Consolidated Bank of Kenya

Consolidated Bank of Kenya i

Nairobi: Head Office, Consolidated Bank House Koinange Street, Harambee Avenue, Mombasa: Nkurumah Road, Maua, Laare, Meru, Thika, Murang a, Nyeri, Embu, Isiolo.

Contents Directors profile Company information Chairman s statements CEO s statement Statement of corporate governance Director s report Statement of directors responsibilities Auditor s report Financial statements Notice of the AGM Proxy form Vision Statement To be the most pleasant and convenient Bank Our Mission To support our customers achieve success Consolidated Bank of Kenya 1

Directors profile Ms. Kagane was appointed Chairman of Consolidated Bank with effect from 4th January 2007. She is a holder of a Bachelor s degree in Economics and retired from the Central Bank of Kenya after a 32-year career in central banking since 1973. Prior to her retirement, Ms. Kagane was the Head of National Debt and Financial Markets Department, and also managed the Foreign Operations and International Payments Department. She has also held the post of Director of the Deposit Protection Fund and has been Deputy Director of various departments of Central Bank of Kenya. Ms. Eunice W. Kagane Chairman Her expertise has specifically been used in the areas of Financial Market Development and Banking Sector Restructuring. Mr. Wachira joined the Bank in December 2003. As a Banker, he has wide experience in Retail and Corporate Banking, which he practised for 22 years both locally and in Tanzania and the US. He holds a Masters degree in Economics and Business Management and a Diploma in Finance and Banking. Prior to joining the Bank, Mr. Wachira had worked with the government, a local bank, a financial consultancy/ venture capital firm and more recently as the Head of Credit Conformance for Barclays Africa. He is a member of the Kenya Institute of Bankers and the vice chair Kenya Bankers Association. Mr. D. Ndegwa Wachira Managing Director Mrs. Bobotti was appointed Director of Consolidated Bank on 4th January 2007, prior to which she was alternate Director of the Bank, for the Office of the Permanent Secretary to the Treasury. She has a Bachelors degree in Commerce and is a Certified Public Accountant. Mrs. Bobotti retired from the Ministry of Finance - Treasury in 2006, where she last served as the Accountant General. She is currently engaged in various consultancies and government assignments. Mrs. Shellomith L. Bobotti Director Dr. Ayako was appointed as director of Consolidated Bank on 4th January 2007. He holds a PhD in Economics and has worked as a Senior lecturer in Economics until 1993, as a Director/Chief Economist at the Central Bank of Kenya between 2002 and 2004, and then as a Director, Rural Finance Development Department between 2004 and 2006. He is currently a part time lecturer at the Catholic University of East Africa 2 Dr. Aloys B. Ayako Director Annual Report & Accounts 2006

Directors profi le (cont.) A career doctor, Dr. Mailu was appointed director on 4th January 2007. He is currently the CEO of The Nairobi Hospital. He has previously worked with UNICEF as a project officer and part-time consultant, and also as Director in the Ministry of Health under the Health Sector Programme and the Division of Family Health. Dr. Mailu is a member of the Kenya Healthcare Federation Board, the Kenya Federation of Employers Social Welfare and Legislation Committee. Dr. Cleopa K. Mailu Director The Office of the Permanent Secretary to the Treasury is also an institutional Director of the Bank. The Office of the Managing Trustee of the National Social Security Fund is an Institutional Director of the Bank. Mr. Joseph Kinyua PS Treasury, Director Mrs. Rachel Lumbasyo Managing Trustee NSSF, Director Mrs. Igeria was appointed as Company Secretary in April 2004, and also heads the Legal Department of the Bank. She is an Advocate of the High Court of Kenya of 17 years experience, is a Commissioner for Oaths and Notary Public and also a registered Certified Public Secretary. Mrs. Igeria is a member of the Law Society of Kenya and the Institute of Certified Public Secretaries of Kenya. Mrs. Wakonyo Igeria Company Secretary 3 Consolidated Bank of Kenya

Corporate Information DIRECTORS E W Kagane - (Chairman) D N Wachira - (Managing) Permanent Secretary - Treasury Managing Trustee - NSSF Dr. C K Mailu S L Bobotti Dr. A B Ayako COMPANY SECRETARY REGISTERED OFFICE BOARD COMMITTEES AUDITORS Wakonyo Igeria CPS (K) P O Box 51133 00200-Nairobi Consolidated Bank House, 23 Koinange Street P O Box 51133 00200-Nairobi Audit and Risk Management Committee Staff Committee Finance and Credit Committee - Permanent Secretary Treasury Tender Committee Deloitte & Touche on behalf of Controller and Auditor General P O Box 40092-00100 Nairobi - S L Bobotti - Dr. A B Ayako - Dr. C K Mailu - Dr.C K Mailu - S L Bobotti - Managing Trustee NSSF - Dr. A B Ayako - D N Wachira - Dr. A B Ayako - D N Wachira - Managing Trustee NSSF - Dr. C K Mailu - Dr. C K Mailu - Permanent Secretary Treasury - S L Bobotti - D N Wachira CORRESPONDENT BANKS Citibank NA ABSA Bank Limited Deutsche Bank 4 LEGAL ADVISERS Annual Report & Accounts 2006 Hamilton Harrison & Mathews Advocates Ndungu,Njoroge & Kwach Advocates Oraro & Company Advocates

Chairman s Statement On behalf of the Board, I am pleased to present the annual report and financial statements for your Bank for the year ended 31 December 2006. The Board, together with the management of the Bank put in much effort to ensure that the results recorded at the end of the year exceeded expectations. The Economic Environment 2006 witnessed continued improvement in economic performance over the previous year with GDP projected growth of 6% compared with 5.8% in 2005. The growth is attributed to a stable macroeconomic environment and favourable weather conditions. Almost all sectors have recorded improved performance. Agriculture which forms the backbone of the economy has recovered due to adequate rainfall received in most parts of the country during the short rains in the last quarter of the year. However, the effect of the strengthening shilling has eroded profitability of most export oriented agriculture. The state of the infrastructure and high energy costs still continue to hamper the rate of growth in all sectors. Though the economic growth momentum is anticipated to continue in the first half of 2007, the Presidential and General elections slated towards the end of the year are likely to slow down the pace of growth. The banking sector remained stable during 2006 due to favourable macroeconomic conditions during the year. The sector registered an improved asset quality, growth in deposits and profitability. Net loans and advances increased by 17.1% to Kshs 396 billion as at 31 December 2006 compared to Kshs 338.3 billion as at 31 December 2005 and comprised 52% of the total assets in the sector. Deposits on the other hand grew by 21.3% from Kshs 514.2 billion in December 2005 to Kshs 624.9 billion by December 2006. This growth was attributable to increased external donor inflows, remittances by Kenyans living abroad and earnings from tourism and agricultural sector. The interest rate regime witnessed a gradual decline during the year with the average 91-day Treasury bill rate declining from 8.23% in January 2006 to 5.73% in December 2006. This declined is attributed to reduced demand for funding from the Government as a result of increased tax collections. The average overall inflation increased to 14.45% in 2006 from 10.31% in 2005 due to increases in oil prices and increase foreign inflows. Going forward, the trend of inflation will be determined by success in attaining monetary expansion targets, international oil prices and the shilling exchange rate to the US dollar. The shilling experienced unprecedented strength in 2006 on the back of stable and relatively higher interest rates compared to the international money markets, strong economic performance in the export sector especially tourism and horticulture and increased inflows from Kenyans in the diaspora. 6 Annual Report & Accounts 2006

