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Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
Ecobank annual report 2006
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Ecobank annual report 2006

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  • 1. The Pan African Bank Ecobank Group
  • 2. 2006 Annual Report Ecobank Network Countries in which Ecobank is currently present.
  • 3. 1 The Pan African Bank Ecobank is the leading independent regional banking Group in West and Central Africa serving wholesale and retail customers. What is our investment proposition? We operate in emerging markets with good long term prospects. In all our markets, we are recognized as one of the leading banks and we have a growing presence in the investment banking sector. We are well placed to grow revenues and expand market share by combining a broad product offering with a growing regional presence. What do we do? Our business is providing wholesale, retail, investment and transaction banking products and services to governments and governmental agencies, multinationals, financial institutions, local companies, small, medium and micro enterprises, high net worth individuals and consumers in Africa. We currently operate in 18 countries in West and Central Africa. What is our strategy? Our goal is to create shareholder value. To achieve this, we aim to be the leader in regional banking in Africa. We have three strategic priorities at Group level: Achieve scale through acquisitions and organic growth ; Grow our business in existing markets and expand into new markets ; Deliver efficiency through operational and product excellence and customer service. We are creating value… In 2006, revenues grew by 47% to US$348 million ; Profit Before Tax grew by 75% to US$129 million ; Value Added totaled US$142 million. But there is still more to do. In this annual report we discuss our business, how it could generate more value for our shareholders, and what we are doing to make it happen.
  • 4. 2 2006 Annual Report » Principal Subsidiaries and Offices » page . . . . . . . . . . 3 » Financial Highlights » page . . . . . . . . . . 4 » Chairman's Address » page . . . . . . . . . . 5 » Directors’ Report » page . . . . . . . . . . 8 » Board of Directors » page . . . . . . . . . 10 » Executive Management » page . . . . . . . . . 14 » Corporate Governance » page . . . . . . . . . 15 » Corporate Social Responsibility » page . . . . . . . . . 19 » Corporate Ethics & Transparency » page . . . . . . . . . 22 » Chief Executive Officer’s Review » page . . . . . . . . . 24 » Manifesto » page . . . . . . . . . 28 » Business and Financial Review » page . . . . . . . . . 29 » Directors' Responsibilities Statement » page . . . . . . . . . 36 » Report of Independent Auditors » page . . . . . . . . . 37 » Consolidated Income Statement » page . . . . . . . . . 38 » Consolidated Balance Sheet » page . . . . . . . . . 39 » Consolidated Statement of Changes in Equity » page . . . . . . . . . 40 » Consolidated Cash Flow Statement » page . . . . . . . . . 41 » Accounting Policies » page . . . . . . . . . 42 » Notes to the Consolidated Financial Statements » page . . . . . . . . . 60 » Five Year Financial Summary » page . . . . . . . . . 83 » Summary of Subsidiaries’ Financials » page . . . . . . . . . 84 » Shareholder Information » page . . . . . . . . . 84 Contents
  • 5. 3 The Pan African Bank Principal Subsidiaries and Offices Group Office : 2, Avenue Sylvanus Olympio - BP 3261 - Lomé (TOGO) - Phone: (228) 221 03 03 / 221 31 68 - Fax: (228) 221 51 19 Benin Rue du Gouverneur Bayol 01 B.P. 1280 Cotonou - BENIN Phone: (229) 21 31 40 23 Fax: (229) 21 31 33 85 Burkina-Faso 633, Rue Ilboudo Waogyandé (ex Maurice Bishop) 01 B.P. 145, Ouagadougou 01 BURKINA-FASO Phone: (226) 50 328 328 Fax: (226) 50 318 981 Cameroon Boulevard de la Liberté B.P. 582 Douala - CAMEROUN Phone: (237) 343 82 50 / 54 343 84 88 / 89 Fax: (237) 343 86 09 Chad Avenue Charles de Gaulle N'Djamena TCHAD Phone: (235) 52 43 14 Fax: (235) 53 23 45 Cote d’Ivoire Immeuble Alliance Avenue Terrasson de Fougères 01 B.P. 4107 - Abidjan 01 CÔTE D’IVOIRE Phone: (225) 20 31 92 00 / 20 21 10 41 Fax: (225) 20 21 88 16 Ghana 19, Seventh Avenue Ridge West P.O. Box 16746 Accra North - GHANA Phone: (233) 21 68 11 66 / 67 Fax: (233) 21 68 04 28 Guinea Bissau Avenue Amilcar Cabral B.P. 126 Bissau - GUINÉE BISSAU Phone: (245) 72 53 194 Fax: (245) 20 73 63 Guinea Conakry Avenue de la République B.P. 5687 - Conakry GUINÉE Phone: (224) 30 45 57 77 / 30 45 57 60 Fax: (224) 30 45 42 41 Liberia Ashmun & Randall Street, P.O. Box 4825 1000 Monrovia 10 - LIBERIA Phone: (231) 4788834 / 4788838 4788833 Fax: (231) 22 70 29 Mali Place de la Nation Quartier du Fleuve B.P.E. 1272 Bamako - MALI Phone: (223) 270 06 00 Fax: (223) 223 33 05 Niger Angle Boulevard de la Liberté et Rue des Bâtisseurs, B.P. 13804 Niamey - NIGER Phone: (227) 20 73 71 81 Fax: (227) 20 73 72 03 / 04 Nigeria Plot 21, Ahmadu Bello Way P.O. Box 72688 - Victoria Island Lagos - NIGERIA Phone: (234) 1 2626638-44 / 2626710-17 Fax: (234) 1 2616568 Senegal 8, Avenue Léopold Sédar Senghor B.P. 9095 - Centre Douanes (CD) Dakar - SÉNÉGAL Phone: (221) 849 20 00 Fax: (221) 823 47 07 Sierra Leone 7, Lightfoot Boston Street P.O. Box 1007 - Freetown SIERRA LEONE Phone: (232) 22 33 01 / 76 88 23 65 Fax: (232) 50 51 10 165 Togo 20, Avenue Sylvanus Olympio B.P. 3302 Lomé TOGO Phone: (228) 221 72 14 Fax: (228) 221 42 37 eProcess International SA 20, Avenue Sylvanus Olympio B.P. 4385 Lomé TOGO Phone: (228) 222 23 70 Fax: (228) 222 24 34 Ecobank Development Corporation (EDC) 2, Avenue Sylvanus Olympio B.P. 3261 Lomé TOGO Phone: (228) 221 03 03 / 221 31 68 Fax: (228) 221 51 19 Ecobank Investment Corporation Immeuble Alliance, 4ème Etage Avenue Terrasson de Fougères 01 B.P. 4107 Abidjan 01 CÔTE D’IVOIRE Phone: (225) 20 21 10 44 / 20 31 92 24 Fax: (225) 20 21 10 46 EDC Stockbrokers Limited 19, Seventh Avenue Ridge West, P O Box 16746 Accra North GHANA Phone: (233) 21 25 17 23 / 21 25 17 24 Fax: (233) 21 25 17 34 ESL Securities Limited Plot 21, Ahmadu Bello Way P. O. Box 72688 Victoria Island Lagos – NIGERIA Phone: (234) 1 761 3833 / 761 3703 Fax: (234) 1 271 4860 ECV Servicos Financieros Agencia de Cambios 43 A Avenida Amilcar Cabral Praia Santiago - CABO VERDE Phone: (238) 261 78 56 Fax: (238) 261 78 60 www.ecobank.com
  • 6. 4 2006 Annual Report In thousands of US dollars, except per share, ratio and headcount data. At Year end 2006 2005 % Change Assets 3,503,739 2,199,230 59% Loans and advances to customers 1,919,366 1,022,140 88% Deposits from customers 2,500 178 1,532,478 63% Shareholders' equity 382,088 221,547 72% Total equity 482,315 303,879 59% Book value per share ($) 0.58 0.47* 25% Non - performing loans to total loans (%) 7.9 12.2 37% Headcount (number) 5,860 2,602 125% Branches and locations (number) 305 162 88% For the Year Revenues 348,464 236,351 47% Loan loss provision 13,091 14,898 12% Profit before tax 129,299 73,729 75% Profit after tax 86,365 50,939 70% Profit attributable 69,350 41,502 67% Basic earnings per share (cents) 13 11* 21% Diluted earning per share (cents) 13 11* 21% Dividend per share (cents) 3 2* Return on average equity (%) 23.0 23.8 (3%) Return on average assets (%) 3.0 2.5 22% Other Data Risk - based capital ratios (%): Total 19.0 21.7 Tier 1 19.0 21.7 Number of ordinary shares outstanding (Number in thousands) Average 518,963 373,545 As at 31 December 611,003 401,272 * Restated for 1 for 5 bonus share issue made in 2006 Financial Highlights
  • 7. 5 The Pan African Bank Chairman’s Address This is my first address as Chairman and I am pleased to say that I am excited by the prospects for the Group. I strongly believe that we are entering a period of strong growth that will further fulfil the vision on which our institution was founded. 2006 was a year of change and progress. Significant steps were taken to reposition the Group for renewed growth and profitability. Financial Results Our 2006 results showed improvements in all key areas. Total assets grew by 59 per cent to US$3.5 billion and revenues increased by 47 per cent to US$348 million. Profit before tax was up 75 per cent to US$129 million. Return on average equity was 23 per cent as we increasingly put the capital raised last year to work. Strategy During 2006, a Group-wide strategic plan was adopted to transform Ecobank from a regional to a pan-African banking Group and from a largely wholesale to a more balanced wholesale and retail banking Group. Consequently, we are extending our footprint further into Central Africa and also into Eastern and Southern Africa. We are also building a strong retail banking business to complement our core wholesale business. In Nigeria, one of our largest markets, we moved to improve our market position and distribution by acquiring the branches and liabilities of one of the banks that failed to survive the industry consolidation. We opened a new subsidiary in Sierra Leone and expanded our network in the oil-rich countries of Central Africa, one of the fastest growing regions in the world, by acquiring the second largest bank in Chad. During the year, we also strengthened our total equity which now stands at US$482 million. Ecobank Ghana and Ecobank Nigeria were listed on their respective stock exchanges. Ecobank Transnational Incorporated, the parent Company of the Group also listed simultaneously on the 3 stock exchanges in the sub- region. This is the first ever regional listing in Africa. Corporate Governance Chief Philip C. Asiodu retired as Chairman of the Company at the last Annual General Meeting having reached the mandatory retirement age. Chief Asiodu contributed immensely to the progress of the Group through the years. We will miss his wise counsel and experience. We thank him immensely for his contribution to what Ecobank is today. We welcome the new members of the board who were appointed since the last shareholders meeting: Alhaji Isyaku Umar, Andre Siaka and Paolo Gomez. These are persons of immense local, regional and international experience who will enrich and strengthen the board. I believe they can count on your usual constructive support and co-operation. During the year, we also made changes to the executive management. Mr Offong Ambah joined the board as an executive director in addition to his current responsibilities as Managing Director of Ecobank Nigeria. Mrs Funke Osibodu, our former Managing Director in Nigeria resigned from the Group. We are grateful for her contribution to the development of Ecobank Nigeria and the Group. Corporate Social Responsibility Ecobank Foundation, our corporate philanthropic arm, donated to several activities in 2006. These included projects in Togo, Nigeria and Mali. The Foundation seeks to ensure that over time, its activities cover and are distributed among the countries in which Ecobank operates. Up to one percent of the Group profit after tax is made available to the Foundation for its activities and the Foundation is also free to source funding from other donors.
  • 8. 6 2006 Annual Report We continue to contribute to the communities we operate in other important ways. We part-sponsored two of the African world Cup teams and contributed to the development of journalism talent on the continent. Through an alliance with one of the leading microfinance institutions in the world, we are supporting and promoting microfinance lending and actions to alleviate poverty in our countries. Our emphasis on developing our people and building diversity will hopefully create an increasing pool of talented African banking professionals that will support the development and integration of African economies. Several of our people have been recruited to run important government institutions and to manage other banks. Corporate Transparency Our policies require us to operate to international standards. We have often been at the forefront of implementing policies and procedures designed to ensure that we comply with anti-corruption, anti- money laundering, anti-terrorism and know-your- customer regulations in the countries in which we operate. Ecobank also maintains strong policies relating to transparency and business ethics, as we believe this positions and safeguards the Group’s reputation in the long-term. We are probably the only institution in the sub-region that reports in accordance with International Financial Reporting Standards. The consequences of this are that our results are more conservative and more transparent than those of other comparable institutions in the regions. You would also notice significant changes in the presentation and contents of our annual report. As part of our policy on corporate transparency, we have also significantly increased the level of disclosure in our annual reports and accounts in order to make them more relevant and meaningful to our shareholders whilst at the same time meeting the statutory reporting and disclosure requirement. We will continue to explore ways in which we can improve our reporting and disclosure so that shareholders, investors and customers are adequately informed about our strategy, performance, activities and businesses. People We continue to build capacity through external hires and internal development. Significant investment was made in strengthening our management team. We also refreshed the organizational structure to better address changing market conditions. Across the Group, several changes took places which were designed to promote talent and build a leadership team based on merit, diversity and depth. We believe the impact of these actions will increasingly show through in our performance. What Makes Ecobank Unique Ecobank is unique in many ways. Firstly, we have the most regional presence in West and Central Africa of any bank. This gives us greater insight and scope to serve our customers and exploit opportunities. Secondly, we have a unique regional identity based on our founding principles. We started as a regional bank from the onset with shareholders from over 14 countries. This regional identity, coupled with national representation in our local subsidiaries means that we are welcome in all our markets as a local bank that is part of a larger regional Group. Thirdly, we are building the leading regional bank brand as an independent banking Group focused on Africa. Ecobank is increasingly perceived as a model of the future integration of the African private sector. As a result, Ecobank is often welcome as a preferred partner by governments and the private sector. And fourthly, we are building a broad and deep pool of African talent and managers with the skills and experience to operate across different markets and cultures. This allows Ecobank to compete and succeed in some of the more challenging and difficult markets in our region. Above all, Ecobank has been successful because it is considered an independent regional institution belonging to no one country or interest Group. Each of our subsidiaries is viewed as a local bank, even though they belong to a larger Group. The regional strategy and independent status of Ecobank are fundamental to the founding principles of Ecobank and to our long-term success. Chairman’s Address (continued)
  • 9. 7 The Pan African Bank The Future The growth of the economies of our sub-region continued with a positive growth trend. The World Bank estimates that Sub-Saharan economies will grow by 5.6% in 2007, one of the highest growth rates in the world. Clearly, as a commodity-rich region, our economies have benefited from the high prices for crude oil, gold, cocoa, coffee and other commodities. But we believe these results are a positive indication that African economies may now be pointing in the right direction. The other vital signs across the continent have also been positive with most civil and political unrests increasingly being resolved. The banking landscape is becoming more challenging. There is increasing interest and investment by international investors in African banks. There is renewed interest by international banks and banks from other parts of Africa. All these point to increased competition for customers and talent and a more challenging business environment in the future. Whilst 2006 was a year of significant progress for the Ecobank Group, it is fair to say that much remains to be done if we are to achieve our mission of building Ecobank into a world class African banking Group. Our priorities for the future are clear: deliver increased value to our stakeholders – shareholders, customers, employees and the communities in which we operate. Mandé Sidibé Chairman
  • 10. 8 2006 Annual Report Principal Activity Ecobank Transnational Incorporated (ETI) the parent Company of the Ecobank Group is a bank holding Company. Its principal activity is the provision of banking and financial services through its subsidiaries and affiliates. It enjoys special fiscal, exchange control and legal rights under an agreement with the Government of Togo. A review of the business of the Group during the 2006 financial year and of likely future developments is contained in the Business and Financial Review section. Results The Group's net profit after tax was US$86 million. Net profit attributable to the Company was US$69 million. The details of the results for the year are set out in the consolidated profit and loss statement. The directors approved the financial statements of the Company and the Group for the year ended 31st December 2006 at the meeting of the Board held on 16th March 2007. Messrs Mandé Sidibé and Arnold Ekpe were authorized to sign the accounts on behalf of the Board. International Financial Reporting Standards (IFRS) The accounts of ETI and the Group are prepared in accordance with International Accounting Standard (IAS). These standards have been revised and are now referred to as the International Financial Reporting Standards (IFRS). Dividend The directors recommend the payment of 3 cents per ordinary share as total dividend based on the total number of shares outstanding as at 31st December 2006, which one cent per share has already been paid as interim dividend in January 2007. Capitalization Issue The directors propose a capitalization issue of one ordinary share for every ten ordinary shares. Capital At the general meeting of shareholders held on 23rd June 2006, the authorized capital of the Company was increased from two hundred (200) million dollars to one billion two hundred fifty million (1,250,000,000) dollars divided into 5,000,000,000 ordinary shares of 25 cents each. Of the 226.4 million rights issue shares approved by the EGM of 11th March 2005, 108.2 million shares remained unissued as at 1st January 2006. These shares were issued during the year through a private placement of 60.7 million shares and the conversion of convertible loans of US$38 million contracted during the year into 47.5 million shares at a price of $0.8 per share. Following the resolution of the general meeting at the EGM of 23rd June 2006 approving a capitalization issue of one ordinary share for every five ordinary shares held, 101.5 million shares were issued. The total numbers of issued shares outstanding as at 31st December 2006 therefore stood at 611 million. On 11th September, 2006 all the issued shares of the Company were listed simultaneously on the three stock exchanges of the West Africa sub-Region, namely, the Ghana Stock Exchange (GSE) the Nigerian Stock Exchange (NSE) and regional stock exchange of the UEMOA Zone, the Bourse Régionale des Valeurs Mobilières (BRVM), based in Abidjan, Côte d’Ivoire. Directors and Company Secretary The names of the directors of the Company and the name of the Company Secretary appear on pages 10 to 13 of this report. As at 31st December 2006, the Board was composed of fourteen (14) directors: eight (8) non executive directors and six (6) executive directors. Mr. Offong Ambah replaced Mrs Funke Osibodu as Regional Director for Nigeria and therefore was co-opted and subsequently approved by the general meeting of 23rd June 2006 as an executive director. Messrs Paolo Gomes, Andre Siaka and Isyaku Umar were co-opted as non-executive directors and, in accordance with the Articles of Association of the Company, would be submitted for the approval of the general meeting to be held in 2007. In accordance with the succession policy on the board, Chief Philip Asiodu retired as Chairman of the board in June 2006 after several years of distinguished service to the Group, being one of its founding shareholders. Mr. Mandé Sidibé was elected to replace him as Chairman for a three year term renewable once. The Board of Directors met eight (8) times during the year. The three (3) board committees, namely, the Governance Committee, the Audit and Compliance Committee and the Risk Committee met at various times during the year to deliberate on issues under their respective responsibilities. The ad hoc committee appointed in 2005 to handle the proposed combination with FirstBank Nigeria continued its work until the agreement with FBN elapsed in September 2006. Directors’ Report
  • 11. 9 The Pan African Bank Corporate governance and compliance The Company maintains corporate policies and standards designed to encourage good and transparent corporate governance, avoid potential conflicts of interest and promote ethical business practices. See pages 15 to 18 for details. The board has adopted the International Finance Corporation (IFC) Corporate Governance principles and methodology in 2005 to guide the composition and terms of reference of both the board and its committees. Subsidiaries As at the end of 2006, Ecobank had operations in 15 countries namely Benin, Burkina Faso, Cape Verde, Cameroon, Chad, Côte d'Ivoire, Ghana, Guinea, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. During 2006, work commenced to secure operational licenses in Guinea Bissau and Sao Tome & Principe and to acquire a bank in the Central Africa Republic all of which were realized at the beginning of 2007 thus bringing the total number of countries in which the Group has operations to 18. Our investment banking subsidiary, Ecobank Development Corporation (EDC), expanded its activities and presence during the year and its management was strengthened. All the stock market and brokerage activities within the Group were effectively transferred to EDC and the EDC name adopted for all our stockbrokerage units in the three capital centres of the region namely, Abidjan, Accra and Lagos. eProcess International SA, our shared services subsidiary was also strengthened to play a more strategic role in improving efficiency and reducing operational costs. Ecobank Transnational Incorporated has a majority equity interest in all its subsidiaries, and provides them with management, operational, technical, training, business development and advisory services. Post Balance Sheet Events There were no post balance sheet events that could materially affect either the reported state of affairs of the Company as at 31st December 2006 or the profit for the year ended on the same date which have not been adequately provided for or disclosed. Responsibilities of Directors The Board of Directors is responsible for the preparation of the financial statements which give a true and fair view of the state of affairs of the Company at the end of the financial period and of the results for that period. These responsibilities include ensuring that: adequate internal control procedures are instituted to safeguard assets, prevent and detect fraud and other irregularities; proper accounting records are maintained; applicable accounting standards are followed; suitable accounting policies are used and consistently applied; the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Independent External Auditors The joint auditors, PricewaterhouseCoopers, Lagos, Nigeria and PricewaterhouseCoopers, Abidjan, Côte d'Ivoire have indicated their willingness to continue in office. A resolution will be presented to authorize the directors to determine their remuneration. 16th March 2007 16th March 2007. By order of the Board, Company Secretary Samuel K Ayim
