CONTENTS ANNUAL REPORT

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2 CONTENTS Pages 1. Message from Chairman of the Board of Directors 3 2. Corporate Information 6 6. Banking Services 8 4. Organization Chart 9 5. Report of the independent auditors Balance sheet Income statement Statement of changes in equity Statement of cash flows ANNUAL REPORT

3 Message from Chairman We have celebrated the 25th anniversary of CCB in operating banking business in Cambodia. We have grown significantly from our humble beginnings and will continue to develop ourselves to help boost the bilateral trade and investment between our two countries. This is in line with our aspirations of doing business in Cambodia. As part of its new international business strategy, SCB is focusing on strengthening its presence in the CLMV countries. Towards fulfilment of this objective, the bank and CCB, which is 100% owned by SCB, will focus on and support both Thai companies investing in Cambodia and Cambodian companies looking for business opportunities with Thai. We have one of the largest branch network in Thailand and a growing overseas network to help our clients. We established our branch in HCMC in March 2016 and we hope that Myanmar government will also give us an opportunity. In the meantime we continue to support both Thai and Myanmar companies from Thailand and Singapore. CCB are fully committed to promoting the Trade and Investment relationship between the two countries through our continuing initiatives such as internet banking and cash management solutions. As our philosophy to be admired partner with our clients, we continue to develop better solutions to serve our clients operation efficiency. We would like to express the Board s gratitude to the management and staff for their passion and commitment in driving CCB to grow sustainably and strongly together with Cambodian economy. Chairman of The Board of Directors Mr. Nabhengbhasang Krishnamra ANNUAL REPORT

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6 Corporate information Bank Registration No Registered office Shareholder Cambodian Commercial Bank Co.425/98E 26 Monivong Blvd., Sangkat Phsar Thmey II, Khan Daun Penh, Phnom Penh, Kingdom of Cambodia Siam Commercial Bank PCL, Thailand Board of Directors Mr. Na Bhengbhasang Krishnamra - Chairman Mr. Kamalkant Ishwarlal Agarwal - Director Mr. Aphisak Kiewkarnkha - Director Mr. Yothin Pibulkasetkij - Independent Director Mr. Permpoon Krairiksh - Independent Director Mr. Patiphan Lerdprasertsiri - Director Mrs. Pachana Rujirek - Director & Secretary Executive Committee Mr. Na Bhengbhasang Krishnamra - Chairman Mr. Kamalkant Ishwarlal Agarwal - Director Mr. Aphisak Kiewkarnkha - Director Mr. Patiphan Lerdprasertsiri - Director Mrs. Pachana Rujirek - Director & Secretary Audit Committee Mr. Yothin Pibulkasetkij - Chairman Mr. Patiphan Lerdprasertsiri - Member Risk Management Committee Mr. Permpoon Krairiksh - Chairman Mr. Aphisak Kiewkarnkha - Member Mrs. Pachana Rujirek - Member Mrs. Dong Dihamonika - Member ANNUAL REPORT

7 Corporate information (continued) Assets and Liabilities Management Committee (ALCO) Mr. Aphisak Kiewkarnkha - Member of BOD Mrs. Pachana Rujirek - Chairman Mr. Roeung Thaibun - Member Mr. Wichai Onsri - Member Mrs. Dong Dihamonika - Member Mr. Ty Darith - Member Mr. Sam Vanden - Member Mr. Sin Sophal - Member & Secretary Management team Mrs. Pachana Rujirek - Director & General Manager Mr. Roeung Thaibun - Deputy General Manager Mr. Wichai Onsri - Phnom Penh Branch Manager & Head of Operation Mrs. You Panhavy - Operation Support & IT Manager Mrs. Dong Dihamonika - Risk Management & Compliance Manager Ms. Chea Sophorn - Internal Audit Manager Mr. Ty Darith - Finance Manager Mr. Bou Darith - Administration Manager Mr. Sam Vanden - Relationship Manager Ms. Chamroeun Socheata - Relationship Manager Mr. Bun Chanpiworth - Relationship Manager Mr. Chou Chhin - Battambang Branch Manager Mr. Suriyah Termlertmanuswong - Siem Reap Branch Manager Mr. Nuon Sophy - Sihanoukville Branch Manager Auditor KPMG Cambodia Ltd ANNUAL REPORT

8 Banking Services We offer a wide range of high quality services such as: Deposit Accounts (Riel, USD or Baht) - Current Account (Cheque Book) (Riel, USD or Baht) - Saving Account (Riel, USD or Baht) - Term Deposit Accounts (Riel, USD or Baht) Cashier Cheque Service (Riel & USD) International Trade Services - Letter of Credit - Bills Collection Money Gram: The fast, safe way to send and receive money worldwide. Remittance Services (Swift System) Our bank constantly upgrades its services to meet advanced international competitive standards. Through our principle shareholder SCB in Thailand with its worldwide network of branches and correspondent banks and through our owned correspondent banks, we are able to offer up to date international banking services. Foreign Exchange and Credit Card Disbursement and Merchant Services We purchase Bank notes at competitive exchange rates. Credit cards disbursement merchant applicable are Visa and Master cards. ATM Machine Internet Banking Credit Facilities Short, Medium and long terms loans for individual and corporate clients. Our credit facilities offered include letter of guarantee. ANNUAL REPORT

9 Organization Chart of CCB Board of Directors Audit Committee Director & General Magager Risk Committee Internal Audit Compliance Secretary Risk ALCO Committee Appraisal Committee RM Deputy General Manager Phnom Penh Branch Manager Head of Operation RM Credit Analyst Siem Reap Branch Magager Operation Support and IT FM Sales Business Credit Operation Control Battambong Branch Magager ALM TB Sales & Implementation Legal & Credit Operation HR & Admin Sihanouk Ville Branch Magager Finance & Accounting ANNUAL REPORT

10 Report of the Independent Auditors To the shareholder Opinion We have audited the financial statements of ( the Bank ), which comprise the balance sheet as at 31 December 2016, the income statement, the statements of changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information as set out on pages 14 to 67. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with Cambodian Accounting Standards and the guidelines of the National Bank of Cambodia relating to the preparation and presentation of financial statements. Basis for Opinion We conducted our audit in accordance with Cambodian International Standards on Auditing ( CISAs ). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the financial statements in Cambodia, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. The other information obtained at ANNUAL REPORT

11 the date of this auditors report is the information included in the Report of the Directors as set out on pages 1 to 4, and the annual report which is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditors report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements. Management is responsible for the preparation and fair presentation of the financial statements in accordance with Cambodian Accounting Standards and the guidelines of the National Bank of Cambodia relating to the preparation and presentation of financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Bank s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank s financial reporting process. ANNUAL REPORT

12 Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are ANNUAL REPORT

13 required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Bank to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. For KPMG Cambodia Ltd Lim Chew Teng Partner Phnom Penh, Kingdom of Cambodia 27 March 2017 ANNUAL REPORT

