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 17,516 – – 

Gross Loan Portfolio 4,354 – – 

Business Loan Portfolio 4,330 – – 

USD < 10,000 3,802 – – 

USD > 10,000 < 50,000 371 – – 

USD > 50,000 < 150,000 157 – – 

USD > 150,000 0 – – 

Agricultural Loan Portfolio 0 – – 

Housing Improvement Loan Portfolio 0 – – 

Other 23 – – 

Allowance for Impairment on Loans 83 – – 

Net Loan Portfolio 4,271 – – 

Liabilities to Customers 2,447 – – 

Liabilities to Banks and Financial Institutions 0 – – 

Shareholders’ Equity 14,481 – – 

Income Statement 

Operating Income 733 – – 

Operating Expenses 2,141 – – 

Operating Profit Before Tax -1,408 – – 

Net Profit -1,408 – – 

Key Ratios 

Capital Ratio 139.29% – – 

Operational Statistics 

Number of Loans Outstanding 3,172 – – 

Number of Loans Disbursed within the Year 3,395 – – 

Number of Business and Agricultural Loans Outstanding 3,156 – – 

Number of Deposit Accounts 8,087 – – 

Number of Staff 168 – – 

Number of Branches and Outlets 5 – –

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 30 

Branch Network 32 

Organisation, Staff and Staff Development 34 

Business Ethics and Environmental Standards 37 

Our Clients 38 

Financial Statements 42 

Contact Addresses 55 

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 Honduras is a development-oriented full-service bank. We offer excel- 

lent 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 

As we weigh up our achievements in 2007, our first year in operation, we would like to share with our 

customers and colleagues our satisfaction at having achieved our targets. We fulfilled our plan to establishing 

a full-service bank geared to providing financial services to our target groups, comprising the 

majority of the population. Additionally, we reached our business targets for the first months of oper- 

ation. 

The Honduran financial system underwent a significant change in 2007. For a long time the Honduran 

market had consisted solely of local banks, but last year ProCredit and four other international banks 

entered the market. These new foreign banks focus almost exclusively on consumer loans, failing to provide 

access to socially responsible financial services. For Banco ProCredit, this gap in the market represents 

a great opportunity to make a real difference in Honduras. 

We obtained our banking licence in record time thanks to the professionalism of the National Commission 

for Banking and Insurance (CNBS). In March 2007, just over three months after receiving our application, 

the CNBS granted a banking licence to Banco ProCredit Honduras and the bank opened its doors on June 

18, 2007. The response from our customers and from the general public has been overwhelmingly positive, 

as shown by the figures for our lending operations and for the deposit business. Seven months after 

opening, the bank boasted a loan portfolio of USD 4.4 million, consisting of 3,172 outstanding loans with 

excellent repayment rates (the rate of arrears greater than 30 days was 0.84%). Over the same period the 

bank opened 8,087 savings accounts, with a total balance of USD 2.4 million. These results exceed our 

initial forecasts and underscore the huge potential offered by the Honduran market. As of December 2007 

the bank operated five branches (four in Tegucigalpa and one in San Pedro Sula) and employed a total 

168 staff at these facilities and at its head office. 

None of these achievements would have been possible without the high level of commitment shown 

by the bank’s staff, and the strong efforts of all concerned to ensure a successful beginning for Banco 

ProCredit. These efforts included strong support from staff of the other ProCredit banks in Latin America, 

who contributed to training Honduran staff in their own countries and on secondments in Honduras. Without 

this support, the bank could not have achieved such rapid growth in its operations while maintaining 

such high levels of quality. Staff training and development are, and will continue to be, the key factors to 

ensure continued success in the future. During the coming year, employees will enhance their knowledge 

and professional proficiency by building on the training already received, helping us to achieve our goals 

for 2008. We plan to introduce new savings products and services, and to expand the range of loan products 

and our branch network, as we continue to offer the highest level of service to our customers. 

Gabriel Schor 

Chairperson 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 

Board of Directors as at 

December 31, 2007: 

Dr. Gabriel Schor 

(Chairperson) 

Helen Alexander 

(Vice Chairperson) 

Mariano Larena 

(Secretary) 

Luis Hernández 

(Commissioner)

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

The Bank and its Shareholders 

Banco ProCredit Honduras 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 Honduras 

and holds 80.5% of the shares. 

Banco ProCredit Honduras was established in 

June 2007 by an alliance of international development-oriented 

investors who shared the same 

vision and philosophy: to establish a new type 

of bank capable of serving the demand of broad 

segments of the population, deepening the 

financial sector, and contributing to economic 

and social development. Their primary objective 

was not short-term profit maximisation, but rather 

to have a significant impact on the country’s 

economic development and to achieve a reason- 

Shareholder 

(as of Dec. 31, 2007) 

ProCredit Holding 

DOEN 

IDB/MIF 

Total Capital 

Sector 

Investment 

Investment 

Banking 

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. 

able return on their investment so as to make this 

new venture sustainable over the long term. 

The founding shareholders of Banco ProCredit 

Honduras were ProCredit Holding AG and the 

DOEN Foundation, while IPC provided 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 

Honduras is outlined below. The bank’s current 

share capital is USD 15.9 million. 

Headquarters 

Germany 

The Netherlands 

USA 

Share 

80.5% 

3.8% 

15.7% 

100% 

Paid-in Capital 

(in USD) 

12,775,330.00 

614,384.79 

2,500,000.00 

15,889,714.79 

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. 

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. 

Th e B a n k a n d i t s S h a r e h o l d e r s 

Fulfilling a long-standing aspiration on 

the part of Latin American countries, 

the Inter-American Development Bank 

(IDB) was created in 1959 as an innovative multilateral 

financial institution to promote social 

and economic development in Latin America 

and the Caribbean. Its lending and technical cooperation 

programmes go beyond just providing 

finance, and support poverty reduction strategies 

and policies; promote sustainable growth; foster 

trade, regional investment and integration; further 

the development of the private sector; and 

support efforts to modernise government institutions 

and structures. 

The programmes and tools of the IDB have served 

as models for the creation of other regional and 

local multilateral development institutions. The 

IDB is currently the main source of multilateral 

funding for economic, social and institutional 

development projects in Latin America and the 

Caribbean. 

The IDB Group consists of the Inter-American 

Development Bank, the Inter-American Investment 

Corporation (IIC) and the Multilateral 

Investment Fund (MIF). The IIC focuses on supporting 

small and medium-sized enterprises, 

while the MIF promotes the development of the 

private sector through grants and investment.

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 


El Salvador 


Nicaragua 

ProCredit Services 

Colombia 


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 


Sierra Leone 

ProCredit 

Savings and Loans Ghana 


Democratic Republic of Congo 

Banco ProCredit Mozambique 

The international group 

of ProCredit institutions; 

see also 

www.procredit-holding.com 

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 

Guatemala 

Honduras 

El Salvador 

Nicaragua 

Costa Rica 

Panama 

Cuba 

Haiti 

Dominican Republic 

Jamaica Puerto Rico 

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 Guiana 

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 


Ecuador 


El Salvador 


Honduras 

ProCredit 

Mexico 


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 


173 employees 

Founded in October 2001 

(bank since September 2004) 

25 branches 



807 employees 

Founded in March 1995 

(bank since June 2004) 

37 branches 



956 employees 

Founded in June 2007 

(operational since June 2007) 

5 branches 



168 employees 

Founded in November 2006 

(operational since June 2007) 

6 branches 


156 employees 

Founded in August 2000 

(bank since October 2005) 

29 branches 



790 employees 

Contact 

P r o C r e d i t i n L at i n A m e r i c a 13 

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 

* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with groupwide 

standards; they may differ from the figures reported in the bank’s local GAAP statements.

1 

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

Highlights in 2007 

• In January and February, staff of Banco 

ProCredit Honduras participated in a range 

of training events in Nicaragua, El Salvador, 

Bolivia and Ecuador, and also Germany and 

Africa. 

• In March 2007, Banco ProCredit Honduras received 

its banking licence, only three months 

after submitting its application to the National 

Commission for Banking and Insurance 

(CNBS). A licence application had never been 

approved so quickly in Honduras. 

• On June 18, 2007, Banco ProCredit’s first 

branch at Parque Valle in Tegucigalpa successfully 

opened its doors to the public. The 

publicresponded enthusiastically with a high 

demand for both loans and accounts. The 

number of people visiting the branch exceeded 

our expectations. 

• The official opening of the bank took place 

at the School of Fine Arts in Tegucigalpa, an 

extraordinary event for the bank and for the 

Honduran financial sector. No other bank had 

ever celebrated its official opening at this 

school, which is located in the Comayagüela 

district, a low-income area of the city. In parallel 

with this event – which also gave Banco 

ProCredit an opportunity to support the work 

of this important cultural institution – the 

Latin American regional meeting of ProCredit 

general managers was held in Tegucigalpa. 

• Four more branches opened, three in Tegucigalpa, 

and one in San Pedro Sula, bringing 

the total number of branches to five by the 

end of the year.

• Students from the School of Fine Arts painted 

a mural at the Parque La Libertad branch. The 

unveiling marked the completion of a community 

partnership project in which the bank 

provided the site and the materials for the 

mural, and the students contributed their 

time and artistic skills. This project fulfilled 

the students’ obligation to participate in a 

social project in conjunction with their 

studies. 

• Banco ProCredit carried out a “Combating 

HIV/AIDS” campaign in Tegucigalpa and San 

Pedro Sula. All employees helped to distribute 

10,000 condoms in boxes bearing the 

bank’s logo, each of which contained information 

about the disease. Prior to the event, 

employees received instruction familiarising 

them with strategies to combat HIV/AIDS. 

Employees then spent a day on the streets in 

the communities served by their branches, 

talking to people and raising public awareness 

of this serious health problem. 

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: 

Francisco Galeano 

Retail Manager 

Santiago Everett 

Finance Manager 

Esther Gravenkötter 

General Manager 

Milton Amador 

IT Manager 

Edwin Flores 

Credit Manager

Political and Macroeconomic Environment 

Honduras is classified as a developing country, 

with per capita income of USD 1,400. According to 

the most recent statistics from the Central Bank 

of Honduras (BCH), this figure is the second lowest 

in Latin America (excluding Haiti), higher only 

than that for Nicaragua.¹ High unemployment 

causes the country to rely on informal businesses 

to generate jobs and to fuel economic growth. 

In the aftermath of Hurricane Mitch and with a 

high level of foreign debt, the Honduran economy 

gained eligibility for participation in the Heavily 

Indebted Poor Countries Initiative launched by 

the International Monetary Fund and the World 

Bank. To qualify for debt relief under this initiative 

the government had to restructure public finances 

and implement certain reforms. The result 

was a reduction in external debt as a percentage 

of GDP from over 100% to around 15%. 

For the past two years the economy has grown at 

a rate of over 6%, with a GDP growth rate of 6.3% 

in 2007. This growth was sustained by a combination 

of populist policies, an expansion of credit, 

the good performance of the export assembly 

sector, and growth in remittances. 

Inflation presented a serious problem for the Honduran 

economy: the cumulative annual inflation 

rate stood at 8.5% at the end of 2007. The average 

annual increase in the consumer price index 

was 8.9%, the highest figure since September 

2001, when it reached 10.1%. These levels were 

considerably higher than those forecast by the 

Central Bank in its monetary policy programme, 

which set the upper limit for inflation at 6.5%. 

The high figures have caused a alarm within the 

financial sector and international organisations. 

The government has maintained a virtually fixed 

exchange rate by establishing a fixed daily adjustment 

of “zero” cents. The significant inflation 

differential between Honduras and most 

other countries (in particular the United States) 

has over-valued the lempira, the local currency; 

some foreign organisations are pressuring Honduras 

to allow the currency to float freely against 

the US dollar. The insufficiency of capital flows 

1 Baseline year: 2000 

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 

to finance the considerable balance of payments 

deficit requires the government to use foreign 

currency reserves to fill the gap. 

