Annual Report 2004 - National Bank of Egypt · 2014-11-07 · Annual Report 200430 June 2004 National Bank of Egypt International Limited 1 Directors’report and financial statements

Annual Report2004

Board of DirectorsDr. Farouk Abdel Baki El-Okdah – ChairmanMr. Kazem Hassan Barakat – Deputy Chairman and Managing DirectorMr. Mokhtar Abdel Gawad El Shennawy – Deputy Managing DirectorDr. David John ReidMr Mohamed Hany Seif El NasrMr. Michael David BendonMr.Ahmed Abu Bakr Abdel AatyMr. Mokhtar Shafik Abdel Rahman

Company SecretaryMr. Reg Egan – (Appointed 6th February 2004)

Executive CommitteeDr. Farouk Abdel Baki El-Okdah – ChairmanMr. Kazem Hassan Barakat – Deputy Chairman and Managing DirectorMr. Mokhtar Abdel Gawad El Shennawy – Deputy Managing DirectorMr Mohamed Hany Seif El NasrMr.Ahmed Abu Bakr Abdel AatyMr. Mokhtar Shafik Abdel RahmanMr. Ismail Saleh – General Manager

Audit CommitteeDr. David John Reid – ChairmanMr. Michael David BendonMr. Mohamed Gomaa Mohamed Gomaa

Audit Committee SecretaryMr. Brian William Turner, Head of Internal Audit

SolicitorsFreshfields Bruckhaus Deringer65 Fleet Street,London EC4Y 1HS

AuditorsKPMG Audit Plc.P.O. Box 6958 Salisbury SquareLondon EC4Y 8BB

Registered OfficeTrafalgar House11 Waterloo PlaceLondon SW1Y 4AU

National Bank of Egypt International LimitedWholly owned subsidiary of National Bank of EgyptRegistered in England No. 2743734

Directors’ report and financial statements 30 June 2004 National Bank of Egypt International Limited

National Bank of Egypt International Limited

It gives me a great pleasure to present the audited annual report and financial statements of National Bankof Egypt International Limited for the year ending 30th June 2004.

The year proved challenging for the Bank with continued regional tensions and uncertainties caused bythe war in Iraq.The ongoing global economic downturn was made worse by the significant surge in oilprices and this, coupled with decreasing margins and interest rates worldwide, made trading conditionsfor international banks quite difficult. Despite these challenges, the financial statements reflect asatisfactory result for the year-end.Asset quality, always a primary focus for our bank, continued to be asource of pride and strength during the year, supported by adequate provisions against certain impairedassets. In the year, the bank paid a dividend of GBP15.8 million from retained earnings to its shareholder.

The bank carefully reviews and revises its strategies to improve its efficiency and diversify its markets inline with the relevant risk appetite and, as a result, debt securities have shown a significant 11% increase.Loans and advances to banks have increased by 5%. Meanwhile, loans to customers and trade financeagain declined owing to the lack of suitable opportunities with acceptable risk and yield.The bank hasalso succeeded in implementing its organisational structure by merging the operations of its two officesthrough the expansion of the Waterloo Place office.The merger will help the bank to continue focussingon its core strategy of expansion in the field of international trade finance, corporate lending andinvestments while maintaining its stringent risk control and management policies.While the short-termimplications of these measures show an increase in the operating expenses and high provisioning for theyear, we believe it will have a more favourable impact on the bank’s performance for years to come.

The bank and its management believe that the maintenance of a sound capital base remains an essentialpart of its strategy.The shareholders’ funds at the year end were GBP67.6 million, including the called upshare capital of the bank which was increased to GBP65.8 million during the year by the issue of 15.8million ordinary shares at par to its sole shareholder, National Bank of Egypt.The bank’s capital adequacyand liquidity ratios remained strong and well in excess of the regulatory requirements.The bank intendsto make a minor change to its name later this year, becoming National Bank of Egypt (UK) Limited; aname that more accurately reflects its situation. I am confident that the bank will benefit from theefficiency created by these changes.

The Bank continued its efforts to strengthen its funding streams aimed at achieving an appropriatebalance between investment activities and maturity profile of the relevant funding. In this context, inaddition to the existing USD110 million three-year term loan facility completed in 2003, the bank hassuccessfully completed in July 2004 a second syndicated three-year loan facility for EUR100 million,arranged by Citigroup, Barclays Capital and Bank of Tokyo Mitsubishi, together with several mandatedlead arrangers and managers.

On behalf of the Board, I would like to take this opportunity to thank our shareholder for itscommitment, the bank’s management and staff for their invaluable contribution and dedication andfinally, each of our customers and correspondent banks for their continuous support.

Dr Farouk A. El-OkdahChairman

National Bank of Egypt International Limited Annual Report 2004 30 June 2004

Chairman’s statement

Annual Report 2004 30 June 2004 National Bank of Egypt International Limited 1

Directors’ report and financial statements

Contents Page

Report of the directors 2-3

Statement of directors’ responsibilities 4

Report of the independent auditors 5

Profit and loss account 6

Balance sheet 7

Notes 8-28

The Directors of National Bank of Egypt International Limited (“the Company”) have pleasure inpresenting their annual report, together with the financial statements and auditors’ report, for the yearended 30 June 2004.

