2016 ANNUAL REPORT - IIBanks · 2019-08-26 · 3 2016 ANNUAL REPORT A. KEY INDICATORS 31.12.2016...

Banco Internacional de Cabo Verde, S.A., Sede na Avenida Cidade de Lisboa, Caixa Postal 35, Cidade da Praia, Santiago, Cabo Verde, NIF 261973240, registada e matriculada na conservatória do Registo Comercial da Praia com nº 3076, com o Capital Social de 1.433.000.000$00

2016 ANNUAL REPORT

DISCLAIMER: This document is a free translation into English of the original Portuguese

version. In case of doubt, misinterpretation or discrepancies, the Portuguese version shall

prevail.

1 2016 ANNUAL REPORT

TABLE OF CONTENTS

A. KEY INDICATORS ............................................................................................................... 3

B. RESULTS AND PROFITABILITY ....................................................................................... 4

C. GRAPHICS - SUMMARY OF THE KEY INDICATORS ...................................................... 5

I. MANAGEMENT REPORT ................................................................................................... 6

1. MESSAGE FROM THE CHAIRMAN ................................................................................ 6

2. THE BANK........................................................................................................................ 7

2.1. Share Capital and Shareholder Structure .............................................................. 8

2.2. Corporate Bodies ..................................................................................................... 8

2.3. Geographic Presence, Branch Network and Facilities ........................................ 10

2.4. Human Resources .................................................................................................. 11

3. 2016 Economic Framework ...................................................................................... 13

3.1. International Framework...................................................................................... 13

3.2. National Framework ............................................................................................. 16

4. Commercial Activity .................................................................................................... 19

4.1. Business Strategy and Model ................................................................................ 19

5. Credit Risk Analysis .................................................................................................... 21

5.1. Loan Portfolio and Provisions / Impairment ...................................................... 21

5.2. Credit Risk Analysis ............................................................................................... 25

6. Activity Evolution Analysis ........................................................................................ 28

6.1. Activity Summary .................................................................................................. 28

6.2. Balance Sheet ......................................................................................................... 29

7. Results, Financial and Prudential Ratios ................................................................ 34

7.1. Results .................................................................................................................... 34

7.2. Financial Ratios ...................................................................................................... 36

7.3. Prudential Ratios ................................................................................................... 38

8. Final Notes ........................................................................................................................ 40


8.1. Declaration of Conformity of Financial Reporting .............................................. 40

8.2. Proposal for the Application of Net Income ........................................................ 40

8.3. Acknowledgements ............................................................................................... 41

II. Financial Statements and Notes to the Financial Statements ................................. 42

1. Financial Statements .................................................................................................. 42

2. Notes to the Financial Statements for the year ended 31 December 2016 ...... 47

3. Report and Opinion of the Fiscal Board .................................................................. 91

4. External Audit Report ................................................................................................. 93

III. Information on Corporate Governance ................................................................... 99

1. Organizational and Governance Structure ............................................................. 99

2. Description of roles and responsibilities of each member of the institution's

management body ............................................................................................................. 100

3. Internal Control and Risk Management System .................................................. 101

3.1. Global Risk Area ................................................................................................... 101

3.2. Compliance Area .................................................................................................. 102

3.3. Internal Audit ....................................................................................................... 103

4. Administrative and Financial Area. ....................................................................... 105

5. Marketing, Organization and Quality Area .......................................................... 106

6. Operational ................................................................................................................. 107

7. Commercial ................................................................................................................. 108


A. KEY INDICATORS

31.12.2016 31.12.2015

ACTIVITY (thousands of CVE)

Net Asset 10 751 244 11 914 227

Loan to customers (gross) 2 086 192 2 460 489

Deposits (1)

9 158 568 10 225 841

Net Interest Income 164 227 144 632

Total Operating Income 99 716 209 970

Cash-Flow ( 74 159) 46 524

Income for the year ( 146 158) 2 558

OPERATIONS

Number of Branches 02 02

Number of Employees (2)

26 29

Number of Employees/Number of Branches 13 15

LIQUIDITY

Deposits at the Central Bank (tCVE) 932 446 483 109

Loan-to-deposit Ratio (%) (3)

23 24

QUALITY OF THE ASSETS (%)

Default = Non-performing loan > 90 days/loans to customers (gross) 19,74 15,13

Impairment/Non-performing loan > 90 days 19,41 16,80

Loan Impairment/Loan to Customers 3,83 2,54

PRODUCTIVITY / EFFICIENCY

Average Asset/Average number of employees (mCVE) 412 099 436 494

Cash Flow/Average number of employees (mCVE) ( 2 697) 1 723

Structure Costs/Average Asset (%) 1,53 1,39

Cost-to-Income (%) 224,42 100,17

(1) Deposits include the customers' deposits and plus the institution's deposits

(2) Include all employees (effective and term contracts)

(3) Loan-to-deposit ratio is given by the ratio between loans to customers and customers' deposits


B. RESULTS AND PROFITABILITY

31.12.2016 31.12.2015

BALANCE SHEET (thousands of CVE)

Net Asset 10 751 244 11 914 227

Financial Asset 7 234 971 7 258 326

Equity 1 511 272 1 657 430

OPERATING ACCOUNT (thosands of CVE)

Net Interest Income 164 227 144 632

+ Customers' Fees and Commissions 38 218 46 935

= Commercial Banking Income 202 445 191 567

+ Capital Markets and Other Results ( 102 729) 18 403

= Total Operating Income 99 716 209 970

- Operating Costs 223 784 210 326

= Gross income ( 124 067) ( 356)

Provisions, net and reversals 21 949 ( 8 094)

= Income before taxes ( 146 016) 7 738

- Taxes 141 5 180

= Net Result for the Year ( 146 158) 2 558

PROFITABILITY (%)

Net Interest Margin 2.27 1.99

+ Return on Customers Fees and Commissions 0.53 0.65

+ Return on Capital Market and Others -1.42 0.25

= Business Margin 1.38 2.89

- Relevance of Operating Costs 3.09 2.90

- Relevance of Provisions 0.30 -0.11

- Relevance of Minority Interests 0.00 0.07

= Return of Financial Assets -2.02 0.04

x Relevance of Financial Assets 67% 61%

= Return on Assets -1.36 0.02

x Applications Multiplier 711% 719%

= Return on Equity -9.67 0.15


C. GRAPHICS - SUMMARY OF THE KEY INDICATORS


I. MANAGEMENT REPORT

1. MESSAGE FROM THE CHAIRMAN

The year 2016 was a very difficult year in which, in addition to the country's economic

challenges, some events, associated with the non-sale of the Bank at the beginning of the

year, had a significant and unexpected impact.

The Bank was confronted with an administrative offence proceeding at the end of the year,

formulated by the Central Bank of Cabo Verde, where it was alleged that certain

Compliance and Internal Control obligations were violated, mainly when BICV was held by

Banco Espírito Santo, S.A., long before this Board of Directors took office.

Had it not be the strategy established at the beginning of the second half of the year 2015,

when this Board of Directors took office, to refocus the commercial activity solely on the

domestic market and, above all, the unequivocal attitude of strengthening control

functions, with particular emphasis on improvement of the Compliance and Global Risk

Management function, in line with the principles and best practices of the "parent

company" (main control from the Headquarters), surely the impacts on clients and

Authorities could have been expected to be higher.

Due to the action of the Board of Directors, the intervention of the BICV team in

collaboration with certain departments of Novo Banco, S.A. that exercise main control on

certain functions, we can affirm that the situation of the BICV is now quite compliant,

being at the level of best practices.

As in previous years, the strong professionalism and resilience of the Bank's staff, which

has made it possible to maintain the quality of service to clients, even in the face of such an

adverse year, is worthy of note.

Lastly, the Bank maintains very high levels of solvency and appropriate liquidity, which

will allow continuing to finance the Cabo Verdean economy in a selective way, which we

are certain, will lead clients to trust BICV throughout the year 2017.

The Chairman of the Board of Directors,

Rui Manuel Fernandes Pires Guerra


2. THE BANK

Banco Internacional de Cabo Verde, SA (BICV), former Banco Espírito Santo Cabo Verde

until November 2014, was inaugurated in July 2010, and its commercial activities started

in August of the same year.

Recalling that, by resolution of the Board of Directors of Banco de Portugal, adopted at an

extraordinary meeting on August 3, 2014, a resolution measure was applied to Banco

Espírito Santo, SA (BES) and incorporated Novo Banco, S.A., fully held by the Resolution

Fund. With the resolution measure, certain elements, patrimonial and off-balance sheet,

identified in the resolution of the Board of Directors of Banco de Portugal and reflected in

BES's preliminary balance sheet, with reference to June 30, 2014, were transferred from

BES to Novo Banco at an individual basis adjusted to the time of transfer referred to

herein. Among the assets transferred to Novo Banco was Banco Espírito Santo Cabo Verde,

S.A.

The change of name of the local structure was imposed naturally, in order to break with

any link to the BES brand. Due to the fact that existed in Cabo Verde, an institution called

Novo Banco, in November 2014, the name Banco Internacional de Cabo Verde, SA (Banco

Internacional or BICV) was adopted, with the purpose of restoring the dynamics of

development and growth, which has always characterized the institution. The change of

name in a short time made its impact felt, through the recovery of customers’ trust.

Banco Internacional inherited from BESCV, in addition to a strong experience in crisis

management, the implementation of Novo Banco Group values and a young, dynamic and

highly qualified team that allows the Bank to have a healthy loan portfolio, compared to

the banking system in Cabo Verde. It has adopted a rigorous compliance system based on

the best and latest international practices, allowing to respond in a timely manner to the

needs that the industry demands today.


2.1. Share Capital and Shareholder Structure

Banco Internacional has a share capital of 1,433,000,000.00 (one billion, four hundred and

thirty-three million Cabo Verdean escudos), divided into 1,433,000 shares, with a par

value of 1,000,00 (one thousand Cabo Verdean escudos) each. Since 2014, after the

resolution of BES, in which the shareholder structure changed, when it no longer had

private shareholders, the institution has the following composition:

Shareholder Structure (amount in Cabo Verdean Escudos)

2.2. Corporate Bodies

The statutes of Banco Internacional provide for an organization structure composed of a

General Assembly, a Board of Directors and a Fiscal Board.

General Assembly

President

Pedro Moreira de Almeida Queiroz de Barros

Secretary

Eugénio Fernando de Jesus Quintais Lopes

Board of Directors

The Board of Directors is composed of six members, five effective members and one

deputy member, appointed by the General Assembly on March 31, 2015.

Chairman of the Board

Rui Manuel Fernandes Pires Guerra

Board Members

António Manuel Cerveira Duarte

Marta Carolina Mota Leite Machado Mariz

Bruno Pedro Colaço Catarino

No. Of Shares Amount %

NOVO BANCO África, SGPS - S.A. 1,432,850 1,432,850,000 99.9895%

NOVO BANCO, S.A. 150 150,000 0.0105%

TOTAL 1,433,000 1,433,000,000 100%


Paulo Jorge Carrageta Ferreira

Alternate Member

José Alberto Monteiro Soares

Fiscal Board

Ildo Adalberto Lima – President

Eunérlia Sousa Freitas – Effective Member

Nair Cecília Pereira da Silva – Effective Member

José Jorge Borges de Oliveira – Alternate Member

José Armindo Fernandes Duarte – Alternate Member


2.3. Geographic Presence, Branch Network and Facilities

Banco Internacional de Cabo Verde (BICV) has its own headquarters in Av. Cidade de

Lisboa, in the city of Praia, where the central services and the main branch operate. It also

has a second branch on the island of Sal.

Geographic Presence of Banco Internacional

HEADQUARTERS/PRAIA BRANCH – SANTIAGO ISLAND

Av. Cidade de Lisboa, Postal Code No. 35 – City of Praia Telephone: +238 2602626

Fax: +238 260263

SANTA MARIA BRANCH – SAL ISLAND

Vila Verde Resort, Condo lot 01 Blg D, Store R Postal Code No. 142

Telephone: +238 2428210 Fax: +238 2428219


2.4. Human Resources

In 2016, the personnel management policy was essentially based on the continuity of the

global policy for the valorization and training of human capital, as a decisive factor for the

materialization of meeting the corporate objectives and, in particular, for the success of

the strategic plan in force at the Bank.

During the year, three employees left the Bank, all of them with a fixed term contract,

which left the Bank with a total of 26 employees, 12 of which were assigned to the

Commercial Area and the others to the Central Services. Of the total, 21 (81%) are

effective employees and 5 are contracted to term.

Human Resources Structure

The Bank's staff is highly qualified, with 92% of employees having a higher education

degree and 30% of them having a postgraduate or master’s degree, some of them studying

for a PhD.

Twenty-one employees, corresponding to 81% of the staff, are under the age of 40, a

portrait of a young, experienced, multidisciplinary staff committed to the Bank's

mission. The average age of employees is 37 years (2015: 36) and the age group with the

highest number of employees is between the ages of 35 and 40.

The Bank continues to provide targeted training to its employees, and the areas that are

directly involved in the core business are subject to continuous updating, in line with the

Bank's priorities and strategies, which provide them with the necessary support in the

Secondary education 1 1 2

Higher Education 11 13 24

of which Post Graduate (MBA, Masters…) 4 3 7

TOTAL BY ACADEMIC QUALIFICATION 12 14 26

Board/Management 3 0 3

Technical Staff 7 7 14

Administrative Staff 2 7 9

TOTAL BY FUNCTION 12 14 26

Comercial Area 4 8 12

Central Services 8 6 14

TOTAL BY AREA 12 14 26

Total by gender 12 14 26

Quota 46% 54% 100%

Average age FEMALE 37 anos

Average age MALE 38 anos

EMPLOYEES AVERAGE AGE 37 anos

TOTALDESCRIPTION MALE FEMALE


preparation and structuring of customer’s activities, especially those related to

international trade. Money laundering, for its relevance, is object of constant training for

all employees of the Bank, through internal and external actions.


3. 2016 Economic Framework

3.1. International Framework

The beginning of 2016 was marked by a period of instability and risk aversion in the

financial markets, mainly associated with the fall in the price of oil and the signs of a

slowdown in China's economy, in this case causing capital outflows of this economy and a

depreciation of the renminbi. The falls observed in the price of oil and the Chinese

currency generated global deflationary pressures and risk-off movements in the financial

markets. These concerns eased during the first half of the year, with a rebound in crude oil

prices and signs of stabilization of China's growth. Following the January low of 26USD /

barrel, the Brent price rose to 55.4 USD / barrel by December, a growth of 55 % for the

year as a whole. This move was supported by expectations of a gradual rebalancing

between supply and demand, reinforced, in November, with an agreement between OPEC

and Russia for a cut of 1.8 mb/d in production. Rising commodity prices were also visible

in other sectors, with the Commodity Research Bureau's metal price index rising 45

percent in 2016. After a 27 % appreciation, until September, gold was penalized at the end

of the year by a rapid appreciation of the dollar. Nevertheless, in the whole of 2016, gold

appreciated 10%.

Financial instability and risk aversion increased again at the end of the first half of the

year, with the UK's decision to leave the EU. After a strongly negative initial reaction,

financial markets stabilized again, but the expectation of maintaining low interest rates for

an extended period of time was reinforced, with major central banks accentuating or

maintaining strongly expansionary positions in monetary policy. Market interest rates

accentuated the downward trend observed since the beginning of the year and there was a

flattening of the yield curves. Between January and June, 10-year Treasuries and Bonds

yields declined from 2.27% to 1.47% and from 0.629% to -0.13%, respectively. In the

same period, the 3-month Euribor fell from -0.131% to -0.286%.

The second half of the year brought a change in the economic environment and in the

financial markets. The adoption of expansionary monetary and budget policies has

gradually translated into a recovery or stabilization of demand in key economic areas,

including the US, Europe and China. In turn, the rise in the price of oil allowed a recovery

of industrial activity, especially in the extractive sectors in the US, as well as the

improvement of the terms of trade and growth perspectives of the emerging raw materials

exporting economies. With the rise in the price of oil and the recovery of the labor market


in the main developed economies, particularly in the US, deflationary pressures subsided

and then gave way to a moderately "reflation" scenario. This was reinforced by the US

presidential elections in November, with the perspective of the announcement, by the new

Administration, of strong budget stimulus, protectionist measures and strong

deregulation, in an economy that is already above its productive potential.

The scenario of higher growth and inflation (more pronounced in the US) translated into a

steepening of the yield curves, an increase in the spread between the American and

European debt, and also an appreciation of the dollar. In the second half of the year, 10-

year Treasuries and Bonds yields rose from 1.47% to 2.45% and from -0.13% to 0.21%,

respectively. After a downward movement until September, the dollar appreciated 6.5% in

the fourth quarter against the euro, closing the year at EUR / USD 1,054. In the whole of

2016, the dollar appreciated close to 3% against the euro. The main stock indexes

recorded gains in 2016, benefiting from the combination of expansionary monetary

policies with the recovery of economic activity and corporate earnings. In the US, the Dow

Jones, Nasdaq and S & P 500 indexes rose 13.4%, 7.5% and 9.5%, respectively. In Europe,

after falling 9.9% and 8.6 % in the first semester, the DAX and CAC40 indexes recovered in

the second half of the year, reaching annual gains of 6.9% and 4.9%, respectively. The

depreciation of the pound resulting from Brexit's decision (13% against the dollar and the

euro) and the resilience of the British economy to the potential negative effects of this

decision contributed to a 14.4% gain on the FTSE 100. In China, capital outflows

contributed to the 12.3% decline in the Shanghai Composite Index.

Despite periods of political uncertainty and financial instability, the year 2016 was marked

by relative stability in global economic growth, which slowed only marginally, from 3.2%

to 3.1%. As a whole, developed economies recorded a more visible slowdown, from 2.1%

to 1.6%, partially offset by the more stable performance of emerging markets, which grew

by 4.1%. Despite China's slight slowdown from 6.9 percent to 6.7 percent, emerging

economies as a whole benefited from improved activity in commodity- exporting

economies and easing recessions in economies such as Brazil and Russia. In the US, GDP

grew 1.6 % in 2016, after a record of 2.6% in 2015.After a weak start of the year, economic

activity gradually strengthened, mainly supported by private consumption but also with a

recovery of investment at the end of the year. This improvement was reflected in labor

market conditions, with the unemployment rate retreating from a maximum of 5% in April

to 4.7% in December and with the average hourly remuneration recording a year-on-year

change of 2.9% , at the end of the year (the steepest rise since 2009).In this context, annual


inflation rose from a low of 0.8% in July to 2.1% in December and the Federal Reserve

raised the main benchmark interest rate by 25 bps to 0.5% -0.75% in the last month of the

year.

The Eurozone economy grew by 1.7% in 2016, slowing down from 2% in 2015, but above

expectations and with activity resilient in the context of political uncertainty. Domestic

demand was supported by the lagged effects of falling energy prices on consumer

purchasing power as well as by the expansionary nature of monetary and budgetary

policies. The improvement in financing conditions provided by the ECB's monetary

stimulus has resulted in a recovery in loan growth, despite concerns about the financial

system in some economies in the region. The expansion of economic activity was,

however, insufficient to generate relevant inflationary pressures. Favorable base-line

effects on energy prices led the annual rate of inflation to rise from a low of -0.2% in April

to 1.1% in December, still far from the benchmark for price stability (inflation of around

2%). At the core level, inflation rose only from 0.7% to 0.9% in that period. In this context,

the ECB reinforced the expansionary nature of monetary policy twice in 2016. In March,

among other measures, the ECB reduced the interest rate on the main refinancing

operations by 5 bps to 0%, and the deposit rate by 10 bps to -0.4%; expanded the asset

acquisition program and increased the monthly amount of acquisitions from EUR 60 to

EUR 80 billion; and announced four new Targeted Longer-Term Refinancing Operations. In

December, it announced the extension of the asset acquisition program from March 2017

to at least December 2017, albeit with a reduction in the amount of monthly acquisitions,

to EUR 60 billion. The 3-month Euribor extended the downward trend to -0.319 % in

December.

