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Banco Internacional de Cabo Verde, S.A., Registered Office at Avenida Cidade de Lisboa, Caixa Postal 35, Cidade da Praia, Santiago, Cabo
Verde, Taxpayer No. 261973240, registered with the Registo Comercial da Praia under no. 3076, with a Share Capital of CVE 1,433,000,000$00
2014 ANNUAL REPORT
This document is a free translation into English of the original Portuguese version. In case
of doubt or misinterpretation the Portuguese version will prevail.
1 2014 ANNUAL REPORT
INDEX
A. MAIN INDICATORS ............................................................................................................. 3
B. RESULTS AND PROFITABILITY ....................................................................................... 4
C. GRAPHIC SUMMARY OF MAIN INDICATORS ................................................................. 5
I. MANAGEMENT REPORT ................................................................................................... 6
1. MESSAGE FROM THE CHAIRMAN ................................................................................ 6
2. THE BANK........................................................................................................................ 7
2.1. From BES Cabo Verde to Banco Internacional de Cabo Verde ............................. 7
2.2. Share Capital and Shareholder Structure .............................................................. 8
2.3. Corporate Bodies ..................................................................................................... 8
2.4. Geographical Presence, Branch Network and Facilities ....................................... 9
2.5. Human Resources .................................................................................................. 10
2.6. Social Responsibility .............................................................................................. 12
3. Economic Framework 2014 ...................................................................................... 13
3.1. International Framework...................................................................................... 13
3.2. National Framework ............................................................................................. 16
3.3. Sectoral Overview of the Cape Verdean Economy .............................................. 18
4. Commercial Activity .................................................................................................... 22
4.1. Strategy and Business Model ................................................................................ 22
5. Credit Risk Analysis .................................................................................................... 24
5.1. Credit Portfolio and Provisions ............................................................................ 24
5.2. Credit Risk Analysis ............................................................................................... 27
6. Analysis of the Evolution of the Activity ................................................................. 28
6.1. Summary of the Activity ........................................................................................ 28
6.2. Balance Sheet ......................................................................................................... 30
7. Results, Financial and Prudential Ratios ................................................................ 36
7.1. Results .................................................................................................................... 36
2 2014 ANNUAL REPORT
7.2. Financial Ratios ...................................................................................................... 39
7.3. Prudential Ratios ................................................................................................... 41
8. Final Notes .................................................................................................................... 42
8.1. Declaration of Conformity of the Financial Information Presented .................. 42
8.2. Proposal for the Application of Net Income ........................................................ 42
8.3. Acknowledgements ............................................................................................... 43
II. Financial Statements and Notes to the Financial Statements ................................. 44
1. Financial Statements .................................................................................................. 44
2. Explanatory Notes to the Financial Statements..................................................... 49
3. Report and Opinion of the Supervisory Board ...................................................... 87
4. Auditor’s Report .......................................................................................................... 89
III. Information on Corporate Governance ................................................................... 90
1. Organisational and Governance Structure ............................................................. 90
2. Powers of the Board of Directors ............................................................................. 91
3. Internal Control and Risk Management System .................................................... 91
3.1. Global Risk Area ..................................................................................................... 91
3.2. Compliance Area .................................................................................................... 92
3.3. Internal Audit ......................................................................................................... 94
4. Administrative and Financial Area .......................................................................... 94
5. Marketing, Organisation and Quality Area............................................................. 95
6. Commercial ................................................................................................................... 98
3
A. MAIN INDICATORS
2014 ANNUAL REPORT
2014 ANNUAL REPORT
4
B. RESULTS AND PROFITABILITY
2014 ANNUAL REPORT
S AND PROFITABILITY
2014 ANNUAL REPORT
Banco Internacional de Cabo Verde, S.A., Registered Office at Avenida Cidade de Lisboa, Caixa Postal 35, Cidade da Praia, Santiago, Cabo
Verde, Taxpayer No. 261973240, registered with the Registo Comercial da Praia under no. 3076, with a Share Capital of CVE 1,433,000,000$00
C. GRAPHIC SUMMARY OF MAIN INDICATORS
1,520,013
1,577,494
1,539,330
28%
22%
37%
Own Fund (MCVE) and Solvency Ratio (%)
Own Funds Solvency
103
80
28
2012 2013 2014
Net Income for the period (MCVE)
Banco Internacional de Cabo Verde, S.A., Registered Office at Avenida Cidade de Lisboa, Caixa Postal 35, Cidade da Praia, Santiago, Cabo
Verde, Taxpayer No. 261973240, registered with the Registo Comercial da Praia under no. 3076, with a Share Capital of CVE 1,433,000,000$00
I. MANAGEMENT REPORT
1. MESSAGE FROM THE CHAIRMAN
The year 2014 constituted a very complex year for our Bank, due to Banco de Portugal’s
deliberation, on 3 August, to apply to Banco Espírito Santo a resolution measure,
transferring most of its activity and net assets, in an immediate and definitive manner, to
NOVO BANCO S.A. (Portugal).
BES África S.A., our main shareholder, was also transferred to the NOVO BANCO, S.A.
(Portugal) shareholdings’ sphere. In this context, the decision was taken to change our
corporate name to BANCO INTERNACIONAL DE CABO VERDE (BICV), which occurred on
31 October 2014.
Hence, our activity was limited to the perception of the new shareholder reality, the main
objectives of which were to maintain the customer base with a satisfaction level in line
with the tradition of a local bank focused on financing the bilateral international trade
with Portugal and an approximation to the Cape-Verdean market.
The uncertainties deriving from the crisis, in the scope of the sovereign risks, led to
greater prudency and more rigour in the approximation made to new African markets, fact
which led us to temporarily decrease our international activity, a strategic guideline for
BICV.
Our shareholder defined new objectives that, not being many, were more demanding and
more focused on deposit growth, the moderate growth of credit to good companies, the
transformation ratio, the capital ratio and operating income. In this context, the activity
was centred on customer services, soundness and security, ethics and transparency,
prudence in risk taking and efficiency in the definition of simple processes and operational
objectivity.
Finally, a very special thank-you for the dedication and professionalism of our employees,
an essential element for the present and future success of our institution, both in the local
as well as in the very promising African market, where Cape Verde is positioned with
leadership attributes and serving as a platform for the development of the service
providing activity in the international trade financial area.
Pedro Menéres Cudell, Chairman
7 2014 ANNUAL REPORT
2. THE BANK
Banco Espírito Santo Cabo Verde, S.A. (BESCV) was incorporated in July 2010, its
commercial activities having started in August of the same year with a branch operating
from Cidade da Praia, Santiago Island, capital of the Republic of Cape Verde. In June 2011,
a second branch was opened on the Sal Island, allowing the network to grow and a more
intense commercial activity being carried out.
2.1. From BES Cabo Verde to Banco Internacional de Cabo Verde
Per resolution of the Board of Directors of Banco de Portugal, passed at the extraordinary
meeting of 3 August 2014, a resolution measure was applied to Banco Espírito Santo, S.A.
(BES), resulting in the incorporation of Novo Banco, S.A., with a share capital of four
thousand nine hundred million Euros, represented by four thousand nine hundred million
ordinary shares, with a nominal value of one Euro each, fully held by Fundo de Resolução.
Certain assets, liabilities, off-balance sheet elements and assets under management of BES,
identified in the resolution passed by the Board of Directors of Banco de Portugal and
reflected in the preliminary balance sheet of BES, with reference to 30 June 2014,
prepared on a separate basis and adjusted to the moment of the transfer were transferred
from BES to Novo Banco. Amongst the assets transferred to Novo Banco was Banco
Espírito Santo Cabo Verde, S.A.
The change of name was an imposition that could not be delayed, this being aggravated by
the fact that, in Cape Verde, there was already an institution with the name Novo Banco.
Intent on recreating a new development and growth dynamic, in November 2014, the
corporate name changed to Banco Internacional de Cabo Verde, SA (Banco Internacional
or BICV), severing the last link that bound it to the BES brand. Although the name change
was a recent act, its impacts are already being felt, with the recovered trust of some
customers, also connected with the old BES in Portugal.
Banco Internacional inherited from BESCV, in addition to the experience that enables it to
face a crisis, all that which made it one of the most promising banks in the country, namely
strong international experience; a good correspondent network; a young team, highly
motivated and qualified; a high level of liquidity; a good credit portfolio; a rigorous
compliance system, based on the best and latest international practices; ease of
communication with customers, permitting a response, on a timely basis, to their needs;
and the important support provided by the international network of the Grupo Novo
8 2014 ANNUAL REPORT
Banco, permitting greater proximity by customers with the exterior and swifter
operations.
2.2. Share Capital and Shareholder Structure
Banco Internacional has a share capital of CVE 1,433,000,000.00 (one thousand four
hundred and thirty-three million Escudos), divided into 1,433,000 shares, with a nominal
value of CVE 1,000.00 (one thousand Escudos) each. In 2014, the shareholder structure
changed, ceasing to include private shareholders and coming to be held by the following
shareholders:
Shareholder Structure (amount in Escudos)
2.3. Corporate Bodies
The corporate bodies of Banco Internacional de Cabo Verde (BICV), elected at the General
Meeting of shareholders of 30 June 2010 and reinforced on 24 June 2013, with the number
of directors being increased from three to five, remained unchanged in 2014, giving
continuity to the strategic development plan defined by the shareholders.
The Banco Internacional articles of association foresee an organisation composed by a
General Meeting, a Board of Directors and a Supervisory Board.
General Meeting
Chairman
Rui Manuel Duarte Sousa da Silveira (resigned on 31 July 2014)
Secretary
Nelson Raposo Bernardo
No. Shares Amount %
BES África, SGPS - S.A. 1,432,850 1,432,850,000 99.9895%
NOVO BANCO, S.A. 150 150,000 0.0105%
TOTAL 1,433,000 1,433,000,000 100%
9 2014 ANNUAL REPORT
Board of Directors
Board of Directors is composed of six elements, five effective members and one alternate
member appointed by the General Meeting of 24 June 2013.
Chairman
Pedro Menéres Cudell
Members
António Manuel Cerveira Duarte
José Francisco de Oliveira e Silva Mendes Palma
Paula Cristina Santos Ferreira Borges
Marta Carolina Mota Leite Machado Mariz
Substitute Member
José Alberto Monteiro Soares
Supervisory Board
Adalberto de Oliveira Mendes – Chairman
Ildo Adalberto Lima - Member
Eunerlia Sousa Freitas
2.4. Geographical Presence, Branch Network and Facilities
Banco Internacional de Cabo Verde (BICV) owns its headquarters, situated at Av. Cidade
de Lisboa, Cidade da Praia, where the main branch and the central and administrative
services are also located. It also has a second branch, on the Sal Island.
The institutional changes occurring in the Group and, consequently, in the Bank, did not
permit the pursuing of the territorial expansion that had been projected for 2014, which
aimed, amongst other measures, to set up another branch so as to endow the Bank with a
wider national coverage and widen the access to its products, reinforcing its policy of
proximity to customers.
10 2014 ANNUAL REPORT
Geographical Presence of Banco Internacional
HEADQUARTERS/PRAIA BRANCH– SANTIAGO ISLAND
Av. Cidade de Lisboa, CP nº 35 – Cidade da Praia Telephone: +238 2602626 Fax: +238 260263
SANTA MARIA BRANCH – SAL ISLAND
Vila Verde Resort, Condolote 01 Bloco D, Loja R CP nº 142
Telephone: +238 2428210 Fax: +238 2428219
2.5. Human Resources
The human capital is one of the main assets of Banco Internacional and its evolution
continues to be one of Management’s priorities. One of the strategic objectives is,
increasingly, to align the human resource macro processes (recruitment and selection,
training and development, performance appraisal systems, remuneration and incentive
systems, preparation of employment contracts, presence and absenteeism control and
payroll processing) with the company core business, so as to maximise value creation.
The Bank has 25 employees, 13 of whom allocated to the Central Services and 12 to the
Commercial Area. The payroll includes 17 permanent employees (68%) with the
remaining 8 employed under fixed-term contracts.
11 2014 ANNUAL REPORT
Human Resources Structure
The age group encompassing the largest number of employees is the 30 to 37 year age
interval. The employees’ average age is 33 years (2013: 32), revealing a team that is
young, experienced, multidisciplinary, committed to the mission of the Bank and highly
qualified.
Banco Internacional is committed to providing specific training to its employees, with the
areas directly involved in the core business being subject to continuous updates, in
alignment with the priorities and strategies of the Bank, that endow them with the
necessary support for the set-up and structuring of customer activities, primarily of those
connected with international trade.
The area of money laundering, due to its pertinence, is the subject of constant training, be
it through internal or external actions, for all employees of the Bank.
Undergraduates 1 1 2Graduates 10 13 23 of whom Post-graduates (MBA, Master…) 3 3 6
TOTAL BY ACADEMIC QUALIFICATION 11 14 25
1st Employment 2 2 4With banking experience 4 6 10Without banking experience 5 6 11TOTAL BY PROFESSIONAL EXPERIENCE 11 14 25
Commercial Area 4 8 12Central Services 7 6 13TOTAL BY AREA 11 14 25
QUOTA 44% 56%
Average Age WOMEN 33YAverage Age MEN 34YAVERAGE AGE OF EMPLOYEES 33Y
VARIABLE MEN WOMEN TOTAL
12 2014 ANNUAL REPORT
2.6. Social Responsibility
Banco Internacional de Cabo Verde is committed to being aware of the environmental
impacts of its products and financial services and to business opportunities deriving
therefrom, solidifying its offer, in accordance with the expectations of its stakeholders.
Amongst the solutions adopted by the Bank, the Environment and Energy Credit Line, a
line specially created for the acquisition of “clean” energy equipment is of note.
With the adoption of the Digital Statement, at the level of the communication with its
customers, the Bank raises the environmental awareness of its customers, encouraging
them to switch from paper to digital statements. The Bank's customers can opt for digital
statements of both accounts, credit cards and of securities constituting deposits and
savings products, etc.
Sponsorship continue to have as their main target the distribution of funds and/or
materials, in order to better contribute to social inclusion, either by way of aid for
organisations to host events, or through the direct delivery of materials to schools. Banco
Internacional de Cabo Verde, aware of the role education plays in the development of
modern societies, established a protocol with the Universidade de Cabo Verde (University
of Cape Verde), under which it donated 100 computers, thereby collaborating in the
training of and providing to the future Cape Verde professionals access to current
information technologies, improving their grasp of the changing realities and of scientific,
technological and international management knowledge.
13 2014 ANNUAL REPORT
3. Economic Framework 2014
3.1. International Framework
The world economy grew 3.3% in 2014, maintaining the expansion rhythm of the
previous year. Underlying this development was the uneven behaviour of the different
economic areas, with a recovery of the activity in the developed economies and a
slowdown in all the emerging economies. US GDP grew by 2.4% in 2014, following a
recorded 2.2% in the previous year, supported by an expansionist monetary policy, an
easing of the restrictive nature of the budgetary policy and a significant drop in oil prices.
The Federal Reserve kept the Fed Funds target rate unchanged at 0%-0.25% and
continued a policy of quantitative easing until October, signalling a patient attitude
towards a future rise in interest rates. In this context, and in the absence of significant
inflationary pressures, the yield on 10-year Treasuries fell from 3.03% to 2.17%. The
recovery of the activity, in an environment of ample liquidity, led to significant gains in
the main equity indices, with the S&P 500, the Dow Jones and Nasdaq registering annual
variations of 11.4%, 7.5% and 13.4%, respectively. The decrease in the unemployment
rate, from 6.7% to 5.6% of the working population, did not translate into wage-caused
inflationary pressures. The homologous inflation remained very contained, standing at
0.8% at the end of the year. The low inflation verified in the developed economies
resulted from the significant drop in oil prices (-49.7% in Brent, to USD 55.8/barrel, and -
45.9% in WTI, to USD 53.3/barrel). This behaviour reflected a moderation of demand but,
above all, an expansion of the supply, associated with the increased production of shale
oil and OPEC’s decision not to reduce its output in response to falling prices.
On the whole, emerging markets were penalised by the start of the tapering of the
quantitative easing by the Fed, by fears about the slowdown of activity in China and by
rising geopolitical risks, particularly those linked to tensions between Ukraine and Russia.
The growth of the Chinese economy fell from 7.7% to 7.4%, mainly due to the cooling of
the real estate and industrial activity. The slowdown trend was, however, mitigated as
from the 2nd quarter, by a set of selective economic policy stimuli. The equity index
Shanghai Composite appreciated close to 53% in 2014, benefiting from the relaxation of
monetary policy and a strong increase in trading margin. In Brazil, the persistence of
inflationary pressures and the Real’s depreciation trend (-10.8% against the US dollar)
led the Central Bank to increase the SELIC interest rate from 10% to 11.75% (with a new
increase to 12.25% in January 2015). GDP recorded a marginal growth of 0.1%, following
a recorded 2.5% in 2013. In Angola, the economic activity will have decelerated from
6.8% to 3.9% in 2014. The liquidity restrictions and the decreased demand, associated
14 2014 ANNUAL REPORT
with the drop in petroleum revenue, produced a negative impact on Portuguese exports
to this economy.
The recovery of the economic activity in the developed economies extended to Europe,
although at differentiated expansion rhythms. The United Kingdom’s GDP grew 2.6% in
2014, accelerating from the 1.7% verified in 2013, supported by a dynamic internal
demand. With inflation on a descending trend (homologous 0.5% in December), the Bank
of England maintained its base rate unchanged at 0.5%. The Pound appreciated 7.2%
against the Euro. In Poland, and despite the negative impact of the EU sanctions applied to
Russia, GDP grew 3.3%, with expansions of 3% and 9.4%, in private consumption and
investment, respectively. The Polish Central Bank reduced, in October, the main interest
rate of reference, from 2.5% to 2%, responding in this manner to the drop in inflation to
negative values. Overall, in 2014, the Zloty depreciated close to 3%, against the Euro.
