In The Name of God

In The Name of God
Table of Contents
Highlights 2007
3
Chairman’s Statement
4
Board of Directors
5
Market Overview
6
Iran Macro Economy
6
Iran’s Banking Sector
Islamic Banking Principles
9
10
The Bank’s Profile
13
History
13
Mission, Vision and Goals
14
Group Companies
15
E-Banking Services
17
Code of Ethics
18
Awards and Recognition
18
Human Resources
19
Organizational Chart
21
Performance Highlights
22
Financial Performance
22
Operational Performance
23
Outlook
27
Financial Statements
28
Consolidated Balance Sheet
28
Consolidated Income Statement
29
Consolidated Cash Flow Statement
30
Bank’s Balance Sheet
31
Bank’s Income Statement
32
Bank’s Cash Flow Statement
33
Notes to the Financial Statements
34
Overseas Branches
46
Highlights 2007
Financial
(Figures are based on consolidated accounts.)
23% increase in Assets, reaching US$ 58 billion in 2007
4% increase in Shareholders’ Equity, reaching over US$ 5 billion in 2007
20% increase in Revenues, reaching US$ 4.5 billion in 2007
23% increase in Income from international bank guarantees in 2007
Operational
22% increase in customer deposits, reaching US$ 38.2 billion
48% increase in total facilities granted, reaching US$ 22.7 billion
Compilation of a comprehensive database of overdue loans and development of a strategic debt collection plan
Ranking of customers based on annual average account balance, and offering special services to Gold, Silver and
Green customers
Formation of an independent monitoring unit to supervise branches mainly servicing the governmental sector, to
ensure uniformity of policies and effectiveness of services offered
Launch of Microfinance Projects to allow lower-income segments of the society to escape the poverty trap through
small scale entrepreneurship
Preparation of a comprehensive strategy for enhancing the performance of Qarz-al-Hassaneh segment, to encourage more deposits and provide better facilities to low-income applicants
Preparation of a comprehensive plan for Profit and Loss Sharing Banking System; PLS Banking will make the interest paid to depositors dependent on the profit or loss made by the users of facilities, hence linking the interest earnings
of the depositors directly to the rate of return in the real segment of the economy, and preventing liquidity traps
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Chairman’s Statement
2007 was a challenging year for Iran’s economy and banking system, as the
instability in global markets, coupled with increasing global inflation and devaluation of the dollar, exerted their influence on the internal economy of all
countries.
The Iranian government, benefiting from record high oil prices, used the oil
revenues mostly toward its expansionary economic policies. The downside
was an increase in inflation which caused the Central Bank to take measures
to reduce liquidity - mainly by limiting its lending to the banks. As a result of
the reduction in Central Bank’s available resources, banks had to engage in
a fierce competition for customer deposits.
In such a tough environment, Bank Melli Iran endeavoured to exploit available
opportunities by drawing on its capabilities and experience. Our staff rose to
the challenges of high benchmarks and targets with new levels of commitment and excellence. We increased our revenues by 20% to near US$ 4.5
billion in 2007. Our customer deposits had a 22% growth compared to the
previous year, amounting to over US$ 38 billion. This increase in deposits
shows the success of the Bank’s business model in terms of collecting new
deposits despite the mandatory decrease of the interest paid on deposits - in
line with the mandatory decrease in interest received from loans, as instructed by the government.
The Bank also had a 48% increase in financial facilities granted to customers. On the Balance Sheet, the year 2007 closed
with a solid increase in total assets (+23%) to reach US$ 58 billion, funded largely by the increase in liabilities arising from
deposits.
In spite of these achievements, however, the national and international economic turmoil took their toll on the Bank’s expenditures; reducing net profit by over 13%. On the eve of the new financial year, BMI faces the challenge of reversing this
trend toward increasing profitability. The BMI management has devised a comprehensive strategy to meet this objective,
emphasising on productivity management, cost management, risk management and customer relationship management.
We plan to expand our market share in 2008, a goal which requires an increase in share capital and improvement in efficiency. We also aim to capitalize more on our competitive advantages by improving the quality of our services as well
as introducing new modern banking services. In 2008, we plan to encounter the expected further reduction in the interest
rates with enhanced risk monitoring and a boosting our non-interest revenues.
At the heart of our strategies, we rely on our staff’s professionalism, commitment and motivation, which has always been a
main determinant of our success. I would like to take this opportunity to thank all our staff for their unwavering support and
dedication during the past year, and their enthusiasm and motivation for achieving the goals of the coming year.
I would also like to express my appreciation to our shareholders, and other stakeholders and partners in the domestic and
international arena, whose support and cooperation remain invaluable to us.
Ali Sedghi
Chairman of the Board and Managing Director
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Board of Directors
Mr. Jamal Damghanian
Member of the Board of Directors
Supervisor of Financial Affairs and Tehran and Northern Provinces Branches
j.damghanian@bmi.ir
Mr. Ali Akbar Asghari
Member of the Board of Directors
Supervisor of Credit Affairs and Eastern Provinces Branches
a.asghari@bmi.ir
Mr. Barat Ghanbari
Member of the Board of Directors
Supervisor of Informatics and Training of BMI
b.ghanbari@bmi.ir
Mr. Mohammad Taghi Tavakoli
Member of the Board of Directors
Supervisor of Foreign Exchange Affairs and Independent and
Free Trade Zone Branches
m.t.tavakkoli@bmi.ir
Mr. Mohamad Reza Hoseinzadeh
Member of the Board of Directors
Chairman of the Board and Managing Director
m.hosseinzadeh@bmi.ir
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Market Overview
Iran Macro Economy
Iran has the second largest population in the Middle East and North African region, after Egypt. 70% of the country’s 70
million inhabitants are below 30 years old, with increasing hopes and expectations of a better future. Larger numbers of
increasingly well-educated women seek opportunities to participate at all levels of Iran’s labour market and civil society.
