annual report 2011 - procredit bank rep… · founded as internationale micro investitionen ag...

Annual Report 2011

Key Figures

* Some of the figures differ from those published in the 2010 Annual Report, due to changed calculation method

EUR ’000 Change 2011 2010*

Balance Sheet Data Total Assets Gross Loan Portfolio Business Loan Portfolio < EUR 10,000 > EUR 10,000 < EUR 30,000 > EUR 30,000 < EUR 150,000 > EUR 150,000 Agricultural Loan Portfolio Housing Improvement Loan Portfolio Other Loan Loss Provisions Net Loan Portfolio Customer Deposits Liabilities to Banks and Financial Institutions (excluding PCH) Total Equity

Income Statement Operating Income Operating Expenses Operating Profit Before Tax Net Profit Key Ratios Cost/Income Ratio Return on Equity (ROE) Capital Ratio Operational Statistics Number of Clients of which Business Clients Number of Loans Outstanding Number of Deposit Accounts Number of Staff Number of Branches and Outlets

13.3%7.3%4.9%

–14.0%3.2%

28.5%6.1%

21.4%–41.5%–26.2%

32.1%6.2%

19.0%

–0.7%14.5%

10.6%–9.4%

124.2%120.0%

–8.1%–6.5%

–15.1%–5.8%–5.7%

–24.3%

229,713178,667127,844

41,34126,51333,42726,56343,810

4,0352,978

–8,141170,526144,047

52,72522,852

20,26023,791–3,531–3,162

95.1%–14.4%

14.1%

70,89535,19128,900

118,147830

37

260,365191,782134,053

35,55527,36742,95028,18353,168

2,3622,198

–10,754181,027171,381

52,38126,168

22,40221,546

856631

90.5%2.6%

16.9%

65,13432,89224,541

111,314783

28

A N N U A L R E P O R T 20112

Mission Statement 4

Letter from the Board of Administrators 5

The Bank and its Shareholders 6

Special Feature 10

Management Business Review 12

Risk Management 22

Branch Network 28

Organisation, Staff and Staff Development 30

Business Ethics and Environmental Standards 32

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People 36

ProCredit in Eastern Europe 40

Our Clients 44

Financial Statements 48

Contact Addresses 90

3CO N T E N T S

Mission Statement

ProCredit Bank Romania is a development-oriented full-service bank. We offer excellent

customer service to private individuals and enterprises. In our operations, we adhere to

a number of core principles: we value transparency in our communication with customers,

we do not promote consumer lending and we provide services which are based both on an

understanding of each client’s situation and on sound financial analysis. This responsible

approach to banking allows us to build long-term partnerships with our clients based on

mutual trust.

In our operations with business clients, we focus on very small, small and medium-sized

enterprises, as we are convinced that these businesses create jobs and make a vital

contribution to the economies in which they operate. By offering simple and accessible

deposit facilities and other banking services and by investing substantial resources in

financial education we aim to promote a culture of savings and responsibility which can

help to bring greater stability and security to ordinary households.

Our shareholders expect a sustainable return on investment over the long term, rather than

being focused on short-term profit maximisation. We invest extensively in the training and

development of our staff in order to create an open and efficient working atmosphere, and

to provide friendly and competent service for our customers.


In 2011, economic growth returned to Romania, with Q2 being the third consecutive quarter of posi-tive development. However, the overall economic recovery faces the risks brought about by the recent developments in Europe, which are expected to have a negative effect in the second half of 2012. The budget deficit was kept under the IMF target, at 2.5% of GDP for the first nine months of 2011. In March a precautionary stand-by arrangement with the IMF was signed, allowing Romania to continue to benefit from the Fund’s economic expertise while further pursuing the structural reforms pledged at the time of the initial agreement. These reforms include reducing arrears and initiating privatisa-tion measures, mainly in the energy sector, but also affect the national rail freight company as well as the post and telecommunications sector. The annual inflation rate fell more rapidly than expected, down to 3.55% year-on-year as of October 2011, while the unemployment rate remained at the same low level as in 2010, (7%).

The deterioration in asset quality and corresponding necessity for higher loan-loss provisions con-tinue to impede the profitability of the banking sector. Although there was a negative return on equity (–3.4%) as of end-September, the banking sector remained capitalised at an adequate level of 13.4%. In the future, the banks will have to contend with solvency problems, which will require either further capital buffers or additional deleveraging measures. The National Bank of Romania closely monitors developments in the euro area sovereign debt markets, particularly those in Greece, and guards against possible spill-overs onto the Romanian banking sector.

Against the backdrop of the general economic turmoil, ProCredit Bank showed strong development in 2011. Remaining true to its development mission and strategic approach towards its key target group, the bank succeeded in increasing its small business loan portfolio by 20% growth as compared to 2010. Efforts made in 2010 to create new institutional structures and acquisition processes, especially for our small business customers, enabled the bank to reach out to a greater number of small enter-prises and start a sustainable relationship with them as their house bank in 2011. In addition to the positive evolution of the loan portfolio, customer funds increased by 20.4% compared to December 2010. After a few years of red figures, the institution rallied to achieve a year-end profit of EUR 627,785.

One of the main lessons from the past – and one of the main challenges for the future – is to find and keep the right employees. In line with the group human resources policy, ProCredit Bank redefined its recruitment policy and introduced the highly challenging Young Bankers Programme, a six-month personal and professional development programme, ensuring the substance and moral quality of our future employees.

Our shareholders increased the bank’s equity by EUR 3 million to EUR 34.9 million, bringing the capi-tal adequacy ratio at year-end to a comfortable 16.2% according to IFRS and to 16.9% according to statutory reporting standards. This not only strengthened the bank’s capital base but also under-scored the shareholders’ strong commitment to the institution.

We ended a challenging 2011 with great strength and confidence for reaching the targets set for 2012. With our staff and management team able to cope with the quickly changing environment, to take sound decisions under difficult conditions, and to communicate openly and honestly with clients, business partners and the general public at all times, we are a strong and trusted institution on the Romanian market. Thus, on behalf of the entire Board, I would like to extend my sincere thanks to our very dedicated staff and management team.

Anja LeppChairperson of the Board of Administrators

Letter from the Board of Administrators

Members of the

Board of Administrators

as of December 31, 2011:

Anja Lepp

Gian Marco Felice

Ivaylo Iliev Blagoev

Hanns Martin Hagen

Roger Bardo Rihmland

Dietrich Ohse

Jana Sivcova

Bank’s Managers

as of December 31, 2011:

Ilinca Rosetti

(General Manager)

Heribert Kailbach

(Deputy General Manager)

L E T T E R F R O M T H E B OA R D O F A DM I N IS T R AT O R S 5

The Bank and its Shareholders

ProCredit Bank Romania is a member of the ProCredit group, which is led by its Frankfurt-based parent company, ProCredit Holding. ProCredit Holding is the majority owner of ProCredit Bank Romania and holds 32.2% of the shares.

ProCredit Bank Romania was founded in May 2002 as Banca de Microfinantare MIRO SA by an alliance of international development-oriented investors, many of which are shareholders in ProCredit Holding today. Their goal was to establish a new kind of financial institution that would meet the demand of small and very small businesses in a socially responsible way. The primary aim was not short-term profit maximisation but rather to deep-

en the financial sector and contribute to long-term economic development while also achieving a sus-tainable return on investment.

Over the years, ProCredit Holding has consolidated the ownership and management structure of all the ProCredit banks to create a truly global group with a clear shareholder structure and to bring to each ProCredit institution all the best practice stand-ards, synergies and benefits that this implies.

Today’s shareholder structure of ProCredit Bank Romania is outlined below. Its current share capi-tal is EUR 34.9 million.

Sector

InvestmentBankingBankingBankingBankingConsulting

Shareholder(as of Dec. 31, 2011) ProCredit HoldingCommerzbankEBRDKfWIFCIPCTotal Capital

Headquarters

GermanyGermanyUKGermanyUSAGermany

Share

32.22%19.31%17.10%13.78%12.63%

4.96%100%

Paid-in Capital (in EUR)

11,243,0766,736,6325,967,7404,809,7534,407,7741,730,856

34,895,831

ProCredit Holding is the par-ent company of a global group

of 21 ProCredit banks. ProCredit Holding was founded as Internationale Micro Investitionen AG (IMI) in 1998 by the pioneering development fi-nance consultancy company IPC.

ProCredit Holding is committed to expanding ac-cess to financial services in developing countries and transition economies by building a group of banks that are the leading providers of fair, trans-parent financial services for very small, small and medium-sized businesses as well as the general population in their countries of operation. In addi-tion to meeting the equity needs of its subsidiar-ies, ProCredit Holding guides the development of the ProCredit banks and supports the banks in all key areas of activity, including banking opera-tions, human resources and risk management. It ensures that ProCredit corporate values, interna-tional best practice procedures and Basel II risk management principles are implemented group-wide in line with standards also set by the German supervisory authorities.

IPC is the leading shareholder and strategic inves-tor in ProCredit Holding. IPC has been the driving entrepreneurial force behind the ProCredit group since the foundation of the banks.

ProCredit Holding is a public-private partnership. In addition to IPC and IPC Invest (the investment ve-hicle of the staff of IPC and ProCredit), the other private shareholders of ProCredit Holding include the Dutch DOEN Foundation, the US pension fund TIAA-CREF, the US Omidyar-Tufts Microfinance Fund and the Swiss investment fund responsAbili-ty. The public shareholders of ProCredit Holding include KfW (the German promotional bank), IFC (the private sector arm of the World Bank), FMO (the Dutch development bank), BIO (the Belgian Investment Company for Developing Countries) and Proparco (the French Investment and Promotions company for Economic Cooperation).

The legal form of ProCredit Holding is a so-called KGaA (Kommanditgesellschaft auf Aktien, or in English a partnership limited by shares). This is a legal form not uncommonly used in Germany


Commerzbank is a lead-ing bank for private and corporate customers in Germany. With the segments Private Customers, Mittelstandsbank, Corporates & Markets, Central & Eastern Europe as well as Asset Based Finance, the bank offers its customers an attractive product portfolio, and is a strong partner for the export-oriented SME sector in Germany and worldwide.

With a future total of some 1,200 branches, Commerzbank has one of the densest networks of branches among German private banks. It has a presence in over 60 locations in 52 countries and serves more than 14 million private clients as well as 1 million business and corporate clients world-wide. In 2011, it posted gross revenues of EUR 10.1 billion with some 58,160 employees.

Commerzbank is the largest German bank in Central & Eastern Europe and serves around 4.5 million clients in this region. In Poland the bank holds a 70% stake in BRE Bank, Poland’s third-largest financial institution. In Ukraine it is the majority shareholder of Bank Forum, a full service bank with a nationwide network.

which can basically be regarded as a joint stock company in which the role of the management board is assumed by a General Partner, and in which the General Partner has consent rights over certain key shareholder decisions. In the case of ProCredit Holding, the General Partner is a small separate company which is owned by the core shareholders of ProCredit Holding AG & Co. KGaA: IPC, IPC Invest, DOEN, KfW and IFC. The KGaA structure will allow ProCredit Holding to raise cap-ital in the future without unduly diluting the influ-ence of core shareholders in ensuring the group maintains dual goals: development impact and commercial success.

ProCredit Holding has an investment grade rat-ing (BBB-) from Fitch Ratings Agency. As of the end of 2011, the equity base of the ProCredit group is EUR 469 million. The total assets of the ProCredit group are EUR 5.5 billion.

7T H E B A N K A N D I T S S H A R E H O L D E R S

The European Bank for Reconstruc-tion and Development (EBRD) was established in 1991. It aims to

foster the transition towards open, market-orient-ed economies and to promote private and entre-preneurial initiative in countries from Central Europe to Central Asia that are committed to de-mocracy, pluralism and market economics. The EBRD seeks to help its countries of operations to implement structural and sectoral economic re-forms, promoting competition, privatization and entrepreneurship.

In fulfilling its role as a catalyst of change, the Bank encourages co-financing and foreign direct investment from the private and public sectors, helps to mobilise domestic capital, and provides technical cooperation in relevant areas.

IFC, a member of the World Bank Group, is

the largest global development institution focused exclusively on the private sector in developing countries. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives. Established in 1956, IFC is owned by 182 member countries, a group that collectively determines our policies. Our work in more than 100 developing countries allows companies and financial institutions in emerging markets to cre-ate jobs, generate tax revenues, improve corpo-rate governance and environmental performance, and contribute to their local communities. For more information, visit www.ifc.org.

IPC – Internationale Projekt Consult GmbH, a Frankfurt-

based company, was founded in 1980. Since then, IPC has provided sound consulting and manage-ment services in the framework of international development co-operation projects which are characterised by a high level of sustainability and relevance to worthwhile societal and develop-mental goals. In particular, IPC has set new stand-ards in the establishment of target group-orient-ed financial institutions. It founded ProCredit Holding, and remains that company’s leading shareholder and strategic investor. From the very beginning, IPC has been the driving entrepreneur-ial force behind the ProCredit group. By providing advisory assistance to the ProCredit banks in the first few years of their operations, it has helped the group to build sound and stable financial in-stitutions in countries around the world.

Today IPC’s range of consultancy services includes: advising commercial banks on lending to micro, small and medium-sized enterprises; supporting financial institutions in the implementation of envi-ronmental projects and the introduction of energy efficiency/renewable energy lending products for private households and SMEs; designing and im-plementing target group-specific training courses for financial institutions and commercial banks; and carrying out financial sector or feasibility stud-ies for international development institutions.

KfW (Department KfW Development Bank): On behalf of the German

Federal Government, KfW (Department KfW Devel-opment Bank) finances investments and accom-panying advisory services in developing and tran-sition countries. Its aim is to build up and expand the social and economic infrastructure of the respective countries, and to advance sound and inclusive financial systems while protecting re-sources and ensuring a healthy environment.

KfW (Department KfW Development Bank) is a leader in supporting responsible and sustainable microfinance and is involved in target group-ori-ented financial institutions around the world. Department KfW Development Bank is part of KfW, which has a balance sheet total of EUR 494.8 bil-lion (as of December 31, 2011). KfW is AAA-rated by Moody’s, Standard & Poor’s and Fitch Ratings.


T H E B A N K A N D I T S S H A R E H O L D E R S 9

Agriculture is a vital economic sector for Romania. The country has excellent primary resources, but major investments in upgrading and modernisa-tion need to be made in order to keep pace with the production levels achieved in other parts of Europe. In particular, farmers require financing to purchase efficient equipment and to cover work-ing capital needs so as to be able to plant crops in a timely manner.

Agricultural businesses were long ignored by fi-nancial institutions, as the clients in this sector require a carefully tailored – and labour-intensive – approach. This in turn calls for specially trained personnel who understand the peculiarities of this sector as well as the financing needs of rural en-trepreneurs. The payment capacity of most farm-ers is directly linked to seasonality, and business performance is difficult to forecast. Moreover, while the availability of European Union funds presents a tremendous opportunity for the agri-cultural sector, banks need specialists capable of

providing sound advice to the potential beneficiar-ies of these funds. Recognising the complexity of agricultural businesses, ProCredit Bank has devel-oped a team of highly trained employees to help farmers obtain access to financing.

With nearly ten years of experience in the Romanian market, ProCredit Bank has developed a full range of services tailored to agricultural SMEs and has become the bank of choice for over 11,000 farms across the country. Today, agricultural lending ac-counts for no less than 27% of ProCredit Bank’s to-tal loan portfolio, reflecting the bank’s mission to contribute to economic development, which in Romania is largely driven by farming. There is am-ple demand for loans to purchase machinery, equipment, land, animals, seeds and fertiliser. ProCredit Bank provides loans to finance working capital needs as well as other investments, while also supporting projects financed with EU funds. To further help its clients, the bank has signed agreements with the Rural Credit Guarantee Fund,

Special Feature

Agriculture – the Key Sector in ProCredit Bank’s Development Mission


which can guarantee up to 80% of a loan – a great help for entrepreneurs who are just starting out or who wish to further develop their business.

Outreach is a critical component of assisting agri-cultural SMEs. To this end, bank staff attended 15 agricultural fairs and exhibitions in Romania and abroad in 2011, offering personalised financial solutions for all types of agricultural businesses. Attendance at these events is in line with ProCredit Bank’s philosophy of keeping abreast of the latest developments in the agricultural sector and learn-ing about all aspects of our clients’ businesses.

By continually creating new financing facilities for our customers and recognising the great potential of agriculture to boost the economy, ProCredit Bank is staying true to its development mission in Romania. Our extensive experience in agricultural lending makes us the right partner for every kind of agricultural business and prepares the ground for successful partnerships.

S P ECI A L F E AT U R E 11

Management

Seated, from left to right:

Standing, from left to right:

Andreea Elena Enache

Business Clients Division Director

Ilinca Rosetti

General Manager

Anca Grigorescu

Internal Services Division Director

Dana Enache

Operations Support Division Director

Daniel Marinovici

Finance Division Director

Heribert Kailbach

Deputy General Manager

Cristina Sindile

Credit Risk Division Director

Cosmin Ciobanu

Risk Division Director

Management Business Review


Political and Economic Environment

In 2011, the macroeconomic situation in Romania improved slightly, but remained hampered by the downturn that started in October 2008. The gov-ernment therefore concentrated on implementing structural reforms and fiscal consolidation meas-ures, such as reducing the level of arrears and bail-ing out state-owned enterprises in distress. Nevertheless, GDP increased by 2.5%1, a consid-erable improvement over the 1.2%2 decrease in 2010. The country’s brighter economic perform-ance in the first part of 2011 was mainly due to ag-ricultural and industrial sector output, which ac-counted for 3.4% and 4.9% of annual GDP growth, respectively. While Romania’s overall economic performance was below the European Union aver-age in 2011 (1.5% versus 2.9%), its growth rate is expected to catch up in the year to come.3

The parliament approved the 2012 budget plan, which calls for a deficit target of 1.9% of GDP (cash basis), down from 4.4% in 2011 and 6.5% in 2010. To achieve this goal, the government will need to maintain strict control over public spend-ing; pensions and public sector wages will likely need to be frozen. However, given that 2012 is an election year, the temptation to increase public sector wages could be strong. A firm political commitment will therefore be required to keep the fiscal consolidation process on track.4

The IMF completed its third review of Romania’s economic performance under the precautionary two-year Stand-By Arrangement (SBA) approved in March 2011. If the results of the review are sat-isfactory, funds equivalent to Special Drawing Rights (SDR) 430 million (about EUR 507 million) will be made available for disbursement, bringing the total resources under this SBA to SDR 1.35 bil-lion (about EUR 1.6 billion). Romania has not yet drawn any funds on this precautionary SBA, which is only to be used in case of necessity.

The inflation rate decreased significantly, from 7.9% at the end of 2010 to around 3.2% at end-2011, remaining within the central bank’s infla-tion target band of 2-4%. A target of 3.0% has been set for 2012 (with an error margin of +/–1.4%).5

The previous three years of economic downturn had positive effects on the current account defi-

cit. Net imports registered a stable level in 2011, amounting to EUR 7.1 billion (compared to EUR 7.2 billion in 2010 and EUR 7.0 billion in 2009). The current account thus posted a deficit of EUR 5.7 billion, 3% higher than in 2010, mainly due to the 22% increase in income deficit.6

In July 2011, FitchRatings upgraded Romania’s long-term foreign currency issuer default rating to BBB- from BB, and its long-term local currency rat-ing to BBB from BBB-, citing the country’s progress in recovering from the financial crisis.

Financial Sector Developments

In 2011, the number of active banks fell to 417 (from 42 at the end of 2010), due to the transfer of Anglo-Romanian Bank Ltd’s operations to BCR (Romanian Commercial Bank), while the number of non-bank financial institutions decreased from 228 to 207. The top five banks held 53.6% (2010: 52.7%) of total sector assets, while foreign own-ership controlled 85.4% (2010: 85%).8

The Romanian banking system did not require support from the government in 2011. However, the banks’ shareholders paid in additional capital in order to accommodate regulatory pressures and to compensate for the sector’s losses in-curred during 2011.

At the same time, net banking assets declined by a real 3.5%9 during the first six months of 2011

1 National Institute of Statistics website, www.insse.ro2 Ibid.3 Unless stated otherwise, all figures are from the Statis-

tical Report (Monthly Bulletin for July, National Bank of Romania website, page 6

4 Financial Stability Report, page 775 Unless stated otherwise, all figures are from the Statisti-

cal Report (Monthly Bulletin, December 2011 and Nation-al Bank of Romania site projection for the inflation rate)

6 Balance of payments and external debt, October 2011, Press release, National Bank of Romania, December 13, 2011; National Bank of Romania press release from Feb-ruary 13, 2012

7 Statistical Report (Monthly Bulletin) for December, page 108 Unless stated otherwise, all figures are from the Financial

Stability Report 2011, from National Bank of Romania, page 22

9 Financial Stability Report 2011, page 26 and Monthly Bul-letin, December 2011, page 10

M A N AG E M E N T B US I N E SS R E v I E W 13

due to the developments in cash and deposits with the central bank (foreign exchange market volatility), which in April introduced lower mini-mum reserve requirement ratios on foreign cur-rency. By the end of 2011, net banking assets had increased marginally (0.4%10 in real terms). Lending to the private sector increased in the sec-ond half of the year, with an annual growth rate of 6.6% to RON 223 billion (EUR 51.6 billion). Corporate lending grew by 10.4% compared to December 2010, attributable in part to the rise in loans to the services, industrial and agricultural sectors; the latter two sectors in particular achieved positive financial results in 2011 and thus were the main drivers of this upward trend. Private lending growth was far more subdued (2.1%), however, due to the wave of pessimistic forecasts regarding job security and future in-come levels, as well as to the high level of indebt-edness among the general population.11 Deposits grew by 5.3%, bringing the total deposit portfolio to RON 202.5 billion (EUR 46.9 billion).12

The quality of the Romanian banking sector’s loan portfolio continued to slip in 2011: the indicator of portfolio quality published by the National Bank (similar to portfolio at risk over 90 days) de-teriorated rapidly to 14.0% at end-201113 (2010: 11.9%). The high levels of arrears were especially detrimental to very small and small companies and private individuals with unhedged debts in foreign currency; nearly 66.0%14 of private sector loans were denominated in hard currency.

Due to the monetary policy pursued by the National Bank, the rates on outstanding deposits declined by 1.0%15 in local currency and were relatively stable for EUR compared with the end of 2010.

Due to the dynamics of its total assets and to the relatively low level of financial intermediation (the weight of loans and deposits in GDP was 41%16 and 30%17, respectively, stagnating), the banking system did not exert a pull effect on the economy. The banks focused on managing their arrears, pri-marily by restructuring impaired assets and by externalising non-performing loans. However, the restructuring measures often failed to improve debtors’ repayment capacity, and the externalisa-tion of non-performing loans could become less attractive once the IFRS are implemented.18

Following its board meeting at the end of March 2011, the NBR implemented its monetary policy, leaving intact the minimum reserve requirements at 15% of liabilities in national currency while low-ering the requirements for foreign currency liabili-ties from 25% to 20%. Later in the year, the rapidly improving short-term inflation outlook prompted the central bank to lower the base interest rate from 6.25% to 6.00%, the rate on deposit facilities from 2.25% to 2.00%, and the rate on lending facilities (Lombard) from 10.25% to 10.00%. The cuts, which were imple-mented in November, had no impact on the ex-change rate or interbank interest rates, but gov-ernment securities subsequently experienced a dip in yields.19

ProCredit Performance

Our businesses results and operating environ-ment improved somewhat in 2011 despite the ef-fects of the financial crisis and the corresponding austerity measures imposed by the Romanian gov-ernment. Most economic sectors embarked upon a slow recovery, with the agricultural and industrial sectors making more progress. Companies gener-ally tried to stabilise or consolidate their results and position on the market, with conservative plans for development.

To help our business clients continue to operate and develop in this challenging economic environ-ment, we continued to offer expert financial solu-tions and appropriate, transparent and affordable

10 Statistical Report (Monthly Bulletin) for December, page 1011 Unless stated otherwise, all figures are from Statistical

Report (Monthly Bulletin for December, pages 10 and 38)12 Local structure of deposits and loans, December 201113 Statistical Report (Monthly Bulletin) for December, page 6014 Statistical Report (Monthly Bulletin) for December, page

40 and Local structure of deposits and loans, December 2011

15 Statistical Report (Monthly Bulletin) for November, pag-es 49–50

16 Financial Stability Report 2011, page 9 and 4117 Financial Stability Report, June 2011, page 2418 Financial Stability Report 2011, page 1119 Unless stated otherwise, all figures are from the Board of

the National Bank of Romania press release.


services. Our customer-oriented business model, which emphasises long-term relationships and personalised solutions, was appreciated by our business clients and even lauded by the financial press. At the Top Bankers Gala in July 2011, ProCredit Bank was presented with a special award for its excellent retention rate of SME clients.

The loyalty of our clients and the dedication of our staff can be seen in our overall results. The bank managed to increase its outstanding loan portfolio to EUR 192 million by end-2011, a 7% increase compared to the previous year. In spite of the finan-cial crisis, deposit accounts demonstrated even stronger growth, increasing by 19% for a total vol-

ume of EUR 171 million, evidence that our deposit client base is developing soundly and that our cus-tomers have remained faithful to ProCredit Bank.

The quality of the loan portfolio remained stable throughout 2011, with nonperforming loans (de-fined as loans classified as substandard, doubt-ful and loss) standing at 15.8% by year-end. This figure, which is well below the market average of 34.2%20, can be attributed to our strong institu-tional focus and continual efforts to maintain portfolio quality. By offering lending, transaction

20 National Bank of Romania website, www.bnro.ro


< EUR 10,000 EUR 30,001 – EUR 150,000 EUR 10,001 – EUR 30,000 > EUR 150,000 * 31 Dec 2011

Number of Loans Outstanding – Breakdown by Loan Size*

Starting from 2011 the method of calculation for size categories has been changed: breakdown by initial loan amount

86.6%

0.5%3.7%

9.2%

Loan Portfolio Development

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

< EUR 10,000 > EUR 150,000 EUR 10,001 – EUR 30,000 Total number outstanding EUR 30,001 – EUR 150,000

* Starting from 2011 the method of calculation for size categories has been changed

0

50

100

150

200

250

Dec 11*

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0

10

20

30

40

50

and deposit services for businesses around the country, we continued to fulfil our stated mission of becoming the house bank for small enterprises and the bank of choice for agriculture producers. In order to achieve this position, we focused our resources on these segments, defining flexible, transparent services, and appointing experienced and dedicated staff. Our long-term training policy for specialising our staff, coupled with our per-sonalised approach, proved efficient and effec-tive for clients and the bank alike.

