Guarantee Fund for Private Investment in West Africa

Transcription

1 T GARI SA. Financial institution Capital: CFAF Head Office: Lomé - TOGO Guarantee Fund for Private Investment in West Africa REPORT OF THE BOARD OF DIRECTORS TO THE GENERAL ASSEMBLY Tenth Fiscal Year ended 31 December 2005

2 SOMMAIRE Pages 1.1 Overall Goals Main rules of intervention ORGANIZATION AND OPERATION Growth and distribution of the capital...5 Notes on the accounts of the FY ended 31 December

3 1 - GARI S MISSION: GOALS AND INTERVENTION MODALITIES 1.1 Overall Goals The primary goal of the GARI Fund is to contribute to the development of the private sector, by supporting the corresponding financial investments. This support takes the form of medium and long-term guarantees on credits granted to banks and financial institutions, and guarantees on resource mobilizations granted to companies operating within the Economic Community of West African States (ECOWAS). The guarantees cover part of the medium and long-term funding set for companies operating in the productive private sector. The provision of such external, good quality and in cash guarantees should be assessed with regard to the difficulties faced by banks when using intrinsic "traditional" guarantees. The latter, which can be the main risk coverage means available, are often depreciated by the sluggishness or non-existence of a secondary market for capital goods, and also by the administrative, legal and cultural burden their use is faced to. The legislation applicable to banks grants guarantee fund interventions significant weighting coefficients in computing solvency ratios. The use of these instruments has a multiplying effect on the bulk of loans credit institutions can grant, with equivalent equity capitals. Among the goals of the GARI Fund, a leading one is to avoid contributing to the increase of interest rate of the loan. Such trend would be contrary to its primary goal, which consists in supporting private investments and those who carry them out. Consequently, the guarantee cost is computed down to the last penny, and complies with the traditional risk-margin used by bank institutions to fund such transactions. In that respect, the founders of GARI made serious efforts in their initial funding and investment. It appears necessary, for more efficiency, to provide banks and financial institutions with an accessible and less formalistic tool, sufficiently flexible as to its field of action and eligible sectors and transactions. The tool thus created was also equipped with a series of internal objectives and management constraints designed to preserve the sustainability of its intervention capacity and financial stability. GARI must plan its action on a long-term basis and make every effort to protect and consolidate its resources, on which rest its financial capacity to undertake new commitments and its capacity to honor its signature in due time. This concern led GARI to adopt a series of ceiling measures aimed at maintaining its intervention capacity and its financial stability, whether concerning the total amount of its liabilities which, pursuant to the by-laws of the Fund, should be five times lower than the value of its net resources, or concerning individual risk ceiling (per bank, country or signature) defined in a restrictive and cautious manner. These solvency and thoroughness objectives are naturally linked to the principles of risk selectivity and flexibility of the means of management..

4 1.2. Main Rules of Intervention The primary rule of intervention of the Fund is to suggest a balanced sharing of risks, rather than a transfer of most of the risks, as this would remove all sense of accountability from the banks. This sharing translates into a guaranteed maximum coverage rate of 50 % of the amount granted, the distribution, in case of loss, of the proceeds from the sale of the intrinsic securities, but also the delegation of instruction given to banks. GARI does not interfere with the relationship between the bank and its customer. Its intervention should not weaken the sponsor's guarantee provision and consequently, its implication in the project. The Fund would intervene only if all the usual guarantees gathered were not sufficient to enable a bank to enter into a risk it deems safe, in adequate security conditions. As a consequence of these considerations, GARI reviews and assesses the risk submitted to it based on the lenders' own elements, reports of instructions and critical advice. Indeed, how to assess, implement, follow-up or recover the financing with the due usual professional diligence is stated in an express warranty provided by the beneficiary of the guarantee as part of the guarantee notification and acceptation. Also, the Fund reserves itself the right to proceed to a selective control at any time, particularly in enforcing the guarantee. At expiration date of the guaranteed loan, the beneficiary institution is granted an advance on compensation equal to 85% of the covered residual capital. In the event of resource mobilization operations, compensation is immediate and covers the whole outstanding amount in capital and interest; The guaranteed operations are rather varied: start-up, modernization, productivity improvement, production capacity building, transfer of ownership, reorganization. They must be carried out by private sector companies operating in the following fields: agriculture, manufacturing industry, agro-industry, fishing, mining, tourism, building and public works, transport, hotel industry, production sector related services. The term of the guaranteed loans is 2-15 years, with the Fund s cover validity limited to 10 years. The minimum amount of the guaranteed loan, with few exceptions, is of CFAF 50 millions. Finally, the current guarantee costs comprise a fixed contribution perceived at first, and a charge calculated on the successive guaranteed outstanding and payable semi-annually. As of 31 December 2005, the intervention rule of the Fund concerning bank loans consists in paying a contribution rate equal to 2% or 3% of the amount of the guarantee perceived, depending on whether the beneficiary institution is a shareholder of GARI or not (or refunded by a shareholder) plus a unique charge rate of 1.5% per annum. As for the guarantee of resource mobilization transactions, the payable charge rate amounts to 1% on the total guaranteed amount and a variable minimum 1% rate on the successive guaranteed outstanding amounts.

