En Financial 02

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20 EN BANKAnnual Report 2006

role by providing its corporate clients with tailor-made corporate finance services, including cash management, structured finance

as well as merger and acquisition finance. In this context, EN Bank wants to carve out a special market position with Iraniansmall and medium size enterprises.

International BankingSince 2004 EN Bank holds a license from the Central Bank of Iran to conduct international banking activities. During 2006 the

bank worked hard on optimizing the range of its services, providing its customers with full support in a global economy.

Services include letters of credit, guarantees, forex saving and current accounts as well as various correspondent banking services.

To facilitate international banking for customers with business interests in different parts of the world, EN Bank expanded in

2006 the number of its correspondent banks to 37, including major banks and financial institutions in Europe, the Persian Gulf

and the Far East.

EN Banks international department has generated in its third year of activity a profit of US$ 7.4 million representing an increase

of 85% compared to the previous year.

Proprietary InvestmentsDuring 2006, EN Bank has invested both in listed and unlisted companies. In spite of the difficult situation in Irans capital market,

profit received from the investments amounted to Rials 16 billon (US$ 1.8 million). Due to a decrease in value of the Banks

portfolio of listed equities and the difference between the cost price and actual price at the balance sheet date in the amount

of Rials 42 billion (US$ 4.6 million), the net performance showed a loss of Rials 26 billion (US$ 2.8 million).

Support Functions

Information Technology

The emergence of new technology has shaped the way banks conduct their business today. Technological advances in hard

and software contribute to ease and speed of banking transactions. Therefore, state-of-the-art technology is at the heart of EN

Banks strive for improving profitability and customer satisfaction.

EN Bank is committed to continuously improve the efficiency of its IT system. Accordingly, the IT Committee of EN Bank has

reviewed existing weak points and managed various projects and initiatives including implementation of a comprehensive banking

software, expansion of electronic services (card services), better support for hardware and network systems, to name a few.

Electronic Banking Services

Telephone banking, Short Message System (SMS) banking, Internet banking and cash cards are available to EN Banks customers

with the convenience of ATMs operational at most branches.


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Outlook

In 2006, much was accomplished. EN Bank is, however, constantly reminded that the work is never

done and strives to improve and upgrade all aspects of its operation. During 2007 priority will be

given to the following areas:

Increasing the capital up to Rials 2,500 billion (US$ 273.5 million), enabling EN Bank to take

full advantage of new business and growth opportunities; further increases are planned for 2008

and 2009;

Increasing the number of our branches to 150 to reach full coverage of all major urban andindustrial areas in Iran; in 2007 and 2008 the number of branches shall further increase to 250

and 300 respectively;

Expanding and upgrading of electronic banking services for our customers;

Improving the banks organizational and operational systems to further enhance quality of service

and customer satisfaction;

Continued investment in human capital through advanced training courses in- and outside Iran

in all relevant fields involving all levels of employees;

Expanding and upgrading the electronic communication network between the various branches;

Upgrading of our monitoring and internal audit system, providing seamless supervision of all

operational aspects carrying risk;

Expanding of international operations and strengthening of the international network of

correspondent banks to provide customers with optimal support in their international business

activities;

Gaining access to inter-bank facilities from foreign banks;

Expanding our activities locally and internationally;

Developing a new 3-year strategic plan;

Outsourcing of non-core services to keep a lean organizational structure;

Implementing risk management program in all departments.


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Shareholders Equity

At the balance sheet date, EN Banks shareholders equity showed an increase by 100 % to Rials 1,126,707mln (US$ 123.2 mln) due to a 100% capital increase from Rials 500,000 mln (US$ 56.4 mln) to Rials

1,000,000 mln (US$ 109.4 mln) as well as an increase in the statutory reserve and retained earnings.

Net Profit

EN Banks net profit for the year 2006 rose by 10% to Rials 279,565 mln (US$ 30.9 mln), mainly due

to a 40% increase in the operating income.

Operating Income

EN Banks operating income experienced in 2006 a growth by 40% to Rials 505,566 mln (US$ 55.9 mln)

as a result of an increase in the net interest income by 81% and non-interest income by 25% respectively.

