2005
Head Office & Shmeisani Branch
Prince Shaker Ben Zaid Street - Shmeisani - Amman
Telephone 5607011 - 5607016 - 5607024 - Fax 5666149
Telex 21875, 21113, 22178
P.O.Box 35104 - Amman 11180 - Jordan
Cable : Union Bank - Amman
Web Site : www.unionbankjo.com
E-mail : retail@unionbankjo.com
His Majesty King Abdullah The Second Bin AL - Hussein
3
BOARD OF DIRECTORS
Mr. Issam Halim Salfiti
Chairman/General Manager
Mr. Samir Abu Rawi
Vice Chairman
Representing Sirt Securities International, N.V.
Mr. Muhyieddin Al-Ali
Representing United Arab Investors Co.
Mr. Mohammed Jagham
Representing Compagnie Internationale de Participations Bancaire Financier (CIPAF)
Mr. Adnan Abu Ragheb
Representing Social Security Corporation.
Mr. Rauf Jiryis Salfiti
Mr. Eng. Awni Musa Sakit
Mr. Nabil Abdel-Hadi Hammoudeh
Representing Jordan Chemicals
Mr. Rajai Halim Salfiti
Mr. Abdel-Halim Al-Majali
Mrs. Samia Suleiman Sukkar
AUDITORS
Allied Accountants
Ernst & Young International.
4
Head Office & Shmeisani Branch
5
6
B ranches Network and Cash Offices
In Jordan & Palestine
Shmeisani Branch (Main Branch)
Prince Shaker Ben Zaid Str. Tel 5607011 Fax 5666149 P.O.Box 35104 Amman 11180
Madina Branch
Al Rida Str. Tel 4613860 Fax 4637522 P.O.Box 477 - Amman 11123
Exchange Unit - Madina Branch
Al Rida Str. Tel 4621185 Fax 4693669 P.O.Box 477 - Amman 11123
Wihdat Branch
Opposite Tayibat Village Market, Tel 4752832 Fax 4752831 P.O.Box 521112 Amman 11152
Ramtha Branch
Naser Al Tallaq Str. Tel 7382496 Fax 7382497 P.O.Box 583 Al Ramtha 21410
Aqaba Branch
Hammamat Al Tunisia Str. Tel 2016704 Fax 2016701 P.O.Box 1702 Aqaba
Irbid Branch
Al Huson Str. Tel 7273259 Fax 7270861 P.O.Box 216 Irbid 21110
Gardens Branch
Wasfi Al Tal Str. Tel 5518920 Fax 5539039 P.O.Box 35104 Amman 11180
Zarqa Branch
Saadeh Str. Tel 3935803 Fax 3935808 P.O.Box 150771 Zarqa 13115
Sweifieh Branch
Ali Nosouh Al-Taher Str. Tel 5817001 Fax 5818516 P.O.Box 850222 Amman 11185
North Marka Branch
Main Str. Tel 4874652 Fax 4874231 P.O.Box 35104 Amman 11180
Jabal Amman Branch
Iben Khaldoun Str. Tel 4644770 Fax 4618307 P.O.Box 35104 Amman 11180
Huson Cash Office
King Talal Str. Tel 7010904 Fax 7010906 P.O.Box 472 Huson 21011
Brokerage Office - Amman Stock Exchange
Tel 5675558 Fax 5606996 P.O.Box 35104 Amman 11180
Bonded Warehouses
Abdullah the Second Industrial Estate, Sahab, Tel 4023474 Fax 4023821 P.O.Box 35104 Amman 11180
Ramallah Branch - Palestine
Al Bareed Str. Tel (970) 22986412 Fax (970) 22986416 P.O.Box 1557 Ramallah
Mecca St. Branch
Mecca St. - Tel. 5511015, P.O.Box 35104 Amman 11180
Jubaiha Branch (soon)
P.O.Box 35104
7 Amman 11180
7
U nion Bank For Savings &
Investment Products & Services
• Corporate Banking Services :
- Documentary Loans
- Bonded Loans
- Commercial Loans
- Discounted Bills
- Syndicated Loans
- Export Loans
- Project Loans
- Real Estate & Shares Investment Finance
• Trade Finance Services :
- Letters of Credit
- Letters of Guarantee
- Foreign Drafts & Remittances
- Bills for Collection
• Banking Services for Small & Medium Business :
- Small & Medium Business Finance
• Retail Products & Services :
- Personal Loans
- Housing Loans
- Car Loans
- Golden Visa Cards
- International Classic Visa Cards
- Green American Express Cards
- Green National Express Cards
- Golden National Express Cards
- MoneyGram
- Safe Deposit Boxes
- Current Accounts
- Savings Accounts
- Time Deposit Accounts
- Certificates of Deposit
- “Sarraf” Services (ATM)
- Bonded Warehouses Services
8
Treasury & Investment Services :
• Financial Markets
- Investment in Money Market Securities
- Interest Rate Swaps (IRS)
- Capital Market Portfolio Management
- Trading Money Market Derivatives
• Capital Markets
- Capital Market Securities Trading
- Capital Market Portfolio Management
- Interest Rate Swaps (IRS)
• Foreign Exchange Market
- Foreign Exchange Trading
- Foreign Exchange Options Trading
- Foreign Exchange Forward Trading
- Foreign Exchange Futures Trading
• Stock Markets
- Stock Trading
- Stock Options Trading
- Stock Market Portfolio Management
• Precious Metals
- Gold Loans
- Precious Metals Trading (Gold & Silver)
- Precious Metals Options Trading
� Financial Brokerage Services At Amman
Stock Exchange
- Brokerage Services
- Margin Finance Services
- Investment Management
- Investment Trusteeship
- Financial Consultations
- Management of Primary Issues
9
B OARD OF DIRECTORSʼ TWENTY SEVENTH
Annual Report
To the Shareholders,
The Board
Directors
of Union
BankSavings
for Savings &
& Investment is pleased to present
Uofnion
Bank
For
to you the “Twenty-Seventh” Annual Report, which includes a review of the bankʼs
Investment Products & Services
performance, a summary of its achievements for the year ending 31st December 2005
and its future aspirations.
In 2005, the Bank was able to achieve record results and growth averages in all its activities
and services. Profit rose by 133% to record a gross figure of JD (33.6) million, which led
to promoting 2005 to become the Golden Year of the Bank since its establishment, in
addition to its big share in the achievement of the Bankʼs goals through the implementation
of the Third Strategic Plan for the years (2004 – 2006) which centers around maximising
the Bankʼs share in the targeted sectors, expanding its delivery system, enhancing the
efficiency of its funds management and improving the Bankʼs corporate image. There was
a notable achievement in all set targets as shall be reviewed in this report.
THE BANKʼS COMPETITIVE POSITION
Despite the strong competitiveness within the Jordanian Banking Sector, the Bankʼs
growth rates during 2005 exceeded most growth rates of the banking sector.
According to the monthly statistical bulletin issued by the Central Bank of Jordan, the
table below shows a comparison of growth rates between the Jordanian banking sector
and the Bank:
Growth Rate
Banking
Union Bank
sector
Direct Credit Facilities
25.1%
53.9%
Customer Deposits
13.5%
7.5%
Cash Margins
40.2%
16.9%
Total Assets
18.3%
27.5%
THE BANKʼS PERFORMANCE
Inspite of the increase in the total figure of expenses and depreciations, the bank continued,
for the sixth consecutive year, to increase the profit margin from “traditional banking
operations”, exemplified by net interest and commissions received, which led to a total
cover of these expenses and the realisation of a surplus of JD (9.8) million for the year
2005 compared with a surplus of JD (8.6) million for the year 2004, that is a growth rate
of 14.5%.
The following table shows the development of Revenues and Expenses during the past five
years 2001 – 2005.
10
DETAILS
2001
2002
2003
2004
2005
Interest & Commission Received
20.265
19.688
20.481
22.551
30.580
Interest & Commission Paid
12.702
10. 760
8.975
8.371
12.934
Net Interest & Commission
7.563
8.928
11.506
14.180
17.646
Expenses & Depreciations
4.728
5.109
5.210
5.580
7.803
Surplus
2.835
3.819
6.296
8.600
9.843
Income from Foreign Exchange and Gold
1.267
1.566
1.144
1.506
2.032
Income from Investments
(340)
586
(9.567)
5.312
19.507
355
480
588
1.079
3.988
4.117
6.451
(1.539)
16.497
35.370
464
811
704
726
867
1.361
2.174
523
1.348
911
403
236
(2.075)
3.621
8.940
1.889
3.230
(691)
10.802
24.652
Other Revenues
Net Income before provisions and Bad Debts
Provision for Interest in Suspense
Provisions & Bad Debts
Income Tax
Net Profit (Loss) After Tax
(to the nearest JD1000)
The above table and the graph clearly show the leaps the Bank took for profit realised
from the efficient use of funds. While surplus reached JD (2.8) million in 2001, the Bank
has strengthened the surplus, year after year, by doubling the Net Interest and Commission
received on the one hand, and maintaining a relatively steady overall Expenses and
Depreciation figure on the other, in order to reach a surplus of JD (9.8) million at the end
of 2005.
11
The above table also indicates that all revenue sources recorded a noticeable increase;
while income from Foreign Exchange and Gold rose by JD (527) thousand from last
year, equivalent to a rate of 35%, income from Investments multiplied to reach JD (19.5)
million, a growth of 267%, and Other Revenues recorded an increase of JD (4) million,
that is at an increase of 270%. Upon deducting Provisions and Interest in Suspense from
Net Income before Provisions and Bad Debts, the remaining balance amounting to JD
(33.6) million represents the Bankʼs Net Profit before tax and fees.
12
RISK MANAGEMENT
In conformity with the directives of the Central Bank and global attention, the Bank
is focussing its concern on how to deal with risks by adopting policies related to the
management of these risks of which are:
•
CREDIT RISK: For the purpose of restricting credit risk, the Bank has set limits for
credit facilities on the individual customer level, and on the group level, in addition to
limits set on the economic sector level. A review and evaluation of the credit standing
of the bankʼs customers are being conducted periodically. A follow-up on the collection
of due installments and the obtainment of additional securities from the customers,
should the need arise, are carried out, in accordance with the directives of the Central
Bank and the best banking practice.
•
MARKET RISK: The Management is taking steps to restrict investment risk and
the effect of fluctuations on currency exchange rates by setting up limits therefore.
The Committee of Assets and Liabilities Management is monitoring these risks and
their management. It also conducts studies of the interest rates and reviews them
periodically in order to contain and mitigate the risks associated with their fluctuation.
The Committee reviews the maturities and volumes of assets and liabilities that are
sensitive to interest rates fluctuations, and takes the appropriate decisions concerning
the pricing of deposits and facilities in the light of expectations and trends of interest
rates in the market.
•
LIQUIDITY RISK: The Bank aims at expanding while maintaining stable sources of
funds at the least possible cost in order to generate sufficient liquidity to be employed
with profitable returns in order to meet any emergency commitments towards the Bank,
in line with the requirements of the Central Bank of Jordan. In order to minimize such
risk, the Bank aims to further expand the depositors base and to diversify sources of
funds especially those with longer term maturities.
•
OPERATIONAL RISK: The Bank is preparing for setting up the nucleus Unit for the
Management of Operational Risk which generally depends on the evaluation of the
level of risk inherent in the Bankʼs operations and identifying the nature and volume
of errors for the purpose of taking the necessary counter measures that will detect and
ensure that such errors are minimized. On the other hand the Bank has developed and
adopted a data security policy based on international standards (British Standard BS
7799 and ISO 17799) for the purpose of upgrading data security and maintaining
its confidentiality and integrity to ensure the continuity of rendering services at the
highest possible level.
•
FINANCIAL SOLVENCY AND CAPITAL ADEQUACY: The Capital Adequacy
Ratio as at the end of the year amounted to 18.1%. It exceeds by far the ratio assigned
by the Basel Committee at 8% and by the Central Bank of Jordan at 14% for the Well
Capitalized banks.
13
FINANCIAL STATEMENTS FOR 2005:
• Balance Sheet – The total Assets at the end of 2005 rose to reach JD 652.4 million
compared to the total Assets recorded at the end of 2004; hence an increase of JD
141.8 million equivalent to (27.8%).
• Securities Portfolio – The Bank continued to actively employ its funds in the Local
and Foreign Capital Markets through investment in financial instruments with good
and fixed return. The total balance of the Bankʼs local and foreign securities portfolio
increased by JD 25.3 million to reach JD 152.4 million at the end of 2005. The share
of Treasury Bills and Corporate Bonds in Jordanian Dinar reached JD41.2 million,
while the balance of bonds and debentures in foreign currencies amounted to JD 45.4
million. The balance of the Bankʼs portfolio of domestic shares increased to reach
JD60.5 million as a result of the positive development on their prices at the Amman
Stock Exchange Market, in addition to investment in shares and portfolios of large
foreign companies, renowned for their distinguished reputation and strong financial
position, where the portfolio balance amounted to the equivalent of JD 5.3 million.
• Direct Credit Facilities – The Bank continued to realise its goals aimed at expanding
its portfolio of credit facilities within its conservative credit policy parameters and its
14
selective procedure. The balance of direct credit facilities rose by JD 114.7 million at
an increase equivalent to 52.7%. The share of facilities in Jordanian Dinar from this
increase amounted to about JD 107 million, equivalent to 65.8%, while facilities in
foreign currencies reached about JD 7.7 million, a growth equivalent to 14%.
• Non-Performing Credit Facilities – Inspite of the increasing growth of credit
facilities, the Bank was able to decrease non-performing debts to reach 4.06% of
the total Direct Credit Facilities at the end of 2005 compared to 6.63% at the end of
2004. This was due to the Bankʼs consistent followup to collect Bank debts, especially
doubtful debts, with the aim of reorganising or rescheduling them or of taking all
available measures to ensure the collection thereof.