After a fall of 0.5% in 2013, the GDP of the Eurozone increased 0.8% in 2014. Despite
signs of stabilisation in the second-half of the year, credit to the non-financial private
sector continued to decline, especially in the corporate segment, with the different sectors
of the economy pursuing a deleveraging process. Credit growth was also constrained by
uncertainty about the asset quality review and the stress tests applied to European banks,
which results - generally favourable – were only known in October. The ECB announced,
in June and September, two 10 bps cuts in the interest rate of the main refinancing
operations, dropping the rate to 0.05%. In the same period, the interest rate of the deposit
facility was reduced from 0% to -0.2%. The monetary authority also introduced Targeted
Long-term Refinancing Operations and a new acquisition programme of asset-backed
securities and covered bonds, with the objective of improving the transmission
mechanisms of monetary policy. Despite this ECB expansionist stance, inflation
expectations in the Eurozone recorded a clear downward trend and, over the year 2014,
annual inflation fell from 0.8% to -0.2%. The above mentioned measures and the
expectations of a reinforcement of the monetary stimuli (which was to materialise in
January 2015, with the announcement of a quantitative easing programme with an initial
amount of Euros 1.1 trillion) resulted in a significant decrease in market interest rates in
the second-half of 2014. The Euribor - 3 months declined from a peak of 0.347%, at the
beginning of the 2nd quarter, to 0.078% at the end of the year, while the yield on 10-year
Bunds fell from 1.929% to 0.541% over the year. The Euro depreciated 12.3% against the
US dollar, to EUR/USD 1.21, and this trend continued into early 2015 to levels of around
EUR/USD 1.13. The end of 2014 and early 2015 would be marked by increased political
uncertainty, with a deterioration in the perception of risk due to Greece and an increase in
the volatility in the financial markets. Over 2014, the main European equity indices
15 2014 ANNUAL REPORT
oscillated between losses and moderate gains. The FTSE 100 and CAC 40 indices fell 2.7%
and 0.5%, respectively. The German DAX index appreciated by 2.65%.
The year 2014 was marked by Spain and Portugal’s exit from their respective financial
assistance programmes and by the improvement in the perception of risk regarding these
economies. GDP in Spain grew 1.4% over the year, after contracting 1.2% in 2013, with a
recovery in domestic demand and the stabilisation of the real estate sector. In this
context, and despite a fall in the 4th quarter, the IBEX index increased by 3.7% over the
year. The yield of Spanish public debt 10-year bonds decreased from 4.15% to 1.61%. In
Portugal, GDP grew 0.8% in 2014, following three years of contraction. This evolution
resulted primarily from the recovery of domestic demand. Private consumption grew
1.7%, after a contraction of 1.4% in 2013, benefiting from an increase in real disposable
income and an improvement in household confidence. The annual average unemployment
rate fell from 16.2% to 13.9% of the active population. Gross fixed capital formation grew
2.2%, due to the increased spending on machinery and equipment and transportation
equipment. The expenditure on construction attenuated, in turn, its downward trend of
recent years. The tourism sector revealed a strong dynamic in 2014, continuing the trend
of previous years. Export growth was, however, penalised by non-recurring factors
(related to the temporary closure of production units in the automobile and refining
industries) and, despite a recovery in the 2nd half of the year, dropped from 6.4% to 3.5 %.
In turn, imports increased 4.7%, accelerating from the previous year and reflecting the
recovery of domestic demand.
The net lending capacity of the economy, measured as the surplus of the sum of the
current and capital balances, increased from 1.3% to circa 2.2% of GDP, reflecting an
increase in public and private savings. Public deficit attained circa 3.7% of GDP (excluding
non-recurring items), below the 4% target. The signs of financial recovery, the growth of
economic activity and the positive impact of the ECB's measures resulted in an improved
external perception of the Portuguese economy, which resulted in the early exit from the
economic and financial assistance programme (in May) and an improvement in its long-
term financing access conditions to the capital markets. The 10-year OT (Treasury Bonds)
yields decreased, over the year, from 6.13% to 2.69%, continuing this trend into early
2015. The instability in the financial sector, with the resolution of Banco Espírito Santo in
early August, conditioned the evolution of trust and the financing of the economic activity,
and penalised the equity market heavily, with the PSI 20 index losing close to 27% in the
year. In any event, despite some signs of growth moderation in the last quarter, the
Portuguese economy proved resilient in the face of this event, with the majority of the
indicators published supporting a scenario of activity recovery in 2015. A surplus
16 2014 ANNUAL REPORT
production capacity and falling energy prices pushed inflation down, with the average
annual change in prices closing the year at -0.3%. Housing prices, however, followed a
positive trend, with a homologous annual growth of 4.9% in the 3rd quarter, reflecting,
primarily, the increased housing demand by non-residents.
3.2. National Framework
The Cape Verdean GDP grew approximately 1% in 2014 (0.5% in 2013), due to a
progressive increase in the internal demand dynamic, with private consumption being
positively influenced by the increased household income, consequence of the growth in
emigrant remittances and social benefits, associated with increased salaries and decreased
consumer prices. The internal demand performance helped, in this manner, compensate
the lower dynamic evidenced by the Cape Verdean tourism, highly conditioned by the
economic framework in the Eurozone (GDP growth of 0.8% in 2014).
Cape Verde asserts itself primarily as a service economy. Despite current concerns
regarding the evolution of the world economy over the last quarter of 2014, global
prospects are of accelerating activity in the coming years, with the consequent increase in
the dynamism of the main tourist source markets for Cape Verde that, in this manner, will
help the country achieve a more robust growth (4% on average between 2015 and 2017,
according to the IMF).
Consumer prices have revealed a downward trend since mid-2013, reflecting, primarily,
the decrease in international food prices, the contained increase in oil prices on the
international markets and the decreased inflation in the countries that are Cape Verde’s
primary suppliers. Indeed, the main contributions to the behaviour revealed by the Cape
Verdean inflation came from the decrease in the price of butane gas, the decrease in food
prices, as well as the dissipation of the effects of the value added tax rate adjustments in
goods and services, introduced in 2013. In this context, in 2014, the average price
variation stood at 0.8%, down from the 1.5% of the previous year. Over the past five years,
the average inflation rate stood at 2.3%, with the lowest value being recorded precisely in
2009 and the highest value (4.5%), in 2011.
17 2014 ANNUAL REPORT
Evolution of GDP and GDP per capita, 2003-2014 (%)
7.57 .57 .57 .5
4 .94 .94 .94 .95 .85 .85 .85 .8
9 .19 .19 .19 .1 9 .29 .29 .29 .2
6 .76 .76 .76 .7
---- 1 .31 .31 .31 .3
1 .51 .51 .51 .5
4 .04 .04 .04 .0
1 .21 .21 .21 .20 .50 .50 .50 .5
1 .01 .01 .01 .0
1111 ,,,,908908908908
2 1592 1592 1592 1592 2782 2782 2782 278
2 5682 5682 5682 568
3 1343 1343 1343 134
3 7093 7093 7093 709
3 5333 5333 5333 5333 4193 4193 4193 419
3 8053 8053 8053 805
3 4713 4713 4713 471
3 6333 6333 6333 6333.8093.8093.8093.809
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
-2
0
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014P
% USD
Sources: IMF
Despite the widening of revenue sources and the implementation of measures aimed at
reinforcing the efficiency and effectiveness of tax collection, within the framework of the
fiscal reform underway since 2013, tax revenues decreased throughout 2014. The
decrease in revenue, together with the increase, albeit contained, in current expenditure,
determined the worsening of the budget deficit from 9% to 9.6% of GDP. The tax revenue
decrease reflects the extension of tax exemptions, as well as the lower customs value of
imported fuels and other commodities. The tax revenue decrease, coupled with the
significant decrease in donations, led to a further containment of operating costs, as well
as a delay in the implementation of some public investment projects, given the lower
Public Investment Multiannual Programme execution. The effort and the need for fiscal
consolidation are closely related to the evolution of the public debt level which, in 2014,
will have attained the equivalent of 110.4% of GDP and has led the IMF to issue,
repeatedly, warnings on the sustainability of the same, over the medium- and long-term.
In terms of the external accounts, the evolution has been favourable, with remittances
from emigrants, mostly from the Eurozone (75% of the total), evolving positively.
Similarly, the good performance of the net foreign reserves continues to provide a margin
of comfort for an adequate intervention in the foreign exchange market, aimed at
favouring the stability of the regime that indexes the Cape Verdean Escudo (CVE) to the
Euro (EUR = CVE 110.265). However, after a notable decrease in 2013, the economy's
financing needs have increased over 2014, driven by the growing current account deficit.
Estimates point to a current account deficit growth from 3.958% to 5.835% of GDP,
18 2014 ANNUAL REPORT
between 2013 and 2014, driven by the increased imports of goods, the drop in tourism
service exports and the strong growth of foreign investment income expatriated.
3.3. Sectoral Overview of the Cape Verdean Economy
Cape Verde asserts itself primarily as a service economy, circa 75% of GDP, with tourism
(with a direct and total contribution to GDP of 16.2% and 42.9%, respectively) continuing
to be the economically dominant sector, being the 10th country on the global scale, in
terms of the relative importance of the tourism sector to its economy, and 29th with
respect to growth expectations for the sector. The WTTC - World Travel & Tourism
Council (2014 Annual Research) estimates an average annual growth of tourism revenue
of approximately 6.5% over the next ten years and The Travel & Tourism Competitiveness
Index 2013 of the WEF ranks the country 4th in Africa (Sub-Saharan Africa), in terms of
tourism competitiveness.
Sectoral Distribution of the GDP, 20141 (%)
Turism and trade20.5%
Financial Setor, real estate and e
businesses services19.0%
Tranport and communications
17.8%
Public sector, education and
health/Social and personal services
15.1%
Construçtion10.5%
Agriculture, forestry, fishing
and hunting9.0%
Manufacturing Industry
5.8%
Eletricity, gas and water1.7%
Mining Industry
0.5%
1 Estimates obtained by Banco Internacional de Cabo Verde and Novo Banco Research, according to a methodology which uses as a reference the latest industry data published by the ADB (African Economic Outlook) and the evolution of the credit granted between 2011 and 2014 to different sectors of the economy (credit to non-financial companies). Sources: Africa Development Bank, BCV, NB Research – Sectoral Research.
The sectoral distribution of the GDP of Cape Verde, a very important element of the
framing of the economic activity of the country for the economic agents with which the
sectors are related, continues to reveal the centrality of the tourism sector to the economy
of the archipelago, despite continued efforts to diversify the economy, namely through the
enhancement of related activities and the support given to economic activity: transport,
maritime and airport logistics, trade, fisheries, information and communication
technologies, financial services and energy.
19 2014 ANNUAL REPORT
These sectoral areas are fundamental to the achievement of the archipelago's vision as a
regional services hub, in the context of West Africa, with a potential horizon of 350 million
consumers and a GDP of USD 800 million (2014, Estimate), with excellent conditions ,
from the security, operational efficiency, institutional context and the qualification of
human resources perspectives. In this manner, it is contributing to the projection of the
archipelago's economy far beyond the strict boundaries of an internal market, necessarily
small, strengthening the regional integration of Cape Verde in one of the most dynamic
areas of the global economy, whilst simultaneously benefiting from privileged access
conditions to the European and North American market. In February 2014, negotiations
were concluded between the EU and West Africa to formalise an Economic Partnership
Agreement (EPA). The Agreement constitutes the first economic partnership that brings
together not only the 16 countries of West Africa, but also the two regional organisations
ECOWAS and UEMOA (Economic and Monetary Union of West African States).
The Cape Verde economy is part of a regional area that has shown considerable dynamism
in tourism demand over the last few years, especially in terms of tourist arrivals, reflecting
the increasing integration of the region into the world economy. In this context, Cape
Verde stands out due to the dynamism of the tourism sector:
• The growth of tourist arrivals, 11.4%, is more than double that recorded in Sub-
Saharan Africa, 5.1%;
• Tourism revenue increased between 2010 and 2013 at a rate of 18.4%, more than
quadrupling that observed in Sub-Saharan Africa.
The strengthening of the Cape Verdean tourist sector has been reflected in the sustained
growth of its contribution to GDP, to the export effort and to investment growth. Over the
last decade, the tourism demand for Cape Verde reveals a pattern of steady growth, under
which the number of overnight stays at hotels of the archipelago nearly quadrupled, from
865,000 overnight stays, in 2004, to 3,436,000 overnight stays, in 2013, AAGR04-13 =
14.8%. However, the year 2013 was characterised by a clear slowdown in relation to the
previous years, 3.4%, slowdown which, in the first three quarters of 2014, was converted
into a decrease in the number of overnight stays, -1% YoY. The islands of Sal and Boavista
stand out in terms of tourism in the archipelago, representing, respectively, 45% and
27.3% of the accommodation capacity in 2013 (43% and 45% of overnight stays.
respectively). There continues to be a strong dependence on foreign tourism, more than
95% of total overnight stays, with an almost exclusive concentration on the European
20 2014 ANNUAL REPORT
markets. Countries that most stood out in 2013 were: the United Kingdom, 24.3%;
Germany, 15.4%; the Netherlands, 9.5%, Portugal 9.4% and France 9.3%.
Tourism, Cape Verde, 2000-2024 (USD millions)
0
0,5
1
1,5
2
2,5
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
Tourism Contribution to GDP Exports related to Tourism Investment
Sources: World Tourism Organisation, World Travel & Tourism Council, Cape Verdean National Statistics Institute (Instituto Nacional de Estatística Cabo Verde).
This sector has also been able to capture new segments of demand, namely cruise tourism
and recreational boating. The Cruise Tourism, which has grown exponentially, is one of the
focuses of the Cape Verdean government, which, in July 2013, signed with the Netherlands
a financing agreement for the study of the construction of a cruise terminal in Mindelo,
which should be operational by the end of 2015.
In May 2013, it was announced that, in Cape Verde, five gaming zones are being
contemplated instead of the three originally planned. In addition to the gaming areas of
Sal, Santiago and São Vicente, the Government will also create those of Boavista and Maio.
The Government and the company Royal Casino signed a concession contract for the Sal
Island and the Casino is to be installed at the Hilton hotel, in the town of Santa Maria. The
Louvre Group, the second largest hotel chain in Europe, announced, in November 2014,
that it would operate the casino hotel, which is expected to arise in the first-half of 2015,
in the city of Mindelo, an investment of EUR 20 million.
Also relevant for the sector's sustainability, the positioning of the archipelago as a tourist
destination of quality and the boosting of the spill-over effects in other sectors of the
economy, especially in the agricultural area, is the ambitious program launched in 2010,
by the Government of Cape Verde, involving the construction of 17 dams by the end of the
21 2014 ANNUAL REPORT
legislature, in 2016, as well as dozens of dykes, boreholes and water pumping systems.
The Figueira Gorda dam, the largest reservoir in the country (with the capacity to store 1.5
million cubic meters of rainwater), in the Northern hinterland of Santiago, recently
inaugurated, as well as that of Canto Cagarra, in Santo Antão, are examples of the
determination of the Cape Verdean Government to mitigate two of the traditional
constraints to the development of the archipelago’s economy: availability of water for
consumption and for agriculture; boosting, in this manner, the impact of the expected
growth of the tourism sector in the economy. Another two dams, Principal and Flamengos,
both in the north of Santiago Island, are at the final stages of construction.
Following the slowdown in the growth of the banking sector’s total assets, observed in
2013, the year 2014 presented a very similar performance, with the aggregate balance
amounting to 190.6 thousand million Escudos, in June 2014, which represents a growth of
about 7.9% over the previous year, in line with the 7.6% registered in June 2013. A
stagnation in the customer loan portfolio, which remaining at 97.6 thousand million
Escudos, was recorded whilst customer deposits - the main source of funding - grew
18.2%, reinforcing a dynamic already observed in 2013. The increase in overdue loans
continues to evidence a clear deterioration. The weight of this component, in the structure
of total loans, increased by 2.9 percentage points between June 2013 and June 2014, to
14.4%.
Regarding the sectoral distribution of credit to non-financial companies, the
predominance rests with the sectors of "Trade, Restaurants and Hotels", "Transport and
Communications", "Construction and Public Works" and "Social and Personal Services",
which, together, accounted, in 2014, for about 65% of total loans to non-financial
companies. Loans to private individuals represent approximately 50% of the total (70%,
mortgage loans).
Despite a macroeconomic environment that has remained less favourable, Cape Verde has
earned the respect of major international institutions. The Indicator of the Ease of Doing
Business of the World Bank, Doing Business 2015 (DB 2015), places the country at
number 122 in the ranking of the 189 economies analysed, the 2nd highest ranked country
in Central and West Africa. In the Human Development Index of the United Nations, Cape
Verde falls under the countries classed as having an "average human development"; in
2014, Cape Verde is the sixth best ranked country in Sub-Saharan Africa. In the Ibrahim
Index of African Governance, Cape Verde was ranked 2nd amongst the 52 African countries
analysed, surpassed only by Mauritius.
22 2014 ANNUAL REPORT
4. Commercial Activity
4.1. Strategy and Business Model
Although not financially involved in the crisis resulting from the application of the
resolution measure to Banco Espírito Santo, Banco Internacional absorbed the
reputational impact, which ended up influencing all its activity over the rest of the year, as
was verified in the change in direction noted with regard to the consolidation that had
been achieved in the first half-year, of the growth of resources, the opening of accounts
and customer trust.
Reacting promptly to the instability caused by BES, through a changed attitude towards
the market and the adoption of new communication and approach strategies, the Bank
managed to minimise the impact of the Group's crisis, regaining the trust of customers.
With the intensification, in Cape Verde, of the impacts of the international financial crisis,
the market contracted in terms of granting new loans, with banks adopting a more
cautious stance, turning the credit analysis process more judicious. The credit default level
increased, as did the impairment of the portfolio, in some cases imposed by the
supervisory authority itself. Competition amongst banks increased, particularly in
corporate financing, causing a drop in funding operation margins and in off-balance sheet
credit commissions.
The credit crunch affected the other side of the balance sheet too, at the resource level,
with the liquidity of the sector closing on a high, spurring a decrease in deposit
remuneration rates.
