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An
nual
Rep
ort 2
00
4
M
aced
onia
Annual Report 2004
Macedonia
An
nual
Rep
ort 2
00
4
M
aced
onia
P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 42
Key Figures
Mission Statement
Letter from the Managing Board
Letter from the Executive Body
The Bank and its Shareholders
ProCredit – An International Group
Partner Banks in the Region
Business Review
Risk Management
Branch Network
Organisation, Staff and Staff Development
Ethical and Environmental Standards
Our Clients
Financial Statements
Contact Addresses
4
5
6
8
10
12
15
18
28
30
32
34
36
42
67
Co n t e n t s 3
EUR '000 2004 2003 Change
Balance Sheet Data
Total Assets 33,529 10,682 214%
Gross Loan Portfolio 23,399 7,446 214%
Business Loan Portfolio 23,399 7,446 214%
< EUR 10,000 14,199 5,051 181%
> EUR 10,000 < EUR 50,000 7,347 1,973 272%
> EUR 50,000 < EUR 150,000 1,853 422 339%
> EUR 150,000 – – –
Housing Loan Portfolio – – –
Other Loan Portfolio – – –
Loan Loss Reserves 831 225 269%
Accrued Interest 214 75 185%
Net Loan Portfolio 22,568 7,222 212%
Customer Funds 12,788 1,900 573%
Borrowings from Financial Institutions 11,000 4,000 175%
Shareholders' Equity 9,491 4,606 106
Income Statement
Operating Income 3,124 457 584%
Operating Expenses 3,246 921 252%
Operating Profit Before Tax -122 -464 74%
Net Profit -125 -395 68%
Key Ratios
Cost/Income Ratio 85% 152%
ROE -2% -9%
Capital Ratio 32% 37%
Fixed Assets to Equity 10% 12%
Operational Statistics
Number of Loans Outstanding 7,406 1,480 400%
Number of Business Loans Outstanding 7,406 1,480 400%
Number of Deposit Accounts 17,918 2,704 563%
Number of Staff 171 82 109%
Number of Branches and Outlets 7 4 75%
Key Figures
4 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
ProCredit Bank Macedonia is a devel-
opment-oriented full-service bank. We offer
excellent customer service and a wide range of
banking products. In our credit operations, we
focus on lending to micro, small and medium-
sized enterprises, as we are convinced that
these businesses create the largest number of
jobs and make a vital contribution to the econo-
mies in which they operate. Our bank expli-
citly avoids all speculative lines of business and
issues large loans only in exceptional cases,
thus minimising the risk associated with such
activities.
Our shareholders expect a sustainable
return on investment, but are not primarily
interested in short-term profi t maximisation.
We invest extensively in the training of our staff
in order to create an enjoyable and effi cient
working atmosphere, and to provide the friend-
liest and most competent service possible for
our customers.
Mission Statement
M i s s i o n s tat e m e n t 5
2004 was a challenging year for Mace-
donia. We are therefore all the more proud
that ProCredit Bank succeeded in deepen-
ing its roots and strengthening its role in the
country’s financial sector during the year under
review. We believe that by bringing access to
financial services to entrepreneurs and small
businesses across the country, ProCredit Bank
is making a real contribution to economic sta-
bility and revitalisation in Macedonia.
ProCredit Bank started operations less
than two years ago and already we have granted
over 10,000 loans. We are now disbursing more
than one thousand loans per month. We are
particularly pleased to see the success of our
agricultural loans, which were launched during
the year under review, and of our denar-denom-
inated ‘ProExpress’ loans, which we now offer
for the equivalent of up to EUR 5,000 and dis-
burse within 24 hours. The deposit base also
grew steadily over the year and ProCredit Bank
achieved operational break-even in 2004.
Given the success of the institution’s
operations, the shareholders applied for a full
banking licence in 2004. The licence for the re-
organisation of a microfinance bank into a fully-
fledged bank subject to supervision under the
banking law was issued by the National Bank
in December. The bank’s capital was increased
to EUR 10 million accordingly. Also in 2004, we
welcomed FMO, which has been a strong pro-
vider of technical assistance funds to the bank,
to the bank’s group of shareholders.
Letter from the Managing Board
P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 46
As a fully-fl edged bank, ProCredit Bank
is able to broaden the range of services that
it offers to businesses and the wider public.
2004 saw the introduction of our ATM network,
intended to further enhance accessibility to our
services. We hope that by bringing friendly,
professional and affordable banking services
to the population as a whole, we are setting
challenging new standards in the banking
sector. At the same time, we aim to build our
deposit base rapidly so that we can continue to
support the strong growth in our loan portfolio,
which is driven by the demand for credit from
the business community in Macedonia.
2004 has also been a good year for Pro-
Credit Bank as an organisation. We opened
new branches in Skopje, Strumica and Bitola.
The number of staff increased to 171 across our
network of seven branches. ProCredit Bank can
only be as good as our staff. We continue to
place a priority on recruiting and training en-
thusiastic, competent and professional young
people who can run our bank prudently and
effi ciently, and who can offer our customers
exceptional service.
Members of the
Managing Board as at
December 31, 2004:
Helen Alexander
Dr. Anja Lepp
Zsuzsanna Hargitai
Ismail Samji
Dr. Mark Schwiete
As chairperson of the Managing Board,
I would like to take this opportunity to thank
the staff and management for their dedication,
enthusiasm and hard work, which resulted in a
successful year in 2004.
Specifi cally, the Managing Board would
like to thank Mr. Ralf Reitemeier for the excel-
lent job he has done as the bank’s General
Manager since its inception. He is moving on
to manage another bank in the ProCredit group
and in 2005 Mr. Borislav Kostadinov will take
over as General Manager in Macedonia. We
wish the new manager all the best, and we look
forward to the continued success of ProCredit
Bank in 2005 and beyond.
Helen Alexander
Chairperson of the Board
Helen Alexander
L e t t e r f r o m t h e M a n a g i n g B o a r d 7
Letter from the Executive Body
Our first full financial year was extreme-
ly challenging, as our young and dynamic in-
stitution was still in its start-up phase. Having
opened our doors to the public in July 2003 as a
microfinance bank, in 2004 we focused primar-
ily on regional expansion and on expanding the
scope of the bank’s operations, in line with our
goal of becoming a fully-fledged commercial
bank.
In order to reach as many people as pos-
sible, we expanded our outreach by opening
two new branches and upgrading two outlets to
branches, thus creating a network of seven full-
service branches. With two branches in Skopje
and one each in the cities of Tetovo, Gostivar,
Kumanovo, Strumica and Bitola, we now serve
customers in six of the country’s most impor-
tant regions. The expansion of the network to
increase our geographical outreach will remain
one of our top priorities in 2005. We plan to
open a total of six new branches and increase
the number of cities we serve to nine in the year
to come.
The expansion of our presence in the
country’s outlying regions was also an impor-
tant factor in the successful launch of our new
agricultural loan product, which enabled the
bank to tap a market with substantial potential.
In response to the demand for a product of this
type at the branch in Strumica – which is located
in the centre of a region where agriculture is the
dominant economic activity – we began lend-
ing to individual farmers and other small-scale
agricultural producers. By the end of the year
we had expanded the programme to three other
branches and had issued agricultural loans to a
total of 547 customers.
In our core activity, business lending,
we focused on achieving growth in our port-
folio, with the goal of boosting both the number
of loans outstanding and the portfolio volume.
Thanks to a steadily growing flow of applica-
tions, the number of monthly disbursements
also steadily increased, raising the total num-
ber of loans outstanding to 7,406 at year-
end. In volume terms, the total loan portfolio
amounted to EUR 23.4 million, an increase of
214% over the figure reported as of the end of
2003. This increase in the outstanding volume
was not, however, achieved by increasing the
average loan amount; it remained at EUR 3,160.
Moreover, just under 94% of the total number of
credit clients served by our bank are micro en-
trepreneurs, which underscores the fact that we
have remained committed to serving our desig-
nated target group. A team of 69 well-trained
and highly qualified loan officers has built up
our credit portfolio, the quality of which is ex-
cellent. Indeed, the portfolio at risk (loans in
arrears by more than 30 days) accounts for only
0.57% of the total outstanding loan volume.
In addition to our lending operations
that serve local businesses, we offer non-credit
banking services. We are increasingly market-
ing these services to a broader segment of the
public, with a focus on retail savings custom-
ers. During the year under review, new deposit
products were created, debit cards were intro-
duced and the bank’s payment facilities were
improved in order to enable us to better serve
our customers in the area of non-credit ser-
vices. This expansion and enhancement of our
product range, as well as the fact that we have
well-trained, friendly front-office staff who
make our customers feel welcome at ProCredit
8 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Bank, enabled the bank to steadily increase its
deposit volume, which stood at EUR 12.8 mil-
lion at year-end.
The increased level of activity in all
areas of the bank’s operations in 2004 had a
very favourable impact on income and thus on
our profi tability. In August – little more than a
year after the bank opened – we reached op-
erational break-even and have reported a profi t
every month since then.
As our bank is a new player in the mar-
ket and is still rather small, our commitment to
setting new standards in micro-lending and in
retail banking in Macedonia represents a huge
challenge for our institution, both strategically
and in its day-to-day operations. Our key asset
in meeting this challenge is our staff. Given the
tremendous dedication and enthusiasm of our
young, hard-working team, we are optimistic
as regards the outlook for the year 2005 and
also the long-term future of our institution. We
would like to take this opportunity to thank all
of our employees for giving us this confi dence
in our bank’s ability to continue its successful
development in the years to come.
We would also like to thank our share-
holders for their strong and active commitment
to our bank and to express our appreciation to
the other organisations and individuals that
have contributed to our success through their
support and assistance. And last but not least,
we would like to thank our clients for the trust
they have placed in our institution. The Manage-
ment is dedicated to continuing on the course
set in 2004 so that ProCredit Bank will be well
positioned to maximise its outreach in its lend-
Borislav Kostadinov Jovanka Joleska Popovska
General Manager Deputy General Manager
ing business and in its non-credit operations,
and to achieve its long-term goal of becoming
a real “people’s bank” for the citizens of Mace-
donia.
Jovanka Joleska Popovska Borislav Kostadinov
donia.
L e t t e r f r o m t h e E x e c u t i v e B o d y 9
The Bank and its Shareholders
ProCredit Holding AG was founded as
Internationale Micro Investitionen AG
(IMI) in 1998 as an investment company spe-
cialised in equity participations in microfi -
nance banks located in transition and devel-
oping countries. These microfi nance banks,
now collectively known as the ProCredit
group, focus on providing banking services
to people whom other banks either do not
serve at all (usually on the grounds of cost or
risk) or only serve inadequately. ProCredit
Holding is now, or soon will be, the major-
ity owner of nearly all of the institutions in the
ProCredit group, as it is currently implement-
ing a strategy of purchasing from the publicly-
owned institutions the shares they hold in the
individual ProCredit banks. ProCredit Holding,
working closely with Internationale Projekt
Consult GmbH (IPC), actively guides the devel-
opment of the institutions, taking responsibil-
ity at the corporate governance level. The com-
pany has so far taken equity stakes totalling
EUR 53 million in 19 banks and fi nancial institu-
tions. Its shareholders are a 50:50 mix of pri-
vate and public investors.
Sector
Investment
Banking
Banking
Banking
Banking
Shareholder
ProCredit Holding
KfW
EBRD
FMO
IFC
Total Capital
Headquarters
Germany
Germany
UK
The Netherlands
USA
Share
53.30%
14.70%
12.50%
10.00%
9.50%
100%
Paid-in Capital
in EUR
5,330,000
1,470,000
1,250,000
1,000,000
950,000
10,000,000
ProCredit Bank Macedonia was estab-
lished in July 2003 with the aim of providing not
only accessible funding for small businesses,
but also a variety of other banking products
and services for the business community in
Macedonia and the general public. Initially
established as a microfi nance bank with a share
capital of EUR 5 million, it quickly expanded its
operations and evolved into the market leader
in small business lending in Macedonia and
a strong competitor for the other commer-
cial banks in the country. In order to facilitate
the bank’s rapid growth, its shareholders
increased ProCredit Bank’s paid-in capital to
EUR 10 million, thus enabling it to obtain a full
banking licence, which was issued on December
13, 2004 by the National Bank of the Republic of
Macedonia (NBRM).
10 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
KfW Entwicklungsbank (KfW Develop-
ment Bank): On behalf of the German
federal government, KfW Entwicklungsbank
fi nances investments and accompanying advi-
sory services in developing countries. It typically
works together with governmental institutions
as well as the private sector in the respective
countries. Its aim is to build up and expand the
social and economic infrastructure of the coun-
tries in which it is active, and to create effi cient
fi nancial institutions while protecting resources
and ensuring a healthy environment. KfW Ent-
wicklungsbank is a leader in the fi eld of microfi -
nance and is involved in target group-oriented
fi nancial institutions around the world. It is part of
KfW Bankengruppe (KfW Banking Group), which
has a balance sheet total of EUR 335 billion. KfW
Bankengruppe is one of the ten biggest banks in
Germany and is ‘AAA’ rated.
The European Bank for Reconstruction
and Development (EBRD) was estab-
lished in 1991. It aims to foster the transition
towards open, market-oriented economies and
to promote private and entrepreneurial initiative
in the countries of Central and Eastern Europe
and the Commonwealth of Independent States
(CIS) committed to democracy, pluralism and
market economics. The EBRD seeks to help its
27 countries of operations to implement struc-
tural and sectoral economic reforms, promoting
competition, privatisation and entrepreneur-
ship. In fulfi lling its role as a catalyst of change,
the Bank encourages cofi nancing and foreign
direct investment from the private and public
sectors, helps to mobilise domestic capital, and
provides technical cooperation in relevant areas.
