2016 2017...28 Lambert 251-11-647 81 90 251-11-647 81 94 “ 29 Lafto 251-11-419 82 80 251-11-419 82...

1

BANK OF ABYSSINIA S.C.አቢሲንያ ባንክ አ.ማ.

www.bankofabyssinia.com

ANNUAL REPORT

20172016

- 6 - - 7 -

MONEY TRANSFER AGENTS WORKING WITH BOA

NO. Addis Ababa Telephone Fax P.O.Box

1 Bole 251-11-551 18 22 251-11-551 31 17 12947

2 Filwuha 251-11-551 41 30 251-11-550 04 82 “

3 Negadras 251-11-276 76 26 251-11-275 91 91 “

4 Raguel 251-11-277 92 07 251-11-277 79 79 “

5 Guenet 251-11-552 37 81 251-11-552 37 69 “

6 Abba Mela 251-11-156 47 77 251-11-156 03 74 “

7 Urael 251-11-662 30 01 251-11-662 55 64 “

8 Piazza (Arada) 251-11-157 32 26 251-11-157 97 13 “

9 Gofa 251-11-416 95 40 251-11-416 95 49 “

10 Gerji 251-11-629 89 21 251-11-629 70 52 “

11 Kality 251-11-439 46 56 251-11-439 46 93 “

12 Airport 251-11-618 52 33 251-11-618 52 55 “

13 Merkato 251-11-850 03 08 251-11-275 00 13 “

14 Gotera 251-11-416 08 24 251-11-416 08 20 “

15 Olympia 251-11-554 67 26 251-11-554 67 23 “

16 Gullele 251-11-270 75 22 251-11-127 54 06 “

17 Addisu Gebeya 251-11-127 54 06 251-11-127 54 03 “

18 Megenagna 251-11-618 25 14 251-11-618 25 18 “

19 Abba Koran 251-11-155 92 38 251-11-155 93 11 “

20 Abinet 251-11-278 13 02 251-11-278 13 05 “

21 Debebe H/Yohannes 251-11-663 89 54 251-11-663 89 53 “

22 Temenja Yaj 251-11-466 09 31 251-11-466 10 12 “

23 Legehar 251-11-550 91 23 251-11-552 56 10 “

24 Bole Med/Alem 251-11-661 14 59 251-11-661 14 72 “

25 Bomb Tera 251-11-213 00 92 251-11-213 01 03 “

26 Sar-Bet 251-11-320 42 25 251-11-320 42 21 “

27 Churchill Road 251-11-155 71 11 251-11-155 72 37 “

28 Lambert 251-11-647 81 90 251-11-647 81 94 “

29 Lafto 251-11-419 82 80 251-11-419 82 81 “

30 US Embassy 251-11-124 52 07 251-11-124 24 55 “

31 Sidist Killo 251-11-123 34 93 251-11-112 56 58 “

32 CMC 251-11-651 92 58 251-11-667 51 10 “

33 Kazanchis 251-11-557 07 43 251-11-557 07 44 “

34 Bambis 251-11-554 58 46 251-11-557 07 44 “

35 Africa Union 251-11-515 00 97 251-11-515 02 47 “

36 Jemo 251-11-471 20 03 251-11-471 20 02 “

BRANCH OFFICES

MONEY TRANSFER AGENTS WORKING WITH BOA



Tel :. +251 11 553 07 16Fax :. +251 11 551 04 09

P.O.Box :. 12947 Addis Ababa, EthiopiaE-mail :. [email protected]

SWIFT: ABYSETAA

1

To be the bank of choice for customers, employees and shareholders

To provide customer-focused financial services through competent, motivated employees and

modern technology in order to maximize value to all stakeholders

Putting customer firstCommitted to excellence

Being honest and accountableWorking together as a team

Caring for our community

VISION

MISSION

CORE VALUES

2 BANK OF ABYSSINIA S.C. ANNUAL REPORT

Vision, Mission and Core Values ................................................................................................................... 1

Operational Highlights ............................................................................................................................................ 3

Message of the Board Chairperson ............................................................................................................... 5

Statement of the CEO .......................................................................................................................................... 9

Report of the Board of Directors ........................................................................................................................ 11

Auditor's Report ....................................................................................................................................................... 18

Balance Sheet ....................................................................................................................................................... 20

Income Statement ................................................................................................................................................. 21

Cash Flow Statement ............................................................................................................................................... 22

Statement of Changes in Shareholders Equity ............................................................................................. 23

Notes to the Financial Statements ............................................................................................................. 24

Contents

1



ANNUAL REPORT

20172016

3

OPERATIONAL HIGHLIGHTS(FY 2011/12 – 2016/17)

Growth in Total Deposits (In Billions of Birr)

6.77 8.50 9.10

11.12 13.64

20.70

2012 2013 2014 2015 2016 2017

Growth in Total Loans (In Billions of Birr)

Growth in Total Expense (In Billions of Birr)

Growth in FCY (In Billions of Birr)

Growth in Total Income (In Billions of Birr)

Gross Profit before Tax (In Billions of Birr)

Growth in Total Assets (In Billions of Birr)

Growth in Number of Depositors (In Thousands)

Number of ATM and POS Machines

Growth in Total Capital (In Billions of Birr)

Growth in Staff Strength

Number of Mobile and Card Banking Users

3.27 4.07 3.99

5.02 7.30

9.49

2012 2013 2014 2015 2016 2017

3.90 4.70 5.15

5.99 8.15

14.11

2012 2013 2014 2015 2016 2017

0.72 0.86

1.01 1.21

1.63 2.38

2012 2013 2014 2015 2016 2017

0.43 0.51

0.66 0.83

1.15 1.68

2012 2013 2014 2015 2016 2017

0.29 0.35 0.35 0.37

0.49 0.70

2012 2013 2014 2015 2016 2017

8.24 10.16

11.29 13.7

16.8 25.33

2012 2013 2014 2015 2016 2017

0.91 1.11

1.53 1.81

2.12 2.90

2012 2013 2014 2015 2016 2017

332

371

414

478

586

750

2012

2013

2014

2015

2016

2017

2,105

2,395

2,800

3,290

4,144

5,005

2012

2013

2014

2015

2016

2017

50

60

82

138

114

200

ATM

POS 2016/17

2015/16

2014/15

15,000

9,000

58,359

41,797

132,103

107,711

Card Banking

Mobile Banking 2016/17

2015/16

2014/15

3


BOARD OF DIRECTORS

Ato Messeret TayeBoard Chairperson

Ato Ali MohammedBoard Director

Ato Bahru MossaBoard Director

Ato Biruk TesfayeBoard Director

Ato Solomon GirmaBoard Director

Ato Belay GemechuBoard Director

Ato Berhanu Jijo Board Director

Dr. Getachew TekaBoard Director

Ato Tilaye TegegnBoard Director

5

HONORABLE SHAREHOLDERS!

On behalf of the Board of Directors of the Bank of

Abyssinia S.C and myself, I am highly honored to

present the Board of Directors’ Report along with the

“Audited Financial Statements” of the Bank to the 21st

Ordinary Annual General Meeting of the Shareholders

of the Bank for the Fiscal Year 2016/17 that ended on

June 30, 2017.

As we know, the world economy has undergone

unprecedented changes during the just-ended Fiscal

Year 2016/17. According to World Bank Report on

Global Economic prospect in June 2017, global growth

is strengthening. As a result, despite policy uncertainty,

global growth is projected to rise to 2.7 percent in 2017,

up from a post-crisis low level of 2.4 percent in 2016.

MESSAGE of the Board Chairperson

Birr 25.3 Billion

Total Asset

50.49% 37% 51.8 % 73.7% 44.58%

2009

2008

Birr 2.9 Billion

Capital

Birr 20.7 Billion

Deposit

Birr 14.1 Billion

Loan and Advances

Birr 704.5 Million

Total Profit

Birr 16.8 Billion Birr 2.1 Billion Birr 13.6 Billion Birr 8 Billion Birr 487.2 Million

Activities in advanced economies are also expected to

gain momentum in 2017 and 2018.Besides, in the Euro

Zone and Japan, growth forecasts have been improved,

reflecting strengthening domestic demand and exports.

As to the growth in Sub-Saharan Africa, it is projected

to recover to 2.6 percent in 2017 from the sharp decline

to 1.3 percent in 2016, and even to further strengthen

some what in 2018 due to rising commodity prices and

improvements to macroeconomic imbalances.

Despite this global economic scenario, Ethiopia’s economy

has kept on performing well. According to the National

Planning Commission of Ethiopia 2015/16 Annual Report,

the country’s economic growth dwindled to 8 percent

as compared to that of the previous year’s figure, i.e 10.1

percent.

According to the World Bank, the economy is also

projected to expand by 8.3% in 2017, 8.0% in 2018 and

7.9% in 2019, largely due to public investments. The

country somehow is expected to maintain its position

with the fastest and highest growth rate forecasted for

any African country, followed by Tanzania and the Ivory

Coast.

With regard to the demand side, GDP at current market

price went up by 19.8 percent and reached Birr 1.8 trillion

in 2016/17. This has brought about an increase in GDP per

capita from USD 794 in 2015/16 to USD 846 in 2016/17.In

2015/16, the Gross domestic saving reached 22.4 percent

and also estimated to be 23.5 percent in 2017.

During the FY 2016/17, the financial sector which

comprises mainly banking and insurance institutions was

stable, growing rapidly both in terms of size and number

of services. The sector has also continued to tap into new

opportunities of mobilizing savings through expansion of


mobilization, loans and advances and profit growth in the

year under review.

