BANK OF PALESTINE LTD. PUBLIC SHAREHOLDING COMPANY GAZA PALESTINE

Transcription

1 BANK OF PALESTINE LTD. PUBLIC SHAREHOLDING COMPANY GAZA PALESTINE CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT FOR THE YEAR ENDED DECEMBER 31, 2003

2 Consolidated Financial Statements and Independent Auditor s Report Table of Contents Page Independent Auditor s Report 1 Consolidated Balance Sheet 2 Consolidated Income Statement 3 Consolidated Statement of Changes in Shareholders Equity 4 Consolidated Cash Flow Statement 5 Notes to the Consolidated Financial Statements 6-31

3 G.Z 8-01 Independent Auditor s Report To the Shareholders Bank of Palestine LTD. We have audited the accompanying consolidated balance sheet of Bank of Palestine LTD. - Gaza (a Public Shareholding Limited Company) (Note 1) as of, 2003, and the related consolidated statement of income, changes in shareholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Bank s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. 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 management, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Bank of Palestine LTD Gaza () as of, 2003, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Gaza February 14, 2004 Saba & Co. Adnan R. Awad

4 Consolidated balance sheet As of, 2003 (In US Dollars) 2 Note ASSETS Cash on hand and at Palestinian Monetary Authority (PMA) 3 41,068,729 31,905,783 Deposits at banks 4 157,946, ,300,683 Loans and credit facilities net 5 103,296,234 71,253,904 Trading investments 622, ,806 Held-to-maturity investments 6 13,000,000 2,000,000 Real estate investments 7 1,652,449 1,748,412 Other debit balances and interest receivable 8 3,929,058 1,116,627 Property, plant and equipment net 9 11,968,565 12,876,011 Total assets 333,483,422 LIABILITIES AND SHAREHOLDERS EQUITY Liabilities PMA s deposits 25,482,759 10,979,979 Banks deposits 5,308,319 87,515 Customers deposits ,167, ,593,099 Cash margin 11 24,852,247 23,810,797 Provisions 12 4,006,538 2,516,996 Other liabilities 13 3,449,571 3,242,901 Total liabilities 308,267, ,231,287 Shareholders equity Authorized capital 1 30,000,000 30,000,000 Paid up capital 1 20,320,000 20,320,000 Compulsory reserve 1,897,500 1,649,881 Voluntary reserve 245,034 22,177 General reserve 1,247, ,998 Proposed dividends 1,270, ,000 Retained earnings 235, ,883 Total shareholders equity 25,216,315 23,625,939 Total liabilities and shareholders equity 333,483,422 Contra accounts (Memoranda) 14 46,454,861 35,755,331 The accompanying notes are an integral part of these consolidated financial statements Dr.Hani Hashem Shawa Chairman Board of Directors Mr. Maher Farah Member Board of Directors

5 Consolidated Income Statement (In US Dollars) 3 Note Revenue Interest income 15 12,317,250 Interest expense (2,598,245) (2,775,785) Net interest 9,719,005 9,061,067 Commission income 16 2,656,356 1,336,674 Total interest and commission net 12,375,361 10,397,741 Unrealized profits (losses) from marketable stocks 87,102 (495,123) Income from financial investment ,873 Other revenue 19 4,586,912 3,213,022 Total revenue 17,215,248 13,115,640 Expenses Salaries, wages and allowances 20 (5,238,835) (4,755,000) General and administrative expenses 21 (3,016,956) Provision for doubtful debts 5 (1,951,391 (2,218,980 Depreciation expense (1,415,260) (1,219,543) Loss from decrease in real-estates value (824,126) Total expenses (12,446,568) (10,690,330) Income before tax 4,768,680 2,425,310 Value Added Tax (VAT) (740,443) (703,316) Income tax expense (1,552,052) (626,568) Net profit for the year 2,476,185 1,095,426 Earnings per share 1.95 Average of outstanding shares 1,270,000 1,270,000 The accompanying notes are an integral part of these consolidated financial statements

