Partner Mikrokreditna Organizacija Tuzla - Source Codecms.optimus.ba/Avanti_ApplicationFiles/122/Documents/Rejtingizvjestaj2007.pdfPartner Mikrokreditna Organizacija Tuzla (Editor's

Partner Mikrokreditna OrganizacijaTuzlaPrimary Credit Analyst:Matthew Pirnie, London (44) 20-7176-7238; [email protected]

Secondary Credit Analyst:Magar Kouyoumdjian, London (44) 20-7176-7217; [email protected]

Table Of Contents

Major Rating Factors

Rationale

Outlook

Profile: A Top-Two Bosnian Microfinance Entity

Support And Ownership: In A State Of Flux Due To Internal And

External Transformation Pressures

Strategy: To Create A Profit-Making Entity And Attract An Investor Base

Risk Management

Profitability: Supported By High Interest Rates

Capital: Beyond Adequate For Medium-Term Growth

May 2, 2008

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650966 | 300485494

Partner Mikrokreditna Organizacija Tuzla(Editor's Note: In the version of this full analysis originally published on May 2, 2008, the FIDO data was

incorrectly presented in millions of Bosnia and Herzegovina konvertibilna marka. A corrected version follows.)

Major Rating Factors

Strengths:

• Strong asset quality

• Top-two position in the Bosnian microfinance market

• More-than-adequate capitalization

Counterparty Credit Rating

B/Stable/B

Outlook:

• Poor liquidity

• Weak enterprise risk management

• Under-regulated entity exposed to transformation risk

Rationale

The ratings on Partner Mikrokreditna Organizacija Tuzla (Partner) are constrained by poor liquidity,

underdeveloped risk management, and currently limited regulation, coupled with transformation risk. Rating

strengths include strong asset quality, more-than-adequate capitalization, and its top-two position in the Bosnian

microfinance sector.

Although it is a small entity in the Bosnian financial servies industry, Partner is one of the two largest microfinance

institutions (MFIs) in the country, with total assets of 177.94 million Bosnia and Herzegovina konvertibilna marka

(BAM), as at Jan. 31, 2008 (€91 million at BAM1.95475 to €1). Its social mission to provide finance to the

economically disadvantaged raises credit risk; however, Partner has, to-date achieved strong asset quality.

Nonperforming loans (NPLs) accounted for just 0.27% of the total loan portfolio on a 90 days overdue basis at Jan.

31, 2008, which are covered by loan loss reserves of 235%. Credit risks are mitigated, however, by the small value,

short- to medium-term nature of lending. Profitability is good and sustainable despite tougher competition, with a

return on assets of 4.77% in 2007. We consider that capital levels are more than adequate for medium-term growth,

supported by strong internal capital generating capabilities.

Partner faces a number of challenges in the short term, not least transforming its legal status due to domestic

regulations. This process has also highlighted that to some extent the MFI is exposed to underdeveloped and

changing regulations in a country of high political risk. Liquidity is likely to remain a key weakness for Partner, with

loans accounting for 93% of total assets. Mitigating this risk, however, is MFI's relatively short-term lending profile

compared with commercial banks and that it has more predictable liabilities maturity profile. This is because it is

mainly funded through term facilities from institutions such as the European Bank for Reconstruction and

Development (EBRD; AAA/Stable/A-1+), commercial banks, and structured facilities including Blue Orchard.

Standard & Poor's Ratings Services also considers that the company's funding profile alongside it's market position

benefits from its strategic focus in the microfinance sector. Advantages include access to specialized (and subsidized)

funds and technical assistance from aid agencies. Risk management is currently a key weakness for Partner, as it has

Standard & Poor’s RatingsDirect | May 2, 2008 2

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no formalized department monitoring and relaying risks to the board. The small size of the entity, limited product

range, and good credit risk monitoring and management mitigate this weakness, however.

Outlook

The stable outlook balances Partner's ability to manage its legal transformations while maintaining adequate capital

and profitability to allow for rapid growth. Ratings upside would be predicated by an improving economic and

operating environment in Bosnia, Partner's ongoing transformation process and regulatory changes, while improving

risk management and maintaining its financial profile. Ratings pressure could arise from increased strain on the

MFI's funding profile, weakened asset quality, and a tangible lowering of capital levels.

