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Offshore Personal Bank Account document sample
Offshore Personal Bank Account document sample
Page 1 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 CONTENTS PAGES MANAGEMENT DISCUSSION AND ANALYSIS 2 - 13 AUDITORS‟ REPORT 14 - 15 BALANCE SHEET 16 – 17 INCOME STATEMENT 18 STATEMENT OF CHANGES IN EQUITY 19 CASH FLOW STATEMENT 20 ACCOUNTING POLICIES 21 - 26 FINANCIAL RISK MANAGEMENT 27 - 36 NOTES TO THE FINANCIAL STATEMENTS 37 – 45 Page 2 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 We are pleased to present our Management Discussion and Analysis, in accordance with the Bank of Mauritius guideline on Public Disclosure of Information. 1 FINANCIAL REVIEW Barclays Bank Plc – Mauritius Offshore Banking Unit‟s main objective is to operate an efficient and profitable operation in compliance with the local regulatory framework and at the same time adhering to international banking standards and practices. 2003 has been a challenging year for the Mauritius Offshore Banking Unit the “Bank”. Priority was given to development of a synergy for the merged business and to satisfy the bigger customer base. Despite a tough international banking environment, the Bank has been able to maintain its growth due to a number of strategies put in place to increase its deposit base, lending portfolio and non interest income. The Mauritius Offshore Banking Unit managed to achieve a profitable before tax of USD 9.42m compared to USD 6.12m in 2002, representing an increase of 54%. 1.1 PERFORMANCE AGAINST OBJECTIVES Budget 2003 Actual 2003 Budget 2004 AREAS OF PERFORMANCE % % % REVENUE GROWTH RATIOS Net interest income 39.39 62.38 38.84 Other income 34.53 62.32 4.38 Total income growth 37.57 62.61 24.42 Net interest margin 0.71 0.86 1.03 Other income/Total income (net of interest expense) 42.05 41.83 35.09 EXPENSE GROWTH Operating expense growth 68.82 95.00 19.64 PRODUCTIVITY RATIO Non-interest expense/(Net interest income + Other income) 26.29 25.04 23.61 OVERALL PERFORMANCE RATIO Return on equity 31.02 44.79 40.34 Return on average assets 0.59 1.26 0.84 CREDIT PERFORMANCE/QUALITY RATIOS Specific provision for credit losses/Average loans 0.06 0.08 0.04 Net impaired loans/Average loans 1.21 1.28 1.15 As a result of a good marketing plan, both our customer deposit and lending portfolio have increased to exceed our 2003 budget by 6.23% and 20.29% respectively. Consequently, our net interest income reached USD 7.3m that is 16.49% above our 2003 budget. For 2004, we expect to expand deposits and lending by 9.77% and 44.94% respectively. The Bank delivered a commendable performance following the success of our 2003 target to enlarge our customer base further and improve our non- interest generating activities. The increase in our clients‟ portfolio has led to additional ancillary earnings, our fee income and commissions has reached USD 3.6m also exceeding our 2003 budget. We expect this to continue in 2004 and have a budgeted growth of 4.38%. Page 3 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) 1.2 REVIEW BY FINANCIAL PRIORITY AREAS 1.2.1 Revenue growth 2003 2002 2001 % % % REVENUE GROWTH Net interest margin (Net interest income/total average interest earnings assets) 0.866 0.87 1.466 Net interest income/Total average assets 0.855 0.84 1.400 Interest income Related assets Interest income Related assets 2003 2003 2002 2002 USD USD USD USD Loans and advances to customers 6,418,107 241,477,495 2,231,515 120,055,977 Placements 9,800,345 608,536,690 6,846,600 608,767,112 Loans to banks 1,202,848 113,237,916 849,490 5,285,536 Interest expense Related liabilities Interest expense Related liabilities 2003 2003 2002 2002 USD USD USD USD Deposits 7,803,156 751,552,281 5,029,694 667,763,718 Deposits and borrowings from banks 2,305,810 190,838,804 394,578 52,277,611 As mentioned earlier and despite low interest prevailing on the international market, we have managed to increase our customer deposit base by USD 75.6m to reach USD 755.2m, i.e an increase of 11.13%. Loans to customer in 2003 have more than doubled, while loans to banks have jumped from USD Nil in 2002 to USD 113.2m in 2003. That has been the result of active marketing in the African Continent. Consequently, our net interest income has improved by 62.38%, reaching USD 7.3m in 2003 compared to USD 4.5m in 2002, despite interest rate cuts in USD. 2003 2002 2001 USD USD USD Net interest income 7,312,334 4,503,333 4,014,285 Fee income and commissions Service related fees and commissions 1,951,832 1,330,305 951,073 Risk related fees and commissions 1,672,134 911,222 191,489 Fee and commissions expenses Management fees ( 9,731) ( 10,846) - Net fee and commission income 3,614,235 2,230,681 1,142,562 Profits arising from dealings in foreign currencies Foreign exchange 1,644,091 1,008,770 794,347 In connection with these new businesses, the Bank has also been able to attract additional ancillary earnings. Other income has increased by 62.32% to reach USD 5.3m in 2003. Under other income, forex income accounted for USD 1.6m compared to USD 1m in 2002. This improvement is mainly due to Forex transaction volumes following business expansion and instability in foreign exchange markets. Page 4 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) 1.2 REVIEW BY FINANCIAL PRIORITY AREAS (CONTINUED) 1.2.2 Cost control 2003 2002 2001 USD USD USD Operating expenses Staff costs 723,653 470,127 281,251 Depreciation 76,090 49,268 38,877 Other expenses Equipment expenses 245,687 163,271 107,858 Property expenses 123,759 52,372 41,756 Amortisation of goodwill 766,400 127,733 - Other 1,212,375 751,598 819,843 3,147,964 1,614,369 1,289,585 Our cost base has increased by 95.00% to reach USD 3.1m compared to USD 1.6m in 2002. This was mainly associated with the acquisition of the BNPI business, which has led to an increase in staff cost, premises and amortisation of goodwill for a total amount of USD 3.8m. 1.2.3 Credit exposure 2003 2002 2001 USD 000 USD 000 USD 000 Lendings Agriculture and fishing 26,659 3,082 4,219 Manufacturing 43,921 14,870 15,378 Tourism 13,185 4,417 4,230 Transport - - - Construction 22,832 34,297 8,649 Traders 43,774 26,705 - Statutory and parastatal bodies 6,944 18,293 13,401 Personal 7,578 4,946 1,069 Others 76,585 13,446 372 Total 241,478 120,056 47,318 Off Balance sheet activities Non Fund based Agriculture and fishing 5,000 10,638 5,000 Manufacturing 10,202 9,963 2,748 Transport - 176 1,283 Construction 33,100 29,525 308 Traders 935 577 - Page 5 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) 1.2 REVIEW BY FINANCIAL PRIORITY AREAS (CONTINUED) 1.2.3 Credit exposure (Continued) 2003 2002 2001 USD’000 USD’000 USD’000 New economy Financial and business services 218 5,994 Infrastructure 82 Personal 50 Professional 205 Others 12,001 11619 2843 61,793 68,492 12,462 Loans Residence in Mauritius 56,069 35,890 15,420 Residence outside Mauritius 127,128 5,088 921 Offshore Companies domiciled in Mauritius 54,062 71,648 30,978 CONCENTRATION OF RISK The Central Bank guideline on limit on concentration of risk is not applicable to offshore banking units. However, management monitors concentration of risk closely as part of Barclays credit risk policy. Overall, the Bank‟s portfolio is well diversified with exposures not exceeding 18% in any particular economic sector. Most of the lending exposure is outside Mauritius. 1.2.4 Credit quality Non Performing Provision for Loans loans credit losses (A) (B) (C) B/A C/B C/A USD 000 USD 000 USD 000 % % % 31 December 2003 Lendings 4 Agriculture and fishing 26,659 267 1.00 Manufacturing 43,921 419 0.95 Tourism 13,185 117 0.66 Transport Construction 22,832 218 0.95 Traders 43,774 437 1.00 New economy Financial and business services Infrastructure Statutory and parastatal bodies 6,944 69 0.99 Personal 7,578 75 0.99 Professional Education Media, entertainment and recreational activities Special certificate holders Others 76,585 244 853 0.32 349.59 1.11 Page 6 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) 1.2 REVIEW BY FINANCIAL PRIORITY AREAS (CONTINUED) 1.2.4 Credit quality (Continued) Non Provision performing for credit Loans loans losses % % % (A) (B) (C) B/A C/B C/A USD’000 USD’000 USD’000 31 December 2002 Lendings Agriculture and fishing 3,082 31 1.00 Manufacturing 14,870 149 1.00 Tourism 4,417 Transport Construction 34,297 343 1.00 Traders 26,705 27 1.00 New economy Financial and business services Infrastructure Statutory and parastatal bodies 18,293 183 1.00 Personal 4,946 49 0.99 Professional Education Media, entertainment and recreational activities Special certificate holders Others 13,446 251 179 1.87 71.31 1.33 31 December 2001 Lendings Agriculture and fishing 4,219 42 1.00 Manufacturing 11,159 104 0.93 Tourism 4,230 Transport Construction 8,649 83 0.96 Traders New economy Financial and business services Infrastructure Statutory and parastatal bodies 17,620 176 1.00 Personal 1,069 8 0.75 Professional Education Media, entertainment and recreational activities Special certificate holders Others 372 3 0.81 2. CAPITAL STRUCTURE 2003 2002 2001 USD’000 USD’000 USD’000 Capital and Reserves 20,367 15,488 9,556 As an offshore business, Barclays Bank Plc Offshore Banking Unit is specifically exempted from maintaining a minimum capital adequacy ratio to support it‟s credit risk exposures. Furthermore, it‟s historically low rate of default and the nature of it‟s business makes it less exposed to credit risk. However, management always monitor it‟s capital level to ensure soundness and stability of the business and its capacity to support unexpected losses. Page 7 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) POINTS 3 AND 4 ARE MISSING – MUST MAKE REFERENCES TO THE NECESSARY SECTIONS WITHIN THE FS AND ALSO ASSESS IF ALL MDA QUERIES ON THESE MATTERS HAVE BEEN ANSWERED. 