Annual Report 2007

Annual Report 2007

A n n u a l R e p o r t 2 0 0 7
Key Figures
USD ’000 2007 2006* Change
Balance Sheet Data
Total Assets 218,315 132,535 65%
Gross Loan Portfolio 184,375 110,772 66%
Business Loan Portfolio 162,369 99,006 64%
USD < 10,000 76,365 50,780 50%
USD > 10,000 < 50,000 62,501 38,290 63%
USD > 50,000 < 150,000 18,136 8,508 113%
USD > 150,000 5,367 1,428 276%
Agricultural Loan Portfolio 19,508 10,846 80%
Housing Improvement Loan Portfolio 1,932 636 204%
Other 566 284 99%
Allowance for Impairment on Loans 5,493 3,853 43%
Net Loan Portfolio 178,882 106,919 67%
Liabilities to Customers 78,216 45,125 73%
Liabilities to Banks and Financial Institutions 76,714 35,185 118%
Shareholders’ Equity 18,191 8,843 106%
Income Statement
Operating Income 21,502 13,078 64%
Operating Expenses 18,329 10,968 67%
Operating Profit Before Tax 3,173 2,110 50%
Net Profit 2,850 1,546 84%
Key Ratios
Cost/Income Ratio 74.52% 70.64% 5%
ROE 21.08% 18.11% 16%
Capital Ratio 13.30% 12.46% 7%
Operational Statistics
Number of Loans Outstanding 57,581 39,350 46%
Number of Loans Disbursed within the Year 54,990 40,808 35%
Number of Business and Agricultural Loans Outstanding 57,163 39,170 46%
Number of Deposit Accounts 100,952 42,945 135%
Number of Staff 813 555 46%
Number of Branches and Outlets 25 18 39%
* Some figures differ from those in the 2006 annual report
as they have been adjusted to reflect new calculation
methods.

Mission Statement 4
Letter from the Board of Directors 5
The Bank and its Shareholders 6
The ProCredit Group – Neighbourhood Banks for Ordinary People 8
ProCredit in Latin America 11
Highlights in 2007 14
Management Business Review 16
Special Feature 26
Risk Management 28
Branch Network 30
Organisation, Staff and Staff Development 32
Business Ethics and Environmental Standards 35
Our Clients 36
Financial Statements 40
Contact Addresses 66
C o n t e n t s

M i s s i o n S tat e m e n t
Mission Statement
Banco ProCredit Ecuador is a development-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 very small, small and medium-sized enterprises, as we are con-
vinced that these businesses create the largest number of jobs and make a vital contri-
bution to the economies in which they operate.
Unlike other banks, our bank does not promote consumer loans. Instead we focus on
responsible banking, by building a savings culture and long-term partnerships with our
customers.
Our shareholders expect a sustainable return on investment, but are not primarily inter-
ested in short-term profit maximisation. We invest extensively in the training of our staff
in order to create an enjoyable and efficient working atmosphere, and to provide the
friendliest and most competent service possible for our customers.

Letter from the Board of Directors
The bank’s business developed favourably in 2007, as indicated by a 66% increase in the volume of its loan portfolio
and a 46% rise in the number of loans outstanding. The year also saw a 73% increase in deposits from local customers
and an impressive 135% rise in the number of accounts. The bank’s deposit accounts are mainly held by small savers,
underscoring its progress in promoting a savings culture among low- and middle-income segments of society – an
important mission for the institution.
This growth occurred within the context of changes to the institutional and legal framework for business, and adjust-
ments to the Ecuadorian financial regulatory system, which were introduced by the new government. As a result of
these changes, the banking system as a whole reduced the scope of its lending, creating opportunities that allowed
Banco ProCredit to expand its market share.
Although Banco ProCredit is a small bank, accounting for only 1.6% of total assets in the country’s banking system, it
ranked fourth in terms of overall portfolio growth, outperforming several major banks. Even more importantly, it was
the leader in terms of growth in business lending, since other financial institutions concentrated primarily on con-
sumer and housing loans. Our bank has shown itself to be a major player in the provision of loans to small businesses
in Ecuador, accounting in 2007 for around 20% of the growth in the total volume of loans outstanding to very small
businesses, and increasing its share of this market segment to 12%.
Banco ProCredit’s solid performance was recognised by the risk rating firm BankWatch Ratings (affiliated with
FitchRatings), which in June 2007 decided to upgrade the bank’s institutional rating to “AA+” and the rating of its com-
mercial paper programmes to “AAA-”, making us one of the best rated banks in the country. These ratings were based,
among other factors, on Banco ProCredit’s ability to compete in its target segment, its strength as an institution, the
solid reputation of its shareholders, the high quality of its assets and its loan portfolio, its access to external fund-
ing, and the fact that it uses a lending methodology whose soundness has been demonstrated in Ecuador and other
countries. Another important factor in this context was the willingness of the bank’s majority shareholder, ProCredit
Holding AG, to provide financial backing for its operations and for those of the other institutions around the world
which belong to the ProCredit group.
In addition to achieving favourable results in its business operations, the bank also made considerable progress in
meeting qualitative goals, such as strengthening its organisational structure, at both the head office and branch
levels. This helped create a foundation for the bank’s sustainable growth and the continued high quality of its cus-
tomer service, positioning it as a financial institution that provides an integrated range of services in all regions of
the country.
We also focused on further strengthening the commitment of all members of the bank’s staff to the “neighbourhood
bank” philosophy, which sets us apart from other institutions in the Ecuadorian banking system. This approach
underscores our dedication to promoting a culture of saving based on accessibility, security and high-quality service
as defining characteristics of our institution.
To promote and support the training and development of its staff, the bank undertook major investments in training as
a key element of its strategy. In 2007, expenditures in this area exceeded one million dollars. The bank strengthened
its local training capabilities, and employees continued to participate in the programmes at the ProCredit Academy in
Germany and the ProCredit Regional Academy for Latin America in Nicaragua. In addition, we increased the number
of options available to our staff to improve their English language skills, and maintained staff exchange programmes
with other banks in the group. Staff exchanges are an excellent way of recognising, training and motivating those staff
members at all levels of the organisation who demonstrate exceptional performance and an outstanding attitude.
In 2007 it was particularly gratifying for Banco ProCredit Ecuador to help provide training and advice to support the
establishment of ProCredit operations in neighbouring Colombia, both by hosting staff from Colombia and by sending
some of our own staff to that country.
In line with our vision as an institution, we seek to become the country’s leading bank in the provision of financial
services to very small, small and medium-sized enterprises, and to private individuals in the low- and middle-in-
come brackets. Our business model is based on the principles of socially responsible banking, which focus on
building long-term relationships with customers. Our performance to date and Ecuadorians’ growing awareness
of Banco ProCredit and its services provide the basis for planned rapid growth during 2008. We believe that we
have the resources and capacity to substantially expand our business in the coming year, and we will make every
effort to ensure that we succeed in achieving these goals.
Gabriel Schor
Chairman of the Board of Directors
L e t t e r f r o m t h e B o a r d o f D i r e c t o r s
Members of the
Board of Directors as at
December 31, 2007:
Directors
Gabriel Schor (Chairman)
Mariano Larena
Barbara van Oven
Helen Alexander
Gabriele Heber
Alternate Directors
Pablo González
Rochus Mommartz
Claus-Peter Zeitinger
Anja Lepp
Manuel Buriticá
Management Board
as at December 31, 2007:
Pedro Arriola
Janet Pacheco
Edwin Andrade
Alexandra Carvajal
Jana Donath
Mónica Flores
Ligia Sandoval
Oscar Villaseca

A n n u a l R e p o r t 2 0 0 7
The Bank and its Shareholders
Banco ProCredit Ecuador is part of the ProCredit
group, which is led by its Frankfurt-based parent
company, ProCredit Holding. ProCredit Holding
is the majority owner of Banco ProCredit
Ecuador and holds 87.9% of the shares. In 2007
ProCredit Holding acquired the shares owned
by IPC, slightly increasing its holding in Banco
ProCredit Ecuador and reconfirming its commitment
to the institution. IPC was one of the bank’s
founding shareholders and will retain its involvement
in the bank’s future development through
its shareholding in ProCredit Holding.
Banco ProCredit Ecuador was founded in October
2001, under the name Sociedad Financiera Ecuatorial,
by an alliance of international developmentoriented
investors. Their goal was to establish a
new kind of financial institution that would serve
the demand of small and very small businesses in
Shareholder
(as of Dec. 31, 2007)
ProCredit Holding
DOEN
Total Capital
Sector
Investment
Investment
ProCredit Holding is the
parent company of a global
group of 22 ProCredit banks. ProCredit Holding
was founded as Internationale Micro Investitionen
AG (IMI) in 1998 by the pioneering development
finance consultancy company IPC.
ProCredit Holding is committed to expanding
access to financial services in developing countries
and transition economies by building a
group of banks that are the leading providers of
fair, transparent financial services for very small,
small and medium-sized businesses as well as
the general population in their countries of operation.
In addition to meeting the equity needs of its
subsidiaries, ProCredit Holding guides the development
of the ProCredit banks, provides their
senior management, and supports the banks in
all key areas of activity, including banking operations,
human resources and risk management. It
ensures that ProCredit corporate values, bestpractice
banking operations and Basle II risk
management principles are implemented groupwide.
a socially responsible way. The primary aim was
not short-term profit maximisation but rather to
deepen the financial sector and contribute to longterm
economic development while also achieving
a sustainable return on their investment.
The founding shareholders of Banco ProCredit
Ecuador were ProCredit Holding, DOEN Foundation
and IPC, with IPC providing the bank’s executive
management. Over the years, ProCredit
Holding, working closely with IPC, has consolidated
the ownership and management structure
of all the ProCredit banks to create a truly global
group with a clear shareholder structure and to
bring to each of the ProCredit institutions all the
synergies and benefits that this implies. Today’s
shareholder structure of Banco ProCredit Ecuador
is outlined below. The bank’s share capital as
of December 2007 was USD 17.125 million.
Headquarters
Germany
The Netherlands
Share
87.9%
12.1%
100%
Paid-in Capital
(in USD)
15,045,000
2,080,000
17,125,000
IPC is the leading shareholder and strategic
investor in ProCredit Holding. IPC has been
the driving entrepreneurial force behind the
ProCredit group since the foundation of the
banks. Historically, IPC provided the senior managers
of the ProCredit banks. At the end of 2007,
IPC staff were integrated into ProCredit Holding,
significantly strengthening the company’s ability
to support the ProCredit group.
ProCredit Holding is a public-private partnership.
In addition to IPC and IPC Invest (the
investment vehicle of the staff of IPC and
ProCredit), the other private shareholders of
ProCredit Holding include the Dutch DOEN Foundation,
the US pension fund TIAA-CREF, the US
Omidyar-Tufts Microfinance Fund, the Swiss investment
fund responsAbility and the Salvadoran
company Fundasal. The public shareholders of
ProCredit Holding include KfW (the AAA-rated
German promotional bank), IFC (the AAA-rated
private sector arm of the World Bank), FMO (the
Dutch development bank) and BIO (the Belgian
development fund).

ProCredit Holding has an investment grade rating
(BBB-) from Fitch Ratings Agency. As of the end
of 2007, the equity base of the ProCredit group
is EUR 333.2 million. The total assets of the
ProCredit group are EUR 4.1 billion.
Stichting DOEN – Postcode
Loterij/Sponsor Loterij/Bank-
Giro Loterij was set up in 1991 to promote a liveable
world in which everyone can play a part. To
that end DOEN invests in and subsidises initiatives
in the fields of sustainable development,
culture, welfare and social cohesion. DOEN funds
its activities from annual contributions received
under long-term contracts from its founder, the
Nationale Postcode Loterij, and two other Dutch
charity lotteries, the BankGiro Lottery and the
Sponsor Bingo Lottery.
Th e B a n k a n d i t s S h a r e h o l d e r s
Since 1994 DOEN Foundation finances entrepreneurial
and sustainable initiatives that improve
access to the financial sector in countries in
transition and developing countries. DOEN has a
preference for long-term strategic partnerships.
In 1998 it started working with ProCredit Holding
and has since been a strategic investor.

A n n u a l R e p o r t 2 0 0 7
The ProCredit Group – Neighbourhood Banks for Ordinary People
The ProCredit group currently comprises 22 target
group-oriented banks operating in as many
countries. We focus on developing countries and
transition economies in three regions: Eastern Europe,
Latin America and Africa. The group has 622
branches staffed by 16,800 employees. Currently,
ProCredit banks disburse more than 75,000
loans totalling more than EUR 236 million every
month. By the end of 2007, the number of loans
outstanding had grown to 926,000 (amounting
to EUR 2.8 billion, an increase of 34% over the
year). The average loan amount outstanding is
EUR 3,045, and the loan portfolio quality remains
excellent, with a ratio of loans in arrears (>30 days)
to total loan portfolio of only 1.4%. Over 2007,
the group’s deposit base increased from EUR 1.8
billion to EUR 2.5 billion, an increase of 37%. The
number of accounts increased by 900,000.
But what do these facts and figures mean and
what is ProCredit trying to achieve? ProCredit is
building a global group of neighbourhood banks.
But what is a neighbourhood bank? Wherever we
are, we aim to be the accessible, trusted, socially
responsible bank for local small businesses and
“ordinary” people who live and work in the area.
In our lending business, we focus on very small,
small and medium-sized enterprises. At the same
time ProCredit provides retail banking services
to ordinary people, with a focus on low-income
families. In this way we aim to be the long-term
banking partner for target groups which most
conventional commercial banks neglect. By providing
socially responsible products, we aim to
contribute to the economic development of the
countries in which we work.
In the developing countries and transition economies
in which the ProCredit group operates,
conventional commercial banks tend to neglect
small and very small businesses because they
are thought to keep inadequate records, have
insufficient collateral and generate high administrative
costs. However, these businesses are
the main engine of economic growth and job creation.
Over the years, the ProCredit group and
IPC, which developed the lending methodology
used by the ProCredit group, have gained a profound
understanding of both the problems faced
by small businesses and the opportunities available
to them, and have tailored the credit technology
to reflect the realities of their operating envi-
ronment. Thanks to this credit technology, which
combines careful analysis of all credit risks with
a high degree of standardisation and efficiency,
ProCredit institutions are able to reach a large
number of small borrowers.
In contrast to ProCredit, other commercial banks
give priority in their lending operations to corporate
finance and consumer lending, especially
the latter. Consumer finance is attractive to those
banks because it usually does not require skilled
staff or much financial analysis of the client,
allowing banks focused on market share to grow
quickly. However, this quest for market share can
lead to irresponsible lending and over-indebtedness
on the part of the client. ProCredit never forgets
that a loan is also a debt. The recent events
around the US subprime mortgage crisis are an
important reminder of the social and economic
consequences of inappropriate lending behaviour.
In contrast, we place great emphasis on the
careful evaluation of a borrower’s debt capacity
and on building lasting relationships. In this way,
ProCredit is characterised by a responsible, longterm
attitude towards business development and
client relationships.
Furthermore, ProCredit institutions strive to foster
a savings culture. We aim to build public confidence
in banks by setting new standards in customer
service, transparency and business ethics.
ProCredit deposit facilities are appropriate for a
broad range of customers, especially low-income
groups. We offer simple savings products with no
minimum deposit requirement. Eighty percent of
all deposit accounts have a balance of less than
EUR 100. This illustrates our target-group orientation
and highlights the challenge of serving
this target group of small savers who account for
only 1% of our total deposit volume. In the spirit
of a neighbourhood bank, ProCredit banks place
great emphasis on children’s savings products
and education campaigns as well as on sponsoring
local community events. In addition to deposit
facilities, clients are offered a full range of
standard non-credit banking services.
The shareholders of the group aim to strike the
right balance between their prime developmental
goals: reaching as many small enterprises and
small savers as possible, and achieving commercial
success. For 2007, the return on equity for

the group as a whole, expressed in hard currency
after deduction of profit taxes, is 12.6%.
And who are the shareholders behind the
ProCredit group? The ProCredit group is led by the
Frankfurt-basedProCreditHoldingAG,foundedby
the consulting firm IPC in 1998. In Eastern Europe,
EBRD and Commerzbank, and in Latin America,
the IDB, also participate as minority shareholders.
ProCredit Holding is a public-private partnership,
led by IPC and by IPC Invest, the investment
vehicle of the staff of IPC and ProCredit. The other
private shareholders of ProCredit Holding include
the Dutch DOEN Foundation, the US pension fund
TIAA-CREF, the US Omidyar-Tufts Microfinance
Fund and the Swiss investment fund respons-
Ability. The public shareholders include KfW, IFC,
FMO and BIO.
ProCredit
Mexico
Banco ProCredit
Honduras
Banco ProCredit
El Salvador
Banco ProCredit
Nicaragua
ProCredit Services
Colombia
Banco ProCredit
Ecuador
Banco Los Andes
ProCredit Bolivia
P r o C r e d i t G r o u p – N e i g h b o u r h o o d B a n k s f o r O r d i n a r y P e o p l e
ProCredit Holding not only provides equity to its
subsidiaries, but also guides the development of
the ProCredit banks, provides their senior management,
and supports the banks in all key areas
of activity. Historically, IPC staff managed the
ProCredit institutions, building them to what they
are today. At the end of 2007, IPC staff were integrated
into ProCredit Holding, greatly strengthening
its ability to support the group. The holding
company ensures that ProCredit corporate values,
best-practice banking operations and Basle
II risk management principles are implemented
group-wide. Plans are underway to bring the
ProCredit group under the supervision of the
German federal banking supervisory authority
(BaFin) in 2008.
ProCredit Bank Serbia
ProCredit Bank
Bosnia and Herzegovina
ProCredit Bank Kosovo
ProCredit Bank Albania
ProCredit Bank Macedonia
ProCredit Bank
Sierra Leone
ProCredit
Savings and Loans Ghana
ProCredit Bank
Democratic Republic of Congo
Banco ProCredit Mozambique
ProCredit Bank Ukraine
ProCredit Moldova
ProCredit Bank Romania
ProCredit Bank Kyrgyzstan
(planned)
ProCredit Bank Georgia
ProCredit Bank Armenia
ProCredit Bank Bulgaria

10
A n n u a l R e p o r t 2 0 0 7
ProCredit Holding is deeply involved in human
resource management. The neighbourhood bank
concept is not limited to our target customers
and how we reach them, it is also about our staff:
how we work with one another and how we work
with our customers. The neighbourhood bank
approach requires a high degree of decentralised
decision-making and therefore judgement and
creativity from all staff, especially our branch
managers. Our corporate values embed principles
such as honest communication, transparency
and professionalism into our day-to-day
business. Key to our success is therefore the right
selection and training of staff. We maintain a corporate
culture that harnesses the creativity and
entrepreneurial spirit of our staff, while fostering
their deep sense of personal and social responsibility.
This entails not only intensive training in
technical and management skills, but also a continuous
exchange of personnel among our member
institutions in order to take full advantage
of the opportunities for staff development that
are created by their participation in a truly international
group.
A central plank in our approach to training is the
group’sProCreditAcademyinGermany,whichprovides
a three-year, part-time “ProCredit Banker”
training programme for high-potential personnel
from each of the ProCredit institutions. The programme
includes intensive technical training and
also exposes participants to a very multicultural
learning environment and to subjects such as
anthropologyandthehumanities.Theprogramme
provides an opportunity for our future leaders to
develop their views of the world, as well as their
communication and staff management skills. The
professional development of local middle managers
is further supported by three regional academies
in Latin America, Africa and Eastern Europe,
which provide similar off-site training for a larger
number of people.
The group’s strategy is to continue its very rapid
growth in order to meet the large unmet demand
for financial services from its target groups. The
continued success of ProCredit relies on a selfconfident
team of people who share a personal
commitment to the target group, to fast growth
and to the neighbourhood way of doing things.

