VATTANAC BANK Your Personal Bank · The organised training programs were in line with the Bank’s...

YOU

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Your Personal Bank

YOUR PERSONAL BANK

VATTAN

AC B

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AL REPORT 2012

Vattanac BankAnnual Report 2012

Vattanac BankAnnual Report 2012 Your Personal BankYour Personal Bank

Key Financial Highlights

Gross IncomeUSD Million(M)

Total DepositsUSD Million(M)

12.4M

180.8M

10.4M

142.8M

10.0M

160.3M

14.1M

151.2M

2012

2011

2011

2010

2010

2009

2009

2008

2008

2012

16.9M

152.9M

Profit Before TaxUSD Million(M)

4.6M

3.9M

2.1M

1.8M

2012

2011

2010

2009

2008 8.2M

Shareholders’ Equity USD Million(M)

47.0M

43.30M

40.1M

33.5M

2012

32.1M

Total AssetsUSD Million(M)

230.2M

188.2M

203.8M

188.5M

2012

2011

2010

2009

2008 189.0M

Net Loans and AdvancesUSD Million(M)

101.9M

83.9M

53.1M

71.6M

2012

102.8M

Our Corporate Mission and Objectives are aimed at ensuring that the Bank’s products and services not only meet but exceed customers’ requirements and expectations. This is necessary to build trust, confidence and sustainable growth of the Bank as we strive to make Vattanac Bank, Your Personal Bank.

To be recognised as the

Bank with international

standards that is committed

to providing honest,

efficient and courteous

customer service, generating

sustainable growth and

upholding transparency

and accountability to our

stakeholders.

To achieve a high level of customer satisfaction by providing honest, courteous, and efficient service;

To offer innovative products with excellent service delivery to meet customers’ needs;

To uphold the Bank’s image as a highly responsible corporate citizen;

To create a competent and dedicated workforce through job enrichment programmes;

To ensure high profitability through sustainable growth; and

To ensure accountability and transparency at all levels while building trust and confidence

Increase in Profit Before Taxto US$4.6 Million

+17%

+21%

+27%

+22%

Increase in Net Loans and Advances to US$101.9 Million

Increase in Depositsto US$180.8 Million

Increase in Total Assetsto US$230.2 Million

Our Corporate Objectives Growth RateOur Corporate Mission

Key Financial Highlights

Statement to Stakeholders

Report of the Executive

Director/General Manager

Board of Directors

An Exciting Future Awaits

Business Review

Giving Back

Corporate Governance Structure

Corporate Governance

Financial Statements

Contents

1

2 - 6

7 - 9

10 - 13

14

16 - 18

19 - 21

23

24 - 35

36

The Bank continues to reform all aspects of its organisation, particularly the strengthening of its corporate governance, in order to support and reinforce the Bank’s business. This is a significant achievement reflecting its commitment and responsibility towards the society, fulfilling its obligation towards the community, and truly becoming Your Personal Bank.

2011 2011

2010 2010

2009 2009

2008 2008

14



In 2012, despite the debt crisis in Europe which had caused negative impact on the world economy,

Vattanac Bank achieved significant progress due to the remarkable growth of the Cambodian economy.

With the sustainable pace of economic growth in Cambodia, more foreign investors invested in all

economic sectors, especially in the banking sector, where Vattanac Bank faced strong competition as

it strived to strengthen its position.

As a local bank that has been able to stand firm in this competitive market, the Management firmly

established policies, strategies and necessary action plans to comply with the laws and regulations

set out by the National Bank of Cambodia. An internal control system, risk management system and

compliance system were established for the purpose of reviewing, controlling and identifying possible

risks in order to avoid and address them in a timely manner.

In 2012, the Bank was proud to be assessed as “Satisfactory” in terms of “Safety” classifications by the

National Bank of Cambodia after their on-site inspection, which also confirmed the Bank’s zero non-

performing loans portfolio and reflected the Bank’s capacity in loans quality management in terms of

prudence and transparency.

The Bank celebrated its 10th Anniversary of business operations on 8 November 2012 with renewed

commitment to provide better service to our customers, providing more products and services as well

as expanding our branch network in tandem with our customers’ requirements and the country’s

development.

Corporate Governance Vattanac Bank has a good, qualified, and experienced management team, supported by its directors,

to serve our customers with effectiveness, integrity, courtesy and commitment. The Bank has adhered

to its good corporate governance policy and corporate conduct, key success factors which has brought

positive results to the Bank and gained the trust and confidence of our customers. This in turn resulted

in a satisfactory financial performance in 2012.

Vattanac Bank, Your Personal BankTo maintain the trust and support of our customers, the Bank initiated efforts to improve service quality

through staff training to inculcate and reinforce our corporate values and improve staff attitude and

knowledge. In addition, the Bank took steps to improve on its delivery channels including providing

cash deposit machines, credit card and debit card among others to serve our customers. Through

efforts to meet the needs of our customers, we strive to make Vattanac Bank the bank of choice.

Statement to Stakeholders

2



New Core Banking SystemThe Bank began its migration from its previous Smart Bank core banking system to the Oracle

Flexcube system, an international standard and more efficient, effective system with higher capacity,

to better serve our customers. The migration process to the new core banking system is expected to

be completely implemented in the first quarter of 2013. When completed, it will enable the Bank to

introduce new products and services to meet the customers’ needs including internet banking, mobile

banking and store-value cards, which were planned to be implemented in 2013.

CSR ActivitiesThe Bank donated to the Cambodian Red Cross, Operation Smile Cambodia and other non-profit

organisations. The Bank also contributed to “My Olympic Heroes Campaign”, which aimed to introduce

to the public the Cambodian athletes competing in the Summer Olympic Games in London. Other

sports events supported by the Bank include the Vattanac Bank Cup 2012 Swimming Competition, the

Chairman’s Cup Golf Tournament and Petanque tournaments.

Our 2012 PerformanceCompared with 2011, Vattanac Bank achieved better performance in 2012 as reflected in the key

performance indicators including Assets which increased by 22% to US$230.2 million; Net Loans and

Advances grew by 21% to US$101.9 million and Deposits increased by 27% to US$180.8 million. Profit

before tax increased by 17% to US$4.6 million.

An Exciting 2013 AwaitsThe Bank will migrate to the Oracle Flexcube core banking system in early 2013. Thereafter, the Bank

will implement internet banking, mobile banking and store-value cards. Further, the Bank has plans

to install more ATMs and open branches in Phnom Penh and outside provinces to better serve our

customers.

In 2013, Vattanac Bank will move its Head Office and open a branch with Premier Banking services at

Vattanac Capital, a 39-storey international standard building which will be a landmark in Cambodia.

Vattanac Capital was awarded the “Best Commercial Property (South East Asia) 2012” by the Property

Report South East Asia Magazine. This will put the Bank in a stronger position as it capitalises on the

various opportunities available.

Statement to Stakeholders (continued)

5



OKNHA SAM ANGChairman

MADAM CHHUN LEANGPresident

OutlookCambodia’s economy is expected to remain strong in the coming years. The Cambodian economy is

forecasted to grow by 7.2% in 2013. Key economic sectors such as industry, trade, agriculture, tourism,

services and construction have been advancing remarkably, owing to foreign direct investments and

local investments pushing the continuous growth in export and import as well as local consumption.

The development of these economic activities will inevitably increase the demand for financial services.

Vattanac Bank will strive to implement its business and action plans to capitalise on the opportunities

available in tandem with the increasing demand despite the more competitive environment due to

the increasing number of banks. The Bank will take steps to strengthen its human resources to meet

the challenging market.

Appreciation and AcknowledgmentWe would like to take this opportunity to express our appreciation to the dedicated Board of Directors,

management and staff of Vattanac Bank for their invaluable contribution and hard work which have

contributed to the satisfactory performance of the Bank.

We are also grateful to the National Bank of Cambodia for their continuous guidance and support.

Lastly, we would like to thank our customers for their confidence and trust in Vattanac Bank. We look

forward to our continued partnership.

Statement to Stakeholders (continued)

IntroductionIn 2012, Vattanac Bank achieved significant progress as reflected in the increase of Assets by 22% to

US$230.2 million, Net Loans and Advances by 21% to US$101.9 million, Deposits by 27% to US$180.8

million and Profit before tax by 17% to US$4.6 million. The satisfactory performance was in line with

the Bank’s business plan and targets.

Various policies, strategies and objectives on business development approved by the Board of Directors

were effectively implemented.

1. Service QualityWe endeavored to improve efficiency and courtesy in our customer service and imbued the importance

of maintaining a high standard of ethics. Our goal is to ensure that our customers maintain their support

and loyalty to our Bank in a competitive environment. Our Bank implemented a customer feedback

system to solicit comments and recommendations on our service to identify areas for improvement.

Report of theExecutive Director/General Manager

76



2. Staff TrainingWe provided training to all levels of staff to equip them with relevant knowledge and experience,

thereby enabling them to keep abreast with the rapid development in the financial sector and to

perform their duties efficiently and effectively. The organised training programs were in line with the

Bank’s training budget and included on-the-job training, internal training and external seminars both

locally and overseas. To prepare for the implementation of the Flexcube Oracle Core Banking System,

extensive training was provided to all staff in 2012.

3. Banking OperationsThe steady growth in Current Deposits, Savings and Fixed Deposits reflected an increase in customers’

confidence. Strong growth was also reported in the number of ATM Cards, Visa Debit Cards and Visa

Credit Cards issued. To meet the customers’ needs, the Bank has plans to deploy more ATMs and POS

at suitable locations.

Loans growth was satisfactory in 2012, contributing to various productive sectors of the Cambodian

economy including trade, manufacturing, service, tourism and construction. Our loan portfolio

continued to be healthy and the Bank had zero non-performing loans due to prudent loan appraisal

and credit control. Further, the Bank’s credit policy was conservative and provided a competitive

lending rate. The Bank has plans to further increase its loan portfolio in tandem with the economic

growth of Cambodia.

4. Financial Position As highlighted in the 2012 audited financial statements by our external auditor, PricewaterhouseCoopers

(Cambodia) Ltd., the Bank’s financial position was healthy. The Bank had fully complied with all

prudential requirements of the National Bank of Cambodia. In 2012, our Bank was also assessed

“Satisfactory” by the National Bank of Cambodia. Efforts taken to strengthen corporate governance

and effective internal control systems also contributed to the Bank’s stronger position.

5. New Core Banking System ImplementationIn response to the Bank’s business growth, Management decided to migrate to a new core banking

system which is expected to go live in March 2013. A project team was set up to look into the

implementation of the new Core Banking System, which will provide a more stable and efficient

platform for the Bank to improve its delivery channels and provide new services, including internet

banking, mobile banking and store value cards.

6. 10th Anniversary CelebrationThe Bank celebrated its 10th year of operations with a stronger financial position in an increasingly

competitive environment. The Bank organised a grand celebration for its 10th Anniversary, which

was attended by the shareholders, Board of Directors, Management and all staff. The celebration

included performances from every branch and lucky draws which made the event more meaningful

and exciting. The event also reflected the team spirit and cooperation among staff.

7. Outlook We look forward to 2013 with great optimism in view of the favourable economic outlook and the

stronger financial position of the Bank. The relocation of the Bank’s Head Office and opening of a

branch with Premier Banking services at Vattanac Capital will augur well for the Bank as it will provide

a great opportunity for us to develop, expand and improve on our services.

8. AppreciationWe are grateful to the Board, who has been providing strong guidance and support to the management

and staff of the Bank. Our staff deserves recognition for their team effort, hard work, honesty, and

commitment in achieving the various targets. In particular, we are grateful to the core team involved in

the implementation of the Flexcube Oracle Core Banking System for their dedication and commitment.

We are also grateful to our customers for their support and loyalty as we strive to not only meet but

exceed their requirements and expectations. Last but not least, we would like to acknowledge our

appreciation to the National Bank of Cambodia for their guidance and advice.

CHAN KOK CHOYExecutive Director/General Manager

98

Report of theExecutive Director/General Manager (continued)



Board of Directors

Oknha Sam AngChairman

Madam Chhun LeangPresident

Co-founder, shareholder of Vattanac Bank since 2002

Co-founder and Chairman of Progress Import-Export

Co. Ltd., a local partner of Cambodia Brewery Ltd.,

since 1994

President of Progress Jewellery Pte. Ltd. (import &

export of gold bullion) since 1996

President of Vattanac Properties Limited since 2005

Co-owner of Vattanac Industrial Parks I and II since 2003

Co-founder, shareholder of Vattanac Bank since

establishment in 2002

Co-founder and Vice-Chairman of Progress Import-

Export Co. Ltd., a local partner of Cambodia Brewery

Ltd., since 1994

Chairman of Progress Jewellery Pte. Ltd. (import &

export of gold bullion) since 1996

Chairman of Vattanac Properties Limited since

2005, developer of Vattanac Capital, a 39-storey

development project in central Phnom Penh

Co-owner of Vattanac Industrial Parks I & II since 2003

Seated: Oknha Sam Ang, Chairman (center), Madam Chhun Leang,

President (left) and Madam Tal Nay Im (right)

Standing from left to right: Mr. Chan Kok Choy, Mr. Tang Yue

Kwong, Ms. Sam Ang Leakhena (Observer to the Board), Mr. Sam

Ang Vattanac and Mr. George Teo Choa Chee

10



Singaporean, was appointed as Independent Non-Executive Director of the Board of Directors and was elected as Chairman of the Risk Management and Compliance Committee in November 2009 and as Chairman of the New Activities and Products Committee in December 2010Over 30 years of banking and financial futures experiences in various local banks and financial futures companies in Singapore

Founding Director and Shareholder of Vattanac Bank, and was appointed as Non-Executive Director in 2002Master’s Degree in Engineering, Economics and Management from Oxford University, United Kingdom in 2006 Researcher in banking business at Allied Irish Bank, United Kingdom in 2005Executive Director of Vattanac Properties Ltd. since 2007 and manages the construction and development of Vattanac Capital, a 39-storey building located in the central business district of Phnom Penh

