A. MACAU ECONOMY 7. Overview 8. Interest Rates 12. Foreign Exchange Market 12. Banking Sector 13 B. ACTIVITY OVERVIEW 17.

Transcription

1 Annual Report 2005

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3 Annual Report 2005

4 A. MACAU ECONOMY 7 Overview 8 Interest Rates 12 Foreign Exchange Market 12 Banking Sector 13 B. ACTIVITY OVERVIEW 17 Retail Banking 18 Commercial Banking 18 Human Resources 19 Organisation and Systems 19 Banknote Issuing Functions 20 Community Support 20 C. RESULTS AND BALANCE SHEET 23 Net Profit 24 Net Non-Interest Income 24 Net Operating Income 25 Operating Costs 25 Provisions 26 Proposal for allocation of the net profit 26 Balance Sheet Structure and Changes 26 Loans and Advances 26 Interbank Placements 27 Customer Deposits 27 Amounts Due From Banks 28 Capital Adequacy Ratio 28

5 Contents Governing and Auditing Bodies 32 Accounts 33 Shareholders with Qualified Holdings 38 Equity Investments 38 Principal Accounting Policies 39 External Auditors Report 42 Opinion of The Sole Supervisor 43 Most Important Addresses 44 5

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7 Macau Economy

8 A. Macau Economy Overview industrial park near the border with Zhuhai. Macau economy entered a cycle of strong growth after the liberalization of the gaming industry by the Government in 2002, followed by the implementation of the free visa scheme for mainland China residents visiting the Territory. Macau is increasingly seen as an iconic tourist city in Asia, an image that was reinforced by the successful organization of the 2005 East Asia Games and the inscription of the Historic Centre of Macao on UNESCO s World Heritage List. The economy grew 6.7 percent in 2005 after the gross domestic product has increased 28.4 percent in 2004 and 14.2 percent in The main economic drivers have been the tourist and gaming industries, investment in construction of new hotels and casinos as well as in public infrastructure. Consumer and business confidence improved markedly and, in particular, foreign investors are showing strong interest in participating in this new stage of development of Macau. The number of tourist arrivals continued to increase at a rapid pace recording, in 2005, a growth rate of 12.2 percent, representing a total of 18,711 million tourists visiting Macau. Visitors from mainland China, which totalled 10,5 million in 2005, grew 9.8 percent, while tourist arrivals from Hong Kong increased by 11.1 percent to reach 5.6 million. The mainland China market accounts for 60% of the total number of tourists (37 percent only three years ago) and in the years ahead its share will increase further. Mainland China and Hong Kong economies, Macau s most important tourist markets, continue to show strong performance in Mainland China s GDP increased 9.9 percent in 2005, boosted in particular by exports of manufactured products, investment in fixed-assets and strong consumer spending. The Hong Kong economy, which grew by 7.6 percent in 2005, is also benefiting from the rapid growth namely its financial, tourist and logistics industries. The Macau economy and in particular its service industry is set to gain from the economic integration with the pan- Pear River Delta region. During 2005, the government undertook several initiatives that contributed to promote the implementation of the Closer Economic Partnership Agreement (CEPA) with mainland China, namely the development of a cross border The increased number of mainland China tourists, in particular those holding individual visas, is contributing to boost retail sales since on average they spend more than tourists from other regions and countries. The hotel occupancy rate decreased from 77.8 percent in 2004 to 72.4 percent in 2005 due to a rise in the supply of rooms and the staying period was slightly inferior to that of the previous year. Gambling revenues grew 8.3 percent to reach MOP 45.8 billion, reflecting the growing number of visitors and availability of new hotel and casino facilities. The growth rate of gambling revenues in 2005 was nevertheless much lower than in 2004, when it rose 43.5 percent, in part due to the low base of comparison of The property market continued its strong recovery in 8 Macau Economy l Overview

9 the first half of the 2005 as the growth potential of the economy continued to draw the interest of local and foreign investors. representing the gaming tax revenue about 76.1 percent of total public revenues, leading to a substantial surplus in the government budget. The transactions volume rose 46.1 percent for the year, and the price of residential properties increased 17.6 percent per square meter on average. The sharp gains recorded in the last two years as well as a significant increase in mortgage rates led to a period of consolidation in the second half of the year. The economy continue also to be driven by investment with the gross fixed capital formation rising by 56.9 percent. In particular, private sector investment in construction surged by 131 percent as the gaming concessionaires started to build new casinos and hotels to meet the demand of the next few years and the investment targets established by the concession and sub-concession agreements. Several projects are under development or have been recently completed, namely the following: Venetian (Macau) started the construction of the first phase of its mega project in Cotai Strip. Private consumption expenditure rose by 7.5 percent in 2005 (10.3 percent in 2004), benefiting from the multiplier effects from the growth in investment, increase in employment levels and salaries (given the tight labour market), as well as the wealth effect due to the significant rise in property prices over the last tree years. Macau exports recorded in 2005 a drop of 12.3 percent in value terms (US market 12.2 percent and EU market percent) reflecting the effects of the elimination of the textile quota system and the impact of international competition.. The USA and the EU remained as Macao s major export markets, together making up 73 percent of the total value of exports; China, the other main market, represented 16 percent of total exports. The structure of Macau s exports in 2005 continued to be dominated by the textile sector, which represented 77 percent of the total exports, followed by electronics and machinery with 1.9 percent and 4.9 percent, respectively. The Fisherman s Wharf Theme Park was opened to the public. The construction of the Wynn Resorts (Macau), Melco/ PBL, the Grand Lisboa from Sociedade de Jogos de Macau (SJM) and Galaxy s Startworld hotel and casinos facilities is well underway. The Territory s imports rose, on the other hand, reflecting the increase in investment, strong consumer demand and rising prices for raw materials and energy prices. The trade deficit continued to deteriorate, reaching 11.5 billion in 2005 with the export/import ratio decreasing to 63.3 percent from 80.9 percent in Public sector investment slowed in 2005 ( percent in 2005 against percent in 2004) after the completion of major infrastructure projects. Public revenue soared 17.7 percent compared with 2004, The current account balance, which include revenues from tourists visiting the Territory, a more comprehensive indicator of Macau s external accounts, continue to be largely positive. Macau Economy l Overview 9

