Com.int.bk.regs Regulatory News (CBKD)

25 Feb 2008 07:00

Commercial Intnl Bank (Egypt) SAE24 February 2008 Board of Directors Meeting On February 21st, 2008 Item No. 4/2008 2007 Overview Introduction The Board of Directors is pleased to review the results for the year ending 31/12/2007 at the Annual General Assembly Meeting. On a consolidated basis, CIB and CI-CH achieved EGP 2,480 million of NetOperating Income and EGP 1,289 million of Net Profit, representing 35.6% and51.1% growth, respectively. These earnings results include a one time capitalgain of EGP 148 million related to the sale of a stake in CI Capital. Excludingthis one time item, Net Profit growth would have been 33.7% year-over-year. Despite strong competition within the banking sector during 2007, CIB not onlygrew its market share, but also enhanced its profit margins. This was theresult of prudent executive management and efficient operations. To further enhance our competitiveness and efficiency, as well as improve ourdelivery of services to our corporate banking clients, in 2007 we commenced ourmigration to T-24, the top ranked universal banking system. In addition, wemade significant advances in our retail banking business, including importantinvestments in IT and risk management infrastructure, proper segmentation of ourclient base, and the development of a more customer-centric model. During 2007, CIB sustained its position as the market leader and best bank inEgypt. The Bank was recognized by Banker magazine as "Bank of the Year 2007" aswell as for the execution of the "Deal of the Year 2007." The Bank was alsoselected as Global Finance Magazine's "Best Bank in Egypt" for the tenthconsecutive year, "Best Foreign Exchange Bank in Egypt" for the seventh straightyear, "Best Trade Finance Bank in Egypt" for the third consecutive year, and "Best Provider of Money Market Funds in Africa." In addition, the Bank receivedthe "Straight Through Processing Excellence" Award from Deutsche Bank, and wasdubbed the "Strongest Brand in Corporate Banking as well as (the) ThirdStrongest Brand in Consumer Banking in Egypt," as per AC Nielson. Major credit rating agencies continued to rate CIB at the country's sovereignceiling, BB+/Stable/B, while emphasizing that the Bank's rating is capped byEgypt's sovereign rating. In order to avoid any possible conflict of interest with the Bank's strategy tolaunch its own branded auto-finance business, CIB decided in 2007 to sell itsstake in Contact, the Bank's auto loan affiliate. This divesture, amounting to a38.38% ownership position, came as part of the Bank's policy of continuousdevelopment and expansion in our retail banking and consumer finance businesses. In 2007, we remained focused on our main growth strategies. Our two-foldstrategy is based on both organic growth and expansion via mergers andacquisitions. Although most of the organic growth is still driven by ourcorporate and institutional clients, we have also effectively achieved organicgrowth through the build-up of our retail banking business via branch expansionand re-engineering. We continue to examine opportunities for mergers andacquisitions growth and will aggressively pursue those opportunities that createshareholder value. The Board believes that the Bank is in an excellent position to meet thechallenges of the future, and that it enjoys significant competitive advantagesin its strategy to capture opportunities in the under-penetrated Egyptianmarket. Macro Overview During 2007, the Egyptian economy witnessed one of its most impressiveperformances over the past forty years. Egypt achieved a real GDP growth rate of7.1%, which is the highest rate since the year of 1985. This strong growth wasgenerated by reforms and solid macro-economic conditions, and illustrated byEgypt's increase in rank to 85th from 127th in the economic freedom index. Moresignificant was the honour bestowed by the World Bank, which ranked Egypt thetop reformer in the world during 2007 in its annual Doing Business report. The nation's economic growth has been driven by productivity increases. Egypt'sGDP growth has traditionally been driven by the mining, oil, agriculture andservices sectors; for the first time in many years, though, the Egyptianmanufacturing sector became a major growth contributor. As a result of economic reforms, total investment grew by almost 34%, reachingEGP 155 billion for the year 2006/2007, compared to EGP 116 billion in 2005/2006. Even more encouraging was the fact that the private sector was the largestcontributor of these investments, a result of the government's reform effortsand its privatization program. Consequently, this led to the attraction ofall-time high FDI net inflows, reaching US$ 11 billion, an 80% increase comparedto 2006. Despite this, we remain somewhat concerned regarding the country'shigh budget deficit, its high levels of sovereign debt, and its above averagelevel of inflation, as well as with the sustainability of growth in investments. The economy has started to reap the benefits of the banking reform program,evidenced by the increase in total bank borrowings of EGP 382 billion in 2007compared to EGP 344 billion in 2006, a growth rate of 11%. Private corporateborrowings were EGP 246 billion in 2007 versus EGP 225 billion in 2006,representing a growth rate of 9%. Private corporate FCY borrowing in particular served as an important catalystfor growth, with an increase of 22% to a record US$ 14.8 billion. Moreimpressively, this major increase was anchored by lending to both the privateindustrial (13%) and services sectors (10%). As a natural result of CIB's focus on private industrial