1 2 Table of contents
Chapter I – General performance at a glance 5
Board of Directors’ statement 6 Board of Directors 7 Organizational chart 8 History 10 Vision and mission 11 Values 11 Objectives 12 Credit rating 14 Key achievements 14 Awards 15 Key projects 15 Anti-money laundering 15 Risk management 16 Human resources 18 Domestic banking branch network 20 International banking 20 Performance indicators 22 Macroeconomic indicators 23
Chapter II– Financial statements and summary notes 25
Balance sheet 26 Profit and loss statement 27 Comprehensive profit and loss statement 28 Cash flow statement 29 Summary notes to the financial statements 30
Chapter III– Financial analysis 53
Market position 54 Balance sheet summary 56 Performance indicators 57 Key ratios 65 Efficiency ratios 68 Operational control indicators 69
3 4 5 Board of Directors’ statement
Welcome to the Tejarat Bank annual report for the financial year 2010-11, a year in which we managed to improve our standing among the top five commercial banks in the country, despite difficult economic conditions. We increased our financial resources by 20 percent and maintained our number one position in documentary letters of credit and letters of guarantee, allowing us to increase our earnings per share (EPS) to IRR 330, up from IRR 288 in 2009-10. During the year, considering the existing competitive environment in the country’s banking industry, we increased our focus on modern banking technologies, including electronic banking, to enable us to better meet the needs of our customers and investors. Through the implementation of a new comprehensive strategic planning system and the formulation of new vision, mission and strategic objectives, Tejarat Bank aims to become the best financial institution in the country in the near future and one of the top five banks in the Middle East. Our achievements during the past year would not have been possible without the efforts of our valued employees and the trust and support of our esteemed shareholders. We aim to utilize the trust and opportunities bestowed upon us in the best possible way to create increased value for all our key stakeholders.
Board of Directors
6 Board of Directors
7 General Assembly
Organizational chart
Board of Directors Risk Audit Committee Committee Managing Director
Public Relations and Advertising Department Internal Audit Department Board Secretariat’s Office
Deputy Director Deputy Director of Finance and of Organization and Deputy Director of Procurement Information Provinces Affairs technology and Marketing
International Provinces Affairs Affairs and Marketing Organization Management Management Financial Affairs Affairs Management Management
Branch Network Region 1 Supervision Coordination Management Organization and International Department Department Accounting and Network Affairs and Statistics Procedures Department Foreign Currency Department Operations Department Marketing and Customer Relations Treasury and Overseas Letters of Department Sistan va Southeast Transactions Research, Risk and Guarantee Baluchestan Tehran Department Strategic Planning Department Department Northeast Treasury and Fars Tehran Correspondent Investments and Banking Relations Companies’ Department Affairs Shahr-e-Ray Department Kermanshah and Suburbs
Foreign Currency Accounting Department Kohgiluyeh va Central Branch, Boyerahmad code 450
Supervision and Coordination Golestan Free Trade Department Zones Procurement and Information Property Technology Management Management Mazandaran East Azarbaijan
Hormozgan Semnan Engineering and Software Research and Property Development Department Department Hamedan Bushehr
Card Operations and Supplies Modern Services Department Khorasan Department Lorestan Razavi
Operations and General Services Technical Support Zanjan Department Department
8 Deputy Director of Deputy Director of Human Resources Credit and Legal and Inspection Affairs
Guarding and Custody Management Human Resources Credit Affairs Management Management
Region 2 Supervision Personnel Department Security Department Welfare Credit Administration Department Department Documents, Data and Computer Security Department Personnel Review Southwest Tehran Department and Supervision Qom Department Physical Security and Safety Services North Khorasan West and Central Department Employee Accounting Credit Information Tehran Department Department
Northwest Tehran Khuzestan Training Collections Follow-Up Department and Monitoring Department Karaj and Suburbs Qazvin
Selection Board Kurdistan West Azarbaijan
Kerman Ardebil Inspection Legal Affairs Management Management Gilan Esfahan
Markazi Chaharmahal va Province Bakhtiari
Domestic Currency Claims Inspection Department Department Yazd Ilam
Foreign Currency and Legal Services Technical Inspection Department South Khorasan Department
9 History
The origins of the Iranian banking industry in the modern sense go back to 1887, when the Bank of the Middle East was established in central Tehran. Although this bank was rather short-lived, lasting only one year, before being replaced by the Shahi Bank, it founded the origins of the Iranian banking industry, and a home to Tejarat Bank, whose headquarters are now located in the original home of the Bank of the Middle East. Prior to the Islamic Revolution in 1979, 36 banks were operating in Iran, either government or privately-owned, some with full Iranian ownership and some with partly foreign ownership. After the revolution, all banks were pronounced national, and few of the older banks merged to form the post-revolution banking industry landscape in the country. Tejarat Bank was established in October 1979, through a merger of 11 privately-owned banks, some of which were partly foreign-owned, with the initial total capital of IRR 39 billion. The bank’s capital was later increased to IRR 41 billion, through a merger with the Iran Russia Bank in 1981. Following the recent privatization bill, Tejarat Bank initiated its public offering in the spring of 2008, being enlisted on the Stock Exchange Organization of Iran in April 2009. The Bank is now partly privately-owned, with the Iranian Government still holding around 31 percent of its shares.
Shareholder structure
Description Share (%) Number of shares
Government of the Islamic 30.53 4,141,851,741 Republic of Iran
Justice Shares Brokerage 40.00 5,427,439,652
Private individuals 3.05 414,234,566
Legal entities 21.42 2,906,643,281
Employees (preferred shares) 5.00 678,429,960
Total 100 13,568,599,200
10 Vision and mission
Vision
• Becoming the best financial service provider in the country • Ranking among the top five banks in the Middle East in creating value for its stakeholders • Maintaining an active international presence in financial products and services
Mission
To meet the growing needs of its growing customer base and safeguard the interests of its shareholders, Tejarat Bank aims to continuously identify and explore new lines of business in the financial services industry, through detailed analysis of existing market conditions.
Values
Our values are based on five main pillars, as outlined below:
Customers We believe that our customers are our main reason for the creation of value. We will thus strive to meet their needs, such that it enables us to gain a competitive advantage in terms of customer relationship, satisfaction and loyalty.
Employees We believe our employees comprise our main capital. We therefore consider their development and empowerment key to our organizational success and will strive to create a working environment which is motivational, supportive and knowledge-based.
Shareholders We are committed to safeguarding the longer-term interests of our shareholders, while guaranteeing shorter-term gains.
Society We believe in continuously raising the level of the bank’s social recognition. We aim to achieve this through observing professional ethics and the principles of corporate governance.
Modern technologies To be able to better meet customer needs we use the latest banking technologies.
11 Objectives
Continuous safeguarding of shareholder interests
• Active international presence in offering banking products and services • Effective presence in the Middle East in offering Islamic Banking products and services • Market leadership in offering financial products and services in the country • Contributing to the improvement of financial operational indicators in the country • Observing the principles of corporate governance
Securing short-term interests of shareholders
• Increased market share in profitable financial products and services • Offering quality and competitively priced financial services and products in the country • Effective management of the bank’s assets and liabilities • Effective management of the bank’s shares on the stock market • Timely meeting of financial commitments to shareholders
Improving value-added customer relations
• Establishment of the system and cycle of customer satisfaction improvement • Establishment of an effective system of customer relationship management • Analysis, identification and meeting of new customer needs • Offering variety in financial products and services
Development and enablement of human resources
• Providing a motivational and pleasant working environment • Adapting working environment conditions to the physical needs of employees • Embedding a knowledge- based attitude • Improving human resources efficiency • Providing the necessary conditions for improving the performance of each employee • Providing the foundation for the flourishing of creativity and innovation • Establishing a comprehensive training system • Adapting employee enablement to market needs
12 Raising the bank’s social recognition
• Commitment by all employees to the principles of corporate citizenship • Collective observance of professional ethics and social values • Cognizant interaction with environmental conditions
13 Credit rating
Tejarat Bank is the first of the big five commercial banks in Iran to have achieved a credit rating by an international credit rating agency. Capital Intelligence (CI) has rated the bank’s credit rating as BB- for the second consecutive year in 2010-11, the highest possible for an Iranian financial institution, considering the country’s Sovereign Foreign Currency Ratings of BB-.