The country’s health and education indicators are among the best in the region.
In spite of improvements in social indicators, the Iranian economy continues to confront major challenges. While labour
market pressures continue to increase due to demographic dynamics and increased participation of women in the labour force, Iran’s economy is still unable to generate enough job opportunities to absorb the new inflows of the labour
market. In addition, inflation is high; price subsidies and controls hinder efficiency; and major structural impediments
prevent private sector development. Today, the main objectives of macroeconomic policy are price stability, economic
growth and a favourable employment level.
A brief overview of the Iranian macro economy is shown in the table below:
GDP - In 2007, Iran’s GDP reached Rials 2,623,177 billion, representing in real terms a 6.9% growth compared to the
previous year.
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Source: Central Bank of Iran.
Structure of the Economy – Although more than 80% of Iran’s hard currency earnings are generated through oil
exports, a closer look at the sector distribution of GDP indicates that Iran has a relatively diversified economy, where
the service sector plays a major role.
Inflation – The inflation rate fluctuated between 15 and 16% in the years 2002 to 2004, after which it reduced to 12.1%
in 2005 and dropped even further to 11.9% in 2006. However, expansionary monetary and fiscal policy adopted by the
new government brought inflation in 2007 to 18.4%.
Exchange Rate – As of March 2002, the old multi-tiered system has been replaced by a unified single market driven
exchange rate. The Central Bank of Iran plans with the assistance of the IMF to make the Rial gradually fully convertible
to other currencies. As a first step, full convertibility was introduced as of January 1, 2003 in Iran>s Free Trade Zones.
The official rate on March 21, 2008 was Rials 9,482 for US$1. In recent years Rial has devalued against US$, which
remains the unofficial lead currency with an average growth rate of 3 - 5% p.a. under a tightly managed float. Recently,
the Iranian Central Bank has substantially increased the weight of the Euro in the currency basket for the Rial. It is
expected that Rial will be linked mainly towards Euro in the medium-term.
Fiscal Sector – Total budget revenues consisting of taxes, oil and gas revenues and other government income amounted to Rials 472,994 billion in 2007. It shows a growth of 14% compared to the previous year. 36% of revenues relate
to the sale of hydrocarbons. Current and capital expenses amounted to 421,334 and Rials 147,715 billion respectively
which represents a 1.3% and 1.5% growth rate.
Since 2002, oil revenues are recorded at a projected price (presently approx. US$ 45 / bbl) in the budget. Any surplus
revenue is put in the Oil Stabilization Fund. Generally in recent years, projected budget revenues could not be fully realized and this was compensated through the reduction of development expenses, issuance of government participation
bonds and withdrawals from the Oil Stabilization Fund.
Subsidies – Currently Subsidies stand at about 27% of GDP. Subsidies remain high with US$ 6.5 billion allocated to
basic commodities and (based on the concept of opportunity cost) US$ 32 billion to energy in 2007.
Credit Rating – Iran’s credit rating by Fitch is presently B+.
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Foreign Debt
Source: Central Bank of Iran.
Foreign Reserve – Iran’s foreign reserves principally comprise of its foreign exchange balances, which have grown
significantly in recent years following the establishment of the Oil Stabilization Fund. The country’s gross foreign reserves (including the Oil Stabilization Fund) are about US$ 72 billion in 2007.
Trade Policies - Since the late nineties, integration in the global economy, promotion of exports and liberalization of the
import regime have been high on the agenda. Today, Iran seeks integration into a global economy and specialization
in areas in which Iranian companies can compete in the long-term with their foreign competitors.
Trade Balance – Oil constitutes the most significant portion of Iran’s total exports and amounts to between 75-90%
of total exports depending on global crude oil prices. Benefiting from high oil prices, Iran’s trade balance and current
account balance have seen a substantial boost in the past years.
Capital Market - A comparison between years 2006 and 2007 shows an improvement in the capital market. The
transactions’ total value increased from Rials 56,201 billion in 2006 to Rials 73,202 billion in 2007 with the price index
had growing 2.7% in the same period. However, CBI reports that only the housing sector had a real positive efficiency
and the stock market experienced a negative real efficiency. Nevertheless and despite the negative real efficiency, the
stock market showed highest returns rates since 2004.
Various initiatives, including soft loans from the Oil Stabilization Fund and short - term entrepreneurship loans,
have encouraged private investment in industrial and agricultural activities. As a result, there has been substantial
growth in private investment as well as industrial and agricultural GDP of above 7% p.a. in recent years. Since the
adoption of the new Foreign Investment Promotion and Protection Act (FIPPA) in 2002, foreign investment applications
have grown substantially. FIPPA guarantees compensation for any expropriation or nationalization through repatriation
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of principal and profit in hard currency, and allows foreign investors to own more than 49% in a company.
Monetary Sector – A major monetary event during 2007 was the issuance of Rials 40,000 billion in participation bonds
with an interest rate of 15.5%. This was mainly meant to absorb liquidity and curb inflation. The interest rate of governmental banks for loans was 12%, while private banks charged 13%.
The Central Bank reports a 27.7% growth in liquidity, which indicates a reduction of 11.7% comparing to the previous
year. Iran’ total liquidity in March 2008 reached US $176 billion.