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7 Bank of Palestine LTD. Consolidated Statement of Changes in Shareholders Equity (In US Dollars) Paid - up capital Compulso ry reserve Voluntary reserve General Reserve Proposed dividends Retained earnings 4 Total of shareholders equity Balance at January 1, ,320,000 1,540,338 22, , , ,165,51 Dividends paid for the year (635,000) --- (635,000 Net profit for the year ,095,426 1,095,42 Compulsory reserve, 10% from net profit , (109,543) -- Proposed dividends ,000 (762,000) -- Balance at, ,320,000 1,649,881 22, , , ,883 23,625,93 Dividends paid for the year (762,000) (762,000 Net profit for the year ,476,185 2,476,18 Compulsory reserve, 10% from net profit , (247,619) -- Voluntary reserve , (222,857) -- General reserve , (600,000) -- Proposed dividends ,270,000 (1,270,000) -- Board of Directors fees, 5% from net profit (123,809) (123,809 Balance at, ,320,000 1,897, ,034 1,247,998 1,270, ,783 25,216,31 The accompanying notes are an integral part of these consolidated financial statements

8 Consolidated Cash Flow Statement (In US Dollars) 5 Cash flows from operating activities Income before tax 4,768,680 2,425,310 Adjustments for: Depreciation of property and equipment 1,415,260 1,219,543 Revaluation decrease on land and buildings 824,126 Loss on disposal of property, plant and equipment 30,948 Allowance for doubtful debts 1,951,391 Changes in operating assets and liabilities Compulsory deposits at PMA (4,368,603) Loans and credit facilities (33,993,721) 15,010,698 Other debit balances and interest receivable (2,812,430) Customers deposits 53,574,574 PMA s deposits 14,502,780 Banks deposits 5,220,803 Cash margin 1,041,450 Provisions and accruals 1,572, ,475 Net cash provided from operating activities before tax 43,727,660 17,998,210 Income tax expense and VAT (2,292,494) (1,329,884) Net cash provided from operating 41,435,166 Cash flows from investing activities Property, plant and equipment (1,385,471) Investments (10,870,234) Proceeds from sale of property, plant and equipment 22,583 Net cash used in investing activities (12,233,122) Cash flows from financing activities Dividends paid (762,000) Net cash used in financing activities (762,000) Net increase in cash and cash equivalents (Note 22) 28,440,044 The accompanying notes are an integral part of these consolidated financial statements

9 Notes to the Consolidated Financial Statements 6 1. Bank and its activity Bank of Palestine LTD, the bank was established in 1960 as a public shareholding company with a head office in Gaza City according to companies law number (18) for the year 1929 and its amendments with an authorized capital of 500,000 Egyptian Pounds divided into 50,000 shares. The capital was increased to 20,320,000 US Dollars divided into 1,270,000 shares with a par value of 16 US Dollars per share based on the decision taken by shareholders in their meeting held on May 18, As per shareholders'decision in their meeting of May 10, 2002, the authorized capital of the bank was increased to 30,000,000 US Dollars and was registered with the related official departments. In November 2002, an audit committee was formed by the Board of Directors to maintain its responsibility addressed in banking law. The main objective of the bank is to practice all different bank activities through their branches throughout Palestine and through the accompanying firm INVESTMENT CO. LTD 2000 INVESTMENT CO. LTD was established on January 13, 1999, as a private shareholders company, under registration number ( ) in Gaza, with an authorized capital of 100,000 US Dollars divided into shares, with a par value of 100 US Dollars per share. The Bank of Palestine Ltd owned 90 percent of the company. The capital was increased to 500,000 US Dollars based on the decision taken by shareholders on August 23, This is not subscribed up to date. The purpose of establishing the company is represented in deals with real-estate investment from buying, leasing and establishing the real-estate projects with follow up management. In addition, they work as stock brokers in the stock markets for clients; they sell, buy and transfer all the related stock papers, stocks and bonds. Basis of consolidation The accompanying consolidated financial statements include assets, liabilities, and results of operations of both the bank and its subsidiary INVESTMENT CO. LTD which is 90 percent owned, directly or indirectly, by the bank. The consolidated financial statements have been prepared by combining assets, liabilities and results of operations of the bank with those of its subsidiary and after eliminating inter-company transactions and balances.