  • 12. 10 2006 Annual Report Board of Directors Mandé Sidibé Chairman Arnold Ekpe Group Chief Executive Officer Christian N. Adovelande Oba A. Otudeko J. Kofi BucknorKolapo A. Lawson Evelyne Tall*Andre Siaka Albert K. Essien* Patrick Akinwuntan* Isyaku UmarPaolo Gomes Offong Ambah* Christophe J. Lawson* * Executive Directors
  • 13. 11 The Pan African Bank Board of Directors The Company has a fourteen-member Board of Directors, which oversees and directs the senior team that manages the Group. The Board of the Company is made up of six executive members and eight non-executive members coming mostly from West and Central Africa, all of them are distinguished businessmen and professionals. Mandé Sidibé (Chairman) Mandé Sidibé is a former Prime Minister of the Republic of Mali. Before that, he was special advisor to the President of the Republic of Mali. He is a former Director of Société Malienne de Financement (SOMAFI). He served with the Central Bank of West African States (BCEAO) in various capacities including Director of BCEAO-Mali and special advisor to the governor of BCEAO. He also worked for the International Monetary Fund (IMF) in many capacities including divisional head, Africa Department-IMF and as principal economist, Africa Department. Arnold Ekpe Arnold Ekpe returned as the Company Group Chief Executive Officer in 2005. He was the Group Chief Executive Officer from 1996 to 2001 when he left to join United Bank for Africa, one of the top three banks in Nigeria as Chief Executive Officer from 2002 until 2004. He has over 26 years of African and international banking experience having also worked in Europe, South Africa and West Africa for Citibank and First Chicago. He was Vice President and Head of Africa trade and corporate finance for Sub-Sahara Africa for Citibank. He executed landmark trade and corporate finance deals in West and Southern Africa. Mr. Ekpe holds degrees in mechanical engineering (1st class honours) and Business Administration from Manchester University and Manchester Business School respectively. Christian N. Adovelande Christian Adovelande is the President of the ECOWAS Bank for Investment and Development (EBID) Group. He was Chairman/Managing Director of Cauris Management SA and managing Director of Cauris Investissement SA, a regional venture capital Company based in Lomé, Togo. He was Company Secretary and acting general manager for the Africa Private Investment Guarantee Fund (Fonds GARI S.A.) and also held a number of key positions at the West African Development Bank (BOAD). He represents EBID on the Board of Directors. Oba A. Otudeko Ayoola Oba Otudeko is Chairman of several companies in Nigeria and abroad including Honeywell Group Limited, the Nigeria Stock Exchange, Pivot Engineering Company Limited, Honeywell Flour Mills Limited, Broadview Engineering Company Limited, Fan Milk Plc and Pavillon Technologies Limited. He is also a Director of the First Bank of Nigeria Plc, Guinness Nigeria Plc, British American Tobacco (Nigeria) Plc and several Chambers of Commerce. He is Chairman of the Nigerian-South African Chamber of Commerce. He is a Director of several overseas companies including Delmar Overseas Limited. He is a member, Regional Advisory Board of the London Business School and chancellor of the Olabisi Onabanjo University, the State University of Ogun State, Nigeria. He is a former board member, Central Bank of Nigeria (1990 to 1997), a former chairman of the National Maritime Authority Nigeria, a former member of the Constituent Assembly, Nigeria 1988 to 1989 and member of the National Economic Summit Group. He holds the national merit award of Officer of the Federal Republic of Nigeria (OFR). Mr. Otudeko is a chartered accountant and a chartered banker.
  • 14. 12 2006 Annual Report Board of Directors (continued) Paolo Gomes Paulo Gomes was an Executive Director of the World Bank Group (Washington D.C.) from 1998 to 2006. From 1995 to 1998, he worked for the Ministry of Finance, Planning and Trade of Guinea Bissau where he was a Principal Advisor, Director of Strategic Planning, Public Investment and Debt. In 1996, he was Assistant to the Director for Business Development of Monitor Company in Boston, USA; and in 1997, he was the Assistant to the Executive Director of Citizen Energy Corporation, still in Boston, USA. Mr Gomes holds a Certificate in Political Studies from “Institut d’Etudes Politiques” of Paris, France, a BA in Economic and International Trade from “Institut d’Etudes Libres de Relations Internationales” of Paris, France, and also a Masters with honours in Economic Policy and Management, from Kennedy School of Government, in Cambridge, USA. Kolapo A. Lawson Kolapo Lawson is the Chief Executive Officer of a diversified industrial and trading Group with operations in the United Kingdom and across West Africa. He is the Chairman of Polfa Nigeria and Director of two publicly quoted companies: Beta Glass PIc. and Pharma-Deko PIc. He was a Director of Ecobank Nigeria from 1989 to 1997 and of Ecobank Togo from 1990 to 1993. Mr. Lawson has a degree in Economics and is a fellow of the Institute of Chartered Accountants in England and Wales and of the Institute of Chartered Accountants of Nigeria. Isyaku Umar Isyaku Umar started his career with UAC of Nigeria from 1972 to 1976, he was employed in the Kano State Government and was at various times Secretary of the Draught Relief Committee, Principal Private Secretary to the Military Governor. Following that, he became the General Manager of Mai-Naisara and Sons Ltd from 1977 to 1979 and the Managing Director of Tofa General Enterprises Ltd. from 1979 to date. Mr Umar holds a B. Sc. Social Sciences, Economics from the University of Pittsburgh, and a Masters of Public Administration from USA. J. Kofi Bucknor Kofi Bucknor is a principal of Kingdom Zephyr Africa Management Company and the Chief Executive Officer of J. Kofi Bucknor & Associates in Ghana. He is an advisor to Prince Alwaleed Bin TalaI Bin Abdulaziz Al Saud of Saudi Arabia. He is a former Chairman of the Ghana Stock Exchange and he served as Managing Director of CAL Merchant Bank in Ghana, Executive Director, Corporate Finance, at Lehman Brothers in London, treasurer of the African Development Bank in Abidjan, Côte d'Ivoire and Vice- President of Chemical Banking, New York. Andre Siaka André Siaka is the Chief Executive Officer of Cameroon Brewery Limited since 1988. Before that, he worked with “Société Générale” in Paris. Mr Siaka is a qualified as Engineer from “Ecole Polytechnique” de Paris, France. Evelyne Tall Evelyne Tall is Regional Head for the UEMOA Zone (Benin, Burkina Faso, Côte d'Ivoire, Guinea Bissau, Mali, Nigeria, Senegal and Togo) and Cape Verde. She started her banking career in 1981 with Citibank in Dakar, Senegal where she worked in various areas, including credit, financial institutions, liability management and finally with the regional financial institutions unit. She left Citibank to join Ecobank Mali as Deputy-Managing Director in 1998, and was made Managing Director in 2000. The same year, she was transferred to Ecobank Senegal as Managing Director. She was appointed Regional Head of the UEMOA Zone in October 2005. Mrs Tall holds a Bachelor’s degree in English from the University of Dakar, Senegal and a diploma in International Trade/Distribution and Marketing from « Ecole d’Administration et de Direction des Affaires» of Paris, France.
  • 15. 13 The Pan African Bank Offong Ambah Offong Ambah is the Managing Director of Ecobank Nigeria and Regional Head for Nigeria. Between 1985 and 1991 he worked with International Merchant Bank and City Trust Merchant Bank in Nigeria. In 1991 started work with Ecobank. He became a General Manager of Ecobank Nigeria and worked in the Treasury, Corporate Finance, Credit and Retail Banking departments. In 1999, he was transferred to Liberia to set up Ecobank Liberia as Managing Director. He left the Ecobank Group in 2002 for United Bank for Africa PLC where he worked as Executive Director. He left UBA in 2005 and was appointed Interim Chairman of the Interim Board of directors of Allstates Trust Bank by the Central Bank of Nigeria. In March 2006, he returned to Ecobank Group as Managing Director of Ecobank Nigeria and Regional Head of the Nigeria Zone. Mr. Ambah holds a BSc Economics from the University of Lagos and a MSc Economics from the University of Ibadan, Nigeria. Albert Kobina Essien, Albert Essien is Regional Head for the WAMZ (Ghana, Guinea, Liberia, Sierra Leone and Gambia). He started his banking career in 1986 with the National Investment Bank in Accra, Ghana. He joined the Corporate Banking Department of Ecobank Ghana in 1990. In 1997, he became Country Risk Manager. He was appointed Deputy-Managing Director in 2001 and became Managing Director in December 2002. He was appointed Regional Head of the WAMZ in October 2005. Mr Essien holds a B.A. (Hons) in Economics (1979) from the University of Ghana, Legon, Ghana. Patrick Akinwuntan Patrick Akinwuntan is Executive Director in charge of Operations, Technology & Retail Bank. He is also the Managing Director of eProcess. He joined Ecobank in 1996 as Head of Commercial Banking and Western Zone II of Ecobank Nigeria. He then held the following positions in the Group: Group Financial Controller, Executive Director (Consumer and Commercial Banking) at Ecobank Nigeria. Before Ecobank, he worked for Ernst and Young, Manufacturers Merchant Bank, and Springfountain Management Consultants in Lagos. Mr. Akinwuntan holds a Master’s Degree in Business Administration (Finance) and is a Fellow of the Institute of Chartered Accountants of Nigeria (FCA) and an associate of the Institute of Taxation (ACTI). Christophe Jocktane-Lawson Christophe Jocktane-Lawson is Executive Director in charge of Corporate Development & Wholesale Bank. He started his banking career in 1985 with Citibank in Libreville, Gabon; he worked in various capacities as a Management Associate, Relationship Manager, Private Sector Head, Public Sector Head, Branch Manager, Corporate Bank Group Head, Risk Manager, and Deputy General Manager. He left Citibank and joined Ecobank Benin as General Manager in 2000. He later became the Deputy- Managing Director and then Managing Director in 2002. Mr Jocktane-Lawson holds a Master’s degree in Finance from Institut d’études Politiques of Paris, France and Bachelor’s degree in Economics from “Université Paris XIII”, France.
  • 16. 14 2006 Annual Report Executive Management (as at 31 January 2007) Group Executive Management Arnold Ekpe Group Chief Executive Officer Evelyne Tall Regional Head, UEMOA Albert Essien Regional Head, WAMZ Abou Kabassi Regional Head, CEMAC Offong Ambah Regional Head, Nigeria Christophe Jocktane-Lawson Head, Corporate Development & Wholesale Bank Patrick Akinwuntan Head, Operations, Technology & Retail Bank Antoine Kayembe Nzongola Group Chief Risk Officer Laurence do Rego Group Chief Financial Officer Robert Kwami Group Chief Audit & Compliance Officer Ronke Wilson Group Chief Human Resources Officer Samuel Ayim Company Secretary / Group Chief Legal Officer Country Heads Cheick Travaly Benin Aboubacar Youssoufou Burkina Faso Abou Kabassi Cameroon Abdel Kader Lawani Cape Verde Kerim Mahamat Ali Chad Martin Djedjes Côte d’Ivoire Samuel Ashitey Adjei Ghana Anasthasie Darboux Guinea Bissau Assiongbon Ekué Guinea Conakry Esijolone Okorodudu Liberia Yves Coffi Quam-Dessou Mali Charles Daboiko Niger Offong Ambah Nigeria Ehouman Kassi Senegal Karen Akiwumi-Tanoh Sierra-Leone Roger Dah-Achinanon Togo Specialized Subsidiaries Patrick Akinwuntan eProcess International SA (Togo) Michael Ashong Ecobank Development Corporation (Togo) Mahama Iddrissu Ecobank Stockbrokers Limited (Ghana) Tunde Ayeni ESL Securities Limited (Nigeria) Adonis Séka Ecobank Investment Corporation (Côte d'Ivoire)
  • 17. 15 The Pan African Bank Commitment to Corporate Governance The Ecobank Group is committed to ensuring good corporate governance. The Group believes that good corporate governance enhances shareholder value. Ecobank has been a pioneer in West African banking in institutionalizing corporate governance principles as part of the Group’s corporate culture. To this end Ecobank aims at complying with best international practices on corporate governance. Adherence to corporate governance principles is articulated in a number of corporate documents. The Articles of Association of the Company and those of its subsidiaries define the respective roles of management, the board of directors and shareholders (including the protection of minority rights) in the administration of the Group. The Group has standard written rules for the internal operation of the boards of directors, a corporate governance charter, a code of conduct for directors and rules on business ethics for staff, all of which aim at ensuring transparency and accountability within the Group. The board of directors has adopted the IFC principles and methodology on corporate governance to guide its corporate governance framework. The Group’s governance practices are also guided by the Basle Committee standards on corporate governance. In 2006, the board formally adopted the IFC’s suggested definition of an independent director for application throughout the Group. The Board also adopted the following criteria for the appointment of non-executive directors. Independence – Although not all non-executive directors need to meet the independent director definition referred to above, all directors should be capable of exercising independent judgment and decision-taking. Demonstrated business acumen – Strong business experience and a proven understanding of corporate and business processes through a successful track record and a strong reputation in the business community. Leadership and Board Experience – A recognized ability to add value and display leadership at board level and an ability to assert balanced and constructive views at board level. Special Technical Skills or Expertise – Experience in banking (particularly retail banking but also commercial and/or investment banking), accounting, and/or law and expertise not readily available to the executive team would be valuable especially if this professional experience is in emerging markets. Integrity – High level of integrity and professional and personal ethics and values consistent with those of the Company. Character – Strength of character and ability and willingness to challenge and probe; sound business judgment; strong interpersonal skills; and the ability to listen carefully and communicate with clarity, objectivity and brevity. Time Commitment – Sufficient time to effectively carry out duties of a non-executive director. Additional Considerations – Importance of bringing more diversity to the board in terms of age, gender, demographics, etc. Guided by the Code on Non-Executive Directors of the National Association of Corporate Directors (NACD) of the United States of America, the board adopted standard evaluations tools to help assess the performance of the board as a whole as well as that of individual directors. Governance Structure within the Ecobank Group The Ecobank Group corporate governance documents outline corporate governance policies and clarify governance structures throughout the Group. The key principles underlying the Group's governance structure are as follows: The parent company acts as a "strategic architect" with limited involvement in operational management and decision making at subsidiaries level. It sets the overall strategy and direction of the Group, develops policies and procedures and monitors them through reviews and audits to ensure compliance not only with Group strategy, policies and procedures but also with local laws and regulations. Corporate Governance
  • 18. 16 2006 Annual Report Operational decision-making is individualized and maintained at a level, as close as possible to required action and customers. Individual accountability and responsibility are institutionalized and embedded through empowerment and the granting of relevant levels of authority. Coordination at the corporate centre and Group level is achieved through high levels of interaction between parent company and its subsidiaries as well as amongst subsidiaries at board and executive management levels. Clear terms of reference and accountability are laid out for committees at board and executive levels. There is effective communication and information sharing outside of meetings. The Group operates an ‘open-door’ policy. The following are the governance units within the Group: The Company Board of Directors Country Board of Directors Group Executive Management Committee Country Executive Management Committee Annual Country Heads Meeting. Appropriate sub-committees are also set up, either on a permanent or ad hoc basis to handle issues as they arise. A brief overview of the roles and responsibilities of each of the governance units is provided in the following paragraphs. Board of Directors The Company Board of Directors is elected by, and accountable to, the Company's shareholders for the proper and effective administration of the Ecobank Group. Their primary responsibility is to foster the long-term success of the Company, consistent with its fiduciary responsibility to the shareholders. The Group’s governance charter requires the Board of Directors to be guided by the following principles: Clear delineation and segregation of responsibilities between executive management and board to ensure non interference of the board in the operational management of the Group ; Objective judgment on corporate affairs independent of executive management ; Actions on a fully informed basis, in good faith, with due diligence and care and in the best interest of the Group and its shareholders ; Compliance with applicable laws and regulations in line with Group strategy and direction ; Local legislation to prevail in the event of any conflict between Group policies and local laws ; Transparency and avoidance of conflict of interest between directors and the business of the Ecobank Group ; Full disclosure of accurate, adequate and timely information regarding personal interests of directors. The board recently approved the enlargement of its membership to include five additional executive directors. With the retirement of the former Chairman, Chief Philip C Asiodu and co-option of three new non- executive directors, the membership of the Board is now fourteen, comprising six executive and eight non- executive directors (refer to pages 10 to 13). The board has a policy of ensuring that there are more non- executive directors than executives on the board. The board has three committees, namely, the Governance Committee, the Audit and Compliance Committee and the Risk Committee. The current composition and terms of reference of the committees are summarized below: Governance Committee Composition In 2006, the Committee comprised of four members (the Board Chairman (for the time being), the Chief Executive Officer and two non executive directors – Messrs Christian Adovelande and Oba Otudeko). The Company Secretary is the secretary to the Committee. Responsibilities Formulates, reviews and generally ensures implementation of policies applicable to all units of the Group and ensure good governance throughout the Group ; Manages the relationship between the Company and its shareholders and subsidiaries, including relationships with the boards of subsidiaries ; Corporate Governance (continued)
  • 19. 17 The Pan African Bank Formulates new and reviews existing Group- wide policies including organizational structure ; Handles relationship with regulators and third parties ; Manages board affairs in between the meetings of the board or when the board is not sitting ; Recommends the appointment of executive and non-executive directors ; Reviews the human resources strategy and policies of the Group and the remuneration of senior executives. Audit and Compliance Committee Composition Membership in 2006 was composed of two non- executive directors (Messrs Mandé Sidibé and Kofi Bucknor) and two shareholders (Social Security and National Insurance Trust of Ghana represented by its General Manager, Finance, Mr. Kwasi Boatin; and Mr. Ayi A. Amavi) with the Chief Executive Officer in attendance, where appropriate. All members have business knowledge and skills and familiarity with accounting practices and concepts. The Group Chief Audit and Compliance Officer and the Group Chief Financial Officer serve as the secretaries to the committee. Responsibilities Reviews internal controls including financial and business controls ; Reviews internal audit function and audit activities ; Facilitates dialogue between auditors and management regarding outcomes of audit reviews ; Makes proposals with regard to external auditors and their remuneration ; Works with external auditors to review annual financial statements before full board approval ; Ensure compliance with all applicable laws, regulations and operating standards. Risk Committee Composition Composed of four members in 2006, namely, Messrs Kolapo Lawson, as Chairman, Christian Adovelande, Kofi Bucknor and the Group Chief Executive Officer. Members have good knowledge of business, finance, banking, general management and credit. The Group Chief Risk Officer serves as Secretary to the Committee Responsibilities Participates in the determination and definition of policies and guidelines for the approval of credit, operational, market/price and other risks within the Group; defining acceptable risks and risk acceptance criteria ; Sets and reviews credit approval limits for management ; Reviews and ratifies operational and credit policy changes initiated by management ; Ensures compliance with the bank's credit policies and statutory requirements prescribed by the regulatory or supervisory authorities ; Reviews periodic credit portfolio reports and assesses portfolio performance ; Reviews all other risks i.e. technology, market, insurance, reputation, regulations, etc. Country Boards of Directors Ecobank subsidiaries operate as separate legal entities in their respective countries. The Company is the majority shareholder in all the subsidiaries but host country citizens and institutions are typically investors in the local subsidiaries. Each subsidiary has a board of directors, the majority of whom are non- executive directors. The Group Governance Charter requires that country boards be guided by same governance principles as the Company. As a rule, but subject to local regulations and the size of the board, the boards of directors of subsidiaries have the same number of committees as the Company.