Net foreign currency reserves held by the BCH 

as of December 31 stood at USD 2,514 million, a 

decrease of USD 99.8 million from the previous 

year. The decline was attributable to an increase 

in import volumes and reduced growth of family 

remittances. 

Family remittances continued to be a significant 

source of income for the country, amounting to 

USD 2,561.4 million and representing 20.9% of 

GDP. At 10%, the rate of growth in remittances 

was much lower than the 31.1% recorded in 

2006. According to BCH figures, only 1% of the 

total volume of USD-denominated remittances is 

saved or invested in housing, with the remaining 

99% immediately spent on consumption. 

Growing economic integration in Central America 

and the regional free trade agreement, CAFTA, 

will reduce local and cross-border transaction 

costs and increase competition in the market for 

goods and services. Thanks to the creation of this 

regional free trade zone, financial service providers 

can operate without being constricted by national 

borders or the associated legal restrictions 

on international transactions. ProCredit has taken 

an important step to consolidate the group’s 

presence in Central America by establishing 

Banco ProCredit in Honduras. The bank is able to 

offer an integrated package of financial services 

to meet the requirements of customers doing 

business both in local markets and throughout 

the region. 

Next year the country hopes to reduce current 

expenditures and modify its tax regime and exchange 

rate policies to reflect changes in the economic 

environment. The Central Bank is expected 

to adopt a more restrictive monetary policy with 

the aim of containing the risk of rising inflation. 

For 2008, it is important for the Honduran economy 

to be strong enough, and for the public finances 

to be sufficiently sound, to enable the 

country to withstand external shocks such as 

continuing high oil prices and the effects of the 

economic slowdown in the U.S.

1 

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

The Financial Sector 

The traditional banking sector consists of 19 private 

banks,² three of which were licensed by the 

regulatory authority in 2007: Banco Azteca (February 

2007), Banco ProCredit (March 2007) and 

Bancovelo (December 2007). For many decades 

all Honduran banks had been locally owned, but 

by the end of 2007, 11 of the country’s 19 banks 

were majority foreign owned. After many years 

of watching from the sidelines as other countries 

were “discovered” by international banking 

groups, Honduras has now become an attractive 

market for foreign financial service providers; 

acquisitions by Citigroup (Banco Uno and Cuscatlan), 

Banco de America Central (Bamer) and 

Banco Internacional (BanPais) underscore this 

appeal. 

Looking at the profits generated by banks in Honduras 

during 2007, it is easy to understand why 

the inflow of foreign capital into the country’s 

financial system increased. The total for the 

banking sector amounted to USD 138 million, a 

32% increase compared to 2006. The consolidated 

return on equity (RoE) for the banking system 

for the year was 19.8%, up slightly from the 

figure for 2006 (19.4%). Likewise, total sector 

assets, including the loan portfolio, grew sub- 

2 InDecember2007,thesupervisorybodyissuedabanking 

Loan Portfolio Development – volume 

Volume (in USD ’000) 

4,500 

4,000 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

licence to Fundación Covelo/Popular 

500 

0 

Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 

g 

g 

g 

USD 0 – USD 1,000 

USD 1,001 – USD 10,000 

USD 10,001 – USD 100,000 

stantially, rising 15.8%. The strongest growth 

in the loan portfolio was in housing loans, 

loans to the trade sector and to textile producers, 

and consumer loans, and particularly in the 

issue of credit cards or credit lines to finance 

spending on consumer goods. The manufacturing 

(small-scale production) and agricultural 

sectors continue to be those which are least 

well served by the country’s banks. The financial 

system’s loan-loss provisions amounted to 

2.9% of the total portfolio, of which provisions 

for the portfolio in arrears constituted 74.6%. 

The distribution of funds among the three types 

of deposits was as follows: term deposits: USD 

1,917 million; current accounts: USD 2,869 million; 

and savings accounts: USD 1,177 million. 

Total customer deposits grew 15% between December 

2006 and December 2007. Deposits in 

foreign currency represented 37% of the total. 

The level of customer deposits as a share of GDP 

was relatively high in Honduras (49%, compared 

to less than 13% in Mexico). However, the country 

continues to be underserved in terms of the 

availability of banking services, and substantial 

segments of the population do not have access 

to such services. 

The microcredit market in Honduras has a great 

potential for development because a large percentage 

of the population has a demand for very 

small loans to support their economic activities. 

By the end of 2007, over 146,000 loans with a 

Loan Portfolio Development – number 

Number of loans 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 


g 

g 

g 

USD 0 – USD 1,000 

USD 1,001 – USD 10,000 

USD 10,001 – USD 100,000

combined volume of over USD 83 million had 

been disbursed by the country’s microcredit institutions 

and were outstanding. These figures 

reflect the sizeable demand for the type of very 

small business loans offered by the bank and 

give a market penetration rate (number of borrowers 

served/poor population) of 5%. 

This segment of the population has a large demand 

for finance which is not being met by the 

conventional banking sector. At the same time, 

the microcredit sector which has developed in 

Honduras has not made a significant impact in 

terms of supplying the unmet demand. It is estimated 

that existing providers meet only 20% of 

the credit demand exhibited by small and very 

small businesses. 

Microfinance institutions (MFIs) focused primarily 

on lending to very small businesses (as opposed 

to small enterprises). Borrowers in this 

size range accounted for 96.2% of the total number 

of clients served by these institutions and for 

74.1% of the MFIs’ total portfolio. Businesses in 

the trade sector were the most important target 

group served by the MFIs, and enterprises of this 

type accounted for 46.1% of their total portfolio 

in December 2007. 

The development of the microcredit industry has 

led the authorities in some countries to take steps 

to expand the regulatory framework to cover 

MFIs. By implementing the “Act for the Regulation 

Loan Portfolio Development (sectoral breakdown) – volume 


4,500 

4,000 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 


g 

g 

Trade 

Other services 

g 

g 

Production 

Salary earners 

Loan Portfolio Development (sectoral breakdown) – number 


3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 


g 

g 

Trade 

Other services 

g 

g 


of Private Development Organisations Engaged 

in Financial Activities”, Honduras has assumed a 

leading role in this area in Central America. The 

entities regulated by this legislation are private, 

non-profit financial organisations geared to serving 

small and very small enterprises. 

Being subject to regulation within the framework 

established by the Honduran legislation brings a 

range of important benefits for the MFIs under its 

coverage, including: 

• greater transparency for all stakeholders, 

including finance providers and the general 

public; 

• protection against possible adverse effects 

of changes in the country’s government or 

other political changes; 

• scope to expand their range of funding 

sources; 

• the potential for greater efficiency, as the 

need to comply with the requirements defined 

by the legislation creates incentives to increase 

efficiency. 

The most important microcredit institutions in 

Honduras belong to the National Network of Microcredit 

Institutions in Honduras (REDMICROH), 

a not-for-profit trade union organisation. The network 

has a total of 181,770 customers, of whom 

71% are women, served by 218 branches. Its 

outstanding loan portfolio amounted to over USD 

127.3 million, which, however, was equivalent to 

Production 

Salary earners

0 

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

only 15% of the potential demand for very small 

business loans in Honduras. Loans issued in rural 

areas accounted for 41% of this total outstanding 

volume. 

Recognising the opportunities in the Honduran 

banking sector and the extent of the unmet demand 

for financial services on the part of the 

country’s small businesses and low-income 

households, Banco ProCredit Honduras (BPCH) 

has successfully positioned itself as a new option 

within the financial system for precisely these 

target groups. As will be outlined in the following 

sections, the new ProCredit bank has seen 

its business develop very favourably, thanks to 

its focus on serving segments of the population 

which had previously been neglected by the formal 

financial sector, and had thus found it difficult 

to obtain loans or open accounts due to high 

minimum balance requirements and fees. 

Development of the Bank’s Business 

Two main factors shaped Banco ProCredit’s strategy 

for meeting the challenges of entering the 

market: the mission and target-group orientation 

of the ProCredit group and the increasing level of 

competition in the Honduran financial system. 

Banco ProCredit Honduras offers a range of integrated 

financial services to fulfil its goal of providing 

a fresh alternative in the local financial system. 

The bank offers loans at competitive rates, 

with quick processing times, and a minimum of 

documentation and other requirements; savings 

accounts and term deposits at attractive interest 

rates; and international money transfer services. 

Loan Portfolio 

After six and one half months of operations the 

bank’s loan portfolio had reached USD 4.4 million, 

with 3,172 loans outstanding as of December 

31. This rapid growth was achieved without 

sacrificing quality: loans in arrears by more than 

30 days constituted only 0.84% of the total loan 

portfolio. At USD 1,660, the average loan amount 

was twice as high as had been projected, an encouraging 

sign for potential growth. 

The largest concentration of loans was in the 

range from USD 1,000 to USD 10,000; the 1,715 

loans in this size category had a combined volume 

of almost USD 2.9 million (66% of the portfolio). 

The second largest concentration was in the 

range from USD 1 to USD 1,000, with a volume of 

USD 925,000 (22% of the portfolio) spread across 

1,433 loans. The range from USD 10,000 to USD 

100,000 accounted for USD 528,000 (12% of the 

portfolio) and consisted of 24 loans. 

Trade was the most important sector, accounting 

for loans totalling over USD 2.5 million, followed 

by the service sector with a volume just 

over USD 1 million, and the production sector 

at USD 613,000. Banco ProCredit issued 3,395 

loans in its first six months of operations. Of this 

total, 2,010 were issued to borrowers in the trade 

sector, 582 to enterprises in the service sector, 

and 563 to businesses in the production sector. 

Consumer loans accounted for the remaining 17 

disbursements. 

It should be noted that in its lending to individuals, 

the bank focused on operators of very 

small, small or medium-sized enterprises. Banco 

ProCredit seeks to promote the development of 

the private enterprise sector, which is the engine 

of economic growth in Honduras. The majority 

of the business loans disbursed to individuals 

(56%) went to women, which is not surprising, 

given that informal businesses are typically run 

by women. 

Loan Portfolio Development (breakdown by gender) – volume 


4,500 

4,000 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 


g 

g 

Female borrowers 

Male borrowers

Loan Portfolio Development (breakdown by gender) – number 


3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 


g 

g 

Female borrowers 

Male borrowers 

Loan Portfolio Development and Quality 


4,500 

4,000 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 


g 

Total portfolio volume 

Arrears > 30 days 


Arrears in % of total loan portfolio 

2.25 

2.00 

1.75 

1.50 

1.25 

1.00 

0.75 

0.50 

0.25 

0

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

Deposits from the General Public 

and Other Banking Services 

Banco ProCredit Honduras has operated as a fullservice 

bank from the beginning, offering most 

of the banking products and services required 

by ordinary citizens – including current (cheque) 

accounts, term deposits, savings accounts, domestic 

and international money transfers, and 

the sale and purchase of foreign currency – and 

ensuring that all customers receive high-quality, 

personal service. 

Customer Deposits – volume 


2,500 

2,000 

1,500 

1,000 

500 

0 


g 

g 

Savings 

Sight 

g 

g 

Term 

Total 

Fostering a “savings culture” is one of the 

primary goals of the ProCredit group. Banco 

ProCredit Honduras promotes savings by offering 

innovative deposit products such as the “Mi 

Cajita Fuerte”, a children’s savings account, and 

the Planned Savings Account, which rewards 

customers for regular deposits and loyalty to the 

bank. Banco ProCredit Honduras is the only bank 

in the country that does not charge excessive fees 

and which allows customers to open a savings 

account with only one lempira, or one US dollar, 

underscoring its commitment to bringing basic fi- 

Customer Deposits – number 

Number of deposits 

9,000 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 


g 

g 

Savings 

Sight 

g 

Term

nancial services to ordinary people. The bank has 

also successfully mobilised major institutional 

deposits, reflecting its great potential for growth 

in the Honduran deposit market. Indeed, demand 

for the bank’s savings products far outstripped 

initial forecasts. After less than seven months of 

operations, the bank had mobilised deposits covering 

55% of its loan portfolio. As of December 

31, 2007, the bank maintained a deposit portfolio 

of USD 2.4 million and 8,087 accounts; 67% 

of these accounts were denominated in lempiras, 

and 33% in foreign currency. 

