PRASAC MICROFINANCE INSTITUTION LTD FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005

Transcription

1 FINANCIAL STATEMENTS

2 PRASAC MICROFINANCE INSTITUTION FINANCIAL STATEMENTS CONTENTS Pages STATEMENT OF THE SUPERVISING BOARD 1 3 AUDITORS REPORT 4 FINANCIAL STATEMENTS Balance sheet 5 Statement of changes in shareholders equity 6 Income statement 7 Cash flow statement 8 Notes to the financial statements 9 33 APPENDIX 1 Analysis by type of industry and PAR analysis* 1 Analysis of overdue loan* 2 APPENDIX 2 Notes of compliance with the central Bank s Prakas* 1 7 * This Appendix does not form part of the financial statements

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10 CASH FLOW STATEMENT 31 December Note Riel 000 OPERATING ACTIVITIES Income before income tax 3,085,991 Adjustments for: Net movement in provision for retirement and severance benefits 136,452 Depreciation & amortization 9 216,280 Provision for bad and doubtful loans 6 158,733 Loss on disposal of property and equipment 7,141 Operating income before changes in operating assets and liabilities 3,604,597 Changes in operating assets and liabilities: Loans and advances to customers (13,258,226) Other assets (276,349) Customers deposits 785,238 Accruals and other liabilities 847,762 Net cash used in operations (8,296,978) Income taxes paid (121,878) Net cash outflow from operating activities (8,418,856) INVESTING ACTIVITIES Statutory deposit and reserve account with Central Bank (82,110) Purchase of property, plant and equipment (733,142) Net cash outflow from investing activities (815,252) FINANCING ACTIVITIES Issue of share capital 250,000 Proceeds from borrowings 10,936,550 Net cash inflow from financing activities 11,186,550 Net increase (decrease) in cash and cash equivalent 1,952,442 Cash and cash equivalents at the beginning of year 2,913,004 Cash and cash equivalents at the end of year 16 4,865,446 The accompanying notes on pages 9 to 33 form an integral part of these financial statements. 8

11 1. BACKGROUND INFORMATION This is the first year of incorporation of PRASAC. PRASAC, a licensed micro-finance institution ( PRASAC ), was incorporated in Cambodia and registered with the Ministry of Commerce as a private limited liability company under register number Co-6931/04P dated 12 August Its activities are an offshoot of the PRASAC Credit Associate (PCA), which was managed by and funded by the European Union (EU). PCA was initially established in 1995 as a support program for the agriculture sector in Cambodia, covering six provinces around Phnom Penh. PRASAC was established based on the asset transfer document dated 31 December 2004, whereby the net assets of PCA was transferred to PRASAC as subordinated debt, as discussed in note 15 to these financial statements. PRASAC obtained its renewed license from the Central Bank to conduct business as a micro-finance institution in the Kingdom of Cambodia as set out in Central Bank s register No. 10 dated 15 November The license will expire on 1 December PRASAC is engaged primarily in the provi sion of micro-finance services to the rural population of Cambodia through its headquarters in Phnom Penh and various provincial offices in the Kingdom of Cambodia. As at 31 December, the PRASAC had 464 employees. These financial statements have been approved for issued by the Supervising Board on 16 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these financial statements are set out below: Basis of presentation The financial statements of PRASAC, which are expressed in Cambodian Riel ( Riel ), are prepared under the historical cost convention. PRASAC maintains its accounting records in Riel, the functional currency in Cambodia. The financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other that Cambodia. The accounting principles and practices utilized in Cambodia may differ from those generally accepted in countries and jurisdictions other than Cambodia. The significant accounting policies adopted in the preparation of the financial statements are set out below. Basis of aggregation The financial statements include the financial statements of the PRASAC s headquarters and its provincial branches within Cambodia. On aggregation of balances, all significant interbranch transactions and balances are eliminated in full. 9