10 There is practically a situation of full employment in Macau with the unemployment rate further decreasing to 4.1 percent, what is leading to an increase in salaries and compensation driven by the hotel and casino sector, which requires a significant number of employees to operate the new facilities. After years of showing a downward trend the Consumer Price Index rose 4.4 percent in Inflation pressures are now growing due to higher housing costs and retailers have more pricing power to pass increased costs to consumers. Among the main components of the Consumer Price Index during 2005, housing costs edge up to 8.3 percent, education 4.1 percent, food & beverage 4.0 percent, while shoes and clothes decreased 0.9 percent. The upward trend in the Consumer Price Index is expected to continue in Macau Economy l Overview

11 Special Administrative Region of Macao, China Main Economic Indicators Demand and Gross Domestic Product ( % yoy ) Real GDP (%) Domestic Demand (%) Private Consumption (%) Public Consumption (%) Gross Fixed Capital Formation (%) Construction Others Change in Inventories (%) , Net Exports of Goods and Services (%) Nominal GDP ( in millions of USD ) 6,187 6,824 7,924 10,359 11,593 GDP per capita ( in USD ) 14,253 15,567 17,805 22,557 24,347 Inflation and Unemployment Inflation rate ( CPI % yoy ) Unemployment rate (%) Tourism Visitors arrivals (1,000s) 10,279 11,531 11,888 16,673 18,711 From Mainland China 3,006 4,240 5,742 9,530 10,463 Visitors arrivals ( % yoy ) From Mainland China External Sector Exports of Goods ( % yoy ) Imports of Goods ( % yoy ) Trade Balance (in millions of USD) Balance of Current Accounts (in millions of USD) 2,323 2,768 3,337 4,872 4,380 Exp./Imp. of Goods Ratio (%) Interest and Exchange rates Pataca Exchange Rate (1 US$=) Nominal Effective Exchange Rate Index Month Average Interbank Rate (MAIBOR) (%) Month Average Interbank Rate (LIBOR) (%) Savings Interest Rate Prime Rate ( %) Main Monetary Indicators Money supply M 1 (millions of MOP) 5,917 6,351 8,790 13,441 12,789 Money supply M 2 (millions of MOP) 91,550 98, , , ,660 Total Credit (millions of MOP) 49,400 51,318 48,705 52,558 65,230 Total Deposits (millions of MOP) 110, , , , ,573 Official Foreign Reserves at AMCM (millions of MOP) 85,222 97, , , ,688 Macau Economy l Overview 11

12 Interest Rates The HKD and MOP interbank interest rates, which were close to zero at the beginning of the year increased significantly, in particular in the 2nd quarter of The rise in money market rates happened as the Federal Reserve Bank gradually lifted its target for the federal-funds rate, in several quarter-points increases, by a total of 175 basis points to 4.25 percent. Technical changes introduced in May in the HKD peg system to the USD as well as the decision announced by China at the end of July to adopt a managed float system for the determination of the exchange rate, by contributing to reduce speculative capital inflows into the HKD money market, put pressure on interbank market interest rates. The negative interest rate spread of the HKD to the USD gradually reduced and by October the three-month Hibor was at levels similar to the three-month USD Libor. Given the sustained increase in the interbank interest rates, the prime lending rate was raised from 5.00 percent in January to 7.75 percent at the end of the year. The volatility of forward exchange rates in the second half of the year was significantly lower than in the first semester, as measured by the Hong Kong dollar one-year forward contract against the US Dollar. The premium of the HKD in the January-June period fluctuated between a minimum of points to a maximum of -260 points, while in the second half of the year the range of fluctuation was much lower (-395 points to -35 points). Foreign Exchange Market money markets due to speculation regarding an eventual revaluation of the Renminbi. The introduction, in May, of changes in the exchange rate mechanism that links the HKD to the USD by the Monetary Authority of Hong Kong involving the set up of a convertibility zone, between 7.75 and 7.85 to the USD. In addition, by undertaking, at the same time, to buy and sell the currency for the spot rate USD/HKD to remain firmly in that band, has contributed to a significantly reduce the interest rate spread in favour of the USD. Consequently, during the remaining period of the year the spot rate USD/HKD traded mostly on the strongest side of the convertibility zone, helped also by a reduction in speculative capital inflows, as the Renminbi after being revalued by 2.1 percent against the USD in July, remained stable until the end of the year. At the same time, the Renminbi exchange rate mechanism was changed from a peg system to the USD to one in which the value of the currency is determined by reference to a basket of currencies of China s main trading partners. The US dollar appreciated against the euro and the yen in 2005 supported by the rise in short term interest rates and the relative stronger growth of the US economy, in spite of a significant increase in the trade and current account deficits. The exchange rate of the Pataca, which is linked to the HKD at a rate of 1.03, tracked the movements in the exchange rates of this currency (which mirror also the behaviour of the US dollar against these currencies), devaluing 2.3 percent against the Renminbi and gaining 12.8 percent against the euro and 13.1 percent versus the yen. The Hong Kong dollar traded until May close to 7.8 to the USD, influenced by negative interest spread in respect to the North-American currency and capital inflows into HKD The effective exchange rate of the Pataca, as calculated by the Macao Monetary Authority, rose 2.8 percent to at the end of Macau Economy l Interest Rates, Foreign Exchange Market