In this five-year plan, the Bank has devised ambitious, but

achievable plan using a number of strategic initiatives

that have been classified under customer services,

information technology, human capital and internal

processes in order to become a major force in the market

and stand out in the forefront in the banking industry

and regain its once-admired status. As I have cited above,

we are now at the second implementation year of the

journey in the strategic plan period and observing our

efforts are bearing fruit.

However, it should be understood that these outcomes

could not be achieved without the encouragement of all

stakeholders, support of Board of Directors, leadership of

the Management and unstinted efforts of the whole staff

of the Bank.

Finally, on behalf of the Board of Directors and myself, I

would like to seize this opportunity to express gratitude

and admiration to the National Bank of Ethiopia for its

unreserved guidance, our shareholders for many years

of patience and trust, our esteemed customers for their

confidence and trust on our Bank.

My most sincere thanks also go to my fellow members

of the Board of Directors, Executive Management and

employees of BoA for their unwavering dedication and

commitment that has helped us to realize this notable

accomplishment under all these inconvenient situations.

Thank you all!!

Messeret Taye

branch networks and introduction of digital channels as

well as new financial instruments.

Despite a number of challenges in the external

environment, BoA managed to register a total asset and

capital level of Birr 25.3 billion and Birr 2.90 billion as at

June 30, 2017, exhibiting a growth of 50.49 percent and

36.73 percent, respectively as compared to that of the

preceding year. Its total deposit balance also reached

Birr 20.7 billion growing by 51.8 percent over the figure

registered last year.

Similarly, during the reviewed period, the total

outstanding loans and advances of the Bank, before

provision for doubtful loans and advances, stood at

Birr 14.1 billion, indicating a 73.7 percent rise over the

previous year’s balance. In addition, the Bank secured

a total income of Birr 2.38 billion and incurred a total

expense of Birr 1.67 billion. As a result, the gross profit

before tax and after provision became Birr 704.46 million

surpassing that of the preceding fiscal year by Birr 217.22

million or 44.58 percent.

HONORABLE SHAREHOLDERS!

Bank of Abyssinia has been operating in a rapidly

changing banking environment, i.e changing

customers’ expectations and behaviours, tightening

regulatory requirements, stiff competition and varying

demographic and economic situations, among others.

These gave rise to the need for BoA to introduce change

in the overall way of doing business which is capable of

fully addressing those challenges.

To this end, the Bank has crafted a five-year strategic

and organizational transformation plan together with

the Consultant, Deloitte Consulting Plc. Currently, the

Bank is in the second five-year strategy plan period with

impressive outcome registered in the areas of deposit

MESSAGE OF THE BOARD CHAIRPERSON

7

Ato Mulugeta AsmareChief Executive OfficerAto Demissew Abebe

Chief Enterprise Services Officer

Ato Anteneh SebsebieChief Operations Officer

Ato Kagnew WoldeExecutive Director, Mar-

keting DepartmentAto Moges AbaynehExecutive Asst. to the CEO

Ato Yoseph Kibret Chief Information System

Officer

Ato Abreham GebeyehuChief Customer Services Officer

Ato Desta BekaloChief Strategy Officer

Ato Biruk WalellegnExecutive Director, Human

Resources

MEMBERS OF EXECUTIVE MANAGEMENT


Ato Belayneh H/MeskelDirector, Property and Facility Management

Ato Bantalem TayeDirector, Result

Management Office

Ato Yoseph TamiratDirector, Business

Intellegence and Analytics

Ato Desalegn YizengawDirector, Finance and

Accounts

Ato Wendi DerejeA / Director, Engineering

Service and Project Management

Ato Dula MereraDirector, Legal Service and

Loan Recovery

Ato Berhanu AberaDistrict Manager, East Addis

Ababa

Ato Fisseha KassaDirector, Treasury

Operations

Ato Fantahun DemekeDirector, IS Infrastructure

Ato Habtom G/GorgisDistrict Manager, Mekelle

Ato Esayas TesfayeDistrict Manager, Hawassa

Ato Kefyalew Shiferaw Director, E-Banking

Ato Misganaw HabteDirector, Strategy, Planning

and Monitoring

Ato Eyasu MekonnenDirector, Internal Audit

Ato Abegaz YimamDirector, Interest Free

Banking ProjectAto Tarekegn Hailu

A / Director, Risk Management

Ato Tefera TolossaDirector, Core System

Ato Mulugeta BezaDirector, International

Banking Operations

Ato Walle MolaDistrict Manager, Bahir Dar

Ato Tsega MesfinDistrict Manager, West Addis

Ababa

SENIOR MANAGEMENT MEMBERS

Ato Tesfaye AbebeDirector, Credit Analysis

and Appraisal

W/ro Fresenayit TassewDirector, Customer

Management and Support

9

STATEMENTOF THE CHIEF EXECUTIVE OFFICER

DEAR HONORABLE SHAREHOLDERS!

I am honored to present the Performance Report of

the Bank of Abyssinia S.C for the Fiscal Year that ended

on June 30, 2017. The fiscal year had been a period in

which remarkable results were attained in the financial

and operational areas with tremendous efforts exerted

towards bringing about efficient customer service and

growth.

During the jus-ended fiscal year, the country’s

growth momentum has continued with stable

macro-economic environment. It was also a period in

which the second-year implementation time for the

execution of GTP II has been commenced. In this plan,

financial institutions are required to have significant

role towards boosting financial accessibility and

deposit mobilization.

I fell honored to declare that in this fiscal year 2016/17, BoA registered a record high income and gross profit, which have never been achieved in the Bank’s history.

"

Also in this plan, the Government envisages to scale up

the number of bank branches to 5,736 and mobilize over

Birr 1.8 trillion deposit through commercial banks as well

as microfinance institutions by the end of the GTP II plan

period.

Following the direction given by the National Bank of

Ethiopia to increase their annual branch expansion and

deposit mobilization, therefore, commercial banks have

kept on their aggressive branch expansion, introduction

of technology-based alternative service delivery channels

and other complementary banking services. As a result,

banks have significantly expanded their outreach

making the competition among themselves for resource

mobilization stiffer.

Bank of Abyssinia has continued implementing its 4th Five-

Year Strategic Plan and Organizational Transformation

deliverables, which are developed jointly with the

international consultant known as Deloitte Consulting

PLC. This new strategic plan and organizational

configuration is devised to take full advantage of market

opportunities and attain better growth year on year

during the plan period. The Bank has been and shall

continue implementing strategic and transformational

initiatives which are geared towards winning the market

competition and achieve growth objectives.

As an outcome of the strategic plan, the Bank has

managed to lift up its branch networks to 233 adding 48

new branches and sub-branches during the fiscal year

2016/17. It has also expanded other alternative service

delivery channels by installing 114 ATMs as well as

placing 200 POS machines at merchant sites. As a result,

9


advances of the Bank at the end of the fiscal year

2016/17 stood at Birr 14.1 billion, surpassing that of

the preceding fiscal year’s balance by Birr 5.98 billion or

73.68%. Concerning loan quality, special efforts made

on loan collection assisted the Bank to bring down the

level of Non-Performing Loans (NPLs) below 2%. The

Bank’s total asset and total capital also reached Birr 25.3

billion and Birr 2.90 billion, respectively.

Respected shareholders!

I fell honored to declare that in this fiscal year 2016/17,

BoA registered a record high income and gross profit,

which have never been achieved in the Bank’s history.

That is a total income of Birr 2.38 billion and gross profit

after provision of Birr 704.46 million exceeding that of

last year’s figure by 45.62% and 44.58%, respectively.

Finally, on behalf of the Executive Management,

dedicated staff of the Bank and myself, I would like

to extend my earnest admiration to NBE for all its

guidance and assistance; the Bank’s honored customers,

shareholders and others stakeholders for their

conviction and confidence in our Bank’s strides; and

all employees for their unreserved effort to materialize

BoA’s aspirations during the review period.

As a final note, members of the Board of Directors also

deserve special gratitude for the commendable effort

they have exerted towards assisting the Management

within the scope of their duties and responsibilities.

Thank you,

Mulugeta Asmare

STATEMENT OF THE CHIEF EXECUTIVE OFFICER

the number of card and mobile banking users of the

Bank reached 132,103 and 107,711, respectively.

The Bank also finalized the acquiring process of

MasterCard on ATM and POS terminals and has gone

operational since September 2016. Moreover, acquiring

of China Union Card on ATM and POS has also become

operational since February 2017. On the other hand, the

implementation of Visa Card reached at its final stage

(Visa Card acquiring on ATM has begun since July 2017);

while acquiring of Visa Card on POS is expected to be

completed in the first quarter of the new fiscal year.

Regarding Internet Banking, the Bank has submitted

request to the National Bank of Ethiopia to acquire

license and will officially launch the service as soon

as authorization is secured. The Bank has also carried

out an in-depth assessment in a bid to augment and

fundamentally change its Mobile and Agent Banking

services which are expected to be finalized in the near

future.

In recognition to the growing demand for Interest-

Free Banking (IFB) in Ethiopia, BoA has finalized all the

preparations to officially launch IFB in the new fiscal

year.

During the stated fiscal year, the Bank put forth all

out efforts to broaden its customer base and mobilize

more resources. To this effect, the total amount of

deposit mobilized reached Birr 20.7 billion, indicating

an absolute growth of Birr 7.06 billion or 51.8% as

compared to that of last fiscal year. Besides, the number

of deposit account holders reached 750,387 exhibiting a

growth of 164,652 or 28% from that of June 2016.