Malaysian, joined Vattanac Bank as General Manager in 2002 and was appointed as Executive Director to the Board in June 2007B.Soc. Sc (Hons), Major in Management from Universiti Sains Malaysia, 1984 Over 29 years of banking experience including as branch manager in various branches of Public Bank Berhad, Malaysia, 1984 to 1991; General Manager of VID Public Bank, Vietnam, 1992 to 1997; and General Manager of Cambodian Public Bank, 1999 to 2002

Founding Director of Vattanac Bank in 2002, and was appointed as Executive Director, a member of the Board in May 2008BSc (Hons) in Accounting and Finance from the London School of Economics in 2004Previously served as independent auditor in audit firms KPMG and Deloitte in Singapore from 2004 to 2007Served as accountant and member of risk management teams in international banks JP Morgan and Credit Suisse in Singapore from 2007 to 2008Completed management program at Harvard Business School in the United States of America in early 2010

Singaporean, was appointed as Independent Non-Executive Director of the Board of Directors and was elected as Chairman of the Audit Committee in June 2007Graduated with a Bachelor of Accountancy degree from the University of Singapore in 1970Qualified from the professional accountancy bodies of ACCA and CIMA, United Kingdom, and AASA, AustraliaHas over 30 years of experience of senior managerial positions with the manufacturing and service industries in the field of finance and audit from 1997 to 2005, with his own firm of management consultancy services in Singapore from 2005 to 2007

Appointed as Independent Non-Executive Director of the Board in April 2011Bachelor’s Degree in Economics from the Royal University of Law and Economics, Cambodia in 1974Over 30 years of experience in commercial banks and the National Bank of Cambodia Previously served as General Manager of the Foreign Trade Bank of Cambodia from 1980 to 1991 and the Cambodian Commercial Bank from 1991 to 1995 In 1995, she joined the National Bank of Cambodia. From 1998-2010, she held the position of Director General of four main departments: Banking Supervision Department, Banking Operations Department, Statistics and Economic Research Department and Foreign Exchange Department

Tang Yue KwongIndependent, Non-Executive Director

George Teo Choa CheeIndependent, Non-Executive Director

Sam Ang KanikaExecutive Director/Assistant to President

Madam Tal Nay ImIndependent, Non-Executive Director

Sam Ang VattanacNon-Executive Director

Chan Kok ChoyExecutive Director/General Manager

●●

●

●

●

Board of Directors (continued)

1312



Right: Vattanac Capital was awarded as the “Best Commercial Property (South East Asia)” at the 2012 South East Asia Property Awards. This landmark development is designed and constructed to the highest international standards for Cambodia’s emerging business and leisure community.

We will be moving our Head Office to Vattanac

Capital, a 39-storey international standard building

that will be a landmark in Cambodia. We will also

open a branch with Premier Banking services

and offer extended banking hours and weekend

banking services.

We will increase our product offering by introducing

new services, such as internet banking, mobile

banking and store-value cards.

We will expand our branch network in Phnom

Penh and in key provinces of Cambodia.

We will expand our ATM network to provide

convenience to our customers.

We will continuously develop and strengthen our

human resources.

We will further strengthen our corporate structure,

policies and internal control in order to be more

efficient with our operations and service delivery

towards customers.

We aim to strengthen our position as we capitalise on the opportunities present in the market today.

An Exciting Future Awaits

14



10th Year Anniversary CelebrationVattanac Bank celebrated its 10th

Anniversary with a grand dinner attended

by the Bank’s shareholders, board members,

management and staff as well as staff from

the Bank’s sister companies.

The event was held to celebrate the 10 years

since Vattanac Bank opened its doors to the

public on 8 November 2002. During the

event , Madam Chhun Leang, President of

Vattanac Bank, highlighted the significant

developments achieved over the past 10

years and expressed her appreciation to

the Board members, management and

staff for their dedication and hard work

towards the continuous progress of the

Bank. The President also emphasised that

the Bank must focus on improving its

capacity and service quality and that the

entire organisation must strictly comply

with the Bank’s procedures and policies in

order to retain the trust and confidence of

customers.

The evening had a great atmosphere and

was filled with fun as staff showcased their

talents and fabulous prizes were given away

during the lucky draw.

Shareholders, Board members and their families, and the management staff celebrate the Bank’s 10th Anniversary.

A performance by Vattanac Bank staff honouring the Bank’s 10 years of continuous progress.

Traditional blessing dance from the children of Kolab 4 Orphanage.

New Core Banking SystemThe Bank started its migration from Smart

Bank to Oracle Flexcube core banking

system, an international standard system

that will enable the Bank to efficiently

and effectively serve its customers. It will

also allow the Bank to introduce new

products and services that will meet the

requirements and needs of customers. The

system is expected to go live in March 2013.

Staff TrainingThe Bank upholds its commitment to human

resource development by continuously

conducting in-house training to ensure that

staff are competent and professional in

performing their roles. In 2012, 25 in-house

training sessions were held and these were

attended by 201 staff for a total of 1,035

training hours. To further enhance staff

knowledge and experience, the Bank also

sent 62 staff to 42 local external training

seminars and 10 overseas training seminars.

Vattanac Bank greatly emphasises to the staff the importance of effectively answering the needs of customers; therefore, training on Customer Service was regularly conducted to ensure that all staff deliver and perform above and beyond customers’ expectations.

The Bank is grateful to the staff for their hard work and dedication during the implementation of the new core banking system.

Representatives from HSBC Vietnam (Bank) Ltd. conducted a seminar on Excellence in Trade Finance and Payment Cash Management Solutions for the Bank staff and selected staff from the National Bank of Cambodia.

Business Review

1716



Vattanac Bank Olympic Branch located north of Olympic Market.

Madam Chhun Leang, President of Vattanac Bank receives the Recognition Award from Mr. Michel Charest, Vice-President and Market Consultant for Global Payment Services at Wells Fargo Bank, N.A.

New Olympic Branch Office The Olympic Branch moved to a new

office on Street 286 in front of the Olympic

Market. The branch offers a spacious retail

banking hall, multiple cash counting rooms

and a Premier Banking lounge for premier

customers. A cash deposit machine will soon

be available in the branch for customers

who may wish to deposit their money after

banking hours. This service is scheduled to

be available in the 2nd quarter of 2013.

Wells Fargo Recognition AwardVattanac Bank received the Recognition

Award from Wells Fargo Bank, N.A. for

achieving high straight-through rate for

payment processing in the first six months

of 2012. The award was given by the

representative of Wells Fargo Bank, N.A.

during his visit to the Bank’s Head Office.

Business Review (continued)

We Progress with the Community that We ServeWe aim to continuously work with the community that we serve by supporting charitable organisations

and other institutions in their activities and events. We also encourage our staff to be actively involved

in both humanitarian and sports events.

In 2012, Vattanac Bank focused on sports through its CSR programs as the Bank supported various

sports organisations and events. It was also a way to encourage the youth to engage in sports for good

health and self-improvement.

As the sports world celebrated its biggest event in 2012, the Summer Olympic Games held in London

from 27 July to August 2012, the Bank did its share by supporting the “My Olympic Heroes Campaign”.

It was initiated by the National Olympic Committee of Cambodia (NOCC) headed by H.E. Thong Khon,

the President of the Committee and H.E. Vath Chamrouen, the Secretary General. The campaign aimed

to introduce Cambodian Olympic athletes to the public. It was also a way of drumming up support

from the public as well as to boost the confidence of the athletes and inspire them to give their best

in representing their country.

H.E. Sar Kheng (second from left), Minister of Interior, is joined by Vattanac Bank Chairman Oknha Sam Ang (first from left), Oknha Chhun On (third from left) of Kampuchea Tela Co., Ltd. and Oknha Seng Chhay Our (fourth from left) of Seng Enterprise Co., Ltd., during the Chairman’s Cup Golf Tournament organised by the Cambodian Golf Federation.

1918

Giving Back



The Cambodian Olympic athletes receive their free Visa Debit Card from Mr. Kang Sopheak (third from left) during the My Olympic Heroes concert at Cambodia Television Network (CTN).

H.E. Thong Khon, President of the National Olympic Committee of Cambodia and Minister of Tourism, awards a certificate of appreciation to Mr. Kang Sopheak, Branch Manager of Vattanac Bank Phnom Penh Main Branch, during the send-off ceremony for the Cambodian athletes who participated in the Summer Olympic Games in London.

H.E. Hun Manet receives a certificate of appreciation from Mr. Chan Kok Choy, the Bank’s Executive Director and General Manager as well as the Chairman of Operation Smile Cambodia, for supporting the organisation. Standing at center is Madam Pich Chan Mony, the wife of H.E. Hun Manet, member of the Board of Governors of Operation Smile Cambodia.

Madam Chea Serey (second from left), Deputy Director General for Banking Supervision of the National Bank of Cambodia and member of the Board of Directors of Operation Smile Cambodia, visits the patients at the Khmer-Soviet Hospital. She is accompanied by Mr. Chan Kok Choy and Dr. Mok Theavy, the Medical Director of Operation Smile Cambodia.

In addition, the Bank organised the

Vattanac Bank Cup 2012 Swimming

Competition in partnership with the Khmer

Amateur Swimming Federation headed

by H.E. Sun Chanthol. Various swimming

clubs in Phnom Penh and Kampong Cham

province participated in the event.

The Bank also continued its support for

the Federation de Boules et Petanque du

Cambodge on its Francophone Cup and

H.E. Sar Kheng Challenge Cup.

Other sports events supported by the

Bank included the Cambodian Badminton

National Championships organised by the

Cambodia Badminton Federation and the

Chairman’s Cup Golf Tournament organised

by the Cambodian Golf Federation.

The Bank also encouraged its staff to

participate in sports events, such as the

Angkor Wat Half Marathon, in order to

develop a spirit of friendship with the

community and teamwork.

The Bank is an active supporter of

Operation Smile Cambodia, a non-profit

organisation that provides free cleft-lip

and palette operations to poor children

and adults. Mr. Chan Kok Choy, the

Executive Director and General Manager

of the Bank, is the Chairman of the

organisation. To date, Operation Smile

Cambodia has conducted over 3,000

successful operations in Cambodia.

The Bank, through its shareholders, also

supports other charitable organisations

such as the Cambodian Red Cross and

community events organised by the

Ministry of Women’s Affairs.

Moreover, the Bank encourages its staff to

participate in charitable events as a way of

serving and giving back to the community

that we serve.

Giving Back (continued)

2120



ExecutiveCommittee

Board ofDirectors

New Activities& Products Committee

Training and Human Resource

Management

Assets and Liabilities

Management

Credit RiskManagement

IT and Card RiskManagement

Operational RiskManagement andBranch Support

Human Resource & Training

Department

Finance & Treasury

Department

CreditOperationsDepartment

IT Department and

Card Services

Banking Operations,Business Dev’t. & Public Affairs Dept.

HumanResource

Committee

Assets and Liabilities

Committee

CreditCommittee

IT Steering Committee

Operational RiskMgt Committee

AuditCommittee

Risk Managementand Compliance

Committee

Board of Directors

Oknha Sam Ang Chairman

Madam Chhun Leang President

Mr. Chan Kok Choy Member

Madam Tal Nay Im Member

Ms. Sam Ang Kanika Member

Mr. Sam Ang Vattanac Member

Mr. Tang Yue Kwong Member

Mr. George Teo Choa Chee Member

Executive Committee

Madam Chhun Leang Chairperson

Mr. Chan Kok Choy Member

Ms. Sam Ang Kanika Member

Mr. Kang Sopheak Member

Registered Office

No. 89, Preah Norodom Blvd.

Phnom Penh, Cambodia

T (855) 023 212 727

F (855) 023 216 687

Email: [email protected]

SWIFT Code: VBLCKHPP

Website: www.vattanacbank.com

Overseas Correspondent Banks

1. HSBC Bank, USA

2. Wells Fargo Bank, USA

3. United Overseas Bank, Singapore

4. BIDV, Vietnam

5. Bank for Foreign Trade of Vietnam-Vietcom Bank

6. UniCredit Bank AG, Germany

7. CommerzBank AG, Germany

8. Thanachart Bank, Thailand

Branches

1. Phnom Penh Main Branch

2. Olympic Branch

3. Stung Meanchey Branch

4. Siem Reap Branch

Auditor

PricewaterhouseCoopers (Cambodia) Ltd.

Risk Management and Compliance

Department

Internal AuditDepartment

2322

Corporate Information Corporate Governance Structure



IntroductionVattanac Bank is firmly committed to observing and maintaining high standards of corporate governance

in compliance with the principles and guidelines set out in the Prakas on Governance in Banks and

Financial Institutions issued by the National Bank of Cambodia. The Bank believes that its corporate

conduct and growth must be supported by clear policies, transparent processes, a system of stringent

internal checks and controls, and accountability. Guided by the Prakas on Governance in Banks and

Financial Institutions, the Bank adheres to both its spirit and its substance whilst seeking to continually

improve and excel. By doing so, customers’ interests are safeguarded, and the Bank can focus on

strengthening its position in the banking sector while maximising customer value and returns.

Board MattersThe Bank is led and managed by an effective Board. The Board is collectively responsible for the

success of the Bank. The Board works with the Management in order to achieve success and the

Management is accountable to the Board. The Board leads and manages the Bank by setting out

strategic direction and the long-term goals of the Bank and high standards of corporate governance.

The Board also sees to it that the Management conducts the business and affairs of the Bank with

integrity and transparency, in compliance with laws and regulations and with the ultimate aim of

enhancing value and achieving sustainable growth for the Bank.

Board of DirectorsAs at 31 December 2012, the composition of the Board was as follows:

Oknha Sam Ang Chairman Non-Executive Director

Madam Chhun Leang Member Executive Director and President

Mr. Chan Kok Choy Member Executive Director and General Manager

Ms. Sam Ang Kanika Member Executive Director and Assistant to President

Mr. Sam Ang Vattanac Member Non-Executive Director

Madam Tal Nay Im Member Independent, Non-Executive Director

Mr. Tang Yue Kwong Member Independent, Non-Executive Director

Mr. George Teo Choa Chee Member Independent, Non-Executive Director

2524

Delegation of Authority on Certain Board Matters To assist the Board to effectively discharge its oversight duties and functions, the Board established

three specialised Board Committees which are under its authority namely, the Audit Committee, Risk

Management and Compliance Committee, and New Activities and Products Committee - with specific

terms of reference particularly on the responsibilities assigned to each committee.

