SEYLAN MERCHANT BANK PLC385 Landmark Building Galle Road Colombo 03 Sri Lanka

www.smblk.com

An

nu

al Repo

rt 20

08

Seylan

Merch

ant B

ank PLC

SEYLAN MERCHANT BANK PLC

Annual Report

2008

Over the past year, Seylan Merchant Bank has operated in a very difficult environment. We have had to face a range of challenges - from intense competition and reduced market share to an unstable economic environment and general investor caution.

2008

Statutory StatusA Public Limited Liability Company incorporated in Sri Lanka on 3/9/1992 under the Companies Act No. 07 of 2007 and quoted on the Colombo Stock Exchange in 1993.

Registered as a Finance Leasing Establishment under the provisions of the Finance Leasing Act No. 56 of 2000

Company Re-registration No. PQ 91 Place of Incorporation – Colombo

Registered Office69, Janadhipathi MawathaColombo-1

Board of DirectorsDeputy ChairmanMr. R S W Senanayake ACMA (UK), FSCMA (SL)

Mr. M.S.I.PeirisAICM (SL)

R. Renganathan FCA

Mr. P. A. JayawardenaFCA, FSCMA (SL), FMAAT

Mr. E T L Ranasinghe MBA (Sri J’pura), Dip in MKT (UK), MCIM (UK), Chartered Marketer (UK)

Deshamanya Dr P.R. AnthonisD.Sc., FRCS (Eng), FICS, FSCS

SecretariesInternational Consultancy & Corporate Services (Pvt) Ltd.,29/23 , Vishaka Lane , Colombo 04.

AuditorsM/s. KPMG Ford, Rhodes, Thornton & Co.(Chartered Accountants)

Lawyers M/s. De Livera AssociatesAttorneys-at-Law & Notary PublicColombo

Ceylinco Consultancy & Allied Services (Pvt) Ltd., Colombo

M/s Julius & Creasy Attorneys-at-Law & Notaries PublicColombo

BankersSeylan Bank PLCSampath Bank LtdPeople’s Bank

Head OfficeLandmark Building, 385, Galle Road, Colombo-3

Telephone +94-11-2573363Fax +94-11-2573366

Parent CompanySeylan Bank PLC

Subsidiary CompaniesSMB Money Brokers (Pvt) Ltd

Associate CompaniesSMB Real Estate LtdSMB Securities (Pvt.) Ltd.SMB Kenenga Investment Corporation Ltd

Corporate Information

Produced by: Copyline (Pvt) Ltd.

Financial Highlights 2 Deputy Chairman’s Review 4 Directors Profile 6 Subsidiaries and Equity Accounted Investees 8 Human Resources 9 Risk Management 10 Corporate Governance 11 Financial Statements 15 Annual Report of the Board of Directors on the Affairs of the Company 16 Directors’ Responsibility Statement 19 Audit Committee Report 19 Independent Auditor’s Report 20 Income Statement 22 Balance Sheet 23 Statements of Changes in Equity 24 Cashflow Statement 25 Notes to the Financial Statements 26 Segment Reporting - Group 63 Decade at a Glance - Bank 64 Five Year Summary - Group 65 Value Added Statement 66 Shareholders’ & Investors’ Information 67 Information on Debenture 72 Notice of Meeting 73 Note 74 Form of Proxy 75 Corporate Information Inner Back Cover

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

1

Corporate Philosophy

OUR MISSION

“Our mission is to be an excellent

provider of innovative financial products

and services aimed at creating and

enhancing the wealth of our society”

OUR CORPORATE OBJECTIVES

“To provide an excellent service to our

customers. To enhance shareholder’s

wealth by means of stable and attractive

returns. To develop highly satisfied

and motivated employees at all levels

who will make an effective and efficient

contribution towards our mission.

To contribute towards the economic

development of Sri Lanka.”

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

2

Financial Highlights

GROUP BANK 2008 Change 2007 2008 Change 2007

% %

Performance During the Year

Income 949,473,173 0.57 944,078,997 334,660,987 (33.20) 500,997,793

Profit before Tax & VAT (652,565,669) (18332.12) 3,579,209 (581,932,694) (21662.22) 2,698,853

Taxation & VAT (44,513,298) 45116.41 (98,445) (36,742,835) 1410.84 (2,431,949)

Profit after Tax (697,078,966) (19054.45) 3,677,654 (618,675,530) (231896.75) 266,904

At the Year End

Lease / Loans portfolio 2,943,511,352 (16.81) 3,538,378,252 1,197,255,990 (38.59) 1,949,602,339

Other Assets 1,281,045,505 0.41 1,275,820,243 828,503,576 (15.76) 983,515,473

Total Assets 4,224,556,857 (12.25) 4,814,198,494 2,025,759,566 (30.93) 2,933,117,812

Shareholders’ Funds (152,279,542) (128.42) 535,821,023 (211,939,082) (152.11) 406,736,447

Minority Interest 74,326,806 0.96 73,620,541 - - -

Deposits & Borrowings 3,317,799,674 5.96 3,131,188,744 1,661,522,591 (4.93) 1,747,761,950

Debentures & Other Liabilities 984,709,919 (8.28) 1,073,568,186 576,176,058 (26.00) 778,619,415

Total Liabilities &

Shareholders’ Funds 4,224,556,857 (12.25) 4,814,198,494 2,025,759,566 (30.93) 2,933,117,812

Ratios

Earning / (Loss) per Share

- Voting (Rs.) (15.45) 25149.95 (0.05) (13.88) (113611.95) 0.01

Earning / (Loss) per Share

– Non Voting (Rs.) (6.87) 12524.98 (0.01) (6.18) (231897.95) 0.00

Interest Cover 0.14 (85.66) 1.01 (0.42) (141.83) 1.00

Net Assets per Ratio (2.79) (128.42) 9.83 (3.89) (152.13) 7.46

Cost / Income Ratio 36.72% 20.20 30.55% (21.23%) (223.95) 17.15%

Net Profit to Income Ratio (73.42%) (18946.76) 0.39% (184.87%) (369,832.69) 0.05%

Interest Income - Group2007

129%

7%

5%

31%

13%

64%

64%

0%

Customer AdvancesT. Bills & Placements with Other banks & Finance Co’sLease Interest IncomeOther Interest Income

2008

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

3

Interest Expenses2007

5%

14%

2%7%

14%

7%

74%

78%

Borrowings & RefinanceTreasury Bills RepurchasedInterest expenses on DebenturesOther Interest expenses

2008

Other Income - Group2007

Dividend Income from Dealing Securities - QuotedDividend Income from Investment Securities - UnquotedFee & Commission IncomeProfit on Sale of Property , Plant & EquipmentProfit on Sale of Investment PropertiesProfit on Sale of Investment SecuritiesCapital Gain on Government SecuritiesOthers

20081%

66%

28%

3%2%

2%

49%3%

42%

1%3%

Total Assets2007

Cash & Short Term FundsInvestmentsLoans & advancesLease Rentals ReceivablesInvestment in Associate Co.Interest ReceivableInvestment PropertyProperty, Plant & EquipmentOther AssetsIntangible Assets

20081%

66%

28%

3%2%

0%12%

23%

47%

1%7%1%8%

1%0%

Total Borrowings2007

11%

11%

2%

8%

9%

2%

5%9%

3%

65%

77%

Shareholders’ FundsMinority InterestBorrowingsGroup Balances PayableOther LiabilitiesDebentures

2008

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

4

Deputy Chairman’s Review

The year 2008 was a tumultuous one for Seylan Merchant Bank PLC (SMB) as it began to phase out its operations and transform into a holding Company.

Several changes took place on the global front, with an economic recession that began in the United States and gradually spread to Europe and Asia. Sri Lanka’s export industries were affected by the global downturn due to a slump in demand from its main consumer markets. Many Sri Lankan workers overseas were also laid off with many returning home although the job market locally was also restricted. On the domestic front, tourism was also in decline as the local separatist conflict also escalated and some countries issued travel advisories, while increased defence expenditure also slowed down economic growth.

With the collapse of some finance Companies during the year, there was also a loss of public confidence in the financial services industry and a high rate of withdrawals. This affected the industry as a whole as well as the private banking sector. Collection ratios dipped, while interest rates and inflation went up. Interest rates rose to as much as 22% while inflation was between 24-27% during the year. The

worst affected were fixed-price product Companies such as ours. Interest costs exceeded interest income and there was very little we could do as a Company. Mobilisation of debt instruments became difficult and we faced difficulties in recovery of facilities extended.

During the year, we continued with plans to transform SMB into a holding company and phase out our fund-based activities, handing it over to subsidiary Seylan Merchant Leasing PLC.

Company PerformanceGiven plans to phase out its business operations and convert into a holding company, SMB did not launch any new products or engage in new business. In terms of operational costs, SMB has adopted a strategy of downsizing and cost-reduction, which has been effective in a very challenging market. Turnover declined by Rs. 166.32 Million to Rs. 334.67 Million, while incurring a loss of Rs. 618.68 Million for the year.

The biggest factor, apart from the economic downturn, that affected performance was the problems with the Ceylinco Group. The association with the Ceylinco Group eroded public confidence and impacted on SMB’s mobilisation of debt instruments as well as other business interests such as real estate. I anticipate a difficult year ahead as well and it is unlikely that SMB will revert from the negative gross profit situation currently, to one of positive earnings in 2009/10.

No significant amount of leases were disbursed during the year, with recoveries deteriorating, although Non-Performing Ratios have declined in rupee terms. We began aggressively working on improving collections and reducing exposure to bad debts.

An Extra Ordinary General Meeting was held on 31st March 2009 complying with Section 220 of the Companies Act No. 07 of 2007 which addresses the serious loss of capital of a Company.

Performance of SubsidiariesSubsidiary SMB Real Estate Ltd posted a loss of Rs. 29.21 Million for the first time since its incorporation. This was due to a drop in property sales, caused in part by the liquidity crisis in the market and the phenomenally high interest rates which made housing loans from Banks unaffordable to the public. There was also declining interest from the segment of the market that buys land as an investment, due to other attractive investment options such as Treasury Bills, with interest rates as high as 22%.

Seylan Merchant Bank PLC sold 51% shares of SMB Real Estate Ltd. out of the 100% shares held by the Company in March 2009 to Ceylinco Capital Market Ltd. A valuation report was obtained from NDB Investment Bank Ltd. in July 2009. The total purchase consideration of this transaction was Rs. 31,519,065.08

Performance of subsidiary Seylan Merchant Leasing PLC (SML) was affected by high rates of taxation on vehicles which saw the costs of vehicle leases increasing, making it unaffordable to the public. Sale of leases on dual purpose vehicles for the plantation sector was also affected by the collapse of tea prices in the first half of the year, which prompted a default on payments by vehicle owners as a result of reduced earnings. The Company posted a turnover of Rs. 493.48 Million in 2008 over Rs. 428.05 Million in 2007, while making a loss of Rs. 20.80 Million from a profit of Rs. 35.16 Million in 2007.

The poor performance of the Colombo Stock Exchange in the period under review due to the economic recession and negative investor sentiment as a result of the escalation in the local conflict, impacted on the equities market. SMB Securities posted a loss of Rs. 9.08 Million for this financial year, but I am happy to report that it has reverted to profitability in the first three months of the new financial year. We

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

5

trimmed costs and rationalised the branch network, which helped the company perform reasonably well given the circumstances. The forecast for this Company is positive with an end to the three decade war in the country and the anticipated increase in investment inflows.

SMB Money Brokers (Pvt) Ltd, was the best performing subsidiary, reporting a 240% growth in turnover to record 27.87 Million, while reporting a loss of Rs. 10.06 Million.

Human ResourcesThere was a change in our employee cadre during the year, with several employees transferred to sister Companies. This was done for two reasons: to keep our overheads at a minimum, and in line with plans to transform SMB into a holding Company by phasing out its operations. As at the end of the financial year, SMB employed 28 people.

Future Strategy and OutlookSeylan Merchant Leasing PLC (SML) has been divested to Peoples Leasing Company PLC, a change which took effect in the new financial year. The net sales proceeds generated through this transaction was Rs. 437,100,039.70

This move was deemed prudent as the association with the Ceylinco brand name has become a brand liability, given the reduced confidence and negative perceptions of the public. Divesting SML has reduced the outstanding liability position of SMB which also assisted them to honour the matured liabilities which was their prime concern. The Company will continue to move out of fund-based activities and phase out these operations in the coming year.

We expect the global recession to continue into the next year, although Sri Lanka’s economy may see resurgence with the end of the war and a renewed interest by foreign investors and tourists.

This will have a positive impact on subsidiaries such as SMB Securities and even the company’s real estate arm. The improved performance of the leasing and finance business will depend however on a turnaround in the local financial services industry.

We do not expect there to be any legal implications for SMB as a result of its association with the Ceylinco Group, as the Company and its subsidiaries are duly registered with the Central Bank of Sri Lanka and the Securities and Exchange Commission (SEC). We continue to maintain high levels of disclosure and transparency.

We, in the best interest of our shareholders and our creditors has implemented a plan to recover our dues and the Directors are in the opinion that Seylan Merchant Bank PLC could be restructure with the assistance of Seylan Bank PLC.

The Central Bank of Sri Lanka by their letter dated 17th August 2009, has imposed restrictions in Seylan Merchant Bank PLC raising fresh public borrowings as it has triggered the Finance Leasing (Gearing Ratio) Direction No 04 of 2006. Therefore SMB needs to rectify the core capital requirement by way of a right issue

ResignationsThe Chairman Deshamanya Dr. J L B Kotelawala resigned on 06th February 2009, Lady Dr. S P C Kotelawala on 30th October 2008, Mr. A D Jegasothy on 02nd January 2009 and Ms. L Seneviratne on 05th January 2009. The Company is in the process of complying with mandatory corporate governance rules by appointing new Independent Directors to the Boards of all subsidiaries on a best effort basis.

AcknowledgementsI would like to express my appreciation and thanks to the founder and former Chairman Deshamanya Dr. J L B Kotelawala, to the Board of Directors

and the Central Bank of Sri Lanka for all the advice and guidance, to all our staff members for their commitment, to our customers for their loyal support and finally to all our shareholders for their continued trust in the company.

R.S.W. SenanayakeDeputy Chairman

30th Octorber 2009Colombo

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

6

Directors Profile

Deshamanya Dr. J.L.B. KotelawalaAMExA (UK), FBIM, FICM FCIC, MICM (UK), RIM, HFIB (SL)

Chairman

(70 Years)

No 28, Elibank RoadColombo 05

Dr. Kotelawala, was the Chairman since the inception of the Bank in 1992. He was also the Chairman of over 200 Companies under Ceylinco Consolidated. He introduced and set up the Grameen Banking concept (banking to the poor), which has over 90,000 customers.

Dr. Kotelawala resigned from the Board of Directors of the Bank w.e.f 06th February 2009.

Mr. R.S.W. SenanayakeACMA (UK), FSCMA (SL)

(42 Years)

Deputy Chairman

18/244 A, Evergreen ParkOff Muhandiram E. D. Dabare MawathaColombo 05

Mr. R S W Senanyake, is an Associate member of the Chartered Institute of Management Accountants of the United Kingdom. He presently functions as the Deputy Chairman of Seylan Merchant Bank Group and Ceylinco Capital Market Limited. Mr. Senanayake gained experience in accounting and auditing through a stint with M/S Coopers & Lybrand.

He has been involved in the Securities Industry for many years. He worked at Somerville Stock Brokers (Pvt) Ltd, a tenure during which he gained comprehensive exposure to the stock broking business. Mr. Senanayake has specialised in the profession of investment management, and was associated with Central Finance Company PLC as its Investment Manager, managing the equity portfolios of Central Finance Company PLC, Central Securities PLC, and some other subsidiaries of Central Finance Company PLC. He, then joined Ceylinco Insurance Company PLC as its Senior Investment Manger, assuming responsibility for management of the Life, General and Pension Funds of the Company. He presently holds the responsibility of the Deputy General Manger –Investments.

Lady (Dr.) S.P.C. Kotelawala

(66 Years)

Director

No 28, Elibank RoadColombo 05

Lady (Dr) Sicille Kotalawala joined Ceylinco Group as a Director of Middleway Ltd in 1964. She resigned from the Board of Directors of the Bank w.e.f. 31st October 2008.

Mr. M.S.I. PeirisAICM (SL)

(40 Years)

Director/General Manger

73,”Sunny Dale”KatukurundaMoratuwa

Mr. M S I Peiris , is an Associate member of the Institute of Credit Management of Sri Lanka. He joined Seylan Merchant Bank PLC in 1994 and presently functions as the Executive Director of Seylan Merchant Bank PLC. Mr. Peiris has extensive experience in leasing, counting over 20 years in the industry.

Mr. R. RenganathanFCA

(54 Years)

Director

33/7, De Fonseka PlaceColombo 05

Chief Executive Director ( Life) of Ceylinco Insurance Co PLC which achieved market leadership in the insurance industry in 2005. Under his leadership this Company has diversified into the healthcare sector by setting up a Cancer Detection Centre affiliated to the Washington Hospital Centre. He is the Chairman of Seylan Asset Management PLC and also the Deputy Chairman of Ceylinco Healthcare Services Ltd. and the Ceylinco Development Bank Ltd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

7

Mr. A.D. JegasothyAttorney-at-Law & Notary Public, FICM, FCIC, MICM (UK)

(63 Years)

Director

“Treville”, WelisaraRagama

Mr. Jegasothy was attached to M/s De Silva and Mendis, Solicitors and Notaries Public before joining Ceylinco Group as a Legal Officer in 1974, He was also associated with M/s Coward Chance Firm of Solicitors, UK and counts over 30 years of experience. Mr. Jagasothy resigned from the Board of Directors of SMB w.e.f 02nd January 2009.

Mr. P.A. JayawardenaFCA, FSCMA (SL), FMAAT

(48 Years)

Director

145/1, Fife RoadColombo 05

Mr. P A Jayawardena, a Chartered Accountant by profession, counts over 23 years of experience in the field of accountancy and finance. He presently functions as the General Manger-Finance, of the Life Division of Ceylinco Insurance Company Limited and has completed a stint of 16 years with the Ceylinco Group.

Mr. E.T.L. RanasingheMBA (Sri J’pura), Dip in MKT (UK), MCIM (UK), Chartered Marketer (UK)

(48 Years)

Director

11/1, Wijayamangala RoadKohuwala

Mr. E.T.L. Ranasinghe has over 27 years of experience in the mercantile sector in the areas of sales, marketing, strategic planning and brand management. Mr. Ranasinghe is one of the pioneer members of the team that set up Ceylinco Insurance Co PLC in 1988. He also serves on the Board of Ceylinco Development Bank.

Deshamanya Dr. P.R. AnthonisD.Sc., FRCS (Eng), FICS, FSCS

(98 Years)

Director

161, Darmapala MawathaColombo 07

Deshamanya Dr. P.R. Anthonis, an eminent Surgeon the country has produced, has held many distinguished posts in the past viz. former Chancellor – University of Colombo, Former Senior Surgeon – General Hospital Colombo, Founder President – Ceylon College of Surgeons, President Sri Lanka Medical Council, to name a few.

Ms. L. Seneviratne

(54 Years)

Director

48/8, Epitamulla RoadPita Kotte

Mrs. Leonie Seneviratne was appointed to the Board of Seylan Merchant Bank w.e.f. 2007. She commenced her career at DFCC Bank and counts over 35 years of experience. She has resigned from the Board w.e.f 05th January 2009

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

8

Name of The Company Principal Activity % Holding By Smb

Directors Resigned Date of Directors

Licence obtained

Investments in Subsidiaries - Quoted

Seylan Merchant Leasing PLC

Deposit mobilisation, Leasing of properties both movable & immovable, disbursing personal loans & providing other financial services

80.88 Deshamanya Dr. J.L.B. Kotelawala Mr. R.S.W. Senanayake Lady (Dr.) S.P.C. Kotelawala Mr. M.S.I. Peiris Mr. R. Renganathan Mr. A.D. Jegasothy Ms. M. Sabharatnam Mr. E.T.L. Ranasinghe Mr. P.A. Jayawardena Dr. D. Senthilverl

6th February 2009 6th June 2009 31st October 2008 5th June 2009 8th June 2009 2nd January 2009 8th June 2009 8th June 2009 8th June 2009 8th June 2009

Registered as a Finance Company and as a Finance Leasing Establishment

Indirect Holdings - SMBMBL 0.96

- SMBREL 0.35

Investments in Subsidiaries - Unquoted

SMB Real Estate Ltd. Property Development Activities

100.00 Deshamanya Dr. J.L.B. Kotelawala Mr. R.S.W. Senanayake Lady (Dr.) S.P.C. Kotelawala Mr. R. Renganathan Mr. A.D. Jegasothy Mr. M.S.I. Peiris

6th February 2009

31st October 2008

2nd January 2009

SMB Money Brokers(Pvt) Ltd.

Money Market Activities 51.00 Deshamanya Dr. J.L.B. Kotelawala Mr. R.S.W. Senanayake Lady (Dr.) S.P.C. Kotelawala Mr. R. Renganathan Mr. A.D. Jegasothy Mr. N.N. Jayathilake Mr. M.S.I. Peiris

6th February 2009

31st October 2008

2nd January 2009

ISO 9001-2000 Certifiacte

SMB Securities (Pvt) Ltd. Stock Brokering Activities 49.50 Deshamanya Dr. J.L.B. Kotelawala Mr. R.S.W. Senanayake Lady (Dr.) S.P.C. Kotelawala Mr. N.N. Jayathilake Mr. M.S.I. Peiris

6th February 2009

31st October 2008

Stock Broker Stock Dealers

Indirect Holdings - SMBREL 47.52

Equity Accouned Investee

SMB Kenenga Investment Corporation Ltd.

Investment Banking 49.00 Deshamanya Dr. J.L.B. Kotelawala Mr. R.S.W. Senanayake Lady (Dr.) S.P.C. Kotelawala Mr. R. Renganathan Mr. M.S.I. Peiris Mr. S.R. Wijesinghe Mr. H.Y.S.K. Dayaratne Mr. Tengku Noor Zakiah Mr. Dato Ramli Ismail Mr. Lee Kok Khee Mr. Seow Choong Laing Dr. Nasir Razak

6th February 2009 31st October 2008

15th July 2008

Subsidiaries and Equity Accounted Investees

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

9

Human Resources

Human Resource Management (HRM) is the strategic and coherent approach to the management of an organisation’s most valued asset - the people working in the organisation, who individually and collectively contribute to the achievement of the objectives of the business. In an intensely competitive enviornment SMB focuses on employing the best people, developing their resources, utilising, maintaining and compensating their services in tune with the job and organisational requirement.

SMB recognises the importance of an effective and efficient team and continues to motivate and inspire its work force. Professional development is

an on going process in the Company. On the job training, participating in seminars and conferences and encouragement to excel in related examinations are regular opportunities available to the SMB team.

The management also recognises the importance of a balanced life and the need to take time off from the regular schedule of work. Therefore, SMB organised several activities that took place for the benefit of all group members.

1. Annual Award Ceremony - Contribution of the staff members towards the Company was recognised.

2. Other sports activities Chess Tournament - 4th October

2008 Swimming Tournament - 2nd

November 2008 Badminton Tournament - 16th

November 2008 Cricket Tournament - 30th

November 2008

SMB team has strived and worked hard to achieve its goals with dedication and commitment. SMB recognises this contribution with appreciation and will work towards being more proactive, achieving better performance and good corporate responsibility in the future.

Summing Tournament Batmintant Tournament

Annual Cricket Tournament

Genderwise2007

72%68%

28%32%

MaleFemale

2008

Age wise2007

57%68%

31%

18%

8%4%

14%

20-3031-4041-50Over 50

2008

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

10

Seylan Merchant Bank as a financial

service provider recognises risk

management as a vital component of

management. Risk management act a

major role in the context of the global

financial crisis, present liquidity crisis

faced by lending institutions, unstable

volatile rates of interest, contraction of

the economy, fall in value of securities

and also the present reputation

problems faced by companies within

the Ceylinco Group.

The following are the key risk factors

that may impact SMB.

l Credit Risk

l Market Risk

l Liquidity Risk

l Operational Risk

l Reputational Risk

Credit RiskThis is a significant risk in respect of a

financial institute. Credit risk may arise

when a borrower defaults on payment

of capital or interest within the specified

period, causing a loss to the Bank.

SMB manages this risk diligently with

a well-defined policy which includes

effective credit evaluation procedure

approved by the Credit Committee. This

Committee is responsible to monitor

the credit approval limits, evaluate

the facilities with large exposure and

creditworthiness of the borrower. They

will also review portfolio performance

on a regular basis and ensure loan

classification based on collection

performance.

Market RiskMarket risk, also known as systematic

risk, is the risk that results from the

characteristic behaviour of an entire

market or asset class. It is the risk of loss

arising from market volatilities, such

as changes in interest rates, exchange

rates, equity prices, credit spreads etc.

