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Raport Anual 2008 Moldova Annual Report 2008
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Annual Report 2008
Mission Statement 4
Letter from the Board of Directors 5 The Bank and its Shareholders 6
The ProCredit Group: Responsible Banks for Ordinary People 8 ProCredit in Eastern Europe 11
Highlights in 2008 14
Management Business Review 16
Special Feature 24 Risk Management 26
ProCredit Office Network 30 Organisation, Staff and Staff Development 32 Business Ethics and Environmental Standards 35
Our Clients 36
Financial Statements 40
Contact Addresses 66
C o n t e n t s �
Mission StatementMission Statement
ProCredit Bank in Moldova is a development-oriented full-service bank. We offer excellent
customer service and a wide range of banking products. In our credit operations, we
focus on lending to very small, small and medium-sized enterprises, as we are convinced
that these businesses create the largest number of jobs and make a vital contribution to
the economies in which they operate.
Unlike other banks, our bank does not promote consumer loans. Instead we focus on
responsible banking, by building a savings culture and long-term partnerships with our
customers.
Our shareholders expect a sustainable return on investment, but are not primarily
interested in short-term profit maximisation. We invest extensively in the training of our
staff in order to create an enjoyable and efficient working atmosphere, and to provide
the friendliest and most competent service possible for our customers.
A n n u a l R e p o r t 2 0 0 8�
Mission StatementMission Statement
This year brought dramatic developments across the global economy. After years of overheated expan-sion, the easy credit house of cards finally collapsed. While it must be considered positive that the ex-cesses of irresponsible lending in many countries finally came to an end, the consequences are grim. Borrowers who took out a loan that they should have never received are now finding repayments difficult to meet. Trust in banks worldwide has suffered and the long-term economic consequences may be far-reaching indeed.
These global shockwaves have had little impact on Moldova so far. Overall, the country ended 2008 with strong economic growth, modest inflation and a stable currency. Due to its limited integration into the world’s financial system, the Moldovan banking sector was not greatly affected by the meltdown in the banking systems of the West. However, it would be overly optimistic to assume that the financial and economic crisis will leave Moldova unharmed.
ProCredit closed a successful year of business in 2008. After operating for many years as a finance com-pany, we launched a full-service bank – ProCredit Bank in Moldova – in January, marking the beginning of a year of strong institutional expansion. The bank already operates 16 offices and outlets in and around Chisinau. In total, ProCredit employed no less than 525 staff by the end of the year – and our growth will continue.
By opening ProCredit Bank, we widened the scope of our activities to include customer deposits and other banking services. We are determined to set new standards in customer service. But we do not want to achieve this by offering sophisticated services with products suitable only for a small number of well-off people. Instead, the bank has a mission to provide friendly service and simple, fair and transparent prod-ucts to the broader population. We believe that fairness and transparency create trust and pave the way for a long-term business relationship with our clients.
Our lending operations have always been characterised by a strong focus on our core clientele of small and medium-sized businesses, and this will remain the case in the future. Small businesses do not only play an important role in local economic development by providing income and employment; they are also reliable clients and valuable business partners. We require well-trained staff and a good understanding of our clients’ needs in order to serve them well, and these are the major strengths of ProCredit. Our lend-ing approach is adapted to the needs of small and medium-sized businesses and we invest heavily in the training of our staff. Particularly in more difficult times, we strive to be a reliable partner to our clients and to provide the financial resources and advice they require.
With a new bank in the context of a global financial crisis, our outlook for 2009 is mixed. The expected worldwide recession will have its impact on Moldova as the country sees reduced demand for its goods in most of its key markets. Furthermore, the regular increase in remittances observed over many years is unlikely to continue. Many Moldovans working abroad will face difficulties in maintaining a regular salary or even in retaining their jobs. Remittance payments already began to show a downward trend towards the end of the year. Stable or even decreasing remittances will have a direct impact on purchasing power and economic activity.
In this challenging environment, ProCredit Bank will continue on its sustainable growth path. Financially, the bank will break even during the year. We will hire additional staff and expand our network to boost our operations, thereby reaching out to even more clients. We aim to gain depositors’ trust and support a growing number of entrepreneurs in their business operations. Over the years, our responsible way of lending has resulted in a growing loan portfolio of very high quality. ProCredit’s strong institutional structure and our well trained staff give us the confidence and the optimism to face the challenges of the coming year.
Stephan Boven Chairman of the Board of Directors
Letter from the Board of Directors
Members of the
Board of Directors as of
December 31, 2008
Stephan Boven
Lorenz Gessner
Dietrich Ohse
Members of the
Management Team as of
December 31, 2008
Ilinca Rosetti
Kemal Seitveliiev
Vladislav Garbu
(General Manager,
ProCredit finance company)
L e t t e r f r o m t h e B o a r d o f D i r e c t o r s �
The Bank and its Shareholders
ProCredit Holding is the parent company of a global
group of 22 ProCredit banks. ProCredit Holding was founded as Internationale Micro Investition- en AG (IMI) in 1998 by the pioneering develop-ment finance consultancy company IPC.
ProCredit Holding is committed to expanding ac-cess to financial services in developing countries and transition economies by building a group of banks that are the leading providers of fair, trans-parent financial services for very small, small and medium-sized businesses as well as the general population in their countries of operation. In ad-dition to meeting the equity needs of its subsidi-aries, ProCredit Holding guides the development of the ProCredit banks, provides their senior man-agement, and supports the banks in all key areas of activity, including banking operations, human resources and risk management. It ensures that ProCredit corporate values, best-practice bank-ing operations and Basel II risk management principles are implemented group-wide.
IPC is the leading shareholder and strategic inves-tor in ProCredit Holding. IPC has been the driving entrepreneurial force behind the ProCredit group since the foundation of the banks.
ProCredit Holding is a public-private partnership. In addition to IPC and IPC Invest (the investment vehicle of the staff of IPC and ProCredit), the other private shareholders of ProCredit Holding include the Dutch DOEN Foundation, the US pension fund TIAA-CREF, the US Omidyar-Tufts Microfinance Fund and the Swiss investment fund respons- Ability. The public shareholders of ProCredit Hold-ing include KfW (the German promotional bank), IFC (the private sector arm of the World Bank), FMO (the Dutch development bank) and BIO (the Belgian Investment Company for Developing Countries).
ProCredit Holding has an investment grade rat-ing (BBB-) from Fitch Ratings Agency. As of the end of 2008, the equity base of the ProCredit group is EUR 387 million. The total assets of the ProCredit group are EUR 4.8 billion.
ProCredit Bank in Moldova is a member of the ProCredit group, which is led by its Frankfurt-based parent company, ProCredit Holding. ProCredit Holding is the majority owner of ProCredit Bank in Moldova and now holds 91.7% of the shares.
ProCredit Bank in Moldova was founded in December 2007 by an alliance of international development-oriented investors. Their goal was to establish a new kind of financial institution that would meet the demand of small and very small businesses in a socially responsible way. The primary aim was not short-term profit maxim-isation but rather to deepen the financial sector and contribute to long-term economic develop-
ment while also achieving a sustainable return on investment.
The founding shareholders of ProCredit Bank in Moldova were ProCredit Holding and DOEN Foun-dation. Over the years, ProCredit Holding, working closely with the consulting company IPC, has consolidated the ownership and management structure of all the ProCredit banks and financial institutions to create a truly global group with a clear shareholder structure and to bring to each ProCredit institution all the synergies and ben-efits that this implies.
Today’s shareholder structure of ProCredit Bank in Moldova is outlined below. Its current share capital is USD 13.9 million.
Sector
InvestmentInvestment
Shareholder(as of Dec. 31, 2008) ProCredit HoldingDOEN Foundation
Total Capital
Headquarters
GermanyThe Netherlands
Share
91.67%8.33%
100%
Paid-in Capital (in USD)
12,741,682 1,158,335
13,900,016
A n n u a l R e p o r t 2 0 0 8�
The Bank and its Shareholders
Stichting DOEN – Postcode Loterij/Sponsor Loterij/Bank-
Giro Loterij, or DOEN Foundation, was set up in 1991 by the Dutch Postcode Lottery to promote a liveable world in which everyone can play a part. To that end DOEN Foundation invests in and donates grants to initiatives in the fields of sus-tainable development, culture, welfare and social cohesion. DOEN Foundation funds its activities from annual contributions received under long-term contracts from its founder, the Dutch Post-code Lottery, and also two other Dutch charity lotteries, the BankGiro Lottery and the Sponsor Bingo Lottery.
DOEN Foundation has been financing entrepre-neurial and sustainable initiatives that improve access to the financial sector in countries in transition and developing countries since 1994. DOEN Foundation considers access to finance an important tool for sustainable development and for building civil society.
Th e B a n k a n d i t s S h a r e h o l d e r sTh e B a n k a n d i t s S h a r e h o l d e r s �
The ProCredit group comprises 22 financial in-stitutions whose business focus is on providing responsible banking services in transition econo-mies and developing countries. We aim to provide accessible, reliable services to small businesses and the ordinary people who live and work in the neighbourhoods in which we operate. Today our 21,400 employees, working in 814 branches, serve 2.9 million customers in Eastern Europe, Latin America and Africa.
The first ProCredit banks were founded more than a decade ago with the aim of making a significant development impact by promoting the growth of small businesses. We sought to achieve this by providing loans tailored to their requirements and offering attractive deposit facilities that would enable and encourage low-income individ-uals and families to save. The group has grown strongly over the years – today we are one of the leading providers of banking services to small business clients in most of the countries in which we operate.
Our development mission and socially respon-sible approach remain as relevant today as they have ever been. Indeed, their importance has been underscored by the global financial crisis and the challenges this has created for individual clients as well as for national economies. The im-pact of the “credit crunch” will differ from coun-try to country and from region to region, but now more than ever our customers need a reliable banking partner. That is why we have consist-ently applied the principles that have defined the ProCredit group since its foundation.
Our mission is to provide credit in a responsible manner to very small, small and medium-sized enterprises, as we are convinced that these busi-nesses create the largest number of jobs and make a vital contribution to the local economy. Unlike most other banks operating in our mar-kets, we avoid aggressive consumer lending and all speculative lines of business. Instead, the ProCredit banks work in close contact with their clients to gain a profound understanding of the problems small businesses face and the opportu-nities that are available to them.
Our tailored credit technology reflects the re-alities of our clients’ operating environment. De-
veloped by the German consulting firm IPC, this technology combines careful individual analysis of all credit risks with a high degree of standardi-sation and efficiency. It enables ProCredit institu-tions to reach a large number of small businesses while maintaining high loan portfolio quality. By making the effort to know our clients well and build long-term working relationships based on trust and understanding, we are well positioned to support them not only when the economy is buoyant, but also during a downturn.
Furthermore, our targeted efforts to foster a sav-ings culture in our countries of operation have en-abled us to build a stable deposit base. ProCredit deposit facilities are appropriate for a broad range of customers, and for low-income groups in particular. We offer simple savings products with no minimum deposit requirement. ProCredit banks place great emphasis on children’s savings products and on running financial literacy cam-paigns in the broader community. In addition to deposit facilities, we offer our clients a full range of standard non-credit banking services.
The ProCredit group has a simple business model: lending to a diverse range of enterprises and mobilising local deposits. As a result, our banks have a transparent, low-risk profile. We do not rely heavily on capital market funding and have no exposure to complex financial products. Fur-thermore, our well-trained staff are highly flex-ible and able to provide competent advice to clients, guiding them through difficult times. De-spite the turmoil of the global financial markets, the performance of the ProCredit group has been remarkably stable: we ended 2008 with approxi-mately 15.4% year-on-year growth in assets over the year and a comfortable level of profitability.
Our shareholders have always taken a conserva-tive, long-term view of business development, aiming to strike the right balance between a shared developmental goal – reaching as many small enterprises and small savers as possible – and achieving commercial success.
Strong shareholders provide a solid foundation for the ProCredit group. It is led by ProCredit Holding AG, a German-based company that was founded by IPC in 1998. ProCredit Holding is a public-private partnership. The private sharehold-
The ProCredit Group: Responsible Banks for Ordinary People
A n n u a l R e p o r t 2 0 0 8�
ProCredit Bank Serbia
ProCredit Bank Bosnia and Herzegovina
ProCredit Bank Kosovo
ProCredit Bank Albania
ProCredit Bank Macedonia
ProCredit Bank Sierra Leone
ProCredit Savings and Loans Ghana
ProCredit Bank Democratic Republic of Congo
Banco ProCredit Mozambique
ProCredit Bank Ukraine
ProCredit Bank Moldova
ProCredit Bank Romania
ProCredit Bank Georgia
ProCredit Bank Armenia
ProCredit Bank BulgariaProCredit Mexico
Banco ProCredit Honduras
Banco ProCredit El Salvador
Banco ProCreditNicaragua
Banco ProCreditColombia
Banco ProCredit Ecuador
Banco Los AndesProCredit Bolivia
ers include: IPC and IPC Invest, an investment ve-hicle set up by IPC and ProCredit staff members; the Dutch DOEN Foundation; the US pension fund TIAA-CREF; the US Omidyar-Tufts Microfinance Fund; and the Swiss investment fund responsA-bility. The public shareholders include the Ger-man KfW Bankengruppe (KfW banking group); IFC, the private sector arm of the World Bank; the Dutch development bank FMO; and the Belgian Investment Company for Developing Counties (BIO). The group also receives strong support from the EBRD and Commerzbank, our minority shareholders in Eastern Europe, and from the IDB in Latin America.
ProCredit Holding is not only a source of equity for its subsidiaries, but also a guide for the de-velopment of the ProCredit banks, providing the personnel for their senior management and of-fering support in all key areas of activity. The
holding company ensures the implementation of ProCredit corporate values, best practice bank-ing operations and Basel II risk management principles across the group. The group’s busi-ness is run in accordance with the rigorous regu-latory standards imposed by the German banking supervisory authority (BaFin).
ProCredit Holding and the ProCredit group place strong emphasis on human resource manage-ment. Our neighbourhood banking concept is not limited to our target customers and how we reach them, it is also about our staff: how we work with one another and how we work with our custom-ers. The strength of our relationships with our customers will be central to working with them effectively in 2009 and achieving steady busi-ness results. A responsible neighbourhood bank approach requires a decentralised decision- making process and a high level of judgment and
The ProCredit Group: Responsible Banks for Ordinary People
The international group
of ProCredit institutions;
see also
www.procredit-holding.com
Th e P r o C r e d i t G r o u p : R e s p o n s i b l e B a n k s f o r O r d i n a r y P e o p l e �
creativity from all staff members, especially our branch managers. Our corporate values embed principles such as honest communication, trans-parency and professionalism into our day-to-day business. Key to our success is therefore the re-cruitment and training of a dedicated staff. We maintain a corporate culture which strengthens the professional development of our staff, while fostering their deep sense of personal and so-cial responsibility. This entails not only intensive training in technical and management skills, but also a continuous exchange of personnel among our member institutions in order to take full ad-vantage of the opportunities for staff develop-ment that are created by their participation in a truly international group.
A central plank in our approach to training is the group’s ProCredit Academy in Germany, which pro-vides a three-year, part-time “ProCredit Banker” training programme for high-potential person-nel from each of the ProCredit institutions. The programme includes intensive technical training and also exposes participants to a very multicul-tural learning environment and to subjects such
as anthropology, history, philosophy and ethics. The programme provides an opportunity for our future leaders to develop their views of the world, as well as their communication and staff manage-ment skills. The first year of ProCredit Academy participants graduated in September 2008. The professional development of local middle manag-ers is further supported by three regional acade-mies in Latin America, Africa and Eastern Europe, which provide similar off-site training for a larger number of people.
The group’s strategy for 2009 will reflect the prevailing conditions of the countries in which we work. We plan to intensify our focus on loan portfolio quality and to offer personal support to our existing clients. We will continue to invest in our staff since it is their skills which enable us to work effectively with our clients under changing macroeconomic conditions. As responsible banks for ordinary people, with prudent policies and an excellent staff to ensure our steady performance, we look forward to consolidating our position in all our countries of operation.
A n n u a l R e p o r t 2 0 0 810
ProCredit in Eastern Europe
ProCredit operates in 11 countries across Eastern Europe. With more than 611,000 loans outstand-ing, it is the region’s leading provider of banking services to very small, small and medium-sized businesses.
2008 proved to be a challenging year for the region. After several years of strong economic growth and rapid expansion of banking sector assets, the effects of the global financial crisis were felt in the latter half of the year as credit growth slowed and public trust wavered. Al-though the medium-term implications are not yet clear, the region will certainly be affected by both the worldwide economic downturn and, with the banking sector dominated by Western European banks, the turmoil in the global financial sector. We anticipate lower economic growth and high-er levels of market volatility in our countries of operation – conditions to which ProCredit and its clients must adapt.
Given our consistent, reliable approach, ProCredit institutions are well placed to succeed in the cur-rent economic environment. We have a stable, straightforward balance sheet and a highly di-versified client base. Our expansion in the first half of the year continued to be strong. Growth levelled off during the final two quarters as we introduced more conservative lending policies in response to greater credit risk. Our staff focused on working closely with our debtors and retail clients to help them understand and respond to changing conditions.
Across the region, the focus of most other banks in recent years has been on corporate financing and consumer lending. In comparative terms, these institutions neglected the provision of credit to small entrepreneurs and family busi-nesses. At ProCredit, we consider such clients to be our core target group. We are their banking partner of choice, able to understand their needs and offer sound, professional advice. These busi-nesses will remain the driving force behind eco-nomic growth and job creation across Eastern Europe, just as they have been since the collapse of Soviet influence and large, state-owned enter-prises. As other banks provide fewer loans in the region, due to either to domestic or international constraints, it will be more important than ever
that we provide our clients with access to suffi-cient finance to support their operations.
ProCredit has always emphasised the fact that consumer lending, which has been so aggres-sively pursued by other banks in Eastern Europe, has never been a line of business in which we wish to engage. Such loans can easily lead to over-indebtedness when banks advertise and disburse them irresponsibly in a competition to gain market share. We fear that the widespread practice of approving loans with an inadequate analysis of customers‘ repayment capacity may now exacerbate the problems that individuals and families face in less prosperous times. This poses further potential difficulties for the bank-ing sector as a whole.
Our approach is to provide primarily business loans following a careful, individual analysis of each client’s ability to meet his or her obligations. We have decentralised decision-making systems in place and a body of highly qualified staff who are able to conduct an efficient and reliable risk assessment even in more volatile economic condi-tions. ProCredit is guided by a responsible, long-term attitude towards business development. We aim to build lasting relationships with our clients and do not forget that a loan is also a debt. These values will be particularly pertinent when manag-ing potential arrears in cases where clients have to adapt to lower than anticipated sales.
Our lending activities include the provision of agricultural loans; we are keen to support a sec-tor that has been particularly neglected by other banks and that is vital for employment and social cohesion outside the main urban areas. We also provide housing improvement loans to help low-income families renovate their homes and im-prove energy efficiency.