13 Banking Sector The banking sector had a good performance in 2005 benefiting from an economy than for the last few years is growing at a very fast pace and a more favourable interest rate environment. Total assets of the banking sector rose 26.6 percent with loans and advances increasing by 24.1 percent, while customer deposits grew 29.4 percent. The liquidity position of the sector continues to be very comfortable with the loan to deposit ratio declining to 35.3 percent. The asset quality continues also to improve with the non-performing loan ratio falling to a record low of 1.8 percent, as the recovery in the economy and in the property market led to a substantial reduction in NPLs and in specific provisions for loan losses. The banking sector profit showed in 2005 a significant rise in profit of percent benefiting from a higher net interest margin, given the rise in interbank interest rates, a sharp rise in non-interest income as well as provisions write-backs. The higher profitability of the sector contributed to improve the capital adequacy ratio which at 15 percent is much higher that the minimum established by the Basel Committee. The operating environment for the banking sector in 2006 is expected to continue to be positive. Macau Economy l Banking Sector 13

14 Main indicators of Macau economy Graphs 30 Gross Domestic Product Annual Percentage Change (in %) Tourism - Total of Visitors and Growth Rates by Main Markets 80% 70% 60% 50% 40% 30% 20% 10% ,000 16,000 14,000 12,000 10,000 8,000 6,000 (in thousands) 0% -10% -20% P. R. China Other Visitors + HK + Taiwan Number of Visitors 4,000 2, Exports of Goods Annual Percentage Change (in%) Macau Economy l Main indicators of Macau economy Graphs

15 8 Unemployment and Inflation Annual Percentage Change (in %) Unemployment Rate Inflation Rate Tourism Main Markets in % 0% 32% 60% Hong Kong P. R. China Taiwan Other Visitors Exports Main Markets in % 11% 54% 19% E. U. A. U. E. Hong Kong P. R. China Macau Economy l Main indicators of Macau economy Graphs 15

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17 Activity Overview

18 B. Activity Overview Retail banking Mortgage and consumer loans BNU has received several prizes from Visa and Mastercard rewarding its activity as an issuer of credit cards. The mortgage loan portfolio increased significantly in 2005 recording a growth rate of 72.1 percent. Demand for housing loans was particularly strong in the first months, but slowed down by the end of 2005, due to rising mortgage rates and property prices. The bank s strategy has to be reviewed to take into account the changing structure of the property market, with the increased participation of non-residents, rising property prices and the development of several new residential and commercial projects. Branch Network Given the increase in the number of customers and the expansion of new residential areas in the city it was decided to expand the branch network, comprised of 11 branches. In 2005, three properties were acquired to install new branches and the Chung Fu branch went under complete renovation. The new branches will have areas specifically dedicated to sell wealth management products. Consumer loans soared by 44.1 percent as consumer confidence was strengthened by the improved economy, lower unemployment rate and salary increases; all its main components, overdraft facilities, personal loans, car loans and advances made under credit cards recorded strong growth. BNU Online The number of transactions made through BNU Online, the bank s personal internet banking platform, represented in 2005 a higher proportion of the bank s total transactions. Credit cards Our credit card business continued to expand strongly in The sales transactions volume rose 22.9 percent while the number of cards issued increased by 8.2 percent and credit card outstanding balance rose 16.3 percent. The charge-off ratio at 0.55 percent in 2005 continued to reflect our prudent credit criteria in managing credit risk. We launched, between June and August 2005, a very successful credit card promotion campaign allowing cardholders to redeem Mobil fuel coupons. The Bank has applied for membership in ChinaUnionPay. The number of users increased 25 per cent and the number of transactions, including bill and credit card payment, account transfers, remittances, e-statements requests, soared to 28 per cent. In 2005, BNU web page started to be reviewed and new services and features were introduced to BNU Online in order to increase its utilization. Commercial Banking The commercial banking strategy is oriented in two basic directions: to provide businesses with products and services that help them manage more efficiently their daily operations; to provide financing that allows companies to 18 Activity Overview l Retail Banking, Commercial Banking

19 implement their investment plans and grow in the long term. The financing of several large projects in the area of tourism and gaming has attracted the interest of local and international banks. The investment policy of BNU staff Provident Fund was reviewed and changed to adjust to new market conditions, according with the advice of the investment managers. The number of staff employed by the Bank increased from 286 to 307 at the end of BNU has participated, as the main lender, in the expansion of the senior secured financing for Wynn Resorts (Macau) S.A., comprised of a USD 729 million equivalent term loan and a HKD 117 million revolving credit facility, that has been syndicated in the market. The Bank acted also as one of the arrangers in a USD 160 million financing to MELCO/PBL for the construction of the Crown Hotel and Casino in Taipa island. Organisation and Systems The host computer systems was upgraded to the latest model, which is powerful enough to cater for the business growth we project in the coming few years, running in a new operating system that provides a platform that enhances the efficiency of application systems. BNU continued to develop relationships with small and medium sized businesses in the area of tourism, construction, manufacturing and trade providing both finance and guarantees. Loans and advances to businesses rose 7.1 percent in The credit card management system was enhanced in several areas: a stand-by back up system was put in place which will minimize service down time; the system was changed so that, from the beginning of 2006, our POS network will comply with EMV regulation, accepting credit cards with chips; to provide JCB credit card payment acquiring services Human Resources The main tasks of the Human Resources department in 2005 has been to recruit and train new frontline staff as the expansion of the Bank s activity required the hiring of additional staff and staff turnover remained high. To face this situation and to maintain service quality, we put in place several programmes, to recruit and train new staff with the in-house training programmes focusing in areas related to customer service, customer relationship, selling skills and anti-money laundering activities. The human resources administration application was improved with the introduction of new functionalities. We started providing EPS services in Macau, after signing an agreement with EPS Company (Hong Kong) Ltd. We continued the implementation of the International Accounting Standards, which has reached the final stage, as well as the Basel Capital Accord II. We adopted a digital imaging solution to process and stored documents simplifying workflows and reducing costs. We finalised the upgrade of the accounting system with benefits in terms of costs and processing time. Activity Overview l Commerical Banking, Human Resources, Organisation and Systems 19