  • 20. 18 2006 Annual Report Corporate Governance (continued) The boards of directors of the subsidiaries are accountable to the subsidiaries' shareholders for the proper and effective administration of the subsidiary in line with the overall Group direction and strategy. These boards also have statutory obligations based on company and banking laws in the respective countries. In the event of any conflict between the Company and local laws, the local legislation prevails. Group Executive Management Committee The Group Executive Management Committee is comprised of the Group Chief Executive Officer, the regional and Group business heads and Group functional heads, currently a total of thirteen members. They are responsible for the operational management of the Group and its subsidiaries. The Group Executive Management Committee is responsible to the board and plays an important role in the Company’s corporate governance structure. The Committee manages the broad strategic and policy direction of the Group, submits them to the board for approval where necessary, and oversees their implementation. The Committee has decision- making powers in specific areas of Group management. In particular, the committee works with and assists the Chief Executive Officer to: Define and develop Group strategy ; Confirm alignment of individual subsidiaries' plans with overall Group strategy ; Track and manage strategic and business performance against plan ; Implement Group policy and decisions ; Make recommendations on various issues relating to staff ; Track and monitor progress and accomplishments on major Group initiatives and projects at affiliate level ; Recommend opening or closing of subsidiaries ; Articulate appropriate response to environmental factors, regulations, government policies competition and other such issues across the Group ; Articulate policies for advancing Group objectives ; Make important decisions in areas where delegation of authority is granted to the committee. Country Executive Management The Country Executive Management Committee consists of the country head, and other senior executive members of each subsidiary. In addition to the day-to-day management of the subsidiary’s operations, the role of a country's Executive Management Committee includes the following: Managing the strategic objectives of the country's operation in line with Group strategy ; Defining overall business goals and objectives for the country’s operation ; Ensuring alignment of operating plans with overall Group strategy ; Approving business unit direction and strategies ; Making decisions on operating plans and budgets ; Reviewing the financial reporting and control framework ; Tracking and managing country strategic and business performance against plan ; Tracking and monitoring progress and accomplishments on major initiatives and projects at country level ; Articulating appropriate response to environmental factors, regulation, government policies, competition and other such issues in the country ; Articulating policies for advancing business objectives in the country ; Advising the Company on adaptation of overall strategy to the specificities of the local environment ; Advising on local laws and regulation impacting on Group policies. Annual Country Heads Meeting The Annual Country Heads Meeting is an annual meeting of all Managing Directors and Group Functional Heads across the Group, to review and reflect on Group strategy and policies. The meeting plays a key role in facilitating the harmonization and integration of the Group strategy. Its role includes: Sharing and disseminating information, experiences and best practices across the Group ; Initiating policies that encourage integration and promote the 'One-bank concept' ; Promoting integration and standardization of Group policies and procedures ; Promoting and monitoring compliance with Group operational standards ; Contributing to the formulation of Group policies.
  • 21. 19 The Pan African Bank Introduction The main purpose of this section is to illustrate the diversity and wide range of corporate social responsibility and sustainability policies and projects launched and supported by Ecobank Corporate social responsibility refers to the contribution by businesses to sustainable development. It covers a company’s participation in fields such as human rights, human resources, relations with clients, suppliers and other stakeholders, corporate governance, environment and contribution to the community and the society in general. It is increasingly viewed as a strategic issue to ensure the development of a sustainable world and to enhance business competitiveness. It is high on the priority list of a number of international organizations and investors who seek to increase business awareness and involvement . Ecobank’s Commitment We are committed to ensuring that we remain a Group that cares about the impact it has on society. Ecobank has a long history of commitment to the communities in which it operates. Contributing to the improvement of living conditions through financing individuals and businesses, supporting local communities and local economic development, building greater social and human capital are all an integral part of our foundation and identity. Economic Performance Revenues generated in 2006 were over US$348 million. In generating these revenues, we made loans and provided assistance of over US$1.8 billion to governments and government agencies, companies, small and medium scale enterprises, microfinance institutions and individuals of over US$128 million. We collectively paid over US$42 million in taxes to governments in West and Central Africa, making us one of the largest tax payers and thus contributing to economic development and social welfare. Ecobank Foundation Ecobank Foundation a social responsibility initiative started operations in 2005. It is through the Foundation that Ecobank drives its corporate social responsibility to support community and social development in a sustainable manner. Up to one percent of the Group’s profit after tax may be donated to Ecobank Foundation for funding projects and supporting communities in countries where Ecobank is present. Ecobank Foundation has thus far made donations amounting to over US$650 thousand and has supported twelve (12) projects in three (3) countries. The Foundation focuses on projects in the areas of: Education, Health, Culture and Research. In addition to funding from Ecobank, the Foundation may also seek funding from third parties to support its activities. Human Capital Ecobank employs over 5,860 people across 305 branches, offices and kiosks. We estimate that we directly support up to 5 times our number of employees or over 29,000 people. Through our contractors, suppliers and distributors, we believe we directly and indirectly provide employment to a much larger number of people across West and Central Africa. Ecobank also gives training opportunities to about 200 University undergraduates and high school leavers across the Group. Our human development programmes are also training an increasing number of professionals not only in the banking sector but also in related areas such as technology, telecommunications and technology-enabled processes. Corporate Social Responsibility & Sustainability
  • 22. 20 2006 Annual Report Corporate Social Responsibility & Sustainability (continued) Environment and Safety As a banking Group, Ecobank finances projects across many sectors. In financing projects, Ecobank adheres to the IFC environmental Code. Accordingly, projects that we finance are screened to ensure that they do not unduly damage the environment and do not pose a safety hazard. Ecobank is currently reviewing the Equator Principles to fully evaluate its applicability to its activities. Ecobank as a matter of policy does not finance projects involving arms and gambling or projects whose impact on the individual or the environment are generally considered to be unacceptable. As a bank, Ecobank’s internal activities do not typically have an adverse impact on the environment when compared with other industries. Nonetheless, we are actively considering ways to improve our environmental responsibility and minimize adverse impact on the environment. These include ways in which we can reduce energy usage, paper usage and carbon dioxide emissions. We anticipate that further investments in technology and the increasing adoption of remote contact technology such as video conferencing will reduce the need for road and air travel and their adverse environmental effects while saving the Group significantly in transportation costs. Microfinance and Poverty Alleviation Ecobank has partnered with Accion International, one of the leading microfinance institutions in the world to establish microfinance institutions in countries where Ecobank operates. Under this arrangement, the parties are working to launch microfinance banks in Ghana and Nigeria in 2007. These institutions will target loans to the poorer segment of the society. Ecobank also finances existing microfinance institutions through providing lines of credit. These relations are evolving into alliances where they also distribute simple banking products such as savings accounts and money transfer products. Ecobank’s strategy in the microfinance sector is not to actively compete with microfinance institutions but rather to support them and partner with them to reach those customers that would typically not come into an Ecobank branch. Education, Employment and Health Through the Ecobank Foundation, we provided computers and learning aids to communities in Chad and in Mali. Through our internal and external training and development programmes, we are increasing the banking talent pool in West and Central Africa. In Nigeria, Ecobank partnered with the National Aids Awareness Campaign to open centres in universities to educate the youths on Aids. Currently the bank operates 7 centres across Nigeria. Diversity Ecobank, by virtue of its spread, is one of the most diversified groups in Africa in terms of its people. Ecobank also has a policy of ensuring diversity in its employee talent pool without compromising the quality of its staff. Regular reports are presented and monitored to ensure adherence to policy. Employees come from over 16 nationalities and communicate in English and French which are the official languages of the institution. In terms of gender diversity, 40 per cent of the employees are female and the balance male. In terms of representation at the management level, 75 out of 257 management staff are female. 3 out of 16 country managing directors are female and one out of five of our executive directors is also female. The Group has employees with physical disability across its network. 2.2 per cent of the staff are over 50 years old and 86 per cent of staff are under 40 years.
  • 23. 21 The Pan African Bank Application of Technology Ecobank has been at the forefront of the adoption of technology. The Group has a policy of “One Person, One PC” whereby all employees across the Group are entitled to a PC or a laptop for undertaking their job. In addition, Ecobank operates a regional telecommunications network that provides most of its telecommunications and technology needs, including telecommunications linkages, shared gateways, internet and email services. The widespread adoption of technology and telecommunications has been critical to the successful development and expansion of the Group. The Group is currently implementing the first shared services centre in West Africa that would consolidate and centralize many of the activities and services currently being carried out across the many subsidiaries of the Group. Sports Ecobank supports sports in many ways. Through our various subsidiaries we donate to sporting activities in the communities in which we operate. In addition, some of our subsidiaries have sports teams that compete an participate in local sporting activities. In 2006, Ecobank was one of the largest contributors to the African world cup teams. We acted as official bankers and co-sponsored the Ghanaian and Togolese teams to the world cup Indicator 2006 2005 %Change Revenues (US$‘000) 348,464 236,351 47 Corporate Tax (US$‘000) 42,934 22,790 88 Return on Average Equity (%) 23 23.8 (3) Efficiency Ratio (%) 59 63 (6) Earnings per share (cents) 13 11 18 Return on Average Assets (%) 3.0 2.5 20 Capital Adequacy (%) 19.0 21.7 (12) Employees 5,860 2,602 125 % female staff 40 38 5 % female staff at executive level 25 22 14 Investment in training and development (US$‘000) 2,921 2,165 20 Corporate social respons. Expenditure (US$‘000) 654 710 (8) Key Sustainability Indicators
  • 24. 22 2006 Annual Report Ecobank Group has codified policies on corporate ethics which applies to directors and employees across the Group. These policies are regularly reviewed to ensure that they are in line with international practice. Code of Conduct for Directors Directors across the Group are required to sign a code of conduct that enjoins them to adhere to certain principles of the Group. This is in addition to any local rules or codes governing directors’ conduct. The code of conduct covers issues such as ; Fiduciary responsibility: Directors are required to act in the best interest of the Company and in protection of shareholder interests, to act to preserve the assets of the Company and further its business interests; and to recognize the interest of other stakeholders such as employees, customers and the communities in which we operate. Conflict of interest: To avoid of conflict of interest in dealing with the Company, Directors may not utilize their position on the board to their advantage. A director must obtain the approval and consent of the board where there is a potential area of conflict of interest and must disclose all material facts related thereto. Directors must also disclose any direct or indirect interest in any loans, contracts or credit facilities granted by any Company in the Group. Confidentiality: Directors are required to observe the utmost confidentiality with respect to information relating to the Company including information relating to personnel, transactions and other matters relating to the operations of the Company. Attendance at Meetings: Directors are required to endeavour to attend all board meetings and to conduct themselves in a manner that will foster the smooth running of the board of directors. Non Interference: Directors may not interfere in the day to day running of the Company and to maintain the utmost dignity in their dealings with management and employees of the Company. Directors are enjoined to exercise independent judgment in evaluating management and their actions. Disclosure of any information that may affect the director’s relationship with the Group. Insider Dealings: A director may not utilize information obtained in his capacity as director to enrich himself through advantageous acquisition of shares or other securities issued or to be issued by the Company. Rules of Business Ethics All employees of the Group are required to sign and adhere to the Group rules on doing business. These rules require all employees to conduct themselves in a manner that is in the overall interest of the Group. Violation of the rules of business ethics may result in sanctions, including dismissal. Compliance: All employees must comply with local laws and regulations in the conduct of their duties as well as the Company’s internal policies and procedures. They must also endeavour to promote a culture of compliance. Confidentiality: All employees must avoid intentional or unintentional disclosure of sensitive or confidential information to unauthorized persons. Sensitive information include information relating to customers of the Group, trade secrets, non-public information, information arising from our dealing with governments, regulators or vendors/suppliers and any information that is potentially prejudicial to the Group. Conflict of Interest: Employees must avoid circumstances in which their personal interest conflicts or may appear to conflict with the interest of Ecobank or its customers. Corporate Ethics & Transparency
  • 25. 23 The Pan African Bank Reporting of Violations: An employee who suspects a possible violation of a law, regulation or our rules of business ethics is encouraged to report such violations to his/her supervisor. Employees are expected to be responsible in reporting such possible violations. Ecobank also has in place a whistleblower policy where employees may anonymously report incidents or situations that are damaging or potentially damaging to the institution. This facility is maintained through an independent international third party to ensure its effectiveness and to protect the identity of any whistleblower. Know-Your Customer: The Ecobank Group Anti-Money Laundering and Anti- Terrorism Policy requires all staff to know the customers who do business with bank. Detail information requirements are provided which should be updated regularly to reflect the changing status of the customer. Reports of suspicious transactions are required to be made and followed up. Ecobank cooperates with regulatory and security authorities to fight against illegal financial transactions. Transparency We are implementing our policy on transparency by increasing the level of disclosure in our annual reports and accounts. This is designed to ensure that our stakeholders, employees, shareholders, regulators, customers and the market at large are adequately informed on developments in Ecobank. Accordingly, we have provided supplemental information on our directors and senior management, information relating to the remuneration of our directors, information on director related loans, disclosure on other aspects of the bank’s activities relating to corporate governance and corporate social responsibility and sustainability.
  • 26. 24 2006 Annual Report Chief Executive Officer’s Review We had a very good year in 2006 but we have the potential to do much better. We grew assets by 59 per cent to US$3.5 billion, increased revenues by 47 per cent to US$348 million and pre-tax profits rose by 75 per cent to US$129 million. We increased market share in many of our markets and extended our market reach in West and Central Africa. We are addressing our weak position in the Nigerian market, one of the largest, most competitive and fastest growing markets in Africa. We are investing in our people to improve customer service and sales. We are investing in technology to enhance efficiency and reduce costs. And we are rolling out new products to sustain market competitiveness and create new market opportunities. The benefits of these actions are already becoming evident in this year’s results. We recognize that our future success will come not only from playing to our strength as the leading independent regional bank brand but also in addressing our areas of weakness. Financial Results In 2006, we increased revenues by 47 per cent to US$348 million. This was as a result of significant growth in business volumes, a positive exchange rate movement, an acquisition in Nigeria and a growth in fees and commissions. Our business in UEMOA and CEMAC regions benefited from a positive exchange rate fluctuation. The 11 per cent increase in the Euro to US dollar rate improved reported revenues by US$7 million. On the other hand, a weak local currency in Guinea depressed revenues by US$5 million. Overall, profit before tax grew by 75 per cent to US$129 million. This was a respectable performance compared to the previous year and given the increased competition in all our markets. Operating margins improved even as we have been investing heavily in expanding our distribution channels and in technology. We added 143 new branches and offices during the year and invested over US$9 million in upgrading our technology. At the same time, we invested over US$30 million in providing additional capital to our existing subsidiaries and in acquiring a bank in Chad. Despite these, our value added rose by 61 per cent to US$142 million. Review of 2006 The major development in 2006 was the listing of Ecobank Transnational Incorporated on the three stock exchanges in the sub-region namely the Bourse Régionale des valeurs Mobilières in Abidjan, the Ghana Stock exchange in Accra and the Nigeria Stock Exchange in Lagos. This landmark event was the first ever triple listing in Africa. In addition, two of our major subsidiaries, namely Ecobank Nigeria and Ecobank Ghana were listed in 2006. Again, this is designed to enhance shareholder value by providing a market-related and efficient basis for valuing the Ecobank Group and minimizing any discount due to our holding Company structure. We also took a number of steps to deepen and grow the Ecobank franchise through organic growth and by acquisitions. We extended our reach in West Africa by opening a new subsidiary in Sierra Leone and later in Guinea Bissau early in 2007.