An analysis of customer deposits shows that 

fixed-term deposits were the most popular product. 

The volume of funds held in term deposits 

stood at USD 1.7 million at the end of December 

2007, representing 71% of total deposits. 

The volume held in savings accounts was USD 

533,000, representing 20% of deposits. The remaining 

balance of USD 236,000 was held in current 

accounts, representing 9%. The standard 

account and the children’s account were the two 

most popular types of savings account. By the 

end of the year, the bank had opened 7,003 standard 

savings accounts with a total balance of USD 

2,426,348, and 884 children’s accounts with a 

total balance of USD 9,803. 

Many customers have asked about other banking 

services, such as international transfers via 

SWIFT, debit cards, ATMs, remittances and online 

banking services. Banco ProCredit Honduras will 

introduce all of these services in 2008. 

In all aspects of its non-credit operations, Banco 

ProCredit has combined its focus on providing 

the right products and services to meet clients’ 

requirements with the individualised service and 

customer care which have characterised its approach 

to the banking business from the day it 

opened. 

Financial Results 

Banco ProCredit Honduras opened for business 

in June 2007. The launch of operations was preceded 

by a pre-operational period of five months, 

in which the project team rented branch premises, 

recruited staff, conducted training, and made 

the necessary investments in the bank’s techni- 

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

cal facilities. All of the costs incurred during this 

period were recognised by the National Commission 

for Banking and Insurance (CNBS) as organisational 

expenses when the assets and liabilities 

of the pre-operational entity merged with those 

of Banco ProCredit Honduras. 

The operating result reported as of December 31, 

2007 was in line with projections for the initial 

months of operation (a loss of USD 1.4 million), 

and the bank’s expectation that it will recover the 

initial investment by 2010. In spite of the operating 

loss, financial income of USD 642,000 and financial 

expenses of USD 61,000 yielded a gross 

financial profit of USD 581,000. At USD 83,000, 

the bank had a lower-than-projected expenditure 

for loan-loss reserves because the portfolio at 

risk (PAR, i.e. loans in arrears by more than 30 

days as a percentage of the total portfolio) came 

to 0.84%, less than the projected value of 2%. The 

gross operating result was also positive, at USD 

131,000, due not least to the fact that a significant 

portion of the various operating expenses 

consisted of costs for training and staff development 

services delivered outside Honduras. Staff 

costs totalled USD 440,000, and other administrative 

expenses (e.g. IT equipment, renovation 

and furnishing of premises) amounted to USD 1.1 

million, giving a year-end result of -USD 1.4 million, 

in accordance with the business plan. 

The bank’s most important assets as of December 

2007 were liquid assets (USD 4.6 million) 

consisting of unused capital, and its loan portfolio, 

amounting to USD 4.4 million. Short-term 

and long-term investments comprised both 

mandatory deposits to meet the legal reserve 

requirements and investments of excess liquidity 

in BCH bonds or in term deposits with other 

banks. The “other assets” account reflects the 

organisational costs incurred during the bank’s 

pre-operational period and other assets which 

are to be amortised. 

Deposits held by the general public, provisions 

for employee entitlements, and other liabilities 

accounted for 80% of the bank’s total liabilities. 

Banco ProCredit does not have any liabilities to 

bilateral institutions, banks or similar organisations. 

The most important change in terms of the 

bank’s equity was the addition of the Inter-American 

Development Bank/Multilateral Investment

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

Fund (IDB/MIF) as a shareholder in December 

2007 (formally authorised by the CNBS in February 

2008). The IDB/MIF contributed USD 2.5 

million in fresh capital, acquiring a 16% stake 

in Banco ProCredit Honduras, and giving the institution 

yet another prestigious and financially 

sound shareholder. As of December 31, 2007, 

following the capital increase, Banco ProCredit 

Honduras’s total paid-in capital amounted to USD 

15.9 million. 

The financial results reported by Banco 

ProCredit Honduras in 2007 were in line with the 

projections set forth in its strategic plan, but the 

growth of its business operations exceeded its 

shareholders’ expectations. 

Banco ProCredit – 

Your Neighbourhood Bank 

Since its founding, Banco ProCredit’s commitment 

to social responsibility has set it apart from its 

competitors. The ProCredit group’s “neighbourhood 

bank” concept calls for the bank to support 

the people who live and work in the vicinity of its 

branches in a variety of ways, from the provision 

of simple, straightforward financial services on 

fair terms and conditions to initiatives to support 

small-scale community social welfare projects. 

The “neighbourhood bank” approach is reflected 

in the bank’s promotional activities, which often 

take the form of presentations to groups of 

potential customers (for example, operators of 

small and very small enterprises, members of associations 

of traders, students at local colleges, 

staff at hospitals); in the opening of branches in 

areas not served by other commercial banks; and 

in the positioning of the institution as a bank for 

all segments of the population. By making its services 

available to the whole population, the bank 

is able to serve low-income groups for whom access 

to reliable, affordable banking services is 

particularly important. The bank is convinced of 

the importance of supporting the communities 

in which it operates through local projects which 

enhance the overall quality of life. 

Outlook for 2008 

The bank achieved its 12-month growth targets 

for the loan and deposit portfolios in seven 

months of operation and with five branches open. 

This strong performance exceeded shareholder 

expectations for Banco ProCredit Honduras as a 

new member of the ProCredit group. 

Our goal for 2008 is to consolidate the institution’s 

position in the market as the best financing 

option for very small, small and medium-sized 

enterprises. We plan to expand our range of credit 

products tailored to the requirements of the 

small business sector, and to continue to offer 

loans at competitive rates and to process applications 

quickly. We will strengthen our position in 

the Honduran financial sector as regards deposits 

and banking services by introducing services 

such as debit cards, ATMs, money transfers via 

the SWIFT system and online banking. 

To achieve these goals, we will open seven 

branches in 2008, increasing our outreach and 

enabling us to make ProCredit’s “neighbourhood 

banking” concept a reality for more and more 

Hondurans. We will continue to focus efforts on 

staff training. We will optimise the design of our 

existing loan and deposit products and expand 

our product range to position Banco ProCredit 

Honduras as the country’s top provider of financial 

services.

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 

Special Feature 

The Opening of a New Bank in Honduras 

Getting started 

“Almost everything comes from almost nothing.” 

– Henri Frédéric Amiel (1821-81), Swiss philosopher. 

Amiel must have been familiar with the process 

of setting up a new bank, because he provides 

a perfect description of how we started: all we 

had was a temporary office/apartment, a desk, 

two computers and two individuals with a real 

desire to create what we hoped would soon become 

Banco ProCredit Honduras. 

We took the first big step on November 17, 

2006, when we submitted our formal application 

to the National Commission for Banking 

and Insurance (CNBS). However, there had 

been a few sleepless nights before we even 

got to that stage. The hardest part was obtaining 

all the required documentation regarding 

ProCredit Holding and the DOEN Foundation, 

the two organisations working together to set 

up the new bank. This was difficult not because 

of a lack of documentation on the part of 

ProCredit Holding and DOEN, but simply because 

some of the CNBS’s requirements were 

unusual in Germany and the Netherlands and 

the specific documents wanted by the Honduran 

authorities were not always available. 

In the end, however, we obtained alternative 

documents and submitted the application with 

all the required information. A total of 76 documents 

were involved, the majority translated 

by a certified translator, authenticated by a 

notary public in Germany or Holland, legalised 

by the German or Dutch Ministry of Foreign 

Affairs, and stamped by the Honduran Ministry 

of Foreign Affairs. In addition to the formal documents, 

we submitted more materials in support 

of our application, including the film produced by 

ProCredit Holding on the founding of ProCredit 

Bank Congo, various issues of “Zona_ProCredit 

Nicaragua”, the employee newsletter published 

by Banco ProCredit Nicaragua, the Corporate Values 

brochure issued by Banco ProCredit Nicaragua, 

the ProCredit Holding Code of Conduct, and 

the annual reports of the founding shareholders. 

Recruitment and training of staff 

The second key process to get underway was 

staff recruitment, which we began in October 

2006. We began with lending staff, who need to 

receive extensive training. First, we published an 

advertisement. Although we would have liked to 

include our logo in the ad to attract more qualified 

and experienced individuals, the CNBS requested 

that we publish it without identifying our 

institution because we did not yet have a banking 

licence. There was a surprisingly high response: 

we received 300 CVs, 99% by e-mail and a few in 

the PO box. Francisco and I read the CVs and selected 

approximately 100 candidates to take the 

exam to test their basic knowledge of banking. 

At the beginning of November, the first group in 

Tegucigalpa took the exam. The next day, we travelled 

to San Pedro Sula to repeat the process. 

Our selection process resembled the process 

carried out at all ProCredit banks; it included a 

general knowledge assessment examination, accounting 

and mathematics tests, and at least two 

interviews. We had advertised anonymously and 

none of the candidates 

had any idea what sort of

company they had submitted their applications to, 

so we decided to give a short presentation about 

ProCredit Holding and the ProCredit group before 

the exam. There is little awareness of microfinance 

in Honduras and only a few people in the 

country have actually worked in the microcredit 

sector. It was important to ensure that the candidates 

understood from the beginning that our loan 

officers would be dealing directly with the bank’s 

customers, and that their work would include 

approaching members of our target group in the 

street and giving them information about our services. 

Upon hearing this, some candidates got up 

and decided not to take the exam, a reaction we 

had expected. Those who remained and passed 

the exam were invited to the initial interview. 

In the meantime, we were joined by our future 

Credit Manager, Edwin Flores. A native Nicaraguan 

from the city of Estelí in northern Nicaragua, 

Edwin had served as a branch manager for 

Banco ProCredit Ecuador in the town of Ambato 

for four years. He carried out the first round of interviews 

in the dining room of a local hotel, and 

I conducted the second round at the temporary 

office/apartment. People must have thought 

they were dealing with a “shell company” rather 

than a future bank. While conducting interviews 

in the dining room of the apartment or in the sitting 

room/kitchen, I often wondered what the applicants 

must have been thinking about the company 

which was considering offering them a job. 

All they had to go on were a few annual reports of 

ProCredit Holding on the living room table, some 

issues of “Zona_ProCredit Nicaragua” (the newsletter 

published by Banco ProCredit Nicaragua), 

and what we had told them. 

Could we persuade them to give up their current 

jobs and recruit them for a company which didn’t 

even exist yet? Some candidates turned down the 

positions we offered them, but eventually we appointed 

the first group of loan officers and branch 

managers. The members of this group subsequently 

received classroom training focusing on 

our lending methodology, having first completed 

an induction course on the ProCredit group, its 

mission and its corporate values. After this threeweek 

training period, they travelled to Nicaragua 

for training in the field. Everyone benefited 

greatly from the two-month stay in Nicaragua. 

At the end of the staff selection process, I was 

struck by the comment of one of the new recruits, 

who said, “This selection process has been really 

thorough.” Proof, once again, that substance is 

what matters, not appearances. 

At the same time, we began to search for a building 

for our head office and suitable branch premises. 

We aimed to open with four branches. Initially, 

we looked for a building close to the public 

markets in Tegucigalpa, to underscore our targetgroup 

orientation and how we differ from other 

banks. Unfortunately, we had to drop this idea for 

security reasons, and we found a suitable building 

in a safer area. In addition to the head office, 

the building now houses a small branch to serve 

deposit customers and an office for a member of 

the credit staff specialising in loans for mediumsized 

enterprises. 