Financial strengths specified in the CI report:
• Strong domestic franchise and stable, low cost deposit funding • Gradual improvement of liquidity • Commitment by shareholders to reinvest dividends • Access to international trade finance, despite sanctions on Iran • Diversified credit portfolio and low borrower concentration
Benefits of the international credit rating for Tejarat Bank:
• Prospects for expansion of its international branch network • Expansion of its international correspondent banking network and securing new international lines of credit with favorable rates • Securities issue (in particular sokook) with favorable rates • Increase in share price and number of shares purchased by domestic and international buyers, due to the improved risk position
Key achievements
In the financial year 2010-11, Tejarat Bank achieved the following, from among thetop5 commercial banks in the country: • One percent increase in total deposits • Number one position in letter of guarantee • Number one position in letters of credit • Ten percent increase in market share in domestic letters of credit • Five percent increase in market share in international letters of credit
14 Awards
• Gold award in quality of service in the country • Top ranking in internet banking in the country • Diamond award in quality from the BID Institute for “Sustained commitment to quality improvement and advancement”
Key projects
Tejarat Insurance Company
To complete its financial services value chain and expand its product and service offering to its customers, Tejarat Bank initiated the proceedings during the financial year 2010-11 for the establishment of a new insurance company.
Tejarat investment company
To add variety to the range of services offered, Tejarat Bank sees the establishment of a new investment company as one of its priorities. In this regard, the new venture’s business plan has been developed during 2010-11 and the company’s shareholder structure has been identified. At present, planning is underway for obtaining the legal permits for the investment company.
Anti-money laundering
Tejarat Bank has completed a number of key initiatives in 2010-11 in terms of anti-money laundering (AML), in line with guidelines and regulations laid down by the CBI, a summary of which are detailed below:
• Regular meetings by the Anti-Money Laundering Committee, for reviewing the bank’s AML directive and improving its AML procedures • Communicating and cooperating with the Anti-Money Laundering Secretariat at the Ministry of Economic Affairs and Finance, for sending and receiving information on suspicious transactions • Deploying AML software for control, identification and reporting on suspicious transactions • Providing AML training to employees and development of corresponding brochures
15 Risk management
As a member of the country’s banking network and in line with the directives of the Central Bank of Iran (CBI), Tejarat Bank has based its risk management strategy on the following key fundamentals: • Use and improvement of procedures for the measurement and management of risks faced by the bank • Adapting its risk management procedures with the regulations and guidelines issued by the CBI • Progressing toward creation of databases to allow for implementation of advanced methods of risk measurement To support its risk management activities, Tejarat Bank has established a risk management framework during the past years, central to which is the bank’s Risk Committee and subsidiary committees for credit, liquidity, operational and market risks.
Credit risk
Management of credit risk at Tejarat Bank is based on three main focus areas, including credit scoring, credit portfolio and the limit of responsibility of credit agents.
Key activities carried out during the last financial year with regard to credit risk include:
• Deployment of an automated credit scoring system in select branches • Development of a system for scoring customer credit beyond the credit limits allowed by branches • Assignment of customer credit codes • Improved credit reporting mechanisms
Operational risk
According to the definitions of the Basel Committee on Banking Supervision, operational risk is defined as the probability of default (loss) from incomplete or unsuccessful operations in internal or external processes.
To mitigate operational risk, Tejarat Bank has carried out the following steps during the past financial year:
• Establishing a system for systemic control of blocked accounts during remote transactions • Establishing an automated system for payment of custom guarantees on due date
16 • Revision and establishment of a system for blocking lost or stolen interbank checks • Development of a system for reporting on bills voided or issued after close of operation on each day • Establishment of a system for automated issue of security documents with regard to received waybills (letters of credit portfolio) • Organizing general IT security courses for all employees • Preparation of the RFP (request for proposals) for a project titled “Design and Implementation of a Database for Measurement of Operational Risk” and holding negotiations with candidate companies for carrying out the proposal
Market risk
Market risk is the risk of fluctuations in the value of future liquidity, resulting from financial tools, as a result of market risk factors, such as interest rates, currency exchange rates and stock price. From among these, exchange rate risk and interest rate risk are considered the most important for the bank. To make use of modern methods of measuring market risk, Tejarat Bank has designed a software tool for the calculation of foreign currency portfolio risk.
Liquidity risk
Liquidity risk relates to accessibility of necessary resources for meeting account debits and other obligations of the bank. The Bank has taken significant steps toward deployment of modern methods of liquidity risk management, including:
• Development of a software program for the calculation of an optimum interest rate for the bank’s central account, for optimum management of branch resources and expenditure and prevention of shortfalls in accounts with the CBI • Development of the RFP for a project titled “Design and Implementation of an Assets and Liabilities Management System (ALM)”
17 Human resources
The following table shows the breakdown of human resources, in terms of education, gender and location of service (headquarters/branch):
2010-11 2009-10
Description Number Share (%) Number Share (%)
Bachelors and postgraduate 6,170 29 5,891 28 degrees
High school Education diploma and higher 13,665 65 13,972 65 national diploma
Below high school diploma 1,207 6 1,435 7
Male 17,363 83 17,521 82 Gender Female 3,679 17 3,777 18
Headquarters 5,179 25 5,226 25 Location of service Branch 15,863 75 16,072 75
Total 21,042 100 21,298 100
The breakdown of training courses for Tejarat Bank employees for the past two years is as follows:
Description 2010-11 2009-10
Number of training courses 1,846 1,234 Total training hours 2,050,396 714,581
18 Key projects carried out in 2010-11 in terms of human resources development included:
• Phase 1 of the project “Analysis of Baking Job Functions based on onet” • “Review of the Level of Employee Job Satisfaction and Fatigue”, plus presentation of solutions for improvement • Development of a strategic human resources development program • Encouragement of remote learning, to allow for employees nationwide to gain access to the necessary training in areas such as banking services, laws and regulations
19 Domestic banking branch network
Tejarat Bank today has a near 2,000 strong nationwide branch network. Each year, the bank makes a thorough analysis of the performance of all branches and at the end of the year, strategic decisions are made regarding the closing down, merging or moving of branches. During the financial year 2010-11, the decision was made to reduce the number of total branches from 1,951 to 1,898, with the breakdown shown in the following table:
Description 2010-11 2009-10
Tehran 369 415
Other cities 1,515 1,522
Free trade zones 14 14
Total 1,898 1,951
International banking
International banking operations
The following table provides a summary of the number and volume of Tejarat Bank’s international banking operations during the past two years.
Figures in USD million
2010-11 2009-10
Description Number Amount Number Amount
Letters of guarantee 577 606 917 939
Letters of credit 7,212 8,095 8,768 6,887
Inward foreign currency transfers 20,377 17,536 18,639 6,603
Outward foreign currency transfers 19,685 8,111 17,977 2,977
20 International banking liabilities
The table below shows a summary of the bank’s foreign exchange liabilities during the past two years.
Figures in IRR million
Description 2010-11 2009-10
Profit-free (qardh-ul-hassanah) 4,958,291 1,954,648 deposits
Time deposits 544,738 954,978
Current account deposits 9,264,374 4,261,228
Advances for L/Cs 18,658,331 17,908,027
L/G Deposits 658,498 562,445
Others 19,973,546 11,006,540
Total 54,057,778 36,647,866
Foreign exchange branches
In line with branch restructuring activities for the year, the number of foreign exchange branches of Tejarat Bank in the country increased from 35 in 2009-2010 to 37 in 2010-11, while the number of foreign exchange departments decreased by one from 134 to 133, as can be seen from the following table.
Description 2010-11 2009-10
Number of foreign exchange 37 35 branches
Number of foreign exchange depart- 133 134 ments
21 Overseas branches
Tejarat Bank has two overseas branches, one in Paris, France and the other in Dushanbe, Tajikistan.
In addition, Tejarat Bank is one of the main shareholders of the Persian International Bank in London, Europäisch-Iranische Handelsbank in Hamburg and Trade Capital Bank in Belarus.