  • 27. 25 The Pan African Bank We grew our Nigerian business by the acquisition of the branches and deposit liabilities of All States Trust Bank, one of the banks that did not survive the consolidation of the industry. In Central Africa , we increased our network to three countries by the acquisition of majority interests in BIAT, the second largest bank in Chad and early in 2007 in BICA, the largest bank in Central Africa Republic of which regulatory approval is pending. We expanded our distribution by increasing the number of branches and offices from 162 to 305; introduced 109 ATMs; 58 kiosks and over 500 direct sales agents. We raised US$87 million in additional capital to strengthen our capital base and to finance the growth of the Group. We launched a major microfinance initiative and partnered with ACCION to implement it across our network. Our Strategy In 2006, we held a Group-wide retreat in which we defined the strategic framework and targets to guide the collective efforts of the Group for the next three years. These strategic objectives will form the basis of all balanced scorecards not only for the leadership team but for all employees in the Group. These target and principles have been set out in a manifesto which will be made available in all branches and premises across the Group. Our core strategic objectives are to build scale through acquisitions and organic growth; grow our customer base, products , distribution and markets; achieve efficiency and reduce costs through operational and product excellence; and deliver superior shareholder returns. Our priorities for the plan period cover: Building Financial Strength: Strengthening our capital base to support the growth of existing businesses, expansion into new markets and the ability to withstand unexpected market developments. We intend to raise additional equity and long-term capital from the local, regional and international markets and to maintain a conservative capital adequacy ratio. Focusing on Operational Excellence: To improve efficiency and better manage costs, we are investing in improving our technology, processes and systems. Work has already commenced on significant upgrades or replacements of our existing operating systems and an overhaul of our operating processes. This will involve standardization and centralization of our middle and back office operations in a shared services centre for the Group which is currently under construction along with back up and disaster recovery sites. Improving Our Business Mix: We are working to build a balanced business franchise that is diversified not only by geography but by products, customers and markets. We have commenced an aggressive push into the retail market and are investing in ATMs, POSs, kiosks and direct sales agents. Expanding Distribution: We will expand our distribution by expanding into new markets and deepening our presence in existing markets. We are also expanding our contact points by opening new branches, increasing the number of our sales people and entering into alliances to expand our reach. Building Capacity: With the increasing competitiveness in the banking sector, there is increasing competition for talent. We are investing in deepening our leadership pool through a combination of training, exposure to different operating environments and an attractive work environment along with a revamped recruitment and compensation system. Of increasing importance is the need to nurture a sales and customer service culture in our people to enhance our market competitiveness.
  • 28. 26 2006 Annual Report Chief Executive’s Review (continued) Risk Management and Controls: As we grow our network, we are exposed to increased risks. We are taking steps to address this by investing in modern risk management tools that will enable us better manage and control the various risks we are exposed to. Nigeria: Nigeria represents the second largest and one of the fastest growing markets in Sub-Sahara Africa. Greater success in Nigeria will significantly affect the overall performance of the Group. Accordingly, we are taking steps to improve our competitiveness through organic growth and acquisitions. We acquired the branches and the deposit liabilities of one of the failed banks and are looking to acquire more to increase our distribution and market share. Our discussions with FirstBank of Nigeria were designed to move Ecobank to a leadership position in the Nigerian market Our Markets We operate in emerging African markets that offer excellent growth opportunities for efficient businesses. There are several reasons why we believe these markets are particularly attractive. Firstly, they are grossly underbanked compared with other emerging markets with further room for growth not only in product offerings but also in new markets and new customers. Secondly, some of these markets, especially the countries of Central Africa are experiencing significant economic growth from the discovery and production of crude oil. Thirdly, the reduction in civil and social unrest and the liberalization of many of these economies have rekindled interest and attracted new investments from international investors. Fourthly, there is a large untapped retail sector that is poorly serviced. Empirical data from the mobile telephone sector and the microfinance sectors suggest that with the appropriate strategy, there exists a large retail market to be tapped. The key to success in these markets is not dissimilar to what obtains in other markets. There is the need to build scale in distribution, in capital and in talent. We are addressing these challenges by raising additional capital, by opening new branches and offices and by recruiting, training and retaining talented people. Our operations are currently grouped into 4 regions covering West and Central Africa. These are discussed in more detail in the Business and Financial review section of this annual report. Execution In 2006, we further refined our business strategy and took several initiatives to accelerate the execution of the strategy. Key performance indicators were developed to track the key strategic goals of scale, growth, efficiency and shareholder value. We successfully completed most of the goals we outlined in the 2006 annual report and in some cases substantially exceeded our targets. Scale: We grew the size of the bank by over 59% to a balance sheet of US$3.5 billion. We ended the year with a market capitalisation of US$1.44 billion making us one of the top 10 banks in Sub-Sahara Africa ( excluding the Republic of South Africa ) in terms of size and market capitalisation. We also extended our geographical reach. In many of these markets, we saw a significant gain in market share arising from a more aggressive customer and deposit acquisition strategy and the opening of new branches. Growth: We grew gross revenues by 46% to US$419 million. Deposits grew by 88% to US$2.5 billion and profits grew by 75% to US$129 million. We grew our customer base by over 65% to half a million customers and the number of branches increased by 83% to 305. Through alliances and alternative channels, the number of customer contact points increased from 197 to 1,370. A significant part of this growth was due to the increasing success of our retail strategy.
  • 29. 27 The Pan African Bank In terms of countries, we increased our country presence to 15 from 13 and to 18 early in 2007, further deepening our presence in West Africa and extending our network in Central Africa. We believe the full impact of our growth initiatives will begin to show in the second half of 2007. We also have identified professionals to drive our initiative to grow revenues in wholesale, retail, investment and transaction banking and have launched new products in cash management and trade that leverage on our unique regional presence. Our “Ecobank Everywhere” strategy has improved accessibility and reach, which together with a more outward focus, positions the Group to grow its core businesses. We not only offer our products through our branches and sales force but also through alliances, outsourcing and kiosks. Efficiency: Even as we grew the Group, our operating metrics remained stable and in some cases showed considerable improvement during the year under review. Operating losses measured as a percentage of profit before tax which improved to 3% from 4%. Our operating margin increased by 47% from US$236 million to US$348 million; the cost/income ratio improved slightly to 59% from 63%; and non- performing loans as a percentage of total loans improved from 13% to 8%. Improving efficiency, building operational excellence and improving customer service are prerequisites for achieving the strategic objectives of Ecobank. A complete review of our technology platform including the hardware, software and telecommunications was undertaken. As a result, the Group is now implementing a shared services centre that will include a data centre, call centre, shared gateways and other value-added services that are designed to improve efficiency and customer service. The Group is taking steps to centralize its middle and back office operations in a shared services centre. Work on this commenced in 2006 and when completed, should result in considerable costs savings and efficiency improvements. Service levels are being developed for all major operating processes in the Group and these are currently being rolled out. During 2006 we launched the ONEBANK project to further integrate our operations and activities across the countries in which we operate. In addition to the shared services centre (the first of its kind by a bank in West and Central Africa), this will include replacing our current technology platform ( hardware and software) with more powerful and more robust and scalable systems capable of meeting our growing needs in the medium term, upgrading and modernizing our processes and improving and further standardizing our physical and operating infrastructure such as our branches. Shareholder Value: Measured in terms of total shareholder returns ( capital gains plus income from dividends and other payouts), 2006 was a record year for our shareholders. The share price moved from 80 cents a share at the beginning of 2006 to 1 dollars a share. Along with a 1 for 5 bonus issue and a dividend of 3 cents a share, this gave a total return to shareholders of 59% for the year. This will be very difficult to match in the coming years. A focus on shareholder value and a consequence of our listing means that we will increasingly adopt a stock market approach in running the Company and responding to shareholder issues. In addition to changes to our management information and reporting system, we have set up an investor relations function that will focus on addressing the information and other needs of our shareholders in a timely and efficient manner. Conclusion We are confident we have the right strategy. Our focus going forward is on execution: building scale, growing the business, improving efficiency and delivering superior shareholder returns Arnold Ekpe Group Chief Executive Officer
  • 30. 28 … Manifesto Building a world class African Banking Group Non-negotiables Key Measures GROWTH COMPLIANCE RISK MANAGEMENT Organic and by acquisitions Zero tolerance for non-compliance Effectively manage risks across our businesses PEOPLE STRENGTH Committed and productive work force BUSINESS GROWTH Grow revenues, customers and distribution OPERATIONAL EXCELLENCE To improve efficiency and reduce costs CUSTOMER SERVICE Efficient and convenient customer service FINANCIAL PERFORMANCE Superior financial performance FINANCIAL STRENGTH Adequate capital to support the business BALANCED BUSINESS MIX Across markets, customers and products BRAND DEVELOPMENT Position Ecobank as the leading bank brand in Africa PUTTING THE CUSTOMER FIRST Meeting customer needs promptly and accurately PERFORMANCE Continuously striving to do better PUTTING THE INSTITUTION FIRST Ecobank before personal and other interests SCALE Leading Bank in Middle Africa EFFICIENCY Operational and product excellence SHAREHOLDER VALUE Superior shareholder returns + + = …The Pan African Bank
  • 31. 29 The Pan African Bank Business and Financial Review Financial Summary By all standards Ecobank delivered the strongest financial results in the history of the Group in 2006. Profit before tax increased by 75% to US$129.3 million. Profit after tax followed similar trend, growing by 70% to US$86.4 million. Profit attributable to equity shareholders also improved to US$69.4 million, representing growth rate of 67%. This offers improved earnings per share of 13 cents (2005: 11 cents). Recording a growth rate of 59% total assets of the Group increased to US$3.5 billion. Likewise almost all the ratios of the Group reported significant improvements. Cost-to-income ratio improved to 59% from previous year’s level of 63% as a result of strong growth in revenues. Despite increased capital and asset base, return on average equity and return on average assets were 3% (2005: 2.5%) and 23% (2005: 23.8%) respectively. Fig 1: Profit before tax (PBT) - Profit after tax (PAT) 2002 - 2006 (US$m) Key Factors impacting the Results Revenue Growth Operating income grew by 47% to US$348 million as a result of strong growth in net interest income and fees and commissions. Net interest income was up by 66% to US$181 million resulting from strong growth in loans and advances. Non interest revenue improved by 31% to US$167 million strongly influenced by 26% increase in fees and commissions and 22% increase in trading income. The ratio of non interest income to total income was 48% compared to 54% in 2005. Impairment Losses Despite significant increase in loans and advances, loan loss expense improved to US$13 million compared to US$15 million recorded in 2005. Ecobank Benin contributed US$5 million to this due to deterioration in exposures in cotton and construction industries. The improvement in loan loss expense was as a result of significant recoveries made in Ecobank Côte d’Ivoire and Ecobank Togo for credits which had earlier been fully provided for, as well as better risk management across the Group. Recovery efforts have been intensified and it is expected that substantial part of the provisioned amounts will be recovered in 2007. Operating Expenses Operating expenses increased by 39% to US$206 million compared to revenue growth of 47%, hence the improvement in efficiency ratio. Fig 2: Revenue and Operating Expenses 2002 - 2006 (US$m) Staff cost increased by 43% as a result of increase in staff numbers to support the increasing business volumes. Ecobank Nigeria increased its staff strength from under 1,000 to close to 3,000 to support extensive expansion in the branch network. Other operating expenses increased by 37% in line with growing business volumes, technology improvement and cost relating to aggressive retail strategy of the Group.
  • 32. 30 2006 Annual Report Balance Sheet Growth Underlying the 59% growth in total assets was a significant growth recorded in deposits which also enabled the Group to increase its credit portfolio. Fig 3: Balance Sheet Growth 2002 - 2006 (US$b) Liquidity Customer deposits increased by 63% to US$2.5 billion representing 83% of total liabilities (2005: 81%) with 10.8% one month net liquidity gap (2005: 17.4%). Average deposits grew by 34.5% to US$2.0 billion. This strong deposit growth was aided by the Group’s aggressive retail strategy culminating into massive increase in branch network in all the banking subsidiaries, particularly Ecobank Nigeria. Risk Assets With increased product offerings in all our business segments, average loans and advances to customers grew to US$1.5 billion, representing an increase of 51% over 2005. The Group’s net loan loss expenses amounted to 0.9% of average loans compared to 1.5% in 2005. Capital During the year the Company continued its capital raising programme which began in 2005. Mainly from private placements, a total of US$87 million was raised primarily from international investors. This contributed strongly to increase in total equity from US$304 million to US$482 million, offering Tier one capital ratio of 19.0% (2005: 21.7%). This was the same as total capital ratio, well above target of 12%. Business Segments The Group continued to pursue diverse strategies in enhancing the performance of all its business segments, reflecting positively on performance. Retail Banking The Group’s retail banking business was structured to provide a range of products and services to meet the needs of clients in small and medium scale businesses as well as the micro finance sector. During the year, the Group launched a new retail strategy to leapfrog its performance in the segment. We focused on organic investments and acquisitions, resulting in addition of 143 branches and offices, most of which were in Nigeria. Branches and offices grew from 162 to 305. The Group continued to develop mutually beneficial relations with partners of common interest. Ecobank signed a partnership agreement with ACCION International to develop its micro finance business. The Group’s card programme continued to make more in roads in the West African sub region. Ecobank Nigeria, yet again, led the way in the card business in Nigeria. In addition to being the first bank to launch MasterCard in Nigeria, the subsidiary issued the first local currency credit card in West Africa under the name, Ecobank Naira Credit Card. Ecobank Ghana continued to pioneer the Visa Card business in Ghana. In the UEMOA Region, Ecobank Card maintained the market leader position. By close of the year over 156,000 (2005: 90,000) cards had been issued and over 100 (2005: 35) ATMs were in use. The Group is aware of some specific risks associated with this segment of the market. Therefore appropriate risks mitigation factors have been instituted to enable it enjoy the full benefits of the enormous potential the segment offers. Business and Financial Review (continued)
  • 33. 31 The Pan African Bank Wholesale Banking Ecobank specializes in serving the public sector, multinational institutions, financial institutions and other major players in the private sector which constitute the wholesale banking segment of the market. Ecobank has particularly been competitive in serving this niche despite increasing competition for the small number of the clients. Investment Banking Our investment banking subsidiary, Ecobank Development Corporation (EDC) continued to offer its wholesale clients a range of investment banking capabilities in corporate and project finance, advisory services and asset management. EDC is represented in UEMOA, WAMZ and Nigeria. Plans are far advanced to create a similar vehicle in CEMAC Region to enable the subsidiary serve in all the markets in which Ecobank operates. Treasury Treasury and money market activities represented a significant part of the wholesale bank’s activities. Ecobank is a major player in the foreign exchange and money markets in the West African sub-region. The Group continued to leverage on its geographical spread in West and Central Africa in assisting clients’ cross-border transactions in the sub regions. Technology and Operations The Group continues to build a modern technology platform to facilitate speedy and cost effective service to its clients. eProcess International SA, the technology arm of the Group has achieved tremendous success in providing a shared gateway for our payment system and for our regional ATM network aimed at improving the efficiency of support for all our subsidiaries. In 2006, our planned shared services centre commenced operations in Accra, Ghana. By close of 2007 a number of operational activities across the Group will be centralized and processed at the Shared Service Centre. The full impact of this service, in the form of cost reduction, efficiency and speed, will be realized in the coming years. Regional Operations The Group is organized along geographical region to drive performance of the various subsidiaries. Contributions of the various regions to the Group’s profit before tax and assets are shown below: Fig 4: Contribution of Regions to Profit Before Tax Fig 5: Contribution of Regions to Assets
  • 34. 32 2006 Annual Report Business and Financial Review (continued) UEMOA Region With 10 countries, the Union Economique et Monétaire Ouest Africaine (UEMOA) Zone has a population of 80 million with Gross Domestic Product (GDP) of US$43 billion. Ecobank increased its presence in the region by opening a new subsidiary in Guinea Bissau in January 2007. The region, which has 8 of the 16 banking subsidiaries, contributed 42% to the Group’s profit before tax, and 46% to assets. The continued turnaround of Ecobank Côte d’Ivoire’s business, despite continued political difficulties in the country, impacted positively on the region’s results. There were significant recoveries of previously provisioned loans in Ecobank Côte d’Ivoire and Ecobank Togo. On the other hand, Ecobank Benin contributed 38% to the Group’s loan loss expense due to deterioration in its exposures in cotton and construction industries. It is expected that greater part of this provision will be recovered in 2007. New regional and local banks continued their influx into UEMOA Region. However, Ecobank is well positioned to withstand the increasing competition. US$’000 Revenues 146,378 Profit Before Tax 57,855 Deposits 1,145,498 Shareholders' Funds 131,789 Total Assets 1,687,577 WAMZ Region The West Africa Monetary Zone (WAMZ) comprises six countries with total population of 39 million and a GDP of US$14 billion. In November 2006, Ecobank Sierra Leone commenced banking operations, bringing the total number of subsidiaries in the region to 4. Plans are far advanced to open a subsidiary in the only country in the region left to be covered, Gambia, in 2007. Despite continued depreciation of the Guinean franc against the US dollar, the WAMZ Region contributed 24% to the Group’s profit before tax with 17% of Group assets. Ecobank Ghana continued to be the main driver in this region, contributing 75% of the region’s pre tax profit. Ecobank Liberia is well positioned to take advantage of the restoration of democracy in Liberia and the subsequent inflow of economic aid to revamp the economy. This is evidenced by the increase in the subsidiary’s profit before tax from just US$10,000 in 2005 to US$2.5 million in 2006. US$’000 Revenues 71,426 Profit Before Tax 33,945 Deposits 457,856 Shareholders' Funds 68,155 Total Assets 618,596 CEMAC Region The Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC) Region consists of six countries with a population of 38 million and a GDP of US$38 billion. Until November 2006, Ecobank’s representatiion in the CEMAC Region was only Ecobank Cameroon. The region contributed 3% to the Group’s profit before tax. With 8% of the Group’s assets, the Group’s expansion in the region has been through acquisition. In a bid to be an increasing beneficiary of the business opportunities in this oil and gas rich region, the Company acquired a 60% holding in Banque Internationale pour Afrique du Tchad (BIAT) in Chad in October 2006. The bank has been renamed as Ecobank Chad. In January 2007, the Company also acquired a 72% interest in Bank Internationale pour la Centrafrique (BICA), in Central Africa. It is expected that the impact of these acquisitions would be felt in the subsequent years by the region making increased contribution to the Group’s performance. A license was also obtained in February 2007 to open a new subsidiary in Sao Tome & Principe. US$’000 Revenues 15,326 Profit Before Tax 4,070 Deposits 238,683 Shareholders' Funds 21,569 Total Assets 285,916
  • 35. 33 The Pan African Bank Nigeria With a population of over 130 million and a GDP of US$96 billion, Africa’s most populous country, Nigeria, consists of a region on its own. Ecobank Nigeria recorded the strongest growth in the Group by increasing its profit before tax by about three- fold to US$40 million. With this, the region contributed 29% of the Group’s profit before tax and 28% of the Group’s assets, making it the second highest contributor. One of the influential factors is the recapitalization of the subsidiary by close of 2005, first to meet the Central Bank minimum capital requirement, and second, to reposition the bank in the Nigerian market. Ecobank Nigeria combined acquisition and organic growth in its expansion programme in 2006. The subsidiary acquired over 60 branches of All States Trust Bank (ASTB) in Nigeria. In addition, Ecobank Nigeria increased its branch network across the country. With the full impact of the expansion programme the region is expected to take commanding lead in contribution to the Group’s performance. US$’000 Revenues 116,620 Profit Before Tax 40,296 Deposits 656,931 Shareholders' Funds 223,266 Total Assets 1,034,960 Risk Management Risk Management function in the Group covers all areas of risk including credit, price/market, interest rate, exchange rate, liquidity, operational risk and legal risk. The primary objective of the risk management function is to establish acceptable risk limits and thereafter to ensure that exposure to these risks stays within these limits. The operational, legal and regulatory risk management functions are intended to ensure adequacy as well as proper functioning of internal policies and procedures as well as compliance with prevailing laws and regulations. The ultimate responsibility for the effective management of risk lies with the Board of Directors both at the Group level and at the level of the operating subsidiaries. The Risk Committee of the board reviews and approves the risk management policies for the Group, subject to any local regulatory amendments, and reviews and monitors adherence to these policies. The Group manages risks through the implementation and monitoring of a rigorous system of policies and procedures, the enforcing of a detailed and timely reporting system, and internal risk review program which systematically audits operations in all countries. Each operating unit is periodically reviewed by a team of reviewers that includes representatives of all relevant functional units and consolidated into an Audit and Risk Reviews team. This team covers all relevant risks families, including strategic and franchise risk, legal and compliance risk, financial reporting risk, staffing and organizational risk, credit risk, market risk, operational risk, systems and technology risk, and country risk. Strategy in using Financial Instruments By its nature, the Group’s activities are principally related to the use of financial instruments. The Group accepts deposits from customers at both fixed and floating rates and for various periods and seeks to achieve interest margins commensurate with its objectives by investing these funds in higher yielding assets. The Group seeks to increase these margins by consolidating short-term funds and lending for variable periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due. The Group seeks to maintain interest margins that will enable to remain profitable after accounting for net provisions, through lending to commercial and retail borrowers with a range of credit standings. Such exposures involve not just on-balance sheet loans and advances but also off-balance commitments such as guarantees, letters of credit and performance and bonds. The Group also trades in financial instruments where it takes positions in government securities, money market and foreign exchange instruments to take advantage of short-term market movements in the financial markets, interest rate and commodity prices. The board places trading limits on the level of exposure that can be taken in relation to both overnight and intra day market positions. Foreign exchange and interest rate exposures associated with these instruments are normally offset by entering into counterbalancing positions, thereby controlling the variability in the net cash amounts required to liquidate market positions.
