Notes to Accounts. Banco de Cabo Verde

Transcription

1 Notes to Accounts 2014 Banco de Cabo Verde

2 BALANCE SHEET AT 31 DECEMBER 2014 Thousand escudos Items Note Gross Assets Impairment, provisions and depreciation Net assets Net assets Change Value % ASSETS Foreign Assets ,37% Cash and investments ( ) -40,84% Foreign securities ,51% Available for sale financial assets ,51% Claims on International Organizations ,74% Claims on International Organizations in FC ,74% Claims on Residents (10.499) ( ) -3,45% Loans and other receivables (10.499) ,43% Loans to the Government ,00% Loans to other entities (10.499) ,81% Domestic securities ( ) -3,68% Available for sale financial assets ( ) -3,68% Investments in Associates (31.204) -20,24% Other assets ( ) ,62% Notes and Coins, Medals and Numismatic items ,43% Tangible Fixed Assets and Intangible Assets ( ) (6.273) -2,20% Other ,77% TOTAL ASSETS ( ) ,66% 1

3 BALANCE SHEET AT 31 DECEMBER 2014 Thousand escudos Items Note Change Value % LIABILITIES Notes and Coins in Circulation 13 ( ) ( ) ( ) 6,81% Foreign Liabilities 14 ( ) ( ) ,24% Foreign Liabilities in FC ( ) ( ) (62.665) 2,54% Liabilities to Residents ( ) ( ) ( ) 19,43% Liabilities to residents in FC ( ) ( ) ,81% Liabilities to the Government 16 ( ) ( ) ,82% Domestic Liabilities in DC ( ) ( ) ( ) 20,00% Liabilities to Financial Institutions 15 ( ) ( ) ( ) 23,82% Liabilities to the Government 16 ( ) ( ) ,15% Liabilities for pensions and other benefits 17 ( ) ( ) ,73% Other liabilities 18 ( ) ( ) ( ) 27,62% TOTAL LIABILITIES ( ) ( ) ( ) 13,13% EQUITY ( ) -72,41% Capital 19 ( ) ( ) 0 0,00% Reserves 19 ( ) ( ) ( ) 93,16% Retained Earnings ,08% TOTAL LIABILITIES AND EQUITY ( ) ( ) ( ) 17,66% 2

4 INCOME STATEMENT Thousand escudos Items Notes Year-on-year Change Value % Interest and similar income ( ) ( ) ,38% Interest and similar expense (80.015) -61,73% Net interest income and expense 20 ( ) ( ) (59.140) 38,62% Income from foreign exchange transactions (82.507) ( ) -318,90% Gains on financial transactions ( ) (86.422) ( ) 210,01% Losses on financial transactions ,75% Net income from financial transactions 21 ( ) ( ) -262,35% Fee and commission received ,00% Fee and commission paid (5.267) -14,05% Net fee and commission income (5.267) -14,05% Income from equity instruments 23 ( ) ( ) (20.272) 15,14% Income from associates 24 (16.471) (39.599) ,40% Income from foreign currency revaluation 25 ( ) ( ) -668,35% Other operating income 26 (19.268) (24.917) -441,08% TOTAL NET INCOME ( ) ( ) -5492,30% Staff costs (81.768) -11,16% Third party supply and services (15.385) -9,67% Depreciation and amortization (7.996) -15,20% Total administrative costs ( ) -11,14% Costs of issuance and destruction of banknotes and coins ,22% TOTAL NET EXPENSES (99.032) -10,49% NET PROFIT FOR THE YEAR 30.1 ( ) ( ) -201,03% Realized ( ) -54,63% Unrealized ( ) ( ) -792,82% 3

5 STATEMENT OF COMPREHENSIVE INCOME AT 31 DECEMBER 2014 Items Notas Change Value % NET PROFIT FOR THE YEAR 30.1 ( ) ( ) -201,03% Items recognized directly in the Statement of Comprehensive Income ( ) ( ) ( ) 343,25% Items that might be reclassified by the income statement (Gains) / losses recognized in the Revaluation Reserve ( ) ( ) -178,57% Available for Sale Assets Share in International Organizations in FC (95.811) ( ) -275,69% Foreign exchange component (95.811) ( ) -275,69% Foreign securities (12.412) (95.622) -114,92% Monetary instruments (12.412) (95.622) -114,92% Positive fair value ,87% Negative fair value (81.666) ( ) -276,96% Items that will not be reclassified by the income statement Remeasurements ( ) ( ) ( ) 126,39% COMPREHENSIVE INCOME FOR THE YEAR 30.2 ( ) ( ) -335,37% 4

6 STATEMENT OF CHANGES IN EQUITY - DECEMBER 2014 Thousand escudos Capital Fair value Retained Profit for the revaluation earnings year Equity Balance at December 31, 2013 ( ) ( ) Profit allocation ( ) 0 Actuarial deviations on Pensions and Other Benefits ( ) ( ) Net change in available for sale financial assets ( ) ( ) Profit for the year ( ) ( ) Balance at December 31, 2014 ( ) ( ) ( )

