Promise to pay created when the drawee of a time draft stamps or writes the word ‘accepted’ above his signature and a designated payment date.
The specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting Financial Statements.
The systematic allocation of the depreciable amount of an intangible asset over its useful life.
Recognition of the effects of transactions and other events when they occur without waiting for receipt or payment of cash or cash equivalent.
Gain or loss arising from the difference between estimates and actual experience in an entity’s pension plan.
An entity over which the investor has significant influence.
Amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and minus any reduction for impairment or uncollectability.
AWDR is calculated by the Central Bank monthly based on the weighted average of all outstanding interest bearing deposits of commercial banks and the corresponding interest rates.
AWPLR is calculated by the Central Bank weekly based on commercial banks' lending rates offered to their prime customers during the week.
The Basel Committee on Banking Supervision (BCBS) issued the Basel III rules text, which presents the details of strengthened global regulatory standards on bank capital adequacy and liquidity.
One hundredth of a percentage point (0.01 per cent); 100 basis points is 1 percentage point. Used in quoting movements in interest rates or yields on securities.
A bill of exchange drawn by an exporter usually at a term, on an importer overseas and brought by the exporter to his bank with a request to collect the proceeds.
A document that consists of the critical information an organisation needs to continue operating during an unplanned event.
The BCP should state the essential functions of the business, identify which systems and processes must be sustained, and detail how to maintain them. It should take into account any possible business disruption.
Business model assessment is carried out as the first step of the financial assets classification process. Business model refers to how an entity manages its financial assets in order to generate cash flows. It is determined at a level that reflects how groups of financial assets are managed rather than at an instrument level. SLFRS 9 identifies three types of business models: “hold to collect”, “hold to collect and sell” and “other”. In order to determine the business model, it is necessary to understand the objectives of each business model. An entity would need to consider all relevant information including, for example, how business performance is reported to the entity’s key management personnel and how managers of the business are compensated.
The percentage of risk-adjusted assets supported by capital as defined under the framework of risk-based capital standards developed by the Bank for International Settlements (BIS) and as modified by the CBSL to suit local requirements.
A bank in a foreign country that offers banking facilities to the customers of a bank in another country.
Credit facilities approved but not yet utilised by the clients as at the reporting date.
Operating expenses excluding impairment charge for loans and other losses as a percentage of total operating income.
A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants such as collateral, guarantee and credit protection.
Designed to ensure that banks build up buffers of capital outside any periods of stress and to avoid breaches of minimum capital requirements.
The smallest group of assets that independently generates cash flow and the cash flow is largely independent of the cash flows generated by other assets.
A condition or situation, the ultimate outcome of which will be confirmed only on the occurrence or non-occurrence of one or more uncertain future events.
An evaluation of a corporate’s ability to repay its obligations or the likelihood of not defaulting, carried out by an independent rating agency.
The simultaneous purchase of an amount of a currency for spot settlement and the sale of the same amount of the same currency for forward settlement.
Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash Generating Unit (CGU) The smallest group of assets that independently generates cash flow and the cash flow is largely independent of the cash flows generated by other assets.
Also known as portfolio impairment provisions. Impairment assessment on a collective basis for homogeneous groups of loans that are not considered individually significant and to cover losses that have been incurred but have not yet been identified at the reporting date.
The process by which corporate entities are governed. It is concerned with the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others.
Risk of financial loss to the Bank, if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the loans and advances to customers and other banks and investment in debt securities.
Control is the power over an investee, exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its powers over the investee to affect the amount of the investor’s returns.
Sum set aside in the Financial Statements for taxation that may become payable/receivable in a financial year other than the current financial year. It arises because of temporary differences between tax rules and accounting conventions.
A debt or other financial obligation is considered to be in a state of delinquency when payments are overdue. Loans and advances are considered to be delinquent when consecutive payments are missed. Also known as “Arrears”.
Features that could impact the cash flows of a financial asset by a de minimis amount both on a period by period basis and cumulatively.
Risk-weighted assets expressed as a percentage of total exposure.
Removal of a previously recognised financial asset or financial liability from an entity’s statement of financial position.
Systemically Important Banks (SIBs) are perceived as banks that are “Too Big To Fail”. D-SIBs are critical for the uninterrupted availability of essential banking services to the country’s real economy even during crisis. The CBSL has designated LCBs with total assets equal to or greater than
Rs. 500 Bn. as D-SIBs.