Privatization – In 2002, the Islamic Republic announced new policies regarding the implementation of Article 44 of the
Constitution Law of Iran. This article defines the ownership structure of economic activities in Iran and underlines the
role of the private sector in complementing the government>s duties in the various fields of industry, trade, services
and agriculture. The new policies allow for the private sector to invest, own and operate mother industries such as oil
and gas downstream, power generation, water projects, etc. and also set easier regulations on private sector activities,
which were already previously allowed, such as mining, banking, public transport, aviation, etc.
Approved and conveyed by the Supreme Leader of the Islamic Republic of Iran, in May 2006 a new resolution was issued, obliging the government to sell out a minimum 80% of all suitable holdings, companies and organizations in line
with the above policies. In this regard, the government plans to:
Privatize some affiliates of the Ministry of Industries and Mines such as IDRO and IMIDRO by up to 80% of
their shares,
Transfer ownership and/or operation of most power plants across the country,
Transfer all intermediary and consumer goods manufacturers currently owned by the state,
Privatize four commercial banks.
In line with these policies, the government started selling shares of some companies during the past two years and
plans to continue privatization, mainly through the Tehran Stock Exchange.
Iran’s Banking Sector
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The pre-revolutionary banking system in Iran was dominated by western patterns. By 1979, there were 36 banks operating in Iran including many international jointly owned banks.
Following the Islamic Revolution (1979), as a result of the transfer of deposits abroad, lack of public trust in banks and
problems in collecting outstanding debt, most of the private banks were in a precarious position. To prevent a complete
collapse of the banking industry, nationalization of all banks was announced.
The need for an effective administration of the nationalized banks, achieving uniformity in granting credit facilities and
adopting a unified policy in other key areas, necessitated the grouping of the newly nationalized banks. Therefore, in
early 1980 the 36 banks were merged into 9 banks comprising of 6 commercial banks and 3 specialized banks.
Concurrent with nationalization, studies were also being made on Islamization of the banking system, which culminated
in the ‘Law on Usury-Free Banking’ ratified by the Parliament in 1983.
Today Iran’s banking system is still dominated by 11 state-owned institutions, including seven commercial banks and
four specialized banks, which jointly hold approximately 85% of the Iranian banking sector. In addition, there exist six
private banks, two private credit institutions, a growing number of credit co-operatives and three Free Zones based
branches of foreign banks.
Presently, a major initiative is underway for privatization and modernization of the Iranian banking industry. In line with
new macroeconomic policies of the government, banks are gradually reducing interest rates, introducing new banking
services and expanding their international network.
Government debt to the banking sector is low, estimated at about 3% of GDP and 30% of budget revenues in 2007,
and is mostly domestic. All domestic debt is denominated in local currency.
The growth of credit granted to the private sector is expected to remain strong, as it has been for several years, rising
from 35% of GDP in 2001 to an estimated 51% of GDP in 2005. The inflow of oil revenues inevitably adds liquidity to
the financial system. Certain banking reforms permitting an increase in financing are also responsible for higher rates
of consumption and private investments.
Lending and deposit rates of state-owned banks are still set annually by the Monetary and Credit Council, but the share
of new credit that state-owned banks are allowed to allocate themselves is increasing, and currently stands at 45% with
different ceilings for specific sectors in line with the objectives set out in the prevailing five year development plan.
Islamic Banking Principles
Usury-free Banking Products
Since the inception of the Law on Usury Free Banking in 1983 Iranian banks conduct their activities in line with Islamic
banking principles.
Resources are raised mainly through the following two products:
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Qarz-al-Hassaneh Accounts
Qarz-al-Hassaneh constitutes current and savings accounts (as in the conventional banking system), except that they
earn no interest. Holders of current accounts typically receive in combination with the account a cheque-book and use
such accounts mainly to effect payment transactions. Savings accounts offer incentives (up to 4%) including one or
several of the following: non-fixed prizes and bonuses in cash or in kind (usually in the form of a lottery); an exemption
from or a discount in the payment of commissions and fees; and priority in use of banking facilities. Banks are to consider Qarz-al-Hassaneh accounts as “their own resources” and are required to guarantee their full nominal value.
Term Deposits
Banks are authorized to accept various types of investment deposits ranging from short-term (6 months) to long-term
(5 years). Although banks can use their own capital plus Qarz-al-Hassaneh accounts, priority must be given to investment deposits, that is, depositor resources. Banks can also use a combination of their own and depositor resources
for granting facilities to customers. Iranian banks guarantee the owners of term deposits their capital plus a minimum
return. On top of this guaranteed return, banks charge a commission for their service. In case the activities provide a
return in excess of the guaranteed return and the bank’s commission, such excess return is shared between the bank
and the depositors. No profits are earned by deposits if the deposits are withdrawn before the minimum time required.
On the lending side, Iranian laws and regulations separate banking products into two categories: participation contracts
and constant profit contracts.
Participation Contracts
Under this type of contract, the bank provides the whole or a part of the funding required by its customer for a specific
economic activity. The profit which results from such economic activity is shared between the bank and the customer
as to the terms of related contract. These contracts consist of:
Civil partnership: Under civil partnership contracts the bank provides funds to a customer (legal or natural person) for
a specific economic activity. The customer co-invests in cash or kind. Related profit is shared. Civil partnership contracts can be in the field of construction, production, commerce and the service industry.
Legal partnership: In a legal partnership the bank provides part of the capital of a new company, or buys shares of
such a company. These contracts are eligible in the fields of construction, production, commerce and the service industry.
