NOTES
TO THE SUMMARY FINANCIAL STATEMENTS FOR THE YEAR ENDED 30/6/2005
(1) ACTIVITY
Banque Du
Caire , an Egyptian Joint Stock Company working as a
Commercial Bank, was established on 15/5/1952 under the National Commercial Law
of 1883 and presents all banking services relating to its activity through its
head office in Cairo, 122 branches inside Egypt and 5 foreign branches
(2) SIGNIFICANT ACCOUNTING POLICIES
A.
Basis of Preparing Financial
Statements
Financial Statements are prepared in accordance with the Egyptian Accounting Standards which copes with the International Accounting Standard (IAS) and applicable local laws and regulations.
On preparing the financial statements, the bank
has amended its classification and evaluation policy for financial investments
to be in accordance with IAS No. 39 “Financial
Instruments : Recognition and Measurement”.
B. Foreign Currency Transactions
Bank accounts are held
in Egyptian Pounds and transactions in foreign currencies are translated during
the financial year at the exchange rates prevailing at the transaction date.
Balances of monetary assets and liabilities in foreign currencies are
reevaluated at year end on basis of foreign exchange rates on that date and the
difference is recognized on the income statement under the item: Gains (losses) from foreign currency transactions.
C. Income Recognition
Income is recognized on the accrual basis except for the interest income on non-performing loans, which ceases when the recovery of interest or the principal is in doubt. Income from shares and mutual funds certificates are recorded when declared .
D. Treasury Bills
Treasury bills are recorded at nominal value and
the issuing discount is recorded under the item: credit balances and other
provisions. Treasury bills appear on the balance sheet net of issuing discount.
E. Selling (Purchasing) Treasury Bills With Repurchase (Resell) Commitment
Transactions concerning
selling (purchasing) treasury bills with repurchase (resell) commitment are
recorded in the balance sheet.
The expense / revenue of
these transactions is recorded in the income statement under the items:
Interest expense, and interest income (according to each case).
F. Valuation Of Trading Investments
Trading investments
including investment portfolios managed by others, and mutual funds
certificates not issued by banks and insurance companies are measured at the
end of each financial period at fair value, which represents the market value,
and the revaluation differences are recognized in the income statement.
Trading investments that are
no longer classified as trading investments are measured at book value, which
is adjusted in case of any decline according to a comprehensive objective study
of the latest financial statements of the issuing company. The revaluation
differences are recognized in the income statement.
Mutual funds certificates
issued by banks and insurance companies are measured at fair value, which
represents the redemption value of these certificates at revaluation date. The
revaluation differences are recognized
in the income statement.
G. Valuation Of Investments Available For Sale
Investments available for
sale are measured at the lower cost or fair value for each investment
separately. The revaluation differences are recognized in the income statement
as: Other investments revaluation differences. In case of increase in the
investment fair value, the increase is added to the same item to the extent of
previous declines.
H. Valuation Of Investments Held To Maturity
The first issues of
purchased bonds are measured at fair value which represents the nominal value
plus/ minus the issuance premium / discount according to each case. The
issuance premium/discount is amortized by using the straight line method. The
amortized amount is recognized in the income statement under the item: Income
from treasury bills & bonds .
The bonds purchased from the Stock Exchange are measured in the same way as in the above with a value that is more or less than the nominal value. The cost is reduced by deducting the yield of the period preceding the date of purchase.
Any prospective gain or loss
arising from a change in the fair value of each bond is included in the income
statement in the period in which it arises and the book value is accordingly
adjusted and the differences are recognized in the income statement under the
item : Other investments revaluation differences. In case of increase in the
investment fair value,
the increase is added to the same item to the extent of previous declines.
The book value of the
foreign currency bond is adjusted with the revaluation differences according to
the exchange rates prevailing at the revaluation date. The revaluation
differences are recognized in the income statement under the item: Gains
(losses) from foreign currency transactions.
Mutual funds certificates
compulsory held by the bank till fund expiry date as the bank is the issuer of
the mutual funds, are measured at cost value. Any prospective gain or loss
arising from a change in the redemption value of these certificates is included
in the income statement in the period in which it arises under the item: Other
investments revaluation differences. In case of increase in the investment
redemption value, the increase is added to the same item to the extent of
previous declines.