5 2 - ORGANIZATION AND OPERATION The GARI Fund was established on 21 December 1994 as a Togolese limited liability company registered with the Trade and Company Register in Lomé on 19 January On 3 July 1995, GARI was acknowledged as a financial institution ruled by the provisions of the bank law in force in the WAEMU area. The Fund actually started operating in September Its tenth fiscal year ends as of 31 December Growth and Distribution of the Capital Set at CFAF 8,618,500,000 at the Constitutive General Assembly, the capital increased to 12,954,500,000 following two successive increases agreed upon and enforced in the course of the year As of 31 December 2005, the corporate capital is fully paid-up and breaks down as follows: Subscriber Number of subscribed shares Subscriptions value Capital share in % Agence Française de Développement % European Investment Bank % Deutsche Entwicklungsgesellschaft % Secrétariat d Etat à l Economie (Suisse) % Banque Ouest Africaine de Développement % ATTICA % BOA Mali % CBAO % BACB (ex CNCA) % Merchant Bank of Ghana % ECOBANK Bénin % SFOM % SGB Côte d'ivoire % SGBS SNGL % Banco Commercial do Atlantico % Caixa Economica do Cabo Verde % Citibank CI % Citibank SNGL % BDM Bamako (ex BMCD) % CLS Sénégal % SGBG Guinée % SIB Abidjan % UIBG Conakry % BICIA Burkina % BICICI Abidjan % BICIGUI Conakry % BICIS Dakar % BTCI Lomé % Mr Diarra % Mrs Sanogoh % Total capital paid-up as of 31 Dec %

6 The resources generated by the corporate capital were completed in December 1996 by a European Development Fund donation amounting to 3,8 millions ECU. GARI therefore had at its disposal an initial resource envelope over CFA 15,4 billions, as per the forecast made at the time of its establishment Composition and Activities of the Decision-Making Bodies The Board of Directors As of 31 December 2005, the Board of Directors comprises nine directors, and one censor, the European Commission: Directors Capacity Representative European Investment Bank legal entity Mr. MARCIANO West African Development Bank legal entity Mr FASSASSI Banque Togolaise pour le Commerce et l'industrie ATTICA SA legal entity legal entity Mr. KANEKATOUA Mr. DERREUMAUX Agence Française de Développement legal entity Mrs. JAVALOYES CBAO Sénégal legal entity Mr. MESTRALLET Deutsche Entwicklungsgesellschaft legal entity Mr. WIESWEG Mr. DIARRA natural person - Mrs. SANOGOH natural person - Censor Capacity Representative European Commission legal entity Mr. DESESQUELLES Mrs. Bintou SANOGOH is the Chair of the Board of Directors since 19 July Some changes occurred in the composition of the Board in FY 2005 with the following: - Arrival of Mr. Falilou FASSASSI who took over from Babacar FAYE for the West African Development Bank (WADB), - Resignation of SECO from GARI s Board of Directors while remianing a shareholder of the Fund. - Suspension of Mr. BAAH-SACKEY, Director representing the Merchant Bank of Ghana, for failure to comply with the provisions of article 14 concerning the departure from the nationality provision of the WAMU November 05, banking Act. The Board of Directors has very extensive powers as far as guarantee provision is concerned. Part of its powers is delegated to a Guarantee Committee with double limitation conceived as a personal ceiling per risk equal to a CFAF 600 million counter-value plus a CFAF 10 billion year-to-date.

