Objetivos de los grupos de interés

Managing customer relationships is of fundamental importance to a bank as no bank can survive with- out satisfied clients. We consequently strive to provide the highest quality of professional services to our customers, with their needs and wishes running as a common thread through our activities. In the year under review we once again spent time training our employees in customer relations management and communication skills. We also simplified our procedures for dealing with customer complaints and made the process more accessible. Our policy is to treat all complaints seriously because they arise as a result of concerned but loyal clients drawing our attention to possible imperfec- tions in our services and giving us the opportunity to take corrective action.

Our preparations to establish a full-service marketing department continued in 2006. This department will become operational in early 2007, and we will also be appointing a manager to run it. Over the past few years we have made donations and provided sponsoring as a way of demonstrating our commitment to the community of which we are a

part and which we serve. Every week we receive many requests for sponsoring. All of them are dealt with carefully, but we are unfortunately unable to grant them all. Most of the projects sponsored by Hakrinbank are in the areas of sport, education, healthcare and culture. Our budget for sponsoring community projects was somewhat higher in 2006 because of its being the bank’s seventieth anniversary year. The most significant project for which we provided sponsoring during the year was the creation of an endowed chair in Money, Credit and Banking at Anton de Kom University’s Faculty of Graduate Studies. The professor occupying the endowed chair will be Dr. A.R. Caram, who has a proven track record in this field.

We also provided funds to enable the Medical Sciences Institute to purchase a spectrophotometer and related equipment that will improve the quality of the institute’s education and research.

The most important developments within the various departments of the bank and its subsidiary Nationale Trust- en Financierings Maatschappij N.V in 2006 are discussed in more detail below.

Corporate Governance

Banks were not involved in the major accounting scandals that affected various well-known listed companies in the United States and Europe around 2002 and caused major financial losses. The fact that these scandals could occur is attributable to failures of corporate governance. In other words, the way in which companies are managed.

Proper corporate governance is particularly important for banks, given that they play such a major role in economic stability and development. This means that, here in particular, good checks and balances, together with proper and effective internal control of processes, are essential. Effective governance is a precondition for retaining public confidence. Given its importance, it is not only regulators, parties operating in the market and other stakeholder organisations that are continually seeking to set new standards for ensuring proper corporate governance. Institutions themselves are also increasingly accepting that they have a role to play in this process. And Hakrinbank is no exception in this respect as we are continually striving to apply best practices in our corporate governance so that we improve our operating performance and increase our accountability.

During the year under review we implemented the corporate governance code drawn up in 2005. This demonstrates our commitment to corporate governance in practice. As far as we know, Hakrinbank is the first Surinamese-owned company to compile a formal corporate governance code and to use it as the basis for its activities. This code, which can be found on our website, contains guidelines for the Executive Board, Supervisory Board and shareholders. The issues of integrity and transparency, which are important preconditions for good corporate governance, have a prominent place in the code. We officially presented the code to the President of Suriname and the Governor of the Central Bank in May 2006, when we also took the opportunity to call for a national corporate governance code that could be used as the basis for ensuring good governance throughout the country’s business sector.

The activities involved in implementing the code included the decision during the year to set up two specialised committees within the Supervisory Board. The tasks, powers and responsibilities of these committees – the Audit Committee and the Remuneration and Nomination Committee – have been laid down in separate sets of regulations. Each committee currently has three members, all of whom are members of the Supervisory Board.

Results of benchmark survey in 2006 (%)

Institution Period RoA RoE Efficiency Non-performing ratio ratio

NCB Jamaica Ltd. 2006 2.65 23.96 59.87 3.66

Republic Bank Ltd. 2006 1.92 14.79 58.00 3.40

RBTT Financial Holdings Ltd. 2006 2.40 22.10 58.00 2.70

Scotiabank Trinidad & Tobago Ltd. 2006 3.70 25.05 42.00 1.30

Barbados National Bank Ltd. 2006 2.31 19.91 51.33 3.58

Republic Bank Guyana Ltd. 2006 1.63 24.22 56.70 4.28

DSB Bank N.V. 2006 1.71 24.61 54.20 p.m.

