01 Wegagen Bank Ar 2009-10

WEGAGEN BANK, S.C.
2009/10 Board of Directors & External Auditors Reports
MANAGEMENT MEMBERS
Araya G/Egziabher
President / CEO
V/President - Operations
Kewser Reshid
V/President - Support Services
Woldegebriel Wedajo
Manager, Domestic Banking Department
Kahsay Fiseha
Manager, Finance & Treasury Department
Eneyew Tadele
Manager, Corporate Planning Department
Demas Zewdu
Manager, IS Department
Dawit Teferra
Manager, Credit Department
Wende Wodaje
Manager, Marketing Department
Gebru Meshesha
Manager, Administration & HRD Department
Abdella Sultan
Manager, Risk Management Department
G/Giorgis Hailu
Manager, Credit Department
Addis W/Cherkos
Yehuwalashet Zewdu
Manager, Control Department
Manager, Legal Department
Kefene Gurmu
Manager, Engineering Service
Tesfaye H/Michael
Wegagen Bank - Annual Report 2009 / 1 0
Contents
Vision, Mission, Principles and Values Message from the Chairman of the Board Message from the President / CEO Page 01 02 04
A. REPORT OF THE BOARD OF DIRECTORS 1. Performance Review 1.1 Domestic Banking Operations 1.2 International Banking Operations 1.3 Loans and Advances 2. Branch Network, Asset and Capital 2.1 Branch Network 2.2 Assets 2.3 Capital 3. ICT - driven Services 3.1 Payment Card Services 3.2 Core Banking System 4. 5. 6. 7. Human Resource and Capacity Building Risk Management Accounting Policy Income - Expense and Profit / Loss Summary
06 06 06 07 09 11 11 11 11 12 12 12 13 15 16 16
B. EXTERNAL AUDITORS REPORT
19 - 42
W e g a g e n B ank - Annual Report 2009/10
VISION
Wegagen Banks vision is: Becoming the most preferred Bank in Ethiopia
MISSION STATEMENT
The Banks mission is: To provide a wide range of quality banking services through a dynamic workforce and up-to-date IT solutions to satisfy the desires of all stakeholders
PRINCIPLES AND VALUES

Wegagen Bank is committed to the following main business principles. Outstanding customer service; Business integrity, honesty and loyalty; Effective, efficient and expanding operations; Strong capital and liquidity position; Prudent lending; Reasonable cost control discipline; Fair and objective employment practices; Commitment to comply with the spirit and letter of the Law; Playing a responsible role in aligning objectives with those of the local communities.
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Message from the Chairman of the Board

Fiscal year 2009/10 was a recovery period from the Sub-prime mortgage crisis and the subsequent systemic failure of the financial markets. Similarly for Ethiopia, the year was favorable for the macro economy. Compared to the preceding year, there were significant improvements in international trade, international remittance, and foreign direct and equity investments. During the year, the national target of achieving a structurally transformed, stable and dynamic economic system was attained, thanks to the consolidated measures by the government. The policy incentives undertaken to strengthen export oriented and import substituting industries were also successful to enhance foreign exchange reserve of the country. Pursuant to the commendable performance of the economy and amidst increasing competition and significant advances in banking technology, Wegagen Bank once again witnessed satisfactory performance in 2009/10. I, therefore, feel honored to present the report of the Bank for the fiscal year and announce the leap the Bank has made towards living up to its vision. During the fiscal year, the Bank registered a record high profit of Birr 317.5 million prior to taxation. Constrained, among others, by the credit ceiling set by the NBE, the volume of outstanding loans made only a modest growth. Nevertheless, the total assets of the Bank showed a significant growth. In order to enhance the market share of the Bank and effectively serve its purpose, the Bank gave due attention to raising its capital base, improving asset quality, enhancing efficiency in service delivery, and strengthening the capacity of the workforce. As a result, the paidup capital reached Birr 633.2 million at years end. These operational results gain impetus if customers are served in a conducive working environment. Realizing this, the Bank has finalized all the groundwork for the construction of the Head Office building. The ongoing projects on the implementation of the core banking, the deployment of the card payment system, and human capital development also signal our endeavor to accomplish the twin mission of customer satisfaction and efficiency. We shall keep on working on these and related issues to attain the inspirational vision of Wegagen Bank: Becoming the Most Preferred Bank in Ethiopia.
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Looking ahead, there are substantial uncertainties in the future economic system. On the basis of the current trend, the world output is expected to grow by about 5% during the next fiscal year. However, the rising anxiety of financial markets and the premature austerity actions by many governments may crowd out the world economy. The increasingly competitive financial market is expected to make the business environment more and more challenging. In order to perfectly fit to the environment and live up to our vision, we realize that we need to improve our competitive performance taking advantage of our experience, responsiveness and unreserved commitment. We, as always, renew our commitment to continue providing a wide range of quality banking services through a dynamic workforce and advanced state-of-the-art technologies to satisfy the desires of all stakeholders. I would like to take this opportunity to applaud our customers, the shareholders, the National Bank of Ethiopia and all other stakeholders for their invaluable guidance and contribution to the success of the Bank and call upon all for their perpetual commitment to make our Bank most preferred in the country.
Thank you,
03
Message from the President/CEO

I am honored to announce that during the reporting fiscal year, we, all stakeholders, stood as one to fully exploit our competitive advantages, opportunities and overcome the challenges. As a result, Wegagen Bank has once again registered an all time high result during the fiscal year 2009/10. It is, therefore, my pleasure to present the performance of the Bank for the fiscal year. Accordingly, the total income of the Bank rose by 19.7% over the previous year to Birr 565.3 million and profit before tax reached Birr 317.5 million, an encouraging 24% growth rate from the preceding years performance. In the fiscal year, aggregate deposits grew by Birr 200 million from Birr 3.7 billion to Birr 3.9 billion. The volume of outstanding loans, however, stood at close to Birr 2.5 billion owing to the credit cap. The total assets increased from Birr 5.1 billion in 2008/09 to Birr 5.7 billion. Alongside this, the concerted effort made to improve the asset quality succeeded to drop the non-performing loan of the Bank to 3.47%. In order to sustain its competitiveness and outreach, Wegagen Bank increased its branch network to 50 at years end, out of which 23 were in Addis Ababa and the remaining 27 spread across the country in major towns. The Bank also maintains partnership with a large number of correspondent banks and with international money transfer companies. Thanks to our shareholders for their farsightedness and commitment to strengthen the capital base and building the image of the Bank, the paidup capital increased to Birr 633.2 million, a 22.3% increase over the preceding year. Correspondingly, earning per share (with value of Birr 1,000 each) was Birr 380. Until June 2010, Wegagen Bank created job opportunity for a total of 1,821 employees. In line with the requirement of competitive business environment and to better satisfy customers, the Bank organized and provided various in-house, local and foreign trainings to a large number of its staff members in their respective levels. Our Bank is registering a visible continuous growth through ages. The performance during 2009/10 confirms that the Bank is making huge strides to achieve its vision of Becoming the most preferred Bank in Ethiopia. In the process of evoking inspiration and living up to the expectation of our customers, we draw upon modern technologies and update our services commensurate with the requirement of the day.
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The commencement of the payment card services to respond appropriately to increasingly sophisticated and diverse customer requirements and the devise of a comprehensive human resource management system underscores our founding philosophy of promoting excellence through quality service strongly and continuously in order to thrive at a steady pace toward our vision. In closing, I would like to extend my special recognition to our esteemed customers for their confidence and distinguished partners for working with our Bank. My appreciation also goes to the Board of Directors for their commitment and able guidance throughout the year. Thanks should go to National Bank of Ethiopia for its unreserved assistance and productive guidance. I am truly honored to work with the Banks management and staff that continuously demonstrated their diligence, expertise and professionalism in meeting our Banks objectives. As usual, on the idea of initiative, I call upon all the stakeholders of the Bank to unite behind the objectives of the Bank.
Thank you.
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We ga ge n Ba n k - An nua l Re port 200 9/10
A. REPORT OF THE BOARD OF DIRECTORS 1. PERFORMANCE REVIEW 1.1 Domestic Banking Operations
Total deposits as at June 30, 2010 were Birr 3.9 billion, showing an increase of over Birr 194.4 million or 5.2% when compared with the preceding fiscal years figure of Birr 3.7 billion. The relative total number of deposit accounts increased from 180,430 in FY 2008/09 to 201,691 in FY 2009/10, showing an 11.8% growth. Savings deposits made the major share of total deposits representing Birr 2 billion (50%) while demand/checking/ and time deposits contributed Birr 1.8 billion (45%) and Birr 192 million (5%), respectively. The chart below shows structure of deposits by category for the three most recent consecutive fiscal years.
Deposit Accounts by Category (Million Birr)
Checking Savings Time Total Deposits
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1.2 International Banking Operations

