annual report 2009 - national bank of egyptdr. farouk abdel baki el-okdah,chairman mr. kazem hassan...

ANNUAL REPORT 2009

Board of DirectorsDr. Farouk Abdel Baki El-Okdah – ChairmanMr. Kazem Hassan Barakat – Deputy Chairman and Managing DirectorMr. Mokhtar Abdel Gawad El Shennawy – Deputy Managing DirectorMr. Tarek Hassan Nour Eldin Aly AmerMr. Hussein Abdel Aziz HusseinMr. Mohamed Hany Seif El Nasr (term of office expired 31st January 2009)Mr. Christopher Hayward DavisDr. Ziad Ahmed Bahaa-EldinMr. Raymond SeamerMr. Sherif Mohamed Aly Elwy (appointed 2nd February 2009)

Company SecretaryMr. Reg Egan

Management CommitteeDr. Farouk Abdel Baki El-Okdah – ChairmanMr. Tarek Hassan Nour Eldin Aly AmerMr. Kazem Hassan Barakat – Deputy Chairman and Managing DirectorMr. Mokhtar Abdel Gawad El Shennawy – Deputy Managing Director Mr. Robert Avery – General Manager (retired 22nd October 2009)Mr. Ismail Saleh – General Manager

Management Committee SecretaryMr. Ahmed Maksoud – Deputy General Manager

Audit CommitteeMr. Christopher Hayward Davis – ChairmanMr. Raymond SeamerMr. Attia Salem Attia Salem (term of office expired 20th September 2008)Mr. Hisham Okasha (appointed 20th September 2008)

Audit Committee SecretaryMr. Brian William Turner – Head of Internal Audit

SolicitorsDenton Wilde SapteOne Fleet PlaceLondonEC4M 7WS

AuditorsKPMG Audit Plc.One Canada SquareCanary WharfLondon E14 5AG

Registered OfficeTrafalgar House11 Waterloo PlaceLondon SW1Y 4AU

National Bank of Egypt (UK) LimitedWholly owned subsidiary of National Bank of EgyptRegistered in England No. 2743734

Annual Report 2009 30 June 2009 National Bank of Egypt (UK) Limited 1

National Bank of Egypt (UK) Limited

On behalf of the Board of Directors it is my privilege to present the audited annual report andfinancial statements of National Bank of Egypt (UK) Limited for the year ending 30th June 2009.Without a doubt, this proved to be one of the most challenging years for the financial sector globally.

Over the last 12 months and with increasing intensity after September 2008 the global financial systemhas suffered a huge crisis, certainly the worst for 70 years. Severe problems emerged in bank and banklike institutions in many countries simultaneously; the ability of the banking system to extend creditto the real economy has been impaired; and as a result global economic growth has turned negativefor the first time since the Second World War, with many developed countries including the UK,suffering major recessions.

Accordingly, the bank implemented a number of important risk management initiatives during thisfinancial year, designed to strengthen the ability to meet future challenges and protect the interest ofits stakeholders. Management’s primary focus will be on improving the credit quality of its assets andmaintaining good liquidity, with yield being a secondary concern.

In April 2009 the bank raised the authorised share capital from GBP100mn to GBP200mn. AGBP30mn capital injection paid from the parent company increasing the paid up capital toGBP130mn together with the approved lower tier two capital subordinated loan of USD30mn,further strengthened the bank’s capital resources.

Despite difficult market conditions and with the benefit of the stable and strong customer funding,the bank achieved a Net Operating Profit of GBP14mn, an increase of 12% over its level a year earlier.However, the profit has been adversely affected this year due to the impairment allowance andprovisions made against identified doubtful debts.

Looking ahead, although the global economy has witnessed fragile signs of recovery, it is likely toexperience ongoing recessional conditions, with the effects being felt by the international bankingmarket for some time. This will present challenges for future profitability but we are optimistic thatour conservative strategy will continue to pay dividends, through which the bank will continue tohold strong capitalisation, stable funding and high quality assets.

On behalf of the Board I would like to express my appreciation for the support of our shareholders,the bank’s staff for their efforts and for the continued loyalty and trust of our customers.

Dr. Farouk A. El OkdahChairman

Chairman’s statement

2 National Bank of Egypt (UK) Limited Annual Report 2009 30 June 2009

Contents Page

Directors’ report 4-6

Statement of directors’ responsibilities in respect of

the Directors’ Report and the financial statements 7

Independent auditors’ report to the members

of National Bank of Egypt (UK) Limited 8-9

Profit and loss account 10

Balance sheet 11

Reconciliation of movements in shareholders’ funds 12

Notes 13-29

Five year summary 30

Departmental management 31


Directors’ report and financial statements

The Directors of National Bank of Egypt (UK) Limited (“the Company”) have pleasure inpresenting their annual report, together with the financial statements and auditors’ report, forthe year ended 30 June 2009.

Principal activitiesNational Bank of Egypt (UK) Limited was granted on 24 December 1992 the status ofauthorised institution under the UK Banking Act 1987 (since superseded by the FinancialServices and Markets Act of 2000). The Company is a wholly owned subsidiary of NationalBank of Egypt, 1187 Corniche El Nil, Cairo, Egypt.

The Company provides general banking services in the United Kingdom to private and publicsector customers, particularly to the Egyptian community, and conducts international bankingbusiness world-wide. The Company participates actively in the inter-bank, foreign exchangeand syndicated loans markets and in the finance of international trade and invests in gilt-edgedsecurities and floating rate notes.

Business ReviewAs at 30 June 2009 the Company had total assets of £1,351 million, approximately the samelevel as at 30 June 2008. The Company made a loss of £18.6 million after tax and provisions,compared to £8.5 million profit in the previous year. Market conditions deteriorated furtherduring the year, affecting the results of the Company through provisions and impairments inrespect of a number of assets.

