CANADIA BANK Plc. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

Transcription

1 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER

2 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER CONTENTS Page REPORT OF THE BOARD OF DIRECTORS 1 4 INDEPENDENT AUDITORS REPORT 5 6 FINANCIAL STATEMENTS Balance sheet 7 Income statement 8 Statement of changes in equity 9 Cash flow statement 10 Notes to the financial statements APPENDIX : NOTES ON COMPLIANCE WITH CENTRAL BANK PRAKAS* * This Appendix does not form part of the audited financial statements

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13 FOR THE YEAR ENDED 31 DECEMBER 1. BACKGROUND INFORMATION 1.1 GENERAL Canadia Bank Plc. was incorporated in 1991 under a joint venture between the National Bank of Cambodia ("the Central Bank") and certain overseas Cambodians. On 4 February 1998, the Central Bank disposed of all its shares to private investors. On 16 December 2003, the Central Bank issued a licence for the Bank to become a commercial bank for a period of three years commencing 22 December The Bank s licence was renewed for an indefinite period on 18 October. In 2001, the Overseas Cambodian Investment Corporation ("OCIC"), a public limited company incorporated in the Kingdom of Cambodia, acquired 100% of the shares of the Bank and consequently became the holding company of the Bank. The principal activities of the Bank comprise the operations of core banking business and the provision of related financial services through its head office and various branches in Phnom Penh and the provinces. There have been no significant changes in the nature of these principal activities during the year under audit. The registered office of the Bank is currently located at No Ang Duong Street, Phnom Penh, Kingdom of Cambodia. As at 31 December, the Bank had 460 employees (: 394). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The financial statements have been prepared under the historical cost convention in accordance with the guidelines issued by the Central Bank and Cambodian Accounting Standards. The accompanying financial statements are prepared for the jurisdiction of Cambodia and are not intended to present the financial position, financial performance and cash flows in accordance with generally accepted accounting principles and practice in other countries. For the sole purpose of complying with Announcement No. B795139AN dated 5 December 1995 of the Central Bank, a translation to Khmer Riel is provided for the balance sheet, the income statement, the statement of changes in equity, the cash flow statement and the notes to the financial statements as of and for the year ended 31 December using the official rate if exchange regulated by the Central Bank as at the reporting date, which was 1 to Riel 4,057 (: 1 to Riel 4,112). Such translation amounts are unaudited and should not be construed as representations that the amounts represent, or have been or could be, converted into Khmer Riel at that or any other rate. 11

14 FOR THE YEAR ENDED 31 DECEMBER 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Foreign currency transactions a) Functional and presentation currency Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates ( the functional currency ). The financial statements are presented in, which is the Bank s functional and presentation currency. b) Transaction and balances Transactions in currencies other than, the functional and presentation currency, are translated into at the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulted from the settlement of such transactions and from the translation at the period end exchange rate from monetary assets and liabilities denominated in currencies other than, are recognised in the income statement. The principal rates used to translate monetary assets and liabilities at the balance sheet date are: 31 December 31 December 4, , KHR EUR CAD SGD GBP HKD JPY NZD THB CNY CHF AUD 2.3 Cash and cash equivalents Cash and cash equivalents includes balances with less than 90 days maturity from the date of acquisition including: cash on hand, deposits and placements with the Central Bank and deposits and placements wi th banks and other financial institutions. 2.4 Statutory deposits with the Central Bank Statutory deposits represent mandatory reserve deposits and cash maintained with the Central Bank in compliance with the Law on Banking and Financial Institutions and are not available to finance the Bank s daytoday operations. These statutory deposits are not considered as part of cash and cash equivalents for the purpose of the cash flow statement. 12

