Composition of the Board Audit Committee

The Board Audit Committee appointed by and responsible to the Board of Directors of Citizens Development Business Finance PLC consists of three Non-Executive Directors all of them are members of recognised professional bodies and possess wide ranging financial, commercial and management experience. The biographical details of the members of the Board Audit Committee are set out in the Directors’ profiles section of the Annual Report. Ms P R W Perera functions as the Chairperson of the Board Audit Committee is a fellow member of the Institute of Chartered Accountants of Sri Lanka.

The Committee members as at
31 March 2022

• Ms P R W Perera: Independent Non-Executive Director
• Prof P N Gamage: Independent Non-Executive Director
• Mr J P Abhayaratne: Non-Executive Director

Terms of Reference of the Committee

The scope and responsibilities of the Board Audit Committee emanates from its Terms of Reference which was last reviewed and approved by the Board in March 2022. The process ensures that new developments and concerns are adequately addressed. The Committee is responsible to the Board of Directors and reports on its activities regularly. The Board Audit Committee also assists the Board in its general oversight of financial reporting, internal controls and functions relating to internal and external audits.

Role and responsibilities

The main objective of the Board Audit Committee is to assist the Board of Directors in exercising its fiduciary responsibilities towards its stakeholders. The Committee is empowered by the Board to:

1. Ensure that the financial reporting system in place is effective and well managed in order to provide accurate, appropriate and timely information to the Board, Regulatory Authorities and other stakeholders.
2. Review the Annual Financial Statements and Interim Financial Statements prior to publication to ensure compliance with statutory and regulatory requirements, accounting standards and accounting policies which are consistently applied.
3. Evaluate the adequacy, effectiveness of Risk Management Systems and Internal Controls of the Company.
4. Assess the independence and review adequacy of the scope, functions and resources of the Internal Audit Department.
5. Review and monitor the External Auditors’ independence, objectivity and effectiveness of the audit process.
6. Ensure that sound Corporate Governance practices are upheld within the Company.

Meetings

The Board Audit Committee held 9 meetings during the period under review which included two meetings with the External Auditors without the presence of the Executive Directors and Management. The quorum for a meeting of the Committee is two Board Audit Committee members.

The Chief Executive Officer, the Chief Financial Officer, the Head of Internal Audit and other Directors attend meetings of the Committee by standing invitation. The Committee also invited members of the Senior Management of the Company to participate in the meetings from time to time on a need basis. The External Auditors also attend meetings whenever they are invited to be present.

The Head of Internal Audit functions as the Secretary to the Board Audit Committee. Proceedings of these meetings with adequate details of matters discussed are regularly reported to the Board.

The attendance of the Committee members at the meetings was as follows:

Reporting to the Board

The Minutes of the Committee meetings are tabled at Board Meetings at least every quarter, enabling all Board members to have access to them.

Activities in the financial year 2021/2022

The Committee carried out the following activities:

Financial Reporting

The Committee reviewed the interim and year-end financial statements and obtained the approval of the Board, prior to their publication. These reviews facilitated the Committee to monitor compliance with SLFRS/LKAS and the other regulations and also to ensure the integrity of the information provided to the Company’s stakeholders. The Committee encourages to continuously strengthen the processes, internal controls, management information system, risk management and reports required for validation and compliance in line with SLFRS 9 on “Financial Instruments”.

Internal Control over Financial Reporting

In line with the Section 10 (2)(b) of the Finance Companies Direction No. 03 of 2008 as amended by the Direction No. 06 of 2013, the Company is required to comply the said direction and assess the effectiveness of the Internal Control over Financial Reporting as at 31 March 2022.

Internal Audit Department of the Company carried out a series of walk through tests to establish their adequacy of documented processes and made appropriate recommendations where necessary. Based on the Internal Auditors’ assessments, the Board has concluded that as at 31 March 2022, the Company’s Internal Control over Financial Reporting was effective.

Internal Audit

The Committee approved the Internal Audit Plan for the financial year and also monitored and reviewed the scope, extent and effectiveness of the activities of the Internal Audit Department. The Committee also reviewed and monitored the progress of the Internal Audit Plan during the financial year, along with its resource requirements. The Committee has had sufficient interaction with the Head of Internal Audit throughout the year.

The Committee continuously reviewed to ensure that appropriate measures and actions have been taken to manage the risks identified during lockdowns, and curtailed business operations due to the Covid-19 pandemic. A centralised monitoring process was continued on selected high risk areas of the business operations by the Internal Audit Department.