10 7 2. Summary of significant accounting policies Basis of accounting The accompanying consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) {formerly referred to as International Accounting Standards (IAS)}, the banking regulations prescribed by the Palestinian Monetary Authority (PMA), other related regulations and according to historical cost basis. Trading investments, available-for-sale investments and financial derivatives are stated at fair value in the year ended. Furthermore, the hedged assets and liabilities are revealed at fair value. Revenue recognition Interest income and expenses are recognized on a time proportion basis, by reference to the principal outstanding and at the interest rate applicable. The recognition of income is ceased when the recovery of interest or principal is in doubt. Interest earned on such advances is suspended. Commissions and fees income are accounted for at the date of transaction. Recoveries in respect of loans fully provided are accounted for on a cash receipt basis. Recogonition of the financial procedures Selling and buying transactions are recognized when committed. Investments Trading investments oustanding in the stock market are stated at fair value. The difference between the fair value and the cost of those financial assets is recognized in income statement. Held to maturity investments are recorded at the historical cost. The premium or discount of issuance from the purchasing date to the due date is calculated by the straight line method basis by using the effective interest method on/for interest. Provisions are made for any reduction in the amounts that may lead to not recovering all or part of the original. Other investments in companies and real estate are stated at the lower of average cost or market value. Real estate investment represents the unoccupied part of Bank of Palestine tower, which comprises of the stores in the ground floor and the last nine floors.

11 8 2. Summary of significant accounting policies (continued) Loans and credit facilities net Loans and credit facilities are presented at cost minus suspended interest and provision for doubtful debts. Specific provision has been taken for credit facilities that are not active when it is impossible for the management to recognize receiving the whole or part of the accrued amounts. This provision is calculated according to the difference between the book value and the value able to be returned; this is the current value for the expected cash flow including the value able to be returned from the guarantees subtracted by an effective interest price according to International Accounting Standard no. (39) or according to the Palestinian Monetary Authority instructions. The provision reflects any of the two methods, which ever is bigger, in the income statement. The interest and commissions have been suspended on the direct credit facilities that are not active according to the Palestinian Monetary Authority instructions. Recording them as classified receivables has been stopped and legal procedures have been taken. General provision for other direct and indirect credit facilities has been taken to face the potential unlimited losses that are revealed in future, according to the Palestinian Monetary Authority instructions. All receivables have been deducted from the specific provision in case the matter of collecting them is impossible. Any surplus from the provision is transferred to the income statement in addition to all the returned amounts from the deducted provision being recorded in the income statement. Fair value The fair value of quoted financial assets represents the closing price in stock markets. Unquoted financial assets are valued by the management based on the market value of similar financial assets or based on the book value as presented in the consolidated financial statements, or any relevant data that may lead to determine their fair value. In case some investments exist with a fair value which can t be measured adequately, we depend on the historical costs or book value costs.

12 9 2. Summary of significant accounting policies (continued) Tax and tariff Taxable income is the profit in US Dollars stated in the income statement. Tax provision consists of value added and income tax according to tax law requirements. Value Added Tax of salaries is recorded as a part of salaries, wages and allowances expense. No deferred tax assets have been accounted for in the consolidated financial statements because management is not sure of realizing such assets in the future. Allowance for doubtful accounts General and special provisions for doubtful credit facilities are calculated based on management estimates and according to instructions of the official controlling authorities. Land and real estate at cost Land and real estate are revealed at cost in the lower range of cost or fair value on an individual basis. Any reduction in the fair value under the book value is recorded as loss but the increase is not recorded as gain. Property, plant and equipment Property and equipment are stated at cost less accumulated depreciation and any identified impairments. Depreciation is charged so as to write off the cost or valuation of assets, over their estimated useful life, using the straight-line method as follows: Year Percentage (%) Building 50 2 Property, equipment, furniture and vehicles In case the arm s length price; fair value for the fixed assets is lower than the recorded book value then a reduction is taken till it reaches the arm s length price and the difference is then recorded in the income statement as loss.

