Interest income for the period was down by $169.6M or 20.4% when compared with the same period last year and on an annualized basis would represent 83% of interest income for 2002. Interest expense for the period was $324.8M or 28.5% down on the same period last year on an annualised basis would represent only 79.5% of interest expense for 2002. Other income for the period was $289.6M, a decrease of 14.4% when compared with the same period last year. However in the absence of any details of the composition of this figure which includes all income other than interest on loans no useful comment can be made.

The (crude) interest spread i.e. the difference between the rate of interest earned and the rate of interest paid for the period is 2.18% compared with 2.51% for the same period last year and 5% for the full year. Non interest expenses of $509M were down by 3.1% from the previous period and assuming these are incurred evenly throughout the year it compares favourably with 2002 which would be assumed to be $520M for that half year.

Balance Sheet

Net loans and advances were down by $2.1B or 24% when compared with the same period last year. Investments however were up by $2.6B and $1.1B when compared with the balances at June 2002 and December 2002 respectively. Since 1999, investments which may include loans which have since been converted to bonds have increased from 3.59B to 9.99B. The change in the law relating to taxation on loans secured by bonds can therefore have a significant impact on the bank’s operations. Ironically with the bank providing for taxes on the Minimum Corporation Tax basis, the change in the law for this period may actually work in its favour.

The deposit base grew by $1.3B or 6.7% and $953M or 4.7% since June 2002 and December 2002 respectively. While the deposit base continues to grow for almost all the commercial banks the availability of investing opportunities is declining. It is important for the banks to find creative means of investing their funds at rates which borrowers can afford. Banks generally must now consider other opportunities including the wide open areas of lease financing, export and trade financing and factoring. Understandably banks have to be conservative in their lending policies particularly in the climate of a weak economy and stringent regulatory provisions. However, the nature of their business does not require them to be averse to risk and as major players in the economy they can contribute to an early recovery. Moving to investments off-shore may serve the interest of individual banks but its overall benefit to the economy is less obvious.

Dividends

An interim dividend of $0.50 was paid for the half year which is the same as the previous period although earnings per share for the current period has increased by $0.30. The bank’s performance has not been widely publicised which means that it may not have had any impact on the Stock Exchange where there has not been major activities in its shares. The last price at which the shares were traded was $30 giving shareholders a return for the half-year of 1.67 per cent.

Incorrectly my dividend cheque states that my dividend was 5% on a $10 share (par value) which is in conflict with the report. This problem is appearing far too often among our public companies and clearly the bank’s registrars need to discard their obsolete stationery.

Unlike Demtoco, there is no indication of the legislation under which the interim financial statements were prepared which would have been helpful to readers. It does exceed the requirements of the SIA which only requires a profit and loss account with comparatives for the previous period.

The SIA requires disclosure of extraordinary and exceptional items and since no mention was made of these it has to be assumed that the group had no transactions of this nature during the six month period. There appears to be some conflict with the SIA and the IAS since the term exceptional is not defined or used in any standard. A further problem is that SIA does not define the terms exceptional and extraordinary.

The SIA also requires disclosure of transfers to and from reserves. There is no indication of any such transfer in the income statement while the profit for the year of $69.4M was classified as undistributed profit. Bulked together and classified as “Reserves” of $569.3M were other reserves of $12.7M, statutory reserves of $537.6M and revaluation of $19M, all of which remained the same when compared with that at December 2002 although these were disaggregated in 2002 financial statements. It can be assumed that no review was done of changes in market values for investments since there was no change in the reserves balances.

The bank had a fairly good half with net profit after taxation of $89.4M, but shareholders should expect much better having regard to the earning assets of the bank. A much better performance is required for the second half of the year if the bank is to exceed its profits of $170.7M for 2002.