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An

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Annual Report 2004

Macedonia

An

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P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 42

Key Figures

Mission Statement

Letter from the Managing Board

Letter from the Executive Body

The Bank and its Shareholders

ProCredit – An International Group

Partner Banks in the Region

Business Review

Risk Management

Branch Network

Organisation, Staff and Staff Development

Ethical and Environmental Standards

Our Clients

Financial Statements

Contact Addresses

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Co n t e n t s 3

EUR '000 2004 2003 Change

Balance Sheet Data

Total Assets 33,529 10,682 214%

Gross Loan Portfolio 23,399 7,446 214%

Business Loan Portfolio 23,399 7,446 214%

< EUR 10,000 14,199 5,051 181%

> EUR 10,000 < EUR 50,000 7,347 1,973 272%

> EUR 50,000 < EUR 150,000 1,853 422 339%

> EUR 150,000 – – –

Housing Loan Portfolio – – –

Other Loan Portfolio – – –

Loan Loss Reserves 831 225 269%

Accrued Interest 214 75 185%

Net Loan Portfolio 22,568 7,222 212%

Customer Funds 12,788 1,900 573%

Borrowings from Financial Institutions 11,000 4,000 175%

Shareholders' Equity 9,491 4,606 106

Income Statement

Operating Income 3,124 457 584%

Operating Expenses 3,246 921 252%

Operating Profit Before Tax -122 -464 74%

Net Profit -125 -395 68%

Key Ratios

Cost/Income Ratio 85% 152%

ROE -2% -9%

Capital Ratio 32% 37%

Fixed Assets to Equity 10% 12%

Operational Statistics

Number of Loans Outstanding 7,406 1,480 400%

Number of Business Loans Outstanding 7,406 1,480 400%

Number of Deposit Accounts 17,918 2,704 563%

Number of Staff 171 82 109%

Number of Branches and Outlets 7 4 75%

Key Figures

4 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4

ProCredit Bank Macedonia is a devel-

opment-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 micro, 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 econo-

mies in which they operate. Our bank expli-

citly avoids all speculative lines of business and

issues large loans only in exceptional cases,

thus minimising the risk associated with such

activities.

Our shareholders expect a sustainable

return on investment, but are not primarily

interested in short-term profi t maximisation.

We invest extensively in the training of our staff

in order to create an enjoyable and effi cient

working atmosphere, and to provide the friend-

liest and most competent service possible for

our customers.

Mission Statement

M i s s i o n s tat e m e n t 5

2004 was a challenging year for Mace-

donia. We are therefore all the more proud

that ProCredit Bank succeeded in deepen-

ing its roots and strengthening its role in the

country’s financial sector during the year under

review. We believe that by bringing access to

financial services to entrepreneurs and small

businesses across the country, ProCredit Bank

is making a real contribution to economic sta-

bility and revitalisation in Macedonia.

ProCredit Bank started operations less

than two years ago and already we have granted

over 10,000 loans. We are now disbursing more

than one thousand loans per month. We are

particularly pleased to see the success of our

agricultural loans, which were launched during

the year under review, and of our denar-denom-

inated ‘ProExpress’ loans, which we now offer

for the equivalent of up to EUR 5,000 and dis-

burse within 24 hours. The deposit base also

grew steadily over the year and ProCredit Bank

achieved operational break-even in 2004.

Given the success of the institution’s

operations, the shareholders applied for a full

banking licence in 2004. The licence for the re-

organisation of a microfinance bank into a fully-

fledged bank subject to supervision under the

banking law was issued by the National Bank

in December. The bank’s capital was increased

to EUR 10 million accordingly. Also in 2004, we

welcomed FMO, which has been a strong pro-

vider of technical assistance funds to the bank,

to the bank’s group of shareholders.

Letter from the Managing Board

P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 46

As a fully-fl edged bank, ProCredit Bank

is able to broaden the range of services that

it offers to businesses and the wider public.

2004 saw the introduction of our ATM network,

intended to further enhance accessibility to our

services. We hope that by bringing friendly,

professional and affordable banking services

to the population as a whole, we are setting

challenging new standards in the banking

sector. At the same time, we aim to build our

deposit base rapidly so that we can continue to

support the strong growth in our loan portfolio,

which is driven by the demand for credit from

the business community in Macedonia.

2004 has also been a good year for Pro-

Credit Bank as an organisation. We opened

new branches in Skopje, Strumica and Bitola.

The number of staff increased to 171 across our

network of seven branches. ProCredit Bank can

only be as good as our staff. We continue to

place a priority on recruiting and training en-

thusiastic, competent and professional young

people who can run our bank prudently and

effi ciently, and who can offer our customers

exceptional service.

Members of the

Managing Board as at

December 31, 2004:

Helen Alexander

Dr. Anja Lepp

Zsuzsanna Hargitai

Ismail Samji

Dr. Mark Schwiete

As chairperson of the Managing Board,

I would like to take this opportunity to thank

the staff and management for their dedication,

enthusiasm and hard work, which resulted in a

successful year in 2004.

Specifi cally, the Managing Board would

like to thank Mr. Ralf Reitemeier for the excel-

lent job he has done as the bank’s General

Manager since its inception. He is moving on

to manage another bank in the ProCredit group

and in 2005 Mr. Borislav Kostadinov will take

over as General Manager in Macedonia. We

wish the new manager all the best, and we look

forward to the continued success of ProCredit

Bank in 2005 and beyond.

Helen Alexander

Chairperson of the Board

Helen Alexander

L e t t e r f r o m t h e M a n a g i n g B o a r d 7

Letter from the Executive Body

Our first full financial year was extreme-

ly challenging, as our young and dynamic in-

stitution was still in its start-up phase. Having

opened our doors to the public in July 2003 as a

microfinance bank, in 2004 we focused primar-

ily on regional expansion and on expanding the

scope of the bank’s operations, in line with our

goal of becoming a fully-fledged commercial

bank.

In order to reach as many people as pos-

sible, we expanded our outreach by opening

two new branches and upgrading two outlets to

branches, thus creating a network of seven full-

service branches. With two branches in Skopje

and one each in the cities of Tetovo, Gostivar,

Kumanovo, Strumica and Bitola, we now serve

customers in six of the country’s most impor-

tant regions. The expansion of the network to

increase our geographical outreach will remain

one of our top priorities in 2005. We plan to

open a total of six new branches and increase

the number of cities we serve to nine in the year

to come.

The expansion of our presence in the

country’s outlying regions was also an impor-

tant factor in the successful launch of our new

agricultural loan product, which enabled the

bank to tap a market with substantial potential.

In response to the demand for a product of this

type at the branch in Strumica – which is located

in the centre of a region where agriculture is the

dominant economic activity – we began lend-

ing to individual farmers and other small-scale

agricultural producers. By the end of the year

we had expanded the programme to three other

branches and had issued agricultural loans to a

total of 547 customers.

In our core activity, business lending,

we focused on achieving growth in our port-

folio, with the goal of boosting both the number

of loans outstanding and the portfolio volume.

Thanks to a steadily growing flow of applica-

tions, the number of monthly disbursements

also steadily increased, raising the total num-

ber of loans outstanding to 7,406 at year-

end. In volume terms, the total loan portfolio

amounted to EUR 23.4 million, an increase of

214% over the figure reported as of the end of

2003. This increase in the outstanding volume

was not, however, achieved by increasing the

average loan amount; it remained at EUR 3,160.

Moreover, just under 94% of the total number of

credit clients served by our bank are micro en-

trepreneurs, which underscores the fact that we

have remained committed to serving our desig-

nated target group. A team of 69 well-trained

and highly qualified loan officers has built up

our credit portfolio, the quality of which is ex-

cellent. Indeed, the portfolio at risk (loans in

arrears by more than 30 days) accounts for only

0.57% of the total outstanding loan volume.

In addition to our lending operations

that serve local businesses, we offer non-credit

banking services. We are increasingly market-

ing these services to a broader segment of the

public, with a focus on retail savings custom-

ers. During the year under review, new deposit

products were created, debit cards were intro-

duced and the bank’s payment facilities were

improved in order to enable us to better serve

our customers in the area of non-credit ser-

vices. This expansion and enhancement of our

product range, as well as the fact that we have

well-trained, friendly front-office staff who

make our customers feel welcome at ProCredit


Bank, enabled the bank to steadily increase its

deposit volume, which stood at EUR 12.8 mil-

lion at year-end.

The increased level of activity in all

areas of the bank’s operations in 2004 had a

very favourable impact on income and thus on

our profi tability. In August – little more than a

year after the bank opened – we reached op-

erational break-even and have reported a profi t

every month since then.

As our bank is a new player in the mar-

ket and is still rather small, our commitment to

setting new standards in micro-lending and in

retail banking in Macedonia represents a huge

challenge for our institution, both strategically

and in its day-to-day operations. Our key asset

in meeting this challenge is our staff. Given the

tremendous dedication and enthusiasm of our

young, hard-working team, we are optimistic

as regards the outlook for the year 2005 and

also the long-term future of our institution. We

would like to take this opportunity to thank all

of our employees for giving us this confi dence

in our bank’s ability to continue its successful

development in the years to come.

We would also like to thank our share-

holders for their strong and active commitment

to our bank and to express our appreciation to

the other organisations and individuals that

have contributed to our success through their

support and assistance. And last but not least,

we would like to thank our clients for the trust

they have placed in our institution. The Manage-

ment is dedicated to continuing on the course

set in 2004 so that ProCredit Bank will be well

positioned to maximise its outreach in its lend-

Borislav Kostadinov Jovanka Joleska Popovska

General Manager Deputy General Manager

ing business and in its non-credit operations,

and to achieve its long-term goal of becoming

a real “people’s bank” for the citizens of Mace-

donia.

Jovanka Joleska Popovska Borislav Kostadinov

donia.

L e t t e r f r o m t h e E x e c u t i v e B o d y 9

The Bank and its Shareholders

ProCredit Holding AG was founded as

Internationale Micro Investitionen AG

(IMI) in 1998 as an investment company spe-

cialised in equity participations in microfi -

nance banks located in transition and devel-

oping countries. These microfi nance banks,

now collectively known as the ProCredit

group, focus on providing banking services

to people whom other banks either do not

serve at all (usually on the grounds of cost or

risk) or only serve inadequately. ProCredit

Holding is now, or soon will be, the major-

ity owner of nearly all of the institutions in the

ProCredit group, as it is currently implement-

ing a strategy of purchasing from the publicly-

owned institutions the shares they hold in the

individual ProCredit banks. ProCredit Holding,

working closely with Internationale Projekt

Consult GmbH (IPC), actively guides the devel-

opment of the institutions, taking responsibil-

ity at the corporate governance level. The com-

pany has so far taken equity stakes totalling

EUR 53 million in 19 banks and fi nancial institu-

tions. Its shareholders are a 50:50 mix of pri-

vate and public investors.

Sector

Investment

Banking

Banking

Banking

Banking

Shareholder

ProCredit Holding

KfW

EBRD

FMO

IFC

Total Capital

Headquarters

Germany

Germany

UK

The Netherlands

USA

Share

53.30%

14.70%

12.50%

10.00%

9.50%

100%

Paid-in Capital

in EUR

5,330,000

1,470,000

1,250,000

1,000,000

950,000

10,000,000

ProCredit Bank Macedonia was estab-

lished in July 2003 with the aim of providing not

only accessible funding for small businesses,

but also a variety of other banking products

and services for the business community in

Macedonia and the general public. Initially

established as a microfi nance bank with a share

capital of EUR 5 million, it quickly expanded its

operations and evolved into the market leader

in small business lending in Macedonia and

a strong competitor for the other commer-

cial banks in the country. In order to facilitate

the bank’s rapid growth, its shareholders

increased ProCredit Bank’s paid-in capital to

EUR 10 million, thus enabling it to obtain a full

banking licence, which was issued on December

13, 2004 by the National Bank of the Republic of

Macedonia (NBRM).


KfW Entwicklungsbank (KfW Develop-

ment Bank): On behalf of the German

federal government, KfW Entwicklungsbank

fi nances investments and accompanying advi-

sory services in developing countries. It typically

works together with governmental institutions

as well as the private sector in the respective

countries. Its aim is to build up and expand the

social and economic infrastructure of the coun-

tries in which it is active, and to create effi cient

fi nancial institutions while protecting resources

and ensuring a healthy environment. KfW Ent-

wicklungsbank is a leader in the fi eld of microfi -

nance and is involved in target group-oriented

fi nancial institutions around the world. It is part of

KfW Bankengruppe (KfW Banking Group), which

has a balance sheet total of EUR 335 billion. KfW

Bankengruppe is one of the ten biggest banks in

Germany and is ‘AAA’ rated.

The European Bank for Reconstruction

and Development (EBRD) was estab-

lished in 1991. It aims to foster the transition

towards open, market-oriented economies and

to promote private and entrepreneurial initiative

in the countries of Central and Eastern Europe

and the Commonwealth of Independent States

(CIS) committed to democracy, pluralism and

market economics. The EBRD seeks to help its

27 countries of operations to implement struc-

tural and sectoral economic reforms, promoting

competition, privatisation and entrepreneur-

ship. In fulfi lling its role as a catalyst of change,

the Bank encourages cofi nancing and foreign

direct investment from the private and public

sectors, helps to mobilise domestic capital, and

provides technical cooperation in relevant areas.

