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Through sales of these certificates the bank could raise Rials 437 billion (US$ 48.3 million) in new resources.
Retail Banking
Retail banking is still the most important business segment of EN Bank. The retail banking loan portfolio mainly consists of mortgages and car loans jointly responsible for 2,458 credit facilities in amount of USD 62.2 million (Rials 562 billion) granted by EN Bank.
Mortgages
Home ownership is the first and foremost import goal of the average Iranian family. Due to demographic dynamics, there is a large new generation of potential home buyers on the horizon, most of whom cannot afford to fund the purchase of an apartment entirely from their own sources. EN Bank aims to help such customers turn their dreams into reality. While mortgages are nothing new to the Iranian banking system, its application has been limited. EN Bank tries to promote the idea of mortgages and offers cost-efficient mortgage packages meeting the requirements of its customers. Other programs include mortgages for commercial properties and offices. EN Bank hopes that through this initiative, it also assists indirectly the further development of the construction industry and real estate sector as important pillars of the Iranian economy.
Car Loans
Automobile manufacturing continues to be one of the strongest sectors in the Iranian economy. Liberalization of imports; the granting of new manufacturing licenses; and a sharp increase in the output of existing producers may indicate an oversupply in the market. However, demand continues to be strong as indicated by ever increasing numbers of new car purchases. Due to limited production in the aftermath of the Iran-Iraq war and pent-up demand for domestic automobiles, the market was mainly a cash market. The only bottleneck was until recently the absence of consumer finance or any type of purchase plans. With the emergence of leasing companies offering instalment sales (leasing) programs, consumer finance for all types of durables including vehicles is slowly taking shape in Iran. To capitalize on this opportunity and in an effort to assist potential car buyers, EN Bank has established a successful automobile-loan program.
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role by providing its corporate clients with tailor-made corporate finance services, including cash management, structured finance as well as merger and acquisition finance. In this context, EN Bank wants to carve out a special market position with Iranian small and medium size enterprises.
International Banking
Since 2004 EN Bank holds a license from the Central Bank of Iran to conduct international banking activities. During 2006 the bank worked hard on optimizing the range of its services, providing its customers with full support in a global economy. Services include letters of credit, guarantees, forex saving and current accounts as well as various correspondent banking services. To facilitate international banking for customers with business interests in different parts of the world, EN Bank expanded in 2006 the number of its correspondent banks to 37, including major banks and financial institutions in Europe, the Persian Gulf and the Far East. EN Banks international department has generated in its third year of activity a profit of US$ 7.4 million representing an increase of 85% compared to the previous year.
Proprietary Investments
During 2006, EN Bank has invested both in listed and unlisted companies. In spite of the difficult situation in Irans capital market, profit received from the investments amounted to Rials 16 billon (US$ 1.8 million). Due to a decrease in value of the Banks portfolio of listed equities and the difference between the cost price and actual price at the balance sheet date in the amount of Rials 42 billion (US$ 4.6 million), the net performance showed a loss of Rials 26 billion (US$ 2.8 million).
Support Functions
Information Technology
The emergence of new technology has shaped the way banks conduct their business today. Technological advances in hard and software contribute to ease and speed of banking transactions. Therefore, state-of-the-art technology is at the heart of EN Banks strive for improving profitability and customer satisfaction. EN Bank is committed to continuously improve the efficiency of its IT system. Accordingly, the IT Committee of EN Bank has reviewed existing weak points and managed various projects and initiatives including implementation of a comprehensive banking software, expansion of electronic services (card services), better support for hardware and network systems, to name a few.
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Outlook
In 2006, much was accomplished. EN Bank is, however, constantly reminded that the work is never done and strives to improve and upgrade all aspects of its operation. During 2007 priority will be given to the following areas: Increasing the capital up to Rials 2,500 billion (US$ 273.5 million), enabling EN Bank to take full advantage of new business and growth opportunities; further increases are planned for 2008 and 2009; Increasing the number of our branches to 150 to reach full coverage of all major urban and industrial areas in Iran; in 2007 and 2008 the number of branches shall further increase to 250 and 300 respectively; Expanding and upgrading of electronic banking services for our customers; Improving the banks organizational and operational systems to further enhance quality of service and customer satisfaction; Continued investment in human capital through advanced training courses in- and outside Iran in all relevant fields involving all levels of employees; Expanding and upgrading the electronic communication network between the various branches; Upgrading of our monitoring and internal audit system, providing seamless supervision of all operational aspects carrying risk; Expanding of international operations and strengthening of the international network of correspondent banks to provide customers with optimal support in their international business activities; Gaining access to inter-bank facilities from foreign banks; Expanding our activities locally and internationally; Developing a new 3-year strategic plan; Outsourcing of non-core services to keep a lean organizational structure; Implementing risk management program in all departments.