At the same time, by providing simple and trans-parent financial services for private individuals who need reassurance and support in these uncer-tain times, ProCredit Bank maintained its position as an accessible and responsible financial institu-tion. All in all, our efforts to increase efficiency and to provide high-quality services for existing and potential clients strengthened our institution in 2011 and set the path for further responsible development in 2012.

Lending

Many economic sectors began to stabilise and re-cover in 2011. In this environment, ProCredit Bank focused on developing its loan portfolio as well as improving the quality of the portfolio.

We ended the year with a gross loan portfolio of EUR 192 million and 24,541 loans, which repre-

sented a 7% increase in volume after two years of decline, and a 15% decrease in the number of loans. We disbursed 8,456 loans totalling EUR 97 million with an average amount of EUR 11,468 (2010: EUR 9,042).

Although the demand for new loans remained low due to the prolonged recession, we still managed to attract small and medium business clients from other banks that had either ceased lending or had tightened their lending criteria. In this difficult en-vironment, many businesses chose to postpone investment projects, and most borrowing was un-dertaken in order to obtain working capital. Against this background, our very small loan port-folio decreased by 14.3% to EUR 44.4 million. On the other hand, small loans increased by 20.1% to EUR 44.6 million while medium loans grew by 14.5% to EUR 44.5 million.

Agricultural lending continued to show strong growth, as most of our customers in this category were not seriously affected by the economic downturn. ProCredit Bank created tailored prod-ucts to co-finance the investment projects backed with European Union funds for the modernisation and development of farms. We issued 4,758 loans totalling EUR 38.5 million to the agricultural sec-tor, an increase of 16% over the previous year. The agricultural loan portfolio made up 27% of our to-tal loan portfolio by end-2011 (2010: 25%) and grew by 21.4%, from EUR 43.8 million to EUR 53.2 million year-on-year. We expect to see continued


0

1.0

2.0

3.0

4.0

5.0

6.0

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

Net write-offs:in 2007: EUR –182,489

in 2008: EUR 1,365,596 in 2009: EUR 3,680,186

in 2010: EUR 3,077,671in 2011: EUR 101,330

Loan Portfolio Quality (arrears >30 days)

in % of loan portfolioin %

Business Loan Portfolio – Breakdown by Maturity

< 12 months 12 – 24 months

24 – 60 months > 60 months

0102030405060708090

100

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

growth in agricultural lending in 2012, because in addition to being the economic sector with the greatest demand for investments, the enterprises

in this sector hold immense market potential: Romania boasts over one million mostly very small and small farms.


Customer Deposits


Term Savings Sight Total number

0

20

40

60

80

100

120

140

160

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0

20

40

60

80

100

120

140

160

55.1%

23.2%

0.1%

o.0%

1.3%

20.3%

< EUR 100 EUR 10,001 – EUR 50,000 EUR 101 – EUR 1,000 EUR 50,001 – EUR 100,000EUR 1,001 – EUR 10,000 > EUR 100,000 * 31 Dec 2011

Number of Customer Deposits – Breakdown by Size*

At year-end, the portfolio at risk (loans in arrears by more than 30 days) accounted for 5.5% of the total portfolio (2010: 4.7%). Improving the quality of our loan portfolio will remain a priority in ProCredit Bank’s lending business for the coming year.

Deposits and Other Banking Services

As always, we continued to offer transparent banking services to our private individual and business clients, establishing the bank as a safe address for savings. Triggered by the latest finan-cial turmoil in the EU, the fight for euro funds be-came more competitive in the second half of the year. Nevertheless, we managed to increase our total deposit volume from EUR 144 million to EUR 171 million, an increase of 19% compared to 2010. Our deposits in the local currency grew by RON 66.4 million, or 18%, while euro deposits climbed by 23.9%, adding EUR 12.9 million to the portfolio. Private individual deposits increased steadily, from EUR 107 million to EUR 123 million year-on-year, a 14.5% increase. As these results show, the bank not only maintained the loyalty of its existing clients, but gained many new ones. This success is especially remarkable given that a number of branches and service points were closed at the beginning of the year.

We made a special effort to increase the share of business client deposits within the total portfolio. The result was a 44% increase in business client

deposits, from EUR 26.3 million to EUR 37.9 mil-lion. Term deposits demonstrated the highest growth, from EUR 120 million to EUR 147 million, or 22%, while balances in savings accounts re-mained stable.

The bank offers several financial packages that combine a range of services with the advantage of a single monthly fee and lower transaction costs. The number of salary receivers using our bank ac-counts and salary packages grew from 7,723 in 2010 to 8,310 in 2011. At the same time, more pensioners collected their pensions through ProCredit Bank, with the number of pensioners’ packages rising from 7,125 to 7,772 year-on-year. For our business clients, we introduced a starter package for newly established businesses which drew 60 users by year-end. Our Info Encashment service grew tremendously, from 642 users at the end of 2010 to 2,849 in 2011. In addition, 117 cus-tomers signed up for our new euro debit cards, which are mainly intended to support our business clients who make frequent transactions in euros.

Another milestone was the improvement of the bank’s new e-banking platform, which is now more user-friendly and offers more transaction options. The number of online transactions surpassed 190,500 at the end of 2011, representing a 21.7% increase year-on-year. With a stable ATM network and a new co-operation agreement with another bank in the POS network, we encouraged our business clients to utilise non-cash transaction


Incoming Outgoing Number

Domestic Money Transfers


0

200

400

600

800

1,000

1,200

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0

150

300

450

600

750

900

International Money Transfers


Incoming Outgoing Number

0

20

40

60

80

100

120

140

160

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0

10

20

30

40

50

60

70

80


services. These efforts resulted in a 47% increase in card transaction volume, bringing the total to EUR 2 million, as well as a 37% rise in the number of transactions, to more than 600,000. By the end of the year, 18,789 cards were in circulation. Domestic transactions increased in 2011 by 1% in terms of number and 15.4% in volume, while inter-national transfers increased by 13.9% in number and 1.7% in volume.

Financial Results

The bank has been heavily impacted by external economic factors over the past several years. In the wake of a very low demand for loans and high arrears in 2010, the bank reorganised its busi-ness lines in the last quarter of 2010. This led to much better clearance and performance in all lines, with continued growth in our small and me-dium business lines and a significantly slower pace of decline in our very small category in 2011.

Total assets increased by 13.3% (2010: –10.2%), mainly due to the growth of the loan portfolio

(7%) and the rise in customer funds (20%). Lending activity developed rapidly in the first half of 2011, but the subsequent Greek crisis de-pressed demand for investment financing. As a result, the bank recorded a higher level of liquidi-ty than planned.

The most important source of funding remained customer deposits; the coverage relative to the gross loan portfolio increased from 80% to 89% year-on-year. Although the bank received a credit line for SME investments financing from the European Investment Bank worth EUR 20 million, the overall amount of funding from financial insti-tutions remained constant compared to the previ-ous year.

Our shareholders reaffirmed their support to the bank by participating in a capital increase of EUR 3 million, which resulted in a capital adequacy ratio of 16.9% in 2011 (compared to 14.02% in 2010, according to statutory reporting standards).

Up to 2010, the bank’s business model entailed high margins as a result of the focus on very small


businesses and incurred high administrative costs generated by the number of staff needed to serve these clients. The strategic shift towards small business clients led to smaller margins in 2011 (partially offset by the growth of our business with small agricultural enterprises), but also brought an increase in fee and commission income. Thus, despite operating with a smaller branch network, the institution managed to partially compensate for the loss of fee income from the very small cate-gory with fees paid by new small business clients. Interest income currently accounts for 89% of op-erating income before provisions.

Interest income decreased by 5.3%, driven by the change in structure of the loan portfolio, which re-flects the bank’s increased focus on small and medium-sized business clients and the fact that the bank had 15 fewer locations than in 2010. The bank succeeded in lowering interest expenses by 6.2%, however, thanks to its efforts to tighten li-quidity management.

Administrative expenses, including personnel ex-penses, were reduced by 7.5% as a result of tar-geted measures to raise efficiency levels.

The net financial result of 2011 was a profit of RON 2.6 million (EUR 0.6 million).The cost-income ratio decreased in 2011 to 90.5%, a significant improve-ment over the previous year’s figure of 95.1%.

Outlook

various sources, including the IMF, the European Commission and the Romanian government esti-mate economic growth of nearly 2% for the com-ing year, as laid down in the state budget law for 2012. This law stipulates a cash budget deficit of 1.9% of GDP, while the National Bank of Romania forecasts an inflation rate of 3% (2011: 3.5%). However, given the tough austerity measures im-posed by the authorities, along with the ongoing European debt crisis, Romania’s economic growth in 2012 is more likely to hover around 0.5%.

The IMF mission in Romania predicates its posi-tive outlook for 2012 on better absorption of European funds and on a higher level of internal demand. Inflation has dropped significantly thanks to the bumper crops harvested in 2011,

and is expected to drop even further in the coming months. It therefore seems probable that the main inflation rate will be within the National Bank of Romania’s target range.

Whereas the bank returned to profitability in 2011, 2012 will be a year of consolidation and creation of a solid and sustainable basis for the future. Processes will be reviewed in order to achieve better performance and greater efficien-cy; our business model will be fine-tuned and we will analyse our core client categories with a view to optimising our service.

Keeping in mind both the lessons learned from the past and the current external market trends, in 2012 the bank will work hardest to cultivate its small business and agricultural client base. To this end, we will strive to be the house bank for small business clients by building up a strong small business client portfolio, as well as the bank of choice for rural enterprises by continuing to develop agricultural lending. Agricultural loans are expected to grow to 33% of our loan portfolio by 2016. Concerning our private individual cli-ents, we will take steps to expand the deposit base and continue to provide high-quality bank-ing services to our clients. As these clients ac-count for a significant share of our gross loan portfolio coverage, private individuals will remain firmly in focus in 2012.


Risk Management

While ultimate responsibility for risk manage-ment lies with the Bank’s Directors, it is the Risk Management Department which develops and implements mechanisms to identify, assess, and mitigate the bank’s exposure to risk. This depart-ment and the Risk Control Department make up the Risk Division and report to the Risk Management Committee, which is led by the Director of the Risk Division and is responsible for monitoring the full range of risks to which the bank is exposed, as well as bearing decision-making authority in connection with risk. The Risk Management Committee also works through its risk subcommittees, which each focus on a specific area of risk, i. e. the Credit Risk Management Subcommittee (credit risk), the Assets and Liabilities Management Subcommittee (liquidity risk, counterparty risk, market risk) and the Operational Risk Management Subcommittee (operational and reputational risks). The Risk Management Committee and its subcommittees’ members include the bank directors and other division directors as well as the relevant depart-ment heads.

The risk management policies in effect at ProCredit Bank, which have been approved by the bank’s Board of Administration, are in compliance with the legal regulations valid in Romania and with the requirements imposed by the National Bank of Romania. The policies reflect the risk appetite of the bank and follow the principles established by the risk management policies of the ProCredit group. ProCredit Bank Romania regularly reports its risk position to the relevant departments of ProCredit Holding. The group’s risk management departments also monitor the bank’s key risk indi-cators on an ongoing basis, providing guidance whenever required.

Risk management throughout the ProCredit group is based on the concept of “risk-bearing capacity”, i.e. the principle that each bank’s aggregated risk exposures must not exceed its capacity to bear risk, and that the resources available to cover risk are sufficient to absorb any losses that may arise and protect creditors’ investments. Statistical models and other procedures are used to quantify the risks incurred, and targets are set for each risk category and a limit for the aggregate exposure. During 2011, the overall risk exposure decreased from 45.1% as of the end of 2010 to 38.5% as of

the end of 2011, due in part to a capital increase of EUR 3 million in June 2011. The increase served to offset potential negative trends in the statutory fi-nancial statements.

ProCredit Bank’s culture of internal and external transparency is crucial to our risk management ef-forts. Thanks to our clearly defined procedures and our encouragement of open communication, our well-trained staff are in a strong position to detect risks and take the steps necessary to miti-gate them.


Credit Risk Management

Lending to very small and small businesses is ProCredit Bank’s main asset-side operation and consequently classical credit risk, i.e. the risk that borrowers will be unable to repay, is the most im-portant risk that the bank faces. Credit risk ac-counts for the largest share of risk in the context of risk bearing capacity calculation.

ProCredit Bank Romania has adopted credit risk policies based on the ProCredit Group Credit Risk

Management Policy and the Group Collateral valuation Policy, which together reflect the expe-rience gained in more than two decades of suc-cessful lending operations in developing and transition economies and are in compliance with Romanian regulations. The credit decision-mak-ing authority is clearly defined; all decisions to is-sue a loan, or change its terms, are taken by a credit committee, and all credit risk assessments are carefully documented. Above all, the bank seeks to build and maintain long-term relation-ships with its customers, thus ensuring that it is

23R IS K M A N AG E M E N T

fully aware of their financial situation, and great care is taken to avoid over-indebting them.

Credit risk is also mitigated by the fact that our portfolio is highly diversified, as the businesses we serve operate in a wide range of sectors. Moreover, the majority of our credit exposures are relatively small. As of end-2011, loans under EUR 30,000 accounted for 47% of the total outstand-ing portfolio, and the average amount outstand-ing was EUR 7,800, while the ten largest expo-sures accounted for only 7.5% of the portfolio.

As the vast majority of the bank’s loans are repay-able in monthly instalments, a borrower’s failure to meet a payment deadline is treated as an initial sign of potential default and draws an immediate response from the bank. When a payment of inter-est or principal is overdue by more than 30 days, the loan in question is assigned to the portfolio at risk (PAR>30), which serves as the key indicator for the quality of the loan portfolio and for meas-uring classical credit risk.

In 2011 the bank’s overall PAR>30 increased from 4.71% at the start of the year to 5.50% at year-end. This was due to a change in the bank’s write-

off policy, which led to an additional recognition of EUR 2.53 million of past due loans previously reported as written off. It should be noted that ProCredit Bank’s portfolio performance is much better than the average for the Romanian banking sector as a whole, where, according to figures published by the National Bank of Romania, 22.7% of loans were classified as doubtful or loss compared with only 15.3% for those issued by ProCredit Bank.

One of the ways in which ProCredit Bank has met the challenge to portfolio quality posed by the fi-nancial crisis is to offer loan restructuring to those clients that are judged to have the potential to re-gain stability. Restructurings follow a thorough analysis of each client’s changed payment capac-ity. The decision to restructure a credit exposure is always taken by a credit committee and aims at full recovery. As of end-2011, the total volume of restructured loans in the “watch” category came to EUR 11.7 million, while EUR 5.2 million had mi-grated to the “impaired” category.

ProCredit Bank Romania takes a conservative ap-proach to loan loss provisioning. Allowances for individually significant exposures with signs of


R IS K M A N AG E M E N T

impairment are set aside based on the results of an individual assessment of impairment, while provisioning for impaired loans that are not indi-vidually significant is calculated according to his-torical default rates. For all unimpaired credit expo-sures, portfolio-based allowances for impairment are made. At the end of the year the coverage ratio (loan loss provisions as a percentage of PAR>30) stood at 103%, and as a percentage of the total loan portfolio, provisions amounted to 5.6%.

Loans considered to be irrecoverable are consist-ently written off. Nonetheless, recovery efforts continue even after a loan has been written off, and collateral collection is rigorously enforced. In 2011 net write-offs totalled EUR 437,700, or 0.54% of the gross loan portfolio.

Counterparty and Issuer Risk Management

Counterparty and issuer risks evolve especially from the bank’s need to invest its liquidity re-serve or to conclude foreign exchange transac-tions. The risk of incurring losses caused by the unwillingness or inability of a counterparty or is-suer to fulfil its obligations is managed according to the Counterparty Risk Management Policy (incl. Issuer Risk), which defines the counterpar-ty selection and limit-setting process, as well as according to the Treasury Policy, which specifies the set of permissible transactions and the rules for their processing. These policies are in line with Romanian regulations. As a matter of princi-ple, only large international banks and local banks with a good reputation and financial stand-ing are eligible counterparties. Limits above cer-tain thresholds are conditional on approval by the Board of Administration. The counterparty limits are reviewed and, if necessary, adjusted on a yearly basis.

Liquidity Risk Management

Several factors inherent to the bank’s business model offset liquidity risk. Firstly, the bank’s di-versified, high quality portfolio of loans means that incoming cash flows are highly predictable. Secondly, our customer deposits are spread across a large number of depositors each holding

relatively small amounts. As of December 2011 the average balance in deposit accounts of all types came to EUR 3,548, and the ten largest depositors made up only 8.3% of total deposit volume.

To determine the robustness of the bank’s liquidi-ty in the face of potential shocks, the bank per-forms regular stress tests based on scenarios de-fined by the Liquidity Risk Management Policy. In light of the 2011 sovereign debt crisis, the as-sumptions on which the stress tests are based were revised by the Risk Control Department. Whenever necessary to bridge liquidity shortag-es, ProCredit Bank Romania is able to obtain short-term funding from ProCredit Holding.

Currency Risk Management

ProCredit Bank Romania has a low level of expo-sure to currency risk because it does not enter into speculative open currency positions, nor does it engage in derivative transactions except for hedg-ing and liquidity purposes. Currency risk is man-aged in accordance with the Foreign Currency Risk Management Policy and local regulations. The bank continuously monitors exchange rate move-ments and foreign currency markets, and manag-es its currency positions on a daily basis. Stress tests are regularly carried out to assess the impact of exchange rate movements on open currency po-sitions (OCP) in each operating currency.

According to the provisions of the Foreign Currency Risk Management Policy, the bank keeps its statu-tory currency position closed, resulting in a small IFRS open currency position which has to be strict-ly monitored and is subject to a 10% limit across all currencies. Therefore, even though there were significant movements in the exchange rates of lo-cal currency against the euro throughout 2011, these did not have a significant impact on the bank’s financial results.

Interest Rate Risk Management

The bank does not hold a trading portfolio, so in-terest rate risk comes only from the banking book. During 2011 local currency interest rates exhibited a fluctuating trend, while the euro interest rates increased. Maturity gap analysis and stress test-

25

ing are used to measure and analyse the impact of interest rate shifts on the economic value and in-terest income. The Interest Rate Risk Management Policy establishes hard limits and reporting thresholds for the exposure to interest rate risk. The bank does not use derivatives to close its open positions, but pursues a natural hedging policy through its assets and liabilities structure.

Operational and Fraud Risk Management

The Operational Risk Management Policy and the Fraud Prevention Policy of ProCredit Bank Romania is in compliance with local regulations as well as with the Group Operational Risk Policy and the Group Fraud Prevention Policy. To mini-mise operational risk and the risk of fraud, all processes are precisely documented and subject to effective control mechanisms. Job descriptions are comprehensive, duties are strictly segregat-ed, and dependency on key individuals is avoid-ed. When recruiting, the bank pays close atten-tion to personal integrity, a quality which is reinforced through the bank’s strictly enforced code of conduct and through comprehensive training programmes designed to promote a cul-ture of transparency and risk-awareness.

The Risk Event Database (RED) ensures that oper-ational and fraud risks are addressed in a system-atic and transparent manner, with all remedial and preventive action clearly documented and ac-cessible to management control. Staff are re-quired to report all events which represent an ac-tual or potential loss exceeding EUR 100 using the RED interface. All reported events are analysed in detail by the Operational Risk Management Subcommittee, which adopts appropriate preven-tive measures if necessary.

As part of their initial training, all new staff mem-bers are taught how to recognise and avoid oper-ational and fraud risk and how to maintain infor-mation security. In 2011, ProCredit Bank Romania reported 705 risk events representing a total net risk amount of EUR 210,000. The main types of reported events included legal risks, IT system-related events, card-related events and non-com-pliance with procedural guidelines.

Every year the bank conducts a risk assessment procedure by completing a questionnaire on fraud risk and operational risk. Each of the risks de-scribed here must be mitigated by appropriate controls, the adequacy of which is the subject of the assessment. If the controls are judged to be insufficient, an action plan for remedying the situ-ation is drawn up. The completed assessment is sent to the Group Operational Risk Management Department.

A New Risk Approval (NRA) process is applied to all materially new or changed products, services or business processes. Only after the elimination of any obstacles or deficiencies revealed by the NRA process does management give its approval for the innovation to go ahead.

The bank’s Business Continuity Policy ensures that the bank can maintain or restore its opera-tions in a timely manner in the event of a serious disruption. As well as defining the steps to be tak-en to restore normal operations, the bank’s Business Continuity Plan specifies the procedure for moving critical operations to temporary loca-tions, the resources that need to be mobilised in each type of case and the expected cost of disrup-tions in specific areas. It also offers guidance on avoiding disruption in the first place.

Anti-Money Laundering

ProCredit Bank Romania fully endorses the fight against money laundering and terrorist financing, and has implemented the Group Anti-Money Laundering Policy, which meets the requirements of German and EU legislation as well as the stipu-lations of the Romanian authorities. No customer is accepted and no transaction is executed unless the bank understands and agrees to the underly-ing purpose of the business relationship. The Group Anti-Money Laundering Department (Group AML) conducts an annual risk assessment of all ProCredit banks and updates the policy accord-ingly. In addition, all ProCredit banks submit quar-terly reports on their AML activities to Group AML.

At ProCredit Bank Romania, responsibility for AML activities is exercised by the Compliance Department. The department is currently staffed


by two specialists who support the head of de-partment. According to local regulations, any cash transaction or international money transfer (as defined by local legislation) exceeding EUR 15,000 must be reported to the local authorities. In addition, any attempt to execute a transaction that arouses suspicion of money laundering, ter-rorist financing or some other criminal activity must be reported. Front-office staff receive inten-sive training in how to recognise suspicious transactions. An additional automated safeguard is provided by the use of three modules of the AML software manufactured by Tonbeller AG: Siron Embargo, Siron PEP and Siron AML. In cas-es of doubt, the bank informs Group AML immedi-ately and requests advice on how to proceed.

Capital Adequacy

The bank’s capital adequacy is calculated on a monthly basis and reported both to the manage-ment and to the Board of Administration, togeth-er with rolling forecasts to ensure future compli-ance with capital adequacy requirements. Strong support from our shareholders once again ena-bled the bank to maintain a comfortable capital cushion. In June 2011 there was a EUR 3 million increase in paid-in capital. At year-end 2011 the capital adequacy ratio (tier 1 and tier 2 capital / risk-weighted assets) stood at 16.9%, well above the 10% internal target. ProCredit Bank’s long-term issuer default rating, issued by FitchRatings, remained unchanged in 2011 at BB+.

27R IS K M A N AG E M E N T

Ukraine

MoldovaHungary

Ukraine

Bulgaria

Serbia

Romania

Black Sea

Cluj-Napoca

Arad

Brasov (2)

ConstantaBucharest (10)

Timisoara

Craiova (2)

Pitesti

Iasi

Suceava

Braila

AlexandriaDabuleni

Ramnicu Valcea

Sibiu

PloiestiSlatina

Branch Network

At the end of 2011, ProCredit Bank Romania had a total of 28 offices located in 17 different towns and cities, thus covering the major centres of eco-nomic activity. In the context of the financial crisis and in keeping with our strategic orientation to-wards developing more business with small enter-prises and consolidating our agricultural lending, the management decided to concentrate the insti-tution’s existing and future business in the south of the country (as a strategic region). Outside of this region ProCredit Bank Romania concentrates only on key cities with small business develop-ment potential.

The structure of our branch network is designed to enable us to be close to our customers and re-spond in a differentiated manner to their needs. Our enterprise lending business is concentrated in a number of specialised branches, where the ma-jority of our business client advisers and credit analysts are based. These branches provide not only credit but also all of the bank’s other services for business clients and private individuals, in-cluding various types of account services, foreign exchange, money transfers and utilities payments.

In addition to these full-scale branches, the bank also operates smaller service points in strategic, often densely populated neighbourhoods. The service points are designed to be convenient plac-

es for both private clients and business clients to do their day-to-day retail banking business, but do not process loan applications. Potential bor-rowers may submit their applications at a service point, if it is more convenient to do so, but the ac-tual credit analysis and approval takes place at the nearest full-fledged branch.

At the other end of the scale, the bank operates a small number of “business centres”, which are specifically oriented towards serving the more complex needs of our larger-scale business cli-ents, i.e. up to medium-sized enterprises. In 2011, the Constanta branch, one of the most successful in attracting small and medium clients, was en-larged and rebranded as a business centre. Three other locations were refurbished so as to create an environment that is both more comfortable for our clients and more conducive to banking activi-ties. We also installed additional security systems to increase the safety of our offsite ATM network.The interior design of the branches is geared to maximising customer convenience. Signposting directs business clients to physically separate ar-eas staffed by experts in serving enterprises, and rooms for confidential negotiations have been created wherever space has allowed. In or-der to increase the outreach and efficiency of our branch network, we have introduced various in-novative technologies and we encourage our cus-


tomers to make active use of our technology-based services, particularly in connection with payments. Examples include e-banking via the Internet, Info SMS and Info Payments, and direct debits. In enabling clients to perform their rou-tine banking transactions from other locations and outside normal banking hours, we not only make life more convenient for them, but are also able to devote more time to talking to them in per-son at the branches about more complex facili-ties, such as long-term savings options or com-pany payroll services.

Among our most popular technology-based serv-ices are debit cards, which both business clients and private individuals can use to withdraw cash

at any of our 58 ATMs, six of which were installed in 2011, or to make cashless purchases using POS terminals operated by local merchants, many of whom are themselves customers of ProCredit Bank Romania. In 2011 we started offering POS terminals to our customers, in co-operation with another Romanian bank.