Given the above circumstances, in conjunction with the crisis that shook the Group, Banco
Internacional maintained an attitude of judicious selection and great caution in granting
new loans. On the other hand, the Bank introduced a new dynamic in the recovery of
overdue loans, in order to achieve a balanced financial structure, a key factor for the
rebuilding of trust.
In terms of the evolution of the customer portfolio, the Bank maintained its focus on
attracting customers of the targeted segments. Despite the small size of the market, the
pace of the opening of new customer accounts, by April, had regained normality, having
suffered a drop, in the second half-year, when the BES situation impact was already being
felt.
23 2014 ANNUAL REPORT
The strong impact of the end of the BES brand required a certain restraint in the
approaching of certain potential customers, due to uncertainty as to the magnitude of the
consequences that the development of the situation would have on the Cape Verdean
structure. The strategy is, presently, to achieve a greater financial involvement of
customers, especially large companies, through the revitalisation of the loan granting
operations.
Evolution of the Active Customer Portfolio (Number of active customers)
379
1,266
409
1,484
Corporate Private
20132014 + 17%
+ 8%
The customer portfolio grew 15%, in 2014, with the emphasis being on Private customers.
The biggest focus is on International customers, including Emigrants, representing around
40% of new customers in 2014. The growth of Private customers reveals the greater
loyalty of this segment, which, in this financial and institutional crisis context, signifies the
maintenance of trust by the market.
Of the 1,893 customers in the portfolio, 1,484 are private individuals (corresponding to
78%), residents and non-residents, including emigrants, and 409 are domestic and foreign
companies, mostly based in Cape Verde.
24 2014 ANNUAL REPORT
5. Credit Risk Analysis
5.1. Credit Portfolio and Provisions
The credit growth model of Banco Internacional, over the last three years, is based mainly
on the lending to large companies, which have a better credit rating.
Banco Internacional's loan portfolio recorded, in this particular year, a decrease of 12%.
This is an unprecedented situation, but consistent with the economic climate and the
composition of the portfolio itself, which consists, largely (approx. 54%), of credit with a
maturity that does not exceed three years, giving rise to large-scale redemptions during a
financial period.
It recorded, for the first time since the start of activities, a decrease in the credit volume (-
288 million Escudos), due, on the one hand, to a greater contraction in credit granting
(related to the development of the local market and with the international economic
situation itself) and the shortage of demand fitting the Bank's risk profile and, on the other
hand, due to the amortisation of substantial amounts of the main lending operations.
Loans to business customers, accounting for 76% of the portfolio (2013: 81%), decreased
by 339 million Escudos (-17%, a decrease above the portfolio average), reflecting the
credit policy applicable to companies, based on medium-term loans, which, coupled with
the restraint and prudence in the contracting of new operations, generated a certain
deterioration in the portfolio.
Of total loans to companies (1.67 thousand million Escudos), 76% are medium- and long-
term loans, mostly with a maturity of up to three years, and 23% are treasury support
credit lines (overdrafts and secured current accounts ). The business portfolio is
concentrated mainly in the Services (57%) and Construction and Public Works (27%)
sectors.
For the Private individuals segment, the main type of financing is mortgage loans, for the
construction and acquisition of property for housing, corresponding to 83% of the total
loans in the private individuals’ portfolio.
The total of personal and real guarantees received represent, respectively, 57% and 41%
of total loans granted at 31 December 2014.
As for the maturity of loans (residual period up to the maturity of the contract), it is
expected that within 3 years, 54% of the current value of the portfolio will have been
amortised.
25 2014 ANNUAL REPORT
Evolution of the Credit Portfolio Stock at 31/12/2014 (in CVE)
As for the provisioning of the loan portfolio, the Bank accounts for Impairment whenever
the amount of such is higher than the regulatory credit provisions, in compliance with the
Supervisory Body’s Notice.
The cost of provisioning loans increased by 17 million Escudos, in 2014, as a result of
higher provisioning rates in respect of customers revealing a credit risk degradation. The
Impairment amount recorded reflects an expected loss rate of 3.56% of the amount of the
loan portfolio (2013: 2.46%) and a 21.6% coverage ratio of the overdue credit amount
(2013: 25%).
By Segment 2,198,710 100% 2,487,462 100%
Private 507,432 23.1% 466,824 18.8%
Public and Administrative Sector 23,333 1.1% 13,003 0.5%
Corporate 1,667,944 75.9% 2,007,635 80.7%
By Sector of Activity 2,198,710 100% 2,487,462 100%
Mortgage 423,462 19.3% 378,102 15.2%
Other Private 83,970 3.8% 88,722 3.6%
Public and Administrative Sector 23,333 1.1% 13,003 0.5%
Trade and Services 948,317 43.1% 1,129,331 45.4%
Construction and Public Works 465,236 21.2% 585,151 23.5%
Industry 161,048 7.3% 205,537 8.3%
Hotels and Restaurants 93,343 4.2% 87,616 3.5%
By Maturity 2,198,710 100% 2,487,462 100%
Short-term 410,311 18.7% 496,978 20.0%
Medium- and Long-term 1,788,399 81.3% 1,990,484 80.0%
IMPAIRMENT (78,218) 3.56% (61,309) 2.46%
CREDIT NET OF PROVISIONS AND INTEREST
31.12.14 31.12.13
2,120,492 2,426,153
26
Maturity of the Credit Portfolio, by residual period, at
0
50
100
150
200
250
300
350
400
Mil
lio
nsC
VE
Since July 2013, the Bank calculates both the provisions and the Impairment of the loan
portfolio simultaneously. The regulatory calculation of the credit provisions takes into
account the parameters and rates of
of 25 February 2008. The credit impairment rates, however, result from characteristics
that are inherent to the credit agreement, such as the guarantee amount, the type and
maturity of the credit, the customer credit risk, the contract interest rate, the customer
segment and other credit default indicators.
Distribution of the Credit P
Class B7%
2014 ANNUAL REPORT
ty of the Credit Portfolio, by residual period, at 31/12/2014
Since July 2013, the Bank calculates both the provisions and the Impairment of the loan
io simultaneously. The regulatory calculation of the credit provisions takes into
the parameters and rates of Notice no. 4/2006, as amended by Notice no. 6/2007,
of 25 February 2008. The credit impairment rates, however, result from characteristics
that are inherent to the credit agreement, such as the guarantee amount, the type and
maturity of the credit, the customer credit risk, the contract interest rate, the customer
segment and other credit default indicators.
tion of the Credit Portfolio, by risk class at 31/12/2014
Class A88%
Class C3%
Classes D,E2%
2014 ANNUAL REPORT
Since July 2013, the Bank calculates both the provisions and the Impairment of the loan
io simultaneously. The regulatory calculation of the credit provisions takes into
Notice no. 4/2006, as amended by Notice no. 6/2007,
of 25 February 2008. The credit impairment rates, however, result from characteristics
that are inherent to the credit agreement, such as the guarantee amount, the type and
maturity of the credit, the customer credit risk, the contract interest rate, the customer
Class A
27 2014 ANNUAL REPORT
5.2. Credit Risk Analysis
Credit risk, the risk the Bank is most exposed to, is mitigated by the practice adopted by
the Bank of constantly monitoring all contracted operations, in coordination with units of
the Group, a method that has allowed it identify, on a timely basis, the main default
triggers whilst maintaining an adequate risk monitoring of the credit portfolio.
The Bank relies on methodologies and risk management policies that meet the
supervisory body’s guidelines and those of the Group itself, which are based on good
governance practices of credit institutions at the international level. In any credit process,
the area that manages credit risk acts both upstream and downstream, assisting in the
preparation of loan proposals; participating, decisively, in the Credit Committee; and
interacting, constantly, with the commercial area in the definition of collection strategies
or overdue negotiation proposals and in their respective provisioning.
The quality of the Bank's loan portfolio is determined in function of the distribution by
risk class, of the credit contracts, the lending operations at risk (overdue and restructured
contracts), the processes initiated for judicial collection, the provision and credit
impairment coefficients and other indicators that measure the risk of the loan portfolio.
At 31 December 2014, the loan portfolio had 16.5% of credit in arrears, 14.8% of which
are loans overdue more than 90 days.
Regarding the risk classification of loans, 37% of loans were assigned as "low risk", 52% as
"moderate risk" and 11% of transactions as "high risk".
There was a residual change in the loan portfolio risk, due to delays in the recovery of
overdue loans and the permanence of the same customers, particularly companies, in
default situations. The loan portfolio presented, at 31 December 2014, 49 customers in
arrears (28 in arrears for over 90 days), revealing an increase of 30% compared with the
previous year.
28 2014 ANNUAL REPORT
6. Analysis of the Evolution of the Activity
6.1. Summary of the Activity
The year 2014 was marked by a major crisis in the Portuguese financial sector, which led
to a resolution measure being applied to BES. A series of events favoured the downfall of
the BES brand, a new bank having been created with a new name in order to allay the
market. In the case of Cape Verde, in early November, we adopted a new name – Banco
Internacional de Cabo Verde (BICV), an essential step to erase, definitively, any connection
to BES, which will continue as a "bad bank" until its total dissolution. The new name,
associated with the new NOVO BANCO brand, was well accepted by the market, and is
expected to constitute a strong point in the strategy outlined for the coming year.
Those and other events that occurred during the second half-year, as well as the numerous
changes resulting from the economic situation, led to year-end numbers that could have
been better. After the occurrence, the strategy promoted till the end of the year,
corresponded, largely, to maintaining the customers in the portfolio and preventing, to the
extent possible, the withdrawal of funds. Customer growth was also below that of the first
half-year, with the biggest drop being recorded in August, when the crisis overtook the
Group.
In 2014, the Bank attracted a total of 224 new Private customers (145 pertaining to the
Praia Branch and 99 to the Sal Branch) and 45 Corporate (25 relating to Praia and 20 to
Sal), a total of 269 new customers.
There was a substantial increase in cards issuance (831 in total), with special emphasis on
the prepaid card Kretxeu, with 212 new cards being issued during the year. The traditional
debit card (Vinti4), currently the primary means of payment, between issues and
renovations, counted 574 new units. Credit cards are gradually gaining adherents,
accounting for 45 new cards in 2014.
The number Internet Banking users increased over the same period and 192 new
members registered during the year. Updates and new features have been introduced,
making it a faster and securer platform.
The Bank maintained its proactive attitude towards international trade, especially in the
Portugal-Brazil-West African triangle, serving as a trade intermediary between these
regions/countries, making use of the correspondent network provided by the Group,
which facilitates international operations.
29 2014 ANNUAL REPORT
With a loan portfolio of 2.2 thousand million Escudos (2013: 2.49 thousand million) and a
volume of 9.88 thousand million in customer deposits (2013: 13.97 thousand million), the
Bank attained a Transformation Ratio of Deposits into Loans (LTD) of 22%, the same ratio
having attained 18% in the previous period, raising the liquidity level.
In the Corporate segment, the LTD (total loans divided by total deposits), which had
attained 84% in 2013, indicating stability in this segment, suffered a setback in 2014 with
a loss of local deposits over than 50%, taking the LTD ratio to the level of 126%.
The Private segment closed the year with a portfolio of 1,484 customers, including
Residents, Emigrants and International customers, increasing its weight in the business,
reflecting its importance to the Bank, since its deposits tend to be more stable than those
of the companies, in the medium- and long-term.
The banking activity of the International segment, in general, after a strong growth in
2013, revealed a 22% decrease in the volume of deposits raised, driven mainly by the
interruption of the dynamic of this sector, imposed by the context in which the Group was
involved during the second-half of 2014.
Off-balance Sheet Operations
The Cape Verdean banking market has evolved little over the last year and, consequently,
the off-balance sheet operations, issuance of bank guarantees and letters of credit, were
limited.
Important revenue generator in the form of commissions, the lack of growth of this area
had a direct impact on the Bank's accounts. In the first two months of the year, an increase
in the balance of the off-balance sheet portfolio was noted, having subsequently followed a
downward trend, due to the effects of the crisis on the Construction sector, the main
customer for this type of operation due to its involvement in large projects. The number of
new Bank guarantee operations and their inexpressive amounts were insufficient to
leverage the business of the off-balance sheet products.
From 2012 to 2014, the contracting of off-balance sheet products followed the
development of the economy, with companies linked to the main State projects
dominating the requests for the issue of these products.
Off-balance sheet operations, in addition to being an important tool for revenue
generation, are key in supporting the economy, playing an extremely important role in
promoting international trade. During the year 2014, due to the economic environment
30 2014 ANNUAL REPORT
and the Group's internal situation, there were only 46 new off-balance sheet operations,
the issue of 35 Guarantees and 11 Documentary Credits, closing the year with a balance of
681 million Escudos (2013: 1.33 thousand million Escudos), 96% of which representing
Guarantees.
6.2. Balance Sheet
The balance sheet recorded, during the year, a marked decrease as a result of the decrease
in outside resources and the consequent impact on the cash volume. The 2014 balance
sheet moved from a total of 24 thousand million Escudos, in 2013, to 12 thousand million
Escudos.
The financial assets and liabilities have a prominent role in the Bank’s balance sheet, with
a significant weight on the composition of same, 87% and 85%, respectively.
ASSETS
The diversification of the asset portfolio is one of the challenges assumed by Banco
Internacional, in order to better manage the underlying risks. Seeking to maximise this
objective, in the distribution of the financial resources of the Bank, Loans and advances to
banks, with 67% (79% in 2013), Loans and advances to customers, with 18% (10% in
2013) stand out.
The Loans and advances to banks registered a 59% decrease in their balance and credit to
customers decreased by 12%.
Total interest-bearing assets represent 87% of the net assets of the Bank, with the volume
of these assets amounting to 90% of net assets in 2013. This change had a direct impact on
financial results and, consequently, on the annual results.
31
Interest-bearing Assets
Interest-bearing assets include all those that generate revenue for the Bank,
previously contracted remuneration rate.
Banco Internacional seeks to apply its exce
investments, in order to ensure a satisfactory, and almost permanent,
liquidity. To mitigate the risk inherent
with the Head-Office (Novo Banco).
Composition of Assets
Credit Applications
18.10%
2014 ANNUAL REPORT
bearing assets include all those that generate revenue for the Bank,
previously contracted remuneration rate.
Banco Internacional seeks to apply its excess cash preferably in short or very short
investments, in order to ensure a satisfactory, and almost permanent, level
risk inherent to financial assets, investments are made primarily
Office (Novo Banco).
Monetary Investments
11.320%
Financial Applications
68.519%
Tangible Assets
2.050%
Other Assets0.010%
2014 ANNUAL REPORT
bearing assets include all those that generate revenue for the Bank, based on a
or very short-term
level of immediate
financial assets, investments are made primarily
Investments
32 2014 ANNUAL REPORT
By 31 December 2014, the Bank had incurred capital expenditure of around 357 million
Escudos (289 million in 2013), corresponding to 2% of total assets, increasing investment
by 24% during the year, especially in the information processing system and
transportation equipment.
Loans and advances to customers, one of the most important financial assets of the Bank,
considering it is the main indicator of the banking activity, recorded a 12% decline in its
stock, adversely affecting the financial results, having gone from a gross balance of 2.49 to
2.2 thousand million Escudos. Of this amount, 81% corresponds to medium- and long-
term loans (2013: 80%) and 76% to loans to companies (2013: 81%), maintaining the
same trend of previous years.
The total volume of short-term loans stood at 410 million Escudos, decreasing 17% from
the previous year, with its weight in the portfolio dropping from 20% to 19%.
Once it is a Bank with a mission linked, primarily, to the development of the economy,
through the funding of projects which purpose is to leverage the country's growth, its
funding of the public and administrative sector is quite residual, this being so too because
it does not hold, in its portfolio, products that are specific for the needs of that sector.
Therefore, the financing of the public and administrative sector is limited to 1% of the
total portfolio (2013: 0.5%), having, however, in proportional terms, recorded a
considerable growth in 2014 (+ 79%).
The demand for funding by corporate customers slowed down, with companies relying,
mainly, on short-term treasury support credit lines. Registering a 17% decrease in its final
stock, loans to companies closed the year with a balance of 1.67 thousand million Escudos,
compared to the balance of 2 thousand million of the previous year.
In contrast, loans to households recorded an increase during the year, with a higher
demand for financing for the purchase/construction of own housing, which produced a
relative increase in contrast to the Consumption aspect, in respect of which there was a
reversal, largely due to the decline imposed by the financial crisis.
The Trade and Services sector stands out in the loan portfolio, representing about 43% of
same, despite the decrease in its balance of around 15%. Likewise, the balance of overdue
loans relating to this sector, also presents the greatest volume. The Construction and
Public Works sector, especially Real Estate Construction, is still feeling the effects of the
crisis that has been raging since 2008, recording significant annual decreases in access to
33 2014 ANNUAL REPORT
credit. In 2014, loans to this sector decreased by 22%, with the funding being increasingly
more regulated by the authorities.
Credit Portfolio at 31/12/2014
Overall, total credit to companies decreased, whilst its overdue loan balance increased
considerably. The overdue loans of business customers which represented, in 2013, 10%
of the total credit to companies, rose to 19%. On the other hand, the quality of the loans to
private individuals improved slightly, with the proportion of overdue loans decreasing 0.6
percentage points.
Due to the unfavourable situation for granting loans and for compliance with the
amortisation of instalments, the 2014 loan portfolio reveals a significant deterioration in
its quality, with a consequent increase in the volume of loans overdue and unpaid, which
amount aggravated the default ratio of the portfolio.
The default ratio, measured by the ratio of loans overdue over 90 days to the total
portfolio and that measures the quality of the loan portfolio, closed at 14.82%, with loans
in arrears for more than 90 days presenting a balance of 325 million Escudos. The total
overdue credit portfolio amounts to 361 million Escudos (2013: 244 million), a situation
that called for a paradigm shift, regarding the monitoring and treatment of loans in default
and at risk.
