annual report 2005 - Arab Banking Corporation, ALGERIA

investments. Increased foreign investment in the Country has been witnessed in all sectors,
particularly in communications, technology, finance, construction etc. The Government has also
been spending increased amounts on infrastructure development, education and public services.
These auger well for the future development of industry and agriculture, both vital pillars of the
Algerian economy.
The robust fiscal position and economic activity has of necessity given way to some inflation,
though, the authorities have successfully kept it in check. The Algerian Dinar has been prudently
managed to promote economic stability.
On the other hand, strong market liquidity has put further pressure on margins and increased
competition amongst the banks.
BUSINESS REVIEW
ABC Algeria with its four branches is primarily involved in trade finance and commercial banking
business. Since the end of 2005 one more branch has been added to its network. This branch, the
third one in the capital, Algiers will primarily service retail banking operations.
Despite the increased competition alluded to above, ABC Algeria had an excellent year, with a net
profit of DZD 588 million compared to DZD 380 million in 2004. Further review of its financial
statements indicates an increase of 51% in its net interest income to DZD 700 million and 74% in
non-interest income to DZD 616 million, on the back of DZD 1 686 million loan portfolio
expansion of 35% and a substantial increase in trade finance turnover, together with increased
Money Market and Marketable Securities earnings. Total operating income was DZD 1 315
million, 61% higher than 2004. We are pleased to report that all business units, including Treasury
contributed to the substantially increased revenue generated during the year. With operating
expenses well contained, together with recovery of non-performing loans, the Bank returned a net
profit of DZD 588 million, a huge improvement over the previous year and an impressive return on
equity of over 20%.
Following a strategic reorganization in 2004, ABC Algeria has repositioned itself to concentrate on
Trade Finance and Retail Banking activities. Its new retail banking division aims to expand the
branch network over time by 11 new outlets, starting with three new branches planned for Algiers
in 2006. With its IT systems upgrade now successfully implemented, ABC Algeria is confident of
being able to deliver quality products to an expanding corporate and retail customer base in an
efficient and profitable way.
Total assets as of 31 December 2005 were DZD 31.5 billion (2004: DZD 24.8 billion). Loans and
Advances were DZD 6.4 billion (2004: DZD 4.7 billion). The Bank continues to apply very strict
risk management techniques in its credit approval process. Our approach to the assessment and
approval of credit proposals has been further strengthened with the introduction of Board Risk
Committees, both at the subsidiary and parent levels. As a result, the quality of our credit portfolio
and thus the earnings has shown a marked improvement. Furthermore, we have been successful in
generating increased revenues from short-term trade related facilities and off-balance sheet items.
Despite a substantial increase in our overall credit portfolios, our non-performing loans portfolio
has reduced to DZD 1 666 millions(approx. US$22 millions). In line with our conservative credit