Annual Report 2007

A n n u a l R e p o r t 2 0 0 7
Notes to the Financial Statements
31 December 2007
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.