In 2012 we plan to focus our efforts on opening more business centres in key regional centres as well as on refurbishing several branches in order to strengthen our image and our position in the markets where we operate. Our aim is to create the most appropriate environment for building up and maintaining long-term relationships with our clients.

B R A N CH N E T W O R K 29

Organisation, Staff and Staff Development

ProCredit Bank is aware that the quality of our re-lationship with our customers and the quality of service we provide to them depend crucially on the ability of our staff to understand their needs and respond to them in a responsible manner. For this reason, the bank takes great care to ensure that the people we hire identify wholeheartedly with its mission, and are dedicated to developing the skills they need in order to serve our clients well.

Recruitment is overseen by the Human Resources Committee, which includes members of the bank’s management. It is co-ordinated on a centralised basis by the HR department, following a carefully designed procedure. In line with the ProCredit group’s recruitment policy, all shortlisted appli-cants are now invited to take a “maths and logic” test, which is set by ProCredit Holding. While these technical skills are obviously necessary, they are not sufficient criteria in themselves. More impor-tantly, the bank seeks candidates who are intrinsi-cally motivated to work for an ethical, develop-ment-oriented financial institution, and for whom the beneficial impact of their work on the society in which they live is more important than personal financial gain. In order to assess candidates’ inter-personal skills and above all their potential com-

mitment to ProCredit’s objectives and principles, they are invited to take part in group discussions and role plays, followed by individual in-depth in-terviews with senior staff of the bank.

For university graduates and individuals with practical working experience who are interested in finding out whether a career with ProCredit is right for them, the bank has set up the “Young Bankers Programme”. For the duration of this six-month course, which covers maths, basic ac-counting and various banking-specific subjects as well as soft skills, participants receive a sti-pend. It is a unique opportunity both for them and for the bank to gauge whether their aptitudes and personal qualities fit in well with the special “ProCredit way of working”. Those who success-fully complete the course are eligible for an offer of a permanent position with the bank.

Given the importance of human resources for the future of the bank, highly qualified people are chosen to serve as the head of the HR depart-ment and as managers of its three sub-units: the Recruitment and Evaluation Unit, the Training Unit, and the Payroll, Administration and Benefits Unit. Aside from the Young Bankers Programme,


the Training Unit organises ongoing training to advance the professional and personal develop-ment of the staff. During the year, our employees participated in a total of 1,635 internal training days, not including attendance at the internation-al ProCredit Academies.

Continuing the group-wide initiative to raise the level of mathematical knowledge among its staff, in 2011 ProCredit Bank’s training activities fo-cused on advanced financial mathematics and ac-counting. During the year, 275 of the bank’s em-ployees reached the ProCredit group’s “Maths 2” standard, while another 172 successfully com-pleted the group-wide Basic Accounting course. Other noteworthy training measures include the organisation of a “train-the-trainer” course for selected employees, who then went on to “multi-ply” what they learned by training our front office staff in selling and negotiation techniques.

A large proportion of the training provided to cur-rent and potential middle managers takes place outside Romania at the international ProCredit Academies. In 2011, 14 colleagues from ProCredit Bank Romania graduated from the ProCredit Regional Academy for Eastern Europe in veles. 2 of the bank’s staff earned their “ProCredit Banker” diploma, marking the successful completion of the highly intensive three-year programme offered at the central ProCredit Academy in Fürth, Germany.

The bank’s organisational structure is designed to support the building of long-term customer re-lationships. At head office level, the Business

Clients Division is devoted to handling all of the banking needs specific to business customers, while the Private Individuals and Banking Services Division focuses on serving non-business clients.

The internal organisation of the branches reflects this customer orientation, with separate front of-fice areas for business clients and private individ-uals, respectively. Business Client Advisers at the branches are responsible for advising Small and very Small enterprises on all of the bank’s servic-es and for acquiring new customers, while the function of Credit Analysts is to evaluate applica-tions for credit services submitted by compara-tively large, complex business clients.

Given the bank’s continued focus on consolida-tion and quality in 2011, recruitment of new per-sonnel took place on a relatively limited scale. Nonetheless, 146 people joined the bank in 2011, bringing the total at year-end to 783 (including support staff).

ProCredit Bank Romania understands that the key to providing high quality service lies in building a team of motivated, professionally competent staff who are jointly committed to the bank’s mission and objectives, and who work well together on the basis of mutual trust and respect. For this reason, in addition to its substantial investment in train-ing, the bank also organises sports activities and winter events where all employees have the op-portunity to gather and engage in shared activi-ties in an informal setting.

31O R G A N IS AT I O N , S TA F F A N D S TA F F D E v E LO P M E N T

Business Ethics and Environmental Standards

Business Ethics

Part of the overall mission of the ProCredit group is to set standards in the financial sectors in which we operate. We want to make a difference not only in terms of the target groups we serve and the quality of the financial services we pro-vide, but also with regard to business ethics. Our strong corporate values play a key role in this re-spect. Six essential principles guide the opera-tions of the ProCredit institutions:

• Transparency: We provide transparent informa-tion to our customers, to the general public and to our employees. For example, we ensure that customers fully understand the terms of the contracts they conclude with us, and we en-gage in financial education in order to raise public awareness of the dangers of intranspar-ent financial offers.

• A culture of open communication: We are open, fair and constructive in our communication with each other, and deal with conflicts at work

in a professional manner, working together to find solutions.

• Social responsibility and tolerance: We offer our clients sound, well founded advice. Before offering loans to our clients, we assess their economic and financial situation, their busi-ness potential and their repayment capacity. On this basis we help them to choose appropri-ate loan options from which they can genuinely benefit, and to avoid becoming overindebted. Promoting a savings culture is another impor-tant part of our mission, as we believe that pri-vate savings play an especially crucial role in societies with relatively low levels of publicly funded social welfare provision. And we are committed to treating all customers and em-ployees with fairness and respect, regardless of their origin, colour, language, gender or reli-gious or political beliefs.

• Service orientation: Every client is served in a friendly, competent and courteous manner. Our employees are committed to providing excel-


We also ensure that requests for loans are evalu-ated in terms of the applicant’s compliance with ethical business practices. No loans are issued to enterprises or individuals if it is suspected that they are making use of unsafe or morally objec-tionable forms of labour, in particular child la-bour.

Another aspect of ensuring that our institution ad-heres to the highest ethical standards is our con-sistent application of best prac-tice systems and procedures to protect ourselves from being used as a vehicle for money laundering, the financing of ter-rorism or other illegal activi-ties. Staff members are trained to apply the “know your cus-tomer” principle, and to carry out sound monitoring and re-porting in line with the ap-plicable regulations. Anti-money laundering and fraud prevention policies are reg-ularly updated and exer-cised throughout the group to ensure compliance with local and international regulatory standards.

lent service to all customers, regardless of their background or the size of their business.

• High professional standards: Our employees take personal responsibility for the quality of their work and always strive to grow as pro-fessionals.

• A high degree of personal integrity and commit-ment: Complete honesty is required of all em-ployees in the ProCredit group at all times, and any breaches of this principle are dealt with swiftly and rigorously.

These six values represent the backbone of our corporate culture and are discussed and actively applied in our day-to-day operations. Moreover, they are reflected in the ProCredit Code of Conduct, which transforms the group’s ethical principles into practical guidelines for all staff. To make sure that new employees fully understand all of the principles that have been defined, induction train-ing includes sessions dedicated to the Code of Conduct and its significance for all members of our team. Regular refresher training sessions help to ensure that employees remain committed to our high ethical standards and are kept abreast of new issues and developments which have an ethical dimension for our institution. These events allow existing staff to analyse recent case studies and discuss any grey areas.

33B US I N E SS E T H I C S A N D E N v I R O N M E N TA L S TA N DA R DS

Environmental Standards

All of the banks belonging to the ProCredit group set high standards regarding the impact of their operations on the environment. ProCredit banks take a three-pronged approach to environmental challenges:

Pillar 1: Internal environmental management system

ProCredit Bank Romania is putting in place an ap-proach to better understand and improve the sus-tainability of its own energy use and environmen-tal impact. The bank recycles paper as a matter of policy and encourages staff to engage in energy-saving behaviour, such as using energy, water and paper more sparingly, as well as turning off lights and equipment when not in use. These ef-forts are being carried out at all levels in the bank, from the head office to the branches.

Environmental issues are an essential compo-nent of the training provided to ProCredit Bank staff at the local, regional and international lev-el. The bank has designated an Environmental

Co-ordinator to be responsible for ensuring that Group Environmental Standards for Lending are applied, including trainings for loan officers.

Pillar 2: Management of environmental risk in lending

ProCredit Bank Romania has implemented an en-vironmental management system based on con-tinuous assessment of the loan portfolio accord-ing to environmental criteria, an in-depth analysis of all economic activities which potentially involve environmental risks, and the rejection of loan ap-plications from enterprises engaged in activities which are deemed environmentally hazardous and appear on our institution’s exclusion list. By incorporating environmental issues into the loan approval process, ProCredit Bank Romania is also able to raise its clients’ overall level of environ-mental awareness.

Pillar 3: Promotion of “green finance”

ProCredit Bank Romania aims to promote econom-ic development that is as environmentally sus-


tainable as possible. We plan to launch a pro-gramme of green finance products next year consisting of energy efficiency loans both for pri-vate individuals and for businesses. This initiative will also involve building relationships with sup-pliers of environmentally friendly equipment and services, and encouraging them to offer products bearing the EU standard energy efficiency labels. In addition, the programme will include home im-provement energy efficiency loans as well as loans to businesses to finance investments in en-ergy efficient fixed assets.

The bank aims to use its green finance products and approach to increase public awareness and understanding. With the same goal in mind, ProCredit Bank plans to attend fairs and exposi-tions related to energy efficiency programmes and equipment so as to remain informed about the lat-est innovative measures and technologies. In this way, we can create suitable offers for our clients and undertake the proper measures for creating an environmentally friendly organisation.

B US I N E SS E T H I C S A N D E N v I R O N M E N TA L S TA N DA R DS 35

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People

The ProCredit group comprises 21 financial insti-tutions providing banking services in transition economies and developing countries. ProCredit banks are responsible neighbourhood banks. This means, in the neighbourhoods in which we work, we aim to:

• be the house bank of choice for the very small, small and medium-sized enterprises which cre-ate jobs and drive economic development, and

• provide secure, fair and transparent savings and banking services to ordinary people who are looking for an affordable bank they can trust.

At the end of 2011 our 16,183 employees, working in some 775 branches, were serving 2.9 million customers in Eastern Europe, Latin America and Africa. The history of the ProCredit group is a rich one and forms the basis of what we are today. The first ProCredit banks were founded more than a dec-ade ago with the aim of making a development im-pact by providing loans to help small business to grow and offering deposit facilities that would en-courage lower-income individuals and families to save. The group has grown strongly over the years, and today we are one of the leading provid-ers of banking services to small business clients in most of the countries in which we operate.

Our origins lie in our pioneering microfinance posi-tioning. This positioning has developed as our markets and our clients have developed so our so-cially responsible approach remains as relevant today as ever. Its importance has been under-scored by the financial crisis and subsequent mac-roeconomic decline which most of our countries of operation experienced. As enterprises adjust to and expand again in their new economic reality and ordinary people rebuild their trust in banks, it is clear that our customers need a reliable banking partner now more than ever. This has also given us the impetus to further strengthen our comprehen-sive customer-oriented approach with more highly specialised and well trained staff.

Unlike most other banks operating in our markets, we have always avoided aggressive consumer

lending and speculative lines of business. Instead, the ProCredit banks work in close contact with their clients to gain a full understanding of the problems and opportunities of small busi-nesses. Our credit technology, developed over many years with the support of the German con-sulting company IPC, relies on the careful individ-ual analysis of credit risks. By making the effort to know our clients well and maintain long-term rela-tionships based on trust and understanding, we are able to support them not only when the econo-my is buoyant, but also during a downturn and re-covery. Over the last two years, the ability of our business client advisers to proactively make ap-propriate adaptations to payment plans where necessary to reflect clients’ new and more chal-lenging sales environments has played an impor-tant role in maintaining good loan portfolio quali-ty. This is in contrast to many of the markets in which we operate where Non Performing Loan portfolios have been very high, also in the SME sector, which suggests that bank behaviour has in many cases increased the risk of bankruptcy rath-er than help businesses emerge more strongly from the economic shock.

We not only extend loans, but also offer our enter-prise clients a broad range of other banking serv-ices such as cash management, domestic and in-ternational money transfers, payroll services, POS terminals and payment and credit cards. Using our rigorous approach to financial analysis, we promote, in so far as we can, financial educa-tion and enhanced financial record keeping amongst our clients. These services are geared towards assisting our business clients to operate more efficiently and more formally and thus help to strengthen the real economy and the banking sector as a whole. In these terms ProCredit has a “whole customer” service orientation rather than a “product selling” approach. Our staff and our branches are becoming more specialised and bet-ter equipped to cater to the needs of different cli-ent categories.

Today we have less of a focus on “micro-micro loans” than we did in the past. The minimum loan size for enterprise clients is EUR/USD 2,000 in most countries since we found that below this limit there is such broad access to loans from con-sumer finance providers that “excess” had be-come more of a challenge for many clients than


ProCredit Holding Germany

ProCredit Bank Serbia

ProCredit Bank Bosnia and Herzegovina

ProCredit Bank Kosovo

ProCredit Bank Albania

ProCredit Bank Macedonia

ProCredit Savings and Loans Ghana

ProCredit Bank Democratic Republic of Congo

Banco ProCredit Mozambique

ProCredit Bank Ukraine

ProCredit Bank Moldova

ProCredit Bank Romania

ProCredit Bank Georgia

ProCredit Bank Armenia

ProCredit Bank BulgariaProCredit Mexico

Banco ProCredit Honduras

Banco ProCredit El Salvador

Banco ProCreditNicaragua

Banco ProCreditColombia

Banco ProCredit Ecuador

Banco Los AndesProCredit Bolivia

The international group of ProCredit institutions; see also www.procredit-holding.com

“access”. For these groups we prefer to offer de-posit accounts and other banking services rather than credit. We would judge our development im-pact not just by the number of loans disbursed, but also by the sustainability of the enterprises we work with – in economic, social and environ-mental terms; by the stability and quality of the income that associated families and employees enjoy; by the reduction of household vulnerability because people save; by the calibre of our staff; and by the impact we have in promoting transpar-ent financial institutions more widely.

Our targeted efforts to foster a savings culture in our countries of operation have enabled us to build a stable deposit base. ProCredit deposit fa-cilities are appropriate for a broad range of low-er- and middle-income customers. We place par-ticular emphasis on working with the owners,

employees and families associated with our core target group of very small, small and medium-sized businesses. ProCredit banks offer simple savings accounts and place great emphasis on promoting financial literacy in the broader com-munity. In addition to deposit facilities, we offer our clients a full range of standard retail banking services. Over 2011 ProCredit institutions man-aged to maintain a high level of liquidity given the stability of their loyal retail deposit base.

The ProCredit group has a simple business mod-el: providing banking services to a diverse range of enterprises and the ordinary people who live and work around our branches. As a result, our banks have a transparent, low-risk profile. We do not rely heavily on capital market funding and have no exposure to complex financial products. Furthermore, our staff are well trained, flexible

37T HE PROCREDIT GROUP: RE SPONSIBLE NEIGHBOURHOOD BANKS FOR SM ALL BUSINE SSE S AND ORDINARY PEOPLE

and able to provide competent advice to clients, guiding them through difficult times as well as good times. Despite the turmoil of the global fi-nancial markets, the performance of the ProCredit group has been remarkably stable: we ended 2011 with a good liquidity position, comfortable capital adequacy, PAR over 30 days of 3.8%, and a Return on Equity of 10.4%. Given the depressed macroeconomic situation in many of our countries of operation, this was a strong performance.

Our shareholders have always taken a conserva-tive, long-term view of business development, aiming to strike the right balance between a shared developmental goal – reaching as many small enterprises and small savers as possible – and achieving commercial success.

Strong shareholders provide a solid foundation for the ProCredit group. It is led by ProCredit Holding AG & Co. KGaA, a German-based company that was founded by IPC in 1998. ProCredit Holding is a public-private partnership. The pri-vate shareholders include: IPC and IPC Invest, an investment vehicle for ProCredit staff members; the Dutch DOEN Foundation; the US pension fund TIAA-CREF; the US Omidyar-Tufts Microfinance Fund; and the Swiss investment fund responsAbil-ity. The public shareholders include the German KfW Bankengruppe (KfW banking group); IFC, the private sector arm of the World Bank; the Dutch

development bank FMO; the Belgian Investment Company for Developing Countries (BIO) and Proparco, the French Investment and Promotions Company for Economic Co-operation. The group also receives strong support from the EBRD and Commerzbank, our minority shareholders in Eastern Europe, and from the Inter-American Development Bank (IDB) in Latin America. With the strong support of its shareholders and other partners, the ProCredit group ended the year with a total capital adequacy ratio of 15% – a figure that reflects their confidence in the group.

ProCredit Holding is not only a source of equity for its subsidiaries, but also a guide for the develop-ment of the ProCredit banks, providing the per-sonnel for their senior management and offering support in all key areas of activity. The holding company ensures the implementation of ProCredit corporate values, best practice banking opera-tions and Basel II risk management principles across the group. The group’s business is run in accordance with the rigorous regulatory stand-ards imposed by the German banking supervisory authority (BaFin).

ProCredit Holding and the ProCredit group place a strong emphasis on human resource manage-ment. Our “ethical neighbourhood bank” concept is not limited to our target customers and how we reach them; it above all concerns the way in which


we work with our staff and how we encourage them to work with their customers. The strength of our relationships with our customers will continue to be central to working with them effectively in 2012 and achieving steady business results. In 2011 there was a strong focus on staff quality, re-cruitment and training. The 6-month Young Banker stipend programme, which all ProCredit banks of-fer to all potential new recruits, continues to de-velop. This symbolises our commitment to skill development in all our countries of operation.

A responsible approach to neighbourhood bank-ing requires decentralised decision-making and a high level of judgment and adaptability from all staff members, especially our branch managers. Our corporate values embed principles such as open communication, transparency and profes-sionalism into our day-to-day business. Key to our success is therefore the recruitment and training of dedicated staff. We maintain a corporate cul-ture that promotes the professional development of our employees while fostering a deep sense of personal and social responsibility.

A central plank in our approach to training is the ProCredit Academy in Germany, which provides an intensive part-time training programme over a pe-riod of three years for high-potential staff from each of the ProCredit institutions. The curriculum includes technical training and also exposes par-ticipants to subjects such as anthropology, histo-ry, philosophy and ethics in an open and multicul-tural learning environment. Our goal in covering such varied topics is to give our future managers

the opportunity to develop their knowledge and views of the world. At the same time, we aim to im-prove their communication and staff management skills. The group also operates two Regional Acad-emies in Latin America (Colombia) and in Eastern Europe (for our African and Eastern European col-leagues) to support the professional development of middle managers at the local level.

The group’s strategy for 2012 is to consolidate the tremendous efforts we have made over the last two years to strengthen our institutions and our client relationships. We will further expand our business as the “house bank” of choice for small and very small enterprises, offering tailored loans and other banking services. At the same time we will continue to improve the speed and conven-ience of our services for all clients.

2012 will also be the year that we begin opera-tions at our planned ProCredit Bank in Germany and bring the group under the supervision of the German Federal supervising authorities (BaFin, the Bundesanstalt für Finanzdienstleistungsaufsicht, and the Bundesbank). The group is well prepared, having overhauled its reporting and risk manage-ment systems to bring all institutions into line with the requirements of German banking regulations (KWG). Nevertheless full implementation will re-quire our attention.

Strong investment in our staff remains the key pri-ority. Together we look forward to further strength-ening the development impact and commercial success of the group.

39T HE PROCREDIT GROUP: RE SPONSIBLE NEIGHBOURHOOD BANKS FOR SM ALL BUSINE SSE S AND ORDINARY PEOPLE

ProCredit in Eastern Europe

ProCredit banks operate in 11 countries across Eastern Europe. As a leading provider of banking services to very small, small and medium-sized businesses, we position ourselves as the “house bank for small business” in the region. ProCredit banks provide a high standard of transparent, professional services to all their clients – the ordi-nary people who live and work in the vicinity of the 475 ProCredit branches across the region.

The macroeconomic environment continued to be challenging in 2011 for most of the South Eastern and Eastern European countries in which ProCredit works, particularly in the last quarter of 2011 in the wake of deep uncertainty about the economic future of Greece and the euro zone. There was little GDP or banking sector growth in most Balkan countries in South Eastern Europe. Only in Serbia and Albania did banking sectors grow by more than 5%. The countries further east (Armenia, Georgia, Moldova and Ukraine) experienced more steady GDP growth of 4-5%, with growth in the banking sector in Georgia being notably strong. Non-performing loans (NPLs, i.e. loans more than 90 days overdue) of banking sectors were also per-sistently high, at well over 10% in most markets where ProCredit operates. Many Western bank groups were reducing risk-weighted assets in the region with more stringent central capital adequa-cy requirements. Generally, government spending remained tight, consumer confidence low and in-vestment activity by the small and medium enter-prise sector depressed in 2011. Prospects for 2012 are similar since there is unlikely to be an economic turnaround in the euro zone which could drive growth in the region. The role of ProCredit banks against this still vulnerable economic back-drop is a valuable one as our clients and the finan-cial markets in which we operate adjust to the new economic reality in the region.

For the financial sectors in which we work, ProCredit banks have represented consistency, good risk management and a high degree of fi-nancial transparency throughout the recent un-settled years. ProCredit banks have been notable in continuing to lend steadily and responsibly to support small businesses while banking sectors as a whole have tended to be erratic.

For our business clients, ProCredit banks remain a reliable and responsible partner. We specialise in

working with very small, small and medium enter-prises, because these clients are central to develop-ing the economy and employment opportunities. Our approach is based on building relationships with our clients and a thorough understanding of their business.

In the current climate, we support our business clients with prudent business development and efficient cash management. Given the overall weak investment climate in 2011, we put particu-lar emphasis on efficient working capital facilities in the form of credit lines and overdrafts. We work with each client to identify their credit capacity based on their ability to repay their debt even in volatile times.

The outstanding loan portfolio of the 11 ProCredit banks in Eastern Europe stood at EUR 2.9 billion at the end of 2011 (an increase of 7.2% from the end of 2010). Growth was particularly strong in our core “Small Business” client category (de-fined as business clients with a credit capacity of EUR 30,000–150,000) which grew by 14.1% in 2011. We have approximately 321 thousand busi-ness clients in total across the region. ProCredit staff have been proactive in acquiring new clients and serving existing clients. Our lending activi-ties aim to foster local production and service in-dustries, and include the provision of agricultural loans. We are keen to support a sector that has been particularly neglected by other banks and that is vital for employment and social cohesion outside the main urban areas.

For clients facing difficulties we support busi-nesses to restructure to avoid bankruptcy where appropriate. Given our thorough understanding of our clients’ businesses, we are able, where neces-sary, to adapt loan repayment schedules if the sales pattern of a business has changed signifi-cantly. This has meant that arrears and write-off figures for the ProCredit banks in Eastern Europe are low relative to banking sectors as a whole. The combined portfolio at risk (PAR) >30 days for the Eastern European institutions as a percentage of their loan portfolio was 4.2% at the end of 2011 (PAR>90 days stood at 3.1%). Write-offs for the group in the region amounted to 1.4% of the loan portfolio. In these terms ProCredit continues to demonstrate that with a responsible approach to lending, based on an assessment of the real situa-


Poland

Belarus

Turkey

Slovakia

Czech Republic

HungaryAustria

Slovenia

Greece

Syria

Iraq

Armenia Azerbaijan

Georgia

Russia

Ukraine

Moldova

Romania

Bulgaria

Serbia

Kosovo

MacedoniaAlbania

Bosnia and Herze- govina

Montenegro

CroatiaItaly

Kyrgyzstan

Kazakhstan

Turkmenistan

Uzbekistan

Iran Afghanistan

Tajikistan

Kashmir

Sinkiang

Pakistan

Saudi Arabia

KuwaitJordanIsrael

EgyptLibya

India

Tunisia

Germany

Switzerland

France

tion of an enterprise, a high degree of financial stability can be achieved for clients and in bank performance.

ProCredit banks have also had to strengthen their structures for the recovery of written-off and non-performing loans, however. The weaknesses of the legal system in many countries in the region in supporting banks to realise registered collateral have become very apparent since the financial cri-sis. The ultimate success and timeliness of recov-ery efforts will be an important factor in determin-ing banks’ willingness to expand SME finance in the future.

For our private clients, ProCredit banks have also been a symbol of stability and transparency in turbulent years. ProCredit has focused for many years on promoting a savings culture because set-ting money aside can help clients build a buffer against the vagaries of life. The ratio of deposits to GDP in Eastern European countries is still well below Western European levels.

We offer simple and reliable retail banking servic-es. Our belief in transparent, direct communica-tion is particularly important in fostering clients’ trust. We understand that our clients want to know in simple language how to save safely; they also want to access their money when they need it and they want access to convenient and efficient transaction services. Our experience confirms that customers appreciate the transparent, re-sponsible approach we take.

ProCredit banks fund most of their lending activi-ties with local savings. The ratio of deposits to loans in the ProCredit banks in the region is 84%. Not only did we not have to rely on unpredictable capital markets for funds in 2011, but ProCredit banks in the region remained highly liquid through-out the year and our cost of funds declined.

Looking forward, in addition to the savings servic-es they provide, ProCredit banks will continue to be conservative with consumer loans for their private clients, but will expand their provision of

P r O Cr E D i T i N E a S T E r N E u r O P E 41

convenient banking services, such as e-banking and direct debit, and will continue to provide re-sponsible housing improvement, energy efficiency and other loans which help build a family’s assets.

For our staff, ProCredit banks offer unique oppor-tunities for professional development and job sat-isfaction given our strong client orientation, open communication culture and unusual commitment to staff training. In terms of institution building activities, ProCredit banks in Eastern Europe were focused on consolidating many of the measures introduced in 2010 to improve the quality and ef-ficiency of our services.

