Notes to the Consolidated Financial Statements - Seylan Bank

North Bound > Seylan Bank Annual Report 2011
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Recognition and Disclosures in the Financial Statements of Banks’ and the Directions issued by the Central
Bank of Sri Lanka, the Bank evaluates the need for additional provisions for loans and advances, based upon
management’s best estimate of recoverability. In estimating the recoverability, the management makes
judgments about the borrower’s financial situation, the workout strategy and the net realisable value of any
underlying collateral.
3.3.4.2 General Provision
The general provisions cover loan losses inherent in portfolios with similar credit risk characteristics
(eg.: portfolio of loans, advances and lease receivables) when there is objective evidence to suggest that
they contain impaired loans, but the individual impaired loans cannot yet be identified. In assessing the need
for general provision for loan losses, management considers factors such as credit quality, portfolio size,
concentrations, and economic factors. In order to estimate the required provisions, assumptions are made
to define the way inherent losses are determined, based on historical experience.
The amount of potential losses not specifically identified but which experience indicates are present in
the portfolio of loans, advances and lease receivables are recognised as a general provision in profit or loss.
In addition, the Direction issued by the Monetary Board of the Central Bank of Sri Lanka, in terms of
Section 46 of the Banking Act No. 30 of 1988, as amended, in ‘Requirements to Maintain a General Provision
for Advances’ requires all licensed commercial banks to maintain a general provision as a percentage of the
total on Balance Sheet performing loans and advances and on Balance Sheet overdue loans and advances,
net of interest in suspense and credit facilities secured by cash deposits, gold or Government Securities
with the same bank.
Commencing from 01st January 2012, the above requirement changes from 1% to 0.5% as referred in
Banking Act Direction No. 3 of 2010, amendments to Direction on classification of loans and advances,
income recognition and provisioning for licensed commercial banks in Sri Lanka.
For this purpose, the Bank has reduced the existing general provision requirement of 1% to 0.5% at a rate of
0.1% per quarter during the five quarters commencing 01st October 2010 as required by the above Direction.
3.3.5 Investments
3.3.5.1 Investments in Subsidiaries
Investments in subsidiaries are stated at cost in the Bank’s Financial Statements in accordance with the
Sri Lanka Accounting Standard 26 on 'Consolidated Financial Statements and Accounting for Investments
in Subsidiaries'.
3.3.5.2 Dealing Securities
These are marketable securities acquired and held with the intention of resale over a short period of time.
Such securities are recorded at market values; adjustments for changes in market values are accounted for
in Profit or Loss. In classifying securities as ‘Dealing’ (Trading), the Bank has determined that it meets the
description for such classification.
3.3.5.3 Investment Securities
These are acquired and held for yield or capital growth in the medium/long-term. Such securities are
recorded at cost. Changes in market values of these securities are not taken into account, unless there is
considered to be a permanent diminution in value. In classifying securities as ‘Investment’, the Bank has