However, the Company’s traditional strengths of stable funding, good liquidity and strongcapitalisation were maintained throughout the year and the Company is well placed to achievegood profitability going forward, despite the continuing uncertain economic environment.

Financial resultsThe financial statements for the reporting year ended 30 June 2009 are shown on pages 10 to29. The loss after taxation for the year amounts to £18,588,405 (2008: Profit of £8,508,825).

During the year, the Company paid a dividend of £5,000,000 (2008: £5,250,000). TheDirectors intend to declare no dividend for 2008/9 (2007/8: £5,000,000) based on the loss onordinary activities after tax for the year ended 30 June 2009.

Financial Highlights 2008/9The significant loss for the year is a result of the provisions and impairment losses bookedagainst various loans and securities. These amounted to £40,082,001, and are a direct result ofthe recent market turmoil.

Year on year, net interest income increased by 15% to £15,962,967 (2008: £13,845,720),despite unfavourable foreign exchange rates and poor trading conditions, although non interestincome decreased, as a result of these factors, by 15% from £5,499,368 to £4,659,000.

Non interest expense decreased by 3% from £6,836,557 in 2008 to £6,640,858 in 2009, aspart of a continued focus on cost control.

Total assets, at £1,351,139,313 were broadly similar to the previous year.

Risk ManagementThe Company has an established Risk Management Function and controls to ensure that allof its principal risks are identified and that policies and monitoring processes are in place tomitigate them. The Company’s risks are managed taking into account several main principlesincluding management responsibilities for the management of risk and controls, assessment andmeasurement of all identified risks with acceptable balance between risk versus return, andundertaking an annual review of risk policies and the control framework to ensure optimalcapital allocation and utilisation for relevant risks.


Directors’ report

The Company is primarily exposed to credit risk, interest rate risk, foreign currency risk,liquidity risk and operational risk. The Company operates internationally and it is principallyexposed to credit risk, being the risk of loss that may occur from the failure of any obligor tomake the required repayments of exposures due to the Company as and when they fall due.Various investment strategies and derivatives are used to mitigate these risks and optimiseinvestment performance.

Under the Capital Requirements Directive, the Company has adopted the StandardisedApproach to credit risk and the Basic Indicator Approach to operational risk. Details of theCompany’s financial risk management objectives and policies, including those in respect offinancial instruments, and details of the Company’s indicative exposure to risks are given inNote 18. The authorised share capital was increased from £100 million to £200 millionduring the year and the Company’s Tier 1 capital was strengthened through the injection of£30 million in additional equity by the parent bank in October 2008 (£10 million) and April2009 (£20 million). Further details of the Company’s risk management policies, proceduresand exposures, in compliance with the Pillar 3 requirements of the Capital RequirementsDirective, are published on the Company’s website, www.nbeuk.com.

Customer ServicesThe company offers banking services in the UK to Egyptian nationals, Egyptian embassies andrelated offices and Egyptian corporate customers operating outside Egypt. The CustomerServices area is able to offer fixed term deposits, plus current account services.

LendingSyndicated loans are provided for general funding requirements to banks, corporates andsovereign entities. Bilateral and direct loans to customers are to support working capitalfinancing, capital expenditure and trading activities.

TreasuryTreasury activity during the year has continued to focus primarily on liquidity management,including the management of a portfolio of investments to assist with liquidity and enhanceincome, despite the difficult market conditions.

The Treasury area also trades within pre-determined risk limits in the foreign exchange of allmajor currencies.

Documentary CreditsThese activities have been expanded internationally from the traditional Egyptian markets overthe last few years, and there are both corporate and financial institutions as customers. Thebusiness includes issuing, advising and confirming letters of credit and guarantees.

Directors and company secretaryThe names of the Directors and Company Secretary as at the date of this report and those whoserved during the year are as follows:

Dr. Farouk Abdel Baki El-Okdah, ChairmanMr. Kazem Hassan Barakat, Deputy Chairman and Managing DirectorMr. Mokhtar Abdel Gawad El Shennawy, Deputy Managing DirectorMr. Tarek Hassan Nour Eldin Aly Amer Mr. Hussein Abdel Aziz HusseinMr. Mohamed Hany Seif El Nasr (resigned 31 January 2009)Mr. Sherif Mohamed Aly Elwy (appointed 2 February 2009)Mr. Christopher Hayward Davis Dr. Ziad Ahmed Bahaa-EldinMr. Raymond Seamer

Mr. Reg Egan, Company Secretary


Directors’ report (continued)

Directors’ interestsNone of the Directors who held office at the end of the financial year had any disclosable interest inthe shares of the Company.

Share capitalDuring the year, the Company raised the authorised share capital from £100,000,000 to£200,000,000. As at the reporting date the Issued Share Capital, fully paid, amounted to£130,000,000 (2008: £100,000,000), following capital injections from the parent entity of£10,000,000 in October 2008 and £20,000,000 in April 2009. Please see Note 15 in respect of theCompany’s share capital.

EmployeesAs at 30 June 2009 the Company had 56 permanent employees. Employees’ compensation is relatedto performance and the Company encourages the involvement of all employees in the overallperformance and profitability of the Company through an objectives-based appraisal system whichfocuses on qualitative as well as quantitative factors. The Company has a pension scheme wherebymembers are entitled to a minimum of 10% contribution of the basic salary to the Group PersonalPension scheme. All employees enjoy life insurance cover to the extent of 4 times their basic salary.The Company also has a private medical insurance scheme, which covers employees and theirdependents.

The Company believes that it enjoys a good relationship with its staff.

Political and charitable contributionsThe Company made no political (2008: £Nil) and £100 charitable contributions (2008: £10,930)during the year.