13 10 2. Summary of significant accounting policies (continued) Contra accounts (Memoranda) Contingent liabilities, which may occur as a result of the bank practicing it s usual activities, are recorded as contingent accounts and disclosed as items out of the balance sheet. These accounts include obligations caused by letters of credit and guarantees given to customers. Foreign currency Transactions in foreign currencies are translated to US Dollars at the exchange rate prevailing at the date of each transaction. Monetary assets and liabilities denominated in foreign currency are evaluated at the exchange rates prevailing at the date of the financial position. The resultant exchange gain (loss) is reflected in the income statement. Provision for staff indemnity Staff indemnity is provided for bank employees according to the labor law no. (7) for the year Cash and cash equivalent For the preparation of the cash flow purposes, the cash and cash equivalents are defined as those amounts that are recorded in the cash on hand and at Palestinian Monetary Authority (PMA) excluding the regular deposits - These consolidated financial statements are the translation of Arabic version.

14 11 3. Cash on hand and Palestinian Monetary Authority (PMA) Cash 17,344,580 11,941,802 Balances at PMA 23,724,149 19,963,981 41,068,729 31,905,783 Balances at PMA, including an amount of 23,666,978 as of, 2003, and 19,298,375 as of, 2002, represent the compulsory reserve. The compulsory reserve with PMA is determined as per circular number (1/2001) dated on June 12, 2001, issued by Banks controller in PMA. 4. Deposits at banks Current account at overseas banks 18,691,609 20,415,867 Time deposit at overseas banks 138,105, ,884,816 Time deposit at local banks 1,149, ,946, ,300,683 The bank s average interest rate on that current account is less than the interest on the time deposit for the same period with 0.26 percent

15 12 5. Loans and credit facilities net Loans 49,137,433 34,080,062 Current overdraft 66,139,689 48,033,910 Credit cards 2,787,534 2,193,327 Less: 118,064,656 84,307,299 Suspended interest (2,436,160) (2,378,548) Allowance for doubtful debts (12,332,262) (10,674, ,296,234 71,253,904 The above mentioned loans represent the net amounts after deducting loan interests received in advance with an amount of 1,904,312 and 1,168,478 as of, 2003 and 2002 respectively. The bank s management calculates the provision for doubtful debts according to the circulation number (2001/7/4 D93) of PMA. The movement of provisions for doubtful debts is represented as follows: Balance at beginning of year 10,674,847 8,795,547 Allowance for doubtful debts (293,976) (339,680) Additions during the year 1,951,391 2,218,980 1,657,415 1,879,300 Balance at end of year 12,332,262 10,674,847

16 13 5. Loans and credit facilities net (continued) Movement of the suspended interests during the year was as follows: Balance at beginning of year 2,378,549 2,765,545 Suspended interests during the year Disposal Reconciled customer interest 58,713 Balance at beginning of year 2,436,160 2,378,548 According to the PMA instructions, charging interest on doubtful debts is ceased for those debts of more than 90 days old. 6. Held-to-maturity investments, 2002 Movements during the year 2002, 2003 Additions Total Disposals Investment Other debit balances Other investments overseas Bonds at par value Commission paid in advance Interest paid in advance Paid amount Amortization note 18 Balance Investments in the foreign bonds represent held-to-maturity investments. The range of the maturity is between 2004 and 2008 with an interest average reaching between 4.80% and 6.7% Other investments represent other investments that are guaranteed to be returned at the maturity date of July, 2005

17 14 7. Real estate investments The real estate investments represent the unoccupied part of the Bank of Palestine tower which comprises of stores in the ground floor and the last nine floors from the building as follows:, Balance at beginning of year Sale of apartments Transfer to bank s assets Redemption and expansion Revaluation on land and buildings 8. Other debit balances and interest receivable, Prepaid expenses 223, ,644 Interest receivables 99, ,634 Devices and supplies store 217, ,603 Tower apartments installments 301, ,867 Cost of branches under construction 333,294 6,436 Prepaid interest Prepaid commission - bonds 532, ,500 Interest receivable - bonds ---- Outstanding checks 1,446, Miscellaneous accounts 533, ,534 3,929,058