The Netherlands Development Finance

Company (FMO) supports fi nancial in-

stitutions and private enterprises in developing

countries. Its aim is to promote sustainable eco-

nomic growth. By providing tailor-made fi nance,

FMO acts as a catalyst for private sector activity.

Although it fi nances at market terms, FMO com-

plements rather than competes with commercial

fi nanciers. FMO was formed in 1970 through a

partnership between the Netherlands govern-

ment and Dutch fi nancial institutions, industrial

companies and trade unions. With an investment

portfolio of EUR 1.9 billion and more than 200

employees, FMO is one of the largest bilateral

development banks in the world that focuses on

the private sector. FMO has a ‘Triple A’ rating from

Standard & Poor’s.

The International Finance Corporation

(IFC), a multilateral institution, pro-

motes the development of the private sector

in its developing member countries. A member

of the World Bank Group, but legally and fi nan-

cially independent, IFC provides long-term loan

and equity fi nance on market terms in support

of private sector activities, helps mobilise ad-

ditional fi nancing from other sources and pro-

vides advisory services to both government and

business. It participates in projects without a

government guarantee of repayment. During FY

2004, IFC approved USD 5.6 billion in new loan

and equity investments supporting projects

with a total cost of over USD 23.4 billion. Since

its founding in 1956, IFC has invested almost

USD 44 billion of its own funds in more than

3,100 companies in 140 developing countries.

Th e B a n k a n d i t s S h a r e h o l d e r s 11

ProCredit – An International Group

ProCredit Bank Macedonia is a member

of an international group consisting of 19 finan-

cial institutions operating in as many countries.

All of these institutions have a similar owner-

ship structure and share a common corporate

mission and focus: to provide micro, small and

medium-sized enterprises with reliable access

to credit and other banking services.

In the countries where the ProCred-

it group has a presence, the conventional

commercial banks often focus their lending

operations on corporate finance and consumer

lending, but tend to neglect small businesses

as a potential clientele. Their main reasons for

not lending to micro, small and medium-sized

enterprises are the perceived inadequacy of

MSMEs’ accounting methods, the ostensible

inability of MSMEs to provide sufficient collat-

eral and the high administrative costs incurred

in small business lending. Yet MSMEs are seen

by many economists and development experts

as the main engine of growth and job cre-

ation in developing and transition economies.

Moreover, in political terms, the middle class

which emerges when MSMEs grow and flour-

ish usually plays a stabilising role in society. It

was these insights which prompted the initia-

tors of the ProCredit group to establish target

group-oriented financial institutions in Eastern

Europe, Latin America and Africa, a process

which began six years ago. In the meantime,

these institutions have grown substantially:

taken together, the 19 banks and finance com-

panies operate through a total of some 300

branches and have roughly 7,000 employees.

The main shareholders of the group’s

institutions are the ProCredit Holding, KfW

Group, IFC, FMO, and the DOEN Foundation.

ProCredit Holding, which is owned largely by

the same entities that hold shares in the indi-

vidual ProCredit institutions, is or soon will be

the majority shareholder in the ProCredit insti-

tutions. ProCredit Holding produces consoli-

dated financial statements for the group and

has a BBB- (investment grade) international

rating from Fitch Ratings.

The activities of the group’s member

institutions are guided and supervised by

ProCredit Holding and by IPC, the consulting

firm which provides management services to

the banks. Both ProCredit Holding and IPC

are located in Frankfurt am Main, Germany.

This centralised management and supervision

makes it possible to achieve synergies which

have a positive impact in many areas – for ex-

ample, in training, corporate culture and iden-

tity, risk management, auditing, business poli-

cies, and funding for lending activities, as well

as ethical and other professional standards.

Over the years, the ProCredit group and

IPC, which developed the lending methodol-

ogy used by the ProCredit group, have gained a

profound understanding of both the problems

faced by small businesses and the opportuni-

ties available to them, and have tailored the

credit technology to reflect the realities of their

operating environment. Thanks to this credit

technology, which combines careful analysis of

all credit risks with a high degree of standar-

disation and efficiency, the ProCredit institu-

tions are able to reach a large number of small

borrowers: currently they disburse more than


ProCredit Bank Bosnia &Herzegovina

ProCredit Bank Bulgaria

Micro Credit National Haiti

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ProCredit Bank Ukraine��

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ProCredit Bank Albania

ProCredit Bank Macedonia

ProCredit Bank Georgia

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NovoBanco Mozambique

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40,000 loans totalling more than EUR 100 mil-

lion to small enterprises every month. By the

end of 2004, the number of loans outstanding

had grown to more than 420,000 (representing

EUR 949 million), a 60% increase compared to

2003. And while the average loan amount out-

standing is just EUR 2,250, the loan portfolio

quality remains excellent with a ratio of loans in

arrears (>30 days) to total loan portfolio of only

1.0%. This demonstrates that small borrowers

are indeed creditworthy.

No small business financing operation

can survive over the long term if it is forced to

rely on external sources of funds. Accordingly,

the ProCredit institutions are actively seek-

The international

network of ProCredit

institutions; see also

www.procredit-

holding.com

ing to make locally mobilised deposits their

main means of financing their loan portfolios.

In line with their development orientation, the

network institutions strive to ensure that their

deposit facilities are appropriate to a broad

range of customers; in particular, they make

their services accessible to low income groups

by offering simple savings products with no

minimum deposit. By placing a higher priority

on deposit mobilisation in 2004, the ProCredit

institutions have succeeded in enlarging their

combined deposit volume to EUR 824 million,

compared to EUR 552 million at the end of 2003.

In addition to deposit facilities, business clients

are offered a full range of standard non-credit

banking services, including domestic and in-

13P r o C r e d i t – A n I n t e r n at i o n a l G r o u p

ternational transfers, debit and credit cards,

documentary services and foreign exchange

operations.

At the same time, ProCredit institutions

strive to set new standards in their respective

banking sectors in terms of transparency and

business ethics, as well as risk management

and auditing. In this way, the group also aims

to help build public confidence in banks.

The ProCredit institutions can only be

successful in their developmental mission if

their sustainability is assured. Accordingly,

they have been established as commercial, i.e.

for-profit, entities. However, the shareholders

of the group aim to strike a balance between,

on the one hand, the developmental goals

which motivated their investment in the Pro-

Credit group, and on the other, the commercial

success which forms the basis of long-term sus-

tainability, and this is reflected in an adequate

return on investment. In 2004, the return on

equity for the group as a whole, expressed in

hard currency, after deduction of profit taxes,

is expected to reach 14%.

This level of profitability is sufficient to

ensure the further development of the group.

By the end of 2009, the group expects to have

institutions in 22 countries, with the total num-

ber of branches growing to almost 600, the

number of employees rising to over 13,000, and

the loan portfolio increasing to EUR 3 billion. To

achieve the envisaged level of growth, it will be

necessary to mobilise substantial financial re-

sources. But in itself, access to additional fund-

ing will not be enough: human resource devel-

opment will also continue to be a key priority

for the group. This will entail not only intensive

training in technical and management skills at

the level of the individual institutions, but also

a continuous exchange of personnel between

the member institutions, so as to take full ad-

vantage of the opportunities for staff develop-

ment which are created by their membership of

a truly international group.


Since the early 1990s, small businesses

have become the driving force in Eastern Eu-

rope with respect to economic growth and job

creation, thus playing a major role in the tran-

sition process. With many large, state-owned

enterprises simply disappearing, many people

found that starting their own business was the

only available means of earning a living and

creating a future for their family. One might

assume that in the meantime the financial ser-

vices markets in these countries would be suf-

ficiently well developed to address the demand

for loans exhibited by small businesses, but

the reality is somewhat different: Many banks

claim that they are perfectly willing to serve

small businesses, but in practice they continue

to focus almost exclusively on more convention-

al, and more familiar, lines of business, such as

corporate finance and consumer loans. Thus,

the growth potential of small businesses is still

constrained by their limited access to finance.

The ProCredit group aims to remedy this

situation. Since 1998 the group has expand-

ed its operations to cover 10 countries in the

Balkans and the CIS. Nine out of the 10 insti-

tutions are fully licensed banks offering a wide

range of financial services to business clients

and private individuals. With its 185 branches,

the sheer size of the ProCredit network makes

the group a major player in the region, and in

fact in some countries the local ProCredit insti-

Partner Banks in the Region

15Pa r t n e r B a n k s i n t h e R e g i o n

tution is one of the leaders in the banking in-

dustry, setting new standards in terms of small

business finance and customer service. Six of

the 10 institutions have received an interna-

tional rating, and in each case it was one of the

highest awarded to any bank in the country in

question.

Using a credit technology that is tailor-

made to fit the specific requirements of small

businesses, the ProCredit institutions have

been able to quickly expand their lending op-

erations. Currently, the group serves approxi-

mately 187,000 loan clients across the region.

Particular attention is now being paid to rural

areas, and an increasing number of ProCredit

loans are being disbursed to businesses in the

agricultural sector.

However, in accordance with their mis-

sion “to provide a broad range of reliable fi-

nancial services”, the ProCredit banks are not

merely lending institutions, but also offer a

considerable number of simple and straight-

forward non-credit products aimed at the gen-

eral public, including deposit facilities, private

current accounts and debit/credit cards. Par-

ticularly the institutions in Eastern Europe have

invested considerable financial and human

resources in developing these operations over

the last 12 months. The regional network offers

special advantages when it comes to providing

various kinds of non-credit products which are

increasingly in demand. As cross-border travel

and business activities gain in importance, the

ProCredit banks have simplified the procedures

for international money transfers between

group institutions, and made their prices even

more competitive. And ProCredit clients now

have access to more and more ATMs across the

region, at no extra cost.

Even more importantly, the strong Pro-

Credit network permits a continuous exchange

of know-how between the institutions to take

place. Management staff exchanges, cross-

border training programmes and regional work-

shops and seminars ensure that improvements

and experience are quickly shared across the

region, thus accelerating the institutional de-

velopment of the network banks and enhanc-

ing the quality and reliability of their services.

As part of the regional network, ProCredit Bank

Macedonia is benefiting from this steadily in-

creasing cooperation.


Name Highlights Contact

ProCredit Bank Founded in March 1999 Rruga Sami Frasheri Albania 15 branches Tirana 18,951 borrowers / EUR 79 million in loans Tel./Fax: +(355) 4-271 272 / 276 50,311 depositors / EUR 116 million [email protected] 387 employees www.procreditbank.com.al

ProCredit Bank Founded in October 1997 Sime Milutinovica Sarajlije 4 Bosnia and Herzegovina 13 branches 71000 Sarajevo 19,866 borrowers / EUR 61.4 million in loans Tel./Fax: +(387) 33-250 950 / 250 971 24,609 depositors / EUR 21 million [email protected] 291 employees www.procreditbank.ba

ProCredit Bank Founded in October 2001 131, Hristo Botev Blvd. Bulgaria 35 branches Sofi a 26,852 borrowers / EUR 139.3 million in loans Tel./Fax: +(359) 2 921 71 00 / 71 10 53,384 depositors / EUR 75.6 million [email protected] 623 employees www.procreditbank.bg ProCredit Bank Founded in May 1999 D. Agmashenebeli Ave 154 Georgia 19 branches Tbilisi 16,295 borrowers / EUR 50.4 million in loans Tel./Fax: +(995) 32-20 2222 / 0580 36,532 depositors / EUR 24.9 million [email protected] 605 employees www.procreditbank.ge

ProCredit Bank Founded in January 2000 Rr Skenderbeu Kosovo 16 branches 38000 Prishtina/ Kosovo UNMIK 28,600 borrowers / EUR 109.9 million in loans Tel./Fax: +(381) 38-249624 /-248777 157,500 depositors / EUR 310 million [email protected] 430 employees www.procreditbank-kos.com ProCredit Founded in December 1999 Izmail, 31 Moldova 16 branches Chisinau 5,483 borrowers / EUR 9.2 million in loans Tel./Fax: +(373) 22 27-07 07/-34 88 140 employees offi [email protected] www.procredit.md ProCredit Bank Founded in June 2002 Calea Buzesti, nr. 62-64, Sector 1 Romania 10 branches 011017 Bucharest 10,870 borrowers / EUR 50.7 million in loans Tel./Fax: +(40) 21-201.6000/305.5663 18,600 depositors / EUR 25 million headoffi [email protected] 269 employees www.procreditbank.ro

ProCredit Bank Founded in April 2001 Bulevar despota Stefana 68c Serbia 25 branches Belgrade 34,959 borrowers /EUR 122 million in loans Tel./Fax: +(381) 11 20 77 906/ 905 89,660 depositors/ EUR 92 million [email protected] 744 employees www.procreditbank.co.yu ProCredit Bank Founded in January 2001 86 Bozhenka Str. Ukraine 28 branches 03150 Kyiv 17,400 borrowers / EUR 74.4 million in loans Tel./Fax: +(380) 44-490 60 52 / 80 25,891 depositors / EUR 26 million [email protected] 853 employees www.procreditbank.com.ua

17Pa r t n e r B a n k s i n t h e R e g i o n

Business Review

2004 was one of the most eventful and

challenging years since Macedonia gained its

independence in 1991. On February 26, 2004

the Macedonian President was killed in a plane

crash. Soon thereafter, in an extraordinary yet

peaceful election process, the ex-Prime Minis-

ter was elected President. Additional elections

became necessary after the early resignation of

his successor as the new prime minister. How-

ever, despite the uncertain political situation,

the country remained quite stable, thanks in

part to the efforts of the international commu-

nity.

