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CBE Annual Report 06 - 07
CBE Annual Report 06 - 07
OUR VISION
To become a world-class commercial bank
OUR MISION
We are committed to maximizing shareholder value through enhanced financial intermediation and unparalleled customer satisfaction. We deploy highly motivated, skilled and disciplined employees capable of providing banking products and services that meet international best practices and standards. We strongly believe that reliability and public confidence are the bases of our success.
VALUES
P P P P P P P P
We stand for quality;
Key Figures
As at 30 June (in Mn. Birr) Interest income Non-interest income Interest expense Non-interest expense Profit before tax Net profit for the year Total Assets Outstanding loans and advances Liabilities Total deposits Capital and reserve Number of branches Number of employees 2007 1,036.5 1,225.3 351 729.2 1,173.2 866.4 43,389 9,763.6 39,162.2 33,000.6 4,226.8 194 7,684 2006 826.8 969.4 329.8 345.1 1,095.6 792.5 35,827 9,301.5 34,317 28,148.5 1,510 176 7,374 % age Change 25.4 26.4 6.4 111.3 7.1 9.3 21.1 5.0 14.1 17.2 179.9 10.2 4.2
t gives me great pleasure to succinctly present the major achievements of the CBE in fiscal year 2006-07.
During the reviewing year, the Ethiopian economy witnessed a healthy growth trajectory with GDP of about 11.4%, significantly above the average growth realized in sub-Saharan Africa. The good performance of the agricultural sector, due to favorable weather condition, is the hand maiden of this robust and steady growth, despite the relatively significant contribution of other sectors, notably manufacturing, construction and services. This is a testimony of the fact that the expansion strategy of the country has been broad-based, though inflation has been steadily growing and became a challenge to the economy. Corollary to the robust growth of the economy, the CBE has been outperforming its target in the fiscal year. As at the end of fiscal year 2006-07, the total assets of the Bank stood at Birr 43.4 billion, while total deposits and other liabilities reached Birr 39.2 billion, reflecting a growth of 21.1% and 14.1%, respectively, over the preceding years level. In the face of competition, as many players have entered the market, this result is meant that the Bank is strong enough to maintain its leadership status in the industry, which in turn is a testimony that the Bank is marching towards accomplishing its vision. A look into the operating results shows that the Bank has registered commendable performance, mainly due to the growing volume of business in the economy and the unreserved efforts of the staffs towards handling tasks in due diligence. Overall income recorded by the Bank during the reviewing fiscal year reached Birr 2.26 billion, about Birr 465.6 million higher than the previous fiscal year and of course an all time high compared with the preceding years. Its gross profit as well surged to Birr 1.17 billion, showing a 7.1% rise, compared with the preceding fiscal year, which in actual fact would have stood at Birr 1.42 billion, had Birr 250 million not been deducted to recompense the rise of the paid-up capital of the Bank to Birr 4 billion, suggesting the continued financial robustness of the Bank. Fiscal year 2006-07 was a period during which the CBE undertook various business development efforts, which aimed at achieving service excellence. In order to respond to the ever growing customers needs, the Bank has signed agreement with the government to finance housing developments hence diversifying the range of its credit portfolio and moping up unutilized funds. The CBE has, in the fiscal year, showed its commitment of reaching out potential customers by widening its branch network via opening 18 more branches throughout the country. The opening of these branches not only enables the Bank to widen its customer base but it is also one of the key ways of playing its social responsibility.
The attempt made on developing the Banks IT infrastructure continued in the reference year, entailing the Managements commitment to achieve the Banks vision of becoming a world-class bank and to enable it stay at the top of the competition. The Management believes that the Bank should walk-off long way to further improve its IT structure so that the customers would be able to get quality service and the Bank would maintain its preeminent position. The Bank has been exercising a somber and massive transformation effort that is believed to enable it leaps into a better position, and achieve its vision in the dynamic environment. As part of the transformation endeavor, a Business Process Re-Engineering (BPR) study team was formed, where top Management members of the Bank took the leadership, to diagnose the current status and come up with workable solutions for improvement, the central focus being process and customers of the Bank. The project is aimed at redesigning business processes to leverage the core banking platform to improve mainly the Banks performance in key business areas so as to enhance service excellence. Implementation of the study, planned to kickoff in fiscal year 2007-08, is believed to bring about a difference towards reducing the workload of our branches and thereby realizing the Banks vision. The transformation endeavor reflects the Banks strong commitment not only to efficiently deliver existing products to various market segments but also to explore new and niche businesses that can become growth engines. The Management strongly believes that the transformation effort would help the Bank to realize its core principles of becoming performance oriented, market driven and customer first. To this end, the management will invest all the required efforts towards bringing paradigm shift through implementation of the BPR study. The astonishing operational results would not have come true without the unstinted efforts of the Board of and Executive Managements and employees of the Bank and the loyalty and confidence on the part of customers. Hence, I would like to take this opportunity to thank all of them for the commitment they demonstrated in achieving such an all-time-high and outstanding results. I fervently hope that this commitment will continue with us all in the years ahead, as it is the only way that enables us maintaining our vision of becoming a world-class bank.
Bekalu Zeleke
President
Macroeconomic Highlights
he global economy grew at a rate of 5.4% in 2006, and is projected to have grown by 4.75% in the current year, due to expected slowdown in the US economy, though growth in the Euro zone is expected to pick up, led by strong domestic demand. Advanced and emerging economies should enjoy robust growth, helping to sustain demand for sub-Saharan African exports. Among others, China, India and Russia continued to grow vigorously accounting for one-half of the global growth over the past year. Sub-Saharan Africa has been experiencing robust growth reaching 6% in 2007 and inflationary pressures are expected to stay well contained in the region. The overall performance of the Ethiopian economy, on the other hand, has witnessed strong and steady growth, over the past four successive years. The outlook for the current fiscal year is also encouraging. On average, real GDP has grown by 11.8%, during the years 2003/04-2006/07, significantly above the average of 5-6% growth realized in sub-Saharan Africa. In fiscal year 2006-07, real GDP grew by 11.4%, compared with the preceding year, largely due to good performance of the agricultural sector. The agriculture sector has still showed dominance, by contributing 46.3% to the GDP in 2006-07, while the share of services sector and that of the industrial sector stood at 41.2% and 13.4%, respectively, during the same reference period. Following the substantial growth in private and public investments, gross capital formation surged to 33.7% in 2006-07, slightly higher than the preceding years level of 30.3%. Accordingly, the share of gross capital formation has been marginally increasing and reaching 25% of the GDP, whereas gross domestic saving stood at 5.6% of the GDP. Investment activities continued to widen, reflecting a high degree of business optimism and fortifying the outlook for growth. Overall, the growth momentum is expected to be sustained, with continuing credit and investment demand from the various economic sectors. Total government revenue, including grants, reached Birr 29.4 billion, showing a growth of