2002
2003
2004
2005
Total Direct Facilities
160,382,518
190,581,868
217,756,579
332,432,029
Total Non-Performing Facilities
14,350,321
14,952,759
14,447,735
13,508,476
Rate of Non-Performing Facilities to Total Facilities
8.95%
7.85%
6.63%
4.06%
• Provisions against Facilities – As a result of the continued decrease of the volume
of Non-Performing Debts, the balance of the provision for the decline of direct credit
facilities dropped to reach JD 7.6 million against JD 7.7 million at the end of 2004.
It is worth noting that Net Non-Performing Debts, after deducting interest in suspense
and Provisions, amount to JD 2.1 million against tangible and intangible securities
of JD 6.3 million.
• Deposits and Margin Accounts – The total of deposits and margin accounts
increased at the end of the year to reach JD 510.7 million against JD 444.8 million
at the end of 2004, thus recording a relative increase of 14.8%. The rate of increase
in deposit balances was distributed to stand at 28.4% with respect to Deposits and
Margin Accounts in Jordanian Dinar while it reached 1.4% for Deposits and Margin
Accounts in foreign currencies.
15
•
Depreciation and Amortization – Depreciation and Amortization of the Bankʼs
fixed assets and intangibles for this year amounted to JD 918 thousand while the net
book value of the Bankʼs Head Office premises stood at the end of the year at around
JD 5.3 million out of JD 9.6 million that being the cost of construction and furniture.
• Staff and Other Expenses – The table below shows that the percentage of Expenses
and Depreciations to the Bankʼs total Assets decreased from (2.7%) in 1997 to reach
(1.2%) in 2005.
Total Expenses
Total Assets
Percentage: Expenses
to Assets
1997
1998
1999
2000
2001
2002
2003
2004
2005
5.015
4.692
4.541
4.570
4.728
5.109
5.210
5.580
7.803
184.122
194.145
223.956
266.003
306.277
371.425
392.722
510.661
652.411
2.7%
2.4%
2.0%
1.7%
1.5%
1.4%
1.3%
1.1%
1.2%
(In JD1000s)
• Shareholdersʼ Equity / Retained Earnings – Total shareholdersʼ equity reached
JD105.9 million at the end of 2005 against JD 50.2 million at the end of 2004, showing
an increase of JD 55.7 million, of which JD 20.3 million represents the Cumulative
Change in Fair Value of the Bankʼs portfolio of investments categorized as “Available
for Sale” after deducting JD 7.2 million being provision for inome tax that appeared
in the balance sheet within the “Deferred Tax Liabilities” item.
Major Financial Indicators for the years 2001 - 2005
Description
2001
2002
2003
2004
2005
Change
2004-2005
Liquid Assets
121.175
146.323
139.666
152.722
153.869
0.8%
Securities Portfolio
32.965
62.251
55.263
127.187
152.434
19.9%
Credit Facilities
132.946
146.163
175.665
206.222
321.046
55.7%
Fixed Assets
10.394
9.772
9.203
8.562
8.348
(2.5)%
Other Assets
8.797
6.916
12.925
15.968
16.713
4.7%
Total Assets/ Liabilities
306.277
371.425
392.722
510.661
652.410
27.8%
Deposits
228.278
305.523
322.667
400.145
458.258
14.5%
Credit Accounts
47.586
32.773
39.227
60.279
88.226
46.4%
Shareholdersʼ Equity
30.413
33.129
30.828
50.237
105.926
110.9%
(To the nearest JD 1000)
16
Cash Assets
Credit Facilities
Securities Portfolio
Fixed Assets & Others
Shareholders' Equity
Credit accounts
17
Deposits
ACHIEVEMENTS OF 2005
TECHNOLOGICAL DEVELOPMENT AND AUTOMATION
The Bank continued to apply its policy and diligent course of development on information
systems and communications in order to escort global developments in this scope. It has
already applied a number of new systems and conducted many operations of development
and technological upgrading on the systems currently in use, most important of which are:
• Main Banking system – Upgrading of the currently used banking system has been
completed by applying the upgraded version of (Bank Master VII). The “Branch
Power under Windows” used in the branches has also been upgraded to operate
through Windows which is characterised by being user friendly. It also allows for
various possibilities made available by the Windows Operating System.
•
E. Banking – This system of banking through the Internet has been applied which
provides the Bankʼs customers with many services over 24 hours through their
personal computer whether at home or at office. It also contributes in saving time and
effort and upgrades the level of service available. A contract has been signed with
an international company specialised in protection and security to examine security
systems and make sure the Bankʼs network is virus free and any illegal access through
the internet is not allowed.
•
SMS Banking – This system of banking has been applied which allows customers to
enquire about their accounts balances and receive messages related to their dealings
with the Bank. It also provides the Bank with instant means of communication with its
customers at nomial cost.
•
Treasury and Investment Operations System – The first stage of the System
SIENNA concerned with Treasury and Investment operations and purchased towards
the end of last year has been applied. It is now possible to exchange FX operations
and money market through the said system and on the spot.
18
• Card Reader Through Network – The staff attendance program at the Head Office
and the branches has been applied and Branches have been linked through a special
communications network with the Head Office. This system has improved the level of
centralised control and supervision quality at the Bank.
• S.W.I.F.T Programs – These programs have been upgraded according to the time-
table set by the company in order to accompany the development of information
technology. This has been achieved through the use of communication lines, systems
and new decoders, in addition to updated programs to control the new linkage
operation.
• Shareholdersʼ System – This new System which provides automatic linkage with
the securities depository center, has been activated. Daily reports regarding executed
contracts can be extracted through the internet. General Assembly decisions regarding
shareholders have been implemented where allotted tangible profits have been
dispensed, shares distributed and subscription processed through the new program.
• Fixed Assets System – The Bar Code system designed for fixed assets at the Head
Office and Branches has been applied. It has saved time and effort when making
inventory of these assets.
• Personal Computers (PCs) – In accordance with the 2005 Requirement Strategy,
fifty (50) sets have been purchased and installed in the Bankʼs different branches and
departments.
19
ORGANIZATION & DEVELOPMENT OF WORK PROCEDURES
•
The Bankʼs organizational chart has been modified and the responsibilities and
tasks of the following major offices have been revised:
-
“The Department of Development and Research” has been attached
to the Department of Central Marketing and Sales and its name
changed to “The Department of Marketing and Development” with
the aim of increasing marketing effectiveness and the Bankʼs ability
to compete with market development.
-
The reorganisation of the Department of Banking Operations
– Commercial Transactions, to include the Documentary Credits
Section instead of the section for Releasing Documentary Credits,
Bills and Guarantees, and attach to it the tasks of the Settlement
Section and Incoming Credits. Guarantees have also been attached
to the Loans and Discounted Bills Section and changed to become
Loans and Guarantees Section. A new section for Bills for Collection
and Commercial Payments has been created to actualize the concept
of separation of duties.
•
In implementing the set plan, premises for Mecca Street Branch have been leased.
While considering the great significance of the city of Aqaba and the volume of
work and huge investments there, the Bank rented a building for a new branch
in the city and kept the existing premises for the FX unit which is expected to
commence operating at the beginning of the second quarter of 2006.
•
Applied guidelines and procedures for the newly created systems operations have
been prepared, and modifications on a few have taken place in the light of new
developments on the Bankʼs operations. The Bankʼs credit policy has also been
reviewed in harmony with the developments in the status quo.
•
All signs on branches entrances have been replaced to be more attractive and
harmonious with the general brand image of the Bank.
20
MARKETING AND THE DEVELOPMENT OF
THE BANKʼS BUSINESS AND SERVICES
•
An agreement has been signed with The Jordanian Mortgage Refinancing Company
for obtaining two loans totalling JD9 million to develop the Housing Refinancing
Market, expand the housing loan base, match maturities of sources and uses of
funds by way of providing long term sources and improving liquidity rates and capital
adequacy.
•
The Bankʼs Department of Local Investment and Brokerage has begun offering Short
and Long Term Management Service of Investment Portfolios. Total accounts managed
for customers as at the end of year reached JD837 thousand.
•
The base of deposits of foreign and local banks at the Bank has been increased and
expanded, and the terms governing accounts of correspondents abroad engaged in
cash shipments, have also been improved, in addition to agreements signed with Saudi
banks concerning cash shipment operations. Banking ties have also been established
and activated with FX offices in the Arabian Gulf such as Bahrain National Co. and
AlRajhi in Riyadh.
•
In support of the Bankʼs network of world correspondents, new bank relations have
been established namely with “Wachovia Bank” in the United States of America
and “Yap Ve Kredi Bank” in Turkey. Relations with Credit Suisse have been
renewed on regional level. Meanwhile visits to many Arab states have resulted in the
establishment of bank relations and the increase of trade volume being exchanged
with Libya. Sudanese bankers have also opened accounts with the Bank and started
notifying their L/Cs through us. Banking relations with the Arab Investment Company
in Bahrain also resulted in signing a contract with them to join in a syndicated loan
being extended to a Sudanese firm, and with the Islamic Development Bank where a
trade limit of three million Euros has been obtained.
•
Preparation and implementation of all promotional campaigns have been underway
in accordance with the approved plans. Designs of brochures, posters, flyers and bill
boards of all sizes have completed to harmonise with the promotional campaigns
within timed work programs. The Bank also participated in various exhibitions,
conferences and activities where it was represented by the Marketing and Development
Department in order to contribute in the building of a general positive image to the
public. On the other hand the Bankʼs website on the internet has been enhanced to
comply with the new services being offered through the internet and to accommodate
for online interaction.
•
The Assets and Liabilities Management Committee has continued its study of the
general trend of the interests, and the reconsideration of the use of sources of funds
following changes in interest rates and consequently the impact on the Bankʼs profit.
It has also pursued its role of studying reports related to liquidity and uses in foreign
currencies as well as taking decisions to remedy any disregard of the parameters
defined by the Central Bank of Jordan.
21
•
The Bank continued successfully to issue Certificates of Deposits (C/Ds), renew mature
issuances, increase their number in order to expand customersʼ base, provide medium
term sources of funds and bridge the gap between sources of funds and their uses. The
balance of C/Ds in Jordanian Dinar at the end of year amounted to JD19.6 million
and in foreign currencies JD3.9 million. Monthly statistics issued by the Central Bank
of Jordan indicate that on 31/12/2005 the Bankʼs share of C/Ds in the Kingdomʼs
banking sector totalled 19.6%.
•
The Bank continued its intensive marketing of property acquisioned as repayment of
due debts. Eighteen real estates, valued when appropriated at about JD820 thousand,
were sold at JD814 thousand constituting 54.8% of the value of the property purchased
as at 31/12/2004. In 2005 four real estates were also acquired at JD196 thousand.
•
In preparation for providing car parking areas for customers, the Bank has begun work
on a piece of land adjacent to the Head Office, and followed up periodic maintenance
of the Bankʼs permanent premises and all branches in order to preserve inside and
outside appearance to the required standard.
•
On the strength of a decision taken at an extraordinary meeting of the General
Assembly on 06/04/2005, the Bank increased its capital to become JD40 million by
way of:
- Distributing bonus shares at the rate of 34% equivalent to 8.5 million dinar/share by
capitalising 6,250,000 dinar/share from retained profit and 2,250,000 dinar/share
from provision for premium on shares.
- Private subscription by shareholders in 6,250,000 dinar/share constituting 25%
where each subscriber is alloted a number of shares according to his/her capital
share. Each share is offered at the nominal value of one dinar added to it another
dinar being premium on each shrare.
- Private subscription in 200,000 dinar/share by the Provident Fund of the employees
of Union Bank for Savings and Investment at the nominal value of one dinar/share
and another dinar being premium on each share.
- Private subscription in 50,000 dinar/share alloted for members of the Board of
Directors at the nominal value of one dinar/share and a premium of one dinar on
each issued share.
22
HUMAN RESOURCES
• DEVELOPMENT OF MANPOWER -- During 2005 several seminars were held
internally and abroad at the various institutions and specialised training centers for
the purpose of training and developing the skills of the Bank employees in accordance
with the Training Plan set for 2005. The number of training seminars in which the
Bank participated was 193 held inside the Kingdom and abroad, while training courses
totalled 442 and attended by 181 employees out of 285. The Bank, however, equipped
a center for training its staff which will also be used for holding internal seminars
to improve the performance of its employees. Following are the training courses and
seminars held internally:
- “A Comprehensive Approach to Profitable Bank SME Finance” attended by 13
employees.
- A seminar on security and fraudulence of ATMs attended by 40 employees from
Management and Branches.
- Fundamentals/ Administration AIX UNIX V.5.3 attended by 5 employees from Data
Systems Department.
On the other hand, the Bank accommodated for 39 students from Jordanian universities
and colleges.
Dear Shareholders,
The Board of Directors, in the light of the achievements realised, proposes to your General
Assembly to approve the appropriation of this yearʼs net income before tax and fees of
JD(33,591,818) as follows:
JD
Net income for the year after tax
33,591,818
Statutory Reserve
3,359,182
General Banking Risk Reserve
1,231,318
Jordanian universities fees
332,218
Scientific Research and Vocational Training
332,218
Vocational and Technical Education and Training Fees
212,040
Board of Directors Remuneration
55,000
Income Tax
8,008,196
Retained Earnings
20,061,646
__________
TOTAL
24, 652,146
The Board of Directors has also recommended to the Extraordinary General Assembly
the distribution of bonus shares equivalent to 37.5% of the Capital. The sharesʼ nominal
value is JD15 million to be set aside from Retained Earnings and added to the Bankʼs
subscribed and paid up capital to become JD55 million.
23
FUTURE & STRATEGIC PLANS
The year 2006 constitutes the third and last year of the Bankʼs third strategic plan for the
years (2004-2006). The action plan for The next year will include in detail the objectives
to be targeted in order to achieve the following targets and intents:
MAXIMUM TARGET MARKET PENETRATION
1- RETAIL BANKING SERVICES: With emphasis on expansion of banking
products and services on selective basis targeting the medium and high-income
individuals working for big companies and corporations, and the creation of new
competitive products especially in the following areas:
• local and international debit cards, and visa electron cards in addition to
pre-paid cards.