3 4 5 STATEMENT OF CORPORATE GOVERNANCE PRACTICES Barclays Bank PLC - Mauritius Offshore Banking Unit was licensed in accordance with Section 5 (2) of the Banking Ordinance to carry on banking business in Mauritius from 14 July 1989 and is a branch of Barclays Bank PLC, registered in London, England, Reg. No. 1026167, Registered office 54 Lombard Street, London EC3P 3AH. The Board of Directors is seated in London and consists of the Chairman, eight non-executive Directors and four Executive Directors. Executive Directors generally have responsibility for formulating and implementing operational decisions and running of the Group‟s businesses. The non-executive Directors support the skills and experience of the Executive Directors by approving and monitoring the implementation of strategy and policy based on their knowledge and experience of other businesses and industries. The Board is committed to business integrity and professionalism in all its activities. As part of this commitment, the Board supports the highest standard of corporate governance and the development of best practice. The roles of the Chairman and Chief Executive are separate with responsibilities divided between them. The names of the Directors who held office in the year ended 31 December 2003 are listed below: Executive Directors Name Position held Sir Peter Middleton GCB Group Chairman Matthew William Barrett Group Chief Executive Christopher John Lendrum Chief Executive Corporate Banking, appointed Vice Chairman as from 01 January 2004 John Silvester Varley Group Finance Director, appointed Group Deputy Chief Executive as from 01 January 2004 Kheraj Naguib Group Finance Director as from 01 January 2004 Roger Davis Chief Executive of UK Banking as from 01 January 2004 Gary Hoffman Chief Executive, Barclaycard as from 01 January 2004 David Roberts Chief Executive, Private Clients and International as from 01 January 2004 Page 8 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) 5 STATEMENT OF CORPORATE GOVERNANCE PRACTICES (CONTINUED) Non-Executive Directors Name (Position held outside Barclays Bank PLC) Position held in Barclays Bank PLC Thomas David Guy Arculus (Chairman of Severn Trent Member of the Board Remuneration and Board Nominations PLC) Committees Hilary Mary Cropper CBE (Member of the Financial Member of the Board Risk Committee Reporting Council, External Advisor to the Home Civil Senior Appointments Selection Committee, member of the UK Government‟s National Employment Panel) Sir Brian Garton Jenkins GBE (Chairman of the Charities Deputy Chairman, member of the Board Remuneration, Aid Foundation) Board Nominations and Board Risk Committees Sir Nigel Rudd DL (Chairman of Kidde PLC, non- Chairman of the Board Remuneration Committee, member of executive Chairman of Pilkington PLC and Pendragon the Board Nominations Committee PLC, non-executive Director and Deputy Chairman of The Boots Company PLC) Stephen George Russell (Was previously Chief Chairman of the Board Audit and member of Board Risk Executive of The Boots Company PLC) Committees Dr Jurgen Zech (Director of Misys Plc and Partner, Member of the Board Audit Committee Re Limited) Dame Sandra Dawson (KPMG Professor of Management Member of the Board Audit Committee Studies at the University of Cambridge) Sir Richard Broadbent (Was previously a member of the Group Executive Committee of Shroders Plc) The reporting line of Barclays Bank PLC Mauritius to the Executive Directors of Barclays Bank PLC is done through Barclays Africa (based in London and Johannesburg), which formed part of the Corporate Banking cluster until 31 December 2003 and is under the responsibility of Chris Lendrum, Executive Director. As from 01 January 2004, Barclays Africa forms part of Private Clients and International cluster, which is under the responsibility of David Roberts, Executive Director. The chart below describes the above reporting line: Mauritius Reporting Line to Group as from 01 January 2004 Sir Peter Middleton G C B Group Chairman Barclays Bank PLC London Mathew Barrett Group Chief Executive Barclays Bank PLC London David Roberts Chief Executive of private Clients & International Barclays Bank PLC London Dominic Bruynseels (MD) Barclays Africa Strategic Business Unit London Malcolm Hewitt MD, Core Businesses Portfolio Jacques de Navacelle (MD) Barclays Mauritius 100% Branch operation Port-Louis, Mauritius Page 9 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) BARCLAYS AFRICA ROLE Barclays Africa is a strategic business unit which controls all Barclays banks situated in Africa. It is in fact the lead business Group for Barclays branches and subsidiaries in Botswana, Ghana, Mauritius, South Africa, Uganda, Zimbabwe, Egypt, Kenya, Seychelles, Tanzania and Uganda. It also has a corporate and merchant banking presence in South Africa and has cross border responsibility for all those countries within Africa geographical spread where the Group has no representation. As from 01 January 2004, it also controls Barclays businesses in the United Arab Emirates. The senior management structure within Barclays Africa comprises the Heads of Function who report to Dominic Bruynseels, Managing Director of Barclays Africa. In turn, each business also has its own Board of Directors (in case of locally incorporated subsidiary operations) and Executive structure (for branches). As from 01 January 2004, the business model for Barclays Africa has been split in two portfolios; Core Businesses and Developing Businesses. All Mauritius businesses fall under Core Business Portfolio, which is under the responsibility of Malcolm Hewitt. The list of Heads of Function at 31 December 2003 is as follows: Charles Middleton - Director, Country Management Andrew Bainbridge - Business Risk Director, responsible for Barclays Africa‟s Credit and Operational Risk Management Marcus Andrade - Managing Director, Corporate and Merchant Banking Malcolm Hewitt - Managing Director, Retail Customers, responsible for management of Barclays Africa retail sector Charles Simmonds - Director of Service Delivery Alexander Filshie - Chief Financial Officer, responsible for Barclays Africa Finance William Gibbon - Human Resources Director The list of Heads of Function of Core Business as from 01 January 2004 is as follows: Andrew Bainbridge - Business Risk Director, responsible for Barclays Africa‟s Credit and Operational Risk Management Paul Freer - Managing Director, Corporate and Merchant Banking Andy Riggs - Managing Director, Retail Customers, responsible for management of Retail sector Dave Jones - Director of Service Delivery Alexander Filshie - Chief Financial Officer, responsible for Barclays Africa Finance William Gibbon - Human Resources Director The roles and responsibilities of the Heads of Function/Country Managing Directors flow from the Managing Director, Barclays Africa, and are agreed on a personal basis; roles and responsibilities are in turn sub-delegated. Thus, the chain of responsibility passes down through individuals who are held accountable for the soundness of their delegation and the performance of the activities delegated. Authorities and discretions are delegated by the Corporate Banking Cluster Head (as from 01 January 2004; Private Clients and International Cluster) to the Managing Director, Barclays Africa, who may in turn delegate powers and discretionary limits within his authority to his subordinates. As a general rule, those to whom authority is delegated may, in turn, sub-delegate this authority to named individuals in a responsible manner. BARCLAYS BANK PLC MAURITIUS Barclays Bank PLC Mauritius (the “Bank”) consists of three entities, the Mauritius Domestic Branch, the Offshore Banking Unit and Barclays Leasing Company Limited. The role of managing these businesses in Mauritius has been delegated to Jacques de Navacelle (Country Managing Director) through an appointment letter dated 23 August 1998 signed by Ian Richardson, Managing Director of Barclays Africa at that date. Jacques de Navacelle joined Barclays Bank PLC in Paris in 1978. He holds a Diploma in Philosophy from the Paris University and is a Graduate of „L‟Institut du Commerce Internationale‟ and of the French Banking Institute. Before being appointed Country Managing Director in Mauritius, he held various managerial positions in Large Corporate Banking, Retail Banking, International Finance, Financial Institutions and Global Custody. Page 10 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) BARCLAYS BANK PLC MAURITIUS (CONTINUED) Jacques de Navacelle is responsible for the implementation of the Group Strategy in Mauritius and for the performance of the different entities under his control. He is supported by the local Country Management Committee which also deals with any operational issues and is committed to implementing sound governance practices. Country Management Committee The other members of this Committee at 31 December 2003 were: Kamal Taposeea joined Barclays Bank Plc in Mauritius in August 2003 as Director of Corporate and Merchant Banking, Offshore and Asset Finance. Barrister-at-Law and a holder of a Masters in International and Comparative Law, he has acquired a vast international financial markets and banking operations experience from the managerial positions he held in blue-chips financial institutions. Kamal Taposeea is responsible for business development and client relationship management with Barclays Corporate clients. Roger Leung Shin Cheung ACIB joined the Bank in 1967 and worked in various departments and was promoted to managerial grade in 1986. Since then, he has worked in Retail and Corporate Banking and was appointed Corporate Director in 2000. He now leads the onshore Corporate Banking arm of the Bank and is responsible for the maintenance and development of the corporate customers‟ portfolio. Robert Warlow ACIB joined Barclays Bank PLC in the UK in 1984 and has carried out managerial functions since 1991 when he was appointed Small Business Manager in UK. Before coming to Mauritius, he occupied the post of Senior Corporate Manager in Uganda. He was, until 28 February 2003, the Bank‟s Risk Management Director and was responsible for the credit risk function that is, managing, monitoring and implementing sound credit risk policies and procedures. He was also, until 28 February 2003, responsible for proper monitoring of credit risk assessment tools and systems. Subsequent to Robert Warlow‟s departure on 28 February 2003, the risk department was restructured into the Corporate Credit and Retail Credit Units. The Retail Credit Unit is headed by Amar Woomchurn while the Corporate Credit Director is Sakeel Dilmohamed ACIB. The latter has also been appointed on the Country Management Committee on 03 March 2003. As from 01 January 2004, Sakeel Dilmohamed ACIB, has been appointed Country Credit Director and head of both Retail and Corporate Credit Units Wence Mootoosamy FCIB joined the Bank in 1973. He has undertaken various managerial duties in Retail Banking, Card Business and Head Office Administration as from 1994. He was appointed Finance Director in 2000 with overall responsibility for implementing, maintaining and monitoring sound financial policies and strategies. Mario Hennequin ACIB, MBA is since 2001 the Head of Retail Performance (“HORP”). He joined the Bank in 1974. He was appointed as manager in 1995 and subsequently worked in the Offshore Business Unit, Card Business and Corporate Banking before his appointment as HORP in 2001. He is now responsible for the maintenance and development of the Retail Banking customers‟ portfolio of the Bank. Percy Laxade is holder of a diploma in Human Resources Management from the