Due to this relative stability, Macedo-

nia received a BB+ credit rating from Standard

& Poor’s in July 2004, with a positive outlook.

The positive rating outlook reflects Standard &

Poor’s expectation that in addition to the on-

going implementation of the Ohrid Framework

Agreement, the prospects of EU membership

later this decade or early in the next decade

will continue to act as a driving force for further

reforms and continuous political stabilisation.

Economically, Macedonia has been sta-

ble, but without strong growth. GDP increased

by 2.5% in 2004 compared to 3.4% in 2003. In-

flation remained stable and below the projec-

tions of 2.8%. The foreign exchange rate was

kept under control based on a de facto near-peg

of the denar to the euro and despite ongoing ru-

mors of its depreciation. However, unemploy-

ment remains high at over 30% and there is as

yet little sign of a sustained take-off in growth.

Accordingly, expectations remain modest with

real GDP growth of 3.8% expected for 2005.

The banking sector experienced no ma-

jor structural changes during the year, despite

public recognition of the need for consolida-

tion. At the end of 2004, the sector consisted

of 21 banks, of which 18 had a licence for inter-

national operations. However, the three largest

banks account for about three quarters of the

market. Most others are small niche banks,

with operations that are often closely connect-

ed to those of their shareholders.

POLITICAL AND ECONOMIC

ENVIRONMENT


Both loans and deposits of the banking

sector amounted to approximately EUR 1 billion

by the end of the year. This was an increase of

approximately 25% over 2003.

ProCredit Bank is still a relatively small

player in the market in terms of volume, with a

market share in loans of 2% and in deposits of

1%. Given its dynamic performance, ProCredit

Bank is set to gain rapidly in importance in vol-

ume terms within the banking sector.

The bank is already a significant player

in terms of the numbers of loans and is widely

recognised to have stimulated the banking sec-

tor as a whole to increase the number of SME

loans disbursed. It is here that ProCredit Bank

is already making real difference, since access

to credit remains a limiting factor for most mi-

cro and small businesses. Yet it is growth in

this sector above all that is essential to boost

the economy and employment in Macedonia.

The ratio of total deposits and private

savings to GDP (at about 30% and less than 15%

respectively) remains relatively low. ProCredit

Bank aims also to make a contribution here. By

setting new standards in terms of transparency

and customer service, the bank aims to help

build public confidence in the banking sector,

increase general access to savings services and

strengthen the savings culture in the country.

19B u s i n e s s R e v i e w

In its first full financial year, ProCredit

Bank achieved a remarkable lending perfor-

mance, disbursing a total of 8,777 loans with

a combined volume of EUR 32.5 million. As a

result, ProCredit Bank’s outstanding loan port-

folio as of the end of 2004 had more than tri-

pled compared to year-end 2003, to EUR 23.4

million, representing more than 7,400 loans.

This significant growth was achieved through

a combination of several factors: a highly ef-

ficient credit technology and lending proce-

dures, continuous training for new and existing

lending staff and broadened geographical cov-

erage.

The main driver for the growth in num-

bers was micro loans, in particular our very

popular ProExpress loans. ProExpress loans

are for amounts of up to EUR 2,000; they fea-

ture minimal collateral and documentation

requirements and fast processing. The pro-

cessing time, from the first client contact to dis-

bursement, typically does not exceed 48 hours.

Thanks to good repayment behaviour on the

part of ProExpress borrowers, portfolio quality

for these loans remained excellent throughout

the year. In all, 5,851 ProExpress loans for a to-

tal volume of EUR 7.2 million were disbursed.

Overall, the micro segment of our loan

portfolio (loans up to EUR 10,000) grew by

181% during 2004, from 1,379 loans outstand-

ing at a total volume of EUR 5.1 million to 6,935

loans outstanding at a total volume of EUR 14.2

million. Those 6,935 loans represent 94% of

the bank’s total outstanding portfolio and dem-

onstrate that ProCredit is highly committed to

providing credit facilities to the low end of the

market.

Loan Portfolio Development

Number (in '000) Volume (in EUR million)

Sept Dec Mar Jun Sept Dec 03 04

– �10

–�8

–�6

–�4

–�2

–�0

�25�–

� 20�–

� 15�–

� 10�–

� 5�–

� 0�–

Total Number Outstanding

up to EUR 10,000 EUR 10,001 to EUR 50,000 EUR 50,001 to EUR 150,000

LOAN PORTFOLIO DEVELOPMENT

26%67%

Number of Outstanding Loans by Loan Size*

up to EUR 1,000EUR 1,001 to EUR 10,000

EUR 10,001 to EUR 50,000EUR 50,001 to EUR 150,000

* 31 Dec 2004

6 % <o.5%


At the same time, ProCredit Bank is serv-

ing an increasing number of small businesses.

The number of loans outstanding in amounts of

more than EUR 10,000 reached 471, for a total

volume of EUR 9.3 million, by year end. Around

25% of the loans within this category were dis-

bursed to repeat clients. Given that ProCredit

Bank has so far invested only limited effort in

marketing these loans to small and medium-

sized enterprises, these initial results demon-

strate significant market potential.

The bank’s loan portfolio is highly di-

versified due not only to the low average loan

amount (EUR 3,160), but also to the sectoral

and regional distribution. 41% of the portfo-

lio consists of loans to businesses engaged in

trade, 21% to industry and production, 26% to

services including transport and communica-

tions, and 11% to construction. Our lending op-

erations cover 16 cities throughout the country,

while Skopje accounts for 26% of the volume

outstanding.

In addition to our lending activities in the

cities, ProCredit Bank launched the “ProAgro”

loan, a product mainly targeting small farmers.

It was first offered in the Strumica branch by a

Loan Portfolio Quality (arrears >30 days)

�2.0�–

�1.5�–

�1.0�–

�0.5�–

� 0�–

No Write Offs for 2004

in % of Loan Portfolio

Sept Dec Mar Jun Sept Dec 03 04

core group of specially trained loan officers and

later extended to the branches in Bitola, Gosti-

var and Tetovo. After five months the portfolio

consisted of 547 borrowers who had received

loans with a total volume of EUR 750,000.

The bank achieved these results with a

total of 69 loan officers as of the end of 2004,

of whom 34 were new recruits who had recently

completed their training. Despite the high pro-

portion of new credit staff, the loan officers’

productivity has already reached high levels,

with each loan officer overseeing a portfolio

of more than 100 loans on average. The loan

monitoring carried out by our loan officers also

ensured very high portfolio quality. With a port-

folio at risk (loans in arrears >30 days) of 0.57%

of the outstanding volume at the end of 2004,

the portfolio quality was excellent and creates

a solid base for further strong growth in 2005.


DIVERSIFICATION OF THE CLIENT BASE

Client Deposits

Term Savings Sight Total Number

�14�–

� 12�–

� 10�–

� 8�–

� 6�–

� 4�–

� 2�–

� 0�–


– �20

–�16

–�12

–�8

–�4

–�0Sept Dec Mar Jun Sept Dec 03 04

Since our aim is not only to be a suc-

cessful lending institution, but also to develop

a large and stable retail - i.e. non-credit-clien-

tele and become a full-service bank for the citi-

zens of Macedonia, we intensified our efforts to

promote the bank’s retail banking services dur-

ing the year under review. A strategy of sound

products and fair pricing combined with very

good customer care enabled ProCredit Bank to

establish a positive reputation as a young and

friendly bank and to attract a growing number

of retail customers.

By the end of 2004, the bank had at-

tracted more than 14,000 customers in this

area and a total deposit volume of EUR 12.8 mil-

lion. This made us one of the top three banks

in Macedonia in terms of growth in the number

of new private current accounts, and we ranked

thirteenth in the number of business current

accounts.


International Money Transfers

Incoming Outgoing Number

– �2,500

–�2,000

–�1,500

–�1,000

–�500

–�0

� 25�–

� 20�–

� 15�–

� 10�–

� 5�–

� 0�–


Q3 Q4 Q1 Q2 Q3 Q4 2003 2004

Incoming Outgoing Number

– �40

–�35

–�30

–�25

–�20

–�15

–�10

–�0

� 80�–

� 70�–

� 60�–

� 50�–

� 40�–

� 30�–

� 20�–

� 10�–

� 0�–


Domestic Money Transfers

Q3 Q4 Q1 Q2 Q3 Q4 2003 2004

New products such as the ProAdvance

time deposit and deposit facilities in different

currencies were introduced and successfully

marketed. The fact that 62% of all deposits held

at our bank are already in longer-term accounts

such as savings or time deposit accounts dem-

onstrates that the bank has made considerable

progress in gaining depositors’ trust.

In regard to other non-credit banking

services, the volume of business grew strong-

ly. Compared to December 2003, international

money transfers increased by 124% in terms

of numbers and came to 753 transactions as

of December 2004. Domestic money transfers

reached a level of almost 13,000 transactions

in December, mainly due to the rapid increase

in the number of current accounts held by busi-

nesses.

The ProPay service was introduced in

2004. It allows ProCredit Bank’s clients to make

transfers to ProCredit Banks in other countries

in the region at favourable rates and, moreover,

on a same-day basis. The steadily increasing

number of ProPay payments underscores the

usefulness of the product and the growing de-

mand for cross-border payments among Mace-

donian business people.

In October ProCredit Bank began offer-

ing ProCard, a debit card, to its customers free

of charge. More than 2,000 cards have been

issued. ProCards can be used for 24-hour cash

withdrawals at our own ATMs and at those of

ProCredit Bank Kosovo and ProCredit Bank

Albania.


FINANCIAL PERFORMANCE

The rapid growth in our assets (214%) is

closely related to the growth of the gross loan

portfolio, which represents 70% of total as-

sets. The loan portfolio increased during the

year from EUR 7.4 million to EUR 23.4 million,

and total assets grew to EUR 33.5 million as of

December 31, 2004.

The expansion of the bank’s lending

operations was mainly financed by long-term

borrowings from international financial institu-

tions (IFIs) and increased liabilities to custom-

ers. Borrowings from IFIs rose by EUR 7 million.

Customer funds increased by EUR 10.9 million

and came to EUR 11.8 million at year-end. Local

deposits thus already contributed 53% of the

bank’s total liabilities, as compared to 31% in

December 2003. This development was mainly

the result of the bank’s ongoing efforts to de-

velop its retail operations in order to become

less dependent on external sources of funding

in the medium term.

As part of the institution’s conversion

into a full-service bank, ProCredit Bank’s capi-

tal was increased by EUR 5 million in 2004. This

led to a solid capital ratio of a 32% at year end –

putting the institution in a very sound position

for further asset growth in 2005.

In August 2004, only thirteen months

after opening its doors to customers, the bank

reached operational break-even and has re-

ported five consecutive profitable months since

then. However, the bank still reported a loss of

EUR 125,279 for the year under review, which

led to an average return on equity of -2.4%.


Overall income grew mainly as a result of

the growth in asset-side operations, i.e. as a re-

sult of rising interest income, but it is worth not-

ing that income from fees and commissions on

non-credit banking services increased strongly

compared to 2003 and came to roughly EUR

253,000 as of December. Lending operations

remained the primary source of revenue, gen-

erating 85% of the bank’s income. By the end

of 2004 the bank’s net interest income reached

EUR 2.7 million, compared to EUR 0.3 million in

2003.

Due to rapid expansion and institutional

growth, operating expenses increased sharply

as compared to 2003, rising by 252% to EUR

3.2 million. This increase was due mainly to

the opening of new branches, the renovation

and extension of existing premises, intensifica-

tion of marketing activities and the purchase

of equipment for card operations. Recruitment

of additional staff resulted in a significant in-

crease in staff costs, by 402% to EUR 1.1 mil-

lion. Nevertheless, due to the growth in our

income and to our cost control measures, the

cost income ratio declined to 85% (from 152%

in 2003). We consider this a major achieve-

ment given the fact that our institution has only

been in operation for a relatively short time.


At the start of 2005, ProCredit Bank

Macedonia is well prepared to face the chal-

lenges ahead – the biggest of them being the

strengthening of the bank’s client and deposit

base. We plan to address this challenge through

further regional expansion of the bank’s branch

network, emphasising customer care and en-

hancement of our product range.

At least six more branches are planned

for 2005, given that close proximity of the

bank’s facilities is one of the most important

considerations for both retail and business

clients. Convenient locations reduce transac-

tion costs both for our clients and for the bank

and serve to increase the accessibility of our

services. “Accessibility” refers not only to geo-

graphical proximity; it also means being open

and welcoming to our customers. Therefore we

will provide further training in customer service

and will engage more intensively in various

forms of direct marketing.

Moreover, we will round out our prod-

uct range by expanding and upgrading our

line of retail products, and thus increase the

attractiveness of the bank as a country-wide

provider of excellent financial services for the

general public, and escpecially for Macedonia’s

small businesses. The launch of the two most

OUTLOOK


widely accepted international debit and credit

cards is one pertinent example; the introduc-

tion of business overdrafts for loyal customers

– allowing them to bridge short-term liquidity

gaps – is another. Only if we are successful in

attracting new clients and mobilising local de-

posits will we be able to grow the bank’s loan

portfolio at the envisaged fast pace: based

on our planning, and on its implementation to

date, we expect the bank’s deposit base to in-

crease more than three-fold by the end of 2005.