ProCredit in Latin America
Microfinance is reaching a critical point in its
development in Latin America. It has a twentyyear
history in the region, which is a relatively
long period of time. And yet financial services
are still failing to meet the demands of the vast
majority of ordinary people. There is widespread
disaffection about the benefits that the liberalisation
of the trade and financial sectors has
really brought. Today “banking the un-banked” is
a high-profile political priority across the region.
Yet, there are relatively few players that are meeting
this challenge in a responsible way. The result
is a trend toward government intervention
in microfinance. This is understandable in a situation
where banking sectors are not seen to be
meeting the needs of the majority. However, history
has shown this usually to be an unsuccessful
approach which undermines sustainable target
group-oriented institutions.
Commercial banks are aggressively entering
Latin American markets. However, all too often
they are doing so by engaging in aggressive consumer
lending. Typically this is based on little
or no analysis of a customer’s ability to repay a
loan, and therefore comes with an inherent risk of
widespread over-indebtedness and default.
On the other hand, most NGOs have found it difficult
to scale up their efforts or to create truly
sustainable institutions with strong owners
and managers. Most therefore remain small,
inefficient and uncertain about their long-term
future. Others are being targeted for acquisition
by consumer finance-oriented banks or even
state-owned banks. However, acquisitions of this
kind are unlikely to support a sustainable commitment
to the target group.
In this context, the challenge for the ProCredit
group is to be the standard bearer that demonstrates
that responsible commercial banking
can bring real benefits for very small and small
businesses and ordinary people on a large scale.
ProCredit is quite clearly different from other “microfinance”
players. ProCredit banks are significantly
more efficient and more dynamic than
the weak NGOs. And as fully fledged banks, able
to gather deposits, we can reach larger scale.
In 2007, the loan portfolio volume of ProCredit
banks in Latin America grew by over 44%, well
P r o C r e d i t i n L at i n A m e r i c a 11
ahead of the rate at which the region’s banking
sectors are growing.
We have significantly more experience in extending
small loans and serving the target group than
conventional commercial banks. ProCredit banks
specialise in lending to enterprises – very small,
small and medium-sized enterprises – which
are being neglected in the battle for consumer
finance customers. At ProCredit, we place great
emphasis on the careful evaluation of a borrower’s
debt capacity and on building lasting relationships
– we never forget that a loan is also a
debt. The very high quality of our loan portfolio
testifies that ProCredit is characterised by a responsible,
long-term attitude towards business
development.
ProCredit is establishing itself as the “neighbourhood
bank” for small entrepreneurs, small
businesses, and low-income families. We aim to
set new standards in terms of accessibility and
transparency for our banks’ customers.
Given our unique positioning, our strategy has
been to strengthen our presence across the region.
In 2007 alone we began operations in three
new countries: Honduras, Mexico and Colombia.
These countries have a combined population of
some 160 million and a level of loans and deposits
to GDP of below 30%, indicating a very low level
of access to financial services. The ProCredit
group is currently present in seven countries and
has 340,000 outstanding loans in the region.
Across Latin America we operate as an integrated
group of banks with the same products and high
quality of services. This means that we can serve
our business customers wherever they are, since
many operate across borders.
We are proud that 2007 saw a dramatic increase
not only in our lending activities and our regional
presence, but also in the number of people who
have chosen to open a savings account with a
ProCredit bank – the number of accounts almost
doubled over the year and now stands at 643,000.
We are also working with families receiving remittances
to put their regular cash flows to more productive
use, for example in the form of savings or
housing improvement loans.

1
A n n u a l R e p o r t 2 0 0 7
Mexico
Belize
Honduras
Guatemala
El Salvador
Costa Rica
Haiti
Dominican Republic
Jamaica Puerto Rico
Nicaragua
Panama
Cuba
Ecuador
Our staff is the key to our institutions’ success in
their role as responsible neighbourhood banks
for enterprises and ordinary people across the
region. Investment in training, regional staff exchange
programmes and building a strong sense
of corporate identity based on our shared corporate
values is a priority for ProCredit in Latin
America. Investment in our staff not only means
developing technical skills. It also means developing
the communication culture and management
skills needed to underpin a truly ethical
approach to business development across the
region. A target group-oriented bank requires devolved
decision-making and strong managers at
every level. A high degree of internal and external
transparency, in terms of the way we communicate
with one another and with our customers, is
central to our strategy of scaling up our approach
Peru
Colombia
Chile
Venezuela
Bolivia
Argentina
Guyana
Suriname
Paraguay
Uruguay
French Guyana
Brazil
and expanding our outreach. These demands on
staff mean we put a strong emphasis on training.
The ProCredit Regional Academy in Nicaragua,
established in 2006, has proved to be very successful.
Already, 114 local managers from across
the region are participating in the twelve-week
programme, which takes place over the course of
two years. In autumn 2007, the Academy celebrated
the graduation of its first class of 40 students.
Our strategy going forward is to continue to build
our institutions and significantly increase outreach
in the seven countries in which we operate.
In so doing we can bring much-needed responsible
banking to a larger number of people and
firmly establish ourselves as the regional bank of
choice for small businesses and ordinary people
across Latin America.

Name
Banco Los Andes ProCredit
Bolivia
ProCredit Services
Colombia
Banco ProCredit
Ecuador
Banco ProCredit
El Salvador
Banco ProCredit
Honduras
ProCredit
Mexico
Banco ProCredit
Nicaragua
Highlights*
Founded in July 1995
(bank since January 2005)
42 branches
105,032 loans / USD 272.7 million in loans
204,990 deposit accounts / USD 206.5 million
1,340 employees
Founded in December 2006
(operational since September 2007)
9 branches
1,246 loans / USD 2.4 million in loans
173 employees
Founded in October 2001
(bank since September 2004)
25 branches
57,581 loans / USD 184.4 million in loans
87,214 deposit accounts / USD 78.2 million
807 employees
Founded in March 1995
(bank since June 2004)
37 branches
87,117 loans / USD 165.6 million in loans
184,005 deposit accounts / USD 154.5 million
956 employees
Founded in June 2007
(operational since June 2007)
5 branches
3,156 loans / USD 4.4 million in loans
8,087 deposit accounts / USD 2.5 million
168 employees
Founded in November 2006
(operational since June 2007)
6 branches
2,334 loans / USD 4.7 million in loans
156 employees
Founded in August 2000
(bank since October 2005)
29 branches
84,240 loans / USD 128.5 million in loans
158,318 deposit accounts / USD 56.9 million
790 employees
* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with group-
wide standards; they may differ from the figures reported in the bank’s local GAAP statements.
Contact
P r o C r e d i t i n L at i n A m e r i c a 1
Av. Cristo Redentor nro. 3730
(entre cuarto y quinto anillo)
Santa Cruz
Tel.: +591 3 341-2901
Fax: +591 3 341-2719
contactanos@losandesprocredit.com.bo
www.losandesprocredit.com.bo
Av. Calle 39 N. 13 A-16
Bogotá
Tel.: +57 1 5978480 / 5954040
Fax: +57 1 2450738
informacion@procredit.com.co
Av. Amazonas y Atahualpa esquina
Quito
Tel.: +593 2 600 38 20
Fax: +593 2 600 38 19
info@bancoprocredit.com.ec
www.bancoprocredit.com.ec
Boulevard Constitución y 1a.
Calle Poniente # 3538 (Col. Escalón)
San Salvador
Tel.: +503 2267 4400
Fax: +503 2267 4500
info@bancoprocredit.com.sv
www.bancoprocredit.com.sv
Colonia Tepeyac, Av. Las Minitas
Edificio ProCredit, Apartado Postal 3576
Tegucigalpa M.D.C.
Tel.: +504 290 10 10
Fax: +504 290 10 99
procredit@procredit.com.hn
www.procredit.com.hn
Boulevard García de León No. 1707
Colonia Chapultepec Oriente, Morelia
C.P. 58260 Morelia Michoacán
Tel.: +52 443 232 73 00
Fax: +52 443 204 19 00
procredit@procredit.com.mx
Rotonda El Güegüense
75 vrs. al sur
Managua
Tel.: +505 255 76 76
Fax: +505 268 16 30
procredit@procredit.com.ni
www.procredit.com.ni

1
A n n u a l R e p o r t 2 0 0 7
Highlights in 2007
• The bank’s institutional risk rating was upgraded
to “AA+”, and its commercial paper
programme was given an “AAA-” rating.
• Banco ProCredit Ecuador organised and implemented
various regional seminars for all
of the ProCredit institutions in Latin America.
The topics covered included deposits and
banking services, auditing, the prevention of
money laundering, SME lending, accounting
and finance, and IT departments.
• The bank carried out a savings campaign,
leading to a 100% increase in the number of
new accounts opened per month.
• The bank established new divisions and departments
at the head office and strengthened
its organisational structure at the branch
level.
• Geographical outreach was expanded, with
seven branches being opened.

• The bank’s paid-in capital increased by USD
8.5 million.
• Banco ProCredit Ecuador signed agreements
to become a member of the MasterCard and
SWIFT systems.
• An agreement was signed with Citibank/OPIC
regarding the provision of a credit line to the
bank.
• The bank provided training and advisory support
to help ProCredit Services, Colombia,
launch its operations.
H i g h l i g h t s i n 2 0 0 7 1

1
A n n u a l R e p o r t 2 0 0 7
Management Business Review
Management
from left to right:
Ligia Sandoval
Retail Division Manager
Oscar Villaseca
Credit Consultant
Jana Donath
Finance Division Manager
Janet Pacheco
Deputy General Manager
Pedro Arriola
General Manager
Monica Flores
IT Manager
Edwin Andrade
Risk Manager
Alexandra Carvajal
Operations Division Manager

Political and Economic Environment
2007 saw significant changes in Ecuador’s key
macroeconomic indicators, due in large measure
to the fact that a new government came to power
and made proposals for far-reaching changes,
creating considerable uncertainty.
The GDP growth rate, estimated at less than 3%,
was one of the lowest in Latin America and well
below the 3.9% recorded in 2006, providing clear
evidence of an economic slowdown that was attributable
to the highly unstable political environment,
and to the effects of significant changes
made to the legal and regulatory framework for
business.
Oil prices remained high throughout the year, allowing
the new government to maintain its policy
of increasing subsidies as part of its overall political
and economic strategy. The government
expanded subsidies to cover a range of sectors,
despite the lack of any firm basis for this in the
medium term. Oil exports accounted for 55% of
the country’s total exports and provided more
than 30% of the national budget.
Despite rising international prices, the volume
of oil production fell, due primarily to a lack of
investment as a result of changing government
policies towards this sector. However, other productive
activities made an important contribution
to the economy, together with the flow of
remittances from migrants, which continues to
grow every year and amounted to almost USD 3
billion in 2007.
The performance of key macroeconomic indicators
in 2007 can be summarised as follows:
• There was a significant increase in the price
of some basic goods towards the end of year,
but the annual inflation rate was 3.3%, an
acceptable level for a dollarised economy.
• Tax receipts grew steadily, exceeding projections.
• The country risk indicator (EMBI 1 ) remained
at high levels – around 600 points. However,
the government kept all of the commitments it
1 EMBI = JP Morgan Emerging Markets Bond Index
M a n a g e m e n t B u s i n e s s R e v i e w 1
had made in terms of economic-policy measures,
and this contributed to stability.
• The export sector is expected to face certain
problems given that negotiations with the
United States on a free trade treaty were
broken off, and because the programme of
preferential tariffs for exports to the US was
not renewed.
This latter point, together with instability resulting
from signficaint changes to the legal framework
and the process of drawing up a new political
constitution, made businesspeople reluctant
to invest.
The political situation continued to be characterised
by instability, since 2007 was a year of transition.
Capitalising on the failures of the traditional
parties and the advantages of a favourable
political environment in Latin America in
which the majority of the countries in the region
have left-of-centre governments, a new political
movement assumed power in Ecuador. As a result,
more power was concentrated in the hands
of the new president, who is promoting significant
state intervention in the economy.
A Constituent Assembly was convened, and the
members took their seats at the end of November,
with supporters of the government clearly in
the majority. This assembly, assuming “full powers”,
took control of the legislative process and
annulled the actions of the National Congress,
the country’s parliament.
In 2008, the government will likely seek to consolidate
its position and implement its political
and economic strategy, which will probably
lead to conflict at many levels arising from the
passage of controversial legislation such as the
planned reforms of the tax code and the financial
system.

1
A n n u a l R e p o r t 2 0 0 7
Financial Sector Developments
2007 was a year of political transition, in which
a number of initiatives and issues – including
legislation setting maximum interest rates, laws
aimed at providing greater transparency, and
tax reforms – had an impact on the activities of
financial-sector institutions. Although it remained
sound, the financial sector was undoubtedly
affected by the instability described above,
and this is reflected in the figures on its performance
for the year.
The pressure brought to bear by the government
took the form of frequent changes to the regulations
governing the maximum permissible interest
rates, and the government finally imposed its
own standards by using the Central Bank to put
limits on interest rates. In the process by which
the new ceilings were established, decisions
were guided primarily by political considerations
rather than an assessment of prevailing market
conditions.
Financial institutions responded to the political
and regulatory uncertainty by reducing the
volume and maturities of loans issued, increasing
interest rates, maintaining higher levels of
liquidity, and focusing on consumer and housing
loans at the expense of business lending. This
extremely conservative approach had an adverse
impact on the growth of the loan portfolio: the
portfolio for the financial system as a whole grew
Loan Portfolio Development
Volume (in USD million)
200
180
160
140
120
100
80
60
40
20
0
< USD 10,000 > USD 150,000
Number (in ’000)
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
03 04 05 06 07
USD 10,001 – USD 50,000 Total number outstanding
USD 50,001 – USD 150,000
70
63
56
49
42
35
28
21
14
7
0
by 13.5%, compared with an increase of 24.4%
in the preceding year. Customer deposits grew by
18%, the same rate as for 2006.
One positive aspect was the quality of the loan
portfolio, which remained at acceptable levels
thanks to sound management of the risks involved
in financing activities. Financial institutions enhanced
their operational efficiency through various
internal improvements and as a result of the
efforts they had made to respond to the changes
in the legal and regulatory framework. Effective
risk management has become a key priority in the
banking sector over the last few years, thanks to
the national regulatory authority’s focus on this
issue.
2008 seems likely to be a challenging year for the
financial sector, given that the government will
continue to exert pressure on the sector, through
the Central Bank and the National Constituent
Assembly, with the aim of reducing interest rates
based on its political priorities rather than an
assessment of market conditions and requirements.
Lending Performance
During 2007, Banco ProCredit’s loan portfolio
continued to grow very rapidly; the total loan portfolio
volume grew by 66% to USD 184.38 million.
The bank is a leader in the provision of loans to
Number of Loans Outstanding – Breakdown by Loan Size*
5.8% o.04%
53.3%
o.3%
40.6%
< USD 1,000 USD 50,001 – USD 150,000
USD 1,001 – USD 10,000 > USD 150,000
USD 10,001 – USD 50,000 * 31 Dec 2007

small and very small businesses. Despite the fact
that it is a relatively new player in the country’s
financial system, Banco ProCredit accounted for
approximately 20% of the annual growth in the
volume of loans outstanding to very small businesses
in Ecuador, achieving a 12% market share
in this sector.
In 2007 Banco ProCredit ranked fourth in the
financial system in terms of its total loan portfolio
growth, outperforming several of the country’s
major banks. More importantly, Banco ProCredit
was the leader in terms of growth in business
lending, a significant achievement considering
that it ranks as the 11th largest bank and has a
market share of only 2.5% by total loan portfolio
volume.
While these results were satisfactory, they were
not sufficient to allow the bank to achieve the targets
it had set itself for 2007. The loan portfolio
growth for the small and medium-sized enterprise
segment was lower than had been forecast,
as it took longer than planned to recruit business
client officers with the required skills and to give
them the necessary training. The bank’s decision
during the first half of the year to temporarily
postpone the opening of branches due to the uncertainty
generated by the changes being made
to the regulatory framework for the financial system
was another factor that affected its ability to
achieve its targets.
Business Loan Portfolio – Breakdown by Maturity
in %
100
90
80
70
60
50
40
30
20
10
0
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
03 04 05 06 07
< 12 months 12 – 24 months > 24 months
Loan Portfolio Quality (arrears >30 days)
in % of loan portfolio
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
03 04 05 06 07
Net write-offs:
in 2003: USD 50,908
in 2004: USD 105,052
in 2005: USD 365,489
M a n a g e m e n t B u s i n e s s R e v i e w 1
The bank resumed the process of opening branches
during the second half of the year, and by the
end of 2007 it had assembled a full team of business
client officers specialised in serving small
and medium-sized enterprises.
The bank ended the year with 57,581 loans outstanding
(growth of 46% with respect to 2006).
The average loan amount rose from USD 2,986 to
USD 3,255 due to the increasing share of the loan
portfolio accounted for by lending to small and
medium-sized enterprises (SMEs). Loans to this
segment accounted for 31% of the total portfolio
volume, demonstrating the bank’s commitment
to promoting development in Ecuador by providing
financing to the business sector and helping
local companies to generate employment.
The growth in the SME segment did not mean that
thebankdevotedlessattentiontoverysmallloans
(up to USD 1,000), however. It continued to place
great emphasis on loans in this size range, and the
share of the number of loans outstanding accounted
for by very small loans rose from 22% to 24%.
The sectoral breakdown of the portfolio remained
almost unchanged throughout the year: at yearend,
the largest share (40% of the outstanding
volume) was accounted for by trade, followed by
transport services (16%) and production (15%).
Lending to the agricultural sector (13%) continued
to be concentrated in the mountainous areas
of the country.
in 2006: USD 724,299
in 2007: USD 889,895