From that perspective, the calculation of the loan impairment was readjusted, culminating
in an increase in the provisioning of loans at risk and those that reveal non-compliance
situations. The portfolio was provisioned at an average rate of 3.56% (2013: 2.46%) with
Mortgage19.26%
Other Private 3.82%
Public and Administrative
Sector1.06%
Trade and Services 43,43%
Construction and Public Works
20.86%
Industry 7.32%
Hotels and Restaurants
4.25%
34 2014 ANNUAL REPORT
a total impairment of 78 million Escudos (2013: 61 million), mainly due to the
unfavourable evolution of the non-compliance of corporate customers. This reinforcement
in the provisioning of the portfolio had a direct and significant impact on the results for
the period, but provides a convenient coverage for the default risk, at the prudential level.
Monthly evolution of credit to customers
-0,2%
2%
-2%
6%
0.5%
-3%
4%
2%3%
10%
-2.6%
-6%
1.9%
-2% -1%
2%
-2.8%-3%
-5%
2%
-1% -1% -1% -1%
Jan Fev Mar Abr Mai Jun Jul Ago Set Out Nov Dez
2013
2014
LIABILITIES
Banco Internacional’s liabilities comprise, primarily, external deposits, its structure being
99% dominated by customer deposits and other loans (2013: 62%). During 2014,
liabilities decreased 55% compared to the previous year, consequence of the decrease in
market deposits (funds from Central Banks and other credit institutions).
Market deposits, consisting mainly of deposits from Central Banks (74%) have a negligible
weight (0.07%) in the total liabilities of the Bank, with a balance of 6.58 million Escudos
(in 2013, their balance was 8.37 thousand million Escudos, corresponding to 37% of
liabilities).
Customer deposits and other loans suffered a considerable drop, especially in the Group’s
post-crisis period. The movement of funds, almost entirely by companies, resident and
non-resident, led to a marked decline in the volume of customer deposits, which fell from a
balance of 14 thousand million Escudos in 2013 to less than 10 thousand million, a drop of
29%.
The composition of customer deposits changed entirely, especially term deposits which
saw their balance drop, due to the fact that customers preferred to keep their funds as
accessible as possible, given the uncertainty affecting the Group. Representing, in 2013,
35 2014 ANNUAL REPORT
84% of the total volume of customer deposits, demand deposits attained, in 2014, a weight
of 91%, and saw their volume drop from 11.7 to 9 thousand million Escudos. At the same
time, business customers, that held 95% of customer deposits, came to hold 89%, a
decrease of 4.4 thousand million Escudos.
Although to a lesser extent, private customer deposits recorded an increase during the
year, revealing a wider market coverage of non-residents. The non-resident customers,
private individuals and companies, owned more than 89% of the funds, a total of 8.8
thousand million Escudos, recording a decrease of 22%.
With a more abrupt change, the deposits of residents saw their balance decrease 1.5
thousand million Escudos, closing with a balance 60% lower than that of 2013. Emigrants’
deposits maintained a balance close to that of the previous year's volume, having recorded
a slight increase of 5%.
The Bank presents, at 31 December 2014, a equity of 1.637 thousand million Escudos, for
a total funding structure of 11 thousand million Escudos (2013: 1.66 for a structure of 24
thousand million).
Funding Structure
Customers’ financial involvement fell 26% as a consequence, mainly, of the decrease in
their deposits. Even so, the deposit volume was well above that of the loan portfolio (4.5
times), allowing for a comfortable liquidity margin for the Bank. Hence, the transformation
ratio of deposits into loans increased from 18% to 22%.
Customer Deposits and Other Loans
85.00%
Market Resources
0.01%
Equity14.28%
Other Liabilities
0.70%
36 2014 ANNUAL REPORT
CUSTOMERS: Credit and Deposits in the Balance Sheet Structure
7. Results, Financial and Prudential Ratios
7.1. Results
The climate of uncertainty in the financial markets, previously mentioned, unfavourable
for the investment by companies or even for the normal development of their activities,
continued throughout the year. For families, the current situation is also quite adverse,
because access to credit is restricted, both on the families’ side, who are struggling to meet
their commitments on the one hand and on the other having, when they do, only fragile
guarantees they can offer banks, as well as on the banks’ side, which activity is blocked by
this "inability" of families to meet their financial obligations.
The weak demand for bank guarantees, the lower granting of credit and the consequent
deterioration of the provisions for credit risk led to lower results than those of the
previous period. That result translates, in a way, the current situation of the financial
market, in which large customers, the highest revenue generators, are in an unfavourable
situation for seeking financing.
10% 19%
58%
85%
24 08511 656
2013 2014
Million CVE Balance Sheet
Market Resources
Costumer Deposits and other loans
37 2014 ANNUAL REPORT
Evolution of the net interest margin
3.10%3.02% 3.03%
3.81%
2.54% 2.55%2.75%
2.43%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2013 2014
max. 2013 = 3,,81% (Dec) max. 2014 = 2,75% (Sep)
Given the moderation imposed by the Group crisis, combined with the difficulties of the
domestic market, Banco Internacional distanced itself from its budgeted goals. The
financial results, below expectations, were originated, mainly, by the credit contraction,
which caused a decrease in interest income of around 33%. There was a regression, both
in the financial income and in the financial costs, with a manifestly unbalanced ratio,
leading to a total negative impact of 78 million Escudos on the financial result.
In turn, net commissions for the period cushioned, slightly, the impact of the drop in the
financial result, having increased by 11%. Commissions amounting to 59 million Escudos
were charged and about 2 million were paid, originating a Commercial Banking Income
(CBI) of 235 million Escudos, registering a 24% decrease compared to the homologous
period.
Financial transactions in foreign currency maintained an important role in revenue
generation, playing a fundamental role in the formation of the banking income. The results
of these transactions were higher than in the previous year (+ 70%), cushioning the effects
of the decrease in the CBP and leading to a Banking Income (BI) of 275 million Escudos,
representing a decrease of 17% (2013: 331 million Escudos).
The financial management model was maintained, given the rigor of its functionalities, in
order to maintain control over the operations and customers and, in this manner, retain
the trust and loyalty of its portfolio. The Operational Cash Flow, which is the measure
determined by the difference between the Banking Income and the Structure Costs, stood
at 102 million Escudos, an amount three times higher than the net result, recording a
decrease of 35% (2013: 157 million Escudos).
38 2014 ANNUAL REPORT
Meanwhile, operating costs, which at year end totalled 216 million Escudos, came in lower
than expected and at a level similar to that of the previous year, mitigating the
deterioration of the net result. This containment of the volume of costs was due, mainly, to
the slowdown in the expansion of the domestic activity of the Bank, due to the regression
in the national economy, as well as the interruption of the Bank's internationalisation
process, imposed by the current reality in which the Bank operates.
Of the total operating costs, 31% are related to staff costs (2013: 28%), 49% relate to
general and administrative expenses (2013: 53%) and the remainder relate to the legal
depreciation and amortisation.
Given the growing number of default events and the worsening of credit instalment late
payments, a recalculation of loan impairment was undertaken, so as to guarantee the
necessary prudence required by the supervisory authority.
Thus, the income before taxes stood at 43 million Escudos, an amount 57% lower than
that of the previous period. On this result, the income tax amount, for the annual tax
obligation, was determined and accrued, resulting in a income of 28 million Escudos,
against the 79 million of the previous year.
Income Statement
Although the results came in below those of the previous year, there was no loss of
efficiency or decrease in the Bank's performance. That decrease was part of the Bank's
reaction to changes in the Group, with a major overhaul of the paradigms having been
carried out, so as to hold on to a positive result and to prepare the recovery in the coming
year.
256
51
24
331
213
19 20
80
178
5740
275
216
17 15 28
Fin
anci
al M
argi
n
Cu
stom
ers
Serv
ice
Mar
kets
Res
ult
Ban
kin
g In
com
e
Op
erat
ion
al C
osts
Pro
visi
ons
Oth
er e
xpen
ses
Net
inco
me
for
the
per
iod
Millions CVE 2013
2014
39 2014 ANNUAL REPORT
The amount of Banking Income achieved (275 million Escudos), despite the unfavourable
economic situation for business, came in 17% below the BI of the previous year, indicating
that the Bank managed to maintain its dynamic, not only in attracting customers with
business acumen, so as to maximise the profitability of the loan portfolios, but also with
regard to the generation of additional income.
Results
7.2. Financial Ratios
As already explained, there was a considerable drop in the results, which conditioned the
projected growth of the Bank. The Bank has given precedence to greater flexibility,
adapting to the market conditions whenever they change, in an attempt to maintain its
performance at a satisfactory level. During the period just ended, both market conditions
and its own institutional environment proved to be adverse, hindering the objective of the
Bank to maintain the degree of dynamism of previous years, in attracting new customers
and carrying out major operations, generators of income that can foster this growth.
The deposits into credit transformation ratio, one of the liquidity indicators, which
indicates the Bank's ability to finance loans with external deposits, closed at 22% (2013:
18%), given that, although the loan portfolio decreased, deposits recorded a higher
decrease, causing the portion of the deposits converted into loans being higher than that of
the previous year. That value reflects the high level of the Bank's liquidity, which has
endowed it with a considerable margin for other types of investments, which guarantee,
simultaneously, lower risk and satisfactory returns.
256
331
157
80
178
275
102
28
Financial Margin Banking Income Cash-Flow Net Income for the period
Millions CVE 2013
2014
40 2014 ANNUAL REPORT
The one-year liquidity ratio is 309%, which indicates a high financing capacity in respect
of operating activities, without having to resort to the interbank market or Group cash.
The accumulated impact of interest rate sensitive assets and liabilities, in function of net
interest income, is -1.74%, a result which shows that, in the balance sheet for the period,
the assets that are sensitive to changes in interest rates are lower than the liabilities
sensitive to the same change.
The credit contraction, both with respect to the private sector as well as families, and the
increase in overdue credit events, with the consequent loss of quality of the loan portfolio,
and revaluation of overdue loans, which resulted in an increase in impairment and in the
provisioning of the portfolio, comprise the group of factors that most contributed to the
drop in net income. Consequently, the performance ratios directly related to the final
result, also recorded negative changes.
The combination of the net assets decrease with the drop in the results originated
profitability ratios that are also lower than those of the homologous period. The ratio that
measures the Return on Assets (ROA) stood at 0.24% (2013: 0.33%), due to the
combination of the fall of both income and net assets. The ratio measuring the Return on
Equity (ROE) stood at 1.65% (2013: 4.78%), a drop resulting from the conjunction of the
increase in equity with the drop in net income.
Financial Ratios
Another important indicator of financial performance, the Cost-to-income ratio, measured
by the relation between operating costs and banking income (OC/BI), also suffered a
negative growth, even though costs remained at a level similar to that of the previous year.
That ratio increased from 64% to 78%, i.e., operating costs have assumed a greater weight
0.33
4.78
0.24
1.65
ROA ROE
%2013
2014
41 2014 ANNUAL REPORT
to banking income, reflecting a loss of efficiency of 14 percentage points, another
consequence of the current economic and institutional environment.
7.3. Prudential Ratios
As regards the group of prudential regulations issued by the regulatory authority, Banco
de Cabo Verde (BCV), whose mission is the stability of the system, Banco Internacional has
complied with all the requirements imposed, complementing these with some rules that
govern the Group, aimed at maintaining and strengthening the institutional equilibrium
and, thereby, contributing to the equilibrium of the system.
In complying with Notice no. 03/2007, of 19 November, which sets the elements used to
calculate Own Funds, Banco Internacional maintained the level of previous years,
remaining above the minimum required by the prudential rules of BCV. The Bank’s Own
Funds stood, at 31 December 2014, at 1.55 thousand million Escudos, slightly below the
previous year's funds, serving as a buffer for possible risks inherent to the banking
activity.
Holding a portfolio of tangible fixed assets (net) of 122 million Escudos (2013: 117
million) and a rather comfortable amount of Own Funds, the Bank has an asset coverage
ratio of 1268% (2013: 1339%). The Notice that regulates this prudential rule, Notice no.
11/98, of 28 December, determines that the fixed assets of a bank should not exceed the
amount of its own funds, that is, the ratio should not be less than 100%.
Consequently, the Solvency risk is fully assured by the Own Funds, the Bank being covered
by a ratio of 38% (2013: 22%), when that which is required for commercial banks stands
at 10% (Notice no. 04/2007, of 25 February 2008).
Fixed Asset Coverage Ratio
2014 2013
Tangible Fixed Assets 171 473 157 457
GROSS FIXED ASSETS 171 473 157 457
Depreciation and Amortisation ( 49 379) ( 39 683)
NET FIXED ASSETS (A) 122 095 117 774
OWN FUNDS (B) 1 548 047 1 577 494
Difference 1 425 952 1 459 720
Coverage Ratio (%) 1268% 1339%
42 2014 ANNUAL REPORT
8. Final Notes
8.1. Declaration of Conformity of the Financial Information Presented
The members of the Board of Directors of Banco Internacional de Cabo Verde, S.A., declare
that:
− The financial statements of Banco Internacional de Cabo Verde, S.A., for the periods
ended 31 December 2014 and 31 December 2013 have been prepared in accordance
with International Financial Reporting Standards (IFRS), as defined by Banco de Cabo
Verde (BCV) in Notice no. 2/2007, of 25 February 2008);
− To the best of their knowledge, the financial statements referred to in the preceding
paragraph give a true and fair view of the assets and liabilities, financial position and
results of Banco Internacional, in accordance with said Standards, and were approval
at the meeting of the Board of Directors, held on 31 March 2015;
− The management report presents the evolution of the business, performance and
financial position of Banco Internacional, during the 2014 financial period, and
describes the foreseeable evolution of the company.
8.2. Proposal for the Application of Net Income
In accordance with its statutory powers, the Board of Directors of Banco Internacional has
the honour to present to the General Assembly the following proposal for the Application
of the Net Income for the Period amounting to 27,528,963$00 (twenty-seven million, five
hundred and twenty-eight thousand, nine hundred sixty-three Escudos):
Legal reserve (10%) 2,753
Other reserves (90%) 24,776
Total Net income for the period 27,529
43 2014 ANNUAL REPORT
8.3. Acknowledgements
The Board of Directors of Banco Internacional de Cabo Verde, S.A. manifests its thanks to
its Customers, for their trust, to the Governmental and Supervisory Bodies, for their
cooperation, and, especially, to its Employees, for their commitment, loyalty and
dedication.
Cidade da Praia, 31 March 2015
The Board of Directors of Banco Internacional de Cabo Verde
44 2014 ANNUAL REPORT
II. Financial Statements and Notes to the Financial Statements
1. Financial Statements
Income Statement for the Period ended 31 December 2014
(Amounts stated in thousands of Escudos)
The Finance Manager The Board of Directors
__________________________ ___________________________________
2013
Notes 2014 Restated 2013
Interest and similar income 5 263,123 399,661 404,957
Interest and similar expenses 6 85,042 149,156 149,156
Financial margin 178,081 250,505 255,801
Fee and commission income 7 58,921 52,774 52,774
Fee and commission expenses 7 ( 2 220) ( 1 573) ( 1 573)
Results from foreign exchange revaluation 8 34 231 20,281 20 281
Other operating results 6 178 3,137 4 077
Operating income 275,191 325,124 331,360
Staff costs 9 67,509 59,468 59,468
General and administrative expenses 10 105,937 121,303 114,874
Depreciation and amortisation 17 & 18 42,155 38,838 38,359
Loan impairment, net of reversals and recoveries 15 16,909 18,984 18,984
Income before taxes and non-controlling interests 42,681 86,531 99,676
Taxes 15,152 20,028 20,028
Current taxes 22 15,152 20,028 20,028
Income after taxes and before non-controlling interests 27,529 66,503 79,648
Net income for the period 27,529 66,503 79,648
45 2014 ANNUAL REPORT
Statement of Comprehensive Income for the Period ended 31 December 2014
(Amounts stated in thousands of Escudos)
The Finance Manager The Board of Directors
__________________________ ___________________________________
2013
2014 Restated 2013
Net income for the period 27,529 66,503 79,648
Other comprehensive income for the period after taxes - -
Fair value adjustments, net of taxes - -
Total comprehensive income for the period 27,529 66,503 79,648
46
Balance Sheet for the Period ended
The Finance Manager
__________________________
2014 ANNUAL REPORT
ce Sheet for the Period ended 31 December 2014
(Amounts stated in thousands of Escudos
The Board of Directors
___________________________________
2014 ANNUAL REPORT
Amounts stated in thousands of Escudos)
Board of Directors
___________________________________
47 2014 ANNUAL REPORT
Statement of Changes in Equity for the Period ended 31 December 2014
(Amounts stated in thousands of Escudos)
The Finance Manager The Board of Directors
__________________________ ___________________________________
Balance at 1 January 2013 1,433,000 49,422 103,236 1,585,658
Effect of restatement (14,760)
Balance at 1 January 2013 - Restated 1,433,000 34,662 103,236 1,570,898
Transfer of Result to Reserves: 103,236 (103,236)
Legal reserve 10,324 (10,324)
Other reserves 92,912 (92,912)
Retrospective correction of accounting error - IAS 8 (2.2) (13,145)
Net income for the period 79,648
Balance at 31 December 2013 - Restated 1,433,000 137,898 66,503 1,637,401
Transfer of Result to Reserves: - 79,648 (79,648)
Legal reserve - 7,965 (7,965)
Other reserves - 71,683 (71,683)
Transfer of retrospective correction of the accounting
error - IAS 8 (2.2.) to Reserves (13,145) 13,145
Net income for the period - - 27,529 27,529
Balance at 31 December 2014 1,433,000 204,401 27,529 1,664,930
Share capital Other reserves and
Retained earnings
Net income for the
periodTotal Equity
48 2014 ANNUAL REPORT
Statement of Cash Flows for the Period ended 31 de December 2014
(Amounts stated in thousands of Escudos)
The Finance Manager The Board of Directors
__________________________ ___________________________________
31.12.2014 31.12.2013
Operating Activities
Interest, commissions and similar income 325,344 466,221
Interest, commissions and other expenses (96,231) (145,129)
Other operating income and expenses (2,583) 4,110
Payments to employees and suppliers (179,890) (174,075)
Payment of income taxes ( 18 163) (55,887)
Net cash flow from operational results before variation in operating funds 28,477 95,240
(Increase) Decrease in operating assets
Available-for-sale financial assets - 403 210
Held-to-maturity financial assets - -
Investments in credit institutions - 83,642
Loans and advances to customers 285,641 (260,410)
Other Assets 6,957 5,441
Increase (Decrease) in operating liabilities - -
Deposits from Central Banks and other credit institutions (8,366,526) 50,784
Customer deposits (4,091,361) 8,921,452
Other liabilities 22 170 (19,009)
Net cash flow from operating activities (12,143,119) 9,185,110
Investment Activities
Acquisition of intangible assets (54,521) (44,274)
Acquisition of tangible assets (14,017) (1,065)
Cash flow from investment activities (68,539) (45,339)
Financing Activities
Share capital realisation - -
Net cash flow from financing activities - -
Net changes in Cash and cash equivalents (12,183,181) 9,235,011
Cash and cash equivalents at beginning of period 21,236,442 11,981,150
Effects of exchange rate variations on Cash and cash equivalents 34,231 20,281
Cash and cash equivalents at end of period 9,087,492 21,236,442
Cash and cash equivalents include:
Cash 293,902 266,018
Deposits with Central Banks 827,971 1,455,953
(of which, Mandatory reserve deposits) 270,490 497,399
Investments and Deposits with other credit institutions(1) 7,965,619 19,514,471
Total 9,087,492 21,236,442
49 2014 ANNUAL REPORT
2. Explanatory Notes to the Financial Statements
NOTE 1 - Activity
Banco Internacional de Cabo Verde, S.A. (BICV) is a commercial bank, with registered
office in Cidade da Praia, was incorporated in July 2010 and started its activity in mid-
August of the same year.