The Netherlands Development Finance
Company (FMO) supports fi nancial in-
stitutions and private enterprises in developing
countries. Its aim is to promote sustainable eco-
nomic growth. By providing tailor-made fi nance,
FMO acts as a catalyst for private sector activity.
Although it fi nances at market terms, FMO com-
plements rather than competes with commercial
fi nanciers. FMO was formed in 1970 through a
partnership between the Netherlands govern-
ment and Dutch fi nancial institutions, industrial
companies and trade unions. With an investment
portfolio of EUR 1.9 billion and more than 200
employees, FMO is one of the largest bilateral
development banks in the world that focuses on
the private sector. FMO has a ‘Triple A’ rating from
Standard & Poor’s.
The International Finance Corporation
(IFC), a multilateral institution, pro-
motes the development of the private sector
in its developing member countries. A member
of the World Bank Group, but legally and fi nan-
cially independent, IFC provides long-term loan
and equity fi nance on market terms in support
of private sector activities, helps mobilise ad-
ditional fi nancing from other sources and pro-
vides advisory services to both government and
business. It participates in projects without a
government guarantee of repayment. During FY
2004, IFC approved USD 5.6 billion in new loan
and equity investments supporting projects
with a total cost of over USD 23.4 billion. Since
its founding in 1956, IFC has invested almost
USD 44 billion of its own funds in more than
3,100 companies in 140 developing countries.
Th e B a n k a n d i t s S h a r e h o l d e r s 11
ProCredit – An International Group
ProCredit Bank Macedonia is a member
of an international group consisting of 19 finan-
cial institutions operating in as many countries.
All of these institutions have a similar owner-
ship structure and share a common corporate
mission and focus: to provide micro, small and
medium-sized enterprises with reliable access
to credit and other banking services.
In the countries where the ProCred-
it group has a presence, the conventional
commercial banks often focus their lending
operations on corporate finance and consumer
lending, but tend to neglect small businesses
as a potential clientele. Their main reasons for
not lending to micro, small and medium-sized
enterprises are the perceived inadequacy of
MSMEs’ accounting methods, the ostensible
inability of MSMEs to provide sufficient collat-
eral and the high administrative costs incurred
in small business lending. Yet MSMEs are seen
by many economists and development experts
as the main engine of growth and job cre-
ation in developing and transition economies.
Moreover, in political terms, the middle class
which emerges when MSMEs grow and flour-
ish usually plays a stabilising role in society. It
was these insights which prompted the initia-
tors of the ProCredit group to establish target
group-oriented financial institutions in Eastern
Europe, Latin America and Africa, a process
which began six years ago. In the meantime,
these institutions have grown substantially:
taken together, the 19 banks and finance com-
panies operate through a total of some 300
branches and have roughly 7,000 employees.
The main shareholders of the group’s
institutions are the ProCredit Holding, KfW
Group, IFC, FMO, and the DOEN Foundation.
ProCredit Holding, which is owned largely by
the same entities that hold shares in the indi-
vidual ProCredit institutions, is or soon will be
the majority shareholder in the ProCredit insti-
tutions. ProCredit Holding produces consoli-
dated financial statements for the group and
has a BBB- (investment grade) international
rating from Fitch Ratings.
The activities of the group’s member
institutions are guided and supervised by
ProCredit Holding and by IPC, the consulting
firm which provides management services to
the banks. Both ProCredit Holding and IPC
are located in Frankfurt am Main, Germany.
This centralised management and supervision
makes it possible to achieve synergies which
have a positive impact in many areas – for ex-
ample, in training, corporate culture and iden-
tity, risk management, auditing, business poli-
cies, and funding for lending activities, as well
as ethical and other professional standards.
Over the years, the ProCredit group and
IPC, which developed the lending methodol-
ogy used by the ProCredit group, have gained a
profound understanding of both the problems
faced by small businesses and the opportuni-
ties available to them, and have tailored the
credit technology to reflect the realities of their
operating environment. Thanks to this credit
technology, which combines careful analysis of
all credit risks with a high degree of standar-
disation and efficiency, the ProCredit institu-
tions are able to reach a large number of small
borrowers: currently they disburse more than
12 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
ProCredit Bank Bosnia &Herzegovina
ProCredit Bank Bulgaria
Micro Credit National Haiti
�����������������������
ProCredit Bank Ukraine������������������
����������������������
���������������������
ProCredit Bank Albania
ProCredit Bank Macedonia
ProCredit Bank Georgia
��������������������������
��������������������������������
�����������������������������
��������������������������������
����������������
��������������������
NovoBanco Mozambique
���������������������
40,000 loans totalling more than EUR 100 mil-
lion to small enterprises every month. By the
end of 2004, the number of loans outstanding
had grown to more than 420,000 (representing
EUR 949 million), a 60% increase compared to
2003. And while the average loan amount out-
standing is just EUR 2,250, the loan portfolio
quality remains excellent with a ratio of loans in
arrears (>30 days) to total loan portfolio of only
1.0%. This demonstrates that small borrowers
are indeed creditworthy.
No small business financing operation
can survive over the long term if it is forced to
rely on external sources of funds. Accordingly,
the ProCredit institutions are actively seek-
The international
network of ProCredit
institutions; see also
www.procredit-
holding.com
ing to make locally mobilised deposits their
main means of financing their loan portfolios.
In line with their development orientation, the
network institutions strive to ensure that their
deposit facilities are appropriate to a broad
range of customers; in particular, they make
their services accessible to low income groups
by offering simple savings products with no
minimum deposit. By placing a higher priority
on deposit mobilisation in 2004, the ProCredit
institutions have succeeded in enlarging their
combined deposit volume to EUR 824 million,
compared to EUR 552 million at the end of 2003.
In addition to deposit facilities, business clients
are offered a full range of standard non-credit
banking services, including domestic and in-
13P r o C r e d i t – A n I n t e r n at i o n a l G r o u p
ternational transfers, debit and credit cards,
documentary services and foreign exchange
operations.
At the same time, ProCredit institutions
strive to set new standards in their respective
banking sectors in terms of transparency and
business ethics, as well as risk management
and auditing. In this way, the group also aims
to help build public confidence in banks.
The ProCredit institutions can only be
successful in their developmental mission if
their sustainability is assured. Accordingly,
they have been established as commercial, i.e.
for-profit, entities. However, the shareholders
of the group aim to strike a balance between,
on the one hand, the developmental goals
which motivated their investment in the Pro-
Credit group, and on the other, the commercial
success which forms the basis of long-term sus-
tainability, and this is reflected in an adequate
return on investment. In 2004, the return on
equity for the group as a whole, expressed in
hard currency, after deduction of profit taxes,
is expected to reach 14%.
This level of profitability is sufficient to
ensure the further development of the group.
By the end of 2009, the group expects to have
institutions in 22 countries, with the total num-
ber of branches growing to almost 600, the
number of employees rising to over 13,000, and
the loan portfolio increasing to EUR 3 billion. To
achieve the envisaged level of growth, it will be
necessary to mobilise substantial financial re-
sources. But in itself, access to additional fund-
ing will not be enough: human resource devel-
opment will also continue to be a key priority
for the group. This will entail not only intensive
training in technical and management skills at
the level of the individual institutions, but also
a continuous exchange of personnel between
the member institutions, so as to take full ad-
vantage of the opportunities for staff develop-
ment which are created by their membership of
a truly international group.
14 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Since the early 1990s, small businesses
have become the driving force in Eastern Eu-
rope with respect to economic growth and job
creation, thus playing a major role in the tran-
sition process. With many large, state-owned
enterprises simply disappearing, many people
found that starting their own business was the
only available means of earning a living and
creating a future for their family. One might
assume that in the meantime the financial ser-
vices markets in these countries would be suf-
ficiently well developed to address the demand
for loans exhibited by small businesses, but
the reality is somewhat different: Many banks
claim that they are perfectly willing to serve
small businesses, but in practice they continue
to focus almost exclusively on more convention-
al, and more familiar, lines of business, such as
corporate finance and consumer loans. Thus,
the growth potential of small businesses is still
constrained by their limited access to finance.
The ProCredit group aims to remedy this
situation. Since 1998 the group has expand-
ed its operations to cover 10 countries in the
Balkans and the CIS. Nine out of the 10 insti-
tutions are fully licensed banks offering a wide
range of financial services to business clients
and private individuals. With its 185 branches,
the sheer size of the ProCredit network makes
the group a major player in the region, and in
fact in some countries the local ProCredit insti-
Partner Banks in the Region
15Pa r t n e r B a n k s i n t h e R e g i o n
tution is one of the leaders in the banking in-
dustry, setting new standards in terms of small
business finance and customer service. Six of
the 10 institutions have received an interna-
tional rating, and in each case it was one of the
highest awarded to any bank in the country in
question.
Using a credit technology that is tailor-
made to fit the specific requirements of small
businesses, the ProCredit institutions have
been able to quickly expand their lending op-
erations. Currently, the group serves approxi-
mately 187,000 loan clients across the region.
Particular attention is now being paid to rural
areas, and an increasing number of ProCredit
loans are being disbursed to businesses in the
agricultural sector.
However, in accordance with their mis-
sion “to provide a broad range of reliable fi-
nancial services”, the ProCredit banks are not
merely lending institutions, but also offer a
considerable number of simple and straight-
forward non-credit products aimed at the gen-
eral public, including deposit facilities, private
current accounts and debit/credit cards. Par-
ticularly the institutions in Eastern Europe have
invested considerable financial and human
resources in developing these operations over
the last 12 months. The regional network offers
special advantages when it comes to providing
various kinds of non-credit products which are
increasingly in demand. As cross-border travel
and business activities gain in importance, the
ProCredit banks have simplified the procedures
for international money transfers between
group institutions, and made their prices even
more competitive. And ProCredit clients now
have access to more and more ATMs across the
region, at no extra cost.
Even more importantly, the strong Pro-
Credit network permits a continuous exchange
of know-how between the institutions to take
place. Management staff exchanges, cross-
border training programmes and regional work-
shops and seminars ensure that improvements
and experience are quickly shared across the
region, thus accelerating the institutional de-
velopment of the network banks and enhanc-
ing the quality and reliability of their services.
As part of the regional network, ProCredit Bank
Macedonia is benefiting from this steadily in-
creasing cooperation.
16 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Name Highlights Contact
ProCredit Bank Founded in March 1999 Rruga Sami Frasheri Albania 15 branches Tirana 18,951 borrowers / EUR 79 million in loans Tel./Fax: +(355) 4-271 272 / 276 50,311 depositors / EUR 116 million [email protected] 387 employees www.procreditbank.com.al
ProCredit Bank Founded in October 1997 Sime Milutinovica Sarajlije 4 Bosnia and Herzegovina 13 branches 71000 Sarajevo 19,866 borrowers / EUR 61.4 million in loans Tel./Fax: +(387) 33-250 950 / 250 971 24,609 depositors / EUR 21 million [email protected] 291 employees www.procreditbank.ba
ProCredit Bank Founded in October 2001 131, Hristo Botev Blvd. Bulgaria 35 branches Sofi a 26,852 borrowers / EUR 139.3 million in loans Tel./Fax: +(359) 2 921 71 00 / 71 10 53,384 depositors / EUR 75.6 million [email protected] 623 employees www.procreditbank.bg ProCredit Bank Founded in May 1999 D. Agmashenebeli Ave 154 Georgia 19 branches Tbilisi 16,295 borrowers / EUR 50.4 million in loans Tel./Fax: +(995) 32-20 2222 / 0580 36,532 depositors / EUR 24.9 million [email protected] 605 employees www.procreditbank.ge
ProCredit Bank Founded in January 2000 Rr Skenderbeu Kosovo 16 branches 38000 Prishtina/ Kosovo UNMIK 28,600 borrowers / EUR 109.9 million in loans Tel./Fax: +(381) 38-249624 /-248777 157,500 depositors / EUR 310 million [email protected] 430 employees www.procreditbank-kos.com ProCredit Founded in December 1999 Izmail, 31 Moldova 16 branches Chisinau 5,483 borrowers / EUR 9.2 million in loans Tel./Fax: +(373) 22 27-07 07/-34 88 140 employees offi [email protected] www.procredit.md ProCredit Bank Founded in June 2002 Calea Buzesti, nr. 62-64, Sector 1 Romania 10 branches 011017 Bucharest 10,870 borrowers / EUR 50.7 million in loans Tel./Fax: +(40) 21-201.6000/305.5663 18,600 depositors / EUR 25 million headoffi [email protected] 269 employees www.procreditbank.ro
ProCredit Bank Founded in April 2001 Bulevar despota Stefana 68c Serbia 25 branches Belgrade 34,959 borrowers /EUR 122 million in loans Tel./Fax: +(381) 11 20 77 906/ 905 89,660 depositors/ EUR 92 million [email protected] 744 employees www.procreditbank.co.yu ProCredit Bank Founded in January 2001 86 Bozhenka Str. Ukraine 28 branches 03150 Kyiv 17,400 borrowers / EUR 74.4 million in loans Tel./Fax: +(380) 44-490 60 52 / 80 25,891 depositors / EUR 26 million [email protected] 853 employees www.procreditbank.com.ua
17Pa r t n e r B a n k s i n t h e R e g i o n
Business Review
2004 was one of the most eventful and
challenging years since Macedonia gained its
independence in 1991. On February 26, 2004
the Macedonian President was killed in a plane
crash. Soon thereafter, in an extraordinary yet
peaceful election process, the ex-Prime Minis-
ter was elected President. Additional elections
became necessary after the early resignation of
his successor as the new prime minister. How-
ever, despite the uncertain political situation,
the country remained quite stable, thanks in
part to the efforts of the international commu-
nity.