0
A n n u a l R e p o r t 2 0 0 7
The quality of the bank’s portfolio continued to
be one of its major strengths. At the end of 2007,
total arrears – all loans in arrears by one day or
more – stood at 2.7%, while arrears greater than
30 days came to 1.5%. These indicators remained
almost unchanged with respect to the previous
year. The bank has been able to maintain its arrears
at such low levels thanks to the quality of
the comprehensive credit analysis which it performs
for all loan applications. This analysis is an
integral part of the specific lending methodology
that is used by the banks in the ProCredit group.
As applied in each of the individual countries, the
credit technology is based on a thorough knowledge
of the customers whom the local institution
serves and the markets in which it operates. At
the same time, the level of net loan losses as a
proportion of the average portfolio fell from
0.76% to 0.58%, due primarily to the increased
effectiveness of legal measures undertaken to recover
delinquent loans and the creation of a team
of loan recovery managers as a permanent feature
of the bank’s organisational structure.
The bank introduced a credit line for SMEs in
response to this segment’s demand for faster
access to liquidity and for a more flexible source
of financing, giving Banco ProCredit a competitive
advantage in this market. The bank also introduced
payment protection insurance, which,
although not compulsory for small loans, was
well received, with 96% of all borrowers taking
advantage of this service. The institution continued
its review of processes and internal policies,
making modifications wherever necessary in order
to ensure that its products remain straightforward
and easy to understand and to minimise
transaction costs for its customers.
Finally, it should be noted that in 2007 there was
an important change with regard to the structure
and organisation of lending operations: the bank
strengthened the credit division by recruiting two
new co-ordinators, one for loans to very small
businesses and the other for agricultural loans,
together with a loan recovery supervisor.

Deposits and Other Banking Services
Deposits from local customers rose by 73% (USD
33.09 million) in 2007, and this increase was sufficient
to provide 46% of the funding required
to finance the growth of the bank’s outstanding
portfolio. Fifty percent of the growth in the deposit
volume came from term deposits, which
had an average maturity period of 180 days, considerably
longer than the 90 days that was the
average for the rest of the financial system.
The increase in the number of deposit accounts
represented the most significant achievement in
this area of operations in 2007. The number of
accounts rose by 58,000 during the year, an increase
of 135%. As a result, the bank was easily
able to exceed its targets for 2007 for the number
of savings accounts.
In line with its “neighbourhood bank” philosophy,
Banco ProCredit continued to set itself apart from
other institutions within the Ecuadorian financial
system by promoting a culture of saving based on
the accessibility, security, high-quality service
and financial soundness backed by international
support which are the bank’s distinguishing features.
The bank’s positioning as a responsible
neighbourhood bank became particularly important
in the context of the change in the country’s
government, which created uncertainty among
savers, and the bank placed particular emphasis
Customer Deposits
Volume (in USD million)
80
70
60
50
40
30
20
10
0
Number (in ’000)
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
03 04 05 06 07
Term Savings Sight Total number
112
98
84
70
56
42
28
14
0
Number of Customer Deposits – Breakdown by Size*
0.5%
4.4%
16.5%
0.11%
o.09%
< USD 100 USD 10,001 – USD 50,000
78.4%
USD 101 – USD 1,000 USD 50,001 – USD 100,000
USD 1,001 – USD 10,000 > USD 100,000
M a n a g e m e n t B u s i n e s s R e v i e w 1
on explaining its mission, approach to banking,
and corporate values to the public.
During the year, management’s major focus was
on creating a structure that would enable the bank
toachievesustainablegrowthbyfurtherstrengthening
the competitive advantage it derives from
providing high-quality service and expanding
its coverage of market sectors with the greatest
potential. By implementing this new structure at
the branch level, the bank provided greater support
to branch and regional managers in the management
of liabilities. This issue is discussed in
detail below in the Special Feature.
With regard to the bank’s market positioning,
management worked closely with the marketing
department to develop and implement more effective
promotional measures at the branches,
where staff participated enthusiastically in targeted
events designed to provide information
about Banco ProCredit’s financial services and
its activities to support local communities. This
approach was supported by two advertising campaigns
that aimed to make the public more aware
of the bank’s soundness and the accessibility of
its savings accounts to everyone.
To expand its outreach, the bank decided to place
greater emphasis on smaller branches, through
which it can manage its operations more efficiently
and achieve faster branch network ex-
* 31 Dec 2007

A n n u a l R e p o r t 2 0 0 7
pansion. During the year, seven branches were
opened, three at locations in important coastal
cities where the bank had previously not had a
presence. In addition, the existing offices were
renovated and refurbished to ensure that all
branches conformed to the bank’s corporate design
standards and to make them more attractive
and easier to use for customers.
The bank expanded its current account services,
introducing international transfers using the
SWIFT system, facilities for the payment of utility
bills, and arrangements providing for the payment
of customers’ salaries directly into their
accounts. As an added benefit for holders of
savings and term deposit accounts, accident insurance
and life insurance were introduced, with
these services being offered to customers free of
charge. The bank also developed a joint Banco
ProCredit-MasterCard debit card which was being
tested at the end of the year, and made preparations
for the introduction of ATMs and an Internet
banking service.
Through these measures, the bank created a foundation
that will enable it to achieve rapid growth
in its deposit portfolio next year. This will in turn
enable it to continue to contribute to the development
of the country by offering a broad range of
products and services that are accessible to all
segments of the population.
Financial Results
As in previous years, the bank achieved rapid
growth in the scale of its operations and in other
key measures of its institutional development, as
is shown by the following figures:
• The bank opened seven branches, ending the
year with 25 branches nationwide.
• The number of staff rose from 555 to 813
(+46%).
• Total assets grew by USD 85.780 million
(+65%).
• Paid-in capital increased by USD 8.487 million
(+98.3%).
The growth in total assets was accounted for primarily
by the increase in the loan portfolio, which
represented 82.6% of the bank’s assets. The
remaining assets consisted of cash (2.5%),
investments (10.3%), fixed assets (3.8%) and
other assets (0.8%). Asset growth was financed
by a combination of funding from external and local
sources, each of which accounted for 44.6%
of the total, with the remaining funds coming
from the capital increase undertaken by the
shareholders.
Borrowings from external sources rose by
USD 41.53 million (+118%). The main foreign
institutions which lent funds to the bank were
ProCreditHoldingandotherbanksbelongingtothe
ProCreditgroup;Europeaninvestmentfundsmanaged
by responsAbility and Blue Orchard; multilateral
institutions such as the Inter-American
Investment Corporation; and commercial banks
such as Citibank, which issued a funding line in
the amount of USD 20 million to Banco ProCredit
Ecuador that was partially underwritten by OPIC
and through which USD 6 million had been disbursed
to the bank by the end of December 2007.
The bank aims to further increase the proportion
of its lending activities that is funded from customer
deposits, which grew by 73% or USD 33
million during 2007.
In view of the bank’s strong asset growth,
ProCredit Holding provided additional capital in
the amount of USD 6.5 million, and the shareholders
decided to reinvest the entire net profit
for 2006, which amounted to USD 2 million.
These additions to the bank’s capital ensured
that it maintained a healthy capital adequacy
ratio (13.3%), substantially exceeding the 9% required
by Ecuadorian regulations.
The bank reported a profit of USD 2.85 million,
representing a return on equity after tax of
21.08%. As in previous years, the main source of
the bank’s operating income was interest on the
loan portfolio, which accounted for 98.98% of
the total operating income.
From August 2007 onwards, disbursement fees
were eliminated due to a new law regulating
maximum interest rates. As a result of the new
arrangement, income was generated in the form
of interest income, rather than commissions, but
effective interest rates did not change.

M a n a g e m e n t B u s i n e s s R e v i e w

A n n u a l R e p o r t 2 0 0 7

In the bank’s Local Financial Statements, the
change resulted in a temporary decrease in
financial income, as commission income had
previously been recognised when the loan was
issued. However, in the Financial Statements
prepared in accordance with International Financial
Reporting Standards (IFRS), the commission
income had always been recorded on a deferred
basis. Under IFRS, the ratio of portfolio interest
income to the average loan portfolio remained
virtually unchanged, with 23.13% reported in
December 2007, compared to 23.04% in December
2006.
The cost-income ratio rose from 70.64% to
74.52%,primarily due to investments in expansion
and staff training. The ratio of operating
expenses to average assets fell from 10.78% in
2006 to 10.01% in 2007. This figure is very satisfactory
in comparison with that reported by other
financial institutions with similar characteristics
and given the bank’s focus on small and very
small businesses and small savers.
The increase in operating expenses reported in
2007 was due to investments made as part of the
bank’s programme to expand its geographical
coverage and to support the continued growth of
its business:
• Staff costs rose by USD 2.65 million (60%) due
to growth in the number of staff at head office
and in the branches.
• Administrative costs – covering leases for
premises, communication, office supplies,
transport, IT systems, security services, maintenance,insuranceandutilitiesandotherbasic
services – rose by USD 3.13 million (55.03 %),
due primarily to the opening of additional
branches.
• Marketing costs rose by USD 1.08 million
(176.71%), mainly due to implementation of
the savings campaign and the campaign to
increase the public’s awareness of the bank
and its range of services.
• Training costs increased by USD 488,000
(192.13%) due to the rise in staff numbers and
theneedforhighlytrainedpersonnelwhomeet
the standards set by the ProCredit group.
Outlook
M a n a g e m e n t B u s i n e s s R e v i e w
In view of the bank’s performance to date and its
growing reputation as a sound financial institution
that is worthy of people’s trust, we believe
it can continue to grow rapidly. Our vision is to
become the country’s leading bank in the provision
of financial services to very small, small and
medium-sized enterprises, and to private individuals
in the low and medium income ranges.
To make this vision a reality, our goals for Banco
ProCredit for the coming year are as follows:
• To extend our geographical coverage of the
country,openingbranchesbothincitieswhere
we already have a presence, such as Quito,
Guayaquil and Cuenca, and in places which we
donotcurrentlyserve,suchasPortoviejo,Milagro
and Quevedo.
• To promote saving among people in the low
and middle income ranges by developing new
products that are more closely attuned to the
requirements of each individual segment of
this target group.
• To make the bank more efficient, investing in
the latest technology to automate an increasing
share of our operations.
• To consistently provide high-quality, personalised
service to all of our customers, ensuring
that our service is both fast and friendly at
all times.

A n n u a l R e p o r t 2 0 0 7
Special Feature
Strengthening institutional structures
to provide a foundation for balanced
growth
One of the major challenges facing Banco
ProCredit Ecuador is that of ensuring that its business
develops in a sustainable, balanced manner,
based on an integrated strategy that places
sufficient emphasis on deposit mobilisation and
non-credit services. The bank’s loan portfolio
has grown rapidly since the outset, but it has not
achieved the same high level of performance in
its savings and banking services business.
The bank is aware that balanced development is
essential if the institution is to be successful in
realising its long-term goals in both quantitative
and qualitative terms. Therefore, during 2007 it
made a special effort to create the kinds of institutional
and organisational structures necessary
to help the bank meet its growth targets in
all areas of its business in the coming years. To
achieve this, the bank designed a project involving
the active participation of all of its departments,
drawing on IPC to provide advisory assistance
and support in key areas.
The most important change to the bank’s organisational
structure was the decision to strengthen
the middle management team at the branch level
by creating two new positions: the deposits and
banking services co-ordinator and the operations
supervisor. Working with the credit co-ordinator,
these staff members support the branch managers
and ensure that they have sufficient resources
and operational capacity to facilitate the bank’s
balanced growth strategy. These organisational
changes have created new professional development
opportunities for qualified staff members in
savings, banking services and operations.
In addition, the deposit business was divided into
two segments: individuals and institutions. This
has allowed the bank to design the right products
and strategies for each segment, and has made
service in this area more efficient. The job title of
“loan officer” was changed to “business client
officer”, and the job description was expanded
to cover deposits and banking services. The posi-

tions of “client advisor” and “client relationship
manager” were created to provide a team at the
branch level with the capabilities required to develop
both credit and deposit operations for the
bank’s customers in line with the institution’s
long-term goals.
At head office level, the bank strengthened its
Deposits and Banking Services Division by creating
co-ordination units for the individual and
institutional client segments as well as for the
project to introduce debit cards and ATMs. To
make processes more efficient, shorten response
times, and enhance the quality of customer service,
the bank reallocated responsibility for various
tasks between the branch-level operations
and banking services units. To ensure that the
bank’s organisational structures provided a suitable
basis for the expansion of the deposit portfolio,
it improved the relevant processes and selected
and trained staff to work in the Business
Client Division. In addition, the bank redesigned
the training programme for new and existing staff
and held refresher workshops focusing on deposits
and banking services for middle managers.
To facilitate the development of its business, the
bankcreatedaQualityandProcessesDepartment,
which is responsible for monitoring the quality
of service provided to customers and for developing
and improving products and processes.
The implementation of the new strategy sends
a clear message about the importance the bank
places upon the integrated development of its
business. The bank will continue to focus on developing
its deposit business, given the challenge
which this represents for an institution that has a
long and successful track record as a lender, but
which has devoted less attention to developing its
savings facilities and other non-credit services.
Initial results from the fourth quarter of 2007
show signs of a real breakthrough in the growth
of deposits and provide grounds for optimism
with regard to the bank’s ability to meet this challenge,
particularly since the staff’s commitment
to improving the institution’s performance in this
area has been so clearly demonstrated.
S p e c i a l F e at u r e

A n n u a l R e p o r t 2 0 0 7
Risk Management
To create value through their business operations,
all banking institutions must be able to manage
efficiently the risks associated with the size
and complexity of their operations. This means
they must perform a technical analysis based on
robust models designed to ensure compliance
with rigorous standards. Banco ProCredit Ecuador’s
risk management policy, which was developed
on the basis of ProCredit Holding’s groupwide
risk management policy, aims to assess
the bank’s exposure to risk, to raise employees’
awareness of risk and their ability to identify specific
risks, and to use appropriate tools to mitigate
the risks inherent in the bank’s activities.
In line with its overall philosophy and approach
to banking, Banco ProCredit avoids speculative
activities and takes a prudent approach to the
business activities in which it is involved. The
bank promotes, and indeed requires, ethical behaviour
on the part of its staff. Adherence to this
key aspect of its corporate values is supported
by the open and respectful attitude shown by its
senior management in dealing with employees
and the high-quality professional training provided
to staff at all levels. In this context, Banco
ProCredit Ecuador applies national and international
industry standards to ensure that it complies
with the requirements for prudent risk man-

agement. As a result, although it operated in an
environment characterised by economic and political
uncertainty in 2007, the bank’s risk rating
was upgraded to “AA+” by BankWatch Ratings
(affiliated with FitchRatings).
The following overview summarises the bank’s
performance in 2007 with regard to the different
types of risk to which it was exposed.
Credit Risk
The lending methodology used by the bank has
shown itself to be sound, even under conditions
of uncertainty. Banco ProCredit’s portfolio at risk
(PAR) ratio was one of the lowest reported by any
institution in the financial system, despite significant
growth in its loan portfolio volume, which
rose by USD 70 million to reach a total of USD
184 million at the end of 2007. Provisions were
more than sufficient to cover the portfolio at risk
and were formed on the basis of technical criteria
regarding anticipated and unanticipated losses,
an analysis of significant credit exposures, the
degree of concentration in the portfolio, and other
factors. In addition, the financial condition of
the institutions at which the bank had placed its
excess liquidity was reviewed in detail at regular
intervals.
Market and Liquidity Risk
The bank’s market and liquidity risk remained
very low despite the changes in interest rates.
Special attention was given to assessing the
ways in which the evolving regulatory environment
and its impact on the lending rate could affect
the sustainability of the bank’s business, in
order to take the measures required to offset any
adverse impacts. The bank maintained sufficient
liquidity given the volatility and concentration of
its funding sources, ensuring that it had ample
resources available at all times to meet the funding
requirements created by its operations.
Operational Risk
In 2007, management focused on measures to
further enhance the evaluation and control of
operational risk. The Risk Management Committee
and the Board of Directors took steps to
improve the identification and analysis of loss
events in order to develop strategies to reduce
the likelihood of their recurrence, and the bank
established policies and procedures to ensure
the secure management of information within the
institution.
R i s k M a n a g e m e n t