Principal activitiesNational Bank of Egypt International Limited was granted on 24 December 1992 the status of authorisedinstitution under the UK Banking Act 1987 (since superseded by the Financial Services and Markets Actof 2000).The Company is a wholly owned subsidiary of National Bank of Egypt, 1187 Corniche El Nil,Cairo, Egypt.

The Company provides general banking services in the United Kingdom to private and public sectorcustomers, particularly to the Egyptian community, and conducts international banking business world-wide. The Company participates actively in the inter-bank and foreign exchange markets and in thefinance of international trade and invests in Gilt-edged Securities, Certificates of Deposit and FloatingRate Notes.

Financial resultsThe financial statements for the reporting year ended 30 June 2004 are shown on pages 6 to 28. Theprofit, after taxation, for the year amounts to £735,500 (2003: £2,658,158).

During the year, the company paid a dividend of £15,800,000 (2003: £Nil). No further dividend waspaid or declared based on the profit on ordinary activities after tax for the year ended 30 June 2004.

Directors and company secretaryThe names of the Directors and Company Secretary as at the date of this report and those who servedduring the year are as follows:

Dr Farouk Abdel Baki El-Okdah, Chairman

Mr Kazem Hassan Barakat, Deputy Chairman

Dr David John Reid

Mr Michael David Bendon

Mr Ahmed Abu Bakr Abdel Aaty

Mr Mokhtar Abdel Gawad El Shennawy

Mr Mokhtar Shafik Abdel Rahman

Mr Mohamed Hany Seif El Nasr

Mr Stephen Munro (Company Secretary)(Resigned 13 November 2003)

Mr Ahmed Maksoud (Company Secretary)(Appointed 14 November 2003 and resigned 6 February 2004)

Mr Reg Egan (Company Secretary)(Appointed 6 February 2004)

2 National Bank of Egypt International Limited Annual Report 2004 30 June 2004

Report of the directors

Directors’ interestsNone of the Directors who held office at the end of the financial year had any disclosable interest in theshares of the Company.

Share capitalThe Company was incorporated with an Authorised Share Capital of £100,000,000. During the year,the Company issued 15,800,000 ordinary shares for proceeds of £15,800,000 and as at the reporting datethe Issued Share Capital, fully paid, amounted to £65,800,000 (2003: £50,000,000).

Political and charitable contributionsThe Company made no political (2003: £Nil) or charitable contributions (2003: £400) during the year.

By order of the board

Reg Egan Trafalgar HouseCompany Secretary 11 Waterloo Place

London SW1Y 4AU

3rd September 2004


Report of the directors (continued)

Company law requires the Directors to prepare financial statements for each financial year which give atrue and fair view of the state of affairs of the Company and of the profit or loss for that year. In preparingthose financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departuresdisclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume thatthe Company will continue in business

The Directors are responsible for keeping proper accounting records, which disclose with reasonableaccuracy at any time the financial position of the Company and enable them to ensure that the financialstatements comply with the Companies Act 1985.They have general responsibility for taking such stepsas are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraudand other irregularities.


Statement of directors’ responsibilities

KPMG Audit PlcPO Box 6958 Salisbury SquareLondonEC4Y 8BB

Independent auditors’ report to the members of National Bank of Egypt International Limited

We have audited the financial statements on pages 6 to 28.

This report is made solely to the company’s members, as a body, in accordance with section 235 of theCompanies Act 1985. Our audit work has been undertaken so that we might state to the company’smembers those matters we are required to state to them in an auditor’s report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other thanthe company and the company’s members as a body, for our audit work, for this report, or for theopinions we have formed.

Respective responsibilities of directors and auditorsThe directors are responsible for preparing the directors’ report and, as described on page 4, the financialstatements in accordance with applicable United Kingdom law and accounting standards. Ourresponsibilities, as independent auditors, are established in the United Kingdom by statute, the AuditingPractices Board and by our profession’s ethical guidance.

We report to you our opinion as to whether the financial statements give a true and fair view and areproperly prepared in accordance with the Companies Act 1985.We also report to you if, in our opinion,the directors’ report is not consistent with the financial statements, if the company has not kept properaccounting records, if we have not received all the information and explanations we require for our audit,or if information specified by law regarding directors’ remuneration and transactions with the companyis not disclosed.

Basis of audit opinionWe conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board.An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in thefinancial statements. It also includes an assessment of the significant estimates and judgements made bythe directors in the preparation of the financial statements, and of whether the accounting policies areappropriate to the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurance that thefinancial statements are free from material misstatement, whether caused by fraud or other irregularity orerror. In forming our opinion we also evaluated the overall adequacy of the presentation of informationin the financial statements.

OpinionIn our opinion the financial statements give a true and fair view of the state of the company’s affairs asat 30 June 2004 and of its profit for the year then ended and have been properly prepared in accordancewith the Companies Act 1985.