Going ConcernThe financial statements are prepared on a going concern basis as the Directors are satisfied that theCompany has sufficient resources to continue in business for the foreseeable future. The Company isa wholly owned subsidiary of National Bank of Egypt and the parent has shown support during theyear by subscribing for additional share capital amounting to £30 million and providing an undrawnline of credit amounting to $30 million. The latter is in the form of a subordinated debt and is for theterm of 10 years. The Bank is liable to pay interest at Libor plus 2% on any drawn amount. At yearend, the Bank had not yet drawn on this facility.

Disclosure of information to auditorsThe Directors who held office at the date of approval of this Director’s Report confirm that, so far asthey are each aware, there is no relevant audit information of which the Company’s auditors areunaware; and each Director has taken all the steps that he ought to have taken as a Director to makehimself aware of any relevant audit information and to establish that the Company’s auditors are awareof that information.

AuditorsPursuant to section 487 of the Companies Act 2006, the auditors will be deemed to be reappointedand KPMG Audit Plc will therefore continue in office.

By order of the board

Reg Egan Trafalgar HouseCompany Secretary 11 Waterloo Place

London SW1Y 4AU

25 September 2009

Directors’ report (continued)


The directors are responsible for preparing the Directors' Report and the financial statements inaccordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under thatlaw they have elected to prepare the financial statements in accordance with UK Accounting Standardsand applicable law (UK Generally Accepted Accounting Practice).

Under company law the directors must not approve the financial statements unless they are satisfiedthat they give a true and fair view of the state of affairs of the company and of the profit or loss ofthe company for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any materialdepartures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presumethat the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show andexplain the company's transactions and disclose with reasonable accuracy at any time the financialposition of the company and enable them to ensure that the financial statements comply with theCompanies Act 2006. They have general responsibility for taking such steps as are reasonably open tothem to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financialinformation included on the company's website, www.nbeuk.com. Legislation in the UK governingthe preparation and dissemination of financial statements may differ from legislation in otherjurisdictions.


Statement of directors’ responsibilities in respect of the directors’ report and the financial statements


KPMG Audit PlcOne Canada SquareCanary WharfLondon E14 5AGUnited Kingdom

Independent auditor’s report to the members of National Bank of Egypt (UK) LimitedWe have audited the financial statements of National Bank of Egypt (UK) Limited for the year ended30 June 2009 set out on pages 10 to 29. The financial reporting framework that has been applied intheir preparation is applicable law and UK Accounting Standards (UK Generally Accepted AccountingPractice).

This report is made solely to the company’s members, as a body, in accordance with sections 495 and496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to thecompany’s members those matters we are required to state to them in an auditors’ report and for noother purpose. To the fullest extent permitted by law, we do not accept or assume responsibility toanyone other than the company and the company’s members, as a body, for our audit work, for thisreport, or for the opinions we have formed.

Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement on page 7, the Directors areresponsible for the preparation of the financial statements and for being satisfied that they give a trueand fair view. Our responsibility is to audit the financial statements in accordance with applicable lawand International Standards on Auditing (UK and Ireland). Those standards require us to comply withthe Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s web-site atwww.frc.org.uk/apb/scope/UKNP.

Opinion on financial statements In our opinion the financial statements:

• give a true and fair view of the state of the Company’s affairs as at 30 June 2009 and of its loss forthe year then ended;

• have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.


Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which thefinancial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requiresus to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not beenreceived from branches not visited by us; or

• the financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Paul Furneaux (Senior Statutory Auditor)for and on behalf of KPMG Audit Plc, Statutory Auditor

Chartered AccountantsOne Canada SquareCanary Wharf London E14 5AG

Dated: 25th September 2009

Note 2009 2008£ £ £ £

Interest receivable:Interest receivable and similar income arising from debt securities 30,990,565 29,201,720Other interest receivable and similar income 26,036,475 51,429,979

57,027,040 80,631,699Interest payable (41,064,073) (66,785,979)

Net interest income 15,962,967 13,845,720Fees and commissions receivable 4,687,270 5,358,574Foreign exchange dealing profits (28,270) 140,794

Operating income 20,621,967 19,345,088Administrative expenses 2 (4,100,092) (4,335,078)Depreciation 10 (207,535) (249,493)Other operating charges (2,333,231) (2,251,986)

13,981,109 12,508,531Provisions for bad and doubtful debts 8 (18,594,793) (375,827)Impairment allowance against debt securities 9 (21,487,208) – Gains on disposals of debt securities 81,377 7,171

(Loss)/Profit on ordinary activities before tax 3 (26,019,515) 12,139,875Tax credit/(charge) on (loss)/profit on ordinary activities 4 7,431,110 (3,631,050)

(Loss)/Profit on ordinary activities after tax (18,588,405) 8,508,825

There is no difference between the retained profit for the year and the retained profit on an historicalcost basis.The result for the year is derived entirely from continuing activities.There were no other recognised gains and losses in the current or prior years other than the above.The notes on pages 13 to 29 form part of these financial statements.

Profit and loss accountfor the year ended 30 June 2009



Balance sheetat 30 June 2009

Note 2009 2008£ £ £ £

AssetsCash and balances at central banks 169,952 100,542Loans and advances to banks 6 368,850,692 543,384,545Loans and advances to customers 7 103,272,701 107,964,618Debt securities 9 859,580,197 686,894,200Tangible fixed assets 10 180,901 315,529Other assets 11 14,052,984 4,023,660Prepayments and accrued income 5,031,886 7,853,315

Total assets 1,351,139,313 1,350,536,409

Liabilities and shareholders’ fundsDeposits by banks 12 362,688,111 594,069,307Customer accounts 13 856,020,019 629,861,464Other liabilities 14 9,964,209 7,894,788Accruals and deferred income 3,576,401 6,231,874Shareholders’ funds:

Called up share capital 15 130,000,000 100,000,000Profit and loss account (11,109,427) 12,478,976

118,890,573 112,478,976

Total liabilities and shareholders’ funds 1,351,139,313 1,350,536,409

2009 2008£ £

Memorandum itemsContingent liabilities:

Acceptances and endorsements 3,293,485 3,830,100Guarantees 4,299,146 29,520,414

Commitments:Other commitments 16 73,252,197 116,810,987

80,844,828 150,161,501

These financial statements were approved by the board of directors on 25 September 2009 and were signed on itsbehalf by:Director Dr. Farouk Abdel Baki El-Okdah

Chairman

Director Mr. Kazem Hassan BarakatDeputy Chairman and Managing Director

The notes on pages 13 to 29 form part of these financial statements.