0
A n n u a l R e p o r t 2 0 0 7
Pacific Ocean
Branch Network
One of the bank’s objectives for the year was
to expand its branch network, particularly in
Ecuador’s coastal region, an area of the country in
which it had only one branch – in the city of Guayaquil
– at the end of 2006. We opened branches
in Durán, Manta and Machala, and increased our
presence in Guayaquil by opening a branch in the
Mapasingue district of that city.
Manta
Guayaquil (5)
Santo Domingo (2)
Otavalo
Quito (6)
Durán
Machala
Latacunga
Cuenca
In the central region of Ecuador, we opened our
second branch in Santo Domingo de los Colorados
and also expanded our presence by opening
a branch in Sangolquí, which will serve the Valle
de los Chillos district. In the mountainous region
in the southern part of the country, we opened a
second branch in Ambato to improve the quality
of service to our customers in that city.
Ambato (2)
Riobamba
Ibarra
Cayambe
Sangolquí
Colombia
Ecuador
Peru

B r a n c h N e t w o r k 1

A n n u a l R e p o r t 2 0 0 7
Organisation, Staff and Staff Development
The continuing increase in the bank’s staffing requirements
posed a real challenge for the institution
in terms of recruiting and human resource
management. In 2007, the number of employees
rose by 258, an increase of 46% compared to the
previous year. Despite the high level of official
unemployment in Ecuador, the bank continues to
find it difficult to identify candidates who have
the right skills and work ethic, and who, most importantly,
share the values of our institution.
If we were to give a name to 2007, it would be the
“Year of Institutional Transformation”, as almost
all departments underwent a series of positive but
demanding changes, a process which required a
substantial input of time and effort from everyone
at the bank. The most important measures taken
can be summarised as follows:
• The bank made changes to the organisational
structure of all of its offices nationwide, supported
by targeted measures to ensure that all
staff understood the objectives and implications
of the new structure for workflows
and processes. The specific steps taken included
a review of salary scales for all mem-
bers of staff, a reallocation of staff in accordance
with their qualifications and skills profiles,
and a reorientation of operations based
on a more integrated approach to lending and
deposits/banking services.
• Thebankdesignedanewinductionprogramme
forstaffbyincorporatingdirectparticipationof
senior management and the heads of departments,
and by introducing workshops to explain
the institutional values that provide the
ethical basis for our approach to banking.
• Based on their individual qualifications and
skills profiles, staff members were reallocated
to fill newly created positions, and the manual
which defines employees’ tasks and responsibilities
in all positions within the institution
was updated in collaboration with team leaders.
• The bank redesigned its staff recruitment process,
increasing objectivity and efficiency by
creating selection committees charged with
ensuring that candidates have the required
skills.Inaddition,itintroducedanewstructure
for interviews providing for a more detailed
assessment of candidates, and involving the
use of role-playing where necessary.

• Staff training programmes were improved to
enable the bank to better prepare employees
to take on new responsibilities, and training
was launched to enhance middle and senior
managers’ human resource management
skills.
• The bank established a Quality and Processes
Department. This new department supports
training and quality control and ensures that
employees correctly apply the bank’s policies,
thereby helping to improve efficiency
and the quality of service.
• The bank restructured head office divisions
and departments and hired and trained new
staff to meet the challenges created by the
increased volume and complexity of its
operations.
• A series of strategic planning workshops was
held for all staff at the head office to ensure
that they are committed to a set of clear, measurable
and achievable targets, and that they
understand that they must all work together
as members of a team.
• High-potential staff were selected for participation
in programmes at the ProCredit Academies
and began attending the courses conducted
at these facilities. Subsequently they
were involved in activities to support the next
group of staff members who will begin the respective
programmes in 2008.
O 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
• An ongoing exchange of knowledge and experience
with other ProCredit banks took
place in 2007 through workshops, seminars,
internships and staff exchanges. ProCredit
colleagues from other countries spent time
at our bank, and staff from Banco ProCredit
Ecuador made visits to these colleagues’
home institutions. One important initiative
that our staff undertook in this area involved
providing support to help launch the operations
of new ProCredit institutions in Colombia
and Sierra Leone.
• We carried out various community activities
reflecting our “neighbourhood bank” philosophy,
with all branch and head office staff
taking part. These activities helped to demonstrate
to both staff and clients what makes
our bank different from other financial institutions.
At the beginning of 2008 we plan to review our
human resource management policies and tools,
making improvements where necessary. Given
the dynamic nature of our institution and the
changes it is undergoing as it grows and evolves,
we need to continuously update and improve our
management procedures, and nowhere is this
process more important than in the area of human
resource management.

A n n u a l R e p o r t 2 0 0 7

Business Ethics and Environmental Standards
Part of the overall mission of the ProCredit group
is to set standards in the financial sectors in
which we operate. We want to make a difference
not only in terms of the target groups we serve
and the quality of the financial services we provide,
but also with regard to business ethics. Our
strong corporate values play a key role in this
respect. We have established six essential principles
which guide the operations of ProCredit
institutions:
• Transparency: We adhere to the principle of
providing transparent information both to our
customers and the general public and to our
employees, and our conduct is straightforward
and open;
• A culture of open communication: We are open,
fair and constructive in our communication
with each other, and deal with conflicts at
work in a professional manner, working
together to find solutions;
• Social responsibility and tolerance: We give
our clients sound advice; their economic and
financial situation, their potential and their
capacities are assessed so that they can benefit
from appropriate “products”; promoting a
culture of savings is important to us; we are
committed to treating all customers and employees
respectfully and fairly, regardless of
their origin, colour, language, gender or religious
or political beliefs;
• Service orientation: Every client is served in
a friendly, competent and courteous manner.
Our employees are committed to providing
excellent service to all customers, regardless
of their background or the size of their business;
• High professional standards: Every employee
takes responsibility for the quality of his/her
work and strives to do his/her job even better;
• A high degree of personal commitment: This
goes hand-in-hand with personal integrity
and honesty – traits which are required of all
employees in all ProCredit institutions.
These ProCredit values represent the backbone
of our corporate culture and are discussed and
actively applied in our day-to-day operations.
Moreover, they are reflected in the Code of Conduct,
which transforms the ProCredit group’s
ethical principles into practical guidelines for all
ProCredit staff. To make sure that new staff fully
B u s i n e s s E t h i c s a n d E n v i r o n m e n ta l S ta n d a r d s
understand all of the principles that have been
defined, the induction training for new employees
includes dedicated sessions dealing exclusively
with the Code of Conduct and its significance
for all members of our team. And to ensure that
employees remain committed to our high ethical
standards and are made aware of new issues and
developments which have an ethical dimension
for our institution, refresher training sessions
– at which case studies are presented and grey
areas discussed – are regularly conducted for
existing staff.
Another aspect of ensuring that our institution
adheres to the highest ethical standards is our
consistent application of international bestpractice
methods and procedures to protect ourselves
from being used as a vehicle for money
laundering or other illegal activities such as the
financing of terrorist activities. The important
focus here is to “know your customer”, and, in
line with this principle, to carry out sound reporting
and comply with the applicable regulations.
We also set standards regarding the impact of our
lending operations on the environment. Banco
ProCredit Ecuador has implemented an environmental
management system based
on continuous assessment of the
loan portfolio according to environmental
criteria, an in-depth
analysis of all economic activities
which potentially involve
environmental risks, and the
rejection of loan applications
from enterprises engaged in
activities which are deemed environmentally
hazardous and
appear on our institution’s exclusion
list. By incorporating
environmental issues into the
loan approval process, Banco
ProCredit Ecuador is also able
to raise its clients’ overall level of
environmental awareness. We ensure that when
loan applications are evaluated, compliance with
ethical business practices is a key consideration.
No loans are issued to enterprises or individuals
if it is suspected that they are making use of unsafe
or morally objectionable forms of labour, in
particular child labour.

36
A n n u a l R e p o r t 2 0 0 7
Our Clients
Eduardo Epifanio
Espinoza García,
Street Vendor
Eduardo Epifanio Espinoza García – or “Don
Eduardo”, as he is known at the Parque California
branch of Banco ProCredit in Guayaquil – opened
a savings account with the bank in December
2006, making an initial deposit of USD 20. Since
then this street vendor has become a frequent
visitor to the branch, usually carrying his “shop”
with him: a tray of cigarettes and sweets which
he takes with him everywhere he goes.
“I wanted to start saving money because I realised
that if I had it in my pocket, then I spent it,”
recalls Mr. Espinoza.
So he decided to look for a bank where he could
open a savings account:
“I went to lots of banks, but they had all sorts
of requirements and asked for things I couldn’t
provide, and sometimes for things which I didn’t
even know about. At one place they just
went by my appearance, because I had my tray
with me, and they raised the requirements.”
He first heard about Banco ProCredit through
an advertisement in the street, and that made
him curious. When he visited the bank the staff
told him about the requirements for opening the
account he had dreamed of having for so long, and
he liked what they told him and how they treated
him. Above all, he felt that these were people he
could trust. So he opened his account.
Six months later, Mr. Espinoza decided to apply
for a loan to purchase merchandise for his business,
and a few months later he took out a second
loan, this time to finance repairs to his house.
Now he has introduced his entire family to Banco
ProCredit: each of his children has a savings
account, and one of them has a term deposit.
Mr. Espinoza has remained loyal to the bank, not
least because the staff have always made him
feel welcome and treated him as a valued customer
whose business is important to them:
“They’ve been polite to me, and they
haven’t refused to serve me just because of what
I do for a living.”

Luis Enrique Fueres has a small workshop for
the production of woollen goods in the parish of
Quichinche, in Otavalo canton. About three years
ago he decided that he wanted to upgrade the
equipment in his workshop, and he approached
Banco ProCredit about a loan. The bank had been
recommended to him by his brother, who was already
a customer.
His business was very small, and at the time
all his machines were old-fashioned, domestic
models. He started out with a loan for
USD 1,000. Mr. Fueres was pleasantly surprised
by the personal attention he received and the
speed with which his loan was issued.
He showed that he took his financial obligations
seriously by ensuring that he repaid the loan within
the established period, and that all the instalments
were paid on time. His second loan from the
bank was for double the amount of the first one,
and once again, he made all of his payments punctually,
thereby becoming one of Banco ProCredit’s
preferred customers, with access to a credit line.
He went through a difficult spell when, after receiving
his second loan, he was the victim of
Luis Enrique Fueres,
Producer of Woollen Goods
a robbery and all his merchandise was stolen.
However, Mr. Fueres refused to give up and was
slowly able to rebuild his business. The bank’s
faith in him was essential: without it, he probably
would have been just one more of the many small
entrepreneurs in Ecuador whose businesses
eventually fail due to a lack of capital.
Mr. Fueres has become one of the bank’s most
loyal customers, and greatly appreciates the support
it has given him and his business over the
last three years:
“Thanks to the help I received from Banco
ProCredit I have gradually been able to modernise
my equipment, and this has
increased my output and given me more income.”
Today, Mr. Fueres has a workshop equipped with
eight machines where he employs eight people.
Thus, by making his own small business grow
and prosper, he has also contributed to the development
of the community as a whole.
O u r C l i e n t s 37

A n n u a l R e p o r t 2 0 0 7
In telling Carmen Méndez Moina’s story, we
have to go back eight years, to when she operated
a stand selling a range of food items in the
evening. Such small food stands are a traditional
feature of life in the residential districts of Ecuador’s
cities, and hers was located on the pavement
opposite her house, near a sports field.
As Ms. Méndez recalled when talking to us
about her situation back then,
“At that time my house was made from cane,
and the street was unsurfaced, so that when it
rained a huge puddle formed.”
She took out her first loan from the bank in
August 2005 to make repairs to her house, as
she had moved her business there and had to
refurbish the hallway. Not long thereafter, she
took out a second loan and used the borrowed
funds, together with some savings and the
Carmen Méndez Moina,
Food Vendor
profit from her business, to improve her house:
She rebuilt it using cement instead of cane, creating
separate premises for her business and also
installing a shop. She used her most recent loan
to expand and improve the business premises,
installing a roof and various security features
and decorating the walls. In addition, she used
the loan to increase her working capital to support
her business’s growth.
Thanks to her excellent repayment record, Ms.
Méndez has become one of Banco ProCredit’s
preferred customers. Her financial situation and
standard of living have improved dramatically,
due in no small measure to the investments she
has been able to make with her loans.
Her husband helps her run the business. Both he
and Ms. Méndez have been very satisfied with the
quality of the service they have received from the
bank, and they are grateful for the financing supportithasgiventhem–whichtheyhaveclearlyput
to good use. Today when you visit their premises,
walk down the surfaced road, see the repairs they
have made to the pavement – and above all, go inside
– it is hard to imagine what things were like
eight years ago, when she started the business.

Segundo
Mesías Atapuma,
Restaurant Owner
Segundo Mesías Atapuma is a restaurant owner
with around 15 years of experience in his field,
and he has been a customer of Banco ProCredit
since 2002.
Mr. Mesías heard about the bank through a relative,
who brought him in to see us when he was
interested in taking out a loan. He was immediately
struck by the friendly manner of the bank’s
staff and their genuine interest in him and his
business. As he explains,
“What I most like about the bank is the friendly,
personal treatment I receive. That’s
what made me a ProCredit customer five years
ago, and since then I have taken
out a number of loans from the bank.”
Mr. Mesías obtained his first loan when the bank
was still a finance company and was known as Sociedad
Financiera Ecuatorial. He used the money
– less than USD 1,000 – to expand his business,
which was struggling to survive in a highly competitive
sector. The loan made it possible for him
to buy more tables, chairs and cooking equipment,
enabling him to improve the service he
offered his customers.
Mr. Mesías owns his own
home. He invested his
second loan in refurbishing
and remodelling the
first floor of his house
to create a more attractive
and comfortable
home for himself and
his family, and he used
the next loan from the
bank to buy a vehicle to
transport supplies for
his business. Although he started out borrowing
small amounts, his business has gradually
grown, as have his financing requirements. And
thanks to his excellent repayment record, he has
become a preferred customer of Banco ProCredit,
with access to substantially larger amounts than
he would have been able to borrow initially. He
used his most recent loan to add a second floor
to his house. Mr. Mesías is grateful to the bank
for helping his business to develop and grow, and
for enabling him to improve his family’s standard
of living.
O u r C l i e n t s

0
A n n u a l R e p o r t 2 0 0 7
Financial Statements
Independent auditor’s report and financial statements
December 31, 2007 and 2006