Interest Rate RiskInterest rate risk arise from interest

rate volatilities reducing the market

value of an investment. To reduce the

volatility in earnings, any mismatch of

rates of assets and liabilities should be

minimised.

An effective pricing policy is in place

to monitor and fix the lending rates to

maintain a minimum spread.

Liquidity RiskLiquidity risk arises when the company

is unable to meet its financial obligations

due to insufficient cash flow situations.

This results from a mismatch of rates

and maturities between the assets and

liabilities of the Company. The GAP

report reflects the mismatch between

borrowing and lending.

Liquidity risk is monitored by the Asset

and Liability Committee (ALCO) of

the Company. The committee has

introduced sound policies to minimise

the risk.

Operational RiskOperational risk arises from failure of

internal systems and controls, technical

faults, human errors, external events,

natural disasters etc.

Procedures are in place to reduce

day to day operational risks. Internal

audit department of the Bank, under

the guidance of the audit committee,

performs systematic checks to ascertain

whether the established systems and

procedures are being followed. Off-site

back ups and a carefully documented

Disaster Recovery Plan is in place

to mitigate this risk. In addition the

Company has an efficient Information

Technology Department that ensures

this risk is minimised.

Reputational RiskReputational risk is the loss of business

reputation, established over a period

by earning the confidence and trust

of the stakeholders in the business:

customers, suppliers and employees, as

well as shareholders. Reputation may be

an intangible but a highly prized asset,

often equated with the goodwill of the

business.

The recent domestic financial issues

had a direct impact on the reputational

risk of SMB. To overcome this risk SMB,

as has been in the past, will continue

to meet all statutory, regulatory and

compliance requirements as stipulated.

Risk Review and ControlThe Board has the overall responsibility

to assess risks associated with the

Bank. The Bank identifies developing

an organization wide “Risk Awareness”

programme as an effective way to

manage the risks.

Risk Management

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

11

Corporate Governance

Corporate Governance Principles Compliance

The Board of Directors

Composition of the Board The Board comprises of six Directors out of which five are non Executive

Directors. Deputy Chairman also acts as a non Executive Director.

All Directors possess a wide range of skills, talents and experience required to

add value to enhance the business.

The following Directors resigned

Dr. J.L.B. Kotelawala

Lady Dr. S.P.C. Kotelawala

Mr. A.D. Jegosothy

Mrs. L. Senevirathna

The profiles of the Directors are set out in page 6 and 7.

Meetings Meetings are held every other month to review and evaluate the performance

of the company. Special meetings are convened when necessary.

Responsibilities of the Board The ultimate responsibility of all operations of the Bank and being accountable

to the stakeholders lies with Board of Directors. Matters reserved for the Board

and the sub committees and those delegated to the management are clearly

defined.

The Audit Committee is a sub committee of the Board.

The Board ensures:

l Formulating corporate strategic initiative & strategic direction of the Bank

l Monitoring the effectiveness of the Bank's risk management strategy

l Compliance with ethical and legal standards

l Reviewing the integrity of the Bank's Accounting and Financial Statements

l Approval of Financial Statements for publication

l Approval of Budget and Corporate Plans

l The interests of Shareholders and other stakeholders are safeguarded

l Making recommendations to shareholders on the changes of the Board

Independent professional advice The Board seeks independent professional advice whenever it is necessary.

Dedication of adequate time & effort for the matters of the Board and the Company

The Board dedicates adequate time and effort necessary to carry out its

responsibilities.

Training of the Directors Presentations are made to the Board from time to time regarding changes in

industry related matters.

Company Secretary Secretary of the Board is International Consultancy & Corporate Services (Pvt)

Ltd.

All Directors have access to the secretary, who is responsible to the Board to

ensure that Board procedures and the applicable rules and regulations are

complied with. The Articles of the Bank provides that the Board may appoint

or remove the secretary.

Independent judgment Each Director brings independent and objective judgment on the matters of

the Board. The composition of the Board also ensures the balance between

executive expediency and independent judgment.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

12

Corporate Governance Principles Compliance

Financial AcumenFinancial acumen of the Board The Board includes three Chartered or Management Accountants. These

members have the acumen and knowledge to provide the Board with

necessary guidance in conducting its business.

Supply of InformationTimely and accurate management information

All Directors are provided with timely, accurate and clear information on a

regular basis. Requests are made for further information if necessary.

Appointments to the BoardAvailability of a formal and transparent procedure for new appointments

The Company does not have a recommendation committee or procedure for

making recommendations on new appointments to the Board. New directors,

including the Deputy Chairman are appointed by the Board and ratified by the

shareholders at the AGM.

Disclosure of details of new Directors Details of new appointments are disclosed to the shareholders on their

appointment. Regulatory authorities are also informed as required.

Re-election Re-election of Directors The Articles of Association provides for 1/4th of the directors to retire by rotation

each year, with the exception of Chairman and Deputy Chairman.

Appraisal of Board PerformanceAppraisal of Board Performance There is no formal procedure to evaluate the Board performance.

Appraisal of the CEO The Board sets financial and non financial goals and objectives for the CEO

and delegates the required level of authority to the management to achieve

the strategic objectives.

Directors’ Remuneration

Remuneration Procedure The remuneration committee determines the remuneration package of

the Executive Directors based on the performance of the Company. The

Remuneration committee consisted of Deshamanya Dr. J.L.B. Kotelawala

(Chairman), Mr. R.S.W. Senanayake (Deputy Chairman), Mr. M.S.I. Peiris

(Director) and two other Directors.

Disclosure of Remuneration The total remuneration of the Directors’ is disclosed on page 32 of the Annual

Report.

Relations with Shareholders

Constructive use of the Annual General Meeting

The primary mode of communication between the Company and the

shareholders are the Annual Report and the Annual General Meeting.

Shareholders have an opportunity to participate in Company deliberations at

the Annual General Meeting of the Company.

Circulation of Notice of the AGM The Annual Report, Financial Statements and the notice of the meeting are

sent to shareholders with a notice period of at least 15 days.

Corporate Governance Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

13

Corporate Governance Principles Compliance

Major transactions There were no major transactions materially affecting the balance sheet in

2008.

Accountability and Audit

Financial ReportingStatutory and regulatory reporting The Bank places great emphasis on complete disclosure of both financial

and non financial information and has presented a balanced assessment of

Company’s position for the year ended 31st December 2008 and at each

quarter. In preparing the quarterly and annual financial statements the

Bank has complied with Companies Act No 7 of 2007, Finance Leasing

(Amendment) Act No. 24 of 2005 and subsequent amendments and Finance

Companies Act No. 78 of 1988 and is presented in conformity with Sri Lanka

Accounting Standards. The Bank has also complied with the requirements of

the regulatory authorities such as the Central Bank of Sri Lanka, Securities and

Exchange Commission and Colombo Stock Exchange.

Directors’ Report in the Annual Report Directors’ report is given on pages 16 to 18 of the Annual Report.

Directors’ responsibility statement The statement of Directors’ responsibility for financial reporting is given on

page 19 of the Annual Report.

Statement of the External Auditors’ on their reporting responsibilities

The Auditors’ report is given on pages 20 and 21 of the Annual Report and

includes their scope for the audit and the opinion on the financial statements.

Declaration of the Board that the business is a going concern

This declaration is given on page 18 of the Annual Report.

Summoning an EGM to notify the shareholders if net assets fall below one half of the shareholders’ fund

There has not been such situation in the year under review. However, an EGM

was held on 31st March 2009.

Internal ControlsMaintaining a sound system of internal control and risk management

The ultimate responsibility of internal controls and mitigating risks rests with

the Board of Directors. Company’s internal control systems and procedures are

designed to eliminate possible risks and minimize any unforeseen risks while an

effective disaster recovery plan is in place. A detail risk management report is

given on page 10 of the Annual Report.

Reviewing the effectiveness of the Internal Control System

Regular reviews are carried out and a quarterly internal audit report is

submitted to the board. The Audit Committee reviews and evaluates the

effectiveness of the Company’s internal audit and control system.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

14

Corporate Governance Principles Compliance

Audit Committee and AuditorsAvailability of an Audit Committee Audit Committee consists of three Non-Executive Directors. The committee

meets regularly and with external auditors annually. The Chief Financial

Officer, Internal & External Auditors, Secretaries may attend meetings by

invitation.

The committee makes recommendations on appointment/dismissal of external

auditors, implementation of Central Bank guidelines to auditors, application

of accounting standards, audit fee etc. Committee is also responsible to report

to the Board, reviews on financial statements and internal control procedures,

accounting policies, compliance with regulatory requirements.

The detail report of the Audit Committee is given on page 19 of the Annual

Report.

Employee/Other StakeholderRights of other Employees/Other stakeholders The Bank is conscious of its responsibility towards its stakeholders and is

focused in value addition. Stakeholders have access to relevant, sufficient and

reliable information on a timely and regular basis.

Corporate Governance The Board ensures that the Bank complies with the Code of Best Practices on

Corporate Governance issued by the Institute of Chartered Accountants of Sri

Lanka.

ComplianceRegulatory Compliance The Bank complies with regulations of regulatory bodies such as the Central

Bank of Sri Lanka, Securities and Exchange Commission and The Colombo

Stock Exchange.

Corporate Governance Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

15

Financial Statements

Annual Report of the Board of

Directors on the Affairs of the

Company 16

Directors’ Responsibility Statement 19

Audit Committee Report 19

Independent Auditor’s Report 20

Income Statement 22

Balance Sheet 23

Statements of Changes in Equity 24

Cashflow Statement 25

Notes to the Financial Statements 26

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

16

Annual Report of the Board of Directors on the Affairs of the Company

The Directors of Seylan Merchant

Bank PLC have pleasure in presenting

herewith their report together with

the Audited Consolidated Financial

Statements for the year ended 31st

December 2008 which were approved

by the Directors on 05th November

2009

Principal ActivitiesThe principal activities of the Bank are

merchant banking and related activities

such as fund mobilisation, personal

banking, debt trading, lease financing,

dealing in Government Securities &

Investment Securities.

Principal Activities of SubsidiariesThe principal activities of the Company’s

Subsidiaries, namely,

Seylan Merchant Leasing PLC is

providing finance leasing, deposit

mobilisation, disbursing personal loans

and providing other financial services.

SMB Money Brokers (Pvt) Ltd, whose

principal activity is money market

activities.

SMB Real Estate Ltd, handling property

development activities.

SMB Securities (Pvt) Ltd, trading in Equity

and Debt Securities, Equity and Debt

Security Brokering, placement of Equity

and Debt Securities.

Principal Activities of Associates,

SMB Kenanga Investment Corporation Ltd, is investment banking.

Review of OperationsThe Deputy Chairman’s Statement

contains a detailed description of the

operations of the Company during the

year ended 31st December 2008 and

contain a fair view of the Company’s

affairs.

Financial StatementsThe Financial Statements of the Group

and the Company are given on pages

22 to 62 of the Annual Report.

Auditor’ ReportThe Auditors’ Report on the Financial

Statements is given on the pages 20

and 21 of the Annual Report.

Significant Accounting PoliciesThe Significant Accounting Policies

adopted in the preparation of Financial

Statements are given on pages 26 to 30

of the Annual Report.

Directors’ RemunerationDirectors’ Remuneration of the Bank for

the financial year ended 31st December

2008 are given in Note 8 to the

Financial Statements on page 32.

DonationsDuring the year charitable donations

amounting to Rs. 3.9Mn were made by

the Group. (2007 – Rs 3.4Mn).

TaxationA detailed description of the income

tax rate applicable to the Company

and a reconciliation of the accounting

profits with the taxable profits are given

in Note 8 to the Financial Statements.

It is the policy of the group to provide

for deferred taxation on all known

temporary differences at the Balance

Sheet date on the liability method. The

deferred tax detail of the Company

is given in Note 10.b to the Financial

Statements.

Group RevenueThe revenue of the group was Rs.

949.3Mn (2007 – Rs 944.1Mn). An

analysis of revenue based on segments

is disclosed in the segmental analysis on

page 63 in this report.

Property, Plant & EquipmentDetails relating to Property, Plant &

Equipment are disclosed in Note 22 to

the Financial Statements.

Capital ExpenditureThe total capital expenditure of the

group incurred by the acquisition of

Property, Plant & Equipment during the

year which is given in the Note 22 to

the Financial Statements amounts to Rs.

38.2Mn.

Financial Results of the Bank for the Year 31.12.08 31.12.07

Rs.’000 Rs.’000

Profit/(Loss) before Taxation (583,074) 266Taxation (35,602) -Profit/(Loss) after Taxation Unappropriated Profit/(Loss) (618,676) 266Brought forward (160,289) (160,543)Dividend PaidStatutory Reserve Fund - - - (13)Retained Profit/(Loss) (778,965) (160,289)

Market Value of PropertiesThe carrying value of investment

properties owned by the Bank is

stated in the Note 21 to the Financial

Statements.

InvestmentsDetailed descriptions of the Investments

made by the Bank in subsidiaries are

given in the Note 20.a to the Financial

Statements.

ReservesThe reserves of the group are disclosed

in the Statement of Changes in Equity.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

17

Stated CapitalThe stated capital as at 31st December

2008 was Rs. 565.8Mn (2007 - Rs

565.8Mn) consisting of 44,503,120

(44,503,120 – 2007) ordinary voting

shares and 100,000,000 (100,000,000

– 2007) ordinary non-voting shares.

Page 47 of this report describes

the details of the distribution and

composition of Shareholders.

Share InformationInformation relating to Earnings,

Dividends, Net Assets, and Market value

per share and share trading is given on

pages 72.

Major ShareholdersDetails of the twenty largest

Shareholders of the Company and the

percentages held by each of them are

disclosed in the pages 67 and 68 to this

report.

EmploymentIt is the group policy to practice equality

of opportunity for all employees. The

group continuously invests in training

and development of staff in order

to maintain a dedicated and highly

motivated team to achieve service

excellence.

DirectorsThe following were Directors of the

Company as at 31st December 2008.

1. Mr. R S W Senanayake

2. Mr. M S I Peiris

3. Mr. R Renganathan

4. Mr. E T L Ranasinghe

5. Mr. P A Jayawardena

6. Deshamanya Dr. P R Anthonis

Retirement of DirectorsIn terms of Articles 92 (a) of the Articles

of the Company, Mr. E.T.L. Ranasinghe,

retire by rotation and being eligible

offers himself for re-election.

Directors’ ShareholdingsThe shareholdings of the Directors of

the Company are shown on page 71

under Shareholders’ Information.

Directors’ Interest in Shares and DebenturesDirectors interest in Shares and

Debentures of the Company as at 31st

December 2008 are as disclosed on

page 71 of the Annual Report.

Directors’ Interest in ContractsThe Directors of the company have no

direct or indirect interest in any contract

or proposed contract of the company,

except those specified in Note 36 to the

Accounts, which have been disclosed

and declared at meetings of the

Directors.

Interest RegisterThe Directors’ Interest register is

maintained by the Company and

relevant disclosures are made in this

report.

Board Sub CommitteesAudit Committee

The following Directors serve on the

Board Audit Committee.

Mr. A D Jegasothy

Mr. P A Jayawardena

Mr. E T L Ranasinghe

Chief Accountant, the Internal

Auditor and External Auditors and the

Secretaries of the Company attend

meetings by invitation.

The Report of the Audit Committee is

given on page 19 of the Annual Report.

Remuneration Committee

The following Directors served on the

Board Remuneration Committee

Deshamanya Dr. S.L.B. Kotelawala

Mr. R.S.W. Senanayake

Mr. M.S.I. Peiris and two other Directors.

The Committee determines the

remuneration package of Executive

Directors based on the performance of

the Company.

Statutory PaymentsThe directors confirm that to the best

of their knowledge, all taxes, duties

and levies payable by the bank and

its subsidiaries, all contributions, levies

and taxes payable on behalf of and

in respect of the employees and all

known statutory dues as at the balance

sheet date have been paid or where

relevant, provided for by the bank and

its subsidiaries.

Environmental ProtectionThe Board of Directors to the best

of their ability takes every attempt to

comply with relevant environmental

laws, regulations and best practices

applicable in the country.

Directors’ Responsibility for Financial ReportingThe directors are responsible for

the preparation of the Financial

Statements of the Company reflecting

a true and fair view of the state of

its affairs. The directors are of the

view that these Financial Statements

have been prepared in conformity

with the requirements of Sri Lanka

Accounting Standards and Companies

Act No. 07 of 2007, thereafter, Finance

Leasing (Amendment) No. 24 of 2005

and Listing rules of Colombo Stock

Exchange.

Corporate GovernanceThe Board of Directors is of the view

that it has focused on the necessary

resources and processes to ensure that

the Company is compliant with the

code of best practices of Corporate

Governance issued by the Institute

of Chartered Accountants of Sri

Lanka throughout the year ended

31st December 2008. The Corporate

Governance report is given on pages 11

to 14 of the Annual Report.

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

18

Annual Report of the Board of Directors on the Affairs of the Company Contd.

Risk ManagementThe steps taken by the Company in

respect of both financial and operational

risks have been set out in the page 10

to this report.

Going ConcernThe directors are of the view that the

restructuring plan will meet the liquidity

requirements of the Company. The

Financial Statements are prepared based

on a going concern concept.

Loan CapitalThe Company has from time to time

issued quoted/unquoted,unsecured,

subordinated, redeemable debentures

for use in leasing and loan activities.

Summarised details of the issues are

stated in Note 30.a to the Financial

Statements.

Post Balance Sheet EventsThe events that have occurred after the

Balance Sheet date disclosed in Note 35

to the Financial Statements.

AuditorsThe retiring auditors M/s. KPMG

Ford Rhodes Thornton & Company,

Chartered Accountants have signified

their willingness to continue in office.

A resolution to re-appoint them as

Auditors and authorizing the Directors

to fix their remuneration will be

proposed at the Annual General

Meeting. Audit fee is disclosed in Note

8 of the Financial Statements on page

32 The Auditors have confirmed that

they do not have any relationship with,

or interests in the company other than

those disclosed above.

This report is signed for and on behalf

of the Board of Directors by

R.S.W. Senanayake M.S.I. Peiris

Deputy Chairman Executive Director

(Sgd.)

International Consultancy and Corporate Services (Pvt) Ltd

Company Secretaries

Colombo

05th November 2009

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

19

Directors’ Responsibility Statement

The Bank’s Financial Statements for the

year ended 31st December 2008 are

prepared and presented in compliance

with the Sri Lanka Accounting Standards

Act No. 15 of 1995 issued by the

Institute of Chartered Accountants

of Sri Lanka and requirements of the

Companies Act No. 07 of 2007.

The Financial Statements reflect a true

and fair view of the Loss of the Bank

and the Balance Sheet presents a true

and fair view of the Bank at the end of

the Financial Year. The estimates and

judgments relating to the Financial

Statements were made on a prudent

and reasonable basis, in order that the

Financial Statements reflect in a true and

fair manner, the form and subsistence

over transactions.

The Directors are also of the view that,

in preparing these Financial Statements

appropriate accounting policies

and practices have been adopted

consistently together with relevant

Accounting Standards and Directions

issued by the external regularity

authorities.

The Board of Directors is responsible

for taking reasonable assurance of

appropriate internal control systems

and accounting records which ensures

that the Bank’s business is carried on

in an acceptable and efficient manner

so as to safeguard the Bank’s assets,

and preventing and detecting frauds

as well as other irregularities, which is

reviewed, evaluated and updated on a

going concern basis.

By Order of the Board,

(Sgd.)

International Consultancy and

Corporate Services (Pvt) Ltd

Secretaries

05th November 2009

Audit Committee Report

The Audit Committee which is in

existence for the forth year met on three

occasions during the year under review.

The Audit Committee was successful in

reviewing the progress of the audit, the

internal control procedures, accounting

policies and compliance with the

Sri Lanka Accounting and Auditing

Standards. Further the Committee

ensured that the Company complies

with the directions issued by the

Department of Supervision of Non Bank

Financial Institutions of the Central Bank

of Sri Lanka.

The Audit Committee consists of

three non-executive directors. Chief

Accountant, the Internal Auditor, and

the Secretaries of the Company and

External Auditors may attend meetings

by invitation.

It is proposed to meet quarterly in the

current year in order to ensure that

there is a smooth functioning of the

Accounting Policies of the Company.

A. D. Jegasothy

Chairman - Audit Committee

05th November 2009

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

20

Independent Auditor’s Report

TO THE SHAREHOLDERS OF SEYLAN MERCHANT BANK PLC

Report on the Financial StatementsWe have audited the accompanying

financial statements of Seylan Merchant

Bank PLC, the consolidated financial

statements of the Company and its

subsidiaries as at December 31, 2008

which comprise the balance sheet as at

December 31, 2008, and the income

statement, statement of changes in

equity and cash flow statement for the

year then ended, and other explanatory

notes as set out on pages 26 to 30.

Management’s Responsibility for the Financial StatementsManagement is responsible for the

preparation and fair presentation of

these financial statements in accordance

with Sri Lanka Accounting Standards.

This responsibility includes: designing,

implementing and maintaining internal

controls relevant to the preparation and

fair presentation of financial statements

that are free from material misstatement,

whether due to fraud or error; selecting

and applying appropriate accounting

policies; and making accounting

estimates that are reasonable in the

circumstances.

Scope of Audit and Basis of OpinionOur responsibility is to express an

opinion on these financial statements

based on our audit. We conducted

our audit in accordance with Sri Lanka

Auditing Standards. Those standards

require that we plan and perform the

audit to obtain reasonable assurance

whether the financial statements are

free from material misstatement.

An audit includes examining, on a

test basis, evidence supporting the

amounts and disclosures in the financial

statements. An audit also includes

assessing the accounting principles

used and significant estimates made by

management, as well as evaluating the

overall financial statement presentation.

Except as described in the following

paragraph we have obtained all the

information and explanations which to

the best of our knowledge and belief

were necessary for the purposes of our

audit except for the matters mentioned

in our opinion paragraph. We therefore

believe that our audit provides a

reasonable basis for our opinion.

Opinion-CompanyWe have not received confirmations

for certain related party balances as at

31 December 2008 and for any of the

related party transactions for the year

then ended. Owing to the nature of the

Company’s records, alternative audit

procedures were not practicable to

obtain comfort in that regard. We were

therefore unable to satisfy ourselves as

to the completeness of the related party

disclosures reflected in note 36 to the

financial statements.

In our opinion, except for the effects

of such adjustments, if any, as might

have been determined to be necessary

due to the matters stated above, the

financial statements give a true and fair

view of the Company’s state of affairs as

at December 31, 2008 and the loss and

cash flows for the year then ended in

accordance with Sri Lanka Accounting

Standards.

Without further qualifying our opinion

we draw attention to note 37 (a) which

more fully describes the existence of

material uncertainty of the Company’s

ability to continue as a going concern

due to adverse liquidity constraints

faced by the Company and that is more

so because we are unable to assess

with certainty the extent of successful

realisation of the restructuring plans for

turning around the Company.

Opinion-GroupWe have not received confirmations

for certain related party balances of

Seylan Merchant Bank PLC as at 31

December 2008 and for any of the

related party transactions for the year

then ended. Owing to the nature of the

Company’s records, alternative audit

procedures were not practicable to

obtain comfort in that regard. We were

therefore unable to satisfy ourselves as

to the completeness of the related party

disclosures reflected in note 36 to the

financial statements.

In our opinion, except for the effects

of such adjustments, if any, as might

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

21

have been determined to be necessary

due to the matters stated above, the

consolidated financial statements give a

true and fair view of the state of affairs

as at December 31, 2008 and the

loss and cash flows for the year then

ended, in accordance with Sri Lanka

Accounting Standards, of the Company

and its subsidiaries dealt with thereby,

so far as concerns the members of the

Company.

Without further qualifying our opinion

we draw attention to

Note 37 (b) which more fully describes

the existence of material uncertainty of

the Company’s ability to continue as a

going concern due to adverse liquidity

constraints faced by the Company and

that is more so because we are unable

to assess with certainty the extent of

successful realisation of the restructuring

plans for turning around the Company.

Note No. 19 (e) to the financial

statements where reference is made

to the fact that a capital amount of

Rs 37,578,474 was outstanding on

account of a lease facility granted by

Seylan Merchant Leasing PLC to Golden

Key Eye Hospital Ltd., which was a

subsidiary of Golden Key Credit Card

Company Ltd. We are unable to assess

with certainty, the recoverability of the

said sum due to various legal cases

pending against Golden Key Credit Card

Company Ltd., which has implications

on how the proceeds from the sale of

the assets of the Company’s subsidiaries

and associates will be applied.