Due to this relative stability, Macedo-
nia received a BB+ credit rating from Standard
& Poor’s in July 2004, with a positive outlook.
The positive rating outlook reflects Standard &
Poor’s expectation that in addition to the on-
going implementation of the Ohrid Framework
Agreement, the prospects of EU membership
later this decade or early in the next decade
will continue to act as a driving force for further
reforms and continuous political stabilisation.
Economically, Macedonia has been sta-
ble, but without strong growth. GDP increased
by 2.5% in 2004 compared to 3.4% in 2003. In-
flation remained stable and below the projec-
tions of 2.8%. The foreign exchange rate was
kept under control based on a de facto near-peg
of the denar to the euro and despite ongoing ru-
mors of its depreciation. However, unemploy-
ment remains high at over 30% and there is as
yet little sign of a sustained take-off in growth.
Accordingly, expectations remain modest with
real GDP growth of 3.8% expected for 2005.
The banking sector experienced no ma-
jor structural changes during the year, despite
public recognition of the need for consolida-
tion. At the end of 2004, the sector consisted
of 21 banks, of which 18 had a licence for inter-
national operations. However, the three largest
banks account for about three quarters of the
market. Most others are small niche banks,
with operations that are often closely connect-
ed to those of their shareholders.
POLITICAL AND ECONOMIC
ENVIRONMENT
18 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Both loans and deposits of the banking
sector amounted to approximately EUR 1 billion
by the end of the year. This was an increase of
approximately 25% over 2003.
ProCredit Bank is still a relatively small
player in the market in terms of volume, with a
market share in loans of 2% and in deposits of
1%. Given its dynamic performance, ProCredit
Bank is set to gain rapidly in importance in vol-
ume terms within the banking sector.
The bank is already a significant player
in terms of the numbers of loans and is widely
recognised to have stimulated the banking sec-
tor as a whole to increase the number of SME
loans disbursed. It is here that ProCredit Bank
is already making real difference, since access
to credit remains a limiting factor for most mi-
cro and small businesses. Yet it is growth in
this sector above all that is essential to boost
the economy and employment in Macedonia.
The ratio of total deposits and private
savings to GDP (at about 30% and less than 15%
respectively) remains relatively low. ProCredit
Bank aims also to make a contribution here. By
setting new standards in terms of transparency
and customer service, the bank aims to help
build public confidence in the banking sector,
increase general access to savings services and
strengthen the savings culture in the country.
19B u s i n e s s R e v i e w
In its first full financial year, ProCredit
Bank achieved a remarkable lending perfor-
mance, disbursing a total of 8,777 loans with
a combined volume of EUR 32.5 million. As a
result, ProCredit Bank’s outstanding loan port-
folio as of the end of 2004 had more than tri-
pled compared to year-end 2003, to EUR 23.4
million, representing more than 7,400 loans.
This significant growth was achieved through
a combination of several factors: a highly ef-
ficient credit technology and lending proce-
dures, continuous training for new and existing
lending staff and broadened geographical cov-
erage.
The main driver for the growth in num-
bers was micro loans, in particular our very
popular ProExpress loans. ProExpress loans
are for amounts of up to EUR 2,000; they fea-
ture minimal collateral and documentation
requirements and fast processing. The pro-
cessing time, from the first client contact to dis-
bursement, typically does not exceed 48 hours.
Thanks to good repayment behaviour on the
part of ProExpress borrowers, portfolio quality
for these loans remained excellent throughout
the year. In all, 5,851 ProExpress loans for a to-
tal volume of EUR 7.2 million were disbursed.
Overall, the micro segment of our loan
portfolio (loans up to EUR 10,000) grew by
181% during 2004, from 1,379 loans outstand-
ing at a total volume of EUR 5.1 million to 6,935
loans outstanding at a total volume of EUR 14.2
million. Those 6,935 loans represent 94% of
the bank’s total outstanding portfolio and dem-
onstrate that ProCredit is highly committed to
providing credit facilities to the low end of the
market.
Loan Portfolio Development
Number (in '000) Volume (in EUR million)
Sept Dec Mar Jun Sept Dec 03 04
– �10
–�8
–�6
–�4
–�2
–�0
�25�–
� 20�–
� 15�–
� 10�–
� 5�–
� 0�–
Total Number Outstanding
up to EUR 10,000 EUR 10,001 to EUR 50,000 EUR 50,001 to EUR 150,000
LOAN PORTFOLIO DEVELOPMENT
26%67%
Number of Outstanding Loans by Loan Size*
up to EUR 1,000EUR 1,001 to EUR 10,000
EUR 10,001 to EUR 50,000EUR 50,001 to EUR 150,000
* 31 Dec 2004
6 % <o.5%
20 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
At the same time, ProCredit Bank is serv-
ing an increasing number of small businesses.
The number of loans outstanding in amounts of
more than EUR 10,000 reached 471, for a total
volume of EUR 9.3 million, by year end. Around
25% of the loans within this category were dis-
bursed to repeat clients. Given that ProCredit
Bank has so far invested only limited effort in
marketing these loans to small and medium-
sized enterprises, these initial results demon-
strate significant market potential.
The bank’s loan portfolio is highly di-
versified due not only to the low average loan
amount (EUR 3,160), but also to the sectoral
and regional distribution. 41% of the portfo-
lio consists of loans to businesses engaged in
trade, 21% to industry and production, 26% to
services including transport and communica-
tions, and 11% to construction. Our lending op-
erations cover 16 cities throughout the country,
while Skopje accounts for 26% of the volume
outstanding.
In addition to our lending activities in the
cities, ProCredit Bank launched the “ProAgro”
loan, a product mainly targeting small farmers.
It was first offered in the Strumica branch by a
Loan Portfolio Quality (arrears >30 days)
�2.0�–
�1.5�–
�1.0�–
�0.5�–
� 0�–
No Write Offs for 2004
in % of Loan Portfolio
Sept Dec Mar Jun Sept Dec 03 04
core group of specially trained loan officers and
later extended to the branches in Bitola, Gosti-
var and Tetovo. After five months the portfolio
consisted of 547 borrowers who had received
loans with a total volume of EUR 750,000.
The bank achieved these results with a
total of 69 loan officers as of the end of 2004,
of whom 34 were new recruits who had recently
completed their training. Despite the high pro-
portion of new credit staff, the loan officers’
productivity has already reached high levels,
with each loan officer overseeing a portfolio
of more than 100 loans on average. The loan
monitoring carried out by our loan officers also
ensured very high portfolio quality. With a port-
folio at risk (loans in arrears >30 days) of 0.57%
of the outstanding volume at the end of 2004,
the portfolio quality was excellent and creates
a solid base for further strong growth in 2005.
21B u s i n e s s R e v i e w
DIVERSIFICATION OF THE CLIENT BASE
Client Deposits
Term Savings Sight Total Number
�14�–
� 12�–
� 10�–
� 8�–
� 6�–
� 4�–
� 2�–
� 0�–
Number (in '000) Volume (in EUR million)
– �20
–�16
–�12
–�8
–�4
–�0Sept Dec Mar Jun Sept Dec 03 04
Since our aim is not only to be a suc-
cessful lending institution, but also to develop
a large and stable retail - i.e. non-credit-clien-
tele and become a full-service bank for the citi-
zens of Macedonia, we intensified our efforts to
promote the bank’s retail banking services dur-
ing the year under review. A strategy of sound
products and fair pricing combined with very
good customer care enabled ProCredit Bank to
establish a positive reputation as a young and
friendly bank and to attract a growing number
of retail customers.
By the end of 2004, the bank had at-
tracted more than 14,000 customers in this
area and a total deposit volume of EUR 12.8 mil-
lion. This made us one of the top three banks
in Macedonia in terms of growth in the number
of new private current accounts, and we ranked
thirteenth in the number of business current
accounts.
22 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
International Money Transfers
Incoming Outgoing Number
– �2,500
–�2,000
–�1,500
–�1,000
–�500
–�0
� 25�–
� 20�–
� 15�–
� 10�–
� 5�–
� 0�–
Number (in '000) Volume (in EUR million)
Q3 Q4 Q1 Q2 Q3 Q4 2003 2004
Incoming Outgoing Number
– �40
–�35
–�30
–�25
–�20
–�15
–�10
–�0
� 80�–
� 70�–
� 60�–
� 50�–
� 40�–
� 30�–
� 20�–
� 10�–
� 0�–
Number (in '000) Volume (in EUR million)
Domestic Money Transfers
Q3 Q4 Q1 Q2 Q3 Q4 2003 2004
New products such as the ProAdvance
time deposit and deposit facilities in different
currencies were introduced and successfully
marketed. The fact that 62% of all deposits held
at our bank are already in longer-term accounts
such as savings or time deposit accounts dem-
onstrates that the bank has made considerable
progress in gaining depositors’ trust.
In regard to other non-credit banking
services, the volume of business grew strong-
ly. Compared to December 2003, international
money transfers increased by 124% in terms
of numbers and came to 753 transactions as
of December 2004. Domestic money transfers
reached a level of almost 13,000 transactions
in December, mainly due to the rapid increase
in the number of current accounts held by busi-
nesses.
The ProPay service was introduced in
2004. It allows ProCredit Bank’s clients to make
transfers to ProCredit Banks in other countries
in the region at favourable rates and, moreover,
on a same-day basis. The steadily increasing
number of ProPay payments underscores the
usefulness of the product and the growing de-
mand for cross-border payments among Mace-
donian business people.
In October ProCredit Bank began offer-
ing ProCard, a debit card, to its customers free
of charge. More than 2,000 cards have been
issued. ProCards can be used for 24-hour cash
withdrawals at our own ATMs and at those of
ProCredit Bank Kosovo and ProCredit Bank
Albania.
23B u s i n e s s R e v i e w
FINANCIAL PERFORMANCE
The rapid growth in our assets (214%) is
closely related to the growth of the gross loan
portfolio, which represents 70% of total as-
sets. The loan portfolio increased during the
year from EUR 7.4 million to EUR 23.4 million,
and total assets grew to EUR 33.5 million as of
December 31, 2004.
The expansion of the bank’s lending
operations was mainly financed by long-term
borrowings from international financial institu-
tions (IFIs) and increased liabilities to custom-
ers. Borrowings from IFIs rose by EUR 7 million.
Customer funds increased by EUR 10.9 million
and came to EUR 11.8 million at year-end. Local
deposits thus already contributed 53% of the
bank’s total liabilities, as compared to 31% in
December 2003. This development was mainly
the result of the bank’s ongoing efforts to de-
velop its retail operations in order to become
less dependent on external sources of funding
in the medium term.
As part of the institution’s conversion
into a full-service bank, ProCredit Bank’s capi-
tal was increased by EUR 5 million in 2004. This
led to a solid capital ratio of a 32% at year end –
putting the institution in a very sound position
for further asset growth in 2005.
In August 2004, only thirteen months
after opening its doors to customers, the bank
reached operational break-even and has re-
ported five consecutive profitable months since
then. However, the bank still reported a loss of
EUR 125,279 for the year under review, which
led to an average return on equity of -2.4%.
24 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Overall income grew mainly as a result of
the growth in asset-side operations, i.e. as a re-
sult of rising interest income, but it is worth not-
ing that income from fees and commissions on
non-credit banking services increased strongly
compared to 2003 and came to roughly EUR
253,000 as of December. Lending operations
remained the primary source of revenue, gen-
erating 85% of the bank’s income. By the end
of 2004 the bank’s net interest income reached
EUR 2.7 million, compared to EUR 0.3 million in
2003.
Due to rapid expansion and institutional
growth, operating expenses increased sharply
as compared to 2003, rising by 252% to EUR
3.2 million. This increase was due mainly to
the opening of new branches, the renovation
and extension of existing premises, intensifica-
tion of marketing activities and the purchase
of equipment for card operations. Recruitment
of additional staff resulted in a significant in-
crease in staff costs, by 402% to EUR 1.1 mil-
lion. Nevertheless, due to the growth in our
income and to our cost control measures, the
cost income ratio declined to 85% (from 152%
in 2003). We consider this a major achieve-
ment given the fact that our institution has only
been in operation for a relatively short time.
25B u s i n e s s R e v i e w
At the start of 2005, ProCredit Bank
Macedonia is well prepared to face the chal-
lenges ahead – the biggest of them being the
strengthening of the bank’s client and deposit
base. We plan to address this challenge through
further regional expansion of the bank’s branch
network, emphasising customer care and en-
hancement of our product range.
At least six more branches are planned
for 2005, given that close proximity of the
bank’s facilities is one of the most important
considerations for both retail and business
clients. Convenient locations reduce transac-
tion costs both for our clients and for the bank
and serve to increase the accessibility of our
services. “Accessibility” refers not only to geo-
graphical proximity; it also means being open
and welcoming to our customers. Therefore we
will provide further training in customer service
and will engage more intensively in various
forms of direct marketing.
Moreover, we will round out our prod-
uct range by expanding and upgrading our
line of retail products, and thus increase the
attractiveness of the bank as a country-wide
provider of excellent financial services for the
general public, and escpecially for Macedonia’s
small businesses. The launch of the two most
OUTLOOK
26 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
widely accepted international debit and credit
cards is one pertinent example; the introduc-
tion of business overdrafts for loyal customers
– allowing them to bridge short-term liquidity
gaps – is another. Only if we are successful in
attracting new clients and mobilising local de-
posits will we be able to grow the bank’s loan
portfolio at the envisaged fast pace: based
on our planning, and on its implementation to
date, we expect the bank’s deposit base to in-
crease more than three-fold by the end of 2005.
In regard to lending, ProCredit Bank
will remain dedicated to serving its core target
group and will focus on the development of its
loan portfolio. Agricultural loans will be offered
at all branches; loan processing times can be
shortened further; and the overall growth of
our institution calls for ongoing training and
coaching of our team of loan officers.