The Bank’s activities encompass the general banking sector activities, with particular
focus on the medium and large companies markets.
The Bank is part of the GRUPO NOVO BANCO that holds 100% of its share capital, 99.9%
being held through BES África SGPS, S.A. (100% held by GRUPO NOVO BANCO).
Currently, Banco Internacional operates through its headquarters in Cidade da Praia and
its Branch on Sal Island.
NOTE 2 - BASES OF PRESENTATION AND ACCOUNTING POLICIES
2.1. Bases of Presentation
The Bank’s financial statements, presented here, relate to the year ended 31 December
2014, and were prepared in accordance with the principles set out in the International
Financial Reporting Standards (IFRS), in force at 31 December 2014.
The IFRS encompass accounting standards issued by the International Accounting
Standards Board (IASB) and interpretations issued by the International Financial
Reporting Interpretation Committee (IFRIC), and by their predecessors.
The financial statements are expressed in thousands of Cape Verdean Escudos (CVE),
rounded to the nearest thousand. These were prepared in accordance with the historical
cost convention, with the exception of assets and liabilities recorded at their fair value,
namely available-for-sale financial assets.
The preparation of financial statements in accordance with IFRS requires the Bank to
apply its judgement and use estimates and assumptions that affect the application of
accounting policies and the amounts of income, costs, assets and liabilities. Changes in
these assumptions or differences between these and reality may impact current estimates
and judgements. The areas that involve a higher level of judgement or complexity, or
where significant assumptions and estimates are used to prepare the financial statements
are analysed in Note 3.
50 2014 ANNUAL REPORT
These financial statements were approved at a meeting of the Board of Directors on 31
March 2015.
2.2. Correction of Material Errors (IAS 8)
At the end of the second-half of 2014, material errors were detected in the recognition of
interest on customer loans and of Value Added Tax (VAT) related with the rendering of
services abroad. The impact of the correction as well as the comparative information of
the financial statement captions presented in these financial statements, which have been
restated to retroactively reflect the correction of these errors, are presented below.
(Amounts stated in thousands of Escudos)
(Amounts stated in thousands of Escudos)
Balance Sheet31-12-2013
(Restated)
VAT Interest 31-12-2013
Cash and deposits with Central Banks 1,721,971 1,721,971
Deposits with other credit institutions 543,245 543,245
Available-for-sale financial assets 15,000 15,000
Investments in credit institutions 18,971,226 18,971,226
Loans and advances to customers 2,407,418 8,370 - 2,415,788
Held-to-maturity investments 203,791 203,791
Other tangible assets 117,775 117,775
Intangible assets 96,878 9,066 87,812
Other assets 8,197 8,197
Assets 24,085,501 9,066 8,370 - 24,084,805
Deposits from Central Banks 8,038,765 8,038,765
Deposits from other credit institutions 335,148 335,148
Customer deposits 14,002,548 14,002,548
Current tax liabilities 20,028 - - 20,028
Other liabilities 51,611 28,601 23,010
-
Liabilities 22,448,100 28,601 - 22,419,499
Share capital 1,433,000 1,433,000
Other reserves and Retained earnings 137,898 11,686 - 3,074 - 152,658
Net income for the period 66,503 7,849 - 5,296 - 79,648
Total Equity 1,637,401 19,535 - 8,370 - 1,665,306
Total Equity and Liabilities 24,085,501 9,066 8,370 - 24,084,805
51 2014 ANNUAL REPORT
2.3. Main Accounting Policies
a) Accrual basis
The Bank employs accrual basis accounting for the majority of the items in the financial
statements, particularly with regard to interest on asset and liability transactions that are
recorded as they are generated, irrespective of when they are paid or collected.
b) Foreign currency transactions
Foreign currency transactions are recorded in accordance with the principles of the
multicurrency system, where each transaction is recorded exclusively in function of the
respective currencies. This approach envisages that all foreign currency balances are
converted into Cape Verdean Escudos, based on the average exchange rate for the day as
reported by Banco de Cabo Verde. The exchange rate differences are reflected in the
income statement for the period.
Income Statement31-12-2013
(Restated)
VAT Interest 31-12-2013
Interest and similar income 399,661 5,296 - 404,957
Interest and similar expenses 149,156 149,156
Financial margin 250,505 - 5,296 - 255,801
Fee and commission income 52,774 52,774
Fee and commission expenses 1,573 - 1,573 -
Results from foreign exchange revaluation 20,281 20,281
Other operating results 3,137 940 - 4,077
Operating income 325,124 940 - 5,296 - 331,360
Staff costs 59,468 59,468
General and administrative expenses 121,303 6,429 114,874
Depreciation and amortisation 38,838 479 38,359
Loan impairment, net of reversals and recoveries 18,984 18,984
Operating costs 238,593 6,908 - 231,685
Income before taxes 86,531 7,849 - 5,296 - 99,676
Taxes 20,028 - - 20,028
Net income for the period 66,503 7,849 - 5,296 - 79,648
52 2014 ANNUAL REPORT
c) Loans and Advances to customers
Credit to customers include loans and advances originated by the Bank, which are not
intended for short-term sale, and which are recorded on the date the amount is advanced
to the customer.
Loans and advances to customers are only off-balance sheet when (i) the contractual
rights of the Bank over the respective cash flows have expired, (ii) the Bank has
substantially transferred all the risks and benefits associated with holding them, or, (iii)
notwithstanding the fact that the Bank may have retained part, but not substantially all, of
the risks and benefits associated with holding them, control over the assets has been
transferred.
Loans and advances to customers are initially measured at fair value plus any transaction
costs and are subsequently measured at amortised cost, using the effective interest rate
method, net of impairment losses.
Impairment
The Bank regularly assesses the existence of objective evidence of impairment in the
credit portfolio. Impairment losses identified are charged against income statement and
subsequently reversed through income if there is a reduction in the estimated losses in a
subsequent period.
Loans and advances to customers or a credit portfolio, defined as a group of loans and
advances with similar credit risks, are impaired when: (i) there is objective evidence of
impairment as a result of one of more events that took place after their initial recognition
and (ii) when these events have an impact on the recoverable value of the future cash
flows of the loans and advances or credit portfolio, that can be reliably estimated.
Initially, the Bank assesses whether there is objective evidence of impairment,
individually, for each loan. To make this assessment and to identify the impaired loans
individually, the Bank uses information that is fed into the credit risk models implemented
and takes the following, amongst other factors, into consideration:
• The aggregate exposure of the customer and the existence of defaulted loans;
• The financial and economic viability of the customer’s business model and its ability to
generate sufficient cash flow to service its debt obligations;
• The existence of preferential creditors;
• The existence, nature and estimated value of collaterals;
53 2014 ANNUAL REPORT
• The customer’s level of debt with the financial sector;
• The amount and timing of expected recoveries.
If, for a given loan, there is no objective evidence of impairment on an individual basis, the
loan is included in a group of loans with similar credit risk characteristics (credit
portfolio), which is collectively assessed – collective impairment analysis. Loans that are
assessed individually and for which an impairment loss has been identified are not
included in the collective assessment.
If any impairment loss is identified on an individual basis, the sum of the loss to be
recognised corresponds to the difference between the carrying value and the present
value of the expected future cash flows (taking into consideration the recovery period),
discounted at the original effective interest rate of the contract. The loans and advances
granted are presented in the balance sheet net of impairment. For a loan with a variable
interest rate, the discount rate used to determine the respective impairment loss is the
current effective interest rate, determined based on the rules of each contract.
The calculation of the present value of estimated future cash flows reflects the cash flows
that may result from the repossession and sale of collaterals, net of the costs inherent to
their repossession and sale.
For the collective impairment analysis, the loans are grouped according to similar credit
risk factors, in function of the risk assessment defined by the Bank. Future cash flows for a
credit portfolio, which impairment is collectively assessed, are estimated on the basis of
contractual cash flows and on the historical loss experience. The methodology and
assumptions used by the Bank to estimate future cash flows are regularly reviewed in
order to monitor the differences between estimated and real losses.
When the Bank considers that a given loan cannot be collected and has recognised an
impairment loss of 100%, this loan is written off from assets.
d) Other financial assets
The Bank classifies its other financial assets at acquisition date, considering the intention
underlying their acquisition.
• Held-to-maturity investments
These investments are non-derivative financial assets with fixed or determinable
payments and fixed maturities that the Bank intends and has the capacity to hold to
54 2014 ANNUAL REPORT
maturity and that are not considered, at initial recognition, as at fair value through profit
or loss or as available-for-sale.
• Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that: (i) the Bank has
the intention of keeping for an indefinite period of time, (ii) are considered available-for-
sale at initial recognition or (iii) do not fall under the previously mentioned categories.
Initial recognition and measurement and de-recognition
Acquisitions and disposals: (I) held-to-maturity investments and (ii) available-for-sale
financial assets, are recognised on the trade date, i.e. on the date the Bank commits to
acquiring or disposing of the asset.
These financial assets are initially recognised at fair value plus transaction fees, and are
derecognised when: (i) the contractual rights of the Bank over the respective cash flows
have expired; (ii) the Bank has substantially transferred all the risks and benefits
associated with holding them; or, (iii) notwithstanding the fact that the Bank may have
retained part, but not substantially all of the risks and benefits associated with holding
them, control over the assets has been transferred.
Subsequent measurement
Available-for-sale financial assets are recorded at their fair value and changes in fair value
are recognised as reserves until the assets are derecognised or an impairment loss is
identified, at which point the accumulated amount of the potential gains or losses
recorded in reserves is transferred to the income statement. Exchange rate variations
associated with these assets are also recognised as reserves, in the case of shares and
other capital instruments, and in the income statement, in the case of debt instruments.
Interest, calculated at the effective interest rate, and dividends are recognised in the
income statement.
Held-to-maturity investments are measured at amortised cost, using the effective interest
rate method, net of impairment losses.
The fair value of a financial asset is its bid-price. In the absence of a quotation, the Group
estimates the fair value using (i) valuation methodologies, such as using the price of
similar recent transactions carried out under market conditions, discounted cash flow
techniques and option valuation models customised so as to reflect the asset’s specificities
and circumstances, and (ii) valuation assumptions based on market information.
55 2014 ANNUAL REPORT
Transfers between categories
The Bank only transfers non-derivative financial assets with fixed or determinable
payments and fixed maturities from the category of available-for-sale financial assets to
the category of held-to-maturity financial assets if it has the intention and the capacity to
hold those financial assets to maturity.
These transfers are made based on the fair value of the assets transferred, determined on
the transfer date. The difference between the fair value and the corresponding nominal
value is recognised in the income statement until the asset reaches maturity, based on the
effective interest rate method. The fair value reserve on the transfer date is also
recognised in the income statement based on the effective interest rate method.
Impairment
The Bank regularly assesses the existence of objective evidence of impairment in a
financial asset or group of financial assets. When evidence of impairment is encountered,
the respective recoverable amount of the asset is determined and any impairment losses
are recorded against the income statement.
A financial asset or group of financial assets is considered to be impaired whenever there
is objective evidence of impairment arising from one or more events occurring after initial
recognition, such as: (i) for shares and other equity instruments, when there has been a
significant or prolonged decline in their market value below acquisition cost, and (ii) for
debt securities, when this event (or events) has(have) an impact on the estimated future
cash flows of the financial asset, or group of financial assets, that can be reliably estimated.
Regarding held-to-maturity investments, the impairment losses correspond to the
difference between the carrying value and the present value of the expected future cash
flows (taking into consideration the recovery period), discounted at the original effective
interest rate of the financial asset.
These assets are presented in the balance sheet, net of impairment. In the case of an asset
with a variable interest rate, the discount rate to be used to determine the respective
impairment loss is the current effective interest rate, determined in accordance with the
rules of each contract. In the case of held-to-maturity investments, should the amount of
the impairment loss decrease in a subsequent period, and if such decrease can be
objectively associated with an event that occurred after the recognition of the impairment,
this decrease is reversed through the income statement.
56 2014 ANNUAL REPORT
When there is evidence of impairment in the available-for-sale financial assets, the
potential loss accumulated in reserves corresponding to the difference between the
acquisition cost and current fair value, less any impairment loss of the asset previously
recognised in the income statement, is transferred to the income statement.
If, in a subsequent period, the amount of the impairment loss decreases, the previously
recognised impairment loss is reversed through the income statement up to the amount of
the acquisition cost, provided the increase is objectively related to an event that took place
after the recognition of the impairment loss, except in the case of shares and other capital
instruments, in respect of which the subsequent gains are recognised as reserves.
e) Financial liabilities
An instrument is classified as a financial liability when there is a contractual obligation for
it to be settled through the delivery of cash or another financial assets, regardless of its
legal form.
Non-derivative financial assets include funding from credit institutions and customers,
loans and liabilities represented by debt instruments and liabilities incurred for services
rendered or with the purchase of assets, recorded in “Other liabilities”.
At initial recognition the financial liabilities are measured at their fair value less
transaction costs and, subsequently, at amortised cost, using the effective interest rate
method.
f) Other tangible assets
Other tangible assets are valued at acquisition cost less accumulated depreciation and
impairment losses. Expenditure with maintenance and repairs is recognised as a cost, in
accordance with the accrual method.
Depreciation is calculated in accordance with the straight-line method at the following
rates of depreciation that reflect the expected useful life of the assets:
57 2014 ANNUAL REPORT
When there is an indication that an asset may be impaired, IAS 36 requires its recoverable
amount be estimated and an impairment loss be recognised when its carrying value
exceeds its recoverable amount. Impairment losses are recognised in the income
statement.
The recoverable amount is determined as the greater of its net selling price or its value in
use, calculated based on the present value of the estimated future cash flows to be
obtained from the continued use of the asset and its sale at the end of its useful life.
g) Intangible assets
Costs incurred with the acquisition, production and development of software are
capitalised, as are the additional expenses borne by the Bank with its implementation.
These costs are amortised on a straight-line basis over the expected useful life of these
assets, which normally ranges between 3 to 10 years.
All other charges related to information technology services that are not expected to
generate future economic benefits beyond one year are classified as costs when incurred.
h) Employee benefits
Since the right to holidays is acquired in the period in which these are taken, no provision
for the costs associated with same is required.
i) Income tax
The Bank is subject to Corporate Income Tax (IUR) at the rate of 25%, plus a fire tax of 2%
applied on the tax collected, resulting in an overall rate of 25.5%.
Property for own use 25
Furniture and materials 4-8
Computer equipment 4
Machines and tools 5
Transportation material 4
Interior fittings 8-10
Security equipment 4-5
Number of years
58 2014 ANNUAL REPORT
j) Interest recognition
Interest on financial instruments measured at amortised cost and on available-for-sale
financial assets is recognised in the interest income and similar revenue or interest and
similar expenses captions, using the effective interest rate method. The interest on
financial assets and liabilities at fair value through profit or loss is also included in the
interest income and similar revenue or interest and similar expenses captions,
respectively.
The effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts over the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial asset or financial
liability. The effective interest rate is established on the initial recognition of the financial
assets and liabilities, not being subsequently revised.
To calculate the effective interest rate, the future cash flows are estimated considering all
the contractual terms of the financial instrument (for example, early payment options),
but without considering future credit losses. The calculation includes the commissions
included in the effective interest rate, transaction costs and all other premiums and
discounts directly related to the transaction. If, in respect of a financial asset or group of
similar financial assets, an impairment loss has been recorded, the interest recorded as
interest and similar income is calculated using the interest rate used to measure the
impairment loss.
k) Recognition of fee and commission income
Fee and commission income is recognised as follows:
• Fees and commissions earned on the execution of a significant act, such as commissions
on the syndication of loans, are recognised in the income statement when the significant
act is complete;
• Fees and commissions earned over the period during which the services are provided
are recognised in the income statement in the period the services are provided;
• Fees and commissions that are an integral part of the effective interest rate of a financial
instrument are recorded as income using the effective interest rate method.
l) Cash and cash equivalents
For purposes of the cash flows statement, cash and cash equivalents comprise the
amounts recorded in the balance sheet with a maturity of less than three months from the
59 2014 ANNUAL REPORT
date of the acquisition/contract, including cash, deposits with central banks and with
other credit institutions.