During the reported period, Birr 266.4 million or 46.8% of the Banks overall revenue was generated from international banking operations. Wegagen Bank works with various international money remittance partners, to which our Bank is an agent. The Bank has also established correspondent banking relationships with 127 internationally known banks to facilitate its international banking service needs. Out of them, there is account relationship with 22 banks for the use of standard settlement instruction. The list of Wegagens correspondent banks with which account relationships are established for standard settlement instruction is shown in the following page.
07
08
Correspondent Banks for Standard Settlement Instruction (SSI)

Currrency
USD EUR GBP JPY EUR USD SEK USD EUR JPY USD GBP EUR USD EUR USD EUR USD USD USD USD DKK Djibouti Djibouti Copenhagen MRINDJJD BCIMDJJ NDEADKKK 100820596580002 09590015547001USD 5000013858 New York London London London Frankfurt am main Frankfurt am main Frankfurt am main Johannesburg Johannesburg Johannesburg London London Millan Millan Brussels Brussels Paris Paris Jeddah CITIUS33 CITIGB2L CITIGB2L CITIGB2L COBADEFF COBADEFF COBADEFF HSBCZAJJ HSBCZAJJ HSBCZAJJ SCBLGB2L SCBLGB2L UNCRITMM UNCRITMM BBRUBEBB BBRUBEBB CCBPFRPP CCBPFRPP NCBKSAJE 36128583 10585831 11070657 12008939 400870030401 EUR 400870030400 USD 400870030400 SEK 121-000608-150 121-000608-151 121-000608-153 017068107-50 017068107-01 0995 8850600 0995 1832500 301-0105758-12-EUR 301-0105758-12-011 FR7630007999990607920000019EUR FR7630007999990607920000019USD 555135240 10105
N0 Name of Bank
Town
Swift/BIC
Account NO.
Type
C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A C/A
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Citibank NA Citibank NA Citibank NA Citibank NA Commerzbank AG Commerzbank AG Commerzbank AG HSBC Bank plc HSBC Bank plc HSBC Bank plc Standard Chartered Bank Standard Chartered Bank Unicredito Italiano SPA Unicredito Italiano SPA ING Belgium SA/NV (formerly BBL) ING Belgium SA/NV (formerly BBL) Natexis Banques Populaires Natexis Banques Populaires The National Commercial Bank Credit Agricole - Banque Indosuez Mer Rouge Banque pour Le Commerce ET Industrie Mer Rouge Nordea Bank, Denmark a/s
W eg a g en B ank - Annual R epor t 2 0 09/10
1.3 Loans and Advances

Total outstanding loans as at June 30, 2010 were about Birr 2.5 billion showing a Birr 361.5 million (17.1%) increase compared with the preceding fiscal year (Birr 2.1 billion). Explained below are loans and advances by type and amount with the help of a chart. Accordingly, the share of import was Birr 571 million (23.1%), export: Birr 551.6 million (22.3%), manufacturing: Birr 341.1 million (13.8%), transport service & vehicle: Birr 258.8 million (10.5%), wholesale & retail trade: Birr 215.4 million (8.7%), and building construction and bridge: Birr 203.3 million (8.2%). The remaining balance went in aggregate to miscellaneous DTS, agriculture, and other small demonstration items.
Loans & Advances by Type and Amount (Million Birr)

600 500 400 300 200 100 -
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09
Exports
Imports
Construction
Manufacturing
Transportation 10
2. BRANCH NETWORK, ASSET AND CAPITAL 2.1 Branch Network

At the close of fiscal year 2009/10, the bank had a network of 50 branches, 23 of which were located in Addis Ababa. There is a coordination office for international money transfer partners that are operating under the Banks agency in Ethiopia, and a forex bureau at Bole International Airport.
2.2 Assets
Assets include cash and bank deposit balances, fixed assets, suspense accounts, deferred charges, etc. Over the years, the assets of Wegagen Bank have been growing continuously and as at June 30, 2010, they were Birr 5.7 billion. That was an increase by Birr 624 million or 12.2% when compared with the preceding fiscal year (Birr 5.1 billion).
2.3 Capital
The total capital of the Bank which is comprised of paid-up capital, legal reserve, retained earnings and premium on share capital, Birr 1.05 billion, showed an increase of Birr 215.3 million or 25.7% over the balance recorded during the preceding year (Birr 836.4 billion). The shareholder base also increased from 1,222 to 1,541.
Future Headquarters Design
Shareholders 17th Regular & 10th Extraordinary Meetings
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3. ICT - DRIVEN SERVICES 3.1 Payment Card Services

Wegagen Bank has launched Payment Card services as part of ensuring service excellence, keep abreast with the developing global banking technology and satisfy the increasing needs and wants of world class banking products. As a result, our Bank has started issuance of Agar Visa Electron, Visas leading debit product line, which is accepted at the Banks ATM network across the country. It also helps effecting purchase payments at our Point of Sale (PoS) terminals, which are to be placed at merchant sites. With Agar Visa card, one could do a host of various banking activities 24 hours a day, seven days a week. Thus, the product abolishes the customary time-bound banking culture. With our Agar card, one would discover exclusive privileges that give the freedom to live the way he/she wants. It is un-matching solutions to need for cash, shopping, dining or entertaining and many more fabulous benefits. The only requirement to get access to this service is to open an account at any one of our branches. So far, the Bank has availed 28 ATMs in total where 21 have been installed at own city branches and some crucial off-branch sites while seven are placed at major cities of Mekelle, B/Dar, Hawassa, Adama, Dire Dawa and Axum. ATM network expansion will continue on need basis. Moreover, our ATM and PoS network accepts all Visa International cards.
3.2 Core Banking System