Meetings of the Board and of Specialised Board CommitteesThe Board meets quarterly and four times per year to review the Bank’s key activities including financial

performance, business plan, corporate strategies, and significant operational matters of the Bank.

The number of Board meetings and specialised Board Committee meetings in the 2012 financial year

and the attendance of Directors at these meetings are as follows:

Attendance ofBoard Members

BoardAudit

Committee

Risk Management

and ComplianceCommittee

NewActivities and

ProductsCommittee

Note: Chairperson Member Not Applicable

Meetings held duringfinancial year ended31 December 2012

4 4 4 3

Oknha Sam Ang 4/4

Madam Chhun Leang 4/4

Mr. Chan Kok Choy 4/4 3/3

Ms. Sam Ang Kanika* 2/4 2/3

Mr. Sam Ang Vattanac 4/4 3/4 3/4 2/3

Madam Tal Nay Im 4/4 4/4 4/4 2/3

Mr. Tang Yue Kwong 4/4 4/4 4/4 3/3

Mr. George Teo Choa Chee 4/4 4/4 4/4 3/3

Corporate Governance

* Ms. Sam Ang Kanika has been on sabbatical leave



Each new director is issued with a formal letter of appointment setting out his/her duties and

obligations. Orientation programmes are also conducted to familiarise new directors with business

activities, strategic direction, policies, key new projects and the Bank’s corporate governance. Visits

to the branches and meetings with respective relationship managers are arranged for the directors to

have an intimate appreciation and understanding of the Bank’s business operations and the issues

that may impact or affect it.

Audit CommitteeThe committee is chaired by an independent director. Another member of the committee is also an

independent director and the other two are non-executive directors. The Audit Committee is comprised

of the following:

Mr. Tang Yue Kwong Chairman Independent, Non-Executive Director



Mr. George Teo Choa Chee Member Independent, Non-Executive Director

Mr. Tom Piseth Secretary Head of Internal Audit Department

Members of the Audit Committee possess appropriate attributes and qualifications for them to

discharge their responsibilities. The Board considers each of them as having sufficient and practical

knowledge and experience, and the necessary accounting expertise to perform their functions

effectively. Under the Terms of Reference endorsed by the Board which sets out the authority,

responsibilities and duties, the Audit Committee is empowered to investigate any matters falling

within its terms of reference independently.

The Committee has full access to, and the cooperation of the Management, as well as full discretion

to invite any directors or executive officers to attend its meetings or provide such information and/

or documents as it may require. It has reasonable resources to enable them to discharge its functions

effectively. Minutes of the Audit Committee meetings highlighting issues raised and concerns discussed

at such meetings are circulated to the directors so that they are kept duly informed.

The Audit Committee also reviews the quarterly and full-year financial statements of the Bank to ensure

compliance with the guidelines issued by the National Bank of Cambodia and Cambodian Accounting

Standards. The Audit Committee recommends the annual financial results to the Board for approval.

In performing its functions, the Audit Committee reviews audit plans of the internal auditor and the

assistance given by the Management to the auditor, so as to ensure sufficient coverage. Significant

audit findings and recommendations are presented to the Audit Committee for discussion. The Audit

Committee meets with the internal auditor without the presence of the Management at least once a year.

In addition, the Audit Committee also monitors and evaluates with the internal auditor the adequacy

of the Bank’s internal control system, including financial, operational and compliance control and risk

management policies and systems.

In addition, the Audit Committee monitors and evaluates the efficiency of the management

structure, policies and procedures, activities and operations of the Bank as well as compliance with

laws and regulations.

Risk Management and Compliance CommitteeThe Risk Management and Compliance Committee is chaired by an independent director. Another

member of the committee is also an independent director and the other two are non-executive

directors. The Risk Management and Compliance Committee is comprised of the following:

The Risk Management and Compliance Committee was established to assist the Board in its role

and responsibilities over risk management and compliance of the Bank relating to risks in business

operations and risk monitoring process. These include risk identification, risk management, risk

monitoring and effective compliance with laws and regulations in accordance with the Bank’s risk

management policies approved by the Board.

The Risk Management and Compliance Department plays an important role on a day-to-day basis in

assisting the Risk Management and Compliance Committee to monitor all the potential risks associated

with the operations of the Bank and its branches and compliance controls of the Bank to meet the

requirements of laws and regulations including laws and Prakas set out by the National Bank of

Cambodia on Anti-Money Laundering and Combating the Financing of Terrorism.

26 27

Corporate Governance (continued)

Chairman

Member

Member

Member

Secretary

Mr. George Teo Choa Chee

Mr. Sam Ang Vattanac

Madam Tal Nay Im

Mr. Tang Yue Kwong

Mr. Bun Sarady

Independent, Non-Executive Director

Non-Executive Director



Head, Risk Management and Compliance Department



New Activities and Products Committee (NAP)The NAP Committee is chaired by an independent director. Another member of the committee is also

an independent director, another two are non-executive directors and the two members are executive

directors. This committee is comprised of the following:

Mr. George Teo Choa Chee Chairman Independent, Non-Executive Director





Mr. Tang Yue Kwong Member Independent, Non-Executive Director

Mr. Frederick Almeida Secretary Acting Head, Business Development and Public Affairs Department

The New Activities and Products Committee was established to assist the Board in the thorough review

and evaluation of policies, procedures and operational processes as well as risk control measures

related to new products and activities prior to public launch.

Executive CommitteeThe Executive Committee was created by the Board to oversee the general management of the

Bank and its business. Its main responsibilities include formulating and recommending strategic

development initiatives to the Board, providing direction, guidance and insight on material matters

such as setting strategic plans, reviewing budget plans, investments as well as the Bank’s core operation

and sustainable management.

The role of the Executive Committee is to develop and implement strategic plans determined by the

Board. The Committee is also responsible for the day-to-day operations of the Bank by ensuring proper

delegation of duties, authority and independent decision making. The committee is comprised of the

following members:

Madam Chhun Leang Chairperson Executive Director and President



Mr. Kang Sopheak Member Manager, Phnom Penh Main Branch

Mr. Keo Virak Secretary Head, Secretariat Department

The Executive Committee regularly provides the Board with updates on developments on new laws

and regulations or changes in regulation requirements and financial reporting standards which are

relevant to or may affect the Bank’s business.

Committees Under Supervision of the Executive Committee To ensure the effective operation of the Bank, the Board established five Management Committees -

namely Credit, Assets and Liabilities, Human Resource, Information Technology and Operational Risk

Management Committees to assist the Executive Committee in the day-to-day running of the Bank.

1. Credit CommitteeThe Credit Committee was established to assist the Executive Committee with the Bank’s credit matters.

This committee is comprised of the following:

The Credit Committee is responsible for reviewing and implementing policies and procedures of credit

facilities as determined by the Board and in compliance with the NBC’s guidelines and regulations.

These duties and roles include credit assessment, lending, credit renewal and recovery of loans. The

Credit Committee approves loans at its discretion and provides recommendations for growing the

Bank’s loan portfolio.

In 2012, the Credit Committee actively and prudently monitored, reviewed and approved loans. It

further strengthened the loan appraisal process to ensure high quality and potential loans for the Bank.

2928


Chairperson

Member

Member

Member

Member

Member/Secretary

Madam Chhun Leang

Mr. Chan Kok Choy

Ms. Sam Ang Kanika

Mr. Kang Sopheak

Mr. Srey Vibol

Ms. Ros Dara

Executive Director and President


Executive Director and Assistant to President

Manager, Phnom Penh Main Branch

Head, Finance and Treasury Department

Head, Credit Operations Department



2. Assets and Liabilities CommitteeThe Assets and Liabilities Committee was established to assist the Executive Committee in managing

and overseeing assets and liabilities of the Bank. The committee is comprised of the following:

The Committee is responsible for managing the assets and liabilities of the Bank in order to maximise

the Bank’s profitability, efficiency and effectiveness. These activities include managing, reviewing and

monitoring risks related to the Bank’s day-to-day business and operations such as changes in the

liquidity levels, interest rates, exchange rates and market trends.

3. Human Resource CommitteeThe Human Resource Committee was established to assist the Executive Committee in managing,

nominating, and developing the human resources of the Bank. This committee is comprised of

the following:

The main responsibility of the Human Resource Committee is to assist the Executive Committee in

setting up a formal and transparent procedure for developing policies on remunerations for the Bank’s

staff. Such policies are submitted to the Executive Committee for approval. The Human Resource

Committee also reviews and recommends, for endorsement by Executive Committee, salary changes

and performance bonuses for staff at all levels.

Regarding the formulation of Human Resource policies, the Committee can seek advice from external

consultants to ensure that competitive compensation and progressive policy, with suitable and attractive

long-term incentives, are in place to attract, retain, and motivate capable and committed staff. The

Human Resource Committee is responsible for recruitment and staff retention and promotions in

compliance with the Human Resource Management policies.

In addition, the Committee is also responsible for creating human resource training and development

plans in accordance with the Bank’s code of ethics to prevent conflict of interest and fraud.

4. IT CommitteeThe IT Committee was established to assist the Executive Committee in managing the Bank’s information

technology. The committee is comprised of the following:

Mr. Khun Piseth Chairperson Head, Information Technology Department



Ms. Ros Dara Member Head, Credit Operations Department


The IT Committee is responsible for monitoring and managing risks arising from the Bank’s information

technology to ensure the effectiveness and security of the information management system and data

storage to achieve the Bank’s long-term business plan.

The Bank has engaged BDO, an independent audit company from Malaysia, to conduct a full

implementation of audit on the IT department in order to review and provide recommendations on

how to strengthen its IT system. In compliance with BDO’s recommendations, the Bank has started

implementing a new international Core Banking system named Oracle FLEXCUBE Universal Banking,

expanded the standardised Data Centre, strengthened the network with multiple network security

protection, established a Disaster Recovery Data Centre and strengthened/restructured IT resources.

These activities responded to the need to deepen, widen, and secure the Bank’s internal operations

and banking system.

5. Operational Risk Management CommitteeThe Operational Risk Management Committee was established to assist the Executive Committee in

monitoring and managing the Bank’s operational risks. The committee is comprised of the following:

Mr. Chan Kok Choy Chairperson Executive Director and General Manager


Mr. Srey Vibol Member Head, Finance and Treasury Department

Ms. Ros Dara Member Head, Credit Operations Department

Mr. Khun Piseth Member Head, Information Technology Department


3130


Chairperson

Member

Member

Member/Secretary

Mr. Kang Sopheak

Mr. Chan Kok Choy

Ms. Ros Dara

Mr. Srey Vibol



Head, Credit Operations Department

Head, Finance and Treasury Department

Chairperson

Member

Member

Member

Member/Secretary

Madam Chhun Leang

Mr. Chan Kok Choy

Ms. Sam Ang Kanika

Mr. Kang Sopheak

Mr. Yin Phallyn

Executive Director and President


Executive Director and Assistant to President


Head, Human Resource and Training Department



The Operational Risk Management Committee is responsible for monitoring and assessing the Bank’s

operational risks and reporting them to the Executive Committee. The Committee has formulated

strategies to manage the Bank’s operational risks by creating management systems and procedures

to ensure the effective dealing with any direct or indirect risks to the Bank’s operations as well as

irregularities or mistakes made by staff on operating systems and internal procedures in response to

external factors affecting the Bank.

The Committee also plays an important role in reviewing, revising, updating, and amending outdated

and impractical policies and procedures.

Risk Management Vattanac Bank took proactive and prudent measures to manage and control risks such as credit risks,

liquidity risks, market risks and operational risks due to changes in the business environment which

could affect the business operations of the Bank.

The Risk Management and Compliance Committee assists the Board in the oversight of risk management

policy, process and procedures. The Committee is supported by an independent Risk Management and

Compliance Department, which identifies potential risks facing the Bank.

1. Credit risk managementCredit risks occur when customers do not comply with their loan contract(s) and default on repayment

of loans for investing activities and businesses.

The lending activities of the Bank have improved with its more prudent approach in compliance with

the revised credit policy and procedures and in compliance with the National Bank of Cambodia’s

guidelines. Credit risk management is the responsibility of the Credit Committee, which is regularly

managed, reviewed and monitored by the Credit Operations Department.

2. Market risk managementMarket risks arise from losses due to unfavourable changes in the market.

The Assets and Liabilities Committee is responsible for managing market risks such as interest rate risks,

currency exchange risks and liquidity risks. These risks are thoroughly monitored and managed by the

Management and the Finance and Treasury Department.

There were regular meetings of the Assets and Liabilities Committee for assessment in accordance

with policies on assets and liabilities management as well as in compliance with the guidelines and

regulations of the National Bank of Cambodia.

a. Interest rate risks

The Bank managed interest rate risks by monitoring market trends and cost of funds and analysing the

changes of interest rates of the assets and liabilities.

b. Currency exchange risks

The Bank managed and maintained its foreign currency exchange policy in accordance with its assets

and liabilities management policy and in compliance with the National Bank of Cambodia’s guidelines.

Banks are required to maintain their net open position to the maximum of 20% of their net worth.

c. Liquidity risks

Liquidity risks are related to the ability to maintain sufficient liquidity to fulfill the requirements or

meet the contractual commitments and other financial obligations at a reasonable price.

The Bank maintained its liquidity in compliance with its assets and liabilities policy and the National

Bank of Cambodia’s guidelines, which require the Bank to maintain its liquidity ratio of at least 50%. In

the financial year of 2012, the Bank’s liquidity ratio was 88.8% which exceeded the NBC’s requirement.

3. Operational risk managementIn general, operational risks are due to the irregularity of internal control mechanisms of the Bank. The

Bank takes preventive measures to mitigate unexpected risks to ensure proper controls and accurate

reporting on business activities by each independent operational unit.