and service businesses,the Bank's average monthly market share of total bank borrowings climbed to5.66% in 2007, versus 4.9% in 2006. On the FCY lending market side, CIB'saverage monthly market share increased slightly to 9.17% in 2007, up from 8.11%in 2006. On the deposits front, the Egyptian banking sector remains very liquid, asevidenced by a 54% utilization ratio. Banks hold significant funding bases thatcan be injected into the economy to achieve even higher growth rates. In fact,total deposits surged by 19.5% to reach EGP 709 billion in 2007, compared to EGP594 billion in 2006. Financial Position At CIB, we analyze our performance against a broad spectrum of measures,including growth, asset quality, risk management, marketing, collaboration,operations, controls and compliance. We continue to make significant progress onall these fronts. Although we have not yet reached many of our absoluteperformance goals, the rapid pace of our improvement has made us very positiveabout the future. On a consolidated basis, CIB and CI-CH achieved EGP 2,480 million of NetOperating Income and EGP 1,289 million of Net Profit in 2007. The Bank itselfcontributed EGP 2,347 million of Net Operating Income and EGP 1,232 million ofNet Profit, representing 33.5% and 53.7% year-over-year growth, respectively,while CI-CH contributed EGP 133 million of Net Operating Income and EGP 57million of Net Profit. On a consolidated basis, CIB and CI-CH achieved a Returnon Average Assets of 3.0% and a Return on Average Equity of 33.1%. On a standalone basis, Total Shareholder's Equity and Net Profit increasedsignificantly by 29.2% to EGP 4.3 billion (before appropriation) in 2007,representing 9% of total assets. Furthermore, CIB's equity base remainedextremely solid, evidenced by a conservative Capital Adequacy Ratio of 11.7% atthe end of 2007, prior to the appropriation of profits. If we account for theproposed appropriation of profits, the Capital Adequacy Ratio was 14.7%. CIB also continued its persistent efforts to maintain a high quality loanportfolio. Local and international credit risk concerns highlight the urgency ofemploying prudent risk management policies, capacity building, transparency andfull compliance with regulatory capital requirements. The high level of qualityof CIB's loan portfolio reflects the seriousness with which we take theseprinciples, and represents one of the major sources of value we offer to ourshareholders. CIB's Non Performing Loans to Total Exposure Ratio was only 3.0%as of FYE 2007, down from 3.8% as of FYE 2006. Our overall Loan Loss ProvisionsCoverage Ratio was 195.7%. Management's focus on efficiency was reflected in the decrease of the Cost toIncome Ratio from 38.4% in 2006 to 30.4% in 2007. Despite increased competitionin the market, CIB managed to improve its Net Interest Margin from 3.14% in 2006to 3.27% in 2007. CIB's Return on Average Equity (ROAE) and Return on Average Assets (ROAA) havecontinued to improve, reaching 32.3% and 2.9% in 2007, compared to 26.5% and2.4%, respectively, in 2006. These results, produced with the support of astill-favorable credit environment, are promising but may be difficult tomaintain. Increasing inflation pressures and the government's budget deficitare still major concerns. During 2007, the Bank hired two key officers from top financial institutions inCompliance and Retail Risk Management to further enhance our managementstrength. Both individuals bring significant experience in their fields to CIBand will work to build our capabilities in their respective areas. The Board of Directors is optimistic about the Bank's outlook. This optimism issubstantiated by CIB's strong financial, operational and market position, and weare confident that the Bank will continue to maintain its leading position. Establishing the Retail Banking CIB's Corporate Banking division has historically been the prime contributor ofthe Bank's earnings and market share. However, we aggressively expanded ourRetail Banking business in 2007. The Bank's management team understood the needfor building its retail capabilities as a crucial prerequisite to protecting ourasset quality and ensuring sustainable growth. In 2007, we focused on marketresearch, the creation of the retail business plan, branch re-engineering, humancapital recruitment, the construction of appropriate IT infrastructure, and thedrafting of operational procedures and manuals. In collaboration with aninternational retail banking consultant, all business and support areas'managers re-examined and re-tooled their mission and vision, operational andservice models, and target customer base. During 2007, the retail business experienced significant developments in itsdelivery and distribution channels. Since we believe that attracting newclients is the catalyst for our growth and expansion, we decided to open 45 newoutlets, initiated a sales team recruitment process, and enhanced our productoffering. Despite a number of recent branch expansions in the banking sector, we believethat Egypt's population is still under-banked. This is evidenced by theconsistency of banking density over the past eight years of approximately 21,000per branch. Total bank branches nationwide reached 3,116 branches in September2007 (including 1,036 village banks), while the economically active populationincreased to approximately 29 million individuals. Achieved Quality Growth & Driving Future Growth CIB's strategy and vision is to accomplish real, sustainable growth, but notgrowth at any cost. In the financial services world, it is easy to stretch forgrowth by reducing underwriting standards or taking on increasingly