20 We started to develop a system that will introduce significant improvements in the management of bad overdue loans and provisions by integrating and automated workflow processes. The Macau XVI Arts Festival Cultural and Macau XIX International Music Festival, events of the upmost importance in the cultural scene, continued to have our support. We continue to develop an interactive management reporting system which provides customised reports and analysis on different business areas. Banknote Issuing Functions On December 28, 2005 Banco Nacional Ultramarino S.A. put into circulation a new series of banknotes issued with the date of August 8, The new issue covers 10, 20, 100, 500 and denominations with a total value of 8.15 billion Patacas. The newly designed banknotes feature landmarks of Macau, namely The A Ma Goddess Statue, The Macau International Airport, The Senado Square, The Macau Tower and The Macau Cultural Centre. These new banknotes will gradually replace all the previous issued banknotes of the same denomination in circulation. Community Support BNU continued to support the Territory s activities, making donations to some of the most relevant institutions of our community like Tung Sin Tong, and Associação de Reabilitação de Toxicodependentes de Macau. As in previous years, BNU staff participate in fund raising activities of Fundo de Beneficência dos Leitores do Jornal Ou Mun on the occasion of the Walk for a Million. To support Macau s education system, the Bank continued to grant scholarships to students of Macau University, Macau Science and Technology University and Macau Institute for Tourism Studies. 20 Activity Overview l Organisation and Systems, Banknote Issuing Functions, Community Support

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23 Results and Balance Sheet

24 C. Results and Balance Sheet Net profit The year 2005 was a remarkable year in terms of Bank s performance with results reaching record levels. The net profit that had increased 40.1 percent in 2004,soared by percent in 2005 to MOP million, due to mainly to higher net interest income (+54.8 percent) and non-interest income (+58.8 percent). The growth in our loan portfolio was due to consumer lending, in particular mortgage loans, reflecting the recovery in the property market, higher levels of employment and confidence in the economy prospects; corporate loans had a less contribution to the growth in the loan portfolio, but its rate of growth is set to accelerate next year. The rise of net interest income was boosted not only by an increase in average interest earning assets but also by higher net interest margin, which reflects also a sharp rise in interbank short term interest rates. Non-interest income grew due to rising business volumes and commissions earned in the areas of credit cards and debit cards, treasury services, foreign exchange transactions, issuance of guarantees and participation in syndicated loans. The policies implemented to reduce operating costs and improve risk management in areas of credit, market and operational risk continue to produce positive results. The contribution of net interest income to net operating income in 2005 was substantially higher than in the previous year. Net interest income rose 54.8 percent when compared with 2004 to reach MOP million, more MOP million, than MOP million recorded in Interest income (+94.1 percent) and interest expense ( percent) increased significantly due to the sharp rise in interest rates. Net interest income rose significantly due to both the increase in average interest-earning assets and in the net interest margin. Average interest earning assets was 19.2 percent higher than in Interest rate margin improved significantly in 2005, widening by 35 basis points. Higher interest rates, in particular interbank rates which have been close to zero, allowed the Bank to improve the spreads on MOP and HKD deposits. Nonetheless, the profitability of prime based loans and fixed rate loans decrease with the rise in funding costs. Net Non-Interest Income Fee and commission generating businesses as well as foreign exchange profits expanded significantly in The main indicators of profitability improved markedly in 2005; return on average shareholders s funds jump to 28 percent in 2005 from 13.5 percent in 2004; return on average assets increase to 1.2 percent in 2005 from 0.59 percent last year. Net Interest Income Net non-interest income increased by 57.8 percent to MOP million from MOP 80 million in the previous year due to: Net profits from financial transactions increased by 35.4 percent, reflecting increased profits from foreign exchange transactions and providing treasury services to companies. 24 Results and Balance Sheet l Net Profit, Net Non-Interest Income

25 RESULTS (In thousands of MOP) Change In value In percentage Net Interest Income 254, ,575 90, Net commissions income and other bank operations 126,684 80,298 46, Net Operating Income 381, , , Operating costs 146, ,624 7, Cash Flow 243, , , Net Profit Before Provisions and Extraordinary Gains/Losses 234, , , Net Income 202,349 80, , Net commissions and fees increased by 69.4 percent mainly caused by increase in fees and commissions from credit facilities, card business, treasury services and issuance of guarantees. Net commissions and fees and net profits from financial transactions represented 70.6 percent and 29.4 percent, respectively of the net non-interest income (68.8 percent and 34.2 percent in the previous year). Operating Costs Operating costs tended to rise in 2005 given the strong growth in Bank s activity, the increase i n s t a ff e m p l o y e d a n d h i g h e r i n f l a t i o n r a t e. Operating costs increased by MOP 7.9 million in 2005, up 5.7 percent when compared with 2004, totalling MOP million. Net Operating Income Net operating income rose MOP million, or 55.8 percent, to reach MOP 381 million. The net interest income contributed with 66.7 percent to the net operating income, slightly lower than in 2004, and net non-interest income with 33.3 percent. With the exception of depreciation which fell 32.6 percent the other two major components increase at a higher growth rate than in previous year: Staff expenses raised by 7.4 percent, amounting to MOP 90.9 million, the increase in salaries and other compensation paid. Third party supplies and services increased by 16.2 percent, amounting to MOP 39.3 million; Results and Balance Sheet l Net Operating Income, Operating Costs 25