Note No. 18 (f) to the financial

statements referring to the execution of

the mortgage bonds subsequent to the

balance sheet date for a loan granted

to Finance and Guarantee Property

Developers Ltd by Seylan Merchant

Leasing PLC. The legal implications of

the mortgages so executed appears

uncertain under the circumstances

prevailing and consequently the

adequacy of the security cover for

the loan of Rs 7.750 mn cannot be

assessed.

Note 37 (c) to the financial statements,

where reference is made to the

inventories still remaining unsold. We

are unable to assess the net realizable

value of the inventories and the extent

of their saleability within a reasonable

period of time under the prevailing

circumstances more fully described in

Note 37 (c) to the financial statements.

These facts along with the net loss of

Rs 29,209,665 during the year ended

31 December 2008 raise doubt that the

Company will be able to continue as a

going concern.

Report on Other Legal and Regulatory RequirementsThe Company’s net assets are less than

half of the stated capital and face a

serious loss of capital situation in terms

of Section 220 of the Companies Act,

No 07 of 2007.

The Company’s core capital as at 31

December 2008 is below the required

level as stipulated in the relevant

directions issued by the Central Bank of

Sri Lanka.

Except as mentioned above;

• TheCompany’sFinancialStatements

also comply with the requirements

of Sections 151(2) to Section 153

(7) of the Companies Act No. 07 of

2007.

Chartered Accountants

Colombo.

05th November 2009

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

22

Income Statement

GROUP BANKFor the Year Ended 31 December 2008 2007 2008 2007

Note Rs. Rs. Rs. Rs.

Gross Income 4 949,473,173 944,078,977 334,660,987 500,997,793

Interest Income 5 859,359,216 804,894,054 295,665,931 424,776,309Interest Expenses 6 (763,043,988) (619,226,698) (410,292,936) (400,239,118)

Net Interest Income/(Expense) 96,315,228 185,667,356 (114,627,005) 24,537,191

Other Income 7 90,113,957 139,184,923 38,995,056 76,221,484

Operating Income 186,429,185 324,852,279 (75,631,949) 100,758,675

Less: Operating Expenses 8Personnel Costs (115,056,655) (98,164,380) (17,348,263) (25,421,277)Premises, Equipment & Establishment Expenses (106,905,832) (61,632,671) (22,044,928) (22,249,776)Other Overhead Expenses (126,722,476) (128,630,724) (31,636,417) (38,265,959)

Loan Loss Provision 9 (378,264,751) (33,795,145) (333,860,905) (12,122,810)

Provision for fall in value of Investment (116,410,232) - (101,410,232) -

Operating Expenses (843,359,946) (322,222,920) (506,300,745) (98,059,822)

Operating Profit/(Loss) before VAT on Financial Services (656,930,761) 2,629,359 (581,932,694) 2,698,853

Value Added Tax on Financial Services (2,566,746) (3,531,516) (1,141,324) (2,431,949)

Operating Profit/(Loss) before Asso. Co. Profit (659,497,507) (902,157) (583,074,018) 266,904

Share of Associate Company Profit 4,365,092 949,850 - -

Profit/(Loss) before Taxation (655,132,415) 47,693 (583,074,018) 266,904

Taxation 10 (41,946,552) 3,629,961 (35,601,511) -

Profit/(Loss) for the Period (697,078,967) 3,677,654 (618,675,529) 266,904

Attributable to :

Equity holders of the Parent Company (688,100,565) (2,731,510) (618,675,529) 266,904

Minority Interest (8,978,402) 6,409,164 - - (697,078,967) 3,677,654 (618,675,529) 266,904

Basic Earnings/(Loss) per - Voting Share 11 (15.447) (0.050) (13.880) 0.005Basic Earnings/(Loss) per - Non Voting Share 11 (6.874) (0.005) (6.180) 0.000

Notes form an integral part of these financial statements.

Figures in brackets indicate deductions

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

23

Balance Sheet

GROUP BANKAs at 31 December 2008 2007 2008 2007 Note Rs. Rs. Rs. Rs.

ASSETSCash and Short Term Funds 12 17,636,423 73,999,228 10,068,966 60,261,731Treasury Bills and Bonds Eligible for Rediscounting with Central Bank 13 225,916,744 251,013,343 47,896,922 48,723,918Government and other Securities held for dealing Purpose 14 - 132,481 - 132,481Placements with and loans to other Banks & Finance Companies 15 198,887,623 117,661,810 - -Placements with and loans to Non Financial Institutions 16 59,003,102 98,338,842 59,003,102 98,338,842Investment Securities 17 9,893,704 120,823,155 17,571,914 107,404,475Securities purchased under Resale Agreements - 33,550,000 - 33,550,000Loans and Advances 18 956,320,172 972,960,968 651,871,775 886,534,416Lease Rentals Receivable within 1 year 19.a 875,325,694 631,246,940 280,826,281 173,995,545Lease Rentals Receivable from 1 to 5 years 19.b 1,105,751,098 1,737,678,659 264,557,933 704,077,198Lease Rentals Receivable After 5 years 19.c 6,114,387 11,496,503 - -Interest & Fees Receivable 325,592,358 347,671,022 253,036,887 288,631,580Investments in Subsidiary Companies 20.a - - 324,196,825 319,540,267Investments in Associate Companies 20.d 54,314,942 49,949,850 49,000,000 49,000,000Investment Properties 21 16,316,000 27,505,400 16,316,000 27,505,400Property Plant & Equipment 22 50,096,568 47,576,278 8,054,878 11,947,225Intangible Assets 23 25,409,694 26,847,978 - -Other Assets 24 294,303,352 258,376,784 43,358,083 123,474,735Deferred Tax Assets 25 3,674,996 7,369,253 - -Total Assets 4,224,556,857 4,814,198,494 2,025,759,566 2,933,117,812

EQUITY AND LIABILITIESLiabilitiesDeposits 26 1,568,863,611 1,137,248,009 - -Borrowings 27 1,748,936,063 1,993,940,735 1,661,522,591 1,747,761,950Group balances payable 28 197,848,000 153,000,000 197,848,000 153,000,000Other Liabilities 29 386,807,818 413,799,601 63,408,061 229,892,830Debentures 30 340,308,507 506,768,585 255,174,402 395,726,585Bank Over Draft 12 59,745,594 - 59,745,594 -Total Liabilities 4,302,509,593 4,204,756,930 2,237,698,648 2,526,381,365

EquityStated Capital 31 565,786,045 565,786,045 565,786,045 565,786,045Statutory Reserves 32 4,420,527 4,420,527 1,239,777 1,239,777Reserves 33 (722,486,114) (34,385,549) (778,964,904) (160,289,375)

Total equity attributable to the equity holders of the Bank (152,279,542) 535,821,023 (211,939,082) 406,736,447Minority Interest 74,326,806 73,620,541 - -Total Equity (77,952,736) 609,441,564 (211,939,082) 406,736,447

Total Liabilities & Equity 4,224,556,857 4,814,198,494 2,025,759,566 2,933,117,812

Net Assets per Ordinary Share (Rs.) (2.79) 9.83 (3.89) 7.46

Commitments & Contingencies 34 - 8,865,000 - 8,865,000

It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 7 of 2007.

Manjula JayasuriyaChief Financial Officer

The Board of Directors is responsible for the preparation and presentation of these Financial statements.Approved and signed on behalf of the Board

R.S.W.Senanayake M S I PeirisDeputy Chairman Director

05th November 2009Colombo

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

24

Statements of Changes in Equity

Attributable to equity holders of the Bank Reserve on Statutory

Stated Scrip Reserve Retained Total Minority Total

Capital Issue Fund Loss Interest Equity

For the Year Ended 31 December 2008 Rs. Rs. Rs. Rs. Rs. Rs. Rs.

GROUP

As at 01.01.2007 566,016,045 8,316,030 2,910,658 (38,460,200) 538,782,533 73,799,372 612,581,905

Adjustment on Change in Minority Interest - - - - - (6,587,995) (6,587,995)

Share Issue Expenses (230,000) - - - (230,000) - (230,000)

Net Profit/(Loss) attributable to Shareholders - - - (2,731,510) (2,731,510) 6,409,164 3,677,654

Transfer to Statutory Reserve Fund - - 1,509,869 (1,509,869) - - -

As at 31.12.2007 565,786,045 8,316,030 4,420,527 (42,701,579) 535,821,023 73,620,541 609,441,564

As at 01.01.2008 565,786,045 8,316,030 4,420,527 (42,701,579) 535,821,023 73,620,541 609,441,564

Adjustment on Change in Minority Interest - - - - - 12,972,098 12,972,098

Dividend Paid - - - - - (3,287,431) (3,287,431)

Net Loss attributable to Shareholders - - - (688,100,565) (688,100,565) (8,978,402) (697,078,966)

As at 31.12.2008 565,786,045 8,316,030 4,420,527 (730,802,144) (152,279,542) 74,326,806 (77,952,736)

Statutory

Stated Reserve Retained Total

Capital Fund Loss Equity

Rs. Rs. Rs. Rs.

BANK

As at 01.01.2007 566,016,045 1,226,432 (160,542,933) 406,699,544

Share Issue Expenses (230,000) - - (230,000)

Net Profit attributable to Shareholders - - 266,903 266,903

Transfer to Statutory Reserve Fund - 13,345 (13,345) -

As at 31.12.2007 565,786,045 1,239,777 (160,289,375) 406,736,447

As at 01.01.2008 565,786,045 1,239,777 (160,289,375) 406,736,447

Share Issue Expenses - - - -

Net Loss attributable to Shareholders - - (618,675,530) (618,675,530)

Transfer to Statutory Reserve Fund - - - -

As at 31.12.2008 565,786,045 1,239,777 (778,964,904) (211,939,082)

Notes form an integral part of these financial statements.

Figures in brackets indicate deductions.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

25

Cashflow Statement

Group Bank 2008 2007 2008 2007 For the year ended 31 December Rs. Rs. Rs. Rs.

Cash Flow from Operating ActivitiesInterest Received 822,157,046 840,989,484 255,392,291 487,179,217Interest Payments (763,043,988) (638,323,354) (410,292,935) (441,496,111)Fees and Commission Receipts 112,192,622 35,971,899 74,589,746 5,378,557Profits from Other Operating Activities - 112,707,526 - 20,347,128Cash Payments to Employees and Suppliers (347,944,337) (283,628,246) (70,371,788) (91,097,866)

Net Profit before Changes in Operating Assets (176,638,658) 67,717,309 (150,682,685) (19,689,075)

Funds Advanced to Customers 31,606,968 549,294,158 233,573,069 478,140,036Other Assets (10,153,645) (206,538,638) 115,711,342 (169,009,333)

Cash Generated from Operations (155,185,335) 410,472,829 198,601,726 289,441,628

Tax Paid (41,946,552) (7,270,808) (35,601,511) (2,431,949)Gratuity Paid - (2,027,124) - (2,027,124)Net Cash used in Operating Activities (197,131,887) 401,174,897 163,000,215 284,982,555

Cash Flow from Investing ActivitiesDividend Received - 1,054,927 - 40,225,584Investment in Subsidiary Companies - - - (4,993,135)Investment in Associate Companies (4,365,092) (49,000,000) - (49,000,000)Sale of shares in Subsidiary Companies - - 18,760,000 -Sale of Shares in Associate Company - - - -Proceeds from Sale of Dealing Securities 132,481 11,629 132,481 11,629Net (Increase)/Decrease of Treasury Bills & Bonds 25,096,599 213,491,799 826,995 344,578,419Purchase of Investment Securities. 144,479,451 (23,894,964) 123,382,561 (6,300,000)Proceeds from Sale of Investment Securities (81,225,813) 2,148,305 - 2,148,305Net (Increase)/Decrease in Other Non Dealing Investments 39,335,740 22,684,225 39,335,740 78,457,992Purchase of Property, Plant & Equipment 23,751,728 (17,437,833) 2,055,372 (1,626,442)Proceeds from Disposal of Property, Plant & Equipment 4,121,720 9,256,195 39,000 8,519,160Purchase of Investment Properties 11,189,400 (15,000,000) 11,189,400 (15,000,000)Intangible Assets 1,438,284 - - -Sales Proceeds of Investment Properties - 13,672,796 - 13,672,796Net Cash from/(Used in) Investing Activities 163,954,498 156,987,078 195,721,550 410,694,309

Cash Flow from Financing ActivitiesIncrease/(Decrease) in Debentures (166,460,078) (272,343,832) (140,552,183) (202,220,932)Debentures issued 100,000,000 - 100,000,000Increase/(Decrease) in Liabilities (27,732,409) (329,162,685) (167,225,394) (2,437,925)Increase/(Decrease) in Other Borrowings 171,713,336 22,873,204 (101,136,953) (527,373,117)Increase/(Decrease) in Minority Interest (706,265) (6,587,995) - -Issue of Shares - - - -Share issue expenses - (230,000) - (230,000)

Net Cash from / ( used in) Financing Activities. (23,185,416) (485,451,308) (408,914,530) (632,261,974)

Net Increase or (Decrease) in Cash and Cash Equivalents (56,362,805) 72,710,667 (50,192,766) 63,403,260Cash and Cash Equivalents at the beginning of the year 73,999,228 34,838,561 60,261,731 30,408,471Cash and Cash Equivalents at the end of the year 17,636,423 107,549,228 10,068,966 93,811,731

Reconciliation of Cash and Cash EquivalentsCash and Short Term Funds 17,636,423 73,999,228 10,068,966 60,261,731Government Securities - Under Re-purchase Agreement - 33,550,000 - 33,550,000 17,636,423 107,549,228 10,068,966 93,811,731

The Accounting Policies and the Notes form an integral part of these financial statements.

Figures in brackets indicate deduction

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

26

For the year ended 31 December 2008

1 Reporting EntitySeylan Mercahnt Bank PLC is a quoted

Public Company incorporated &

operating in Sri Lanka. The consolidated

Financial Statements of the group for

the year ended 31 December 2008

comprises the Bank and its Subsidiaries

and group interest in associate

Company.

The principal activities of the Bank are

merchant banking and related activities

such as fund mobilisation, personal

banking, debt trading, lease financing,

dealing in Government Securities &

Investment Securities etc.

The principal activities of the Bank’s

subsidiaries namely, Seylan Mercahnt

Leasing PLC, SMB Real Estate Ltd, SMB

Mony Brokers (Pvt) Ltd, SMB Securities

(Pvt) Ltd are Leasing of Properties

both movable & immovable, Property

Development, Money Market and Stock

Brokering respectively.

2 Basis of Preparation2.1 Statement of ComplianceThe Financial Statements are prepared

in Sri Lanka Rupees, rounded to nearest

rupee. The Balance Sheet, Income

Statement and Cash Flow Statement

of the Bank and the group unless

otherwise stated herein are prepared

on the historical cost convention in

conformity with generally accepted

accounting principles applied

consistently and in compliance with

Sri Lanka Accounting Standards

prescribed by the Institute of Chartered

Accountants of Sri Lanka. Exceptions

to the historic cost convention of

accounting relate to dealing securities

and investment securities as described in

accounting policy 3.5.3.

No adjustments are made for

inflationary factors affecting these

Financial Statements.

3 Significant Accounting PoliciesThe Bank and the Group has

consistently applied the Accounting

Policies and previous year’s figures

and phrases have been rearranged

wherever necessary to confirm to the

current year’s presentation.

3.1 Basis of ConsolidationThe group Financial Statements includes

the consolidated results, assets and

liabilities of the Bank and its subsidiaries

made up to the financial year end. The

results of subsidiaries are included from

the date on which the Bank effectively

acquired control of each subsidiary. The

interest of outside shareholders of the

subsidiaries in the net assets and their

proportion of results grouped separately

in the Consolidated Balance Sheet and

Income Statement under the heading of

“Minority Interest”.

3.1.1 Subsidiaries

Subsidiaries are those enterprises

controlled by the Bank. Control exists

when the Company has the power,

directly or indirectly, to govern the

financial and operating policies of an

enterprise so as to obtain benefits from

its activities. The Financial statements

of subsidiaries are included in the

Consolidated Financial Statements

from the date that control effectively

commence until the date that control

ceases. The total Subsidiary Companies’

profits for the year are included in the

Consolidated Income Statement. The

assets and liabilities of the Subsidiary

Companies as at the Balance Sheet

date are included in the group Balance

Sheet.

3.1.2 Equity Accounted Investees

Equity Accounted Investees is an

enterprise in which the Bank has

significant influence but not control over

the financial and operating policies.

The Consolidated Financial Statements

include the group’s share of the total

recognised gain and losses of the Equity

Accounted Investees, SMB Kenenga

Investment Corporation Ltd, under

the equity method of accounting. The

carrying value of investment in the

Consolidated Balance Sheet is hereby

increases or decreases to recognise the

group share of retained profit and losses

of the Equity Accounted Investees since

the date of acquisition.

In the Bank’s Financial Statements,

investments in Subsidiary Companies

and Equity Accounted Investees are

accounted for at cost. Income is

recognised to the extent that dividend is

declared from the accumulated profit.

3.1.3 Transactions Eliminated on

Consolidated

Inter group balances and transactions,

and any unrealised gains arising from

inter group transactions, are eliminated

on preparing the consolidated Financial

Statements. Unrealised gains from

transactions with subsidiaries and

Associate Company are eliminated

to the extent of group interest in the

enterprise.

3.2 Taxation3.2.1 Income Taxation

Provision for taxation is based on the

elements of income and expenditure as

reported in the Financial Statements and

computed in terms of the provision of

Inland Revenue Act No. 10 of 2006 and

amendments thereto.

3.2.2 Deferred Taxation

Deferred tax assets and liabilities are

recognised for all temporary differences.

Deferred tax assets are recognised for

all deductible temporary differences,

carrying forward of unused tax credit

and tax losses, to the extent that it is

probable that taxable profit will be

available against which the deductible

temporary differences, and the carrying

forward of unused tax credits and

unused tax losses can be utilized.

The carrying amount of deferred tax

assets is reviewed at each Balance

Sheets date and reduced to the extent

that it is no longer probable that

Notes to the Financial Statements

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

27

sufficient taxable profit will be available

to allow all or part of the deferred tax

assets to be utilised. Unrecognised

deferred tax assets are reassessed

at each Balance Sheet date and are

recognized to the extent that it has

become probable that future taxable

profit will allow the deferred tax assets

to be recovered.

Deferred tax assets and liabilities are

measured at tax rates that are expected

to apply to the year when the assets

are realised or liability is settled, based

on the tax rates and tax laws that have

been enacted or substantively enacted

as at the Balance Sheet date.

Income tax relating to items recognized

directly in equity is recognised in equity.

Deferred tax assets and deferred

tax liabilities are offset, if a legally

enforceable right exists to set off current

tax assets against current liabilities and

deferred taxes relate to the same taxable

entity and the same taxation authority.

3.3 Comparative FiguresThe figures and phrases of the previous

year have been rearranged wherever

necessary to conform to the current

years’ presentation.

3.4 Events after the Balance Sheet DateAll the material events after the Balance

Sheet date have been considered and

appropriate adjustment to /disclosures

have been made in the notes to the

financial statements.

3.5 Assets and Bases of Their Valuation

3.5.1 Loans and Advances to

Customers

Loans and advances are stated in the

Balance Sheet net of provisions for

possible bad and doubtful loans and

net of interest in suspense, which is not

accrued to revenue.

3.5.1.1 Provision for Loan LossesSpecific Provisions for possible loan

losses are based on a continuous review

of the loans and advances portfolio.

These provisions relate to identified

bad and doubtful advances. These

provisions are required under the

Finance Leasing (Amendment) Act No.

24 of 2005 and apply according to the

Central Bank Direction No. 2 of 2005.

In addition, as a matter of prudence,

general provisions are made wherever

necessary based on recognition criteria

as per Sri Lanka Accounting Standard

No. 36. Provisions are applied to write

off advances, in part or in whole, when

loans are considered partly or wholly

irrecoverable.

Specific provision for loan receivables is

arrived at using the following basis.

are made wherever necessary based

on recognition criteria as per Sri Lanka

Accounting Standard No. 36.

Provisions are used to write off

advances, in parts or in whole, when

leases are considered partly or wholly

irrecoverable.

Specific provision for lease receivables is

arrived at using the following basis.

Period Outstanding Classification Minimum Provision made net

of realisable value of security

6 to 12 months Sub-standard 20%

12 to 18 months Doubtful 50%

18 months and above Loss 100%

3.5.2 Finance Leases

Assets leased to customers under

agreements that transfer substantially

all the risks and rewards associated

with ownership other than legal title

are classified as finance leases. Lease

rentals receivable in the Balance Sheet

include total lease payments due net

of unearned lease interest income not

accrued to revenue, interest in suspense

and provision for bad and doubtful

recoveries.

3.5.2.1 Provisions for Lease ReceivableSpecific provision has been made

in relation to identifying possible

bad and doubtful losses based on a

continuous review of lease portfolio.

These provisions are required under

the Finance Leasing (Amendment) Act

No. 24 of 2005 and apply according

to the Central Bank Direction No. 2 of

2005. In addition, general provisions

3.5.3 Investments

3.5.3.1 Dealing SecuritiesInvestments in Companies, of which

shares are quoted, are valued at the

lower of cost or market value on the

Aggregated Portfolio basis. Adjustment

for fall in market value below cost if

relevant is accounted for by charging

the difference to the Income Statement.

3.5.3.2 Investment SecuritiesThese 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, these are considered

to be permanent diminution in value.

Where the group interests in equity

is less than 20% and or in companies

where the Bank does not exercise

significant influence and/or control over

Period Outstanding Minimum Provision

made net of realisable

value of security

6 to 12 months 20%

12 to 18 months 50%

18 months and above 100%

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

28

the financial and operating policies,

investments are valued at cost.

Unquoted Investments are stated at

cost.

3.5.3.3 Investments in Treasury Bills and BondsInvestments in Treasury Bills and Bonds

are reflected at the value of the Bills/

Bonds purchased and the discount/

premium accrued thereon. Discount

received/premium paid is taken on the

Income Statement based on a pattern

reflecting a constant periodic rate of

return.

3.5.3.4 Investment PropertiesInvestments in Land & Building that

are not occupied substantially for use

by or in the operations of the Bank

are classified as Investment Properties.

Investment Properties of the company

are stated at cost as stated in Note 21.

3.5.3.5 Investment in Real EstateLand purchase cost, development cost

and borrowing cost incurred during

the development period of real estate

projects have been capitalised to the

inventories.

3.5.4 Property, Plant & Equipment

3.5.4.1 Recognition and MeasurementsThe property, plant & equipment are

recorded at cost less accumulated

depreciation and impairment losses as

set out below.

Items of property, plant & equipment

are recognised upon disposal or when

no future economic benefits expected

from its use. Any gain or loss arising on

derecognition of the assets is included

in the Income Statement in the year the

asset is derecognised.

The cost of property, plant & equipment

is the cost of purchase or construction

together with any expenses incurred

in bringing the assets to its working

condition for its intended use.

Expenditure incurred for the purpose

of acquiring, extending or improving

assets of permanent nature by means

of which to carry on the business or

to increase the earning capacity of the

business has been treated as capital

expenditure.

The cost of the property, plant &

equipment is the cash price equivalent

at the recognition date. If payment is

deferred beyond normal credit terms,

the difference between the cash price

equivalent and the total payment

as interest over the period of credit

unless such interest is recognized in

the carrying amount of the item in

accordance with the allowed alternative

treatment in SLAS 20.

The carrying amount of the property,

plant & equipment are reviewed

for impairment when events or

changes in circumstances indicated

that the carrying amount may not be

recoverable.

3.5.4.2 Subsequent Costs/ Replacement of partsThe cost of replacing part of items

of property, plant & equipments is

recognised in the carrying amount of

the item if it is probable that the future

economic benefits embodied within

the part will flow to the Company and

its cost can be measured reliably. The

cost of day to day servicing of property,

plant & equipment are recognized in

Income Statement as it incurred.

When replacement costs are recognised

in the carrying amount of an item

of property, plant & equipment, the

remaining carrying amount of replaced

part is derecognised.

3.5.4.3 DepreciationDepreciation is provided on the assets

purchased and used during the year at

the following rates on the straight-line

basis.

Motor Vehicles 20% per annum

Computers 20% per annum

Office Equipment

& Machines 20% per annum

Furniture & Fittings 20% per annum

Leased Assets 20% per annum

Depreciation of an asset begins when it

is available for use and ceases at earlier

of the date that the asset is classified as

held for sale and the date that the asset

is recognised.

Leased assets are depreciated over the

shorter of the leased term and their

useful lives.

Depreciation is not provided for

freehold land.

3.5.5 Impairment of Assets

The carrying amount of Company’s

non-financial assets, other than

inventories and deferred tax assets,

are reviewed at each reporting date

to determine whether there is any

indication of impairments. If any such

indication exists, then asset’s recoverable

amount is eliminated. For goodwill and

intangible assets that have indefinite

lives or that are not yet available for use,

recoverable amount is estimated at each

reporting date.