F i n a n c i a l S tat e m e n t s 1

A n n u a l R e p o r t 2 0 0 7

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

A n n u a l R e p o r t 2 0 0 7

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

A n n u a l R e p o r t 2 0 0 7

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

A n n u a l R e p o r t 2 0 0 7
Notes to the Financial Statements
For the years ended December 31, 2007 and 2006
1. Operations
Banco ProCredit S.A. (the “Bank”) provides banking services to
very small, small and medium-sized businesses in Ecuador. The
bank is part of a global network of 21 banks in Latin America,
Eastern Europe and Africa that share the same business model;
the main shareholder of all ProCredit banks is ProCredit Holding
A.G., based in Frankfurt, Germany. The address is ProCredit Holding
A.G., Kirschwaldstrasse 19, 60435 Frankfurt am Main Federal
Republic of Germany, and the web page is www.procredit-holding.
com/front_content.php. The group views itself as a global leader
in providing credit, savings and supporting services to households
and enterprises that have not previously had access to formal credit
or that would not be a target group for mainstream banks. Long-
term trustful relationships are built by providing financial services
on fair terms and conditions and supporting non-profit, non-political
projects in the neighborhood. The group is committed to both
social and commercial objectives.
ProCredit Holding A.G. (then named IMI Internationale Micro
Investitionen A.G.), acquired on May 10, 2001 a 100% shareholding
in Alterfinsa Financiera S.A. Through Resolution No.
SN-2001-0478 of October 11, 2001, issued by the Ecuadorian
Superintendency of Banks and Insurance, the institution changed
its name to Sociedad Financiera Ecuatorial S.A. Subsequently,
through Resolution No. SBS-2004-0753 of September 23, 2004,
the Ecuadorian Superintendency of Banks and Insurance authorized
the transformation of Sociedad Financiera Ecuatorial S.A.
into a bank and the change of name to Banco ProCredit S.A. This
change was registered in the Mercantile Registry on November 24,
2004 and the entity began operations as Banco ProCredit on January
1, 2005.
The operations and activities undertaken by the Bank are governed
by the General Law for Financial System Institutions and
regulations issued by the Banking Board and the Board of the
Central Bank of Ecuador and are regulated by the Ecuadorian
Superintendency of Banks and Insurance. Such regulations enable
the Bank, among others, to receive sight and fixed-term deposits
from the public, assume obligations on behalf of third parties, issue
bonds, receive loans from Ecuadorian and overseas financial
institutions, grant various types of loans, undertake foreign trading
operations and provide cash and treasury services, principally.
Pursuant to dispositions of the Superintendency, financial sector
entities must be assessed by a risk rating agency authorized by the
Superintendency and file quarterly assessment reports provided
by such evaluators with the Superintendency. In the case of the
Bank, reports submitted during year 2007 provided by the risk rating
agency indicates an AA rating for the first two quarters. In the
fourth quarter the rating was increased to AA+. According to the
agency, this rating indicates that the institution’s financial situation
is very sound, its performance history is good, and it appears
to have no notable weaknesses. The general risk profile, although
low, is not as favorable as other institutions that are rated with the
highest category.
2. Adoption of new and revised standards
2.1 Amendments to published standards which were effective in
the current period
In the current year, the Bank has adopted IFRS 7 Financial Instruments:
Disclosures which is effective for annual reporting peri-
ods beginning on or after 1 January 2007, and the consequential
amendments to IAS 1 Presentation of Financial Statements.
The impact of adoption of IFRS 7 and the changes to IAS 1 has been
to expand the disclosures provided in these financial statements
regarding the Bank’s financial instruments and management of
capital.
2.2 Standards, amendments and interpretations effective in 2007
but not relevant
Four Interpretations issued by the International Financial Reporting
Interpretations Committee are effective for the current period.
These are:
IFRIC 7 Applying the Restatement Approach under IAS 29, Financial
Reporting in Hyperinflationary Economies;
IFRIC 8 Scope of IFRS 2 Group and Treasury Share Transactions;
IFRIC 9 Reassessment of Embedded Derivatives;
and IFRIC 10 Interim Financial Reporting and Impairment.
The adoption of these Interpretations has not led to any changes in
the Bank’s accounting policies.
2.3 Interpretations to existing standards and standards that are
not yet effective and have not been early adopted by the Bank
• IFRS 8 – Operating Segments requires an entity to report financial
and descriptive information about its reportable segments,
which are operating segments or aggregations of
operating segments that meet specified criteria. The Bank will
apply IFRS 8 from January 1, 2009, but it is not expected to
have any impact on the Bank’s policies.
• IAS 23 – (Amendment) Borrowing Costs eliminates the option
available under the previous version of the Standard to recognize
all borrowing costs immediately as an expense. To the
extent that borrowing costs relate to the acquisition, construction
or production of a qualifying asset, the revised Standard
requires that they be capitalized as part of the cost of that
asset. All other borrowing costs should be expensed as
incurred. The Bank will apply this amendment from January 1,
2009, but it is not expected to have significant impact on the
Bank’s policies.
• IAS 1 – (Amendment) Presentation of Financial Statements,
includes many textual changes, and the main impacts are: a
new requirement to include a statement of financial position
as at the beginning of the earliest comparative period whenever
an entity retrospectively applies a change in its financial
statements, new requirements for a statement of comprehensive
income, and a new detailed requirement regarding
the presentation of items of other comprehensive income. The
Bank will apply this amendment from January 1, 2009.
• IFRIC 12 – Service Concession Arrangements (effective for
annual periods beginning on or after January 1, 2008 with
earlier application permitted). IFRS 12 gives guidance on the
accounting by operators for public-to-private service concession
arrangements, but it is not expected to have any impact on
the Bank’s policies.
2.4 Interpretations to existing standards that are not yet effective
and not relevant for the Bank’s operations
The following interpretations to existing standards have been published
that are mandatory for the Bank’s accounting periods beginning
on or after May 1, 2006 or later periods but are not relevant for
the Bank’s operations:
• IFRIC 11, IFRS 2 – Group and Treasury Share Transactions
(effective for annual periods beginning on or after March 2007
with earlier application permitted). IFRC 11 provides guidance
on the application of specific matters dealing with share based
payment schemes. IFRIC 11 is not relevant to the Bank’s operations
as it has no share based payments arrangements.

• IFRIC 13, Customer Loyalty Programs, (effective for annual
periods beginning on or after July 2008 with earlier application
permitted), this interpretation addresses the accounting by
entities that provide their customers with incentives to buy
goods or services by providing awards as part of sales transaction.
As the Bank’s operations have no customer loyalty programs,
IFRIC 13 is not relevant to the Bank’s operations.
• IFRIC 14, IAS 19 –The limit on a defined benefit asset, minimum
funding requirements and their interaction (effective for
annual periods beginning on or after January 2008 with earlier
application permitted). Addresses three issues: (i) when refunds
or reductions in future contributions should be regarded
as available in the context of paragraph 58 of IAS 19 Employee
Benefits; (ii) how a minimum funding requirement might affect
the availability of reductions in future contributions; and (iii)
when a minimum funding requirement might give rise to a liability.
IFRIC 14 is not relevant to the Bank’s operations.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise
stated.
In addition to the Income Statement and the Balance Sheet, the
Financial Statements also comprise, as additional components, the
Statement of Changes in Equity, the Cash Flow Statements and the
Notes.
The fiscal year of Banco ProCredit S.A. is the calendar year.
The financial statements are presented in conformity with the
accounting principles as defined by International Financial Reporting
Standards – IFRS.
All amounts are presented in thousands of dollars, unless otherwise
stated.
Basis of Presentation – The financial statements of Banco ProCredit
S.A. have been prepared in accordance with International Financial
Reporting Standards (IFRS). The presentation of the financial statements
as at December 31, 2007 in conformity with IFRS has been
undertaken on a voluntary basis.
Generally speaking, the financial statements have been prepared
under the amortized cost convention, unless IFRS require recognition
at fair value, e.g. financial assets and liabilities (including derivatives)
held at fair value through profit and loss.
Reporting and valuation are undertaken on the assumption that the
Bank will continue to operate.
All estimates and assumptions required for reporting and valuation
in conformity with IFRS are best estimates undertaken in
accordance with the applicable standard. Estimates and judgments
are evaluated on a continuous basis, and are based on past
experience and other factors, including expectations with regard
to future events and are considered appropriate under the given
circumstances.
Accounting policies and management’s judgment for certain items
are especially critical with respect to the determination of impairment
of loans.
To determine the rates to be applied for portfolio-based loan loss
provisions, the Bank used data from a group-level evaluation of the
quality of the loan portfolio, taking into account historical loss experiences.
As this migration analysis is based on statistical data up
to 2006, it reflects the average losses during a period of constant
growth and favorable economic environments in the countries of
operations. As the general economic conditions were worsening
in 2007 and also due to the fact that economic conditions in Ecuador
are worse than most of the other countries where ProCredit is
operating, management considers it appropriate to use the results
F i n a n c i a l S tat e m e n t s
of the group migration analysis with a confidence level of 95% to
cover all losses incurred in 2007.
At December 31, 2007 and 2006, for business loans, agricultural
loans, housing loans and consumer loans, the Bank constitutes
provisions based on the ageing of payments due from clients in accordance
with the following table established by the Bank’s head
office:
December 31, 2007 December 31, 2006
Amount (< 50k) Amount (< 50k)
Arrears in % in %
No Arrears 1.80 2.50
1 – 7 days 1.80 25.00
8 – 30 days 38.10 25.00
31 – 90 days 61.20 50.00
91 – 180 days 95.60 50.00
181 – 270 days 100.00 100.00
over 270 days 100.00 100.00
At December 31, 2007, the credit portfolio exceeding US$50,000
is not provisioned based on a percentage in accordance with group
policy since the loans in question have valid guarantees.
Financial Assets – The Bank classifies its financial assets in the
following categories: Loans and advances to customers, and available-for-sale
financial assets. The Bank does not use the categories
financial assets at fair value through profit or loss and held-tomaturity.
Management determines the classification of financial
assets at initial recognition.
• Loans and Advances to Customers – Loans and advances to
customers are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
They arise when the Bank provides money, goods or services
directly to a debtor with no intention of trading the receivable.
Loans and advances are initially recognized at fair value plus
transaction costs; subsequently they are measured at amortized
cost using the effective interest rate method. At each balance
sheet date and whenever there is evidence of potential impairment,
the bank assesses the value of its loans and advances.
Loans are advances when the principal is advanced to the borrowers.
Loans and advances are derecognized when the rights
to receive cash flows from the financial assets have expired or
where the Bank has transferred substantially all risks and rewards
of ownership.
• Available-for-Sale Financial Assets – Available-for-sale invest
ments are those intended to be held for an indefinite amount of
time, which may be sold in response to needs for liquidity or
changes in interest rates, exchange rates or equity prices.
At initial recognition, available-for-sale financial assets are recorded
at fair value plus transaction costs. Subsequently, they
are carried at fair value. The fair values reported are either observable
market prices or values calculated with a valuation
technique based on the current observable market. Gains and
losses arising from changes in fair value of available-for-sale
financial assets are recognized directly in equity under “revaluation
reserve from available-for-sale financial instruments”, until
the financial asset is derecognized or impaired. At this time,
the cumulative gain or loss previously recognized in equity is
recognized in the income statement as “gains and losses from
available-for-sale financial assets”. Based on the type of investments
handled by the Bank during 2007, no adjustments were
included in equity for the effect of fair value.
Purchases and sales of available-for-sale financial assets are
derecognized when the rights to receive cash flows from the
financial assets have expired or where the Bank has transferred
substantially all risks and rewards of ownership.

0
A n n u a l R e p o r t 2 0 0 7
Comparatives – Where necessary, comparative figures have been
adjusted to conform with changes in presentation.
Cash and Cash Equivalents – This item includes balances with less
than three months’ maturity when eligible for discounting with the
Central Bank of Ecuador (the “Central Bank”) and money market instruments
that are highly liquid and readily convertible to known
amounts of cash with insignificant risk of changes in value.
Generally, all cash and cash equivalent items appear at their nominal
value. Money market instruments that qualify as cash equivalents
are classified as available-for-sale financial assets and measured
at fair value.
Loans and Advances to Banks – The amounts reported under re-
ceivables from customers consist mainly of loans and advances
issued.
The amounts reported under advances to banks include current account
balances.
All loans and advances to banks as well as loans and receivables to
customers fall under the category “loans and receivables” and are
carried at amortized cost, using the effective interest method. Amortized
premiums and discounts are accounted for over the respective
terms in the income statement under net interest income. Impairment
of loans is recognized on separate allowance accounts.
Allowance for losses on loans and advances and impairment of
available-for-sale financial assets
• Assets Carried at Amortized Cost – The Bank assesses at each
balance sheet date whether there is objective evidence that a
financial asset or group of financial assets is impaired. A financial
asset or a group of financial assets is impaired and impairment
losses are incurred if, and only if, there is objective evidence
of impairment as a result of one or more events that
occurred after the initial recognition of the asset (a “loss event”)
and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
The Bank first assesses whether objective evidence of impairment
exists individually for financial assets that are individually
significant (specific impairment) and collectively for those financial
assets that are individually insignificant (impairment for
individual insignificant loans). If the Bank determines that no
objective evidence of impairment exists for an individually
assessed financial asset, whether individually significant or not,
it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for
impairment (impairment for collectively assessed loans). Assets
that are individually assessed for impairment and for which an
impairment loss is or continues to be recognized are not included
in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans
and receivables carried at amortized cost has been incurred,
the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have not
been incurred) discounted at the financial asset’s original effective
interest rate (specific impairment). The carrying amount of
the asset is reduced through the use of an allowance account and
the amount of the loss is recognized in the income statement.
The calculation of the present value of the estimated future cash
flows of a collateralized financial asset reflects the cash flows
that may result from foreclosure less costs for obtaining and selling
the collateral.
For the purposes of the evaluation of impairment for financial assets
consisting of individually insignificant loans, the loans are
grouped on the basis of similar credit risk characteristics. Those
characteristics are relevant to the estimation of future cash
flows for groups of such assets by being indicative of the
debtor’s ability to pay all amounts due according to the contractual
terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively
evaluated for impairment are estimated on the basis of
the contractual cash flows of the assets in the group and historical
loss experience for assets with credit risk characteristics
similar to those in the group. Historical loss experience is adjusted
on the basis of current observable data to reflect the
effects of current conditions that did not affect the period on
which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not exist
currently. The methodology and assumptions used for estimating
future cash flows are reviewed regularly by the Bank to reduce
any differences between loss estimates and actual loss experience.
• Renegotiated Loans – Loans that are either subject to collective
impairment assessment or individually significant and
whose terms have been renegotiated are no longer considered to
be past due but are treated as new loans.
• Assets Classified as Available-for-Sale – The Bank invests in
securities with fixed interest rates. Impairments on these investments
are recognized when objective evidence exists that
the issuer is unable or unwilling to service these obligations.
The Bank assesses at each balance sheet date whether there is
objective evidence that a financial asset or group of financial
assets is impaired. In determining whether an available-for-sale
financial asset is impaired the following criteria are considered:
• Deterioration of the ability or willingness of the debtor to
service the obligation;
• Political situations which may significantly impact the debtor’s
ability to repay the loan;
• Additionaleventsthatmakeitunlikelythatthecarryingamount
may be recovered.
Intangible Assets – Acquired computer software licenses are capitalized
on the basis of the costs incurred to acquire and/or to bring
to use the specific software. These costs are amortized on the
basis of the expected useful lives. Software has a maximum expected
useful life of 5 years.
Property and Equipment – Land and buildings comprise mainly the
Bank and its offices.
All property and equipment are stated at historical cost less scheduled
depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or
are recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item
will flow to the Bank and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated
using the straight-line method to allocate their cost to their residual
values over their estimated useful lives, as follows:
Buildings 20 years
Leasehold improvements 5 years
Furniture and fixtures 7 years
IT and other equipment 3 years
The assets’ residual carrying values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.

Gains and losses on disposals are determined by comparing proceeds
with carrying amount and are included in the income statement.
Assets that are subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s
carrying amount is greater that its estimated recoverable amount.
The recoverable amount is the higher of the asset’s fair value less
costs to sell and value in use.
The Resolutions Codification of the Ecuadorian Superintendency of
Banks and Insurance and the Banking Board require that land and
building values be adjusted every five years to market prices using
a technical valuation performed by independent experts appointed
by the Bank’s Directors and previously approved by the controlling
authority. The Bank has not performed an evaluation of its property
since it possesses no assets whose age exceeds five years. Also
the Bank has not identified any events or changes in circumstances
that indicate that the carrying amount may not be recoverable.
Contingent Assets and Liabilities – Contingent assets and liabilities
are not recognized in the financial statements, but are only disclosed
in a note to the financial statements, except in those cases
where the possibility of an outflow or inflow of resources corresponds
to loans. Any change in probabilities is recognized in the financial
statements, that is, if in the case of liabilities it is probable
or, in the case of assets, virtually certain that there will be either an
outflow or inflow of resources.
Income Tax
• Current Income Tax – Income tax payable on profits is calculated
on the basis of the Ecuadorian Tax Law and is recognized as an
expense in the period in which the profit arises. The applied income
tax rate for 2007 was 25%.
• Deferred Income Tax – Deferred income tax is provided in full,
using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements prepared in conformity with
IFRS. Deferred tax assets and liabilities are determined using
tax rates (and laws) that have been enacted by the balance sheet
date and are expected to apply when the related deferred income
tax asset is realized or the deferred income tax liability is settled.
The principal temporary differences arise from deferred commission
income, depreciation of other equipment and from allowances
for impairment losses on loans to customers. However, the deferred
income tax is not accounted for if it arises from initial recognition
of an asset or a liability in a transaction other than a business
combination that at the time of the transaction affects neither the
profit (before tax) for the period according to IFRS, nor the taxable
profit or loss.
The tax effects of income tax losses available for carry forward are
recognized as a deferred tax asset when it is probable that future
taxable profits will be available against which these losses can be
utilized.
Deferred tax assets are recognized where it is probable that future
taxable profit will be available against which the temporary differences
can be utilized.
Deferred tax related to fair value re-measurement of available-forsale
investments, which is charged directly to equity, is also credited
or charged directly to equity and subsequently recognized in
the income statement together with the deferred gain or loss.
The income tax expense included in the accompanying financial
statements represents the total current and deferred income tax.
F i n a n c i a l S tat e m e n t s 1
Employee Profit-Sharing and Child and Family Tax (INNFA) – Current
employee profit-sharing and the Child and Family tax (INNFA) are
recognized in income based on taxable income for the year. Deferred
INNFA tax and the employee profit-sharing are recognized for the
effect of temporary differences arising as a consequence of the different
means of measuring assets and liabilities based on accounting
and tax criteria and unused tax credits deductible from future
taxable earnings, calculated in accordance with current tax rates.
The deferred tax liability for INNFA and the employee profit-sharing
is generally recognized for the temporary taxable differences,
and the deferred assets for INNFA and the employee profit-sharing
are generally recognized for the temporary deductible differences,
based on the existence of future taxable earnings, against which
such temporary deductible differences may be used.
Liabilities to Banks and Customers – Liabilities to banks and customers
are recognized initially at fair value net of transaction costs
incurred. Borrowings are subsequently stated at amortized cost;
any difference between proceeds net of transaction costs and the
redemption value is recognized in the income statement over the
period of the borrowings using the effective interest rate method.
All financial liabilities are derecognized when they are extinguished
– that is, when the obligation is discharged, cancelled or expires.
Debt Securities – The balance sheet item “debt securities” contains
commercial papers issued in the Ecuadorian bond market, recognized
initially at fair value, being their issue proceeds (fair value
of consideration received) net of transaction costs incurred. They
are subsequently stated at amortized cost and any difference between
proceeds net of transaction costs and the redemption value
is recognized in the income statement over the period of the debt
instruments using the effective interest method.
Provisions – Provisions for legal claims are recognized when:
• it is more likely than not that an outflow of resources will be required
to settle the obligation; and
• the amount has been reliably estimated.
Where there are a number of similar obligations, the likelihood that
an outflow of resources will be required in a settlement is determined
by considering the class of obligations as a whole.
Provisions are measured at the present value of the expenditures.
The increase in the present value of the obligation due to the passage
of time is recognized as an interest expense.
Post-Employment Benefits – It is mandatory to pay employees a
certain amount of post-employment benefits, which depend upon
several factors such as the number of years of service and compensation.
The liability recognized in the balance sheet is the present value
of the defined post-employment benefit obligation at the balance
sheet date, together with adjustments for unrecognized actuarial
gains or losses and past service costs. The obligation is calculated
annually by an independent actuary. The present value of the obligation
is determined by discounting the estimated future cash outflows,
taking into account mortality tables and salary increases
using an interest rate of 6.5%.
Subordinated Debt – Subordinated debt consists mainly of liabilities
to shareholders and other international financial institutions
which in the event of insolvency or liquidation are not repaid until
all non-subordinated creditors have been satisfied. There is no obligation
to repay early.
Following initial recognition at acquisition cost, the subordinated
debt is recognized at amortized cost. Premiums and discounts are
accounted for over the respective terms in the income statement
under net interest income.

