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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) SA, its subsidiaries and affiliates for the financial year ended December 31, 1984 together with the Auditors' Reports. 1984 completed 12 years of our life. BCC came into being at the end of 1972 with its main operations in the Gulf region, which was then in the process of a historic change in its economic climate as a result of the rapid rise in the prices and production of oil. This change did not only change the economic situation in the Gulf countries but significantly affected the economic climate globally. We were there when the flux of petro-dollars changed the financial structure of the world and a major part of this flux flowed into the banking system. During the first ten years of our life we were one amongst the many beneficiaries of this change. It helped us realise our vision - it was for us a decade of unprecedented growth and expansion. Ato the same time we never remained unmindful of the conservative and prudent policies that are essential to the creation and development of a sound financial institution. As a result we are today a strong and well balanced Group of financial institutions operating successfully in 70 countries of the world, with total assets of US$14.3 billion which is adequately supported by a capital fund in excess of US$1 billion.
We were conceived in change and we continue to remain in change responding to it and creating it, simultaneously and continuously. During 1983 we sensed it was time for another change. We had grown to sufficient size and stature to warrant a new strategy. This perception coincided with a turbulent and uncertain climate in the economic and banking world that called for so much more consolidation and quality. The new impetus for change was not a regional phenomenon as it was in the Gulf in 1972 but rather a global phenomenon of complex and ever-changing proportions.
Once again we quickly responded in 1984. The results show a total shift of emphasis from growth to consolidation, from quantity to quality - an emphasis on high capital/asset ratio, high liquidity, high quality of assets, high service standards, high operational efficiency and budgetary controls. Our capital/ asset ratio was improved from 6.5% to over 7%, liquidity from 50% to 53% if we include short term and readily encashable investments, and capital from US$808 million to over US$1 billion which stands well against a total loan portfolio of US$5 billion.
Our focus will continue to accentuate on conservatism and prudence during the next decade. We plan to improve within the next 3 years our capital/asset ratio to over 8% and liquidity to over 55% while maintaining a high degree of emphasis on the quality of assets. It is our sensitivity to change that has been the hallmark of our success and it will continue to be so in the years ahead. BCC has always been linking people, cultures, nations and continents through its banking services. But we are more than this, we are also a bridge in time - a link between what is and what is possible, between the reality of the present and the potentiality of the future.
We shall now briefly comment on the other aspects of the progress that the Group has made during 1984.
Capital Fund
The Group's capital fund passed the important milestone of US$1 billion during the year, reaching US$1,008.9 million at the year-end, an increase of nearly 25% on the figure of US$807.7 million in 1983. As in previous years, the increase has been almost entirely funded either by the retained earnings of the year or by shareholders' contribution to the issued capital. Out of the after-tax profit, a total of US$102.3 million has been capitalized as stock dividends while US$48.5 million was transferred to reserve account. As a part of our continuing policy of maximum retention of distributable profit, no cash dividend was paid during the year.
To further enlarge the capital fund, a rights issue of US$40 million and series 'G' subordinated loan capital notes of US$20 million were issued in 1984.
Liabilities
We have continued to place full emphasis on building up year by year a broad and extensive customer deposit base as this will always form the primary source of funds in BCC institutions for financing the Group's assets and business. This focus on deposit mobilization has resulted in the deposits from customers rising from US$9,254 million to US$10,512 million, an increase of US$1,258 million.
Total deposits and other funds stood at US$13.0 billion as against US$11.2 billion in 1983, an increase of 16.25%.
Assets
It has been our declared policy to closely monitor the growth of the asset base and to hold it at such levels as could be adequately sustained by the Group's capital fund. This has clearly been achieved by reaching a year-end capital/asset ratio of 7.0%. More important than the growth in the total assets is our determined policy to maintain high liquidity at all times. Thus, while the asset base rose by US$2 billion from US$12.3 billion to US$14.3 billion, the loans and advances portfolio increased by only US$294 million to US$5.2 billion, constituting only 35.9% of total assets. The surplus funds arising out of the increase in total deposits and other funds added further to our increased liquidity. Cash and due from banks rose from US$5.6 billion to US$6.4 billion, while investments in readily marketable securities and other dealing assets rose from US$1.1 billion to US$2 billion.
The major part of the loans and advances portfolio continued to be in trade-related financing. The Group's extensive network of branches in 70 countries has allowed it to tap sound short term trade-related business between these countries. It is once again worth noting that BCC Group's exposure in countries with high international debt obligations is minimal as we have continued our policy of extending mainly short term facilities related to trade and commerce.
Reserves
Continuing on our policy to build up reserves, the general and other reserves of the Group rose from US$250 million to nearly US$300 million. This was again net of exchange equalization movements required to reflect changes in US dollar values of the capital invested in different Group banks and branches, in local currencies. The retained earnings of the Group now stands at about US$81 million as against US$74.6 million in 1983. As in 1983, the exercise for determining the Loan Loss Provision for the year continued to receive our highest attention and in so doing, we kept in mind the worldwide recession and existing state of the economies in the countries in which the Group operates. The provision in 1984 of US$85.6 million is marginally more than the figure of US$83.2 million provided in 1983. During the year, we further refined the procedure for write-off of identified risk cases and the total of such write-offs including adjustment for exchange rate changes was approximately US$28 million as against US$7.2 million in 1983. The loan loss reserves after effecting the above write-off now stand at US$268.5 million.
Operating Results
As a result of the restrained growth in loans and advances and arising from the maintenance of high liquidity throughout the year, the Group's operating profit before loan loss provision and taxation levelled off to US$363.5 million against the figure of US$361.5 million in 1983. This result should also be viewed in the context of the very strong US dollar - particularly in 1984, resulting in 'translation loss' on the non-US dollar denominated operations of most international banks such as ourselves. The profit after loan loss provision and taxation stood at US$201.0 million, more or less at par with the figure of 1983. It is our view that under the circumstances that prevailed during 1984 the profit achievement for the year can be considered satisfactory.
The after-tax distributable profit represented a return on average shareholders equity of 22.6%. As a percentage on average assets, the post tax profit works out to 1.6%. We remain confident that during the ensuing year, the Group's financial results will continue to reflect its strongly established presence in the world market places.
The Group Structure
At the end of 1984, which was a concentrated period of consolidation in the BCC Group, the Group had a network of 384 branches and offices in 70 countries. The country coverage continued to be broadly based with 92 branches in Europe, 56 in North and South America, 51 in the Far East and South East Asia, 93 in Africa, and 92 in the Middle East.
The investments made over the last 12 years in setting up these banking offices around the world and now covering all the principal financial, trading and money centres internationally, have placed the Group in a unique position amongst all international banks. We are now positioned to service our worldwide clientele and selectively tap the growing international business through our close affinity with the world market places and the personalised services that we can offer to our business clients in 70 countries. This has indeed placed the BCC Group in an enviable position in availing business opportunities right across the globe.
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 required.
The Directors wish to place on record their appreciation for the loyalty, devotion and service rendered by the members of the staff whose individual and collective efforts and aspirations are reflected in the progress of the Group. Their ability and commitment continue to promote confidence in the strength of the Group.
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 7, 1985