18 15 9. Property, plant and equipment net Cost: Total Real Estate Computers & supplies Equipment & Furniture Vehicles January 1, ,327,223 10,005,430 4,967,243 5,913, ,265 Additions 1,385, , ,107 Disposal (155,885) (16,723) (113,686) (25,476), ,556,809 10,125,991 5,347,323 6,667, ,789 Accumulated Depreciation: January 1, 2003 (8,451,212) (1,561,996) (3,670,869) (2,953,373) (264,974) Additions (1,415,260) (255,010) (429,969) (682,139) (48,142) Disposal 102,354 14,885 82,377 5,092, 2003 (9,764,118) (1,817,006) (4,085,953) (3,553,135) (308,024) Revaluation decrease on land and buildings-income statement (824,126) (824,126) Net book value:, ,968,565 7,484,859 1,261,370 3,114, ,765, ,876,011 8,443,434 1,296,374 2,959, ,291 Buildings include part the of Bank of Palestine tower occupied by the bank (first four floors and part of the basement) and the building of branches (Head Quarters Khanyounes Jabalia land related to Al Naser Branch) amounting to 6,214,581 for the years ended, 2002 and 2003.

19 Customers deposits Demand deposits 132,784,872 88,032,977 Saving deposits 37,203,236 30,939,958 Time deposits 75,179,565 72,620, ,167, ,593, Cash margin Margins against letters of credit 4,048,404 1,771,372 Margins against letters of guarantee 10,481,934 9,543,170 Margins against Master Cards 1,322,325 1,073,288 Cash margin direct facilities 8,763,273 11,422,967 Margins against mortgages 236, ,852,247 23,810,797

20 Provisions Provision for staff indemnity 2,494,466 1,839,010 Provision for tax 1,512, ,986 a. Movement of provisions for staff indemnity was as follows: 4,006,538 2,516,996 Opening balance 1,839,010 1,410,062 Provision expense charged to loss account note , ,076 Less: paid during the year (133,115) (81,128) b. Movement of provision for tax was as follows: 2,494,466 1,839,010 Opening balance 677,986 1,280,806 Provision expense charged to profit account 1,552, ,568 VAT Salaries 740, ,316 2,292,495 1,329,884 Income tax expense salary 155, ,201 Payments during the year (1,613,717) (2,059,905) 1,512, ,986

21 Other liabilities Staff saving fund 1,070, ,867 Accrued dividends 563, ,982 Accrued minorities equity 27, Approval checks 649, ,863 Accrued bonus for board of directors --- Accrued expenses 49,140 56,745 Other credit balances 1,051, Contra accounts (Memoranda) 3,449,571 3,242,901 Letters of credit 17,734,998 11,140,171 Letters of guarantee 28,719,863 24,615,160 46,454,861 35,755,331

22 Interest income Interest income customers Interest earned loans 3,525,526 2,863,408 Interest earned current overdraft 6,046,382 5,766,096 Interest income banks 9,571,908 8,629,504 Received interest from overseas banks 1,602,863 2,426,853 Received interest from Israeli banks 1,142, ,495 Interest income banks 2,745,342 3,207, Commission income 12,317,250 Commissions from letters of credit and guarantees 1,375, ,048 Commissions from credit facilities 1,281, ,626 2,656,356 1,336,674

23 Interest expense Interest paid for saving deposits 1,887,789 2,025,828 Interest paid for time deposits 165, ,889 Interest paid for cash margin 27,333 68,531 Interest and commission paid for banks 106, ,758 Interest paid for demand deposit 411, ,779 2,598,245 2,775,785 Interest paid for saving deposits include saving account gifts amounting to 128,254 and 135,300 for the years then ended, 2003 and 2002, respectively. 18. Income from financial investment Interest revenue Amortization of prepaid interest Amortization of prepaid commission 2003 Revenue of held-to-maturity investments 175,778 Revenue of available for sale investments Losses for liquidation of Exchange Services Company

24 Other revenue Currency exchange differences 1,098, ,488 Income of Master Card 365, ,827 Other income 565, ,574 Bank transfers commission 980, ,320 Checks dishonored commission 316, ,750 Miscellaneous bank services commission 841, ,063 Loss on fixed assets redemption (30,948) --- Revenues for 2000 Investment Co. Ltd 106, Returned bad debts 343, Salaries, wages and allowances 4,586,912 3,213,022 Wages and salaries 4,351,875 4,145,257 Provision for staff indemnity (note 12) 788, ,076 Bank s contribution in staff saving fund 98,389 99,667 5,238,835 4,755,000 The salaries, mentioned above, included the General Manager s salary with an amount of 186,342 and 145,420 for the years 2003 and 2002, respectively. The total staff of the bank was 423 and 386 employees as of, 2003, and, 2002 respectively.