None of these goals can be achieved
without additional personnel. Careful recruit-
ment, and above all the provision of intensive
and high-quality training to our newly hired
staff members, will remain top priorities in
2005.
27B u s i n e s s R e v i e w
Risk Management
Even though ProCredit Bank Macedonia
is still a very young and comparatively small
bank, sound risk management has been crucial
for the successful development of our institu-
tion from the very beginning. Only if appropri-
ate management resources and the requisite
structures are in place – including a risk man-
ager, risk oversight committees, and regular re-
porting – can the risks inherent in our activities
be identified, assessed, monitored and prop-
erly managed.
In its routine controls, ProCredit Bank
Macedonia focuses primarily on its credit
and liquidity risk, its interbank exposure, and
the interest rate and foreign exchange risks it
has incurred. In addition, appropriate attention
is devoted to the prevention of money laun-
dering. Operational risk, reputation risk, and
legal and compliance risk – which are by nature
more complex and difficult to evaluate – are
also monitored carefully, but primarily with the
help of qualitative rather than quantitative risk
analysis techniques. The bank’s management
believes that a sound internal assessment and
monitoring system, combined with measures
to ensure that all staff are thoroughly familiar
with the institution’s Code of Conduct and are
firmly committed to complying with it, helps
significantly to keep the various types of risk
under control.
ProCredit Bank’s Risk Management
Report is one of the tools employed by the in-
stitution as part of its programme of routine
risk controls. This report is prepared by the risk
manager and reviewed by the Risk Management
Committee on a monthly basis. All major points
raised in the report are discussed by the com-
mittee, and, if necessary, it takes action imme-
diately to ensure that problems are dealt with.
28 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
A very specialised committee – the
Arrears Committee – focuses on the bank’s
credit risk. It also meets regularly, and the prin-
cipal task of this body is to review all problem-
atic loan exposures. The committee determines
what measures to take and monitors their im-
plementation.
In order to reduce operational risk when
new projects are implemented within the bank
– for example, when new branches are opened,
new products are launched, or changes in the
IT system are implemented – a new committee
was established in 2004. This body, the Steer-
ing Committee, consists of members of the
senior management and various department
heads, including the risk manager and the head
of the IT department. Through its activities, the
Steering Committee not only significantly in-
creases the level of communication regarding
operational risks during the implementation of
projects; it also serves as a forum for the dis-
cussion and assessment of all aspects of the
measures in question.
To further reduce operational risk,
ProCredit Bank hired an information security
manager in September 2004. Since joining the
bank, this staff member has worked on the
development of an Information Security Man-
agement System which is to be implemented
before the end of 2005.
ProCredit Bank continues to experience
rapid growth, and as it grows it will need to fur-
ther develop its risk management systems. To
this end, the bank plans to:
● strengthen its risk-management team in
2005
● expand the current risk committee
structure by establishing additional, more spe-
cialised committees, thus allowing for greater
efficiency and a highly focused approach
● make a special effort to create risk aware-
ness among employees at all levels; the middle
management staff in particular will be encour-
aged to take part in constructive and open dis-
cussions with the bank’s senior management in
order to ensure that they fully understand the
types of risk to which the institution is exposed
and to help identify optimal risk-minimisation
strategies for their departments or branches.
29R i s k M a n a g e m e n t
Branch Network
Although it has been in existence for
only a relatively short period, ProCredit Bank
Macedonia has been able to rapidly expand
its branch network. Proximity to the people
making up our target group is crucial for the
success of ProCredit’s activities – whether in
lending or in retail operations, i.e. non-credit
services. For our business loan clients, for ex-
ample, transaction costs can be reduced if we
have an office near their premises. Small en-
trepreneurs are usually very busy and often
need to be physically present at their place of
business. Thus, time really matters to them,
and we can save them time by being nearby. By
the same token, proximity to the target group
makes it easier for the bank and its loan officers
to conduct the on-site loan analysis and moni-
toring which are such an important part of the
lending technology applied by ProCredit Bank.
And in our non-credit operations it is equally
important for us to have an extensive branch
network – simply for the convenience of our
existing clients, since most of our retail custom-
ers rely on public transport, and because being
“just around the corner” helps us attract new
clients in this part of our business. Moreover,
having a sizeable branch network increases our
brand awareness and name recognition.
At the end of 2003, we operated only
in the northern part of Macedonia. Our net-
work consisted of three branches and two out-
lets serving the cities of Tetovo, Gostivar and
Kumanovo, in addition to Skopje. In 2004 we
upgraded the outlets to full-fledged branches
and expanded our network by adding a second
branch in Skopje and opening two other new
branches, one in Strumica and one in Bitola,
which enabled us to begin serving customers
in the southern part of the country.
30 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Tetovo
Skopje (2)
Kumanovo
Gostiva
Bitola
Strumica
Macedonia
Struga
A further sizeable expansion is also
planned for 2005. In the coming year, ProCredit
Bank will open three additional branches in
Skopje, mainly in order to expand its non-credit
operations. The capital is the centre of finan-
cial activity in Macedonia, and it accounts for a
large share of the potential market for deposit
services; it will be essential to ensure that
our services are widely accessible in Skopje if
we wish to tap this market. At the same time,
the bank will further increase its presence in
the rest of the country by opening three new
branches, one each in Ohrid, Struga and Stip.
31B r a n c h N e t w o r k
Audit CommitteeRisk ManagementCommittee
DeputyGeneral Manager
General Assemblyof Shareholders
Internal Audit
General Manager
Managing Board
Executive Body
Branches
TreasuryDept.
AccountingDept.
AdministrationDept.
OrganisationDept.
MISDept.
ITDept.
FinancialControlling
ATMDept.
LegalDept.
CreditDept.
HRDept.
RetailDept.
DomesticPayments Dept.
CorporateDept.
InternationalDept.
MarketingDept.
CardDept.
Organisation, Staff and Staff Development
Our successful development depends
on a number of factors. The organisational
structure and the quality of our staff are of cru-
cial importance. At a very young and fast-grow-
ing institution such as ProCredit Bank, internal
structures have to be strong and stable. But
they also have to be able to grow and expand
with the bank’s business, and to be flexible
enough to allow for changes necessitated by
growth in our business volume or in our prod-
uct range. Accordingly, in 2004 we set up new
departments at head office level and hired new
personnel to strengthen head office units. The
most significant innovation was the establish-
ment of a retail department – a move intended
to enhance our ability to serve the market for
non-credit services and to improve communica-
tion by the front-office staff in our branches re-
garding such services. Important changes were
also made in our loan department, where tasks
were re-organised to permit a more straight-
forward, efficient allocation of responsibilities
and to make reporting lines more transparent.
The rapid expansion in our operations
in the year under review was accompanied by
a correspondingly rapid increase in the size of
our staff: by the end of 2004, the total number
of employees had risen to 212, including 41
trainees. But as the number of employees has
increased, we have had to develop new ways of
facilitating the direct, straightforward commu-
nication with our staff members which we need
in order to maintain the bank’s strong team
spirit and corporate identity. Meetings with
branch managers and department heads, vis-
its to branches and joint training events were
steps in that direction in the year under review.
In our recruiting activities, we are guided by a
strong commitment to equality of opportunity
and to achieving the greatest possible degree
of transparency – a priority in all aspects of
Organisational Structure
32 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
our operations. Therefore, when hiring new
personnel, and also when promoting exist-
ing staff members, we base our decisions on
an objective evaluation of people’s qualifi-
cations and performance. We do not require
applicants for positions with ProCredit Bank
to have had previous banking experience,
as we provide extensive training to our new
employees. Indeed, our primary goal in recruit-
ing is to attract bright young people who are
willing to learn and acquire the skills they need,
and who identify with the bank’s mission and
share our values.
New employees receive extensive train-
ing through classroom instruction and a practi-
cal training programme to give them the neces-
sary grounding in banking and finance and to
acquaint them with the bank’s various types of
operations. After our employees have acquired
the basic know-how to do their jobs, we ensure
that they continue to grow and develop profes-
sionally by providing advanced training on a reg-
ular basis. We also utilise opportunities for staff
training which are available within the network
of ProCredit banks in the region. Where appro-
priate, we make it possible for staff members to
spend time at other institutions that belong to
the network. This allows them to obtain addition-
al professional experience and to profit from the
expertise of their colleagues in other countries.
Such exchanges help all of the banks in the Pro-
Credit network to ensure that services and pro-
cedures always meet best-practice standards.
ProCredit Bank Macedonia is a young
institution with great potential for further
growth as well as a flexible, well-designed or-
ganisational structure and a strong corporate
culture. Accordingly, it offers its employees
attractive career opportunities, giving them
the chance to grow and develop profession-
ally and to advance within the organisation.
The majority of the bank’s current branch
managers started their careers as loan offi-
cers or client advisers in our institution. They
were promoted to their current positions after
acquiring the requisite banking and mana-
gerial skills through on-the-job training and
advanced courses conducted by the bank.
We understand how much our contin-
ued success depends on the quality of our
staff and we are very much aware of the role
played by our well-qualified and enthusiastic
employees in the development of our institu-
tion. Thus, the bank will continue not only to
hire young, talented individuals, but also to
support the professional development of its
employees and maintain its culture of open-
ness and transparency in order to ensure that
ProCredit Bank remains what it is today –
an enjoyable place to work.
33O r g a n i s at i o n , S ta f f a n d S ta f f D e v e l o p m e n t
Our high standards of business ethics
are reflected in the bank’s Code of Conduct. It
was introduced with the aim of creating and
maintaining an open and transparent working
environment, in which the interests of the bank,
its employees and its clients are all equally
well protected. All of our staff members are
expected to adhere to the highest standards
of conduct and to act with honesty, integrity,
impartiality and respect in all their dealings
with fellow employees, clients and the general
public.
It is a strict rule that the bank must not conduct
or support transactions involving funds which
may be suspected to have originated from
criminal activities. Accordingly, compliance
with the legal requirements for the prevention
of money laundering is given special emphasis.
The operational modules of ProCredit Bank’s IT
system are designed to detect and track suspi-
cions transactions, and the anti-money laun-
dering compliance officer reports to the local
authorities on a regular basis.
As a member of the ProCredit group,
ProCredit Bank Macedonia defines its role as
a development-oriented institution not only
in commercial and economic terms. It also
regards promoting environmentally sound and
ethical business practices as an integral part of
its mission to support long-term development.
Ethical and Environmental Standards
34 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Both in the way it conducts its own
operations and in the criteria it applies when
selecting its clients, ProCredit Bank Macedonia
adheres to strict environmental standards. In
order to facilitate compliance with these stan-
dards, the bank has formulated an Environmen-
tal Policy Statement, which is part of an overall
Environmental Management System that has
been adopted by all of the institutions belong-
ing to the ProCredit group. In addition to ap-
plicable legal requirements, the Environmental
Policy Statement includes an Exclusion List
which defines a number of environmentally haz-
ardous activities that may not be financed with
a ProCredit loan. ProCredit Bank Macedonia
also refuses to finance, or be associated in any
other way with, economic activities that involve
coercive or unsafe forms of labour, in particular
harmful child labour.
E t h i c a l a n d E n v i r o n m e n ta l S ta n d a r d s 35
Our Clients
FURNITURE AND CABINET MAKING TRADE
A bigger range of produce – fresher than ever
Frosina Petrovska and her husband do
not have a registered business, but they have
a well-organised regular stand at the fruit and
vegetable market on the outskirts of Skopje.
And that was enough to qualify them for a Pro-
Express loan from ProCredit Bank, which took
only one day to process: “I was pleasantly sur-
prised at how fast it went, and how little docu-
mentation was needed,” says Ms. Petrovska,
who has been selling fruit and vegetables for
almost two years. The stand is all she and her
husband have – and their sole source of income.
They used the loan to expand the range
of vegetables they offer. The funds were needed
quickly because demand for certain vegetables
is very seasonal. Ms. Petrovska says diversi-
fying the range of produce has increased the
number of regular customers, and adds with
enthusiasm:
“I’m grateful for the support the bank
gave me when I most needed it. I look forward to
doing business with ProCredit Bank again in the
future.” In fact, she already has plans to buy a
mini-van, which will mean that the vegetables
on their stall will be even fresher.
Custom furniture, made by hand
“Nowadays, we self-employed carpen-
ters require a wide range of skills because we’re
competing with cheap machine-produced furni-
ture. Thanks to a loan from ProCredit Bank I was
able to buy new tools which enable me to work
faster. That, and the fact that I offer real hand-
made furniture, gives me the competitive edge
that enables me to hold my own in the market!”
Zoran Jordanoski set up his firm Enterier
in Bitola more than a decade ago. He makes
all kinds of furniture – chairs, tables, beds,
fitted kitchens – and everything is custom-
produced to his clients’ specifications. His wife
takes care of the books and administration.
She uses ProCredit Bank’s payment services to
make transfers to suppliers, and obtained Pro-
Cards for Enterier’s employees which they can
use to withdraw their salaries. Mr. Jordanoski
has responded to market pressure in inventive
ways: he opened a showroom, designed a cata-
logue, and began offering after-sales support
and a guarantee on his furniture. “My competi-
tors are wide-awake too, but we are constantly
growing and improving, remaining one step
ahead.”
36 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
WHOLESALE COFFEE DISTRIBUTORS
Coffee became their life
When Zvonko Mihajlovski and Ivica Dim-
itrieski from Gostivar became regional distribu-
tors of two major coffee brands six years ago,
they never dreamed they would one day have
their own brand, Bon Café – but it happened!
