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BCC Group Annual Report & Accounts
Report of the Directors
The Directors have pleasure in placing before you the Consolidated Statement of Condition and Consolidated Statement of Earnings of BCCI Holdings (Luxembourg) S.A., its subsidiaries and affiliates for the financial year ended December 31, 1983 together with the Auditors Reports.
It has been generally considered that 1983 was a difficult year for institutions involved in international finance and much of this difficulty has been reported and commented upon in the international press. Although BCC Group felt some repercussions of this uncertain financial climate we consider ourselves fortunate that its impact on our progress and our operating results was minimal. This is reflected by the overall and significant improvement in the financial results for 1983, different aspects of which will be dealt with later in the report.
At the close of 1983 the Total Assets of the Group stood at US$12.3 billion, an increase of 27% over 1982. The asset growth was adequately supported by a corresponding increase of 26% in the Group's capital funds which amounted to US$807.7 million at year-end.
Capital Fund
The Group's capital fund has increased significantly from US$640,527,000 to US$807,693,000. The increase had been almost entirely funded by our earnings during the year. Out of the profits US$78,750,000 was distributed as stock dividends of which US$26,250,000 is proposed and awaiting capitalisation and US$51,389,000 flowed in as reserves and retained earnings. No cash dividend was paid during the year allowing for maximum retention of distributable profit. Nor was it deemed necessary to seek a rights issue from the shareholders as in prior years. However, a series 'F' subordinated loan capital of US$5,000,000 was issued raising the outstanding loan capital to US$50,000,000.
The increased capital fund has allowed the capital/assets ratio to remain at the comfortable level of 6.56% (1982 6.64%). The management is extremely conscious about the significance and importance of this measurement and proposes to always maintain a leverage which will be in accordance with the internationally accepted norms.
Assets
The asset base of the Group increased from US$9.7 billion to US$12.3 billion, an increase of 27% over the previous year (1982-30% over 1981).
As a part of the management's continuing policy to maintain high liquidity as much as 45% of the funds - US$5.6 billion, were placed in the inter-bank market with prime banks and another 9% - US$1.1 billion, was held in readily marketable securities, bonds and other investments.
The loans and advances portfolio at the year-end amounted to US$4.9 billion, approximately 40% of the total assets (1982-43%) and showed an increase of 18% over 1982 as against an increase of 24% during 1982. This controlled growth in loans and advances reflects both management's desire for high liquidity and the impact of recession on world trade, since a major part of our portfolio relates to trade related financing.
It is important to state here that BCC Group's exposure in countries facing problems of foreign exchange is minimal because of our policy to extend mainly short term facilities related to trade and commerce.
Liabilities
Customer deposits have shown a healthy rise of US$1,768 million, a growth of 24% over 1982. Placements by banks with the Group increased by US$641 million and stood at US$1.7 billion reflecting the growing confidence of the international banking community in our Group and our increasing correspondent relationship in all parts of the globe.
It would be appropriate to mention in this context that both as a means of enlarging our long term resources base and as a measure of our standing in the capital markets your management decided during 1983 to make the Group's first public offer of Floating Rate Notes for US$50,000,000 with a maturity of seven years. The issue of these Notes was co-led and managed by such prime banks as Bank of America International and London and Continental Bankers Limited. The Notes are listed on the Luxembourg Stock Exchange. It is a matter of considerable satisfaction to management that the Notes were well received in the capital markets.
Reserves
As part of our stated policy over the years, management continues to build up the General and Other Reserves of the Group, which net of exchange equalization movements in investments rose by US$17 million to US$249.9 million. Additionally the Group's retained earnings at year-end stood at US$74.6 million as against US$40.6 million in 1982.
The exercise for determining the loan loss provision for the year 1983 was given the highest attention by your management keeping in mind the worldwide recession and the existing state of the economies in the countries where the Group operates. While the Group has no exposures in any of the heavily indebted Latin American or East European countries, as a matter of prudence a significantly higher provision of US$83.2 million was made during 1983 for possible loan losses (1982 - US$62.4 million). The total reserves now stand at US$210 million being 4.1% of outstanding loans and advances.
Operating Results
Your Management is pleased to report continuing improvements in the Group's operating results. The Group's pre-tax profit was US$278.3 million as against US$223.1 million in 1982, an increase of 24.7%. The distributable profit at US$200.8 million was 33.4% above the 1982 figure of US$150.4 million.
It is worth mentioning that the 1982 profits included an exceptional income of US$30 million arising from the sale of certain operating branches. No such income arose during the year under review.
Throughout 1983, the lower interest rates adversely affected the interest margin (interest and discount earned, less interest paid) primarily because of reduced interest differential on non-interest bearing funds, which comprise a significant part of the Group's total deposits and other funds. This was, however, more than compensated by both the increased volume of funds and business and the very favourable results of our trading activities in our investment portfolio.
The distributable profit expressed as a return on average shareholder's equity was 28%, slightly higher than the figure of 27.6% in 1982. The pre-tax profit worked out to 2.64% on average assets and the after tax figure to 1.90% on average assets. The corresponding figures for 1982 were 2.68% and 1.81% respectively.
Management is confident that during the ensuing year the Group's result will continue to reflect its growing presence in the world market place.
The Group Structure
The BCC Group including the non consolidated affiliates presently consist of 29 banks and finance companies, details of which are given elsewhere in this Annual Report.
At the close of 1983 the Group was operating 360 offices in 68 countries, of which 91 were in Europe, 52 in North and South Americas, 47 in Far East, South and South East Asia, 90 in the Middle East and 80 in Africa. The Group's network now covers most of the principal financial trade and money centres of the world.
While 1983 saw the continuing expansion of BCC Group the most significant development was the entry of BCC into the Spanish speaking world through the acquisition of a fully fledged retail bank in Spain - Banco de Descuento, with 26 branches located throughout the country and the acquisition of a 49% interest in a retail bank in Colombia - Banco Mercantil, with 24 operating branches.
The BCC Group has also continued to expand its Far East operation. In Hong Kong the name of the group subsidiary - Hong Kong Metropolitan Bank was officially changed to Bank of Credit and Commerce Hong Kong Limited. The Representative Office in Beijing (Peking) has considerably enlarged its activity. Offices were opened in Australia and Macau, both of which are expected to play a significant role in our Far East operation.
Your Directors are pleased to inform you that the shareholders and the management continue to show their increasing commitment towards BCC's identified objective to share our growing achievements and the resulting profit with the global community in which the BCC family operates by setting up various foundations for universal good causes and supporting other similar institutions. During 1983 the shareholders were pleased to set aside US$18 million as contributions to various donations and grants.
The quality of BCC Group's personnel and management resources continues to evolve and develop not only in professional skills, knowledge and experience, but also through all round growth as bankers and good human beings. Their commitment to BCC, identification with its goals and purpose, contribution to its culture and ethos are the most important contributing factors to the progress and success of the BCC Group as reflected by this Annual Report.
The Directors take this opportunity to thank the Central Banks and Supervisory Agencies in countries where the Group Banks are operating for the valuable guidance extended by them whenever needed.
The Directors propose that the shareholders adopt the Consolidated Statement of Condition and Consolidated Statement of Earnings as submitted.
Agha Hasan Abedi
Director and President
March 9, 1984