On the other hand, the total outstanding loans and

11

REPORT OF THE BOARD OF DIRECTORS

25

20

15

10

5

0

5.8

3.41

9.35

12.5

20.7

13.63

0.882.4

Demand Saving Time Total

2016/172015/16

1. OPERATIONAL PERFORMANCE

1.1 Deposits

Bank of Abyssinia exerted great efforts to boost its deposit in the Fiscal Year 2016/17, and as a result the deposit balance significantly grew by Birr 7.06 billion or 51.8% from the preceding year similar period and reached Birr 20.7 billion as at 30 June 2017.

The growth could primarily be attributed to the rise in savings and demand deposits, which went up by Birr 3,110 million (33.3%) and Birr 2,389.1 million (70.2%), respectively. In addition, time deposits also increased by Birr 1,566.4 million or 178.6% as compared to the preceding fiscal year.

During the review period, the share of savings, demand and time deposits from the total outstanding deposits stood at 60%, 28% and 12%, respectively.

Apart from this, the total number of deposit account holders reached 750,387 as at 30 June 2017, which grew by 164,652 or 28.1% as compared to the number last year the same period.

Fig. 1: Deposits Mobilized

(In Billions of Birr)

Fig. 2: Percentage Share of Deposits

1.2 Loans and Advances

At the end of June 2017, the total outstanding loans and advances of the Bank reached Birr 14.1 billion exhibiting an increase by 73.7% from the preceding fiscal year’s balance with a new increment of Birr 5.9 billion. This was attained following the growth in term loans by Birr 3.35 billion or 60%, overdraft by Birr 1.4 billion or 96.4%, and advances by Birr 1.23 billion or 113.5%.

Fig. 3: Outstanding Loans and Advances

(In Billions of Birr)

1.1 Deposits

Bank of Abyssinia exerted great efforts to boost its deposit in the Fiscal Year 2016/17, and as a result the deposit balance significantly grew by Birr 7.06 billion or 51.8% from the preceding year similar period and reached Birr 20.7 billion as at 30 June 2017. The growth could primarily be attributed to the rise in savings and demand deposits, which went up by Birr 3,110 million (33.3%) and Birr 2,389.1 million (70.2%), respectively. In addition, time deposits also increased by Birr 1,566.4 million or 178.6% as compared to the preceding fiscal year.

During the review period, the share of savings, demand and time deposits from the total outstanding deposits stood at 60%, 28% and 12%, respectively.

Apart from this, the total number of deposit account holders reached 750,387 as at 30 June 2017, which grew by 164,652 or 28.1% as compared to the number last year the same period.

Fig. 1: Deposits Mobilized (In Billions of Birr)

Fig. 2: Percentage Share of Deposits

0

5

10

15

20

25

Demand Savings Time Total

5.8

12.5

2.4

20.7

3.41

9.35

0.88

13.63

2016/17 2015/16

Savings, 60

Demand, 28

Time, 12



Fig. 3: Outstanding Loans and Advances (In Billions of Birr)

At the end of the Fiscal Year 2016/17, the proportion of loans indicated that term loans took the lion’s share of 63.4%, while overdraft and advances stood at 20.2% and 16.4%from total outstanding loans and advances, respectively.

Fig. 4: Percentage Share of Total Loans and Advances

Term loans OverdraK Advances Total

8.94

2.86 2.31

14.1

5.59

1.45 1.08

8.12

2016/17 2015/16

Term Loan, 63

Overdra0, 20

Advances, 16





With regard to sectoral distribution, outstanding balances of the loans and advances as at June 2017 indicated that export, domestic trade, import and transport registered an absolute growth of Birr 1.56 billion (79%), Birr 2.1 billion (70%), Birr 451 million (38%) and Birr 419 million (118%), respectively from that of June 2016.

Table 1: Loans and Advances by Economic Sector

(In Millions of Birr)

Sector Jun-17 Jun-16Growth

Absolute age%

DomesticTrade 5,090.81 2,999.43 2,091.38 70.0

Export 3,538.03 1,976.72 1,561.31 79.0

Import 1,647.61 1,196.14 451.47 38.0

Construction 1,532.62 905.23 627.39 69.0

Industry 952.86 463.53 489.33 106.0

Transport 773.15 353.91 419.24 118.0

Agriculture 285.53 109.26 176.27 161.0

Others 284.79 117.15 167.64 143.0

Total 14,105.41 8,121.37 5,984.03 74.0

During the reporting fiscal year, sectoral distribution of loans and advances of the Bank showed that the lion’s share was earmarked for domestic trade (36 %) and export (25 %); whereas others such as import, construction and industry make up around 12 %, 11 % and 7 %, respectively.

Fig. 5: Percentage Share by Economic Sector

1.3 International Banking Services

During the stated period, the Bank’s foreign

exchange inflow showed a commendable

increment as compared to the previous Fiscal Year,

2015/16. To this end, the average foreign currency

inflow per month reached USD 35 million or Birr

795 million and thus the Bank mobilized a total

foreign currency of Birr 9.5 billion during the

business year, exhibiting an increase by Birr 2.2

billion or 29.8% as compared to the previous fiscal

year, 2015/16.

Also during this period, the net increment of

foreign currency mobilized from export and

incoming transfer services went up by Birr 850

million and Birr 1.4 billion, respectively. Regarding

percentage share of foreign currency sources,

incoming transfer and export comprise major

share of 53.1%and 42.1%, respectively while

money transfer makes up 4.5%.

With a view to broaden sources of foreign currency,



Fig. 3: Outstanding Loans and Advances (In Billions of Birr)



Term loans OverdraK Advances Total

8.94

2.86 2.31

14.1

5.59

1.45 1.08

8.12

2016/17 2015/16

Term Loan, 63

Overdra0, 20

Advances, 16

With regard to sectoral distribution, outstanding balances of the loans and advances as at June 2017 indicated that export, domestic trade, import and transport registered an absolute growth of Birr 1.56 billion (79%), Birr 2.1 billion (70%), Birr 451 million (38%) and Birr 419 million (118%), respectively from that of June 2016.

Table 1: Loans and Advances by Economic Sector (In Millions of Birr)

Sector

Jun-‐17

Jun-‐16

Growth Absolute %age

Domestic Trade 5,090.81 2,999.43 2,091.38 70.0 Export 3,538.03 1,976.72 1,561.31 79.0 Import 1,647.61 1,196.14 451.47 38.0 Construction 1,532.62 905.23 627.39 69.0 Industry 952.86 463.53 489.33 106.0 Transport 773.15 353.91 419.24 118.0 Agriculture 285.53 109.26 176.27 161.0 Others 284.79 117.15 167.64 143.0 Total 14,105.41 8,121.37 5,984.03 74.0 During the reporting fiscal year, sectoral distribution of loans and advances of the Bank showed that the lion’s share was earmarked for domestic trade (36.1%) and export (25.1%); whereas others such as import, construction and industry make up around 11.7%, 10.9% and 6.8%, respectively.

Fig. 5: Percentage Share by Economic Sector

Agriculture 2%

Industry 7%

DomesZc Trade 36%

Export 25%

Import 12%

ConstrucZon 11%

Transport 5%

Others 2%

13


BoA has so far created business relationship with eight Money Transfer Companies and expanded its correspondence bank relationship management with new reputable international banks. Accordingly, during the reviewed period, the Bank has established partnership with MasterCard, China Union Pay as well as Visa Card and currently commenced acquiring of international cards such as MasterCard and China Union Pay on its ATMs and POS machines. Concerning Visa Card, the Bank has already secured the acquiring license and Visa Card has almost reached at the final stage of the project closeout. Hence, the Bank is expected to begin acquiring of Visa Card on its ATM machines in July 2017.

2. FINANCIAL PERFORMANCE

2.1 Income

The income of the Bank rose by Birr 745.53 million or 45.64% from the previous fiscal year and reached Birr 2.4 billion as at June 30, 2017. Out of this, the percentage share of interest income, service charges and income secured from fluctuation of exchange rates took the highest proportions of about 66.83%, 16.38% and 8.51%, respectively.

Fig. 6: Income by Major Categories


2.2 Expenses

At the end of the fiscal year 2016/17, the Bank

incurred a total expense of Birr 1.67 billion which

was higher than that of the preceding year same

period by Birr 528.31 million or 46.09%. Interest

expense on deposits, salaries and benefits

and general expenses were among the major

components of the total expense, accounting for

36%, 37% and 22%, respectively. The increase in

major expense items could mainly be attributed

to the rise in the cost of fund and the Bank’s

deposit base, headcount following aggressive

branch expansion, new salary scale following the

organizational structure as well as cost related to

depreciation.

Fig. 7: Expense by Major Categories


2.3 Profitability

Bank of Abyssinia completed the 2016/17 fiscal year with a remarkable achievement registering a gross profit after provision and before tax of Birr 704.5 million, exceeding that of last year same period by Birr 217.22 million or 44.58%.

Fig. 6: Income by Major Categories


2.2 Expenses

At the end of the fiscal year 2016/17, the Bank incurred a total expense of Birr 1.67 billion which was higher than that of the preceding year same period by Birr 528.31 million or 46.09%. Interest expense on deposits, salaries and benefits and general expenses were among the major components of the total expense, accounting for 36%, 37% and 22%, respectively. The increase in major expense items could mainly be attributed to the rise in the cost of fund and the Bank’s deposit base, headcount following aggressive branch expansion, new salary scale following the organizational structure as well as cost related to depreciation.

