CONTENT. Chairman s Statement 5. Management 6. Performance Highlights 8. Key Performance Indicators 8. Assets 10. Liabilities 12.

Transcription

1 ANNUAL REPORT 2017

2 CONTENT Chairman s Statement 5 Management 6 Performance Highlights 8 Key Performance Indicators 8 Assets 10 Liabilities 12 Equity Milestones 14 Clients and Plastic Cards 15 Personnel 16 Independent Auditor s Report and Financial Statements 17 Branch Network 26 3

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4 2017 created serious grounds for the Bank s steady and continuous performance, namely. DEAR SHAREHOLDERS, CLIENTS AND PARTNERS Fiscal year 2017 for Artsakhbank was characterised as a period of positive financial highlights, particularly, streng hening market positions and in terms of profitable activity performance. Thus, in 2017 Artsakhbank ranked 2nd position in banking system of Armenia due to its equity and assets profitability indexes (ROE and ROA), thus reporting doubledigit growth for the Bank s key indexes. These positive gains has been ensured by favorable changes in external environment as well. In 2017, acceleration of the world economic growth rate were apparent, particularly, in some of the key partner countries of Armenia, such as the USA and Russia. In 2017, net current private transfers and guest workers net remuneration growth tended to keep on, thus having positive reflection on the armenian households income and creditability. Positive trends in the world economy and regional developments had positive impact on the economic growth in Armenia. changes in the Bank organization chart and its complance with the Bank s objectives and regulatory norms, as a result of the above mentioned structural changes, revision of the Bank s structural units performance policies and internal regulations of key banking procedures, such as crediting policy, to comply with more competitive market terms, ATM network and computer equipment upgrade, installation of new versions of Bankmail and Operational Day systems, due to the Bank s committment to IT upgrade and new technological developments policy, banking services extension, Internet Banking system software development, MIR payment system cards servicing via Artsakhbank ATMs, launch of new credit and deposit facilities, branch network expansion, particularly, launch of new Agatangeghos branch at 2/2, Agatangeghos Str., Yerevan, and extension of Akhtamar branch s financial activity to universal banking, Artsakhbank considers as a period of development and new possibilities. To ensure the Bank s rank in the banking sector of Armenia, it is planned to create new possibilities for mutual cooperation with clients, create and develop new customer service culture, ensure sustainable improvement of banking services and products range extension, take active and consistent measures for staff trainings, provide technological upgrade and continuous improvement of the Bank activity, maintain risk management balanced policy, establish proper internal control system. We express our gratitude to Artsakhbank CJSC staff, the shareholders, our partners for cooperation and trust. In 2017, paces of economic growth and external sector s demand, the stabilization of incomes and replenishment of commercial banks equity resulted in the Bank s lending expansion. Due to increased competition, monetary policy weakness and liquidity growth, interest of loans and deposits tended to decrease in As a result, improvement of lending competency terms and steady economic activity led to lending demand increase as well. Parallel to the lending increase credit risk tended to decrease. Artak Balayan CEO Chairman of the Executive Board Artsakhbank CJSC 5

5 MANAGEMENT CHAIRMAN OF THE BOARD Arden Sellefyan 1951 Swiss Confederation MEMBERS OF THE BOARD Edward Sandoyan 1961 Republic of Armenia Armen Darbinyan 1965 Republic of Armenia Ashot Gomtsyan 1968 Republic of Armenia Levon Ghazaryan 1969 Republic of Armenia

6 ARTAK BALAYAN CEO CHAIRMAN OF THE EXECUTIVE BOARD 1976, Republic of Armenia VAHRAM BAGHDASARYAN DEPUTY CEO EXECUTIVE BOARD MEMBER 1967, Republic of Armenia LEVON MARTIROSYAN DEVELOPMENT DIRECTOR DEPUTY CEO EXECUTIVE BOARD MEMBER 1986, Republic of Armenia PARUYR GRIGORYAN TREASURER EXECUTIVE BOARD MEMBER 1973, Republic of Armenia RUZAN KHACHATRYAN CHIEF ACCOUNTANT EXECUTIVE BOARD MEMBER 1971, Republic of Armenia 7