Hakrinbank N.V. 2006 2.37 46.88 56.34 2.00

Source: External annual reports

The main task of the Audit Committee is to help the Supervisory Board monitor the integrity of the bank’s financial reporting and its compliance with legislation and regulations and to ensure that the bank’s internal and external auditors are independent and function properly and effectively. The Remuneration and Nomination Committee makes recommendations to the Supervisory Board on proposed appointments and reappointments to the Executive and Supervisory Boards, on succession planning for members of the Executive Board, on management development and on the remuneration of the Executive Board members. More details of the committees’ work can be found in the Supervisory Board’s report elsewhere in this annual report. The Supervisory Board’s report also contains information on the Caribbean Association of Audit Committee Members, which was established in St. Lucia in 2006 and of which Hakrinbank was a founding member. The new Executive Board and Supervisory Board regulations also came into force during the year under review. Our decision to set up a separate Risk Management department should also be seen against the back- ground of our wish to strengthen our governance structure, as was the decision to switch from rules- based to risk-based auditing principles from the 2007 financial year onwards. Over the coming years, efforts to improve our corporate governance will be a priority within our bank. This is also because

we firmly believe there to be a high degree of correlation between effective risk management and a good operating performance and the creation of sustainable value for stakeholders.

Performance indicators and benchmark analysis

Against the background of the establishment of the Caricom single market on 1 January 2006 and the intended development into a single economy in 2009, we consider it important to compare Hakrinbank’s performance with that of larger banks in the Caribbean. We do this by conducting an annual benchmark survey.

The most important indicators that we use to measure and monitor our operating performance are:

- Return on Assets

- Non-performing ratio (this measures the quality of our main asset, the lending portfolio)

- Return on Equity

- Efficiency ratio (this measures our general efficiency).

Our bank’s performance in the benchmark survey for 2006 compared favorably with that of our peer group, which consisted of NCB Jamaica Ltd., Republic Bank Ltd., RBTT Financial Holdings Ltd., Scotiabank Trinidad & Tobago Ltd., Barbados National Bank Inc. and Republic Bank Guyana Ltd. We also conduct benchmarking against the results of the larger banks in Suriname.

Return on Assets (RoA)

We were pleased by the significant improvement in our RoA. This rose from 1.95% at the 2005 year-end to 2.37% in 2006, which is reasonable compared with the peer-group average. The RoA of the peer group varies between 1.63% and 3.70%. The main factors contributing to the improvement in this ratio were the more active balance sheet composition, the improvement in the quality of our lending portfolio and the strong rise in other income, while the reduction of 3 percentage points in the percentage of cash reserves required to be held in SRD with effect from 4 January 2006 also helped. The more active composition of our balance sheet is the result of stricter Assets and Liabilities Management, which is designed to optimise the share of income- generating assets in our balance sheet. Our main income-generating assets (i.e. receivables from clients) rose from 48.70% of total assets at the 2005 year-end to 50.53% at the 2006 year-end. The ratio of receivables from clients/funds entrusted to us also rose from 54.24% in 2005 to 57.77% at the end of 2006. This can be regarded as relatively good, given the cash reserve percentages applying at the year- end and the need to retain prudent levels of liquid reserves.

Return on Equity (RoE)

Our RoE increased slightly from 46.10% in 2005 to 46.90% in 2006. This was largely attributable to the sharp rise of 56.6% in shareholders’ equity as a result of the retained earnings dotated to the general reserve and the periodic revaluation of property. If the effects of this revaluation are excluded, the RoE in 2006 would have been close to 50.5%. This is very good in comparison with that of our peer group, where the RoE varies between 14.79% and 25.05%.