  • 36. 34 2006 Annual Report Business and Financial Review (continued) Credit Risk Management of credit, operational, and market risk and other non-financial risks falls under the responsibility of the Risk Management department at the Group Office (“Group Risk Management”). The Risk Committee of the Board has overall supervisory oversight and is informed regularly of the status of the risks that the Group is facing. The Risk Committee, in turn, reports to the Board for appropriate decisions. Group Risk Management fulfills its mission at different levels: risk strategy formulation and execution, risk policy development, credit decision making, risk monitoring, identification and follow-up of problem loans, assessment of risk asset portfolio and credit process in the subsidiaries, and training. Group Risk Management is headed by a Group Chief Risk Officer, who reports directly to the Group Chief Executive Officer. Within each subsidiary bank, Group Risk Management is represented by a Country Risk Management department which is completely independent of all the operating departments which initiate credit transactions. The Department is managed by a Country Risk Manager who reports administratively to the Managing Director of the subsidiary and functionally to the Group Chief Risk Officer. Within each business region, Group Risk Management is represented by a Regional Risk Manager who reports administratively to the Regional Director and functionally to the Group Chief Risk Officer. Regional Risk Managers assist Regional Directors in approving and managing risk in all the countries under their supervision. Group takes on exposure to credit risk which is the risk that a counterparty will be unable to meet their obligations when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk acceptable in relation to anyone borrower, or groups of borrowers, and to geographical and industrial segments. Such risk is monitored on an ongoing basis and subject to frequent review. Limits on the level of credit risk by product, industry sector and by country are approved annually by the Group Risk Management. Exposure to anyone borrower including financial institutions is further restricted by sub-limits covering on and off-balance sheet exposures. Actual exposures against limits are monitored daily and consolidated monthly for Group Risk Management review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and other guarantees. A significant portion of lending to multinational corporations and government is unsecured. Market Risk Market Risk is supervised by the Risk Committee of the board. Limits are proposed by the countries, approved and set for specific currencies and instruments as appropriate, under the supervision of the respective Regional and Country Risk Managers, with the overview of the Group Treasurer. A Group Market Risk Officer is expected to be appointed by the end of 1st quarter 2007, to oversee that function, to ensure proper regular monitoring of exposures against approved limits. Business Risk Business Risk relates to the Risk of failing to compete effectively in the market place, due to inappropriate strategies, inadequate resources or changes in the economic or competitive environment. The risk is managed through Group performance management processes. Regular reviews are carried out by the Group management covering financial performance, capital allocation and returns, risk statistics, human resource capability and appropriate actions are taken where necessary. Legal and Compliance Risk Compliance risks include the risk of loss, including reputational loss, arising from non compliance with regulatory requirements in a country in which the Group operates. Legal risks include the risk of loss arising from defective documentation or contracts or from defective transactions or contracts giving rise to claims or liability on the institution or the impairment in the institution’s ability to enforce title to assets, or risks arising from changes in law. The risk Committee reviews and recommends appropriate policies to manage legal and compliance risks across the Group. The Audit and Compliance Committee of the Board through the Audit and Compliance function is responsible for monitoring adherence to the Group compliance policies and procedures.
  • 37. 35 The Pan African Bank Operational Risk Operational Risk refers to the risk of direct or indirect losses arising from the failure of technology, processes, infrastructure, personnel and other noncredit and market/price risks that have an operational impact. The Group seeks to ensure that key operational risks are identified and managed in a timely and effective manner through the appropriate policies, procedures and tools. To enhance its operational risk management capability, the Group has acquired OpRisk Manager, an automated software tools from HSBC, which it started rolling in early 2007. Furthermore, a Group Operational Risk Manager has been appointed to devote enough resources to this risk aspect. Group Risk Management function and the Regional / Country Risk Management function are responsible for supervising and directing the management of operational risks across the Group. Compliance with operational risk policies is the responsibility of all managers in the Group. Every country has responsibility for ensuring that appropriate and effective operational risk management frameworks are in place to manage and monitor operational risks. Independent Monitoring The Group Audit and Compliance function is an independent function and reports directly to the Group Chief Executive Officer and the Board of Directors through the Audit and Compliance Committee. The Group Audit and Compliance function provides independent review and confirmation that Group standards, policies and procedures are being adhered to. That independence has been further strengthened by the fact that Group Risk Management is no longer involved in the close organization of the Audit Reviews. A new Manager has been appointed as of January 1st , 2007, with a Compliance Officer to be appointed by end of 1st quarter 2007. Capital The Group seeks to maintain adequate capital and reserves to meet foreseeable future developments and targets a minimum total capital ratio of 12%. The Group’s capital is principally invested in its operating subsidiaries. The Group doesn’t generally hedge the value of its investments in subsidiaries. Basle II The Group is taking steps to comply with Basel II. The Group risk function has adopted a program to achieve compliance by 2008 or earlier, if so required by local regulations (which is not yet the case). This involves the implementation of automated credit and operational risk management tools (such as Moody’s or OpRisk Manager) that meet the Basel II requirements, which triggered significant changes in the way we manage and record our credit and operational risks. Inflation and Exchange Rate Movements The Group holds assets which are predominantly financial in nature. The impact of inflation and exchange rate movements on the Group is significantly different from that of a Company or Group that has a high proportion of its assets in property and equipment. During periods of inflation and/or currency depreciation, monetary assets tend to lose value in terms of purchasing power, while the value of fixed assets may remain unaffected. Monetary gains and/or losses are reported in the financial statements in the manner required by IFRS. International Financial Reporting Standards (IFRS) The Group accounts for 2006 have been prepared in accordance with IFRS. This has necessitated changes to our reporting and disclosure requirements which are detailed in the accounts. IFRS does not change the net cash flows or the underlying economics of our business. However, it does have an impact on the reporting requirements at the holding Company level. Laurence do Rego Group Chief Financial Officer
  • 38. 36 2006 Annual Report Responsibility for Annual Financial Statements The directors are responsible for the preparation of the financial statements for each financial year that give a true and fair view of the state of financial affairs of the Company at the end of the year and of its profit or loss. This responsibility includes: (a) ensuring that the Company keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Company; (b) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; and (c) preparing the Company’s financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates that are consistently applied. The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Company and of its profit or loss. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control. Nothing has come to the attention of the directors to indicate that the Company will not remain a going concern for at least twelve months from the date of this statement. Approval of Annual Financial Statements The annual financial statements, presented on pages 38 to 82 were approved by the board of directors on 16 March 2007 and signed on its behalf by: Directors' Responsibilities Statement Mandé Sidibé Chairman Arnold Ekpe Chief Executive Officer
  • 39. 37 The Pan African Bank Report of the Independent Auditors To the Shareholders of Ecobank Transnational Incorporated We have audited the accompanying consolidated financial statements of Ecobank Transnational Incorporated (together, the Group) for the year ended 31 December 2006 set out on pages 38 to 82. Directors’ responsibility for the financial statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an independent opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We have obtained all the information and explanations that to the best of our knowledge and belief were necessary for the purposes of our audit and we believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the accompanying consolidated financial statements, give a true and fair view of the financial position of the Group at 31 December 2006 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Chartered Accountants Abidjan, Côte d'Ivoire PricewaterhouseCoopers Chartered Accountants Lagos, Nigeria
  • 40. 38 2006 Annual Report Consolidated Income Statement Note Year ended 31 December 2006 2005 US$’000 US$’000 Interest income 2 249,586 155,423 Interest expense 2 (68,183) (46,139) Net interest income 181,403 109,284 Fee and commission income 3 110,302 89,280 Fee and commission expense 3 (2,381) (3,605) Net fee and commission income 107,921 85,675 Operating lease rentals 5,022 3,911 Dividend income 4 2,935 339 Net trading income 5 41,619 33,981 Gains less losses from investment securities 17 8 9 Other operating income 9,556 3,152 Impairment losses on loans and advances 8 (13,091) (14,898) Operating expenses 6 (206,074) (147,724) Profit before income tax 129,299 73,729 Income tax expense 9 (42,934) (22,790) Profit for the year 86,365 50,939 Attributable to: Equity holders of the parent Company 69,350 41,502 Minority interest 17,015 9,437 86,365 50,939 Earnings per share for profit attributable to the equity holders of the parent Company during the year (expressed in United States dollars per share): basic 10 0.13 0.11 diluted 10 0.13 0.11 The notes on pages 60 to 82 are an integral part of these consolidated financial statements
  • 41. 39 The Pan African Bank Consolidated Balance Sheet Note As at 31 December 2006 2005 US$’000 US$’000 ASSETS Cash and balances with central banks 11 308,959 298,571 Treasury bills and other eligible bills 12 137,345 261,047 Loans and advances to banks 13 554,311 362,160 Trading securities 14 647 412 Derivative financial instruments 15 20 - Other financial instruments at fair value through profit and loss 14 100 5,223 Loans and advances to customers 16 1,919,366 1,022,140 Investment securities: - available-for-sale 17 349,728 10,902 - held-to-maturity 17 - 113,644 Pledged assets 29c 2,021 - Intangible assets 18 4,607 1,596 Property, plant and equipment 19 116,420 73,872 Deferred income tax assets 27 7,832 6,454 Other assets 20 102,383 43,209 Total assets 3,503,739 2,199,230 LIABILITIES Deposits from banks 21 118,617 121,236 Other deposits 22 5,027 18,564 Derivative financial instruments and other trading liabilities 15 - 22 Deposits from customers 23 2,500,178 1,532,478 Borrowed funds 24 50,660 25,977 Other liabilities 25 294,970 167,530 Current income tax liabilities 32,225 14,679 Deferred income tax liabilities 27 10,845 7,698 Retirement benefit obligations 28 8,902 7,167 Total liabilities 3,021,424 1,895,351 EQUITY Capital and reserves attributable to the Company's equity holders Share capital 30 264,115 179,256 Retained earnings 31b 65,209 23,558 Other reserves 31a 52,764 18,733 382,088 221,547 Minority interest 100,227 82,332 Total equity 482,315 303,879 Total liabilities and equity 3,503,739 2,199,230
  • 42. 40 2006 Annual Report Consolidated Statement of Changes in Equity Note Attributable to equity holders of the Company Share Others Retained Minority Total capital reserves earnings Interest US$’000 US$’000 US$’000 US$’000 US$’000 At 1 January 2005 90,779 20,318 16,122 38,039 165,258 Deemed acquisition cost following a rise in Group share in Ecobank Nigeria 31 - - (17,779) 17,779 - Currency translation differences 31 - (13,350) - (2,585) (15,935) Net gains not recognised in the income statement - (13,350) (17,779) 15,194 (15,935) Net profit - - 41,502 9,437 50,939 Total recognised income for 2005 - (13,350) 23,723 24,631 35,004 Dividend for 2004 32 - - (6,234) (2,231) (8,465) Reserves of previously unconsolidated subsidiaries 31 - - (121) (3) (124) Restatement of brought forward reserves of subsidiaries 31 - - 1,833 - 1,833 Transfer to general banking reserves 31 - 3,421 (3,421) - - Transfer to statutory reserve 31 - 8,344 (8,344) - - Issue of shares 30 88,477 - - 21,896 110,373 At 31 December 2005 / 1 January 2006 179,256 18,733 23,558 82,332 303,879 Currency translation differences 31 - 15,142 - 3,263 18,405 Net gains not recognised in the income statement - 15,142 - 3,263 18,405 Net profit - - 69,350 17,015 86,365 Total recognised income for 2006 - 15,142 69,350 20,278 104,770 Dividend for 2005 32 - - (10,712) (2,314) (13,026) Reserves of previously unconsolidated subsidiaries 31 - - - (69) (69) Revaluation reserves - Available -for-sales 31 - 1,902 - - 1,902 Transfer to general banking reserves 31 - 350 (350) - - Transfer to statutory reserve 31 - 16,637 (16,637) - - Proceeds from private placement 30 83,354 - - - 83,354 Proceeds from public offer 30 3,927 - - - 3,927 Share issue transaction costs 30 (2,422) - - - (2,422) At 31 December 2006 264,115 52,764 65,209 100,227 482,315
  • 43. 41 The Pan African Bank Note Year ended 31 December 2006 2005 US$’000 US$’000 Cash flows from operating activities Interest and discount receipts 238,644 154,289 Interest payments (60,532) (42,558) Dividends received 2,935 339 Fee and commission received 110,302 89,280 Fee and commission paid (2,381) (3,605) Other income received 53,762 36,119 Cash payments to employees and suppliers (197,893) (140,905) Cash payments to retired employees (629) (267) Income taxes paid (24,021) (28,128) Cash flows from operating profits before changes in operating assets and liabilities: 120,187 64,564 Changes in operating assets and liabilities - net (increase)/decrease in Mandatory reserve deposits with central banks (51,502) 20,082 - net (increase)/ decrease in loans and advances to banks (126,438) 26,685 - net (increase)/ decrease in trading securities (235) 874 - net decrease in other financial assets at fair value 5,123 3,724 - net increase in derivative financial assets (20) - - net increase in loans and advances to customers (897,226) (98,479) - net (increase)/ decrease in sundry receivables and prepayments (45,882) 55,410 - net (decrease)/ increase in other deposits (13,537) 18,564 - net increase in deposits from customers 967,700 67,361 - net (decrease)/ increase in derivative liabilities (22) 22 - net increase in other liabilities 124,136 21,131 Net cash from / (used in) operating activities 82,284 179,938 Cash flows from investing activities Acquisition of subsidiary 35 17,929 - Purchase of software 18 (927) (1,159) Purchase of property and equipment 19 (72,767) (35,857) Proceeds from sale of property and equipment 7,216 6,109 Purchase of securities 17 (278,306) (62,685) Proceeds from sale and redemption of securities 59,141 3,312 Net cash used in investing activities (267,714) (90,282) Cash flows from financing activities Proceeds from borrowed funds 24,683 788 Issue of ordinary shares 30 84,859 88,477 Issue of shares (minority interest) - 21,896 Deposit for shares (4,347) 5,410 Purchase of treasury shares 30 - - Sale of treasury shares 30 - - Dividends paid to minority shareholders (2,314) (2,231) Dividends paid 31 (10,712) (6,234) Net cash from financing activities 92,169 108,106 Net (increase) / decrease in cash and cash equivalents (93,261) 197,762 Cash and cash equivalents at beginning of year 33 509,980 309,087 Effects of exchange differences on cash and cash equivalents (3,223) 3,131 Cash and cash equivalents at end of year 33 413,496 509,980 Consolidated Cash Flow Statement
  • 44. 42 2006 Annual Report 1. General Information Ecobank Transnational Incorporated (ETI) and its subsidiaries (together, the Group) provide retail, corporate banking and investment banking services in various parts of West and Central Africa. The Group has operations in over 17 countries and employs over 5,860 people. Ecobank Transnational Incorporated is a limited liability Company and is incorporated and domiciled in the Republic of Togo. The address of its registered office is as follows: 2 Avenue Sylvanus Olympio, Lome, Togo. The Company has a primary listing on the Ghana stock exchange, Nigeria stock exchange and the Bourse Regionale Des Valeurs Mobilieres (Abidjan) Cote D'Ivoire. These consolidated financial statements have been approved for issue by the Board of Directors on 16th March 2007. 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Presentation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets, financial assets and financial liabilities held at fair value through the profit or loss and all derivative contracts. The application of amendments to published standards and intepretations which became effective from 1 January 2006 did not result in substantial changes in the Group's accounting policies. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in section 4 of the accounting policies. 2.2 Consolidation a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (Accounting Policies 2.12a). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Accounting Policies
  • 45. 43 The Pan African Bank b) Transactions and minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. c) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement; its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.3 Foreign Currency Translation a) Functional and presentation currency Items included in the financial statements of each of the subsidiaries are measured using the currency of the primary economic environment in which the entity operates ("the functional currency'). The financial statements are presented in dollars, which is the Company's functional and presentation currency. b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in equity. Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss.
