Annual Report 2010 - ProCredit Bank

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54 Annual Report 2010 J) Sale and repurchase agreements Securities purchased under agreements to resell (‘reverse repos’) are recorded as Cash and balances with Central Bank. Reverse repos are included in cash and cash equivalents if they have a maturity less than three months from the date of acquisition. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. K) Impairment of financial assets carried at amortized cost The Group assesses at each balance sheet date whether there is objective 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 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. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: • Delinquency in contractual payments of principal or interest; • Cash flow difficulties experienced by the borrower (for example, 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; and • Downgrading below investment grade level. are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Group and historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such 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 in impairment charge for credit losses. The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general, the periods used vary between three months and 12 months; in exceptional cases, longer periods are warranted. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists 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. 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. 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, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics L) Impairment of financial assets classified as available for sale The Group assesses at each date of the consolidated statement of financial position whether there is objective evidence that a financial asset or a group of 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 objective evidence of impairment resulting in the recognition of an impairment loss. 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 consolidated income statement. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated 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 consolidated income statement. M) Intangible assets Acquired computer software licences are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized on the basis of the expected useful lives and the period licences are issued for. Software has a maximum expected useful life of 5 years. Cost associated with developing or maintaining computer software programs are recognized as an expense as incurred.
Financial Statements 55 N) Property and equipment (b) A group company is the lessor Premises are stated at historical cost less accumulated depreciation and provision for impairment, where required. Equipment is stated at cost, less accumulated depreciation and provision for impairment, where required. As at 31 December 2008 the Group performed a revaluation of its Head Office building in accordance with IAS 16. The valuation was performed by an independent valuer. The building value was determined by the valuer using the Comparative Market Price Method. The Group has recorded in revaluation reserves within Other comprehensive income the amount of RSD 579,995 thousand, net of related deferred tax. In 2009 the Group changed accounting policy and all premises are stated at historical cost less accumulated depreciation and provision for impairment, where required (Note 2Y). Historical cost includes expenditure that is directly attributable to acquisition of the items. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to other operating expenses during the financial period in which they are incurred. Depreciation of fixed assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: • Buildings – 40 years, • Leasehold improvements – shortest of 10 years or leasehold contract duration, • Motor vehicles – 5 years, • Furniture – 10 years, • Computers – 5 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating expenses in the income statement. O) Impairment of non-financial assets Assets that are subject to amortization and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized 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). P) Leases (a) A group company is the lessee Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The leases entered into by the Group are primarily operating leases. The total payments made under operating leases are charged to other operating expenses in the income statement on a straightline 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. When assets are held subject to a finance lease, the present value of the lease payments is recognized as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Q) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than a three-month maturity from the date of acquisition, including cash and non-restricted balances with Central Bank, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities. R) Provisions Provisions for legal claims are recognized when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. S) Financial guarantee contracts 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, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortization calculated to recognize in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. Any increase in the liability relating to guarantees is taken to the income statement under other operating expenses. T) Employee benefits (a) Pension obligations The Group operates a defined contribution pension plan. The Group companies pay contributions to publicly administered pension insurance plans on a mandatory basis. The Group has no further payment obligations once the contributions have been paid. The
Page 1 and 2:
Annual Report 2010
Page 3 and 4: Contents 3 Mission Statement 4 Lett
Page 5 and 6: Letter from the Board of Directors
Page 7 and 8: The Bank and its Shareholders 7 Com
Page 9 and 10: Special Feature 9 of life, ProCredi
Page 11 and 12: Management Business Review 11 Polit
Page 13 and 14: Management Business Review 13
Page 15 and 16: Management Business Review 15 the b
Page 17 and 18: Management Business Review 17 Domes
Page 19 and 20: Management Business Review 19 partn
Page 21 and 22: Risk Management 21 Credit Risk Mana
Page 23 and 24: Risk Management 23 bia, like the ot
Page 25 and 26: Risk Management 25 In 2010 the bank
Page 27 and 28: Branch Network 27 tegic, often dens
Page 29 and 30: Organisation, Staff and Staff Devel
Page 31 and 32: Business Ethics and Environmental S
Page 33 and 34: The ProCredit Group: Responsible Ne
Page 35 and 36: The ProCredit Group: Responsible Ne
Page 37 and 38: ProCredit in Eastern Europe 37 Bela
Page 39 and 40: ProCredit in Eastern Europe 39 Name
Page 41 and 42: Our Clients 41 Katalin Muzlai, Catt
Page 43 and 44: Our Clients 43 Aleksandra Zoric Krz
Page 45 and 46: Financial Statements 45
Page 47 and 48: Financial Statements 47
Page 49 and 50: Financial Statements 49 Consolidate
Page 51 and 52: Financial Statements 51 Group Cash-
Page 53: Financial Statements 53 Gains and l
Page 57 and 58: Financial Statements 57 Y) Comparat
Page 59 and 60: Financial Statements 59 Table below
Page 61 and 62: Financial Statements 61 Individual
Page 63 and 64: Financial Statements 63 2010 2009 I
Page 65 and 66: Financial Statements 65 (b) Loans a
Page 67 and 68: Financial Statements 67 2010 2009 P
Page 69 and 70: Financial Statements 69 31 December
Page 71 and 72: Financial Statements 71 Assessment
Page 73 and 74: Financial Statements 73 Subordinate
Page 75 and 76: Financial Statements 75 6. Net fee
Page 77 and 78: Financial Statements 77 Loans and a
Page 79 and 80: Financial Statements 79 22. Other a
Page 81 and 82: Financial Statements 81 27. Subordi
Page 83 and 84: Financial Statements 83 At 31 Decem
Page 85 and 86: Contact Addresses 85 Sabac 1 Cara D
Page 87: Contact Addresses 87
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Annual Report 2010 - ProCredit Bank

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