7 During its meeting held on December 05, 2005, The Board of Directors agreed to: - Suppress the procedure of home consultation by the Board of Directors for deliberative advice on requests having received a favorable advice from the Guarantee Committee and about guarantees of bank credit for a unit amount over CFAF 600 million, resource mobilization operations and investments made in Côte d Ivoire, - Initiate a fourth meeting of the Board of Directors in September. In 2005, the Board of Directors had three (3) meetings (vs. four (4) in 2004). There were also two (2) home consultations of the Board of Directors during the FY. The Board of Directors examined fourteen cases of guarantee requests in 2005 versus eighteen in The Guarantee Committee Established in 1995, the Committee has been renewed on a regular basis since then. The following changes occurred in the constitution of the Guarantee Committee as of December The following people joined the Board: - on behalf of the Merchant Bank: Mr. Charles GIDI, (alternate member) taking over from Mr. P. BAAH-SACKEY, - on behalf of BEI: Mr. REVERSADE (full member) and Mrs MEJIA (alternate member) as new members representing BEI that is joining the Guarantee Committee. The constitution of the Guarantee Committee as of December 31, 2005 is outlined in the following table: Institutions 2005 Full members Managing Director of M. DAIPO GARI, Chair Alternate members - EIB AFD WADB Merchant BANK BTCI BOA-Bénin Independent Expert Independent Expert Mr. REVERSADE Mr. FIGAREDE Mr. AGUESSY Mr. MANKWA Mr. KANEKATOUA Mr. GALIBERT Mr. GOUTHON Mrs. ACQUAH Mrs MEJIA Mrs JAVALOYES Mr. YESSOUFOU Mr. GIDI Mrs AMORIN Mr. TONI - - The Guarantee Committee met four (4) times in 2005 versus three (3) meetings in It examined twenty (20) cases of guarantee request versus eighteen (18) in Statutory Auditing The statutory auditor of GARI since FY 2004 is now AFRIQUE AUDIT & CONSULTING represented by Mr. Ignace A. CLOMEGAH. The May 27, 2005 Ordinary General Assembly designated the Auditeurs Associés en Afrique (AAA-KPMG) firm represented by Mr. Toussaint Olatoundé de SOUZA as alternate statutory auditor.

8 2.4. The Managing Director Mr. Patrick Olivier DAIPO is the Managing Director of the Fund since January 2, The Board of Directors appointed him during its November 27, 2002 meeting Organization In compliance with the direction defined by GARI s founders, in terms of efficiency associated with flexibility of means of management, the Fund is still operated by a core staff. As of 31 December 2005, the positions provided at GARI are the following: Managing Director: 1 Chargé d Affaires: 2 Internal Auditor: 1 Administrative, accounting and finance Officer: 1 Administrative Assistant: 1 Administrative Officer 1 Telephone Operator/Office Agent 1 Driver FAGACE/FSA/ASF/GARI FUND Forum The Managing Directors of the African Funds/Fonds Africain de Garantie et de Coopération Economique (FAGACE), of the Guarantee Fund for Private Investments in West Africa (GARI) and the African Solidarity Fund (FSA) met on April 20, 2005 in Niamey, at ASF Headquarters in order to: Improve the harmonization and standardization of their policies and intervention procedures; Find appropriate responses to their common concerns; Enable a better perception of the guarantor trade by third parties The Managing Directors determined during this meeting a joint strategy likely to help the three institutions to accede to additional resources, namely official development assistance (ODA). They eventually agreed upon the establishment of an African Guarantee Organization having as primary priority the defense of the interests of the trade and its standardization Amendment of the GARI Commitment Ceiling The Board of Directors, in the context of its review of the internal standards of risk division, agreed on May 27, 2005 to set new intervention ceilings. Thus, the multiplying effect moved from. 3.5 to 5 times the net resources of the Fund and the risk per company or company group from 7.5 to15% of the net resources of the Fund. Moreover, to respect parallel conditions for bond loan guarantee and bank loan guarantee, the Board determined to roll back the bond loan coverage rate to 50%. The constitution and by-laws were amended as a consequence.