15 FOR THE YEAR ENDED 31 DECEMBER 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.5 Loans and advances to customers All loans and advances to customers are stated in the balance sheet as the amount of principal, less any amounts written off and the provision for loan losses. Short term loans are those with a repayment date within one year of the date the loan was advanced. Long term loans are those with a final repayment date of more than one year of the date the loan was advanced. Loans are written off when there is no realistic prospect of recovery. Recoveries of loans and advances previously written off or provided for decrease the amount of the provision for losses on loans and advances in the income statement. 2.6 Provision for loan losses The Bank is required to follow the mandatory credit classification and provisioning as required by Prakas B dated 7 June 2002 issued by the Central Bank. The Prakas requires commercial banks to classify their loan portfolio into four classes and the mandatory level of specific provisioning is provided, depending on the classification concerned and regardless of the assets (except cash) pledged as collateral as follows: Overdue Standard Substandard Doubtful Loss 2.7 from 91 days to 180 days from 181 days to 360 days more than 360 days Rate of provision 0% 10% 30% 100% Investment in Foreign Trade Bank of Cambodia The Bank entered into a sale and purchase agreement 28 October with the Privatisation Committee (acting on behalf of the Royal Government of Cambodia), to acquire 46% of the share capital of Foreign Trade Bank of Cambodia ( FTB ). This investment was initially recognised at cost and accounted for using the accounting for investments in accordance with the Cambodia Accounting Standards ( CAS ) 25. The dividend income received from the investment in FTB is credited to the income statement. 2.8 Other credit related commitments In the normal course of business, the Bank enters into other credit related commitments including loan commitments, letters of credit and guarantees. The accounting policy and provision methodology are similar to those for originated loans as noted above. Specific provisions are raised against other credit related commitments when losses are considered probable. 13

16 FOR THE YEAR ENDED 31 DECEMBER 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.9 Interest income and expenses Interest earned on loans and advances to customers, deposits with the Central Bank and other banks are recognised on a daily accruals basis, except where serious doubt exists as to the collectibility of loans and advances to customers, in which case, no interest income is recognised. The policy on the suspension of interest is in conformity with the Central Bank s guidelines on the suspension of interest on non performing loans and provision for bad and doubtful debts. Interest expense on the deposits of customers, settlement accounts of other banks and loans from other financial institutions are recognised on a daily accruals basis Fee and commission income Fee and commission income is generally recognised on an accruals basis when the service has been provided. Fee and commission income comprises income received from inward and outward bank transfers, loan processing, bank guarantees, letters of credit, ATM/Visa and Mastercard charges Property and equipment Property and equipment is stated at cost less accumulated depreciation, except freehold land which is not depreciated. Repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The Bank adopted the provisions of the new Article 13 of the Law on Taxation which allows the following rates and methods of depreciation: Buildings straightline Renovations straightline Motor vehicles declining Office equipment and furniture declining Computers and IT equipment declining 5% 5% 25% 25% 50% 2.12 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight line basis over the period of the lease. 14

17 FOR THE YEAR ENDED 31 DECEMBER 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.13 Income tax Income tax is calculated on the basis of taxable profit, which is calculated by adjusting the financial result for certain expense items (such as costs of representation, over/under depreciation, etc.) in accordance with Cambodian taxation regulations. Taxes other than tax on income are recorded as operating expenses. Deferred income tax is p rovided in full, using the liability method, on temporary differences arising between tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised Subordinated debts Subordinated debts of the Bank are in the form of subordinated loan capital. In accordance with the guidelines of the Central Bank, sub ordinated debts are included as a Tier II line item in the calculation of the Bank s net worth. Subordinated debts are interestfree with no fixed terms of repayment Related party transactions Parties are considered to be related if one party has the ability to control the other party or can exercise significant influence over the other party in making financial and operating decisions. In accordance with the Law on Banking and Financial Institutions, related parties are defined as parties who hol d, directly or indirectly, at least 10% of the capital or voting rights and includes any individual who participates in the administration, direction, management or internal control of the Bank. Transactions with related parties and related account balances are disclosed in note 28 to the financial statements. 3. BALANCES WITH THE CENTRAL BANK Current accounts Deposits and placements Statutory deposit Reserve account 7,735,124 19,000,000 4,054,500 21,901,233 5,708,322 8,000,000 2,600,000 16,001,216 31,381 77,083 16,449 88,854 23,473 32,896 10,691 65,797 52,690,857 32,309, , ,857 15

