ANNUAL REPORT2015 ANNUAL REPORT MILLENNIUM ANGOLA 2015 CONTENTS ANNUAL REPORT2015 2015r"//6"-3&1035rContents 5 CONTENTS 5 Message of the Chief Executive Officer 6 Main Highlights 7 Key Indicators 8 Executive Committee 9 Shareholder Structure and Governing Bodies 10 Economic Environment 20 Regulatory Changes to the Financial System 24 Business Summary 38 Distribution Network 46 Financial Statements 51 Notes to the Financial Statements 93 Proposed Appropriation of Net Income 94 Independent Auditors' Report 96 Opinion of the Supervisory Board on the Account of 2015 #BODP.JMMFOOJVN"OHPMB 4" MESSAGE OF THE CHIEF EXECUTIVE OFFICER ANNUAL REPORT2015 2015r"//6"-3&1035r.FTTBHFPGUIF$IJFG&YFDVUJWF0GàDFS 7 MESSAGE OF THE CHIEF EXECUTIVE OFFICER Throughout 2015 and in the wake of the constraints of the economic context of 2014, the Angolan economy was severely affected by the sharply declining price of the barrel of oil in international markets and, consequently, by the lack of foreign currency to fund imports, on which Angola is heavily dependent. This scenario has made it very clear that there is an imperative need for economic diversification, in order to facilitate the business environment and attract direct investment towards other activity sectors, outside the petroleum sector, which shall boost the Angolan economy in the medium term. The fall in the price of oil significantly reduced fiscal revenue and the obtaining of foreign currency. This evolution particularly constrained private consumption and public investment, and contributed to the GDP growth rate having shifted from 4.8% in 2014, to 3.5% in 2015, according to IMF forecasts. In this environment, the kwanza devalued sharply and the inflation rate exceeded 14%, imposing the need for a more restrictive monetary policy. In 2016, the IMF expects that the GDP growth rate should continue at 3.5%, supported by the effects of the policies which have been progressively adopted with a view to reducing dependence on the petroleum sector and assuring a greater diversification of economic activity. In 2015, Banco Millennium Angola opened 2 Branches and 1 Prestige Centre, thus holding a network, as at 31 December 2015, of 89 Retail Branches, of which 54 are open every Saturday morning, 13 Prestige Centres and 8 Business Centres, of which 2 are dedicated to the oil industry, amounting to a total of 110 Customer attendance points by the end of 2015. As a result of the expansion of the network and the increasingly higher penetration rate in the market by the oldest Branches, the number of Customers grew by 12% in relation to the previous year. The net income of Banco Millennium Angola stood at 6,760 million kwanzas in 2015, corresponding to 18% more than the previous year. This figure was influenced by the positive evolution of net operating income, in spite of the growth of operating costs (derived from inflation, exchange rate devaluation and wage revision) and provisions. Net operating income increased by approximately 38% compared to 2014, driven by the performance of net interest income and the earnings from financial transactions, which recorded growth rates of 28% and 121%, respectively. The return on average equity (ROAE) stood at 17.0% in 2015 (16.1% in 2014), and the solvency ratio as at 31 December 2015 was 13.7% (-0.1 p.p. compared to 31 December 2014). The coverage ratio of loans overdue by more than 90 days by provisions evolved to 267%, as at 31 December 2015, compared to 196%, as at 31 December 2014. During 2015, BMA's staff grew by 7.2%, shifting from 1,143 Employees in 2014 to 1,225 Employees in 2015, which implied an increase of 82 new Employees, with the proportion of Angolans in the staff remaining stable, at around 98%. The Talent Management and Retention Policy included two new Programmes for Development of Skills – Millenniuns High Potential, held in collaboration with Universidade Católica de Lisboa, and People Grow (junior Employees aged below 35 years old with potential and employed for less than 2 years). Throughout 2015, 161 training actions were carried out, corresponding to 4,017 training hours, with natural focus on contents directed at duties of the Commercial Area, covering all the essential aspects for a good performance of daily activities, both from the technical and behavioural point of view. Finally, and as usual, my sincere gratitude is extended to all the Employees for the effort, dedication and care with which they dealt with the challenges faced in 2015. A special acknowledgment is also made of our Customers for the preference and confidence that has been unfailingly demonstrated and for the privilege of serving them, with the assurance of BMA's commitment to continue to endeavour towards the continuous and sustained improvement of the quality