Profile: A Top-Two Bosnian Microfinance Entity

Tuzla-based Partner Mikrokreditna Organizacija Tuzla (Partner) is a nonprofit-making microfinance institution

operating in the top two of the increasingly competitive Bosnian MFI sector. As at February 2008, the institution

estimated to have a 17% market share in microfinance assets. The microfinance sector accounts for approximately

5% of total banking sector assets.

Partner only provides small short- to medium-term loans (maximum of five years) to the proportion of Bosnian's

economically active that do not otherwise have access to commercial sources of finance. The MFI offers nine lending

products, although the portfolio can affectively be split into microbusiness (80% of lending) and household

improvement loans (10%). The most popular is the entrepreneur loan (50% of total lending), which gives

short-term small value loans for microbusiness purposes. Partner has about 54,000 cliental, all individuals, although

the microbusiness of an individual may have up to four employees including the owner. Bosnian MFI's are not

allowed to take deposits. The institution's social mission has the wide focus of microentrepreneurs, women, and

rural areas. However, although the MFI's prioritizes target clientale, competition has softened the mission focus

somewhat.

Partner operates throughout the two entities and one district that makes up Bosnia and Herzegovina (BIH; Not

rated), but it falls under the jurisdiction of the entity named the Federation of Bosnia & Herzegovina (Federation;

not rated). Partner operates 20 branch offices with 43 satellite field offices attached to them. Money exchange takes

place at 40 commercial bank teller windows and three Partner tellers' windows to minimize transaction risk.

Support And Ownership: In A State Of Flux Due To Internal And ExternalTransformation Pressures

The ratings reflect the institution's stand-alone creditworthiness and do not include any uplift for extraordinary

governmental or external support. The MFI's status as either a microcredit organization (MCO) (or foundation)

ensures no direct owners. Standard & Poor's considers the entity and state authorities to be ambivalent toward the

MFI sector and therefore financial support in a crisis scenario is very unlikely.

Partner was founded in 1997 by Mercy Corps (American charitable foundation; not rated). Instead of taking an

ownership role, Mercy Corps decided to set up a self managed MCO with no direct owners. Nevertheless, Mercy

Corps are entitled to appoint two out of five board members, and is able to strongly influence the decision-making



Partner Mikrokreditna Organizacija Tuzla

processes and protect the social mission through its representatives. The three other board members include two

local financial sector representatives and a deputy director of the Microfinance Center (a multilateral

Non-Government Organization; supporting microfinance companies in Central And Eastern Europe and New

Independent States.

Partner's legal status (as a MCO) is adapting due to changes in legislature on an entity level and some internal

management decisions; exposing the institution to some transformation risk. In the Federation, a MCO is obliged to

transform into a microcredit foundation (MCF) before it can establish a profit-making microcredit company (MCC).

In the Republic of Serbska, MCOs can become a profit-making MCC immediately. MCOs in the Brcko (a district in

Bosnia) can choose its regulatory body. In the federation, both the organization and foundation stages are

nonprofit-making. The authorities in the federation have created the foundation stage to stop asset stripping.

Nevertheless, in Standard & Poor's opinion, the disparate transformation process (between Bosnia and

Herzegovina) ) reflects the heavily bureaucratic regulatory and political situations plaguing the country.

Strategy: To Create A Profit-Making Entity And Attract An Investor Base

Partner's strategic focus is to manage the transformation of the entity into a MCF, then to establish a taxable

profit-making MCC subsidiary by the end of 2009, and a bank by 2012. The MCC will be owned by the Partner

Foundation, Mercy Corps, staff, and possibly additional investors after an IPO in 2009. All assets and most of the

capital will be transferred to the MCC from the MCF upon its creation. The MCC will still focus on Partner's social

mission, while the foundation will take a more advisory and educational development role. Standard & Poor's

expects little disruption from Partner transferring to a MCF.

The key differences between the MCO and MCF stage includes the right to offer more than the basic loans to

beyond the economically disadvantaged, some increased regulation (which is in the process of being formulated),

and a reduction in the largest individual loan amounts that are extended from BAM30,000 to BAM10,000.

