Glossary of Financial/Banking Terms

Promise to pay created when the drawee of a time draft stamps or writes the word "accepted" above his signature and a designated payment date.

The specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting Financial Statements.

To recognise the effects of transactions and other events as they occur, without waiting for the receipt or payment of related cash or its equivalent.

An entity's unbiased and mutually compatible best estimates of the demographic and financial variables that will determine the ultimate cost of providing post-employment benefits.

Actuarial gains and losses comprise the effects of differences between the previous actuarial assumptions and what has actually occurred and the effects of changes in actuarial assumptions.

Fund value determined by computing its normal cost, actuarial accrued liability, actuarial value of its assets, and other relevant costs and values.

The systematic allocation of the depreciable amount of an asset over its useful life. In the case of an intangible asset or goodwill, the term "amortisation" is generally used instead of "depreciation". Both terms have the same meaning.

The amount at which a financial asset or liability is measured at initial recognition, minus any repayment of principal, minus any reduction for impairment or uncollectibility, and plus or minus the cumulative amortisation using the effective interest method of the difference between that initial amount and maturity amount.

A set of procedures, laws or regulations designed to prevent money laundering. Money laundering is an activity which aims to disguise the ownership of money that has an illegal origin such as trading of drugs, organised crimes, fraud and terrorism.

A measure of how many employees leave over a certain period of time.

The Basel Committee on Banking Supervision (BCBS) issued the BASEL III rules text, which presents the details of strengthened global regulatory standards on bank capital adequacy and liquidity.

A unit that is equal to 1/100th of 1%. Often used in quotation of spreads between interest rates or to change in yield in securities.

The ratio between capital and risk weighted assets, as defined under the framework of risk-based capital standards developed by the Bank for International Settlements (BIS) and as modified to suit local requirements by Central Bank of Sri Lanka.

Impairment assessment which carried out on a collective basis for homogeneous groups of loans that are not considered individually significant, in order to cover losses that has been incurred but has not yet been identified at the Reporting date.

Common Equity Tier 1 (CET 1) is a component of Tier 1 capital that consists mostly of Stated Capital. It is a capital measure that was introduced as a precautionary measure to protect the economy from a financial crisis.

Contractual maturity refers to the final payment date of a loan or other financial instrument, at which point all the remaining outstanding principal will be repaid and interest is due to be paid.

The process by which corporations are directed and controlled. It is concerned with the rights and responsibilities among stakeholders used to determine and control the strategic directions and performance of the corporation.

A bank in a foreign country that offers banking facilities to the customers of a bank in another country.

Operating expenses excluding impairment charge for loans and other losses, as a percentage of total operating income.

The credit risk associated with lending to borrowers within a particular country, sometimes taken to include sovereign risk.

The risk of loss due to non-payment of a loan or other line of credit (either the principal or interest or both), by the borrower or a counterparty.

Long-term borrowings divided by shareholder's equity.

Sum set aside for tax in the Financial Statements that will become payable/receivable in a financial year other than the current financial year. It arises because of temporary differences between tax rules and accounting conventions.

Written undertakings by a bank on behalf of its customers (typically an importer), authorising a third party (e.g. an exporter) to draw drafts on the Bank up to a stipulated amount under specific terms and conditions. Such undertakings are established for the purpose of facilitating international trade.

Systemically Important Banks (SIBs) are perceived as banks that are "Too Big To Fail". D-SIBs are critical for the uninterrupted availability of essential banking services to the country's real economy even during crisis. The CBSL has designated Licenced Commercial Banks with total assets equal to or greater than Rs. 500 Bn. as D-SIBs

A method of accounting whereby the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the investor's share of net assets of the invested. The Statement of profit or loss reflects the investor's share of the results of operations of the invested.

Activities that result in changes in the size and composition of the equity capital and borrowings of the entity.

Financial instrument is any contract that gives rise to financial asset of one entity and a financial liability or equity instrument of another entity.

