BML Annual Report 2011 - English

ANNUALREPORT

2011

BANK OF MALDIVES PLC11 Boduthakurufaanu Magu, Male’ 20094

Republic of MaldivesTel: +960 3322948 Fax: +960 3328233

Email: [email protected]

Corporate Prof ile

Bank of Maldives is proud to be the only local bank, serving the entire nation through the largest banking network reaching virtually

every citizen in the country. Today, the Bank takes pride in serving over 235,000 valued customers via its numerous branches, ATM’s and POS terminals.

We understand that we play a pivotal role as an engine of growth and a partner for success for thousands of individuals, families and businesses of every size.

We are the only bank in the country providing a full range of modern banking products to meet the financial needs for individuals, businesses and institutional investors. We built this company to attract the best employees to serve our customers and clients, to support local communities and to create long-term value for our shareholders.

We, at Bank of Maldives, are embarking on a journey to transform the business and to become a truly customer-focused organisation.

P03Corporate Prof ile

Our VisionWe will lead the way through quality of service and dedication of our staff. We will serve all our communities to the best of our ability, strive always to listen to your needs and so build total customer confidence and satisfaction.

Our Mission ■ To be the leader in the financial services industry in Maldives, spreading

its presence in all key economic geographies in Maldives

■ To be the leader in the financial services industry in Maldives, inculcating a long term saving culture in the nation and promoting a cashless society

■ To be one of the most efficient, profitable and respected financial institutions in Maldives

Core Values ■ Integrity

■ Innovation

■ Respect

■ Communication

■ Service

P04

Our Business Strengths

Strong Financial Platform ■ Deposit base of over MVR 7.5 billion

■ Strong growth in operating profit

■ Gross income over MVR 1 billion

■ Regulatory capital requirements met

■ 78% provision cover

Strong Customer Base ■ Over 235,000 customers

■ Over 38,000 lending relationships

Market Leadership in Innovation ■ First to launch Internet Banking in Maldives

■ First to launch Mobile Banking in Maldives

■ First to launch ATM services in Maldives

■ First to launch POS services in Maldives

■ First to launch AMEX and VISA Credit and Debit cards

P05Our Business Strengths

Leadership in Service Delivery ■ Largest financial network of branches and

ATMs in the Maldives

■ Interbank funds transfer facility between branches in key islands and atolls across the Maldives

■ Largest and most popular POS network in the country

■ Market leader in self-service banking with the largest customer base of internet, mobile and ATM users

■ Exclusive acquirer and issuer for American Express cards in the Maldives

■ Only principal member in the Maldives for Visa and MasterCard

■ Worldwide network of foreign correspondent banking relationships

Experienced and Dedicated Team ■ 99.5% of the workforce are locals

■ 87% of the top leadership team are experienced local professionals

■ Largest employer in the banking sector with over 790 dedicated employees

■ The only local Bank

■ The only locally owned bank in the Maldives

■ The only publicly listed bank in the Maldives

P06Our Business Strengths

Our Branch Network

P07Our Branch Network

Key Highlights and Achievements in 2011

Products and ServicesBelow are some of the products and services introduced and expanded by Bank of Maldives during the year.

■ Additional 2 ATMs were installed at Addu City

■ 5 ATMs were installed in Male’

■ Maldives Mobile Banking experience was improved through development and implementation of an in-house solution

■ Credit Cardholders received extension of insurance cover against Travel Accident Insurance and Travel Inconvenience Insurance – one of the most sought after benefits by Credit Cardholders

■ Expanded the acquiring portfolio by commencing to acquire Diners Club International, Pulse & Discover network cards

■ An agreement was signed with Maldives Post Limited to expand banking services through the Post network in selected islands

■ 496 new POS machines were installed in stores and other location across the country

P08Key Highlights & Achievements

Sponsorship and CSRThe following are some of the initiatives taken by the Bank to show our commitment to help the community.

■ Signed MoU with the Ministry of Education to develop three computer laboratories in schools

■ Sponsored the development of a computer lab for an NGO (SWAD), to conduct computer training courses targeting youth recovering from drug abuse

■ Sponsored Fishermen’s Day celebrations & AIDS Day function

■ Sponsored SAARC Twenty20 Cup held at Fuvahmulah

■ Contributed to the Maldivian edition of Who’s Who publication

■ Purchased the book ‘Underwater Kingdom’, a special edition on Maldives underwater beauty to be donated to various school libraries, across the country


Customer ExperienceBelow are some of the steps taken by Bank of Maldives to improve our customer service.

■ Provided extensive customer service training to Call Centre staff

■ Call Centre team expanded and relocated to Addu City resulting in significant improvements to customer service experience

■ Key Account Management function was introduced under Corporate Banking arm, to provide personalised banking services to corporate customers

Financial Performance ■ 72% Growth in Operating Profit (Increased

from MVR 302m to MVR 519m)

■ 74% Growth in Non-Interest Income (Increased from MVR 248m to MVR 432m)

■ 17.5% Growth in Net Interest Income (Increased from MVR 406m to MVR 477m)

■ Gross Revenue exceeded MVR 1 billion for the first time (Increased from MVR 830m to MVR 1.1bn)


Human Resource DevelopmentThe organisational design was reviewed and significant organisational restructuring was implemented to streamline the operations, increase business focus and to deliver a better customer experience. The Executive Committee was re-constituted to drive the business and regular EXCO meetings were held during the year.

Performance Management was implemented with the aim of improving productivity and performance throughout the business. During the past year, staff at all levels underwent performance management training conducted by HR specialists.

Community BankingOver 2000 visits were made by our teams in 2011, covering every inhabited island in the country to provide banking services and to deliver pension income to the elderly customers across the nation. Ventures such as the 2011 agreement with the Post Office will further enhance our role in the community.


Financial Highlights

2011 2010 Change

RESULTS FOR THE YEARGross Income 1,074,778,558 830,194,571 29.5%Net Interest Income 477,378,139 406,212,686 17.5%Operating Profit (before provision and taxes) 518,756,150 301,752,629 71.9%Net Profit After Tax - 50,986,231 -

RESULTS AT THE END OF THE YEARShareholder’s Equity 766,880,005 766,880,005 0.0%Deposits from Customers 7,518,761,713 7,012,578,842 7.2%Customer Advances (Net) 5,059,735,829 5,202,417,233 -2.7%Total Assets 9,564,012,183 9,351,327,851 2.3%

INFORMATION PER ORDINARY SHAREEarnings - Basic (MVR) - 9.47 -Net Asset Value (MVR) 142.49 142.49 0.0%Market Value at year end (MVR) 73.00 143.00 -49.0%

RATIOSReturn on Average Shareholder’s Equity - 4.9% -Return on Average Assets - 0.5% -Price Earning Ratio (times) - 15.1 -NPA (Net) % 6.2% 4.8% 30.5%

STATUTORY RATIOSCapital Adequacy (Statutory Requirement 12%) 13.2% 13.3% -0.5%

P12Financial Highlights

Financial Highlights

-

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

2007 2008 2009 2010 2011

Gross Income

360,000,000

380,000,000

400,000,000

420,000,000

440,000,000

460,000,000

480,000,000

500,000,000

2007 2008 2009 2010 2011

Net Interest Income

-

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

2007 2008 2009 2010 2011

Operating Profit (Before Provision and Tax)

-

2,000,000,000

4,000,000,000

6,000,000,000

8,000,000,000

10,000,000,000

12,000,000,000

2007 2008 2009 2010 2011

Total Assets

-

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000

9,000,000,000

2007 2008 2009 2010 2011

Customer Advances

-

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000

9,000,000,000

2007 2008 2009 2010 2011

Customer Deposits

-

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

2007 2008 2009 2010 2011

Shareholders’ Equity

P13Financial Highlights

Annual Review

Contents

03 Corporate Profile04 Our Vision04 Our Mission04 Core Values05 Our Business Strengths08 Key Highlights and Achievements in 201112 Financial Highlights

14 ANNUAL REVIEW

16 Chairman’s Statement18 Chief Executive’s Review21 Profile of Board of Directors 24 Executive Team

27 OPERATIONS REVIEW

28 Achieving New Levels of Financial Milestones

30 Building a Professional, Customer-Focused Team

33 Promoting Enriching Programs for Our Community

36 Setting High Standards for Retail Banking38 Working in Close Partnership

with Our Corporate Clients40 Effectively Managing Risk for the

Success of Our Organisation42 Raising the Bar on Quality

Products and Services

44 CORPORATE GOVERNANCE

45 Directors’ Report51 Audit & Risk Management

Committee Report54 Appointment, Nomination &

Remuneration Committee Report

57 FINANCIAL REPORTS

105 INVESTOR INFORMATION

108 OUR CONTACTS

P15Contents

Chairman’s StatementDear Shareholders,

In the name of Allah the most merciful the compassionate.

On behalf of the Board of Directors, I take pleasure in presenting you the Annual Report of Bank of Maldives for the financial year ending 31st December 2011.

2011 was a year of major financial significance for the Bank. For the first time ever, our gross income earnings have exceeded MVR 1 billion; we achieved record operating profit (an increase of 72% over 2010) and most importantly we raised our provision cover on non-performing loans to 78%. This demonstrates that

we have the right strategy, the right culture and the right geographical footprint to deliver consistent growth and long term value for our shareholders.

Our performance in 2011 once again demonstrates the commitment of the Board and all staff to turnaround the company for long term success.

■ Income increased by 29% to MVR 1.075bn

■Our cost Income Ratio fell from 47% to 35%

■Operating profits increased by 72%

■Total provisions for non-performing loans were MVR 1.390bn representing a very conservative 78% cover ratio

As a result of these great achievements, we are a much stronger company today than we were a year ago.

Human ResourcesWe firmly believe that our staff is the most valuable asset for the organisation and our success rests on our employees’ hard work and superior skills. Last year we recruited a record number of graduates and continued investments in staff development by providing long term training opportunities and soft skills training. The excellent operational profit we achieved in 2011 demonstrates staff commitment and determination in going the extra mile to improve our bottom line.

SustainabilityWhile performance often tends to focus on financial results, over the long term it is a reflection of how effectively we are serving our customers and contributing to the community we operate.

Dr. Abdullah Shiham Hassan, Chairman of the Board of Directors

P16Chairman's Statement

As in 2010, the Board of Directors continuously upheld adherence to the Corporate Governance Code of Capital Market Development Authority and that of Bank of Maldives. Furthermore, numerous changes were introduced at the Board and Senior Management level to strengthen the Bank’s performance.

Bank of Maldives, in keeping with its promise as a socially responsible bank contributed to education, environment, sports and other social causes through sponsorships and donations.

AcknowledgementsI am thankful for the support and understanding of our shareholders and stakeholders and thank them for their unrelenting loyalty. I would also like to convey my heartfelt appreciation to all staff of the Bank for achieving commendable results.

I wish to thank my fellow Board Members and my predecessor for their invaluable contribution in steering the Bank’s strategic direction and in providing concentrated focus in achieving our challenging goals.

I also convey my appreciation to the Government of Maldives, especially the Minister of Finance and Treasury and his office for the guidance and support extended. I further extend my gratitude to the Governor of Maldives Monetary Authority, Dr. Fazeel Najeeb and his team for the accommodative approach and insightful guidance provided throughout the year.

Building for the futureIn February 2011, Peter Horton, a career Banker with extensive experience in retail and corporate banking joined the Bank as the new CEO. Under his leadership the Bank’s transformation programme was launched and a new Executive Committee was formed to align the Bank’s operations to the changing needs of customers. The key focus of the transformation programme is to put customer at the heart of everything we do and create a much stronger foundation for long term success. Under the transformation programme significant inroads were made in implementing a more effective performance

management system to make staff more accountable while improving their productivity and engagement.

ConclusionHistorically, the main obstacle to our financial performance has rested upon delays in recovering existing non-performing loans. In 2011 we have provided the maximum possible to address this issue and we are confident that the combination of current recovery efforts and profits in the early part of 2012 will allow us to address fully the regulatory requirements. In this context, I urge all shareholders to take note that higher provisioning, the continued profit generation of the business and recovery efforts all create a platform for shareholder rewards in the near future in terms of increased share value and shareholder returns.

I strongly believe that Bank of Maldives has a very bright future and we will continue to formulate strategies on innovation, performance management and customer focus whilst paying due attention to managing risks and good governance.

Our challenge and opportunity is to take advantage of what we have built and make it work even better for customers, clients, shareholders and communities. I would like to assure all shareholders that the Bank is on the right track for success and we now have a strong platform for sustainable growth.

May Almighty Allah bless us all and our institution and guide us in our quest to greater heights and bestow us with a brighter future.

Dr. Abdullah Shiham HassanChairman of the Board of Directors

P17Chairman's Statement

Firstly I would like to begin by thanking our patient shareholders, loyal customers and dedicated staff.

It is a great honour to be presenting the Annual Report and Accounts for 2011.

I would like to begin by immediately addressing the long-standing Non Performing Net Assets (NPNA) issue which has blighted us for too many years. If the Bank is to be restored to a place where we can deliver on our promises to our customers, shareholders and employees; we have to be single-minded in our efforts to finally close that difficult chapter in the Bank’s history. Accordingly, the 2011 statements show a very aggressive approach to the problem, comprising of a number of elements:

■ Prior year adjustment – the change to MMA’s prudential regulation and growth in NPNA occurred in the period 2008/9, it is important that we correctly allocate regulatory requirements to the relevant period rather than continue to impair future earnings

■ Aggressive allocation of the 2011 profits towards provisions

■ A fresh focus on new and future NPNA’s – ensuring that we learn from our prior experiences and that we apply a professional approach and attitude to recoveries

The result of the above is that within these 2011 accounts we present the strongest Bank of Maldives in recent years.

Financial PerformanceWhilst we are not retaining any profits during 2011 as part of the NPNA regulatory compliance strategy, there are a number of very strong positives to take from the 2011 performance.

■ Our operating profits have recovered significantly during the year from MVR 302 million to MVR 519 million driven by a number of key factors:

Chief Executive’s Review

Mr. Peter Horton, Managing Director and Chief Executive Off icer

P18

● A stronger focus on our cost of funds has allowed Net Interest Income to move from MVR 406 million to MVR 477 million

● Non-Interest Income is an area that we are especially focused on as we try to reduce the heavy reliance on lending activity, Non-Interest Income has grown from MVR 248 million to MVR 432 million and in the last 4 years has grown as a percent of Gross Income from 29.9% to 40.2%

● Cost control is a very important area of focus and during the year we worked hard to manage costs, focusing on eliminating bad costs but not seeking to starve the business and taking a pragmatic view around good costs. Cost Income Ratio is a very useful international measure of productivity and we closed the year with a figure of 35% against a 2010 level of 47%, in international terms a really outstanding performance

■ The Balance Sheet strength, which really serves to underpin the comfort that all stakeholders should seek in the Bank, remains strong. Looking at a strong capital position of 13.2% which is above MMA minimum requirements and a consolidated liquidity position of 27.8%. We believe the foundation for future success and growth, underpinned by strong operating profits is clearly established

Strategic FocusDuring 2011, we have implemented a new strategic focus in the business which focuses on four key pillars:

Customers ■ Establish a great customer experience

– focus will be on creating a customer-centred environment that provides exceptional service. To achieve this goal, we will need to improve our businesses and reduce turnaround time

Employees ■ Have the best people and optimise their

contribution to the business to foster high performance and innovation – our people are our greatest asset. Therefore, we must focus on developing our staff to achieve our business goals

Financial Strength ■ Build a strong financial base – this will be

the platform on which we will drive our business forward

Risk and Operations ■ Instil a dynamic and strong risk and

operations culture to support the business – effective risk management and also re-organisation of business processes to enhance the execution of our strategies under the balanced scorecard framework (i.e. customer, people, financial and risk/operations)

Fundamental to achieving our strategic objectives has been the re-alignment of the business during 2011 with us strengthening and refocusing the Bank’s leadership team. Our new structure brings specific focus on our Customer Segments, Risk Management (including Internal Audit and Compliance), Human Resources, Finance, Marketing and our Operations.

I am delighted that the new team brings a strong mix of experience, commitment, skills and vision to ensure we will be successful.

CommunityAs the only wholly-owned Maldivian bank and the only bank that serves such a wide range of the population and the country, we have never forgotten our place in the community. We consider ourselves to be a community member and remain committed to working hard to play an increasingly active role.

During 2011 we have been involved in a number of initiatives, including our exclusive Dhoni Banking services, where during the year we made over 2,000 trips to communities across the country. We have signed an MoU with Maldives Post Ltd, which enables us to provide banking access to those islands where we have no presence.

P19Chief Executive's Review

The Bank has sponsored computer labs at three schools, as we believe education is the foundation of the youth and contributes considerably in moulding their future. In addition, the Bank also contributed to establish a computer lab to upgrade the IT skills of drug recovering addicts and high risk youth (street kids) as a means of providing opportunities for their career development.

As we move forward into 2012 we will be renewing our commitment and focus on community and expanding our activities significantly.

Looking forward to 2012During 2011 we have been laying the foundations for a successful transformation of the Bank which will allow us to continue to build around our strategic objectives.

Through continued focus and investment, we expect to see significant improvements to the Bank’s service, offering sustainable improvement in profits, a more efficient and productive business and an enhanced community position.

During 2012, Bank of Maldives will be celebrating its 30th anniversary and our commitment to shareholders, customers and employees is that we are totally dedicated to making their bank something that they can all take pride in for another 30 years.

Thank you

Peter HortonManaging Director and Chief Executive Officer

P20Chief Executive's Review

Prof ile of Board of Directors Dr. Abdullah Shiham Hassan (Independent, Non-Executive Director)

Dr. Abdullah Shiham Hassan is the Head of the Department and Senior Lecturer of Maldives National University’s Faculty of Shari’ah and Law. He is also a member of the Ministry of Islamic Affairs Figh Academy of Maldives. Dr. Shiham acted as the advisor to the MMA from 2008 to 2010 to introduce Islamic Finance to the Maldives. He established Institute of Islamic Finance Maldives (I.I.F.M) in 2009 and serves as the Managing Director and a Lecturer. Dr. Shiham gained his Doctor of Philosophy in Law from the International Islamic University, Malaysia, specialising in Islamic Banking Regulation and Supervision. He also gained his Master of Comparative Laws degree from this university specialising in Islamic Insurance (Takaful). He undertook his Bachelor of Laws from the University of Tasmania, Australia. From 1975 onwards, Dr. Shiham has been serving in the Civil Service, Diplomatic Service, Education and Legislatives. He was appointed to the Bank’s Board on 10th August 2011. He holds no shares in the Bank.

Mr. Peter Horton, Managing Director and CEO (Non-Independent, Executive Director)

Mr. Peter Horton joined the Bank on 24th February 2011. He has a BSc. Honours in Financial Services (First Class) and is an Associate of Chartered Institute of Bankers (London).

He started his banking career with Barclays in 1984 and has been working in the international arena since 1999. During this tenure he gained significant exposure and experience in all aspects of banking including Retail and Corporate Credit. He has also successfully led teams in the Risk, Distressed Debt and Corporate arenas and has been involved at a strategic level in formulating bank wide credit policies as well as implementing business transformations and restructuring initiatives.

Prior to joining Bank of Maldives, Mr. Peter Horton worked as the Corporate Director of First Caribbean International Bank in Bahamas and Turks and Caicos Islands.