KPMG Audit Plc 3rd September 2004Chartered AccountantsRegistered Auditor


Note 2004 2003

£ £ £ £

Interest receivable:

- Interest receivable and similar income

arising from debt securities 8,348,383 7,845,461

- Other interest receivable and similar income 14,680,624 18,069,091

23,029,007 25,914,552

Interest payable (15,236,723) (17,302,252)

Net interest income 7,792,284 8,612,300

Fees and commissions receivable 1,513,371 2,516,159

Foreign exchange dealing profits 232,655 95,235

Operating income 9,538,310 11,223,694

Administrative expenses 2 (3,357,868) (3,090,480)

Depreciation 11 (164,360) (123,363)

Other operating charges (2,109,665) (2,038,647)

3,906,417 5,971,204

Provisions for bad and doubtful debts: 8

Specific provisions (2,346,900) (3,614,886)

Amounts written off fixed asset investments (2,255,968) 591,739

Gains on disposals of investments 1,618,035 925,609

Profit on ordinary activities before tax 3 921,584 3,873,666

Tax on profit on ordinary activities 4 (186,084) (1,215,508)

Profit on ordinary activities after tax 17 735,500 2,658,158

Dividends paid during the year (15,800,000)

Retained (loss)/profit for the year (15,064,500) 2,658,158

Retained profits brought forward 16,888,227 14,230,069

Retained profits carried forward 1,823,727 16,888,227

There is no difference between the retained profit for the year and the retained profit on an historicalcost basis.

The result for the year is derived entirely from continuing activities.

There were no other recognised gains and losses in the current or prior years other than the above.

The notes on pages 8 to 28 form part of these financial statements.


Profit and loss accountfor the year ended 30 June 2004

Note 2004 2003

£ £ £ £

Assets

Cash and balances at central banks 160,789 159,880

Loans and advances to banks 6 581,587,200 555,548,272

Loans and advances to customers 7 45,302,859 79,998,593

Debt securities 9 272,434,061 244,185,863

Equity shares 10

Tangible fixed assets 11 1,317,550 419,658

Other assets 12 2,911,259 4,209,441

Prepayments and accrued income 2,728,683 4,197,131

Total assets 906,442,401 888,718,838

Liabilities

Deposits by banks 13 436,281,720 404,531,920

Customer accounts 14 397,561,643 411,123,779

Other liabilities 15 3,054,747 3,906,800

Accruals and deferred income 1,920,564 2,268,112

Shareholders’ funds:

Called up share capital 16 65,800,000 50,000,000

Profit and loss account 1,823,727 16,888,227

67,623,727 66,888,227

Total liabilities 906,442,401 888,718,838

2004 2003

£ £

Memorandum items

Contingent liabilities:

Acceptances and endorsements 8,424,433 1,683,228

Guarantees 5,533,721 6,895,725

Commitments:

Other commitments 19 135,411,489 105,304,538

149,369,643 113,883,491

These financial statements were approved by the board of directors on 3rd September 2004 and weresigned on its behalf by:

Director Dr Farouk Abdel Baki El-OkdahChairman

Director Mr Kazem Hassan BarakatDeputy Chairman and Managing Director

The notes on pages 8 to 28 form part of these financial statements.


Balance sheetat 30 June 2004

1 Accounting policiesThe following accounting policies have been applied consistently in dealing with items which areconsidered material in relation to the Company’s financial statements:

(a) Accounting convention

The financial statements have been prepared under the historical cost convention and in accordance withthe special provisions of Part VII, Chapter II of the Companies Act 1985 relating to banking companies,applicable accounting standards and the British Bankers’ Association Statements of RecommendedAccounting Practice.

(b) Cash flow statement

As a wholly owned subsidiary whose parent produces publicly available accounts (see note 25), theCompany has taken advantage of the exemption available within FRS 1 (revised), “Cash FlowStatements”, and does not produce a cash flow statement.

(c) Loans and advances

Loans and advances are stated at cost after deduction of amounts which in the opinion of the directorsare required as specific or general provisions.Where loans have been acquired at a premium or discount,these premiums and discounts are amortised through the profit and loss account from the date ofacquisition to the date of maturity on a straight line basis.

Loans are designated as non-performing as soon as management has doubts as to the ultimatecollectibility of the principal or interest.When a loan is designated as non-performing, interest will besuspended and a specific provision raised if required.

Specific provisionsSpecific provisions represent the quantification of the actual or expected losses from identified accountsand are deducted from loans and advances on the balance sheet.The amount of the specific provisionraised is assessed on a case by case basis.The amount of specific provision raised is the Company’sconservative estimate of the amount needed to reduce the carrying value of the asset to its expectednet realisable value.

General provisionsGeneral provisions augment specific provisions and provide cover for loans on which there is no knownimpairment at the balance sheet date but which may be identified as impaired at some time in thefuture.The general provision is determined by taking into account the structure and risk of theCompany’s loan portfolio. General provisions are deducted from loans and advances in the balance sheet.

(d) Securities

Securities intended for use on a continuing basis in the company’s activities are classified as investmentsecurities and are stated at cost adjusted for any amortisation of premiums and discounts arising onacquisition and less a provision for any permanent diminution in value.

