| 1972 | 1973 | 1974 | 1975 | 1976 | 1977 | 1978 | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |1991 |
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, 1987 together with the Auditors' Report.
The World Economy 1987
1987 proved to be another difficult year for banks and financial institutions. Undoubtedly, it will be most remembered for the October fall in stock market prices which clipped 30 per cent off the value of U.S. equities and about 20 per cent off London and Tokyo share values in a matter of days. The fall reflected a major technical adjustment after a long sustained rise during which yields had become unrealistic. The growth in the economies of the major industrialised countries was not greatly affected and no significant slow down is expected in 1988.
The limited success in reducing the budget deficit and the high rate of consumer credit expansion in the U.S. continue to be matters of concern. Despite the fall in the U.S.$ exchange rate, improvement in the balance of trade remains disappointing. OECD forecasts indicate a U.S. current account deficit of over $150 billion in 1987 as against Japanese and West German surpluses of $85 billion and $45 billion respectively. Friction with the surplus countries undoubtedly will continue until this problem is resolved. Pressure is also being exerted on newly developed countries, particularly the more successful ones in Asia, to adjust their exchange rates in relation to the U.S. dollar. There is an inherent danger that the exchange rate and oil price adjustment processes could lead to some repercussions on World Trade which grew by 4% in 1987. Meanwhile, the United States remains dependent on the inflow of foreign capital which reached a level of $161 billion in 1987.
In the financial sector major adjustments are being made to build up provisions against Third World debt in an increasing number of countries with exchange problems. This, and a relatively high level of provisions against domestic loans, such as to the oil industry, has affected the capital adequacy situation of a number of financial institutions.
The economic progress of the developing world remained uneven throughout 1987. Overall, the picture is less than encouraging. Many countries have been forced to re-schedule their external debt in the face of declining commodity prices despite lower oil import prices. In many cases, external debt servicing commitments account for an unsustainably high portion of export revenues implying further significant current account deficits in the foreseeable future.
BCC Group's Performance
The balance sheet reflects our management policies to maintain prudent ratios and a high level of liquidity. Special attention is also being paid to the quality and diversification, geographically and industry-wise, of the group's loan portfolio. Seen in the light of the somewhat mixed economic world conditions and the importance of our activities in Third World countries, the 1987 results must be considered as satisfactory.
The key aspects of the balance sheet and the operating results of 1987 are highlighted below.
Capital Fund
Although in almost every case our transfer-risk exposure is basically foreign trade-related, the shareholders, as a matter of prudence, following general guidelines set by the Regulators, appro¬ved the establishment of special contingency provisions involving a transfer of $100 million from Reserves.
Notwithstanding this adjustment, the Group's Capital Fund now totals $1,469 million following the issue of and subscription to $30 million additional convertible Subordinated Capital Notes and $50 million non-convertible Subordinated Capital Notes, thus providing a conservative capital/asset ratio of 7.48%.
Liabilities
The Group's customer deposits increased by approximately 12% from $13.8 billion to $15.4 billion. It reflects management's policy to maintain a strong diversified deposit base.
The other source of funds, borrowings from banks, stood at $2 billion thereby raising 'total deposits and other funds' to $17.7 billion, as against $15.6 billion at December 1986.
Assets
Loans and advances rose to $9.2 billion as against $7.6 billion in 1986 and made up 47% of total assets. Following our established policy, the emphasis is trade related, of a short-term self-liquidating nature. Over $9.5 billion was maintained in various forms of liquid or near liquid assets. It includes inter-bank balances at $5.4 billion, certificates of deposits of prime international banks at nearly $2.0 billion and readily marketable securities - primarily U.S. bonds and Treasury Notes - totalling $2.1 billion.
The total asset base amounted to $19.6 billion, a rise of $2.1 billion over 1986.
The ratio of advances to customers' deposits stood at 59.8% at the end of 1987.
Reserves and Provisions
In addition to the contingency provision allocated for potential country and more general risk situations relating to prior years, specific Loan Loss Provisions for the year were set at $70 million. The figure was arrived at after a full review of the Loan Portfolio and your Directors are of the opinion that this represents an adequate assessment.
Operating Results
The operating profit of the Group stood at $185.4 million as against $231.6 million in 1986, before Tax and Loan Loss Provision. The reduction was mainly the result of unfavourable exchange rate movements against the U.S. dollar in several countries where we operate and disappointing income from Treasury. This last area will receive management's full attention in 1988.
Profit after Taxation and Loan Loss Provision was $55.4 million for the year compared to $51.2 million in 1986.
An amount of $21 million has been alloca¬ted to various charitable causes in 1987.
Group Structure
Both the country coverage and the network of branches remained more or less at par with 1986. The total number of BCC offices worldwide reached 405 at the end of 1987. The main event was the build-up of a modest operation in Brazil.
Outlook for 1988
Notwithstanding the uncertainties in the economies of some countries where the group has a presence, our operations are now sufficiently diversified geographically for the group to face the future with confidence. With a branch network covering 73 countries, the group is in a favourable position to service international trade and to provide an increasing range of other financial services to our growing clientele. On the strength of our 1988 budget figures, the Directors expect a significant improvement in the 1988 earnings.
In the financial sector the year 1987 already saw the introduction of some important changes in regulatory requirements. It is part of a continuing process that will eventually lead to a form of harmonisation in all major industrial countries. The establishment of a single EEC market by 1992 will also affect the financial community. The implications of these changes are being studied but it is felt that your group is well capable of coping with these developments.
The Directors again take this opportunity to thank the Central Banks and Regulatory Authorities in the countries where BCC operates for their continuing guidance and day to day assistance.
The Directors also place on record their deep appreciation for the loyalty and hard work of each and every BCC staff member whose collective contribution will form the foundation for its future growth in the years to come.
Yves C Lamarche
Director