  • 46. 44 2006 Annual Report c) Group companies The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transactions, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity On consolidation, exchange differences arising from the translation of the investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 2.4 Interest Income and Expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognised within ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a Group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. 2.5 Fee and Commission Income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-apportioned basis. 2.6 Dividend Income Dividends are recognised in the income statement when the entity’s right to receive payment is established. Accounting Policies (continued)
  • 47. 45 The Pan African Bank 2.7 Financial Assets The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held- to-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition. a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held for trading unless they are designated as hedging instruments. b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the entity intends to sell immediately or in the short term, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the entity upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. c) Held-to maturity Held-to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available for sale. d) Available-for-sale Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are recognised on trade date- the date on which the Group commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held- to-maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss' category are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired. At this time the cumulative gain or loss previously recognised in equity is recognised in profit or loss. However, interest calculated using the effective interest method is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the entity's right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
  • 48. 46 2006 Annual Report 2.8 Off Setting Financial Instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 2.9 Sale and Repurchase Agreement Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. 2.10 Derivative Financial Instruments and Hedge Accounting Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement unless the Group chooses to designate the hybrid contacts at fair value through profit or loss. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (a) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); (b) hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge); or (c) hedges of a net investment in a foreign operation (net investment hedge). Hedge accounting is used for derivatives designated in this way provided certain criteria are met. The Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. 2.11 Impairment of Financial Assets a) Assets carried at amortised cost The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or Group of financial assets is impaired. Accounting Policies (continued)
  • 49. 47 The Pan African Bank A financial asset or a Group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or Group of financial assets that can be reliably estimated. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales); Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower’s competitive position; Deterioration in the value of collateral; and Downgrading below investment grade level. The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general, the periods used vary between three months and 12 months; in exceptional cases, longer periods are warranted. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's fair value using an observable market price. The calculation of the present value of the estimated cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not the foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the groups grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics that are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a Group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Group and historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
  • 50. 48 2006 Annual Report Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impair- ment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement in impairment charge for credit loss. b) Assets classified as available for sale The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a Group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evi- dence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt ins- trument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the income statement. 2.12 Intangible Assets a) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/asso- ciate at the date of acquisition. Goodwill on acquisi- tion of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash- generating units is represented by each primary reporting segment (see Accounting Policies 2.2). b) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Costs associated with developing or maintaining com- puter software programs are recognised as an expense incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives. Accounting Policies (continued)
  • 51. 49 The Pan African Bank 2.13 Property, Plant and Equipment All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Building 20 - 40 years Leasehold improvements 25 years, or over the period of the lease if less than 25 years Equipment and motor vehicles 3 - 8 years. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and value in use. Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in the income statement. 2.14 Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash and non- restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. 2.15 Provisions Provisions for restructuring costs and legal claims are recognised when: The Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 2.16 Employee Benefits a) Pension obligations Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations.
  • 52. 50 2006 Annual Report A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. b) Other post-retirement obligations The Group also provides gratuity benefits to its retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the accounting methodology described below. The liability recognised in the balance sheet in respect of the gratuity payments is the present value of the gratuity payment obligation at the balance sheet date less the fair value of plan assets (if any), together with adjustments for unrecognised actuarial gains or losses and past service costs. The gratuity payment obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the gratuity payment obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related gratuity payment liability. Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are charged or credited to income over the expected average remaining working lives of the related employees. These obligations are valued annually by independent qualified actuaries. c) Share-based compensation The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non- market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Accounting Policies (continued)
  • 53. 51 The Pan African Bank 2.17 Impairment of Non-financial Assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 2.18 Borrowings Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Preference shares, which carry a mandatory coupon, or are redeemable on a specific date or at the option of the shareholder, are classified as financial liabilities and are presented in other borrowed funds. The dividends on these preference shares are recognised in the income statement as interest expense on an amortised cost basis using the effective interest method. The fair value of the liability portion of a convertible bond or convertible preference share is determined using a market interest rate for an equivalent non-convertible bond or coupon for an equivalent redeemable preference share. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders' equity, net of income tax effects. If the Group purchases its own debt, it is removed from the balance sheet, and the difference between the carrying amount of a liability and the consideration paid is included in net trading income. 2.19 Share Capital a) Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. b) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company's shareholders. Dividends for the year that are declared after the balance sheet date are dealt with in the subsequent events note. c) Treasury shares Where the Company purchases its equity share capital, the consideration paid is deducted from total shareholders' equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders' equity. 2.20 Segment Reporting A business segment is a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. 2.21 Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
  • 54. 52 2006 Annual Report Accounting Policies (continued) 3. Financial Risk Management 3.1 Geographical concentration of assets, liabilities and off-balance sheet items The following note incorporates IAS 32 credit risk disclosures, IAS 30 geographical concentrations of assets, liabilities and off balance sheet items disclosures Total Total Credit Gross Capital assets liabilities commitments Revenues expenditure US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 At 31 December 2006 French West Africa (UEMOA) region 1,312,499 1,197,287 170,452 137,671 23,821 Nigeria 1,108,446 996,825 571,164 162,216 38,053 West African Monetary Zone 430,964 535,356 84,333 90,141 7,201 Central Africa 257,402 258,592 91,151 21,954 4,619 Other African countries 1,425 3,041 - 25 - Americas 48,900 20,116 1 657 - Asia 11 1 23 - - Europe 344,092 10,206 55,522 6,364 - 3,503,739 3,021,424 972,646 419,028 73,694 At 31 December 2005 French West Africa (UEMOA) region 1,021,652 965,358 385,552 130,823 14,337 Nigeria 484,140 328,668 257,621 73,989 12,871 West African Monetary Zone 331,614 378,760 95,195 64,240 5,646 Central Africa 109,917 129,098 30,494 16,378 1,526 Other African countries 51,250 49,118 - 6,404 2,538 Americas 24,500 15,578 1,185 255 - Asia 284 106 - - - Europe 175,873 28,665 14,376 3,435 - 2,199,230 1,895,351 784,423 295,524 36,918 Economic sector risk concentrations within the loan portfolio were: 2006 2006 2005 2005 US$‘000 % US$‘000 % Agricultural 16,022 1 25,330 2 Coffee and cocoa trading 91,718 5 18,617 2 Construction 95,868 5 42,541 4 Cotton ginning 55,133 3 28,021 3 Government and parastatal 111,680 6 25,907 2 Manufacturing 267,347 13 161,167 14 Mining 32,990 2 21,021 2 Petroleum production and distribution 240,697 12 95,320 9 Telecommunication 180,869 9 152,965 14 Utilities 148,294 7 106,896 10 Financial institutions 43,597 2 68,410 6 Retail and wholesale trade 384,374 19 247,313 22 Others 347,099 17 122,580 11 2,015,688 100 1,116,088 100 3.2 Market risk The Group takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements.
  • 55. 53 The Pan African Bank 3. Financial Risk Management (continued) 3.3 Currency risk The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and the intra-day positions, which are monitored daily. The table below summarises the Group's exposure to foreign currency exchange rate risk as at 31 December. Included in the table are the Group's assets and liabilities at the carrying amounts, categorised by currency. Concentrations of assets, liabilities and off balance sheet items At 31 December 2006 Dollar Euro CFA Naira Cedis Others Total ASSETS US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Cash and balances with central banks 41,245 14,657 164,602 36,469 30,208 21,778 308,959 Treasury bills and other eligible bills - - 45,086 70,344 21,915 - 137,345 Loans and advances to banks 206,425 83,888 63,871 183,915 9,506 6,706 554,311 Trading securities - - 325 - 322 - 647 Derivative financial instruments - - - - 20 - 20 Other financial instruments at fair value through profit and loss 100 - - - - - 100 Loans and advances to customers 116,179 77 1,262,727 408 339 108,779 23,265 1,919,366 Investment securities: - available-for-sale 84 - 124,124 109,286 101,897 14,337 349,728 - held-to-maturity - - - - - - - Pledged assets - - 72 1,949 - - 2,021 Intangible assets - - 4,338 211 - 58 4,607 Property, plant and equipment 1,335 - 47,754 52,267 10,370 4,694 116,420 Deferred income tax assets - - 1,270 5,094 1,376 92 7,832 Other assets 6,786 25 41,959 32,137 19,177 2,299 102,383 Total assets 372,154 98,647 1 756,128 900,011 303,570 73,229 3,503,739 LIABILITIES Deposits from banks 9,156 11,112 95,278 122 1,915 1,034 118,617 Other deposits - - 703 4,324 - - 5,027 Derivative financial instruments and other trading liabilities - - - - - - - Due to customers 379,376 47,382 1,365,362 471,343 194,280 42,435 2,500,178 Borrowed funds 15,744 - 24,868 - 10,048 - 50,660 Other liabilities 25,461 181 93,242 143,315 25,977 6,794 294,970 Current income tax liabilities 556 - 12,916 14,849 2,472 1,432 32,225 Deferred income tax liabilities 17 - 746 10,072 - 10 10,845 Retirement benefit obligations - - 1,798 7,104 - - 8,902 Total liabilities 430,310 58,675 1,594,913 651,129 234,692 51,705 3,021,424 Net on-balance sheet position (58,156) 39,972 161,215 248,882 68,878 21,524 482,315 Credit commitments 221,207 70,149 175,463 372,914 16,885 116,028 972,646 163,051 110,121 336,678 621,796 85,763 137,552 1,454,961 Concentrations of assets, liabilities and off balance sheet items Dollar Euro CFA Naira Cedis Others Total At 31 December 2005 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Total assets 272,897 79,621 1,130,195 455,890 194,793 65,834 2,199,230 Total liabilities 299,871 42,211 1,089,184 241,960 168,896 53,229 1,895,351 Net on-balance sheet position (26,974) 37,410 41,011 213,930 25,897 12,605 303,879 Credit commitments 139,593 53,485 376,015 163,283 35,180 16,867 784,423 112,619 90,895 417,026 377,213 61,077 29,472 1,088,302
  • 56. 54 2006 Annual Report Accounting Policies (continued) 3. Financial Risk Management (continued) 3.4 Cash flow and fair value interest rate risk Interest sensitivity of assets, liabilities and off balance sheet items – repricing analysis Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken. The table below summarises the Group’s exposure to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. Non- Up to 1 1 - 3 3 - 12 1 - 5 Over 5 interest Total month month month years years bearing At 31 December 2006 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 ASSETS Cash and balances with central banks 159,368 - - - - 149,591 308,959 Treasury bills and other eligible bills 14,041 29,287 87,989 6,028 - - 137,345 Loans and advances to banks 400,909 30,537 27,843 25,792 - 69,230 554,311 Trading securities - 325 - 322 - - 647 Derivative financial instruments - - - 20 - - 20 Loans and advances to customers 853,842 210,621 230,761 511,412 97,947 14,783 1 919,366 Investment securities: - available-for-sale 120,139 10,143 9,912 186,586 18,065 4,883 349,728 - held-to-maturity - - - - - - - Other assets 5,753 6,928 3,675 449 - 85,578 102,383 Total assets 1,554,052 287,841 360,180 730,609 116,012 324,065 3,372,759 LIABILITIES Deposits from banks 66,805 37,245 14,567 - - - 118,617 Other deposits 530 - - - - 4,497 5,027 Due to customers 1,399,934 86,787 143,635 313,233 15,506 541,083 2,500,178 Borrowed funds 201 - - 20,410 30,049 - 50,660 Other liabilities 33,287 17,973 16,934 1,006 - 225,770 294,970 Total liabilities 1,500,757 142,005 175,136 334,649 45,555 771,350 2,969,452 Total interest sensitivity gap 53,295 145,836 185,044 395,960 70,457
  • 57. 55 The Pan African Bank 3. Financial Risk Management (continued) Non- Up to 1 1 - 3 3 - 12 1 - 5 Over 5 interest Total month month month years years bearing At 31 December 2005 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 ASSETS Cash and balances with central banks - - - - - 298,571 298,571 Treasury bills and other eligible bills 12,916 102,326 108,069 37,736 - - 261,047 Loans and advances to banks 232,320 6,396 114,705 8,740 - - 362,160 Trading securities - 301 - - 111 - 412 Loans and advances to customers 408,862 182,952 198,216 201,013 31,096 - 1,022,140 Investment securities: - available-for-sale - 4,778 - 162 406 5,556 10,902 - held-to-maturity 185 3,605 10,037 65,837 15,053 18,927 113,644 Other assets 4,609 - - - - 38,600 43,209 Total assets 658,892 300,358 431,027 313,488 46,666 361,654 2,112,085 LIABILITIES Deposits from banks 82,452 22,247 10,228 6,309 - - 121,236 Other deposits - - - 1,000 - 17,564 18,564 Due to customers 690,987 96,236 139,122 75,574 1,046 529,512 1,532,478 Borrowed funds - 1,908 3,752 17,624 2,693 - 25,977 Other liabilities 9,242 - - - - 158,288 167,530 Total liabilities 782,681 120,391 153,102 100,507 3,739 705,364 1,865,785 Total interest sensitivity gap (123,788) 179,967 277,926 212,981 42,927
  • 58. 56 2006 Annual Report Accounting Policies (continued) 3. Financial Risk Management (continued) 3.5 Liquidity risk The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin and other calls on cash settled instruments. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The table below analyses assets and liabilities of the Group into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Maturities of assets and liabilities 0 - 30 days 1 - 6 months 6 - 12 months Over 1 year Total US$'000 US$'000 US$'000 US$'000 US$'000 At 31 December 2006 ASSETS Cash and balances with central banks 297,879 10,759 164 157 308,959 Treasury bills and other eligible bills 14,041 29,287 87,989 6,028 137,345 Loans and advances to banks 412,364 40,310 31,051 70,586 554,311 Trading securities - 325 - 322 647 Derivative financial instruments 20 - - - 20 Other financial instruments at fair value - - - 100 100 Loans and advances to customers 875,223 263,005 177,248 603,890 1,919,366 Investment securities: - available-for-sale 122,439 15,425 512 211,352 349,728 - held-to-maturity - - - - - Pledged assets 1,949 - - 72 2,021 Intangible assets 346 657 764 2,840 4,607 Property, plant and equipment 11,033 26 19 105,342 116,420 Deferred income tax assets 6,542 366 - 924 7,832 Other assets 37,522 48,663 8,093 8 105 102,383 Total assets 1,779,358 408,823 305,840 1,009,718 3,503,739 LIABILITIES Deposits from banks 66,805 37,245 14,567 - 118,617 Other deposits 1,130 3,897 - - 5,027 Derivative financial instruments and other trading liabilities - - - - - Due to customers 1,821,846 130,115 102,738 445,479 2,500,178 Borrowed funds 201 - - 50,459 50,660 Other liabilities 233,387 37,823 23,733 27 294,970 Current income tax liabilities 23,742 6,957 1,526 - 32,225 Deferred income tax liabilitie 10,171 - - 674 10,845 Retirement benefit obligations 631 367 - 7,904 8,902 Total liabilities 2,157,913 216,404 142,564 504,543 3,021,424 Net liquidity gap (378,913) 192,419 163,276 505,175 482,315 At 31 December 2005 Total assets 1,031,057 530,968 219,519 417,686 2,199,230 Total liabilities 1,413,853 253,239 127,049 101,210 1,895,351 Net liquidity gap (382,796) 277,729 92,470 316,476 303,879
  • 59. 57 The Pan African Bank The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks to be completely matched, as transacted business is often of uncertain term and of different types. An unmatched position potentially enhances profitability but also increases the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates Liquidity requirement to support calls under the guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitment to extend credit does not necessarily represent future cash requirements, as many of these commitments will expire or terminate without being funded. 3.6 Fair value of financial assets and liabilities The following table summarises the carrying amounts and fair values of those financials assets and liabilities not presented on the Group's balance sheet at their fair value. Bid prices are used to estimate fair values of assets, whereas offer prices are applied for liabilities. Carrying value Fair Value 2006 2005 2006 2005 US$'000 US$'000 US$'000 US$'000 Financial Assets Treasury bills and other eligible bills 137,345 261,047 137,345 261,047 Loans and advances to customers 1 919,366 1,022,140 1,919,366 1,017,790 Investment securities - Available-for-sale 349,728 10,902 349,728 10,902 Investment securities - held-to-maturity - 113,644 - 113,644 Financial Liabilities Deposits from banks 118,617 121,236 118,617 121,236 Other deposit 5,027 18,564 5,027 18,564 Deposits from customers 2,500,178 1,532,478 2,500,178 1,532,478 Other borrowed funds 50,660 25,977 50,660 25,977
  • 60. 58 2006 Annual Report a) Due from other banks Due from other banks include inter-bank placements and items in the course of collection. The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using the prevailing money-market interest rates for debts with similar credit risk and remaining maturity. b) Loans and advances to customers Loans and advances are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amounts of estimated future cash flows expected to be received. Expected cash flows are discounted at the current market rates to determine fair value. c) Investment securities Investment securities include only interest-bearing assets held to maturity, as assets available-for-sale are measured at fair value. Fair value for held to maturity assets is based on market process. Where this information is not available, fair value has been estimated using discounted cash flow valuation techniques. d) Deposits and borrowings The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings without quoted market prices is based on discounted cash flows using interest rates for new debts with similar remaining maturity. 3.7 Fiduciary activities The Group provides custody, trustee, corporate administration, investment management and advisory services to third parties, which involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in fiduciary capacity are not included in these financial statements. 4. Critical Accounting Estimates, and Judgements in Applying Accounting Policies The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. a) Impairment losses on loans and advances The Group reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that porfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Group, or national or local economic conditions that correlate with defaults on assets in the Group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cah flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. b) Fair value of derivatives The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. Accounting Policies (continued)
  • 61. 59 The Pan African Bank c) Impairment of available for-sale equity investments The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. d) Held-to-maturity investments The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable. Payments and fixed maturity as held-to maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for the specific circumstances- for example, selling an insignificant amount close to maturity- it will be required to reclassify the entire class as available- for-sale. The investments would therefore be measured at fair value not amortised cost. e) Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant estimates are required in determining the regional provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
  • 62. 60 2006 Annual Report Notes to the Consolidated Financial Statements 1. Business segments The Company organises its investments along geographical regions to reflect and manage the risks of doing business across diverse geographic regions. The segments are: 1 - Union Economique et Monétaire Ouest Africaine (UEMOA): This region comprises all subsidiaries and associated companies within the UEMOA monetary zone. Countries in this zone share a common currency. This region currently includes subsidiaires in Benin, Burkina, Côte d'Ivoire, Guinea Bissau, Mali, Niger, Senegal, Togo. For the purpose of regional segment, Cape Verde is also included in the UEMOA region. 2 - West African Monetary Zone (WAMZ): This region comprises all subsidiaries and associated companies in West African countries not included in the common monetary zone described as UEMOA. This region currently includes subsidiaires in Ghana, Guinea, Liberia and Sierra Leone 3 - Communauté Economique et Monétaire d'Afrique Centrale (CEMAC): This region comprises all subsidiaries and associated companies within the CEMAC monetery zone. Countries in this zone share a common currency. Cameroon and Tchad are the countries currently included in this segment. 4 - Nigeria. This region comprises all affiliates in Nigeria. Other Group operations comprise fund management, institutional finance and providing computer services, none of which constitutes a separately reportable segment. Transactions between the business segments are on normal commercial terms and conditions. Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on the Group's cost of capital. There are no other material items of income or expense between the business segments. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet, but exclude items such as taxation and borrowings. Internal changes and transfer pricing adjustments have been reflected in the performance of each business. Revenue sharing agreements are used to allocate external customer revenues to a business segment on a reasonable basis. The following table shows the Group's performance by business segments.