Reconciliation of movements in shareholders’ fundsat 30 June 2009


Called up Profit and Totalshare capital loss account

£ £ £

As at 1 July 2007 65,800,000 9,220,153 75,020,153Shares issued during the year 34,200,000 – 34,200,000Profit on ordinary activities after tax – 8,508,825 8,508,825Dividend paid during the year – (5,250,000) (5,250,000)

As at 30 June 2008 100,000,000 12,478,978 112,478,978

Shares issued during the year 30,000,000 – 30,000,000Loss on ordinary activities after tax – (18,588,405) (18,588,405)Dividend paid during the year (in respect of 2007/8) – (5,000,000) (5,000,000)

As at 30 June 2009 130,000,000 (11,109,427) 118,890,573

The notes on pages 13 to 29 form part of these financial statements.

1 Accounting policies

The following accounting policies have been applied consistently in dealing with items which areconsidered material in relation to the Company’s financial statements:

(a) Basis of preparation and accounting convention

The financial statements of the Company have been prepared in accordance with the provisions ofsection 396 of the Companies Act 2006 including applying the requirements set out in Schedule 2 ofthe Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008relating to banking companies. The financial statements have been prepared in accordance withapplicable UK accounting standards and the British Bankers’ Association Statements ofRecommended Accounting Practice.

(b) Cash flow statement

As a wholly owned subsidiary whose parent produces publicly available accounts (see note 22), theCompany has taken advantage of the exemption available within FRS 1 (revised), “Cash FlowStatements”, and does not produce a cash flow statement.

(c) Loans and advances

Loans and advances are stated at cost after deduction of amounts which in the opinion of the Directorsare required as specific or general provisions. Where loans have been acquired at a premium ordiscount, these premiums and discounts are amortised through the profit and loss account from thedate of acquisition to the date of maturity on a straight line basis.

Loans are designated as non-performing as soon as management has doubts as to the ultimatecollectability of the principal or interest. When a loan is designated as non-performing, interest willbe suspended and a specific provision raised if required.

Specific provisions

Specific provisions represent the quantification of the actual or expected losses from identifiedaccounts and are deducted from loans and advances on the balance sheet. The amount of the specificprovision raised is assessed on a case by case basis. The amount of specific provision raised is theCompany’s estimate of the amount needed to reduce the carrying value of the asset to its expectednet realisable value.

General provisions

General provisions augment specific provisions and provide cover for loans on which there is no knownimpairment at the balance sheet date but which may be identified as impaired at some time in the future.The general provision is determined by taking into account the structure and risk of the Company’s loanportfolio. General provisions are deducted from loans and advances in the balance sheet.

(d) Securities

Securities intended for use on a continuing basis in the Company’s activities are classified asinvestment securities and are stated at cost adjusted for any amortisation of premiums and discountsarising on acquisition and less provision for any permanent diminution in value.

Where dated investment securities have been purchased at a premium or discount, these premiumsand discounts are amortised through the profit and loss account from the date of purchase to the dateof maturity on a straight line basis.


Notes to the Financial Statements

1 Accounting policies (continued)

(e) Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at theexchange rates ruling at the balance sheet date and the gains or losses on translation are included inthe profit and loss account. Income and expenses denominated in foreign currencies are convertedinto sterling at the month end rate for the month in which these transactions took place.

Forward foreign exchange contracts are valued at the market rates applicable to their respectivematurities at the balance sheet date, and the resulting profits or losses included in the profit and lossaccount for the year. Where the contracts arise as part of a deposit swap, the profits or losses arerecognised evenly over the life of the related loans and deposits.

(f) Depreciation

Depreciation of tangible fixed assets is provided on a straight-line basis over estimated useful livesas follows:

Long leasehold buildings 20 yearsLeasehold improvements 5 – 15 yearsFurniture, fixtures and fittings 5 yearsComputer hardware and software 3 – 5 years

(g) Interest income and expense

Interest receivable and payable is accrued over the period of the related loans and deposits.

(h) Fees and commission receivable

Fees and commissions are taken to income as received, or when debited to a customer’s account.

(i) Fees and commission payable

Fees and commissions payable on borrowings are expensed to the profit and loss account over the lifeof the borrowing.

(j) Taxation

Deferred tax is recognised, without discounting, in respect of all timing differences between thetreatment of certain items for taxation and for accounting purposes and which have arisen but notreversed by the balance sheet date, except as otherwise required by FRS 19.

(k) Pension costs

The Company operates a defined contribution pension scheme. Contributions to the scheme arecharged to the profit and loss account when paid.

(l) Related party transactions

The Company has taken advantage, under FRS 8,“Related Party Disclosures”, of the exemption notto disclose related party transactions with group companies, as it is a wholly owned subsidiary of theNational Bank of Egypt (see note 22).

(m) Leases

Operating lease rentals are charged to the profit and loss account on a straight line basis over theperiod of the lease.