Birr 6.1 billion (26%), over the previous year, while general government expenditure stood at Birr 35.6 billion (20.8% of the GDP), which is much higher than the previous years status of Birr 29.3 billion (22.3% of the GDP). Although the gap between recurrent and capital expenditures has been declining since fiscal year 2002-03, it was only in 2006-07 that the latter surpassed the former by Birr 1.3 billion, presumably due to increased capital expenditure for social developments. The external sector has also showed a remarkable growth. The total value of exports has increased, from USD 1,000.3 million in 2005-06 to USD 1,128.5 million in the reviewing fiscal year, showing a growth of 12.8%. This is attributable to the improvements in the volume of exported goods, which in turn is assumed to emanate from the good performance of the agriculture sector, sustained demand for the countrys major export items from major trading partners, and improved international prices for some of the export products, such as coffee. This growth trend is expected to surge in fiscal year 2007-08, mainly due to the expected increase in the production of agricultural produces for export, following supportive government policies and favorable weather condition. Relatively better and stable international prices and hence increased demand for coffee, flowers and oils seeds are also believed to be other contributing factors. The annual aggregate value of imports increased, from USD 4,592.7 million in 2005-06 to USD 5,124.4 million in 2006-07, depicting a growth of 11.6%, likely due to increased oil prices. Imports of capital goods and intermediate inputs and food stuffs were robust. In fiscal year 2006-07, however, Ethiopia has been experiencing high inflation that remains above the threshold level, which if unabated could adversely affect the economy, albeit the relatively good harvest record. With regards to the exchange rate development, the Ethiopian Birr vis--vis the US dollar was, on average, exchanged in the inter-bank market, at 8.9275 Birr, depreciated by 2.7%, compared with the previous years position of 8.6914 Birr. This slight growth denotes the marginal but continued depreciation of the Birr against the USD in recent times. In the parallel market, the exchange rate of the Birr against the USD has also depreciated to 9.0795, from its corresponding status of 8.9962 in 2005-06. The depreciation stood at 0.9%, much lower than the 2.7% depreciation observed in the inter-bank market, attributable to the fluctuation of the exchange rate in the parallel market, contrary to the persistent depreciation of the exchange rate in the inter-bank market. The spread (premium in %) between the inter-bank market and the parallel market exchange rate has narrowed in the reviewing period,
indicating a slight improvement in the rate difference between the inter-bank market and the parallel market in fiscal year 2006-07 relative to that of last year. The stock of broad money supply exhibited a 22% growth during the fiscal year under review and reached Birr 56.6 billion relative to the magnitude registered during the preceding years level of Birr 46.4 billion. Domestic credit extended to the economy increased sharply by 25.5% relative to the status recorded in 2005-06 (i.e. Birr 49.2 billion), mainly due to the persistence increase in both claims to the central government and to other non-public sector. The net foreign asset component of the money supply (external assets) increased to Birr 13.3 billion during 2006-07, from its level of Birr12.1 billion during the year 2005-06. On the other hand, the narrow money supply grew by 24.4%, compared with the level recorded at the end of the preceding fiscal year, attributable to the rise in demand deposits and currency outside banks by 28.4% and 20 %, respectively. The strong and steady growth of the economy and the marked performance of the external sector and overall fiscal and monetary developments, during the reporting period, created a favorable business environment for the banking industry hence improvement in overall performance.
Financial Position
Net-Interest Income:
he net-interest income of the Bank rose to Birr 685.5 million in 2006-07, from Birr 497 million in 2005-06 (37.9% rise), mainly on the back of a higher growth in interest income over interest expense.
The aggregate interest income grew by 25.4% year-on-year to Birr 1,036.5 million, from Birr 826.8 million in 2005-06. This was resulted from the sizeable growth of interest income generated from loans and advances (Birr 634.1 million), treasury-bills (Birr 40 million), bonds (Birr 285 million) and placements with other banks (about Birr 76.7 million). On the other hand, total interest expenses on deposits reached Birr 351 million, slightly up by 6.4%, relative to last years level of Birr 329.8 million, while the total deposits grew by 17.2%. (In 000 Birr)
2006-07
Interest Income: Loans and advances Government bonds Treasury bills Placements with other banks Coupon and term bonds Interest expense: Customers deposits Deposits from other banks Other Net-interest income Net-interest margin (%) 1,036,505.1 634,186.4 41,993.8 40,024.2 76,653.2 243,647.5 350,965.7 350,330.1 682.1 7.5 685.5 2.2
2005-06
826,764.1 577,134.8 56,060.6 2,432.5 30,696.7 160,439.5 329,781.7 329,771.6 0.9 9.2 497 1.9
Net-Interest Margin:
The net-interest margin for the reporting year was 2.2%, only slightly higher than the preceding years level of 1.9%, suggesting the need for exerting utter efforts in the years to come to convert the swelling liabilities towards earning assets.
Non-Interest Income:
Non-interest income for the reviewing period totaled Birr 1,225.3 million, up by 26.4%, compared with the preceding years balance of Birr 969.4 million. Non-interest income still occupies the sheer-weight of the total income of the Bank, maintaining a percentage share of 54.2. The increase in other income, from Birr 49.5 million in 2005-06 to Birr 181.6 million in 2006-07 and the growth realized by gains on dealings in foreign currencies, going from Birr 329.4 million to Birr 454.8 million and that of commission income from Birr 180.9 million to Birr 200.5 million in the same period are major reasons for the impressive growth of non-interest income.
Operating Expenses:
The operating expenses of the Bank stood at Birr 729.2 million at year-end, up by 111.3%, over the preceding years total of Birr 345.1 million. This growth was attributed mainly to the growth in general expenses by 224.1%. From the category of general expenses, bad debt expenses (impairment loss on government bond and guarantee) accounted to a share of 68%.
Non-Interest Income and Non-Interest Expense (Mn. Birr)
1225.3 969.4 729.2 345.1
Operating Profit:
The total income of the Bank, for fiscal year 2006-07, stood at Birr 2.3 billion, registering a growth of 25.9%, over the corresponding last years figure of Birr 1.8 billion. This was explained by the remarkable growth in both interest income and non-interest income. The income generated from foreign banking operations was Birr 982.8 million, accounting for 43.6% of the total income. The total expenses of the Bank went up to Birr 1,080.2 million in 200607 from Birr 674.9 million in 2005-06, mainly due to the significant increase in non-interest expenses. Accordingly, the operating profit* of the Bank witnessed robust growth for the fourth successive year to reach Birr 1.17 billion, grew by 7.1%, compared with the preceding fiscal year. This figure would have stood at Birr 1.43 billion, had Birr 250 million not been deducted to recompense the rise of the paid-up capital to Birr 4 billion. The net-profit of the Bank stood at Birr 866.4 million, as against Birr 792.5 million for the previous year, showing a growth of 9.3%. This achievement was possible only due to the commitment of all staffs of the Bank and the confidence and trust that the customers place on the Bank.
Profit Befor Tax (Mn. Birr)
1095.6 1173.2
2005-06
2006-07
* Operating profit is computed as total income less of expenses including impairment losses on sundry debtors and acquired property
Earning Capability:
Both returns on assets (ROA) and returns on equity (ROE) dwindled to 2.7% and 27.8%, from their previous years corresponding levels of 3.1% and 74.3%, respectively. The reason for the decline in ROE is the increase in state capital and reserves from Birr 1.5 billion before to Birr 4.2 billion in 2006-07, which makes the denominator much higher than the numerator (i.e. profit before tax).