Our staff is the key element in our approach to be-ing a stable, down-to-earth and personal banking partner. The ProCredit group invests heavily to achieve high standards in staff recruitment and development. The six-month “Young Banker” sti-pend programme introduced by all ProCredit

banks in the region is fast becoming a well-known and innovative feature of bank recruitment in many countries, with its strong emphasis not just on a broad-based technical training, but also on individual ethics and the responsibilities of a banking sector to promote sustainable economic development.

To complement the international ProCredit Academy in Germany, we have an Eastern European academy, located near Skopje in Macedonia, which is dedicated to the training of ProCredit middle managers. The regional acad-emy is an important channel for rapid and con-sistent communication region-wide and one that helps us adapt quickly to face new chal-lenges. Investment in our staff is an ongoing commitment and will remain a central plank in the ProCredit Bank approach. A qualified, moti-vated and professional team lies at the root of our lasting success across Eastern Europe.


* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with group-wide standards; they may differ from the figures reported in the bank’s local statements.

** Not including finance company ProCredit Moldova.

Highlights*

Founded in October 199840 branches24,658 loans / EUR 178 million in loans180,000 deposit accounts / EUR 232 million635 employees

Founded in December 200711 branches5,613 loans / EUR 48 million in loans20,733 deposit accounts / EUR 22 million284 employees

Founded in October 199730 branches17,427 loans / EUR 126 million in loans82,722 deposit accounts / EUR 108 million425 employees

Founded in October 200183 branches33,337 loans / EUR 586 million in loans217,586 deposit accounts / EUR 437 million1,391 employees

Founded in May 199961 branches43,968 loans / EUR 316 million in loans435,440 deposit accounts / EUR 238 million1,525 employees

Founded in January 200063 branches85,656 loans / EUR 517 million in loans426,851 deposit accounts / EUR 664 million1,071 employees

Founded in July 200335 branches22,796 loans / EUR 164 million in loans108,797 deposit accounts / EUR 144 million461 employees

Founded in December 200723 branches11,177 loans / EUR 90 million in loans45,831 deposit accounts / EUR 33 million540 employees

Founded in May 200228 branches24,541 loans / EUR 192 million in loans111,314 deposit accounts / EUR 159 million783 employees

Founded in April 200162 branches79,403 loans / EUR 532 million in loans282,248 deposit accounts / EUR 274 million1,315 employees

Founded in January 200140 branches14,478 loans / EUR 176 million in loans133,857 deposit accounts / EUR 147 million1,337 employees

Contact

Legal address: Rr. “Dritan Hoxha”. Nd. 92, H.15, Njësia Bashkiake Nr. 11TiranaP.O. Box 1026Tel./Fax: +355 4 2 389 300 / 22 33 [email protected]

105/1 Teryan St., area 110009 YerevanTel./Fax: + 374 10 514 860 / [email protected]

8 Emerika Bluma71000 SarajevoTel./Fax: +387 33 250 950 / [email protected]

26 Todor Aleksandrov Blvd.1303 SofiaTel./Fax: +359 2 813 5100 / [email protected]

154 D. Agmashenebeli Ave.0112 TbilisiTel./Fax: +995 32 220 22 22 / 220 22 [email protected]

16 “Mother Tereze” Boulevard10000 PrishtinaTel./Fax: +381 38 555 777 / 248 [email protected]

109a Jane Sandanski Blvd.1000 SkopjeTel./Fax: +389 2 321 99 00 / [email protected]

65 Stefan cel Mare Ave.office 901, ChisinauTel./Fax: +373 22 836 555 / 273 [email protected]

62–64 Buzesti St., Sector 1011017 BucharestTel./Fax: +40 21 201 6000 / 305 [email protected]

17 Milutina Milankovica11070 BelgradeTel./Fax: +381 11 20 77 906 / [email protected]

107a Peremohy Ave.03115 KyivTel./Fax: +380 44 590 10 00/[email protected]

Name

ProCredit BankAlbania

ProCredit BankArmenia

ProCredit BankBosnia and Herzegovina

ProCredit BankBulgaria

ProCredit BankGeorgia

ProCredit BankKosovo

ProCredit BankMacedonia

ProCredit BankMoldova**

ProCredit BankRomania

ProCredit BankSerbia

ProCredit BankUkraine

P R O CR E D I T I N E A S T E R N E U R O P E 43

Our Clients

The Usam Group is the only producer of specialised safety products, such as rubber boots and safety harnesses, in Romania. Founded in 2005 by Andrei Stancescu and his brother, the company was ini-tially housed in a rented space. Mr. Stancescu, now 40 years old, had previously worked for five years in his father’s company, gaining the experience he needed to run his own business.

The Usam Group had done business with several banks in Romania, especially to obtain working capital financing, but Mr. Stancescu found the of-fer he received from ProCredit Bank to best meet his business’s needs. His relationship with ProCredit Bank began in the spring of 2011, when he was contacted by one of the bank’s client rela-tionship managers.

“I want to have stability, efficiency and simplicity in my banking operations, so my aim is to do

business with only one bank. When we became a customer at ProCredit Bank, I wanted to refinance a credit line from another bank. This enabled me

to pay my taxes on time, which had not always been easy because my business is somewhat

seasonal and so are the earnings.”

Currently, the company occupies a 2,720 m2 plot of land and a 1,574 m2 warehouse. It produces

boots, safety systems for working at heights and safety equipment for fire fighters, and markets a range of other safety equipment, such as helmets, face shields, etc. The boots are made from recy-cled waste material, and production capacity is currently 1,800-2,000 pairs of boots per day and 1,000 safety harnesses.

“We have adapted our product range in response to changes in the market, and now focus on two

product lines, a lower-priced line with a high sales volume (e.g. merchandise for farmers), as well as a highly specialised line of products whose

quality must be absolutely flawless, as the lives of those wearing our electrical insulating boots

depend on it.”

In the meantime, the Usam Group has 27 employ-ees, and Mr. Stancescu now manages the compa-ny on his own.

“I have big development plans: I want to diversify the production process and buy more land nearby for a new hall. Once I get my products patented, I will start exporting them as well, so I am counting

on ProCredit Bank’s support in the future.”

Andrei Stancescu, Safety Equipment Producer


Aurel Bocioc, 62, has been working in agriculture in the village of Iecea in Timis county for more than 40 years. A professional agronomist, the farmer has a reputation for being a good adminis-trator and specialist in his field. He currently works over 700 hectares cultivated with cereals.

“I prefer to grow corn, because it produces good yields. Back when I was a student, our teacher

used to say that to reap a good harvest, you just needed to remember to sow. Things have

changed, however; to achieve yields comparable to those of western countries, we need to make

substantial technological investments.”

Mr. Bocioc first became a client at ProCredit Bank when he purchased a combine in 2005 through a European Union funding programme.

“ProCredit Bank has helped me to acquire machin-ery and thus increase my yields. One cannot grow

good crops without modern equipment. Back in 2005, banks were restrictive with regard to lending to agricultural businesses. The dealer from whom I bought the combine referred me to ProCredit Bank,

where I promptly received a loan.”

Mr. Bocioc has been a satisfied client at ProCredit Bank ever since. In the meantime, he has ob-tained two loans, one for production inputs in 2008, for EUR 75,000, and another in the spring of 2011, for about EUR 400,000, for the purchase of equipment. These acquisitions have enabled Mr. Bocioc to achieve sustainable production cy-cles for his crops.

“Modern agriculture needs financing. It is difficult for a farmer to gather the funds to buy this type of

machinery without having a negative impact on production. But with the help of a professional

bank like ProCredit, things become much easier.”

As for his future plans, Mr. Bocioc would like to in-vest in more technology. Although he sees little opportunity to expand his land, he plans to pur-chase modern machinery that will save time and fuel. He also intends to buy a higher performance tractor for planting and spraying herbicides, as well as a grain scale so as to keep an accurate record of output and deliveries. Mr. Bocioc says he will continue turning to ProCredit Bank for all of his investment projects, as he finds the staff profes-sional and highly experienced in understanding the financial needs of an agricultural business.

Aurel Bocioc, Farmer

O U R CL I E N T S 45

Lucian Neaga, 30, has a degree in economics and is the director of the vELOX Logistics Center, a company that specialises in transporting automo-biles. Established in 2009 in the city of Pitesti, the company uses its own fleet of trucks as well as rentals from subcontractors to make shipments of vehicles throughout Romania and to other EU member states.

Operating day and night, this dynamic business requires constant access to information and re-sources. For this reason, Mr. Neaga is a loyal user of the distance banking services offered by ProCredit Bank.

“I have been a client for a long time and I am highly satisfied with the services that the bank

offers. We are like business partners; we support each other and will continue to grow together.”

Mr. Neaga has been using current accounts at ProCredit to manage payments and salaries for his employees for several years now. During this period he has gained valuable experience in the transport sector, which has enabled him to create a stable cash flow, invest in his company and hire ten employees.

“As long as we feel that the automobile market has potential, we will continue to invest time and money in our development. At the same time, we

want to diversify our activities and consider investments in other areas. We have the resources and the motivation, and ProCredit Bank’s services

will help us to achieve our goals.”

Although he has seen many companies enter the market, both in Romania and in the rest of Europe, Mr. Neaga believes that his business will continue to thrive due to the solid client base he has estab-lished and especially because of the positive re-ferrals he receives after every project.

“It takes perseverance, diligence and profession-alism to develop long-term partnerships and a

strong reputation, and I know that this is the way ProCredit Bank works too. I have recommended

the bank to my family as a trustworthy institution for their pensions and savings.”

Lucian Neaga, Owner of a Transport Logistics Company


Maria Magdalena Nitulescu, 31, is the owner of a successful wood-processing business in Pitesti. Established in 2008, Mag Exclusive Prodcom has expanded steadily ever since.

Ms. Nitulescu first contacted ProCredit at the be-ginning of 2011, when she chose to refinance a credit line obtained from another bank. Pleased with the courteous, professional service she re-ceived, she decided to move all of her banking op-erations to ProCredit. Additionally, she took out a new credit line of EUR 10,000, which she uses for salary payments and other administrative ex-penses, and a EUR 15,000 overdraft, which she uses for working capital.

“ProCredit offered support and understood my needs from the very beginning, and I appreciate

that the staff is well trained and can quickly solve any problem. In addition to financing, I frequently use the internet banking services, along with SMS

notifications. I am an organised person, and I have learnt from my parents to pay my debts before anything else – and these ProCredit services help me to manage my company’s

finances smoothly.”

With ten years of experience in wood processing, Ms. Nitulescu has managed to increase the size of her operations, and her staff has grown from eight to 25 employees. In the meantime, she has also acquired a 9,000 m2 plot of land, upon which she plans to build a plant to begin manufacturing plastics. Another goal is to begin exporting her wood products.

“We distribute all over Romania, and most of our clients are manufacturers of auto parts. We

produce wooden pallets and other wood packag-ing for them. For exports, however, we need EPAL certification. I hope to obtain it soon so that I can

start growing my business in other countries.”

Thanks to the financing she received from ProCredit, Ms. Nitulescu managed to build an of-fice in the factory this year and she plans on tak-ing out another loan to insulate one of the factory halls, which should improve the efficiency of the production processes. Once export opportunities become available, she also plans to purchase new equipment. Highly satisfied with ProCredit Bank’s staff and services, Ms. Nitulescu says that she appreciates having a bank that she can count on and looks forward to continuing the business relationship.

Maria Magdalena Nitulescu, Owner of a Wood-processing Business

O U R CL I E N T S 47

Financial StatementsFor the year ended 31 December 2011.Prepared in accordance with International Financial Reporting Standards.


F I N A N CI A L S TAT E M E N T S 49

Statement of Comprehensive Income For the year ended 31 December 2011

Convenience translation to EUR*in RON Notes 2011 2010 2011 2010Interest and similar income 139,679,770 147,528,254 32,959,666 35,043,173Interest and similar expenses –51,410,994 –54,460,382 –12,131,243 –12,936,265Net interest income (21, 27) 88,268,776 93,067,872 20,828,424 22,106,908 Allowance for impairment losses on loans and advances –5,918,701 –20,215,367 –1,396,612 –4,801,864Net interest income after allowances (10, 28) 82,350,076 72,852,505 19,431,812 17,305,044 Fee and commission income 12,853,735 12,840,677 3,033,044 3,050,115Fee and commission expenses –2,311,211 –2,139,395 –545,367 –508,182Net fee and commission income (22, 29) 10,542,524 10,701,282 2,487,676 2,541,933 Result from foreign exchange transactions (30) 4,514,476 4,260,001 1,065,262 1,011,901Net result from available-for-sale financial assets (31) 366,174 7,554 86,405 1,794Net other operating income/expense (32) –2,835,099 –2,530,108 –668,987 –600,990Operating income 94,938,152 85,291,234 22,402,169 20,259,682 Personnel expenses (33) –44,868,033 –49,056,996 –10,587,327 –11,652,770Administrative expenses (33) –24,982,966 –24,470,280 –5,895,129 –5,812,556Operating lease expenses –13,888,808 –16,879,148 –3,277,285 –4,009,394Depreciation and amortisation (37, 38) –7,571,797 –9,753,151 –1,786,686 –2,316,718Operating expenses –91,311,603 –100,159,575 –21,546,427 –23,791,438 Operating result 3,626,549 –14,868,341 855,742 –3,531,756 Income tax expenses/ income (15, 31) –953,078 1,556,312 –224,894 369,679 Profit/Loss for the year 2,673,471 –13,312,029 630,848 –3,162,077 Change in revaluation reserve from available-for-sale financial assets (37) –81,722 – –19,284 –Change in deferred tax on revaluation reserve from available-for-sale assets 13,075 – 3,085 –Other comprehensive income for the year, net of tax –68,646 – –16,198 – Total comprehensive income for the year 2,604,825 –13,312,029 614,650 –3,162,077

* please refer to Note 7.a.

The statement of comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 87.The financial statements were approved by the Board of Administration on 19 April 2012 and were signed on its behalf by:

Dr. Ilinca Rosetti Heribert Kailbach General Manager Deputy General Manager


Statement of Financial Position For the year ended 31 December 2011

Convenience translation to EUR* As at December 31in RON Notes 2011 2010 2011 2010AssetsCash and cash equivalents (8, 35) 228,343,741 200,876,965 52,861,018 46,881,293Loans and advances to banks (9, 36) 7,012,991 4,250,178 1,623,490 991,920Available-for-sale financial assets (10, 37) 81,217,620 15,281,445 18,801,681 3,566,431Loans and advances to customers (9, 38) 828,439,156 765,553,837 191,781,641 178,667,344Allowance for losses on loans and advances to customers (10, 39) –46,455,849 –34,883,678 –10,754,416 –8,141,262Property, plant and equipment (12, 14, 41) 13,833,930 18,121,814 3,202,521 4,229,326Intangible assets (11, 40) 1,709,645 1,979,456 395,779 461,972Deferred tax assets (15, 43) 5,847,829 6,787,831 1,353,758 1,584,165Other assets (44) 4,751,125 6,307,100 1,099,874 1,471,971Total assets 1,124,700,187 984,274,949 260,365,346 229,713,160

LiabilitiesLiabilities to banks (16, 45) – 857,012 – 200,012Liabilities to customers (16, 46) 740,316,178 617,215,227 171,381,387 144,047,616Liabilities to international financial institutions (47) 226,272,112 225,919,068 52,381,441 52,725,697Other liabilities (48) 6,187,545 4,028,360 1,432,402 940,151Provisions (17, 18, 49) 305,002 70,148 70,608 16,371Current tax liabilities (15, 34) – 8,063 – 1,882Subordinated debt (19, 50) 38,579,633 38,261,757 8,931,091 8,929,648Total liabilities 1,011,660,469 886,359,635 234,196,928 206,861,379

EquitySubscribed capital (48) 150,739,521 138,219,941 34,895,831 32,258,201Capital reserve (49) 1,273,775 1,273,775 294,876 297,278Legal reserve 1,533,997 626,519 355,116 146,219Accumulated loss –40,438,929 –42,204,922 –9,361,513 –9,849,916Revaluation reserve from available-for-sale financial instruments (40) –68,646 – –15,891 –Total equity 113,039,718 97,915,314 26,168,419 22,851,782

Total equity and liabilities 1,124,700,187 984,274,949 260,365,347 229,713,160

* please refer to Note 7.a.

The statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 87.The financial statements were approved by the Board of Administration on 19 April 2012 and were signed on its behalf by:

Dr. Ilinca Rosetti Heribert Kailbach General Manager Deputy General Manager


Statement of Changes in EquityFor the year ended 31 December 2011

Attributable to equity holders of the company Total Share Capital Legal Accumulated Revaluationin RON capital reserve reserve loss reserve AFSBalance at January 1, 2011 138,219,941 1,273,775 626,519 –42,204,922 – 97,915,314Profit of the year 2011 – – – 2,673,471 – 2,673,471Revaluation of afs securities – – – – –68,646 –68,646

Other comprehensive income – – – – – – Total comprehensive income of the year 2011 – – – 2,673,471 –68,646 2,604,825 Distributed dividends from profit 2010 – – – – – –Transfer to legal reserve – – 907,477 –907,477 – –Capital increase 12,519,580 – – – – 12,519,580Balance at December 31, 2011 150,739,521 1,273,775 1,533,997 –40,438,929 –68,646 113,039,718 Balance at January 1, 2010 116,458,471 1,273,775 626,519 –28,892,892 – 89,465,873Profit of the year 2010 – – – –13,312,029 – –13,312,029Revaluation of afs securities – – – – – – Other comprehensive income – – – – – – Total comprehensive income of the year 2010 – – – –13,312,029 – –13,312,029 Distributed dividends from profit 2009 – – – – – –Transfer to legal reserve – – – – – –Capital increase 21,761,470 – – – – 21,761,470Balance at December 31, 2010 138,219,941 1,273,775 626,519 –42,204,922 – 97,915,314

The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 87.


Cash Flow StatementFor the year ended 31 December 2011

in RON Notes 2011 2010Net profit after tax 2,673,471 –13,312,029 Cash flows from operating activities Allowance for impairment losses on loans and advances 27,105,378 6,370,614Depreciation and amortisation 7,571,797 9,753,151Other provisions 234,854 –Net result from available-for-sale financial assets 801,785 2,326,172Dividends Income –8,581 –7,553Gain from disposal of shares –357,594 –Accrued interest, deferred commissions – –3,145,410Write-off’s loans –21,186,678 21,911,081Other (including FX) 1,647,095 3,501,521Income tax expense/revenue 953,078 –1,556,312Operating profit before changes in operating assets and liabilities 19,434,606 25,841,236 Change in minimum compulsory reserve –874,428 12,220Change in loans and advances to customers –57,231,847 –12,076,002Change in other assets 1,530,026 –419,752Change in deposit from banks –856,960 856,960Change in deposits from customers 121,062,419 45,959,639Change in other liabilities 26,272,408 –1,408,607Net cash used in operating activities 109,336,224 58,765,695 Cash flows from investing activities Dividends received 8,581 7,553Purchase of property, plant and equipment/intagible assets –4,245,447 –6,285,163Proceeds from sale of property, plant and equipment 781,190 819,956Cash from share sale 357,594 –Net cash used in investing activities –3,098,082 –5,457,654 Shares issued 12,519,580 21,844,000Proceeds from borrowings 134,070,625 63,286,496Repayment of borrowing –157,172,403 –243,752,018Cash flow from financing activities –10,582,198 –158,621,522 Net increase in cash and cash equivalents Cash and cash equivalents at 31 December previous year 51,579,981 156,433,575Net increase/(decrease) in cash and cash equivalents 47,312,256 –104,853,594Cash and cash equivalents at 31 December (35) 98,892,238 51,579,981 Cash flows from operating activities include: Interest received 137,684,641 145,996,280Interest paid –49,159,921 –57,612,321Fees and commissions received 12,853,735 12,840,679Fees and commissions paid –2,311,211 –2,139,395 99,067,244 99,085,243


A. Basis of Preparation

1) Compliance with International Financial Reporting Standards

ProCredit Bank S.A (“the Bank” or “ProCredit”) prepares its financial statements according to International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). EU-endorsed IFRS may differ from the IFRS as published by the International Account-ing Standards Board (IASB) if the EU does not adopt certain new or amended IFRS. At 31 December 2011, there were no unendorsed standards effective for the year ended 31 December 2011 affecting these financial statements. There was no early adoption of any standard, not yet effective.Reporting and valuation are made on the going concern assump-tion.

2) Compliance with local law

For supervisory purposes ProCredit SA qualifies as a bank accord-ing to the Romania Banking Act and is therefore supervised by Na-tional Bank of Romania (NBR).ProCredit Bank SA financial statements were prepared in accord-ance with IFRS as endorsed by the European Union (EU).These financial statements of the Bank for the fiscal year 2011 were approved for issue by the Board of Administration on 19 April 2012 and were signed on its behalf by Dr. Ilinca Rosetti – General Man-ager and Heribert Kailbach –Deputy General Manager.

3) Use of assumptions and estimates

The Bank’s financial reporting and its financial result are influenced by accounting policies, assumptions, estimates, and management judgements which necessarily have to be made in the course of preparation of the financial statements. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, includ-ing expectations with regard to future events and are considered appropriate under the given circumstances. Accounting policies and management judgments for certain items are especially critical for the bank’s results and financial situation due to their materiality in amount. This applies to the following po-sitions:

(a) Impairment of credit exposures

To determine the bank-wide rates to be applied for collective loan loss provisioning, the Bank performed an evaluation of the quality of the loan portfolio, taking into account historical loss experienc-es. This migration analysis is based on statistical data from 2002 up to and including 2011 and therefore it reflects both, average losses during a period of constant growth and favourable economic environments as well as average losses during a period of global recession. Further information on the bank’s accounting policy on loan loss provisioning can be found in note (10) and note (54).

b) Measurement of deferred tax assets

The Bank recognises deferred tax assets only to the extent that it is probable that taxable profits will be available against which the tax-reducing effects can be utilised (for the Bank’s accounting poli-cy on income taxes see note (15)). The profit projection is based on the latest business planning as approved by the Supervisory Board of the Bank and therefore necessarily and appropriately reflects management’s view of future business prospects. The tax plan-ning period of the bank is five years. For details of the recognised amounts see notes (34) and (43).

c) Functional and presentation currency

These financial statements are prepared in Romanian Lei (“RON”), which is the Bank’s functional currency.All amounts are presented in RON, unless otherwise stated. For computational reasons, the figures in the tables may exhibit round-ing differences of ± one unit (RON, EUR, %, etc).The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless oth-erwise stated.The fiscal year of the Bank is the calendar year.

4) Accounting developments

a) Standards, amendments and interpretations effective on or after 1 January 2011

The following standards, amendments or interpretations were is-sued by the IASB in 2010 or before and are effective for annual peri-ods beginning on or after 1 January 2011: Amendment to IAS 32 “Fi-nancial Instruments: Presentation: Classification of Rights Issues”, Amendments to IFRS 1 “Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters”, Amendment to IFRIC 14 “Prepayments of a Minimum Funding Requirement”, revised IAS 24 “Related Party Disclosures”, IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”. None of the above mentioned standards, amendments or interpretations have any effect on the bank’s financial statements.In May 2010, the IASB published “Improvements to International Financial Reporting Standards”. Most of the amendments are effec-tive for annual periods beginning on or after 1 January 2011. The improvements deal with matters of detail and will only have minor impact on the financial statements of the Bank.

b) Standards, amendments and interpretations issued but not yet effective

Amendments to IAS 1 “Presentation of Items of Other Comprehen-sive Income” will have an impact on the disclosure. The amend-ments are applicable for annual periods beginning on or after 30 June 2012.IFRS 13 “Fair value Measurement” will have an impact on the dis-closure. The standard is applicable for annual periods beginning on or after 1 January 2013.Amendments to IAS 19 “Employee Benefits” will have an impact on the recognition of actuarial gains and losses and on the disclosures in the financial statements. The amendments are applicable for an-nual periods beginning on or after 1 January 2013.Amendments to IFRS 7 “Financial Instruments: Disclosures – Off-setting Financial Assets and Financial Liabilities” as well as amend-ments to IAS 32 “Financial Instruments: Presentation – Offsetting

Notes to the Financial StatementsFor the year ended 31 December 2011

A N N U A L R E P O R T 20115454

Financial Assets and Financial Liabilities” presentation will have an impact on the disclosures. The amendments are applicable for an-nual periods beginning on or after 1 January 2013.IFRS 9 “Financial Instruments” and subsequent amendments (amend-ments to IFRS 9 and IFRS 7) are applicable for periods beginning on or after 1 January 2015. The standard will have an impact on the meas-urement and presentation of financial instruments.The following standards, amendments or interpretations were is-sued by the IASB but will not have an impact on the bank’s financial statements:Amendments to IAS 12 “Deferred Tax: Recovery of Underlying As-sets”, amendments to IFRS 7 “Financial Instruments: Disclosures – Transfer of Financial Assets”, amendments to IFRS 1 “Severe Hyper-inflation and Removal of Fixed Dates for First-Time Adopters”, IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrange-ments”, IFRS 12 “Disclosures of Interests in Other Entities”, IAS 27 “Separate Financial Statements” (rev. 2011), IAS 28 “Investments in Associates and Joint ventures” (rev. 2011), IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”.There was no early adoption of any standards, amendments and interpretations not yet effective.

B. Summary of Significant Accounting Policies

5) Measurement basis

These financial statements have been prepared under the amor-tised cost convention, unless IFRS require recognition at fair value. Financial instruments measured at fair value for accounting purpos-es on an ongoing basis include all instruments at fair value through profit or loss and financial instruments classified as available-for-sale. The measurement techniques applied to the balance sheet po-sitions are specified in the accounting policies listed below. Fair value is defined as the amount at which a transaction could be concluded between two knowledgeable, willing parties at arm’s length. IFRS define a so-called hierarchy of fair value determination which reflects the relative reliability of different methods of determining fair value:

(a) Active market: Quoted price (Level 1)Observe quoted prices for identical financial instruments in active markets.

(b) Valuation technique using observable inputs (Level 2)Observe quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive mar-kets or use valuation models where all significant inputs are ob-servable.

(c) Valuation technique with significant non-observable inputs (Level 3)

Use valuation models where one or more significant inputs are not observable.