Despite the political impasse that prevented the inauguration of a new government until

October (after elections in December 2015 and June 2016), Spain's economy maintained a

positive performance in 2016, with GDP expanding 3.2% repeating the previous year's

record. Net external demand has increased its contribution to growth, with imports

slowing more than exports. Domestic demand also slowed but remained a strong, with

annual growth of 3.1% in private consumption (2.9 % in 2015) and 3.6% in investment

(6% in 2015). For the year as a whole, domestic demand benefited from improved

financing conditions, an expansionary budgetary policy, progress in the deleveraging of

economic agents and improvement in the labor market, in this case with the 20.9% 18.6%

of the working population. Also noteworthy was the favorable performance of the housing

market, with prices rising by 4% year-on-year in the third quarter. The inflation rate rose


in 2016, but maintained a negative record (-0.2% versus -0.5 % in 2015). With the spread

of 10-year government bonds, compared to a relatively stable German debt, the respective

yield fell from 1.77% to 1.38% for the year as a whole, albeit with a rising trend from the

0.92% observed in August.

In Portugal, economic activity grew 1.4% in 2016, down from 1.6% in 2015, but slightly

above expectations. Domestic demand reduced its contribution to growth, with a

deceleration in private consumption from 2.6% to 2.3% and a 0.9% drop in

investment. The second half of the year was, however, marked by a recovery in family

confidence and spending, supported by an increase in disposable income, which in turn

benefited from higher wages, reduced taxes and a slight increase in job creation. The

unemployment rate fell from 12.4% to 11.1% of the active population, while inflation

remained relatively stable, rising from 0.5% to 0.6%. Net external demand has increased

its contribution to GDP growth, with imports slowing more than exports. The tourism

sector has maintained a high dynamism, reflected in exports of services. But, as a whole,

overseas sales slowed from 6.1% to 4.4% in 2016.

Housing prices maintained an upward trend, recording a year-on-year growth of 7.6% in

the fourth quarter. This evolution benefited, in particular, from the greater dynamism of

the higher value segments in the main cities. Economic activity was also supported by

improved financing conditions, mainly as a result of the ECB's expansionary monetary

policy. However, constraints associated with the still high levels of indebtedness and

ongoing adjustments in the banking sector have limited the expansion of credit and

domestic demand. The public deficit declined from 4.4% of GDP in 2015 (or 3.1%,

excluding one-offs) to 2.1% of GDP in 2016. Public debt remained relatively stable,

increasing slightly from 129% to 130.4% of GDP. In a global context of political

uncertainty, rising inflation and some speculation about a future easing of the ECB's

monetary stimulus, the yield on 10-year Portuguese government bonds rose for the whole

of 2016 from 2.5% to 3.8 %, extending this increase in the beginning of 2017, to values

around 4%. The respective spread against the German debt in the same maturity widened

from 190 bps to 356 in 2016.

3.2. National Framework

Cabo Verde's economy grew by 3.9% in 2016, clearly accelerating from the 1.1% growth

observed in 2015. This performance was mainly due to the robust evolution of domestic

demand, with emphasis on consumption and investment in equipment and


construction. The Cabo Verdean economy also benefited from a more favorable external

environment, which allowed a reduction in the tightening of financing conditions,

especially at the end of the year, favoring loan to the private sector (+ 4.7% in the year).

Evolution of GDP and per capita GDP, 2006-2016 (%)

Source: FMI

Despite the improvement in activity, which led to the creation of 15 240 jobs (raising the

employment rate to 54%, versus 51% in 2015), the unemployment rate rose from 12.4%

to 15% of the population. This result is mainly explained by a stronger increase in the

number of people seeking to enter the labor market, which in itself is a positive sign,

suggesting an improvement in the economic and financial prospects of households. This is

visible in the reduction of the inactivity rate, from 42% to 36% of the total population of

working age.

Regarding the external sector, exports fell 10.2% in nominal terms in 2016, re-exports fell

18.4%, while imports grew 10.5%. Looking at exports by destination, sales fell in almost

all the main trading partners, with the exception of Portugal (2nd largest destination,

weighing 19.2% of the total), where exports grew 22%. Sales to Spain, Cabo Verde's main

trading partner (with 72.4%), fell 5.7%. Also noteworthy is the continued good

performance of the tourism sector, whose gross revenues reached 21.6% of GDP in 2016,

up from 21.2% in the previous year. In terms of imports, Portugal remained the main

supplier of goods and services in Cabo Verde (46.5% of the total), followed by Spain

(11.3%), the Netherlands (6.4%) and China (+ 4.8%), among others. Imports from

9,1 9,2

6,7

-1,3

1,5

4,0

1,1 1,0

1,8

3,4

3,9

2 566

3 692

3 413 3 463

3 584

3 080

0

500

1000

1500

2000

2500

3000

3500

4000

-2

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% USD


Portugal grew 18.1%, Spain 71%, Netherlands decreased 39% and China 5%. Also worth

mentioning is the good behavior of emigrants' remittances, reaching 11.6% of GDP (versus

12% in 2015). This evolution allowed a reduction of the current account deficit from -

4.7% of GDP in 2015 to -3.8% of GDP in 2016, despite the unfavorable evolution of the

trade balance. The surplus of the capital account and financial operations, which highlights

the good performance of foreign direct investment (7.4% of GDP in 2016), enabled further

accumulation of foreign exchange reserves. This good performance therefore continues to

provide a margin of comfort for an adequate intervention in the foreign exchange market,

in order to allow the stability of the regime indexing the Cabo Verde escudo to the euro

(EUR / CVE 110.265).

In terms of prices, average inflation stood at -1.4%, after a slight increase of 0.1% in the

previous year, mainly due to the fall in prices of "food products and non-alcoholic

beverages" (-0.6%) and "housing rent, water, electricity, gas and other fuels" (-8.3%), as

well as the abolition of the temporary increase in the value added tax rate from 15% to

15.5% (adopted in 2015). In this context of absence of relevant inflationary pressures,

Banco de Cabo Verde maintained the accommodative stance it adopted in recent years.

With regard to public accounts, the increase in fiscal revenues (+ 6.8%) and the decrease

in expenditure on the acquisition of non-financial assets (-29.3%) led to a decrease in the

budget deficit from 3.9% of GDP in 2015 to 3.6%. On the revenue side, we highlight a

21.5% increase in income from the single income tax, supported by the effect of the tax

reforms implemented since 2013 (i.e. electronic collection of withholding taxes) and the

greater dynamic in the economic activity. It should also be noted the effect of the creation

of the Unified Special Tax on micro and small enterprises, which has replaced other taxes,

as well as increased corporate income. At the corporate level, there was a 14% drop in

revenues from the collective income tax, which was partly offset by the base effect of

double charging in 2015, with the transition to the new tax code as well as technical

problems with the implementation of the electronic declaration, which prevented the

collection of all sums owed by the companies in 2016. On the expenditure side, there was a

7.3% increase in personnel expenses, reflecting the increase in remuneration.


4. Commercial Activity

4.1. Business Strategy and Model

The 2016 fiscal year was marked by the prolongation of the sale process of Novo Banco

Group, an operation that was suspended and had a major impact on the performance of

commercial activities.

In this context, during the course of the year, the Group refocus its strategy, focusing

Bank's activities in the domestic market, with a view to its preparation for a new sales

process, guided by the following axes: (i) reorganization and redefinition of procedures,

always complying with best practices and industry standards; (ii) greater focus on non-

performing loans recovery and portfolio optimization; (iii) maintenance of the financial

stability and robustness that constitute one of the main pillars of Banco Internacional.

In order to maintain the quality of the Bank's assets, the Group opted for a more

conservative pace of commercial activities, especially in attracting customers and granting

new loans, implementing a more conservative and restrictive system of decision-making,

which affects the deadlines for responding to customer requests.

Although in a moderate way, the Bank has maintained its focus on attracting clients from

its usual target segments. On the other hand, due to the dynamics of the island, a result of

the opening of new hotels, the Sal Branch showed an upward trend in attracting new

customers, ensuring the growth of the overall portfolio of the Bank’s customers.

With the restrictions imposed by the economic and financial environment of the country,

the loan structure changed in its composition, with companies losing space for individuals,

because the nature of the loan requested by companies require more efforts in terms of

guarantees, from the customers and, in terms of risk, by the banks. The distribution of the

loan portfolio between the Corporate and Individual segments became more balanced,

reaching 49% and 51%, respectively, when in previous years the proportions were

inverse, with the corporate segment strategically representing the largest portion of the

Bank's business.


Evolution of the Active Customer Portfolio (Number of active customers)

The institution has a portfolio of 2,136 customers, of which 1,753 are private individuals

(corresponding to 82% of the portfolio), residents and non-residents (including

emigrants), and 383 domestic and foreign corporates, most of which are established in

Cabo Verde. The customer portfolio grew by 5% in 2016, with Resident Private customers

standing out.

The growth in the Individuals portfolio is indicative of the Bank's confidence from the

market, also showing a high degree of customer loyalty. The slight recession in the

Business portfolio is mainly due to the closure of inactive accounts, resulting from a new

process implemented, the management of non-active customer accounts, and the focus on

the local market, to the detriment of the international market.

404

1710

383

1 753

Corporate Private

2015

2016 + 3%

-5%


5. Credit Risk Analysis

5.1. Loan Portfolio and Provisions / Impairment

The loan growth model of Banco Internacional was always based, above all, on the

granting of loan to large companies and that best fit the principles of the institution, as far

as credit rating is concerned. However, due to the conservative loan policy adopted

throughout the Group's pre-sale period, according to which the granting of new loans was

very restricted, the model was readjusted in order to give way to the most pressing

requests, with special emphasis on the granting of short-term loans.

The loan portfolio thus registered a decrease of 15% in 2016, closing the year with a

balance of 2.08 billion escudos, distributed as shown in the table below.

Loan Portfolio as of 12/31/2016 and 12/31/2015

(Amounts expressed in thousands of escudos)

The Bank's loan portfolio is heavily secured by collateral, and only a residual portion

(0.01%) has no collateral of any kind, which, together with the constant reinforcement of

provisions and impairment, confirms the Bank's conservatism in terms of the quality of its

assets.

More than two-thirds of the portfolio transactions are secured by real collateral and real

mortgage guarantees, frequently updated and whenever the situation requires o,

Due Overdue Due Overdue

By Segment 1 667 124 419 068 2 081 180 379 310

Private 928 740 137 618 1 005 492 135 758

Public and Administrative Sector 20 000 - 33 333 -

Corporate 718 384 281 450 1 042 354 243 552

By Activity Sector 1 667 124 419 068 2 081 180 379 310

Housing 881 584 130 801 953 009 124 465

Individual - Others 47 156 6 817 52 483 11 293

Public and Administrative Sector 20 000 - 33 333 -

Trade and Services 607 948 197 417 783 966 155 674

Construction and Public Work 4 984 82 340 129 620 86 790

Industry 90 526 1 693 120 601 771

Hotels and Restaurants 14 925 - 8 167 317

By Maturity 1 667 124 419 068 2 081 180 379 310

Short term 62 549 132 989 4 742 237 256

Medium and long term 1 604 575 286 079 2 076 437 142 053

Impairment (weight on the portfolio) 79,944 3.83% 62,532 2.54%

Loan Portfolio Distribution31.12.2016 31.12.2015


mitigating the Bank's exposure and making the reinforcement of portfolio impairment a

prudential measure.

The predominance of first degree real guarantees ensures the coverage of the assumed

risk, on one hand, and reduces the effort in the constitution of impairment of the portfolio,

on the other hand.

Of the total portfolio value, 91% correspond to medium and long-term loans (2015: 90%)

and 48% to loans to private sector companies (2015: 52%), maintaining the trend of

previous years, in which loans to individuals already indicated growth in the portfolio

structure.

Monthly evolution of loans to customers

With a 22% decrease in its volume, the corporate loan portfolio closed the year with a

balance of 999 million escudos, compared to the balance of 1.28 billion in the previous

year, as a result of the repayment of financing by the main customers, the settlement of

large debts and greater prudence in the granting of new loans.

The Commerce and Services sector stands out in the loan portfolio, occupying close to

39% of the same, followed by the Industry sector that occupies more than 4% of the

portfolio. The Construction and Public Works sector, especially for Real Estate

Construction, since entering a recession in 2008, has seen considerable annual decreases

in the loan stock, with its operations increasingly regulated by the supervisory authority.

In 2016, loan to the construction sector registered a 60% decrease, due to the high capital

repayments, due to the inexistence of new loans. Given the difficulties experienced, the

construction sector is the one with the highest number of non-performing events and the


highest proportion added to the non-performing portfolio (94% of loan to this sector is

overdue).

Loan Portfolio as of 31/12/2016

Financing to the public and administrative sector continues to be a residual business for

the Bank, mainly because there are no specific products for that sector specific needs in

the Bank's portfolio. The volume of credit to the public sector amounts to 1% of the total

portfolio, a total of 20 million escudos, down from 40% in the previous year.

However, loan to households is increasingly important in the portfolio, being the segment

declining the least during the year, with 87% of its decrease due to the amortization of

mortgage loans. In terms of consumption, the variation was proportionately more

substantial, recording a decrease of 15%, partly due to the derecognition of the balance of

operations that complied with the requirements of Banco de Cabo Verde Notice no.

6/2007.

Mortgage loans account for 49% of the portfolio, which explains that the highest

concentration of credit risk (27%), due to residual maturity, highlighting the strong

guarantees associated with these loans, is in the range of 15 years. On the other hand, the

Bank expects the amortization of 59% of its current portfolio within a maximum period of

10 years.


Residual maturity of the loan portfolio as of 12/31/2016

In compliance with the prudential rules applied to the banking sector and the internal

norms to mitigate the risks inherent in loan operations, the Bank proceeds monthly to

calculate Regulatory and Impairment Provisions under Notices 4/2006 and 6 / 2007 of

Banco de Cabo Verde, recognizing the highest value between the two.

The impairment in 2016 increased by 17.41 million escudos, largely as a result of the

reinforcement, in addition to the regulation and for purely prudential reasons, of the

impairment of certain operations that showed degradation within their level of risk, and

the impact of increase in the volume of non-performing operations registered in 2015. The

amount of Impairment calculated for the year under analysis results in an expected rate of

loss of 3.83% of the total volume of the loan portfolio (2015: 2.54%) and a coverage ratio

of 19% of the non-performing portfolio (2015: 16.5%).

The claims ratio, one of the main indicators of the quality of the loan portfolio and

determined by the ratio between non-performing loans for more than 90 days and the

total loan portfolio, deteriorated by 4.61 percentage points, exclusively due to the 11%

increase in volume of this portfolio. As of December 31, 2016, the non-performing loans

for more than 90 days had a balance of 411 million escudos (2015: 372 million), which

increased the loss ratio from 15.13% to 19.74%.

The total non-performing portfolio amounted to 419 million escudos, 10% up on the

previous year, a variation mitigated by the low turnover of non-performing customers,

leading to the conservation and reinforcement of the risk loans management and

treatment paradigm, converging to a deterioration of the impairment of non-performing

loans.


The portfolio was provisioned at the average rate of 3.83% (2015: 2.54%), with a total

impairment of 80 million escudos (2015: 63 million), an increase caused in particular by

the unfavorable evolution of non-performing cases.

5.2. Credit Risk Analysis

Credit risk, to which banks are most sensitive, given their core business, results from the

possibility of financial losses arising from the total or partial default of the customer or

counterparty, in relation to the contractual obligations established with the bank, within

the scope of its credit activity.

It is controlled by the Global risk area, which is responsible for constant monitoring of all

contracted operations, in interaction with Group units. This system has allowed to

identify, in a timely manner, the main triggers of default, allowing an adequate risk

monitoring of the loan portfolio.

The Bank uses risk management methods and policies that go beyond the guidelines of the

authorities, based on good international governance practices of financial institutions,

characterizing a conservative business environment and ensuring the Bank's credit risk

profile at medium-low level.

In credit processes, the service responsible of risk acts, both upstream and downstream, in

the preparation of proposals for credit operations, interacting continuously with the

Commercial area, in the definition of strategies for collection or negotiation of non-

performing loans or at risk, as well as their respective provision.

At the end of the year, the loan portfolio had decreased by 15%, due to the conservative

and restrictive loan policy applied in 2016, aimed at reducing exposure to certain

customers or economic groups, with 20% of non-performing loans, 98% of which

corresponding to loans overdue for more than 90 days, which were 11% higher than the

previous year. Consequently, the quality of the loan portfolio deteriorated.

The Bank determines the quality of the portfolio according to the distribution, by risk

classes, credit agreements, credit at risk (overdue and restructured contracts), lawsuits for

judicial collection, provision for credit and other indicators of credit portfolio risk

measurement.


Distribution of credit portfolio by risk class as of 12/31/2016

In the management and recovery of non-performing loans, the Bank has opted to negotiate

with customers, deciding, in some cases, to restructure the contracts. In more critical and

less frequent situations, judicial processes for the collection of debt are filed, with

application of the enforcement measure.

The restructuring of a loan results from the modification and / or formalization of a new

contract, due to the customer's difficulty in complying with the initial contractual terms

due to financial difficulties. The total portfolio contains 96.52 million escudos in

restructured contracts, corresponding to 5% of the portfolio.

Due to the increase in the volume of the non-performing portfolio, the loan portfolio at

risk, which includes non-performing loans and restructured loans, grew by 5.4% in

relation to the previous year. The corporate segment is the segment with the highest

degree of credit at risk, largely derived from financing operations and current account

defaulted.

As a result, approximately 4.53 million escudos, related to consumer loans, were

derecognized from assets, pursuant to Notice no. 6/2007. This amount was recorded

under the caption write-offs/write downs and recognized as a loss in the statement of

income for the period.

Regarding the classification of credit operations by the risk impact they have on the

portfolio, 34.4% was assigned a "low risk" classification (36.4% in 2015), 54,9% a

"moderate risk" rating (59% in 2015) and the residual in the portfolio was assigned a

"high risk" rating, the latter showing an increase in the number of customers with a high-

risk rating and a consequent increase in the credit portfolio risk.


In order to mitigate the risk of the portfolio, ensuring the minimum legal coverage

required of the expected losses related to loan exposure and off-balance operations, the

Bank calculates monthly provisions and impairment, always accounting for the highest

value, in compliance with regulations of the regulator, having increased coverage by 28%.


6. Activity Evolution Analysis

6.1. Activity Summary

The year 2016, the second under the new brand Banco Internacional de Cabo Verde

(BICV), an international unit of the Novo Banco Group, created after the application of the

Resolution Measure that imposed the end of Banco Espírito Santo in August 2014.

Have being aborted the international sale process of BICV in February 2016, and with the

opening of a new process, it was essential to maintain some restrictive measures, mainly

in the granting of loans and the opening of accounts, aiming at the protection of the Bank's

assets and the maintenance of the quality of the balance sheet.

Based on logic of Novo Banco Group, an update of the Internal Control manuals was

carried out, and several regulations were issued and updated, based on the basic premise

of maintaining the usual quality of the Bank's services.

With regard to attracting customers, changes were made in the approach and exploration

of the two markets that constituted the Bank's scope of intervention: the domestic and

international market. In view of the strategy imposed by the sale process, international

activity was reduced, and relations with some customers were terminated, aiming to focus

on the growth of the activity in the domestic market.