Efficiency ratio

Our efficiency ratio improved, with a reduction from 59% in 2005 to 56% at the end of 2006. The reason that this was slightly higher than the target for 2006 of 55% was the higher than expected increase in certain expenditure items. In view of the forecast slowdown in our rate of growth on the income side and given our ambition of achieving a further reduction to around 53% in this ratio in 2007, we will have to attach greater priority to managing our costs and analysing and improving our operating processes than has been the case in previous years. Our ratio is reasonable in comparison with the average for the peer group, where the efficiency ratios vary between 42% and 60%.

Non-performing ratio

Our non-performing ratio improved from 3.0% at the 2005 year-end to 2.0% at the end of 2006, with most of this improvement being attributable to the consumer credit sector. The latter figure is an indicator of the good quality of the lending port- folio and compares very favourably with that of our peer group. The ratio is also better than our own internal norm of a maximum of 3%. The non- performing ratio within the peer group varies from 1.30% to 4.28%. We are pleased by the improvement in our non-performing ratio as a low ratio has a beneficial effect on our profitability. On the one hand, it is beneficial from a perspective of interest income continuity, which is certainly important in a period of falling interest rates and margins, while on the other hand it reduces the need to make specific provisions for bad and doubtful debtors.

More information on Hakrinbank’s financial performance can be found in the section financial development of the bank further in this annual report.

Credits department

Despite the fierce competition in the market, our lending to corporate and consumer clients rose in the year under review by SRD 76.7 million, or 33.4%, to SRD 306.5 million. This increase was higher than the growth figure of 23% for the banking sector as a whole, which means that our market share increased slightly. The rise was also higher than the budgeted rise of 30% in consolidated lending. The growth in Hakrinbank’s lending was well above budget, while the reverse was the case for our subsidiary, Nationale Trust- en Financierings Maatschappij. The growth was achieved by combining a consistently commercial approach with competitive rates.

Most of the growth in lending was attributable to the trade, housing construction, industry and fishing sectors, as well as consumer credit. Our Nationale Trust- en Financierings Maatschappij subsidiary is a dominant player in the consumer credit market. More information on its activities can be found else- where in this report.

Total lending to sectors directly involved in production has been on an upward trend for several years, thanks to the improved investment climate that is reflected in the higher levels of investment in these sectors.

Investments in treasury promissory notes were slight- ly lower at SRD 32.1 million. In view of the Central Bank of Suriname’s policy of gradually reducing the amounts of these investments held by commercial banks in favour of institutional investors, we have to assume that these investments’ share of our portfolio will successively fall over time. The return on these investments has decreased as a result of the Central Bank’s decision to cut rates from 12.5% to 10% at the start of 2006. On 1 January 2007, the interest on treasury paper was reduced further to 8% a year. As indicated above, the quality of the lending port- folio remained good. Effective credit management meant we were able to improve the non-performing ratio from 3.0% to 2.0% in 2006, with our longer-term aim being to keep the ratio consistently below 3%. An overview of our lending to the various sectors can be found below. This overview has been compiled in line with the classification model used by the Central Bank of Suriname.

The SRD base lending rate was cut by 2 percentage points to 14% in February 2006, partly in response to the reduction from 30% to 27% in the SRD cash reserve requirement set by the Central Bank. The lat- ter was further reduced to 25% in early 2007. In response, the banks cut their annual lending rates in February 2007 to between 12% and 13%. The per- centage of the cash reserve requirement to be used for long-term, low-rate housing loans was increased from 8% to 9% of the reserve base in early 2006, and this created scope for extra lending. On 2 January 2007, this percentage increased further to 10%. The base rate for foreign currency lending remained unchanged during the year. The difference between the SRD and foreign currency base lending rates has been narrowing further during the year under review. Although this could have been expected to result in less dollarisation in the lending market, this unfortunately did not occur.