When reaching the MCC status, Partner will become a taxable profit-making company for the first time, with a

maximum loan level of BAM50,000. A MFI can only apply for a commercial banking licence after achieving MCC

status and only then will it be able to collect deposits. Standard & Poor's considers plans for Partner to transform

into a bank, taking on a largely foreign owned competitive banking sector, as extremely challenging.

Risk Management

Overall risk management is underdeveloped and considered a ratings weakness. This reflects an absence of a

formulized risk management department to control risk. Good monitoring and management of the credit risk

portfolio, which makes up the majority of Partner's risk profile, however, mitigates this. Asset quality is strong and

credit risks are limited by the short term, low value lending operations.

Enterprise risk management

Partner's enterprise risk management is considered weak. This reflects the absence of a formulized risk management

department, however, the EBRD provides funds and technical assistance to Partner to input a risk management

function by the end of 2008. Credit risk is, however, well monitored and managed. Operational risks are potentially

high and somewhat under evaluated, although they are mitigated by the short- to medium-term small scale nature of




the operations.

Credit risk minimized by strong asset quality and short-term, small-value lending

By the nature of the institution, credit risk dominates Partner's risk profile. Nevertheless, Standard & Poor's

considers the MFI's credit risk profile to be moderate, balancing Partner's strong asset quality, short- to

medium-term (maximum of five years) and small-value (maximum BAM30,000) lending with the inherent risks of

MFI business.

The institution's asset quality is strong. Loans 90 days overdue accounted for 0.27% of the total loan portfolio at

Jan. 31, 2008, while all loans overdue (more than one day) accounted for 1.54% of total loans. Additionally, the

loan loss reserve is conservative covering 234% of gross NPLs at the same date. Nevertheless, loan loss reserves

experienced a significant reduction in January 2008 due to new federation regulations recommending 0% coverage

of the healthy loan portfolio. Loans more than 180 days overdue are written off, but recovery is constantly

monitored.

Due to the nature of MFI lending and a maximum loan amount of BAM30, 000 thousand (€15,000) individual risk

concentrations are moderated. The MFI's social mission and target market creates some industry concentrations,

with agriculture, service business, trade, and housing loans accounting for 35%, 31%, 19%, and 7%, respectively,

of the total lending at Jan. 31, 2008. Partner restricts sector concentrations to 45% of total lending. Credit risks are

also lowered by the small value, short-term nature of the loan portfolio 76.5% of the loan portfolio is less than

BAM10,000 (€5,115) and 79% of loans mature within 36 months. Due to the small scale of the lending operations

and basic inefficiency of such small scale registry, Partner takes very little collateral for lending operations.

However, all loans more than BAM2,500 are supported by guarantors. All lending is in local currency. The loan

portfolio underwriting and management procedures are considered adequate. This view balances the daily

monitoring of the portfolio and adequate underwriting procedures with the decentralized operations, which raises

potential for operational risks of fraud, human error, and security.

Market risks: limited to interest rate risk

Market risks at Partner are limited. The MFI has no trading or securities portfolio. Foreign exchange risk is lowered

by the peg between the euro and the Bosnia and Herzegovina konvertibilna marka, although there is occasional

dollar exposure through subsidized lending. Interest rate risk is constrained through the short-term nature of assets

and liabilities, and frequent monitoring and stress testing. Lending is all extended at fixed rates, but at short terms

and with a clause allowing a variable change if necessary. Liabilities are 72% fixed, 21% floating, and 7%

noninterest bearing; all are short to medium term.

Funding and liquidity: reliant on wholesale market and subsidized funds

Due to the nature of the organization, Partner's liquidity profile is a ratings weakness. The institution is highly

leveraged with gross loans accounting for 93% of total assets, although liquidity is somewhat boosted by the

short-term nature of loans in comparison to funding and the predictability of funding (as there are no volatile

customer deposits). Revolving credit lines are the only emergency liquidity support available to the MFI, 30% of

which are kept on standby at all times. Additionally, the rollover of maturing funds can be predicted accurately due

to the unique funding profile.