Corporate Social Responsibility Your Bank is committed to giving back to the communities in which it operates and to contributing to their economic development and improvement and of the society at large. During the year under review the Bank participated in various initiatives including the following: Kwale District Eye Centre-Cash donation in aid of cataract eye surgeries in the centre. Marafa location in Malindi district-donation of famine relief food Isiolo District-Donation of famine relief food Murang a Walk in support of disabled people Ngon g hills- The Bank has adopted environmental conservation as its main CSR theme. Consequently the Bank has partnered with Kenya Wildlife Services to restore the vegetative cover in Ngon g Hills by hosting the Junior Solid Saver fun-day at the hills and getting the children to participate in a tree planting exercise. During the fun-day held in April 2006 over 1,000 tree seedlings were planted. Customer seminars- The Bank believes in partnering with our customers to develop solid business relationships. As a result, the Bank held seminars with our customers in Meru and Nairobi. The seminars are meant to inform our customers on the best financial practices for their businesses, educate them on the Bank s products and services as well as obtain customers feedback on quality of products and services offered, efficiency and effectiveness of the staff. The Board The previous members of the Board, including the Chairman retired in December 2006 and a new Board was appointed on 4 January 2007. I took over as Chairman of the Board from Mr. Philip Njuki who had served the Board for three years. The changes in the Board saw the entry of Mrs. S.L. Bobotti who previously had been the alternate director representing the P.S Treasury, Dr. C. Mailu and Dr. A. Ayako and the exit of Mr. M.G. Kwali, Mr. N.M. Mbui and Dr. A.K Montet. I would like to express the current Board s appreciation of the excellent performance of the previous Board in helping the Bank turnaround and set it on a profitability path. The role of the new Board will be to consolidate the gains made by the previous Board and ensure long-term growth and profitability of the Bank. I am delighted to have been given the opportunity to Chair the Board and shall do my best to undertake this challenge with the confidence, knowledge and trust that, in the discharge of my responsibilities, I shall continue to receive the necessary facilitation and support from my colleagues in the Board, Management, Shareholders and other Stake holders. In conclusion, I would like to thank you, our shareholders, for your ongoing confidence and trust in the Bank, and to our esteemed clients, for their continued loyalty and valued custom. 7 Consolidated Bank of Kenya

Corporate Social Responsibility Consolidated Bank is committed to contribute to the economic development and improvement of the local communities in the areas of operation and the society at large. This it has done through the various corporate social activities it has undertaken together with the local communities. Kwale District Eye Centre: Based in Waa location of Kwale District, the Eye centre s main objective is to improve the economic and social status of Kwale district residents by reducing the social-economic burden of avoidable blindness and the mobilization of the full potential of those who are irreversibly blind and/or severely visually impaired. The former Board and Management of Consolidated Bank, present a cheque of Kshs 100,000 to the project Manager of Kwale District Eye Centre Mrs. Thuweba Mohammed. Consolidated Bank board of directors and management visited the centre on 10th February 2006 and made a donation of Kshs. 100,000 in aid of cataract eye surgeries in the centre. Famine Relief Effort: The bank has undertaken various famine relief efforts in the different parts of the country. On the 10th February 2006, the board of directors and the management distributed famine relief food worth Kshs. 210,000 to the residents of Marafa location in Malindi District. On the 11the March 2006, the bank also made famine relief donations to the residents of Isiolo District. The Malindi DC Mr Jan Ireri flags off food worth Kshs. 210,000 donated by Consolidated Bank towards famine relief in Malindi District. 8 Annual Report & Accounts 2006

Branch modernisation Hon. Amos Kimunya, Minister for Finance - cuts the tape to officially open the modernised Nyeri Branch in a function held on 6th October 2006. Interior of the modernised branch Exterior of the modernised branch Harambee branch customers in a cocktail held on the 11th November 2006, to officially open the modernised branch Consolidated Bank of Kenya 9

CEO s statement As the business environment continues to be increasingly competitive, I am proud of our achievements in the year just ended, more so given the resources the Bank had at its disposal. We have done this by winning the trust of our customers and by delighting them with innovative products that address their unique needs. I believe we have laid the foundation to accelerate this growth. Financial review In 2006, the Bank recorded a pre-tax profit of Kshs. 16.3 million, a 237% growth from the Kshs. 12.7million loss recorded in the previous year (re-stated to Kshs 11.9 million to agree with new financial reporting requirements). This compares with an industry profitability growth of 44%. This can be accredited to business growth, improved risk profile of the Bank and the professional quality of our staff. Total income for the year grew by 19% to Kshs 499.1 million from Kshs 420.2 million in 2005. Interest income which comprises over 50% of the total income increased to Kshs 297.7 million which was 24% higher compared to Kshs 240.8 million for 2005 mainly due to growth in volumes and improved quality of loans and advances. Fees, commissions and other income grew by 13% to Kshs 238.8 million from 210.9 million in 2005 due to increased transaction volumes in spite of tight regulatory controls on tariff review. Operating expenses increased by 12% from Kshs. 432.1 million in 2005 to Kshs. 482.8 million in 2006 mainly as a result of increased provisioning on loans and advances in line with new Central Bank prudential guidelines that became effective in 2006. Indeed without the effect of the bad debt provisioning the operating costs declined by 3%. This was achieved through continuous review of the Bank s processes aimed at increasing efficiency in service delivery, prudent cost management and is a result of the staff rationalization exercise undertaken in 2005. The earning ability of the Bank continued to improve during the year as more focus was put in growing good quality lending and enhanced recovery of the non-performing loans. As a result impairment charge for the year declined from Kshs 61 million in 2005 to Kshs 53 million (after eliminating the effects of reversals as a result of recoveries). Consequently asset quality as measured by the ratio of net non-performing loans to gross loans improved from 22.7% in 2005 to 14.4% in 2006. The Bank will continue to focus on recovering the remaining portfolio of non-performing loans not withstanding the challenges in our legal system. Loans and advances rose by 27% to Kshs 1.64 billion from Kshs 1.29 billion in 2005 compared to an industry growth of 17%. This was achieved through development of more efficient and effective appraisal processes resulting into improved turn-around time. The growth in advances culminated in 18% growth in total assets from Kshs 2.92 billion as at 31 December 2005 to Kshs 3.44 billion as at 31 December 2006. The management will continue to review the credit appraisal process to ensure it is efficient, effective and that it addresses our customers needs. 10 The Bank s liquidity remained high closing at 34% of eligible deposits against the statutory minimum of 20% fuelled by growth in deposits. Deposits grew by 26% from Kshs 1.95 billion in 2005 to Kshs 2.46 billion at the Annual Report & Accounts 2006

end of 2006. The growth in deposits is a testimony of the increasing confidence, trust and satisfaction that customers have in the Bank as well as a reflection of the improved efficiency in service delivery. Branch Modernisation The Bank continued with the branch modernisation programme started in 2005. During the year Nyeri and Harambee branches were completed. An additional plot was acquired for the expansion of Murang a branch as the current premises are considered inadequate. The aim of this project is to provide a better ambiance for our customers to transact in. The Bank expended Kshs 28.1 million in branch modernisation during the year out of a total capital expenditure of Kshs 81 million. Another Kshs 14 million was utilised in ATM acquisition and installation to bring the number of ATM s installed to 10 and thus covering the entire branch network. In the coming year Murang a, Meru and Thika branches are earmarked for modernisation in line with our five-year strategic plan. Our staff Following the staff rationalisation exercise undertaken in 2005, we are focused on making Consolidated Bank a preferred employer where people are proud to work and progress their banking career. A number of initiatives were implemented aimed at creating a good work environment for our staff. The Bank initiated a staff training and development programme for all employees in the Bank to ensure professional growth and up-skilling with the aim of improving efficiency and effectiveness. To achieve expected performance, all employees attended at least one skills development course during the year in accordance with our strategic plan. The Bank also implemented a performance management system aimed at enhancing employee performance, determining a fair and equitable reward system and above all embedding a high performance culture at all levels. The Bank realises the welfare of its staff is core to its performance. As a result, the Bank took out a comprehensive medical insurance cover for all employees and their dependants. The Bank will continue to invest in programmes that provide the employees and their dependants with a range of options to support them in achieving optimal wellness, both mental and physical within the resources available. Conclusion Looking ahead, I am confident that Consolidated Bank is well placed to face the challenges of a highly competitive and sophisticated market. With the support of our customers, our shareholders, the Board and staff we are on the path to transform this Bank into a modern, effective and efficient bank that addresses the needs of our people. Finally, I would like to thank our Board for their guidance, our staff for their immense dedication and contribution during the year, our shareholders for their trust and support. I also take this opportunity to express my gratitude to our customers for their investment, trust, confidence and support. Thank you all for believing in us. Consolidated Bank of Kenya 11