• incoming and outgoing Money Gram transfers.
• housing loans, car loans and consumer & personal loans.
• Programs, products and local and international investment portfolios.
• SMS Banking.
• Internet Banking.
2- BANKING SERVICES FOR SMALL AND MEDIUM BUSINESS: Expansion
in this sector particularly in the following areas:
• Increase of the trade bonded business funding.
•
Increase of white-collar free-lancers, such as physicians, pharmacists and
engineers.
• Expansion in funding the basic and higher education sectors.
3- CORPORATE BANKING SERVICES: Expansion to be effected in the light of
studies prepared for targeted sectors particularly in the following areas:
• The export sector whether through direct funding or through the use of
available tools from official authorities to encourage exports.
• Financing and attracting operations of companies heading for privatization.
24
•
•
•
•
•
•
•
The effective contribution to promoting of investment, attracting foreign
capital and financing operations of projects and foreign investment.
The increase of the Bankʼs market share in facilities to the tourism sector,
information technology and communications sector.
Expansion and involvment in managing syndicated loans.
Interest in granting facilities to commercial companies and major trade
agents.
Interest in granting facilities to major companies through issuing bonds for
subscription as a substitute to direct funding by the Bank.
Interest in facilities extended to self-liquidating tenders and projects.
Interest in facilities that generate various revenues to the Bank such as
documentary credits funded by way of documentary or bonded loans.
4- INVESTMENT SERVICES: Expansion in developing and providing investment
services particularly in the following areas:
•
Continue in issuing Certificates of Deposit in Jordanian Dinar and foreign
currencies.
•
Continue in investment in debenture bonds and sharing in high-yield private
sector bonds.
•
Expanding in providing service to the Management of Investment Portfolios
•
Creating a customer base under the umbrella of capital market with the aim
of marketing investment services to customers (Private Banking Unit)
•
Developing and activating banking relations with other banks, financial
institutions and regional and international development funds.
•
Expanding in new investment tools (INTEREST RATE SWAPs, FRAs)
EXPANSION OF DELIVERY SYSTEM
1. Offering FX services through an FX unit in Aqaba intended to be opened at the
beginning of next year.
2. Starting work and offering banking services at our new site of Aqaba Branch while
finishing furnishing and equipping our Mecca Branch so that both are opened by
the beginning of the year.
3. Launching two new branches, one in Jubaiha and the other in Abdoun and offering
banking service to consolidate competitive capability and to expand customer
base.
4. Developing and activating banking relations with correspondent institutions
and improving dealing conditions with them while establishing ties with Arab
financial institutions amongst which The Arab Corporations for Ensuring
Investment in Kuwait, Financing Arab Trade Program in UAE. On the domestic
25
level, establishing relations with the European-Jordanian Development Agency
Ejada- Erada, and the Corporation for Encouraging Investment in Jordan and the
Corporation for the Growth of Jordanian Exports.
5. Developing electronic services and its expasion to serve the needs of customers:
Upgrading ATM machines to be compatible with Smart Cards.
Promoting the Bankʼs membership in International VISA to Associate
Member and launching VISA ELECTRON.
ASSETS & LIABILITIES MANAGEMENT – ALCO
1. Continue to monitor the attention of international capital markets with the aim of
investing in foreign bonds of good return.
2. Develop and modify policies related to limits specified to banks and states so
that consideration of a number of additional factors such as credit classification,
capital adequacy and so on is taken into account in order to raise the efficiency of
the setting up of limit and diminishing related risk.
3. Follow up liquidity ratios and those of employment in foreign currencies, investment
ratios in sharers and capital adequacy intensely through periodic reports and to
ascertain that the departments concerned have taken sure measures to modify
these ratios to comply with the instructions of the Central Bank of Jordan.
4. According to Central Bank instructions, the Bank must be committed to the
minimum level of liquidity, and maintain a reasonable liquidity surplus to cover
the Bankʼs accrued obligations and to maximise return on investment of these
funds.
5. Continue to provide medium-term sources of funds through issuing Certificates
of Deposit in Jordanian Dinar and foreign currencies in order to aid matching
maturities of sources and uses of funds and to encourage customers to invest in
medium and long term deposits with the aim of expanding depositors base and
focus on small sectors.
26
6. Intensive follow up of bad and classified debts while reducing their number with
the aim to return provisions and interest in suspense thereto. Moreover to monitor
periodically the accounts to be written off and to effect the sequestration of
any assets that may revert to the holders of these accounts, the satisfaction of
judgement in favour of the Bank and the reduction of debt-size under control while
continuing the collection of overdue loan payments.
7. Maximising income and improving returns through continued revision of interest
prices and commissions.
8. Continue to control expenses and keep their growth rate within control, and
not to exceed the growth rate of net interests and commissions. This is achieved
through controlling and rationalising consumption, defining areas of squandering
and expanding the base of suppliers in order to obtain the minimum of prices
while maintaining the Bankʼs quality of products and services. Moreover continue
serious followup by branch and department managers to control expenses and
diminish them to the minimum possible.
9. Based on the estimated budget approved by the Bankʼs Board of Directors, expected
net profits for 2006 are estimated at about JD17 million.
PERSONALIZED SERVICES THROUGH A BOUTIQUE BANK
1. Develop and improve the employees skills and raise their professional and
performance standard while developing their team work through maintaining a
work environment of the highest degree of professionalism and ethics.
2. Continue to enhance customers confidence in the Bank, through constant personal
contacts in order to become acquainted with their opinions and suggestions,
follow-up their observations and complaints with the aim to improve the existing
services to suit their needs and expectations. On the other hand, it is essential to
maintain contacts with the customers through the various mass media to offset the
newly created services and concentrate on promoting the Bankʼs corporate image
of being a BOUTIQUE BANK, unique in providing personalized services to its
customers.
3. Conduct studies and researches on the market, the banking sector and the banking
products and services with the aim of following up any changes in the market and
any increase in the Bankʼs market share. Also to study and analyse professionally
available banking investment opportunities.
4. Continue to raise productivity standard while maintaining business process
engineering and total quality management in order to improve customer
satisfaction level and consolidate the Bankʼs competitive position.
27
5. Cement the concept of customer relationship management to assist in attracting
potential customers, hold on to them and increase margin profit on the basis of a
cross-selling package.
6. Issue the AUDIT CHARTER with the aim of defining responsibilities, authorities
and organising work relations with the Bank departments, branches and senior
management while continue following up audit operations and internal control of
EDP systems.
7. Create a department specialised in risk management at the Bank to identify credit,
market and operational risk and set the suitable mechanism for management
thereof in the light of instructions and guidelines issued by the Central Bank of
Jordan in compliance with the Basel (2) Resolutions regarding capital adequacy
that will be applied by 2007.
8. Establish a data warehouse bank to include a data base of customers and economic
sectors.
9. Continue to improve internal and external Bank reports through automation with
the aim of achieving speed and accuracy.
10. Application of phone banking service while confirming internet and SMS
banking.
11. Work on confirming the needs of security systems to the Bank network in order to
secure continued protection of data assets.
12. Continue to maintain the corporate image of the Bank, its branches and staff as
this positively reflects the customersʼ opinion of the Bank and its employees.
In conclusion, I would like to express my sincere thanks to each and every one of you for
your continued support of the Bank and Board of Directors. I would also like to thank
our customers for their valuable trust, and to the employees, wherever they are, for their
loyalty, commitment and contribution in helping to achieve the Bankʼs goals.
Peace and Godʼs blessings be Upon You.
Issam Salfiti
Chairman of the Board
28
STATEMENT REQUIRED IN LINE WITH THE
REGULATIONS OF JORDAN SECURITIES COMMISSION
(Appendix)
List of major Shareholders whose share exceeds 5%
Percentage
%
14.8
No. of
shares at
31/12/2004
5,170,339
4,847,020
12.1
3,871,049
15.5
3,511,429
8.8
2,223,198
8.9
The External Arab Libyan Bank
2,250,000
5.6
-
-
Union Financial Investment
3,568,653
8.9
1,968,325
7.9
Mr. Rajai Halim Salfiti
3,946,093
9.9
2,287,812
9.2
Mr. Issam Halim Salfiti
3,402,076
8.5
1,995,665
8.0
Mr. Raouf Jeries Salfiti
2,008,336
5.0
1,261,018
5.0
Name of Shareholder
Sirt Securities International N.V.
Compagnie Int'l. de Participations
Bancaries Financiers ( CIPAF)
Social Security Corporation
No. of shares
as at 31/12/
2005
5,936,038
Percentage
%
20.7
BANK SHARES OWNED BY BOARD MEMBERS
SENIOR MANAGEMENT PERSONNEL AND RELATIVES
Name
Person
Samir Abu Rawi
15,000
Mohiyeddin Al-Ali
37,876
Mohʼd Jagham
Adnan Abu Al-Raghib
2005
Institution
Represented
5,936,038
2004
Relatives
Total
Total
-
5,951,038
5,175,339
3,568,653
-
3,606,529
11,366
-
4,847,020
-
4,847,020
3,878,523
-
3,511,429
-
3,511,429
2,228,198
Rajai Salfiti
3,946,093
-
-
3,946,093
2,287,812
Issam Salfiti
3,402,076
-
-
3,402,076
2,207,986
Raouf Salfiti
2,008,336
-
-
2,008,336
1,261,018
Awni Al-Sakit
186,870
98,726
6,506
292,102
181,423
Nabeel Hammoudeh
28,725
6,360
-
35,085
115,708
Abd- Haleem Al-Majali
16,467
-
-
16,467
12,543
Samia Sukkar
337,590
-
-
337,590
212,321
Ammar Haddadin
102,500
-
-
102,500
82,000
Jawad Halboni
17,583
-
-
17,583
11,000
Suhail Amin
5,000
-
-
5,000
6,200
29
Rates of Bank shares during the Past five years
Year
2005
2004
2003
2002
2001
2000
Rate/JD
JD9.400
JD5.750
JD2.160
JD1.320
JD1.070
JD0.800
Time Chain of Profit & Loss and Distributed Profit
YEAR
2005
Actual Profit (Loss)
2004
24,652,146 10,802,344
Distributed Dividends
-
2003
2002
2001
2000
(691,236)
3,229,917
1,887,949
311,891
-
1,600,000
-
-
2,500,000
BRIEF RESUME OF MEMBERS OF
BOARD OF THE DIRERCTORS
Mr. Samir Abu Rawi
Date of Birth: 1946
Academic Qualifications: B.A. Accountancy.
Year of Graduation: 1967
Practical Experience:
• Certified Accountant since 1968
• Member of the Libyan Union of Accountants
• Associate member in the Academy of Arab Certified Accountants/Jordan
• Deputy Manager/General Management for Investment/The Arab Libyan Company
for External Investment.
•
•
•
•
•
•
•
•
Former membership on boards of directors:
Algeriaʼs Lavico Holding Co. /Algeria
Arab Yemeni Libyan Holding Co./ Sanaʼa
La Videer Co./Algeria
Corinthia Co./Malta
International Nissre Co./Switzerland
International Company for Inspection
and Services/Malta
Financial Exchange and Services/Tripoli
The Libyan Financial Investment Co.
30
CHAIRMAN
MEMBER
MEMBER
MEMBER
MEMBER
MEMBER
MEMBER
MEMBER
Mr. Mohammad Jagham
Date of Birth: 1943
Academic qualifications: Bachelor Degree in Economics
Year of Graduation: 1967
Practical Experience:
• Official at the Head Office for Jahwiyah affairs- Ministry of Interior until 1974
• Assistant Governor of Southern Tunis until 1975
• General Secretary of Benzert State untill 1979
• Governor of Kabis until 1983
• Touristic Development Co. (General Manager) until 1988
• Minister of Tourism and Conventional Industry, Tunis, until 1995
• Minister of Interior in Tunis until 1996
• Chief of the Presidentʼs Office in Tunis until 1999
• Minister of National Defence, Tunis, until 2001
• Ambassador of Tunis to Italy until 2004
Mr. Rauf J. Salfiti
Dater of Birth: 1926
Academic Qualifications: M.Sc. Pharmacy - A.U.B.
Year of Graduation: 1950
Practical Experience: General trading in pharmaceuticals
Mr. Awni Musa Al-Sakit
Date of Birth: 1938
Academic Qualifications: M.Sc. Civil Engineering
Year of Graduation: 1961
Practical Experience:
• Construction contracting
• Bank Representative on the Board of Directors of Union Tobacco and Cigarettes
Co.
• Member on financial, industrial and insurance boards of directors.
31
Mr. Nabil Abdel-Hadi Hammoudeh
Date of Birth: 1949
Academic Qualifications: B.A. Business Administration
Year of Graduation: 1974
Practical Experience:
• Grindlays Bank until the end of 1974
• Businessman in industry, trade and investment from 1/1/1975 to date.
• Chairman and General Manager of Hammoudeh Group
Mr. Rajai Halim Salfiti
Date of Birth: 1949
Academic Qualifications: B.A. Business Administration
Year of Graduation: 1970
Practical Experience:
• Manager and Partner in Halim Salfiti & Sons . 1970-1987
• Assistant General Manager: Arab Financial Corporation (Jordan) 1987-1992
• Deputy General Manager: Union Bank for Savings and Investment 1992-1994
• Chairman and General Manager: Union Financial Investment 1994 to date
• Chairman and General Manager: Union Tobacco and Cigarettes 1998 to date
• Chairman: Union Chemical Industries & Vegetable Oils: 1993 to date
• Chairman: Jordan Jewelry Trading Co. 1985 to date
• Chairman: Union Marketing Co. 1995 to date
• Chairman: Union Advanced Industries
• Member of the Yarmouk University Board of Trustees 1998 to date.
Mr. Mohiyeddin Abdel-Hamid Al-Ali
Date of Birth: 1941
Academic Qualifications: B.A. Accountancy
Year of Graduation:1970
Practical Experience:
• Over thirty years of banking experience.