While the Praia Branch was following the new pace, the Sal Branch, in a context of opening

new tourist developments, was responsible for more than 75% of new customer’s

acquisition, attracting 96 of the 124 new customers and now owning 44% of the total

customer portfolio.

At 31 December 2016, the Bank had 2,136 clients, of whom 383 were domestic and foreign

corporate customers, accounting for 18% of the portfolio and 1,753 individuals, both

resident and non-resident, which included emigrants.

The customer’s activity, regarding the means of payment, was very dynamic, taking

advantage of the convenience that the products of the Bank offer them. During the year,

among new requests and renewals, 825 cards were issued, being 556 debit cards (Vint4),

24 credit cards and 245 prepaid cards, whose adherence has dominated customer

preference and growth has been exponential.

The Internet Banking service has also registered substantial growth, with 168 new

registrations in 2016, more than double of the year. This service, despite its late

introduction, is already consolidated, because it offers free range of features, for its


transparency and user-friendly language, contributing to a closer relationship with

customers.

As for the commercial activity itself, the total loan portfolio, total sum of disbursement and

off-balance sheet loans, reached 3,11 billion escudos (3.61 billion in 2015). Approximately

two-thirds of this amount, 2.08 billion, are disbursement loans (2015: 2.46 billion) and the

remaining 33%, 1.03 billion, are issued bank guarantees, that is, off-balance-sheet

financing.

Customer funds also declined in relation to the previous year, reaching 9,14 billion

escudos, compared to 10,21 billion in 2015.

As a result, the bank achieved a 23% Loan to Deposit ratio (LTD), one percentage point

below the 2015 ratio, demonstrating a high level of liquidity.

Off balance sheet

In the context of the slowdown in commercial activities, the performance in the Off-

balance-sheet market was also practically stagnant. The final balance of the off-balance

sheet portfolio stood at 1.03 billion escudos, 11% below the 2015 volume (1.15 billion

escudos). While in the previous year, the off-balance sheet portfolio consisted of bank

guarantees and documentary credits, although in a residual amount, in 2016 was

constituted, in its entirety, by bank guarantees.

The dynamics of the Off-balance sheet operations market shows that the construction

sector continues to be strongly affected by the crisis, since it is the main consumer of this

product. To this crisis, shall be added the high level of indebtedness of the main companies

in the industry and the consequent degradation of their ratings, making it difficult to issue

bank guarantees and documentary credits to these customers.

6.2. Balance Sheet

The Bank closed the year with a balance of 10.75 billion escudos, 10% lower than the 12

billion in 2015, as a result of the decrease in external resources, with a direct impact on

financial resources.

Financial assets and liabilities are similarly significant in the Bank's balance sheet, with a

significant weight in its composition, 86% and 85% respectively. Last year, the weight of

financial assets was 81% and liabilities 86%.


ASSETS

Asset Composition

In terms of investment, no substantial amounts were made during the year. As a result, as

of 31 December 2016, the Bank had a gross investment in fixed assets of around 506

million escudos (504 million in 2015), which included amortizations of 215 million

escudos. The Bank's net assets corresponded at that date to 3 % of its assets.

The diversification of the assets portfolio and, consequently, risk diversification, with a

view to its maximum mitigation, remains one of the Bank's highest purposes, although the

products available in the domestic market do not simultaneously combine this risk-

mitigating and the aspect of maximizing value for money. Therefore, the application of its

resources on low-risk and short term-maturity products remains the Bank's preference.

These investments are made thru the parent company, amounting to 65% of the net assets

of 2016. Other, but not less important, financial investments are part of the Bank's

portfolio, particularly loans to customers (19% of assets), higher risk assets and available-

for-sale investments, also zero risk, corresponding to 2 % of the asset.

The Bank maintained the level of investments in credit institutions, while net lending fell

16 %. At the same time, the Bank's assets recorded an evident decrease, making the

volume of interest-bearing assets representing 87% of the Bank's net assets (in 2015, this

volume was 81%).


Interest-bearing Assets (Amounts expressed in thousands of escudos)

Included in the interest-bearing assets are all those that generate revenues for the Bank, at

a pre-contracted rate of return.

Gross loan to customers, the Bank's most important interest-bearing asset and main

indicator of the activity, registered a decrease of 15% in its volume, going from a gross

balance of 2.46 to 2.08 billion escudos. This variation was due to the loan policy in force

and the normal amortization of operations.

LIABILITIES

The Bank's liabilities are, basically, comprised of outside resources, and its structure is

dominated by customer funds by 99%, slightly below 2015. During the year, it recorded a

decrease of 10% in relation to the previous year, due to the decrease in the deposits of

non-resident customers, as objected to for the year.

Market resources maintain an insignificant weight in the Bank's balance sheet (0.1% of

Liabilities), with 98% referring to central bank deposits. It ended the year with a balance

of 5.73 million escudos, 3% lower than the previous year (2015: 5.89 billion escudos).

Customer funds declined substantially, due to the policy of reducing international business

and focusing on the local market, aiming at the dispersion of the customer portfolio. More

than 75% of the reduction in customer funds is related to international customers, with

nonresident emigrants registering slight growth, bringing the total volume of customer

funds to a decrease, from a balance of 10.21 billion escudos in 2015 to 9.14 billion, a

decrease of 10%.

The composition of customer funds changed slightly in relation to the previous year,

registering fluctuations during the course of the year. Time deposits increase 29%,

31.12.2016 31.12.2015

Very short-term investments at Novo Banco 7 005 847 7,030,919

Gross loans and advances to customers 2,086,192 2,460,489

Available-for-sale financial assets 215,000 215,000

Total Interest Bearing Assets, excluding interests 9,307,039 9,706,409

Total ASSET 10,751,244 11,914,227

Interest Bearing Asset/Total Asset 87% 81%


totaling more than 183 million escudos, and its weight in the portfolio increased from 6%

to 9%, due to a 13% drop in demand deposits and which led to a decrease in total deposits

of more than one billion escudos.

The private business sector, which once held almost 90% of customer funds, amounted to

8 billion escudos, declined by 12% (minus 1 billion escudos), accounting for 88% of the

total.

On the contrary, individual customers' funds increased slightly (1%), totaling a further

4.35 million escudos, closing the year with a balance of 838 million escudos.

The emigrants’ deposits, despite having increased by 15%, continue to have residual

representativeness in the Bank's total resources.

Nonresident funds (7.99 billion escudos) declined by 9%, minus 808 million escudos.

At the same time, residents' resources declined considerably, having the balance observed

a decline of 19%, and closing the year with a balance of 1.11 billion escudos, while in 2015

this balance was more than 1.37 billion.

As regards to equity, the Bank had, as of 31 December 2016, a net position of 1,51 billion

escudos, for a total financing structure of 10,75 billion escudos (14%), maintain the same

relation as in 2015, when it was 1.65 for a structure of 11.91 billion (14%).

Financing Structure

Throughout the years, Banco Internacional de Cabo Verde has maintained a healthy

management of its assets, adopting, from the outset, as a supreme objective, the

maintenance of prudential ratios above the minimum limits determined by law and,

Customers' Deposits 85,240%

Market Funds 0,001%

Equity 14,057%

Other Liabilities

0,702%


consequently, above average of the market, with a more conservative and rigorous

commercial management.

The financial involvement of customers decreased by 11%, as a consequence of the

decrease in both loan and resources portfolio. Total customer funds are four times higher

than the loan portfolio, which allows the Bank to have a liquidity level above the market

average and has a 23% loan-to-deposit ratio.

CUSTOMERS: Loans and Deposits in the Balance Sheet Structure

21% 19%

86% 85%

11 914 10 751

2015 2016

Millions of CVE Balance

Deposits

Loan


7. Results, Financial and Prudential Ratios

7.1. Results

During the year, customer loans were highlighted by the restriction policy of new

operations and the suspension of investments and expansion to new businesses and

markets, with the primary objective of maintaining a balanced equity structure and

maintaining the quality of assets, notwithstanding the impact on financial revenues.

For individual customers, although interest rates continued to be favorable, the current

domestic environment and the more rigorous and more demanding market environment,

turned out to be adverse, as access to loans became more difficult. For companies,

especially those in sectors in crisis, the quality of the collateral required ended up

restricting large businesses, limiting the Bank's earnings.

The non-growth of off-balance sheet operations, the main generators of commissions, with

emphasis on bank guarantees, and the reduced contracting of new loans, led to a decrease

in the revenue margin, which was, however, compensated by the decrease in the resource

margin, allowing the recovery of the net interest income that, in the previous year, when

changes in internal policies took place, had reached the lowest value since the opening of

the Bank.

Evolution of net interest income

2,94%

2,49%

3,07%

1,88%

3,65%

2,72%

2,25%

2,23%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015 2016

max. 2015 = 3.07% (Sep) max. 2016 = 3.65% (Mar)


In view of the constraints imposed by the Group's internal environment, coupled with

adverse market conditions, the Bank saw its financial results as distant from those

achieved in previous years, even though it improved over 2015. The net income was

worsened by extraordinary charges registered.

The volume of revenues fluctuated throughout the year, peaking at the end of the first

quarter, falling thereafter and only recovering in December. These fluctuations were due

to the reduced contracting of new loans, coupled with the maturity of certain loans in the

portfolio.

Income Statement

The financial income improved, closing the year 14% above the previous year, a combined

effect of the growth of interest income and the decrease of interest charges.

Despite the low granting of loans and the weak contracting of bank guarantees, which led

to an 18% decrease in income from commissions, the Commercial Operating Income stood

at 202 million escudos, 6% above the Commercial Operating Income of the previous year.

As a consequence of the strategy to reduce international business, the result of financial

operations stood below the value of the previous year, reaching negative value and

reversing the trend of the growth of income. The effect can be seen in the reduction of

53% of the Total Operating Income, closing the year with a Total Operating Income of 100

million escudos, while in 2015 had reached 210 million escudos.

Operating Cash Flow, measured by the difference between Total Operating Income and

Structural Costs, stood at negative 74, 15 million escudos, a value explained by the

145

47

18

210 210

( 8)

5 3

164

38

( 103)

100

224

22

0

( 146)

Net

In

tere

st M

argi

n

Cu

sto

mer

s' S

erv

ices

Mar

ket

Res

ult

s

Ban

kin

g In

com

e

Op

erat

ion

al C

ost

s

Pro

vis

ion

s

Oth

er C

ost

s

Net

In

com

e

Millions of CVE 2015

2016


decrease in the Total Operating Income, worsened by the increase in structural costs,

notwithstanding the effort to restrain administrative expenses that was carried out in this

exercise (2015: 46.52 million escudos).

The cost containment policy contributed to the reduction of administrative expenses,

although personnel costs grew, due to the full assumption of costs with the employees of

the former branch, integrated in the Bank. Operating costs totaled 224 million escudos at

the end of the year, 6% more than the previous year.

Of the total operating costs of the Bank, 44% were staff costs (2015: 37%), 34% were

administrative expenses (2015: 41%) and the remaining amount referred to the legal

depreciation and amortization for the year.

As the non-performing loans portfolio deteriorated, the loan portfolio was revised and an

impairment adjustment was made to better match the level of coverage for the non-

performing loan portfolio. In this sense, the impairment of the portfolio was reinforced (+

28%), being covered by an impairment rate of 3.83%, compared to 2.54% of the previous

year.

Consequently, the net income fell to the lowest level since the Bank's opening, reaching

negative 146 million escudos.

Net Income

7.2. Financial Ratios

The restrictive commercial policy obliged the Bank to operate outside the assumptions of

its business plan, causing considerable losses in net income and limiting the growth

envisaged in the plan. In addition to this policy, other factors, mainly external, contributed


to the depreciation of the indicators, such as the postponement of the sale process of Novo

Banco the consequent imposed commercial reduction and local market conditions, in

relation to the Cabo Verdean banking sector.

The loan to deposit ratio (LtD), an important indicator of liquidity and which indicates the

capacity to grant loans without consuming own resources, decreased slightly to 23%

(2015: 24%), due to the combination of decreases, both in customer funds and in the loan

portfolio. In other words, the Bank has a high level of liquidity, since it uses less than 25%

of the resources to finance the loan, allowing it a considerable margin for other types of

investments that has less risk and, therefore, reduce its global risk.

The year was closed with a one-year liquidity indicator, from December 31 2016 to the

next twelve months, of 270%, indicating solidity and high financing capacity of its

operating activities, without having to resort to the interbank market or to the head-office

availabilities.

The Bank has sought to maintain a high level of liquidity so that it can use the surplus for

low-risk investments. The liquidity gap grew compared to the previous year, as the

financial asset fell less than the financial liability, with an annual average gap of 1.31

billion escudos.

From the analysis of interest-rate sensitive assets and liabilities, we can see that the Bank,

as in previous years, has a positive global repricing gap, meaning that, in case of an

increase in interest rates, net interest income will also increase. It shows higher interest

rate exposure in the range of 6 to 12 months, due to a greater concentration of term

deposits with maturity in this range, and is more comfortable in the intervals of 0-3

months and in greater than 3 years, due to application in credit institutions (of very short-

term, as a rule) and long-term loans (with emphasis on mortgage loans), respectively.

The cumulative impact of interest-rate sensitive assets and liabilities in relation to net

interest income is -1.20% (-1.90% in 2015), a result that indicates that, in the balance

sheet for the period, assets sensitive to Interest rate variation had a lower rate of return

than liabilities sensitive to the same variation, meaning that, in a scenario of interest rate

reduction, net interest income will tend to increase.

The simultaneous decrease in the balance sheet and the income has had a strong impact

on the Bank's financial ratios, where the amounts are nothing compared to previous years.

The institution's profitability was measured by two essential ratios, and it was concluded


that the deterioration of its performance was due solely and exclusively to the negative

income achieved.

The Bank’s Return on Assets - (ROA) -, or, simply put, the weight of the net income on

assets stood at -1.36% (2015: 0.02%) and Return on Equity (ROE) -, determining the

weight of the net income on the constitution of the equity, was -9.67% (2015: 0.15%),

indicating a substantial decrease as a consequence of the combination of significant

reduction of equity with the net loss.

Adverse and unpredictable operating results led the Total Operating Income to decline

considerably, making the main indicator of the Bank's financial performance, the Cost-to-

Income ratio, measured by the ratio between operating costs and total operating income,

to register negative variation, as costs increased, and total operating income declined. The

cost-to-income ratio increased from 100.17% to 224.42%, with, however, the actual loss

of efficiency of 12 percentage points.

Financial Ratios

7.3. Prudential Ratios

Banco de Cabo Verde (BCV), the supervisory entity of the financial system, has one of its

missions to control the risks of each institution by issuing notices and technical

instructions for the financial system, of a prudential and mandatory nature.

With a view to achieving sustainable balance and growth and contributing to the stability

of the financial system, the Bank, in addition to complying with all regulatory

requirements, has created and adopted more stringent additional requirements based on

the European financial system and in line with best and latest international practices.


At 31 December 2016, the bank’s Own Funds was 1,42 billion escudos, in compliance with

Notice no. 03/2007 of 19 November, which sets out the elements that serve as a basis for

the calculation of Own Funds , maintain above the minimum required by the regulations of

Banco de Cabo Verde, serving as a cushion for possible bank risks.

As a result, the Solvency risk is protected by the Own Funds , being the Bank covered by a

39% ratio (2015: 33%), above the minimum required for commercial banks, which is

10%, regulated by Notice No. 04 / 2007 of 25 February 2008.

With this comfortable value of Own Funds and a net investment portfolio of tangible fixed

assets of 206 million escudos (2015: 230 million), the fixed assets ratio was 691% (2015:

672%). The Notice No 11/98 of 28 December, which regulates the Own Funds, provides

that the fixed assets of a bank should not exceed their Own Funds, that is, the ratio shall

not be less than 100%.

Fixed Asset Coverage Ratio


31.12.2016 31.12.2015

Tangible Fixed Assets 300 986 300 363

GROSS FIXED ASSETS 300 986 300 363

Amortization -94 615 -69 954

NET FIXED ASSETS (A) 206 371 230 409

OWN FUNDS (B) 1 426 272 1 548 380

Difference (B) - (A) 1 219 901 1 317 971

Coverage Ratio (%) 691% 672%


8. Final Notes

8.1. Declaration of Conformity of Financial Reporting

The members of the Board of Directors of Banco Internacional de Cabo Verde SA declare:

The financial statements of Banco Internacional de Cabo Verde, SA for the years

ended at 31 December 2016 and 31 December 2015 were prepared in accordance

with the International Financial Reporting Standards (IFRS) as defined by Banco

de Cabo Verde (BCV) in Notice nº 2/2007, of February 25, 2008);

To the best of the Board’s knowledge, the financial statements referred to in the

previous paragraph provide a true and fair view of the Bank's assets, liabilities,

financial position and net income of Banco Internacional, in accordance with

referred Standards, and were approved at the meeting of the Board of Directors,

held on 04 May 2017;

The management report sets forth the evolution of the business, performance and

financial position of Banco Internacional de Cabo Verde, in the year 2016, and

contains a description of the company's expected evolution.

8.2. Proposal for the Application of Net Income

In accordance with its statutory powers, the Board of Directors of Banco Internacional

proposes, to the General Meeting, that the Net Income for the Year, a loss in the amount of

146,157,701 CVE (one hundred forty-six million, one hundred and fifty-seven thousand

and seven hundred and one escudos) are transferred to the Retained Earnings.


8.3. Acknowledgements

The Board of Directors of Banco Internacional de Cabo Verde, SA expresses its gratitude to

its Customers, for the trust and loyalty shown during these six years of activity. To the

Employees, a special recognition for the resilience, for the total commitment, for the

loyalty and dedication to the growth and well-functioning of our institution.

City of Praia, 04 May 2017

The Board of Directors of Banco Internacional de Cabo Verde


II. Financial Statements and Notes to the Financial Statements

1. Financial Statements

Income Statement for the Year Ended December 31, 2016 and 2015


The accompanying notes are an integral part of these financial statements.