Alongside its credit operations, ProCredit has invested strongly over the years in creating a savings culture amongst clients and the broader public. We believe that setting money aside can help protect savers against the uncertainties of life. This is perhaps truer now than ever before. The ratio of deposits to GDP in Eastern European countries is below Western European levels, typi-cally at around 50%. Through promotional events and direct, personal communication, we encour-
P r o C r e d i t i n E a s t e r n E u r o p e 11
Poland
Belarus
Turkey
Slovakia
Czech Republic
HungaryAustria
Slovenia
Greece
Syria
Iraq
Armenia Azerbaijan
Georgia
Russia
Ukraine
Moldova
Romania
Bulgaria
Serbia
Kosovo
MacedoniaAlbania
Bosnia and Herze- govina
Montenegro
CroatiaItaly
Kyrgyzstan
Kazakhstan
Turkmenistan
Uzbekistan
Iran Afghanistan
Tajikistan
Kashmir
Sinkiang
Pakistan
Saudi Arabia
KuwaitJordanIsrael
EgyptLibya
India
Tunesia
Germany
Switzerland
France
Poland
Belarus
Turkey
Slovakia
Czech Republic
HungaryAustria
Slovenia
Greece
Syria
Iraq
Armenia Azerbaijan
Georgia
Russia
Ukraine
Moldova
Romania
Bulgaria
Serbia
Kosovo
MacedoniaAlbania
Bosnia and Herze- govina
Montenegro
CroatiaItaly
Kyrgyzstan
Kazakhstan
Turkmenistan
Uzbekistan
Iran Afghanistan
Tajikistan
Kashmir
Sinkiang
Pakistan
Saudi Arabia
KuwaitJordanIsrael
EgyptLibya
India
Tunesia
Germany
Switzerland
France
Poland
Belarus
Turkey
Slovakia
Czech Republic
HungaryAustria
Slovenia
Greece
Syria
Iraq
Armenia Azerbaijan
Georgia
Russia
Ukraine
Moldova
Romania
Bulgaria
Serbia
Kosovo
MacedoniaAlbania
Bosnia and Herze- govina
Montenegro
CroatiaItaly
Kyrgyzstan
Kazakhstan
Turkmenistan
Uzbekistan
Iran Afghanistan
Tajikistan
Kashmir
Sinkiang
Pakistan
Saudi Arabia
KuwaitJordanIsrael
EgyptLibya
India
Tunesia
Germany
Switzerland
France
age people – particularly those who do not yet have a bank account – to make use of banking services and to regularly save a portion of their earnings.
We offer simple and reliable retail banking serv-ices, including flexible savings and deposit accounts to accommodate depositors’ long- and short-term needs. Our belief in transparent, di-rect communication is particularly important in fostering clients’ trust in these difficult times. We understand that our clients want to know in sim-ple language how to save safely; they also want to access their money when they need it without unexpected complications. Thanks to the trust that the public has placed in ProCredit, local de-posits are the principal source of funding for our lending activities to local businesses. We have therefore not had to rely on unpredictable capital markets. All the ProCredit institutions in Eastern Europe ended the year with a comfortable liquid-ity position and a stable, indeed increasing, net interest margin.
In line with our mission to reach clients in their neighbourhoods wherever they are, the ProCredit group continued to expand in 2008: we opened 116 branches and recruited more than 2,500 peo-ple in Eastern Europe alone, bringing the regional total to over 13,500 employees in 557 branches. In the coming year we will focus on strengthening our business operations from this base. We place
a strong emphasis on transparency and will con-tinue to run information campaigns in 2009 to ensure that people understand the pricing of our products as well as those of our competitors.
Our staff is the key element in our approach to be-ing a stable, down-to-earth and personal bank-ing partner. The ProCredit group has a strong commitment to staff training, professional de-velopment and the cultivation of an open, honest communication culture. Staff exchanges, cross-border training programmes and regional work-shops are an important part of our approach. In September 2008 construction was completed on the new Eastern European Academy, located near Skopje in Macedonia. Dedicated to the training of ProCredit middle managers, the Academy is an important channel for rapid and consistent com-munication region-wide and one that helps us adapt quickly to face new challenges: 210 man-agers have already graduated from the six-week intensive course since the facility was founded. A language centre at the Academy also provides residential English courses, maximising the po-tential for international exchange within the group. Like all prudent banks, we will continue to focus on efficient cost management in 2009 and beyond. Investment in our staff is however an on-going commitment and will remain a central plank in the ProCredit Bank approach. A qualified, moti-vated and professional team lies at the root of our lasting success across Eastern Europe.
A n n u a l R e p o r t 2 0 0 81�
* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with group-wide standards; they may differ from the figures reported in the bank’s local GAAP statements.
Name
ProCredit BankAlbania
ProCredit BankArmenia
ProCredit BankBosnia and Herzegovina
ProCredit BankBulgaria
ProCredit Bank Georgia
ProCredit BankKosovo
ProCredit BankMacedonia
ProCreditMoldova
ProCredit BankMoldova
ProCredit BankRomania
ProCredit BankSerbia
ProCredit BankUkraine
Highlights*
Founded in October 199834 branches40,619 loans / EUR 134.1 million in loans177,630 deposit accounts / EUR 203.9 million1,003 employees
Founded in December 20074 branches2,340 loans / EUR 16.7 million in loans6,592 deposit accounts / EUR 6.7 million203 employees
Founded in October 199744 branches65,277 loans / EUR 162.9 million in loans113,096 deposit accounts / EUR 171.5 million888 employees
Founded in October 200187 branches66,612 loans / EUR 578.9 million in loans220,023 deposit accounts / EUR 341.9 million1,955 employees
Founded in May 199958 branches66,083 loans / EUR 221.8 million in loans364,742 deposit accounts / EUR 126.1 million1,815 employees
Founded in January 200060 branches98,366 loans / EUR 439.6 million in loans402,214 deposit accounts / EUR 570.0 million1,158 employees
Founded in July 200340 branches35,493 loans / EUR 129.1 million in loans129,687 deposit accounts / EUR 127.6 million791 employees
Founded in December 199911 representative offices and 2 mobile offices13,221 loans / EUR 23.5 million in loans175 employees
Founded in December 200716 representative offices and 1 mobile office2,973 loans / EUR 8.7 million in loans9,226 deposit accounts / EUR 5.1 million350 employees
Founded in May 200240 branches41,948 loans / EUR 214.0 million in loans142,379 deposit accounts / EUR 148.1 million1,121 employees
Founded in April 2001 86 branches133,043 loans / EUR 453.3 million in loans478,745 deposit accounts / EUR 332.3 million2,058 employees
Founded in January 200174 branches45,858 loans / EUR 262.6 million in loans105,656 deposit accounts / EUR 122.8 million2,035 employees
Contact
Rruga Sami FrasheriTiranaTel./Fax: +355 4 2 271 272 / [email protected]
31, Moskovyan Str.Building 99Yerevan 0002Tel./Fax: + 374 10 514 860 / [email protected]
Emerika Bluma 871000 SarajevoTel./Fax: +387 33 250 950 / 250 [email protected] www.procreditbank.ba
131, Hristo Botev Blvd. Sofia 1233Tel./Fax: +359 2 813 51 00 / 51 [email protected]
154 D. Agmashenebeli Ave. 0112 TbilisiTel./Fax: +995 32 20 2222 / 24 [email protected]
“Mother Tereze” Boulevard No. 16 10 000 PrishtinaTel./Fax: +381 38 555 777 / 248 [email protected]
Bul. Jane Sandanski 109a 1000 SkopjeTel./Fax: +389 2 321 99 00 / [email protected]
65, Stefan cel Mare Ave.office 900, ChisinauTel./Fax: +373 22 836555 / [email protected]
65, Stefan cel Mare Ave.office 901, ChisinauTel./Fax: +373 22 836555 / [email protected]
62-64 Buzesti Str., Sector 1011017 BucharestTel./Fax: +40 21 2016000 / 305 [email protected]
Milutina Milankovica 17BelgradeTel./Fax: +381 11 20 77 906/ 905 [email protected]
107a Peremogy Ave.Kyiv 03115Tel./Fax: +380 44 590 10 17 / [email protected]
P r o C r e d i t i n E a s t e r n E u r o p e 1�
Highlights in 2008
•
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ProCredit Bank in Moldova launched its op-erations in January 2008. It positioned itself as a “neighbourhood bank” which offers straightforward banking services in a socially responsible manner to “ordinary people” who live and work in the communities where it op-erates.
During its first year of operation, the bank disbursed almost 3,300 loans with a total volume of over USD 16.8 million. Deposit op-erations also developed favourably, and at year-end the deposit base amounted to USD 9.6 million.
In line with our commitment to promoting a savings culture in Moldova, we introduced a special account for children – the ProKid account – in June. Parents can open a ProKid account for their children, and then accom-pany them to the local ProCredit Bank office at regular intervals to deposit the money they have put aside.
We increased our combined staff at ProCredit Bank and the ProCredit finance company by 51.7% to 525 this year. To provide high qua- lity training and ensure that all new employ-ees are smoothly integrated into our team, we established an in-house training centre in July.
ProCredit Bank expanded its organisational structure to support the launch of banking operations, establishing five new depart-ments: the Retail Department, the Payments and Cash Management Department, the Card Service Operations Department, the Risk Management Department and the Training and Staff Development Department.
We opened eight new bank locations and in-tegrated eight former offices of the ProCredit finance company into the bank’s network. This brought the total number of ProCredit Bank sites to 16 at the end of the year.
A n n u a l R e p o r t 2 0 0 81�
In October, ProCredit Bank launched an image campaign with the slogan “ProCredit Bank: the bank for you, the bank for everyone”, underscoring its profile as an institution which seeks to serve all segments of the population. This multimedia campaign was particularly important in terms of strengthen-ing our market position and making the pub-lic more aware of our broad range of banking services.
ProCredit Bank carried out a number of com-munity projects in the areas where it oper-ates. For example, we set up a playground in the heart of Chisinau in November, which helped to improve the quality of life for the local residents. Such activities demonstrate our commitment to being a true neighbour-hood bank.
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H i g h l i g h t s i n 2 0 0 8 1�
Management Business Review
Management
from left to right:
Kemal Seitveliiev
Deputy General Manager, ProCredit Bank
Ilinca Rosetti
General Manager, ProCredit Bank
Vladislav Garbu
General Manager, ProCredit finance company
A n n u a l R e p o r t 2 0 0 81�
Management Business Review
Political and Economic Environment
The year 2008 turned out to be relatively stable for Moldova, both politically and economically. The economic growth of 5.4% achieved during the first half of the year was somewhat surprising given the slowdown of the preceding two years.1 Floods during the summer caused damage to-talling USD 120 million.2 At the end of the year, however, real GDP growth stood at 7.2% (2007: 3.0%).1
Rising gas and electricity prices had seemed to be pushing up inflation during the first half of the year. The official annualised rate as of the end of August was 11.7% but had fallen to 7.3% by the end of the year.1 The National Bank of Moldova (NBM) continued its measures to bring inflation under control. It raised the mandatory reserve requirement for deposits in Moldovan lei and foreign currencies in three stages from 16% to 22%, with the last increase taking ef-fect in July. Starting in October, the NBM gradu-ally reduced the requirement to 17.5%. The cen-tral bank also increased its base lending rate from 16% to 18.5% in July, lowering it again in October to 15.5%.3
Reflecting a deterioration in the country’s ex-ternal finances and continued inflationary pres-sure, Fitch Ratings lowered its outlook on Moldo-va’s long-term foreign and local currency issuer default ratings from positive to stable. It also downgraded the long-term foreign and local cur-rency ratings to B- and B respectively. The agency maintains that Moldova is exposed to economic shocks because of a high trade deficit, increas-ing national debt, low external liquidity and a strong dependence on trade with Russia.
Over the course of the year, the Moldovan leu ap-preciated significantly against major foreign cur-rencies, gaining 11.4% against the euro and 8.1% against the US dollar.3
The trends that had characterised Moldova’s ex-ternal trade situation in previous years continued in 2008, with imports rising significantly faster than exports. This caused the overall trade deficit to increase by 40.6% to USD 3.3 million. Exports to EU countries showed the greatest growth: the
EU became the main market for Moldovan prod-ucts, absorbing 51.4% of total exports.1
Moldova remained the poorest country in Europe, with an average monthly wage of USD 243 and a GDP per capita of USD 1,694.1 Due to the low per-sonal income levels, it is estimated that about one million people have emigrated to seek bet-ter-paying work abroad. Taking into account only the volume of foreign remittances handled by the banking system, such transfers rose to a record level of USD 1.7 billion in 2008, equal to about one third of GDP.3
Regarding the political sphere, the President of Moldova met in April with the leader of the self-proclaimed republic of Transnistria in eastern Moldova. Although they did not resolve the im-passe over the status of the region, this meet-ing breathed some life into the previously dead-locked negotiations. The unexpected voluntary resignation in March of Prime Minister Vasile Tarlev did not impact the political environment in any significant way.
Financial Sector Developments
There are 16 registered banks in Moldova. Total assets in the banking sector grew more slowly than in 2007, increasing by 22.3% as compared to a growth rate of 40.6% in the previous year. The three largest banks control 47.4% of the total assets.3
Interest rates on loans and deposits rose signifi-cantly over the course of 2008 in both local and foreign currency terms. Changes in the NBM’s base lending rate resulted in a net increase of 1.5 percentage points in this key interest rate by the end of the year.1
The banking sector’s total loan portfolio had reached USD 2.41 billion by the end of 2008, having grown by 31% over 2007.3 Total loans amounted to 38.6% of GDP. The total deposit
1 National Bureau of Statistics2 Political and Security Statewatch, No.8 (15), August 20083 National Bank of Moldova
M a n a g e m e n t B u s i n e s s R e v i e w 1�
30.1%
64.2%
4.9%
0.6%
0.2%
< USD 1,000 USD 50,001 – USD 150,000 USD 1,001 – USD 10,000 > USD 150,000USD 10,001 – USD 50,000 * 31 Dec 2008
Number of Loans Outstanding – Breakdown by Loan Size*Loan Portfolio Development
Number (in ’000)Volume (in USD million)
14
12
10
8
6
4
2
0 Mar 08 Jun 08 Sep 08 Dec 08
< USD 10,000 > USD 150,000 USD 10,001 – USD 50,000 Total number outstanding USD 50,001 – USD 150,000
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
base, meanwhile, had risen by 28% to USD 2.61 billion while the ratio of total deposits to GDP was 43.3%.3
Due to a new minimum capital requirement of MDL 100 million established by the NBM, all banks, including ProCredit Bank, boosted their paid-in capital. As a result, the total regulatory capital in the banking sector increased during 2008 by 27.5% to USD 640.8 million.3
Lending activities in the banking sector were significantly impacted by the new mortgage law which came into force in September this year. Under this law, borrowers using mortgages to secure loans are required to insure the pledged real estate with an insurance company at the cur-rent market value, as calculated by a real estate agency. This requirement created an additional financial burden for borrowers. The global financial crisis did not have any direct impact on the Moldovan financial market, as the local commercial banks are not closely linked to the international money markets. The banks are highly capitalised, and liquid assets account-ed for 30.6% of the sector’s total assets as of December 31, 2008. The central bank’s foreign currency reserves had risen to the record volume of almost USD 1.6 billion by the end of the year.3
Even if the Moldovan financial market’s relative isolation is able to protect the local financial sec-
tor from damage as a direct result of the interna-tional financial crisis, the impending worldwide recession will surely have an impact on the real sector of the country’s economy. Moldova is like-ly to be affected by decreasing volumes of remit-tances and foreign direct investment. A decline in exports is also expected in parallel with an in-crease in inflationary pressures within the local economy.
Lending Performance
ProCredit Bank’s strategy in lending builds on nine years of experience obtained by the ProCredit finance company in the Moldovan credit market. The focus continues to be on small-scale business lending. While some of the finance company’s offices were converted into ProCredit Bank locations during the year, there were no sig-nificant changes in our clients’ business relation-ships with us. They continued to repay their out-standing loans to the finance company and were eligible to apply for new loans from the bank.
ProCredit Bank and the ProCredit finance com-pany are among the leaders in the Moldovan market for loans to very small, small and medium enterprises. The volume of the two institutions’
3 National Bank of Moldova
A n n u a l R e p o r t 2 0 0 81�
Business Loan Portfolio – Breakdown by Maturity
< 12 months 12 – 24 months > 24 months
in %
100 90 80 70 60 50 40 30 20 10 0
Mar 08 Jun 08 Sep 08 Dec 08
Loan Portfolio Quality (arrears >30 days)
in % of loan portfolio
Mar 08 Jun 08 Sep 08 Dec 08
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
Net write-offs: in 2008: USD 5,612
consolidated loan portfolio increased by 22.0% to USD 45.3 million in 2008 and the number of outstanding loans grew by 6.1% to 16,195.
The bank began credit operations in January 2008, and by the end of the year it had disbursed 3,295 loans totalling USD 16.8 million. The aver-age loan size disbursed in 2008 was USD 5,111, which reflects our mission to support the devel-opment of small-scale businesses. As of Decem-ber 31, 2008, ProCredit Bank’s outstanding loan portfolio consisted of 2,974 loans with a volume of USD 12.3 million, and 93.3% of the loans in the portfolio were for amounts of less than USD 10,000.
Given that Moldova is one of the poorest states in Europe, most businesses in the country belong to very small producers. During 2008 the ProCredit finance company disbursed 3,400 loans up to USD 1,000, totalling over USD 2.1 million, while the bank disbursed a further 730 loans of this size with a combined volume of USD 481,295. At the end of the year, the consolidated lending figures showed that 26% of all loans outstanding were below USD 1,000.
Throughout the year, we fine-tuned our lend-ing products and increased the maximum loan amounts in most cases. We launched a new prod-uct, ProImport, which is denominated in foreign currency to improve our financing services for clients who trade internationally. At the end of
2008, our outstanding loan portfolio in this seg-ment totalled USD 1.37 million, representing 3% of the consolidated portfolio volume.
More than 40% of the country’s economically active population works in the agricultural sec-tor and demand for our agricultural loans con-tinued to be very strong. The consolidated agri-cultural loan portfolio of ProCredit Bank and the ProCredit finance company grew by 45.2% to USD 6.3 million at year-end. The average outstanding loan amount in this segment was USD 1,192. Farmers and the operators of other rural busi-nesses received a third of the loans we disbursed in 2008, proving our commitment to providing financing on a significant scale to support the growth of a sector that is one of the main pillars of economic development in Moldova.
ProCredit Bank does not focus on consumer lend-ing and endeavours to prevent its clients from be-coming over-indebted. The effectiveness of this responsible approach was reflected in a portfolio at risk (loans in arrears by over 30 days) of only 0.53%. At 0.05% of the bank’s total loan portfo-lio, net write-offs totalled USD 5,612. The con-solidated portfolio at risk stood at 1.93% at the end of 2008.