All of the committees under the Executive Committee play an important role in reviewing and

managing the operational risks to improve procedures and internal control structures, and especially

to identify risks related to IT, operations and plans.

Internal Control The Bank is in compliance with the Prakas on Internal Control in Banks and Financial Institutions of

the National Bank of Cambodia. The Bank had taken steps to further strengthen its internal control in

2012 to become more efficient and effective.

The Board oversees the performance of the internal control system with the assistance of the Audit

3332




Committee to ensure security, accountability and transparency to all stakeholders in accordance with

the Bank’s corporate mission and objectives. Furthermore, the Audit Committee plays an important

role in reviewing, evaluating and providing recommendations relating to its internal control system

through regular audit by the Bank’s Internal Audit Department.

Policy on Anti-Money Laundering and Combating Financing of TerrorismThe Bank has strictly implemented its policy on anti-money laundering and combating financing of

terrorism to ensure that it is not involved in money laundering or financing of terrorism transactions

as well as to comply with the Prakas of the National Bank of Cambodia on Anti-Money Laundering and

Combating Financing of Terrorism.

Each of the Bank’s employees is instructed to be vigilant in the fight against any attempts of improper

usage of the Bank’s services. The employees are trained in the following:

1. Know-your-customer manual

• Clearly Know-Your-Customer policy

• Know-Your-Customer action for identification and confirmation of new clients

• Ongoing monitoring of high-risk transactions and accounts

2. Reporting of suspicious transactions

3. Record keeping

4. Compliance

• The appointment of a Compliance Officer in charge of anti-money laundering issues

• Training of all levels of staff on anti-money laundering policies

• Internal audits to check on the effectiveness of the implemented anti-money laundering and

financing of terrorism measures

Code of EthicsThe Bank’s code of ethics is stipulated in the corporate governance and human resource policy, which

requires all Vattanac Bank employees, including its Directors, management and staff to possess high

integrity, honesty, accountability and morality including the following:

1. To avoid conflict of interest

2. To avoid abuse of power and authority

3. To prevent misuse of information received through the Bank’s operation either for personal gain

or for any purposes other than the fulfilment of his or her tasks for the Bank

4. To ensure accuracy of relevant records

5. To respect the privacy and confidentiality of customers

6. To ensure just and ethical actions toward clientsand others who have a relationship with the Bank

Confidentiality PolicyAdhering to confidentiality in business relations between the Bank and customers is essential to

upholding the Bank’s reputation. All employees are required to protect the confidentiality of the

Bank’s customers including the following:

1. No staff or director shall, during or after termination of his/her employment with Vattanac Bank,

divulge or make use of any information, copyrighted materials, correspondence, accounts or

dealings of the Bank or its customers;

2. No staff or director shall in any way use information obtained for financial gain; and

3. Business and financial information about any customer shall be used or made available to third

parties only with prior written consent of the customer or in accordance with the arrangements

for the proper interchange of information between banks about credit risks, or when disclosure is

required by law.

3534



Vattanac BankAnnual Report 2012 Your Personal BankYour Personal Bank 37២

Directors’ Report 37 - 40

Independent Auditor’s Report 41 - 42

Balance Sheet 43

Income Statement 44

Statement of Changes in Equity 45

Statement of Cash Flows 46

Notes to the Financial Statements 47 - 89

FINANCIAL STATEMENTSFor the year ended 31 December 2012

Directors’ Report

The Board of Directors (“the Directors”) hereby submits their report and the audited financial

statements of VATTANAC Bank Limited (“the Bank”) for the year ended 31 December 2012.

Corporate InformationThe Bank was incorporated in Cambodia on 1 July 2002 under the registration number Co. 6000/02P.

The Bank obtained a license from the National Bank of Cambodia (“the Central Bank”) to operate as a

commercial bank with effect from 7 June 2002 and officially commenced operations on 8 November 2002.

Principal ActivitiesThe principal activities of the Bank are the provision of commercial banking and related financial

services in Cambodia. There were no changes in nature of the principal activities during the year.

Results of Operations and DividendThe results of operations for the year ended 31 December 2012 are set out in the income statement on page 44.

There were no dividends declared or paid during the year ended 31 December 2012 (2011: Nil).

Share CapitalThere were no change in the registered and issued share capital of the Bank during the year.

Reserves and ProvisionsThere were no material movements to or from reserves and provisions during the financial year other

than those disclosed in the financial statements.

Bad and Doubtful LoansBefore the financial statements of the Bank were drawn up, the Directors took reasonable steps to

ascertain that action had been taken in relation to the writing off of bad loans and advances or

making of provisions for doubtful loans and advances, and satisfied themselves that all known bad

loans and advances had been written off and that adequate provisions have been made for bad and

doubtful loans and advances.

At the date of this report and based on the best of knowledge, the Directors are not aware of any

circumstances which would render the amount written off for bad loans and advances or the amount

of the provision for bad and doubtful loans and advances in the financial statements of the Bank

inadequate to any material extent.



AssetsBefore the financial statements of the Bank were drawn up, the Directors took reasonable steps to

ensure that any assets which were unlikely to be realised in the ordinary course of business at their

value as shown in the accounting records of the Bank, have been written down to an amount which

they might be expected to realise.

At the date of this report and based on the best of knowledge, the Directors are not aware of any

circumstances which would render the values attributed to the assets in the financial statements of

the Bank misleading in any material respect.

Valuation MethodsAt the date of this report and based on the best of knowledge, the Directors are not aware of any

circumstances that have arisen which would render adherence to the existing method of valuation

of assets and liabilities in the financial statements of the Bank misleading or inappropriate in any

material respect.

Contingent and Other LiabilitiesAt the date of this report, there is:

(a) no charge on the assets of the Bank which has arisen since the end of the financial year which

secures the liabilities of any other person, and

(b) no contingent liability in respect of the Bank that has arisen since the end of the financial year

other than in the ordinary course of banking business.

No contingent or other liability of the Bank has become enforceable, or is likely to become enforceable

within the period of twelve months after the end of the financial year which, in the opinion of the

directors, will or may have a material effect on the ability of the Bank to meet its obligations as and

when they become due.

Change of CircumstancesAt the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with

in this report or the financial statements of the Bank, which would render any amount stated in the

financial statements misleading in any material respect.

Items of an Unusual NatureThe results of the operations of the Bank for the financial year were not, in the opinion of the Directors,

materially affected by any items, transactions or events of a material and unusual nature. There has

not arisen in the interval between the end of the financial year and the date of this report any items,

transactions or events of a material and unusual nature likely, in the opinion of the directors, to

substantially affect the results of the operations of the Bank for the year in which this report is made.

The Board of DirectorsThe members of the Board of Directors holding office during the year and as at the date of this report are:

1. Oknha Sam Ang Chairman of the Board and Non-Executive Director

2. Madam Chhun Leang President and Executive Director

3. Ms. Sam Ang Kanika Executive Director

4. Mr. Sam Ang Vattanac Non-Executive Director

5. Madam Tal Nay Im Non-Executive Director

6. Mr. Tang Yue Kwong Independent and Non-Executive Director

7. Mr. George Teo Choa Chee Independent and Non-Executive Director

8. Mr. Chan Kok Choy Executive Director and General Manager

Directors’ BenefitsDuring and at the end of the financial year, no arrangements existed, to which the Bank was a party,

with the object of enabling directors of the Bank to acquire benefits by means of the acquisition of

shares in or debentures of the Bank or any other body corporate.

No director of the Bank has received or become entitled to receive any benefit by reason of a contract

made by the Bank with the directors or with a firm of which the director is a member, or with a

company which the director has a substantial financial interest other than those disclosed in the

financial statements.

Responsibilities of the Directors in Respect of the Financial StatementsThe Directors are responsible to ensure that the financial statements are properly drawn up so as

to present fairly, in all material respects, the financial position of the Bank as at 31 December 2012

and of its financial performance and cash flows for the year then ended. In preparing these financial

statements, the Directors are required to:

Directors’ Report (continued)

3938



i) adopt appropriate accounting policies which are supported by reasonable and prudent judgements

and estimates and then apply them consistently;

ii) comply with the disclosure requirements and guidelines issued by the National Bank of Cambodia

and Cambodian Accounting Standards or, if there have been any departures in the interests of fair

presentation, these have been appropriately disclosed, explained and quantified in the financial

statements;

iii) maintain adequate accounting records and an effective system of internal controls;

iv) prepare the financial statements on a going concern basis unless it is inappropriate to assume that

the Bank will continue operations in the foreseeable future; and

v) effectively control and direct the Bank in all material decisions affecting the operations and

performance and ascertain that such have been properly reflected in the financial statements.

The Directors confirm that the Bank has complied with the above requirements in preparing the

financial statements.

Approval of the Financial StatementsThe accompanying financial statements, which present fairly, in all material respect, the financial

position of the Bank as at 31 December 2012, and of its financial performance and its cash flows for

the year then ended in accordance with the guidelines issued by the National Bank of Cambodia and

Cambodian Accounting Standards, were approved by the Board of Directors.

Signed in accordance with a resolution of the Board of Directors.

To the Shareholders of VATTANAC Bank LimitedWe have audited the accompanying financial statements of VATTANAC Bank Limited (“the Bank”)

which comprise the balance sheet as of 31 December 2012 and the income statement, the statement

of changes in equity and the statement of cash flows for the year then ended, and notes, comprising a

summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements

in accordance with Cambodian Accounting Standards and the guidelines of the National Bank of

Cambodia, and for such internal control as management determines is necessary to enable the

preparation of financial statements that are free from material misstatement, whether due to fraud

or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with Cambodian International Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the financial statements. The procedures selected depend on the auditor’s judgment, including the

assessment of the risks of material misstatement of the financial statements, whether due to fraud or

error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the financial statements in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of accounting estimates made by management, as

well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our audit opinion. MADAM CHHUN LEANG

PresidentOKNHA SAM ANG

Chairman

Phnom Penh

Date: 01 March 2013

Independent Auditor’s ReportDirectors’ Report (continued)

4140



OpinionIn our opinion, the financial statements present fairly, in all material respects, of the financial position

of the Bank as of 31 December 2012, and of its financial performance and its cash flows for the

year ended in accordance with guidelines issued by the National Bank of Cambodia and Cambodian

Accounting Standards.

For PricewaterhouseCoopers (Cambodia) Ltd.

Phnom Penh, Kingdom of Cambodia

Date: 01 March 2013

Independent Auditor’s Report (continued)Balance SheetAs at 31 December 2012

31 December 2012 31 December 2011 Note US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited

ASSETSCash on hand 23,133,899 92,419,926 24,225,223 97,845,676 Balances with the Central Bank 4 45,959,818 183,609,473 41,199,825 166,406,093 Balances with other banks 5 45,685,442 182,513,341 25,251,029 101,988,906 Loans and advances to customers 6 101,870,689 406,973,403 83,894,146 338,848,456 Properties foreclosed 7 4,147,042 16,567,433 4,938,407 19,946,226 Other assets 8 762,620 3,046,667 701,538 2,833,512 Property and equipment 9 7,632,540 30,491,997 7,655,753 30,921,586 Computer software 10 989,578 3,953,364 371,566 1,500,755

Total assets 230,181,628 919,575,604 188,237,487 760,291,210 LIABILITIES AND EQUITY LIABILITIES Due to other banks 11 54,023 215,822 109,018 440,324Deposits from customers 12 180,707,190 721,925,224 142,766,357 576,633,316Other liabilities 13 1,485,000 5,932,575 1,264,180 5,106,023Provision for income tax 14 821,141 3,280,459 677,149 2,735,005Deferred tax liabilities 15 110,547 441,635 119,828 483,985

Total liabilities 183,177,901 731,795,715 144,936,532 585,398,653

EQUITY Share capital 16 37,500,000 149,812,500 37,500,000 151,462,500Retained earnings 9,503,727 37,967,389 5,800,955 23,430,057

Total equity 47,003,727 187,779,889 43,300,955 174,892,557

Total liabilities and equity 230,181,628 919,575,604 188,237,487 760,291,210

The accompanying notes on pages 47 to 89 form an integral part of these financial statements.

4342



Year ended Year ended 31 December 2012 31 December 2011 Note US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited

Interest income 17 9,415,564 37,615,178 7,972,247 32,199,906Interest expense 17 (3,079,471) (12,302,487) (2,953,391) (11,928,746)

Net interest income 6,336,093 25,312,691 5,018,856 20,271,160 (Provision for)/recovery of loan losses 6(a) (171,872) (686,629) 695,558 2,809,359

Net interest income after provision for loan losses 6,164,221 24,626,062 5,714,414 23,080,519 Fee and commission income 18 2,417,057 9,656,143 2,410,124 9,734,491Fee and commission expense 18 (119,936) (479,144) (237,748) (960,264)

Net fee and commission income 2,297,121 9,176,999 2,172,376 8,774,227 Other operating income 19 551,342 2,202,611 35,469 143,259Personnel expenses 20 (2,323,251) (9,281,388) (2,063,250) (8,333,467)Depreciation and amortisation 21 (639,327) (2,554,111) (643,449) (2,598,891)Administrative and operating expenses 22 (1,421,641) (5,679,456) (1,256,454) (5,074,818)

(3,832,877) (15,312,344) (3,927,684) (15,863,917)

Profit before income tax 4,628,465 18,490,717 3,959,106 15,990,829Income tax expense 23 (925,693) (3,698,143) (791,821) (3,198,165) Net profit for the year 3,702,772 14,792,574 3,167,285 12,792,664


Share capital Retained earnings Total US$ US$ US$ For the year ended 31 December 2011

As at 1 January 2011 37,500,000 2,633,670 40,133,670Net profit for the year - 3,167,285 3,167,285 As at 31 December 2011 37,500,000 5,800,955 43,300,955 In KHR’ 000 equivalent (unaudited) 151,462,500 23,430,057 174,892,557 For the year ended 31 December 2012

As at 1 January 2012 37,500,000 5,800,955 43,300,955Net profit for the year - 3,702,772 3,702,772 As at 31 December 2012 37,500,000 9,503,727 47,003,727 In KHR’ 000 equivalent (unaudited) 149,812,500 37,967,389 187,779,889


Statement of Changes in EquityFor the year ended 31 December 2012

Income StatementFor the year ended 31 December 2012

4544



Statement of Cash FlowsFor the year ended 31 December 2012

Notes to the Financial StatementsFor the year ended 31 December 2012

Year ended Year ended 31 December 2012 31 December 2011 Note US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited

Cash flows from operating activities Net cash generated from/(used in) operating activities 24 22,312,684 89,139,172 (47,549,736) (192,053,385) Cash flows from investing activities Reserve requirement with the Central Bank (5,251,422) (20,979,431) 4,650,224 18,782,255 Purchases of property and equipment 9 (464,678) (1,856,389) (522,217) (2,109,234)Purchases of computer software 10 (769,993) (3,076,122) (379,586) (1,533,148) Net cash (used in)/generated from investing activities (6,486,093) (25,911,942) 3,748,421 15,139,873 Net increase/(decrease) in cash and cash equivalents 15,826,591 63,227,230 (43,801,315) (176,913,512)

Cash and cash equivalents at the beginning of year 25 69,002,282 278,700,217 112,803,597 457,192,978 Currency translation difference - (3,036,101) - (1,579,249) Cash and cash equivalents at the end of the year 25 84,828,873 338,891,346 69,002,282 278,700,217


1. Background InformationVATTANAC Bank Limited (“the Bank”) was incorporated in Cambodia on 1 July 2002 under the Registration No.

