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CHAIRMAN’S REPORT Dear Stakeholders, I have the pleasure to present the Bank’s Annual Audited Report and Financial Statements for the year ended December 31, 2017. KENYAN ECONOMY & BANKING SECTOR Subsequent to a prolonged presidential poll in 2017 that delayed investment decisions in the backdrop of a biting drought that hurt farming as also slow credit offtake, the Kenyan economy is estimated to have expanded by 4.8 per cent in the year 2017. Annual average inflation jumped to 7.98% in 2017 compared to 6.3% in 2016. The Kenya Shilling remained stable against convertible currencies as well as regional currencies in the month of December, 2017. IFRS 9 replaced IAS 39 effective from January 01, 2018. Implementation of IFRS 9 significantly impacts Banks’ Financial Statements, the greatest impact being the calculation of impairments. IFRS 9 aligns measurement of financial assets with the Bank’s Business Model. In addition, the IFRS 9 provision framework will enable Banks to evaluate the effect of economic and credit changes on the Bank’s Business Model, Capital and the Provision levels under various scenarios. PERFORMANCE OF THE BANK As at the end of the year 2017, Deposits stood at Kshs 73.01 Billion vis-a-vis Kshs 64.87 billion as at December 31, 2016 translating to a growth of 12.53%, while Advances closed at Kshs 43.94 billion vis-à-vis Kshs 38.09 billion as at December 31, 2016 translating to a growth of 15.36%. Growth of 30.15% was recorded in Profit before Tax, with the PBT at Kshs 5.05 Billion vis-à-vis Kshs 3.88 billion as at December 31, 2016. The Non-Interest income increased by Ksh 322 million on account of profit on sale of Bank’s property at Tom Mboya Street during the year. The ratio of Gross NPA to Total Advances stood at 6.07% as at December 31, 2017, down from 8.91% as at December 2016 while the Net NPA ratio stood at 2.26%, down from 4.47% in 2016. ACHIEVEMENTS During the year, the Bank introduced various new IT initiatives such as SMS alert, Mpass book and E-banking for enhanced customer service. A Customer Care Centre was established for blocking of Debit Cards. Mobile Banking is also to be launched shortly. The construction of Baroda Head Office Block along Muthithi Road is in progress and is scheduled to be completed by February 2019. Additionally, Bank has introduced the school fee module to facilitate fee payments. Bank distributed wall clocks to churches and donated computers to schools during the year, as a part of Corporate Social Responsibility initiatives. 6

CHAIRMAN’S REPORT ANNUAL REPORT AND FINANCIAL STATMENTS 2017 WAY FORWARD The Bank will continue to explore the economy for opportunities for dynamic business growth. Efforts shall be continued to enhance alternate delivery channels to further penetrate hitherto untapped market areas. The Bank will also continue to actively focus on the under - privileged section of the society by undertaking Corporate Social Responsibility (CSR) initiatives and look for opportunities to participate in developmental activities for the benefit of the society at large. ACKNOWLEDGEMENTS I take this opportunity to thank the Regulatory and Government Authorities for unstinting support to our Bank as also the esteemed customers for their continued patronage. I also express gratitude to my fellow Directors for their continued and timely guidance. The dedication of the Management and the staff which resulted in sustained increase in the business and the bottom line of the Bank during the year deserves a special acknowledgment. Last but not the least, we thank you, the shareholders, for the unflinching confidence and trust bestowed on the Bank, and look forward to working together towards meeting and exceeding customers’ and shareholders’ expectations in the coming year. Yours truly Ashok Kumar Garg Chairman Bank of Baroda (Kenya) Ltd. 7