A n n u a l R e p o r t 2 0 0 7
Subscribed Capital – Incremental costs directly attributable to the
issue of new shares are shown in equity as a deduction in the capital
reserve. Dividends on ordinary shares are recognized in equity in
the period in which they are approved by the Bank’s shareholders.
Interest Income and Expense – Interest income and expenses for
all interest-bearing financial instruments, except for those clas-
sified as held for trading, are recognized within “interest income”
and “interest expense” in the income statement using the effective
interest rate method. Interest income and expense are recognized
in the income statement in the period in which they arise.
Once a financial asset or a group of similar financial assets has
been written down as a result of an impairment loss, interest income
is recognized using the rate of interest used to discount the
future cash flows for the purpose of measuring the impairment loss.
For loans where there is objective evidence that an impairment loss
has been incurred, the accrual of interest income is terminated 5 to
90 days after the last payment depending on the type of loan. Payments
received in respect of written-off loans are not recognized in
net interest income.
Fee and Commission Income and Expenses – Fee and commission
income and expenses are recognized on an accrual basis when the
service has been provided.
Certificates of Deposit – Constitute, principally, certificates issued
by local financial institutions coming due up to May 2008 (May
2007 in 2006).
Mandatory Reserve, Central Bank – In accordance with legal provi-
sions, the Bank is obliged to maintain a reserve deposit of 4% of the
average weekly balance of daily deposits, including deposits held
with the Central Bank of Ecuador and the available balance held
in cash. As at December 31, 2007, the banking reserve deposits
totaled US$3 million (US$1.7 million in 2006).
5. Loans and advances to banks
A summary of loans and advances to banks is as follows:
(in thousands of U.S. dollars)
Loans and advances to domestic
Dec 31, 2007 Dec 31, 2006
and non-OECD (1) banks 8,291 –
Loans and advances to group
companies 3,000 –
Accrual of interest on loans and
advances to group companies 17 –
Total 11,308 –
(1) Organization for Economic Co-Operation and Development –
OECD.
4. Cash and cash equivalents
A summary of cash and cash equivalents is as follows:
Dec 31, Dec 31,
(in thousands of U.S. dollars) 2007 2006
Money market institutions public
and private 9,443 9,126
Mandatory reserve, central bank 3,085 1,781
Cash on hand 1,939 512
Other balances, central bank 416 152
Total 14,883 11,571
Money Market Institutions Public and Private – This item principally
consists of Certificates of Deposit from 1 to 90 days negotiable
from the private sector and available-for-sale securities from the
private sector issued by local financial institutions.
In 2006, it also constituted current accounts maintained, principally,
with local and overseas banks. In 2007, these Current Accounts
with Local Banks were classified as Loans and advances to banks.
A summary of money market institutions, public and private, classified
at December 31, 2007 and 2006 classified by security amount
is as follows:
Interest rate 2007 Interest rate 2006 Dec 31, 2007 Dec 31, 2006
(in %) (in thousands of U.S. dollars)
Certificates of deposit 5.64 to 8.16 5.25 to 7.95 8,566 2,298
Deposits in local banks 1.5 to 4 4,738
Deposits in overseas banks 5.2 to 5.3 1,496
Commercial paper 7.43 to 7.56 5.25 to 5.90 877 594
Total 9,443 9,126
Loans and Advances to Domestic and non-OECD Banks – Constitute
principally:
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Deposits in local banks 7,116 –
Deposits in overseas banks 1,175 –
Total 8,291 –
Deposits in Local Banks – Constitute freely-available deposits
maintained, principally, with two local banks and that generate
interest fluctuating between 1% and 4.2%.
Deposits in Overseas Banks – Correspond to freely-available
deposits held, which at December 31, 2007 generated a nominal
interest ranging between 4% and 5.18%.
Loans and Advances to Group Companies – Constitute certificates
in U.S. dollars issued by “Banco Los Andes ProCredit Bolivia” coming
due up to March 2008 with an annual interest rate of 7.30%.
6. Financial assets available for sale
This item primarily includes securities with fixed interest rates.
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Restricted Availability –
Liquidity Fund 814 431
Fixed interest rate securities 781 3,558
Others 189 53
Total 1,784 4,042

Restricted Availability – Liquidity Fund – Constitute obligatory pay-
ments made by the Bank equivalent to 1% of reserve deposits. This
fund is managed by Corporación Financiera Nacional – CFN and
generated a yield equivalent to 2.94% in 2007 (5.91% in 2006). In
accordance with dispositions established in the Resolutions Codi-
December 31, 2007 Gross Allowance for Net Share of total Number of Share of total
amounts impairment amount portfolio outstanding loans number
Business loans
in thousands of U.S. dollars in % in %
Loans up to US$10k 76,365 (2,724) 73,641 41.2% 43,306 75.2%
Loans US$10k – US$50 k 62,501 (2,283) 60,218 33.7% 4,820 8.4%
Loans US$50 k – US$150 k 18,136 – 18,136 10.1% 313 0.5%
Loans over US$150 k 5,367 – 5,367 3.0% 28 0.0%
Agricultural loans
Loans up to US$10 k 13,581 (256) 13,325 7.4% 8,217 14.3%
Loans US$10k – US$50 k 5,044 (124) 4,920 2.8% 464 0.8%
Loans US$50 k – US$150 k 722 – 722 0.4% – 0.0%
Loans over US$150 k 161 – 161 0.1% – 0.0%
Housing loans
Loans up to US$ 10 k 303 (9) 294 0.2% 55 0.1%
Loans US$10 k – US$50 k 1,529 (86) 1,443 0.8% 107 0.2%
Loans US$50 k – US$150 k 100 – 100 0.1% 2 0.0%
Consumer loans
Loans up to US$10 k 14 (10) 4 0.0% 16 0.0%
Loans US$10 k – US$50 k 12 (1) 11 0.0% 1 0.0%
Other loans
Loans up to US$10 k 524 – 524 0.3% 251 0.4%
Loans US$10 k – US$50 k 16 – 16 0.0% 1 0.0%
Total 184,375 (5,493) 178,882 100.0% 57,581 100.0%
December 31, 2006 Gross Allowance for Net Share of total Number of Share of total
amounts impairment amount portfolio outstanding loans number
Business loans
in thousands of U.S. dollars in % in %
Loans up to US$10 k 50,780 (2,461) 48,319 45.2% 30,902 77.6%
Loans US$10 k – US$50 k 38,290 (996) 37,294 34.9% 3,111 7.8%
Loans US$50 k – US$150 k 8,508 (123) 8,385 7.8% 137 0.3%
Loans over US$150 k 1,428 – 1,428 1.3% 7 0.0%
Agricultural loans
Loans up to US$10 k 8,150 (216) 7,934 7.4% 5,428 13.6%
Loans US$10 k – US$50 k 2,498 (40) 2,458 2.3% 226 0.6%
Loans US$50 k – US$150 k 198 – 198 0.2% 3 0.0%
Housing loans
Loans up to US$10 k 99 (2) 97 0.1% – 0.0%
Loans US$10 k – US$50 k 537 (10) 527 0.5% – 0.0%
Consumer loans
Loans up to US$10 k 10 (5) 5 0.0% – 0.0%
Loans US$10 k – US$ 50 k – – – 0.0% – 0.0%
Other loans
fication of the Ecuadorian Superintendency of Banks and Insurance
and the Banking Board, this Fund was created with the purpose of
preserving the normal functioning of financial institutions in the
event of liquidity shortages.
7. Loans and advances to customers
F i n a n c i a l S tat e m e n t s
A summary of loans and advances to customers is as follows:
Loans up to US$10 k 254 – 254 0.2% – 0.0%
Loans US$10 k – US$50 k 20 – 20 0.0% – 0.0%
Total 110,772 (3,853) 106,919 100.0% 39,814 100.0%

A n n u a l R e p o r t 2 0 0 7
Business Loans – Correspond to loans and granted to individuals
or legal entities for financing activities principally related to productive
activities.
Agricultural Loans – Are loans granted to individuals earmarked
principally to finance activities in small-scale production that is related
to a small service or production operation, in either the rural
or urban sector.
Housing Loans – Correspond to loans granted for the purchase,
construction, repair, remodeling and improvement of housing for
personal use by wage or salary earners, provided that such loans
are supported with a mortgage guarantee and that the user has
been granted final use of the property.
Interest Rate – At December 31, 2007, the annual average nominal
interest rate on loans was 17.85% (13.16% in 2006). In the first
quarter the weighted average rate was 13.64% and in the second
half of the year 25.75%; the significant difference in these rates
was attributable to the elimination of commissions on loans by the
Ecuadorian Superintendency of Banks and Insurance.
Allowance for Impairment Losses on Loans and Advances – Allow-
ance for impairment losses on loans and advances covers the risks
which arise from the category “loans and receivables”. In addition
to the allowance for specific impairment losses for receivables for
which there is objective evidence of impairment, lump-sum specific
provisions and a general allowance were formed to cover impairment
losses relating to the loan portfolio as a whole:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Specific impairment (122)
Portfolio-based impairment (2,595) (2,870)
Lump-sum specific provisions (2,898) (861)
Total (5,493) (3,853)
Movements in the allowance for impairment losses on loans and
advances are as follows:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Balances, beginning of the year (3,853) (2,250)
Provision (Note 20) (5,145) (2,865)
Use 1,905 994
Releases 1,600 268
Balances, end of year (5,493) (3,853)
8. Property and equipment
Movements in the property and equipment were as follows:
Land and Leasehold Furniture and IT and other Total
(in thousands of U.S. dollars) buildings improvements fixtures equipment
Balances at December 31, 2005 259 17 490 1,059 1,825
Acquisitions 4,800 120 223 776 5,919 (1)
Sales or/and withdrawals (14) (155) (169)
Depreciation (69) (18) (61) (400) (548)
Balances at December 31, 2006 4,990 119 638 1,280 7,027
Acquisitions 241 440 408 1,764 2,853 (2)
Sales or/and withdrawals (224) (224)
Depreciation (208) (44) (101) (656) (1,009)
Balances at December 31, 2007 5,023 515 945 2,164 8,647
(1) Corresponds principally to the construction of a new building
where the Bank Head Office in Quito operates.
(2) Corresponds principally to the acquisition of computer equip-
ment, as well as furniture and fittings for the offices in the main
building in Quito, and in new agencies throughout the country.
9. Deferred taxes
Employee Profit-Sharing – In accordance with local legislation,
employees are entitled to receive a 15% share of the Bank’s net
annual profits, used for calculating income tax, before income tax.
The employee profit-sharing has the same impact as income tax,
including the consequences of deferrals arising from differences
on the current bases.
Income Tax – In accordance with legal dispositions, income tax is
25% on distributed income and 15% on income reinvested in the
Bank. At December 31, 2007, the Bank decided to provision 25%
of net income for this item since the decision to reinvest or distribute
earnings will be taken at the General Stockholders’ Meeting to

e held in March 2008. Dividends declared in cash or distributed
to Ecuadorian or foreign shareholders are not subject to any additional
withholding.
Income Tax, Employee Profit-Sharing Deferred and INNFA Income
Deferred – The financial statements reflect the impact of prepaid
taxes and employee profit-sharing on taxable income or deductions
included in the balance sheet as temporary differences. These
temporary differences are generated by comparing the financial
statements prepared in accordance with the requirements of the
Ecuadorian Superintendency of Banks and Insurance with financial
statements prepared in accordance with International Financial
Reporting Standards. Further differences result from reconciliation
items determined following application of tax resolutions. Net tax
rates used to calculate the income tax, employee profit-sharing and
the INNFA provision for the year ended December 31, 2007 were
25%, 15% and 2% respectively, the combined nominal tax rate for
income tax, employee profit-sharing and INNFA income is 37.52%.
Details of the deferred tax are as follows:
(in thousands of U.S. dollars)
Deferred tax assets
Dec 31, 2007 Dec 31, 2006
Employee profit-sharing 199 539
INNFA 23 61
Income tax 1,459 1,671
Total 1,681 2,271
Deferred tax liabilities
Employee profit-sharing (213) (428)
INNFA (24) (50)
Income tax (971) (1,287)
Total (1,208) (1,765)
The effects of the deferred taxes resulting from the existence of
temporary differences for the years ended December 31, 2007 and
2006 are as follows.
Deferred tax assets
Employee profit-sharing INNFA Income tax
(in thousands of U.S. dollars) 2007 2006 2007 2006 2007 2006
Commission on loan portfolio (1) 97 516 11 59 1,236 1,559
Provision for retirement and severance 49 – 6 – 68 –
Provision for unused vacations 40 – 5 – 56 –
Other adjustments 13 23 1 2 99 112
Total deferred tax assets 199 539 23 61 1,459 1,671
Deferred tax liabilities
Employee profit-sharing INNFA Income tax
(in thousands of U.S. dollars) 2007 2006 2007 2006 2007 2006
Provision for loan portfolio (2) (187) (407) (21) (47) (927) (1,242)
Other adjustments (26) (21) (3) (3) (44) (45)
Total deferred tax liabilities (213) (428) (24) (50) (971) (1,287)
(1) Corresponds to the difference generated by the recognition of
loan commissions. In accordance with regulations of the Ecuadorian
Superintendency of Banks and Insurance, such income
is recorded at the time of granting the loan. However, in
accordance with International Financial Reporting Standards,
commissions are recorded based on the loan period.
(2) Corresponds to the difference in rules for the provisions
for the loan portfolio. In accordance with the Ecuadorian Superintendency
of Banks, such is recorded based on established
parameters. However, in accordance with International Finan-
F i n a n c i a l S tat e m e n t s
cial Reporting Standards, the provision for loans is based on the
probability of default taking into account real guarantees.

A n n u a l R e p o r t 2 0 0 7
A reconciliation between income according to the financial state-
ments and taxable income is as follows:
Dec 31, Dec 31,
(in thousands of U.S. dollars) 2007 2006
Income according to the financial
statements, net of employee
profit-sharing and current deferred
INNFA tax 3,173 2,114
Adjustments for International
Financial Reporting Standards (913) 613
Income according to local financial
statements, subject to income tax 2,260 2,727
Non-deductible 353 175
Other deductions, net (104) (29)
Taxable income 2,509 2,873
Current income tax 627 718
Adjustment to the prior year (198)
Deferred income tax (106) (154)
Income tax charged to income 323 564
Liabilities to Group – A summary of the liabilities to the group is as
follows.
Transfer Pricing – The transfer pricing study corresponding to the
year 2007, as required by current legal dispositions, must be presented
to the tax authorities in the month of October of the year
2008. This study constitutes a base to determine whether operations
with related parties have been performed at reasonable prices
approximating to the Arm’s Length Principle.
The transfer pricing study for the year 2006 must have been submitted
to the tax authorities by June of the following year.
As a result of the transfer pricing study for year 2006, no income
tax adjustments for the year were identified since transactions with
related companies were undertaken for amounts approximating to
the Arm’s Length Principle. At December 31, 2007, the Bank was in
the process of preparing this study and, according to Management,
the effects of such a study, if any, will have little importance for the
financial statements taken as a whole.
10. Liabilities to banks
A summary of the liabilities to banks is as follows.
Dec 31, Dec 31,
(in thousands of U.S. dollars) 2007 2006
Liabilities to the group
Liabilities to banks in
22,614 9,649
OECD countries
Liabilities to banks in
9,838
non-OECD countries 11 49
Total 32,463 9,698
December 31, 2007 December 31, 2006
(in thousands of U.S. dollars)
ProCredit Bank Bulgaria, coming due
Capital Interest Total Capital Interest Total
up to August 2008
ProCredit Bank Albania, coming due
10,000 103 10,103 – – –
up to July 2009 in 2007 and 2006
ProCredit Bank Kosovo, coming due
up to August 2008 (coming due
6,875 212 7,087 5,000 1 5,001
up to June, 2007, in 2006)
ProCredit Bank Congo, coming due
up to April 2008 (coming due
3,865 94 3,959 3,250 30 3,280
up to April, 2007, in 2006) 1,431 22 1,453 1,348 20 1,368
Others 12 – 12 – – –
Total 22,183 431 22,614 9,598 51 9,649
Liabilities to Banks in OECD Countries – A summary of the liabilities
to banks in OECD countries is as follows.
December 31, 2007
(in thousands of U.S. dollars) Capital Interest Total
Citigroup, coming due up to December 2012
Bank im Bistum Essen eG, coming due
6,000 14 6,014
up to October 2010 4,000 72 4,072
Deferred fees OECD banks (248) – (248)
Total 9,752 86 9,838
11. Liabilities to ProCredit Holding A.G.
Corresponds to a bond held by the principal stockholder, ProCredit
Holding A.G. for a capital amount of US$20 million (US$23 million in
2006) coming due up to May 2009. At December 31, 2007, the annual
interest payment has been US$460,000 (US$326,000 in 2006).