-‐

500.0

1,000.0

1,500.0

2,000.0

2,500.0

1,589.8

202.4 389.5 171.6

25.0

2,378.3

1,097.7

167.1 256.2 94 18.1

1,633.1

2016/17

2015/16 Interest Income

Gain on flac. of

exchange rates

Service charges

Commission income

Other income

Total



2.3 Profitability


Fig. 8: Comparison of Income, Expense and Gross Profit (In Millions of Birr)

0

200

400

600

800

1000

1200

1400

1600

Interest expense

Salaries and benefit

General and Admin.

Total

599.4 615.0

362.6

1,577

452.6 389.1 284.5

1,126

2016/17

2015/16

-‐2,000.00

-‐1,500.00

-‐1,000.00

-‐500.00

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

Total income Total expense Gross Profit

2,378.39

(1,674.5)

704.5

1,633

(1,146.2)

487.2 2016/17

2015/16

2016/172015/16

2016/172015/16


Fig. 8: Comparison of Income, Expense and Gross Profit



2.4 Equity of the Bank

The equity of BoA at the end of the fiscal year reached Birr 2.9 billion, showing an absolute growth of Birr 780.43 million (37%) over that of the previous fiscal year.

During the stated period, the paid-up capital of the Bank also reached Birr 1.8 billion with an absolute growth of Birr 527 million (41%) from the preceding fiscal year’s balance. Moreover, at the end of fiscal year, the legal reserve and retained earnings of the Bank went up by Birr 133.68 million (24.89%) and Birr 119.51 million (42.58%), respectively.

Table 2: Equity of the Bank


Capital Category

2016/17 16/2015 Growth

Amount (A)

% Share

Amount (B)

% Share

Absolute (A-B) %age

Paid-up Capital 1,802.00

62.00 1,274.81 60.00 527.19 41.35

Share Premium 6.00 0.21 6.00 0.28 - -

Legal Reserve 670.75 23.09 537.07 25.28 133.68 24.89

Special Reserve 25.92 0.89 25.92 1.22 - -

Retained Earnings 400.15 13.78 280.64 13.21 119.51 42.58

Total 2,904.81 100.0 2,124.38 100.0 780.43 36.73

2.5 Liquidity

During 2016/17 Fiscal Year, the Bank had reasonable funding base which fulfilled the regulatory body’s requirements and enabled to curb the liquidity risk which might arise from operations. To this effect, the liquidity position of the Bank, measured by liquid-asset-to net-current-liabilities, stood at 16.62% during the stated period. Besides, the Bank’s capital adequacy measured in terms of capital-to-risk-weighted assets reached 16.4% that is well above the minimum 8% requirement set by the supervisory authority.

3. ADMINISTRATIVE AND OTHER ISSUES

3.1 Human Resources

In 2016/17 FY, 551 permanent and 310 outsourced employees joined the Bank, which brought the total workforce of the Bank to 5,005 (607 managerial, 1,755 clerical, 1,123 non-clerical, 15 temporary clerical and 1,505 outsourced) as compared to the total number of 4,144 employees as at June 30, 2016. Out of the total work force, female staffs constitute 34.9% while the rest are male.

During the same period, a total of 78 employees left the Bank; out of whom two were deceased, two of them retired, and the remaining staff left the Bank for better job opportunity elsewhere as well as dismissals.

On top of these, as a development program to beef up the capacity of employees of the Bank; some 64



2.3 Profitability


Fig. 8: Comparison of Income, Expense and Gross Profit (In Millions of Birr)

0

200

400

600

800

1000

1200

1400

1600

Interest expense

Salaries and benefit

General and Admin.

Total

599.4 615.0

362.6

1,577

452.6 389.1 284.5

1,126

2016/17

2015/16

-‐2,000.00

-‐1,500.00

-‐1,000.00

-‐500.00

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

Total income Total expense Gross Profit

2,378.39

(1,674.5)

704.5

1,633

(1,146.2)

487.2 2016/17

2015/16

2016/172015/16

15


types of trainings were offered to 4,590 staffs on diverse banking operation areas such as customer centricity, marketing and salesmanship, personal selling, marketing customer relationship management, developing high-performing team, among others.

3.2 Expansion of Branches

In its pursuit to come closer to the public at large, BoA has been aggressively expanding its branch networks. To this end, during the period ended June 30, 2017; the Bank launched 48 new branches and sub-branches thereby bringing the total number of branches to 233. Out of these newly inaugurated branches, 22 were city branches while the remaining 26 were outlying ones. The branches, which went operational during the fiscal year, are listed below.

Table 3: New Branches and Sub-Branches Opened in 2016/17

Branches and Sub-Branches

City (22) Outlying (26)Abebe Bikila Aba Jifar Sub-Branch Addis Kazanchis AdolaBalderas Aleta WondoBelay Zeleke Arsi NegeleDejazmach G/Mariam Gari Atse Sertse DingilEtege Tayitu Branch Awash Sebat KilloGofa Mebrathayl Bale Robe Goffa Mazoria Sub-Branch BatuHabesha Corporate BichenaHana Mariam BoteKebena Dembi DolloKechene Gashena Sub-Branch Kera Gerbe GurachaKolfe GimbiMekanisa JammaMisrak LumameRas Corporate Moyale

Salite Mihret Nejo

Sidamo Tera Oda Nebe Sub-Branch Shero Meda Ras GayentTele Medehanialem SulultaYeka Abdao Sub-Branch Tilili

Tis AbayYirga ChefeYirgalemYoftahe Nigussie

3.3 Business Development

During the just-ended fiscal year, BoA had kept on undertaking wide-ranging marketing activities in an enhanced manner. For instance, the newly introduced marketing approach has brought about marked business growth through identifying and targeting most attractive customers and determining how to cater services to them based on segment-specific needs. Furthermore, the marketing wing had been exerting utmost efforts to fully put in place the newly implemented relationship eco-system which allows BoA to manage its relationship with customers.

During this period, the Bank had continued working with eight Money Transfer Companies that established business relations with the Bank long ago and also made all out efforts in order to forge similar new business ties with other reputable Money Transfer Companies. In addition, the Bank had executed diverse activities to step up the functionality of POS terminals, which allows users to enjoy additional features and thus boost the amount of foreign currency secured through acquiring of international cards (MasterCard and China Union Pay). Acquiring of Visa international card on ATMs has been finalized and is expected to commence catering services in July 2017.

Furthermore, following the new relationship management eco-system; the Bank has assigned dedicated relationship managers with sound banking knowledge who extend assistance and are responsible for the business growth of retail (individual) or business (corporate) customers. Account managers who better understand the needs and preferences of particular segments of customers and are also responsible for the growth of retail customers through acquisition and cross-selling of products also commenced playing their new role during the just-ended fiscal year. In addition, the Bank opened two luxurious priority branches with a view to deliver personalized services for corporate customers.


Moreover, aggressive sales campaign and

promotional works had also been carried out;

making use of various electronics and print media

through hiring prime times and sponsoring

different TV and radio programs in a bid to elevate

the positive image of Bank as well as publicize

its diverse products and services to the general

public.

3.4 Information Systems

As part of the strategy, the Bank has offered special

attention to technology adoption and leveraging

in order to build its competitive advantage and

step up delivery of products and services to its

customers. To this end, it has finalized the initial

stage of upgrading the core banking system with

latest version during the reporting fiscal year,

which will enable it to deliver convenient and

efficient services to its customers.

During the 2016/17FY, though the Bank’s

penetration rate of digital service failed to grow

as per the plan; the adoption and usage of card

banking and mobile banking grew by 127% and

157%, respectively as compared to last year similar

period. The number of mobile and card banking

service users also reached 107,711 and 132,703,

respectively as at June 30, 2017.

Alongside of branch expansion, the Bank has

invested in the deployment of electronic channels

including ATM, POS, Agent Banking and Internet

Banking. Accordingly, in 2016/17, the expansion

of ATM and PoS machines grew by 39% and 44%,

respectively as compared to last year same period

and following this the total number reached 114

ATM and 200 PoS machines (off-premise and

on-premise locations) at the end of June 2017.

On top of that, delivering banking services to its

esteemed customers via agent and Internet went

live this fiscal year.

4. FUTURE PLAN

During the reviewed fiscal year, BoA had been contributing its part for the macro-economic as well as sectoral development like in the previous periods. So, it has been allocating its resources to sectors that are accorded high national priority, delivering banking services via range of channels (branches and electronic channels) as well as offering tailored products and services based on customers’ needs and preferences.

Furthermore, the Bank will aggressively expand its branch networks and thus envisages opening additional branches in more bankable areas during the FY 2017/18 so as to come closer to its customers. In order to cater the leading edge products and services via Card Banking, Mobile Banking, Internet Banking and Agent Banking services; the Bank will also keep on making efforts to step up the banking service accessibility. Unstinted efforts will also be exerted during this period to launch Interest-Free Banking services in order to sustain the growth and profitability of the Bank.

In the coming fiscal year, the Bank will also gear up all its efforts towards the successful implementation of all prioritized strategic initiatives and looks for ways of competitive edge within the changing business environment. These strategic initiatives are also expected to bring about a paradigm shift in the Bank’s overall business system and operating model, which would enable it to realize the desired goals of taking competitive advantage in the industry, which will maximize shareholders’ value.

Therefore, the scrupulous implementation of those strategic initiatives demand the concerted efforts of all stakeholders of the Bank, i.e., the Board of Directors, Executive Management and all employees in order to materialize the envisioned targets and attain the Bank’s aspirations.