Seated left to right: Ms. Nuha Mohamed Riza, Mr. Peter Horton, Dr. Abdulla Shiham Hassan and Ms. Aishath Noordeen. Standing left to right: Mr. Hussain Shaheem, Mr. Ibrahim Mohamed, Mr. Mohamed Abdul Sattar, Mr. Hassan Muzni Mohamed, Mr. Mohamed Jaish Ibrahim and Mr. Adam Azim.

P21

Ms. Aishath Noordeen(Non-Independent, Executive Director)

Ms. Aishath Noordeen is the Deputy CEO and she has been serving the Board as a government appointed Director since 13th June 2008.

Prior to joining Bank of Maldives in the year 1982, she served at the State Bank of India, Male’ Branch. Over a career expanding 30 years in the banking industry, she has gained vast exposure in Trade Finance and International Banking Operations and has been involved in establishing and maintaining numerous correspondent banking relationships and inter-bank lines. She has represented the Bank in several local and international forums and led the Bank on numerous occasions.

She served as the Acting Managing Director and Chief Executive Officer of the Bank from 29th August 2010 till 04th April 2011, consequent to the resignation of the former Managing Director and CEO. Ms. Aishath Noordeen holds no shares in the Bank.

Mr. Mohamed Jaish Ibrahim (Non-Independent, Non-Executive Director)

He holds a First Class Honours degree in Interior Architecture from the University of Nottingham Trent, England. Mr. Mohamed Jaish Ibrahim was appointed to the Bank’s Board on 07th August 2009 and was re-appointed on 30th October 2010 and again on 10th August 2011. He holds no shares in the bank.

Mr. Hussain Shaheem(Independent, Non-Executive Director)

Mr. Hussain Shaheem is the Managing Director of Sirius Financial Services Pvt. Ltd., Sirius Enterprises Pvt. Ltd. and Year Around Pvt. Ltd. He has over 25 years of experience in Automobile Engineering. Mr. Hussain was appointed to the Board on 10th August 2011. He holds no shares in the Bank.

Mr. Adam Azim (Non-Independent, Non-Executive Director)

Mr. Adam Azim is the General Manager of Sales and Marketing Department of State Trading Organization PLC. After joining Maldives Water and Sewerage Company (MWSC) in 2000 he served for 10 years and gained vast experience in the financial sector. He last filled the post of Finance Manager in MWSC. Mr. Azim holds an Honours degree in Accounting and Finance from the University of East London and a Master of Business Administration from Nottingham University specialising in Finance. Mr. Azim was appointed to the Board on 06th April 2011 and was re-appointed on 10th August 2011. He holds 100 shares in the Bank.

Mr. Hassan Muzni Mohamed

(Independent, Non-Executive Director)

Mr. Hassan Muzni Mohamed is the Assistant General Manager and Head of Human Resources Department at Maldives Ports Limited. He holds a Bachelor of Sciences Honours degree in Computing and a Post Graduate Diploma in Technology Management from Staffordshire University, UK. Mr. Muzni was appointed to the Bank’s Board on 30th October 2010 and re-appointed on 10th August 2011. He holds no shares in the Bank.

Ms. Nuha Mohamed Riza (Independent, Non-Executive Director)

Ms. Nuha Mohamed Riza is the Head of Economic Policy and Business Facilitation Section of Ministry of Economic Development. She holds a Bachelor’s degree in Economics from Trinity College, University of Cambridge, UK and a Master’s degree in International Accounting and Finance from Cass Business School, City University, London. Ms. Nuha was appointed to the Board on 30th October 2010 and re-appointed on 10th August 2011. She holds no shares in the Bank.

P22Prof ile of the Board

Mr. Mohamed Abdul Sattar (Independent, Non-Executive Director)

Mr. Mohamed Abdul Sattar is the Managing Director of Coco Huts Pvt. Ltd. and holds a Master of Business Administration from University of Wales, UK. He was elected to the Board of Directors of the Bank by the public shareholders from 08th September 2004 to 29th June 2005. On 30th October 2005, he was appointed to the Board by the Government and was last re-appointed on 13th June 2008. Since 07th August 2009, he has been elected to the Board by the public shareholders. He holds 2,300 shares in the Bank.

Mr. Ibrahim Mohamed (Independent, Non-Executive Director)

Mr. Ibrahim Mohamed is the Managing Director of Tropical Island Holidays Pvt. Ltd. and the Executive Director of Gasveli Islands Pvt. Ltd. Mr. Ibrahim Mohamed holds a Master of Sciences degree in Tourism from University of Strathclyde, UK and a Higher National Diploma in Business and Finance (Tourism) from South Glamorgan Institute of Higher Education, University of Wales, UK. He was elected by the public shareholders to the Board on 07th August 2009, 30th October 2010 and re-elected again on 10th August 2011. He holds 960 shares in the Bank.

Mr. Ahmed Mohamed (Independent, Non-Executive Director)

Mr. Ahmed Mohamed holds a First Class Honours Bachelor’s degree in Engineering Sciences and a Master’s degree in Economics (Public Policy) from the University of Hull, UK. He has served as an appointed member of the Board since 13th June 2008 and was subsequently elected to the Bank’s Board by the public shareholders on 07th August 2009, 30th October 2010 and again on 10th August 2011. Mr. Ahmed holds 30 shares in the Bank.

*Mr. Ahmed Mohamed resigned from the Board during February 2012, with his appointment as the Minister of Economic Development.

FORMER DIRECTORS

Mr. Adam Ibrahim (Former Chairman of the Board of Directors)

Mr. Adam Ibrahim resigned on 19th April 2011.

He is the sole proprietor of Asrafee Bookshop and has been managing his business for the past 34 years. In addition, he has over 23 years’ experience in the field of Education. He holds a Master of Arts in Education, Bachelor of Sciences degree in Mathematics, and a Diploma in Professional Educational Practices from Macquarie University of Australia. Mr. Adam Ibrahim was appointed by the Government as a Director and the Chairman of the Bank on 7th August 2009 and was re-appointed on 30th October 2010. He holds no shares in the Bank.

Mr. Asad Ali (Non-Independent, Non-Executive Director)

Mr. Asad Ali ceased to be a Director effective 10th August 2011.

He is the Managing Director of Novelty Printers and Publishers Pvt. Ltd. and the Managing Director of Driftwood Maldives Pvt. Ltd. He holds a Bachelors’ degree in Business Administration from University of Ottawa of Canada. Mr. Asad Ali was appointed to the Bank’s Board on 07th August 2009 and was re-appointed on 30th October 2010. He holds 100 shares in the Bank.

P23Prof ile of the Board

Executive Team Mr. Peter Horton Managing Director and Chief Executive Officer

Mr. Peter Horton joined the Bank in February 2011.

He started his banking career in 1984 and has held key positions at various global and regional banks including Barclays and First Caribbean International Bank. He holds a Bachelor of Science in Financial Services (First Class Honours) and is an Associate of the Chartered Institute of Bankers (London).

Ms. Aishath NoordeenDeputy Chief Executive Officer

Ms. Aishath Noordeen joined the Bank in the year 1982 and has been serving the Board as a government-appointed Director since 13th June 2008.

She has a career spanning over 30 years in the banking industry and has served the Bank as the Acting Managing Director and Chief Executive Officer from

29th August 2010 till 04th April 2011, consequent to the resignation of the former Managing Director and CEO.

Mr. Lasantha ThennakoonChief Financial Officer

Mr. Lasantha Thennakoon joined the Bank in June 2010.

He is a member of the Institute of Chartered Accountants of Sri Lanka (ACA), the Institute of Certified Management Accountants of Sri Lanka (ACMA), CPA Australia (CPA) and a certified Project Management Professional (PMP) of Project Management Institute, USA. He has over 14 years of experience in financial management, both locally and overseas. He holds a Master of Business Administration (MBA) and a Bachelor of Science in Accounting and Financial Management (First Class Honours).

Seated left to right: Ms. Aishath Nasheeda, Ms. Fathimath Manike, Ms. Aishath Noordeen, Mr. Peter Horton, Ms. Ibthishama Ahmed Saeed and Mr. Lassantha Thennakoon.Standing left to right: Mr. Allan McFarlane, Mr. Mohamed Shareef, Ms. Aminath Shaheen, Mr. Lucian Jayakody and Mr. Rifath Mohamed.

P24

Mr. Lucian JayakodyChief Internal Auditor

Mr. Lucian Jayakody joined the Bank in October 2006.

He holds a Master of Business Administration (MBA) and is a Certified Internal Auditor (CIA) USA as well as a Certified Information Systems Auditor (CISA) USA. He is also an Associate of Charted Institute of Bankers London (ACIB) and holds an International Certificate in Banking Risk and Regulation (ICBRR) –GARP-USA. His experience in senior management positions in the financial sector extends to over 25 years.

Mr. Allan McFarlaneRetail Banking Director

Mr. Allan McFarlane joined the Bank in February 2012.

He is an Associate Member of the Chartered Institute of Bankers (ACIB) and a Member of the Life Insurance Association (MLIA). He has over 28 years of experience in the banking industry and has served in key positions at various prestigious banks including Barclays and Santander/Bradford and Bingly.

Mr. Mohamed Shareef Operations Director

Mr. Mohamed Shareef joined the Bank in August 1995.

Mr. Shareef has over 16 years of experience in banking and prior to his appointment to the position of Operations Director, he served the Bank as the Head of Card Centre. He is currently reading for his Master of Business Administration (MBA) in Finance via distance learning from the University of Manchester, UK.

Ms. Fathimath ManikeIslamic Banking Director

Ms. Fathimath Manike joined the Bank in 1982.

She has extensive knowledge and experience in the banking industry, gained through a career spanning over 30 years. She has previously served the Bank as an Assistant General Manager and oversaw departments such as Development Banking, Human Resources and Operations.

Ms. Aminath ShaheenRisk Director

Ms. Aminath Shaheen joined the Bank in February 2002.

She has held key positions at the Bank and gained invaluable experience in her 10 year career in roles such as Manager of Credit Department as well as Manager of Card Centre Operations. She holds a Master of International Business from the University of Auckland, New Zealand and a Bachelor’s degree in Marketing and Organisational Studies from the University of Lancaster, UK.

Mr. Rifath MohamedMarketing Director

Mr. Rifath Mohamed joined the Bank in August 2011.

He is a Chartered Marketer and a Member of the Chartered Institute of Marketing (UK). He has 15 years of experience in field of marketing and holds a Post Graduate Diploma in Marketing from the Chartered Institute of Marketing (UK).

P25Executive Team

Ms. Aishath Nasheeda Human Resources Director

Ms. Aishath Nasheeda joined the Bank in February 2009.

She has substantial experience in management and project implementation and has a Master of Business Administration (MBA) from Charles Sturt University, Australia and a Bachelor’s degree from Edith Cowan University, Australia.

Ms. Ibthishama Ahmed SaeedCorporate Banking Director

Ms. Ibthishama Ahmed Saeed joined the Bank in July 2003.

She has nine years of experience in the banking industry and holds a Master of Arts in Marketing Communication from University of Westminster, UK and a Bachelor of Commerce from Kerala University, India.

P26Executive Team

Operations Review

Achieving New Levels of Financial Milestones IncomeDuring the year, the Bank made a significant achievement in Gross Income totaling MVR 1,074.8 million record income. This is a 29.5% growth compared to the year 2010.

Interest income, being the major component of the gross income, stood at MVR 643.0 million recording a 10.5% growth against the previous year while fee and commission income also indicated another significant milestone recording an income of MVR 286.3 million with 34.1% growth. Foreign exchange income and other operating income also indicated significant achievements, recording an increase of MVR 31.6 million and MVR 78.9 million respectively.

Though there was a significant increase in customer deposits, due to prudent liability management, the Bank was able to reduce its interest expenses by 5.7% during the year.

The significant increase in interest income and reduction in interest expenses resulted in increasing the Bank’s Net Interest Income to MVR 477.4 million, recording a 17.5% growth against the year 2010.

ExpensesOperating expenses (other than loan loss provisions) for the year stood at MVR 277.9 million recording a marginal increase of 4.9% against 2010. Staff cost increased by MVR 9.8 million while other operating expenses indicated an increase of MVR 4.3 million. Premises, equipment and establishment expenses however indicated a reduction of MVR 1.0 million against 2010.

Though the national inflation of the country stood at 12.8% for the year, due to the prudent cost management strategies, overall the Bank was able to maintain its operating expenses within an acceptable level of increase.

Loan Loss ProvisionThe year 2011 reiterated the Bank’s continuous commitment to address the historical asset quality issues. In this regard, a significant portion of operating income, totaling MVR 508.3 million was allocated as provisions against the impaired loans. With this allocation, specific provision at the year-end stands at MVR 1,391.0 million with a specific provision cover of 78%.

P28Achieving New Levels of Financial Milestones

Assets and LiabilitiesTotal assets for the year end stood at MVR 9,564 million reflecting a marginal increase of 2.3%.

While the net loan balances indicated a decrease of MVR 136.3 million mainly due to higher loan loss provisions, recoveries and write off, a significant increase was recorded in cash, short term funds and balances with MMA with an increase of MVR 551.7 million.

At the end of the year total liabilities accounted for MVR 8,797.1 million, reflecting an increase of 2.5%. Deposits from customers reflected an increase of MVR 506.2 million. Prudent liquidity and forex management strategies resulted in borrowings for the year to decrease by 23.9% against 2010.

Shareholders’ FundsShareholders’ funds indicated no change in 2011 compared to the restated equity position of 2010. The general reserve in 2011 and 2010, however, indicated a significant reduction of MVR 565.6 million against the year 2009 due to the prior year adjustment made to correctly reflect the loan loss provisions for the period prior to 2010. It is to be noted that this is not a reduction in share capital but utilising previous years accumulated profits to meet the loan loss provisions of impaired loans occurred prior to the year 2009.

Bank’s capital adequacy ratio, after utilising the general reserves, remains at 13.2% which is higher than the regulatory minimum requirement of 12%.

Future OutlookThe implications to the Maldivian economy particularly to the banking and finance sector due to local and global economic factors remains as a major challenge. Bank, however, expect to strengthen its operating and financial performance with the aim of maintaining a long term sustainability though the journey ahead remains challenging.

P29Achieving New Levels of Financial Milestones

Building a Professional, Customer-Focused Team

One of the key priorities of the Bank is to maintain a team of highly-skilled, motivated and inspired individuals who support the Bank to become the leading financial institution in the Maldives. The continuous retention of leadership positions and the progress made in 2011 demonstrate staff

commitment, determination and ability to improve our bottom line. Effective recruitment, development of staff and retention of talent is seen as integral part of the Human Resources Strategy.

Workforce Distribution & RecruitmentWith 792 staff at the end of financial year 2011, the Bank continues to be an employer of choice in the Maldives. More than 50% of the total staff population are employed in the branch network of which 29% are employed in Atoll based Branches. Today, the Bank is proud to have a workforce which represents both genders almost equally; 51% and 49% of male and female employees respectively.

Staff Development & Building a Highly-Skilled TeamTraining and Development continues to be a key priority of the Bank. A number of staff have resumed

their duties as graduates after completing scholarship and study leave opportunities provided by the Bank.

During the year 2011, training and development targeted at all levels of employees were conducted; such as the induction training programmes for new employees. Several employees attended overseas and local seminars and conferences to improve their understanding of the banking sector and obtain necessary technical information; while refresher programmes on Core Banking System and associated applications were also conducted. In addition, a high priority was placed on the development of the Executive Management Team, whose members attended Performance Management and Leadership development refresher programs.

Ms. Aishath Nasheeda, HR Director (center-front) with our dedicated staff

P30

Mr. Peter Horton, the newly appointed CEO conducted seminars for employees on his vision and the transformation programme. In this regard, he personally delivered briefing sessions to all Male’-based staff and visited over 90% of the atoll based branches. A Managers’ Conference was also held in Male’ to brief the team on the business objectives, current trends and on the basis of the transformation program.

Fostering Employee SynergyIn-order to foster team work and to boost morale and staff productivity, inter-departmental sporting events were held which included football, volley ball and netball tournaments. The Bank also participated in inter-organisation tournaments such as the Club Maldives Cup 2011. Participation in Youth Challenge 2011 provided an interactive and friendly environment for staff members to meet potential future employees.

Improving Productivity through Performance ManagementDuring the year, work on implementing Performance Management was initiated to align individual staff objectives to our corporate objectives. Staff at all levels underwent training on Performance Management conducted by Hunter Roberts, a consultancy firm based in UK. The first phase of implementation of the new Performance Management System will be completed by the end of 2012.

Our futsal team

P31Building a Professional, Customer-Focused Team

Transformation ProgrammeIn early 2011, the Bank initiated a complete HR transformation program in consultation with the Bank’s HR Consultants. The organisational design was reviewed and several new departments and functions were introduced to streamline the business as a customer-centric organisation. The Executive Committee was re-constituted to drive the commercial performance of the Bank with refocus on the business towards customer segmentation and excellent customer service.

FutureThe Bank’s HR transformation programme was launched with the objective of improving employee performance, engagement and ultimately the strength of the Bank. Employees are the Bank’s most valuable asset and the Bank will continue to invest heavily in their personal and professional development.

The diagram below depicts the key focus areas of the Bank’s HR strategy.

P32Building a Professional, Customer-Focused Team

Promoting Enriching Programs for Our Community

Corporate Social Responsibility (CSR) has been a vital part of the Bank’s success and for many years; CSR initiatives have been integrated into the core activities of the Bank. As part of our on-going commitment to being a good corporate citizen, numerous initiatives were implemented in 2011,

highlights of which are given below.

Computer EducationBank of Maldives is committed to its emphasis on education development; recognising its significance in the social developmental goals and the consequent future benefits to the economy. Where possible, the Bank supports educational initiatives which are not only beneficial to students, but also to the society as a whole. Under this commitment, the Bank sponsored to set up new computer laboratories in three schools.

Community Well-beingBank of Maldives’s CSR initiatives are not only restricted to the educational and community causes; we have extended this effort towards addressing social issues as well. In this regard, the Bank contributed to the establishment of a computer lab for the Society for Women Against Drugs (SWAD), an NGO working for the prevention, intervention, aftercare and advocacy on the issue of abuse of illegal drugs among women in the country.

MD and CEO inaugurates a computer lab developed with the Bank’s support

P33

Dhoni BankingUnique to the Maldives, Dhoni Banking is a distribution channel strategy adopted by Bank of Maldives to provide access to banking services to the masses of the entire nation. Through this service, the Bank staff visit each and every inhabited island every month to provide the full range of banking services.

During the past year, over 2000 such trips were made by our staff and this has been well received by the Bank’s customers.

Pension DistributionDistribution of old age pensions to the elderly people in the islands across the country is amongst the key services provided by the Bank, helping us to establish our position and title in the financial service industry. Our team not only visit these islands, but goes the extra mile by visiting people who are unable to leave their houses and deliver pension allowances at the comfort, convenience and security of their homes.

Environmental AwarenessIn providing awareness on the pressing environmental issues being faced the world over, we believe that today’s younger generation deserves to be well educated and informed on the unique nature of our environment and the implications of global warming.

Towards the end of 2011, the Bank purchased the book ‘Underwater Kingdom’, a special edition on Maldives underwater beauty to be donated to various school libraries, across the country.

Contributing to the CommunityThe Bank always take pride in participating in key events that take place in the country and make contributions to Government and NGO initiated programs. In 2011, Bank utilized several sponsorship opportunities such as the Cambridge Advance Level High Achievers Awards organised by Ministry of Education, acted as the main sponsor for the AIDS Day awareness event held by Society for Health Education (SHE) and sponsored the SAARC Twenty20 Cup.