higherlevels of risk. However this runs counter to our principles. The Bank continues to grow its earnings, but not at the expense of smart,longer-term investments. We continue to invest in the areas that will drive ourfuture growth. Last year CIB opened 19 new outlets, added more than 700 staff,logged 75,000 hours of employee training, and spent over EGP 50 million on ITplatform modernization. We have a significant investment plan with respect toour systems and operating infrastructure, while simultaneously focusing on thereduction of operating expenses. Although there is obviously a short-term costassociated with these investments, we believe the long-term benefits will be asignificant increase in efficiency and improved quality of our services. Alternative Growth Strategies In July 2007, CIB officially applied for a banking license from the Central Bankof Algeria. The Algerian subsidiary is expected to benefit from the boomingAlgerian economy, especially with many of our corporate customers expandingtheir operations to Algeria. In 2007, we also continued to act upon the mandate approved by the GeneralAssembly in March 2006 to pursue the growth of our institution through mergersand acquisitions. Appropriation of Income The Board of Directors has proposed the distribution of a dividend per share ofEGP 1.00, in addition to increasing both the Legal Reserve by EGP 61.6 millionto reach EGP 432.9 million and the General Reserve by EGP 834 million to reachEGP 1,382.5 million after approval by the shareholders at the Annual GeneralMeeting. These actions reinforce the Bank's solid financial position asevidenced by a Capital Adequacy Ratio of 14.7 %. Corporate Social Responsibility Given the sense of duty and gratitude CIB feels towards our society, and incontinuation of the Bank's history of initiatives within Egypt, we made a numberof donations and spearheaded several fundraising efforts in 2007. CIB definescorporate responsibility as the continuing commitment by our business to behaveethically and contribute to Egypt's prosperity while improving the quality oflife of the workforce, their families and the local community and society atlarge. Our organization seeks to build meaningful relationships between thecorporate sector and the rest of society. The function of Corporate Social Responsibility is an important component ofCIB's business and is consistent with our mission statement's objective 'to growand help others grow.' It also supports our objective of contributing to thesustainable development of Egypt's economic growth. Our community service covers various types of charitable organizationsclassified into three major fields: Healthcare, Education, and Social Support &Commitment. Social Involvement: • Misr El Khair Foundation An organization that promotes education, healthcare services, and food forEgyptians under the poverty line in Upper Egypt. • Yahya Arafa Children's Charity Foundation A foundation dedicated to helping children who require surgical operationsrelated to the bones and heart. • Arafa Charity Foundation A foundation dedicated to the provision of healthcare services for impoverishedcitizens in the Delta region. • Ein Shams University Hospital A public hospital that serves disadvantaged individuals. • Mahmoud Hospital A hospital that serves individuals who travel into Cairo from surrounding townsand seek medical attention. • Khayrazad Organization for Social Care An organization that provides financial support for public hospitals withinCairo. • Lung Diseases Center - Faculty of Medicine Menoufeya University A public university hospital that serves underprivileged individuals inMenoufeya. • Center for Social & Preventive Medicine, Faculty of Medicine, CairoUniversity Our donation will be utilized for the renovation of this under-equippedhospital, including an X-ray unit and a dentistry unit. • Three public schools Three schools have been chosen for renovation in disadvantaged communities inUpper Egypt. Key Financial Highlights: The following is a brief overview of the major financial indicators on bothconsolidated and stand-alone basis for the year ended 31/12/2007: I. Balance Sheet (in EGP billions): a. CIB Stand-Alone Balance as of Balance as of % Change 31/12/2007 31/12/2006 Total Footings 47.5 37.4 27.-- Contingent Liabilities 11.5 6.9 66.7 Net Loan Book 20.4 17.5 16.6 Investments 3.8 5.4 (29.6) Treasury Bills and Other Sovereign 2.9 4.1 (29.3)Securities Total Deposits 39.5 31.6 25.-- Other Provisions 0.4 0.3 33.3 Total Shareholders' Equity & Net Profit 4.3 3.--* 43.3for the Period b. Consolidated CIB and CI-CH Balance as of Balance as of % Change 31/12/2007 31/12/2006 Total Footings 47.8 37.6 27.1 Contingent Liabilities 11.5 6.9 66.7 Net Loan Book 20.4 17.5 16.6 Investments 3.6 5.-- (28.0) Treasury Bills and Other Sovereign 3 4.1 (26.8)Securities Total Deposits 39.5 31.6 25.-- Other Provisions 0.4 0.3 33.3 Total Shareholders' Equity & Net Profit 4.4 3.4* 29.4for the Period II. Income Statement (in EGP millions): a. CIB Stand-alone Balance as of Balance as of % Change 31/12/2007 31/12/2006 Interest Income 2,993.7 2,317.8 29.2 Interest Expense (1,796.7) (1,378.2) 30.4 Total Fees & Commissions 1001.7 817.3 22.6 Net Profit after Tax 1,232.4 802 53.7 b. Consolidate CIB and CI-CH Balance as of Balance as of % Change 31/12/2007 31/12/2006 Interest Income 2,998.4 2,317.3 29.4 Interest Expense (1,797.8) (1,375.5) 30.7 Total Fees & Commissions 1130.8 886 27.6 Net Profit after Tax 1,288.5 852.6 51.1 -------------------------- * Excluding 2006 cash dividends This information is provided by RNS The company news service from the London Stock Exchange