A derivative is a financial instrument or other contract, the value of which changes in response to some underlying variable (e.g. interest rate) that has an initial net investment smaller than would be required for other instruments that have a similar response to the variable, and that will be settled at a future date.
The profit attributable to ordinary shareholders divided by the number of ordinary shares in issue.
Rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments or when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
Provision for taxation excluding deferred tax expressed as a percentage of the profit before taxation.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities.
EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal & interest and expected drawdowns of committed facilities.
A method of giving employees shares in the business for which they work.
This is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition changes in the investor’s share of net assets of the investee. The profit or loss and other comprehensive income of the investor include the investor’s share of the profit or loss and other comprehensive income of the investee.
ECL approach is the loan loss impairment method under SLFRS 9 on “Financial Instruments”. ECLs are the discounted product of the Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD). ECL measurements are unbiased and are determined by evaluating a range of possible outcomes.
An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand- alone derivative.
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
A financial instrument is any contract that gives rise to both a financial asset in one entity and a financial liability or equity instrument in another entity.
Any assets that is cash, equity instrument of another entity, a contractual right to receive cash or contractual right to receive another financial asset from another entity.
A contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity.
A lease in which the lessee acquires all financial benefits and risks attaching to ownership of the asset under lease.
All financial assets other than those classified at Amortised Cost or FVOCI are classified as measured at FVTPL. These are held for trading or managed and their performance is evaluated on a fair value basis as they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
Agreement between two parties to exchange one currency for another at a future date at a rate agreed upon today.
A financial asset is measured at amortised cost if the asset is held within a business model whose objective is to hold assets to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
FVOCI include debt and equity instruments measured at fair value through other comprehensive income. A debt instrument is measured at FVOCI, if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Equity investments may be irrevocably classified as FVOCI when they meet the definition of Equity under LKAS 32 Financial Instruments: Presentation, and are not held for trading.
Used to measure the robustness of financial intermediation process, it is gross income expressed as a percentage of average total assets.
A parent and all its subsidiaries.
The portion of profits distributed to the shareholders including the tax withheld.
Three party agreement involving a promise by one party (the guarantor) to fulfil the obligations of a person owing a debt if that person fails to perform.
The GRI is an international independent standards organisation that helps businesses, governments and other organisations to understand and communicate their impacts on issues such as climate change, human rights and corruption. GRI promotes sustainability reporting as a way for organisations to become more sustainable and contribute to sustainable development.
A strategy under which transactions are effected with the aim of providing cover against the risk of unfavourable price movements (interest rate, foreign exchange rate, commodity prices, etc.).
Assets that are unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible. These include, for example, cash and claims on central governments and central banks.
Historical cost is the original nominal value of an economic item.
Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later than they are contractually due.
A ratio showing the number of times interest charges is covered by earnings before interest and tax.
Represents the difference between the average interest rate earned on interest earning assets and the average interest rate paid on interest-bearing liabilities.
This occurs when recoverable amount of an asset is less than its carrying amount.
An intangible asset is an identifiable nonmonetary asset without physical substance.
An increase/(decrease) of the difference between the carrying value of an asset and the sum of discounted future cash flows generating from the same asset compared to the previous reporting date.
Impairment allowances are provisions held on the Statement of Financial Position as a result of the raising of a charge against profit for the incurred loss. An impairment allowance may either be identified or unidentified and individual (specific) or collective (portfolio).
An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another stream of future interest payments based on a specified principal amount.
Property (land or a building – or part of a building – or both) held (by the owner or by the lessee under a finance lease) to earn rentals or capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative services; or sale in the ordinary course of business.
Knowledge capital is the intangible value of an organisation made up of its knowledge, relationships, learned techniques, procedures, and innovations. In other words, knowledge capital is the full body of knowledge an organisation possesses.
A set of quantifiable measurements used to gauge a company’s overall long-term performance. KPIs specifically help determine a company's strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether Executive or otherwise) of that entity.
A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet its financial obligations.
LGD is the percentage of an exposure that a lender expects to lose in the event of obligor default.
The rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
Refers to highly liquid assets held by Banks to meet short-term obligations. The ratio represents a generic stress scenario that aims to anticipate market-wide shocks.
Lifetime ECL are the expected credit losses that result from all possible default events over the expected life of the financial instrument. According to SLFRS 9 on “Financial instruments”, the ECL allowance should be based on LTECL unless there has been no significant increase in credit risk since origination.
The LTV ratio is a mathematical expression which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. The LTV ratio is used in determining the appropriate level of risk for the loan and therefore the correct price of the loan to the borrower.
