Sunday, January 01, 2006
TBI RELEASES ITS 2005 ANNUAL REPORT
It gives me great pleasure to present, on behalf of the board of directors, the second annual report of the Trade Bank of Iraq covering the financial year 2005. It focuses on the bank’s performance, achievements and balance sheet in 2005 and shows that the bank continued to grow at an impressive rate. It also outlines the bank’s goals and business plan for 2006.
The situation in Iraq this year has been marred by instability, which has posed one of the most significant obstacles to economic growth. Nevertheless, Iraq’s oil-dominated economy managed to build on the gains of the past few years, thanks in large measure to record oil prices over the past year. Increased oil revenues boosted government income, excluding foreign aid and grants, to US$19 billion in 2005, and a further 10 per cent growth rate is forecast in 2006.
Iraq’s crude oil output averaged around 2 million barrels per day (b/d) in 2005. The country’s strategic economic goal is to produce some 2.5 million b/d immediately, and to further boost production to 3.5 million b/d by the end of 2007. These output goals are part and parcel of a policy to create an economic environment based on the principles of the open market. The rapid embrace of these principles entailed some negative consequences for Iraq. One such consequence was a rise in the rate of inflation to 34.1% by the end of 2003. Inflation nevertheless retreated to a rate of 20% by the end of 2005. Efforts remain focused on rebuilding Iraq’s infrastructure within the framework of a stable monetary policy. The exchange rate of the Iraqi dinar achieved a measure of stability to the U.S. dollar, fluctuating within a margin of 1460-1500 against the dollar.
Financial reforms proceeded as part of a long-term strategy to rehabilitate and enhance the Iraqi banking sector as the country moves towards a free market economy. Those reforms included the restructuring of Iraq’s public debt, in which the bank played a role, Payment facilities have been improved inside and outside Iraq, also the bond market and the process of issuing muniments and treasury bonds have been developed.
One of the landmark economic achievements of 2005 was the passing of the 2006 national budget, which is the first of its kind to be thorough and to include measures to comply with the Financial Management Law of Iraq. Furthermore the government applied measures to stamp out the corruption that has plagued the public sector. These measures include the setting up of ministerial oversight committees, the most important of which is the Contracts Committee which scrutinises, audits and gives final approval to all government contracts and procurements that exceed a value of US$3 million, thus minimising the risk of extending credit to Iraq.
These developments have helped the Trade Bank of Iraq to expand our activities and financial resources. This is evidenced by the high rate of growth in the bank’s assets and equity, and the rise in revenue and net profit in 2005. The bank’s outstanding results are reflected in all its financial indicators. They demonstrate the soundness of the strategies and plans approved by the bank’s board of directors and implemented by the bank’s executive officers and employees, who have all been selected on the basis of competence and professional criteria.
Since its establishment, the bank has successfully pursued its main objective of developing the most up-to-date mechanisms and automation of trade financing operations in line with Iraq’s transition to an open market economy. The bank has also achieved its objective of structuring itself in accordance with the principles of good corporate governance.
Thus, the bank has turned itself into an institution that is making a significant contribution to building a strong Iraqi economy, while working to diversify its own sources of revenue. The bank has worked relentlessly to take advantage of the abundant opportunities that exist to develop Iraq’s non-oil sector so that it can contribute a higher share of gross domestic product (GDP). The country remains in need of reconstruction, and its basic infrastructure requires rebuilding. This provides vast opportunities for new and large inward investments, which will restore Iraq’s status as a major oil producing country, albeit a developing country. Iraq’s GDP grew by 3.7% in 2005, and it is expected to achieve a 4% growth rate in 2006.