ProCredit Bank and the financial company con-siderably increased the size of their credit staff during 2008, boosting the total number of loan officers by almost a third to 141. By building ad-
M a n a g e m e n t B u s i n e s s R e v i e w 1�
Customer Deposits
Number (in ’000)Volume (in USD ’000)
Term Savings Sight Total number
10 9 8 7 6 5 4 3 2 1 0
10 9 8 7 6 5 4 3 2 1 0
Mar 08 Jun 08 Sep 08 Dec 08
76.1%
6.2%
0.1%
0.1%
0.8%
16.7%
< USD 100 USD 10,001 – USD 50,000 USD 101 – USD 1,000 USD 50,001 – USD 100,000USD 1,001 – USD 10,000 > USD 100,000
* 31 Dec 2008
Number of Customer Deposits – Breakdown by Size*
ditional staff capacity in lending, we were able to expand our outreach and provide a better quality of service to our credit clients.
In the months ahead, we plan to focus on enhanc-ing the efficiency of ProCredit Bank’s lending op-erations and on maintaining the high quality of both its portfolio and its customer service. To this end, we will introduce an additional management position in the coming year for credit co-ordina-tors to assist their representative office manag-ers in supervising lending staff. Their main du-ties will be to ensure that all loan officers receive excellent on-the-job training, to co-ordinate cus-tomer care and client acquisition activities, and to closely monitor the quality of the loan portfolio.
Deposits and Other Banking Services
ProCredit Bank launched its operations in the re-tail banking market by offering a range of basic products. Unlike many of our competitors, we of-fer simple, easy-to-understand deposit products that are tailored to our customers’ needs.
In line with our neighbourhood bank concept, we focus on target groups that are often neglected by conventional commercial banks, including the low-income population, pensioners and children. Our savings products, such as the standard sav-ings accounts and the ProKid account for chil-dren, have been well received, especially by peo-
ple who want to gradually build up their savings by depositing small amounts without the burden of maintenance fees, and who also wish to have access to their funds at any time.
During its nine years of operations the ProCredit finance company became well-known in Moldova as a lending institution. This created the chal-lenge of altering people’s perception of the Pro-Credit brand to reflect the fact that we now op-erate a full-service bank. Over the course of the year, we aimed to position ProCredit Bank in the market as a new, independent institution. This was achieved through two image campaigns, the first to support the launch of the bank’s opera-tions in January and a second in autumn, which increased public awareness of our broad range of retail banking services.
Although the nature of the regulatory regime for the Moldovan deposit market and other key pa-rameters made the market environment a chal-lenging one for ProCredit Bank, by the end of its first year of operations it had built a deposit portfolio with a total volume of USD 9.6 million. Savings facilities accounted for 55.9% of this amount, with term deposits providing 87.7% of the total savings volume. Fierce competition for deposits, together with rising inflation and the central bank’s minimum reserve requirements, triggered a price war between the market’s ma-jor players. However, the bank did not allow itself to be drawn into this battle. We believe that reli-
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Domestic Money Transfers
Number (in ’000)Volume (in USD million)
Incoming Outgoing Number
2008 Jan–Mar Apr–Jun Jul –Sep Oct–Dec
10 9 8 7 6 5 4 3 2 1 0
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
International Money Transfers
Number (in ’000)Volume (in USD million)
Incoming Outgoing Number
2008 Jan–Mar Apr–Jun Jul –Sep Oct–Dec
14
12
10
8
6
4
2
0
1.75
1.5
1.25
1.0
0.75
0.5
0.25
0
ability and stability are more important to savers than short-lived increases in interest rates.
To expand access to our services, we began of-fering bank cards in December, having been certi-fied as a Principal Member by VISA International. Our debit cards provide clients with a convenient and secure way to access their funds and execute cashless transactions all over the world.
The central Payments and Cash Management De-partment provides efficient service for domestic and international money transfers, whose num-bers increased steadily during the course of the year. In December ProCredit Bank handled 1,288 domestic payments and 100 international trans-fers, and the latter totalled USD 9.9 million, com-pared to USD 1.3 million in the entire first quarter of 2008.
B u s i n e s s R e v i e wM a n a g e m e n t B u s i n e s s R e v i e w �1
By being a true “neighbourhood bank” that is close to its clients and understands their needs, ProCredit Bank aims to become the number one provider of high-quality banking services in Moldova. Our entire staff is committed to provid-ing excellent customer care while at the same time improving the efficiency of all aspects of our operations.
Financial Results
The year 2008 marked the beginning of a new era in terms of our institutional development and the evolution of our operations. Following the launch of ProCredit Bank in January, we began convert-ing the finance company offices into offices of the bank. Clients of the finance company who
took out new loans received these from ProCredit Bank and also started to benefit from the broad range of banking services offered by the new in-stitution.
Given that it began serving a substantial number of borrowers who had previously been customers of the finance company, ProCredit Bank’s total assets had grown by 189.5% to USD 31.7 million by year-end, while the finance company’s assets were up by only 1.46%. While the finance com-pany’s loan portfolio decreased by 10.4% to USD 33 million, the bank’s portfolio reached a volume of USD 12.2 million by the end of the year, rep-resenting a consolidated increase of 22.9% over 2007. The loan portfolio constituted 38.6% of the bank’s total assets, while the liquid assets share was 34.8%. The bank maintained a liquidity posi-
A n n u a l R e p o r t 2 0 0 8��
tion in compliance with the NBM’s requirements throughout the year, and it had a short-term li-quidity ratio of 43.5% as of December 31, 2008.
Attracting deposits was one of our main goals in conjunction with the opening of the bank. By year-end we had built a deposit base of USD 9.6 million, of which time deposits contributed 49.0%. Deposits were equivalent to 79.0% of the total loan portfolio. The bank also drew on loans as a source of lending funds: ProCredit Holding remained the only provider of long-term funds with two loans in the amounts of EUR 1.5 mil-lion and USD 2 million. The finance company’s li-abilities consisted of long-term credit lines from international financial institutions and ProCredit Holding, as well as short-term borrowings from local banks.
Both of the ProCredit institutions reported an increase in operating income. The total for the bank amounted to USD 2.1 million and the total for the finance company came to USD 5.1 million. Interest income was the major source of operat-ing income at both institutions, totalling USD 5.7 million for the finance company and USD 1.7 mil-lion for the bank. The bank earned USD 132,700 in commissions and fees, which represents 6.4% of its total operating income.
The finance company’s operating expenses de-creased from USD 4.4 million in 2007 to USD 4.7 million in 2008, while the bank’s operating expenses in its first year reached almost USD 5 million. The bank reported a cost-to-income ratio of 215.9% due to the substantial investments in-volved in acquiring the facilities, infrastructure and personnel capacity needed for banking op-erations. The finance company reported a ratio of 86.4%. In line with the group’s approach to staff development, both ProCredit institutions in Moldova placed a strong emphasis on train-ing with related costs accounting for 10.1% of the consolidated administrative expenses.
The company ended the year 2008 with a net profit of USD 413,551 while, due to the high costs involved in converting and opening offices, the bank incurred a loss of USD 2.8 million.
To maintain its capital adequacy ratio at the re-quired level, the bank increased its paid-in capi-
tal twice during 2008, and the new institution’s equity amounted to USD 10.9 million at year-end. The capital adequacy ratio stood at 51.1% for the bank and 20% for the finance company.
Outlook
Moldova will surely be affected by the worldwide recession. In 2009, the global credit crunch and a possible further downgrade of the country’s risk rating may raise the cost of foreign funds. In a more difficult operating environment, some banks may see increases in consumer lending and the provision of housing loans as an easy way to boost or maintain market share. A lack of local expertise will likely prevent foreign banks from moving into our core market of small busi-ness lending, and even local banks will probably find it more difficult to penetrate this market seg-ment than they had anticipated.
Nonetheless, ProCredit Bank will need to strengthen its competitive position, and to this end we will focus on improving efficiency by reducing administrative costs. The opening of smaller offices will increase our profitability as our network expands in the coming year. These small offices, which will provide a basic range of services, will be established in the larger towns where we already operate to increase our visibil-ity and outreach, and also in more remote areas that we do not currently serve.
As ProCredit Bank grows and becomes a more important player in the market, it is also begin-ning to set new standards for the Moldovan banking sector. This is true not only with regard to the quality of our service and our approach to the banking business; our focus on staff devel-opment is also unique in the local context. We ensure that our employees share our values and adhere to our high ethical standards and offer them the necessary ongoing professional train-ing. As market competition increases, we will face the challenge of retaining our well-qualified employees. By placing even greater emphasis on our corporate culture and identity, which clearly set us apart from our main competitors, we are confident that we can meet this challenge.
M a n a g e m e n t B u s i n e s s R e v i e w ��
When ProCredit Bank launched its operations in January 2008, it set out to position itself in the market as a responsible neighbourhood bank. Like all of the banks in the ProCredit group, it did so by offering simple, straightforward products and high-quality customer service to cater for the banking needs of ordinary people.
Savings accounts were among the products that we introduced as soon as we opened. In line with our goal of becoming a true neighbourhood bank for the people who live and work in the communi-ties we serve, we target various segments of the population including wage and salary earners, students, old-age pensioners and children. To mark International Children’s Day on June 1, we introduced a special savings facility for children – the ProKid account.
The inspiration behind the ProKid account is to encourage parents to get their children into the habit of saving on a regular basis. With this product, we aim to attract a new generation of customers and earn their trust from an early age. As part of our corporate mission, we want to help children and young people understand basic banking services. By giving savers the tools to use such services wisely, we can increase public confidence in the banking system. This also ena-bles us to lay the groundwork for the long-term relationships we seek to develop with our cus-tomers.
The ProKid account has various features that make it attractive for children. When an account is opened, savers receive a piggy bank to keep their coins in at home and a savings passbook in
Special Feature
The ProKid Savings Account
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which staff record all deposits, withdrawals and interest payments. To make children feel welcome in ProCredit Bank‘s offices, we installed special steps at our cashier’s windows that enable our young customers to easily reach the counter to deposit the money from their piggy banks.
Zuzu the bee is the ProKid mascot. Bees are hard-working creatures that, little by little, collect the pollen they need, much as children can save small amounts to gradually achieve their savings goals. Zuzu features in an educational book for children in which the busy ProCredit bee, togeth-er with two young children, Nicu and Dana, tells a story about the importance of saving.
The ProKid account was well received, and by the end of the year we had 1,100 accounts of this type with an average balance of USD 81. The success of the product is reflected not only in these figures, but also in the smiling faces of the children whom we now serve. Our clients of all ages appreciate the advantages of dealing with a responsible financial partner who is genuinely interested in promoting a savings culture and building people’s trust in banks.
S p e c i a l F e at u r e ��
Risk Management
Given the continued strong growth in both credit and deposit operations which we anticipate for our bank, it is imperative for us to identify all potential risks and to strengthen our risk man-agement systems. That said, the adverse de-velopments in local and international financial markets have demonstrated the soundness of our down-to-earth approach to banking and have proven the strategic advantages of maintaining a low risk profile.
As an institution that provides responsible bank-ing services, we are firmly opposed to the high level of consumer financing that has been preva-lent in many Eastern European countries in recent years. ProCredit Bank does not consider consum-er lending to be a priority for the development of a transition economy. On the contrary, it can eas-ily lead to widespread over-indebtedness.
Responsibility for implementing the bank’s risk management policy lies with senior manage-ment. ProCredit Bank has created a sophisticated monitoring and control system whose principal elements are the Risk Management Department and the Internal Audit Department. To increase efficiency and facilitate the management of in-dividual risk areas, a number of specialised bod-ies meet on a regular basis to review the bank’s risk-bearing capacity. These bodies include the Assets and Liabilities Committee (ALCO), the General Risk Committee and the Operational Risk Committee.
The Risk Management Department identifies and analyses risk exposures in the bank’s daily busi-ness and reports its findings to senior manage-ment. It also implements measures to mitigate and control risks. The structure of the department reflects the bank’s comprehensive approach to risk management:
The financial risk officer monitors and analy-ses all risks associated with treasury and credit operations;
The operational risk officer monitors and con-trols loss resulting from inadequate or failed internal processes and external events;
The compliance and anti-money laundering officer assesses all products, processes and
transactions to ensure that they are legally compliant and in line with the standards established by our shareholders;
The information security officer is responsi-ble for safeguarding the integrity of internally recorded data.
In line with the ProCredit group’s risk manage-ment policy, the Risk Management Department prepares quarterly reports that are discussed with the Board of Directors and the Group Risk Management Department of ProCredit Holding.
••
•
•
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Risk Management
In addition to having a clearly defined organisa-tional structure that is conducive to effective risk management, the bank invests in intensive staff training to ensure that its employees have both the technical skills and requisite risk awareness to perform their duties with due care and compe-tence.
Credit Risk
Credit risk is the main area of risk in the activ-ity of ProCredit Bank. Our system for managing credit risk has three main pillars: a team of highly trained loan officers, a proven lending method-ology and a well-designed organisational struc-tures and procedures.
We emphasise the development of long-term relationships with all of our clients. From a risk perspective, the advantage of this approach is that we thoroughly understand each customer’s
R i s k M a n a g e m e n t ��
financial situation and our own risk exposure in disbursing a loan. Individual lending decisions are made by credit committees at either repre-sentative office or head office level. They adhere to clearly defined loan approval limits and reject the use of simplistic credit scoring models.
Our approach to managing credit risk has enabled the ProCredit finance company to achieve sound, sustainable growth over the years, and the same approach has already proved its worth at ProCredit Bank. Loan officers remain in close con-tact with their clients over the maturity period, while the Risk Management Department moni-tors the overall portfolio by segment to gauge the impact of changes in the macroeconomic en-vironment. The bank’s portfolio at risk (loans in arrears by over 30 days) stood at only 0.53% of the gross loan portfolio at year-end.
Given that we serve a large number of small and medium-sized business clients who operate in a wide variety of sectors, our loan portfolio is highly diversified. 96% of the loans disbursed in 2008 were for amounts between USD 1,000 and USD 10,000, while the average loan disburse-ment amount was just USD 5,111. The ten larg-est exposures accounted for only 15.48% of the gross portfolio.
Actual loan losses were very small in 2008, as only three loans with a combined volume of USD 5,612 had to be written off. Nevertheless, ProCredit Bank is prudent in allowing for loan impairment and created sufficient provisions to cover the portfolio at risk by 277% at year-end. ProCredit has always been guided by conserva-tive principles in its lending operations. Although the international financial crisis has had only a limited impact on the real economy in Moldova, our focus on credit risk management has been sharpened in view of possible local and global developments in the coming year. We reviewed
A n n u a l R e p o r t 2 0 0 8��
our application and approval procedures and strengthened the initial financial analysis of our clients’ businesses to include additional factors. The recent addition of a new management posi-tion for representative office credit co-ordinators will reinforce loan officer training and enhance our capacity to manage arrears in 2009.
Liquidity and Market Risk
Given the high degree of volatility in the inter-national and local money markets, we monitor liquidity and market risks particularly closely at ProCredit Bank. As a matter of principle, we do not open long or short currency positions for speculative purposes, and the open positions which are maintained are kept at low levels in strict compliance with the ratios established by the central bank.
Changes in the bank’s currency and interest rate risk positions are monitored by the Treasury De-partment and the Risk Management Department on a daily basis. To limit the potential impact of depreciation of the Moldovan leu, most loans are denominated in the local currency: foreign cur-rency loans represented 12.3% of the outstand-ing loan portfolio at year-end.
Interest rate risks are managed by closing all ma-turity gaps to the extent possible across the entire range of maturities. The bank also disburses loans with relatively short maturities: in volume terms, 74.2% of the outstanding portfolio had a maturity period of less than two years at the end of 2008.
Although our long-term goal is to finance our loan portfolio exclusively with customer deposits, at present we still rely on funding from international financial institutions and ProCredit Holding to fi-nance most of our lending. The ratio of loans to deposits was 173.5% at the end of the year, al-though the deposit base showed a very high de-gree of granularity with an average balance of just USD 762.
The ALCO assesses the liquidity position on a weekly basis using gap analysis and cash flow forecasts for each currency. We maintain an ample volume of liquidity to ensure that we are able to meet our obligations, even if withdrawals
should significantly increase. The average liquid-ity ratio for 2008 was 45.2%, and highly liquid assets covered 142% of customer deposits at year-end.
Operational Risk
Minimising and responding to operational risk is an important task of both the Risk Management Department and the executive management. The Operational Risk Committee meets on a regular basis to discuss the bank’s overall operational risk profile. It analyses losses resulting from in-adequate or failed internal processes, changes to existing products and processes, and the intro-duction of new products and processes.
The bank aims to limit human error by requir-ing two authorised members of staff to approve high-risk transactions and by segregating duties within and between departments. The head of-fice and all representative offices also maintain a risk event database that records actual and potential loss of operational data to assist the Risk Management Department in its identifica-tion and mitigation of risk.
All of our employees are required to adhere to the ProCredit Code of Conduct and receive ongoing training on company procedures and policies. Nevertheless, the Internal Audit Department is a key tool in ensuring compliance with protocol; it independently controls all areas of the bank and reports its findings directly to the management.
Capital Adequacy
In line with Basel II requirements, the ProCredit group has set out standards obliging banks to maintain a sufficient level of capital (Tiers 1 and 2) to cover their risk-weighted assets by at least 12%. The shareholders demonstrated their strong support by increasing the registered capi-tal twice during 2008, bringing the new institu-tion’s equity to USD 10.87 million. Thanks to a sound approach to lending, treasury operations and capital management, ProCredit Bank closed the year with a capital adequacy ratio of 51.06%.
R i s k M a n a g e m e n t ��
Drochia
Edineţ Soroca
Floreşti
Ocniţa
Făleşti
Căuşeni
Orhei
Comrat
Chisinău (11)
Cahul
Hânceşti
Bălţi (2)
Străşeni
Ungheni
Moldova
Ukraine
Ukraine
Romania
Black Sea
Ialoveni
ProCredit established itself as a strong finance company during its first eight years of operation. At the end of 2007 it had a network of 19 high street and three mobile offices. In January 2008 a new institution entered the Moldovan banking sector – ProCredit Bank. Our strategic expan-sion plan for 2008 was to begin the conversion of existing units of the finance company into bank offices and to open further offices in new loca-tions. During the first half of the year, we converted eight finance company offices into full-service
units of ProCredit Bank. Five of these sites are located in Chisinau and three in Straseni, Hancesti and Orhei.
ProCredit Bank also launched operations in eight new locations, six in the capital and two in Ialov-eni and Balti. This brought the bank network to 16 units covering Chisinau and five other towns. In order to achieve maximum visibility, we se-lected buildings in central districts. This helped us to make the bank’s services easily accessible for our core target groups in the communities in which we operate.