March 27 was a happy day, because that was 

when we received our official banking licence, 

the authorisation to make preparations for the 

bank’s opening and the launch of its operations. 

We had also found premises in a good state of 

repair and in a good location for our Tegucigalpa 

branch in the city centre and for the San Pedro 

Sula branch. Now we only needed to find premises 

for one more branch in Tegucigalpa to meet 

the target of four offices. 

The really serious work started as soon as the 

banking licence was issued: refitting premises, 

purchasing equipment for the branches, defining 

procedures, setting up operating systems, and 

above all, staff training – all vital steps in terms 

of getting the bank up and running. The effort left 

us exhausted, but we managed to achieve all of 

our goals. 

Exchange with Banco ProCredit Nicaragua 

essential for the start-up in Honduras 

The support of Banco ProCredit in Nicaragua was 

essential to this process. Several staff from Banco 

ProCredit Nicaragua indicated their interest in 

helping us to get started, giving rise to an extensive 

exchange of experience and knowledge between 

Nicaragua and Honduras. Approximately 

ten employees of Banco ProCredit Nicaragua participated 

in this exchange programme and provided 

vital support for the launch of operations 

by Banco ProCredit Honduras. 

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 

The Opening of Banco ProCredit Honduras – 

The “countdown” as experienced by the General Manager 

Saturday, June 9, 2007: The T-shirts and caps have arrived! But only the grey shirts and the orange caps. 

The supplier tells us the red ones got wet and can’t be delivered. There’s nothing we can do. We’ll have 

to do the promotion with what we’ve got. Time to get started. We go to “Metromall”, a popular shopping 

centre in Tegucigalpa, with 50 people, to start getting the word out about the new bank. There’s a lot of 

interest, and we take details of the first accounts to be opened on Monday, June 18. Our staff is really 

pleased by the response from future customers. Great: the first photos of a promotion! 

Monday, June 11, 2007: ProCredit México opens its doors to the public. The first news about the launch 

of its operations arrives: the first loan disbursement, the first photos. How happy they must feel! We are 

almost exploding with excitement. The opening of Banco ProCredit Honduras is only one week away, and 

there are still some problems to be sorted out. Adjustments to the IT system, getting forms printed. “Why 

haven’t the safes arrived at the Valle branch yet?” Everyone is on tenterhooks. And as if the state of our 

nerves, the emotions, and the to-do list weren’t enough, heavy rains flood two of our training rooms in 

Tegucigalpa. We manage to save most of the equipment. No major damage. 

Tuesday, June 12, 2007: Bank fittings have been installed in the first branch to be opened. What a relief! 

The computer suppliers have also kept their word, and everything is going according to plan. The branch 

is almost ready; we just need to see to a few details, such as plants, posters, etc. Thanks to the support of 

Hugo (Boaco Branch, Banco ProCredit Nicaragua), an expert in such matters, these details are also taken 

care of quickly. And what’s this? A customer shows up at the branch. He says he’s tired of his bank, and 

wants to know when he can open an account. “Please wait, sir. Just give us until Monday, and then you’ll 

be able to do it.” A very encouraging sign. An item in the EL HERALDO newspaper: “Banco Azteca still has 

not announced an opening date. Banco ProCredit to open on June 18.” There’s no going back. 

Wednesday, June 13, 2007: The Valle branch is 

almost ready, but there are some problems with 

the IT system, so we need to keep running tests. 

Caryl (a former officer at the Estelí branch of Banco 

ProCredit Nicaragua) keeps everyone calm. She is 

used to such situations. We’re all glad she decided 

to take a leave of absence from her job in Nicaragua 

to support our work in Honduras. The savings 

passbooks haven’t arrived yet. “When will they be 

here? Friday?” Let’s just hope they arrive on time. 

Today we invited representatives of the media to 

a press conference with Gabriel Schor, scheduled 

for June 20. Will the media come? Are they interested? 

We’ve signed the last contracts. The article 

for “Zona_ProCredit”! What on earth am I going 

to write? I need to think … And the people from Nicaragua are arriving on Saturday! Have we arranged 

accommodation for them? Who’s going to meet them? Has everything been planned? OK. Perfect. The IT 

staff have been working round the clock. The IT department is looking great. The latest technology. No 

bank in Honduras has anything to compare with this. The excitement builds. 

Thursday, June 14, 2007: Ramón, the official photographer for Banco ProCredit Nicaragua, arrives today. 

His job is to take photos of the preparations prior to the opening, of the official opening ceremony on 

Monday, and of the press conference with Gabriel. He will also train a Honduran photographer. There 

is nobody better than him when it comes to taking these kinds of photos. He’s nervous too. Thursday 

morning was relatively quiet. But not the afternoon. At around 2 p.m. a storm hit Tegucigalpa, and in 15

minutes it flooded our temporary office. In some places the water was 25 cm deep. Our greatest concern 

was for the new computers which were ready to be transferred to the branches. But everyone reacted 

quickly. We got hold of things to bail the water out with, and formed a chain to move around 100 boxes of 

new computers from the floor onto tables and shelves, and then onto a lorry to move them to somewhere 

safer. Everyone was soaked up to the knees, but we were relieved that we had made it through a disaster 

like that with nothing more serious than some wet shoes. At the end, the equipment still worked. “What 

can stop us now? Nothing!”, we say. 

Friday, June 15, 2007: After a sleepless night worrying about the rains which had been forecast, we awoke 

to sunshine. One less problem. Today we sort out the final details in the branch: plants, signs for the 

cashier’s booth, etc. LA TRIBUNA publishes an item under the heading “Banco ProCredit Honduras starts 

operations on Monday”. People are waiting for us to open. The first credit committee meeting. What excitement! 

Today 20 loans are approved, ready to be paid out on Monday. We opened the first accounts in 

the actual system, with a blank database. The cash was transferred to the branch. The procedure worked: 

the money is now in the safe in the branch vault. We’re almost ready. 

Saturday, June 16, 2007: We still have to make some last-minute purchases, finishing touches which take 

a lot of time. We divide up. With the plants in the pick-up, I go to the branch. Full inspection, including the 

Parque La Libertad branch. “How is the refit going? Two more weeks?” The last meeting with all the staff 

before the opening. Emotions are running high, and especially for Ofelia and Juan Carlos, who leave for 

the Regional Academy on June 17 and won’t be with us. 

Sunday, June 17, 2007: The system has been installed and the last tests are run. The cashiers are nervous. 

Thankfully the Nicaraguans have arrived! They help to calm everyone down, because they’ve been 

through it before. Murphy’s Law … we can’t print the vouchers and the banking service vouchers come 

out of the printers in the cashier’s booth. We have lunch with the Nicaraguans, and they like the food. 

Delicious. In the afternoon we run tests, but our connection is gone … oh, no! At 6 in the evening we still 

don’t have a connection. In the meantime we blow up balloons. We didn’t know that in Nicaragua they 

learned how to tie balloons! Porfirio directs the group. 10 o’clock at night - still nothing. At 11:30 p.m. the 

connection is restored. We’ve got until midnight to get everything completed. Let’s just hope it all goes 

okay. Meanwhile, we sing, in the streets of Tegucigalpa: Caryl, Francisco, Jenny, Hugo, Elmer. At 1:30 a.m. 

we leave the branch, tired but full of hope for the first day. 

Monday, June 18, 2007: It’s 6:30 a.m. The systems engineers are already at work at the head office. 

Everything’s going well here. The Internal Auditor and the Treasurer arrive to transfer funds to the systems. 

Everything’s fine so far. At the same time at the Valle Branch, they’re cleaning, arranging the flowers 

– where do they go? One minor detail … we still can’t print the vouchers … 8:15 a.m. and we still don’t 

have printouts… and the customers we added on Sunday have been deleted… work wasted. It’s 8:30 

a.m., Elmer turns the sign round, made with loving care by Erick at OyM. On the door it says “OPEN”, … 

“What a moment!” Some are biting their nails, others pace up and down, and then the door opens: “The 

first customer!” We all have butterflies in our stomachs. The customers are arriving … and in numbers 

far exceeding our expectations! We want to disburse loans, but the printer still isn’t working. Well, in the 

meantime … we complete the customer profile for our files. More people arrive, some guests for the opening, 

but lots to open accounts and collect their loans. “Printer?” “Not yet.” Okay, let’s start the opening 

ceremony to gain some time. “Spin it out,” advises Edwin, “keep things going.” Okay, Elmer starts his 

speech, then there’s dancing by a traditional group. “Printer?” “Not yet.” Okay, we keep going. It’s my 

turn to talk. Another dance. We raffle off some aprons … the branch is full, there are no more chairs. It’s 

overflowing with people. And suddenly … the printer decides to quit messing around, and starts printing. 

It prints contracts, savings account forms, savings passbooks, term deposit certificates, current account 

forms … everything comes out okay. The system is stable for the rest of the day. Results for the day: 13 

loans issued, for USD 17,000, and 47 accounts opened! We’re more than satisfied. We’re happy and tired. 

But it was worth it. A staff meeting. Applause all around. 

S p e c i a l F e at u r e

0 

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

Risk Management 

Although it has only been operating as a financial 

institution for a very short time, Banco ProCredit 

Honduras has already developed an integrated 

risk management system because it is convinced 

that risk management is an essential element 

of the activities of any organisation involved in 

financial intermediation in today’s world. This 

system enables the bank to define the risk profile 

and degree of exposure which it is prepared to 

accept as its buisness develops, and establishes 

the coverage mechanisms required to protect its 

own assets and those of third parties for which it 

is responsible. 

Banco ProCredit Honduras is authorised and supervised 

by the National Commission for Banking 

and Insurance (CNBS). It is responsible for establishing 

the mechanisms, guidelines, procedures 

and policies required to ensure the appropriate 

level of integrated risk management, and for 

adapting its risk management system to conform 

to the rules defined in the framework “International 

Convergence of Capital Measurement and 

Capital Standards and Risks” established by the 

Basle II Committee. 

Well-structured risk management is essential for 

the conduct of the bank’s business. The creation of 

the Integrated Risk Management Unit (IRMU) has allowed 

us to ensure that there is a proper awareness 

of risk within the bank and that risks are managed 

appropriately, reflecting the intrinsic connection 

between our strategy, our institutional structure, 

and our risk management procedures. 

The focus on risk management in our company begins 

with the identification and classification of 

risks which may reduce or destroy financial value or 

undermine our business reputation. Once we have 

identified these risks, we focus both on reducing 

the likelihood that the potential adverse events will 

actually materialise and on offsetting any negative 

impacts they might have (if they do in fact materialise). 

In order to reduce the number of peak risks, 

classified as “high probability” and “with a significant 

negative impact”, we apply controls, proce-

dures and policies which the IRMU implements 

as part of its day-to-day operations. 

Banco ProCredit Honduras is a financial entity 

which specialises in, but does not restrict itself 

to, the provision of financial services to support 

the development of the productive activities of 

the very small, small and medium enterprise sector. 

Prudence is therefore the first principle for 

appropriate internal risk management. The bank 

operates in accordance with its standards as regards 

the assumption and management of the 

risks inherent in financial intermediation, and as 

regards the optimal utilisation of its physical, human 

and technological resources. 

Conclusions 

Banco ProCredit Honduras opened in 2007. When 

its operations were launched, the IRMU was created 

to support all departments and units within 

the bank involved in activities that create a risk 

exposure. The aim was to ensure correct management 

of the risks associated with the institution’s 

financial activities. One of the main functions of 

the IRMU is to continually review, update and improve 

the policies and procedures for the internal 

management of risks. 