• Member on the boards of several companies
• Vice Chairman on several Boards
32
Mr. Abdel-Halim Atalla Al-Majali
Date of Birth: 1937
Academic Qualifications: B.A. Military studies
Year of Graduation: 1974
Practical Experience:
• Leadership positions in the Armed Forces
• Manager: General Services Co. for a period of 16 years
• Member on the Board of the Bank since 1984
Mr. Adnan Ahmad Abu Ragheb
Date of Birth: 1955
Academic Qulaifications: General Secondary Certificate
Year of Graduation: 1974
Practical Experience:
• General Manager: Abu Ragheb Printing Press
• Board Member: Amman Chamber of Industry – Jordan
• Member on boards of various companies
• Member on Board of General Social Security Corporation.
Samia Suleiman Sukkar
•
•
•
•
Date of Birth: 1946
Academic qualifications:B.A. Business Administration
Year of Graduation: 1967
Practical Experience:
- Former member on numerous societies and schools boards.
- Member in the National Center for Human Rights
- Member on the board of the Greater Amman Municipality
- Board member of Union Land Development Corp.
33
NAMES AND TITLES OF SENIOR EXECUTIVE MANAGEMENT
Mr. Issam Halim Salfiti : Chairman and General Manager
•
•
•
•
•
B. A. Economics , 1967.
Deputy General Manager of Arab Finance Corporation (Jordan) from 15/10/1986
to 30/6/1989.
General Manager of Union Bank for Savings & Investment from 1/7/1989 to 27/
6/1997.
Chairman & General Manager of Union Bank for Savings & Investment from
28/6/1997 to date.
Represents the Bank on the Board of Directors of several companies in which the
Bank is a shareholder:
1. Jordan Hotels and Tourism Co. - Chairman
2. Zara Investment Co. - Member
3. Jordan Wood Industry Co. (JWICO) - Member
Mr. Ammar Adel Haddadin: Deputy General Manager:
•
•
•
•
•
•
B.A. Economics, 1981.
CitiBank from April 1981 - March 1985.
Petra Bank from June 1985 – May 1988.
Saudi-French Bank from June 1988 - June 1994 - Last position held when he
resigned was Branches Network Manager.
Joined Union Bank for Savings and Investment on 1/8/1994 as Branches Network
Manager and on 1/11/1997 became Deputy General Manager.
Represents the Bank on the Board of Directors of a number of Companies in
which the Bank is a shareholder:
1.
Union Investment Corporation (PLC) - Member
2.
Union Land Development Corporation (PLC) - Member.
3.
Golden Wheat Mills Co. (Ramallah) - Member
34
BENEFITS AND REMUNERATION TO CHAIRMAN,
MEMBERS OF THE BOARD OF DIRECTORS AND SENIOR EXECUTIVE
MANAGEMENT
DESCRIPTION
BOARD MEMBERS
TRANSPORTATION
TRAVEL &
STAY
SALARIES,
ALLOWANCES
AND BONUSES
50,000
73,350
16,389
309,000
-
-
4,807
359,780
50,000
73,350
21,196
668,780
REMUNERATION
BOARD MEMBERS
EXECUTIVE
MANAGEMENT
TOTAL
ORGANIZATIONAL CHART, RECRUITMENT POLICY
AND STAFF DETAILS
- Organization Chart (attached).
RECRUITMENT POLICY:
•
No employee shall be appointed outside the organization chart, the set plans and
the budget approved by the Board of Directors. These tools determine the number
of employees in each department, including the vacancies and the required
qualifications thereof.
•
The candidate must fulfill the following conditions:
- It is necessary, for classified employees, to have obtained the first university
degree at least or a diploma from a Community College provided the
candidate passes the Comprehensive Examination or the General Secondary
Certificate of Education, in addition to it, the years of experience required as
per the vacancy.
- To have passed successfully the admission examination prescribed by the
Bank.
- To have the appointment approved by the Bankʼs Recruitment Committee.
- The candidate must be medically fit subsequent to a medical examination
accredited by the Bank.
- The new employee shall be subject to a probationary period prescribed in
accordance with the provisions of the Jordanian Labor Law. The said period
may be extended for another three months in the light of performance reports
by concerned officials.
- The candidate must not be convicted in a felony or misdemeanour that violates
honour. He/She must also be of good behaviour and conduct.
35
STAFF DETAILS
•
•
The Bank employees numbered (344) as at 31/12/2005, (14) of whom are in
Ramallah Branch.
Classification of employees according to their academic qualifications:
ACADEMIC QUALIFICATION
TOTAL NUMBER
Masterʼs Degree
15
Higher Diploma
2
Bachelorʼs Degree
165
Diploma
47
High School Certificate (Tawjeehy) – GSCE
68
Below Tawjeehy (messengers, drivers, guards)
47
Total
344
The new location for Aqaba Branch that will start during 2006
36
QUALIFICATION & TRAINING
Classification of Participants in Training
Courses as per work centers during 2005
No. of Participants
Description
Branches
Head Office
No.
%
No.
%
No.
%
Courses Organized by the
Bankʼs Training Center
61
12
37
17
24
9
Contractual courses
6
1
-
-
6
2
Institute of Banking Studies
181
36
119
53
62
22
Arab Academy for Financial
and Banking Studies
41
8
4
2
37
13
Joint Efforts Group
44
9
16
7
28
10
Domestic Courses
164
33
46
21
118
42
External Courses
6
1
-
-
6
2
503
100
222
100
281
100
Total
AUDITORSʼ FEES:
Fees for auditing the Bankʼs accounts for 2005 amounted to JD28,346 including the Sales
Tax and the Value Added Tax in the Palestinian National Authority territories in the West
Bank.
DONATIONS, GRANTS & CONTRIBUTIONS
FOR THE ENVIRONMENT AND COMMUNITY
The total amount of donations, grants and contributions dispensed in 2005 was JD42,673
as follows:
JD
UNESCO
350
Al-Salt Charitable Society
750
Al-Hassan Award for Youth
700
Terra Sancta/ Boy Scouts
200
Jordanian Society for Palestinian Medical Aid
2,000
Church of the Sacred Heart
400
Al-Hussein Cancer Center
6000
The Humane Forum for Womanʼs Rights
100
Environement Society
50
37
The Bishopʼs School
Cooperation Foundation
The Cancer Society
Jordanian Canadian Business Society
Y.M.C.A
General Corporation for Social Security/Work accidents
Jordanʼs Karate Union
S.O.S Aqaba
Ramtha Union Club
Ramtha Sporting Club
Joranian Businessmen Society
St. Lukeʼs Church
Al-Busseira Cultural and Sporting Club
Dozan and Awtar Music Foundation
The Gulf Club
Y.W.M.A
King Abdullah II Fund
Al-Ahliyyah Schools Team
The Society for the Awakening of Jordanian Woman
Jordan River Foundation
Al-Fajr Newspaper
Cancer Patients
Hungarian Embassy
Promotional Campaign for Orphansʼ Fund Raising
The Higher Committee for the Charity and Benevolence Campaign
Jordanian Union
Cerebral Palsey Society
The Charitable Society for the Dumb and Mute
The Lady of Peace Center
Al-Thaghr Society for the Disabled
Prince Ali ibn Al-Husseinʼs Club for the Dumb
The Intʼl Palestine Corporation for Research and Services
Womanʼs Rise and Development Society
Latin Patriarchate Convent
Irbed Governorate
TOTAL
38
100
1773
150
1,000
220
10000
250
100
50
50
2000
75
200
630
100
450
1000
300
1000
1000
200
125
200
1750
7000
500
100
100
100
100
100
1000
100
50
250
42,673
Other Miscellaneous Data
•
•
•
•
•
•
The Bank does not enjoy any Government protection or privileges.
There are no resolutions issued by the Government or international organizations
that have material effect on the Bankʼs business or its competitive capacity.
The Bank does not rely on purveyors or agents who constitute (10%) or more of
its total purchases or revenues.
The Bank has not exercised any operation not included within its principal
activity.
The Bank does not have any subsidiaries.
All contracts and engagements concluded by the Bank with the Chairman of
the Board of Directors, the board members, the General Manager, Bank staff
and their relatives are consistent with Bank statutes and the instructions of the
Central Bank of Jordan.
ACKNOWLEDGEMENT BY THE BOARD OF DIRECTORS
The Board of Directors of the Union Bank for Savings & Investment acknowledges its
responsibility for the correctness of statements and for providing an effective control
system in the Bank. The Board also confirm there are no material issues that may affect
the continuity of the Bankʼs performance during the coming financial year 2006.
39
40
To The Shareholders of
Union Bank For Savings and Investment
Amman - Jordan
UNION BANK FOR SAVINGS AND INVESTMENT
We have audited the accompanying
consolidated
balanceassheet
CONSOLIDATED
BALANCE SHEET
of of UNION BANK FOR SAVINGS
shareholding
company) as of December 31, 2005 and the related
AND INVESTMENT (a public
DECEMBER
31, 2005
(In Jordanian
Dinars) changes in equity and consolidated cash flows
consolidated income statement,
consolidated
for the year then ended. These consolidated financial statements are the responsibility
of the bankʼs Board of Directors. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit
in accordance
with
International
Auditing Standards. Those
UNION
BANK FOR
SAVINGS
AND INVESTMENT
standards require that CONSOLIDATED
we plan and perform
the audit
to obtain reasonable assurance
STATEMENT
OF INCOME
FOR THE
YEAR ENDED
DECEMBER
31, 2005misstatement. An audit
about whether the financial
statements
are free
of material
(In
Jordanian
Dinars)
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
UNION BANK FOR SAVINGS AND INVESTMENT
In our opinion, the consolidated
financial
statements
referredINtoSHAREHOLDERSʼ
above presentEQUITY
fairly,
CONSOLIDATED
STATEMENT
OF CHANGES
YEAR ENDED
DECEMBER
31, 2005
in all material respects,FOR
theTHE
consolidated
financial
position
of UNION BANK FOR SAVINGS
(In
Jordanian
Dinars)
AND INVESTMENT as of December 31, 2005 and the consolidated results of its operations
and its consolidated cash flows for the year then ended in accordance with International
Financial Reporting Standards.
