Annual Report 2008 - ProCredit Bank

Annual Report 2008 Bosnia and Herzegovina 

Annual Report 2008

2 

Annual Report 2008 

Key Figures 

EUR ’000 BAM ’000 Change 

2008 2007 2008 2007 BAM 

Balance Sheet Data 

Total Assets 237,314 216,717 464,146 423,861 10% 

Gross Loan Portfolio 162,880 162,102 318,566 317,045 0% 

Business Loan Portfolio 96,479 96,208 188,697 188,168 0% 

EUR < 10,000 41,444 46,542 81,058 91,028 -11% 

EUR > 10,000 < 50,000 26,873 25,829 52,559 50,518 4% 

EUR > 50,000 < 150,000 15,806 14,590 30,914 28,536 8% 

EUR > 150,000 12,356 9,247 24,166 18,086 34% 

Agricultural Loan Portfolio 42,085 50,082 82,311 97,952 -16% 

Housing Improvement Loan Portfolio 4,496 3,663 8,793 7,164 23% 

Other 19,820 12,149 38,765 23,761 63% 

Allowance for Impairment on Loans 5,529 4,354 10,814 8,517 27% 

Net Loan Portfolio 157,351 157,748 307,752 308,528 0% 

Liabilities to Customers 171,585 143,093 335,591 279,867 20% 

Liabilities to Banks and Financial Institutions 

(excluding PCH) 33,561 39,994 65,639 78,221 -16% 

Shareholders’ Equity 22,822 19,249 44,635 37,648 19% 

Income Statement 

Operating Income 19,343 18,619 37,831 36,415 4% 

Operating Expenses 19,684 17,136 38,499 33,516 15% 

Operating Profit Before Tax -342 1,482 -668 2,899 -123% 

Net Profit -384 1,304 -751 2,551 -129% 

Key Ratios 

Cost/Income Ratio 86.3% 81.9% 86.3% 81.9% 

ROE -1.8% 8.1% -1.8% 8.1% 

Capital Ratio 18.4% 16.5% 18.4% 16.5% 

Operational Statistics 

Number of Loans Outstanding 65,277 68,752 -5% 

Number of Loans Disbursed within the Year 41,972 61,348 -32% 

Number of Business and Agricultural 

Loans Outstanding 57,245 62,928 -9% 

Number of Deposit Accounts 113,096 84,126 34% 

Number of Staff 888 831 7% 

Number of Branches and Outlets 44 38 16% 

Exchange rate as of December 31: 

2008: EUR 1 = BAM 1.95583 

2007: EUR 1 = BAM 1.95583

Contents 3 

Mission Statement 4 

Letter from the Supervisory Board 5 

The Bank and its Shareholders 6 

The ProCredit Group: Responsible Banks for Ordinary People 8 

ProCredit in Eastern Europe 11 

Highlights in 2008 14 

Management Business Review 16 

Special Feature 24 

Risk Management 26 

Branch Network 30 

Organisation, Staff and Staff Development 32 

Business Ethics and Environmental Standards 35 

Our Clients 36 

Financial Statements 40 

Contact Addresses 70

4 


Mission Statement 

ProCredit Bank Bosnia and Herzegovina is a development-oriented full-service bank. 

We offer excellent customer service and a wide range of banking products. In our credit 

operations, we focus on lending to very small, small and medium-sized enterprises, as 

we are convinced that these businesses create the largest number of jobs and make a 

vital contribution 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 

interested 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 Supervisory Board 5 

Letter from the Supervisory Board 

The year under review was challenging for the financial sector due to the global economic downturn that 

followed a collapse of the subprime mortgage market in the United States. This crisis has illustrated all 

too clearly the negative effects that can result from irresponsible consumer lending when the main institutional 

objective is short-term profit maximisation. International capital market restrictions and a loss of 

trust among savers and investors were soon visible in the USA and parts of Western Europe. An indirect 

impact was later felt in transition economies, including Bosnia and Herzegovina (BiH). Faced with reduced 

liquidity, many local banks launched a series of non-transparent saving campaigns devised to attract private 

deposits; they also increased interest rates on outstanding short-term loans, particularly with regard 

to consumer and credit card lending. 

Operating in this environment, ProCredit Bank BiH continued to support private sector development by 

providing fixed-rate loans to very small, small and medium-sized entrepreneurs and farmers across the 

country. At year-end, the loan portfolio consisted of more than 57,000 loans, representing a total volume 

of BAM 271 million (EUR 138.5 million). In line with our business policy to focus on lending to these core 

groups, only 3.3% of our portfolio consisted of consumer loans. 

The banking sector in BiH is highly competitive, consisting of 31 banks and twenty microcredit organisations. 

1 Many of these institutions have disbursed so many loans over recent years without conducting a 

sound analysis that their clients have in many cases become over-indebted and are now unable to meet 

repayments. Run by the central bank, the Central Credit Registry became fully functional in 2008. Thanks 

to its ability to cross-reference data from all lending institutions, we learnt that, although credit analysis 

was performed on an individual basis, many of our own clients were in fact deeply indebted. Given this 

information, our most important task remained to adhere to our traditional principles of responsible banking, 

assessing each client’s true ability to meet obligations. The Central Credit Registry provides additional 

strength to our credit risk management strategy. 

A major achievement in 2008 was another step towards funding the loan portfolio entirely through domestic 

deposits. Given the general loss of public confidence in the banking sector, this result demonstrates our 

solid reputation amongst savers. By offering simple and appealing savings products, we increased our 

deposit base by 20% to BAM 335.6 million (EUR 171.6 million). 

On the basis of this growth, ProCredit Bank opened seven units in 2008, extending the branch network to 

44 offices in 33 towns and cities. In line with the approach we have always taken to our business, all of our 

new branches offer our clients professional and friendly financial advice from the very first day of operation. 

This is achieved through heavy investment in staff development and training. 

ProCredit Bank now has over 880 employees. Remaining true to our principles, we emphasise the significance 

of transparent communication and a socially responsible attitude towards our staff members, 

clients, business partners and the broad community. These priorities were reflected in the financial education 

activities we carried out during the year. Our campaigns aimed to enable people to understand 

standard banking services and use them wisely. The bank also undertook a number of projects to benefit 

the communities in which it operates, including the building of playgrounds, improvement of local parks 

and renovation of children’s day care centres. 

In closing, I would like to acknowledge our staff and to thank our shareholders for their long-term commitment 

to supporting our mission. ProCredit Bank BiH has a responsibility to provide sound financial advice 

and transparent services, and I trust that our employees will endeavour to make 2009 a successful year 

for the institution. 

Claus-Peter Zeitinger 

Chairman of the Supervisory Board 

Members of the 

Supervisory Board as of 

December 31, 2008: 

Claus-Peter Zeitinger 

Helen Alexander 

Frieder Wöhrmann 

Klaus Glaubitt 

Nicolas Antonio Baron Adamovich 

Members of the 

Management Board as of 

December 31, 2008: 

Peter Moelders 

Maja Hrnjić 

Sabina Mujanović 

Edin Hrnjica 

Vedran Hadžiahmetović 

Senad Redžić 

Radomir Savić 

1 

Annualised data based on CBBH bulletin No. 3

6 


The Bank and its Shareholders 

ProCredit Bank Bosnia and Herzegovina is a 

member of the ProCredit group, which is led by 

its Frankfurt-based parent company, ProCredit 

Holding. ProCredit Holding is the majority owner 

of ProCredit Bank Bosnia and Herzegovina and 

now holds 92.4% of the shares. 

ProCredit Bank BiH was founded in October 1997 

as Micro Enterprise Bank (MEB) by an alliance of 

international development-oriented investors. 

Their goal was to establish a new kind of financial 

institution that would meet the demand of 

small and very small businesses in a socially 

responsible way. The primary aim was not shortterm 

profit maximisation but rather to deepen 

the financial sector and contribute to long-term 

economic development while also achieving a 

sustainable return on investment. 

The founding shareholders of ProCredit Bank 

BiH were Internationale Projekt Consult (IPC), 

International Finance Corporation (IFC), the European 

Bank for Reconstruction and Development 

(EBRD), the Netherlands Development Finance 

Company (FMO), and BH Bank. Over the years, 

ProCredit Holding, working closely with IPC, has 

consolidated the ownership and management 

structure of all the ProCredit banks and financial 

institutions to create a truly global group with a 

clear shareholder structure and to bring to each 

ProCredit institution all the synergies and benefits 

that this implies. 

Today’s shareholder structure of ProCredit Bank 

BiH is outlined below. Its current share capital is 

EUR 18.1 million. 

Shareholder 

(as of Dec. 31, 2008) 

ProCredit Holding 

Commerzbank AG 

Sector 

Headquarters 

Share 

Paid-in Capital 

(in EUR million) 

16.75 

1.38 

Investment 

Banking 

Germany 

Germany 

92.4% 

7.6% 

Total Capital 

100% 

18.13 

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, best-practice banking 

operations and Basel II risk management 

principles are implemented group-wide. 

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. 

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 and the Swiss investment 

fund responsAbility. The public shareholders of 

ProCredit Holding include KfW (the German promotional 

bank), IFC (the private sector arm of the 

World Bank), FMO (the Dutch development bank) 

and BIO (the Belgian Investment Company for Developing 

Countries). 

ProCredit Holding has an investment grade rating 

(BBB-) from Fitch Ratings Agency. As of the 

end of 2008, the equity base of the ProCredit 

group is EUR 387 million. The total assets of the 

ProCredit group are EUR 4.8 billion.

The Bank and its Shareholders 7 

Commerzbank AG, established 

in 1870, is Germany’s second-largest 

bank and one of the leading financial institutions 

in Europe. The bank is a competent provider 

of financial services, primarily for private 

customers and small- and medium-sized enterprises 

(SMEs). It also manages major corporate 

customers and institutions in Europe as well 

as multinational enterprises around the world. 

Commerzbank aims to enhance its market share 

among these core target groups and, in particular, 

to establish itself as the number one bank for 

Germany’s SME market. 

Commerzbank runs a nationwide banking network 

in its domestic market. Following the acquisition 

of Dresdner Bank, it is the leading bank for private 

and corporate banking with some 1,200 branches 

in Germany and a strong presence in Central and 

Eastern Europe. In Asia and the US, the bank is active 

in all major commercial centres. 

Commerzbank AG is the parent company of a global 

financial services group. The group’s operating 

business is organised into five segments providing 

each other with mutually beneficial synergies: 

Private Customers, Mittelstandsbank (SME bank), 

Central & Eastern Europe, Corporates & Markets 

and Commercial Real Estate / Shipping.

8 


The ProCredit Group: Responsible Banks for Ordinary People 

The ProCredit group comprises 22 financial institutions 

whose business focus is on providing 

responsible banking services in transition economies 

and developing countries. We aim to provide 

accessible, reliable services to small businesses 

and the ordinary people who live and work in the 

neighbourhoods in which we operate. Today our 

21,400 employees, working in 814 branches, 

serve 2.9 million customers in Eastern Europe, 

Latin America and Africa. 

The first ProCredit banks were founded more than 

a decade ago with the aim of making a significant 

development impact by promoting the growth of 

small businesses. We sought to achieve this by 

providing loans tailored to their requirements and 

offering attractive deposit facilities that would enable 

and encourage low-income individuals and 

families to save. The group has grown strongly 

over the years – today we are one of the leading 

providers of banking services to small business clients 

in most of the countries in which we operate. 

Our development mission and socially responsible 

approach remain as relevant today as they 

have ever been. Indeed, their importance has 

been underscored by the global financial crisis 

and the challenges this has created for individual 

clients as well as for national economies. 

The impact of the “credit crunch” will differ from 

country to country and from region to region, but 

now more than ever our customers need a reliable 

banking partner. That is why we have consistently 

applied the principles that have defined the 

ProCredit group since its foundation. 

Our mission is to provide credit in a responsible 

manner to very small, small and medium-sized 

enterprises, as we are convinced that these businesses 

create the largest number of jobs and 

make a vital contribution to the local economy. 

Unlike most other banks operating in our markets, 

we avoid aggressive consumer lending and 

all speculative lines of business. Instead, the 

ProCredit banks work in close contact with their 

clients to gain a profound understanding of the 

problems small businesses face and the opportunities 

that are available to them. 

Our tailored credit technology reflects the realities 

of our clients’ operating environment. Developed 

by the German consulting firm IPC, this 

technology combines careful individual analysis 

of all credit risks with a high degree of standardisation 

and efficiency. It enables ProCredit institutions 

to reach a large number of small businesses 

while maintaining high loan portfolio quality. By 

making the effort to know our clients well and 

build long-term working relationships based on 

trust and understanding, we are well positioned 

to support them not only when the economy is 

buoyant, but also during a downturn. 

Furthermore, our targeted efforts to foster a savings 

culture in our countries of operation have enabled 

us to build a stable deposit base. ProCredit 

deposit facilities are appropriate for a broad 

range of customers, and for low-income groups 

in particular. We offer simple savings products 

with no minimum deposit requirement. ProCredit 

banks place great emphasis on children’s savings 

products and on running financial literacy 

campaigns in the broader community. In addition 

to deposit facilities, we offer our clients a full 

range of standard non-credit banking services. 

The ProCredit group has a simple business model: 

lending to a diverse range of enterprises and 

mobilising local deposits. As a result, our banks 

have a transparent, low-risk profile. We do not 

rely heavily on capital market funding and have 

no exposure to complex financial products. Furthermore, 

our well-trained staff are highly flexible 

and able to provide competent advice to 

clients, guiding them through difficult times. Despite 

the turmoil of the global financial markets, 

the performance of the ProCredit group has been 

remarkably stable: we ended 2008 with approximately 

15.4% year-on-year growth in assets over 

the year and a comfortable level of profitability. 

Our shareholders have always taken a conservative, 

long-term view of business development, 

aiming to strike the right balance between a 

shared developmental goal – reaching as many 

small enterprises and small savers as possible – 

and achieving commercial success. 

Strong shareholders provide a solid foundation 

for the ProCredit group. It is led by ProCredit 

Holding AG, a German-based company that was 

founded by IPC in 1998. ProCredit Holding is a 

public-private partnership. The private shareholders 

include: IPC and IPC Invest, an invest-

The ProCredit Group: Responsible Banks for Ordinary People 9 

ment vehicle set up by IPC and ProCredit staff 

members; the Dutch DOEN Foundation; the US 

pension fund TIAA-CREF; the US Omidyar-Tufts 

Microfinance Fund; and the Swiss investment 

fund responsAbility. The public shareholders 

include the German KfW Bankengruppe (KfW 

banking group); IFC, the private sector arm of the 

World Bank; the Dutch development bank FMO; 

and the Belgian Investment Company for Developing 

Counties (BIO). The group also receives 

strong support from the EBRD and Commerzbank, 

our minority shareholders in Eastern Europe, and 

from the IDB in Latin America. 

ProCredit Holding is not only a source of equity 

for its subsidiaries, but also a guide for the development 

of the ProCredit banks, providing the 

personnel for their senior management and offering 

support in all key areas of activity. The 

holding company ensures the implementation of 

ProCredit corporate values, best practice banking 

operations and Basel II risk management 

principles across the group. The group’s business 

is run in accordance with the rigorous regulatory 

standards imposed by the German banking 

supervisory authority (BaFin). 

ProCredit Holding and the ProCredit group place 

strong emphasis on human resource management. 

Our neighbourhood banking 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 strength of our relationships 

with our customers will be central to working with 

them effectively in 2009 and achieving steady 

The international group 

of ProCredit institutions; 

see also 

www.procredit-holding.com 

ProCredit 

Mexico 

Banco ProCredit 

Honduras 


El Salvador 


Nicaragua 


Colombia 


Ecuador 

Banco Los Andes 

ProCredit Bolivia 

ProCredit Bank Serbia 

ProCredit Bank 

Bosnia and Herzegovina 

ProCredit Bank Kosovo 

ProCredit Bank Albania 

ProCredit Bank Macedonia 


Sierra Leone 


Savings and Loans Ghana 


Democratic Republic of Congo 

Banco ProCredit Mozambique 

ProCredit Bank Ukraine 

ProCredit Bank Moldova 

ProCredit Bank Romania 

ProCredit Bank Georgia 

ProCredit Bank Armenia 

ProCredit Bank Bulgaria

10 


business results. A responsible neighbourhood 

bank approach requires a decentralised decisionmaking 

process and a high level of judgment and 

creativity from all staff members, 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 recruitment 

and training of a dedicated staff. We 

maintain a corporate culture which strengthens 

the professional development 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’s ProCredit Academy in Germany, which 

provides 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 

anthropology, history, philosophy and ethics. The 

programme provides an opportunity for our future 

leaders to develop their views of the world, as well 

as their communication and staff management 

skills. The first year of ProCredit Academy participants 

graduated in September 2008. 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 for 2009 will reflect the 

prevailing conditions of the countries in which 

we work. We plan to intensify our focus on loan 

portfolio quality and to offer personal support 

to our existing clients. We will continue to invest 

in our staff since it is their skills which enable us 

to work effectively with our clients under changing 

macroeconomic conditions. As responsible 

banks for ordinary people, with prudent policies 

and an excellent staff to ensure our steady performance, 

we look forward to consolidating our 

position in all our countries of operation.


ProCredit in Eastern Europe 

ProCredit operates in 11 countries across Eastern 

Europe. With more than 611,000 loans outstanding, 

it is the region’s leading provider of banking 

services to very small, small and medium-sized 

businesses. 

2008 proved to be a challenging year for the 

region. After several years of strong economic 

growth and rapid expansion of banking sector 

assets, the effects of the global financial crisis 

were felt in the latter half of the year as credit 

growth slowed and public trust wavered. Although 

the medium-term implications are not 

yet clear, the region will certainly be affected 

by both the worldwide economic downturn and, 

with the banking sector dominated by western 

European banks, the turmoil in the global financial 

sector. We anticipate lower economic 

growth and higher levels of market volatility in 

our countries of operation – conditions to which 

ProCredit and its clients must adapt. 

Given our consistent, reliable approach, ProCredit 

institutions are well placed to succeed in the current 

economic environment. We have a stable, 

straightforward balance sheet and a highly diversified 

client base. Our expansion in the first 

half of the year continued to be strong. Growth 

levelled off during the final two quarters as we introduced 

more conservative lending policies in response 

to greater credit risk. Our staff focused on 

working closely with our debtors and retail clients 

to help them understand and respond to changing 

conditions. 

Across the region, the focus of most other banks in 

recent years has been on corporate financing and 

consumer lending. In comparative terms, these 

institutions have neglected the provision of credit 

to small entrepreneurs and family businesses. 

At ProCredit, we consider such clients to be our 

core target group. We are their banking partner 

of choice, able to understand their needs and offer 

sound, professional advice. These businesses 

will remain the driving force behind economic 

growth and job creation across Eastern Europe, 

just as they have been since the collapse of Soviet 

influence and large, state-owned enterprises. As 

other banks provide fewer loans in the region, due 

to either domestic or international constraints, it 

will be more important than ever that we provide 

our clients with access to sufficient finance to 

support their operations. 

ProCredit has always emphasised the fact that 

consumer lending, which has been so aggressively 

pursued by other banks in Eastern Europe, has 

never been a line of business in which we wish to 

engage. Such loans can easily lead to over-indebtedness 

when banks advertise and disburse them 

irresponsibly in a competition to gain market 

share. We fear that the widespread practice of approving 

loans with an inadequate analysis of customers’ 

repayment capacity may now exacerbate 

the problems that individuals and families face in 

less prosperous times. This poses further potential 

difficulties for the banking sector as a whole. 

Our approach is to provide primarily business 

loans following a careful, individual analysis of 

each client’s ability to meet his or her obligations. 

We have decentralised decision-making systems 

in place and a body of highly qualified staff who 

are able to conduct an efficient and reliable risk 

assessment even in more volatile economic conditions. 

ProCredit is guided by a responsible, longterm 

attitude towards business development. We 

aim to build lasting relationships with our clients 

and do not forget that a loan is also a debt. These 

values will be particularly pertinent when managing 

potential arrears in cases where clients have 

to adapt to lower than anticipated sales. 