Our staff visiting an elderly to handover his pension allowance

P34Promoting Enriching Programs for Our Community

The Bank also sponsored Fishermen and Farmer’s Day official celebrations held at Noonu Atoll Kendhikulhudhoo.

In addition to the above, the Bank also contributed to the publication of ‘Discover Addu Atoll’ booklet, which was distributed among the local and international delegates attending the 17th SAARC Summit held in Addu City.

Furthermore, in the wake of the disaster that hit Japan, Bank of Maldives actively participated in national-level activities to aid Japan and played a key role in facilitating donations to ‘Japan Aa Eku Dhivehin’ Fund.

Commitment to the FutureWe believe that helping communities, improving the workplace and providing products and services that meet the needs of our customers is an integral part of our commitment to remain as a good corporate citizen.

The Bank is here to help businesses succeed and grow by providing the financing and related services they require and will play an active role in making our communities stronger, healthier and more sustainable. In future, the Bank will also place more emphasis on employee involvement in the local community and their dedication to corporate social responsibility.

One among the 2,000 visits we made to all the inhabited islands of the nation

P35Promoting Enriching Programs for Our Community

Setting High Standards for Retail Banking

Our retail banking encompasses 25 branches, Development Banking and our unique Dhoni Banking Service.

2011 was another successful year for our retail business both in terms of customers served and growth in revenue. Segmented revenue grew, with profit showing a significant increase year on year and was driven by a growing deposit customer base and a significant contribution from the Bank’s popular debit and credit cards business.

Last year, our teams made over 2000 visits covering all inhabited islands in Maldives to provide banking services to our customers across the nation. Customers in islands without Bank of Maldives

presence are also served via Internet Banking and Mobile Banking. The Bank’s ATM network has been increased to 42 and we have the largest merchant-base in the country. We hope to enhance our offerings to the atolls further through greater use of technology.

Under the current transformation program, the Bank’s retail business will be realigned bringing together all branches of the Bank under one Retail Division. To serve our customers better, retail customers would be further segmented and this will result in the launch of a Premier Banking Service to our High Net Worth Customers followed by enhanced products and services.

Mr. Allan Mcfarlane, Retail Banking Director

P36

The branches remain the backbone of the Bank’s retail business. We will continue to invest in our premises to ensure a great environment for our staff to work in and customers to bank in. The Bank is also committed to the development of new and innovative products and services for our valued customers.

Delivering superior customer experience remains our utmost priority and special training will be provided to our team to equip them with service skills and give them confidence to excel in service delivery.

Hithadhoo Branch - One of the 25 branches across the nation

P37Setting High Standards for Retail Banking

Working in Close Par tnership with Our Corporate Clients

The Bank’s Corporate Banking team targets larger businesses in the country including those who are borrowing and non-borrowing. Operating

out of central offices in Male’, our team is working with businesses across the whole nation.

In 2011, the financial performance of Corporate Banking was depressed by the continued efforts to address the Non Performing Net Asset (NPNA) issue, with a large part of the historic NPNA portfolio sitting within the corporate portfolio. We are now very positive that the NPNA issue is significantly addressed and are encouraged by some strong positives in the underlying business unit performance during the year:

■ The Bank has successfully funded two major Resorts through to operations in 2011. We have extended finance through our established relationships with International Financial Institutions by way of syndication, consultation and agency services

■ Focus has also been given to increase Non-Fee Based Income by way of emphasis on enhancing management and related service offerings to corporate clients. During the year we provided management services relating to the IPO of Dhiraagu

In 2011, the Bank established a new Corporate Banking Team to give specific focus to becoming a bank of choice for corporate clients in the Maldives. The Corporate Banking Division targets and manages corporate clients, exclusively with a view to enhance service levels with customer satisfaction as the common drivers of profitability.

Our experienced team now provides a single point of contact for clients embracing the key areas of:

■ Financial support for businesses – our Corporate Team act as syndicate lead on a large number of loans to Maldivian businesses. In addition we work with

Ms. Ibthishama Ahmed Saeed, Corporate Banking Director

P38

clients to provide tailored trade finance together with medium term and short term finance solutions to their needs, working independently or with financing partners including EXIM Bank.

■ Transactional banking solutions - focus is centered on online and electronic banking to Corporate clients including Card acquiring and POS terminals, Corporate Credit Cards, Internet Banking, Payment Gateway, Mobile Banking, Bill Pay, Direct Debit and Direct credit

■ Cash management products – through standard and tailored products in conjunction with our Treasury Team we are in a position to offer dynamic and competitive deposit and credit balance solutions

■ Advisory work – the team have experience in supporting business customers in a wide range of areas including IPO’s, Mergers and Acquisitions. We will continue to grow the team and the range of products available during 2012.

We see our excellent relationships with corporate clients, through quality relationship based service, competitive solutions and our widespread branch network as key contributors to our success, providing value to shareholders and benefit to all stakeholders.

P39Working in Close Par tnership with Our Corporate Clients

Ms. Aminath Shaheen, Risk Director (top right) and her dedicated team leaders.

Effectively Managing Risk for the Success of Our Organisation

Risk management is instilled in our corporate culture and is crucial for achieving our goal of becoming a truly customer centric

organisation. Managing risk is a fundamental activity performed at all levels of the organisation, which are governed by policies approved by the Board.

Credit Risk ManagementWith lending as the major business activity of the Bank, continuous efforts were made to reduce high levels of Non-Performing Net Assets (NPNA). In this regard, aggressive provisioning since 2009 has enabled the Bank to achieve full compliance with regulatory requirements on provisioning for NPNA by the end of year 2011.

To ensure a healthy and balanced loan portfolio, the Credit Department of the Bank assesses new lending within strict guidelines adhering to the Bank’s credit policy and regulatory requirements. Furthermore, to achieve uniform and comprehensive management

of all credit risks, the Bank’s credit risk management function was restructured whereby all lending approvals are overseen centrally and managed within delegated approval authority levels.

In order to ensure timely and consistent recovery actions on credit default cases, the loan recovery function was restructured and centralised. Consequently, separate specialised teams focus on various stages of recovery, starting from early stage delinquency management, through to full callback and collections on NPNA accounts. Legal action for enforcement and sale of collateral are also incorporated within the loan recovery function.

P40

Operational Risk ManagementThe main objective of this function is to develop risk frameworks and policies required for monitoring and managing risk across all the business units of the Bank. It ensures that key operational risks are measured and managed in a timely and effective manner through enhanced operational risk awareness, segregation of duties, dual checks, and improved early warning signals.

The Operational Risk function acts as the second line of defence and is further strengthened by Internal Audit, which independently reviews all functional areas of the Bank and report directly to the Audit and Risk Management Committee of the Board.

Market Risk and Liquidity Risk ManagementThe Bank has three strong controls in place to manage its market and liquidity risk, namely in-house Treasury Operation, Liquidity Management Policy and the Assets and Liabilities Committee (ALCO). Both Rufiyaa and US Dollar positions are managed very closely on a daily basis, under the guidance and supervision of the Finance Director. Any adverse changes in the level and volatility of market factors such as foreign exchange rates, interest rates, lease residual values, commodity and equity prices are constantly monitored.

P41Effectively Managing Risk for the Success of Our Organisation

Mr. Mohamed Shareef, Operations Director (far right) and his committed team leaders

Raising the Bar on Quality Products and Services

The Bank continues to dominate the financial industry as the market leader with its commitment to providing improved and

quality services to customers. In this regard, a number of transformations and improvements in operations were implemented in the year 2011.

The Bank further strengthened its leadership position in the international arena with the acquisition of American Express, VISA, MasterCard and China UnionPay. Additionally, we commenced the use of Diners Club International, Pulse & Discover network cards at our ATMs.

A number of measures were undertaken to improve customer experience through means of improved communication channels for customers, wider access to banking services, better amenities and technological advancements. In this regard, the following transformations took place during the year:

■ The relocation of Call Centre to Addu City after providing extensive training to our call centre staff leading to high service standard and reducing the average on hold waiting time from five minutes to two minutes.

■ Initiation of SMS service enabling customers to communicate with us at their convenience. On average 5,000 to 8,000 requests are attended every month.

■ Installation of five additional ATMs in Male’ (four at Velaanaage and one at Post Office)

■ Expansion of our POS network to over 3000 POS terminals

■ Construction of a new Bank premise at Dhidhdhoo to offer better service in a customer-friendly ambience

P42

■ Virtualisation of our servers to increase capacity and ensure high availability.

■ Implementation of Business Intelligence and Reporting System for Card to improve service quality and better analysis of services and customers

■ Initiated basic banking transactions via ATMs and POS terminals to the unbanked population in the islands by collaborating with Maldives Community Banking (MCB), and in partnership with Maldives Post Limited.

We remain steadfast in our commitment to providing our customers with new and innovative products. The Bank maintains vigilant observation on the financial industry and ensures that the products and services offered are in line with the emerging banking trends. During 2011, The Maldives Supplier Payment project targeted for businesses was undertaken to enable online business-to-business transactions. At the end of the year, the project had come to a near completion and is expected to be available to customers in the near future.

P43Raising the Bar on Quality Products and Services

Corporate Governance

Directors’ Repor tBoard CompositionIn accordance with Article 47 of the Articles of Association of the Bank, out of the total 11 directors of the Board’s composition, 08 directors are nominated by the Government and elected by the shareholders, while the remaining 03 directors are elected by the General Public Shareholders. Furthermore, pursuant to Articles 79 and 80, the Chairman and the Managing Director is also appointed by the Board of Directors from among the elected Directors nominated by the Government. This composition falls in line with the Maldives Banking Act (24/2010), which came into force on 12th December 2010.

In compliance with Corporate Governance Code of Capital Market Development Authority (CMDA), the Board of Directors of the Bank is composed to exemplify a mix of Executive, Non-Executive and Independent Directors so that the Board of Directors of the Bank is able to provide equitable, competent and effective guidance for the Bank and uphold an environment of good governance. The Board of Directors encompass a range of talents, skills and expertise required to provide sound and prudent guidance with respect to the operations and interests of the Bank.

The year 2011 began with the following members in the Board of Directors of the Bank

1. Mr. Adam Ibrahim Chairman

Government Nominee,Independent & Non-Executive

2. Ms. Aishath NoordeenDeputy CEO

Government Nominee,Non-Independent & Executive

3. Mr. Mohamed Jaish Ibrahim Government Nominee, Non-Independent & Non-Executive

4. Mr. Hassan Muzni Mohamed

Government Nominee, Independent & Non-Executive

5. Ms. Nuha Mohamed Riza Government Nominee, Independent & Non-Executive

6. Mr. Asad Ali Government Nominee, Non-Independent & Non-Executive

7. Mr. Mohamed Abdul Sattar Elected by Public Shareholders, Independent & Non-Executive

8. Mr. Ahmed Mohamed Elected by Public Shareholders, Independent & Non-Executive

9. Mr. Ibrahim Mohamed Elected by Public Shareholders, Independent & Non-Executive

P45Directors' Repor t

At the Extra Ordinary General Meeting of the shareholders held on 06th April 2011, Mr. Peter Horton and Mr. Adam Azim were appointed as Directors of the Bank. With this change, the Board was re-constituted with the following 11 Directors for the year 2010/2011.

1. Mr. Adam Ibrahim Chairman


2. Mr. Peter Horton Managing Director & CEO

Government Nominee, Non-Independent & Executive







7. Mr. Asad Ali Government Nominee, Non-Independent & Non-Executive

8. Mr. Adam Azim Government Nominee, Non-Independent & Non-Executive




Mr. Adam Ibrahim, Chairman of the Board resigned during April 2011. With this change the Board’s strength reduced to 10. As the Board of Directors of the Bank is to comprise 11 members, the quorum required for the Board meetings as stipulated in Section 15(g) of the Maldives Banking Act (24/2010) is 09 members, which is three fourth (¾) of the entire Board. The Board of Directors under its discretionary powers as provided for in Article 65 and 66 of the Articles of Association of the Bank formed an Executive Committee of the Board comprising of all members during the year 2011 and delegated certain powers of the Board to the Executive Committee to ensure continuity in business.

In the 28th Annual General meeting held on 10th August 2011, the Board was re-constituted with the following Directors:-

1. Dr. Abdullah Shiham HassanChairman


2. Mr. Peter Horton Managing Director & CEO








7. Mr. Adam Azim Government Nominee, Non-Independent & Non-Executive

8. Mr. Hussain Shaheem Government Nominee, Independent & Non-Executive





Frequency of MeetingsRegular Board meetings were held at least once a month, while exceptional Board meetings are convened whenever necessary.

The Board of Directors held 22 meetings from 01st January to 31st December 2011 and attendance is depicted below;

No. of meetingsDirectors to attend attended %Mr. Adam Ibrahim 06 06 100%

Dr. Abdullah Shiham Hassan

08 07 95%

Mr. Peter Horton 17 17 100%

Ms. Aishath Noordeen 22 21 95%

Mr. Mohamed Jaish Ibrahim

22 18 82%


22 21 95%

Ms. Nuha Mohamed Riza

22 19 86%

Mr. Asad Ali 14 14 100%

Mr. Adam Azim 17 13 76%

Mr. Hussain Shaheem 08 08 100%

Mr. Mohamed Abdul Sattar

22 19 86%

Mr. Ahmed Mohamed 22 22 100%

Mr. Ibrahim Mohamed 22 22 100%

*Mr. Ahmed Mohamed resigned from the Board during February 2012, with his appointment as Minister of Economic Development.

*Mr. Adam Ibrahim resigned from the Board during April 2011.

The Executive Committee of the Board held 08 meetings during the year 2011 and attendance is as follows;

No. of meetingsDirectors to attend attended %Mr. Adam Ibrahim 03 03 100%

Dr. Abdullah Shiham Hassan

02 02 100%

Mr. Peter Horton 05 05 100%

Ms. Aishath Noordeen 08 06 75%

Mr. Mohamed Jaish Ibrahim

08 03 38%


08 05 63%

Ms. Nuha Mohamed Riza

08 07 88%

Mr. Asad Ali 06 05 83%

Mr. Adam Azim 05 02 40 %

Mr. Hussain Shaheem 02 02 100%

Mr. Mohamed Abdul Sattar

08 04 50%

Mr. Ahmed Mohamed 08 06 75%

Mr. Ibrahim Mohamed 08 08 100%


Relationship with Shareholders & CustomersImportant developments including quarterly financials of the Bank, announcements and notices are displayed in the Bank’s website for information of the shareholders and general public.

Additionally, a brief summary governing voting procedures at the General Meeting is given in the proxy form, which is made available to shareholders 21 days in advance to the General Meeting. The Corporate Affairs Department handles all matters of the shareholders. The Board of Directors and the Management of the Bank always welcomes active participation from the shareholders at the General Meetings and seek their views at all times.

The Minutes of the 28th Annual General Meeting held on 10th August 2011 was also published on the Bank’s website on 29th February 2012 for shareholders comments.

During the year, the Board of Directors individually met those shareholders who had raised concerns during the General Meeting. This activity further helped to improve the Bank’s relationship with its shareholders.

Financial ReportingThe Bank publishes the Annual Accounts prepared in accordance with Maldives Monetary Authority (MMA) Regulations and International Financial Reporting Standards (IFRS) with comprehensive disclosures, enabling both existing and prospective shareholders to make a timely and fair assessment of the Bank’s performance and prospects. The Bank, on quarterly basis, has been disclosing its financials in the website. Mediums of publication include printed materials, newspapers and the website of the Bank.

EmployeesAs employees are the backbone of any organisation, the Management and the Board of Directors give priority in maintaining staff motivation and productivity. During the year Performance Management System was introduced, where every employee was given individual targets, which will further help in achieving overall business objectives. The Bank attempts to provide its employees with attractive remuneration packages and a secure working environment.

The Bank’s employees are given unrestricted access to raise their concerns or grievances regarding any illegal or unethical practice within the Bank through the “Whistle Blowing System” established in the year 2009. The Audit and Risk Management Committee of the Board of Directors attended the issues raised through the system.


Corporate GovernanceCompliance with Corporate Governance Code of Capital Market Development Authority (CG Code);

■ The audited accounts prepared in accordance with the International Accounting Standards were made available to shareholders and other stakeholders

■ To ensure firm adherence to good Corporate Governance practices as stated in the CG Code, the Bank abides by Corporate Governance Code of Bank of Maldives approved during March 2008

■ Audit and Risk Management Committee and Appointment, Nomination and Remuneration Committee was re-constituted in the 479th meeting of the Board held on 18th August 2011

■ Performance Assessment of individual Directors and of the Board as a whole are conducted on an annual basis

■ Since the commencement of publication of quarterly accounts, the Bank has given importance to publish its quarterly accounts

■ Bank published Annual Report 2010 within the extended period given by CMDA. However Maldives Stock Exchange charged a fee of MVR 39,500/- under the Listing Rules for delayed publishing of Bank’s Annual Report and delay in holding the Annual General Meeting

■ To ensure compliance with best practice, 02 members of the Bank’s Senior Management were appointed as Executive Directors of the Bank’s Board

Overall Duties of the BoardThe overall duties of the Board are:

■ Providing control and direction to the Bank, including providing apex level leadership and setting strategic targets/objectives for the Bank in conjunction with the Management;

■ Deliberating on the Business Plan and the Annual Budget for the Bank;

■ Reviewing the business and financial performance of the Bank measured against the Business Plan and the Annual Budget on a quarterly basis;

■ Ensuring the establishment of effective internal controls within the Bank which will enable risks to be assessed and managed, and monitor and assess the effectiveness of such internal controls established;

■ Ensuring that the Bank has adequate human resources to meet the objectives of the Bank;

■ Ensuring that obligations to shareholders and other stakeholders are understood and met;

■ Ensuring that the Bank complies with all relevant laws and regulations, including the Corporate Governance Code and other codes of best practices;

In order to fulfil the aforementioned duties or any other function that the Board is obliged to adhere to, the Board may responsibly delegate its authorities to the most suitable subcommittee(s) of the Board, Corporate Management, external professional(s), consultant(s) or to any such party or parties that the Board deems fit to be for the best interests of the Bank.


Responsibility StatementThe Board of Directors hereby certify that;

i. The relevant accounting standards were considered and followed all through the preparation of Bank’s Annual Accounts with proper explanations relating to material departures;

ii. The Board selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a fair and true view of the state of affairs;

iii. It has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of Companies’ Act of the Republic of Maldives (Law No. 10/96), Maldives Securities Act (Law No. 02/2006), Maldives Banking Act (Law No. 24/2010), Prudential Regulations issued by the Maldives Monetary Authority and the Listing Rules and Securities (Continuing Disclosure Obligations of Issuers) Regulations 2010 issued by the Capital Market Development Authority;

iv. It has followed the Corporate Governance Code issued by the Capital Market Development Authority and;

v. All statements and accounts were prepared on a going- concern basis.

vi. There were no unexpired service contracts within one year without payment of compensation of any director proposed for election.

vii. The borrowings of the Bank as at the end of the accounting period is represented as follows:

(in ‘000 MVR )Not later than 1 year 149,018,918Between 1 to 2 years 125,989,991Between 2 to 3 years 128,524,991Over 3 years 555,906,936

viii. The Bank’s Total Liabilities for the comparative years is:

(in ‘000 MVR )2011 8,797,1322010 8,584,447

ix. The Board of Directors affirms that there are no other interests of the Directors of the Bank except those disclosed in this report and the accompanying financial statements. Please refer notes to the financials, page no. 104 for details on related party transactions.

x. The Board of Directors further affirms that no major events have occurred since the Balance Sheet date, which would require adjustments to, or disclosure in the financial statements.


