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SAMPATH BANK PLC

ANNUAL REPORT 2016

Sampath Bank has long been recognized as a driver of innovation in the local banking industry. For over 30

years, we have delivered the finest in customer-friendly products and services designed to enable speed,

access and convenience. Our focus is always to serve our stakeholders with better value than anyone else.

That"s why we have developed world class digital banking technologies, the My Bank franchise supporting our

islandwide branch network and our creative and talented team. These are the synergies that power the inspired

financial solutions we deliver online and in real time, every single day. A COMPELLING THOUGHT. A STUBBORN BELIEF. A PERSISTENT DREAM THAT WON'T GO AWAY. THINK ABOUT WHAT YOU CAN ACHIEVE WHEN YOU BELIEVE THAT NOTHING IS IMPOSSIBLE. YOUR BOUNDARIES FALL AWAY. YOUR LIMITATIONS DISAPPEAR. EVERYTHING YOU THOUGHT WAS BEYOND YOUR REACH IS NOW IN THE PALM OF YOUR HAND. 30 YEARS AGO WE BELIEVED WE COULD IMAGINSPIRE OUR

DREAMS THROUGH THE POWER OF OUR WILL.

TODAY WE KNOW WE WERE RIGHT.

SAMPATH BANK

Imaginspired

IMAGINSPIRED

2

SAMPATH BANK PLC

ANNUAL REPORT 2016

CONTENTS

Report Profile ...........................................4 Financial Highlights .................................6 Non-Financial Highlights .........................9

INTRODUCTORY INFORMATION

Our Vision and Our Values ....................12

About The Company .............................13

Product Portfolio ....................................14 Board of Directors .................................16

Corporate Management ........................22

Chief Managers .....................................25 Senior Managers ...................................28

MANAGING OUR BUSINESS

Chairman"s Message .............................32

Managing Director"s Review ..................38

Green Recognition ................................44 Sustainability Framework .......................45

Stakeholder Engagement ......................46

Business Model .....................................50 Materiality Assessment ..........................52

MANAGEMENT DISCUSSION & ANALYSIS

Operating Environment .........................56

CAPITAL MANAGEMENT REPORTS

Financial Capital ....................................60 Manufactured Capital ............................64 Intellectual Capital .................................70 Human Capital .......................................73

Social and Relationship Capital

Customer ...........................................82 Supplier ..............................................86 Community .........................................87 Natural Capital .......................................94

BUSINESS REPORTS

Personal and Branch Banking

Deposits .............................................99

Loans and Advances .......................100

Cards ...............................................101

Corporate Banking

Corporate Finance ...........................103

Corporate Credit ..............................104

Commercial Credit ...........................105

FCBU ...............................................106

Development Banking

MSME Development ........................107

Project Finance ................................108

Global Business

International Operations ..................109

Bank Notes Operations ....................110

Remittances .....................................111 Trade Services .................................112

Nostro Accounts, Correspondent

Banks and Exchange Companies ...113

Treasury ...............................................114Operational Support

NSC and CCD ..................................115

Recoveries .......................................117

Performance of Subsidiaries

Siyapatha Finance ...........................118

SC Securities ...................................119

Sampath Centre ...............................120

SITS ..................................................121 Investor Information .............................123 Future Outlook .....................................134

RISK & GOVERNANCE

Risk Management Report ....................136

Compliance Review .............................151

Corporate Governance .......................153

Board Audit Committee Report ...........198

Board Human Resources and

Remuneration Committee Report ....202

Board Nomination Committee Report .204

Board Integrated Risk Management

Committee Report ............................206

Board Related Party Transactions

Review Committee Report ...............209

Board Credit Committee Report ..........210

Board Strategic Planning

Committee Report ............................212

Board Shareholder Relations

Committee Report ............................214

Board Treasury Committee Report ......216

Board Marketing Committee

Report ..............................................217 3

Read this Report Online

www.sampath.lk

FINANCIAL INFORMATION

Financial Calendar ..............................220

Annual Report of the Board of

Directors on the Affairs of the

Company .........................................221

Directors" Interest in Contracts

with the Bank ...................................230

Directors" Statement on Internal

Control Over Financial Reporting ....231

Independent Assurance Report

to the Board of Directors of

Sampath Bank PLC ..........................233

Managing Director"s and

Chief Financial Officer"s

Responsibility Statement .................234

Statement of Directors"