7 STATEMENT OF CASH FLOW FROM FOREIGN CURRENCY TRANSACTIONS 2014 Thousand escudos Note Cash flows from operating activities ( ) Receipt of interest and commissions Deposits Securities Other Payment of interest and commissions ( ) (58.789) Purchase/sale of securities ( ) Purchase/sale of foreign currency Investment/repayment of time deposit ( ) Other payments/receipts Cash flows from investing activities (14.459) (7.076) Purchase of tangible fixed assets and intangible assets (14.459) (7.076) Cash flows from financing activities (95.040) ( ) Repayment of loans (95.040) ( ) Cash Flow ( ) Effect of exchange rate changes on cash and cash equivalents Total ( ) Change in cash and cash equivalents ( ) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

8 NOTES TO FINANCIAL STATEMENTS AS AT DECEMBER 31, 2014 (Amounts in thousand Cabo Verde escudos - CVE) NOTE 1 INTRODUCTORY NOTE Banco de Cabo Verde (BCV or Bank) was established by Decision No. 05/75 of 29 September, published in Official Bulletin No. 13, dated September 29, On June 30, 1976, Banco de Cabo Verde s first Organic Law was approved, through Decision No. 13/76 of 26 June, keeping the original purpose of the institution, as defined in the statute that created it, with a capital of 100 million Cabo Verde escudos, which was raised to 400 million Cabo Verde escudos in The Bank s Organic Law was later revoked successively by Decree-Law No. 52-D/90 of 4 July and No. 42/93 of 16 July, by Law No. 2/V/96 of 1 July and, finally, by Law No. 10/VI/2002 of 15 July. According to the latter, BCV is a legal entity of public law with autonomy in terms of its administration, finances and assets. Up to August 31, 1993, the Bank served as central, commercial and development bank. At that time, through a demerger, the Bank s commercial and development duties were detached, giving rise to Banco Comercial do Atlântico, SARL, with Banco de Cabo Verde acting exclusively as central bank. The Bank is headquartered in Praia, Santiago Island, but it may have branches elsewhere and establish offices abroad. Banco de Cabo Verde is the central bank of the Republic of Cabo Verde and, as such, it is responsible for ensuring and regulating the creation, circulation and value of the domestic currency. As the central bank, BCV s main role is to maintain price stability and its secondary objective is to promote liquidity, solvency and proper functioning of the financial 7

9 system in the country, based on market stability and never in a manner inconsistent with the its main purpose. The Bank shall also: (i) assist in the implementation of the Government s overall economic policy, as well as collaborate in setting monetary and exchange rate policy, in order to maintain price stability; (ii) implement the monetary and exchange rate policy autonomously; and (iii) hold and manage official foreign exchange reserves and act as an intermediary in the State s international relations. BCV has the exclusive right to issue banknotes and coins, including commemorative ones, and acts as the Government's financial advisor. In respect of monetary and exchange rate policy implementation, BCV must guide and oversee the monetary, financial and foreign exchange markets, with, among others, the following duties: (a) Regulate the operation of the monetary, financial and foreign exchange markets; (b) (c) (d) Issue, if necessary, temporary emergency rules to regulate the volume of credit and the interest rates on commercial bank transactions; Require that credit institutions keep deposits with the Bank, at minimum established amounts and related to the size, type or maturity of their deposits, loans and other liabilities; Supervise credit and non-bank institutions and; 8

10 (e) Supervise insurance, reinsurance, insurance brokerage and pension funds, related or complementary activities, as well as others determined by law. According to the provisions of article No. 64 of its Organic Law, the Bank is exempt from all contributions, taxes, fees and other charges, in the same way as the State, and it is not subject to preventive supervision by the Audit Office. As stated in paragraph u) of Article No. 42 of the Organic Law, these financial statements were approved by the Board of Directors on March 26, 2015 and will be posted on BCV s website ( Additionally, please note that the totals and sub-totals included in the financial statements and notes may not match due to rounding off, since the figures are presented in thousand Cabo Verde escudos. NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The Bank's financial statements were prepared in accordance with Banco de Cabo Verde s Chart of Accounts (Portuguese acronym: PCBCV). The basis for preparation of the financial statements included in the current PCBCV are based on technical guidelines regarding the recognition and measurement of assets and liabilities, based on International Financial Reporting Standards (IFRS). Although the PCBCV does not include specific rules on the disclosures to be made in the notes to the balance sheet and 9