17

5. APPROPRIATION OF RETAINED EARNINGS

During the Fiscal Year 2016/17, the Bank secured a net profit of Birr 401.05 million after the appropriate deductions were made from the gross profit of the just-ended Fiscal Year.

The Board of Directors, therefore, recommends that Birr 400.15 million be distributed to shareholders, proportionate to their respective paid-up shares after deducting the legal reserve of Birr 133.68 million and the share of the Board of Directors, which is Birr 900,000.

6. VOTE OF THANKS

In the end, BoA’s Board of Directors and the Executive Management would like to seize this opportunity to express their gratitude to the highly-valued customers of the Bank, shareholders, employees and the regulatory body for their unreserved assistance towards helping the Bank to attain this outcome.

Members of the Board of Directors

Ato Messeret Taye Chairperson

Ato Ali Mohammed Member

Dr. Getachew Teka Member

Ato Belay Gemechu Member

Ato Biruk Tesfaye Member

Ato Berhanu Jijo Member

Ato Bahru Mossa Member

Ato Solomon Girma Member

Ato Tilaye Tegegn Member

Messeret TayeChairman of the Board of

Directors

Mulugeta AsmareChief Executive Officer



AUDITOR'S REPORT

AUDITOR'S REPORT

19

AUDITOR'S REPORT

INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OFBANK OF ABYSSINIA SHARE COMPANY

1. We have audited the accompanying financial statement of Bank of Abyssinia Share Company (hereinafter referred to as the Bank) for the year ended June 30, 2017, set out on pages 20 to 38 which have been prepared under the accounting policies set out on pages 24 to 26.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS2. The Directors of the Bank are responsible for the preparation and fair presentation of these financial

statements in accordance with Generally Accepted Accounting Principles. 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, making accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY3. Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements.

4. An audit involves performing procedures to obtain audit evidences about the amounts and disclosures within the financial statement. The procedures selected depend on our judgment, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, we considered internal control relevant to the 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 Bank’s internal control. The audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for our opinion.

OPINION5. In our opinion, the financial statements present fairly the financial position of the Bank as at June

30, 2017 and its profit and cash flow for the year then ended, in accordance with Generally Accepted Accounting Principles.

6. We have no comments to make on the report of the Board of Directors relating to the financial matters and pursuant to Article 375 (2) of Commercial Code of Ethiopia of 1960, we recommend that the above mentioned financial statements be approved.

GETACHEW KASSAYE & CO.CHARTERED CERTIFIED ACCOUNTANTS

Addis AbabaOctober 3, 2017


AUDITOR'S REPORT

BANK OF ABYSSINIA SHARE COMPANYBALANCE SHEETAS AT JUNE 30, 2017

2016Notes Birr Birr Birr

ASSETSCash and balances with other banks

Cash on hand 1,709,843,316 1,139,906,089Deposits with local commercial banks 100,000,000 -Deposits with foreign banks 2f 297,171,263 350,850,230 Reserve account with National Bank of Ethiopia 988,607,347 676,607,347Other accounts with National Bank of Ethiopia 343,669,920 936,379,522Ethswitch payment and settlement account 836,334 -

3,440,128,180 3,103,743,187Items in course of collection from other banks 514,181,930 193,567,104Investment on NBE Bills 2k 5,121,161,000 3,683,044,000Investments in Equity 3 83,315,500 31,150,500Deposits and prepayments 4 430,773,105 341,899,990Loans and advances to customers 2c,5 13,927,238,753 8,011,609,504

20,076,670,288 12,261,271,097Other assets 6 503,529,333 349,574,400System suspense 7 14,779,923 15,862,150Deferred expenditures 2g,8 49,078,252 17,574,269Leasehold land 2h,9 21,633,874 21,411,184Tangible fixed assets 2d,10 1,218,984,470 1,058,632,932

1,808,005,852 1,463,054,935Total assets 25,324,804,320 16,828,069,220LIABILITIESCustomers’ Deposits

Demand deposits 11 5,794,611,003 3,405,463,146Savings deposits 11 12,462,564,700 9,352,309,956Fixed time deposits 11 2,443,636,748 877,192,411

20,700,812,451 13,634,965,513Margins held on letters of credit 781,787,021 336,220,942Other liabilities 12 742,508,739 600,017,276Provision for tax 13 163,626,465 106,687,484

1,687,922,225 1,042,925,702Deferred tax liability 13.2 31,255,699 25,752,495Total liabilities 22,419,990,375 14,703,643,710

CAPITAL AND RESERVESPaid-up capital 14 1,802,000,736 1,274,805,614Share premium 5,998,459 5,998,459Legal reserve 15 670,749,012 537,066,712Special reserve 16 25,918,839 25,918,839Retained earnings 400,146,899 280,635,886Total Capital and Reserves 2,904,813,945 2,124,425,510TOTAL LIABILITIES, CAPITAL AND RESERVES 25,324,804,320 16,828,069,220

Messeret TayeChairman of Board of Directors


21

AUDITOR'S REPORT



BANK OF ABYSSINIA SHARE COMPANYINCOME STATEMENTFOR THE YEAR ENDED JUNE 30, 2017

2016Notes Birr Birr Birr

INCOME

Interest income 2e,j,18 1,589,840,189 1,097,716,495 Less: interest expense 22 (599,428,158) (452,625,633)Net interest income 990,412,031 645,090,862 Net gain on foreign exchange dealings & rates fluctuation 19 202,384,645 167,101,319 Service charges - foreign and local 389,513,349 256,205,935 Commission earned 20 171,637,714 94,033,075 Dividend income 588,000 258,000 Other income 21 25,012,433 18,127,233

789,136,141 535,725,562 1,779,548,172 1,180,816,424

EXPENSES

Salaries and benefits 23 614,989,711 389,129,672 General and administration 24 362,566,963 284,537,032 Board of Directors’ fees 585,912 338,000 Audit fee 200,000 145,500 Provision for loan and advance 17 82,444,848 19,428,360 Provision for other receivables 14,299,395 -

(1,075,086,829) (693,578,564)PROFIT BEFORE TAX 704,461,343 487,237,860 LESS: PROVISION FOR TAX 13 (164,228,940) (106,982,073)

540,232,403 380,255,787 DEFERRED TAX LIABILITY 13.2 (5,503,204) (5,474,606)NET PROFIT AFTER TAX 534,729,199 374,781,181 TRANSFER TO LEGAL RESERVE ( 25%) (133,682,300) (93,695,295)NET PROFIT AFTER TAX AND LEGAL RESERVE 401,046,899 281,085,886 RETAINED EARNINGS BROUGHT FORWARD 280,635,886 215,431,744 DIVIDENDS PAID (280,635,886) (215,431,744)

401,046,899 281,085,886 LESS: DIRECTORS’ SHARES ON PROFIT 25 (900,000) (450,000)RETAINED EARNINGS CARRIED FORWARD 400,146,899 280,635,886 EARNINGS PER SHARE (PAR VALUE OF BIRR 25) 26 9.39 7.89 EARNINGS PER BIRR 100 SHARES 37.56 31.54


AUDITOR'S REPORT

BANK OF ABYSSINIA SHARE COMPANYCASH FLOW STATEMENTSFOR THE YEAR ENDED JUNE 30, 2017

2016Birr Birr Birr

Cash flows from operating activitiesProfit before taxation 704,461,343 487,237,860 Depreciation and amortization 71,803,801 57,112,392 Additional provision for loan and advances 82,444,848 19,428,360 Writen-off loans and advances which was under provision in 2015/16 (14,036,458) - Additional provision for other receivables 14,299,395 - Loss (Gain) on disposal of old assets (2,982,551) (830,580)Loss (Gain) on disposal of acquired properties (3,742,857) 744,659 Net Gain on foreign currency transactions and translations (202,384,645) (167,101,319)

(54,598,467) (90,646,488)649,862,876 396,591,372

Changes in:Incecrease/ decrease in items in the course of collection (320,614,824) (57,229,886)Increase/decrease in other deposits and prepayments (88,873,115) (150,183,434)Increase/decrease in loans and advances to customers (5,984,037,639) (2,125,812,984)Increase/decrease in other assets (156,834,474) (153,627,147)Increase/decrease in deposits by customers 7,065,846,938 2,516,797,648 Increase/decrease in other liabilities excluding dividend payable 136,761,510 211,821,167 Increase/ decrease in margins on L/Cs 445,566,079 70,241,528 Increase/decrease in trial balance difference 902,516 4,823,675

Cash generated from operations 1,098,716,991 316,830,567 Taxes paid:Profit tax 106,687,484 80,993,479 Withholding tax 602,476 294,589

(107,289,960) (81,288,068)Net cash generated from operating activities 1,641,289,907 632,133,871 Cash flows from investing activities

Proceeds from disposal of acquired properties 25,799,787 13,191,016 Proceeds from disposal of old asset 2,373,000 1,170,700 Purchase of buildings/ Construction in progress (82,536,237) (129,288,139)Purchase of fixed assets (149,284,880) (76,787,815)Investment in leasehold land (556,919) (7,501,494)Investment in E-banking project (42,722,034) (26,205,686)Local Investment - Stock and Shares (52,165,000) (16,058,000)Investment in NBE Bills (1,438,117,000) (294,454,000)

Net cash generated from investing activities (1,737,209,283) (535,933,418)Cash flows from financing activities:

Proceeds from issuance of shares 527,195,122 154,978,779 Dividends paid (296,375,398) (198,828,338)Directors profit share paid for 2015/16 (900,000) (450,000)