In regard to lending, ProCredit Bank

will remain dedicated to serving its core target

group and will focus on the development of its

loan portfolio. Agricultural loans will be offered

at all branches; loan processing times can be

shortened further; and the overall growth of

our institution calls for ongoing training and

coaching of our team of loan officers.

None of these goals can be achieved

without additional personnel. Careful recruit-

ment, and above all the provision of intensive

and high-quality training to our newly hired

staff members, will remain top priorities in

2005.


Risk Management

Even though ProCredit Bank Macedonia

is still a very young and comparatively small

bank, sound risk management has been crucial

for the successful development of our institu-

tion from the very beginning. Only if appropri-

ate management resources and the requisite

structures are in place – including a risk man-

ager, risk oversight committees, and regular re-

porting – can the risks inherent in our activities

be identified, assessed, monitored and prop-

erly managed.

In its routine controls, ProCredit Bank

Macedonia focuses primarily on its credit

and liquidity risk, its interbank exposure, and

the interest rate and foreign exchange risks it

has incurred. In addition, appropriate attention

is devoted to the prevention of money laun-

dering. Operational risk, reputation risk, and

legal and compliance risk – which are by nature

more complex and difficult to evaluate – are

also monitored carefully, but primarily with the

help of qualitative rather than quantitative risk

analysis techniques. The bank’s management

believes that a sound internal assessment and

monitoring system, combined with measures

to ensure that all staff are thoroughly familiar

with the institution’s Code of Conduct and are

firmly committed to complying with it, helps

significantly to keep the various types of risk

under control.

ProCredit Bank’s Risk Management

Report is one of the tools employed by the in-

stitution as part of its programme of routine

risk controls. This report is prepared by the risk

manager and reviewed by the Risk Management

Committee on a monthly basis. All major points

raised in the report are discussed by the com-

mittee, and, if necessary, it takes action imme-

diately to ensure that problems are dealt with.


A very specialised committee – the

Arrears Committee – focuses on the bank’s

credit risk. It also meets regularly, and the prin-

cipal task of this body is to review all problem-

atic loan exposures. The committee determines

what measures to take and monitors their im-

plementation.

In order to reduce operational risk when

new projects are implemented within the bank

– for example, when new branches are opened,

new products are launched, or changes in the

IT system are implemented – a new committee

was established in 2004. This body, the Steer-

ing Committee, consists of members of the

senior management and various department

heads, including the risk manager and the head

of the IT department. Through its activities, the

Steering Committee not only significantly in-

creases the level of communication regarding

operational risks during the implementation of

projects; it also serves as a forum for the dis-

cussion and assessment of all aspects of the

measures in question.

To further reduce operational risk,

ProCredit Bank hired an information security

manager in September 2004. Since joining the

bank, this staff member has worked on the

development of an Information Security Man-

agement System which is to be implemented

before the end of 2005.

ProCredit Bank continues to experience

rapid growth, and as it grows it will need to fur-

ther develop its risk management systems. To

this end, the bank plans to:

● strengthen its risk-management team in

2005

● expand the current risk committee

structure by establishing additional, more spe-

cialised committees, thus allowing for greater

efficiency and a highly focused approach

● make a special effort to create risk aware-

ness among employees at all levels; the middle

management staff in particular will be encour-

aged to take part in constructive and open dis-

cussions with the bank’s senior management in

order to ensure that they fully understand the

types of risk to which the institution is exposed

and to help identify optimal risk-minimisation

strategies for their departments or branches.

29R i s k M a n a g e m e n t

Branch Network

Although it has been in existence for

only a relatively short period, ProCredit Bank

Macedonia has been able to rapidly expand

its branch network. Proximity to the people

making up our target group is crucial for the

success of ProCredit’s activities – whether in

lending or in retail operations, i.e. non-credit

services. For our business loan clients, for ex-

ample, transaction costs can be reduced if we

have an office near their premises. Small en-

trepreneurs are usually very busy and often

need to be physically present at their place of

business. Thus, time really matters to them,

and we can save them time by being nearby. By

the same token, proximity to the target group

makes it easier for the bank and its loan officers

to conduct the on-site loan analysis and moni-

toring which are such an important part of the

lending technology applied by ProCredit Bank.

And in our non-credit operations it is equally

important for us to have an extensive branch

network – simply for the convenience of our

existing clients, since most of our retail custom-

ers rely on public transport, and because being

“just around the corner” helps us attract new

clients in this part of our business. Moreover,

having a sizeable branch network increases our

brand awareness and name recognition.

At the end of 2003, we operated only

in the northern part of Macedonia. Our net-

work consisted of three branches and two out-

lets serving the cities of Tetovo, Gostivar and

Kumanovo, in addition to Skopje. In 2004 we

upgraded the outlets to full-fledged branches

and expanded our network by adding a second

branch in Skopje and opening two other new

branches, one in Strumica and one in Bitola,

which enabled us to begin serving customers

in the southern part of the country.


Tetovo

Skopje (2)

Kumanovo

Gostiva

Bitola

Strumica

Macedonia

Struga

A further sizeable expansion is also

planned for 2005. In the coming year, ProCredit

Bank will open three additional branches in

Skopje, mainly in order to expand its non-credit

operations. The capital is the centre of finan-

cial activity in Macedonia, and it accounts for a

large share of the potential market for deposit

services; it will be essential to ensure that

our services are widely accessible in Skopje if

we wish to tap this market. At the same time,

the bank will further increase its presence in

the rest of the country by opening three new

branches, one each in Ohrid, Struga and Stip.

31B r a n c h N e t w o r k

Audit CommitteeRisk ManagementCommittee

DeputyGeneral Manager

General Assemblyof Shareholders

Internal Audit

General Manager

Managing Board

Executive Body

Branches

TreasuryDept.

AccountingDept.

AdministrationDept.

OrganisationDept.

MISDept.

ITDept.

FinancialControlling

ATMDept.

LegalDept.

CreditDept.

HRDept.

RetailDept.

DomesticPayments Dept.

CorporateDept.

InternationalDept.

MarketingDept.

CardDept.

Organisation, Staff and Staff Development

Our successful development depends

on a number of factors. The organisational

structure and the quality of our staff are of cru-

cial importance. At a very young and fast-grow-

ing institution such as ProCredit Bank, internal

structures have to be strong and stable. But

they also have to be able to grow and expand

with the bank’s business, and to be flexible

enough to allow for changes necessitated by

growth in our business volume or in our prod-

uct range. Accordingly, in 2004 we set up new

departments at head office level and hired new

personnel to strengthen head office units. The

most significant innovation was the establish-

ment of a retail department – a move intended

to enhance our ability to serve the market for

non-credit services and to improve communica-

tion by the front-office staff in our branches re-

garding such services. Important changes were

also made in our loan department, where tasks

were re-organised to permit a more straight-

forward, efficient allocation of responsibilities

and to make reporting lines more transparent.

The rapid expansion in our operations

in the year under review was accompanied by

a correspondingly rapid increase in the size of

our staff: by the end of 2004, the total number

of employees had risen to 212, including 41

trainees. But as the number of employees has

increased, we have had to develop new ways of

facilitating the direct, straightforward commu-

nication with our staff members which we need

in order to maintain the bank’s strong team

spirit and corporate identity. Meetings with

branch managers and department heads, vis-

its to branches and joint training events were

steps in that direction in the year under review.

In our recruiting activities, we are guided by a

strong commitment to equality of opportunity

and to achieving the greatest possible degree

of transparency – a priority in all aspects of

Organisational Structure


our operations. Therefore, when hiring new

personnel, and also when promoting exist-

ing staff members, we base our decisions on

an objective evaluation of people’s qualifi-

cations and performance. We do not require

applicants for positions with ProCredit Bank

to have had previous banking experience,

as we provide extensive training to our new

employees. Indeed, our primary goal in recruit-

ing is to attract bright young people who are

willing to learn and acquire the skills they need,

and who identify with the bank’s mission and

share our values.

New employees receive extensive train-

ing through classroom instruction and a practi-

cal training programme to give them the neces-

sary grounding in banking and finance and to

acquaint them with the bank’s various types of

operations. After our employees have acquired

the basic know-how to do their jobs, we ensure

that they continue to grow and develop profes-

sionally by providing advanced training on a reg-

ular basis. We also utilise opportunities for staff

training which are available within the network

of ProCredit banks in the region. Where appro-

priate, we make it possible for staff members to

spend time at other institutions that belong to

the network. This allows them to obtain addition-

al professional experience and to profit from the

expertise of their colleagues in other countries.

Such exchanges help all of the banks in the Pro-

Credit network to ensure that services and pro-

cedures always meet best-practice standards.

ProCredit Bank Macedonia is a young

institution with great potential for further

growth as well as a flexible, well-designed or-

ganisational structure and a strong corporate

culture. Accordingly, it offers its employees

attractive career opportunities, giving them

the chance to grow and develop profession-

ally and to advance within the organisation.

The majority of the bank’s current branch

managers started their careers as loan offi-

cers or client advisers in our institution. They

were promoted to their current positions after

acquiring the requisite banking and mana-

gerial skills through on-the-job training and

advanced courses conducted by the bank.

We understand how much our contin-

ued success depends on the quality of our

staff and we are very much aware of the role

played by our well-qualified and enthusiastic

employees in the development of our institu-

tion. Thus, the bank will continue not only to

hire young, talented individuals, but also to

support the professional development of its

employees and maintain its culture of open-

ness and transparency in order to ensure that

ProCredit Bank remains what it is today –

an enjoyable place to work.

33O 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

Our high standards of business ethics

are reflected in the bank’s Code of Conduct. It

was introduced with the aim of creating and

maintaining an open and transparent working

environment, in which the interests of the bank,

its employees and its clients are all equally

well protected. All of our staff members are

expected to adhere to the highest standards

of conduct and to act with honesty, integrity,

impartiality and respect in all their dealings

with fellow employees, clients and the general

public.

It is a strict rule that the bank must not conduct

or support transactions involving funds which

may be suspected to have originated from

criminal activities. Accordingly, compliance

with the legal requirements for the prevention

of money laundering is given special emphasis.

The operational modules of ProCredit Bank’s IT

system are designed to detect and track suspi-

cions transactions, and the anti-money laun-

dering compliance officer reports to the local

authorities on a regular basis.

As a member of the ProCredit group,

ProCredit Bank Macedonia defines its role as

a development-oriented institution not only

in commercial and economic terms. It also

regards promoting environmentally sound and

ethical business practices as an integral part of

its mission to support long-term development.

Ethical and Environmental Standards


Both in the way it conducts its own

operations and in the criteria it applies when

selecting its clients, ProCredit Bank Macedonia

adheres to strict environmental standards. In

order to facilitate compliance with these stan-

dards, the bank has formulated an Environmen-

tal Policy Statement, which is part of an overall

Environmental Management System that has

been adopted by all of the institutions belong-

ing to the ProCredit group. In addition to ap-

plicable legal requirements, the Environmental

Policy Statement includes an Exclusion List

which defines a number of environmentally haz-

ardous activities that may not be financed with

a ProCredit loan. ProCredit Bank Macedonia

also refuses to finance, or be associated in any

other way with, economic activities that involve

coercive or unsafe forms of labour, in particular

harmful child labour.

E t h i c a l a n d E n v i r o n m e n ta l S ta n d a r d s 35

Our Clients

FURNITURE AND CABINET MAKING TRADE

A bigger range of produce – fresher than ever

Frosina Petrovska and her husband do

not have a registered business, but they have

a well-organised regular stand at the fruit and

vegetable market on the outskirts of Skopje.

And that was enough to qualify them for a Pro-

Express loan from ProCredit Bank, which took

only one day to process: “I was pleasantly sur-

prised at how fast it went, and how little docu-

mentation was needed,” says Ms. Petrovska,

who has been selling fruit and vegetables for

almost two years. The stand is all she and her

husband have – and their sole source of income.

They used the loan to expand the range

of vegetables they offer. The funds were needed

quickly because demand for certain vegetables

is very seasonal. Ms. Petrovska says diversi-

fying the range of produce has increased the

number of regular customers, and adds with

enthusiasm:

“I’m grateful for the support the bank

gave me when I most needed it. I look forward to

doing business with ProCredit Bank again in the

future.” In fact, she already has plans to buy a

mini-van, which will mean that the vegetables

on their stall will be even fresher.

Custom furniture, made by hand

“Nowadays, we self-employed carpen-

ters require a wide range of skills because we’re

competing with cheap machine-produced furni-

ture. Thanks to a loan from ProCredit Bank I was

able to buy new tools which enable me to work

faster. That, and the fact that I offer real hand-

made furniture, gives me the competitive edge

that enables me to hold my own in the market!”

Zoran Jordanoski set up his firm Enterier

in Bitola more than a decade ago. He makes

all kinds of furniture – chairs, tables, beds,

fitted kitchens – and everything is custom-

produced to his clients’ specifications. His wife

takes care of the books and administration.

She uses ProCredit Bank’s payment services to

make transfers to suppliers, and obtained Pro-

Cards for Enterier’s employees which they can

use to withdraw their salaries. Mr. Jordanoski

has responded to market pressure in inventive

ways: he opened a showroom, designed a cata-

logue, and began offering after-sales support

and a guarantee on his furniture. “My competi-

tors are wide-awake too, but we are constantly

growing and improving, remaining one step

ahead.”


WHOLESALE COFFEE DISTRIBUTORS

Coffee became their life

When Zvonko Mihajlovski and Ivica Dim-

itrieski from Gostivar became regional distribu-

tors of two major coffee brands six years ago,

they never dreamed they would one day have

their own brand, Bon Café – but it happened!