7 2017 PERFORMANCE HIGHLIGHTS Key Performance Indicators Net Profit, AMD mln ,879 3, Return on Equity (ROE), % Return on Assets (ROA), % ,5 1 1,5 2 2,5 3 3,5 Net Interest Income / Average Balance of Profitable Assets (NIM), %

8 Cumulative Expense / Cumulative Income ,2 0,4 0,6 0,8 1 Loans to Corporate Clients, AMD mln ,629 56, Loans to Individuals, AMD mln ,906 16, Deposits of Corporate Clients, AMD mln ,356 41, Deposits of Individuals, AMD mln ,783 48, Loans/Deposits, %

9 ASSETS In 2017, Artsakhbank reported profitable performance by growth of assets, liabilities and equity compared to the previous year. As of the yearend, total assets of the Bank stood at AMD ,37 mln, thus recording AMD ,57 mln or 31.77% growth compared to the previous year. Assets, AMD mln 140, , ,000 80,000 60,000 40,000 20, , Dec Dec As of December , predominant part of the Bank s assets made up net loan investments to clients with 52.19%, investment in securities with 17.00%, the Bank PPE, repossessed and other assets with 16.51%, cash and cash equivalents with 14.30%. Breakdown of Assets 17% 17% Cash and Cash Equivalents Loan Investments Investment in Securities 62% 10% 11% 52% 14% 17% Other Assets Dec Dec As of December , Artsakhbank fully provided legislative requirements with 37.00% of general liquidity ratio and % of current liquidity ratio. In 2017 yearend, loan investments made up AMD ,57 mln recording AMD 5.213,54 mln or 7.77% growth compared to the previous yearend. Meanwhile, loan portfolio of the Bank s legal entities grew by 11.32% and of the individuals decreased by 3.16%. Loan Portfolio (excl.reserves), AMD mln Individuals Legal Entities Loan Portfolio 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,268 67,054 56,362 50,629 16,425 15,906 Dec Dec

10 Below is the Bank s loan portfolio breakdown by sector of economy. As of December , significant part of the loan portfolio or 66.20% represented by AMD ,55 mln of funds granted to state agencies, thus reporting 11.08% or AMD 4.066,99 mln growth compared to the previous yearend. Loan Portfolio (excl.reserves) Breakdown Changes Dynamics, AMD mln Sector of Economy Ratio in Loan Portfolio Industry 8.06% 6.89% 4.89% 3.29% 5.11% Agriculture 2.57% 1.82% 0.91% 0.33% 1.11% Construction 11.66% 11.59% 6.21% 5.91% 4.71% Mortgage Loans 17.40% 18.77% 16.78% 14.00% 11.91% Consumer Loans 23.05% 21.43% 16.25% 10.19% 9.75% Trade 8.36% 6.41% 4.64% 3.11% 1.20% Other 28.90% 33.09% 50.32% 63.21% 66.20% In terms of the loan portfolio quality, it is noteworthy that by the end of 2017 share of overdue but not impaired loans stood at 0.50% reporting decrease compared to the previous yearend s 1.45%. In 2017, the Bank continued crediting under state financial support programmes cooperating with Artsakh Investment Fund, Rural and Agricultural Support Fund, Rural Finance Facility Project Implementation Unit, National Mortgage Company, Home for Youth company. In 2017, Artsakhbank s investment portfolio recorded AMD 5.534,57 mln or 31.4% growth. As of December , investment portfolio comprised AMD ,56 mln which made up 17.00% of the Bank assets share % of securities portfolio or AMD ,89 mln came to corporate securities. Investment Portfolio Breakdown, AMD mln Government Securities Corporate Securities Securities Portfolio 25,000 20,000 15,000 10,000 5, ,181 17,646 14,035 10,017 9,146 7,659 Dec Dec