The bank enjoyed an impressive year in 2005, achieving the goals outlined in its business plan. The establishment of new administrative structures within the bank helped us to achieve our target growth rate. We extended operations to new areas of the country by opening four new modern branches this year. Moreover, we diversified and expanded the scope of our banking activities in the public and private sectors to generate more revenue and to boost profits. We offered finance services to the transport sector and banking facilities and loans to several other sectors, including trade, construction and industry. These lending activities form the core of the bank’s portfolio of facilities, in line with our lending policy and terms. The bank also established and expanded a network of international correspondent banks on the basis of mutually beneficial relations. We are working hard to strengthen our links with the Iraqi private sector. We are also working hard to strengthen our cooperation with other Iraqi banks and financial institutions, and we continue to assist private Iraqi banks so that they will be able to function effectively once an open market system is fully in place.
Our employees are one of our most important assets in the pursuit of our strategic goals. As the bank has grown this year, our workforce has increased to over 200 employees. Staff development is one of our main priorities and we have a program of constant training and qualification for our employees at all levels.
The bank has also begun to offer and develop several banking services and products for the first time in Iraq. To facilitate our clients’ banking transactions, VISA Credit cards are issued, ATM cash machines have been tested, and an operational banking system has been approved and contracted for. This has boosted client numbers and contributed to enhancing the role of the private sector in rebuilding Iraq, despite the fact that the government continues to dominate reconstruction activities.
The Trade Bank of Iraq has given every possible support to both the private and the public sectors, including local Iraqi banks. We have developed and improved the process of money transfers and the terms for opening and accepting letters of credit. The bank offered over US$10 billion worth of trade financing in 2005. The volume of transfers and financing operations witnessed unprecedented growth. Banking investment operations are expected to grow further this year as new opportunities emerge. The small number of banks operating in Iraq will boost the business and investment opportunities available to the few institutions currently in the market.
The bank will continue to play a significant role in the social and economic development of Iraq. We believe that our activities in 2006 will have a positive effect on banking investment activities and on the reconstruction of the country, and that this will create new business opportunities. Under the terms of the agreement between the Trade Bank of Iraq and the U.S. Export-Import Bank, we have been given unconditional credit facilities, and this has boosted our credit rating.
Our results for 2005 demonstrate our ability to excel. We will work to build on such growth to achieve the bank’s strategic goals, vision and message. We will do this through attracting more clients, expanding our relations with international correspondent banks, establishing new relationships that will promote our domestic and regional operations, offering high quality services to our clients and providing several modern and innovative financial and investment products and services. We emphasise the objectives of the bank’s credit policy, which aims to diversify the bank’s lending portfolio in line with a prudent credit risk management policy governed by legislation that regulates the banking sector in accordance with the procedures of the Central Bank of Iraq.
The bank achieved a high growth rate in 2005. By year end, assets rose to US$1,092 million, achieving a growth rate of 163.7% from 2004. The bank’s principal activity of extending credit and letters of credit this year saw a growth rate of 55.2%, amounting to US$5,293 million. All of the bank’s available financial resources were invested and utilised, enabling the bank to increase its assets in the form of investments and its facilities portfolio. The bank’s increased activity was reflected in all of the bank’s indicators. The return on overall assets and on shareholder equity was 3.15% and 25.3% respectively. The bank posted a net profit of US$34.4 million in 2005, calculated by deducting the bank’s general reserves from the year’s net operational profit. Thus net profit registered a record growth rate of 534% over the previous year.
The impressive success achieved by the bank has allowed us to capitalise net profits, further enhancing the bank’s status and reputation as a high quality financial institution.
The good results that we have achieved present us with the considerable challenge of maintaining our distinctive performance and of building on our achievements. We will spare no effort to rise to this challenge and to score further successes. We plan to strengthen our relations with our existing clients and to build good and healthy business relations with our intended clients as we strive to promote and enhance the bank’s good reputation.
I would like to praise the guidance offered by the board of directors, which has contributed to strengthening the bank’s successful performance. I would also like to thank the Ministry of Finance and the Central Bank of Iraq for its role in kick-starting the process of economic development. My special thanks go to the bank’s employees for their dedication and their unstinting efforts to achieve the bank’s goals and aspirations.
Hussein Al-Uzri
Chairman of the Board
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