During the year the Committee also reviewed the audit reports covering matters pertaining to Financial Reporting, Branches, Departments, Information System Audits and Special Investigations and also followed up the implementation of audit recommendations. Audit findings presented in the reports were prioritised based on the level of risk involved. The Board Audit Committee advised the Corporate Management to take precautionary measures on significant audit findings. Internal Audit reports were made available to the External Auditors as well.

External Auditors

The Board Audit Committee assisted the Board in engaging the External Auditors for the audit service in compliance with regulatory provisions. The Committee also reviewed the non-audit services provided by the External Auditors to ensure that they do not lead to impairment of the External Auditors’ independence and objectivity.

The Management letter issued by the External Auditors in respect of the financial year ended 31 March 2021 was considered by the Committee and corrective action is being pursued wherever such action is warranted.

Prior to commencement of the annual audit, the Committee discussed with the External Auditors, their audit plan, audit approach, and matters relating to the nature and scope of the audit.

The Committee met the External Auditors on two occasions during the financial year without the Executive Directors and the Management being present, to ensure that there was no limitation of scope in relation to the Audit and to allow for full disclosure of any matters, which could have had a negative impact on the effectiveness of the external audit. The Committee concluded that there was no such cause for concern.

The Committee also reviewed the service period of the engagement of the External Audit Partner to ensure that it has not exceeded five years.

The Audit Committee having considered the independence and performance of the External Auditors KPMG (Chartered Accountants) recommend that they be re-appointed as the Company’s statutory auditors for the financial year ending 31 March 2023, subject to the approval of shareholders at the forthcoming Annual General Meeting.

Statutory and Regulatory Compliance

The Committee reviewed the procedures established by management for compliance with the requirements of the regulatory bodies. The Compliance Officer submitted a report to the Board Audit Committee on a quarterly basis, indicating the extent to which the Company was in compliance with mandatory statutory requirements. Due compliance with all requirements are monitored through this process. Further, Internal Audit Department of the Company performs the independent test checks on regulatory compliance requirements.

The Committee reviewed and monitored the progress on implementation of the recommendations made in the Statutory Examination Report of the Central Bank of Sri Lanka (CBSL) during the financial year 2021/2022.

Whistleblowing Policy

The Company’s Whistleblowing Policy was put in place and all members of staff were educated and encouraged to resort to whistleblowing if they had reasonable grounds to believe that there were wrong doings or other improprieties. All appropriate procedures are in place to conduct independent investigations into incidents reported through this process or if identified through other means. Concerns raised are investigated and the identity of the person raising the concern is kept confidential. Even anonymous complaints are investigated. This process is monitored by the Board Audit Committee.

Board Audit Committee evaluation

An independent evaluation of the effectiveness of the Committee was carried out by the members of the Board during the year. Considering the overall conduct of the Committee and its contribution on the overall performance of the Company, the Committee has been rated as highly effective.

Conclusion

Based on the review of reports submitted by the External and Internal auditors, the information obtained by the Committee and after examination of the adequacy and effectiveness of the internal controls which have been designed to provide a reasonable assurance to Directors that the assets of the Company are safeguarded, the Board Audit Committee is satisfied that the financial position of the Company is regularly monitored and that steps are being taken to continuously improve the control environment in which the Company operates.

P R W Perera
Chairperson
Board Audit Committee

17 June 2022
Colombo

The Integrated Risk Management Committee (IRMC) plays a pivotal role for the Board in fulfilling their oversight responsibilities with respect to deciding risk appetite and ensuring that significant risks are competently managed.

Composition of the Board Integrated Risk Management Committee

The Board appointed Integrated Risk Management Committee comprises of the following members:

• Mr Sujeewa Kumarapperuma – Independent Non-Executive Director
• Mr Alastair Corera – Independent Non-Executive Director
• Mr Mahesh Nanayakkara – Executive Director/MD/CEO
• Mr Damith Tennekoon –Executive Director/Deputy CEO/CFO
• Mr Roshan Abeygoonewardena–Executive Director/COO
• Mr Sasindra Munasinghe –Executive Director/CCMO
• Mr Dave De Silva – Executive Director/DBO
• Mr Karthik Elangovan – Executive Director/ Chief Emergent Business Officer
• Mr Ranjith Gunasinghe – (GM – Risk/CRO) functions as Secretary to the Committee

Terms of reference of the Board Integrated Risk Management Committee

The Integrated Risk Management Committee was established as a sub-committee of the Board in compliance with Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Central Bank of Sri Lanka.

Governance of IRMC

The IRMC’s governance structure comprises of representatives from the Board, IRMC, Risk Management Division, Internal Audit and Compliance Division (refer page 122 for the Governance structure).