Initially, their small distribution busi-
ness, Inter Kafe, ran smoothly, but then their
suppliers encountered serious liquidity prob-
lems and the partners were forced to end the
business relationship. However, since the lo-
gistics were already in place, they decided to
produce the coffee themselves and make use of
the existing distribution channels.
They had to finance their start-up invest-
ments with very expensive loans from money-
lenders. However, when ProCredit opened an
outlet in Gostivar, Zvonko and Ivica gained
access to fairly priced loans. Their first was
invested in a truck for delivering Bon Café to
coffee bars, restaurants and supermarkets all
over the country; the second was used to pur-
chase raw coffee in bulk. The two men have
already applied for their third loan in order to
buy a packaging machine which will make their
production process even more efficient.
CLOTHING PRODUCTION
Jeanswear made in Macedonia
Suhamed Ibraim established his denim
and jeanswear production business in 2001.
The initial expertise came from his father,
a tailor. Thanks to the owner’s hard work
and dedication, the business grew fast, and
began to employ more and more sewing ma-
chine operators. Having started with just a few
machines and a simple sewing process, Mr.
Ibraim today runs a mini-factory with 18 ma-
chines and 20 employees. Due to the compa-
ny’s rapid growth, he soon needed more work-
ing capital, and it was then that he approached
ProCredit Bank.
“I had had no experience with banks be-
fore I heard about ProCredit Bank; after receiv-
ing my first loan, I was satisfied with the way
the bank had dealt with my case. At first I was
a little anxious about the procedures, but they
were handled quickly and carefully by my loan
officer. That’s why I continue to turn to ProCredit
Bank for my financing and also for other ser-
vices like a ProCard account and a Diners Card.
This is definitely the bank for me: an institution
which will support my plans for developing and
expanding my business.”
37O u r C l i e n t s
A place where kids can learn and have fun
Tea Colors is a small company that
makes school supplies, such as notebooks
and paints. It had been operating for some
years before it applied for its first loan from
ProCredit Bank in December 2003, which was
used to add a new line of products to the range.
In the meantime, Marjan and Violeta Trajkovski,
the owners, have also set up a day care centre
for children.
“Having children ourselves, we know the
problems facing young parents who work all day.
My wife is a teacher,” says Marjan, “and one day
she had the idea to provide a ‘Children’s Centre
for Learning, Creativity and Fun’, a place where
kids can go while their parents are at work.”
But having an idea and implementing
it are two different things: “We invested a lot
in the premises ourselves, but we still needed
additional financing, so we turned to ProCredit
Bank again.” The Trajkovskis had to renovate,
furnish and equip the premises they had found.
Today the centre not only features a kindergar-
ten and a “kids’ disco”, but also offers courses
for young people in English and computer skills.
DAY CARE CENTRE AND PRODUCTION OF SCHOOL SUPPLIES
CONFECTIONER’S SHOP
Traditional sweets that everyone loves
Natalija Ognjanoski’s family business,
Mi-Gord, has been producing home-made
sweets for six years. The recipe for their suc-
cess is simple: the sweets are made the old-
fashioned way, and are especially popular for
special occasions like weddings or birthdays.
Mi-Gord also offers traditional drinks, such as
boza and blueberry juice.
There are two other sweet shops in
Skopje’s Drachevo district, but Natalija (not
pictured here) and her family have been
able to compete successfully. Since the fam-
ily also lives in this district, they know a lot
of their customers personally, as neighbours
and friends. However, they now plan to open
a second sweet shop in a densely populated
neighbouring district, and that is why they ap-
plied for their first loan from ProCredit Bank.
This is a big project for the family,
requiring all their resources, a great deal of
dedication – and of course initial investments
in premises and machines. The idea to apply for
a loan came from friends who supply the sweet
shop with baking ingredients and who are
satisfied ProCredit Bank clients themselves.
38 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
From artist to gallery owner
As a child, Violeta Atanasova dreamed of
having her own museum. Today, however, she
is the proud owner of one of the best-known art
galleries in Skopje, “Viva l’art”, located right in
the city centre.
She is a genuine self-made woman: an
artist herself, she began by selling her own paint-
ings – quite informally at first, relying on word
of mouth, or simply going from door to door. In
2000 she inherited a shop from her parents in
Skopje’s largest shopping mall and converted
it into her “Viva l’art” gallery. She also began
collecting paintings and sculptures by other
artists. A ProCredit Bank loan enabled her to
buy some paintings by promising local artists.
Looking back, Violeta can hardly believe
how sceptical she was about taking out a bank
loan at first: “As an artist I never thought about
things like loans, but then I found ProCredit
Bank, and it turned out to be so easy!” In addi-
tion to having obtained a loan, Ms. Atanasova
also uses ProCredit Bank’s payment services,
which she finds very convenient, especially
when dealing with collectors and artists in
other Balkan countries.
VEGETABLE FARM
Fresh local produce throughout the year
All his life, Risto Janev has worked a
small plot of land in Borievo, near Strumica,
continuing a family tradition that goes back
many generations. Last year he installed a heat-
ing system in his greenhouse, where he grows
peppers and cucumbers. This allowed him to
start the growing season earlier and end it later.
He can even offer local produce out of season,
undercutting the price of imported vegetables.
To take full advantage of the new busi-
ness opportunities created by the heating sys-
tem, Mr. Janev decided to apply for a further
loan. “Now, thanks to ProCredit Bank, I will
build another heated greenhouse. I have moved
forward, and I’m planning to borrow again.” The
loan will also allow him to further modernise
the existing greenhouses.
Taking out this loan was a big step for
the family: “I don’t remember anyone in my
family ever taking out a loan before. My father
always saved money first before making invest-
ments, and that took time. At ProCredit Bank,
the procedure is very fast. If I ever have any sur-
plus funds, I will deposit them with the bank and
earn some interest.”
ART GALLERY
39O u r C l i e n t s
LIVESTOCK FEED PRODUCTION KEBAB RESTAURANT
A meal with friends in a relaxing ambiance
Nedzat Paljosh is the owner/manager
of the Deo-Din restaurant in Skopje, which is
located at a market some 4 km from the city cen-
tre. Macedonians love to chat with their friends
over a small glass of zolta, a fresh salad and
a good kebab with red pepper on it, so small
local restaurants like this are very popular.
Supported by his father, Mr. Paljosh has
been running the restaurant for almost 10 years,
serving delicious kebabs and other traditional
dishes made according to the family’s own
recipes. They used to run a similar business
in Serbia, but after moving to Macedonia, they
had to start again from scratch, and have been
steadily expanding their business ever since.
When Mr. Paljosh heard from fellow res-
taurant operators about the favourable terms,
fast and simple procedures and the friendly staff
at ProCredit Bank, he decided to apply for a loan.
He used his ProInstant loan to redecorate his
restaurant, install new machinery, and replenish
his working capital. He is very satisfied with the
way his business has developed, as even more
people now stop to enjoy a meal at Deo-Din.
Just one loan was enough to boost output
The Skopje-based firm Zito Proizvodi
has operated a livestock feed mill for the past
15 years. It is a real family business, founded
by the father of Suze Damevska, an energetic
woman who runs the mill today, together with
her husband Vlatko and her sister Viki. The
family wanted to expand their business and ap-
plied for a working capital loan from ProCredit
Bank to purchase more corn from Serbia – their
main input.
“Taking out a loan from ProCredit Bank
was my first positive experience with loans,”
Suze remembers. “I was pleasantly surprised
at the way the bank treats its clients. The loan
helped me to meet my production targets in
spite of the difficulty of collecting receivables
in Macedonia. I was amazed to get the loan
approval only three days after filling out the
application form.” As soon as they had success-
fully invested and repaid the first loan, the fam-
ily applied for a second one, which was quickly
approved and was already a bit larger than the
first one. But this will not be the end of the story
– more plans for the future are already in the
pipeline…
40 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
O u r C l i e n t s 41
Financial Statements
42 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
F i n a n c i a l S tat e m e n t s 43
INCOME STATEMENT For the year ended 31 December 2004
Income Statement
For the year ended 31 December 2004 In thousands of denars Note 2004 2003
Interest income 192,076 20,164
Interest expense (27,312) (1,688)
Net interest income 1 164,764 18,476
Fee and commission income 17,259 11,648
Fee and commission expense (4,027) (4,720)
Net fee and commission income 2 13,232 6,928
Net foreign exchange gain 10,709 2,585
Other operating income 2,912 –
Operating income 191,617 27,989
Impairment losses 3 (37,150) (13,769)
Other operating expenses 4 (161,925) (42,641)
Operating expenses (199,075) (56,410)
Loss before tax (7,458) (28,421)
Income tax (expense)/income 5 (226) 4,263
Net loss for the year (7,684) (24,158)
For the period from 11 July to 31 December
44 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
BALANCE SHEETAs at 31 December 2004
In thousands of denars Note 2004 2003
Assets
Cash and cash equivalents 6 577,815 73,521
Placements with, and loans to, banks 7 – 90,101
Loans and advances to customers 8 1,383,662 442,647
Interest receivable and other assets 9 20,815 11,300
Intangible assets 11 23,171 9,346
Property and equipment 12 46,136 23,527
Deferred tax asset 13 4,037 4,263
Total assets 2,055,636 654,705
Liabilities
Deposits from banks and other fi nancial institutions 14 114,522 1,528
Amounts owed to other depositors 15 669,501 114,917
Other borrowed funds 16 674,410 245,172
Accruals 17 7,864 1,612
Impairment provisions related to off-balance sheet items 18 743 5
Other liabilities 19 6,726 9,178
Total liabilities 1,473,766 372,412
Share capital 613,712 306,451
Accumulated loss (31,842) (24,158)
Total shareholders’ equity 581,870 282,293
Total liabilities and shareholders’ equity 2,055,636 654,705
These fi nancial statements set out on pages 1 to 36 were approved by the Managing Board on 16 March 2005 and were
signed on its behalf by:
Mr. Borislav Kostadinov Mrs. Jovanka Joleska Popovska
General Manager Deputy General Manager
signed on its behalf by:
Mr. Borislav Kostadinov Mrs. Jovanka Joleska Popovska
F i n a n c i a l S tat e m e n t s 45
STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2004
Share Accumulated
In thousands of denars Capital loss Total
Balance at 1 January 2003 – – –
Loss for the period – (24,158) (24,158)
Shares issued 306,451 – 306,451
Balance at 31 December 2003 306,451 (24,158) 282,293
Balance at 1 January 2004 306,451 (24,158) 282,293
Loss for the year – (7,684) (7,684)
Shares issued 307,261 – 307,261
Balance at 31 December 2004 613,712 (31,842) 581,870
46 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
STATEMENT OF CASH FLOWS For the year ended 31 December 2004
In thousands of denars Note 2004 2003
Operating activities
Net loss for the year (7,684) (24,158)
Adjustments for non cash items:
Depreciation of property and equipment 4 9,049 1,907
Amortization of intangible assets 4 3,233 830
Income tax expense/(income) 5 226 (4,263)
Impairment losses 3 37,150 13,769
Provision for off-balance sheet items 4 738 5
Interest income 1 (192,076) (20,164)
Interest expense 1 27,312 1,688
Interest receipts 182,913 15,567
Interest paid (21,060) (76)
Operating profi t/(loss) before changes in operating assets 39,801 (14,895)
(Increase)/decrease in operating assets:
Placements with, and loans to, banks 90,101 (90,101)
Loans and advances to customers (978,165) (456,416)
Other assets (352) (6,703)
Increase/(decrease) in operating liabilities:
Deposits from banks and other fi nancial institutions 112,994 1,528
Amounts owed to other depositors 554,584 114,917
Other liabilities (2,452) 9,178
Net cash from operating activities before income tax (183,489) (442,492)
Tax paid
Income tax (paid)/received – –
Cash fl ows from operating activities (183,489) (442,492)
Investing activities
Acquisition of property and equipment (31,658) (25,434)
Acquisition of intangible assets (17,058) (10,176)
Cash fl ows from fi nancing activities (48,716) (35,610)
Financing activities
Proceeds from the issue of shares 307,261 306,451
Net increase in borrowings 429,238 245,172
Cash fl ows from fi nancing activities 736,499 551,623
Net increase in cash and cash equivalents 504,294 73,521
Cash and cash equivalents at 1 January 73,521 –
Cash and cash equivalents at 31 December 6 577,815 73,521
For the period from 11 July to 31 December
F i n a n c i a l S tat e m e n t s 47
NOTES TO THE FINANCIAL STATEMENTS
Signifi cant accounting policies
a. Business background
ProCredit Bank AD - Skopje (“the Bank”) is a joint stock
company incorporated and domiciled in the Repub-
lic of Macedonia. The Bank was registered as a micro
fi nance bank in accordance with the Law on Micro
Finance Banks. During December 2004 the Bank in-
creased its share capital and obtained the full banking
licence. The principal activities of the Bank include
commercial lending, receiving of deposits, foreign
exchange deals, payment operation services in the
country and abroad and retail banking services. In
addition, it provides trade fi nance facilities to compa-
nies for export and import purposes.
b. Statement of compliance
The fi nancial statements have been prepared in accor-
dance with International Financial Reporting Standards
(“IFRS”) promulgated by the International Accounting
Standards Board (“IASB”) and interpretations issued
by the International Financial Reporting Interpretations
Committee of the IASB.
c. Basis of preparation
The fi nancial statements are presented in Macedonian
denars, rounded to the nearest thousand. The fi nan-
cial assets and liabilities and non-fi nancial assets and
liabilities are stated at amortised cost or historical cost.
They are drawn up from fi nancial statements prepared
in conformity with Macedonian regulations but, where
needed, adjustments and reclassifi cations were made
in order to be in conformity with International Financial
Reporting Standards. In addition, for a more appropriate
presentation of transactions, classifi cation of certain
items in a current year’s fi nancial statements differ from a
prior year. Consequently presentation of the prior year ‘s
fi nancial statement has been changed where neces-
sary.