25 General and administrative expenses Telephone and post 407, ,410 Rent 274, ,649 Stationery and printed material 237, ,215 Advertising 227, ,284 Maintenance 256, ,098 Electricity and water 185, ,458 Rewards and Eid payments 139, ,679 Charitable work and donations 24,726 34,872 Cash transfer expenses 121, ,087 Travel and transportation 71,385 69,507 Professional fees 166, ,101 Clothes allowances 105, ,955 Insurance expenses 100,398 85,765 Bank license fees 127,407 96,223 Swift fees 31,607 34,772 Guard and security fees 53,954 64,821 Health and medical expenses 91,237 57,479 Fuel 24,526 47,183 Vehicles expenses 17,423 11,254 Check books 142,914 75,560 Redemption expenses 15,808 68,804 Board of directors bonus for the year 2002 Attendance payments for board of directors 767 Attendance payments for monitoring committee Bank tower expenses 10,492 4,238 Ownership tax 14,735 Parties and hospitality expenses 33,962 11,743 Swift improvements 32, Miscellaneous expenses 47,527 66,883 Total 3,016,956 2,496,807

26 Net increase in cash and cash equivalents Cash and cash equivalents consist of cash on hand, cash and balances with banks as follows: Change during 2003 Cash on hand and PMA 41,068,729 31,905,783 9,162,946 Deposits at banks 157,946, ,300,683 23,645, ,015, ,206,466 32,808,647 Less: compulsory reserve (23,666,978) (19,298,375) (4,368,603) 175,348, ,908,091 28,440,044 Change during Cash on hand and at PMA 31,905,783 29,462,563 2,443,220 Deposits at banks 134,300, ,629,263 11,671, ,206, ,091,826 14,114,640 Less: compulsory reserve (19,298,375) (18,539,304) (759,071) 146,908, ,552,522 13,355,569

27 Interest price elasticity a) Interest price elasticity as of, 2003 Assets: Within 3 months From 3 to 6 Months From 6 to 12 Months Over 1 year Inelastic Interest Total Interest Price Cash on hand and at PMA 41,068, ,068, Deposits at banks 139,254, ,691, ,946,384 Loans and credit facilities 2,787,534 82,731,767 14,768,422 3,008, ,296,234 Trading Investment 622, , Held-to-maturity investments 1,000, ,000, ,000,000 Real estate investments ,652,449 1,652, Other debit balances and interest receivable ,929,058 3,929, Property, plant, and equipment ,968,565 11,968, Total assets 184,733,041 82,731, ,768,422 39,250, ,483,422 Liabilities and shareholders equity: Customers'deposits 75,179,565 37,203, ,784, ,167,673 PMA's Deposits 25,482, ,482,759 Banks'deposit 5,101, ,424 5,308,319 Cash margins ,852,247 24,852, Provision ,006,538 4,006, Other liabilities ,449,571 3,449, Total shareholders equity ,216,315 25,216, Total liabilities and shareholders equity 105,764,219 37,203, ,515, ,483,422 Gap in the accounts within the financial position statement 78,968,822 45,528, ,768,422 (151,265,775) ---