Our lending activities include the provision of 

agricultural loans; we are keen to support a sector 

that has been particularly neglected by other 

banks and that is vital for employment and social 

cohesion outside the main urban areas. We also 

provide housing improvement loans to help lowincome 

families renovate their homes and improve 

energy efficiency. 

Alongside its credit operations, ProCredit has 

invested strongly over the years in creating a 

savings culture amongst clients and the broader 

public. We believe that setting money aside can 

help protect savers against the uncertainties of 

life. This is perhaps truer now than ever before. 

The ratio of deposits to GDP in Eastern European 

countries is well below Western European levels, 

typically at around 50%. Through promotional 

events and direct, personal communication, we 

encourage people – particularly those who do not 

yet have a bank account – to make use of banking 

services and to regularly save a portion of their 

earnings.

12 


Belarus 

Russia 

Poland 

Germany 

Czech Republic 

Ukraine 

Slovakia 

Switzerland 

Austria 

Slovenia 

Hungary 

Romania 

Moldova 

Italy 

Croatia 

Bosnia 

and 

Herzegovina 

Serbia 

Montenegro Kosovo 

Macedonia 

Albania 

Bulgaria 

Georgia 

Armenia 

Azerbaĳan 

Turkey 

Greece 

Syria 

We offer simple and reliable retail banking services, 

including flexible savings and deposit accounts 

to accommodate depositors’ long- and short-term 

needs. Our belief in transparent, direct communication 

is particularly important in fostering clients’ 

trust in these difficult times. We understand 

that our clients want to know in simple language 

how to save safely; they also want to access their 

money when they need it without unexpected 

complications. Thanks to the trust that the public 

has placed in ProCredit, local deposits are the 

principal source of funding for our lending activities 

to local businesses. We have therefore not had 

to rely on unpredictable capital markets. All the 

ProCredit institutions in Eastern Europe ended the 

year with a comfortable liquidity position and a stable, 

indeed increasing, net interest margin. 

In line with our mission to reach clients in their 

neighbourhoods wherever they are, the ProCredit 

group continued to expand in 2008: we opened 

116 branches and recruited more than 2,500 people 

in Eastern Europe alone, bringing the regional 

total to over 13,500 employees in 557 branches. 

In the coming year we will focus on strengthening 

our business operations from this base. We 

place a strong emphasis on transparency and will 

continue to run information campaigns in 2009 to 

ensure that people understand the pricing of our 

products as well as those of our competitors. 

Our staff is the key element in our approach to being 

a stable, down-to-earth and personal banking 

partner. The ProCredit group has a strong commitment 

to staff training, professional development 

and the cultivation of an open, honest communication 

culture. Staff exchanges, cross-border training 

programmes and regional workshops are an important 

part of our approach. In September 2008, construction 

was completed on the new Eastern European 

Academy, located near Skopje in Macedonia. 

Dedicated to the training of ProCredit middle managers, 

the Academy is an important channel for 

rapid and consistent communication region-wide 

and one that helps us adapt quickly to face new 

challenges: 210 managers have already graduated 

from the six-week intensive course since the facility 

was founded. A language centre at the Academy 

also provides residential English courses, maximising 

the potential for international exchange within 

the group. Like all prudent banks, we will continue 

to focus on efficient cost management in 2009 and 

beyond. Investment in our staff is however an ongoing 

commitment and will remain a central plank 

in the ProCredit Bank approach. A qualified, motivated 

and professional team lies at the root of our 

lasting success across Eastern Europe.


Name 


Albania 


Armenia 




Bulgaria 


Georgia 


Kosovo 


Macedonia 


Moldova 


Moldova 


Romania 


Serbia 


Ukraine 

Highlights* 

Founded in October 1998 

34 branches 

40,619 loans / EUR 134.1 million in loans 

177,630 deposit accounts / EUR 203.9 million 

1,003 employees 

Founded in December 2007 

4 branches 



203 employees 


44 branches 



888 employees 


87 branches 




Founded in May 1999 

58 branches 




Founded in January 2000 

60 branches 




Founded in July 2003 

40 branches 



791 employees 


13 branches 


175 employees 


17 branches 



350 employees 

Founded in May 2002 

40 branches 




Founded in April 2001 

86 branches 




Founded in January 2001 

74 branches 




Contact 

Rruga Sami Frasheri 

Tirana 

Tel./Fax: +355 4 2 271 272 / 276 

info@procreditbank.com.al 

www.procreditbank.com.al 

31, Moskovyan Str. 

Building 99 

Yerevan 0002 

Tel./Fax: + 374 10 514 860 / 853 

info@procreditbank.am 

www.procreditbank.am 

Emerika Bluma 8 

71000 Sarajevo 

Tel./Fax: +387 33 250 950 / 250 971 

info@procreditbank.ba 

www.procreditbank.ba 

131, Hristo Botev Blvd. 

Sofia 1233 

Tel./Fax: +359 2 813 51 00 / 51 10 

contact@procreditbank.bg 

www.procreditbank.bg 

154 D. Agmashenebeli Ave. 

0112 Tbilisi 

Tel./Fax: +995 32 20 2222 / 24 3753 

info@procreditbank.ge 

www.procreditbank.ge 

“Mother Tereze” Boulevard No. 16 

10 000 Prishtina 

Tel./Fax: +381 38 555 777 / 248 777 

info@procreditbank-kos.com 

www.procreditbank-kos.com 

Bul. Jane Sandanski 109a 

1000 Skopje 

Tel./Fax: +389 2 321 99 00 / 01 

info@procreditbank.com.mk 

www.procreditbank.com.mk 

65, Stefan cel Mare Ave. 

office 900, Chisinau 

Tel./Fax: +373 22 836555 / 273488 

office@procredit.md 

www.procredit.md 

65, Stefan cel Mare Ave. 

office 901, Chisinau 

Tel./Fax: +373 22 836555 / 273488 

office@procreditbank.md 

www.procreditbank.md 

62-64 Buzesti Str., Sector 1 

011017 Bucharest 

Tel./Fax: +40 21 2016000 / 305 5663 

headoffice@procreditbank.ro 

www.procreditbank.ro 

Milutina Milankovica 17 

Belgrade 

Tel./Fax: +381 11 20 77 906/ 905 

info@procreditbank.rs 

www.procreditbank.rs 

107a Peremogy Ave. 

Kyiv 03115 

Tel./Fax: +380 44 590 10 17 / 01 

info@procreditbank.com.ua 

www.procreditbank.com.ua 

* 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.

14 


Highlights in 2008 

• The bank’s loan portfolio grew to over BAM 

318.6 million (EUR 162.9 million) at yearend. 

At the same time, by offering simple 

and transparent saving products, we were 

able to increase the deposit base by 20% to 

BAM 335.6 million (EUR 171.6 million). This 

achievement brought the bank closer to its 

goal of being able to fund the entire loan portfolio 

through customer deposits. 

• ProCredit Bank opened seven offices across 

the country, bringing the total number of units 

to 44. We focused on opening offices in smaller 

cities to reach clients who had previously 

not had access to our entire range of services. 

• ProCredit Bank recruited 166 staff, bringing 

the total number of employees to 888. We assigned 

a high priority to training and professional 

development measures for employees at 

all levels, conducting seven induction courses 

and providing a total of 30 internal and external 

training measures for existing staff. 

• ProCredit Bank was chosen as one of the most 

desirable employers in 2008 by visitors to one 

of the country’s biggest Internet job search 

engines, Posao.ba. 

• The bank initiated a high-profile savings campaign 

in June to promote our range of easily 

accessible savings products to potential depositors. 

ProCredit Bank provides transparent, 

easy-to-understand interest rates and 

five deposit options designed to meet the 

needs of its broad customer base. 

• We continued implementing neighbourhood 

projects to help improve the quality of life in 

our local communities. ProCredit Bank built 

two children’s playgrounds, renovated classrooms 

in elementary schools, and planted 

trees in public areas, such as outside a children’s 

day care centre in Banja Luka.

Highlights in 2008 15 

• Financial education activities were an important 

focus in 2008, and we held a total of 

59 educational events at locations throughout 

the country. As part of these activities, 

ProCredit Bank launched its “Kids’ Corner” 

website, which provides information on money 

and banking in a form which children can 

easily understand. 

• ProCredit Bank launched a promotional campaign 

under the name “ProBiznis” which 

highlighted the ways in which small and medium 

enterprises can improve their performance 

using our services. The focus was on 

the advantages of having a reliable banking 

partner that offers loans on straightforward 

terms and conditions, including interest rates 

that are fixed for the entire maturity period.

16 


Management Business Review 

Management 

standing, 

from left to right: 


Executive Director, Corporate Business Sector 


Executive Director, General Services Sector 

Edin Hrnjica 

Executive Director, Treasury, Retail and Payments Sector 

Radomir Savić 

Executive Director, Risk and Compliance Sector 

seated, 

from left to right: 


Executive Director, Accounting and Controlling Sector 


Director 

Maja Hrnjić 

Senior Management Advisor


Political and Economic Environment 

The Stabilisation and Association Agreement 

(SAA) with BiH was signed in June 2008, signalling 

the European Union’s readiness to support 

the country’s bid for EU accession. Reform of the 

national constitution, however, remains at the top 

of the international political agenda. Progress on 

this front has been impeded by the apparent irreconcilability 

of the major political parties’ positions 

and deteriorating relations between them. 

An agreement on constitutional reform therefore 

seems unlikely in the near future. A high level of 

public spending and inefficient public administration, 

as well as the general lack of fiscal responsibility 

shown by the country’s governing entities, 

will continue to be high on the agenda of pressing 

political issues in 2009 and beyond. 

Annual GDP growth came to 6.8% in 2008, up from 

5.8% in 2007. The expansion was driven by a favourable 

external environment and a strong rise in 

private consumption due to increased real wages 

and consumer borrowing. However, due to a tighter 

monetary policy and slower export growth, real 

GDP growth is projected to slow to 5.5% in 2009, 

stabilising thereafter at a level of around 5%. 1 

There was greater industrial output during the 

year, which is projected to continue rising with 

large-scale developments in road networks and 

energy grids. The SAA will probably have a positive 

impact on some local producers due to the reduction 

or abolition of customs duties on a wide 

range of imports from the EU. At the same time, 

reduced collection of duties might lead to further 

declines in the revenues of the country’s governing 

entities. 

The currency board arrangement remained in place 

with the local currency – the convertible mark 

(BAM) – pegged to the euro at a fixed rate. This 

contributed greatly to macroeconomic stability. 

Consumer price inflation stood at 9.9% at yearend. 

2 Inflation during 2008 was driven primarily 

by increases in food prices and housing and heating 

costs, which together accounted for 55% of 

household expenditures in BiH. 

Both exports and imports rose during 2008. Although 

electricity exports doubled, a greater 

level of imports drove the current account deficit 

to 16%. This is projected to remain high in the 

coming year. 

The International Monetary Fund and other international 

institutions have urged the authorities in 

BiH to make a greater effort to reduce the regulatory 

burden on businesses. In 2008 the World Bank’s 

“Doing Business” report ranked BiH 119th among 

181 countries in terms of the constraints faced by 

businesses. This poor ranking was attributable to 

the difficulties involved in starting a business and 

registering property, as well as other bureaucratic 

requirements to be met by businesses. 

Financial Sector Developments 

The banking industry comprises 31 institutions 

and is dominated by foreign capital. Banks with foreign 

capital held 81.9% of the sector’s total capital 

at year-end. Concentration was moderate, with the 

three largest banks holding 67.4% of total assets. 3 

Growth in the banking sector slowed down in 

2008 compared to the previous two years. Total 

assets increased by 11% to BAM 22.2 billion (EUR 

11.1 billion) at year-end. 

The banking sector’s total loan portfolio grew 

to BAM 14.6 billion (EUR 7.4 billion), 4 which was 

63% of GDP. Loans with a maturity of more than 

one year accounted for 74% of total loans, or BAM 

10.9 billion (EUR 5.6 billion). 

The overall rate of credit growth in 2008 was 

22% on an annual basis, somewhat below the reported 

increase of 28% in 2007. While the sector 

was growing at the same year-on-year pace over 

1 

Unless otherwise indicated, figures are based on: 

www.imf.org, Bosnia and Herzegovina: On the Road to 

EU Accession, November 2008 

2 

Data in this and the following sections are based on EIU, 

Country Report Bosnia and Herzegovina, November 

2008. Inflation is calculated according to the EU-harmonised 

measure, which differs from the IMF source 

3 

Federation of Bosnia and Herzegovina only, Federal 

Banking Agency Report: September 30, 2008. 

4 

Data based on Central Bank BiH monthly statistics as of 

December 2008

18 


the first two quarters, the second half of the year 

was characterised by restricted lending growth, 

especially in the final quarter. The majority of 

loans outstanding on December 31 had maturities 

exceeding one year. Short-term loans increased 

at a rate of 35% over the course of the year, with 

most growth occurring between January and June. 

Loans with a maturity over 12 months grew at a 

slower pace of 18% with a slight negative growth 

rate in November and December. 5 

Stricter lending conditions were largely an effect 

of the international financial crisis. Liquidity levels 

declined when depositors’ confidence was briefly 

shaken in October, leading them to withdraw 

some EUR 400 million from commercial banks, 

or 6.3% of total sector deposits. To reassure savers, 

deposit insurance coverage was significantly 

increased and banks demonstrated an ability to 

meet withdrawal requests. This action steadied 

the volume of household deposits in particular, 

which accounted for 46% of total deposits. Due 

to additional withdrawals by state bodies and 

state-owned companies in the last quarter, total 

deposits decreased by 1% to EUR 6.1 billion 6 over 

the year. 

been required for new foreign loans since October. 

The banking sector showed reduced profitability 

in 2008 compared to the previous year. This was 

due in part to losses from securities trading, but it 

also reflected increased funding costs. 

In 2008, the Central Credit Registry for both companies 

and private individuals became fully functional. 

Managed by the Central Bank of Bosnia and 

Herzegovina (CBBH), it now includes information 

on all loans disbursed by banks and microcredit 

organisations in BiH. By enabling lenders to determine 

precisely how much debt loan applicants 

have already incurred from other institutions, the 

registry has greatly increased transparency in the 

lending market. 

The 10 largest of the 20 microcredit organisations 

operating in BiH increased their combined 

loan portfolio by 17% to BAM 1 billion (EUR 511 

million). 7 While this segment continued to show 

strong growth, it was at a lower pace due to more 

formal banking regulation, which will also lead to 

stricter lending requirements in the coming period. 

The central bank increased the mandatory reserve 

requirement from 15% to 18% at the beginning of 

2008 in order to stabilise lending growth, but then 

reduced the requirement to 14% in October. To encourage 

additional inflows of long-term financing 

from foreign sources, no mandatory reserve has 

5 

Data based on monthly statistics provided by the CBBH 

6 

Annualised data based on CBBH monthly statistics 

7 

Figures on number of registered micro credit organisations 

are based on Central Bank annual report 2007. 

Gross loan portfolio growth is based on data provided by 

the respective institutions. 

Loan Portfolio Development 

Number of Loans Outstanding – Breakdown by Loan Size* 

Volume (in EUR million) 

Number (in ’000) 

180 

90 

2.74% 0.35% 

160 

140 

80 

70 

o.08% 

120 

60 

100 

50 

80 

40 

46.8% 

60 

40 

30 

20 

50.0% 

20 

10 

0 

Jun 

04 

Dec 

Jun 

05 

Dec 

Jun 

06 

Dec 

Jun 

07 

Dec 

Jun 

08 

Dec 

0 

< EUR 1,000 EUR 50,001 – EUR 150,000 

EUR 1,001 – EUR 10,000 > EUR 150,000 

EUR 10,001 – EUR 50,000 * 31 Dec 2008


Business Loan Portfolio – Breakdown by Maturity 

Loan Portfolio Quality (arrears >30 days) 

in % 

in % of loan portfolio 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 

Jun 

04 

Dec 

Jun 

05 

Dec 

Jun 

06 

Dec 

Jun 

07 

Dec 

Jun 

08 

Dec 

3.0 

2.7 

2.4 

2.1 

1.8 

1.5 

1.2 

0.9 

0.6 

0.3 

0 

Jun 

04 

Dec 

Jun 

05 

Dec 

Jun 

06 

Dec 

Jun 

07 

Dec 

Jun 

08 

Dec 

< 12 months 12 – 24 months > 24 months 

Net write-offs: 

in 2004: EUR 59,124 

in 2005: EUR 270,002 

in 2006: EUR 254,409 

in 2007: EUR 703,616 

in 2008: EUR 2,538,340

20 


Lending Performance 

ProCredit Bank continued to provide loans on an individually 

assessed basis to very small, small and 

medium-sized businesses and agricultural producers 

throughout BiH. By targeting such enterprises, 

we contributed to economic growth and job creation 

and helped to improve income distribution. 

We made no major increases in our lending interest 

rates in 2008 despite the changes taking place 

both in the local market and around the world. In 

view of the role of our target clients in the overall 

development of the economy, we considered it extremely 

important to be able to provide them with 

as much certainty and predictability as possible 

in their credit relationships with us. To this end, 

we did not change our policy of charging fixed interest 

rates on all loans. Only a few other banks in 

the country have fixed loan rates. 

As the Central Credit Registry was taken over 

by the CBBH in 2008, banks and micro credit 

organisations were finally able to assess both 

companies’ and private individuals’ total levels 

of indebtedness with a high degree of accuracy. 

Given the greater transparency that this created, 

it became clear to us that many of our clients were 

indeed over-indebted – above all because they 

had been taking out consumer loans from other 

Customer Deposits 

Number of Customer Deposits – Breakdown by Size* 



180 

135 

1.6% 

0.1% 

160 

140 

120 

120 

105 

90 

8.8% 

o.04% 

100 

80 

75 

60 

15.3% 

60 

40 

45 

30 

74.0% 

20 

15 

0 

Jun 

04 

Dec 

Jun 

05 

Dec 

Jun 

06 

Dec 

Jun 

07 

Dec 

Jun 

08 

Dec 

0 

Term Savings Sight Total number 

< EUR 100 EUR 10,001 – EUR 50,000 

EUR 101 – EUR 1,000 EUR 50,001 – EUR 100,000 

EUR 1,001 – EUR 10,000 > EUR 100,000 

* 31 Dec 2008


banks and microcredit organisations that had 

lent liberally over the years. Although ProCredit 

Bank has always maintained a conservative and 

prudent approach when approving loans, the fact 

that many of our borrowers also had loans outstanding 

at other institutions adversely affected 

their repayment capacity, and thus impacted our 

portfolio at risk (the proportion of total loans in arrears 

by over 30 days). The PAR rose from 1.6% at 

the end of 2007 to 2.3% at year-end. Additional 

causes for this increase could be seen in external 

shocks, such as accelerating inflation, which created 

liquidity constraints for small businesses. 

As of December 31, the portfolio comprised 

65,277 outstanding loans totalling BAM 318.6 

million (EUR 162.9 million). The bank disbursed 

42,000 loans during the year with a combined 

volume of BAM 273.0 million (EUR 139.6 million). 

An average loan disbursement of BAM 6,505 (EUR 

3,326) reflects our continuing focus on our designated 

target groups. 

Loans outstanding to agricultural producers and 

sole proprietors amounted to BAM 163.4 million 

(EUR 83.5 million) at year-end, representing 51.3% 

of the bank’s total portfolio. Loans to small and medium 

enterprises stood at BAM 107.7 million (EUR 

55.0 million), representing an increase of 10.8% 

over 2007. In the coming year, the bank will focus 

on boosting its market share in this segment, introducing 

new products and services that are tailored 

to the requirements of the SME target group. 

Our portfolio of bank guarantees and letters of 

credit increased by 22.5% to BAM 9.3 million 

(EUR 4.8 million). In line with our mission to support 

the development of as many small businesses 

as possible, we will seek to further increase 

our market share of these non-lending products 

in the coming year. 

Deposits and Other Banking Services 

Despite turbulence in the BiH economy, ProCredit 

Bank significantly expanded its deposit base during 

2008. At year-end, the bank had over 145,000 

account holders with 113,096 active accounts. 

Total deposits were up by 20%, compared to a 

total decrease of 1% for the banking sector as a 

whole. At BAM 335.6 million (EUR 171.6 million), 

this amount was equivalent to 72.3% of total assets 

and 105.0% of the bank’s loan portfolio. 