Where dated investment securities have been purchased at a premium or discount, these premiums anddiscounts are amortised through the profit and loss account from the date of purchase to the date ofmaturity on a straight line basis.


Notes(forming part of the financial statements)

1 Accounting policies (continued)

(e) Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at theexchange rates ruling at the balance sheet date and the gains or losses on translation are included in theprofit and loss account. Income and expenses denominated in foreign currencies are converted intosterling at the month end rate for the month in which these transactions took place.

Forward foreign exchange contracts are valued at the market rates applicable to their respective maturitiesat the balance sheet date, and the resulting profits or losses included in the profit and loss account for theyear.Where the contracts arise as part of a deposit swap, the profits or losses are recognised evenly overthe life of the related loans and deposits.

(f) Depreciation

Depreciation of tangible fixed assets is provided on a straight-line basis over estimated useful lives as follows:

Long leasehold buildings 20 yearsLeasehold improvements 5 – 15 yearsFurniture, fixtures and fittings 5 yearsComputer hardware and software 3 – 5 years

(g) Interest income and expense

Interest receivable and payable is accrued over the period of the related loans and deposits.

(h) Fees and commission receivable

Fees and commissions are taken to income as received, or when debited to a customer’s account.

(i) Fees and commission payable

Fees and commissions payable on borrowings are expensed to the profit and loss account over the life ofthe borrowing.

(j) Taxation

Deferred tax is recognised, without discounting, in respect of all timing differences between the treatmentof certain items for taxation and for accounting purposes and which have arisen but not reversed by thebalance sheet date, except as otherwise required by FRS 19.

(k) Pension costs

The Company operates a defined contribution pension scheme. Contributions to the scheme are chargedto the profit and loss account when paid

(l) Related party transactions

The Company has taken advantage, under FRS8,“Related Party Disclosures”, of the exemption not todisclose related party transactions with group companies, as it is a wholly owned subsidiary of theNational Bank of Egypt (see note 25).

(m)Leases

Operating lease rentals are charged to the profit and loss account on a straight line basis over the periodof the lease.


Notes (continued)(forming part of the financial statements)

1 Accounting policies (continued)

(n) Off-balance sheet financial derivatives

Off-balance sheet financial derivatives are entered into by the Company for hedging purposes to reducethe risks arising on transactions entered into in the normal course of business.The income and expensearising from off-balance sheet financial derivatives entered into for hedging purposes is recognised in theaccounts in accordance with the accounting treatment of the underlying transactions or transactionsbeing hedged.All off-balance sheet financial derivatives are held for the period in which the underlyinghedge matures.

(o) Comparative figures

Certain of the prior year comparatives have been reclassified to conform with the current year’spresentation.

2 Administrative expenses2004 2003

£ £

Staff costs:

Wages and salaries 2,667,242 2,410,146

Social security costs 299,718 254,245

Other pension costs (see note 18) 337,131 342,233

Other administrative expenses 53,777 83,856

3,357,868 3,090,480

The average number of persons employed by the Company during the year was 53 (2003: 53).

3 Profit on ordinary activities before tax

(a) Is stated after

ChargesThe auditors’ remuneration was £75,000 (2003: £75,000).The auditors’ remuneration for non-audit work was £130,814 (2003: £31,230).

Operating lease rentals were:Land and buildings £385,676 (2003: £376,928); andOther £12,921 (2003: £22,841).

(b) Segmental reporting

The Company has one class of business and all other services provided are ancillary to this. All businessis conducted from the United Kingdom.


Notes (continued)(forming part of the financial statements)

4 Taxation

a) Analysis of charge in the year

2004 2003

£ £

Current tax:

UK Corporation tax at 30% (2003: 30%) on the

taxable profit for the year 262,730 1,232,705

Over provisions in prior years (46,561) (17,197)

216,169 1,215,508

Deferred tax (30,085) –

Tax on profit on ordinary activities 186,084 1,215,508

b) Factors affecting the tax charge for the current year

The current tax charge for the period is lower than (2003: higher than) the standard rate ofcorporation tax in the UK (30 %, 2003: 30 %).The differences are explained below.

2004 2003

£ £

Current tax reconciliation

Profit on ordinary activities before tax 921,584 3,873,666

Current tax at 30% (2003: 30 %) 276,475 1,162,100

Add effects of

Expenses not deductible for tax purposes 21,920 25,217

Depreciation for year in excess of capital allowances 2,438 7,861

Other (38,103) 37,527

Less effects of

Over provisions in prior years (46,561) (17,197)

Total current tax charge (see 4 (a) above) 216,169 1,215,508


Notes (continued)


Notes (continued)

4 Taxation (continued)

c) Factors that may affect future tax charges

The Directors of the Company are not aware of any factors which will have a material effect upon futuretax charges.

d) Deferred tax asset

2004 2003

£ £

At the beginning of the year 1,050,000 1,050,000

Amounts recognised as deferred tax assets in the year 30,085 –

As at end of the year (see note 12) 1,080,085 1,050,000

In accordance with the provisions of FRS 19, the Company has recognised the deferred tax asset asbeing recoverable as the Directors are of the opinion that, on the basis of all available evidence, it ismore likely than not that there will be suitable future taxable profits from which the future reversal ofthe underlying timing differences can be deducted.The Directors have made this assessment based onthe results for the year ended 30 June 2004.

