"License Finance Company with Monitory Board of the Central Bank of Sri Lanka under the Finance Business Act. 42 of 2011."

[SL] BBB - (Stable) from ICRA Lanka Limited (Subsidiary of ICRA Limited, a group Company of Moody’s Investors Service) Listed in Colombo Stock Exchange (CSE)

Board of Directors

Mr.Brahmanage Premalal

Mr.Brahmanage Premalal

Group Chairman / Non- Independent Non-Executive Director

Group Chairman / Non- Independent Non-Executive Director's Message

Prime Finance PLC moves forward into its third year of operations under the aegis of the Prime Group.The financial year 2019/ 20 has been one of the most challenging epoch of our time with countries and companies locally and globally facing unprecedented challenges due to the COVID-19 pandemic. In this challenging backdrop, Prime Finance PLC was able to chart its way ahead in a resilient manner. Since its rebranding as Prime Finance PLC, the Company has been moving ahead backed by strong fundamentals. Our unique business model, ethical operations, customer-centricity and teamwork have been the hallmark of our success. This has placed the Company on a strong platform to leverage synergies with its parent company – the Prime Group. This year marks a special milestone for the Prime Group as we celebrate 25 years in business. Over our corporate journey, we have successfully launched over 4,000 land and modern housing projects in 16 districts across the island and completed 36 out of the 43 launched apartment projects. We marked our 25th anniversary milestone by infusing greater transparency by receiving an [A-] Stable credit rating by ICRA Lanka (Pvt) Ltd. This is a first in the history of Sri Lanka's real estate industry where a real estate company is rated by a recognised rating entity. This has created a benchmark in the real-estate industry in Sri Lanka. We are deeply indebted to all our clients who have placed their trust in us. In the present volatile real estate market, such a rating mechanism would be invaluable for our customers in making prudent decisions along with key indicators such as good location, design and price. Prime Finance PLC made steady inroads into the Non-Bank Financial Services with the backing and the strength of the Prime brand. The Company’s operating income increased to Rs. 743 Million in the FY 2019/20 which reflects an increase of 7.19% from the previous year. The Company achieved an increase in its interest income by Rs. 148 Million by reaching Rs. 1.1 Billion. The lending portfolio of the Company reached Rs. 4.6 Billion milestone marking an increase of 6.71% despite the challenging business landscape. In a scenario where the general public’s trust and credibility towards financial institutions has dwindled, Prime Finance PLC garnered the trust and confidence to enhance its fixed deposit portfolio to Rs 2.8 Billion. This reflects the enduring trust and confidence of the Prime brand. The Company’s profit before tax reduced to Rs. 137 Million mainly due to higher impairment provisions driven by external variables. Strong and functioning corporate governance has always been a core pillar of the Company and is the basis of our corporate success, growth and stability. We have in place a well-diversified Board with competent members who have proved their expertise in their respective fields who are committed to uphold the highest standards of corporate governance. We comply with the Code of Best Practise on Corporate Governance jointly issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. The holding company committed to infuse capital into Prime Finance PLC through a Rights Issue of Rs. 526.7 Million which would increase the core capital to Rs 2 Billion falling in line with the CBSL directives. Presently, Sri Lanka is successfully navigating its way through the COVID-19 pandemic through astute leadership and the commitment of the health services, armed forced and the front-line workers. At this juncture the country is faced with the crucial challenge of rebuilding the economy. The post COVID-19 era has ushered in a ‘new normal’ which requires us to be more adept and responsive to new opportunities. It has also created the platform for many new entrepreneurs to blossom. We are confident that this defining era would also offer a range of opportunities which we are confident of maximising through the right growth strategies. We hope to enhance our digital capabilities, internal processes and elevate our customer satisfaction levels to create long term value for our stakeholders whilst strengthening our positioning as a trusted, stable financial services organisation in the country. I wish to appreciate the wise counsel of the Board of Directors of the Company who with their strategic insights have steered the Company in the right direction during this challenging phase. I extend a warm thank you to the Prime Finance team led by the CEO for their steadfast dedication and commitment. I take this opportunity to recognise our customers for their loyalty and confidence in placing their trust in us, which we uphold with utmost respect. My sincere appreciation is extended to the Governor of the Central Bank of Sri Lanka (CBSL) and the Director of the Department of Supervision Non-Bank Financial Institutions of the CBSL for their continuous support and guidance extended to us.

