Annual Report 2010 - ProCredit Bank

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Annual Report 2010
in the given risk class (calculated provisions), as well as the sum of
individual impairments for clients with provisions at the individual
level. In case of provisions at the portfolio level, risk weight defined
by this document for each risk class is applied.
With respect to off-balance sheet items the Bank does not have provisions
for liabilities, pursuant to internal methodology, but solely
equity provisions on the basis of criteria defined by the National
Bank of Serbia.
On the occasion of loan approval, the loan will according to PCB
classification be classified in class I (loan is not in arrears on the
occasion of approval). Credit rules and Credit risk management
policy allow lending exclusively to clients with good business results
who satisfy strict eligibility criteria defined by the Bank and
its shareholders, ensuring thus ex-ante rigid and prudent credit
risk assessment for all clients.
All balance sheet items, which should according to the general
rules change the risk class in respect of the number of days in arrears,
will not be reclassified if the amount in arrears is less than
EUR 2.00 (31 December 2010:1 EUR = 105.4982 RSD).
Group /individual provisioning
With regards to group provisioning, provisions are calculated by
applying general weight for internal risk class for the respective client
and related parties with the respect of contamination principle
for the outstanding amount, while in case of individual provisions
the individual provisioning amount is specified for the client who
meets the prescribed criteria.
Group provisioning
On a group basis loans are classified in specific internal risk classes
for the party, according to the number of days in arrears, and the provisions
are formed by applying general weight for a certain risk class
of the party onto the basis, which is defined hereinafter. General
weight is defined by internal methodology based on the migration
analysis which represents historical development of the portfolio on
the basis of which weights that present likelihood for a certain party
to be in the status of liability non-settlement are defined in compliance
with the internal policy. General provisioning weight in the
preceding period and the equivalent of the Bank’s average historical
losses is the weight in use for a large number of parties, namely it is
defined as average volume at the portfolio level.
Rules for calculation of the provisioning basis
Provisions for losses are pursuant to the internal policy allocated
for loans, credit cards and authorized current account overdrafts,
bill of exchange protests, private individual account fees, account
transaction fees, i.e. for balance sheet assets of the bank exposed
to credit risk.
The provisioning basis includes:
• Principal amount undue
• Due principal and interest, booked penalty interest
• Authorized current account overdraft – used portion of the approved
limit (receivables on the balance sheet), as well as unauthorized
overdraft amount
• Credit cards – used portion of the approved limit (receivables on
the balance sheet), as well as unauthorized overdraft amount
• Receivables on the balance sheet originating from off-balance
sheet assets, bill of exchange protests and paid letters of credit
• Account transaction fees, and private individual account fees
Receivables as the basis for calculation of provisions against loan
losses are reduced by the deposit amount.
Rules for classification
Classification of the party/client relies on the following principles:
• The principle of the number of days in arrears per client’s party
• Contamination principle, i.e. the party/client and all parties of
related persons are monitored, and then all parties are given the
lowest risk class a party has. If the client can be found in more
than one group of related parties, the client will have the lowest
class a party in any one of the groups of related parties has, but
will not transfer this class to the party which is not in the group in
which the party on the basis of which the relevant party has been
allocated a lower class is located (e.g. A related to B, and A related
to C, A will therefore define the class B, but B will not define the
class C in cases when A has the worst class among all 3 clients).
• The portfolio of reprogrammed loans has a classification that
differs from the rest of the portfolio. The breakdown of reprogrammed
loans includes following categories: Standard,
Watch and Impaired, depending on the criteria defined by a
special document Rules for reprogrammed credit exposure. A
reprogrammed loan from the category Watch (a loan in arrears
over 30 days at the moment of reprogramming) will have a different
risk class compared to the class defined as standard for
the rest of the portfolio. Classification of the reprogrammed
portfolio is a part of the document Procedure for internal classification
and provisioning.
• Credit cards and fees for transaction accounts and private individual
accounts will not exert impact on reclassification of other
clients’ parties from the viewpoint of the rule for related parties
if the card/overdraft/fee claim is less than or equal to EUR
1,000 (31 December 2010: 1 EUR = 105.4982 RSD), because
of their material insignificance as regards the total portfolio.
These parties will have their class established according to the
number of days in arrears on the classification date. Therefore,
if there is a legal entity borrower in the Bank, and the owner as
related party is using a credit card in the amount of up to EUR
1,000, credit card default will not have impact on reclassification
of credit parties disbursed to the legal entity.
Provisioning weights:
General/group classification Party class Provisioning Provisioning
weight 2010 weight 2009
No repayment arrears or arrears up to 30 days I 1.00% 1.00%
Reprogrammed loan – Standard, arrears up to 30 days Standard 3.50%
Reprogrammed loan – Watch, arrears up to 30 days Watch 12.00% 7.00%
Reprogrammed impaired – arrears up to 30 days Impaired 25% 25%
Arrears between 31 and 90 days II 55% 45%
Arrears between 91 and 180 days III 70% 60%
Arrears between 181 and 360 days and terminated agreements IV 100% 100%
Individual provisioning Impairment Individually Individually
determined determined