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2004-05
2005-06
2006-07
2004-05
2005-06
2006-07
Liquidity:
The commercial loan-to-deposit ratio, describing the proportion of the total deposits extended to financing loan demands, went down from 33.1% in 2005-06 to 29.6% in 2006-07. With its loan-to-deposit ratio still below the level of international standard, the Bank still has wide room to grow and/or to enhance its income and, hence profit in the future. However, if investment on bonds of various types is considered, the ratio will be significantly higher than this figure. The liquid-assets-to-the-net-deposits ratio further declined to 75.5% from 77.1% a year ago, may be indicating the fact that the economys absorptive capacity for credit is still relatively weak, despite the favorable business environment that the economic growth has brought. Of course, the high level of liquid funds is a weapon for the Bank to keep on its path to success in fiscal year 2007-08 and beyond. To this end, the Bank has drawn comprehensive strategies to strengthen the marketing activities, especially to enhancing its loan marketing capacity. In other words, the CBE will exert concerted efforts to rebalance its asset portfolio in favor of relatively higher yielding loan receivables.
Courtesy of
Guna Trading
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Assets Structure:
The balance sheet for the 2006-07 fiscal year indicates that the total assets of the Bank grew by 21.1% compared with the preceding year and totaled Birr 43.4 billion. This may suggest that the Bank is strengthening its asset base, which will make it one of the biggest banks in sub-Saharan Africa. This was attributable mainly to the growth in cash and balances with the National Bank of Ethiopia by 36.5%, investment in government securities by 3.4%, term bonds by 69.4%, loans and advances to customers by 10.4% and the growth in placement with other banks by 17.5%, over the level posted a year ago. Specifically, investment in term bonds went up to Birr 6.1 billion, from their previous years level of Birr 3.6 billion. Whereas cash and balances with the National Bank of Ethiopia grew, from Birr 7.2 billion in 2005-06 to Birr 9.9 billion in 2006-07. Similarly, deposit with other banks increased from Birr 1.4 billion to Birr 1.6 billion in the same reference period.
Loan Portfolio:
The Banks outstanding loans and advances portfolio as at end of the reviewing fiscal year totaled to Birr 9.8 billion, showing a modest increase of 5%, over the preceding year balance of Birr 9.3 billion. Looking into the distribution of loans and advances by major end use shows that domestic trade and services, foreign trade, agriculture, and the manufacturing sectors stood at Birr 2.81 billion, Birr 2.77 billion, Birr 1.84 billion and Birr 1.49 billion, respectively, which in the aggregate amounts to 91.4% of the total outstanding loans balance of the reviewing year. The outstanding loans and advances balance of the domestic trade sector was declined by 11.1%, compared with the preceding years balance. Similarly, outstanding loans and advances under other banks stood at Birr 230.7 million, decreased by 17.9% as against the previous years balance of Birr 281 million. Outstanding loans balance under the export sub-sector reached Birr 820.6 million, exhibiting a remarkable growth of 74%, compared with Birr 471.7 million for last year, despite the stiff competition in this regard. Outstanding Loans and Advances by Sector* (Mn. Birr)
2006-07
Amount Loans to customers Agriculture Manufacturing Domestic trade Foreign trade Building and Construction Personal Loans to banks Total outstanding loans 9,532.9 1,842.1 1,497.4 2,813.1 2,768.7 550 61.6 230.7 9,763.6 % Composition 97.6 18.9 15.3 28.8 28.4 5.6 0.6 2.4 100.0
2005-06
Amount 9,020.5 1,586.4 1,329.6 3,164.1 2,444.1 449.2 47.2 281 9,301.5
Year-on-Year % Change
5.7
16.1 12.6 -11.1 22.4 30.5 -17.9
13.3
5.0
* Excluding investment in government securities and bonds and placement with other banks
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The amount of fresh-loans disbursed to the various economic sectors, during the review period was Birr 5.2 billion, up by 27.1%, compared with the preceding years level of Birr 4.1 billion. Of the total fresh-loans disbursed, the agriculture sector absorbs the highest share of Birr 1.6 billion (30.8%), followed by the domestic trade sector and the export sub sector, claiming Birr 1.4 billion (26.9%) and Birr 0.8 billion (15.1%), respectively. On year-onyear basis, loans extended to the domestic trade services, the export sub- sector and the building and construction activities were up by 52.6%, 125.8% and 495.5%, respectively, compared with the last years level. On the other hand, loans disbursed to imports financing dropped to Birr 556.2 million, from Birr 847.4 million in 200506, fell by 34.4%. Fresh-loan disbursed to the agriculture sector was surged by merely 2.6%, while that of the manufacturing sector accounts for a 60.2% growth. Trends in Loans Disbursement, by Sector (Mn. Birr) 2006-07 Agriculture Manufacturing Domestic trade Export Import Building and Construction Personal Total loans disbursement Amount 1,608.8 545.5 1,406.4 787.9 556.2 259.6 67.4 5,231.7 Composition (%) 30.8 10.4 26.9 15.1 10.6 5.0 1.3 100.0 2005-06 Amount 1,567.6 340.6 921.6 348.9 847.4 43.6 46.2 4,115.9 Year-on-Year % Change 2.6 60.2 52.6 125.8 (34.4) 495.4 45.9 27.1
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Total loan collection stood at Birr 5.8 billion in 2006-07, up by 31.8% from Birr 4.4 billion a year ago . Loans collection from the domestic trade services and the agriculture sectors (31.8% and 26.7%, respectively, of the total loans collection) were major contributors to such exciting performance. On the other hand, loans collection from the import sub-sector, the building and construction sector and other projects fell by 1.7%, 2.9% and 19.1%, respectively, compared with their preceding years corresponding status.
Trends in Loans Collection, by Sector (Mn. Birr)
2006-07 Collection from Customers Agriculture Manufacturing Domestic trade Export Import Building and Construction Personal Other projects Collection from banks Total loans collection
Amount 5,694.0 1,539.5 428.6 1,831.7 627.3 874.7 227.6 53.4 111.1 61.2 5,755.2 Composition (%) 98.9 26.7 7.4 31.8 10.9 15.2 4.0 0.9 1.9 1.1 100.0
2005-06 Amount 4,295.8 961.9 330.1 1,075.5 621.5 890.0 234.4 45.3 137.3 80.0 4,375.8
Year-on-Year % Change
32.5 60.0 29.8 70.3 0.9 (1.7) (2.9) 17.9 (19.1) (23.5)
31.5
As a result, the ratio of loans-collection-to-loans-disbursement slightly increased to 110%, from 106.3% in 200506, testifying the fact that all concerned staffs paid the required effort towards the timely collection of loans. Accordingly, the Banks stock of non-performing loans reduced remarkably during the year, which is one of the major achievements the Bank has to be proud of.
Liabilities:
The total liabilities of the Bank for the reviewing period was Birr 39.2 billion, up by Birr 4.8 billion (a 14.1% growth), from the preceding year. The incessant growth of customers deposits and deposits due to other banks, heedless of the growth inhibiting conditions, were major contributors to this growth status. Customers deposits stood at Birr 32.8 billion while deposits due to other banks went up to Birr 190 million in 2006-07, from their last years levels of Birr 28 billion and Birr 159 million, respectively. Mobilized deposits remain the Banks major source of funding. A relatively large branch network and the public confidence it has won over the last 65 years and the favorable business environment are major contributing factors enabling the Bank to command a large deposit base. During the period considered, the Bank posted a total deposit of Birr 33 billion, claiming a growth of 17.2%, compared with that of last years level. This was attributed, chiefly to the steady growth in demand deposits. Demand deposits increased by 22.7%, compared with the preceding year. Similarly, savings deposits grew by 10.5%, to reach Birr 13.1 billion, whereas fixed time deposits continued to decline in the reporting year and totaled to Birr 305 million. Accordingly, the ratio of demand deposits to total deposit stood at 59.3%, slightly higher than its last years level of 56.7%, which enabled the Bank to minimize interest expenses hence increased profit. Deposit status exhibited such growth performance, in spite of the prevailing aggressive branch expansion and customer attraction policy of competitor banks and the galloping inflation (that makes real deposit rate negative). In the coming fiscal year, the Bank will encourage even higher levels of deposits, as it plans to expand its branch networks to above 200 outlets.