60

50

40

30

20

10

0MillionUSD

2004

2005

2006

140

120

100

80

60

40

20

0MillionUSD

2004

2005

2006

35

30

25

20

15

10

5

0MillionUSD

2004

2005

2006


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Operating Expenses

Operating expenses grew by 67% from Rials 42,272 mln (US$ 4.8 mln) in 2005 to Rials 70,824 mln (US$

7.8 mln) in 2006.

9

8

7

6

5

4

3

2

1

0MillionUSD

2004

2005

2006


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Customer Deposits

EN Bank offers short-, medium-, and long-term deposit accounts in both Rials as well as foreign

currencies. The depositors include individuals, small, medium and large corporations. To attract more

resources, EN Bank issued Certificates of Deposit with a fixed interest of 16%. Through sale of these

certificates the bank could raise Rials 437 billion (US$ 48.3 million). In addition, expansion in the

number of branches, improvement in the quality of services and establishment of an electronic banking

system caused the Bank's total customer deposits to increase by 130% in volume and 100% in number.

At balance sheet date EN Bank held Rials 11,952,160 mln (US$ 1,307.4 mln) in 228,790 deposit accounts.

Customer Loans

EN Bank offers different types of credit facilities all following the principles of Islamic usury-free

banking. Customers include individuals as well as corporates engaged in different types of activities.

All loans are secured by some type of collateral including residential or commercial properties, shares

of companies listed on the Tehran Stock Exchange and other negotiable instruments.

In 2006, the volume of customer loans increased by 101% to reach Rials 9,558,066 mln (US$ 1,045.5

mln), while the number of loans grew by 33%, reaching 30,069.

1400

1200

1000

800

600

400

200

0M

illionUSD

2004

2005

2006

1200

1000

800

600

400

200

0Millio

nUSD

2004

2005

2006


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Corporate Governance

Chief Executive

Officer

Independent

Auditor

General AssemblyGeneral assemblies provide shareholders once a year the opportunity to review the financial statements

and other reports prepared by the Board of Directors as well as the report of the independent statutory

auditor (inspector). General assemblies have the following authorities:

1. Determination of corporate objectives and ways to achieve them;

2. Appointment and removal of the Board of Directors and the independent auditor;

3. Approval of the financial statements as prepared by the Board of Directors; and

4. Approval of any dividends to be distributed among the shareholders.

Board of DirectorsIn accordance with the Iranian Commercial Code, as amended, the Board of Directors comprises five

seats, elected by the annual general assembly. The shareholders elect a legal entity to each seat and

the elected body appoints an individual as its representative on the Board of Directors for a two-year

term. After the election of the Board of Directors, the board members appoint two individuals from

among themselves to serve as the Chairman and the Vice-Chairman of the Board.

Board meetings are held once a week or more frequently at the discretion of either the Chairman of

the Board of Directors or the Chief Executive Officer with each meeting requiring the established

quorum prior to any resolutions being effective.

General Assembly

Board of Directors

Market RiskCommittee

Credit RiskCommittee

Liquidity RiskCommittee

OperationalRisk

Committee

Anti-MoneyLaunderingCommittee


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Risk Management

29

Risk management involves the identification, assessment and ongoing control of all financial and non-

financial risks that could have a negative impact on the bank's performance and reputation. This function

is not responsible for eliminating risks that are embedded in any banking business, but aims to effectively

manage these risks with the objective of enhancing returns over and above the degree of assumed risk.

Risk is financially evaluated as the potential impact on income and asset value, taking into consideration

changes in political, economic and market conditions, and the creditworthiness of the bank's clients.

The risk management function relies on the competence, experience and dedication of its professional

staff, sound risk management policies and procedures, and ongoing investment in technology and

training.

EN Bank promotes a strong risk management culture through a comprehensive set of processes designed

to effectively identify, measure, monitor and control risk exposures.

In its risk management policy, EN Bank aims for a balance between risk, return and capital. The overall

risk management is broken down into credit, operational, market and liquidity risks. Related systems

are in conformity with Basel II.