Notes (continued)


1 Accounting policies (continued)

(n) Off-balance sheet financial derivatives

Off-balance sheet financial derivatives are entered into by the Company for hedging purposes toreduce the risks arising on transactions entered into in the normal course of business. The income andexpense arising from off-balance sheet financial derivatives entered into for hedging purposes isrecognised in the accounts in accordance with the accounting treatment of the underlying transactionsor transactions being hedged. All off-balance sheet financial derivatives are held for the period inwhich the underlying hedge matures.

2 Administrative expenses2009 2008£ £

Staff costs:Wages and salaries 3,095,657 3,281,717Social security costs 378,482 405,736Other pension costs 378,787 436,159Other staff costs 223,511 195,814

Other administrative expenses 23,655 15,652

4,100,092 4,335,078

The Company currently participates in the National Bank of Egypt (UK) Limited Pension Schemewhich is a defined contribution scheme.

The average number of persons employed by the Company during the year was 58 (2008: 62).


Notes (continued)

3 (Loss)/profit on ordinary activities before tax

(a) Is stated after the charging of

2009 2008£ £

Amount receivable by the auditors in respect of:Audit of financial statements pursuant to legislation 85,000 81,000Other services relating to taxes 4,300 27,300All other services – 32,954

89,300 141,254

Interest payable on subordinated debt – 26,366

Operating lease rentals were:Land and building 433,566 426,634Others 7,334 7,400

440,900 434,034

(b) Segmental reporting

The Company has one class of business and all other services provided are ancillary to this. All business is conductedfrom the United Kingdom.

4 Taxation

(a) Analysis of tax (credit)/charge in the year

2009 2008£ £

Current taxUK Corporation tax at 28% on the taxable (loss)/profit for the year – 3,656,714Over provisions in prior years (7,910) (25,664)Current years losses carried back (3,672,544) –

(3,680,454) 3,631,050Deferred tax (3,750,656) –

Tax (credit)/charge on (loss)/profit on ordinary activities (7,431,110) 3,631,050

Notes (continued)


4 Taxation (continued)

(b) Factors affecting the tax charge for the current year

The current tax charge for the year is higher than (2008: higher than) the standard rate of corporationtax in the UK of 28% (2008: 29.5%). Differences are explained below.

2009 2008£ £

Current tax reconciliation(Loss)/Profit on ordinary activities before tax (26,019,515) 12,139,875

Current tax at 28% for 2009 and 29.5% for 2008 (7,285,464) 3,581,263

Add effects of:Expenses not deductible for tax purposes 14,540 38,314Depreciation for year in excess of capital allowances 35,023 37,137Current year losses carried back 3,485,245 –Current year losses carried forward 3,750,656 –Prior year adjustment for carried back losses (3,672,544) –Over provisions in prior years (7,910) (25,664)

Total current tax (credit)/charge (see 4 (a) above) (3,680,454) 3,631,050

(c) Factors that may affect future tax charge

The Directors of the Company are not aware of any factors which will have a material effect uponfuture tax charges apart from utilisation of current year losses carried forward and reversal oftemporary differences.

(d) Deferred tax asset

2009 2008£ £

At the beginning of the year 1,058,740 1,058,740Movement in the year for current year losses carried forward 3,750,656 –

As at end of the year (see note 11) 4,809,396 1,058,740

The deferred tax asset consists of the following amounts:Tax losses carried forward 3,750,656 –Timing difference on creation of general provision for bad and doubtful debts 980,000 980,000Capital allowances 78,740 78,740

Deferred tax asset (see note 11) 4,809,396 1,058,740


Notes (continued)

4 Taxation (continued)

During the year the Company suffered a taxable loss of £25.9 million. Out of this, £12.4 million ofthe current year tax losses have been carried back to offset the taxable profits for the year ended 30June 2008 (at an average tax rate of 29.5%) and there is a carry back of £50,000 of the losses topartially offset the taxable profits for the year ended 30 June 2007 (at a tax rate of 30%). Together thesegive rise to a prior year current tax credit of £3.7 million. Remaining taxable losses of £13.4 millionhave been carried forward and have been recognised as part of the deferred tax asset, giving rise to anincrease in the deferred tax asset balance of £3.7 million. In accordance with the provisions of FRS19, the Company has recognised the deferred tax asset as being recoverable as the Directors are of theopinion that, on the basis of all available evidence, it is more likely than not that there will be suitablefuture taxable profits from which the future reversal of the underlying timing differences can bededucted. The Directors have made this assessment based on the forecast results for the year ended 30June 2010 and onwards.

5 Emoluments of directors2009 2008£ £

Directors’ fees and emoluments 748,884 697,678

There is no Director accruing benefits under a money purchase pension scheme (2008: None).The total remuneration and benefits of the highest paid Director were £210,053 (2008: £209,447).

6 Loans and advances to banks

(a) Residual maturity

2009 2008£ £

BanksRepayable on demand 13,970,212 3,973,856 Other loans and advances Remaining maturity:

5 years or less but over 1 year 82,852,122 89,061,0261 year or less but over 3 months 32,938,088 128,699,2413 months or less 221,838,414 306,617,349

351,598,836 528,351,472

Parent companyOther loans and advancesRemaining maturity:

5 years or less but over 1 year – 15,033,0733 months or less 33,416,368 –

Total 385,015,204 543,384,545

Bad and doubtful debt provision (Note 8) (16,164,512) –

Total 368,850,692 543,384,545

Notes (continued)


6 Loans and advances to banks (continued)

(b) Concentrations of exposure

The Company has the following concentrations of loans and advances to banks:

2009 2008£ £

Total gross advances to banks located in:Europe and North America 286,033,754 296,974,598Middle East 68,145,916 96,771,518Rest of World 30,835,534 149,638,429

Total 385,015,204 543,384,545

7 Loans and advances to customers

(a) Residual maturity

2009 2008£ £

Repayable on demand or at short notice 6,386,954 3,936,322

Other loans and advancesRemaining maturity:

Over 5 years – –5 years or less but over 1 year (includes staff loans) 87,209,806 98,655,447 1 year or less but over 3 months 14,733,603 7,670,175 3 months or less 872,619 3,708,186

Sub-total 109,202,982 113,970,130Bad and doubtful debt provision – general (note 8) (3,500,000) (3,500,000)Bad and doubtful debt provision – specific (note 8) (2,430,281) (2,505,512)

Total 103,272,701 107,964,618

(b) Concentrations of exposure

The Company has the following concentrations of loans and advances to customers:

2009 2008£ £

Total gross advances to customers located in:Europe and North America 24,079,868 31,936,192Middle East 63,412,571 56,466,259Rest of World 21,710,543 25,567,679

Total 109,202,982 113,970,130


Notes (continued)

8 Provisions for bad and doubtful debts

(a) Movements on provisions for bad and doubtful debts:

Specific General Total£ £ £

Provisions at 30 June 2008 2,505,512 3,500,000 6,005,512

Charge for the year 18,594,793 – 18,594,793Write off in year (3,037,852) – (3,037,852)Foreign exchange movement 532,340 – 532,340

Provisions at 30 June 2009 18,594,793 3,500,000 22,094,793

Of which:Provision against loans and advances to customers – general – 3,500,000 3,500,000Provision against loans and advances to customers – specific 2,430,281 – 2,430,281Provision against loans and advances to banks – specific 16,164,512 – 16,164,512

18,594,793 3,500,000 22,094,793

(b) Non-performing loans

2009 2008£ £

Loans on which interest has been suspended (net of suspended interest) 36,906,337 2,505,512Provisions for bad and doubtful debts (18,594,793) (2,505,512)

Total 18,311,544 –

Notes (continued)


9 Debt securities2009 2008£ £

Investment securities

Issued by public bodies – government securities 119,941,444 –Bank and building society certificates of deposit 20,000,000 –Other debt securities 741,125,960 686,894,200

881,067,404 686,894,200

Investment securities

Listed on a UK recognised investment exchange 277,504,461 192,448,883Other listed 359,468,117 401,509,910Unlisted 244,094,826 92,935,407

881,067,404 686,894,200

Due within one year 313,974,102 158,149,001Due one year and over 567,093,303 528,745,199

881,067,405 686,894,200Impairment allowance (21,487,208) –

859,580,197 686,894,200

Nominal Net premium/ Net bookvalue (discount) value

Investment securities – movement £ £ £

Balance at 30 June 2008 690,465,632 (3,571,432) 686,894,200Purchases 769,781,835 (224,810) 769,557,025Sales/maturities (656,147,983) – (656,147,983)Amortisation of premium/discount – 1,478,572 1,478,572Exchange movements 79,661,453 (375,862) 79,285,591Impairment allowance (21,487,208) – (21,487,208)

Balance at 30 June 2009 862,273,729 (2,693,532) 859,580,197


Notes (continued)

9 Debt securities (continued)2009 2008£ £

Investment securities – market value

Issued by public bodies – government securities 119,969,000 –Bank and building society certificates of deposit 20,047,600 –Other debt securities 687,303,979 675,222,006

827,320,579 675,222,006

10 Tangible fixed assetsLeases of 50 Computer

years or more equipmentunexpired and other

fixed assets Total£ £ £

Cost or valuation

At 30 June 2008 259,277 1,647,016 1,906,293Additions – 73,441 73,441Disposals – (3,108) (3,108)

At 30 June 2009 259,277 1,717,349 1,976,626

Accumulated depreciation

At 30 June 2008 159,620 1,431,144 1,590,764Charge for year 13,929 193,606 207,535Related to disposals – (2,574) (2,574)

At 30 June 2009 173,549 1,622,176 1,795,725

Net book valueAt 30 June 2009 85,728 95,173 180,901

At 30 June 2008 99,657 215,872 315,529

11 Other assets2009 2008£ £

Deferred tax asset (see note 4(d)) 4,809,396 1,058,740Foreign exchange contracts 4,122,355 2,667,420Tax recoverable 4,948,655 –Others 172,578 297,500

14,052,984 4,023,660

Notes (continued)


12 Deposits by banks2009 2008£ £

With agreed maturity dates or periods of notice,by remaining maturity:

Banks

5 years or less but over one year – 138,475,890 1 year or less but over 3 months 175,092,452 18,155,479 3 months or less but not repayable on demand 114,815,107 373,173,791

289,907,559 529,805,160 Repayable on demand 8,196,084 4,753,177

298,103,643 534,558,337

Parent company

3 months or less but not repayable on demand 63,792,071 57,040,344 Repayable on demand 792,396 2,470,627

64,584,467 59,510,971

Total

5 years or less but over one year – 138,475,890 1 year or less but over 3 months 175,092,452 18,155,479 3 months or less but not repayable on demand 178,607,178 430,214,134

353,699,630 586,845,503Repayable on demand 8,988,481 7,223,804

362,668,111 594,069,307

13 Customer accounts2009 2008£ £

With agreed maturity dates or periods of notice, byremaining maturity:

1 year or less but over 3 months 15,134,526 110,029,0933 months or less but not repayable on demand 802,766,713 485,106,719

817,901,239 595,135,812Repayable on demand 38,118,780 34,725,652

856,020,019 629,861,464


Notes (continued)

14 Other liabilities2009 2008£ £

Foreign exchange contracts 4,118,855 2,659,758Taxation – 1,865,455Other creditors 5,845,354 3,369,575

9,964,209 7,894,788

15 Called up share capital2009 2008£ £

AuthorisedOrdinary shares of £1 each 200,000,000 100,000,000

Allotted, called up and fully paidOrdinary shares of £1 each 130,000,000 100,000,000

During the year, the authorised share capital was increased from £100,000,000 to £200,000,000.