I. Valuation Of Investments In Subsidiaries And Associated Companies
cost
value. Any prospective gain or loss arising from a change in the fair value of
each investment is included in the income statement in the period in which it
arises and the book value is accordingly adjusted and the differences are recognized in the income statement under the item : Other
investments revaluation differences. In case of increase in the
investment fair value, the increase is added to the same item to the extent of
previous declines.
J. Valuation Of Assets Acquired By The Bank In
Settlement Of Debts
The
assets acquired by the bank in settlement of
debts appear on the balance sheet under the item: Debit balances & other assets at
settlement value. Any prospective gain or loss arising from a change in their fair value is included in the income
statement in the period in which it arises. In case of increase in the investment fair value,
the increase is added to the same item to the extent of previous declines.
K. Loans And Contingencies Provisions
A provision is provided
for specific loans and contingent liabilities in addition to a percentage of
all other loans and contingent liabilities net of their cash deposits and bank
guarantees to meet general risks in that regard according to management’s
experience and periodic detailed studies for loans and contingent liabilities balances
Loans are written off
when it is no longer feasible to collect such loans by debiting the provision.
The proceeds from previously written off loans are added to the said provision.
L. Contingent
Liabilities & Commitments
The bank’s contingencies
in addition to forward foreign exchange contracts, interest rate swaps, FRAs and others appear off balance sheet under the item:
Contingent liabilities & commitments as they do not represent real
assets or liabilities at balance sheet date.
M. Cash &
Cash Equivalents
For the purpose of
preparing the cash flows statement, this item includes cash balances, balances
with the Central Bank of Egypt, balances of current accounts with banks and
balances of treasury bills due in three months from acquisition date.
N. Depreciation
The straight line method
is used in calculating fixed assets depreciation regardless of purchasing date
using suitable depreciation rates specified according to the estimated
productive age of each asset for one year irrespective of the date of purchase
based on the following percentages:
Buildings & constructions 5.0%
Office Furniture & Safes 20.0%
Typewriters, Calculators &
Air-conditions 20.0%
Motor Vehicles 25%
Computers 20.0%
Equipments & Installations 33.3%
O. Taxes
Taxes due are computed
in accordance with laws, by-laws and instructions in effect whether in Egypt or
where foreign branches exist.
A provision is made for
tax obligations based on necessary studies within the framework of tax claims .
(3) FINANCIAL INSTRUMENTS AND
THEIR RISK MANAGEMENT
1.
Financial Instruments
a.
The bank’s financial
instruments are represented in the financial assets and liabilities. The
financial assets include cash and balances with banks, financial investments
and loans and advances. The financial liabilities include customers’ deposits
and due to banks. Financial instruments also
include rights and obligations stated under “Contingent Liabilities and
Commitments”
Note No. 2 of the “Notes to the financial
statements” includes the accounting policies applied to measure and recognize
significant financial instruments and the revenues and expenses related
thereto.
a.
Financial Instruments Fair Value
According to the applied valuation basis to
evaluate the bank’s assets and liabilities, included in the notes to the
financial statements, the financial instruments’ fair value do not
substantially deviate from their book values at the balance sheet date. Notes
No. 6,9,10 of the “Notes to the Financial Statements” include the fair values
of the financial investments other than those acquired for trading at balance
sheet date.
2.
Risk Management Related
To Financial Instruments
a.
Interest Rate Risk
The value of some financial instruments fluctuates
due to the changes in interest rates
related thereto. The bank follows some procedures to minimize this risk .
b.
Credit Risk
Loans and advances , balances with banks , bonds and rights and obligations from others
are financial assets exposed to credit risk which is represented in the said
parties’ default, a part or in full, the loan granted to them at maturity. The
bank adopted some procedures to minimize
the credit risk .
c.
Foreign Currency Risk
The nature of
the bank’s activity required the bank to deal in many foreign currencies
which exposes the bank to the risk of fluctuation in exchange rates. To
minimize this risk, the bank monitors the balancing of foreign currencies
positions according to the Central Bank of Egypt’s instructions in that respect.