Audit & Risk Management Committee Repor t

In compliance with Article 69 of the Articles of Association of the Bank of Maldives and Section 1.8 of the Corporate Governance Code issued by the Capital Market Development Authority (CMDA), the initial Audit Committee consisting of 03 non-executive members of the Board was formulated on 23rd March

2008. Following the review of the Organisation Chart during the year 2009, it was decided to combine the Audit Committee with the newly established Risk Management Committee. In this regard the scope of the Committee was widened with the members increased to 05 Directors and was renamed as Audit and Risk Management (ARM) Committee.

Objectives of the CommitteeThe purpose of the Audit and Risk Management Committee is to assist the Board in fulfilling its overall responsibility relating to:

(a) The integrity of the Bank’s financial statements and financial reporting process and the Bank’s systems of internal accounting and financial controls;

(b) The adequacy of the internal audit function, including reviewing the scope and results of audits carried out in respect of the operations of the Bank;

(c) The annual independent audit of the Bank’s financial statements;

(d) The engagement of the external auditors and the evaluation of the external auditors’ qualifications, independence, objectivity, and performance; and

(e) The compliance by the Bank with legal and regulatory requirements, including the Bank’s disclosure controls and procedures.

Composition and Frequency of MeetingsThe year 2011 commenced with the following members in the Audit and Risk Management Committee and their attendance from 01st January 2011 to 10th August 2011 is as follows;

No. of meetingsDirectors to attend attendedMr. Ibrahim Mohamed (Chairperson of the Committee)Non-Executive & Independent

25 25

Mr. Ahmed MohamedNon-Executive & Independent

25 13

Mr. Mohamed Abdul SattarNon-Executive & Independent

25 18

Ms. Nuha Mohamed Riza Non-Executive & Independent

25 17

Mr. Asad AliNon-Executive & Non-Independent

25 24

Following the 28th Annual General Meeting, the Audit and Risk Management Committee was re-constituted in the 479th meeting of the Board held on 18th August 2011. Mr. Ibrahim Mohamed was re-appointed as the Chairperson of the Committee in the 76th meeting held on 21st August 2011.

P51Audit & Risk Management Repor t

The members of the Committee and their attendance from 11th August 2011 to 31st December 2011 are as follows;

DirectorsNo. of meetings

to attend attendedMr. Ibrahim MohamedChairperson of the Committee Non-Executive & Independent

9 9

Mr. Ahmed MohamedNon-Executive & Independent

9 9


9 6

Ms. Nuha Mohamed Riza Non-Executive & Independent

9 6

Mr. Adam AzimNon-Executive & Non-Independent

9 6

*Mr. Ahmed Mohamed resigned from the Board with his appointment as Minister of Economic Development during February 2012. Consequently, Mr. Hassan Muzni Mohamed was appointed to the Committee during March 2012.

During the reporting year 2011, the Committee reviewed and followed up on issues raised through the Whistle Blowing System, which strengthened the internal controls of the Bank. The Committee further undertook the following tasks during the year:

■ Met the shareholders who raised their concerns during the 27th Annual General Meeting

■ Met with the external auditors to assess the progress and assist wherever necessary in the Annual Audit

■ Reviewed the following:-

● Minutes of 27th and 28th Annual General Meeting of the Bank

● Minutes of Extra Ordinary General Meeting held during April 2011

● Budget for the year 2011 with a view to minimise expenses especially the capital expenditure of the Bank given the global and local economic situation

● Approved the Internal Audit Plan for the year 2012

● Procurement process of the Bank

● Quarterly Financial Reports

● Quarterly Internal Audit Reports

■ Approved the following:-

● Audited Financials of the Bank for the year 2010

● Auditors Management Letter 2010

● Budget for the year 2012

Internal ControlsTo further reinforce the internal control mechanism of the Bank, the Committee with the assistance of the Chief Internal Auditor and the Internal Audit Department, reviewed the effectiveness of the Bank’s internal controls, which includes financial, operational, and compliance controls, and procedures for identification, assessment and reporting of risks. In this regard the Committee had discussions with the Management and appropriate guidelines were drawn up.

The Internal Audit Department headed by the Chief Internal Auditor (CIA), Mr. Lucian Jayakody, reports directly to the Audit and Risk Management Committee. As per the approved Audit Plan, the Chief Internal Auditor reported to the Committee on a quarterly basis. Action points were highlighted and conveyed to the Management for strategising implementation which enabled a more risk-free environment.


External AuditIt was resolved in the 28th Annual General Meeting to appoint PricewaterhouseCoopers as the external auditors of the Bank. Prior to initiation of the audit, the Committee met with the External Auditors to discuss the Audit Plan for the year 2011 and the concerns emphasised in the previous year’s Management Letter. Throughout the period of audit the Committee had discussions with External Auditors to address issues related to the audit.

On behalf of the Audit and Risk Management Committee

Ibrahim MohamedChairperson Audit and Risk Management Committee


Appointment, Nomination & Remuneration Committee Repor t

The Appointment, Nomination and Remuneration Committee (ANR Committee) is a standing Committee of the Board of Directors established under Article 54 and Article 63 of Articles of Association of the Bank and in accordance with section 1.8 of the Corporate Governance Code issued by Capital Market

Development Authority (CMDA). The Committee performs the functions of both a Nominating Committee and a Remuneration Committee. The purpose of the ANR Committee is to establish and recommend to the Board a framework of remuneration packages of Directors and the Executive Management. With respect to appointment and nomination issues, the Committee identifies and make recommendations on Board appointments and conducts annual review of the Board’s performance and needs. The Committee also undertakes tasks which affect the staff across the business including and not limited to review of employees service rules, salaries and benefits.

Major roles and responsibilities of the Committee stipulated under Article 54 of the Articles of Association of the Bank are:

(a) Identify and shortlist suitable candidates to be nominated by the Government as Independent Directors;

(b) Identify suitable candidates who meet the requirements of Article 53 to be nominated by the Government for Board appointment or reappointment to ensure a suitable mix of Executive and non-Executive members on the Board of Directors; in this regard, a minimum of 14 names must be recommended to the Government for consideration;

(c) Review the qualifications and experience of candidates nominated to the Board prior to the General Meeting to ensure that the information provided to the shareholders are accurate; and

(d) Identify suitable candidates with sufficient banking qualification and experience to be nominated for appointment as the Managing Director of the Company by the Board of Directors pursuant to Article 80.

Composition and Frequency of MeetingsThe year 2011 commenced with the following 05 members in the 04th Appointment, Nomination and Remuneration Committee. Attendance of members from 01st January 2011 to 10th August 2011 is as follows:


To attend AttendedMr. Ahmed Mohamed Chairperson of the Committee Non-Executive & Independent

11 11

Mr. Ibrahim Mohamed Non-Executive & Independent

11 11


11 10

Mr. Hassan Muzni MohamedNon-Executive & Independent

11 10

Mr. Mohamed Jaish IbrahimNon-Executive & Non-Independent

11 5

P54Appointment, Nomination & Remuneration

After the 28th Annual General Meeting held on 10th August 2011 the committee was re-constituted. The members of the 05th ANR Committee and their attendance for the period 11th August 2011 to 31st December 2011 is as follows:


To attend AttendedMr. Ahmed Mohamed Chairperson of the CommitteeNon-Executive and Independent

9 9

Mr. Ibrahim MohamedNon-Executive & Independent

9 7

Mr. Hussain ShaheemNon-Executive & Independent

9 9

Mr. Hassan Muzni MohamedNon-Executive & Independent

9 9

Mr. Mohamed Jaish IbrahimNon-Executive & Non-Independent

9 3

*Mr. Ahmed Mohamed resigned from the Board with his appointment as Minister of Economic Development during February 2012. Consequently, Mr. Mohamed Abdul Sattar was appointed to the Committee during March 2012. Furthermore, he was also appointed as the Chairperson of the Committee.

RemunerationDirectors were remunerated as per Article 63 of the Articles of Association of the Bank.

Each Director was paid a fixed monthly remuneration of MVR 7,000/- and an additional MVR 3,000/- was paid to the Chairman of the Board as Chairman’s Special Allowance. Directors in Board sub-committees were paid an additional allowance of MVR 2,000/- per sitting.

The following table depicts the breakdown of remuneration paid from 01st January 2011 to 31st December 2011 for the Board of Directors and the Key Management Personnel.

Remuneration Details

Amount

(MVR)Board of Directors (including sub-committee meetings) 1,311,640/-Key Management 5,460,738/-

Board Evaluation Fostering good governance has been and continues to be a high priority of the Bank. An evaluation of individual Directors and an evaluation of the Board as a whole was conducted during the 03rd quarter of 2011 as mandated under the Corporate Governance Code of the Bank. The results of the evaluations were discussed by the Board members.

Recruitments During the period, the ANR Committee undertook the task of recruitment of a CEO for the Bank upon resignation of former Managing Director Mr. Ganesan Subramanyam from office on 16th August 2010. On 24th February 2011, Mr. Peter Horton was appointed as the Chief Executive Officer of the Bank and in streamlining remuneration with performance; a bonus incentive component based on performance indicators was factored into his remuneration package.

The Committee also undertook the task of recruitment of a Retail Banking Director Mr. Allan McFarlane, appointed to the post on 27th February 2012.


Other ActivitiesThe Committee further undertook the following tasks during the year:

■ Appointed Hunter Roberts, a consultancy firm based in UK, as the HR consultants of the Bank to restructure and overhaul the HR business line, to assist in direct transformation of HR function, to conduct a skills audit, to develop and deliver training to support the transformation and to develop and deliver a new learning and development culture

■ Recruitment of new Executive Committee (EXCO) members

■ Re-alignment of organisation design

On behalf of the Appointment, Nomination and Remuneration Committee.

Mohamed Abdul SattarChairperson

Appointment, Nomination & Remuneration Committee


Financial Reports

Independent Auditor’s Repor tTo the Shareholders and Board of Directors of Bank of Maldives Plc

1. We have audited the accompanying financial statements of Bank of Maldives Plc which comprise the balance sheet as of 31 December 2011 and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements2. Management is responsible for the preparation and fair presentation of these financial statements

in accordance with International Financials Reporting Standards (IFRS), which have been modified in relation to the requirements of IAS 39 Financial Instruments. Recognition and Measurements in respect of loan loss providing IFRS 7 Financial Instruments: Disclosures in respect of credit risk grading, as described in Note 2.1 to the financial statements, and with the requirements of the Companies Act, No. 10/96 of the Republic of Maldives. This responsibility includes designing implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility3. Our responsibility is to express an opinion on these financial statements based on our audit, we

conducted our audit in accordance with International Standards on Auditing. The standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

P58Independent Auditor's Repor t

Opinion4. In forming our opinion we have considered the adequacy of the disclosure made in Note 2.1 to the

financial statements, in relation to the modifications made on the requirements of IAS 39 Financial Instruments: Recognition and Measurement in respect of loan loss provisioning and IFRS 7 Financial Instruments: Disclosures in respect of credit risk grading, in preparing the accompanying financial statements.

In our opinion, the accompanying financial statements give true and fair view of the financial position of Bank of Maldives Plc as of 31 December 2011 and of its financial performance and its cash flows for the year then ended in accordance with.

(a) International Financial Reporting Standards (IFRS), with modifications for the requirements of:

● IAS 39 Financial Instruments: Recognition and Measurement in respect of loan loss provisioning which is expected to be in line with the Maldives Monetary Authority Prudential Regulation No. 05-2009, “Assets, Classification, Provisioning and Suspension of Interest” until 31 December 2012 due to temporary relief granted; and

● IFRS 7 Financial Instruments – Disclosure in respect of credit risk grading which is in accordance with circular No. CN-CBSS/2009/05 “Credit Risk Grading and Provisioning Requirements” issued by Maldivian Monetary Authority.

(b) The requirements of the Companies Act No. 10/96 of the Republic of Maldives.

Report on Other Regulatory Requirements5. In accordance with Maldives Monetary Authority Prudential Regulation No. 02-2009. “Single

Borrower and Large Exposure Limits”, the total exposures, funded and unfunded, outstanding at any time to corporate group shall no exceed 40% of the Bank’s capital base. Further, the Bank may lend up to 30% of its capital base to a single borrower on the security of immovable property provided that the net realizable value of the immovable property is at all times at least 150% of the exposures secured thereby. Although, at the reporting date, total exposures of five corporate groups and four single borrowers exceeded the limit set by the MMA by MVR 810,621,225 and MVR 335,985,333 respectively.

Emphasis of Matter6. Following an on-site examination into the affairs of the Bank as at 30 June 2011, the Maldives

Monetary Authority (MMA) required the reclassification of certain loans and advances. Accordingly, standard loans and advances of MVR 564,325,849, MVR 863,808,477 and MVR 46,434,977 were respectively required to be reclassified into Special Mention. Substandard and Doubtful while Special Mention loans and advances of MVR 93,258,099 required to be reclassified into Substandard as at 31 December 2011. Due to the required reclassification not being carried out, the provision on non-performing loans and advances is short by MVR 180,800,211 as at the year-end. However based on the relief granted by MMA until 31 December 2012, the Bank has not provided for the shortfall.

MALE’ CHARTERED ACCOUNTANTS

P59Independent Auditor's Repor t

Income StatementYear ended 31 December (All amounts in Maldivian Rufiyaa)

Notes 2011 2010

Gross income 6 1,074,778,558 830,194,571 Interest income and similar income 7 643,091,489 581,951,055 Interest expense and similar charges 7 (165,713,350) (175,738,369)Net interest income 7 477,378,139 406,212,686

Fees and commission income 8 286,345,131 213,479,325 Fees and commission expenses 8 (112,350,425) (87,853,573)Net fees and commission income 173,994,706 125,625,752

Dividend income 9 121,262 54,914 Net foreign exchange income 40,859,263 9,265,839 Other operating income 10 104,361,413 25,443,438 Operating income 796,714,783 566,602,629

Less : Operating expensesStaff costs 11 (156,564,947) (146,744,765)Premises, equipment and establishment expenses 12 (63,733,175) (64,708,958)Provision for bad and doubtful debts 13 (511,458,567) (214,478,921)Other operating expenses 14 (57,660,511) (53,396,277)

Net profit before tax 7,297,583 87,273,708 Bank profit tax expense 15 (7,297,583) (36,287,477)

Net profit for the year - 50,986,231

Earnings per share - basic 17 - 9

The notes on pages 64 to 104 are an integral part of these financial statements.

P60Financial Statements

Balance SheetYear ended 31 December (All amounts in Maldivian Rufiyaa)

Notes 2011 2010

ASSETSCash and short term funds 18 1,553,702,352 1,355,760,749 Balances with Maldives Monetary Authority 19 2,055,257,149 1,701,520,810 Bills of exchange 22 11,244,625 17,577,667 Loans and advances 23 5,048,491,204 5,184,839,566 Financial assets held to maturity 26 403,264,985 430,705,731 Investment -Available for sale 27 319,246 5,079,115 Assets pledged as collateral 28 - 199,095,018 Property, plant and equipment 29 84,440,819 89,079,926 Intangible assets 30 25,251,837 31,929,075 Deferred tax asset 35 251,343,102 258,615,311 Other assets 31 130,696,864 77,124,883 Total assets 9,564,012,183 9,351,327,851

LIABILITIESDeposits from non-bank customers 32 7,518,761,713 7,012,578,842 Custodian account of Maldives Retirement Pension Scheme 33 59,294,021 19,767,111 Borrowings 34 959,440,840 1,260,367,977 Bills, acceptances and other documentary credits 11,022,403 18,831,478 Other liabilities 36 245,543,457 193,033,795 Current tax - 76,472,106 Dividends payable 3,069,744 3,396,537 Total liabilities 8,797,132,178 8,584,447,846

SHAREHOLDERS’ EQUITYShare capital 37 269,096,000 269,096,000 Share premium 37 93,000,000 93,000,000 Statutory and assigned capital reserves 39 156,000,000 156,000,000 General reserves 39 248,784,005 248,784,005 Total shareholders’ equity 766,880,005 766,880,005

Total equity and liabilities 9,564,012,183 9,351,327,851

Commitments and contingencies 40 & 41 895,838,101 798,525,011

These financial statements were approved by the Board on 23rd May 2012 and signed on their behalf by:

Lasantha Thennakoon Peter Horton Abdullah Shiham HassanChief Financial Officer Chief Executive Officer Chairman The notes on pages 64 to 104 are an integral part of these financial statements.


Cash Flow StatementYear ended 31 December (All amounts in Maldivian Rufiyaa)

Notes 2011 2010

Cash flows from operating activitiesInterest receipts 627,797,277 577,330,075 Fees and commission receipts 173,994,706 125,625,752 Dividend income 121,262 54,914 Net foreign exchange income 40,859,263 9,265,839 Other operating income 20,097,954 18,257,372 Interest payments (165,713,350) (189,077,181)Cash paid to employees and other expenses (246,964,081) (166,308,991)

Cash flows from operating profits before changes in operating assets and liabilities 42 450,193,031 375,147,780

Changes in operating assets and liabilities(Increase) / decrease in reserve deposits with MMA (353,736,339) 533,000,527 (Increase) / decrease in loans and advances to customers (269,219,672) 327,967,191 Increase in other assets (53,447,671) (15,517,900)Increase / (decrease) in amounts due to customers 506,182,871 (813,605,959)Increase in Custodian account of Maldives Retirement Pension Scheme 39,526,910 19,767,111 Increase / (decrease) in other liabilities 46,342,539 (3,687,437)Net cash generated from operating activities before bank profit tax 365,841,669 423,071,313

Bank profit tax paid (76,497,480) (28,382,335)

Net cash generated from operating activities 289,344,189 394,688,978

Cash flows from investing activitiesPurchase of property, plant and equipment (13,942,097) (57,057,662)Purchase of intangible assets (2,745,843) (5,297,128)Proceeds from sale of property, plant and equipment 3,520 80,588 Investment in treasury bills with original maturity more than three months 226,535,764 (629,800,749)

Net cash generated from / (used in) investing activities 209,851,344 (692,074,951)

Cash flows from financing activitiesProceeds from borrowed funds 36,827,599 64,000,000 Repayments of borrowed funds (337,754,736) (358,818,782)Dividends paid (326,793) (1,461,958)

Net cash used in financing activities (301,253,930) (296,280,740)

Net increase in cash and cash equivalents 197,941,603 (593,666,713)Cash and cash equivalents at beginning of year 1,355,760,749 1,949,427,462

Cash and cash equivalents at end of year 20 1,553,702,352 1,355,760,749



Statement of Changes in EquityYear ended 31 December (All amounts in Maldivian Rufiyaa)

Notes Share

capital

Share

premium

Statutory

and assigned

capital

reserves

General

reserves

Retained

earnings

Total

Balance at 1 January 2010-As previously reported 269,096,000 93,000,000 156,000,000 814,424,456 - 1,332,520,456

Restatement of accumulated losses upto 2009 arising out of provision for impairment on loans and advances and recognition of deferred tax asset 38 - - - (616,626,682) (616,626,682)

-As restated 269,096,000 93,000,000 156,000,000 814,424,456 (616,626,682) 715,893,774

Net profit for the year - restated to correct the understated provision for impairment of loans and advances net-off recognition of deferred tax asset - - - - 50,986,231 50,986,231

Transfer from general reserve to retained earnings 39 - - - (565,640,451) 565,640,451 -

Balance at 31 December 2010 269,096,000 93,000,000 156,000,000 248,784,005 - 766,880,005

Balance at 1 January 2011-As previously reported 269,096,000 93,000,000 156,000,000 814,424,456 49,572,269 1,382,092,725

Correction of impairment of loans and advances and deferred tax asset 38 (565,640,451) (49,572,269) (615,212,720)-As restated 269,096,000 93,000,000 156,000,000 248,784,005 - 766,880,005

Net profit for the year - - - - - -

Balance at 31 December 2011 269,096,000 93,000,000 156,000,000 248,784,005 - 766,880,005



Notes to the Financial Statements1 GENERAL INFORMATION

Bank of Maldives Plc (the Bank) is engaged in the business of commercial banking and other financial services including trade financing, custodial services and development financing. The registered office is situated at 11, Boduthakurufaanu Magu, Male’, 20094, Republic of Maldives.