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Financial Performance
Total Assets
1800 1600 1400 1200 1000 800 600
Million USD
400 200 0
EN Banks total assets increased by 115% from Rials 6,779,699 mln (US$ 764.7 mln) in 2005 to Rials 14,552,019 mln (US$ 1,591.8 mln) in 2006. This is mainly due to an expansion in EN Banks loan portfolio by 100%.
Total Liabilities
1600 1400 1200 1000 800 600
Million USD
400 200 0
EN Banks total liabilities grew in 2006 by 116% to Rials 13,425,312 mln (US$ 1,468.5 mln) mainly as a result of growth in customer deposits held with the bank as well as an increase in advances received.
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Shareholders Equity
140 120 100 80
Million USD
60 40 20 0
2004 2005 2006 At the balance sheet date, EN Banks shareholders equity showed an increase by 100 % to Rials 1,126,707 mln (US$ 123.2 mln) due to a 100% capital increase from Rials 500,000 mln (US$ 56.4 mln) to Rials 1,000,000 mln (US$ 109.4 mln) as well as an increase in the statutory reserve and retained earnings.
Net Profit
35 30 25 20
Million USD
15 10 5 0
2004 2005 2006 EN Banks net profit for the year 2006 rose by 10% to Rials 279,565 mln (US$ 30.9 mln), mainly due to a 40% increase in the operating income.
Operating Income
60 50 40
Million USD
30 20 10 0
EN Banks operating income experienced in 2006 a growth by 40% to Rials 505,566 mln (US$ 55.9 mln) as a result of an increase in the net interest income by 81% and non-interest income by 25% respectively.
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Operating Expenses
9 8 7 6 5 4
Million USD
3 2 1 0
2004 2005 2006 Operating expenses grew by 67% from Rials 42,272 mln (US$ 4.8 mln) in 2005 to Rials 70,824 mln (US$ 7.8 mln) in 2006.
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Customer Deposits
1400 1200 1000 800 600
Million USD
400 200 0
EN Bank offers short-, medium-, and long-term deposit accounts in both Rials as well as foreign currencies. The depositors include individuals, small, medium and large corporations. To attract more resources, EN Bank issued Certificates of Deposit with a fixed interest of 16%. Through sale of these certificates the bank could raise Rials 437 billion (US$ 48.3 million). In addition, expansion in the number of branches, improvement in the quality of services and establishment of an electronic banking system caused the Bank's total customer deposits to increase by 130% in volume and 100% in number. At balance sheet date EN Bank held Rials 11,952,160 mln (US$ 1,307.4 mln) in 228,790 deposit accounts.
Customer Loans
1200 1000 800 600 400 200 0
Million USD
2004 2005 2006 EN Bank offers different types of credit facilities all following the principles of Islamic usury-free banking. Customers include individuals as well as corporates engaged in different types of activities. All loans are secured by some type of collateral including residential or commercial properties, shares of companies listed on the Tehran Stock Exchange and other negotiable instruments. In 2006, the volume of customer loans increased by 101% to reach Rials 9,558,066 mln (US$ 1,045.5 mln), while the number of loans grew by 33%, reaching 30,069.
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Corporate Governance
General Assembly
Board of Directors
Independent Auditor
General Assembly
General assemblies provide shareholders once a year the opportunity to review the financial statements and other reports prepared by the Board of Directors as well as the report of the independent statutory auditor (inspector). General assemblies have the following authorities: 1. Determination of corporate objectives and ways to achieve them; 2. Appointment and removal of the Board of Directors and the independent auditor; 3. Approval of the financial statements as prepared by the Board of Directors; and 4. Approval of any dividends to be distributed among the shareholders.
Board of Directors
In accordance with the Iranian Commercial Code, as amended, the Board of Directors comprises five seats, elected by the annual general assembly. The shareholders elect a legal entity to each seat and the elected body appoints an individual as its representative on the Board of Directors for a two-year term. After the election of the Board of Directors, the board members appoint two individuals from among themselves to serve as the Chairman and the Vice-Chairman of the Board. Board meetings are held once a week or more frequently at the discretion of either the Chairman of the Board of Directors or the Chief Executive Officer with each meeting requiring the established quorum prior to any resolutions being effective.