The deferred tax asset consists of the following amounts:

2004 2003

£ £

Timing difference on creation of general provision for bad & doubtful debts 1,050,000 1,050,000

Timing difference on accelerated capital allowances 30,085 –

Deferred tax asset (see note 12) 1,080,085 1,050,000

5 Emoluments of directors2004 2003

£ £

Directors’ fees and emoluments 526,393 554,120

There is no director accruing benefits under a money purchase pension scheme (2003: None).Thetotal remuneration and benefits of the highest paid director were £218,280 (2003: £228,116).

6 Loans and advances to banks

(a) Residual maturity

2004 2003

£ £

Banks

Repayable on demand 5,991,245 7,487,813

Other loans and advances

Remaining maturity:

5 years or less but over 1 year 10,002,319 9,044,764

1 year or less but over 3 months 5,522,116 24,191,110

3 months or less 550,125,178 501,524,419

571,640,858 542,248,106

Parent company

Repayable on demand – –


Remaining maturity:

5 years or less but over 1 year – 6,954,944


3 months or less 2,354,028 2,622,995

14,830,818 18,649,605

Sub-total 586,471,676 560,897,711

Bad and doubtful debt provision – specific (note 8) (4,884,476) (5,349,439)

Total 581,587,200 555,548,272

(b) Concentrations of exposure

The Company has the following concentrations of loans and advances to banks:

2004 2003

£ £

Total gross advances to banks located in:

Europe and North America 376,739,414 394,861,943

Middle East 101,200,135 102,533,994

Rest of the World 108,532,127 63,501,774

Total 586,471,676 560,897,711


Notes (continued)

7 Loans and advances to customers

(a) Residual maturity

2004 2003

£ £

Repayable on demand or at short notice 9,780,669 7,054,540


Remaining maturity:

Over 5 years 6,134,507 9,177,744

5 years or less but over 1 year (includes staff loans) 25,982,659 48,670,693

1 year or less but over 3 months 1,787,712 437,500

3 months or less 7,464,212 18,158,116

Sub-total 51,149,759 83,498,593

Bad and doubtful debt provision – general (note 8) (3,500,000) (3,500,000)

Bad and doubtful debt provision – specific (note 8) (2,346,900) –

Total 45,302,859 79,998,593

(b) Concentrations of exposure

The Company has the following concentrations of loans and advances to customers:

2004 2003

£ £

Total gross advances to customers located in:

Europe and North America 22,659,353 50,633,963

Middle East 20,910,759 26,816,853

Rest of the World 7,579,647 6,047,777

Total 51,149,759 83,498,593


Notes (continued)

8 Provisions for bad and doubtful debts

(a) Movements on provisions for bad and doubtful debt:

Specific General Total

£ £ £

Provisions at 30 June 2003 5,349,439 3,500,000 8,849,439

New provisions 2,346,900 – 2,346,900

Foreign exchange movement (464,963) – (464,963)

Provisions at 30 June 2004 7,231,376 3,500,000 10,731,376

Of which;

Provision against loans and advances to banks 4,884,476 – 4,884,476

Provision against loans and advances to customers 2,346,900 3,500,000 5,846,900

7,231,376 3,500,000 10,731,376

(b) Non-performing loans

2004 2003

£ £

Loans on which interest has been suspended (net of suspended interest) 8,335,798 6,105,411

Provisions (7,231,376) (5,349,439)

Total 1,104,422 755,972


Notes (continued)

9 Debt securities 2004 2003

£ £

Investment securities

Issued by public bodies

– government securities 14,968,574 34,829,318

Other issuers

– other debt securities 259,975,554 209,246,845

274,944,128 244,076,163

Other debt securities – bills of exchange – 109,700

274,944,128 244,185,863

Provisions for permanent diminution in value (2,510,067) –

272,434,061 244,185,863

Investment securities

– listed on a UK recognised investment exchange 14,968,574 34,829,318

– unlisted 259,975,554 209,246,845

274,944,128 244,076,163

Due within one year 49,351,147 62,961,456

Due one year and over 225,592,981 181,114,707

274,944,128 244,076,163

Provisions for permanent diminution in value (2,510,067) –

272,434,061 244,185,863

Amounts include:

Subordinated debt securities – 3,023,889


Notes (continued)

9 Debt securities (continued)Nominal Net Net book

Value Premium/ value

(Discount)

£ £ £

Investment securities – movement

Balance at 30 June 2003 243,031,237 1,044,926 244,076,163

Purchases 155,081,780 1,222,588 156,304,368

Sales/maturities (111,379,361) (2,330,744) (113,710,105)

Amortisation of premium/discount – (591,182) (591,182)

Exchange movements (9,799,121) (1,335,995) (11,135,116)

Provisions for permanent diminution in value (2,510,067) – (2,510,067)

Balance at 30 June 2004 274,424,468 (1,990,407) 272,434,061

2004 2003

£ £

Investment securities – market value

Issued by public bodies

- government securities 15,139,500 36,016,000

Other issuers

- other debt securities 257,232,440 218,321,227

272,371,940 254,337,227


Notes (continued)