11 LIABILITIES As of Dacember , Artsakhbank s liabilities comprised AMD ,35 mln recording 38.07% growth or AMD ,53 mln compared to the precious yearend. Meanwhile, liabilities to clients came to AMD ,52 mln which was 52.88% increase, compared to the end of Liabilities, AMD mln Liabilities to Clients Total Liabilities 120, ,000 80,000 60,000 40,000 20, ,138 77, ,839 90,414 Dec Dec As of December , 65.94% or AMD ,80 mln of all liabilities to clients comprised time deposits of individuals and legal entities, which was increase by 23.09% compared to the previous reporting period. Meanwhile, deposits on demand stood at AMD ,70 mln showing nearly triple growth compared to 2016 yearend. Breakdown of Liabilities To Clients Legal Entities Individuals 64% 36% 46% 54% Dec Dec

12 EQUITY In 2017 yearend, Artsakhbank s equity comprised AMD ,02 mln and recorded 13.08% or AMD 3.413,05 mln growth, compared to the previous yearend. In the reporting year, the Bank gained the maximum profit starting from January 1, 2017 AMD 3.413,05 mln, reporting increase by AMD 533,43 mln or 18.52%, compared to Equity Breakdown, AMD mln Statutory Capital Total Capital Accumulated Profit 35,000 30,000 25,000 20,000 15,000 10,000 5, ,509 26,096 23,261 23, Dec Dec As of December , statutory capital of the Bank comprised AMD thousand, consisted of ordinary shares of AMD nominal value each. 95.6% of the Bank ordinary shares belong to resident legal entities and the rest 4.4% to nonresident (Switzerland) and resident natural persons % and 43.55% of Artsakhbank statutory capital belong to Business Fund of Armenia and Artsakh Investment Fund, respectively. Shareholders Share in Statutory Capital, % Nonresident Natural Persons Resident Natural Persons Resident Legal Entities % 3.2% 84.3% 1.4% 2.9% 95.7% Dec Dec As of December , the Bank s capital compliance ratios N1 1 and N1 2 stood at 71.62% and 98.3%, respectively, versus 28.35% and 41.36% of the previous yearend. The indexes sufficiently exceed those set by the CBA. It should be noted, that growth of ratios N1 1 and N1 2 caused by more than double increase of the statutory capital and 20% decrease of riskweighted assets. Operational Income and Expense, AMD mln Operational Income Operational Expense Profit for the Year 15,000 12,000 9,000 6,000 3, ,458 13,238 10,870 10,337 3,413 2,

13 2017 MILESTONES Shareholders and Management Structural Changes Mr Hratch Kaprielian being a significant participant, sold ordinary shares to another participant Artsakh Investment Fund, as a result of which the Fund became a significant participant with 43.55% of shares. On May , Mr Arden Sellefyan was elected Artsakhbank CJSC Chairman of the Board. On September , Mr Armen Darbinyan and Mr Edward Sandoyan were appointed Artsakhbank CJSC Board Members. On June , Mr Artak Balayan was appointed Artsakhbank CJSC CEO Chairman of the Executive Board. On October , Mr Levon Martirosyan was appointed Artsakhbank CJSC Development Director Deputy CEO. Organization Chart Compliance to the Bank Objectives and Legislative Requirements Artsakhbank CJSC new organization chart entered into force on October New structural units, particularly: Regional Development and Management Department Internal Compliance Division Premium Clients Management Division Credit Committee Facilitation and Credit Analysis Division Collateral Testing and Monitoring Division Problematic Assets and Repossessed Property Management Division Banking Services Toolkit and Facilities Expansion Activities for Internet Banking system installation. New loan facilities, namely: Energy efficient residential real estate renovation loans Credit card TONAKAN Credit line facility under ArCa PENSION card for servicemen Online issue of installment loans Special offers with privileged terms on for cold pledge loans and installment loans New deposit facilities, particularly: Deposit with contract interruption facility Deposit with amount decrease facility TONAKAN deposit. MIR payment system servicing via Artsakhbank ATMs The Bank Loan Portfolio Quality Improvement Problematic loans/loans: 0.68% in 2017 / 4.71 pp down compared to 2016/ Writtenoff loans/loans: 9.52% in 2017 / 6 pp down compared to 2016/ Branch Network Expansion New branch opening: Agatangeghos branch /+1 branch compared to 2016/ In 2017, Akhtamar branch reorganized into branch performing universal banking services /in 2016 the branch s activity was restricted to particular services. Capital Investments in IT ATM network upgrade Installation of new version of Bankmail system Installation of new version of Operational Day system Computer equipment upgrade 14