The Bank is a limited liability Company and is incorporated and domiciled in the Republic of Maldives. The Bank is listed in Maldives Stock Exchange.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 BASIS OF PREPARATION

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), with the modification of the requirements of IAS 39 - Financial Instrument Recognition and Measurement in respect of loan loss provisioning by prudential regulation: No.05 - 2009 on “ Asset classification, provisioning and suspension of interest” issued by Maldives Monetary Authority (MMA). The financial statements have been prepared under the historical cost convention whereby the transactions are recorded at the values prevailing on the dates when the assets were acquired, the liabilities were incurred or the capital obtained.

2.2 NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE AS AT THE BALANCE SHEET DATE

The International Accounting Standards Board has issued the new standards given below, which become effective for annual periods beginning on or after 1 January 2012. Accordingly these standards have not been applied in preparing these financial statements as they are not effective for the year ended 31 December 2011.

- IAS 1 (Amendment), Presentation of Financial Statements (effective from 1 July 2012)- IAS 12 (Amendment), Income Taxes (effective from 1 January 2012)- IAS 19 (Amendment), Employee Benefits (effective from 1 January 2013)- IAS 32 (Amendment), Financial Instruments: Presentation (effective from 1 January 2014)- IFRS 7 (Amendment), Financial Instruments: Disclosures (effective from 1 January 2013)- IFRS 9, Financial Instruments (effective from 1 January 2013)- IFRS 10, Consolidated Financial Statements (effective from 1 January 2013)- IFRS 11, Joint Arrangements (effective from 1 January 2013)- IFRS 12, Disclosure of Interests in Other Entities (effective from 1 January 2013)- IFRS 13, Fair Value Measurement (effective from 1 January 2013)

P64Notes to the Financial Statements

2.3 FOREIGN CURRENCY TRANSLATION

(a) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). These financial statements are presented in Maldivian Rufiyaa, which is the Bank’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow and qualifying net investment hedges.

2.4 FINANCIAL ASSETS

The Bank classifies its financial assets in the following categories: loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition.

(a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (i) those that the Bank intends to sell immediately or in the short term, which are classified as held for trading, (ii) those that the Bank upon initial recognition designates as available for sale; or (iii) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially recognised at fair value – which is the cash consideration to originate the loan including any transaction costs – and carried subsequently with accrued interest. Loans and receivables are reported in the Balance Sheet as loans and advances to customers. Interest on loans is included in the income statement and is reported as ‘Interest and similar income’. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the income statement as ‘Provision for bad and doubtful debts’.

(b) Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity, other than: (i) those that the Bank upon initial recognition designates as at fair value through profit or loss; (ii) those that the Bank designates as available for sale; and (iii) those that meet the definition of loans and receivables.

These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective interest method. Interest on held-to-maturity investments is included in the income statement and reported as ‘Interest and similar income’. In the case of an impairment, the impairment loss is reported as a deduction from the carrying value of the investment and recognised in the income statement as ‘Net gains/(losses) on investment securities’. Held-to-maturity investments only include treasury bills.


(c) Available-for-sale financial assets

Available-for-sale investments are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices or that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

The Bank uses trade date accounting for regular way contracts when recording financial asset transactions. Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the Balance Sheet as ‘Assets pledged as collateral’, if the transferee has the right to sell or repledge them.

Available-for-sale financial assets initially recognised at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being directly recognised in the equity, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or loss previously recognised in the equity is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement in ‘Dividend income’ when the Bank’s right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices. In case of investments in unquoted equity shares, they are stated at cost less allowance for falling value of investment, since the fair value of those cannot be measured reliably.

2.5 FINANCIAL LIABILITIES

Deposits from customers and borrowings

Financial liabilities of the Bank include deposits from customers, long term debts and other liabilities. Savings deposits are carried with accrued interest. Long term borrowings are carried after deduction of principals repayment from initial borrowings. Interest accrued on fixed deposits and long term debts are included under other liabilities. Financial liabilities are derecognised when extinguished.

2.6 OFFSETTING FINANCIAL INSTRUMENTS

Financial assets and liabilities are offset and the net amount reported in the Balance Sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. This is not the case with the assets and liabilities presented gross in the Balance Sheet.

2.7 INTEREST INCOME AND ExPENSES

Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading, are recognised within ‘interest income’ and ‘interest expense’ in the income statement on accrual basis by applying the agreed interest rate. However, interest income is suspended when loans become doubtful of collection, such as when overdue by more than 90 days. Such income is excluded from interest income until received.

2.8 FEE AND COMMISSION INCOME

The income mainly comprise fees receivable from customers for guarantees and other services provided by the Bank, and fees for foreign and domestic payment tariff. Such income is recognised as revenue as the services are provided.


Income on the endorsement of bills of exchange is recognised only when the bill is received and either issued or endorsed, and the payment under the particular instrument has been effected.

2.9 DIVIDEND INCOME

Dividends are recognised in the income statement when the entity’s right to receive payment is established.

2.10 IMPAIRMENT OF FINANCIAL ASSETS

(a) Loans and advances

All loans and advances are recognised when the cash is advanced to borrowers.

A specific credit risk provision for loan impairment is established to provide for management’s estimate of credit losses as soon as the recovery of an exposure is identified as doubtful.

Provisions for loan impairment are made on the basis of continuous review of all advances to customers, in accordance with the prudential regulation No.05 - 2009 on Asset classification, provisioning and suspension of interest issued by MMA based on aged classification of advances as follows:

Period outstanding Classification Provision made0 - 59 days Pass 1%60 - 89 days Especially mentioned 5 %More than 90 days and upto 179 days Substandard 25%More than 180 days and upto 359 days Doubtful 50%More than 360 days Loss 100%

Provisions above are calculated against the gross loan balance (less interest in suspense) without any allowance for collateral value.

Provisions for impairment on credit card receivables are made on the basis of continuous review of outstanding from card holders, in accordance with the credit policy of the Bank based on aged classification of the receivables as follows:

Period outstanding Classification Provision madeMore than 60 days and upto 160 days Non-performing 50%More than 160 days Non-performing 100%

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occuring after the impairment was recognised (such as the debtor regularising loan repayment), the previously recognised impairment loss is reversed by adjusting the allowance account. Amounts recovered from fully impaired loans and advances are recognised as income on a cash basis.


(b) Assets classified as available for sale

The Bank assesses at each Balance Sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the income statement.

(c) Renegotiated loans

A renegotiated loan includes sanction of any new loan to repay or replace any loan(s) that is overdue, rescheduled, rolled-over, or otherwise modified because of deterioration in the borrower’s financial condition or an inability to repay the loan according to the original terms. The Bank documents the basis for restructuring a loan including, at a minimum: (i) current financial condition and cash flow information; (ii) changes to borrower’s operations; and (iii) additional security obtained.

If a loan is renegotiated and all overdue interest is paid by the borrower in cash at the time of renegotiation, the renegotiated loan is classified as Sub-standard. If a loan is renegotiated but all overdue interest is not paid by the borrower in cash at the time of renegotiation, the loan is classified according to paragraph 3 of Part III in prudential regulation No.05 - 2009 on Asset classification, provisioning and suspension of interest issued by MMA.

A renegotiated loan is upgraded to performing category only after the payments made according to the restructured loan terms for a period of at least six months and satisfactory performance of the loan during such period. If any portion of principal or interest of a renegotiated loan subsequently becomes past due 90 days or more, the entire loan is placed in non-accrual and remain so until all overdue principal and interest is brought current by payment in cash.

2.11 PROPERTY, PLANT AND EQUIPMENT

All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

● Bank premises - 20 years ● Computer hardware and software - 3 - 5 years ● Furniture and equipment - 3 - 5 years ● Motor vehicles/vessels - 5 years

Leasehold buildings are amortised over the unexpired period of the lease.


The charge for the depreciation commences from the date on which the asset is put to use.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each Balance Sheet date. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount, if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating income or other operating expenses, as the case may be, in the income statement.

2.12 INTANGIBLE ASSETS

Intangible assets comprise separately identifiable intangible items. Computer software licences and other intangible assets are considered as intangible assets, are recognised at cost. Intangible assets with a definite useful life are amortized using the straight-line method over their estimated useful economic life. Intangible assets with an indefinite useful life are not amortised. Generally, the identified intangible assets of the Bank have a definite useful life. At each date of the Balance Sheet , intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits. If such indications exist, the intangible assets are analysed to assess whether their carrying amount is fully recoverable. An impairment loss is recognised if the carrying amount exceeds the recoverable amount.

2.13 OPERATING LEASES

Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the equipment and establishment expenses in the income statement on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

2.14 CASH AND CASH EQUIVALENTS

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including cash, amounts due from other banks, certificate of deposits and treasury bills.

2.15 PROVISIONS

Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

2.16 FINANCIAL GUARANTEE CONTRACTS

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.


Financial guarantees are initially recognised in the financial statements at the amount guaranteed on the date the guarantee was given. Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured at the initial measurement, less the best estimate of the expenditure required to settle any financial obligation arising at the Balance Sheet date.

Any increase in the liability relating to guarantees is taken to the income statement under other operating expenses.

2.17 EMPLOYEE BENEFITS

(a) Staff Provident Fund

The Bank operates a Staff Provident Fund. All the local employees of the Bank who have subscribed to the Fund are the members of this Fund to which the Bank contributes 10% of those employees’ monthly basic salary upto 2010 and 3 % with effect from 2011. This contribution is recognised as employee benefit expense when they are due.

(b) Retirement Pension Scheme

The Bank is liable to enroll the employees in the Retirement Pension Scheme with effect from 1 May 2011 based on the Regulation on Maldives Retirement Pension Scheme published by Government of Maldives and shall make contributions at a rate of 7% from the employee’s pensionable wages on behalf of the employees of age between 16 and 65 years to the pension office. The Bank contribution to retirement pension scheme is at the rate of 7% on pensionable wages. Obligations for contributions to retirement pension scheme is recognised as an employee benefit expense in the income statement.

2.18 DEFERRED INCOME TAxES

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax.

The principal temperory differences arise from depreciation of property, plant and equipment and provision on impairment of loans.

2.19 ACCEPTANCES

Acceptances comprise undertakings by the Bank to pay the bills of exchange drawn on customers. The Bank expects most acceptances to be settled simultaneously with reimbursement from the customers. Acceptances are accounted for as off Balance Sheet transactions and are disclosed as contingent liabilities and commitments.

2.20 SHARE CAPITAL

Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders.

2.21 FIDUCIARY ACTIVITIES

The Bank commonly acts as a trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Bank.


Custodian account of Maldives Retirement Pension Scheme

Pursuant to the agreement entered with Maldives Pension Administration Office (MPAO) the administrator of Maldives Retirement Pension Scheme, the Bank performs custodial and other services relating to the establishment and maintenance of Contribution Collection and Contribution Holding Accounts of Maldives Retirement Pension Scheme, in which the Bank keeps the funds and, at the direction of MPAO or a person authorised by MPAO, invests the funds in the designated financial instruments, in consideration for which MPAO pays a fee to the Bank. The movement in contribution holding account held by the Bank on behalf of MPAO has been separately disclosed in Note 33.

2.22 COMPARATIVES

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

3 FINANCIAL RISK MANAGEMENT

The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s financial performance.

The Bank’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by the Bank under policies approved by the Board of Directors. The Bank identifies and evaluates financial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as credit risk and liquidity risk. In addition, internal audit is responsible for the independent review of risk management and the control environment. The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk includes currency risks, interest rate and other price risks.

3.1 CREDIT RISK

The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Credit risk is the most important risk for the Bank’s business; the management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances. There is also credit risk in off-Balance Sheet financial instruments, such as loan commitments.

Exposure to credit risks arises from lending, sales and trading. Lending exposures are typically represented by the principal amount of on-Balance Sheet financial instruments. Financial guarantees and standby letters of credit, which represent undertakings that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans even though they are of contingent nature. Documentary and commercial letters of credit, which are undertakings by the Group on behalf of a customer, are usually collateralised by the underlying shipments of goods to which they relate and therefore exhibit different risk characteristics from direct borrowing. Commitments to extend credit include unused portions of loan commitments, guarantees or letters of credit. The majority of unused commitments are contingent upon customers observing or meeting certain credit terms and conditions.


Credit policies were formulated covering all the Bank credit activities and establishment of individual limits of authority for initiating, reviewing and approving credit. The risk organisation is structured such that there is segregation of duties between risk taking and risk controlling units. A Credit Committee comprising of five members and chaired by the Chief Credit Officer (CCO), meets regularly to discuss credit proposals in line with credit policies. The Credit Committee also reviews sectoral lending position, non-performing assets, documentation and other credit-related issues.

3.1.1 CREDIT RISK MEASUREMENT

The Bank has not introduced the system of internal rating, probablity of default and consequential probability of losses. The credit risk management of the exposures is conducted through credit granting process which includes the assessment of the creditworthiness and the establishment of appropriate credit limits. Credit approvers have the responsibility to ensure that credits are properly assessed and classified. Individual Bank staff also assume the responsibility to ensure all crucial information is included in the application for the purpose of analysis and approval. The analysis supporting the credit approval decision takes into account both financial and non-financial factors that affect the going concern of the borrowers and also incorporate an evaluation of the collateral offered. This evaluation ensures that;

• A lending has identifiable source of repayment • Establishing suitable exposure limits for borrowers based on financial strength• Avoid excessive single industry/group exposures

3.1.2 RISK LIMIT CONTROL AND MITIGATION POLICIES

The Bank manages, limits and controls concentrations of credit risk wherever they are identified – in particular, to individual counter parties and groups, and to industries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sector are approved annually by the Board of Directors

The exposure to any one borrower is further restricted by sub-limits covering on- and off-Balance Sheet exposures. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.

Some other specific control and mitigation measures are outlined below.

(a) Collateral

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

• Mortgages over leasehold rights of resort islands and residential properties • Charges over business assets such as premises, office equipments, inventory and accounts receivable• Charges over vehicles, boats, dhonies and related equipments• Corporate and personal guarantees

Medium term loans, overdrafts and revolving trade credit facilities are generally secured. In addition, in order to minimise the credit loss the Bank will, as far as practicable, seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.


(b) Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required.

Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank upto a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards and since generally these exposures are secured against adequate collateral. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

3.1.3 IMPAIRMENT AND PROVISIONING POLICIES

Impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the Balance Sheet date based on objective evidence of impairment (see Note 2.10).

The impairment provision shown in the Balance Sheet at year-end is derived from each of the five groups described in note 2.10. The table below shows the percentage of the Bank’s on Balance Sheet items relating to loans and advances and the associated impairment provision for each of the Group:

2011 2010

Group

Loans &

advances

%

Impairment

provision

%

Loans &

advances

%

Impairment

provision

%Pass 62.4% 1% 54.2% 1%Especially mentioned 2.8% 5% 13.4% 5%Substandard 1.9% 25% 2.8% 25%Doubtful 9.9% 50% 5.6% 50%Loss 23.0% 100% 23.9% 100%

100% 100%

The Bank’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances require. However, the current regulations entail upon the Bank to undertake quarterly review of all accounts. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts.


3.1.4 MAxIMUM ExPOSURE TO CREDIT RISK BEFORE COLLATERAL HELD OR OTHER CREDIT ENHANCEMENTS

The maximum exposure to credit risk is limited to the amounts on the Balance Sheet as well as commitments to extend credit, without taking into acount the fair value of any collateral. The table below shows the maximum exposure to credit risk for the components of the Balance Sheet:

(Amount in MVR ‘000) 2011 2010

Balances with other banks 77,720 45,017 Money at call and short notice 121,806 84,581 Bills of exchange 11,245 17,578 Loans and advances to customers 5,048,492 5,184,840 Assets pledged as collateral - 199,096 Total on the Balance Sheet 5,259,263 5,332,016 Contingent liabilities and commitments 895,838 798,525 Total credit exposure as 31 December 6,155,101 6,130,541

82% of the total maximum exposure is derived from loans and advances to customers (2010: 85%).

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and based on the following:

• Mortgage loans, which represents the biggest group in the portfolio, are backed by collateral; • 63% of the loans and advances portfolio are considered to be neither past due nor impaired (2010: 53%); • The Bank has introduced a more stringent selection process upon granting loans and advances.

3.1.5 LOANS AND ADVANCES

Loans and advances are summarised as follows:

(Amount in MVR ‘000) 2011 2010

Neither past due nor impaired 3,207,605 2,766,447 Past due but not impaired 1,504,418 2,205,669 Impaired 2,517,364 2,374,626 Gross 7,229,387 7,346,742 Less: allowance for impairment (1,446,616) (1,515,098)Less : Interest in suspense (723,036) (629,228)Net 5,059,735 5,202,416

Further information of the impairment allowance for loans and advances to customers is provided in Notes 21.


Loans and advances neither past due nor impaired (Amount in MVR ‘000) 2011 2010

Analysed by industryAgriculture 10,431 10,954 Commerce 354,028 269,033 Construction 544,499 555,003 Fishing 188,113 170,976 Manufacturing 145,675 145,044 Personal 300,618 248,602 Services 150,828 41,706 Tourism 1,513,413 1,325,129

3,207,605 2,766,447

(a) Loans neither past due nor impaired

Currently, the Bank does not maintain an internal credit rating system except for exposures which are classified as non-performing. However, the Bank does an in-depth credit risk assessment on qualitative and quantitative basis before granting a facility. Exposure to each borrower or group of related borrowers are again reviewed on a scheduled basis.

(i) in evaluating credit risks the Bank considers qualitative criteria pertinent to the borrower, including management depth and reputation, the borrower’s past track record, its business risks, the industry, operating environment and conditions that the borrower operates in. The Bank looks for quality, stability and sustainability of performance. In quantitative assessment, the Bank analyses the borrower’s historical and projected financial statements, where pertinent. In this respect, the Bank focuses on the profitability of the business, the efficiency in the employment of its assets, and its financial leverage to assess its liquidity and cash-flow positions and hence its ability to meet its financial commitments.

(ii) to manage and mitigate risk of loss in the event of default, the Bank looks first at the protection accorded by the borrower’s net assets to the Bank’s exposure to the company. Where appropriate, the Bank will examine the quality, liquidity and hence the realisable value of its principal operating assets such as account receivables, inventory and capital assets. In establishing financial protection for the Bank’s exposure, the Bank may take a security interest in such assets by way of mortgages, pledges, assignments and the like. In addition the Bank may also take additional collaterals offered by the company’s principals or other third party to ensure adequate protection with a margin. Taking collateral is a prevalent practice in the local lending environment as additional practical and prudential measures of mitigating against potential loss at default. Main reasons for doing so are due to (a) the general lack of confidence in the reliability of financial statements provided, particularly unaudited and/or stale ones, and (b) ensure that assets are not secured to other creditors to the Bank’s detriment.