On 24 October 2008 and 23 April 2009, the Bank issued 10,000,000 and 20,000,000 sharesrespectively to its parent company, National Bank of Egypt, at a cash consideration of £1 each.

In July 2009, a creditor of a third party sought an order from the UK High Court to place a chargeon the Company's shares. The application was not related to, and did not assert, any claim against theCompany itself. The UK High court granted an interim order on the application which frozetransactions in, and dividends payable on, those shares. At the date of signing these financial statements,no final order had been granted.

Notes (continued)


16 Commitments

(a) Other commitments

2009 2008£ £

Letters of credit – confirmed 39,640,725 70,087,357 Letters of credit – participation purchased 13,540,874 3,005,698 Forward deposits taken 19,194,826 22,906,565 Forward assets purchased – 7,540,980 Loan commitments (undrawn credit lines) 875,772 13,270,387

73,252,197 116,810,987

Forward deposits taken and forward assets purchased generally replace maturing deposits by banks andloans and advances to banks.

£ £

Loan commitments – over one year 875,772 7,301,373Loan commitments – one year or less – 5,969,014

875,772 13,270,387

Incurred on behalf of the parent company:2009 2008£ £

Letters of credit – confirmed 25,648,719 36,884,695

(b) Significant concentrations of contingent liabilities and commitments

Approximately 67% (2008: 64%) of total contingent liabilities and commitments relate tocounterparties in Egypt.

(c) Foreign exchange contracts

In addition to the commitments disclosed above, there are outstanding forward foreign exchangecontracts for purchases of £180,485,302 (2008: £244,400,548) and sales of £184,597,059 (2008:£247,063,222).


Notes (continued)

17 Operating lease commitments

As at 30 June 2009, the Company had the following non cancellable annual operating leasecommitments:

2009 2008£ £ £ £

Land and Other Land and Otherbuildings buildings

Operating leases which expire:Within 1 year – – – –Between 1 and 5 years 441,702 7,312 426,633 7,312

441,702 7,312 426,633 7,312

18 Risk management

Through its banking services the Company is exposed to a range of risks. To manage these risks theCompany established the following committees and functions to assist the Board of Directors:Management Committee; Audit Committee; Credit Committee; Asset and Liability Committee;Investment Committee; and Internal Audit.

Major risks

Credit risk

Credit risk arises principally on the lending, trade finance and investment activities of the bank. Creditrisk policies are applied by the Credit Committee which operates within the authority granted to itby the Board. Country and counterparty limits are established and monitored on a daily basis, with adetailed review at least once a year. Management receives regular reports on the utilisation of theselimits.

Interest rate risk

Interest rate risk primarily arises on the mis-matching of the bank’s assets with its funding. This ismonitored daily and is managed by the Asset and Liability Committee. Principal limits have beenestablished for the Company’s assets and liabilities when allocated to time bands by reference to thenext contractual repricing date.

Risks may also be hedged through the use of interest rate swaps and forward rate agreements (note 19).

At 30 June 2009, the interest rate risk comprises:

Less than More than 3 More than 6 More than Non interest Total3 months months but months but one year but bearing

not more than not more than not more6 months one year than 5 years

£ £ £ £ £ £

Assets 1,245,820,716 26,806,063 6,075,703 63,465,336 8,971,495 1351,139,313Liabilities (1,147,871,590) (33,613,713) (4,623,704) – (165,030,306) (1,351,139,313)Off-balance sheet items 57,375,052 12,773,558 (12,151,407) (57,997,203) – –

Gap 155,324,178 5,965,908 (10,699,408) 5,468,133 (156,058,811) –

Cumulative 155,324,178 161,290,086 150,590,678 156,058,811 – –

Notes (continued)


18 Risk management (continued)

At 30 June 2008, the interest rate risk comprised:

Less than More than 3 More than 6 More than Non interest Total3 months months but months but one year but bearing

not more than not more than not more6 months one year than 5 years

£ £ £ £ £ £

Assets 1,195,668,980 79,602,059 1,002,205 60,557,024 13,706,141 1,350,536,409Liabilities (1,087,719,711) (122,468,089) (12,851,106) – (127,497,503) (1,350,536,409)Off-balance sheet items 51,694,276 9,363,850 – (61,058,126) – –

Gap 159,643,545 (33,502,180) (11,848,901) (501,102) (113,791,362) –

Cumulative 159,643,545 126,141,365 114,292,464 113,791,362 – –

The figures do not demonstrate the exposure of the Company to particular interest rates as the assetsand liabilities above have been consolidated across all currencies.

Liquidity risk

Liquidity risk arises on the mis-matching of the residual maturity of the Company’s assets andfunding. This is also monitored daily, and is managed by the Asset and Liability Committee. Limitshave been established for each time band and incorporate FSA agreed limits.

On 25 February 2009, a new facility of subordinated debt amounting to $30 million was provided bythe parent. This facility is for the term of 10 years. The Bank is liable to pay interest at Libor plus 2%on any drawn amount. At year end, the Bank had not yet drawn on this facility.

Foreign exchange risk

Foreign exchange risk is managed within the treasury function. Policies and procedures are detailedin an operational procedures manual. This incorporates FSA agreed limits, and other regulatorybodies’ requirements. It is subject to periodic review by Internal Audit, and is approved by the Board.

Senior management also regularly monitors the positions taken on a daily basis.

Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal process, people andsystems or from external events. The Company’s operational risk framework is subject to documentedprocedural policies, with senior management being responsible for their implementation andmaintenance. Adherence to these policies is also subject to periodic review by Internal Audit.