Mozarebeh: Under Mozarebeh contracts, the bank provides funds which the customer uses for trading. Customers can
be legal or natural entities. Usage of the funds is limited to the field of commerce.
Mozare’eh: Under Mozare’eh contracts, the bank gives farm land to the customer for a specified duration. The cus-
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tomer works on the farm land and related proceeds are shared.
Mosaqat: Under Mosaqat contracts, the owner of trees in a garden (the bank) transfers maintenance and harvesting of
the trees to an agent (the customer) and related proceeds are shared.
Constant Profit Contracts
Under this type of contracts, the bank provides the whole or a part of the funding required by its customer for a specific
economic activity. As opposed to participation contracts, the bank’s profit is already fixed at the time of signing the contract and before commencement of the activity. As such, the bank’s profit has to be paid by the customer irrespective
of the actual profit or loss derived from the funded economic activity.
Instalment Sale: Instalment Sale is a contract whereby the bank delivers goods to the customer at a set price. The
price is amortized, totally or partially, on predetermined maturity dates, through equal or unequal instalments.
Leasing Conditional on Ownership: In this particular type of leasing contract, it is agreed that the lessee, if complying
with the terms of the contract, will obtain the ownership of the leased property upon the completion of the contract.
Forward Sale (Salaf): Forward sale is a contract whereby the bank purchases goods produced by the customer, paying the price in cash, and receiving the goods in the future.
Joaleh: Joaleh refers to the obligation of a person (the customer) to pay a certain sum or fee in return for a certain
favour, according to the contract. Acting as an agent, or as contracting party if required, banks may conclude a Joaleh
contract for the purpose of providing facilities required to develop business.
Discounting: Banks can discount drafts and notes. Banks are also allowed to use some of their own resources (including Qarz-al-Hassaneh funds from customers) to make direct investments. Direct investment is not considered as
‘facility’, but works on the same principles as participation contracts.
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The Bank’s Profile
History
The year 1928 is regarded as a milestone in Iran’s banking and economic history, during which Bank Melli Iran (BMI, the National Bank of Iran) was established as the first Iranian commercial bank, after nearly 40 years of foreign
dominance in the country’s banking market.
With the establishment of BMI and the subsequent suspension of foreign banks’
licenses, the newly founded bank began to gather momentum in strengthening
of the economic structure and development of agriculture, industry and commerce by mobilizing financial resources and popular savings and channelling
credit toward productive activities.
In the year 1931 the Iranian parliament granted sole powers to BMI to issue
banknotes, thus establishing the Bank as the country’s bank of issue. Thereafter
the Bank assumed responsibility for additional central bank functions including
government banking operations, regulation of currency circulation, protecting
the value of money, credit regulations, supervision of the balance of payments,
as well as supervision of the country’s banking system.
In 1950, following the approval of the State Banking and Monetary Law by the
Iranian parliament the Central Bank of Iran was established. This allowed BMI
to focus on the development of its commercial banking operations.
Since its establishment, BMI has maintained its position as the largest bank of
Iran with a strong presence in the domestic and international financial arena.
Today, BMI holds a significant market share in the Iranian banking sector and
has earned considerable veneration for its pioneering and leading role in providing first-class e-banking services utilizing state-of-the-art banking technology.
In spite of the currently imposed limitations on BMI’s banking operations by
some western governments, BMI continues to offer a full spectrum of banking
services internationally and is fully committed to honouring its legal obligations
and commitments in order to protect the Bank’s excellent reputation and creditworthiness.
Domestic Banking
Currently BMI has more than 43,000 personnel and over 3,300 branches in Iran. Compared to other commercial banks
in the country, BMI renders a greater volume of service to the public sector, and handles a larger share of project and
trade financing. This makes BMI the largest provider of financial facilities and services in the country.
In addition to offering services to the public sector, BMI also holds a considerable share of private sector deposits, as
well as total credit facilities granted within the country’s banking system.
International Banking
As a long time regulator of the relations between Iranian and foreign banks, Bank Melli Iran benefits from a very well
recognized name in the world’s money and banking community.
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The first foreign branch of the Bank was opened in Hamburg, Germany in 1965. Since then, BMI has augmented its
international presence through a fast developing foreign network, which currently includes 16 branches and subsidiary
banks in United Kingdom, Germany, France, UAE, Afghanistan and Iraq.
Due to its prominent position within the Iranian banking system and the strength of its international branch network, BMI
is responsible for handling a sizeable share of the government’s foreign currency payments and for providing quality
foreign exchange payment services to industrialists and entrepreneurs.
Among the major services offered by the bank’s international division are foreign exchange and payment services,
different types of foreign currency accounts, international commercial transactions, management of foreign exchange
resources, assessing project feasibility studies for the provision of financing, and correspondent banking liaisons.
Through its extensive worldwide network of correspondent banks, BMI provides letters of credit and bank guarantee
services to Iranian and foreign clients. Import and Export letters of credit and associated services - including deferred
L/Cs and bills of exchange collected by foreign customers or correspondent banks - are provided according to the
principles of Islamic banking.
Mission, Vision and Goals
Mission
Our mission is to become the leading Iranian bank in the quality of service, and creation of added value through innovative means for customers, shareholders and the society at large.
Vision
Achieve widespread recognition for providing outstanding service to our customers
Become the leading provider of innovative banking products and services based on Islamic banking principles and
global best practices
Be a truly international bank by providing a full range of financial services to our customers
Deliver superior value to our shareholders and create a reputation for excellence with our employees, regulators and
stockholders
Goals
As the largest and most credible financial and monetary institution of Iran, BMI strives to define and meet its strategic
targets in a way that assures its success in the increasingly competitive environment of Iran’s banking sector.