ProCredit Office Network
ProCredit Bank officeProCredit office
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The finance company continued to offer business loans to its clients via a nationwide network of 11 offices. In line with our mission to reach small communities, three mobile ProCredit offices pro-vide clients in rural areas with access to a range of credit products.
The implementation of our expansion plans proved challenging in terms of mobilising the necessary institutional resources, creating a working infrastructure and carrying out construc-tion projects. We also had to meet complex legal requirements. However, we successfully mas-tered these challenges and were able to begin providing a high-quality service at all of our new locations from the day they opened.
Since our positioning strategy includes a strong emphasis on retail banking, we plan to open a significant number of smaller offices that will con-duct only non-credit operations over the coming year. We implemented a successful pilot project in Chisinau to lay the groundwork for the estab-lishment of these smaller offices in 2009 and be-lieve our clients will welcome this expansion of our outreach. Working together with a main office in the region, these have the potential to gener-ate substantial additional business. Steady expansion is a key part of our long-term strategy to become an important player in the Moldovan banking market by making high-qual-ity banking services available to all segments of the population. We strive to reach people who have traditionally had only limited access to for-mal financial services.
ProCredit Office Network
P r o C r e d i t O f f i c e N e t w o r k �1
Employees with initiative, solid profession-al skills, good judgement and creativity are ProCredit’s most valuable asset. With their en-thusiasm and commitment to our corporate val-ues, they enable us to provide top-quality service to our clients.
In 2008, we focused on building the infrastruc-ture and institutional capacity of our new bank, including the recruitment of 290 employees. Our main challenge on this front was the shortage of qualified applicants in the outlying regions of Moldova. A large number of young people have emigrated in search of higher salaries abroad, and many of those who have stayed prefer to live in the capital. To address this constraint, ProCredit Bank gave presentations at universi-ties, participated in job fairs, and had staff pro-mote vacancies locally through street promotions and their own personal networks.
By the end of the year, our recruitment efforts had brought the total number of employees of the bank and the finance company to 525, represent-ing an increase of 51.7% compared to December 31, 2007.
Given the rapid growth of our staff, as well as the launch of new operations and the new regulatory requirements that govern our activity, training and staff development remained a key institu-tional priority throughout the year. Recognising this challenge, we established the Training and
Staff Development Department in May. Its first task was to develop an overall concept to accom-modate our present and future needs as an insti-tution. The new training programmes designed by the department include seminars on effec-tive communication and on the specific technical skills needed by front-office staff.
We also established an in-house training centre, which opened in early July. The centre has all of the requisite facilities, including five classrooms, a computer room and a mock branch. After open-ing the training centre, we conducted 61 training sessions, 24% more than in the first six months of the year. Each employee received an average of 16 days of training in 2008, and the consolidated training budget for the bank and the finance com-pany amounted to over USD 385,690, an increase of 16% over 2007.
ProCredit invests heavily in measures to ensure that new recruits are smoothly integrated into the team. An induction seminar is held at the training centre in which participants are given an overview of the company and the opportunity to become acquainted with the ProCredit group’s mission, values and Code of Conduct. On-the-job training is regarded as a vital second step for all staff in their initial period of employment, and this is supplemented by additional specialist training events for client advisers, loan officers and cashiers at the training centre.
Organisation, Staff and Staff Development
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Organisation, Staff and Staff Development
Experienced ProCredit staff can also take advan-tage of opportunities to develop their manage-ment skills at the ProCredit group’s international training centres. 17 mid-level managers partici-pated in the training programme at the Regional Academy in Macedonia, 15 of whom completed the course offered there this year. In Septem-ber, the first three high-potential managers from Moldova graduated from the ProCredit Academy in Germany after successfully completing its three-year part-time professional development programme.
English is the working language within the ProCredit group and is used at all group-level training events. ProCredit Holding therefore op-erates two language centres, in Germany and Macedonia. Our employees have welcomed this opportunity to improve their English and learn more about the international operations of the group. A total of eight staff members successfully completed intensive eight-week language train-ing courses abroad this year, and English classes are also available to employees locally.
ProCredit Bank strives to provide a pleasant work-ing environment for its employees. We also seek to develop a strong team spirit among our staff members and to motivate them to continuously improve the quality of communication within the
institution. People are treated with trust, open-ness and respect, and we adhere to the highest ethical standards in our dealings with customers, with the community and with one another.
O r g a n i s at i o n , S ta f f a n d S ta f f D e v e l o p m e n t ��
A n n u a l R e p o r t 2 0 0 8��
Part of the overall mission of the ProCredit group is to set standards in the financial sectors in which we operate. We want to make a difference not only in terms of the target groups we serve and the quality of the financial services we pro-vide, but also with regard to business ethics. Our strong corporate values play a key role in this respect. We have established six essential prin-ciples which guide the operations of ProCredit institutions:
• Transparency: We adhere to the principle of providing transparent information both to our customers and the general public and to our employees, and our conduct is straightfor- ward and open;• A culture of open communication: We are open, fair and constructive in our communication with each other, and deal with conflicts at work in a professional manner, working together to find solutions;• Social responsibility and tolerance: We give our clients sound advice; their economic and financial situation, their potential and their capacities are assessed so that they can bene- fit from appropriate “products”; promoting a culture of savings is important to us; we are committed to treating all customers and em- ployees respectfully and fairly, regardless of their origin, colour, language, gender or reli- gious or political beliefs;• Service orientation: Every client is served in a friendly, competent and courteous manner. Our employees are committed to providing excellent service to all customers, regardless of their background or the size of their busi- ness;• High professional standards: Every employee takes responsibility for the quality of his/her work and strives to do his/her job even better; • A high degree of personal commitment: This goes hand-in-hand with personal integrity and honesty – traits which are required of all employees in all ProCredit institutions.
These ProCredit values represent the backbone of our corporate culture and are discussed and actively applied in our day-to-day operations. Moreover, they are reflected in the Code of Con-duct, which transforms the ProCredit group’s ethical principles into practical guidelines for all ProCredit staff. To make sure that new staff fully
understand all of the principles that have been defined, the induction training for new employees includes dedicated sessions dealing exclusively with the Code of Conduct and its significance for all members of our team. And to ensure that employees remain committed to our high ethical standards and are made aware of new issues and developments which have an ethical dimension for our institution, refresher training sessions – at which case studies are presented and grey areas discussed – are regularly conducted for existing staff.
Another aspect of ensuring that our institution adheres to the highest ethical standards is our consistent application of international best- practice methods and procedures to protect our-selves from being used as a vehicle for money laundering or other illegal activities such as the financing of terrorist activities. The important focus here is to “know your customer”, and, in line with this principle, to carry out sound report-ing and comply with the applicable regulations. In 2009 we will implement updated anti-money laundering and fraud prevention policies to en-sure compliance with German regulatory stand-ards across the group.
We also set standards regarding the im-pact of our lending operations on the en-vironment. ProCredit Bank in Moldova has implemented an environmental manage-ment system based on continuous as-sessment of the loan portfolio according to environmental criteria, an in-depth analysis of all economic activities which potentially involve environmental risks, and the rejection of loan applications from enterprises engaged in activities which are deemed environmentally hazardous and appear on our insti-tution’s exclusion list. By incorporat-ing environmental issues into the loan approval process, ProCredit Bank in Moldova is also able to raise its clients’ overall level of environmen-tal awareness. We ensure that when loan appli-cations are evaluated, compliance with ethical business practices is a key consideration. No loans are issued to enterprises or individuals if it is suspected that they are making use of unsafe or morally objectionable forms of labour, in parti-cular child labour.
Business Ethics and Environmental Standards
B u s i n e s s E t h i c s a n d E n v i r o n m e n ta l S ta n d a r d s ��
Our Clients
Oxana and Alexandru Satirovici are a young mar-ried couple who run their own business in Moldo-va’s capital, Chisinau. They love their work mak-ing decorative candles. Their products come in various shapes and colours, sometimes complete with the customer’s own logo. Decorative candles are a popular and memorable gift, and Alexandru and Oxana’s business continues to grow.
It all began with a dream: Oxana had wanted to make candles ever since she was in high school, but she never thought it would be possible. Al-exandru helped to make her dream come true. They were an enterprising team from the start, researching specialist literature and the Internet for information and advice while learning from their mistakes.
When they went into business, the couple decid-ed to produce only made-to-order candles. They regularly participate in trade fairs to find new cli-ents and obtain orders, and they have developed their own website to facilitate communication with their customers. The webpage describes and exhibits their product range, giving visitors the option to place an order online. So far, this has been the main sales channel for the busi-
ness, but Oxana and Alexandru plan to purchase a small shop where they can meet their custom-ers face to face.
The couple heard about ProCredit on the radio. After closely surveying the banking market, they decided to work with ProCredit. The couple took out their first loan, for USD 2,000, in July 2007 to purchase paraffin. Their next loan – this time for USD 1,000 and from ProCredit Bank – was dis-bursed in March 2008 for the same purpose. As the business is small and they work on a custom basis, a close working relationship with ProCredit Bank is very advantageous. Whenever they need to fill a large order, they take out a loan to buy raw materials and thus avoid high inventory costs.
Oxana and Alexandru plan to continue their part-nership with ProCredit Bank in the future because they find it very convenient and pleasant to use its services. In addition to the opening of a shop, their plans include investing in special equipment to increase productivity. Given their enthusiasm and sound approach, they are well on their way to achieving their goals.
Oxana and Alexandru Satirovici, Decorative Candle Producers
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Gheorghe Scripnic has had a passion for bees from a young age. He knows everything there is to know about bees and could talk about them for hours. Not surprisingly, he graduated from technical school with a specialisation in agron-omy and apiculture. In 1990, Gheorghe bought a small parcel of land and went into business near the forest in the village of Raciula in central Moldova. He placed 140 hives on the plot and planted the shrubs and flowers that would let his bees thrive.
Gheorghe sells a diverse range of products, in-cluding honey, propolis, pollen, and royal jelly. He uses every opportunity to gain new custom-ers, participating in trade fairs and selling his goods at local markets. A number of small shops are now among his many loyal customers.
Gheorghe is married and has two sons, both of whom are involved in his business. The elder son, Corneliu, is a lawyer and works in Chisinau. He helps to sell his father’s products in the capital and assists with documents and paperwork. The younger son, Nicolae, helps out in the apiary, while Elizaveta, Gheorghe’s wife, takes care of the housekeeping.
Having learned of ProCredit by reading about the finance company in a newspaper, Gheorghe took out his first loan in May 2004. He received USD 700 to purchase the materials he needed to construct 40 new hives. In July 2008, he again applied for a loan – this time from ProCredit Bank – and borrowed USD 3,500 to buy feed for his bees.
Gheorghe lives 30 kilometres from his place of business and employs a watchman to look af-ter the apiary. He plans to hire an entire family for this task so that somebody is present on the premises at all times.
Looking to the future, he knows that ProCredit Bank will continue to be a reliable financial partner whose support he can count on to help him achieve both his personal and his professional goals.
Gheorghe Scripnic, Beekeeper
O u r C l i e n t s 37
Efim Iurcu is an enterprising young man who has managed to develop several diverse businesses. He operates six sales points around Chisinau, runs two stands at the market where he sells food, and has a truck that he leases out for international shipping. He is also a wedding singer. In addition to operating these businesses, Efim is studying economic law at university. This dynamic entre-preneur is married and has a six-year-old son.
Originally from Orhei, Efim had to move to the capital to get his start. His business began as a small sales point at a market; he was on his own with just ten dollars in his pocket and a strong work ethic. From this modest start, he built up a chain of food sales points with 10 employees, selling an assortment of fresh seasonal produce.
Efim first learned about ProCredit from a news-paper advertisement and then about the finance company’s loans through a direct marketing cam-
paign. In February 2005, he took out a loan in the amount of USD 4,000 for working capital and construction materials for a farm that he planned to renovate. A year later, in July 2006, he applied for his second loan, of USD 6,500, to purchase a food stall. Sixteen months after that he received USD 13,000 to buy 80% of the renovated farm. He is a man of great ambition: next year he wants to begin breeding chickens, rabbits and cattle on his new land.
While busy managing his diverse enterprises, Efim does not forget to think about the future. Being a good businessman, he diversifies his investments. He reinvests the bulk of his prof-its in his businesses, but in May 2008 he also opened a deposit account at the bank after taking a look at ProCredit Bank’s wide range of savings products. Some time later, he also began to put money aside with a ProClasic de-posit account and a savings account. Efim is an optimistic man who never misses a good op-portunity. He is very pleased to be a client of ProCredit Bank – the bank that truly supports him in all his endeavours.
Efim Iurcu, Food Retailer
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Vera Сovali sells artificial flowers in Orhei. She used to be a teacher in a village school but de-cided to start her own business in the newly inde-pendent Moldova during the 1990s. She wanted a job that would create joy and beauty and so be-gan selling floral arrangements at the market.
In addition to her market stall, Vera later opened a small flower shop that also sells various gifts, souvenirs and seasonal trinkets, such as Christ-mas ornaments in the run up to the winter and decorative eggs during Easter. Vera tries to come up with something innovative for each holiday, making a good business out of spreading a little happiness.
Vera lives in the village of Seleste, eight kilome-tres from Orhei. She has two adult children, Ser-giu and Rodica. Her son lives nearby and always helps her. Sergiu handles sales in the shop when she is away and assists with purchasing.
A friend of Vera’s told her about ProCredit, and in March 2004 she obtained a loan from the fi-nance company for USD 1,000 to purchase mer-
chandise. Five months later, she took out a sec-ond loan, this time in the amount of USD 1,600. A third loan for the same purpose was granted in July 2005.
”Working with ProCredit is very convenient. It is good for my business, which is always growing
and in need of working capital,”says Vera.
Over time, she took out another three loans rang-ing from USD 4,000 to USD 7,500, all of which she invested in merchandise.
Vera appreciated the quality of service she re-ceived from the ProCredit finance company, and now she is more than satisfied with the services of ProCredit Bank. When the new bank contacted her to inform her about its broader range of prod-ucts, Vera opened a savings account that offers flexible and convenient conditions that are ideal for busy people like herself. In the future, she intends to buy her own vehicle so that she can streamline her purchases and provide even bet-ter service to her customers.
Vera Сovali, Florist
O u r C l i e n t sO u r C l i e n t s ��
Financial StatementsFor the year ended 31 December 2008.Prepared in accordance with International Financial Reporting Standards.
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F i n a n c i a l S tat e m e n t s �1
Income StatementFor the year ended 31 December 2008
Notes Year ended Year ended in USD 31 Dec 2008 31 Dec 2007 Interest and similar income 3 2,276,129 – Interest and similar expenses 3 (566,325) – Net interest income 1,709,804 – Allowance for impairment losses on loans and advances 4 (185,840) – Net interest income after allowances 1,523,964 – Fee and commission income 5 148,306 – Fee and commission expenses 5 (15,600) – Net fee and commission income 132,706 – Trading result 6 116,764 – Net other operating income/(expense) 7 302,606 (1,340) Operating income 2,076,040 (1,340) Personnel expenses 8 (1,757,200) (54,970) Administrative expenses 9 (3,126,519) (88,511) Operating expenses (4,883,719) (143,481) Loss before tax (2,807,679) (144,821) Income tax expenses 10 – – Loss for the year (2,807,679) (144,821)
These financial statements have been approved for issue on 20 April 2009 and signed by:
Ilinca Rosetti Elena Gornet General Manager Chief Accountant
The notes on pages 46 to 65 are an integral part of these financial statements.
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Notes 31 Dec 2008 31 Dec 2007 in USD Assets Cash and balances with Central Bank 11 5,110,742 10,601,456 Available for sale financial instruments 12 1,148,113 – Loans and advances to banks 13 10,516,897 – Loans and advances to customers 14 12,243,278 – Allowance for losses on loans and advances 15 (181,716) – Intangible assets 16 548,793 301,538 Property, plant and equipment 17 1,592,739 1,034 Deferred tax assets 18 – – Other assets 19 746,521 55,259 Total assets 31,725,367 10,959,287 Liabilities Liabilities to banks 20 3,980,274 – Borrowed funds 21 4,211,230 – Liabilities to customers 22 9,668,926 – Liabilities to international financial institutions 23 2,310,060 – Other financial liabilities 24 309,095 453,001 Other liabilities 25 297,947 60,104 Provisions 26 75,732 – Total liabilities 20,853,264 513,105 Equity Share capital 27 13,845,888 10,601,456 Accumulated loss (2,952,500) (144,821) Translation difference (21,285) (10,453) Shareholder equity 10,872,103 10,446,182 Total equity and liabilities 31,725,367 10,959,287
These financial statements have been approved for issue on 20 April 2009 and signed by:
Ilinca Rosetti Elena Gornet General Manager Chief Accountant
The notes on pages 46 to 65 are an integral part of these financial statements.
Balance SheetAs at 31 December 2008
F i n a n c i a l S tat e m e n t s ��
Statement of Changes in EquityFor the year ended 31 December 2008
Share Accumulated Translation Total in USD capital loss reserve Balance at December 17, 2007 – – – – Currency translation differences – – (10,453) (10,453) Income/expenses not included in income statement – – (10,453) (10,453) Loss of the year 2007 – (144,821) – (144,821) Net loss for the year 2007 – (144,821) (10,453) (155,274) Share issue 10,601,456 – – 10,601,456 Balance at December 31, 2007 10,601,456 (144,821) (10,453) 10,446,182 Balance at January 1, 2008 10,601,456 (144,821) (10,453) 10,446,182 Currency translation differences 936,784 – (13,721) 923,063 Income/expenses not included in income statement 936,784 – (13,721) 923,063 Loss of the year 2008 – (2,807,679) 2,889 (2,804,790) Net loss for the year 2008 936,784 (2,807,679) (10,832) (1,881,727) Share issue 2,307,648 – – 2,307,648 Balance at December 31, 2008 13,845,888 (2,952,500) (21,285) 10,872,103
The notes on pages 46 to 65 are an integral part of these financial statements.
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Cash Flow StatementFor the year ended 31 December 2008
Year ended For the period from in USD 31 Dec 2008 17 Dec to 31 Dec 2007 Net loss after tax (2,807,679) – Total income tax – – Loss before tax (2,807,679) – Non-cash items included in the profit for the year and transition to the cash flow from operating activities Allowance for losses on loans and receivables 185,648 – Depreciation 118,530 – Amortisation 78,481 Unrealised gains/losses from currency revaluation 18,780 – Addition/release of provision 75,732 – Gains/losses from disposal of software 52,579 – Gains/losses from disposal of other assets 62,657 Increase in accrued interest receivables (33,184) – Increase in accrued interest payable 202,130 – Income tax paid – – Operating cash flows before change in operating assets and liabilities (2,046,326) – Increase/decrease of assets and liabilities from operating activities after non-cash items Increase/decrease in loans and advances to banks 5,858,160 (10,601,456) Increase/decrease in loans and advances to customers (12,225,133) – Increase/decrease in other assets (766,511) – Increase/decrease in liabilities to banks 3,884,560 – Increase/decrease in liabilities to customers 9,554,475 – Increase/decrease in liabilities to IFI’s 2,310,060 Increase/decrease in other liabilities 93,936 – Net cash from operating activities 6,663,221 (10,601,456)
Purchase of/proceeds from sale of: Purchases of property, plant and equipment (1,678,080) – Purchases of intangible assets (377,767) – Cash flow from investing activities (2,055,847) – Dividends paid – – Shares issued 2,307,648 10,601,456 Borrowings received from parent 4,126,036 – Cash flow from financing activities 6,433,684 10,601,456 Cash and cash equivalents at the end of previous period – – Cash flow from operating activities 6,663,221 (10,601,456) Cash flow from investing activities (2,055,847) – Cash flow from financing activities 6,433,684 10,601,456 Effects of exchange rate changes – – Cash and cash equivalents at the end of period 11,041,058 –
The notes on pages 46 to 65 are an integral part of these financial statements.