The bank maintains proper books of account and the accompanying consolidated
financial statements andUNION
the financial
in theAND
Board
of Directorsʼ report are in
BANK information
FOR SAVINGS
INVESTMENT
agreement therewith. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERSʼ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
February 13, 2006
Amman – Jordan
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
41
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED BALANCE SHEET as of
DECEMBER 31, 2005
(In Jordanian Dinars)
ASSETS
Notes
2005
Cash and balances with Central Banks
4
55,645,086
Balances at banks and financial institutions
5
98,223,945
UNION BANK FOR SAVINGS AND
INVESTMENT
_
Deposits at banks and financial institutions
6
CONSOLIDATED STATEMENT OF INCOME
Trading investments FOR THE YEAR ENDED DECEMBER
7 31, 200551,421,184
Direct credit facilities, (In
netJordanian Dinars)
8
321,045,595
Available for sale investments
9
87,405,298
Held to maturity investments, net
10
13,608,000
Premises and equipment, net
11
8,348,281
Intangible assets, net
12
548,994
Other assets
13
16,164,108
_
Deferred tax assets
19
UNION BANK FOR SAVINGS AND INVESTMENT
2004
(Restated)
76,384,445
76,092,556
244,973
77,483,242
206,222,113
34,210,651
15,492,968
8,561,671
197,589
14,945,679
824,830
510,660,717
Total AssetsCONSOLIDATED STATEMENT OF CHANGES652,410,491
IN SHAREHOLDERSʼ
EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005
LIABILITIES AND EQUITY
(In Jordanian Dinars)
LIABILITIES Banks and financial institutionsʼ deposits
14
70,892,479
41,500,147
Customersʼ deposits
15
387,365,827 358,644,916
Margin accounts
16
52,443,746
44,637,685
Loans and borrowings
17
10,909,207
7,131,351
Sundry provisions
18
406,026
313,941
UNION
BANK
FOR
SAVINGS
AND
INVESTMENT
Income tax liabilities
19
6,201,000
372,303
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERSʼ EQUITY
Deferred tax liabilities
19
11,024,218
2,508,584
FOR THE YEAR ENDED DECEMBER 31, 2005
Other liabilities
20
7,242,076
5,315,110
(In Jordanian Dinars)
546,484,579
460,424,037
EQUITY
Equity attributable to the Bankʼs shareholders
Paid in capital
21
40,000,000
Additional paid in capital
21
6,755,311
UNION
BANK
FOR
SAVINGS
AND
INVESTMENT
Statutory reserve
22
7,524,633
CONSOLIDATED STATEMENT OF CASH
Voluntary reserve
22 FLOWS
1,288,656
FOR
THE
YEAR
ENDED
DECEMBER
31,
2005
_
Foreign branches reserve
22
(In Jordanian Dinars)
General banking risk reserve
22
3,210,085
Cumulative changes in fair values, net
23
21,915,180
Retained earnings
24
25,232,047
_
Proposed dividends
25
25,000,000
2,283,139
4,165,451
1,288,656
3,545,000
1,978,767
1,600,266
7,875,401
2,500,000
Total Liabilities
Total Equity
105,925,912
UNION BANK FOR SAVINGS AND INVESTMENT
Total Liabilities and Equity
652,410,491
50,236,680
510,660,717
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(In Jordanian Dinars)
The accompanying notes from 1 to 52 are an integral part of these financial statements
42
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
Notes
Interest income
Interest expense
UNION BANK FOR SAVINGS
26
27
AND
2005
2004
(Restated)
26,384,148
12,547,953
INVESTMENT
19,542,577
8,056,170
2,942,568
1,967,454
16,778,763
13,453,861
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERSʼ EQUITY
Net interestFOR
income
THE YEAR ENDED DECEMBER 31, 200513,836,195 11,486,407
(In Jordanian Dinars)
Net commission
28
Net interest and commission income
Other income –
UNION BANK FOR SAVINGS AND INVESTMENT
Gains arising from dealing
in foreign currencies
CONSOLIDATED
STATEMENT OF CHANGES IN2,032,534
SHAREHOLDERSʼ1,505,622
EQUITY
Gains less losses arising
from
trading
investments
29
16,813,430
5,228,507
FOR THE YEAR ENDED DECEMBER 31, 2005
Gains less losses arising
available
(Infrom
Jordanian
Dinars)for
sale investments
30
2,693,306
83,616
Other income
31
3,987,859
1,079,648
Gross profit
42,305,892
Expenses –
Employeesʼ cost
32 INVESTMENT
4,160,869
UNION BANK FOR SAVINGS AND
Depreciation and amortization
11
&
12
CONSOLIDATED STATEMENT OF CASH FLOWS917,630
Other expenses
33 31, 2005 3,655,819
FOR THE YEAR ENDED DECEMBER
Provision for credit losses
8
819,147
(In Jordanian Dinars)
Sundry provisions
18
92,085
Total expenses
Profit beforeUNION
incomeBANK
tax
Income Tax
21,351,254
3,140,696
963,959
1,898,625
1,073,337
274,834
9,645,550
7,351,451
32,660,342
FOR SAVINGS AND INVESTMENT
13,999,803
24,652,146
10,802,344
0,738
0,494
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
19
8,008,196
3,197,459
(In Jordanian Dinars)
Profit for the year
Basic earnings per share
34
The accompanying notes from 1 to 52 are an integral part of these financial statements
43
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERSʼ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERSʼ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
UNION BANK FOR SAVINGS AND INVESTMENT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(In Jordanian Dinars)
The accompanying notes from 1 to 52 are an integral part of these financial statements
44
UNION BANK FOR SAVINGS AND INVESTMENT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2005
(In Jordanian Dinars)
Notes
2005
2004
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income tax
Adjustments for Depreciation and amortisation
UNION BANK
32,660,342
13,999,803
917,630
FOR SAVINGS AND INVESTMENT
963,959
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Provision for credit losses
819,147
DECEMBER 31, 2005
Unrealised gains from
investments
( 7,575,387)
(Intrading
Jordanian
Dinars)
Gain from sale of premises and equipment
Effect of exchange rate changes
(
(
26,614,215
12,698,380
( 3,000,000)
_
244,973
172,039)
33,637,445
(115,642,630)
( 1,218,429)
24,741,423
3,190,500
(33,955,593)
(29,916,509)
( 5,824,612)
30,084,250
28,720,911
7,806,061
1,903,446
92,085
21,691,344
48,626,457
12,334,727
1,078,331
272,964
9,070,288
54,937,412
(
Net cash from operating activities before income tax
Income tax paid
(
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity investments
Sale of held to maturity investments
Purchase of available for sale investments
Sale of available for sale investments
Purchase of premises and equipment
Sale of premises and equipment
Purchase of intangible assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in capital, net
Proposed dividends
Proceeds from loans
40,333)
Net (decrease) increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
35
(
5,768)
9,029,955
54,931,644
( 750,000)
2,634,968
(36,181,431)
10,502,995
( 625,703)
60,426
( 445,567)
(17,050,000)
5,079,708
(21,375,046)
703,856
( 205,722)
2,033
( 125,755)
(24,804,312)
(32,970,926)
13,222,172
( 2,476,479)
3,777,856
Net cash used in financing activities
(3,096,549)
1,338
( 243,508)
44,801)
162,717)
Operating profit before changes in
operating assets and liabilities
Changes in assets and liabilities Increase in balances with Central Banks
that mature after three months
Decrease in deposits at banks and financial
institutions than mature after three months
Decrease (increase) in restricted balances
Decrease (increase) in trading investments
Increase in direct credit facilities
Increase in other assets
Increase in banks and financial institutions
deposits that mature after three months
Increase in customersʼ deposits
Increase in margin accounts
Increase in other liabilities
Increase in sundry provisions
1,073,337
5,245,648
7,207)
6,384,884
(
14,523,549
11,623,325
( 1,250,808)
33,584,043
162,717
243,508
141,360,709
107,533,158
140,272,618
141,360,709
The accompanying notes from 1 to 52 are an integral part of these financial statements
45
UNION BANK FOR SAVINGS AND INVESTMENT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(In Jordanian Dinars)
(1)
GENERAL INFORMATION
The Bank is a public shareholding company registered and incorporated in Jordan, on
August 30, 1978 in accordance with the Companies Law No (12) of (1964). Its registered
office is at Amman-Jordan. Its current paid up capital is JD 40,000,000 distributed equally
over 40,000,000 shares of JD 1.
The Bank provides its banking services through its main branch located in Amman, and
through its fifteen branches in Jordan and one overseas branch.
The financial statements were authorized for issue by the Bankʼs Board of Directors in
their meeting No. 1 held on February 13, 2006. These financial statements require the
General Assemblyʼs approval.
(2)
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of the financial statements
are set out below:
Basis of preparation
The accompanying consolidated financial statements for the Bankʼs branches inside and
outside Jordan have been prepared in accordance with International Financial Reporting
Standards (IFRS) and in conformity with the applicable laws and regulations of the
Central Bank of Jordan.
The consolidated financial statements are prepared under the historical cost convention
as modified for the measurement at fair value of derivatives and investment securities
other than held to maturity investments.
The financial statements have been presented in Jordanian Dinars ”JD” which is the
functional currency of the Bank.
Changes in Accounting Policies
The accounting policies are consistent with those used in the previous year, with the
exception of the following policies which have been revised due to the application of
standards becoming mandatory for financial years beginning on or after 1 January
2005.
In accordance with the revised International Accounting Standards (IAS) 39 and as per
the requirement of IAS 30 and the Central Bank of Jordan, changes in policies are as
follows:
46
General banking risk reserve is computed and considered as an appropriation of retained
earnings instead of computing a general provision and recording it as a deduction from
profit. Retained earnings as of December 31, 2004 and profit and loss accounts for the
year ended December 31, 2004 were adjusted for the effect of the general provision.
The effect of the adjustments and the reclassifications on the Bankʼs consolidated financials
for the year 2004 is illustrated in note 52.
Main Accounting policies:
Trading investments
These are initially recognised at cost and subsequently remeasured at fair value. All related
realised and unrealised gains or losses in addition of the fair value related to translation
of non-monetary assets in foreign currencies are taken to the income statement.
Interest earned is included in interest income and dividends received are included (as
dividend income) in gains less losses arising from trading investments.
Direct credit facilities
Credit facilities are carried at amortised cost after allowance for credit losses, interest
and commission in suspense.
Allowance for credit losses is made to cover impairment for direct credit facilities when
there are one or more events that occurred after the initial recognition of the facility that
has an impact on the estimated future cash flows of the facilities that can be reliably
estimated. The provision for the impairment is recorded in the income statement.
Interest and commission of non-performing facilities are suspended when loans become
impaired, such as when overdue by more than 90 days.
Loans provided for are written off from the allowance of credit losses when the collection
procedures become ineffective. The excess in the allowance of possible loan losses, if
any, is transferred to the statement of income, and cash recoveries of loans that were
previously written off are credited to the income statement.
Available for sale investments
These are initially recognised at cost, being the fair value of consideration given including
directly attributable transaction costs and subsequently remeasured at fair value. Fair
value changes are reported as a separate component of equity until the investment is
derecognised or the investment is determined to be impaired. On derecognising or
impairment the cumulative gain or loss previously reported as “cumulative change in
fair value” within the equity, is included in the income statements.
47
Held to maturity investment
These are initially recognised at cost, being the fair value of consideration given including
directly attributable transaction costs.
Investments classified as held to maturity which have fixed or determinable payments and
fixed maturity which are intended to be held to maturity. They are carried at amortised
cost less provision for impairment.
Fair value
For investments and derivatives quoted in an active market, fair value is determined by
reference to quoted market prices. Bid prices are used for assets and offer prices are used
for liabilities
For financial instruments where there is no active market fair value is normally based on
one of the following methods:
- Comparison with the current market value of a highly similar financial instrument.
- The expected cash flows discounted at current rates applicable for items with similar
terms and risk characteristics.
- Options pricing models.
The estimated fair value of deposits with no stated maturity, which includes non-interest
bearing deposits, is the amount payable on demand.
In case the fair value of an investment cannot be reliably measured, it is stated at cost or
amortised cost and any impairment in the value is recorded in the income statement.
Impairment of financial assets
An assessment is made at each balance sheet date to determine whether there is objective
evidence that a specific financial asset is impaired. If such evidence exists, any impairment
loss, is recognised in the income statement.
Impairment is determined as follows:
- For assets carried at amortised cost, impairment is based on estimated cash flows
discounted at the original effective interest rate.
- For assets carried at fair value, impairment is the difference between cost and fair
value.
- For assets carried at cost, impairment is based on the present value of future cash
flows discounted at the current market rate of return from a similar financial asset.
Impairment in value is recognised in the income statement. If, in subsequent period, the
amount of the impairment loss decreases, the carrying value of the asset is increased to
its recoverable amount. The amount of the reversal is recognised in the income statement
except for equity instruments classified as available for sale investments.
48
Premises and equipment
Premises and equipment are stated at cost less depreciation. Land is not depreciated.
Depreciation is calculated on a straight-line basis over the estimated useful lives of other
assets, as follows:
%
Buildings
Equipment and furniture
Vehicles
Computers
Others
4
9
15
20
20 – 2.5
The carrying values of premises and equipment are reviewed for impairment when events
or changes in circumstances indicate the carrying values may not be recoverable. If any
such indication exists and where the carrying values exceed the estimated recoverable
amounts, the assets are written down to their recoverable amount, and the impairment is
recorded it the income statement.
Provisions
Provisions are recognised when the Bank has a present obligation (legal or constructive)
arising from a past event and the costs to settle the obligation are both probable and able
to be reliably measured.
End of services indemnities Provision for end of service indemnity is established by the bank to face any legal or
contractual obligations at the end of employeesʼ services and is calculated based on the
service terms as of the financial statements date.
Income Tax
- Current income tax is calculated based on the tax rates and laws that are applicable
at the balance sheet date.
- Deferred income taxation is provided using the liability method on all temporary
differences at the balance sheet date. Deferred income tax assets and liabilities are
measured at the tax rates that are expected to apply to the period when the asset is
realised or the liability is settled, based on laws that have been enacted at the balance
sheet date.
- The carrying values of deferred income tax assets are reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred income tax asset to be utilised.
49
Fiduciary assets
Assets held in a fiduciary capacity are not treated as assets of the Bank in the balance
sheet.
Offsetting
Financial assets and financial liabilities are only offset and the net amount reported
in the balance sheet when there is a legally enforceable right to set off the recognised
amounts and the Bank intends to either settle on a net basis, or to realise the asset and
settle the liability simultaneously.
Revenue and expense recognition
Interest income as well as fees which are considered an integral part of the effective yield
of a financial asset, are recognised using the effective yield method, unless collectibility is
in doubt. The recognition of interest income is suspended when loans become impaired,
such as when overdue by more than 90 days.
Income from shares (dividend income) is recorded when right to receive payment is
established.
Trade and settlement date accounting
Purchases and sales of financial assets are recognised on the trade date, i.e. the date that
the Bank commits to purchase or sell the asset.
Derivative Financial Instruments held for trading
Derivative financial instruments such as, foreign currencies forward deals, interest rate
future deals, swaps, foreign currencies options and others, are initially recorded at cost
as other assets / liabilities, and subsequently carried at fair value in the balance sheet.
Repurchase and resale agreements
Assets sold with a simultaneous commitment to repurchase at a specified future date
(repos) will continue to be recognised in the Bankʼs financial statements due to the Bankʼs
continuing control over these assets using the same accounting policies. The proceeds of
the sale are recorded as a liability. The difference between the sale and the repurchase
price is recognised as an interest expense over the agreement term using the effective
interest rate method.
50
Assets purchased with a corresponding commitment to resale at a specified future date
(reverse repos) are not recognised in the Bankʼs financial statements as assets since the
Bank is not able to control these assets. The related payments are recognised as part of
deposits at banks and financial institutions or customersʼ loans as applicable, and the
difference between purchase and resale price is recognised in the income statement using
the effective interest rate method.
Collateral pending sale
The Bank occasionally acquires real estate in settlement of certain loans and advances.
Such real estate is stated at the lower of the carrying value of the related loans and
advances and the current fair value of such assets. Gains or losses on disposal, and
revaluation losses, are recognised in the income statement.
Intangible assets
- Intangible assets acquired separately are measured on initial recognition at cost.
Intangible assets with finite lives are amortised over the useful economic life and
assessed for impairment when there is an indication that the intangible asset may be
impaired.
- Internally generated intangible assets are not capitalised and are expensed in the
income statement
- Intangible assets include computer software and programmes. These intangibles are
amortised evenly over their estimated economic useful lives of 3 years.
Foreign currencies
Translation of foreign currency transactions
Monetary assets and liabilities in foreign currencies are translated into JD at rates of
exchange prevailing at the balance sheet date as issued by Central Bank of Jordan. Any
gains or losses are taken to the income statement.
Translation gains or losses on non-monetary items carried at fair value are included in
equity as part of the fair value adjustment on available-for-sale investments.
Cash and cash equivalents
Represents cash on hand and cash balances with banks and financial institutions that
mature within three months, less banks and financial institutions deposits that mature
within three months.