Net cash generated from financing activities 229,919,724 (44,299,559)Effects of exchange rate changes 202,384,645 167,101,319 Increase in cash and cash equivalents in the year 336,384,993 219,002,213 Cash and cash equivalents at the beginning of the year 3,103,743,187 2,884,740,974 Cash and cash equivalents at the end of the year 3,440,128,180 3,103,743,187



23

AUDITOR'S REPORT

BANK OF ABYSSINIA SHARE COMPANYSTATEMENT CHANGES IN SHAREHOLDERS EQUITYFOR THE YEAR ENDED JUNE 30, 2017

Paid up Share Legal Special Retained

capital premium reserve reserve earnings Total

Birr Birr Birr Birr Birr Birr

BALANCE AS AT 1 JULY 2014 923,971,393 5,074,715 371,419,741 25,918,839 202,583,522 1,528,968,210

Dividend paid in cash - - - - (39,653,882) (39,653,882)

Dividend capitalized 162,929,639 - - - (162,929,639) -

Net profit for the year - - - - 287,806,706 287,806,706

Transfer to legal reserve - - 71,951,676 - (71,951,676) -

Directors’ share on profit - - - - (423,288) (423,288)

Proceeds from share premium - 923,744 - - - 923,744

Collection from subscribed shares 32,925,804 - - - - 32,925,804

BALANCE AS AT 1 JULY 2015 1,119,826,835 5,998,459 443,371,417 25,918,839 215,431,742 1,810,547,292





Directors’ share on profit - - - - (450,000) (450,000)

Proceeds from share premium - - - - - -







Directors’ share on profit for 2015/16 - - - - (450,000) (450,000)

Directors’ share on profit for 2016/17 - - - - (900,000) (900,000)

Proceeds from share premium - - - - - -






AUDITOR'S REPORT

BANK OF ABYSSINIA SHARE COMPANY

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2017

1. BACKGROUND

Bank of Abyssinia was formed in Ethiopia in 1996 and is registered as a private share holding company in accordance with the provision of the licensing and supervision of Banking Business Proclamation No.84/94 and the Commercial Code of Ethiopia 1960. The Bank has a network of 244 branches throughout the country.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted by the Bank, which are consistent with those applied in the preceding year, are stated below:-

a. Basis of Preparation

The financial statements are prepared in accordance with the historical cost convention, generally accepted accounting principles and the laws and regulations of Ethiopia

b. Financial Instruments

i. Classification

A financial instrument is any contract that gives rise to a financial asset for the Bank and a financial liability or equity instrument of another party. All assets and liabilities in the balance sheet are financial instruments except fixed assets, deferred charges and shareholders’ equity.

The major financial instruments of the Bank are loans and advances provided by the Bank to debtors. Loans and advances comprise deposits and other balances due from banks and loans and advances to customers.

ii Recognition of Financial Instruments

The Bank initially recognizes financial assets and liabilities on its balance sheet on the date it becomes a party to the contractual provisions of the instrument. Any gains and losses arising from changes in value of the assets are recognized from this date. When the Bank becomes a party to the contractual terms comprising a loan and as a consequence has the legal right to receive principal and interest payments on the loan, it controls the economic benefits associated with the loan. Normally, a bank becomes a party to the contractual provisions that comprise a loan (i.e. acquires legal ownership of the loan) on the date of the advance of funds or payment to the third party. As a result, a commitment to lend fund is not recognized as an asset on the balance sheet.

iii De-recognizing of Financial Instruments

All financial assets are de-recognized when the Bank loses control over the contractual rights that comprise the assets. This occurs when the rights are realized, expired or are surrendered. A financial liability is de-recognized when it is extinguished.

iv Measurement of Financial Instruments

The Bank measures all financial instruments initially at cost including transaction costs.

25

AUDITOR'S REPORT

c. Loans and Advances

Loans and advances are financial instruments originated by the bank by providing money to the debtors. The loans and advances are stated at cost less impairment losses. Impairment losses comprise specific provisions against debts identified as bad and doubtful and general provisions against losses which are likely to be present in any loans and advances portfolio. The Bank follows the National Bank of Ethiopia, Supervision of Banking Business Directive SBB43/2008 in determining the extent of provisions for impairment losses. The Directive classifies loans and advances into the following;

i Pass Loans

Loans and advances in this category are fully protected by the current financial and paying capacity of the borrower and are not subject to criticism. In general, loans and advances, which are fully secured, both as to principal and interest, by cash or cash substitutes, are classified under this category regardless of past due status or other adverse credit factors.

ii Special Mention

Any loan or advance past due 30 days or more but less than 90 days is classified under this category.

iii Substandard

Non-performing loans or advances past due 90 days or more but less than 180 days is classified under this category.

iv Doubtful

Non-performing loans or advances past due 180 days or more but less than 360 days is classified as doubtful.

v Losses

Non-performing loans or advances past due 360 days is classified as loss.

As per the Directive, the provision for impairment losses is determined using the following minimum provision percentages against the outstanding principal amount of each loan and advances.

No. Loan Category Extent of provision required

1 Pass loans 1% of the outstanding principal balance

2 Special mention loans 3% of the outstanding principal balance

3 Substandard loans 20% of the net loan balance

4 Doubtful loans 50% of the net loan balance

5 Loss loans 100% of the net loan balance

Note : Net loan balance is outstanding principal balance less net recovery value of collaterals.

d. Fixed Assets

The Bank had been using straight line basis of depreciation from the start of operation of the Bank until June 30, 2002. Thereafter as per new Tax Proclamation No.286/2002, the Bank had changed the depreciation method to pooling system and effecting the depreciation up to June 30, 2009 accordingly. Presently, to be compatible with International Standards, the Bank has restored the depreciation basis to straight line basis and adjusted the records of the Bank as of June 30 2010 (Note 10).


AUDITOR'S REPORT

i. Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is charged on the straight line basis at the following rates per annum:

%

Vehicle 20

Furniture, fittings and equipment 10

Computers 10

Building 5

For profit tax purpose, necessary adjustments are made to comply with the Income Tax Proclamation 286/2002.

e. Revenue Recognition

Interest income and expenses in the income statement are recognized on accrual basis. However, interest accruing on loans and advances referred to legal counsel including substandard, doubtful and loss loans categories are maintained under memorandum account and are recognized as income when collected.

f. Foreign Currencies

Foreign currency transactions are recorded at rates of exchange ruling at the date of transactions. Monetary assets denominated in foreign currencies, which are stated at historical costs, are translated at the exchange rate ruling on that date. Foreign exchange differences arising on translations are recognized in the income statement.

g. Deferred Expenditures

Deferred expenditures represent expenses incurred for establishment of E- banking project.

h. Leasehold Land

The leasehold land represents lease cost of:

Birr

1,576sq.m of land located in Lagahar area ,Addis Ababa, for the period of 60 years 2,345,687

1,357sq.m of land located in Lagahar area ,Addis Ababa, for the period of 40 years 1,177,991

3,065sq.m of land located in Bole area, Addis Ababa, for the period of 99 years 4,561,884



726sq.m of land located in Belay Zeleke Street, Addis Ababa, for the period of 60 years 1,425,497

1,248 sq.m of land located in Bahr Dar Bank of Abyssinia Share Company together with Nile Insurance Share Company has acquired for the period of 55 years

566,920

893 sq. m. of land located in Tabor sub city, Hawassa , for the period of 64 years 7,501,494

317.75 sq .m of land located in Jima, Hermata-Merkato kebele, for the period of 99 years. 556,919

Total 22,456,321

i. Bonus

Bonus and compensation for services of the Bank’s employees are accounted for when paid.

27

AUDITOR'S REPORT

j. Interest Income

Interest income on advances on import bills is recognized on collection.

k. NBE Bills

It represents purchases of five year National Bank of Ethiopia Bills as per the National Bank of Ethiopia Directive No.MFA/NBE Bills 002/2013

3. INVESTMENTS

It represents cash paid for purchases of shares of various share companies.

The details are as follows:

Name of Investees No. of sharesPar value

(Birr) Birr 2016

EthSwich S.C. 11,370 1,000 11,370,000 11,370,000

Addis Africa Int. Convention & Exh. Center 3,481 1,000 3,481,000 1,904,000

Hohete Tibeb S.C. 5,329 500 2,664,500 2,076,500

Ethiopian Reinsurance Company 15,800 1,000 15,800,000 15,800,000

Abay Industry Development S.C 50,000,000 -

Total 83,315,500 31,150,500

Investment in shares of Hohete Tibeb S.C has increased by Birr 588,000 since the Bank has decided to invest its dividend income of financial year 2015/16.

The bank has increased its investment in shares of Addis Africa International Convention & Exhibition Center through purchase of additional 1,577shares at par value of Birr 1,000.

Board of Directors of the Bank approved to invest Birr 100 million in Abay Industry Development S.C and 50 % (Birr 50 million) of the total subscribed amount has been paid in Cash during the year ended June 30, 2017.