Notes (continued)

19 Derivative and exchange rate contracts

The Company enters into various financial instruments as principal to manage balance sheet interestrate and foreign exchange rate risk. At the year end, the principal amounts and fair values of theinstruments were:

2009 2008Principal Positive Negative Principal Positive Negativeamount fair values fair values amount fair values fair values

£ £ £ £ £ £Interest rate relatedContracts:

Interest rate swaps 70,148,609 – 4,412,984 63,563,638 954,151 903,111

Exchange rate related Contracts 180,485,302 4,122,355 4,118,854 244,400,548 2,667,420 2,659,758

Interest rate related contracts represent interest rate swap transactions which generally involve theexchange of fixed and floating interest payment obligations without the exchange of the underlyingprincipal amounts.

Exchange rate related contracts are predominantly spot transactions but will also include currencyswaps and forwards. The Company’s currency swap transactions generally involve an exchange ofcurrencies and an agreement to re-exchange the currency at a future date where the swaps relate toassets and liabilities denominated in different currencies.

Derivatives contracts are used for hedging purposes only and are executed with bank counterpartiesfor whom volume and settlement limits have been approved. Group limits are approved for connectedexposures. Under the Company’s current treasury policy, derivative contracts are restricted to InterestRate Swaps, Forward Rate Agreements and Currency Swaps.

At 30 June 2009, there are 9 swaps outstanding (2008: 10). There was no unrealised swap gain or lossoutstanding at year end (2008: £Nil).

Maturity analysis:

2009Interest rate swaps

Notional values Fair values£ £

Maturity:1 year or less 12,151,407 (472,705)5 years or less but over 1 year 57,997,226 (3,940,279)

2008Interest rate swaps

Notional values Fair values£ £

Maturity:1 year or less 2,505,512 (29,469)5 years or less but over 1 year 61,058,126 80,509

Notes (continued)


20 Assets and liabilities denominated in foreign currency2009 2008£ £

Denominated in Sterling 293,312,477 214,548,404Denominated in US Dollar 668,781,149 670,770,341Denominated in other currencies 389,045,687 465,217,664

Total assets 1,351,139,313 1,350,536,409

Denominated in Sterling 292,211,666 226,177,675Denominated in US Dollar 827,929,186 854,268,991Denominated in other currencies 230,998,461 270,089,743

Total liabilities 1,351,139,313 1,350,536,409

The functional currency of the Company’s operations is Sterling.

21 Related party disclosures

During the year, there were no new loans issued to officers of the Company (2008: Nil). As at theyear end, there were no loans outstanding (2008: Nil).

22 Ultimate parent company and parent undertaking of larger group of which the Companyis a member

The Company is a wholly owned subsidiary of National Bank of Egypt. The parent company isincorporated in Egypt. Copies of the group accounts for the National Bank of Egypt can be obtainedfrom National Bank of Egypt, 1187 Corniche El Nil, Cairo, Egypt.


Notes (continued)


2009 2008 2007 2006 2005£m £m £m £m £m

Net Operating Income 14.0 12.5 7.8 8.9 4.5Provisions and Write-Offs (40.0) (0.4) 0.0 0.0 (0.1)Profit before taxation (26.0) 12.1 8.3 9.5 5.2Taxation 7.4 (3.6) (2.5) (2.9) (1.6)Profit after Taxation (18.6) 8.5 5.8 6.6 3.5

Issued Share Capital 130.0 100.0 65.8 65.8 65.8

Total Shareholders’ Funds 118.9 112.5 75.0 74.5 71.1

Deposits by Banks 363 594 742 648 564Customer Accounts 856 630 541 487 467Loans and Advances to Banks 369 543 797 735 643Loans and Advances to Customers 103 108 144 101 75Debt Securities 860 687 454 415 378Total Assets 1,351 1,351 1,407 1,264 1,111

Capital Ratios %– Risk Asset Ratio 21.7 16.3 21.5 24.8 19.7– Shareholders Funds to Total Assets 8.8 8.3 5.3 5.9 6.4

Return on Share Capital %– profit before taxation (20.0) 12.1 12.7 14.5 7.9– profit after taxation (14.3) 8.5 8.8 10.1 5.3

Return on Total Shareholders’ Funds %– profit before taxation (21.9) 10.8 11.1 12.8 7.2– profit after taxation (15.6) 7.6 7.7 8.9 4.9

Five-Year Summary


Departmental Management

Mr. Kazem Hassan BarakatDeputy Chairman and Managing Director

Mr. Mokhtar Abdel Gawad El ShennawyDeputy Managing Director

Mr. Robert Avery (retired 22nd October 2009)General Manager

Mr. Ismail SalehGeneral Manager

Mr. Ahmed MaksoudDeputy General Manager

Mr. David KaylorHead of Dealing Room

Mr. Fathy A. Hassan El FawakhryAssistant General Manager, Settlements

Ms. Clare WhiteOperations Manager

Ms. Margaret BullSenior Credit Manager

Mr. Reg EganCompany Secretary

Mr. Brian W.TurnerHead of Internal Audit

Mr. Mamdouh BibarsManager, Documentary Credits

Mr. John J. BurkeManager,Treasury

Mr. Anthony P. BurrHead of I.T.

Mrs. Katie ChongManager, Human Resources

Mr. Stephen GwilliamBusiness Development Manager

Mr. Marcus PrestonAccountant

Mr. John RobinsonManager, Retail Banking

Mr. John SwannMoney Laundering Reporting Officer

Trafalgar House11 Waterloo PlaceLondon SW1Y 4AU

www.nbeuk.comTel: 020 7389 1200Fax: 020 7930 8882Telex: 916625 NBELDN GSWIFT: NBEGGB2L

annual report 2009 - national bank of egyptdr. farouk abdel baki el-okdah,chairman mr. kazem hassan...

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