51
(3)
USE OF ESTIMATES
The preparation of the financial statements requires management to make estimates
and assumptions that affect the reported amounts of financial assets and liabilities
and disclosure of contingent liabilities. These estimates and assumptions also affect
the revenues and expenses and the resultant provisions as well as fair value changes
reported in equity. In particular, considerable judgment by management is required in
the estimation of the amount and timing of future cash flows when determining the level
of provisions required for non-performing credit facilities. Such estimates are necessarily
based on assumptions about several factors involving varying degrees of judgment and
uncertainty and actual results may differ resulting in future changes in such provisions.
a)
Provision for credit losses: The Bank reviews its loan portfolios to assess
impairment based on Central Bank of Jordan instructions.
b)
Impairment losses on collaterals acquired by the Bank are determined based on
appraisal reports prepared by certified appraisers. Provisions are recognised
when impairment is determined at the financial statements date individually and
any impairment is recorded in the income statement. Valuation is performed on a
regular basis.
c) A periodic review is performed on assets estimated useful lives and assets that are
subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
d)
Income tax is calculated based on the tax rates and laws that are applicable at the
balance sheet date.
e)
A periodic review is performed on assets stated at cost to assess any impairment
in its carrying value which will be charged to statement of income.
f)
Provision against lawsuits is provided for based the Bankʼs legal advisorʼs
opinion.
(4)
CASH AND BALANCES WITH CENTRAL BANKS
Cash on hand
Balances at Central BanksCurrent and demand deposits
Time deposits
Statutory cash reserve
Certificates of deposits
52
2005
2004
4,176,921
5,505,144
5,797,721
1,772,500
30,897,944
13,000,000
1,347,794
1,772,500
27,459,007
40,300,000
55,645,086
76,384,445
Except for the statutory cash reserve held at Central Banks, the restricted cash balances
amounted to JD 1,772,500 as of December 31, 2005 and 2004.
Balances with Central Banks maturing after three months amounted to JD 4,772,500.
(5)
BALANCES AT BANKS AND FINANCIAL INSTITUTIONS
Non interest bearing balances at banks and financial institutions amounted to JD 4,496,380
and JD 2,437,972 as of December 31, 2005 and 2004, respectively.
Restricted balances, amounted to JD 2,299,039 and JD 2,127,000 as of December 31, 2005
and 2004, respectively.
(6)
DEPOSITS AT BANKS AND FINANCIAL INSTITUTIONS
(7)
TRADING INVESTMENTS
Foreign treasury bills
Quoted debt securities
Quoted equities
Investment funds
2005
7,218,514
21,632,741
18,275,277
4,294,652
2004
14,962,840
46,115,260
15,094,039
1,311,103
51,421,184
77,483,242
Pledged debt securities amounted to JD 2,104,241 as of December 31, 2005,
and JD 7,449,837 as of December 31, 2004.
53
(8)
DIRECT CREDIT FACILITIES
2005
2004
(Restated)
Discounted bills and notes *
Loans and advances **
14,400,697
318,031,332
12,200,991
205,555,588
Less: Suspended interest
Provision for credit losses
332,432,029 217,756,579
3,752,638
3,803,469
7,633,796
7,730,995
Direct credit facilities, Net
321,045,595
206,222,113
* Net of interest and commissions received in advance of JD 547,205 and JD 463,031
as of December 31, 2005 and 2004, respectively.
** Net of interest and commissions received in advance of JD 221,040 and JD 36,730 as
of December 31, 2005 and 2004, respectively.
The geographical composition of the credit facilities portfolio is as follows:
Agriculture
Manufacturing and mining
Construction
General trade
Transportation services
Tourism, hotels and restaurants
Services and public facilities
Financial Services
Investment in shares
Real estate
Vehicles
Consumer goods
Others
Jordan
Middle East
5,175,159
27,354,145
17,072,190
73,705,693
3,252,946
14,652,207
8,021,666
19,536,473
35,895,697
72,742,629
15,768,787
9,182,507
24,937,788
_
327,297,887
54
1,781,194
247,964
428,973
_
_
992,178
_
1,123,343
_
_
_
560,490
5,134,142
2005
5,175,159
29,135,339
17,320,154
74,134,666
3,252,946
14,652,207
9,013,844
19,536,473
37,019,040
72,742,629
15,768,787
9,182,507
25,498,278
2004
4,546,036
22,422,375
12,454,073
49,836,387
4,161,965
3,830,627
10,083,201
2,595,685
2,726,003
36,695,257
16,269,339
7,096,834
45,038,797
332,432,029 217,756,579
Credit facilities analysis according to sectors were as follows:
2005
Public sector
Private sector:
Corporate
Retail
2004
86,755
4,244,040
244,508,120
87,837,154
149,308,998
64,203,541
332,432,029
217,756,579
At December 31, 2005, non-performing credit facilities amounted to JD 13,508,476
(2004: JD 14,447,735), representing 4.1% (2004: 6.63%) of total facilities granted.
At December 31, 2005, Non performing credit facilities; net of interest in suspense,
amounted to JD 9,755,838 (2004: JD 10,644,266), representing 2.9% (2004: 4.9%) of
total facilities granted after excluding the interest in suspense.
At December 31, 2005, the direct facilities granted to and guaranteed by the government
of Jordan amounted to JD 990,208 (2004: JD 5,526,578), representing 0.3% (2004:
2.5%) of total facilities
The direct facilities granted against collaterals amounted to JD 135,933,651 and JD
63,363,384 as of December 31, 2005 and 2004, respectively.
The gross fair value of collaterals held against credit facilities amounted to JD 152,263,846
and JD 96,986,238 as of December 31, 2005 and 2004, respectively.
The movements on provision for credit losses were as follows:
At January 1,
Charge for the year
Amounts written off
At December 31,
2005
2004
7,730,996
819,148
( 916,348)
8,907,962
1,073,337
(2,250,304)
7,633,796
7,730,995
Non-performing credit facilities that were settled or collected amounted to JD 1,467,582
and JD 608,286 as of December 31, 2005 and 2004, respectively.
The movements on suspended interest were as follows:
2005
At January 1,
Suspended interest during the year
Amount transferred to income
Amounts written off
At December 31,
3,803,469
1,121,455
( 254,174)
( 918,112)
3,752,638
55
2004
4,294,965
1,004,072
( 278,262)
(1,217,305)
3,803,469
(9)
AVAILABLE FOR SALE INVESTMENTS
Quoted Investments
Corporate debt securities
Equity
2005
2004
1,070,413
45,216,107
1,914,814
9,530,123
Total quoted investments
46,286,520
11,444,936
Unquoted Investments
Treasury bills
Guaranteed government debt securities
Corporate debt securities
Equity
Others
16,900,623
18,666,457
3,209,000
1,352,386
990,312
2,805,716
14,277,100
3,918,000
1,135,050
629,848
Total unquoted investments
41,118,778
22,765,715
Total investments
Analysis of debt instruments
Fixed rate
87,405,298
34,210,651
39,846,492
22,915,630
Investments with a value of JD 2,342,698 and JD 1,764,898 as of December 31, 2005 and
2004, respectively are stated at cost due to inability of the Bank to reliably measure its
fair value. The carrying value is not impaired.
(10)
HELD TO MATURITY INVESTMENTS
2005
2004
12,053,000
12,053,000
12,053,000
12,053,000
_
805,000
750,000
9,968
3,430,000
_
Total unquoted investments
1,555,000
3,439,968
Total investments
Analysis of debt instruments
Fixed rate
Variable rate
13,608,000
15,492,968
1,555,000
12,053,000
3,439,968
12,053,000
Total
13,608,000
15,492,968
Quoted Investments
Government treasury bills
Total quoted investments
Unquoted Investments
Guaranteed government debt securities
Corporate debt securities
Others
Held to maturity investments mature within a period from 3 months to 10 years.
56
(11)
PREMISES AND EQUPMENT
The cost of fully depreciated premises and equipments that are still in use amounted to
JD 2,324,672 and JD 2,030,658 as of December 31, 2005 and 2004 respectively.
57
(12)
INTANGIBLE ASSETS
At January 1,
Additions
Amortisation during
the year
At December 31,
(13)
2005
2004
Computer
Software
Others
Total
Computer
Software Others
Total
179,189
445,567
18,400
_
197,589
445,567
169,462
125,755
192,462
125,755
( 89,562)
535,194
( 4,600) ( 94,162)
13,800
548,994
23,000
_
(116,028) ( 4,600) (120,628)
179,189
18,400
197,589
OTHER ASSETS
Accrued interest and revenue
Prepaid expenses
Collateral pending sale
Unrealized gain on financial derivatives (Note 36)
Others
2005
2004
1,951,400
245,542
782,016
_
13,185,150
1,932,246
170,697
1,406,185
22,546
11,414,005
16,164,108
14,945,679
2005
2004
The movements on collateral pending sale were as follows:
At January 1,
Additions
Impairment losses
1,406,185
196,041
( 820,210)
At December 31,
782,016
58
1,223,155
316,019
( 132,989)
1,406,185
(14)
BANKS AND FINANCIAL INSTITUTIONS DEPOSITS
Inside
Jordan
Current accounts and
demand deposits
6,121,972
2005
Outside
Jordan
402,902
Total
6,524,874
Inside
Jordan
7,034,475
2004
Outside
Jordan
Total
182,317
7,216,792
Maturing within 3 months 18,826,179 42,541,426 61,367,605
Maturing within
6 - 9 months
3,000,000
3,000,000
11,805,124 21,478,231
33,283,355
27,948,151 42,944,328 70,892,479
19,839,599 21,660,548
Deposits -
Total
(15)
CUSTOMERSʼ DEPOSITS
Current and demand deposits
Saving accounts
Time and notice deposits
Certificates of deposits
Others
1,000,000
-
1,000,000
41,500,147
2005
2004
70,736,518
8,423,343
284,670,602
23,535,267
97
55,337,254
5,026,839
284,162,716
14,118,010
97
387,365,827
358,644,916
Governmental institutionsʼ deposits amounted to JD 50,624,520 representing 13.07% of
total deposits and JD 50,490,023 representing 14.08% of total deposits as of December
31, 2005 and 2004, respectively.
Non-interest bearing deposits amounted to JD 53,158,972 representing 13.72% of total
deposits and JD 35,265,051 representing 9.83% of total deposits as of December 31,
2005 and 2004, respectively.
Dormant accounts amounted to JD 1,127,108 representing 0.29% of total deposits and
JD 929,189 representing 0.26% of total deposits as of December 31, 2005 and 2004,
respectively.
Restricted deposits amounted to JD 4,847,727 representing 1.25% of total deposits and
JD 2,488,802 representing 0.69% of total deposits as of December 31, 2005 and 2004,
respectively.
59
(16)
MARGIN ACCOUNTS
Direct credit facilities
Indirect credit facilities
Deposits against cash margin dealings facilities
Others
(17)
2005 -
Central Bank of Jordan
320,468
Central Bank of Jordan
327,360
Central Bank of Jordan
261,379
Jordan Real Estate
Mortgage Finance Co. 5,000,000
Jordan Real Estate
Mortgage Finance Co. 1,000,000
Jordan Real Estate
Mortgage Finance Co. 4,000,000
Total
35,608,336
11,700,016
5,080,588
54,806
27,884,718
10,096,474
6,642,312
14,181
52,443,746
44,637,685
Installment Guarantees
Annual
due
interest rate
14
16
14
14
13
14
Semi annual
Semi annual
Semi annual
*
*
*
2%
2%
2%
1
1
one instalment
**
5.45%
1
1
one instalment
**
4.75%
1
1
one instalment
**
4.4%
4
14
16
14
2
14
15
14
Semi annual
Semi annual
Semi annual
Semi annual
*
*
*
*
2.95%
2%
2%
2%
1
1
one instalment
**
3.95%
1
1
one instalment
**
4.75%
10,909,207
2004 -
Central Bank of Jordan
171,781
Central Bank of Jordan
320,467
Central Bank of Jordan
377,724
Central Bank of Jordan
261,379
Jordan Real Estate
Mortgage Finance Co. 5,000,000
Jordan Real Estate
Mortgage Finance Co. 1,000,000
Total
**
2004
LOANS AND BORROWINGS
No. of Installments
Not
Amount Total
due yet
*
2005
7,131,351
Inward documentary credit in favour of customers.
Real Estate.
60
(18)
SUNDRY PROVISIONS
Balance at
January 1,
2005 Provision for end of
service indemnity
Provision for legal and
other obligations
2004 Provision for end of
service indemnity
Provision for legal and
other obligations
Provided
during the
period
Utilised
during
the year
Charged
back to
income
Balance at
December 31,
73,941
32,085
-
-
106,026
240,000
60,000
-
-
300,000
313,941
92,085
-
-
406,026
40,977
34,832
-
73,941
-
240,000
-
240,000
40,977
274,832
-
313,941
(19)
INCOME TAX
A)
Income Tax liabilities
1,868
1,868
The movements on the income tax provision were as follows:
2005
At January 1,
Income tax paid
Provision for income tax for the year
At December 31,
2004
372,303
( 40,333)
5,869,030
355,834
( 5,767)
22,236
6,201,000
372,303
Income tax appearing in the statement of income represents the following:
Provision for income tax for the year
Deferred tax assets for the year
Deferred tax liabilities for the year
Amortization of deferred tax assets/liabilities
61
5,869,030
2,290,179
( 151,013)
22,236
2,787,247
387,976
-
8,008,196
3,197,459
B)
Deferred tax assets / liabilities:
2005
Beginning
balance
a- Deferred Tax assets
b- Deferred tax
liabilities:
Change fair value of
trading investments
Cumulative change in
fair values
2004
Deferred
tax restated
Amounts
released
Amounts
added
Ending
balance
Deferred
tax
2,356,658
(2,356,658)
-
-
-
7,331,971
(3,717,498)
7,494,042
11,108,515
3,238,978
-
2,224,547
-
27,433,511
29,658,058
7,785,240
2,508,584
9,556,518
(3,717,498)
34,927,553
40,766,573
11,024,218
2,508,584
824,830
At December 31, 2005, deferred tax liability includes an amount of JD 7,201,296 (2004: JD
583,944) resulting from cumulative change in fair values in the equity.