Committee meetings and methodology

Four meetings were held during the financial year under review both physically and via online. Key risks such as credit, operational, market, liquidity and strategic risks were assessed through the Risk Heat Map at the committee meetings held in each quarter. The Risk Heat Map and the Risk dashboard together with meeting minutes were referred to the Board on a quarterly basis.

Attendance

Name of the member	Meetings held
	25.06.2021	30.09.2021	23.12.2021	24.03.2022
Mr Sujeewa Kumarapperuma
Mr Alastair Corera
Mr Mahesh Nanayakkara
Mr Damith Tennekoon
Mr Roshan Abeygoonewardena
Mr Sasindra Munasinghe
Mr Dave de Silva
Mr Karthik Elangovan

Committee activities during the financial year

Trigger points

Trigger points were reviewed and changed to reflect the prevailing context.

Reporting risks

During the year under review, 169 risk areas including forged documents and suspicious transactions were identified and reported to the Risk Management Division via the ERP system through the well-established risk reporting mechanism combined with a rewards framework. 33 members of the staff were recognised as Risk Identification Champions. All reported risks were analysed and necessary actions were taken.

Risk Heat Map

Risk Heat Map was further improved by introducing stress testing to the risk events to depict the risk exposure changes, to assess the appropriateness of the trigger points and their impact to the organisation and it was reported to the committee and the Board to utilise in decision making.

Risk monitoring

Suspicious transactions, frauds, violations of procedures and controls etc. were identified and monitored based on the information extracted through the exceptional reports.

Business Continuity Plan (BCP) & Disaster Recovery (DR)

During the pandemic, where the businesses struggle in continuing their business operations, we had successfully overcome the challenges and continued to provide services to our valued customers. We were able to successfully align our Business Continuity Management System to the renowned ISO 22301 standard and minimise operational disruptions while ensuring the safety of our workforce, service continuity, disaster recovery and incident handling throughout the COVID=19 pandemic and thereafter.

Updates from committees

The Committee also reviewed updates from the four management committees namely Asset-Liability Committee, Compliance Committee, Credit Committee and Information Security Steering Committee who are also involved in the risk management process.

Board reporting

The Board was updated on a regular basis on the performance of identified risk indicators and prudential limits defined and approved by the Board.

Committee evaluation

The Committee evaluates its performance annually and is satisfied that it has functioned effectively in the past year.

Sujeewa Kumarapperuma
Chairman
Integrated Risk Management Committee

17 June 2022
Colombo

GRI 102-24

Composition of the Committee

The Board appointed Nomination Committee consists of a majority of Non-Executive Directors and is chaired by a Non-Executive Independent Director. The members of the Committee have wide range of experience and knowledge of the business acumen.

Committee members are:

• Mr J R A Corera
  (Independent Non-Executive Director)
• Snr Prof S P P Amaratunge (Member/Independent
  Non-Executive Director)
• Mr S Kumarapperuma (Member/Independent
  Non-Executive Director)
• Mr E R S G S Hemachandra (Member/Non-Executive Director)

Independence of the Committee

The Committee is independent of the Management and is totally free from any business, personnel or any other relationships that may interfere in making independent judgements.

Terms of reference of the Committee

Identify and recommend suitable candidates as Directors to the Board considering succession plan and requirement of the Board and its subsidiary companies. Regularly review the structure, size and composition of the Board. Ensure the Board consists of persons possessing a good knowledge, experience and entrepreneurial skills to advance the effectiveness of the Board. Review the Charter for the appointment and reappointment of Directors to the Board and recommend amendments wherever necessary.

Key functions performed during the year under review

Considered the re-designation of Non-Executive Director Mr S Kumarapperuma as an Independent Non-Executive Director and made a recommendation to the Board regarding same.

Meetings

The Committee formally met once during the year under review.

The year ahead

The Committee would continue to propose policies and best practices to attract and retain the best talent to the Company by providing them with fair and equal opportunities.

J R A Corera
Chairman
Nomination Committee

17 June 2022
Colombo

GRI 102-35, 102-36

Composition of the Committee

The Board appointed Remuneration Committee consists of a majority of Independent Non-Executive Directors and is chaired by an Independent Non Executive Director. The members of the Committee have a range of experience and knowledge of the business and industry.

Committee members are:

• Snr Prof S P P Amaratunge –
  Chairman/Non-Executive Independent Director
• Mrs P R W Perera –
  Member/Independent
  Non-Executive Director
• Mr E R S G S Hemachandra –
  Member/Non-Executive Director

Independence of the Committee

The Committee is independent of the Management and is totally free from any business, personnel or any other relationships that may interfere in making independent judgements.