Deposit at Year-End (Mn. Birr)
2006-07 Total deposits Demand deposits Savings deposits Fixed time deposits 33,000.6 19,584.1 13,111.9 304.6
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Capital Adequacy:
The capital and reserves of the Bank stood at Birr 4.2 billion in 2006-07, indicating a 179.9% growth, over the preceding years position of Birr 1.5 billion. This was attributable to owners decision to increase the Banks paid up capital, from Birr 619.7 million previously, to Birr 4 billion in 2006-07. Consequently, the risk-weighted capital adequacy ratio of the Bank reached 27.6%, which exceeded both the Basel Accords recommended ratio of 8% and the previous years level of 10.6%. The Banks capital-asset ratio grew from 4.2% in 2005-06 to 9.7% in 2006-07 further reflecting the Banks sound financial strength. The notable rise in the paid-up capital of the Bank will, of course, have wide-ranging effect on its operational performance and international image in the years to come. Primarily, it will enable the Bank to easily absorb unexpected losses and meet its obligations when deemed to do so. Secondly, it will have the effect of bolstering and maintaining the confidence and trust of foreign banks and its customers, for by virtue of being raising its capital, the Bank becomes stronger than ever before to mitigate and bear risks. Finally, the Banks single borrowing limit will grow. This will have a repercussion on increasing the volume of loans hence mop up the excess liquid funds. Capital adequacy 2006-07 Capital Adequacy: Paid-up capital (000 Birr) Reserves (000 Birr) Retained earnings(000 Birr) Capital adequacy ratio Capital-to-total-assets ratio 4,000,000 216,139 4,241.8 27.6 9.7 619,740 821,174 63,328 10.6 4.2 2005-06
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he CBE maintains good business relationships and correspondent account relations with various well-known international banks throughout the globe. It maintains a SWIFT bilateral key exchange arrangement with 520 banks of international renown. Being one of the strengths and core competences of the Bank, this enables it to benefit from global business developments. A good deal of the Banks revenue and hence profit is generated from the international banking activities. During the reviewing period, the income obtained from foreign banking operations, surged by 31.3% and stood at Birr 982.8 million, accounting for 43.6% of the total income of the Bank. The International Banking Department alone claims 85.1% (i.e. Birr 836.7 million) of the total income generated from foreign banking activities. The component of other income (specifically gains on foreign exchange dealings and service charges) took the lion share, fetching 78% of the total income. However, commission income showed a slight decrease in the review period, relative to the preceding fiscal year.
The overall performance of the foreign banking activities was good in 2006-07, compared with fiscal year 200506. During the period in review, the import letters of credit opened and settled reached 5,384 and 6,344 with a corresponding value of Birr 8 billion and Birr 6.3 billion, respectively, showing a remarkable growth, compared with the preceding year. The number of IBC (import documentary collections) documents received during the reporting period stood at 7,481 with the corresponding value of Birr 7.3 billion, reflecting a growth, respectively, of 37.6 % and 11%, over the preceding year. Whereas the number and value of IBC documents settled were 7,103 and Birr 3.1 billion, respectively, suggesting a 108.4% and 76.2% growth, relative to the previous years level. Export documents negotiated both at sight and on collection also revealed an appreciable increase during the period considered. Similarly, 3,849 foreign guarantees worth of Birr 4.3 billion were issued in fiscal year 2006-07, while those guarantees settled during the reporting period stood at 3,896 for about Birr 3 billion, showing a steady rise over the previous years performance in this regard. Selected Performance indices of the Foreign Banking Operations (value in Mn. Birr) 2006-07 Particulars
Import L/C opened
2005-06 No.
3,993 4,624 1,596 442 1,681 5,437 3,409 2,881 2,883
No.
5,384 6,344 677 2,683
value
7,955.7 6,324.7 2,923.3 482.3
value
5,375.5 4,110.6 2,079.5 310.4 1,349.2 6,558.6 1,730.3 2,722.6 1,930.9
Value
48.0 53.9 40.6 55.4 66.7 11.0 76.2 58.0 54.1 43.5
Import L/C settled Export L/C received Export Doc. negotiated on collection Export L/C negotiated at sight IBC-received IBC-settled Guarantees issued Guarantees settled Total
2,199
7,481 7,103 3,849 3,896
2,249.3
7,282.4 3,048.4 4,302.7 2,975.1
39,616
37,544.0
26,946
26,167.6
47.0
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Courtesy of MOENCO
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The CBE is the right domicile for professionals who look to develop in an environment, in which they will have key responsibilities to play.
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he Bank has been exercising massive transformation effort, which is believed to enable it leap into a better position, in terms of enhancing the efficiency and quality of service delivery, and hence achieving its vision of becoming a world-class commercial bank in the fast changing environment. In the era of stiff competition, improving service quality is known to be a prime strategy for winning the competition and retaining customers. In this respect, a Business Process Re-Engineering (BPR) study team was formed, where top Management of the Bank involved in, to undertake studies in a holistic manner; the focus being on core processes and customers of the Bank. The project is aimed at redesigning business processes to leverage the core banking platform to improve the Banks performance in key business areas and also of services excellence. Accordingly, the study team, led by the President has identified the AS IS process of the Banks core business areas, and will design the TO BE one and carryout implementation, which is believed to bring about a difference in terms of reducing the workload of the Banks branches and giving efficient services. The team has visited foreign banks selected for benchmarking and implementation of the BPR study is planned to kickoff by next fiscal year. The transformation endeavor reflects the Banks strong commitment not only to efficiently deliver existing products to various market segments but also to explore so called growth engine new and niche businesses. It is a concomitant reflection of the Banks vision, which is meant to retain customers and attract potential ones while improving its position in the international financial market. Of course, this goal cannot be attained without bringing the Banks day to day operating system, management style, customer handling and achievements up to world-class levels and that is why transformation is required. The transformation initiative is a helping hand for the Management to realize it key principles of becoming performance oriented, market driven and customer first. As part of the transformation effort, the Bank has already placed a new branch structure, where customer service officials are assigned to handle the day to day complaints of the Banks customers, the ultimate aim of which is to improve service quality.
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This is why wherever they are residing, Ethiopians think of CBE as their bank, showing the fact that the CBE is the most preferable and reliable bank to do business with. Correspondence banks and their customers allover the globe also prefer the CBE to transact business in Ethiopia. The Banks customer base is wider than other financial institutions operating in the country, contributing to rouse the confidence of customers and corresponding banks that are enjoying business with. Its strong capital base, a solid customer base, an above 65 years of rich experience in the market and wide branch network enable the Bank to accommodate large demands for banking services, both from private and public companies, and to increase its overall performance.