(b) Loans and advances past due but not impaired

Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by class to customers that were past due but not impaired were as follows:

(Amount in MVR ‘000)Individual (retail customers)

31 December 2011 Overdrafts Credit

cards

Term loans Mortgages Development

banking

Total

Past due upto 30 days 40,643 4,140 36,211 135,679 174,956 391,629 Past due 30-60 days 2 964 15,051 32,430 72,442 120,889 Past due 60-90 days 37,921 159 7,219 26,103 54,036 125,438 Total 78,566 5,263 58,481 194,212 301,434 637,956

Corporate entities31 December 2011 Total Past due up to 30 days 790,485 Past due 30-60 days - Past due 60-90 days 75,976 Total 866,461

Credit cards past due in the range of 60 - 90 days of MVR 5,263,147 as at 31 December 2011 are considered as impaired in accordance with the credit policy of the Bank.


31 December 2010 Overdrafts Credit

cards

Term loans Mortgages Development

banking

Total

Past due upto 30 days - 10,228 216,648 117,421 166,627 510,924 Past due 30-60 days - 2,992 94,719 71,606 69,234 238,551 Past due 60-90 days 45,997 - 619,334 52,305 63,176 780,812 Total 45,997 13,220 930,701 241,332 299,037 1,530,287

Corporate entities31 December 2010 Total Past due upto 30 days 468,776 Past due 30-60 days - Past due 60-90 days 206,606 Total 675,382

Credit cards past due in the range of 60 - 90 days of MVR 347,000 as at 31 December 2010 are considered as impaired in accordance with the credit policy of the Bank.


(c) Loans and advances individually impaired

The individually impaired loans and advances to customers before taking into consideration the cashflows from collateral held is MVR 2,517,363,569 (2010: MVR 2,374,626,340).

The breakdown of the gross amount of individually impaired loans and advances by class are as follows:


Development

banking

Large

corporate

customers

31 December 2011 Overdrafts Credit cards Term loans Mortgages Total

Individually impaired loans 319,489 7,722 71,896 108,886 314,510 1,694,861 2,517,364 Total 319,489 7,722 71,896 108,886 314,510 1,694,861 2,517,364

Individual (retail customers)

Development

banking

Large

corporate

customers

31 December 2010 Overdrafts Credit cards Term loans Mortgages Total

Individually impaired loans 170,539 18,733 207,963 100,631 341,206 1,535,554 2,374,626 Total 170,539 18,733 207,963 100,631 341,206 1,535,554 2,374,626

Non-performing assets by past due period (Amount in MVR ‘000) 2011 2010

Substandard 138,215 206,931 Doubtful 716,229 409,399 Loss 1,662,920 1,758,296

2,517,364 2,374,626

(d) Loans and advances renegotiated

Renegotiated loans that would otherwise be past due or impaired totalled MVR 561,332,199 (2010: MVR 454,980,779) at December 2011.

(Amount in MVR ‘000) 2011 2010

Renegotiated loans and advances to customers – individuals:– Continuing to be impaired after restructuring 62,989 2,638 Loans to individuals:– Non–impaired after restructuring – would otherwise have been impaired 7,357 8,946 – Non–impaired after restructuring – would otherwise not have been impaired 11,956 18,622

82,302 30,206


3.1.6 CONCENTRATION OF RISKS OF FINANCIAL ASSETS WITH CREDIT RISK ExPOSURE

(a) Geographical sectors

Currently, the Bank’s lending activities are limited to Republic of Maldives.

(b) Industry sectors

The following table lists the Bank’s main credit exposure at their carrying amounts, as categorised by the industry sectors of our counterparties.

(Amount in MVR ‘000) 2011 2010

Agriculture 25,043 27,751 Commerce 462,715 422,807 Construction 961,996 995,004 Fishing 499,091 526,247 Manufacturing 297,752 338,887 Personal 361,565 329,741 Services 290,999 281,918 Tourism 4,330,225 4,424,387 Grand total 7,229,386 7,346,742

3.2 MARKET RISK

The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Bank does not have a trading portfolio and quoted equity investments. Therefore the Bank is not open to any equity price risk.

Non-trading portfolios primarily arise from the interest rate management of the entity’s retail and commercial banking assets and liabilities.

The market risks arising from non-trading activities are discussed in the Bank’s Assets and Liabilities Management Committee (ALCO). Regular reports are submitted to the Board of Directors and to ALCO members.

3.2.1 FOREIGN ExCHANGE RISK

All the transactions in BML, other than the transactions in local currency, Maldivian Rufiyaa (MVR), are carried out mainly in United States Dollars (USD). Upto April 2011, the exchange rate was fixed and from April 2011, the exchange rate has been maintained within 20% cap and floor of the base rate. Therefore, the Bank is not susceptible to any major currency fluctuation risk. Nevertheless, generally, the Bank does not engage in large scale transactions on speculative basis on its own other than to cover an underlying customer transaction or to cover a currency funding gap.

However, the exposure to the risk associated with changes on foreign exchange rates as a result of holding open positions caused by a gap between the assets and liabilities in a particular currency or combination of currencies, is controlled through a combination of foreign exchange position limits and transaction limits. These exposures are monitored on a daily basis and reported to ALCO. Further, timely recognition of market losses through mark to market and exchange revaluation mechanisms are also in place by the system.


(Amount in MVR ‘000)As at 31 December 2011 MVR USD GBP JPY SGD EUR OTHERS Total

AssetsCash and Balances with Banks 1,756,461 872,020 2,225 1,657 2,746 59,639 1,775 2,696,523 Treasury Bills 1,315,702 - - - - - - 1,315,702 Loans and Advances 2,761,296 2,065,422 - - - 231,761 1,257 5,059,736 Investment securities - 319 - - - - - 319 Other Assets 405,937 85,392 9 - 293 88 14 491,733 Total Assets 6,239,396 3,023,153 2,234 1,657 3,039 291,488 3,046 9,564,013

LiabilitiesDeposits 4,822,519 2,727,090 - 657 - 27,790 - 7,578,056 Borrowings 42,410 657,907 - - - 259,124 - 959,441 Other Liabilities 213,914 43,316 224 - 3 2,179 - 259,636 Total Liabilities 5,078,843 3,428,313 224 657 3 289,093 - 8,797,133

Net on-Balance Sheet

financial position 1,160,553 (405,160) 2,010 1,000 3,036 2,395 3,046 766,880

Commitments 543,737 330,622 - 6,769 - 14,710 - 895,838

(Amount in MVR ‘000)As at 31 December 2010 MVR USD GBP JPY SGD EUR OTHERS Total

AssetsCash and Balances with Banks 1,303,576 821,195 3,225 2,315 1,526 30,392 1,418 2,163,647 Treasury Bills 1,523,435 - - - - - - 1,523,435 Loans and Advances 2,798,705 2,173,299 1,597 - 220 228,596 - 5,202,417 Investment securities 4,811 269 - - - - - 5,080 Other Assets 388,329 68,335 28 - 4 53 - 456,749 Total Assets 6,018,856 3,063,098 4,850 2,315 1,750 259,041 1,418 9,351,328

LiabilitiesDeposits 4,540,766 2,466,056 - 235 497 24,190 602 7,032,346 Borrowings 28,286 954,242 - - - 277,840 - 1,260,368 Other Liabilities 269,546 19,078 381 - - 2,710 19 291,734 Total Liabilities 4,838,598 3,439,376 381 235 497 304,740 621 8,584,448

Net on-Balance Sheet

financial position 1,180,258 (376,278) 4,469 2,080 1,253 (45,699) 797 766,880

Commitments 476,704 293,993 - 2,377 437 23,977 1,037 798,525


3.2.2 Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise.

The extent of the interest rate risk depends on the value and period of the maturity mismatch between interest bearing assets and liabilities and the ability and speed of the Bank in re-pricing them. The ALCO regularly reviews these gaps to ensure that they are within acceptable norms. The Bank regularly monitors the market behaviour and products are appropriately re-priced when necessary.

The Bank does not carry a trading portfolio nor generally invest in stocks or shares other than Government treasury bills, for which investments are generally less than six months and held to maturity. Therefore, the Bank is not open to any price fluctuation risks.

MMA regulations on minimum reserve require the commercial banks to maintain a reserve of 25% of demand and time liabilities (excluding interbank liabilities) and margin deposits for Male’ based branches, and 15% for other branches. For the purpose of foreign curency minimum reserve requirment, the Bank is required to maintain 3% of the reserve requirement in local currency. These deposits are not available for the Bank’s day-to-day operation. Reserve deposits carry interests at rate of 1% and 0.05% per annum on the Rufiyaa and Dollar deposits respectively till September 2011. From October 2011, Dollar reserve deposits carry interest of 0.01% per annum.

The table below summarises the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

As at 31 December 2011 (Amount in MVR ‘000)Up to 1-3

Months

3-12

Months

1-5

Years

Over

5 Years

Non- Interest

Bearing

Total1 Month

AssetsCash and Balances with Banks 1,892,492 - - - - 804,031 2,696,523 Treasury Bills 436,091 476,346 403,265 - - - 1,315,702 Loans and Advances 1,036,105 161,065 664,665 2,408,747 385,806 403,347 5,059,735 Other Assets - - - - - 492,052 492,052 Total Financial

Assets 3,364,688 637,411 1,067,930 2,408,747 385,806 1,699,430 9,564,012



Months

3-12

Months

1-5

Years

Over

5 Years

Non- Interest

Bearing

Total

1 Month

LiabilitiesDeposits from customers 3,823,271 221,203 228,649 2,362 309 3,302,262 7,578,056 Borrowings 587,626 25,502 207,574 50,700 88,040 - 959,441 Other Liabilities - - - - 88,932 170,704 259,636 Total Financial

Liabilities 4,410,897 246,705 436,223 53,062 177,281 3,472,966 8,797,132 Total interest

repricing gap

(1,046,209) 390,706 631,707 2,355,685 208,525 (1,773,535) 766,879


Months

3-12

Months

1-5

Years

Over

5 Years

Non- Interest

Bearing

Total

1 Month

AssetsCash and Balances with Banks 567,813 - - - - 1,595,835 2,163,648 Treasury Bills 674,516 651,667 197,252 - - - 1,523,435 Loans and Advances 831,881 86,912 950,868 2,637,428 395,247 300,081 5,202,417 Other Assets - - - - - 461,828 461,828 Total Financial

Assets 2,074,210 738,579 1,148,120 2,637,428 395,247 2,357,744 9,351,328

(Amount in MVR ‘000)As at 31 December

2010

Up to 1-3

Months

3-12

Months

1-5

Years

Over

5 Years

Non- Interest

Bearing Total1 Month

Liabilities

Deposits from customers 3,524,920 294,934 192,310 30,701 74 2,989,407 7,032,346 Borrowings 732,432 214,653 212,464 53,333 47,486 - 1,260,368 Other Liabilities - - - - 81,865 209,869 291,734 Total Financial

Liabilities 4,257,352 509,587 404,774 84,034 129,425 3,199,276 8,584,448 Total interest

repricing gap

(2,183,142) 228,992 743,346 2,553,394 265,822 (841,532) 766,880

Additionally, the Bank is confident that it has sufficient interest margins to absorb any adverse impacts due to interest fluctuations on unmatched positions. Further, the Bank retains the option to revise the interest rates on all Rufiyaa loans per terms of sanction. For foreign currency loans, wherever the interest rate is set with a mark up over the floating bench mark LIBOR, the Bank has set floor rates to mitigate its interest rate risk.


3.3 LIQUIDITY RISK

Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

3.3.1 LIQUIDITY RISK MANAGEMENT PROCESS

The Bank’s liquidity management process, as carried out within the Bank and monitored by a separate team in Bank Treasury, includes:

• Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers. The Bank maintains an active presence in global money markets to enable this to happen;• Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;• Monitoring Balance Sheet liquidity ratios against internal requirements; and• Managing the concentration and profile of debt maturities.

Monitoring and reporting take the form of cash flow measurement and projections for the week and month respectively, as these are key periods for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets.

The Bank also monitors unmatched medium-term assets, the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.

The Bank maintains a statutory redeposit with the MMA equal to 25% of the customer deposits from Male’ based branches and 15% of the customer deposits from other Atoll based branches. Further, the Bank maintains a ratio of net liquid assets to liabilities to reflect the market conditions.

3.3.2 FUNDING APPROACH

Sources of liquidity are regularly reviewed by the ALCO to maintain a wide diversification by currency, geography, provider, product and term.

3.3.3 NON-DERIVATIVE CASH FLOWS

The table below presents the cash flows payable by the Bank under non-derivative financial liabilities by remaining contractual maturities at the Balance Sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Bank manages the inherent liquidity risk based on expected undiscounted cash inflows.

(Amount in MVR ‘000)As at 31 December 2011 Up to 1

Month

1-3

Months

3-12

Months

1-5

Years

Over

5 Years

Total

LiabilitiesDeposits 7,126,360 222,919 233,537 2,580 466 7,585,862 Borrowings 55,617 3,103 109,259 551,366 315,763 1,035,107 Other Liabilities 75,087 - - - 184,549 259,636 Total Liabilities 7,257,064 226,022 342,796 553,946 500,778 8,880,606

Total Assets 4,135,704 671,973 1,276,625 2,832,846 1,037,127 9,954,275

Net (3,121,360) 445,951 933,829 2,278,900 536,349 1,073,669


(Amount in MVR ‘000) As at 31 December 2011 Up to 1

Month

1-3

Months

3-12

Months

1-5

Years

Over

5 Years

Total

LiabilitiesDeposits 6,518,267 302,530 198,469 33,715 98 7,053,079 Borrowings 125,539 195,736 184,264 496,513 350,319 1,352,371 Other Liabilities 53,064 - 76,472 - 162,198 291,734 Total Liabilities 6,696,870 498,266 459,205 530,228 512,615 8,697,184

Total Assets 2,696,459 1,085,647 1,399,943 3,497,610 1,454,825 10,134,484

Net (4,000,411) 587,381 940,738 2,967,382 942,210 1,437,300

Demand and savings deposits have been categorised as upto 1 month maturity group. However, a major part of these deposits represent a core retail deposit base with longer term maturity. Bills of exchange and loans and advances are shown net of interest in suspense and provision for bad and doubtful debts.

Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, money market placements with banks, central bank balances, items in the course of collection and treasury and other eligible bills; and loans and advances to customers. Subject to credit approvals, a proportion of customer loans contractually repayable within one year will be extended. The Bank would also be able to meet unexpected net cash outflows by discounting treasury bills and accessing additional funding sources such as asset backed markets.

3.3.4 OFF-BALANCE SHEET ITEMS

Loan commitments, financial guarantees which are based on the earliest contractual maturity date and other financial facilities, all fall within next 1 year.

(a) Loan commitments

The dates of the contractual amounts of the Bank’s off-Balance Sheet financial instruments that commit it to extend credit to customers and other facilities (Note 40), are summarised in the table below.

(b) Financial guarantees and other financial facilities

Financial guarantees (Note 40), are also included below based on the earliest contractual maturity date.

(c) Operating lease commitments

Where the Bank is the lessee, the future minimum lease payments under non-cancellable operating leases, as disclosed in Note 41, are summarised in the table below.


(d) Capital commitments

Capital commitments for the acquisition of buildings and equipment (Note 41) are summarised in the table below.

(Amount in MVR ‘000)No later

than 1 year

1-5

years

Over

5 years

Total

At 31 December 2011Loan commitments 554,669 - - 554,669 Guarantees, acceptances and other financial facilities 292,394 - - 292,394 Operating lease commitments 10,183 30,458 8,134 48,775 Capital commitments - - - - Total 857,246 30,458 8,134 895,838

At 31 December 2010Loan commitments 431,904 - - 431,904 Guarantees, acceptances and other financial facilities 300,013 24,158 - 324,171 Operating lease commitments 7,453 23,082 11,915 42,450 Captial commitments - - - - Total 739,370 47,240 11,915 798,525

3.4 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

There is no material difference between the carrying amounts and fair values of the financial assets and liabilities presented on the Bank’s Balance Sheet due to following reasons;

(i) Due from other banks

Due from other banks represents working balances and overnight inter-bank money market placements which are at carrying amount.

(ii) Loans and advances to customers

Based on management’s review, there is no difference between current interest rates charged to the Bank’s performing customers and current interest rates prevailing in the market, taking the customers risk profile (i.e; business risk, project risk, gearing, collateral offered, tenor, grace period, etc.) into consideration.

Non performing loans and advances are stated at net of provisions for impairment.

(iii) Due to customers and borrowings

The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, are the amount repayable on demand. The Bank’s fixed interest-bearing deposits and borrowings bear the current market interest rates based on similar maturities.

3.5 CAPITAL MANAGEMENT

The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of Balance Sheets, are:

• To comply with the capital requirements set by the regulators of the banking markets where the entities within the Bank operate;


• To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing techniques based on the guidelines developed by the Basel I Committee, as implemented by the Maldives Monetary Authority (the Authority), for supervisory purposes. The required information is filed with the Authority on a monthly basis.

The Authority requires each bank or banking group to: (a) hold the minimum level of the regulatory capital of MVR 150 million , and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel ratio’) at or above the internationally agreed minimum of 12%.

The Bank’s regulatory capital as managed by its management is divided into two tiers:

• Tier 1 capital: share capital, retained earnings and reserves created by appropriations of retained earnings.; and • Tier 2 capital: Current year earnings, general provision and qualifying subordinated loan capital.

The risk-weighted assets are measured by means of a hierarchy of five risk weights classified according to the nature of and reflecting an estimate of credit, market and other risks associated with each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-Balance Sheet exposure, with some adjustments to reflect the more contingent nature of the potential losses.

The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended 31 December. During those two years, the Bank complied with all of the externally imposed capital requirements to which they are subject to;

(Amount in MVR ‘000)Restated

Tier 1 Capital 2011 2010

Share capital 269,096 269,096 Assigned capital reserve 6,000 6,000 Share premium 93,000 93,000 General reserve 248,785 197,799 Statutory reserves 150,000 150,000 Total qualifying Tier 1 Capital 766,881 715,895

Tier 2 CapitalCurrent earnings - 50,986 General provision 55,635 79,735 Total qualifying Tier 2 Capital 55,635 130,721

Total regulatory capital 822,516 846,616

Risk-weighted AssetsOn-Balance Sheet 5,508,700 5,673,790 Off-Balance Sheet 717,056 704,942 Total risk-weighted assets 6,225,756 6,378,732

Basel ratio 13.21% 13.27%


4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment at least on a yearly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is an impairment of loans and advances. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a bank.

Management uses fixed percentage prescribed by Maldives Monetary Authority to make provision for impaired loans and advances.

5 SEGMENT ANALYSIS

(a) By business segment

The Bank is divided into three main business segments:

• Retail and electronic banking – incorporating private banking services, private customer current accounts, savings, deposits, credit and debit cards, consumer loans and mortgages, fee based on POS, ATM, internet banking and salary handling services. • Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency, project financing for resorts and ship finance of corporate customers. • Development banking – banking activities in atoll areas and micro credits.

Transactions between the business segments are on normal commercial terms and conditions.

Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on the money market interest. There are no other material items of income or expense between the business segments.

Segment assets and liabilities comprise operating assets and liabilities, being the majority of the Balance Sheet.

Internal charges and transfer pricing adjustments have been reflected in the performance of each business.