28 Interest price elasticity (continued) b) Interest price elasticity as of, 2002 Within 3 months From 3 to 6 months From 6 to 12 months Over 1 year Inelastic Interest Total Interest Price Assets: Cash on hand and at PMA 31,905, ,905, Deposits at banks 111,789, ,511, ,300,683 Loans and credit facilities 21,789,425 14,189,685 4,007,525 10,674,847 71,253,904 Trading Investment 547, , Held-to-maturity investments ,000, ,000,000 Real estate investments ,748,412 1,748, Other debit balances and interest receivable ,876,011 12,876, Property, plant, and equipment ,116,627 1,116, Total assets 166,032,461 14,189,685 6,115,625 48,927,033 Liabilities and shareholders equity: Customers'deposits 72,620,164 30,939, ,032, ,593,099 PMA's Deposits 10,979, ,979,979 Banks'deposit ,515 87, Cash margins 11,421,688 9,543,170 1,771, ,074,567 23,810, Provision ,516,997 2,516, Other liabilities ,242,900 3,242, Total shareholders equity ,625,939 23,625, Total liabilities and shareholders equity 95,021,831 40,483, ,580,895 Gap in the accounts within the financial position statement 71,010,630 (26,293,443) 18,821,050 6,115,625 (69,653,862) ---

29 Assets and liabilities accruals a) Assets and liabilities accrual as of, 2003 Assets: Within 3 months From 3 to 6 Months From 6 to 12 Months Over 1 year Total Cash on hand and at PMA 41,068, ,068,729 Deposits at banks 157,946, ,946,384 Loans and credit facilities 29,467,790 18,902,304 27,475,562 27,450, ,296,234 Trading Investment 622, ,003 Held-to-maturity investments 1,000, ,000,000 13,000,000 Real estate investments ,652,449 1,652,449 Other debit balances and interest receivable 2,188, ,740,118 3,929,058 Property, plant, and equipment ,968,565 11,968,565 Total assets 232,293,846 18,902,304 27,475,562 54,811, ,483,422 Liabilities and shareholders equity: Customers'deposits 27,540,528 13,710,785 5,847, ,069, ,167,673 PMA's Deposits 25,482, ,482,759 Banks'deposit 5,308, ,308,319 Cash margins 2,785,270 1,386, ,328 20,089,029 24,852,247 Provision 1,514, ,492,354 4,006,538 Other liabilities ,168,783 3,449,571 Total shareholders equity ,216,315 25,216,315 Total liabilities and shareholders equity 63,911,848 15,097,405 6,438, ,035, ,483,422 Gap in the accounts within the financial position statement 168,381,998 3,804,899 21,037,223 (193,224,120) ---

30 Assets and liabilities accruals (continued) b) Assets and liabilities accrual as of, 2002 Assets: Within 3 months From 3 to 6 Months From 6 to 12 Months Over 1 year Total Cash on hand and at PMA 31,905, ,905,783 Deposits at banks 134,300, ,300,683 Loans and credit facilities 21,789,425 14,189,685 20,592,422 14,682,372 71,253,904 Trading Investment 547, ,806 Held-to-maturity investments ,000,000 2,000,000 Real estate investments ,748,412 1,748,412 Other debit balances and interest receivable 1,116,627 Property, plant, and equipment ,876,011 12,876,011 Total assets 189,072,538 14,418,119 20,839,757 31,526,812 Liabilities and shareholders equity: Customers'deposits 145,967,339 5,613,391 13,131,830 26,880, ,593,099 PMA's Deposits 10,979, ,979,979 Banks'deposit 87, ,515 Cash margins 7,281,335 4,741,743 6,881,335 4,906,384 23,810,797 Provision ,628,062 2,516,997 Other liabilities --- 3,242,900 Total shareholders equity ,625,939 23,625,939 Total liabilities and shareholders equity 166,114,220 11,749,050 20,013,165 57,980,791 Gap in the accounts within the financial position statement 22,958,318 2,669, ,592 (26,453,979) --- The maturity of assets and liabilities has been determined on the remaining period of the balance sheet to the basis of contractual maturity dates.

31 Capital adequacy Capital base 25,216,315 22,970,133 Risk weighted assets: On balance sheet assets 134,696, ,282,600 Off balance sheet assets 15,962,262 12,220,395 Total risk - weighted assets 150,659, ,502,995 Capital adequacy ratio 2:1 % 18.90% 26. Risk management Policies relating to credit are reviewed and approved by the Bank s Credit Policy Committee. All credit lines are approved centrally by the Bank s Credit Division and Central Credit Committee in accordance with the banks credit policy set out in the Credit Policy Manual. Credit and marketing functions are segregated. In addition, whenever possible, loans are secured by acceptable forms of collateral in order to mitigate credit risk. The bank further limits risk through diversification of its assets by geographical and industrial sector limits. All credit facilities are administered and monitored by the Credit Administration Department. Periodic reviews are conducted by Credit Examination teams from the Risk Management Division and facilities are risk graded based on criterion established in the credit policy manual.