18 FOR THE YEAR ENDED 31 DECEMBER 3. BALANCES WITH THE CENTRAL BANK (continued) Deposits and placements with the Central Bank will mature within one month and earn interest at the following rates per annum: Fixed deposits within one month 31 December 31 December 3.79% 4.06% 1.80% 3.29% Under Prakas No. B dated 15 October 2001; the Bank is required to maintain a statutory deposit of 10% of its registered capital. This statutory deposit is interest bearing at 1/2 of the sixmonth period refinancing rate set by the Central Bank for statutory deposits maintained in Riel and 3/8 of the sixmonth SIBOR rate for statutory deposits maintained in. Reserve accounts represent the minimum reserve requirement, which is calculated at 8% of the total deposits from customers and settlement accounts of other banks. 4. BALANCES WITH OTHER BANKS AND FINANCIAL INSTITUTIONS Deposits with banks: In Cambodia Outside Cambodia: Fixed deposits Demand deposits 427, ,625 1,733 1,401 4,656,072 50,915,586 22,500,000 28,779,946 18, ,564 92, ,343 55,998,868 51,620, , ,264 51,342,796 4,656,072 49,120,571 2,500, ,297 18, ,984 10,280 55,998,868 51,620, , ,264 Analysis by maturity period: Within one month One to three months Four to five months Six to twelve months Shortterm placements with others banks earned interest at rates ranging from 2.27% to 5.21% in (: 3.09% to 4.00%). 16

19 FOR THE YEAR ENDED 31 DECEMBER 5. LOANS AND ADVANCES TO CUSTOMERS 57,814,259 82,428,900 51,307, ,399 38,073,003 57,058,006 58,348, , , , , , , , Mortgage loans Credit card facilities 25,215, , ,441,360 13,462, , ,587, ,299 2, ,160 55,360 2, ,121 Provisions for loan losses (12,033,815) (9,856,220) (48,822) (40,529) 157,731, , ,592 Commercial loans: Overdrafts Short term loans Long term loans Microfinancing loans Consumer loans: 205,407,545 Movements in the provision for loan losses duri ng the year are as follows: At 1 January Unrealised foreign exchange Add ition during the year Amount written off Recovery during the year 9,856,220 1,962 8,719,679 (78,902) (6,465,144) 8,117,670 (3,082) 5,351,572 (99,803) (3,510,137) 39, ,377 (320) (26,229) 33,380 (13) 22,006 (410) (14,434) At 31 December 12,033,815 9,856,220 48,822 40,529 17

20 FOR THE YEAR ENDED 31 DECEMBER 5. LOANS AND ADVANCES TO CUSTOMERS (continued) Further classification of loans and advances to customers is as follows: Standard loans: Secured Unsecured Substandard loans: Secured Unsecured Doubtful loans: Secured Unsecured Loss loans: Secured Unsecured 178,366, ,033, ,837 1,395, ,632 2, ,275 5,737 15,054,774 1,272,000 5,465 61,077 5, ,471,762 3,067,552 7,798 74,939 12, ,990,809 8,684, ,810 20,249 35, ,441, ,587, , ,121 Further analysis of the loans and advances to customers is provided below: (a) Analysis by maturity 1 3 months 4 6 months 7 12 months Over 1 year but within 3 years Over 3 years but within 5 years Over 5 years 2,851,888 5,517,154 1,728,232 12,158, ,829, ,187,316 55,640,688 11,134,614 9,533,679 7,894,863 20,857,150 14,694,946 11,570 7, , ,735 38,678 84,618 22,687 49, ,762 45,786 32,464 60, ,441, ,587, , ,121 18