Initially, their small distribution busi-

ness, Inter Kafe, ran smoothly, but then their

suppliers encountered serious liquidity prob-

lems and the partners were forced to end the

business relationship. However, since the lo-

gistics were already in place, they decided to

produce the coffee themselves and make use of

the existing distribution channels.

They had to finance their start-up invest-

ments with very expensive loans from money-

lenders. However, when ProCredit opened an

outlet in Gostivar, Zvonko and Ivica gained

access to fairly priced loans. Their first was

invested in a truck for delivering Bon Café to

coffee bars, restaurants and supermarkets all

over the country; the second was used to pur-

chase raw coffee in bulk. The two men have

already applied for their third loan in order to

buy a packaging machine which will make their

production process even more efficient.

CLOTHING PRODUCTION

Jeanswear made in Macedonia

Suhamed Ibraim established his denim

and jeanswear production business in 2001.

The initial expertise came from his father,

a tailor. Thanks to the owner’s hard work

and dedication, the business grew fast, and

began to employ more and more sewing ma-

chine operators. Having started with just a few

machines and a simple sewing process, Mr.

Ibraim today runs a mini-factory with 18 ma-

chines and 20 employees. Due to the compa-

ny’s rapid growth, he soon needed more work-

ing capital, and it was then that he approached

ProCredit Bank.

“I had had no experience with banks be-

fore I heard about ProCredit Bank; after receiv-

ing my first loan, I was satisfied with the way

the bank had dealt with my case. At first I was

a little anxious about the procedures, but they

were handled quickly and carefully by my loan

officer. That’s why I continue to turn to ProCredit

Bank for my financing and also for other ser-

vices like a ProCard account and a Diners Card.

This is definitely the bank for me: an institution

which will support my plans for developing and

expanding my business.”

37O u r C l i e n t s

A place where kids can learn and have fun

Tea Colors is a small company that

makes school supplies, such as notebooks

and paints. It had been operating for some

years before it applied for its first loan from

ProCredit Bank in December 2003, which was

used to add a new line of products to the range.

In the meantime, Marjan and Violeta Trajkovski,

the owners, have also set up a day care centre

for children.

“Having children ourselves, we know the

problems facing young parents who work all day.

My wife is a teacher,” says Marjan, “and one day

she had the idea to provide a ‘Children’s Centre

for Learning, Creativity and Fun’, a place where

kids can go while their parents are at work.”

But having an idea and implementing

it are two different things: “We invested a lot

in the premises ourselves, but we still needed

additional financing, so we turned to ProCredit

Bank again.” The Trajkovskis had to renovate,

furnish and equip the premises they had found.

Today the centre not only features a kindergar-

ten and a “kids’ disco”, but also offers courses

for young people in English and computer skills.

DAY CARE CENTRE AND PRODUCTION OF SCHOOL SUPPLIES

CONFECTIONER’S SHOP

Traditional sweets that everyone loves

Natalija Ognjanoski’s family business,

Mi-Gord, has been producing home-made

sweets for six years. The recipe for their suc-

cess is simple: the sweets are made the old-

fashioned way, and are especially popular for

special occasions like weddings or birthdays.

Mi-Gord also offers traditional drinks, such as

boza and blueberry juice.

There are two other sweet shops in

Skopje’s Drachevo district, but Natalija (not

pictured here) and her family have been

able to compete successfully. Since the fam-

ily also lives in this district, they know a lot

of their customers personally, as neighbours

and friends. However, they now plan to open

a second sweet shop in a densely populated

neighbouring district, and that is why they ap-

plied for their first loan from ProCredit Bank.

This is a big project for the family,

requiring all their resources, a great deal of

dedication – and of course initial investments

in premises and machines. The idea to apply for

a loan came from friends who supply the sweet

shop with baking ingredients and who are

satisfied ProCredit Bank clients themselves.


From artist to gallery owner

As a child, Violeta Atanasova dreamed of

having her own museum. Today, however, she

is the proud owner of one of the best-known art

galleries in Skopje, “Viva l’art”, located right in

the city centre.

She is a genuine self-made woman: an

artist herself, she began by selling her own paint-

ings – quite informally at first, relying on word

of mouth, or simply going from door to door. In

2000 she inherited a shop from her parents in

Skopje’s largest shopping mall and converted

it into her “Viva l’art” gallery. She also began

collecting paintings and sculptures by other

artists. A ProCredit Bank loan enabled her to

buy some paintings by promising local artists.

Looking back, Violeta can hardly believe

how sceptical she was about taking out a bank

loan at first: “As an artist I never thought about

things like loans, but then I found ProCredit

Bank, and it turned out to be so easy!” In addi-

tion to having obtained a loan, Ms. Atanasova

also uses ProCredit Bank’s payment services,

which she finds very convenient, especially

when dealing with collectors and artists in

other Balkan countries.

VEGETABLE FARM

Fresh local produce throughout the year

All his life, Risto Janev has worked a

small plot of land in Borievo, near Strumica,

continuing a family tradition that goes back

many generations. Last year he installed a heat-

ing system in his greenhouse, where he grows

peppers and cucumbers. This allowed him to

start the growing season earlier and end it later.

He can even offer local produce out of season,

undercutting the price of imported vegetables.

To take full advantage of the new busi-

ness opportunities created by the heating sys-

tem, Mr. Janev decided to apply for a further

loan. “Now, thanks to ProCredit Bank, I will

build another heated greenhouse. I have moved

forward, and I’m planning to borrow again.” The

loan will also allow him to further modernise

the existing greenhouses.

Taking out this loan was a big step for

the family: “I don’t remember anyone in my

family ever taking out a loan before. My father

always saved money first before making invest-

ments, and that took time. At ProCredit Bank,

the procedure is very fast. If I ever have any sur-

plus funds, I will deposit them with the bank and

earn some interest.”

ART GALLERY

39O u r C l i e n t s

LIVESTOCK FEED PRODUCTION KEBAB RESTAURANT

A meal with friends in a relaxing ambiance

Nedzat Paljosh is the owner/manager

of the Deo-Din restaurant in Skopje, which is

located at a market some 4 km from the city cen-

tre. Macedonians love to chat with their friends

over a small glass of zolta, a fresh salad and

a good kebab with red pepper on it, so small

local restaurants like this are very popular.

Supported by his father, Mr. Paljosh has

been running the restaurant for almost 10 years,

serving delicious kebabs and other traditional

dishes made according to the family’s own

recipes. They used to run a similar business

in Serbia, but after moving to Macedonia, they

had to start again from scratch, and have been

steadily expanding their business ever since.

When Mr. Paljosh heard from fellow res-

taurant operators about the favourable terms,

fast and simple procedures and the friendly staff

at ProCredit Bank, he decided to apply for a loan.

He used his ProInstant loan to redecorate his

restaurant, install new machinery, and replenish

his working capital. He is very satisfied with the

way his business has developed, as even more

people now stop to enjoy a meal at Deo-Din.

Just one loan was enough to boost output

The Skopje-based firm Zito Proizvodi

has operated a livestock feed mill for the past

15 years. It is a real family business, founded

by the father of Suze Damevska, an energetic

woman who runs the mill today, together with

her husband Vlatko and her sister Viki. The

family wanted to expand their business and ap-

plied for a working capital loan from ProCredit

Bank to purchase more corn from Serbia – their

main input.

“Taking out a loan from ProCredit Bank

was my first positive experience with loans,”

Suze remembers. “I was pleasantly surprised

at the way the bank treats its clients. The loan

helped me to meet my production targets in

spite of the difficulty of collecting receivables

in Macedonia. I was amazed to get the loan

approval only three days after filling out the

application form.” As soon as they had success-

fully invested and repaid the first loan, the fam-

ily applied for a second one, which was quickly

approved and was already a bit larger than the

first one. But this will not be the end of the story

– more plans for the future are already in the

pipeline…


O u r C l i e n t s 41

Financial Statements


F i n a n c i a l S tat e m e n t s 43

INCOME STATEMENT For the year ended 31 December 2004

Income Statement

For the year ended 31 December 2004 In thousands of denars Note 2004 2003

Interest income 192,076 20,164

Interest expense (27,312) (1,688)

Net interest income 1 164,764 18,476

Fee and commission income 17,259 11,648

Fee and commission expense (4,027) (4,720)

Net fee and commission income 2 13,232 6,928

Net foreign exchange gain 10,709 2,585

Other operating income 2,912 –

Operating income 191,617 27,989

Impairment losses 3 (37,150) (13,769)

Other operating expenses 4 (161,925) (42,641)

Operating expenses (199,075) (56,410)

Loss before tax (7,458) (28,421)

Income tax (expense)/income 5 (226) 4,263

Net loss for the year (7,684) (24,158)

For the period from 11 July to 31 December


BALANCE SHEETAs at 31 December 2004

In thousands of denars Note 2004 2003

Assets

Cash and cash equivalents 6 577,815 73,521

Placements with, and loans to, banks 7 – 90,101

Loans and advances to customers 8 1,383,662 442,647

Interest receivable and other assets 9 20,815 11,300

Intangible assets 11 23,171 9,346

Property and equipment 12 46,136 23,527

Deferred tax asset 13 4,037 4,263

Total assets 2,055,636 654,705

Liabilities

Deposits from banks and other fi nancial institutions 14 114,522 1,528

Amounts owed to other depositors 15 669,501 114,917

Other borrowed funds 16 674,410 245,172

Accruals 17 7,864 1,612

Impairment provisions related to off-balance sheet items 18 743 5

Other liabilities 19 6,726 9,178

Total liabilities 1,473,766 372,412

Share capital 613,712 306,451

Accumulated loss (31,842) (24,158)

Total shareholders’ equity 581,870 282,293

Total liabilities and shareholders’ equity 2,055,636 654,705

These fi nancial statements set out on pages 1 to 36 were approved by the Managing Board on 16 March 2005 and were

signed on its behalf by:

Mr. Borislav Kostadinov Mrs. Jovanka Joleska Popovska

General Manager Deputy General Manager

signed on its behalf by:

Mr. Borislav Kostadinov Mrs. Jovanka Joleska Popovska


STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2004

Share Accumulated

In thousands of denars Capital loss Total

Balance at 1 January 2003 – – –

Loss for the period – (24,158) (24,158)

Shares issued 306,451 – 306,451

Balance at 31 December 2003 306,451 (24,158) 282,293

Balance at 1 January 2004 306,451 (24,158) 282,293

Loss for the year – (7,684) (7,684)

Shares issued 307,261 – 307,261

Balance at 31 December 2004 613,712 (31,842) 581,870


STATEMENT OF CASH FLOWS For the year ended 31 December 2004


Operating activities


Adjustments for non cash items:

Depreciation of property and equipment 4 9,049 1,907

Amortization of intangible assets 4 3,233 830

Income tax expense/(income) 5 226 (4,263)

Impairment losses 3 37,150 13,769

Provision for off-balance sheet items 4 738 5

Interest income 1 (192,076) (20,164)

Interest expense 1 27,312 1,688

Interest receipts 182,913 15,567

Interest paid (21,060) (76)

Operating profi t/(loss) before changes in operating assets 39,801 (14,895)

(Increase)/decrease in operating assets:

Placements with, and loans to, banks 90,101 (90,101)

Loans and advances to customers (978,165) (456,416)

Other assets (352) (6,703)

Increase/(decrease) in operating liabilities:

Deposits from banks and other fi nancial institutions 112,994 1,528

Amounts owed to other depositors 554,584 114,917

Other liabilities (2,452) 9,178

Net cash from operating activities before income tax (183,489) (442,492)

Tax paid

Income tax (paid)/received – –

Cash fl ows from operating activities (183,489) (442,492)

Investing activities

Acquisition of property and equipment (31,658) (25,434)

Acquisition of intangible assets (17,058) (10,176)

Cash fl ows from fi nancing activities (48,716) (35,610)

Financing activities

Proceeds from the issue of shares 307,261 306,451

Net increase in borrowings 429,238 245,172

Cash fl ows from fi nancing activities 736,499 551,623

Net increase in cash and cash equivalents 504,294 73,521

Cash and cash equivalents at 1 January 73,521 –

Cash and cash equivalents at 31 December 6 577,815 73,521



NOTES TO THE FINANCIAL STATEMENTS

Signifi cant accounting policies

a. Business background

ProCredit Bank AD - Skopje (“the Bank”) is a joint stock

company incorporated and domiciled in the Repub-

lic of Macedonia. The Bank was registered as a micro

fi nance bank in accordance with the Law on Micro

Finance Banks. During December 2004 the Bank in-

creased its share capital and obtained the full banking

licence. The principal activities of the Bank include

commercial lending, receiving of deposits, foreign

exchange deals, payment operation services in the

country and abroad and retail banking services. In

addition, it provides trade fi nance facilities to compa-

nies for export and import purposes.

b. Statement of compliance

The fi nancial statements have been prepared in accor-

dance with International Financial Reporting Standards

(“IFRS”) promulgated by the International Accounting

Standards Board (“IASB”) and interpretations issued

by the International Financial Reporting Interpretations

Committee of the IASB.

c. Basis of preparation

The fi nancial statements are presented in Macedonian

denars, rounded to the nearest thousand. The fi nan-

cial assets and liabilities and non-fi nancial assets and

liabilities are stated at amortised cost or historical cost.

