NOTES ON ACCOUNTS: (2005)

01. In conformity with the accounting policies and guidelines (issued by the Royal Monetary Authority of Bhutan) interest earned (but not collected) aggregating to Nu.38,979,322.89 (previous year Nu. 34,579,946.50) as on the date of the balance sheet has not been recognized as income and kept under ‘Interest - in - Suspense’ Account.

02. Guarantees given and Letters of Credit issued (on behalf of various clients) are outstanding at the year end amounting to Nu.416,420,824.27 (Total Margin Nu.392,978.00) and Nu.228,795,932.38 (Total Margin Nu.31,505,594.73) with corresponding previous year figures of Nu. 384,100,715.36 (Total Margin Nu.157,200.00) and Nu.596,280,617.21 (Total Margin Nu. 29,016,645.36) respectively.

03. Confirmation, being not available, book balances of loans, advances and other receivables are reflected in this account.

04. a) Additional amount of provision against loan (excluding interest - in - suspense) amounting to Nu.71,562,053.31 being the difference between provision of Nu.251,630,698.76 as on 31.12.2005 required as per the prudential guidelines issued by Royal Monetary Authority of Bhutan and the amount of provision Nu.
180,068,645.45 held as on 31.12.2004, has been provided for during the year.

b)The bank has provided Nu.79,040,000.00 (previous year Nu.81,620,000.00) as required to be provided based on the figures of nonperforming assets of this year under the Transitional Stipulation of the prudential guidelines, 2002 issued by Royal Monetary Authority of Bhutan) in this account and the same is included in the amount of provisions as stated above.

c) In case of Loans pending fixation of repayment schedules Bullet Loans) provisions and suspension of interests are made wherever interest remains overdue for more than 90 days except in case of Industrial Loans and Housing Loans where provisions have not been made during the “gestation period”.

d) During the year 2005, a misappropriation of loan account under the head Government Employee Loan amounting to Nu. 20,244,713.37 (Principal & Interest) was detected by the Management and necessary legal action has been taken by the Management to recover the amount. However, these outstanding loan amount have been fully provided for in the books of accounts.

05. Provision for taxation includes:-
Tax on current year's profit                                 : Nu.64,987,872.12
Less: Advance Tax paid (net of TDS)               : Nu.19,134,298.37
Total                                                                       : Nu.45,853,573.75

06. Capital work - in progress amounting to Nu.288,000.00 (previous year Nu.2,309,462.50) represents the expenditure in connection with the purchase of HR cum Asset Software.

07. Other assets (advance, claims, prepayments, deferrals etc.) include balances in Sundry Receivables accounts aggregating to Nu. 16,083,338.16 (previous year Nu 13,502,493.47) pertaining to Banking Division pending settlement of claims by the party. Similarly, Other current liabilities include an unadjusted balance in Sundry Payables Account of International Banking Division amounting to Nu.23,932,308.14 (previous year Nu.24,154,155.73) representing receipt from the foreign sources pending identification of the payees.

08. ‘Tax deducted at Source’ on income from interest on time deposits with banks outside Bhutan for the year is amounting to Nu. 196,386.00 (previous year Nu 324,741.00)

09. 'Market value of Quoted Equity Investments at the end of the year is amounting to Nu.49,121,360.00 (previous year Nu. 45,599,860.00). Market value of RGOB treasury bills and Druk Air bond are amounting to Nu.120,000,000.00 (previous year Nu.120,000,000) and Nu.527,002,000.00 (previous year Nu. 527,002,000.00) respectively. Diminution in value of investment of Bhutan Board Products Ltd. to the extent of Nu.15,400.00 (Previous year Nu. 15,400.00) has been maintained. Further the face value of the RICBL shares have been reduced from Nu.1,000.00 to Nu. 100.00 per share and the face value of PCAL shares have been split from Nu. 1000.00 to Nu. 100.00 per share in 2005.

10. a) Unclaimed matured deposits, Unit Shares and other payables of miscellaneous nature aggregating Nu.84,926,068.97 (previous year Nu 61,432,157.90), that are not claimed by the beneficiaries, have been kept under ‘Unclaimed Deposit’ Account. Out of the above figure, Nu 73,750,667.68 is high value deposits and those that matured on the last two days of the year.

b) Aggregate recoveries till date amounting to Nu.9,796,032.12 (previous year Nu 9,696,032.12) from certain old bad loan accounts (which were liquidated by Ministry of Finance, Royal Government of Bhutan at the time of incorporation of the Bank) are included in Other Liabilities. out of foreign exchange trading amounting to Nu.24,318,756.72 (previous year 17,871,980.41) and
gains (net) arising out of foreign exchange valuation as per rates prevailing on the closing date of the account amounting to Nu 7,878,793.21 (previous year Nu. 6,702,424.57).

11. MicroBanker software, installed in the year 1997, was replaced by Flexcube software from the beginning of the year, 2003. Consequential impairment lossdue to obsolescence of MICROBANKER and few other related softwares amounting to Nu. 219,680.17 that had been fully provided for in the previous year account, has been maintained.

12. Remuneration and expenditure paid, reimbursed or accrued to the Managing Director was as follows :

13. Tax assessment of the bank has been completed upto 31st December, 2004.

14. Forex Gains include gains (net) arising out of foreign exchange trading amounting to Nu.24,318,756.72 (previous year 17,871,980.41) and gains (net) arising out of foreign exchange valuation as per rates prevailing on the closing date of the account amounting to Nu.7,878,793.21 (previous year Nu.6,702,424.57).

15. BNB Employees Gratuity Trust Fund, a separate fund created under the aegis of BNB Employees Gratuity Trust during the previous year has been maintained and a further sum of Nu. 949,137.20 (previous year Nu.1,849,552.39) has been transferred towards provision for gratuity as at the end of the year. The total fund stood at Nu.14,825,400.00 (previous year Nu.13,717,285.00).
During the year Nu.380,245.00 (previous year Nu.338,255.00) has been paid towards Separation/ Superannuation of the employees of the bank.

16. An amount of Nu.19,026,307.05 being the book value of 113 decimals of land in Thimphu City Corporation area acquired from a single client in full satisfaction of the debts to the bank earlier in Assets Acquired in Satisfaction of Debts is now capitalized and booked as land asset of the bank. The valuation of the land as per Bank’s own internal assessment is adequate.

17. Proposed Dividend of 70% has been considered in the account subject to the approval of the Board.

18. Previous Year’s figures have been rearranged & regrouped, wherever necessary.