Responsibility for Financial

Reporting .........................................235

Independent Auditors" Report

to the Shareholders of

Sampath Bank PLC ..........................237

Statement of Profit or Loss ..................238

Statement of Comprehensive Income .239

Statement of Financial Position ...........240

Statement of Cash Flows .....................242

Statement of Changes in Equity ..........244

Notes to the Financial Statements .......246

SUPPLEMENTARY INFORMATION

Statement of Profit or Loss in US$ .......378

Statement of Comprehensive Income

in US$ ..............................................379

Statement of Financial Position

in US$ ..............................................380

Economic Value Addition ....................381

Ten Years at a Glance .........................382 Quarterly Statistics ..............................383 Capital Adequacy ................................385

GRI G4 Content Index .........................390

Other Sustainability Disclosures ..........398

Independent Assurance Report

to the Shareholders of Sampath Bank PLC .........................................409

Glossary of Financial and

Banking Terms .................................410 Abbreviations ......................................416

Notice of Annual General Meeting ......418

Stakeholder Feedback Form ...............419

Corporate Information ........................IBC 4

REPORT PROFILE

SCOPE AND BOUNDARY

Covering the period 1st January 2016

to 31st December 2016, this annual report marks the 3rd milestone on our integrated reporting journey. The report comprehensively covers the performance of Sampath Bank PLC for the reporting period and includes among other matters; an analysis of the operational results, a review of the financial performance and an overview of the Bank"s corporate governance, risk management and compliance frameworks, in accordance with the

Code of Best Practice on Corporate

Governance issued jointly by the

Institute of Chartered Accountants of

Sri Lanka and the Securities and

Exchange Commission of Sri Lanka,

the listing rules of the CSE and the

Banking Act Direction No. 11 of 2007

on Corporate Governance for Licensed

Commercial Banks in Sri Lanka, issued

by the Central Bank of Sri Lanka.

Further, in the interest of completeness,

an overview of the performance of the Group"s subsidiary companies for the same period is also provided in a separate section of the report.

REPORTING FRAMEWORKS

This integrated annual report remains

the primary source of communication with stakeholders and its main objective is to show how we are working to improve every aspect of our business for the benefit of our stakeholders.

Accordingly, this report has been

prepared in accordance with the

IIRC"s Framework "Six Capitals",

Reporting Framework, and the Capital

Management Report on pages 59

through 97 details the work we are putting in to strengthen each of the "Six Capitals" for the benefit of our stakeholders.

The report also references the

Global Reporting Initiatives (GRI), G4

guidelines for sustainability reporting where a comprehensive GRI content index on pages 390 to 397 provides a qualitative and quantitative assessment of our progress on key sustainability indicators.

MATERIAL ISSUES

We view the process of determining

material issues as a business tool that facilitates integrated thinking. As illustrated in the Materiality Assessment

Mechanism on pages 52 to 54, we

focused on 32 material issues in

2016 and throughout this report we

demonstrate the symbiotic relationship between these material issues and our business model, strategy, risk framework and governance mechanisms.

Material issues are reviewed on an

ongoing basis to ensure they remain relevant to the overall vision of Sampath Bank.

FORWARD-LOOKING

STATEMENTS

The Report includes forward-looking

statements, which relate to the possible future financial position and results of the Sampath Bank PLC"s operations. These statements by their nature involve an element of risk and uncertainty, as they relate to events and depend on circumstances that may or may not occur in the future. However, we do not undertake to update or revise any of these forward-looking statements publicly, whether to reflect new information or future events or otherwise.