10 Equity shares2004 2003

£ £

Equities held for investment purposes

– cost

Balance at beginning of the year 1,293,398 2,026,706

Effect of foreign exchange movements (98,600) (141,569)

Repayment (254,099) (591,739)

Balance at end of the year 940,699 1,293,398

£ £

– Provisions for permanent diminution in value

Balance at beginning of the year (1,293,398) (1,385,000)

Foreign exchange movement on provision 98,600 91,602

Repayment 254,099 –

Balance at end of the year (940,699) (1,293,398)

Net investment at end of the year – –

The provision for permanent diminution in value relates to the write down in the Company’sinvestment in IIBU Fund II Public Limited Company.


Notes (continued)

11 Tangible fixed assets Leases of Computer

50 years equipment

or more and other

unexpired fixed assets Total

£ £ £

Cost or valuation

At 30 June 2003 407,001 2,017,405 2,424,406

Additions 2,315 1,059,937 1,062,252

At 30 June 2004 409,316 3,077,342 3,486,658

Accumulated depreciation

At 30 June 2003 177,786 1,826,962 2,004,748

Charge for year 14,030 150,330 164,360

At 30 June 2004 191,816 1,977,292 2,169,108

Net book value

At 30 June 2004 217,500 1,100,050 1,317,550

At 30 June 2003 229,215 190,443 419,658

12 Other assets2004 2003

£ £

Deferred tax asset (see note 4) 1,080,085 1,050,000

Foreign exchange contracts 1,306,749 2,786,245

Tax recoverable 181,146 –

Other 343,279 373,196

2,911,259 4,209,441


Notes (continued)

13 Deposits by banks2004 2003

£ £

With agreed maturity dates or periods of notice,

by remaining maturity:

Banks

5 years or less but over one year 60,743,277 66,525,552


3 months or less but not repayable on demand 286,258,812 243,062,089

354,226,474 325,892,014


367,790,285 343,244,956

Parent company



68,491,435 61,286,964

Total

5 years or less but over one year 60,743,277 66,525,552



420,733,542 384,513,320


436,281,720 404,531,920


Notes (continued)

14 Customer accounts2004 2003

£ £

With agreed maturity dates or periods of notice, by

remaining maturity:

5 years or less but over 1 year 6,736,982 8,769,276



361,497,404 379,358,069


397,561,643 411,123,779

15 Other liabilities2004 2003

£ £

Foreign exchange contracts 1,302,120 2,759,238

Taxation – 355,298

Other creditors 1,752,627 792,264

3,054,747 3,906,800

16 Called up share capital2004 2003

£ £

Authorised

Ordinary shares of £1 each 100,000,000 100,000,000

Allotted, called up and fully paid

Ordinary shares of £1 each 65,800,000 50,000,000

During the year the company issued 15,800,000 ordinary shares for proceeds of £15,800,000


Notes (continued)

17 Reconciliation of movements in shareholders’ funds 2004 2003

£ £

Opening shareholders’ funds 66,888,227 64,230,069

Share capital issued 15,800,000 –

Dividend paid (15,800,000) –

Net profit for the year 735,500 2,658,158

Closing shareholders’ funds 67,623,727 66,888,227

18 Pension scheme

The Company currently participates in the National Bank of Egypt International Limited Pension Scheme which is a

defined contribution scheme.The total pension charge for the year ended 30 June 2004 was £337,131 (2003: £342,233).

19 Commitments

(a) Other commitments

2004 2003

£ £

Letters of credit – confirmed 55,987,650 29,223,151

Forward deposits taken 44,887,327 9,197,533

Forward assets purchased 13,253,079 44,347,926

Loan commitments (undrawn credit lines) 21,283,433 22,535,928

135,411,489 105,304,538

Forward deposits taken and forward assets purchased generally replace maturing deposits by banks andloans and advances to banks.

£ £

Loan commitments – over one year 21,283,433 13,263,201

Loan commitments – one year or less – 9,272,727

21,283,433 22,535,928

Incurred on behalf of the Parent Company:

Letters of credit – confirmed 21,361,734 5,836,833


Notes (continued)

(b) Significant concentrations of contingent liabilities and commitments

Approximately 63% (2003: 57%) of total contingent liabilities and commitments relate tocounterparties in Egypt

(c) Foreign exchange contracts

In addition to the commitments disclosed above, there are outstanding forward foreign exchangecontracts for purchases of £107,364,059 (2003: £136,451,086) and sales of £108,432,509 (2003:£137,027,584).

20 Operating lease commitments

As at 30 June 2004, the Company has the following non-cancellable annual operating leasecommitments:

2004 2004 2003 2003

£ £ £ £

Land and Other Land and Other

buildings buildings

Operating leases which expire:

Within 1 year – – 188,450 15,075

Between 1 and 5 years – 9,764 – 7,766

More than 5 years 460,049 – 195,340 –

460,049 9,764 383,790 22,841


Notes (continued)

21 Risk management

Through its banking services the Company is exposed to a range of risks.To manage these risks theCompany established the following committees and functions to assist the Board of Directors:Executive Committee;Audit Committee; Credit Committee;Asset and Liability Committee; andInternal Audit.