Liquidity Risk

Liquidity risk is the risk that arises from the difficulty of selling an asset. An investment may sometimesneed to be sold quickly. An insufficient secondary market may prevent the liquidation or limit the funds

that can be generated from the asset. Some assets are highly liquid and have low liquidity risk, while

other assets are highly illiquid and have high liquidity risk. In the banking industry, liquidity risk is

the banks inability to decrease the assets or to increase the liabilities. Main liquidity source for banks

as financial institutions are deposits which are mainly granted in the form of loans and other financial

facilities. To avoid probable liquidity risk, EN Bank monitors all granted loans and other financial

facilities on a daily and weekly basis. In this regards, the Bank uses a maturity ladder to ensure that

maturity dates of various groups of assets and liabilities match.

Market Risk

Market risk is the risk that the value of an investment will decrease due to moves in market factors.

The four standard market risk factors are:

Equity risk

Interest rate risk

Currency risk

Commodity risk

In order to control the equity risk through efficient risk measurement methodologies as well as

diversification in the investment portfolio, En Bank has established EN Investment Company.


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Credit Risk

Credit risk is the risk of loss due to a debtor's non-payment of a loan (either the principal or interest or both). In this regards

EN Bank applies a well-defined system for rating the creditworthiness of its clients on the basis of two main criteria; the nature

of the client's business activities and the financial performance. Furthermore, EN Bank is planning to establish a database to

keep client records and scoring.

Operational Risk

According to Basel II, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people

and systems, or from external events.

Implementation of electronic banking services and an integrated IT system, intensive training programs for employees, empowerment

of internal control systems and regular control of employees' performance through auditors enable EN Bank to identify and

manage the operating risk.

EN Bank risk management principals:

1. Reputation: A good reputation is of highest priority for EN Bank and tantamount for safeguarding the goodwill related to its

brand name. Employees are constantly reminded that they have to keep the bank's reputation in mind in everything they

do.

2. Unified Supervision: Risk management consists of risk identification, measurement, assessment and analysis. To have a

unified and seamless supervision of all risks taken, the bank's Risk Management Unit works independently from other

units.

3. Conformity with Laws: All EN Bank employees follow CBI regulations and obey state laws in all aspects of their work.

4. Financial Stability: EN Bank controls all financial and non-financial risks in order to minimize any negative impact on

revenues and capital of the bank.

5. Transparency: Transparent risk analysis is very important since it assists bank managers to be aware of all inherent risks,

helping them to strike a balance between risk and return.

6. Responsibility: The manager of each department is responsible for controlling all related risks and delivering the anticipated

returns.

7. Chief Risk Officer: EN Bank has established an independent but fully integrated supervisory unit to analyze and monitor

all risks taken by different departments. It is also responsible to design, implement, monitor and improve risk management

principals and processes.


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Human Resources


In an increasingly competitive environment, ambitious, talented and well-trained employees are a highly valued

asset. EN Bank is fully aware of the importance of securing high-calibre personnel and puts many resources

towards finding the right people and training them to be the best they can be. In this context, during 2006,

137 new employees were recruited to fill vacant and new positions across the entire organization, especially

branches.

A good employee needs to have a positive attitude, a creative spirit, and the ability to contribute effectively

in an organizational setting. Certain traits exemplify these qualities for success in the financial services

sector, which can be summarized as follows:

- We prefer employees with progressive attitudes, with a will to improve conditions for themselves

and for others. Such persons are valuable to the Bank with their strong willpower and drive to

make things happen.

- Of benefit to the Bank are strong inter-personal skills, an open-mindedness, and keen cultural

awareness.

- We also look for persons who possess a spirit suited to serving others with grace and respect,

ready to set new standards of service excellence in the Iranian banking industry.

- Last but not least, efficiency, flexibility, and openness to technological innovation are of essence

to face the daily challenges in a high-growth organization

To those persons who are the right match for EN Bank, we offer a performance-based reward system and

our advanced on- and off-site training programs. In this context all staff newly recruited during 2006 are

undergoing extensive training programs in groups of 30.