The preparation of fi nancial statements in conformity
with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its
judgement in the process of applying the Company’s
accounting policies.
The accounting policies are consistent with those used
in the previous year.
d. Foreign currency transactions
Transactions in foreign currencies are translated at the
foreign exchange rate in effect at the date of the trans-
action. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are trans-
lated to denars at the foreign exchange rate in effect at
that date.
Foreign exchange differences arising on translation are
recognised in the income statement. Non-monetary
assets and liabilities denominated in foreign currency,
which are stated at historical cost, are translated to
denars at the foreign exchange rate in effect at the date
of the transaction.
The foreign currencies the Bank deals with are predomi-
nantly euro (EUR) and United States dollar (USD) based.
The exchange rates used for translation at 31 December
2004 and 2003 were as follows:
2004 2003
MKD MKD
1 EUR 61.31 61.29
1 USD 45.07 49.05
e. Financial instruments
(i) Classifi cation
Originated loans and receivables are loans and receiv-
ables created by the Bank providing money to a debtor
other than those created with the intention of short-
term profi t taking. Originated loans and receivables
comprise loans and advances to banks and customers.
(ii) Recognition
The Bank recognises originated loans and receivables
on the day they are transferred by the Bank.
(iii) Measurement
Financial instruments are measured initially at cost,
including transaction costs.
All non-trading fi nancial liabilities and originated
loans and receivables are measured at amortised cost
less impairment losses. Amortised cost is calculated
based on the effective interest rate method. Premiums
and discounts, including initial transaction costs, are
included in the carrying amount of the related instru-
ment and amortised based on the effective interest rate
of the instrument.
48 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
(iv) Specifi c instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash balance on
hand, demand deposits with banks and cash deposited
with the National Bank of the Republic of Macedonia
(“NBRM”) and treasury bills purchased at original
issuance.
Loans and advances to banks and customers
Loans and advances originated by the Bank are clas-
sifi ed as originated loans and receivables. Loans and
advances are reported net of allowances to refl ect the
estimated recoverable amounts (refer to accounting
policy i).
f. Intangible assets
(i) Owned assets
Intangible assets that are acquired by the Bank are stat-
ed at cost less accumulated amortisation.
(ii) Subsequent expenditure
Subsequent expenditure on capitalised intangible
assets is capitalised only when it increases the future
economic benefi ts embodied in the specifi c assets to
which it relates. All other expenditure is expensed as
incurred.
(iii) Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives of
intangible assets. Assets are not amortised until they
are brought into use.
The amortisation rates based on the estimated useful
lives are as follows:
%
Licences 20
Software 25
g. Property and equipment
(i) Owned assets
Items of property and equipment are stated at cost or
valuation less accumulated depreciation.
(ii) Subsequent expenditure
Expenditure incurred to replace a component of an item
of property and equipment that is accounted for sepa-
rately, is capitalised. Other subsequent expenditure is
capitalised only when it increases the future economic
benefi ts embodied in the item of property and equip-
ment. All other expenditures are recognised in the
income statement as expenses incurred.
(iii) Depreciation
Depreciation is charged to the income statement on a
straight-line basis over the estimated useful lives of
items of property and equipment. Assets are not de-
preciated until they are brought into use. Depreciation
rates, based on the estimated useful lives, are as follows:
%
Computers 25
Furniture and equipment 10 to 25
h. Offsetting
Financial assets and liabilities are offset and the net
amount is reported in the balance sheet when the Bank
has a legally enforceable right to set off recognised
amounts and the transactions are intended to be set-
tled on a net basis.
i. Impairment
The carrying amounts of the Bank’s assets, other than
deferred tax assets (refer to accounting policy k), are
reviewed at each balance sheet date to determine
whether there is objective evidence of impairment.
If any such indication exists, the asset’s recoverable
amount is estimated.
Originated loans and advances
Originated loans and advances are presented net of spe-
cifi c and general allowances for impairment. Specifi c
allowances are made against the carrying amount of
loans and advances that are identifi ed as being impaired
based on regular reviews of outstanding balances to
F i n a n c i a l S tat e m e n t s 49
reduce these loans and advances to their recoverable
amounts. General allowances are maintained to reduce
the carrying amount of portfolios of similar loans and
advances to their estimated recoverable amount at the
balance sheet date. The expected cash flows for port-
folios of similar assets are estimated based on previ-
ous experience and late payments of interest or penal-
ties. Increases in the allowance account are recognised
in the income statement. When the loan is known to be
uncollectible, all the necessary legal procedures have
been completed, and the final loss has been deter-
mined, the loss is written off directly.
If in a subsequent period the amount of an impair-
ment loss decreases and the decrease can be linked
objectively to an event occurring after the write-down,
the write-down or allowance is reversed through the
income statement.
j. Income recognition
(i) Interest income
Interest income is recognised in the income statement
as it accrues taking into account the effective yield of
the assets. Interest income includes the amortisation of
any discount or premium or other differences between
the initial carrying amount of an interest bearing instru-
ment and its amount at maturity calculated on an effec-
tive interest rate basis.
Interest for doubtful collectibility is credited to a sus-
pense account and excluded from interest income. The
closing balance on the suspense account is netted in
the balance sheet against accrued interest receivable.
Suspended interest is written off when there is no
longer any realistic prospect of it being recovered.
(ii) Interest expense
Interest expense is recognised in the income statement
as it accrues.
(iii) Fee and commission income
Fee and commission income arises on financial services
provided by the Bank including foreign currency settle-
ments, guarantees, letters of credit, credit facilities,
and other services.
Fee and commission income is recognised when the
corresponding service is provided.
In 2003 loan origination fees were credited to income
when the associated services were performed. Accord-
ing to IAS 18 “Revenue” and IAS 39 “Financial instru-
ments: Recognition and Measurement”, these fees are
an integral part of generating an ongoing involvement
with the resultant financial instruments and should be
deferred and recognised as an adjustment to the effec-
tive yield. In the view of the management of the Bank,
the applicable accounting policy which differs from re-
quirements of IAS 18 and IAS 39 does not have mate-
rial impact on the overall financial position and perfor-
mance of the Bank.
In 2004 loan origination fees were included in the cal-
culation of the effective yield of loans and advances to
customers, based on effective interest rate method,
and were included in interest income.
Corresponding figures have not been restated, and it
was impossible to determine the effect for the previous
year.
k. Income tax
Income tax on the profit or loss for the year comprises
current and deferred tax. Income tax is recognised
in the income statement except to the extent that it
relates to items taken directly to equity, in which case it
is recognised in equity.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted at the bal-
ance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided using the balance sheet
liability method, providing for temporary differences
between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used
for taxation purposes. The amount of deferred tax pro-
vided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabili-
ties, using tax rates enacted or substantially enacted at
the balance sheet date.
A deferred tax asset is recognised only to the extent that
it is probable that future taxable profits will be avail-
able against which the asset can be utilised. Deferred
tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
50 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
l. Borrowing
Interest-bearing borrowings are recognised initially at
cost, less attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are
stated at amortised cost with any difference between
cost and redemption value being recognised in the
income statement over the period of the borrowings on
an effective interest basis.
m. Share capital
(i) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity
in the period in which they are approved by the Bank’s
shareholders.
1. Net interest income
In thousands of denars 2004 2003
Interest income by product
Loans and advances to
customers 188,296 19,492
Placements with, and loans to,
banks 1,834 816
Cash and cash equivalents 3,201 –
Impairment losses (1,550) (144)
Recoveries of interest previously
provided for 295 –
192,076 20,164
Interest expense by product
Other borrowed funds 20,893 1,554
Deposits from citizens 5,468 134
Deposits from enterprises 936 –
Deposits from banks and other
fi nancial institutions 15 –
27,312 1,688
Net interest income 164,764 18,476
2. Net fee and commission income
In thousands of denars 2004 2003
Fee and commission income
Lending operations 1,758 10,321
Payment operations
in the country 7,574 587
abroad 7,151 656
Letters of credit and guarantees 774 36
Other 2 48
17,259 11,648
Fee and commission expense
Payment operations
in the country 2,602 1,168
abroad 1,345 3,352
Other 80 200
4,027 4,720
Net fee and commission income 13,232 6,928
For the period from 11 July to 31 December
For the period from 11 July to 31 December
F i n a n c i a l S tat e m e n t s 51
3. Impairment losses
In thousands of denars Note 2004 2003
Impairment allowance
Loans and advances to
customers 10 37,150 13,769
37,150 13,769
4. Other operating expenses
In thousands of denars 2004 2003
Personnel expenses
wages and salaries 44,515 8,820
compulsory social security
contributions and taxes 22,677 4,825
other staff costs 1,413 8
Depreciation of property and
equipment 9,049 1,907
Amortisation of intangible assets 3,233 830
Materials and services 53,113 19,768
Publicity and entertainment 11,540 2,426
Administration costs 8,240 2,197
Travel expenses 3,004 462
Insurance premiums 1,413 40
Provisions for off-balance sheet
items 738 5
Tax and contributions 630 801
Other 2,360 552
161,925 42,641
Other staff costs comprise allowances for food, trans-
portation of employees, etc.
The average number of employees in 2004 was 127
(2003: 60).
5. Income tax expense
Recognised in the income statement
In thousands of denars Note 2004 2003
Current tax expense
Current year – –
– –
Deferred tax income
Benefi t of tax losses recognised 226 (4,263)
Total income tax expense/
(income) in the income statement 226 (4,263)
Reconciliation of effective tax rate
In thousands
of denars 2004 2004 2003 2003
Loss for the
period (7,458) (28,421)
Income tax using
the domestic
corporation tax
rate (15%) (1,119) (15%) (4,263)
Non-deductible
expenses 4.8% 357 – –
Unrecognised
deferred tax
assets 10.2% 762 – –
Effect of tax
losses utilised 3.0% 226 – –
3.0% 226 (15%) (4,263)
For the period from 11 July to 31 December For the
period from 11 July to 31 December
For the For the period from period from 11 July to 11 July to 31 December 31 December
For the period from 11 July to 31 December
52 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
6. Cash and cash equivalents
In thousands of denars 2004 2003
Cash on hand 90,555 27,454
Balances with NBRM 114,100 38,241
Treasury bills 319,529 –
Current accounts with
foreign banks 53,255 6,707
Current accounts with
local banks 376 1,119
577,815 73,521
At 31 December 2004 cash and cash equivalents includ-
ed MKD 11,767 thousand (2003: MKD 1,961 thousand) as
obligatory reserve requirement in MKD and MKD 81,213
thousand (2003: MKD 16,779 thousand) as obligatory
reserve in foreign currency requirement. These funds
are not available for the Bank’s daily business.
Interest equal to 2% per annum is accrued on the MKD
obligatory reserve (2003: 4%) and interest equal to
1% per annum (2003: 1%) is accrued on the obligatory
reserve in foreign currency.
Treasury bills issued by NBRM are with maturity of 7 and
10 days (2003: nil) and with fi xed interest of 7% (2003:
nil) per annum. Current income is shown in interest
income.
Part of the current accounts with foreign banks, in the
amount of MKD 6,793 thousand (2003: nil) represents
funds held with HCBS Bank, as a collateral for trans-
actions performed with Master payment cards. These
funds are not available for the Bank’s daily business.
The interest rates shown represent rates at the end of
the reporting period.
7. Placements with, and loans to, banks
In thousands of denars 2004 2003
Placements with foreign banks – 90,101
Placements with, and loans to, banks – 90,101
Analysis by interest rates
Placements with foreign banks
At 31 December 2003 EUR deposits
with fi xed interest rate of 2.15%
per annum – 90,101
– 90,101
Placements with, and loans to,
banks – 90,101
Geographical analysis
European Union – 61,293
Ukraine – 28,808
Placements with, and loans to, banks – 90,101
The interest rates shown represent rates at the end of
the reporting period.
8. Loans and advances to customers
In thousands of denars 2004 2003
Corporate customers:
Trade 582,912 195,650
Industry 306,208 97,264
Construction 164,843 46,092
Transport 217,705 51,070
Other 162,913 66,340
1,434,581 456,416
Less allowance for impairment (50,919) (13,769)
Net loans and advances to
Other customers 1,383,662 442,647
Included in the total amount of loans and advances
before allowance for impairment, is an amount of
MKD 4,444 thousand (2003: nil) on which interest has
ceased to be accrued.
Corporate loans are with variable interest rate ranging
from 11.4% to 24% (2003: from 14.4% to 19.2%) per
annum, depending on the collateral, currency and
maturity.
The above interest rates represent rates at the end of
the reporting period.