The average individual deposit amount was BAM 

2,406 (EUR 1,230), while the average balance per 

customer stood at BAM 2,347 (EUR 1,200). 

Given the general loss of public confidence in 

the banking sector, we consider the growth we 

achieved in our deposit business to be a positive 

reflection of our solid reputation amongst savers. 

It also demonstrates the success of our efforts 

to promote a savings culture in BiH and the effectiveness 

of our commitment to providing simple, 

transparent savings products and high-quality 

service. 

Domestic Money Transfers 

International Money Transfers 


750 

675 

600 

525 

450 

375 

300 

225 

150 

75 

0 

Jan– 

Jun 

04 

Jul– 

Dec 

Jan– 

Jun 

05 

Jul– 

Dec 

Jan– 

Jun 

06 

Jul– 

Dec 

Jan– 

Jun 

07 

Incoming Outgoing Number 

Jul– 

Dec 


Jan– 

Jun 

08 

Jul– 

Dec 

1,000 

900 

800 

700 

600 

500 

400 

300 

200 

100 

0 


200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

Jan– 

Jun 

04 

Jul– 

Dec 

Jan– 

Jun 

05 

Jul– 

Dec 

Jan– 

Jun 

06 

Jul– 

Dec 

Jan– 

Jun 

07 

Incoming Outgoing Number 

Jul– 

Dec 


Jan– 

Jun 

08 

Jul– 

Dec 

30 

27 

24 

21 

18 

15 

12 

9 

6 

3 

0

22 


As the result of intensive direct promotions, we 

mobilised a significant volume of new corporate 

deposits, demonstrating that our savings products 

continued to hold their appeal to business 

clients. At year-end, corporate deposits accounted 

for 53.8% of total deposits. 

The structure of the deposit portfolio was well 

balanced in terms of maturity structure: 19.2% 

of the total volume was in current accounts, with 

savings accounts contributing 7.7% and term 

deposits 73.1%. The average retail term deposit 

came to BAM 14,200 (EUR 7,270), compared with 

BAM 13,900 (EUR 7,100) in 2007, while the average 

corporate term deposit amounted to BAM 

1,177,350 (EUR 601,970). 

In 2008 we sought to encourage people who receive 

their salaries through current accounts at 

ProCredit Bank to begin using our full range of 

services. To this end, we organised numerous 

promotional events for the managers and employees 

of our corporate salary account clients. 

We expanded our ATM network to 33 units, installing 

seven new ATMs mainly in smaller cities. 

We also actively promoted our electronic banking 

services: the number of clients using our e-banking 

system increased by 68.4% to 1,623 users by 

the end of 2008. The number of e-banking transactions 

also increased, rising to over 40,260, 

while the volume of such transactions was up by 

506.6%. 

ProCredit Bank continued to promote the use of 

cards as a safe and convenient way for both legal 

entities and private individuals to conduct payment 

and cash withdrawal transactions. We had 

a total of 32,423 active cards in circulation at the 

close of 2008, of which 5.2% had been issued to 

legal entities. Most of our cards are debit cards, 

while 4.3% are charge cards that require the balance 

to be paid within one month. In line with its 

commitment to responsible consumer lending, 

the bank took great care to appropriately analyse 

the debt capacity of each client to whom a charge 

card was issued. 

Domestic as well as international payments grew 

significantly in 2008 in terms of both number 

and volume. ProCredit Bank executed 1,678,709 

domestic payments with a total volume of 

BAM 2.7 billion (EUR 1.4 billion), an increase of 

30.5% in number terms and a rise 43.7% in volume 

terms over 2007. The number of international 

payments rose by 37.2%, while the volume of 

such transactions was up by 18.4%. 

Financial Results 

ProCredit Bank’s total assets increased by 10% 

to BAM 464 million (EUR 237 million) in 2008. 

Due to the slowdown in economic growth in the 

third quarter and the level of over-indebtedness 

in BiH, we focused on loan monitoring and recovery 

more than on portfolio expansion. As a 

result, the total loan portfolio grew by only 0.5% 

in 2008, reaching BAM 318.6 million (EUR 162.9 

million) and accounting for 68.6% of total assets 

at year-end. The bank maintained a sound liquidity 

position with the share of liquid assets in total 

assets rising to 30.4%. 

To provide a solid foundation for our continuing 

asset growth, we further diversified our funding 

sources, drawing upon retail deposits and 

deposits from other banks as well as loans from 

international financial institutions and ProCredit 

Holding. We also focused on attracting customer 

deposits, which grew by 20% to BAM 335.6 million 

(EUR 171.6 million). Balances in savings and 

term deposit accounts increased steadily, accounting 

for 80.8% of the total deposit volume 

by year-end. The resulting shift in the maturity 

structure of our deposits brought the structure of 

our liabilities more into line with that of our assets, 

thus greatly facilitating liquidity management. 

The increase in customer deposits reduced 

the share of total liabilities accounted for by borrowings 

from international financial institutions 

from 23% to 16%. 

Interest income for the year amounted to BAM 

57.9 million (EUR 29.6 million). This remained 

the main source of income, accounting for 89% of 

total income. Lending activities generated 87% 

of interest income. Even though the market was 

very competitive, ProCredit Bank did not have to 

alter its interest rates thanks to the continuing 

high demand for its loans. Deposit interest expenses 

were up, rising to BAM 19.2 million (EUR 

9.8 million) due to increasing competition in the 

local market and a rise in global interest rates.


The growth in interest income largely offset this 

increase in interest expenses. 

Net fee and commission income totalled EUR 

2.3 million. The growth here was greater than 

expected, reflecting a strong increase in the 

number and volume of payment transactions and 

the excellent development of the documentary 

and card businesses. Provisioning for loan impairment 

losses rose from BAM 4.5 million (EUR 

2.3 million) to BAM 6.8 million (EUR 3.5 million), 

a modest increase, given the higher credit risk 

which the bank faced in the market. 

To ensure the continuing growth of our institution, 

ProCredit Bank made substantial investments 

in personnel and fixed assets. We hired 

166 employees, increasing the number of staff to 

888. The bank established seven new branches, 

and many existing offices were extended and 

renovated. Thanks to rigorous cost controls, we 

were able to keep administrative expenses at the 

same level as in 2007. 

With a total operating income amounting to EUR 

19.3 million, the cost-income ratio (the ratio of 

operating expenses to operating income before 

provisioning) increased to 86.3% (2007: 81.9%). 

The bank posted a net loss of EUR 383,865, resulting 

in a return on equity of -1.8%, compared 

to 8.1% in 2007. 

Dividends amounting to BAM 2 million (EUR 1 million) 

were paid to the shareholders in December 

2008. 

In 2008 we carried out a capital increase in the 

amount of EUR 5 million, boosting total shareholders’ 

funds to EUR 18.1 million. The bank’s 

capital adequacy ratio (total Tier 1 plus Tier 2 capital/risk-weighted 

assets) was 18.4% at year-end. 

Outlook 

During the first half of the year, some progress 

was made in terms of implementing much-needed 

reforms, which created a more favourable environment 

for potential economic growth. As the effects 

of the financial crisis begin to be felt on an increasing 

scale in the real economy, however, banks are 

applying more stringent credit standards and loans 

are more expensive. The overall economic outlook 

could therefore worsen significantly. 

Even in a significantly more challenging economic 

environment, ProCredit Bank will continue to provide 

loans to small and medium enterprises in order 

to support economic growth. In line with our 

mission, we will contribute further to the creation 

of a transparent and efficient banking sector in 

BiH. However, we will sharpen our focus on the 

accurate assessment of our customers’ ability to 

meet their obligations to our bank, taking into account 

their overall debt capacity and cumulative 

financial obligations. 

Ensuring that we carry out a sound analysis of our 

clients’ overall financial situation is of course a 

mark of prudence on our part as lenders. Moreover, 

it is one of our most important responsibilities, 

as our target groups are usually highly vulnerable 

to the adverse effects of changes in the 

economic environment.

24 


Special Feature 

Promoting financial education in Bosnia and Herzegovina 

When we talk about “financial literacy”, what we 

usually mean is people’s ability to manage their 

assets wisely with an understanding of what banks 

do. But financial literacy has implications and benefits 

that go far beyond the scope of individual 

people’s lives. It helps to improve the financial 

situation of a household, and can also enhance 

the quality of the financial system as a whole, ultimately 

contributing to a stronger overall economy. 

Nowadays, people wishing to make use of banks’ 

deposit or credit facilities have a sometimes overwhelming 

number of options to choose from. 

While the emergence of new banking products 

is a welcome development from a consumer perspective, 

the process of choosing among the 

various options has become quite complex. It is 

often difficult for people who lack experience in 

dealing with financial institutions to make sound 

decisions when selecting products or services, 

and the choices they make can sometimes lead to 

financial problems in the future. 

Recognising that it has an important role to play 

in raising the overall level of financial literacy in 

BiH, ProCredit Bank organised 59 financial education 

events during 2008, both for clients and the 

broader community. Our employees explained 

key banking terminology and gave presentations 

that helped people further their understanding 

of banking products and how they are used. 

ProCredit staff also detailed the obligations that 

clients incur in conjunction with these services. 

Our financial education activities for clients never 

involve the promotion of our own products or 

services. Our aim is to to be a long-term partner 

for our clients – a partner that offers not only a 

range of financial services but also sound advice. 

In line with our commitment to promoting financial 

literacy, we encourage our clients to direct 

their questions regarding banking products to 

our branch-level staff, either in person or via telephone 

or e-mail. We regularly receive positive 

feedback from our clients on this service, such as

Special Feature 25 

the comments made by one customer: “I feel more 

comfortable going to the bank and asking questions. 

I can really understand what is being offered 

to me.” 

Because we know how important it is for people 

to begin learning about money matters at an early 

age, activities aimed at children are an important 

part of our financial education programme. 

Our employees visited primary and secondary 

schools in our local communities to help children 

learn about money and the importance of saving 

through specially designed games and activities. 

We also launched our “Kids’ Corner” website, which 

teaches children about money, savings and banks 

through a series of stories and interactive games. 

We plan to continue our financial education activities 

in 2009 because we are convinced that 

promoting financial literacy supports ProCredit 

Bank’s mission in a number of important ways. 

We are committed to supporting the overall process 

of national economic development, and it follows 

that the local economy will function much 

more efficiently if people understand the role of 

banks and are empowered to intelligently assess 

the services they offer.

26 


Risk Management 

Strong risk management is crucial to the achievement 

of ProCredit Bank’s main objective, which is 

to provide reliable banking services to its clients. 

The bank has a conservative approach in its credit 

operations and follows a policy not to engage in 

speculative transactions. Its adheres to a simple 

business model of lending to core target groups 

and mobilising retail deposits, undertaking other 

business activities on only a limited scale to support 

its lending activities. 

Our assets and liabilities are broadly diversified 

across thousands of small businesses and lowerand 

middle-income savers. This minimises the 

risk that an individual borrower or group of borrowers 

could have a substantial adverse impact 

on loan portfolio quality or that the withdrawal of 

an individual deposit could jeopardise the bank’s 

liquidity position. 

Risks are assessed by four committees, all of which 

support the Risk Department and operate under its 

supervision: the Loan Portfolio Review Committee, 

the Assets and Liabilities Committee (ALCO), 

the Operational Risk Committee and the Credit 

Risk Committee. These bodies all meet at least on 

a monthly basis, while the Risk Department conducts 

more frequent tests on key risk indicators. 

The Risk Department is responsible for identifying, 

measuring, analysing and monitoring potential 

risks. It reports its findings and recommendations 

to the Management Board and the relevant 

departments. However, responsibility for ensuring 

that the level of risk is properly controlled and 

managed lies with the respective departments, 

and ultimately with the members of the Management 

Board. 

In line with the ProCredit group’s risk management 

policy, the bank’s risk position is described 

in a quarterly risk report, which the Risk Department 

discusses with the management of 

ProCredit Bank, the Board of Directors and 

ProCredit Holding’s Group Risk Management Department. 

The bank has clearly defined procedures in place 

and invests heavily in staff training to ensure that 

all employees are aware of them and of the risks 

that are entailed in their respective field of operations. 

In addition, process-based internal controls 

carried out by the Internal Audit Department 

are an integral part of the bank’s risk management 

system. They ensure compliance with legal 

regulations and internal procedures in all areas. 

Credit Risk 

ProCredit Bank makes use of a highly developed 

technology to manage credit risk at all stages of 

the lending process. Regardless of the amount 

involved, each loan is assessed on an individual


basis; we do not use scoring systems when analysing 

loan applications and we maintain close 

relationships with credit customers throughout 

the maturity period. Intensive monitoring enables 

us to identify potential repayment problems 

at an early stage. 

We have a broadly diversified portfolio which 

contains over 65,000 outstanding loans. The average 

amount disbursed in 2008 was EUR 3,326, 

and 85.6% of all disbursements were in amounts 

of less than EUR 10,000. The Loan Portfolio Review 

Committee analysed outstanding loans both 

by size and by sector to gauge the bank’s risk exposure 

in these areas in the light of adverse local 

and regional economic trends. 

Despite our adherence to sound credit risk management 

principles, the portfolio at risk (the proportion 

of loans in arrears by more than 30 days) 

increased from 1.6% at the end of 2007 to 2.3% 

at year-end. This increase can mainly be attributed 

to very small businesses that became overly 

indebted. Although our credit risk management

28 


has always been robust, easy access to loans 

from microcredit organisations compromised our 

clients’ ability to meet their cumulative obligations. 

Additionally, accelerating inflation created 

liquidity constraints for many of our customers. 

As part of our thorough review of the internal 

factors that may have contributed to the rise in 

arrears, we closely examined our credit analysis 

and monitoring procedures, making further improvements 

where possible. Our assessment of 

clients’ overall levels of indebtedness was facilitated 

by the expansion of the Central Credit Registry 

and its takeover by the CBBH. 

Net write-offs in 2008 totalled EUR 2.5 million, or 

1.6% of the outstanding portfolio at year-end. The 

bank takes a conservative approach to allowing for 

loan impairment and was able to cover the portfolio 

at risk by 145% with loan loss provisions. 

As a responsible lender with prudent policies, 

ProCredit Bank has always striven to maintain 

high portfolio quality. Given the implications of 

a global economic turndown, however, our activities 

in this area have become more intensive. In 

the coming year, we will continue to develop the 

training of our loan officers to further strengthen 

their credit analysis skills, making full use of centralised 

data to assess their clients’ cumulative 

level of indebtedness. The bank will also review 

its internal controls and update procedures regarding 

very small loans to minimise exposure to 

credit risk. 

Market Risk 

Our management of market risk involves reducing 

the impact of adverse movements in interest and 

exchange rates on the bank’s profitability and on 

its capital. With the local currency pegged to the 

euro and its other foreign currency positions kept 

at minimal levels, the bank does not face substantial 

risk from foreign currency fluctuations. 

To measure and mitigate interest rate risks, the 

bank uses models based on maturity gap and duration 

analysis. In 2008, it refined and developed 

the capabilities of these tools to enable them to 

support scenario analysis. 

Liquidity Risk 

ProCredit Bank is rigorous in its approach to 

managing its exposure to liquidity risk, as was 

reflected in the ample volume of liquidity which 

it maintained throughout 2008: the ratio of liquid 

assets to total assets was 30.4% at year-end. Our 

loan portfolio provides a reliable source of cash inflow 

through regular repayments, most of which 

are made as monthly instalments. 

The ALCO monitors the bank’s liquidity position 

on at least a monthly basis and oversees the 

parallel development of the loan and deposits 

portfolios. It reviews the maturity structure of 

the bank’s assets and liabilities and projects the 

cash flow for both the following month and the 

coming six months. The ratios of deposits held by 

the largest 10 and 20 clients are also registered 

and used as the basis of frequent stress testing. 

The bank maintained a highly diversified base 

of savings from individuals and legal entities in 

2008, ensuring the stability of this major source 

of financing. Following media attention, the financial 

crisis impacted depositors’ confidence 

considerably, which led to withdrawals of some 

EUR 400 million in October, or 6.3% of total sector 

deposits. During this bank run, ProCredit 

Bank proved its ability to honour its obligations 

by providing its clients with their funds on time 

and in accordance with regular procedures. The 

ratio of highly liquid assets to customer deposits 

at year-end was 10.9%. Total deposits were 

equivalent to a comfortable 105% of the total 

loan portfolio, and additional sources of shortterm 

liquidity and long-term funding were readily 

available from sister ProCredit institutions 

across the group throughout the year. 

Operational Risk 

Although the management of operational risk is 

part of our overall risk management activities, 

this is treated as a separate risk area to facilitate 

effective control procedures. ProCredit Bank 

shares its definition of operational risk with that 

of the regulatory authorities: the risk of losses 

resulting from inadequate or failed internal processes, 

people and systems or from external 

events. This also includes legal risk.


In light of the bank’s continuing growth, we introduced 

an improved framework for managing 

operational risk based on international best 

practice standards. It provides for the sound allocation 

and separation of risk-related responsibilities, 

an integrated system of internal controls 

and transparent, well-documented procedures. 

We upgraded the bank’s system for collecting 

and assessing risk event data both at branches 

and the head office in 2008. The Risk Department 

updated the documentation used for identified 

operational risks and reviewed its implementation 

throughout the year. 

To ensure that our employees have the skills and 

knowledge needed to identify and effectively 

manage operational risks, each new employee 

receives thorough introductory training in this 

area and regular refresher courses are conducted 

to promote risk awareness among all staff. 

Capital Adequacy 

Our equity provided sufficient coverage of all 

risks throughout the year. The ProCredit group 

requires the bank to maintain a capital adequacy 

ratio of at least 12%. At the end of 2008, 

ProCredit Bank had sufficient Tier 1 and Tier 2 

capital to cover its risk-weighted assets by 18.4% 

(2007: 16.5 %). 

Shareholder support remained strong, as evidenced 

by the capital increase of EUR 5 million in 

June, which boosted total shareholders’ funds to 

EUR 18.1 million.

30 


Branch Network 

The year 2008 saw a significant expansion of 

ProCredit Bank’s branch network. Our priority 

was to make it easier for people outside of the 

major population centres to access our services, 

and we established five new offices in smaller 

cities and towns: in Bosanska Gradiška in northern 

Bosnia, in Bosanski Šamac in north-eastern 

Bosnia, in Livno in western Bosnia, in Bugojno in 

central Bosnia, and in Ljubuški in western Herzegovina. 

At year-end, ProCredit Bank was operating 

a total of 44 offices in 33 towns and cities. 

The increased outreach not only enabled us serve 

a larger client base, but also made the full range 

of our services available to numerous clients who 

had not previously had access to fully-fledged 

ProCredit branches. 

The activities of six information centres in the 

Bosanska Krajina region of north-western Bosnia 

were consolidated and upgraded, with the bank 

creating two new units – one in Bosanska Krupa 

and one in Velika Kladuša. Clients in these areas 

can now access the full range of ProCredit Bank’s 

services closer to home. 

ProCredit Bank also moved a number of its existing 

offices to new, larger premises in more accessible 

and visible locations. The most noteworthy 

projects of this type were the relocation of units 

in Mostar, Zenica and Travnik. We also renovated, 

expanded and upgraded a number of our existing 

premises over the course of the year. Apart from 

providing a more attractive environment for our 

customers, the goal here was to ensure that these 

older offices conform to the ProCredit group’s 

current corporate design standards in terms of 

their layout and overall appearance. 

Velika 

Kladuša 

Cazin 

Bihać 

Gradiška 

Šamac 

Gradačac 

Brčko (2) 

Prĳedor 

Laktaši 

Bĳeljina (2) 

Doboj 

Srebrenik 

Banja Luka (2) 

Gračanica 

Bosanska Krupa 


Tuzla (2) 

Zavidovići 

Zvornik 

Živinice 

Serbia 

Bugojno 

Travnik 

Nova Bila 

Kiseljak 

Zenica 

Sokolac 

Sarajevo (5) 

Croatia 

Livno 

Ilidža (2) 

Pale 

Konjic 

Posušje 

Mostar (2) 

Ljubuški 

Montenegro 

Adriatic Sea 

Trebinje

Branch Network 31 

ProCredit Bank installed seven additional ATMs 

in 2008, allowing its clients to access their funds 

around the clock at 42 ATMs in 33 towns and cities 

throughout Bosnia and Herzegovina. 

We plan to continue renovating and expanding 

our branch network during 2009, making 

ProCredit a true “neighbourhood bank” in more 

and more local communities.

32 


Organisation, Staff and Staff Development 

ProCredit Bank hired and trained 166 new employees 

during 2008, bringing the total number 

of staff to 888. In line with our proven recruitment 

policy, we hired individuals who not only had the 

necessary qualifications but also identified with 

our corporate values and mission. 

In order to strengthen our capabilities in training 

and staff development, we restructured the 

Human Resources Department, dividing its functions 

among three new organisational units: the 

Personnel Administration Unit, the Recruitment 

Unit, and the Staff Development and Training 

Unit. A new computer system was installed in the 

department to enable it to deal efficiently with 

the growing volume of personnel-related information 

which it must organise and manage on a 

day-to-day basis. In addition, we completed the 

development work on new software that will play 

a key role in supporting the activities of the department, 

which have become increasingly complex 

as our staff has grown. 

The labour market in BiH is not subject to a uniform 

set of regulations, which creates a considerable 

administrative workload for the HR department. 

The Personnel Administration Unit focuses 

on efficiently managing all of the tasks involved; 

its importance will become even more apparent 

when a new income tax law becomes effective on 

January 1, 2009 with all its complex administrative 

requirements. 

The Recruitment Unit refines and supports the 

hiring process. With 597 new employees over the 

past three years, staff development was an important 

priority in 2008. The Staff Development 

and Training Unit assumed the challenging task 

of carrying out training and professional development 

measures for both new and existing staff. All 

newly hired employees took part in the bank’s introductory 

training, which was provided through 

seven induction courses. After completing these 

courses, classroom and on-the-job training was 

given in the specific area of operations for which 

staff had been hired.

Organisation, Staff and Staff Development 33 

Several follow-up and refresher training sessions 

consisting of a total of 301 training days 

were held for more experienced staff members. 

Selected loan officers from the team serving 

very small enterprises were given training in the 

lending methodology used for small and medium 

businesses, and they also took part in follow-up 

training conducted at the regional level. 

To reinforce technical and management training 

provided during 2007, refresher courses in key 

people skills were held for all of our middle managers. 

This gave the participants an opportunity 

to reflect on what they had learned, as well as to 

discuss the constraints they face in their day-today 

work and the importance of people management 

skills in their jobs. 

In 2008, more than 20 credit co-ordinators were 

promoted to middle management positions, which 

improved quality management in our branches. 

Building on their practical experience in lending, 

the targeted training which they received focused 

on managing the credit-granting process, managing 

staff, and ensuring that employees adhere to 

the bank’s code of conduct at all times. 

We continued to take advantage of the training 

opportunities offered by the ProCredit group. Ten 

members of our staff successfully completed the 

six-week training course for middle managers at 

the Regional Academy in Macedonia. Three employees 

graduated from the ProCredit Academy 

in Germany after completing its three-year course 

for high-potential middle managers. In the coming 

year, two more of our employees will begin 

attending the courses at the ProCredit Academy. 

In addition, 13 of our employees significantly 

improved their command of English by attending 

the two-month language courses offered by 

ProCredit Holding in Germany and Macedonia. 

In a year of continued institutional growth despite 

global financial turmoil, it was imperative 

that our staff could offer clients sound advice and 

explain our products clearly in a frequently confusing 

banking market. This is why we invest so 

heavily in training and will continue to do so in 

the coming years.

34 


Business Ethics and Environmental Standards 35 

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 best-practice 

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. In 2009 we will implement 

updated anti-money laundering and fraud 

prevention policies to ensure compliance with 

German regulatory standards across the group. 

We also set standards regarding the impact 

of our lending operations on the environment. 

ProCredit Bank Bosnia and Herzegovina 

has implemented an environmental 

management system 

based on continuous assessment 

of the loan portfolio according 

to environmental criteria, an indepth 

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, ProCredit Bank 

Bosnia and Herzegovina is also able to raise its 

clients’ overall level of environmental awareness. 

We ensure that when loan applications are evaluated, 

compliance with ethical business practices 

is a key consideration. No loans are issued to enterprises 

or individuals if it is suspected that they 

are making use of unsafe or morally objectionable 

forms of labour, in particular child labour.

36 


Our Clients 

Nevresa Ahatović, 

Handicraft Artist 

Nevresa Ahatović has turned an exceptional talent 

into a profession. She makes handicraft items that 

are in great demand in Sarajevo among foreign 

tourists and locals alike. She also paints, finding 

inspiration in Baščaršija, the main area in the capital’s 

old town. 

Nevresa has been doing this kind of work for 17 

years. She used to sell her handicraft items and 

paintings to various stores and companies, but 

began to encounter some problems over time. 

Her buyers would typically insist on paying small 

amounts that greatly undervalued her hard work. 

This did not allow Nevresa to support her son, so 

she decided to make crucial changes to improve 

their standard of living. 

In 2006, she set out to realise a long-held plan to 

open her own shop. Nevresa needed financial resources 

in order to start, but all the banks she visited 

refused to grant her a loan. When she finally 

contacted ProCredit Bank, this enterprising artist 

realised there was a bank that supports the small 

entrepreneurs whom other banks refuse to serve. 

the municipality, she opened a shop in Baščaršija. 

Nevresa used the money to buy the materials she 

needed for production. It did not take long for passers-by 

to notice the originality of her work; she 

was pleased to welcome more and more customers 

every day. 

A year later, Nevresa needed additional funds to 

upgrade her store and to buy more materials. 

She wanted to create gift items for companies to 

present to their business partners. Once again, 

Nevresa turned to ProCredit Bank, this time receiving 

a loan of EUR 5,000. The investment paid off by 

bringing her many new clients. As a result, she and 

her son both now enjoy a better quality of life. 

“I am currently considering expanding my production 

facilities and finding a bigger shop to 

operate from. I believe that ProCredit Bank will 

continue to be a reliable banking partner and 

provide me with services that will support the 

growth of my business,” 

Nevresa explains. 

She took out her first loan from ProCredit Bank in 

June 2006, and, with EUR 2,500 and support from


Enver Šuvalija, 

Independent 

Timber Merchant 

Enver Šuvalija started making and selling chipboard 

products in 1994 when he founded the 

company Fructas. Today, the firm has 16 employees 

and is one of Sarajevo’s best-known enterprises 

in its field. 

Initially, Fructas had only five employees and 

took orders from private clients. The business 

developed quickly and began to produce furniture 

and other fixtures and fittings such as doors, 

window frames and kitchen units. Most Fructas 

items are custom made to meet clients’ specific 

requirements. The business continued to expand 

when Enver began receiving orders generated by 

the private housing construction boom. 

He first visited ProCredit Bank by chance in 2006 

and was impressed by the very friendly, professional 

service and sound financial advice he received. 

This encouraged Enver to take out a loan 

with ProCredit Bank for EUR 10,000 in order to 

buy machinery and equipment. 

Using these funds, he purchased a machine that 

automatically cuts chipboard according to preset 

measurements. This technology greatly facilitated 

the work of his company, increasing both the 

production rate and the quality of the output. In 

addition to investments in new technology, Enver 

is keen to create a good working environment for 

his employees. 

“It is very important that staff enjoy the workplace, 

so we spend money on improving working 

conditions as much as possible. We foster open 

communication and a friendly climate in our 

company,” 

he says. 

Today, as his business continues to develop, Enver 

is considering expanding his production line 

and hiring five more employees. Those who work 

for Fructas are grateful to have stable employment 

and are more than satisfied with the working 

atmosphere. 

“I am glad that there is a bank for entrepreneurs 

that efficiently provides resources when they are 

needed,” 

Enver adds.

38 


Zilha Korkalić, 

Savings Customer 

“First and foremost, I save for my granddaughter’s 

future. She is ten now, and I hope that if I 

continue to save I will be able to help to support 

her through university. But I also set aside small 

amounts for myself to buy the little things that 

make me happy,” 

says Zilha. 

Zilha Korkalić is an active 63-year-old who 

loves working with children. She learned about 

ProCredit Bank in 2007 when it supported the efforts 

of Amici dei Bambini, the non-governmental 

organisation she works with to help children who 

do not have parental care. 

Zilha was impressed to see that, through its work, 

ProCredit Bank plays a proactive and positive role 

in the communities where it operates. She also 

appreciated its simple, easy-to-understand savings 

products with fixed interest rates. A few days 

later, she decided to open a deposit account. 

In light of the global financial crisis that took 

hold towards the end of the year, Zilha wanted to 

make sure that her money was safe. For her own 

peace of mind, she needed to know it was there to 

support her if needed. It was therefore a relief to 

learn that ProCredit Bank and its shareholders do 

not invest in any kind of speculative securities or 

similar financial instruments abroad. 

“It feels good knowing that I have a bank that is 

committed to protecting my hard-earned 

savings,” 

she says.


Borivoje Glogovac, 

Specialty Cheese Producer 

Five years ago, Borivoje Glogovac began producing 

a local specialty cheese that is ripened in a 

sheepskin sack. This type of cheese is one of the 

most famous cheeses in BiH, and it is typical for 

the areas where there is extensive sheep farming. 

Borivoje works with his wife, Ljubica. They soon 

decided to expand the business in order to put 

their children through university and improve 

their future prospects. Miroslav, Goran and Marko 

also help their parents run the family business. 

Borivoje contacted a non-governmental organisation 

which had connections with Italian partners 

interested in importing his speciality “cheese in 

a sack”. The NGO provided him with training and 

technical assistance, but Borivoje also needed 

additional equipment to develop his business. 

He became a client of ProCredit Bank when a 

loan officer visited him in 2004. He was pleased 

to see a bank that supports the work of agricultural 

entrepreneurs through its specially tailored 

loans, and he decided to borrow EUR 8,000 to buy 

equipment for cheese production. 

Using the new specialist equipment, Borivoje 

was able to boost his output, sell more cheese 

and subsequently increase his profits. This success 

encouraged him to continue producing the 

traditional cheese of the region. It is only produced 

by small family businesses and has never 

been manufactured on a large scale in factories. 

Borivoje guards his secret recipe to preserve the 

tradition and heritage of his ancestors. He is not 

so reserved, though, about where he does his 

banking. 

Looking to the future, he states, 

“I will continue to work with ProCredit Bank, as 

I am very satisfied with the professional and 

friendly service, as well as the fast and efficient 

procedures for obtaining a loan. It is good to 

know that I can access the funds I need when I 

need them the most.”

40 


Financial Statements 

Prepared in accordance with International Financial Reporting Standards. 

For the year ended 31 December 2008. 

Responsibilities of the Management and Supervisory Boards for the preparation and approval of 

the annual financial statements 

The Management Board of the Bank is required to prepare financial statements of the Bank for each 

financial year which give a true and fair view of the financial position of the Bank and of the results 

of its operations and cash flows, in accordance with International Financial Reporting Standards, 

and is responsible for maintaining proper accounting records to enable the preparation of such financial 

statements at any time. It has a general responsibility for taking such steps as are reasonably 

available to it to safeguard the assets of the Bank and to prevent and detect fraud and other 

irregularities. 

The Management Board is responsible for selecting suitable accounting policies to conform with applicable 

accounting standards and then apply them consistently; making judgements and estimates 

that are reasonable and prudent; and preparing the financial statements on a going concern basis 

unless it is inappropriate to presume that the Bank will continue in business. 

The Management Board is responsible for the submission to the Supervisory Board of its annual 

report on the Bank together with the annual financial statements, following which the Supervisory 

Board is required to approve the annual financial statements for submission to the General Assembly 

of Shareholders for adoption. 

The financial statements set out on pages 4 to 60 were authorised by the Management Board on 9 

February 2009 for issue to the Supervisory Board and are signed below to signify this. 

On behalf of ProCredit Bank d.d., Sarajevo.: 


Director of the Bank 


Executive Director for 

Accounting and Controlling

Financial Statements 41

42 



Income Statement 

For the year ended 31 December 2008 

Notes Year ended Year ended 

(all amounts are in BAM thousands, unless otherwise indicated) 31 Dec 2008 31 Dec 2007 

Interest and similar income 5 57,903 50,752 

Interest expense and similar charges 5 (19,177) (13,835) 

Net interest income 38,726 36,917 

Fee and commission income 6 5,612 4,433 

Fee and commission expense 6 (1,049) (833) 

Net fee and commission income 4,563 3,600 

Foreign exchange differences (net) 7 201 168 

Other operating income 8 1,126 219 

Operating income 44,616 40,904 

Other operating expenses 9 (38,499) (33,516) 

Impairment losses and provisions 10 (6,785) (4,489) 

(Loss)/profit before tax (668) 2,899 

Income tax expense 11 (83) (348) 

(Loss)/profit for the year (751) 2,551 

The accompanying notes on pages 47 to 69 form an integral part of these financial statements.

44 


Balance Sheet 


Notes At 31 Dec At 31 Dec 

(all amounts are in BAM thousands, unless otherwise indicated) 2008 2007 

Assets 

Cash and balances with the Central Bank 12 112,123 95,458 

Loans and advances to banks 13 28,754 5,832 

Loans and advances to customers 14 307,752 308,528 

Financial investments available for sale 15 196 196 

Property and equipment 16 11,333 10,945 

Intangible assets 17 992 961 

Deferred tax assets 18 47 26 

Other assets 19 2,949 1,915 

Total assets 464,146 423,861 

Liabilities 

Deposits from customers 20 335,591 279,867 

Borrowings 21 65,662 88,263 

Subordinated debt 22 16,081 16,095 

Provisions 23 322 260 

Other liabilities 24 1,700 1,354 

Current income tax payable 155 374 

Total liabilities 419,511 386,213 

Shareholders’ equity 

Share capital 25 35,458 25,679 

Share premium 293 293 

Statutory reserves 1,623 1,383 

Retained earnings 7,261 10,293 

Total shareholders’ equity 44,635 37,648 

Total equity and liabilities 464,146 423,861 



Statement of Changes in Equity 


Share Share Statutory Retained Total 

(all amounts are in BAM thousands, unless otherwise indicated) capital premium reserve earnings equity 

Balance at 1 January 2008 25,679 293 1,383 10,293 37,648 

Issue of share capital 9,779 – – – 9,779 

Loss for the year – – – (751) (751) 

Appropriations to statutory reserve – – 240 (240) – 

Dividend payment – – – (2,041) (2,041) 

Balance at 31 December 2008 35,458 293 1,623 7,261 44,635 

Balance at 1 January 2007 15,679 293 1,258 7,867 25,097 

Issue of share capital 10,000 – – – 10,000 

Profit for the year – – – 2,551 2,551 

Appropriations to statutory reserve – – 125 (125) – 

Balance at 31 December 2007 25,679 293 1,383 10,293 37,648 


46 


Cash Flow Statement 


Notes Year ended Year ended 

(all amounts are in BAM thousands, unless otherwise indicated) 31 Dec 2008 31 Dec 2007 

Operating activities 

(Loss)/profit before tax (668) 2,899 

Adjustments: 

Depreciation and amortisation 3,734 2,678 

Impairment losses and provisions 10 6,785 4,489 

Changes in other provisions 56 137 

Property and equipment written off 20 14 

Cash flows from operating activities before changes in operating assets and liabilities 9,927 10,217 

(Increase)/decrease in operating assets 

Obligatory reserve with Central Bank (4,719) (15,889) 

Loans and advances to customers (6,107) (96,496) 

Loans and advance to banks (22,922) 2,237 

Other assets (1,034) (294) 

Increase/(decrease) in operating liabilities 

Deposits from customers 55,724 103,023 

Other liabilities 346 42 

Current tax payable (219) 100 

Net cash inflow/(outflow) from operating activities 21,069 (7,277) 

Investing activities 

Purchase of property and equipment (3,729) (5,430) 

Purchase of intangible assets (444) (621) 

Increase of financial investments available for sale – (196) 

Net cash (outflow)/inflow from investing activities (4,173) (6,247) 

Financing activities 

Issued share capital 9,779 10,000 

Proceeds from borrowings and subordinated debt 13,545 24,126 

Repayments of borrowings and subordinated debt (36,160) (11,310) 

Dividends paid (2,041) – 

Net cash (outflow)/inflow from financing activities (14,877) 22,816 

Net increase in cash and cash equivalents 11,946 19,509 

Cash and cash equivalents at 1 January 41,260 21,751 

Cash and cash equivalents at 31 December 26 53,206 41,260 



Notes to the Financial Statements 


(all amounts are in BAM thousands, unless otherwise indicated) 

1. General Information 

ProCredit Bank d.d., Sarajevo (further “the Bank”) is incorporated 

to perform all banking activities in accordance with the law. 

The Bank has been registered as a joint stock company domiciled 

in Bosnia and Herzegovina. ProCredit Bank d.d., Sarajevo is part of 

a global network of financial institutions, managed and controlled 

by ProCredit Holding AG. 

The Bank is incorporated to perform all banking activities in accordance 

with the law and the main activities include commercial lending, 

receiving of deposits, foreign exchange deals, and payment 

operation services in the country and abroad and retail banking 

services. In addition, it provides trade finance facilities to companies 

for export and import purposes. 

These financial statements were authorized for issue by the Board 

of Directors on 9 February 2009. 

Revised IAS 1 Presentation of Financial Statements (effective from 

1 January 2009) 

The revised Standard requires information in financial statements 

to be aggregated on the basis of shared characteristics and introduces 

a statement of comprehensive income. Items of income and 

expense and components of other comprehensive income may be 

presented either in a single statement of comprehensive income 

(effectively combining the income statement and all non-owner 

changes in equity in a single statement), or in two separate statements 

(a separate income statement followed by a statement of 

comprehensive income). The Bank is currently evaluating whether 

to present a single statement of comprehensive income, or two 

separate statements. 

Revised IAS 23 Borrowing Costs (effective from 1 January 2009) 

The revised Standard removes the option to expense borrowing 

costs and requires the capitalisation of borrowing costs that relate 

to qualifying assets (those that take a substantial period of time 

to get ready for use or sale). The Bank has not yet completed its 

analysis of the impact of the revised Standard. 

2.4 Functional and presentation currency 

2. Summary of significant accounting policies 

The principal accounting policies adopted in the preparation of 

these financial statements are set out below. These policies have 

been consistently applied to all the years presented, unless otherwise 

stated. 

2.1 Statement of compliance 

The financial statements of ProCredit Bank d.d., Sarajevo have 

been prepared in accordance with International Financial Reporting 

Standards (IFRS) as issued by the International Accounting Standards 

Board (IASB). 

2.2 Basis of preparation 

The financial statements have been prepared on the historical cost 

basis except for loans and receivables that are stated at amortised 

cost. 

The preparation of financial statements in conformity with IFRS 

requires the use of estimates and assumptions that affect the application 

of policies and reported amounts of assets and liabilities 

and disclosure of contingent assets and liabilities at the date of the 

financial statements and the reported amounts of income and expenses 

during the reporting period. Although these estimates are 

based on management’s best knowledge of current events and actions, 

actual results ultimately may differ from those estimates. 

Estimates and underlying assumptions are reviewed on an ongoing 

basis. Revision to accounting estimates are recognised in the 

period in which the estimate is revised and in any future period 

affected. Information about significant areas of estimation uncertainty 

and critical judgments in applying accounting policies that 

have the most significant effect on the amounts recognized in the 

financial statements are described in note 4. 

2.3 Adoption of new and revised standards 

The following new Standards and Interpretations issued by the 

International Accounting Standards Board and its International 

Financial Reporting Interpretations Committee, have been authorised 

for issue but are applicable to entities reporting under IFRS in 

periods commencing after 1 January 2009, and might have impact 

on the Bank. 

The Bank’s financial statements are presented in Bosnian Marks 

(“BAM”), which is the Bank’s functional and presentation currency, 

rounded to the nearest thousand. 

2.5 Foreign currency translation 

Monetary assets and monetary liabilities denominated in foreign 

currency at reporting date are retranslated into functional currency 

using the exchange rates prevailing at the balance sheet date. Income 

and expenses denominated in foreign currency are translated 

into functional currency at the exchange rates valid at the date of 

the transactions. Gains and losses resulting from the settlement of 

such transactions and from the translation of monetary assets and 

liabilities denominated in foreign currencies are recognized in the 

income statement. Non-monetary assets and items that are measured 

in terms of historical cost in foreign currency are translated 

using the exchange rate at the date of the transaction and are not 

retranslated at the balance sheet date. 

Exchange rates 31 Dec 2008 31 Dec 2007 

BAM BAM 

USD 1.387310 1.331221 

EUR 1.955830 1.955830 

2.6 Financial assets 

The Bank classifies its financial assets in the following categories: 

loans and receivables and financial assets available for sale. Management 

determines the classification of its investments upon initial 

recognition. 

a) Loans and receivables 

Loans and receivables are non-derivative financial assets with 

fixed or determinable payments that are not quoted in an active 

market. They arise when the Bank provides money, goods or services 

directly to a debtor with no intention of trading with the receivable 

and include loans to and receivables from banks, loans to and 

receivables from customers and obligatory reserves with the Central 

Bank. 

All loans and advances are recognized when cash is advanced to 

borrowers. 

Loans and receivables are initially recognised at fair value plus

48 


transaction costs. Subsequently, they are measured at amortised 

cost using the effective interest method. 

The Bank assesses at each balance sheet date whether there is objective 

evidence that loans and receivables are impaired. 

An allowance for loan impairment is established if there is objective 

evidence that the Bank will not be able to collect all amounts due 

according to the original contractual terms of loans. The amount of 

the provision is the difference between the carrying amount and 

the recoverable amount, being the present value of expected cash 

flows, including amounts recoverable from guarantees and collateral, 

discounted at the original effective interest rate of loans. The 

carrying amount of loans and receivables is reduced through the allowance 

account and the amount of loss is recognized in the income 

statement. Interest on impaired assets continues to be recognized 

through unwinding of the discount in interest income. 

If the amount of the impairment subsequently decreases due to 

an event occurring after the impairment was recognized, the previously 

recognized impairment loss is reserved by adjusting the 

allowance account. Subsequent recoveries of amounts previously 

written off are recognized as a reversal of impairment losses in the 

income statement. The provision for loan impairment is further analyzed 

in note 2.10. 

b) Financial assets available-for-sale 

Available-for-sale financial assets are non-derivative investments 

that are designated as available-for-sale or are not classified as another 

category of financial assets. 

Available-for-sale financial assets are initially recognised at fair 

value plus transaction cost that are directly attributable to its acquisition 

or issue. Regular-way purchases and sales of financial 

assets available for sale are recognised on trade date, which is the 

date when the Bank commits to purchase or sell the asset. 

Available-for-sale financial assets are subsequently measured at 

their fair value. Gains and losses from a change in the fair value of 

available-for-sale financial assets are recognized directly in a fair 

value reserve within equity. Equity instruments classified as available 

for sale that do not have a quoted market price in an active 

market and whose fair value cannot be reliably measured are stated 

at cost less impairment. 

Available-for-sale financial assets include equity securities. Dividends 

on available-for-sale equity instruments are recognised in 

the income statement when the entity’s right to receive payment 

is established. 

Financial assets are derecognised when the rights to receive cash 

flows from the financial assets have expired or where the Bank has 

transferred substantially all risks and rewards of ownership. 

2.7 Offsetting of financial instruments 

Financial assets and liabilities are offset and the net amount reported 

in the balance sheet when there is a legally enforceable 

right to set off the recognized amounts and when there is an intention 

to settle on a net basis, or realize the asset and settle the liability 

simultaneously. 

Income and expenses are presented on a net basis only when permitted 

by financial reporting standards, or for gains and losses 

arising from a group of similar transactions. 

2.8 Interest income and expense 

Interest income and expense are recognized in the income statement 

for all interest bearing instruments on an accrual basis using 

the effective interest rate, i.e. at the rate that discounts estimated 

future cash flows to net present value over the life of the underlying 

contract. Such income and expense is presented as interest 

and similar income or interest expense and similar charges in the 

income statement. Interest income and expense also includes fee 

and commission income and expense in respect of loans to and receivables 

from customers or borrowings from other banks, recognized 

on an effective interest basis. 

The effective interest method is a method of calculating the amortised 

cost of a financial asset or a financial liability and of allocating 

the interest income or interest expense over the relevant period. 

The effective interest rate is the rate that exactly discounts 

estimated future cash payments or receipts over the expected life 

of the financial instrument or, when appropriate, a shorter period 

to the net carrying amount of the financial asset or financial liability. 

When calculating the effective interest rate, the Bank estimates 

cash flows considering all contractual terms of the financial instrument 

(for example, prepayment options) but does not consider future 

credit losses. The calculation includes all fees and points paid 

or received between parties to the contract that are an integral part 

of the effective interest rate, transaction costs and all other premiums 

or discounts. 

2.9 Fee and commission income and expenses 

Fees and commission income and expenses mainly comprise fees 

received from enterprises arising from domestic and foreign payments, 

the issue of guarantees and letters of credit and credit card 

business. Fees and commissions, except for those which form part 

of the effective interest rate of the instrument, are generally recognized 

on an accrual basis when the service has been provided. 

2.10 Impairment losses on loans and advances 


evidence that a financial asset or group of financial assets is 

impaired. A financial asset or a group of financial assets is impaired 

and impairment losses are incurred if there is objective evidence of 

impairment as a result of one or more events that occurred after the 

initial recognition of the asset (a “loss event”) and that loss event 

(or events) has an impact on the estimated future cash flows of the 

financial asset or group of financial assets that can be reliably estimated. 

Objective evidence that a financial asset or group of assets 

is impaired includes observable data that comes to the attention of 

the Bank about the following loss events: 

• significant financial difficulty of the borrower; 

• a breach of contract, such as a default or delinquency in interest 

or principal payments; 

• the Bank granting to the borrower, for economic or legal reasons 

relating to the borrower’s financial difficulty, a concession 

that it would not otherwise consider; 

• it becoming probable that the borrower will enter bankruptcy or 

other financial reorganisation; 

• the disappearance of an active market for the financial asset 

because of financial difficulties; 

• observable data indicating that there is a measurable decrease 

in the estimated future cash flows from a group of financial assets 

since the initial recognition of those assets, although the 

decrease cannot yet be identified with the individual financial 

assets in the group. 

If there is objective evidence that an impairment loss on loans 

and receivables carried at amortised cost has been incurred, the 

amount of the loss is measured as the difference between the asset’s 

carrying amount and the present value of estimated future 

cash flows discounted at the financial asset’s original effective interest 

rate. The carrying amount of the asset is reduced through the 

use of an allowance account and the amount of loss is recognized in 

the income statement. If a loan or receivable has a variable interest 

rate, the discount rate for measuring any impairment loss is the current 

effective interest rate determined under the contract.


The Bank considers evidence of impairment for loans and receivables 

at individual and collective level. Individually significant financial 

assets are tested for impairment on individual basis. 

When the Bank determines whether there is objective evidence of 

impairment for an individually assessed financial asset, whether 

significant or not, it includes the asset in a group of financial assets 

with similar credit risk characteristics and collectively assesses 

them for impairment. Assets that are individually assessed for impairment 

and for which an impairment loss is or continues to be recognized 

are not included in a collective assessment of impairment. 

Individually assessed loans 

The assessment for impairment of individually significant loans is 

based on an evaluation of the ability and willingness of the customer 

to service their debt. 

The amount of the loss is measured as the difference between the 

asset’s carrying amount and the present value of estimated future 

cash flows (excluding future credit losses that have not been incurred) 

discounted at the financial asset’s original effective interest 

rate. The carrying amount of the asset is reduced through the 

use of an allowance account and the amount of the loss is recognized 

in the income statement. 

Management uses estimates based on historical loss experience 

for assets with credit risk characteristics and objective evidence 

of impairment similar to those in the portfolio when scheduling 

its future cash flows. The methodology and assumptions used for 

estimating both the amount and timing of future cash flows are reviewed 

regularly to reduce any differences between loss estimates 

and actual loss experience. 

The amount of the allowance is equal to the difference between 

the carrying value of the loan and the present value of future cash 

flows that the bank expects to realize from the claim against the 

borrower, discounted at the financial asset’s original effective interest 

rate. 

If a loan has a variable interest rate, the discount rate for measuring 

any impairment loss is the current effective interest rate determined 

under the contract. The calculation of the present value of 

the estimated future cash flows of a collateralized financial asset 

reflects the cash flows that may result from foreclosure less costs 

for obtaining and selling the collateral. 

Collectively assessed loans 

All individually significant loans found not to be specifically impaired 

are collectively assessed for any impairment that has been 

incurred but not yet identified. Loans that are not individually significant 

are collectively assessed for impairment by grouping loans 

with similar characteristics. 

In assessing collective impairment the Bank uses a historical loss 

model adjusted for management’s judgment as to whether current 

economic or credit conditions are such that the actual losses are 

likely to be greater or less than suggested by historical modelling. 

Impairment on loans are written off after all the necessary procedures 

have been completed and the amount of the loss has been 

determined. 

If, in a subsequent period, the amount of the impairment loss decreases 

and the decrease can be related objectively to an event 

occurring after the impairment was recognized (such as an improvement 

in the debtor’s credit rating), the previously recognized 

impairment loss is reversed by adjusting the allowance account. 

The amount of the reversal is recognized in the income statement 

within the impairment charge for credit losses. 

2.11 Impairment losses on available-for-sale financial assets 

is impaired. In the case of equity investments classified as available 

for sale, a significant or prolonged decline in the fair value of 

the security below its cost is considered in determining whether the 

assets are impaired. 

If any such evidence exists for available-for-sale financial assets, 

the cumulative loss, measured as the difference between the acquisition 

cost and the current fair value, less any impairment loss 

on that financial asset previously recognised in profit or loss, is 

removed from equity and recognised in the income statement. 

Impairment losses recognised in the income statement on equity 

instruments are not reversed through the income statement. If, in 

a subsequent period, the fair value of a debt instrument classified 

as available for sale increases and the increase can be objectively 

related to an event occurring after the impairment loss was recognised 

in profit or loss, the impairment loss is reversed through the 

income statement. However, any subsequent recovery in the fair 

value of an impaired available-for-sale equity security is recognized 

directly in equity. 

2.12 Property and equipment 

Property and equipment are tangible assets that are held for use in 

the supply of services, for rentals to others or administrative purposes. 

Property and equipment are stated at historical cost less accumulated 

depreciation. Historical cost includes expenditure that is directly 

attributable to the acquisition of the items. 

Subsequent cost is included in the asset’s carrying amount or is 

recognized as a separate asset, only when it is probable that future 

economic benefits associated with the item will flow to the Bank 

and the rest of the item can be measured reliably. All other repairs 

and maintenance costs are charged to the income statement during 

the financial period in which they are incurred. 

Property and equipment are periodically reviewed for impairment. 

Where the carrying amount of an asset is greater than its estimated 

recoverable amount, it is written down immediately to its recoverable 

amount. 

Assets in course of construction are reported at their cost of construction 

including costs charged by third parties. Upon completion, 

all accumulated costs of the asset are transferred to the relevant 

tangible property and equipment category and subsequently 

subject to the applicable depreciation rates. 

Gains and loses on disposal of property and equipment are recognized 

in the income statement. 

Depreciation is provided on all assets except assets in the course of 

construction on a straight line basis so as to write off the cost of the 

assets over their estimated useful lives to their estimated recoverable 

amounts at the following annual rates: 

in % 2008 2007 

Buildings 2.5 10 

Computers and 

telephone equipment 20-33 20-33 

Furniture and equipment 17 -25 17-25 

Leasehold improvements Over the Over the 

lease period lease period 

In 2008, depreciation rate for buildings has changed from 10% to 

2.5%. Had the depreciation rate not changed, respective depreciation 

charge in 2008 would have been higher for BAM 39 thousand. 

The assets’ residual values and useful lives are reviewed, and adjusted 

if appropriate, at each balance sheet date. 


evidence that a financial asset or a group of financial assets

50 


2.13 Intangible assets 

Intangible assets that are acquired by the Bank are stated at cost 

less accumulated amortization and impairment losses. 

Subsequent expenditure is capitalized only if all of the features required 

by IAS 38 are satisfied. All other expenditure is expensed 

as incurred. 

Amortization is charged to the income statement on a straight-line 

basis over the estimated useful lives as follows: 

2008 2007 

Software 5 years 5 years 

Licenses and other intangible assets 5 years 5 years 

2.14 Impairment of non-financial assets 

Assets that have an indefinite useful life are not subject to amortisation 

and are tested annually for impairment. Assets that are subject 

to amortisation are reviewed for impairment whenever events or 

changes in circumstances indicate that the carrying amount may not 

be recoverable. An impairment loss is recognised for the amount by 

which the asset’s carrying amount exceeds its recoverable amount. 

The recoverable amount is the higher of an asset’s fair value less 

costs to sell and value in use. For the purposes of assessing impairment, 

assets are grouped at the lowest levels for which there are 

separately identifiable cash flows (cash-generating units). 

2.15 Leases 

To date, premises rental contracts entered into by the Bank are operating 

leases. The total payments made under operating leases 

are charged to the income statement on a straight-line basis over 

the period of the lease. When an operating lease is terminated before 

the lease period has expired, any payment required to be made 

to the lessor by way of penalty is recognized as an expense in the 

period in which termination takes place. 

2.16 Cash and cash equivalents 

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

comprise balances with less than 90 days maturity from the 

date of acquisition including: cash in hand, current accounts with 

domestic and foreign banks and balances with the Central Bank. 

2.17 Provisions 

Provisions are recognized when the Bank has a present legal or constructive 

obligation as a result of past events, it is probable that an 

outflow of resources embodying economic benefits will be required 

to settle the obligation, and a reliable estimate of the amount of the 

obligation can be made. 

Provisions for liabilities and charges are maintained at the level 

that the Bank’s management considers sufficient absorption of 

incurred losses. The management determines sufficiency of provisions 

on the basis of insight in specific items, current economic circumstances, 

risk characteristics of certain transaction categories, 

as well as other relevant factors. 

Provisions are released only for such expenditure in respect of 

which provisions are recognized at inception. If the outflow of economic 

benefits to settle obligations is no longer probable, the provision 

is reversed. 

Employee benefits 

a) Defined contribution plans 

The Bank, in the normal course of business, makes payments on 

behalf of its employees for pensions, health care, employment and 

personnel tax that are calculated on the basis of gross salaries and 

wages, food allowances and travel expenses according to the legislation. 

The Bank makes these contributions to the Government’s 

health and retirement funds, at the statutory rates in force during 

the year, based on gross salary payments. 

The Bank pays contributions to public pension insurance fund on a 

mandatory basis. Once the contributions have been paid, the Bank 

has no further payment obligations. The regular contributions constitute 

costs for the year in which they are due and as such are included 

in staff costs. The cost of these payments is charged to the 

income statement in the same period as the related salary cost. 

b) Short-term benefits 

Short-term employee benefit obligations are measured on an undiscounted 

basis and are expensed as the related service is provided. 

A provision is recognized for the amount expected to be paid under 

short-term cash bonus or profit-sharing plans if the Bank has 

a present legal or constructive obligation to pay this amount as a 

result of past service provided by the employee and the obligation 

can be estimated reliably. 

c) Long-term employee benefits 

According to local legal requirements, employees of the Bank are 

entitled to receive one-time benefit on retirement, dependent on 

factors such as age, years of service and salary they had with the 

bank. 

Such payments are treated as other long-term employee benefits 

and the liability recognized in the balance sheet is the present value 

of the defined benefit obligation at the balance sheet date less 

the fair value of plan assets (if any), together with adjustments for 

unrecognized actuarial gains or losses and past service costs. 

This obligation is calculated annually by independent actuaries 

using the projected unit credit method. The present value of the 

defined benefit obligation is determined by discounting the estimated 

future cash outflows using average interest rate of long term 

time deposit accounts kept with commercial banks in the country, 

as the local capital market is not developed and neither high quality 

corporate bonds nor government bonds exist on the market. 

Actuarial gains and losses arising from experience adjustments 

and changes in actuarial assumptions are recognized immediately 

in profit and loss as well all past service cost. 

2.18 Taxation 

Income tax charge is based on taxable profit for the year and comprises 

current and deferred tax. 

Current tax is the expected tax payable on the taxable income for 

the year, using tax rates enacted or substantially enacted at the 

balance sheet date, and any adjustment to tax payable in respect 

of previous years. The statutory corporate profit tax rate for 2008, 

applicable to taxable profits is 10% (2007: 30%). 

Deferred income tax is provided in full, using the liability method, 

for all temporary differences arising between the tax basis of assets 

and liabilities and their carrying values for financial reporting 

purposes. The movement of deferred tax liabilities and deferred tax 

assets reflects the tax consequences that would follow from the 

manner in which the enterprise expects, at the balance sheet date, 

to recover or settle carrying amount of its assets and liabilities, 

based on tax rates enacted or substantially enacted at the balance 

sheet date. Currently enacted tax rates are used in the determination 

of deferred income tax. 

Deferred tax assets are recognized to extend that it is probable that 

future taxable profit will be available against which the deferred 

tax assets can be utilised.


2.19 Deposits, borrowings and subordinated liabilities 

3.1 Credit risk 

Deposits, borrowings and subordinated liabilities are the Bank’s 

sources of debt funding. 

The Bank classifies capital instruments as financial liabilities or 

equity instruments in accordance with the substance of the contractual 

terms of the instrument. 

The Bank initially recognizes deposits, borrowings and subordinated 

liabilities on the date that they are originated. 

Deposits, borrowings and subordinated liabilities are initially measured 

at fair value net of transaction costs, and subsequently measured 

at their amortized cost using the effective interest method. 

2.20 Retained earnings 

Any profit for the year after appropriations is transferred to reserves. 

2.21 Share capital 

Share capital represents the nominal value of paid-in ordinary 

shares classified as equity and denominated in BAM. Dividends are 

recognized as liability in the period in which they are declared. 

2.22 Financial guarantee contracts 

The Bank is subject to credit risk through its lending activities and in 

cases where it acts as an intermediary on behalf of customer or third 

parties. The risk that counterparties to financial instruments might 

default on their obligations is monitored on an ongoing basis. 

3.1.1 Risk limit control and mitigation policies 

The Bank takes on exposure to credit risk, which is the most important 

risk for the Bank’s business; management therefore carefully 

manages its exposure to credit risk. Credit exposures arise principally 

in lending activities that lead to loans and advances and there 

is also credit risk in off-balance-sheet financial instruments, such 

as loan commitments. 

The credit risk management and control are centralized in Risk Department 

of the Bank and managed by Loan Portfolio Review Committee 

and Credit Risk Committee. The Bank structures the levels 

of credit risk it undertakes by placing limits on the amount of risk 

accepted in relation to one borrower, or groups of borrowers, and to 

geographical and industry segments. 

Exposure to credit risk is managed through regular analysis of the 

ability of borrowers and potential borrowers to meet interest and 

capital repayment obligations and by changing these lending limits 

where appropriate. Exposure to credit risk is also managed in part 

by obtaining collateral and corporate and personal guarantees. 

Financial guarantee contracts are contracts that require the issuer 

to make specified payments to reimburse the holder for a loss it incurs 

because a specified debtor fails to make payments when due. 

Such financial guarantees are given to banks, financial institutions 

and other bodies on behalf of customers to secure loans, overdrafts 

and other banking facilities. 

2.23 Off- balance-sheet commitments and contingencies 

In the ordinary course of business, the Bank enters into related 

commitments which are recorded in off-balance-sheet accounts 

and primarily comprise guarantees, letters of credit, undrawn 

loans commitments and credit card limits. Such financial commitments 

are recorded in the Bank’s balance sheet if and when they 

become payable. 

2.24 Comparatives 

Where necessary, comparative figures have been adjusted to conform 

with changes in presentation in the current year. 

(a) Collateral 

The Bank measures the exposure to credit risk toward certain kind 

of collateral. Accordingly, the Bank monitors its reliance on different 

kinds of collateral. To the extent that real estate prices drop 

significantly, the Bank expects that its credit risk losses on impaired 

lending may increase significantly as the value of collateral 

decreases. 

The Bank employs a range of policies and practices to mitigate 

credit risk. The most common is security for advances. The Bank 

implements guidelines on the acceptability of specific classes of 

collateral or credit risk mitigation. The principal collateral types for 

loans and advances are: 

• Cash, 

• Bank and corporate guarantees, 

• Mortgages over residential properties; 

• Charges over business assets such as premises, inventory and 

accounts receivable; 

• Charges over financial instruments such as debt securities and 

equities. 

3. Financial risk management 

The Bank’s activities expose it to a variety of financial risks; credit 

risk, liquidity risk and market risk. The Bank has established an integrated 

system of risk management by introducing set of policies 

and procedures for analysis, evaluation, acceptance and risk management. 

Taking risk is core to the financial business, and the operational 

risks are an inevitable consequence of being in business. 

The Management Board has overall responsibility for the establishment 

and oversight of the Bank’s risk management framework. 

Risk management is carried out by the Bank’s Risk Department under 

policies approved by the Management Board. 

The most important types of risk are credit risk, liquidity risk, market 

risk and other operational risk. Market risk includes currency 

risk, interest rate and other price risk. 

Risk steering and risk controlling processes are adjusted in a timely 

manner to reflect changes in the operating environment. 

In order to minimize the credit loss the Bank will seek additional 

collateral from the counterparty as soon as impairment indicators 

are noticed for the relevant individual loans and advances. Debt securities, 

treasury and other eligible bills are generally unsecured. 

(b) Credit-related contingencies 

The primary purpose of these instruments is to ensure that funds 

are available to a customer as required. Guarantees and standby 

letters of credit carry the same credit risk as loans and are secured 

with similar collateral as are loans. 

3.1.2 Credit risk management 

The Bank accounts for counterparty risks arising from the loan portfolio 

by making allowances for impaired loans. A financial asset or 

a group of financial assets is impaired and impairment losses are 

incurred if, and only if, there is objective evidence of impairment as 

a result of one or more events that occurred after the initial recognition 

of the asset (a “loss event”) and that loss event (or events) 

has an impact on the estimated future cash flows of the financial 

asset or group of financial assets that can be reliably estimated.

52 



evidence that a financial asset or group of financial assets 

is impaired. 

The Bank assesses the probability of default of individual counterparties 

using internal rating tools tailored to the various categories 

of counterparty. They have been developed internally and combine 

statistical analysis with credit officer judgment and are validated, 

where appropriate, by comparison with externally available data. 

Clients of the Bank are segmented into four rating classes. The 

Bank’s rating scale, which is shown below, reflects the range of default 

probabilities defined for each rating class. This means that, in 

principle, exposures migrate between classes as the assessment 

of their probability of default changes. The rating tools are kept under 

review and upgraded as necessary. 

The Bank regularly validates the performance of the rating and their 

predictive power with regard to default events. 

Bank’s internal ratings scale 

Bank’s rating 

Description of the grade 

A 

Investment grade 

B 

Standard monitoring 

C 

Special monitoring 

D+E 

Sub-standard 

Criteria for classification of financial assets or contingent liabilities 

into groups A, B, C, D and E are as follows: 

Financial assets or contingent liabilities are classified into Group A 

if they are towards: 

• debtors which is not likely to default and who repay their obligations 

on a timely basis; and 

• exposures secured by pledging collateral graded as first class 

collateral. 

Financial assets or contingent liabilities are classified into Group B 

if they are towards debtors: 

• whose cash flows are assessed as adequate to duly fulfil their 

due obligations, regardless of whether or not their present financial 

position is assessed as weak, without signs of further 

deterioration in the future; and 

• who settle their liabilities with delay of up to 30 days (B1), occasionally 

with delay between 31 and 90 days. 

Financial assets or contingent liabilities are classified into Group C 

if they are towards debtors: 

• for which it is assessed that their cash flows will not be sufficient 

for regular repayment of matured liabilities, or 

• that settle their liabilities with delay of up to 90 days, occasionally 

with delay between 91 to 180 days, or 

• that are clearly undercapitalized, or 

• that do not have sufficient long term capital resources for financing 

long term investments, or 

• from whom the Bank does not receive currently satisfactory information 

or adequate documentation concerning repayment 

of liabilities. 

Financial assets or contingent liabilities are classified into Group D 

and E if they are towards debtors: 

• for which a strong likelihood of loss of part or all of the financial 

asset exists or of payment for contingent liabilities, or 

• that settle their liabilities with delay of 90 to 180 days, occasionally 

with delay between 181 to 360 days, or 

• which are insolvent, or 

• for which a motion for commencement of process of liquidation 

or declaration of bankruptcy began and was filed at the provisional 

court, or 

• that are in the process of reform or in the process of liquidation, 

or 

• that have declared bankruptcy, or 

• from whom no repayment is expected, or 

• with questionable legal grounds for Bank to collateral. 

Exposure at default is based on the amounts the Bank expects to be 

owed at the time of default. For example, for a loan this is the face 

value. For a commitment, the Bank includes any amount already 

drawn plus the further amount that may have been drawn by the 

time of default, should it occur. 

Loss, given default, or loss severity represents the Bank’s expectation 

of the extent of loss on a claim should default occur. It 

is expressed as a percentage loss per unit of exposure and typically 

varies by type of counterparty, type and seniority of claim and 

availability of collateral or other credit mitigation. 

3.1.3 Impairment and provisioning policies 

The internal rating systems described in Note 3.1.2 focus more on 

credit-quality mapping from the inception of the lending and investment 

activities. In contrast, impairment provisions are recognized 

for financial reporting purposes only for losses that have been incurred 

at the balance sheet date based on objective evidence of 

impairment (see Note 2.10). The impairment provision shown in the 

balance sheet at year-end is derived from each of the internal rating 

grades. However, the majority of the impairment provision comes 

from bottom two gradings. The table below shows the percentage 

of the Bank’s on and off-balance sheet items relating to loans and 

advances and the associated impairment provision for each of the 

Bank’s internal rating categories: 

Bank’s rating 

Loans and Impairment Other Impairment 

advances provision assets provision 

to customers 

in % 

2008 

Investment grade 92.5 1.2 94.0 0.2 

Standard monitoring 6.3 20.0 4.5 44.3 

Special monitoring 0.65 70.8 0.6 70.0 

Sub-standard 0.55 100.0 0.9 100.0 

100 3.4 100 3.5 

2007 

Investment grade 93.4 1.0 97.3 0.3 

Standard monitoring 6.0 19.0 1.8 43.0 

Special monitoring 0.4 70.0 0.3 70.0 

Sub-standard 0.2 100.0 0.6 100.0 

100 2.6 100 1.9


The internal rating tool assists management to determine whether 

objective evidence of impairment exists under IAS 39, based on the 

following criteria set out by the Bank: 

• Delinquency in contractual payments of principal or interest; 

• Cash flow difficulties experienced by the borrower (e.g. equity 

ratio, net income percentage of sales); 

• Breach of loan covenants or conditions; 

• Initiation of bankruptcy proceedings; 

• Deterioration of the borrower’s competitive position; 

• Deterioration in the value of collateral. 

The Bank’s policy requires the review of individual financial assets 

that are above materiality thresholds at least annually or more 

regularly when individual circumstances require. Impairment allowances 

on individually assessed accounts are determined by an 

evaluation of the incurred loss at balance-sheet date on a case-bycase 

basis, and are applied to all individually significant accounts. 

The assessment normally encompasses collateral held (including 

re-confirmation of its enforceability) and the anticipated receipts 

for that individual account. 

Collectively assessed impairment allowances are provided for: (i) 

portfolios of homogenous assets that are considered individually 

insignificant; and (ii) losses that have been incurred but have not 

yet been identified, by using the available historical experience, 

experienced judgment and statistical techniques. 

3.1.4 Maximum exposure to credit risk before collateral held or 

other credit enhancement 

Maximum exposure 


Loans and advances to banks 28,754 5,832 

Loans and advances to customers 307,752 308,528 

– Overdrafts 911 768 

– Housing 16,014 12,468 

– Consumer 11,573 6,015 

– Very small business 138,121 167,162 

– Small and medium sized enterprises 

(SMEs) 122,364 109,909 

– Business overdrafts 18,769 12,206 

Other assets 2,949 1,915 

Credit risk exposure relating to 

off-balance sheet items are as follows: 

Loan commitments 11,970 10,157 

Financial guarantees 9,333 7,616 

Total 360,758 334,048 

The above table represents a worst case scenario of credit risk exposure 

to the Bank at 31 December 2008 and 31 December 2007, 

without taking account of any collateral held or other credit enhancements 

attached. 

For on-balance-sheet assets, the exposures set out above are 

based on net carrying amounts as reported at the balance sheet. 

3.1.5 Assets exposed to credit risk 

Loans and advances are summarized as follows: 

31 Dec 2008 31 Dec 2007 

Loans and advances Loans and advances Loans and advances Loans and advances 

to customers to banks to customers to banks 

Neither past due nor impaired 299,911 28,754 301,988 5,832 

Past due but not impaired 14,299 – 12,356 – 

Impaired 4,356 – 2,701 – 

Gross 318,566 28,754 317,045 5,832 

Specific impairment 268 – 237 – 

Collective impairment 10,546 – 8,280 – 

Total impairment 10,814 – 8,517 – 

Net 307,752 28,754 308,528 5,832 

(a) Assets neither past due nor impaired 

The credit quality of the portfolio of loans and advances that were 

neither past due nor impaired can be assessed by reference to the 

internal rating system adopted by the Bank. 

Loans and advances to customers 

Overdraft Housing Others Very small SMEs Others Total Loans and 

business 

advances 

to banks 

31 December 2008 

Investment grade 932 16,001 11,584 132,401 119,988 19,005 299,911 28,754 

Total 932 16,001 11,584 132,401 119,988 19,005 299,911 28,754 

31 December 2007 

Investment grade 799 12,365 5,989 162,226 108,214 12,395 301,988 5,832 

Total 799 12,365 5,989 162,226 108,214 12,395 301,988 5,832 

Information disclosed in the above tables is presented in gross 

amounts.

54 


(b) Assets past due but not impaired 

Loans and advances less than 180 days past due are not considered 

impaired, unless other information is available to indicate the contrary. 

Gross amount of loans and advances to customers by class 

that were past due but not impaired were as follows: 



business 

advances 

to banks 


Past due up to 30 days 1 256 145 6,987 1,683 44 9,116 – 

Past due up to 90 days 2 33 29 2,660 356 39 3,119 – 

Past due up to 180 days 2 – 24 1,860 119 59 2,064 – 

Total 5 289 198 11,507 2,158 142 14,299 – 

Collateral 5 829 208 12,057 5,505 194 18,798 – 


Past due up to 30 days 2 258 74 5,604 1,218 22 7,178 – 



Total 5 308 157 10,253 1,589 44 12,356 – 

Collateral 6 892 217 10,808 4,426 45 16,394 – 

(c) Assets impaired 

The breakdown of the gross amount of individually impaired loans 

and advances to customers by class, along with the fair value of 

related collateral held by the Bank as security, are as follows: 



business 

advances 

to banks 


Sub-standard – 1 24 1,640 2,635 56 4,356 – 

Total – 1 24 1,640 2,635 56 4,356 – 

Collateral – 174 24 2,097 13,069 311 15,675 – 


Sub-standard – 29 3 479 2,186 4 2,701 – 

Total – 29 3 479 2,186 4 2,701 – 

Collateral – 79 3 958 9,370 4 10,414 – 

Information disclosed in above tables are presented in gross 

amounts. 

(d) Loans and advances with renegotiated terms 

Loans and advances with renegotiated terms include extended payment 

arrangements, approved external management plans, modification 

and deferral of payments. Once the loan is restructured, it 

remains in this category independent of the satisfactory performance 

after restructuring. Restructuring policies and practices are 

based on indicators or criteria which, in the judgment of local management, 

indicate that payment will most likely continue. These 

policies are kept under continuous review. 

Restructuring is most commonly applied to corporate entities 

loans, in particular SMEs loans. 

Renegotiated loans that would otherwise be past due or impaired 

totalled BAM 358 at 31 December 2008 (2007: BAM 619). 


Loans and advances to corporate customers 

– Very small business 100 119 

– Small and medium size enterprises (SMEs) 258 500 

Total 358 619


(e) Loans and advances to customers 

The Bank holds collateral against loans and advances to customers 

in the form of mortgage interest over property, other securities 

over assets and guarantees. Estimates of fair value of collateral are 

based on the value of collateral assessed at the time of borrowing, 

and generally are not updated except when a loan is individually assessed 

as impaired. Collateral is not held over loans and advances 

to banks and financial assets available for sale. 

The breakdown of the gross amount of individually impaired loans 

and advances by class, along with the fair value of related collateral 

held by the Bank as security, are as follows: 

Overdraft Housing Others Very SMEs Others 

small 

business 


Individually impaired loans – – – 26 2,571 – 

Collectively impaired loans 937 16,291 11,806 145,522 122,210 19,203 

Collateral 952 28,395 17,879 156,956 365,316 51,527 


Individually impaired loans – – – 27 2,060 – 

Collectively impaired loans 804 12,702 6,149 172,931 109,929 12,443 

Collateral 1,099 24,399 7,764 180,000 299,220 37,186 

The disclosed value of collateral is determined by local chartered 

surveyors and represents value estimated as realisable by the legal 

owners of the assets. Management considers the loans covered by 

collateral as impaired because experience shows that a significant 

proportion of the collateral cannot be enforced due to administrative 

and legal difficulties. The impairment provisions reflect the 

probability that management will not be able to enforce its rights 

and repossess collateral on defaulted loans. 

As at 31 December 2008 the Bank did not have any repossessed 

property or some other type of collateral. 

3.1.6 Concentration of risks of financial assets with credit risk 

exposure 

The Bank monitors concentrations of credit risk by economic sector 

and by geographic location. Credit portfolio risk is limited by 

the Bank’s credit strategy; in particular the focus on small and very 

small loans and the broad geographical and economic sector diversification 

of the loan portfolio. An analysis of such concentrations 

at the reporting date is shown below: 

Economic sector risk concentrations 

Wholesale Agriculture, Production Individuals Tourism, Other Total 

and retail forestry catering 

and fishing 

Loans and advances to banks – – – – – 28,754 28,754 


– Overdrafts – – – 911 – – 911 

– Housing – – 422 15,592 – – 16,014 

– Consumer – – – 11,573 – – 11,573 

Loans to corporate entities: 

– Very small business 20,665 77,374 5,675 3,413 2,745 28,249 138,121 

– Small and medium size enterprises (SMEs) 60,256 2,427 24,318 5,982 7,819 21,562 122,364 

– Business overdrafts 12,209 185 3,129 922 235 2,089 18,769 

Financial investments available for sale – – – – – 196 196 

Other assets – – – – – 2,949 2,949 

As at 31 December 2008 93,130 79,986 33,544 38,393 10,799 83,799 339,651 

As at 31 December 2007 88,091 92,721 32,952 25,324 10,976 66,407 316,471

56 


Geographic risk concentrations 

Bosnia and OECD Non-OECD Total 

Herzegovina countries countries 

Loans and advances to banks – 28,741 13 28,754 


– Overdrafts 911 – – 911 

– Housing 16,014 – – 16,014 

– Consumer 11,573 – – 11,573 

– Very small business 138,121 – – 138,121 

– Small and medium size enterprises (SMEs) 122,364 – – 122,364 

– Business overdrafts 18,769 – – 18,769 

Financial investments available for sale – – 196 196 

Other assets 2,949 – – 2,949 

As at 31 December 2008 310,701 28,741 209 339,651 

As at 31 December 2007 310,449 5,573 449 316,471 

In addition, the structure of the loan portfolio is regularly reviewed 

within the Risk Department and Credit Risk Committee in order to 

identify potential events which could have an impact on large areas 

of the loan portfolio (common risk factors) and if necessary limit the 

exposure toward certain sectors of the economy. 

3.2 Market risk 

The Bank takes on exposure to market risks, which is the risk that 

the fair value or future cash flows of a financial instrument will 

fluctuate because of changes in market prices. Market risks arise 

from open positions in interest rate, foreign currency and equity 

products, all of which are exposed to general and specific market 

movements and changes in the level of volatility of market rates 

or prices such as interest rates, credit spreads, foreign exchange 

rates and equity prices. 

The Management Board sets limits and guidelines for monitoring 

and mitigating of market risks, which is regularly monitored by Risk 

Committees of the Bank. 

3.3 Foreign exchange risk 

The Bank is exposed to currency risk through transactions in foreign 

currencies. Foreign currency exposure arises from credit, deposit-taking 

and trading activities. The Management sets limits on 

the level of exposure by currency and in total for overnight position, 

which are monitored daily. The table below summarizes the Bank’s 

exposure to foreign currency exchange rate risk at 31 December 

2008. Included in the table are the Bank’s assets and liabilities at 

carrying amounts categorized by currency. 

Concentrations of currency risk of on- and off-balance sheet assets 

and liabilities 

The Bank had the following significant currency positions: 

As at 31 December 2008 EUR USD BAM Other Total 

Assets 

Cash and balances with the Central bank 11,612 2,441 97,107 963 112,123 

Loans and advances to banks 28,754 – – – 28,754 

Loans and advances to customers 246,549 – 61,203 – 307,752 

Financial investments available for sale 196 – – – 196 

Property and equipment – – 11,333 – 11,333 

Intangible assets – – 992 – 992 

Deferred tax assets – – 47 – 47 

Other assets 669 39 2,241 – 2,949 

Total assets 287,780 2,480 172,923 963 464,146 

Liabilities 

Deposits from customers 176,364 2,463 156,764 – 335,591 

Borrowings 63,110 – 2,552 – 65,662 

Subordinated debt 16,081 – – – 16,081 

Provisions – – 322 – 322 

Other liabilities 689 – 1,011 – 1,700 

Current income tax payable – – 155 – 155 

Total liabilities 256,244 2,463 160,804 – 419,511 

Net balance sheet position 31,536 17 12,119 963 44,635 

Contingencies and commitments 1,782 884 18,637 – 21,303 

The local currency (BAM) is pegged to EUR under a currency board 

arrangement. 

A 10% fall in currencies (other than EUR) against BAM, with other 

variables held constant would result with a decrease of the result of 

the year by BAM 96 thousand (2007: BAM 63 thousand). 

A 10% rise in such currencies would result with an increase of the 

result of the year of BAM 96 thousand (2007: BAM 63 thousand).


As at 31 December 2007 EUR USD BAM Other Total 

Assets 

Cash and balances with the Central bank 7,757 982 86,085 634 95,458 

Loans and advances to banks 4,314 1,518 – – 5,832 

Loans and advances to customers 228,227 – 80,301 – 308,528 

Financial investments available for sale 196 – – – 196 

Property and equipment – – 10,945 – 10,945 

Intangible assets – – 961 – 961 

Deferred tax assets – – 26 – 26 

Other assets 411 31 1,473 – 1,915 

Total assets 240,905 2,531 179,791 634 423,861 

Liabilities 

Deposits from customers 136,666 2,421 140,780 – 279,867 

Borrowings 86,141 – 2,122 – 88,263 

Subordinated debt 16,095 – – – 16,095 

Provisions – – 260 – 260 

Other liabilities 226 – 1,128 – 1,354 

Current income tax payable – – 374 – 374 

Total liabilities 239,128 2,421 144,664 – 386,213 

Net balance sheet position 1,777 110 35,127 634 37,648 

Contingencies and commitments 2,163 722 14,888 – 17,773 

3.4 Interest rate risk 

The Bank’s operations are subject to the risk of interest rate fluctuations 

to the extent that interest earning assets and interest 

bearing liabilities mature at different time and different amounts. 

As tools for analysis of interest rate risk, the following models are 

used: simple gap analysis, modified duration analysis and income 

gap analysis. These basic analysis tools are developed by the Risk 

Department towards scenario analysis, which provides estimates 

on how the changes in the interest rate structure may affect the 

earnings and the economic value of the Bank. 

Interest rate risk is managed principally through monitoring interest 

rate gaps and by having pre-approved limits for repricing 

bands. 

Interest sensitivity of assets and liabilities 

The table below summarizes the Bank’s exposure to interest rate 

risks. Included in the table are the Bank’s assets and liabilities at 

carrying amounts, categorized by the earlier of contractual repricing 

or maturity dates. 

As at 31 December 2008 Up to 1 – 3 3 – 12 1 – 5 Over Non-interest Total 

1 month months months years 5 years bearing 

Assets 

Cash and balances with the Central Bank 86,540 – – – – 25,583 112,123 

Loans and advances to banks 23,473 5,281 – – – – 28,754 

Loans and advances to customers 32,822 27,917 104,517 131,452 11,044 – 307,752 


Property and equipment – – – – – 11,333 11,333 

Intangible assets – – – – – 992 992 

Deferred tax assets – – – – – 47 47 

Other assets – – – – – 2,949 2,949 

Total assets 142,835 33,198 104,517 131,452 11,044 41,100 464,146 

Liabilities 

Deposits from customers 9,340 28,502 96,824 109,797 1,532 89,596 335,591 

Borrowings – 20,157 15,275 6,454 2,510 21,266 65,662 

Subordinated debt – – – – 15,647 434 16,081 

Provisions – – – – – 322 322 

Other liabilities – – – – – 1,700 1,700 

Current income tax payable – – – – – 155 155 

Total liabilities 9,340 48,659 112,099 116,251 19,689 113,473 419,511 

Balance sheet interest sensitivity gap 133,495 (15,461) (7,582) 15,201 (8,645) (72,373) 44,635

58 


As at 31 December 2007 Up to 1 – 3 3 – 12 1 – 5 Over Non-interest Total 

1 month months months years 5 years bearing 

Assets 

Cash and balances with the Central Bank 77,356 – – – – 18,102 95,458 

Loans and advances to banks 5,832 – – – – – 5,832 

Loans and advances to customers 24,908 27,914 111,576 138,139 5,991 – 308,528 


Property and equipment – – – – – 10,945 10,945 

Intangible assets – – – – – 961 961 

Deferred tax assets – – – – – 26 26 

Other assets – – – – – 1,915 1,915 

Total assets 108,096 27,914 111,576 138,139 5,991 32,145 423,861 

Liabilities 

Deposits from customers 6,909 32,809 84,451 75,018 1,685 78,995 279,867 

Borrowings – 3,685 8,400 51,665 2,086 22,427 88,263 

Subordinated debt – – – – 15,647 448 16,095 

Provisions – – – – – 260 260 

Other liabilities – – – – – 1,354 1,354 

Current income tax payable – – – – – 374 374 

Total liabilities 6,909 36,494 92,851 126,683 19,418 103,858 386,213 

Balance sheet interest sensitivity gap 101,187 (8,580) 18,725 11,456 (13,427) (71,713) 37,648 

By calculating of income gap based on the above interest rate 

sensitivity, at 31 December 2008, if interest rates at that date 

had been 1% lower with all other variables held constant, result 

for the year would have been BAM 586 thousand (2007: BAM 504 

thousand) higher. Conversely, the same effect with opposite result 

would have been in a case of 1% increase of interest rates. 

The interest rate sensitivity analysis includes all variable interest 

rate assets and liabilities and assumes that all short term fixed 

rate assets and liabilities will be reinvested upon maturity. 

3.5 Liquidity risk 

Liquidity risk is the risk that the Bank will encounter difficulty in 

meeting obligations associated with its financial liabilities. The 

Supervisory Board has approved Policy and Procedures for Liquidity 

Management. The Bank manages liquidity risk by seeking to 

apply the optimum combination of maturity and foreign currency 

structure of the assets and liabilities. 

Sources of liquidity are regularly reviewed by Treasury Department 

and the ALCO Risk Committee of the Bank to maintain a wide diversification 

by currency, geography, provider, product and term. 

The Bank’s liquidity management process, as carried out within 

the Bank and monitored by Treasury Department includes: 

these are key periods for liquidity management. The starting point 

for those projections is an analysis of the contractual maturity of 

the financial liabilities and the expected collection date of the financial 

assets. 

Treasury Department also monitors unmatched medium-term assets, 

the level and type of undrawn lending commitments, the usage 

of overdraft facilities and the impact of contingent liabilities 

such as standby letters of credit and guarantees. 

The table below analyses the assets and liabilities of the Bank into 

relevant maturity groupings based on the remaining period at the 

balance sheet date to the contractual maturity date. 

Other assets and liabilities which do not have contractual maturity 

are classified into relevant maturity groupings in accordance with 

the Bank’s plan. 

• Day-to-day funding, managed by monitoring future cash flows 

to ensure that requirements can be met. This includes replenishment 

of funds as they mature or are borrowed by customers; 

• Maintaining a portfolio of highly marketable assets that can 

easily be liquidated as protection against any unforeseen interruption 

to cash flow; 

• Monitoring balance sheet liquidity ratios against internal and 

regulatory requirements; 

• Managing the concentration and profile of debt maturities. 

Monitoring and reporting take the form of cash flow measurement 

and projections for the next day, week and month respectively, as


3.6 Maturities of assets and liabilities 

As at 31 December 2008 Up to 1 – 3 3 – 12 1 – 5 Over 5 Total 

1 month months months years years 

Assets 

Cash and balances with the Central Bank 112,123 – – – – 112,123 

Loans and advances to banks 23,473 5,281 – – – 28,754 

Loans and advances to customers 32,822 27,917 104,517 131,452 11,044 307,752 

Financial investments available for sale 196 – – – – 196 

Property and equipment – – – – 11,333 11,333 

Intangible assets – – – – 992 992 

Deferred tax assets 47 – – – – 47 

Other assets 2,920 – – – 29 2,949 

Total assets 171,581 33,198 104,517 131,452 23,398 464,146 

Liabilities 

Deposits from customers 98,936 28,502 96,824 109,797 1,532 335,591 

Borrowings 32 14,929 10,995 37,196 2,510 65,662 

Subordinated debt – – 434 – 15,647 16,081 

Provisions 322 – – – – 322 

Other liabilities 1,700 – – – – 1,700 

Current income tax payable 155 – – – – 155 

Total liabilities 101,145 43,431 108,253 146,993 19,689 419,511 

Net liquidity gap 70,436 (10,233) (3,736) (15,541) 3,709 44,635 

Contingencies and commitments 3,387 4,208 11,702 2,006 – 21,303 

As at 31 December 2007 Up to 1 – 3 3 – 12 1 – 5 Over 5 Total 

1 month months months years years 

Assets 

Cash and balances with the Central Bank 95,458 – – – – 95,458 

Loans and advances to banks 5,832 – – – – 5,832 

Loans and advances to customers 24,908 27,914 111,576 138,139 5,991 308,528 

Financial investments available for sale 196 – – – – 196 

Property and equipment – – – – 10,945 10,945 

Intangible assets – – – – 961 961 

Deferred tax assets 26 – – – – 26 

Other assets 1,886 – – – 29 1,915 

Total assets 128,306 27,914 111,576 138,139 17,926 423,861 

Liabilities 

Deposits from customers 84,308 33,000 85,042 75,827 1,690 279,867 

Borrowings 9 4,483 20,363 61,322 2,086 88,263 

Subordinated debt – – 448 – 15,647 16,095 

Provisions 260 – – – – 260 

Other liabilities 1,354 – – – – 1,354 

Current income tax payable 374 – – – – 374 

Total liabilities 86,305 37,483 105,853 137,149 19,423 386,213 

Net liquidity gap 42,001 (9,569) 5,723 990 (1,497) 37,648 

Contingencies and commitments 2,419 5,433 8,432 1,489 – 17,773 

Off-balance sheet items maturity 

(a) Loan commitments 

The dates of the contractual amounts of the Bank’s off-balancesheet 

financial instruments that commit it to extend credit to customers 

and other facilities are summarized in the table below. 

(b) Financial guarantees and letters of credits 

Financial guarantees and letters of credits are also included in the 

table below based on the earliest contractual maturity date.

60 


(c) Operating lease commitments 

Where the Bank is the lessee, the future minimum lease payments 

under non-cancellable operating leases are summarized in the table 

below. 

No later than 1 – 5 Over Total 

1 year years 5 years 

As at 31 December 2008 

Loan commitments 11,970 – – 11,970 

Financial guarantees and letter of credits 7,327 2,006 – 9,333 

Operating lease commitments 40 2,246 19,555 21,841 

Total 19,337 4,252 19,555 43,144 

As at 31 December 2007 

Loan commitments 10,157 – – 10,157 

Financial guarantees and letter of credits 6,127 1,489 – 7,616 

Operating lease commitments 43 2,177 14,836 17,056 

Total 16,327 3,666 14,836 34,829 

3.7. Fair values of financial assets and liabilities 

The table below summarizes the carrying amounts and fair values 

of those financial assets and liabilities not presented on the Bank’s 

balance sheet at their fair value. 

Carrying value 

Fair value 

2008 2007 2008 2007 

Assets 

Loans and advances to banks 28,754 5,832 28,754 5,832 

Loans and advances to customers 307,752 308,528 305,668 305,768 

Liabilities 

Deposits from customers 335,591 279,867 337,729 281,790 

Borrowings 65,662 88,263 60,947 81,175 

Subordinated debt 16,081 16,095 14,279 14,931 

Financial assets available for sale are carried at cost as they do not 

have a quoted market price in an active market and their fair value 

cannot be reliably measured. 

(i) Loans and advances to banks 

Loans and advances to banks include inter-bank placements. 

The fair value of floating rate placements and overnight deposits 

is their carrying amount. The estimated fair value of fixed interest 

bearing deposits is based on discounted cash flows using prevailing 

money-market interest rates for debts with similar credit risk 

and remaining maturity. 

(ii) Loans and advances to customers 

The estimated fair values of loans reflect changes in credit status 

since loans were made and changes in fixed rate loans. The carrying 

value of loans with variable interest rate approximates their fair 

value. 

(iii) Deposits from customers, borrowings and subordinated debt 

The estimated fair value of deposits with no stated maturity, which 

includes non-interest-bearing deposits, is the amount repayable on 

demand. 

The estimated fair value of fixed interest-bearing deposits and 

other borrowings not quoted in an active market is based on discounted 

cash flows using interest rates for new debts with similar 

remaining maturity. 

The fair value of the term deposits at variable interest rates approximates 

their carrying values as of the balance sheet date.


3.8. Capital management 

The Bank’s objectives when managing capital, which is a broader 

concept than the ‘equity’ on the face of balance sheets, are: 

• To comply with the capital requirements set by the regulators of 

the banking market in local environment; 

• To safeguard the Bank’s ability to continue as a going concern 

so that it can continue to provide returns for shareholders and 

benefits for other stakeholders; and 

• To maintain a strong capital base to support the development of 

its business. 

Capital adequacy and the balance of capital are monitored regularly 

by the ALCO and Bank’s Management Board, based on the relevant 

internal acts and regulations prescribed by the supervisory authority 

(Banking Agency of Federation of Bosnia and Herzegovina). The 

required information and reports are submitted to the Banking 

Agency on a quarterly basis. 

The table below summarizes the composition of regulatory capital and 

the capital adequacy ratio of the Bank for the years ended 31 December 

2008 prepared in accordance with Banking Agency regulations. 

(c) Regulatory requirements 

The Federation of Bosnia and Herzegovina is entitled to carry out 

regulatory inspections of the Bank’s operations and to request 

changes to the carrying values of assets and liabilities, in accordance 

with the underlying regulations. 

5. Net interest income 


Interest and similar income 

Loans and advances to customers 55,475 49,630 

Loans and advances to banks 735 300 

Obligatory reserve with the Central Bank 1,693 822 

57,903 50,752 

Interest expense and similar charges 

Current accounts and deposits 

from customers (13,822) (8,982) 

Borrowings and subordinated debt (5,355) (4,853) 

(19,177) (13,835) 


Bank’s net capital according to 

Banking Agency regulations 63,431 55,197 

Risk of Risk Weighted Assets 

and Loan Equivalent 342,469 335,489 

Weighted operational risk 2,948 – 

Total weighted risk 345,417 335,489 

Capital adequacy ratio 18.4% 16.5% 

4. Critical accounting estimates and judgments 

The Bank makes estimates and assumptions that affect the reported 

amounts of assets and liabilities within the next financial year. Estimates 

and judgments are continually evaluated and based on historical 

experience and other factors, including expectations of future 

events that are believed to be reasonable under the circumstances. 

(a) Impairment losses on loans and advances 

The Bank reviews its loan portfolios to assess impairment at least 

on a quarterly basis. In determining whether an impairment loss 

should be recorded in the income statement, the Bank makes judgments 

as to whether there is any observable data indicating that 

there is a measurable decrease in the estimated future cash flows 

from a portfolio of loans before the decrease can be identified with 

an individual loan in that portfolio. This evidence may include observable 

data indicating that there has been an adverse change 

in the payment status of borrowers in a Bank, or national or local 

economic conditions that correlate with defaults on assets in the 

Bank. 

Management uses estimates based on historical loss experience for 

assets with credit risk characteristics and objective evidence of impairment 

similar to those in the portfolio when scheduling its future 

cash flows. The methodology and assumptions used for estimating 

both the amount and timing of future cash flows are reviewed regularly 

to reduce any differences between loss estimates and actual 

loss experience. 

Assets accounted for at amortised cost are evaluated for impairment 

on a basis described in note 2.10. 

6. Net fee and commission income 


Fee and commission income 

Foreign payment transactions 1,059 921 

Domestic payment transactions 1,102 858 

Guarantees and letters of credit 386 338 

Foreign exchange transactions 850 658 

Western Union and card business 303 213 

Accounts maintenance fees 418 151 

Other payment transaction fees 581 414 

Other fees and commissions 913 880 

5,612 4,433 

Fee and commission expense 

Banks (275) (190) 

Other (774) (643) 

(1,049) (833) 

7. Foreign exchange differences (net) 


Positive foreign exchange differences 57,101 11,958 

Negative foreign exchange differences (56,900) (11,790) 

201 168 

8. Operating expenses 


Reimbursements from insurance 520 – 

Other 606 219 

1,126 219 

(b) Taxation 

The Bank provides for tax liabilities in accordance with the tax laws 

of Federation of Bosnia and Herzegovina. Tax returns are subject to 

the approval of the tax authorities who are entitled to carry out subsequent 

inspections of taxpayers’ records.

62 


9. Other operating expenses 

Reconciliation of the accounting profit and income tax expense 


Personnel 19,228 16,882 

Rent 3,419 2,977 

Promotion and marketing 1,561 2,277 

Depreciation and amortisation 3,734 2,678 

Consulting services 920 1,153 

Insurance premiums 2,814 1,787 

Post and telecommunication services 842 737 

Stationery 611 688 

Maintenance of fixed assets and equipment 783 775 

Other taxes and contribution 111 33 

Utilities and electricity 973 789 

Administrative, court and other legal fees 385 231 

Transport 414 362 

Other consumables 251 176 

Small inventory write offs 165 229 

Donations 39 66 

ProCredit Group consulting services 952 1,073 

Other 1,297 603 

38,499 33,516 


Profit/(loss) before tax (668) 2,899 

Tax calculated at a tax rate 

of 10% (2007:30%) (67) 870 

Tax effects of items which 

are not deductible: 

– tax exempt income – (653) 

– non-taxable income (7) (72) 

– non-deductible expenses 157 203 

Income tax expense for the year 83 348 

The Bank’s tax liabilities are ascertained in tax statements prepared 

by the Bank and might be a matter of subsequent inspection 

and consequent adjustment by tax authorities in a five year period 

after recognition. The Bank’s Management Board is not aware of 

any circumstances, which may give rise to a potential material liability 

in this respect. 

12. Cash and balances with the Central Bank 

Personnel expenses 


Salaries and wages 10,299 8,634 

Taxes and contributions 6,538 5,513 

Other long-term employee benefits (Note 23) 56 137 

Food allowances and transportation 1,685 1,400 

Other 650 1,198 

19,228 16,882 

The number of persons employed by the Bank at the year end was 

888 (2007: 831). 

10. Impairment losses and provisions 


Cash in hand 20,071 13,679 

Current accounts with other banks 5,505 4,423 

Balances with the Central Bank other 

than obligatory reserve 27,630 23,158 

Obligatory reserve with the Central Bank 58,917 54,198 

112,123 95,458 

The Central Bank determines the requirement for banks to hold obligatory 

reserves in the form of amounts required to be deposited 

with the Central Bank. The obligatory reserve requirement at 31 December 

2008 amounted to 14% (2007: 18%) of time deposits and 

borrowings. The obligatory reserve is maintained through the average 

balance on the ordinary reserve account with the Central Bank. 

The interest rate on the obligatory reserve is 1.0% (2007: 1.0%). 


Loans to individuals (Note 14) 131 5 

Loans to corporate entities (Note 14) 6,519 4,816 

Other assets (Note 19) 129 32 

Contingencies and commitments (Note 23) 6 (364) 

6,785 4,489 

11. Income tax expense 

13. Loans and advances to banks 


Placements with foreign banks 28,754 5,832 

28,754 5,832 

Current 28,754 5,832 

Non-current – – 


Current income tax charge 104 311 

Net deferred tax (credit)/charge (Note 18) (21) 37 

Total income tax expense recognised 

in the income statement 83 348 

Further information about deferred income tax is presented in Note 

18. The official tax rate within the country is 10% (2007: 30%). 

The tax on the bank’s profit before tax differs from the theoretical 

amount that would arise using the local tax rate on the profit before 

tax presented in the financial statements in accordance with IFRS. 

14. Loans and advances to customers 


Loans to individuals 

– short term 7,710 10,477 

– long term 194,322 206,093 

202,032 216,570 

Loans to corporate entities 

– short term 17,659 12,504 

– long term 98,875 87,971 

116,534 100,475 

Gross loans and advances to customers 318,566 317,045 

Less: allowance for impairment (10,814) (8,517) 

Net loans and advances to customers 307,752 308,528 

Current (net) 165,256 164,398 

Non-current (net) 142,496 144,130


Loans and advances to customers are presented including accrued 

interest in the amount of BAM 2,466 thousand (2007: BAM 2,461 

thousand), and net of deferred fees in the amount of BAM 2,852 

thousand (2007: BAM 2,809 thousand). 

The movement in impairment allowance for loans and advances to 

customers is as follows: 

Individuals 

Overdraft Housing Others Total 

Balance at 1 January 2008 37 235 134 406 

Net charge/(release) to 

income statement (Note 10) (11) 22 120 131 

Amounts written off – 20 (21) (1) 

Balance at 

31 December 2008 26 277 233 536 

Corporate entities 

Very small SMEs Others Total 

business 

Balance at 1 January 2008 5,792 2,078 241 8,111 

Net charge to income 

statement (Note 10) 5,563 688 268 6,519 

Amounts written off (3,928) (324) (75) (4,327) 

Unwinding of discount – (25) – (25) 

Balance at 

31 December 2008 7,427 2,417 434 10,278 

Individuals 

Overdraft Housing Others Total 

Balance at 1 January 2007 6 313 96 415 

Net charge/(release) to 

income statement (Note 10) 31 (73) 47 5 

Amounts written off – (5) (9) (14) 

Balance at 

31 December 2007 37 235 134 406 

Corporate entities 

Very small SMEs Others Total 

business 

Balance at 1 January 2007 2,743 1,687 198 4,628 

Net charge to income 

statement (Note 10) 3,912 813 91 4,816 

Amounts written off (863) (388) (48) (1,299) 

Unwinding of discount – (34) – (34) 

Balance at 

31 December 2007 5,792 2,078 241 8,111 

15. Financial investments available for sale 


Investment in ProCredit Regional 

Academy EE LLC Skopje 196 196 

196 196 

As at December 17, 2007 the Bank signed an Agreement for establishment 

of ProCredit Regional Academy EE LLC Skopje, together 

with 7 other banks from the ProCredit banking network. 

Financial assets available for sale are carried at cost as they do not 

have a quoted market price in an active market and their fair value 

cannot be reliably measured. 

16. Property and equipment 

The cost of property and equipment and related depreciation for 

2008 is presented below: 

2008 Buildings Leasehold Furniture & Assets in course Total 

improvements equipment of construction 

Cost 

Balance at 1 January 2008 448 3,959 11,874 1,671 17,952 

Additions 137 451 2,296 845 3,729 

Transfers 142 138 1,170 (1,450) – 

Disposals and write off – (116) (191) – (307) 

Balance at 31 December 2008 727 4,432 15,149 1,066 21,374 

Accumulated depreciation 

Balance at 1 January 2008 256 1,300 5,451 – 7,007 

Charge for the year 32 585 2,704 – 3,321 

Disposals and write off – (107) (180) – (287) 

Balance at 31 December 2008 288 1,778 7,975 – 10,041 

Carrying amount at 

31 December 2008 439 2,654 7,174 1,066 11,333 

1 January 2008 192 2,659 6,423 1,671 10,945

64 


In 2008, depreciation rate for buildings has changed from 10% to 

2.5%. Had the depreciation rate not changed, respective depreciation 

charge in 2008 would have been higher for 39 thousand. 

The cost of property and equipment and related depreciation for 

2007 is presented below: 

2007 Buildings Leasehold Furniture & Assets in course Total 

improvements equipment of construction 

Cost 

Balance at 1 January 2007 348 2,767 8,182 1,642 12,939 

Additions 100 999 2,916 1,415 5,430 

Transfers – 193 1,193 (1,386) – 

Disposals and write off – – (417) – (417) 

Balance at 31 December 2007 448 3,959 11,874 1,671 17,952 

Accumulated depreciation 

Balance at 1 January 2007 156 828 4,046 – 5,030 

Charge for the year 100 472 1,808 – 2,380 

Disposals and write off – – (403) – (403) 

Balance at 31 December 2007 256 1,300 5,451 – 7,007 


31 December 2007 192 2,659 6,423 1,671 10,945 

1 January 2007 192 1,939 4,136 1,642 7,909 

17. Intangible assets 

18. Deferred income tax assets 

2008 Software Licenses and Total 

other intangible 

assets 

Cost 

Balance at 1 January 2008 175 1,431 1,606 

Additions 87 357 444 

Balance at 

31 December 2008 262 1,788 2,050 

Accumulated amortisation 

Balance at 1 January 2008 92 553 645 

Charge for the year 40 373 413 

Balance at 

31 December 2008 132 926 1,058 


31 December 2008 130 862 992 

1 January 2008 83 878 961 

Deferred income taxes are calculated on all temporary differences 

under the liability method using an effective tax rate of 10% 

(2007: 30%). 

Movement in deferred tax assets 

Loan Other Total 

impairment items 

Balance at 1 January 2008 26 – 26 

Origination and reversal of 

temporary differences 88 7 95 

Reduction in tax rate (74) – (74) 

Balance at 31 December 2008 40 7 47 

Balance at 1 January 2007 66 (3) 63 

(Decrease)/increase in 

deferred tax asset (40) 3 (37) 

Balance at 31 December 2007 26 – 26 

2007 Software Licenses and Total 

other intangible 

assets 

Cost 

Balance at 1 January 2007 113 872 985 

Additions 62 559 621 

Balance at 

31 December 2007 175 1,431 1,606 

Accumulated amortisation 

Balance at 1 January 2007 66 281 347 

Charge for the year 26 272 298 

Balance at 

31 December 2007 92 553 645 

19. Other assets 


Prepaid rent 816 5 

Prepaid income tax 855 1,091 

Advance payments 611 278 

Receivables from card operators 290 415 

Other assets 486 164 

Impairment allowance (109) (38) 

2,949 1,915 

Current (net) 2,920 1,886 

Non-current (net) 29 29 


31 December 2007 83 878 961 

1 January 2007 47 591 638


Movement in allowances for other assets impairment are as follows: 


Balance at 1 January 38 15 

Net charge to income statement (Note 10) 129 32 

Amounts written off (58) (9) 

Balance at 31 December 109 38 

20. Deposits from customers 


Corporate 

– Current accounts and 

demand deposits 45,080 39,565 

– Term deposits 135,454 111,662 

Individual customers 

– Current accounts and 

demand deposits 44,563 39,279 

– Term deposits 110,494 89,361 

335,591 279,867 

Current 223,773 202,350 

Non-current 111,818 77,517 

21. Borrowings 


The Commission of 

the European Union 20,569 20,829 

Royal Ministry of 

Foreign Affairs of Norway – 605 

Kreditanstalt fur Wiederaufbau 8,279 10,349 

The European Fund for 

Southeast Europe 19,886 24,830 

Commerzbank 10,996 10,990 

European Bank for 

Reconstruction and Development 2,370 7,111 

United States Agency for 

International Development – 397 

ProCredit Holding 23 10,043 

International Fund for 

Agricultural Development 2,552 2,122 

Partners for Development 987 987 

65,662 88,263 

22. Subordinated debt 


Subordinated debt 16,081 16,095 

16,081 16,095 

Current 434 448 

Non-current 15,647 15,647 

Subordinated loan agreement has been signed between ProCredit 

Bank d.d. Sarajevo and ProCredit Holding AG on 31 August 2005. 

The loan bears interest of 8.9 % p.a. The loan shall expire on 7 September 

2015 and is repayable upon maturity. 

Additional Subordinated loan agreement has been signed between 

ProCredit Bank d.d. Sarajevo and ProCredit Holding AG on 26 September 

2007. The loan bears interest of 10.51 % p.a. The loan shall 

expire on 26 September 2022 and is repayable upon maturity. 

The Bank has not had any defaults of principal, interest or other 

breaches with respect to its subordinated debt. 

23. Provisions 


Provisions for contingencies 

and commitments 129 123 

Provisions for other long-term 

employee benefits 193 137 

322 260 

Movement in provisions for contingencies and commitments are as 

follows: 


Balance at 1 January 123 487 

Net release/(charge) to 

income statement (Note 10) 6 (364) 


Movement in provisions for other long-term employee benefits are 

as follows: 


Balance at 1 January 137 – 

Net charge to income statement (Note 9) 56 137 


24. Other liabilities 

Current 25,914 24,855 

Non-current 39,748 63,408 

The Bank obtains long term financing from institutions sponsored 

by European Union and the government of the Republic of Norway 

at interest rates at which such institutions ordinarily lend in Bosnia 

and Herzegovina and other emerging markets and which may be 

lower than rates at which the Bank could source the funds from other 

local lenders. As a result of such financing, the Bank advances 

funds to specific customers at favourable rates. 

The Bank has not had any defaults of principal, interest or other 

breaches with respect to its borrowings. 

As of 31 December 2008 Bank has signed contract with ProCredit 

Holding AG in amount of EUR 15 million, which has not been drawn 

as yet. 


Fees and interest received in advance 279 350 

Payables to suppliers 217 336 

Accrued expenses 851 274 

Other liabilities 353 394 

1,700 1,354 

25. Share capital 

Ordinary shares 


On issue at 1 January 25,679 15,679 

New shares issued 9,779 10,000 

At 31 December 35,458 25,679

66 


In number of shares Ordinary shares 


On issue at 1 January 2,567,862 1,567,862 

New shares issued 977,915 1,000,000 

At 31 December 3,545,777 2,567,862 

The Bank’s share capital consists of 3,545,777 ordinary shares. All 

shares have a par value of BAM 10 and are fully paid. 

Share premium represents the excess of paid-in amount over the 

nominal value of the issued shares. 

Statutory reserves represent additional capital set aside by appropriation 

from net income. These reserves are used to cover losses 

and are not distributable. 

The shareholder structure of the Bank was as follows: 

Name 

% of voting share capital 


ProCredit Holding AG 92.3 92.3 

Commerzbank AG 7.7 7.7 

100% 100% 

26. Cash and cash equivalents 


Cash in hand (note 12) 20,071 13,679 

Current accounts with 

other banks (note 12) 5,505 4,423 

Balances with central bank other 

than obligatory reserve (note 12) 27,630 23,158 

53,206 41,260 

27. Commitments and contingencies 

The following table indicates the contractual amounts of the Bank’s 

contingencies and commitments by category: 


Guarantees 

– in domestic currency 6,667 4,731 

– in foreign currency 1,889 2,394 

Letter of credits 777 491 

Undrawn lending commitments 12,099 10,280 

21,432 17,896 

Less: Provision for contingencies 

and commitments (note 23) (129) (123) 

28. Related party transactions 

21,303 17,773 

Parties are considered to be related if one party has the ability to 

control the other party or exercise significant influence over the 

other party in making financial or operational decisions. A number 

of banking transactions are entered into with related parties in the 

normal course of business. These include loans, deposits and borrowings. 

These transactions were carried out on commercial terms and at 

market rates. The volumes of related party transactions, outstanding 

balances at the year-end, are as follows: 

Related party transactions for 2008 

ProCredit Bank’s Bank’s management Total 

Holding management close family members 

Loans 

Loans outstanding at 1 January – 184 – 184 

Loans issued during the year – 195 3 198 

Loan repayments during the year – (52) – (52) 

Loans outstanding at 31 December – 327 3 330 

Interest income earned – 18 – 18 

Impairment losses for loans – 1 – 1 

Deposits 

Balance at beginning of year – 146 3 149 

Deposits received during the year – 684 42 726 

Deposits repaid during the year – (716) (35) (751) 

Balance at 31 December – 114 10 124 

Interest expenses on deposits – 5 – 5 

Borrowings 

Loans outstanding at 1 January 26,138 – – 26,138 

Loans issued during the year (19,836) – – (19,836) 

Loans repayments during the year 9,779 – – 9,779 

Balance at 31 December 16,081 – – 16,081 

Interest expenses on borrowings 2,093 – – 2,093 

Transfers under license and finance agreements 1 771 – – 771 

1 

Transfers under license and finance agreements related to management 

fee for providing management services and support.


Related party transactions for 2007 

ProCredit Bank’s Bank’s management Total 

Holding management close family members 

Loans 

Loans outstanding at 1 January – 164 – 164 

Loans issued during the year – 57 – 57 

Loan repayments during the year – (37) – (37) 

Loans outstanding at 31 December – 184 – 184 

Interest income earned – 12 – 12 

Impairment losses for loans – – – – 

Deposits 

Balance at beginning of year – 67 27 94 

Deposits received during the year 6,845 881 66 7,792 

Deposits repaid during the year (6,845) (802) (90) (7,737) 

Balance at 31 December – 146 3 149 

Interest expenses on deposits 27 4 – 31 

Borrowings 

Loans outstanding at 1 January 19,099 – – 19,099 

Loans issued during the year 7,039 – – 7,039 

Loans repayments during the year – – – – 

Balance at 31 December 26,138 – – 26,138 

Interest expenses on borrowings 1,652 – – 1,652 

Transfers under license and finance agreements 1 65 – – 65 

1 

Transfers under license and finance agreements related to management 

fee for providing management services and support. 

Key management compensation 


Salaries and other 

short-term benefits 253 275 

Other long-term employee benefits 5 3 

258 278 

Key management includes Management Board members and other 

executive management and their close family members.

68 


Additional information 

The address of its registered office is as follows: 

Head office: Sarajevo 

Address: Emerika Bluma 8 


Branch offices: 

Sarajevo 

Address: Muvekita 1 

Ilidža 

Address: Ibrahima Ljubovića 20 

Bihać 

Address: Safvet-bega Bašagića 18 

Tuzla 

Address: Džafer Mahala 29 

Mostar 

Address: Lacina 2 

Banja Luka 

Address: Kralja Petra I Karađorđevića 

Brčko 

Address: R. Dz. Čauševića 19 

Bijeljina 

Address: Karađorđeva 6 

Travnik 

Address: Bosanska 133 

Zenica 

Address: Maršala Tita bb 

Outlets: 

Sarajevo / outlet; 

Address: Emerika Bluma 8 

Novo Sarajevo / outlet; 

Address: Topal Osman-paše 22 

Otoka / outlet; 

Address: Gradaćačka 1 

Ciglane / outlet; 

Address: Husrefa Redžića 1 

Sokolac / outlet; 

Address: Glasinačka 1 

Ilidža / outlet; 

Address: Hrasnička cesta bb 

Cazin / outlet; 

Address: Stara Čaršija 

Tuzla / outlet; 

Address:Turalibegova 48 

Gračanica / outlet; 

Address: H. K. Gradaščevića bb 

Posušje / outlet; 

Address: Fra Grge Martića bb 

Mostar / outlet; 

Address: Biskupa Čule bb 

Trebinje / outlet; 

Address: Kralja Petra I Oslobodioca bb 

Banja Luka / outlet; 

Address: Brace Potkonjaka 2 

Gradačac / outlet; 

Address: H. K. Gradaščevića bb 

Travnik / outlet; 

Address: RK Borac – Bosanska bb 

Zavidovići / outlet; 

Address: 8. Marta bb 

Prijedor / outlet; 

Address: Svetosavska bb 

Doboj / outlet; 

Address: Svetog Save 95 

Bijeljina / outlet; 

Address:TrgKraljaPetraI Karađorđevića 1 

Konjic / outlet; 

Address: Trg državnosti bb 

Pale / outlet; 

Address: Milana Simovića bb 

Zvornik / outlet; 

Address: Svetog Save 1 

Brčko / outlet; 

Address: Bosne Srebrene 22 

Nova Bila / outlet; 

Address: Nova Bila bb 

Živinice / outlet; 

Address: Alije Izetbegovića 10 

Kiseljak / outlet; 

Address: Josipa bana Jelačića bb 

Srebrenik / outlet; 

Address: Maršala Tita 40 

Laktaši / outlet; 

Address: Karađorđeva bb 

Gradiška / outlet; 

Address: Kozarskih brigada 26 

Ljubuški / outlet; 

Address: Kralja Zvonimira bb 

Livno / outlet; 

Address: Župana Želimira bb/Sinjska bb 

Šamac / outlet; 

Address:Kralja Aleksandra Karađorđevića 65 

Bugojno / outlet; 

Address: Kulina Bana 18 

Bosanska Krupa / outlet; 

Address: Sokak bb 

Velika Kladuša / outlet; 

Address: Kulište 2 

Employees 

As of 31 December 2008 ProCredit Bank d.d., Sarajevo employed 

888 persons (2007: 831 persons). 

Directors 

The names of the Directors of the Bank serving during the financial 

year and to the date of this report are as follows: 

Director 


Executive Director of Accounting and controlling sector 


Executive Director of Treasury, retail and client services sector 

Edin Hrnjica 

Executive Director of General services sector 


Executive Director of Corporate sector 


Executive Director of Risk and Compliance sector 

Radomir Savić

Financial Statements 69

70 


Contact Addresses 

Head Office 

Branches 

Sarajevo 


Tel. +387 33 250 950 

Fax +387 33 250 971 

www.procreditbank.ba 

info@procreditbank.ba 

Banja Luka 

Kralja Petra I Karađorđevića 91 

Tel. +387 51 229 340 / 343 

Fax +387 51 229 373 

Banja Luka 

Braće Potkonjaka 2 

Tel. +387 51 431 530 / 430 000 

Fax +387 51 431 537 

Doboj 

Svetog Save 95 

Tel. +387 53 206 290 

Fax +387 53 206 292 

Gračanica 

Alije Izetbegovića 23 

Tel. +387 35 700 670 

Fax +387 35 700 672 

Bihać 

Safvet-bega Bašagića 18 

Tel. +387 37 313 203 

Fax +387 37 319 121 

Gradačac 

H.K. Gradaščevića bb 

Tel. +387 35 821 715 

Fax +387 35 821 727 

Bijeljina 

Karađorđeva 6 / Atinska 1 

Tel. + 387 55 220 980 / 225 955 

Fax + 387 55 220 980 

Gradiška 

Kozarskih brigada 26 

Tel. +387 51 826 600 

Fax +387 51 826 606 

Bijeljina 

Trg Kralja Petra I Karađorđevića 1 

Tel. + 387 55 224 541 

Fax + 387 55 224 540 

Ilidža 

Ibrahima Ljubovića 20 

Tel. +387 33 761 580 / 622 869 

Fax +387 33 761 681 

Bosanska Krupa 

Sokak bb 

Tel. +387 37 476 800 

Fax +387 37 476 805 

Ilidža 

Hrasnička cesta 4 

Tel. +387 33 771 130 / 137 

Fax +387 33 771 131 / 132 

Brčko 

R.DŽ. Čauševića 19 

Tel. +387 49 216 099 

Fax +387 49 233 410 

Kiseljak 

Josipa bana Jelačića bb 

Tel. +387 30 877 600 

Fax +387 30 877 602 

Brčko 

Bosne Srebrene 22 

Tel. +387 49 231 960 

Fax +387 49 231 966 

Konjic 

Trg državnosti bb 

Tel. +387 36 712 400 

Fax +387 36 712 409 

Bugojno 

Kulina Bana br. 18 

Tel. +387 30 259 520 / 259 524 

Fax +387 30 259 529 

Kovačići (Sarajevo) 


Tel. +387 33 250 950 

Fax +387 30 253 991 

Cazin 

ZC “Stara čaršija” 

Bošnjačkih šehida 1 

Tel. +387 37 539 116 / 117 

Fax +387 37 511 693 

Ciglane (Sarajevo) 

Husrefa Redžića 1 

Tel. +387 33 554 955 / 995 

Fax +387 33 554 996 

Laktaši 

Karađorđeva bb 

Tel. +387 51 535 290 

Fax +387 51 535 291 

Livno 

Želimira Župana bb / Sinjska bb 

Tel. +387 34 208 280 

Fax +387 34 208 288

Contact Addresses 71 

Ljubuški 

Kralja Zvonimira bb 

Tel. +387 39 835 720 

Fax +387 39 835 722 

Sokolac 

Glasinačka 1 

Tel. +387 57 400 310 

Fax +387 57 400 312 

Zvornik 

Svetog Save 1 

Tel. +387 56 232 270 

Fax +387 56 232 274 

Mostar 

Biskupa Čule bb 

Tel. +387 36 449 720 

Fax +387 36 449 729 

Srebrenik 

Maršala Tita 40 

Tel. +387 35 646 150 

Fax +387 35 646 151 

Mostar 

Braće Fejića bb 

Tel. +387 36 502 050 

Fax +387 36 502 051 

Nova Bila 

Nova Bila bb 

Tel. +387 30 708 740 / 741 

Fax +387 30 708 743 

Novo Sarajevo 

Topal Osman paše 26 

Tel. +387 33 710 705 

Fax +387 33 717 497 

Kreditni Odiel 

Topal Osman paše 32b 

Tel. +387 33 614 401 

Fax +387 33 721 149 

Otoka (Sarajevo) 

TC Otoka - Merkur 

Gradačačka 1 

Tel. +387 33 716 485 / 486 

Fax +387 33 716 487 

Šamac 

Kralja Aleksandra 

Karađorđevića 65 

Tel. +387 54 621 590 

Fax +387 54 621 590 

Travnik 

Bosanska bb 

Tel. +387 30 510 510 / 512 

Fax +387 30 510 522 

Trebinje 

Kralja Petra I Oslobodioca 33 

Tel. +387 59 274 160 

Fax +387 59 274 161 

Tuzla 

Džafer Mahala 29 

Tel. +387 35 301 200 

Fax +387 35 258 340 

Tuzla 

Turalibegova 48 

Tel. +387 35 319 800 

Fax +387 35 319 800 

Pale 

Milana Simovića bb 

Tel. +387 57 202 140 

Fax +387 57 202 181 

Velika Kladuša 

Kulište 2 

Tel. +387 37 776 510 

Fax +387 37 776 518 

Posušje 

Fra Grge Martića bb 

Tel. +387 39 685 020 

Fax +387 39 685 021 

Zavidovići 

8. Marta bb 

Tel. +387 32 868 530 

Fax +387 32 868 531 

Prijedor 

Svetosavska 12 

Tel. +387 52 243 666 

Fax +387 52 243 635 

Zenica 

Ugao Maršala Tita i Islambegovića put 

Tel. +387 32 449 960 / 961 

Fax +387 32 449 964 

Sarajevo 

Muvekita 1 

Tel. +387 33 561 970 

Fax +387 33 561 978 

Živinice 

Alije Izetbegovića 10 

Tel. +387 35 743 150 

Fax +387 35 743155

Annual Report 2008 - ProCredit Bank

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