14 CLIENTS AND PLASTIC CARDS Clients Individuals Legal Entities 80,000 60,000 40,000 20, ,777 3,243 2,333 2,229 2,410 52,367 55,407 57,767 61,773 67,565 Dec Dec Dec Dec Dec As of December , Artsakhbank served 70,808 clients, of which 67,565 or 95.42% were individuals. Plastic Cards ArCa MC 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, ,875 7,395 7,548 7,628 6,502 42,085 30,069 32,086 33,558 35,655 Dec Dec Dec Dec Dec In 2017, Artsakhbank issued cards which was 13.77% growth compared to the previous year. Of all issued cards 87.75% came to ArCa cards. It should be noted that and cards came to salary project cards and pension cards, respectively. In 2017, the volume of card trasactions rose by 15.58%, compared to 2016, and amounted AMD 79,21 mln. The volume of loans granted with cards stood at AMD 2,933 bln (excl. impairment reserve and interest accrued) recorded increase by 5.1%, compared to the previous year. At the end of 2017, Artsakhbank had 46 ATMs and 73 points of sale. Dynamics and Profitability of Loans with Credit Cards, AMD mln Loans With Credit Cards Annual Income Commissions 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,778 3,857 3,361 2,792 2, Dec Dec Dec Dec Dec

15 PERSONNEL Personnel Dec Dec Dec Dec Dec During 2017, total number of the Bank employees reached 512 and recorded increased by 17 or 3.43%, compared to of all employees represented in the Bank branch network % of the Bank employees have up to 5 year of work experience in finance and banking, 37.11% o employees have from 5 to 10 years of experience in finance and banking, and the rest 35.74% over 10 years of work experience in the field. Personnel by Gender, Dec Women 354 Men Personnel by Age, Dec years old 30 to 50 years old up to 30 years old Personnel by Position, Dec Employeers 441 Managers

16 SUMMARY FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT ARTSAKHBANK CLOSED JOINT STOCK COMPANY 31 December 2017 CONTENT Independent auditor s report Summary statement of profit or loss and other comprehensive income Summary statement of financial position Summary statement of changes in equity Summary statement of cash flows Note

17 TO THE SHAREHOLDERS OF ARTSAKHBANK CLOSED JOINT STOCK COMPANY:, шї 8/ Grand Thornton CJSC 8/1 Vagharshyan Str Yerevan, Armenia T F Opinion The summary financial statements of Artsakhbank Closed Joint Stock Company (the Bank ), which comprise the summary statements of financial position as of 31 December, 2017, the summary statement of profit or loss and other comprehensive income, summary statement of changes in equity and summary cash flow statement for the year then ended, are derived from the audited financial statements of the Bank for the year ended 31 December, In our opinion, the accompanying summary financial statements derived from the audited financial statements of Bank for the year ended 31 December, 2017 are consistent in all material respects, with those financial statements in accordance with the basis represented in the Note 1. Summary Financial Statements The summary financial statements do not contain all the disclosures required by International Financial Reporting Standards ( IFRS ). Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of the Bank. Audited financial statements and our opinion related them We expressed an unmodified audit opinion on those financial statements in our report dated 25 April, Management s Responsibility for the Summary Financial Statements Management is responsible for the audited summary financial statements, prepared in accordance with principles described in the Note 1. Auditor s Responsibility Our responsibility is to express an opinion, whether the summary financial statements in all material respects are consistent with the audited financial statements, based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 Engagements to Report on Summary Financial Statements. Gagik Gyulbudaghyan Managing Partner Armen Hovhannisyan Engagement Partner 25 April

