In the name of God Karafarin Bank Global Knowledge, Local Solution CONTENTS 5 KEY FIGURES 6 MANAGING DIRECTOR’S STATEMENT 8 BOARD OF DIRECTORS’ REPORT TO THE ANNUAL ORDINARY GENERAL ASSEMBLY MEETING FOR THE FINANCIAL YEAR ENDED 20.03.2015 Chapter I 9 ECONOMIC REVIEW, ISLAMIC BANKING PRINCIPLES & IRAN’S BANKING SECTOR 10 ECONOMIC REVIEW 2014-15 12 ISLAMIC BANKING PRINCIPLES 14 IRAN’S BANKING SECTOR Chapter II 15 INTRODUCTION 16 BACKGROUND 16 OBJECTIVES 17 CORPORATE SOCIAL RESPONSIBILITIES 17 PRIZES, DISTINCTIONS & ACHIEVEMENTS IN RECENT YEARS 18 SHAREHOLDER COMPOSITION 18 SPECIALIST COMMITTEES 19 REGULATORY ENVIRONMENT 20 ORGANISATIONAL CHART 21 HUMAN RESOURCES 22 CAPITAL 23 DEVELOPMENT PLANS Chapter III 25 PERFORMANCE 26 OPERATIONAL PERFORMANCE 26 BRANCHES 27 INFORMATION TECHNOLOGY 28 COMPLIANCE & ANTI-MONEY LAUNDERING DEPARTMENT 30 RISK MANAGEMENT 36 FINANCIAL PERFORMANCE 36 INVESTMENTS 41 SHARE PRICES & TRADING INFORMATION 41 INTEREST RATES OF INVESTMENT DEPOSIT ACCOUNTS 42 PAID INTEREST ON INVESTMENT DEPOSITS 43 STRUCTURAL DISTRIBUTION OF DEPOSITS 44 MAJOR ITEMS OF INCOME STATEMENT 44 COMPARATIVE ANALYSIS OF INTERESTS RECEIVED FROM GRANTED FACILITIES, DEPOSITS & INVESTMENT REVENUES 45 EPS FORECAST 46 MAIN ITEMS OF THE STATEMENT OF FINANCIAL POSITION Chapter IV 47 INDEPENDENT AUDITOR’S REPORT Chapter V 51 FINANCIAL STATEMENTS KEY FIGURES Granted Facilities Total Assets Term Investment Deposits million IRR million IRR million IRR 2014-15 70,195,991 2014-15 113,180,517 2014-15 75,990,045 2013-14 59,128,314 2013-14 101,192,763 2013-14 65,281,678 Capital Letters of Guarantee Interest on Loans & Facilities million IRR million IRR million IRR 2014-15 8,500,000 2014-15 22,097,589 2014-15 16,554,023 2013-14 7,250,000 2013-14 18,134,772 2013-14 11,912,988 The Iranian fiscal year ends on March 20th. The rate of exchange was $1 / IRR27,994 at the end of the period. MANAGING DIRECTOR’S STATEMENT am pleased to present the report Our performance indicators and our continuous of Karafarin Bank’s outstanding achievements in the economic and monetary performance and operations sectors clearly demonstrate that Karafarin over the past financial year. The Bank remains to be Iran’s pioneering bank as accomplishments outlined in this far as electronic banking is concerned. As a reportI are undeniably a joint outcome of part of the value-creating activities that define genuine efforts made by our committed team our over-arching customer-oriented approach of experts and the support we have received which lie at the heart of our progressive growth from our esteemed shareholders on our path strategy, additional emphasis has been placed to make yet another successful year in the to provide secure electronic banking services to Bank’s history. Hence, I would like to take this our valued customers and to implement a wide opportunity to express my deepest gratitude to range of modern banking products and new all those who have played a part in the Bank’s service networks by creating new environments current successful record. and branches. All these measures are aimed at asserting a stronger presence in society, Despite economic impacts as a result of enabling us to offer improved quality services. sanctions enforced against Iran in the previous year, the former Managing Director and the During the previous year, Karafarin Bank executive managers of Karafarin Bank-–to became Iran’s top bank in banking sector whom I express my gratitude-–have been and achieved the second rank among the top successful in overcoming such challenges. one hundred companies (IMI-100) listed on Thanks to the ongoing support of our Board of the Tehran Stock Exchange (TSE) in terms of Directors and the efforts of our dedicated and transparency of financial information. expert colleagues, we have taken effective steps within the framework of the governing These achievements have undoubtedly banking regulations, towards excellence and resulted from the collective efforts of our growth. colleagues and the trust and ongoing support of our shareholders. We firmly believe that with I am also pleased to announce that during the the continued support of our shareholders and reporting financial period, Karafarin Bank has customers, we will accomplish further growth enjoyed growth on different levels and that our and excellence whilst realizing the Bank’s dedicated colleagues have done their utmost in greater objectives more than ever before that following professional conduct and in rendering can lead to new business horizons and ensure high-quality services. Although some limitations customer and shareholder satisfaction. continued to remain as far as international activities are concerned, yet whilst fully Ataollah Ayatollahi observing the existing laws and regulations, Karafarin Bank successfully overcame such limitations. Consequently, this Bank has lived up to the expectations of its clients, which