21 FOR THE YEAR ENDED 31 DECEMBER 5. LOANS AND ADVANCES TO CUSTOMERS (continued) (b) Analysis by currency US Dollar Khmer Riel Thai Baht 215,609, ,118, , ,620 1,584,040 1,238, ,729 1,004 6, , , ,441, ,587, , ,121 (c) Analysis by industry Services Building and construction Wholesale and retail Mortgage Manufacturing Import and export Transportation, storage and communication Agriculture Individuals Others 66,310,152 56,645,481 33,971,257 25,215,490 17,392,828 6,391,476 68,869,048 31,070,497 26,993,306 13,462,933 13,045,038 7,540, , , , ,299 70,563 25, , , ,996 55,360 53,641 31,008 5,307,483 2,192, ,237 3,461,160 1,283,845 2,227, ,565 2,573,961 21,532 8,896 2,245 14,043 5,279 9,161 2,141 10, ,441, ,587, , , ,441, ,587, , , ,441, ,587, , ,121 (d) Analysis by residence Residents Nonresidents 19

22 FOR THE YEAR ENDED 31 DECEMBER 5. LOANS AND ADVANCES TO CUSTOMERS (continued) (e) Analysis by relationship Nonrelated parties Related parties 217,441, ,881,828 38,705, , , , ,441, ,587, , ,121 On 22 November 2004, the Bank recorded the loans given to the subsidiaries of Capital Investment Holding ("CIH"), a related party of the Bank, in the Bank's equity investment as per conditional approval from the Central Bank. On 2 February, the Central Bank issued a letter to the Bank instructing the Bank to reverse all investments in CIH subsidiaries back to loan assets for further consideration and study. In September, the Bank s loans to these five companies have been restructured to reflect the change in shareholders of each of the CIH subsidiary companies resulting from CIH s disposal of its investments in the five companies to individual investors. As at 31 December, included in long term loans are loans to the five companies totalling 29,970,000 (: 38,705,898). These loans are subject to interest rates ranging from 5% to 6% per annum (: 4% per annum). (f) Interest rates The annual interest rates that were in operation during the year were as follows: Commercial loans Consumer loans December 31 December 5% 21.6% 3.6% 21.6% 4% 21.6% 4.44% 21.96% INVESTMENT SECURITIES This represents a fixedmaturity debt security investment in Omnia Life (Bermuda) Ltd. Trust which was intended to be held to maturity and was recognised at amortised cost. On 16 January, the Bank requested an early termination of the investment in Omnia Life due to unfavourable interest yields. A refund of 2,135,534 (net of earlier termination cost and unearned interest) was transferred to the Bank on 20 January. 20

23 FOR THE YEAR ENDED 31 DECEMBER 7. OTHER ASSETS Deposits with companies outside Cambodia Accrued interest receivable Prepaid expenses Advances to contractors Other advances Travelers cheques purchased Guarantee deposits for MasterCard and Visa Others , ,654 46, , , , , ,797 34, , ,196 1,051 2, ,954 2, ,239 2, , , , ,110 3,655 1,001 3,589 3,364 3,609,634 2,935,087 14,644 12,069 INVESTMENT IN THE FOREIGN TRADE BANK OF CAMBODIA On 28 October, the Bank entered into a sale and purchase agreement with the Privatisation Committee (acting on behalf of the Royal Government of Cambodia), to acquire 46% of the share capital of Foreign Trade Bank of Cambodia ( FTB ) for a consideration of 10,580,

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26 FOR THE YEAR ENDED 31 DECEMBER 10. PROPERTIES FORECLOSED These represent the collaterals held for loans which are in default and have been foreclosed in the ordinary course of banking operations. These foreclosed assets are recorded at the value equal to the corresponding loan principal outstanding plus interest receivable. These assets are not held for operational purposes and will be disposed of in order to recover the outstanding amount within the maximum allowable period of twelve months as per the guidelines issued by the Central Bank. Assets realised in excess of the outstanding amount plus disposal costs will be returned to the borrower after settlement. 11. MASTERCARD FRANCHISE/LICENCES Cost of acquiring MasterCard franchise/ licence Accumulated amortisation Amortisation during the year Net balance at end of year 125,250 (112,725) (12,525) 125,250 (87,675) (25,050) 508 (457) (51) 515 (360) (103) 12, The initial cost of acquiring the MasterCard franchise and licence was recognised as an intangible asset and amortised on a straight line basis over a five year period. 12. DEPOSITS AND BALANCES OF OTHER BANKS Current accounts Savings accounts 2,361,292 1,511,317 2,521, ,754 9,580 6,131 10,370 1,282 3,872,609 2,833,654 15,711 11,652 24