The Chief Financial Officer The Board of Directors

___________________________ ___________________________

Notes 31.12.2016 31.12.2015

Interest and similar income 5 184 818 173,759

Interest and similar expenses 6 20 591 29,127

Net Interest Margin 164 227 144,632

Services and commissions income 7 40 225 48,906

Services and commissions expenses 7 ( 2 007) ( 1 970)

Income from foreign exchange revaluation 8 1 953 16 389

Other operating results 9 ( 104 682) 2 014

Operating Income 99 716 209,970

Staff Costs 10 98 669 76,885

General administrative expenses 11 75 207 86,561

Depreciation and amortizations 17 e 18 49 908 46,880

Loan Impairment net of reversals and recoveries 16 21 949 ( 8 094)

Income Before Taxes ( 146 017) 7,738

Taxes 141 5,180

Current Taxes 19 141 5,180

Income After Taxes ( 146 158) 2,558

Consolidated Net Result for the Year ( 146 158) 2,558


Statement of Comprehensive Income for the Year Ended December 31, 2016 and

2015




___________________________ ___________________________

31.12.2016 31.12.2015

Net Result for the Year ( 146 158) 2 558

Other comprehensive income of the Year after taxes - -

Fair value adjustments, net of taxes - -

Total comprehensive income for the year ( 146 158) 2 558


Balance Sheet at 31 December 2016 and 2015




___________________________ ___________________________

Notes 31.12.2016 31.12.2015

Activo

Cash and deposits at Central Banks 12 1 011 715 846 584

Deposits at other credit institutions 13 145 908 881 173

Held-for-trading financial assets 2 -

Available-for-sale financial assets 14 218 822 218 822

Investments in credit institutions 15 7 010 213 7 032 492

Loans and advances to customers 16 2 000 081 2 389 127

Other tangible assets 17 206 371 230 409

Intangible assets 18 85 000 109 050

Current tax assets 19 13 401 10 106

Other assets 20 59 731 196 465

Total assets 10 751 244 11 914 227 -

Liabilities

Funds from Central Banks 21 5 638 5 394

Held-for-trading financial assets 178 -

Deposits from other credit institutions 21 92 499

Customers' deposits and other loans 22 9 158 568 10 225 841

Other liabilities 23 75 496 25 063

Total liabilities 9 239 972 10 256 797 -

Share Capital 24 1 433 000 1 433 000

Other reserves and retained earnings 25 224 430 221 872

Net Result ( 146 158) 2 558

Total Equity 1 511 272 1 657 430 -

Total Equity and Liabilities 10 751 244 11 914 227


Statement of Changes in Equity for the Years Ended December 31, 2016 and 2015 (Amounts expressed in thousands of escudos)



___________________________ ___________________________

Balances on December 31 2014 1,433,000 198,101 23,771 1,654,872

Transfer of Results to Reserves: - 23,771 (23,771) -

Legal Reserves - 2,753 (2,753) -

Other Reserves - 21,018 (21,018) -

Net Result for the Year - - 2,558 -

Balances on December 31 2015 1,433,000 221,872 2,558 1,657,430

Transferência do Resultado para Reservas: - 2,558 (2,558) -

Legal Reserves - 256 (256) -

Other Reserves - 2,302 (2,302) -

Net Income for the Year - - (146,158) (146,158)

Balances on December 31 2016 1,433,000 224,430 (146,158) 1,511,272

Share Capital

Other Reserves

and Retained

Earnings

Net Result for the

Year

Total

Shareholder's

Equity


Statement of Cash Flows for the Years Ended December 31, 2016 and 2015




___________________________ ___________________________

31.12.2016 31.12.2015

Operating Activities

Interest, commissions and similar income 220,126 212,737

Interest, commissions and other expenses (22,319) (39,240)

Other operating income and expenses (43,172) (2,939)

Payments to employees and suppliers (179,655) (154,451)

Payments of income tax ( 3 436) (27,367)

Net cash flow from operating results before variation in operating funds (28,456) (11,260)

(Increases) decreases in operating assets:

Available-for-sale financial assets ( 2) -

Held-to-maturing financial assets - -

Investments in credit institutions - -

Loans and advances to customers 314,822 (464,320)

Other assets 194,127 (2,235)

Increases (decreases) in operating liabilities - -

Deposits from Central banks and other credits (163) (691)

Customers' deposits (1,067,552) 330,963

Other liabilities ( 5 278) (48,718)

Net cash flow from operating activity (564,046) (185,001)

Investment activity

Acquisition of Intangible assets (1,240) (18,482)

Acquisition of tangible assets (623) (128,889)

Cash flows from investment activities (1,863) (147,371)

Financing Activities

Share Capital subscription - -

Net Cash flows from financing activities - -

Net variation of cash and cash equivalent (594,365) (343,632)

Cash and cash equivalent in the beginning of the year 8,760,249 9,087,492

Effect of exchage differences on cash and cash equivalent 1,953 16,389

Cash and cash equivalent at the end of the year 8,167,837 8,760,249

Cash and cash equivalent include

Cash 79,269 363,475

Deposits at Central Bank 932,446 483,109

(Of which, mandatory mandatory reserve deposits) 303,089 358,760

Investments and deposits at other credit institutions(1) 7,156,122 7,913,665

Total 8,167,837 8,760,249


2. Notes to the Financial Statements for the year ended 31 December 2016

NOTE 1 - Activity

Banco Internacional de Cabo Verde, SA (BICV) is a commercial bank, headquartered in the

City of Praia, opened in July 2010, and started its activity in mid-August of the same year.

The Bank's activity covers all areas of the banking sector, with a special focus on the

medium and large corporate markets.

The Bank is part of the Novo Banco Group, which holds 100% of its capital, 99.9% of which

is held by Novo Banco África SGPS, SA (100% owned by the Novo Banco Group).

Currently, Banco Internacional operates through its Headquarters in Praia City and the Sal

Island Branch.

NOTE 2 - Basis of Presentation and Accounting Policies

2.1. Basis of Presentation

The Bank's financial statements, now presented, are as of December 31, 2016 and have

been prepared in accordance with the principles of the International Financial Reporting

Standards (IFRS), in force until 31 December 2016.

The IFRS include the accounting standards issued by the International Accounting

Standards Board (IASB) and interpretations issued by the International Financial Reporting

Interpretation Committee (IFRIC), and by the respective predecessor bodies.

The financial statements are expressed in thousands of Cabo Verde Escudos, rounded to

the nearest thousand. These were prepared in accordance with the historical cost

principle, with the exception of assets and liabilities recorded at their fair value, namely

available-for-sale financial assets.

The preparation of financial statements in accordance with IFRS requires the Bank to

make judgments and estimates and to use assumptions that affect the application of

accounting policies and the amounts of income, costs, assets and liabilities. Changes in

such assumptions or differences between them and reality may have impacts on current

estimates and judgments. The areas involving a higher level of judgment or complexity, or

where assumptions and significant estimates are used in the preparation of the financial

statements, are analyzed in Note 3.


These financial statements were approved at a meeting of the Board of Directors on May 4,

2017 and are pending approval by the Shareholders' General Meeting. However, the Board

of Directors admits that they will be approved without significant changes.

2.2. Main Accounting Policies

a) Accrual basis

The Bank adheres to the accrual basis principle, in relation to most of the financial

statement items, in particular as regards to interest on assets and liabilities that are

recorded as they arise, regardless of when they are paid or charged.

b) Transactions in foreign currency

Transactions in foreign currency are recorded in accordance with the principles of the

multi-currency system, with each transaction being recorded solely on the basis of the

respective currencies.

Monetary assets and liabilities denominated in foreign currency are converted to escudos

at the exchange rate prevailing at the balance sheet date. Foreign exchange differences

resulting from this conversion are recognized in income statement.

Non-monetary assets and liabilities recorded at historical cost and expressed in foreign

currency are converted at the exchange rate at the date of the transaction. Non-monetary

assets and liabilities denominated in foreign currency and recorded at fair value are

converted at the exchange rate prevailing on the date the fair value was determined.

Conversions or amounts in foreign currency are converted into Cabo Verdean Escudos and

exchange differences are recognized in the income statement.

On the date of its contracting, purchases and sales of spot and forward foreign currency

are immediately recorded in the foreign exchange position.

Whenever these operations lead to changes in the net balances of the different currencies,

there is a movement in the foreign currency account position, spot or forward, whose

content and revaluation criteria are as follows:

i) Spot exchange position

The spot exchange position in each currency is given by the net balance of the assets and

liabilities of that currency, excluding the spot exchange position covered by foreign

currency forward exchange operations and adding the amounts of spot operations

pending liquidation and forward operations to mature within two working days


thereafter. The spot exchange position is revalued on a daily basis, based on indicative

exchange rates of the day disclosed by Banco de Cabo Verde, resulting in the movement of

the foreign exchange position account (national currency), in exchange for costs or

income.

ii) Forward exchange position

The forward exchange position in each currency is given by the net balance of forward

transactions pending settlement and which are not covering the spot exchange position,

with the exception of those due within two business days thereafter.

All contracts relating to these transactions are revalued at the forward exchange rates of

the market or, in the absence thereof, by calculating them on the basis of the interest rates

of the respective currencies for the residual term of each transaction. The differences

between the exchange value in escudos at the forward revaluation rates applied and the

exchange value in escudos at the contracted rates represent the cost or the benefit of the

revaluation of the forward exchange position and are recorded in a revaluation account

of the exchange position against costs or income.

c) Loans and advances to customers

Loans and advances to customers include loans originated by the Bank, which are not

intended to be sold in the short term, which are recorded on the date the loan is

transferred to the customer.

Customer loan and advances is only derecognised from the balance sheet when (i) the

Bank's contractual rights to its cash flows have expired, (ii) the Bank has transferred

substantially all the risks and rewards associated with its holding, or (iii) notwithstanding

the Bank retained part, but not substantially all, of the risks and rewards associated with

its detention, control over the assets was transferred.

Loans and advances to customers are initially recognized at fair value, plus transaction

costs and are subsequently measured at amortized cost, based on the effective rate

method, and are deducted from possible impairment losses.

Impairment

The Bank regularly assesses whether there is objective evidence of impairment in its loan

portfolio. The identified impairment losses are recorded as a charge against income and

are subsequently reversed by income if, in a subsequent period, the estimated loss amount

decreases.


Loans and advances to customers or a loan portfolio, defined as a group of loans and

advances with similar credit risks, are impaired when: (i) there is objective evidence of

impairment as a result of one of more events that took place after their initial recognition

and (ii) when these events have an impact on the recoverable value of the future cash

flows of the loans and advances or credit portfolio, that can be reliably estimated.

Initially, the Bank assesses whether there is, individually, for each loan, objective evidence

of impairment. For this evaluation and the identification of impaired loans on an

individual basis, the Bank uses the information that feeds the credit risk models

implemented and considers, among others, the following factors:

The global exposure to the customer and the existence of non-performing loans;

The economic and financial viability of the customer's business and its ability to

generate means capable of responding to debt services in the future;

The existence of privileged creditors;

The existence, nature and estimated value of the collaterals;

The client's indebtedness to the financial sector;

The estimated amount repayment periods.

If, for a given loan, there is no objective evidence of impairment, in an individual

perspective, this loan is included in a group of loans with similar credit risk characteristics

(loan portfolio), which is assessed collectively - impairment analysis on a collective

basis. Loans that are individually valued and for which an impairment loss is identified are

not included in the collective valuation.

If an impairment loss is identified on an individual basis, the amount of the loss to be

recognized corresponds to the difference between the book value of the loan and the

present value of estimated future cash flows (considering the recovery period), discounted

at the initial effective interest rate of the contract. The loan granted is presented in the net

balance of the impairment. For a variable interest rate loan, the discount rate to be used to

determine the respective impairment loss is the current effective interest rate determined

on the basis of the rules of each contract.

The calculation of the present value of the estimated future cash flows of a secured loan

reflects the cash flows that may result from the recovery and sale of the collateral, less the

costs inherent to its recovery and sale.

In the scope of the impairment analysis on a collective basis, loans are grouped based on

similar credit risk characteristics, based on the risk assessment defined by the Bank. The


future cash flows for a loan portfolio, whose impairment is assessed collectively, are

estimated based on contractual cash flows and historical loss experience. The

methodology and assumptions used to estimate future cash flows are regularly reviewed

by the Bank in order to monitor the differences between estimated and actual losses.

When the Bank considers that a loan is uncollectible and an impairment loss of 100% is

recognized, it is written off against the asset.

d) Other financial assets

The Bank classifies its other financial assets at the time of their acquisition, considering

the underlying intention.

• Held-to-maturity investments

These investments are non-derivative financial assets with fixed or determinable

payments and defined maturities that the Bank has the intention and ability to hold until

maturity and which are not designated, at the time of their initial recognition, as fair value

through profit or loss or as available for sale.

• Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that (i) the Bank

intends to maintain for an indefinite period, (ii) are designated as available-for-sale at the

time of their initial recognition, or (iii) do not fall into the categories mentioned above.

Initial recognition and measurement and derecognition

Acquisitions and disposals: (i) held-to-maturity investments and (ii) available-for-sale

financial assets are recognized on the trade date, i.e., on the date on which the Bank

undertakes to acquire or dispose of the asset.

These financial assets are initially recognized at fair value, plus transaction costs and are

derecognised when: (i) the Bank's contractual rights to the receipt of its cash flows expire;

(ii) the Bank has substantially transferred all the risks and benefits associated with its

detention; or (iii) notwithstanding that it retains a portion, but not substantially all the

risks and rewards associated with its detention, the Bank has transferred control over the

assets.

Subsequent measurement

Financial assets held for sale are recorded at fair value and the respective changes are

recognized in reserves until the assets are derecognised or an impairment loss is


identified, at which time the accumulated amount of potential gains and losses recorded in

reserves is transferred to results. Foreign exchange variations associated with these assets

are also recognized in reserves, in the case of shares and other equity securities, and in

income statement, in the case of debt instruments. Interest, calculated at the effective

interest rate, and dividends are recognized in the income statement.

Held-to-maturity investments are valued at amortized cost, based on the effective rate

method and are deducted from impairment losses.

The fair value of quoted financial assets is their bid price. In the absence of a quotation, the

Bank estimates the fair value using (i) valuation methodologies, such as the use of prices

of recent transactions, similar and carried out under market conditions, discounted cash

flow techniques and customized option valuation models, in order to reflect the

particularities and circumstances of the instrument, and (ii) valuation assumptions based

on market information.

Transfers between categories

The Bank only transfers non-derivative financial assets with fixed or determinable

payments and defined maturities from the category of available-for-sale financial assets to

the category of held-to-maturity financial assets, provided that it has the intention and

ability to maintain these financial assets until maturity.

These transfers are made based on the fair value of the assets transferred, determined on

the date of the transfer. The difference between this fair value and its nominal value is

recognized in results until maturity of the asset, based on the effective rate method. The

fair value reserve existing at the date of the transfer is also recognized in results based on

the effective rate method.

Impairment

The Bank regularly assesses whether there is objective evidence that a financial asset, or

group of financial assets, show signs of impairment. For financial assets that show signs of

impairment, their recoverable value is determined, and impairment losses are recorded

against income.

A financial asset or group of financial assets is impaired whenever there is objective

evidence of impairment resulting from one or more events that occurred after its initial

recognition, such as: (i) for shares and other equity instruments, when there has been a

significant or prolonged decline in their market value below acquisition cost, and (ii) for

debt securities, when that event (or events) has an impact on the estimated future cash


flows of the financial asset, or group of financial assets, which can be reasonably

estimated.

For investments held to maturity, impairment losses correspond to the difference between

the book value of the asset and the present value of estimated future cash flows

(considering the recovery period) discounted at the effective rate of the asset financial.

These assets are presented in the balance sheet, net of impairment. If we are dealing with

an asset with a variable interest rate, the discount rate to be used to determine the

respective impairment loss is the current effective rate, determined based on the rules of

each contract. In the case of investments held to maturity, if in a subsequent period the

amount of the impairment loss decreases, and this decrease can be objectively related to

an event that occurred after the recognition of the impairment, it is reversed against the

income results of the year.

When there is evidence of impairment in available-for-sale financial assets, the

accumulated potential loss in reserves corresponding to the difference between the

acquisition cost and the current fair value, less any impairment loss on the asset

previously recognized in income results, is transferred to the net income.

If, in a subsequent period, the amount of the impairment loss decreases, the previously

recognized impairment loss is reversed against the net income for the year up to the

amount of acquisition cost provided the increase is objectively related to an event

occurring after recognition of the impairment loss, except for shares or other equity

instruments in which the subsequent capital gains are recognized in reserves.

e) Financial liabilities

An instrument is classified as a financial liability when there is a contractual obligation for

its settlement to be made through the delivery of cash or other financial asset, regardless

of its legal form. Financial liabilities are derecognised when the underlying obligation

expires or is canceled.

Non-derivative financial liabilities include funds from credit institutions and customers,

loans and liabilities represented by securities, as well as liabilities incurred to pay service

or purchase of assets, recorded under "other liabilities".

These financial liabilities are initially recorded at their fair value less transaction costs

incurred and subsequently amortized cost, based on the effective rate method.


f) Other tangible assets

Other tangible assets are valued at acquisition cost less accumulated amortization and

impairment losses. Expenditure on repairs and maintenance are recognized as expenses in

accordance with the principle of accrual basis.

Depreciation is calculated using the straight-line method at the following amortization

rates, which reflect the expected useful lives of the assets:

When there is an indication that an asset may be impaired, IAS 36 requires that its

recoverable amount is estimated, and an impairment loss should be recognized whenever

the net value of an asset exceeds its recoverable value. Impairment losses are recognized

in the income statement.

The recoverable amount is determined as the highest of its net sales price and its usage

value, which is calculated based on the present value of the estimated future cash flows

expected to be derived from the continued use of the asset and disposal at the end of its

useful life.

g) Intangible assets

Costs incurred in acquiring, producing and developing software are capitalized, as well as

the additional costs incurred by the Bank for its implementation. These costs are

amortized on a straight-line basis over the expected useful life of these assets, which is

normally between 3 and 10 years.

All other charges related to IT services, which are not expected to generate future

economic benefits beyond one year, are recorded as costs when incurred.

h) Benefits to employees

The right to vacation and vacation allowance is recorded and paid in the year in which

they are used. Thus, no increase is recorded for the charges associated with these benefits.

Property for own use 25

Furniture and material 4-8

IT Equipment 4

Machines and Tools 5

Transportation material 4

Interior Installations 8-10

Security Equipment 4-5

Number of Years


i) Income tax

The Bank is subject to the tax regime set forth in the Corporate Income Tax Code (Law no.

82 / VIII / 2015, of January 7), at the rate of 25%, and at a rate of fire tax of 2% applied on

the tax collected, resulting in an overall rate 25.5% (25.5% in 2015). The Income taxes

comprise current taxes and deferred taxes.

Current taxes are those that are expected to be paid based on the taxable income

determined in accordance with the tax rules in force.

Deferred tax liabilities are recognized for all taxable temporary differences. However,

deferred tax assets are recognized only to the extent that taxable profits are expected to

exist in the future, capable of absorbing tax differences and tax losses to be used in the

future.

Income taxes are recognized in income, except when they are related to items that are

recognized directly in equity, in which case they are also recorded by counterparts of the

equity.

Tax losses calculated in a year are deducted from taxable income for one or more of the

following three years.

j) Interest Recognition

The results referring to interest on financial instruments measured at amortized cost and

available-for-sale financial assets are recognized under interest and similar income or

interest and similar costs, using the effective rate method. Interest on financial assets and

liabilities at fair value through profit or loss is also included in interest and similar income

or interest and similar costs, respectively.

The effective interest rate is the rate that discounts exactly the estimated future payments

or receivables over the expected life of the financial instrument or, when appropriate, a

shorter period to the net present value of the balance of the financial asset or liability. The

effective interest rate is established on initial recognition of financial assets and liabilities

and is not reviewed subsequently.

For the calculation of the effective interest rate, the future cash flows are estimated

considering all contractual terms of the financial instrument (for example, prepayment

options), not considering, however, any future credit losses. The calculation includes

commissions that are an integral part of the effective interest rate, transaction costs, and

all premiums and discounts directly related to the transaction. In the case of financial


assets or groups of similar financial assets for which impairment losses have been

recognized, the interests registered on interest and similar income are determined based

on the interest rate used to measure the impairment loss.

k) Recognition of services and commissions

Income from services and commissions is recognized as follows:

The income from services and commissions obtained in the execution of a

significant act, such as commissions on loan syndication, are recognized in the income

statement when the significant act has been completed;

Income from services and commissions obtained as services are rendered are

recognized in the income statement for the year to which they refer;

Income from services and commissions that are an integral part of the effective

interest rate of a financial instrument is recorded in the income statement using the

effective interest rate method.

l) Cash and cash equivalents

For the purposes of the statement of cash flows, the cash and cash equivalents comprise

the amounts recorded in the balance sheet with a maturity of less than three months from

the date of acquisition / contracting, including cash and cash equivalents at central banks

and other credit institutions.

m) Equity

An instrument is classified as an equity instrument when there is no contractual obligation

for its liquidation to be done through the delivery of cash or other financial asset,

regardless of its legal form, evidencing a residual interest in the assets of an entity after

the deduction of all their liabilities.