Product/Loan diversification :
The CBE acknowledges the importance of strengthening its marketing capabilities, stirring product development and seeking new business channels and cross-selling that reflects the reality of the business environment. Providing financial support to the SME is a case in point. The Bank believes that the growth of small and medium enterprises is crucial for sustainable growth and development of the country, and is doing all what it does to serve them. The Bank has thus far extended loans to these enterprises, through each regional state, that may enable them meet their working capital needs. By doing so the Bank proves its concern on poverty reduction and economic growth. The Bank has signed contractual agreements with the Municipality to extend mortgage loans amounting to Birr 8 billion, commencing 2006-07, at a lower interest rate than the market offers.
Information Technology:
The CBE recognizes that ITC brought major impact on the worlds modernization in terms of bolstering the quality of banking services. Accordingly, substantial effort was exerted to use the latest technology hence gaining a continuous improvement in the Banks performances.
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Of the major tasks performed by the IT, during the review period, the following are worth noting:
P To implement the visa-card banking program, continuous discussions have been made with the winning consulting firm, P
The conversion of online system was implemented for 30 online system branches and launched to provide online banking services, while trainings have been prepared and given to end users of 32 branches on the online system operations,
P P
Signature capture system was implemented for 30 online system branches and the International Banking Department, Twenty four manual operation branches were converted to PC based in-house developed system,
P Completing all the required preparation for SWIFT system upgrading per the road map set by SWIFT
Corporation,
P Implementation of report segregation to 30 online system user branches and the International Banking Department has been performed and enabled them to generate some 23 report types, P
Security awareness training program was given for 294 staffs on the mission critical system,
P Payment was effected for the Ethiopian Telecommunications Corporation to install the Fiber Link from the main datacenter to the recovery site,
Providing online Western Union Services for a total of 18 additional branches were configured.
21
P P P
It donated substantial amount of money in support of half a million people affected by flood in Dasnech district, Southern Nations, Nationalities and Peoples State, and Diredawa town; Extending financial contribution to Patriots Associations in Awassa and Bahirdar towns; Gave financial support to the expansion work of the Assayita secondary school and Bethlehem public school;
P Made financial contribution to assist 30 individuals living with HIV/AIDS in Water Design and Construction Agency and covered a one-month tuition fee of over 60 orphaned children; and P
Contributed over half a million Birr for the construction of Ethiopian Cardiac Patients Center.
The Bank also supports the national program of protecting the environment and preserving nature. To this effect, its staffs were participated in the Millennium tree plantation program in June 2007. To sum up, the CBE is ready and determined to scale up its support to social activities and activities engaged in different public events.
22
23
24
Auditors Report
2006-07
25
2 6
2 7
2007, Birr
2006, Birr
1f,21
28
COMMERCIAL BANK OF ETHIOPIA CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2007
Notes 2007, Birr 2006, Birr
INTEREST INCOME INTEREST EXPENSE NET INTEREST INCOME IMPAIRMENT LOSSES ON:SUNDRY DEBTORS AQUIRED PROPERTY NET INTEREST INCOME AFTER IMPAIRMENT LOSSES ON SUNDRY DEBTORS AND ACQUIRED PROPERTY NON INTEREST INCOME NON INTEREST EXPENSES PROFIT BEFORE TAXATION INCOME TAX EXPENSE PROFIT AFTER TAXATION MINORITY INTEREST PROFIT FOR THE YEAR
1e, 22 23
29
COMMERCIAL BANK OF ETHIOPIA CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007
Capital Birr
Balance at 30 June 2005 Net profit for the year Transfer to legal reserve Transfer to state dividend Balance at 30 June 2006 Net profit for the year Transfer to legal reserve Transfer to state dividend Addition to capital Transfer to capital Balance at 30 June 2008
619,739,668 619,739,668
30
COMMERCIAL BANK OF ETHIOPIA BANK STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007
Capital Birr Balance at 30 June 2005 Net profit for the year Transfer to legal reserve Transfer to state dividend Balance at 30 June 2006 Net profit for the year Transfer to legal reserve Transfer to state dividend Addition to capital Transfer to capital Balance at 30 June 2008 619,739,668 619,739,668 2,500,000,000 880,260,332 4,000,000,000 Legal reserve Birr 677,502,959 79,125,340 756,628,299 216,139,365 (756,628,299) 216,139,356 General reserve Birr 64,545,930 64,545,930 (64,545,930) Retained earnings Birr 63,327,930 791,253,397 (79,125,340) (712,128,057) 63,327,930 864,557,424 (216,139,365) 648,418,068) (59,086,103) 4,241,827 Total equity Birr 1,425,116,487 791,253,397 (712,128,057) 1,504,241,827 864,557,424 (648,418,068) 2,500,000,000 4,220,381,183
31
COMMERCIAL BANK OF ETHIOPIA CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2007
Notes Cash flow from operating activities Cash flow from investing activities Purchase of property and equipment Adjustment in value of shares Proceeds on disposal of property and equipment Dividends received Net cash outflow from investing activities Cash flow from financing activities Dividends paid to Ministry of Finance and Economic Development Increase in cash and cash equivalents Cash and cash equivalents at 30 June 2006 Cash and cash equivalents at 30 June 2007 27(b) 27(b) (929,616,525) 1,127,128,884 16,375,076,174 17,502,205,058 1,394,977,929 14,980,098,245 16,375,076,174 (42,106,300) 34,337,865 (7,768,435) 229,589 (24,925,212) (25,111,958) (42,843) 27(a) Birr Birr 2,064,513,844 2006. Birr 1,419,903,141
27(b)
32
33
are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged on a straight-line basis over the estimated useful lives of the assets. Buildings, fixtures, fittings and office equipment, motor vehicles, computers, accessories and software are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged on a straight-line basis over the estimated useful lives of the assets.
%
Buildings Fixtures, fittings and office equipment Motor vehicles Computers and accessories Computer software 5 10 20 10 20
Gains and losses on disposal of property and equipment are determined by comparing the proceeds on disposal and the carrying amount of the respective item ad are taken into account in determining operating profit. v) Stocks Stocks are stated at cost less any provision for impairment. d) Recognition of financial assets and financial liabilities The Bank recognizes a financial asset or a financial liability on its balance sheet when, and only when, it becomes a party to the contractual provisions of the instrument. A financial asset is derecognized when, and only when, the control over the contractual rights is lost. A financial liability is derecognized when, and only when, it is extinguished. e) Income recognition Income is recognized in the period in which it is earned. When a lending account becomes non-performing, interest is suspended and excluded from income until it is received. However, it is computed and shown in the memorandum account. f) Deferred income tax Deferred tax is provided, using the balance sheet liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purpose. Currently enacted tax rates are used to determine deferred income tax. g) Employee benefits Bank Employees are eligible for retirement benefits under a defined contribution plan. Contributions to the defined contribution plan are charged to the income statement as incurred. h) Trust funds The Bank and its subsidiary act as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. Assets held in trust are not included in the balance sheet of the Bank and its subsidiary.
34
The cash reserve ratio is non-interest earning and is based on the value of deposits as adjusted for National Bank of Ethiopia requirements. At 30 June 2007, the cash reserve requirement was 15% of the eligible deposits (2006 5%). These funds are not available to finance the Banks day-to-day operations.