Only if the first best method of determining the fair value is not avail-able may the next best determination method be applied. If possible, the bank obtains fair values from quoted market prices; otherwise, the next best available measurement technique is applied.

6) Financial assets

The Bank classifies its financial assets in the following categories: loans and receivables, and available-for-sale financial assets. The bank holds no held-to-maturity instruments and no instruments carried at fair value through profit and loss. Management deter-mines the classification of financial assets at initial recognition.

(a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the bank provides money, goods or serv-ices directly to a debtor with no intention of trading the receivable.Loans and receivables are initially recognised at fair value includ-ing transaction costs; subsequently they are measured at amortised cost using the effective interest method. At each balance sheet date and whenever there is evidence of potential impairment, the bank assesses the value of its loans and receivables. Their carry-ing amount may be reduced as a consequence through the use of an allowance account (see note 10) for the accounting policy for im-pairment of credit exposures, and notes (28), (39), and (54) for de-tails regarding impairment of credit exposures). If the amount of the impairment loss decreases, the impairment allowance is reduced accordingly, and the amount of the reduction is recognised in the in-come statement. The upper limit on the reduction of the impairment is equal to the amortised costs which would have been incurred at of the valuation date if there had not been any impairment. Loans are recognised when the principal is advanced to the bor-rowers. Loans and receivables are derecognised when the rights to receive cash flows from the financial assets have expired or when the bank has transferred substantially all risks and rewards of own-ership.

(b) Available-for-sale financial assets

Available-for-sale assets are those intended to be held for an indefi-nite amount of time, which may be sold in response to needs for li-quidity or changes in interest rates, exchange rates or equity prices.At initial recognition, available-for-sale financial assets are record-ed at fair value including transaction costs. Subsequently they are carried at fair value. The fair values reported are either observable market prices in active markets or values calculated with a valua-tion technique based on currently observable market data. For very short-term financial assets it is assumed that the fair value is best reflected by the transaction price itself. Gains and losses arising from changes in fair value of available-for-sale financial assets are recognised directly in equity in other comprehensive income in the position “revaluation reserve from available-for-sale financial assets”, until the financial asset is derecognised or impaired (for details on impairment, see note (10)). At this time, the cumulative gain or loss previously recognised in equity in other comprehen-sive income is recognised in profit or loss as “gains and losses from available-for-sale financial assets”. Interest calculated using the effective interest rate method and foreign currency gains and losses on monetary assets classified as available-for-sale are rec-ognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the entity’s right to receive the payment is established. Purchases and sales of available-for-sale financial assets are re-corded on the trade date. The available-for-sale financial assets are derecognised when the rights to receive cash flows from the finan-cial assets have expired or when the bank has transferred substan-tially all risks and rewards of ownership.


7) Foreign currency translation

(a) Functional and presentation currency

Items included in these financial statements presented in RON, which is the functional currency of the Bank. For presentation pur-poses and to meet the expectations of existing and potential pro-viders of external financing and stakeholders we also choose to present a convenience translation to EUR. The convenience translation has been effected by translating all as-sets and liabilities for the balance sheets at end-of-period exchange rates. Income and expense for all periods presented (including comparatives) have been translated using the average rate for the corresponding period. The exchange rates used for convenience translation are presented in note 64.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement (trad-ing result).Monetary items denominated in foreign currency are translated with the closing rate as of the reporting date. In the case of changes in the fair value of monetary assets denominated in foreign cur-rency classified as available for sale, a distinction is made between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the securi-ty. Translation differences related to changes in the amortised cost are recognised in profit or loss, while other changes in the carrying amount are recognised in equity. Non-monetary items measured at historical cost denominated in foreign currency are translated with the exchange rate as at the date of initial recognition. The reporting exchange rates and average rates for the period used in the balance sheet and the income statement are listed in section (64) of these notes.

8) Cash and cash equivalents

For the purposes of the balance sheet, cash and cash equivalents comprise cash, cash balances in ATMs, balances with less than three months’ maturity from the date of acquisition when eligible for dis-counting with central banks, other money market instruments that are highly liquid and readily convertible to known amounts of cash with insignificant risk of changes in value, and bills of exchange and other bills eligible for discounting with central banks.Generally, all cash and cash equivalent items are recognised at their nominal value. Treasury bills and other money market instru-ments that qualify as cash equivalents are classified as available-for-sale financial assets and measured at fair value.For the purposes of the statement of cash flows, cash and cash equivalents include cash balances on hand, unrestricted balances held at the central bank, and cash balances in ATMs, current ac-counts with banks and placements with other banks with less than 90 days original maturity and are used by the Bank in the manage-ment of its short-term commitments.

9) Loans and receivables

The amounts reported under receivables from customers consist mainly of loans and advances issued. In addition to overnight and term deposits, the amounts reported under receivables from banks include current account balances. All loans and receivables from banks as well as loans and receiva-bles from customers fall under the category “loans and receiva-bles” and are carried at amortised cost, using the effective interest method. Amortised premiums and discounts are accounted for over the respective terms in the income statement under net interest income. Impairment of loans is recognised in separate allowance accounts (see note (10)).For the purposes of the cash flow statement, claims to banks with a remaining maturity of less than three months from the date of acquisition are recognised under cash and cash equivalents (see note (35)).

10) Allowance for losses on loans and advances and impairment of available-for-sale financial assets

(a) Assets carried at amortised cost – loans and advances

Impairment of loans and advancesThe Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial as-sets is impaired. If there is objective evidence that impairment of a credit exposure or a portfolio of credit exposures has occurred which influences the future cash flow of the financial asset(s), the respective losses are immediately recognised. Depending on the size of the credit exposure, such losses are either calculated on an individual credit exposure basis or are collectively assessed for a portfolio of credit exposures. The carrying amount of the loan is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Losses from ex-pected future events are not recognised.

• Individually assessed loans and advances Credit exposures are considered individually significant if they ex-ceed EUR 30,000. For such credit exposures, it is assessed whether objective evidence of impairment exists, i.e. any factors which might influence the customer’s ability to fulfil his contractual pay-ment obligations towards the bank: · delinquencies in contractual payments of interest or principal· breach of covenants or conditions· initiation of bankruptcy proceedings· any specific information on the customer’s business (e.g. reflect-

ed by cash flow difficulties experienced by the client);· changes in the customer’s market environment;· the general economic situation.An individual assessment can also be carried out in cases of loans below EUR 30,000 if they show signs of impairment despite being below 30 days in arrears. Additionally, the aggregate exposure to the client and the realisable value of collateral held are taken into account when deciding on the allowance for impairment. If there is objective evidence that an impairment loss has been in-curred, the amount of the loss is measured as the difference be-tween the asset’s carrying amount and the present value of its esti-mated future cash flows discounted at the financial asset’s original effective interest rate (specific impairment). If a credit exposure has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.


The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.

• Collectively assessed loans and advances There are two cases in which credit exposures are collectively

assessed for impairment: · individually insignificant credit exposures that show objec-

tive evidence of impairment; · groups of credit exposures which do not show signs of impair-

ment, in order to cover all losses which have already been in-curred but not detected on an individual credit exposure basis.

For the purposes of the evaluation of impairment of individually insignificant credit exposures, the credit exposures are grouped on the basis of similar credit risk characteristics, i.e. according to the number of days they are in arrears. Arrears of 30 or more days are considered to be a sign of impairment. This characteristic is relevant for the estimation of future cash flows for the so defined groups of such assets, based on historical loss experiences with loans that showed similar characteristics.The collective assessment of impairment for individually insignifi-cant credit exposures (lump-sum impairment) and for unimpaired credit exposures (portfolio-based impairment) belonging to a group of financial assets is based on a quantitative analysis of historical default rates for loan portfolios with similar risk characteristics (mi-gration analysis). After a qualitative analysis of this statistical data, management prescribed appropriate rates as the basis for portfo-lio-based impairment allowances.Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contrac-tual cash flows of the assets in the group and historical loss experi-ence for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of cur-rent observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical pe-riod that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.If the Bank determines that no objective evidence of impairment ex-ists for an individually assessed financial asset, whether individu-ally significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively as-sesses them for impairment (impairment for collectively assessed credit exposures).

Reversal of impairmentIf, in a subsequent period, the amount of the impairment loss de-creases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously rec-ognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

Writing off loans and advancesWhen a loan is uncollectible, it is written off against the related al-lowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts pre-viously written off decrease the amount of the allowance for loan impairment in the income statement.

Restructured credit exposuresRestructured credit exposures which show signs of impairment and which are considered to be individually significant are provisioned

on an individual basis. The amount of the loss is measured as the difference between the restructured loan’s carrying amount and the present value of its estimated future cash flows discounted at the loan’s original effective interest rate (specific impairment). Restructured loans with arrears more than 30 days and which are individually insignificant are collectively assessed for impairment.

Assets acquired in exchange for loans (repossessed property)Non-financial assets acquired in exchange for loans as part of an orderly realisation are reported in “other assets”. The asset ac-quired is recorded at the lower of its fair value less costs to sell and the carrying amount of the loan at the date of exchange. No depre-ciation is charged for assets held for sale. Any subsequent write-down of the acquired asset to fair value less costs to sell is recog-nised in the income statement in “net other operating income”. Any subsequent increase in the fair value less costs to sell, to the extent this does not exceed the cumulative write-down, is also recognised in “net other operating income”, together with any realised gains or losses on disposal.

(b) Assets classified as available for sale

The bank assesses at each balance sheet date whether there is ob-jective evidence that a financial asset or group of financial assets is impaired. In determining whether an available-for-sale financial asset is impaired the following criteria are considered:• deterioration of the ability or willingness of the debtor to serv-

ice the obligation;• a political situation which may significantly impact the debt-

or’s ability to repay the loan;• additional events that make it unlikely that the carrying amount

may be recovered.

In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recog-nised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement at any point thereafter. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the im-pairment loss is reversed through the income statement.The bank primarily invests in government securities with fixed interest rates. Impairments on these investments are recognised when objective evidence exists that the government is unable or unwilling to service these obligations.

11) Intangible assets

Software acquired by the Bank is stated at cost less accumulated amortisation and accumulated impairment losses (see Note 13).Expenditure on internally developed software is recognised as an asset when the Bank is able to demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software, and are am-


ortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment.Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Software has a maximum expected useful life of 3 years.

12) Property, plant and equipment

Land and buildings comprise mainly branches and offices. All prop-erty, plant and equipment are stated at historical cost less sched-uled depreciation and impairment losses (see Note 13). Historical cost includes expenditure that is directly attributable to the acqui-sition of the items. Component parts of an asset are recognised separately if they have different useful lives or provide benefits to the bank in a different pattern.Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the bank and the cost of the item can be measured reli-ably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their esti-mated useful lives, as follows:

Buildings 40 yearsLeasehold improvements shorter of rental contract life or useful lifeFurniture and equipment 3 – 12 yearsMotor vehicles 5 years

The assets’ residual carrying values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.Gains and losses on disposals are determined by comparing pro-ceeds with carrying amount. These are included in the income statement.The bank does not hold investment property.

13) Impairment of non-financial assets

Non-financial assets are reviewed for indications of impairment whenever events or changes in circumstances indicate that the car-rying amount may not be recoverable. An impairment loss is recog-nised for the amount by which the asset’s carrying value exceeds its recoverable amount. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are sepa-rately identifiable cash flows (cash-generating units (CGUs)). Each CGU is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. A CGU carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each report-ing date.

14) Leases

The Bank is not engaged in finance leases. In operating leases the bank acts only as lessee. The total payments made under operating leases are charged to the income statement under administrative expenses on a straight-line basis over the period of the lease. The leasing objects are recognised by the lessor.The Bank applies IFRIC 4, which requires it to determine if an ar-rangement contains a lease. The relevant contracts and agree-ments of the bank do not contain any leases which would lead to a disclosure according to IAS 17.

15) Income tax

Current income tax

Income tax payable on profits is calculated on the basis of the ap-plicable tax law and is recognised as an expense in the period in which profits arise.

Deferred income tax

Deferred income tax is recognised in full, using the balance sheet method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements prepared in conformity with IFRS. Deferred tax assets and liabilities are determined using the tax rate (and law) that has been enacted as of the balance sheet date and is expected to ap-ply when the related deferred income tax asset is realised or the deferred income tax liability is settled. The tax planning period is five years.The principal temporary differences arise from revaluation of cer-tain financial assets and liabilities and tax losses carried forward. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or a liability in a transaction other than a business combination that at the time of the transac-tion affects neither the profit (before tax) for the period according to IFRS, nor the taxable profit or loss.The tax effects of income tax losses available for carry forward are recognised as a deferred tax asset when it is probable that future taxable profits will be available against which these losses can be utilised.Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differ-ences can be utilised.Deferred tax assets are reviewed at each reporting date and are re-duced to the extent that it is no longer probable that the related tax benefit will be realised.Deferred tax related to fair value remeasurement of available-for-sale investments, which are charged directly to equity in other com-prehensive income, is also credited or charged directly to equity and subsequently recognised in the income statement together with the deferred gain or loss. For informational reasons, the pres-entation is made on a gross basis.Deferred tax assets and liabilities are offset if there is a legally en-forceable right to offset current tax liabilities against current tax assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.


16) Liabilities to banks and customers

Liabilities to banks and customers are recognised initially at fair val-ue net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the in-come statement over the period of the borrowings using the effective interest rate method.All financial liabilities are derecognised when they are extin-guished – that is, when the obligation is discharged, cancelled or expires.

17) Provisions

Provisions are recognised when: – there is a present legal or constructive obligation resulting from

past events;– it is more likely than not that an outflow of resources will be re-

quired to settle the obligation;– the amount can be reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow of resources will be required in a settlement is deter-mined by considering the class of obligations as a whole. Provisions for which the timing of the outflow of resources is known are measured at the present value of the expenditures, if the out-flow will not be earlier than in one year’s time. The increase in the present value of the obligation due to the passage of time is recog-nised as an interest expense.Contingent liabilities, which mainly consist of certain guarantees and letters of credit issued for customers, are possible obligations that arise from past events. As their occurrence, or non-occurrence, depends on uncertain future events not wholly within the control of the bank, they are not recognised in the financial statements but are disclosed off balance sheet unless the probability of settlement is remote (see note (60)).

18) Post-employment benefits and other employee benefits

(a) Post-employment obligations

The bank contributes to its employees’ post-employment plans as prescribed by local pension legislation.In the case of defined contribution plans, the bank pays contribu-tions to privately administered pension insurance plans on a con-tractual basis. The bank has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due. In the case of defined benefit plans, the liability recognised in the balance sheet is the present value of the defined post-employment benefit obligation at the balance sheet date, together with adjust-ments for unrecognised actuarial gains or losses and past service costs. As a rule, the obligation is calculated annually by independ-ent actuaries. The present value of the obligation is determined by discounting the estimated future cash outflows (e.g. taking into account mortality tables and salary increases) using interest rates of high-quality corporate bonds that are denominated in the cur-rency in which the obligation will be paid, and that have terms to maturity approximating to the terms of the related pension liability, where applicable, or comparable similar interest rates which were estimated by the bank.

(b) Other post-employment obligations

It is mandatory to pay employees a certain amount of post-employ-ment benefits dependent upon several factors such as the number of years of service and compensation.The liability recognised in the balance sheet is the present value of the defined post-employment benefit obligation at the balance sheet date, together with adjustments for unrecognised actuarial gains or losses and past service costs. As a rule, the obligation is calculated annually by independent actuaries. The present value of the obligation is determined by discounting the estimated future cash outflows (e.g. taking into account mortality tables and sal-ary increases) using interest rates of high-quality corporate bonds that are denominated in the currency in which the obligation will be paid, and that have terms to maturity approximating to the terms of the related pension liability, where applicable, or comparable simi-lar interest rates which were estimated by the banks.

19) Subordinated debt

Subordinated debt consists mainly of liabilities to shareholders and other international financial institutions which in the event of insolvency or liquidation are not repaid until all non-subordinated creditors have been satisfied. There is no obligation to repay early. Following initial recognition at fair value, the subordinated debt is recognised at amortised cost. Premiums and discounts are ac-counted for over the respective terms in the income statement un-der “net interest income”.

20) Share capital

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds as (negative) capital reserve.Dividends on ordinary shares are recognised in equity in the period in which they are approved by the company’s shareholders.

21) Interest income and expense

Interest income and expenses for all interest-bearing financial in-struments, are recognised within “interest income” and “interest expense” in the income statement using the effective interest rate method. Interest income and expense are recognised in the income statement in the period in which they arise.The calculation of the effective interest rate includes all fees and points paid or received transaction costs, and discounts or premi-ums that are an integral part of the effective interest rate. Transac-tion costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.Interest income and expense presented in the income statement include interest on financial assets and liabilities at amortised cost on an effective interest rate basis and interest on available-for-sale investment securities calculated on effective interest basis.Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest in-come is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. For loans where there is objective evidence that an impairment loss has been incurred, the accrual of interest income is terminated not later than 90 days after the last payment. Payments received in re-spect of written-off loans are not recognised in net interest income.


22) Fee and commission income and expenses

Fee and commission income and expenses are recognised on an ac-crual basis when the service has been provided.Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate of the loan. Other fees and commission income, including account servicing fees, foreign currency transaction fees, fees for guarantees given and opening of letter of credit fees are recognised as the related services are performed on an accrual basis. Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the services are received.

23) Dividends

Dividend income is recognised when the right to receive income is es-tablished. Usually this is the ex-dividend date for equity securities. Dividends are reflected as a component of other operating income based on the underlying classification of the equity instrument. Dividends are treated as an appropriation of profit in the period they are declared and approved by the General Assembly of Share-holders. The only profit available for distribution is the profit for the year recorded in the Romanian statutory accounts, which dif-fers from the profit in these financial statements, prepared in ac-cordance with IFRS, due to the differences between the applicable Romanian Accounting Regulations and IFRS.

24) Offsetting

Financial assets and liabilities are set off and the net amount pre-sented in the balance sheet when, and only when, the Bank has a le-gal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.Income and expenses are presented on a net basis only when per-mitted by the accounting standards, or for gains and losses aris-ing from a group of similar transactions in the course of the Bank’s trading activity.

25) Amortised cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recog-nition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

26) Fair value measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date. The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instru-ments traded in active markets. A market is regarded as active if quoted prices are readily and regularly available and represent ac-tual and regularly occurring market transactions on an arm’s length basis. For all other financial instruments fair value is determined by using valuation techniques. valuation techniques include net present value techniques, the discounted cash flow method, com-parison to similar instruments for which market observable prices exist, and valuation models.The chosen valuation technique makes maximum use of market in-puts, relies as little as possible on estimates specific to the Bank, incorporates all available factors that market participants would consider in setting a price, and is consistent with accepted eco-nomic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. Where a fair value cannot be reliably estimated, un-quoted equity instruments that do not have a quoted market price in an active market are measured at cost and periodically tested for impairment

C. Notes to the Statement of Comprehensive Income

27) Net interest income

Included within “net interest income” are interest income and ex-penses and, in addition, the unwinding of premiums and discounts on financial instruments at amortised cost.

Convenience translation to EURin RON 2011 2010 2011 2010Interest and similar incomeInterest income from cash and cash equivalents and loans and advances to banks 2,374,652 2,890,875 560,337 686,685Interest income from available-for-sale assets 2,433,461 3,059,111 574,214 726,647Interest income from loans and advances to customers 134,871,657 141,578,268 31,825,115 33,629,841Total interest income 139,679,770 147,528,254 32,959,666 35,043,173

Interest and similar expensesInterest expenses on liabilities to banks 1,833,369 5,378,210 432,613 1,277,515Interest expenses on liabilities to customers 32,776,461 32,035,200 7,734,128 7,609,492Interest expenses on liabilities to international financial institutions 11,314,714 13,650,310 2,669,887 3,242,431Interest expenses on subordinated debt 5,486,449 3,396,661 1,294,615 806,827Total interest expenses 51,410,994 54,460,382 12,131,243 12,936,265

Net interest income 88,268,776 93,067,872 20,828,424 22,106,908


28) Allowance for impairment losses on loans and advances

There is no allowance for impairment on loans and advances to banks and available for sale assets.Risk provisions on loans and advances to customers are reflected in the income statement as follows:

29) Net fee and commission income

30) Result from foreign exchange transactions

“Result from foreign exchange transactions” refers to the results of foreign exchange dealings with and for customers. The Bank does not engage in any foreign currency trading on its own account. In addition, this position includes unrealised foreign currency revalu-ation effects. The Bank does not apply hedge accounting as defined by IAS 39.

Convenience translation to EURin RON 2011 2010 2011 2010Increase of impairment charge 121,615,682 124,230,634 28,697,157 29,509,165Release of impairment charge –115,696,981 –104,015,266 –27,300,545 24,707,301Total 5,918,701 20,215,367 1,396,612 4,801,864

Convenience translation to EURin RON 2011 2010 2011 2010Currency transactions 4,552,967 4,259,286 1,074,345 1,011,731Revaluation general –38,491 715 –9,083 170Total 4,514,476 4,260,001 1,065,262 1,011,901

Convenience translation to EURin RON 2011 2010 2011 2010Increase of impairment charge 116,204,594 102,319,552 27,420,325 24,304,509Write-offs 5,411,088 21,911,081 1,276,832 5,204,656Release of impairment charge –106,750,818 –95,948,938 –25,189,556 –22,791,263Recovery of written-off loans –8,946,164 –8,066,328 –2,110,990 –1,916,038Total 5,918,701 20,215,367 1,396,612 4,801,864

Convenience translation to EURin RON 2011 2010 2011 2010Fee and commission incomePayment transfers and transactions 6,449,418 6,085,168 1,521,843 1,445,442Account maintenance fee 2,770,459 3,261,080 653,734 774,622Letters of credit and guarantees 112,668 105,964 26,586 25,170Debit/credit cards 2,295,238 2,208,164 541,598 524,517Other fee and commission income 1,225,952 1,180,302 289,283 280,363Total fee and commission income 12,853,735 12,840,677 3,033,044 3,050,115

Fee and commission expensesPayment transfers and transactions 472,328 378,519 111,453 89,912Account maintenance fee 140,810 191,775 33,226 45,553Letters of credit and guarantees 22,905 18,585 5,405 4,415Other fee and commission expenses 1,675,169 1,550,516 395,283 368,302Total fee and commission expenses 2,311,211 2,139,395 545,367 508,182

Net fee and commission income 10,542,524 10,701,282 2,487,676 2,541,933


31) Net result from available-for-sale financial assets

This item includes the gains or losses from disposal of available-for-sale financial assets as well as impairment losses and gains from reversal of impairment.

32) Net other operating income/expenses

33) Personnel and other administrative expenses

Personnel expenses can be broken down as follows:

“Administrative expenses” include the following items:

Convenience translation to EURin RON 2011 2010 2011 2010Net result from disposal of available-for-sale financial assets 366,174 7,554 86,405 1,794Income from reversal of impairment of available-for-sale financial assets 0 0 0 0Total 366,174 7,554 86,405 1,794

Convenience translation to EURin RON 2011 2010 2011 2010Other operating income 2,664,417 1,266,835 628,712 300,918Other operating expenses 5,499,516 3,796,942 1,297,698 901,908Total –2,835,099 –2,530,108 –668,987 –600,990

Convenience translation to EURin RON 2011 2010 2011 2010Salary expenses 33,295,866 36,516,172 7,856,690 8,673,881Social security expenses 9,189,562 10,152,629 2,168,424 2,411,608Other personnel expenses 1,366,468 1,737,333 322,440 412,678Training and recruting expenses 1,016,137 650,862 239,774 154,603Total 44,868,033 49,056,996 10,587,327 11,652,770

Convenience translation to EURin RON 2011 2010 2011 2010Communication and IT expenses 4,792,992 5,196,573 1,130,983 1,234,370Transport 1,807,082 1,863,322 426,410 442,605Office supplies 1,131,482 1,197,857 266,991 284,533Security service 940,092 1,181,745 221,830 280,706Marketing, advertising and entertainment 1,527,178 1,097,560 360,362 260,709Construction, repairs and maintenance 895,289 2,589,552 211,258 615,110Other tax expenses 5,916,920 5,507,884 1,396,192 1,308,317Consultancy, Legal and Audit fees 757,271 585,363 178,690 139,044Insurance 619,225 746,203 146,116 177,249Utilities 1,385,009 1,704,876 326,815 404,968Other administrative expenses 5,210,426 2,799,346 1,229,483 664,944Total 24,982,966 24,470,279 5,895,129 5,812,556


34) Income tax expenses

This item includes all taxes on income. Income tax expenses were as follows:

D. Notes to the Statement of Financial Position

35) Cash and cash equivalents

Cash and cash equivalents comprise the following items:

The following cash equivalents have been considered as cash for the cash flow statements:

The cash held with the Central Bank ensures compliance with the minimum reserve requirements. These funds are not available for the Bank’s daily business. At 31 December 2011 the minimum man-datory reserves rates established by the National Bank of Romania for raised funds with maturity less than 2 years and for funds raised with residual maturity greater than 2 years, which foresee contrac-tual clauses regarding reimbursements, withdrawals, anticipated transfers, are as follows: 15% for funds raised denominated in RON and 20% for funds raised denominated in foreign currency (31 De-cember 2010: 15% for funds raised denominated in RON and 25% for funds raised denominated in foreign currency).

36) Loans and advances to banks

Loans and advances to banks are as follows:

Loans and advances to Banks comprise of current accounts held at other banks and deposits with banks. Current accounts held at other banks are at the immediate disposal of the Bank. The depos-its with banks are unencumbered.