Performance indicators
Description Unit 2010-11 2009-10 2008-09 2007-08
Capital IRR billion 13,569 10,437 10,437 10,437
Total income IRR billion 465,312 383,487 339,646 297,921
Total liabilities IRR billion 438,841 361,391 321,026 280,828
Total deposits IRR billion 337,703 268,675 216,428 187,674
Total credit outstanding IRR billion 239,587 201,711 191,519 172,285
Profit before tax IRR billion 5,880 4,462 3,915 3,153
Number of employees Person 21,042 21,298 21,298 20,768
Number of branches Branch 1,900 1,953 1,984 1,965
Return on capital % 33.01 36 26.7 30.2
L/G commitments IRR billion 114,209 89,954 78,873 61,452
L/C commitments IRR billion 103,381 74,852 66,579 72,611
22 Macroeconomic indicators
Description Unit 2010-11 2009-10 2008-09 2007-08
Population billion persons 74.7 73.6 72.5 71.5
Population growth Percentage 1.5 1.5 1.5 1.4
14.6 Percentage 11.4 10.4 10.5 Unemployment rate )Q1(
Inflation rate Percentage 12.4 12.5 25.4 18.4
27,136 USD billion 20,936 45,309 40,819 Trade balance )Q1-Q3(
60,339 USD billion 69,825 88,920 81,764 Oil and gas exports )Q1-Q3(
16,123 USD billion 17,709 17,651 15,637 Non-oil exports )Q1-Q3(
49,327 USD billion 66,598 61,261 56,582 Imports )Q1-Q3(
Economic growth Percentage - 3.5* 2.3 8.7
Liquidity growth Percentage 25.2 23.9 15.9 27.7
Stock market index 23,295 12,536 7,966 10,082
Source: Central Bank of Iran * “Recent Economic Transformations in the Country in 2010-11” - presented at the 21st Conference on Monetary and Currency Policies, Economic Deputy of the Central Bank of Iran
23 24 25 Balance sheet As at March 20, 2011 Figures in IRR million
Restated Restated Liabilities and Assets Note 20/3/2011 20/3/2010 shareholders’ equity Note 20/3/2011 20/3/2010
Cash 4 4,695,936 4,060,004 Liabilities:
Due from the Central Bank of Iran 5 61,049,936 43,526,923 Due to the Central Bank of Iran 17 13,896,542 16,788,928
6 Due to banks and credit Due from banks and credit institutions 42,454,966 38,332,067 18 17,140,706 6,437,219 institutions
Due from the Government 7 22,403,676 22,078,001 Sight deposits 19 101,412,816 83,759,279
8 Qardh-ul-hassanah and similar Credit facilities and receivables 239,587,259 201,711,079 20 25,033,778 18,609,168 deposits
Other accounts receivable 9 2,340,957 4,296,390 Time deposits 21 183,169,560 140,457,327 Debtors for letters of credit and term 54,667,264 43,370,619 Other deposits 22 28,087,065 25,849,692 bills of exchange 10 Liabilities for acceptance of Participation bonds 11 8,713,640 7,323,427 letters of credit and term bills 23 53,980,460 40,570,175 of exchange Investments and joint ventures 12 5,012,549 2,366,511 Tax paid 2,330,706 2,458,776
Fixed tangible assets 13 12,139,847 11,872,501 Profit paid to depositors 688,742 577,249
Fixed intangible assets 14 733,563 732,457 Provisions and other liabilities 24 10,392,160 23,891,266
Other assets 15 9,256,985 2,994,231 Dividends 275,432 246,166
Provision for employee Items in transit 2,255,480 822,487 2,433,091 1,745,569 16 termination benefits
Total liabilities 438,841,058 361,390,814
Shareholders' equity
Capital 25 13,568,599 10,437,384
Legal reserve 26 3,179,156 2,507,269
Other provisions 27 2,117,414 1,669,489
Profit or loss from currency 325,207 220,590 translation From the unified exchange rate 28 723,900 723,900
Accumulated profit 6,556,724 6,537,251
Shareholders' equity 26,471,000 22,095,883
Total liabilities and Total Assets 465,312,058 383,486,697 465,312,058 383,486,697 shareholders' equity Customer commitments for letters 37_1 103,381,512 74,851,972 Commitments for letters of credit 37_1 103,381,512 74,851,972 of credit Customer commitments for letters of Commitments for letters of 37_2 114,209,218 89,954,213 37_2 114,209,218 89,954,213 guarantee guarantee Other customer commitments 37_3 9,381,799 8,938,332 Other commitments 37_3 9,381,799 8,938,332 Party to administered funds and Administered funds and similar items 37_4 2,139,907 2,304,416 37_4 2,139,907 2,304,416 similar
Total off balance sheet items 229,112,436 176,048,933 Total off balance sheet items 229,112,436 176,048,933
26 Profit and loss statement For the year ended March 20, 2011 Figures in IRR million
Restated
Description Note 20/3/2011 20/3/2010
Joint income: Profit from credit facilities 29 26,172,599 22,573,684 Profit from investments and deposits 30 1,972,840 3,362,828 28,145,439 25,936,512 Provisional profit for time deposits )18,569,349( )16,062,164(
Different between provisional and )3,851,622( )1,620,425( actual profit for time deposits 31 Depositors' share of profits )22,420,971( )17,682,589( Bank's share of joint income 5,724,468 8,253,923 Non-joint income Profit and penalty 32 3,242,459 2,821,739 Commission income 33 4,156,186 3,312,515 Settlement of foreign 2,079,985 791,342 currency transactions Legal fees 3,851,622 1,620,425 Other income 719,573 273,801 Total joint income 14,049,825 8,819,822 Total income 19,774,293 17,073,745 Less: expenses Personnel and administrative expenses 34 )9,692,107( )7,215,143( Doubtful debt expense 35 )2,539,913( )2,737,131( Financial expenses 36 )1,246,891( )2,379,127( Other expenses )415,220( )279,828( Total expenses )13,894,131( )12,611,229( Profit before tax 5,880,162 4,462,516 Tax )1,400,914( )1,108,821( Net profit 4,479,248 3,353,695 Earnings per share (IRR) 330 321 Basic earnings per share 38 366 314 Retained Profit (Loss) Account Net Profit 4,479,248 3,353,695 Accumulated profit at the 4,408,481 6,292,790 beginning of the year Annual adjustments 2,128,770 )649,809( Accumulated profit at the 6,537,251 5,642,981 beginning of the year - adjusted Previous year dividend )2,609,346( )1,706,370(
Transfer to capital account upon )730,617( - approval by the bank's AGM )3,339,963( 3,936,611 Profit payable 7,676,536 7,290,306 Allocation during the period Legal reserve )671,887( )451,833( Other reserves )447,925( )301,222( Total reserves )1,119,812( )753,055( Accumulated profit at the end of the year 6,556,724 6,537,251
27 Comprehensive profit and loss statement For the year ended March 20, 2011 Figures in IRR million
Restated
Description 20/3/2011 20/3/2010
Net profit 4,479,248 3,353,695 Profit and loss from currency 231,354 126,737 conversion - overseas branches Comprehensive profit for the fiscal year 4,710,602 3,480,432 Annual adjustments 2,128,770 )649,809( Comprehensive profit recognized from the 6,839,372 2,830,623 previous reporting year
28 Cash flow statement For the year ended March 20, 2011 Figures in IRR million
Restated Description 20/3/2011 20/3/2010
Operating activities: Net cash inflow outflow from operating ( ) 27,316,434 )8,787,875( activities Return on investments and profit payments for financing: Dividend received from investments and 159,453 122,121 joint ventures Dividend )2,580,080( )1,997,872( Net cash inflow outflow from investment ( ) )2,420,627( )1,875,751( activities Income tax: Tax paid )1,424,528( )2,923,658( Investment activities: Payments for investments and joint ventures )2,805,185( )873,382( Proceeds from the sale of investments and 263,693 69,267 joint ventures Payments for the purchase of fixed assets )501,369( )533,638( Proceeds from the sale of fixed assets 189,160 67,500 Net cash outflow from investment activities )2,853,701( )1,270,253( Net cash inflow outflow before financing ( ) 20,617,578 )14,857,537( activities Profit (loss) from cash conversion 325,207 220,590 Net increase (decrease) in cash 20,942,785 )14,636,947( Cash at the beginning of the year 18,524,444 33,161,391 Cash at the end of the period 39,467,229 18,524,444
29 1- Historical background:
Tejarat Bank (Public Joint Stock) was established on December 20, 1979 through the merger of Irano-British Bank, Bank Etebarat Iran, Bank of Iran and the Middle East, Mercantile Bank of Iran and Holland, Bank Bazargani Iran, Bank Iranshahr, Bank Sanaye Iran, Bank Shahriar, Bank Iranian, Bank Kar, International Bank of Iran and Japan and Iran-Russia Bank, registered by the Registrar of Companies under number 38227. Change of the bank’s legal entity to public joint stock and update of its articles of association were registered and publicized on February 22, 2009 by the Registrar of Companies and Industrial Ownership, under number 38027. On April 29, 2009, Tejarat Bank was admitted to the Tehran Stock Exchange (TSE) and its shares were listed on the TSE on May 18, 2009. The bank’s headquarters are located in Tehran.
2- Basis for the preparation of the financial statements:
The financial statements of the bank are prepared on the basis of historical cost price,with current values being used where necessary.
3- Summary of main accounting procedures:
3-1- Investments
3-1-1- Evaluation method: • Long-term investments are valued at cost price, after deduction of the provision for permanent depreciation in the value of each investment. Quick-trading current investments are valued at minimum cost price and the net sale price of total investments, while other current investments are valued at minimum cost price and the net sale price of each investment.
3-1-2- Income identification method: • Profit from investment in affiliated and subsidiary companies is identified with the approval of the financial statements by the general meeting of investee company’s shareholders (up to the approval date of the financial statements), while profit from other investments, including current and long-term, is identified at the time of approval by the general meeting of the investee company’s shareholders (up to the balance sheet date).