Year-end Year-end 2006 in % 2005 in % Agriculture 22,462.7 7.3 22,065.2 9.6 Fishing 12,717.6 4.2 4,192.6 1.8 Forestry 183.9 0.1 112.2 - Mining 2,206.4 0.7 2,228.9 1.0 Industry 31,594.9 10.3 20,489.6 8.9

Construction and installation 6,496.7 2.1 5,753.4 2.5

Electricity, gas and water 30.7 - 26.8 -

Total direct production sectors 75,692.9 24.7 54,868.7 23.8

Trade 86,939.6 28.3 71,555.8 31.2

Transport, storage and communications 3,095.1 1.0 2,624.0 1.2

Services 20,746.6 6.8 14,798.8 6.4

Housebuilding 53,015.7 17.3 38,411.8 16.7

Other 66,959.1 21.9 47,470.9 20.7

Total other sectors 230,756.1 75.3 174,861.3 76.2

Total commercial lending 306,449.0 100.0 229,730.0 100.0

Treasury promissory notes (government) 32,104.0 32,850.3

Although the extent of dollarisation fell in 2005 to 45.8% of our total lending, it returned to 47.9% by the end of 2006. This increase may be the result of low inflation and the stable exchange rate, which may have prompted clients to opt for loans in foreign currencies that had lower rates of interest in absolute terms. Doing so, however, results in a foreign currency risk for clients whose income is in Surinamese dollars. It should, however, be noted that the degree of US dollarisation is still below the short-term guideline that we have defined of a maximum of 50% of consolidated lending. We will seek to reduce the extent of US dollarisation in 2007 by offering interest incentives designed to encourage lending in local currency.

Hakrinbank complied with all the requirements of the Loan Classification and Provisioning regulations in 2006 and also with all the other regulations applied by the Central Bank of Suriname as part of its supervision of the general banks.

Owing to the growth in our lending portfolio and our stricter loan portfolio management, we decided to recruit an additional account manager during the year. In 2006, we started implementing the organisational change within the Credits department that we had announced in our previous year’s annual report. This change will result in account management handling all aspects of the lending process, and we expect to complete the process in mid-2007. This will make our lending more efficient and make the account managers fully responsible for ensuring that lending requests are handled quickly. The Credit Administration department will remain responsible for providing administrative support. We will be evaluating various software packages in 2007 in an effort to further optimise the credit process and reduce the time taken to handle loan applications. The Social Entrepreneurship Programme (SEP) set up in the fourth quarter of 2004 in conjunction with the Chamber of Commerce and the Inter- American Development Bank (IDB) as a means of encouraging entrepreneurship among selected graduates or students soon to graduate from Anton de Kom University has not yet produced the desired results. A total of 85 new entrepreneurs have so far received training under this programme, which provides expert help in preparing a business plan for a new, usually small, business. A committee, whose members come from a wide range of disciplines,

selects the best projects. These are then eligible for a Hakrinbank loan on very favourable terms and conditions. The extent of lending under this programme has, however, been lower than expected. The Chamber of Commerce, IDB and Anton de Kom University will shortly be evaluating the programme, and steps will be taken to make it more effective.

The emphasis in Hakrinbank’s future lending activities will remain on achieving growth in volumes, with the quality of our services, a commer- cially responsible approach and a pro-active policy on pricing being essential ingredients in this process. Growth is crucial if we are to maintain our profitability, both in the short and longer term.

Risk Management department

Banks are exposed to more and more risks, primarily as a result of the pressure of competition, the increasing complexity of banking products, specifically many of the newer ones, and the need to protect their reputation. As poor risk management may have far-reaching consequences for banks and also because of stricter regulations, many banks have decided to introduce Enterprise Risk Management (ERM) into their organisations. ERM comprises programmes that provide a sustainable way of managing risks in various areas in which a bank may be active. The most significant risks that financial institutions have to face are credit, market, liquidity, operational and legal risks and reputational risk. ERM is also very important within Hakrinbank, where we devote considerable attention to risk management structures and processes. This included the setting-up in mid-2006 of a separate Risk Management department. The bank’s policy is for this department to play a central role in managing risks throughout the bank. This compares with the current situation, in which risk manage- ment is the responsibility of various department