Wegagen Bank is pioneer to implement state-of-the-art banking technology in the year 2000. This solution has enabled clients to access their accounts from any one of the Banks branches. Moreover, it made possible for its clients to be served in one window, making the services swift and reliable.
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Taking into account growing customer service requirement standards, the Bank has decided to migrate into a new generation, versatile and powerful Core banking solution, for which the implementation is being speededup. The new system supports implementing new service delivery channels for Internet Banking, SMS Banking, Credit Management System and Antimoney Laundering packages, which will be availed to customers when the core banking solution is implemented.
4. HUMAN RESOURCE AND CAPACITY BUILDING

The Banks human resource development strategy aims at hiring experienced and qualified staff, enhancing competence by improving the skills of new and existing staff, and developing a working environment that would create a sense of commitment and belongingness. Competition for acquiring highly qualified bankers has intensified due to the increase in the number of branches of the different banks. Wegagen Bank has been attempting to attract qualified employees and retain the existing ones by offering good opportunities for career & skills development. Employment of fresh graduates and training them to work as bankers has continued as a strategy to produce own people and strengthen belongingness. As at June 30, 2010, the number of employees of Wegagen Bank stood at 1,821 showing an increase of 5.4% over the preceding year (1,727). Wegagen Bank continued to create significant employment opportunities for a number of qualified people during the reference year. Out of the total number of employees, 956 (52%) were semi-skilled and skilled professionals with compatible educational background such as degree graduates or with college diploma, while the number of general service staff was 865 (48%) with different levels of education.
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Training on Risk Management
Composition of Permanent Staff

Category
Semi - Skilled and Skilled Professionals Unskilled Total % Total
Male
651 586 1,237 68
Female
305 279 584 32
Total
956 865 1,821 100
% Total
52 48 100
Investment has been made as a continuous process in the training of the Banks staff to improve their skills. During the fiscal year, training opportunities were provided to 943 employees. The trainings involved managerial, skilled and semiskilled professionals, trainee and all-round bankers. Foreign (abroad) trainings were also offered to few. The Bank will intensify training rigorously to upgrade staff skills, develop career and enhance capacity.
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Management Meeting
5. RISK MANAGEMENT
In banking business, placement of appropriate institutional capabilities to manage inherent business and other non-business risks has become a fundamental rule of engagement. The recent global economic crisis, perpetrated by gross failures in almost all major international banks, primarily blamed inadequacies in proactive and rigorous management of risks by banking institutions. In the aftermath, major central banks in the US and Euro Zone moved to craft a new accord, Basel III, to embark international banks on safer and sound management of risk taking. Blending the international experience, the internal need and the push from the regulatory organ (NBE), the Bank has strengthened its risk management process primarily by expanding activities of the Risk Management Department which is responsible for measurement and monitoring of credit, liquidity, market, and operational risks and producing periodic reports. Furthermore, the Bank has also put in place ALCO - the organ responsible for management of the Banks balance sheet structure to ensure the Banks risk management endeavor proceed in an integrated manner. Relevant studies have been conducted and supplementary pertinent frameworks established to help create sound risk management framework for the Bank. As part of this continuing endeavor and in line with NBEs requirements, the Bank has prepared Risk Management Program (RMP), which is set to further augment the current risk management framework. With implementation of the RMP, the Bank
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shall move up steps on the prevailing integration between departments and branches, resulting in more proactive and effective risk management system through Board and Management oversight, accurate risk quantification, adequate MIS and strong internal control environment.
6. ACCOUNTING POLICY
The Banks accounting policy envisages the following: The Banks assets, liabilities, capital, income and expense accounts are based on double entry booking system. The Bank uses the accrual system of accounting. This method recognizes transactions as they occur regardless of whether cash is paid or received. However, interests accruing on loans and advances referred to Legal as substandard, doubtful and loss loan categories are maintained under memorandum account and are recognized as income when collected. Depreciation rates are adhered to according to the existing taxation law. The Banks financial year starts on the first of July and ends on June 30th of each calendar year
7. INCOME, EXPENSE AND PROFIT AND LOSS SUMMARY

Income of the Bank grew from Birr 472.2 million in FY 2008/09 to Birr 565.3 million in FY 2009/10, an increase of Birr 93.1 million (19.7%). The following chart compares the income categories of the three most recent years.
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Trends & Composition of Income (Million Birr)
The Banks net profit before tax as at June 30, 2010 was Birr 317.5, reflecting a growth rate of 24% over the preceding year (Birr 256.1 million).
Trends & Composition of Expenses (Million Birr)
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Operating expenses increased during the fiscal year under consideration (Birr 247.8 million) against that of the preceding fiscal year (Birr 216.1 million) by Birr 31.7 million (14.7%). The chart above makes expense comparison of the most recent three consecutive fiscal years: 2007/08, 2008/09 and 2009/10.
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B. EXTERNAL AUDITORS REPORT

Getachew Kassaye & Co., Chartered Certified Accountants and Authorised Auditors
P.O. Box 1432 Addis Ababa, Ethiopia Tel: +(251) 11 551 37 11, 551 17 08 Fax: +(251) 11 551 02 20 E-mail: getachewkassaye@ethionet.et Addis Ababa, Ethiopia
INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF WEGAGEN BANK SHARE COMPANY

1. We have audited the accompanying financial statements of Wegagen Bank Share Company (hereinafter referred to as the Bank) for the year ended June 30, 2010, set out on pages 3 to 23, which have been prepared under the accounting policies set out on page 7.
Directors Responsibility for the financial Statements

2. The directors of the Bank are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors Responsibility
3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
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4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we considered internal control relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control. The audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
OPINION
5. In our opinion, the fnanceial statements represent fairly the financeial position ofthe Banks as at June 30, 2010, and its profit and cash inflows for the year then ended and are prepared in accordance with International Financial Reporting Standards. We hae no comments to make on the report of the Board of Directors relating to the financial matters and pursant to article 375(2) of the Commercial Code of ethiopia of 1960; we recommend that the above mentioned financial statements be approved
6.
GETACHEW KASSAYE & Co., CHARTERED CERTIFIED ACCOUNTANTS
Addis Ababa October 11, 2010
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WEGAGEN BANK SHARE COMPANY BALANCE SHEET AS AT JUNE 30, 2010

Currency: Ethiopian Birr Notes BIRR ASSETS Cash and bank balances with local banks 3, 2h 1,130,263,762 Reserve with National Bank of Ethiopia 598,388,527 Deposits with foreign banks 4, 2g 1,107,079,525 Treasury bills-NBE 5 199,990,000 Loans and advances 6, 2d 2,375,625,606 Stocks of supplies 7 29,083,956 Other assets 8 202,190,283 Deferred charges 9,2i 16,546,518 Leasehold land 2j 15,835,026 Property, plant and equipment 10, 2e 66,933,372 TOTAL ASSETS LIABILITIES Deposits from customers 11 Deposits from financial institutions 12 Other liabilities 13 Margin held on letters of credits Provision for taxation 14 Leasehold land payable TOTAL LIABILITIES CAPITAL AND RESERVES Paid up capital 15 Share Premium 16 Legal Reserve 17 Special Reserve 18 Retained Earnings 19 TOTAL CAPITAL, RESERVES AND LIABILITIES 5,741,936,575 2009 BIRR 1,953,689,386 528,388,527 433,470,784 1,983,747,131 10,334,237 134,754,442 16,289,148 15,835,026 41,802,778 5,118,311,459
3,815,751,230 107,047,487 329,984,826 332,174,840 94,187,072 11,065,089 4,690,210,544
3,550,855,857 177,526,300 251,652,599 214,384,740 75,499,105 11,978,274 4,281,896,875
633,170,000 21,415,250 209,317,331 20,317,764 167,505,686 1,051,726,031 5,741,936,575
517,618,000 14,243,500 153,482,102 15,619,220 135,451,762 836,414,584 5,118,311,459
Addis Ababa October 11, 2010
Sebhat Nega Chairman of The Board of Directors