They are drawn up from fi nancial statements prepared

in conformity with Macedonian regulations but, where

needed, adjustments and reclassifi cations were made

in order to be in conformity with International Financial

Reporting Standards. In addition, for a more appropriate

presentation of transactions, classifi cation of certain

items in a current year’s fi nancial statements differ from a

prior year. Consequently presentation of the prior year ‘s

fi nancial statement has been changed where neces-

sary.

The preparation of fi nancial statements in conformity

with IFRS requires the use of certain critical accounting

estimates. It also requires management to exercise its

judgement in the process of applying the Company’s

accounting policies.

The accounting policies are consistent with those used

in the previous year.

d. Foreign currency transactions

Transactions in foreign currencies are translated at the

foreign exchange rate in effect at the date of the trans-

action. Monetary assets and liabilities denominated in

foreign currencies at the balance sheet date are trans-

lated to denars at the foreign exchange rate in effect at

that date.

Foreign exchange differences arising on translation are

recognised in the income statement. Non-monetary

assets and liabilities denominated in foreign currency,

which are stated at historical cost, are translated to

denars at the foreign exchange rate in effect at the date

of the transaction.

The foreign currencies the Bank deals with are predomi-

nantly euro (EUR) and United States dollar (USD) based.

The exchange rates used for translation at 31 December

2004 and 2003 were as follows:

2004 2003

MKD MKD

1 EUR 61.31 61.29

1 USD 45.07 49.05

e. Financial instruments

(i) Classifi cation

Originated loans and receivables are loans and receiv-

ables created by the Bank providing money to a debtor

other than those created with the intention of short-

term profi t taking. Originated loans and receivables

comprise loans and advances to banks and customers.

(ii) Recognition

The Bank recognises originated loans and receivables

on the day they are transferred by the Bank.

(iii) Measurement

Financial instruments are measured initially at cost,

including transaction costs.

All non-trading fi nancial liabilities and originated

loans and receivables are measured at amortised cost

less impairment losses. Amortised cost is calculated

based on the effective interest rate method. Premiums

and discounts, including initial transaction costs, are

included in the carrying amount of the related instru-

ment and amortised based on the effective interest rate

of the instrument.


(iv) Specifi c instruments

Cash and cash equivalents

Cash and cash equivalents comprise cash balance on

hand, demand deposits with banks and cash deposited

with the National Bank of the Republic of Macedonia

(“NBRM”) and treasury bills purchased at original

issuance.

Loans and advances to banks and customers

Loans and advances originated by the Bank are clas-

sifi ed as originated loans and receivables. Loans and

advances are reported net of allowances to refl ect the

estimated recoverable amounts (refer to accounting

policy i).

f. Intangible assets

(i) Owned assets

Intangible assets that are acquired by the Bank are stat-

ed at cost less accumulated amortisation.

(ii) Subsequent expenditure

Subsequent expenditure on capitalised intangible

assets is capitalised only when it increases the future

economic benefi ts embodied in the specifi c assets to

which it relates. All other expenditure is expensed as

incurred.

(iii) Amortisation

Amortisation is charged to the income statement on a

straight-line basis over the estimated useful lives of

intangible assets. Assets are not amortised until they

are brought into use.

The amortisation rates based on the estimated useful

lives are as follows:

%

Licences 20

Software 25

g. Property and equipment

(i) Owned assets

Items of property and equipment are stated at cost or

valuation less accumulated depreciation.

(ii) Subsequent expenditure

Expenditure incurred to replace a component of an item

of property and equipment that is accounted for sepa-

rately, is capitalised. Other subsequent expenditure is

capitalised only when it increases the future economic

benefi ts embodied in the item of property and equip-

ment. All other expenditures are recognised in the

income statement as expenses incurred.

(iii) Depreciation

Depreciation is charged to the income statement on a

straight-line basis over the estimated useful lives of

items of property and equipment. Assets are not de-

preciated until they are brought into use. Depreciation

rates, based on the estimated useful lives, are as follows:

%

Computers 25

Furniture and equipment 10 to 25

h. Offsetting

Financial assets and liabilities are offset and the net

amount is reported in the balance sheet when the Bank

has a legally enforceable right to set off recognised

amounts and the transactions are intended to be set-

tled on a net basis.

i. Impairment

The carrying amounts of the Bank’s assets, other than

deferred tax assets (refer to accounting policy k), are

reviewed at each balance sheet date to determine

whether there is objective evidence of impairment.

If any such indication exists, the asset’s recoverable

amount is estimated.

Originated loans and advances

Originated loans and advances are presented net of spe-

cifi c and general allowances for impairment. Specifi c

allowances are made against the carrying amount of

loans and advances that are identifi ed as being impaired

based on regular reviews of outstanding balances to


reduce these loans and advances to their recoverable

amounts. General allowances are maintained to reduce

the carrying amount of portfolios of similar loans and

advances to their estimated recoverable amount at the

balance sheet date. The expected cash flows for port-

folios of similar assets are estimated based on previ-

ous experience and late payments of interest or penal-

ties. Increases in the allowance account are recognised

in the income statement. When the loan is known to be

uncollectible, all the necessary legal procedures have

been completed, and the final loss has been deter-

mined, the loss is written off directly.

If in a subsequent period the amount of an impair-

ment loss decreases and the decrease can be linked

objectively to an event occurring after the write-down,

the write-down or allowance is reversed through the

income statement.

j. Income recognition

(i) Interest income

Interest income is recognised in the income statement

as it accrues taking into account the effective yield of

the assets. Interest income includes the amortisation of

any discount or premium or other differences between

the initial carrying amount of an interest bearing instru-

ment and its amount at maturity calculated on an effec-

tive interest rate basis.

Interest for doubtful collectibility is credited to a sus-

pense account and excluded from interest income. The

closing balance on the suspense account is netted in

the balance sheet against accrued interest receivable.

Suspended interest is written off when there is no

longer any realistic prospect of it being recovered.

(ii) Interest expense

Interest expense is recognised in the income statement

as it accrues.

(iii) Fee and commission income

Fee and commission income arises on financial services

provided by the Bank including foreign currency settle-

ments, guarantees, letters of credit, credit facilities,

and other services.

Fee and commission income is recognised when the

corresponding service is provided.

In 2003 loan origination fees were credited to income

when the associated services were performed. Accord-

ing to IAS 18 “Revenue” and IAS 39 “Financial instru-

ments: Recognition and Measurement”, these fees are

an integral part of generating an ongoing involvement

with the resultant financial instruments and should be

deferred and recognised as an adjustment to the effec-

tive yield. In the view of the management of the Bank,

the applicable accounting policy which differs from re-

quirements of IAS 18 and IAS 39 does not have mate-

rial impact on the overall financial position and perfor-

mance of the Bank.

In 2004 loan origination fees were included in the cal-

culation of the effective yield of loans and advances to

customers, based on effective interest rate method,

and were included in interest income.

Corresponding figures have not been restated, and it

was impossible to determine the effect for the previous

year.

k. Income tax

Income tax on the profit or loss for the year comprises

current and deferred tax. Income tax is recognised

in the income statement except to the extent that it

relates to items taken directly to equity, in which case it

is recognised in equity.

Current tax is the expected tax payable on the taxable

income for the year, using tax rates enacted at the bal-

ance sheet date, and any adjustment to tax payable in

respect of previous years.

Deferred tax is provided using the balance sheet

liability method, providing for temporary differences

between the carrying amounts of assets and liabilities

for financial reporting purposes and the amounts used

for taxation purposes. The amount of deferred tax pro-

vided is based on the expected manner of realisation or

settlement of the carrying amount of assets and liabili-

ties, using tax rates enacted or substantially enacted at

the balance sheet date.

A deferred tax asset is recognised only to the extent that

it is probable that future taxable profits will be avail-

able against which the asset can be utilised. Deferred

tax assets are reduced to the extent that it is no longer

probable that the related tax benefit will be realised.


l. Borrowing

Interest-bearing borrowings are recognised initially at

cost, less attributable transaction costs. Subsequent

to initial recognition, interest-bearing borrowings are

stated at amortised cost with any difference between

cost and redemption value being recognised in the

income statement over the period of the borrowings on

an effective interest basis.

m. Share capital

(i) Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity

in the period in which they are approved by the Bank’s

shareholders.

1. Net interest income

In thousands of denars 2004 2003

Interest income by product

Loans and advances to

customers 188,296 19,492

Placements with, and loans to,

banks 1,834 816

Cash and cash equivalents 3,201 –

Impairment losses (1,550) (144)

Recoveries of interest previously

provided for 295 –

192,076 20,164

Interest expense by product

Other borrowed funds 20,893 1,554

Deposits from citizens 5,468 134

Deposits from enterprises 936 –

Deposits from banks and other

fi nancial institutions 15 –

27,312 1,688

Net interest income 164,764 18,476

2. Net fee and commission income


Fee and commission income

Lending operations 1,758 10,321

Payment operations

in the country 7,574 587

abroad 7,151 656

Letters of credit and guarantees 774 36

Other 2 48

17,259 11,648

Fee and commission expense

Payment operations

in the country 2,602 1,168

abroad 1,345 3,352

Other 80 200

4,027 4,720

Net fee and commission income 13,232 6,928




3. Impairment losses


Impairment allowance


customers 10 37,150 13,769

37,150 13,769

4. Other operating expenses


Personnel expenses

wages and salaries 44,515 8,820

compulsory social security

contributions and taxes 22,677 4,825

other staff costs 1,413 8

Depreciation of property and

equipment 9,049 1,907

Amortisation of intangible assets 3,233 830

Materials and services 53,113 19,768

Publicity and entertainment 11,540 2,426

Administration costs 8,240 2,197

Travel expenses 3,004 462

Insurance premiums 1,413 40

Provisions for off-balance sheet

items 738 5

Tax and contributions 630 801

Other 2,360 552

161,925 42,641

Other staff costs comprise allowances for food, trans-

portation of employees, etc.

The average number of employees in 2004 was 127

(2003: 60).

5. Income tax expense

Recognised in the income statement


Current tax expense

Current year – –

– –

Deferred tax income

Benefi t of tax losses recognised 226 (4,263)

Total income tax expense/

(income) in the income statement 226 (4,263)

Reconciliation of effective tax rate

In thousands

of denars 2004 2004 2003 2003

Loss for the

period (7,458) (28,421)

Income tax using

the domestic

corporation tax

rate (15%) (1,119) (15%) (4,263)

Non-deductible

expenses 4.8% 357 – –

Unrecognised

deferred tax

assets 10.2% 762 – –

Effect of tax

losses utilised 3.0% 226 – –

3.0% 226 (15%) (4,263)

For the period from 11 July to 31 December For the

period from 11 July to 31 December

For the For the period from period from 11 July to 11 July to 31 December 31 December



6. Cash and cash equivalents


Cash on hand 90,555 27,454

Balances with NBRM 114,100 38,241

Treasury bills 319,529 –

Current accounts with

foreign banks 53,255 6,707

Current accounts with

local banks 376 1,119

577,815 73,521

At 31 December 2004 cash and cash equivalents includ-

ed MKD 11,767 thousand (2003: MKD 1,961 thousand) as

obligatory reserve requirement in MKD and MKD 81,213

thousand (2003: MKD 16,779 thousand) as obligatory

reserve in foreign currency requirement. These funds

are not available for the Bank’s daily business.

Interest equal to 2% per annum is accrued on the MKD

obligatory reserve (2003: 4%) and interest equal to

1% per annum (2003: 1%) is accrued on the obligatory

reserve in foreign currency.

Treasury bills issued by NBRM are with maturity of 7 and

10 days (2003: nil) and with fi xed interest of 7% (2003:

nil) per annum. Current income is shown in interest

income.

Part of the current accounts with foreign banks, in the

amount of MKD 6,793 thousand (2003: nil) represents

funds held with HCBS Bank, as a collateral for trans-

actions performed with Master payment cards. These

funds are not available for the Bank’s daily business.

The interest rates shown represent rates at the end of

the reporting period.

7. Placements with, and loans to, banks


Placements with foreign banks – 90,101

Placements with, and loans to, banks – 90,101

Analysis by interest rates

Placements with foreign banks

At 31 December 2003 EUR deposits

with fi xed interest rate of 2.15%

per annum – 90,101

– 90,101


banks – 90,101

Geographical analysis

European Union – 61,293

Ukraine – 28,808

Placements with, and loans to, banks – 90,101

The interest rates shown represent rates at the end of


8. Loans and advances to customers


Corporate customers:

Trade 582,912 195,650

Industry 306,208 97,264

Construction 164,843 46,092

Transport 217,705 51,070

Other 162,913 66,340

1,434,581 456,416

Less allowance for impairment (50,919) (13,769)

Net loans and advances to

Other customers 1,383,662 442,647

Included in the total amount of loans and advances

before allowance for impairment, is an amount of

MKD 4,444 thousand (2003: nil) on which interest has

ceased to be accrued.

Corporate loans are with variable interest rate ranging

from 11.4% to 24% (2003: from 14.4% to 19.2%) per

annum, depending on the collateral, currency and

maturity.