11 income statement, when reporting the Bank s financial position, its transactions and income, the Board of Directors follow the internationally accepted principles and practices for the financial sector, to the extent that such practices are considered appropriate in the context of the roles and responsibilities of a central bank. Thus, the Bank's financial statements may present less detail about its assets, liabilities, responsibilities, contingencies and risks than those of commercial financial institutions. 2.2 Comparability The financial statements for the year ended December 31, 2014 are comparable, in all material respects, with the financial statements for the year ended December 31, Summary of significant accounting policies The main accounting policies and valuation criteria used in preparing the financial statements as at December 31, 2014 are as follows: a) Accrual basis The Bank follows the principle of accrual accounting regarding most items in the financial statements, namely with respect to interest from loans and deposits, which are recorded as they are generated, regardless of when they are received or paid. b) Conversion of assets, liabilities and earnings in foreign currency These financial statements are presented in Cabo Verde escudos. 10

12 The Banks assets and liabilities in foreign currency are converted to Cabo Verde escudos, at the average exchange rates prevailing on the date of the financial statements EUR 110, ,265 USD 90,678 80,001 SDR 131, ,201 Source: BCV Meanwhile, expenses and income in foreign currency are translated using the exchange rates prevailing on the transaction settlement date. Special Drawing Right (SDR) is the accounting unit used by the International Monetary Fund (IMF). c) Foreign currency transactions and calculation of foreign exchange earnings Gains or losses from foreign currency transactions are calculated daily by reference to the weighted average cost (WAC). According to this method, the weighted average exchange rate of each currency is changed only by the inflows in foreign currency. Under the NAP 02/2007, foreign exchange earnings are calculated based on the following principles: If on a given day, there is a higher volume of currency outflows than inflows, then the currency outflows for the day up to the equivalent of currency inflows for the day are valued at the average cost of currency inflows for 11

13 the day. The remaining currency outflows for the day (net outflows) are valued at the weighted average cost of the previous day; If on a given day, there is higher volume of currency inflows than outflows, then all currency outflows for the day are valued at the average cost of currency inflows for the day. The remaining currency inflows for the day affect the weighted average cost of the previous day at the average cost of inflows. The Bank conducts only FX spot transactions, which are recorded in the accounts on the transactions settlement date. Purchases of foreign currency against the sale of Cabo Verde escudos are recorded at the exchange rate of the transaction. In the case of purchases of foreign currency against the sale of another foreign currency, they are recorded in Cabo Verde escudos at the exchange value, in Cabo Verde escudos, of the currency sold on the contract date at the spot exchange rate. Gains and losses arising from changes in the exchange rate are taken to the profit and loss account so as to comply with the provisions of IAS 21 The effects of changes in exchange rates with the exception of unrealized gains and losses from non-monetary instruments of available for sale financial assets which are recognized in reserves. d) Recognition of gains and losses on assets and liabilities In accordance with the IFRS, gains and losses arising from changes in fair value are taken to the profit and loss account, with the exception of price changes in available for sale financial assets, which are recognized in the revaluation reserves. 12

14 When a decline in the fair value of an available for sale financial asset has been recognized directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized directly in equity shall be removed and recognized in the income statement, even if the financial asset has not been derecognized. On disposal of such assets, gains or losses are also transferred to the profit and loss account. e) Financial assets Financial assets are recognized at the value date and are derecognized when: (i) (ii) (iii) The Bank s contractual rights to receive its cash flows expire; The Bank has substantially transferred all risks and rewards of detection; or Although retaining some but not substantially all risks and rewards of detection, it has transferred control over the assets. Financial assets are recognized at the transaction price, and entered in the accounts at the clean price (transaction price excluding any discounts or accrued interest but including transaction costs inherent in the price). Custodial fees, current account management fees and other indirect costs are not considered transaction costs, being entered in the income statement. Nor are they considered an integral part of the average cost of a particular financial asset. 13

15 Classification of financial assets depends on the purpose for which the investments were acquired and is determined at initial recognition, according to the following categories: Financial assets at fair value through profit or loss This category includes: (i) financial assets held for trading and (ii) financial assets at fair value through profit or loss assets designated upon initial recognition at fair value. Financial assets held for trading are securities traded in active markets, acquired for the purpose of sale or purchase in the short term. Financial assets held for trading and financial assets at fair value through profit or loss are initially measured at fair value. Gains and losses resulting from the subsequent valuation at fair value are recognized in earnings. The Bank has no derivative financial instruments. Available for sale financial assets Available for sale financial assets include monetary and nonmonetary instruments which are not classified as financial assets held for trading, financial assets at fair value through profit or loss, held to maturity investments, or loans and other receivables. Available for sale financial assets are initially measured at fair value. Gains and losses related to subsequent changes in fair value are reflected in the revaluation reserve, until the financial assets are derecognized or an impairment loss is 14

