Notes to the Consolidated Financial Statements - Seylan Bank

310 North Bound > Seylan Bank Annual Report 2011
Notes to the Consolidated Financial Statements
Provisions for loan losses are made on the basis of continuous review of all advances to the customers in
accordance with the Sri Lanka Accounting Standard 23 - ‘Revenue Recognition and Disclosure in the Financial
Statements of Banks’, and the Direction issued by the Central Bank of Sri Lanka, which has been disclosed in
the Financial Statements of the Bank after considering the values of the collateral, obtained against the
respective non-performing loans and advances.
Valuation of collateral is performed based on the Direction issued by the Central Bank of Sri Lanka as
explained in Note 21.5.2.
21.5.2 Valuation of Securities for Provisioning Purpose
As per the amendment to the Direction issued by the Central Bank of Sri Lanka on 15th August 2003
(Effective from 1st January 2004), under Section 46 of the Banking Act No. 30 of 1988, as amended by
Banking (Amendment) Act No. 33 of 1995, the initial and progressive discount that need to be applied to the
forced sale value of immovable properties held as collateral, are as follows:
Category
% of Forced Sale Value of Immovable
Property that can be Considered as the
Value of Security (%)
At the Time of 1st Provisioning 75
1 - 2 Years in the Loss Category 60
2 - 3 Years in the Loss Category 50
3 - 4 Years in the Loss Category 40
Over 4 Years in the Loss Category At the Discretion of the Management
As per Banking Act Direction No. 6 (1) (i) 2009 the Bank classifies all credit facilities extended to a borrower
as NPL, when one or more credit facilities has/have been classified as NPL in terms of Direction 3 (5)
and if the aggregate amount outstanding of such NPL exceeds 30% of the total credit facilities extended to
such borrower commencing from 01st January 2011.
Provision for Loans and Advances - Ceylinco Group Exposure
In view of the special circumstances under which the Bank was reconstituted by the Direction of the
Central Bank of Sri Lanka, the Monetary Board has granted an exemption for a period of 3 years from 31st
December 2010 to Seylan Bank PLC, from the requirement to apply progressive discount on the forced
sale value of immovable property, in terms of the Banking Act Direction No. 03 of 2008 on ‘Classification of
Loans and Advances, Income Recognition and Provisioning’ when computing the provisioning to be made
as at 31st December 2011, for non-performing facilities of Golden Key Credit Card Company and Ceylinco
Homes International.