The strategic goals of BMI have been defined as below:
- Expand the range and quality of the Bank’s services to meet the public and private sectors’ increasing demands and
expectations
- Utilize the latest information technology for enhancement of services
- Grow profitability through managing costs
- Plan for retaining market leadership based on accurate market research and analysis
- Expand the Bank’s international network
- Encourage creativity and innovation throughout the organization
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Group Companies
The BMI Group is composed of Bank Melli Iran as the Mother Company and four major subsidiaries, as demonstrated
below.
Bank Melli Iran
BMI Investment Company Melli Bank Plc. Arian Bank (Afghanistan) Future Bank (Bahrain)
BMI Investment Company (BMIIC)
BMI Investment Company was established as a public joint stock company in 1992, and was listed on the Tehran Stock
Exchange in 1995.
BMI Investment Company is responsible for handling and management of the Bank’s investment plans, subsidiaries
and affiliated companies, both listed and non-listed. As such, the Company is one of the largest investment companies
in the Tehran Stock Exchange, with a portfolio spread across a wide variety of industries.
Today with a working capital of US$ 340 million, over 50% of BMIIC’s portfolio is invested in non-metal mineral industries and financial intermediary and investment companies.
Portfolio of BMIIC
23
.2%
10.0
6.4%
Non-Metal Minerals
.8%
13
.3%
26
%
Financial Intermediary
Chemical Manufacturing
Joint Investments
3.3%
Food and Drinks
Textiles
3.1%
2.6
%
11
.4
%
Real Estate
Machinery and Equipment
Othe
Melli Bank Plc.
Bank Melli Iran opened a branch in London in 1967, establishing itself as the expert provider of trade finance services
for UK organizations wishing to work with Iran. In January 2002, based on the new regulations of the British Financial Services Authority, the branch was transformed to an independent bank named Melli Bank Plc., a wholly owned
subsidiary of Bank Melli Iran. Melli Bank Plc. is licensed and regulated by the British Financial Services Authority, and
conforms to all UK accounting standards and disclosure requirements.
Melli Bank Plc.’s strong relationship with its parent company enables it to benefit from BMI’s vast domestic and international network, yet at the same time Melli Bank Plc.’s independent Board of Directors has the flexibility required to
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operate swiftly and successfully in the fast moving and
highly competitive world of international banking.
As part of its ongoing strategic development plan, Melli
Bank Plc. has recently opened a branch in Hong Kong,
expanding its business and extending its reach to the
Far Eastern markets of China, South Korea and Japan,
all of whom are
amongst Iran’s leading trading partners.
Arian Bank, Afghanistan
Arian Bank was established in 2004 as a full-fledged
commercial bank in Afghanistan. The Bank operates
under the regulations of Central Bank of the Islamic Republic of Afghanistan. The Bank has been contributing to
the development of Afghanistan through the provision of
all types of modern banking services to the different sectors of the Afghanistan economy – including commercial,
industrial, construction, and mining sectors.
Future Bank (Bahrain)
Future Bank was established in 2005 by three major
shareholders: Bank Melli Iran, Bank Saderat Iran and
Ahli United Bank of Bahrain. Based on the agreement
of the three founders of the Bank, they removed all their
branches in Bahrain and not only allowed Future Bank to
take over their market share and operations in Bahrain,
but also helped the Bank penetrate into markets of Iran
and the GCC region. The bank is registered in Bahrain
and regulated by the Bahrain Monetary Agency.
Future Bank’s main business focus is wholesale investment banking and it targets the financial flows between
Iran and the GCC countries. Target clients are the top 30
corporations listed on Tehran Stock Exchange as well
as large and mid-size corporations, institutional and high
net worth investors in the GCC region. The Bank seeks
to channel debt and equity capital from the GCC into Iran
through either conventional or Islamic structures.
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E-Banking Services
Over the years BMI has built a strong IT department which is central to the Bank’s attainment of productivity, customer
satisfaction and profitability. During 2007, BMI performed a comprehensive review of its IT system’s strengths and
weaknesses, and launched various projects and initiatives including expansion of electronic services and better support for hardware and network systems.
Internet banking, telephone banking, and debit / credit cards are available to the Bank’s customers with the convenience
of 1,687 ATMs operational at most branches throughout the country. These facilities remarkably reduce the customers’
visits to branches, saving time for the customers and reducing cost and work load for our staff. The following is
a summary of services which clients can benefit from:
Most IT remains unseen to the client. However, BMI strives to optimize the use of IT in its interactions with customers. Among the Bank’s new IT services are cash transfer via ATM machines, automatic payment of instalments, and
compatibility of Melli debit cards with the ATM systems of Bahrain, Qatar and Kuwait. BMI upholds best practices in
information technology security to ensure the privacy of clients’ information.
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* SIBA is the online integrated banking system used by BMI, through which current and deposit accounts can be
opened and accessed at all the covered branches.
Code of Ethics
Bank Melli Iran has adopted a code of ethics that consists of a set of values, principles and standards to guide decision making and conduct in various situations that may arise in the context of employer-employee and employee-client
relations.
Key principles of our Code of Ethics are as follows:
BMI employees shall:
- Profoundly believe that customers are the Bank’s prime asset and therefore should highly appreciate their engagement with the Bank.
- Have great respect for the customers’ esteem, dignity, and needs.
- Observe discipline, adornment, punctuality and sense of responsibility,being always ready and willing to warmly address all the customers’banking needs.
- Render premium services in the most competent fashion.