16 identified, at which time cumulative gains and losses recognized in reserves are transferred to earnings. However, interest calculated using the effective interest method is recognized in profit according to IAS 39. This category of assets includes domestic and foreign securities and shares in International Organizations. Held to maturity investments Held to maturity investments are non-derivative financial assets with fixed or determinable payments and a set maturity date which an entity has the positive intention and ability to hold to maturity. Held to maturity investments are measured at amortized cost, that is, net of premiums or plus discounts, less impairment losses. Premiums or discounts are treated as interest and amortized at the effective interest rate until maturity of these securities. Loans and other receivables These assets are measured at amortized cost based on the effective interest method, and net of impairment losses. Amortized cost is the amount at which a financial asset or liability is measured at initial recognition minus principal repayments plus or minus the cumulative amortization, using the effective interest method of any difference between the initial amount and maturity amount, less any reduction of impairment. 15

17 The effective interest method is a method for calculating the amortized cost of a financial asset or liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument. f) Shareholdings Shareholdings are classified as available for sale, which implies their recognition at fair value, with changes in the latter, including exchange rate changes, to be recognized in the revaluation reserve at fair value. When valuing the Bank s shares in the International Monetary Fund, the fair value model was used and, given the absence of quotation and valuation models, the historical cost method was used to determine the estimated fair value of its shares in the Afreximbank. Dividends are recognized on the date they are received. g) Impairment The Bank regularly assesses whether there is objective evidence of impairment in its asset portfolio. For financial assets that are showing signs of impairment, their recoverable amount is determined, with the impairment losses being recorded in the income statement. A financial asset or group of financial assets is impaired where there is objective evidence of impairment resulting from 16

18 one or more events that occurred after its initial recognition, such as: (i) for listed securities, a prolonged or significant decline in their price, and (ii) for unlisted securities, when that event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. An indicator of impairment would be a decline exceeding 20% or when it lasts for a prolonged period (over 6 months). With regard to held to maturity investments, impairment losses represent the difference between the book value of the asset and the present value of estimated future cash flows (considering the recovery period) discounted at the original effective interest rate of the financial asset. These assets are shown on the balance sheet net of impairment. If the assets have a variable interest rate, the discount rate used to determine the impairment loss is the current effective interest rate determined under the rules of each contract. If, in a subsequent period, the amount of the impairment loss decreases and this decrease can be related objectively to an event that occurred after the impairment was recognized, the latter is reversed through the income statement. When there is evidence of impairment in available for sale financial assets, the cumulative loss recognized in reserves, representing the difference between the acquisition cost and the fair value, less any impairment loss on that financial asset previously recognized in the income statement, is transferred to earnings. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognized impairment loss of monetary instruments is reversed through the income statement, until replacement of the 17

19 acquisition cost, if the increase is objectively related to the event occurring after recognition of the impairment loss. Impairment losses on non-monetary instruments cannot be reversed. For assets classified as loans and accounts receivable, impairment losses identified are recognized through the income statement and are subsequently reversed to profits for the year if, in a subsequent period, the amount of the impairment losses decreases. h) Investment in associate companies Associate companies are all companies over the financial and operating policies of which the Bank has the power to exert significant influence, although it does not control them. It is usually assumed that the Bank has significant influence when it holds the power to exercise more than 20% of the voting rights in the associate company. Even when voting rights are less than 20%, the Bank may exercise significant influence, by participating in the associate company s management or being part of the Board of Directors, with executive powers. Investments in associate companies are accounted for using the equity method from the time the Bank has significant influence to the time when it ceases to. The equity method is the accounting method whereby an investment is initially recognized at cost and subsequently adjusted by the percentage held in the associate company s equity. When the value of the accumulated losses incurred by an associate company and attributable to the Bank equals or 18

20 exceeds the book value of the share and of any other medium and long term interests in the associate company, the equity method is discontinued, unless the Bank has a legal or constructive obligation to cover those losses or has made payments on behalf of the associate company. Overall, the investor s earnings correspond to the proportionate share in the associate company s earnings. i) Intangible assets and tangible fixed assets Intangible assets and tangible fixed assets are recorded at the acquisition cost, minus accumulated depreciation and impairment losses, with the exception of equipment and furniture carried over to Banco de Cabo Verde during the demerger (in 1993), at which time they were assessed. The acquisition cost corresponds to the purchase price plus any expenses incurred, directly or indirectly, when placing the asset in the target location. Subsequent costs are only recognized if it is probable that they ll provide future economic benefits for the Bank. All maintenance and repair costs are recognized as expenses, in accordance with the principle of accrual. Depreciation is calculated in monthly installments according to the straight-line method, applying to the historical cost the maximum annual rates allowed for tax purposes. With the exception of changes to depreciation rates set in the Internal Circular No. 96/93, of 27 May 1993 (arising out of the separation of Banco Comercial do Atlântico), for revalued assets, light/heavy-mixed vehicles and computer equipment, the applicable law in respect of depreciation rates is included in 19