An impairment loss is recognised if

the carrying amount of assets or its

cash-generating units exceeds its

recoverable amount. A cash-generating

unit is the smallest identifiable assets

group that generates cash flows that

largely are independent from other

assets and groups. Impairment losses

are recognised in Income Statement.

Impairment losses are recognised in

respect of cash-generating units and

are allocated to the units and then to

reduce the carrying amount of other

assets in the unit on prorate basis.

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

29

The recoverable amount of an asset

or cash-generating unit is the greater

of its value in use and its fair value less

costs to sell. In assessing value in use,

the estimated future cash flows are

discounted to their present value using

pre tax discount rate that reflects current

market assessment of the time value of

money and the risks specific to the asset.

An impairment loss in respect of

goodwill is not reversed. In respect

of other assets, impairment losses

recognised in prior periods are

assessed at each reporting date for any

indications that the loss has decreased

or no longer exists. Any impairment

loss is reversed only to the extent that

asset’s carrying amount does not exceed

the carrying amount that would have

been determined, net of depreciation or

amortisation, if no impairment loss been

recognised.

3.5.6 Intangible Assets

Intangible assets comprise of the initial

acquisition cost of the license fee

at the inception for stock brokering

license. The cost is amortised using the

straight line basis at the rate of 20% per

annum commencing from the date of

acquisition. The amortised amount is

based on the best estimate of its useful

life, such that the cost is amortized

fully at the end of the useful life. The

amortisation cost is recognised as an

expense in the Income Statement.

3.5.7 Cash and Short Term Funds

Cash and cash equivalents are defined

as cash in hand, demand deposits and

short term highly liquid investments

which are readily convertible to know

the amount of cash and subject to

insignificant risk of change in the value.

Cash and short-term funds stated in the

Balance Sheet comprise cash balances in

hand and at banks and call investments.

For the purpose of cash flow statement,

cash and cash equivalents consist of

cash in hand at Bank, demand deposits

and securities purchase under resale

agreement.

3.6 Liabilities & Provisions3.6.1 Interest-Bearing Borrowings

Interest-bearing borrowings are

recognised initially at cost, net of any

transaction costs incurred. Subsequently

to initial recognition, interest bearing

borrowings are stated at amortised cost

with any difference between cost and

redemption value being recognised in

the income Statement over the period

of the borrowing. When borrowings

are repurchased or settled before

maturity, any difference between the

amount repaid and carrying amount is

recognised immediately in the Income

Statement.

3.6.2 Retirement Benefits

Sri Lanka Accounting Standard 16

(Revised 2006) – Employee Benefits,

which applies to financial statements

covering annual periods beginning on

or after 1 July 2007 was adopted by the

group with effect from 1 January 2008.

Company

The Company measures its retirement

benefit obligation based on the Gratuity

Formula Method as recommended by

the standard.

Key assumptions used are as follows;

Interest rate - 10%

Salary increment rate - 8.5%

Subsidiary Companies

Subsidiary Companies other than

Seylan Merchant Leasing PLC measure

their present value of defined benefit

obligation based on Gratuity Formula

Method as recommended by the

Standard. Seylan Merchant Leasing

measures their present value of defined

benefit obligation using the Projected

Unit Credit Method defined by the

Actuary.

The key assumptions used by the

Actuary are as follows;

Interest rate - 10%

Salary increment rate - 8.5%

As per the payment of Gratuity Act No.

12 of 1983 the liability to an employee

arises only on completion of 5 years of

continued service.

3.6.3 Employees’ Provident Fund and

Employees’ Trust Fund

Employees are eligible for Employees’

Provident Fund and Employees’ Trust

Fund contributions in accordance

with the respective statutes and

legislations. The Bank contributes 12%

and 3% of gross salary of employees

to the Employees’ Provident Fund and

Employees’ Trust Fund respectively.

3.6.4 Commitments and Contingent

Liabilities

All material capital commitments and

contingent liabilities of the bank and

group are disclosed in respective Notes

to the Accounts and all discernible risks

are accounted for in determining the

amount of other liabilities.

3.7 Events Occurring after the Balance Sheet DateAll material events occurred after the

Balance Sheet date has been considered

and appropriate adjustments/

disclosures have been made in the

Financial Statement where necessary.

3.8 Income Statements3.8.1 Interest Income from Loans and

Advances

Interest income is recognised on an

accrual basis. However, no accrued

interest income is recognised where any

portion of capital or interest is in arrears

for six months or more. In such cases

interest income is accounted for on a

cash basis.

3.8.2 Lease Income

The excess of aggregate lease rental

receivable over the cost of the leased

assets constitutes the total unearned

lease income at the commencement of

the lease. The unearned lease income

is taken into income over the term of

the lease on proportion to the declining

receivable balance. However, no

accrued interest income is recognised

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

30

where any portion of capital or interest

is in arrears for six months or more. In

such cases interest income is accounted

for on a cash basis.

3.8.3 Operating Leases – Rental

Income

Rental income is recognised as revenue

on a straight line basis over the term

of lease. However, no accrued rental

income is recognised where any portion

of capital or interest is in arrears for six

months or more. In such cases rental

income is accounted for on a cash basis.

3.8.4 Interest Income from Other

Sources

Interest income from Government

Securities is recognised on time

proportion basis as discount on

purchase, over the period to maturity

or the date of sale. Income from other

interest baring investments is recognised

as revenue on an accrual basis.

3.8.5 Income from Fee Base

Activities Fee and Commission Income is

recognised on a cash basis.

3.8.6 Dividend Income

Dividend income is recognised on an

accrual basis in the period in which

dividend is declared.

3.8.7 Profit or Loss on Sale of

Marketable Securities

Profit or loss arising on sale of equity

shares, commercial papers and other

marketable securities is accounted for

on a cash basis.

3.8.9 Real Estate Income

Income is recognised when the

properties are sold and buyer has taken

the possession of such properties. For

this purpose properties are deemed to

be sold once 25% of the outright sales

price has been received.

3.8.10 Profit or Loss on Sale of

Property, Plant and Equipments

Profits or losses of a revenue nature

on the disposal of Property, Plant and

Equipments are accounted for in the

Income Statement.

3.8.11 Interest Expenses

3.8.11.1 Borrowing CostBorrowing costs are recognized as

an expense in the year in which they

are incurred except to the extent they

are capitalized in accordance with Sri

Lanka Accounting Standards No. 20 -

“Capitalisation of Borrowing Cost”

3.9 Segment ReportingA segment is a distinguishable

component of the Group that is

engaged in providing products or

services within a particular economic

environment, which is subject to risk

and rewards that are different from

those of other segments.

3.10 Cash Flow StatementsThe Cash Flow has been prepared by

using the “Direct Method” of preparing

Cash Flows. Cash and short-term funds

are comprised of cash in hand and cash

in Bank, demand deposits and securities

purchase under resale agreement.

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

31

GROUP BANK 2008 2007 2008 2007

For the Year ended 31 December Rs. Rs. Rs. Rs.

4 Gross IncomeInterest Income (Note 5) 859,359,216 804,894,054 295,665,931 424,776,309

Other Income (Note 7) 90,113,957 139,184,923 38,995,056 76,221,484

949,473,173 944,078,977 334,660,987 500,997,793

5 Interest IncomeCustomer Advances 150,676,737 129,816,470 104,745,047 124,870,332

Treasury Bills & Placements with Other banks

& Financial Institutes 69,301,752 58,702,935 9,557,873 27,162,900

Lease Interest Income 413,550,568 515,317,823 140,583,848 203,055,085

Other Interest Income 225,830,159 101,056,826 40,779,163 69,687,992

859,359,216 804,894,054 295,665,931 424,776,309

6 Interest ExpensesCustomer Deposits 275,632,965 96,369,143 - -

Borrowings & Refinance 379,683,906 389,521,477 362,367,591 296,098,922

Treasury Bills Repurchased 8,493,044 34,871,555 8,493,044 34,871,555

Debentures 32,685,036 72,396,356 39,416,071 64,847,926

Other Interest expenses 66,549,037 26,068,167 16,230 4,420,715

763,043,988 619,226,698 410,292,936 400,239,118

7 Other IncomeDividend Income from Dealing Securities - Quoted 1,998,257 1,045,820 1,780,409 647,837

Dividend Income from Investment Securities - Unquoted 28,141 9,107 28,141 4,608

Dividend Received from Subsidiaries - - 9,436,467 39,573,140

Fee & Commission Income 41,975,801 38,434,680 13,936,939 7,841,338

Profit on Sale of Property , Plant & Equipment 2,207,207 4,716,816 - 4,656,816

Profit on Sale of Investment Properties 2,710,600 2,991,547 2,710,600 2,991,547

Profit/(Loss) on Sale of Investment Securities (697,496) 146,372 - 159,069

Profit on Disposal of Subsidiary 5,787,902 - 6,630,036 -

Capital Gain on Government Securities 751,407 197,740 717,146 -

Amortisation on premium of T Bond (21,184) - - -

Others 35,373,322 91,642,841 3,755,318 20,347,129

90,113,957 139,184,923 38,995,056 76,221,484

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

32

GROUP BANK 2008 2007 2008 2007

For the Year ended 31 December Rs. Rs. Rs. Rs.

8 Operating ExpensesOperating Expenses include the following :-

Directors’ Emoluments 7,088,970 6,960,077 - -

Auditors’ Emoluments

Audit Fees 2,278,321 1,140,000 900,456 385,000

Other Audit Fee - 45,250 - 12,150

Non Audit Fee 372,200 485,888 - 112,023

Depreciation 18,853,531 17,524,483 5,908,719 6,849,013

Donations 3,900,261 3,377,681 38,000 1,047,681

Expenses on Litigation 3,765,254 3,029,716 2,366,770 2,272,363

Employees Providend Fund 8,447,584 6,723,721 917,548 1,808,660Employees Trust Fund 2,111,604 1,681,557 228,887 452,165

Provision for Employee Retirement Benefits is shown

separately in Note No 29.a

9 Loan Losses and ProvisionsProvision for Bad & Doubtful Debts during the period 337,826,433 11,485,573 305,648,742 4,769,524

Direct Write Off 40,355,513 22,309,572 28,212,163 7,353,286

378,264,751 33,795,145 333,860,905 12,122,810

10 TaxationIncome Tax on profits (Note 10.a) 2,356,770 1,731,070 - -

Tax attributable to the Share of profit of Associates - - - -

Under provision in Previous Years (934,449) - - -

Transfer to / (from) Deferred Taxation (Note No. 10.b) 3,694,258 (7,369,253) - -

Deductible Tax Credits - (882,430) - -

With Holding Tax on Dividend 1,228,462 2,890,652 - -

ESC irrecoverable 35,601,511 - 35,601,511 -

41,946,552 (3,629,961) 35,601,511 -

10.a Reconciliation of Accounting Profit & the Income Tax ExpenseProfit Before Taxation (655,132,415) 47,693 (583,074,018) 266,903

Aggregate Disallowed Expenses 1,056,631,384 735,280,721 214,614,032 (29,007,774)

Aggregate Allowable expenses (1,181,198,617) (1,140,793,607) (364,442,098) (307,517,992)

Aggregate Allowable Income 412,193,666 581,164,875 412,193,666 587,757,706

Aggregate Disallowed Income (127,152,896) (168,116,953) (119,998,195) (252,001,029)

Profit From the Business (494,658,878) 7,582,729 (440,706,613) (502,186)

Loss From the Business 500,118,985 - - -

Total Statutory Income 5,460,107 7,582,729 (440,706,613) (502,186)

Other Income 4,683,021 - - -

Tax Loss Claimed during the Year (3,509,010) (2,636,815) - -

Taxable Profit/( Loss) 6,634,118 4,945,914 (440,706,613) (502,186)

Taxation Thereon 2,321,941 1,731,070 - -

SRL @ 1.5% (2007 - 1%) 34,829 -

Total Tax Liability 2,356,770 1,731,070 - -

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

33

Group tax expense is based on the taxable profits of the individual Companies within the group .

Income Tax provision of Seylan Merchant Bank PLC being a quoted Public Company, has been calculated on its adjusted profit at

35% in terms of Inland Revenue Act No. 10 of 2006, and amendments thereto.

Taxation details of the other companies in the Group are as follows.

Income Tax provision of Seylan Merchant Leasing PLC being a quoted Public Company has been calculated on its adjusted profit at

35% in terms of Inland Revenue Act No. 10 of 2006, and amendments thereto. No provision has been made during the year for

income tax due to tax losses.

Profits of SMB Real Estate Limited are liable to income tax at 35%.

Profits of SMB Money Brokers (Pvt) Ltd. are liable to income tax at 35%.

Profits of SMB Securities (Pvt) Ltd. are liable to income tax at 35%.

10.b Deferred tax on Seylan Merchant Bank PLC

GroupSeylan Merchant Bank PLC and Seylan Merchant Leasing PLC have not recognised deferred tax asset since the temporary differences

are not likely to reverse in the foreseeable future. The deferred tax asset on each temporary difference which were not recognised

in the financial statements are disclosed below.

Details of the Group unaccounted deferred taxation as at the end of year 2008 are given below.

Temporary Temporary

difference Tax Effect difference Tax Effect

31.12.2008 31.12.2008 31.12.2007 31.12.2007

Taxable Temporary Differences

Balance as at 1 January (203,948,705) (71,382,047) 276,247 96,686

Amount originating/(reversing) (165,925,260) (58,073,841) (204,224,952) (71,478,733)

Balance as at 31 December (369,873,965) (129,455,888) (203,948,705) (71,382,047)

Deductible Temporary Differences

Balance as at 1 January 6,989,337 2,446,268 7,648,219 2,676,877

Amount originating/(reversing) (422,405) (147,842) (658,882) (230,609)

Balance as at 31 December 6,566,932 2,298,426 6,989,337 2,446,268

Tax Losses

Balance as at 1 January 458,809,536 160,583,338 407,848,855 142,747,099

Amount originating/(reversing) 218,445,647 76,455,976 50,960,681 17,836,238

Balance as at 31 December 677,255,183 237,039,314 458,809,536 160,583,338

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

34

Details of the deferred taxation provided during period for the other subsidiaries in the group are given below.

31.12.2008 31.12.2007

Balance as at the beginning of the year (7,369,253) 483,005

SMB Real Estate Limited 5,071,035 (6,941,811)

SMB Securities (Pvt.) Ltd. (1,500,254) -

SMB Money Brokers (Pvt) Ltd 123,476 (427,442)

Reverse to P&L - (483,005)

Balance as at the end of the year (3,674,996) (7,369,253)

The details of unaccounted deferred taxation is as follows.

Temporary Tax Effect Temporary Tax Effect

difference difference

31.12.2008 31.12.2008 31.12.2007 31.12.2007

Taxable Temporary Differences

Balance as at 1 January (4,055,716) (1,419,501) (8,209,455) (2,873,309)

Amount originating/(reversing) (262,925,708) (92,023,998) 4,153,739 1,453,808

Balance as at 31 December (266,981,424) (93,443,499) (4,055,716) (1,419,501)

Deductible Temporary Differences

Balance as at 1 January 2,955,473 1,034,416 5,265,783 1,843,024

Amount originating/(reversing) (1,777,972) (622,290) (2,310,310) (808,609)

Balance as at 31 December 1,177,501 412,126 2,955,473 1,034,416

Tax Losses 173,884,449 60,859,557 183,181,911 64,113,669

Amount originating/(reversing) 203,387,361 71,185,576 (9,297,462) (3,254,112)

Balance as at 31 December 377,271,810 132,045,133 173,884,449 60,859,557

Deferred Tax Asset as at 31 December 39,013,760 60,859,557

11 Earnings/(Loss) per Share GROUP BANK 2008 2007 2008 2007

Net Profit/(Loss) attributable to Ordinary Share holders (Rs.) (688,100,565) (2,731,510) (618,675,530) 266,904

No. of Shares - Voting 44,503,120 44,503,120 44,503,120 44,503,120

No. of Shares - Non Voting 100,000,000 100,000,000 100,000,000 100,000,000

Basic Earnings/(Loss) per Share - Voting (15.447) (0.050) (13.880) 0.005

Basic Earnings/(Loss) per Share - Non Voting (6.874) (0.005) (6.180) 0.000

The calculation of Earnings Per Share is based on the Net Profit/(Loss) attributable to Ordinary shareholders divided by the no of

shares. (Ordinery shares outstanding during the period).

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

35

GROUP BANK 2008 2007 2008 2007

As at 31 December Rs. Rs. Rs. Rs.

12 Cash and Short term FundsCash in hand and Balances with Banks 17,636,423 73,999,228 10,068,966 60,261,731

Bank Over Draft (59,745,594) - (59,745,594) -

(42,109,171) 73,999,228 (49,676,628) 60,261,731

13 Treasury Bills and Bonds Eligible For Rediscounting with the Central BankTreasury Bills (Note 13.a) 126,448,039 133,852,678 - -

Treasury Bonds (Note 13.a) 99,468,705 117,160,665 47,896,922 48,723,918

225,916,744 251,013,343 47,896,922 48,723,918

13.a Treasury Bills and Bonds Eligible For Rediscounting with the Central BankTreasury Bills maturing within one year 126,448,039 133,852,678 - -

Treasury Bills maturing after one year - - - -

Treasury Bonds maturing within one year 51,571,783 68,436,747 - -

Treasury Bonds maturing after one year 47,896,922 48,723,918 47,896,922 48,723,918

Total Treasury Bills and Bonds 225,916,744 251,013,343 47,896,922 48,723,918

14 Government and other securities held for dealing purposes

Investments in -Quoted Equity Securities (note 14.d) - 132,481 - 132,481

Total - 132,481 - 132,481

14.a Investments in Quoted Equity Securities Held by Seylan Merchant Bank PLC.

31.12.2008 31.12.2007 No. of Shares Cost Market Value No. of Shares Cost Market Value

Manufacturing

Magpek Exports PLC. 125,000 5,000,000 - 125,000 5,000,000 -

5,000,000 - 5,000,000 -

Footwear & Textiles

Pugoda Textile Mills PLC. 7,500 252,525 - 7,500 252,525 -

252,525 - 252,525 -

Hospital

Nawaloka Hospital PLC - - 100,000 532,481 230,000

- - 532,481 230,000

Total Dealing Securities 5,252,525 - 5,785,006 230,000

Less : Provision for Diminution in Value (5,252,525) - (5,652,525)

- - 132,481 230,000

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

36

15 Placements with and Loans to Other Banks and Financial Institutions

GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Seylan Bank PLC. 75,185,993 87,237,826 -

Other Bank and Financial Institutions 123,701,630 30,423,984 - -

198,887,623 117,661,810 - -

16 Placements with and Loans to Non Financial InstitutionsNon Financial Institutions 59,003,102 98,338,842 59,003,102 98,338,842

59,003,102 98,338,842 59,003,102 98,338,842

17 Investment Securities GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Quoted Equity Investments (Note 17.a)

Held by Seylan Merchant Bank PLC. 8,574,711 30,792,675 8,574,711 30,792,675

Held by SMB Money Brokers (Pvt) Ltd. 271,790 857,193 - -

Held by SMB Real Estate (Pvt) Ltd. - 14,831,487 - -

8,846,501 46,481,355 8,574,711 30,792,675

Non-Quoted Equity Investments (Note 17.b)

Held by Seylan Merchant Bank PLC. - 68,661,800 - 68,661,800

Held by SMB Real Estate (Pvt) Ltd. - 5,680,000 -

- 74,341,800 - 68,661,800

Quoted Debenture Investments

- Non Current (Note 17.c.1)

Held by Seylan Merchant Bank PLC. 1,047,203 - 8,997,203 7,950,000

1,047,203 - 8,997,203 7,950,000

Non - Quoted Debenture Investments

- Non Current (Note 17.c.2)

Held by Seylan Merchant Bank PLC. - - - -

- - - -

Total 9,893,704 120,823,155 17,571,914 107,404,475

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

37

17.a Quoted Equity Investments 31.12.2008 31.12.2007 No. of shares Cost Market Value No. of shares Cost Market Value

Held by Seylan Merchant Bank Ltd.

Banking, Finance & Insurance

The Finance Co. PLC 108,997 5,651,738 2,970,168 108,997 5,651,738 6,594,319

5,651,738 2,970,168 5,651,738 6,594,319

Manufacturing

Blue Diamond Jewellery Worldwide PLC. 3,180,280 47,817,531 4,452,392 3,180,280 47,817,531 8,904,784

Metal Recyclers Colombo PLC. 69 3,105 - 69 3,105 -

Royal ceramics Co PLC. - - - 41,000 2,012,845 1,312,000

Ceylon Glass Co PLC. - - - 265,000 1,012,222 530,000

Grain Elivators Co PLC. - - - 38,700 957,876 503,100

47,820,636 4,452,392 51,803,579 11,249,884

Beverage Food & Tobacco

Kotmale Holding PLC 1,000 15,724 9,500 15,000 235,814 165,000

15,724 9,500 235,814 165,000

Land & Property

Ceylinco Seylan Development PLC. 1,020,000 10,000,000 4,590,000 1,020,000 10,000,000 9,180,000

Ceylinco Seylan Development PLC. 223,343 3,284,719 1,005,044 223,343 3,284,719 2,010,087

13,284,719 5,595,044 13,284,719 11,190,087

Power & Energy

Lanka Indian Oil Co PLC. - - - 40,400 2,131,050 868,600

- - 2,131,050 868,600

Hotels & Travels

Galadari Hotel PLC. - - - 15,400 280,154 146,300

Reefcomber Hotel Co PLC. - - - 107,700 242,302 96,930

Ruhunu Hotels PLC - - - 10,000 212,993 67,500

- - 735,449 310,730

Total Quoted 66,772,817 13,027,104 73,842,349 30,378,620

Less - Provision for Diminution in value (58,198,106) - (43,049,674) -

Net Carrying Amount of

Investments (Bank) 8,574,711 13,027,104 30,792,675 30,378,620

Held by SMB Money Brokers (Pvt) Ltd.

Banking, Finance & Insurance

Commercial Bank PLC.

Preference shares of Rs. 10/- each - - - 50,000 585,403 450,000

Ordinary Shares of Rs.10/- each - - - - - -

- - 585,403 450,000

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

38

17.a Quoted Equity Investments contd. 31.12.2008 31.12.2007 No of shares Cost Market Value No of shares Cost Market Value

Manufacturing

Sierra Cables PLC 5,400 16,200 7,020 5,400 16,200 9,180

16,200 7,020 16,200 9,180

Telecommunication

Dialoge Telecom PLC 9,000 255,590 43,200 9,000 255,590 180,000

255,590 43,200 255,590 180,000

Net Carrying Amount of Investments 271,790 50,220 857,193 639,180

Held by SMB Real Estate (Pvt) Ltd.

Banking, Finance & Insurance

Ceylinco Insurance PLC. - - 81,400 14,831,487 15,059,000

- - 14,831,487 15,059,000

Total Carrying Amount of

Quoted Investments (Group) 8,846,501 13,077,324 46,481,355 46,076,800

17.b Non Quoted Equity Investments 31.12.2008 31.12.2007 No of shares Cost No of shares Cost

Held by Seylan Merchant Bank Ltd.

Ceylinco Sports Complex Ltd. 300,000 3,000,000 300,000 3,000,000

Ceylinco Investment & Realty 100,000 1,000,000 100,000 1,000,000

Seraka Investment Ltd. (Note 17.b.1.) 5,655,900 48,645,300 5,655,900 48,645,300

South Asian Travels 30,000 300,000 30,000 300,000

Ceylinco Express Ltd. 37,050 370,500 37,050 370,500

Ceylinco Savings Bank Ltd 1,189,600 11,896,000 1,189,600 11,896,000

Ceylinco Coloured Stone (Pvt) Ltd. 500,000 5,000,000 500,000 5,000,000

Openarc Global Solutions (Pvt) Ltd. 45,000 450,000 45,000 450,000

70,661,800 70,661,800

Less- Provision for Diminution in Value - (70,661,800) (2,000,000)

- 68,661,800

17.b.1. The investment made in the Seraka Investment Limited is 10% Non cumulative Non Redeemable Preference Shares

17.c Investment in Debentures17.c.1 Quoted Debenture Investments

31.12.2008 31.12.2007 No of shares Cost No of shares Cost

Seylan Merchant Leasing PLC. 79,500 7,950,000 79,500 7,950,000

Seylan Bank PLC 10,000 1,047,203

8,997,203 7,950,000

Net Carrying Amount of Investments 8,997,203 7,950,000

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

39

17.c.2 Unquoted Debenture Investments Contd.

31.12.2008 31.12.2007 No of shares Cost No of shares Cost

Ceylinco Automobiles Ltd 17,600,000 - -Less- Provision for Diminution in Value (17,600,000) - -

8,997,203 7,950,000

18 Loans and Advances GROUP BANK 2008 2007 2008 2007

As at 31 December Rs. Rs. Rs. Rs.