Statement of corporate governance Corporate governance defines the process and structure used to direct and manage the business affairs of the Bank with the aim of enhancing corporate accounting and shareholder s long term value while taking into account the interests of other stakeholders. The Board of Directors is responsible for the governance of the bank and is committed to ensuring that its business operations are conducted with integrity and in compliance with the law, internationally accepted principles and best practices of corporate governance and business ethics. To this end the Bank has put in place processes, systems, practices and procedures which are frequently reviewed and updated embracing the changing corporate environment and world trends. In this respect, the Board confirms that the bank complies with all relevant local legislation including the provisions of the Banking Act and the prudential guidelines issued by the Central Bank of Kenya. Board of Directors The Board fulfils its fiduciary responsibility to the shareholders by maintaining control over the strategic, financial, operational and compliance issues of the bank. Whilst the Board provides direction and guidance on strategic and general policy matters and remains responsible for establishing and maintaining overall internal controls over financial, operational and compliance issues, it has delegated authority to the Managing Director to conduct the day-to-day business of the bank. The board consists of six non-executive directors (including the Chairman) and one executive director (the Managing Director). The Board members possess extensive experience in a variety of disciplines in banking, business and financial management, all of which are applied in the overall management of the Bank. The Board meets at least once every two months, and has a formal schedule of matters reserved for it. The directors are given appropriate and timely information so that they can perform their fiduciary responsibilities effectively. The remuneration of all directors is subject to the guidelines issued by the Office of the President on terms and conditions of service for State Corporations. They are not eligible for membership of the pension scheme and do not participate in any of the company s bonus schemes. Information on the compensation received and the dealings of the directors with the bank are included in notes 9 and 34 to the financial statements. The Board has set up working committees to assist in discharging its duties and responsibilities as follows: Audit and Risk Management Committee This committee comprises of three non-executive directors. The board is mandated to raise the standards of corporate governance by reviewing the quality and effectiveness of the internal control systems, the internal and external audit functions and the quality of financial reporting. In addition to advising the Board on best practice, the committee also monitors management s compliance with relevant legislation, regulations and guidelines as well as the bank s laid down policies and procedures. The committee has direct access to the Assurance function and the Company Secretary. During the year the committee received and reviewed the findings of the internal and external audit reports and management s action to address them. 12 Annual Report & Accounts 2006

Finance and Credit Committee The committee is mandated to review and make recommendations on the Bank s credit, Financial and accounting policies, review and make recommendations on the Bank s Annual Budget, oversight of the overall lending policy of the bank and deliberate and consider loan applications beyond the credit discretion limits extended to management. The committee also reviews and considers all issues that may materially impact the present and future quality of the Bank s credit risk management function as well as the quality of the loan portfolio and ensure adequate bad debt provisions are maintained in line with the Central Bank of Kenya prudential guidelines. The committee also reviews, approves and monitors the management s compliance with applicable statutory provisions, Bank policies and guidelines relating to the monitoring of pricing, liquidity, exchange rate and interest rate risks. The committee comprises of four non-executive directors and the Managing Director. Staff Committee The committee is comprised of four non-executive directors and the Managing Director. The committee is mandated to formulate staff policies and procedures and ensure an adequately staffed and professionally managed human resource. The committee assists the Board in discharging its corporate governance role by reviewing staffing needs of the bank, appoints senior management staff, reviews training needs and undertake disciplinary measures as per the staff policies. Tender committee The committee comprises three non-executive directors and the Managing Director. The committee is mandated to formulate and review procurement policies and approve the annual procurement plan in accordance with the Public Procurement and Disposal Act 2005. Board meeting attendance During the year under review, the Board held ten meetings excluding the working committee meetings. Board member attendance for 2006 is as indicated below. Number Name of meetings attended Percentage attended Mr. P.Njuki 10 100% Mr. M. Kwali 10 100% Dr. A. Montet 9 90% Mr. N. Mbui 9 90% Mr. J. Akoya 8 80% Mrs. S. Bobotti 8 80% Mr. D. Wachira 10 100% 13 Consolidated Bank of Kenya

Financial Performing Charts 14 Annual Report & Accounts 2006

Consolidated Bank of Kenya 15

Director s report The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31 December 2006. The principal activities of the bank, which is licensed under the Banking Act, are the provision of banking, financial and related services. RESULTS Profit before taxation 16,263 Taxation - Profit for the year transferred to accumulated losses 16,263 ====== DIVIDEND The directors do not recommend the payment of a dividend for the year. DIRECTORS The present members of the board of directors are shown on page 2. The following changes have taken place: P G Njuki, M G Kwali, N M Mbui and Dr A K Montet retired after the lapse of their tenor in accordance with the State Corporation Act on 4 January 2007. E W Kagane, Dr C K Mailu, S L Bobotti and Dr A B Ayako were appointed to the board on the same date. AUDITORS The Controller & Auditor General is responsible for the statutory audit of the company s books of account in accordance with section 14 and section 39(i) of the Public Audit Act, 2004 which empowers the Controller & Auditor-General to nominate other auditors to carry out the audit on his behalf. Deloitte & Touche, who were nominated by the Controller & Auditor-General, carried out the audit of the financial statements for the year ended 31 December 2006 BY ORDER OF THE BOARD Secretary Nairobi 20 March 2007 16 Annual Report & Accounts 2006

Statement of directors responsibilities The Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the bank as at the end of the financial year and of the operating results of the bank for that year. It also requires the directors to ensure that the bank keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the bank. They are also responsible for safeguarding the assets of the bank. The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Companies Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the bank and of its operating results. The directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control. Nothing has come to the attention of the directors to indicate that the bank will not remain a going concern for at least the next twelve months from the date of this statement. ----------------------------------------- ------------------------------------- Director Director 20 March 2007 17 Consolidated Bank of Kenya

Auditor s report We have audited the financial statements of Consolidated Bank of Kenya Limited set out on pages 6 to 35 which comprise the balance sheet as at 31 December 2006, the income statement, statement of changes in equity and cash flow statement for the year then ended, together with the summary of significant accounting policies and other explanatory notes, and have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. Respective responsibilities of directors and auditors The company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the provisions of the Kenyan Companies Act. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Our responsibility is to express an opinion on these financial statements based on our audit. Basis of opinion We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment and include an assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we considered internal controls relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, proper books of account have been kept by the bank and the financial statements, which are in agreement therewith, give a true and fair view of the state of affairs of the bank at 31 December 2006 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the Kenyan Companies Act. 18 21 March 2007 Annual Report & Accounts 2006

Income statement For the year ended 31 December 2006 2006 2005 (restated) Note INTEREST INCOME 4 297,692 240,806 INTEREST EXPENSE 5 (37,437) (31,488) NET INTEREST INCOME 260,255 209,318 Fees and commission income 6 148,391 135,972 Foreign exchange trading income 7 14,670 4,479 Other operating income 8 75,749 70,440 OPERATING INCOME 499,065 420,209 Operating expenses 9 (429,850) (443,777) Net provision for impairment charge/(credit) on loans and advances 18 (52,952) 11,706 PROFIT/(LOSS) BEFORE TAXATION 16,263 (11,862) TAXATION CREDIT 11 - - PROFIT/(LOSS) FOR THE YEAR 16,263 (11,862) ====== ====== EARNINGS/(LOSS)PER SHARE Basic and diluted 12 Sh 0.82 Sh (0.59) ====== ====== Consolidated Bank of Kenya 19

Balance sheet For the year ended 31 December 2006 2006 2005 ASSETS (restated) Note Cash and balances with Central Bank of Kenya 13 367,039 278,255 Government securities 14 536,886 444,778 Balances due from banking institutions 15 22,864 79,064 Other assets 16 152,160 125,249 Loans and advances to customers 17 1,642,214 1,289,223 Quoted investment 19 929 1,052 Intangible assets 20 110,778 134,931 Property and equipment 21 595,547 562,707 Prepaid operating lease rentals 22 8,679 319 TOTAL ASSETS 3,437,096 2,915,578 ======== ======== LIABILITIES AND SHAREHOLDERS FUNDS LIABILITIES Deposits and balances due to banking institutions 15 70,830 - Customer deposits 24 2,462,796 1,950,253 Other liabilities 25 181,235 259,230 TOTAL LIABILITIES 2,714,861 2,209,483 EQUITY Share capital 26 1,119,530 1,119,530 Revaluation surplus 27 194,324 200,438 Accumulated losses 28 (603,303) (620,718) Statutory reserve 29 11,623 6,661 Fair value reserve 30 61 184 SHAREHOLDERS FUNDS 722,235 706,095 TOTAL LIABILITIES AND SHAREHOLDERS FUNDS 3,437,096 2,915,578 ======== ======== The financial statements on pages 6 to 35 were approved by the board of directors on 2007 and were signed on its behalf by: 20 Director Director Secretary Annual Report & Accounts 2006