Convenience translation to EURin RON 2011 2010 2011 2010Current tax – –40,314 – –9,576Deferred tax –953,078 1,596,626 –224,894 379,255Total –953,078 1,556,312 –224,894 369,679

Convenience translation to EURin RON 2011 2010 2011 2010Loans and advances to banks in OECD countries 3,524,350 2,502,907 815,879 584,136Loans and advances to banks in non-OECD countries 3,488,641 1,747,271 807,612 407,784Total 7,012,991 4,250,178 1,623,490 991,920

Convenience translation to EURin RON 2011 2010 2011 2010Cash in hand 30,013,909 31,493,786 6,948,147 7,350,118Balances at central banks excluding mandatory reserves 28,996,594 924,369 6,712,641 215,732Mandatory reserve deposits 169,333,238 168,458,810 39,200,231 39,315,443Total cash and cash equivalents 228,343,741 200,876,965 52,861,018 46,881,293

Convenience translation to EURin RON 2011 2010 2011 2010Cash equivalents recognised in the cash flow statements 228,343,741 200,876,965 52,861,018 46,881,293Available-for-sale financial assets 32,868,744 14,911,649 7,609,034 3,480,127Loans and advances to banks with a maturity up to 3 months, which qualify as cash 7,012,991 4,250,178 1,623,490 991,920Minimum reserve with central bank –169,333,238 –168,458,810 –39,200,231 –39,315,443Total cash equivalents for cash flow statement 98,892,238 51,579,981 22,893,312 12,037,897


37) Available-for-sale financial assets

This balance sheet item primarily includes securities with fixed in-terest rates, most of which are treasury bills.

Available for sale financial assets

The revaluation reserve for available-for-sale financial assets in eq-uity in other comprehensive income shows the following changes:

38) Loans and advances to customers

Loans and advances to customers are as follows:

Convenience translation to EUR

Convenience translation to EURin RON 2011 2010 2011 2010Fixed interest rate securities (banks and Tbills) 81,199,452 14,911,647 18,797,475 3,480,127Shares in companies situated in non-OECD countries 18,168 369,798 4,206 86,305Total available-for-sale financial assets 81,217,620 15,281,445 18,801,681 3,566,431

Movements in revaluation reserve (afs) Convenience translation to EURin RON 2011 2010 2011 2010As at January 1 – – – –Additions 81,722 – 18,918 –Deferred taxes –13,075 – –3,027 –As at December 31 68,646 – 15,891 –

As at December 31, 2011 Gross Allowance Net Share of Number of Share ofin RON amount for impairment amount total portfolio outstanding loans total numberBusiness loans 580,163,768 –35,443,437 544,720,331 70,0% 12,826 52,3%Agricultural loans 230,546,121 –9,734,270 220,811,851 27,8% 9,673 39,4%Housing improvement loans 10,251,799 –805,906 9,445,893 1,2% 1,599 6,5%Consumer loans* 4,143,951 –303,686 3,840,265 0,5% 216 0,9%Other loans 3,333,516 –168,550 3,164,965 0,4% 227 0,9%Total 828,439,156 –46,455,849 781,983,306 100,0% 24,541 100,0%

* consumer loans also include overdrafts to private individuals

As at December 31, 2011 Gross Allowance Net Share of Number of Share of amount for impairment amount total portfolio outstanding loans total numberBusiness loans 134,306,495 –8,205,069 126,101,426 70,0% 12,826 52,3%Agricultural loans 53,370,864 –2,253,460 51,117,404 27,8% 9,673 39,4%Housing improvement loans 2,373,267 –186,565 2,186,701 1,2% 1,599 6,5%Consumer loans * 959,314 –70,303 889,012 0,5% 216 0,9%Other loans 771,701 –39,019 732,682 0,4% 227 0,9%Total 191,781,641 –10,754,416 181,027,226 100,0% 24,541 100,0%



Convenience translation to EUR

39) Allowance for losses on loans and advances

Allowance for impairment losses on loans and advances covers the risks which arise from the category “loans and receivables” (see also note (10) and note (54)). In addition to the allowance for spe-cific impairment losses for receivables for which there is objective evidence of impairment, lump-sum specific provisions and a gen-eral allowance were formed to cover impairment loss relating to the customer loan portfolio as a whole:

The following table shows the development of allowances for im-pairment losses for loans and advances to customers over time:

Convenience translation to EURin RON 2011 2010 2011 2010Allowance for impairment on loans and advances to customers Specific impairment 7,714,069 5,005,560 1,785,788 1,168,213 Allowance for individually insignificant impaired loans 24,667,264 16,809,098 5,710,411 3,922,960 Allowance for collectively assessed loans 14,074,516 13,069,020 3,258,216 3,050,089Total 46,455,849 34,883,678 10,754,416 8,141,262

Convenience translation to EURin RON 2011 2010 2011 2010As at January 1 34,883,678 27,440,849 8,075,486 6,404,231Additions 25,561,103 25,549,133 5,917,333 5,962,736Used 5,411,088 9,639,489 1,252,654 2,249,694Releases 8,774,905 8,664,485 2,031,369 2,022,145Exchange rate adjustments 197,062 197,670 45,619 46,133As at December 31 46,455,849 34,883,678 10,754,416 8,141,262

As at December 31, 2010 Gross Allowance Net Share of Number of Share ofin RON amount for impairment amount total portfolio outstanding loans total numberBusiness loans 549,727,060 –26,989,730 522,737,330 71,8% 15,126 52,3%Agricultural loans 187,748,833 –6,753,194 180,995,639 24,5% 10,131 35,1%Housing improvement loans 17,273,561 –876,025 16,397,536 2,3% 2,735 9,5%Consumer loans* 6,001,700 –204,351 5,797,349 0,8% 560 1,9%Other loans 4,802,684 –60,378 4,742,306 0,6% 348 1,2%Total 765,553,837 –34,883,678 730,670,159 100,0% 28,900 100,0%


As at December 31, 2010 Gross Allowance Net Share of Number of Share of amount for impairment amount total portfolio outstanding loans total numberBusiness loans 128,297,017 –6,298,947 121,998,070 71,8% 15,126 52,3%Agricultural loans 43,817,409 –1,576,082 42,241,327 24,5% 10,131 35,1%Housing improvement loans 4,031,358 –204,450 3,826,908 2,3% 2,735 9,5%Consumer loans* 1,400,695 –47,692 1,353,003 0,8% 560 1,9%Other loans 1,120,865 –14,091 1,106,774 0,6% 348 1,2%Total 178,667,344 –8,141,262 170,526,083 100,0% 28,900 100,0%



40) Intangible assets

The development of intangible assets is shown in the following tables:

41) Property, plant and equipment

The development of property, plant and equipment was as follows:

Software Convenience translation to EURin RON 2011 2010 2011 2010Net book value at January 1 1,979,456 2,381,148 458,239 555,720

Total acquisition costs at January 1 13,892,752 11,460,315 3,216,138 2,674,644Transfers – – – –Additions 2,693,876 2,432,437 623,626 567,690Disposals – – – –Total acquisition costs at December 31 16,586,628 13,892,752 3,839,764 3,242,334

Accumulated depreciation January 1 11,913,296 9,079,167 2,757,899 2,118,924Depreciation 2,963,687 2,858,722 686,086 667,177Accumulated depreciation for disposal – 24,593 – 5,740Accumulated depreciation at December 31 14,876,983 11,913,296 3,443,985 2,780,362 Net book value at December 31 1,709,645 1,979,456 395,779 461,972

As at December 31, 2011 Land and Leasehold Furniture IT and other Totalin RON buildings improvements and fixtures equipmentNet book value at January 1, 2011 2,736,415 6,456,298 1,695,316 7,209,304 18,097,333 Total acquisition costs at January 1, 2011 2,896,897 17,801,665 3,791,642 26,407,656 50,897,860Transfers – – – – –Additions – 406,322 68,709 1,514,345 1,989,376Disposals – 2,744,148 595,827 2,954,530 6,294,505Total acquisition costs at December 31, 2011 2,896,897 15,463,839 3,264,524 24,967,471 46,592,731

Accumulated depreciation January 1, 2011 160,482 11,345,367 2,096,326 19,198,352 32,800,527Depreciation 78,764 1,816,360 349,160 2,363,825 4,608,110Accumulated depreciation for disposal – 2,297,807 433,415 1,918,614 4,649,836Accumulated depreciation at December 31, 2011 239,246 10,863,920 2,012,071 19,643,563 32,758,801

Net book value at December 31, 2011 2,657,651 4,599,919 1,252,453 5,323,907 13,833,930

As at December 31, 2010 Land and Leasehold Furniture IT and other Totalin RON buildings improvements and fixtures equipmentNet book value at January 1, 2010 2,815,422 10,118,022 2,047,916 8,507,198 23,488,558 Total acquisition costs at January 1, 2010 2,896,897 19,637,148 3,776,493 25,881,189 52,191,727Transfers – – – – –Additions – 1,184,411 201,849 2,484,501 3,870,761Disposals – 3,019,894 186,700 1,958,034 5,164,628Total acquisition costs at December 31, 2010 2,896,897 17,801,665 3,791,642 26,407,656 50,897,860 Accumulated depreciation January 1, 2010 81,475 9,519,126 1,728,577 17,373,991 28,703,169Depreciation 79,007 3,397,777 463,214 2,954,431 6,894,429Accumulated depreciation for disposal – 1,571,536 95,465 1,154,551 2,821,552Accumulated depreciation at December 31, 2010 160,482 11,345,367 2,096,326 19,173,871 32,776,046 Net book value at December 31, 2010 2,736,415 6,456,298 1,695,316 7,233,785 18,121,814


42) Operating lease commitments

Operating lease commitments result from non-cancellable rental agreements for properties; the amounts in the above table are cal-culated based on current rental agreements.

43) Income taxes

Deferred income taxes are recognised in full, under the balance sheet method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts, using the applicable local tax rate.The table below shows the changes in deferred income taxes and the underlying business transactions:

The two tables below provide information about the underlying business transactions for deferred tax assets and liabilities:

The two following tables show the business activities to which the profit and loss from deferred taxes is related:

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Operating lease commitments no later than one year 12,253,296 14,806,311 2,836,608 3,455,543 later than one year and no later than five years 28,216,889 26,713,950 6,532,141 6,234,585 later than five years 2,725,734 3,507,447 631,001 818,579Total 43,195,919 45,027,708 9,999,750 10,508,707

Deferred taxes Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010At January 1 6,787,831 5,231,520 1,571,366 1,220,949Available-for-sale securities: fair value remeasurement 13,075 – 3,027 – transfer to net profit – – – –Charges to income statement –953,077 1,556,310 –220,635 363,217Total 5,847,829 6,787,831 1,353,758 1,584,165

Deferred tax charges Convenience translation to EURin RON 2011 2010 2011 2010Allowance for loan losses –2,332,424 – –539,951 –Tax loss carried forward 3,321,213 – 768,853 –Other temporary differences –35,711 – –8,267 –Total 953,077 – 220,635 –

Deferred tax assets/liabilities Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Provisions for loan impairment –513,826 –2,846,250 –118,949 –664,267Other provisions 35,711 – 8,267 –Tax loss carried forward 6,312,868 9,634,081 1,461,413 2,248,432Temp, differences, Equity reserve afs 13,075 – 3,027 –Total 5,847,829 6,787,831 1,353,758 1,584,165

Deferred tax income Convenience translation to EURin RON 2011 2010 2011 2010Allowance for loan losses – 650,349 – 151,780Tax loss carried forward – –2,206,659 – –514,997Other temporary differences – – – –Total – –1,556,310 – –363,217


The transition of taxes between the financial statements according to IFRS and local financial statements is shown in the following table:

44) Other assets

Other assets are as follows:

Repossessed properties as shown in the above table are carried at the lower of the previous carrying amount of the written-off loan and fair value less cost to sell.

45) Liabilities to banks

The liabilities to banks consist primarily of short-term loans ob-tained on the interbank market.

Convenience translation to EURin RON 2011 2010 2011 2010Profit/(loss) before tax 3,626,549 –13,312,029 839,537 –3,106,803Tax expected 580,248 –2,129,925 134,326 –497,088Tax effects of items which are not deductible: non-taxable income –428,332 379,712 –99,158 88,618 non-tax deductible expenses 803,237 193,903 185,947 45,254Income tax expense for the year according to IFRS 955,153 –1,556,310 221,116 –363,217

Changes in deferred tax assets –953,077 1,556,310 –220,635 363,217Changes in deferred tax liabilities – – – –Current taxes –953,077 1,556,310 –220,635 363,217

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Pre-payments 1,935,499 2,707,166 448,063 631,807Repossessed properties 818,882 698,565 189,569 163,033Claims from customs and taxes 685,822 1,460,491 158,766 340,854Guarantees 595,781 1,246,671 137,922 290,952Other inventory items 139,386 186,650 32,268 43,561Others 575,755 7,558 133,286 1,764Total 4,751,125 6,307,100 1,099,874 1,471,971

Convenience translation to EURin RON 2011 2010 2011 2010Liabilities to banks in OECD countries – 857,012 – 200,012Liabilities to banks in non-OECD countries – – – –Total – 857,012 – 200,012


46) Liabilities to customers

Liabilities to customers consist of deposits due on demand, savings deposits and term deposits. The following table shows a breakdown by customer groups:

The category “legal entities” includes liabilities to non-governmen-tal organisations (NGOs) and public-sector institutions.

47) Liabilities to international financial institutions

Liabilities to international financial institutions are an important source of financing for the Bank. Medium- to long-term loans from international financial institutions are reported under this item.

The following table gives a detailed breakdown for this item.

48) Other liabilities

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Deferred income 160,933 9,965 37,256 2,326Liabilities for goods and services 1,037,423 685,827 240,161 160,060Liabilities to employees 2,014,542 3,348 466,362 781Liabilities from social insurance contributions 1,212,744 1,268,722 280,747 296,098Liabilities to state budget 773,204 801,390 178,995 187,031Others 988,699 1,259,107 228,881 293,854Total 6,187,545 4,028,360 1,432,402 940,151

Convenience translation to EURin RON 2011 2010 2011 2010Current accounts 71,497,972 69,530,666 16,551,606 16,227,284 private individuals 17,001,516 21,542,955 3,935,809 5,027,762 legal entities 54,496,456 47,987,710 12,615,797 11,199,522

Savings accounts* 33,688,855 33,170,058 7,798,888 7,741,332 private individuals 23,539,811 24,275,673 5,449,409 5,665,532 legal entities 10,149,044 8,894,385 2,349,479 2,075,799

Term deposit accounts 633,507,870 513,940,116 146,655,525 119,944,949 private individuals 489,148,066 413,379,498 113,236,583 96,475,798 legal entities 144,359,804 100,560,618 33,418,942 23,469,151

Other liabilities to customers 1,621,481 574,387 375,369 134,052Total 740,316,178 617,215,227 171,381,387 144,047,616

*including Collaterals

Convenience translation to EURin RON Due 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010European Fund for Southeast Europe (“EFSE”) 2013/2015 83,679,219 73,090,178 19,371,535 17,058,014European Bank for Reconstruction and Development (“EBRD”) 2012/2016 16,179,225 47,933,265 3,745,451 11,186,815International Finance Corporation (“IFC”) 2012 10,097,437 20,025,647 2,337,532 4,673,648European Investment Bank (“EIB”) 2023 43,181,130 – 9,996,326 –Kreditanstalt fur Wiederaufbau (“KfW”) 2013 18,459,070 30,471,814 4,273,230 7,111,607Pettelaar Effectenbewaarbedrij N,v, 2012 33,978,110 33,879,048 7,865,849 7,906,798Dexia Micro-Credit Fund 2013 20,697,920 20,519,116 4,791,518 4,788,815Total 226,272,112 225,919,068 52,381,441 52,725,697


49) Provisions

Aside from provisions for post-employment (see explanation be-low) the breakdown of the provisions is as follows:

For the provisions for untaken vacation and for off-balance sheet items the outflow of economic benefits is expected during the next three months. Provisions for imminent losses from pending transactions include provisions for legal cases against the Bank.

50) Subordinated debt

The subordinated debt can be broken down as follows:

Creditors’ claims for repayment of these liabilities are subordinat-ed to the claims of other creditors. There is no obligation to repay early. In the case of liquidation or insolvency, they will only be paid after the claims of all non-subordinated creditors have first been satisfied.

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010As at January 1 70,148 – 16,239 –Additions 278,211 70,148 64,405 16,371Used – – – –Releases 43,356 – 10,037 –Unwinding – – – –As at December 31 305,002 70,148 70,607 16,371

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Provisions for imminent losses from off-balance sheet items 61,808 70,148 14,308 16,371Provisions for imminent losses from pending transactions 20,000 – 4,630 –Provisions for onerous contracts – – – –Provisions for untaken vacation 223,194 – 51,670 –Total 305,002 70,148 70,608 16,371

Received from (principal) Convenience translation to EURin RON Due 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010ProCredit Holding AG & Co. KGaA, Frankfurt am Main, Germany 2016 12,959,100 12,854,400 3,000,000 3,000,000ProCredit Holding AG & Co. KGaA, Frankfurt am Main, Germany 2017 8,639,400 8,569,600 2,000,000 2,000,000ProCredit Holding AG & Co. KGaA, Frankfurt am Main, Germany 2017 16,198,875 16,068,000 3,750,000 3,750,000Total 37,797,375 37,492,000 8,750,000 8,750,000

Accrued interest on subordonated debt Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010ProCredit Holding AG & Co. KGaA, Frankfurt am Main, Germany 782,258 769,757 181,091 179,648Total 38,579,633 38,261,757 8,931,091 8,929,648


51) Share capital

As at 31 December 2011 (compared to 2010), the shareholder struc-ture was as follows:

The par value per share is RON 10.00.

Share premium:

Reserves:

Legal reserves represent accumulated transfers from retained earn-ings in accordance with local banking regulations that require 5% of the Bank’s statutory profit to be transferred to a non-distributable statutory reserve until such time that this reserve represents 20% of the Bank’s share capital.The general banking risks reserve includes amounts set aside in ac-cordance with local banking regulations for future losses and other unforeseen risks or contingencies, which are separately disclosed as appropriations of profit. The general banking risks reserve was appropriated from the statutory gross profit at the rate of 1% of the balance of the assets carrying specific banking risks until the end of 2006 as required by local legislation. In the statement of finan-cial position it is presented under accumulated loss.

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Legal reserve 1,533,997 626,519 355,116 146,219General banking risks reserve 6,166,252 6,166,252 1,427,472 1,439,099Total 7,700,249 6,792,772 1,782,589 1,585,318

Capital reserve Date RON EURin RONPremium paid by ProCredit Holding AG & Co. KGaA April 2008 795,345 184,121Premium paid by Commerzbank AG April 2008 267,875 62,012Premium paid by European Bank for Reconstruction and Development April 2008 210,555 48,743As at December 31, 2011 1,273,775 294,876

Shareholder 31 Dec 2011 31 Dec 2010 Size of Number Amount Size of Number Amountin RON stake in % of shares stake in % of shares ProCredit Holding AG & Co. KGaA, Frankfurt am Main, Germany 32.22 4,924,000 48,566,714 32.22 4,520,632 44,533,034Commerzbank AG, Frankfurt am Main, Germany 19.31 2,950,365 29,100,230 21.03 2,950,365 29,064,234European Bank for Reconstruction and Development, London, United Kingdom 17.10 2,613,622 25,778,845 16.53 2,318,954 22,844,164KfW, Frankfurt am Main, Germany 13.78 2,106,472 20,776,690 13.21 1,853,349 18,257,459IFC – International Finance Corporation Washington D.C., USA 12.63 1,930,422 19,040,263 12.06 1,691,721 16,665,251IPC – Internationale Projekt Consult GmbHFrankfurt am Main, Germany 4.96 758,043 7,476,779 4.96 695,945 6,855,799Total Capital 100.0% 150,739,521 100.0% 138,219,941


E. Risk Management

52) Management of the overall Bank risk profile

1. The risk profile and the risk appetite

The main principle behind the risk management framework of Pro-Credit Bank SA is that the Bank is not allowed to take more risk than it is capable of bearing. Therefore, the Board of Administration es-tablishes an overall risk profile and a risk profile for each of the significant risks identified by the Bank. The main purpose of these risk profiles is that of defining the risk appetite as the acceptable limits within which the Bank’s activity should be pursued.The significant risks acknowledged by the Bank are: credit risk, counterparty risk (including issuer risk), liquidity risk, interest rate risk, foreign currency risk, operational risk and reputational risk. The Bank evaluates the risk exposure to each significant risk through the risk profile indicators on a monthly basis, including a stress test assessment of the risk profile, and compares the results with the risk appetite defined. The outcome of this analysis is re-ported regularly to the Board of Administration.Currently, the Bank’s overall risk appetite is established at a me-dium level. The risk appetite for each significant risk is also estab-lished at a medium level, except for reputational risk for which a medium-low level is assumed

2. Capital management

The capital management of the Bank has the following objectives:

• Ensuring that the Bank is equipped with a sufficient volume and quality of capital at all times to cope with (potential) losses arising from different risks even under extreme circumstances.

• Full compliance with external capital requirements set by the regulator.

• Meeting the internally defined minimum capital adequacy re-quirements.

• Enabling the bank to implement its plans for continued growth while following its business strategy.

The internal capital adequacy assessment process of ProCredit Bank SA is governed by the Bank’s capital management policy. The main tools used to assess and monitor the capital adequacy of the Bank are the regulatory and Basel II capital ratios, the internal capital requirement, the Tier 1 leverage ratio and the risk bearing capacity. These tools are monitored on a monthly basis by the Risk Management Committee and the Board of Administration. External minimum capital requirements are imposed and moni-tored by the local banking supervision authority. Capital adequacy is calculated according to the local accounting standards and re-ported to the Risk Management Committee on a monthly basis. These reports include rolling forecasts to ensure not only current but also future compliance. The following table shows the capital adequacy ratio of the bank, calculated based on the Romanian Accounting Standards (RAS):

Calculation based on local 31 Dec 2011 31 Dec 2010accounting standards Tier 1 Capital/ Risk Weighted Assets 12.5% 9.4%Tier 1 + Tier 2 Capital/ Risk Weighted Assets 16.9% 14.2%

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Ordinary share capital 152,829,240 140,309,658 35,379,596 32,745,906Capital reserve 1,273,775 1,273,777 294,876 297,278Legal reserves 1,533,997 626,519 355,116 146,219Accumulated losses –51,496,833 –68,738,904 –11,921,391 –16,042,500Less other intangibles –1,709,645 –1,770,021 –395,779 –413,093Less other regulatory adjustment –2,386 –8,484 –552 –1,980Tier I capital 102,428,147 71,692,545 23,711,866 16,731,830

Qualifying Subordinated liabilities 35,637,525 35,846,273 8,250,000 8,365,915Revaluation reserve – 2,228 – 520Tier II capital 35,637,525 35,848,501 8,250,000 8,366,435

Total regulatory capital 138,065,672 107,541,046 31,961,866 25,098,265

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010RWA on balance 618,978,988 575,813,575 143,292,124 134,385,170RWA off balance 6,727,938 5,672,488 1,557,501 1,323,863RWA from open currency position – – – –RWA from operational risk 102,928,760 95,122,346 23,827,757 22,199,950Total RWA 728,635,685 676,608,409 168,677,382 157,908,983


The regulatory and Basel II capital ratios are complemented by the internal capital requirement. The Bank calculates capital require-ments for risks which are not provided for under the standardised approach for credit and market risks and in the basic indicator ap-proach for operational risk, according to the NBR regulations. As of December 2011 the internal capital requirement expressed as a ra-tio of regulatory capital stood at 13.23%, while the minimum limit established under the capital management policy was 7%.In addition to these capital ratios, the Bank assesses its capital adequacy by using the concept of risk bearing capacity to reflect the specific risk profile of the Bank, i.e. comparing the potential losses arising from its operation with the Bank’s capacity to bear such losses.The risk taking potential of the Bank is defined as the Bank’s eq-uity (net of intangibles) plus subordinated debt, which amounted to RON 149 million (EUR 34.5 million) as of the end of December 2011 (2010: RON 133.7 (EUR 31.2 million)). The Resources Available to Cover Risk (RAtCR) were set at 65% of the risk-taking potential, i.e. RON 97.2 million (EUR 22.5 million). As at December 2011, the Bank showed a modest level of utilisation of its RAtCR. The economic capital requirements for the significant risks totalled RON 45.8 million (EUR 10.6 million), while the overall utilisation level of the RAtCR stood at 46.1%.

53) Management of individual risks

In 2011, the management and reporting of individual risks have been further developed and refined in order to further enhance the risk management of the Bank in accordance with the local regulations and Basel II requirements. In particular, the risk profile for the sig-nificant risks was reviewed and modified to better reflect the Bank’s exposure.The Bank places special emphasis on a general understanding of the factors driving risk and an ongoing analysis and company-wide discussion of possible developments/scenarios and their potential adverse impacts. The objectives of risk management include ensur-ing that all material risks are recognised in a timely manner, under-stood completely, and described appropriately. This includes, for example, ensuring that no products or services are offered unless they are thoroughly understood and can be handled by all parties. The risk management processes include a reporting component to ProCredit Holding AG, in line with the specifications included in the Procredit Group’s risk management policies which are aligned with the requirements of Basel II and the German MaRisk requirements.

54) Credit risk

Credit risk is defined as the danger that the party to a credit trans-action will not be able, or will only partially be able, to meet its con-tractually agreed obligations towards the Bank. Credit risk arises from customer credit exposures (classic credit risk), credit expo-sure from interbank placements and issuer risk (counterparty risk). It is further divided into credit default risk and credit portfolio risk in order to facilitate focused risk management. Credit risk is the sin-gle largest risk faced by the Bank.

1. Credit default risk from customer credit exposures

Credit default risk from customer credit exposures is defined as the risk of losses due to a potential non-fulfilment of the contractual payment obligations associated with a customer credit exposure.