26 Staff expenses in 2005 represented 62 percent of operating costs, third party supplies 26.8 percent and depreciation 5.9 percent. The ratio cost-to-income1 1 declined significantly and at 38.4 percent was 18.2 percentage points lower than in for the approval of the Annual General Assembly, that the Net Profit of MOP ,49 is allocated as follows: For Legal Reserves, according to the art. 60 of Macau Financial System Act MOP ,49 For Other Reserves, the remaining amount MOP ,99 Provisions Net provisions in 2005 increased by MOP 30.1 million to reach MOP 45.7 million. Regarding specific provisions, which are made in accordance with regulations of Monetary Authority of Macau, there is a net charge of MOP 8.1 million, more MOP 3.5 million than in previous year, due mostly to additional provisioning of loans and advances made to businesses. Provisions for consumer lending, including credit cards, mortgage loans and personal loans continued to be very low. Balance Sheet Structure and Changes As of December 31st, 2005, the net total assets amounted to MOP 17,182 million, an increase of 19.2 percent over Customer deposits rose by 20.4 percent in 2005 (15 percent in the previous year) while total loans rose 27.2 percent. The loan to deposit ratio continued to decline, falling from 39.4 percent in 2004 to 38.2 percent in There is also an increase in net charge of MOP 10.6 million to MOP 21.9 million for generic provisions which shall always represent 1 percent of risk assets and off-balance sheet as determined by AMCM, rose to reflect the increase in loans and advances to customers and guarantees issued. The weight of placements with banks in net total assets remained stable (56.7 percent) from previous year, while credit to customers represents 26.3 percent of net total assets in 2005, against 24.7 percent in the previous year. The net charge for other provisions, including liabilities for payment of pensions and securities held, rose to MOP 15.9 million. Proposal for allocation of the net profit According to the law and the company rules, it is submitted (Staff Expenses + Third Party Supplies and Services + Other Administrative expenses) / Net Operating Income Loans and Advances Total loans and advances rose 27.2 percent to reach MOP 4.5 billion due mainly to the significant increase in loans and advances for use in Macau. Loans and advances for use in Macau amounted to MOP 4.1 billion, recording a growth of 39 percent, due mainly to a rise in consumer lending which benefit from the increase demand from personal and housing loans. 26 Results and Balance Sheet l Provisions, Proposal for allocation of the net profit, Balance Sheet Structure and Changes, Loans and Advances

27 Loans and advances to businesses for use in Macau increased by 7.1 percent mainly due to a rise in short term loans advances to finance working capital. Most interbank placements are in the form of short term deposits with banks in Hong Kong and monetary bills issued by the Macau Monetary Authority. Loans to private customers notably benefited from the rise in personal and mortgage loans, mainly due to the recovery of the property market. Interbank Placements Placements with banks increased by percent. Customer Deposits Total customer deposits, from the private and public sectors, continue to show strong growth as the economy expands. As of December 31st 2005, total customer deposits amounted to MOP 13,891 million, a rise of 20 percent, Structure of Net Assets Increase in Net Assets / % in % 17,812 BI MOP in % 80% 56.7% 19.5% 60% 27.2% 40% 26.3% 20% 7.9% 17.0% 0% 0% 10% 20% 30% Interbank placements Credit granted to clients Cash, fixed assets and other assets Results and Balance Sheet l Interbank Placements, Customer Deposits 27

28 while total deposits from customers in Macau rose 21.2 percent. Current and savings deposits increased 12.6 percent represented 28.7 percent of total deposits (30.6 percent in 2004) and time deposits rose 23.7 percent accounting for 71.3 percent of total deposit against 69.3 percent at the end of Time deposits totalled MOP 9.9 billion as of December 31st 2005, with private sector time deposits accounting for 12 percent of total deposits. Amounts Due From Banks Amounts due from banks totalled MOP 652 million, decreasing by MOP 37 million, making up 3.7 percent of the total liabilities, a fall of 0.4 percentage points. Capital Adequacy Ratio The capital adequacy ratio in 2005 remained stable at 14.9 percent significantly higher that the minimum of 8 percent required under AMCM regulations. These regulations are formalised in the Notice no. 012/93- AMCM, Notice no. 013-AMCM dated August 27, 1993, Circular no. 003/A/94 and Circular no. 004/A/94. Total capital as defined amounted to MOP 809 million, higher than the MOP 707 recorded in Risk weighted assets and off-balance sheet items increased from MOP4,756 million in 2004 to MOP5,432 million in Results and Balance Sheet l Costumer Deposits, Amounts Due From Banks, Capital Adequacy Ratio

29 Structure of Liabilities and Shareholders Equity Increase/decrease in Liabilities and Shareholders Equity, 2004/2005 % 17,182 BI MOP % 100% 3.8% 80% 6.0% 20.4% 60% 80.8% 38.2% 40% 10.9% 20% 0% 9.8% 4.9% 0.6% 29.3% 0% 10% 20% 30% 40% 50% Resources from banks Clients deposits Provisions for general risks Other liabilities Equity Results and Balance Sheet l Capital Adequacy Ratio 29