35
4. COUPON BONDS WITH DEVELOPMENT BANK OF ETHIOPIA AND REGIONAL STATES Group and Company
Represent non-negotiable 4% secured bonds bought from Development Bank of Ethiopia (DBE). Interest is to be repaid by DBE semi-annually while the principal is to be repaid in annual installments through 31 December 2013. The Bank has also bought non-negotiable 4% secured bonds from six regional states. Interest is to be repaid semi-annually while the principal is to be repaid in annual installments for 10 years from date of issuance. Both interest and principal have one year grace period. Birr Development Bank of Ethiopia Overdue Maturing within 90 days Maturing after 90 days and within one year Maturing after one year Coupon bonds with regional states Maturing after one year 588,868,493 1,874,831,052 932,590,685 29,859,491 81,163,602 1,174,939,466 1,285,962,559 2006, Birr 16,346,849 5,886,693 910,357,143 932,590,685
5. TERM BONDS
Group and Company Represent non-negotiable 4% secured bonds worth Birr 1,800,000,000 and Birr 4,300,000,000 bought from Ethiopian Telecommunications Corporation and Ethiopian Electric Power Corporation, respectively. Interest is to be repaid semi-annually while the principal is to be repaid in lump sum after five years.
36
b) Movement in provision for impairment losses Birr At 30 June 2006 Adjustment on opening balance due to currency fluctuation Amounts written off during the year At 30 June 2007 c) Type of loans and advances Birr Agriculture Manufacturing Domestic trade and services Foreign trade Building and construction Personal loans 1,842,086,428 1,497,427,022 2,813,128,250 2,768,716,859 549,974,058 61,593,085 9,532,925,702 2006, Birr 1,586,404,250 1,329,593,215 3,164,123,806 2,444,074,489 449,172,956 47,152,987 9,020,521,703 1,643,725,053 (255,171,774) 1,388,553,279 2006, Birr 2,023,035,463 (447,295) (378,863,115) 1,643,725,053
Interest on non performing loans and advances In accordance with guidelines issued by the National Bank of Ethiopia, when an account becomes non-performing, interest is not recognized. Such interest is held in a memorandum account off the balance sheet. As at 30 June 2007 such interest amounted to Birr 1,902,954,270 (2006: Birr 2,011,054,753).
37
9. INVESTMENT IN SUBSIDIARY
Birr Commercial Nominees Private Limited Company 93.425% 4,220,000 2006, Birr 4,220,000
The interest in the above undertaking is carried at cost. The subsidiary company is incorporated in Ethiopia. 10. INVESTMENT IN ASSOCIATES a) Group Birr Specialized Financial and Promotional Institution Universal Investors Company 49.875% 32.35% 2,120,021 785,037 2,905,058 2006, Birr 2,120,021 785,037 2,905,058
The interest in the above undertakings represents the Groups share of the net assets of the associated companies, under the equity method, in accordance with IAS 28. The associates are incorporated in Ethiopia.
b) Company
Birr Specialized Financial and Promotional Institution Universal Investors Company 49.875% 32.35% 200,000 850,000 1,050,000 2006, Birr 200,000 850,000 1,050,000
The interests in the above undertakings are carried at cost. The associates are incorporated in Ethiopia. 11. INVESTMENTS Birr Group and Company Unquoted equity investments:African Export Import Bank Gelately Hankey and company SWIFT Company 2006, Birr
38
12.
OTHER ASSETS
2007, Birr 2006, Birr
Group Balance due from Commercial Bank of Eritrea Uncleared effects Interest receivable Acquired properties Stationery and other supplies Staff imprests and prepayments Other receivables Less: Provision for doubtful debts Company Balance due from Commercial Bank of Eritrea Uncleared effects Interest receivable Acquired properties Stationery and other supplies Staff imprests and prepayments Other receivables Less: Provision for doubtful debts 1,148,022,450 496,157,088 88,531,507 422,250,313 28,761,923 19,889,091 97,558,331 2,301,170,703 31,559,388 2,269,611,315 1,148,022,450 496,157,088 88,531,507 422,250,313 28,738,931 19,434,703 93,033,070 2,296,168,062 31,559,388 2,264,608,674 1,115,206,073 620,070,720 48,958,904 261,181,899 20,865,731 11,562,048 155,837,844 2,233,683,219 43,144,012 2,190,539,207 1,115,206,073 620,070,720 48,958,904 261,181,899 20,833,381 11,334,846 151,954,266 2,229,540,089 43,144,012 2,186,396,077
Acquired properties represent properties that have been pledged as collateral, which have been acquired by the Bank in accordance with Ethiopian Law. Such properties are held with a view to disposal, subject to the set reserve price. The Government of Ethiopia has guaranteed the repayment of the balance due from Commercial Bank of Eritrea if this amount will not have been settled by 28 June 2006. The guaranteed amount is Birr 1,230,978,839. However, the guarantee period has been extended to June 2008 based on the letter of the Ministry of Finance and Economic Development dated 12 Meskerem 1999 (22 September 2006), ref, 100-02-00/31.
39
a)
The movements in property and equipment are as follows:Balance at 30 June 2006 Birr Additions Birr Transfers/ Adjustments Birr Balance at 30 June 2007 Birr
Group COST Buildings Motor vehicles Computers and accessories Fixtures, fittings & equipment Work in progress DEPRECIATION Buildings Motor vehicles Computers and accessories Fixtures, fittings & equipment NET BOOK VALUE Company COST Buildings Motor vehicles Computers and accessories Fixtures, fittings & equipment Work in progress DEPRECIATION Buildings Motor vehicles Computers and accessories Fixtures, fittings & equipment NET BOOK VALUE
250,254,969 80,049,850 72,677,541 111,379,638 26,423,893 540,785,891 131,753,580 69,184,900 35,697,422 75,423,739 312,059,641 228,726,250
1,565,049 3,320,246 20,631,620 6,519,739 10,069,646 42,106,300 10,860,576 3,954,415 1,989,507 12,438,943 29,243,441
260,207,192 81,718,876 93,309,161 118,028,565 27,840,605 581,104,399 142,365,847 71,488,102 37,686,929 87,823,096 339,363,974 241,740,425
250,254,969 79,620,918 72,022,379 110,761,526 26,423,893 539,083,685 131,753,580 68,868,151 35,366,562 75,098,509 311,086,802 227,996,883
1,565,049 3,320,246 20,444,218 6,235,607 10,069,646 41,634,766 10,860,576 3,924,500 1,925,443 12,371,471 29,081,990
260,207,192 81,289,944 92,466,597 117,126,321 27,840,605 578,930,659 142,365,847 71,141,438 37,292,005 87,430,394 338,229,684 240,700,975
b) The cost and accumulated depreciation of the fully depreciated old tower building which has been sold to the National Bank of Ethiopia during the year under review has not been removed from the property and equipment account due to difficulty in determining the value of the said building separately as it is shown in the accounts in lump sum along with the adjacent circular building. Consequently, the full proceed from the sale of the building amounting to Birr 34,337,465 is shown as gain on disposal of property and equipment (note 24).
40
14.