3-2-Tangible fixed assets:
3-2-1-Tangible fixed assets, with the exception of items under note 3-2-2, are registered on the accounts on the basis of cost price. Expenses for improvement and overhaul, which would significantly increase the capacity or useful life of fixed assets or substantially improve their productivity, are considered capital expenses and depreciate during the remainder of the useful life
30 of the corresponding assets. Maintenance and minor repairs expenses, incurred for preservation and improvement of anticipated financial interests of the business from the original evaluated standards of performance for the assets are considered as current expenses at the time of occurrence and added to profit and loss for the period.
3-2-2- In line with Art 62 of the Third Development Plan, buildings, land and goodwill for commercial properties of the bank at the end of the fiscal year 2004-05, are registered on the accounts at their reappraised price of IRR 10,830 billion. In line with corresponding regulations, surplus of IRR 9,206 billion from the aforementioned reappraisal has been deposited to the Government’s capital increase account with the bank.
3-2-3- Based on the approval at the 1,077th meeting of the Money and Credit Council on February 17, 2007, depreciation of fixed assets has been calculated since 2006, in compliance with the depreciation table, subject of Art 151, Direct Tax Law, approved in March 1988, and the subsequent amendments, according to the following rates and methods.
Description Depreciation rate Depreciation method
Buildings and Installations 7% Descending
Motor vehicles 25% Descending
Furniture and computer system hardware 10 years Direct
Computer hardware (PCs) 3 years Direct
Depreciation of reappraised properties has been calculated since the end of the fiscal year 2004-05 at the rate of 3.5 percent using the descending method, in compliance with Clause 10, Depreciation Bylaw, subject of Art 151, Direct Tax Law.
3-3- Goodwill for commercial properties: Goodwill for the bank’s commercial properties during the fiscal year 2004-05 has been registered on the basis of reappraised price, in line with Art 62 of the Third Development Plan. In addition, as depreciation of assets is calculated based on the depreciation table, subject of Art 151 of the Direct Tax Law, as stipulated in the approval at the 1,077th Meeting of the Money and Credit Council, no depreciation has been calculated for goodwill since March 21, 2006.
31 3-4- Identification of income from granted credit facilities, commission and penalties:
In accordance with circular no.772/MB, dated July 18, 2005, by the Banking Studies and Regulations Department of the Central Bank of the Islamic Republic of Iran and the approval at the 1,044th meeting of the Money and Credit Council, dated July 16, 2005, the bank’s income is identified on an accrual basis, as detailed below:
Type of income Identification method
Based on duration and in consideration of the principal Profit from granted credit facilities balance and minimum expected profit of granted facilities
Based on duration, outstanding installment payments and Delay penalties for repayment of credit installments specified penalty rate
Commission on letters of guarantee issued At the time of issue
Commission on other banking services Proportional to the level of service offered
3-5- Basis for determination of depositors’ share form joint profit:
Income from activities related to granted credit facilities and investment in shares and participation bonds, identified within the framework of the bank’s accounting procedures, are considered as joint income. The depositors’ share of join profit is determined proportional to the usage of net deposits in the abovementioned activities, based on the Non-Usury Banking Law ratified on 20, November, 1984 and the corresponding executive bylaw and regulations, in line with circular no.1799/MB, dated January 8, 2004 by the Central Bank of the Islamic Republic of Iran. 3-6- Classification of granted credit facilities: Credit facilities granted by the bank are evaluated and classified into the following four classes, according to the Instructions for the Classification of Credit Institution Assets, ratified by the Money and Credit Council (subject of circular no.2823/MB, dated February 24, 2007, by the Banking Studies and Regulations Department of the Central bank of the Islamic Republic of Iran), taking into consideration factors such as payment delay, customers’ financial status and customers’ business status: 1- Current (overdue, up to 2 months) 2- Overdue (overdue, 2 to 6 months) 3- Deferred (overdue, 6 to 18 months) 4- Doubtful (overdue, over 18 months)
32 3-7- Provision for doubtful debts: The provision for doubtful debts is calculated in accordance with the Instructions for Calculation of Debt Provision for Credit Institutions, ratified by the Money and Credit Council (Subject of circular no.2823/MB, dated February 24, 2007 by the Banking Studies and Regulations Department of the Central Bank of the Islamic Republic of Iran), as follows: • General provision is calculated as 1.5% of the total balance of credit facilities (including old, current, overdue, deferred and doubtful) at the end of each year, with the exception of the balance for credit facilities for which a specific provision has been calculated. • Specific provision is calculated based on the balances for overdue, deferred and doubtful credit facilities, taking into consideration the value of collateral for each case, with the application of specific coefficients, as follows:
Class Coefficient
Overdue 10%
Deferred 20%
Doubtful (taking into account customer repayment ability) 50% -100%
Doubtful - overdue for 5 years or more 100%
• Properties presented as collateral are initially appraised by experienced evaluators and experts. For office properties up to 80% of the appraisal price and for commercial properties up to 60% of the appraisal price would be collateralized by the bank. • Up to 70% of collateralized value of the property is considered in calculation of the specific provision for doubtful debts on the strength of circular no.2823/MB, dated February 24, 2007, issued by the Central Bank of the Islamic Republic of Iran. • To take into consideration significant increases in property prices during the recent years, formally reported by the corresponding authorities, collateralized value of properties are adjusted by multiplying them by 1.7 and adapting them to spot price.
3-8- Provision for employee leave and termination benefits: • Provision for employee termination benefits is calculated according to the latest fixed monthly salary and benefits. • Provision for employee leave benefits is calculated based on the last day at fixed salary and continuous benefits for each employee, multiplied by their outstanding leave balance at the end of
33 each year. The value is adjusted at the end of each year depending on the outstanding leave balance.
3-9- Currency conversion:
3-9-1- Domestic accounts Foreign currency monetary items are converted at market rate at the balance sheet date (interbank market reference rate declared daily by the Central Bank of the Islamic Republic of Iran), while non-monetary items are converted at market rate on the transaction date. The difference between settlement and conversion of foreign currency monetary items is identified as income and expense for the corresponding period.
3-9-2- Overseas branches: All monetary and non-monetary items (with the exception of shareholders’ equity) of overseas branches and units are converted at market rate at the balance sheet date. Shareholders’ equity is converted at market rate on the date on which such item is created (historical rates). Profit and loss items are converted at the average market rate for the year. Difference from translation of the financial statements for the corresponding units is stated under the title “shareholders’ equity”.