Co. 6000/02P. The Bank obtained a license from the National Bank of Cambodia to operate as a commercial

bank with effect from 7 June 2002 and officially commenced its operations on 8 November 2002.

The principal activities of the Bank comprise the operations of core banking business and the provision

of related financial services through its head office and other branches in Cambodia. There were no

changes in the nature of these principal activities during the year.

The registered office of the Bank is currently located at No. 89, Preah Norodom Blvd, Phnom Penh, the

Kingdom of Cambodia.

The financial statements were authorised for issue by the Board of Directors on 01 March 2013. The

Board of Directors has the power to amend and reissue the financial statements.

2. Summary of Significant Accounting PoliciesThe significant accounting policies adopted in the preparation of these financial statements are set out

below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparationThe financial statements have been prepared in accordance with the guidelines issued by the National

Bank of Cambodia (“the Central Bank”) and Cambodian Accounting Standards (“CAS”). In applying CAS,

the Bank also applies CFRS 4: Insurance Contracts and CFRS 7: Financial Instruments: Disclosures. The

accounting principles applied may differ from generally accepted accounting principles adopted in

other countries and jurisdictions. The accompanying financial statements are therefore not intended to

present the financial position and results of operations and cash flows in accordance with jurisdictions

other than Cambodia. Consequently, these financial statements are addressed to only those who are

informed about Cambodia accounting principles, procedures and practices.

The financial statements are prepared using the historical cost convention.

The significant inter-account transactions between the Bank and its branches in Cambodia have been

eliminated.

The preparation of financial statements in accordance with CAS requires the use of estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent

4746



2. Summary of Significant Accounting Policies (continued)2.1 Basis of preparation (continued)assets and liabilities at the date of financial statements and the reported amounts of revenues and

expenses during the reporting period. Although these estimates are based on management’s best

knowledge of current event and actions, actual results ultimately may differ from those estimates.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and

estimates are significant to the financial statements are disclosed in Note 3.

For the sole regulatory purpose of complying with Prakas No. B7-07-164 dated 13 December 2007 of

the Central Bank, a translation to Khmer Riel is provided for the balance sheet, the income statement,

the statement of changes in equity, the cash flow statement and the notes to the financial statements

as of and for the year ended 31 December 2012 using the official rate of exchange regulated by the

Central Bank as at the reporting date, which was United States dollars (“US$”) 1 to Khmer Riel (“KHR”)

3,995 (31 December 2011: US$1 to KHR4,039). Such translation amounts are unaudited and should not

be construed as representations that the US$ amounts represent, or have been or could be, converted

into Khmer Riel at that or any other rate.

2.2 New accounting standards and interpretations(a) New standards, amendments to existing standards and interpretations effective in the year 2012.

There were no standards, amendments to existing standards and interpretations which became

effective in the financial year ended 31 December 2012.

(b) Standards and amendments to existing standards issued but not yet effective

On 28 August 2009, the National Accounting Council of the Ministry of Economy and Finance announced

the adoption of Cambodian International Financial Reporting Standards (“CIFRS”) which are based on

all standards published by International Accounting Standard Board including other interpretation

and amendment that may occur in any circumstances to each standard by adding “Cambodian”. Public

accountable entities shall prepare their financial statements in accordance with CIFRS for accounting

period beginning on or after 1 January 2012.

The National Accounting Council of the Ministry of Economy and Finance through Circular No. 086

MoEF.NAC dated 30 July 2012 approves Banking and Financial institution to delay adoption of CIFRS

until the periods beginning on or after 1 January 2016.

The first financial statement of the Bank which will be prepared under CIFRS is the year ending 31

December 2016. CAS, the current accounting standard used, is different to CIFRS in many areas. Hence,

the adoption of CIFRS will have significant impact on the financial statements of the Bank.

(c) Early adoption of standardsIn the year 2012, the Group and the Bank did not early-adopt any new or amended standards.

2.3 Foreign currency transactionsi) Functional and presentation currencyItems included in the financial statements of the Bank are measured using the currency of the primary

economic environment in which the Bank operates (‘the functional currency’). The financial statements

are presented in US$, which is the Bank’s functional and presentation currency.

ii) Transactions and balancesTransactions in currencies other than US$ are translated into US$ at the exchange rate prevailing at

the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at the year-end exchange rates from monetary assets and

liabilities denominated in currencies other than US$, are recognised in the income statement.

2.4 Cash and cash equivalentsFor the purpose of the statement of cash flows, cash and cash equivalents comprise balances with

original maturity less than three months from the date of acquisition, including cash on hand, non-

restricted balances with the Central Bank, and balances with other banks.

2.5 Loans and advances to customersAll loans and advances to customers are stated in the balance sheet as the amount of principal, less

any amounts written off and the provision for loan losses.

Loans are written off when there is no realistic prospect of recovery. Recoveries of loans and advances

previously written off or provided for decrease the amount of the provision for losses on loans and

advances in the income statement.

2.6 Provision for loan lossesThe Bank follows the mandatory loan classification and provisioning as required by the Central Bank’s

Prakas No. B7-09-074, dated on 25 February 2009, on assets classification and provisioning for

banks and financial institutions. It applies to loans and advances or other assets with similar nature.

The minimum mandatory loan loss provision is made depending on the classification concerned,

regardless of the assets (except cash) pledged as collateral, unless other information is available to

indicate worsening.

Notes to the Financial StatementsFor the year Ended 31 December 2012

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2. Summary of Significant Accounting Policies (continued)2.6 Provision for loan losses (continued)The table below shows loan classifications and minimum provisioning requirements:

Provision Specific provision :

Special mention 3%

Substandard 20%

Doubtful 50%

Loss 100%

Both past due and qualitative factors shall be taken into account for loan classification and provisioning.

In addition to minimum specific provisioning, the Bank provides a general provision of 1% (2011: 1%)

on the total standard loans and advances outstanding.

2.7 Other credit related commitmentsIn the normal course of business, the Bank enters into other credit-related commitments including

loan commitments, letters of credit and guarantees. The accounting policy and provision methodology

are similar to those for originated loans as noted above. Specific provisions are raised against other

credit related commitments when losses are considered probable.

2.8 Interest income and expenseInterest on loans and advances to customers, deposits with the Central Bank and other banks are

recognised on an accruals basis, except where serious doubt exists as to the collectability, in which

case, no interest income is recognised. The policy on the suspension of interest is in conformity with

the Central Bank’s guidelines on the suspension of interest on non-performing loans and provision for

loan losses.

Interest expense on deposits of customer and deposits from other banks are recognised on an accruals basis.

2.9 Fee and commission incomeFee and commission income is recognised on an accruals basis when the service has been provided.

Fee and commission income comprise income received from inward and outward bank transfers,

bank guarantees, letters of credit, ATM fee charges, and others. Loan processing fees are recognised as

income when loan is disbursed.

2.10 Property and equipmentProperty and equipment is stated at cost less accumulated depreciation. Historical cost includes

expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that the future economic benefits associated with the item will

flow to the Bank and cost of the item can be measured reliably. All other repairs and maintenance are

charged to income statement during the financial year in which they are incurred.

Land and work-in-progress are not depreciated. Depreciation of other property and equipment is

charged to the income statement on a declining balance method, except for buildings which are

depreciated on a straight-line basis over the estimated useful lives of the individual assets at the

following rates:

Buildings 5%

Furniture and fittings 25%

Computers and office equipment 25 - 50%

Motor vehicles 25%

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s

carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds within the carrying amount

and are recognised in the income statement.

2.11 Intangible assetsAcquired computer software licenses are capitalised on the basis of the costs incurred to acquire and

bring to use the specific software. These costs are amortised on declining balance method at a rate of

50% per annum.

2.12 Impairment of non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for

impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable. Impairment loss is recognised for the amount by which the asset’s carrying amount

exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs

to sell and value in use.

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2. Summary of Significant Accounting Policies (continued)2.12 Impairment of non-financial assets (continued)Any impairment loss is charged to income statement in the period in which it arises. Reversal of

impairment losses is recognised in the income statement to the extent that the asset’s carrying amount

does not exceed the carrying amount that would have been determined, net of depreciation and

amortisation, had no impairment loss been recognised.

2.13 LeasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lesser

are classified as operating leases. Payments made under operating leases are charged to the income

statement on a straight-line basis over the period of the lease.

2.14 ProvisionProvisions are recognised when the Bank has a present legal or constructive obligation as a result of

past events; it is probable that an outflow of resources will be required to settle the obligation; and

the amount has been reliably estimated.

When there are a number of similar obligations, the likelihood that an outflow will be required in

settlement is determined by considering the class of obligations as a whole. A provision is recognised

even if the likelihood of an outflow with respect to any one item included in the same class of obligations

may be small.

2.15 Deferred and current income taxThe current income tax charge is calculated on the basis of the tax laws enacted or substantively

enacted at the balance sheet date in Cambodia where the Bank operates and generates taxable income.

Deferred income tax will be provided in full, using the liability method, on temporary differences arising

between tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be

available against which the temporary differences can be utilised.

3. Critical Accounting Estimates and JudgementsThe Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities.

Estimates and judgements are continually evaluated and based on historical experience and other

factors, including expectations of future events that are believed to be reasonable under the

circumstances.

a) Impairment losses on loans and advancesThe Bank follows the mandatory assets classification and provisioning as required by Prakas No. B7-

09-074 dated 25 February 2009 on asset classification and provisioning in the banking and financial

institutions issued by the Central Bank. The Central Bank requires commercial banks to classify their

loans, advances and similar assets into five classes and the minimum mandatory level of provisioning is

provided, depending on the classification concerned and regardless of the assets pledged as collateral.

For the purpose of loan classification, the Bank takes into account all relevant factors which may affect

the counterparties’ repayment abilities.

b) Income taxTaxes are calculated on the basis of current interpretation of the tax regulations. However, these

regulations are subject to periodic variation and the ultimate determination of tax expenses will be

made following inspection by the tax authorities.

Where the final tax outcome of these matters is different from the amounts that were initially recorded,

such differences will have an impact on the Income Tax and deferred tax provisions in the period in

which such determination is made.

4. Balances with the Central Bank

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited

Fixed deposits 8,700,000 34,756,500 10,000,000 40,390,000Reserve requirement 23,175,217 92,584,992 17,923,795 72,394,208Capital guarantee 3,750,000 14,981,250 3,750,000 15,146,250Current accounts 4,983,207 19,907,912 9,526,030 38,475,635Settlement accounts 5,351,394 21,378,819 - - 45,959,818 183,609,473 41,199,825 166,406,093

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4. Balances with the Central Bank (continued)a) Reserve requirementThe reserve requirement represents the minimum reserve which is calculated at 8% and 12.50% of

customers’ deposits in Khmer Riel (“KHR”) and other currencies respectively (2011: 8% for KHR and

12% for other currencies). The 4.5% reserve requirement on customers’ deposits in currencies other

than KHR earns interest at 1/2 of one month SIBOR while the remaining 8% of the reserve requirement

on customers’ deposits in other currencies and KHR bears no interest.

b) Capital guaranteeUnder Prakas No. B7-01-136 on Bank’s Capital Guarantee dated 15 October 2001, banks are required

to maintain a statutory deposit of 10% of paid-up capital. This deposit is refundable should the Bank

voluntarily cease its operations in Cambodia and it is not available for use in the Bank’s day-to-day

operations. The capital guarantee earns interest at 1/4 of six-month SIBOR.

c) Interest ratesThe current accounts are non-interest bearing. The other deposits earn interest during the year ended

31 December 2012 at the following annual rates:

2012 2011

Fixed deposits 0.10% - 0.38% 0.10% - 0.21%

Reserve requirement 0.10% - 0.14% 0.11% - 0.20%

Capital guarantee 0.18% - 0.20% 0.11% - 0.20%

5. Balances with Other Banksa) By residency status:


Balances with local banks: Canadia Bank Plc 7,808,046 31,193,144 7,348,463 29,680,442 BIDC 8,271,583 33,044,974 5,064,093 20,453,872 Sacombank 3,104,137 12,401,027 3,030,702 12,241,005 ACLEDA Bank Plc 5,036,359 20,120,254 3,004,745 12,136,166 24,220,125 96,759,399 18,448,003 74,511,485

Balances with overseas banks: HSBC Bank 9,718,992 38,827,373 2,180,239 8,805,985 Wells Fargo Bank 7,437,182 29,711,542 2,065,109 8,340,975 BIDV Bank 1,709,609 6,829,888 1,208,469 4,881,006 United Overseas Bank 1,727,620 6,901,842 1,021,221 4,124,712 Vietcom Bank 766,096 3,060,554 305,188 1,232,654 Thanachart Bank 82,577 329,895 - - Commerzbank AG 16,549 66,113 - - UniCredit Bank, AG 6,692 26,735 22,800 92,089 21,465,317 85,753,942 6,803,026 27,477,421 45,685,442 182,513,341 25,251,029 101,988,906

b) By account types

Current accounts are not interest bearing. Saving accounts earn interest at rates ranging from 0.01% to 0.32% per annum (2011: from 0.01% to 0.32%) and fixed deposits earn interest at rates ranging from 1.50% to 2.75% (2011: from 1.30% to 2.75%) per annum.