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WEGAGEN BANK SHARE COMPANY INCOME STATEMENT FOR THE YEAR ENDED JUNE 30, 2010
Currency: Ethiopian Birr Notes BIRR INCOME Interest income 20, 2f 247,251,582 Less :Interest expense 21 75,742,832 Net interest income 171,508,750 Fees and commission income Net gains from dealing in foreign currencies Other income 22, 2f 2g 23 139,233,614 145,125,297 33,731,683 489,599,344 (8,525,334) (2,901,000) 2009 BIRR 233,543,954 83,458,171 150,085,783 90,186,237 139,694,032 8,815,418 388,781,470
Net operating income Provision for doubtful loans and advances 2d Provision for doubtful debts other than loans and advances Net interest and other income after provision for doubtful debts LESS: - EXPENSES Salaries and benefits General and administrative 24 Directors fee 25 Audit fee PROFIT BEFORE TAXATION LESS: PROVISION FOR TAXATION 14
481,074,010
385,880,470
90,846,238 65,630,338 6,976,359 93,088 163,546,023 317,527,987 94,187,072 223,340,915 55,835,229 167,505,686 380
74,344,643 49,701,732 5,652,543 80,098 129,779,016 256,101,454 75,499,105 180,602,349 45,150,587 135,451,762 389
NET PROFIT AFTER TAXATION TRANSFER TO LEGAL RESERVE NET PROFIT AFTER TAX AND LEGAL RESERVE EARNING PER SHARE OF BIRR 1,000 30
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WEGAGEN BANK SHARE COMPANY STATEMENT CHANGES IN SHAREHOLDERS EQUITY FOR THE YEAR ENDED JUNE 30, 2010
Currency: Ethiopian Birr Balance as at July 1, 2008 Dividend paid Premium collected Dividend capitalized 2007/2008 Dividend capitalized 2006/2007 New shares issued Net profit for the year Transfer to Special Reserve Transfer to dividend payable Transfer to Legal Reserve Repayment of capital 951,461 90,581,536 - - - - (2,571,000) - - - - - - - - - 14,243,500 - - - - - - 45,150,587 - - 153,482,102 - - - - 15,619,220 - - - - 15,619,220 - - - - 20,317,764 - - 20,317,764 - - 180,602,349 (15,619,220) (3,382,423) (45,150,587) - - 135, 451,762 (58,135,628) (163,703) (52,990,158) - 223,340,915 (20,317,764) (3,844,509) (55,835,229) 951,461 90,581,536 180,602,349 (3,382,423) (2,571,000) 836,414,584 (58,135,628) 7,008,047 46,942,622 223,340,915 (3,844,509) 57,831,003 - - (12,484,693) (45,346,310) Paid up Capital Birr 370,825,000 - - Share Premium Birr 9,679,450 - 4,564,050 Legal Reserve Birr 108,331,515 - - Special Reserve Birr 12,484,693 - - Retained Earnings Birr 104,128,130 (39,743,117) (37,060) Total Birr 605,448,788 (39,743,117) 4,526,990
Balance as at June 30, 2009 517,618,000 Dividend paid Dividend capitalized New shares issued Net profit for the year Transfer to Special Reserve Transfer to dividend payable Transfer to Legal Reserve - 68,609,378 46,942,622 - - - -
Premium collected
7,171,750 - - - - - 21,415,250 55,835,229 209,317,331
- (15,619,220)
Balance as at June 30, 2010 633,170,000
167,505,686 1,051,726,031
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WEGAGEN BANK SHARE COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 2010
Currency: Ethiopian Birr BIRR Cash In Flow from Operating Activities Profit before taxation Depreciation Amortization Adjustment on fixed assets Operating profit before change in working capital (Increase)/decrease in stocks of supplies Increase in other assets (Increase)/decrease in loans and advances Increase in deposits from customers Decrease in deposits from financial institution Increase/(decrease) in margin held on letter of credits Increase in other liabilities Dividend transferred to liability Decrease in leasehold payable Net Cash In Flow from Operating Activities BIRR 317,527,987 10,358,957 1,448,763 - 329,335,707 (16,786,745) (67,435,841) (391,878,475) 264,895,373 (70,478,813) 117,790,100 78,332,227 (462,086) (913,185) 242,398,262 242,398,262 2009 BIRR 256,101,454 8,936,864 21,281 265,059,599 36,550 (88,765,210) 224,180,999 982,979,471 (220,927,471) (45,775,177) 22,773,620 2,213,163 (942,330) 1,140,833,214 1,140,833,214 10,204,682 15,473,347 (25,678,029) (51,153,448) 90,581,536 (2,571,000) 4,526,990 (44,387,242) 48,150,284 1,112,152,021 Cash balances 30/06/10 Birr 1,130,263,762 598,388,527 1,107,079,525 2,835,731,814
INVESTING ACTIVITIES Acquisition of fixed assets 25,746,671 Purchase of treasury bills 199,990,000 Deferred expenditures paid 13,935,669 (239,672,340) TAXATION Profit tax paid (75,499,105) FINANCING ACTIVITIES New shares issued 46,942,622 Capital Repayment - Premium collected 7,008,047 Equity dividend paid (60,994,369) (7,043,700) Net (Decrease)/ Increase in Cash and Cash Equivalents (79,816,883) Cash and bank balances with local banks Reserve with National Bank of Ethiopia Cash with foreign bank Cash Balances 30/06/09 Birr 1,953,689,386 528,388,527 433,470,784 2,915,548,697 Increase in Cash Birr (823,425,624) 70,000,000 673,608,741 (79,816,883)
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WEGAGEN BANK SHARE COMPANY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2010
1. BACKGROUND
Wegagen Bank S. Co. was formed in Ethiopia in 1997 and is registered as a public share holding Company in accordance with the provision of the licensing and supervision of Banking Business Proclamation No. 84/94 and the Commercial Code of Ethiopia 1960. The Bank had a network of 50 branches through out the country and office for international money transfer companies operating under the Banks agency in Ethiopia.
2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted by the Bank, which are consistent with those applied in the preceding year, are stated below:a) Statement of Compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) promulgated by the International accounting standards board. Basis of Accounting The financial statements are prepared on historical cost basis. Financial assets and liabilities and non-financial assets and liabilities are stated at amortized cost or historical cost, except for foreign currencies, which are stated at closing exchange rate. The Bank has consistently applied the accounting policies used in the previous years. Financial Instruments i) Classification A financial instrument is any contract that gives rise to a financial asset for the bank and a financial liability or equity instrument of another party. All assets and liabilities in the balance sheet are financial instruments except fixed assets, deferred charges and shareholders equity. The major financial instruments of the bank are loans and advances created by the Bank
b)
c)
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providing money to debtors. Loans and advances comprise deposits and other balances due from banks and loans and advances to customers. ii) Recognition of Financial Instruments The bank initially recognizes financial assets and liabilities on its balance sheet on the date it becomes a party to the contractual provisions of the instrument. Any gains and losses arising from changes in value of the asset are recognized from this date. When the Bank becomes a party to the contractual terms comprising a loan and as a consequence has the legal right to receive principal and interest payments on the loan, it controls the economic benefits associated with the loan. Normally, a bank becomes a party to the contractual provisions that comprise a loan (i.e., acquires legal ownership of the loan) on the date of the advance of funds or payment to third party. As a result, a commitment to lend funds is not recognized as an asset on the balance sheet. iii) De-recognizing of Financial Instruments All financial assets are de-recognized when the Bank loses control over the contractual rights that comprise the assets. This occurs when the rights are realized, expired or are surrendered. A financial liability is de-recognized when it is extinguished. iv) Measurement of Financial Instruments The Bank measures all financial instruments initially at cost, including transaction costs. Loans and advances Loans and advances are financial instruments originated by the Bank by providing money to the debtors. The loans and advances are stated at cost less impairment losses. Impairment losses comprise specific provisions against debts identified as bad and doubtful and general provisions against losses which are likely to be present in any loans and advances portfolio. The Bank follows the National Bank of Ethiopia Supervision of Banking Business Directive SBB/43/2008 in determining the extent of provisions for impairment losses. The Directive classifies loans and advances into the following: -
d)
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i) Pass Loans Loans and advances in this category are fully protected by the current financial and paying capacity of the borrower and are not subject to criticism. In general, loans and advances, which are fully secured, both as to principal and interest, by cash or cash substitutes, are classified under this category regardless of past due status or other adverse credit factors. ii) Special Mention Any loan or advance past due 30 days or more, but less than 90 days is classified under this category. iii) Substandard Non-performing loans or advances past due 90 days or more but less than 180 days is classified under this category. iv) Doubtful Non-performing loans or advances past due 180 days or more but less than 360 days is classified as doubtful. v) Loss Non-performing loans or advances past due 360 days is classified as loss. As per this directive, the provision for impairment losses is determined as follows: Loan Category 1 Pass loans 2 Special mention loans 3 Substandard loans 4 Doubtful loans 5 Loss loans Extent of Provision required 1% of outstanding loan balances 3% of the outstanding loan balances 20% of the net loan balance 50% of the net loan balance 100% of the net loan balance
Note:Net loan balance is outstanding loan balance less net recovery value of collaterals.
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e) Fixed Assets Fixed assets are stated at cost less accumulated depreciation. Depreciation is charged on the straight-line basis at the following rates per annum. Vehicle Furniture, fittings and equipment Computers Building Acquired property % 20 10 10 5 5
For profit tax purpose, necessary adjustments are made to comply with the income tax proclamation 286/2002. (Note 14) f) Revenue Recognition Interest income and expense in the income statement are recognized on accrual basis. However, interest accruing on loans and advances referred to legal counsel including substandard, doubtful and loss loan categories are maintained under memorandum account and are recognized as income when collected. Fee and commission income arises on financial services provided by the bank and are recognized as income when the services are provided to customers. g) Foreign currencies Foreign currency transactions are recorded at rates of exchange ruling at the date of the transactions. Monetary assets denominated in foreign currencies, which are stated at historical cost, are translated at the exchange rates ruling at June 30, 2010. Foreign exchange differences arising on translation are recognized in the income statement. h) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and balance with the national Bank of Ethiopia, domestic and foreign banks payable on demand.
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Currency: Ethiopian Birr
i) Deferred Charges Deferred charges represent expenses incurred for the establishment of Card Payment System Project & Core Banking & Data Migration Project. Deferred charges are amortized over five years. j) Leasehold Land The bank has acquired 2,254 sq. m lease hold land from Addis Ababa City Administration for the period of 90 years. k) Assets Awaiting for Resale Collaterals seized or foreclosed by the bank are classified as asset awaiting for resale if their carrying amount will be received principally through a sale transaction rather then continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management is committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
3. CASH AND BANK BALANCES