Statement of changes in equity For the year ended 31 December 2006 Share capital Revaluation surplus Accumul ated losses Statutory Reserve Fair value reserve Total At 1 January 2005 - as previously stated 1,119,530 102,930 (657,639) - - 564,821 Prior year adjustment transfer from loans and advances - - - 5,866-5,866 As restated 1,119,530 102,930 (657,639) 5,866-570,687 Surplus on revaluation of property and equipment - 147,086 - - - 147,086 Excess depreciation transfer - (2,885) 2,885 - - - Surplus released on disposal of property - (46,693) 46,693 - - - Gain on revaluation of available for sale investment - - - - 184 184 Loss for the year - - (11,862) - - (11,862) Transfer to statutory reserve (795) 795 - - At 31 December 2005 1,119,530 200,438 (620,718) 6,661 184 706,095 ======= ====== ====== ===== ====== ====== At 1 January 2006 - as previously stated 1,119,530 200,438 (620,718) - 184 699,434 Prior year adjustment transfer from loans and advances - - - 6,661-6,661 As restated 1,119,530 200,438 (620,718) 6,661 184 706,095 Excess depreciation transfer - (6,114) 6,114 - - - Loss on revaluation of available for sale investment - - - - (123) (123) Profit for the year - - 16,263 - - 16,263 Transfer to statutory reserve - - (4,962) 4,962 - - At 31 December 2006 1,119,530 194,324 (603,303) 11,623 61 722,235 ======= ====== ====== ====== ====== ======= The prior year adjustment relates to the transfer of the difference between Central Bank of Kenya prudential guidelines and IAS 39 loans and advances impairment provision to a statutory reserve. The statutory reserve is not distributable. The revaluation surplus relates to surpluses arising from the revaluation of freehold land and buildings. The surplus is non-distributable. Consolidated Bank of Kenya 21

Cash flow statement For the year ended 31 December 2006 2006 2005 Note OPERATING ACTIVITIES Net cash generated from/(used in) operations 31(a) 111,030 (87,697) INVESTING ACTIVITIES Acquisition of property and equipment 21 (81,010) (54,319) Acquisition of leasehold land 22 (7,700) - Acquisition of intangible assets - (3,987) Proceeds on sale of property and equipment 8 559 150,099 Net cash (used in)/generated from investing activities (88,151) 91,793 NET INCREASE IN CASH AND CASH EQUIVALENTS 22,879 4,096 CASH AND CASH EQUIVALENTS AT 1 JANUARY 696,822 692,726 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 31(b) 719,701 696,822 ======= ======= 22 Annual Report & Accounts 2006

Notes to the fi nancial statements 1 ACCOUNTING POLICIES For the year ended 31 December 2006 The financial statements have been prepared in accordance with International Financial Reporting Standards. The principal accounting policies adopted, which remain unchanged except for the change in accounting policy on statutory reserves, are set out below: Adoption of new and revised international financial reporting standards At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective: IFRS 7 on Financial Instruments Disclosures and IFRS 8 on Operating Segments IFRIC 8 - Scope of IFRS 2 IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment The adoption of these standards and interpretations, when effective, will have no material impact on the financial statements of the bank. Basis of accounting The company prepares its financial statements under the historical cost convention, modified to include the revaluation of certain assets. Consolidation The financial statements of the dormant subsidiaries listed in note 32 have not been consolidated as the amounts involved are not material and would, therefore, be of no real value. Income recognition Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Fees and commission income are recognised at the time of effecting the transactions. Intangible assets - computer software costs Costs incurred on computer software are initially accounted for at cost and subsequently at cost less any accumulated amortisation and accumulated impairment losses. Amortisation is calculated on a straight line basis over the estimated useful lives not exceeding a period of 10 years. Statutory reserves IAS 39 requires the group to recognise an impairment loss when there is objective evidence that loans and advances are impaired. However, Central Bank of Kenya prudential guidelines require the bank to set aside amounts for impairment losses on loans and advances in addition to those losses that have been recognised under IAS 39. Any such amounts set aside represent appropriations of retained earnings and not expenses in determining profit or loss. These amounts are dealt with in the statutory reserve. Consolidated Bank of Kenya 23

Notes to the financial statements (cont.) This is a change in accounting policy from previous years. Previously, general provisions made by the bank to comply with the prudential guidelines were recognised as an expense in the income statement. This change in accounting policy has been applied retrospectively. Property and equipment Property and equipment are stated at cost or as professionally revalued from time to time less accumulated depreciation and accumulated impairment losses. Depreciation is calculated on a straight-line basis at annual rates estimated to write off the cost of each asset or the revalued amounts, to its residual values over its estimated useful life as follows: Fixtures, fittings and equipment Motor vehicles Buildings 8 years 4 year 40 years or land lease period if shorter Freehold land is not depreciated as it is deemed to have an indefinite life. The depreciation charge to the income statement is based on the carrying amounts of the property and equipment. The excess of this charge over that leased on the historical cost of the property and equipment is released each year from the revaluation surplus to retained earnings. Impairment At each balance sheet date, the bank reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated and an impairment loss is recognized in the income statement whenever the carrying amount of the asset exceeds its recoverable amount. Foreign currencies Assets and liabilities in foreign currencies are expressed in Kenya Shillings at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies during the year are translated at the rates ruling at the time of the transactions. The resulting gains or losses are dealt with in the income statement. Taxation Income tax expense represents the sum of the current tax payable and the deferred taxation. Current taxation is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with tax legislation. Deferred taxation is provided using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred taxation. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the unused tax credits can be utilised. Financial instruments A financial asset or liability is recognised when the company becomes party to the contractual provisions of the instrument. 24 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) The company classifies its financial assets into the following categories: Financial assets at fair value through profit or loss; loans, advances and receivables; held- to- maturity investments; and available-for-sale assets. Management determines the appropriate classification of its investments at initial recognition. Financial assets at fair value through profit or loss This category has two sub-categories: Financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading. Loans, advances and receivables Loans, advances and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the company provides money, goods or services directly to a debtor with no intention of trading the receivable. Held to maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. Where a sale occurs other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and classified as available for sale Available-for-sale financial assets Financial assets that are not (a) financial assets at fair value through profit or loss, (b) loans, advances and receivables, or (c) financial assets held to maturity. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans, advances and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Impairment and uncollectability of financial assets At each balance sheet date, all financial assets are subject to review for impairment. If it is probable that the bank will not be able to collect all amounts due (principal and interest) according to the contractual terms of loans, receivables, or held-to-maturity investments carried at amortised cost, an impairment or bad debt loss has occurred. The amount of the loss is the difference between the asset s carrying amount and the present value of expected future cash flows discounted at the financial instrument s original effective interest rate (recoverable amount). The carrying amount of the asset is reduced to its estimated recoverable amount through use of the provision for bad and doubtful debts account. The amount of the loss incurred is included in income statement for the period. Consolidated Bank of Kenya 25

