Notes to the Consolidated Financial Statements - Seylan Bank

274 North Bound > Seylan Bank Annual Report 2011
Notes to the Consolidated Financial Statements
3.3 Assets and Basis of their Valuation
3.3.1 Statutory Deposit with Central Banks
The Monetary Law Act requires that all commercial banks operating in Sri Lanka maintain reserves against
all deposit liabilities denominated in Sri Lankan Rupees. The details of reserve requirements are given in
Note 17.
3.3.2 Government of Sri Lanka Treasury Bills and Bonds
3.3.2.1 Investment in Treasury Bills and Bonds held for Dealing
The Bank has adopted a policy of marking to market its ‘Trading Portfolio’ of Government Securities in line
with the directions made by the Monetary Board of the Central Bank of Sri Lanka under Section 46 (1) of the
Banking Act No. 30 of 1988 amended by the Banking (Amendment) Act No. 33 of 1995 and Act No. 2 of 2005.
3.3.2.2 Securities Purchased Under Resale Agreements (Reverse Repurchase Transactions)
These are loans collateralised by the purchase of Treasury Bills and/or Guaranteed Commercial Papers
from the counterparty to whom the loans are granted. The sale by the counterparty is subject to a
commitment by the Bank to sell back the underlying debt securities to the borrower at a predetermined
price. These loans are stated in the Balance Sheet at cost.
3.3.3 Advances to Customers
Advances to customers are stated in the Balance Sheet net of provisions for possible loan losses and
also net of interest which is not accrued to revenue. Bank’s policy is to discontinue accruing interest on
non-performing loans and advances after 12 months.
3.3.4 Provision for Loan Losses
3.3.4.1 Specific Provision for Loan Losses and Leases
In accordance with the Direction issued by the Central Bank of Sri Lanka on 08th May 2008, Direction No. 3
of 2008 ‘Classification of Loans and Advances, Income Recognition and Provisioning’ specific provisions on
NPA (as a minimum) are made as follows.
Category of NPA Credit
Quality
Minimum Specific Provision
Requirement (Net of Security)
Substandard:
Credit Cards 25%
Other Advances 20%
Doubtful 50%
Loss 100%
The provision made relates to all categories of loans and advances including pawning and leasing
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.
In addition to the specific provisions for possible loan losses 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