of the service provided. My sincere thanks to all. "OUÓOJP(BJPTP)FOSJRVFT Chief Executive Officer 8 .BJO)JHIMJHIUTr"//6"-3&1035r 2015 MAIN HIGHLIGHTS NET INCOME TOTAL CUSTOMER GROSS CREDIT FUNDS 6,760 249,111 146,936 million AOA million AOA million AOA RETURN ON COST-TO-INCOME SOLVENCY AVERAGE EQUITY RATIO (ROAE) 17.0% 45.8% 13.7% NUMBER OF NUMBER OF NUMBER OF BRANCHES, CUSTOMERS EMPLOYEES BUSINESS CENTRES AND PRESTIGE CENTRES 89+8+13 597,263 1,225 =110 2015r"//6"-3&1035r,FZ*OEJDBUPST 9 KEY INDICATORS 2015 2014 2015 2014 KEY MANAGEMENT INDICATORS (Million (Million (Million (Million "0" AOA) Change % 64% USD)(*) Change % BALANCE SHEET Total net assets 244,669 40% 2,378.6 7% Loans to Customers (gross values) 125,542 17% 1,220.5 -11% Loans to Customers, net of provisions 117,748 13% 1,144.7 -14% Total Customer funds 180,900 38% 1,759.0 5% Total net loans/Customer resources 65.1% -11.5 p,p, 65.1% -11.5 p,p, Net worth 38,092 18% 369.9 -10% Solvency ratio 13.8% -0.1 p,p, PROFITABILITY Net operating income 19,354 38% 196.9 13% Operating costs 9,815 25% 99.9 3% Provisions 2,705 148% 27.5 103% Industrial tax 1,018 10% 10.4 -10% Net income for the year 5,741 18% 58.4 -3% Net interest income/Net operating income 58.5% -4.3 p,p, Net fees/Net operating income 22.2% -4.5 p,p, Financial results/Net operating income 17.4% 10.5 p,p, Return on Average Assets (ROAA) 2.5% -0.1 p,p, Return on Average Equity (ROAE) 16.1% 0.9 p,p, STRUCTURE Number of Branches, Business Centres and Prestige Centres 110 107 3% Luanda 76 74 3% Other provinces 34 33 3% Number of active ATM (**) 120 119 1% Number of active POS (**) 1,938 48% Number of active Cards (**) 148,785 33% Number of Employees 1,143 7% Number of Customers 534,101 12% EFFICIENCY AND PRODUCTIVITY Cost-to-income 50.9% -5.1 p,p, Number of Employees/Number of Branches, Business 10.7 4.3% Centres and Prestige Centres Net income/Average number of Employees 5.2 8.9% Net operating income/Average number of Employees 17.6 27.4% Structural costs/Average number of Employees 8.9 15.9% Number of Customers/Number of Branches, Business 4,992 8.8% Centres and Prestige Centres CREDIT QUALITY Loans overdue > 90 days as % of loans to Customers 3.2% 0.2 p,p, Coverage of loans overdue > 90 days by provisions 196% 71 p,p, (*) Merely indicative values in USD (conversion of values in national currency at the average exchange rate of USD/AOA for the values of the Income Statement: 98.291 in 2014 and 119.717 in 2015; and at the exchange rate of USD/AOA at the end of the year for the Balance Sheet headings: 102.863 in 2014 and 135.315 in 2015). (**) Source: EMIS Monthly Statistics Report relative to the months of December 2014 and 2015. 10 &YFDVUJWF$PNNJUUFFr"//6"-3&1035r 2015 EXECUTIVE COMMITTEE 'FSOBOEP/PCSFEF$BSWBMIP João Matias "OUÓOJP(BJPTP)FOSJRVFT )FSNFOFHJMEB#FOHF 1BVMP$BSUBYP5PNÃT Member Member Chief Executive Officer Vice-President Member 2015r"//6"-3&1035r4IBSFIPMEFS4USVDUVSFBOE(PWFSOJOH#PEJFT 11 SHAREHOLDER STRUCTURE 5% GLOBALPACTUM, GESTÃO DE 15% ACTIVOS, S.A. BANCO PRIVADO ATLÂNTICO, S.A. 50.1% BCP ÁFRICA, SGPS, LDA. 29,9% SONANGOL – SOCIEDADE NACIONAL DE COMBUSTÍVEIS DE ANGOLA, E.P. GOVERNING BODIES #0"3%0'%*3&$5034 CHAIRMAN: Miguel Maya Dias Pinheiro MEMBERS: Maria Conceição Mota Soares Oliveira Calle Lucas Hermenegilda de Fátima Agostinho Lopes Benge António Augusto Decrook Gaioso Henriques Fernando Gomes dos Santos João Matias Fernando Manuel Nobre de Carvalho Paulo Fernando Cartaxo Tomás &9&$65*7&$0..*55&& CHIEF EXECUTIVE OFFICER: António Augusto Decrook Gaioso Henriques VICE-PRESIDENT: Hermenegilda de Fátima Agostinho Lopes Benge MEMBERS: João Matias Fernando Manuel Nobre de Carvalho Paulo Fernando Cartaxo Tomás #0"3%0'5)&(&/&3"-.&&5*/( CHAIRMAN: Mateus Neto DEPUTY CHAIRMAN: Ana Isabel dos Santos de Pina Cabral SECRETARY: Graça Maria de Jesus Vieira Lopes Pitra Costa 461&37*403:#0"3% CHAIRMAN: Miguel Anacoreta Correia PERMANENT MEMBERS: Madalena Adriano Domingos de Lemos Neto Luzia Rosário de Fátima Oliveira ALTERNATE MEMBERS: João Manuel Francisco Maria Inês Ribeiro Filipe 12 &DPOPNJD&OWJSPONFOUr"//6"-3&1035r 2015 ECONOMIC ENVIRONMENT GLOBAL ECONOMIC ENVIRONMENT According to the projections of the International Monetary Fund (IMF), the rate of expansion of global economic activity, in 2015, is estimated to have fallen to the lowest level since 2009, in a context where the strong dynamics of the developed economies was not sufficient to offset the loss of vibrancy of the emerging markets. The pronounced decline in the price of raw materials, in addition to having intensified the split between the two groups of economies, further deepened global deflationary pressures, creating a scenario of greater financial vulnerability, as well as the need to maintain widespread accommodative monetary conditions.