  • 63. 61 The Pan African Bank UEMOA WAMZ Nigeria CEMAC Other Eliminations Group US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 31 December 2006 External revenues 146,378 71,426 116,620 15,326 6,811 (8,097) 348,464 Segment result 57,855 33,945 40,296 4,070 478 (7,344) 129,299 Income tax expense (18,180) (9,315) (12,779) (1,943) (717) - (42,934) Profit for the year 86,365 Segment assets 1,687,577 618,596 1,034,960 285,916 34,715 (158,025) 3,503,739 Total assets 3,503,739 Segment liabilities 1,234,577 535,356 997,013 288,592 34,684 (68 798) 3,021,424 Total liabilities 3,021,424 Other segments items: Capital expenditure 18,367 7,201 37,897 4,614 5,615 - 73,694 Depreciation 6,246 2,648 4,034 863 1,104 - 14,895 Impairment charge-loans 5,166 833 6,238 854 - - 13,091 Restructuring costs - - 19 - - - 19 At 31 December 2005 External revenues 107,166 56,411 55,134 10,640 13,898 (6,898) 236,351 Segment result 36,950 24,202 13,611 3,082 5,287 (9,403) 73,729 Income tax expense (9,404) (7,290) (4,504) (1,255) (337) - (22,790) Profit for the year 50,939 Segment assets 1,145,473 463,412 522,282 129,978 243,178 (305,093) 2,199,230 Total assets 2,199,230 Segment liabilities 1,043,417 415,285 320,797 123,563 87,256 (94,967) 1,895,351 Total liabilities 1,895,351 Other segments items: Capital expenditure 14,337 5,646 12,871 1,526 2,538 - 36,918 Depreciation 5,011 2,337 5,025 602 968 - 13,943 Impairment charge-loans 7,667 2,554 3,801 876 - - 14,898 Restructuring costs 265 - - - - - 265 Capital expenditure comprises additions to property and equipment (Note 19), software (Note 18) including additions resulting from acquisitions through business combinations.
  • 64. 62 2006 Annual Report Year ended 31 December 2006 2005 2. Net Interest Income US$’000 US$’000 Interest income Placements and short term funds 24,242 10,998 Treasury bills and investment securities 34,381 31,133 Loans and advances 183,406 111,385 Other 7,557 1,907 249,586 155,243 Interest expense 6,043 5,196 Current accounts 9,126 6,939 Savings deposits 45,060 26,231 Time deposits 7,954 7,773 Borrowed funds 68,183 46,139 3. Net Fee and Commission Income Fee and commission income Credit related fees and commissions 44,308 40,237 Corporate finance fees 8,276 2,720 Portfolio and other management fees 33,864 2,802 Asset management and related fees 2,992 2,641 Other fees 20,862 40,880 110,302 89,280 Fee and commission expense Brokerage fees paid 268 92 Other fees paid 2,113 3,513 2,381 3,605 The Group provides custody, trustee, corporate administration, investment management and advisory services to third parties, which involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements. Notes to the Consolidated Financial Statements (continued)
  • 65. 63 The Pan African Bank Year ended 31 December 2006 2005 4. Dividend Income US$’000 US$’000 Trading securities 9 7 Available-for-sale securities 2,926 332 2,935 339 5. Net Trading Income Foreign exchange: - translation gains less losses (3,410) 5,365 - transaction gains less losses 45,029 28,616 41,619 33,981 6. Operating Expenses Directors' emoluments 2,237 905 Staff costs (Note 7) 93,883 65,765 Administrative expenses: - Rent, rates and utilities 13,444 10,114 - Insurance 5,117 3,980 - Advertising and promotion 4,871 4,352 - Professional fees 8,030 3,362 - Operational losses and fines 4,054 2,819 - Communications 9,472 4,993 - Business travels 6,415 3,231 - Board activities 1,544 1,225 - Training 2,921 2,165 - Repairs and maintenance 9,835 7,796 - Supplies and other services 9,954 6,164 - Donations 654 710 - Other administrative expenses 18,047 14,034 Depreciation (Note 19) 14,895 13,943 (Profit)/loss on sale of property and equipment (85) (228) Impairment charges: - doubtful receivables (139) 1,054 Software costs 906 1,075 Restructuring costs 19 265 206,074 147,724
  • 66. 64 2006 Annual Report Year ended 31 December 2006 2005 7. Staff Cost US$’000 US$’000 Wages and salaries 84,129 54,140 Social security costs 6,479 4,580 Pension costs: - defined contribution plans 108 61 Other post retirement benefits (Note 28) 3,167 6,984 93,883 65,765 8. Impairment Losses on Loans and Advances Amounts due from other banks (Note 13) 4 275 Loans and advances to customers 13,087 14,623 13,091 14,898 9. Income Tax Expense Current tax 41,567 24,952 Deferred tax (Note 27) 1,367 (2,162) 42,934 22,790 Further information about deferred income tax is presented in Note 27. The tax on the Group's profit before tax differs from the theoretical amount that would arise using the basic tax rate of the parent as follows Profit before tax 129,299 73,729 Weighted average tax for the Group as parent Company is not subject to tax 46,490 26,358 Effect of different tax rates in other countries - - Income not subject to tax (10,204) (5,772) Expenses not deductible for tax purposes 7,507 1,767 Utilisation of previously unrecognised tax losses (859) (1,143) Others - 1,580 Income tax expense 42,934 22,790 Notes to the Consolidated Financial Statements (continued)
  • 67. 65 The Pan African Bank 10. Earnings per Share Basic Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by the Company and held as treasury shares. Year ended 31 December 2006 2005 US$’000 US$’000 Profit attributable to equity holders of the Company 69,350 41,502 Weighted average number of ordinary shares in issue 518,963 373,545 Basic earnings per share (expressed in US$ per share) 0.13 0.11 Diluted There were no potential dilutive shares in 2006 (2005: nil) 11. Cash and Balances with Central Banks Cash in hand 101,543 68,947 Balances with central banks other than mandatory reserve deposits 74,782 148,492 Included in cash and cash equivalents (Note 33) 176,325 217,439 Mandatory reserve deposits with central banks 132,634 81,132 308,959 298,571 Mandatory reserve deposits are not available for use in the Group's day to day operations. Cash in hand and balances with central banks and mandatory reserve deposits are non-interest-bearing. 12. Treasury Bills and Other Eligible Bills Treasury bills 133,338 254,789 Other eligible bills 4,007 6,258 137,345 261,047 Treasury bills and other eligible bills which are for a term of three months, six months or a year are debt securities issued by the various countries in which the Group operates.
  • 68. 66 2006 Annual Report Year ended 31 December 2006 2005 13. Loans and Advances to Banks US$’000 US$’000 Items in course of collection from other banks 69,077 48,063 Deposits with other banks 218,443 152,730 Placements with other banks 233,360 146,204 520,880 346,997 Loans and advances to other banks 33,435 15,438 Less: allowance for impairment (Note 8) 4 275 554,311 362,160 14. Financial Assets at Fair Value through Profit or Loss (including trading) Trading: Government bonds 157 124 Equity securities - listed 490 288 Total trading 647 412 Financial assets at fair value through profit and loss (designated at initial recognition) 100 5,223 Total 747 5,635 Notes to the Consolidated Financial Statements (continued)
  • 69. 67 The Pan African Bank 15. Derivative Financial Instruments and Trading Liabilities The Group uses the following derivative instruments for non-hedging purposes. Currency forwards represents commitments to purchase foreign and domestic currency, including undelivered spot transactions. Foreign currency and interest rate futures are contractual obligations to receive or pay a net amount based on changes in currency rates or interest rates or buy or sell foreign currency or financial institution on a future date at a specified price, established in an organised financial market. The credit risk is negligible, as futures contracts are collateralised by cash or marketable securities, and changes in the futures contract value are settled daily with the exchange. Currency and interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rate (for example, fixed rate for floating rate) or a combination of all these (i.e., cross-currency interest rate swaps). No exchange of principal takes place, except for certain currency swaps. The Group's credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities. Fair value Derivatives Contract / notional amount Assets Liabilities US$’000 US$’000 At 31 December 2006 Interest rate swaps 20 20 - Total derivatives assets 20 - At 31 December 2005 Interest rate swaps 22 - (22) Total derivatives liabilities - (22) The Group has not designated at initial recognition any financial liability as at fair value through profit
  • 70. 68 2006 Annual Report Year ended 31 December 2006 2005 16. Loans and Advances to Customers US$’000 US$’000 a) Analysis by type: Overdrafts 687,557 394,325 Term loans 1,048,478 467,723 Mortgage loans 9,396 7,178 Commercial loans 196,812 186,317 Other 73,445 60,545 2,015,688 1,116,088 Less: allowance for impairment (96,322) (93,948) Net 1,919,366 1,022,140 b) Analysis by security: Secured against real estate 152,270 100,981 Otherwise secured 972,365 451,629 Unsecured 891,053 563,478 2,015,688 1,116,088 Current 584,405 591,814 Non current 1,431,283 524,274 2,015,688 1,116,088 c) Analysis by performance: Performing 1,855,518 959,525 Non-performing 160,170 156,563 2,015,688 1,116,088 Notes to the Consolidated Financial Statements (continued)
  • 71. 69 The Pan African Bank Year ended 31 December 2006 2005 16. Loans and Advances to Customers (continued) US$’000 US$’000 d) Loan loss movement: At 1 January 93,948 82,774 Reclassification 4,728 372 Provision for loan impairment 28,412 28,426 Amounts recovered during the year (11,082) (7,197) Loans written off during the year as uncollectible (17,850) (2,753) Exchange difference (1,834) (7,674) At 31 December 96,322 93,948 Loans and advances to customers include finance lease receivables Gross investment in finance leases, receivable No later than 1 year 224,222 4,586 Later than 1 year and no other than 5 years 58,328 680 Later than 5 years 4,494 - 287,044 5,266 Unearned future finance income on finance leases (1,409) (3,956) Net investment in finance leases 285,635 1,310 The net investment in finance lease may be analysed as follows: No later than 1 year 223,793 746 Later than 1 year and no other than 5 years 57,352 564 Later than 5 years 4,490 - 285,635 1,310
  • 72. 70 2006 Annual Report Year ended 31 December 2006 2005 17. Investment Securities US$’000 US$’000 Securities available-for-sale Debt securities - at fair value: - listed 76,227 1,262 - unlisted 261,453 192 Equity securities - at fair value: - listed 987 - - unlisted 11,162 9,448 349,829 10,902 Impairment loss (101) - Total securities available-for-sale 349,728 10,902 Securities held-to-maturity Debt securities - at amortised cost: - listed - 26,212 - unlisted 82 87,539 Allowance for impairment (82) (107) Total securities held-to-maturity - 113,644 Total investment securities 349,728 124,546 All debt securities have fixed coupons. Equity securities do not bear interest. The Group has not reclassified any financial asset measured at amortised cost rather than fair value during the year (2005: nil). Gains less losses from investment securities comprise: Derecognition of available-for-sale financial assets 8 9 Notes to the Consolidated Financial Statements (continued)
  • 73. 71 The Pan African Bank 17. Investment Securities (continued) The movement in investment securities may be summarised as follows: Available-for-sale Held-to-maturity Total US$’000 US$’000 US$’000 At 1 January 2006 10,902 113,644 124,546 Exchange differences on monetary assets 2,262 1,703 3,965 Additions 278,306 - 278,306 Reclassification 91,729 (91,729) - Gains from changes in fair value 2,145 - 2,145 Disposals (sale and redemption) (35,515) (23,618) (59,133) Impairment loss (101) - (101) At 31 December 2006 349,728 - 349,728 Year ended 31 December 2006 2005 18. Intangible Assets US$’000 US$’000 Goodwill Opening net book amount - - Acquisition of a subsidiary (Note 35) 2,962 - Closing net book amount 2,962 - Goodwill is revised annually for impairment, or more frequently when there are indications that impairment may have occurred. Software costs Opening net book amount 1,596 1,747 Purchase 927 1,158 Amortisation (906) (1,075) Exchange differences 28 (234) Closing net book amount 1,645 1,596 Total 4,607 1,596
  • 74. 72 2006 Annual Report Notes to the Consolidated Financial Statements (continued) 19. Property, plant and equipment Motor Land & Furniture Installations Construction Total Vehicles Buildings Equipment in progress US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2005 Cost 10,759 12,314 53,844 19,561 13,151 109,629 Accumulated depreciation 6,441 2,147 29,256 8,552 - 46,396 Net book amount 4,318 10,167 24,588 11,009 13,151 63,233 Year ended 31 December 2005 Opening net book amount 4,318 10,167 24,588 11,009 13,151 63,233 Unconsolidated - prior years - 32 40 27 - 99 Additions 2,808 4,089 11,746 10,275 6,841 35,759 Disposals - cost (668) (40) (351) (4,979) (2,475) (8,513) Disposals - accu. depreciation 577 7 29 2,019 - 2,632 Reclassifications - cost 22 516 (7,210) 7,463 (798) (7) Reclassifications- accumulated depreciation - - - - (3) (3) Depreciation charge (2,001) (777) (7,144) (4,021) - (13,943) Exchange rate adjustments (285) (1,313) (1,511) (1,376) (900) (5,385) Closing net book amount 4,771 12,681 20,187 20,417 15,816 73,872 At 31 December 2005 Cost 12,386 17,241 52,399 31,786 15,816 129,628 Accumulated depreciation 7,615 4,560 32,212 11,369 - 55,756 Net book amount 4,771 12,681 20,187 20,417 15,816 73,872 Year ended 31 December 2006 Opening net book amount 4,771 12,681 20,187 20,417 15,816 73,872 Additions 7,476 26,178 20,378 2,824 15,911 72,767 Disposals - cost (1,075) (13) (860) (9,711) - (11,659) Disposals accumulated depreciation 652 12 365 3,499 - 4,528 Reclassifications - cost - 12,077 490 (127) (12,440) - Reclassifications - accumulated depreciation 262 - (262) - Depreciation charge (2,361) (1,726) (9,010) (1,798) - (14,895) Exchange rate adjustments (1,694) 457 (2,416) (2,707) (1,833) (8,193) Closing net book amount 7,769 49,928 29,134 12,135 17,454 116,420 At 31 December 2006 Cost/valuation 17,345 57,967 73,882 22,635 17,454 189,283 Accumulated depreciation 9,576 8,039 44,748 10,500 - 72,863 Net book amount 7,769 49,928 29,134 12,135 17,454 116,420
  • 75. 73 The Pan African Bank Property, plant and equipment include assets leased to customers under operating lease arrangements. The operating leases are non-cancellable and the future minimum lease payments analysed in aggregate as follows: Year ended 31 December 2006 2005 US$’000 US$’000 No later than 1 year 973 6,488 Later then 1 year and no other than 5 year 2,867 5,021 Later than 5 years 302 176 4,142 11,685 20. Other Assets Interest and fees receivable 20,678 9,736 Accounts receivable 12,247 9,897 Prepayments 22,731 9,255 Sundry receivables 54,298 21,268 109,954 50,156 Impairment charges on receivable balances (7,571) (6,947) 102,383 43,209 21. Deposits from Banks Items in course of collection 10,380 8,664 Deposits from other banks 108,237 112,572 118,617 121,236 22. Other Deposits Other money-market deposits 5,027 16,826 Certificates of deposits - 1,738 5,027 18,564 23. Deposits from Customers Wholesale - Current/settlement accounts 794,170 460,446 - Term deposits 458,313 187,584 Retail - Current/settlement accounts 768,460 538,056 - Term deposits 146,837 134,383 - Savings deposits 332,398 212,009 2,500,178 1,532,478
  • 76. 74 2006 Annual Report Year ended 31 December 2006 2005 24. Borrowed Funds US$’000 US$’000 European Investment Bank (EIB) 1,006 1,077 Ashanti Goldfields Company Employees Pension Fund 3,257 3,301 Netherlands Development Finance Company (FMO) - 914 African Development Bank (ADB) 7,143 8,574 Social Security and National Insurance Trust (SSNIT) 4,732 4,149 BHK Bank 3,575 3,230 OIKOCREDIT Ecumenical Development 3,001 - Export Development Investment Fund (EDIF) 1,683 976 Ecowas Bank for Investment and Development (EBID) 10,046 - Bonds Issued 10,046 - Others 6,171 3,755 50,660 25,977 The EIB loan to Ecobank Ghana and Ecobank Benin are repayable in 2007 and 2009 respectively. The interest rates are 2% (fixed) in Ecobank Benin and average of 6-month Treasury bill rate and 6-month corporate rate in Ghana. The Facility from ADB is repayable over 8 years after a one year period of moratorium. Interest rate is based on the per annum 6 month EURIBOR rate plus a margin of 2%. Interest and principal is payable twice a year. Amount due to Ashanti Goldfields Company (now Anglogold Ashanti) Employees Pension Fund is a 6-year subordinated non-redeemable deposit. The facility would mature on March 29 2008. It attracts interest at the Ghanaian one-year treasury bond rate plus 4%. The facility from SSNIT, Ghana is a 10-year loan expiring in 2015. It attracts interest at the Bank of Ghana Prime rate applicable at the date of drawdown. The BHF Bank loan is one-year renewable loan with interest at EURIBOR rate plus 0.5% per anum. OIKO Credit Ecumenical Development loan to Ecobank Ghana is a 5-year term loan with interest rate of 6 months LIBOR plus 2.5% per annum. The Export Development Finance loan is a facility to Ecobank Ghana. The facility is repayable in 2009 at a rate of 2.5% per anum. The Ecowas Bank for Investment and Development is a facility to Ecobank Senegal and attracts interest at 7% per anum. The facility is repayable over five years expiring in 2011. The bonds issued by Ecobank Senegal bears interest at 7% and is fully payable on maturity in 2011. The Group has not had any defaults of principal, interest or redemption amounts during the period on its borrowed funds (2005: nil). Notes to the Consolidated Financial Statements (continued)