189,639,718
Birr Group Payable on demand Private sector and retail customers Local and Central Government Public enterprises and agencies Savings deposits Private sector and retail customers Public enterprises and agencies Term deposits Private sector and retail customers Public enterprises and agencies 130,258,178 174,301,634 304,559,812 32,804,224,956 5,854,307,432 7,474,294,718 6,059,149,040 19,387,751,190 12,608,934,815 502,979,139 13,111,913,954
2006, Birr
4,969,095,551 6,403,764,807 4,417,301,420 15,790,161,778 11,519,850,406 350,220,802 11,870,071,208 154,216,236 169,354,280 323,570,516 27,983,803,502
Birr
Company Payable on demand Private sector and retail customers Local and Central Government Public enterprises and agencies Savings deposits Private sector and retail customers Public enterprises and agencies Term deposits Private sector and retail customers Public enterprises and agencies 5,854,307,432 7,474,294,718 6,065,921,741 19,394,523,891 12,608,934,815 502,979,139 13,111,913,954 130,258,178 174,301,634 304,559,812 32,810,997,657
2006, Birr
4,969,095,551 6,403,764,807 4,422,977,114 15,795,837,472 11,519,850,406 350,220,802 11,870,071,208 154,216,236 169,354,280 323,570,516 27,989,479,196
41
ii. In determining the taxable profit for the year, the provisions for impairment losses on sundry debtors and acquired properties amounting to Birr 2,070,314 and Birr 6,432,783, respectively, have been deducted as the management of the Bank is of the opinion that the same are deductible expenses as per Article 26 of Proclamation 286/2002. iii. The tax for rental income of Addis Ababa City is shown separately as detailed below since same is to be paid to the Addis Ababa City Government as per Article 53(1) of the Revised Charter Proclamation No 311/2003 of the Addis Ababa City Government while the rent tax for all other regions is included in the tax expense for other operations as the regions are not yet authorized to collect rent tax. Birr Rental income Expenses Depreciation Insurance Land and building tax 729,954 36,682 18,458 785,094 1,516,329 Tax expense (note 16 (i)) X 30% 454,899 Birr 2,301,423
42
648,418,071
43
Under a loan agreement between the Government of Ethiopia and the International Fund for Agricultural Development (IFAD) dated 5 November 1993, IFAD advanced the government funds to be on lent to Southern Region Cooperatives development and Credit Project. The government under a sub-agreement to the above loan agreement advanced the funds to the Bank for onward lending to the specific projects. The balance above represents amounts due to the government under this sub-agreement.
19. CAPITAL
a)
The Capital of the bank has been increased to Birr 4,000,000,000 during the preceding year through a special bond issued by the Ministry of Finance and Economic Development (MoFED) with a value of Birr 2,500,000,000 to be paid to the Bank in ten equal annual installments starting from 1 July 2008 and by transfer from previous appropriations. The movement in the capital account is as follows:Birr Balance at 30 June 2006 Add: Special Government Bond No. 11 Transfer from:Legal reserve General Reserve Retained earnings 2,500,000,000 756,628,299 64,545,930 59,086,103 3,380,260,332 4,000,000,000 Birr 619,739,668
b) The Bank is wholly owned by the Federal Government of Ethiopia. Assigned capital represents capital allocated to the Bank and is not repayable to the Government in whole or part thereof, as long as the Bank continues trading. There are no shares and no par value.
20. LEGAL RESERVE
Group Birr Balance at 30 June 2006 Current year appropriation Less: Transfer to capital 757,300,922 216,233,149 973,534,071 756,628,299 216,905,772 Company Birr 756,628,299 216,139,356 972,767,655 756,628,299 216,139,356
The legal reserve is a statutory reserve to which not less than 25% of the net profit shall be transferred each year until such reserve equals the capital of the Bank and thereafter 10% of the net profit shall be transferred each year.
44
Loans and advances Government bonds Treasury bills Placements with other banks Coupon and term bonds
23.
INTEREST EXPENSE
Birr 350,330,111 628,122 7,500 350,965,733 2006, Birr 329,771,546 965 9,233 329,781,744
45
Included in other expenses are contributions to the provident fund for employees. During the year, the Group and Company expensed Birr 9,000,834 in contributions payable (2006: Birr 7,610, 601).
a)
Current tax expense Deferred tax expense relating to the origination and reversal of temporary differences Tax expense
305,643,298
946,698 306,589,996
1,507,361 303,001,433
46
b)
EXPLANATION OF THE RELATIONSHIP BETWEEN TAX EXPENSE AND ACCOUNTING PROFIT Birr Birr 1,173,155,297 351,946,589 295,088 352,241,677 47,601,364 897,439 48,498,803 303,742,874 2006, Birr 1,095,605,865 328,681,759 135,819 328,817,578 26,756,933 68,877 339,072 27,164,882 301,652,696 1,348,737 303,001,433
Accounting profit Tax at the applicable rate of 30% Add: Tax effect of tax disallowed expenses - Entertainment Less: Tax effect of tax exempted income: - Interest income - Dividend income - Collection from provision held
2,847,122 306,589,996
47
b) Analysis of cash and cash equivalents 2007 Birr Cash in hand Investment in treasury bills Balances with National Bank of Ethiopia Placements with other banks Deposits due to other banks 665,114,647 7,907,085,975 7,477,001,010 1,642,643,144 (189,639,718) 17,502,205,058 2006 Birr 572,886,785 9,373,409,940 5,192,524,725 1,395,227,156 (158,972,432) 16,375,076,174 Change Birr 92,227,862 (1,466,323,965) 2,284,476,285 2006 Change Birr (92,898,304) 5,434,652,891
(30,667,286) 1,127,128,884
c) Some balance sheet items that do not involve actual movements in cash have been excluded from the cash flow statement.
48
The Bank provides custodial services to the National Bank of Ethiopia (NBE) at various branches across the country, whereby the Bank holds cash on behalf of NBE. The Bank and its subsidiary are involved in trust activities in which they hold and invest assets on behalf of various institutions, donor-sponsored projects, and pension funds.
32.
STAFF COSTS
During the year, staff costs for the group and company amounted to Birr 246,065,288 (2006 - Birr 202,848,808) and are included in the various major expense categories.
33.
PERFORMANCE INDICATORS
The capital adequacy ratio as at 30 June 2007 revealed a percentage of 28, which is in excess of the required ratio of 8% as per the directives of the National Bank of Ethiopia. The non-performing loans ratio has decreased from 22.5% in the preceding year to 14.5% in the current year.
49
The Table below analyses assets and liabilities into relevant maturity grouping based on the remaining period at 30 June 2007 to the contractual maturity date:
On demand Birr 8,142,115,656 29,859,491 1,055,948,943 21,451,113 2,282,580,257 11,531,955,460 189,639,718 19,420,811,012 19,610,450,730 13,081,378,702 302,800,977 648,418,071 3,888,861,086 17,921,458,836 302,035,242 1,323,071,493 1,625,106,735 1,520,035,447 724,247,174 12,794,168,240 8,385,943,672 853,,203,156 496,157,088 9,367,351,365 54,264,744 1,351,800,939 28,761,924 3,145,142,182 148,902,183 2,169,408,658 1,744,692,303 12,794,168,240 86,694,201 450,000,000 6,100,000,000 50,000,000 81,163,602 866,665,910 7,931,296,920 1,179,150,973 1,714,499,186
Due between 3 Due between 1 and 12 months and 5 years Birr Birr Due after 5 years Birr
Total Birr
1,727,531,528 9,869,647,184 2,188,433,155 13,013,380,234 897,142,049 1,874,831,052 6,100,000,000 1,642,643,144 6,085,606 230,703,646 1,487,379,413 8,144,372,423 2,905,058 2,905,058 2,768,051 2,768,051 2,269,611,315 241,740,425 241,740,425 6,553,985,285 43,392,602,532 189,639,718 32,804,224,956 302,800,977 648,418,071 64,326 5,211,996,905 64,326 39,157,080,627 6,553,920,959 4,812,361,140 4,235,521,905 1,516,427,974
Assets Cash and balances with NBE Investment in Government securities Coupon bonds with DBE and regional states Term bonds with EEPCO and ETC Placements with other banks
Loans and advances to banks Loans and advances to customers Investment in associates Other investments Other assets Property and equipment Total assets Liabilities Deposits due to other banks
Customers deposits Taxation State dividend payable Other liabilities Total liabilities
(8,078,495,270) (8,554,107,471)
(8,201,915,002) (4,204,209,010)
50
35.