Notes to the financial statements (cont.) Financial Liabilities After initial recognition, the bank measures all financial liabilities including customer deposits other than liabilities held for trading at amortised cost. Liabilities held for trading (financial liabilities acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer s margin) are subsequently measured at their fair values. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Bank as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. The Bank as lessee Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Contingent liabilities Letters of credit, acceptances, guarantees and performance bonds are generally written by the bank to support performance by a customer to third parties. The bank will only be required to meet these obligations in the event of the customer s default. These obligations are accounted for as off balance sheet transactions and disclosed as contingent liabilities. Fiduciary activities Assets and income arising thereon together with related undertakings to return such assets to customers are excluded from these financial statements where the bank acts in a fiduciary capacity such as nominee, trustee or agent. Employee benefit costs The bank operates a defined contribution retirement benefit scheme for all its employees. The scheme is funded by contributions from both the bank and employees. The bank also contributes to the statutory National Social Security Fund. This is a defined contribution scheme registered under the National Social Security Act. The obligations under the scheme are limited to specific contributions legislated from time to time. These are presently a maximum of Sh 200 per month for each employee. The bank s contributions in respect of retirement benefit costs are charged to the income statement in the year to which they relate. Employee entitlement to leave not taken is charged to the income statement as it accrues. 26 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. In particular, comparative figures have been restated to recognise the change in accounting policy on statutory reserves. 2 CRITICAL JUDGEMENTS IN APPLYING THE ENTITY S ACCOUNTING POLICIES In the process of applying the entity s accounting policies, management has made estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. These are dealt with below: Impairment losses on loans and advances The company reviews its loan portfolios to assess impairment regularly. In determining whether an impairment loss should be recorded in the income statement, the company makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans, before a decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Held -to-maturity investments The company follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the company evaluates its intention and ability to hold such investments to maturity. If the company fails to keep these investments to maturity other than for the specific circumstances for example, selling an insignificant amount close to maturity it will be required to reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value not amortised cost. Property, plant and equipment Critical estimates are made by the directors in determining depreciation rates for property, plant and equipment. 3 SEGMENTAL REPORTING The major part of the business of the bank falls under the category of retail and corporate banking with other income comprising less than 6% of total income. Also, the company operates wholly within Kenya. Segmental reporting is, therefore, not considered of any useful value. Consolidated Bank of Kenya 27

Notes to the financial statements (cont.) 2006 2005 4 INTEREST INCOME Interest on loans and advances 263,308 201,985 Interest on bank placements 3,462 13,161 Interest on Government securities 30,922 25,660 297,692 240,806 ====== ====== 5 INTEREST EXPENSE Interest on customer deposits 32,827 31,363 Interest on inter-bank borrowings 4,610 125 37,437 31,488 ====== ====== 6 FEES AND COMMISSION INCOME Ledger related fees and commissions 54,728 55,023 Credit related fees and commissions 33,345 31,016 Transaction related fees 60,318 49,933 148,391 135,972 ====== ====== 7 GAINS ON FOREIGN EXCHANGE DEALINGS Gains on foreign currency dealings arose from trading in foreign currency transactions and also on the translation of foreign currency assets and liabilities. 8 OTHER OPERATING INCOME Rental income 34,036 37,842 Gain on sale of property and equipment 559 17,099 Recoveries of advances previously written off 26,057 15,499 Other 15,097-75,749 70,440 ====== ====== 9 OPERATING EXPENSES Staff costs (note 10) 168,235 192,700 Directors emoluments - Fees 7,275 7,098 - Other 18,333 18,644 Contribution to Deposit Protection Fund 2,721 2,517 28 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) 2006 2005 Amortisation of intangible assets (note 20) 24,153 24,152 Depreciation (note 21) 48,170 34,848 Amortisation of operating lease (note 22) 170 679 Adjustment for previous years over amortisation (note 22) (830) - Auditors remuneration 2,310 2,200 Other operating expenses 159,313 160,939 429,850 443,777 ====== ====== 10 STAFF COSTS Salaries and wages 145,209 165,526 Medical expenses 7,846 5,507 Pension 7,201 5,903 NSSF 365 350 Leave pay (3,160) 5,135 Training, recruitment and staff welfare costs 10,774 10,279 168,235 192,700 ====== ====== 11 TAXATION No tax is payable on the results for the year as the bank has accumulated tax losses. As at 31 December 2006 the bank had tax losses amounting to Sh 591,507,000 (2005 Sh 614,816,000) available for carrying forward and set off against future taxable profits. a) Taxation expense Current tax based on the taxable loss for the year at 30% - - ====== ====== b) Reconciliation of expected tax based on accounting loss to tax expense: Profit/(loss) before taxation 16,263 (11,862) ====== ====== Tax calculated at a tax rate of 30% 4,879 (3,559) Tax effect of: Income not subject to tax (147) (5,100) Expenses not deductible for tax purposes 6,458 5,459 Deferred tax credit not recognised (11,190) (3,200) - - ===== ===== Consolidated Bank of Kenya 29

Notes to the financial statements (cont.) 12 EARNINGS/(LOSS) PER SHARE Profit/(loss) per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2006 2005 Profit /(loss) (Sh 000) 16,263 (11,862) ======= ====== Number of ordinary shares (thousands) 19,920 19,920 ======== ======== Earnings/(loss) per share Basic and diluted (Sh) 0.82 (0.59) ===== ==== There were no potential dilutive shares outstanding at 31 December 2006 and 31 December 2005. 2006 2005 13 CASH AND BALANCES WITH CENTRAL BANK OF KENYA Cash on hand 203,743 162,015 Balances with Central Bank of Kenya: - Cash ratio requirement 136,258 105,275 - Other balances (available for bank s use) 27,038 10,965 367,039 278,255 ======= ======= The cash ratio requirement balance is non-interest earning and is based on the value of customer deposits as adjusted by the Central Bank of Kenya requirements. These funds are not available to finance the bank s day to day operations. 14 GOVERNMENT SECURITIES - held to maturity 2006 2005 Treasury bills Maturing within 90 days of the balance sheet date Redemption value 545,550 448,445 Less: unearned interest (8,664) (3,667) 536,886 444,778 ====== ====== The weighted average effective interest rate on treasury bills was 6.8% (2005 8.11%). At 31 December 2006 treasury bills amounting to Sh 50 million (2005 Sh 50 million) were pledged to Central Bank to secure any overnight borrowing that the bank may require from time to time. 30 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) 15 DEPOSITS AND BALANCES DUE FROM/DUE TO BANKING INSTITUTIONS Balances due from banking institutions maturing within 90 days: 2006 2005 Balances with correspondent banks 22,864 69,064 Deposits with local banks - 10,000 22,864 79,064 ===== ===== Balances due to banking institutions maturing within 90 days: Balances with correspondent banks 17,830 - Deposits from local banks 53,000-70,830 - ===== ===== Deposits with/from local banks as at 31 December 2006 represent overnight lending. The effective interest rate on deposits due from and due to banking institutions at 31 December 2006 was 6.2 % (2005 7.5%) and 6% (2005-6%) for balances with correspondent banks. 16 OTHER ASSETS 2006 2005 Uncleared effects 97,389 86,039 Prepayments 11,753 7,925 Rent receivable 12,968 8,263 Other 30,050 23,022 152,160 125,249 ======= ======= 17 LOANS AND ADVANCES TO CUSTOMERS 2006 2005 (a) Commercial loans 1,286,618 1,027,193 Overdrafts 643,976 660,775 Staff loans 60,383 21,753 1,990,977 1,709,721 Less: Impairment losses on loans and advances (note 18) (348,763) (420,498) Loans and advances to customers (net) 1,642,214 1,289,223 ======= ======= Consolidated Bank of Kenya 31

Notes to the financial statements (cont.) The weighted average effective interest rate on advances to customers as at 31 December 2006 was 17.08% (2005 17.5 %). Included in gross advances of Sh 1,990,977,000 (2005 Sh 1,709,721,000) are non performing loans and advances amounting to Sh 607,010,000 (2005 Sh 673,419,000). These are included in the balance sheet net of specific provisions at Sh 287,035,000 (2005 Sh 388,585,000). (b) Analysis of gross loans and advances by maturity 2006 2005 Maturing: Within 1 year 737,553 1,368,759 Between 1 and 3 years 476,382 340,852 After 3 years 777,042 110 Loans and advances to customers 1,990,977 1,709,721 ======== ======= The related party transactions and balances are covered under note 34 and concentration of advances to customers is covered under note 35. 18 IMPAIRMENT LOSSES ON LOANS AND ADVANCES Specific provision General provision 2006 Total 2005 Total At 1 January 2006 413,202 13,957 427,159 456,937 Prior year adjustment - transfer to specific provision 7,296 (7,296) - - - transfer to statutory reserves - (6,661) (6,661) (5,866) As restated 420,498-420,498 451,071 New provisions 52,952-52,952 60,967 Reversals during the year - - - (72,673) Net provisions charged/(credited) 52,952-52,952 (11,706) Written off (124,687) - (124,687) (18,867) At 31 December 2006 348,763-348,763 420,498 ======= ====== ====== ======== 19 QUOTED INVESTMENT 2006 2005 Available for sale: Listed equity securities-at fair value, beginning of the year 1,052 868 (Loss)/gain in market value of investment (123) 184 32 Listed equity securities- at fair value, end of the year 929 1,052 ===== ===== Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) The investment is in the name of Jimba Credit Corporation Limited, a subsidiary company. 20 INTANGIBLE ASSETS 2006 2005 COST At 1 January 241,524 237,537 Additions - 3,987 At 31 December 241,524 241,524 AMORTISATION At 1 January 106,593 82,441 Charge for the year 24,153 24,152 At 31 December 130,746 106,593 NET BOOK VALUE At 31 December 110,778 134,931 ====== ====== 21 PROPERTY AND EQUIPMENT Freehold land and buildings Leasehold improvements Motor Vehicles Fixtures, fittings and equipment Total COST/VALUATION At 1 January 2005 440,880 72,023 12,891 177,811 703,605 Additions - 18,500-35,819 54,319 Disposals (140,000) - - (565) (140,565) Revaluation adjustment 124,520 - - - 124,520 At 31 December 2005 425,400 90,523 12,891 213,065 741,879 At 1 January 2006 425,400 90,523 12,891 213,065 741,879 Additions - 28,111 5,100 47,799 81,010 Disposal - - (3,286) (1,280) (4,566) At 31 December 2006 425,400 118,634 14,705 259,584 818,323 Comprising: At cost - 118,634 14,705 259,584 392,923 At valuation-2005 425,400 - - - 425,400 425,400 118,634 14,705 259,584 818,323 Consolidated Bank of Kenya 33