Mr. Mangala Goonatilleke

Mr. Mangala Goonatilleke

Chairman / Independent Non- Executive Director

Chairman / Independent Non- Executive Director's Message

Despite challenging business externalities, the Company performed in a resilient manner by increasing its operating income by 7.19% to Rs 743 Million along with the lending portfolio reaching the milestone of Rs 4.6 Billion. The financial year 2019/20 was a year filled with unprecedented challenges. The year commenced with the Easter Sunday attacks followed by months of instability arising from security concerns which had a direct impact on tourism, construction and ancillary industries. The third quarter of 2019/20 was dominated by political uncertainty with the presidential elections. However, with the change in the administration several changes were introduced in fiscal and monetary policy which resulted in the reduction of PAYE tax, abolition of Nation Building Tax, Economic Service Charge and reduction of VAT rates which gave an impetus of confidence to the economy. Discretionary spending levels saw a decrease during the Q1 and Q2 of 2019/20 which was reversed in Q3 mainly due to reduction of taxes following the presidential elections. The benchmark AWPLR declined nearly 300 bps during the financial year to single digits for the first time in many years due to monetary policy measures implemented during the year to support private sector credit growth. Sri Lanka’s GDP growth rate declined to 2.3% in 2019 compared to 3.3% achieved in 2018. During the year under review, growth in credit to the private sector declined significantly mainly due to the lacklustre economic landscape which led to low levels of investor confidence. Reduction in vehicle imports, vulnerability of the Sri Lankan Rupee, impact of the COVID-19, sharp fluctuations in the prices of motor vehicles had a direct impact on the performance of the Company. The performance of the last quarter of 2019/20 was affected significantly with the COVID-19 pandemic and the consequent lock down of Sri Lanka which directly impacted our operations and overall financial performance for the year due to the difficulties experienced in recovery arising from events related to COVID-19. As a result, we experienced a deterioration of credit quality resulting in high impairment charges. The global economic growth levels recorded its weakest performance since the end of the global financial crisis almost a decade ago. Rising trade barriers and associated uncertainty weighted on business sentiment and global activity. The adverse economic conditions had a direct impact on the Non-Bank Financial Institutions (NBFI) due to the contraction of growth levels followed by the overall instability of the economy. The NBFI industry’s asset quality continued to deteriorate due to customer defaults. The total asset base of the Non-Bank Financial Institutions (NBFI) stood at Rs. 1,432.7 billion, which declined marginally by 1.4% (Rs. 20.7 billion) during the year. This is a considerable decline compared to the 5.5% growth reported in 2008/2019. Lending activities of the sector slowed down during 2019/2020 in response to prudent policy measures introduced to curtail importation of motor vehicles and directions of Loanto-Value (LTV) ratios for credit facilities granted in respect of motor vehicles. The prevailing sluggish economic and commercial activities due to loss of business confidence exacerbated the NBFI's slow growth levels. Resultantly net loans and advances of the industrydeclined by 2.3%. The funding profiles of NBFI’s have been largely characterised by limited diversity, with fixed deposits dominating the funding mix. As of March 2020, about 66% of the total funding (debt) was contributed by customer deposits, while the balance was mainly from bank borrowings. Over the last two years, the Company has been focussed on financial and operational excellence by enhancing the value of shareholders’ investments.The Company was able to increase its interest income by 15.63% to Rs. 1,095 Million despite the challenging business environment. The Company was able to enhance its lending to portfolio to Rs 4.6 Billion. This signifies the Company’s business drive and commitment to identify viable business opportunities and engage in quality lending despite the dynamic and volatile business environment. Shareholders’ funds as at 31st March 2020 represents Rs. 1,692 Million reflecting a growth of 4.40% over the previous financial year. Due to many industries being affected by the COVOD-19 pandemic in the last quarter of the year and the general downturn in business, impairment provisions increased which led to the profitability levels of the Company being affected. As a result, the Company’s Earnings per Share reduced to Rs. 0.90 in the current financial year from Rs. 2.61 in the previous financial year. The Return on Equity reduced to 4.31 % from 13.36% in the FY 2018/19. The Net Assets per Share grew by 4.4% to Rs. 21.36 compared to Rs. 20.46 in the previous financial year. The Company maintained its Core Capital ratios well above the industry standards where our Core Capital to risk weighted assets (Tier I) was maintained at 23.76% and total capital to risk weighted assets (Tier I & II) was maintained at 24.87% well above the stipulated limits represented by 6.5% and 10.5% respectively. Over the years we have demonstrated our commitment to maintain corporate governance and stewardship. Our Board consists of well experienced, diverse professionals in Marketing, Legal, Accounting and Human Resources. I wish to welcome on Board Mr. Ruminda Randeniya and Ms. Dinusha Fernando who with their expertise and experience in management will provide invaluable insights in guiding the Company to the future. During the year, Prime Finance PLC Annual Report was awarded with a Bronze award at the CA Sri Lanka Annual Report Awards 2019 under the category of Finance Companies and Leasing Companies with total assets up to Rs. 20 Bn. This reflects the Company’s continued focus on good corporate governance and commitment to transparent corporate reporting With Sri Lanka successfully managing the COVID-19 pandemic, the nation is now faced with the challenge of rebuilding the economy. We recognise that low GDP growth will impact the performance of every sector and the finance sector will be impacted by lower lending levels and high bad debt provisions. We are encouraged by the move by the government to reduce corporate taxation levels to 24%, removal of the Debt Repayment Levy (DRL) and the initiative to reduce interest rates. We believe that the socio-economic changes that have been introduced in the post – COVID business setting will create many opportunities. This will certainly generate opportunities for us to identify untapped market segments and develop new product and service offerings to cater to these segments. Another integral area that we hope to develop is developing our business forecasting, research and development capabilities harnessing Data Analytics by investing in the right IT infrastructure. This will equip us to be better prepared to manage business contingencies in a proactive manner.We also hope to leverage IT to build our digital infrastructure to cater to the requirements of our customers who are adopting digital and mobile platforms for their financial transactions. We have over the last few years laid a strong foundation and a platform to build the Company to the next stage of growth. We hope to focus on preserving liquidity, minimising credit losses,reducing operating costs, and ensuring the safety of our staff and customers in the background of the current business landscape. We hope to invest more on digitisation to steer our way through the ‘new normal’. I take this opportunity to extend my appreciation to the Group Chairman, Mr. Premalal Brahmanange and the Board of Directors for their wise counsel in steering the Company to the right path in a very turbulent business setting.I wish to thank the Governor of the Central Bank of Sri Lanka and the Director – Department of Supervision of Non-Bank Financial Institutions for their support and guidance. I wish to sincerely thank the Prime Finance Team who served with dedication and commitment. I also extend a warm thank you for our valued customers and business partners for their continued support.