Due to a restraint preventing microfinance institutions taking deposits in Bosnia, Partner's funding profile suffers

from a lack of diversity and high concentration risk. However, Standard & Poor's considers Partner's market niche

as a microfinance institution as advantageous for attracting wholesale funds. For example, wholesale funding is




supported by monies provided by international and domestic aid agencies and specialized microfinance or ethical

funds (see chart). The concentrations are high, but this is somewhat mitigated by the profile of the largest fund

providers who are all supportive to MFI enterprises. At Jan. 31, 2008, Blue Orchard (specialist microfinance fund;

not rated) (14%), EBRD (12%), the Agencia Española de Cooperación Internacional (AECI: not rated) (9%), and

Mercy Corps (7%) were the largest fund providers.

Chart

Profitability: Supported By High Interest Rates

With a return-on-assets of 4.8% in 2007, Partner's bottom-line profitability is considered good, although it suffers

from a lack of diversification. At Jan. 31, 2008, net interest income accounted for 98% of core revenues. Other

income includes a small amount of loan fee and service charges, occasional donations by aid agencies and small

foreign-exchange differentials. Reflecting the high interest rates of the loan portfolio and moderate cost of funds, the

interest margins are wide at about 10%-11%. The margins have witnessed some contraction, however, due to

lending competition and increasing funding expenses. This is a key challenge, particularly when it transforms into a

bank.

A steady cost-to-income ratio of about 55% demonstrates that profitability is restrained by a lack of efficiency and

high staff costs--both of which are created by Partners' decentralized operating model that relies on many field credit

officers. Addressing efficiency will become more pressing as margins contract. The cost of risk has not been overly

draining profitability and is expected to remain around current levels in the medium term.

Partners' year-end accounts are prepared according to International Financial Reporting Standard and audited by

Deloitte & Touche. The level of disclosure is adequate.




Capital: Beyond Adequate For Medium-Term Growth

Due the organization's current foundation status, Partner has no shareholders equity. Capital is therefore entirely

made up of reserves (from grants and donations) and retained profits. Nevertheless, according to Standard & Poor's

calculation of adjusted total equity to adjusted assets of 20.28% at Jan. 31, 2008, capital levels are considered

more-than-adequate for medium-term growth prospects. This view is supported by Partners' strong internal capital

generating capabilities, including 100% retention of profits. Although the Mercy Corp's long-term loan could be

counted as a type of subordinated debt, Standard & Poor's does not count Tier 2 debt in its capital calculations.

Positively, Partner comfortably meets the regulatory capital adequacy level of 10% for a MCF in the Federation.

Table 1

Partner Mikrokreditna Organizacija Tuzla Balance Sheet Statistics

--Year ended Dec. 31-- Breakdown as a % of assets (adj.)

(000's BAM) 2007* 2006 2005 2004 2003 - 2007* 2006 2005 2004 2003

Assets

Cash and money marketinstruments

4,138 4,663 2,587 1,781 801 2.40 4.84 4.11 3.72 2.92

Customer loans (gross) 161,433 88,522 56,905 44,170 24,660 93.73 91.95 90.48 92.19 89.91

All other loans 161,433 88,522 56,905 44,170 24,660 93.73 91.95 90.48 92.19 89.91

Loan loss reserves 3,255 1,947 1,444 1,146 648 1.89 2.02 2.30 2.39 2.36

Customer loans (net) 158,178 86,575 55,462 43,024 24,012 91.84 89.93 88.19 89.80 87.54

Earning assets 165,408 93,177 59,489 45,947 25,458 96.04 96.79 94.59 95.90 92.81

Intangibles (nonservicing) 0 0 0 76 19 0.00 0.00 0.00 0.16 0.07

Fixed assets 6,860 4,987 4,240 2,671 2,302 3.98 5.18 6.74 5.58 8.39

Accrued receivables 11 23 15 429 289 0.01 0.02 0.02 0.90 1.06

All other assets 3,049 21 588 6 25 1.77 0.02 0.94 0.01 0.09

Total reported assets 172,236 96,270 62,891 47,987 27,448 100.00 100.00 100.00 100.16 100.07

Less nonservicingintangibles+ I/O strips

0 0 0 (76) (19) 0.00 0.00 0.00 (0.16) (0.07)