21 Ordinance No. 3/84, of 28 January and in NAP 4/89. These rates are believed to not differ substantially from the estimated useful life of the assets: Years Real Estate 25 Works on properties 25 Computer and office equipment 4 to 5 Furniture and interior installations 6 to 12 Vehicles 5 Land and artistic property are not amortized. In the absence of an assessment, the value of land was calculated based on tax estimates, amounting to 25% of the total value of buildings at its own service. The Bank's intangible assets consist mainly of expenses related to acquisition of automatic data processing systems, whose impact resonates beyond the year in which they are generated. These assets are amortized over a period of 3 years by the straight-line method. Construction in progress is recorded at the total value of the costs already incurred by the Bank and it is transferred to fixed assets when the asset is available, starting its depreciation. When there is an indication that an asset may be impaired, the asset s recovery value is estimated. And an impairment loss should be recognized whenever the net value of the asset exceeds its recoverable value. Impairment losses are recognized in earnings. 20

22 The recoverable amount is the highest between net sales value and value in use. It is calculated based on the present value of estimated future cash flows that the continuing use of the asset and its disposal at the end of its useful life is expected to bring. j) Finance lease A finance lease is one that substantially transfers all costs and rewards inherent to ownership; otherwise it is considered an operating lease. As lessor Finance lease agreements are recorded in the balance sheet as loans granted for an amount equal to the net investment made in the leased assets. Interest included in installments charged to customers is recorded as income, while amortization of principal, also included in the installments, is deducted from the amount of loans granted. Recognition of interest is based on a constant periodic rate of return on the remaining net investment of the lessor. As lessee Finance lease agreements are recorded at their start date, in assets/liabilities, at the acquisition cost of the leased property, which is equivalent to the present value of future lease payments. The lease comprises (i) financial expenses deducted from earnings, and (ii) amortization of capital that is deducted from liabilities. Financial expenses are recognized as costs throughout the lease period, so as to 21

23 produce a constant periodic rate of interest on the remaining balance of liability in each period. Up to this date, the Bank owns two apartments, whose lease to third parties is characterized as a finance lease. k) Medals and Numismatic items Assets relating to medals and numismatic items are recognized according to the following criteria: NORMAL This category includes all numismatic materials (coins and notes that have legal tender status, cases with gold coins, silver, medals, albums with currency; silver and bronze medals) acquired by BCV from certain manufacturers, to sell to collectors, both inside and outside the country. SPECIAL It includes some numismatic materials received as donation or offered to BCV by the manufacturer: =» Acrylic plates with some BCV notes incorporated in them; =» Notes and coins withdrawn from circulation that are fully amortized (Banco Nacional Ultramarino notes, the 1 st notes and coins issues by BCV); =» Specimens of BCV notes offered by the manufacturer at the time of production. COLLECTION It includes samples or copies of all numismatic material, 22

24 including notes and coins for the Bank s future museum. The accounting valuation of these coins follows the same logic applied in the two previous divisions, depending on the type from which it originated. That is: =» Numismatic materials at cost price; =» Notes and coins at face value; =» Special numismatic items (offerings) at the superiorly stipulated price. l) Provision for liability payment The Bank recognizes a provision where there is probable disbursement of funds, as long as this amount can be reliably estimated. When the disbursement of funds is not probable, but possible only, no provision is recognized, and the situation is disclosed. m) Employee benefits Employees hired by the Bank up to September 1993 and their dependents benefit from retirement and survivors pensions, as well as a health care plan, while active employees and after retirement. Bank employees hired after September 1993 are covered by the Social Security System. In addition, under Article 35 of the Bank s Organic Law, Board of Director members benefit from a health care plan, while active employees. Employee benefits - post-employment (i) Retirement and Survivors Pensions 23

25 Retirement and survivor s pensions granted to employees hired up to September 1993 and their dependents constitute a set benefit plan, without an autonomous fund. The Bank annually determines the present value of past liabilities through an evaluation carried out by an independent actuary, using the "Projected Unit Credit" method. The actuarial assumptions (financial and demographic) used are based on expectations, at the balance sheet date, for wage growth and mortality table which are appropriate for the Bank s population. The discount rate is determined based on the market rates of low-risk firms bonds, with deadlines similar to that of liability settlement. The liability recognized in the balance sheet in respect of responsibilities for retirement and survivor s benefits corresponds to the present value of the benefit obligation determined at the balance sheet date. Remeasurements are recognized in full in the period they occur as Other Comprehensive Income. The increase in liabilities with past service is recognized as costs in the income statement in the period in which they occur. Retirement and survivor s pensions for employees covered by the Social Security System constitute a set contribution plan, where contributions are recognized as costs in the income statement when they are due. The Bank shall have no legal or constructive obligation to pay further contributions if the fund does not have sufficient assets to pay all employee benefits relating to services rendered in the current period or in prior periods. 24