14 Balance sheet As at 31 December 2016 Note ASSETS Cash and bank balances 5 64,720, ,275,464 56,637, ,383,329 Deposits and placements with banks 6 47,052, ,951,665 62,352, ,528,261 Loans and advances - net 7 80,355, ,394,637 70,172, ,196,807 Other assets 8 1,453,336 5,867,117 1,307,715 5,296,246 Statutory deposits 9 25,772, ,042,751 25,322, ,554,999 Intangible assets ,223 3,020,576 93, ,622 Property and equipment 11 2,366,008 9,551,574 2,303,748 9,330,179 Deferred tax assets, net 14(a) 179, , ,300 1,025,865 TOTAL ASSETS 222,647, ,828, ,442, ,693,308 LIABILITIES AND SHAREHOLDER S EQUITY Liabilities Deposits from customers ,376, ,366, ,750, ,389,902 Other liabilities ,141 2,790, ,718 2,412,658 Provision for income tax 14(b) 1,001,649 4,043, ,810 3,178,481 Provision for Post-employment benefits ,256 2,637, ,010 2,381,440 Total liabilities 160,722, ,837, ,719, ,362,481 Shareholder s equity Share capital 16 57,500, ,127,500 40,000, ,000,000 Retained earnings 4,424,988 17,863,677 8,723,661 35,330,827 Total shareholder s equity 61,924, ,991,177 48,723, ,330,827 TOTAL LIABILITIES AND SHAREHOLDER S EQUITY 222,647, ,828, ,442, ,693,308 The accompanying notes form an integral part of these financial statements. ANNUAL REPORT

15 Income statement Note Interest income 17 5,733,966 23,148,021 4,005,946 16,224,081 Interest expense 18 (448,822) (1,811,894) (304,562) (1,233,476) Net interest income 5,285,144 21,336,127 3,701,384 14,990,605 Other operating income ,308 1,624, ,272 1,835,752 Net fee and commission income 20 1,745,040 7,044,726 1,826,913 7,398,998 General and administrative expenses 21 (2,028,282) (8,188,174) (1,981,131) (8,023,581) Operating income 5,404,210 21,816,796 4,000,438 16,201,774 Allowance for bad and doubtful loans 7 (106,900) (431,555) (228,258) (924,445) Profit before income tax 5,297,310 21,385,241 3,772,180 15,277,329 Income tax expense 14(c) (1,095,983) (4,424,483) (729,937) (2,956,245) Net profit for the year 4,201,327 16,960,758 3,042,243 12,321,084 The accompanying notes form an integral part of these financial statements. ANNUAL REPORT

16 Statement of changes in equity Share capital Additional capital contribution Retained earnings Total At 1 January ,000,000 15,000,000 5,681,418 45,681,418 Transfers 15,000,000 (15,000,000) - - Net profit for the year - - 3,042,243 3,042,243 At 31 December ,000,000-8,723,661 48,723,661 ( equivalents ) 162,000,000-35,330, ,330,827 At 1 January ,000,000 8,723,661 48,723,661 Additional share capital 9,000, ,000,000 Transfers 8,500,000 - (8,500,000) - Net profit for the year - - 4,201,327 4,201,327 At 31 December ,500,000-4,424,988 61,924,988 ( equivalents ) 232,127,500-17,863, ,991,177 The accompanying notes form an integral part of these financial statements. ANNUAL REPORT

17 Statement of cash flows Note Cash flows from operating activities Net cash used in operating activities Cash flows from investing activities 22 (18,604,203) (75,105,168) (18,080,680) (73,226,754) Statuary deposit on capital guarantee (1,750,000) (7,064,750) - - Purchase of property and equipment (165,704) (668,947) (137,183) (555,591) Purchase of intangible assets (697,726) (2,816,720) (99,728) (403,899) Net cash used in investing activities (2,613,430) (10,550,417) (236,911) (959,490) Cash flows from financing activities Proceed from issuance of share capital 9,000,000 36,333, Net cash generated from financing activities 9,000,000 36,333, Net decrease in cash and cash equivalents (12,217,633) (49,322,584) (18,317,591) (74,186,244) Cash and cash equivalents at 1 January 113,990, ,179, ,308, ,847,834 Cash and cash equivalents at 31 December ,772, ,857, ,990, ,661,590 Significant non-cash transactions: During the year there were the following significant non-cash transactions: Increase in share capital as a result of. Transfer from the retained earnings 8,500,000 34,314, Transfer from additional capital contribution ,000,000 60,750,000 The accompanying notes form an integral part of these financial statements. ANNUAL REPORT

18 1. Reporting entity Cambodian Commercial Bank ( the Bank ) was incorporated in the Kingdom of Cambodia on 1 July 1991 under Registration No. Co. 425/98E and commenced operations on the same date. The Bank is a wholly owned subsidiary of Siam Commercial Bank PCL, a bank incorporated in Thailand. The principal activities of the Bank comprise the operations of core banking business and the provision of related financial services through its head office and other branches in the Kingdom of Cambodia. The Bank holds a commercial banking licence which was renewed for an indefinite period on 28 November The Bank has total four branches located at Phnom Penh, Battambang, Siem Reap and Sihanouk Ville. There were no changes in the nature of these principal activities during the year. The registered office of the Bank is currently located at No. 26, Monivong Blvd., Phnom Penh, Kingdom of Cambodia. The Bank had 81 employees as at 31 December 2016 (31 December 2015: 95 employees). 2. Basis of preparation (a) Statement of compliance The financial statements have been prepared in accordance with Cambodian Accounting Standards ( CAS ) and the guidelines of the National Bank of Cambodia ( NBC ) relating to the preparation and presentation of financial statements. The financial statements of the Bank were authorised for issue by the Board of Directors on 27 March ANNUAL REPORT

19 2. Basis of preparation (continued) (b) Basis of measurement The financial statements of the Bank have been prepared on the historical cost basis. (c) Functional and presentation currency The national currency of Cambodia is the Khmer Riel ( KHR ). However as the Bank transacts and maintains its accounting records primarily in United States Dollars ( ), management has determined the to be the Bank s functional and presentation currency as it reflects the economic substance of the underlying events and circumstances of the Bank. Transactions in foreign currencies are translated into at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in currencies other than at the reporting date are translated into at the rates of exchange ruling at that date. Exchange differences arising on translation are recognised in the income statement. The financial statements are presented in, which is the Bank s functional currency. All amounts have been rounded to the nearest dollars, unless otherwise indicated. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, and income and expenses. Actual results may differ from these estimates. ANNUAL REPORT

20 2. Basis of preparation (continued) (d) Use of estimates and judgements (continued) Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future periods affected. Key accounting estimates and judgements applied in the preparation of the financial statements include estimates of recoverable amount for loans and advances which have a separate accounting policy stated in Note 3(d). 3. Significant accounting policies The significant 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. (a) Financial instruments The Bank s financial assets and liabilities include cash and cash equivalents, originated loans and receivables, deposits, and other receivables and payables. The accounting policies for the recognition and measurement of these items are disclosed in the respective accounting policies. (b) Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances, unrestricted cash balances with the NBC, demand deposits with other financial institutions, and short-term highly liquid investments with original maturities of three months or less when purchased, and that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. ANNUAL REPORT