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32 Governing and Auditing Bodies BOARD OF THE GENERAL MEETING Chairman : Vice-Chairman : Secretary : Joaquim Jorge Perestrelo Neto Valente Liu Chak Wan Maria de Lurdes Nunes Mendes da Costa Board of Directors Chairman : CAIXA GERAL de DEPÓSITOS, S.A., represented by Carlos da Silva Costa Vice-Chairman : Herculano Jorge de Sousa Members : CAIXA - Equity Investments SGPS, S.A., represented by António Luís Neto COMPANHIA DE SEGUROS FIDELIDADE, S.A., represented by Eduardo Clarisseau Mesquita de Abreu Artur Jorge Teixeira Santos Executive Committee: President : Herculano Jorge de Sousa Vice-President : Artur Jorge Teixeira Santos Member : COMPANHIA DE SEGUROS FIDELIDADE, S.A., represented by Eduardo Clarisseau Mesquita de Abreu Sole Supervisor: Chui Sai Cheong 32 Governing and Auditing Bodies

33 Accounts BANCO NACIONAL ULTRAMARINO. S.A. BALANCE SHEET AS OF DECEMBER 31, 2005 PROVISIONS, ASSETS GROSS ASSETS AMORTIZATIONS AND NET ASSETS NET VALUE (in units of MOP) CASH 514,577, ,577, DEPOSITS WITH AMCM 205,786, ,786, DEBT CERTIFICATES ISSUED BY THE MACAU 1,568,395, ,568,395, GOVERNMENT ACCOUNTS RECEIVABLE 54,755, ,755, DEPOSITS WITH OTHER CREDIT INSTITUTIONS 23,857, ,857, IN MACAU DEPOSITS WITH OTHER CREDIT INSTITUTIONS ABROAD 55,758, ,758, GOLD AND SILVER OTHER CURRENT ASSETS 2,315, ,315, CREDIT GRANTED 4,537,337, ,842, ,525,494, PLACEMENTS WITH CREDIT INSTITUTIONS IN MACAU 118,000, ,000, DEPOSITS AT CALL AND TIME DEPOSITS WITH CREDIT INSTITUTIONS ABROAD 9,623,281, ,623,281, SHARES, BONDS AND QUOTAS 157,455, ,034, ,420, INVESTMENT OF ASSIGNED FUNDS DEBTORS 238, , OTHER PLACEMENTS FINANCIAL INVESTMENTS 34,592, ,000, ,592, PROPERTY 199,179, ,005, ,173, EQUIPMENT 66,155, ,202, ,952, DEFERRED COST 11,841, ,185, ,655, START - UP EXPENDITURE FIXED ASSETS IN PROGRESS OTHER FIXED ASSETS 1,504, ,504, INTERNAL AND ADJUSTMENT ACCOUNTS 167,508, ,508, TOTAL 17,342,538, ,271, ,182,267, Accounts 33

34 BANCO NACIONAL ULTRAMARINO. S.A. BALANCE SHEET AS OF DECEMBER 31, 2005 LIABILITIES SUB-TOTAL TOTAL (in units of MOP) BANK NOTES IN CIRCULATION 1,480,318, CURRENT DEPOSITS 3,101,285, DEPOSITS AT CALL 0.00 TIME DEPOSITS 8,237,115, ,338,400, GOVERNMENT DEPOSITS 2,553,140, AMOUNTS DUE TO CREDIT INSTITUTIONS IN MACAU 40,331, AMOUNTS DUE TO OTHER LOCAL ENTITIES 0.00 AMOUNTS DUE TO CREDIT INSTITUTIONS ABROAD 611,829, ASSIGNED FUNDS 0.00 PAYABLE BANK CHEQUES 98, CREDITORS 59,035, OTHER LIABILITIES 29,690, ,294,126, INTERNAL AND ADJUSTMENT ACCOUNTS 118,755, PROVISIONS FOR RISKS 112,672, CAPITAL 400,000, OTHER RESERVES 85,426, ,426, NET PROFIT BROUGHT FORWARD 150,217, NET PROFIT FOR THE YEAR 202,349, TOTAL 17,182,267, Accounts

35 BANCO NACIONAL ULTRAMARINO. S.A. BALANCE SHEET AS OF DECEMBER 31, 2005 MEMORANDUM ACCOUNTS AMOUNT (in units of MOP) VALUES RECEIVED FOR SAFE KEEPING 124,377, BILLS FOR COLLECTION 80,081, SECURITIES RECEIVED 10,813,524, GARANTEES ON ACCOUNTS OF CUSTOMERS 2,541,931, LETTERS OF CREDIT OUTSTANDING 410,178, BILLS AND ACCEPTANCES AVAILABLE FOR DISCOUNT 0.00 SECURITIES DEPOSITED 0.00 FORWARD FOREIGN EXHANGE PURCHASES 733,647, FORWARD FOREIGN EXCHANGE SALES 733,436, OTHER MEMORANDUM ACCOUNTS 9,901,250, OF WHICH: PUBLIC TREASURY-CURRENT ACCOUNT 5,551, Accounts 35

