confidence - Investing In Africa

Management Discussions & AnalysisFinancial Review (cont’d)Loans and AdvancesGross advances increased by Rs1,590.4M or 6.76% from Rs23,537.7M as atJune 30, 2004 to Rs25,128.1M as at June 30, 2005. With the backdrop of theexcess liquidity and limited lending opportunities, the Bank has been cautiousin extending credit facilities and has adhered to existing credit policy. Bank’sadvances to the domestic market grew by a lower rate of 6.37% than themarket growth of 9.63% thereby bringing its share of advances in the domesticmarket from 22.14% as at end of June 2004 to 21.48% as at end of June2005. Advances to the international markets increased from Rs2,807.4M toRs3,087.4M over the same period, an increase of Rs280.0M or 9.98%. Note 7Eto the Financial Statements shows gross advances, impaired advances andallowances for credit losses by portfolios. The personal and professionalsegments registered growth of Rs872.9M and Rs151.9M respectively. In linewith the Group’s risk appetite and credit risk policy, the portfolios reflect abalanced and quality loan book.Impaired advances to gross advances stood at 2.72% as at end of June 2005compared to 4.17% as at end of 2004 mostly because of write-offs and/orrecovery of impaired advances. Net impaired advances to net advancesimproved further from 1.34% as at end of 2004 to 1.02% as at end of 2005. Table9 shows gross advances, impaired advances and allowance for credit losses for2004 and 2005. The quality of credit is expected to further improve with ourenhanced credit assessment, the current implementation of Moody’s Risk Advisortool and emphasis on credit expansion to companies with good ratings.Table 9 - Impaired Advances & Allowance for Credit Losses104MRs Million 2005 2004 2003Gross Advances 25,128 23,538 22,045Impaired Advances 684 982 1,811Specific Provision 410 651 276Portfolio Provision 216 215 203Total Provision for credit losses 626 866 479Impaired Advances as a % of Gross Advances 2.72 4.17 8.22Net Impaired Advances to Net Advances (%) 1.02 1.34 5.54Specific Provisions to Impaired Advances (%) 59.94 66.29 15.24Allowance for Credit LossesSpecific provision for credit losses relates to identified impaired advances and iscalculated as the difference between the carrying amount of the impairedadvance and recoverable amount, i.e the present value of estimated future cashflows discounted at the original effective rate in accordance with IAS 39.Furthermore, the Central Bank guideline on credit impairment measurement andincome recognition which came into effect on November 01, 2004 requires thatthe value to be considered in determining the recoverable amount of an