18 SUMMARY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME In thousand Armenian drams Year ended 31 December 2017 Year ended 31 December 2016 Interest and similar income Interest and similar expense Net interest income 12,149,920 (6,734,618) 5,415,302 10,864,006 (6,771,863) 4,092,143 Fee and commission income Fee and commission expense Net fee and commission income 400,037 (122,732) 277, ,536 (91,961) 267,575 Net trading income Other income Impairment reversal Foreign currency translation net gains/(losses) on nontrading assets and liabilities Staff costs Depreciation of property plant and equipment Amortization of intangible assets Other expenses Profit before income tax Income tax (expense)/compensation Profit for the year 418, ,893 1,185,818 24,591 (2,033,362) (247,165) (26,982) (1,172,222) 4,086,955 (676,782) 3,410, , , ,600 (94,716) (1,897,859) (311,419) (27,618) (1,674,142) 2,453, ,999 2,879,968 Other comprehensive income: Items that will be reclassified subsequently to profit or loss Net unrealized gain/(loss) from changes in fair value of availableforsale financial assets Other comprehensive income for the year 2,875 2,875 (350) (350) Total comprehensive loss for the year 3,413,048 2,879,618 19

19 SUMMARY STATEMENT OF FINANCIAL POSITION In thousand Armenian drams As of 31 December 2017 As of 31 December 2016 Assets Cash and cash equivalents Amounts due from other financial institutions Investments available for sale Investments held to maturity Securities pledged under repurchase agreements Loans to customers Property, plant and equipment Intangible assets Repossessed assets Prepaid income taxes Deferred tax assets Other assets 19,493,573 16,077,157 58,958 23,121,599 71,162,381 3,158,168 52,284 2,516,104 11, ,131 10,993,034 3,065,140 54,589 14,789,086 2,802,317 64,509,658 3,368,553 56,652 2,077, , ,124 1,136,235 Total assets 136,348, ,474,791 Liabilities and equity Liabilities Amounts due to other financial institutions Amounts due to customers Deferred income tax liabilities Subordinated debt Other liabilities Total liabilities 8,289,425 90,413,523 65,658 7,731, , ,839,351 10,322,069 59,138,224 7,729, ,990 77,378,822 20

20 SUMMARY STATEMENT OF FINANCIAL POSITION (CONTINUED) In thousand Armenian drams As of 31 December 2017 As of 31 December 2016 Equity Share capital Statutory general reserve Revaluation reserve of financial assets available for sale Other reserves Retained earnings Total equity 23,261, ,232 2,525 1,541,289 3,902,821 29,509,017 23,261, ,233 (350) 1,541, ,647 26,095,969 Total liabilities and equity 136,348, ,474,791 The financial statements were signed by the Bank s Executive Director and Chief Accountant on 25 April 2018: Artak Balayan Executive Director Ruzan Khachatryan Chief Accountant 21

21 SUMMARY STATEMENT OF CHANGES IN EQUITY In thousand Armenian drams Share capital Statutory general reserve Revaluation reserve of PPE Revaluation reserve of financial assets available for sale Retained earnings Total Balance as of January 1, ,061, ,233 1,541,289 (2,243,321) 11,016,351 Increase in share capital 12,200,000 12,200,000 Transactions with owners Profit for the year 12,200,000 2,879,968 12,200,000 2,879,968 Other comprehensive income: Net unrealized loss from changes in fair value (350) (350) Total comprehensive income for the year (350) 2,879,968 2,879,618 As of 31 December ,261, ,233 1,541,289 (350) 636,647 26,095,969 Increase in share capital Distribution to reserve 143,999 (143,999) Transactions with owners 143,999 (143,999) Profit for the year 3,410,173 3,410,173 Other comprehensive income: Net unrealized gain from changes in fair value 2,875 2,875 Total comprehensive income for the year 2,875 3,410,173 3,413,048 Balance as of 31 December ,261, ,232 1,541,289 2,525 3,902,821 29,509,017 22

22 SUMMARY STATEMENT OF CASH FLOWS In thousand Armenian drams Year ended 31 December 2017 Year ended 31 December 2016 Cash flows from operating activities Profit before tax Adjustments for Amortization and depreciation allowances Gain from disposal of PPE and intangible assets Impairment reversal Foreign currency translation net gains/( losses) of nontrading assets and liabilities Interests receivable Interests payable Net loss from sale and impairment of other assets Net gains from changes in fair value of derivative instruments Cash flows from operating activities before changes in operating assets and liabilities 4,086, ,147 (3,569) (1,185,818) (24,591) (258,349) 455, ,975 3,505,605 2,453, ,037 (6,633) (865,600) 94,716 (562,713) 70, ,826 (129,072) 2,020,529 (Increase)/decrease in operating assets Amounts due from other financial institutions Purchase of investment securities Loans to customers Repossessed assets Other assets (13,019,113) (5,285,460) (6,581,277) 515, ,978 (805,262) (9,453,805) (825,804) (162,834) 9,196 Increase/(decrease) in operating liabilities Amounts due to financial institutions Amounts due to customers Derivative instruments Other liabilities Net cash from operating activities before income tax (2,168,191) 30,643, ,736 8,278,071 (16,025,713) 8,942, ,274 (27,398) (16,199,682) 23

