December The Bank s performance in 2009 reflects its strength to consolidate its position as the premier public sector bank. It also provides the impetus to review and revisit its business direction through a new corporate plan. Revisiting the Corporate Plan Without over-simplifying the process of formulating strategy for the way ahead, we sought answers to the question, what matters? across the gamut of enterprise. Were we really doing what matters? Delivering what matters? Do we have the people who matter, on board? It is in answering these questions that we have formulated the Bank s new corporate plan branded one 10 TWELVE. The demand for credit moderated in spite of a low rate regime impacting banking business. Considerable credit quality impairment was also noted across the banking sector. However, macroeconomic management has helped maintain lower volatility in both the financial and the real sectors, resulting in better-than-predicted real growth for the year. 012 BANK OF CEYLON ANNUAL REPORT 2009

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4 This medium term corporate plan covers the challenging goals of achieving a Rs. 1.0 trillion Balance Sheet and Rs billion profits by year The corporate plan now focuses solidly on strategies of undertaking new businesses to help move away from the over-dependency on traditional interest income. This also places emphasis on becoming increasingly more customer centric and diversified. With diversification in mind, our wider ranging product and service line will include wealth and asset management, bancassurance, private equity, venture capital, debt and equity distribution, alternative investments, international investments, personal financial services and others. A significant component of inorganic growth will be achieved through an investment banking perspective. I am proud to report that the Bank has launched an investment banking division during the year. Through the corporate plan the Bank s focus will also be directed to evolving effective strategies to optimise human resources in a highly motivational work environment. Having revisited the approach and attitude towards customer service, we are not only drawing upon information technology and infrastructure but are also initiating a fully-fledged cross selling culture. Equitable Banking Services As Bankers to the Nation we have a duty to reach out to all citizens of the country. In light of this, we have made every effort to absorb rural areas and the North and the East into the mainstream financial system. We were the first bank providing fully-fledged online banking services within the centres for Internally Displaced Persons as a part of our corporate social responsibility regime. From our resources, a larger portion will be allocated to the resurgence activities in the North and the East. In the matter of setting the foundation for development of the North and the East, the Bank has been unwaveringly committed to the people of these areas. During 2009, the Bank opened 46 extension offices island-wide of which 26 were opened in the North and the East. The Bank has already launched other sustainable development projects to help create economic opportunities for the people of these areas. During 2010, the Bank intends to harness investment inflows from foreign sources for development activities in this region. Amongst rural deposit mobilisation drives, the Gam Udana programme s success continued. This rural awakening endeavour acquired momentum, securing approximately 800,000 new savings accounts with a total fund base of approximately Rs billion over the year. Safeguarding Systemic Interest At the request of the Central Bank, we took steps to provide managerial assistance and equity infusion to Seylan Bank PLC. I am proud to report that the Bank of Ceylon s involvement supported Seylan Bank s business continuation and performance enhancement, strengthening overall systemic stability. Going Global With a view to taking its business into the global market the Bank is now in the advanced stages of converting the London branch into a wholly-owned subsidiary. As the London subsidiary will become an independent entity governed by the Financial Services Authority of the UK, it will support the Bank s entry into European and international markets. To enter this new phase of global business, customer niches have been identified that will find Bank of Ceylon s international connectivity most meaningful. We aim to capture a uniquely international customer base initially focusing on the Sri Lankan diaspora. The Bank had declared the last year as its Year of Inward Remittances and secured Rs billion in forex inflows. New Non-Resident Foreign Currency accounts opened over the year amounted to over 77,000 taking the total number up by 32%, to 315,260. The Bank has expanded correspondent relationships to 64 new Global Banks and Exchange Houses. It has also increased IT orientation to facilitate international business, thus retaining a market dominant position in this sector. Acknowledgements Last year, the Bank s boardroom was marked by thoughtful analysis and active engagement. The impact of the Board s stewardship in many relevant areas translates into a bank-wide heightening of risk management, governance, performance orientation and farsightedness. I thank all my colleagues on the Board for their continued support. I wish to place on record my gratitude to the General Manager, Mr. B A C Fernando for his valuable contribution in taking the reins of this great edifice of finance and national interest and driving it towards its aspirations. We are grateful for the sustained support and patronage of our customers and recognise that our plans for the future depend on our serving them well. The contribution made by auditors, legal advisers, consultants, correspondents and external advisors is thankfully acknowledged. The positive role played by the trade unions in the Bank s operations is also appreciated. The rich contribution made by the dedicated Corporate and Executive Management and the diligent workforce forms the backbone of the Bank s resilience. My gratitude goes to you all for your hard work. 014 BANK OF CEYLON ANNUAL REPORT 2009

5 I thank His Excellency Mahinda Rajapaksa, the President who is also the Minister of Finance and Planning, Honourable Ranjith Siyambalapitiya, Deputy Minister of Finance and Planning, Dr. P B Jayasundera, the Secretary to the Ministry of Finance and Planning, Mr. Ajith Nivard Cabraal, the Governor of the Central Bank of Sri Lanka, Mr. S Swarnajothi, the Auditor General and Mr. Mohan Pieris, the Attorney General and respective officials for their guidance and support. I also wish to thank Mr. Sumith Abeysinghe, the former Secretary to the Ministry of Finance and Planning for the support extended. Conclusion Although the near term outlook for many economies looks challenging, some signs of recovery and indeed growth have been established. World equity markets, and other important financial markets too have recently shown some signs of recovery. We do not underestimate the direct and indirect impacts of the global economy but believe the Bank is resilient and already possesses the impetus to achieve the goals of the new corporate plan. Reaping peace dividends as well as moving away from pureplay commercial banking would be made possible through adaptability, innovation, skills development, technology, risk management, marketing and customer centricity. Year 2010 will be the foundation year for reinventing the Bank as a financial powerhouse. Having completed 70 years of glorious existence I am confident that Bank of Ceylon will scale new heights in the future with the continued support and patronage of the Government of Sri Lanka, its stakeholders and well wishers. Dr. Gamini Wickramasinghe Chairman 18 March 2010 Colombo BANK OF CEYLON ANNUAL REPORT