The number of employees grew by 49% from 282 in 2005 to 419 in 2006 mainly due to an increase in the

number of branches (especially in provincial areas). The Bank's personnel consists of 136 female (32%)

and 283 male (68%) employees.

EN Bank staff according to location and education level:

Headquarter

Tehran Branches

Provincial Branches

Total

Level of Education

Below High School Diploma

Diploma and Associate of Science

BSc.

MSc. And Ph.D.

Total

146

144

129

419

39

111

252

17

419

98

117

67

282

33

86

148

15

282

66

80

68

214

29

63

109

13

214

200420052006


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Fields of Activity

Issuance of life and other insurance contracts in line with the scope of the license issued by the Iranian Insurance Authority;

Obtaining domestic and international reinsurance coverage;

Offering reinsurance services in domestic and international markets in line with the scope of the license issued by the

Iranian Insurance Authority;

Conducting various sorts of investments in line with the regulations approved by the Insurance High Council.

Novin Insurance Company strives to develop into a market leader in the insurance industry in Iran through recruitment of talented

and committed employees, intensive marketing, establishment of representative offices all across Iran by taking advantage of

EN Bank branches' facilities and providing tailored, modern insurance services.

Novin Brokerage Company (Private Joint Stock)Novin Brokerage company has developed within a very short time into one of the top firms active at the Tehran Stock Exchange.

It offers brokerage, asset management and investment banking advisory services. Despite the unfavourable general market

conditions, Novin could attract in all fields of activity a substantial number of clients. This was only possible through a sophisticated,

research driven approach coupled with seamless execution that enables the management of Novin to generate premium returns

for its clients and to constantly outperform the market. In addition, Novin puts great emphasis on gaining full understanding of

the individual needs and objectives of clients, resulting in a highly personalized service.

History and Shareholders

Novin Brokerage was registered on October 17, 2004 in Tehran under registration No. 232060. The initial capital of the company

was Rials 5 billion consisting 5 million shares of 1,000 Rials each. The entire share capital was paid upon subscription. On March

15, 2005 the registered capital of the Company increased to Rials 10 billion (US$ 1.1 million).

Fields of Activity

1. Investment and brokerage services:

Trading of listed securities

Underwriting activities in the primary market

Asset management

2. Consultancy services:

Listing advisory services

Investment advisory services

Financial advisory services

N.B.C Shareholders

EN Bank

Mr. Barzani

Mr. Amiri

Mr. Bafeghi

Bostan Housing Company

Total

Ownership %

40

20

20

20

0.002

100


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35

In addition to providing these standard services at the highest professional level, Novin constantly strives to broaden its range

of services. In this context, the firm has concrete plans in the following areas:

Installation of a software for trading unlisted public joint stock companies (OTC market)

Attraction of foreign portfolio investment

Establishment of an interactive website with e-trading services

Attraction of new customers through the growing number of branches of EN Bank and professional marketing

EN Bank Investment Company (Public Joint Stock)Encouraged by the success of its brokerage and real estate investment firms, EN Bank has established EN Bank Investment

Company. This company acts as general investment arm for EN Bank with the sole purpose of identifying attractive investment

opportunities in listed and unlisted companies both, in Iran and abroad. It operates under a license issued by the Central Bank

of Iran.


EN Bank Investment Company was registered on April 9, 2006, in Tehran, Iran, under registration No. 267233. The initial capital

of the company is Rials 200 billion (US$ 22.1 million) consisting 200 million shares of 1,000 Rials each. Until publication of this

report 35% of the capital has been paid in.

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2016

7

2

2

2

1

1

100

Fields of Activity

Attraction of capital to invest in commercial, manufacturing and service sectors as well as all other areas in domestic andinternational markets;

Studying business plans with the aim to invest or introduce other investors;

Providing consultancy services to companies searching investors;

Investment in the Tehran Stock Exchange, Tehran Commodity Exchange and other domestic and international exchanges;

Obtaining loans from domestic and foreign banks;

Improving the investment culture in Iran;

Providing customers with modern and reliable investment services;

Applying latest investment methodology and know how.