The above interest rates represent rates at the end of



9. Interest receivable and other assets


Interest receivable 667 10

Accrued interest 13,093 4,587

Fees and commissions receivable 384 –

Other assets 6,671 6,703

20,815 11,300

10. Allowance for impairment


Balance on 1 January 13,769 –

Impairment losses recognized:

Additional allowances 3 37,150 13,769

Balance on 31 December 50,919 13,769

The allowance is apportioned as follows:


As a reduction of loans

and advances to customers 8 50,919 13,769

50,919 13,769

11. Intangible assets

In thousands of Licences Soft- Total

denars ware

Cost

At 1 January 2004 1,992 8,184 10,176

Additions 3,448 13,610 17,058

At 31 December 2004 5,440 21,794 27,234

Amortisation

At 1 January 2004 115 715 830

Charge for the year 643 2,590 3,233

At 31 December 2004 758 3,305 4,063

Carrying amount

At 1 January 2004 1,877 7,469 9,346

At 31 December 2004 4,682 18,489 23,171

12. Property and equipment

Furniture & Assets under

In thousands of denars Computers equipment construction Total

Cost or valuation

At 1 January 2004 11,687 13,747 – 25,434

Additions 11,874 9,278 10,506 31,658

Transfer from assets under construction 9,190 – (9,190) –

At 31 December 2004 32,751 23,025 1,316 57,092

Depreciation

At 1 January 2004 1,002 905 – 1,907

Charge for the year 5,241 3,808 – 9,049

At 31 December 2004 6,243 4,713 – 10,956

Carrying amount

At 1 January 2004 10,685 12,842 – 23,527

At 31 December 2004 26,508 18,312 1,316 46,136


Assets Liabilities Net

In thousands of denars 2004 2003 2004 2003 2004 2003

Tax value of loss carry-forward recognised (4,037) (4,263) – – (4,037) (4,263)

Tax (assets)/liabilities (4,037) (4,263) – – (4,037) (4,263)

Set-off of tax – – – – – –

Net tax (assets)/liabilities (4,037) (4,263) – – (4,037) (4,263)


Tax losses 762 –

762 –

13. Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to

the following:

Unrecognised deferred tax assets and liabilities

Deferred tax assets and liabilities have not been recog-

nised in respect of the following:

14. Deposits from banks and other fi nancial insti-

tutions


Demand deposits

Domestic banks 1,010 1,528

Insurance companies 18,654 –

19,664 –

Time deposits

Foreign banks 61,310 –

Insurance companies 33,548 –

94,858 –

Total deposits 114,522 1,528

Demand deposits are non-interest bearing (2003: non-

interest bearing).

Time deposits of foreign banks are with fi xed interest

rate of 3% (2003: nil) per annum.

Time deposits of insurance companies are with fi xed

interest rates ranging from 2.2% to 7.8% (2003: nil) per

annum. The above interest rates represent rates at the

end of the reporting period.

Interest is recognised in interest expense.

Deferred tax assets have not been recognised in respect

of these items because it is not probable that future tax-

able profi t will be available against which the Bank can

utilise the benefi ts therefrom.


15. Amounts owed to other depositors

Part of the demand deposits from citizens in the amount

of MKD 95,695 thousand (2003: MKD 24,104 thousand)

is non-interest bearing. On the remaining part the Bank

accrues interest with fi xed interest rates ranging from

1.4% to 4% (2003: 1.5%) per annum. Demand deposits

of enterprises are non-interest bearing (2003: non-

interest bearing).

The Bank accrues fi xed interest on time deposits from

citizens from 1% to 11% (2003: 1% to 5%) per annum.

Time deposits from enterprises are with fi xed interest

from 4% to 8.8% (2003: nil) per annum.

Restricted deposits from citizens are with fi xed interest

rate from 1% to 5.5% (2003: nil) per annum. Restricted

deposits from enterprises are non-interest bearing

(2003: non-interest bearing).

Restricted deposits represent deposits made by com-

panies for payments to be made abroad by the Bank on

their behalf, for facilitating opening of letters of credit,

for purchase of foreign currencies and as collateral for

loans and guarantees extended by the Bank to certain

customers.



Interest is recognised in interest expense.

Short Term Long Term Short Term Long Term

In thousands of denars 2004 2004 2003 2003

Demand deposits

Citizens 147,203 – 31,915 –

Enterprises 154,646 – 52,163 –

301,849 – 84,078 –

Time deposits

Citizens 289,959 49,350 21,974 4,264

Enterprises 17,090 – – –

307,049 49,350 21,974 4,264

Restricted deposits

Citizens 783 307 – –

Enterprises 10,163 – 4,601 –

10,946 307 4,601 –

Total 619,844 49,657 110,653 4,264

Short Term Long Term Short Term Long Term

In thousands of denars 2004 2004 2003 2003

Domestic borrowings

Macedonian Bank for Development Promotion

(MBDP) – 122,620 – 61,293

Foreign borrowings

European Bank for Reconstruction and Development

(EBRD) – 367,860 – 183,879

Nederlands Financierings –

Maatschappij voor Ontwikkelingslanden N.V. (FMO) – 183,930 – –

– 674,410 – 245,172

16. Other borrowed funds


The amount of MKD 122,620 thousand (2003: MKD

61,293 thousand) is from a Kreditanstalt fuer Wieder-

aufbau (KfW) credit line distributed through MBDP with

variable interest rates of three month EURIBOR plus

1% (2003: three month EURIBOR plus 1%) per annum,

payable in four quarterly instalments from March 2007

until December 2007.

Long-term loan from the European Bank for Reconstruc-

tion and Development (EBRD) is for promotion of small

and medium enterprises with interest rate of six month

EURIBOR plus 2.8% (2003: six month EURIBOR plus

2.8%) per annum, payable in four semi annual instal-

ments from March 2008 until September 2009.

Long-term loan from the Nederlands Financierings

– Maatschappij voor Ontwikkelingslanden N.V. (FMO)

has interest rate of six month EURIBOR plus 3% (2003:

nil) per annum, payable in ten semi annual instalments

from March 2006 until September 2010.



17. Accruals


Accrued interest 7,864 1,612

7,864 1,612

18. Impairment provisions related to off-balance sheet

items


Balance at 1 January 5 –

Provisions made during

the year 4 738 5

Balance at 31 December 23 743 5

19. Other liabilities


Suppliers payable 2,749 6,547

Other 3,977 2,631

6,726 9,178

20. Capital and reserves

Share capital

In number of shares 2004 2003

Issued and fully paid at

1 January 1,000,000 –

Issued for cash 1,000,000 1,000,000

Issued and fully paid at

31 December 2,000,000 1,000,000

Ordinary shares have a par value of EUR 5. The hold-

ers of ordinary shares are entitled to receive dividends

as declared from time to time and are entitled to one

vote per share at meetings of the Bank. All shares rank

equally with regard to the Bank’s residual assets.

At 31 December 2004 the authorised share capital com-

prised 2,000,000 (2003: 1,000,000) ordinary shares

with a par value of EUR 5.

The shareholder structure of the Bank is as follows:

% of voting share capital

Internationale Micro Investitionen AG (IMI) 53.3%

Kreditansatlt fuer Wiederaufbau (KfW) 14.7%

European Bank for Reconstruction

and Development (EBRD) 12.5%

Nederlands Financierings –

Maatschappij voor ontwikkelingslanden

N.V (FMO) 10%

International Finance Corporation (IFC) 9.5%

Total 100%

Statutory reserve

Under local statutory legislation, the Bank is required

to set aside 15 percent of its net profi t for the year in a

statutory reserve until the level of the reserve reaches

1/5 of the court registered capital. Until the minimum

required level is reached, the statutory reserve may

only be used for loss recovery. When the minimum level

is reached, the statutory reserve can also be used for

distribution of dividends, based on a decision of the

shareholders’ meeting, but only if the amount of the

dividends for the current business year has not reached

the minimum for distribution as prescribed in the Trade

Company Law or by the Bank’s Statute.


21. Fair value

The Bank has fi nancial assets, which include cash and

cash equivalents, placements with, and loans to, banks

and loans and advances to customers. The Bank has

fi nancial liabilities which include deposits from banks

and customer and borrowed funds.

Estimation of fair values

The following summarises the major methods and

assumptions used in estimating the fair values of major

items of fi nancial instruments.

Cash and cash equivalents: The carrying amount of cash

and cash equivalent approximates their fair value. Cash

and cash equivalents in 2004 include treasury bills that

are with a maturity of 7 and 10 days; thus their carrying

amount approximates their fair value.

Placements with, and loans to, banks: Placements with,

and loans to, banks in 2003 represent two deposits

with a maturity of up to one month, hence the fair value

approximates the carrying amount at the balance sheet

date.

Loans and advances to customers: The fair value of

variable yield loans and short-term loans that regu-

larly reprice, with no signifi cant change in credit risk,

generally approximate their carrying amount. The total

amount of loans and advances to customers represent

fl oating rate instruments, hence the fair value of total

loans and advances to customers approximates the car-

rying amount at the balance sheet date.

Bank and customer deposits: For demand deposits and

deposits with no defi ned maturities, fair value is taken

to be the amount payable on demand at the balance

sheet date. The major part of bank and customer depos-

its are with a maturity of up to three months, hence the

fair value approximates the carrying amount at the bal-

ance sheet date.

Other borrowed funds: The fair value of borrowings with

fl oating interest rate represents the carrying amount at

the balance sheet date.

22. Trust activities

The Bank manages assets on behalf of third parties

which are in the form of received funds for purchase of

government bills for various clients. The Bank receives

fee income for providing these services. Trust assets

are not assets of the Bank and are not recognised in the

balance sheet. The Bank is not exposed to any credit

risk relating to such placements, as it does not guaran-

tee these investments.

At 31 December 2004 the total assets held by the Bank

on behalf of customers were MKD 3,030 thousand

(2003: nil).

23. Commitments and contingencies

The Bank provides fi nancial guarantees and letters of

credit to guarantee the performance of customers to

third parties. These agreements have fi xed limits and

generally extend for a period of up to one year. Expi-

rations are not concentrated in any period.

The contractual amounts of commitments and con-

tingent liabilities are set out in the following table by

category.


Guarantees

in MKD 22,480 330

in foreign currency 9,052 –

Letters of credit

in foreign currency 290 1,438

Provisions 18 (743) (5)

31,079 1,763

These commitments and contingent liabilities have off

balance sheet credit risk because only organisation

fees and accruals for probable losses are recognised in

the balance sheet until the commitments are fulfi lled or

expire. Many of the contingent liabilities and commit-

ments will expire without being advanced wholly or in

part. Therefore, the amounts do not represent expected

future cash fl ows.


24. Risk management disclosures

This section provides details of the Bank’s exposure to

risk and describes the methods used by management to

control risk. The most important types of fi nancial risk

to which the Bank is exposed are credit risk, liquidity

risk and market risk. Market risk includes currency risk,

interest rate risk and equity price risk.

(i) Credit risk

The Bank is subject to credit risk through its lending

and investing activities and in cases where it acts as

an intermediary on behalf of customers or other third

parties or issues guarantees.

The risk that counterparties might default on their

obligations is monitored on an ongoing basis. To

manage the level of credit risk, the Bank deals with

counterparties of good credit standing, and requires

collateral.

The Bank’s primary exposure to credit risk arises

through its loans and advances. The amount of credit

exposure in this regard is represented by the carrying

amounts of the assets on the balance sheet. In addi-

tion, the Bank is exposed to off-balance sheet credit

risk through letters of credit and guarantees issued (re-

fer to note 23).

Concentrations of credit risk (whether on or off balance

sheet) that arise from fi nancial instruments exist for

groups of counterparties when they have similar eco-

nomic characteristics that would cause their ability to

meet contractual obligations to be similarly affected by

changes in economic or other conditions.

The major concentrations of credit risk arise by location

and type of customer in relation to the Bank’s loans and

advances, letters of credit and guarantees issued.

The maximum exposure to credit risk is represented

by the carrying amount of each fi nancial asset in the

balance sheet.

The Bank’s policy is to require suitable collateral to be

provided by the customers prior to the disbursement

of approved loans. Guarantees and letters of credit

are also subject to rigorous credit assessments before

being provided.

Collateral for loans, guarantees, and letters of credit is

usually obtained in the form of cash, inventory, or other

property.

(ii) Liquidity risk

Liquidity risk arises in the general funding of the

Bank’s activities and in the management of positions. It

includes both the risk of being unable to fund assets at

appropriate maturities and rates and the risk of being

unable to liquidate an asset at a reasonable price and in

an appropriate time frame.

The Bank has access to a diverse funding base. Funds

are raised using a broad range of instruments including

deposits, borrowings and share capital.

This enhances funding fl exibility, limits dependence on

any one source of funds and generally lowers the cost of

funds. The Bank strives to maintain a balance between

continuity of funding and fl exibility through the use of

liabilities with a range of maturities. The Bank continu-

ally assesses liquidity risk by identifying and monitoring

changes in funding required to meet business goals and

targets set in terms of the overall Bank strategy.

In addition the Bank holds a portfolio of liquid assets as

part of its liquidity risk management strategy.


Maturities of the fi nancial assets and liabilities

The following table provides an analysis of the fi nancial

assets and liabilities of the Bank into relevant maturity

groupings based on the original period to the repay-

ment date.