23 SUMMARY STATEMENT OF CASH FLOWS (CONTINUED) In thousand Armenian drams Year ended 31 December 2017 Year ended 31 December 2016 Cash flows from investing activities Purchase of property, plant and equipment Disposal of property, plant and equipment Purchase of intangible assets Net cash used in investing activities (90,727) 4,016 (22,614) (109,325) (91,639) 38,063 (9,457) (63,033) Subordinated debt Long term loans Increase in share capital Net cash from financing activities Net increase/(decrease) in cash and cash equivalents 126, ,337 2,424,226 (158,972) 12,200,000 14,465,254 8,295,083 (1,797,461) Cash and cash equivalents at the beginning of the year Effect of exchange rate changes on cash and cash equivalents 10,993, ,456 12,781,907 8,588 Cash and cash equivalents at the end of the year 19,493,573 10,993,034 Supplementary information: Interest received Interest paid 11,891,571 (6,278,763) 10,301,293 (6,700,864) 24

24 NOTE 1 The attached summary financial statements of Artsakhbank Closed Joint Stock Company, which comprise the summary statements of financial position as of 31 December, 2017, the summary statement of profit or loss and other comprehensive income, summary statement of changes in equity and summary cash flow statement for the year then ended, and attached note derived from the audited financial statements of Artsakhbank Closed Joint Stock Company for the year ended 31 December, 2017, are prepared in accordance with International Financial Reporting Standards. The summary financial statements do not include the disclosures presented in the notes to the audited financial statements. The complete package of audited financial statements is available at the "Artsakhbank" Closed Joint Stock Company website. 25

25 ARTSAKHBANK BRANCH NETWORK Yerevan Central Branch 3, Kievyan Str., Yerevan 0010, RA Khorenatsi Branch 3, 1/1, Khorenatsi Str., Yerevan 0015, RA Tigran Mets Branch 37, Hanrapetutyan Str., Yerevan 0010, RA Baghramyan Branch 53, Baghramyan Ave., Yerevan 0033, RA Nairi Branch 10/1, Sayat Nova Ave. Yerevan 0001, RA Raffi Branch 29/5, Raffi Str., Yerevan 0004, RA Garegin Nzhdeh Branch 14, Bagratunyants Str., Yerevan 0039, RA Agatangekhos Branch 2/2, Agatangeghos Str., Yerevan 0010, RA Tigranakert Branch 6, A. Manoogyan Str., Stepanakert, AR Stepanakert Branch N.1 29, Toumanyan Str., Stepanakert, AR Stepanakert Branch N.2 2a, Baghramyan Str., Stepanakert, AR Hakhtanak Branch 15/29, Isakov Str., Stepanakert, AR Veratsnund Branch 16, V. Sargsyan Str., Stepanakert, AR Akhtamar Branch 2/38, A. Hekimyan Str., Stepanakert, AR Center Branch 24/29 & 24/65, V. Sargsyan Str., Stepanakert, AR Shoushi Branch 3, A. Manoogyan Str., Shoushi, AR Martakert Branch 75, Azatamartikneri Str., Martakert, AR Martuni Branch 22, Azatamartikneri Str., Martuni, AR Hadrut Branch 34, A. Mkrtchyan Str., Hadrut, AR Askeran Branch 43, S. Shahumyan Str., Askeran, AR Berdzor Branch 12, Khaghaghutyan Str., Berdzor, AR Qarvachar Branch 60a, Azaramartikneri Str., Qarvachar, Shahumyan region, AR Drmbon Branch Drmbon, Martakert region, AR ARTSAKHBANK CJSC 26 ANNUAL REPORT 2017