Good Corporate Governance Policy

The regulatory environment is continued to get tightened and the Board has succeeded in taking it up as a challenge to assume additional responsibilities and strive to discharge the related duties complying with the principles of accountability and transparency. As the Central Bank of Sri Lanka keeps on strengthening the regulatory environment further, we are conscious of the need to get the areas of Corporate Governance further strengthened while remaining ready to get the additional qualitative improvements done as may be required time to time. And, Prime Finance PLC’s Corporate Governance Report is an integral part of this year’s Annual Report; its frame of reference being the Central Bank of Sri Lanka’s Finance Companies (Corporate Governance) Direction No. 3 of 2008.

Board Subcommittees

Adherence to corporate governance rules, principles and best practices is considered as a paramount importance at Prime Finance PLC. In light of same, the Company set up following Board-appointed oversight committees to monitor, through full and active contribution to the affairs of the committees, the effective functioning of systems and processes ensuring the overall direction, effectiveness, supervision and accountability of the organization. All sub-committees report directly to the Board.

The Board Audit Committee is a Sub-Committee of the Board of Directors established in compliance with Finance Companies (Corporate Governance) Direction No.03 of 2008, the Listing Rules of the Colombo Stock Exchange and 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 Terms of Reference of the Board Audit Committee clearly defines the mandate and role of the Committee. The Board Audit Committee assists the Board of Directors in discharging its general oversight responsibilities for financial reporting, internal controls, internal and external audits.