ASSURANCE

We use a combination of internal

controls, management assurance and compliance and internal audit reviews to ensure the accuracy of our reporting.

Further, we continue to hire

independent service providers to assess and assure various aspects of the business operations, including elements of external reporting, including;

Auditing of the financial

statements by external auditors,

Messrs Ernst & Young, Chartered

Accountants. Please refer

page 237.

An independent audit conducted

by Messrs Ernst & Young,

Chartered Accountants, to

verify compliance of GRI G4 sustainability indicators, in conformity with "In accordance - Comprehensive" disclosure requirements. Please refer page 409.

FEEDBACK

Any feedback or comments regarding

this report can be directed through the stakeholder feedback form on page 419 of this report.

SAMPATH BANK PLC

ANNUAL REPORT 2016

G4 - 15,28,29,30,32,33

5

OUR PROGRESS TOWARDS SUSTAINABILITY REPORTING

Year Report Profile GRI Application Level Declaration Status External Assurance

Provided

2011 Stand-alone Report GRI 3.1 Level B Self-declared YES

2012 Incorporated in Annual Report GRI 3.1 Level B Self-declared YES

2013 Stand-alone Report GRI G4 Comprehensive - YES

2014 Integrated Report GRI G4 Comprehensive - YES

2015 Integrated Report GRI G4 Comprehensive - YES

2016 Integrated Report GRI G4 Comprehensive - YES

MEMBERSHIP OF ASSOCIATIONS

Sampath Bank PLC is a member of several national and international associations.

Name of the Association Membership Status

American Chamber of Commerce in Sri Lanka Member

Association of Compliance Officers of Banks, Sri Lanka Member

Association of Primary Dealers (APD) Member

Biodiversity Sri Lanka, Ceylon Chamber of Commerce Patron Member

Clearing Association of Bankers Member

CSR Lanka (Guarantee) Ltd Member

International Chamber of Commerce - ICC Sri Lanka Member

Lanka Clear (Pvt) LtdMember

Lanka Financial Services Bureau (LFSB) Member

Lanka SWIFT User Group (LSUG) Member / Deputy Chairman

Leasing Council of Bankers Member

Payment Card Association of Sri Lanka Member

Society for Worldwide Interbank Financial Telecommunication (SWIFT) Member Sri Lanka Association of Software & Service Companies (SLASSCOM) Member Sri Lanka Bank"s Association (Guarantee) Ltd Member

Sri Lanka Italy Business Council Member

Steering Committee on Economic Policy - The Ceylon Chamber of Commerce Member The Association of Banking Sector Risk Professionals - Sri Lanka Member

The Ceylon Chamber of Commerce Patron Member

The European Chamber of Commerce of Sri Lanka Member The Financial Ombudsman Sri Lanka (Guarantee) Ltd Member

G4 - 16

6

FINANCIAL HIGHLIGHTS

BANK GROUP

2016 2015 Change

% 2016 2015 Change

Profitability (Rs Mn)

Gross income 67,585 47,032 43.7 70,445 49,102 43.5 Total operating income 32,344 25,288 27.9 33,957 26,742 27.0

Operating expenses, impairment losses &

VAT & NBT on financial services 19,744 16,187 22.0 20,743 16,953 22.4 Profit before income tax 12,600 9,101 38.4 13,214 9,790 35.0 Income tax expense 3,475 2,967 17.1 3,712 3,161 17.4 Profit for the year 9,125 6,134 48.8 9,501 6,628 43.3

Assets & Liabilities (Rs Mn)

Due to banks & other customers (Deposits only) 516,273 409,411 26.1 519,140 410,252 26.5

Loans to & receivables from banks & other

customers after impairment provisions 458,831 377,348 21.6 475,397 387,929 22.5 Total equity 44,489 35,125 26.7 49,742 39,203 26.9 Total liabilities614,023490,152 25.3630,357499,444 26.2 Total assets 658,512 525,277 25.4 680,099 538,647 26.3