26 (ii) Health Care Liabilities relating to health care are a set benefit plan, just like retirement and survivor s pensions. These liabilities are estimated annually by an independent actuary using the "Projected Unit Credit" method. The present value of the set benefit obligation is determined by discounting future benefit payments, using a discount rate that is determined based on the market rates of low-risk firms bonds, with maturity similar to that of the liability. Remeasurements are recognized in full in the period in which they occur as Other Comprehensive Income. The increase in liabilities with past service is recognized as costs in the income statement in the period in which they occur. Employee Benefits Employment (i) Length of service awards In accordance with NAP No. 12/2005, the Bank has committed to pay a length of service award to its current employees that reach 10, 20 or 30 years of service. The amount of the length of service awards corresponds to, respectively, one, two or three times the monthly salary at the time the awards are paid. Length of service awards are accounted for, in accordance with IAS 19R, like other long-term employee benefits. The Bank s liabilities for length of service awards are recognized annually at balance sheet date, based on the actuarial study. 25

27 The increase in the liability for length of service awards, including remeasurements, is recognized in the income statement in the period in which they occur. n) Expenses with banknote and coin production The cost of issuing notes and coins are recognized as expenses in the period in which they are issued. o) Notes and coins in circulation The value of notes and coins in circulation is the difference between the amounts of notes and coins issued, stocks in cash at Banco de Cabo Verde and the notes and coins in transit. Coins withdrawn from circulation, as the Bank s responsibility to their holders, are recorded in a various Liabilities account, until they reach their expiration date. p) Reserves According to Article 57, paragraph 3 of its Organic Law, the Bank shall establish a General Reserve, to which it shall contribute, at the end of each financial year: (i) one quarter of the net income, when the General Reserve does not exceed the minimum paid-up capital or (ii) one-sixth of the net income, when the General Reserve exceeds the minimum capital and is not four times more than its paid-up capital. If the Bank incurs a loss in any year, it must be imputed to the General Reserve and, if the latter is inadequate to cover the full amount of the loss, the balance of the loss must be 26

28 transferred to retained earnings, which shall be covered by the Government within 60 days, through delivery of funds, dated marketable securities, and according to the terms, conditions, and market-determined exchange for the amount or amounts necessary to correct the deficit. q) Evaluation Methodology The fair value is the market value released by the Luxembourg Central Bank or by Bloomberg. Amortized cost is the value at the recognition date, less repayments of principal plus or minus the accumulated depreciation, using the effective interest rate method, less any reduction for lost value. The table below reflects a summary of the valuation of the main financial instruments: 27

29 Valuation criteria for the most relevant items ASSETS Category Assessment methodology/information source Cash and investments Loans and other receivables Amortized cost Foreign securities Available for sale Fair Value - Luxembourg Central Bank Shares in International Organizations in FC - IMF Available for sale Fair value - IMF Shares in International Organizations in FC - Other Available for sale Historical cost Loans to Financial Institutions Loans and other receivables Amortized cost Loans to the Government Loans and other receivables Historical cost Loans to other entities Loans and other receivables Amortized cost Domestic securities Available for sale Historical cost LIABILITIES Category Assessment methodology/information source Loans from International Organizations in DC Other liabilities Amortized cost Liability to other International Organizations in DC Other liabilities Historical cost Liability to financial institutions in FC Other liabilities Historical cost Liability to the Government in FC Other liabilities Historical cost Liability to financial institutions in DC Other liabilities Amortized cost Liability to the Government in DC Other liabilities Historical cost 28

30 NOTE 3 - CASH AND INVESTMENTS On December 31 this item can be analyzed as follows: Cash Demand deposit abroad Foreign notes and coins in cash Investments The decrease in Cash and investments results from the Bank s normal operations. The sub-items "Demand deposits abroad" and "Investments" reflect essentially deposits with Central Banks and Commercial Banks based in the European Union and the United States of America, as described: Demand deposits EUR USD Other Investments USD EUR Interest on investments The balances of these accounts are updated at the average rate of exchange at the balance sheet date. 29

31 NOTE 4 - FOREIGN SECURITIES Available for sale financial assets From Foreign Public Issuers - Treasury Bills From Financial Institutions - Bonds From Foreign Public Issuers - Treasury Bonds From Other Foreign Public Issuers - Bonds From international organizations - Bonds The portfolio of foreign securities is managed by the Central Bank of Luxemburg, in accordance with an agreement signed with Banco de Cabo Verde on September 14, 2002, which has been successively updated (last addendum dates from 2010), and by Banco de Cabo Verde, through the Markets and Reserve Management Department. The bonds in the portfolio of available-for-sale financial assets are denominated in euros and US dollars bear interest at rates ranging from 0.079% and 6.00% (2013: between 0.36% and 4.50%) and maturity according to the table below: On Thousand escudos up to 1 month 1 to 6 months 6 to 12 months 1 to 5 years Total Available for sale assets Floating Rate Note Bonds Bills Total On Thousand escudos up to 1 month 1 to 6 months 6 to 12 months 1 to 5 years Total Available for sale assets Floating Rate Note Bonds Bills Total