9 2.8. Amendment of Compensation Conditions for Bond Loan Guarantees The Board of Directors agreed in its review of internal standards for risk diversification on May 27, 2005 to set a 1% contribution on the total guaranteed amount for its resource mobilization transactions and practice a minimum variable 1% payable charge rate on the successive guaranteed outstandings. To this effect, the general agreement conditions concerning resource mobilization operations as well as GARI by-laws were modified. 3. Guarantee Activities The activity of the Fund has registered an extraordinary growth since In effect, up to 2003, the average number of guarantee cases revolved around 15 cases a year for a total CFAF 5 billion. In 2005, thirty-four (34) requests for guarantee were submitted to the decision-making bodies for examination: twenty-four (24) by bank institutions, four (4) by financial institutions and six (6) by management and intermediation companies (for resource mobilization). A total twenty-seven (27) were approved for an amount of CFAF billion, The approved guarantees and corresponding investments are summarized in the table appearing in Annex 1. The corresponding investments are to be carried out in Benin, Burkina Faso, Côte d Ivoire, Guinea, Mali, Niger, Nigeria, Senegal and Togo. The table below summarizes the trends of the guarantees actually approved by the decisionmaking bodies (in CFAF million). Type of institution Case Nber Value % Case Nber Value % Case Nber Value % Commercial Banks 15 5,081 92% 20 5,366 43% 20 6,408 44% Internat. Financ. Institut % 4 3,568 28% 4 2,800 19% Bond loans 0 0 0% 4 3,616 29% 3 5, % TOTAL 16 5, % 28 12, % 27 14, %

10 In 2005, in value, up to 44 % of the guarantees approved concern bank institutions, 19 % concern international financial institutions and 37 % concern management and intermediation companies (for resource mobilization. The corresponding investments are mainly carried out in the industry 50 %, service (36 %) and agro-industry sectors (10%). The changes in the features of the requests for guarantee received and examined are outlined as follows: Features of the requests for guarantee received and examined Unless stated otherwise, FY FY Variation Value since amounts in CFAF million en % establish ment Number of requests received % 232 Amount of the requests received % Average unit value % 531 Number of guarantees approved % 156 Amount of the guarantees approved % Acceptation rates (in % of the sums) 55% 66% 18% 54% Amount of the loans corresponding to the guarantees issued % Average unit value of approved guarantees % 418 Average cover rate guaranteed in % 25% 35% 25% 32% Average term of guarantees (months) % 58 Average delays of the loans guaranteed (months) The following remarks can be made about the above table: Since the launching of GARI s activities, 232 requests for guarantee for a total amount of CFAF 123 billion (in counter-value) have been received. These requests gave rise to 156 approvals for an amount of CFAF 66 billion in counter-value. The rate of favorable decisions against the number of requests for guarantee submitted to the decision-making bodies is 54 % versus 66% for the only year The guarantees approved since establishment concern an overall funding amount of CFAF 204 billion, whereas the related overall investment costs corresponding to the agreed upon guarantees amount to CFAF 600 billion. As to the guarantees approved per country from the start, the leading country is Côte d Ivoire with 35%, followed by Senegal with 13% and Benin with 10% of the total guarantees amount. For the only year 2005, Côte d Ivoire is leader with 30% of the volume of approvals, followed by Burkina (20%) and Mali (14%). Senegal represents but 6% of 2005 approvals.

11 As the favorable decisions mainly concerned shareholder institutions or institutions refunded by shareholders, the average conditions applied to the Fund s customers were 2% for the contribution rate and 1.5% for the commission rate. The tables below show, in CFAF million, the features of the requests for guarantee received and examined since the establishment of the Fund: Follow-up status of the requests received since establishment 31/12/05 In 2005 Received Approved Rejected Postponed Discon tinued Not submitted Number of requests In % of number % 79% 9% 12% - - Amount in CFAF In % of amount % 66% 25% 9% - - SINCE ESTABLI SHMENT Number of requests In % of number % 66% 13% 6% 6% 9% Amount in CFAF In % of amount % 54% 22% 5% 6% 13% Carry over 12% DECISION ON REQUESTS IN 2005 Rejection 9% No follow-up 0% Not presented 0% Agreement 79% Carry over DECISION ON REQUESTS SINCE Rejection 6% ESTABLISHMENT (in number) b ) No follow-up 13% 6% Not presented 9% Agreement 66%