BIRR Cash in hand 430,728,939 Deposits with domestic banks 422,692,959 NBE payment and settlement account 276,841,864 1,130,263,762 2009 BIRR 318,461,235 270,900,271 1,364,327,880 1,953,689,386
4. DEPOSIT WITH FOREIGN BANKS

Correspondent accounts Fixed deposits 565,795,525 541,284,000 1,107,079,525 139,735,784 293,735,000 433,470,784
5. TREASURY BILLS
Purchase of 28 days treasury bills from Ethiopian Government is matured on July 13, 2010.
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6. LOANS AND ADVANCES
a) The loans and advances are due as follows: BIRR Within 12 months 1,155,956,792 After 12 months but within 24 months 576,196,294 After 24 months 687,141,493 2,419,294,579 Add:-Loans under litigation 54,577,915 2,473,872,494 Less:-Provision for doubtful loans and advances 98,246,888 2,375,625,606 b) The composition of loans and advances by sector is as follows: Agriculture Building construction Manufacturing Hotel and tourism Wholesale and retail Health services Transport vehicles Miscellaneous domestic trade Advance against export bills Advance against import bills Staff loans Consumers loans Automobile loans Export Import Construction bridge loans Mortgage loans Transport loans Personal loans Revolving export credit Loans under litigation Special staff loans Less: -Provision for doubtful loans and advances 23,171,545 91,854,471 341,039,958 40,358,055 207,351,341 2,507,668 223,805,373 82,880,533 - 20,286,224 9,566,954 96,772 16,449,643 325,422,750 540,511,413 145,201,073 85,999,859 17,780,626 8,855,121 209,453,076 54,577,915 26,702,124 2,473,872,494 98,246,888 2,375,625,606
2009 BIRR 1,054,138,267 405,811,102 595,822,630 2,055,771,999 56,609,077 2,112,381,076 128,633,945 1,983,747,131
34,522,811 69,545,926 261,623,755 21,159,147 171,791,876 3,484,173 196,283,699 81,093,748 14,398,969 10,769,982 7,712,819 313,853 15,832,119 187,024,069 414,690,038 148,368,326 54,847,928 11,942,070 7,654,003 321,325,691 56,609,077 21,386,997 2,112,381,076 128,633,945 1,983,747,131
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7. STOCKS OF SUPPLIES
BIRR Negotiable instruments 1,023,547 Check books 1,069,541 Stationary 2,539,016 Bank forms 1,102,899 Travelers cheque 4,600,016 Memorial coins 974,200 Fixed assets in store 13,098,686 EMV Visa cards 3,530,766 Pin mailers 434,402 Private label cards 49,794 Others 661,089 29,083,956 2009 BIRR 1,427,489 1,378,625 812,757 536,754 679,299 1,148,200 4,093,513 257,600 10,334,237
8. OTHER ASSETS
Payment and deposits Receivable from NBE Staff receivables Accrued income receivables Receivable from African Insurance Assets awaiting for resale Receivable from Dehabshil MTC Receivable from Amal Express Receivable from branches under formation Receivable from Kah Express Ltd Visa settlement receivable Inter-branch balances Others Less: - Provision for bad debts 46,432,890 109,433,303 281,923 - 946,243 7,650,012 38,870,184 2,141,411 1,775,713 9,143,352 634,918 108,611 104,971 217,523,531 15,333,248 202,190,283 43,737,110 22,645,676 16,980 235,281 746,991 12,850,170 54,227,945 2,304,690 4,774,044 23,467 141,562,354 6,807,912 134,754,442
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9. DEFERRED CHARGES
BIRR Card Payment System-ATM 7,243,816 Less: amortization 1,448,763 5,795,053 Core Banking & Data Migration 10,751,465 16,546,518 2009 BIRR 16,265,906 16,265,906 23,242 16,289,148
10. PROPERTY, PLANT AND EQUIPMENT