All costs directly attributable to the issuance of equity are recorded against the equity

caption as a deduction from the issuance value.

Distributions made on behalf of equity instruments are deducted from equity as dividends

when declared.

n) Provisions

A provision is constituted when there is a present obligation (legal or constructive)

resulting from past events, for which it is probable the future expenditure of resources

and this can be measured reliably. The amount of the provision corresponds to the best

estimate of the amount to be disbursed to settle the liability at the balance sheet date.


Provisions are measured at the present value of estimated costs to pay the obligation,

using a pre-tax interest rate, which reflects the market valuation for the discount period

and the risk of the provision in question.

Whenever one of the criteria is not fulfilled, or the existence of the obligation is conditional

on the occurrence (or non-occurrence) of a future event, the Bank discloses this fact as a

contingent liability, unless the assessment of the cash outflow requirement for its payment

is considered remote. If it is not probable the future expenditure of resources, it is a

contingent liability. Contingent liabilities are only subject to disclosure, unless the

possibility of their realization is remote.

o) Real estate received in kind

In the course of its current lending activity, the Bank incurs the risk of not being able to

recover its entire granted loan. In the case of loans with mortgage collateral, the Bank

executes them, receiving in kind real estate and other assets for the settlement of the loan

granted.

Although it aims at the immediate sale of all properties received in kind, the Bank records

these properties in the balance sheet caption "Other Assets", due to the fact that they

remain in the portfolio for more than one year and consequent non-compliance with the

conditions in IFRS 5 for recognition in the category of "non-current assets held for sale”.

These assets are initially recognized at the lowest of their fair value, less expected costs of

sale, and the balance sheet value of the loan, which is the object of recovery. Subsequently,

these assets are measured at the lower between the initial recognition value and fair

value, less costs to sell, and are not amortized. Unrealized losses with these assets, as

determined, are recorded in results.

The evaluations of these properties are carried out according to one of the following

methodologies, applied according to the specific situation of the property:

i) Market Method

The Market Comparison Criterion has, by reference, transaction values of similar

properties and comparable to the object of study, obtained through market prospecting in

the area.

ii) Income Method

This method aims to estimate the value of the property, from the capitalization of its net

income, updated to the present moment, using the discounted cash flow method.


iii) Cost Method

The Cost Method is a criterion that decomposes the value of the property into its

fundamental components: urban land value and the value of urbanity; construction value;

and overhead value.

The evaluations are conducted by independent entities specialized in this type of services.

The appraisal reports are analyzed internally, with a check of the suitability of the

processes, comparing the sales values with the revalued values of the properties.

For this category of assets, in addition, the precepts defined by Banco de Cabo Verde are

observed through Notice nº 7/2015, of December 24.

NOTE 3 - Main Estimates and Judgments used in the preparation of the Financial

Statements

IFRS establishes a series of accounting treatments and requires the Board of Directors to

make judgments and make the necessary estimates to decide which accounting treatment

is most appropriate. The main accounting estimates and judgments used in the application

of the accounting principles by the Bank are discussed in this Note in order to improve the

understanding of how its application affects the reported results of the Bank and its

disclosure. A broad description of the main accounting policies used by the Bank is

presented in Note 2 to the financial statements.

Considering that in many situations there are alternatives to the accounting treatment

adopted by the Board of Directors, the results reported by the Bank could be different if a

different treatment was chosen. The Board of Directors considers that the choices made

are appropriate and that the financial statements present the Bank's financial position and

the results of its operations in all relevant material aspects.

3.1. Impairment losses on customer loans

The Bank periodically reviews its loan portfolio in order to assess the existence of

impairment, as referred to in paragraph c) of Note 2.3.

The process of evaluating the credit portfolio in order to determine whether an

impairment loss is to be recognized is subject to various estimates and judgments. This

process includes factors such as frequency of default, credit ratings, loss recovery rates

and estimates of both future cash flows and the timing of their receipt.


The use of alternative methodologies and other assumptions and estimates could result in

different levels of impairment losses recognized and presented in Note 16, with the

consequent impact on the Bank's results.

3.2. Income taxes

The Bank is subject to taxation on Corporate Income Tax (IRPC). The determination of the

total amount of taxes on profits (see Note 19) requires certain interpretations and

estimates. There are several transactions and calculations for which the determination of

the final taxable amount is uncertain during the normal business cycle.

Other interpretations and estimates could result in a different level of income tax, current

and deferred, recognized in the year.

The Tax Authorities have the attribution of reviewing the calculation of the taxable

amount made by the Bank, during a period of 3 years, in case there are fiscal losses

reportable. In this way, it is possible that there are corrections to the taxable income,

mainly resulting from differences in the interpretation of tax legislation. However, it is the

belief of the Bank's Board of Directors that there will be no significant corrections to the

income tax recorded in the financial statements.

NOTE 4 - Report by Segments

Considering that the Bank does not hold equity or debt securities that are publicly traded,

under paragraph 2 of IFRS 8 - Operating Segments, the Bank does not present segment

information.

NOTE 5: Interest and Similar Income

This caption shows the following breakdown:

(Amounts expressed in thousands of CVEs)

31.12.2016 31.12.2015

Investments at other credit institutions interest 47,311 41,449

Customer's loans interest 126,235 121,122

Securities interest 11,250 11,188

Others 22 -

TOTAL 184,818 173,759


NOTE 6: Interest and Similar Costs

This caption is broken down as follows:


NOTE 7: Fees and Commissions Income and Expenses

This caption presents the following decomposition: (Amounts expressed in thousands of CVEs)

Other commissions are those related to loan operations, which in 2016 amounted to 5,972 thousand escudos

(2015: 8,859 thousand escudos).

NOTE 8: Foreign Exchange Revaluation Results (Amounts expressed in thousands of CVEs)

This caption includes the results arising from the revaluation of foreign currency of monetary assets and

liabilities expressed in foreign currency, in accordance with the accounting policy described in Note 2.2 b).

31.12.2016 31.12.2015

Other financial institutions interest 42 -

Customers' deposits interest 20 518 29 127

Others 31 -

TOTAL 20 591 29 127

31.12.2016 31.12.2015

Fee and commission income

Guarantees and warrants issued 19 590 15 201

Documentary credits 22 329

Funds Transfer 8 490 9 968

Other commissions 12 123 23 408

40 225 48 906

Fee and commission expense

For banking services provided by third parties ( 2 007) ( 1 970)

TOTAL 38 218 46 935

31.12.2016 31.12.2015

Currency exchange operations earnings

Foreing currencies 381,598 649,756

Currency exchange operations losses

Foreing currencies (379,645) (633,367)

TOTAL 1,953 16,389


NOTE 9: Other Operating Income

This caption is analyzed as follows:


During the month of November 2016, the Bank was notified, pursuant to Articles 243 and

244 (2) of the Law on Activities and Financial Institutions (approved by Law No.

62/VIII/2014 of April 23) and Article 42 of the General Legal System of Administrative

Offenses (approved by Decree-Law no. 9/95, of October 27), that, by Order of the

Governor of the Banco de Cabo Verde, a contra-ordination process was opened, following

the examination of the Inspection Report on money laundering procedures. From this

proceeding, a fine of 100 000 thousand euros was imposed, which has already been totally

settled. Of this amount, 61 510 thousand escudos were paid in the course of 2017.

NOTE 10: Staff Costs

This caption is made up as follows:


31.12.2016 31.12.2015

Other expenses ( 104 777) ( 2 943)

Fines ( 100 000) -

Direct and indirec taxes ( 4 247) ( 1 992)

Others ( 530) ( 951)

Other incomes 95 4 957

TOTAL ( 104 682) 2 014

31.12.2016 31.12.2015

Salaries 85 771 67 941

Social Charges 11 464 7 794

Other staff costs 1 434 1 151

TOTAL 98 669 76 885


The remuneration and other benefits attributed to the Board of Directors and to the Fiscal

Board of the Bank are broken down as follows:


As mentioned in note 2 h), the Bank does not register in its financial statements any

addition to vacations and holiday allowances, since it has adopted as a procedure to pay

vacations and vacation allowance in the same year in which the employees are admitted.

Thus, whenever a worker terminates his employment contract with the Bank, he is only

paid the proportional vacation and holiday allowance of the months worked in the year in

which he leaves.

At the end of the financial year 2015, the employees that belonged to the Sucursal

Financeira Exterior de Cabo Verde (SFE-CV), were transferred to Banco Internacional,

following the dissolution of that structure. By professional category, the number of Bank

employees is analyzed as follows:

(Values expressed in units)

31.12.2016 31.12.2015

Remuneration

Board of Directors 29 772 8 506

Fiscal Board 1 680 1 378

TOTAL 31 452 9 884

31.12.2016 31.12.2015

Board/Management 3 3

Technical Staff 18 21

Administrative Staff 5 5

TOTAL 26 29


NOTE 11: General Administrative Expenses

This caption is broken down as follows:


Various specialized services include, in particular, charges associated with IT consulting services, tCVE 31,908,

and payment system services tCVE 2,918 (2015: tCVE 36,138 and tCVE 2,619, respectively).

NOTE 12 - Cash and Deposits at Central Banks

This item is broken down as follows:


Cash and cash equivalents with Banco de Cabo Verde include mandatory deposits (legal reserves) in the

amount of 303 million escudos (as at 31 December 2015 were 359 million escudos), made in accordance with

Circular no. 157, of 08/11/2010, of Banco de Cabo Verde.

NOTE 13: Cash and Cash Equivalents in Other Credit Institutions

This caption is made up as follows: (Amounts expressed in thousands of CVEs)

Checks receivable correspond to checks drawn on customers from other banks, sent for clearing. Demand

deposits on other credit institutions are not remunerated.

31.12.2016 31.12.2015

Diverse Thirt-Party Supplies 7 319 10 316

House rent 3 009 3 322

Postage and other communication expenses 5 163 8 486

Travel, accommodation and representation expenses 2 418 2 396

Advertisement 485 1 937

Fees 8 181 9 397

Diverse specialized services 36 497 40 470

Other Services 12 135 10 238

TOTAL 75 207 86 561

31.12.2016 31.12.2015

Cash 79,269 363,475

Deposits at Banco de Cabo Verde 932,446 483,109

TOTAL 1,011,715 846,584

31.12.2016 31.12.2015

Deposits at domestic credit institutions

Payable checks 3,706 1,328

Deposits at foreign credit institutions

Demand Deposits 142,202 879,845

TOTAL 145,908 881,173


NOTE 14: Available-for-Sale Financial Assets



Bonds in the portfolio have a residual maturity of two (2) years (2015: 3 years) and bear interest at the annual

rate of 5.625%. The holding at CV Garante corresponds to 15% of its capital, equivalent to 15,000 registered

shares at acquisition cost.

NOTE 15: Investments in Credit Institutions

This item is made up as follows:


The breakdown of investments in credit institutions by maturity date as of 31 December

2016 and 2015 is as follows:


Investments in credit institutions at 31 December 2016 earned interest at the average annual rate of 1.35 %.

As of December 31, 2015, the existing applications bear interest at the average annual rate of 0.66%.

31.12.2016 31.12.2015

Holdings at CV Garante 15, 000 15, 000

Cabo Verde Treasury Bonds 200, 000 200, 000

Interests 3, 822 3, 822

TOTAL 218,822 218,822

31.12.2016 31.12.2015

Investments in foreign financial institutions

Very short-term investments at Novo Banco 7,005,847 7,030,919

Interests 4,366 1,572

TOTAL 7,010,213 7,032,492

31.12.2016 31.12.2015

Up to 3 months 7,010,213 7,032,492


NOTE 16: Customer Loans



Non-performing loans included in the loan portfolio amounted to 31 December 2016 and

2015 as follows:


The breakdown of gross loans to customers and interest receivable by maturity date,

excluding effects of amortized cost, as of December 31, 2016 and 2015, is as follows:


The customer loan portfolio at December 31, 2016 was contracted at the average annual rate of 7.99%

(December 31, 2015: 8.24%).

31.12.2016 31.12.2015

Loans and advances to customers

By maturity

Short-term 195,538 241,999

Medium and long term 1,890,654 2,218,491

2,086,192 2,460,489

By Product

Current accounts credit 131,995 137,326

Demand deposits overdraft 75,973 70,956

Mortgage loan 1,012,385 1,077,474

Personal loan 41,513 51,337

Loans 818,390 1,116,384

Individual Others 5,936 7,013

2,086,192 2,460,489

Interest receivable 4,204 4,992

Amortized Cost Effect (10,372) ( 13 823)

Impairment (79,944) (62,532)

Net Impaiment Loan 2,000,081 2,389,127

31.12.2016 31.12.2015

Non-performing Loan 419,068 379,310

Up to 90 days 7,282 7,108

More than 90 days 411,785 372,202

31.12.2016 31.12.2015

Up to 3 months 35,521 29,683

From 3 months to 1 year 106,610 75,254

From 1 to 5 years 334,276 408,305

More than 5 years 1,556,378 1,572,929

Undetermined term 57,612 379,310

TOTAL 2,090,396 2,465,481


The movements occurred in impairment losses on loans are presented as follows:


NOTE 17: Other Tangible Assets


31.12.16 31.12.15

Openning balance 62,532 78,218

Increases 21,949 51,400

Decreases - (67,086)

Consumed (4,537) -

Closing Balance 79,944 62,532

31.12.2016 31.12.2015

Property

Buildings 191 395 191 395

Leasehold improvements 23 260 23 260

214 655 214 655

Equipment

Furniture and Material 23 106 20 418

Machinary and tools 5 380 4 757

Transportation Equipment 26 097 26 097

Interior installations 11 796 11 796

IT equipment 14 561 14 443

Security equipment 5 391 5 391

86 331 82 903

Tangible assets in progress

Property - 1

Machinary and tools - -

Furtniture and material - 2 688

Equipment - 117

- 2 806

Amortizations ( 94 615) ( 69 954)

TOTAL 206 371 230 409


The movements in this caption were as follows: (Amounts expressed in thousands of CVEs)

Gross Accumulated Net Amortizations Gross Accumulated Net

Amount Amortization Amount Asset amount Amortiz Asset amount Amortiz. for the period Amount Amortization Amount

Properties

Building 191,395 12,319 179,076 - - - - - 3,093 191,395 15,411 175,984

Leasehold improvements 23,260 11,762 11,498 - - - - - - 8,126 23,260 19,888 3,372

214,655 24,081 190,574 - - - - - - 11,219 214,655 35,299 179,356

Equipment

Furniture and material 20,418 15,256 5,162 2,688 - - - - 3,968 23,106 19,224 3,882

Machinary and tools 4,757 1,502 3,255 623 - - - - - 1,030 5,380 2,532 2,848

Transportation equipment 26,097 8,854 17,244 - - - - - 6,095 26,097 14,949 11,148

Interior installations 11,796 3,239 8,556 - - - - - 1,229 11,796 4,469 7,327

IT equipment 14,443 13,211 1,233 118 - - - - 664 14,561 13,874 687

Security equipment 5,391 3,812 1,579 - - - - - 456 5,391 4,268 1,123

82,903 45,874 37,029 623 2,806 - - - - 13,442 86,331 59,316 27,015

Tangible assets in progress

Property for own use 1 - 1 - (1) - - - - - - - -

Furniture and material 2,688 - 2,688 - (2,688) - - - - - - - -

Equipment 117 - 117 - (117) - - - - - - - -

2,806 - 2,806 - (2,806) - - - - - - - -

300,363 69,954 230,409 623 - - - - - 24,661 300,986 94,615 206,371

Regularizations Write-offs

Balances on 31.12.16Balances on 31.12.15

Transfer

Transactions in 2016

Acquisitions


NOTE 18: Intangible Assets



The movements in this caption were as follows:


NOTE 19: Current Tax Assets and Liabilities

The Bank is subject to taxation on Corporate Income Tax (IRPC).

Current income tax is reflected in income for the year, except where the transactions that

originated them have been reflected in other equity caption headings. In these situations,

the corresponding tax is also reflected by a counterpart of shareholder equity, not

affecting the result for the year.

The calculation of the current tax for the years ended 31 December 2016 and 2015 was

made based on a rate of 25.5%, including a nominal IRPC and Fire Tax rate, in accordance

with Law no. 82/VIII/2014, of 08 January 2015.

The self-assessment declarations of the Bank's IRPC are subject to inspection and possible

adjustment by the Tax Authorities for a period of three years. As a result, additional tax

settlements may occur, essentially due to different interpretations of tax legislation.

However, it is the Bank's Management belief that, in the context of the financial

statements, there will be no additional charges of significant value.

31.12.2016 31.12.2015

Other intangible assets

Automatic data processing system (software) 205,672 204,476

Amortizations 120,673 - 95,426 -

TOTAL 85,000 109,050

Gross Accumulated Net Amortizações Gross Accumulated Net

Amount Amortization Amount Asset amount Amortiz Asset amount Amortiz. do exercício Amount Amortization Amount

Software 194,685 95,426 99,259 - 9,791 43 - - - - 25,247 204,433 120,673 83,760

Software (in progress) 9,791 - 9,791 1,240 9,791 - - - - - - 1,240 - 1,240

204,476 95,426 109,050 1,240 - 43 - - 25,247 205,672 120,673 85,000

Balances on 31.12.16Balances on 31.12.15

TransferAcquisitionsRegularizations

Moviments in 2016

Write-offs



The reconciliation of the tax rate can be analyzed as follows:


The available tax losses can be used to cover future taxable profits. Thus, the tax losses

available on December 31, 2016, subject to confirmation by the Tax Authority, amount to

41,706 thousand escudos and can be deducted from the future taxable income of the next

three years. The Bank opted not to carry out the accounting recognition of deferred tax

assets on reportable tax losses, given the difficult prediction of its materialization as a

benefit.

31.12.2016 31.12.2015

Current taxes asset 13,401 10,106

Income taxes - estimate 141 - 5,180 -

Payment on account 13,542 15,286

31.12.2016 31.12.2015

Income before taxes ( 146 017) 7,738

Tax rate 25.5% 25.5%

Theroretical income taxes expense ( 37 234) 1 973

Effect of non-deductible costs

Fines 25,500 -

Impairment on customer loans covered by collateral - 1,858

Non-taxable amortizations 734 697

Other costs 365 501

Tax losses without tax assets recognition 10,635 -

Autonomous taxation 141 150

Current income tax for the year 141 5,180

Current income tax for the year 141 5,180

Diferred income tax - -

Income tax 141 5,180

Effective tax rate -0.1% 66.9%


NOTE 20: Other Assets

This caption has the following decomposition:


The value of Assets acquired in the recovery of own credit corresponds to the balance related to real estate

received in kind as the payment of debts during the year 2016. These are valued in accordance with the

accounting policy described in Note 2.2 o). The amount receivable from the Group as of 31 December 2015

corresponded to the balance to be settled by Novo Banco, related to the assignment, at the end of 2015, of the

contractual loan position of one of the customers of the Bank's portfolio.

NOTE 21: Deposits from Central Banks and Other Financial Institutions


NOTE 22: Customer deposits and Other Loans

As of December 31, 2016, the Bank held 77% (2015: 73%) of deposits from related

companies of the same group. However, by decision of Prosecution Service of Praia

District, these accounts are blocked. However, it should be noted that the Bank has an

adequate liquidity risk management, with liquid assets that allow it to adjust the liquidity

gap on a daily basis (see Note 29) and in line with liquidity management policy of the Novo

Banco Group.

