Business Times

Refreshing side of an annual report

Often annual reports of companies are a rigmarole of numbers, statistics and data. As the saying goes – they’re lies, damned lies and statistics. This is not to insult a larger component of Sri Lanka’s corporate sector which has seen some dramatic changes in the way annual accounts are presented – not forgetting the fact that the regulations by the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission (SEC) have been expanded in recent years to ensure more accountability, governance and transparency between listed companies and their shareholders.

However many companies are going beyond that realm and adding new elements into their reports like corporate social responsibility, green developments, auditing standards, disclosures on directors and setting their own benchmarks as the public demand for transparency grows.

In this context it was refreshing to read the annual report released by Seylan Bank this week on its 2009 accounts. It was actually a book and not a report, titled ‘The Case Study’ and meant to be just that – not to be discarded by shareholders and stakeholders as another report full of statistics and data.

Seylan’s hie rarchy called a press conference this week with the participation of Central Bank Governor Ajith Nivard Cabraal to announce a very good year despite serious problems the bank faced as a spillover of the Golden Key crisis, when the institution was part of the troubled Ceylinco Group.

However the interesting ‘coffee table’ book format got missed in the whole element of the numbers game and few in the media delved on the way the accounts was presented – a case study on how a bank survived a terrible ordeal.

While depositors and shareholders would still have their share of issues and problems as the bank still carries baggage from the Ceylinco years and its then chairman Lalith Kotelawala, the attempt to be truthful, honest and transparent (or close to it) should be commended.

The book-format, annual report provides the background of the company and its relationship to Ceylinco, goes into these issues, the problems of Golden Key and its aftermath, queues of depositors waiting to pull out their funds from Seylan, and how the management through the intervention of the Central Bank was able to stop the institution collapsing.

According to banking industry sources, Seylan is probably the first bank in the world which - faced with a run in its deposits - has survived without a bailout. Some of the lessons learnt in the Seylan saga should be compulsory reading for those in the industry, the Central Bank and other agencies connected to banking. For example the case study says the over-expansion was at a price and the ‘staggering’ growth of the bank led to a classic case of overtrading.

“Aggressive expansion both in terms of business volumes as well as physical infrastructure (new branches), expanding the ATM network, building new premises, etc had exerted tremendous pressure on the limited amount of capital available,” it said.

Under the sub-heading, ‘Other warning signs’, the study said there was a growing number of signs that the management was not aligned with current professional standards for the industry. Among them: High cost-to-income ratio, high non performing loans, though being half the size of Sri Lanka’s biggest private bank the number of staff was virtually the same, high operating expenses, low productivity, etc.

It also delved on the complex relationship with the Ceylinco Group saying the issues in this group ‘contributed to an overall climate of uncertainty around Seylan Bank’. It said statements made by Mr Kotelawala (over the Golden Key) were misunderstood by the public who made a beeline to withdraw their money. “In a matter of hours, a classic ban run was rapidly gaining momentum,” it said, adding that the Central Bank stepped in, installed a new board of directors and thus began the recovery.

The study has been written in easy to read, lucid language plus the unconventional way of presenting an annual report is food for thought for Sri Lanka’s corporate society. There should be more like this.

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