Balances with local banks:

Current accounts 598,018 2,389,082 4,745 19,165 Fixed deposits 23,622,107 94,370,317 18,443,258 74,492,319

Balances with overseas banks:

Current accounts 15,456,232 61,747,647 6,797,908 27,456,750 Fixed deposits 6,009,085 24,006,295 5,118 20,672

45,685,442 182,513,341 25,251,029 101,988,906

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6. Loans and Advances to Customers

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Term loans 57,756,281 230,736,343 46,795,973 189,008,935Overdrafts 42,292,042 168,956,708 34,924,037 141,058,185Trust receipts 1,598,741 6,386,970 2,152,093 8,692,304Credit Cards 695,693 2,779,294 623,299 2,517,505Staff loans 584,151 2,333,683 283,091 1,143,404 102,926,908 411,192,998 84,778,493 342,420,333 Provision for loan losses: Specific (55,719) (222,597) (57,853) (233,668) General (1,000,500) (3,996,998) (826,494) (3,338,209) (1,056,219) (4,219,595) (884,347) (3,571,877) Net loans and advances to customers 101,870,689 406,973,403 83,894,146 338,848,456

a) Provision for loan lossesMovements of provision for loan losses are as follows:

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited At beginning of the year 884,347 3,571,877 2,116,300 8,577,364Charge/(recovery) during the year 171,872 686,629 (695,558) (2,809,359)Loan written off during the year - - (536,395) (2,166,499)Exchange difference - (38,911) - (29,629) At end of the year 1,056,219 4,219,595 884,347 3,571,877

b) By classification


Standard loans Secured 100,133,238 400,032,286 81,953,687 331,010,942 Unsecured 932,181 3,724,063 898,953 3,630,871

Special mention loans Secured 1,858,642 7,425,275 1,925,853 7,778,520 Unsecured 2,847 11,374 - -

Substandard loans – Secured - - - -Doubtful loans – Secured - - - - 102,926,908 411,192,998 84,778,493 342,420,333

c) By industry

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Wholesale and retail 10,554,617 42,165,695 12,833,303 51,833,711 Services 35,932,432 143,550,066 25,203,000 101,794,917 Construction 16,595,714 66,299,878 13,662,581 55,183,165 Imports/exports 17,987,915 71,861,721 14,493,645 58,539,832 Manufacturing 12,515,395 49,999,003 10,707,558 43,247,826 Housing 5,996,193 23,954,791 3,424,831 13,832,892 Agriculture 1,348,752 5,388,264 3,353,361 13,544,225 Staff loan 262,342 1,048,056 283,091 1,143,405 Others 1,733,548 6,925,524 817,123 3,300,360 102,926,908 411,192,998 84,778,493 342,420,333

5756




d) By exposure

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Large exposure 16,099,944 64,319,277 8,983,670 36,285,043Non-large exposure 86,826,964 346,873,721 75,794,823 306,135,290 102,926,908 411,192,998 84,778,493 342,420,333

Large exposure is defined by the Central Bank as overall credit exposure to any individual beneficiary

which exceeds 10% of the Bank’s net worth.

e) By maturity

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Not later than 1 year 47,036,280 187,909,939 38,436,028 155,243,117Later than 1 year and no later than 3 years 5,855,478 23,392,635 2,797,944 11,300,896Later than 3 years and no later than 5 year 10,080,645 40,272,177 14,430,483 58,284,721Later than 5 years 39,954,505 159,618,247 29,114,038 117,591,599 102,926,908 411,192,998 84,778,493 342,420,333

f) Interest rates

2012 2011Term loans 8.00% - 14.40% 7.50% - 14.40%Overdrafts 7.50% - 14.40% 7.50% - 14.40%Trust receipts 8.00% 8.50% - 9.00%Staff loans 3.50% - 5.00% 3.00%

7. Properties ForeclosedThe properties foreclosed are assets obtained by taking possession of collateral held as security for

loans which are in default. These assets are not held for operational purposes and will be disposed of

in order to recover the outstanding amount within the maximum allowable period of twelve months

as per the guidelines issued by the Central Bank.

8. Other Assets

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Prepayments and deposits 333,879 1,333,847 429,593 1,735,126Interest receivables 336,106 1,342,743 245,162 990,209Others 92,635 370,077 26,783 108,177 762,620 3,046,667 701,538 2,833,512

5958


6. Loans and Advances to Customers (continued)



9. Property and Equipment Computer

Furniture and Office Motor Work in

Land Buildings and fittings equipment vehicles progress Total

US$ US$ US$ US$ US$ US$ US$

Year ended 31 December 2011 Opening net book value 4,234,289 2,040,167 282,781 769,919 296,718 7,594 7,631,468Additions - 275,452 76,433 169,142 1,190 - 522,217Transfers - 720 - 6,329 - (7,049) -Depreciation charge (Note 21) - (120,324) (70,182) (241,617) (65,809) - (497,932)

Closing net book value 4,234,289 2,196,015 289,032 703,773 232,099 545 7,655,753 As at 31 December 2011 Cost 4,234,289 2,674,777 637,773 1,885,377 642,763 545 10,075,524Accumulated depreciation - (478,762) (348,741) (1,181,604) (410,664) - (2,419,771) Net book value 4,234,289 2,196,015 289,032 703,773 232,099 545 7,655,753 In KHR’ 000 equivalent (Unaudited) 17,102,293 8,869,705 1,167,400 2,842,539 937,448 2,201 30,921,586

Year ended 31 December 2012 Opening net book value 4,234,289 2,196,015 289,032 703,773 232,099 545 7,655,753Additions - 9,875 96,239 109,030 19,700 229,834 464,678Disposals (net) - - - - - (545) (545)Depreciation charge (Note 21) - (140,160) (76,068) (215,459) (55,659) - (487,346)

Closing net book value 4,234,289 2,065,730 309,203 597,344 196,140 229,834 7,632,540 As at 31 December 2012 Cost 4,234,289 2,684,652 734,012 1,994,407 662,463 229,834 10,539,657Accumulated depreciation - (618,922) (424,809) (1,397,063) (466,323) - (2,907,117) Net book value 4,234,289 2,065,730 309,203 597,344 196,140 229,834 7,632,540 In KHR’ 000 equivalent (Unaudited) 16,915,985 8,252,591 1,235,266 2,386,389 783,579 918,187 30,491,997

10. Computer Software

Computer software Work in licenses progress Total US$ US$ US$ For the year ended 31 December 2011 Opening net book value 137,497 - 137,497Additions 379,586 - 379,586Disposals - - -Amortisation charge (Note 21) (145,517) - (145,517)Closing net book value 371,566 - 371,566 As at 31 December 2011 Cost 1,015,436 - 1,015,436Accumulated amortisation (643,870) - (643,870) Net book value 371,566 - 371,566 In KHR’ 000 equivalent (Unaudited) 1,500,755 - 1,500,755 For the year ended 31 December 2012 Opening net book value 371,566 - 371,566Additions 20,321 749,672 769,993Amortisation charge (Note 21) (151,981) - (151,981)Closing net book value 239,906 749,672 989,578 As at 31 December 2012 Cost 1,035,757 749,672 1,785,429Accumulated amortisation (795,851) - (795,851) Net book value 239,906 749,672 989,578 In KHR’ 000 equivalent (Unaudited) 958,424 2,994,940 3,953,364

Work in progress represents a new core banking system (Oracle Flexcube) being tested and not yet

ready for use during the year.

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11. Due to Other Banks

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Current accounts 54,023 215,822 109,018 440,324 54,023 215,822 109,018 440,324

12. Deposits from Customers

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Current accounts 42,603,604 170,201,398 37,094,123 149,823,163Savings deposits 37,834,752 151,149,834 29,061,573 117,379,693Fixed deposits 99,861,476 398,946,597 76,390,107 308,539,642Margin deposits 407,358 1,627,395 220,554 890,818 180,707,190 721,925,224 142,766,357 576,633,316

a) Margin depositsMargin deposits represent the aggregate balance of required non-interest bearing cash deposits from

customers for letters of credit and guarantee (Note 26).

b) Interest ratesThe margin deposits are non-interest bearing. The current, saving, and fixed deposits bear the following

interest rates per annum:

2012 2011 Current deposits 0.00%-0.50% 0.00%-0.50%Saving deposits 0.00%-0.50% 0.50%-1.00%Fixed deposits 1.50%-5.00% 1.50%-5.00%

13. Other Liabilities

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Interest payable 1,138,780 4,549,426 916,714 3,702,608Accrued bonuses 194,204 775,845 126,687 511,689Others 152,016 607,304 220,779 891,726 1,485,000 5,932,575 1,264,180 5,106,023

14. Provision for Income Tax

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Beginning balance 677,149 2,735,005 421,760 1,709,393Current income tax expense during the year (Note 23) 934,974 3,735,221 771,418 3,115,757Income tax payments during the year (790,982) (3,159,973) (516,029) (2,084,241)Currency translation difference - (29,794) - (5,904) Ending balance 821,141 3,280,459 677,149 2,735,005

15. Deferred Tax Liabilities

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Deferred tax liabilities 110,547 441,635 119,828 483,985

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17. Net Interest Income

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited UnauditedInterest income: Loans and advances to customers 8,865,639 35,418,227 7,668,791 30,974,248 The Central Bank 33,214 132,690 56,653 228,821 Other banks 516,711 2,064,261 246,803 996,837 9,415,564 37,615,178 7,972,247 32,199,906

Interest expense: Current deposits 90,187 360,297 62,540 252,599 Savings deposits 171,575 685,442 159,646 644,810 Fixed deposits 2,817,709 11,256,748 2,731,205 11,031,337 3,079,471 12,302,487 2,953,391 11,928,746 Net interest income 6,336,093 25,312,691 5,018,856 20,271,160

The movements in deferred tax liabilities during the year are as follows:

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited As at 1 January 119,828 483,985 99,425 402,970 Charged to income statement (9,281) (37,078) 20,403 82,408 Currency translation difference - (5,272) - (1,393) As at 31 December 110,547 441,635 119,828 483,985

The deferred tax liabilities are attributable to the accelerate tax depreciation and to be recoverable

more than twelve months.

16. Share Capital

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Issued and fully paid 37,500,000 149,812,500 37,500,000 151,462,500

Number of share issued 375,000 375,000

The total authorised amount of share capital as at 31 December 2012 was 375,000 shares (31 December

2011: 375,000 shares) with a par value of US$ 100 per share. All shares are fully paid.

18. Net Fee and Commission Income

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited UnauditedFee and commission income: Fund transfer fees 861,021 3,439,779 962,141 3,886,088 Loan processing fees 744,650 2,974,877 821,859 3,319,489 Trade finance 426,107 1,702,297 445,022 1,797,444 ATM fees 32,634 130,373 27,156 109,683 Others fees and commissions 352,645 1,408,817 153,946 621,787 2,417,057 9,656,143 2,410,124 9,734,491 Fee and commission expenses 119,936 479,144 237,748 960,264 Net fee and commission income 2,297,121 9,176,999 2,172,376 8,774,227

15. Deferred Tax Liabilities (continued)

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19. Other Operating Income

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Recoveries from written-off loan 484,977 1,937,483 - -Net gain on foreign exchange 53,522 213,820 21,781 87,973Other incomes 12,843 51,308 13,688 55,286 551,342 2,202,611 35,469 143,259

20. Personnel ExpensesThe personnel expenses consist of the salaries and wages, bonus, incentive and other short term

benefits. Included an amount of US$540,396 (2011: US$596,095) is representing the directors’ fee and

remuneration.

21. Depreciation and Amortisation

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Depreciation of property and equipment (Note 9) 487,346 1,946,947 497,932 2,011,148Amortisation of computer software (Note 10) 151,981 607,164 145,517 587,743 639,327 2,554,111 643,449 2,598,891

22. Administrative and Operating Expenses

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Rental and utilities 375,791 1,501,285 338,026 1,365,287Repairs and maintenance 267,402 1,068,271 238,873 964,807IT and communication 298,064 1,190,766 256,674 1,036,706Marketing and advertising 114,100 455,829 68,046 274,838Office supplies 75,212 300,472 72,646 293,417Bank license fees 60,484 241,634 55,976 226,087Traveling expenses 43,384 173,319 35,272 142,464Insurance 52,309 208,974 63,926 258,197Other operating expenses 134,895 538,906 127,015 513,015

1,421,641 5,679,456 1,256,454 5,074,818

23. Income Tax Expense

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Current income tax 934,974 3,735,221 771,418 3,115,757Deferred tax liabilities (Note 15) (9,281) (37,078) 20,403 82,408 925,693 3,698,143 791,821 3,198,165

6766




a) Reconciliation between income tax expense and accounting profit

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Accounting profit before income tax 4,628,465 18,490,717 3,959,106 15,990,829 Tax expense at 20% 925,693 3,698,143 791,821 3,198,165Tax effect of reconciling items: Temporary differences 9,281 37,078 (20,403) (82,408) 934,974 3,735,221 771,418 3,115,757

In accordance with the Law on Taxation, the Bank has an obligation to pay corporate income tax of

either tax on profit at the rate of 20% on taxable profit or minimum tax at 1% of turnover, whichever

is higher.

23. Income Tax Expense (continued)

b) Other tax mattersThe Bank’s tax returns are subject to periodic examination by the General Department of Taxation. As

the application of tax laws and regulations to many types of transactions are susceptible to varying

interpretations, amounts reported in the financial statements could be changed at a later date, upon

final determination by the General Department of Taxation.