12 APPROVED GUARANTEES PER INSTITUTION SINCE ESTABLISHMENT TO 31/12/2005 INSTITUTIONS NUMBER % AMOUNT % ATLANTIQUE FINANCE BACB BCB EIB BIA NIGER BIA TOGO BIAO CI BICI BOURSE BICICI BICIM BICIS BIG BOA BENIN BOA BURKINA BOA CI BOA MALI BOA SENEGAL BOAD BRIC BSIC BENIN BSIC MALI BSIC NIGER BTCI BTD CAA CBAO CGF BOURSE CITIBANK CLS CNCA BURKINA COBACI CONTINENTAL BK CIM DEG ECOBANK BENIN ECOBANK BURKINA ECOBANK CI ECOBANK GUINEE ECOBANK NIGERIA ECOBANK NIGER ECOBANK SNGL ECOBANK TOGO EIC MERCHANT BANK OMNIFINANCE PROPARCO SGBCI SGB GUINEE SGB SENEGAL SGI TOGO SGI MALI SIB SONIBANK SSB UIBG UTB TOTAL

13 APPROVAL PER INSTITUTION SINCE ETABLISHMENT ( Value in %) 40,00 35,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00 ATLANT.FIN. BIAO CI BOA BENIN BOA CI BOAD CBAO CGF BOURSE ECOBANK TOGO EIC PROPARCO SGI MALI AUTRES

14 DISTRIBUTION OF APPROVED GUARANTEES PER COUNTRY IN 2005 COUNTRY NUMBER % AMOUNT % BENIN % % BURKINA % % COTE D'IVOIRE % % GHANA % % GUINEA % % MALI % % NIGER % % NIGERIA % % SENEGAL % % TOGO % % TOTAL % % DISTRIBUTION OF GUARANTEE APPROVALS PER COUNTRY SINCE ESTABLISHMENT DISTRIBUTION OF GUARANTEES PER COUNTRY SINCE ESTABLISHMENT COUNTRY NUMBER % AMOUNT % BENIN % % BURKINA % % COTE D'IVOIRE % % GHANA % % GUINEA % % MALI % % NIGER % % NIGERIA % % SENEGAL % % TOGO % % TOTAL % % DISTRIBUTION OF GUARANTEE APPROVALS PER COUNTRY SINCE ESTABLISHMENT ( number) NIGERIA 1% NIGER 5% MALI 7% SENEGAL 13% TOGO 9% BENIN 9% BURKINA 11% COTE D'IVOIRE 32% GUINEE 7% GHANA 6%

15 The GARI Fund s strategy since 1999 has been to avoid portofolio concentration so as to curb the effects of socio-political and economic jitters in a given country on GARI s activities. For instance, Côte d Ivoire, which accounted for over 80% of the approved guarantees in 1998 only accounts for 25% in 2004, as illustrated by the following graphs. However, the diversification strategy has enabled in 2005 to reinforce activities in Burkina Faso with a 131% growth as compared to 2004 and ensure a strong penetration in Mali. ACTUAL RISK 1 COMMITMENT PER COUNTRY IN 1998 GHANA 11% SENEGAL 6% COTE D'IVOIRE 83% 1 Actual Risk : Commitment per Country (amount) as of 31 December 2005 GUINEE 5% SENEGAL 2% TOGO 10% BENIN 7% BURKINA 16% NIGER 24% MALI 11% COTE D'IVOIRE 25% 1 An actual risk is a guarantee granted and being actioned.