F i n a n c i a l S tat e m e n t s 53
9. Interest receivable and other assets
In thousands of denars 2004 2003
Interest receivable 667 10
Accrued interest 13,093 4,587
Fees and commissions receivable 384 –
Other assets 6,671 6,703
20,815 11,300
10. Allowance for impairment
In thousands of denars Note 2004 2003
Balance on 1 January 13,769 –
Impairment losses recognized:
Additional allowances 3 37,150 13,769
Balance on 31 December 50,919 13,769
The allowance is apportioned as follows:
In thousands of denars Note 2004 2003
As a reduction of loans
and advances to customers 8 50,919 13,769
50,919 13,769
11. Intangible assets
In thousands of Licences Soft- Total
denars ware
Cost
At 1 January 2004 1,992 8,184 10,176
Additions 3,448 13,610 17,058
At 31 December 2004 5,440 21,794 27,234
Amortisation
At 1 January 2004 115 715 830
Charge for the year 643 2,590 3,233
At 31 December 2004 758 3,305 4,063
Carrying amount
At 1 January 2004 1,877 7,469 9,346
At 31 December 2004 4,682 18,489 23,171
12. Property and equipment
Furniture & Assets under
In thousands of denars Computers equipment construction Total
Cost or valuation
At 1 January 2004 11,687 13,747 – 25,434
Additions 11,874 9,278 10,506 31,658
Transfer from assets under construction 9,190 – (9,190) –
At 31 December 2004 32,751 23,025 1,316 57,092
Depreciation
At 1 January 2004 1,002 905 – 1,907
Charge for the year 5,241 3,808 – 9,049
At 31 December 2004 6,243 4,713 – 10,956
Carrying amount
At 1 January 2004 10,685 12,842 – 23,527
At 31 December 2004 26,508 18,312 1,316 46,136
54 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Assets Liabilities Net
In thousands of denars 2004 2003 2004 2003 2004 2003
Tax value of loss carry-forward recognised (4,037) (4,263) – – (4,037) (4,263)
Tax (assets)/liabilities (4,037) (4,263) – – (4,037) (4,263)
Set-off of tax – – – – – –
Net tax (assets)/liabilities (4,037) (4,263) – – (4,037) (4,263)
In thousands of denars 2004 2003
Tax losses 762 –
762 –
13. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to
the following:
Unrecognised deferred tax assets and liabilities
Deferred tax assets and liabilities have not been recog-
nised in respect of the following:
14. Deposits from banks and other fi nancial insti-
tutions
In thousands of denars 2004 2003
Demand deposits
Domestic banks 1,010 1,528
Insurance companies 18,654 –
19,664 –
Time deposits
Foreign banks 61,310 –
Insurance companies 33,548 –
94,858 –
Total deposits 114,522 1,528
Demand deposits are non-interest bearing (2003: non-
interest bearing).
Time deposits of foreign banks are with fi xed interest
rate of 3% (2003: nil) per annum.
Time deposits of insurance companies are with fi xed
interest rates ranging from 2.2% to 7.8% (2003: nil) per
annum. The above interest rates represent rates at the
end of the reporting period.
Interest is recognised in interest expense.
Deferred tax assets have not been recognised in respect
of these items because it is not probable that future tax-
able profi t will be available against which the Bank can
utilise the benefi ts therefrom.
F i n a n c i a l S tat e m e n t s 55
15. Amounts owed to other depositors
Part of the demand deposits from citizens in the amount
of MKD 95,695 thousand (2003: MKD 24,104 thousand)
is non-interest bearing. On the remaining part the Bank
accrues interest with fi xed interest rates ranging from
1.4% to 4% (2003: 1.5%) per annum. Demand deposits
of enterprises are non-interest bearing (2003: non-
interest bearing).
The Bank accrues fi xed interest on time deposits from
citizens from 1% to 11% (2003: 1% to 5%) per annum.
Time deposits from enterprises are with fi xed interest
from 4% to 8.8% (2003: nil) per annum.
Restricted deposits from citizens are with fi xed interest
rate from 1% to 5.5% (2003: nil) per annum. Restricted
deposits from enterprises are non-interest bearing
(2003: non-interest bearing).
Restricted deposits represent deposits made by com-
panies for payments to be made abroad by the Bank on
their behalf, for facilitating opening of letters of credit,
for purchase of foreign currencies and as collateral for
loans and guarantees extended by the Bank to certain
customers.
The above interest rates represent rates at the end of
the reporting period.
Interest is recognised in interest expense.
Short Term Long Term Short Term Long Term
In thousands of denars 2004 2004 2003 2003
Demand deposits
Citizens 147,203 – 31,915 –
Enterprises 154,646 – 52,163 –
301,849 – 84,078 –
Time deposits
Citizens 289,959 49,350 21,974 4,264
Enterprises 17,090 – – –
307,049 49,350 21,974 4,264
Restricted deposits
Citizens 783 307 – –
Enterprises 10,163 – 4,601 –
10,946 307 4,601 –
Total 619,844 49,657 110,653 4,264
Short Term Long Term Short Term Long Term
In thousands of denars 2004 2004 2003 2003
Domestic borrowings
Macedonian Bank for Development Promotion
(MBDP) – 122,620 – 61,293
Foreign borrowings
European Bank for Reconstruction and Development
(EBRD) – 367,860 – 183,879
Nederlands Financierings –
Maatschappij voor Ontwikkelingslanden N.V. (FMO) – 183,930 – –
– 674,410 – 245,172
16. Other borrowed funds
56 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
The amount of MKD 122,620 thousand (2003: MKD
61,293 thousand) is from a Kreditanstalt fuer Wieder-
aufbau (KfW) credit line distributed through MBDP with
variable interest rates of three month EURIBOR plus
1% (2003: three month EURIBOR plus 1%) per annum,
payable in four quarterly instalments from March 2007
until December 2007.
Long-term loan from the European Bank for Reconstruc-
tion and Development (EBRD) is for promotion of small
and medium enterprises with interest rate of six month
EURIBOR plus 2.8% (2003: six month EURIBOR plus
2.8%) per annum, payable in four semi annual instal-
ments from March 2008 until September 2009.
Long-term loan from the Nederlands Financierings
– Maatschappij voor Ontwikkelingslanden N.V. (FMO)
has interest rate of six month EURIBOR plus 3% (2003:
nil) per annum, payable in ten semi annual instalments
from March 2006 until September 2010.
The above interest rates represent rates at the end of
the reporting period.
17. Accruals
In thousands of denars 2004 2003
Accrued interest 7,864 1,612
7,864 1,612
18. Impairment provisions related to off-balance sheet
items
In thousands of denars Note 2004 2003
Balance at 1 January 5 –
Provisions made during
the year 4 738 5
Balance at 31 December 23 743 5
19. Other liabilities
In thousands of denars 2004 2003
Suppliers payable 2,749 6,547
Other 3,977 2,631
6,726 9,178
20. Capital and reserves
Share capital
In number of shares 2004 2003
Issued and fully paid at
1 January 1,000,000 –
Issued for cash 1,000,000 1,000,000
Issued and fully paid at
31 December 2,000,000 1,000,000
Ordinary shares have a par value of EUR 5. The hold-
ers of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one
vote per share at meetings of the Bank. All shares rank
equally with regard to the Bank’s residual assets.
At 31 December 2004 the authorised share capital com-
prised 2,000,000 (2003: 1,000,000) ordinary shares
with a par value of EUR 5.
The shareholder structure of the Bank is as follows:
% of voting share capital
Internationale Micro Investitionen AG (IMI) 53.3%
Kreditansatlt fuer Wiederaufbau (KfW) 14.7%
European Bank for Reconstruction
and Development (EBRD) 12.5%
Nederlands Financierings –
Maatschappij voor ontwikkelingslanden
N.V (FMO) 10%
International Finance Corporation (IFC) 9.5%
Total 100%
Statutory reserve
Under local statutory legislation, the Bank is required
to set aside 15 percent of its net profi t for the year in a
statutory reserve until the level of the reserve reaches
1/5 of the court registered capital. Until the minimum
required level is reached, the statutory reserve may
only be used for loss recovery. When the minimum level
is reached, the statutory reserve can also be used for
distribution of dividends, based on a decision of the
shareholders’ meeting, but only if the amount of the
dividends for the current business year has not reached
the minimum for distribution as prescribed in the Trade
Company Law or by the Bank’s Statute.
F i n a n c i a l S tat e m e n t s 57
21. Fair value
The Bank has fi nancial assets, which include cash and
cash equivalents, placements with, and loans to, banks
and loans and advances to customers. The Bank has
fi nancial liabilities which include deposits from banks
and customer and borrowed funds.
Estimation of fair values
The following summarises the major methods and
assumptions used in estimating the fair values of major
items of fi nancial instruments.
Cash and cash equivalents: The carrying amount of cash
and cash equivalent approximates their fair value. Cash
and cash equivalents in 2004 include treasury bills that
are with a maturity of 7 and 10 days; thus their carrying
amount approximates their fair value.
Placements with, and loans to, banks: Placements with,
and loans to, banks in 2003 represent two deposits
with a maturity of up to one month, hence the fair value
approximates the carrying amount at the balance sheet
date.
Loans and advances to customers: The fair value of
variable yield loans and short-term loans that regu-
larly reprice, with no signifi cant change in credit risk,
generally approximate their carrying amount. The total
amount of loans and advances to customers represent
fl oating rate instruments, hence the fair value of total
loans and advances to customers approximates the car-
rying amount at the balance sheet date.
Bank and customer deposits: For demand deposits and
deposits with no defi ned maturities, fair value is taken
to be the amount payable on demand at the balance
sheet date. The major part of bank and customer depos-
its are with a maturity of up to three months, hence the
fair value approximates the carrying amount at the bal-
ance sheet date.
Other borrowed funds: The fair value of borrowings with
fl oating interest rate represents the carrying amount at
the balance sheet date.
22. Trust activities
The Bank manages assets on behalf of third parties
which are in the form of received funds for purchase of
government bills for various clients. The Bank receives
fee income for providing these services. Trust assets
are not assets of the Bank and are not recognised in the
balance sheet. The Bank is not exposed to any credit
risk relating to such placements, as it does not guaran-
tee these investments.
At 31 December 2004 the total assets held by the Bank
on behalf of customers were MKD 3,030 thousand
(2003: nil).
23. Commitments and contingencies
The Bank provides fi nancial guarantees and letters of
credit to guarantee the performance of customers to
third parties. These agreements have fi xed limits and
generally extend for a period of up to one year. Expi-
rations are not concentrated in any period.
The contractual amounts of commitments and con-
tingent liabilities are set out in the following table by
category.
In thousands of denars Note 2004 2003
Guarantees
in MKD 22,480 330
in foreign currency 9,052 –
Letters of credit
in foreign currency 290 1,438
Provisions 18 (743) (5)
31,079 1,763
These commitments and contingent liabilities have off
balance sheet credit risk because only organisation
fees and accruals for probable losses are recognised in
the balance sheet until the commitments are fulfi lled or
expire. Many of the contingent liabilities and commit-
ments will expire without being advanced wholly or in
part. Therefore, the amounts do not represent expected
future cash fl ows.
58 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
24. Risk management disclosures
This section provides details of the Bank’s exposure to
risk and describes the methods used by management to
control risk. The most important types of fi nancial risk
to which the Bank is exposed are credit risk, liquidity
risk and market risk. Market risk includes currency risk,
interest rate risk and equity price risk.
(i) Credit risk
The Bank is subject to credit risk through its lending
and investing activities and in cases where it acts as
an intermediary on behalf of customers or other third
parties or issues guarantees.
The risk that counterparties might default on their
obligations is monitored on an ongoing basis. To
manage the level of credit risk, the Bank deals with
counterparties of good credit standing, and requires
collateral.
The Bank’s primary exposure to credit risk arises
through its loans and advances. The amount of credit
exposure in this regard is represented by the carrying
amounts of the assets on the balance sheet. In addi-
tion, the Bank is exposed to off-balance sheet credit
risk through letters of credit and guarantees issued (re-
fer to note 23).
Concentrations of credit risk (whether on or off balance
sheet) that arise from fi nancial instruments exist for
groups of counterparties when they have similar eco-
nomic characteristics that would cause their ability to
meet contractual obligations to be similarly affected by
changes in economic or other conditions.
The major concentrations of credit risk arise by location
and type of customer in relation to the Bank’s loans and
advances, letters of credit and guarantees issued.
The maximum exposure to credit risk is represented
by the carrying amount of each fi nancial asset in the
balance sheet.
The Bank’s policy is to require suitable collateral to be
provided by the customers prior to the disbursement
of approved loans. Guarantees and letters of credit
are also subject to rigorous credit assessments before
being provided.
Collateral for loans, guarantees, and letters of credit is
usually obtained in the form of cash, inventory, or other
property.
(ii) Liquidity risk
Liquidity risk arises in the general funding of the
Bank’s activities and in the management of positions. It
includes both the risk of being unable to fund assets at
appropriate maturities and rates and the risk of being
unable to liquidate an asset at a reasonable price and in
an appropriate time frame.
The Bank has access to a diverse funding base. Funds
are raised using a broad range of instruments including
deposits, borrowings and share capital.
This enhances funding fl exibility, limits dependence on
any one source of funds and generally lowers the cost of
funds. The Bank strives to maintain a balance between
continuity of funding and fl exibility through the use of
liabilities with a range of maturities. The Bank continu-
ally assesses liquidity risk by identifying and monitoring
changes in funding required to meet business goals and
targets set in terms of the overall Bank strategy.
In addition the Bank holds a portfolio of liquid assets as
part of its liquidity risk management strategy.
F i n a n c i a l S tat e m e n t s 59
Maturities of the fi nancial assets and liabilities
The following table provides an analysis of the fi nancial
assets and liabilities of the Bank into relevant maturity
groupings based on the original period to the repay-
ment date.
For the year ended 31 December 2004 the breakdown
is as follows:
Up to 1 – 3 3 – 12 1 – 5 Over 5 Total
In thousands of denars 1 month months months years years
Assets
Cash and cash equivalents 489,842 – – 87,973 – 577,815
Loans and advances to customers 107,100 218,098 302,320 756,144 – 1,383,662
Interest receivable and other assets 16,491 922 1,545 1,632 225 20,815
613,433 219,020 303,865 845,749 225 1,982,292
Liabilities
Deposits from banks and other
fi nancial institutions 103,049 11,473 – – – 114,522
Amounts owed to other depositors 407,834 85,459 126,551 49,657 – 669,501
Other borrowed funds – – – 637,624 36,786 674,410
Accruals 543 5,895 660 766 – 7,864
Other liabilities 1,047 705 3,172 1,802 – 6,726
512,473 103,532 130,383 689,849 36,786 1,473,023
Net liquidity gap 100,960 115,488 173,482 155,900 (36,561) 509,269
60 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
(iii) Market risk
Interest rate risk
The Bank’s operations are subject to the risk of interest
rate fl uctuations to the extent that interest-earning as-
sets and interest-bearing liabilities mature or reprice
at different times or in differing amounts. In the case
of fl oating rate assets and liabilities, the Bank is also
exposed to basis risk, which is the difference in repric-
ing characteristics of the various fl oating rate indices,
such as the savings rate, and three or six months EURI-
BOR/ LIBOR and different types of interest.