University of Mauritius. Before joining Barclays in 2000 as Head of Human Resources, he worked for Delphis Bank as Human Resources Manager. He has responsibility for implementing and monitoring sound human resources policies and strategies within the Bank, and ensuring that correct employee/employer relationships are maintained. Loganaden Sidambaram was appointed Head of Treasury Sales when he joined Barclays Bank PLC Mauritius in 2001 and was subsequently promoted to Treasurer in 2002. He holds a Certificate in ACI Dealing and has more than 11 years of experience in Treasury. He worked for 16 years with the State Bank of Mauritius, of which 8 years in its Treasury department, and spent 3 years in Delphis Bank before joining the Bank. He is now responsible for managing the treasury business and maximising returns on liquid financial assets and dealings, while minimising the impact of market and liquidity risks. Martin Fay ACIB was until March 2003, Head of Service Delivery – Indian Ocean. He joined Barclays in 1979 and has 13 years of experience at managerial level. He has occupied senior positions in branches and regional operations and in change management. Before joining the Bank, he worked as Head of Operational Risk for Barclays Bank of Kenya Ltd. He is responsible for the implementation and monitoring of sound operation policies, strategies and practices and IT systems while minimising operational risk. His areas of responsibility include both Mauritius and Seychelles. Country Management Committee (previously the “Executive Committee”) Subsequent to Martin Fay‟s departure in March 2003, Jean Claude Capiron was appointed Head of Service Delivery. Yashodaren Umanee ACIB, MBA, joined the Bank in 1977. In 1999, he entered managerial grade and was later appointed Offshore Banking Unit Director. He is responsible for proper management, administration and development of the Offshore Business entity. Page 11 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) BARCLAYS BANK PLC MAURITIUS (CONTINUED) Each of the members reports both to Jacques de Navacelle (MD) and to their Heads overseas who are the Executive Committee members of Barclays Africa, thus ensuring independent functioning, with the exception of the Offshore Business Unit Director and the Corporate Director who report to Kamal Taposeea only. Reporting lines with Barclays Africa are as follows: Jacques de Navacelle, Country Managing Director, reports to Malcolm Hewitt; Robert Warlow, Risk Management Director, reports to Andrew Bainbridge; Wence Mootoosamy, Finance Director, reports to Alexander Filshie; Mario Hennequin, Head of Retail Performance, reports to Andy Riggs; Percy Laxade, Head of Human Resources Management, reports to William Gibbon; Loganaden Sidambaram, Treasurer, reports to Andy King, Barclays Africa Treasurer; Martin Fay, Head of Service Delivery – Indian Ocean, reports to Dave Jones; Kamal Taposeea, Head of Corporate and Merchant Banking, Offshore and Asset Finance, reports to Paul Freer. Following the departure of Robert Warlow, both Amar Woomchurn and Sakeel Dilmohamed ACIB report to Andrew Bainbridge. Also following the departure of Martin Fay, Jean Claude Capiron reports to Dave Jones. The local Country Management Committee has powers to decide on all normal business without referring to Barclays Africa. However, all strategic decisions must be ratified by the Barclays Africa Board prior to implementation. In addition there are other committees to manage Credit Risk, Interest Rate Risk, Market Risk and Liquidity Risk. These are the Credit Committee and the Assets and Liabilities Management Committee (“ALCO”). Mauritius Credit Committee The Credit Committee sets out the credit policy for the Mauritian businesses. Its terms of reference have been changed in 2003 to include: Review exposures sanctioned by Africa Corporate Credit Team (ACCT) and Specialist Lending International (SLI) Review new Barclays Capital Financial Institution counterparty limits with Treasurer To give guidance on credit appetite for new business opportunities to sales teams To receive reports on significant deterioration in the risk profile of exposures. To review specific and general provisions raised in the portfolio Provide comment on annual reviews of Large Exposures (greater than or equal to 15% of our capital base) To receive analysis of the trends in the Advances portfolio. Members are the: Country Managing Director (Chairman) Director of Corporate and Merchant Banking, Offshore and Asset Finance Corporate Director Head of Retail performance Offshore Banking Unit Director Barclays Leasing Managing Director Country Credit Director Head of Retail Credit Unit Corporate Credit Manager – Secretary The Committee‟s sanctioning power was withdrawn on 19 May 2003. Henceforth, sanctioning limits are as follows:- Up to the local equivalent of GBP 200K (depending on grading of customer) – Corporate Credit Sanctionner Up to the local equivalent of GBP 500K (depending on grading of customer) – Country Credit Director. Any requests above those limits are sanctioned by the Africa Corporate Credits Team or Specialist Lending International, two pan-African credit sanctioning departments which are under the responsibility of Andrew Bainbridge, Business Risk Director, Barclays Africa. Assets and Liabilities Management Committee The Assets and Liabilities Management Committee (“ALCO”) is responsible for the management of liquidity risk, interest rate risk, market risk, balance sheet structure as well as capital management. The Committee is essentially a strategic decision committee whose primary concern is that of financial risk management. Its purpose is to achieve sustainable and stable profits within a framework of acceptable financial risks and controls. Monthly meetings are held but can be scheduled more frequently if need be. A copy of the minutes is sent to Barclays Africa‟s Chief Financial Officer and to the Barclays Africa Treasurer. In addition, a copy must be forwarded to David Dean, Director, Group Market Risk. Page 12 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) BARCLAYS BANK PLC MAURITIUS (CONTINUED) Permanent members are the: Country Managing Director, Chairperson Treasurer Finance Director Corporate Director Head of Retail Performance Secretary Country Credit Director Director of Corporate and Merchant Banking, Offshore and Asset Finance By invitation only the: Head of Service Delivery Head of Human Resources Head of Liquidity and/or Market Making Management Economist Governance and Control Committee The Governance and Control Committee was set up in 2002 to enhance internal control and compliance. It is responsible for the establishment, operation, compliance with and review of completeness of Bank and regulatory Governance and Control framework. Meetings are held on a quarterly basis. Executive members are the: Country Managing Director, Chairperson Corporate Director Head of Retail Performance Finance Director Head of Service Delivery Operational Risk Manager, Secretary Assurance Manager Regional Head of Assurance for Barclays Africa, attending as an external challenger. External attendees can attend specific meetings as agreed and by invitation only. Remuneration Policy The remuneration policy for staff up to management is generally decided by the Country Managing Director and Head of Human Resources Management with the input of Function Heads. For individual staff, this is performance related and is recommended by the relevant Head of the business unit. For the Heads of Function and Directors this is decided by their reporting line overseas with the input of the Managing Director. For the Country Managing Director, this is decided by the Managing Director Barclays Africa Core Business. Management performance is assessed by measuring actual performance during the year against performance contract agreed at the start of the year between direct reporting contact and the individual. Each performance contract is drafted based on the objectives to be achieved at year-end by each function, and flows from the Chief Executive, Private Clients and International (As from 01 January 2004) and delegated to all function heads via Barclays Africa. The total amount of remuneration paid to directors is given in Note 17, Related Party Transactions, which is on pages 45 and 46 of the financial statements. Internal audit It is the policy of Barclays Bank PLC to maintain internal controls to provide reasonable assurance of effective and efficient operations, internal financial and operational control and compliance with laws and regulations. To ensure independency and objectivity of action, an internal Audit Team has been created within Barclays Africa and is under the responsibility of the Business Risk Director of Barclays Africa. The team is selected according to the specificity of the area, which is subject to inspection and visits territories at least twice yearly. However, in case of need, the team can visit at more regular intervals. The areas under its inspection are: IT System Treasury Operation Card Business Lending Risk and Corporate Business Retail Operations Operational procedures and systems (including FOREX) General administration, finance and controlling office Offshore Business Page 13 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT MANAGEMENT DISCUSSION AND ANALYSIS – YEAR ENDED 31 DECEMBER 2003 (CONTINUED) BARCLAYS BANK PLC MAURITIUS (CONTINUED) Regular reports are presented to the Country Managing Director of Barclays Africa confirming that adequate control procedures are in place for identifying weaknesses. Any weaknesses that are identified should be acknowledged by the local Executive Team and steps should be taken to resolve them quickly. As from 01 January 2004, Devraj Rye Rughoo has been appointed as local Assurance Manager to enhance the Bank‟s internal control system. He will be involved in inspecting the Bank‟s systems and processes to ensure control is adequate and effective. A copy of the reports is also distributed to overseas Heads of Function, the Bank of Mauritius and the external auditors. Furthermore a monthly internal control statement of compliance referred to as the Turnbull Control Self-Evaluation Return is signed by the Country Managing Director and submitted to the Managing Director of Barclays Africa. Compliance The Governance and Control Committee monitors all compliance issues on a permanent basis. The Finance Director is accountable for the control of non-customers accounts, known as General Ledger Control, and a monthly Certificate of Compliance is submitted to Barclays Africa Finance. A Compliance guide is also distributed to all staffs and the Non-Financial Risk Manager, ensures that all staffs are aware of these