The movements in deferred tax assets and liabilities were as follows:
2005
At January 1,
Additions
Amortization
At December 31,
2004
Assets
Liabilities
Assets
824,830
(824,830)
-
2,508,586
9,491,475
( 975,843)
11,024,218
3,612,077
(2,787,247)
824,830
liabilities
1,536,666
1,606,395
( 634,477)
2,508,584
The relationship between the tax expense and the accounting profit can be explained as
follows:
2005
2004
Accounting profit
32,660,342
13,999,802
Non-taxable income
(16,403,624) ( 8,580,861)
Expenses that are not deductible in determining taxable profit 1,349,530
657,053
Others – carried forward losses
( 1,417,537) ( 5,998,849)
Taxable profit
Effective rate of income tax
16,188,711
77,145
24.52%
22.84%
The statutory tax rate on banks in Jordan is 35% and in Palestine is 15%.
62
The Income Tax Department has reviewed the Bankʼs records for Jordan branches for
2002 and has not reach a final settlement yet.
The Bank settled its income tax for 2001 and 2003.
The Income Tax Department has reviewed the Bankʼs records in Palestine for the years
from 1996 till 2003 and has not reach a final settlement yet.
(20)
OTHER LIABILITIES
2005
Accrued interest expenses
Interest received in advance
Commissions received in advance
Accrued expenses
Others
2004
1,594,737
6,276
1,287,783
413,783
3,939,497
1,249,963
4,271
201,081
241,377
3,618,418
7,242,076
5,315,110
(21) PAID IN CAPITAL
-
The paid in capital amounts to JD 40,000,000 and divided to 40,000,000 shares
at JD 1 per share (2004: 25,000,000).
-
Additional paid in capital represent the difference between the amounts subscriped
in the capital increase and the par value of the shares.
(22)
RESERVES
Statutory reserve
As required by the Law, 10% of the profit before tax and fees is transferred to the statutory
reserve. The Bank may resolve to discontinue such annual transfers when the reserve
equals the paid in capital. This reserve is not available for distribution to shareholders
Voluntary reserve
Voluntary reserve represents the amounts transferred from net income before tax and
fee; up to a maximum of 20% of the profit before tax and fees. This reserve can be fully
or partially utilised upon the approval of the Board of Directors, and is distributable to
shareholders.
63
Foreign branches reserve
This reserve represents amounts appropriated against foreign branches capital. During
2005, foreign branches reserve was transferred to retained earnings.
General banking risk reserve
This reserve is appropriated from retained earnings in compliance with the regulations of
the Central Bank of Jordan.
The use of the following reserves is restricted by law:
Description
General banking risk reserve
Statutory reserve
2005
2004
3,210,085
7,524,633
1,978,767
4,165,451
64
Restriction Law
Central Bank of Jordan
Companies Law
(23)
*
CUMULATIVE CHANGES IN FAIR VALUE
The cumulative change in fair value is presented net of deferred tax liabilities of JD
7,201,297 and JD 583,944 as of December 31, 2005 and 2004, respectively.
(24)
RETAINED EARNINGS
2005
At January 1,
Adjustment arising from the application
of IAS 39 (revised)
7,875,401
-
Adjusted balance at 1 January
Profit for the year
Transferred to statutory reserve
Proposed dividends
Increase in capital
At December 31,
(25)
2004
1,253,919
(
265,043)
7,875,401
24,652,146
( 1,045,500)
( 6,250,000)
988,876
10,802,344
( 1,415,819)
( 2,500,000)
-
25,232,047
7,875,401
PROPOSED DIVIDENDS
The board of directors is recommending a distribution of share dividends equal to 37.5%
of the paid up capital as of December 31, 2005 to be deducted from retained earnings.
The proposed dividends are subject to the Bankʼs General Assembly approval. During last
year the bank distributed dividends and share dividends equal to 10% and 25% of paid in
share capital respectively.
65
(26)
INTEREST INCOME
2005
Direct credit facilities Discounted bills and notes
741,351
Loans and advances
18,725,293
Others Balance with Central Banks
1,444,657
Balance and deposits at banks and financial institutions 1,937,776
Trading investments
1,952,312
Available for sale investments
1,295,037
Held to maturity investments
287,722
26,384,148
(27)
INTEREST EXPENSE
2004
894,004
13,798,064
736,565
1,251,989
1,562,559
826,042
473,354
19,542,577
2005
2004
Banks and financial institution deposits
Customersʼ deposits -
1,619,026
518,979
Current accounts and deposits
Saving accounts
Time and notice placements
Certificate of deposits
Margin accounts
Loans and borrowings
Deposit guarantee fees
731,376
56,471
7,461,485
577,446
1,247,145
483,517
371,487
519,249
35,316
5,141,228
517,053
772,518
166,522
385,305
12,547,953
8,056,170
2005
2004
1,378,059
1,950,903
386,394
871,584
1,410,462
314,592
2,942,568
1,967,454
(28)
NET COMMISSION
Commission income Direct credit facilities
Indirect credit facilities
Less: commission expense
66
(29)
GAINS LESS LOSSES ARISING FROM TRADING INVESTMENTS
Realised
gain (loss)
Unrealised
gain (loss)
Dividend
income
Treasury bills and debt
securities
Equities
Others
( 764,495)
9,502,556
1,560
( 64,265)
7,639,652
-
498,422
-
( 828,760)
17,640,630
1,560
Total
8,739,621
7,575,387
498,422
16,813,430
Treasury bills and debt
securities
Equities
Others
( 175,284)
1,844,087
(
3,671)
( 768,511)
3,865,060
-
466,826
-
( 943,795)
6,175,973
(
3,671)
Total
1,665,132
3,096,549
466,826
5,228,507
Total
2005-
2004-
(30)
GAINS LESS LOSSES ARISING FROM AVAILABLE FOR SALE INVESTMENTS
Dividend income
Gain from sale of available for sale investments
(31)
OTHER INCOME
Amman Financial Market brokerage commission
Safety deposit box rental income
Custodian fees
Dormant accounts fees
Gains from sale of fixed assets
Gains from sale of collateral pending sale
Salaries transfer fees
Customer services fees
Bonded warehouse revenues
Others
67
2005
2004
277,794
2,415,512
31,000
52,616
2,693,306
83,616
2005
2004
3,573,174
11,572
10,361
13,877
44,801
14,706
88,802
205,034
25,532
749,397
9,798
11,064
21,790
1,113
11,731
44,882
224,688
5,185
3,987,859
1,079,648
(32)
EMPLOYEESʼ COST
Salaries and benefits
Social security contribution
Bankʼs contribution to saving fund
Medical expenses
Training and research
Per diems
Employees life insurance expenses
(33)
OTHER EXPENSES
Post, telephone, telex and swift
Stationary and printing
Rent
Water and electricity expense
Maintenance
Insurance
Consulting and professional fees
Licenses and governmental fees
Loss from deposits with banks and financial institutions
Board of Directorsʼ transportation
Advertisement
Expense on collateral pending sale
Loss on disposal at fixed assets
Donations
Jordanian universities fees
Scientific research and vocational training fees
Technical and vocational education and
training support fund fees
Board of Directorsʼ remuneration
Others
(34)
BASIC EARNINGS PER SHARE
Income for the year
Weighted average number of shares
Basic earnings per share (JD)
68
2005
2004
3,538,058
208,540
158,323
120,769
219
78,215
56,745
2,571,375
186,732
131,119
115,550
178
82,021
53,721
4,160,869
3,140,696
2005
2004
205,322
130,651
173,846
131,957
145,029
135,534
352,033
209,771
739,132
73,350
182,497
35,895
137,661
332,218
332,218
234,884
115,495
156,014
128,393
94,959
117,205
191,880
142,612
44,100
83,868
1,338
97,810
140,885
140,885
212,040
55,000
71,665
91,657
50,000
66,640
3,655,819
1,898,625
2005
2004
24,652,146
33,396,476
0.738
10,802,344
21,849,315
0.494
(35)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents appearing in the statement of cash flows consist of the following
balance sheet items:
2005
2004
Cash and balances with Central Banks
52,645,086
76,384,445
Add: Balances at banks and financial institutions
maturing within 3 months
98,223,945
76,092,556
Less: Banks and financial institutionsʼ deposits
maturing within 3 months
(6,524,874)
(7,216,792)
(4,071,539)
(3,899,500)
Restricted cash balances
Net cash and cash equivalents
(36)
140,272,618
141,360,709
DERIVATIVES
The table below shows the positive and negative fair values of derivative financial instruments
together with the notional amounts analyzed by the term to maturity.
2005 Customerʼs forward dealing
Contracts
2004 –
Derivatives held for trading
Customerʼs forward dealing
contracts
Positive Negative Total par
Fair Value Fair Value Value
-
-
Par Value Maturity
Within 3
3 - 12 1 - 3
over
Months
Months Years 3 Years
5,169,752
-
5,169,752
-
-
-
9,784
1,063,500
-
1,063,500
-
-
-
-
13,158,517
-
13,158,517
-
-
The notional amounts indicate the volume of transactions outstanding at the year end and
are neither indicative of the market risk nor the credit risk.
(37)
RELATED PARTY TRANSACTIONS
The Bank enters into transactions with major shareholders, directors, senior management
and their related concerns in the ordinary course of business at commercial interest and
commission rates. All the loans and advances to related parties are performing advances
and are free of any provision for credit losses.
69
The following transactions have been entered into with related parties:
2005
Balance sheet items
Direct credit facilities
Customer deposits
Off balance sheet items
Letters of credit
Acceptance letter
Letter of guarantee
Income statement items
Interest and commission income
Interest and commission expense
Extra Information
Credit facilities under watch
Provision for credit losses
Suspended interest
Debt written off
2004
32,200,557
31,193,850
14,719,946
22,722,988
348,256
18,533
4,527,846
236,882
676,318
4,580,405
1,294,023
866,382
865,777
597,213
_
_
_
7,510
611,049
160,000
203,539
_
Compensation of the key management personnel is as follows:
Benefits (Salaries, wages, and bonuses) for senior
executive management level
2005
2004
642,520
388,684
Interest rates on credit facilities ranges between 3.5%-11.5%
Interest rates on deposits ranges between 0%-5.70%
Commission income rates ranges between 0%-1%
(38)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash deposits with banks and Central banks, direct credit
facilities, other financial assets, customersʼ deposits, balances due to banks and other
financial liabilities.
70
The following table show the book value and the fair value of financial instruments on the
balance sheet:
2005
2004
Book value Fair value
Financial assets
Held to maturity
investments
Direct credit facilities
13,608,000
321,045,595
12,896,164
321,045,595
70,892,479
387,365,827
52,443,746
10,909,207
Difference Book value Fair value
711,836
Difference
_
15,492,968
206,222,113
15,214,827
206,222,113
278,141
70,892,479
_
41,500,147
41,500,147
_
387,365,827
52,443,746
10,909,207
_
_
_
358,644,916
44,637,685
7,131,351
358,644,916
44,637,685
7,131,351
_
_
_
_
Financial liabilities
Banks and financial
institutions deposits
Customersʼ deposits
Margin accounts
Loans and borrowings
As discussed in note 9, as of December 31, 2005 available for sale investments include
investments carried at cost amounted to JD 2,342,698 (2004: 1,764,898) due to inability
of the bank to measure its fair value.
(39)
RISK MANAGEMENT
The Bankʼs assets and liability committee manage banking risks using several tools to
monitor the set limits, liquidity and interest rates movements.
Notes from (40) to (45) disclose the major banking risks to which the Bank is exposed to
and the method(s) for managing each of them.
(40)
CREDIT RISKS AND CONCENTRATION OF ASSETS AND LIABILITIES
Credit risk is the risk that one party to a financial instrument will fail to discharge an
obligation and cause the other party to incur a financial loss. The Bank manages credit risk
by setting limits for individual borrowers, and groups of borrowers and for geographical
and industry segments. The Bank also monitors credit exposures, and continually assesses
the credit-worthiness of counterparties. In addition, the Bank obtains security where
appropriate, enters into master netting agreements and collateral arrangements with
counterparties, and limits the duration of exposures.
The details of the portfolio of credit facilities are disclosed in note (8), and the contingent
liabilities on the Bank that are subject to credit risks are disclosed in note (49).
Credit risk relating to derivatives only include those derivatives with positive fair value
included in other assets.
71
The Bank limits the concentration of assets and liabilities risks through distribution of
its activities over different segments and different geographical areas inside and outside
Jordan.
The distribution of assets, liabilities, and off-balance sheet items by geographic region
and industry sector was as follows:
-
By Geographical area 2005
2004
Off Balance
Assets
Inside Jordan
Liabilities Sheet Items
Europe
Asia *
10,968,699 38,480,411
53,535,028 10,635,000
7,602,185
Africa *
_
America
61,368,230
Others
Total
-
Assets
Liabilities
Sheet Items
518,919,521 497,369,168 175,241,192 364,792,399 427,273,525 119,162,852
Other Middle
East Countries
Off Balance
16,828
652,410,491
_
_
_
_
_
_
_
_
_
_
16,706,079
24,642,512
114,649
8,508,000
_
_
_
_
_
_
_
_
_
460,424,037
119,970,121
52,255,729
_
76,723,182
68,679
546,484,579 175,241,192 510,660,717
807,269
By segment 2005
2004
Off Balance
Assets
Government sector
Liabilities
87,122,001 32,552,117
Sheet Items
_
Off Balance
Assets
Liabilities
92,206,158
38,897,429
Sheet Items
_
Private sector
Corporate accounts 457,136,485 289,340,992 147,693,538
329,444,694 207,723,295 107,510,881
Individual accounts
78,913,700 199,718,149 27,547,654
58,974,952 205,293,376 12,459,240
Other
29,238,305 24,873,321
30,034,913
Total
_
652,410,491 546,484,579 175,241,192
* Excluding Arab Countries.
72
8,509,937
_
510,660,717 460,424,037 119,970,121
(41)
MARKET RISK
Market risk arises from fluctuations in interest rates, foreign exchange rates and equity
prices. The Asset and Liability Committee monitors acceptable risk limits set by the
Board.
(42)
INTEREST RATE RISK
Interest rate risk arises from the possibility that changes in interest rates will affect future
profitability or the fair values of financial instruments. The Bank is exposed to interest
rate risk as a result of mismatches of interest rate repricing of assets and liabilities. The
Bank has established levels of interest rate risk by setting limits on the interest rate gaps
for stipulated periods in accordance with the risk management strategy.