Composition of the Board Audit Committee

The Board Audit Committee chaired by an Independent Non-Executive Director and comprising exclusively of Non-Executive Directors. The Committee comprises of three Non-Executive Directors as follows;

Mr. H M Hennayake Bandara - Chairman (Independent Non-Executive Director)

-    Mr. M. D. S. Mangala Goonatilleke - Member (Independent Non-Executive Director)

-    Mr. Anura Wijesiri Perera - Member (Non-Executive Director)

The Company Secretaries functions as the Secretary to the Committee. The Chairman of the Committee is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and of the Certified Management Accountants of Sri Lanka and counts many years of experience in the Financial Services Sector.

The Board Integrated Risk Management Committee was reconstituted on 3rd March, 2017 as a Sub-Committee of the Board of Directors in conformity with Section 8 (3) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008. The Board Integrated Risk Management Committee assists the Board of Directors in ensuring the adequacy and effectiveness of the Company’s risk management framework and capabilities to achieve the strategic objectives.

Composition of the Board Integrated Risk Management Committee

 

The Board Integrated Risk Management Committee comprises of three Non-Executive Directors and Key Management Personnel (KMPs) supervising Credit, Market, Liquidity, Operational and Strategic Risks as follows,

-    Mr. M. D. S. Mangala Goonatilleke – Chairman of the Committee (Independent Non-Executive Director)

-    Mr. H M Hennayake Bandara – Member (Independent Non-Executive Director)

-    Ms. K. D. S. Fernando – Member (Executive Director)

-    Mr. Maduranga Heenkenda – Chief Executive Officer

-    Mr. Samantha Fernando – Chief Operating Officer

-    Mr. Mahadevan Suthakar – Head of Risk & Compliance / Compliance Officer.

-    Mr. Manjula Tennakoon – Assistant General Manager (Finance)

Ms. Madusha Siriwardana functions as the Secretary to the Committee.

The Board Related Party Transactions Review Committee comprises three Non-Executive Directors appointed by the Board of Directors in conformity with Section – 9 of the Listing Rules of the Colombo Stock Exchange. The Committee is responsible to the Board of Directors in ensuring that the interest of shareholders as a whole are taken into consideration by the Company when entering into transactions with Related Parties.

Composition of the Board Related Party Transactions Review Committee

 

The Committee comprises of three Non-Executive Directors as follows,

-    Mr. Mahinda Perera – Chairman of the Committee (Non-Executive Director)

-    Mr. Dhammika H. Kalapuge – Member (Independent Non-Executive Director)

-    Mr. M. D. S. Mangala Goonatilleke – Member  (Independent Non-Executive Director)

The Confidential Secretary of the CEO functions as the Secretary to the Committee. The Chief Executive Officer, Chief Operating Officer, AGM Finance and Head of Risk and Compliance attend meetings by invitation.

The Remuneration and Nomination Committee was reconstituted by the Board of Directors w.e.f. 1st April, 2018 as a Board Sub Committee in conformity with the Listing Rules of the Colombo Stock Exchange and 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 Remuneration and Nomination Committee assists the Board of Directors in fulfilling its oversight responsibility on the compensation and benefits granted to the Directors, Chief Executive Officer and Key Management Personnel of the Company and appointments and re-appointments of the Board of Directors and reviewing the succession plans for the Directors and Key Management Personnel.

Composition of the Remuneration and Nomination Committee

The Committee comprises of three Non-Executive Directors as follows,

-    Mr. Dhammika H. Kalapuge – Chairman of the Committee (Independent Non-Executive Director)

-    Mr. Mahinda Perera – Member (Non-Executive Director)

-    Mr. B. Premalal – Member (Non-Executive Director)

The Confidential Secretary of the CEO functions as the Secretary to the Committee. The Executive Director and Chief Executive Officer attends meetings by invitation except when their own evaluation is under discussion.

Risk Management Framework

Effective Risk Management continues to be a fundamental element when going ahead with the business operations at Prime Finance PLC. As a financial institution, the Company is vulnerable to a wide variety of inherent risks which have the tendency to affect the financial and operational performance of the Company. Consequently, the Risk Management Policy of the Company has been designed in a way all the material classes of risk can be identified, so that business strategy and execution are aligned accordingly to minimize the risk to achieve Company’s Strategic Business Plan.

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