F i n a n c i a l S tat e m e n t s ��
General InformationFor the year ended 31 December 2008
BC ProCredit Bank SA (thereafter “the Bank”) was established in the Republic of Moldova in 2007 as a commercial bank. On 17 De-cember 2007 the Bank received the licence of type “B” from the National Bank of Moldova authorising to conduct banking activities in the Republic of Moldova. A type “B” license allows the Bank to engage in all banking activities except underwriting and invest-ment administration services.
The Bank’s registered office is located at the following address:
BC ProCredit Bank SAStr. Ştefan cel Mare şi Sfânt 65, of. 901MD-2012, Chisinau Republic of Moldova
The Bank operates through its head office.
The Bank’s number of employees as at 31 December 2008 was 350 (31 December 2007: 41).
Notes to the Financial StatementsFor the year ended 31 December 2008All amounts in United States Dollars (USD) unless otherwise stated.
1. Basis of presentation
1.1 Compliance with International Financial Reporting Standards
B.C. “ProCredit Bank” S.A. (“the Bank”) prepares its financial statements according to International Financial Reporting Stand-ards (IFRS). Accordingly, the financial statements for the year ended December 31, 2008 are prepared in accordance with IFRS as issued by the IASB and its predecessor body. Additionally, the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) and its predecessor body have been applied.There was no early adoption of any standard not effective yet.
1.2 Compliance with national law
For supervisory purposes the institution does qualify as a commer-cial bank according to the banking license issued by the National Bank of Moldova, authorizing to conduct banking activities in the Republic of Moldova and is therefore supervised by the National Bank of Moldova.These financial statements of the Bank for the fiscal year 2008 were approved for issue by the Management Board on April 20, 2009.
1.3 Use of assumptions and estimates
The Bank’s financial reporting and its financial result are influenced by accounting policies, assumptions, estimates, and management judgment which necessarily have to be made in the course of prepa-ration of the financial statements. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgments are evaluated on a continuous basis, and are based on past experience and other factors, includ-ing expectations with regard to future events and are considered appropriate under the given circumstances.
Accounting policies and management’s judgments for certain items are especially critical for the Bank’s results and financial situation due to their materiality in amount. This applies to the following po-sitions:
(a) Impairment of loansProCredit Bank uses rates for portfolio-based loan loss provisions which are in line with ProCredit group rates. To determine the group-wide rates to be applied for portfolio-based loan loss pro-visioning, the group performed an evaluation of the quality of the loan portfolio, taking into account historical loss experiences of the majority of the institutions. As this migration analysis is based on statistical data up to 2007 it reflects the average losses during a period of constant growth and favorable economic environments in all of our countries of operation. As the general economic condi-tions were worsening in 2008, management considers it appropri-ate to use the results of the migration analysis with a confidence level of 85% to cover all losses incurred in 2008. Further informa-tion on the Bank’s accounting policy on loan loss provisioning can be found in notes 4 and 15.The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless oth-erwise stated.All amounts are presented in US dollars, unless otherwise stated. For computational reasons, the figures in the tables may exhibit rounding differences of ± one unit.The fiscal year of the Bank is the calendar year.
1.4 Accounting developments
(a) Standards, amendments and interpretations effective in 2008 but not relevantThe following standards, amendments and interpretations to pub-lished standards are mandatory for accounting periods beginning on or after 1 January 2008 but they are not relevant to the Bank’s operations:• IFRIC 12, “Service concession arrangements” (effective from 1 January 2008);• IFRIC 14, IAS 19 – “The limit on a defined benefits asset, mini- mum funding requirements and their interaction” (effective from 1 January 2008).• IFRIC 11, IFRS 2 – “Group and Treasury Share Transactions” (ef- fective for annual periods beginning on or after 1 March 2007); • Reclassification of Financial Assets – Amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures and a subsequent amendment, Reclassification of Financial Assets: Effective Date and Transition. The amendments allow entities the options (a) to reclassify a financial asset out of the held for trading category if, in rare circumstances, the asset is no longer held for the purpose of selling or repurchasing it in the near term; and (b) to reclassify an available-for-sale asset or an asset held for trading to the loans and receivables category, if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity (subject to the asset otherwise meeting the definition of loans and receiva- bles). The amendments may be applied with retrospective effect from 1 July 2008 for any reclassifications made before 1 November 2008; the reclassifications allowed by the amend- ments may not be applied before 1 July 2008 and retrospec- tive reclassifications are only allowed if made prior to 1 No- vember 2008. Any reclassification of a financial asset made on or after 1 November 2008 takes effect only from the date when the reclassification is made. The Bank has not elected to make any of the optional reclassifications during the period.
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(b) Standards, amendments and interpretations to existing stand- ards that are not yet effective and have not been early adopted by the BankThe following interpretations to existing standards have been pub-lished and are mandatory for the Bank’s accounting periods begin-ning on or after 1 January 2009 or later periods, but the Bank has not early adopted them:• IAS 1, “Presentation of Financial Statements” (revised September 2007; effective for annual periods beginning on or after 1 January 2009). The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which will also include all non-owner changes in equity, such as the revaluation of available-for-sale financial assets. Alternatively, entities will be allowed to present two statements: a separate income statement and a statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position (bal- ance sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifi- cations, changes in accounting policies, or corrections of errors. The Bank expects the revised IAS 1 to affect the presen- tation of its financial statements but to have no impact on the recognition or measurement of specific transactions and bal- ances. • IFRS 3, “Business Combinations” (revised January 2008; effec- tive for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRS 3 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share of the acquirer’s identifiable net assets) or on the same basis as US GAAP (at fair value). The revised IFRS 3 is more detailed in pro- viding guidance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisi- tion for the purposes of calculating a portion of goodwill has been removed. Instead, goodwill will be measured as the dif- ference at acquisition date between the fair value of any invest- ment in the business held before the acquisition, the consider- ation transferred and the net assets acquired. Acquisition- related costs will be accounted for separately from the busi- ness combination and therefore recognised as expenses rather than included in goodwill. An acquirer will have to recognise at the acquisition date a liability for any contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its scope business combinations involving only mutual entities and business com- binations achieved by contract alone. • IFRS 8, “Operating segments” (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, “Disclosures about segments of an enterprise and related information”. The new standard requires a “management approach”, under which seg- ment information is presented on the same basis as that used for internal reporting purposes. This interpretation does not have an impact on the Bank’s financial statements;• IFRIC 13, “Customer loyalty programs” (effective from 1 July 2008);• IFRIC 16, “Hedges of a Net Investment in a Foreign Operation” (issued in July 2008; effective for annual periods beginning on or after 1 October 2008);• Puttable financial instruments and obligations arising on liq- uidation – IAS 32 and IAS 1 Amendment (effective from 1 Janu- ary 2009). The amendment requires classification as equity of some financial instruments that meet the definition of a finan- cial liability;
• Vesting Conditions and Cancellations – Amendment to IFRS 2, Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2009). The amendment clarifies that only service conditions and perform- ance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amend- ment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treat- ment. The Bank does not expect the amendment to have a material effect on its financial statements;• IAS 23 (Amendment), “Borrowing costs” (effective from 1 Janu- ary 2009). The amendment to the standard is still subject to endorsement by the European Union. It requires an entity to capitalise borrowing costs directly attributable to the acqui- sition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Bank will apply IAS 23 (Amended) from 1 January 2009 but is cur- rently not applicable to the Bank as there are no qualifying assets;• IAS 27, “Consolidated and Separate Financial Statements” (re- vised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minor- ity interests”) even if this results in the non-controlling inter- ests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity trans- actions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value;• IFRIC 15, “Agreements for the Construction of Real Estate” (effec- tive for annual periods beginning on or after 1 January 2009). The interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construc- tion of real estate directly or through subcontractors, and pro- vides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. IFRIC 15 is not relevant to the Bank’s operations because it does not have any agreements for the construction of real estate.• Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate – IFRS 1 and IAS 27 Amendment (issued in May 2008; effective for annual periods beginning on or after 1 January 2009). The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly control- led entities or associates at fair value or at previous GAAP car- rying value as deemed cost in the separate financial state- ments. The amendment also requires distributions from pre- acquisition net assets of investees to be recognised in profit or loss rather than as a recovery of the investment. The amend- ments will not have any impact on the Bank’s financial state ments.• Eligible Hedged Items – Amendment to IAS 39, Financial Instru- ments: Recognition and Measurement (effective with retro- spective application for annual periods beginning on or after 1 July 2009). The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situa- tions. The amendment is not expected to have any impact on the Bank’s financial statements as the Bank does not apply hedge accounting.
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• Improvements to International Financial Reporting Standards (issued in May 2008). In 2007, the International Account- ing Standards Board decided to initiate an annual improve- ments project as a method of making necessary, but non- urgent, amendments to IFRS. The amendments consist of a mix- ture of substantive changes, clarifications, and changes in ter- minology in various standards. The substantive changes relate to the following areas: classification as held for sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presentation of financial instruments held for trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held for rental and classification of the related cash flows under IAS 7 as cash flows from operating activities; clarification of definition of a curtailment under IAS 19; accounting for below market interest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held for sale under IAS 27 and IFRS 5; reduction in the disclosure re- quirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment proper- ties under construction in accordance with IAS 40; and reduc- tion in restrictions over manner of determining fair value of biological assets under IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent ter- minology or editorial changes only, which the IASB believes have no or minimal effect on accounting. The Bank does not expect the amendments to have any material effect on its financial statements.• IFRIC 17, “Distribution of Non-Cash Assets to Owners” (effective for annual periods beginning on or after 1 July 2009). The amendment clarifies when and how distribution of non-cash assets as dividends to the owners should be recognised. An entity should measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed. A gain or loss on disposal of the distributed non- cash assets will be recognised in profit or loss when the entity settles the dividend payable. IFRIC 17 is not relevant to the Bank’s operations because it does not distribute non-cash as- sets to owners.• IFRS 1, “First-time Adoption of International Financial Reporting Standards” (following an amendment in December 2008, effec- tive for the first IFRS financial statements for a period begin- ning on or after 1 July 2009). The revised IFRS 1 retains the substance of its previous version but within a changed struc- ture in order to make it easier for the reader to understand and to better accommodate future changes. The Bank concluded that the revised standard will not have any effect on its finan- cial statements.• IFRIC 18, “Transfers of Assets from Customers” (effective for annual periods beginning on or after 1 July 2009). The interpre- tation clarifies the accounting for transfers of assets from cus- tomers, namely, the circumstances in which the definition of an asset is met; the recognition of the asset and the measure- ment of its cost on initial recognition; the identification of the separately identifiable services (one or more services in ex- change for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. IFRIC 18 is not expected to have any impact on the Bank’s financial statements.• Improving Disclosures about Financial Instruments – Amend- ment to IFRS 7, Financial Instruments: Disclosures (issued in
March 2009; effective for annual periods beginning on or after 1 January 2009). The amendment requires enhanced disclo- sures about fair value measurements and liquidity risk. The entity will be required to disclose an analysis of financial in- struments using a three-level fair value measurement hierar- chy. The amendment (a) clarifies that the maturity analysis of liabilities should include issued financial guarantee con- tracts at the maximum amount of the guarantee in the earliest period in which the guarantee could be called; and (b) requires disclosure of remaining contractual maturities of financial derivatives if the contractual maturities are essential for an understanding of the timing of the cash flows. An entity will further have to disclose a maturity analysis of financial assets it holds for managing liquidity risk, if that information is nec- essary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. The Bank is currently assessing the impact of the amendment on disclosures in its financial statements.
2. Summary of significant accounting policies
2.1 Measurement basis
These financial statements have been prepared under the amor-tized cost convention, unless IFRS require recognition at fair value. A fair value is defined as the amount at which a transaction could be concluded between two knowledgeable, willing parties at arm’s length. Reporting and valuation are made on the going concern assump-tion.The financial year begins on January 1st and ends up on December 31st and includes all operations performed by the Bank. All the ef-fective figures that reflect financial and economic results of Bank’s activity during the financial year are included in the financial state-ments of the financial year. In 2007 the first day of the financial year should be considered December 17th when the Bank received the license for banking activity.
2.2 Financial assets
The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and re-ceivables, held-to-maturity investments and available-for-sale fi-nancial assets. There is no held-to-maturity category. Management determines the classification of financial assets at initial recogni-tion.
(a) Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading (“trading assets”), including the derivatives held, and fi-nancial assets designated at fair value through profit or loss at in-ception. The Bank does not apply hedge accounting.Financial assets are designated at fair value through profit or loss when they are part of a separate portfolio that is managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy. The monthly reporting on these portfolios and the included assets to key management per-sonnel is also done on a fair value basis. The fair values reported are usually observable market prices; as a guideline, the Bank pre-fers to invest in securities for which market prices in active markets can be observed. Only in rare circumstances is the fair value calcu-lated based on current observable market data by using a valuation technique.Financial assets at fair value through profit or loss are initially rec-ognized at fair value, and transaction costs are expensed in the in-come statement. Subsequently, they are carried at fair value. Gains
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and losses arising from changes in their fair value are immediately recognized in the income statement of the period. Together with in-terest earned on financial instruments designated as at fair value through profit and loss they are shown as “net result from financial assets at fair value through profit or loss”.Purchases and sales of financial assets at fair value through profit or loss are recognized on the trade-date – the date on which the Bank commits to purchase or sell the asset. Financial assets at fair value through profit or loss are derecognized when the rights to re-ceive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of own-ership.
(b) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Bank provides money, goods or serv-ices directly to a debtor with no intention of trading the receivable.Loans and receivables are initially recognized at carrying value plus transactions costs; subsequently they are measured at am-ortized cost using the effective interest method. At each balance sheet date and whenever there is evidence of potential impairment, the Bank assesses the value of its loans and receivables. Their car-rying amount may be reduced as a consequence through the use of an allowance account (see note 4 for the accounting policy for impairment of loans, and notes 13 and 25 for details on impairment of loans).If the amount of the impairment loss decreases, the impairment al-lowance is reduced accordingly, and the amount of the reduction is recognized in the income statement. The upper limit on the reduc-tion of the impairment is equal to the amortized costs which would have been incurred as of the valuation date if there had not been any impairment.Loans are recognized when the principal is advanced to the bor-rowers. Loans and receivables are derecognized when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of own-ership.
(c) Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank‘s management has the positive intention and ability to hold to maturity. lf the Bank were to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available for sale.
(d) Available-for-sale financial assetsAvailable-for-sale assets are those intended to be held for an in-definite amount of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.At initial recognition, available-for-sale financial assets are re-corded at fair value plus transaction costs. Subsequently they are carried at fair value. The fair values reported are either observable market prices or values calculated with a valuation technique based on current observable market. For very short-term financial assets it is assumed that the fair value is best reflected by the transaction price itself. Gains and losses arising from changes in fair value of available-for-sale financial assets are recognized directly in equity in the position “revaluation reserve from available-for-sale finan-cial instruments”, until the financial asset is derecognized or im-paired. At this time, the cumulative gain or loss previously recog-nized in equity is recognized in profit or loss as “gains and losses from available-for-sale financial assets”. Interest calculated using the effective interest rate method and foreign currency gains and
losses on monetary assets classified as available-for-sale are rec-ognized in the income statement. Dividends on available-for-sale equity instruments are recognized in the income statement when the entity’s right to receive the payment is established. Purchases and sales of available-for-sale financial assets are re-corded on the trade date. The available-for-sale financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership.
2.3 Foreign currency translation
All assets and liabilities for all balance sheets presented (includ-ing comparatives) have been translated from the functional cur-rency (MDL) to the presentation currency (USD) at the closing rate existing at the date of each balance sheet presented. Incomes and expense items for all periods presented (including comparatives) have been translated using an average rate for the period. Share capital, retained earnings and all other reserves are translated at closing rates. Finally, all exchange differences resulting from trans-lation have been recognized directly as a separate component in equity.
The exchange rates for the year 2008 and 2007 are presented be-low:
2008 2007 USD EUR USD EUR Closing rate 10.4002 14.7408 11.3192 16.6437 Average rate 10.3895 15.2916 12.1362 16.5986
2.4 Comparatives
In 2008 the structure of reports was adjusted to the group struc-ture, thus there have been made changes in the way of reports’ presentation. In the Income Statement in 2007 the item Administrative expenses included Staff costs and Service management fees while in 2008 the item Personnel expenses is included in Operating Expenses separately. At the same time in the 2008 notes Service manage-ment fees and other operating expenses are combined together (Notes 7, 8).The explanatory note on Administrative Expenses is more detailed in 2008 and doesn’t include staff costs, like in 2007, which are pre-sented in a separate note (Note 8).Calculation of Total regulatory capital in 2007 was performed ac-cording to Basel I method (i.e. intangible assets were not consid-ered in the calculation), in 2008 the Total regulatory capital was calculated according to Basel II method. Consequently the value of last year’s Total regulatory capital changed insignificantly (the change constitutes 2.8%) (Note 28).
2.5 Cash and balances with Central Bank
For the purposes of the balance sheet, cash and balances with Cen-tral Bank comprise cash in hand and balances with less than three months’ maturity at Central Bank.Generally, all cash and cash equivalent items appear at their nomi-nal value. For the purposes of the cash flow statement, cash and balances with Central Bank comprise balances with less than three months’ maturity from the date of acquisition, including: cash and non-re-stricted balances with Central Bank, non-pledged securities and other bills eligible for refinancing with central banks, and loans and advances to banks and amounts due from other banks.
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2.6 Loans and receivables
The amounts reported under receivables from customers consist mainly of loans and advances issued. In addition to overnight and term deposits, the amounts reported under receivables from banks include current account balances.All loans and receivables to banks as well as loans and receivables to customers fall under the category “loans and receivables” and are carried at amortized cost, using the effective interest method. Amortized premiums and discounts are accounted for over the re-spective terms in the income statement under net interest income. Impairment of loans is recognized on separate allowance accounts (Note 15).For the purposes of the cash flow statement, claims to banks with a remaining maturity of less than three months from the date of acquisition are recognized under cash and balances with Central Bank (Note 11).