guidelines. Statement of directors' responsibilities in respect of the financial statements Company law requires the Directors to prepare financial statements for each financial year which present fairly the financial position, financial performance and cash flows of the Bank. In preparing those financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether International Financial Reporting Standard have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Bank will continue in business. The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Bank and to enable them to ensure that the financial statements comply with the Mauritian Companies Act 2001. They are also responsible for safeguarding the assets of the Bank and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 27 April 2004 Page 14 AUDITORS' REPORT TO THE DIRECTORS OF BARCLAYS BANK PLC We have audited the financial statements of Barclays Bank PLC – Mauritius Offshore Banking Unit (the “Bank”) on pages 16 to 45 which have been prepared in accordance with the accounting policies set out on pages 21 to 26. Directors’ responsibilities As described on page 13, the Bank's directors are responsible for the preparation and presentation of financial statements which are in accordance with and comply with International Financial Reporting Standards, which give a true and fair view of the matters to which they relate, and which present fairly the financial position of the Bank at 31 December 2003 and its financial performance, changes in equity and cash flows for the year ended on that date. Auditors’ responsibilities We are responsible for expressing an independent opinion, based on our audit, on the financial statements presented by the directors and reporting our opinion to you. Basis of opinion We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Bank's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. We have no relationship with or interests in the Bank other than in our capacities as auditors, consultants and tax advisers. Page 15 AUDITORS' REPORT TO THE DIRECTORS OF BARCLAYS BANK PLC (CONTINUED) Opinion We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Bank as far as appears from our examination of those records and; (b) the financial statements on pages 16 to 45: (i) have been prepared in accordance with and comply with International Financial Reporting Standards; (ii) give a true and fair view of the matters to which they relate; and (iii) present fairly the financial position of the Bank at 31 December 2003 and its financial performance, changes in equity and cash flows for the year ended on that date. PricewaterhouseCoopers Jean-Paul de Chazal Signing partner 27 April 2004 Page 16 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT BALANCE SHEET - 31 DECEMBER 2003 Notes 2003 2002 2001 USD USD USD ASSETS Cash resources Balances with Category 1 banks and interbank loans 5,932 5,285,536 7,092,382 Balances with Category 2 banks in Mauritius and banks abroad 608,530,758 608,767,112 252,068,840 608,536,690 614,052,648 259,161,222 Securities, placements and other investments Investment securities - Available-for-sale 1 - 5,235,347 20,257,351 - 5,235,347 20,257,351 Loans Personal and credit cards 7,595,527 4,690,489 1,051,988 Business 226,938,218 80,516,415 28,645,947 Governments 6,943,750 34,849,073 17,619,749 Entities outside Mauritius 113,237,916 - - 2 354,715,411 120,055,977 47,317,684 Other Goodwill 3 2,937,867 3,704,267 - Property, plant and equipment 4 212,759 267,402 77,004 Other assets 5 3,601,210 2,626,786 268,473 Retirement benefit assets 6 65,517 135,055 66,124 6,817,353 6,733,510 411,601 USD 970,069,454 746,077,482 327,147,858 Page 17 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT BALANCE SHEET - 31 DECEMBER 2003 (CONTINUED) Notes 2003 2002 2001 USD USD USD LIABILITIES, EQUITY AND RESERVES Deposits Personal 150,310,456 135,912,146 58,173,681 Business 601,241,825 531,851,572 232,694,447 Banks 3,611,848 11,797,012 277 7 755,164,129 679,560,730 290,868,405 Borrowings Category 1 banks and interbank borrowings 453,297 2,254 277 Category 2 banks in Mauritius and banks abroad 186,773,659 40,478,345 6,889,609 187,226,956 40,480,599 6,889,886 Other Income tax 8 303,455 184,229 - Retirement benefit obligations 6 - 8,519 7,703 Other liabilities and provisions 9 7,007,779 10,355,201 19,825,653 7,311,234 10,547,949 19,833,356 Total liabilities 949,702,319 730,589,278 317,591,647 Equity and reserves Assigned capital 4,500,000 4,500,000 4,500,000 Reserves 15,867,135 10,988,204 5,056,211 Total equity and reserves 20,367,135 15,488,204 9,556,211 Total equity and liabilities USD 970,069,454 746,077,482 327,147,858 CONTINGENT LIABILITIES Acceptances, guarantees, letters of credit, endorsements and other obligations on account of customers, and spot foreign exchange contracts 10 USD 61,792,799 68,491,950 12,462,227 ___________________________________ ___________________________________ YASHODAREN UMANEE SUNIL RAMGOBIN DIRECTOR DEPUTY DIRECTOR 27 April 2004 Page 18 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT INCOME STATEMENT - YEAR ENDED 31 DECEMBER 2003 Notes 2003 2002 2001 USD USD USD Interest income Loans 6,232,509 2,059,073 2,000,120 Placements and loans to banks 11,003,193 7,696,090 9,503,610 Other 185,598 172,442 34,368 17,421,300 9,927,605 11,538,098 Interest expense Deposits 7,235,966 5,029,694 7,434,986 Deposits and borrowings from banks 2,305,810 394,578 88,827 Other 567,190 - - 10,108,966 5,424,272 7,523,813 Net interest income 7,312,334 4,503,333 4,014,285 Impairment losses on loans 2 - ( 12,193) - Net interest income after impairment losses 7,312,334 4,491,140 4,014,285 on loans Other income Fee income and commissions 11 3,614,235 2,230,681 1,142,562 Profits arising from dealings in foreign currencies 12 1,644,091 1,008,770 794,347 5,258,326 3,239,451 1,936,909 Net interest and other income 12,570,660 7,730,591 5,951,194 Non-interest expense Salaries and human resource development 13 616,021 494,113 254,478 Pension contributions and other staff benefits 13 107,632 ( 23,986) 26,773 Depreciation 4 76,090 49,268 38,877 Other 14 2,348,221 1,094,974 969,457 Total operating expenses 3,147,964 1,614,369 1,289,585 Net profit before income tax 9,422,696 6,116,222 4,661,609 Income tax 8 ( 300,792) ( 184,229) - Net profit USD 9,121,904 5,931,993 4,661,609 ___________________________________ ___________________________________ YASHODAREN UMANEE SUNIL RAMGOBIN DIRECTOR DEPUTY DIRECTOR 27 April 2004 Page 19 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT STATEMENT OF CHANGES IN EQUITY - YEAR ENDED 31 DECEMBER 2003 2003 2002 2001 USD USD USD EQUITY AND RESERVES Assigned capital At 01 January 2003 and 31 December 2003 4,500,000 4,500,000 4,500,000 Reserves General banking reserve At 01 January 2003 808,345 416,481 343,329 Transfer from retained earnings 1,505,853 391,864 73,152 At 31 December 2003 2,314,198 808,345 416,481 Retained earnings At 01 January 2003 10,179,859 4,639,730 51,273 Transfer to general banking reserve ( 1,505,853) ( 391,864) ( 73,152) Transfer to Head Office ( 4,242,973) - - Net profit 9,121,904 5,931,993 4,661,609 At 31 December 2003 13,552,937 10,179,859 4,639,730 Total reserves and surplus 15,867,135 10,988,204 5,056,211 Total equity and reserves USD 20,367,135 15,488,204 9,556,211 Page 20 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT CASH FLOW STATEMENT - YEAR ENDED 31 DECEMBER 2003 Notes 2003 2002 2001 USD USD USD Cash flow from operating activities Net profit before income taxes 9,422,696 6,116,222 4,661,609 Income tax paid ( 181,566) - - Adjustments to determine net cash flows Depreciation 76,090 49,268 38,877 Provision and adjustments to income for credit losses - 12,193 - Amortisation of goodwill 766,400 127,733 - Operating profit before changes in operating assets and liabilities 10,083,620 6,305,416 4,700,486 (Increase)/decrease in operating assets Loans and advances ( 234,659,434) ( 46,521,486) 32,249,715 Other assets ( 974,424) ( 373,313) 756,738 Retirement benefit assets 69,538 ( 68,931) ( 6,678) (Decrease)/increase in operating liabilities: Increase in deposits 75,603,399 194,867,325 68,162,580 Other liabilities and provisions ( 3,347,422) ( 10,368,452) 16,440,597 Retirement benefit obligations ( 8,519) 816 ( 470) Net cash (used in)/from operating activities ( 153,233,242) ( 143,841,375) 122,302,968 Cash flow from financing activities Transfer to Head Office ( 4,242,973) - - Net cash from financing activities ( 4,242,973) - - Cash flow from investing activities Acquisition of net assets, net of cash acquired - 162,444,000 - Payments for purchase of property, plant and equipment ( 21,447) ( 6,666) ( 22,838) Payments for purchase of investment - - ( 20,257,351) Proceeds from sale of investments 5,235,347 15,022,004 - Net cash from/(used in) investing 5,213,900 177,459,338 ( 20,280,189) activities Net (decrease)/increase in cash and cash equivalents ( 152,262,315) 321,300,713 102,022,779 Cash and cash equivalents at 01 January 2003 573,572,049 252,271,336 150,248,557 Cash and cash equivalents at 31 December 2003 15 USD 421,309,734 573,572,049 252,271,336 Page 21 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT ACCOUNTING POLICIES YEAR ENDED 31 DECEMBER 2003 Index to accounting policies Page A Basis of preparation 22 B Offsetting financial instruments 22 C Interest income and expense 22 D Foreign currency translation 22 E Derivative financial instruments and hedging 22 - 23 F Fee and commission income 23 G Investment securities 23 H Originated loans and provision for loan impairment 23 - 24 I Goodwill 24 J Computer software development costs 24 K Property, plant and equipment 24 L Cash and cash equivalents 25 M Provisions 25 N Employee benefits 25 O Deferred income taxes 26 P Assigned capital 26 Q Borrowings 26 R Acceptances 26 S Comparatives 26 Page 22 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT ACCOUNTING POLICIES YEAR ENDED 31 DECEMEBR 2003 (CONTINUED) The financial statements have been prepared in accordance with and comply with International Financial Reporting Standards (“IFRS”). The principal accounting policies adopted in the preparation of these financial statements, which have been applied consistently, are set out below: A Basis of presentation These financial statements are prepared under the historical cost convention as modified by the revaluation of available-for-sale investment securities and all derivative contracts. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management‟s best knowledge of current events and actions, actual results ultimately may differ from those estimates. B Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. C Interest income and expense Interest income and expense are recognised in the income statement for all interest bearing instruments on an accrual basis using the effective yield method based on the actual purchase price. When loans become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount. D Foreign currency translation (1) Measurement currency Items included in the financial statements of the Bank are measured using the currency that best reflects the economic substance of the underlying events and circumstances (the “measurement currency”). The financial statements are presented in United States dollars which is the measurement currency of the Bank. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency at the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Such balances are translated at the rates of exchange ruling at the balance sheet date. E Derivative financial instruments and hedging Derivative financial instruments including foreign exchange contracts, currency swaps and other derivative financial instruments, are initially recognised in the balance sheet at cost (which includes transaction costs). On the date a derivative contract is entered into, the Bank designates certain derivatives as either (1) a hedge of the fair value of a recognised asset or liability (fair value hedge); or, (2) a hedge of a future cash flow attributable to a recognised asset or liability, a forecasted transaction or a firm commitment (cash flow hedge). Derivative financial instruments are subsequently remeasured at their fair value. Fair values are obtained from discounted cash flow models and options pricing models as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Page 23 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT ACCOUNTING POLICIES YEAR ENDED 31 DECEMEBR 2003 (CONTINUED) E Derivative financial instruments and hedging (Continued) The Bank‟s derivative transactions, while providing effective economic hedges under the Group‟s risk management policies, do not qualify for hedge accounting under the specific rules of IAS 39 and are therefore treated as derivatives held for trading with fair value gains and losses reported in the income statement. F Fee and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan origination fees which are probable of being drawn down, are deferred (together with related direct costs) and recognised upon disbursement. Commission and fees arising from negotiating, or participating in the negotiation of a transaction for a third party are recognised on completion of the underlying transaction. Fees for custody services are recognised ratably over the period the service is provided. G Investment securities The Bank classifies its investment securities as held-for-trading, held-to-maturity or available-for-sale assets. Management determines the appropriate classification of its investments at the time of the purchase. Investment securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available-for-sale. Investment securities are initially recognised at cost (which includes transaction costs). Available-for-sale financial assets are subsequently remeasured at fair value based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Unrealised gains and losses arising from changes in the fair value of securities classified as available- for-sale are recognised in equity. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When the securities are disposed of or impaired, the related accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the impairment loss for assets carried at amortised cost is calculated as the difference between the asset‟s carrying amount and the present value of expected future cash flows discounted at the financial instrument‟s original effective interest rate. By comparison, the recoverable amount of an instrument measured at fair value is the present value of expected future cash flows discounted at the current market rate of interest for a similar financial asset. Interest earned while holding investment securities is reported as interest income. Dividends receivable are included separately in dividend income when a dividend is declared. All regular way purchases and sales of investment securities are recognised at trade date which is the date that the Bank commits to purchase or sell the asset. All other purchases and sales are recognised as derivative forward transactions until settlement. H Originated loans and provision for loan impairment Loans originated by the Bank by providing money directly to the borrower (at draw down) are categorised as loans originated by the Bank and are carried at amortised cost, which is defined as the fair value of cash consideration given to originate those loans as is determinable by reference to market prices at origination date. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of the transaction. All loans and advances are recognised when cash is advanced to borrowers. An allowance for loan impairment is established if there is objective evidence that the Bank will not be able to collect all amounts due according to the original contractual terms of the loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of the loans. Page 24 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT ACCOUNTING POLICIES YEAR ENDED 31 DECEMEBR 2003 (CONTINUED) H Originated loans and provision for loan impairment (Continued) The loan loss provision also covers losses where there is objective evidence that probable losses are present in components of the loan portfolio at the balance sheet date. These have been estimated based upon historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off against the related provision for impairment; subsequent recoveries are credited to the provision for loan losses in the income statement. Statutory and other regulatory loan loss reserve requirements that exceed these amounts are dealt with in the general banking reserve as an appropriation of retained earnings. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited as a reduction of the provision for loan losses. I Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Bank‟s share of the net assets acquired at the date of acquisition. Goodwill on acquisition of the assets and liabilities is reported in the balance sheet as an intangible asset and is amortised using the straight-line method over its estimated useful life. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. Goodwill is generally amortised over 5 years. At each balance sheet date the Bank assesses whether there is any indication of impairment. If such indications exist an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. The gain or loss on disposal of an entity includes the related unamortised balance of goodwill relating to the entity disposed. J Computer software development costs Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Bank and will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads. Expenditure which enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a period of 5 years. K Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation. Depreciation is calculated on the straight line method to write down the cost of such assets to their residual values over their estimated useful lives as follows: Office equipment 20% Furniture and fittings 20% Motor vehicles 20% Improvement to rented premises 20% Property, plant and equipment are periodically reviewed for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. Repairs and renewals are charged to the income statement when the expenditure is incurred. Page 25 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT ACCOUNTING POLICIES YEAR ENDED 31 DECEMEBR 2003 (CONTINUED) L Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 183 days maturity from the date of acquisition including: Balances with Category 1 banks and inter bank loans, Balances with Category 2 banks in Mauritius and banks abroad, borrowings from Category 1 banks and inter bank borrowings and borrowings from Category 2 banks in Mauritius and banks abroad. M Provisions Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. N Employee benefits Pension obligations The Bank has two pension schemes. The schemes are funded through payments to trustee-administered funds as determined by periodic actuarial calculations. A defined benefit plan is a pension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service or compensation. The liability in respect of these defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets, together with adjustments for unrecognised actuarial gains/losses curtailments and past service costs. The defined benefit obligation is calculated every two years by independent actuaries using the projected unit credit method (the latest valuation was done at 31 December 2002). The present value of the defined benefit obligation is determined by the estimated future cash outflows using a discount rate set by reference to current interest rates and the yield on bonds, treasury bills and recent corporate debenture issues. Both pension plans are final salary plans and the charge for such pension plans, representing the net periodic pension cost is included in staff costs. Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and amendments to pension plans are charged or credited to income over the service lives of the related employees. Other post-retirement obligations The Bank provides post-retirement healthcare benefits to its employees who remain members of the scheme after retirement. The entitlement to these benefits is based on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using a methodology similar to that for defined benefit pension plans. These obligations are valued every two years by independent qualified actuaries. Termination benefits Termination benefits become payable whenever an employee‟s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Page 26 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT ACCOUNTING POLICIES YEAR ENDED 31 DECEMEBR 2003 (CONTINUED) O Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets and liabilities including derivative contracts, provisions for impairment losses on loans and advances and pensions and other post retirement benefits; and, in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. The rates enacted or substantively enacted at the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Income tax payable on profits, based on the applicable tax law, is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available which these losses can be utilised against. Deferred tax related to fair value re-measurement of available-for-sale investments, which are charged or credited directly to the income statement, is also credited or charged directly to the income statement. P Assigned capital Assigned capital represents the capital contribution made by the Head Office to the Bank. Incremental external costs directly