are essentially Iran’s major players in the economic arena. BOARD OF DIRECTORS’ REPORT TO THE ANNUAL ORDINARY GENERAL ASSEMBLY MEETING FOR THE FINANCIAL YEAR ENDED 20.03.2015 Dear Shareholders, presented on the basis of emphasizing the We hereby present to you the Board of principles of fair presentation of the Board of Directors’ report about Karafarin Bank’s Directors’ performance for the reporting period, Annual Ordinary General Assembly Meeting. consistence with the objective of safeguarding The provision of this report fulfils our the interests of the Bank, compliance with the compliance with obligations in respect of the relevant legal and regulatory requirements as requirements set forth in Articles 232 of the well as conformity with the Bank’s Articles of Commercial Code of 1968 (as amended) and Association. The information included in the Article 45 of the Securities & Exchange Act. report is accurate, complete and corresponds This report which has been prepared on the to factual events of the past and any basis of existing evidence and documents foreseeable future outcomes that could have reflects the operations and general position of been reasonably projected. The report which the Bank for the Iranian financial period ended was approved and endorsed by the Board 20.03.2015. of Directors on 07.07.2015, does not include any information whose non-provision could In our opinion, information incorporated in mislead the users. the report on the Bank’s operations and its general position, has been prepared and Board Member Position Academic Background Vice-Chairman & Managing Mr Ataollah Ayatollahi BS in Irrigation & Construction Director Mr Fazlollah Moazzami Member of the Board of Directors MA in Accounting Mr Ali Baghayee Member of the Board of Directors PhD in Banking Mr Morteza Azizi Member of the Board of Directors BS in Industry Mr Mohammad Reza Farzin Member of the Board of Directors PhD in Economics Mr Javad Shekarkhah Member of the Board of Directors PhD in Accounting Mr Masoud Azmi Member of the Board of Directors MBA Karafarin Bank 8 Global Knowledge, Local Solution Chapter I ECONOMIC REVIEW, ISLAMIC BANKING PRINCIPLES & IRAN’S BANKING SECTOR Annual Report 2014-2015 9 ECONOMIC REVIEW 2014-15 During the reporting financial period, the Iranian Value added growth of the agriculture sector economy experienced a relative era of calm reached IRR136 trillion, which shows a growth and stability, partly due to some external factors of 3.8% in comparison with the previous year. such as the nuclear talks with the Western This sector currently accounts for less than 7% of powers. Despite some unpleasant events such Iran’s GDP. Referring to the construction sector, as the fall of oil prices to US$44/barrel, the its value added growth reached negative 0.4% Iranian economy enjoyed an upturn to the point during the reporting fiscal year, demonstrating where it saw the end of recession. a mild recovery trend in comparison with its negative value added growth of 3.1% in the Inflation rate was under control and month-to- previous year. month inflation rate reached 16.2%. Average inflation rate for the year was 15.6%. GDP Value added growth of the construction sector also grew from IRR1,973 trillion in 2014-15 to was minus 0.4%, which in comparison with the IRR2,032 trillion in the following year, indicating negative 3.1% in the past year, demonstrates a 3% growth. Although this growth marks the relative recovery. end of recession, Iran’s economy has not yet reached its prerecession level. Average During the 2014-15 period, the Tehran unemployment rate which was 10.4% in 2013 Stock Exchange (TSE) Index experienced a fell to 10.2% in the following year, indicating no downward trend of 21% from 79,014 units by significant change. March 2014, reaching 62,532 units in March 2015. During the same period, Iran’s balance of Liquidity, deposits and money base fell by payment experienced a surplus of US$5.7 billion March 2015, demonstrating CBI’s success which shows a 16.7% decline in comparison in controlling liquidity. Statistics show that the with the same period in the previous year. The CBI’s claims from the public sector fell from main reason for this decline is the reduction of IRR38.7 trillion in March 2014 to IRR38.5 oil export revenues which resulted from falling trillion in the following year. However, the CBI global oil prices. was unable to prevent the banks from excess withdrawals. Hence, CBI claims from the banks Furthermore, during the 2014-15 period, increased by 42%. The rate of liquidity growth government revenues which reached was 22.3% which is less than the 30% in the IRR1,379.8 trillion enjoyed a growth rate of similar period in the previous year. 31.8% compared to the similar period in the previous year. Government spending also The oil sector, which is the main source of Iran’s increased by 32.9%, reaching IRR1,517 trillion.