Company remuneration policy

The Company’s remuneration policy aims to recruit, retain and motivate high calibre personnel at Board and Executive levels who possess appropriate professional, managerial and operational expertise required to achieve the Company’s short-term and long-term objectives. The remuneration policy attempts to guarantee that the total remuneration package is sufficiently competitive to attract the best spirit for the Company.

The Company’s remuneration framework has been designed, incorporating the newly developed Human Resource Information System to enhance value for stakeholders of Company as well as to align the inspiration of the executives with the short and long-term interests of the Company. In designing competitive compensation packages, the policy is to appreciate and reward high performers while consciously balancing the short-term performance with medium to long term commitment to the Company.

Purpose

The Remuneration Committee recommends adoption of a market oriented remuneration policy for its team members and ensure the selection of the best talent and create incentives for team members for their performance and loyalty. The Committee also reviews the recruitment, evaluation of employee performance, incentive schemes, bonus policy of the Company, rewarding and promotions policy of the Senior Management and Executive Officers of the Company. The succession plan policy in place and its effectiveness is critically evaluated by the Committee. The Committee evaluates the performance of the CEO and Key Management Personnel against predetermined set targets and goals to determine the basis for recommending the basis for rewarding, increments and other benefits.

It considers such other matters relating to remuneration policies or practices as the Board, may from time to time bring to its attention of the Committee.

Further the Committee consciously evaluates the appropriateness of the current remuneration policy adopted by the Company for its suitability and appropriateness.

Key functions performed during the year under review

Recommended revision of remuneration packages based on performance, cost of living and comparative industry norms, Evaluate and recommended the individual remuneration packages of Managing Director/CEO and Executive Directors, Abiding by the principles of good governance and recommended best practices.

Meetings

The Committee formally met twice during the year under review. The Managing Director and Director Corporate Finance attend meetings by invitation and assist in there by providing relevant information. However, they were not involved in their
own compensation packages or other matters relating to them reviewed.

The year ahead

The Committee would continue to propose remuneration policies and best practices to attract and retain the best talent to the Company.

Senior Prof Sampath Amaratunge
Chairman
Remuneration Committee

17 June 2022
Colombo

The Credit Committee of the Company will direct the Company’s credit strategy, credit policy and other lending guidelines in order to achieve the Company’s overall corporate strategy.

Composition of the committee

The Board-appointed Credit Committee consists of Executive Directors chaired by MD/CEO. The members of the Committee have a wide range of expertise and knowledge in credit management. The Committee consists of the following members.

• Mr Mahesh Nanayakkara -
  Managing Director/Chief Executive Officer
• Mr Damith Tennakoon - Executive Director/Deputy Chief Executive Director/Chief Financial Officer
• Mr Dave De Silva -
  Executive Director – Business Operations
• Mr Roshan Abeygoonewardena - Executive Director – Corporate Finance
• Mr Sasindra Munasinghe - Executive Director – Sales and Business Development
• Mr Karthik Elangovan - Executive Director – Chief Emergent Business Officer

Company credit policy

The Board of Directors have approved the credit policy of the Company, where all product guidelines and exposure limits have been highlighted. The credit policy of the Company is the communication tool of the Company’s credit strategy and the objective of which is to ensure the credit quality of the Company’s credit portfolio is at its highest.

Main responsibilities of the Credit Committee

• Overseeing the credit management of the Company including reviewing of internal credit policies.
• Analysis and review of credit control techniques and external risks associated with credit policies of the Company.
• Provide credit guidance and conduct a more intensive and comprehensive credit analysis when necessary.
• Review and approve credit proposals in line with Board approved credit policies and standards, where required recommended credit requests for Board approval.
• Ensure compliance of all regulatory and statutory requirements prescribed by regulatory and supervisory authorities.
• Set lending directions based on the current economic environment.
• Ensure post credit monitoring and post reviews are performed where necessary.

Accountability of the Credit Committee

Accountability of Credit Committee can be delivered through the minutes of Credit Committee meeting, circulated decision-memorandum, and periodic Credit Committee reports.

Methodology used by the Credit Committee

• The Committee approves credit proposals based on limits set by the Board. Credit proposals and other credit reports intended for Board approval are examined.
• Credit proposals are evaluated in line with the Company’s risk appetite and credit policies.
• Members of the Corporate Management of the Company are invited to participate at the meetings as and when required.
• Monitor the resulting shifts in the composition and the quality of the portfolio and recommended new exposure limits for each sectors/product lines as appropriate.

Committee meetings

Meetings are taken up quarterly to review overall credit strategy of the Company. All other meetings were conducted to review and approve credit proposals recommended by the Management.