3-10- Due from the Government: Mandatory credit facilities granted based on the guarantee by the Management and Planning Organization of Iran are classified under the following conditions as due from the Government: a) Deferred credit, as a result of the borrower’s failure to repay, inadequate collateral or the bank’s inability to collect b) Overdue credit, related to the execution of capital assets acquisition projects c) Credit facilities granted to ministries and government institutions
4- Cash: Figures in IRR million
Description 20/3/2011 20/3/2010
Cash on hand - IRR 4,262,230 3,886,797 Cash on hand - foreign currency (overseas 13,702 5,175 branches) Foreign currency cash 420,004 168,032 Total 4,695,936 4,060,004
34 Cash balances are insured against theft, fire and accidents with Iran Insurance Company. 5- Due from the Central Bank of Iran:
Figures in IRR million
Description 20/3/2011 20/3/2010
Statutory deposits (domestic and overseas 27,729,453 branches) 31,922,476 Sight and time deposits with the Central 25,829,897 15,613,254 Bank of Iran Current account with the Central Bank of 115,661 Iran (domestic and overseas branches) 2,222,162 Current adjustments for government institutions and companies, represented by 1,075,401 68,555 the Central Bank of Iran
Total 61,049,936 43,526,923
6- Due from banks and credit institutions:
Figures in IRR million
Description 20/3/2011 20/3/2010
Foreign currency deposits with foreign banks 11,664,325 16,566,754 Sight and time deposits with domestic 5,845,676 banks / IRR and foreign currency 14,847,462
Payment of checks issued by other banks 11,951,543 11,198,131
Credit granted to other banks 1,184,625 3,190,809 Other receivables 2,867,797 1,593,663 General provision for doubtful debts )60,786( )62,965( Total 42,454,966 38,332,067
35 7- Due from the Government:
Figures in IRR million
Description 20/3/2011 20/3/2010
For credit facilities granted under 7,571,480 14,338,341 government guarantee For credit facilities granted under _ 96,589 government guarantee through other banks For liabilities undertaken by the 21,517,677 13,356,663 Government Future years' income guaranteed by the )5,408,213( Government )6,344,308(
General provision for doubtful debts )341,173( )305,379( Total 22,403,676 22,078,001
8- Credit facilities and receivables: Figures in IRR million 20/3/2011 20/3/2010
Future Deferred Provision for Balance Net Net Description years’ profit profit doubtful debts Installment sale 77,820,219 )12,420,303( )1,906,705( )6,058,237( 57,434,974 61,354,862 Service contract (Jo'aaleh) 6,533,815 )1,681,508( )8,335( )96,164( 4,747,807 9,531,053 Hire purchase 517,149 )128,974( )60,447( )24,630( 303,099 549,598 Forward contract 887,263 - )8,912( )130,568( 747,783 1,401,063 Modharebeh 470,395 - )72,158( )113,504( 284,734 1,592,202 Equity participation 126,920,524 - )464,100( )7,704,430( 118,751,994 90,589,555 Factoring 9,712,035 )3,262( - )159,888( 9,548,885 1,401,556 Qardh-ul-hassanah 12,854,037 )183,355( - )205,139( 12,465,543 9,676,437 Credit granted in foreign 20,121,055 - )957,825( )2,620,264( 16,542,965 14,110,456 currency Customer liabilities under letters - - )2,809,275( 11,957,093 10,334,842 of credit 14,766,368
Customer liabilities under letters 708,190 - )13,674( )221,847( 472,669 303,547 of guarantee
Other credit facilities 6,330,502 - - )789( 6,329,713 865,908 Total 277,641,552 )14,417,402( )3,492,156( )20,144,735( 239,587,259 201,711,079 36 9- Other accounts receivable:
Figures in IRR million
Description 20/3/2011 20/3/2010
Debt to participation bond issuers 1,701,149 3,906,405
Profit and commission income (overseas branches) 283,243 89,678
Dividends receivable 178,877 121,454
Profit income from participation bonds 141,514 169,256
Other foreign exchange fees 53,599 24,106
Provision for commission receivable on foreign cur- )17,425( )14,509( rency letters of guarantee
Total 2,340,957 4,296,390
10- Debtors for letters of credit and term bills of exchange:
Figures in IRR million
Description 20/3/2011 20/3/2010
Debtors for letters of credit and term bill of exchange - private sector 33,810,244 19,017,492
Debtors for letters of credit and term bill of exchange - public sector 21,689,516 24,957,298
Provision for doubtful debts )832,496( )604,171(
Total 54,667,264 43,370,619
37 11- Participation bonds:
Figures in IRR million
Description 20/3/2011 20/3/2010
Participation bonds issued by ministries and 4,297,814 5,126,593 state companies
Participation bonds for private companies 3,398,416 1,084,311 Participation bonds for development projects 1,016,255 1,112,523 Government securities (overseas branches) 1,155 _
Total 8,713,640 7,323,427
12- Investments and joint ventures:
Figures in IRR million 20/3/2011 20/3/2010
Description Current Long-term Total Current Long-term Total
Investment in free-trading shares 1,102,857 - 1,102,857 337,488 - 337,488
Investments in other shares - 2,513,763 2,513,763 - 929,346 929,346 Other investments (overseas) - 1,395,929 1,395,929 - 1,099,677 1,099,677 Total 1,102,857 3,909,692 5,012,549 337,488 2,029,023 2,366,511
38 advances Orders and capital Furniture Total Capital items in storage Assets under completion Motor vehicles Buildings Land Tangible fixed assets have sufficient insurance coverage for fires, floods and earthquakes. 13- Tangible fixed assets: Description 12,323,322 13,315,097 10,384,797 th beginning of the fiscal Balance at 1,320,104 907,709 528,522 period 16,651 67,415 89,899 Assets added fiscal period during the 501,369 345,419 Cost price or reappraisal amount 44,400 75,960 35,590 29,166 13,344 1,890 - fiscal period Assets sold Assets sold during the during the ) 80,949 ( ) 74,247 ( ) 80,949 ) 3,830 ( ) 2,500 ( ) 372 ( - - - ( Amendments, Amendments, and transfers and transfers ) 165,817 ( adjustments adjustments ) 28,617 ( ) 81,243 ( 267,183 180,571 of items ) 1,805 ( ) 88,521 8,493 ) 104 ( ( 12,553,956 10,520,287 13,727,024 Balance at 1,419,469 1,087,311 the end of the fiscal 526,345 period 74,389 87,855 11,368 th beginning of the fiscal Balance at 1,442,595 1,442,595 446,989 927,009 period 68,597 - Fiscal period depreciation 164,510 164,510 67,647 91,521 5,342 Accumulated depreciation - Accumulated depreciation of assets sold ) 5,766 ( ) 3,901 ( ) 1,365 ( ) 5,766 ) 500 ( - ( between items Amendments, and transfers adjustments ) 14,162 ( ) ) 19,765 ( 14,162 5,756 ) 153 ( - ( Balance at 1,587,177 1,587,177 the end of the fiscal period 519,027 998,265 69,885 - 10,966,779 10,001,260 12,139,847 1,087,310 Figures in IRR million 20/3/2011 526,345 421,204 17,970 74,389 11,368 Book value 10,880,726 11,872,501 9,937,808 20/3/2010 528,522 907,709 393,937 20,459 67,415 16,651 n
39 14- Intangible assets
Figures in IRR million
Description 20/3/2011 20/3/2010
Royalties for use of public services 32,989 30,211
Operational and administrative software - 37 Place of business goodwill 700,574 702,209 Total 733,563 732,457
15- Other assets:
Other assets amount to IRR 9,256,985 million, mainly consisting of provisional debt totaling IRR 7,336,118 and collateral totaling IRR 1,927,937 million.
16- Items in transit:
Main part of items in transit corresponds to the difference between domestic debtor and creditor accounts and foreign currency claims and deposits registered in overseas branches and the head office.
17- Due to the Central Bank of Iran:
Figures in IRR million
Description 20/3/2011 20/3/2010
Credit received from the Central Bank of Iran 2,937,198 10,566,097
Time deposits by the Central Bank of Iran 10,424,711 4,856,194 Current balance for state institutions and companies 412,791 991,533 Other 121,842 375,104
Total 13,896,542 16,788,928
40 18- Due to banks and credit institutions: Figures in IRR million
Description 20/3/2011 20/3/2010
Credit received from foreign banks for 7,359,257 5,031,474 domestic usance Foreign currency sight and time deposits by 4,825,425 716,908 domestic banks Sight deposits by foreign banks (foreign 2,482,755 5,622 currency) Time deposits by domestic banks 1,879,235 142 Other 594,034 683,073 Total 17,140,706 6,437,219
19- Sight deposits: Figures in IRR million
Description 20/3/2011 20/3/2010
Current account deposits - IRR and foreign currency 82,671,411 67,778,262
Bank checks sold through other banks 12,841,337 11,952,787
Provisional creditors / IRR and foreign currency 4,618,338 2,324,435 (domestic and overseas)
Bank checks sold 675,250 907,700
Other 606,480 796,095 Total 101,412,816 83,759,279
20- Qardh-ul-hassanah deposits: Figures in IRR million
Description 20/3/2011 20/3/2010
Qardh-ul-hassanah deposits - IRR and foreign currency 24,546,611 18,236,738
Youth and unused special qard-ul-hassanah accounts 487,167 372,430 Total 25,033,778 18,609,168
41 21- Time deposits
Figures in IRR million
Description 20/3/2011 20/3/2010
Long-term time deposits 108,860,480 71,489,811
Short-term time deposits 65,184,686 54,957,915
Special short-term time deposits 8,579,656 13,054,622
Foreign currency time deposits 544,738 954,980 Total 183,169,560 140,457,327
21-1- Long-term time deposits
Figures in IRR million
Description 20/3/2011 20/3/2010
1-year time deposit 26,630,622 19,500,828
2-year time deposit 4,140,997 3,436,097
3-year time deposit 3,237,390 2,886,707
4-year time deposit 489,348 415,259
5-year time deposit 71,316,348 38,075,560
Certificate of deposit (1-year) 3,045,775 7,175,360 Total 108,860,480 71,489,811
42 22- Other deposits:
Figures in IRR million
Description 20/3/2011 20/3/2010
Cash deposits for letters of guarantee (IRR) 7,637,824 6,547,621
Cash deposits for letters of guarantee (foreign currency) 658,498 562,445