Staff Loans 973,303 689,225 973,303 689,225Other Loans 1,231,727,512 1,070,075,498 927,279,115 983,648,946 1,232,700,815 1,070,764,723 928,252,418 984,338,170

Less:Loan loss Provision (Note 18.c) (243,304,157) (24,559,527) (243,304,157) (24,559,527) Interest in suspense (Note 18.c) (33,076,486) (73,244,228) (33,076,486) (73,244,228) 956,320,172 972,960,968 651,871,775 886,534,416

18.a Movement in Loan Loss Provision 2008 2007 Specific General Specific General

GROUPBalance brought Forward 120,496,998 - 112,019,995 -Additional Provision made - Loans 218,744,630 - 2,431,876 -Additional Provision made - Leases 89,847,616 - 9,053,697 -Reversal of Provision for write off - - (3,008,570) -Transfer from /to General / Specific Reserve 429,089,244 - 120,496,998 -

Loan and Advances

BANK Specific General Specific General

Balance brought Forward 80,836,229 - 79,075,275 -Additional Provision made - Loans 218,744,630 - 2,431,876 -Additional Provision made - Leases 57,895,540 - 2,337,648 -Reversal of Provision for write off - - (3,008,570) -Transfer from/to General/Specific Reserve 357,476,399 - 80,836,229 -

18.b Movement in Interest in Suspense GROUP BANK 2008 2007 2008 2007

As at 31 December Rs. Rs. Rs. Rs.

Balance Brought forward 131,599,971 121,325,311 105,705,408 107,229,429Interest Suspended during the year 71,403,187 61,890,453 21,999,528 16,153,951Interest Recovered during the year (112,712,198) (51,615,793) (65,811,213) (17,677,972)Reversal of Interest for write off - - - - 90,290,960 131,599,971 61,893,723 105,705,408

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

40

18.c Analysis for Provision for Loan Losses and Interest in Suspense

GROUP BANK As at 31 December As at 31 December

2008 2007

Loan Loss Interest in Loan Loss Interest in

Provision Suspense Provision Suspense

GROUPLoans and Advances 243,304,157 33,076,486 24,559,527 73,244,228

Lease Rental Receivable 185,785,087 57,214,475 95,937,471 58,355,743

429,089,244 90,290,960 120,496,998 131,599,971

BANKLoans and Advances 243,304,157 33,076,486 24,559,527 73,244,228

Lease Rental Receivable 114,172,242 28,817,238 56,276,702 32,461,180

357,476,399 61,893,724 80,836,229 105,705,408

18.d Non performing assets included in the Bills of Exchange ,Loans and advances, and lease rentals receivable on which

interest is not being accrued are as follows.

GROUP BANK As at 31 As at 31

December December December December

2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Loans and Advances 163,292,906 99,817,910 163,292,906 99,817,910

Lease Rentals Receivable 333,863,521 264,080,048 148,622,729 146,471,666

497,156,427 363,897,958 311,915,635 246,289,576

18.e Concentration of Credit RiskSector wise analysis of Bank’s credit portfolio given below reflects the Bank’s exposure to credit risk in the various sectors of the

economy.

GROUP BANK 2008 2007 2008 2007

As at 31 December Rs. Rs. Rs. Rs.

Foods, Beverages and Tobacco 43,046,986 49,394,339 10,526,968 18,226,057

Agriculture, Agro Business and Fisheries 255,382,378 293,787,809 62,452,738 108,404,999

Textiles and Wearing apparel 93,231,296 107,320,684 22,799,340 39,600,345

Wood and Paper products 69,811,951 80,411,036 17,072,233 29,670,933

Rubber and Leather products 91,670,006 105,427,565 22,417,533 38,901,802

Metals , Chemicals and Engineering 181,109,599 208,307,792 44,289,627 76,863,659

Hotels 40,593,531 46,798,729 9,926,985 17,268,301

Services 832,613,465 957,767,250 203,612,288 353,407,304

Others 622,731,528 716,202,079 152,286,501 264,271,980

2,230,190,740 2,565,417,283 545,384,213 946,615,380

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

41

18.f Loans and Advances - F & G Property Developers (Pvt) LtdLoans and Advances of the Group includes Loans of Rs. 12Mn and 7.258Mn were granted by Seylan Merchant Leasing PLC

to Finance and Guarantee Property Developers Ltd, a related company on 04 June and 31 December 2008 respectively. The

borrower company has provided land and buildings as security and effected mortgage bonds for the loans subsequent to the

Balance sheet date, on 06 and 22 January 2009 respectively. The loans outstanding as at the balance sheet date were Rs.6.389Mn

and Rs. 7.258Mn respectively totalling Rs. 13.647Mn of which the net exposure to the Company of Rs. 5.897Mn, after allowing for

the value of the securities mortgaged, has been provided for. The Board of Directors is of the opinion that the mortgage bonds are

valid and the balance of the loans totalling Rs. 7.750Mn covered by the mortgage are recoverable.

19 Lease Rentals Receivable GROUP BANK 2008 2007 2008 2007

As at 31 December Rs. Rs. Rs. Rs.

19.a Lease Rentals Receivable after One YearFrom the Balance Sheet date 1,547,529,562 1,264,995,906 613,963,705 443,332,742

Less: Unearned Income (400,848,476) (403,271,919) (174,540,730) (126,122,809)

Less: Pre-paid Rentals (28,355,829) (76,183,833) (15,607,214) (54,476,507)

1,118,325,257 785,540,154 423,815,761 262,733,427

Less: Interest in Suspense (Note 18.c) (57,214,476) (58,355,743) (28,817,238) (32,461,180)

Less: Loan Loss provision (Note 18.c) (185,785,087) (95,937,471) (114,172,242) (56,276,702)

875,325,694 631,246,940 280,826,281 173,995,545

19.b Lease Rentals Receivable after One Year & within Five YearsFrom the Balance Sheet date (note 19.C) 1,330,188,123 2,133,570,139 264,557,933 826,544,531

Less: Unearned Income (224,437,025) (395,891,480) - (122,467,333)

1,105,751,098 1,737,678,659 264,557,933 704,077,198

19.c Lease Rentals Receivable after Five YearsFrom the Balance Sheet date 7,077,232 13,264,559 - -

Less: Unearned Income (962,845) (1,768,056) - -

6,114,387 11,496,503 - -

19.d Lease Rentals Receivables 1,358,543,952 2,188,046,645 280,165,147 859,313,711

Less : Deposit of Rentals (28,355,829) (54,476,506) (15,607,214) (32,769,180)

1,330,188,123 2,133,570,139 264,557,933 826,544,531

19.e The Group lease rental receivable includes a lease facility of Rs. 43,478,260.87 granted by Seylan Merchant Leasing PLC to

the Golden Key Eye Hospital Ltd, a related company which is a subsidiary of Golden Key Credit Card Company Ltd on 29th May

2007.The assets under lease are hospital equipments and were invoiced to Seylan Merchant Leasing PLC. The Directors are of the

opinion that the current value of these hospital equipments has not diminished significantly since then. The capital outstanding on

this lease facility as at 31 December 2008 was Rs. 37,578,474. Since 31st December 2008 Golden Key Eye Hospital Ltd. has paid

Rs. 1,580,232/- towards the repayment of this facility.

In addition to the leased assets Seylan Merchant Leasing PLC holds a secondary concurrent mortgage with Central Finance

Company PLC. for Rs. 50 Million over commercial property at Cotta Road, Rajagiriya worth over 700mn which houses the said

hospital.

Seylan Merchant Leasing PLC has made a claim to the Attorney General of Sri Lanka for the amount due from Golden Key Eye

Hospital Ltd consequent to an interim order of the Supreme Court dated 27.04.2009 on the Fundamental Rights application No.

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

42

191/09 filed by deposit holders of Golden Key Credit Card Company Ltd. which extended to associate and subsidiary companies as

well.The Company has made a claim in compliance with the order calling upon the affected parties to submit evidence of proof to

grant relief. The Board of Directors is of the opinion that this lease is recoverable.

20 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES.

2008 2007Name Of The Company Principal Cost As At Cost As At

Activity % Holding No Of Shares 31/12/2008 % Holding No Of Shares 31/12/2007

20.a Held by Seylan Merchant Bank PLC.

Investments in Subsidiaries - QuotedSeylan Merchant Leasing PLC Leasing of

properties both

movable &

immovable 80.88 18,370,791 199,645,425 83.95 19,069,057 208,290,267

Investments in Subsidiaries - UnquotedSMB Real Estate Ltd. Property

Development

Activities 100.00 1,260,007 61,801,400 100.00 1,050,000 48,500,000

SMB Money Brokers(Pvt) Ltd Money Market

Activities 51 1,275,000 12,750,000 51 1,275,000 12,750,000

SMB Securities (Pvt) Ltd. Stock Brokering

Activities 49.50 5,000,000 50,000,000 49.50 5,000,000 50,000,000

324,196,825 319,540,267

20.b Held by SMB Money Brokers (Pvt) Ltd - Quoted

Seylan Merchant Leasing PLC Leasing of

properties both

movable &

immovable 1.89 359,850 3,995,418 1.89 359,850 3,995,418

20.c Held by SMB Real Estate Limited - Quoted

Seylan Merchant Leasing PLC Leasing of

properties both

movable &

immovable 0.35 80,267 1,284,278 0.35 80,267 1,284,278

SMB Securities (Pvt) Ltd. Stock Brokering

Activities 47.52 4,800,000 48,000,000 47.52 4,800,000 48,000,000

20.d Investments in Associates

SMB Kenenga Investment Investment Banking 49.00 4,900,000 49,000,000 49.00 4,900,000 49,000,000

Corporation Ltd. -

Balance as at 31st December 4,900,000 49,000,000 4,900,000 49,000,000

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

43

GROUP BANK As at 31 As at 31

December December December December

2008 2007 2008 2007

Rs. Rs. Rs. Rs.

20.d 1 GroupInvestment At Cost 49,949,850 49,000,000Share of Profit After Tax 4,365,092 949,850Balance as at 31 December 54,314,942 49,949,850

21 Investment PropertiesBalance as at 01 January 27,505,400 23,186,650 27,505,400 23,186,650Add : Additions during the year - 15,000,000 - 15,000,000Less : Disposals (11,189,400) (10,681,250) (11,189,400) (10,681,250)Balance as at 31 December 16,316,000 27,505,400 16,316,000 27,505,400

21.a Details of Investment Properties GROUP BANK

December December December December

2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Property Location Cost Market Value Cost Market Value Cost Market Value Cost Market Value

Maradana Road, Borella. - 18,250,000 11,189,400 18,250,000 - 18,250,000 11,189,400 18,250,000

Halpe Village, Katana 647,000 855,000 647,000 855,000 647,000 855,000 647,000 855,000

Dorakumbura, Kurunegala 669,000 669,000 669,000 669,000 669,000 669,000 669,000 669,000

Nugegoda,Kotte 15,000,000 15,030,000 15,000,000 15,030,000 15,000,000 15,030,000 15,000,000 15,030,000

16,316,000 34,804,000 27,505,400 34,804,000 16,316,000 34,804,000 27,505,400 34,804,000

22 Property, Plant and EquipmentBANK

Computer Office machine Furniture Motor 31.12.08 31.12.07

Equipment & equipment & Fittings Vehicles Total Total

Rs Rs Rs Rs Rs Rs

Cost / ValuationBalance as at 01 January 38,859,347 12,083,325 13,439,994 5,657,555 70,040,221 75,725,774Additions for the Year 1,051,038 93,068 796,483 114,783 2,055,372 1,626,442Surplus on revaluation - - - - - (7,311,995)Disposals - - (39,000) - (39,000) -As at 31 December 39,910,385 12,176,393 14,197,477 5,772,338 72,056,593 70,040,221

Accumulated DepreciationBalance as at 01 January 33,939,208 8,398,425 10,255,056 5,500,307 58,092,996 54,742,448Charge for the year 2,971,873 1,363,810 1,304,513 268,523 5,908,719 6,849,013Disposals - - - - - (3,498,465)As at 31 December 36,911,081 9,762,235 11,559,569 5,768,830 64,001,715 58,092,996

Capital Work in ProgressNet book value as at 31.12.08 2,999,304 2,414,158 2,637,908 3,508 8,054,878 11,947,225

Net book value as at 31.12.07 4,920,139 3,684,900 3,184,938 157,248 11,947,225

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

44

GROUP Free Hold Computer Office machine Furniture Motor 31.12.08 31.12.07

Land Equipment & equipment & Fittings Vehicles Total Total

Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Cost / ValuationBalance as at 01 January 326,316 68,468,578 24,803,064 27,286,621 13,099,815 133,984,394 125,794,468

Additions for the Year - 15,873,264 1,731,634 4,745,048 1,401,783 23,751,729 18,477,833

Disposals - - (13,875) (158,745) (3,949,100) (4,121,720) (10,287,907)

Write Off (326,316) - - - (1,037,281) (1,363,597) -

As at 31 December - 84,341,842 26,520,823 31,872,924 9,515,218 152,250,806 133,984,394

Accumulated DepreciationBalance as at 01 January - 42,192,847 17,262,525 16,384,527 10,568,217 86,408,116 74,878,942

Charge for the year - 9,790,811 3,110,273 4,352,744 1,599,703 18,853,531 17,524,483

Disposals - - (10,637) (82,017) (3,014,755) (3,107,409) (5,995,309)

As at 31 December - 51,983,658 20,362,161 20,655,254 9,153,165 102,154,238 86,408,116

Net book value as at 31.12.08 - 32,358,184 6,158,662 11,217,670 362,053 50,096,568 -

Net book value as at 31.12.07 326,316 26,275,731 7,540,539 10,902,094 2,531,598 47,576,278

23 Intangible Assets GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Balance as at 01 January 26,847,978 28,286,262 - -

Payment made during the Year - - -

Amortised during the year (1,438,284) (1,438,284) - -

Balance as at 31 December 25,409,694 26,847,978 - -

The intangible assets of the Group comprised of the payment made for member license fee of Colombo Stock Exchange. This

amount has been amortised over 20 years on straight line basis to the income statement.

GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

24 Other AssetsDeposits & Prepayments 3,420,453 61,849,754 3,234,404 42,939,572

Sundry Debtors 27,616,250 60,997,382 - -

Land Stock -Real Estate (Note 37.C) 1,691,853 19,921,984 1,691,853 1,691,853

Easy Payment Debtors - SMB Real Estate Limited - 23,432,086 - -

Other Assets 261,574,796 92,175,578 38,431,826 78,843,310

294,303,352 258,376,784 43,358,083 123,474,735

Other assets of the Bank includes Rs. 13.3Mn and Seylan Merchant Leasing PLC includes Rs. 21.1Mn Economic Service Charge

receivables.

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

45

25 Deferred Taxation GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Balance as at the beginning of the Period 7,369,253 - - -

Provisions made during the year for subsidiaries (5,194,511) 7,369,253 - -

Reversal made during the year 1,500,254 - - -

Balance as at the end of the Period - - - -

3,674,996 7,369,253 - -

BankSeylan Merchant Bank PLC has not recognised deferred tax asset, since it is not possible that future taxable profits will be available

against which Company can utilise the benefits there from. The details of unaccountinted differed taxtation has been disclosed in

note no 10.b to the Financial Statament

GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

26 DepositsSavings 85,060,834 40,198,180 - -

Fixed Deposits 1,483,802,777 1,097,049,828 - -

1,568,863,611 1,137,248,009 - -

27 BorrowingsPromissory Notes/FD 1,359,268,658 1,563,191,126 1,427,218,641 1,260,495,057

Borrowings under Repo’s 43,617,648 69,814,312 43,617,648 69,814,312

Refinance Borrowings 5,334,448 7,139,884 5,176,448 7,139,884

Other Borrowings 340,715,309 353,795,414 185,509,854 410,312,697

1,748,936,063 1,993,940,735 1,661,522,591 1,747,761,950

28 Group Balances PayableName of The Company

Seylan Bank Ltd. 197,848,000 153,000,000 197,848,000 153,000,000

197,848,000 153,000,000 197,848,000 153,000,000

28.a Rs.350 Mn Lease portfolio has been pleadged to Seylan Bank PLC as security to for the Treasury Loan and the Temporary

Overdraft of Rs.30Mn.

28.b Treasury Loan of Rs.153 Mn has been obtained from Seylan Bank PLC. under ordinary market terms and conditions.

29 Other Liabilities GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Accrued Expenses 18,597,575 41,753,095 1,564,593 5,084,103

Provision for Gratuity (Note 29 a) 8,957,446 8,007,036 1,918,126 2,955,473

Others 359,252,797 364,039,470 59,925,342 221,853,254

386,807,818 413,799,601 63,408,061 229,892,830

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

46

29.a Provision for Gratuity GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Balance as at the beginning of the period 8,007,036 8,573,932 2,955,473 5,265,783

Transitional Liability 966,500 - - -

Gratuity Charge 2,721,283 - 424,719 -

Interest Cost 845,472 - 252,302 -

Payments (2,366,520) (2,027,124) (2,400,912) (2,027,124)

(Gain)/Loss arising from changes in the

assumptions or due to (over)/under (1,216,325) - 686,545 -

Provision made during the year - 1,460,228 - -

Transfers - - - (283,186)

Balance as at end of the period 8,957,446 8,007,036 1,918,126 2,955,473

GROUP BANKAs at 31 December 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

30 Debentures 340,308,507 506,768,585 255,174,402 395,726,585

340,308,507 506,768,585 255,174,402 395,726,585

30.a Bank

Unquoted

August 1998 Unsecured Redeemable Debentures of each Rs 100/= 50,000,000

October 1998 Unsecured Redeemable Debentures of each Rs 100/= 130,090,000

May 1999 Unsecured Redeemable Debentures of each Rs 100/= 106,000,000

December 1999 Unsecured Redeemable Debentures of each Rs 100/= 61,670,000

July 2000 Unsecured Redeemable Debentures of each Rs 100/= 55,730,000

February 2001 Unsecured Redeemable Debentures of each Rs 100/= 3,200,000

July 2001 Unsecured Redeemable Debentures of each Rs 100/= 52,400,000

January 2002 Unsecured Redeemable Debentures of each Rs 100/= 47,740,000

February 2003 Unsecured Redeemable Debentures of each Rs 100/= 400,000,000

February 2004 Unsecured Redeemable Debentures of each Rs 100/= 200,000,000

September 2004 Unsecured Redeemable Debentures of each Rs 100/= 200,000,000

Quoted

November 2006 Unsecured Redeemable Debentures of each Rs 100/= 95,000,000

March 2007 Unsecured Redeemable Debentures of each Rs 100/= 100,000,000

Seylan Merchant Leasing PLC

Unquted

March 2002 Unsecured Redeemable Debentures of each Rs 100/= 50,000,000

January 2003 Unsecured Redeemable Debentures of each Rs 100/= 100,000,000

Quoted

June 2005 Unsecured Redeemable Debentures of each Rs 100/= 100,000,000

SMB Real Estate Limited

Unquoted

February 2005 Unsecured Redeemable Debentures of each Rs 100/= 50,000,000

February 2006 Unsecured Redeemable Debentures of each Rs 100/= 50,000,000

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

47

GROUP BANK 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

30.b Movement In DebenturesBalance as at the beginning of the period 506,768,585 679,112,417 395,726,585 497,947,517

Add: issued during the period - 100,000,000 - 100,000,000

Less: redemption made during the period (166,460,078) (272,343,832) (140,552,183) (202,220,932)

Balance as at the end of the period 340,308,507 506,768,585 255,174,402 395,726,585

31 Stated Capital44,503,120 Voting Ordinary Shares 445,031,200 445,031,200 445,031,200 445,031,200

100,000,000 Non Voting Ordinary Shares 100,000,000 100,000,000 100,000,000 100,000,000

Share Premium 20,754,845 20,754,845 20,754,845 20,754,845

565,786,045 565,786,045 565,786,045 565,786,045

32 Statutory Reserves FundBalance as at the beginning 4,420,527 2,910,658 1,239,777 1,226,432

Provision made during the year - 1,509,869 - 13,345

Reversals made during the year - - - -

Balance as at the end 4,420,527 4,420,527 1,239,777 1,239,777

The statutory Reserve has been created during the year 2006 in accordance with the Finance Leasing (Amendment) Act No. 24 of

2005.

33 Reserves GROUP BANK 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Retained profits / (Loss) (730,802,144) (42,701,579) (778,964,904) (160,289,375)

Reserve on Script Issue 8,316,030 8,316,030 - -

(722,486,114) (34,385,549) (778,964,904) (160,289,375)

The reserve on script issue was created during the year 2004 by Seylan Merchant Leasing PLC., with an intention to issue bonus

shares to raise the Share Capital

34 Commitments and ContingenciesIn the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal recourse

to its customers. No material losses are anticipated as a result of these transactions.

GROUP BANK 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

Guarantees - 8,865,000 - 8,865,000

- 8,865,000 - 8,865,000

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

48

35 Post Balance Sheet EventsDue to the net asset position of the Company being less than half of its stated capital, an Extra Ordinary General (EGM) meeting

was held on 31st March 2009.

Management of the Parent Company (Seylan Bank PLC) was changed by the Central Bank of Sri Lanka.

SMB Real Estate Limited which was a fully owned subsidiary of Seylan Merchant Bank PLC was disposed during February 2009.

Seylan Merchant Leasing PLC which was a 80.88% owned subsidiary of Seylan Merchant Bank PLC was disposed during June

2009.

The below mentioned Directors have resigned from the Company on the dates given below.

Deshamanya Dr.J.L.B.Kotelawala 06th February 2009

Mr. A.D.Jegasothy 02nd January 2009

Ms. Leonie Seneviratne 05th January 2009

36 Related Party DisclosureDirectors of Seylan Merchant Bank PLC,who are Directors of Companies with whom we have dealings, are listed below. Except for

the transactions in the normal course of business between the Seylan Merchant Bank PLC and those companies, the Directors have

no direct or indirect interest in contracts entered into or proposed with the Company.

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

49

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Tran

sact

ion

with

Par

ent

Co

mp

any

Seyl

an B

ank

PLC

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala*

Ch

airm

an

Ban

k Ba

lan

ce-

913

,678

-

8,0

86,4

87

Mr.

R. R

eng

anat

han

(Res

ign

ed w

.e.f.

29

/09/

08 )

Jt.D

epu

ty

Ch

airm

an

Ban

k O

verd

rafts

& O

D In

tere

st

(4,

570,

806)

(58,

963,

150)

-

(1

9,91

7,94

1)

Mrs

. S.P

.C. K

ote

law

ala*

Dire

cto

r D

eben

ture

(23

,037

,403

)

(128

,724

,000

)

(21,

365,

990)

(

173,

572,

000)

Mr

A.D

.Jeg

aso

thy

(Res

ign

ed w

.e.f.

19

/09/

08 )

Dire

cto

r Tr

easu

ry L

oan

(

32,8

64,9

46)

(197

,848

,000

)

(3

0,38

9,87

3)

(1

53,0

00,0

00)

Sho

rt T

erm

Lo

an-

(5

0,00

0,00

0)-

(

50,0

00,0

00)

Rep

o B

orr

ow

ing

s-

(43,

617,

648)

-

(69,

825,

000)

Ban

k C

har

ges

(1,

031,

518)

-

(4

,193

,205

)-

* N

ote

- th

e d

irect

ors

mar

ked

(*) c

ease

d t

o

ho

ld o

ffice

with

effe

ct fr

om

06t

h F

ebru

ary

2009

an

d 3

1st

Oct

obe

r 20

08 r

esp

ectiv

ely,

in

ter

ms

of t

he

Mo

net

ory

Law

pro

visi

on

s af

ore

men

tion

ed.

Tran

sact

ion

s w

ith S

ub

sid

iaries

Seyl

an M

erch

ant

Leas

ing

PLC

.D

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

C

all I

nve

stm

ent

Inte

rest

--

91

0,36

5-

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

Ch

airm

an

Fixe

d d

epo

sits

--

-

(16

,869

,754

)

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fixe

d D

epo

sits

Inte

rest

--

(1,7

19,0

27)

(1,5

33,8

93)

Mr.

R. R

eng

anat

han

Dire

cto

r D

eben

ture

s

99

3,75

0

7,

950,

000

7,

950,

000

Mr.

A.D

.Jeg

aso

thy

Dire

cto

r D

eben

ture

Inte

rest

--

(

993,

750)

-

Mr

M. S

. I. P

eiris

Dire

cto

rO

per

atin

g L

ease

Exp

ense

s-

--

-

Mr.

E.T.

L. R

anas

ing

he

Dire

cto

rFi

nan

ce L

ease

Inte

rest

Exp

ense

--

--

Div

iden

d In

com

e 8

,266

,076

-

17,

073,

141

-

SMB

Real

Est

ate

Ltd

.D

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

In

vest

men

t in

Pro

mis

sory

no

tes

(

56,7

20,0

00)

-

(

23,8

50,0

00)

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

Ch

airm

an

Inte

rest

on

Cal

l Dep

osi

ts-

-

(3

,505

,031

)-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Term

Lo

an

-

4

4,19

9,92

5 1

,422

,690

39,2

00,0

00

Mr.

