ESTABLISHMENT

The Bank is a privately owned company established in 1995 in accordance with the “Licensing and Supervision of Banking business proclamation No.84/1994” of Ethiopia to undertake commercial banking activities.

The bank obtained its license from the National Bank of Ethiopia on 20 September 1995 and started normal business activities on the first of January 1996. it operates through its head office in Addis Ababa and thirty seven area banks established within and outside Addis Ababa and four forex bureaus.

ACCOUNTING POLICIES

The significant accounting policies adopted by the bank are summarized hereunder:

(a) Accounting convention

These financial statements are prepared under the historical cost convention.

(b) Interest income and expenses

Interest income and interest expenses are accounted for on the accrual basis. However, no interest is accounted for unpaid past due loans and advances.

(c) Other income

All other income is accounted for at the time of completion of related banking transaction

(d) Conversion of foreign currencies

(i)  Foreign currencies denominated transactions are converted into Birr at the prevailing rates of exchange and realized foreign exchange gains or losses are reflected in the profit and loss account.

(ii)  Year-end balances of foreign currencies on hand and with correspondent banks are converted into Birr at the mean of the buying and selling rates ruling at the balance sheet date.

(e) Provision for doubtful debts

The provision is maintained at a level adequate to cover possible losses. Management determines the adequacy of the provision based upon reviews of individual credits and other related factors, and pursuant to the Directives of the National Bank of Ethiopia.

(f)  Fixed assets

Fixed assets are stated at cost, net of depreciation calculated on the following basis at their respective rates per annum.

(i) Building is depreciated based on the straight-line method at a rate of 5% per annum.

(ii) The following categories of business assets are depreciated based on the declining balance method:

The depreciation base is the book value as recorded in the opening balance sheet of the tax period including assets acquired during the tax period and excluding sales price of assets.

DEPOSIT WITH NATIONAL BANK OF ETHIOPIA

INVESTMENTS

(i) The Bank and Midroc Ethiopia PLC following their agreements on 5 October 2001 acquired jointly the tana Department Store Building in Addis Ababa, as a result of a tender procedure instituted by the commercial Bank of Ethiopia.

According to the terms of the agreement between the two joint venture parties:

a) The contributions for the acquisition are:

b) Dashen Bank S.C is appointed to manage and administer the affairs of the building.

c) The results of operations are to be shared pro-rata to the respective contributions.

(ii) The bank owns 5,000 shares at par value of Birr 1,000 each in Nyala Insurance Share company.

ITEMS IN COURSE OF COLLECTION FROM OTHER BANKS

LOANS AND ADVANCES TO CUSTOMERS

6.1 The Bank is a party to various legal proceedings in relation to loans and advances, the ultimate resolution of which is not expected to have a materially adverse effect on the financial position of the bank or the results of its operations.

6.2 The Bank is able to report that under the guarantee issued by the Federal Government of Ethiopia it has recovered in the year to 30 June 2006 advances against import bills and accrued interest thereon in respect of goods stranded in Eritrean ports in 1998.

OTHER ASSETS

FIXED ASSETS

OTHER LIABILITIES

SHARE CAPITAL

The bank has collected Birr 13,810,000 after the balance sheet date out of the subscribed capital of Birr 50,000,000 approved at the 9^th extraordinary shareholders’ meeting on June 6,2006.

SUNDRY INCOME

GENERAL AND ADMINISTRATIVE EXPENSES

PROVISION FOR TAXATION

Profit tax is computed at the rate of 5% on interest earned on deposit with foreign banks as per Income Tax proclamation no 286/2002, Article 36 sub Article1.

EARNINGS PER SHARE

Earnings per share for the year are calculated on the basis of the average number of shares outstanding during the year.

GENERAL RESERVE

RETAINED EARNINGS

MEMORANDUM ITEMS

d) The un-utilized balances of overdraft facilities granted to customers at 30 June 2006 amounted to Birr 259,868,000. It was Birr 219,594,000 in 2005.

EMPLOYEE'S BENEFITS SCHEMES

Regarding the provident fund scheme, the Bank contributes 12% of basic salary while employees contribute 6%. These contributions are held for each individual in saving accounts of the Bank. All other employee benefits are in accordance with the labor proclamation No.377/2003. Eligible staff also benefit from Housing Loans.