Advances on letters of credit 19,516,420 18,392,152
Advances on other credit facilities 274,323 347,474 Total 28,087,065 25,849,692
23- Liabilities for accepting letters of credit and term bill of exchange
Retained liabilities for acceptance of letters of credit and term bills of exchange (foreign currency), in relation to documents traded and endorsed by foreign correspondent banks for finance and usance letters of credit, with a maturity date beyond March 21, 2011. 24- Provisions and other liabilities:
Figures in IRR million
Description 20/3/2011 20/3/2010
Credit facilities from the Foreign Exchange Reserve Fund 3,071,604 16,059,929
Provision for retirement fund expenses 1,318,864 3,666,709 Proceeds from the sale of foreign currency participation bonds for Pars Oil and Gas Company 1,237,309 -
Collection of checks by other banks (deposited by customers) 1,086,752 1,283,914
Subsidy for improvement of rural dwellings 734,774 734,753
Profit and commission income 716,383 574,566
Provision for employment redemption 776,465 531,685
Government profit share subsidy, clause 2, 2005-06 465,695 506,381 fiscal budget policy
Other 984,314 533,329
Total 10,392,160 23,891,266 43 25- Capital:
25-1- The bank’s original share capital stood at IRR 34,120 billion (consisting of 34,120,000 shares with the nominal value of IRR 1,000), increasing during various stages to reach IRR 13,568,599 billion (consisting of 13,568,599,000 shares with the nominal value of IRR 1,000) at the end of the fiscal year 2010-11. Figures in IRR million
Percentage Increased Year of increase increase amount New capital Source of increase 1979-80 - - 39,120 Merging of banks
1992-93 1,360 532,000 571,120 Reappraisal of fixed assets
2000-01 115.6 660,000 1,231,120 From participation bonds
2004-05 748 9,206,264 10,437,384 Fixed assets reappraisal surplus
From cash contribution, 2010-11 30 3,131,215 13,568,599 updated shareholder claims and accumulated profit
25-2- Shareholder structure at balance sheet date: Figures in IRR million 20/3/2011 20/3/2010 Percentage Percentage Number of shares Number of shares of share of share Government of the Islamic Republic of Iran 4,141,851,741 30.53 3,737,832,080 35.8 Justice shares brokerage 5,427,439,652 40 4,174,953,600 40
Employees (preferred shares) 678,429,960 5 521,869,200 5
Private individuals 414,234,566 3.05 428,509,379 4.1
Legal entities 2,906,643,281 21.42 1,574,219,741 15.1
Total 13,568,599,200 100 10,437,384,000 100
Number of shareholders:
Private individuals 29,869
Legal entities 160
44 25-3- Capital adequacy ratio (CAR) is the ratio of the bank’s capital to its risk-weighted assets. The Central Bank of Iran requires that all banks maintain a minimum CAR of 8 percent. The bank’s CAR at balance sheet date is: Figures in IRR million
Description 20/3/2011 20/3/2010
Paid up capital 3,830,335 699,120
Legal reserve 3,179,156 2,507,269
Other reserves 3,166,521 2,613,979
Accumulated profit 6,556,724 6,537,251
Tier 1 capital 16,732,736 12,357,619
General provision for liabilities and investments 4,267,050 3,135,454
Provision for reappraisal of fixed assets 9,738,264 9,738,264
)516,099( ــــــــــــــ Less: Tier 2 capital adjustments
Tier 2 capital 14,005,314 12,357,619
Total capital base 30,738,050 24,715,238 Less: investment in subsidiary banks and credit institutions (unconsolidated) )2,547,256( )1,740,785(
Total capital base 28,190,794 22,974,453
Total risk-weighted assets 341,366,444 250,836,337
Capital adequacy ratio (percent) 8 . 3 9 . 2
26- Legal reserve: Equivalent of 15 percent of net profit, minus deduction of loss from previous years, is considered legal reserve. Transfer to legal reserve is compulsory by law, until the balance reaches the bank’s capital and after that it is voluntary.
27- Other reserves:
Other reserves consist of precautionary reserve. In order to mitigate risk, the bank allocates 10 percent of net profit each year to its precautionary reserves.
45 28- From the unified exchange rate:
In accordance with CBI regulations on unification of exchange rates, dated March 9, 2002, the balance of the bank’s foreign currency assets and liabilities were converted on March 26, 2002 and the proceeds, equivalent to IRR 723,900 million, were deposited into an account titled “Proceeds from unification of exchange rates after tax”.
29 and 30- joint income:
Figures in IRR million
Description 20/3/2011 20/3/2010
Profit from credit facilities 20,404,967 16,456,314
Late payment charges on credit facilities 5,636,710 5,983,127
Profit from investment in participation bonds 856,859 2,088,840 Profit from credit facilities granted to banks and deposits with banks 942,578 1,279,786
Share and joint venture profit 304,325 128,445 Total 28,145,439 25,936,512
46 31- Difference between provisional and actual profit for time deposits:
The difference between provisional and actual profit for time deposits is calculated as follows: Figures in IRR million
Description 20/3/2011 20/3/2010
Credit facilities * 165,632,966 145,294,999
Investments * 2,021,849 1,417,356
Participation bonds 5,408,289 8,349,675
Total operating resources (customer deposits + other resources) 173,063,104 155,062,030
Less: net deposits
Total time deposits 157,047,902 121,202,683
Statutory deposit for time deposits )18,818,643( )15,359,722(
Net customer deposits 138,229,259 105,842,961
Deposits with the bank 34,833,845 49,219,069
Customer deposits to operating resources 79.9% 68.26%
Profit from credit facilities 26,172,599 22,573,684
Profit from participation bonds 856,859 2,088,840
Profit from investments 1,115,981 1,273,987
Total joint profit 28,145,439 25,936,511
Depositors' share of profits 22,420,971 17,682,589
Legal fees )3,851,622( )1,620,425(
Profit payable to depositors 18,569,349 16,062,164
Provisional profit payable to depositors during the year 18,569,349 16,062,164 ــــــــــــــ ـــــــــــــ Surplus balance to be divided among depositors
* Amounts for credit facilities, investments, participation bonds, time deposits and legal deposits have been calculated based on weekly averages during the period.
47 32- Profit and penalty receivable (non-joint income):
Figures in IRR million
Description 20/3/2011 20/3/2010
Late payment charges on other receivables 1,121,679 134,433
Profit income from investments 732,092 647,062 Late payment charges on L/Cs 650,391 1,415,055
Profit and penalty receivable from foreign currency 136,661 facilities 147,172
Late payment charges on other receivables 8,361 399,051 Other 582,764 89,477 Total 3,242,459 2,821,739
33- Commission income (non-joint income):
Figures in IRR million
Description 20/3/2011 20/3/2010
Commission received from banks - RTGS 1,464,043 1,321,630
Commission on letters of credit 1,160,173 748,435
Qardh-ul-hassanah commission 353,374 275,024
Commission received from banks - RTGS 390,925 251,671
Commission received (overseas branches) 141,865 125,597 Commission for other services 645,806 590,158
Total 4,156,186 3,312,515
48 34 and 35- Administrative, general and doubtful debt expenses:
Figures in IRR million
Description 20/3/2011 20/3/2010
Employee expenses 7,719,598 5,473,613
Other administrative expenses 1,807,992 1,524,291
Depreciation expenses 164,517 217,240
Doubtful debt expense 2,539,913 2,737,130 Total 12,232,020 9,952,274
36- Financial expenses: Figures in IRR million
Description 20/3/2011 20/3/2010
Profit paid to retirement funds 120,685 629,287
Commission expenses 410,759 300,077
Profit paid (overseas branches) 168,778 188,820
Foreign currency sight deposits by brokers 172,061 167,410
Miscellaneous 374,608 1,093,533 Total 1,246,891 2,379,127
37- Off balance sheet items: 37-1- Customer commitments for letters of credit Figures in IRR million
Description 20/3/2011 20/3/2010
Customer commitments for letters of credit 94,646,661 71,865,011
Customer commitments for domestic letters of credit 8,734,851 2,986,961 Total 103,381,512 74,851,972
49 37-2- Customer commitments for letters of guarantee: Figures in IRR million
Description 20/3/2011 20/3/2010
Customer commitments for letters of guarantee (domestic) 87,772,312 64,248,125
Customer commitments for letters of guarantee (foreign currency) 26,436,906 25,706,088
Total 114,209,218 89,954,213
37-3- Other customer commitments: Figures in IRR million
Description 20/3/2011 20/3/2010
Party to customer commitments for transaction 4,912,975 4,537,169 agreements Commitments by the Management and Planning Organization for credit granted from the Foreign 4,463,176 4,396,032 Exchange Reserve Fund
Other 5,648 5,131
Total 9,381,799 8,938,332
37-4- Administered funds and similar items: Figures in IRR million
Description 20/3/2011 20/3/2010
Credit granted from administered funds 1,296,269 1,518,907
Unused administered funds 125,422 129,111
Credit granted from special qardh-ul-hassanah deposits 167,141 185,424
Unused special qardh-ul-hassanah deposits 78,172 52,753
Credit granted from interbank funds 472,903 418,221 Total 2,139,907 2,304,416
50 38- Basic earnings per share: Calculations for basic earnings per share for the fiscal years 2009-10 and 2010-11 have been carried out based on the weighted average of the number of shares issued during the corresponding year, in compliance with the Accounting Standard Number 30 for the calculation of earnings per share. Considering the increase of capital by IRR 3,131,215 million (IRR 730,617 million from accumulated profit and the issue of 2,400,598,000 share options with a nominal price ofIRR 1,000), the weighted average for the number of shares during the two years specified stands at 12,222 and 12,139 million shares, respectively.