- Deliver swift and complete information to the customer within the range of their professional duties, considering the
current regulations of the Bank.
- Regard the degree of customer satisfaction as the chief measure of their dedication and professionalism.
- Deeply appreciate and cordially embrace the views, comments and criticism of customers, and welcome them as the
main basis for improvement and enhancement of our banking practices.
Awards and Recognition
As the global banking industry faces increasingly complicated problems regarding risk and risk management strategies, the more ethical, risk-sharing approach offered by the Islamic finance industry is attracting an increasing amount
of attention.
During the past four decades Islamic financial institutions have evolved from mere concepts into fully fledged realities. In recent years there has been a new dynamism as this industry has proved increasingly attractive, not only to
the world’s 1.6 billion Muslims but also to many others who are beginning to understand the unique aspects of Islamic
finance.
According to The Banker’s 2007 listing of the Top 500 Islamic Financial Institutions (TIFI), Iran tops the ranking with assets of US$ 154.6 billion. Iranian banks dominate the top positions and among them Bank Melli Iran heads the ranking
with Sharia Compliant Assets (SCA) of US$ 35.5 billion.
Iran as a country in which financial institutions are 100% Islamic, has more than double the amount of the nearest
competitors in terms of SCA: Saudi Arabia with $ 69.4 billion and Malaysia with $ 65.1 billion.
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Human Resources
BMI views its employees as valuable stakeholders in the business and encourages individuals to make contributions
towards growth. The Bank believes that motivated employees are vital to its success.
BMI operates a policy of internal promotion whenever possible to motivate and support its employees. It also encourages diversity and advocates a culture of learning, professionalism and respect for individuals. In addition the Bank
monitors and rewards qualitative as well as quantitative improvements in performance.
Employee Welfare
BMI is committed to the health and well-being of its employees throughout all areas of its worldwide operations. This
commitment has been demonstrated through various support initiatives to enhance the employees’ experience with
the Bank.
Overall Education of Employees
1%
22%
High School Diploma
7%
69%
Associate of Science Diploma
Bachelor Degree
Master Degree and Ph.D
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Training Programs
The Bank continued to make significant investments in the training and empowerment of its staff in 2007, and plans to
maintain this trend in 2008.
As part of plans to raise the educational level of employees, BMI has launched an extensive long-term educational
program to be integrated into the personnel’s work schedule.
In a concerted effort to support the Bank’s human resources, the HR Department updated its educational reference materials - including sources on banking law and Internal banking - and prepared new educational curricula on monetary
and banking regulations, marketing, and anti-money laundering.
A virtual education centre is also being developed in order to provide e-learning opportunities for the employees. In
2007, BMI published 23 different titles of educational material in over 71,000 printed copies.
BMI also supports its employees’ participation in training courses provided by other institutions. In 2007, over 3,500
personnel received financial support for their participation in ICDL, E-citizen and English Language courses offered by
independent training institutes.
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Organizational Chart
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Performance Highlights
Financial Performance
(All figures are based on consolidated accounts.)
Bank’s total assets enjoyed a steady growth over the past three years. Total assets on the Balance Sheet date show a
23% increase compared to 2006. The increase in assets is mainly due to a 50% rise in facilities granted to the private
sector, which comprises 90% of the Bank’s loan portfolio.
The Bank’s total liabilities enjoyed a 25% increase compared to last year. More than 50% of the US$ 10 billion increase
in the liabilities was financed through increase in term deposits and demand deposits.
Shareholders’ equity remained almost constant, with a 1.5% increase in 2007, reaching over US$ 5 billion on the Balance Sheet date.
Revenues had a steady growth over the past three years, showing a 20% increase in 2007 to reach US$ 4,472.5 million. The Bank’s expenses however grew more than revenues, resulting in a 13% fall in net profit in 2007.
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Operational Performance
(All figures are based on consolidated accounts.)
Bank Melli Iran ranks first among all Iranian Banks in the number of branches across the country, as well as the number
of ATM machines. BMI is also the second largest provider of debit cards among the Iranian banks. The following charts
show the top three banks with regard to the above indicators.
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BMI offers savings, short, medium and long-term deposit accounts in both Rial and foreign currencies. BMI Group’s
total deposits amounted to US$ 38,204 million on the date of the Balance Sheet, showing a 22% increase compared
to the previous year.
The BMI mother company’s total deposits showed a 25% growth on the same date, reaching US$ 30,913.5 m. Private
sector deposits constituted over 96% of the Bank’s total deposits.
The Bank also offers different types of credit facilities - all following the principles of Islamic, usury-free banking. The
major customer for these services is the private sector.
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In 2007 loans granted to the private sector by the BMI Group had a substantial increase of 51% compared to 2006,
while loans to the public sector increased by 15%. Long-term letters of credit and drafts offered by the Group also went
up by 31% in this year.
Foreign Exchange Transactions
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Letters of Credit
Total value of the letters of credit issued in 2007 had a 53% rise compared to 2006, consisting of a 210% increase in
the amount of LCs issued through the Oil Stabilization Fund, and a 44% increase in other Import LCs.
International Debit and Credit Cards*
* All Foreign Currency debit and credit cards are denominated in Euros.
Bank Guarantees
BMI has correspondence with reputable foreign banks through which it offers international bank guarantees for import
and export purposes. In 2007 the Bank had a 31% increase in the total value of its international guarantees, reaching
over US$ 2.1 billion. BMI’s import guarantees in 2007 amounted to over US$ 1,300 m, showing a 27% rise compared
to 2006. Export guarantees had a 40% rise, reaching US$ 748 m in 2007.