36 BANCO NACIONAL ULTRAMARINO. S.A. PROFIT AND LOSS ACCOUNT FOR THE YEAR 2005 INCOME STATEMENT DEBIT ACCOUNT CREDIT ACCOUNT (in units of MOP) INTEREST EXPENSE 306,771, INTEREST INCOME 555,716, STAFF COST 90,963, BANK OPERATIONS INCOME 97,779, OF WHICH: OTHER BANK OPERATING INCOME 37,261, REMUNERATION OF BOARD OF DIRECTORS AND SUPERVISOR COMMITTEE 5,114, INCOMES FROM SECURITIES SALARIES AND WAGES 74,334, AND FINANCIAL INVESTMENTS 5,791, BENEFITS 10,936, OTHER BANK INCOME 25,741, OTHER PERSONNEL EXPENSESE 577, NON-BANKING INCOME 25, THIRD PARTY SUPPLY EXPENSES 5,642, OPERATIONG LOSSES 0.00 THIRD PARTY SERVICE EXPENSES 33,754, OTHER BANK COSTS 39,129, TAXES 1,105, NON-BANKING EXPENSES 1,394, DEPRECIATIONS 8,651, PROVISIONS 67,394, OPERATION INCOME 167,508, TOTAL 722,316, TOTAL 722,316, Accounts

37 BANCO NACIONAL ULTRAMARINO. S.A. PROFIT AND LOSS ACCOUNT FOR THE YEAR 2005 PROFIT AND LOSS ACCOUNTS DEBIT AMOUNT CREDIT AMOUNT (in units of MOP) OPERATIONG LOSSES 0,00 OPERATING INCOME 167,508, ACCUMULATED LOSSES 133,919, ACCUMULATED INCOME 52,097, FROM PREVIOUS YEARS FROM PREVIOUS YEARS EXTRAORDINARY LOSSES 2,343, EXTRAORDINARY INCOME 11,593, INCOME TAX 25,775, PROVISIONS USED 133,188, PROFIT FOR THE YEAR 202,349, LOSS FOR THE YEAR 0,00 TOTAL 364,388, TOTAL 364,388, HEAD OF ACCOUNTING PRESIDENT OF EXECUTIVE COMMITTEE MARIA CLARA FONG HERCULANO JORGE DE SOUSA Accounts 37

38 Shareholders with Qualified Holdings According to the terms of the Financial System Act of Macau, a qualified holding is that which, either directly or indirectly, represents 10 percent or more of the share capital or voting rights, or any other form which confers the possibility to exercise a significant influence over the management of the institution. Shareholders with a qualified holding: Caixa Geral de Depósitos, S.A % Equity Investments List of the companies where Banco Nacional Ultramarino has equity holdings higher than 5 percent of the respective issued quoted capital or higher than 5 percent of the own resources, and respective percentual value: SEAP - Serviços, Administração e Participação, Lda 25% 38 Shareholders with Qualified Holdings, Equity Investments

39 Principal Accounting Policies (a) Revenue recognition Provided it is probable that the economic benefits associated with a transaction will flow to the Bank and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following bases: i Interest income is recognized in the profit and loss account as it accrues, except in the case of non-accrual loans and advances where interest is credited to a suspense account. net of any collateral, to the expected net realizable value based on the directors assessment of the potential losses on those identified advances, and with reference to the requirements of AMCM. The provisions are reviewed periodically and adjustments, either addition charge or amount written back, are made when considered necessary by the directors. When there is no realistic prospect of recovery, the outstanding advances and other accounts is written off. (c) Investment in securities ii Non-accrual loans and advances represent credits which are overdue for more than 3 months. For prudence purpose, interest income from non-accrual loans and advances which has been credited to the profit and loss account is reversed and transferred to the above suspense accounts. Suspended interest recovered is recognized in the profit and loss account when received. Fees and commission income are taken into account when earned, unless they relate to transactions involving an interest rate risk or other risks which extend beyond the current period, in which case they are amortized over the period of the transactions. Investment in debt securities are carried at amortized cost less any provision for impairment in value. Investment in listed shares are stated at the lower of cost and market value at the balance sheet date. Investments in unlisted shares are stated at cost less provision for other than temporary diminution in value. The carrying amounts of investment in securities are reviewed at each balance sheet date to assess the credit risk and whether the carrying amounts are expected to be recovered. Provisions are made when the carrying amounts are not expected to be recovered and are recognized as an expense in the profit and loss account. iii Dividend income is recognized when received. (b) Loans and advances Loans and advances are stated in the balance sheet after deducting specific and general provisions for possible losses. Provisions are made against specific advances as and when the directors have doubts on the ultimate recoverability of principal or interest in full. Specific provision is made to reduce the carrying value of advances to customers, Provision against the carrying value of investment in securities is reversed to the profit and loss account when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. Upon disposal or transfer of the investments in securities, any profit and loss thereon is accounted for in the profit and loss account. Principal Accounting Policies 39

40 (d) Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis at annual rates estimated to write off the cost of each asset over its estimated useful life. The annual rates are as follows: the balance sheet date are translated into Macao Patacas at rates of exchange in effect at the balance sheet date. Exchange differences are dealt with in the profit and loss account. (f) Operating leases Freehold and leasehold land and buildings 2% Leasehold improvements and software 33.33% Office equipment, furniture and fixtures 10% to 50% Leases where substantially all the rewards and risks of ownership remain with the leasing company are accounted for as operating leases. Rental applicable to such operating leases are charged to the profit and loss account on a straight-line basis over the period of the relevant leases. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposals is included in the profit and loss account. At each balance sheet date, internal and external information is used to assess whether any fixed assets are impaired. If any such indication exists, the recoverable amount of the fixed asset is estimated and where relevant, an impairment loss is recognized to reduce the fixed asset to its recoverable amount. Such impairment losses are recognized in the profit and loss account. (g) Off balance sheet instruments Off balance sheet financial instruments arise from futures, forward and swap transactions undertaken by the Bank in the foreign exchange and interest rate markets. Financial instruments designated and qualified as hedges are valued on an equivalent basis to the assets, liabilities or net positions which they are hedging. Any gain or loss is recognized on the same basis as that arising from the related assets, liabilities or positions being hedged. The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant fixed asset, and is recognized in the profit and loss account. Interest rate swap transactions undertaken as part of the management of asset and liability portfolios are separately identified and the net swap receipts/payments are accrued and included in interest income or expense. (e) Foreign currencies The books and records are maintained in original currencies and being revalued into Macao Patacas. Transactions in foreign currencies are translated into Macao Patacas at exchange rates at the transactions dates. Monetary assets and liabilities denominated in other currencies at Assets, including gains, resulting from off balance sheet interest rate and exchange rate contracts which are marked to market are included in Other accounts. Liabilities, including loss, resulting from such contracts, are included in Other accounts and provisions. 40 Principal Accounting Policies