16 Compared with the past years, the bulk of approved guarantees has significantly increased since This rising trend continues with a bulk of approved guarantees increasing from CFAF 12.5 billion in 2004 to CFAF 14.7 billion in 2005, thus registering about a 20% increase. The following figure shows the evolution of guarantee approvals per year since establishment up to Evolution of guarantee aprovals per year( bulk in FCFA million)

17 4. Comments on Major Financial Statements 4.1. The Balance Sheet The total balance sheet as of 31 December 2005 amounts to CFAF billion, thus recording a 493 million increase (2 %) compared with the previous FY. Liabilities The equity capital (including the CFAF 172 million FY 2005 income) amounts to CFAF billion. This represents a 1.16 % increase as to the previous FY value of CFAF billion. We have suggested that be maintained the 100% provision set in the past years for the cases that acknowledged arrears in those years and whose situation has not evolved in FY We have also proposed to give a 100% provision to other cases that acknowledged arrears in FY Due to the improved financial situation of a case that was provisioned in 2004 on the one hand, and the repayment of some guarantee cases 100% provisioned in 2003 on the other hand, a write-up was made in 2005 for CFAF 94.2 million. On the whole, the accrued balance of provisions for doubtful commitments amounts to CFAF billion as of 31 December 2005 and can be analyzed as follows: Amounts Balance as of 31/12/ Provision 490 Write-ups ( 94 ) Balance as of 31/12/ The balance of the provision for general credit risks amounts to CFAF billion as of 31 December 2005 and can be analyzed as follows: Safe outstanding loans Rate Provisions Provisions in Côte d Ivoire % 251 Provisions in other countries % 912 Total This general provision acting as a reserve was split into two parts since 2002 and determined as follows : - Guarantees made in Côte d Ivoire : in order to adopt a cautious attitude and take into account the country risk linked to the political situation in Côte d Ivoire, the method used since 2002 consisted in applying a 12% rate on the regular and safe commitments made in Côte d Ivoire

18 (the disbursed part of the guaranteed loans having acknowledged no arrear) instead of 10% as before Guarantees made outside Côte d Ivoire: the method used consisted in applying a 10% rate on the regular commitments (the disbursed part of the guaranteed loans). This rate is indexed to the average net rate of client portfolio degradation of the banks in the Fund working area over the last three years, that is about 7%. Assets As to the assets, the Fund cash (CFAF billion) represents nearly all the assets (93 %) and is generated by the contributions in cash collected at the establishment of the Fund, plus the revenues generated. Most of the funds detained at the end of the FY (CFAF 16.4 billion) are deposited on a demand account opened at the BCEAO Head office, Dakar, in euros. The fees paid during the FY were based on the BCEAO holdings rate used on operations account, minus a 0.25 point management margin. This 2.25% rate remained stable during the FY. Besides this account, the Fund holds, at the end of the FY: - other CFAF demand accounts (a positive balance of CFAF 348 million resulting from some investments that fell due at the end of FY 2005 and the payment of guarantees by some beneficiary banks of contributions and underwriting fees) - and other term accounts (amounting to CFAF 3,9 billion). The fees paid for these term accounts amount to a 6.2 % net average rate Most securities and diverse transactions, amounting to CFAF 742 million, are investments. They correspond to WADB debentures (CFAF 192 million) with a 6.3 % rate fee, GTA/C2A debentures (CFAF 150 million) and SIFCA debentures (CFAF 400 million) invested in March 2005 with a 6.50 % rate. The accruals amounting to CFAF 170 million are mainly made of commissions and contributions due at the end of the FY by the institutions benefiting from the Fund guarantees for a CFAF 166 million value, that is 98%. Diverse debt accounts with a balance amounting to CFAF 665 million consist of CFAF 622 million as the advance on performable guarantees paid to the beneficiary institutions in partial payment (85%) of the doubtful cases called in guarantee. The balance of the net fixed assets amount to CFAF 72 million as of 31 December 2005, thus registering a 49 decrease compared with the previous FY. This decrease is mainly due to the depreciation of existing fixed assets as there was no significant acquisition during the FY.