R. R

eng

anat

han

Dire

cto

r Q

uic

k C

ash

Lo

an

154

,945

1,7

97,3

70

-

2

,310

,000

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r Le

ase

Tru

st (

198,

888)

-

(315

,881

)

(2,1

05,0

03)

Inve

stm

ent

on

Deb

entu

res

(1,

607,

400)

(9

,702

,000

) (1

,704

,272

)(9

,469

,000

)

Div

iden

d In

com

e

-

22,5

00,0

00

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

50

Notes to the Financial Statements Contd.

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

SMB

Secu

ritie

s (P

vt) L

td.

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Reve

rse

Rep

o L

end

ing

--

-36

,976

,096

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

Ch

airm

an

Inte

rest

Exp

ense

--

--

Mr.

A.D

.Jeg

aso

thi

Dire

cto

rD

eben

ture

In

tere

st r

ecei

vabl

e-

-(3

28,1

92)

(

3,00

0,00

0)

Mr.

R. R

eng

anat

han

Dire

cto

rC

all I

nve

stm

ents

--

--

SMB

Mo

ney

Bro

kers

(Pvt

) Ltd

.D

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Re

po

Bo

rro

win

gs

--

-

(9,2

01,4

85)

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

Ch

airm

an

Inve

stm

ent

in D

eben

ture

s-

--

(1,

000,

000)

Mrs

. S.P

.C. K

ote

law

ala

Dire

cto

r In

vest

men

t in

Pro

mis

sory

No

tes

(9

,721

) (

488,

445)

-

(3

60,0

00)

Mr.

R. R

eng

anat

han

Dire

cto

r Sh

ort

Ter

m L

end

ing

--

--

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r In

tere

st P

ayab

le-

--

(

246,

468)

Cal

l In

vest

men

ts-

--

(1

,500

,000

)

Div

iden

d In

com

e1,

170,

391

--

-

Tran

sact

ion

s w

ith A

sso

siat

e C

om

pan

ySM

B- K

enan

ga

Inve

stm

ent

Co

rpo

ratio

n L

td.

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fee

Inco

me

-

-

(1,5

95,0

00)

-

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

Ch

airm

an

Lien

Co

mm

issi

on

(2

49,3

75)

-

(8

3,69

9)-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Div

iden

d In

com

e

837,

900

-

-

-

Tran

sact

ion

s w

ith o

ther

Rel

ated

Co

mp

anie

s

The

Fin

ance

Co

mp

any

PLC

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-

29,

433,

337

8,42

2,33

7 54

,561

,585

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se I

nte

rest

Inco

me

13,

214,

998

--

-

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r

Cey

linco

Cap

ital M

arke

t Lt

dD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

-

4,

970,

594

147,

212

739,

960

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

C

hai

rman

Fi

nan

ce L

ease

In

tere

st In

com

e40

0,24

4 -

--

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

Inte

rest

1,03

5,00

0-

55,7

52

-

Mr.

R. R

eng

anat

han

Dire

cto

r Q

uic

k Fu

nd

Lo

an-

9,00

0,00

0 -

-

Easy

Pay

men

t Lo

an6,

354

9,00

9,62

8

Loan

-39

,221

,832

1,

025,

962

(12,

000,

000)

Pro

ceed

fro

m D

isp

osa

l of

Inve

stm

ent

in S

MB

Mo

ney

Br

oke

rs L

td

--

-12

,948

,250

Dis

po

sal P

roce

eds

of T

reas

ury

Bo

nd

s &

Oth

ers

--

-13

,837

,957

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

51

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Cey

linco

Bu

ildin

g S

oci

ety

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Qu

ick

Cas

h L

oan

82,4

05

2,55

1,59

2 33

,828

2,

669,

197

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r Pr

ovi

sio

n fo

r Ba

d &

Do

ubt

ful

Deb

ts-

(2,5

51,5

92)

--

Mr.

R. R

eng

anat

han

Dire

cto

r

Cey

linco

Ind

ust

ries

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Qu

ick

Cas

h L

oan

-1,

079,

708

-1,

154,

272

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Inte

rest

Inco

me

11,8

61

--

-

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(1

,079

,708

)-

-

Cey

linco

Co

mp

ute

r Fo

rms

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Inte

rest

Inco

me

34,4

22

-14

,617

1,

168,

692

(Pvt

) Ltd

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

-1,

101,

792

--

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(1

,101

,792

)-

-

Cey

linco

Des

ign

& P

roje

ct

Man

agem

ent

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Qu

ick

Cas

h L

oan

-8,

373,

285

--

Co

.(Pvt

) Ltd

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Inte

rest

Inco

me

252,

567

-96

4,18

0 9,

170,

406

Mr.

A.D

.Jeg

aso

thi

Dep

uty

C

hai

rman

Cey

linco

Prin

ting

& S

tatio

nar

y (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

In

tere

st In

com

e45

,567

-

14,6

17

1,16

8,71

2

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

-1,

108,

830

--

Cey

linco

Lan

d E

xch

ang

e (P

vt)L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

Inte

rest

Inco

me

5,76

9 -

30,7

09

29,6

19

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Cey

linco

Inte

rnat

ion

al R

ealit

y (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Q

uic

k C

ash

Lo

an In

tere

st

Inco

me

--

105

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Mr

A D

Jeg

aso

thi

Dire

cto

r

Cey

linco

Sec

urit

ies

& F

inan

cial

Se

rvic

esD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Pr

om

isso

ry N

ote

-5,

000,

000

--

Ltd

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

Inte

rest

In

com

e62

5,00

0 -

--

Mr

A D

Jeg

aso

thi

Dire

cto

r

Mr.

R. R

eng

anat

han

Dire

cto

r

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

52

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Cey

linco

PLC

Tec

hn

olo

gy

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Inte

rest

Inco

me

125,

496

-19

1,75

2 68

8,20

2

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

-

426,

376

--

Mr

A.D

.Jeg

aso

thy

Dire

cto

r Pr

ovi

sio

n fo

r Ba

d a

nd

Do

ubt

ful

Deb

ts-

(426

,376

)-

-

Mr.

R. R

eng

anat

han

Dire

cto

r

Cey

lico

Sey

lan

Dev

elo

pm

ent

PLC

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Qu

ick

Cas

h L

oan

- -

-13

,685

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se

95,8

70

83,7

08

454,

212

Mr

A.D

.Jeg

aso

thy

Dire

cto

r Fi

nan

ce L

ease

Inte

rest

Inco

me

179,

055

--

-

Mr.

R. R

eng

anat

han

Dire

cto

r Se

cru

tisat

ion

s Pa

per

s-

59,0

03,1

01

18,

667,

741

98,3

38,8

42

Term

Lo

an49

7,54

2

19

,791

,135

-

-

Inte

rest

Rec

eiva

bles

-28

,308

,433

-

-

Cey

linco

Dig

ital H

ou

se (P

vt)L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

-

266,

203

128,

916

635,

920

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e12

9,15

9 -

--

Cey

linco

Su

ssex

Ed

uca

tion

al

Serv

ices

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-9,

605,

777

4

,630

,978

13

,314

,048

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e3,

830,

592

--

-

Cey

linco

Su

ssex

Ed

uca

tion

al

Serv

ices

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-7,

041,

953

--

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e-

--

-

Cey

linco

Au

tom

obi

les

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-

2,5

08,7

11

312,

857

1,6

68,5

33

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

C

hai

rman

Fi

nan

ce L

ease

In

tere

st In

com

e28

6,24

3 -

--

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

3,47

8,84

8 27

,530

,057

5,32

7,20

3 28

,937

,584

Mr.

R. R

eng

anat

han

Dire

cto

r Lo

an-

4,50

0,00

0 -

4,50

0,00

0

Mr.

M.S

.I Pe

iris

Dire

cto

r Pr

ovi

sio

n fo

r Ba

d a

nd

Do

ubt

ful

Deb

ts-

(31,

092,

372)

-

Mr.

M.S

.I Pe

iris

Dire

cto

r

Inte

rnat

ion

al C

on

sulta

ncy

&

Co

rpo

rate

Ser

vice

s (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Se

cret

aria

l Fee

s(1

,032

,878

)-

(1,4

05,7

05)

-

Mr.

A.D

.Jeg

aso

thi

Dep

uty

C

hai

rman

La

dy

(Dr)

. S.P

.C. K

ote

law

ala

Dire

cto

r

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

53

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Sara

na

Inte

rnat

ion

al L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

a C

hai

rman

D

on

atio

n(1

,495

,999

)-

(

894,

000)

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Mr.

R. R

eng

anat

han

Dire

cto

r

Cey

linco

Co

nsu

ltan

cy a

nd

Alli

ed

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Inte

rset

Inco

me

162,

245

-16

5,68

5 16

,263

,892

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Qu

ick

Cas

h L

oan

15

,791

,393

-

200,

000

Mr.

R. R

eng

anat

han

Dire

cto

r D

eben

ture

-32

8,00

0 -

-

Loan

--

--

Pro

visi

on

for

Bad

an

d D

ou

btfu

l D

ebts

-(3

28,0

00)

--

Cey

linco

Ed

uca

tion

al S

ervi

ces

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-11

9,33

1 -

-

Mr

A.D

.Jeg

aso

thy

Dire

cto

r Fi

nan

ce L

ease

Inte

rest

Inco

me

91,4

64

--

-

Cey

linco

Fo

liag

e Ex

po

rts

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-2,

210,

475

416,

423

2,69

6,44

6

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Fin

ance

Lea

se In

tere

st In

com

e64

2,87

5 -

--

Pro

visi

on

for

Bad

an

d D

ou

btfu

l D

ebts

(400

,775

)-

-

Cey

linco

Gra

mee

n A

uto

mo

bile

s (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

a C

hai

rman

Fi

nan

ce L

ease

-

22,3

82

44,0

07

176,

095

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Fin

ance

Lea

se In

tere

st In

com

e26

,784

-

--

Loan

Inte

rest

Inco

me

2,41

1,54

3 2,

271,

135

12,5

05,0

28

F S

Loan

-12

,194

,959

-

-

Cey

linco

Inve

stm

ents

Co

rpo

ratio

n

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-1,

292,

846

389,

930

1,92

7,31

0

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Fin

ance

Lea

se In

tere

st In

com

e29

7,88

3 -

--

Qu

ick

Cas

h L

oan

134,

197

1,55

0,24

0 40

,245

1,

759,

392

Sho

rt t

erm

bo

rro

win

gs

-(1

0,00

0,00

0)-

-

Cey

linco

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se-

89,8

18

109,

352

687,

490

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Fin

ance

Lea

se In

tere

st In

com

e27

2,14

5 -

--

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

54

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Mr.

R. R

eng

anat

han

Dire

cto

r

Cey

lico

Mai

ni (

Pvt)

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se In

tere

st In

com

e8,

854

- 95

,555

81

4,36

0

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Fun

d L

oan

- 1,

350,

043

--

Mr.

R.S.

W. S

enan

ayak

aD

irect

or

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(1

,350

,043

)-

-

Cey

linco

Sto

ck B

roke

rs (P

vt)L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

Inte

rest

Inco

me

8,78

5 -

86,1

24

158,

244

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Cey

linco

Un

iver

sal L

td.

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Qu

ick

Cas

h L

oan

201,

442

2,55

9,68

7 20

1,70

9 2,

574,

912

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(2

,559

,687

)-

-

Mr.

R. R

eng

anat

han

Dire

cto

r

Cey

linco

Exp

ress

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Cu

rrie

r C

har

ges

(127

,973

)-

(169

,913

)-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Mr

A.D

.Jeg

aso

thy

Dire

cto

r

Cey

linco

Insu

ran

ce C

o P

LCD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

In

sura

nce

Co

mm

issi

on

3,90

8,31

4 -

5

,463

,842

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Inve

stm

ent

in P

rom

isso

ry n

ote

s(2

1,93

1,42

5)-

(11,

890,

000)

Mr

E T

L Ra

nas

ing

he

Dire

cto

r D

eben

ture

(30,

000,

000)

(10,

000,

000)

-(1

0,00

0,00

0)

Mr

A.D

.Jeg

aso

thy

Dire

cto

r

Seyl

an B

ank

Ass

et M

anag

emen

t (P

vt) L

tdM

r R

Ren

gan

ath

anC

hai

rman

Pr

o N

ote

s(1

1,88

8,31

2)(5

0,00

0,00

0)-

-

No

n V

otin

g S

har

e In

vest

men

t-

(3,0

00,0

00)

--

Deb

entu

re In

tere

st(1

60,0

00)

--

-

Cey

linco

CIS

CO

Sec

urit

y Tr

ansp

ort

&

Alli

ed S

ervi

ces

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Cas

h T

ran

spo

rt

Mrs

. S.P

.C. K

ote

law

ala

Dire

cto

r Lo

an-

1,26

7,33

6 -

-

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r Pr

ovi

sio

n fo

r Ba

d &

Do

ubt

ful

Deb

ts-

(1,2

67,3

36)

--

Cey

linco

CIS

CO

Tra

nsp

ort

& A

llied

Se

rvic

es (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

Inte

rest

Inco

me

-2,

432,

134

--

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se

522,

811

---

-

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

55

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Mr

A.D

.Jeg

aso

thy

Dire

cto

r

Cey

linco

CIS

CO

Tec

hn

olo

gy

&C

on

sulta

ncy

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Secu

rity

Co

nsu

ltan

cy(9

5,91

0)-

(166

,175

)-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Cey

linco

CIS

CO

Sec

urit

y C

orp

ora

tion

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Secu

rity

Ch

arg

es(1

,294

,663

)-

(1,6

41,3

53)

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Loan

-3,

687,

490

--

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r Pr

ovi

sio

n fo

r Ba

d &

Do

ubt

ful

Deb

ts-

(4,0

16,6

10)

--

Cey

linco

Dev

elo

pm

ent

Ban

k Lt

dD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

In

vest

men

t in

Pro

no

tes

-(2

07,4

96)

-(1

82,1

75)

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r

Mr.

R. R

eng

anat

han

Dire

cto

r

Cey

linco

Sav

ing

s Ba

nk

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Inve

stm

ent

in P

ron

ote

s

Mr.

R. R

eng

anat

han

Dire

cto

r Fi

nan

ce L

ease

-

4,08

8,58

8 87

,486

5,

054,

705

Lad

y (D

r). S

.P.C

. Ko

tela

wal

a D

irect

or

Fin

ance

Lea

se In

tere

st In

com

e96

1,88

3 -

--

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r M

on

ey p

lace

men

t-

--

(57,

000,

000)

Mr.

P.A

Jay

awar

den

aD

irect

or

Inte

rest

--

(3,9

16,5

62)

-

The

Fin

ance

& G

uar

ante

e C

o L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

In

vest

men

t in

Pro

no

tes

(8,1

90)

(42,

000)

--

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r

The

Go

lden

Key

Cre

dit

Co

mp

any

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-20

3,94

6 -

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e12

9,86

2 14

1,50

6 71

3,04

0

Mr

A D

Jeg

aso

thi

Dire

cto

r In

vest

men

t in

Pro

no

tes

(227

,269

)(1

,511

,589

)-

-

De

Leve

ra A

sso

ciat

esM

r.S

C O

De

Live

ra

Part

ner

Leg

al F

ee(1

23,0

23)

-(1

28,4

76)

-

Cey

linco

Co

nso

lidat

ed L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

G

rou

p E

xpen

ses

(540

,000

)-

(

603,

000)

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

56

Notes to the Financial Statements Contd.

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Mr.

R.S.

W. S

enan

ayak

aD

irect

or

Cey

linco

Inve

stm

ent

Co

. Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Gro

up

Exp

ense

s(2

,090

,000

)-

(1,4

00,0

00)

-

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r

Tsu

nam

i Ho

pe

Fou

nd

atio

n L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

G

rou

p E

xpen

ses

- -

(140

,000

)-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Mr

R Re

ng

anat

han

Dire

cto

r

Cey

linco

Inte

rnat

ion

al T

rad

ing

C

o. L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

-

1,22

6,14

7 43

6,55

3 2,

229,

386

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r Fi

nan

ce L

ease

Inte

rest

Inco

me

505,

286

--

-

The

Fin

ance

Pro

per

ty F

un

d C

o L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

-

2,20

5,92

4 73

1,63

8 3,

457,

303

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e73

5,40

9 -

--

The

Mag

nu

m F

un

d L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

-

1,03

9,06

2 -

-

Mr.

R.S.

W. S

enan

ayak

aD

epu

ty

Ch

airm

an

Fin

ance

Lea

se In

tere

st In

com

e

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Qu

ick

Cas

h L

oan

1,

184,

337

2,42

6,14

0 35

7,20

3 7,

192,

993

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r Ea

sy P

aym

ent

Loan

-1,

523,

194

604,

728

3,90

0,48

2

Mr

R Re

ng

anat

han

Dire

cto

r In

tere

st in

com

e o

n E

P60

0,44

2 -

--

Mo

ney

Pla

cem

ent

--

(531

,145

)21

,644

,351

)

Qu

ick

Fun

d L

oan

6,11

3,34

1 35

0,81

2 -

-

Deb

entu

re In

tere

st(1

,750

)(1

0,00

0)-

-

Leas

e-

1,03

9,06

2 -

-

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(4

,601

,180

)-

-

Cey

linco

Wo

rldw

ide

Trad

ing

Co

Lt

dD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Te

rm L

oan

-51

,102

-

51,1

02

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

57

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(5

1,10

2)-

-

Cey

linco

Fin

anci

al C

on

sulta

ncy

C

o. (

Pvt)

Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

4,56

4,60

5 1,

361,

251

6,24

6,33

2

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e1,

453,

010

--

-

Mr

A D

Jeg

aso

thi

Dire

cto

r

Cey

linco

Tax

& F

inan

cial

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se

-1,

869,

703

185,

181

2,34

6,48

6

Co

nsu

ltan

ts(P

vt)L

tdLa

dy

(Dr)

. S.P

.C. K

ote

law

ala

Dire

cto

r Fi

nan

ce L

ease

Inte

rest

Inco

me

519,

035

--

-

Mr.

A.D

.Jeg

aso

thi

Dire

cto

r

Cey

com

Glo

bal C

om

mu

nic

atio

nD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

- 35

6,27

5 -

356,

275

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Cey

fco

Pro

per

ty C

o.(P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Fi

nan

ce L

ease

-

1,16

4,92

4 29

6,30

1 1,

686,

175

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e45

2,57

3 -

--

F &

G R

eal E

stat

e C

o. L

td.

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Fin

ance

Lea

se-

7,74

2,47

4 -

-

Lad

y (D

r). S

.P.C

. Ko

tela

wal

aD

irect

or

Fin

ance

Lea

se In

tere

st In

com

e1,

720,

450

--

-

Cey

linco

Tra

vels

& T

ou

rs (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Te

rm L

oan

-1,

501,

759

--

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(1

,501

,759

)-

-

Op

enar

c G

loba

l So

lutio

n (P

vt) L

tdD

esh

aman

ya D

r. J

.L.B

.Ko

tela

wal

aC

hai

rman

Q

uic

k C

ash

Lo

an-

2,76

5 -

Mr.

R.S

.W. S

enan

ayak

e D

epu

ty

Ch

airm

anPr

ovi

sio

n fo

r Ba

d &

Do

ubt

ful

Deb

ts-

(2,7

65)

--

Mr.

M.S

.I. P

eiris

Dire

cto

r

CA

S Re

cove

ries

& C

ust

od

ial

Serv

ices

(Pvt

) Ltd

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Term

Lo

an-

85,6

82,2

90

--

Inve

stm

ent

in P

rom

isso

ry N

ote

Pro

mis

sory

No

te-

328,

000

--

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-(3

28,0

00)

--

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

58

Notes to the Financial Statements Contd.

Co

mp

any

Nam

e o

f D

irec

tor

Posi

tion

D

etai

ls o

f Fi

nan

cial

Dea

ling

s2

00

82

00

7

Am

ou

nt

Cap

.Ou

tsta

nd

ing

A

mo

un

t C

ap.O

uts

tan

din

g

Rec

eive

d/

Rec

eiva

ble

(

Paya

ble

/Pai

d)

Am

ou

nt

as a

t

31

.12

.20

08

R

ecei

ved

/ R

ecei

vab

le

(Pa

yab

le/P

aid

)

A

mo

un

t as

at

3

1.1

2.2

00

7

Go

lden

Key

So

ftwar

e So

lutio

ns

Des

ham

anya

Dr.

J.L

.B.K

ote

law

ala

Ch

airm

an

Pro

visi

on

for

Bad

& D

ou

btfu

l D

ebts

-41

,355

-

-

Key

Man

agem

ent

Pers

on

nel

Co

mp

ensa

tion

Key

Man

agem

ent

per

son

nel

incl

ud

es, B

oar

d o

f Dire

cto

rs o

f th

e C

om

pan

y

Gro

up

Ba

nk

(a) s

ho

rt-te

rm e

mp

loye

e be

nef

its;

7,08

8,97

0-

(b) p

ost

-em

plo

ymen

t be

nef

its;

2,81

0,84

91,

161,

311

(c) o

ther

lon

g-te

rm b

enef

its;

- -

(d) t

erm

inat

ion

ben

efits

;-

-

(e) s

har

e-ba

sed

pay

men

ts.

- -

2,81

0,84

9 1.

161.

311

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

59

37 Going ConcernBank37.a A material call for repayment of borrowings has been observed from the month of December 2008, due to external market

conditions mainly arising from adverse circumstances encountered by certain related companies. The Bank is under pressure

to honor the matured debt instruments and as at 09 October 2009 the total debt instruments which had passed the maturity

dates but were awaiting refunds amounted to Rs.188,725,725/-.The Bank’s ability to disburse new lease/loan facilities have been

curtailed due to priority being given to allocate funds to honor matured debt instruments. Further, the restrictions imposed by the

Central Bank of Sri Lanka to raise funds by issue of new debt instruments and the restriction imposed by the Monetary Board of the

Central Bank for the disposal of the repossessed assets pursuant to the orders of the Supreme Court in connection with a related

company issue have also adversely affected the Bank’s liquidity.

The Bank incurred a net loss of Rs 618,675,530/- for the year ended 31 December 2008 and its total liabilities exceeded its total

assets by Rs 211,939,082/- as of that date. These indications along with those stated in the preceding paragraph raise substantial

doubt that the Bank will be able to continue as a going concern. However, the Directors are confident that the Bank would

continue as a going concern and have put forward a plan to improve the bank’s results and liquidity position in the near future.

Their plan is to implement the following strategic initiatives on the operations of the Company.

1. Reduce the non performing loans and leases by increasing the NPL collection by 5% and increase collections of performing

loans.

2. Dispose the investments in Subsidiary and Associate Companies within the next six months with the approval of the relevant

regulatory authorities.

3. Dispose the investment properties within the next six months with the approval of the relevant regulatory authorities.

4. Reduce the overhead costs by Rs 750,000/- per month

5. Launch a rights issue.

Group37.b A material call for repayment of borrowings of Seylan Merchant Bank PLC has been observed from the month of December

2008 due to external market conditions mainly arising from adverse circumstances encountered by certain related companies. The

Company is under pressure to honor the matured debt instruments and as at 09 October 2009 the total debt instruments which

had passed the maturity dates but were awaiting refunds amounted to Rs 188,725,725.30/- . The company’s ability to disburse

new lease/loan facilities have been curtailed due to priority being given to allocate funds to honor matured debt instruments.

Further, the restrictions imposed by the Central Bank of Sri Lanka to raise funds by issue of new debt instruments and the restriction

imposed by the Monetary Board of the Central Bank for the disposal of the repossessed assets pursuant to the orders of the

Supreme Court in connection with a related company issue have also adversely affected the company’s liquidity.

Seylan Merchant Bank PLC incurred a net loss of Rs 618,675,530/- for the year ended 31 December 2008 and its total liabilities

exceeded its total assets by Rs.211,939,082/- as of that date. These indications along with those stated in the preceding paragraph

raise substantial doubt that the Company will be able to continue as a going concern. However, the Directors are confident that

the company would continue as a going concern and have put forward a plan to improve the company’s results and liquidity

position in the near future. Their plan is to implement the following strategic initiatives on the operations of the company.

1. Reduce the non performing loans and leases by increasing the NPL collection by 5% and increase collections of performing

loans.

2. Dispose the investments in Subsidiary and Associate Companies within the next six months with the approval of the relevant

regulatory authorities.

3. Dispose the investment properties within the next six months with the approval of the relevant regulatory authorities.