NOTE 3 – Main Accounting Estimates and Judgements used in preparing the
Financial Statements
IFRS establish a range of accounting treatments and require the Board of Directors to
apply the necessary judgements and make the necessary estimates in order to decide the
most appropriate accounting treatment. The main accounting estimates and judgements
used by the Bank in applying the accounting policies are discussed in this Note in order to
improve the understanding of how their application affects the Bank’s reported results
and disclosures. A more detailed description of the main accounting policies employed by
the Bank is given in Note 2 to the financial statements.
Considering that in many situations there are several alternatives to the accounting
treatment adopted by the Board of Directors, the Bank’s reported results could be
different had a different treatment been chosen. The Board of Directors believes that the
choices made are appropriate and that the financial statements present fairly the Bank’s
financial position and results of its operations in all materially relevant aspects.
3.1. Impairment losses in loans and advances to customers
The Bank reviews its credit portfolio to assess impairment on a regular basis, as described
in item c) of Note 2.3.
The evaluation process used to determine whether an impairment loss should be recorded
is subject to a number of estimates and judgements. This process includes factors such as
the frequency of default, risk ratings, loss recovery rates and estimates of both future cash
flows and the timing of their receipt.
The use of alternative methodologies and other assumptions and estimates might result in
different levels of impairment losses, which could have an impact on the Bank’s results.
3.2 Held-to-maturity investments
The Bank classifies its non-derivative assets with fixed or determinable payments and
fixed maturities as held-to-maturity investments, in accordance with the requirements of
IAS 39. This classification requires a significant level of judgement.
In making this judgement, the Bank evaluates both its intention and ability to hold such
investments to maturity. If the Bank does not hold these investments to maturity, except
60 2014 ANNUAL REPORT
in specific circumstances – for example, the disposal of a non-significant part close to
maturity – it is required to reclassify the entire portfolio as available-for-sale financial
assets, with the consequent measurement of these at fair value as opposed to amortised
cost.
The held-to-maturity assets are subject to impairment tests, which imply an analysis and
decision by the Bank. The use of methodologies and assumptions that are different from
those used in these calculations could produce different impacts on the results.
3.3. Income taxes
The Bank is subject to Corporate Income Tax (IUR). Determining the overall amount of
income tax calls for certain interpretations and estimates. There are a number of
transactions and calculations for which the final amount of tax payable is difficult to assess
during a normal business cycle.
Other interpretations and estimates could lead to different amounts of current and
deferred taxes for the year.
The Tax Authorities are entitled to review the Bank’s self-assessment of its taxable income
during a period of 5 years, in case of tax loss carry-forwards. As a result, corrections to the
taxable income are possible, mainly due to different interpretations of tax law. However,
the Board of Directors is confident that there will be no significant corrections to the
income taxes recorded in the financial statements.
NOTE 4 –Segment Reporting
Considering that the Bank does not hold any equity or debt securities that can be traded
on the open market, under paragraph 2 of IFRS 8 – Operating Segments, the Bank does not
present information relating to the segments.
61 2014 ANNUAL REPORT
NOTE 5: Interest and Similar Income
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
NOTE 6: Interest and Similar Expenses
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
31.12.13
31.12.14 Restated 31.12.13
Loans and advances to Banks 73,796 194,252 194,252
Interest from loans and advances to customers 178,046 183,015 188,311
Interest from securities 11,281 18,475 18,475
Other - 3,919 3,919
TOTAL 263,123 399,661 404,957
31.12.14 31.12.13
Interest borne with Central Banks deposits 13,742 82,064
Interest borne with the interbank money market 6,788 2,957
Interest borne with customer deposits 62,035 50,618
Other 2,476 13,517
TOTAL 85,042 149,156
62 2014 ANNUAL REPORT
NOTE 7: Fee and Commission Income and Expenses
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
Other commissions include those related with credit transactions which, in 2014, amounted to
9,452 thousand Escudos.
NOTE 8: Results of Foreign Exchange Revaluation
(Amounts stated in thousands of CVE)
31.12.14 31.12.13
Fee and commission income
Guarantees and endorsements issued 19,609 20,119
Documentary credits 11,881 14,849
Fund transfers 12,507 10,991
Other commissions 14,924 6,815
58,921 52,774
Fee and commission expenses
For banking services provided by third parties (2,220) (1,573)
TOTAL 56,701 51,201
31.12.14 31.12.13
Gains in currency exchange
Foreign currency 605,477 149,431
Losses in currency exchange
Foreign currency (571,246) (129,150)
TOTAL 34,231 20,281
63 2014 ANNUAL REPORT
NOTE 9: Staff Costs
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
Remuneration includes 2,646 thousand Escudos relating to attendance fees paid to members of the
Supervisory Board.
NOTE 10: General and Administrative Expenses
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
Diverse specialised services include, essentially, charges with IT consultancy services, kCVE 19,276,
and payment system services, kCVE 2,797.
31.12.14 31.12.13
Remuneration 59,949 51,704
Social Charges 5,988 5,650
Other staff costs 1,571 2,114
TOTAL 67,509 59,468
31.12.13
31.12.14 Restated 31.12.13
Supplies provided by third parties 16,732 15,400 15,400
Rents 4,610 4,663 4,663
Postage and other communication expenses 20,046 20,263 20,263
Travelling, accommodation and representation expenses 11,982 18,122 18,122
Advertising 3,500 5,857 5,857
Fees 17,892 12,446 12,446
Diverse specialized services 23,338 41,097 34,668
Other services 7,837 3,455 3,455
TOTAL 105,937 121,303 114,874
64 2014 ANNUAL REPORT
NOTE 11 – Cash and Deposits with Central Banks
This caption has the following breakdown: (Amounts stated in thousands of CVE)
Deposits with Banco de Cabo Verde include mandatory deposits (minimum cash reserves),
amounting to 270 million Escudos (at 31 December 2013, these were 497 million
Escudos), made in accordance with Notice no. 157 of 08/11/2010, of Banco de Cabo
Verde.
NOTE 12: Deposits with Other Credit Institutions
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
Cheques receivable correspond to cheques issued by customers of other banks which were sent for
clearing.
Demand deposits with other credit institutions are not interest-bearing.
31.12.14 31.12.13
Cash 293,902 266,018
Demand deposits with Banco de Cabo Verde 827,971 1,455,953
TOTAL 1,121,873 1,721,971
31.12.14 31.12.13
Deposits with domestic credit institutions
Cheques in course of collection 4,969 7,128
Deposits with credit institutions abroad
Demand deposits 192,672 536,117
TOTAL 197,641 543,245
65 2014 ANNUAL REPORT
NOTE 13: Available-for-sale Financial Assets
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
Treasury bonds have a maturity of four (4) years (2013: 5 years) and bear interest at the annual
rate of 5.625%. The shareholding in CV Garante corresponds to 15% of its share capital, equivalent
to 15,000 shares, recorded at acquisition cost.
During the audit of the opening balance sheet of the indirect shareholder Novo Banco, SA,
the Grupo Novo Banco reclassified, due to contamination, its held-to-maturity investment
portfolio, in accordance with the provisions of IAS 39, to available-for-sale financial assets.
Likewise, Banco Internacional also reclassified its held-to-maturity securities portfolio to
available-for-sale financial assets, during the 2014 financial period.
NOTE 14: Loans and advances to Banks
This caption has the following breakdown: (Amounts stated in thousands of CVE)
31.12.14 31.12.13
Shareholding in CV Garante 15,000 15,000
Cape Verde Treasury Bonds 200,000 -
Interest 3,791 -
TOTAL 218,791 15,000
31.12.14 31.12.13
Loans and advances to foreign banks
Very short-term deposits in NOVO BANCO 7,767,043 17,362,362
Loans and advances to other credit institutions - 1,600,020
Interest 935 8,844
TOTAL 7,767,978 18,971,226
66 2014 ANNUAL REPORT
The breakdown of Loans and advances to Banks, by maturity, at 31 December 2014 and
2013, is as follows:
(Amounts stated in thousands of CVE)
Loans and advances to Banks, at 31 December 2014, earned interest at the annual average rate of 0.53%. At 31
December 2013, the existing loans and advances earned interest at an average annual rate of 1. 03%.
NOTE 15: Loans and Advances to Customers
This caption has the following breakdown: (Amounts stated in thousands of CVE)
31.12.14 31.12.13
Up to 3 months 7,767,978 18,971,226
31.12.14 31.12.13
Loans and advances to customers
By maturity
Short-term 410,311 496,978
Medium- and long-term 1,788,399 1,990,484
2,198,710 2,487,462
By product
Current credit accounts 234,088 185,017
Current account overdrafts 145,277 225,408
Mortgage loans 423,462 378,102
Personal loans 74,471 66,892
Loans 1,314,058 1,623,431
Private individuals - other 7,354 8,612
2,198,710 2,487,462
Loan interest 5,154 8,455
Effect of amortized cost (15,708) ( 18 820)
Impairment (78,218) (61,309)
Credit, net of impairment 2,109,938 2,415,788
67 2014 ANNUAL REPORT
Overdue credit in the loan portfolio amounted, at 31 December 2014 and 2013, to:
(Amounts stated in thousands of CVE)
The breakdown of gross loans and advances to customers, by maturity, at 31 December
2014 and 2013, is as follows:
(Amounts stated in thousands of CVE)
The portfolio of loans and advances to customers, at 31 December 2014, was negotiated at an average interest
rate of 10.50% (31 December 2013: 10.74%).
The movement occurring in credit impairment losses was as follows:
(Amounts stated in thousands of CVE)
NOTE 16: Held-to-maturity Investments
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
31.12.14 31.12.13
Overdue credit 361,692 275,333
31.12.14 31.12.13
Up to 3 months 268,692 168,961
3 months to 1 year 272,997 271,570
1 to 5 years 671,588 1,080,334
More than 5 years 889,337 910,151
Undetermined period 101,250 64,901
TOTAL 2,203,864 2,495,917
31.12.14 31.12.13
Opening balance 61,309 42,325
Increase 44,794 61,309
Reversals (27,885) (42,325)
Closing balance 78,218 61,309
31.12.14 31.12.13
Held-to-maturity investments
Cape Verde Treasury Bonds - 200,000
Interest - 3,791
TOTAL - 203,791
68 2014 ANNUAL REPORT
During the audit of the opening balance sheet of the indirect shareholder Novo Banco, SA,
the Grupo Novo Banco reclassified, due to contamination, its held-to-maturity investment
portfolio, in accordance with the provisions of IAS 39, to available-for-sale financial assets.
Likewise, Banco Internacional also reclassified its held-to-maturity securities portfolio to
available-for-sale assets, during the 2014 financial period.
NOTE 17: Other Tangible Assets
This caption has the following breakdown: (Amounts stated in thousands of CVE)
31.12.14 31.12.13
Property
Buildings 75,395 74,115
Leasehold improvements 23,260 22,585
98,655 96,700
Equipment
Furniture and materials 19,697 19,695
Machinery and tools 1,510 1,510
Transportation equipment 21,070 10,300
Interior fittings 9,256 9256
Computer equipment 13,884 13,682
Security equipment 3,567 2857
68,984 57,300
Tangible assets in progress
Property 1 676
Machinery and tools 1030 -
Furniture and materials 2687 2717
Equipment 117 64
3,835 3,457
Depreciation (49,379) (39,682)
TOTAL 122,095 117,774
69 2014 ANNUAL REPORT
The movement in this caption was as follows:
(Amounts stated in thousands of CVE)
Gross Accumulated Carrying Depreciation Gross Accumulated Carrying
amount depreciation value Asset amt. Deprec. Asset amt. Deprec. for period amount depreciation value
Property
Buildings 74,115 6,155 67,960 1,280 - - - - - 3,071 75,395 9,226 66,169
Leasehold improvements 22,585 4,755 17,830 675 - - - - - 2,264 23,260 7,019 16,241
96,700 10,910 85,790 1,955 - - - - - 5,335 98,655 16,245 82,410
Equipment
Furniture and materials 19,695 8,854 10,841 - - 2 (1) - - 3,296 19,697 12,149 7,548
Machines and tools 1,510 602 908 - - - - - 302 1,510 904 606
Transportation material 10,300 7,940 2,360 21,070 - - - (10,300) 9,144 4,475 21,070 3,271 17,799
Interior fittings 9,256 1,262 7,994 - - - - - - 926 9,256 2,187 7,069
Computer equipment 13,682 8,568 5,114 204 - (3) - - - 3,231 13,884 11,799 2,085
Security equipment 2,857 1,547 1,310 710 - - 385 - - 892 3,567 2,824 743
57,300 28,772 28,527 21,984 - (1) 384 (10,300) 9,144 13,121 68,984 33,133 35,850
Tangible Assets in progress
Property 676 - 676 - (675) - - - - - 1 - 1
Machines and tools - - - 1,030 - - - - - - 1,030 - 1,030
Furniture and materials 2,717 - 2,717 - - (30) - - - - 2,687 - 2,687
Equipment 64 - 64 118 (65) - - - - - 117 - 117
3,457 - 3,457 1,148 (740) (30) - - - - 3,835 - 3,835
157,457 39,682 117,774 25,087 (740) (31) 384 (10,300) 9,144 18,457 171,474 49,379 122,095
Regularisations Write-offs
Balances at 31.12.14Balances at 31.12.13
Transfers
Movements in 2014
Acquisitions
70 2014 ANNUAL REPORT
NOTE 18: Intangible Assets
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
The movement in this caption was as follows:
(Amounts stated in thousands of CVE)
NOTE 19: Other Assets
This caption has the following breakdown: (Amounts stated in thousands of CVE)
31.12.14 31.12.13
Other intangible assets
Automatic data processing system (software) 186,022 131,501
Amortisation (69,139) (43,689)
TOTAL 116,883 87,812
Gross Accumulated Carrying Amortisation Gross Accumulated Carrying
amount depreciation value Asset amt. Deprec. Asset amt. Amortis. for period amount depreciation value
Software 107,479 43,689 63,790 72,367 (84) - 1,752 - - 23,698 179,762 69,139 110,623
Software (in progress) 24,022 - 24,022 - (17,762) - - - - - 6,260 - 6,260
131,501 43,689 87,812 72,367 (17,846) - 1,752 23,698 186,022 69,139 116,883
TransfersAcquisitions Regularisations
Movements in 2014
Write-offs
Balances at 31.12.14Balances at 31.12.13
31.12.14 31.12.12
Sundry debtors
Receivable from the Group - 4962
Returned cheques - -
Income receivable
Other - 1,308
Deferred costs
Other administrative expenses 512 1,822
Other regularisation accounts 728 105
TOTAL 1,240 8,197
71 2014 ANNUAL REPORT
NOTE 20: Deposits from Central Banks and Other Credit Institutions
(Amounts stated in thousands of CVE)
Central Bank deposits were remunerated at the annual average rate of 1.75%.
NOTE 21: Customer Deposits and Other Loans
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
31.12.14 31.12.13
Deposits from Central Banks
Banco Central da República da Guiné 4,847 8,038,765
Deposits from domestic credit institutions
BES-SFE, Cabo Verde 1,646 3,550
Ecobank Cabo Verde 91 331 598
TOTAL 6,584 8,373,913
31.12.14 31.12.13
Deposits 9,861,423 13,905,184
Demand 9,006,413 11,755,419
Term 855,010 2,149,765
Other customer deposits 24,400 72,000
Interest 17,198 25,364
TOTAL 9,903,021 14,002,548
Customer deposits
Resident 1,042,699 2,616,754
Non-resident 8,835,256 11,362,050
Emigrant 25,065 23,744
TOTAL 9,903,021 14,002,548
72 2014 ANNUAL REPORT
The breakdown of Customer deposits, by maturity, at 31 December 2014 and 2013, is as
follows:
(Amounts stated in thousands of CVE)
Fixed-term customer deposits were negotiated at an average annual interest rate of 4.22%
(31 December 2013: 4.19%).
NOTE 22: Current Tax liabilities
The Bank is subject to Corporate Income Tax (IUR).
Current income taxes are reflected in the income statement for the year, except in the
cases where the transactions that originated these are reflected in other equity items. In
these situations, the corresponding tax is likewise reflected in equity, not affecting the
income statement.
The calculation of the current tax for the year ended on 31 December 2014 was based on a
rate of 25.5%, encompassing the nominal corporate income tax rate and the Fire Tax, in
accordance with Law no. 10/VIII/2011, of 30 December.
The Bank’s IUR self-assessment declarations are subject to inspection and eventual
adjustments by Tax Authorities, during a period of five years. As a result, corrections to
the taxable income are possible, mainly due to different interpretations of tax law.
However, the Board of Directors is confident that there will be no significant corrections to
the income taxes recorded in the financial statements.
31.12.14 31.12.13
On demand 9,006,413 11,755,419
Fixed term 896,608 2,247,129
Up to 3 months 44,851 1,629,931
3 months to 1 year 644,526 598,459
1 to 5 years 207,230 18,739
TOTAL 9,903,021 14,002,548
73 2014 ANNUAL REPORT
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
NOTE 23: Other Liabilities
This caption has the following breakdown:
(Amounts stated in thousands of CVE)
31.12.14 31.12.13
Current tax liabilities 17,016 20,028
Corporate income tax (IUR) 15,152 20,028
Excessive tax estimate 1,865 -
31.12.14 31.12.13
Sundry creditors
Payable to the Group - 40
Public and Administrative Sector 50,214 6,189
Other creditors 7,339 0
Transfers to be paid 3,254 4,226
Deferred financial expenses
Other - 2,093
Charges payable
Administrative expenses 4,008 5,761
Staff costs - 4,695
Other regularisation accounts 73 5
TOTAL 64,888 23,009
74 2014 ANNUAL REPORT
NOTE 24: Share Capital
The Bank’s share capital is kCVE 1,433,000 (equivalent to 1,433,000 shares) and is fully
realised, being 99.99% held by BES Africa SGPS, SA.
(Amounts stated in thousands of CVE)
NOTE 25: Other Reserves and Retained Earnings
This item includes legal reserves (10%) and other reserves (90%), arising from the
appropriation of the net income of previous years and having the following breakdown:
(Amounts stated in thousands of CVE)
The legal reserve may only be used to cover accumulated losses or increase share capital.
The laws applicable to the banking sector require that the legal reserve be credited
annually with a minimum of 10% of the annual net income, up to the amount of the share
capital.
