Annual Report 2009 - ProCredit

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Annual Report 2009
compromised the ability of a sizeable number of
borrowers to meet their cumulative obligations.
In response, the bank further strengthened its
monitoring and analysis of the PAR.
Net write-offs amounted to EUR 5.5 million,
equivalent to 4.6% of the year-end portfolio. The
bank has a conservative policy regarding loan
loss provisions, which at year-end were equivalent
to 105.6% of the PAR, and to 5.9% of the total
portfolio volume. Arrears management will once
again be a key priority in the coming year. We will
continue our intensive training for loan officers,
focusing in particular on further strengthening
their ability to analyse applicants’ overall debt
levels.
Our lending staff closely monitors clients’ businesses
to assess the impacts of the economic
downturn on an individual basis. As part of our
long-term relationships with clients, we are
providing advice and assistance to guide them
through difficult times. We will continue to modify
repayment plans and restructure loans to help
them meet their obligations.
Market Risk
Our exposure to market risk is low because we
focus on our core business activities and do not
engage in speculative transactions or proprietary
trading. Interest rate derivatives are used for
hedging purposes only. Our model for measuring
interest rate risk enables us to identify, assess,
monitor and control our exposure in this area.
BiH has a currency board regime under which the
local currency (BAM) is pegged to the euro. Thus,
depreciation of the local currency is not an imminent
risk. Also, other foreign currency positions
are kept at a minimal level.
The ALCO regularly monitors and analyses the interest
rate risk exposure and open currency positions,
meeting at least once a month. The bank
aims to maintain a very low open currency position,
and in 2009 the annual average position
stood at 3.6% of the total year-end capital. Interest
rate risk is managed by minimising maturity
gaps across the entire range of maturities.
Liquidity Risk
The ALCO reviews the development of the loan
portfolio and the deposit base using a reporting
system which tracks cash flow on a daily
and monthly basis, and also monitors the liquidity
position. Thanks to our conservative liquidity
policy, the ratio of liquid assets (including
the mandatory reserve) to total assets stood at
30.5% at the end of 2009. The liquidity position
is evaluated on a monthly basis using stress testing
and scenario analysis.
Given that most loans are repaid in monthly instalments,
and with the slowdown in lending
due to the changed economic situation, we had
excess liquidity in 2009. Thus, we did not need
to obtain funds from other banks in the group or
to tap expensive financing sources in the credit
markets. In line with our strategy in 2009, we
achieved greater diversification in our deposit
base by focusing more on mobilising funds from
private individuals, thus reducing the share of
the total volume held by legal entities. Thus, at
year-end the 20 largest depositors accounted for
23.9%, compared to 39.4% in 2008.
The ratio of total deposits to the total loan portfolio
was 103.7%, compared with 105.0% in 2008.
Operational Risk
All policies, processes and procedures for the
control and mitigation of material operational
risks meet the criteria of the ProCredit group and
comply with international best-practice standards
and the local regulations.
In operational risk management, we focus on ensuring
that:
• the design of all processes and systems reduces
the associated operational risks;
• the “four-eyes” principle and a segregation
of duties are implemented and that control
mechanisms are integrated into the relevant
IT systems;
• the risks associated with business processes
and products and services are continuously
monitored at various levels; and that
• regular audits are performed to evaluate the
quality of monitoring.