4. DEPOSITS AND PREPAYMENTS

2016Birr Birr

Prepaid rent 420,848,690 333,417,187 Prepaid software license fee 1,577,524 1,204,742 Prepaid insurance 5,478,396 4,409,566 Deposit 4,868,495 4,868,495

432,773,105 343,899,990 Less: provision for other receivables (2,000,000) (2,000,000)

430,773,105 341,899,990


AUDITOR'S REPORT

5. LOANS AND ADVANCE TO CUSTOMERS

2016

BIRR BIRR

Domestic trade and services 5,090,812,430 2,999,430,453

Import 1,647,610,800 1,196,140,706

Construction 1,532,616,800 905,228,941

Transport 773,146,390 353,913,834

Industry 952,859,090 463,533,860

Export 3,538,030,490 1,976,718,066

Agriculture 285,532,320.00 109,256,435

Others 284,798,823 117,147,209.07

14,105,407,143 8,121,369,504

( Less: provision for doubtful loans and advances ( Note 17 (178,168,390) (109,760,000)

13,927,238,753 8,011,609,504

6. OTHER ASSETS

2016

Birr Birr

Properties held for sale 64,457,032 84,229,459

Stationery and other stocks 16,791,454 12,720,174

Accounts receivable – medical 6,145,873 4,006,058

Stock of fixed asset items 22,582,818 62,159,842

Accrued Income Receivable 84,818,291 59,555,502

Branches under opening 67,720,324 80,728,182.01

International money transfer agents 13,442 75,452.32

Miscellaneous accounts receivable (Note 6.1) 271,526,837 62,327,074

534,056,071 365,801,743

Less: provision for other receivables (30,526,738) (16,227,343)

503,529,333 349,574,400

6.1. Included in the miscellaneous accounts relievable balance, Birr 182,345,712 was paid to Ethiopian Roads Authority (ERA) in relation to Advance Payment Guarantee for road construction contract issued by the Bank The Bank takes Counter Guarantee issued by State Bank of India (SBI) and the Bank is under the process of legal action to collect the money from the stated Bank.

7. SYSTEM SESPENSE

This amount represents trial balance difference that emerged while combining the balances generated by the legacy and the new system, T-24 CBS in respect of loans and advances including associated interest income earned thereof and outstanding balance of cheques sent to other bank clearance

29

AUDITOR'S REPORT

8. DEFERRED EXPENDITURE

Balance Transfer to Transfer to Balance

07/01/16 Additions Fixed Assets Other accounts 30/06/17

Birr Birr Birr Birr Birr

IT project 17,574,269 65,212,433 (23,169,502) (10,538,949) 49,078,251

9. LEASEHOLD LAND

Balance Balance

07/01/16 Additions 30/06/17

Birr Birr Birr

Cost 21,899,402 556,919 22,456,321

Amortization (488,218) (334,229) (822,447)

Net book value 21,411,184 21,633,874

10. TANGIBLE FIXED ASSETS

Balance /Disposal Balance

07/01/16 Additions Adjustment 30/06/17

Birr Birr Birr Birr

COST

Buildings 76,738,286 3,746,017 - 80,484,303

Motor vehicles 162,429,121 42,780,222 (3,372,327) 201,837,016

Office and other equipment 87,136,773 26,794,372 - 113,931,145

Furniture and fittings 68,374,221 23,784,631 - 92,158,852

Computer accessories & Software 224,135,736 52,179,638 - 276,315,374

Construction in progress 674,944,230 82,536,237 - 757,480,467

1,293,758,367 231,821,117 (3,372,327) 1,522,207,157

DEPRECIATION

Buildings 24,665,310.0 3,899,843 - 28,565,153

Motor vehicles 95,049,205 27,989,982 (3,372,318) 119,666,868

Office and other equipment 28,726,975 9,210,176 - 37,937,150

Furniture and fittings 28,842,586 6,657,119 - 35,499,705

Computer accessories 57,841,359 23,712,452 - 81,553,811

235,125,435 71,469,572 (3,372,318) 303,222,687

NET BOOK VALUE 1,058,632,932 1,218,984,470


AUDITOR'S REPORT

One of the two buildings purchased by the Bank located at Bole (Africa Avenue) with a total cost of Birr 181,194,415 has been claimed by the Office of the Government of Oromia Regional State for expansion. After negotiation and discussion made between the two parties, the Office of the Government of Oromia Regional State has officially communicated to the Bank in writing that it has lifted its claim.

11. DEPOSITS FROM CUSTOMERS

2016

Demand Savings Fixed time Total Birr

Private sector & staffs 5,117,141,596 12,143,362,718 976,896,403 18,237,400,717 12,411,687,007

Co-operatives & associations 249,929,725 277,502,752 943,539,219 1,470,971,696 602,716,267

Domestic banks 63,177,346 16,901,904 521,248,403 601,327,653 337,325,643

NR-transferable Birr accounts 46,210,381 - - 46,210,381 34,571,623

Public agencies & enterprises 10,863,921 24,797,326 1,952,723 37,613,969 32,870,427

NR-non transferable accounts 6,457,271 - - 6,457,271 19,568,179

NR- foreign currency accounts 262,090,317 - - 262,090,317 168,301,900

Residents 38,740,446 - - 38,740,446 27,924,467

At 30.06.17 5,794,611,003 12,462,564,699 2,443,636,748 20,700,812,451 13,634,965,513

At 30.06.16 3,405,463,146 9,352,309,956 877,192,411 13,634,965,513

12. OTHER LIABILITIES

2016

Birr Birr

Cashiers’ payment orders 339,463,393 278,096,549

Blocked account and blocking inwards 4,771,984 5,598,359

MTs and TTs payable local and foreign 14,295,506 17,214,177

Board of Directors’ fees 900,000 479,084

Dividend payable 35,797,772 30,488,737

Accrued interest on CDT 101,087,068 43,822,900

Old drafts and outstanding payments local and foreign 4,281,507 2,984,164

Exchange and auction payable to NBE 45,892,514 21,119,851

Accrued leave payable 27,334,685 30,800,368

Stamp duty charges payable 92,900 1,606,972

Payroll tax payable 5,492,931 3,617,184

Unearned rent 2,046,244 2,423,672

Sales tax on interest paid 2,405,645 2,036,945

VAT payable 304,983 78,672

Withholding tax payable 709,262 831,945

Deposit for guarantee issued 7,200,360 7,137,118

Safe deposit keys value 682,365 683,585

Audit fee payable 194,250 189,750

Advance payment on loan 117,524,956 130,953,762

Miscellaneous accounts payable 29,785,138 17,606,332

Provision for claims under court case 2,245,276 2,247,151

742,508,737 600,017,276

31

AUDITOR'S REPORT

13. PROVISION FOR TAXATION

2016

Birr Birr Birr

The movements in this account are:

Beginning balance 106,687,484 80,993,479

Less: Settlement (106,687,484) (80,993,479)

- -

Provision for the year

Profit before tax 704,461,343 487,237,861

Less: Depreciation per tax proclamation No. 286/2002 89,813,596 73,684,072

Interest income from NBE Bills 127,694,723 114,526,144

Interest income form deposit in local commercial banks 20,500,384 -

Interest on foreign deposits 2,465,999 934,389

Dividend Income 588,000.00 258,000

Gain on fixed assets disposal on which CGT was paid 2,017,043 1,194,269.00

Gain on Aquired assets disposal on which CGT was paid 3,546,029 -

(246,625,775) (190,596,874)

Add: Depreciation per accounting policy 71,469,572 56,871,698

Provision for other receivables 14,299,395

Donations and contribution 660,701 759,006

Entertainment 2,472,595 2,101,973

Penality 280,969 77,514

89,183,232 59,810,192

Taxable profit for the year 547,018,801 356,451,178

Provision for profit tax @ 30% 164,105,640 106,935,354

Add : 5% of interest on foreign deposits 123,300 46,719

Profit tax for the year 164,228,940 106,982,073

Less: Withholding tax paid (602,476) (294,589)

Profit tax payable 163,626,465 106,687,484


AUDITOR'S REPORT

13.1. DEPRECIATION FOR TAX PURPOSES

BUILDING Birr Birr Cost brought forward 76,738,286

Current year addition 3,746,017

80,484,303

Less: Accumulated depreciationbrought forward (24,665,310)

Current year depreciation (3,899,843)

Depreciation base carried forward 51,919,150 3,899,843

COMPUTER AND ACCESSORIESTax base brought forward 100,843,662

Current year addition 52,179,638

Depreciation Base 153,023,300

Depreciation @ 25% (38,255,825) 38,255,825

Net Book Value 114,767,476

OTHER BUSINESS ASSETSDepreciation base brought forward 144,930,415

Add: Additions 93,359,226

Depreciation Base 238,289,642

Depreciation @ 20% (47,657,928) 47,657,928

Net Book Value 190,631,713

Total depreciation for tax purpose 89,813,596

Tax assessments for the fiscal years from 2003/04 onwards have not been received from the Federal Inland Revenue Authority. However, as per the “Exit Strategy” of the Government, previously paid taxes in respect of the fiscal years to 2002/03 are to be taken as final.

13.2 DEFERRED TAX

2016

Birr Birr

Net book value as per accountingpolicy 461,504,002 383,688,703

Tax base (357,318,339) (297,847,054)

Temporary difference 104,185,663 85,841,649

Deferred tax liability @ 30% 31,255,699 25,752,495

Deferred tax liability has been computed on Balance sheet method.

33

AUDITOR'S REPORT

14. SHARE CAPITAL

Description Numberof shares

Parvalue

2016

Birr Birr

Authorized 160,000,000 25 4,000,000,000 1,500,000,000

Paid-up capital 72,080,029 25 1,802,000,736 1,274,805,614

15. LEGAL RESERVE

2016

Birr Birr

Balance at the beginning of the year 537,066,712 443,371,417

Transfer for the year 133,682,300 93,695,295

670,749,012 537,066,712

16. SPECIAL RESERVE

The Bank has special reserve of Birr 25,918,839 against fidelity risk in accordance with Article 21 (7) of the Bank Business Proclamation No. 592/2008.