attributable to raising additional capital are shown in equity as a deduction, net of tax, from the proceeds. Q Borrowings Borrowings are recognised initially at „cost‟, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference between net proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective yield method. R Acceptances Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be settled simultaneously with the reimbursement from the customers. Acceptances are accounted for as off- balance sheet transactions and are disclosed as contingent liabilities and commitments. S Comparatives The comparatives figures have been adjusted to conform with changes in presentation in the current year. Page 27 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT A Strategy in using financial instruments By its nature the Bank‟s activities are principally related to the use of financial instruments including derivatives. The Bank accepts deposits from customers at floating rates and for various periods and seeks to earn above average interest margins by investing these funds in high quality assets. The Bank seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due. The Bank also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standing. Such exposures involve not just on-balance sheet loans and advances but the Bank also enters into guarantees and other commitments such as letters of credit and performance, and other bonds. B Credit risk Credit risk arises because the customers, clients or counterparties may not be willing or able to fullfil their contractual obligations. The Bank uses a grading structure to show the probability of future default by borrowers. This is used to estimate levels of annualised credit losses from the overall lending portfolio (termed Risk Tendency). Risk Tendency assists in portfolio management decisions, such as setting exposure limits for any single counterparty or borrower, establishing the desired aggregate exposure levels to individual sectors, determining pricing policy and setting the level of the general provision. Gradings also provide a guide to changes in the underlying credit quality of the lending portfolio over time. Derivatives The Bank maintains strict control limits on net open derivative positions, i.e. the difference between purchase and sale contracts, by both amount and term. At any one time the amount subject to credit risk is limited to the current fair value of instruments that are favourable to the Bank (i.e. assets), which in relation to derivatives is only a small fraction of the contract or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except where the Bank requires margin deposits from counterparties. Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to make loans at a specific rate of interest during a fixed period of time are accounted for as derivatives and accounted for as such unless these commitments do not extend beyond the period expected to be needed to perform appropriate underwriting, in which case they considered to be “regular way” transactions. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Page 28 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) B Credit risk (Continued) Geographical concentrations of assets, liabilities and off balance sheet items Credit Capital Total assets Total liabilities commitments Operating income Expenditure USD USD USD USD USD At 31 December 2003 Mauritius 118,085,752 673,518,980 11,331,915 12,570,660 21,447 European countries 644,097,955 207,261,835 1,395,539 - - Other countries 207,955,285 68,626,568 49,065,345 - - Total USD 970,069,454 949,702,319 61,792,799 12,570,660 21,447 At 31 December 2002 Mauritius 124,606,284 577,855,524 68,491,952 7,742,784 6,666 European countries 578,421,964 79,579,258 - - - Other countries 43,049,234 73,154,496 - - - Total USD 746,077,482 730,589,278 68,491,952 7,742,784 6,666 At 31 December 2001 Mauritius 54,282,844 243,557,313 12,462,227 5,951,194 22,838 European countries 270,593,701 49,301,430 - - - Other countries 2,271,313 24,732,904 - - - Total USD 327,147,858 317,591,647 12,462,227 5,951,194 22,838 Economic sector risk concentrations within the customer loan portfolio were as follows: - 2003 2002 2001 USD % USD % USD % Agricultural and Fishing 26,658,838 7.52 3,081,850 2.57 4,218,750 8.91 Manufacturing 43,921,246 12.38 14,869,771 12.38 15,378,143 32.50 Tourism 13,185,383 3.72 4,417,060 3.68 4,229,955 8.94 Construction 22,831,992 6.44 34,296,970 28.57 8,648,568 18.28 Traders 43,773,967 12.34 26,704,539 22.24 - - Statutory and Parastatal bodies 6,943,750 1.96 18,293,390 15.24 13,400,999 28.32 Personal 7,577,706 2.14 4,946,126 4.12 1,068,823 2.26 Entities outside Mauritius 113,237,916 31.92 - - - - Other 76,584,613 21.59 13,446,271 11.20 372,446 0.79 USD 354,715,411 100.00 120,055,977 100.00 47,317,684 100.00 C Market risk Market risk is the risk of loss arising from changes in the level or volatility of market prices, which can occur in the interest rate and foreign exchange markets. It is incurred as a result of both trading and asset/liability management activities. The market risk management policies of the Bank are determined by the Group Risk Management Committee, which also determines overall market risk appetite. The Bank uses the Interest Earnings At Risk (“IEAR”) calculator as the primary mechanism for controlling interest rate risk. The IEAR estimates the impact on interest earnings for given changes in interest rates. To monitor foreign exchange risk a mismatch ladder is used, which identifies mismatches between foreign currency assets and liabilities. Page 29 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) D Currency risk The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank‟s exposure to foreign currency exchange rate risk at 31 December 2003, 2002 and 2001. Included in the table are the Bank‟s assets and liabilities at carrying amounts, categorised by currency. The off-balance sheet gap represents the difference between the notional amounts of foreign currency derivative financial instruments, which are principally used to reduce the Bank‟s exposure to currency movements, and their fair values. Concentrations of assets, liabilities and off balance sheet items EURO USD GBP Other Total USD USD USD USD USD At 31 December 2003 Assets Balances with Category 1 banks and interbank loans - - - 5,932 5,932 Balances with Category 2 banks in Mauritius and banks abroad 81,291,528 407,828,295 108,130,517 11,280,418 608,530,758 Loans 110,983,689 228,043,904 27,642 15,660,176 354,715,411 Goodwill - 2,937,867 - - 2,937,867 Property, plant and equipment - 212,759 - - 212,759 Other assets - 3,574,190 - 27,020 3,601,210 Retirement benefit assets - - - 65,517 65,517 Total assets USD 192,275,217 642,597,017 108,158,159 27,039,061 970,069,454 Liabilities Borrowings 26,471,328 153,407,583 117,048 7,230,997 187,226,956 Deposits 142,606,545 481,400,629 118,256,769 12,900,186 755,164,129 Other liabilities and provisions 941,093 5,585,900 479,304 1,482 7,007,779 Income tax - 303,455 - - 303,455 Total liabilities USD 170,018,966 640,697,567 118,853,121 20,132,665 949,702,319 Net on balance sheet position USD 22,256,251 1,899,450 ( 10,694,962) 6,906,396 20,367,135 Off balance sheet net notional position Credit commitments USD 13,212,873 31,917,828 890,472 15,771,627 61,792,800 Page 30 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) D Currency risk (Continued) Concentrations of assets, liabilities and off balance sheet items (Continued) EURO USD GBP Other Total USD USD USD USD USD At 31 December 2002 Total assets 131,376,688 519,278,964 62,199,805 33,222,025 746,077,482 Total liabilities 131,342,957 509,860,980 62,205,950 27,179,391 730,589,278 Net on balance sheet position USD 33,731 9,417,984 ( 6,145) 6,042,634 15,488,204 Off balance sheet net notional position Credit commitments USD 11,206,195 46,247,534 - 11,038,221 68,491,950 At 31 December 2001 Total assets 29,785,930 268,316,243 20,405,917 8,639,768 327,147,858 Total liabilities 29,824,038 258,677,202 20,474,445 8,615,962 317,591,647 Net on balance sheet position USD ( 38,108) 9,639,041 ( 68,528) 23,806 9,556,211 Page 31 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) Up to 1 1-3 3-6 6-12 1-5 Over Non- interest Month Months months months years 5 years bearing Total USD USD USD USD USD USD USD USD At 31 December 2003 Assets Balances with Category 1 banks and interbank loans 5,932 5,932 Balances with Category 2 banks in Mauritius and banks abroad 449,201,648 142,168,032 4,988,044 10,740,930 665,001 767,103 608,530,758 Loans 45,911,634 257,133,436 51,658,708 11,633 - - 354,715,411 Goodwill - - - - 2,937,867 2,937,867 Property, plant and equipment - - - - 212,759 212,759 Other assets - - - - 3,601,210 3,601,210 Retirement benefit assets - - - - 65,517 65,517 Total assets USD 495,113,282 399,301,468 56,646,752 10,752,563 665,001 767,103 6,823,285 970,069,454 Page 32 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) E Interest rate risk The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. Management sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored monthly. The table below summarises the Bank‟s exposure to interest rate risks. Included in the table are the Bank‟s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The off-balance sheet gap represents the net notional amounts of all interest-rate sensitive derivative financial instruments. Expected repricing and maturity dates do not differ significantly from the contract dates, except for the maturity of USD 489,003,864 (2002 – USD 642,612,730; 2001 - USD 273,206,462) of Deposits up to 1 month, of which 44% (2002 -50%; 2001 - 50%) represent balances on current accounts considered by the Bank as a relatively stable core source of funding of its operations. Interest sensitivity of assets and liabilities - repricing analysis Page 33 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) E Interest rate risk (Continued) Interest sensitivity of assets and liabilities - repricing analysis (Continued) Up to 1 1-3 3-6 6-12 1-5 Over Non-interest Month Months months years 5 years bearing Total USD USD USD USD USD USD USD At 31 December 2003 (Continued) Liabilities Borrowings from Category 1 banks and interbank loans 453,297 453,297 Borrowings from Category 2 banks in Mauritius and banks abroad 2,557,360 139,930,447 41,285,852 3,000,000 186,773,659 Deposits 491,107,216 245,760,969 6,045,683 10,942,625 540,790 766,846 - 755,164,129 Income tax - - - - 303,455 303,455 Other liabilities and provisions - - - - 7,007,779 7,007,779 Total liabilities USD 494,117,873 385,691,416 47,331,535 13,942,625 540,790 766,846 7,311,234 949,702,319 On balance sheet interest sensitivity gap USD 995,409 13,610,052 9,315,217 (3,190,062) 124,211 257 At 31 December 2002 Total