21 3. Significant accounting policies (continued) (c) Loans and advances Loans and advances are stated in the balance sheet at the amount of principal outstanding less any amounts written off and specific and general allowance. The adequacy of the allowance for bad and doubtful loans is evaluated monthly by management. Factors considered in evaluating the adequacy of the allowance include the size of the portfolio, previous loss experience, current economic conditions and their effect on clients, the financial situation of clients and the performance of loans in relation to contract terms. (d) Allowance for bad and doubtful loans and advances In compliance with the NBC guidelines, all loans and advances are classified according to the repayment capacity of the counterparty. This repayment capacity is assessed through past payment experience, financial condition of the borrower, business prospective and cash flow projections, borrowers ability and willingness to repay, financial environment, and quality of documentation. In addition, the Bank follows the mandatory credit classification and provisioning as required by Prakas B dated 25 February 2009 issued by the NBC. The Prakas requires commercial banks to classify their loans and advances and similar assets into five classes and the minimum mandatory level of specific provisioning is provided, depending on the classification concerned and regardless of the assets (except cash) pledged as collateral as follows: ANNUAL REPORT

22 3. Significant accounting policies (continued) (d) Allowance for bad and doubtful loans and advances (continued) Classification Number of days past due Allowance Normal/standard < 30 days 1% - General allowance Special mention 30 days 89 days 3% - Specific allowance Sub-standard 90 days 179 days 20% - Specific allowance Doubtful 180 days 359 days 50% - Specific allowance Loss 360 days 100% - Specific allowance The minimum percentage of allowance for doubtful loans and advances are to be maintained according to the assigned classifications. Where reliable information suggests that losses are likely to be more than these minimum requirements, larger allowance is made. In determining the above allowance, any collateral value other than cash deposits which has been pledged is disregarded except that, in the case of a loan classified as loss, all collateral may be utilised, at market values approved by the NBC. Recoveries on loans previously written off and reversals of previous allowances are disclosed separately together with the net movement in the allowance for bad and doubtful loans and advances in the income statement. An uncollectible loan or portion of a loan classified as bad is written off after taking into consideration the realisable value of the collateral, if any, when in the judgement of the management there is no prospect of recovery. (e) Deposits and placements with banks Deposits and placements with banks are carried at cost less any allowance for uncollectible amount. ANNUAL REPORT

23 3. Significant accounting policies (continued) (f) Other assets Other assets are stated at cost less allowance for losses. (g) Statutory deposits Statutory deposits are maintained with the NBC in compliance with the Cambodian Law on Banking and Financial Institutions and are determined by defined percentages of minimum share capital and customers deposits as required by NBC. Statutory deposits are stated at cost. (h) Intangible assets Computer software license is stated at cost less accumulated amortisation and impairment losses, if any. Amortisation is recognised in the income statement on a straight line basis over their estimated useful lives of five years. (i) Property and equipment (i) Items of property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Where an item of property and equipment comprises major components having different useful lives, the components are accounted for as separate items of property and equipment. (ii) Land is not depreciated. Depreciation of property and equipment is charged to the income statement on a straight-line basis over the estimated useful lives of the individual assets at the following annual rates: ANNUAL REPORT

24 3. Significant accounting policies (continued) (i) Property and equipment (continued) Buildings 5% Furniture and equipment 20% Computer and IT equipment 20% Motor vehicles 20% (iii) Subsequent expenditure relating to an item of property and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Bank. All other subsequent expenditure is recognised as an expense in the year in which it is incurred. (iv) Gains or losses arising from the retirement or disposal of an item of property and equipment are determined as the difference between the estimated net disposal proceeds and the carrying amount of the assets and are recognised in the income statement on the date of retirement or disposal. (v) Fully depreciated property and equipment are retained in the financial statements until disposed of or written off. (j) Impairment of assets (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimate future cash flows of that asset. This does not apply to loans and advances which has a separate accounting policy stated in Note 3(d). ANNUAL REPORT

25 3. Significant accounting policies (continued) (j) Impairment of assets (continued) (i) Financial assets (continued) Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. (ii) Non-financial assets The carrying amounts of the non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less cost to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit ). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. ANNUAL REPORT

26 3. Significant accounting policies (continued) (k) Deposits from customers Deposits from customers are stated at cost. (l) Other liabilities Other liabilities are stated at their cost. (m) Provisions Provisions are recognised in the balance sheet when the Bank has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (n) Income recognition Interest income on performing loans and advances and deposits and placements with banks are recognised on a daily accruals basis. Interest on non-performing loans is recorded as interest in suspense rather than income until it is realised on a cash basis. Income from the various activities of the Bank is accrued using the following basis: ANNUAL REPORT

27 3. Significant accounting policies (continued) (n) Income recognition (continued) Loan arrangement fees and commissions on services and facilities extended to customers are recognised as income when incurred; Commitment fees and guarantee fees on a variety of services and facilities extended to customers are recognised as income when incurred; and Service charges and processing fees are recognised when the service is provided. (o) Interest expense Interest expense on deposits is recognised on an accruals basis. (p) Operating leases Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease commitments are not recognised as liabilities until the obligation to pay becomes due. (q) Post-employment benefits The Bank provides its employees with a post-employment benefit plan. An employee who has worked for the Bank for 5 years or more for full time employment or for 10 years or more for part-time employment is entitled upon resignation to a lump sum payment representing an employee s final month salary multiplied by the number of years service. An employee will receive an additional month s salary if they have worked for the Bank for 25 years or more for full time employment or for 30 years or more for part time employment. The post-employment benefits is accrued by reference to the years of services performed and the current salary level. ANNUAL REPORT

28 3. Significant accounting policies (continued) (r) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. 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 adjustments to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (s) Related parties Parties are considered to be related if the Bank has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions, or vice-versa, or where the Bank and the party are subject to common ANNUAL REPORT

29 3. Significant accounting policies (continued) (s) Related parties (continued) control or significant influence. Related parties may be individuals or corporate entities and include close family members of any individual considered to be a related party. Under the Cambodian Law on Banking and Financial Institutions, related parties include individuals who hold, directly or indirectly a minimum of 10% of the capital of the Bank or voting rights therefore, or who participates in the administration, direction, management, or the design and implementation of the internal controls of the Bank. 4. Translation of United States Dollars into Khmer Riel The financial statements are stated in the United States Dollars. The translations of the United States Dollars amounts into Khmer Riel are included solely for the compliance with the guidelines of the NBC relating to the preparation and presentation of financial statements and have been made using the prescribed official exchange rate of 1 to KHR4,037 (2015: 1 to KHR4,050) published by the NBC on 31 December These convenience translations should not be construed as representations that the United States Dollars amounts have been, could have been, or could in the future be, converted into Khmer Riel at this or any other rate of exchange. ANNUAL REPORT

30 5. Cash and bank balances Cash on hand 4,687,617 18,923,910 5,118,145 20,728,487 Bank balances in Cambodia: National Bank of Cambodia current 13,263,596 53,545,137 23,013,883 93,206,226 settlement 12,458,853 50,296,390 9,542,060 38,645,343 ACLEDA Bank Plc. 691,650 2,792, ,763 2,121,240 Bank balances outside Cambodia: Siam Commercial Bank PCL 5,363,083 21,650,766 1,790,037 7,249,650 Citi Bank N.A ,338,694 9,471,711 The Bank of Tokyo 7,917 31, ,786 1,542,183 Standard Chartered Bank 82, ,164 86, ,030 Wells Fargo 28,165, ,702,945 13,844,064 56,068,459 64,720, ,275,464 56,637, ,383,329 Cash and bank balances are analysed by currencies as follows: US Dollars 64,075, ,671,207 55,297, ,955,430 Khmer Riels 85, , ,588 1,399,631 Thai Baht 559,133 2,257, ,467 4,027,591 Others ,720, ,275,464 56,637, ,383,329 ANNUAL REPORT