Adjusted assets 172,236 96,270 62,891 47,911 27,429 100.00 100.00 100.00 100.00 100.00

Breakdown as a % of liabilities + equity

2007* 2006 2005 2004 2003 2007* 2006 2005 2004 2003

Liabilities

Total deposits¶ 14,750 6,499 8,584 0 0 8.56 6.75 13.65 0.00 0.00

Noncore deposits 14,750 6,499 8,584 0 0 8.56 6.75 13.65 0.00 0.00

Other borrowings 118,170 60,331 34,983 29,952 15,873 68.61 62.67 55.62 62.42 57.83

Other liabilities 6,124 2,658 551 403 452 3.56 2.76 0.88 0.84 1.65

Total liabilities 139,045 69,487 44,118 30,355 16,326 80.73 72.18 70.15 63.26 59.48

Total shareholders' equity 33,191 26,783 18,773 17,631 11,122 19.27 27.82 29.85 36.74 40.52

Common shareholders'equity (reported)

33,191 26,783 18,773 17,631 11,122 19.27 27.82 29.85 36.74 40.52

Reserves (incl. inflationrevaluations)

8,154 18,773 16,014 12,734 8,183 4.73 19.50 25.46 26.54 29.81

Retained profits 25,038 8,010 2,759 4,897 2,940 14.54 8.32 4.39 10.21 10.71




Table 1

Partner Mikrokreditna Organizacija Tuzla Balance Sheet Statistics(cont.)

Total liabilities and equity 172,236 96,270 62,891 47,987 27,448 100.00 100.00 100.00 100.00 100.00

Equity Reconciliation Table

Common shareholders'equity (reported)

33,191 26,783 18,773 17,631 11,122

- Nonservicing Intangibles 0 0 0 (76) (19)

Adjusted common equity 33,191 26,783 18,773 17,556 11,103

+ General Reserves 2,358 0 0 819 490

Adjusted total equity 35,549 26,783 18,773 18,374 11,593

*Data as of fiscal year end. ¶Partner Mikrokreditna Organizacija Tuzla is a nondeposit-taking organization. Total deposits represents short-term commercial lending.

Year-end accounts are audited and prepared according to International Financial Reporting Standards. BAM--Bosnia and Herzegovina konvertibilna marka.

Table 2

Partner Mikrokreditna Organizacija Tuzla Profit And Loss Statement Statistics

--Year ended Dec. 31-- Adj. avg. assets (%)

(000's BAM) 2007* 2006 2005 2004 2003 - 2007* 2006 2005 2004

Profitability

Interest income 23,527 14,657 10,233 7,939 6,342 17.52 18.42 18.47 21.08

Interest expense 6,292 2,761 1,815 823 292 4.69 3.47 3.28 2.18

Net interest income 17,235 11,896 8,418 7,116 6,049 12.84 14.95 15.19 18.89

Operating noninterest income 2,016 1,671 937 836 436 1.50 2.10 1.69 2.22

Fees and commissions 695 1,290 1,318 526 0 0.52 1.62 2.38 1.40

Equity in earnings of unconsolidatedsubsidiaries

214 0 0 0 0 0.16 0.00 0.00 0.00

Trading gains 36 276 (443) 277 86 0.03 0.35 (0.80) 0.74

Other noninterest income 1,072 105 62 33 350 0.80 0.13 0.11 0.09

Operating revenues 19,251 13,567 9,355 7,953 6,485 14.34 17.05 16.89 21.11

Noninterest expenses 10,887 7,342 5,458 4,592 3,314 8.11 9.23 9.85 12.19

Personnel expenses 6,407 4,592 3,284 2,278 2,117 4.77 5.77 5.93 6.05

Other general and administrative expense 3,675 2,178 1,674 1,927 964 2.74 2.74 3.02 5.12

Depreciation 805 572 500 387 234 0.60 0.72 0.90 1.03

Net operating income before loss provisions 8,363 6,225 3,897 3,360 3,171 6.23 7.82 7.03 8.92

Credit loss provisions (net new) 1,955 1,262 1,688 430 232 1.46 1.59 3.05 1.14

Net operating income after loss provisions 6,408 4,963 2,209 2,930 2,940 4.77 6.24 3.99 7.78