32 The increase recorded in the period is due mainly to the increase in investments in the portfolio managed by Banco de Cabo Verde. NOTE 5 - ASSETS IN INTERNATIONAL ORGANIZATIONS On December 31, this item can be analyzed as follows: Claims on International Organizations in FC International Monetary Fund Special Drawing Rights Afreximbank - Bank Africaine d Export- Import Realized Unrealized (54.407) (48.001) Assets in International Organizations in foreign currency translate the equivalent, in CVE, of Cabo Verde s share in the IMF, amounting to SDR 11.2 million (2013: SDR 11.2 million), valued at the exchange rate on the balance sheet date. In 2014, the reduction in the value entered in "Special Drawing Rights" (SDR) refers essentially to the amortization of the IMF loan, under the Poverty Reduction and Growth Facility (see note 14). During the period, the interest and other income on deposits with the IMF amounted to SDR 1,573 (2013: SDR 84,292), about 197,000 CVE (2013: million CVE), with fees incurred on the cumulative allocation and loans amounting to SDR 8,671 (2013: SDR 6,850), corresponding to million CVE (2013: 860,000 CVE. The balance of the share in Afreximbank represents the equivalent, in thousand CVE, of the USD 1,000,000 share, at 31

33 the exchange rate in effect on the balance sheet date. Of this amount, about USD 400,000 is realized. The shareholding confers no right to control or significant influence over that organization s decisions, causing it to be reported as Available-for-Sale, in accordance with IAS 39. It is recorded at the acquisition cost, which translates more appropriately the Bank's shareholding in that institution. NOTE 6 - LOANS TO THE GOVERNMENT Loans to the Government African Development Bank - AfDB World Bank - WB International DevelopmentAssociation - IDA This item reflects loans granted to the Government to subscribe for shares in International Organizations. These loans do not bear interest and were granted for an indefinite period. NOTE 7 - LOANS TO OTHER ENTITIES Loans to staff Mortgage loans (i) Other loans to staff Other loans Provisions for overdue loans (10.499) (i) they bear interest at rates ranging between 2.5% and 10%. 32

34 The Bank grants loans to its active and retired employees at a rate lower than the prevailing market rates, including mortgage loans, consumer loans, and loans for health reasons, according to internal rules. In accordance with IFRS, loans below market rate should be recorded at the initial stage at fair value. Being a very low-risk loan, the nominal value of the loan was considered to be its fair value. Thus, recognition at fair value has no impact on the balance sheet, with the difference between the nominal interest rate and the interest calculated according to the effective rate for the year under review, being recognized in interest income as a charge to "Staff costs". The effective rate corresponds to the average rates charged by commercial banks for low-risk loans. The sub-item "Other loans to staff" includes consumer credit granted to employees in the form of salary advances, amounting to million CVE (2013: million CVE), bearing interest at rates ranging between 0% and 13.50% (2013: between 0% and 13.50%), loans to staff for various purposes, totaling million CVE (2013: million CVE), advances for health reasons and reimbursement of employees for treatment abroad, amounting to million CVE and million CVE, respectively (2013: million CVE and million CVE), the latter without remuneration Loans for various purposes include auto loans for directors and equivalent, which bear interest at the rate of 2% (2013: 2%). If not justified, loans for health reasons bear interest at the rediscount rate charged by the institution in 2014; that is, 7.50% (2013: 9.75%). The item "Other loans" reflects a Finance Lease, amounting to 33

35 714,000 CVE (2013: million CVE), for an apartment leased under a finance lease agreement, in Achada de S. António. The decrease reflects the sale of an apartment. NOTE 8 - DOMESIC SECURITIES Totaling billion CVE, this item saw a 3.68 percent decrease due to maturity date of the sixth installment of Treasury Bonds. The balance for this item can be analyzed as follows From the Government of Cape Verde Consolidated Financial Mobilization Bonds Treasury Bonds Other From other residents Accumulated impairment (13.880) (13.880) The sub-item "Consolidated Financial Mobilization Bonds" (Portuguese acronym: TCMF) reflects the shares held by the Bank in the International Support for Cabo Verde Stabilization Trust Fund (CVDTF), created under Law No. 69/V/98, as part of the process to reduce internal debt and stimulate the Cabo Verdean economy. These shares are remunerated at the rate of 90 percent of the net of CVDTF, which was 3.23 percent in 2014 (2013: 3.15%). Notwithstanding the perpetuity of TCMF, the State is obliged, under Article 19 of the above-mentioned law, to acquire them within a period not exceeding 20 years, from the date the law was approved. Interest for 2012 was received in 2014, thus, on December 31, 2014, the interest for 2013 and 2014 were yet to be received. 34