4. Reduce the overhead costs by Rs 750,000/- per month.

5. Launch a rights issue.

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

60

37.c Land Stock in Note No 24 represent cost of Seventy seven blocks of land ready for sale as at the balance sheet date of SMB

Real Estate Limited. Seven of the blocks have been sold subsequent to that date, six in January and one in May 2009, at the prices

above cost. The Directors are of the opinion that the balance blocks of land could also be sold at prices higher than the cost in the

near future.

Pursuant to the order of the supreme court in respect of the Fundamental Rights Applications filed by some customers of The

Golden Key Credit Card Co.Ltd (GKCL) and to the subsequent directions of the Monetary Board of the Central Bank of Sri Lanka

issued to the relevant authorities including Registar General, that any transaction that has the effect of transferring or transacting

assets of GKCL, its subsidiary and associate Companies, Directors and Key Management Personnel of GKCL and other related

entities, should not be given effect, the registration by the Registar General, of the deeds of transfer on account of the sale of blocks

of land would require clearance certificates from the Central Bank.

Above facts along with the net loss of Rs 29,209,665 during the year ended 31 December 2008 raise doubt that the Company will

be able to continue as a going concern. The Financial Statements of the Group do not include any adjustments in relation to the

recoverability and classification of recorded asset amounts or to amounts and classification of liabilities that may be necessary if the

entity is unable to continue as a going concern.

38 MATURITY ANALYSIS38.a BANKAn analysis of the total assets employed as at 31st December 2008 based on the remaining period at the Balance Sheet date

to the respective contractual maturity dates is given below.

Up to 3 to 12 1 to 3 3 to 5 Morethan TOTAL 3 Months Months Years Years 5

Interest Earning Assets

Bills of Exchange - - - - - -

Loans & Advances 109,998,582 92,240,358 296,183,010 67,615,052 128,570,638 694,607,640

Lease Receivable 88,503,904 328,933,629 321,957,851 16,289,854 - 755,685,238

Balances with banks - - - - - -

Short term Funds - - - - - -

Investments in Debentures - - - - - -

Treasury Bills / Bonds 47,896,922 - - - - 47,896,922

Group Balances Receivable - - - - - -

Securities purchased under REPO’ s - - - - - -

Non Interest Earning Assets

Cash in hand - - - - - -

Balances with CBSL - - - - - -

Investments - 373,196,825 - - - 373,196,825

Investment Property - 16,316,000 - - - 16,316,000

Property ,Plant & Equipment - - - - 8,054,876 8,054,876

Other Assets 6,381,967 104,230,201 19,389,897 - - 130,002,065

TOTAL ASSETS 252,781,376 914,917,013 637,530,758 83,904,906 136,625,515 2,025,759,566

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

61

An analysis of the total Liabilities employed as at 31st December 2008 based on the remaining period at the Balance Sheet

date to the respective contractual maturity dates is given below.

Up to 3 to 12 1 to 3 3 to 5 Morethan TOTAL 3 Months Months Years Years 5

Interest bearing liabilities

Deposits - - - - - -

Borrowings 669,761,599 577,456,963 349,063,783 42,740,842 220,347,401 1,859,370,588

Debentures 23,888,000 20,324,402 1,530,000 111,962,000 97,470,000 255,174,402

Bank Overdraft 59,745,594 - - - - 59,745,593

Securities sold under REPO’ s - - - - - -

Non Interest bearing liabilities

Deposits - - - - - -

Other liabilities 9,343,865 28,031,596 26,032,600 - - 63,408,061

Deffered taxation - - - - - -

Tax payable - - - - - -

Dividend payable - - - - - -

Shareholders Funds - - - - (211,939,082) (211,939,082)

Minority Interest - - - - - -

TOTAL LIABILITIES 762,739,057 625,812,961 376,626,384 154,702,841 105,878,318 2,025,759,566

38.b GROUPAn analysis of the total assets employed as at 31st December 2008 based on the remaining period at the Balance Sheet date

to the respective contractual maturity dates is given below.

Up to 3 3 to 12 1 to 3 3 to 5 Morethan TOTAL

Months Months Years Years 5

Interest Earning Assets

Bills of Exchange - - - - - -

Loans & Advances 136,546,502 108,946,358 316,537,010 67,615,052 128,570,638 758,215,560

Lease Recievable 518,781,858 588,801,891 980,494,931 410,232,674 23,790,921 2,522,102,275

Balances with Banks &

Finance Companies 150,595,667 42,402,040 58,893,018 6,000,000 - 257,890,725

Short term Funds - - - - - -

Investments in Debentures - - - - - -

Treasury Bills / Bonds 120,441,744 102,609,000 2,866,000 - - 225,916,744

Group Balances Receivable - - - - - -

Securities purchased under REPO’ s - - - - - -

Non Interest Earning Assets

Cash in hand - - - - - -

Balances with CBSL - - - - - -

Investments - 70,630,942 - - - 70,630,942

Investment Property - 16,316,000 - - - 16,316,000

Property ,Plant & Equipment - - - - 50,096,568 50,096,568

Other Assets 115,727,767 144,004,651 21,931,976 11,457,767 30,265,881 323,388,042

TOTAL ASSETS 1,042,093,538 1,073,710,882 1,380,722,935 495,305,493 232,724,009 4,224,556,857

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

62

An analysis of the total Liabilities employed as at 31st December 2008 based on the remaining period at the Balance Sheet date to

the respective contractual maturity dates is given below.

Up to 3 3 to 12 1 to 3 3 to 5 Morethan TOTAL

Months Months Years Years 5

Interest bearing liabilities

Deposits 690,143,628 488,762,125 400,572,003 53,149,735 17,236,120 1,568,863,611

Borrowings 716,761,599 607,476,962 359,477,258 42,740,842 230,347,401 1,946,804,062

Debentures 48,629,100 29,544,402 52,683,005 111,962,000 97,470,000 340,288,507

Bank Overdraft 59,745,594 - - - - 59,745,593

Securities sold under REPO’ s - - - - - -

Non Interest bearing liabilities

Deposits - - - - - -

Other liabilities 143,430,837 174,705,801 54,107,044 14,564,136 - 386,807,818

Deffered taxation - - - - - -

Tax payable - - - - - -

Dividend payable - - - - - -

Shareholders Funds - - - - (152,279,542) (152,279,541)

Minority Interest - - - - 74,326,806 74,326,806

TOTAL LIABILITIES 1,453,803,009 1,302,482,964 720,905,754 500,757,772 246,607,356 4,224,556,857

Notes to the Financial Statements Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

63

Segment Reporting - Group

B

anki

ng

Leas

ing

Trea

sury

Pr

oper

ty/I

nve

stm

ents

Elim

inat

ion

s/U

nal

loca

ted

Con

solid

ated

20

08

2007

20

08

2007

20

08

2007

20

08

2007

20

08

2007

20

08

2007

Reve

nue

Inte

rest

14

5,52

4,21

0 16

0,23

6,35

2 58

7,90

8,72

8 51

5,31

7,82

3 44

,371

,908

58

,702

,935

75

,844

,147

25

,773

,475

15

,204

,720

30

,419

,882

83

8,44

4,27

2 72

9,61

0,70

3Ex

chan

ge

- -

- -

- -

- -

- -

- -

Leas

e In

com

e/Br

oker

ing

- -

- -

- 11

,602

,168

-

14,6

61,7

76

- -

- 26

,263

,944

Com

miss

ions

& F

ee In

com

e 13

,936

,939

6,

360,

685

28,0

38,8

62

29,1

20,0

78

- -

- -

- -

41,9

75,8

01

35,4

80,7

63O

ther

34

,615

,990

60

,296

,995

18

,118

,477

67

,870

,873

17

,418

,905

29

,646

,859

9,

183,

328

67,4

98,2

65

10,2

83,6

01

- 69

,053

,099

22

5,31

2,99

2To

tal R

even

ue fr

om

194,

077,

138

226,

894,

032

634,

066,

067

612,

308,

774

61,7

90,8

13

99,9

51,9

62

85,0

27,4

75

107,

933,

516

25,4

88,3

21

30,4

19,8

82

949,

473,

173

1,01

6,66

8,40

2Ex

tern

al C

usto

mer

s To

tal R

even

ue

194,

077,

138

226,

894,

032

634,

066,

067

612,

308,

774

61,7

90,8

13

99,9

51,9

62

85,0

27,4

75

107,

933,

516

25,4

88,3

21

30,4

19,8

82

949,

473,

173

1,01

6,66

8,40

2Se

gmen

t res

ult

(118

,886

,037

) 3,

807,

723

(480

,292

,171

) 10

,275

,732

(1

4,04

3,41

3)

1,67

7,38

8 (2

3,05

7,26

2)

1,81

1,33

4

(6

36,2

78,8

84)

17,5

72,1

76U

nallo

cate

d

In

com

e/Ex

pens

es

- -

- -

- -

- -

- -

- -

Less

Dep

reci

atio

n

ch

arge

d fo

r the

yea

r 3,

214,

020

3,79

7,38

8 12

,984

,442

10

,247

,842

97

9,99

0 1,

672,

836

1,67

5,08

0 1,

806,

418

- -

18,8

53,5

31

17,5

24,4

84Pr

ofit

from

Ope

ratio

ns

(122

,100

,057

) 10

,335

(4

93,2

76,6

13)

27,8

90

(15,

023,

402)

4,

553

(24,

732,

342)

4,

916

- -

(655

,132

,415

) 47

,692

Inco

me

tax

expe

nse

35,6

01,5

11

(786

,578

) 49

0,97

3 (2

,122

,703

) (1

01,3

75)

(346

,505

) 5,

955,

443

(374

,175

) -

- 41

,946

,552

(3

,629

,961

)Pr

ofit

Afte

r Inc

ome

tax

(157

,701

,568

) 79

6,91

3 (4

93,7

67,5

86)

2,15

0,59

2 (1

4,92

2,02

7)

351,

058

(30,

687,

785)

37

9,09

1 -

- (6

97,0

78,9

66)

3,67

7,65

4M

inor

ity In

tere

st

- -

- -

- -

- -

- -

Net

Pro

fit fo

r the

yea

r (1

57,7

01,5

68)

796,

913

(493

,767

,586

) 2,

150,

592

(14,

922,

027)

35

1,05

8 (3

0,68

7,78

5)

379,

091

- -

(697

,078

,967

) 3,

677,

654

OTH

ER IN

FORM

ATIO

N

Segm

ent a

sset

s 83

3,21

1,49

5 1,

061,

914,

655

3,36

6,12

2,45

5 2,

865,

741,

572

254,

055,

211

467,

797,

466

434,

252,

248

505,

152,

918

560,

930,

314

- 4,

326,

711,

095

4,90

0,60

6,61

0Le

ss A

ccum

ulat

ed

D

epre

ciat

ion

17,4

14,5

52

18,7

23,8

14

70,3

53,7

03

50,5

29,1

18

5,30

9,88

6 8,

248,

264

9,07

6,09

7 8,

906,

920

- -

102,

154,

238

86,4

08,1

16In

vestm

ent i

n Su

bsid

iarie

s 32

4,19

6,82

5 31

9,54

0,26

7 -

- 3,

995,

418

3,99

5,41

8 48

,001

,072

28

4,27

8 37

6,19

3,31

5 32

3,81

9,96

3 -

(0)

Tota

l Ass

ets

1,13

9,99

3,76

8 1,

362,

731,

108

3,29

5,76

8,75

2 2,

815,

212,

454

252,

740,

744

463,

544,

619

473,

177,

223

496,

530,

276

937,

123,

629

323,

819,

963

4,22

4,55

6,85

7 4,

814,

198,

494

Segm

ent l

iabi

litie

s 76

5,86

0,99

5 1,

160,

502,

247

3,09

4,03

0,63

7 2,

269,

466,

474

233,

519,

314

374,

458,

224

399,

150,

588

400,

329,

985

190,

051,

941

4,

302,

509,

593

4,20

4,75

6,93

0Sh

areh

olde

rs F

unds

49

,935

,948

20

2,22

8,86

1 20

1,73

8,11

4 54

5,74

5,98

0 15

,226

,012

89

,086

,395

26

,025

,562

96

,200

,291

44

5,20

5,17

8 39

7,44

0,50

4 (1

52,2

79,5

42)

535,

821,

023

Min

ority

Inte

rest

74

,326

,806

(7

3,62

0,54

1)

74,3

26,8

06

73,6

20,5

41To

tal l

iabi

litie

s 81

5,79

6,94

3 1,

362,

731,

108

3,29

5,76

8,75

1 2,

815,

212,

454

248,

745,

326

463,

544,

619

425,

176,

151

496,

530,

276

709,

583,

925

323,

819,

963

4,22

4,55

6,85

7 4,

814,

198,

494

Cash

flow

s fro

m

Ope

ratin

g ac

tiviti

es

(33,

605,

688)

86

,280

,698

(1

35,7

64,8

84)

232,

841,

859

(10,

246,

738)

38

,008

,602

(1

7,51

4,57

6)

41,0

43,7

37

- -

(197

,131

,887

) 39

8,17

4,89

7Ca

sh fl

ows f

rom

In

vest

ing

activ

ities

27

,949

,835

34

,017

,601

11

2,91

5,59

1 91

,801

,778

8,

522,

208

14,9

85,5

24

14,5

66,8

64

16,1

82,1

76

- -

163,

954,

498

156,

987,

079

Cash

flow

s fro

m

Fina

ncin

g ac

tiviti

es

(3,9

52,4

90)

(104

,542

,591

) (1

5,96

7,81

4)

(282

,124

,414

) (1

,205

,157

) (4

6,05

3,38

0)

(2,0

59,9

55)

(49,

730,

922)

-

- (2

3,18

5,41

6)

(482

,451

,308

)Ca

pita

l Exp

endi

ture

2,

055,

372

9,76

5,78

1 18

,196

,713

7,

672,

052

3,49

9,64

3

- -

- -

23,7

51,7

28

17,4

37,8

33

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

64

For the year ended December 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

(Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000)

Operating Results

Revenue 239,172 321,879 326,838 472,481 565,768 557,668 589,173 515,425 500,998 334,661

Interest Income 210,523 263,176 288,358 377,445 424,171 506,640 541,836 436,047 424,776 295,666

Interest Expense 200,795 240,906 292,279 320,189 332,344 369,130 399,959 359,235 400,239 410,293

Operating Expenses & Provision 56,665 98,533 90,254 133,407 205,432 143,288 128,850 110,889 (85,937) (71,030)

Profit before Taxation & VAT (18,289) (17,559) (55,696) 2,280 10,790 22,203 30,690 31,859 2,699 (581,933)

VAT & Taxation - - - - 794 2,777 9,921 6,994 (2,432) (36,743)

Profit after Taxation & VAT (18,289) (17,559) (55,696) 2,280 9,996 19,426 20,769 24,865 267 (618,676)

As at December 31

Assets

Cash & Short Term Funds 7,437 12,859 2,344 3,157 (122,572) 22,016 122,247 30,408 60,262 10,069

Investments 407,887 8,478 326,289 1,226,838 316,816 428,024 814,500 673,337 288,150 124,472

Bills of Exchange 91,750 96,164 64,723 43,220 32,373 4,000 3,525 - - -

Loans & advances 562,528 549,394 611,674 571,910 658,254 974,280 1,063,481 1,184,387 1,002,987 651,872

Lease Rentals Receivables 606,531 597,164 798,089 1,288,168 1,554,555 1,889,881 1,490,044 1,255,478 946,615 545,384

Investment in Associate Co. - - - - - 1,200 1,200 - 49,000 49,000

Investment in Subsidiary Co. 9,000 51,500 51,500 76,225 97,100 112,100 154,068 314,547 319,540 324,197

Interest Receivable - - - - - 22,297 40,296 51,538 103,636 253,037

Investment Property - 330,122 - - 11,189 11,189 11,189 23,187 27,505 16,316

Property, Plant & Equipment 7,689 10,341 11,046 16,196 15,811 27,098 24,132 20,983 11,947 8,055

Other Assets 198,806 271,650 247,884 259,831 222,524 100,741 67,842 66,493 123,475 43,358

Intangible Assets 3,843 17,303 22,151 8,835 - - - - - -

1,895,471 1,944,975 2,135,701 3,494,380 2,786,051 3,592,826 3,792,524 3,620,358 2,933,118 2,025,760

Equity & Liabilities

Stated Capital

Ordinary Shares 333,773 333,773 333,773 333,773 333,773 333,773 445,031 545,031 545,031 545,031

Share Premium 13,244 13,244 13,244 13,244 13,244 13,244 23,257 20,985 20,755 20,755

Reserves (103,105) (163,711) (219,407) (217,129) (207,132) (187,707) (175,281) (159,317) (159,050) (777,725)

Borrowings 1,230,036 1,057,858 1,574,200 2,889,285 1,892,595 1,987,677 2,355,174 2,271,892 1,747,762 1,721,268

Group Balances Payable - 265,119 103,700 149,500 90,300 209,000 218,000 197,500 153,000 197,848

Other Liabilities 37,128 46,537 35,494 31,658 29,493 305,202 295,285 246,319 229,893 63,408

Debentures 384,395 392,155 294,697 294,049 633,778 931,637 631,058 497,948 395,727 255,174

1,895,471 1,944,975 2,135,701 3,494,380 2,786,051 3,592,826 3,792,524 3,620,358 2,933,118 2,025,760

Income Growth (%) 36.41% 34.58% 1.54% 44.56% 19.74% (1.43%) 5.65% (12.52%) (2.80%) (33.31%)

Property, Plant & Equipment

to Shareholders’ Funds (%) 3.15% 5.64% 8.66% 12.47% 11.30% 17.01% 8.24% 5.16% 2.94% (3.80%)

Total Assets to Shareholders’

Funds (times) 7.77 10.61 16.74 26.90 19.92 22.55 12.94 8.90 7.21 (9.56)

Net Assets per Share (Rs.) 7.31 5.49 3.82 3.89 4.19 4.77 6.58 7.46 7.46 (3.89)

Earning / (Loss) Per Share – voting (0.81) (0.55) (0.53) (1.67) 0.07 0.30 0.58 0.51 0.005 (13.88)

Decade at a Glance - Bank

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

65

For the year ended 31st December 2004 2005 2006 2007 2008

(Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000) (Rs. ‘000)

Operating Results

Revenue 699,713 795,882 876,014 944,079 949,473

Interest Income 581,068 541,836 734,651 804,894 859,359

Interest Expense 393,187 399,959 519,816 (619,227) (763,044)

Operating Expenses & Provision 212,825 128,850 240,345 (288,428) (348,685)

Profit before taxation & VAT 63,806 69,800 72,205 3,579 (656,930)

Taxation & VAT 7,626 15,875 7,995 98 (44,513)

Profit After Taxation & VAT 56,179 53,925 64,210 3,678 (697,079)

Minority Interest 2,074 2,848 5,922 6,409 (8,978)

Profit Attributable to Shareholders 54,105 51,077 58,288 (2,732) (688,101)

Assets

Cash & Short Term Funds 24,173 122,836 33,503 73,999 17,636

Investments 477,606 825,029 803,520 621,520 493,701

Bills of Exchange 4,000 3,525 - - -

Loans & advances 918,633 888,293 1,126,237 972,961 956,320

Lease Rentals Receivables 2,299,831 2,750,393 2,995,231 2,565,417 1,987,191

Investment in Associate Co. 82 - - 49,950 54,315

Interest Receivable 24,786 43,667 75,326 162,676 325,592

Investment Property 11,189 11,189 23,186 27,505 16,316

Property, Plant & Equipment 53,993 73,180 51,956 47,576 50,097

Other Assets 305,226 255,842 190,549 265,746 297,978

Intangible Assets - - 28,286 26,848 25,410

4,119,519 4,973,954 5,327,794 4,814,198 4,224,557

Equity & Liabilities

Stated Capital

Ordinary Shares 333,773 445,031 545,031 545,031 545,031

Share Premium 13,244 23,257 20,985 20,755 20,755

Reserves (102,557) (63,599) (27,234) (29,965) (718,066)

Minority Interest 13,008 16,346 73,799 73,620 74,327

Borrowings 2,250,458 3,150,918 3,445,893 3,131,189 3,377,545

Group Balances Payable 209,000 218,000 197,500 153,000 197,848

Other Liabilities 408,379 375,896 392,706 413,800 386,808

Debentures 994,215 808,105 679,114 506,769 340,309

4,119,520 4,973,954 5,327,794 4,814,198 4,224,557

Cash Flow

Cash Flow from Operating Activities (775,968) (497,779) (388,035) 401,175 (197,132)

Cash Flow from Investing Activities (253,280) (408,417) (10,298) 156,987 163,954

Cash Flow from Financing Activities 1,034,835 953,800 309,335 (465,891) (23,185)

Net Increase or (Decrease) in Cash and

Cash Equvalents 5,587 47,604 (88,998) 92,271 (56,363)

Earning/ (Loss) Per Share - Voting 1.62 1.15 1.20 (0.05) (15.45)

Assets Growth (%) 35.98 20.74 7.11 (9.64) (12.25)

Net Assets Growth (%) 27.31 57.18 33.14 (0.55) (128.42)

Net Assets Per Share 7.71 9.46 9.89 9.83 (2.79)

Five Year Summary - Group

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

66

Value Added Statement

GROUP BANKFor the Year Ended 31st December 2008 2007 2008 2007

Rs. “000” % Rs. “000” % Rs. “000” % Rs. “000” %

Value Added

Interest and similar income 859,359 804,894 295,666 424,776

Cost of Borrowings (730,359) (546,830) (370,877) (335,391)

Value added by financial services 129,000 258,064 (75,211) 89,385

Other Income 90,114 139,185 38,995 76,221

Associate Company Profit 4,365 950

Provision for Bad Debts (494,675) (33,795) (435,271) (12,123)

Total (271,196) -100.0% 364,403 100.0% (471,487) -100.0% 153,484 100.0%

Distribution of Value Added 398,198

To Service Providers

Overhead and Support Services 216,926 80.0% 171,786 47.1% 47,773 10.1% 53,667 35.0%

To the Government

Taxes 44,513 16.4% (98) 0.0% 36,743 7.8% 2,432 1.6%

To Employees

Salaries, Wages and Other Benefits 115,057 42.4% 98,164 26.9% 17,348 3.7% 25,421 16.6%

To Lenders of Capital

Dividends to Share holders - - - -

Minority Interest 6,409

Interest on Borrowings 32,685 72,396 39,416 64,848

32,685 12.1% 78,806 21.6% 39,416 8.4% 64,848 42.3%

To Expansion & Growth

Depreciation 16,702 18,478 5,909 6,849

Deferred taxation - - - -

Retained Profit (697,079) (2,732) (618,676) 267

(680,377) -250.9% 15,746 4.3% (612,767) -130.0% 7,116 4.6%

Total (271,196) -100.0% 364,403 100.0% (471,487) -100.0% 153,484 100.0%

Value Added Statement - Group2007

33%

51%7%

1%

27%1%

17%

38%

22%3%

To Services ProvidersTo the GovermmeentTo EmployeesTo Lenders of CapitalTo Expansion & Growth

2008

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

67

Shareholders’ & Investors’ Information

1 Stock Exchange ListingThe Ordinary Shares, Voting and Non Voting, December 2006-2016 debentures, both fixed and floating interest rates of the Bank

are listed in the Colombo Stock Exchange.

The Stock exchange ticker symbol for Seylan Merchant Bank PLC is “SEMB”

2 Top Twenty Largest ShareholdersOrdinary Voting

31st December 2008 31st December 2007 Number % Number of %

Name of Shares Shares

Seylan Bank PLC. 23,071,066 51.84 23,071,066 51.84

Dr. T. Senthilverl 4,669,100 10.49 4,591,600 10.32

Ceylinco Insurance Co. PLC. & Ceylinco Insurance Co. PLC.