19 4.2. The Off Balance-Sheet The off balance commitments, corresponding to the guarantees granted amount to CFAF billion as of 31 December The balance of these commitments did not acknowledge any significant change as compared with the previous year (2.5%) owing to cases that had been completely repaid and others still being repaid. It must also be noted that a number of guarantees approved in 2005 were not signed nor disbursed accordingly before the end of the FY. GARI s liabilities break down to CFAF billion (81 % out of the total) for commitments on disbursed credits, CFAF billion (6% out of the total) for commitments on credits not yet disbursed, and at last, CFAF billion for bad liabilities fully provisioned (13% out of the total) The Operating Account The net result for FY 2005 culminates at CFAF 172 million as against CFAF 317 million in FY 2004, thus recording a CFAF 145 million decrease of 45.7%. This CFAF 145 million fall as compared to last year performance can be analyzed as follows, in CFAF million: - on the one hand, the provisions generated in 2005 amount to CFAF 490 million contrary to last FY CFAF 283 million, that is a CFAF 207 million decrease in the net income; - on the other hand, the general and specific provision write-ups made in 2005 amount to CFAF 142 million versus CFAF 65 million in 2004, that is a CFAF 77 million increase in the net income. - And at last, various other elements that generated a CFAF 15 million 12% increase in the net income, including an increase in return on investments. The proceeds generated by the management of commitments amount to CFAF 248 million in 2005 and the ones generated by the Fund investments amount to CFAF 692 million as of December 2005.

20 5. Precautionary, Internal and Prescribed Standards As of 31 December 2005, all the internal precautionary standards, as well as the prescribed ones are met by the Fund. It must be noted that in accordance with the rules of risk division prescribed by the Bank Commission: - The minimum standard admitted for the actual equity capital/risk ratio is of 8%, whereas the value released for the Fund as of 31 December 2005 is of 100%, - The maximum standard of the fixed assets/participations ratio in actual equity capital is of 100. This ratio is of 0.35% as of 31/12/2005, - The minimum standard required for the coverage ratio of application of funds by stable resources is of 75%. The value retained for the Fund as of 31/12/2005 is of 90088%, - The standard admitted as a rule for the cash flow coefficient is of 75%. The value retained for the Fund as of 31/12/2005 is of 1023%. It must also be recalled that, as to the internal risk division standards, according to its by-laws, the Fund is not entitled to commit more than five times the amount of its net resources, that is its capital plus the reserves, the grants received and the returns, minus the fixed assets and the provisions computed on the basis of the statements transmitted by the bank institutions. Besides, and in order to ensure risk division, the commitments of the Fund cannot exceed: - For one and the same credit institution benefiting from a guarantee from the Fund, 15% of the commitment ceiling of the Fund, - For one and the same country, 15% of the commitment ceiling of the GARI Fund, - For one and the same company or group benefiting from a guarantee, 7.5% of the equity capitals. The Fund statutory commitment ceiling as of 31 December 2004 is of 100 billion. The agreed country risk is of 15 billion, and the institution risk ceiling is also set at 15 billion. As of December 2005, the country most at risk is Côte d Ivoire with its billion guarantee, and the Institution cumulating the highest risk is WADB with a billion guarantee. The company most at risk is CELTEL-NIGER with a 1.5 billion guarantee as of 31 December 2005.

21 Notes on the accounts of the FY ended 31 December Methods and Principles Used The financial statements of GARI are submitted as required by the Central Bank of West Africa (BCEAO), as defined in the policy manual regarding the accounting and assessment of banking operations, as of August Guarantee Liabilities Guarantee liabilities are accounted for in the off balance-sheet commitments for the maximum value of the guarantee agreed upon, upon the acceptance of the notification of the commitment by the beneficiary. The guarantee liabilities accounted for in the off balance-sheet for loans without arrears are split into two categories, which still receive similar accounting treatments: virtual liabilities cover the guaranteed part of the loans not yet disbursed by the lending institutions to their borrowers, while regular liabilities correspond to the guaranteed loans already disbursed but not repaid yet. The guarantee liabilities which were called by the beneficiary institutions are kept in the off balance-sheet, as disputed commitments until effective payment of the values called. They generate provisions for disputed risk that are adjusted monthly according to the evolution of the guaranteed loans and the exchange rate. Foreign Exchange Transactions All foreign exchange transactions made during the FY concerned currencies which markets had sufficient cash flow of. The foreign currency accounts appear in the balance-sheet and off balance-sheet at their values converted at the cash exchange rate of the concerned currencies at the closing date. The appraisal increase credit between the foreign exchange position and exchange value accounts opened for each currency in which the balance-sheet accounts were made appears as exchange gain or loss in the operating account. The appraisal increase credit between the foreign exchange position and exchange value accounts in the off balance-sheet, opened for each currency in which the guarantee commitments were made, appears in the general contra account of the off-balance sheet liabilities. The variation of the off-sheet liabilities due to the changes of the exchange rate has no impact on the operating statement other than the one due, indirectly, to the adjustment of provisions for bad liabilities (doubtful and disputed).