51
On demand Birr 29,859,491 1,055,948,943 21,451,113 2,282,580,257 3,389,839,804 189,639,718 19,420,811,012 19,610,450,730 (16,220,610,926) (25,837,397,720) 13,081,378,702 (4,210,184,425) (10,781,089,330) 13,081,378,702 3,116,380,258 3,036,528,716 8,871,194,277 3,116,380,258 853,203,156 1,351,800,939 54,264,744 148,902,183 2,169,408,658 11,049,475,937 302,035,242 302,035,242 10,747,440,695 6,893,734,254 4,579,040,223 3,157,874,612 86,694,201 450,000,000 50,000,000 6,100,000,000 81,163,602 866,665,910 7,931,296,920 1,179,150,973 1,714,499,186 2,188,433,155 897,142,049 6,085,606 1,487,379,413 4,579,040,223 Birr Birr Birr Birr Due within 3 months Due between 3 and 12 months Due between 1 and 5 years Due after 5 years Non interest Bearing Birr 9,869,647,184 2,905,058 2,768,051 2,269,611,315 241,740,425 12,386,672,033 302,800,977 648,418,071 5,211,996,905 6,163,215,953 6,223,456,080 3,484,598,782
The Table below summarizes the exposure to interest rate risks. Included in the table below are the groups assets and liabilities at carrying amounts categorized by the earlier of contractual reprising or maturity dates.
Total Birr 9,869,647,184 13,013,380,234 1,874,831,052 6,100,000,000 1,642,643,144 230,703,646 8,144,372,423 2,905,058 2,768,051 2,269,611,315 241,740,425 43,392,602,532 189639,718 32,804,224,956 302,800,977 648,418,071 5,211,996,905 39,157,080,627 4,235,521,905 1,516,427,974
Assets
0.62%
4.46%
4.46%
6.62%
3.24%
8.80% -
Other assets Property and equipment Total assets Liabilities Deposits due to other banks
Customers deposits
3.6%
Taxation
Other liabilities
36. FOREIGN CURRENCY RISK The Table below analysis the currencies to which the group is exposed at 30 June 2007.
USD Birr At 30 June 2007 Assets Cash and balances with National Bank of Ethiopia Investment in government securities Coupon bonds with DBE and regional states Term bonds with EEPCO and ETC Placements with other banks Loans and advances to banks Loans and advances to customers (net) Investment in associates Other investments Other assets Property and equipment Total foreign currency assets Liabilities Deposits due to other banks Customers deposits Taxation State dividend payments Other Liabilities Total foreign currency Liabilities Off balance sheet net notional position Foreign currency exposure at 30 June 2007 As at 30 June 2006 Total foreign currency assets Total foreign currency Liabilities Off balance sheet net notional position Foreign currency exposure at 30 June 20076 46,887,039 355,763,361 225,513,259 628,163,659 2,072,685 56,624,906 169,300 58,866,891 22,680,461 387,039,301 1,140,086 410,859,848 11,968,080 64,696,428 (222,237,777) (145,579,269) 83,602,265 864,123,996 4,584,868 952,311,129 GBP Birr EURO Birr OTHER Birr TOTAL Birr
(61,420,667) (574,490,437)
(31,146,633) (598,417,890)
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This section provides details of the Groups exposure to risk and describes the methods used by management to control risk. The most important types of financial risks to which the Group is exposed are credit risk, liquidity risk and market risk. Market risk includes currency risk and interest rate risk.
A. Risks
i) Credit risk The Group;s credit exposure at the balance sheet date from financial instruments held or issued for trading purposes is represented by fair value of instruments with a positive fair value at that date, as recorded on the balance sheet. The risk that counter-parties to trading instruments might default on their obligations is monitored on an ongoing basis. In monitoring credit risk exposure, consideration is given to trading instruments with a positive fair value and to the volatility of the fair value of trading instruments. To manage the level of credit risk, the Group deals with counter-parties of good credit standing, enters into master agreements whenever possible, and when appropriate, obtains collateral. The Group also monitors concentrations of credit risk by industry and type of customer in relation to the Group loans and advances to customers by carrying a balanced portfolio. The Group has a significant exposure to individual customers or counter parties. ii) Liquidity risk Liquidity risk arises in the general funding of the Groups activities and in the management of positions. It includes both the risk of being unable to fund assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame. The Group has access to a diverse funding base. Funds are raised mainly from deposits and state capital. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. The Group strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. The Group continually assesses liquidity risk by identifying and monitoring changes in funding required to meet business goals and targets set in terms of the overall Bank strategy. In addition the Group holds a portfolio of liquid assets as part of its liquidity risk management strategy. iii) Market Risk Interest rate risk The Groups operations are subject to the risk of interest rate fluctuations to the extent that interest earning assets and interest bearing liabilities mature or reprise at different times or in differing amounts. Risk management activates are aimed at optimizing net interest income, given market interest rates levels consistent with the Groups business strategies. The Group does not have any significant interest rate risk exposures. Currency risk The Group is exposed to currency risk through transactions in foreign currencies. The Groups transactional exposures give rise to foreign currency gains and losses that are recognized in the income statement. In respect of monetary assets and liabilities in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.
53
38.
a) The Bank is the subject of an ongoing investigation by the Anti-Corruption Commission on some of the transactions carried out by the Bank in the last few years. To the best of managements knowledge, the outcome of this investigation is not expected to affect the Banks financial statements for the year ended 30 June 2007. b) The Bank is defendant for a total amount of about Birr 15.4 million in respect of legal actions brought by different organizations and individuals which are contested by the Bank. It is difficult to assess the probable outcome of these cases at the moment.
39.
CAPITAL COMMITMENTS
Birr 2006, Birr 31,415,765
31,415,762
40. ESTABLISHMENT
The Bank is established as a limited liability public enterprise under the proclamation of the Federal Democratic Republic of Ethiopia. Its principal place of business is in Addis Ababa, Ethiopia and has 205 branches in various parts of the country.
41. AUTHORIZTION
The President of the Bank authorized the issue of these financial statements on 26 January 2008.
54
Commercial Bank of Ethiopia Gambia St. P.O.Box- 255, Addis Ababa - Ethiopia Tel.: 251-11-551 50 04 FAX: 251-11-551 45 22, 551 78 22, 551 52 94, 551 78 66 Website: http// www.combanketh.com SWIFT: CBETETAA CBE - Annual Report 2006-07 56