During the year, the General Department of Taxation has conducted final tax audit of the Bank for

the financial tax year from 2002 to 2010 and the Bank has already cleared and settled those tax

reassessments to the General Department of Taxation.

24. Net Cash Flow from Operating Activities

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Profit before income tax 4,628,465 18,490,717 3,959,106 15,990,829Adjustments for: Depreciation and amortisation (Note 21) 639,327 2,554,111 643,449 2,598,891Provision for/recovery of loan losses (Note 6 (a) 171,872 686,629 (695,558) (2,809,359)Net interest income (Note 17) (6,336,093) (25,312,691) (5,018,856) (20,271,160)Loss on disposals of properties and equipment (note 9) 545 2,177 - -Change in working capitals (895,884) (3,579,057) (1,111,859) (4,490,799)

Balances with other banks (3,025,069) (12,085,151) 2,100,000 8,481,900Loans and advances to customers (17,357,050) (69,341,415) (34,173,171) (138,025,438)Other assets 29,862 119,299 221,882 896,181Due to other banks (54,995) (219,705) 79,248 320,083Deposits from customers 37,940,833 151,573,628 (17,519,950) (70,763,078)Other liabilities (1,246) (4,978) 142,308 574,782Interest received 9,324,620 37,251,857 7,891,259 31,872,795Interest paid (2,857,405) (11,415,333) (4,663,424) (18,835,570)Income tax paid (Note 14) (790,982) (3,159,973) (516,029) (2,084,241)

Net cash generated from/(used in) operating activities 22,312,684 89,139,172 (47,549,736) (192,053,385)

6968



Vattanac BankAnnual Report 2012 Your Personal BankYour Personal Bank 7170

25. Cash and Cash EquivalentsFor the purpose of statement of cash flows, the cash and cash equivalents comprise:

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Cash on hand 23,133,899 92,419,926 24,225,223 97,845,676

Balances with the Central Bank: Current accounts 4,983,207 19,907,912 9,526,030 38,475,635 Settlement accounts 5,351,394 21,378,819 - - Fixed deposits, less than three months maturity 8,700,000 34,756,500 10,000,000 40,390,000 Balances with other banks Current accounts 16,054,250 64,136,729 6,802,653 27,475,915 Fixed deposits, less than three months maturity 26,606,123 106,291,460 18,448,376 74,512,991 84,828,873 338,891,346 69,002,282 278,700,217

26. Commitments and Contingent Liabilitiesa) Loan commitments, guarantees and other financial liabilitiesThe Bank had the contractual amounts of the Bank’s off-balance sheet financial instruments that

commit it to extend credit to customers, guarantees and other facilities as follows:

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Unused overdrafts 10,366,259 41,413,205 9,073,089 36,646,206Letters of credit 4,676,340 18,681,978 15,320,037 61,877,629Bank guarantees and others 4,469,405 17,855,273 7,394,760 29,867,436Bills/LC acceptance 6,981,250 27,890,094 4,016,787 16,223,803 26,493,254 105,840,550 35,804,673 144,615,074

No material losses are anticipated as a result of these transactions.

b) Operating lease commitments – The Bank as lesseeThe Bank leases some office buildings under non-cancellable operating lease agreements. The majority

of lease agreements are from shareholders/directors and renewable at the end of the lease term.

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Not later than 1 year 126,000 503,370 126,500 510,934 Later than 1 year and no later than 5 years 413,000 1,649,935 200,000 807,800 539,000 2,153,305 326,500 1,318,734

c) Capital commitments The Bank had capital commitments in respect of new core banking system (Oracle Flexcube).

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Not later than 1 year 220,400 880,498 - -Later than 1 year and no later than 5 years - - - -

220,400 880,498 - -




c) Fee and commission income with related parties

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Shareholders/Directors 199,899 798,597 313,576 1,266,533 Related companies 5,125 20,474 107,721 435,085 205,024 819,071 421,297 1,701,618

d) Key management compensation of shareholders/directors

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Directors’ fees and remuneration 540,396 2,158,882 596,095 2,407,628 Rental of land and buildings toshareholders/directors 132,500 529,338 130,000 525,070 672,896 2,688,220 726,095 2,932,698

27. Related Party TransactionsThe volumes of related party transactions, outstanding balances at year end, and related expenses and

income for the year are as follows:

a) Deposits from related parties

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Shareholders/Directors 3,685,631 14,724,096 3,641,544 14,708,196Related companies 3,340,225 13,344,199 6,366,461 25,714,136 7,025,856 28,068,295 10,008,005 40,422,332

The deposits from shareholders/directors and related companies bear interest rate ranging from 0.50% to 4%

per annum (2011: 0.50% to 4%).

b) Interest expense on deposits with related parties

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Shareholders/Directors 3,974 15,876 6,648 26,851 Related companies 48,765 194,816 66,587 268,945 52,739 210,692 73,235 295,796




28. Financial Risk ManagementThe Bank’s activities expose it to a variety of financial risks: credit risk, market risk (including currency

risk, interest rate risk and price risk), and liquidity risk. Taking risk is core to the financial business, and

the operational risks are an inevitable consequence of being in business.

The Bank does not use derivative financial instruments such as foreign exchange contract and interest

rate swaps to manage its risk exposures.

The Bank holds the following financial assets and liabilities:

31 December 2012 31 December 2011 US$ KHR’ 000 US$ KHR’ 000 Unaudited Unaudited Financial assetsCash on hand 23,133,899 92,419,926 24,225,223 97,845,676 Balances with the Central Bank 45,959,818 183,609,473 41,199,825 166,406,093 Balances with other banks 45,685,442 182,513,341 25,251,029 101,988,906 Loans and advances to customers* 102,926,908 411,192,998 84,778,493 342,420,333 Other assets 342,483 1,368,219 247,089 997,992

Total financial assets 218,048,550 871,103,957 175,701,659 709,659,000 Financial liabilities Due to other banks 54,023 215,822 109,018 440,324 Deposits from customers 180,707,190 721,925,224 142,766,357 576,633,316 Other liabilities 1,332,984 5,325,271 1,043,401 4,214,297

Total financial liabilities 182,094,197 727,466,317 143,918,776 581,287,937 Net financial assets 35,954,353 143,637,640 31,782,883 128,371,063

*Excludes provision for loan losses.

28.1. Credit riskThe Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss

to the Bank by failing to discharge an obligation. Credit risk is the most important risk for the Bank’s

business. Credit exposures arise principally in lending activities that lead to loans and advances. There

is also credit risk in off-balance sheet financial instruments, such as loan commitments.

a) Credit risk measurementThe Bank has established the Core Credit Risk Policy which is designed to govern the Bank’s risk

undertaking activities. Extension of credit is governed by credit programs that set out the plan for a

particular product or portfolio, including the target market, terms and conditions, documentation and

procedures under which a credit product will be offered and measured.

Risk ratings are reviewed and updated on an annual basis, and in event of (i) change of loan terms

and conditions including extension; (ii) repayment irregularities or delinquencies and (iii) adverse

information relating to the borrower or transaction.

b) Risk limit control and mitigation policiesThe Bank operates and provides loans and advances to individuals or enterprises within the Kingdom

of Cambodia. The Bank manages limits and controls concentration of credit risk whenever they are

identified. Large exposure is defined by the Central Bank as overall credit exposure to any individual

beneficiary which exceeds 10% of the Bank’s net worth.

The Bank is required, under the conditions of Prakas No. B7-06-226 of the Central Bank, to maintain

at all times a maximum ratio of 20% between the Bank’s overall credit exposure to any individual

beneficiary and the Bank’s net worth. The aggregation of large credit exposure must not exceed 300%

of the Bank’s net worth.

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of

these is the taking of security in the form of collateral for loans and advances to customers, which is

common practice. The Bank implements guidelines on the acceptability of specific classes of collateral

or credit risk mitigation. The principal collateral types to secure for loans and advances to customers are:

• Mortgages over residential properties (land, buildings and other properties);

• Charges over business assets such as land and buildings; and

• Cash in the form of margin deposits.




d) Maximum exposure to credit risk before collateral held or other credit enhancements


Credit risks exposures relating to on-balance sheet assets:Balances with other banks 45,685,442 182,513,341 25,251,029 101,988,906 Loans and advances to customers* 102,926,908 411,192,998 84,778,493 342,420,333 Other assets 342,483 1,368,219 247,089 997,992 Credit risk exposures relating to off-balance sheet items: Unused portion of overdrafts 10,366,259 41,413,205 9,073,089 36,646,206 Guarantees, acceptancesand other financial facilities 16,126,995 64,427,345 26,731,584 107,968,868 At 31 December 175,448,087 700,915,108 146,081,284 590,022,305


28. Financial Risk Management (continued) 28.1. Credit risk (continued)c) Impairment and provisioning policiesThe Bank is required to follow the mandatory credit classification and provisioning in accordance with

the relevant Prakas, as stated in Note 2.6.

Loans and advances less than 90 days past due are not considered impaired, unless other information

available indicates otherwise.

Management is confident in its ability to continue to control and sustain minimal exposure of credit

risk to the Bank resulting from its loans and advances on the followings:

• Approximately 99% of the loans and advances of the Bank are collaterised. Loans and advances

granted by the Bank are at approximately 20% to 70% of the collateral value.

• The Bank has a proper credit evaluation process in place for granting of loans and advances

to customers.

e) Loans and advances

Loans and advances are summarised as follows:


Loans and advances: Neither past due nor impaired 101,065,419 403,756,349 82,852,640 334,641,813 Past due but not impaired 1,861,489 7,436,649 1,925,853 7,778,520 Individually impaired - - - -

Gross 102,926,908 411,192,998 84,778,493 342,420,333 Less: Provision for loan losses (1,056,219) (4,219,595) (884,347) (3,571,877) Net loans and advances 101,870,689 406,973,403 83,894,146 338,848,456

The total provision for loan losses is US$1,056,219 (2011: US$884,347) which represents specific

provision and 1% general provision for all outstanding loans and advances.

i. Loans and advances neither past due nor impairedLoans and advances not past due are not considered impaired, unless other information is available

to indicate the contrary.The above table represents a worse case scenario of credit risk exposure to the Bank at 31 December

2012 and 2011, without taking account of any collateral held or other credit enhancement attached.

For on-balance sheet assets, the exposures set out above are based on net carrying amounts.

As shown above, 58.67% of total maximum exposure is derived from loans and advances to customers

(2011: 58.04%).



Vattanac BankAnnual Report 2012 Your Personal BankYour Personal Bank78

28. Financial Risk Management (continued)28.1. Credit risk (continued)e) Loans and advances

ii. Loans and advances past due but not impairedLoans and advances less than 90 days past due are not considered impaired unless other information

is available to indicate the contrary. The gross amount of loans and advances by class to customers

that were past due but not impaired are as follows:


Past due up to 30 days 1,861,489 7,436,649 1,925,853 7,778,520Past due 30-60 days - - - -Past due 60-90 days - - - - 1,861,489 7,436,649 1,925,853 7,778,520

iii. Loans and advances individually impairedIn accordance with Prakas No. B7-09-074 dated 25 February 2009 on the classification and provisioning

for loan losses, loans and advances past due more than 90 days are considered impaired and a minimum

level of specific provision for impairment is made depending on the classification concerned, unless

other information is available to indicate the contrary.

There were no loans and advance individually impaired as at 31 December 2012 and 2011.

iv. Loans and advances renegotiated Restructuring activities include extended payment arrangements, modification and deferral of

payments. Following restructuring, the loan is still kept in its current classification unless there is

strong evidence of improvement in the customer’s financial condition.

There were no restructured loans and advance during the year 2012 and 2011.

f) Repossessed collateralRepossessed properties have to be sold within one year as required by the Central Bank. Repossessed

property is classified in the balance sheet as foreclosed properties, if any.

During the year, the Bank has obtained assets by taking possession of collateral held as security of

US$4,147,042 (31 December 2011: US$4,938,407)

g) Concentration of financial assets with credit risk exposurei. Geographical sector

The following table breaks down the Bank’s main credit exposure at their carrying amount, as

categorised by geographical region as at 31 December 2012. For this table, the Bank has allocated

exposure to countries based on the country of domicile of its counterparties.

Cambodia Singapore England Germany USA Vietnam Thailand Total US$ US$ US$ US$ US$ US$ US$ US$

31 December 2012 Balances with other banks 24,220,125 1,727,620 27,038 23,241 17,129,136 2,475,705 82,577 45,685,442Loans and advances to customers * 102,926,908 - - - - - - 102,926,908Other assets 342,483 - - - - - - 342,483 As at 31 December 2012 127,489,516 1,727,620 27,038 23,241 17,129,136 2,475,705 82,577 148,954,833

In KHR’000 equivalents (Unaudited) 509,320,616 6,901,842 108,017 92,848 68,430,898 9,890,442 329,895 595,074,558

31 December 2011 Balances with other banks 18,448,003 1,021,221 8,193 22,800 4,237,155 1,513,657 - 25,251,029 Loans and advances to customers * 84,778,493 - - - - - - 84,778,493 Other assets 247,089 - - - - - - 247,089 As at 31 December 2011 103,473,585 1,021,221 8,193 22,800 4,237,155 1,513,657 - 110,276,611

In KHR’000 equivalents (Unaudited) 417,929,810 4,124,712 33,092 92,089 17,113,869 6,113,660 - 445,407,232



79



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28.2 Market riskThe Bank takes on exposure to market risk, which is the risk that the fair value or future cash flows

of a financial instrument will fluctuate because of changes in market prices. Market risk arises from

open positions in interest rates, currency and equity products, all of which are exposed to general

and specific market movements and changes in the level of volatility of market rates or prices such as

interest rates, credit spreads, foreign exchange rates and equity prices.

As of 31 December 2012, the Bank did not have financial instruments carried at fair value. The Bank

does not use derivative financial instruments such as foreign exchange contract and interest rate

swaps to hold its risk exposures.

a) Foreign exchange risk

The Bank operates in Cambodia and transacts in many currencies, and is exposed to various currencies,

primarily with respect to Khmer Riel, Euro, Singapore Dollar and Thai Baht.