22 Fixed assets Fixed assets are accounted for at their cost price, with assets procurement being entered as fixed assets beyond an overall unit price over CFAF 250,000. Investment costs are fully depreciated during the first FY. The maximum depreciation periods, according to the straight-line method used, are of 2-3 years for investments to date, exclusively as computer software and hardware, office furniture and equipment as well as transportation equipment. Provisions As to the FRBG provision: a- b- c- The provision rate for general credit risk is of 10% if the bank loss rate over the three last FYs is equal or inferior to 10%, If the bank loss rate exceeds 10%, such loss rate is retained, The provision rate is applied to the regular bulk (only on the disbursed parts of guaranteed loans). Since FY 2002, for Côte d Ivoire cases, in order to adopt a cautious attitude and take into account the country risk linked to the political situation in this country, the method used consisted in applying a 100% rate to the average 6% net rate corresponding to the degradation of banks holdings in Côte d Ivoire over the last three years. Thus as of 31 December 2004, a 12% rate was applied on the regular and safe commitments made in Côte d Ivoire as in 2002 and For the guarantees made outside Côte d Ivoire, the usual 10% rate was maintained. As to the mode of provision for bad commitments, it complies with the requirements of the Bank Commission accounting for: The debts comprising at least one maturity unpaid for more than six (6) months The credits comprising at least one unpaid maturity and concerning debtors with a bad financial situation. The debts standing as bad debts. The debts subjected to amicable settlement or not and whose agreement conditions were not met. The debts and off-balance sheet commitments on debtors residing outside the CFA franc area, having obtained or asked for debt rescheduling in a multilateral context or having interrupted payments on behalf of their indebtedness: country risk. The provisions on these debts are made, as to the risks on private companies, in conformity with the following principles of BCEAO precautionary device applicable to banks and financial institutions of West African Monetary Union (WAEMU) as of 1 January 2000: Collateralized risks: provision constitution is optional during the first two FYs. The provision must cover at least 50% of the total risk during the third FY and 100% during the fourth FY;

23 Non collateralized private risks must be 100% provisioned, during the FY when the debts are downgraded to bad or doubtful debts; Unpaid interests entered as credit in the operating account must be provisioned up to the due value; Bad debts relating to rents linked to lease purchase transactions and related transactions must be fully provisioned up to the due value; Interest unpaid due for more than 3 months and relating to country-risks must be fully provisioned; Unrecoverable debts must be written off in full. These requirements are minimal. Miscellaneous receivable account debts recorded as assets whose actual payment is uncertain are provisioned in full, in deduction of the gross book value. 2. Additional Information The directions of application of the Bank chart of accounts make it compulsory for taxpaying institutions to add to the recordable accounts some information on a few points, unless they are not very significant. a) Initial and remaining credit and debt terms All receivables and debts recorded as assets and liabilities of the balance-sheet are due and payable with initial and remaining terms comprised between 0 and 12 months. b) Transactions with companies of the same group According to bank regulation, are regarded as companies belonging to the upstream group, the companies or institutions holding more than 10% of the corporate capital. Transactions with the upstream group as of (value in CFAF): Receivables Due contributions and charges (WADB PROPARCO) Debts Expenses due and accrued (WADB rent and telephone) Off balance sheet Guarantee commitments of credit institutions (WADB PROPARCO)

24 c) Classes of securities constituting the corporate capital and associated rights The Fund corporate capital amounts to CFAF 12,954,500,000 as of 31 December 2005, and comprises 129,545 shares of CFAF 100,000 face value providing each holder with equal rights.. d) Reserve distribution (in CFAF) Income awaiting allocation CFAF Before allocation Income allocation After allocation Special reserve (15%) including statutory special reserve - including additional 0 0 special reserve General reserve (85%) Total reserve