Activities during 2021/22

The Committee approved the credit proposals and other specific reports which prerequisite the approval of the Board in line with the credit policies and credit risk appetite of the Company in order to ensure the efficient and effective performance over the credit direction of the Company.

Focus for 2022/23

• Maintaining a healthy credit book while enabling the risk appetite.
• Proactive risk management, strengthen internal controls and management information systems with respect to credit aspects of the Company.
• Continuous monitoring on the adherence to Board approved credit policy.

W P C M Nanayakkara
Chairman
Credit Committee

17 June 2022
Colombo

GRI 102-25

The Board established the Board Related Party Transactions Review Committee (BRPTRC) in terms of the Code of Best Practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka (the “Code”) and Section 9 of the Listing Rules of the Colombo Stock Exchange (the “Rules”). The Board Related Party Transactions Review Committee comprises of 1 Independent Non-Executive Director, 1 Non-Executive Director and 2 Executive Directors.

The Committee as at the end of the financial year 2021/22 consisted of the following members:

• Prof P N Gamage
  (Committee Chairperson/Independent Non-Executive Director)
• Mr E R S G S Hemachandra
  (Non-Executive Director)
• Mr Damith Tennakoon
  (Director/Deputy CEO/Chief Financial Officer)
• Mr Roshan Abeygoonewardena
  (Director/Corporate Finance)

The above composition is in compliance with the provisions of the Code regarding the composition of the Board Related Party Transactions Review Committee.

Objectives

This Committee’s primary objectives are to:

• Consider, review, evaluate and provide oversight of related party transactions of all types (excluding section 9.5 exempted transactions) and to approve, ratify, disapprove or reject a related party transaction.
• Determine whether the related party transaction is fair and in the best interest of CDB.
• Review, revise, formulate and approve policies on related party transactions.
• At least once a year conduct a review of all related party transactions concluded during the financial year.

In carrying out its mandate the BRPTRC must at least consider the following matters:

Transaction and Transacting Parties: the nature and scope and identity of all the parties involved in the transaction or relationship in order to determine whether it is a related party transaction or not.

Related Party: a full description of the nature, extent and scope of the related party’s interest in the transaction including the related party’s position or relationship with, or ownership in, a company, partnership or other legal entity that is party to or has an interest in the transaction.

Terms and Conditions: whether the terms of the transaction or relationship are not less favourable than terms generally offered to an unrelated third party given the same facts and circumstances.

Purpose & Rationale: consideration must be given to the business purpose, timing, rationale and benefits of the transaction or relationship.

Value: the monetary value of the related party’s interest in the transaction must be accurately ascertained.

Valuation Method: the method used to determine the value of the transaction.

Scope of the Committee Includes:

• Adopting policies and procedures to review related party transactions of the Company and reviewing and overseeing existing policies and procedures;
• Reviewing in advance all proposed related party transactions of the Company except those explicitly exempted in the code under rule 27;
• Determining whether related party transactions that are to be entered into by the Company require the approval of the Board or Shareholders of the Company;
• If related party transactions are “recurrent in nature” the Committee establishes set of guidelines for Senior Management as explain in the code to follow in its ongoing dealings with the relevant related party;
• Ensuring that no Director of the Company shall participate in any discussion of a proposed related party transaction for which he or she is a related party, unless such Director is requested to do so by the Committee for the express purpose of providing information concerning the related party transaction to the Committee;
• If there is any potential conflict in any related party transaction, the Committee may recommend the creation of a special committee (including independent consultant if necessary) to review and approve the proposed related party transaction;
• Ensuring that immediate market disclosures and disclosures in the Annual Report as required by the code are made in a timely and detailed manner.

Meetings

During 2021/2022 the committee held 4 meetings.

Review of Transactions for the Financial Year 2021/22

All related party transactions that had taken place during 2021/2022 were reviewed by the BRPTR. There were no non- recurrent or recurrent related party transactions that exceeded the respective thresholds mentioned in the Listing Rules of the Colombo Stock Exchange. Further, all the related party transactions which occurred during the financial year are disclosed in the audited financial statements and reported to Board on 28 June 2022. Please refer pages 241 to 243 for RPTs published in the Note 45 to the Financial Statements.

Declaration

A declaration by the Board of Directors in the Annual Report as a negative statement that no related party transaction falling within the ambit of the Listing Rules was entered into by the Company during 2021/22 is given on page 6 of the Annual Report.

Prof P N Gamage
Chairperson
Board Related Party Transactions Review Committee

17 June 2022
Colombo

Committee meetings

The attendance of the members of the Committee was as follows for the FY 2021/22: