Union Bank

AUDITORS' REPORT

To the members of
UNION BANK OF JAMAICA LIMITED

We have audited the financial statements set out on Statements II to VI. These financial statements are the responsibility of the directors and management. The directors and management are required to select suitable accounting policies and then apply them consistently, make judgements and estimates that are reasonable and prudent, follow applicable accounting standards, and prepare the financial statements on a going concern basis unless it is inappropriate to presume that The Bank will continue in business. The directors and management are responsible for keeping proper accounting records, for safeguarding the assets of The Bank, and for the prevention and detection of fraud and other irregularities. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards on auditing generally accepted in Jamaica. Those standards require that we plan and perform the audit to obtain all the information and explanations which we considered necessary to provide us with reasonable assurance that the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by directors and management, as well as evaluating the overall financial statements presentation. We believe our audit provides a reasonable basis for our opinion.

The financial statements have been prepared on a going concern basis which contemplate the realisation of assets and repayment of liabilities in the ordinary course of business. However, The Bank had incurred significant losses prior to, and in the year 1999. In 1999 in an effort to create a more viable entity other financial institutions were merged into The Bank, and The Bank recapitalised by the parent company, Finsac Limited (Finsac), with a view to returning The Bank to profitability and its ultimate sale. While these measures have resulted in the resumption of profitable operations there is still a substantial accumulated loss carried forward at December 31, 2000. Further, as described at Note 5, for the year ended December 31, 2000 approximately $4.5 billion or 85% of The Bank's income from loans and investments consisted of interest on Finsac bonds. This interest was settled principally by issue of further bonds, and at December 31, 2000 approximately $1.1 billion has been accrued which is included in other receivables, and this amount may also be settled in Finsac bonds subsequent to balance sheet date. At December 31, 2000 Finsac bonds, including accrued interest amounted to approximately $27.6 billion and represented 81% of the total assets. The liquidity of The Bank, its ability to continue its operations and achieve profitability are largely dependent on the collection of interest and/or principal on Finsac bonds which the Government of Jamaica (GOJ), through the Ministry of Finance and Planning, has undertaken to pay in cash to the extent required by The Bank from time to time. GOJ has also undertaken to provide any additional capital required, within the Bank of Jamaica's capital adequacy guidelines, until The Bank achieves profitability or is sold.

In our opinion, subject to such adjustments, if any, that might be required on the ultimate resolution of the uncertainties described in paragraph three above, proper accounting records have been kept, and proper branch returns obtained, and the financial statements, which are in agreement therewith, present fairly in all material respects the state of  The Bank's affairs as at December 31, 2000 and the net profit and changes in equity and cash flows for the year then ended and have been prepared in accordance with accounting standards generally accepted in Jamaica and comply with the provisions of the Companies Act applicable to Banking companies.

The reader's attention is drawn to Notes 25(b) and 31 dealing with contingencies for which no provisions have been made, and Finsac's obligations to meet these contingencies, should they crystallise. Our opinion is not qualified in this regard.



Chartered Accountants

Kingston, Jamaica,
February 27, 2001


Next Balance Sheet : 31/12/00

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