31 6. Deposits and placements with banks In Cambodia: National Bank of Cambodia 22,000,000 88,814,000 42,300, ,315,000 ACLEDA B ank Plc. 20,000,000 80,740,000 20,000,000 81,000,000 RHB Indochina Bank Limited 5,000,000 20,185, Outside Cambodia: Siam Commercial Bank PCL 52, ,665 52, ,261 47,052, ,951,665 62,352, ,528,261 The deposits and placements with banks are analysed as follows: (a) By maturity: Within one month 14,052,679 56,730,665 51,852, ,003,261 2 to 3 months 23,000,000 92,851,000 5,500,000 22,275,000 4 to 6 months 10,000,000 40,370,000 5,000,000 20,250,000 47,052, ,951,665 62,352, ,528,261 (b) By currency: US Dollars 47,052, ,951,665 62,352, ,528,261 (c) By interest rate (per annum): National Bank of Cambodia 0.67% % 0.15% % ACLEDA Bank Plc. 1.25% % 1.75% % RHB Indochina Bank Limited 1.30% - Siam Commercial Bank PCL 0.05% 0.05% ANNUAL REPORT

32 7. Loans and advances - net Overdrafts 18,047,560 72,858,000 16,356,294 66,242,991 Term loans 42,385, ,110,792 41,024, ,147,949 Trust receipts 19,458,089 78,552,305 12,903,737 52,260,135 Staff loans: 1,279,801 5,166, ,644 2,416,408 Gross loans and advances 81,171, ,687,654 70,880, ,067,483 Allowance for bad and doubtful loans and advances (815,709) (3,293,017) (708,809) (2,870,676) Loans and advances - net 80,355, ,394,637 70,172, ,196,807 Movement of allowance for bad and doubtful loans and advances is as follows: At 1 January 708,809 2,861, ,551 1,946,231 Additional allowance for the year General 106, , , ,445 At 31 December 815,709 3,293, ,809 2,870,676 ANNUAL REPORT

33 7. Loans and advances - net (continued) The balance of allowance for bad and doubtful loans and advances represents by: General allowance Minimum (1% of gross loans and advances) 815,709 3,293, ,809 2,870,676 All loans and advances have been individually reviewed at the reporting date and are in accordance with the NBC s provisioning guidelines. ANNUAL REPORT

34 7. Loans and advances net (continued) Loans and advances are analysed as follows: (a) By maturity: Within 1 month 600,000 2,422,200 1,810,000 7,330,500 2 to 3 months 27,645, ,603,551 14,683,973 59,470,091 4 to 6 months 11,862,919 47,890,604 12,532,640 50,757,192 7 to 12 months 18,047,560 72,858,000 16,356,294 66,242,991 More than 1 year 23,015,432 92,913,299 25,497, ,266,709 81,171, ,687,654 70,880, ,067,483 (b) By industry: Services 5,143,306 20,763,526 14,189,958 57,469,330 Agricultures 1,551,930 6,265,141 1,817,867 7,362,361 Commercial trading 64,263, ,433,142 54,196, ,495,902 Industrial business 8,932,198 36,059,283 79, ,482 Staff loans 1,279,802 5,166, ,644 2,416,408 81,171, ,687,654 70,880, ,067,483 (c) By currency: US Dollars 81,171, ,687,654 70,880, ,067,483 (d) By residency status: Residents 78,281, ,020,724 70,880, ,067,483 Non-residents 2,890,000 11,666, ,171, ,687,654 70,880, ,067,483 (e) By relationship: Related parties 633,167 2,556,095 39, ,708 Non-related parties 80,537, ,131,559 70,841, ,906,775 81,171, ,687,654 70,880, ,067,483 ANNUAL REPORT

35 7. Loans and advances net (continued) Loans and advances are analysed as follows: (continued) (f) By performance: Normal/standard loans Secured 81,171, ,687,654 62,748, ,133,401 Unsecured - - 8,131,872 32,934,082 81,171, ,687,654 70,880, ,067,483 (g) By exposure: Large exposures 32,687, ,957,714 30,465, ,385,283 Non large exposures 48,484, ,729,940 40,415, ,682,200 81,171, ,687,654 70,880, ,067,483 A large exposure is defined under NBC Prakas as the overall gross exposure of the aggregate balance of loans and advances with one single beneficiary, which exceeds 10% of the Bank s net worth. The exposure is the higher of the outstanding loans or commitments and the authorised loans or commitments. (h) By interest rate (per annum): Long-term loans 2.62% to 10.00% 2.62% to 10.00% Medium-term loans 7.00% to 10.00% 7.00% to 10.00% Overdrafts 3.31% to 12.00% 3.31% to 12.00% Trust receipts 7.00% to 10.00% 7.00% to 10.00% Staff loans 1.00% to 3.50% 1.00% to 3.50% ANNUAL REPORT

36 8. Other assets Credit card advances 715,806 2,889, ,851 3,243,447 Interest receivable 648,722 2,618, ,808 1,469,372 Advances and prepayments 84, , , ,930 Others 4,074 16,446 30, ,497 1,453,336 5,867,117 1,307,715 5,296, Statutory deposits Capital guarantee deposit (i) 5,750,000 23,212,750 4,000,000 16,200,000 Reserve requirements (ii) 20,022,294 80,830,001 21,322,222 86,354,999 25,772, ,042,751 25,322, ,554,999 The statutory deposits are maintained with the NBC in compliance with Article 5 of NBC Prakas No. B , the amounts of which are determined by defined percentages of the Bank s registered share capital and customers deposits with the Bank which are 10% and 8% to 12.5% respectively. The above statutory deposits are analysed as follows: (i) Capital guarantee deposit This is a capital guarantee deposit of 10% of the registered capital under the Article 1 of the ANNUAL REPORT

37 9. Statutory deposits (continued) (i) Capital guarantee deposit (continued) Prakas No. B on the Bank s capital guarantee dated 15 October This capital guarantee which placed with the National Bank of Cambodia in, is refundable only when the Bank ceases its operations in Cambodia. During the year, the interest earned at 1/4 LIBOR (six months). (ii) Statutory deposit on customers deposits This is a reserve requirement which fluctuates depending on the level of the Bank s customers deposits. It is maintained in compliance with the National Bank of Cambodia s Prakas No. B dated 27 September 2012 at the rates of 8% of customers deposits in KHR and 12.5% in currency other than KHR. The 4.5% of statutory deposit on customers deposits in currency other than KHR earns interest at 1/2 LIBOR (one month) while the remaining 8% and the statutory deposit on customers deposits in KHR do not earn interest. 10. Intangible asset Computer software license Cost At 1 January 133, ,112 33, ,946 Additions during the year 697,726 2,816,719 99, ,899 At 31 December 831,021 3,354, , ,845 Less: Accumulated amortisation At 1 January 40, ,702 26, ,009 Amortisation for the year 42, ,553 13,880 56,214 At 31 December 82, ,255 40, ,223 Carrying amounts As at 31 December 748,223 3,020,576 93, ,622 ANNUAL REPORT

