Seylan Bank : Interim Financial Statement for the year ended/quarter ended 31/12/2022

Bank's Financial Performance in 2022

The Bank records a PBT of LKR 6.6 Bn and PAT of LKR 4.7 Bn during the year 2022.

Income Statement

The Bank's Net Interest Income recorded a year on year (YOY) growth of 72% under the period under review compared to 21% reported in 2021. Both the Interest Income and Interest Expenses reflected a growth of 84% and 96% respectively in year 2022, compared to the de-growth of 8% and 27% reported in 2021, mainly due to the increase in market rates, and faster repricing of loan book than the deposit base. The overall interest income for the year recorded an increase of LKR 39 Bn to reach LKR 86 Bn compared to LKR 47 Bn recorded in 2021 and overall interest expenses for the year recorded an increase of LKR 23 Bn to reach LKR 46 Bn compared to LKR 23 Bn recorded in 2021. The Net Interest Margin stood at 6.33% in 2022 compared to 4.05% recorded in 2021.

Net Fee and Commission Income has shown a notable growth of 39% to LKR 6 Bn from a growth of 24% to LKR 5 Bn reported in previous year. This is mainly attributable to fee income from cards, trade & Remittances and other financial services which was an area of focus for the Bank.

The Bank's Net Gains /(Losses) from Trading reported a loss of LKR 0. 447 Bn, an increase of 104% over the loss reported in previous year. The mark- to- market loss of trading derivative financial instruments have increased during the year under review compared to the previous year due to interest rate volatility and currency depreciation. However, the realized net gains of the said transactions reported as "foreign exchange income" under "Net Other Operating Income" recording an overall gain.

Net Gains from De-recognition of Financial Assets reported a decrease of 94% to LKR 0.03 Bn compared to LKR 0.6 Bn reported in the previous year primarily due to the reduction in capital gains realized during the year under review.

Net Other Operating Income of the Bank amounting to LKR 4.5 Bn for 2022 reported an increase over the previous year by 55%. This growth is mainly from net foreign exchange gains.

The Total Operating Income grew by 62% amounting to LKR 51 Bn in 2022 when compared to LKR 31 Bn in the previous year driven mainly by growth in Net Interest Income, Net Fee Income and Foreign Exchange Income.

The Bank increased the impairment provision to capture the impact on emerging global and local economic challenges and the credit risk profile of the customers and continuously assesses the credit quality of the Bank's loan portfolio in order to ensure adequate provisions are recognized in the financial statements. The Bank maintains provisions made as management overlay, based on the assessment of significant increases in credit risk, and by stress-testing the exposures to risk elevated sectors, and facilities which have been continuously under moratorium to address the potential implications of the moratorium schemes introduced to support the recovery of the affected industries and individuals. Further the Bank has accounted for an additional Expected Credit Loss (ECL) on Foreign Currency Denominated Bonds in the financial statements considering the impact on Interim

policy regarding the servicing of Sri Lanka's external public debts issued by the Ministry of Finance of Government of Sri Lanka. The Bank recorded an impairment charge of LKR 26 Bn against LKR 10 Bn reported in 2021 with a growth of 154%. Impairment charge on Loans & Advances recorded LKR 21 Bn with a 139% increase over the previous year mainly due to the factors described above. Out of the total impairment charge of LKR 26 Bn, 81% (LKR 21 Bn) reflects the impairment charge on Loans & Advances. Stage wise impairment charge on loans and advances reflects LKR 3 Bn, LKR 4 Bn and LKR 14 Bn for Stage 1, Stage 2 and Stage 3. Impairment charge on Financial Assets Measured at Amortized Cost - Debt and Other Instruments have been recorded as LKR 5 Bn a significant increase over the previous year (LKR 0.42 Bn) mainly due to the ECL (Expected Credit Loss) recorded on foreign currency denominated bonds

The Bank's Personnel Expenses increased by 15% to LKR 8 Bn during the year under review compared to the previous year mainly due to increase in the staff benefits based on the collective agreement, new promotions, recruitments etc. Establishment and other expenses increased from LKR 6 Bn in 2021 to LKR 7 Bn in 2022 mainly due to the increase in prices of purchases and services as a result of higher inflation and local currency depreciation. The Bank will continue to adopt cost containment measures and strategies to manage the costs to the best extent possible. The Bank's Cost to Income ratio excluding tax recorded a significant drop and stood at 29.81% at the end of 2022 compared to 41.53% in the previous financial year mainly due to increase in revenue.