27 FOR THE YEAR ENDED 31 DECEMBER 13. DEPOSITS FROM NONBANK CUSTOMERS (a) Analysis by category Current accounts Savings accounts Fixed deposits Margin deposits 17,895, ,029, ,033,027 1,500,504 13,633, ,538,332 98,300,697 1,374,065 72, , ,430 6,088 56, , ,212 5, ,458, ,846,816 1,174, , , ,392,359 20,830,920 46,057,776 12,949, ,546,118 16,082,517 22,878,024 55,202,824 4,137, , ,271 84, ,856 52, ,478 66,131 94, ,994 17, ,458, ,846,816 1,174, , ,172,351 3,286, ,781,720 2,065,096 1,161,001 13, ,198 8, ,458, ,846,816 1,174, ,690 (b) Analysis by maturity Within 1 month 1 to 3 months 4 to 6 months 7 to 12 months Over 1 year but within 3 years (c) Analysis by resident status Residents Nonresidents 25

28 FOR THE YEAR ENDED 31 DECEMBER 13. DEPOSITS FROM NONBANK CUSTOMERS (Continued) (d) Analysis by relationship Related parties External customers 492, ,965, , , 861,670 1,998 1,172,335 4, , ,458, ,846,816 1,174, ,690 (e) Analysis by currency US Dollar Khmer Riel Thai Baht Gold 282,857,960 4,766,953 1,614, , ,299,356 3,879,985 2,417, ,069 1,147,554 19,340 6, ,767 15,954 9,940 1, ,458, ,846,816 1,174, , ,682,961 90,118, ,708,869 70,234, , , , ,803 18,672,525 2,730,421 4,254,300 8,754, ,502 4,032,498 3,688,114 75,754 11,077 17,260 35,999 1,762 16,582 15, ,458, ,846,816 1,174, ,690 (f) Analysis by customer Individuals Business enterprises Government enterprises & state enterprises Other finance institutions Notforprofit organisations Other The savings accounts and fixed deposits bear the following interest rates per annum: Saving deposits Fixed deposits 26 % %

29 FOR THE YEAR ENDED 31 DECEMBER 14. PROVISION FOR INCOME TAX Balance at 1 January Charge during the year Income tax paid during the year Over provision from prior year Balance as at 31 December 1,258,013 3,164,356 (1,635,851) 779,897 1,507,798 (1,026,713) (2,969) 5,104 12,838 (6,637) 3,207 6,200 (4,222) (12) 2,786,518 1,258,013 11,305 5,173 The Bank has obtained tax clearance up to the fiscal year The remaining tax years have yet to be reassessed by the Tax Department and, accordingly, its tax for these years is not considered final. 15. OTHER LIABILITIES Accrued interest payable Provision for L/C claim (see note 23) Amount due to merchants Suspense account remittance Staff bonus payable Tax payables Accounts payable Accrued expenses Other liabilities 2,523, , , , ,324 67,731 5, , ,755 1,975,710 1,702,969 80,692 1,730,213 61,620 61,428 15,488 26,576 26,894 10,239 3,499 1, ,001 8,124 7, , ,524,432 5,681,590 18,356 23,363 27