31.12.2016 31.12.2015

Sundry debtors

Amounts receivable from the Group - 193 013

Annual VISA card fees 153 -

Assets acquired in credit recovery 57 393 -

Others 67 83

Deferred costs expenses

Other administrative expenses 2 021 3 085

Other settlement accounts 97 234

TOTAL 59,731 196,415

31.12.2016 31.12.2015

Deposits from Central Banks

Banco Central da República da Guiné 5,638 5,394

Deposits from other credit institutions

BES-SFE, Cabo Verde - 407

Ecobank Cabo Verde 92 92

TOTAL 5,730 5,893



The breakdown of customer funds by maturity date at 31 December 2016 and 31

December 2015 is as follows:


Fixed terms customer deposits were contracted at an average annual rate of 4.15% (31 December 2015:

4.22%).

NOTE 23: Other Liabilities



31.12.2016 31.12.2015

Deposits 9,142,234 10,205,586

On demand 8,333,897 9,584,482

Term 808,337 621,104

Other customers' funds 7,000 11,200

Interests 9,334 9,055

TOTAL 9,158,568 10,225,841

31.12.2016 31.12.2015

On demand 8,333,897 9,584,482

Fixed term 824,671 641,359

Up to 3 months 40,680 49,855

From 3 months to 1 year 547,144 229,086

From 1 to 5 years 236,847 362,418

TOTAL 9,158,568 10,225,841

31.12.2016 31.12.2015

Sundry Creditors

Public and Administrative Sector 6 443 9 110

Issued transfers to be cleared 351 2 940

Payable expenses

Administrative costs 7 182 13 002

Other payable expenses (see Note 9) 61 510 -

Other settlement accounts 10 10

TOTAL 75 496 25 063


NOTE 24: Share Capital

The Bank's Share capital amounts to 1,433 million escudos (equivalent to 1,433 000

shares) and is fully paid up and 99.99% owned by Novo Banco África SGPS, SA.


NOTE 25: Other Reserves and Retained Earnings

This caption includes legal reserves (10%) and other reserves (90%), arising from the

transfer of the earning of previous years, and is broken down as follows:


The legal reserve can only be used to cover accumulated losses or to increase the social

capital. The legislation applicable to the banking sector requires that the legal reserve be

annually credited with at least 10% of annual net profit, up to competition of the share

capital.

NOTE 26: Contingent Liabilities and Commitments

Contingent liabilities and commitments related to the Bank's business are recorded as off-

balance sheet items and are broken down as follows:


31.12.2016 31.12.2015

Subscribed capital

Ordinary shares 1,433,000 1,433,000

Legal

Reserves

Other

Reserves

Regulariza

tionTotal

Balance on 31 de December 2014 23,231 209,075 27,905 - 204,401

Transfer to reserves 2,753 24,776 10,058 - 17,471


Transfer to reserves 256 2,302 - 2,558


Other Reserves and Retained Earnings

31.12.2016 31.12.2015

Guatantees issued 1,030,329 1,153,992

Documentary credits - 4,340

TOTAL 1,030,329 1,158,332


NOTE 27 - Related Party Transactions

The value of the Bank's transactions with related parties in the years ended 31 December

2016 and 2015, as well as the respective costs and income recognized in the year, are

summarized as follows:


Assets in the balance sheet relating to the related parties, included in the above table, refer

basically to deposits and investments held with these entities, which are remunerated at

current market rates.

NOTE 28 - Fair Value of Financial Assets and Liabilities

The fair value of the financial assets and liabilities measured at the Bank's fair value at

December 31, 2016 and December 31, 2015 is as follows:



Assets Liabilities Income Expenses Assets Liabilities Income Expenses

Shareholder

NOVO BANCO, S.A. 7,148,049 - 47,218 - 7,310,764 - 40,252 -

TOTAL 7,148,049 - 47,218 - 7,310,764 - 40,252 -

31.12.16 31.12.15

Available-for-sale financial assets

Cabo Verde treasury bonds - 203, 822 - 203, 822

- 203, 822 - 203, 822

31.12.2016

Valued at Fair Value

Market Quotation

(Level 1)

Valuation models with

parameters/prices

observable in the

market

(Level 2)


parameters not

observable in the

market

(Level 3)

Total Fair

Value

Available-for-sale financial assets

Cabo Verde treasury bonds - 203, 822 - 203, 822

- 203, 822 - 203, 822

31.12.2015

Valorizados ao Justo Valor

Market Quotation

(Level 1)


parameters/prices

observable in the

market

(Level 2)


parameters not

observable in the

market

(Level 3)

Total Fair

Value


Assets and liabilities at fair value of the Bank are valued according to the following

hierarchy, in accordance with IFRS 13 - Fair Value Measurement:

Quoted market price (level 1)

This category includes financial instruments with available quotations in official markets

and those in which there are entities that regularly disclose transaction prices for these

instruments traded in liquid markets.

Valuation methods with observable market parameters/prices (level 2)

In this category, financial instruments valued using internal models, such as discounted

cash flow models and option valuation models, are considered, which require the use of

estimates and require judgments that vary according to the complexity of the products

being valued. Nevertheless, the Bank uses as inputs, in its models, variables made

available by the market, such as interest rate curves, loan spreads, volatility and indexes

on prices. It also includes instruments whose valuation is obtained through quotations

disclosed by independent entities, but whose markets have lower liquidity. In addition, the

Bank uses as observable market variables, those that result from transactions on similar

instruments and that are observed with a certain recurrence in the market.

Valuation methods with parameters not observable in the market (level 3)

This level includes valuations determined through the use of internal valuation models or

quotations provided by third parties, but whose parameters are not observable in the

market. The bases and assumptions for the calculation of fair value are in accordance with

the principles of IFRS 13.

Financial instruments at amortized cost

The table below shows an analysis of the categories of financial instruments recognized at

amortized cost in the financial statements with reference to 31 December 2016:



(1) - Assets at acquisition cost, net of impairment. These assets refer to equity instruments for which no recent transactions have been identified in the market and it is neither possible to estimate reliably and their fair value.


(1) - Assets at acquisition cost, net of impairment. These assets refer to equity instruments, for which recent market transactions have not being identified and cannot be estimated reliably and its fair value.

Asset

Cash and deposits at Central banks 1,011, 715 - 1,011, 715 - 1,011, 715

Deposits at other credit institutions 145, 908 - 145, 908 - 145, 908

Available-for-sale financial assets 15, 000 - - 15, 000 (1) 15, 000

Investments in credit institutions 7,010, 213 - 7,010, 213 - 7,010, 213

Loans and advances to customers 2,000, 081 - - 2,000, 081 2,000, 081

10,182, 917 - 8,167, 837 2,015, 081 10,182, 917

Liability

Funds from Central Banks 5, 638 - 5, 638 5, 638

Funds from other credit institutions 92 - 92 92

Funds from customers and other loans 9,158, 568 - 9,158, 568 9,158, 568

9,164, 298 - - 9,164, 298 9,164, 298

31.12.2016

Assets/Liabilities

registered at

amortized cost


parameters/prices

observable in the market

(Level 2)


parameters not

observable in the

market

(Level 3)

Total Fair

Value

Fair Value

Market Quote

(Level 1)

Asset

Cash and deposits at Central banks 846, 584 - 846, 584 - 846, 584

Deposits at other credit institutions 881, 173 - 881, 173 - 881, 173

Available-for-sale financial assets 15, 000 - - 15, 000 (1) 15, 000

Investments in credit institutions 7,032, 492 - 7,032, 492 - 7,032, 492

Loans and advances to customers 2,389, 127 - - 2,389, 127 2,389, 127

11,164, 376 - 8,760, 249 2,404, 127 11,164, 376

Liability

Funds from Central Banks 5, 394 - - 5, 638 5, 638

Funds from other credit institutions 499 - - 92 92

Funds from customers and other loans 10,225, 841 - - 9,158, 568 9,158, 568

10,231, 734 - - 9,164, 298 9,164, 298

31.12.2015

Fair Value

Assets/Liabilities

registered at

amortized cost

Market Quote

(Level 1)


parameters/prices

observable in the market

(Level 2)


parameters not

observable in the

market

(Level 3)

Total Fair

Value


The main methodologies and assumptions used in estimating the fair value of the financial

assets and liabilities recorded in the balance sheet at amortized cost are analyzed as

follows:

Cash and cash equivalents at central banks, Cash and cash equivalents at other

credit institutions and investments in credit institutions

These assets are very short-term and therefore the balance sheet value is a reasonable

estimate of their fair value.

Loans and advances to customers

The fair value of loans and advances to customers is estimated based on the discounted

cash flows expected from capital and interest, and on the basis that installments are paid

on the contractually defined dates. The expected future cash flows from homogeneous

loan portfolios, such as mortgage loans, are estimated on a portfolio basis. The discount

rates used are the current rates charged for loans of similar nature, which do not vary

significantly from the moment the current contracts were contracted.

Resources of central banks and resources of other credit institutions

These liabilities are short-term and therefore the balance sheet value is a reasonable

estimate of their fair value.

Customer funds and other loans

The fair value of these financial instruments is estimated based on the discounted

expected cash flows of capital and interest. The discount rate used is the one that reflects

the rates charged for deposits of similar nature to the balance sheet date. Considering that

the applicable interest rates are renewed for periods of less than one year, there are no

material differences in their fair value.

NOTE 29 - Management of Activity Risks

The Bank is exposed to several risks arising from the use of financial instruments, which

are analyzed as follows:

Credit risk

The Credit Risk results from the possibility of financial losses arising from the default of

the customer or counterparty, in relation to the contractual obligations established with

the Bank, within the scope of its credit activity.


The credit risk management process takes part in all stages of the loan, from the analysis

of the loan applications to the validation of the accounting of operations in the respective

headings, passing through the monitoring of contracts and monitoring of non-performing

loans identification to the calculation of provisions / impairment and consolidation and

portfolio reporting.

The monitoring of the loan portfolio is permanent and privileges the interaction between

the teams involved in risk management throughout the successive phases of the loan

process. This approach is complemented by the introduction of continuous improvements,

both in terms of methodologies and risk assessment and control tools, as well as in

decision procedures and circuits, always in partnership with the parent company.

The monitoring of the Bank's credit risk profile, in particular with regard to the evolution

of credit exposures and the monitoring of possible credit losses, is carried out regularly by

the Credit Committee.

Regarding the Bank's maximum exposure to credit risk, the table below presents the

position at the end of the year:


For financial assets recognized in the balance sheet, the maximum exposure to credit risk

is represented by the net book value of the impairment. For off-balance sheet items, the

maximum collateral exposure is the maximum amount that the Bank would have to pay if

the collateral were forfeited. For loan commitments and other irrevocable credit

commitments, the maximum exposure is the total amount of commitments assumed.

31.12.2016 31.12.2015

Deposits and investments in credit institutions 8,167,836 8,760,249

Held-for-trade financial assets 2 -

Available-for-sale financial assets 218,822 218,822

Customer loans 2,000,081 2,389,127

Other assets 317 193,380

Guarantes and warrants issued 1,030,329 1,153,992

Documentary credits - 4,340

TOTAL 11,417,386 12,719,910


In 2016, the impairment by asset class registered the following movements:


In 2015, impairment by asset class recorded the following movements:


As of December 31, 2016, the quality of the loan portfolio was as follows:


At 31 December 2015 the quality of the loan portfolio was made up as follows:


Corporate

(Funding)Mortgages

Individual

(Others)Public Sector Total

Initial loan impairment 17, 795 30, 251 8, 060 634 56, 740

Increases/decreases for the year 18, 106 3, 891 707 ( 115) 22, 589

Consumption for the year - - ( 4, 537) - ( 4, 537)

Final Loan impairment 35, 902 34, 142 4, 229 519 74, 792

31.12.2016

Corporate

(Funding)Mortgages

Individual

(Others)Public Sector Total

Initial loan impairment 59, 763 10, 492 3, 590 703 74, 549

Increases/decreases for the year ( 13, 955) 19, 759 4, 573 ( 69) 10, 308

Consumption for the year ( 28, 013) - ( 103) - ( 28, 117)

Final Loan impairment 17, 795 30, 251 8, 060 634 56, 740

31.12.2015

CorporateIndividual-

MortgageIndiviual-Others Public Sector Total

Performing loan with individual impairment 612, 820 881, 341 46, 939 103, 873 1,644, 972

Non-performing loan with individual impairment 302, 898 131, 045 7, 277 - 441, 220

Less than 30 days 21, 448 244 460 - 22, 152

30 to 90 days 7, 212 101 37 - 7, 351

91 to 180 days 2, 999 10, 673 850 - 14, 522

181 days 360 days 91, 413 27, 137 1, 372 - 119, 922

More than 360 days 179, 826 92, 890 4, 557 - 277, 273

Total 915, 718 1,012, 385 54, 216 103, 873 2,086, 192

CorporateIndividual-

MortgageIndiviual-Others Public Sector Total

Performing loan with individual impairment 945, 811 952, 881 52, 105 126, 882 2,077, 678

Non-performing loan with individual impairment 246, 419 124, 593 11, 799 - 382, 811

Less than 30 days 2, 867 128 506 - 3, 501

30 to 90 days 5, 134 40 1, 934 - 7, 108

91 to 180 days 25, 816 7, 726 252 - 33, 794

181 days 360 days 121, 113 30, 325 13 - 151, 452

More than 360 days 91, 488 86, 374 9, 094 - 186, 956

Total 1,192, 230 1,077, 474 63, 904 126, 882 2,460, 489


Market Risk

Market Risk represents, in general, any loss resulting from an adverse change in the value

of a financial instrument, such as changes in interest rates, exchange rates, stock prices,

commodity prices, volatility and credit spread.

Market risk management is integrated with balance sheet management through the

method ALCO (Asset and Liability Committee), which is elaborated in two complementary

strands by the Bank and the parent company. This system is responsible for providing

elements for the definition of balance sheet allocation and structuring policies, as well as

the controlling of exposure to interest rate, exchange rate and liquidity risks.

Given the small size of the country's financial and capital markets, and since the Bank's

trading portfolio is composed of low risk financial assets, the market risk is not very

significant and is oriented towards a risk mitigation perspective and control of liquidity.

Foreign exchange risk

The foreign exchange risk is associated with currency with volatile exchange rate against

the Cabo Verde escudo (CVE), especially the US dollar (USD) currency against which the

Bank has a positive matching, in terms of foreign exchange position, which means that it

has a greater volume of assets sensitive to the exchange rate than liabilities, which gives it

greater capacity to hedge the risk.

About 33% of the Bank's deposits are denominated in US dollars, and the foreign exchange

risk is mitigated through very short-term and zero-risk operations with the Head Office.

Liquidity Risk

Liquidity risk, by definition, results from the potential inability to finance the asset, when

fulfilling the responsibilities required on the due dates, and the existence of potential

difficulties in liquidating portfolio positions, without incurring significant losses.

Control of liquidity levels aims to maintain an acceptable level of cash flow to meet short-,

medium- and long-term financial needs by systematically seeking to assess global

exposure to liquidity risk through the preparation of daily Cash-Flow, which allow not

only identifying the negative mismatch, but also elements to make timely coverage of

them.

The Bank monitors the liquidity position on a daily basis and, whenever necessary, carries

out operations with the parent company's trading room, in order to mitigate both losses


arising from exchange rate variations and to maintain a regular level of foreign currency to

meet eventual needs.

Regarding the degree of concentration referred to above (see Note 21), it should be noted

that it refers to positions in foreign currency, although there is a balance in terms of

correspondence of asset and liability positions in Cabo Verdean Escudos, translating into

loan-to-deposit ratios (i) overall, of 23%; ii) excluding the deposits of companies related to

that group, of 97%; iii) and 115%, considering only local currency positions.

The Bank currently maintains a significant portfolio of liquid assets or short-term liquid

assets, mainly concentrated under the caption "Investments in credit institutions" (see

Note 15), in order to deal with the nature and duration of liabilities, which facilitates the

liquidity management for the critical period of 1 to 30 days. The Bank's liquidity risk

management policy determines cash position limits, based on the volume of total Bank

resources for various time periods.

Notwithstanding the concentration referred to in Note 22, the Board of Directors of Novo

Banco, SA reiterates its full support to this subsidiary, in order to ensure the liquidity

necessary for the normal operation of its activity, within the mechanisms implemented for

the Novo Banco Group.

Until then, the Bank did not require neither interbank funds nor the issuance of financial

products for the capitalization of funds; therefore, the financing of its activity has been

limited to deposits of customers and its equity.


At 31 December 2016, the contractual residual terms of the financial instruments were as

follows:


Despite the negative difference, there is the expectation, based on the historical behavior,

of the renewal of a significant part of the liabilities, namely the deposits of demand

account customers.

At 31 December 2015, the contractual residual terms of the financial instruments were as

follows:


Up to 3 months

From 3 months to

1 year

From 1 to 5

Years

More than 5 years

or indefiniteTotal

Asset 8,364, 261 150, 565 392, 660 1,843, 758 10,751, 244

Cash and deposits at Central banks 1,011, 715 - - - 1,011, 715

Deposits at other credit institutions 145, 908 - - - 145, 908

Available-for-sale financial assets 3, 822 - 200, 000 15, 000 218, 822

Investments in credit institutions 7,010, 213 - - - 7,010, 213

Loans and advances to customers 132, 870 137, 164 192, 660 1,537, 387 2,000, 081

Other assets 59, 733 13, 401 291, 371 364, 504

Liability 8,559, 019 680, 954 - - 9,239, 973

Central Banks deposits 5, 638 - - - 5, 638

Credit institutions deposits 92 - - - 92

Customers' deposits and other loans 8,477, 614 680, 954 - - 9,158, 568

Other liabilities 75, 675 - - - 75, 675

Off-balance guarantees 8, 622 874, 248 147, 459 1,030, 329

Gap ( 203, 380) ( 1,404, 637) 245, 201 1,843, 758 480, 942

Accumulated Gap ( 203, 380) ( 1,608, 017) ( 1,362, 816) 480, 942 -

Up to 3 months

From 3 months

to 1 yearFrom 1 to 5 Years

More than 5 years

or indefiniteTotal

Asset 9,015, 618 160, 713 703, 277 2,034, 619 11,914, 227

Cash and deposits at Central banks 846, 588 - - - 846, 588

Deposits at other credit institutions 881, 173 - - - 881, 173

Available-for-sale financial assets 3, 822 - 200, 000 15, 000 218, 822

Investments in credit institutions 7,032, 488 - - - 7,032, 488

Loans and advances to customers 55, 082 150, 608 503, 277 1,680, 160 2,389, 127

Other assets 196, 465 10, 106 - 339, 459 546, 030

Liability 9,842, 196 404, 744 9, 857 - 10,256, 797

Central Banks deposits 5, 394 - - - 5, 394

Credit institutions deposits 499 - - - 499

Customers' deposits and other loans 9,811, 240 404, 744 9, 857 - 10,225, 841

Other liabilities 25, 063 - - - 25, 063

Gap ( 826, 579) ( 244, 031) 693, 420 2,034, 619 1,657, 430

Accumulated Gap ( 826, 579) ( 1,070, 609) ( 377, 189) 1,657, 430 -


Operational Risk

Operational Risk management is based on the principles and strategies defined by the

Bank, the code of conduct in force and operational risk policies and standards, through the

analysis of the process catalog, the communication of risk events and the consequent

definition of improvement actions of detected deficiencies.

In this sense, it is necessary to identify and evaluate the operational risks inherent in all

products, activities, processes and systems, in all areas, business and support, whether

financial or not.

The Bank estimates its operational risk by assessing the loss, in earning or in equity,

associated with events with negative impacts on its operating activities, through a

questionnaire assessing the various probable sources of operational risk in order to

identify the main risks to which it is exposed. These events may result from the

inadequacy or deficiency of procedures, from information systems, from people's behavior

or may even be motivated by external events.