(Amount in MVR ‘000)Segment Reporting as at 31 December 2011

Corporate Retail and Development Treasury TOTALBanking electronic Banking

BankingExternal revenues 293,508 548,841 138,763 93,666 1,074,779 Revenue from other segments (160,525) 122,853 6,468 31,205 - Total 132,983 671,694 145,231 124,871 1,074,779 Segment result (335,513) 324,441 36,274 (17,904) 7,298 Bank profit tax expense (7,298)Profit for the year (335,513) 324,441 36,274 (17,904) -

Segment assets 3,324,522 2,756,934 1,758,104 1,724,452 9,564,012 Total assets 3,324,522 2,756,934 1,758,104 1,724,452 9,564,012

Segment liabilities 1,409,438 4,631,342 1,831,586 924,766 8,797,132 Capital 766,880 766,880 Total liabilities 1,409,438 4,631,342 1,831,586 1,691,646 9,564,012

Other segment items:Capital expenditure 2,460 8,084 3,197 2,946 16,688 Depreciation (4,128) (13,565) (5,365) (4,944) (28,001)

(Amount in MVR ‘000)Segment Reporting as at 31 December 2010

Corporate

Banking

Retail and

electronic

Banking

Development

Banking

Treasury Group

External revenues 175,901 429,546 127,312 97,436 830,195 Revenues from other segments (28,981) 116,149 16,716 (103,884) - Total 146,920 545,695 144,028 (6,448) 830,195 Segment result (92,349) 174,492 13,194 (8,063) 87,274 Bank profit tax expense - - - - (36,287)Profit for the year (92,349) 174,492 13,194 (8,063) 50,987

Segment assets 2,464,199 3,434,739 1,718,832 1,733,558 9,351,328

Segment liabilities 2,507,433 2,886,864 1,453,226 1,736,925 8,584,448 Capital - - - 766,880 766,880 Total liabilities 2,507,433 2,886,864 1,453,226 2,503,805 9,351,328

Other segment items:Capital expenditure 16,708 19,236 9,683 16,658 62,285 Depreciation (9,336) (10,748) (5,411) (9,308) (34,803)

Capital expenditure comprises additions to property and equipment and intangible assets (Note 29 & 30)


6 GROSS INCOME 2011 2010

Interest income 643,091,489 581,951,055 Fee and commission income 286,345,131 213,479,325 Dividend income 121,262 54,914 Net foreign exchange income 40,859,263 9,265,839 Other operating income 104,361,413 25,443,438

1,074,778,558 830,194,571

7 NET INTEREST INCOME 2011 2010

Interest incomeCustomer advances 538,981,020 482,042,185 Treasury bills / deposits with MMA 85,504,054 85,898,323 Short term finance 7,899,753 4,089,264 Assigned capital and reserve deposits 10,706,662 9,921,283

643,091,489 581,951,055

Interest expenseCustomers deposits 141,194,315 145,959,881 Borrowed funds 24,519,035 29,760,321 Others - 18,167

165,713,350 175,738,369

Net interest income 477,378,139 406,212,686

8 FEE AND COMMISSION INCOME 2011 2010

Commissions on pay orders 47,800,529 37,413,681 Commissions on guarantees 3,955,884 3,161,226 Commissions on documentary credits 3,598,122 3,213,438 Commissions on discounting of bills 4,559,249 2,713,248 Commissions on card operations 212,892,655 155,186,248 Others 13,538,692 11,791,484

286,345,131 213,479,325

Fee and commission expensesCredit card expenses (112,350,425) (87,853,573)

Net fees and commission 173,994,706 125,625,752

(All amounts in Maldivian Rufiyaa unless otherwise stated)

(b) By geographical segment

The Bank operates only in Republic of Maldives.


9 DIVIDEND INCOME 2011 2010

Available-for-sale securities 121,262 54,914

10 OTHER OPERATING INCOME 2011 2010

Telex and fax charges recoveries 5,910,959 5,001,457 Recovery of non-performing advances 4,483,764 4,024,189 Reversal of general provision [Note 23(a)] 43,393,235 - Recovery of specific provision [Note 23(a)] 40,870,044 7,134,734 Profit on disposal of property, plant and equipment 180 51,332 Others 9,703,231 9,231,726

104,361,413 25,443,438

11 STAFF COSTS 2011 2010

Staff costs 156,564,947 146,744,765

Staff cost wholly represents salaries, bonus, allowances and training cost.The average number of persons employed by the Bank during the year was 802 (2010: 779).

12 PREMISES, EQUIPMENT AND ESTABLISHMENT ExPENSES 2011 2010

Depreciation (Note 29) 18,577,864 31,159,851 Amortisation (Note 30) 9,423,081 3,643,229 Operating lease rentals- property 9,581,649 9,044,572 Electricity 13,897,733 10,958,695 Insurance 846,924 1,314,379 Repairs and maintenance 10,671,943 8,048,081 Loss on sale of assets - 5,185 Others 733,981 534,966

63,733,175 64,708,958

13 PROVISION FOR BAD AND DOUBTFUL DEBTS 2011 2010

Specific provision for loans and advances 508,244,221 180,912,694 General provision for loans and advances 3,214,346 33,566,227

511,458,567 214,478,921



14 OTHER OPERATING ExPENSES 2011 2010

Directors fees 1,311,640 1,470,065 Legal charges 1,505,096 1,342,718 Auditors’ remuneration 630,239 493,457 Donations 85,000 575,419 Consultancy fees 867,574 919,142 Software license fees 16,072,051 9,787,287 Card fraud losses 193,045 588,060 Stationery expenses 6,893,408 7,162,040 Communication expenses 9,950,643 9,949,218 Allowance for falling value of investment (Note 27) 4,810,453 1,614,547 Others 15,341,362 19,494,324

57,660,511 53,396,277

15 BANK PROFIT TAx ExPENSES 2011 2010

Current tax - 72,913,940 Adjustments in respect of prior year 25,374 3,558,166 Deferred tax (Note 35) 7,272,209 (40,184,629)

7,297,583 36,287,477

The tax on Bank’s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:

2011 2010

Profit before tax 7,297,583 87,273,708

Tax calculated at a tax rate of 25% 1,824,396 21,818,427 Adjustments in respect of prior year 25,374 3,558,166 Expenses not deductible for tax 5,447,813 10,910,884

7,297,583 36,287,477

Further information about deferred income tax is presented in Note 35.

16 DIVIDENDS

Dividends payable are not accounted for until they have been ratified at the Annual General Meeting. No dividend was declared during the financial years 2010 and 2011.



17 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

2011 2010

Net profit attributable to shareholders - 50,986,231 Weighted average number of ordinary shares in issue 5,381,920 5,381,920 Basic earnings per share - 9.47

18 CASH AND SHORT TERM FUNDS 2011 2010

Cash in hand 441,740,330 332,528,862 Balances with other banks 77,719,708 45,016,518 Money at call and short notice 121,805,046 84,580,685 Treasury Bills with original maturity less than three months 912,437,268 893,634,684

1,553,702,352 1,355,760,749

19 BALANCES WITH MALDIVES MONETARY AUTHORITY (MMA) 2011 2010

Reserve deposit 2,055,257,149 1,701,520,810

Current 2,055,257,149 1,701,520,810

MANDATORY RESERVE DEPOSITS WITH MMA :

MMA regulations on minimum reserve require the commercial banks to maintain a reserve of 25% of demand and time liabilities (excluding interbank liabilities) and margin deposits for Male’ based branches, and 15% for other branches. For the purpose of foreign curency minimum reserve requirement, the Bank is required to maintain 3% of the reserve requirement in local currency. These deposits are not available for bank’s day to day operation.

Reserve deposits carry interests at rate of 1% and 0.05% per annum on the Rufiyaa and Dollar deposits respectively till Sep 2011. From Oct 2011, Dollar reserve deposits carry interest of 0.01% per annum.

20 CASH AND CASH EQUIVALENTS

For the purposes of cash flow statement, cash and cash equivalents comprise the following balances with less than 90 days maturity:

2011 2010

Cash and short term funds (Note 18) 641,265,084 462,126,065 Treasury Bills with original maturity less than three months 912,437,268 893,634,684

1,553,702,352 1,355,760,749



21 LOANS AND ADVANCES TO CUSTOMERS 2011 2010

Gross 7,229,386,728 7,346,742,017 Less : Provision for impairment [Note 23 (a)] (1,446,615,250) (1,515,097,050)Less : Interest in suspense (Note 24) (723,035,649) (629,227,734)

Net total 5,059,735,829 5,202,417,233

Comprising:Bills of exchange (Note 22) 11,244,625 17,577,667 Loans and advances (Note 23) 5,048,491,204 5,184,839,566

22 BILLS OF ExCHANGE 2011 2010

Import bills 14,105,752 22,326,231 Less : Provision for impairment [Note 23 (a)] (779,903) (2,461,226)Less : Interest in suspense [Note 24] (2,081,224) (2,287,338)

Net bills of exchange 11,244,625 17,577,667

Current 9,255,158 15,469,232 Non-current 1,989,467 2,108,435

23 LOANS AND ADVANCES 2011 2010

Overdrafts 1,114,270,293 1,160,761,220 Development banking loans 233,013,293 220,723,858 Loans under EIB refinance scheme for restoration of resorts affected by Tsunami 742,541,217 724,498,225 Other commercial term loans 4,875,167,303 5,011,179,663 Trust receipts 36,811,300 7,727,468 Credit card balances 147,068,023 136,020,452 Staff loans 66,409,547 63,504,900

7,215,280,976 7,324,415,786

Less : Provision for impairment [Note 23 (a)] (1,445,835,347) (1,512,635,824)Less : Interest in suspense (Note 24) (720,954,425) (626,940,396)

Net loans and advances 5,048,491,204 5,184,839,566

Current 1,852,579,842 1,854,191,768 Non-current 3,195,911,362 3,330,647,798



(a) Movement in provision for impairment are as follows:

2011 2010

(i) Specific provisionBalance at 1 January-As previously reported 546,129,637 429,491,792 Correction of previously understated provision (Note 38) 879,881,139 842,089,510 - As restated 1,426,010,776 1,271,581,302 Amount recovered during the year (40,870,044) (7,134,734)Provision made during the year 508,244,221 180,912,694 Loans written off during the year as uncollectible (606,529,154) (9,379,645)Exchange differences 104,124,681 (9,968,841)Balance at 31 December 1,390,980,480 1,426,010,776

2011 2010

(ii) General provisionBalance at 1 January 89,086,274 55,884,570 Provision made during the year 3,214,346 33,566,227 Provision reversal (43,393,235) - Exchange differences 6,727,385 (364,523)

Balance at 31 December 55,634,770 89,086,274

Total 1,446,615,250 1,515,097,050

Represented by:Loans and advances 1,445,835,347 1,512,635,824 Bills of exchange 779,903 2,461,226 Total 1,446,615,250 1,515,097,050

Provision for impairment of loans and advances made during earlier financial years was not adequate to comply with the Prudential Regulation on asset classification and loan loss provision prescribed by MMA. The correction of this error amounting to MVR 879,881,139 has been accounted under prior year adjustment by restating prior year figures and adjusting the opening balance of retained earnings of 2010 (for the errors upto 2009) and 2011 (for the error in 2010 amounting MVR 37,791,629 and cumulative errors upto 2009) by MVR 842,089,509 and MVR 879,881,139 respectively.

24 MOVEMENT IN INTEREST IN SUSPENSE 2011 2010

Balance at 1 January 629,227,734 334,026,327 Amount suspended during the year 392,153,227 323,607,261 Amount reversed due to recovery (60,985,075) (14,544,421)Exchange differences 104,044,680 (7,884,726)Loans written off during the year (341,404,917) (5,976,707)

Balance at 31 December 723,035,649 629,227,734

Represented by:Loans and advances 720,954,425 626,940,396 Bills of exchange 2,081,224 2,287,338

723,035,649 629,227,734



25 ASSETS QUALITY

Non performing assets included as advances and bills of exchange on which interest is not being accrued are as follows:

2011 2010

Loans and advances 2,512,512,976 2,367,925,596 Bills of exchange 4,850,593 6,700,744

2,517,363,569 2,374,626,340

26 FINANCIAL ASSETS HELD TO MATURITY 2011 2010

Treasury Bills with original maturity more than three months 403,264,985 430,705,731

Current 403,264,985 430,705,731

During the year 2010, treasury bills with face values of MVR 200 million were pledged as securities under facility agreements with State Bank of India, Mauritius in favour of them to guarantee the credit facility. These are separately reclassified as pledged assets on the face of Balance Sheet. The facility agreements matured within 12 months (Note 28).

27 INVESTMENT AVAILABLE-FOR-SALE

Available-for-sale

Total

2011

Total

2010

At the beginning of the year 5,079,115 5,079,115 6,425,000 Additions - - 268,662 Exchange differences 50,584 50,584 -

At the end of the year 5,129,699 5,129,699 6,693,662 Less: allowance for falling value of investment (4,810,453) (4,810,453) (1,614,547)

319,246 319,246 5,079,115

Non-current 319,246 319,246 6,693,662

Available-for-sale investments consist of investment in equity shares of MFLC, are stated at cost less allowance for falling value of investment, since the fair value of these unlisted shares and bonds cannot be measured reliably.



28 ASSETS PLEDGED AS COLLATERAL

Assets are pledged as collateral under the credit facility agreements with other banks. The nature and carrying amounts of the assets pledged as collaterals are as follows:

Assets 2011 2010

Financial assets held to maturity - 199,095,018

Related liability

Borrowings from State Bank of India, Mauritius - 192,000,000

During the year 2010, treasury bills with face values of MVR 200 million were pledged as securities under facility agreements with State Bank of India, Mauritius in favour of them to guarantee the credit facility. The facility agreement matured within 12 months.

29 PROPERTY, PLANT AND EQUIPMENT

Bank

premises

Leasehold

buildings

Computer

equipment

Furniture

and

equipment

Motor

vehicles

and Vessels

Capital

work- in-

progress

Total 2011 Total 2010

Cost of property, plant

and equipment

Balance at beginning of the year

102,894,257

6,947,404 112,984,896 25,857,811 8,611,652 - 257,296,020 264,909,838

Additions during the year 194,369 239,795 9,744,267 1,412,200 - 2,351,466 13,942,097 56,988,261

Transfer to intangible assets(Note 30)

- - - - - - - (64,101,140)

Disposals during the year - - (71,100) (55,952) - - (127,052) (500,939)

Balance at end of the year 103,088,626 7,187,199 122,658,063 27,214,059 8,611,652 2,351,466 271,111,065 257,296,020

Accumulated depreciation

Balance at beginning of the year

41,112,441 4,746,243 93,476,695 20,844,299 8,036,416 - 168,216,094 171,348,704

Transfer to intangible assets (Note 30)

- - - - - - - (33,825,964)

Depreciation for the year (Note 12)

5,148,795 914,494 9,181,661 3,028,270 304,644 - 18,577,864 31,159,851

Depreciation on disposals - - (71,100) (52,612) - - (123,712) (466,497)

Balance at end of the year 46,261,236 5,660,737 102,587,256 23,819,957 8,341,060 - 186,670,246 168,216,094

Net book value at end of the year

56,827,390 1,526,462 20,070,807 3,394,102 270,592 2,351,466 84,440,819 89,079,926

(a) Some of the branch offices operate from premises leased from third parties, for which an aggregate sum of MVR 9,581,649 (2010 - MVR 9,044,572) were paid as operating lease rentals.

(b) The cost of fully depreciated assets at the Balance Sheet date amounted to MVR 103,211,843 (2010 - MVR 86,410,550)



30 INTANGIBLE ASSETS Computer softwares

and licenses Total Cost 2011

Balance at beginning of the year 69,398,268 69,398,268 Additions during the year 2,745,843 2,745,843

Balance at end of the year 72,144,111 72,144,111

Accumulated amortisation

Balance at beginning of the year 37,469,193 37,469,193 Amortisation for the year (Note 12) 9,423,081 9,423,081


Net book value 25,251,837 25,251,837

Cost 2010

Balance at beginning of the year - - Transfer from property, plant and equipment (Note 29) 64,101,140 64,101,140 Additions during the year 5,297,128 5,297,128


Accumulated amortisation

Balance at beginning of the year - - Transfer from property, plant and equipment (Note 29) 33,825,964 33,825,964 Amortisation for the year (Note 12) 3,643,229 3,643,229


Net book value 31,929,075 31,929,075

(a) The cost of fully amortised intangible assets at the Balance Sheet date amounted to MVR 25,679,475 (2010 - MVR 23,263,955)



31 OTHER ASSETS 2011 2010

Deposits and prepayments 47,325,234 47,200,924 Other debtors 83,371,630 29,923,959

130,696,864 77,124,883

Current 130,696,864 77,124,883

32 DEPOSITS FROM NON-BANK CUSTOMERS 2011 2010

Current account deposits 3,180,503,039 2,925,120,441 Saving deposits 3,319,812,782 3,090,547,558 Term deposits 938,209,444 952,391,234 Margins on letters of credit 28,966,885 17,235,667 Margins on trust receipt demand loan 17,771,923 - Margins on bank guarantee 33,497,640 27,283,942

7,518,761,713 7,012,578,842

2011 2010

CurrentNon-current

7,514,488,590 7,008,566,678 4,273,123 4,012,164

Included in customer accounts are deposits of MVR 77,294,703 ( 2010: MVR 48,807,609) held as collateral for irrevocable commitments under import letters of credit and bank guarantees.

All deposits have fixed interest rates.

33 CUSTODIAN ACCOUNT OF MALDIVES RETIREMENT PENSION SCHEME 2011 2010

Opening balance 19,767,111 - Collection from beneficiaries 748,286,395 200,569,332 Disbursement to beneficiaries towards:- payment of pension (6,339,039) (319,941)- their investment in financial instruments (1,315,010,007) (197,491,522)Proceed received on maturity of investments 612,589,561 17,009,242

59,294,021 19,767,111



2011 2010

Current 59,294,021 19,767,111

MPAO paid a fee of MVR 595,595 (2010: MVR 390,540) to the Bank through MPAO operating account for the custodian service.

Funds of Maldives Pension Retirement Scheme is invested in following financial assets: Rate/discount Duration

-Government securities 5.35% - 6.97% 3 - 6 months -Term deposits 2.75% - 5% 3 - 6 months -Sharia investments 4% 6 months -Equity investments - -

34 BORROWINGS 2011 2010

Government of Maldives loans under:IFAD credit line 27,128,577 23,908,120 OPEC credit line 3,757,636 4,377,660 EIB credit line 797,672,102 748,613,146 ADB credit line 11,523,599 -

Other foreign bank borrowings 119,358,926 457,869,051 Local banks - 25,600,000

959,440,840 1,260,367,977


Acronyms:

IFAD -International Fund for Agricultural Development OPEC -Organization of Petroleum Exporting Countries EIB -European Investment Bank ADB -Asian Development Bank

Maturity of borrowings 2011 2010

Not later than 1 year 149,018,918 485,929,747 Later than 1 year and not later than 5 years 501,957,684 448,695,265 Over 5 years 308,464,238 325,742,965

959,440,840 1,260,367,977

Borrowings at floating rates with a fixed spread 820,701,028 1,133,948,865 Borrowings at fixed rates 138,739,812 126,419,112

959,440,840 1,260,367,977



35 DEFERRED INCOME TAxES

Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 25%.