Notes to the financial statements (cont.) 22 PREPAID OPERATING LEASE RENTALS COST Leasehold land At 1 January 2005 72,705 Disposal (35,107) At 31 December 2005 37,598 At 1 January 2006 37,598 Additions 7,700 At 31 December 2006 45,298 AMORTISATION At 1 January 2005 71,707 Charge for the year 679 Eliminated on disposal (35,107) At 31 December 2005 37,279 At 1 January 2006 37,279 Adjustment for previous years over amortisation (830) As restated 36,449 Charge for the year 170 At 31 December 2006 36,619 CARRYING VALUE At 31 December 2006 8,679 ====== At 31 December 2005 319 ====== 23 DEFERRED TAX ASSET The deferred tax asset computed at the enacted rate of 30% is attributed to the following items: Deferred tax assets: Tax losses available for future set off 177,452 184,445 Provision for leave pay 1,888 4,140 Provision for gratuity 837 2,096...... 180,177 190,681... 34 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) 2006 2005 Deferred tax liabilities: Revaluation surplus (71,531) (73,365) Accelerated capital allowances (25,459) (24,772)...... (96,990) (98,137)... Net deferred tax asset 83,187 92,544 Net deferred tax asset not recognised (83,187) (92,544)...... - -... ======= ====== The directors at the moment are not able to forecast taxable profits with certainty for the next five years and have therefore not recognised the deferred tax asset as at 31 December 2006. The directors will review the position again in 2007. 24 CUSTOMER DEPOSITS Current and demand accounts 1,141,568 952,395 Savings accounts 696,793 584,310 Fixed deposit accounts 624,435 413,548.. 2,462,796 1,950,253. ======== ======= MATURITY ANALYSIS OF CUSTOMER DEPOSITS Repayable: On demand 1,838,472 1,536,705 Within one year 624,324 413,548.. 2,462,796 1,950,253. ======== ======= The weighted average effective interest rate on interest bearing customer deposits at 31 December 2006 was 3.56% (2005 3%). The related party transactions and balances are covered under note 34 and concentration of customers deposits is covered under note 35. 25 OTHER LIABILITIES Accrued expenses 7,977 24,304 Gratuity provision 2,791 6,986 Leave pay provision 6,294 13,799 Tenants deposits 6,922 8,273 Cheques for collection 61,101 110,958 Sundry payables 96,150 94,910.. 181,235 259,230. ======= ======= Consolidated Bank of Kenya 35

Notes to the financial statements (cont.) 26 SHARE CAPITAL Authorised: 20,000,000 ordinary shares of Sh 20 each 400,000 400,000 80,000,000 4% non-cumulative irredeemable non convertible preference shares of Sh 20 each 1,600,00 1,600,000 2,000,000 2,000,000 ======= ======= Issued and fully paid: 19,920,000 ordinary shares of Sh 20 each 398,400 398,400 36,056,500 4% non-cumulative irredeemable non convertible preference shares of Sh 20 each 721,130 721,130 27 REVALUATION SURPLUS 1,119,530 1,119,530 ======= ======= At 1 January 200,438 102,930 Surplus on revaluation of property - 147,086 Surplus released on disposal of property - (46,693) Transfer of excess depreciation (6,114) (2,885) At 31 December 194,324 200,438 ======= ======= The properties revaluation reserve arises on the revaluation of freehold land and buildings. Where revalued land or buildings are sold, the portion of the properties revaluation reserve that relates to that asset, and is effectively realised, is transferred directly to retained profits. The revaluation surpluses are non-distributable. 28 ACCUMULATED LOSSES At 1 January (620,718) (657,639) Profit/(loss) for the year 16,263 (11,862) Surplus released on disposal of property - 46,693 Transfer of excess depreciation 6,114 2,885 Transfer to statutory reserve (4,962) (795) At 31 December (603,303) (620,718) ======= ======= 29 STATUTORY RESERVE At 1 January - As previously stated - - Prior year adjustment 6,661 5,866 36 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) At 1 January (restated) 6,661 5,866 Transfer from revenue reserves 4,962 795 At 31 December 11,623 6,661 ======= ======= Central Bank of Kenya prudential guidelines require the bank to make an appropriation to a statutory reserve for unforeseeable risks and future losses. The amount transferred is the excess of loan provision computed in accordance with the Central Bank of Kenya prudential guidelines over the impairment of loan and advances arrived at in accordance with IAS 39. 30 FAIR VALUE RESERVE At 1 January 184 - (Loss)/gain in market value of investment (123) 184 At 31 December 61 184 ===== ==== The fair value reserve arises on the revaluation of available-for-sale quoted investments. 31 NOTES TO THE CASH FLOW STATEMENT (a) Reconciliation of profit/(loss) before taxation to cash generated from/(used in) operations Profit/(loss) before taxation 16,263 (11,862) Adjustments for: Depreciation (note 21) 48,170 34,848 Amortisation of intangible assets(note 20) 24,153 24,152 Amortisation of leasehold land (note 22) 170 679 Adjustment for previous years over amortisation (note 22) (830) - Gain on disposal of property and equipment (note 8) (559) (17,100) Profit before working capital changes 87,367 30,717 (Increase)/decrease in cash ratio requirement (30,983) 6,728 Increase in other assets (26,911) (8,074) Increase in loans and advances to customers (352,991) (167,982) Decrease in treasury bonds - 30,000 Increase/(decrease) in customer deposits 512,543 (17,658) (Decrease)/increase in other liabilities (77,995) 38,572 Cash generated from/(used in) operations 111,030 (87,697) ======= ======= Consolidated Bank of Kenya 37