The value of an entity obtained by multiplying the number of ordinary shares in issue by its market value as at a date.
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.
The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium is equal to the slope of the security market line (SML), a graphical representation of the capital asset pricing model (CAPM).
Equity in a Subsidiary not attributable, directly or indirectly, to a parent.
A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate the settlement of foreign exchange trade transactions.
The margin is expressed as net interest income divided by average interest earning assets.
Shareholders’ funds excluding preference shares, if any, divided by the number of ordinary shares in issue.
The difference between the amount a bank earns on assets such as loans and securities and the amount it pays on liabilities such as deposits, refinance funds and interbank borrowings.
Measures the amount of longer-term, stable sources of funding employed by a bank relative to the liquidity profiles of the assets funded and the potential for contingent calls on funding liquidity arising from off-balance sheet commitments and obligations.
Total net non-performing loans and advances expressed as a percentage of regulatory capital base.
This refers to the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
Transactions that are not recognised as assets or liabilities in the Statement of Financial Position, which give rise to the commitment and contingencies in future.
Market price of a share divided by the net assets value of a share.
Total provisions for loan losses expressed as a percentage of net non-performing loans and advances before discounting for provisions on non-performing loans and advances.
Market price of a share divided by the earnings per share.
PD is an internal estimate for each borrower grade of the likelihood that an obligor will default on an obligation.
An actuarial valuation method that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method).
Prudence Inclusion of a degree of caution in the exercise of judgment needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.
One party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions, directly or indirectly.
Contract to sell and subsequently repurchase securities at a specified date and price.
An asset that represents a lessee’s right to use an underlying asset for the lease term.
RPT is a transfer of resources, services or obligations between a reporting entity and a related party, regardless whether a price is charged.
Profit after tax expressed as a percentage of the average assets.
Net profit attributable to owners expressed as a percentage of average ordinary shareholders’ equity.
Transaction involving the purchase of securities by a bank or a dealer and resale back to the seller at a future date at a specified price.
The sum total of assets as per the Statement of Financial Position and the credit equivalent of assets that are not on the Statement of Financial Position multiplied by the relevant risk-weighting factors.
It can be described as an organisation's risk capacity, or the maximum amount of residual risk it will accept after controls and other measures have been put in place.
Disclosure of the Bank’s assets, income and other information, broken down by activity and geographical area.
An entity that is controlled by another entity.
Total of issued and fully paid share capital and revenue reserves.
According to SLFRS 9, an entity should assess whether the risk of default on a financial instrument has increased significantly since initial recognition. The assessment should consider reasonable and supportable information that is relevant and available without undue cost or effort. There is a rebuttable presumption in the Standard that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due.
The consideration that the accounting treatment and presentation of Financial Statements of transactions and events should be governed by their substance and financial reality and not merely by legal form.
Solely payments of Principal and Interest Test (SPPI) is carried out as the second step of the classification process. “Principal” is defined as the fair value of the financial asset at initial recognition and may change due to repayments of principal or amortisation of the premium or discount.
“Interest” is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding. If a financial asset passes the SPPI test, then it will either be classified at amortised cost if the “hold to collect” business model test is met, or at Fair Value Through Other Comprehensive Income (FVOCI) if the hold to collect and sell” business model test is met. If a financial asset fails the SPPI test it must be classified at Fair Value Through Profit or Loss (FVTPL) in its entirety.
Common Equity Tier 1 (CET1) is a component of Tier 1 capital that consists mostly of Stated Capital. It is a capital measure that was introduced as a precautionary measure to protect the economy from a financial crisis.
Additional Tier 1 Capital (AT1) is a component of Tier 1 capital that comprises securities that are subordinated to most subordinated debt, which have no maturity, and their dividend can be cancelled at any time.
Capital representing revaluation reserves, general provisions and other capital instruments, which combine certain characteristics of equity and debt such as hybrid capital instruments and subordinated term debts.
The portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date.
An undertaking formed to invest in securities under the terms of a trust deed.
The period over which an asset is expected to be available for use by an entity or the number of production or similar units expected to be obtained from the asset by an entity.
Unsystematic risk is unique to a specific company or industry. Also known as “nonsystematic risk”, “specific risk”, “diversifiable risk” or “residual risk”, in the context of an investment portfolio, unsystematic risk can be reduced through diversification.
Discount rate at which the present value of future cash flows would equal the security’s current price.
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of yield curve shapes: normal (upward sloping curve), inverted (downward sloping curve) and flat.