36 With a face value of 1.96 billion CVE (2013: 2.24 billion CVE), the sub-item "Treasury Bonds" refers to several bonds issued by the State of Cabo Verde in August 1999, in order to settle securitized loans for Protocols existing on December 31, The various issues held in the portfolio are due annually, from 2009 to 2021, amounting to 280 million CVE each and paid at the annual profit rate of CVDTF, which was 3.52 percent in 2014 (2013: 3.17%). In 2014, the installment was amortized in the amount of 280 million CVE (2013: 280 million CVE). The sub-item "Other" reflects 5% of the net income of CVDTF for fiscal years 2013 and 2014, amounting to million CVE (2013: million CVE). In turn, the item "From other residents" represents the Bank s stake (13.88 million CVE) in SOCAPESCA. It is impaired, fully provisioned, since the company is in liquidation. NOTE 9 - INVESTMENT IN ASSOCIATE COMPANIES The balance of this account refers to the Bank's 40 percent share in the Interbank Company and Payment Systems (Portuguese acronym: SISP), with a view to promoting development of the financial system and the payment system, in particular. This share is recorded by the equity method based on information (not yet audited) sent by the SISP. The balance for this item can be analyzed as follows. 35

37 Investment in Associate Balance on January Change in share Dividends received (47.676) (20.025) Balance on December NOTE 10 - NOTES AND COINS, MEDALS AND NUMISMATIC ITEMS The balance of this account refers to banknotes and coins, medals and commemorative coins issued by Banco de Cabo Verde Notes and coins Medals and numismatic items The increase recorded in 2014 over the previous year is due mainly to costs of issuing new notes. NOTE 11 - PROPERTY During the period, this item was as follows: On Software Real Estate Equipment Artistic assets TOTAL Balance on 12/31/ Acquisition cost Accumulated amortization (81.173) ( ) ( ) 0 ( ) Movements in (6.677) (1.974) 0 (6.273) Acquisitions Sale/write-offs 0 0 (501) 0 (501) Amortization for the year (9.103) (6.677) (28.836) 0 (44.616) Adjustments 0 0 (3.267) 0 (3.267) Balance on 12/31/

38 On Software Real Estate Equipment Artistic assets TOTAL Balance on 12/31/ Acquisition cost Accumulated amortization (71.613) ( ) ( ) 0 ( ) Movements in 2013 (2.342) (47.592) (17.506) (5) (67.444) Acquisitions Sale/write-offs 0 (40.092) (7.596) (5) (47.692) Amortization for the year (9.559) (11.187) (31.866) 0 (52.612) Cancellation of amortization Balance on 12/31/ NOTE 12 OTHER Foreign exchange transactions with SISP Other The item "Currency exchange transactions with the SISP" reflects the equivalent in CVE of advance purchase of foreign currency by the SISP, as decided by the Board of Directors. The item "Other" represents balances to be settled from various lending transactions, namely revenue receivable from supervision, totaling million CVE (2013: million CVE), and anticipated administrative costs, totaling million CVE (2013: USD million CVE). It also includes the manufacturing of new banknotes and coins, amounting to million CVE (2013: million CVE), several lending transactions pending settlement, totaling million CVE (2013: million CVE), as well as million CVE (2013: million CVE) relating to ATMs. The million CVE amount includes mainly million 37

39 CVE related to the repayment of Treasury Bonds, totaling 280 million CVE, as provided in the Law (see note 8), and interest settled on January 5, NOTE 13 - NOTES AND COINS IN CIRCULATION Notes and coins issued ( ) ( ) Notes in cash Metal coins in cash Notes and coins in transit ( ) ( ) The item "Notes and coins in circulation" corresponds to the difference between the value of notes and coins issued and the value of notes and coins at the Treasury and in transit. The following is the distribution of notes and coins in circulation, by denomination: Amount Value Amount Value NOTES $ $ $ $ $ COINS $ $ $ $ $ $ $ $ $ $ TOTAL

40 NOTE 14 - FOREIGN LIABILITIES Foreing Liabilities in FC Cumulative allocation-imf ( ) ( ) Demand Deposits - IMF ( ) ( ) Medium/long-term loans International Organizations (32.712) ( ) ( ) ( ) Foreing Liabilities in DC Demand Deposits (8.533) ( ) ( ) ( ) The sub-item "Cumulative Allocation - IMF" reflects liabilities regarding the allocation of Special Drawing Rights to the IMF (SDR 9,168,679), resulting from shares in that International Organization The change in the period is due to exchange rate fluctuation. The sub-item "Medium and long term loans from International Organizations" relates to funding provided by the IMF, under the Poverty Reduction and Growth Facility, for a period of 10 years, with 5.5 years grace period and bearing interest at a rate of 0.5 percent per year. In 2014, it had a balance of SDR 249,000 ( million CVE), having decreased percent over 2013, due to amortization (6 installments) of the loan granted by the IMF in 2002, amounting to SDR 744,000, having endured fees amounting to SDR 8,671, equivalent to million CVE. [2013: amortization (10 installments) amounting to SDR 1,236,000, having endured fees amounting to SDR 6,850]. The item "Foreign Liabilities in Domestic Currency" represents International Organizations demand deposits in domestic currency with the Bank. The decrease observed in 2014 was due primarily to the transfer of funds by the ECOWAS. 39