Chairman's Report

"2007 has been a year of solid achievement characterised by a strong 60% growth in revenues and a 46% increase in net profit after tax to US$9.7 million our highest ever."

The Cambodian Economic Background in 2007

Macroeconomic

From 1999 to the present the country has enjoyed increasing peace and stability with an average annual growth rate of 9.6% during the period. In particular from 2004 the annual growth rate accelerated to 11.2% reaching its highest point, 13.4%, in 2005. In 2007, the economy turned out a still very respectable GDP growth of 9.6%.

Annual inflation rate, based on a 12-month moving average, increased from 4.7% in 2006 to 5.8% in 2007. Against this, the official forecast of 4% for 2008 looks over-optimistic as food and fuel prices, which grew 19.8% and 10.1% respectively last year, continue to climb.

The KHR/USD exchange rate has been broadly stable fluctuating between KHR4,058 at the end of 2006 to KHR4,000 at the end of 2007 an appreciation of only 1.4%. A modest strengthening of the KHR is expected to continue going into 2008.

The international reserves have increased eleven-fold from US$100 million in 1994 to over US$1,1 billion in 2006 and are reported to have reached US$1.7 billion by the end of 2007, a rise of 55% covering 3 months of imports.

The key performers in last year's growth were the agricultural sector +5.5%, the garments industry +8.9%, tourism +18.5% and construction +589.3%.

Financial Sector Development Strategy 2006-2015

The government's "Financial Sector Development Strategy 2006-2015" has started to have a positive impact in promoting economic expansion and macro economic stability. The banking system is gaining public confidence as evidenced by the high deposit growth which in turn is encouraging the commercial banks to raise more capital from their shareholders. Credit extended to the private sector increased by 76% of which credit to Services 57.4%, Wholesale & Retail 75%, Construction 137.4%, Real Estate & Public Utilities 65.8% and Agriculture 105.4%.

Economic Outlook for 2008

The macroeconomic prospects for 2008 and the medium term are generally positive. Even with demand constrained by the current high level of petroleum prices, Cambodia's real GDP is expected to increase by 7.7% in 2008, with similar growth in the following years. Although the official forecast for inflation is that it will remain below 4% that may be difficult to sustain but nevertheless it should remain under control. Broad money (M2) growth is targeted at 29% while it is estimated that money in circulation will expand by 17% and foreign currency deposits by 32%.

Shareholders' Meeting

The Annual General Meeting of Shareholders was held on May 18, 2007 at the bank's headquarters and in addition four Resolutions were passed by email during the year. Notice of Meeting together with the Annual Report, the Meeting Agenda and the Board's recommendations were delivered to the Shareholders in advance according to the bank's Articles of Association and regulations and other action was taken by the Shareholders during the year as provided for by Article 15 of the Articles of Association.

The key matters approved were:

• The Annual Report for the year 2006.
• The audited Financial Statements for the year 2006.
• The payment of a dividend for 2006 of US 8.89 cents per share.
• The re-appointment of PricewaterhouseCoopers (Cambodia) Limited as the external auditors for 2007.
• Amendments to update Articles 6, 8 and 26 of the Memorandum and Articles of Association of ACLEDA Bank Plc.
• An amendment to the Subscription and Shareholders Agreement for an increase of capital from US$30 million to US$50 million and the conversion of debt into the capital.
• The re-election of the members of the Board of Directors for new three years terms.
• Investment to establish a commercial banking subsidiary in the Lao PDR.

Board Performance

Whilst a fuller report on the activities of your Board during the year is provided elsewhere there is one important decision which I particularly want to highlight. As a follow-up to the 'Three Years On - Building A Governance Structure For The Future' program which commenced in 2005 the Directors have initiated a Board Self Appraisal exercise which started in December, 2007.

Achievements in 2007

2007 has been a year of solid achievement characterised by a strong 60% growth in revenues and a 46% increase in net profit after tax to US$9.7 million, our highest ever. In March after nearly three years in the construction, we held the grand opening of our new headquarters which provides the most comfortable and modern banking hall in Cambodia. At the same time ACLEDA launched its automated teller machines (ATM) service to the public and the ACLEDA Card is now widely used throughout Cambodia. In conjunction with our partners, Telekom Malaysia International ('Hello 015/016') we introduced a mobile phone top-up service through our ATMs and payment of invoices of internet service provider OnlineCom^TM through our branches. In August we were honoured to accompany Mr. Robert Zoellick, who was on his first overseas trip as President of the World Bank, on a visit to one of Cambodia's most successful micro-entrepreneurs and an important customer of our bank. But perhaps the most significant event of 2007 was the granting of a preliminary license by the government of the Lao PDR to establish a commercial banking subsidiary in Laos. ACLEDA is the first Cambodian bank to expand its operations outside the country and is the first step in our aim to become a regional player. The new bank, to be named ACLEDA Bank (Lao) Ltd. ('ABL'), is expected to open its doors in Vientiane by the middle of 2008 but hopes to establish additional branches in the provinces starting with Savannakhet and Pakse as business develops.

Other achievements worthy of note are:

• Moody's Investors Service upgraded the foreign currency issuer rating to B1 from B2 and reaffirmed its BFSR (Bank Financial Strength Rating) of 'D', one of the strongest for domestic banks in Asian developing markets.
• Based on 2007 performance on January 10, 2008, Standard & Poor's Ratings Services assigned ACLEDA Bank first time ratings of 'B+' long-term and 'B' short-term for Counterparty Credit, and a Bank Fundamental Strength Rating of 'D'. The outlook is 'stable'.
• At a Bankers Association ceremony in December the Governor of the central bank presented a 'Certificate of Appreciation' to ACLEDA for our 'valuable contribution towards the development of a countrywide branch banking network in Cambodia'.
• For the third year running ACLEDA received certificates of excellence from HSBC and Standard Chartered Bank for our payment and cash management services.

On the domestic front the branch network was expanded from 156 to 204 offices during the year.

Dividends

The Board is pleased to recommend a dividend per share of US 12.99 cents — a 46% increase over the 8.89 cents for 2006. This is the seventh consecutive year in which we have raised the dividend payout to shareholders since ACLEDA was transformed to a bank in 2000 and represents approximately 40% of our Net Profit After Tax. In keeping with our previous practice, we will propose that the remaining 60% of retained earnings be transferred to General Reserves.

The Year Ahead

On the back of the positive economic forecast for 2008, the year in which ACLEDA celebrates its fifteenth anniversary, we expect the growth in our business to continue at broadly the same rate as for 2006 and 2007. To support this and in line with our policy of maintaining our capital base at the upper level of the regulatory prudential ratios we raised our issued and paid-up capital from US$30 million to US$50 million in January by means of a rights issue which was fully subscribed by our existing shareholders. This is the fourth time ACLEDA has increased its capital since becoming a licensed bank in 2000. As I announced to the media at the time it is of paramount importance to build public trust and by demonstrating that we have strong shareholders ready and willing to support the bank we are creating confidence in our ability to protect our customers' savings.

Also on the cards for 2008 are:

• Continued expansion of our domestic branch, ATM and POS networks.
• Opening of our subsidiary, ACLEDA Bank (Lao) Ltd in Vientiane, Savannakhet and Pakse.
• Development of our strategy for building our capital base and the development of the Cambodian Stock Exchange.

Once again it is my pleasure to thank my colleagues on the Board of Directors for their support and wise counsel during 2007. Mr. Eric J. Rajendra resigned from the Board in October and I would like to take this opportunity of wishing him success in the future. In March 2008, we were pleased to welcome Mr. Aftab Ahmed to the Board as his successor.

On behalf of the Board and myself I express our appreciation to the CEO and his management team as well as the staff for their outstanding efforts in turning in the excellent results just reported.

I would also like to recognise the contribution of our customers, regulators, shareholders, suppliers and the general public during the year. Without your support our strategic objective to be Cambodia's leading "bank for the people" and a significant presence in the Mekong region will remain just a dream — with it we shall succeed!