assets 669,433,802 48,521,0698 314,550 639,585 11,968,857 746,077,482 Total liabilities 649,632,507 55,285,632 430,000 639,000 10,547,949 730,589,278 On balance sheet interest sensitivity gap USD 19,801,295 ( 6,763,934) ( 115,450) 585 At 31 December 2001 Total assets 269,578,492 23,754,071 - 18,761,958 327,147,858 Total liabilities 268,625,153 16,042,914 - 24,414,666 317,591,647 On balance sheet interest sensitivity gap USD 953,339 7,711,157 - Page 34 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) E Interest rate risk (Continued) Interest sensitivity of assets and liabilities - repricing analysis (Continued) The table below summarises the effective interest rate by major currencies for monetary financial instruments: EURO USD GBP Lowest Highest Lowest Highest Lowest Highest % % % % % % At 31 December 2003 Assets Balances with Category 1 banks and interbank loans n/a n/a n/a n/a n/a n/a Balances with Category 2 banks in Mauritius and banks abroad 4.47 5.55 n/a n/a n/a n/a Due from Head Office and branches 1.93 2.77 0.89 1.30 3.21 3.87 Loans 2.95 4.90 1.27 4.17 4.24 5.00 Liabilities Category 1 banks and interbank borrowings n/a n/a n/a n/a n/a n/a Category 2 banks in Mauritius and banks abroad 1.68 5.50 0.64 1.42 2.96 3.99 Deposits 0.48 1.90 0.05 0.90 1.40 3.00 At 31 December 2002 Assets Balances with Category 1 banks and interbank loans n/a n/a n/a n/a n/a n/a Balances with Category 2 banks in Mauritius and banks abroad 2.89 3.37 1.27 1.83 3.78 4.03 Loans 4.39 4.87 2.77 3.33 5.28 5.53 Liabilities Category 1 banks and interbank borrowings n/a n/a n/a n/a n/a n/a Category 2 banks in Mauritius and banks abroad n/a n/a n/a n/a n/a n/a Deposits 0.25 1.50 0.05 0.05 0.65 1.50 Page 35 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) E Interest rate risk (Continued) Interest sensitivity of assets and liabilities - repricing analysis (Continued) EURO USD GBP Lowest Highest Lowest Highest Lowest Highest % % % % % % At 31 December 2001 Assets Balances with Category 1 banks and interbank loans n/a n/a n/a n/a n/a n/a Balances with Category 2 banks in Mauritius and banks abroad 3.25 4.75 2.00 6.50 3.25 5.25 Loans and advances to customers 4.75 6.25 3.50 8.00 4.75 6.75 At 31 December 2001 Liabilities Category 1 banks and interbank borrowings n/a n/a n/a n/a n/a n/a Category 2 banks in Mauritius and banks abroad n/a n/a n/a n/a n/a n/a Deposits 0.75 3.25 0.05 4.80 0.65 3.80 Page 36 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) F Liquidity risk The management of liquidity within the Bank has two principal strands. Firstly, day-to-day funding is managed by monitoring future cash flows to ensure that requirements can be met including the replacement of existing funds as they mature or are withdrawn to satisfy demand by customers for additional borrowings. Secondly, to maintain a stock of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow. In order to avoid reliance on a particular group of customers or market sectors the distribution of sources and the maturity profile of deposits are actively managed. Important factors in assuring liquidity are competitive rates and the maintenance of depositors‟ confidence. Such confidence is based on reputation, the strength of earnings and the Bank‟s financial position. Liquidity management includes control over asset maturities and the volume and quality of liquid assets and short-term funds. Additionally, in evaluating the Bank‟s liquidity position, management takes account of undrawn lending commitments, the usage of overdraft facilities and the possible impact of certain contingent liabilities such as standby letters of credit and guarantees. Maturities of assets and liabilities At 31 December 2003 Up to 1 1-3 3-6 6-12 1-5 Over Month months months years 5 years USD USD USD USD USD Assets Balances with Category 1 banks and interbank loans 5,932 Balances with Category 2 banks in Mauritius and banks abroad 449,201,648 142,168,032 4,988,044 10,740,930 665,001 767,1030 608,5 Loans to customers 36,366,147 29,291,986 35,287,410 71,031,552 167,568,064 15,170,252 354,7 Goodwill 2,937,867 - - 2,9 Property, plant and equipment 212,759 - - 2 Other assets 3,601,210 - - 3,6 Retirement benefit assets 65,517 - - Total assets USD 492,391,080 171,460,018 40,275,454 81,772,482 168,233,065 15,937,355 970,0 Page 37 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) F Liquidity risk (Continued) Maturities of assets and liabilities (Continued) At 31 December 2003 (Continued) Up to 1 1-3 3-6 6-12 1-5 Over Month months Months years 5 years Total USD USD USD USD USD USD Liabilities Category 1 banks and interbank borrowings 453,297 453,297 Category 2 banks in Mauritius and banks abroad 2,557,360 139,930,447 41,285,852 3,000,000 186,773,659 Deposits 491,107,216 245,760,969 6,045,683 10,942,625 540,790 766,846 755,164,129 Income tax - 303,455 - - - 303,455 Other liabilities and provisions 7,007,779 - - - - 7,007,779 Total liabilities USD 501,125,652 385,994,871 47,331,535 13,942,625 540,790 766,846 949,702,319 Net liquidity gap USD (8,734,572) ( 214,534,853) (7,056,081) 67,829,857 167,692,275 15,170,509 20,367,135 At 31 December 2002 Total assets 631,490,199 34,571,270 6,775,267 54,395,303 18,845,443 746,077,482 Total liabilities 645,203,336 45,235,430 39,081,512 430,000 639,000 730,589,278 Net liquidity gap USD( 13,713,137) ( 10,664,160) ( 32,306,245) 53,965,303 18,206,443 15,488,204 At 31 December 2001 Total assets 227,660,536 21,647,244 49,249,006 10,992,383 17,598,689 327,147,858 Total liabilities 286,083,101 16,042,914 15,465,632 - - 317,591,647 Net liquidity gap USD ( 58,422,565) 5,604,330 33,783,374 10,992,383 17,598,689 9,556,211 Page 38 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT FINANCIAL RISK MANAGEMENT (CONTINUED) G Fair values of financial assets and liabilities In the opinion of the management, the financial assets and liabilities disclosed in the balance sheet are at their fair values as they are all on variable interest rates or linked to a short-term base rate. H Compliance risk Compliance risk arises from a failure or inability to comply with the laws, regulations or codes applicable to the financial services industry. Non-compliance can lead to fines, public reprimands, enforced suspension of operations or, in extreme cases, withdrawal of authorisation to operate. I Operational risk management Operational risk, which is inherent in all business activities, is the potential for financial loss, and business instability arising from failures in internal controls, operational processes or the systems that support them. The goal of operational risk management is to balance cost and risk within the constraints of the risk appetite of the Bank and to be consistent with the prudent management required of a large financial organisation. It is recognised that such risks can never be entirely eliminated and that the cost of controls in minimising these risks may outweigh the potential benefits. Accordingly, the Bank continues to invest in risk management and mitigation such as business continuity management and incident management. In reinforcement of the implementation of the Bank‟s risk strategy, independent checks on risk issues are undertaken by the internal audit function. J Legal risk Legal risk is the risk that the business activities of the Bank have unintended or unexpected legal consequences. It includes risk arising from: Inadequate documentation, legal or regulatory incapacity, insufficient authority of a counterparty and uncertainty about the validity or enforceability of a contract in counterparty insolvency; Actual or potential violations of law or regulation (including activity unauthorised for a bank and which may attract a civil or criminal fine or penalty); Failure to protect the Bank‟s property (including its interest in its premises and its intellectual property such as the Barclays logo, brand names and products); and The possibility of civil claims (including acts or other events which may lead to litigation or other disputes). The Bank identifies and manages legal risk through effective use of its internal and external legal advisers. K Tax risk Tax risk is the risk of loss or increased charges associated with changes in, or errors in the interpretation of, taxation rates or law. Page 39 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS Index to the notes to the financial statements Page 1 Investment securities – Available-for-sale 38 2 Loans and advances 38 3 Goodwill 38 4 Property, plant and equipment 39 5 Other assets 39 6 Retirement benefit assets/obligations 40 - 41 7 Deposits 41 8 Income tax 42 9 Other liabilities and provisions 42 10 Contingent liabilities and commitments 42 11 Fee income and commissions 43 12 Profits arising from dealings in foreign currencies 43 13 Staff costs 43 14 Operating expenses 43 15 Cash and cash equivalents 44 16 Reserves 44 17 Related party transactions 44 - 45 18 Incorporation and registered office 45 19 Reporting currency 45 Page 40 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 1 Investment securities - Available-for-sale 2003 2002 2001 USD USD USD Debt securities - 5,235,347 18,094,351 Investment in bonds - - 2,163,000 US D - 5,235,347 20,257,351 2 Loans and advances Originated loans Bills discounted 4,360,208 7,577,992 - Overdrafts 36,366,144 14,566,234 2,771,999 Term loans 313,989,059 97,923,944 44,545,685 Loans and advances 354,715,411 120,068,170 47,317,684 Less: provision and adjustments to income for credit losses - ( 12,193) - US D 354,715,411 120,055,977 47,317,684 Provision and adjustments to income for credit losses At 01 January 2003 12,193 - - Provision for loan impairment - 12,193 - Loans written off during the year as uncollectible ( 12,193) - - US At 31 January 2003 D - 12,193 - 3 Goodwill Cost: At 01 January 2003 3,832,000 - - Addition - 3,832,000 - US At 31 December 2003 D 3,832,000 3,832,000 - Accumulated amortisation: At 01 January 2003 127,733 - - Charge for the year (Note 14) 766,400 127,733 - US At 31 December 2003 D 894,133 127,733 - Net book amount: US At 31 December 2003 D 2,937,867 3,704,267 - Page 41 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 4 Property, plant and equipment Furniture Office Leasehold and Motor equipment improvements fittings vehicles Total USD USD USD USD USD Cost: At 01 January 2001 188,503 - 79,760 20,205 288,468 Additions 17,811 - 5,027 - 22,838 At 31 December 2001 206,314 - 84,787 20,205 311,306 Additions 6,666 - - - 6,666 Acquisitions 35,334 178,986 6,497 12,183 233,000 At 31 December 2002 248,314 178,986 91,284 32,388 550,972 Additions 21,447 - - - 21,447 Written off ( 82,529) - ( 3,985) - ( 86,514) At 31 December 2003 USD 187,232 178,986 87,299 32,388 485,905 Accumulated depreciation: At 01 January 2001 121,505 - 65,835 8,085 195,425 Charge for