COST Premises Motor vehicle Computer and accessories Office and other equipment Office furniture and fittings Acquired property Construction in progress: Mekelle Head office DEPRECIATION Premises Motor vehicle Computer and accessories Office and other equipment Office furniture and fittings Acquired property NET BOOK VALUE Balance 01/07/09 Additions Adjustments Birr Birr Birr 1,038,825 3,000,100 32,234,985 10,716,584 18,190,196 15,713,989 14,304,608 4,012,294 16,331,603 2,720,543 621,766 1,523,547 923,649 849,588 85,169,179 37,013,098 (1,523,547) - (1,523,547) Balance 30/06/10 Birr 4,038,925 42,951,569 33,904,185 18,316,902 19,052,146 621,766 1,773,237 120,658,730
355,422 89,443 21,726,297 5,354,998 8,034,513 1,968,224 5,091,682 1,555,927 8,153,538 1,359,277 4,949 31,088 43,366,401 10,358,957 41,802,778
444,865 27,081,295 10,002,737 6,647,609 9,512,815 36,037 53,725,358 66,933,372
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11. DEPOSITS FROM CUSTOMERS

BIRR Payable on Demand Private sector 1,586,908,336 Public agencies and enterprises 365,994 Regional governments 680,028 Cooperatives and associates 7,957,000 Non-resident accounts 41,454,193 Resident foreign currency account 64,387,266 Zero balance account 227 Special demand deposit 33,540,700 ECX paying and settlement account 25,282,088 1,760,575,832 Saving deposit Private sector 1,864,687,623 Cooperatives and associates 65,405,120 Now accounts 14,673,797 Children trust fund 1,542,539 Special savings 5,345,042 Public agencies and enterprises 2,519 1,951,656,640 Term Deposits Private sector Public agencies and enterprises 22,426,576 81,092,182 103,518,758 3,815,751,230 2009 BIRR 1,662,535,101 872,939 3,955 5,721,223 21,001,775 12,534,160 1,969,504 139,434,443 5,432,043 1,849,505,143
1,415,775,659 72,901,394 17,417,553 914,515 2,425 5,146,046 1,512,157,592
6,303,902 182,889,220 189,193,122 3,550,855,857
12. DEPOSIT FROM FINANCIAL INISTUTIONS

Payable on demand Saving deposit Fixed time deposit 9,761,580 8,797,126 88,488,781 107,047,487 20,697,756 5,824,476 151,004,068 177,526,300
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13. OTHER LIABILITIES

BIRR Cashier payment order 202,503,605 Blocked current account 6,403,754 Unearned revenue 2,952,352 Accrued interest on savings and deposits 4,838,401 Provision for annual leave 8,933,524 Local transfer payable 24,635,230 Provision for bonus 9,355,774 Exchange commission 32,305,582 Deposit for guarantees issued 5,724,359 Taxes and stamp duty charges 38,064 Miscellaneous payable 17,361,977 Dividend payable 3,844,509 Saving account-block - Foreign transfer payable 1,071,483 Inter-branch balances - Guarantee fee payable 634,303 Staff payable 201,089 Court case 2,388,461 Directors fee payable 6,792,359 329,984,826 2009 BIRR 146,863,644 2,584,556 8,119,224 12,687,952 5,976,860 20,281,155 6,934,335 25,250,898 2,208,800 47,428 8,206,069 3,382,423 464,000 1,228,844 118,264 1,819,070 534 5,478,543 251,652,599
14. PROVISION FOR TAXATION Balance as at July 1, 2009
Less: -Payments Profit before tax Add: -Non allowable expenses Depreciation in accordance with accounting policy Provision made during the year other than loan & advances Entertainment Less: - Allowable expenses Depreciation in accordance with tax regulation 286/2002 Interest on deposit with foreign banks Interest on treasury bills Taxable Profit Provision for profit tax @ 30%
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75,499,105 75,499,105 317,527,987 10,358,957 1,125,618 157,959 14,303,070 881,546 29,000 313,956,905 94,187,072
15. PAID UP CAPITAL

Balance as at July 1, 2009 Add: -New shares issued Capitalized dividend BIRR 517,618,000 46,942,622 68,609,378 633,170,000
16. SHARE PREMIUM

Balance as at July 1, 2009 Add: -Premium on New shares issued Premium on Capitalized dividend 14,243,500 7,008,047 163,703 21,415,250
17. LEGAL RESERVE

a) The detail is as follows Balance as at July 1, 2009 Add:-Transfer from Retained Earnings 153,482,102 55,835,229 209,317,331
b)
25% of the net profit after taxation is transferred to legal reserve account until the balance reaches the paid up capital in accordance with Proclamation No. 592/2008 Article 19(1) of the Licensing and Supervision of Banking
18. SPECIAL RESERVE

a) The detail is as follows Balance as at July 1, 2009 Less:-Capitalized dividend Add: -Transfer from Retained Earnings b) 15,619,220 15,619,220 20,317,764 20,317,764
The balance represents 15 % of retained earnings of the previous fiscal year set aside in accordance with the decision of the shareholders.
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19. RETAINED EARNINGS

Balance as at July 1, 2009 Less: -Transfer to Special Reserve Capitalized dividend Capitalized Premium on dividend Dividend paid on cash Dividend transferred to liability Add: -Net profit for the year BIRR 135,451,762 20,317,764 52,990,158 163,703 58,135,628 3,844,509 167,505,686 167,505,686
20. INTEREST INCOME

BIRR Interest on loans and advances 246,341,036 Interest on deposits with foreign banks 910,546 247,251,582 2009 BIRR 226,076,100 7,467,854 233,543,954
21. INTEREST EXPENSE

Savings deposits Fixed time deposits Special demand deposit 59,995,345 15,037,392 710,095 75,742,832 44,740,380 33,149,391 5,568,400 83,458,171
22. COMMISSION, FEES AND CHARGES

Letter of credit Letter of guarantees issued Local transfer and others 95,946,058 21,497,216 21,790,340 139,233,614 46,452,724 25,583,351 18,150,162 90,186,237
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23. OTHER INCOME
BIRR Rebet 466,888 Swift charge 844,868 Rent 51,325 Provision for doubtful loans, advances 30,387,057 Gain on disposal of acquired assets 595,179 Cash surplus 93,660 Estimation fee 235,244 Correspondent charges 6,126 Income from card payment 2,911 Sundries 1,048,425 33,731,683
2009 BIRR 385,617 940,369 53,910 4,111,787 2,130,717 75,371 206,130 180 911,337 8,815,418
24. GENERAL AND ADMINISTRATIVE EXPENSES