The management of credit default risk from customer credit expo-sures is based on a thorough implementation of the bank’s lending principles:

• intensive analysis of the debt capacity of the Banks’ clients• careful documentation of the credit risk assessments, assuring

that the analysis performed can be understood by knowledge-able third parties

• rigorous avoidance of over indebting the Bank’s clients• building a personal and long-term relationship with the client

and maintaining regular contact• strict monitoring of loan repayment• practising tight arrears management• exercising strict collateral collection in the event of default• investing in well-trained and highly motivated staff• implementing carefully designed and well-documented proc-

esses• rigorous application of the “four-eyes principle”

The differentiation between individually significant and insignifi-cant credit exposures leads to distinct processes in lending for the different types of credit exposures – processes that have been demonstrated in the past to ensure an effective management of credit default risk. The processes are distinguished mainly in terms of segregation of duties, which is fully implemented for individu-ally significant credit exposures that are risk-relevant; the infor-mation collected from the clients, ranging from audited financial statements to self-declarations; the key criteria for credit exposure decisions based on the financial situation of the client; in particu-lar for individually insignificant credit exposures, the liquid funds and creditworthiness of the client; and the collateral requirements. As a general rule, the lower the amount of the credit exposure, the stronger the documentation provided by the client, the shorter the term of the credit exposure, and the longer the client’s history with the Bank, the lower will be the collateral requirements.The decision-making process ensures that all credit decisions are taken by a credit committee. As a general principle, the Bank con-siders it very important to ensure that its lending business is con-ducted on the basis of organisational guidelines that provide for appropriate rules governing organisational structures and operat-ing procedures; job descriptions that define the respective tasks; a clear allocation of decision-making authority; and a clear definition of responsibilities.Credit exposures in arrears are defined as credit exposures for which contractual interest and/or principal payments are overdue. The high quality of the loan portfolio compared with the overall banking sector reflects the application of the above lending prin-ciples and the results of the application of early warning indica-tors and appropriate monitoring, in particular of the individually significant credit exposures. This is a crucial element of the Bank’s strategy for managing arrears in the current economic crisis that is affecting a large number of its clients. Once arrears occur, the Bank rigorously follows up on the non-repayment of the credit ex-posures, and by so doing typically identifies any potential for de-fault on a credit exposure. Strict rules are applied regarding credit exposures for which, in the Bank’s view, there is no realistic pros-pect that the credit exposure will be repaid and where typically the realisation of collateral has either been completed or the outcome of the realisation process is uncertain. The Bank’s recovery and col-lection efforts are performed by specialised employees, typically with either a lending or legal background.The effectiveness of this tight credit risk management is reflected in the comparably low arrears rate exhibited by the loan portfolio.


Breakdown of loan portfolio by days in arrears

The quality of the loan portfolio is monitored on an ongoing basis. The measure for loan portfolio quality is the portfolio at risk (PaR), which the Bank defines as all credit exposures outstanding with one or more payment of interest and/or principal in delay by more than 30 days. This measure was chosen because the vast majority of all credit exposures have fixed instalments with monthly pay-ment of principal and interest. Exceptions are seasonal agricultural loans, which typically have a grace period of up to six months. No

collateral is deducted and no other exposure-reducing measures are applied when determining PaR.Additionally, the quality of credit operations is assured by the Risk Control Department which is responsible for monitoring the Bank’s credit operations and compliance with its procedures. The unit, made up of experienced lending staff, ensures compliance, in form and substance, with the lending policy and procedures through on-site checks and system screening.

Restructuring of a credit exposure is generally necessitated by economic problems encountered by the client that adversely affect the payment capacity, mostly caused by the significantly changed macro-economic environment in which the bank’s clients currently operate. Restructurings follow a thorough, careful and individual analysis of the client’s changed payment capacity. The decision to restructure a credit exposure is always taken by a credit committee and aims at full recovery of the credit exposure. If a credit exposure is restructured, amendments are made to the parameters of the loan. The level of credit exposure defaults to be expected within a given

At December 31, 2011 0 1 to 30 31 to 60 61 to 90 91 to 180 > 180 Totalin RON days days days days days daysLoans to customers Individually assessed loans Business 11,539,278 378,303 963,302 2,327,149 1,240,047 12,503,801 28,951,880Agricultural 3,896,340 – 159,299 – 540,365 259,636 4,855,639Housing 46,598 – – – – 235,543 282,142Consumer 127,870 – – – – – 127,870Other – – – – – – –

Collectively assessed loansBusiness 515,804,074 9,052,841 3,061,849 2,720,659 3,488,294 10,057,661 544,185,377Agricultural 211,984,394 2,425,517 970,074 1,170,663 2,295,381 1,852,864 220,698,892Housing 8,439,271 675,153 201,577 122,803 130,933 249,009 9,818,745Consumer 3,599,345 69,990 90,919 15,340 10,916 130,759 3,917,268Other 3,215,724 1,291 10,217 – 43,942 32,969 3,304,142Total 758,652,894 12,603,095 5,457,236 6,356,613 7,749,876 25,322,241 816,141,956

At December 31, 2010 0 1 to 30 31 to 60 61 to 90 91 to 180 > 180 Totalin RON days days days days days daysLoans to customers Individually assessed loans Business 6,801,941 4,083,001 1,608,774 508,397 1,729,037 9,555,734 24,286,883Agricultural 144,032 – – – 8,334 257,538 409,904Housing 105,607 – – 231,326 – – 336,933Consumer – – – – – – –Other – – – – – – – Collectively assessed loans Business 489,721,746 13,646,955 4,321,006 3,150,239 6,441,314 1,892,012 519,173,272Agricultural 175,515,673 3,382,112 1,243,143 850,472 2,526,377 158,497 183,676,275Housing 14,933,275 921,828 251,055 295,903 338,117 – 16,740,177Consumer 5,523,214 216,102 114,096 50,907 48,608 – 5,952,926Other 4,699,690 54,894 – 10,317 – – 4,764,900Total 697,445,177 22,304,890 7,538,075 5,097,560 11,091,787 11,863,781 755,341,270

As at December 31, 2011 Loan Allowance for PAR PAR as % of Net Net write-offs as in RON portfolio impairment (> 30 days) loan portfolio write-offs % of loan portfolioTotal 816,141,956 43,349,636 44,885,967 5.50 437,714 0.1

As at December 31, 2010 Loan Allowance for PAR PAR as % of Net Net write-offs as in RON portfolio impairment (> 30 days) loan portfolio write-offs % of loan portfolioTotal 755,341,270 33,102,974 35,591,203 4.71 13,187,204 1.7


year is analysed regularly, based on past experience in this area. Incurred losses are fully covered with loan loss provisions. Individually significant credit exposures are reviewed for impair-ment on an individual basis (= specific impairment). Impairment for individually insignificant credit exposures in arrears is calculated on a portfolio basis at historical default rates; 30 or more days in arrears is considered as objective evidence of impairment. For all unimpaired credit exposures, portfolio-based allowances for im-pairment are made, again based on historical loss experience.

Convenience translation to EURin RON 31 Dec 2011 31 Dec 2010 31 Dec 2011 31 Dec 2010Mortgage 451,833,251 395,897,341 104,598,294 92,395,757Guarantees 51,483,461 136,383,326 11,918,295 31,829,566Inventories 100,145,534 93,282,991 23,183,447 21,770,676Other 51,963,993 19,382,683 12,029,538 4,523,591

Credit exposures with a higher risk profile are always covered with collateral, typically through mortgages. Mortgages are profession-ally re-appraised on an annual basis. The Bank holds collateral against loans and advances to customers in the form of pledge over cash deposits, mortgage interests over property, guarantees and other pledge over equipments and/or re-ceivables. Estimates of fair value are based on the value of collater-al assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired, except for mortgage interests over property which are reassessed yearly.

The collateral can be classified into the following categories:

2. Credit portfolio risk from customer lending

The granularity of the credit exposure portfolio is a highly effective credit risk mitigating factor. The core business of the Bank, lending to very small and small enterprises, necessitated a high degree of standardisation in lending processes and ultimately led to a high degree of diversification of these exposures in terms of geographic distribution and economic sectors. Nevertheless, lending to me-dium-sized enterprises, i.e. larger credit exposures exceeding the threshold of EUR 150,000, constitutes a supplementary area of the Bank’s business in terms of its overall strategic focus. Most of these clients are dynamically growing enterprises that have been working with the Bank for many years. Nonetheless, the higher complexity of these businesses requires an appropriate analysis of the business, the project that is to be financed and any connected entities. A strict division of front and back office functions is applied and require-ments for both documentation and collateral are typically more stringent. Overall, the loan portfolio of the Bank includes 123 credit exposures of more than EUR 150,000.

The structure of the loan portfolio is reviewed monthly by the Cred-it Risk Management Subcommittee in order to identify potential events which could have an impact on large areas of the loan port-folio (common risk factors) and, if necessary, limit the exposure towards certain sectors of the economy.According to the Credit Risk Management Policy and Strategy, all exposures exceeding EUR 1 million must be approved by the Board of Administration. No single large credit exposure may exceed 25% of the bank’s regulatory capital.

As at December 31, 2011 Business Agricultural Housing Consumer Other Totalin RON< 10,000 EUR/USD 113,394,426 96,425,533 6,136,410 492,462 1,745,564 218,194,39410,000 to 30,000 EUR/USD 122,383,785 43,750,214 1,925,999 2,049,283 797,363 170,906,64530,000 to 150,000 EUR/USD 209,535,464 49,336,962 2,189,390 445,469 790,588 262,297,874>150,000 EUR/USD 134,850,093 41,033,412 – 1,156,737 – 177,040,243Total 580,163,768 230,546,121 10,251,799 4,143,951 3,333,515 828,439,156

As at December 31, 2010 Business Agricultural Housing Consumer Other Totalin RON< 10,000 EUR/USD 127,087,172 93,010,693 11,785,533 1,382,399 2,656,642 235,922,44010,000 to 30,000 EUR/USD 128,845,955 36,384,084 2,856,228 3,030,225 1,209,242 172,325,73430,000 to 150,000 EUR/USD 170,330,853 35,580,217 2,631,800 425,758 936,799 209,905,428>150,000 EUR/USD 123,463,079 22,773,839 – 1,163,318 – 147,400,236Total 549,727,059 187,748,833 17,273,561 6,001,700 4,802,684 765,553,837


Larger credit exposures are particularly well analysed and moni-tored by the responsible employees through regular monitoring activities enabling early detection of risks. Full information about any related parties is typically collected prior to lending. Individually significant credit exposures are closely monitored by the Credit Risk Management Subcommittee which is responsible for the approval of the allowances for loan losses built against these exposures. The realisable net value of collateral held is taken into account when deciding on the allowance for impairment. For the calculation of individual impairment a discounted cash flow approach is applied. The individual impairment of credit exposures to customers is as follows:

For individually insignificant credit exposures which show objective evidence of impairment, i.e. which are in arrears for more than 30 days, generally a lump-sum approach is applied; the impairment is determined depending on the number of days in arrears. In addition, individual credit exposures which are regarded as insignificant, or groups of individually insignificant credit exposures, may be classi-fied as impaired if events, such as political unrest, a significant eco-nomic downturn, a natural disaster or other external events occur in the country. For all unimpaired credit exposures a portfolio-based impairment is calculated (see also note (10)).

As at December 2011 Gross outstanding Allowance for Net outstandingin RON amount specific impairment amountBusiness 30,159,151 7,111,394 23,047,757Agricultural 4,965,713 548,925 4,416,788Housing improvement 294,172 53,749 240,422Consumer 131,222 – 131,222Total 35,550,258 7,714,069 27,836,189

As at December 2011 Gross outstanding Allowance for lump-sum Net outstanding amount specific & portfolio amountin RON based impairmentBusiness 550,004,617 28,332,043 521,672,574Agricultural 225,580,408 9,185,345 216,395,064Housing improvement 9,957,628 752,157 9,205,471Consumer 4,012,729 303,686 3,709,043Other 3,333,515 168,550 3,164,965Total 792,888,898 38,741,780 754,147,117

As at December 2010 Gross outstanding Allowance for lump-sum Net outstanding amount specific & portfolio amountin RON based impairmentBusiness 524,330,972 22,207,402 502,123,570Agricultural 187,307,620 6,562,463 180,745,157Housing improvement 16,930,447 843,524 16,086,922Consumer 6,001,700 204,351 5,797,349Other 4,802,684 60,378 4,742,306Total 739,373,422 29,878,118 709,495,304

As at December 2010 Gross outstanding Allowance for Net outstandingin RON amount specific impairment amountBusiness 25,396,088 4,782,328 20,613,760Agricultural 441,213 190,731 250,482Housing improvement 343,114 32,501 310,613Consumer – – –Total 26,180,415 5,005,560 21,174,855


55) Financialrisk

1. Counterpartyandissuerrisk

Conceptual risk management framework

The objective of counterparty and issuer risk management is to pre-vent the Bank from incurring losses caused by the unwillingness or inability of a financial counterparty (e.g. a commercial bank) or is-suer to fulfil its obligations towards the Bank. This type of risk is fur-ther divided into:• principal risk: the risk of losing the amount invested due to the

counterparty’s failure to repay the principal in full on time • replacement risk: the risk of loss of an amount equal to the in-

curred cost of replacing an outstanding deal with an equivalent one on the market

• settlement risk: the risk of loss due to the failure of a counter-party to honour its obligation to deliver assets as contractually agreed

• issuer risk: the probability of loss resulting from the default and insolvency of the issuer of a security

Counterparty and issuer risks evolve especially from the Bank’s need to invest liquidity reserve, to conclude foreign exchange trans-actions, or to buy protection for specific risk positions. The liquidity is placed in the interbank market with short maturities, typically up to three months. Foreign exchange transactions are also conclud-ed with short maturities, up to two days. The Bank’s necessity to finance its lending activities through customer funds and through financing from banks and IFIs results in a significant exposure to-wards the National Bank of Romania due to the mandatory reserves requirements.The counterparty and issuer risks are managed according to the Counterparty Risk Management Policy and Strategy (including Is-suer Risk), which describes the counterparty/issuer selection and the limit setting process, as well as by the Treasury Policy, which specifies the set of permissible transactions and rules for their

processing. As a matter of principle, only large international banks of systemic importance and, for local currency business, local banks with a good reputation and financial standing are eligible counterparties. As a general rule, the bank applies limits of up to 10% of its regulatory capital on exposures to banking groups in non-OECD countries and up to 25% on those in OECD countries. No transactions are performed unless the counterparty has been previously approved. The approval of counterparties, along with exposure limits and maximum tenors, lies with the Risk Manage-ment Committee, for exposure limits up to EUR 1 million and maxi-mum tenors up to 90 days, and with the Board of Administration for all others. The approval is based on a thorough assessment which takes into account the financial situation of the counterparties, its reputation and its policy on AML activities.The risk management policies forbid the Bank to conduct any spec-ulative trading activities. However, for the purpose of investing its liquidity reserve, the Bank is allowed to buy and hold securities (T-bills, bonds or certificates). The inherent issuer risk is managed by the provisions of the Bank’s Treasury Policy. Among other re-quirements, the policy stipulates that the securities should prefer-ably be issued by the government or central bank of the country of operation, or by sovereigns or international and/or multinational institutions with very high credit ratings (international rating of AA- or better).

Facts and figures concerning counterparty and issuer risk

The main reason for incurring counterparty and issuer risk is to keep liquid assets for liquidity risk management purposes, i.e. as a reserve for times of potential stress. These funds are held as cash in commercial bank or central bank accounts, as interbank place-ments, and in for of treasury bills issued by the Ministry of Finance. As mentioned above, a substantial part of the Bank’s exposure consists of the mandatory reserve required by the central bank and held in a specific central bank account. The Bank did not engage in any transaction with derivatives throughout 2011.The following table provides an overview of the types of counter-parts and issuers with whom the Bank concludes transactions.

Interbank placements are transactions with banks which are sub-divided into those based in OECD countries and those in non-OECD countries.

2. Foreigncurrencyrisk


The assets and liabilities of the Bank are denominated in more than one currency. If the assets and liabilities in one currency do not match, the Bank has an open currency position (OCP) and is ex-posed to potentially unfavourable changes in exchange rates. Due to the close economic links between Romania and the euro area countries, a significant part of the customer funds and of the customer loan portfolio is denominated in euros. The Bank’s opera-

in RON 31Dec2011 in% 31Dec2010 in%Banking groups 6,767,242 2.4 3,957,479 2.1 OECD banks 5,841,825 2.0 3,111,762 1.7 Non-OECD banks 925,418 0.3 845,717 0.4Central banks 198,329,832 69.2 169,383,179 89.9 Mandatory reserve 169,333,238 59.1 168,458,810 89.4 Other exposures 28,996,594 10.1 924,369 0.5Governments 81,409,166 28.4 15,054,325 8.0 Other – 105,297 0.1 Total 286,506,241 171.6 188,500,280 192.0


tions in other foreign currencies are at a low level and therefore do not pose a significant risk exposure.Currency risk management is guided by the Foreign Currency Risk Management Policy and Strategy, which is approved by the Board of Administration. The Treasury Department is responsible for continuously moni-toring the developments of exchange rates and foreign currency markets. The Treasury Department also manages the currency po-sitions of the Bank on a daily basis. As a general principle, all cur-rency positions should be closed at end-of-day; long or short posi-tions for speculative purposes are not permitted. The Bank did not engage in any foreign currency derivative transactions in 2011. The Bank’s foreign currency exposure is monitored and controlled on a daily basis by the Treasury Back Office unit and is reported weekly to ALCO by the Risk Management Department.Developments in foreign exchange markets and currency positions are regularly reported to the Bank’s ALCO, which is authorised to take strategic decisions with regard to treasury activities. The

Bank’s exposure to foreign currency risk is reported on a monthly basis to the Board of Administration. The Bank aims to close currency positions and ensures that an open currency position remains within the limits at all times. For the purpose of currency risk management the Bank has established two levels of control: early warning indicators and limits. In cases where the positions cannot be brought back below 5% of the reg-ulatory capital for a single currency, or 7.5% for the aggregate of all currencies, the bank’s ALCO must be informed and appropriate measures taken. This mechanism helps to ensure that the bank’s total OCP does not exceed 10% of regulatory capital. Exemptions from the limit or strategic positions are subject to approval by the Board of Administration.

Facts and figures concerning foreign currency risk

The following table shows the distribution of the Bank’s balance sheet items across its material operating foreign currencies, which are USD and EUR.

As at December 31, 2011 RON EUR USD Other in RON currenciesAssets Cash and cash equivalents 93,632,801 132,044,792 2,666,148 –Loans and advances to banks 230,667 3,321,439 3,210,219 250,666Avaliable-for-sale financial assets 81,217,620 – – –Loans and advances to customers 444,934,440 382,815,096 689,620 –Allowance for losses on loans and advances to customers –28,155,624 –18,237,787 –62,438 –Other assets 4,028,607 431,112 284,657 6,749Total assets 595,888,511 500,374,651 6,788,206 257,415 Liabilities Liabilities to customers 445,304,373 287,797,963 7,030,254 183,587Liabilities to international financial institutions 52,382,756 173,889,356 – –Provisions 289,593 15,408 – –Other liabilities 5,527,541 656,396 – 3,608Subordinated debt – 38,579,633 – –Total liabilities 503,504,263 500,938,756 7,030,254 187,195 Net position 92,384,248 –564,105 –242,048 70,220 Credit commitments 28,322,913 10,302,136 – –

As at December 31, 2010 RON EUR USD Other in RON currenciesAssets Cash and cash equivalents 87,327,415 110,551,725 2,997,825 –Loans and advances to banks 165,703 2,413,777 1,531,492 139,206Avaliable-for-sale financial assets 14,929,815 351,630 – –Loans and advances to customers 428,341,770 336,263,983 948,084 –Allowance for losses on loans and advances to customers –20,891,130 –13,977,283 –15,264 –Other assets 5,463,238 574,913 262,974 5,976Total assets 515,336,810 436,178,745 5,725,110 145,182

LiabilitiesLiabilities to banks – 857,012 – –Liabilities to customers 378,926,006 232,229,109 5,877,877 182,236Liabilities to international financial institutions 64,779,697 161,139,371 – –Provisions 58,178 11,970 – –Other liabilities 3,646,097 382,263 – –Subordinated debt – 38,261,757 – –Total liabilities 447,409,978 432,881,481 5,877,877 182,236

Net position 67,926,832 3,297,264 –152,766 –37,054

Credit commitments 21,205,536 9,622,814 – –


3. Interest rate risk


Interest rate risk arises from structural differences between the maturities of assets and those of liabilities, e.g. if a four-year fixed interest rate loan is funded with a six-month term deposit, as well as from incongruence between the interest type of the assets and liabilities, e.g. a fixed interest rate loan is financed through a vari-able interest rate financing facility. This would expose the Bank to the risk that the funding costs will increase before the maturity date of the loan, thus reducing the Bank’s margin on the loan. The Bank’s approach to measuring and managing interest rate risk is guided by the Interest Rate Risk Management Policy and Strategy which is approved by the Board of Administration. The main indicator for managing interest rate risk measures the po-tential impact on the economic value of all assets and liabilities. The indicator analyses the potential loss that the Bank would incur in the event of very unfavourable movements (shocks) of the inter-est rates on assets and liabilities. For EUR or USD, a parallel shift in

the interest rate curve by +/- 200 bps is assumed. For the local cur-rency, the definition of a shock is derived from historic interest rate volatilities over the last five years. The shocks for local currency also differentiate between internal driven interest rates and market interest rates, in order to capture the basis risk. The potential eco-nomic impact on the bank’s balance sheet must not exceed 15% of its regulatory capital for all currencies. A reporting trigger is set at 5% per currency, providing an early warning signal. The potential impact of interest rate risk on the Bank’s expected earnings over the next three months is also regularly analysed. This measure indicates how the income statement may be influ-enced by interest rate risk under a short-term perspective.Interest rate risk is regularly discussed by the Bank’s Assets and Liabilities Management Subcommittee. The indicators are also reported to the Risk Management Committee and to the Board of Administration.In order to limit its interest rate risk, the Bank aims to align the ma-turities of its balance sheet items which generate interest earnings and interest expenses (natural hedge). In this respect, the Bank aims to disburse more local currency variable interest rate loans, thereby shortening the terms for assets in order to achieve a closer match to the terms for local currency liabilities.

At December 31, 2011 Up to 1 – 3 3 – 6 6 – 12 1 – 5 More than Non interest Totalin RON 1 month months months months years 5 years bearingAssetsCash and cash equivalents 169,333,238 – – – – – 59,010,503 228,343,741Loans and advances to banks 2,317,474 – – – – – 4,695,517 7,012,991Available-for-sale financial assets 23,931,744 37,610,648 19,657,060 – – – 18,168 81,217,620Loans and advances to customers 53,523,262 36,695,663 58,429,930 151,847,962 388,995,334 136,838,682 2,108,324 828,439,156 Total assets 249,105,718 74,306,311 78,086,990 151,847,962 388,995,334 136,838,682 65,832,512 1,145,013,508

Liabilities Liabilities to banks – – – – – – – –Liabilities to customers 287,124,173 241,153,614 94,203,298 36,541,470 1,511,008 – 79,782,615 740,316,178 Liabilities to international financial institutions 33,637,600 113,495,962 77,908,875 – – – 1,229,674 226,272,112Subordinated debt – – – – 37,797,375 – 782,258 38,579,633Total liabilities 320,761,773 354,649,576 172,112,173 36,541,470 39,308,383 – 81,794,548 1,005,167,922

Total interest sensitivity gap –71,656,054 –280,343,265 –94,025,183 115,306,492 349,686,951 136,838,682 –15,962,036 139,845,585


Facts and figures concerning interest rate risk

As specified above, the main interest rate risk indicator is the economic value impact indicator. It measures the impact of inter-est rate changes on all interest rate-sensitive on- and off-balance sheet items and quantifies the loss in value of the bank given cer-tain changes in interest rates. As described above, the calculation of the economic value impact indicator is based on different par-allel shifts of the interest rate curves. For EUR and USD a shift of +/– 200 bps is applied; for the local currency the shift is defined in terms of a historical worst case (+/– 674 bps for internal rates and +/– 993 bps for market rates, as of December 2011).

The following table presents the economic value impact indicator under the worst case scenario, as of December 2011 and December 2010.

At December 31, 2010 Up to 1 – 3 3 – 6 6 – 12 1 – 5 More than Non interest Totalin RON 1 month months months months years 5 years bearingAssetsCash and cash equivalents 169,383,179 – – – – – 31,493,786 200,876,965Loans and advances to banks 4,250,178 – – – – – – 4,250,178 Available-for-sale financial assets 9,877,162 4,948,576 – – – – 455,707 15,281,445 Loans and advances to customers 36,277,589 35,412,953 60,824,463 145,049,774 380,223,601 108,581,375 815,917 765,553,837 Total assets 219,788,108 40,361,528 60,824,463 145,049,774 380,223,601 108,581,375 31,133,575 985,962,424

Liabilities Liabilities to banks 856,961 – – – – – 51 857,012 Liabilities to customers 230,267,492 181,684,561 108,283,058 24,443,864 1,014,341 – 71,521,912 617,215,227Liabilities to international financial institutions 33,408,120 112,366,840 78,297,509 – – – 1,846,599 225,919,068Subordinated debt – – – – – 37,492,000 769,757 38,261,757Total liabilities 264,532,573 294,051,401 186,580,566 24,443,864 1,014,341 37,492,000 74,138,319 882,253,065

Total interest sensitivity gap –44,744,464 –253,689,873 –125,756,103 120,605,909 379,209,260 71,089,375 –43,004,744 103,709,360

31 Dec 2011 31 Dec 2010in EUR ’000 Interest Rate Shock EVI Interest Rate Shock EVIRON +674 bps/993 bps –3,375 +712 bps/+868 bps –3,937EUR –200 bps –330 –200 bps –390USD +200 bps 0 +200 bps –2Total –3,705 –4,329


4. Liquidity risk


The Bank’s liquidity risk management (LRM) system is tailored to the specific characteristics of the Bank. On the one hand, the Bank was founded as a lending institution and financial intermediary for ordinary people. Consequently, its loan portfolio is the largest sin-gle component on the asset side, and is primarily funded through locally mobilised deposits. On the other hand, the loan portfolio is characterised by a large number of exposures to small businesses and is therefore highly diversified. The majority of loans are dis-bursed as instalment term loans, and the default rate is low. There-fore, cash flows are highly predictable. All of these factors justify the use of a relatively simple and straightforward LRM system.Liquidity risk in the narrowest sense (risk of insolvency) is the dan-ger that the Bank will no longer be able to meet its current and fu-ture payment obligations in full, or in a timely manner. Liquidity risk in a broader sense (funding risk) is the danger that additional fund-ing can no longer be obtained, or can only be obtained at increased market interest rates.The Bank’s ALCO determines the liquidity strategy of the Bank and sets the liquidity risk limits. The treasury department manages the Bank’s liquidity on a daily basis and is responsible for the execu-tion of the ALCO’s decisions. Compliance with strategies, policies and limits are constantly monitored by the treasury back office unit and by the risk division. The standards that the Bank applies in this area are established through the Liquidity Risk Management Policy and Strategy and the treasury policy. Limit breaches and exceptions to these policies are subject to decisions of the Board of Administration. The local requirements are complemented by the tools used at the ProCredit group level, thus enhancing local liquidity risk management.Treasury manages liquidity on a daily level using a cash flow analy-sis. This tool is designed to provide a realistic picture of the future liquidity situation. It includes assumptions about deposit and loan developments and helps to forecast liquidity risk indicators. The key tool for measuring liquidity risk is a forward-looking liquid-ity gap analysis, which shows the contractual maturity structure of the assets and liabilities and estimates future funding needs based on certain assumptions. Starting with the estimation of the future liquidity in a normal financial environment, the assumptions are increasingly tightened in order to analyse the Bank’s liquidity situ-ation in a worst-case scenario (stress test).