The Bank's Value Added Tax on Financial Services increased by 37% amounting to LKR 2.6 Bn compared to LKR 2 Bn recorded in the previous year due to increase in the rate from 15% to 18% and increase in operating income. Further, Social Security Contribution Levy (SSCL) imposed with effect from 01 October 2022 at the rate of 2.5% on the value addition liable for Value Added Tax on Financial Services and the charge for the period is LKR 127 Mn. The Bank's Income Tax Expense reported a growth of 32% to LKR 1.9 Bn in 2022 compared to LKR 1.4 Bn reported in 2021. The Corporate Tax Rate was revised from 24% to 30% and the provisions were recorded accordingly. The Bank's effective tax rate (excluding deferred tax) was 85% in 2022 where as in 2021 it was 32%. Further, the bank made a surcharge tax provision of LKR 1.2 Bn during 2022 to debit of its Retained Earning as per the Statement of Alternative Treatment (SoAT) issued by CA Sri Lanka on 22 April 2022.

The Bank recorded a Profit before Tax (PBT) of LKR 6.6 Bn for the period under review with a 10% growth over the previous year while recording a Profit after Tax (PAT) of LKR 4.7 Bn for the year with a 3% growth over the previous year.

Statement of Financial Position

The Bank's total assets recorded a growth of 11% reaching LKR 673 Bn compared to LKR 608 Bn recorded in the previous year. The growth in the assets comprises increase in Investments in Government Securities, Balances with Central Bank, balances with foreign banks etc. and partly impacted by the currency depreciation.

The industry experienced a sluggish credit growth due to economic challenges, moratorium, post Covid impact, and significant changes in policy rates and accordingly, the Bank also recorded a marginal Loan Growth of 0.5% (net loans) in 2022 to LKR 444 Bn including the impact from Local Currency Depreciation in 2022. The Gross Loans reflected a growth of 5% in 2022 to LKR 490 Bn. If excluded the impact from currency depreciation in 2022, the Loans and Advances would have reflected a marginal de-growth of 2% to LKR 457Bn. The Bank curtailed its lending as appropriate especially to non-essential sectors and risk-elevated sectors while prioritizing lending to certain sectors such as exporters in order to support the prioritized sectors as an ongoing initiative. The Bank's Asset Quality was a challenge in year 2022 as well and the Bank continued to have stringent control mechanisms such as tightened loan approval and disbursement process, continuous monitoring and strengthened recovery process etc. to manage the asset quality.

The Bank through external and internal campaigns promotes its deposit products to grow the business. The Bank's overall Deposit Base increased by 12% to LKR 547Bn, including the impact from Local Currency Depreciation. The Bank's LKR Deposits reported a growth of 4%. The Bank's Time Deposits reported a growth of 22% to LKR 383 Bn. In addition to the new to Bank deposits, CASA migration to Time Deposits took place during the year which is expected in a high interest rate environment. The Bank's CASA base contracted from LKR 173 Bn to LKR 163 Bn in 2022, which is a 6% de-growth from the previous year. CASA ratio stood at 29.8 % in 2022 compared to 35.4% of the previous year.

Seylan Bank remained soundly capitalized, with the key capital adequacy ratios above the regulatory minimum requirements and recorded 10.69% as Common Equity Tier 1 Capital Ratio & Total Tier 1 Capital Ratio and 13.59% as the Total Capital Ratio.

The Bank has taken several measures such as accelerated deposit mobilization, closely managed growth of the loan book etc. to enhance the liquidity position. The Bank maintained the SLAR well above the statutory requirement, during year under review. The Statutory Liquid Asset Ratio (SLAR) for the Overall Bank, Bank's Domestic Banking Unit and the Bank's Foreign Currency Banking Unit were maintained at 25.51%, 25.16% and 25.02% respectively as at 31 December 2022. The Bank also maintained the LCR above the statutory requirement and the All Currency LCR Ratio and the Rupee LCR Ratio were maintained at 175.1% and 280.14% respectively.

The Return on Equity (ROE) stood at 8.85% for the year under review compared to 9.07% recorded in 2021. The Return on Average Assets (profit before tax) recorded as 1.04% for the year under review. The Bank's Earnings per Share stood at LKR 8.16 as at end of 2022 compared to LKR 7.93 reported as at the end of the previous year. The Bank's Net Assets Value per Share stood at LKR 94.24 as at the end of 2022 (Group LKR 97.27) compared to LKR 97.44 reported as at the previous year end (Group LKR 101.01).