EN Bank

Behshahr Industrial Development CompanyIran Construction Investment Company

Samaneh Gostare Novin Investment Company

Keyhan Tabadol Company

Stratus International Contractors

Taban Novin Investment Company

Novin Brokerage Company

Other Legal Entities and Individuals

Total

Ownership %I.C Shareholders


18/20


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37

EN Bank

Novin Brokerage

EN Investment Company


Total

60

35

3.5

1.5

100

Fields of Activity

Purchasing and selling movable and immovable property;

Providing support, logistical, technical, engineering, construction and administrative services related to educational, cultural,

sports, tourism, welfare and other facilities of EN Bank and its affiliates;

Personnel leasing services as well as other technical, engineering, training and commercial services as well as mortgaging

and leasing of property required by EN Bank and its affiliates;

Investment and partnership in investment in legal entities either through establishing new companies or through buying

shares of existing companies;

Rendering welfare, cultural and sport services and other services for the personnel of EN Bank and its affiliates;

Rendering management services to EN Bank and its affiliates related to studying, planning, implementing and commissioning

of economic activities in the field of manufacturing, construction, mining, agriculture, tourism, etc.

Novin Payment Company

The role of e-banking in the evolution of modern banking is paramount. In this context, EN Bank has applied with the Central

Bank of Iran for the authorization to establish Novin Payment Company as specialized payment service provider. The Company

commenced its activity in March 2006.

Novin Payment Company shall become a pioneer of e-banking in Iran through installing and supporting POS systems, ATM

machines, self service kiosks and electronic banking card services. It endeavours to meet its objectives in close co-operation

with various other members of EN group and external partners.

POS Systems

Novin Payment Company plans to install in the coming two years 100,000 POS systems across Iran. At the time of this report

11,000 systems have already been installed.

ATM Machines

Novin Payment Company plans to install in the coming two years 2,000 ATM machines across Iran. At the time of this report

14 machines have already been installed.

Self Service Kiosks

The self service kiosk program is designed to provide customers on a 24h basis with a wide range of banking information and

services. At the time of this report 10 kiosks have been installed and Novin Payment Company plans to install during the coming

two years a total of 290 such kiosks across Iran.

Ownership %N.S.S.C Shareholders


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EN Leasing CompanyMost of the active leasing companies have started their operations by offering leasing services for passenger cars. This is due

to the huge demand for car financing, lack of car loans and the small contract size, which fits very well to the limited financial

resources of most leasing companies.

A few larger leasing companies are offering leasing contracts for commercial vehicles, meeting enormous demand. In 2005, 50%

of all commercial vehicles were purchased with credit facilities. Finally, there is a small number of leasing companies that finance

other products such as medical equipment and construction machinery.

EN Bank Leasing Company is planned to start its operations next year. The company will be offering various leasing services

for vehicles, houses, offices, and durable goods.

In addition, leasing in Iran is effected solely in the form of financial leasing, where EN Leasing Company will also offer operationalleasing services. EN Leasing will also be the first Iranian bank to offer forfeiting and factoring in Iran to purchase accounts

receivables. Last but not least, EN Leasing Company will provide advisory services in regards to financing requirements and sales

of goods or services.

Salam Mehr Contact Centre (Private Joint Stock)Salam Mehr CC is the first professional Iranian call centre, established to provide its customers with various information and

liaison services. Salam Mehr CC acts as an independent company from EN Bank, while the Bank is also a customer of Salam

Mehr CC for its call centre services.


Salam Mehr Contact Center was registered in 2006 in Tehran under registration No. 267262. The initial capital of the company

was Rials 1 billion (US$ 0.1 million) consisting one million shares of 1,000 Rials each.

EN Bank


Individuals

Total

89

2

9

100

Fields of ActivitySalam Mehr offers the following services:

All IT related services including design, analysis, installation and commissioning of computer systems for sales and after

sale service;

Marketing of licensed goods and services and implementing CRM schemes for clients;

Ownership %Shareholders

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