Office rent Stationery and printing Communication Fuel and lubricants IT support charges Advertising and publicity Repair and maintenance Insurance Electricity and water Membership subscription Entertainment Wages Inauguration Depreciation Amortization Cleaning supplies Transportation Guest house expense License and inspection fee Perdiem Leased line for computerization Renovation Sundries 20,104,440 5,073,101 5,964,409 2,409,745 763,833 2,163,863 1,998,354 2,765,853 668,157 453,226 157,959 148,947 46,077 10,358,957 1,448,763 362,790 1,319,724 10,442 6,350 534,100 1,438,005 45,982 7,387,261 65,630,338 15,810,205 3,140,195 5,508,251 1,728,791 597,343 2,138,499 1,632,585 2,149,628 585,933 324,836 214,085 119,649 58,321 8,936,865 233,755 1,234,337 12,706 10,050 526,865 1,463,477 3,275,356 49,701,732
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25. DIRECTORS FEE

a) The detail is as follows BIRR Board meeting allowance 184,000 Profit sharing-5% 6,792,359 6,976,359 b) 2009 BIRR 174,000 5,478,543 5,652,543
Directors fees applicable to the year under review was computed at 5% of profit after tax, legal reserves and special deductions amounting to 5% of the paid up capital that is reported as an appropriation of retained earnings. The directors fees are subject to approval of the shareholders for disbursement.
26. CONTINGENT LIABILITIES AND COMMITMENTS

a) Contingent liabilities represent credit-related commitments to extend letter of credit, guarantees and of outward bill collections sight contracts which are designed to meet the requirements of the Banks customers toward third parties. Commitments represent the Banks approved but unutilized facilities and other commitments of the Bank.
Contingent Liabilities Letter of credit (Note (c)) Bank guarantee (Note (c) Commitments (Note (d) Undrawn loans and advances approved but not disbursed Unutilized merchandise revolving facility and unutilized advance against export bills Unutilized overdraft facility c)
845,046,199 545,324,855 1,390,371,054
452,830,212 801,130,502 1,253,960,714
145,135,397 84,695,240 140,245,067
100,529,469 103,800,583 180,624,691
The bank has a lien on the goods imported through letter of credit as the suppliers are required to send shipping documents directly to the Bank. The risk exposure involved in connection with the performance guarantees issued is managed in the following manner. The bank has held collaterals and letters of undertaking in respect of most guarantees issued to its customers;
d)
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27. MATURITIES OF ASSETS AND LIABILITIES a) The detail is as follows: Total Less than 6
BIRR ASSETS Cash and bank balances 2,835,731,814 Treasury bills 199,990,000 Loans and advances 2,375,625,606 Other assets and stock supplies 231,274,239 Deferred charges 16,546,518 Leasehold land 15,835,026 Fixed assets 66,933,372 Total Assets 5,741,936,575 LIABILITIES AND SHAREHOLDERS FUND Customers deposits Deposit in financial institutions Other liabilities Margin held Leasehold and payable Profit tax payable Shareholders funds Total liabilities and shareholders funds b) 3,815,751,230 107,047,487 329,984,826 332,174,840 11,065,089 94,187,072 1,051,726,031 3,815,751,230 - 329,984,826 332,174,840 - 94,187,072 - - 107,047,487 - - 913,186 10,151,903 - - 1,051,726,031 months BIRR From 6 months to one year BIRR
Over one year BIRR
2,835,731,814 - 199,990,000 - 1,155,956,792 1,219,668,814 - 231,274,239 - - 16,546,518 - - 15,835,026 - . - . 66,933,372 3,035,721,814 1,387,231,031 1,318,983,730
5,741,936,575
4,572,097,968
107,960,673 1,061,877,934
The analysis reflects the contractual maturities of assets and liabilities, which have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date. In the case of assets and liabilities that do not have a contractual maturity date, the period in which these are assumed to mature is taken as the expected date of maturity.
39
28. RELATED PARTY TRANSACTIONS

a) The significant balances and transactions included in the financial statements are indicated as: 2009 BIRR BIRR Loans and advances at June 30, 2010 88,651,514 84,869,349 Customers deposits at June 30, 2010 247,365,834 169,841,649 Guarantees issued/contingent liabilities 100,000 - Interest income for the year 6,830,138 23,766,269 Interest expense for the year 1,666,943 322,577 b) These represent transactions with certain related parties with major shareholders of the bank or directors who have control over decision of the bank. The terms of these transactions were approved by the banks management on agreed terms.
29. RISK MANAGEMENT

This note provides details of the Banks exposure to risk and describes the methods used by management to manage such risk. The most important types of financial risks to which the Bank is exposed are credit risk, liquidity risk, foreign exchange risk, interest rate risk and operational risk. Credit Risk Credit risk, both on and off balance sheet, is managed and monitored in accordance with defined credit policies and procedures. The credit worthiness of each counterpart is evaluated and appropriate credit limits are established. To reduce individual counter party credit risk the Bank ensures, whenever necessary, that all loans are secured by acceptable forms of collateral. The bank has also established credit limits across industries and products, it regularly reviews its credit exposure. The bank loans are diversified against various sectors as shown in Note 6 to the financial statements. Liquidity Risk Liquidity risk arises in the general funding activities of the Bank and the management of positions. It includes the risk of being unable to fund assets at appropriate maturities and rates and the
40
risk of being unable to liquidate an asset at a reasonable price and in appropriate time frame. The Bank has a reasonable funding base. Funds are raised mainly from customers deposits. The maturity profile is monitored by management to ensure adequate liquidity is maintained. Note 27 to the financial statements analyses the contractual maturities of assets and liabilities. These have been determined on the basis of the remaining period to maturity as at the balance sheet date but do not take account of the effective maturities as indicated by the Banks deposit retention history and the availability of liquid funds. Foreign Exchange Risk Foreign exchange risks are controlled by maintaining major currencies whose exchange rate against the reporting currency has always been appreciating. The bank settles foreign exchange transactions of customers at the exchange rate ruling on the date of the transactions. Hence, the customers bear the cost of the increase in the exchange rates. Interest Rate Risk Interest rate risk is the risk that fair value or future cash flows will fluctuate because changes in the market interest rate. The bank often revises its lending rate across segments of the credit portfolio based on changes in the cost of fund, reserve requirement and the perceived risk in each credit portfolio segment to keep the overall profitability. This risk is managed by including a variable interest rate clause in the loans and advances contracts with customers. Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal process and systems), fraud, malpractices or external events. The bank manages its operational risk through implementation sound policies, procedures and staff training on proper implementation of operational manuals by the operational units. Additionally the bank has strong oversight and supervision and internal control function. Besides, IT system and management audit have been started to strengthen operational risk management framework.
30. EARNINGS PER SHARE

Earnings per share is calculated by dividing the net profit after tax but before legal reserve amounting to Birr 223,340,915 (2009: Birr 180,602,349) by the weighted average number of shares outstanding during the year of 588,519 (2009: 464,089)
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31. MEMORANDUM ACCOUNTS

BIRR Loans and advances written off, kept in memorandum account 48,823,791 Interest on non performing loans 18,883,294 IBC-acceptance and sight 13,532,741 OBC-own branches and other banks city clearance 7,845,668 Outward document bills for collection-sight 4,269,368 OBC-foreign 1,393,820 Stock of parts and travelers cheque 495,312 Money bags 9,410 Uncollected penalty charges on bounced checks 242,146 b) 2009 BIRR 48,830,986 16,086,553 35,516,207 32,031,131 3,166,698 684,554 444,093 9,593 115,718
These represent transactions with certain related parties with major shareholders of the bank or directors who have control over decision of the bank. The terms of these transactions were approved by the banks management on agreed terms.
32. COMPARATIVE FIGURES