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The Board of Directors is empowered to: 1. Supervise the implementation of all resolutions passed by the general assemblies; 2. Review and approve the banks annual budget prepared by the management; 3. Appoint and remove the Managing Director; 4. Review the annual financial statements; and 5. Review and approve the banks objectives with respect to finances, investments, employment and other matters.
Board Committees
The Board of Directors is responsible for the overall governance of the Bank. The Board has created four committees to assist in carrying out its duties. The credit risk committee consists of the managing director and a board member as well as other bank executives. Depending on the size of the loan, the credit risk committee either makes an initial appraisal of a requested loan and the creditworthiness of the prospective borrower in accordance with EN Banks risk guidelines or reviews the decisions of the credit committees at different branches or the headquarter. The credit risk committee also computes, analyzes and forecasts EN Banks overall credit risk. In addition, the board also has a market risk committee consisting of a board member and experts from both EN Bank and its family of companies, which closely monitors the banks investment portfolio and constantly realigns it to minimize market risk. The liquidity risk committee is composed of a board member and other executives from the bank to sustain adequate liquidity to meet the banks commitments at different branches.
Independent Auditor
The accounts of EN Bank are certified by the independent auditing firm Hoshiyar Behmand. Each year the mandate for the audit is reviewed by the General Assembly. As the statutory auditor (or legal inspector as referred to in the Commercial Code), Hoshiyar Behmand is granted rights, powers and responsibilities as described in the Commercial Code.
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Risk Management
Risk management involves the identification, assessment and ongoing control of all financial and nonfinancial risks that could have a negative impact on the bank's performance and reputation. This function is not responsible for eliminating risks that are embedded in any banking business, but aims to effectively manage these risks with the objective of enhancing returns over and above the degree of assumed risk. Risk is financially evaluated as the potential impact on income and asset value, taking into consideration changes in political, economic and market conditions, and the creditworthiness of the bank's clients. The risk management function relies on the competence, experience and dedication of its professional staff, sound risk management policies and procedures, and ongoing investment in technology and training. EN Bank promotes a strong risk management culture through a comprehensive set of processes designed to effectively identify, measure, monitor and control risk exposures. In its risk management policy, EN Bank aims for a balance between risk, return and capital. The overall risk management is broken down into credit, operational, market and liquidity risks. Related systems are in conformity with Basel II.
Liquidity Risk
Liquidity risk is the risk that arises from the difficulty of selling an asset. An investment may sometimes need to be sold quickly. An insufficient secondary market may prevent the liquidation or limit the funds that can be generated from the asset. Some assets are highly liquid and have low liquidity risk, while other assets are highly illiquid and have high liquidity risk. In the banking industry, liquidity risk is the banks inability to decrease the assets or to increase the liabilities. Main liquidity source for banks as financial institutions are deposits which are mainly granted in the form of loans and other financial facilities. To avoid probable liquidity risk, EN Bank monitors all granted loans and other financial facilities on a daily and weekly basis. In this regards, the Bank uses a maturity ladder to ensure that maturity dates of various groups of assets and liabilities match.
Market Risk
Market risk is the risk that the value of an investment will decrease due to moves in market factors. The four standard market risk factors are: Equity risk Interest rate risk Currency risk Commodity risk In order to control the equity risk through efficient risk measurement methodologies as well as diversification in the investment portfolio, En Bank has established EN Investment Company.
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Credit Risk
Credit risk is the risk of loss due to a debtor's non-payment of a loan (either the principal or interest or both). In this regards EN Bank applies a well-defined system for rating the creditworthiness of its clients on the basis of two main criteria; the nature of the client's business activities and the financial performance. Furthermore, EN Bank is planning to establish a database to keep client records and scoring.