2.7 Allowance for losses on loans and advances
(a) Assets carried at amortised cost – loans and advances
Impairment of loans and advancesThe Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial as-sets is impaired. If there is objective evidence that impairment of a loan or a portfolio of loans has occurred which influences the future cash flow of the financial asset(s), the respective losses are imme-diately recognized. Depending on the size of the loan, such losses are either calculated on an individual loan basis or are collectively assessed for a portfolio of loans. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. We do not recognize losses from expected future events.
Individually assessed loans and advancesLoans are considered individually significant if they have a certain size. For such loans, it is assessed whether objective evidence of impairment exists, i.e. any factors which might influence the cus-tomer’s ability to fulfil his obligation: • any specific information on the customer’s business;• changes in the customer’s market environment;• the general economic situation.
Additionally, the aggregate exposure to the client and the realis-able value of collateral held are taken into account when deciding on the allowance for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of its estimated future cash flows discounted at the financial asset’s original effective interest rate (specific impairment). If a loan has a variable interest rate, the discount rate for measuring any impair-ment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.As of December 31, 2008 the Bank did not have individually as-sessed loans.
Collectively assessed loans and advancesThere are two cases in which loans are collectively assessed for impairment:• individually insignificant loans;• the group of loans which do not show signs of impairment, in order to cover all losses which have already been incurred but not detected on an individual loan basis.
For the purposes of the evaluation of impairment of individually insignificant loans, the loans are grouped on the basis of similar credit risk characteristics, i.e. according to the number of days they are in arrears. Arrears of 8 or more days are considered to be a sign of impairment. This characteristic is relevant for the estimation of future cash flows for the so defined groups of such assets, based on historical loss experiences with loans that showed similar char-acteristics.The collective assessment of impairment for individually insignifi-cant loans (lump-sum impairment) and for unimpaired loans (port-folio-based impairment) belonging to a group of financial assets is based on a quantitative analysis of historical default rates for loan portfolios with similar risk characteristics in the individual subsidiaries (migration analysis), grouped into geographical seg-ments with a comparable risk profile. After a qualitative analysis of this statistical data, the holding Bank’s management prescribed appropriate rates to the banks of the ProCredit group as the basis for their portfolio-based impairment allowances. Deviations from this guideline were allowed, if necessitated by the specific situa-tion of a ProCredit institution.Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contrac-tual cash flows of the assets in the group and historical loss ex-perience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical pe-riod that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.If the Bank determines that no objective evidence of impairment ex-ists for an individually assessed financial asset, whether individu-ally significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively as-sesses them for impairment (impairment for collectively assessed loans).
Reversal of impairmentIf, in a subsequent period, the amount of the impairment loss de-creases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement.
Writing off loans and advancesWhen a loan is uncollectible, it is written off against the related al-lowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts pre-viously written off decrease the amount of the allowance for loan im-pairment in the income statement. The Bank writes off non-perform-ing credit exposures in accordance with the following principles: • Non-performing credit exposures under EUR/USD 10,000 shall be written off after 180 days of arrears;• Non-performing credit exposures of EUR/USD 10,000 and over shall be written off after 360 days of arrears.
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Renegotiated loansLoans that are either subject to collective impairment assessment or individually significant and whose terms have been renegoti-ated are no longer considered to be past due but are treated as new loans once the minimum number of payments required under the new arrangements have been received.
(b) Assets classified as available for saleThe Bank assesses at each balance sheet date whether there is ob-jective evidence that a financial asset or group of financial assets is impaired. In determining whether an available-for-sale financial asset is impaired the following criteria are considered:• deterioration of the ability or willingness of the debtor to serv- ice the obligation;• a political situation which may significantly impact the debt- or’s ability to repay the loan;• additional events that make it unlikely that the carrying amount may be recovered.
In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exist the cumulative loss – meas-ured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previ-ously recognized in profit or loss – is removed from equity and rec-ognized in the income statement. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement at any point thereafter. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement.The banks primarily invest in government securities with fixed or variable interest rates. Impairments on these investments are rec-ognized when objective evidence exists that the government is un-able or unwilling to service these obligations.
2.8 Intangible assets
(a) Computer softwareAcquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized on the basis of the expected useful lives. Software has a maximum expected useful life of 5 years.
(b) Other intangible assetsThe items reported under “Other intangible assets” are: software in progress and the value of the trademark “ProCredit”, which is in process of registration. The intangible assets in progress are not depreciated.The assets are amortized using the straight-line method over their useful lives.
2.9 Property, plant and equipment
Land and buildings comprise mainly branches and offices. All prop-erty, plant and equipment are stated at historical cost less sched-uled depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reli-ably. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.Depreciation on assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Leasehold improvements shorter of rental contract life or useful life Computers 3 years Furniture 5 years Motor vehicles 5 years Other fixed assets 2 – 5 years
The assets’ residual carrying values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the car-rying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds its estimated recoverable amount. The re-coverable amount is the higher of the asset’s fair value less costs to sell and value in use.Gains and losses on disposals are determined by comparing pro-ceeds with carrying amount. These are included in the income statement.The Bank does not hold investment property.
2.10 Impairment of non-financial assets
Assets that have an indefinite useful life are not depreciated on a scheduled basis but are tested annually for impairment. Assets that are subject to amortization are reviewed for indica-tions of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An im-pairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount. For the purpose of assessing impairment, assets are grouped at the lowest level, for which there are separately identifiable cash flows (cash-generat-ing units).
2.11 Leases
The leases entered into by the Bank are both operating and finance leases. The total payments made under leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease pe-riod has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.
Finance leaseAgreements which transfer to the lessee substantially all the risks and rewards incidental to the ownership of assets, but not neces-sarily a legal title, are classified as finance leases.
Operating leaseOperating leases are all lease agreements which do not qualify as finance leases. The leasing objects are recognized by the lessee.At the end of 2008 the Bank appears only as lessee in leasing op-erations.
2.12 Income tax
Current income taxIncome tax payable on profits is calculated on the basis of the ap-plicable tax law in the respective jurisdiction and is recognized as an expense in the period in which profits arise.
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Deferred income taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial state-ments prepared in conformity with IFRS. Deferred tax assets and liabilities are determined using tax rates (and laws) that have been enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred in-come tax liability is settled.The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial as-sets and liabilities including derivative contracts, and tax losses carried forward. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or a liability in a transaction other than a business combination that at the time of the transaction affects neither the profit (before tax) for the period according to IFRS, nor the taxable profit or loss.The tax effects of income tax losses available for carry forward are recognized as a deferred tax asset when it is probable that future taxable profits will be available against which these losses can be utilized.Deferred tax assets are recognized where it is probable that future taxable profit will be available against which the temporary differ-ences can be utilized.Deferred tax related to fair value re-measurement of available-for-sale investments, which are charged directly to equity, is also cred-ited or charged directly to equity and subsequently recognized in the income statement together with the deferred gain or loss. In 2008 the income tax rate was 0% and there are no indications for the future that it will be changed.
2.13 Liabilities to banks and customers
Liabilities to banks and customers are recognized initially at fair value net of transaction costs incurred. Borrowings are subse-quently stated at amortized cost; any difference between proceeds net of transaction costs and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest rate method.All financial liabilities are derecognized when they are extinguished – that is, when the obligation is discharged, cancelled or expires.
2.14 Provisions
Provisions are recognised if:• there is a present legal or constructive obligation resulting from past events;• it is more likely than not that an outflow of resources will be required to settle the obligation;• and the amount can be reliably estimated.
Where there are a number of similar obligations, the likelihood that an outflow of resources will be required in a settlement is deter-mined by considering the class of obligations as a whole. Provisions for which the timing of the outflow of resources is known are measured at the present value of the expenditures, if the out-flow will be not earlier than in one year’s time. Contingent liabilities, which mainly consist of certain guarantees and credit commitments issued for customers, are possible obliga-tions that arise from past events. As their occurrence, or non-oc-currence, depends on uncertain future events not wholly within the control of the Bank, they are not recognized in the financial state-ments but are disclosed off-balance sheet unless the probability of settlement is remote (Note 31).
2.15 Share capital
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds as (negative) capital reserve.
2.16 Interest income and expense
Interest income and expenses for all interest-bearing financial in-struments are recognized within “interest income” and “interest expense” in the income statement using the effective interest rate method. Interest income and expense are recognized in the income statement in the period in which they arise.Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest in-come is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Payments received in respect of written-off loans are not rec-ognized in net interest income.
2.17 Fee and commission income and expenses
Fee and commission income and expenses are recognized on an ac-crual basis when the service has been provided.Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognized as an adjustment to the effective interest rate of the loan.
3. Net interest income
Included within “net interest income” are interest income and ex-penses and, in addition, the unwinding of premiums and discounts on financial instruments at amortised cost.
2008 2007 Interest and similar income Interest income from loans and advances to customers 1,852,736 – Interest income from cash and short term funds 333,962 – Other interest income 89,431 – Total interest income 2,276,129 – Interest and similar expenses Interest expenses on liabilities to banks 338,459 – Interest expenses on liabilities to customers 227,866 – Total interest expenses 566,325 – Net interest income 1,709,804 –
4. Allowance for impairment on loans and advances to customers
Risk provisioning on loans and advances to customers are reflected in the income statement as follows:
2008 2007 Increase of impairment charge 185,746 – Write-offs 94 – Release of impairment charge – – Recovery of written-off loans – – Total 185,840 –
A n n u a l R e p o r t 2 0 0 8��
The total increase of impairment charge comprises the following entries:
2008 2007 Allowance for impairment on loans and advances to customers Allowance for individually insignificant impaired loans 64,652 – Allowance for collectively assessed loans 121,094 – Total allowance for impairment on loans and advances to customers 185,746 –
5. Net fee and commission income
2008 2007 Fee and commission income Payment transfers and transactions 135,636 – Account maintenance fee 6,681 – Letters of credit and guarantees 353 – Debit/credit cards 649 – Other fee and commission income 4,987 – Total fee and commission income 148,306 – Fee and commission expenses Payment transfers and transactions 15,600 – Total fee and commission expenses 15,600 – Net fee and commission income 132,706 –
6. Trading result
“Trading result” refers to the results of foreign exchange dealings with customers. The Bank does not engage in any foreign currency trading on its own account. In addition, this position includes the result from foreign currency hedging operations and unrealised for-eign currency revaluation effects. The Bank does not apply hedge accounting as defined by IAS 39.
2008 2007 Currency transactions 135,544 – Revaluation general (18,780) – Total 116,764 –
7. Net other operating income
2008 2007 Other operating income 510,236 – Other operating expenses 207,630 1,340 Total 302,606 (1,340)
Other operating income primarily includes service fee from admin-istering of ProCredit Company’s loan portfolio in the amount of USD 487,140 and other operating income in the amount of USD 23,096. Other operating expenses include as its main positions the net loss on disposal of software in the amount of USD 51,984, loss on dis-posal of low value small moving items in the amount of USD 62,657, payments to deposit guarantee fund in the amount of USD 1,870 and other operating expenses of USD 91,118.In 2008 some adjustments in disclosure of operating expenses from 2007 were made. The amounts of USD 46,567 for “Operating lease rentals”, USD 20,900 for “Consulting and auditing” and USD 297 for “Security expenses” were included in “Administrative ex-penses”.
8. Personnel expenses
Personnel expenses can be broken down as follows:
2008 2007 Salary expenses 1,385,447 44,279 Social security expenses 371,753 10,691 Total 1,757,200 54,970
In 2007 salary expenses in the amount of MDL 54,970 have been disclosed as “Administrative expenses”.
9. Administrative expenses
2008 2007 Office rent 1,308,590 46,567 Marketing, advertising and entertainment 454,685 – Training 322,760 – Service management fees 292,353 20,748 Depreciation and amortisation 197,214 – Communication and IT expenses 148,036 – Other administrative expenses 138,017 – Consulting, legal and audit fees 108,587 20,900 Office supply 73,365 – Transport 32,611 – Construction, repairs and maintenance 28,432 – Security service 21,869 296 Total 3,126,519 88,511
The position “Other administrative expenses” includes as its main positions expenses for nonprofit tax of USD 63,735 and expenses for utilities and electricity of USD 39,795.
10. Income tax expenses
This item should include all taxes on income. The Bank did not have any income tax expenses due to the fact that for the year 2008 the income tax rate was established to be 0%; the situation will remain unchanged for 2009.
11. Cash and balances with Central Bank
Cash and balance with Central Bank comprise the following items:
2008 2007 Cash in hand 2,148,007 – Balances at Central Bank excluding mandatory reserves 413,611 10,601,456 Mandatory reserve deposits 2,549,124 – Total cash 5,110,742 10,601,456
The following cash equivalents have been considered as cash for the cash flow statements:
2008 2007 Available for sale financial instruments 1,148,113 – Loans and advances to banks 7,331,327 – Minimum reserve with Central Bank, which does not qualify as cash for the cash flow (2,549,124) – Cash and cash equivalents for cash flow statement 11,041,058 10,601,456
F i n a n c i a l S tat e m e n t s ��
Mandatory reserves are bank’s funds held in Moldovan lei (MDL) or free convertible currency (USD, EUR) on accounts opened with the National Bank of Moldova. The reserves are calculated on the base of means attracted from deposit accounts and other similar liabilities. As of December 31, 2008 the reserve ratio established by the Central Bank was 17.5%.
12. Available for sale financial instruments
2008 2007 As at the beginning of the period – – Additions 54,639,406 – Disposal (53,490,110) – Exchange rate adjustments (1,183) – As at December 31 1,148,113 –
Available for sale financial instruments includes short term Nation-al Bank of Moldova certificates.
13. Loans and advances to banks
Loans and advances to banks are as follows:
2008 2007 Loans and advances to banks in OECD countries 7,263,999 – Loans and advances to banks in non-OECD countries 3,252,898 – Total 10,516,897 –
Loans and advances to banks in OECD countries consist from Nos-tro accounts of USD 7,261,048 and accrued interest on them of USD 2,951 in Deutsche Bank and Commerzbank, Germany.Loans and advances to banks in non-OECD countries consist of Nostro accounts at ProCredit Bank Bulgaria of USD 67,101, short term placements of USD 3,134,112 and accrued interest on them of USD 51,684 in local banks. The amount of USD 3,133,186 placed with Victoriabank and Eximbank – Gruppo Venetto Banca (both lo-cal banks) are pledged assets in foreign currency against received deposits in local currency (Note 30).
14. Loans and advances to customers
Loans and advances to customers are as follows:
As at December 31, 2007 the Bank did not started the lending activ-ity yet.
Gross Allowance Net Share of Number of Share of amount for impairment amount total portfolio outstanding total number in % loans in % At December 31, 2008 Business loans 11,342,335 (160,565) 11,181,770 92.7 2,452 82.5 Loan size up to 10 KUSD 5,806,558 (105,520) 5,701,038 47.3 2,287 76.9 Loan size 10 to 50 KUSD 2,649,253 (26,580) 2,622,673 21.7 142 4.8 Loan size 50 to 150 KUSD 1,680,509 (16,344) 1,664,165 13.8 18 0.6 Loan size more than 150 KUSD 1,206,015 (12,121) 1,193,894 9.9 5 0.2 Agricultural loans 900,943 (21,151) 879,792 7.3 521 17.5 Loan size up to 10 KUSD 803,048 (20,166) 782,882 6.5 517 17.4 Loan size 10 to 50 KUSD 97,895 (985) 96,910 0.8 4 0.1 Loan size 50 to 150 KUSD – – – 0.0 – 0.0 Loan size more than 150 KUSD – – – 0.0 – 0.0 Total 12,243,278 (181,716) 12,061,562 100.0 2,973 100.0
A n n u a l R e p o r t 2 0 0 8��
15. Allowances for losses on loans and advances
Allowance for impairment losses on loans and advances cover the losses which arise from the category “loans and advances to cus-tomers”. In addition to the allowance for specific impairment losses for receivables for which there is objective evidence of impairment, lump-sum specific provisions and a general allowance were formed to cover impairment loss relating to the customer loan portfolio as a whole:
2008 2007 Allowance for impairment on loans and advances to customers Allowance for individually significant impaired loans 60,746 – Allowance for collectively assessed loans 120,970 – Total 181,716 –
The following table shows the development of allowances for im-pairment losses for loans and advances to customers over time:
2008 2007 As at the beginning of the period – – Additions 185,746 – Used (3,843) – Exchange rate adjustments (187) – As at December 31 181,716 –
16. Intangible assets
The development of the intangible assets is shown in the following table:
2008 2007 Software Net book value as of the beginning of the period – – Transfers from intangible assets in progress 301,538 – Additions 242,092 – Amortisation charge (78,481) – Exchange rate adjustments 26,521 – Net book value as of December 31 491,670 – Intangible assets in progress Net book value as of January 1 301,538 – Transfers (301,538) – Additions 57,182 301,538 Exchange rate adjustments (59) – Net book value as of December 31 57,123 301,538 Total net book value as at December 31 548,793 301,538
Included in intangible assets is the software program “Bank Ware”.
17. Property, plant and equipment
The development of property, plant and equipment was as follows:
There are no assets related to finance leases.
Leasehold Assets under Furniture, fixtures IT and other Total improvements construction and vehicles equipment At December 31, 2008 Net book value at January 1, 2008 – 1,034 – – 1,034 Transfers 598,063 (1,467,156) 593,125 275,968 – Additions – 1,678,105 1,523 – 1,679,628 Disposals – – – – – Depreciation charge (33,487) – (30,987) (21,901) (86,375) Exchange rate adjustment current year (581) (126) (580) (261) (1,548) Net book value as at December 31, 2008 563,995 211,857 563,081 253,806 1,592,739
As at 31 December 2008 Cost 597,447 211,857 594,036 275,685 1,679,025 Accumulated depreciation (33,452) – (30,955) (21,879) (86,286) Net book value as at December 31, 2008 563,995 211,857 563,081 253,806 1,592,739
Leasehold Assets under Furniture, fixtures IT and other Total improvements construction and vehicles equipment At December 31, 2007 Net book value at December 17, 2007 – – – – – Additions – 1,034 – – 1,034 Net book value as at December 31, 2007 – 1,034 – – 1,034 As at 31 December 2007 Cost – 1,034 – – 1,034 Accumulated depreciation – – – – – Net book value as at December 31, 2007 – 1,034 – – 1,034
F i n a n c i a l S tat e m e n t s ��
18. Deferred taxes
Deferred income taxes are calculated in full, under the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts, using the appli-cable tax rates as stipulated by the tax legislation. As of December 31, 2008 there were no deferred tax assets due to income tax rate of 0%.
19. Other assets
Other assets are as follows:
2008 2007 Pre-payments 647,951 53,886 Claims against insurances – 1,166 Claims from customs and taxes 250 – Other inventory items 64,055 207 Others 34,265 – Total 746,521 55,259
Pre-payments include as its main positions advanced payments for rent of offices in the amount of USD 276,643, advanced payments for services of USD 198,021 and advanced payment to ProCredit Holding for management services. Other assets include receiva-bles on Western Union transfers.