Nonrecurring/special income 0 3,047 570 350 0 0.00 3.83 1.03 0.93

Nonrecurring/special expense 0 0 20 0 0 0.00 0.00 0.04 0.00

Pretax profit 6,408 8,010 2,759 3,280 2,940 4.77 10.07 4.98 8.71

Net income before minority interest 6,408 8,010 2,759 3,280 2,940 4.77 10.07 4.98 8.71

Net income before extraordinaries 6,408 8,010 2,759 3,280 2,940 4.77 10.07 4.98 8.71

Net income after extraordinaries 6,408 8,010 2,759 3,280 2,940 4.77 10.07 4.98 8.71

Core Earnings Reconciliation

Net Income (before Minority Interest) 6,408 8,010 2,759 3,280 2,940

- Nonrecurring/Special Income 0 (3,047) (570) (350) 0

+ Nonrecurring/Special Expense 0 0 20 0 0




Table 2

Partner Mikrokreditna Organizacija Tuzla Profit And Loss Statement Statistics(cont.)

Core earnings 6,408 4,963 2,209 2,930 2,940 4.77 6.24 3.99 7.78

2007* 2006 2005 2004 2003

Asset Quality

Nonperforming assets 391 304 326 58 29

Nonaccrual loans 391 304 326 58 29

Classified loans (substandard, doubtful, loss) 2,280 N.A. N.A. N.A. N.A.

Net charge-offs 603 840 1,456 44 19

Average balance sheet

Average customer loans 122,377 71,019 49,243 33,518 N.A.

Average earning assets 129,293 76,333 52,718 35,703 N.A.

Average assets 134,253 79,580 55,439 37,717 N.A.

Average total deposits 10,624 7,541 N.A. N.A. N.A.

Average interest-bearing liabilities 99,875 55,198 36,759 22,913 N.A.

Average common equity 29,987 22,778 18,202 14,377 N.A.

Average adjusted assets 134,253 79,580 55,401 37,670 N.A.

Other data

Number of employees (end of period, actual) 240 169 134 125 93

Number of branches 43 43 37 33 26

Off-balance-sheet credit equivalents N.A. N.A. 181 160 124

*Data as of fiscal year end. Year-end accounts are audited and prepared according to International Financial Reporting Standards. BAM--Bosnia and Herzegovina

konvertibilna marka. N.A.--Not available.

Table 3

Partner Mikrokreditna Organizacija Tuzla Ratio Analysis

--Year ended Dec. 31--

2007* 2006 2005 2004 2003

ANNUAL GROWTH (%)

Customer loans (gross) 82.36 55.56 28.83 79.11 N.A.

Loss reserves 67.21 34.86 25.99 76.92 N.A.

Adjusted assets 78.91 53.07 31.27 74.67 N.A.

Total equity 23.93 42.67 6.47 58.52 N.A.

Operating revenues 41.90 45.02 17.64 22.62 N.A.

Noninterest expense 48.29 34.51 18.85 38.56 N.A.

Net operating income before provisions 34.36 59.73 15.98 5.96 N.A.

Loan loss provisions 54.94 (25.25) 292.26 85.86 N.A.

Net operating income after provisions 29.12 124.69 (24.61) (0.33) N.A.

Pretax profit (20.00) 190.36 (15.89) 11.58 N.A.

Net income (20.00) 190.36 (15.89) 11.58 N.A.

2007* 2006 2005 2004 2003

PROFITABILITY (%)

Interest Margin Analysis




Table 3

Partner Mikrokreditna Organizacija Tuzla Ratio Analysis(cont.)

Net interest income (taxable equiv.)/avg. earning assets 13.33 15.58 15.97 N.A. N.A.

Net interest spread 11.90 14.20 14.47 N.A. N.A.

Interest income (taxable equiv.)/avg. earning assets 18.20 19.20 19.41 N.A. N.A.

Interest income on loans/avg. total loans 19.23 20.64 20.78 23.69 N.A.

Interest expense/avg. interest-bearing liabilities 6.30 5.00 4.94 3.59 N.A.