51 52 53 Market position
Tejarat Bank is one of the top five commercial banks in Iran, alongside the banks Melli, Sepah, Saderat and Mellat. Traditionally considered fully government-owned banks, each of the top five have been undergoing full or part-privatization during the past years. In this section, Tejarat Bank’s market position, in terms of resources and market share, is reviewed in comparison to its peer group.
Performance indicators
The following table shows the standing of Tejarat Bank among the top five commercial banks, in terms of the number of employees and branches, resources, expenditure and liabilities for the past two financial years. As could be seen from the data provided, the standing of the bank in 2010-11 has improved in most areas, in comparison with 2009-10.
Figures in IRR billion
Number of Number of Private Net private L/C L/G Time period Description employees branches resources (IRR) utilization commitments commitments
Five banks’ total 137,645 11,987 1,400,960 1,106,788 301,338 228,333
February 20 Tejarat Bank 21,135 1,951 242,064 196,450 74,852 85,209 to March 20, 2010 Share of total 15 % 16 % 17.3 % 18 % 25 % 37.3 %
Rank 4 3 4 4 2 1
Five banks’ total 133,724 11,889 1,699,960 1,361,514 337,361 274,667
February 20 Tejarat Bank 20,913 1,898 302,296 239,395 103,382 101,354 to March 20, 2011 Share of total 15.6% 16% 17.8 % 17.6 % 30.6 % 36.9 %
Rank 4 3 4 4 1 1
In terms of letters of credit, the bank has enjoyed significant growth of 38 percent in 2010-11, resulting in a leading market share of 31 percent, up from second position in 2009-10. As for letters of guarantee, the bank has been able to maintain its number one position, with a market share of 37 percent.
54 Total deposits
The following tables shows a breakdown of IRR deposits for the various types of deposit accounts offered by the bank, in comparison with the other four commercial banks.
Figures in IRR billion
Profit-free qardh-ul- Short-term time Long-term time Other deposits Time section Description current accounts hassanah savings deposits deposits Total
Five banks’ total 286,012 98,674 420,928 457,408 137,938 1,400,960 February 20 to March Tejarat Bank 62,999 16,635 68,013 71,490 22,927 242,064 20, 2010 Share of total 22 % 17 % 16 % 16 % 17 % 17.3 %
Five banks’ total 358,635 132,644 467,567 591,449 149,664 1,699,960 February 20 to March Tejarat Bank 72,862 20,053 75,564 108,860 24,956 302,296 20, 2011 Share of total 20 % 15 % 16 % 18 % 17 % 18 %
Five banks’ total 25.4 34.4 11.1 29.3 8.5 21.3 Growth rate Tejarat Bank 15.7 20.5 11.1 52.3 8.8 24.9
In 2010-11, the growth in total deposits for the bank has been 0.5 percent, leading to a market share of 24.9 percent. Considering the market average of 21.3 percent, this denotes a positive standing for the bank in terms of deposits among its peer group.
The breakdown of the bank’s total deposits into the two categories profit-free (qardh-ul-hassanah) and profit-bearing is shown in the following diagram. The bank’s total profit-free deposits equal 39 percent of total deposits, which is 2 percent above the market average of 37 percent.
55 Breakdown of profit-bearing and profit-free deposits Percent
80
61% 63% 60
40 39% 37%
20
0
Profit-free deposits Profit-bearing deposits
Tejarat Bank Five banks’ total Balance sheet summary
The following table provides a summary of the bank’s balance sheet items over the last three years:
Percent
Description 2010-11 2009-10 2008-09 Description 2010-11 2009-10 2008-09
Cash and due from banks 23.3 22.4 24.9 Due to banks 6.7 6.1 11.3
Granted credit facilities 68.1 69.7 67.0 Deposits 72.6 70.1 63.7
0.5 1.1 0.1 Liabilities for L/C and 11.5 10.5 12.1 Other accounts receivable term bills of exchange
Other liabilities and 1.9 1.9 2.9 3.5 7.5 7.4 Participation bonds reserves
Investments and joint 1.1 0.6 0.6 Shareholders’ equity 5.7 5.8 5.5 ventures
Fixed assets 2.7 3.3 3.6
Other assets 2.4 1.0 0.9
Total liabilities and 100 100 100 100 100 100 Total assets shareholders’ equity
56 Performance indicators
Total deposits
The following figure shows total deposits (IRR and foreign currency) for the past four financial years. As can be seen from the figure, total deposits at the end of the financial year 2010-11 reached IRR 337,703 billion, showing a 25.7 percent increase compared with 2009-10. In comparison with the country’s liquidity growth rate of 25.2, Tejarat Bank has displayed a good performance in attracting deposits, particularly in light of a highly competitive market environment.
Total deposits
IRR billion
400/000 350/000 337,703 300/000 268,675 250/000 216,428 200/000 187,675 150/000 100/000 50/000 0 2007-08 2008-09 2009-10 2010-11
The breakdown of deposits (IRR and foreign currency) based on account type and in terms of profit paid is shown in the following diagram. The total for profit-free deposit and current accounts equals 45.7 percent and for savings and time deposit accounts equals 54.3 percent. The higher ratio for time deposits provides the bank with better resources for granting credit to customers.
Breakdown of deposits in terms of profit paid
Sight deposits Qardh-ul-hassanah and similar deposits Short-term time deposits Long-term time deposits Other deposits
57 Total credit outstanding
The growth in total credit outstanding over the last four years is shown in the following figure. This includes new and outstanding credit granted to public and private sector customers. The rate of growth in outstanding credit for the year 2010-11 stood at 17.6 percent, with the average rate of growth during the four-year period shown equaling 17.5 percent.
Total credit outstanding IRR billion 300/000 282,136
250/000 239,829 200/000 197,017 174,049 150/000
100/000
50/000
0 2007-08 2008-09 2009-10 2010-11
Credit facilities granted by Iranian banks are broken down into two main categories, transactional and participatory. Transactional agreements have a fixed rate of return and fixed maturity and payments and are usually granted to provide working capital and trade finance. Participatory agreements on the other hand are profit-sharing contracts where the bank and the customer share the proceeds. These types of agreements are usually granted for trade and industrial projects and for providing fixed and working capital to manufacturing units with appropriate profitability. The following figure shows the breakdown in the proportion of transactional and participatory credit granted over the past two years. The increase in participatory credit, further to increasing profitability for the bank, leads to better allocation of resources in society (due to the selection of financial activities with higher rate of return) and economic growth in the country.
2009-10 2010-11
55% 87,289 59% 110,386
70,995 45% 41% 77,589
Transactional credit Participatory credit
58 The breakdown of total credit outstanding based on the economic sector at the end of 2010-11 is shown in the following figure. As can be seen from the figure, the main proportion of credit outstanding (approximately 71.4 percent) has been granted to industry and mining, housing and construction and agriculture sectors, which represents support of manufacturing and the creation of employment in the country.
Breakdown of total credit outstanding based on the economic sector
Exports Commerce and services Agriculture Housing and construction Industry and mining
L/G commitments
Details of letters of guarantee issued (IRR and foreign currency), guarantee deposits and charges during the past four years are shown in the table below. For the year 2010-11, these three parameters demonstrated a 27, 16.7 and 10.8 percent increase, respectively. It should be noted that for L/G commitments, Tejarat Bank holds the number one place among all banks in the country and a 37 percent share among the top five commercial banks.
Figures in IRR billion
Description 2010-11 2009-10 2008-09 2007-08
L G commitments in foreign / 114,209 89,954 78,874 61,452 currency and IRR
L/G deposits 8,296 7,110 6,791 5,106
L/G commission 1,464 1,322 1,128 903
59 Foreign currency and IRR L/G commitments balance IRR billion
120/000 114,209
100/000 89,954 78,874 80/000 61,452 60/000
40/000
20/000
0
2007-08 2008-09 2009-10 2010-11
L/C commitments
Details of L/C (letters of credit) commitments, including credit outstanding and prepayments during the past four years are shown in the following table. As can be seen from the table, credit outstanding at the end of 2010-11 shows a 38 percent increase compared with the previous year, despite a difficult year for foreign trade and problems due to international sanctions.
Figures in IRR billion
Description 2010-11 2009-10 2008-09 2007-08
Customer commitments for L/Cs 103,382 74,852 66,579 72,612
L/C advances 19,516 18,392 2,069 11,308
60 Customer commitments for L/Cs IRR billion
110,000 103,382 100,000 90,000
80,000 74,852 72,612 70,000 66,579 60,000 50,000 40,000
2007-08 2008-09 2009-10 2010-11
Total Income
The following table shows the breakdown of total income for the Bank during the past two years. Total income for the Bank during 2010-11 enjoyed a 21.4 percent increase, rising from IRR 34,756 billion to IRR 42,195 billion.