Investor Information

Net asset value per share (Rs) 251.38 198.47 26.7 281.06 220.98 27.2 Market value per share at the year end (Rs) 260.40 248.00 5.0 Earnings per share - Basic / Diluted (Rs) 51.56 34.66 48.8 53.66 37.42 43.4

Dividend per share (Rs) 18.75 13.00 44.2

Dividend cover (Times) 2.75 2.67 3.0

Gross dividend (Rs Mn) 3,362 2,240 50.1

Market capitalisation (Rs Mn) 46,086 42,734 7.8

Other Ratios

Dividend yield (%) 7.20 5.24 37.4

Price earning ratio (Times) 5.05 7.16 (29.5)

Impairment allowance on loans to &

receivables from other customers (%) 1.67 1.83 (8.7)

1.70 1.87 (9.1)

Non-performing loan (NPL) (%)1.611.64 (1.8)

Liquid assets ratio (%) 21.84 22.05 (1.0)

Fitch rating

A+ (lka)

(Negative)A+ (lka) (Stable)

Moody"s rating

B1 (Negative)

FINANCIAL GOALS AND ACHIEVEMENTS - BANK

Goal 2016 2015 2014 2013 2012

Financial Indicators

Return on average assets (after tax) (%) Over 1%1.551.28 1.23 0.98 1.88 Return on average equity (after tax) (%) Over 16%23.4718.42 16.35 12.88 22.26 Growth in profit (%) Over 15%48.7624.83 43.27 (34.43) 54.40 Growth in total assets (%) Over 15%25.3621.58 13.08 23.47 24.93

Cost to income ratio (excluding VAT

& NBT) (%) Below 50%47.8352.75 54.82 51.20 51.70

Capital adequacy ratios (%)

- Core capital (Tier I) Over 7.5%8.317.90 8.83 10.08 11.80 - Total capital (Tier I + II) Over 12%12.8712.26 13.62 14.22 13.61

Comparative information for the year 2015 has been reclassified wherever necessary to conform to the current year"s

presentation.

SAMPATH BANK PLC

ANNUAL REPORT 2016

7

Net Asset Value per Share grew by

26.7%
to Rs 251.38

EACH YEAR, WE CONTINUE TO IMPLEMENT FINANCIAL

STRATEGIES THAT ENHANCE OUR FINANCIAL CAPITAL

TO ENABLE US TO CARRY OUT THE DAY-TO-DAY

BUSINESS ACTIVITIES OF THE BANK...

Total Deposits grew by

26.1%
to Rs 516.3 Bn

Gross Advances

grew by 21.3%
to Rs 468.5 Bn

Interest Income

grew by 49.0%
to Rs 56.5 Bn

Gross Income

grew by 43.7%
to Rs 67.6 Bn

TOTAL OPERATING INCOME

20142013

2015
2016

20,757

21,394

25,288

32,344

(Rs Mn)

COMPOSITION OF TOTAL OPERATING INCOME 2016

Net Interest Income

Net Fee & Commission Income

Trading, Investment &

Other Operating Income

70.3

20.49.3

INTEREST EXPENSE

20142013

2015
2016

26,556

22,335

20,542

33,776

(Rs Mn)

NET FEE & COMMISSION INCOME

20142013

2015
2016
2,543 4,187 5,287 6,585 (Rs Mn) 8

FINANCIAL HIGHLIGHTS

DRIVEN BY STRONG REVENUE GROWTH AND

COMPARATIVELY LOWER COSTS, THE BANK"S

BOTTOM LINE GREW BY 48.8%, COMPARED TO

THE PREVIOUS YEAR

PROFIT BEFORE TAX & PROFIT AFTER TAX

03691215

20142013

2015
2016

Profit Before Tax

Profit After Tax

4.9 9.1 6.1 12.6

9.16.7

3.44.5

(Rs Bn)

ROE & ROA

0510152025

20142013

2015
2016

23.4718.4216.3512.88

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