The Bank’s income from issuing international guarantees in 2007 amounted to over IRR 196 billion, which shows a 23%
rise compared to the previous year.
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Outlook
Value creation through Customer Relationship Management (CRM)
Customer satisfaction is the key to the Bank’s success
and our most fundamental value. The BMI team strives not
only to satisfy all customers, but to surpass their expectations by meeting their needs with a proactive approach.
Sustainable growth
The Banking industry is on the government’s privatization
agenda for the near future. BMI realizes that competition
is the first consequence of privatization, and to maintain
its position, BMI has arranged diverse plans to manage
and modify expenses, elevate productivity levels, render
a wide spectrum of products and services to meet the customers’ needs and diversify its revenue base.
Development of human capital
Developing human resources through a learning organization is one of BMI’s core values. BMI strives to attract,
train and sustain the most capable professionals, in order
to ensure the success of the organization and the satisfaction of its customers.
Flexible and agile organization
In order to enhance operational performance, organizational levels must be decreased, and bureaucracy minimized. Swifter communication across the organizational chain
will make the path of serving customers smoother.
Cost management
To maximize profitability and support all stakeholders’ interests, cost optimization and strict implementation of budget
policies are the Bank’s main objectives for the coming years.
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Financial Statements
Bank Melli Iran
Consolidated Balance Sheet
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Bank Melli Iran
Consolidated Income Statement
Bank Melli Iran
Consolidated Statement of Earnings
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Bank Melli Iran
Consolidated Comprehensive Statement of Earnings
Bank Melli Iran
Consolidated Cash Flow Statement
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Bank Melli Iran
Balance Sheet
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Bank Melli Iran
Income Statement
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Bank Melli Iran
Statement of Earnings
Bank Melli Iran
Comprehensive Statement of Earnings
Bank Melli Iran
Cash Flow Statement
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Notes to the Financial Statements
1- Basis for Preparation of Financial Statements
Consolidated financial statements of the Group and financial statements of the Mother Company are prepared based
on historical cost; current values are only used where appropriate.
2- Basis for Consolidation
2.1- Consolidated financial statements are the summation of items in the financial statements of Bank Melli Iran and its
subsidiaries, after subtracting inter–group transactions and balances, and unrealized profit (loss) from internal transactions.
2.2- Activities of the subsidiaries acquired during the fiscal year are reflected in the Consolidated Income Statement
as from the date their control has been effectively transferred to the holding company. Activities of the subsidiaries
disjoined from the Group during the fiscal year will be reflected in the Income Statement up to the date of their effective
separation.
3- Significant Accounting Policies
3.1- Basis of Interest paid on Deposits
In implementation of the Non-usury Banking Operation Act and related regulations and also in line with the Central
Bank of Iran Decree No.1799 dated 08/01/2003, all interest received from financial facilities, investments in shares and
participation bonds are recognized as profit and should be divided proportionately between depositors and the bank.
3.2- Tangible Fixed Assets
3.2.1- Tangible fixed assets are taken to the accounts at cost price. Overhaul and betterment expenses which substantially increase the capacity, improve the efficiency or extend the useful life of tangible fixed assets are recognized
as capital expenses and depreciated over the remaining useful life. Minor repair and maintenance expenses are accounted for as current expenses, and enter the income statement at the date of occurrence.
3.2.2- According to Article 62 of the Country’s Third Development Plan, the revaluation value of buildings and the part
of land that such buildings are constructed on is calculated and reflected in the accounts in the amount of Rials 20,276
billion. The surplus amount of Rials 16,700 billion resulting from revaluation is reflected in the government’s capital
increase account.
3.2.3- Depreciation of fixed assets (with the exception of devalued moved assets) is calculated in according to below
mentioned methods and rates.
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Depreciation of re-valued buildings will be calculated as from the date of the revaluation (2004) according to Article 151
of the Direct Taxation Act, with the depreciation rate of 3.5% based on reducing balance method.
3.2.4- In the year 2004, according to Article 62 of the Third Development Plan, the revaluation value of goodwill has
been calculated and reflected in the accounts. As depreciation of the banks’ assets is calculated in accordance with
the depreciation schedule pursuant to Article 151 of the Direct Taxation Act, no depreciation has been calculated for
goodwill since the fiscal year 2006.
3.3- Foreign Currency Exchange
Domestic Accounts: Monetary items in foreign currency are exchanged at the exchange rate at the date of the Balance Sheet and non-monetary items in foreign currency are exchanged at the exchange rate of the transaction date.
The derived differences are recognized as revenue or expenses for the period.
Overseas Units: All monetary and non-monetary items (expect shareholders’ equity) of overseas branches and units
are exchanged at the exchange rate at the date of the Balance Sheet. Shareholders’ equity is exchanged at the exchange rate of the date of equity formation. Profit and Loss figures are exchanged at the average rate of the transaction
date. The derived differences are recognized as shareholders’ equity.
3.4- Provision for Work Termination Benefit
Provision for employees’ termination benefits is calculated and recorded based on each employee’s most recent fixed
salary and benefits for each year of employment.
3.5- Goodwill
Consolidation of commercial entities is made based on the purchase method. Any surplus of cost price of investments
in consolidated companies compared to the group’s share in the net fair value of their assessable assets and liabilities
at the time of purchase is recognized as goodwill and amortized on a straight line basis over 10 years. Increase in
goodwill resulting form the purchase of affiliates is reflected in the Consolidated Balance Sheet as the book value of
long-term investments in affiliates.