Notes to the financial statements (cont.) (b) Analysis of the balances of cash and cash equivalents as shown in the balance sheet and notes Cash in hand 203,743 162,015 Balances with Central Bank of Kenya 27,038 10,965 Treasury bills 536,886 444,778 Balances with other banking institutions 22,864 79,064 Deposits and balances from other banking institutions (70,830) - 719,701 696,822 ======= ======= For the purposes of the cash flow statement, cash equivalents include short term liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired. 32 INVESTMENTS IN SUBSIDIARIES The subsidiary companies of Consolidated Bank of Kenya Limited are: Jimba Credit Corporation Limited Kenya Savings & Mortgages Limited Citizen Building Society Estate Building Society Estate Finance Company of Kenya Limited Business Finance Company Limited Home Savings and Mortgages Limited Union Bank of Kenya Limited Nationwide Finance Company Limited All the subsidiaries are dormant and are wholly owned by the bank. The operations of the above companies were vested in the bank in July 2002. Because of the insignificance of the amounts involved, the directors are of the opinion that consolidation of these subsidiaries would be of no real value. 33 CONTINGENCIES AND COMMITMENTS INCLUDING OFF BALANCE SHEET ITEMS a) Contingent liabilities In common with other financial institutions, the bank conducts business involving acceptances, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties. Acceptances and letters of credit 4,374 1,311 Guarantees 165,901 133,041 170,275 134,352 ====== ====== Litigations against the bank 20,684 32,047 ====== ====== 38 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) Nature of contingent liabilities: An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The bank expects most acceptances to be presented, but reimbursement by the customer is normally immediate. Letters of credit commit the bank to make payments to third parties on production of documents, which are subsequently reimbursed by customers. Guarantees are generally written by a bank to support performance by customers to third parties. The bank will only be required to meet these obligations in the event of the customer s default. Concentrations of contingent liabilities are covered under note 35. Litigations against the bank relate to civil suits lodged against the bank by customers and employees in the normal course of business. The likely outcome of these suits cannot be determined as at the date of signing these financial statements. The directors, however, do not anticipate that any liability will accrue from the pending suits. b) Commitments to extend credit Undrawn formal stand-by facilities, credit lines and other commitments to lend 115,394 220,882 ======= ======= Commitments to extend credit are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The bank may withdraw from its contractual obligation to extend credit by giving reasonable notice to the customer. c) Capital commitments Authorised but not contracted for 100,150 155,120 ====== ====== d) Operating lease commitments Rental income earned during the year was Sh 34,036,000 (2005 Sh 37,842,000). At the balance sheet date, the bank had contracted with tenants for the following minimum future lease receivables: The bank as a lessor: Within one year 30,499 32,864 In the second to fifth year inclusive 32,224 35,847 After five years - 331 62,723 69,042 ====== ====== Consolidated Bank of Kenya 39

Notes to the financial statements (cont.) d) Operating lease commitments Leases are negotiated for an average term of 6 years and rentals are reviewed every two years. The leases are cancellable with a penalty when the tenants do not give three months notice to vacate the premises. The bank as a lessee At the balance sheet date, the bank had outstanding commitments under operating leases which fall due as follows: Within one year 4,877 5,447 In the second to fifth year inclusive 11,273 23,930 After five years 500 6,198 16,650 35,575 ====== ====== Operating lease payments represent rentals payable by the bank for its office premises. 34 RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Placings are made in the bank by directors, their associates and companies associated to directors. Advances to customers at 31 December 2006 include advances and loans to companies associated with the directors. Contingent liabilities at 31 December 2006 include guarantees and letters of credit for companies associated with the directors. All transactions with related parties are at arm s length in the normal course of business, and on terms and conditions similar to those applicable to other customers. Movement in related party balances was as follows: Directors 2006 2005 Loans and advances: At 1 January 17,317 1,644 Advanced during the year 17,400 16,953 I nterest earned 990 1,061 Repaid during the year (9,681) (2,341) At 31 December 26,026 17,317 ======= ======= The loans and advances are performing and adequately secured. Staff advances are disclosed in note 17. 40 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) Customer deposits: At 1 January 1,266 1,094 Placed during the year 15,000 5,549 Net interest applied (249) (56) Withdrawals (1,017) (5,321) At 31 December 15,000 1,266 ======= ======= Key management compensation The remuneration of directors and other members of key management during the year were as follows: Salaries and other benefits 43,338 41,820 Fees for services as directors 7,275 7,098 50,613 48,918 ====== ======= 35 CONCENTRATIONS OF ASSETS, LIABILITIES AND OFF BALANCE SHEET ITEMS Details of significant concentrations of the bank s assets, liabilities and off balance sheet items by industry groups are as detailed below: (a) Advances to customers 2006 2005 % % Manufacturing 362,248 18.19 399,722 23.38 Wholesale and retail 731,091 36.72 593,900 34.74 Transport and communication 93,563 4.70 159,601 9.33 Agricultural 108,487 5.45 81,313 4.76 Business services 507,808 25.51 206,694 12.09 Other 187,780 9.43 268,491 15.70 1,990,977 100.00 1,709,721 100.00 ======= ===== ======= ===== (b) Customer deposits Central and local Government 206,559 8.33 218,698 11.21 Non financial public enterprises 2,402 0.10 5,353 0.27 Co-operative societies 105,525 4.26 22,970 1.18 Insurance companies 550 0.02 6,654 0.34 Private enterprises and individuals 1,061,203 43.46 730,281 37.45 Non profit institutions 1,086,557 43.83 966,297 49.55 2,462,796 100.00 1,950,253 100.00 ======= ====== ======= ====== Consolidated Bank of Kenya 41

Notes to the financial statements (cont.) (c) Off balance sheet items (letters of credit and guarantees) Manufacturing 68,297 40.11 56,303 41.90 Wholesale and retail 28,091 16.50 21,237 15.81 Transport and communication 24,694 14.50 17,949 13.36 Business services 37,682 22.13 30,443 22.66 Other 11,510 6.76 8,420 6.27 170,274 100 134,352 100 ======= ===== ======= ==== 36 LIQUIDITY RISK The table below analyses assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2006 to the contractual maturity date. Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total ASSETS Cash and balances with Central Bank of Kenya 367,039 - - - - 367,039 Government securities 193,531 82,097 261,258 - - 536,886 Balances due from banking institutions 22,864 - - - - 22,864 Other assets 152,160 - - - - 152,160 Loans and advances to customers 50,569 38,847 307,351 559,168 686,279 1,642,214 Quoted investments 929 - - - - 929 Intangible assets - - - - 110,778 110,778 Property and equipment - - - - 595,547 595,547 Prepaid operating lease rentals - - - - 8,679 8,679 Total assets 787,092 120,944 568,609 559,1681,401,2833,437,096 LIABILITIES AND SHAREHOLDERS FUNDS Customer deposits 1,199,227 690,000 573,569 - - 2,462,796 Deposits and balances due from banking institutions 70,830 - - - - 70,830 Other liabilities 181,235 - - - - 181,235 Shareholders funds - - - - 722,235 722,235 Total liabilities and shareholders funds 1,451,292 690,000 573,569-722,235 3,437,096 NET LIQUIDITY GAP (664,200) (569,056) (4,960) 559,168 679,048 - ======= ====== ====== ====== ====== ======= AS AT 31 DECEMBER 2005 42 Total assets 1,158,624 489,633 225,078 343,234 699,009 2,915,578 Total liabilities and shareholders funds 1,212,645 584,301 419,198-699,434 2,915,578 NET LIQUIDITY GAP (54,021) (94,668) (194,120) 343,234 (425) - ======= ====== ====== ====== ====== ======= Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) 37 NTEREST RATE RISK The table below summarises the exposure to interest rate risks. Included in the table are the bank s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The bank does not bear an interest rate risk on off balance sheet items. Up to 1 month 1 3 months 4-12 months 1-5 Years Non interest bearing ASSETS Cash and balances with Central Bank of Kenya - - - - 367,039 367,039 Government securities 193,531 82,097 261,258 - - 536,886 Balances due from banking institutions 22,864 - - - - 22,864 Other assets - - - - 152,160 152,160 Loans and advances to customers 50,569 38,847 307,351 1,245,447-1,642,214 Quoted investments - - - - 929 929 Intangible assets - - - - 110,778 110,778 Property and equipment - - - - 595,547 595,547 Prepaid operating lease rentals - - - - 8,679 8,679 Total Total assets 266,964 120,944 568,609 1,245,447 1,235,132 3,437,096 LIABILITIES AND SHAREHOLDERS FUNDS Deposits and balances due from banking institutions 70,830 - - - - 70,830 Customer deposits 14,416 924,892 336,287-1,187,201 2,462,796 Other liabilities - - - - 181,235 181,235 Shareholders funds - - - - 722,235 722,235 Total liabilities and shareholders funds 85,246 924,892 336,287-2,090,671 3,437,096 INTEREST RATE SENSITIVITY GAP 181,718 (803,948) 232,322 1,245,447 (855,539) - ======== ====== ====== ======= ======== ======= AS AT 31 DECEMBER 2005 Total assets 760,890 489,633 225,078 343,234 1,096,743 2,915,578 Total liabilities and shareholders funds 590,754 284,568 74,600-1,965,656 2,915,578 Interest rate sensitivity gap 170,136 205,065 150,478 343,234 (868,913) - ======= ====== ====== ======= ======== ======= Consolidated Bank of Kenya 43