Revenue Analysis

Net interest income/revenues 89.53 87.68 89.98 89.48 93.28

Fee income/revenues 3.61 9.51 14.09 6.61 0.00

Market-sensitive income/revenues 0.19 2.03 (4.73) 3.49 1.32

Noninterest income/revenues 10.47 12.32 10.02 10.52 6.72

Personnel expense/revenues 33.28 33.85 35.10 28.64 32.64

Noninterest expense/revenues 56.56 54.12 58.34 57.75 51.10

Noninterest expense/revenues less investment gains 56.56 54.12 58.34 57.75 51.10

Net operating income before provision/revenues 43.44 45.88 41.66 42.25 48.90

Net operating income after provisions/revenues 33.29 36.58 23.61 36.84 45.32

New loan loss provisions/revenues 10.16 9.30 18.05 5.41 3.57

Net nonrecurring/abnormal income/revenues 0.00 22.46 5.88 4.40 0.00

Pretax profit/revenues 33.29 59.04 29.49 41.24 45.32

Core Earnings/Revenues 33.29 36.58 23.61 36.84 45.32

2007* 2006 2005 2004 2003

Other Returns

Net operating income before LLP/LLP 427.78 493.32 230.84 780.76 1369.47

Net income before minority interest/avg. adjusted assets 4.77 10.07 4.98 8.71 N.M.

Non-interest expenses/average adjusted assets 8.11 9.23 9.85 12.19 N.A.

Cash earnings/avg. tang. common equity (ROE) (%) 24.06 37.68 17.94 25.59 N.A.

Core earnings/average adjusted assets 4.77 6.24 3.99 7.78 N.A.

Core earnings/ Average ACE (ROE) 21.37 21.79 12.16 20.45 N.A.

2007* 2006 2005 2004 2003

FUNDING AND LIQUIDITY (%)

Total loans/customer deposits + long-term funds 185.83 153.76 150.00 112.41 99.85

Customer loans (net)/assets (adj.) 91.84 89.93 88.19 89.80 87.54

2007* 2006 2005 2004 2003

CAPITALIZATION (%)

Internal capital generation/prior year's equity 23.93 42.67 15.65 29.49 N.A.

Regulatory total capital ratio 14.50 19.30 21.70 23.50 N.A.

Adjusted total equity/adjusted assets 20.64 27.82 29.85 38.35 42.27

Adjusted total equity/adjusted assets + securitizations 20.64 27.82 29.85 38.35 42.27

Adjusted total equity plus LLR (specific)/customer loans (gross) 22.58 32.45 35.53 42.34 47.65

2007* 2006 2005 2004 2003

ASSET QUALITY (%)

New loan loss provisions/avg. customer loans (net) 1.60 1.78 3.43 1.28 N.A.




Table 3

Partner Mikrokreditna Organizacija Tuzla Ratio Analysis(cont.)

Net charge-offs/avg. customer loans (net) 0.49 1.18 2.96 0.13 N.A.

Loan loss reserves/customer loans (gross) 2.02 2.20 2.54 2.59 2.63

Gen. loan loss reserves/customer loans (net of specifics) 1.47 0.00 0.00 1.87 2.00

Nonperforming assets (NPA)/customer loans + ORE 0.24 0.34 0.57 0.13 0.12

NPA (excl. delinquencies)/customer loans + ORE 0.24 0.34 0.57 0.13 0.12

Net NPA/customer loans (net) + ORE (1.81) (1.90) (2.02) (2.53) (2.58)

NPA (net specifics)/customer loans (net specifics) (0.32) (1.90) (2.02) (0.61) (0.53)

Loan loss reserves/NPA (gross) 831.77 641.41 443.03 1969.72 2267.41

*Data as of fiscal year end. Year-end accounts are audited and prepared according to International Financial Reporting Standards. BAM--Bosnia and Herzegovina

konvertibilna marka. N.A.--Not available. N.M.--Not meaningful.

Ratings Detail (As Of May 2, 2008)*


Counterparty Credit Rating B/Stable/B

Counterparty Credit Ratings History

29-Apr-2008 B/Stable/B

*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard

& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.

Additional Contact:Financial Institutions Ratings Europe; [email protected]

Additional Contact:Financial Institutions Ratings Europe; [email protected]




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