GLOSSARY OF FINANCIAL TERMS ACCOUNTING POLICIES The specific principles, bases, conventions, rules and practices adopted by an entity

in preparing and presenting Financial Statements. ACCRUAL BASIS Recognition of the effects of transactions and other events when they occur without waiting for receipt or payment of cash or its equivalents. AMORTISATION The systematic allocation of the depreciable amount of an intangible asset over its useful life. CAPITAL ADEQUACY The percentage of risk-adjusted assets supported by capital as defined under the framework of risk-based capital standards developed by the Bank for International Settlement (BIS) and as modified to suit local requirements by the Central Bank of Sri Lanka. CAPITAL RESERVES Capital Reserves consist of revaluation reserves arising from revaluation of properties owned by the Company and Reserve Fund set aside for specific purposes defined under the Finance Companies Act, No 78 of 1988 and shall not be reduced or impaired without the approval of the Monetary Board. CASH EQUIVALENTS Short-term highly liquid investments that are readily convertible to known amounts of cash and which subject to an insignificant risk of changes in value. COMMITMENTS Credit facilities approved but not yet utilized by the clients as at the Balance Sheet date. CONTINGENT LIABILITIES Conditions or situations at the Blance Seet date, the financial effect of which are to be determined by the future events which may or may not occur. CORPORATE GOVERNANCE The process by which corporate entities are governed. It is concerned with the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others. COST INCOME RATIO Operating expenses as a percentage of net income.

COST METHOD Cost method is a method of accounting for an investment whereby the investment is recognised at cost. The investor recognizes income from the investment only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition. Distributions received in excess of such profits are regarded as a recovery of investment and are recognised as a reduction of the cost of the investment. CREDIT RISK Credit risk is the risk of financial loss to the Bank if a customer or counter party to a financial instrument fails to meet its contractual obligations, and arises principally from the loans and advances to customers and other banks and investment debt securities. CREDIT RATINGS An evaluation of a corporate entity to assess its ability to repay its obligations or likelihood of not defaulting, carried out by an independent rating agency. DEALING SECURITIES These are marketable securities acquired and held with the intention to resale over a short period of time. DEFERRED TAX Sum set aside in the financial statements for taxation that may become payable in a financial year other than the current financial year. DEPRECIATION The systematic allocation of the depreciable amount of an asset over its useful life. EARNINGS PER SHARE (EPS) Profit attributable to ordinary shareholders, divided by the number of ordinary shares in issue. EFFECTIVE TAX RATE Provision for taxation excluding deferred taxation divided by the profit before tax. EQUITY METHOD The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter FAIR VALUE Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length transaction. FINANCE LEASE A lease in which the lessee acquires all the financial benefits and risks attaching to ownership of whatever in being leased.

GENERAL PROVISIONS General provisions are established for loans and advances for anticipated losses on aggregate exposures where credit losses cannot yet be determined on an individual facility basis. I INTANGIBLE ASSET An identifiable non-monetary asset without physical substance held for use in the production / supply of goods / services or for rental to others or for administrative purposes. INTEREST MARGIN Net interest income as a percentage of average interest earning assets. INTEREST SPREAD This represents the difference between the average interest rate earned and the average interest rate paid on funds. INTEREST COVER A ratio showing the number of times interest charges is covered by earnings before interest and tax. INTEREST IN SUSPENSE Interest suspended on non-performing loans and advances. INVESTMENT PROPERTIES Investment property is property (land or a building - or part of a building - or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for use or sale. INVESTMENT SECURITIES Securities acquired and held for yield or capital growth purposes and are usually held to maturity. KEY MANAGEMENT PERSONNEL Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether Executive or otherwise) of that entity. LIQUID ASSETS Assets that are held in cash or in a form that can be converted to cash readily, such as deposits with other banks, bills of exchange and treasury bills. LOAN LOSSES AND PROVISIONS Amounts set aside against possible losses on loans, advances and other credit facilities as a result of such facilities becoming partly or wholly uncollectible. MARKET RISK This refers to the possibility of loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates, credit spreads and other asset prices.

NET ASSET VALUE PER SHARE Shareholders funds divided by the number of ordinary shares in issue. NET-INTEREST INCOME (NII) The difference between what a Company earns on assets such as loans and securities and what it pays on liabilities such as deposits refinance funds and other borrowings. NON-PERFORMING LOANS (NPL) All loans are classified as non-performing when a payment is 180 days in arrears. NPL RATIO Total non-performing advances (net of Interest in Suspense) divided by total advances portfolio (net of Interest in Suspense). OFF BALANCE SHEET TRANSACTIONS Transactions that are not recognised as assets or liabilities in the Balance Sheet, but which give rise to contingencies and commitments. OPERATIONAL RISK This refers to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. PRICE EARNINGS RATIO (P/E RATIO) Market price of an ordinary share divided by earnings per share (EPS). PROVISION FOR BAD AND DOUBTFUL DEBTS A charge to income which is added to the allowance for loan losses. Specific provisions are established to reduce the book value of specific assets (primarily loans) to estimated realizable values. RETURN ON AVERAGE ASSETS (ROA) Net income expressed as a percentage of average total assets, used along with ROE, as a measure of profitability and as a basis of intra-industry performance comparison. REVENUE RESERVE Reserves set aside for future distribution and investment. RETURN ON EQUITY (ROE) Net income, less preferred share dividends if any, expressed as a percentage of average ordinary shareholders equity. RELATED PARTIES Parties where one party has ability to control the other party or exercise significant influence over the other party in making financial and operating decisions, directly or indirectly. REVENUE RESERVES Reserves set aside for future distribution and investment. SEGMENTAL ANALYSIS Analysis of financial information by segments of an enterprise specifically, the different industries and the different geographical areas in which it operates.

SHAREHOLDERS FUNDS Total of issued and fully paid share capital and capital and revenue reserves. STATUTORY RESERVE FUND A capital reserve created as per the provisions of the Finance Companies Act No. 78 of 1988. CORE CAPITAL Core Capital includes selected items of capital funds. Major core capital items are share capital, share premium, statutory reserve funds, retained profits, general reserves, surpluses/losses after tax arising from the sale of fixed and long-term investments. SUPPLEMENTARY CAPITAL Supplementary Capital includes, approved revaluation reserves, general provisions, hybrid (debt/equity) capital items and approved subordinated term debts.