12. Liabilities to customers
Liabilities to customers consist of deposits due on demand, sav-
ings deposits and term deposits. The following table shows a
breakdown by customer groups:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Current accounts
Private individuals 3,939 562
Corporates 617 16
Saving accounts
Private individuals 16,217 7,818
Corporates 5,112 4,102
Term deposit accounts
Private individuals 12,396 6,605
Corporates 39,147 25,387
Other liabilities to customers 788 635
Total 78,216 45,125
Current Accounts – Correspond to current accounts with a nomi-
nal annual interest rate ranging between 0.10% and 1.50% at
December 31, 2007 (0.25% and 1.50% in 2006) based on daily balances
with monthly capitalization.
Saving Accounts – Correspond to savings accounts with a nominal
annual interest rate ranging between 2% and 4.75% at December
31, 2007 (1.75% and 3.5% in 2006) based on daily balances with
monthly capitalization.
Term Deposit Accounts – Constitute fixed-term certificates of depo-
sit for an original period of no less than 30 days with nominal
annual interest rates ranging between 4% and 9% at December 31,
2007 (3.25% and 8.75% in 2006), depending on the term. Such de-
posits are presented based on the period remaining until maturity.
13. Liabilities to international financial institutions
Liabilities to international financial institutions are an important
source of financing for the Bank. Medium - to long-term loans from
international financial institutions are reported under this item.
The following table gives a detailed breakdown for this item.
Dec 31, Dec 31,
(in thousands of U.S. dollars) 2007 2006
Liabilities with fixed interest rates
to end-2007 – 5,044
in 2008 3,370 –
in 2009 – 3,504
in 2010 2,458 –
2011 and later – 10,078
Total 5,828 18,626
Liabilities with variable interest rates
to end-2007 – 2,552
in 2008 1,003 2,113
in 2009 – 2,196
in 2010 24,831 –
2011 and later 12,589 –
Total 38,423 6,861
Total 44,251 25,487
A summary of liabilities to international financial institutions is as
follows:
December 31, 2007 December 31, 2006
(in thousands of U.S. dollars) Capital Interest Total Capital Interest Total
Instituto de Crédito Oficial – ICO, coming due
up to March 2015 in 2007 and 2006 10,064 15 10,079 10,064 14 10,078
Credit Suisse Microfinance Fund Management,
coming due up to March 2010 (coming due
up to October 2007 in 2006) 9,500 174 9,674 1,500 17 1,517
Dexia Blue Orchard, coming due up to November 2010 7,700 128 7,828 – – –
Inter-American Investment Corporation, coming
due up to November 2009 (coming due
up to July 2007, in 2006) 3,000 26 3,026 904 18 922
NOVIB, coming due up to January 2010
(coming due up to November 2009, in 2006) 3,000 21 3,021 2,000 15 2,015
Latin American Challenge Investment Fund S.A. –
LA – CIF, coming due up to December 2008
(coming due up to October 2007, in 2006) 2,500 13 2,513 2,500 18 2,518
Corporación Andina de Fomento – CAF, coming
due up to January 2010 (coming due
up to October 2009, in 2006) 2,401 57 2,458 3,431 58 3,489
BBVACODESPA, coming due up to November 2010 2,300 17 2,317 – – –
Responsibility SICAV (Lux), coming due
up to June 2009 2,000 5 2,005 – – –
Belgische Investeringsmaatschappij Voor
Ontwikkelingslanden – BIO, coming due up
F i n a n c i a l S tat e m e n t s
to December 2009 in 2007 and 2006 1,000 6 1,006 1,500 10 1,510
International Finance Corporation – IFC, coming
due up to March 2008 in 2007 and 2006 334 10 344 1,000 31 1,031
Global Microfinance Facility – GMF, coming due
up to November 2007 – – – 1,500 16 1,516
IDB/MIF, coming due up to July 2007 – – – 904 18 922
Deferred fees IFIS (20) – (20) (31) – (31)
Total 43,779 472 44,251 25,272 215 25,487

A n n u a l R e p o r t 2 0 0 7
14. Debt securities
On July 24, 2006, the Ecuadorian Superintendency of Banks and
Insurance authorized the Bank to proceed with the public issue
of commercial paper for an amount of up to US$15 million. As of
June and September, 2007, this programme of commercial paper
obtained a rating of AAA- by Bankwatch Ratings S.A. The maturities
are between 6 months and 1 year. The papers are traded on
the Ecuadorian bond market at a discount that varies between 6.5%
and 8%.
15. Provisions
A summary of the provisions is as follows:
(in thousands of U.S. dollars)
Provision for imminent losses for
Dec 31, 2007 Dec 31, 2006
pending transactions 378 316
Post-employment benefits 326 84
Other provisions 56 –
Total 760 400
Provision for Imminent Losses for Pending Transactions – Corre-
spond to provisions for expenses when the Bank has a present obligation
(legal or constructive).
Post – Employment Benefits – In Ecuador local regulations require
benefits to be paid when employment relationships terminate. The
reasons for ending employment relationships can be as follows:
termination by contract, retirement or death. Their value is determined
in accordance with IAS 19, and is calculated using actuarial
mathematical methods. The obligation to make these payments exists
solely because of local requirements; apart from these obligations,
there are no retirement plans or any other benefits after the
termination of contracts and therefore no pension provisions had
to be set aside and no plan assets had to be taken into account.
The provision is discounted at the rate of 6.5%, the interest rate on
long-term Treasury Bills in Ecuador.
The principal actuarial assumptions are as follows:
in %
Discount rate 6.5
Expected return on plan assets (weighted average) 0.0
Rate of increase in salaries 2.4
Rate of increase in pensions in payment 2.2
Inflation assumption 2.2
The following tables provide information about the development of
post-employment benefits:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Balances, beginning of the year 84 –
Provision 242 84
Balances, end of the year 326 84
16. Other liabilities
A summary of other liabilities is as follows:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Liabilities for goods and services 679 2,094
Other deferred income 477 477
Liabilities to employees 356 114
Liabilities for social insurance
contributions 245 165
Donations, grants for investments 10
Non-income tax liabilities 202 135
Others 161 –
Total 2,120 2,995
17. Subordinated debt
A summary of the subordinated debt provision is as follows:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
ProCredit Holding A.G.,
due in December 2011 (1) 5,005 5,004
Inter-American Development Bank –
IDB, due in April 2008 919 1,522
Total 5,924 6,526
(1) A convertible bond for US$5 million with an annual interest
rate of 7.8% with quarterly interest payments. This bond
was acquired by the Bank’s principal stockholder, ProCredit
Holding A.G. The conversion into shares will give rise to a
book value per share recorded at the moment of the transaction.
After the balance sheet date, on June 3, 2008, the bond was
converted into equity at the request of ProCredit Holding A.G.
and no adjustments were recorded in the income statement.
18. Stockholders’ equity
As at December 31, 2007, the shareholder structure was as follows:
December 31, 2007 December 31, 2006
Shareholder Size of stake Number of Amount Size of stake Number of Amount
in % shares in % shares
ProCredit Holding A.G.
Stichting DOEN-Postcode Loterij /
87.85% 15,045 15,045 73.17% 6,320 6,320
Sponsor Loterij/ BankGiro Loterij 12.15% 2,080 2,080 19.58% 1,691 1,691
IPC – Internationale Projekt Consult GmbH (1) 7.25% 627 627
As at December 100.00% 17,125 17,125 100.00% 8,638 8,638
(1) IPC sold its shares in September 2007 to ProCredit Holding A.G.

Legal Reserve – In accordance with the General Law for Financial
System Institutions of Ecuador at least 10% of annual income must
be allocated to a legal reserve until it reaches 50% of share capital.
Retained Earnings – Based on the Resolutions Codification of the
Ecuadorian Superintendency of Banks and Insurance and the Banking
Board, the Superintendency of Banks and Insurance may require
the Bank to not distribute entire or partial earnings to stockholders,
but oblige such to be used to form a special reserve for an immediate
capital increase. At December 31, 2007, the Superintendency
has placed no restrictions on the use of retained earnings.
Externally Imposed Capital Requirements – In accordance with
the General Law for Financial System Institutions of Ecuador and
the Resolutions Codification of the Ecuadorian Superintendency
of Banks and Insurance and the Banking Board, the Bank must
maintain a 9% ratio between technical capital and the total of the
amount weighted for risk of assets and contingencies. Furthermore,
the technical capital may not be less than 4% of total assets
plus contingencies.
At December 31, 2007 and 2006, the Bank complied with the requirements
of the Regulatory Entity.
19. Net interest income
Included within “net interest income” are interest income and expenses:
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Interest and similar income
Interest income from cash and
short-term funds
Interest income from available-
11,286 9,229
for-sale financial instruments
Interest income from loans and
716 341
advances to customers 22,737 12,387
Other interest income 1 –
Total 34,740 21,957
Interest and similar expenses
Interest expenses from liabilities
2,741 1,864
to banks
Interest expenses from liabilities to
1,218 566
international financial institutions
Interest expenses from
3,150 3,344
subordinated debt
Interest expenses from
904 102
debt securities 2,351 422
Other interest expenses 10,364 6,298
Total 24,376 15,659
20. Allowance for impairment losses on loans and advances
Risk provisioning is reflected in the income statement as follows:
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Increase in impairment allowance
(Note 7) 5,145 2,865
Release of impairment allowance (1,600) (268)
Recovery of written-off loans
Other provisions on loans and
(451) (211)
advances – 62
Total 3,094 2,448
The increase of impairment charge comprises the following
entries:
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Allowance for impairment on
loans and advances to customers
Specific impairment
Allowance for individually
– 122
insignificant impaired loans
Allowance for collectively
2,812 861
assessed loans 2,333 1,882
Total 5,145 2,865
21. Net fee and commission income
A summary of net fee and commission income is as follows:
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Fee and commission income
Payment transfers and transactions 28 10
Account maintenance fee 43 –
Fees for guarantees 7 1
Other fee and commission income 247 9
Total 325 20
Fee and commission expenses
Other fees to others 42 27
Other fees to banks 25 30
Other fee and commission expenses 93 110
Total 160 167
Net fee and commission income 165 (147)
The item “other fee income” refers to transactions carried out on
behalf of third parties, e.g. Western Union. “Other fee expenses”
consists primarily of fee expenses related to bank expenses.
22. Operating expenses
A summary of operating expenses is as follows:
F i n a n c i a l S tat e m e n t s
Dec 31, 2007 Dec 31, 2006
(in thousands of U.S. dollars)
Personal expenses
Salary expenses 4,536 3,002
Social security expenses 672 401
Other personnel expenses 1,851 1,002
Total 7,059 4,405

0
A n n u a l R e p o r t 2 0 0 7
(in thousands of U.S. dollars)
Other administrative expenses
Dec 31, 2007 Dec 31, 2006
Office rent 729 481
Communication and IT expenses 791 454
Transport 1,081 771
Office supplies 472 405
Security service 556 236
Marketing, advertising and
representation 1,699 614
Construction, repairs and maintenance 628 280
Consultancy fees 1,140 1,022
Legal and audit fees 209 194
Non-profit tax 487 386
Depreciation of fixed and
intangible assets 1,241 731
Training 742 254
Other administrative expenses 1,495 735
Total 11,270 6,563
Total operating expenses 18,329 10,968
23. Income tax expenses
This item includes all taxes on income. Income tax expenses were
as follows:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Current tax 627 718
Adjustment to the prior year (198) –
Deferred tax (106) (154)
Total 323 564
In calculating both current taxes on income, earnings and the deferred
income tax, the respective tax rates are applied.
24. Breakdown of residual terms to maturity
The residual term to maturity is defined as the period between
the balance sheet date and the contractually agreed due date of
a claim or liability, or of a partial payment under such a claim or
liability.
December 31, 2007
Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Total
(in thousands of U.S. dollars) 1 month months months years years 5 years
Assets
Cash and cash equivalents 3,976 7,406 – – – 3,501 14,883
Loans and advances to banks 11,291 – – – – 17 11,308
Financial assets available for sale – – 781 – – 1,003 1,784
Loans and advances to
customers, net 9,150 18,292 66,214 46,257 36,019 2,950 178,882
Deferred tax – – – – – 1,459 1,459
Other assets – – – – – 950 950
Total 24,417 25,698 66,995 46,257 36,019 9,880 209,266
Liabilities
Liabilities to banks 6,886 1,431 17,865 6,000 – 281 32,463
Liabilities to ProCredit Holding A.G. 2,499 5,000 4,000 9,000 – – 20,499
Liabilities to customers 14,770 8,346 26,161 2,229 3 26,707 78,216
Liabilities to international
financial institutions 15,639 2,327 2,153 10,123 14,009 – 44,251
Debt securities 1,742 1,927 10,646 – – – 14,315
Deferred tax – – – – – 1,339 1,339
Provisions – – – – – 760 760
Other liabilities 1,119 – 500 – – 738 2,357
Total 42,655 19,031 61,325 27,352 14,012 29,825 194,200
Open position (18,238) 6,667 5,670 18,905 22,007 (19,945) 15,066

December 31, 2006
Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Total
(in thousands of U.S. dollars) 1 month months months years years 5 years
Assets
Cash and cash equivalents 11,269 302 – – – – 11,571
Financial assets available for sale 911 1,828 870 – 375 58 4,042
Loans and advances to customers (1,042) 13,810 47,829 29,806 15,579 937 106,919
Deferred taxes 1,671 – – – – – 1,671
Other assets – – 600 – – 387 987
Total 12,809 15,940 49,299 29,806 15,954 1,382 125,190
Liabilities
Liabilities to banks 3,108 394 1,811 2,511 1,874 – 9,698
Liabilities to ProCredit Holding A.G. 2,036 – 8,290 5,000 8,000 – 23,326
Liabilities to customers 13,387 11,712 13,128 6,894 4 – 45,125
Liabilities to international
financial institutions 894 904 8,567 1,939 5,163 8,020 25,487
Debt securities 388 7,353 – – 102 7,843
Deferred taxes – – – – – 1,814 1,814
Provisions – – – – – 400 400
Other liabilities 167 122 1,110 – – 2,074 3,473
Total 19,592 13,520 40,259 16,344 15,041 12,410 117,166
Open position (6,783) 2,420 9,040 13,462 913 (11,028) 8,024
25. Risk management
Management of risk – The management of risk includes:
1. Management of the overall risk profile
Taking risks is a core part of the banking business, and therefore
the Bank’s activities expose it to a variety of risks. The most important
types of risk for the Bank are: credit risk, liquidity risk, market
risk and operational risk.
The Bank’s aim is to achieve an appropriate balance between risk
and return and to minimize potential adverse effects on the Bank’s
financial performance.
The risk management of the Bank has the following objectives:
• Risks are adequately covered with equity
• Full compliance with external capital requirements
• Enabling the Bank to implement its plans for continued strong
growth while following its business strategy.
2. Organization and procedures
The Bank’s risk management procedures are designed to identify
and analyze these risks, to set appropriate risk limits and controls
and to monitor the risks and adherence to limits by means of reliable
and up-to-date information systems.
Risk management is carried out by a Central Risk Department,
which is supervised by a Risk Committee under procedures
approved by the Board of Directors. The latter defines principles
for overall risk management, as well as written policies. The Risk
Department identifies, evaluates and monitors risks in close cooperation
with the Bank’s operating units. In addition, internal
audit is responsible for the independent review of risk management
and the control environment.
Types of risk – Types of risk includes:
1. Market risk
Market risk is defined as the risk of loss as a result of adverse
changes in risk factors including interest rates, foreign currency
and equity prices together with related parameters such as market
volatilities.
The Group is exposed to market risk because of positions held in its
trading portfolios as will as its non-trading business including the
Group’s treasury operations.
F i n a n c i a l S tat e m e n t s 1