38 11. Property and equipment 2016 Land Buildings Furniture and equipment Computer and IT equipment Motor vehicles Cost At 1 January ,474,500 3,953, , , ,545 6,500,743 26,243,499 Additions - 95,282 59,577 10, , ,947 Written off - - (31,972) (76,253) - (108,225) (436,904) Total At 31 December ,474,500 4,048, , , ,545 6,558,222 26,475,542 Less: Accumulated depreciation At 1 January ,278, , , ,797 4,196,995 16,943,269 Depreciation for the year - 57,501 10,375 26,548 9, , ,603 Written off - (31,972) (76,253) - (108,225) (436,904) At 31 December ,335, , , ,817 4,192,214 16,923,968 Carrying amounts As at 31 December ,474, ,894 85,461 86,425 6,728 2,366,008 9,551,574 ANNUAL REPORT

39 11. Property and equipment (continued) 2015 Land Buildings Furniture and equipment Computer and IT equipment Motor vehicles Cost At 1 January ,474,500 3,871, , , ,545 6,363,560 25,772,418 Additions - 81,900 23,025 32, , ,591 Total At 31 December ,474,500 3,953, , , ,545 6,500,743 26,328,009 Less: Accumulated depreciation At 1 January ,219, , , ,802 4,099,672 16,603,672 Depreciation for the year - 58,659 6,702 22,967 8,995 97, ,158 At 31 December ,278, , , ,797 4,196,995 16,997,830 Carrying amounts As at 31 December ,474, ,113 36, ,128 15,748 2,303,748 9,330,179 ANNUAL REPORT

40 11. Property and equipment (continued) Though the Bank, in substance, has full right over the land where office buildings are located, the majority of the plots of land at Phnom Penh Head Office and Sihanoukville branch are registered under the names of former directors or employees except the land plots at Battambang and Siem Reap branches which are under the Bank s name. Article 44 of the Constitution of the Kingdom of Cambodia and article 16 of the 1994 Investment Law specify that only Cambodian controlled legal entities and citizens of Cambodian nationality have the rights to own land in Cambodia. The holding of the Battambang and Siem Reap branches by the Bank, a foreign entity, is not in compliance with the Constitution of the Kingdom of Cambodia. At the present, the Bank s management is seeking further clarification and is considering changing the ownership to be fully in line with the requirements under related laws. 12. Deposits from customers Current accounts 29,042, ,243,975 19,334,396 78,304,304 Savings deposits 111,566, ,392, ,019, ,027,169 Fixed deposits 16,795,414 67,803,086 6,548,022 26,519,489 Margin deposits (*) 972,839 3,927,352 2,849,121 11,538, ,376, ,366, ,750, ,389,902 (*) Margin deposits represent the aggregate balance of required non-interest bearing cash deposits from customers for letters of credit and guarantees. ANNUAL REPORT

41 12. Deposits from customers (continued) The deposits from customers are analysed as follows: (b) By types of customers: Domestic corporations 127,052, ,912, ,521, ,161,686 Individuals 17,943,053 72,436,105 15,070,553 61,035,740 Non-residents 13,380,740 54,018,048 11,158,636 45,192, ,376, ,366, ,750, ,389,902 (c) By currency: US Dollars 157,784, ,976, ,823, ,633,539 Khmer Riel 126, , , ,036 Thai Baht 465,880 1,880, ,303 3,249,327 (a) By maturity: Within 1 month 155,249, ,743, ,699, ,031,408 2 to 3 months 3,045,413 12,294,332 2,990,637 12,112,080 4 to 6 months 81, ,216 60, ,669 7 to 12 months ,376, ,366, ,750, ,389, ,376, ,366, ,750, ,389,902 (d) By interest rate (per annum): Savings deposits 0.10% % 0.10% Fixed deposits 1.00% % 1.00% % ANNUAL REPORT

42 13. Other liabilities Interest payable 45, ,428 14,832 60,070 Banker s cheques 127, , , ,699 Deposits in transit 8,577 34,625 1,956 7,922 Deferred income 289,146 1,167, ,056 1,401,527 Accrued for other taxes - - 7,767 31,456 Others 220, , , , ,141 2,790, ,718 2,412, Income tax (a) Deferred tax assets, net Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: Deferred tax assets 352,047 1,421, ,168 1,333,130 Deferred tax liabilities (172,407) (696,007) (75,868) (307,265) 179, , ,300 1,025,865 ANNUAL REPORT

43 14. Income tax (continued) (a) Deferred tax assets, net (continued) The movements in deferred tax assets are as follows: At 1 January 253,300 1,022, , ,102 Charge to income statement during the year (73,660) (297,365) 132, ,763 At 31 December 179, , ,300 1,025,865 (b) Provision for income tax At 1 January 784,810 3,168, ,880 2,551,014 Income tax expense 1,022,323 4,127, ,471 3,493,008 Income tax paid (805,484) (3,251,739) (707,541) (2,865,541) At 31 December 1,001,649 4,043, ,810 3,178,481 (c) Income tax expense In accordance with Cambodian Law on Taxation, the Bank has an obligation to pay corporate income tax of either the profit tax at the rate of 20% of taxable profits or the minimum tax at 1% of gross revenue, whichever is higher. Current tax expense 1,022,323 4,127, ,471 3,493,008 Deferred tax 73, ,365 (132,534) (536,763) 1,095,983 4,424, ,937 2,956,245 ANNUAL REPORT

44 14. Income tax (continued) (c) Income tax expense (continued) The reconciliation of income tax computed at the statutory tax rate to the income tax expense in the income statement is shown as follows: Profit before income tax 5,297,310 21,385,241 3,772,180 15,277,329 Income tax rate of 20% 1,059,462 4,277, ,436 3,055,466 Effect of non-deductible expenses 36, ,435 17,951 72,702 Effect of deferred tax assets previously not recognised - - (55,650) (225,383) Effect of under provision in prior year ,200 53,460 Income tax expense 1,095,983 4,424, ,937 2,956,245 The calculation of taxable income is subject to the review and approval of the tax authorities. 15. Provision for post-employment benefits Post-employment benefits 653,256 2,637, ,010 2,381,440 ANNUAL REPORT

45 15. Provision for post-employment benefits (continued) The movements in provision for post-employment benefits are as follows: At 1 January 588,010 2,373, ,832 2,445,519 Provision for the year (Note 21) 87, ,352 87, ,679 Payments made during the year (21,787) (87,954) (103,150) (417,758) At 31 December 653,256 2,637, ,010 2,381, Share capital Shares of 100 each: Registered, issued and fully paid up 575,000 shares of 100 each (2015: 400,000 shares) 57,500, ,127,500 40,000, ,000,000 ANNUAL REPORT