30 FOR THE YEAR ENDED 31 DECEMBER 16. OTHER BORROWINGS Borrowed funds from IFC Borrowed funds from KfW through MoEF 2,500,000 2,500,000 10,143 10,280 4,806,669 2,992,001 19,500 12,303 7,306,669 5,492,001 29,643 22,583 The 2,500,000 borrowed from the International Finance Corporation ("IFC") is the result of a Loan Agreement between the Bank and the IFC dated 20 September 2004 whereby IFC agreed to lend the Bank 2,500,000 to be loaned out to eligible subborrowers to finance acquisition of residential property in Cambodia. On 22 January 2007, this loan was fully repaid to IFC. The 4,806,669 borrowed from KfW through the Ministry of Economy and Finance ( MoEF ) is the result of loan and finance agreements between the Bank, KfW and MoEF dated 23 April 2003 for SME termlending I and dated 18 October for SME termlending II. The agreements stipulate that the funds borrowed from KfW, through MoEF shall be sublent to Small and Medium Enterprises ( SME ) to build SME capacity in Cambodia. The subloans are classified as an asset of the Bank. The interest rates during the year were as follows: 31 December 31 December IFC KfW % 9.42% 4.34% 5.60% 7.14% 7.62% 4.45% 4.89% SHARE CAPITAL As at 1 January Increase during the year Dividends paid and reinvested into share capital 26,000,000 4,000,000 23,000,000 3,000, ,482 16,228 94,576 12,336 10,545,000 42,781 As at 31 December 40,545,000 26,000, , ,912 In, the Bank increased its paid up capital from 23 million to 26 million by issuing 3 million ordinary shares at a par value of 1 per share. A 2 million capital increase was approved by the Central Bank Banking Supervision Department on 16 December, with a further 1 million increase approved on 23 December. 28

31 FOR THE YEAR ENDED 31 DECEMBER 17. SHARE CAPITAL (continued) On both 29 April and 26 June, the Board of Director s approved a 2 million increase in paid up capital through the issuance of 2 million ordinary shares at a par value of 1 per share, resulting in an overall increase in paid up capital of 4 million. A directors resolution was passed on 12 June which specified that the 10,545,000 declared as a dividend was to be reinvested in the share capital of the Bank. The capital increase in aggregate of 14,545,000 was approved by the Central Bank on 21 July. The total authorised amount of share capital as at 31 December was 40,545,000 shares, with a par value of 1 per share. 18. SUBORDINATED DEBT On 28 October, the Bank entered into an agreement with Mr. Pung Kheav Se (a main shareholder of the Bank through OCIC) to provide the Bank with a subordinated loan of 7,080,000 for the purpose of acquiring shares in the Foreign Trade Bank of Cambodia. This subordinated debt is interest free with no fixed terms of repayment. This subordinated debt was approved in principle by the Central Bank on 28 December INTEREST INCOME Loans, overdraft and advances to customers 21,697,042 Placements with banks 2,843,760 Placements with the Central Bank 809,688 Investment securities 17,996, , ,431 27,090 88,025 11,537 3,285 74,000 3, ,350,490 19,200, ,847 78,951 5,890, ,674 4,918, ,999 23,896 1,683 20,224 1,056 6,304,818 5,175,209 25,579 21,280 INTEREST EXPENSE Deposits from customers Borrowed funds from KfW and IFC 29

32 FOR THE YEAR ENDED 31 DECEMBER 21. FEE AND COMMISSION INCOME Commissions from remittance services Loan commitment fees Fees for telex, fax and phone Other fees and commissions Income from letters of credit Miscellaneous loan fees and service charges Fees for wire transfers Fees for credit card advances and late charges ATM/Credit card annual fees and MoneyGram 22. 1,366, , , , ,086 1,136, , , , ,939 5,544 3,022 2,402 2, ,674 2,046 2,228 2, , , , ,970 2, , ,859 65, ,752 67, ,403,523 3,696,818 17,865 15,201 GENERAL ADMINISTRATIVE EXPENSES Payroll and other staff costs Depreciation and amortisation expenses Loss on foreign exchange currency Charitable donations and gifts Travel, accommodation and food Advertising and public relations Utilities Legal and professional fees Taxes and duties Communication Building rental Repairs and maintenance Motor vehicles Furniture, fixture and equipment expenses Stationery and supplies Printing and forms Insurance Loss on disposal of foreclosed properties Fraud losses by staff written off Other operational costs 2,720, , , , , , , , , , ,440 86,333 79,454 1,708, , , , , , , , , , ,730 77,766 58,046 11,039 2,655 2,047 1,234 1, ,026 2,527 3, , , ,251 71,162 31,758 17,808 21, ,474 47, ,320 58,026 39, ,580 1,444,156 32, , ,117 5, ,313,951 6,659,084 25,616 27,382 30

