Annual Report 2010 - ProCredit Bank

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Annual Report 2010
we serve operate in a wide range of sectors, and
their exposure to global market fluctuations is
very limited. Moreover, the vast majority of our
credit exposures are relatively small. During
2010, loans under EUR 30,000 accounted for
53.3% of the total outstanding portfolio, and
the average amount outstanding was EUR 6189,
while the ten largest exposures accounted for
only 8.8% of the portfolio.
As the vast majority of the bank’s loans are repayable
in monthly instalments, a borrower’s
failure to meet a payment deadline is treated as
an initial sign of potential default and draws an
immediate response from the bank. When a payment
of interest or principal is overdue by more
than 30 days, the loan in question is assigned
to the portfolio at risk (PAR>30), which serves as
the key indicator of classical credit risk.
In 2010 the bank’s overall PAR>30 climbed from
3.29% at the beginning of the year to 4.87%
of the gross loan portfolio as of year-end. This
deterioration was largely attributable to the
economic recession, but also due to the government’s
decision to increase the VAT, which
dampened consumption and thus negatively
affected the business sector. The arrears were
concentrated primarily in the very small business
and private individual loan segments, with
the former category representing a significant
part of our portfolio. It should be noted that the
quality of ProCredit Bank’s loan portfolio is better
than the average for the Romania banking
sector as a whole, measured in terms of loans
classified as doubtful and loss relative to total
loan portfolio. 11
One of the ways in which ProCredit Bank has met
the challenge to portfolio quality posed by the financial
crisis is to offer loan restructuring to those
clients that are judged to have the potential to regain
stability. Restructurings follow a thorough
analysis of each client’s changed payment capacity.
The decision to restructure a credit exposure
is always taken by a credit committee and aims at
full recovery. As of end-2010, the total volume of
restructured loans in the “watch” category came
to EUR 11.2 million, with EUR 3.6 million migrating
to the “impaired” category.
ProCredit Bank Romania takes a conservative
approach to loan loss provisioning. Impairment
allowances for impaired individually significant
exposures are calculated on the basis of individual
assessment. For all unimpaired credit
exposures, portfolio-based allowances for impairment
are made. At the end of the year the
coverage ratio (loan loss provisions as a percentage
of PAR>30) stood at 93.6%, with provisions
accounting for 4.56% of the total loan portfolio
by year-end.
Loans considered to be irrecoverable are consistently
written off. Nonetheless, recovery efforts
continue even after a loan has been written off,
and collateral collection is rigorously enforced.
In 2010 net write-offs totalled EUR 3.1 million, or
1.73% of the gross loan portfolio.
Counterparty and Issuer
Risk Management
Counterparty and issuer risks evolve especially
from the bank’s need to invest excess liquidity or
to conclude foreign exchange transactions.
The risk of incurring losses caused by the unwillingness
or inability of a financial counterparty
or issuer to fulfil its obligations is managed according
to the ProCredit Group Counterparty Risk
Management Policy, which defines the counterparty
selection process and limits the size of
exposures, and according to the Group Treasury
Policy, which specifies the set of permissible
transactions and the rules for their processing.
As a matter of principle, only large international
banks and local banks with a good reputation and
financial standing are eligible counterparties. No
exposure to a financial counterparty may be assumed
unless a limit on the size and tenor has
been approved for the respective counterparty.
Country Risk Management
Given ProCredit Bank’s focus on lending to businesses
in the local market, it does not normally enter
into cross-border transactions, and therefore,
its exposure to country risk is limited. However,
the bank has several Nostro accounts abroad and