The bank manage interest rates risks relating to its assets and liabilities on a portfolio
basis. The assets and liabilities Committee takes into consideration all factor relating
to interest rate risks through periodic review of interest rate gaps, expected changes in
interest rates to assess short and long term risks in order to take suitable decisions to
minimize interest rate risk using any of the following:
-
Repricing deposits and loans.
-
Change maturities and balances of assets and liabilities sensitive to interest
rates.
-
Purchase or sale investments.
The bankʼs interest sensitivity position based on contractual repricing arrangements or
maturity at December 31, 2005 and 2004 has been shown in the following table:
73
Less
than
one month
1-3
Months
3-6
Months
6 Months
to
12 Months
1-3
Years
Over
3 years
Zero-interest
Elements
Total
Cash and balances with Central Banks
Balances at Banks and financial institutions
Deposits at Banks and financial institutions
Trading investments
Direct credit facilities, net
Available for sale investments
Held to maturity investments, net
Premises and equipment, net
Intangible assets
Other assets
4,000,000
46,272,850
10,519,146
-
6,000,000
47,454,712
20,217,259
6,428,968
-
4,772,500
5,142,128
75,346,457
3,900,690
750,000
-
8,646,801
62,606,061
11,580,873
255,000
-
9,355,213
150,234,631
7,670,763
500,000
-
4,241,441
10,265,200
12,103,000
-
40,872,586
4,496,383
24,035,601
2,122,041
47,558,804
8,348,281
548,994
16,164,108
55,645,086
98,223,945
51,421,184
321,045,595
87,405,298
13,608,000
8,348,281
548,994
16,164,108
Banks and financial institutionsʼ deposits
Customersʼ deposits
Margin accounts
Loans and borrowings
Sundry provisions
Income tax liabilities
Deferred tax
Other liabilities
6,006,771
17,577,546
-
52,859,605
290,567,872
6,170,053
25,182
-
8,508,000
19,124,342
12,728,369
5,025,182
-
3,000,000
6,655,332
9,874,103
4,000,000
-
281,765
23,671,221
1,266,968
-
591,875
-
518,103
53,158,970
406,026
6,201,000
11,024,218
7,242,076
70,892,479
387,365,827
52,443,746
10,909,207
406,026
6,201,000
11,024,218
7,242,076
-
-
-
-
105,925,912
105,925,912
26,017,766
40,329,507
(40,329,507)
-
Equity
-
-
37,207,679
37,207,679
Cash and balances with Central Banks
Balances at Banks and financial institutions
Deposits at Banks and financial institutions
Trading investments
Direct credit facilities, net
Available for sale investments
Held to maturity investments, net
Premises and equipment, net
Intangible assets
Deferred tax
Other assets
3,000,000
18,427,175
3,851,016
4,304,993
-
23,300,000
55,227,409
1,373,575
19,171,282
-
15,772,500
362,795
43,547,381
2,805,716
125,000
-
244,973
14,734,067
28,483,023
3,992,024
9,969
22,546
11,975,599
107,802,164
6,309,908
3,255,000
-
28,800,421
9,807,982
12,102,999
-
34,311,945
2,437,972
16,385,769
2,913,270
11,295,021
8,561,671
197,589
824,830
14,923,133
76,384,445
76,092,556
244,973
77,483,242
206,222,113
34,210,651
15,492,968
8,561,671
197,589
824,830
14,945,679
1,2
1,7
2,0
4,4
8,7
5,0
8,5
Banks and financial institutionsʼ deposits
Customersʼ deposits
Margin accounts
Loans and borrowings
Sundry provisions
Income tax liability
Deferred income tax liabilities
Other liabilities
7,000,000
20,072,203
-
26,283,355
281,711,680
6,458,345
111,072
-
7,000,000
14,284,187
9,594,307
5,000,000
-
1,000,000
7,311,795
6,048,804
111,072
-
22,536,229
1,183,847
-
725,360
-
216,792
35,265,051
313,941
372,303
2,508,584
5,315,110
41,500,147
358,644,916
44,637,685
7,131,351
313,941
372,303
2,508,584
5,315,110
2,5
3,25
2,82
3,5
-
-
-
50,236,680
50,236,680
Interest rate sensitivity gap
Cumulative interest rate sensitivity gap
2,510,981
2,510,981
-
(215,492,186) 26,734,898
(212,981,205) (186,246,307)
74
59,559,300 142,540,653
(128,228,912) 14,311,741
3,75
4,05
2,97
4,75
Interest rate sensitivity gap
Cumulative interest rate sensitivity gap
Equity
(269,521,773) 44,525,882
(232,314,094) (187,788,212)
Average
interest
rate
%
2,81
3,25
4,38
5,38
7,90
5,38
8
33,014,931 105,622,595
(153,231,376) (47,608,781)
49,986,042
2,377,261
(2,377,261)
-
-
-
(43)
LIQUIDITY RISK
Liquidity risk is the risk that the bank will be unable to meet its liabilities when they fall
due. To limit this risk, management has arranged diversified funding sources, manages
assets with liquidity in mind, and monitors liquidity on a daily basis and maintains
sufficient amount of cash and cash equivalents and trading investments. Following are
some of the main procedures in use:
•
•
•
•
Diversified customers base distributed over 15 branches in Jordan.
Analyzing and monitoring the assets and liabilities maturity dates.
Geographical and sector diversification of assets and liabilities.
Statutory cash at central bank.
75
The maturity profile of the assets and liabilities at December 31, 2005 is as follows:
Till
one month
1-3
Months
3-6
Months
6 Months
to 12 Months
1-3
Years
Over
3 years
No specific
Maturity
Total
Cash and balances with Central Banks
Balances at Banks and financial institutions
Trading investments
Direct credit facilities, net
Available for sale investments
Held to maturity investments, net
Premises and equipment, net
Intangible assets
Other assets
42,468,165
41,776,470
10,519,146
-
6,000,000
51,951,093
730,523
20,217,259
6,428,968
-
3,000,000
5,142,128
75,346,457
3,900,690
750,000
-
9,066,941
62,606,061
11,580,873
255,000
-
9,355,213
150,234,631
7,670,763
500,000
-
4,556,450
10,265,200
12,103,000
-
4,176,921
4,496,382
22,569,929
2,122,041
47,558,804
8,348,281
548,994
16,164,108
55,645,086
98,223,945
51,421,184
321,045,595
87,405,298
13,608,000
8,348,281
548,994
16,164,108
Banks and financial institutionsʼ deposits
Customersʼ deposits
Margin accounts
Loans and borrowings
Sundry provisions
Income tax liabilities
Deferred tax
Other liabilities
6,524,874
17,577,546
-
52,859,605
290,567,872
6,170,053
25,182
-
8,508,000
19,124,342
12,728,369
5,025,182
-
3,000,000
6,655,332
9,874,103
4,000,000
-
281,765
23,671,221
1,266,968
-
591,875
-
53,158,970
406,026
6,201,000
11,024,218
7,242,076
70,892,479
387,365,827
52,443,746
10,909,207
406,026
6,201,000
11,024,218
7,242,076
-
-
-
105,925,912
105,925,912
Equity attributable to the Bankʼs shareholders
Net liquidity gap
Cumulative liquidity gap
70,661,361
70,661,361
-
(264,294,869) 42,753,382
(193,633,508) (150,880,126)
-
-
59,979,440 142,540,653
(90,900,686) 51,639,967
26,332,775
77,972,742
(77,972,742)
-
-
The maturity profile of the assets and liabilities at December 31, 2004 is as follows:
Till
one month
1-3
Months
3-6
Months
6 Months
to 12 Months
1-3
Years
Over
3 years
No specific
Maturity
Total
Cash and balances with Central Banks
Balances at Banks and financial institutions
Deposits at Banks and financial institutions
Trading investments
Direct credit facilities, net
Available for sale investments
Held to maturity investments, net
Premises and equipment, net
Intangible assets
Deferred tax asset
Other assets
55,106,802
17,498,711
4,206,670
4,174,827
-
1,772,500
56,155,873
1,017,921
19,301,449
-
14,000,000
362,795
43,547,381
2,805,716
125,000
-
244,973
14,734,067
28,483,023
3,992,024
9,969
22,546
11,975,599
107,802,164
6,309,908
3,255,000
-
28,800,421
9,807,982
12,102,999
-
5,505,143
2,437,972
16,385,769
2,913,269
11,295,021
8,561,671
197,589
824,830
14,923,133
76,384,445
76,092,556
244,973
77,483,242
206,222,113
34,210,651
15,492,968
8,561,671
197,589
824,830
14,945,679
Banks and financial institutionsʼ deposits
Customersʼ deposits
Margin accounts
Loans and borrowings
Sundry provisions
Income tax liabilities
Deferred tax liability
Other liabilities
7,216,792
22,376,919
-
26,283,355
279,406,965
6,458,345
111,072
-
7,000,000
14,284,187
9,594,307
5,000,000
-
1,000,000
7,311,795
6,048,804
111,072
-
22,536,229
1,183,847
-
725,360
-
35,265,050
313,941
372,303
2,508,584
5,315,110
41,500,147
358,644,916
44,637,685
7,131,351
313,941
372,303
2,508,584
5,315,110
-
-
-
50,236,680
50,236,680
(30,967,271)
-
-
Equity attributable to the Bankʼs shareholders
Net liquidity gap
Cumulative liquidity gap
51,393,299
51,393,299
-
(234,011,994) 24,962,398
(182,618,695) (157,656,297)
76
-
-
33,014,931 105,622,595
(124,641,366) (19,018,771)
49,986,042
30,967,271
(44)
FOREIGN CURRENCY RISK
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes
in foreign exchange rates. The Bankʼs functional currency is the Jordanian Dinar. The
Board has set limits on positions by currency. Positions are monitored on a daily basis to
ensure positions are maintained within established limits.
The Bank had the following significant net exposures denominated in foreign currencies
as of December 31:
2005
Currency
U.S. Dollars
Sterling Pound
Euro
Swiss Franc
Japanese Yen
Others
(45)
(8,467,832)
756,304
353,743
91,952
54,722
2,312,505
2004
4,496,100
( 84,828)
( 201,550)
( 28,287)
146,253
1,975,476
EQUITY PRICE RISK
Equity price risk arises from the change in fair values of equity investments. The Bank
manages this risk through diversification of investments in terms of geographical distribution
and industry concentration. The majority of the Bankʼs investments are quoted on Amman
Stock Exchange, Palestine Securities Exchange.
(46)
SEGMENTAL INFORMATION
1. Primary segment information
For management purposes the Bank is organised into the following major business
segments:
Retail banking
-
Principally handling individual customersʼdeposits, and providing
consumer type loans, overdrafts, credit cards facilities and other
services.
Corporate banking -
Principally handling loans and other credit facilities and deposit
and current accounts for corporate and institutional customers.
Treasury
Principally providing money market, trading and treasury services,
as well as the management of the Bankʼs funding operations.
-
77
These segments are the basis on which the Bank reports its primary segment information.
2. Geographical Information
The following table shows the distribution of the Bankʼs operating income and capital
expenditure by geographical segment:
Jordan
2005
Gross income
Total assets
Capital expenditure
Outside Jordan
2004
2005
2004
54,462,694 29,307,298
931,783
508,021
645,467,390 503,228,599 18,597,013 15,408,703
899,687
944,193
17,943
19,766
78
Total
2005
55,240,238
655,955,490
917,630
2004
29,722,015
514,205,718
963,959
(47)
CAPITAL ADEQUACY
The capital adequacy ratio is computed in accordance with the Central Bank of Jordan
regulations derived from Basel Committee resolutions.
Regulatory capital
Core (primary) capital
(48)
2005
% to assets
Amount in weighted by
JD
risks
2004
% to assets
Amount in
weighted by
JD
risks
92,286,709
79,214,793
47,575,623
44,157,642
18.08
15.52
13,99
12,98
FIDUCIARY ASSETS
The Bank had investment custody accounts amounting to approximately JD 837,172 which
is not included in the financial statements. The asset management fees and commission are
recorded in the income statement.
(49)
OFF BALANCE SHEET ITEMS
Letters of credit
Acceptances
Letters of guarantee Payments
Performance
Other
Irrevocable commitments to extend credit
(50)
2005
2004
65,229,698
13,070,170
40,279,569
5,712,243
18,954,929
19,833,071
14,816,940
43,336,384
13,238,282
15,646,525
13,194,901
31,898,601
175,241,192
119,970,121
LAWSUITS
In the normal course of business the Bank appears as a defendant in a number of lawsuits
totaling to approximately JD 731,638 and JD 1,677,000 as of December 31, 2005 and 2004,
respectively.
In the opinion of the Bankʼs management and its legal counselor, the Bank will not be liable
for those lawsuits except for those already provided for in the financial statements.
79
(51)
NEWLY ISSUED INTERNATIONAL FINANCIAL REPORTING STANDARDS
The International Accounting Standards Board has issued new International Financial
Reporting Standards in addition to amendments to the existing International Accounting
Standards disclosed hereunder and effective from December 1, 2007:
- International Financial Reporting Standard No. 7 (Financial Instruments – Disclosure).
- International Accounting Standard No. 32 (Financial Instruments – Presentation).
(52)
RECLASSIFICATIONS
In accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors, the financial statements of 2004 have been restated to comply with the new IFRS
and amended IAS, which have become effective from January 1, 2005.
After
Restatement
Changes in assets
Changes in liabilities
Changes in equity
Profit for the year
510,660,717
460,424,037
50,236,680
10,802,344
2004
Before
Restatement
Amount
of Change
509,181,714
460,339,856
48,841,858
10,537,301
1,479,003
84,181
1,394,822
265,043
The change in equity has resulted from recording the general banking risk reserve as an
appropriation of profit and the changes in assets and liabilities are mainly due to deferred
tax assets and liabilities.
80