46 16. Share capital (continued) On 19 September 2016, the shareholder, Siam Commercial Bank, approved the plan to increase the Bank s share capital from 40,000,000 to 57,500,000, through additional capital injection of 9,000,000 and the transfer from retained earnings amounting to 8,500,000. This plan was approved by the NBC on 18 November On 29 November 2016, the Bank received the share capital injection from the shareholder amounting to 9,000,000. The amendment of the Articles of Incorporation was acknowledged by the National Bank of Cambodia on 19 October 2016 and the Ministry of Commerce ( MoC ) 1 January 2017, respectively. 17. Interest income Loans and advances 5,058,303 20,420,369 3,623,440 14,674,932 Deposits and placements with banks 675,663 2,727, ,506 1,549,149 5,733,966 23,148,021 4,005,946 16,224, Interest expense Fixed and margin deposits 105, ,505 91, ,677 Savings deposits 343,173 1,385, , , ,822 1,811, ,562 1,233,476 ANNUAL REPORT

47 19. Other operating income Net gain on foreign exchange 379,189 1,530, ,549 1,707,274 Investment income 4,950 19,983 14,256 57,737 Rental income 6,600 26,644 6,600 26,730 Other income 11,569 46,704 10,867 44, ,308 1,624, ,272 1,835, Net fee and commission income Fee and commission income: Fund transfer fees 1,552,088 6,265,779 1,580,191 6,399,774 Credit related fees 1,076,600 4,346, ,396 4,003,004 Others 190, , , ,454 2,819,592 11,382,692 2,717,588 11,006,232 Fee and commission expense: Fee and commission paid to banks 1,061,876 4,286, ,483 3,561,906 SWIFT expense 12,676 51,173 11,192 45,328 1,074,552 4,337, ,675 3,607,234 Net fee and commission income 1,745,040 7,044,726 1,826,913 7,398,998 ANNUAL REPORT

48 21. General and administrative expenses Salaries and wages 1,036,969 4,186, ,116 3,920,870 Bank license fees 116, , , ,074 Depreciation 103, ,603 97, ,158 Other tax expenses 102, ,568 38, ,463 Post-employment benefits (Note 15) 87, ,352 87, ,679 Futility expenses 86, , , ,523 Repairs and maintenance 70, ,134 58, ,548 Insurance 57, ,692 67, ,318 Legal and professional fees 48, ,159 74, ,964 Amortisation 42, ,553 13,880 56,214 Rental expenses 33, ,362 32, ,653 Telephone and communication 31, ,114 45, ,032 Travelling expenses 31, ,448 38, ,609 Public relationship expenses 29, ,172 34, ,940 Office supplies 25, ,002 31, ,077 Other short term benefits 18,500 74,685 30, ,893 Others 104, , , ,566 2,028,282 8,188,174 1,981,131 8,023,581 ANNUAL REPORT

49 22. Net cash generated from operating activities Net profit for the year 4,201,327 16,960,758 3,042,243 12,321,084 Adjustments for: Income tax expense 1,095,983 4,424, ,937 2,956,245 Depreciation and amortisation 146, , , ,372 Allowance for bad and doubtful loans and advances 106, , , ,445 Provision for postemployment benefits 87, ,352 87, ,679 5,637,430 22,758,304 4,198,969 17,005,825 Changes in: Deposits and placements with banks (5,000,000) (20,185,000) 8,000,000 32,400,000 Loans and advances (10,290,221) (41,541,622) (22,825,632) (92,443,809) Other assets (145,621) (587,872) (238,643) (966,504) Statutory deposits 1,299,928 5,247,809 (300,136) (1,215,551) Deposits from customers (9,373,871) (37,842,317) (5,810,613) (23,532,983) Other liabilities 95, ,223 (293,934) (1,190,433) Net cash used in operations (17,776,932) (71,765,475) (17,269,989) (69,943,455) Income tax paid (805,484) (3,251,739) (707,541) (2,865,541) Post-employment benefits paid (21,787) (87,954) (103,150) (417,758) Net cash used in operating activities (18,604,203) (75,105,168) (18,080,680) (73,226,754) ANNUAL REPORT

50 23. Cash and cash equivalents Cash and bank balances (Note 5) 64,720, ,275,464 56,637, ,383,329 Deposits and placements with banks (with maturities of 3 months or less) (Note 6) 37,052, ,581,665 57,352, ,278, ,772, ,857, ,990, ,661, Commitments and contingencies (a) Operations In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities with legal recourse to its customers. No material losses are anticipated from these transactions which consist of: Unutilised portion of overdrafts 22,365,440 90,289,281 20,406,706 82,647,159 Bank guarantees 30,879, ,661,801 27,442, ,143,850 Letters of credit 26,698, ,780,270 36,853, ,256,829 Foreign exchange contracts 12,641,590 51,034,099 7,914,529 32,053,842 92,584, ,765,451 92,617, ,101,680 ANNUAL REPORT

51 24. Commitments and contingencies (continued) (b) Lease commitments The Bank has no lease commitments as at 31 December 2016 (31 December 2015: Nil). (c) Taxation contingencies Taxes are subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. The application of tax laws and regulations to many types of transactions are susceptible to varying interpretations. These facts create risks of additional taxes through reassessment, fines, penalties and interest charges, which are substantially more significant in Cambodia than in other countries. 25. Significant related party transactions and balances The Bank entered into a number of significant transactions with related parties in the normal course of business. The significant related party transactions, outstanding balances at the year end and related expenses and income during the year are as follows: (a) Amounts due from holding company Siam Commercial Bank PCL Current accounts 5,363,083 21,650,766 1,790,037 7,249,650 Savings deposits 52, ,665 52, ,261 5,415,762 21,863,431 1,842,694 7,462,911 Interest income Current accounts with the Siam Commercial Bank PCL are non-interest bearing. Saving accounts earn average interest rate of 0.05% for 2016 (2015: 0.05%) per annum. ANNUAL REPORT

52 25. Significant related party transactions and balances (continued) (b) Loans and advances to Directors and key management At 1 January 39, ,192 28, ,826 Additions 638,040 2,575,767 23,171 93,842 Loans repayments (44,554) (179,864) (11,842) (47,960) Interest charged 8,076 32, ,418 Interest received (8,076) (32,604) (350) (1,418) At 31 December 633,167 2,556,095 39, ,708 Loans and advances to Directors and key management earn interest rates up to 2.00% (2015: 0.00% to 2.00%) per annum. (c) Payments to Directors and key management Salaries and short-term benefits 266,297 1,075, , ,570 Board of Directors fees 4,544 18,343 4,675 18, ,841 1,093, , ,504 ANNUAL REPORT

53 26. Financial risk management (a) Introduction and overview The Bank has exposure to the following risks from financial instruments: operational risk; credit risk; market risk; and liquidity risk. This note presents information about the Bank s exposure to each of the above risks, the Bank s objectives, policies and processes for measuring and managing risk, and the Bank s management of capital. Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Bank s risk management framework. The Board has established the Asset and Liability (ALCO), Audit and Risk Committees, which are responsible for developing and monitoring Bank risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the Board of Directors on their activities. ANNUAL REPORT

54 26. Financial risk management (continued) (a) Introduction and overview (continued) The Bank s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Audit Committee is responsible for monitoring compliance with the Bank s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Audit Committee is assisted in these functions by Internal Audit from its holding company, Siam Commercial Bank PCL. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. (b) Operational risk Operational risk is the risk of direct or indirect loss arising from inadequate or failed internal processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The operational risk losses is managed through established operational risk management processes, proper monitoring and reporting of the business activities by control and support units which are independent of the business units and oversight provided by the senior management of the Bank. The Bank s operational risk management entails the establishment of clear organisational structures, roles and control policies. Various internal control policies and measures have been implemented including the establishment of signing authorities, defining system parameters controls, streamlining procedures and documentation and compliance with regulatory and other legal requirements. ANNUAL REPORT