3.6- Recognition of Bank Revenues
Revenues from provided financial facilities were recognized by the cash method up to 2003 in accordance with the
related decree of the Money and Credit Council. Since 2004 all Bank revenues are recognized with the credit method
in accordance with related accounting standards.
3.7- Provision for Doubtful Debts
A) General Provision: In line with the prevailing banking regulations as administered and enforced by the Central
Bank of Iran, all banks are required to set aside 1.5% of their outstanding loan portfolio (except for the loans with ex-
B ank Melli 36
clusive provision) as a general provision for doubtful debts.
B) Exclusive Provision: The amount of exclusive provision is calculated as follows:
a. Overdue debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10%
b. Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
c. Doubtful debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 to 100%
d. Debts more than 5 years overdue . . . . . . . . . . . . . . . . . . . . . . . . .100%
3.8- Due from Government
Mandatory facilities granted, which are secured by the Management and Planning Organization, are recognized as
“Due from Government” under the following conditions:
a. Defaulted facilities due to customer’s insolvency, inadequacy of collaterals or bank’s unsuccessful attempts for collecting the payments
b. Overdue facilities related to acquisition of fixed capital assets
c. Facilities granted to ministries and public institutions
4- Cash
4.1.1- Details of the Group’s cash consist of:
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4.1.2- BMI’s cash is ensured against any damage resulting from theft, fire and other accidents.
4.1.3- Foreign currencies consist mainly of Euro 11 million, US$ 31 million and GBP 1 million.
5- Investments and Partnerships
6- Due from the Central Banks
7- Due from Banks and Credit Institutions
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8- Facilities Granted and Due from the Public Sector
9- Facilities Granted and Due from Private Sector
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10- Tangible Fixed Assets - The Group
11- Due to the Central bank
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12- Due to the Banks and Credit Institutions
13- Due for Letters of Credit and Bills of Exchange
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14- Demand Deposits
15 Savings Accounts
16- Term Deposits
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17- Tax Reserve
18- Share Capital
The Bank’s share capital stood at Rials 22,400 billion at the Balance Sheet date. The initial capital was increased twice
in 1991and 2004 from participation bonds and revaluation of immovable assets and goodwill respectively. The amount
of share capital is fully owned by the government of the Islamic Republic of Iran.
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19- Revenues from Banking Services
20- Revenues from Sales of Goods and Services
21- Cost of Banking Services
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22- Sales, Administrative and General Expenses
All the above expenses relate to the Group and the expenses of the Mother Company (BMI) and BMI London and
Moscow branches are reflected in note 20.
23- Prior Year Adjustments
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24 Reconciliation Statement
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Overseas Branches
Melli Bank Plc
Melli Bank Plc London (Head Office)
One London Wall
11th Floor
London EC2Y 5EA
United Kingdom
Tel. +44 (0)2076003636
Fax: 44 20 7796 2104
email: info@mellibank.com
Hong Kong Branch
Unit 1703-04
Hong Kong Club Building
3A Chater Road
Central Hong Kong
Tel.: +852 25 25 3017
Fax: +852 28 68 4692
email: info@mellibank.com
UAE
Regional Office Dubai
Contact Details:
P.O. Box:1894
Beniyas St.
Dubai, U.A.E.
Tel:04 2015100
Fax: 04 2295353
bmi@bmi.co.ae
Dubai Main Office
P.O. Box 1894
Beniyas Street
Tel.: 009714 - 2015100
Fax: 009714 – 2295454
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Abu Dhabi Branch
PO Box 2656
Hamdan Street
Abu Dhabi, UAE
Tel.: 009712-6144144
Fax: 009712-6217621
Bur Dubai Branch
PO Box 3093
Khalid Bin Waleed Street
Dubai, UAE
Tel: 009714-3051111
Fax: 009714-3516329
Fujairah Branch
PO Box 248
Al Marash R/A, Hamad Bin Abdullah Street
Dubai, UAE
Tel.: 009719 - 2222551
Fax: 009719 - 2224271
Sharjah Branch
PO Box 459, Al Burj Street
Sharjah, UAE
Tel.: 009716 - 5912222
Fax: 009716 - 5686535
Al Ain Branch
P.O. Box 1888
Clock Tower, Industrial Road
Dubai, UAE
Tel.: 009713 -7642362
Fax: 009713 -7664449
Ras- Al- Khaimah Branch
Post box 5270
Oman Street, Al Nakheel
Ras- Al- Khaimah, UAE
Tel.: 009717 -2229400
Fax: 009717 -2228797
Mr. Mohamad Reza Hoseinzadeh
France
Paris Branch 43, Avenue Montaigne
75008 Paris, France
Tel.: 0033 1 47.23.78.57
Fax: 0033 1 47.20.74.21
Germany
Hamburg Branch
Holzbrucke 2,
20459 Hamburg, Germany
Tel.: 0049 40 36 000-0
Fax: 0049 40 36 000-236
Iraq
Baghdad Branch
No.111, 27 Alley
District 929, Arasat Street
Baghdad, Iraq
Tel.: 009641─7173697
Fax: 009641─7170996
Azerbaijan
Baku Branch 14 Nobel Ave.,
Baku, Azerbaijan Republic
Tel.: 00994 12 496 57 23
Fax: 00994 12 496 72 35
Oman
Muscat Branch
P.O. BOX 2643
PC 112 Sultanate of Oman
Tel.: 00968 24815145 ─ 24815166
Fax: 00968 24815183
Russia
Moscow Branch
9/1 Mashkova St.
105064, Moscow, Russia
Tel.: 007 495 6070093, 6071459
Fax: 007 495 9286286
email: Mellimos@BMIRU.com