Major risks

Credit riskCredit risk arises principally on the lending, trade finance and investment activities of the bank. Creditrisk policies are applied by the Credit Committee which operates within the authority granted to it bythe Board. Country and counterparty limits are established and monitored on a daily basis, with adetailed review at least once a year. Management receives regular reports on the utilisation of theselimits.

Interest rate riskInterest rate risk primarily arises on the mis-matching of the banks assets with its funding.This ismonitored daily and is managed by the Asset and Liability Committee. Principal limits have beenestablished for the Company’s assets and liabilities when allocated to time bands by reference to thenext contractual repricing date.

Risks may also be hedged through the use of interest rate swaps and forward rate agreements (note 22).

At 30 June 2004, the interest rate risk comprises (all amounts in £):

Less than 3 More than 3 More than 6 More than More than Non interest Total

months months but months but 1 year but 5 years bearing

not more not more not more

than 6 than 1 than 5

months year years

£ £ £ £ £ £ £

Assets 816,507,841 46,561,692 12,952,896 27,142,372 – 3,277,600 906,442,401

Liabilities (819,483,555) (14,514,638) (6,409,858) (68,340,768) – 2,306,418 (906,442,401)

Off-balance 21,542,106 – (2,761,058) (18,781,048) – – –

sheet items

Gap 18,566,392 32,047,054 3,781,980 (59,979,444) – 5,584,018 –

Cumulative 18,566,392 50,613,446 54,395,426 (5,584,018) (5,584,018) – –


Notes (continued)

Risk management (continued)

At 30 June 2003, the interest rate risk comprised (all amounts in £):

Less than 3 More than 3 More than 6 More than More than Non interest Total

months months but months but 1 year but 5 years bearing

not more not more not more

than 6 than 1 than 5

months year years

£ £ £ £ £ £ £

Assets 714,719,956 76,278,394 24,324,081 70,864,013 – 2,532,394 888,718,838

Liabilities (718,258,054) (22,371,236) (3,965,733) (77,136,600) – (66,987,215) (888,718,838)

Off balance

sheet items (1,701,481) 43,432,415 16,463,864 (58,194,798) – – –

Gap (5,239,579) 97,339,573 36,822,212 (64,467,385) – (64,454,821) –

Cumulative (5,239,579) 92,099,994 128,922,206 64,454,821 64,454,821 – –

The figures do not demonstrate the exposure of the Company to particular interest rates as the assetsand liabilities above have been consolidated across all currencies.

Liquidity riskLiquidity risk arises on the mis-matching of the residual maturity of the Company’s assets and funding.This is also monitored daily, and is managed by the Asset and Liability Committee. Limits have beenestablished for each time band and incorporate FSA agreed limits.

Foreign exchange riskForeign exchange risk is managed within the treasury function. Policies and procedures are detailed inan operational procedures manual.This incorporates FSA agreed limits, and other regulatory bodiesrequirements and best practices. It is subject to periodic review by Internal Audit and is approved bythe Board.

Senior management also regularly monitors the positions taken on a daily basis.

Operational riskOperational risk is the risk of loss resulting from inadequate or failed internal process, people andsystems or from external events.The Company’s operational risk framework is subject to proceduralpolicies and best practice standards, with senior management being responsible for theirimplementation and maintenance.Adherence to these policies is also subject to periodic review byInternal Audit.


Notes (continued)

22 Derivative and exchange rate contracts

The Company enters into various financial instruments as principal to manage balance sheet interestrate and foreign exchange rate risk.At the year end, the principal amounts and fair values of theinstruments were:

2004 2003

Principal Positive Negative Principal Positive Negative

amount Fair Values Fair Values amount Fair Values Fair Values

£ £ £ £ £ £

Interest rate related

contracts:

Interest rate swaps 21,542,106 541,708 152,578 41,730,934 194,409 1,112,627

Forward rate

agreements sold – – – 30,238,887 – 12,323

Forward rate

agreements bought – – – 16,463,864 – 68,576

Exchange

rate related

contracts 107,364,059 1,306,749 1,302,120 136,451,086 2,786,245 2,759,238

Interest rate related contracts include swaps and forward rate agreements. Interest rate swap transactionsgenerally involve the exchange of fixed and floating interest payment obligations without the exchangeof the underlying principal amounts. Forward rate agreements are contracts under which twocounterparties agree on the interest to be paid on a notional deposit of a specified maturity at aspecific future settlement date; there is no exchange of principal.

Exchange rate related contracts are predominantly spot transactions but will also include currencyswaps and forwards.The Company’s currency swap transactions generally involve an exchange ofcurrencies and an agreement to re-exchange the currency at a future date where the swaps relate toassets and liabilities denominated in different currencies.

The contract or notional principal amounts of these instruments are not indicative of the amounts atrisk which are smaller amounts payable under the terms of these instruments.

Derivatives contracts are used for hedging purposes only and are executed with bank counterparties forwhom volume and settlement limits have been approved. Group limits are approved for connectedexposures. Under the Company’s current treasury policy, derivative contracts are restricted to ForwardRate Agreements, Interest Rate Swaps and Currency Swaps.