The establishment and implementation of the 

IRMU was facilitated by the participation of the 

bank’s employees in training events and staff 

exchanges with other banks in the ProCredit 

group. 

The IRMU supports departments whose activities 

create risk exposure by producing a monthly risk 

management bulletin to explain the key aspects 

of risk management and to provide information 

about the bank’s performance and about the development 

of the Honduran economy. The production 

and distribution of this bulletin is part 

of the broader process of creating a risk management 

culture within the bank. 

Outlook for 2008 

In 2008 the IRMU plans to provide more direct 

support to the credit and retail banking divisions. 

It will ensure that the procedures for each product 

and service include a qualitative evaluation 

of the customer and sector, and take into account 

other issues such as the debt structure of the 

borrower’s business and the nature of its operations, 

as well as the commercial or financial risk 

involved. 

The goal of the unit is to make sure that loans 

are evaluated in accordance with the applicable 

standards, emphasising the importance of an 

effective technical evaluation of risk exposures 

supported by the appropriate statistical tools, to 

keep arrears levels under control and to maintain 

a high level of solvency. 

R i s k M a n a g e m e n t 1

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

Branch Network 

Honduras is located in the middle of Central 

America and is bordered by Guatemala, El Salvador 

and Nicaragua. It has a population of approximately 

7.1 million. The most important sectors 

of the country’s economy in terms of their contribution 

to GDP are agriculture, trade, manufacturing, 

financial services and public services. 

The country is divided into 18 departments. Over 

80% of the territory is mountainous, with an average 

altitude of 1,000 metres above sea level. The 

country’s political capital is Tegucigalpa, with 

approximately 1.3 million inhabitants. But San 

Pedro Sula, a centre of industry and commerce 

in northern Honduras, is just as important and is 

considered to be the country’s industrial capital. 

Sixteen banks, nine finance companies and various 

loan co-operatives and savings and loan societies 

operate in Honduras. The institutions which 

comprise the banking system have over 1,300 

branches. As a result, Banco ProCredit’s strategy 

has been to quickly establish a significant 

presence in the local banking market by rapidly 

increasing the number of branches it operates. 

Belize 

Guatemala 

El Salvador 

Pacific Ocean 

Gulf of Honduras Caribbean Sea 

San Pedro Sula (1) 

Tegucigalpa (4) 

Honduras 

Caribbean Sea 

Banco ProCredit Honduras began operating on 

June 18, 2007 from a single office, the Parque 

Valle branch in the centre of Tegucigalpa. In July, 

branches opened in San Pedro Sula (Quinta Avenida 

Centro), in Comayagüela/Tegucigalpa (Parque 

La Libertad) and in the Tepeyac district of Tegucigalpa 

(the branch in the head office building). All 

the branches were established in centrally located 

aread with a high concentration of commercial 

activities to provide easy access for customers. 

At the end of 2007, five branches were operating: 

Parque Valle, Parque Libertad, Tepeyac and 

Kennedy in Tegucigalpa, and the Quinta Avenida 

Branch in San Pedro Sula. Each office offers a 

range of financial services and banking products 

developed in accordance with market requirements, 

and all have achieved impressive growth 

in their loan and deposit portfolios. 

Our branches offer products suitable for all segments 

of the population, and they provide credit 

services for people who have not previously had 

access to banks. As a neighbourhood bank seeking 

to bring all of the country’s citizens into the 

Nicaragua

anking system, Banco ProCredit focuses on 

offering financial products and services which 

meet the requirements of our target groups and 

on making those products and services accessible 

to all Hondurans. 

We have used a consistent, uniform design for all 

our offices, creating a spacious, pleasant environ- 

ment at our branches that reflects our corporate 

values of openness and transparency. Our staff 

strives to provide high-quality, personalised service 

to our customers, explaining all products to 

them in simple, straightforward language and 

ensuring that they understand banking terms 

that might be new to them. 

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

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

Organisation, Staff and Staff Development 

From the beginning of the project to create a 

ProCredit bank in Honduras, the recruitment and 

training of local staff has been a key component 

of our work. The greatest challenge was to create 

a firm commitment on the part of the staff to a 

new bank with a new type of institutional culture. 

Throughout the year, in addition to induction 

and technical training courses, “extracurricular” 

activities took place. These activities included 

group discussions, off-site events designed to 

promote a team spirit, and gatherings with the 

families of staff to help them understand the nature 

of our institution and its business. Providing 

training on the ethical values of the company 

and the practical implications of those values 

was, and still is, an integral part of our day-today 

tasks at Banco ProCredit. In our view, this is 

just as important as ensuring that our employees 

carry out their responsibilities correctly and in a 

professional manner. 

A specific feature of the Honduran banking system 

is that despite the long history of banking in 

the country, the system had no culture of serving 

small and very small enterprises, or of working 

“in the street” to approach potential customers. 

This tradition caused many potential employees 

to change their minds when they realised that 

they would be expected to do promotional work 

in local neighbourhoods and to visit members 

of our target group in their homes and places of 

business. Other candidates withdrew as a result 

of unrealistic salary and professional advance- 

Number of Staff and Staff Turnover 

Number of staff 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

Apr May Jun Jul Aug Sep Oct Nov Dec 

07 

g 

g 

Hired 

Left 

g 

Active 

Turnover rate (in %) 

Turnover 

9 

8 

7 

6 

5 

4 

3 

2 

1 

0 

ment expectations. Local universities, in particular 

the private institutions, encourage students 

to believe that they will be department managers 

within three years of graduation, and earning 

salaries which far exceed what local firms 

are willing to pay young, relatively inexperienced 

graduates. 

Despite these constraints, the bank successfully 

recruited an excellent team of qualified Hondurans; 

99% of the staff is local. Banco ProCredit 

is fortunate to have highly dedicated employees, 

committed to the bank and its values, and eager 

to help improve the country’s economic situation. 

The state and private schools in Honduras provide 

bilingual instruction, and the employees of 

Banco ProCredit Honduras generally have a good 

command of English. As at other ProCredit institutions, 

the recruitment strategy in Honduas was 

to identify young people – often recent graduates 

or individuals who were still at university – who 

had the right attitude and a willingness and ability 

to acquire the necessary skills, and to provide 

them with professional training. At 29, the average 

age of our employees is quite low. The bank 

has a 50:50 split between men and women. The 

head office employs 48 people, and the majority 

of our staff (70%) work in the branches. 

Banco ProCredit has a transparent recruitment 

policy based on the following hiring criteria: the 

ability to master the required technical skills, a 

proactive approach, a commitment to the values 

Training Expenditure and Hours of Training Provided 

Hours 

35,000 

30,000 

25,000 

20,000 

15,000 

10,000 

5,000 

0 


07 

g Expenditures Hours 

USD 

210,000 

180,000 

150,000 

120,000 

90,000 

60,000 

30,000 

0

of the bank, and the potential for professional 

and personal development. Official, formal qualifications 

do not carry the same weight as they do 

in other financial institutions or companies. 

When it launched operations, Banco ProCredit already 

had a strong executive management team 

in place. One member of the executive management 

serves as the bank’s General Manager, with 

overall responsibility for running the institution. 

Each of the other members of the management 

team takes responsibility for one of bank’s four 

corporate divisions: the Finance Division, the two 

Business Divisions (Loans and Retail) and the IT 

Division. Various head office units support these 

divisions, including the Integrated Risk Management 

Unit, Human Resources, Marketing and 

Communication, the Legal Department and the 

Quality Management Unit. The Administration Department, 

the Compliance Unit and the branches 

are all overseen directly by the General Manager. 

These departments have a close working relationship 

with the various units within the bank. 

A branch manager heads each branch, running it 

with the support of an operations co-ordinator. 

The staff at the branches include business officers 

(for loans and deposits) who are responsible 

for client acquisition and business development 

in their respective areas of activity. Banking services 

officers and support staff such as secretaries, 

cashiers, cleaners and security staff provide 

the other essential services for conducting business 

operations in the branches. 

Staff – Breakdown by gender and age 

Number of staff 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 


07 

g 

g 

Male 

Female 

Average age 

Age 

34 

33 

32 

31 

30 

29 

28 

27 

26 

25 

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 

The bank’s operating plan for 2007 defined training 

and professional development as key priorities. 

A total of 193,040 hours of training were 

delivered during the year, an average of 1,150 

hours or 48 days per employee. Total investment 

in training was USD 234,000, equivalent to an 

investment of approximately USD 1,400 per employee. 

Training addressed a wide range of areas, 

including technical issues, procedures and 

practices at other ProCredit banks in Latin America, 

customer service, international accounting 

standards, staff management, and optimisation 

of procedures in the cashiers’ booths to ensure 

rapid and accurate counting of banknotes, English 

courses, and self-defence courses. Some 

staff participated in international ProCredit 

seminars dealing with specialised topics. Seven 

employees attended intensive English courses 

in Ghana and Germany, four staff participated 

in the courses offered by the ProCredit Regional 

Academy in Nicaragua (six weeks per year), and 

one staff member joined the two-year training 

programme at the ProCredit Academy in Germany 

(12 weeks per year). 

Banco ProCredit Honduras has scheduled an even 

more extensive programme of courses and other 

training events for 2008, with new courses supplementing 

the range of activities discussed in 

the preceding paragraph. We plan to establish a 

local training centre. In addition, we will conduct 

a local recruitment and training programme for 

middle management staff. The training and staff 

development measures planned for the coming 

year reflect the high priority we assign to training 

as an essential element of our strategy for the 

continued development of Banco ProCredit Honduras. 

Excellence in training is fundamental to 

the bank’s ability to achieve its targets for 2008 

and to establish a firm foundation for continued 

growth in the years to come.

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 

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 Honduras 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 Honduras 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. 

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

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

Our Clients 

Jesenia Tábora, 

Middle School Teacher, 

Restaurant Owner and 

Savings Customer 

“Save today for a better future 

tomorrow” 

Jesenia Tábora, a single mother of two, is a 

savings customer of Banco ProCredit and the 

owner of a popular diner in San Pedro Sula, 

“Comedor Emanuel”. At lunchtime, the restaurant 

is always full, with customers standing in 

long queues outside. 

Ms. Tábora is a tenacious woman with an air of 

tranquil self-confidence. These qualities have 

made her a highly successful restaurant operator 

in Honduras’s vibrant industrial capital. The 

business lies close to the 5a Avenida Centro 

branch of Banco ProCredit in the centre of town. 

Her initial contact with the bank was in August 

2007, when staff from the branch visited her 

restaurant to promote the new institution. From 

the beginning, Ms. Tábora showed a keen interest 

in the bank, both because of its close proximity 

and because she feels so at ease in the 

branch. 

Ms. Tábora oversees the kitchen team, the cash 

desk and the wait staff at her restaurant. On the 

day we stopped by, after a hectic hour and a 

half during the regular lunch rush, she sat down 

with us and said, with a smile on her face: 

“Today you can ask me whatever you want!” 

Ms. Tábora truly understands the importance of 

saving in a consumer culture like the one existing 

in Honduras. Before opening her restaurant, 

she taught for four years in a middle school. She 

told us that as a teacher, she always tried to impart 

three basic values to her students: order, 

discipline, and a culture of saving. 

“Don’t you agree that in this country 

the only thing people know how to do is spend, 

spend, spend?” 

she asked. 

She explained that it gives her peace of mind to 

know that her money is in a safe place, and she 

thinks it is important for members of her family to 

keep their money in accounts at Banco ProCredit. 

Thus, she has accompanied several relatives to 

the branch to help them open savings accounts 

with our bank. 

Before we left, Ms. Tábora shared a thought with 

us, summing up her idea of what saving is about: 

“Save today, have security tomorrow.” 

She says that the transparency and mutual trust 

that characterise her relationship with Banco 

ProCredit make her certain that it will continue, at 

the same time building the foundation for her future 

security. Ms. Tábora is also sure that she will 

make use of other products offered by the bank: 

“There’s no doubt that in the future I’ll apply for 

other services, such as the debit card!”