17. PROVISION FOR DOUBTFUL LOANS AND ADVANCES

The movement in this account was as follows:

2016

Birr Birr

Balance brought forward 109,760,000 90,331,640

Less: Written-off of loans and advances for the year (14,036,458) 0

Add: Additional provision 82,444,848 19,428,360

178,168,390 109,760,000

18. INTEREST INCOME

2016

Birr Birr

Interest on: Term loans 1,055,454,186 730,248,241

Overdrafts 265,113,169 187,161,031

Import and export facilities 27,243,859 22,574,320

Advance on sales contract 91,367,869 42,270,337

Old loans under court cases - 2,033

1,439,179,0823 982,255,962

Deposits with foreign banks 2,465,999 934,389

NBE Bills 127,694,723 114,526,144

Treasury Bills - -

Deposits with domestic banks 20,500,384 -

1,589,840,189 1,097,716,495


AUDITOR'S REPORT

19. NET GAIN ON FLUCTUATION OF EXCHANGE RATES

2016

Birr Birr

Gain on fluctuation of exchange rates 363,508,286 278,018,904

Less: Loss on fluctuation of exchange rates (161,123,641) (110,917,585)

Net gain on fluctuation of exchange rates 202,384,645 167,101,319

20. COMMISSION EARNED

2016

Birr Birr

Letters of credit and other import/ export facilities 135,959,822 71,629,219

MTs, TTs, DDs - local and foreign 7,977,025 5,510,879

Letters of guarantee 20,777,084 9,205,229

Cashiers’ payment order 3,761,994 3,057,419

IBC and others 431,278 3,102,066

ATM and POS transactions 2,730,308 1,517,187

Uncleared effects 203 11,076

171,637,714 94,033,075

21. OTHER INCOME

2016

Birr Birr

Rent 6,514,165 4,744,142

Telephone and fax 1,497,025 2,095,577

Sundries 8,062,799 9,158,673

Safe box charge 162,604 268,521

Gain on disposal of old asset 6,519,445 830,580

Gain on disposal of Acquired Property 205,962

Correspondent charges 935,965 396,070

Estimation fee 1,114,468 633,670

25,012,433 18,127,233

22. INTEREST EXPENSE

2016Birr Birr

Savings deposits 450,128,021 366,733,925Fixed time deposits 149,300,137 85,891,708

599,428,158 452,625,633

35

AUDITOR'S REPORT

23. SALARIES AND BENEFITS

2016

Birr Birr

Clerical Staff Salary 319,017,114 182,402,208

Contractual Staff Salary 26,552,350 18,861,389

Non-Clerical Staff Salary 39,360,031 26,679,782

Transportation 42,125,122 29,671,075

Provident Fund 42,432,569 24,940,774

Bonus 32,531,955 25,707,151

Leave Pay 25,639,632 15,654,062

Training Education 22,201,333 13,505,548

Living Allowance 19,753,203 11,678,958

Cash Indemnity Allowance 9,988,673 8,069,343

Fuel and lubricants 4,077,863 2,004,986

Medical 5,078,502 6,405,969

Staff Insurance 9,836,799 6,854,138

Car and representation allowance 6,875,951 4,658,418

Uniforms 684,654 4,171,098

Saturday Extra time Allowance 2,878,951 2,273,375

Overtime Clerical Staff 1,157,324 1,122,925

Overtime Non-Clerical Staff 2,661,998 2,145,526

Housing Allowance 1,265,594 1,126,327

Severance Pay 309,134 818,736

Disturbance Allowance 219,500 141,431

Funeral Allowance 13,500 13,200

Maternity Pay 77,969 62,701

Position allowance 199,658 109,113

Tuition 32,210 42,825

Utilities Allowance 18,122 5,834

Compensation Pay - 2,780

614,989,711 389,129,672


AUDITOR'S REPORT

24. GENERAL AND ADMINISTRATION EXPENSE

2016

Birr Birr

Office rent 145,554,692 111,788,295

Depreciation 71,469,572 56,871,698

Postage, telephone, telegram, telex/fax 24,386,699 13,214,262

Stationery and printing 19,863,150 13,864,959

Advertising 17,006,589 14,729,348

Repair and maintenance 16,568,435 11,768,911

Fuel and lubricant 3,701,995 5,122,295

Insurance 8,089,715 7,273,067

Per diems and travel 5,112,882 5,013,624

Correspondent charges 2,784,155 1,068,846

SWIFT services 129,815 2,042,140

Utilities 2,065,350 1,611,938

Amortization 334,229 240,694

Donations and contributions 2,120,701 1,003,006

Annual reception 8,881,169 6,161,311

Bank charges 5,890,431 2,657,531

Membership and subscriptions 773,365 532,651

Entertainment 2,472,595 2,101,973

Inauguration of branches 284,234 6,716

Legal fees and charges 80,862 10,903

License fee 92,276 41,160

Cleaning supplies 1,391,033 990,112

Wages 1,402,322 1,071,865

Transportation of currency 1,517,450 1,260,932

Loss on disposal of acquired properties - 744,670

Consultancy fee 3,923,673 9,118,242

ATM and POS card issuance fee 1,903 4,675,376

Software license fee 7,035,938 5,817,547

Master card membership and Service 2,103,055 -

Sundries 7,528,678 3,732,960

362,566,963 284,537,032

37

AUDITOR'S REPORT

25. DIRECTORS’ SHARES ON PROFIT

Board of Directors remuneration is calculated in compliance with Directive No. SBB/63/2016 which has been issued by National Bank of Ethiopia, effective from June 1, 2016, which limits the maximum annual compensation of Birr 100,000 for each Board member. The amount has been shown in the profit and loss account.

26. EARNING PER SHARE

The rate of earnings per share is the return per share computed on the basis of the net profit after tax but before legal reserve divided by the weighted average number of shares held during the year.

27. CONTINGENT LIABILITY AND COMMITMENTS

Contingent liability:

2016Birr Birr

Contingent Liability;

Letter of Guarantee 228,403,315 246,713,883

Loans and advances approved but not disbursed 622,731,336 317,798,737

Unutilized overdraft and other revolving facilities 1,216,264,266 654,096,193

Letter of Credit 1,977,294,523 865,206,308

4,044,693,440 2,083,815,121

28. MEMORANDUM ACCOUNTS

2016

Birr Birr

OBC-Own branches and other banks’ city clearance 22,695,449 22,695,449

IBC-Acceptance and sight 174,972,167 130,145,244

Outward document bills sent for collection - foreign 18,088,081 3,837,822

Interest on non performing loans 42,832,754 13,639,288

Loans and advances written -off and kept in memorandum accounts 212,959,004 198,922,546

Money bags 849 849

471,548,304 369,241,197

29. RELATED PARTY TRANSACTIONS

a) The significant balances and transactions included in the financial statements are indicated as:-

2016

Birr Birr

Loans and advances as at June 30,2017 567,040,000 141,710,000

b) These represent transactions with certain related parties with major shareholders of the bank or directors who have control over decision of the bank. The terms of these transactions were approved by the bank’s management on agreed terms.


AUDITOR'S REPORT

30. RISK MANAGEMENT

The Bank has exposure to the following risks from its use of financial instruments. Asset and liability management committee is responsible for implementing appropriate policy, procedure, risk management techniques and managing all types of risks in the bank.

Credit Risk

Credit risk is the financial exposure resulting from a bank’s dependence on another party to discharge an obligation as agreed and cause the bank to incur a financial loss. The bank has established a credit risk management system on the basis of maximizing return on its assets while keeping its credit exposure within acceptable limits. The Bank regularly reviews its credit portfolio quality, provisioning requirements and customer exposure. The bank’s loans and advances are diversified in various sectors as shown in Note 5 to the financial statements.

Liquidity Risk

Liquidity risk arises in the general funding activities of the Bank and the management of positions. It includes the risk of being unable to fund assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in appropriate time frame. The Bank has a reasonable funding base. Funds are raised mainly from customers’ deposits. The maturity profile is monitored by the oversight asset and liability management committee to ensure adequate liquidity is maintained.

Foreign Exchange Risk

Foreign exchange risk results from changes in exchange rates between a bank’s domestic currency and other currencies. Foreign exchange risks are controlled by maintaining balances in major currencies whose exchange rates against the reporting currency have always been appreciating. The bank settles foreign exchange transactions of customers at the exchange rate prevailing on the date of the transactions. Hence, the customers bear the cost of any increase in the exchange rates.

Interest Rate Risk

Interest rate risk is a risk resulting from changes in interest rates. It is the probability that the rising and falling of interest rates will adversely affect the Bank’s interest margin or the value of its net worth. The bank often revises its lending rate across segments of the credit portfolio based on changes in the cost of funds, reserve requirements and the perceived risk in each credit portfolio segment to keep the overall profitability.

The assets and liability management committee is responsible for managing rate-sensitive assets and liabilities and the effects of rate, volume and mix changes in order to preserve and optimize the interest return.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal process and systems, fraud, malpractices or external events. The bank manages its operational risk through implementation of sound policies, procedures and staff training on proper implementation of operational manuals by the operational units. Additionally the bank has strong oversight and supervision and internal control function. Besides, IT system and management audit have been started to strengthen operational risk management framework.

31. COMPARATIVE FIGURES

Comparative figures have been reclassified to facilitate comparisons.

2016 2017...28 Lambert 251-11-647 81 90 251-11-647 81 94 “ 29 Lafto 251-11-419 82 80 251-11-419 82...

Documents

Transcript of 2016 2017...28 Lambert 251-11-647 81 90 251-11-647 81 94 “ 29 Lafto 251-11-419 82 80 251-11-419 82...