20. Liabilities to banks
The liabilities to banks consist primarily of short-term bank depos-its obtained on the interbank market.
2008 2007 Liabilities to banks in OECD countries – – Liabilities to banks in non-OECD countries 3,980,274 – Total 3,980,274 –
Liabilities to banks in non-OECD countries consist of 4 depos-its from local banks, denominated in MDL in the amount of USD 2,972,218 and one deposit from ProCredit Bank Serbia, denomi-nated in USD in the amount of of USD 1,008,056.
21. Borrowed funds
2008 2007 Borrowed funds 4,211,230 – Total 4,211,230 –
Borrowed funds consist of two long term borrowings from ProCredit Holding AG which mature in 2013.
22. Liabilities to customers
Liabilities to customers consist of deposits due on demand, sav-ings deposits and term deposits. The following table shows a breakdown by customer groups:
2008 2007 Current accounts 4,210,473 – – Private individuals 248,885 – – Corporates 3,961,588 – Savings accounts 658,520 – – Private individuals 658,520 – – Corporates – – Term deposit accounts 4,685,461 – – Private individuals 2,965,561 – – Corporates 1,719,900 – Other liabilities to customers 114,472 – Total 9,668,926 –
As of December 31, 2007 the Bank did not have any deposits attracted. The other liabilities to customers represent the amount of accrued interest on deposits to customers.
23. Liabilities to international financial institutions
Liabilities to IFI’s include the current account of Kreditanstalt fur Wiederaufbau (KfW), opened for the purpose of capital increase in the beginning of 2009 and the current account of ProCredit Holding AG. As at 31/12/2008 the outstanding balance of liabilities to IFI’s was USD 2,310,060.
24. Financial liabilities
2008 2007 Finance lease liabilities 309,095 453,001 Total 309,095 453,001
Financial liabilities relate to finance lease of Bank software with ProCredit SA. In 2007 the amount of USD 453,001 reported under amount “Financial liabilities” contained the Bank’s liabilities to the company ProCredit SA, which were prepaid for the software.
25. Other liabilities 2008 2007 Liabilities for goods and services 72,943 – Liabilities to employees 2,382 54,970 Liabilities from social insurance contributions 8,047 5,134 Non-income tax liabilities 50,161 – Others 164,414 – Total 297,947 60,104
Non-income tax liabilities are liabilities related to value-added tax. Others liabilities includes payables to ProCredit Holding AG of Man-agement services.
A n n u a l R e p o r t 2 0 0 8��
26. Provisions
2008 2007 At the beginning of the period – – Exchange rate adjustments – – Additions 75,732 – Used – – Releases – – At December 31 75,732 –
The main provision provided by the Bank were provisions for un-used vacation and provisions for off-balance sheet items, e.g. guarantees, credit commitments. For the provisions for untaken vacation and for off-balance sheet items the outflow of economic benefits is expected during the next one or two years.
27. Share capital
As at December 31, 2008 the shareholders structure was as fol-lows:
In 2008 there were two issues of shares by the ultimate shareholder ProCredit Holding AG in the amount of MDL 10 million (USD 962,510 at average exchange rate) and MDL 14 million (USD 1,347,514 at average exchange rate). The total number of authorised and issued ordinary shares at the end of the year was 144 thousand shares (2007: 120 thousand shares) with a par value of USD 96.15 per share each (2007: USD 88.35 per share). All shares are fully paid.
28. Risk management
28.1 Management of the overall bank risk profile
(a) Capital management – objectivesThe core objective of doing business in the ProCredit Group as well as each individual ProCredit Bank is to provide access to straight-forward and comprehensive banking services to all everyone. Our understanding of responsible banking bears a clear attitude to-wards our clients and internally to provide all necessary resources to our branches. From risk management perspective responsible banking means not to take excessive risks, the bank is not able to bear and to avoid speculative operations without adequate risk analysis. The risk bearing capacity of the Bank is defined by using the eco-nomic capital model. Thus at all times maintaining the adequate Tier 1 and Tier 2 capital to cover potential losses.
The capital management of the Bank has the following objectives:• Full compliance with external capital requirements;• Enabling the Bank to implement its plans for continued strong growth while following its business strategy as Neighbour- hood Bank in its countries of operations;• Meeting the internally defined minimum capital adequacy ratio: group policy and the National Bank of Moldova require maintaining an equity ratio of 12%.
(b) Capital management – compliance with external capital requirementsMinimum capital requirements are imposed and monitored by the National Bank of Moldova as well as by limits, regulations and poli-cies of the ProCredit Holding. The local methods for the calculation of capital adequacy differ slightly from the methods introduced by the Basle II committee. All regulatory capital requirements have been met at all times in ProCredit Bank Moldova during the reporting period.
(c) Capital management – processes and proceduresInternal supervision of the capital requirements is performed by the internal Risk Department. Bank’s Reporting Department reports on a regular basis to National Bank authorities, Risk Department and Management Board. On a bank level, capital adequacy and the use of regulatory capital are monitored monthly by the Assets and Li-abilities Committee (ALCO). The techniques employed for monitor-ing credit and operational risk are based on the guidelines of the Basle Committee (Basle II), using the standard approach. For group monitoring, IFRS numbers are used.
The Bank divides its regulatory capital into Tier 1 capital and Tier 2 capital to monitor capital adequacy.
2008 2007 Ordinary share capital 13,845,888 10,601,456 Capital and legal reserves – – Accumulated loss (2,973,785) (155,274) Less other intangibles 548,793 301,538 Tier I capital 10,323,310 10,144,644 Other inherent loss allowance 120,970 – Tier II capital 120,970 – Total regulatory capital 10,444,280 10,144,644
December 31, 2008 December 31, 2007 Size of Number of Amount Size of Number of Amount Shareholder stake in % shares in USD stake in % shares in USD ProCredit Holding 91.67 132,000 12,692,064 90.00 108,000 9,541,310 DOEN 8.33 12,000 1,153,824 10.00 12,000 1,060,146 Total 100.00 144,000 13,845,888 100.00 120,000 10,601,456
F i n a n c i a l S tat e m e n t s ��
Capital adequacy ratio at the end of the year was as follows:
Tier 1 ratio (=Tier 1 Capital / RWA) 50.47% Tier 1 + Tier 2 ratio (=Total Own Funds / Total RWA) 51.06%
28.2 Management of individual risks
The Bank uses sensitivity analysis approaches for single risk types.The overall risk profile in the Bank is monitored on a regular level. Strong emphasize is set on the understanding and awareness of factors driving risks in all areas of operations. Special emphasis is placed on ongoing analysis and discussion of possible risk sce-narios and risk events as well as trainings for all employees on each level of operation to raise the awareness on possible risk events. When introducing new business lines and processes, we make sure that the new activity is understood completely by all parties involved and that all departments involved can fulfil the respective operations correctly. All existing operations must be performed based on clear documented and prescribed processes with ad-equate internal control.The ProCredit group uses uniform limits for individual risks within which the individual banks position their own risk strategies. Only in cases where limits are also stipulated by local law may the banks deviate from these limits.
(a) Credit riskIn the area of credit risk, we distinguish between credit default risk, credit portfolio risk and inter-bank risk. Credit Portfolio Risk is the risk, which derives either from a concentration of loans which are subject to common risk factors or from a significant concentration of large exposures. Inter-bank risk implies the risk that a counter-party, we have an interbank placement with is not able to repay its obligations with us.
The below table shows the significant exposure to credit risk:
2008 2007 Loans and advances to banks 10,516,897 – Loans and advances to customers 12,061,561 – Loans and advances to customers 12,243,277 – Allowance for impairment (181,716) –
Credit default risk from customer lending Credit default risk is defined as the risk that a borrower will be un-able or unwilling to perform an obligation, resulting in a negative impact on our Profit and Loss Statement and capital.
Our understanding of responsible banking bears a clear attitude against uncontrolled consumer lending. Our view is that consumer lending is not a priority for the development of a transition economy and rather leads to over-indebtedness of clients especially given the fact, that commercial banks do not analyze the debt capacity of its borrowers properly. Lending activity is the core profit driver for our Bank. Consequently we estimate that the net interest income and net commission and fees from lending operations are an appropriate measurement of the profitability for credit activities.All regulations regarding the type of exposure, maturity and cur-rency as well as standards for analysis of customer repayment abil-ity are clearly prescribed in the lending procedures of the Bank. Lending procedures include clear instructions on all levels of the credit cycle, beginning with the acquisition of new clients, the tech-nology of repayment analysis of our customers to clearly defined post disbursement monitoring requirements. Besides intensive regular trainings for all loan officers are in place for each working experience level.An effective risk control mechanism is our credit committee, which takes disbursement decisions collectively by a unified vote and based on documented customer analysis with a clear appraisal of the financial and social portrait of each customer and his business. Collateral requirements are defined as part of every credit decision. Credit Committee members have clearly assigned approval limits.With an average loan amount of USD 4,117 ProCredit Bank has a well diversified loan portfolio, thus mitigating impacts of Credit Default Risk of large clients.Moreover, medium-sized clients are managed by two departments at the bank: the department in charge of customer care and sales of bank products and the department in charge of credit analysis and assessment of the credit risk. Both functions are strictly separated up to management level in order to ensure that the bank arrives at a very informed lending decision. Not only does this allocation of functions ensure that a sufficient amount and quality of informa-tion will be provided; it is also intended to ensure objectivity dur-ing the analysis and presentation of the borrowers’ requests to the credit committee.An important tool for avoiding arrears and identifying problem loans at an early stage is our close relationships with credit customers as well as the prescribed monitoring plan for each customer. Based on the monitoring results the Bank has clear escalation procedures in place that define the steps to be taken in case a client’s ability to service the outstanding loan(s) shows signs of deterioration. The low arrears rate is a clear proof of the effectiveness of our credit risk management measures.
Breakdown of loan portfolio by days in arrears:
Besides, our Credit Control Unit is monitoring the Bank’s credit op-erations and compliance of Bank’s branches with our lending pro-cedures on a regular basis. The Control Unit performs unexpected on-site checks of loan files, committee decisions and the adequacy of loan collateralization.
0 1 – 7 8 – 30 31 – 60 61 – 90 91 – 180 > 180 Total days days days days days days days Loans to customers Business 11,226,203 24,123 40,490 14,051 18,483 18,985 – 11,342,335 Agricultural 880,473 – 5,526 7,774 – 7,170 – 900,943 Total 12,106,676 24,123 46,016 21,825 18,483 26,155 – 12,243,278
A n n u a l R e p o r t 2 0 0 8��
We monitor the quality of the loan portfolio on an ongoing basis, using a portfolio at risk definition that includes all exposures with payments overdue by more than 30 days as the basic measure of current portfolio quality. We chose this measure because the vast majority of all loans have fixed instalments with monthly payment of principal and interest. Exceptions are seasonal agricultural loans and investment loans, which have a grace period of six months.
Besides we analyze what loan defaults we should expect within a given year based on past experience in this area. Expected losses have to be fully covered with loan loss provisions. The Bank’s Credit Risk Committee reviews on a monthly basis the classification and rating of clients having difficulties to serve their loan obligation. Based on Decisions of Credit Risk Committee the Bank forms Loan Loss Provisions, thus adjusting monthly the cover-age of expected losses for individually significant loans. Loan Loss Provisions for individually insignificant loans in arrears are calcu-lated on a portfolio basis, considering historical default rates.
As of December 31, 2008 the Bank did not have any provisions for specific impaired loans.
2008 2007 Allowance for impairment on loans and advances to customers Allowance for individually insignificant impaired loans 60,746 – Allowance for collectively assessed loans 120,970 – Total 181,716 –
The development of allowances for impairment losses on loans to customers over time was as follows:
2008 2007 As at the beginning of the period – – Additions 185,746 – Used (3,839) – Releases – – Effect of interest – – Exchange rate adjustments (191) – As at December 31 181,716 –
According to group policy, very small loans are issued without be-ing fully collateralised. The threshold in ProCredit Bank Moldova is USD 3,000. The majority of loans are fixed instalment loans of rather short term maturity and the fair value of collateral usu-ally decreases substantially more slowly than the outstanding loan amount. Still all monitoring measures include also monitoring of collateral. The collateral can be classified into the following cat-egories:
Mortgage Guarantees Inventories Other 2008 49% 31% 19% 1% 2007 – – – –
According to the internal policy the collateral value should cover 120% of the outstanding amount of loans.
Credit portfolio risk from customer lendingThe risk, which derives either from a concentration of loans which are subject to common risk factors or from a significant concentra-tion of large exposures.The Bank’s credit portfolio risk is limited by its credit strategy, namely providing lending services to very small, small and medium businesses, thus diversifying loan portfolio risk resulting from high concentration of large credit exposures. A broad geographical and economic sector diversification of the loan portfolio is another measure to mitigate Credit Portfolio Risk. Though SME lending, i.e. larger loan exposures exceeding the threshold of USD 150,000, is not a strategic focus, the Bank does process larger loan applica-tions but mainly from existing growing clients. Larger exposures have a long standing credit history with ProCredit SA and are partly disbursed in the Bank. Overall, the loan portfolio of the Bank in-cludes only five exposures of more than USD 150,000.The Bank’s Risk Department analyzes on a monthly basis the struc-ture of the loan portfolio and the loan portfolio at risk by regions and business sectors, which might be affected by common risk fac-tors. In case it is necessary the Bank limits the exposure toward certain sectors of the economy.
The following table represents the structure of the loans portfolio by amounts:
At December 31, 2008 Business Agricultural < 10,000 USD 5,806,558 803,048 10,000 to 50,000 USD 2,649,253 97,895 50,000 to 150,000 USD 1,680,509 – > 150,000 USD 1,206,015 – Total 11,342,335 900,943
One prerequisite for the identification of major credit risks is an awareness of the overall credit exposure to each borrower. For this purpose, full information about any related parties must already be available prior to lending. The identification of economic groups is done according to bank’s lending procedures. According to Limits set by ProCredit Holding a net loan exposure to one single party or a group of interrelated parties does not exceed 10% of bank’s regulatory capital. According to local legislation the net loan exposure to one single party or a group of interrelated per-sons shall not exceed the National Bank limit of 25% of the bank’s Total Regulatory Capital. In addition, the sum of ten largest credit exposures including groups of inter-related persons does not exceed 50% of the bank’s equity as required by ProCredit Holding.All larger exposures are particularly well analysed and monitored and full information about any related parties is required by the Credit Committee in order to take a decision on loan disbursement. ProCredit Bank applies a conservative approach when setting in-dividual credit limits for larger exposures. All this measures result in a high portfolio quality and a low level for individual loan loss provisioning.
Loan Portfolio at risk Portfolio at risk Net Net write-offs portfolio (> 30 days) as % of write-offs as % of loan portfolio loan portfolio 2008 12,243,278 66,463 0.54% 3,839 0.03% 2007 – – 0.00% – 0.00%
F i n a n c i a l S tat e m e n t s ��
For the calculation of the individual impairment a discounted cash flow approach is applied. Individually significant loans with no need for individual impairment are subject to portfolio-based im-pairment.
The table beow reflects the amount of loan provisions formed for business and agricultural loans:
Repossessed collateralAs at 31 December 2008 the Bank did not have any repossessed collateral (2007: nil).
Renegotiated loansAs at 31 December 2008 the Bank did not have any renegotiated loans (2007: nil).
Credit risk from interbank placements and securitiesThe risk of not receiving funds as agreed with other banks is de-fined by loans or deposits given from ProCredit Bank to another bank, and by entering into forward trades with such banks, or by holding instruments of non-ProCredit issuers in the Bank’s assets.
Managing inter-bank risk ProCredit Bank applies to the following principles of credit risk management:• No assumption of credit risk without credit decision;• Analysis of Counterparty before making a credit decision;• Diversification (credit portfolio management);• Regular review of counterparty creditworthiness, at least on an annual basis.
All deposits and other banking transactions are performed only with sound local or international banks. The analysis of a counterparty, with which a business relation-ship shall be initiated is done by the Risk Department, based on a request by the Treasury or Payments Department. Risk Depart-ment performs an analysis based on ratings of the counterparty, set by the Rating Agencies Fitch Ratings, Moody’s, or Standard and Poor’s; the rating of the country, where the principal head office is located; the shareholder’s structure of the respective Bank; the financial statements of the counterparty as well as financial per-formance ratios of the Bank and their historical development. An internal rating system is in place, to evaluate the soundness of the counterparty.In order to limit the maximum risk of default, an exposure limit of 25% of the total regulatory capital of the Bank is established for each counterparty and required by the local regulator as well as by the ProCredit Holding.
The Group Risk Management Department analyzes additionally in-ternational banking groups with which we have placed funds and monitors the overall exposure on a group level. Due to their role as part of the Banks’ liquidity reserves, interbank placements are of very short maturity, typically up to 3 months, which further reduces the incurred risk of those transactions.All placements and other transactions with Bank’s counterparties are approved by the ALCO, in which senior management staff mem-bers participate.
(b) Liquidity riskLiquidity Risk is the risk arising from the inability of an institution either to meet its obligations or to fund increases in assets as they fall due.In ProCredit Bank Moldova Liquidity Risk is monitored daily by the Treasury Department.By using the maturity mismatch analysis ProCredit Bank Moldova estimates the net cumulative cash outflow vs. the unencumbered assets per time periods and under different scenarios in the weekly Assets and Liabilities Committee (ALCO) by analysing all predicted inflows and outflows of the bank for the weeks ahead per each cur-rency. A negative gap in one time bucket indicates that without any rollover of funding new assets can’t be acquired. ProCredit Banks Treasury Department is using instruments for maturity transforma-tion in order to close liquidity gaps for a time period. Weekly ALCO monitors the liquidity position on a cash flow basis, broken down by the most important currencies for the bank, EUR, USD and MDL for a short term forecast period of three months as well as a middle term period of one year.ProCredit Bank Moldova must have sufficient liquid funds available to meet its obligations, even in extraordinary circumstances, thus the Bank’s Treasury and Risk Department are using liquidity ratios analysis to measure bank’s ability to meet liquidity obligations also under stressed market conditions.The following table shows the remaining contractual maturities of the liabilities of the Bank. The remaining contractual maturity is defined as the period between the balance sheet date and the contractually agreed due date of liability, or of a partial payment under such a liability.