33 FOR THE YEAR ENDED 31 DECEMBER 23. PROVISION FOR LOSSES IN RELATION TO L/C In November 2004, the Bank became sub ject to a financial claim from the Foreign Trade Bank of Vietnam for nonpayment of four irrevocable letters of credit issued by the Bank amounting to 1,702,969. On 7 March, the Bank entered into a settlement agreement with Foreign Trade Bank of Vietnam whereby the Bank agreed to pay 1,702,969 to the Foreign Trade Bank of Vietnam in four installments. The first installment amounting to 416,237 was paid on 9 March and the second installment amounting to 424,372 was paid by the Bank on 28 June. The final installments are to be paid on or before 31 December INCOME TAX EXPENSE The Bank is subject to a prepayment of Tax on Profit at the rate of 1% of turnover inclusive of all taxes, to be paid on a monthly basis by the 15th day of the succeeding month. The prepayment of Tax on Profit can be offset against the annual Tax on Profit liability. Where the Bank has made a prepayment of Tax on Profit that is greater than the Tax on Profit liability, the excess can be carried forward to be offset against future prepayment of Tax on Profit and Tax on Profit liabilities. Income tax expense is calculated on the basis of the current interpretation of the tax regulations. However, these regulations are subject to periodic variation and the ultimate determination of the income tax expense will be made following inspection by the tax authorities. Reconciliation between income tax expense and accounting profit: Profit before income tax Expenses not deductible for tax purposes 15,681,051 7,538,994 63,618 31, , Taxable income 15,821,781 7,538,994 64,189 31,000 3,164,356 1,507,798 12,838 6,200 Tax charge at a rate of 20% 31

34 FOR THE YEAR ENDED 31 DECEMBER 25. CASH USED IN OPERATIONS Cash flows from operating activities Profit before income tax 15,681,051 7,538,994 Adjustments for: Provision for loan losses net 2,254,535 1,842,599 Provision for losses in relation to L/C 1,702,969 Depreciation and amortisation 654, ,474 Gain on disposals of property and equipment 21,481 (23,289) Reclassification of property and equipment 12,475 Operating profit before changes in working capital 18,611,425 11,688,222 Increase/(decrease) in cash attributable to the change in operating assets and liabilities: Payment to the Board of Directors (40,000) Deposits and placements with banks (2,156,072) 7,535,583 Loans and advances to customers (49,930,573) (30,585,683) Other assets (674,547) 1,645,533 Investment assets 159,004 Foreclosed properties (1,391,486) 5,224 Deposits and balances from banks 1,038,955 (2,642,386) Deposits from nonbank customers 54,611,643 27,821,469 Provision for income tax 1,528,505 Other liabilities (1,157,158) (610,786) Cash generated from operations ,618 31,000 9,146 2,655 7,577 7,003 2, (96) 51 75,506 48,062 (161) (8,747) (202,568) (2,737) (5,645) 4, ,559 6,201 (4,695) 30,986 (125,768) 6, (10,865) 114,402 (2,512) 20,440,692 15,016,180 82,928 61,746 25,141,461 25,349, , ,239 26,735,124 51,342,797 13,708,322 49,120, , ,298 56, , ,219,382 88,178, , ,592 CASH AND CASH EQUIVALENTS Cash on hand Deposits and placements with Central Bank Deposits and placements with banks 32