Operational Risk
According to Basel II, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Implementation of electronic banking services and an integrated IT system, intensive training programs for employees, empowerment of internal control systems and regular control of employees' performance through auditors enable EN Bank to identify and manage the operating risk. EN Bank risk management principals: 1. Reputation: A good reputation is of highest priority for EN Bank and tantamount for safeguarding the goodwill related to its brand name. Employees are constantly reminded that they have to keep the bank's reputation in mind in everything they do. 2. Unified Supervision: Risk management consists of risk identification, measurement, assessment and analysis. To have a unified and seamless supervision of all risks taken, the bank's Risk Management Unit works independently from other units. 3. Conformity with Laws: All EN Bank employees follow CBI regulations and obey state laws in all aspects of their work. 4. Financial Stability: EN Bank controls all financial and non-financial risks in order to minimize any negative impact on revenues and capital of the bank. 5. Transparency: Transparent risk analysis is very important since it assists bank managers to be aware of all inherent risks, helping them to strike a balance between risk and return. 6. Responsibility: The manager of each department is responsible for controlling all related risks and delivering the anticipated returns. 7. Chief Risk Officer: EN Bank has established an independent but fully integrated supervisory unit to analyze and monitor all risks taken by different departments. It is also responsible to design, implement, monitor and improve risk management principals and processes.
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Organizational Chart
Board of Directors
Advisors
Credit Group
Communication Group
Insurance Group
Investment Group
Hardware Group
Software Group
Call Centre
Legal Office
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Human Resources
In an increasingly competitive environment, ambitious, talented and well-trained employees are a highly valued asset. EN Bank is fully aware of the importance of securing high-calibre personnel and puts many resources towards finding the right people and training them to be the best they can be. In this context, during 2006, 137 new employees were recruited to fill vacant and new positions across the entire organization, especially branches. A good employee needs to have a positive attitude, a creative spirit, and the ability to contribute effectively in an organizational setting. Certain traits exemplify these qualities for success in the financial services sector, which can be summarized as follows: - We prefer employees with progressive attitudes, with a will to improve conditions for themselves and for others. Such persons are valuable to the Bank with their strong willpower and drive to make things happen. - Of benefit to the Bank are strong inter-personal skills, an open-mindedness, and keen cultural awareness. - We also look for persons who possess a spirit suited to serving others with grace and respect, ready to set new standards of service excellence in the Iranian banking industry. - Last but not least, efficiency, flexibility, and openness to technological innovation are of essence to face the daily challenges in a high-growth organization To those persons who are the right match for EN Bank, we offer a performance-based reward system and our advanced on- and off-site training programs. In this context all staff newly recruited during 2006 are undergoing extensive training programs in groups of 30. The number of employees grew by 49% from 282 in 2005 to 419 in 2006 mainly due to an increase in the number of branches (especially in provincial areas). The Bank's personnel consists of 136 female (32%) and 283 male (68%) employees. EN Bank staff according to location and education level:
2006
Headquarter Tehran Branches Provincial Branches Total Level of Education Below High School Diploma Diploma and Associate of Science BSc. MSc. And Ph.D. Total 146 144 129 419
2005
98 117 67 282
2004
66 80 68 214
33 86 148 15 282
29 63 109 13 214
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EN Group Companies
Novin Insurance Company (Public Joint Stock)
Given the transformation of the Iranian insurance industry and the strong ties between the banking and insurance sectors on an international level, EN Bank has decided to establish an insurance company. After decades of governmental monopoly, there is a huge demand for modernization and innovation in Irans insurance industry. Also demographics, increasing purchasing power and a growing awareness of the importance of appropriate insurance coverage add to the huge potential faced by private Iranian insurance companies.
History and Shareholders
Novin Insurance Company was registered on January 10, 2006 in Tehran under registration No. 263461. The initial share capital of the company is Rials 140 billion (US$ 15.5 million) consisting 140 million shares of 1,000 Rials each. The entire share capital was paid upon subscription.
N.I.C Shareholders
EN Bank Samaneh Gostare Novin Investment Company Behshahr Industrial Development Company Iran Behshahr Construction Company Iran Construction Investment Company Iran Behshahr Industrial Group Investment Company Petrochemical Industries Investment Company Behpakhsh Industrial Company Stratus International Contractors Youth Housing Organization Labourer Housing Organization Novin Housing Company Hamoun Kish Investment Company Behpak Industrial Company Pars Shahr Commercial-Technical Company Hegmatan Sugar Company Keyhan Tabadol Company Tehran Renovation and Construction Company Other Legal Entities (34) Individuals (1,985) Total
Ownership %
19.9 7.0 6.0 4.0 4.0 4.0 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 7.0 24.0 100
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Fields of Activity
Issuance of life and other insurance contracts in line with the scope of the license issued by the Iranian Insurance Authority; Obtaining domestic and international reinsurance coverage; Offering reinsurance services in domestic and international markets in line with the scope of the license issued by the Iranian Insurance Authority; Conducting various sorts of investments in line with the regulations approved by the Insurance High Council. Novin Insurance Company strives to develop into a market leader in the insurance industry in Iran through recruitment of talented and committed employees, intensive marketing, establishment of representative offices all across Iran by taking advantage of EN Bank branches' facilities and providing tailored, modern insurance services.