31.12.14 31.12.13
Capital subscribed
Ordinary shares 1,433,000 1,433,000
Legal
reserve
Other
reservesTotal
Balance at 31 December 2011 481 4,330 4,811
Tranfer to reserves 4,461 40,150 44,611
Balance at 31 December 2012 4,942 44,480 49,422
Tranfer to reserves 10,324 92,912 103,236
Balance at 31 December 2013 15,266 137,392 152,658
Tranfer to reserves 7,965 43,779 51,744
Balance at 31 December 2014 23,231 181,171 204,401
Other reserves and Retained earnings
75 2014 ANNUAL REPORT
NOTE 26: Contingent Liabilities and Commitments
Contingent liabilities and commitments related to the Bank’s activities are recorded in off-
balance sheet captions and have the following breakdown:
(Amounts stated in thousands of CVE)
NOTE 27 – Transactions with Related Parties
The amounts of the Bank’s transactions with related parties in the periods ended on 31
December 2014 and 2013, as well as the related costs and revenue recognised in the
period, are as follows:
(Amounts stated in thousands of Escudos)
Assets in the balance sheet relating to the related parties included in the table above
represent mainly deposits placed and investments made with those parties. Liabilities
represent, essentially, bank deposits received and various expenses to be settled.
NOTE 28 – Fair Value of Financial Assets and Liabilities
Considering the maturity of assets and liabilities included in the balance sheet, their
carrying value is a reasonable estimate of their fair value.
31.12.14 31.12.13
Guarantees Issued 651,972 1,005,912
Documentary Credits 29,894 329,684
TOTAL 681,866 1,335,597
Assets Liabilities Income Expenses Assets Liabilities Income Expenses
Shareholder
NOVO BANCO, S.A. 7,960,613 - 71,829 - 17,821,388 - 170,816 45
Other
BESI Brasil - - 1,772 - 1,602,260 - 21,605 -
Banque Privée - - - - 83,661 - 1,831 -
ESAF - - 4,962 -
Banco Espírito Santo SFE Cabo Verde - 1,646 - - 40 1,442 - -
TOTAL 7,960,613 1,646 73,601 - 19,512,311 1,442 194,252 45
31.12.14 31.12.13
76 2014 ANNUAL REPORT
The main methodologies and assumptions used in estimating the fair value of financial
assets and liabilities included in the balance sheet at amortised cost are analysed as
follows:
Cash and deposits with Central Banks, Deposits with other Credit Institutions and
Investments in Credit Institutions
These assets are very short-term, making the carrying value a reasonable estimate of their
respective fair value.
Loans and advances to customers
The fair value of loans and advances to customers is estimated based on the discounted
cash flows expected from capital and interest, and on the basis that instalments are paid
on the contractually defined dates. Future cash flows expected from homogenous credit
portfolios, for example mortgage loans, are estimated on a portfolio base. The discount
rates used are those currently in use for loans with similar characteristics, which have not
varied significantly since the negotiation of the current contracts.
Held-to-maturity investments
The fair value of these financial instruments is based on market quotations when
available. When these are not available, the fair value is estimated based on the discounted
cash flows expected from capital and interest on these instruments in the future.
Deposits from Central Banks and Deposits from other Credit Institutions
These liabilities are short-term, making the carrying value a reasonable estimate of their
respective fair value.
Customer deposits and other loans
The fair value of these financial instruments is estimated based on the discounted cash
flows expected from capital and interest. The discount rate is that which reflects the rates
used for deposits with similar characteristics at the balance sheet date. Considering that
the applicable interest rates are renewed at least every year, there are no materially
relevant differences in their fair value.
77 2014 ANNUAL REPORT
NOTE 29 – Activity Risk Management
The Bank is exposed to various risks related to the use of financial instruments, which are
analysed below:
Credit Risk
Credit Risk results from the possibility of financial losses arising from defaults on the part
of customers or counterparts in respect of contractual obligations contracted with the
Bank in the scope of its lending activity. Credit risk is mainly related to traditional banking
products – loans, guarantees and other contingent liabilities.
A continuous management of the credit portfolio is carried out which privileges the
interaction of the various teams that are involved in managing risk throughout the
successive phases of the credit process. This approach is complemented with the
introduction of continuous improvements both in the methodology and the risk
assessment and control tools, as well as in the procedures and decision-making circuits.
The bank’s credit risk profile is regularly scrutinised by the Credit Committee, specifically
with regard to the evolution of the exposure to credit risk and the monitoring of eventual
losses.
Market Risk
Market Risk represents, generally, the possible loss resulting from adverse alterations in
the value of a financial instrument, such as changes in interest rates, exchange rates, share
prices, commodity prices, volatility and credit spread.
In Cape Verde, and taking into consideration the relatively small-scale of the financial and
capital market, this risk is not significant with the exception of the exchange risk,
associated with currencies with variable exchange rates in relation to the Cape Verdean
Escudo, in particular the US dollar, a currency in respect of which the Bank presents a
balanced matching, in terms of foreign exchange position.
However, our market risk management is integrated with the balance sheet management,
through the ALCO (Asset and Liability Committee) structure, a high-level committee in the
Grupo Novo Banco. This body is responsible for defining policies in relation to the
allocation and structuring of the balance sheet, as well as for controlling the exposure to
interest rate, exchange rate and liquidity risks.
78 2014 ANNUAL REPORT
Liquidity Risk
By definition, liquidity risk results from the possible inability to finance the assets, settling
the liabilities on the due dates, and from potential difficulties in settling the portfolio
positions without incurring in significant losses. The control of liquidity levels aims to
maintain a satisfactory level of money in hand to respond to short-, medium- and long-
term financial needs, with the financial strategy of the Bank being outlined in the
Management Report.
With the objective of evaluating the global exposure to liquidity risk, Cash Flow
information is prepared daily, making it possible not only to identify negative mismatches,
but also to identify elements that can dynamically cover them.
The Bank has made a significant effort to diversify its sources of funds through the
intensification of interventions in the external market. This diversification mitigates the
liquidity risk and is one of the goals of the Bank’s liquidity risk tolerance policies.
So far, the Bank has neither needed interbank deposits nor to issue financial products to
capitalise resources; with the financing of its activities having been limited to customer
deposits and own funds.
Operational Risk
The operational risk of the Bank is estimated by the loss, on earnings or capital, associated
with events with a negative impact on its operations, using a questionnaire that assesses
several likely sources of operational risk, in order to identify the main risks to which the
Bank is exposed. These events can result from inadequate or deficient processes,
information systems, people behaviour or, even, be motivated by external events,
including legal risks. In 2014, the result of these exercises placed the Bank at the Reduced
operational risk level.
For a better operational risk management, the Bank implemented, in 2014, a modular
system, which identifies and records risk events, having achieved a wider and more
rigorous monitoring and the timely mitigation of that risk.
Operational Risk Management is based on the principles and strategies defined by the
Bank, on the code of conduct, operational risk policies and norms, analysis of the Bank
process catalogue, communication of risk events and definition of actions to improve
weaknesses detected.
79 2014 ANNUAL REPORT
Capital management and Solvency Ratio
The main goal of the Bank’s capital management is to ensure compliance with the strategic
goals of the Bank and of the Grupo Novo Banco in the matter of capital adequacy,
respecting and enforcing the minimum own funds requirements defined by the
supervisory bodies.
Defining the strategy for capital management is the Executive Commission’s responsibility,
being integrated in the global definition of the Bank’s objectives.
In prudential terms, the Bank is subject to the supervision of Banco de Cabo Verde, which
establishes the rules to be observed in this area by the institutions under its supervision.
These rules, materialised in Notice no. 03/2007, define a minimum ratio of total own
funds, with respect to the requirements imposed by the risks assumed, which the
institutions must observe.
The Bank’s equity items are divided into Base Own Funds, Complementary Own Funds and
Deductions, with the following breakdown:
• Base Own Funds considered Core Tier I: This category includes, mainly, realised
share capital, eligible reserves, profits for the period, when certified, and non-
controlling interests. Negative fair value reserves associated with shares or other
capital instruments, the goodwill carrying amounts, intangible assets and negative
actuarial deviations arising on post-employment employee benefit liabilities,
above the prudential corridor, are deducted as are, when applicable, losses for the
period.
• Base Own Funds (BOF): Besides the amounts considered Core Tier I, this
category includes amounts accepted by the Transitory regime foreseen in point 4
of no. 5 of Notice no. 3/2007 - impact of the transition on unrecognised base own
funds.
• Complementary Own Funds (COF): This category includes, mainly, eligible
subordinated debt and positive fair value reserves associated with shares or other
capital instruments. Investments in credit institutions and insurance companies as
well as the amount of estimated losses on risk positions, net of value adjustments
and current provisions, resulting from the application of the IRB method to
determine credit risk, are deducted.
• Deductions (D): Include, mainly, the prudential amortisation of real estate
received as payment for loan settlement.
80 2014 ANNUAL REPORT
Additionally, the composition of base own funds is subject to a number of limits. In this
manner, the prudential rules state that the COF cannot exceed the BOF. Additionally,
certain items of COF (the so-called Lower Tier II) cannot exceed 50% of BOF.
(Amounts stated in thousands of CVE)
The Bank calculates the Solvency Ratio in conformity with Notice no. 4/2007 of Banco de
Cabo Verde, which defines the Solvency Ratio in function of the relation between own
funds and market risks (RTC - Exchange rate risk), operational risk (RO), and credit risk
(RC) so as to monitor the adequacy between own funds and the corresponding inherent
Bank risks. This Notice is used by Banco de Cabo Verde to establish the minimum solvency
levels to be observed by the institutions under its supervision. Thus, Credit Institutions
should have a Core Tier I Ratio that is not inferior to 10%, calculated as follows:
�������� ����� =��� !�"#
(%&�'' + %)��'' + )%��'') +100
2014 2013
Realised share capital 1,433,000 1,433,000
Legal, statutory and other reserves comprising non-distributed reserves 204,401 152,658
Positive results of the last period 27,529 79,648
SUM 1,664,930 1,665,306
Intangible assets 116,883 87,812
Negative retained earnings of previous years - -
Negative retained earnings of the last period - -
Provisional negative earnings of the current period - -
Insufficient provisions - -
SUM 116,883 87,812
BASE OWN FUNDS BEFORE THE APPLICATION OF THE TRANSITORY REGIME 1,548,047 1,577,494
ELIGIBLE BASE OWN FUNDS 1,548,047 1,577,494
Legal revaluation reserves of tangible fixed assets - -
Other elements - -
COMPLEMENTARY OWN FUNDS - -
OWN FUNDS BEFORE DEDUCTIONS 1,548,047 1,577,494
Deductible shareholdings: - -
Over 10 % of the capital - -
Under or equal to 10 % of the capital - -
Fixed assets received as credit reimbursement - -
Own funds intended for specific coverages (paragraph 12, no. 11 of Notice no. 9/99) - -
Liquidity shortage (point 2, no. 15 of Notice no. 8/2007) - -
OWN FUNDS FOR THE CALCULATION OF RISK CONCENTRATION 1,548,047 1,577,494
Part exceeding the risk concentration limit (paragraph d, no. 12 of Notice no. 3/2007) - -
OWN FUNDS 1,548,047 1,577,494
Risk-weighted Assets (including off-balance sheet) 4,090,939 7,030,930
Solvency Ratio 38% 22%
- Transitory regime under paragraph 4, no. 5 of Notice no. 3/2007 - impact of the transition on unrecognised base own funds
-
81 2014 ANNUAL REPORT
Where:
VCRAA – Amount of credit risk-weighted assets, including off-balance sheet elements,
determined according to Appendix 1 of said Notice;
VERRAA – Amount of exchange rate risk- weighted assets, determined according to
Appendix 2 of said Notice;
EVORAA – Equivalent amount in operational risk- weighted assets, determined according
to Appendix 3 of said Notice.
NOTE 30 – IFRS Disclosures – New Standards at 31 December 2014:
1. Impact of the adoption of standards and interpretations that became effective on
1 January 2014:
Standards
a) IAS 32 (amendment) ‘Offsetting Financial Assets and Financial Liabilities’. This
amendment is part of the IASB offsetting project which clarifies the meaning of
“currently has a legally enforceable right to set-off”, and clarifies that some gross
settlement systems (clearing houses) may be equivalent to net settlement. The
adoption of this amendment did not produce an impact on the financial statements
of the Bank.
b) IAS 36 (amendment) ‘Recoverable amount disclosure for Non-financial assets’.
This standard addresses the disclosure of information about the recoverable
amount of impaired assets when based on fair value less cost to sell model. The
adoption of this amendment did not produce an impact on the financial statements
of the Bank.
c) IAS 39 (amendment) ‘Novation of derivatives and continuation of hedge
accounting’. This amendment allow hedge accounting to continue in a situation
where a derivative designated as a hedging instrument, is novated to effect
clearing with a central counterparty as a result of laws and regulation, if specific
conditions are met. The adoption of this amendment did not produce an impact on
the financial statements of the Bank.
82 2014 ANNUAL REPORT
d) Amendments to IFRS 10, 12 and IAS 27 ’Investment entities’. This amendment
defines an investment entity and introduces an exception from consolidation
under IFRS 10, for the investment entities that qualify, for which all investments in
subsidiaries are required to be measured at fair value through profit and loss
under IAS 39. Specific disclosures requirements are included in IFRS 12. The
adoption of these amendments did not produce an impact on the financial
statements of the Bank.
e) IFRS 10 (new), ‘Consolidated financial statements’. IFRS 10 replaces all the
guidance on control and consolidation in IAS 27 and SIC 12, changing the definition
of control and the criteria applied to determine control. The core principle that a
consolidated entity presents a parent and its subsidiaries as a single entity remain
unchanged. The adoption of this standard did not produce an impact on the
financial statements of the Bank.
f) IFRS 11 (new), ‘Joint arrangements’. IFRS 11, focus on the rights and obligations of
the joint arrangements rather than its legal form. Joint arrangements can be joint
operations (rights to the assets and obligations) or joint ventures (rights to net
assets, applying equity method).Proportional consolidation of joint venture is no
longer allowed. The adoption of this standard did not produce an impact on the
financial statements of the Bank.
g) IFRS 12 (new), ‘Disclosure of interest in other entities’ (to be applied in EU at the
latest in the annual periods beginning on or after 1 January 2014). This standard
sets out the required disclosures for all types of interests in other entities, such as:
subsidiaries, joint arrangements, associates and structured entities, to allow the
evaluation of the nature, risks and financial effects associated with entity’s
interests. The adoption of this standard did not produce an impact on the financial
statements of the Bank.
h) Amendments to IFRS 10, 11 and 12, ‘Transition guidance’. This amendment
clarifies that, when from the adoption of IFRS 10 results a different accounting
treatment from IAS 27/SIC12 application, the comparatives must be adjusted to
only the preceding comparative period, being the differences calculated recognised
83 2014 ANNUAL REPORT
as at the beginning of the comparative period, in equity. The IFRS 11 amendment
refers to the obligation of impairment testing over the financial investment, which
results from the proportional consolidation elimination. Specific disclosures
requirements are included in IFRS 12. The adoption of these amendments did not
produce an impact on the financial statements of the Bank.
i) IAS 27 (revision 2011), ‘Separate financial statements’. IAS 27 was revised after
the issuance of IFRS 10 and contains the accounting and disclosure requirements
for investments in subsidiaries, joint ventures and associates when the entity
prepares separate financial statements. The adoption of this revision did not
produce an impact on the financial statements of the Bank.
j) IAS 28 (revision 2011), ’Investments in associates and joint ventures’. IAS 28 was
revised after the issuance of IFRS 11 and prescribes the accounting for
investments in associates and joint ventures, and sets out the requirements for the
application of equity method. The adoption of this revision did not produce an
impact on the financial statements of the Bank.
2. Standards, amendments to existing standards and interpretations that have
already been published and which application is mandatory for annual periods
starting on or after 1 July 2014, or at a later date, and which the Bank decided not to
early adopt:
2.1. Standards
a) IAS 1 (amendment), ‘Disclosure initiative’ (effective for annual periods beginning
on or after 1 January 2016). This amendment is still subject to endorsement by the
European Union. This amendment provides guidance on materiality and
aggregation, the presentation of subtotals, the structure of financial statements
and the disclosure of accounting policies. The adoption of this amendment is not
expected to produce a material impact on the financial statements of the Bank.
b) IAS 16 and IAS 38 (amendments), ‘Acceptable methods of depreciation and
amortisation calculation’ (effective for annual periods beginning on or after 1
January 2016). This amendment is still subject to endorsement by the European
84 2014 ANNUAL REPORT
Union. This amendment clarifies that the use of revenue-based methods to
calculate the depreciation / amortization of an asset is generally presumed to be
an inappropriate basis for measuring the consumption of the economic benefits
embodied in an asset. It shall be applied prospectively. The adoption of these
amendments is not expected to produce a material impact on the financial
statements of the Bank.
c) IAS 19 (amendment), ‘Defined benefit plans – Employee contributions’ (effective
for annual periods beginning on or after 1 July 2014). This amendment is still
subject to endorsement by European Union. This amendment apply to
contributions from employees or third parties to defined benefit plans and aims to
simplify the accounting when contributions are independent of the number of
years of service. The adoption of this amendment is not expected to produce an
impact on the financial statements of the Bank.
d) IAS 27 (amendment), ‘Equity method in separate financial statements’ (effective
for annual periods beginning on or after 1 January 2016). This amendment is still
subject to endorsement by European Union. This amendment allows entities to use
equity method to measure investments in subsidiaries, joint ventures and
associates in separate financial statements. This amendment applies
retrospectively. The adoption of this amendment is not expected to produce a
material impact on the financial statements of the Bank.
e) Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between
investor and its Associate or Joint venture’ (effective for annual periods beginning
on or after 1 January 2016).This amendment is still subject to endorsement by
European Union. This amendment clarifies that the sale or contribution of assets
between an investor and its associate or joint venture, entitles the investor to
recognise a full gain or loss when the assets transferred constitute a business, and
only a partial gain or loss (in the share owned by third parties) when it does not
constitute a business. The adoption of these amendments is not expected to
produce a material impact on the financial statements of the Bank.