At 30 June 2004, there are 6 swaps outstanding (2003: 9) and no forward rate agreements outstanding(2003: 4).


Notes (continued)

22 Derivative and exchange rate contracts (continued)

Maturity analysis:

Notional Values Fair Values

2004 2004

Maturity Interest Rate Forward Rate Total Interest Forward Rate Total

Swaps Agreements Rate Agreements

Swaps

£ £ £ £ £ £

1 year or less 2,761,058 – 2,761,058 24,454 – 24,454

5 years or less but

over 1 year 18,781,048 – 18,781,048 364,677 – 364,677

Notional Values FairValues

2003 2003

Maturity Interest Rate Forward Rate Total Interest Forward Rate Total

Swaps Agreements Rate Agreements

Swaps

£ £ £ £ £ £

1 year or less – (30,238,887) (30,238,887) – (12,323) (12,323)

5 years or less

but over 1 year 41,730,934 16,463,864 58,194,798 (918,218) (68,576) (986,794)

23 Assets and liabilities denominated in foreign currency2004 2003

£ £

Denominated in Sterling 210,804,821 197,001,206

Denominated in US Dollar 546,331,434 565,922,022

Denominated in other currencies 149,306,146 125,795,610

Total assets 906,442,401 888,718,838

Denominated in Sterling 193,821,923 190,003,474

Denominated in US Dollar 580,353,650 565,568,801

Denominated in other currencies 132,266,828 133,146,563

Total liabilities 906,442,401 888,718,838

The functional currency of the Company’s operations is Sterling.


Notes (continued)

24 Related party disclosures

During the year, new loans of £8,000 were granted to 2 officers of the Company (2003:£5,000granted to 1 officer).As at year-end, there was a balance of £4,292 of loans outstanding from 3 officersof the Company (2003: £10,625 outstanding from 3 officers).

25 Ultimate parent company and parent undertaking of larger group of which the company is a member

The Company is a wholly owned subsidiary of National Bank of Egypt.The parent company isincorporated in Egypt. Copies of the group accounts for the National Bank of Egypt can be obtainedfrom National Bank of Egypt, 1187 Corniche El Nil, Cairo, Egypt.


Notes (continued)

Five-Year Summary2004 2003 2002 2001 2000

£m £m £m £m £m

Net Operating Income 3.9 6.0 5.1 4.4 5.4

Provisions and Write-Offs 4.6 3.0 2.4 0.4 2.5

Profit before taxation 0.9 3.9 2.6 4.0 2.9

Taxation 0.2 1.2 0.8 1.2 1.3

Profit after Taxation 0.7 2.7 1.9 2.8 1.6

Issued Share Capital 65.8 50.0 50.0 50.0 50.0

Total Shareholders’ Funds 67.6 66.9 64.2 62.3 58.5

Deposits by Banks 436 405 441 431 489

Customer Accounts 398 411 368 359 283

Loans and Advances to Banks 582 556 648 610 612

Loans and Advances to Customers 45 80 102 124 115

Debt Securities 272 244 122 115 101

Total Assets 906 889 878 857 841

Capital Ratios %

– Risk Asset Ratio 25.5 20.1 21.3 20.0 20.5

– Shareholders Funds to Total Assets 7.5 7.5 7.3 7.3 6.9

Return on Share Capital %

– profit before taxation 1.3 7.8 5.2 8.0 5.8

– profit after taxation 1.0 5.4 3.8 5.6 3.2

Return on Total Shareholders’ Funds %

– profit before taxation 1.3 5.8 4.0 6.4 5.0

– profit after taxation 1.0 4.0 3.0 4.5 2.7


Mr. Kazem Hassan BarakatDeputy Chairman and Managing Director

Mr. Mokhtar Abdel Gawad El ShennawyDeputy Managing Director

Mr. Ismail SalehGeneral Manager

Mr. Ahmed A. MaksoudDeputy General Manager

Mr. Richard NunnTreasurer

Mr. Fathy A. Hassan El FawakhryAssistant General Manager, Settlements

Ms. Clare WhiteOperations Manager

Ms. Margaret BullSenior Manager, Credit

Mr. Reg EganCompany Secretary

Mr. Brian W.TurnerHead of Internal Audit

Mr. Mamdouh BibarsManager, Documentary Credits

Mr. John J. BurkeManager,Treasury

Mr. Anthony P. BurrHead of I.T.

Mr. Marcus PrestonAccountant

Mr. John RobinsonManager, Retail Banking

Mr. Peter M.TomsMoney Laundering Reporting Officer

Mrs. Pru TylerManager, Human Resources

Trafalgar House11 Waterloo PlaceLondon SW1Y 4AUTel: 020 7389 1200Fax: 020 7930 8882Telex: 916625 NBELDN GSWIFT: NBEGGB2L


Departmental Management

Documents

Annual Report 2004 - National Bank of Egypt · 2014-11-07 · Annual Report 200430 June 2004 National Bank of Egypt International Limited 1 Directors’report and financial statements