Republic Bank (Guyana) Limited September 30,2007 Annual Report
It comes as somewhat of a shock that Republic Bank (Guyana) Limited’s (RBL) full year earnings increased just $59M over the $1,036M earned in the first three quarters of the financial year. This represents a 15.9% fall in trailing twelve month earnings to June 30, 2007. Net profit before tax for the quarter stood at $168M, down 55% compared with the equivalent period one year ago.
As the graph of quarterly profit shows, profit before tax, loan provisioning and recoveries for the quarter actually increased by 15% over last year, thus the reason for the drop in earnings is due to the level of provisioning net of recoveries.
When I reviewed (then) NBIC’s 2005 report I noted that under International Accounting Standards provisions should reflect impairment on loans as they arise and thus volatility in earnings would be expected if the number of loans classed as non-performing increased.
Thus if the number of non-performing loans increased suddenly in the last quarter we would expect provisions to increase as a necessity and 4th quarter profit to be impacted as a result. During the year, non-performing loans increased by 34% to $885.5M, an increase of $223.7M, and based on analysis of the quarterly reports much of this increase did indeed take place in the fourth quarter. However, a substantial portion of the provision made in 2007 relates to a general provision, in keeping with International Accounting Standard (IAS) 39, a standard which was adopted by RBL for the 2006 annual report, yet for which no general provision was made at the time. It would thus appear that the extent of the fall in Fourth Quarter earnings would have been much lessened if the prior period reports presented by the company had reflected the general provision as the impact would to some extent have been reflected already.
Prior Periods Overstated?
RBL is somewhat of a poster child for good corporate governance in Guyana. Since trading started on the stock exchange their financial reporting has always been timely and to date RBL is the only publically traded company in Guyana to publish quarterly results. This year’s annual report is a credit to the Directors, Management and staff, being just one page shy of a hundred pages and continues the tradition of management analysis which is informative and accessible to the lay person.
Yet a key item of provisioning which is required by IAS39 was not included in the 2006 financials. IAS1 states “Financial statements shall not be described as complying with IFRS unless they comply with all the requirements of IFRS.” The fact that the 2007 annual report states that a “general provision has been made for the first time