Santos Odilio Corrales, 

Owner of a Cheese Stand 

“High payments were suffocating me 

until I began working with your bank” 

Santos Odilio Corrales’ cheese stand is very 

busy. It is located at the “Las Américas” market 

in Comayagüela, one of the main commercial 

districts in Tegucigalpa. Although he is the boss 

and has over 33 years of experience in the cheese 

business, you can still find Mr. Odilio behind the 

counter, cutting and weighing cream cheese – 

one of the basic ingredients of many typical local 

dishes. Originally from southern Honduras, he 

moved to the capital to achieve his dream of making 

something of himself through hard work. 

He first worked in Tegucigalpa as a bus conductor. 

One day, a local acquaintance offered him a 

job as a street vendor, selling cheese for an average 

wage of USD 0.50 a day, more than his salary 

as a conductor. He accepted immediately. 

After working as a street vendor for seven years 

he wanted to set up his own business. At first, 

he was afraid of going it alone but eventually he 

took the plunge. He borrowed money from a local 

moneylender, who lent him USD 100 at an interest 

rate of more than 20% per month. With no 

other source of financing, he was forced to continue 

borrowing from the moneylender. 

“The first four years were really hard. 

I had to build up my clientele and 

I was always under pressure to make the monthly 

repayments to the moneylender. 

I felt as if the high payments were 

suffocating me,” 

said Mr. Odilio. 

Another complication in the beginning was the 

need to pay the cheese suppliers in cash, which 

created problems due to his lack of liquidity. 

Now he has a loan from Banco ProCredit for USD 

2,500. Mr. Odilio used the money to expand his 

business and to buy a higher quality product 

from other suppliers, which in turn has generated 

greater sales at the stand. 

“The bank has supported me unconditionally, 

and that’s why I will continue working 

with Banco Pro Credit for the project I have 

planned for next year,” 

he explained. 

The main thing that made Mr. Odilio sure that he 

wanted to remain a Banco ProCredit customer 

was the speed with which his loan application 

was processed and the funds were disbursed 

– without a lot of bureaucracy. 

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 

Ramon Sanchez, 

Pool Hall Operator 

“The other banks weren’t interested in 

having me as a customer” 

Ramon Elberto Sanchez Lara is the owner of “Club 

Deportivo Billares Los 4 Hermanos” in the La Trinidad 

district of Tegucigalpa. We visited him at his 

business to ask him about his experience as an 

SME customer of Banco ProCredit. Mr. Sanchez 

is known as “Monchito” in national pool tournaments 

(he is currently ranked number 2 in the 

nation), and about seven years ago he decided to 

open a pool hall in this working class district to 

provide a leisure facility in the area. He explains 

that one door after another door was closed in his 

face when he went to the banks in Honduras. As 

he put it, the banks made it very clear that they 

weren’t interested in having him as a customer. 

“There’s a lot of bureaucracy at those banks. 

They asked me for up to four guarantees before 

they would give me any money to invest,” 

he explained. 

When Banco ProCredito staff visited him at his 

business to tell him about the bank and its loan 

products, Mr. Sanchez listened carefully. By the 

end of the presentation he was sure that the bank 

would provide financing support for the projects 

he was planning. His first thought was: “If they 

give me the money to work with … then let’s go!” 

He took out an SME loan for USD 25,000 which he 

used to pay off a more expensive debt with another 

financial institution and to purchase a plot of 

land near his current premises (240 m 2 ) where he 

plans to expand his business in the near future. 

For Mr. Sanchez, visiting the Parque Valle branch 

is always a pleasant experience. Whenever he 

stops by – always right on time – to make his payments, 

he takes a moment to chat with some of 

the bank’s employees. Furthermore, he is certain 

that he wants to continue his relationship with 

Banco ProCredit, and to recommend the bank to 

others. As he explains, 

“Now I feel committed to bringing you new people 

who need an opportunity to improve their standard 

of living by expanding their businesses.”

“If I had no savings, I would feel utterly 

unprotected” 

Jorge Arévalo takes a very methodical approach to 

making decisions. A forestry engineer by profession, 

he worked for over 40 years in a government 

department. Unfortunately in Honduras, grey hair 

and wrinkles are not seen as a sign of wisdom but 

rather as an indication that an individual should 

be forced to retire as soon as possible. After more 

than four decades of loyal service, he received 

his dismissal notice and retirement payment. 

Mr. Arévalo wanted to be sure his retirement 

money would be safe so as to give him the peace 

of mind he needed. 

“The day when I realise I have no savings will be 

the day when I feel I am completely unprotected,” 

he explained. For him, a savings culture means 

impressing upon parents the importance of giving 

their children the opportunity to save – which 

he has done with each of his seven children. 

“All my children still have their savings accounts. 

Of course, when they were little they didn’t care 

much. But now that they have families of their 

own, they constantly thank me for having opened 

their first savings accounts for them,” 

said Mr. Arévalo. 

Jorge Arévalo, 

Retired Forestry Engineer 

and Savings Customer 

He recalled hearing on the radio that a new bank 

would open in Honduras, and he spent part of the 

day finding more information about the bank on 

the Internet: 

“I became really interested when I saw 

that it was a part of a sound, global group which 

was already established in other countries 

like Honduras, both in Latin America and in other 

parts of the world.” 

When Mr. Arévalo and his wife visited the First 

Market Stall Holders’ Fair in Tegucigalpa (an event 

sponsored by Banco ProCredit), he visited the 

bank’s information stand. He was struck by the refreshingly 

open and friendly attitude of the staff, 

who were all very enthusiastic about being part of 

somethingnewintheHonduranbankingbusiness. 

“When I went up to the information stand, 

I thought to myself how good it 

was that this bank is supporting market traders 

in this way, because they are the 

most hard-working people in the country,” 

he recalled. 

After finding out about ProCredit’s savings facilities, 

Mr. Arévalo promised to go to the bank and 

open an account, which he did. Since then he has 

had complete peace of mind, secure in the knowledge 

that his money is in a safe place. 

O u r C l i e n t s 1

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

Audited Financial Statements 

Banco ProCredit Honduras, S. A. 

Report of the independent auditors and financial statements 

31 December 2007 

(A free translation from the original issued in Spanish) 

PRICEWATERHOUSECOOPERS

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 

Balance Sheet 


in Lempiras 

Assets 

Notes 2007 

Cash and deposits with Honduran banks 4 39,441,429 

Deposits with foreign banks 5 48,226,717 

Investments in short-term securities 6 101,417,268 

Loans and interest receivable - net 7 82,163,336 

Property, furniture and equipment - net 8 30,993,166 

Other assets 9 27,226,976 

Total assets 329,468,892 

Liabilities and capital and capital reserves 

Liabilities 

Deposits 10 46,236,280 

Interest payable 111,750 

Accounts payable 11 8,089,446 

Reserves for compensation 1,404,269 

Total liabilities 55,841,745 

Capital and capital reserves 

Share capital: authorised and paid-up 2,530,000 ordinary 

shares, each with nominal value of L100 1 253,000,000 

Distributed surplus 1 47,237,750 

Accumulated loss (26,610,603) 

Total capital and capital reserves 273,627,147 

329,468,892

Income Statement 

For the six-month period ending on 31 December 2007 

in Lempiras 

Interest income 

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


On loans and discounts 6,915,447 

On investments and others 4,956,586 

11,872,033 

Interest expense 

On savings deposits 87,257 

On term deposits 476,304 

On liabilities to banks 221,978 

Other 541,958 

1,327,497 

Net interest income 

Provisons for losses on loans and interest 7 10,544,536 

Net income after provisions (1,562,324) 

8,982,212 

Other income 

Commissions for services 503,377 

Currency exchange 22,486 

Various income 1,707,587 

2,233,450 

Other expenses 

Staff costs 12 19,086,417 

Administrative costs 13 18,739,848 

37,826,265 

Net loss (26,610,603)

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

Statement of Changes in Capital and Capital Reserves 


in Lempiras 

Ordinary shares 


At start of year – 

Increase through cash contributions 1 253,000,000 

At end of year 253,000,000 

Distributed surplus 


Increase through cash contributions 1 47,237,750 

At end of year 47,237,750 

Accumulated loss 


Net loss (26,610,603) 

At end of year (26,610,603) 

Total capital and capital reserves 273,627,147

Statement of Cash Flows 




in Lempiras 

Cash flows deriving from operating activities 

Interest earned 10,069,168 

Commissions, service charges and other income 2,233,450 

Interest paid (1,215,747) 

Cash paid to employees and suppliers (27,887,128) 

Net cash provided by operating activities (16,800,257) 

Cash flows deriving from investment activities 

Acquisition of fixed assets 9 (33,914,906) 

Increase in loans receivable (82,163,336) 

Increase in other assets (25,020,836) 

Net cash used in investing activities (141,099,078) 

Cash flows deriving from financing activities 

Increase in customers’ deposits 46,236,280 

(Reduction) increase in other liabilities 510,719 

Capital increase from cash contributions 1 300,237,750 

Net cash provided by financing activities 346,984,749 

Cash and cash equivalents at end of year 14 189,085,414

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

Notes to the Financial Statements 


The Bank’s History and Operations 

The bank was established by Public Deed No. 26 in the city of Tegu- 

cigalpa, M.D.C., Republic of Honduras, on 20 April 2007, as a Limited 

Company, for an indefinite period, under the company name 

Banco ProCredit Honduras, S.A. Its main purpose is to perform the 

activities of a commercial bank, including savings, microlending, 

mortgage lending, investments, trusts, savings and loan operations, 

housing loans and any other operation or service which is directly 

or immediately related to professional banking and lending 

operations. 

On 27 March 2007, the bank received authorisation from the National 

Commission for Banking and Insurance to establish itself as 

an institution within the financial system, operating with an initial 

subscribed and fully paid-up capital from its two founding shareholders 

Stichting DOEN and ProCredit Holding AG, for L11,337,000 

and L241,663,000, respectively, giving it a total share capital of 

L253,000,0000 consisting of 2,530,000 registered ordinary shares 

with a nominal value of L100 each. 

During December 2007 the bank received US$2,500,000 

(L47,237,750) from the Inter-American Development Bank (IDB), 

which thereby became a shareholder in the bank. However, this 

amount has not been added to the share capital by the bank as 

authorisation to capitalise and record the shares has not been 

obtained from the National Commission for Banking and Insurance 

(CNBS). At 31 December 2007, the contributions were held as retained 

surplus by agreement with the National Commission for 

Bank-ing and Insurance (CNBS). 

1. Accounting Policies 

Accounting Basis 

Regulated institutions in Honduras prepare their financial statements 

in accordance with the accounting practices stipulated or 

permitted by the National Commission for Banking and Insurance, 

which constitute the basis of the accounts, and it is necessary to 

explain how these differ from International Financial Reporting 

Standards (Note 18). 

There follows a summary of the principal accounting policies adopted 

by the bank in preparing the financial statements in accordance 

with the accounting basis described above: 

Use of Estimates 

Preparing the financial statements requires the management of the 

bank to make certain estimates and assumptions which affect the 

values of assets and liabilities, and of income and expenditure for 

the years reported. Assets and liabilities are recognised in the financial 

statements when it is likely that future economic benefits 

will accrue to the bank, or that financial obligations will be incurred 

by the bank, and when the different items have a cost or value 

which can be measured reliably. 