the year 29,529 - 5,308 4,040 38,877 At 31 December 2001 151,034 71,143 12,125 234,302 Charge for the year 31,264 7,235 6,052 4,717 49,268 At 31 December 2002 182,298 7,235 77,195 16,842 283,570 Charge for the year 23,871 40,364 4,641 7,214 76,090 Written off ( 82,529) - ( 3,985) - ( 86,514) At 31 December 2003 USD 123,640 47,599 77,851 24,056 273,146 Net book amount: At 31 December 2003 USD 63,592 131,387 9,448 8,332 212,759 At 31 December 2002 USD 66,016 171,751 14,089 15,546 267,402 At 31 December 2001 USD 55,280 - 13,644 8,080 77,004 5 Other assets 2003 2002 2001 USD USD USD Accrued interest receivable 597,041 607,295 163,531 Derivative financial assets 2,850,770 - - Other 153,399 2,019,491 104,942 US D 3,601,210 2,626,786 268,473 Page 42 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) Retirement benefit 6 assets/obligations (a) Pension benefits 2003 2002 2001 USD USD USD The amounts recognised in the balance sheet are as follows: Present value of funded obligations 525,018 440,297 298,451 Fair value of plan assets ( 579,392) ( 498,118) ( 333,596) ( 54,374) ( 57,821) ( 35,145) Unrecognised actuarial losses ( 11,143) ( 77,234) ( 30,979) US ( 135,055) ( 66,124) Asset in the balance sheet D ( 65,517) The amounts recognised in the income statement are as follows: Current service cost 43,606 34,316 25,821 Interest cost 47,601 37,156 28,169 Expected return on plan assets ( 53,423) ( 44,888) ( 37,558) Curtailment loss/(gain) 62,136 ( 55,666) - Actuarial loss recognised 533 - - Past service cost recognised 16,400 - - Exchange difference ( 15,162) ( 2,303) 4,860 US Total, included in staff costs (Note 13) D 101,691 ( 31,385) 21,292 Movement in the liability recognised in the balance sheet: At 01 January 2003 ( 135,055) ( 66,124) ( 59,446) Total expense/(income) - as above 101,691 ( 31,385) 21,292 Contributions paid ( 32,153) ( 37,546) ( 27,970) US At 31 December 2003 D ( 65,517) ( 135,055) ( 66,124) US The actual return on plan assets was: D 74,883 30,245 6,579 2003 2002 2001 % % % The principal actuarial assumptions used were as follows: Discount rate 10.00 11.00 11.50 Expected return on plan assets 10.00 11.00 12.00 Future salary increases 7.50 8.50 9.00 Future pension increases 3.00 3.00 3.00 Page 43 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 6 Retirement benefit assets/obligations (Continued) (b) Healthcare benefits 2003 2002 2001 USD USD USD The amounts recognised in the balance sheet are as follows: Present value of funded obligations - 9,717 7,901 Fair value of plan assets - ( 342) ( 198) - 9,375 7,703 Unrecognised actuarial losses - ( 856) - US 8,519 7,703 Liability in the balance sheet D - The amounts recognised in the income statement are as follows: Current service cost 3,767 3,182 2,347 Interest cost 913 684 628 Expected return on plan assets ( 76) ( 34) - Curtailment or settlement gain ( 10,388) - - Exchange difference 956 269 ( 668) US Total, included in staff costs (Note 15) D ( 4,828) 4,101 2,307 Movement in the asset recognised in the balance sheet: At 01 January 2003 8,519 7,703 8,173 Total (income)/expense - as above ( 4,828) 4,101 2,307 Contributions paid ( 3,691) ( 3,285) ( 2,777) US At 31 December 2003 D - 8,519 7,703 US The actual return on plan liability was: D - ( 308) - 2003 2002 2001 % % % The principal actuarial assumptions used were as follows: Discount rate 10.00 11.00 11.50 Expected return on plan assets 10.00 11.00 12.00 Future salary increases 8.00 Future medical cost increases 8.00 9.00 9.00 2003 2002 2001 USD USD USD 7 Deposits Demand deposits 294,835,785 314,491,028 123,851,314 Time deposits 460,328,344 365,069,702 167,017,091 US 755,164,129 679,560,730 290,868,405 Page 44 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) D Page 45 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 8 Income tax 2003 2002 2001 USD USD USD Income tax expense: Current tax, based on the profit for the year as adjusted for tax purposes at 15% 303,455 184,229 - Overprovision in previous year ( 2,663) - - US 184,229 - D 300,792 The reconciliation between the actual income tax rate 3.19% for 2003 (2002 – 3.01%) and the applicable income tax rate of 15% (2002 – 15%) is as follows: 2003 2002 2001 % % % Applicable income tax rate 15.00 15.00 - Impact of: Expenses not allowed for tax purposes 1.28 0.34 - Deferred tax asset not provided ( 0.08) ( 0.28) - Deduction for foreign source income ( 12.96) ( 12.05) - Overprovision in prior year ( 0.03) - - Actual income tax rate 3.21 3.01 - 2003 2002 2001 USD USD USD Income tax liability: At 01 January 2003 184,229 - - Charge for the year 303,455 184,229 - Overprovision in previous year ( 2,663) - - Paid during the year ( 181,566) - - US 184,229 - At 31 December 2003 D 303,455 9 Other liabilities and provisions Accrued interest payable 546,171 345,637 357,698 Derivatives financial liabilities 2,168,371 - - Others 4,293,237 10,009,564 19,467,955 US 10,355,201 19,825,653 D 7,007,779 10 Contingent liabilities and commitments The following table indicates the contractual amounts of the Bank's off-balance sheet financial instruments that commit it to extend credit to customers. 2003 2002 2001 USD USD USD Guarantees and standby letters of credit 61,356,968 59,745,703 12,462,227 Documentary and commercial letters of credit 435,831 8,746,247 - Page 46 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) US 68,491,950 12,462,227 D 61,792,799 Page 47 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 2003 2002 2001 USD USD USD 11 Fee income and commissions Fee income and commissions Service related fees and commissions 1,951,832 1,330,305 951,073 Risk related fees and commissions 1,672,134 911,222 191,489 3,623,966 2,241,527 1,142,562 Fee expense and commissions Management fees ( 9,731) ( 10,846) - USD ( 9,731) ( 10,846) - Fee income and commissions USD 3,614,235 2,230,681 1,142,562 12 Profits arising from dealings in foreign currencies Foreign exchange net trading income includes gains and losses from spot and forward contracts and translated foreign currency assets and liabilities. Interest rate instruments includes the results of making markets in instruments in government securities, corporate debt securities, money market instruments, interest rate and currency swaps, options and other derivatives. 13 Staff costs 2003 2002 2001 USD USD USD Salaries and human resource development Wages and salaries 589,085 343,082 254,478 Compensation under Voluntary Early Leavers Scheme 26,936 151,031 - USD 616,021 494,113 254,478 Pension contributions and other staff benefits Social Security costs 10,769 3,298 2,294 Pension benefits - defined benefit plan (Note 6) 101,691 ( 31,385) 21,292 Healthcare benefits - defined benefit plan (Note 6) ( 4,828) 4,101 2,307 Other benefits - - 880 107,632 ( 23,986) 26,773 Total staff costs USD 723,653 470,127 281,251 Number Number Number Number of employees at year end 34 37 18 14 Other operating expenses 2003 2002 2001 USD USD USD Other operating expenses 1,202,375 748,598 817,093 Equipment expenses 245,687 163,271 107,858 Property expenses 123,759 52,372 41,756 Amortisation of goodwill (Note 3) 766,400 127,733 - Auditors' remuneration - audit 10,000 3,000 2,750 USD 2,348,221 1,094,974 969,457 Page 48 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 15 Reserves The general banking reserve represents a general provision on performing loans and advances, net of facilities secured by credit balances. 16 Cash and cash equivalents 2003 2002 2001 USD USD USD Assets Balances with Category 1 banks and interbank loans 5,932 5,285,536 7,092,382 Balances with Category 1 banks and interbank loans 608,530,758 608,767,112 252,068,840 Liabilities Category 1 banks and interbank borrowings ( 453,297) ( 2,254) ( 277) Category 2 banks in Mauritius and banks abroad ( 186,773,659) ( 40,478,345) ( 6,889,609) Cash and cash equivalents USD 421,309,734 573,572,049 252,271,336 17 Related party transactions 2003 2002 2001 USD USD USD (i) Payments for services rendered Barclays Bank Plc - Medical Aid Scheme (medical contribution) 2,620 1,595 695 Barclays Bank Plc - Mauritius Staff Pension Fund (pension contribution) 46,900 37,546 28,850 Barclays Bank Plc - Mauritius Domestic Branch (rent of premises) - 30,224 30,912 Barclays Africa (support services) 728,891 487,278 635,484 Barclays Africa (reimbursement of third party charges) 217,166 123,540 153,154 US D 995,577 680,183 849,095 (ii) Balances and placements with Barclays Banks abroad At 01 January 2003 596,788,505 251,956,573 165,486,110 Made during the year 34,125,748,932 19,113,534,443 126,389,701,055 Repaid during the year ( 34,116,944,552) ( 18,768,702,511) (126,303,230,592) US At 31 December 2003 D 605,592,885 596,788,505 251,956,573 US Interest receivable during the year D 9,800,345 6,846,600 9,395,437 (iii) Borrowings from Barclays banks abroad At 01 January 2003 39,048,872 11,470,918 15,505,790 Made during the year 231,189,155 95,017,549 22,354,490 Repaid during the year ( 83,469,793) ( 67,439,595) ( 26,389,362) US At 31 December 2003 D 186,768,234 39,048,872 11,470,918 US Interest payable during the year D 2,182,064 313,489 87,952 (iv) Deposits from other related parties At 01 January 2003 917,051 1,620,862 - Page 49 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) Made during the year 936,217 288,568 2,470,718 Repaid during the year ( 917,051) ( 992,379) ( 849,856) US At 31 December 2003 D 936,217 917,051 1,620,862 US Interest payable during the year D 27,154 54,080 11,827 Page 50 BARCLAYS BANK PLC - MAURITIUS OFFSHORE BANKING UNIT NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2003 (CONTINUED) 17 Related party transactions (Continued) (v) Deposits from other related parties (Continued) Deposits from other related parties include Barclays Bank Plc Mauritius Staff Pension Fund, which holds Fixed and Call deposits. All deposits are agreed at commercial rates and on same terms and conditions as for all customers and staff of the bank. (v) Remuneration of directors and key management personnel In 2003, the total remuneration of the directors and key management personnel employed by the Bank was USD 127,660 (2002 – USD 53,931 / 2001 – USD 28,047). 18 Incorporation and registered office The Company is incorporated with limited liability under the laws of the United Kingdom. It is registered in Mauritius under the Companies Act as a foreign company. The registered office of the Bank is Sir William Newton Street, Port Louis. 19 Reporting currency The financial statements are presented in United States dollars. The Bank has been granted a Category 1 Global Business Licence under the Financial Services Development Act 2001 which requires that the Bank‟s business or other activity is carried on in a currency other than the Mauritian rupee.
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