32 Foreign exchange currency risk Foreign exchange and derivatives trading for the account of the bank are managed by a very limited proprietary foreign exchange trading limit. However, treasury activities are primarily focused towards meeting the requirements of customers to manage their foreign exchange exposure. These dealing in the financial markets are matched by equal and opposite treatment to customers. The bank s assets are mainly invested from the same currency that is dealt with; this is for decreasing the bank s risk toward the foreign exchange. However, the bank is keeping the under the limitation assigned from the specialized committee in the bank. On, 2003, the bank attribute was not as an overdraft toward the foreign exchange in a material respect. There is segregation between the customers and the control office while positions are monitored continuously and independently. As of, 2003: The positions opened for the bank with any currency do not exceed 5 percent of the capital base amounting to 25,216,315. The total amount of all the available currencies positions is not exceeding 20 percent of the capital base amounting to 25,216,315 as follows:, Dr. (Cr.) Dr. (Cr.) NIS (302,548) (105,724) 155, ,451 JD (706,114) (70,897) EUR 650,995 39,718 OTHER CURRENCIES 202,616 (2,548)

33 Interest rate risk The specialist committee monitors and sets policies for interest rate and liquidity risk management. Such committee regularly meets on a periodic basis to review liquidity ratios, gaps and economic scenarios, and formulates guidelines accordingly on a continual basis. Periodic stress test simulations are performed in order to ascertain interest rate risks. The bank is not excessively exposed to interest rate risk. The committee also fixes limits for liquidity ratios and monitors them closely. Liquidity management policies are set to ensure that, even under adverse conditions, the bank is in a position to meet its obligation. 29. Commitments and contingent liabilities Court cases There are a number of legal cases brought against the bank, as of, 2003, still unresolved. Based on the advice of the bank s legal consultant, no provisions have been taken because no material losses are expected. Commitment and contingent liabilities The main reason from all these instruments is to guarantee a money provision for the customers when requested. The letter of guarantee and letter of credit are considered as guarantee unable to be reduced from the bank in case the customers claimed to liquidate them when they are unable to obey their commitment to the third party. These carry the same risks that are carried on loan and credit facilities. The letter of credit considers contingent liabilities from the bank instead of the customer. It allows the third party to draw the money in compliance with limited conditions and terms and is usually guaranteed by the related inventory. Therefore, it often carries a lower risk, however, the monetary requirements for the letter of guarantee and the letter of credit is much less than the committed amount because the bank is not expecting the third party to draw money according to the agreement. The commitments to give the credit facilities represent the unused part from the given credit facilities in the form of loans, guarantees and letters of credit. The risks related to the credit facilities offered to them, may possibly expose the bank to a loss in an amount equivalent to the total of unused commitment

34 Commitments and contingent liabilities (continued) Commitment and contingent liabilities (continued) However, the potential loss that can t be immediately expected may be much less from the total of unused commitment because most of the commitments giving facilities require the customers to be in compliance with specified credit facility standards. The total commitment is usually finished without producing the requested fund. 30. Related party transactions The total amount of the facilities given for the related parties reaches to 243,525 with a guarantee of mortgage real-estate and a personal sponsor as of, Consolidated financial statements The consolidated financial statements as of, 2003 were issued after the Board of Director s approval on March 13, 2004, and before the normal annual General Assamply meeting for the year. Therefore, they will be presented to the shareholders in their coming annual meeting for approval. 32. Subsequent events after the consolidated financial statements date The bank s Board of Directors decided in their meeting, dated on January 18, 2004, to issue 605,000 stocks with a par value of 16 per stock and issuance premium with an amount of 4 per stock, in addition to managing registration fees for about 2 US cents. These shares will be available for registration on February 21, Comparative amounts Certain comparative figures for the previous year have been reclassified to be consistent with current year presentation.