If in the future these estimates and assumptions, which are based 

on the best judgement of management at the date on which the financial 

statements are prepared, are modified in the light of current 

circumstances, the original estimates and assumptions will 

be duly modified in the year in which these changes occur. The 

important estimates which are particularly susceptible to significant 

change in the short term are those relating to the allowance 

for losses on loans and investments. Although the management believes 

that these allowances are currently adequate, future modifications 

may be necessary depending on economic conditions. In 

addition, the regulatory authorities regularly review the allowance 

for losses on loans and investments. These authorities may require 

the bank to recognise additions to these provisions on the basis of 

their judgements regarding the information available at the date 

of the review. 

Investments 

Investments with a maturity date of less than one year are classified 

as short-term investments in the balance sheet. Interest 

earned on investments in securities is recorded as interest income 

in the income statement. 

Loans and Provisions for Non-Performing Loans and Interest 

Loans receivable are presented at the amortised cost, which includes 

the value of the principal, plus the interest due, less the 

repayments made and the allowance for non-performing loans and 

interest. The provisions for non-performing loans and interest are 

determined in accordance with the credit classification rules of the 

National Commission for Banking and Insurance, which periodically 

reviews and approves the criteria used, together with the level 

of allowances required. Adjustments to the provisions required by 

the National Commission for Banking and Insurance are recorded 

in accordance with the respective notifications, and are normally 

charged to the annual operating result. 

The balance of this allowance is an amount which the management 

of the bank considers adequate to comply with the requirements 

of the National Commission for Banking and Insurance (CNBS) and 

sufficient to absorb potential losses in the recovery of receivable 

loans. For credits granted in the microloan sector, this allowance is 

established on the basis of an analysis of arrears and bad debt in 

the payment of instalments and of the availability of collateral. 

Loans which the management deems to be irrecoverable are written 

off against the loan loss provisions. Recovered loans which had 

previously been written off are credited as other income in the income 

statement for the period. 

The standards for evaluating and classifying the loan portfolio, 

issued by the National Commission for Banking and Insurance, 

stipulate that the establishment of loan loss provisions must be 

based on the following percentages: 

Category percentages applicable from 1 January 

in % 2006 2007 

I 0 0 

II 2 2 

III 13.50 15 

IV 43 50 

V 100 100 

The effect of the change in the percentages for the establishment 

of provisions for non-performing loans will be recognised in the income 

statement for each period.

Property, Furniture and Equipment 

These assets are recorded at cost less accumulated depreciation. 

Depreciation is calculated using the straight line method in accordance 

with the estimated useful lifetimes of the assets as listed below: 

Buildings 40 years 

Installations 10 years 

Furniture and equipment 5–10 years 

Vehicles 5 years 

Computing equipment 5 years 

Profits or losses deriving from the withdrawal or sale of assets are 

recognised in the income statement, as is expenditure on repairs 

and maintenance which does not extend the useful life of these 

assets. 

Other Assets and Amortisation of Other Assets 

The bank classifies miscellaneous debts, prepaid expenses and 

improvements to leased properties as other assets. Also included 

under this heading are the expenses for the organisation and establishment 

of the bank to be amortised in future years in accordance 

with the regulations of and specific authorisations obtained from 

the National Commission for Banking and Insurance (Note 9). 

Loans Payable and Liabilities to Banks 

Loans payable are initially recognised at the cost which corresponds 

to the value of the payment received, as determined on the 

basis of a reasonable estimate. Thereafter, liabilities to banks are 

recognised at the amortised cost. 

Provisions 

Provisions are recognised when the bank has a legal or implicit 

obligation as the result of a past event, and it is likely that it will 

have to release resources which generate financial profits in order 

to meet an obligation, and where a reliable estimate of the value of 

the obligation can be made. 

Compensation 

Compensation payments due to the bank’s employees, and calculated 

on the basis of length of service, in accordance with the provisions 

of the Employment Code applicable in Honduras, may be paid 

to them in the case of dismissal without just cause. The bank’s policy 

is to establish a reserve fund to cover expenditure of this sort, 

based on estimates of the annual cost. At 31 December 2007, the 

reserve for compensation payments amounted to L1,404,269. 

Interest Income and Interest Expense 

Interest income and interest expense are recorded in the income 

statement on a cumulative basis, using the method for accrued 

interest. The accumulation of interest income is suspended when 

any instalment of principal or interest on loans receivable is in arrears 

for 90 days, 90 days after maturity for loans with bullet repayment, 

and when the loans are classified as belonging to risk 

category IV - Non-performing loans and V - Bad loans. In addition, 

when loans receivable are classified as suspended, they are reversed 

as unreceived income. Reversed and suspended interest is 

recorded in memorandum accounts and only recognised as income 

when actually received. 

Income from Commissions and Other Miscellaneous Services 

Income from commissions and other miscellaneous services deriving 

from the management of accounts, tax collection, money 

orders and transfers, guarantees and sureties, purchase and sale 

of currency, collection of payments for third parties and others, is 

recognised on a cumulative basis when the services have been provided 

to customers. 

Recording of Foreign Currency Transactions 

Transactions in foreign currency are recorded at the exchange rate 

prevailing at the transaction date, and the related balances are 

translated at the exchange rates at the closing dates; any resulting 

exchange gains or losses are recorded in the income statement for 

the current year. 

Cash and Cash Equivalents 

For the purposes of the cash flow statement, cash and equivalents 

include cash in hand, bank balances, deposits and investments in 

all financial instruments with an original maturity period of three 

months or less. 

2. Monetary Unit and Exchange Rate 

The accounting records of the bank are maintained in lempiras, the 

legal tender and currency of normal use in Honduras, denoted by 

the symbol L in the accompanying financial statements. This currency 

reflects the economic substance of the underlying events and 

the relevant circumstances for the bank. The exchange rate of the 

lempira to the US dollar, according to the rates authorised by the 

Central Bank of Honduras at 31 December 2007, was L18.8951 to 

$1.00. 

3. Cash and Deposits with Domestic Banks 

The liquid assets in cash and deposits with domestic banks are 

listed below: 

in Lempiras 2007 

Cash 9,717,690 

Deposits with domestic banks 769,239 

Uncleared cheques 

Mandatory reserve account 

26,334 

at the Central Bank of Honduras 28,928,166 

39,441,429 

4. Deposits with Foreign Banks 


The balances of deposits with foreign banks stood at L48,226,717. 

These are overnight deposits yielding an annual interest rate of 

3.5% and are considered to be cash equivalents (Note 14).

50 

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

5. Temporary Investments 

Investments in short-term securities are listed below: 


Securities issued by official bodies 

Bills issued by the Central Bank of Honduras 45,228,000 

Discount not accrued (496,032) 

44,731,968 

Certificates of deposit 56,685,300 

101,417,268 

(a) Bills of exchange of the Central Bank of Honduras, yielding an annual 

interest rate of 6.6% and maturing at three months or less. These 

investments are considered to be cash equivalents. 

(b) These correspond to term deposit certificates in dollars in foreign 

banks maturing at three months or less, and yielding an annual interest 

rate of between 4.5% and 7%. Due to their maturity date, these 

investments are considered to be cash equivalents. 

6. Loans and Interest Receivable 

The loans and interest receivable are described below: 


Business loans (microloans) 82,260,305 

Interest due on loans 

Less: 

provisions for losses on doubtful 

1,465,355 

83,725,660 

loans and interest (1,562,324) 

Net loans 82,163,336 

Loans receivable are in lempiras and yield interest at annual rates 

of between 14% and 39%. All loans are agreed at variable interest 

rates. 

Provisions for Losses on Loans and Interest 

The change in the provisions for losses on non-performing loans and 

interest is set forth below: 


Balance at start of year – 

Allowance for loan losses 1,562,324 

Loans written off – 

Balance at end of year 1,562,324 

Classification of Loans 

Performing loans and those classified as bad loans are as follows: 


Performing 81,565,320 

In arrears 674,985 

Legal proceedings initiated to recover loan 20,000 

82,260,305 

Bad loans which are not accumulating interest amount to L230,814. If 

these loans had been accumulating interest, the interest recorded in 

the income statement would have been L18,327. 

Loans Classified by Type of Guarantee 

The loans classified by type of guarantee are as summarised below: 


Fiduciary (without guarantee) 3,418 

Loans secured by pledged collateral 72,444,078 

Mortgage loans 9,796,848 

Other guarantees 15,961 

82,260,305 

The bank classified the portfolio of loans and interest receivable in 

accordance with the regulations of the National Commission for Banking 

and Insurance, as described below: 


Good 83,009,317 

Special mention 361,652 

Substandard 256,392 

Non-performing 98,299 

Loan losses – 

83,725,660 

Breakdown of the Loan Portfolio 

The bank strives to ensure that it has a diversified loan portfolio on 

the basis of loan type, geographical region and economic sector, in 

order to minimise the risk of a negative impact of a single event or series 

of events. The classification of loans by sector and geographical 

regions is summarised below: 


By economic sector 

Trade 50,261,732 

Industry 11,621,015 

Services 20,247,018 

Consumption 89,811 

Others 40,729 

82,260,305 

By geographic region 

Central-Southern Region 63,203,161 

Northern Region 19,057,145 

7. Property, Furniture and Equipment 

82,260,305 

The property, installations, furniture and equipment are as set forth 

below: 


Land 733,092 

Buildings 3,125,288 

Installations and improvements 7,326,432 

Office furniture and equipment, and computers 21,451,104 

Vehicles 1,278,990 

33,914,906 

Less: Accumulated depreciation (2,921,740) 

30,993,166

These assets and the movements recorded for each category are summarised 

below: 

Land and Office furniture and equipment, Installations Total 

in Lempiras 

Year ending 31 December 2007 

buildings and computers and others 

Values at beginning of year – – – – 

Additions to assets 3,858,380 22,730,094 7,326,432 33,914,906 

Charge for depreciation (Note 13) (53,071) (2,388,688) (479,981) (2,921,740) 

Book value at year-end 3,805,309 20,341,406 6,846,451 30,993,166 

At 31 December 2007 

Cost 3,858,380 22,730,094 7,326,432 33,914,906 

Accumulated depreciation (53,071) (2,388,688) (479,981) (2,921,740) 

Book value 3,805,309 20,341,406 6,846,451 30,993,166 

8. Other Assets 

The other assets are set out below: 


Sundry debtors 7,766,748 

Interest due on investments 337,510 

Prepaid expenses 100,804 

Organisational expenses 8,545,119 (a) 

Construction works on leased properties 9,520,039 

Depreciation accounts - net 30,756 

Others 926,000 

27,226,976 

(a) The organisation and start-up expenses incurred by the bank at 

the start of its operations were capitalised to be amortised over five 

years in accordance with the authorisation of the National Commission 

for Banking and Insurance (CNBS), according to ruling 924/14- 

08-2007 of 14 August 2007. 

9. Deposits 

Customer deposits are set out below: 


Sight 4,464,942 

Savings 10,043,558 

Term 31,655,010 

Other deposits 72,770 

46,236,280 

The average annual rate for deposits is 6.79% for lempiras and 4.82% 

for deposits in dollars. Term deposits are normally agreed at interest 

rates which are fixed until maturity. 

10. Accounts Payable 

The accounts payable are set out below: 


Documents and payment orders issued 1,789,898 

Miscellaneous creditors 6,207,882 

Cheques and drafts in circulation 48,143 

Others 43,523 

8,089,446 

11. Staff Costs 

Staff costs are set out below: 


Ordinary and extraordinary salaries 8,883,051 

Social benefits 1,753,926 

Travel expenses 2,457,036 

Staff benefits 1,418,509 

Employer’s contributions 463,014 

Other staff and employee expenses 4,110,880 

19,086,417 

12. Administrative Costs 

The administrative costs are set out below: 


Professional fees 1,130,649 

Leasing 2,245,493 

Repairs and maintenance 515,053 

Security 1,138,052 

Marketing 1,334,647 

Depreciation of fixed assets 2,921,740 

Amortisations 1,868,630 

Taxes and contributions 2,310,609 

Stationery and office supplies 1,557,433 

Public services 868,910 

Other expenses 2,848,632 

18,739,848 

13. Cash and Cash Equivalents 

Cash and cash equivalents are set out below: 

F i n a n c i a l S tat e m e n t s 51 


Cash on hand and in banks (Note 4) 39,441,429 

Deposits with foreign banks (Note 5) 48,226,717 

Temporary investments (Note 6) 101,417,268 

189,085,414

52 

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

14. Related Parties 

Banco ProCredit Honduras, S. A., is a member of a group of related 

companies and, as described below, has significant transactions and 

relationships with the other members of the group. Due to these relationships, 

it is possible that the terms of these transactions are not 

the same as would be the case for transactions between completely 

unrelated companies. 