The movement on the deferred tax account is as follows :

2011 2010 At the beginning of the year- As previously reported (6,053,108) (7,032,146)Correction of previously unrecognised DTA (Note 38) 264,668,419 225,462,828 - As restated 258,615,311 218,430,682

Provision for impairment of loans and advances 154,559,167 45,826,396 Deferred tax asset reversed on write-off/recovery (161,849,800) (6,620,805)Decelerated tax depreciation 18,424 979,038

At end of the year 251,343,102 258,615,311

The deferred tax charge in the income statement represent the following temporary difference:

2011 2010 Decelerated tax depreciation 18,424 979,038 Provision for impairment of loans and advances 154,559,167 45,826,396 Deferred tax asset reversed on loans write-off/recovery (161,849,800) (6,620,805)

(7,272,209) 40,184,629

Further the Bank has not recognised the deferred tax asset arising out of timing difference between the book value of provision for impairment of loans and advances and tax base of provisions for impairment of loans and advances upto the year 2010, which result in creating a deductible temporary difference. The correction of this error amounting to MVR 264,668,419 has been accounted under prior year adjustment by restating prior year figures and adjusting the opening balance of retained earnings of 2010 (for the errors upto 2009) and 2011 (for the error in 2010 amounting MVR 39,205,591 and cumulative errors upto 2009) by MVR 225,462,828 and MVR 264,668,419 respectively.

36 OTHER LIABILITIES 2011 2010

Accrued expenses 20,043,045 20,497,282 Employees provident fund 88,931,881 81,864,918 Other liabilities 3,925,944 5,113,659 Sundry creditors 25,430,873 3,953,125 Development funds (Refer note below) 95,617,139 80,333,273 Items in transit 11,594,575 1,271,538

245,543,457 193,033,795

2011 2010




The Bank manages and administers several loan schemes under which the bank, as a custodian receives funds from various donors and disburses such funds to beneficiaries. The movement in these development funds given below:

Development Funds 2011 2010

Opening balance 212,389,660 165,756,256 Amount received 14,535,504 43,761,782 Add: Interest accrued on loans during the year 9,343,424 6,877,145 Less: Interest on loan given to fund (743,828) (1,737,449)Less: Administration fees (3,000,140) (2,268,074)

232,524,620 212,389,660 Less: Loans and advances at the year-end (136,907,481) (132,056,387)

95,617,139 80,333,273

37 ORDINARY SHARES AND SHARE PREMIUM

Number

of shares

Ordinary

shares

Share

premium

Total

At 31 December 2010 5,381,920 269,096,000 93,000,000 362,096,000 At 31 December 2011 5,381,920 269,096,000 93,000,000 362,096,000

The total authorised number of ordinary shares at the year end was 16,000,000 (2010: 16,000,000) with a par value of MVR 50 (2010: MVR 50) per share. All issued shares are fully paid.

38 PRIOR YEAR ADJUSTMENT

Provision for impairment of loans and advances made during earlier financial years was not adequate to comply with the Prudential Regulation on asset classification and loan loss provision prescribed by MMA. The correction of this error amounting to MVR 879,881,139 has been accounted under prior year adjustment by restating prior year figures and adjusting the opening balance of retained earnings of 2010 (for the errors upto 2009) and 2011 (for the error in 2010 amounting MVR 37,791,629 and cumulative errors upto 2009) by MVR 842,089,509 and MVR 879,881,139 respectively.

Further the Bank has not recognised the deferred tax asset arising out of timing difference between the book value of provision for impairment of loans and advances and tax base of provisions for impairment of loans and advances upto the year 2010, which result in creating a deductible temporary difference. The correction of this error amounting to MVR 264,668,419 has been accounted under prior year adjustment by restating prior year figures and adjusting the opening balance of retained earnings of 2010 (for the errors upto 2009) and 2011 (for the error in 2010 amounting MVR 39,205,591 and cumulative errors upto 2009) by MVR 225,462,828 and MVR 264,668,419 respectively.



The total effect on the balance of retained earning is as follows:

In 2010 Upto 2009Inadequate provision for impairement of loans advances - current year - 37,791,629 - prior year 879,881,139 842,089,510

879,881,139 879,881,139

Recognition of deferred tax assets - current year - 39,205,591 - prior year 264,668,419 225,462,828

264,668,419 264,668,419 615,212,720 615,212,720

The treatment relating to the correction of these errors have been accounted as prior year adjustments and this is considered to give a fairer presentation of the result for the year and assets and liabilities at the Balance Sheet date.

39 RESERVES 2011 2010

Statutory reserve 150,000,000 150,000,000 Assigned capital reserve 6,000,000 6,000,000 General reserve 248,784,005 248,784,005

Total reserves at end of year 404,784,005 404,784,005

Movement in reserves were as follows:

Statutory reserveAt beginning of year 150,000,000 150,000,000

At end of year 150,000,000 150,000,000

Assigned capital reserveAt beginning of year 6,000,000 6,000,000

At end of year 6,000,000 6,000,000

As per the subsidiary loan agreement between the Bank and the Government of the Republic of Maldives, on Atolls credit and development banking project, the bank made a reserve of MVR 6 million as Assigned capital reserve.

Total statutory and assigned capital reserves

At beginning of year 156,000,000 156,000,000

At end of year 156,000,000 156,000,000



Restated General reserve 2011 2010

Balance at 1 January- As previously reported 814,424,456 814,424,456 Correction of impairment of loans and advances and deferred tax asset (565,640,451) (565,640,451)- As restated 248,784,005 248,784,005 At end of year 248,784,005 248,784,005

40 CONTINGENCIES

(a) Contingent liabilities and commitments

In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated as a result of these transactions. The commitments are quantified below;

2011 2010

Loan commitments 554,669,174 431,903,590 Acceptances 62,439,530 37,063,903 Letters of credit 112,910,851 116,978,594 Guarantees 117,043,218 170,128,404

847,062,773 756,074,491

(b) Unutilised irrevocable commitments

The unutilised value of irrevocable commitments relating to letters of credit, acceptances and permanent overdrafts which cannot be withdrawn at the discretion of the Bank, without risk of incurring significant penalties or expenses approximates to MVR 220,907,606 (2010: MVR 265,287,765) as at the Balance Sheet date.

(c) Investment

The Board of Directors of Bank of Maldives Plc has subscribed and paid at par value for a shareholding upto 10 (ten) percent in the total equity share capital of MFLC at an aggregate amount equal to US$. 500,000 (MVR 6,425,000). The Bank is required to enter into a Put Option agreement with International Finance Corporation (IFC) and under the said Put Option, IFC shall have the right to sell its shares in MFLC as specified in the Put Option to, inter alia, the Bank, and the Bank is obliged to purchase from IFC the shares thus offered to the Bank. The Bank’s said obligations under the Put Option may be continued as an unquantifiable contingent liability and the Government has agreed to indemnify the Bank against such contingent liability.

(d) Contingent assets

There were no material contingent assets recognised at the Balance Sheet date.



41 CONTINGENT LIABILITIES AND COMMITMENTS

(a) Legal proceedings

The bank, in normal course of business, files cases against the customer to recover long outstanding loans and advances. There were a number of pending legal proceedings filed by the Bank at 31 December 2011. Except for any liabilities that may arise as a result of the ruling against the bank in relation to cases filed, in the opinion of the directors, there are no other legal action against or instituted by the Bank or other matters that will give rise to material contingent liabilities to be recognised or disclosed in the financial statements.

(b) Capital commitments

There were no material capital commitments outstanding as at the Balance Sheet date.

(c) Operating lease commitments

The future minimum lease payments under non-cancellable operating leases are as follows:

2011 2010

Not later than 1 year 10,182,945 7,453,440 Later than 1 year and not later than 5 years 30,458,043 23,081,760 Later than 5 years 8,134,340 11,915,320

48,775,328 42,450,520

42 CASH GENERATED FROM OPERATIONS

Reconciliation of net profit to cash generated from operations: 2011 2010

Profit before tax 7,297,583 87,273,708

Adjustments for :

Depreciation (Note 12) 18,577,864 31,159,851 Amortisation (Note 12) 9,423,081 3,643,229 Profit on sale of property, plant and equipment (Note 10) (180) (51,332)Loss on sale of property, plant and equipment (Note 12) - 5,185 (Decrease) / increase in provision for other losses (1,238,299) 2,639,034 Provision for bad and doubtful debts (Note 13) 511,458,567 214,478,921 Reversal of general provsion (Note 10) (43,393,235) - Recovery of specific provision (Note 10) (40,870,044) (7,134,734)Allowance for falling value of investment (Note 14) 4,810,453 1,614,547 Increase in interest receivables (15,294,212) (4,620,980)Decrease in accrued expenses (454,237) (12,932,138)Decrease / (increase) in prepayments and advances (124,310) 59,072,489

Cash generated from operations 450,193,031 375,147,780



43 RELATED PARTY TRANSACTIONS

The Bank is controlled by Government of Maldives which owns a 51% of the ordinary shares. The remaining 49% of the shares are widely held.

A number of banking transactions are entered into with State controlled entities in the normal course of business. These include loans, deposits, trade finance and foreign currency transactions. The volume of related party transactions and outstanding balances at the year end are as follows:

Directors and

related entities

Government and

related entities 2011 2010 2011 2010

LoansLoans outstanding at 1 January 32,583,839 129,898,180 706,599,348 815,600,271

Loans issued during the year 5,382,428 552,650 182,211,404 55,516,607

Loan repayments during the year (5,448,500) (97,866,991) (190,637,880) (164,517,530)

Loans outstanding at 31 December 32,517,767 32,583,839 698,172,872 706,599,348

2011 2010 2011 2010 DepositsDeposits at 1 January 13,838,433 11,870,724 1,240,860,078 2,080,880,279 Net increase in deposits during the year 13,467,983 1,967,709 158,740,314 (840,020,202)

Deposits at 31 December 27,306,416 13,838,433 1,399,600,392 1,240,860,078

2011 2010 2011 2010 Other transactions with related parties

Guarantees issued by the Bank - - 43,499,561 19,309,102 - - 43,499,561 19,309,102

Key management compensation 2011 2010

Salaries and other short term benefits 6,772,378 6,713,655 Termination benefits 4,710,761 4,189,024

11,483,139

10,902,679

The Bank invests in Treasury Bills issued by the Maldives Monetary Authority (on behalf of Government of Maldives). At the Balance Sheet date value of outstanding Treasury Bills was amounting to MVR 1,315,702,253 (2010: MVR 1,523,435,433). In addition to this, the Bank also utilised other products of MMA such as Open Market Operation (OMO) and Overnight Placement during the year 2011.

Empowered by the Article 4(c) of MMA Act, the Financial sector division of the Maldives Monetary Authority carries out the regulatory and supervisory functions of the banks licensed by the Authority. The Bank of Maldives Plc which had been funded by the Government and having a significant influence, falls under the supervision of this division. Please refer Note 19 to the financial statements for outstanding balance with the Authority.

44 POST BALANCE SHEET EVENTS

No events have occurred since the Balance Sheet date, which would require adjustments to, or disclosure in, the financial statements.



Investor Information

Investor InformationCapital StructureThe Authorised and Paid-up Share Capital of the Bank during the financial year 2011 remained unchanged at MVR 800,000,000/- , whereas the Issued, Subscribed and Paid-up Capital of the Bank as at 31st December 2011 remained at MVR 269,096,000/-.

Shareholding Structure2011 2010

Shareholders

Total

Shares

Share

Capital

(in MVR) %

Total

Shares

Share Capital

(in MVR) %Government (MOFT) 2,733,868 136,693,400 50.80% 2,733,868 136,693,400 50.80%Government Employees Provident Fund 394,380 19,719,000 7.33% 394,380 19,719,000 7.33%State Trading Organization PLC (STO) 228,566 11,428,300 4.25% 228,566 11,428,300 4.25%Maldives Transport and Contracting Company PLC (MTCC) 219,096 10,954,800 4.07% 219,096 10,954,800 4.07%Atoll/Island Community Accounts 219,096 10,954,800 4.07% 219,096 10,954,800 4.07%General Public 1,586,914 79,345,700 29.48% 1,586,914 79,345,700 29.48%Total 5,381,920 269,096,000 100.00% 5,381,920 269,096,000 100.00%

Shareholding Structure

As per the share register, as of 31st December 2011.

P106Investor Information

Share Price MovementThe Bank’s shares were the most traded shares in the Maldives Stock Exchange during the year 2011. A total of 37 trade transactions were conducted in which 9,178 shares of the Bank were traded. The Weighted Average Price over the year was MVR 74.34 and the total value of the shares traded was MVR 682,322.00. At the beginning of the year 2011, the market price per share stood at MVR 143.00. The first traded price was MVR 120.00 per share while the last traded price at the close of the year was MVR 73.00. The highest quoted price during the year amounted to MVR 120.00 while the lowest amounted to MVR 64.00.

2011 2010Market Statistics (In MVR)First Traded Price 120.00 140.00Highest Price 120.00 145.00Lowest Price 64.00 90.00Last Traded Price 73.00 143.00Weighted Average Price 74.34 120.30Market Capitalization at financial year end 392,880,160 769,614,560

Information on Share TradingNumber of Transactions 37 38Number of Shares Traded 9,178 3,349Value of Shares Traded (in MVR) 682,322 402,885

P107Investor Information

Our Contacts

Our ContactsHEAD OFFICE

Bank of Maldives PLC

11, Boduthakurufaanu Magu

Male’ City, 20094

Republic of Maldives

Company Registry No. C-22/1982

Tel: +(960) 333 0102

Fax: +(960) 332 8233

Swift: MALBMVMV

Website: www.bankofmaldives.com.mv

e-mail: [email protected]

CALL CENTRE


Shamsudeen Bodufadiyaaru Thakurufaanu Magu

Seenu Hithadhoo, Addu City, 19020


Tel: +(960) 333 0200

Fax: +(960) 333 8041


BRANCHES

MAIN BRANCH


1st & 3rd Floor, Head Office

Boduthakurufaanu Magu,

Male’ City, 20094


Tel: +(960) 333 0144

Fax: +(960) 333 0180


BAZAR BRANCH


Ground,1st & 2nd Floor, Sea Tracs Building


Male’ City, 20251


Tel: +(960) 333 0222

Fax: +(960) 333 0220


DHIDHDHOO BRANCH


Ghaazee Magu

Haa Alifu Dhidhdhoo, 01100


Tel: +(960) 650 0066

Fax: +(960) 650 0573


EYDHAFUSHI BRANCH


Maalhosmadulu Dhekunuburee

Atholhuge No. 02

Baa Eydhafushi


Tel: +(960) 660 8428

Fax: +(960) 660 8431


FONADHOO BRANCH


66, Andhaleebu Magu

Laamu Fonadhoo, 15080


Tel: +(960) 680 0729

Fax: +(960) 680 0781


FUNADHOO BRANCH


Mila Uthuru Keesa

Shaviyani Funadhoo, 03150


Tel: +(960) 654 0596

Fax: +(960) 654 0597


FUVAHMULAK BRANCH


Valifannu Magu, Maadhadu

Gnaviyani Fuvahmulah, 18014


Tel: +(960) 686 5003

Fax: +(960) 686 0665


GAN BRANCH


Maradhoofeydhoo, 19050, Addu City


Tel: +(960) 689 8014

Fax: +(960) 689 8087


P109Our Contacts

HITHADHOO BRANCH


Shamsudeen Bodufadiyaaru

Thakurufaanu Magu

Seenu Hithadhoo, Addu City, 19020


Tel: +(960) 688 5011

Fax: +(960) 688 5013


HULHUMALE’ BRANCH


Unit C-G-05, Bageechaa Higun

Hulhumale’, 23000, Male’ City


Tel: +(960) 335 0067

Fax: +(960) 335 0526


HULHUMEEDHOO BRANCH


Bahaaudhdheen Magu

Hulhumeedhoo, 19060, Addu City


Tel: +(960) 6894663

Fax: +(960) 6894029


KUDAHUVADHOO BRANCH


Beach Heaven

Dhaal Kudahuvadhoo


Tel: +(960) 676 0616

Fax: +(960) 676 0615


KULHUDHUFFUSHI BRANCH


Haa Dhaalu Kulhudhuffushi, 02110


Tel: +(960) 652 8813

Fax: +(960) 652 7611


MAHIBADHOO BRANCH


Atholhu Vehi

Alif Dhaal Mahibadhoo


Tel: +(960) 668 0850

Fax: +(960) 668 0849


MAJEEDHEEMAGU BRANCH


Ma. Banff Villa (1st, 2nd & 3rd Floor)

Majeedhee Magu,

Male’ City, 20259


Tel: +(960) 333 0202

Fax: +(960) 333 0212

e-mail: majeedheemagu.

[email protected]

MALE’ INTERNATIONAL

AIRPORT BRANCH


Hulhule, 22000, Male’ City


Tel: +(960) 331 5211

Fax: +(960) 332 2550


MANADHOO BRANCH


Atolhu Rayyithunge Ijthimaaee Marukazu

Noonu Manadhoo


Tel: +(960) 656 0583

Fax: +(960) 656 0582


MULI BRANCH


22, Rankokaa Magu

Meemu Muli, 11050


Tel: +(960) 672 0001

Fax: +(960) 672 0594


NAIFARU BRANCH


Marine Drive

Lhaviyani Naifaru, 07020


Tel: +(960) 662 0393

Fax: +(960) 662 0781


RASDHOO BRANCH


Atholhu Vehi

AA. Rasdhoo


Tel: +(960) 666 0849

Fax: +(960) 666 0848


THINADHOO BRANCH


Varuhagu Magu

Gaafu Dhaalu Thinadhoo, 17100


Tel: +(960) 684 1002

Fax: +(960) 684 1984


P110Our Contacts

UNGOOFAARU BRANCH


Ungoofaaru Rayyithunge Rahvehige

Miskiy Magu

Raa Ungoofaaru 05060


Tel: +(960) 658 0272

Fax: +(960) 658 0384


VEYMANDOO BRANCH


Haveeree Hingun

Thaa Veymandoo, 14110


Tel: +(960) 678 0610

Fax: +(960) 678 0596


VILLIMALE’ BRANCH


Sheikh Abdul Rahman Magu

Block No. 31

Villingili, Male’ City, 21017


Tel: +(960) 339 1650

Fax: +(960) 339 1651


VILLIGILLI BRANCH


Dhambugas Magu

Gaafu Alifu Villingili, 16020


Tel: +(960) 682 0116

Fax: +(960) 682 0005


DIVISIONS

CARD SERVICES & E-BANKING


2nd Floor, Sea Tracs Building

Boduthakurufaanu Magu

Male’ City, 20251


Tel: +(960) 333 0200

Fax: +(960) 333 8041


CORPORATE AFFAIRS DEPARTMENT


7th Floor, Head Office

11, Boduthakurufaanu Magu,

Male’ City, 20094


Tel: +(960) 333 0192

Fax: +(960) 332 8233


CORPORATE BANKING DIVISION




Male’ City, 20094


Tel: +(960) 333 0500

Fax: +(960) 301 5331


LEGAL DEPARTMENT




Male’ City, 20094


Tel: +(960) 301 5334

Fax: +(960) 332 8233


FINANCE DIVISION


2nd Floor, Head Office


Male’ City, 20094


Tel: +(960) 333 0198

Fax: +(960) 333 0249


INTERNAL AUDIT DEPARTMENT


4th Floor, Sea Tracs Building


Male’ City, 20251


Tel: +(960) 333 0181

Fax: +(960) 333 0513

e-mail: internalaudit.

[email protected]

INTERNATIONAL BANKING UNIT


2nd Floor, Sea Tracs Building


Male’ City, 20251


Tel: +(960) 333 0158

Fax: +(960) 333 2640

e-mail: internationalbanking.

[email protected]

P111Our Contacts

ANNUALREPORT

2011

BANK OF MALDIVES PLC11 Boduthakurufaanu Magu, Male’ 20094

Republic of MaldivesTel: +960 3322948 Fax: +960 3328233

Email: [email protected]

BML Annual Report 2011 - English

Documents

Transcript of BML Annual Report 2011 - English