  • 77. 75 The Pan African Bank Year ended 31 December 2006 2005 25. Other Liabilities US$’000 US$’000 Accrued interest and commission 17,605 9,954 Deposit for shares 1,404 5,751 Unclaimed dividend 3,705 1,241 Accruals 37,235 21,231 Other Provisions (Note 26) 6,464 5,778 Obligations under customers' letters of credit 101,286 55,570 Other liabilities 127,271 68,005 294,970 167,530 26. Other Provisions At 1 January 5,778 7,379 Exchange differences 617 (989) Additional provisions charged to income statement 2,042 498 Utilised during year (1,973) (1,110) At 31 December 6,464 5,778 Other provisions represent amounts provided for in respect of various litigations pending in court. Based on professional advice, these amounts have been set aside to cover the expected losses to the Group on the determination of these litigations. 27. Deferred Income Taxes Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of each subsidiary as the parent Company is not subject to tax. The movement on the deferred income tax account is as follows: At 1 January 1,244 3,265 Income statement charge 1,367 (2,162) Revaluation reserves - Available-for-sale securities (Note 31) 243 - Exchange differences 159 141 At 31 December 3,013 1,244 Deferred income tax assets and liabilities are attributable to the following items: Deferred income tax liabilities Accelerated tax depreciation 8,847 7,622 Other temporary differences 658 76 Available-for-sale securities 1,340 - 10,845 7,698 Deferred income tax assets Pensions and other post retirement benefits 1,951 1,539 Provisions for loan impairment 3,395 2,778 Other provisions 2,316 2,137 Tax loss carried forward 170 - 7,832 6,454
  • 78. 76 2006 Annual Report Year ended 31 December 2006 2005 27. Deferred Income Taxes (continued) US$’000 US$’000 The deferred tax charge in the income statement comprises the following temporary differences: Accelerated tax depreciation (1,225) 2,487 Pensions and other post retirement benefits (961) (806) Allowances for loan losses 1,676 (1,748) Other provisions 1,207 (1,083) Other temporary differences 670 (1,012) 1,367 (2,162) Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes related to the same fiscal authority. Deferred income tax liabilities have not been established for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries, as such amounts are permanently reinvested. 28. Retirement Benefit Obligations Amounts recognised in the balance sheet: Other post retirement benefits 8,902 7,167 Other post-retirement benefits Apart from the pension schemes, the Group operates a post employment gratuity payment scheme. The method of accounting and the frequency of valuations are as described in Accounting Policies 2.16. The amounts recognised in the balance sheet are as follows: Present value of funded obligations 7,191 1,752 7,191 1,752 Present value of unfunded obligations 1,711 5,415 Liability in the balance sheet 8,902 7,167 The amounts recognised in the income statement are as follows: Current service cost 1,549 2,948 Net actuarial losses recognised in the year 1,618 4,036 Total included in staff costs 3,167 6,984 The movement in the liability recognised in the balance sheet is reconciled as follows: At 1 January 7,167 467 Exchange differences (803) (17) Total expense - as above (Note: 7) 3,167 6,984 Contributions paid (629) (267) At 31 December 8,902 7,167 Notes to the Consolidated Financial Statements (continued)
  • 79. 77 The Pan African Bank Year ended 31 December 2006 2005 29. Contingent Liabilities and Commitments US$’000 US$’000 a) Legal proceedings There were a number of legal proceedings outstanding against the Group at 31 December 2006 with contingent liabilities of $14.12 million (2005: $8.667 million). No provision has been made as professional advice indicates that it is unlikely that any significant loss will arise. b) Capital commitments At 31 December 2006, the Group had capital commitments of $5.63 million (2005: $3.686 million) in respect of buildings and equipment purchases. c) Credit commitments The Group's management is confident that future net revenues and funding will be sufficient to cover this com- mitment. The contractual amounts of the Group's off-balance sheet financial instruments that commit it to extend credit to customers are as follows: Bankers acceptances 75,027 21,386 Guaranteed commercial papers 202,720 84,702 Documentary and commercial letters of credit 174,794 208,851 Performance bond, guarantees and indemnities 452,639 181,902 Commitments to extend credit: - Original term to maturity of one year or less 65,371 266,260 - Original term to maturity of more than one year 2,095 21,322 972,646 784,423 The fair value of loan commitments is $68 million (2005: $304 million) d) Assets pledged Assets are pledged as collateral under repurchase agreements with other banks and for security deposits. Mandatory reserve deposits are held with local central banks in accordance with statutory requirements. These deposits are not available to finance the Group’s day to day operations. Balances with central banks 132,634 81,132 Treasury Bills 2,021 - 134,655 81,132 e) Operating lease commitments Where a Group Company is the lessee, the future minimum lease payments under non-cancellable building operating leases are as follows: No later than 1 year - 159 Later than 1 year and no later than 5 years - 445 - 604
  • 80. 78 2006 Annual Report Notes to the Consolidated Financial Statements (continued) No of Ordinary Share Total shares shares Premium 30. Share Capital 000 US$’000 US$’000 US$’000 At January 2005 283,036 70,759 20,020 90,779 Proceeds from shares issued 118,236 29,559 58,918 88,477 At 31 December 2005/ 1 January 2006 401,272 100,318 78,938 179,256 Bonus Issue 101,533 25,383 (25,383) - Proceeds from share issue - private placement 106,397 26,598 56,756 83,354 - public offer 1,801 368 3,559 3,927 Share issue transaction costs - - (2,422) (2,422) At 31 December 2006 611,003 152,667 111,448 264,115 2006 2005 Numb. of shares (’000) Numb. of shares (’000) Authorised shares with a par value of $0.25 per share 5,000,000 800,000 Issued shares 611,003 401,272 Paid-up shares 610,675 401,272 The public offer issue includes 328,035 shares issued yet to be paid for. The total authorised number of ordinary shares at year end was 5,000 million (2005: 800 million) with a par value of $0.25 per share (2005: $0.25 per share). At the Annual General Meeting held in June 2006, the shareholders of the Company authorised the following: - a bonus issues of one (1) ordinary shares for every five (5) ordinary share of the Company held as at 31st May 2006. - an increase in the authorised capital of the Company from $200 million to $1.25 billion by the creation of 4.2 billion new ordinary shares of $0.25 each. The Company issued 106.4 million ordinary shares in June 2006 to subscribers of the private placement carried out. The ordinary shares were offered at $0.80 per share. In September 2006, the Company listed on the Nigerian Stock Exchange, Ghana Stock Exchange and Bourse Regional Des Valeurs Mobilieres of Cote d'Ivoire. 1.8 million ordinary shares were offered. The Company is authorised to buy and sell its own shares. This is in accordance with the Company's Articles of Association. These shares are treated as a deduction from the shareholders' equity. Gains and losses on sales or redemption of own shares are credited or charged to reserves. The total number of treasury shares at the end of 2006 was nil (2005: nil).
  • 81. 79 The Pan African Bank Year ended 31 December 2006 2005 31. Reserves and Retained Earnings US$’000 US$’000 a) Other Reserves General banking risks 8,548 8,198 Statutory reserve 55,771 39,134 Revaluation reserve - Available-for-sale investments 1,902 - Translation reserve (13,457) (28,599) 52,764 18,733 Movements in the reserves were as follows: General banking reserve At 1 January 8,198 4,777 Transfer from retained profits 350 3,421 At 31 December 8,548 8,198 The general banking reserve represents transfers from retained earnings for unforeseeable risks and future losses. General banking reserves can only be distributed following approval by the shareholders in general meeting. - Statutory reserve At 1 January 39,134 30,790 Transfer from retained profits 16,637 8,344 At 31 December 55,771 39,134 Statutory reserves represents accumulated transfers from retained earnings in accordance with relevant local banking legislation. These reserves are not distributable - Revaluation reserves - Available -for-sales At 1 January - - Net gains from changes in fair value (Note 17) 2,145 - Deferred income taxes (243) - At 31 December 1,902 - - Translation reserves At 1 January (28,599) (15,249) Currency translation difference arising during the year 15,142 (13,350) At 31 December (13,457) (28,599) b) Retained Earnings At 1 January 23,558 17,955 Reserves of previously unconsolidated subsidiaries - (121) Net profit for year 69,350 41,502 Deemed cost of increasing shareholding arising from additional injection of capital in affiliates - (17,779) Dividend for prior year (10,712) (6,234) Transfer to general banking reserve (350) (3,421) Transfer to statutory reserve (16,637) (8,344) At 31 December 65,209 23,558
  • 82. 80 2006 Annual Report Notes to the Consolidated Financial Statements (continued) Year ended 31 December 2006 2005 32. Dividends per Share US$’000 US$’000 Final dividends are not accounted for until they have been ratified at the Annual General Meeting. In January 2007, an extraordinary general meeting approved interim dividend of one (1) cent per share in respect of 2006. At the forthcoming annual general meeting, an additional dividend payout of two (2) cents per share is to be proposed on shares outstanding as at 31 December 2006, bringing the total dividend in respect of 2006 to three (3) cents per share (2005: 3 cents per share). This amounts to a total of US$18.3 million (2005: US$10.7 million). The financial statements for the year ended 31 December 2006 do not reflect these dividends, which will be accounted for in the shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2007. 33. Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash and non-restricted balances with central banks, trasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. Cash and balances with central banks (Note 11) 176,325 217,439 Treasury Bills and other eligible bills (Note 12) 137,345 261,047 Deposits with other banks (Note 13) 218,443 152,730 Deposits from banks (Note 21) (118,617) (121,236) 413,496 509,980 34. Related - Party Transactions A number of banking transaction are entered into with related parties in the normal course of business. These transactions include loans, deposits, and foreign currency transaction. The volumes of related party transactions, outstanding balances at the year end, and relating expense and income for the year as follows: Loans Directors and key Associated management personnel companies 2006 2005 2006 2005 US$’000 US$’000 US$’000 US$’000 Loans outstanding at 1 January 495 7 10,362 1,500 Loans issued during the year 640 550 390 11,453 Loan repayments during the year (58) (62) (3,979) (2,591) Loans outstanding at 31 December 1,077 495 6,773 10,362 Interest income earned 44 7 107 523 No provisions have been recognized in respect of loans given to related parties (2005:nil). The loans issued to executive directors during the year of US$0.6 millions (2005:US$0.5 million) and associated companies of US$0.4 million (2005:US$10.4 millions) are repayable within an average of 10 year period and have interest rates of 3% (2005: 3%) for executive directors and 9% for associated companies.
  • 83. 81 The Pan African Bank 34. Related - Party Transactions Deposits Directors and key Associated management personnel companies 2006 2005 2006 2005 US$’000 US$’000 US$’000 US$’000 Deposits at 1 January 1,193 21 1,766 141 Deposits received during the year 3,968 1,570 4,884 10,336 Deposits repaid during the year (5,001) (398) (6,241) (8,711) Deposits at 31 December 160 1,193 409 1,766 Interest expense on deposits 1 - Year ended 31 December 2006 2005 US$’000 US$’000 Key management compensation Salaries and other short term benefits 2,237 1,398 Post employment benefits 2,237 1,398 Directors' remuneration In 2006, the total remuneration of the directors was US$2.2 million (2005:US$0.9 million).
  • 84. 82 2006 Annual Report 35. Acquisition On 31 October 2006, the Group acquired 60% of the share capital of Banque Internationale pour l’Afrique au Tchad (BIAT) in Chad. The acquired bank contributed operating income and profit of $618,729 and $614,153 respectively to the Group for the period from 1 November 2006 to 31 December 2006. If the acquisition had occurred on 1 January 2006, the contribution to the Group operating income and profit before allocations would have been $21,128,780 and $2,524,144 respectively. The details of the fair value of the assets and liabilities acquired and goodwill arising are as follows (in thousand US$) : Cash and cash equivalent (acquiree's previous carrying value: $24,378) 24,297 Loans and advances to customers (acquiree's previous carrying value: $37,866) 35,942 Investment securities (acquiree's previous carrying value: $2,860) 2,819 Property, plant and equipment (acquiree's previous carrying value: $2,969) 4,281 Other assets (acquiree's previous carrying value: $1,193) 1,161 Deposit from banks (acquiree's previous carrying value: $232) (232) Deposit from customers (acquiree's previous carrying value: $59,601) (59,601) Other borrowed funds (acquiree's previous carrying value: $385) (385) Other liabilities (acquiree's previous carrying value: $1,919) (2,606) Fair value of the net assets of the acquired bank 5,676 Cost of acquisition (discharged by cash) 6,368 Fair value of Net assets acquired (60% of share capital) 3,406 Goodwill (Note 18) 2,962 Cost of acquisition (discharged by cash) 6,368 Cash acquired 24,297 Net cash received 17,929 The goodwill is attributable to the significant synergies expected to arise. Fair value of assets and liabilities acquired are based on discounted cash flow models. 36. Events After the Balance Sheet Date a) At an extra ordinary general meeting held on 26 January 2007: (i) the members resolved that nominal value of the ordinary shares of the Company should be reduced from from $0.25/share to $0.125/share by splitting each ordinary share into two equal parts. (ii) An interim dividend of 1 cent per share was approved ; b) In January 2007, the parent obtained a licence from the Central Bank of Sao Tome to operate a bank in Sao Tome & Principe ; c) On 30 January 2007, the parent acquired 72% interest in Bank Internationale pour la Centrafrique (BICA), in Central Africa. Notes to the Consolidated Financial Statements (continued)
  • 85. 83 The Pan African Bank Five Year Financial Summary 2006 2005 2004 2003 2002 US$’000 US$’000 US$’000 US$’000 US$’000 At the year end Total Assets 3,503,739 2,199,230 1,910,433 1,523,091 1,142,911 Loans and Advances 1,919,366 1,022,140 923,661 785,983 524,763 Deposits from Customers 2,500,178 1,532,478 1,465,117 1,153,235 861,867 Total Equity 482,315 303,879 165,258 135,853 100,305 Book Value per Share 58.2 46.7 35.9 28.6 26.9 For the year Revenues 348,464 236,351 203,852 156,690 117,213 Loan Loss Provision 13,091 14,898 18,136 5,672 5,722 Profit Before Tax 129,299 73,729 60,315 48,462 30,275 Profit After Tax 86,365 50,939 40,427 30,214 16,567 Profit Attributable 69,350 41,502 31,431 22,197 11,636 Ratios Earnings Per Share (cents) 13 11 10 7 4 Dividend Per Share (cents US) 3.0 2.2 1.8 1.0 0.0 Return on Average Equity (%) 23.0 23.8 26,9 24.3 16 Return on Average Assets (%) 3.0 2.5 2.4 2.3 1.0 Efficiency ratio (%) 59% 63% 61% 63% 67% Summary of Subsidiaries’ Financials % Total Total Profit Profit Affiliate Shareholding Equity Assets Before Tax After Tax US$'000 US$'000 US$'000 US$'000 Ecobank Benin 78% 30,512 320,448 5,188 4,125 Ecobank Burkina 82% 22,184 211,813 8,964 5,946 Ecobank Cameroon 79% 14,955 212,592 3,899 2,260 Ecobank Cape Verde 98% (152) 690 (186) (186) Ecobank Côte d’Ivoire 97% 19,215 408,052 12,997 10,317 Ecobank Ghana* 87% 50,413 471,144 25,404 16,824 Ecobank Guinea 83% 9,355 78,534 6,504 4,155 Ecobank Liberia 100% 5,708 64,096 2,478 1,602 Ecobank Mali 92% 20,453 209,036 9,914 6,861 Ecobank Niger 100% 7,170 96,126 4,096 2,506 Ecobank Nigeria 71% 223,266 1,034,960 40,296 27,517 Ecobank Senegal 80% 14,958 247,848 5,904 4,312 Ecobank Togo 81% 17,449 193,563 10,979 7,905 Ecobank Sierra Leone 100% 2,679 4,823 (441) (305) Ecobank Chad 60% 6,613 73,324 171 120 Ecobank Dev Corp 100% 1,714 3,220 206 206 EIC Bourse 88% 2,984 4,884 958 698 ESL Nigeria 56% 2,178 14,847 1,136 679 eProcess International SA 100% 3,669 11,763 (1,345) (1,345) *Ecobank Stock Brokers (GH) Ltd is wholly owned by Ecobank Ghana
  • 86. 84 2006 Annual Report Shareholder Information 1. Central Registrar eProcess International SA Location: No. 556/4 Cola Avenue Ring Road Central Kokomlemle, Accra, Ghana Mail Box: P.O. Box AN 16746 Accra North, Accra Phone: +233 (0)21 234 454 +233 (0)21 234 451 +233 (0)21 234 454 Fax: +233 (0)21 241 537 Contact: Marilyn Awuku Phone: +233 (0)244 231 608 Fax: +233 (0)21 251 734 email: mawuku@ecobank.com 2. Local Registrars Abidjan: Ecobank Investment Corporation Location: Immeuble Alliance, 4ème étage Avenue Terrasson de Fougères Abidjan - Côte d'Ivoire Mail Box: 01 BP 4107 Abidjan 01 Côte d'Ivoire Phone: +225 20 21 10 44 Fax: +225 20 21 10 46 Contact: Jean-Christian Koudou Phone: +225 20 31 92 24 Fax: +225 20 21 10 46 email: jkoudou@ecobank.com Accra: Ecobank Development Corp Location: No.5 2nd Ridge Link North Ridge, Accra, Ghana Mail Box: P.O. Box AN 16746 Accra North, Accra Phone: +233 (0)21 251 720 +233 (0)21 251 723 Fax: +233 (0)21 251 734 Contact: Marilyn Awuku Phone: +233 (0)244 231 608 Fax: +233 (0)21 251 734 email: mawuku@ecobank.com Lagos: ESL Securities Limited Location: 3rd Floor, Plot 161A, Raufu Taylor Close off Idejo St. Victoria Island, Lagos, Nigeria Mail Box: P.M.B. 40013, Ikoyi Lagos, Nigeria Phone: +234 1 261 29 86 +234 1 261 29 83 +234 1 461 03 47 Fax: +234 1 461 03 45 Contact: Prisca Enwe Phone: +234 1 26129 86 Fax: +234 1 461 03 45 email: penwe@ecobank.com 3. Stock Exchanges Bourse Régionale des Valeurs Mobilières Location: 18, Rue Joseph Anoma (Rue des Banques) Abidjan - Côte d'Ivoire Mail Box: 01 BP 3802 Abidjan 01 Côte d'Ivoire Phone: +225 20 32 66 85 +225 20 32 66 86 Fax: +225 20 32 66 84 Contact: Le Directeur Général brvm@brvm.org Ghana Stock Exchange Location: 5th Floor, Cedi House Accra, Ghana Mail Box: P.O. Box 1849 Accra, Ghana Phone: +233 (0)21 669 908 +233 (0)21 669 914 +233 (0)21 669 935 Fax: +233 (0)21 669 913 Contact: The Managing Director info@gse.com.gh Nigeria Stock Exchange Location: Stock Exchange House (8th , 9th , & 11th Floors) 2/4 Customs Street, Lagos, Nigeria Mail Box: P.O. Box 2457 Lagos, Nigeria Phone: +234 1 266 02 87 +234 1 266 03 05 +234 1 266 03 35 Fax: +234 1 266 87 24 +234 1 266 82 81 Contact: The Managing Director info@nigerianstockexchange.biz For unclaimed dividends and all other information, please contact your respective local registrar or your broker.

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