Some of the previous year comparative figures have been rearranged in order to facilitate comparison.
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Location Map of Branch Offices
43
We ga ge n Ba n k - An nua l Re port 200 9/10
Addresses of City Branch & Other Offices

No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Branch Abakoran Abinet Africa Avenue Africa Union Arada Beklobet Bole Bole Medhanialem CMC Area Gerji Goffa H/Giorgis ILRI Kality Kazanchis Merkato Mesalemia Meskel Square Sebara Babur T/Haymanot Wellosefer Weyra Bethel Wuhalimat Militarytera (under opening) International Money Transfer Coordinating Office Airport Forex Bureau Head Office 0116-632274/631617 0116-650476 0115-523800 0116-631618 0116-298118 Fixed Line 0112-781177/76 0112-780571/44 0116-624772 0115-547061/63 0111-111074/61 0114-663580/81 0115-523524/539568 0116-616135/33 0116-479047/43 0116-29814114 0114-655816/17 0111-112972/70 0116-459752/53 0114-394285/86 0115-545666/71 0112-752867/752119 0112-768611/765154 0115-516652/512728 0111-570186/570329 0111-563813/12 0114-66800693 0113-492184/495308 0116-631518/17 Fax 0112-781146 0112-780551 0116-624770 0115-547062 0111-111676 0114-663608 0115-524455 0116-638968 0116-479048 0116-298118 0114-654879 0111-578499 0116-459755 0114-394284 0115-545665 0112-752799 0112-765142 0115-516834 0111-570040 0111-563811 0114-668098 0113-495536 0116-625150 P.O.Box 51177 1018 1018 43186 1018 101841 10621110 713/1250 1018 737/1110 56810 24215 1018 180 1018 1080 26661 27571/1000 20493 56734 1018 1018 170201 1018 1018 1018
0115-523520/21 1018
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Addresses of Outlying Branch Offices

No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Branch Adama Adigrat Adwa Agaro Axum Bahir Dar Bishoftu Dessie Dire Dawa Edaga Mekele Gendawuha Gondar Harar Hawassa Humera Jijiga Jimma Kezira Kombolcha Mekelle Metema Yohannes Shashemene Shire Tog Wajaale Tulu Bollo Weliso Yirgachefe Ruztera Area Fixed Line 0221-119055/86 0344-452866/452790 0347-714046/43 0472-211031/51 0347-753631/95 0582-202038/39 0114-371062/25 0331-113788/89 0251-124668/69 0344-413666/22 0583-310009/370010 0581-114816/15 0256-664622/663623 0462-202629/204172 0344-480005/07 0257-757628/752057 0471-116393/05 0251-110285/130371/72 0335-510753/54 0344-408933/34 0582-311138/39 0461-103468/66 0344-442165/442424 0258-820033/32 0113-420064/57 0113-41984/411617 0463-320553/320410 0251-124674 Fax 0221-126070 0344-452745 0347-714047 0472-211499 0347-753440 0582-202037 0114-371010 0331-113790 0251-110841 0344-413748 0583-310010 0581-114620 0256-669819 0462-205480 0344-480006 0257-752058 0471-116301 0251-130412 0335-510576 0344-403269 0583-310278 0461-103469 0344-442229 0258-820034 0113-420065 0113-410187 0463-320552 0251-124675 P.O.Box 1900 237 105 404 277 1125 1721 1277 107 1090 19 02 1434 723 38 491 1358 107 332 930 19 623 116 1301 15 415 118 107
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Head Office
P.O. Box 1018, Addis Ababa, Ethiopia Tel.: +251 11 5523800 Fax: +251 11 5523520 E-mail: info@wegagenbanksc.com Website: www.wegagenbank.com.et Swift: WEGAETAA

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WEGAGEN BANK, S.C.

2009/10 Board of Directors & External Auditors Reports

V/President - Support Services

Manager, Domestic Banking Department

Manager, Finance & Treasury Department

Manager, Corporate Planning Department

Manager, Credit Department

Manager, Marketing Department

Manager, Administration & HRD Department

Manager, Risk Management Department

Manager, Credit Department

Manager, Legal Department

Manager, Engineering Service

Wegagen Bank - Annual Report 2009 / 1 0

B. EXTERNAL AUDITORS REPORT

W e g a g e n B ank - Annual Report 2009/10

PRINCIPLES AND VALUES

Wegagen Bank - Annual Report 2009 / 1 0

Message from the Chairman of the Board

W e g a g e n B ank - Annual Report 2009/10

Wegagen Bank - Annual Report 2009 / 1 0

Message from the President/CEO

W e g a g e n B ank - Annual Report 2009/10

We ga ge n Ba n k - An nua l Re port 200 9/10

Deposit Accounts by Category (Million Birr)

Checking Savings Time Total Deposits

W e g a g e n B ank - Annual Report 2009/10

1.2 International Banking Operations

Correspondent Banks for Standard Settlement Instruction (SSI)

Wegagen Bank - Annual Report 2009 / 1 0

W eg a g en B ank - Annual R epor t 2 0 09/10

1.3 Loans and Advances

Loans & Advances by Type and Amount (Million Birr)

Wegagen Bank - Annual Report 2009 / 1 0

W e g a g e n B ank - Annual Report 2009/10

2. BRANCH NETWORK, ASSET AND CAPITAL 2.1 Branch Network

Future Headquarters Design

Shareholders 17th Regular & 10th Extraordinary Meetings

Wegagen Bank - Annual Report 2009 / 1 0

3. ICT - DRIVEN SERVICES 3.1 Payment Card Services

3.2 Core Banking System

W e g a g e n B ank - Annual Report 2009/10

4. HUMAN RESOURCE AND CAPACITY BUILDING

Wegagen Bank - Annual Report 2009 / 1 0

Training on Risk Management

Composition of Permanent Staff

W e g a g e n B ank - Annual Report 2009/10

Wegagen Bank - Annual Report 2009 / 1 0

7. INCOME, EXPENSE AND PROFIT AND LOSS SUMMARY

W eg a g en B ank - Annual R epor t 2 0 09/10

Trends & Composition of Income (Million Birr)

Trends & Composition of Expenses (Million Birr)

Wegagen Bank - Annual Report 2009 / 1 0

W e g a g e n B ank - Annual Report 2009/10

B. EXTERNAL AUDITORS REPORT

INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDERS OF WEGAGEN BANK SHARE COMPANY

Directors Responsibility for the financial Statements

Wegagen Bank - Annual Report 2009 / 1 0

GETACHEW KASSAYE & Co., CHARTERED CERTIFIED ACCOUNTANTS

Addis Ababa October 11, 2010

W e g a g e n B ank - Annual Report 2009/10

WEGAGEN BANK SHARE COMPANY BALANCE SHEET AS AT JUNE 30, 2010

3,815,751,230 107,047,487 329,984,826 332,174,840 94,187,072 11,065,089 4,690,210,544

3,550,855,857 177,526,300 251,652,599 214,384,740 75,499,105 11,978,274 4,281,896,875