Annual Report 2010 - ProCredit Bank

Management Business Review 19
partners IFC, EFSE and KfW. ProCredit Holding’s
deposit exposure remained at the previous year’s
level of EUR 25 million.
shortfalls, as the current account deficit is expected
to remain relatively high, requiring significant
capital inflows to maintain external balance.
Total operating income for the year was RSD 4.9
billion (EUR 46.2 million), of which net interest
income contributed 93.8%. Compared to the previous
year, interest income decreased by 9.5%
to RSD 7.3 billion (EUR 69.3 million). This was a
consequence of the bank’s decision to introduce
a minimum loan size of EUR 2,000, which meant
discontinuing our lending operations in the
smallest loan size range, where interest income
was highest but operational expenses and risk
were also highest. Interest expenses decreased
by 21.2%, reflecting the success of the bank’s efforts
to access less expensive sources of funds.
The NBS has already responded to rising inflation
by tightening monetary policy – raising reference
interest rates and mandatory reserve requirements
– and will continue to pursue this course
in 2011. GDP growth is projected at 3%, 11 while a
budget deficit of about 4% of GDP is forecast.
The slow progress of growth-oriented structural
reforms is an important issue for the authorities.
With an eye to elections due to be held in 2012,
the government’s short-term plans are focused
on restructuring the public utilities and on fiscal
stabilisation.
Net fee and commission income, including the
trading result, slightly decreased to RSD 1.2 billion
(EUR 11.5 million). The operating result before
tax amounted to RSD 506.3 billion (EUR 4.8
million), 41.8% short of the 2009 figure.
Operating expenses increased by 1% to RSD 4.4
billion (EUR 41.4 million) compared to the previous
year, but this picture was slightly distorted by
the one-time reorganisation expenses incurred in
2010. Without these costs, the decrease in operating
expenses would have been more significant.
The full effect of increased cost awareness among
staff, coupled with the network reorganisation
and optimisation undertaken in 2010, is expected
to be reflected in cost savings in 2011. The costincome
ratio rose from 71.3% in 2009 to 74.4%.
The bank ended 2010 with a net profit of RSD
445.2 million (EUR 4.2 million), which, although
44.9% down on the previous year’s result,
nonetheless meant a sustainable return on equity
of 5.17%. Shareholders’ equity remains the
strong foundation on which the bank’s stability
rests and its capital adequacy remained high at
17.31%, well above the local requirement of 12%.
Outlook
The banking sector is still well capitalised, and
should be able to absorb even a protracted corporate
restructuring process. Many banks are expected
to reorganise their processes: given that by the
end of 2011 banks will be obligated to implement
Basel II-compliant policies and procedures, risk
management processes will be more comprehensive
and demanding, and more stringent capital
requirements will have to be met.
As ProCredit Bank has already completed its reorganisation,
it will be in a strong position to take advantage
of market opportunities and increase business
volumes while remaining within the defined
risk limits. Our strategy for 2011 is geared towards
increasing market share in the Small business segment
by offering a wide range of services, including
financing, liquidity management, documentary
business and transaction processing. Our aim is
to be the leading bank for sustainable, growing
enterprises. At the same time, we will continue to
promote a culture of savings, emphasising the clarity,
simplicity and security of our savings products.
And in our transaction business, the focus will be
on efficiency, convenience and the appropriate use
of innovative technology. The bank is aware that it
will need to continually adapt its business to fluctuating
market conditions in order to achieve satisfactory
financial performance.
In 2011 Serbia is likely to face two main macroeconomic
challenges: inflation, which rose above
the target level in the second half of 2010 and is
expected to remain high; and external financing
11
Republic of Serbia: Sixth review under the Stand-by
Agreement, www.imf.org