A n n u a l R e p o r t 2 0 0 7
2. Interest rate risk
The Bank operates in market segments in which overall interest
rate levels almost invariably show little relation to the levels prevailing
in the international capital markets. The Bank has therefore
chosen not to introduce the value-at-risk concept. It manages its
December 31, 2007
(in thousands of U.S. dollars)
Assets
interest rate risk primarily on the basis of maturity gap analyses,
duration analyses, and qualitative analyses.
The repricing analysis below shows the volumes of the individual
balance sheet items in relation to the times of possible repricing.
Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Non-interest Total
1 month months months years years 5 years bearing
Cash and cash equivalents 3,976 7,406 – – – – 3,501 14,883
Loans and advances to banks 11,291 – – – – – 17 11,308
Financial assets available
for sale – – 781 – – – 1,003 1,784
Loans and advances
to customers 9,150 18,292 66,214 46,257 36,019 1,049 1,901 178,882
Tax assets – – – – – – 1,459 1,459
Other assets – – – – – – 950 950
Total 24,417 25,698 66,995 46,257 36,019 1,049 8,831 209,266
Liabilities
Liabilities to banks 628 2,878 17,802 1,875 3,000 6,000 280 32,463
Liabilities to customers 17,269 13,346 30,161 11,229 3 – 26,707 98,715
Liabilities to international
financial institutions 1,630 3,966 6,210 11,016 13,373 8,056 – 44,251
Debt securities 1,742 1,927 10,646 – – – – 14,315
Provisions – – – – – – 760 760
Other liabilities – – – – – – 2,357 2,357
Subordinated debt
(subordinated capital) – – 600 300 5,000 – 24 5,924
Total 21,269 22,117 65,419 24,420 21,376 14,056 30,128 198,785
Open position 3,148 3,581 1,576 21,837 14,643 (13,007) (21,297) 10,481
December 31, 2006
(in thousands of U.S. dollars)
Assets
Up to 1 – 3 3 – 12 1 – 2 2 – 5 More than Non-interest Total
1 month months months years years 5 years bearing
Cash and cash equivalents 2,590 302 – – – – 8,679 11,571
Financial assets available
for sale 911 1,828 870 – 375 – 58 4,042
Loans and advances
to customers 7,247 14,216 49,254 30,700 16,039 30 (6,714) 110,772
Allowance for impairment (203) (406) (1,425) (894) (460) (465) (3,853)
Tax assets – – – – – – 1,671 1,671
Other assets – – – – – – 987 987
Total 10,545 15,940 48,699 29,806 15,954 30 4,216 125,190
Liabilities
Liabilities to banks, total 3,101 356 1,804 2,511 1,875 – 51 9,698
Liabilities to customers 15,159 11,319 21,127 11,891 8,005 – 950 68,451
Liabilities to international
financial institutions 808 833 8,508 1,939 5,163 8,052 184 25,487
Debt securities 388 7,353 102 7,843
Tax liabilities – – – – – – 1,814 1,814
Provisions – – – – – – 400 400
Other liabilities 167 122 633 – – – 2,551 3,473
Subordinated debt
(subordinated capital) – – 375 750 5,375 – 26 6,526
Total 19,235 13,018 39,800 17,091 20,418 8,052 6,078 123,692
Open position (8,690) 2,922 8,899 12,715 (4,464) (8,022) (1,862) (1,498)

3. Capital risk
Technical Capital – In accordance with the General Law for Financial
System Institutions of Ecuador and the Resolutions Codification of
the Ecuadorian Superintendency of Banks and Insurance and the
Banking Board, the Bank must maintain a 9% ratio between technical
capital and the total of the amount weighted for risk of assets
and contingencies. Furthermore, the technical capital may not be
less than 4% of total assets plus contingencies.
The Bank evaluates the capital risk through the Assets and Liabilities
Committee - ALCO, whereby periodic monitoring of compliance
with forecast of capital needs is performed.
4. Credit risk
There are two sources of credit risk for the Bank: On the one hand,
credit risk arises from customer lending; on the other hand, credit
risk is also incurred with interbank placements and from securities.
Credit risk is further divided into credit default risk and credit portfolio
risk in order to facilitate close risk management.
4.1. Credit default risk from customer lending
The management of credit default risk begins with the Bank’s loan
officers. Thanks to the Bank’s thorough credit analysis, the risk is
minimized at the beginning of the credit cycle, i.e. when the loan
application is received and processed by the responsible loan
officer. Key to the high quality of the Bank’s credit analysis is an
extensive training of its loan officers and a comprehensive cash
flow analysis.
Close relationships with credit customers in accordance with the
Bank’s mission to be a “neighborhood bank” are an important tool
for avoiding arrears and identifying problems at an early stage. The
Bank has an escalation process in place that defines the steps to be
taken when a client’s ability to service the outstanding loan shows
signs of deterioration. Due to the Bank’s credit methodology, it has
been able to establish its position as a responsible and serious
lending institution.
The effectiveness of this tight risk management is reflected in the
low arrears rate of the Bank’s loan portfolio.
Breakdown of loan portfolio by days in arrears:
The Bank’s credit portfolio risk is naturally limited by the credit
strategy resulting from its business model, in particular its focus
on small and very small loans and the geographical and economic
sector diversification of the loan portfolio.
F i n a n c i a l S tat e m e n t s
Loan portfolio PAR (>30 days) PAR as % Net write-offs Net write-offs as %
of loan portfolio of loan portfolio
As at December 31, 2007 184,378 2,799 1.52% 724 0.39%
As at December 31, 2006 110,772 1,968 1.78% 890 0.80%
The structure of the loan portfolio is regularly reviewed within the
Bank in order to identify potential events which could have an impact
on large areas of the loan portfolio (common risk factors) and if
necessary to limit the exposure to certain business sectors.
Individually significant loans are those above US$50,000, which
are reviewed for impairment on an individual basis (specific impairment).
For the calculation, a discounted cash flow approach is
applied.
Impairment for individually insignificant loans in arrears is calculated
on a portfolio basis at historical default rates. Eight or more
days in arrears is considered objective evidence of impairment. For
all impaired loans, portfolio-based allowances for impairments are
made, again based on historical loss experience.
The total allowance for impairment losses is presented in note 19.
4.2. Credit default risk with interbank placements and from securities
The Bank limits its deposit and other banking transactions to sound
local or international banks. The exposure to each counterparty is
limited based on an individual assessment; this limit may not exceed
20% of the regulatory capital of the bank. The limits are approved
by the Risk Committee of the Bank. The financial and market
performance of the counterparties is continuously monitored by
the Risk Department.
5. Liquidity risk
Banco ProCredit divides financing risk into a predominantly shortterm
liquidity risk (liquidity shortages) and a medium- and longterm
funding risk (shortage of equity and debt).
Liquidity risk is the risk of not being able to meet financial obligations
when they come due.
In the Bank, liquidity risk is monitored on a daily basis by the Treasury
Department; furthermore it is part of the monthly Assets and
Liabilities Committee (ALCO) meetings, in which senior management
participates.
The daily liquidity position is monitored by fulfillment of indicators;
the short-term liquidity position is monitored on a cash flow basis
for a forecast period of 6 months.

A n n u a l R e p o r t 2 0 0 7
The limits are set so that that Bank has sufficient liquid funds avail-
able to meet its obligations, even in extraordinary circumstances.
ProCredit Holding A.G. serves as a “lender of last resort”, and keeps
liquid funds or credit lines available for this purpose.
Throughout the reporting period, the Bank had at all times sufficient
liquidity to meet all financial obligations in a timely manner.
In order to reduce liquidity risk, the Bank finances its lending operations
by diversified local customer deposits and longer-term international
loans.
The maturity breakdown of the Bank’s balance sheet items is presented
in note 24.
6. Funding risk
The Bank’s business plans, prepared annually for a time horizon of
5 years, serve as the basis for determining medium-term funding
needs in regard to both equity and debt financing.
ProCredit Holding A.G. supports the funding needs of the Bank
through equity investments. For longer-term debt funding the
Bank uses various sources: ProCredit Holding A.G., other ProCredit
banks, international private banks, multilateral institutions, investment
funds etc.
7. Operational risk
In line with Basle II the Bank defines operational risk as the risk of
loss resulting from inadequate or failed internal processes, from
actions taken by, or errors on the part of, people and systems, or
from external events. This category includes all “event risks” in the
areas of people, processes, technology and information technology.
This definition excludes operating environment and reputation
risks, but includes legal and information security risks.
Operational risk management is one of the major tasks of management
and risk management staff. The overall operational risk profile,
operational losses, new products and processes and changes
to existing ones are regularly discussed in the operational risk
committee.
The selection and training of staff is a crucial factor in the Bank’s
success. To enhance the professional standards of the employees,
the Bank has established training facilities; and also the ProCredit
group has established regional academies and an international
academy in Fuerth, Germany. Besides purely technical and professional
capabilities, personal attitude is an important criterion
during recruitment. Employees not only receive instruction on technical
issues, but also the Bank puts a strong emphasis on transmitting
its business values and the content of its Code of Conduct.
To analyze operational risk, the loss event data base was implemented
in 2007, and international training sessions at group level
took place.
As of December 2007, no significant legal proceedings were pending.
26. Fair value of financial instruments
The following table gives an overview of the carrying amounts and
fair values of the financial assets and liabilities which are not recognized
in the balance sheet at fair value.
Carrying value Fair value
(in thousands of U.S. dollars)
Financial assets
2007 2006 2007 2006
Loans and advances to customers 178,885 106,921 178,835 106,365
Loans and advances to banks 8,291 – 8,291 –
Total 187,175 106,921 187,126 106,365
Financial liabilities
Liabilities to banks 9,849 49 10,227 49
Liabilities to customers 78,216 45,125 78,216 45,128
Liabilities to IFIs and other borrowings 44,250 25,487 41,345 23,084
Debt securities 14,315 7,843 14,315 7,843
Subordinated debt 919 1,521 – 1,521
Convertible bond 5,005 5,004 5,005 5,004
Total 152,554 85,029 149,108 82,629
The fair value of claims and liabilities at fixed rates of interest was
determined using the discounted cash flow method, with reference
to the money market interest rates for financial instruments with
similar default risks and similar remaining terms to maturity.
Receivables from customers are recognized exclusive of the allowance
for impairment losses. The estimated fair value of the receivables
corresponds to the discounted amount of the estimated expected
future cash flows. The expected cash flows are discounted
to fair value at current market interest rates.
For receivables and liabilities with a remaining term to maturity of
up to six months, the fair value was stated as equal to the carrying
amount.
During 2007 and 2006, no adjustments were recorded in either the
income statement or in equity.

27. Contingent liabilities and commitments
(in thousands of U.S. dollars)
Operating lease commitments
Dec 31, 2007 Dec 31, 2006
No later than 1 year 38 27
Later than 1 year and no later
than 5 years 1,977 1,174
Later than 5 years 199 –
Total 2,214 1,201
Operating lease commitments correspond to rental contracts for
the Banks.
December 31, 2007
28. Related party transactions
Financial receivables from related parties consist principally of a
loan and advances to Banco Los Andes ProCredit S.A., Bolivia for
US$3.017 million as at December 31, 2007.
Liabilities to related parties are set forth in the following table:
(in thousands of U.S. dollars)
Dec 31, 2007 Dec 31, 2006
Liabilities to banks 22,614 9,649
Liabilities to
Procredit Holding A.G. 20,499 23,326
Subordinated debt 5,005 5,004
Total 48,118 37,979
Liabilities to Banks – The following transactions were outstanding
to related parties:
Balance of Interest Total Interest
(in thousands of U.S. dollars) main liability accrued liability in 2007
Institution
ProCredit Bank SH.A., Albania 6,875 212 7,087 485
ProCredit AD, Bulgaria 10,000 103 10,103 341
ProCredit Bank S.A.R.L., Congo 1,431 22 1,453 85
ProCredit Bank SH.A., Kosovo 3,865 94 3,959 3,865
Others 12 – 12 –
December 31, 2006
22,183 431 22,614 4,776
Balance of Interest Total Interest
(in thousands of U.S. dollars) main liability accrued liability in 2006
Institution
ProCredit Bank SH.A., Albania 5,000 1 5,001 355
ProCredit Bank S.A.R.L., Congo 1,348 20 1,368 26
ProCredit Bank SH.A., Kosovo 3,250 30 3,280 122
Liabilities to ProCredit Holding A.G. – Corresponds to an bond held
by the principal stockholder, ProCredit Holding A.G. for a capital
amount of US$20 million (US$23 million in 2006) coming due up to
May 2008 (for one year coming due up to June 2007, in 2006). At
December 31, 2007, the annual interest payment was US$460,000
(US$326,000 in 2006) and interest incurred during 2007 was
US$2.5 million (US$1.7 million in 2006).
Subordinated Debt – This item consists of a convertible bond for
US$5 million with an annual interest rate of 7.8% with quarterly
interest payments. This bond was acquired by the Bank’s principal
stockholder, ProCredit Holding A.G. The conversion into shares will
give rise to a book value per share recorded at the moment of the
transaction and interest incurred during 2007 was US$395,000
(US$4,000 in 2006).
29. Management compensation
Management does not receive any compensation from Banco
ProCredit S.A., Ecuador. The General Manager and the Deputy Gen-
eral Manager were until November 2007 employees of IPC GmbH,
which provided management services to the Bank in the framework
of a Management Services Agreement between IPC GmbH and
Banco ProCredit S.A., Ecuador. Until November 2007, the bank paid
a monthly fee of EUR 28,000.00 for the management services provided.
9,598 51 9,649 503
From December 2007, the Managers became employees of
ProCredit Holding A.G., and the Management Services Agreement
was changed accordingly from IPC GmbH to ProCredit Holding A.G.
The bank pays a monthly fee of EUR 26,378.67 for the management
services provided.
30. Average number of employees
The average number of employees during the year 2007 was 677,
and the number of employees at year-end 2007 was 807.
31. Subseqent events
Between December 31, 2007 and the date of issuance of financial
statements (September 8, 2008), there were no subsequent events
that, in the opinion of Management, could affect the accompanying
financial statements.
F i n a n c i a l S tat e m e n t s

A n n u a l R e p o r t 2 0 0 7
Contact Addresses
Head Office, Quito
Atahualpa y Amazonas, esquina
Tel.: (02) 600 3820
Ambato Centro
Bolívar, entre Mariano Egüez y Espejo
Tel.: (03) 242 3597 / 242 3599 / 242 4032
Ambato Sur
Av. Víctor Hugo, diagonal al Mall de
Los Andes
Tel.: (03) 240 0798 / 240 0818 / 240 0878
Cayambe
Morales S 1-80 y Junín, esquina
Tel.: (02) 211 0440 / 236 4077
Cuenca
Mariscal Sucre 630, entre Borrero y
Hermano Miguel
Tel.: (07) 283 4664 / 284 1446 / 282 7576.
Durán
Av. Nicolás Lapenti (1/2 Km.) Mz. 12,
Solar 10
Tel.: (04) 281 2122 / 281 2322 / 281 2622.
Guayaquil Centro
Chile 315, entre Luque y Aguirre
Tel.: (04) 251 5953 / 251 5960 / 251 5964
Guayaquil La Alborada
Guillermo Pareja Rolando y Lateral 12,
Centro Comercial Gran Albocentro
Tel.: (04) 264 5024 / 264 5130 / 264 5176
Guayaquil Las Esclusas
Av. Las Esclusas,
al final del Parque Lineal
Tel.: (04) 250 6038 / 250 6039 / 250 6040
Guayaquil Mapasingue
Av. Vía Daule Km 5 1/2 . Centro Comercial
Big Outlets - Mapasingue Oeste entre
Av. 5ta y 6ta
Tel.: (04) 235 6065 / 235 6059 / 235 6061 / 235 6063
Guayaquil Parque California
Parque Comercial California 1, oficina 1,
Km. 11 1/2 vía a Daule
Tel.: (04) 210 1005 / 210 1006 / 210 1007
Ibarra
Antonio José de Sucre 578 y Juan José
Flores, frente al parque Pedro Moncayo
Tel.: (06) 260 6246 / 260 7535 / 260 8572
Latacunga
Padre Salcedo 5-31,
entre Sánchez de Orellana y Quito
Tel.: (03) 280 8980 / 280 8981 / 280 8982
Manta
Av. 109, entre calle 104 y 105 (Tarqui)
Tel.: (04) 261 2300 / 261 2735
Machala
Av. 9 de Octubre No. 1310, entre
Av. Ayacucho y Av. Sta. Rosa
Tel.: (04) 2966192 / 2937448 / 2937555
Otavalo
Vicente Ramón Roca y Cristóbal Colón,
esquina
Tel.: (06) 292 4069 / 292 4926
Quito Carapungo
Padre Luis Vaccari, lote 232,
frente al parque principal
Tel.: (02) 242 5470 / 242 6242
Quito Centro
Guayaquil N2-19 y Bolívar
Tel.: (02) 228 6766 / 295 4920
Quito Guamaní
Pedro Vicente Maldonado Km. 12 1/2
y Leonidas Dubles (entrada a Caupicho)
Tel.: (02) 297 4137 / 297 4117
Quito Norte
Av. de La Prensa N 60-101 y Flavio Alfaro
Tel.: (02) 229 7919 / 229 8144 / 253 2813
Quito Villaflora
Pedro Vicente Maldonado
S 9-496 y Gil Martín
Tel.: (02) 264 6043 / 266 2922
Riobamba
Carlos Zambrano 23-13,
entre Daniel León Borja y Veloz
Tel.: (03) 296 9873 / 296 5702

Sangolquí
Av. General Enríquez No. 2930 y calle Río Chinchipe
Tel.: (02) 233 2959 / 233 6566 / 208 0256 / 233 3435
Santo Domingo Centro
Av. Quito 101 y Tsáchila, esquina
Tel.: (02) 276 7304 / 276 9935
Santo Domingo Parque Ecológico
Av. Calazacón 663, entre Av. Quevedo
y Av. Chone, sector La Chorrera
Tel.: (02) 370 3037
C o n ta c t A d d r e s s e s