41 (h) Contingent liabilities (j) Provision for overall banking risk A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank. It can also be a present obligation arising from past events that is not recognized because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognized but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognized as a provision. The provision is created in order to provide against possible financial assets impairment. The provision made is based on estimates made by the Bank and is reviewed periodically. Adjustments are made when considered necessary. (k) Employee benefits The Bank provides a defined contribution plan for all employees. The defined contribution plan requires members of the plan and the Bank to contribute 5% and 10% of basic salary respectively. The Bank s contributions to the defined contribution plans are charged to the profit and loss account in the year to which they relate. (i) Impairment of assets Assets, other than financial assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in the profit and loss account. The recoverable amount is the higher of an asset s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. The Bank also operates a non-contributory retirement scheme for 4 existing employees and 3 retired employees which provides benefits derived from a formula under the Portugal Retirement Fund Scheme in Portugal. In accordance with the advice of the holding company, CGD, the Bank s contribution to defined benefits pension is charged to the profit and loss account so as to spread the regular cost over the service lives of the 4 employees. Retirement fund payment to the 3 retired employees is charged to the provision account in the year in which they relate. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The reversal is recorded as income or as a revaluation increase. Principal Accounting Policies 41

42 Auditors Report to the Shareholders of Banco Nacional Ultramarino, S.A. ( the Bank ) (Incorporated in Macau with Limited Liability) We have audited the accompanying balance sheet of Banco Nacional Ultramarino, S.A. ( the Bank ) as of 31st December 2005, and the related profit and loss account for the year then ended. These financial statements which are set out on pages 2 to 15 are the responsibility of the Bank s directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Auditing Standards approved by the Chief Executive of Macao Special Administrative Region and Technical Standards on Auditing approved by the Secretary for Economy and Finance. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying financial statements give a true and fair view, in all material respects, of the financial position of the Bank as of 31st December 2005, and of the results of its operations for the year then ended in accordance with the accounting principles as set out in Section 3 of Chapter 1 of the Macao Commercial Code. The accounting policies used in the preparation of the financial statements for the year are consistent with those used in the preceding year. Lowe Bingham & Matthews - PricewaterhouseCoopers Sociedade de Auditores MACAO, 17th February Esternal Auditors Report

43 Opinion of the Sole Supervisor Shareholders: In accordance with article 32 (e) of the Articles of Association, the Board of Directors of Banco Nacional Ultramarino, S.A. submitted to the Sole Supervisor the balance sheet, accounts and annual report in relation to the bank s operation in year In addition, the external auditors report as prepared by «Lowe Bingham & Mathews - PricewaterhouseCoopers» for the bank in relation to its activity in same year was also provided. During the year, the Sole Supervisor had maintained regular contacts with the Board of Directors, consulted on the bank s activity and always received the collaboration as well as necessary clarification in an efficient manner. After reviewing the documents as presented by the Board of Directors, it was found that the documents reflected clearly the financial and economical situation of the Bank. The Report of the Board of Directors also explained clearly the business development of the bank s activity in the referred year of operation. The Sole Supervisor had also reviewed the external auditors report and found that the report reflected truly the financial situation and performance of the bank as at close of business on 31st December 2005, as well as result of activity for the year then ended and which were prepared under the accounting principles applicable on banking activity. As such, the Sole Supervisor decided to recommend the approval of: The balance sheet and profit and loss account, The annual report of the Board of Directors. Macau, 20 March, 2006 Sole Supervisor Chui Sai Cheong Opinion of the Sole Supervisor 43

44 Most Important Addresses CAIXA GERAL DE DEPÓSITOS Av. João XXI, Lisbon Tel.: Fax: Swift: CGDIPTPLXXX BANCO NACIONAL ULTRAMARINO, S.A. Head Office Av. Almeida Ribeiro, no. 22 Tel.: Fax: Telex:88202BNUMC OM BNUFX OM Swift:BNULMOMX Credit Card Centre Av. Almeida Ribeiro, 22 Tel.: Fax: BNU Branch Network Central Branch Av. Almeida Ribeiro, 22 Tel.: Fax: Iao Hon Rua 1 do Bairro Iao Hon,Edf Iao Kai Tel.: Fax: Mercado Vermelho Av. Almirante Lacerda, No Tel: Fax: São Lourenço Rua João Lécaros, No 5-5B Tel: Fax: Sidónio Pais Av. Sidónio Pais, No A Tel.: Fax: Horta e Costa Av. Horta e Costa, No Tel.: Fax: Fai Chi Kei Rua Comandante João Belo, R/C Edf. Teng Pou Kok Tel.: Fax: Areia Preta Estrada Marginal do Hipódromo, C Tel.: Fax: Agência do Aeroporto de Macau Aeroporto de Macau Tel.: Fax: Chong Fu Alameda Heong San, No 58 Edf. Chong Fu R/C Tel.: Fax: Taipa Rua de Évora, Flower City, R/C Quarteirão 40, Taipa Tel.: Fax: Contactos Mais Importantes