85 2014 ANNUAL REPORT
f) Amendments to IFRS 10, 12 and IAS 28, ‘Investment entities: applying
consolidation exception’’ (effective for annual periods beginning on or after 1
January 2016). This amendment is still subject to endorsement by European
Union. This amendment clarifies that the exemption from the obligation to prepare
consolidated financial statements by investment entities apply to an intermediate
parent which is a subsidiary of an investment entity. The policy choice to apply
equity method, under IAS 28, is extended to an entity, which is not an investment
entity, but has an interest in an associate or joint venture which is an investment
entity. The adoption of these amendments is not expected to produce a material
impact on the financial statements of the Bank.
g) IFRS 11 (amendment), ‘Accounting for the acquisitions of interests in joint
operations (effective for annual periods beginning on or after 1 January 2016).
This amendment is still subject to endorsement by European Union. This
amendment adds new guidance on how to account for the acquisition of an
interest in a joint operation that constitutes a business, being applied the
principles of IFRS 3 – Business combinations. The adoption of this amendment is
not expected to produce a material impact on the financial statements of the Bank.
h) Annual Improvement 2010 - 2012, (generally effective for annual periods
beginning on or after 1 July 2014). These improvements are still subject to
endorsement by European Union. The 2010-2012 annual improvements affects:
IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38. The adoption of these
improvements is not expected to produce a material impact on the financial
statements of the Bank.
i) Annual Improvement 2011 - 2013, (effective in European Union for annual
periods beginning on or after 1 January 2015). The 2011-2013 annual
improvements affects: IFRS 1, IFRS 3, IFRS 13 and IAS 40. The adoption of these
improvements is not expected to produce a material impact on the financial
statements of the Bank.
j) Annual Improvement 2012 - 2014, (effective for annual periods beginning on or
after 1 January 2016). These improvements are still subject to endorsement by
European Union. The 2012-2014 annual improvements affects: IFRS 5, IFRS 7, IAS
86 2014 ANNUAL REPORT
19 and IAS 34. The adoption of these improvements is not expected to produce a
material impact on the financial statements of the Bank.
k) IFRS 9 (new), ‘Financial instruments’ (effective for annual periods beginning on or
after 1 January 2018). This standard is still subject to endorsement by European
Union. IFRS 9 replaces the guidance in IAS 39, regarding: (i) the classification and
measurement of financial assets and liabilities; (ii) the recognition of credit
impairment (through the expected credit losses model); and (iii) the hedge
accounting requirements and recognition. The adoption of this standard is not
expected to produce a material impact on the financial statements of the Bank.
l) IFRS 15 (new), ‘Revenue from contracts with customers’ (effective for annual
periods beginning on or after 1 January 2017). This standard is still subject to
endorsement by European Union. This new standard, applies only to contracts
with customers to provide goods or services, and requires an entity to recognise
revenue when the contractual obligation to deliver the goods or services is
satisfied and by the amount that reflects the consideration the entity is expected to
be entitled to, following a five step approach. The adoption of this standard is not
expected to produce a material impact on the financial statements of the Bank.
2.2. Interpretations
m) IFRIC 21 (new), ‘Levies’ (effective for annual periods beginning on or after 17 June
2014). Interpretation to IAS 37 and the recognition of a liability, clarifying that the
obligation event that gives rise to a liability to pay a levy is the activity described in
the relevant legislation that triggers the payment. The adoption of this
interpretation is not expected to produce a material impact on the financial
statements of the Bank.
NOTE 31 – External Auditor’s Fees
The external auditor’s fees for the audit of the 2014 financial statements of Banco
Internacional amount to 2,757 thousand Escudos.
87 2014 ANNUAL REPORT
3. Report and Opinion of the Supervisory Board
Report and Opinion of the Supervisory Board (Free translation from the original in Portuguese) To the Shareholder, 1 In accordance with the law and our mandate, we herewith present the report on our supervisory activity and our opinion on the Management Report and financial statements presented by the Board of Directors of Banco Internacional de Cabo Verde, SA with respect to the year ended 31 December 2014. 2 From the date of our nomination, we have accompanied, with the depth and extension we considered adequate, the activity of the Bank. We took note of the management acts of the Board of Directors of the Bank. We have verified the timeliness and adequacy of the accounting records and respective supporting documentation as well as the adequacy and effectiveness of the internal control system, the risk management system, the internal audit and compliance. 3 We have also accompanied the work performed by PricewaterhouseCoopers & Associados – Sociedade de Revisores Oficiais de Contas, Lda. 4 Within the scope of our mandate we have verified that: i) the balance sheet, the statement of income, the statement of comprehensive income, the statement of
changes in equity, the statement of cash flows and the corresponding notes to the financial statements, permit an adequate understanding of the financial position, the results, the comprehensive income, the changes in equity and cash flows of the Bank;
ii) the accounting policies and valuation methods adopted are appropriate; iii) the Management Report is sufficiently clear as to the developments of the business and the financial
situation of the Bank and highlights the most significant aspects, respecting the legal and statutory requirements;
iv) the proposed appropriation of results is not contrary with the applicable laws and the Company’s
articles of association. 5 The Supervisory Board took note of the unqualified Auditor’s Report on the Financial Statements for the 2014 year, issued on 31 March 2015 and with which we are in agreement. 6 On this basis, and taking into account the information obtained from the Board of Directors and the Company’s employees, together with the conclusions in the Auditor’s Report, we are of the opinion that the: i) the Management Report be approved; ii) the Financial Statements and respective Notes to the Financial Statements be approved; iii) the proposed appropriation of results for the 2014 year be approved.
88 2014 ANNUAL REPORT
7. Finally, we would like to express our gratitude to the Board of Directors and all those whom we contacted, for the valuable contribution. 31 March 2015 The Chairman of the Supervisory Board --------------------------------------- Adalberto de Oliveira Mendes Member --------------------------------------- Ildo Adalberto Lima Member --------------------------------------- Eunérlia Sousa Freitas
89 2014 ANNUAL REPORT
4. Auditor’s Report
90 2014 ANNUAL REPORT
III. Information on Corporate Governance
1. Organisational and Governance Structure
The organisational structure, redesigned in 2013, to better use available human resources,
demonstrated its effectiveness when the BES Group crisis broke out, during the year now
ended. Only slight changes were made, through staff mobility, in order to strengthen areas
requiring reinforcement and to adjust employees to areas best suited to their profile.
Amongst the changes made, the most important was the greater segregation of duties in
the Administrative and Financial area, with the creation of a human resources
management unit, with large gains in the organisation of human resources.
The organisational structure of Banco Internacional is headed by a Board of Directors
consisting of six members, one of them Alternate, assisted by three key areas: Global Risk,
Compliance and Internal Audit.
The Bank is divided into four main areas, the Commercial Area, the Administrative and
Financial Area, the Operational Area and the Marketing, Organisation and Quality Area,
which guarantee its operation under and compliance with the principles that prevail in the
financial system.
Organisational Chart
Board of Directors
Operational and
International
Area
Marketing,
Organisation
and Quality
Area
Compliance Area
Global Risk Area
Secretariat & Security Internal Audit
DAI NOVO BANCO
Legal Counsel Raposo Bernardo
Reporting
and
Treasury
Accounting
Administrative &
Financial Area Commercial
Area
Private Corporate International
Sal Praia
Private Corporate
Human
Resources
Area
91 2014 ANNUAL REPORT
2. Powers of the Board of Directors
The Chairman has full powers, individually or together with a Board Member, over the
Bank’s daily management, including, amongst others, the power to represent the Bank in
any and all acts, contracts or documents within the scope of its activity, namely, credit
concession and associated operations and to represent the Bank before any public or
private entities.
A resident Director also has powers, together with the Financial and Administrative
Manager, to represent the Bank in a wide range of acts and contracts related to the daily
management of the Bank, including credit concession, issuing of bank guarantees,
subscription of financial instruments, human resource management, and in relations with
private and public bodies, although these are limited by the amounts set by the Board of
Directors in the 7 June 2010 resolution.
Consequently, the rule applying at the Bank is that acts are only binding when signed by
the President, and/or two signatures, either of the President and a Director or of a
Director and the Financial and Administrative Manager, and in accordance with the limits
set in the Board of Directors’ resolution.
3. Internal Control and Risk Management System
In the internal control system of Banco Internacional two areas are of note, Compliance
and Global Risk, one acting upstream and the other downstream, covering all the phases,
directly or indirectly tied to a process, operation or activity.
3.1. Global Risk Area
Global Risk is responsible for identifying, evaluating, monitoring and controlling all
material risks inherent to the Bank’s activities, in order to ensure the minimization of loss
and achievement the desired results.
The risk area is responsible for managing credit, market, interest rate, liquidity and
operational risks, and for defining identification, measurement and mitigation policies and
processes for each of them, in direct articulation with the Board of Directors. The area is
also responsible for monitoring the evolution of the Bank’s risk profile, controlling the
92 2014 ANNUAL REPORT
regulatory capital requirements, preparing liquidity control schedules, and supporting the
commercial structure. It is also responsible for reporting and monitoring to the
authorities, situations that may represent a risk.
The area is responsible for producing reports to monitor the inherent risk of the business,
controlling exposure limits for a range of risks, supporting decision making, disclosing
Risk Management activities and monitoring the Bank’s operations and resources,
permitting the decision-makers to have a global vision of the current situation at all times.
This permanent monitoring of credit operations makes it possible to identify, in a timely
manner, cases involving default triggers that should be subject to impairment, the area
being responsible for measuring the credit provisioning, within the parameters defined by
the supervisory authority, ensuring a prudent management of credit risk.
The operational risk management process activities carried out during the year basically
consisted of identifying events and elaborating reports for the Group. Procedures to
control and monitor KRI (Key Risk Indicators) were also implemented, with the aim of
identifying trends, so as to anticipate, prevent and quantify events.
In turn, the activities related to the market risk management process (liquidity and
interest rates) were based on the creation of liquidity schedules for the Bank’s assets and
liabilities that are sensitive to fluctuations in interest rates, by different time bands, on
monitoring the change in the deposits and level of liquidity, on identifying the gap
between credit operations and deposits and, finally, on measuring the impact of the
variation of interest rates on the Bank’s financial margins. The calculation procedures are
set by the regulator.
3.2. Compliance Area
The area of Compliance, responsible for controlling and harmonising the activities and
businesses realised, has as its mission to support the growth of the business areas,
fundamental for sustaining the institution in the long-term, so as to avoid any damages to
finances, reputation or image.
Its responsibility is to, in a direct manner, guarantee and foster the correct fulfilment of
legal standards and dispositions, through the implementation of procedures based on the
requirements and demands of the competent regulatory bodies and on the Group’s
strategies.
93 2014 ANNUAL REPORT
In the scope of the prevention and the risk-based approach, the Bank has implemented
mechanisms to realise appropriate prior assessments of the counterparts at the start of
the business relationship, characterizing them, individually, as to the level of associated
risk, in terms of exposure to money laundering and the financing of terrorism. For greater
effectiveness and rigor, this tool is subject to periodic review, in order to respond to
changes and trends in the risks mentioned above.
In the same context, in compliance with the regulatory duties of continued and enhanced
due diligence, the Bank has been making efforts in order to preserve the integrity and
robustness of the functioning of its activities, reinforcing the proper monitoring of
operations that give rise to justified suspicions, mainly through alerts generated daily by
the information system, reporting to and coordinating, where necessary, with the
competent authorities.
Considering the need for regular training of the managerial and other staff, and focusing
on ongoing training and the mitigation of the risks inherent to their duties, two training
actions were carried out related with the prevention and combating of money laundering,
covering all Bank employees.
Complementarily and for an appropriate expertise in the area, with respect to the analysis
of the counterparties and the monitoring of potentially suspicious transactions, the Bank
sent an employee of the Compliance area for training/internship at the Compliance
Directorate at Novo Banco, for a period of four months.
Still in the matter of training actions with a direct impact in this area, under the FATCA1
(Foreign Account Tax Compliance Act) project, it also held a training action, in e-learning
format, addressed at its entire employee universe.
Given the changes, made by the Board of Directors of Novo Banco, to the Code of Conduct,
in particular as regards the principles and obligations of the Grupo Novo Banco, the
position accumulation rules, the self-assessment rules for members of corporate bodies
and the general rules on conflicts of interest, and advocating the thorough knowledge of
said Code of Conduct, the Compliance area conducted an awareness-raising action,
through an extensive communication of its contents to all employees.
1 Regime to prevent US tax evasion through the reporting of bank accounts of US Persons by adhering FFI
(Foreign Financial Institutions).
94 2014 ANNUAL REPORT
With regard to the Internal Control system, the area continued to work on the preparation
of Internal Control Manuals (ICM), in conjunction with the Internal Control System
Management Unit of the Compliance Department of Novo Banco (UGSCI).
3.3. Internal Audit
The main objective of the Internal Audit area is to determine whether the risk
management, internal control, and governance systems which have been defined and
implemented are appropriate and operate in such a way as to ensure that:
- Risks are properly identified and managed;
-The most relevant information concerning management, financial and operational
activities is correct, reliable, and timely;
- The more significant actions of employees are in compliance with the policies, norms,
procedures, laws and regulations of Cape Verde;
- Resources are economically procured, efficiently used and appropriately protected;
- Programmes, plans and objectives are accomplished;
- The legal and regulatory requirements that have the greatest impact on the organisation
are identified and properly dealt with.
This action is carried out by the Group’s Audit and Inspection Department, within the
scope of its area of intervention, being directly managed with the Management of the
Bank.
4. Administrative and Financial Area
The Administrative and Financial area acts, in its financial capacity, as supervisor of the
Bank’s operations, monitoring its activities transversally and offering support to all areas,
focusing on the aims of the Business Plan set out in the Budgets. In its administrative
capacity, the area guarantees the operations by identifying and supplying the necessary
goods and services, and is also responsible for the management of human resources.
A strong point of the area is the constant monitoring of all the Bank’s activities and
operations, backed up by periodic reporting and reports to the Bank’s and the Group’s
Board of Directors and to the national and international authorities, namely Banco de
Cabo Verde and Banco de Portugal.
95 2014 ANNUAL REPORT
5. Marketing, Organisation and Quality Area
Given the profound changes within the Group, the role of Banco Internacional in this area
was marked by two distinct periods during the year.
During the first half-year, due to the continuity of the business, the main motto of the area
was the maintenance of fundraising campaigns, with the main image being Cristiano
Ronaldo, and emigrant remittances, focusing on the product specially created for this
purpose, the BESXpress.
The second half-year was marked by the re-branding campaign, which will continue
during 2015. The principle of the re-branding campaign was based on changing the image
and name of the Bank, focusing on its main and most valuable asset, which are the skills
and professionalism of its employees.
The transposition of the campaign into reality is clear from the figures presented in the
annual report, demonstrating that despite the events, customers portfolios continued
growing, although there was a slowdown in the pace of the growth, explained by the
departure of some companies.
The consolidation of products and services, now with the Banco Internacional de Cabo
Verde brand, was the biggest accomplishment. The re-branding campaign gave the Bank a
new image, internally and externally, from the simplest bank form to the Branch exteriors.
The year 2014 also favoured the consolidation of Internet Banking, having completed the
last development and improvement package, which includes service payments,
international transfers and payments via PS2 files, the latter exclusive to companies. Thus,
the Bank has provided its customers (private individuals and companies) with a platform
that frees them completely from the Branch, in respect of the basic daily financial
functions, maintaining, in this manner, the levels of service quality that the Bank is so
proud of and wants to maintain.
The Bank’s awareness that innovation is one of the bases of growth and development, has
prioritised its focus on IT projects involving its Core System platform, aiming to respond to
96 2014 ANNUAL REPORT
requests of process computerisation in all areas, giving special relevance to the
Operational and Commercial areas. As an example, in 2014, the entire account opening
process was redesigned to meet the new requirements of the FATCA program (Foreign
Account Tax Compliance Act).
The Bank’s intranet was also the target of profound development, particularly as regards
Management Information, as well as of the implementation of control mechanisms over
the completeness and validity of the documents, be it in account openings or other
operations.
Operational Area
The Operational area is responsible for the Bank’s entire operations and deals with the
effective processes of account opening, card management (credit, debit and prepaid) and
transfers (issuing and receiving), as well as issuance of credit contracts, setting up of term
deposits and issuance of guarantees and documentary credits.
This area also acts as the back office for all the branches, freeing them from time-
consuming operational tasks that shift the attention away from the customers, and also
executes securities’ purchase and sale orders and manages their respective custody.
Although there has been a decrease in volume as a result of the unfavourable international
situation, transfers remain particularly important in the area, with a growing customer
portfolio and the consequent intensification of their transactions with other banks,
particularly abroad. The Group’s bank network provides added value to these
international operations, which offer advantages to customers, both pricewise and in
terms of timing.
Foreign Transactions during 2014
97 2014 ANNUAL REPORT
Quantity Amount
International Payment Orders3,954 32,941,971
Issued 2,611 23,664,055
Received 1,343 9,277,916
Documentary Credits 11 29,894
Import 11 29,894
Export - -
Bank Guarantees 35 651,972
Issued 35 651,972
Received - -
2014
98 2014 ANNUAL REPORT
6. Commercial
The Commercial area is responsible for the global management of the customer portfolio
and for market prospecting. It is divided into three sectors, in accordance with the
customer portfolio: Private (responsible for managing affluent and private customer
accounts), Corporate and International (responsible for managing non-resident private
and corporate accounts).
Commercial operations with customers (deposits, withdrawals, foreign currency
purchases and sales, payments) are performed by the Cashiers and coordinated by the
Branch Managers, while the operations that require prior analysis (opening of new
accounts, transfers, loans, fixed-term deposits) are the responsibility of commercial
coordinators, assisted by the central services, in the Operational area.
This system has enabled the commercial area to demarcate itself from the operational
functions and to engage solely in purely commercial functions, giving its exclusive
attention to customer and market needs.