35 FOR THE YEAR ENDED 31 DECEMBER 27. COMMITMENTS AND CONTINGENCIES (i) Credit related commitments In the normal course of business, the Bank makes various commitments or incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. At the balance sheet date, the commitments of the Bank are as follows: Documentary letter of credits Performance and bankers guarantees Tender bonds Retention guarantees Other Unused portion of approved credit facilities (ii) 4,657,767 7,336,644 18,897 30, ,779 51, ,007 5,667, , ,994 17,217 89,983 8,132,780 3, ,994 2, ,442 25,502,232 13,558, ,463 55,753 31,169,686 21,691, ,457 89,195 Lease Commitments The Bank has lease commitments for the lease of its branches in Phnom Penh and provincial offices as follows: Not later than one year Later than one year and not later than three years Over three years (iii) 129, , ,380 2,574, ,440 2,575,750 1,324 10,444 1,112 10,591 3,030,352 2,953,812 12,294 12,146 Capital expenditure and other service commitments The following are the capital commitments of new office buildings, new core banking software and other related services as at 31 December : 31 December Not later than one year Later than one year and not later than three years 33 1,777,650 2,281,185 7,212 9,254 4,058,835 16,466

36 FOR THE YEAR ENDED 31 DECEMBER 28. RELATED PARTY BALANCES AND TRANSACTIONS Significant related party balances and transactions entered into by the Bank during the period on terms negotiated and agreed between the parties were as follows: Loans, overdrafts and advances: Long term loans Deposits by customers: Other related party deposits Directors deposit accounts Subordinated debt received Interest income: Interest income on long term loans Interest expenses: Interest paid on related party deposits Operating expenses: Salaries for directors and management Rental income Amount due to Director 38,705, ,159 23,603 7,080, ,306 34,939 7,080, ,724 2, ,113 1,517,380 6,239 1,841 20, ,985 1, , ,752 1, ,134 5 In, interest paid on the long term loans is at a lower than market interest rate of 6% per annum (: 4% per annum). 29. FINANCIAL RISK MANAGEMENT (a) Credit risk The Bank assumes exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and the geographical and industry segments. Procedures of risk limit setting, monitoring, usage, and control are governed by internal regulations. Such risks are monitored o n a regular basis. Exposure to credit risk is managed through regular analysis of the ability of the borrowers and potential borrowers to meet interest and capital repayment obligations and reviewing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate or personal guarantees as well as by providing for loan losses. Commitments to extend credit represent unused portions of approved loans, guarantees or letters of credit. In general, all of the Bank's guarantees and letters of credit are collateralised with cash deposits or collateral pledged to the Bank, and accordingly the Bank normally assumes minimal risks. 34

37 FOR THE YEAR ENDED 31 DECEMBER 29. FINANCIAL RISK MANAGEMENT (continued) (b) Market risk (i) Interest rate risk Cash flow interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Bank s interest rates are generally fixed on a short term basis. Interest rates that are contractually fixed on both assets and liabilities are often renegotiated to reflect current market conditions. The management is satisfied that the Bank's position is such that exposure to movements in interest rates is minimised. The table in note 30 summarises the Bank's exposure to interest rate risks. Included in the table are the Bank's assets and liabilities at carr ying amounts, categorised by the earlier of contractual repricing or maturity dates. (ii) Foreign currency exchange risk Foreign currency exchange risk refers to the adverse exchange rate movements on foreign currency exchange positions taken from time to time. The Bank has no material exposure to currency risk as it transacts essentially in. Significant presence of is the normal practice of banks operating in Cambodia. (c) Liquidity risk Liquidity risk is defined as the risk when the maturity of assets and liabilities do not match. Liquidity risk management at the Bank is performed on the basis of measuring liquidity surplus/deficit and liquidity ratios that are calculated using scenario analysis. The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transactions are often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The table in note 31 analyses the assets and liabilities of the Bank into relevant maturity based on the remaining period at the balance sheet date to the contractual or estimated maturity dates. 35

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