55 26. Financial risk management (continued) (c) Credit risk Credit risk is the potential loss of revenue and principal losses in the form of specific allowances as a result of defaults by the borrowers or counterparties through its lending and investing activities. The primary exposure to credit risk arises through its loans to customers. The amount of credit exposure in this regard is represented by the carrying amounts of the assets on the balance sheet. The lending activities are guided by the Bank s credit policy to ensure that the overall objectives in the area of lending are achieved; i.e., that the loans portfolio is strong and healthy and credit risks are well diversified. The credit policy documents the lending policy, collateral policy and credit approval processes and procedures implemented to ensure compliance with the NBC guidelines. (i) Credit risk measurement The Bank assesses the probability of default of individual borrower using the Bank s rating tool. The credit department is responsible for determining the risk rating for each borrower. In measuring credit risk of loans and advances to customers, the Bank reflects the thirteen risk rating categories which are: (i) exceptional, (ii) excellent, (iii) strong, (iv) good, (v) satisfactory, (vi) adequate, (vii) marginal, (viii) weak, (ix) very weak, (x) special mention, (xi) substandard, (xii) doubtful and (xiii) loss. Risk rating are reviewed and updated on an annual basis, and in event of (i) change of loan terms and conditions including extension; (ii) repayment irregularities or delinquencies and (iii) adverse information relating to the borrower or transaction. ANNUAL REPORT

56 26. Financial risk management (continued) (ii) Risk limit control and mitigation policies The Bank operates and provides loans and advances to individuals or enterprises within the Kingdom of Cambodia. The Bank manages limits and controls concentration of credit risk whenever they are identified. The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security in the form of collateral for loans to customers, which is common practice. The Company implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types secured for loans to customers are: Mortgages over residential properties (land, building and other properties); Charges over business assets such as land and buildings; and Cash in the form of margin deposits. In some cases, the Bank provides loans and advances to customers which are secured by: Letter of undertaking from Siam Commercial Bank (the Bank s parent entity); and Letter of guarantee from the borrowers overseas parent entity or their banks. (iii) Impairment and provisioning policies The Bank is required to follow the mandatory credit classification and provisioning in accordance with Prakas B dated 25 February 2009 on loan classification and provisioning. Refer to Note 3(d) for detail. ANNUAL REPORT

57 26. Financial risk management (continued) (c) Credit risk (continued) (iv) Exposure to credit risk Bank balances 60,032, ,351,554 51,519, ,654,842 Deposit and placement with banks 47,052, ,951,665 62,352, ,528,261 Other assets 1,368,602 5,525,046 1,194,399 4,837,316 Loans and advances Individually impaired Past due but not impaired Neither past due nor impaired 81,171, ,687,654 70,880, ,067, ,624, ,515, ,947, ,087,902 Allowance for doubtful oans and advances (815,709) (3,293,017) (708,809) (2,870,676) 188,809, ,222, ,238, ,217,226 Exposure to credit risk is mainly from the loans and advances to customers. Impaired loans and advances Individually impaired loans and advances are loans and advances for which the Bank determines that there is objective evidence of impairment and it does not expect to collect all principal and interest due according to the contractual terms of the loans and advances. In compliance with NBC Guidelines, an allowance for doubtful loans and advances is made for loans and advances with payment overdue more than 90 days. A minimum level of specific allowance for impairment is made depending on the classification concerned, unless other information is available to substantiate the repayment capacity of the counterparty. ANNUAL REPORT

58 26. Financial risk management (continued) (c) Credit risk (continued) (iv) Exposure to credit risk (continued) In determining the allowance, any collateral value other than cash deposits which has been pledged is disregarded except that, in the case of a loan classified as loss all collateral may be utilised, at market values approved by the NBC. Refer to separate accounting policy stated in Note 3(d). Past due but not impaired loans and advances Past due but not impaired loans and advances are those for which contractual interest or principal payments are past due more than 29 days but less than 90 days, unless other information is available to indicate otherwise. In compliance with NBC Guidelines such loans are classified as special mention with a specific allowance of 3%. Loans to customers neither past due nor impaired Loans to customers neither past due nor impaired are good quality loans to customers for which no experience of default. These loans are supported by collaterals and management views that likelihood of default is relatively low. ANNUAL REPORT

59 26. Financial risk management (continued) (c) Credit risk (continued) (iv) Exposure to credit risk (continued) Loans with renegotiated terms/restructured loans Loans with renegotiated terms are loans that have been rescheduled or refinanced in accordance with an agreement setting forth a new repayment schedule on a periodic basis occasioned by weaknesses in the borrower s financial condition and/or inability to repay the loan as originally agreed. Loans to be restructured are analysed on the basis of the business prospects and repayment capacity of the borrower according to new cash flow projections supported by updated business perspectives and overall market conditions being based on realistic and prudent assumptions. Once the loan is restructured it remains in the same category independent of satisfactory performance after restructuring. The classification is not improved unless there are no arrears in repayment of principal and interest within 3 instalment periods and within a period of not less than 3 months. Write-off policy In compliance with NBC Guidelines, the Bank shall remove a loan/advance or a portion of a loan from its balance sheet when the Bank loses control of the contractual rights over the loan or when all or part of a loan is deemed uncollectible; or there is no realistic prospect of recovery. ANNUAL REPORT

60 26. Financial risk management (continued) (c) Credit risk (continued) (iv) Exposure to credit risk (continued) Collateral The Bank holds collateral against loans and advances in the form of mortgage interests over property and/or guarantees. Estimates of fair value are based on the value of collateral assessed on an annual basis. There were no non-financial assets obtained by the Bank during the year by taking possession of collateral held as security against loans and advances. The repossessed properties have to be sold within one year as the required by the NBC Guidelines and are classified in the balance sheet as foreclosed property. Concentration of credit risk The analysis of concentrations of credit risk from loans and advances at the balance date is shown in Note 7 to the financial statements. (d) Market risk Market risk is the risk of loss arising from adverse movement in the level of market prices or rates, the two key components being foreign currency exchange risk and interest rate risk. Market risk arising from the trading activities is controlled by marking to market the trading positions against their predetermined market risk limits. ANNUAL REPORT

61 26. Financial risk management (continued) (d) Market risk (continued) (i) Foreign currency exchange risk Foreign currency exchange risk refers to the adverse exchange rate movements on foreign currency exchange positions taken from time to time. The Bank maintains a policy of not exposing itself to large foreign exchange positions. Any foreign currency exchange open positions are monitored against the operating requirements, predetermined position limits and cut-loss limits. As of 31 December 2016, balances in monetary assets and liabilities denominated in currencies other than are not significant. Therefore, no sensitivity analysis for foreign currency exchange risk was presented. (ii) Interest rate risk Interest rate risk refers to the volatility in net interest income as a result of changes in the levels of interest rate and shifts in the composition of the assets and liabilities. Interest rate risk is managed through close monitoring of returns on investment, market pricing, cost of funds and through interest rate sensitivity gap analysis. The potential reduction in net interest income from an unfavourable interest rate movement is monitored against the risk tolerance limits set. An analysis of the interest rate risk pertaining to the Bank s assets and liabilities is disclosed below. ANNUAL REPORT