For the year ended 31 December 2004 the breakdown

is as follows:

Up to 1 – 3 3 – 12 1 – 5 Over 5 Total

In thousands of denars 1 month months months years years

Assets

Cash and cash equivalents 489,842 – – 87,973 – 577,815

Loans and advances to customers 107,100 218,098 302,320 756,144 – 1,383,662

Interest receivable and other assets 16,491 922 1,545 1,632 225 20,815

613,433 219,020 303,865 845,749 225 1,982,292

Liabilities


fi nancial institutions 103,049 11,473 – – – 114,522

Amounts owed to other depositors 407,834 85,459 126,551 49,657 – 669,501

Other borrowed funds – – – 637,624 36,786 674,410

Accruals 543 5,895 660 766 – 7,864

Other liabilities 1,047 705 3,172 1,802 – 6,726

512,473 103,532 130,383 689,849 36,786 1,473,023

Net liquidity gap 100,960 115,488 173,482 155,900 (36,561) 509,269


(iii) Market risk

Interest rate risk

The Bank’s operations are subject to the risk of interest

rate fl uctuations to the extent that interest-earning as-

sets and interest-bearing liabilities mature or reprice

at different times or in differing amounts. In the case

of fl oating rate assets and liabilities, the Bank is also

exposed to basis risk, which is the difference in repric-

ing characteristics of the various fl oating rate indices,

such as the savings rate, and three or six months EURI-

BOR/ LIBOR and different types of interest.

Risk management activities are aimed at optimising net

interest income, given market interest rate levels con-

sistent with the Bank’s business strategies.

Asset-liability risk management activities are conducted

in the context of the Bank’s sensitivity to interest rate

changes. In general, the Bank is asset sensitive be-

cause on the majority of the interest-earning assets

and liabilities, the Bank has the right simultaneously

to change the interest rates. In decreasing interest rate

environments, margins earned will narrow as liability

interest rates will decrease by a lower percentage com-

pared to asset interest rates. However the actual effect

will depend on various factors, including stability of the

economy, environment and level of infl ation.

Currency risk

The Bank is exposed to currency risk through transac-

tions in foreign currencies. The Bank ensures that the

net exposure is kept to an acceptable level by buying

or selling foreign currency when necessary to address

short-term imbalances. The denar is pegged to the

euro and the monetary projections envisage stability

of the exchange rate of the denar against euro.

Up to 1 – 3 3 – 12 1 – 5 Over 5 Total

In thousands of denars 1 month months months years years

Assets

Cash and cash equivalents 56,742 – – 16,779 – 73,521

Placements with, and loans to, banks 90,101 – – – – 90,101

Loans and advances to customers 36,865 63,427 211,869 130,486 – 442,647

Interest receivable and other assets 7,134 1,626 2,540 – – 11,300

190,842 65,053 214,409 147,265 – 617,569

Liabilities


fi nancial institutions 1,528 – – – – 1,528

Amounts owed to other depositors 89,593 13,182 7,878 4,264 – 114,917

Other borrowed funds – – – 153,233 91,939 245,172

Accruals 1,612 – – – – 1,612

Other liabilities 6,577 30 277 2,294 – 9,178

99,310 13,212 8,155 159,791 91,939 372,407

Net liquidity gap 91,532 51,841 206,254 (12,526) (91,939) 245,162

The following table provides an analysis of the fi nancial

assets and liabilities of the Bank into relevant maturity

groupings based on the original period to the repay-

ment date.

For the year ended 31 December 2003 the breakdown

is as follows:


Floating rate Fixed rate instruments Non interest

Total instruments earning (bearing)

Up to 1 – 3 3 – 12 1 – 5 Over 5

In thousands of denars Note 1 month months months years years

Assets

Cash and cash equivalents 6 73,521 16,779 1,569 – – 392 – 54,781


banks 7 90,101 – 90,101 – – – – –

Loans and advances to customers 8 442,647 442,647 – – – – – –

Liabilities

Deposits from banks and

other fi nancial institutions 14 (1,528) – – – – – – (1,528)

Amounts owed to other depositors 15 (114,917) – (8,725) (13,182) (7,878) (4,264) – (80,868)

Other borrowed funds 16 (245,172) (245,172) – – – – – –

Asset liability gap 244,652 214,254 82,945 (13,182) (7,878) (3,872) – (27,615)

Floating rate Fixed rate instruments Non interest

Total instruments earning (bearing)

Up to 1 – 3 3 – 12 1 – 5 Over 5

In thousands of denars Note 1 month months months years years

Assets

Cash and cash equivalents 6 577,815 105,769 343,310 – – 2,353 – 126,383


customers 8 1,383,662 1,382,825 – – – – – 837

Liabilities


other fi nancial institutions 14 (114,504) – (83,385) (11,473) – – – (19,664)

Amounts owed to other

depositors 15 (669,501) – (158,803) (73,986) (126,551) (49,657) – (260,504)

Other borrowed funds 16 (674,410) (674,410) – – – – – –

Asset liability gap 503,044 814,184 101,122 (85,459) (126,551) (47,304) – (152,948)

Interest rate gap analysis

For the year ended 31 December 2004



At 31 December 2004 the Bank was within the prescribed

limits for its open foreign exchange position. At 31 De-

cember 2003 the Bank exceeded the prescribed limits

for foreign currency exposure. The foreign currency

exposure in relation to the guarantee capital was 88%,

which exceeded the prescribed maximum of 50%.

25. Related party transactions

According to the Bank’s Articles of Association, the su-

preme body is the assembly of the Bank, constituted

of all the holders of the Bank’s registered shares. The

overall control of the Bank is exercised by the non-ex-

ecutive Managing Board that is appointed by the share-

holders.

The Bank keeps nostro accounts, places time deposits

and takes deposits and loans from banks to which it is

related. The directors consider that these transactions

are on a normal commercial basis, at arm’s length, and

in the normal course of business.

At the year end the transactions with related parties

were as follows:

● nostro accounts and time deposits with banks re-

lated to the Bank of MKD 14,369 thousand (2003: MKD

28,808 thousand);● other receivables from banks related to the Bank of

MKD 146 thousand;

2004 2003

MKD EUR USD CHF Other Total MKD EUR USD CHF Other Total

Monetary assets

Cash and cash equivalents 395,014 136,988 40,952 4,861 – 577,815 30,864 34,890 7,747 – 20 73,521

Placements with, and

loans to, banks – – – – – – – 90,101 – – – 90,101


customers 249,720 1,133,942 – – – 1,383,662 51,288 391,359 – – – 442,647

Interest receivable and

other assets 7,841 12,892 82 – – 20,815 10,191 1,109 – – – 11,300

652,575 1,283,822 41,034 4,861 – 1,982,292 96,606 517,459 7,747 – 20 621,832

Monetary liabilities


other fi nancial institutions 37,676 76,542 304 – – 114,522 – 1,528 – – – 1,528

Amounts owed to other

depositors 166,936 454,823 46,697 1,045 – 669,501 45,812 61,327 7,778 – – 114,917

Other borrowed funds – 674,410 – – – 674,410 – 245,172 – – – 245,172

Accruals 450 7,371 43 – – 7,864 – 1,612 – – – 1,612

Other liabilities 5,722 1,004 – – – 6,726 4,206 4,972 – – – 9,178

210,784 1,214,150 47,044 1,045 – 1,473,023 50,018 314,611 7,778 – – 372,407

Net position 441,791 69,672 (6,010) 3,816 – 509,269 46,588 202,848 (31) – 20 249,425

● deposits from banks to which the Bank is related of

MKD 61,312 thousand (2003: nil);● other borrowed funds from banks to which the Bank is

related of MKD 674,410 thousand (2003: MKD 183,879

thousand);● deposits from the individuals related to the Bank of

MKD 1,788 thousand (2003: MKD 16 thousand); ● interest expense to banks to which the Bank is related

of MKD 20,026 thousand (2003: MKD 201 thousand);● fee and commission expense to banks to which the

Bank is related of MKD 180 thousand (2003: MKD 3,058

thousand);● interest income from banks to which the Bank is re-

lated of MKD 627 thousand;

26. Subsequent events

No material events subsequent to the balance sheet

date have occurred which require disclosure in the fi -

nancial statements.


APPENDIX

Income Statement


In EUR 2004 2003

Interest income 3,131,594 329,303

Interest expense (445,293) (27,567)

Net interest income 2,686,301 301,736

Fee and commission income 281,389 190,226

Fee and commission expense (65,656) (77,083)

Net fee and commission income 215,733 113,143

Net foreign exchange gain 174,600 42,216

Other operating income 47,477 –

Operating income 3,124,111 457,095

Impairment losses (605,691) (224,865)

Other operating expenses (2,640,014) (696,381)

Operating expenses (3,245,705) (921,246

Loss before tax (121,594) (464,151)

Income tax (expense)/income (3,685) 69,620


This is not an offi cial part of the Financial Statements of ProCredit Bank AD – Skopje



In EUR 2004 2003

Assets

Cash and cash equivalents 9,424,482 1,199,500

Placements with, and loans to, banks – 1,470,002

Loans and advances to customers 22,568,292 7,221,808

Interest receivable and other assets 339,504 184,360

Intangible assets 377,932 152,480

Property and equipment 752,504 383,844

Deferred tax asset 65,846 69,551

Total assets 33,528,560 10,681,545

Liabilities

Deposits from banks and other fi nancial institutions 1,867,917 24,929

Amounts owed to other depositors 10,919,932 1,874,877

Other borrowed funds 11,000,000 3,999,993

Accruals 128,266 26,300

Impairment provisions related to off-balance sheet items 12,119 82

Other liabilities 109,705 149,740

Total liabilities 24,037,939 6,075,921

Share capital 10,000,000 5,000,000

Accumulated loss (519,810) (394,531)

Translation differences 10,431 155

Total shareholders’ equity 9,490,621 4,605,624

Total liabilities and shareholders’ equity 33,528,560 10,681,545

Balance Sheet

As at 31 December 2004

Share Accumulated Translation

In EUR Capital loss differences Total

Balance at 1 January 2003 – – – –

Loss for the period – (394,531) – (394,531)

Shares issued 5,000,000 – – 5,000,000

Translation differences – – 155 155

Balance at 31 December 2003 5,000,000 (394,531) 155 4,605,624

Balance at 1 January 2004 5,000,000 (394,531) 155 4,605,624

Loss for the year – (125,279) – (125,279)

Shares issued 5,000,000 – – 5,000,000

Translation differences – – 10,276 10,276

Balance at 31 December 2004 10,000,000 (519,810) 10,431 9,490,621


Statement of changes in equity



Statement of cash fl ows


In EUR 2004 2003

Operating activities

Loss for the year (125,279) (394,531)

Adjustments for non cash items:

Depreciation of property and equipment 147,534 31,144

Amortisation of intangible assets 52,710 13,555

Income tax expense/(income) 3,684 (69,620)

Impairment losses 605,691 224,865

Provision for off-balance sheet items 12,037 82

Interest income (3,131,594) (329,303)

Interest expense 445,293 27,567

Interest receipts 2,982,161 254,303

Interest paid (343,326) (1,267)

Operating profi t/(loss) before changes in operating assets 648,911 (243,205)

(Increase)/decrease in operating assets:

Placements with, and loans to, banks 1,470,002 (1,470,002)

Loans and advances to customers (15,952,175) (7,446,673)

Other assets (5,711) (109,360)

Increase/(decrease) in operating liabilities:

Deposits from banks and other fi nancial institutions 1,842,987 24,929

Amounts owed to other depositors 9,045,054 1,874,877

Other liabilities (40,034) 149,740

Net cash from operating activities before income tax (2,990,966) (7,219,694)

Tax paid

Income tax (paid)/received – –

Cash fl ows from operating activities (2,990,966) (7,219,694)

Investing activities

Acquisition of property and equipment (516,359) (414,957)

Acquisition of intangible assets (278,225) (166,022)

Cash fl ows from investing activities (794,584) (580,979)

Financing activities

Proceeds from the issue of shares 5,000,000 5,000,000

Net increase in borrowings 7,000,007 3,999,993

Cash fl ows from fi nancing activities 12,000,007 8,999,993

Effects of exchange rate fl uctuations of cash 10,525 180

Net increase in cash and cash equivalents 8,224,982 1,199,500

Cash and cash equivalents at 1 January 1,199,500 –

Cash and cash equivalents at 31 December 9,424,482 1,199,500




Head Offi ce

Skopje

Jane Sandanski, 109a

Tel. +389 2 321 99 00

Fax +389 2 321 99 01

[email protected]

www.procreditbank.mk

Branches

Skopje

Partizanski Odredi, 1

Tel. +389 2 321 99 50

Fax +389 2 321 99 51

[email protected]

Skopje II

Vidoe Smilevski Bato, 3

Tel. +389 2 240 36 02

Fax +389 2 240 36 13

[email protected]

Bitola

Dobrivoje Radosavljevik, 10

Tel. +389 47 20 72 80

Fax +389 47 20 72 81

[email protected]

Gostivar

Ivo Lola Ribar, 18

Tel. +389 42 21 90 10

Fax +389 42 21 90 11

[email protected]

Kumanovo

III Makedonska Udarna Brigada, 56

Tel. +389 31 475 180

Fax +389 31 475 181

[email protected]

Struga

Marsal Tito, bb

Tel. +389 46 78 50 70

Fax +389 46 78 50 71

[email protected]

Strumica

Blagoj Jankov Muceto, 2

Tel. +389 34 33 44 10

Fax +389 34 33 44 11

[email protected]

Tetovo

Boris Kidric, 1

Tel. +389 44 35 67 30

Fax +389 44 35 67 31

[email protected]

Credit outlet

Kumanovo

Ivo Lola Ribar, 55

Tel. +389 31 47 51 90

Fax +389 31 47 51 91

[email protected]

Contact Addresses

Co n ta c t A d d r e s s e s 67

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