Gross outstanding Allowance for portfolio-based Net outstanding amount and lump-sum impairment amount At December 31, 2008 Business 11,342,335 160,565 11,181,770 Agricultural 900,943 21,151 879,792 Total 12,243,278 181,716 12,061,562
Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Total 1 month months months years years 5 years At 31 December, 2008 Liabilites Liabilities to banks – 1,017,222 3,014,128 – – – 4,031,350 Borrowed funds – 155,759 158,340 314,099 4,910,853 – 5,539,051 Liabilities to customers 5,019,949 2,082,754 2,980,320 13,894 – – 10,096,917 Liabilities to international financial institutions 2,310,060 – – – – – 2,310,060 Provisions – – 75,732 – – – 75,732 Other financial liabilities 6,058 12,115 54,518 72,691 163,713 – 309,095 Other liabilities 297,947 – – – – – 297,947 Total liabilities 7,634,014 3,267,850 6,283,038 400,684 5,074,566 – 22,660,152
A n n u a l R e p o r t 2 0 0 8�0
In line with ProCredit Holding’s policy, each ProCredit bank to be self-sustainable, ProCredit Bank Moldova finances it’s lending op-erations primarily through customer deposits and long-term credit lines. Having in mind the mission of all ProCredit Institutions, offer-ing financial services to ordinary people, the target group of banks deposit-taking operations are small and medium savers. By doing so ProCredit Bank Moldova diversifies it’s deposit portfolio among a large number of depositors, thus mitigating larger liquidity out-flows.Throughout the reporting period, the bank had at all times suffi-cient liquidity to meet all financial obligations in a timely manner.
(c) Market price riskMarket Risk represents the risk of recording losses or not to achieve the estimated profits, due to fluctuation of the prices on the mar-ket, interest rate and exchange rate and includes Currency and In-terest Rate Risks.
Currency riskCurrency Risk refers to the risk that movements in exchange rates will adversely affect the bank’s earnings and capital. ProCredit Bank carries out operations in local currency, EUR and USD. Small
and very small loans, in particular, are usually denominated in the local currency. The establishment of foreign currency positions for speculative purposes is not permitted. National Bank regulations, which prescribe strict limits of +- 10% of total regulatory capita for an OCP per each currency and +-20% of total regulatory capital for OCP cumulated for all currencies are met at any time.Risk Department monitors on a daily basis the open currency po-sition of the Bank and prepares a weekly report to the ALCO. The ALCO committee approves a weekly limit framework with explicit benchmarks for the Open Currency Position, which has to be kept by the Treasury Department and monitored by the Risk Department. Treasury department sells or buys currencies on the local interbank market within individually defined limits with the aim of closing out positions.The level of dollarization (or euroisation) in Republic of Moldova is comparable low, so 87.6% of the loan portfolio is disbursed in local currency and 12.4% in hard currencies. There is a slight mismatch concerning the deposit portfolio with 36.1% of deposits in local currency and 63.9% in foreign currency. The funding mismatch in local currency between loan portfolio and deposit portfolio is cov-ered by currency SWAPS. The establishment of foreign currency positions for speculative purposes is not permitted.
Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Total 1 month months months years years 5 years At 31 December, 2007 Liabilites Other financial liabilities – 453,001 – – – – 453,001 Other liabilities – 60,104 – – – – 60,104 Total liabilities – 513,105 – – – – 513,105
EUR USD MDL As at December 31, 2008 Assets Cash and balances with Central Bank 1,745,895 1,329,971 2,034,876 Available for sale financial instruments – – 1,148,113 Loans and advances to banks 4,750,985 5,765,686 226 Loans and advances to customers 573,079 930,744 10,739,455 of which: indexed to EUR/USD 421,169 194,750 – Allowance for losses on loans and advances (5,744) (9,373) (166,599) Intangible assets – – 548,793 Property, plant and equipment – – 1,592,739 Tax assets – – – Other assets 224,755 39,993 481,773 Total assets 7,288,970 8,057,021 16,379,376 Liabilities Liabilities to banks – 1,008,056 2,972,218 Borrowed funds 2,173,335 2,037,895 – Liabilities to customers 4,690,624 2,320,521 2,657,781 of which: indexed to EUR/USD – – – Liabilities to international financial institutions – 2,302,537 7,523 Tax liabilities – – – Provisions – – 75,732 Other financial liabilities – – 309,095 Other liabilities 211,654 13,393 72,900 Total liabilities 7,075,613 7,682,402 6,095,249 Net position 213,357 374,619 10,284,127
Credit commitments 377,593 – –
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EUR MDL As at December 31, 2007 Assets Cash and balances with Central Bank – 10,601,456 Intangible assets – 301,538 Property, plant and equipment – 1,034 Other assets – 55,259 Total assets – 10,959,287 Liabilities Financial liabilities 20,748 432,253 Other liabilities – 60,104 Total liabilities 20,748 492,357 Net position (20,748) 10,466,930 Credit commitments – –
Sensitivity analysis for currency risk is presented below:
31 December 2008 Estimated change Currency Impact, profit / (loss), of rate, % USD’000 5% EUR 15 USD 19 -5% EUR (15) USD (19) 10% EUR 30 USD 37 -10% EUR (30) USD (37)
31 December 2007 Estimated change Currency Impact, profit / (loss), of rate, % USD’000 5% EUR 1 USD – -5% EUR (1) USD – 10% EUR 2 USD – -10% EUR (2) USD –
Interest rate riskThe risk that movements in market interest rates will adversely af-fect the Bank’s earnings and capital.
Movements in market interest rates can result in:• changes in fair value of already contracted interest rate sensi- tive assets and liabilities of the bank, affecting the economic value of the bank’s equity, and • changes in the bank’s net interest margin, affecting the bank’s future interest earnings.
In contrast to other commercial banks, ProCredit Bank does not aim to earn profits through maturity transformation or other forms of speculation in the interest rate market. Rather, we seek to ensure that our balance sheet structure is balanced across all maturities.Movements in market interest rates are monitored by the ALCO of the Bank. The ALCO decides on measures and instruments to keep the bank’s interest margin stable. Risk Department is monitoring movements of market interest rate risk on a regular basis and re-ports to the monthly Internal Risk Committee. In quantitative terms, the bank limits the risks associated with interest rate fluctuations by stipulating that the maximum weighted modified duration gap
of the assets and liabilities must be less than 1 (and greater than -1) while aiming at a modified duration gap of 0. Where possible, the bank (Treasury Department) shall use financial instruments to ad-just the interest gap accordingly. The use of any such instruments for speculative purposes is prohibited.In addition Bank’s Risk Department monitors impacts on earnings and capital by using sensitivity analysis for changed market condi-tions for Assets and Liabilities for all currencies. Under stress con-ditions a parallel shift in the yield curve by 200 basis points may not lead to a loss of more than 20% of the regulatory capital (Basle interest rate shock).
2008 In ’000 USD Parallel shift of Impact on yield curve profit and loss Local currency (MDL) 2% 90 -2% (90) EUR 2% (2) -2% 2 USD 2% (9) -2% 9
ProCredit Bank Moldova counteracts the loan portfolio risks as-sociated with interest rate fluctuations through interest rate ad-justment clauses in the agreements governing long-term loans. An adjustment of loan interest rates to changed market interest rates was not necessary in the past.
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In 2007 the Bank did not have interest-bearing assets and liabili-ties.
ProCredit Bank Moldova counteracts the loan portfolio risks as-sociated with interest rate fluctuations through interest rate ad-justment clauses in the agreements governing long-term loans. An adjustment of loan interest rates to changed market interest rates was not necessary in the past.
Funding riskAs part of liquidity risk, the funding risk represents the risk that we will not have sufficient funds (both equity and debt) to finance the development of our business.The Bank prepares a five year business plan, which is reviewed and adjusted annually. The business plan serves as the basis to deter-mine the funding needs of ProCredit Bank, both in regards to equity and debt financing. Taking into consideration the data given in the business plan Treasury Department in collaboration with Risk De-partment assesses scenarios for funding needs by different time buckets and for each currency and prepares recommendations for the ALCO. All decisions regarding attracting additional funding means from IFIs are taken by the ALCO and approved by the Super-visory Board of the Bank. Aiming at self-sustainability, ProCredit Bank Moldova puts strong efforts to fund its business needs with customer deposits.ProCredit Holding supports the funding needs of the bank not only through equity investments but also with longer term debt refinancing and subordinated debt. Funding needs of the bank are monitored and regularly reviewed and discussed with ProCredit Holding.
Operational riskOperational risk is defined as the risk of loss resulting from inad-equate or failed internal processes, from people and systems, or from external events. This definition includes all “event risks” in the areas of people, processes, technology and information tech-nology as well as legal and information security risks and excludes operating environment and reputation risks.ProCredit Bank Moldova operates with a high degree of simplicity,
transparency and diversification. Operational Risk Management begins with each employee and each level of operation of the bank. Emphasis is put on open communication, corporate values and staff loyalty. Segregation of tasks and the “four-eyes principle” are implemented in order to mitigate operational risk events. All proc-esses are clearly defined and documented. A strong focus is put on the bank’s corporate culture, the code of conduct and staff develop-ment as well as the implementation of high technical standards in terms of IT hardware, software and technical backup systems.The Risk Management Department, together with Internal Audit, aims to identify the risks inherent in the business of the individual departments. The overall operational risk profile, significant op-erational losses, new products and processes and changes to ex-isting ones are regularly discussed in operational risk committee. The operational risk committee decides on strategies to manage the operational risks and keep them at sustainable levels. With the implementation of the Risk Event Database (RED) on the ProCredit Holding level ProCredit Bank Moldova has a sophisticated tool to record operational loss events by all organisational subdivisions of the bank. The tool helps the bank to measure the probability of oc-currence and possible losses of operational risk events. As a posi-tive side-effect the level of risk-awareness throughout all levels of operations could be raised by introducing the RED.The selection and development of staff is a crucial factor to ProCredit Bank’s success. To enhance and develop professional standards of the bank, we have opened a local training centre, where all employees of the bank join regular trainings on soft fac-tors like communication guidelines or the corporate code of con-duct as well as pure technical skills linked with banking operations. Regional academies and the international ProCredit Academy in Fürth serves as an ambitious training facilities for the bank’s Mid-dle Management. Besides purely technical and professional capa-bilities, personal attitude is an important criterion during recruit-ment. We attempt to establish a culture of open communication which significantly minimises operational risk.With few exceptions, the ProCredit institutions operate on the ba-sis of a core software package which is provided by our IT partner Quipu. Software and systems are continuously upgraded in or-der to minimise potential process risks. An Information Security
Remaining maturities as at December 31, 2008 Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Non-interest Total 1 month months months years years 5 years bearing Assets Cash and balances with Central Bank 1,878,302 – – – – – 3,232,440 5,110,742 Available for sale financial instruments 1,148,113 – – – – – – 1,148,113 Loans and advances to banks 7,209,817 53,727 3,185,570 – – – 67,783 10,516,897 Loans and advances to customers 662,782 1,419,440 5,711,635 2,955,669 1,163,424 – 148,612 12,061,562 Other assets – – – – – – 746,521 746,521 Total assets 10,899,014 1,473,167 8,897,205 2,955,669 1,163,424 – 4,195,356 29,583,835 Liabilities Liabilities to banks – 1,000,000 2,884,560 – – – 95,714 3,980,274 Liabilities to customers 695,385 1,922,658 2,674,064 51,874 – – 4,324,945 9,668,926 Liabilities to international financial institutions – – – – – – 2,310,060 2,310,060 Borrowed funds – – – 4,211,230 – – – 4,211,230 Provisions – – – – – – 75,732 75,732 Other financial liabilities – – – – – – 309,095 309,095 Other liabilities – – – – – – 297,946 297,946 Total liabilities 695,385 2,922,658 5,558,624 4,263,104 – – 7,413,492 20,853,263 Open position 10,203,629 (1,449,491) 3,338,581 (1,307,435) 1,163,424 – – –
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Officer is now employed by ProCredit Bank Moldova, who in collab-oration with bank’s IT Department is developing and implementing measures on IT and Information security.
Other measures to reduce operational risk are the following:• The “four-eyes” principle is applied to all relevant trans- actions. Any cases of fraud are dealt with rigorously, and are generally discussed at length within the bank in order to heighten risk awareness among the staff;• All of the banks pursue a “know your customer” policy and comply with national regulations in order to minimise the risk of money laundering;• The internal audit function follows a process-based methodol- ogy implemented in a risk-oriented way, in order to better iden- tify operational risks.
As of December 2008, no significant legal proceedings were pend-ing.
Other risksWe conduct our business in a responsible and transparent way. By offering easy to understand products and following our environ-mental and social exclusion list, we prevent harm to our customers and thereby harm to our reputation. Furthermore, we understand ourselves as neighbourhood banks with close ties to the communities we are active in. We support our communities in various ways to demonstrate our long-term com-mitment and seek to foster long-term relationships with our cus-tomers, thus managing our image and reputation at a very personal level. ProCredit Holding limits its maximum investment in any single country to 25% of its equity for countries with a BB- rating or higher and to 20% for all other countries. Furthermore, ProCredit banks are only established in countries in which the socio-economic en-vironment has been deemed sufficiently stable for our business operations and in which the political environment is sufficiently favourable. Even when governments have carried out campaigns against foreign companies operating in their countries, ProCredit institutions have so far not been targeted.
29. Fair value of financial instruments
The following table gives an overview of the carrying amounts and fair values of the financial assets and liabilities according to the classes of financial instruments, defined in accordance with the business of the Bank. 2008 Carrying value Fair value Financial assets Cash 5,110,742 5,110,742 Available for sale financial instruments 1,148,113 1,148,113 Loans and advances to banks 10,516,897 10,508,435 Loans and advances to customers 12,243,278 13,874,413 Total 29,019,030 30,641,703 Financial liabilities Liabilities to banks 3,980,274 3,934,721 Borrowed funds 4,211,230 4,211,230 Liabilities to customers 9,668,926 9,660,269 Liabilities to international financial institutions 2,310,060 2,310,060 Total 20,170,490 20,116,280
The applied discount rates are observable current market rates. The determination of those fair values is explained below:The fair value of claims and term deposits at variable rates of inter-est is identical to their carrying amounts. The fair value of claims and liabilities at fixed rates of interest was determined using the discounted cash flow method, using money market interest rates for financial instruments with similar default risks and similar re-maining terms to maturity.The estimated fair value of the receivables corresponds to the discounted amount of the estimated expected future cash flows, i.e. net of allowance for impairment. The expected cash flows are discounted to fair value at the current market interest rates of the respective markets.
30. Pledged assets
2008 Pledged Related Net assets liabilities exposure Loans and advances to banks 3,133,886 2,884,560 249,326 Total 3,133,886 2,884,560 249,326
The table above discloses some of Bank’s liabilities that are se-cured with placements. These are back-to-back loans from local banks in the total amount of USD 2,884,560 received in local cur-rency secured with placements in foreign currency in the amount of USD 3,133,886, having the same maturity as the exposure.The assets were pledged against funds obtained specifically for the purpose of on-lending.
31. Contingent liabililties and commitments
2008 2007 Guarantees 263,172 – Commitments to extend credit: – Original term to maturity of one year or less 114,421 – – Original term to maturity of more than one year – – Total 377,593 –
The above table discloses the nominal principal amounts of con-tingent liabilities, commitments and guarantees, i.e. the amounts at risk, should contracts be fully drawn upon and clients default. We expect that a significant portion of guarantees and commit-ments will expire without being drawn upon; therefore the total of the contractual amounts is not representative of future liquidity requirements. An estimate of amount and timing of outflow is not practicable. 2008 Operating lease commitments No later than 1 year 1,876,926 Later than 1 year and no later than 5 years 5,422,443 Later than 5 years 2,255,139 Total 9,554,508
At the moment the Bank doesn’t have any legal proceedings with its customers, any other legal entities or other private individuals.
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32. Related party transactions
The ultimate parent company of the Bank is ProCredit Holding AG. The Bank’s related parties include the parent, other ProCredit Group companies, and key management personnel, close family members of key management personnel and entities which are con-trolled or significantly influenced by key management personnel or their close family members.
Transactions of Bank with group companiesAccording to the group’s strategy, the holding company acts as an additional provider of funds (including subordinated debts) for its subsidiaries. All transactions with group companies are performed substantially on the same terms, including interest rates and security, as for transactions of a similar nature with third party counterparts.
2008 2007 Income 611,964 – Expense 864,786 20,748 Net income (252,822) (20,748)
2008 2007 Assets Loans and advances to banks 67,101 – Loans and advances to customers 54,912 – Other assets 150,712 – Liabilities Liabilities to banks 1,008,056 – Borrowed funds 4,211,230 Liabilities to customers 3,068,193 409,485 Other liabilities 150,712 –
Outstanding balances of the Bank with key management person-nel, their close family members and entities which are controlled by them as at year end constitute USD 10,338, which refers to the category “Liabilities to customers”.The transactions leading to the above balances were made in the ordinary course of business and on substantially the same terms as for comparable transactions with entities or persons of a similar standing or, where applicable, with other employees. The transac-tions did not involve more than the normal risk of repayment nor did they comprise other unfavorable features.
Transactions with entities which have an interest in the Bank that gives significant influence over the BankIn 2008, there was only one shareholder of ProCredit Bank, and namely ProCredit Holding AG, with an interest of more than 20% and which is therefore, according to IFRS, considered as having the possibility to influence the Bank significantly. The balances with PCH are included above.During the reporting period, total compensation paid to the man-agement of the Bank was USD 80,852 (2007: USD 1,432).The Supervisory Board do not receive any compensation from the Bank.No matters occurred after the Balance Sheet date which would ma-terially impact the financial statements.
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Contact Addresses
ProCredit Bank
Head Office
65, Stefan cel Mare Ave., office 901ChisinauTel. +373 22 836555Fax +373 22 [email protected]
Chisinau Offices
Centru 135, Eminescu St.Tel. +373 22 271707Fax +373 22 204496
Centru 265, Stefan cel Mare Ave.Tel. +373 22 836580Fax +373 22 836581
Centru 39, Cosmonautilor St.Tel. +373 22 244088Fax +373 22 241785
Botanica 127, Dacia Ave.Tel. +373 22 558309Fax +373 22 558716
Botanica 21, Sarmizegetusa St.Tel. +373 22 556546Fax +373 22 532747
Buiucani8, Constitutiei St.Tel. +373 22 593985Fax +373 22 593988
Ciocana5, Mircea cel Batran Ave.Tel. +373 22 443925Fax +373 22 499812
Rascani 116/1, Kiev St.Tel. +373 22 473009Fax +373 22 470666
Rascani 215/4, Moscova Ave.Tel. +373 22 311210Fax +373 22 310697
Posta Veche2/6, Ceucari St.Tel. +373 22 437006Fax +373 22 436665
Sculeni5, Calea Iesilor St.Tel. +373 22 592820Fax +373 22 748418
Regional Offices
Hancesti2, Chisinaului St.Tel. +373 269 25898Fax +373 269 25896
Orhei34, Vasile Lupu St.Tel. +373 235 22682Fax +373 235 24938
Straseni 33, Eminescu St.Tel. +373 237 28255Fax +373 237 22515
Ialoveni 31, Alexandru cel Bun St.Tel. +373 268 27041Fax +373 268 22012
Balti 6/1, Stefan cel Mare St.Tel. +373 231 42602Fax +373 231 45208
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