62 26. Financial risk management (continued) (d) Market risk (continued) (ii) Interest rate risk (continued) The table indicates the effective interest rates at the balance sheet date and the periods in which the financial instruments re-price or mature, whichever is earlier. 31 December 2016 Up to 1 month > 1 3 months > 3 6 months > 6 12 months > 1 5 years Over 5 years Non-interest sensitive Total Weighted average interest % Assets Cash and bank balances ,720,204 64,720,204 - Deposits and placements with banks 14,000,000 18,000,000 10,052, ,052, %-1.50% Loans and advances 600,000 27,645,170 11,862,919 18,047,560 22,282, ,359-81,171, %-12.00% Other assets ,368,602 1,368,602 - Total financial assets 14,600,000 45,645,170 21,915,598 18,047,560 22,282, ,359 66,088, ,312,566 Liabilities Deposits from customers 42,710,866 3,045,413 81, ,538, ,376, %-1.25% Other liabilities 359,806 39, ,146 2, ,141 Total financial liabilities 43,070,672 3,084,896 81, ,331 2, ,538, ,067,863 Maturity gap (28,470,672) 42,560,274 21,834,133 17,758,229 22,279, ,359 (46,450,150) 30,244,703 Maturity gap (114,936,103) 171,815,826 88,144,395 71,689,970 89,942,462 2,960,570 (187,519,256) 122,097,866 ANNUAL REPORT

63 26. Financial risk management (continued) (d) Market risk (continued) ((ii) Interest rate risk (continued) The table indicates the effective interest rates at the balance sheet date and the periods in which the financial instruments re-price or mature, whichever is earlier. 31 December 2015 Up to 1 month > 1 3 months > 3 6 months > 6 12 months > 1 5 years Over 5 years Non-interest sensitive Total Weighted average interest % Assets Cash and bank balances ,637,859 56,637,859 Deposits and placements with banks 51,852,657 5,500,000 5,000, ,352, %-2.00% Loans and advances 1,810,000 14,683,973 12,532,640 16,356,294 17,506,782 7,991,171 (708,809) 70,172, %-12.00% Other assets ,307,715 1,307,715 Statutory deposit ,322, ,322, %-0.11% Total financial assets 53,662,657 20,183,973 17,532,640 41,678,516 17,506,782 7,991,171 57,236, ,792,504 Liabilities Deposits from customers 3,313,130 2,990,637 60, ,385, ,750, %-1.25% Other liabilities 4,023 4,228 6, , ,718 Total financial liabilities 3,317,153 2,994,865 67, ,966, ,346,311 Maturity gap 50,345,504 17,189,108 17,465,440 41,678,292 17,506,782 7,991,171 (104,730,104) 47,446,193 Maturity gap 203,899,291 69,615,887 70,735, ,797,083 70,902,467 32,364,243 (424,156,921) 192,157,082 ANNUAL REPORT

64 26. Financial risk management (continued) (d) Market risk (continued) (ii) Interest rate risk (continued) Fair value sensitivity analysis for fixed rate instruments The Bank does not account for any fixed rate liabilities at fair value through profit or loss, and the Bank does not have derivatives as at the year end. Therefore, a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable-rate instruments The Bank does not have significant variable-rate instruments. Therefore, no cash flow sensitivity analysis for variable-rate instruments was presented. (e) Liquidity risk Liquidity risk relates to the ability to maintain sufficient liquid assets to meet its financial commitments and obligations when they fall due at a reasonable cost. In addition to full compliance of all liquidity requirements, the management of the Bank closely monitors all inflows and outflows and the maturity gaps through periodical reporting. Movements in loans and customers deposits are monitored and liquidity requirements adjusted to ensure sufficient liquid assets to meet its financial commitments and obligations as and when they fall due. The following table provides an analysis of the financial liabilities of the Bank into relevant maturity groupings based on the remaining periods to repayment. ANNUAL REPORT

65 26. Financial risk management (continued) (e) Liquidity risk (continued) 31 December 2016 Up to 1 month > 1 3 months > 3-12 months > 1-5 months More than 5 years Total Financial liabilities Deposits from customers 155,249,822 3,045,413 81, ,376,722 Other liabilities 399, ,309 2, , ,649,111 3,334,722 84, ,067, ,355,461 13,462, , ,156, December 2015 Financial liabilities Deposits from customers 164,699,113 2,990,637 60, ,750,593 Other liabilities 584,909 4,228 6, , ,284,022 2,994,865 67, ,346, ,400,289 12,129, , ,802,560 ANNUAL REPORT

66 26. Financial risk management (continued) (f) Capital management (i) Regulatory capital The Bank s objectives when managing capital, which is a broader concept than the equity on the face of the balance sheet, are: to comply with the capital requirements set by the NBC; 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 the business. The table below summarises the composition of regulatory capital: Tier 1 Capital (paid-up capital (common stock) + reserve) Share capital 57,500, ,127,500 40,000, ,000,000 Retained earnings 4,424,988 17,863,677 8,723,661 35,330,827 Less: loan to related parties (633,167) (2,556,095) (39,681) (160,708) Total regulated capital 61,291, ,435,081 48,683, ,170,119 The above regulated capital is calculated in accordance with the guidance issued by the National Bank of Cambodia which may be different in some material respects compared to generally accepted principles applied by financial institutions in other jurisdiction. The above regulated capital information is therefore not intended for users who are not informed about the guidance issued by the National Bank of Cambodia. ANNUAL REPORT

67 26. Financial risk management (continued) (f) Capital management (continued) (ii) Capital allocation The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital. 27. Fair values of financial assets and liabilities Fair value represents the amount at which an asset could be exchanged or a liability settled on an arms-length basis. As verifiable market prices are not available, market prices are not available for a significant proportion of the Bank s financial assets and liabilities. Fair values, therefore, have been based on management assumptions according to the profile of the asset and liability base. In the opinion of the management, the carrying amounts of the financial assets and liabilities included in the statement of financial position are a reasonable estimation of their fair values. ANNUAL REPORT

68 CCB BRANCHES NETWORK IN THE KINGDOM OF CAMBODIA Head Office Phnom Penh No. 26 Monivong Blvd, Sang kat Phar Thmei II Khan Daun Penh, Phnom Penh, Kingdom of cambodia Tel : (855-23) / / Fax : (855-23) ccbpp@ccb.com.kh Web site : Swift Code: SICOKHPP Battambang Branch No , 20 Ausaphea Village, Svaypor Commune, Battambang Province, Kingdom of Cambodia Tel : (855-53) / Fax : (855-53) / ccbbb@ccb.com.kh Siem Reap Branch No. 130, Sivatha Road, Mondol 1, Svay Damgkom Siem Reap Province, Kingdom of Cambodia Tel : (855-63) Fax : (855-63) ccbsrb@ccb.com.kh Shihanoukville Branch No. 242, Ekareach Street, Sangkat 2, Khan Mittapheap Sihanoukville Branch, Kingdom of Cambodia Tel : (855-34) / Fax : (855-34) ccbsvb@ccb.com.kh

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