Annual Report
Chairman's Report
ECOMOMIC REVIEW
2005 was a very challenging year. The effects of the January floods, the high fuel and energy prices and a resurgence in criminal activity, impacted negatively on all aspects of life and economic activity. The preliminary economic indicators suggest a decline of 3% in the performance of 2005 as compared with a budgeted projection of 2.2% growth in real output and a 1.6% growth in 2004.
Preliminary production estimates for sugar and rice are estimated to decline by 11.0% and 20.0% respectively in comparison to the projected growth of 3.9% and 12.1% respectively.
Recent reports out of the mining and fishing sectors indicate a decline in output as well. Correspondingly, the sections of the economy which reported moderate growth included forestry, manufacturing, distribution, transport and communication and services.
The rate of inflation calculated on the basis of the Consumer Price Index was reported at 7.6% in comparison to the 2004 figure of 5.4%. Price level increases were noted in the housing, transport and communication, education, recreation and cultural services sectors. These increases were in part attributed to the increases in fuel prices.
BANKING SECTORIn the banking sector, the 91 day Treasury Bill rate, which is used as a reference rate for the market declined from 3.80 percent at September 30, 2004 to 3.76 percent at September 30, 2005.
The weighted average lending rate declined 46 basis points to 16.38 percent while the average savings rate declined from 3.42 percent at September 30, 2004 to 3.38 percent at September 30, 2005.
Private sector credit increased by 3.2 percent to $35.8 billion at September 30, 2005; the weak demand for credit by the private sector and increasing non-performance of existing facilities resulted from the slowdown in economic activities.
The high level of excess liquidity in the financial system was sterilized through open market operations (auction of treasury bills) which was used as the Central Bank’s principal instrument of monetary control; treasury bills outstanding increased by 0.13 percent to $47.0 billion at September 30, 2005; the commercial banks held $32.1 billion or 68.09 percent of the treasury bills outstanding at September 30, 2005.
Total deposits held by Commercial banks increased by 12.55 percent to $132.4 billion at September 30, 2005; the private sector accounted for $98.6 billion or 74.44 percent of total deposits at September 30, 2005.
GROWTH INITIATIVES
In this exceedingly competitive market and the advent of the Caricom Single Market and Economy (CSME), we have expanded our vision and commitment to growth and prosperity for our Company concentrating on strengthening relationships with existing customers, developing solid relationships with new customers and continuing the company’s technological growth. Along with our investment in new technology, is our investment in human resources, which will enable us to continue providing quality services throughout our company.
In an industry characterised by constant change and increasing competition, our growth initiatives complement the banking basics we know best, building on our strengths as a superior financial services provider.
Future winners in our industry will be those who can effectively maximise their strengths, operate efficiently and increase profitability.
The initiatives outlined above will help Citizens Bank to meet the growing banking needs of our customers and to be one of the leading financial services providers in this country.
PERFORMANCE OF THE BANK
The bank’s performance can be considered good with increases in deposits, loans and income.
After Tax Profit for the year was $345.5 million, compared to the previous year, this represents a 24.12 percent increase.
Contributing to the record earnings performance, as in the previous year, were growth in the loans and leases portfolio, which increased by 24.50 percent to $6.0 billion, and growth in the investments portfolio, which increased by 35.00 percent to $5.6 billion. Yields on loans and leases during the financial year was 10.65 percent, compared to 11.40 percent the previous year, reflecting the Bank’s policy of offering competition on its products. Yield on investments was 7.37 percent, compared to 8.20 percent the previous year, reflecting the general trend of lower rates on new investments.
The return on average assets was 2.46 percent while the return on average shareholders’ equity was 24.84 percent, up from the 2004 returns of 2.41 percent and 24.55 percent respectively.
Credit quality keeps getting better. Our non-performing assets were $289.4 million or 4.90 percent of the loans and leases portfolio at September 30, 2005, compared to $283.0 million or 5.80 percent of the loans and leases portfolio at September 30, 2004. Although our loan losses are relatively low, we continue to build a conservative loan loss reserve. The company’s reserve for loan losses totalled $117.9 million at September 30, 2005, which was 1.95 percent of year-end loans and 40.83 percent of total non-performing loans. The comparable ratios at September 30, 2004 were 2.84 percent and 48.74 percent respectively.
LOOKING FORWARD TO 2006
We will continue in 2006 to improve upon the 2005 results, well aware of the fact that economic activity within recent years has been modest, principally as a result of political uncertainty and unfavourable weather patterns. Activity surrounding the general elections expected by mid 2006, could pose challenges, which may impact on this sector. In 2006, the previously mentioned resurgence in criminal activity and its concomitant concern in relation to security can additionally become sources of concern for all aspects of economic activity. The banking sector is also concerned in relation to the loss of skills due to migration. This will possibly be one of our biggest challenges.
2006 will be a challenging year, however with our anticipated growth initiatives and commitment to achieving the set goals, we look forward to another successful year.
DIVIDENDS
In 2004, shareholders were paid a dividend of $0.90 per share. The Directors now recommend dividend of $1.00 per share, which requires $59.5 million and has been provided for in the Financial Statements.
APPRECIATION
I wish to thank our shareholders, the management and staff for their dedication and hard work, our customers for their support and my fellow Directors for their co-operation and assistance.
Tel +592 226 1705/6 . Fax +592 226 1719