Risk management activities are aimed at optimising net
interest income, given market interest rate levels con-
sistent with the Bank’s business strategies.
Asset-liability risk management activities are conducted
in the context of the Bank’s sensitivity to interest rate
changes. In general, the Bank is asset sensitive be-
cause on the majority of the interest-earning assets
and liabilities, the Bank has the right simultaneously
to change the interest rates. In decreasing interest rate
environments, margins earned will narrow as liability
interest rates will decrease by a lower percentage com-
pared to asset interest rates. However the actual effect
will depend on various factors, including stability of the
economy, environment and level of infl ation.
Currency risk
The Bank is exposed to currency risk through transac-
tions in foreign currencies. The Bank ensures that the
net exposure is kept to an acceptable level by buying
or selling foreign currency when necessary to address
short-term imbalances. The denar is pegged to the
euro and the monetary projections envisage stability
of the exchange rate of the denar against euro.
Up to 1 – 3 3 – 12 1 – 5 Over 5 Total
In thousands of denars 1 month months months years years
Assets
Cash and cash equivalents 56,742 – – 16,779 – 73,521
Placements with, and loans to, banks 90,101 – – – – 90,101
Loans and advances to customers 36,865 63,427 211,869 130,486 – 442,647
Interest receivable and other assets 7,134 1,626 2,540 – – 11,300
190,842 65,053 214,409 147,265 – 617,569
Liabilities
Deposits from banks and other
fi nancial institutions 1,528 – – – – 1,528
Amounts owed to other depositors 89,593 13,182 7,878 4,264 – 114,917
Other borrowed funds – – – 153,233 91,939 245,172
Accruals 1,612 – – – – 1,612
Other liabilities 6,577 30 277 2,294 – 9,178
99,310 13,212 8,155 159,791 91,939 372,407
Net liquidity gap 91,532 51,841 206,254 (12,526) (91,939) 245,162
The following table provides an analysis of the fi nancial
assets and liabilities of the Bank into relevant maturity
groupings based on the original period to the repay-
ment date.
For the year ended 31 December 2003 the breakdown
is as follows:
F i n a n c i a l S tat e m e n t s 61
Floating rate Fixed rate instruments Non interest
Total instruments earning (bearing)
Up to 1 – 3 3 – 12 1 – 5 Over 5
In thousands of denars Note 1 month months months years years
Assets
Cash and cash equivalents 6 73,521 16,779 1,569 – – 392 – 54,781
Placements with, and loans to,
banks 7 90,101 – 90,101 – – – – –
Loans and advances to customers 8 442,647 442,647 – – – – – –
Liabilities
Deposits from banks and
other fi nancial institutions 14 (1,528) – – – – – – (1,528)
Amounts owed to other depositors 15 (114,917) – (8,725) (13,182) (7,878) (4,264) – (80,868)
Other borrowed funds 16 (245,172) (245,172) – – – – – –
Asset liability gap 244,652 214,254 82,945 (13,182) (7,878) (3,872) – (27,615)
Floating rate Fixed rate instruments Non interest
Total instruments earning (bearing)
Up to 1 – 3 3 – 12 1 – 5 Over 5
In thousands of denars Note 1 month months months years years
Assets
Cash and cash equivalents 6 577,815 105,769 343,310 – – 2,353 – 126,383
Loans and advances to
customers 8 1,383,662 1,382,825 – – – – – 837
Liabilities
Deposits from banks and
other fi nancial institutions 14 (114,504) – (83,385) (11,473) – – – (19,664)
Amounts owed to other
depositors 15 (669,501) – (158,803) (73,986) (126,551) (49,657) – (260,504)
Other borrowed funds 16 (674,410) (674,410) – – – – – –
Asset liability gap 503,044 814,184 101,122 (85,459) (126,551) (47,304) – (152,948)
Interest rate gap analysis
For the year ended 31 December 2004
For the year ended 31 December 2003
62 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
At 31 December 2004 the Bank was within the prescribed
limits for its open foreign exchange position. At 31 De-
cember 2003 the Bank exceeded the prescribed limits
for foreign currency exposure. The foreign currency
exposure in relation to the guarantee capital was 88%,
which exceeded the prescribed maximum of 50%.
25. Related party transactions
According to the Bank’s Articles of Association, the su-
preme body is the assembly of the Bank, constituted
of all the holders of the Bank’s registered shares. The
overall control of the Bank is exercised by the non-ex-
ecutive Managing Board that is appointed by the share-
holders.
The Bank keeps nostro accounts, places time deposits
and takes deposits and loans from banks to which it is
related. The directors consider that these transactions
are on a normal commercial basis, at arm’s length, and
in the normal course of business.
At the year end the transactions with related parties
were as follows:
● nostro accounts and time deposits with banks re-
lated to the Bank of MKD 14,369 thousand (2003: MKD
28,808 thousand);● other receivables from banks related to the Bank of
MKD 146 thousand;
2004 2003
MKD EUR USD CHF Other Total MKD EUR USD CHF Other Total
Monetary assets
Cash and cash equivalents 395,014 136,988 40,952 4,861 – 577,815 30,864 34,890 7,747 – 20 73,521
Placements with, and
loans to, banks – – – – – – – 90,101 – – – 90,101
Loans and advances to
customers 249,720 1,133,942 – – – 1,383,662 51,288 391,359 – – – 442,647
Interest receivable and
other assets 7,841 12,892 82 – – 20,815 10,191 1,109 – – – 11,300
652,575 1,283,822 41,034 4,861 – 1,982,292 96,606 517,459 7,747 – 20 621,832
Monetary liabilities
Deposits from banks and
other fi nancial institutions 37,676 76,542 304 – – 114,522 – 1,528 – – – 1,528
Amounts owed to other
depositors 166,936 454,823 46,697 1,045 – 669,501 45,812 61,327 7,778 – – 114,917
Other borrowed funds – 674,410 – – – 674,410 – 245,172 – – – 245,172
Accruals 450 7,371 43 – – 7,864 – 1,612 – – – 1,612
Other liabilities 5,722 1,004 – – – 6,726 4,206 4,972 – – – 9,178
210,784 1,214,150 47,044 1,045 – 1,473,023 50,018 314,611 7,778 – – 372,407
Net position 441,791 69,672 (6,010) 3,816 – 509,269 46,588 202,848 (31) – 20 249,425
● deposits from banks to which the Bank is related of
MKD 61,312 thousand (2003: nil);● other borrowed funds from banks to which the Bank is
related of MKD 674,410 thousand (2003: MKD 183,879
thousand);● deposits from the individuals related to the Bank of
MKD 1,788 thousand (2003: MKD 16 thousand); ● interest expense to banks to which the Bank is related
of MKD 20,026 thousand (2003: MKD 201 thousand);● fee and commission expense to banks to which the
Bank is related of MKD 180 thousand (2003: MKD 3,058
thousand);● interest income from banks to which the Bank is re-
lated of MKD 627 thousand;
26. Subsequent events
No material events subsequent to the balance sheet
date have occurred which require disclosure in the fi -
nancial statements.
F i n a n c i a l S tat e m e n t s 63
APPENDIX
Income Statement
For the year ended 31 December 2004
In EUR 2004 2003
Interest income 3,131,594 329,303
Interest expense (445,293) (27,567)
Net interest income 2,686,301 301,736
Fee and commission income 281,389 190,226
Fee and commission expense (65,656) (77,083)
Net fee and commission income 215,733 113,143
Net foreign exchange gain 174,600 42,216
Other operating income 47,477 –
Operating income 3,124,111 457,095
Impairment losses (605,691) (224,865)
Other operating expenses (2,640,014) (696,381)
Operating expenses (3,245,705) (921,246
Loss before tax (121,594) (464,151)
Income tax (expense)/income (3,685) 69,620
Net loss for the year (125,279) (394,531)
This is not an offi cial part of the Financial Statements of ProCredit Bank AD – Skopje
For the period from 11 July to 31 December
64 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
In EUR 2004 2003
Assets
Cash and cash equivalents 9,424,482 1,199,500
Placements with, and loans to, banks – 1,470,002
Loans and advances to customers 22,568,292 7,221,808
Interest receivable and other assets 339,504 184,360
Intangible assets 377,932 152,480
Property and equipment 752,504 383,844
Deferred tax asset 65,846 69,551
Total assets 33,528,560 10,681,545
Liabilities
Deposits from banks and other fi nancial institutions 1,867,917 24,929
Amounts owed to other depositors 10,919,932 1,874,877
Other borrowed funds 11,000,000 3,999,993
Accruals 128,266 26,300
Impairment provisions related to off-balance sheet items 12,119 82
Other liabilities 109,705 149,740
Total liabilities 24,037,939 6,075,921
Share capital 10,000,000 5,000,000
Accumulated loss (519,810) (394,531)
Translation differences 10,431 155
Total shareholders’ equity 9,490,621 4,605,624
Total liabilities and shareholders’ equity 33,528,560 10,681,545
Balance Sheet
As at 31 December 2004
Share Accumulated Translation
In EUR Capital loss differences Total
Balance at 1 January 2003 – – – –
Loss for the period – (394,531) – (394,531)
Shares issued 5,000,000 – – 5,000,000
Translation differences – – 155 155
Balance at 31 December 2003 5,000,000 (394,531) 155 4,605,624
Balance at 1 January 2004 5,000,000 (394,531) 155 4,605,624
Loss for the year – (125,279) – (125,279)
Shares issued 5,000,000 – – 5,000,000
Translation differences – – 10,276 10,276
Balance at 31 December 2004 10,000,000 (519,810) 10,431 9,490,621
This is not an offi cial part of the Financial Statements of ProCredit Bank AD – Skopje
Statement of changes in equity
For the year ended 31 December 2004
F i n a n c i a l S tat e m e n t s 65
Statement of cash fl ows
For the year ended 31 December 2004
In EUR 2004 2003
Operating activities
Loss for the year (125,279) (394,531)
Adjustments for non cash items:
Depreciation of property and equipment 147,534 31,144
Amortisation of intangible assets 52,710 13,555
Income tax expense/(income) 3,684 (69,620)
Impairment losses 605,691 224,865
Provision for off-balance sheet items 12,037 82
Interest income (3,131,594) (329,303)
Interest expense 445,293 27,567
Interest receipts 2,982,161 254,303
Interest paid (343,326) (1,267)
Operating profi t/(loss) before changes in operating assets 648,911 (243,205)
(Increase)/decrease in operating assets:
Placements with, and loans to, banks 1,470,002 (1,470,002)
Loans and advances to customers (15,952,175) (7,446,673)
Other assets (5,711) (109,360)
Increase/(decrease) in operating liabilities:
Deposits from banks and other fi nancial institutions 1,842,987 24,929
Amounts owed to other depositors 9,045,054 1,874,877
Other liabilities (40,034) 149,740
Net cash from operating activities before income tax (2,990,966) (7,219,694)
Tax paid
Income tax (paid)/received – –
Cash fl ows from operating activities (2,990,966) (7,219,694)
Investing activities
Acquisition of property and equipment (516,359) (414,957)
Acquisition of intangible assets (278,225) (166,022)
Cash fl ows from investing activities (794,584) (580,979)
Financing activities
Proceeds from the issue of shares 5,000,000 5,000,000
Net increase in borrowings 7,000,007 3,999,993
Cash fl ows from fi nancing activities 12,000,007 8,999,993
Effects of exchange rate fl uctuations of cash 10,525 180
Net increase in cash and cash equivalents 8,224,982 1,199,500
Cash and cash equivalents at 1 January 1,199,500 –
Cash and cash equivalents at 31 December 9,424,482 1,199,500
This is not an offi cial part of the Financial Statements of ProCredit Bank AD – Skopje
For the period from 11 July to 31 December
66 P r o C r e d i t B a n k M a c e d o n i a A n n u a l R e p o r t 2 0 0 4
Head Offi ce
Skopje
Jane Sandanski, 109a
Tel. +389 2 321 99 00
Fax +389 2 321 99 01
www.procreditbank.mk
Branches
Skopje
Partizanski Odredi, 1
Tel. +389 2 321 99 50
Fax +389 2 321 99 51
Skopje II
Vidoe Smilevski Bato, 3
Tel. +389 2 240 36 02
Fax +389 2 240 36 13
Bitola
Dobrivoje Radosavljevik, 10
Tel. +389 47 20 72 80
Fax +389 47 20 72 81
Gostivar
Ivo Lola Ribar, 18
Tel. +389 42 21 90 10
Fax +389 42 21 90 11
Kumanovo
III Makedonska Udarna Brigada, 56
Tel. +389 31 475 180
Fax +389 31 475 181
Struga
Marsal Tito, bb
Tel. +389 46 78 50 70
Fax +389 46 78 50 71
Strumica
Blagoj Jankov Muceto, 2
Tel. +389 34 33 44 10
Fax +389 34 33 44 11
Tetovo
Boris Kidric, 1
Tel. +389 44 35 67 30
Fax +389 44 35 67 31
Credit outlet
Kumanovo
Ivo Lola Ribar, 55
Tel. +389 31 47 51 90
Fax +389 31 47 51 91
Contact Addresses
Co n ta c t A d d r e s s e s 67