The main indicator of short-term liquidity is the sufficient liquid-ity indicator (SLI), which compares the amounts of assets available and liabilities assumed to be due within the next 30 days. It must not fall below 1. This implies that the Bank always has sufficient funds to be able to repay the liabilities simulated to be due within the next 30 days. This is complemented by the early warning indicators, the foremost being the highly liquid assets indicator, which relates highly liquid assets to customer deposits. The Bank also analyses its liquidity situation from a more structur-al perspective, taking into account the liquidity gaps in later time buckets and additional sources of potential liquidity. The liquidity position also takes into account credit lines which can be drawn by the Bank with some time delay, and other assets which take some time to liquidate. In addition to prescribing the close monitoring of these early warn-ing indicators, the Liquidity Risk Management Policy and Strategy also defines reporting triggers. If the highly liquid asset indicator drops below 20%, if the short-term liquidity position becomes neg-ative, or if the depositor concentration rises above 20%, the ALCO takes decisions on appropriate measures.In order to safeguard the liquidity of the Bank even in stress situa-tions, the potential liquidity needs in different scenarios are deter-mined. The Bank has a liquidity contingency plan which establishes the measures which should be taken if a crisis situation appears at the level of the Bank or the banking system. The liquidity contin-gency plan is supported by a stand-by line from ProCredit Holding, amounting to EUR 10 million at the end of December 2011.The Bank also aims to diversify its funding sources. Depositor concentrations are monitored in order to avoid dependencies on a few large depositors. According to the bank’s internal guidelines a significant depositor concentration exists if the 10 largest deposi-tors exceed 20% of total customer deposits. This serves as an early warning signal and requires the reasons and mitigating measures to be reported to the ALCO and the Risk Management Committee.The Bank also minimises its dependency on the interbank market. The policies stipulate that the total amount of interbank liabilities may not exceed 40% of its available lines and overnight funding may not exceed 4% of total liabilities. Higher limits need to be ap-proved by Group ALCO.

Facts and figures concerning liquidity risk

The following table shows the liquidity gap analysis, i.e. the (undis-counted) cash flows of the financial assets and financial liabilities of the bank according to their remaining contractual maturities. The remaining contractual maturity is defined as the period between the balance sheet date and the contractually agreed due date of the asset or liability, or the due date of a partial payment under the con-tract for an asset or liability.


At December 31, 2011 Carrying Gross Up to 1 – 3 3 – 6 6 – 12 1 – 5 More thanin RON amount amount* 1 month months months months years 5 yearsAssetsCash and cash equivalents 228,343,741 228,379,976 228,379,976 – – – – –Loans and advances to banks 7,012,991 7,012,991 7,012,991 – – – – –Available-for-sale financial assets 81,217,620 81,936,446 23,986,651 37,966,269 19,965,358 – – 18,168 Loans and advances to customers 781,983,306 1,073,286,372 60,820,851 51,884,508 76,822,962 194,006,611 515,831,941 173,919,499 Other assets 1,244,734 1,354,461 12,107 – – 928,608 413,745 –Total assets 1,099,802,392 1,391,970,247 320,212,577 89,850,777 96,788,320 194,935,219 516,245,686 173,937,667 Off Balance sheet commitment (assets) 92,441,580 92,441,580 49,244,580 – 43,197,000 – – –Total assets 1,192,243,972 1,484,411,827 369,457,157 89,850,777 139,985,320 194,935,219 516,245,686 173,937,667 Liabilities Liabilities to banks – – – – – – – –Liabilities to customers 740,316,178 759,471,899 366,744,817 248,197,253 98,616,043 39,569,764 4,380,921 1,963,101 Liabilities to international financial institutions 226,272,112 227,102,824 – 13,060,522 16,238,865 61,663,219 98,342,844 37,797,375 Other liabilities 4,518,741 4,518,741 3,227,286 1,291,455 – – – –Provisions 81,806 243,195 – 223,195 20,000 – – –Subordinated debt 38,579,633 55,943,067 – 606,718 1,138,124 1,742,607 35,519,694 16,935,924 Total liabilities 1,009,768,469 1,047,279,727 369,972,103 263,379,143 116,013,032 102,975,589 138,243,459 56,696,400 Off Balance sheet commitment (liabilities) 113,175,550 113,175,550 – 1,488,191 1,149,147 5,342,279 58,629,991 46,565,941 Total liabilities 1,122,944,019 1,160,455,277 369,972,103 264,867,334 117,162,179 108,317,868 196,873,451 103,262,341 Open position 90,033,923 344,690,520 –49,759,527 –173,528,366 –19,224,712 91,959,630 378,002,227 117,241,267Open position including off Balance sheet commitments 69,299,953 323,956,550 –514,947 –175,016,557 22,823,141 86,617,352 319,372,236 70,675,326

*undiscounted cash flow for financial assets and liabilities


Due to the fact that not all cash flows will occur in the future as specified within the contracts, the Bank applies assumptions, es-pecially regarding deposit withdrawals. These assumptions are very conservative.The core assumptions used for the purposes of calculating the li-quidity indicator are as follows:• 50% of interbank liabilities contractually due at sight will be

withdrawn in the next month, another 50% will be withdrawn within the following three months

• 20% of customer deposits contractually due at sight will be withdrawn within the next month, 80% will be withdrawn later

• 5% of exposures guaranteed by the Bank will require a pay-ment within the next month

• 20% of credit lines which the Bank has committed to its cus-tomers, but which are currently undrawn, will be drawn within the next month

The goal is to always have sufficient liquidity in order to serve all expected liabilities within the next month. From a technical point of view this implies that the bank’s available assets should always exceed the expected liabilities, as calculated by applying the above assumptions. The expected liquidity gap quantifies the potential liquidity needs within a certain time period if it has a negative value, and it shows a potential excess liquidity, if it has a positive one. This calculation

includes positive excess values from the previous time buckets. The expected liquidity gap is the basis for the sufficient liquidity indicator which, as at end of December 2011 stood at 1.6, with a minimum limit of 1.As mentioned above, the Bank also performs stress test calcula-tions in order to safeguard the liquidity of the bank. As at 31 De-cember 2011 the Bank had no liquidity gap in the first time bucket according to the internal worst-case stress test calculation.The Bank aims to rely primarily on customer deposits for its fund-ing. This source is supplemented by funding received from interna-tional financial institutions (IFIs), which provide earmarked funds under targeted financing programmes (e.g. for lending to SMEs). In order to further diversify its sources of funds, the bank also maintains relationships with other banks, especially for short-term liquidity lines. In addition, ProCredit Holding provides short- and long-term funding. In order to maintain a high level of diversification among its cus-tomer deposits, the bank has implemented a concentration trigger which aims at ensuring that the ten largest customer deposits do not exceed 20% of total deposits. The ten largest customer depos-its in total deposits made up 10.1% as at December 2011, below the warning limit of 20% established through the Liquidity Risk Man-agement Policy and Strategy.

At December 31, 2010 Carrying Gross Up to 1 – 3 3 – 6 6 – 12 1 – 5 More thanin RON amount amount* 1 month months months months years 5 yearsAssetsCash and cash equivalents 200,876,964 201,045,335 201,045,335 – – – – –Loans and advances to banks 4,250,179 4,250,179 4,250,179 – – – – –Available-for-sale financial assets 15,281,448 15,369,800 9,999,999 5,000,002 – – – 369,800 Loans and advances to customers 730,670,165 1,002,378,842 51,907,692 49,592,264 82,734,564 188,310,941 494,806,589 135,026,791 Other assets – – – – – – – Total assets 951,078,756 1,223,044,157 267,203,206 54,592,266 82,734,564 188,310,941 494,806,589 135,396,591 Off Balance sheet commitment (assets) 42,848,000 42,848,000 42,848,000 – – – – –Total assets 993,926,756 1,265,892,157 310,051,206 54,592,266 82,734,564 188,310,941 494,806,589 135,396,591 Liabilities Liabilities to banks 857,011 857,011 857,011 – – – – –Liabilities to customers 617,222,873 627,756,848 300,667,070 186,942,334 114,152,500 24,825,327 1,169,617 –Liabilities to international financial institutions 225,919,067 248,855,635 20,021,673 9,088,451 17,583,898 33,326,675 168,834,937 –Subordinated debt 38,261,756 58,934,722 – 601,813 1,091,434 1,719,945 13,853,495 41,668,035 Total liabilities 882,260,707 936,404,216 321,545,754 196,632,598 132,827,832 59,871,947 183,858,050 41,668,035 Off Balance sheet commitment (liabilities) 30,828,350 30,828,350.44 1,792,731 3,007,434 5,377,525 10,540,913 4,346,810 5,762,936 Total liabilities 913,089,058 967,232,566 323,338,485 199,640,032 138,205,358 70,412,860 188,204,860 47,430,971 Open position 68,818,049 286,639,941 –54,342,548 –142,040,332 –50,093,268 128,438,994 310,948,540 93,728,556Open position including off Balance sheet commitments 80,837,698 298,659,591 –13,287,280 –145,047,766 –55,470,794 117,898,081 306,601,729 87,965,620

*undiscounted cash flow for financial assets and liabilities


56) Operational risk

Operational risk is recognised as an important risk factor for the bank, given that it relies on decentralised processing and decision-making. In line with Basel II, the bank defines operational risks as the risk of loss resulting from inadequate or failed internal proc-esses, people and systems and/or external events. This category includes all “risk events” in the areas of personnel, processes, and information technology. A dedicated Operational Risk Management Policy and Strategy establishes the principles of operational risk management. The overall framework for managing operational risks is best de-scribed as a complementary and balanced system comprising the following key components: Corporate Culture, Governance Frame-work, Policies and Procedures, Risk Assessments, New Risk Ap-provals (NRAs), Key Risk Indicators and the Risk Event Database. While the Corporate Culture, the Governance Framework, and Poli-cies and Procedures define the basic cultural and organisational parameters, Risk Assessments, New Risk Approvals (NRAs), Key Risk Indicators and the Risk Event Database form the key instru-ments with which the risk management process is executed.

The overall objectives of the Bank’s approach to the management of operational risks are: – to understand the drivers of the group’s operational risks– to be able to identify critical issues as early as possible– to avoid losses caused by operational risks; and– to ensure efficient use of the group’s capital.

To deliver on these goals the following tools and processes have been implemented within the framework outlined above. They are presented in the sequence in which they are used within the op-erational risk management process. This process is subdivided into the following phases: identification, evaluation, monitoring, con-trol, and follow up.

• Identification – Annual operational and fraud risk assessments – New risk approval (NRA) process – Risk identification and documentation in the Risk Event Data-

base (RED) – Ad hoc identification of potential risks• Evaluation/quantification – Agreed standards to quantify risks • Monitoring and control – Process owners’ responsibility to monitor risks – Key risk indicators (KRIs) and operational risk reports, risk

bearing capacity calculation and monitoring in the Opera-tional Risk Management Subcommittee and Risk Manage-ment Committee

– Management summaries for the significant risk events – Implementation of measures to avoid, reduce or mitigate the

risks depending on priorities, efficiency considerations and regulations

– Transfer of risk to an insurer, if appropriate• Issue tracking/follow-up tables for material action plans – Follow-up of the measures taken by the Operational Risk

Management Subcommittee or by the Bank’s Managers

To constantly enhance the professional standards of the Bank, in 2011 it continued to make use of local training facilities, the re-gional ProCredit Academy and the international ProCredit Academy in Fürth, Germany. Training programmes for candidates for man-agement positions include various sessions focusing explicitly on operational risk management. Risk awareness training is delivered annually to all staff as well as to all newly hired employees.

57) Reputational risk

Reputational risk is recognised as a significant risk to which the Bank is exposed. It is defined as the current or future risk that the profits or capital would be negatively affected due to the unfavour-able image of the Bank as perceived by clients, counterparties, shareholders, investors or supervisory authorities.The Bank monitors all events with potential reputational implica-tions through operational risk events identification, continuous monitoring of the media exposure and monthly monitoring of cus-tomer complaints. The monitoring results are reported to the Oper-ational Risk Management Subcommittee which may take measures to mitigate the effects of a reputational risk event.The Bank aims to keep the degree of responsibility and profes-sionalism of its employees at a high level in order to mitigate its exposure to reputational risk. Therefore, the various training pro-grammes specified in the previous section have become part of the Bank’s organisational culture. Relationships with clients have always been based on the principles of transparency and responsi-bility, thus fostering a good image

58) Organisational of the risk management function

The responsibility for the risk management of the Bank lies with the Bank’s managers and with the Board of Administration.The risk management function comprises two of the Bank’s divi-sions, credit risk division and risk division. The risk division is re-sponsible for the management all significant risks, while the credit risk division is responsible specifically for credit risk management at individual exposure level. Both organisational units report to the General Manager. Additionally, the risk division reports to the Risk Management Committee. The risk division comprises a risk man-agement department, responsible for the identification, evalua-tion, monitoring and reporting of risk exposures, and a risk control department, responsible for monitoring and reporting the compli-ance with risk management policies and strategies. The risk divi-sion is not involved in any way with the Bank’s customer service operations (credit or deposit business) or trading operations. The risk management department reports regularly to the correspond-ing organisational units at ProCredit Holding.The Bank has established a monthly Risk Management Committee which is responsible for monitoring and controlling the Bank’s ex-posure to risks. Detailed monitoring of specific risks is performed by various subcommittees: the Credit Risk Management Subcom-mittee (credit risk), Assets and Liabilities Management Subcom-mittee (counterparty risk, liquidity risk, market risks), Operational Risk Management Subcommittee (operational risk and reputational risk) and the AML&CFT Subcommittee (anti-money laundering and combating the financing of terrorism).The Bank’s risk policies address all significant risks and set stand-ards that enable risks to be identified early and to be managed ap-propriately. The Risk Management Department carries out regular monitoring to ensure that the total volume of all risks incurred does not exceed the limits approved. The results of the monitoring are reported to the Risk Management Committee and its subcommit-tees and to the Board of Administration

F. Additional Notes

59) Fair value of financial instruments

The following table gives an overview of the carrying amounts and fair values of the financial assets and liabilities according to the classes of financial instruments, defined in accordance with the business of the Bank.


The fair value of claims and term deposits at variable rates of inter-est is identical to their carrying amounts. The fair value of claims and liabilities at fixed rates of interest was determined using the discounted cash flow method, using money market interest rates for financial instruments with similar default risks and similar re-maining terms to maturity.The estimated fair value of the receivables corresponds to the dis-counted amount of the estimated expected future cash flows, i.e. net of allowance for impairment. The expected cash flows are dis-

counted to fair value at the current market interest rates of the re-spective markets.For the fair value measurement of financial instruments which are carried at fair value only in rare circumstances, the fair value is calculated based on current observable market data using a valu-ation technique. The valuation techniques applied are base on the current fair value of other instruments that are substantially the same, and discounted cash flow analysis using observable market parameters, e.g. interest rates and foreign exchange rates. The fol-lowing table shows the distribution of fair values over the different fair value hierarchies:

There were no transfers between Level 1 and Level 2 of the fair value hierarchy.

60) Contingent liabilities and commitments

in RON 2011 2010Guarantees and stand-by letters of credit 5,761,842 5,278,295Credit commitments with immediate right of cancellation 22,824,053 11,844,383Credit commitments (irrevocable loan commitments) 10,039,154 13,705,673Total 38,625,049 30,828,350

The above table discloses the nominal principal amounts of con-tingent liabilities, commitments and guarantees, i.e. the amounts at risk, should contracts be fully drawn upon and clients default. It is expected that a significant portion of guarantees and commit-ments will expire without being drawn upon; therefore the total of the contractual amounts is not representative of future liquidity requirements. An estimate of the amount and timing of outflow is not practicable.

31 Dec 2011 31 Dec 2010in RON Carrying value Fair value Carrying value Fair valueFinancial assetsCash 228,343,741 228,343,741 200,876,965 200,876,965Loans and advances to banks 7,012,991 7,012,954 4,250,178 4,250,162Available-for-sale financial assets 81,217,620 81,217,620 15,281,445 15,281,445Loans and advances to customers 828,439,156 844,168,219 765,553,837 760,802,369Total 1,145,013,508 1,160,742,534 985,962,424 981,210,941

Financial liabilitiesLiabilities to banks – – 857,012 857,050Liabilties to customers 740,316,178 741,091,975 617,215,227 621,896,909Liabilties to international financial institutions 226,272,112 227,207,378 225,919,068 225,249,442Subordinated debt 38,579,633 38,579,633 38,261,757 42,118,076Total 1,005,167,922 1,006,878,986 882,253,065 890,121,477

Total fair value of which in RON Level 1 Level 2 Level 3Financial assetsCash 228,343,741 228,343,741 – –Available-for-sale financial assets 81,217,620 – 81,217,620 –Total 309,561,361 228,343,741 81,217,620 –


61) Related party transactions

The Bank entered into a number of banking transactions with related parties in the normal course of business. The list of related parties and description of the nature of relation-ship is as follows:

Name RelationshipCommerzbank Aktiengesellschaft (and its subsiduares) ShareholderInternational Finance Corporation ShareholderEuropean Bank for Reconstruction and Development ShareholderKreditanstalt fur Wiederaufbau (“KfW”) ShareholderProCredit Holding AG & Co. KGaA ShareholderProCredit Bank Albania Bank of the groupProCredit Bank Congo Bank of the groupProCredit Bank Bulgaria Bank of the groupProCredit Bank Kosovo Bank of the groupProCredit Academy Macedonia Group companyProCredit Savings and Loans Ghana Group companyProCredit Academy Group companyQuipu GmbH Group company

The ultimate parent company of the bank is ProCredit Holding AG & Co. KGaA. During the year ended 31 December 2011 and the year ended 31 December 2010 the following transactions were carried out with the shareholders and other related parties from the group.

Net income of the Bank from transactions with the shareholders and other related parties

in RON 2011 2010Income 399,399 23,525Expense 13,637,842 14,478,427Net income –13,238,443 –14,454,902

Outstanding balances of the Bank with the shareholders and other related parties(as at year-end)

in RON 31 Dec 2011 31 Dec 2010Assets Loans and advances to banks 3,691,450 2,452,879Other receivable 19,723 109,417Total Assets 3,711,173 2,562,296 Liabilities Liabilities to customers 52,095,079 51,670,052Liabilities to international financial institutions 44,975,106 98,430,726Subordinated debt 38,579,633 38,261,756Other payable 570,528 15,147Total Liabilities 136,220,346 188,377,680 Off-balance sheet positions Credit line 43,197,000 42,848,000Loan commitment 49,244,580 –Total Off-balance sheet positions 92,441,580 42,848,000

62) Management compensation

During the reporting period, total compensation paid to the manage-ment of the bank amounted to:

in RON 31 Dec 2011 31 Dec 2010Management board salaries 1,620,611 1,613,554Total 1,620,611 1,613,554

The members of the Supervisory Board do not receive any compen-sation from the bank.

63) Significant post-balance sheet events

No significant events post-balance sheet events

64) Exchange rates

For the balance sheet and the income statement the following ex-change rates were applied for the convenience translation:

2011 2010Currency code At balance sheet date Average for the year At balance sheet date Average for the yearEUR 4.3197 4.2379 4.2848 4.2099USD 3.3393 3.0486 3.2045 3.1779


65) Address and general information

ProCredit Bank S.A. is domiciled in Romania. The Bank was estab-lished in Romania in July 2002 (until November 2004 the Bank was known as Microfinance Bank MIRO S.A.), and is licensed by the Na-tional Bank of Romania to conduct banking activities. The Bank operates through its head office located in Bucharest and through its network consisting of 20 branches (31 December 2010: 26) and 8 agencies (31 December 2010: 11) located in Romania.

The current registered office of the Bank is located at:62 – 64 Buzesti Street, Bucharest, Sector 1Romania

The Bank’s employees numbered 783 as at 31 December 2011(31 December 2010: 830).

The Bank is managed by a Board of Directors made up of 7 members (31 December 2010: 5 members); led by a Chairperson, and by Dr. Ilinca Rosetti who is General Manager of the Bank. The composition of the Board of Directors was as follows:

Position 31 December 2011 31 December 2010Chairperson Dr. Anja Lepp Dr. Anja Lepp Member Gian Marco Felice –Member Ivaylo Blagoev Ivaylo Blagoev Member Hanns M. Hagen Hanns M. Hagen Member Roger Bardo Rihmland Roger Bardo RihmlandMember Dr. Dietrich Ohse Dr. Dietrich Ohse Member Jana Sivcova –

Dr.Ilinca Rosetti Heribert KailbachGeneral Manager Deputy General Manager

Bucharest 19 April 2012


Contact Addresses

Head Office address

62-64 Buzesti St., Sector 1011017 BucharestTel.: +40 21 201 6000Fax: +40 21 305 [email protected] www.procreditbank.ro

Bucharest Branches

Bucuresti Branch188 Chitilei St., Sector 1BucharestTel.: (4) 021 206 01 66Fax: (4) 021 206 01 [email protected]

Giurgiului Branch121 Giurgiului St., Block 5, Sector 4BucharestTel.: (4) 021 405 04 25Fax: (4) 021 405 04 [email protected]

Militari Branch22 Iuliu Maniu Blvd., Block C15, Sector 6BucharestTel.: (4) 021 434 62 92Fax: (4) 021 407 31 [email protected]

Mosilor Agency262 Calea Mosilor, Block 8, Sector 2BucharestTel.: (4) 021 201 65 17Fax: (4) 021 201 65 [email protected]

Muncii Agency 323 Calea Calarasilor, Block 201, Sector 3BucharestTel.: (4) 021 308 35 20Fax: (4) 021 308 35 [email protected]

Pantelimon Branch258 Pantelimon St., Block 47, Sector 2BucharestTel.: (4) 021 200 49 72Fax: (4) 021 255 30 [email protected]

Rahova Agency297 Calea Rahovei, Sector 5BucharestTel: (4) 021 404 82 73Fax : (4) 021 404 82 [email protected]

Stefan cel Mare Agency36 Stefan cel Mare St., Block 30B, Sector 2BucharestTel. (4) 021 201 89 34Fax: (4) 021 201 89 [email protected]

Victoria Branch62 – 64 Buzesti St., Sector 1BucharestTel.: (4) 021 300 51 50Fax: (4) 021 305 56 [email protected]

Vitan Agency17A Calea vitan, Sector 3BucharestTel.: (4) 021 308 64 52Fax: (4) 021 308 64 [email protected]

Regional Branches

Alexandria Branch185 Libertatii St.AlexandriaTel: (4) 0247 306 281Fax: (4) 0247 306 [email protected]

Arad BranchPiata Spitalului, Block HAradTel.: (4) 0257 306 162Fax: (4) 0257 306 [email protected]

Braila Branch49 Mihai Eminescu St.BrailaTel: (4) 0239 606 002Fax: (4) 0239 606 [email protected]

Brasov Branch90 Calea Bucuresti,BrasovTel: (4) 0268 306 020Fax: (4) 0268 306 [email protected]


Brasov – Toamnei Agency1-3-5 Zizinului St.BrasovTel.: (4) 0268 306 454Fax: (4) 0268 306 [email protected]

Cluj-Napoca Branch4 Nicolae Titulescu Blvd., Ap. 15/1Cluj-NapocaTel.: (4) 0264 406 630Fax: (4) 0264 406 [email protected]

Constanta – Tomis Branch10 Stefan Mihaileanu St.ConstantaTel.: (4) 0241 508 166Fax: (4) 0241 508 [email protected]

Craiova Branch6 Carol I Blvd., Block 21A, Entrance 1 and 2CraiovaTel.: (4) 0251 306 079Fax: (4) 0251 306 [email protected]

Craiova Agency1 Gogu Constantinescu St., Block E14CraiovaTel.: (4) 0251 540 000Fax: (4) 0251 540 [email protected]

Dabuleni Branch12 victoriei St., DabuleniTel: (4) 0251 306 132Fax: (4) 0251 306 [email protected]

Iasi Branch23 Pacurari St.IasiTel.: (4) 0232 262 051Fax: (4) 0232 262 [email protected]

Pitesti BranchZona Centru, Block E3APitestiTel.: (4) 0248 206 015Fax: (4) 0248 206 [email protected]

Ploiesti Branch2A C.D. Gherea St., Block CPloiestiTel.: (4) 0244 407 472Fax: (4) 0244 407 [email protected]

Ramnicu Valcea Branch16 General Magheru St., Block HRamnicu valceaTel: (4) 0250 702 502Fax: (4) 0250 702 [email protected]

Sibiu BranchParcul Tineretului St., Block 4SibiuTel: (4) 0269 245 104Fax: (4) 0269 245 [email protected]

Slatina Branch 7 Primaverii St.SlatinaTel: (4) 0249 406 254Fax: (4) 0249 406 [email protected]

Suceava Branch 22A Marasesti St.SuceavaTel: (4) 0230 206 409Fax: (4) 0230 206 [email protected]

Timisoara Branch1 Calea TorontaluluiTimisoaraTel.: (4) 0256 224 422Fax: (4) 0256 243 [email protected]

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