Notes to the financial statements (cont.) 38 CURRENCY RISK The bank operates wholly within Kenya and its assets and liabilities are reported in the local currency. Although it maintains trade with other correspondent banks, it held no significant foreign currency exposure as at 31 December 2006. The bank s currency risk is managed within the Central Bank of Kenya exposure guideline of 20% core capital. The bank s management monitors foreign currency exposure on a daily basis. The bank s currency position as at 31 December 2006, expressed in Kenya shillings was as follows: KSH USD GBP EURO OTHERS TOTAL ASSETS Cash and balances with Central Bank of Kenya 367,039 - - - - 367,039 Government securities 536,886 - - - - 536,886 Deposits and balances due from banking institutions 15,569-850 6,241 204 22,864 Other assets 152,160 - - - - 152,160 Loans and advances to customers 1,608,922 33,141 111 40-1,642,214 Quoted investments 929 - - - - 929 Intangible assets 110,778 - - - - 110,778 Property and equipment 595,547 - - - - 595,547 Prepaid operating lease rentals 8,679 - - - - 8,679 Total assets 3,396,509 33,141 961 6,281 204 3,437,096 LIABILITIES AND SHAREHOLDERS FUNDS Deposits & balances due to banking institutions 68,570 2,260 - - - 70,830 Customer deposits 2,423,413 37,086 2,014 283-2,462,796 Other liabilities 181,235 - - - - 181,235 Taxation payable - - - - - Shareholder funds 722,235 - - - - 722,235 Total liabilities and shareholders funds 3,395,453 39,346 2,014 283-3,437,096 NET BALANCE SHEET POSITION 1,056 (6,205) (1,053) 5,998 204 - ========== ======= ===== ====== ====== ======== At 31 December 2005 Total assets 2,840,744 59,556 10,781 3,813 684 2,915,578 Total liabilities and shareholders funds 2,868,164 44,605 81 2,728-2,915,578 NET BALANCE SHEET POSITION (27,420) 14,951 10,700 1,085 684 - ========== ======= ===== ====== ====== ======== 44 Annual Report & Accounts 2006

Notes to the fi nancial statements (cont.) The exchange rates used for translating the foreign currency balances as at the year end were as follows: US Dollar (USD) 69.75 72.46 GB Pound (GBP) 137.12 125.20 EURO 92.03 86.18 39 ASSETS PLEDGED AS SECURITY At 31 December 2006 treasury bills amounting to Sh 50 million (2005 Sh 50 million) were pledged to Central Bank to secure any overnight borrowing that the bank may require from time to time. 40 FAIR VALUE The directors consider that there is no material difference between the fair value and carrying value of the company s financial assets and liabilities where fair value details have not been presented. 41 RISK MANAGEMENT POLICIES The financial risk management objectives and policies are as outlined below: Credit risk The bank s credit risk is primarily attributable to its loans and advances. The bank structures the level of credit risk it undertakes by placing limits on amounts of risk accepted in relation to one borrower or a group of borrowers. Such risks are monitored on a revolving basis and are subject to annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate guarantees. The bank has no significant concentration of credit risk, with exposure spread over a diversity of personal and commercial customers as set out in note 35. Interest rate risk The bank is exposed to the risk that the value of a financial instrument will fluctuate due to changes in market interest rate. Interest rates on advances to customers are either pegged to the bank s base lending rate or treasury bill rate. The interest rates, therefore, fluctuate depending on the movement in the market interest rates. The bank also invests in fixed interest rate instruments issued by the Central Bank of Kenya. Interest rate on customer deposits are negotiated between the bank and the customer. The bank has the discretion to change the rates in line with changes in market trends. Consolidated Bank of Kenya 45

Notes to the financial statements (cont.) Liquidity risk The bank is exposed to the risk that the company will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk is addressed through the following measures: The bank enters into lending contracts subject to availability of funds. The bank has an aggressive strategy aimed at increasing the customer deposit base. The bank borrows from the market through inter bank transactions with other banks and Central Bank for short term liquidity requirements. The bank invests in short term liquid instruments which can easily be sold in the market when the need arises. Investments in property and equipment are properly budgeted for and done when the bank has sufficient cash flows. Currency risk The bank is exposed to the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Forex transactions and limits are reviewed and approved by the board. The board ensures that any assets raised in foreign currency are covered by similar liabilities in the same currency to hedge against the risk associated with fluctuation in foreign currency exchange rates. 42 INCORPORATION The bank is domiciled and incorporated in Kenya under the Companies Act. 43 CURRENCY These financial statements are prepared in Kenya shillings thousands (). 46 Annual Report & Accounts 2006

Consolidated Bank of Kenya 47

Notice of the AGM NOTICE IS HEREBY GIVEN that the Sixteenth Annual General Meeting of the Company will be held at the Grand Regency Hotel on Thursday, 31 st May 2007 at 12.30 p.m AGENDA 1. To read the notice convening the meeting. 2. To confirm the minutes of the Fourteenth Annual General Meeting held on 30 th May 2006. 3. To consider and, if approved, adopt the audited balance sheet and Accounts of the Company for the year ended 31 st December 2006, together with the Directors and Auditors report thereon. 4. To approve the remuneration of the Directors. 5. To elect Directors: Ms. E. Kagane, Mr. A. B Ayako, Mrs. S.L Bobotti, and Mr. C. K Mailu retire from the Board under the terms of Article 35 of the Articles of Association, and being eligible, offer themselves for re-election. 6. To re-appoint Deloitte & Touche, as auditors of the Company, and to authorize the Directors to fix their remuneration. 7. To transact any other business which may be transacted at the Annual General Meeting. BY ORDER OF THE BOARD Wakonyo Igeria Company Secretary NB. In accordance with Section 136(2) of the Companies Act (Cap 486), every member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote on his behalf. A proxy need not be a member. A form of proxy is enclosed in the Annual Report and should be returned to the Company Secretary, at P O Box 51133-00200 Nairobi, to arrive not later than 24 hours before the meeting. 48 To: Wakonyo Igeria (Mrs) Company secretary Consolidated Bank of Kenya Limited P O Box 51133 00200 NAIROBI Tel: 020 340922/340551 Annual Report & Accounts 2006

Proxy form We... of (address)... being members of CONSOLIDATED BANK OF KENYA LIMITED hereby appoint... of... or failing him/her..... of..... as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 31st May 2007 and at any adjournment thereof. Signed/Sealed this..... day of.... 2007..... Note: 1. In the case of a corporation, the proxy MUST be under the Common Seal 2. The proxy form should be completed and returned to the Company Secretary not later than 24 hours before the meeting. Consolidated Bank of Kenya 49 #

Nairobi: Harambee Avenue, P. O. Box 34823, Nairobi Tel.: (20) 228705/6/7, 221866, Fax: 229382 E-mail: harambee@consolidated-bank.com Koinange Street, P. O. Box 67124, Nairobi Tel: (20) 222051, 220175, Fax: 340864 E-mail: koinange@consoidated-bank.com Mombasa: Nkurumah Road, P. O. Box 82342, Mombasa Tel: (041) 222943/4, 313664, Fax: 222942 E-mail: nkurumah@consoidated-bank.com Maua: P. O. Box 142, Maua Tel: (064) 21453/4, Fax: 21456 E-mail: maua@consoidated-bank.com Laare: P. O. Box 142, Maua Tel: (064) 21487/4, Fax: 21456 E-mail: maua@consoidated-bank.com Meru: P. O. Box 1117, Meru Tel: (064) 31181, Fax: 20754 E-mail: meru@consoidated-bank.com Head Office: Consolidated Bank House, Koinange Street P. O. Box 51133-00200, Nairobi Tel: (20) 340551, 340298, 340836, Mobile: 0722 999177, 0733 435005, Fax: 340213, E-mail: nkurumah@consoidated-bank.com www.consoidated-bank.com Thika: P. O. Box 211, Thika Tel: (067) 22132/3, Fax: 22167 E-mail: thika@consolidated-bank.com Murang a: P. O. Box 583, Murang a Tel: (060) 30461, Fax: 30460 E-mail: murang a@consoidated-bank.com Nyeri: P. O. Box 935, Nyeri Tel: (061) 2030811, Fax: 30755 E-mail: nyeri@consoidated-bank.com Embu: P. O. Box 1377, Embu Tel: (064) 30922, Fax: 20677 E-mail: embu@consoidated-bank.com Isiolo: P. O. Box 102, Isiolo Tel: (064) 52585, Fax: 52588 E-mail: isiolo@consoidated-bank.com