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities

denominated in a currency that is not the Bank’s functional currency.

The management monitors their foreign exchange risk against functional currencies. However the

Bank does not hedge their foreign exchange risk exposure arising from future commercial transactions

and recognised assets and liabilities using forward contract.

The table below summarises the Bank’s exposure to foreign currency exchange rate risk at 31 December

2012 and 2011. Included in the table are the Bank’s financial instruments at carrying amount by

currency in US$ equivalent.


8180



US$ KHR Euro SGD THB TotalAs at 31 December 2012 Assets Cash on hand 22,882,439 251,460 - - - 23,133,899Balances with the Central Bank 44,173,409 1,786,409 - - - 45,959,818Balances with other banks 44,970,594 588,996 50,279 52,996 22,577 45,685,442Loans and advances to customers* 102,926,908 - - - - 102,926,908Other assets 342,483 - - - - 342,483

Total financial assets 215,295,833 2,626,865 50,279 52,996 22,577 218,048,550 Liabilities Due to other banks 54,023 - - - - 54,023Deposits from customers 178,743,643 1,963,547 - - - 180,707,190Other liabilities 1,323,545 9,439 - - - 1,332,984

Total financial liabilities 180,121,211 1,972,986 - - - 182,094,197 Net on-balance sheet position 35,174,622 653,879 50,279 52,996 22,577 35,954,353

In KHR’000 equivalent (unaudited) 140,522,615 2,612,247 200,865 211,718 90,195 143,637,640 Credit commitment 26,493,254 - - - - 26,493,254


28. Financial Risk Management (continued)28.2 Market risk (continued)a) Foreign exchange risk (continued)

US$ KHR Euro SGD TotalAs at 31 December 2011 Assets Cash on hand 24,114,382 110,841 - - 24,225,223 Balances with the Central Bank 39,757,918 1,441,907 - - 41,199,825 Balances with other banks 25,208,291 4,745 30,993 7,000 25,251,029 Loans and advances to customers* 84,778,493 - - - 84,778,493 Other assets 247,089 - - - 247,089

Total financial assets 174,106,173 1,557,493 30,993 7,000 175,701,659 Liabilities Due to other banks 109,018 - - - 109,018 Deposits from customers 140,996,860 1,769,497 - - 142,766,357 Other liabilities 1,040,212 3,189 1,043,401

Total financial liabilities 142,146,090 1,772,686 - - 143,918,776 Net on-balance sheet position 31,960,083 (215,193) 30,993 7,000 31,782,883

In KHR’000 equivalent (unaudited) 129,086,775 (869,165) 125,181 28,273 128,371,064 Credit commitment 35,804,673 - - - 35,804,673


b) Price riskThe Bank is not exposed to securities price risk because it does not hold any investment held and

classified on the balance sheet either as available for sale or at fair value through profit or loss.

c) Interest rate riskCash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate

because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a

financial instrument will fluctuate because of changes in the market interest rates. Interest margins

may increase as a result of changes but may reduce losses in the event that unexpected movements

arise. The management at this stage does not have a policy to set limits on the level of mismatch of

interest rate repricing that may be undertaken. However, the management regularly monitors the

mismatch.

The table below summarises the Bank’s exposure to interest rate risks. It includes the Bank’s financial

instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.


8382



28. Financial Risk Management (continued)28.2 Market risk (continued)c) Interest rate risk (continued)

Up to 1 to 3 3 to 12 1 to 5 Over Non interest 1 month months months years 5 years bearing Total US$ US$ US$ US$ US$ US$ US$At 31 December 2012 ASSETS Cash on hand - - - - - 23,133,899 23,133,899Balances with the Central Bank 7,200,000 1,500,000 - - 12,030,000 25,229,818 45,959,818Balances with other banks 25,633,639 16,375,721 3,025,068 - - 651,014 45,685,442Loans and advances to customers * 43,838,257 2,051,041 1,146,982 15,936,123 39,954,505 - 102,926,908Other assets - - - - - 342,483 342,483

Total financial assets 76,671,896 19,926,762 4,172,050 15,936,123 51,984,505 49,357,214 218,048,550 LIABILITIES Due to other banks - - - - - 54,023 54,023Deposits from customers 77,054,349 26,067,903 54,074,595 - - 23,510,343 180,707,190Other liabilities - - - - - 1,332,984 1,332,984

Total financial liabilities 77,054,349 26,067,903 54,074,595 - - 24,897,350 182,094,197 Total interest rate repricing gap (382,453) (6,141,141) (49,902,545) 15,936,123 51,984,505 24,459,864 35,954,353 In KHR’ 000 equivalent (unaudited) (1,527,900) (24,533,858) (199,360,667) 63,664,811 207,678,097 97,717,157 143,637,640

At 31 December 2011 ASSETS Cash on hand - - - - - 24,225,223 24,225,223 Balances with the Central Bank 8,500,000 1,500,000 - - 9,683,333 21,516,492 41,199,825 Balances with other banks 11,029,838 14,209,446 - - - 11,745 25,251,029 Loans and advances to customers * 5,087,468 12,421,036 20,927,525 17,228,426 29,114,038 - 84,778,493 Other assets 15,229 43,714 3,149 66,547 118,450 - 247,089

Total financial assets 24,632,535 28,174,196 20,930,674 17,294,973 38,915,821 45,753,460 175,701,659 LIABILITIES Due to other banks - - - - - 109,018 109,018 Deposits from customers 89,376,985 12,432,061 40,631,415 325,896 - - 142,766,357 Other liabilities 279,864 98,256 533,872 4,722 - 126,687 1,043,401

Total financial liabilities 89,656,849 12,530,317 41,165,287 330,618 - 235,705 143,918,776 Total interest rate repricing gap (65,024,314) 15,643,879 (20,234,613) 16,964,355 38,915,821 45,517,755 31,782,883 In KHR’ 000 equivalent (unaudited) (262,633,204) 63,185,627 (81,727,602) 68,519,030 157,181,002 183,846,211 128,371,064


28.3 Liquidity riskLiquidity risk is the risk that the Bank is unable to meet its payment obligation associated with its

financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence

may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

a) Liquidity risk management processThe management monitors balance sheet liquidity and manage the concentration and profile of debt

maturities. Monitoring and reporting take the form of daily cash position and project for the next day,

week and month respectively, as these are key periods for liquidity management. The management

monitors the movement of main depositors and projection of their withdrawals.

b) Funding approachThe Bank’s main sources of liquidities arise from shareholder’s paid-up capital and customers’ deposits.

The sources of liquidity are regularly reviewed daily through management’s review of maturity of term

deposits and key depositors.

c) Non-derivative cash flowsThe table below presents the cash flows payable the Bank under non-derivative financial liabilities and

assets held for managing liquidity risk by remaining contractual maturities at the balance sheet date.

The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Bank

manages the inherent liquidity risk based on expected undiscounted cash flows.


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Up to 1 to 3 3 to 12 1 to 5 Over

1 month months months years 5 years Total

US$ US$ US$ US$ US$ US$

At 31 December 2012

Liabilities

Due to other banks 54,023 - - - - 54,023

Deposits from customers 100,928,267 26,380,391 56,038,134 - - 183,346,792

Other liabilities 194,204 - - - - 194,204

Total financial liabilities

(contractual maturity dates) 101,176,494 26,380,391 56,038,134 - - 183,595,019

In KHR’ 000 equivalent (unaudited) 404,200,094 105,389,662 223,872,345 - - 733,462,101

Assets held for managing liquidity risk

(contractual maturity dates) 110,822,663 20,083,522 4,264,861 21,166,163 97,666,785 254,003,994

In KHR’ 000 equivalent (unaudited) 442,736,539 80,233,670 17,038,120 84,558,821 390,178,806 1,014,745,956

At 31 December 2011

Liabilities

Due to other banks 109,018 - - - - 109,018

Deposits from customers 89,713,935 12,597,302 41,241,595 1,228,512 - 144,781,344

Other liabilities 126,687 - - - - 126,687

Total financial liabilities

(contractual maturity dates) 89,949,640 12,597,302 41,241,595 1,228,512 - 145,017,049

In KHR’ 000 equivalent (unaudited) 363,306,596 50,880,503 166,574,802 4,961,960 - 585,723,861

Assets held for managing liquidity risk

(contractual maturity dates) 58,402,925 28,235,088 20,948,972 20,828,083 63,779,824 192,194,892

In KHR’ 000 equivalent (unaudited) 235,889,414 114,041,521 84,612,898 84,124,627 257,606,709 776,275,169


28. Financial Risk Management (continued)28.3 Liquidity risk (continued)c) Non-derivative cash flows (continued)

d) Off-balance sheet itemsi. Loan commitments

The dates of the contractual amounts of the Bank’s off-balance sheet financial instruments that

commit it to extent credit to customers and other facilities (Note 26), are summarised in table below:

No later Over than 1 year 1-5 years 5 years Total At 31 December 2012 Unused portion of approved credit facilities 10,366,259 - - 10,366,259Letters of credit 4,676,340 - - 4,676,340Bills receivable under letter of credit 6,981,250 - - 6,981,250Bank guarantees and others 1,402,074 2,766,468 - 4,168,542Bill of collection 300,863 - - 300,863Operating lease commitments 126,000 413,000 - 539,000Capital commitments 220,400 - - 220,400 Total 24,073,186 3,179,468 - 27,252,654 At 31 December 2011 Unused portion of approved credit facilities 9,073,089 - - 9,073,089Letters of credit 15,320,037 - - 15,320,037Bills receivable under letter of credit 4,016,787 - - 4,016,787Bank guarantees and others 4,284,882 3,109,878 - 7,394,760Operating lease commitments 126,500 200,000 - 326,500 Total 32,821,295 3,309,878 - 36,131,173

ii. Other financial facilities

Other financial facilities (Note 26), are also included above based on the earliest contractual date.

iii. Operating lease commitments

Where the Bank is the lessee, the future minimum lease payments under non-cancellable operating

leases, as disclosed in Note 26 (b), are summarised in Note 28.3.d.i.

iv. Capital commitments

Capital commitments for the acquisition of new core banking system (Oracle Flexcube) as disclosed in

Note 26 (c), are summarised in Note 28.3.d.i.


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28. Financial Risk Management (continued)28.4 Fair value of financial assets and liabilitiesa) Financial instruments measured at fair value The Bank did not have financial instruments measured at fair value.

b) Financial instruments not measured at fair value The table below summarises the carrying amounts and fair value of those financial assets and liabili-

ties not presented on the Bank’s balance sheet at their fair value.

Carrying value Fair value 2012 2011 2012 2011 US$ US$ US$ US$Financial assets Balances with other banks 45,685,442 25,251,029 45,685,442 25,251,029Loans and advances to customers 101,870,689 83,894,146 101,870,689 83,894,146Other assets 342,483 247,089 342,483 247,089

Financial liabilities Due to other banks 54,023 109,018 54,023 109,018Deposits from customers 180,707,190 142,766,357 180,707,190 142,766,357Other liabilities 1,332,984 1,043,401 1,332,984 1,043,401Off balance sheet financial instruments: Unused portion of approved credit facilities 10,366,259 9,073,089 10,366,259 9,073,089Letters of credit 4,676,340 15,320,037 4,676,340 15,320,037Bills/LC acceptance 6,981,250 4,016,787 6,981,250 4,016,787Bank guarantees and others 4,168,542 7,394,760 4,168,542 7,394,760Bill of collection 300,863 - 300,863 -

i. Balances with other banks

Balances with other banks include current accounts which are non-interest bearing and fixed deposits.

The fair value of balances with other banks approximates the carrying amount.

ii. Loans and advances to customers

Loans and advances are net of provision for loan losses. The provision of loan losses is made under the

requirements of Central Bank’s Prakas.


Tier 1 capital Share capital 37,500,000 149,812,500 37,500,000 151,462,500Retained earnings 9,503,727 37,967,389 5,800,955 23,430,057

47,003,727 187,779,889 43,300,955 174,892,557

Tier 2 complementary capital General provision (Prakas on Asset Classification) 1,000,500 3,996,998 826,494 3,338,209Less: Intangible assets (*) - - - - Net worth 48,004,227 191,776,887 44,127,449 178,230,766

(*) The Bank has work-in-progress for new core banking system (Oracle Flexcube) amounting to US$749,672 which classified as intangible assets of the Bank as at 31 December 2012.

iii. Due to customers and other banksThe fair value of deposits from customers and amount due to other banks approximates the carrying amount. The estimated fair value of deposits with no stated maturities, which includes non-interest bearing deposits, is the amount repayable on demand.

The Bank’s fixed interest bearing deposits are not quoted in active market and are short-term. Their fair value approximates the carrying amount.

iv. Other assets and other liabilitiesThe carrying amounts of other financial assets and liabilities are assumed to approximate their fair values as these items are not materially sensitive to the shift in market interest rates.

28.5 Capital managementThe Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheet, are:

• To comply with the capital requirement set by the Central Bank;• To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide return for shareholders and benefits for other stakeholders; and• To maintain a strong capital base to support the development of business.

The Central Bank requires all commercial banks to i) hold minimum capital requirement, ii) maintain the Bank’s net worth at least equal to minimum capital and iii) comply with solvency and liquidity ratios.

The table below summarises the composition of regulatory capital:


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Siem Reap BranchNo. 888, Sivatha Blvd.Siem Reap, CambodiaT (855) 063 767 333 F (855) 063 767 222

Head Office & Phnom PenhMain BranchNo. 89, Preah Norodom Blvd. Phnom Penh, CambodiaT (855) 023 212 727 F (855) 023 216 687SWIFT:[email protected]

Olympic BranchNo. 43, St. 286Sangkat OlympicKhan ChamkarmonPhnom PenhT (855) 023 217 683 F (855) 023 217 693

Steung Meanchey BranchNo. 88, Veng Sreng St. (in front of Vattanac Industrial Park)Sangkat Steung MeancheyKhan Meanchey, Phnom PenhT (855) 023 999 963 F (855) 023 999 953

Notes

90

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