In 2016, the results of the evaluation exercises classified the Bank as a reduced level of

operational risk, once most of the events that could cause financial losses were corrected

at no cost to the institution.

Equity Management and Solvency Ratio

The main purpose of equity management in the Bank is to ensure compliance with the

strategic objectives of the Bank and the Novo Banco Group in respect of equity adequacy,

while respecting and enforcing the minimum own funds requirements defined by

supervisory entities.

The definition of the strategy to be adopted in terms of equity management falls within the

competence of the Board of Directors and is integrated into the overall definition of the

Bank's objectives.

In prudential terms, the Bank is subject to supervision by Banco de Cabo Verde, which

establishes the rules that at this level should be observed by the various institutions under

its supervision. These rules determine a minimum ratio of total own funds, in relation to

the requirements required by the risks assumed, that the institutions must comply with,

materialized through Notice nr. 03/2007.


The equity elements of the Bank are divided into Core Capital Tier 1, Core Capital Tier 2

and Deductions, with the following composition:

Own Funds considered as Core Tier I: This category essentially includes statutory

capital established, eligible reserves retained positive earnings of the period, when

certified, and interests can’t be controlled. Negative fair value reserves associated

with shares or other equity instruments are deducted, the balance sheet amounts

of Goodwill calculated, intangible assets, negative actuarial deviations resulting

from liabilities with post-employment benefits to employees, above the limit of the

prudential margin , and, when applicable, the negative results of the period.

Core Capital Tier 1: In addition to the Core Tier I amounts, this category includes

the amounts accepted by the transitional Regime provided in line 4 of paragraph 5

of Notice no. 3/2007 - impact on the transition of core own funds tier 1 still to be

recognized.

Core Capital Tier 2: Mainly incorporates, essentially, subordinated debt issued

eligible for positive fair value reserves associated with shares or other equity

instruments. Investments in financial institutions and insurance companies are

deducted, as well as the amount of expected losses for the positions at risk, less the

amount of existing value adjustments and provisions arising from the application

of the IRB method for credit risk.

Deductions (D): Essentially comprise the prudential amortization of the real estate

received in kind for loan settlement.

Additionally, the composition of the core capital is subject to a set of limits. In this way,

prudential rules state that core capital tier 2 cannot exceed core capital tier 1. In addition,

certain components of the capital tier 2 (the so-called Lower Tier II) cannot exceed 50% of

the core capital tier 1.



The Bank calculates the Solvency Ratio in accordance with Banco de Cabo Verde Notice

No. 4/2007, which defines the Solvency Ratio according to the ratio between the own

funds and market risks (ERR - Exchange rate risk), operational risk (OR) and credit risk

(CR), in order to monitor the adequacy between the amount of the own funds and the

respective risks inherent to the Bank. Through this Notice, Banco de Cabo Verde

establishes minimum levels of solvency to be followed by institutions subject to its

supervision. Thus, Financial Institutions should achieve a Core Tier I Ratio of not less than

10%, calculated as follows:

Solvency Ratio = Own Funds x 100

(VAWCR + VAWER + EVWOR)

31.12.2016 31.12.2015

Realized capital 1,433,000 1,433,000

Legal, statutory and other reserves formed by undistributed results 224,430 221,872

Positive result from last year - 2,558

SUM 1 657 430 1 657 430

Intangible assets ( 85 000) ( 109 050)

Negative result retained from previous years - -

Negative result from last year ( 146 158) -

Provisional negative results for the current year - -

Insufficiency of provisions - -

SUM ( 231 158) ( 109 050)

CORE CAPITAL TIER I BEFORE THE APPLICATION OF THE TRANSITIONAL REGIME

(Base Own Funds) 1 426 272 1 548 380

ELIGIBLE CORE CAPITAL TIER 1 1 426 272 1 548 380

Legal revaluation reserves of tangible fixed assets - -

Other elements - -

CORE CAPITAL TIER II (Complementary own funds) - -

OWN FUNDS BEFORE DEDUCTIONS 1 426 272 1 548 380

Deductible shareholdings: - -

Over 10% of the capital - -

Less or equal to 10% of the capital - -

Fixed assets received as credit reimbursement - -

Used for specific hedges (item 12 of paragraph 11 of Notice no. 9/99) - -

Insufficiency of liquidity (point 2 paragraph 15 of Notice no. 8/2007) - -

FOR THE CALCULATION OF RISK CONCENTRATION 1 426 272 1 548 380

Part that exceeds the risk concentration limits of concentration of risks (line d) no. 12 of Notice no. 3/2007) - -

SHAREHOLDER´S EQUITY 1 426 272 1 548 380

Risk-Weighted Assets (including off-balance sheet) 3 687 988 4 634 881

Solvency Ratio 39% 33%

- Transitional regime foreseen in point 4 of paragraph. 5 of Notice no. 3/2007 - impact on the

transition in core capital tier 1 still to be recognized -


Where:

VAWCR - Value of assets weighted by credit risk, including off-balance sheet items,

determined according to Annex 1 of the Notice;

VAWER - Value of the assets weighted by the exchange rate risk, calculated according to

Annex 2 of the Notice;

EVAWOR - Equivalent value in assets weighted by the operational risk, calculated

according to Annex 3 of the Notice.

NOTE 30 - IFRS Disclosures - New standards as of December 31, 2016:

1. Impact of adoption of standards and interpretations that became effective on

January 1, 2016:

1.1. Standards

Improvements to the standards 2010 - 2012. This cycle of improvements affects the following

standards: IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16 and 38 and IAS 24

a) IFRS 2 - 'Share-based payment’. The improvement to IFRS 2 amends the definition of

vesting conditions, predicting only two types of acquisition conditions: "operating

conditions" and "performance conditions”. The new definition of "performance

conditions" provides that only conditions related to the entity are considered.

b) IFRS 3 - 'Business combinations’. This improvement clarifies that an obligation to pay a

contingent purchase price is classified under IAS 32 as a liability or as an equity

instrument, if it complies with the definition of a financial instrument. Contingent

payments classified as liabilities will be measured at fair value through thru the earnings

for the year.

c) IFRS 8 - 'Operating segments’. This improvement amends IFRS 8, which now requires

the disclosure of the judgments made by Management for the aggregation of operating

segments, and it also requires the reconciliation between segment assets and the entity's

global assets when this information is reported.

d) IAS 13 - 'Fair value: measurement'. The improvement to IFRS 13 clarifies that the

standard does not end the possibility of measuring current accounts receivable and

payable based on amounts invoiced when the discount effect is not material.

e) IAS 16 - 'Property, Plant and Equipment” and IAS 38 'Intangible assets’. The

improvement to IAS 16 and IAS 38 clarifies the treatment of gross accounting values and


depreciation / accumulated amortization when an entity adopts the revaluation model in

the subsequent measurement of fixed tangible and / or intangible assets, previewing two

methods. This clarification is significant when both the useful lives and the depreciation /

amortization methods are reviewed during the revaluation period.

f) IAS 24 - 'Related party disclosures'. This improvement to IAS 24 amends the definition

of related party to include Entities that provide management services to the reporting

Entity, or to the parent Entity of the reporting Entity.

g) IAS 19 (amendment) - 'Employee benefits'. The amendment to IAS 19 applies to

contributions of employees or third parties to defined benefit plans and intends to

simplify their accounting when contributions are not associated with the number of years

of service.

h) IAS 1 (amendment) - 'Presentation of Financial Statements'. The amendment gives

indications as to materiality and aggregation, the presentation of subtotals, the structure

of the financial statements, the disclosure of accounting policies, and the presentation of

other comprehensive income generated by investments measured by the equity method.

i) IAS 16 and IAS 38 (amendment) - 'Methods of calculating allowable depreciation and

amortization'. This amendment clarifies that the use of methods of calculating

depreciation / amortization of assets based on the revenue obtained is not normally

considered adequate for measuring the consumption pattern of the economic benefits

associated with the asset. It is of prospective application.

j) IAS 27 (amendment) - 'Equity method in separate financial statements'. This

amendment allows an entity to apply the equity method in the measurement of

investments in subsidiaries, joint ventures and associates in the separate financial

statements. This amendment is of retrospective application.

k) IFRS 11 (amendment) - 'Acquisition of an interest in a joint operation’. This

amendment introduces guidance on accounting for the acquisition of interest in a joint

venture that qualifies as a business, being applied the principles of IFRS 3 - business

combinations.

Improvements to the standards 2012 - 2014. This cycle of improvements affects the following

standards: IFRS 5, IFRS 7, IAS 19 and IAS 34


l) IFRS 5 - 'Non-current assets held for sale and discontinued operations’. The

improvement clarifies that when an asset (or disposal group) is reclassified from "held for

sale" to "held for distribution" or vice versa, this does not constitute a change to the plan

to sell or distribute.

m) IFRS 7 - 'Financial instruments: disclosures’. This improvement includes additional

information about the significance of continued involvement in the transfer

(derecognition) of financial assets for the purpose of complying with the disclosure

obligations.

n) IAS 19 - 'Employee benefits’. This improvement clarifies that in determining the

discount rate on post-employment defined benefit pension liabilities, it must correspond

to high-quality bonds of the same currency in which liabilities are calculated.

o) IAS 34 - 'Interim Financial Reporting'. This improvement clarifies the meaning of

"elsewhere in the interim financial report" and requires the inclusion of cross-references

to such information.

2. Amendments to existing published standards, the application of which is

mandatory for annual periods beginning on or after 1 January 2016, but which

the European Union has not yet adopted:

2.1. Standards

a) Amendments to IFRS 10, 12 and IAS 28 - 'Investment entities: applying the

consolidation exemption' (to be applied for the fiscal year beginning on or after 1 January

2016). This amendment is still subject to the process of endorsement by the European

Union. This amendment clarifies that the exemption from the obligation to consolidate an

"Investment Entity" applies to an intermediate holding company which is a subsidiary of

an investment entity. In addition, the option to apply the equity method, in accordance

with IAS 28, extends to an entity that is not an investment entity but which has an interest

in an associate or joint venture that is an "Investment Entity ". Materially relevant impacts

on the Bank's financial statements are not expected with the adoption of this amendment.

3. Standards and amendments to existing published standards, the application of

which is mandatory for annual periods beginning on or after 1 January 2017, but

which the European Union has not yet endorsed:

3.1. Standards


a) IAS 7 - 'Statement of cash flows' (to be applied in fiscal years beginning on or after

January 1, 2017). This amendment is still subject to the process of endorsement by the

European Union. This amendment introduces an additional disclosure about changes in

funding liabilities, disaggregated between transactions that gave rise to cash flows and

those that do not, and how this information reconciles with the cash flows of the financing

activities of the Statement of the Flow of Cash. Materially relevant impacts on the Bank's

financial statements are not expected with the adoption of this amendment.

b) IAS 12 - 'Income Taxes - Recognition of deferred tax assets on potential losses' (to be

applied in fiscal years beginning on or after January 1, 2017). This amendment is still

subject to the process of endorsement by the European Union. This amendment clarifies

how to account deferred tax assets related to assets measured at fair value, how to

estimate future taxable income when there are deductible temporary differences and how

to assess the recoverability of deferred tax assets when there are restrictions in the tax

law. Materially relevant impacts on the Bank's financial statements are not expected with

the adoption of this amendment.

c) IFRS 2 (amendment) - 'Classification and measurement of share-based payment

transactions' (to be applied for annual periods beginning on or after 1 January 2018). This

amendment is still subject to the process of endorsement by the European Union. This

amendment clarifies the measurement basis for cash-settled share-based payment

transactions and the accounting for changes to a share-based payment plan that changes

its cash- settled classification to equity-settled. In addition, it introduces an exception to

the principles of IFRS 2, which requires that a share-based payment plan be treated as if it

were fully equity-settled when the employer is required to withhold a taxable amount of

the employee and pay this amount to the tax authority. Materially relevant impacts on the

Bank's financial statements are not expected with the adoption of this amendment.

d) IFRS 9 (new) - 'Financial instruments' (to be applied to the fiscal years beginning on or

after 1 January 2018). This standard is still subject to the process of endorsement by the

European Union. IFRS 9 replaces the requirements of IAS 39 for: (i) the classification and

measurement of financial assets and liabilities; (ii) recognition of impairment on

receivables loans (through the expected loss model); and (iii) the requirements for the

recognition and classification of hedge accounting. The Bank is evaluating the impacts

arising from the adoption of this amendment.


e) IFRS 15 (new) - 'Revenue from contracts with customers' (to be applied for fiscal years

beginning on or after 1 January 2018). This standard is still subject to the process of

endorsement by the European Union. This new standard applies only to contracts for the

delivery of products or services, and requires the entity to recognize revenue when the

contractual obligation to deliver assets or provide services is satisfied and for the amount

that reflects the amount to which the entity is entitled, as provided for in the "5 step

methodology”. Materially relevant impacts on the Bank's financial statements are not

expected with the adoption of this amendment.

f) IFRS 15 (amendment) - 'Revenue from contracts with customers' (to be applied for

fiscal years beginning on or after 1 January 2018). These changes are still subject to the

process of endorsement by the European Union. These amendments refer to the following

additional indications for determining the performance obligations of a contract, when

recognizing the return of an intellectual property license, revising the indicators for the

classification of the principal versus agent relationship, and the new regimes previewed to

simplify the transition. Materially relevant impacts on the Bank's financial statements are

not expected with the adoption of this amendment.

g) IFRS 16 (new) - 'Leases' (to be applied for fiscal years beginning on or after 1 January

2019). This standard is still subject to the process of endorsement by the European Union.

This new standard replaces IAS 17 with a significant impact on accounting by lessees who

are now required to recognize a lease liability reflecting future lease payments and a "right

of use" asset for all leases, except certain short-term leases and low value assets. The

definition of a lease agreement has also been changed, based on the "right to control the

use of an identified asset". Materially relevant impacts on the Bank's financial statements

are not expected with the adoption of this amendment.

NOTE 31 - Continuity of operations

On August 3, 2014, following the resolution measure applied to Banco Espírito Santo, SA

(BES), in which the generality of the activity and assets of that entity was transferred,

immediately and definitively, to Novo Banco, SA (Novo Banco), the Bank became part of

the Novo Banco Group.

Novo Banco, as a transitional bank and sole shareholder of BICV (directly and indirectly),

has a limited duration of two years, renewable for one-year periods, based on well-

founded reasons of public interest, up to a maximum of five years, as provided for in

Article 145 G, paragraph 12, of the RGICSF. In accordance with the commitments made by


the Portuguese State to the European Commission, the sale of Novo Banco should take

place within a maximum period of two years from the date of its incorporation. This

deadline was extended by a decision of the European Commission, communicated on 21

December 2015, until August 2017, and the sale process is ongoing and is expected to be

completed by the new date set.

In this context, Novo Banco has decided to sell the entire capital of the BICV, a decision

that remains in effect on this date. In this context, the Bank prepares its financial

statements on the assumption of continuity, as the Board of Directors of the BICV is fully

convinced that, as long as the sale does not materialize, Novo Banco will maintain full

support for the BICV in order to ensure liquidity necessary for the normal operation of its

activity.


3. Report and Opinion of the Fiscal Board

Report and Opinion of the Fiscal Board

Dear Shareholders,

1. Pursuant to the law and the mandate conferred upon us, we present the

report on the audit activity carried out by the Fiscal Board and we give an opinion on

the Management Report and the financial statements presented by the Board of

Directors of Banco Internacional de Cabo Verde, SA in reference to the year ended

December 31, 2016.

2. We followed, with the depth and the extent we considered appropriate, the

activity of the Bank. We became aware of the management acts of the Bank's Board of

Directors. We verified the regularity of the bookkeeping and respective documentation

as well as the adequacy and effectiveness of the internal control system, the risk

management system, the internal audit and compliance.

3. We have also followed the work developed by PricewaterhouseCoopers &

Associados - Sociedade de Revisores Oficiais de Contas, Lda.

4. Within the scope of our functions we have verified that:

i) the Balance Sheet and the Statement of income, comprehensive income,

changes in equity, cash flows and the corresponding Annex provide an

adequate understanding of the Bank's financial position, income,

comprehensive income, changes in equity, cash flows;

ii) the accounting policies and valuation criteria adopted are adequate;

iii) the Management report is sufficient to clarify the evolution of the Bank's

business and situation, showing the most significant aspects, respecting the

legal and statutory requirements of the Company;

iv) the proposal for the application of the net results (net income) does not

contrary the applicable legal and statutory provisions.

5. The Fiscal Board also took note of the Audit Report on the Financial

Statements for the year 2016, issued without reservation, dated May 15, 2017 and

with which we agreed.


6. Accordingly, taking into account the information received from the Board

of Directors and Services and the conclusions contained in the Audit Report, we are of

the opinion that the General Meeting should approve:

i) the Management Report;

ii) the financial statements and related notes thereto;

iii) shall approve the proposed net income application for the year 2016.

7. Finally, we wish to express our appreciation to the Board of Directors and

to all Bank staff with whom we have contacted for the valuable cooperation received.

May 15, 2017.

The Chairman of the Fiscal Board

__________________________ Dr. Ildo Adalberto Lima

Member

____________________________ Dra. Eunérlia Sousa Freitas

Member

________________________ Dra. Nair Cecília Silva


4. External Audit Report

Independent Auditor's Report

Opinion

We have audited the accompanying financial statements of Banco Internacional de Cabo

Verde, S.A. (the Bank), which comprise the balance sheet as of December 31, 2016 the

income statement, the statement of comprehensive income, the statement of changes in

equity and the statement of cash flows for the year ended and the notes to the financial

statements which include a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly and appropriately, in

all material respects, the financial position of Banco Internacional de Cabo Verde, S.A. as of

December 31, 2016 and its financial performance and cash flows for the year ended on

that date in accordance with the International Financial Reporting Standards (IFRS) in

force.

Bases for opinion

Our audit was conducted in accordance with International Standards on Auditing (ISAs).

Our responsibilities under these standards are described in the section "Auditor's

Responsibilities for the Audit of Financial Statements".

We are certain that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion.

We are independent of the Bank in accordance with the requirements of the International

Ethics Standards Board for Accountants (IESBA) and with the ethical requirements in

accordance with the code of ethics of Ordem Profissional de Auditores e Contabilistas

Certificados de Cabo Verde, relevant to auditing financial statements in Cabo Verde and we

fulfil the remaining ethical responsibilities provided for in these requirements and in the

IESBA Code of Ethics.

Relevant audit topics

The relevant audit topics are those that, in our professional judgment, were of greater

importance in auditing the financial statements of the current year. These topics were

considered in the context of the audit of the financial statements as a whole, and in the

formation of our opinion, and we do not express a separate opinion on these topics. We

consider that the topics described below are relevant audit topics to be reported in this

report.


Relevant audit topics Synthesis of the audit approach

Impairment losses on loans to

customers

Disclosures related to impairment losses

on loans granted to customers presented

on notes 2.2. c) 16 and 29 of the Bank's

financial statements

The determination of impairment losses

in loans granted to customers requires

the application of a set of assumptions

and judgments by the Bank regarding the

identification of both the moment of

recognition and the corresponding

amount, justifies that it has constituted a

material matter for the purpose of our

audit. As of December 31, 2016, the gross

amount of the account heading amounts

to CVE 2,080,025 thousand (2015: CVE

2,451,659 thousand) and impairment

losses recognized at that date amount to

CVE 79,944 thousand (2015: CVE 62,532

thousand).