The bank considers its related parties to be its directors and majority 

shareholders together with those companies managed and controlled 

by them, or which have direct or indirect ownership of them. 

The approximate balances with related parties are set out below: 


Investments in fixed term deposits 3,779,000 

Accounts payable - liabilities to related parties 425,500 

The National Commission for Banking and Insurance regulates the 

maximum value of loans which may be granted to related parties. The 

bank did not exceed these maximum permitted values at December 

31, 2007. 

The principal transactions with related parties are set out below: 


Interest earned on bank deposits 661,300 

Interest paid on loans 785,500 

15. Business Risks 

Given the nature of the bank’s activities, they are principally related 

to the use of financial instruments. The bank takes deposits from customers 

at fixed and variable rates and for various periods and seeks 

to gain a margin in excess of the average interest rate for these deposits 

by investing these funds in high quality assets, principally by 

issuing business and consumer loans to customers. The bank does 

not use derivative financial instruments in its activities. 

The financial instruments included in the balance sheet which are 

subject to credit, liquidity and price risks (interest rate and currency) 

are: cash, investments in securities, loans receivable, accounts receivable, 

customer deposits and accounts payable. 

Capital Adequacy 

The bank uses an index established by the National Commission for 

Banking and Insurance (CNBS) to monitor its capital adequacy. This 

index measures capital adequacy by comparing the volume of the 

bank’s own resources with its assets, weighted in accordance with 

their relative risk. For the purposes of capital adequacy, the bank’s 

own resources are classified as primary capital and complementary 

capital. The assets are weighted, according to their degree of risk, 

using a percentage scale of 0%, 10%, 20%, 50%, 100% and 150%, 

applicable to the accumulated net balances of depreciations and amortisations 

presented at the end of each month for the different balance 

sheet entries or headings. 

The minimum capital adequacy ratio established by the National Commission 

for Banking and Insurance is 10%. At 31 December 2007, the 

bank had a capital adequacy ratio of 140.22%; it therefore complies 

with the minimum capital requirements to which it is subject. 

In December 2006, according to circular No. 48-2006 issued by the 

National Commission for Banking and Insurance, it was established 

that banks had to increase their minimum capital to L250,000,000, 

and they were given a maximum period of twelve months to comply 

with this requirement. 

Credit Risk 

The bank has exposure to credit risk, which represents the risk that 

other parties may fail to meet the obligations they have assumed 

through the relevant financial instruments. Cash, investments in 

securities and loans receivable are subject to credit risk. Cash and 

investments in securities are held in top-level institutions and with 

the Central Bank of Honduras. A detailed analysis of the exposure 

to credit risk in the loans receivable portfolio is presented in Note 7. 

Exposure to credit risk with any of the bank’s borrowers is regulated 

in accordance with the Financial System Act, which establishes that 

banks may not issue loans or guarantees or undertake other credit 

operations, including the acquisition of bonds or other debt securities 

from a single individual or entity, for an amount greater than 20% 

of the capital and reserves of the bank. 

In addition, the provisions issued by the Central Bank of Honduras 

regarding economic groups establish that loans issued to each group 

of linked individuals or organisations will be limited to 20% of the 

bank’s capital and capital reserves, unless there are guarantees 

classified as sufficient by the CNBS, in which case these loans may 

amount to up to 50% of the capital and capital reserves of the bank. 

Currency Risk 

Cash, investments, loans and interest receivable, customers’ deposits, 

and liabilities to banks include significant balances in United 

States dollars, which are subject to the risk of fluctuations in the 

exchange rate of the dollar to the lempira. The bank mitigates this 

risk by maintaining a balance between assets and liabilities in US 

dollars. 

The balances of the assets and liabilities accounts in US dollars are 

set out below: 

in Lempiras 

Financial assets 

2007 

Cash and due from banks 13,844,168 

Deposits with foreign banks 48,226,717 

Investments 56,685,300 

Loans and interest receivable – 

Other accounts receivable 

Financial liabilities 

174,404 

118,930,590 

Deposits 15,225,166 

Other accounts payable 505,911 

15,731,077 

Net position 103,199,513

Interest Rate Risk 

Investments in securities and customer deposits are subject to the 

risk of changes in the market interest rate. The risk associated with investments 

in securities and customer deposits is reduced when these 

are short-term. Deposits are normally taken on the basis of variable 

rates in accordance with market rates. Below is a summary of average 

weighted rates by currency for the bank’s financial instruments: 

2007 

in% Lempiras Dollars 

Financial assets 

Investments 6.50 6.16 

Financial liabilities 

Deposits 6.79 4.82 

Liquidity Risk 

The maturity of assets and liabilities and the ability to replace, at an 

acceptable cost, interest-bearing liabilities, together with their maturity 

periods, are important factors when it comes to evaluating the 

bank’s liquidity and its exposure to changes in interest and exchange 

rates. The National Commission for Banking and Insurance, in circular 

No. 055/2004, issued the guidelines to be used in the reconciliation 

of maturity periods for the bank’s financial instruments. 

An analysis of the approximate maturity dates of the bank’s principal 

financial instruments, in accordance with the guidelines established 

by the National Commission for Banking and Insurance, is given below: 

in Lempiras Up to 1 month From 1 to 3 months 


Assets 

Cash and due from banks 87,668,146 – 

Investments in securities 18,895,100 79,848,200 

Interest receivable 1,802,865 – 

Loans receivable 66,600 437,913 

Other assets 26,334 – 

Total assets 108,459,046 80,286,113 

Liabilities 

Customers’ deposits 14,581,270 31,655,010 

Interest payable 111,750 – 

Sight deposits 4,499,744 – 

Total liabilities 19,192,764 31,655,010 

Net liquidity position 89,266,281 48,631,103 

Maintaining a balance between the maturity dates and the rates of 

interest for financial assets and liabilities, and monitoring any imbalances 

which arise, is essential for the management of the bank. It is 

unusual for the maturity dates of a bank’s financial assets and liabilities 

to be completely balanced, due to the fact that banks often carry 

out their business in the context of uncertain terms and conditions 

and different rates of interest. An unbalanced position in maturity 

dates potentially increases profitability, but also increases the risk 

of losses. 

16. Contingent Commitments 

a) Legal Actions 

F i n a n c i a l S tat e m e n t s 53 

The bank is involved in legal proceedings which have arisen in the 

ordinary course of business. On the basis of the opinion of its legal 

advisors, the management does not consider that the settlement of 

these actions will have a significant impact on the financial situation 

of the bank or the results of future operations. 

b) Income Tax 

In accordance with the provisions of the Honduran Tax Regulations, 

the right of the tax authorities to review tax declarations normally expires 

five years after the submission date. At the date of these financial 

statements, the tax declarations subject to possible review were 

those for the year 2007. 

17. Differences between the Accounting Standards Permitted by 

the National Commission for Banking and Insurance (CNBS) and 

the International Financial Reporting Standards – IFRS. 

The principal differences between the accounting basis adopted by 

the bank and the International Financial Reporting Standards are set 

out below: 

Depreciable Value of Fixed Assets 

The bank determines the depreciable value of its fixed assets after 

deducting 1% of their cost as residual value. The International Financial 

Reporting Standards establish that the depreciable value of an 

asset is determined after deducting its residual value but establishes 

that this residual value is the estimated amount that the entity could 

actually obtain by disposing of the asset, after deducting the estimated 

costs of disposal, if the asset had already reached the end of 

its useful life and the other conditions projected for this point in time 

had also been met. 

Compensation 

The bank records a provision for the payment of employee benefits 

upon dismissal. In accordance with the International Financial Reporting 

Standards, the company must recognise redundancy payments 

for employees as a liability, and may only recognise them as 

an expense when it has a demonstrable obligation to terminate the 

employment relationship before the normal retirement date of the 

employees or to make redundancy payments upon termination of the 

employment relationship as the result of an offer or a voluntary decision 

by the employees. 

Payments to Management 

The bank does not reveal the amount of payments received by key 

management staff, as required in accordance with IFRS 24. 

Reasonable Estimate of the Value of Financial Assets and Liabilities 

The International Financial Reporting Standards (IFRS) require that a 

reasonable estimate of the value of financial assets and liabilities be 

disclosed in the financial statements. The bank has only been operating 

for six months, as a result of which the balances for financial 

assets and liabilities are roughly equivalent to a reasonable estimate 

of their value because of their short-term nature.

54 

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

Organisational Expenses 

Organisational and start-up expenses incurred in order to initiate the 

bank’s operations are recognised as assets amortisable in future periods 

by authorisation of the National Commission for Banking and 

Insurance. In accordance with IFRS 38, the deferral of these expenses 

is not generally permitted. 

Cash Flows for Loans and Deposits 

The bank classifies the cash flows from the loan portfolio and customers’ 

deposits as investment and financing activities. The International 

Financial Reporting Standards require that cash flows from 

these transactions be presented as part of the flows from operating 

activities. 

Analysis of Maturity 

The bank discloses the reconciliation of the maturity dates of its financial 

assets and liabilities on the basis of the requirements of the 

National Commission for Banking and Insurance, classifying them on 

the basis of those with maturity dates of up to one month and those 

with maturity dates of from 1 to 3 months. IFRS 32 establishes that 

the bank should disclose its level of exposure to price risk as a result 

of variations in interest rates and in the cash flow from financial 

instruments, classifying them in periods of up to one month, more 

than one month and less than three months, more than 3 months and 

less than 12 months, more than 1 year and less than 5 years, and five 

years or more, in accordance with the maturity dates stipulated in the 

respective financial instruments. 

There is no requirement to quantify the effects on the financial statements 

of these differences between the accounting basis used by the 

bank and the International Financial Reporting Standards; however, 

these may or may not be significant. 

18. Approval of the Financial Statements 

The financial statements at 31 December 2007 were approved for 

issue by the Board of Directors of the bank on 10 March 2008. 

Exchange rate as of December 31, 2007: 1 USD = 18.8951 Lempiras

Contact Addresses 

Head Office 

Col. Tepeyac, Avenida Las Minitas, 

Edificio ProCredit, 

Tegucigalpa M.D.C. 

Tel.: +504 290 1010 

Fax: +504 290 1099 

Branches 

Agencia Centro 5ta. Avenida 

Barrio El centro, 4ta. Calle, 

entre 5ta. y 6ta. Avenida, 

San Pedro Sula 

Tel.: +504 290 1013 

Agencia Kennedy 

Col. Kennedy, Bloque 5, 6ta. Calle, 

antigua terminal de buses, 

Tegucigalpa 

Tel.: +504 290 1014 

Agencia Parque La libertad 

Calle Real, 

frente al Parque La Libertad, 

Comayagüela/Tegucigalpa 

Tel.: +504 290 1012 

Agencia Parque Valle 

Parque Valle, frente a la estación 

de taxis de la Col. 21 de Octubre, 

Tegucigalpa 

Tel.: +504 290 1011 

Agencia Tepeyac 

Col. Tepeyac, Avenida Las Minitas, 

Edificio ProCredit, 

Tegucigalpa 

Tel.: +504 290 1010 

C o n ta c t A d d r e s s e s

Annual Report 2007

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