A financial asset is measured at amortised cost if the asset is held within a business model whose objective is to hold assets to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

FVOCI include debt and equity instruments measured at fair value through other comprehensive income. A debt instrument is measured at FVOCI, if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Equity investments may be irrevocably classified as FVOCI when they meet the definition of Equity under LKAS 32- "Financial Instruments: Presentation", and are not held for trading.

All financial assets other than those classified at Amortised Cost or FVOCI are classified as measured at FVTPL. These are held for trading or managed and their performance is evaluated on a fair value basis as they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

Properties acquired in full or partial settlement of debts, which will be held with the intention of resale at the earliest opportunity.

Agreements between two parties to exchange one currency for another at a future date at a rate agreed upon today. instrument of another entity.

Primarily represent irrevocable assurances that a bank will make payments in the event that its customer is unable to perform its financial obligations to third parties. Certain other guarantees represent non-financial undertakings such as bid and performance bonds.

Recording transactions at the actual value received or paid.

This occurs when recoverable amount of an asset is less than its carrying amount.

Impairment measured individually for loans that are individually significant to the Group.

An identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Net interest income as a percentage of average interest earning assets.

Securities acquired and held for yield or capital growth purposes and usually held to maturity.

Those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

KPIs are quantifiable measures that a company user to gauge its performance over time.

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, treasury bills.

Liquid assets expressed as a percentage of total liabilities other than shareholders' funds.

The practice of periodically revaluing marketable securities to their current market value.

The relative significance of a transaction or an event the omission or misstatement of which could influence the economic decisions of users of financial statements.

A measure of the number of deaths in some population, scaled to the size of that population, per unit time.

The difference between what the Bank earns as interest on assets such as loans and securities and what it pays as interest on liabilities such as deposits, refinance funds and interbank borrowings.

The estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

NSFR measures the amount of long-term, stable sources of funding employed by a bank relative to the liquidity profiles of the assets funded and the potential for contingent calls on funding liquidity arising from off-balance sheet commitments and obligations.

A nostro account is a bank account held in a foreign country by a domestic bank, denominated in the currency of that country.

Transactions not recognised as assets or liabilities in the Statement of Financial Position but which give rise to contingencies and commitments.

The principal revenue producing activities of an entity and other activities that are not investing or financing activities.

An actuarial valuation method that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

Tangible assets that:

(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

(b) are expected to be used during more than one period.

Inclusion of a degree of caution in the exercise of judgement needed in making the estimates required under conditions of uncertainty such that assets or income are not overstated and liabilities or expenses are not understated.

Repayment of principal monies.

Two parties where one controls the other or exercise significant influence in financial and operating decisions, directly or indirectly.

Contracts relating to securities sold to creditors (who lend money for funding purposes), with the intention of buying them back at a set price on a specified future date.

Profit before tax expressed as a percentage of average total assets. Used along with ROAE, as a measure of profitability and as a basis of intra industry performance comparison.

Profit after tax less preferred share dividends, if any, expressed as a percentage of average ordinary shareholders' equity.

An assets which bears the lessee's right to use that throughout the lease term.

Significant influence is the power to participate in the financial and operating policy decisions of an investee but is not controlled or jointly controlled over those policies.

The availability of cash over the long term to meet financial commitments as they fall due.

The claims of the debenture holders shall in the event of winding up, rank after all the claims of the secured and unsecured creditors and any preferential claims under any statutes, but in priority to and over claims and rights of the shareholders.

The simultaneous purchase and sale of foreign exchange or securities, with the purchase executed at once and the sale back to the same party. Carried out on an agreed upon price to be completed at a specified future date. Swaps include interest rate swaps, currency swaps and credit swaps.

Consists of the sum total of paid up ordinary shares, non-cumulative, non-redeemable preference shares, share premium, statutory reserve fund, published retained profits, general and other reserves, less intangible assets and other deductions.

Consists of the sum total of revaluation reserves, general provisions, hybrid capital instruments and approved subordinated debentures.

The sum of Tier 1 and Tier 2 capital.

An undertaking formed to invest in securities under the terms of a trust deed.

Repayment of the principal and interest not being secured by any specific asset.

Estimated maximum loss that the Bank may incur in a given horizon at 99% confidence level.

A local currency current account maintained with a bank by another bank