A/C No. 1 (Life Fund) 3,220,869 7.23 3,220,869 7.23

Pershing LLC S/A Aver Bach Grauson & Co. 1,000,000 2.25 1,000,000 2.25

S K M Lanka Holding (Pvt) Ltd. 743,000 1.67 - -

Dr. C.A. Twerenbond 613,000 1.38 613,000 1.38

The Finance Co. PLC 606,666 1.35 600,000 1.35

The Magnum Fund Ltd. 402,643 0.90 691,843 1.55

Ceylinco Finance PLC 323,433 0.73 323,433 0.73

Waldock Mackenzie Ltd/ Mr.Lalith Prabash Hapangama 276,100 0.62 276,100 0.62

First Capital Markets Ltd./ Mr. M.A.U. Gnanathi 259,766 0.58 255,666 0.57

Mrs. L.Y.G. Lakmali 223,500 0.50 - -

Lanka Orix Finance Co. Ltd./ R.E. Rambukwelle 160,300 0.36 160,300 0.36

Mr. D.R.S.F. Jayawardena 133,600 0.30

Asian Finance Ltd. 132,333 0.30 132,333 0.30

Mr. R.P.L. Eheliyagoda 120,000 0.27 100,000 0.22

Waldock Mackenzie Ltd.- Line Trading (Pvt) Ltd. 117,000 0.26 117,000 0.26

DFCC Vardhana Bank PLC./ Mr. R.E. Rambukwelle 101,700 0.23 101,700 0.23

Mr. D.F.S. Thambinayagam 100,000 0.22 100,000 0.22

Mr. S. Prabinath 80,000 0.18 - -

SUB TOTAL 36,354,076 81.66 35,354,910 79.43

Others 8,149,044 18.34 9,148,210 20.57

TOTAL ISSUED SHARE CAPITAL 44,503,120 100.00 44,503,120 100.00

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

68

Ordinary Non Voting 31st December 2008 31st December 2007 Number % Number of %

Name of Shares Shares

Ceylinco Insurance Co. PLC. 6,981,600 6.98 6981600 6.98

Dr. T. Senthilverl 6,981,600 6.98 6981600 6.98

Mr. R.S.P. Hewage 3,314,100 3.31 3314100 3.31

Mr. K.K.S. Bose 1,549,600 1.55 - -

Waldock Mackenzie Ltd./ Mr. S.A. Gulamhusein 1,549,600 1.55 561600 0.56

Mr. L.V. Chinthaka Nishantha 1,500,000 1.50 - -

Mr. K.R.U. Gunawardhena 1,470,700 1.47 - -

Mr. M.H. Nassim Hussain 1,424,200 1.42 - -

Mr. C.T.G. Punchihewa 1,322,100 1.32 - -

Mr. H.G. Eksjrom 1,300,000 1.30 1300000 1.3

Mr. S. Siriwardena 1,104,300 1.10 - -

Vision Care Optical Services (Pvt) Ltd. 1,000,000 1.00 1000000 1

The Bishop Of Galle 1,000,000 1.00 1000000 1

Ceylinco Shriram Capital Management Services Co. (Pvt) Ltd. 1,000,000 1.00 1000000 1

Mr. W.A.S. Weerasinghe 958,400 0.96 - -

Mr. N.B. Razak 800,000 0.80 800000 0.8

Seylan Bank Asset Management Ltd. 699,400 0.70 3000000 3

Lanka Orix Finance Company Ltd. 689,500 0.69 - -

Mrs. S. Masood 668,000 0.67 - -

Favourite Investments (Pvt) Ltd. 650,000 0.65

SUB TOTAL 35,963,100 35.95 25,938,900 25.93

Others 64,036,900 64.05 74,061,100 74.07

TOTAL ISSUED SHARE CAPITAL 100,000,000 100.00 100,000,000 100.00

3 Shareholder BaseThe Total number of (Ordinary Voting) shareholders as at December 31, 2008 were 7,277 compared to 7,507 as at December 31,

2007. The Total number of (Ordinary Non Voting) shareholders as at December 31, 2008 were 1,528 compared to 1,349 as at

December 31, 2007.

4 Distribution of ShareholdersOrdinary Voting – Shareholding as at 31st December 2008

Resident Non-Resident Total No. of No. of % of No. of No. of % of No. of No. of % of

Range of Share Holding Holders Shares Holding Holders Shares Holding Holders Shares Holding

1 - 1,000 6,013 1,538,145 3.46% 14 4,932 0.01% 6,027 1,543,077 3.47%

1,001 - 5,000 893 2,224,286 5.00% 5 13,000 0.03% 898 2,237,286 5.03%

5,001 - 10,000 172 1,305,057 2.93% 4 37,500 0.08% 176 1,342,557 3.02%

10,001 - 50,000 139 2,923,423 6.57% 2 77,500 0.17% 141 3,000,923 6.74%

50,001 - 100,000 18 1,245,543 2.80% 1 52,300 0.12% 19 1,297,843 2.92%

100,001 - 500,000 9 1,859,499 4.18% 0 0 0.00% 9 1,859,499 4.18%

500,001 - 1,000,000 2 1,149,300 2.58% 2 1,613,000 3.62% 4 2,762,300 6.21%

1,000,001 - 50,000,000 3 30,459,635 68.44% 0 0 0.00% 3 30,459,635 68.44%

50,000,001 - 75,000,000 0 0 0.00% 0 0 0.00% 0 0 0.00%

75,000,001 - & Above 0 0 0.00% 0 0 0.00% 0 0 0.00%

Total 7,249 42,704,888 95.96% 28 1,798,232 4.04% 7,277 44,503,120 100.00%

Shareholder’s & Investors Information Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

69

Ordinary Non Voting – Shareholding as at 31st December 2008

Resident Non-Resident Total No. of No. of % of No. of No. of % of No. of No. of % of

Range of Share Holding Holders Shares Holding Holders Shares Holding Holders Shares Holding

1 - 1,000 373 272,300 0.28% 0 0 0.00% 373 272,300 0.28% 1,001 - 5,000 383 1,323,300 1.35% 0 0 0.00% 383 1,323,300 1.35% 5,001 - 10,000 245 2,310,400 2.36% 0 0 0.00% 245 2,310,400 2.36% 10,001 - 50,000 339 9,387,600 9.39% 3 72,000 0.07% 342 9,459,600 7.61% 50,001 - 100,000 84 7,706,000 7.86% 0 0 0.00% 84 7,706,000 7.86% 100,001 - 500,000 70 16,719,500 17.06% 4 1,250,000 1.28% 74 17,969,500 18.34% 500,001 - 1,000,000 11 8,869,500 9.05% 2 1,468,000 1.50% 13 10,337,500 10.55% 1,000,001 - 50,000,000 12 47,966,400 48.95% 2 2,655,000 2.71% 14 50,621,400 51.65% 50,000,001 - 75,000,000 0 0 0.00% 0 0 0.00% 0 0 0.00% 75,000,001 - & Above 0 0 0.00% 0 0 0.00% 0 0 0.00%Total 1,517 92,555,000 94.56% 11 5,445,000 5.44% 1,528 100,000,000 100.00%

5 Categories of ShareholdersOrdinary Voting – Shareholding as at 31st December 2008

Individual Company Total No. of No. of % of No. of No. of % of No. of No. of % of

Range of Share Holding Holders Shares Holding Holders Shares Holding Holders Shares Holding

1 - 1,000 5,932 1,511,603 3.40% 95 31,474 0.07% 6,027 1,543,077 3.47% 1,001 - 5,000 874 2,173,306 4.88% 24 63,980 0.14% 898 2,237,286 5.03% 5,001 - 10,000 165 1,255,491 2.82% 11 87,066 0.20% 176 1,342,557 3.02% 10,001 - 50,000 125 2,600,516 5.84% 16 400,407 0.90% 141 3,000,923 6.74% 50,001 - 100,000 19 1,297,843 2.92% 0 0 0.00% 19 1,297,843 2.92% 100,001 - 500,000 2 278,000 0.62% 7 1,581,499 3.55% 9 1,859,499 4.18% 500,001 - 1,000,000 1 613,000 1.38% 3 2,149,300 4.83% 4 2,762,300 6.21% 1,000,001 - 50,000,000 1 4,669,100 10.49% 2 25,790,535 57.95% 3 30,459,635 68.44% 50,000,001 - 75,000,000 0 0 0.00% 0 0 0.00% 0 0 0.00% 75,000,001 - & Above 0 0 0.00% 0 0 0.00% 0 0 0.00%Total 7,119 14,398,859 32.35% 158 30,104,261 67.65% 7,277 44,503,120 100.00%

Ordinary Non Voting – Shareholding as at 31st December 2008

Individual Company Total No. of No. of % of No. of No. of % of No. of No. of % of

Range of Share Holding Holders Shares Holding Holders Shares Holding Holders Shares Holding

1 - 1,000 372 271,300 0.27% 1 1,000 0.00% 373 272,300 0.27% 1,001 - 5,000 383 1,323,300 1.32% 0 0 0.00% 383 1,323,300 1.32% 5,001 - 10,000 243 2,290,400 2.29% 2 20,000 0.02% 245 2,310,400 2.31% 10,001 - 50,000 339 9,405,400 9.41% 3 54,200 0.05% 342 9,459,600 9.46% 50,001 - 100,000 82 7,506,000 7.51% 2 200,000 0.20% 84 7,706,000 7.71% 100,001 - 500,000 69 16,577,500 16.58% 5 1,392,000 1.39% 74 17,969,500 17.97% 500,001 - 1,000,000 8 5,998,000 6.00% 5 4,339,500 4.34% 13 10,337,500 10.34% 1,000,001 - 50,000,000 11 39,265,200 39.27% 3 11,356,200 11.36% 14 50,621,400 50.62% 50,000,001 - 75,000,000 0 0 0.00% 0 0 0.00% 0 0 0.00% 75,000,001 - & Above 0 0 0.00% 0 0 0.00% 0 0 0.00%Total 1,507 82,637,100 82.64% 21 17,362,900 17.36% 1,528 100,000,000 100.00%

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

70

6 Composition of Shareholders

December 31, 2008 December 31, 2007Ordinary Voting Shares No. of No. of % of No. of No. of % of

Holders Shares Holding Holders Shares Holding

Resident 7,249 42,704,888 95.96% 7,485 42,726,888 96.01%

Non-Resident 28 1,798,232 4.04% 22 1,776,232 3.99%

Total 7,277 44,503,120 100.00% 7,507 44,503,120 100.00%

Individual 7,119 14,398,859 32.35% 7,330 13,626,462 30.62%

Institution 158 30,104,261 67.65% 177 30,876,658 69.38%

Total 7,277 44,503,120 100.00% 7,507 44,503,120 100.00%

As per Rule No. 8.7 (h) of the Colombo Stock Exchange, percentage of public holding as at December 31, 2008 was 26.12

approximately.

December 31, 2008 December 31, 2007Ordinary Voting Shares No. of No. of % of No. of No. of % of

Holders Shares Holding Holders Shares Holding

Resident 1,517 94,555,000 94.56% 1,342 97,215,000 97.21%

Non-Resident 11 5,445,000 5.44% 7 2,785,000 2.79%

Total 1,528 100,000,000 100.00% 1,349 100,000,000 100.00%

Individual 1,507 82,637,100 82.64% 1,330 70,285,600 70.29%

Institution 21 17,362,900 17.36% 19 29,714,400 29.71%

Total 1,528 100,000,000 100.00% 1,349 100,000,000 100.00%

As per Rule No. 8.7 (h) of the Colombo Stock Exchange, percentage of public holding as at December 31, 2008 was 81.91

approximately.

GROUP BANKOther Ratios 2008 2007 2008 2007

Debt Equity Ratio (%) (50.23) 5.65 (10.26) 5.65

Interest Cover (Times) 0.14 1.01 (0.46) 1.01

Quick Asset Ratio (Times) 0.77 0.66 0.85 0.64

Shareholder’s & Investors Information Contd.

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

71

2008 2007Directors’ Shareholding No. of Shares % of Holdings No. of Shares % of Holdings

Mr.R.S.W.Senanayake Voting 6,200 0.01% 6,200 0.01%

Non Voting 50,000 0.05% 50,000 0.05%

Mr.R.Renganathan 500 0.00% 500 0.00%

Mr.M.S.I.Peiris 1 0.00% 1 0.00%

Mr.P.A.Jayawardena 1,000 0.00% 1,000 0.00%

Mr.E.T.L.Ranasinghe 3,000 0.01% 3,000 0.01%

Dr.P.R.Anthonis 7,530 0.02% 7,530 0.02%

Share Information 2008 2007

Book Value

Net Assets per Share- Group (Rs.) (2.79) 9.83

Share Prices

Ordinary Shares- Voting

Highest (Rs.) 8.00 8.50

Lowest (Rs.) 2.50 5.50

Last Traded (Rs.) 3.00 7.00

Ordinary Shares- Non Voting

Highest (Rs.) 1.00 0.90

Lowest (Rs.) 0.20 0.50

Last Traded (Rs.) 0.40 0.70

Earnings

Ordinary Shares - Voting

Earnings/(Loss) per Share (Rs.) (12.62) (0.05)

Price Earning Ratio (Times)* - -

Ordinary Shares - Non Voting

Earnings/(Loss) per Share (Rs.) (1.26) (0.01)

Price Earning Ratio (Times)* - -

Frequency of Shares Traded

Number of Shares Traded 62,359,000 38,387,800

Number of Transaction 3,595 5,278

Value of Shares Traded

Value of Shares Traded (Rs.) 61,127,235 68,840,055

Market Capitalization

Seylan Merchant Bank PLC Value (Rs. Mn.) 134 312

*Since the Earnings Per Share was negative, Price Earning Ratio has not been calculated

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

72

Information on Debenture

Debenture Categories CSE Listing Interest Payable Market Interest Other Ratios (Frequency) Values Rate As at Date of Highest Lowest Year Coupon Effective Interest Yield To End Rate Annual Yield Yield Maturity Rs. Rs. Rs. % % % %

FIXED RATESerylan Merchant Bank PLCAUG 1998/AUG 2002 - 14.25% p.a. Not listed Monthly - - - 14.25 15.22 15.50% p.a. Annually - - - 15.50 15.50 15.75% p.a. Maturity - - - 15.75 15.75

OCT 1998/OCT 2002 - 14.00% p.a. Not listed Monthly - - - 14.00 14.93 15.00% p.a. Annually - - - 15.00 15.00 15.25% p.a. Maturity - - - 15.25 15.25

MAY 1999/MAY 2003 - 13.50% p.a. Not listed Monthly - - - 13.50 14.37 14.50% p.a. Annually - - - 14.50 14.50 14.75% p.a. Maturity - - - 14.75 14.75

DEC 1999/DEC 2003 - 13.50% p.a. Not listed Monthly - - - 13.50 14.37 14.50% p.a. Annually - - - 14.50 14.50 15.50% p.a. Annually - - - 15.50 15.50 14.75% p.a. Maturity - - - 14.75 14.75

JULY 2000/JULY 2004 - 13.50% p.a. Not listed Monthly - - - 13.50 14.37 14.50% p.a. Annually - - - 14.50 14.50 15.50% p.a. Annually - - - 15.50 15.50 14.75% p.a. Maturity - - - 14.75 14.75

FEB 2001/FEB 2005 - 16.50% p.a. Not listed Annually - - - 16.50 16.50 16.75% p.a. Maturity - - - 16.75 16.75

JULY 2001/JULY 2005 - 18.00% p.a. Not listed Annually - - - 18.00 18.00

JAN 2002/JAN 2006 -14.25% p.a. Not listed Monthly - - - 14.25 15.22 13.00% p.a. Annually - - - 13.00 13.00 13.50% p.a. Annually - - - 13.50 13.50 14.50% p.a. Annually - - - 14.50 14.50

FEB 2003/FEB 2007 - 13.00% p.a. Not listed Monthly - - - 13.00 13.80 13.50% p.a. Annually - - - 13.50 13.50

FEB 2004/FEB 2008 - 11.50% p.a. Not listed Monthly - - - 11.50 12.13 11.75% p.a. Annually - - - 11.75 11.75

FEB 2004/FEB 2008 - 12.50% p.a. Not listed Monthly - - - 12.50 13.24 13.00% p.a. Annually - - - 13.00 13.00

JAN 2005/JAN 2009 -14.00% p.a. Not listed Annually - - - 14.00 14.00

JAN 2005/JAN 2009 -12.50% p.a. Not listed By-Annually - - - 12.50 13.89

NOV 2006/NOV 2016 - 16.00% p.a. Listed Monthly Not traded 16.00 17.23 17.00% p.a. Annually during the year 17.00 17.00 22.00% p.a. Maturity 22.00 22.00

MAR 2007/MAR 2012 - 16.00% p.a. Listed Monthly 16.00 16.00 16.25% p.a. Not traded 16.25 16.25 16.50% p.a. during the year 16.50 16.50 16.75% p.a. 16.75 16.75 17.00% p.a. 17.00 17.00

Seylan Merchant Leasing PLCDEC 2002/DEC 2006 - 14.00% p.a. Not listed Monthly - - - 14.00 14.93 14.50% p.a. Annually - - - 14.50 14.50

NOV 2003/NOV 2007 - 10.00% p.a. Not listed Monthly - - - 10.00 10.47 10.50% p.a. Annually - - - 10.50 10.50

JUN 2005/JUN 2009 - 11.75% p.a. Listed Monthly Not traded 11.75 12.40 12.50% p.a. Annually during the year 12.50 12.50

SMB Real Estate LimitedFEB 2005/FEB 2009 - 14.00% p.a. Not listed Monthly - - - 14.00 14.93 14.50% p.a. Annually - - - 14.50 14.50 FEB 2006/FEB 2010 - 13.25% p.a. Not listed Monthly - - - 13.25 14.09 14.25% p.a. Annually - - - 14.25 14.25

FLOATING RATE - Seylan Merchant Bank PLCNOV 2006/NOV 2016 - +5% p.a. Listed Annually

Deb

entu

res

wer

e n

ot

trad

ed d

urin

g t

he

per

iod

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

73

Notice of Meeting

NOTICE IS HEREBY GIVEN THAT the Sixteenth Annual General Meeting of Seylan Merchant Bank PLC will be held on 30th December

2009 at 4.00 p.m. at “Raja Bojun” Restaurant, Ceylinco Seylan Towers, No. 90, Galle Road, Colombo 3 for the following purpose:

1. To receive and consider the Report of the Board of Directors and the Audited Accounts of the Company for the year ended 31st

December 2008 together with the Report of the Auditor’s thereon.

2 To re-elect Mr. E T L Ranasinghe , Director who retires by rotation in terms of Article 93 (a) of the Articles of Association of the

Company, as a Director.

3. To re-appoint Messrs KPMG Ford, Rhodes, Thornton & Company, Chartered Accountants, as Auditors of the Company for the

ensuing year and authorize the Board of Directors to determine their remuneration

4. To authorise the Board of Directors to determine contributions to charities and other donations for the year 2009.

5. To transact any other business of which due notice has been given.

BY ORDER OF THE BOARD

(Sgd.) Authorized Signatory

INTERNATIONAL CONSULTANCY & CORPORATE SERVICES (PVT) LTD.,

SECRETARIES

Colombo

05th November 2009

Note: Any member of the Company unable to attend the meeting may appoint another person (whether a member or not) as

a proxy to attend and vote for him/her. A proxy form is attached herewith for your use. The completed form of proxy should be

deposited with the Secretaries of the Company not later than 24 hours before the holding of the meeting.

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

74

Note

Seyl

an M

erch

ant

Ban

k P

LC

An

nu

al R

epo

rt 2

008

75

I/We,…………............…………………………………………………………….................................................................................…………..

of….............................................................................................……………………………………………………………………………………

being a member/s of Seylan Merchant Bank PLC hereby appoint

1. Mr. Rohan Senaka Wickramasinghe Senanayake of Colombo 5, whom failing2. Mr. Rajkumar Renganathan of Colombo 5, whom failing3. Mr. Muthuthantrige Surath Isira Peiris of Moratuwa, whom failing4. Deshamanya Dr. Polwattearachchige Romiel Anthonis of Colombo 7 whom failing5. Mr. Palitha Abeysekera Jayawardena of Colombo 05 whom failing

6. Mr. Elmo Thushara Lalindra Ranasinghe of Kohuwela whom failing

Mr/Mrs/Miss ………………………………………............................................................................................................................................

(holder of N.I.C.No …….................……………………) of …………....…….………………… ………………………………………………… as my/our Proxy to represent me/us and vote on my/our behalf at the Sixteenth Annual General Meeting of the Bank to be held on …………..2009 at …… at “Raja Bojun” Restaurant, Ceylinco Seylan Towers, No. 90, Galle Road, Colombo – 3 on and at any adjournment thereof and at every poll which may be taken in consequence thereof to vote.

Please indicate your preference by placing a ‘X’ against the Resolution No.

FOR AGAINST

1. To receive and consider the Report of the Board of Directors and the Audited Accounts of the Company for the year ended 31st December 2008 together with the Report of the Auditor’s thereon.

2. To re-elect Mr. E T L Ranasinghe , Director who retires in terms of Article 93 (a) of the Articles of Association of the Company, as a Director.

3. To re-appoint Messrs KPMG Ford, Rhodes, Thornton & Company, Chartered Accountants, as Auditors of the Company for the ensuing year and authorize the Board of Directors to determine their remuneration.

4. To authorise the Board of Directors to determine contributions to charities and other donations for

the year 2009

Signed this …………………….. day of ……...…….2009

……………………………………..Signature

……………………………………..Shareholder’s N.I.C/P.P./Co.Reg.No.

Form of Proxy

Seyl

an M

erch

ant

Ban

k PL

C

A

nn

ual

Rep

ort

200

8

76

INSTRUCTIONS FOR THE COMPLETION OF THE FORM OF PROXY

1. Please perfect the Form of Proxy overleaf, after filling in legibly your full

name and address, by signing in the space provided and filling the date of

signature and your National Identity Card Number.

2. The completed form of Proxy should be deposited at the Office of the

Company Secretaries, INTERNATIONAL CONSULTANCY AND CORPORATE

SERVICES (PVT) LTD of No. 29/23, Vishaka Lane, Colombo 04, 48 hours

before the time appointed for the holding of the meeting.

3. If an Attorney has signed the Form of Proxy, the relative Power of Attorney

should also accompany the completed Form of Proxy for registration, if such

Power of Attorney has not already been registered with the Company.

4. If the Shareholder is a company or a corporate body, the Proxy should

be executed under its Common Seal in accordance with its Articles of

Association or constitution.

5. If there is any doubt as to how the vote is to be exercised, by reason of the

manner in which the Form of Proxy has been completed, no vote will be

recorded by the Form of Proxy.

Form of Proxy Contd.

Over the past year, Seylan Merchant Bank has operated in a very difficult environment. We have had to face a range of challenges - from intense competition and reduced market share to an unstable economic environment and general investor caution.

2008

Statutory StatusA Public Limited Liability Company incorporated in Sri Lanka on 3/9/1992 under the Companies Act No. 07 of 2007 and quoted on the Colombo Stock Exchange in 1993.

Registered as a Finance Leasing Establishment under the provisions of the Finance Leasing Act No. 56 of 2000

Company Re-registration No. PQ 91 Place of Incorporation – Colombo

Registered Office69, Janadhipathi MawathaColombo-1

Board of DirectorsDeputy ChairmanMr. R S W Senanayake ACMA (UK), FSCMA (SL)

Mr. M.S.I.PeirisAICM (SL)

R. Renganathan FCA

Mr. P. A. JayawardenaFCA, FSCMA (SL), FMAAT

Mr. E T L Ranasinghe MBA (Sri J’pura), Dip in MKT (UK), MCIM (UK), Chartered Marketer (UK)

Deshamanya Dr P.R. AnthonisD.Sc., FRCS (Eng), FICS, FSCS

SecretariesInternational Consultancy & Corporate Services (Pvt) Ltd.,29/23 , Vishaka Lane , Colombo 04.

AuditorsM/s. KPMG Ford, Rhodes, Thornton & Co.(Chartered Accountants)

Lawyers M/s. De Livera AssociatesAttorneys-at-Law & Notary PublicColombo

Ceylinco Consultancy & Allied Services (Pvt) Ltd., Colombo

M/s Julius & Creasy Attorneys-at-Law & Notaries PublicColombo

BankersSeylan Bank PLCSampath Bank LtdPeople’s Bank

Head OfficeLandmark Building, 385, Galle Road, Colombo-3

Telephone +94-11-2573363Fax +94-11-2573366

Parent CompanySeylan Bank PLC

Subsidiary CompaniesSMB Money Brokers (Pvt) Ltd

Associate CompaniesSMB Real Estate LtdSMB Securities (Pvt.) Ltd.SMB Kenenga Investment Corporation Ltd

Corporate Information

Produced by: Copyline (Pvt) Ltd.

Financial Highlights 2 Deputy Chairman’s Review 4 Directors Profile 6 Subsidiaries and Equity Accounted Investees 8 Human Resources 9 Risk Management 10 Corporate Governance 11 Financial Statements 15 Annual Report of the Board of Directors on the Affairs of the Company 16 Directors’ Responsibility Statement 19 Audit Committee Report 19 Independent Auditor’s Report 20 Income Statement 22 Balance Sheet 23 Statements of Changes in Equity 24 Cashflow Statement 25 Notes to the Financial Statements 26 Segment Reporting - Group 63 Decade at a Glance - Bank 64 Five Year Summary - Group 65 Value Added Statement 66 Shareholders’ & Investors’ Information 67 Information on Debenture 72 Notice of Meeting 73 Note 74 Form of Proxy 75 Corporate Information Inner Back Cover

SEYLAN MERCHANT BANK PLC385 Landmark Building Galle Road Colombo 03 Sri Lanka

www.smblk.com

An

nu

al Repo

rt 20

08

Seylan

Merch

ant B

ank PLC

SEYLAN MERCHANT BANK PLC

Annual Report

2008