Impairment losses are determined in

individual terms for the most significant

individual operations, and for the

remainder of the portfolio, impairment is

determined in a collective analysis. This

determination is done as follows:

• The Bank develops an individual review

process for clients that present more

significant exposures, assessed in terms

of the amount of their liabilities, the

existence of non-compliance signs, and

surveillance rating under the criteria

defined for internal purposes by the

Bank. In these cases, impairment is

determined through a detailed analysis of

the economic and financial position of

each individual customer, with reference

to (i) estimating the cash flows that may

be generated by the customer in the

future to fulfil his responsibilities or (ii)

The valuation of the collateral received in

The audit procedures we have carried out

included a review of the controls

established by the Bank with regard to

the approval, registration and monitoring

of loan granted to customers, as well as

the assessment of the methodologies,

data and assumptions adopted by the

Bank in determining impairment losses.

These procedures covered, among others,

analysis of credit risk management

controls and procedures by the Bank,

with particular emphasis on those

underlying timely identification,

recording and correct measurement of

impairment losses.

In this context, we have assessed the

operational design and efficiency of key

controls adopted by the Bank to identify

customers with signs of impairment and

situations of non-compliance and

determine the corresponding impairment

losses. the procedures analyzed

comprised those related to: (i) the timely

identification of customers with signs of

impairment or in default; (ii) the

calculation of the impairment model

defined by the Bank, including the inputs

and assumptions of Management; (iii) the

estimated recoverable value of the

collateral, when applicable; and (iv) the

internal policies associated with the

process of calculating and approving

impairment losses.

In addition, by sampling, we analyzed a

number of customer’s, with the purpose

of obtaining our own judgment on the

existence of signs of impairment, and

evaluate how the impairment losses were

identified in a timely manner and

recognized by Management.

Regarding the customers individually

analyzed by the Bank, for a



the scope of the loan concession,

whenever the recovery is anticipated by

means of the delivery / execution of these

same collaterals. When the individual

analysis did not result in any impairment

loss, these exposures are transferred to

the collective analysis and an IBNR

("incurred but not reported") impairment

loss is applied to them.

• For exposures not covered by the

individual analysis, the Bank applies a

collective analysis model to determine

impairment losses. When a group of

financial assets is evaluated together, the

future cash flows of this group are

estimated based on the contractual flows

of these assets and the historical data

related to losses on assets with similar

credit risk characteristics. Whenever the

Bank deems it necessary, historical

information is updated based on

observable current data, so that it reflects

the effects of current conditions.

Valuation of real estate received by

credit recovery

Disclosures related to real estate

received by credit recovery presented in

the attached notes 2.2. o), and 20 of the

Bank's financial statements

Given the significant expression of the

real estate in the Bank's balance sheet as

well as the low liquidity of the same in

Cabo Verde, which are reflected under

asset, in the “Other assets” headline, in

the gross amount of CVE 57,393

thousand, it constituted a relevant matter

for the purposes of our audit, as its

valuation requires the application of

assumptions and judgments by the

Management with regard to the

determination, of both the recognition

representative sample of the customer

loan portfolio as of December 31, 2016,

the procedures developed consisted of:

(i) reviewing the documentation

associated with the credit granting

process; (ii) analyze the contractual

support and the most relevant collaterals,

and confirm the registration of these

collaterals in favor of the Bank; (iii)

question the evaluations of collaterals

that were available; (iv) assess the

evolution of exposures; (v) challenge the

Bank's vision regarding the economic and

financial situation of the customers and

the expected cash flows expected from

the customers' business, as well as the

prospects of collectability of credits.

Whenever we conclude about the need to

review some input or assumption used by

Management, we proceed to a new

calculation of the amount of impairment

and compared the results in order to

assess the existence of any potential

discrepancies.

For the portfolio whose impairment is

determined in a collective analysis, we

developed a set of specific procedures

aiming at evaluating how the

assumptions considered by Management,

for the purposes of the impairment

model, included the macroeconomic

conditions to which each customer is

exposed, based on our knowledge of

current practices in the sector. The

procedures developed consisted of: (i)

evaluating the information contained in

the loan portfolio at December 31, 2016;

(ii) review and test the classification of

loans as to the existence of signs of

impairment or non-compliance; (iii)

review the adequacy of risk parameters

used in the calculation of impairment;



date and the amount, of the

corresponding impairment losses.

According to the policies in force at the

Bank, the properties are subject to

periodic appraisals, carried out by expert

appraisers registered in Auditoria Geral

do Mercado de Valores Mobiliários

("AGMVM") of Banco de Cabo Verde,

which give rise to the recording of losses

by impairment whenever the value

resulting from such evaluations is lower

than its book value.

In December 31 2016, there were no

recognition of impairment losses for

properties received for payment in kind,

due to the fact that its fair value, which is

determines based on independent

assessments, is superior to the value to

which the same were registered.

The audit procedures we have developed

included assessing the key controls

adopted by the Bank and conducting

specific detail tests to identify properties

with signs of impairment and determine

the respective amounts.

We have analyzed the valuation of

properties in portfolio based on the

evaluations of expert appraisers registered

in the AGMVM. Whenever necessary, we

held meetings to understand the

judgments and assumptions adopted in the

valuation attributed to the properties

under analysis.

Other information – Management’s report

The management body is responsible for the preparation of the management report. The

other information comprises the management report but does not include the financial

statements and the auditor's report thereon.

Our opinion on the financial statements does not cover the information contained in the

management report and we do not express any guarantee of reliability regarding this

other information.

In the scope of the audit of the financial statements, it is our responsibility to read the

management report and, consequently, to consider whether the information contained in

the management report is materially inconsistent with the financial statements, with the

knowledge we obtained during the audit, or if it otherwise appears to be materially

misstated. If, based on the work done, we conclude that there is material distortion in this

other information, we are required to report on it. We have nothing to report in this

regard.

Other information – Management’s report

The management body is responsible for the preparation of the management report. The

other information comprises the management report but does not include the financial

statements and the auditor's report thereon.


Our opinion on the financial statements does not cover the information contained in the

management report and we do not express any guarantee of reliability regarding this

other information.

In the scope of the audit of the financial statements, it is our responsibility to read the

management report and, consequently, to consider whether the information contained in

the management report is materially inconsistent with the financial statements, with the

knowledge we obtained during the audit, or if it otherwise appears to be materially

misstated. If, based on the work done, we conclude that there is material distortion in this

other information, we are required to report on it. We have nothing to report in this

regard.

Responsibilities of the management body and those in charge of governance for the

financial statements

The management body is responsible for the preparation and presentation of the financial

statements in accordance with International Financial Reporting Standards (IFRS) in force

and for the internal control it determines to be necessary to enable the preparation of

financial statements free of material misstatement due to fraud or error.

When preparing financial statements, the management body is responsible for assessing

the Bank's ability to continue operations, disclosing, where applicable, matters relating to

continuity and using the assumption of continuity unless the management body intends to

liquidate the Bank or cease operations, or have no realistic alternative but to do so.

Those in charge of the management are responsible for overseeing the Bank's financial

reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our responsibility is to obtain reasonable assurance about whether the financial

statements as a whole are free from material misstatement due to fraud or error, and to

issue a report stating our opinion. Reasonable safety is a high level of safety, but it is not a

guarantee that an audit performed in accordance with ISAs will always detect material

misstatement when it exists. Misstatements may arise from fraud or error and are

considered material if, alone or together, they can reasonably be expected to influence

economic decisions made on the basis of those financial statements.

As part of an audit in accordance with ISAs, we make professional judgments and maintain

professional skepticism during the audit and also:

a) we identify and assess the risks of material misstatement of the financial

statements, due to fraud or error, we prepare and implement audit procedures

that respond to those risks, and we obtain audit evidence that is sufficient and

appropriate to provide a basis for our audit opinion. The risk of not detecting

material misstatement due to fraud is greater than the risk of not detecting

material misstatement due to error, since fraud may involve collusion,

counterfeiting, intentional omissions, false statements or overlapping of internal

control;


b) we acquire an understanding of the internal control relevant to the audit for the

purpose of preparing audit procedures that are appropriate for the circumstances,

but not to express an opinion on the effectiveness of the Bank's internal control;

c) we evaluate the adequacy of the accounting policies used and the reasonableness

of accounting estimates and respective disclosures made by the management

body;

d) we conclude on the management's appropriate use of the assumption of continuity

and, based on the audit evidence obtained, whether there is any material

uncertainty related to events or conditions that could raise significant doubts

about the Bank's ability to continue its activities. If we conclude that there is

material uncertainty, we should draw attention in our report to the related

disclosures included in the financial statements or, if these disclosures are not

appropriate, to modify our opinion. Our findings are based on audit evidence

obtained as of the date of our report. However, future events or conditions may

cause the Bank to discontinue its activities;

e) we evaluate the overall presentation, structure and content of the financial

statements, including the disclosures, and whether these financial statements

represent the underlying transactions and events in order to achieve an

appropriate presentation;

f) we communicate with the persons in charge inter alia, the scope and planned

schedule of the audit, and the relevant audit topics including any significant

deficiencies in internal control identified by us during the audit.

May 15, 2017

PricewaterhouseCoopers & Associados

- Sociedade de Revisores Oficiais de Contas, Lda.

Represented by:

Carlos Manuel Sim Sim Maia, R.O.C.


III. Information on Corporate Governance

1. Organizational and Governance Structure

The organizational structure of Banco Internacional is led by a Board of Directors,

composed of five effective members and one deputy member, with new appointments in

mid-2016, and advised by three key areas: Global Risk, Compliance and Internal Audit.

The Bank disaggregates in five areas: Commercial, Administrative and Financial,

Operational, Human Resources and Marketing, Organization and Quality, which guarantee

its operability and compliance with the principles that prevail in the financial system.

The most comprehensive, the Commercial and Financial areas are subdivided by two other

structures each, aiming at greater monitoring and control of activities.

Organizational Chart


2. Description of roles and responsibilities of each member of the institution's

management body

In the Novo Banco Group, the principle of the application of a set of rules that establish

policies, rules and procedures, in a cross-cutting way to all the entities that comprise it,

prevails, without prejudice to the adaptations that, in each case, are necessary, given the

legal specificities or regulations of each geography concerned.

In this context, competences are established for a number of departments of Novo Banco,

within the scope of its responsibilities, to promote the transversal application in the Group

of Internal Regulations in force or that may be adopted, in a logic of direct functional

articulation with equivalent areas in each International Unit. In this context, the

regulations that are considered applicable and transposable to the local regulatory system

have been ratified in the Board of Directors of the BICV.

The Board of Directors has full powers in the day-to-day management of the Bank, whose

attribution derives from the Company's bylaws, exercising the broadest powers of

management and representation and performing all acts necessary or convenient for the

pursuit of the activities included in its corporate purpose, and in this sense, strategic

management decisions are discussed and approved.

The Board of Directors has a mandate for the constitution of proxy holders with the

powers it deems appropriate, including those of substitution.

According to the bylaws, the binding rule shall apply by means of the individual signature

of the Chairman and, alternatively, the resident Member and the Administrative and

Financial Officer for the acts and within the limits set forth in the Board of Directors'

resolution.


3. Internal Control and Risk Management System

In the internal control system of Banco Internacional, two areas are highlighted:

Compliance and Global Risk, one working upstream and the other downstream, covering

all phases, directly and indirectly, related to a process, operation or activity.

3.1. Global Risk Area

This area has the mission of identifying, evaluating, monitoring and controlling all the

material risks inherent in the Bank's activities, with a view to mitigating them, reducing

losses and observing the desired results, adjusting, whenever necessary, to the business of

the Bank.

Its main competences are related to the management of credit, market, interest rate,

liquidity and operational risks, defining policies and processes for the identification,

measurement and mitigation of each one of them, in direct articulation with the Board of

Directors. This area is assigned to monitor the evolution of the Bank's risk profile, control

of regulatory capital requirements, preparation of liquidity control maps, and support to

the commercial structure. It also deals with the reporting of risk-sensitive situations and

its follow-up with the authorities.

The area is also responsible for the production of reports in the scope of the monitoring of

the risk inherent to the business, the control of the limits of exposure to the various risks,

the support in the decision making, the dissemination of the activities of Risk Management

and the monitoring of operations and resources of the Bank, allowing decision-makers to

always have an overall view of the current situation.

This ongoing monitoring of loan operations enables the early identification of cases of

default triggers, which should be subject to the application of impairment, and the area is

responsible for measuring the loan provisioning within the parameters set by the

supervisory authority, ensuring prudent management of credit risk.

The activities of the operational risk management process performed during the year

consisted essentially in the identification of events and in the preparation of reports to the

Group. Key risk indicators (KRIs) were also implemented in order to identify trends to

anticipate, prevent and quantify events.

In turn, activities related to the market risk management process (liquidity and interest

rate) were based on the preparation of liquidity maps of the Bank's assets and liabilities

sensitive to the interest rate, by time band, the monitoring of the variation of resources


and the degree of liquidity, the identification of the gap between loan operations and

deposits and, finally, the measurement of the impact of interest rate variation on the

Bank's net interest income. The calculation procedures are set by the regulator.

3.2. Compliance Area

The Compliance area is responsible for the control and harmonization of activities and

business carried out, with the mission of supporting the growth of business areas,

fundamental for the sustainability of the institution, in the long term, in order to avoid any

financial, reputational or image damage.

It has an independent, permanent and consultative function and assumes as its mission to

promote compliance with the legal, regulatory, statutory, operational, custodial and

conduct requirements that apply to the Bank within the framework of the control and

institutional supervision environment defined by the competent regulatory authorities. It

is also responsible for promoting compliance with the legal regulations to which the Bank

is subject, as well as contributing to the strengthening and maintenance of public image,

credibility and trust, acting in accordance with the principles of maximum integrity,

honesty, diligence, competence, transparency and neutrality.

In the context of risk prevention and risk management approach, the Bank has

implemented, under the coordination and monitoring of the Compliance Department of

Novo Banco, in Portugal, mechanisms to allow the prior and proper evaluation of the

counterparties prior to the establishment of the business relationship, characterizing it

individually, on the level of risk associated, in terms of exposure to money laundering and

terrorist financing. For greater effectiveness and accuracy, this tool is subject to periodic

review in order to respond to changes and trends regarding the risks mentioned above.

In the same context, as a result of compliance with the regulatory duties of continued and

enhanced diligence, the Bank has made efforts to preserve the integrity and robustness of

its operations, reinforcing the adequate monitoring of operations that arouse well-

founded suspicions, by means of alerts generated daily by the computer system, reporting

and articulating, when necessary, with the competent authorities.

In relation to the monitoring of behaviors, activities or operations, the characterizing

elements of which are likely to be related to money laundering or terrorist financing, the

Bank has implemented mechanisms to reduce risk through permanent monitoring of

movements, especially through warnings generated daily by the system, collaborating


with the authorities whenever there are substantiated suspicions, in a perspective of strict

compliance with legal duties.

The new Code of Conduct, in force since July 2015, reflects a set of good practices that

must be ensured by members of management bodies and employees in their relationship

with customers and the institution itself. The main objectives of this code are: (i) To

disclose the principles by which Novo Banco Group companies should guide their

activities; (ii) To promote ethical conduct and aligned with the values of the Group by the

employees; (iii) To promote respect and compliance with all applicable laws and

regulations; (iv) Establish a transparent regime of employee relations with the external

environment. In order to promote an in-depth knowledge of the Code of Conduct, an

awareness raising action was carried out, through the dissemination of its content,

requiring the proper individual commitment.

With respect to the Internal Control System (ICS) itself, the Internal Control Manuals were

partially revised in conjunction with the Management Unit of the Internal Control System

of the Compliance Department of the parent company.

3.3. Internal Audit

The main objective of the Internal Audit area is to analyze whether the risk management,

internal control and governance systems in force are adequate and function in order to

ensure that:

- The risks are duly identified and managed;

- The most relevant management, financial and operational information is correct, reliable

and timely;

- The most significant actions of employees are in compliance with the policies, norms,

procedures and laws and regulations of Cabo Verde;

- Resources are acquired economically, are efficiently used and are adequately protected;

- The programs, plans and objectives are fulfilled;

- The legal and regulatory requirements with the greatest impact on the organization are

identified and properly addressed.

These functions are developed by the Audit and Inspection Department of the Group,

within its scope of operation, in direct liaison with the Bank's Management.


4. Administrative and Financial Area.

This area is responsible for supervising and monitoring the Bank's administrative and

financial activities, ensuring the supply of the goods and services necessary for its

operation, as well as providing management information relevant to the activity, including

the preparation of the monthly activity report, the monitoring of the Bank's financial

performance and the production of the annual management report. Through the

coordination of three major areas, it is directly involved in the management of activity

financing, administrative management and asset management.

The Financial and Administrative area, in its financial aspect, functions as a supervisor of

the Bank's operations, monitoring its activities in a transversal way and providing support

to all areas, aiming at the objectives of the Business Plan quantified in the annual budgets.

It is the area’s main responsibility, the permanent monitoring of all Bank activities and

operations, consolidated through the production of reports and periodic reports to the

Bank's Management, to the Group and to the competent Authorities.


5. Marketing, Organization and Quality Area

During the year 2016, the brand image "Banco Internacional de Cabo Verde" was

maintained in association with the Novo Banco Group in Portugal, keeping it identical to

that developed in 2015 and maintaining the same merchandising and external image of the

Branches.

The consolidation of products and services continued in 2016, and the Bank developed

functional improvements, with special relevance to the Commercial and Operational area,

continuing to benefit customers, immediately, with a high quality of service.


6. Operational

The Operational area is responsible for the full operational part of the Bank and is

responsible for the effective process of opening accounts, managing cards and transfers, as

well as producing loan contracts, term deposit accounts and the issuance of documentary

guarantees and credits.

Within the attributions defined in the Bank's management model, the Operational area

functions as back office of the branches, freeing them from operational tasks, which

consume substantial time, keeping them unique to customer service. It n addition to these

functions, the area executes the purchase and sale of securities and management of the

respective custody orders.

Within the new guidelines of the year, the relationship with the exterior lost its status,

having been diminished in all the aspects. Both the quantity and volume of operations

decreased, with the exception of the number of international transfers that were received.

Foreign Operations in the years 2016 and 2015

Quantity Amount Quantity Amount

International wire transfer payment orders 4,760 8,041,404 5,002 16,820,372

Issued 2,465 5,123,431 2,921 9,211,265

Received 2,295 2,917,972 2,081 7,609,107

Documentary Credit - - 1 4,340

Import - - 1 4,340

Export - - - -

Bank guarantees 5 202,893 16 889,250

Issued 5 202,893 16 889,250

Received - - - -

2016 2015


7. Commercial

The Commercial Department is the area responsible for the overall management of the

customer portfolio and market prospect. It is divided into three segments, according to the

type of customer in portfolio: Individuals (in charge of the management of individual

private and affluent customers), Corporate and International (responsible for managing

nonresident customers, individuals and companies).

Commercial transactions with customers (deposits, withdrawals, purchase and sale of

foreign currency, payments) are carried out by tellers and managed by the Managers,

while operations that require prior analysis (account opening, transfers, loans, term

deposits) are managed by commercial coordinators, assisted by the central services, in the

Operational area.

This system has allowed the commercial area to demarcate from the operational functions

and to occupy the purely commercial functions, paying exclusive attention to the needs of

the market and the customers.

2016 ANNUAL REPORT - IIBanks · 2019-08-26 · 3 2016 ANNUAL REPORT A. KEY INDICATORS 31.12.2016...

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Transcript of 2016 ANNUAL REPORT - IIBanks · 2019-08-26 · 3 2016 ANNUAL REPORT A. KEY INDICATORS 31.12.2016...