Figures in IRR million
2010-11 2009-10 Changes Description Balance Balance %
Profit from credit facilities 26,172,599 22,573,684 15.9
Profit from investments and joint ventures 1,972,840 3,362,828 )41.3(
Total joint income 28,145,439 25,936,512 8.5
Profit and penalty receivable 3,242,459 2,821,739 14.9
Commission income 4,156,186 3,312,515 25.5
Other income 6,651,181 2,685,568 147.7
Total non-joint income 14,049,825 8,819,822 59.3
Total income 42,195,264 34,756,334 21.4
61 The breakdown of total income based on income type for 2010-11 is shown in the figure below.
Breakdown of total income based on income type
Profit from credit facilities Profit from investments and joint ventures Profit and penalty received Commission income Other income
The following figures show the breakdown of income for the Bank for the past four years in terms of joint and non-joint income. Total joint and non-joint income for 2010-11 was equal to IRR 19,774 billion, showing an increase of approximately 15.8 percent compared with the previous year. Of this, 28.9 percent was attributed to joint income and 71.1 percent to non-joint income. An increase in the bank’s share of non-joint income from total income from 51.7 percent in 2009-10 to 71.1 percent in 2010-11 shows greater stability in the composition of the Bank’s income.
Total income
IRR billion
25,000 19,774 20,000 17,074 15,702 14,050 15,000 13,414
10,000 7,174 8,640 8,820
5,000 8,254 7,062 6,240 5,724 0
2007-08 2008-09 2009-10 2010-11
Joint income h Non-joint income Total income
62 Breakdown of joint and non-joint income
Joint income Non-joint income
Profit paid to depositors
The trend of profit paid out to depositors, representing their share of the bank’s profit income, is shown in the following figure for the past four years. As can be seen from the figure, profit paid out in 2010-11 shows a 26.8 percent increase compared with the previous year. This rate, compared with the 30 percent increase in time deposits shows an improvement in the expense composition of time deposits and a reduction in costs (the cost of money).
Profit paid to depositors
IRR billion 22,421 20,000 17,683
15,000 11,789 10,000 9,428
5,000
0
2007-08 2008-09 2009-10 2010-11
63 Total expenses
Details of the bank’s expenses are shown in the following table for the past four years. As can be seen from the information provided, the decreasing trend of non-performing credit over the given period is due to an improvement in classes of credit and the quality of the bank’s assets, resulting in a reduction in the share of this type of expense and the increase of other expense items.
Figures in IRR billion
2010-11 2009-10 2008-09 2007-08
Description Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Doubtful debt expenses 2,540 18.3 2,737 21.7 3,834 32.5 4,056 39.5
Depreciation expense 165 1.2 217 1.7 208 1.8 210 2.0
Personnel expenses 7,720 55.6 5,474 43.4 4,098 34.8 3,346 32.7
Overhead expenses 1,808 13.0 1,524 12.1 1,264 10.7 903 8.8 Other expenses 1,662 12.0 2,659 21.1 2,383 20.2 1,746 17.0
Total 13,894 100 12,611 100 11,787 100 10,261 100
Net profit
The following figure shows the trend of net profit during the past four years. As net profit is demonstrative of an organization’s performance during a specified period, it is considered one of the most important performance indicators. The rising trend of this indicator during the past years indicates favorable and improving performance. It should be noted that the higher value for net profit during 2007-08, compared with the following year is due to an unusual increase in non- operational profit due to the sale of excess properties held by the bank during the financial year.
64 Net profit trend
IRR billion
5,000 4,500 4,479 4,000 3,354 3,500 3,153 3,000 2,785 2,500 2,000 1,500 1,000 500 0 2007-08 2008-09 2009-10 2010-11
Key ratios
Return on shareholders’ equity The following figure shows return on shareholders’ equity during the past four years. As can be seen from the figure, this indicator has increased from 21.9 percent in 2009-10 to 24.2 percent in 2010-11, indicative of better management of assets, liabilities and general performance of the Bank.
Figures in IRR million
Description 2010-11 2009-10 2008-09 2007-08
Profit before tax 5,880,162 4,462,516 3,915,251 3,152,804
Average shareholders’ equity 24,283,442 20,357,689 17,856,483 15,047,683
Return on shareholders’ equity (%) 24.2 21.9 21.9 21.0
65 Return on shareholders' equity
Percent
26
25 24.2 24 23 21.9 21.9 22 21.0 21 20 19
2007-08 2008-09 2009-10 2010-11
Return on assets
Return on assets for the past four years is shown in the following figure. This ratio, which is representative of the rate of return in profit for every IRR 100 in assets is one of most important ratios for evaluating performance. The growing trend for this ratio during the given period is indicative of optimum management of assets.
Figures in IRR million
Description 2010-11 2009-10 2008-09 2007-08
Profit before tax 5,880,162 4,462,516 3,915,251 3,152,804
Total assets 424,399,378 361,566,201 318,783,570 269,975,356
Return on assets (%) 1.39 1.23 1.23 1.17
66 Return on assets
Percent 1.6
1.5
1.4 1.39
1.3 1.23 1.23 1.2 1.17
1.1
1.0
2007-08 2008-09 2009-10 2010-11
Profit margin
The rates for return on credit facilities, cost of money and profit margin for the past four years are provided in the following table. As can be seen from the table, profit margin during 2010-11 enjoyed a growth of 18.5 percent in 2010-11, which is due to an 11 percent reduction in the cost of money.
Figures in %
Description 2010-11 2009-10 2008-09
Rate of return on credit facilities 14.8 15.4 12.2
Cost of money rate 8.4 9.5 8.2
Profit margin rate 6.4 5.9 4
67 Profit margin
2010-11 6.4 Percent
2009-10 5.9
2008-09 4
0 1 2 3 4 5 6 7
Efficiency ratios
The increasing trend in efficiency ratios for branches and employees during the past four years is shown in the following table. These indicators have enjoyed significant growth in 2010-11, compared with the previous year, such that the ratio of deposits and credit facilities to average number of employees (per capita) has risen from 12.7 percent and IRR 11 billion in 2009-10 to 16 percent and IRR 14 billion in 2010-11. Figures in IRR million
Indicator 2010-11 2009-10 2008-09 2007-08
Deposits per capita 16,059 12,652 10,162 9,037
Credit facilities per capita 12,984 11,085 9,005 8,296 Personnel Income per capita 2,007 1,637 1,291 1,100
Net profit per capita 213 158 131 152
Deposits per capita 177,739 137,571 108,977 95,412
Credit facilities per capita 143,708 120,537 96,570 87,588 Branches Income per capita 22,208 17,796 13,842 11,613
Net profit per capita 2,357 1,717 1,402 1,603
In addition, the rate of profit per capita has grown by 35 percent in 2010-11 to IRR 213 million from IRR 158 million in 2009-10. Branch efficiency indicators per capita have also enjoyed considerable growth in 2010-11.
68 Operational control indicators
Fixed assets to total assets
The following diagram shows the trend in the ratio of fixed assets to total assets during the past four years. This ratio is representative of the proportion of the bank’s assets which have been taken out of the bank’s operations, toward supporting the bank’s fixed assets. Due planning carried out in line with control procedures has been effective in reducing this ratio during the given period.
Figures in IRR billion
Description 2010-11 2009-10 2008-09 2007-08
Fixed assets 12,873 12,605 12,299 11,932
Total assets 465,312 383,487 339,646 297,921
Fixed to total assets (%) 2.77 3.29 3.62 4.01
Fixed assets to total assets Percent 7 6 5 4.01 3.62 4 3.29 3 2.77 2 1 0 2007-08 2008-09 2009-10 2010-11
69 Capital adequacy ratio
Capital adequacy ratios for the Bank over the past three years have been provided in the following figure. In accordance with guidelines set by the CBI, this ratio needs to be maintained at a minimum of 8 percent. At the end of 2010-11 capital adequacy ratio stood at 8.3 percent for Tejarat Bank.
Capital adequacy ratio
Percent
10 9.2 8.3
8 7.6 6
4
2
0 2008-09 2009-10 2010-11
Open currency position
The following diagram shows the status of the bank’s open currency position during the past three years. The sudden increase in this indicator in 2010-11 is due to the canceling out of the bank’s claims from the CBI against its debt due to credit received from the country’s foreign currency reserve fund during the year. It should be noted that plans to control the open currency position have been underway, with the decrease from the maximum shown in the figure to IRR 9,393 billion in September 2011 being indicative of the bank’s success in this regard to date.
Open currency position IRR billion
2010-11 16,532
2009-10 921
2008-09 2,265
0 3,000 6,000 9,000 12,000 15,000 18,000
70 71 72