Ownership %
40 20 20 20 0.002 100
Fields of Activity
1. Investment and brokerage services: Trading of listed securities Underwriting activities in the primary market Asset management 2. Consultancy services: Listing advisory services Investment advisory services Financial advisory services
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In addition to providing these standard services at the highest professional level, Novin constantly strives to broaden its range of services. In this context, the firm has concrete plans in the following areas: Installation of a software for trading unlisted public joint stock companies (OTC market) Attraction of foreign portfolio investment Establishment of an interactive website with e-trading services Attraction of new customers through the growing number of branches of EN Bank and professional marketing
Ownership %
49 20 16 7 2 2 2 1 1 100
Fields of Activity
Attraction of capital to invest in commercial, manufacturing and service sectors as well as all other areas in domestic and international markets; Studying business plans with the aim to invest or introduce other investors; Providing consultancy services to companies searching investors; Investment in the Tehran Stock Exchange, Tehran Commodity Exchange and other domestic and international exchanges; Obtaining loans from domestic and foreign banks; Improving the investment culture in Iran; Providing customers with modern and reliable investment services; Applying latest investment methodology and know how.
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F.E.S.C Shareholders
Ownership %
98 1 1
100
Fields of Activity
Exchanging all kinds of foreign currencies in cash or bills, gold and silver while strictly adhering to anti-money laundering procedures; Transferring all kinds of foreign currencies via swift and other systems; Transporting foreign currencies, gold and silver in Tehran; Trading in traveller cheques; Providing foreign currencies for other foreign exchange companies. To gain in the fastest possible time a solid market share EN Foreign Exchange Company plans during the next fiscal year to: Enhance the speed of customer service; Establish jointly with other banks and foreign exchange companies a market information services covering forex, gold and silver in Iran; Provide employees with intensive trainings; Start professional marketing; Establish close relations with the foreign currency branches of Iranian banks.
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N.S.S.C Shareholders
Ownership %
60 35 3.5 1.5
100
Fields of Activity
Purchasing and selling movable and immovable property; Providing support, logistical, technical, engineering, construction and administrative services related to educational, cultural, sports, tourism, welfare and other facilities of EN Bank and its affiliates; Personnel leasing services as well as other technical, engineering, training and commercial services as well as mortgaging and leasing of property required by EN Bank and its affiliates; Investment and partnership in investment in legal entities either through establishing new companies or through buying shares of existing companies; Rendering welfare, cultural and sport services and other services for the personnel of EN Bank and its affiliates; Rendering management services to EN Bank and its affiliates related to studying, planning, implementing and commissioning of economic activities in the field of manufacturing, construction, mining, agriculture, tourism, etc.
POS Systems
Novin Payment Company plans to install in the coming two years 100,000 POS systems across Iran. At the time of this report 11,000 systems have already been installed.
ATM Machines
Novin Payment Company plans to install in the coming two years 2,000 ATM machines across Iran. At the time of this report 14 machines have already been installed.
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EN Leasing Company
Most of the active leasing companies have started their operations by offering leasing services for passenger cars. This is due to the huge demand for car financing, lack of car loans and the small contract size, which fits very well to the limited financial resources of most leasing companies. A few larger leasing companies are offering leasing contracts for commercial vehicles, meeting enormous demand. In 2005, 50% of all commercial vehicles were purchased with credit facilities. Finally, there is a small number of leasing companies that finance other products such as medical equipment and construction machinery. EN Bank Leasing Company is planned to start its operations next year. The company will be offering various leasing services for vehicles, houses, offices, and durable goods. In addition, leasing in Iran is effected solely in the form of financial leasing, where EN Leasing Company will also offer operational leasing services. EN Leasing will also be the first Iranian bank to offer forfeiting and factoring in Iran to purchase accounts receivables. Last but not least, EN Leasing Company will provide advisory services in regards to financing requirements and sales of goods or services.
Shareholders
EN Bank Taban Novin Investment Company Individuals Total
Ownership %
89 2 9 100
Fields of Activity
Salam Mehr offers the following services: All IT related services including design, analysis, installation and commissioning of computer systems for sales and after sale service; Marketing of licensed goods and services and implementing CRM schemes for clients;
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