12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Segment information PRASAC operates within one business segment, commercially oriented micro-finance services, and within one geographical segment, the Kingdom of Cambodia. Foreign currency translation PRASAC transacts primarily in a nd maintains its accounting records in Cambodian Riel ( Riel ). Foreign currency transactions other than Riel are accounted for at the exchange rates prevailing at the date of transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Monetary assets and liabilities denominated in currencies other than Riel at the balance sheet date are translated into Riel at the rates of exchange ruling at that date. The principal rates used to translate monetary assets and liabilities at the balance sheet date are: 31 December Riel/US Dollar 4,112 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash and bank balances, demand deposits and short-term highly liquid investments with maturities of or less than 90 days maturity from the date of acquisition and they are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. Loans and advance to customers Loans and advances to customers are stated in the balance sheet at the amount of principal outstanding less any amounts written off and impairment allowance for bad and doubtful loan and advances, including specific and/or general provisions, to reflect the estimated recoverable amount. The principal is calculated on the effective interest rate method, which is based on expected future cash flows of contractual installment payments discounted at prevailing market rates offered for similar loans with similar risk profiles. 10

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Provision for bad and doubtful loans The adequacy of the provision for bad and doubtful loans is evaluated monthly by management. Factors considered in evaluating the adequacy of the provision include the size of the portfolio, previous loss experience, current economic conditions and their effect on clients, the financial and economic situation of clients, and the performance of loans in relation to contract terms. The provision for bad and doubtful loans charged to expense is based on management s judgment consistent with the Central Bank s guidelines of the amount necessary to maintain the provision at a level adequate to absorb losses. Presently, the amount of provision is being determined by applying defined percentages to the respective category to which each of the loans belongs, as set out below. Percentage applied Loan status/classification (%) Loan of one year or less Standard Sub standard loans (where repayments and/or interest are more than 30 days overdue) 10 Doubtful loans (where repayments and/or interest are more than 60 days overdue) 30 Loss (where repayments and/or interest are more than 90 days overdue) 100 Loan of more than one year Standard Sub standard loans (where repayments and/or interest are more than 30 days overdue) 10 Doubtful loans (where repayments and/or interest are more than 180 days overdue) 30 Loss (where repayments and/or interest are more than 360 days overdue) 100 An additional general provision of bad and doubtful loans is set at the rate of 2.5% on loans outstanding as at year end, excluding loans to related parties. Overdue loans In accordance with Prakas B K issued by the Central Bank on 17 February 2000, overdue loans are defined as total outstanding principal where principal or interest is past due unless the payment terms on interest or principal have been adjusted. The provision will be calculated as a percentage of the loan amount outstanding at the time the loan is classified, excluding accrued interest. The provision shall be recorded in the institution s accounts and charged to the income statement for the month during which the corresponding loan has been classified as less than standard. The analysis of overdue loans is set out in the note 6. Loans are not restructured when it has been classified as less than standard. 11

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Other receivables Other receivables are carried at estimated realisable value. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation over the useful lives. Years Building/Office improvements Motor vehicles Motorcycles Computer and Peripherals, software Communication Equipments Office Furniture and Fixtures 5%- straight line 25% - declining balance 25% - declining balance 50% - declining balance 25% - declining balance 25% - declining balance Expenditure for maintenance and repairs that do not extend the useful lives of assets are expensed to the income statement in the year in which they are incurred. Gains or losses on the sale of property and equipment are recognized upon the disposal of such assets. Fully depreciated property and equipment are retained in the financial statement until disposal or write-off. Intangible assets Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire the specific software and bring it to use. These costs are amortized over the period with compliance to computer and peripherals depreciation rate and method. Costs associated with development or maintaining computer software program are recognized as expenses when incurred. Customer Deposits Deposits from customers are stated at placement value and adjusted for accrued interest. Provision A provision is recognized in the balance sheet when PRASAC 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, provision is 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 risk specific to the liability. 12

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Provision of retirement and severance pay i) Half of an employee s (including those employees from PCA) monthly salary per year is accrued for the provision of retirement and severance pay. ii) An employee who reaches the age of retirement is entitled to full entitlement of one month s current salary for each year of service rendered. The age of retirement for male employees is 60 years old and 55 years for female employees. iii) An employee who resigns before retirement date is entitled to half month s current salary for each year of service rendered. iv) The differences between provision for retirement and severance benefits and realized amount will be charged to the income statement when incurred. Taxation Taxes are calculated on the basis of the current interpretation of the tax regulations. However, these regulations are subject to periodic variation and the ultimate determination of the income tax expense will be made following an inspection by the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income taxes are calculated using a principal tax rate of 20%. Income and expense recognition Interest income earned on loans is recognised on an accrual basis taking into consideration the principle amount of loans outstanding. Interest on loans is calculated using the declining balance method on monthly balances of the principle amount outstanding. When a loan is classified as less than standard, the recording of interest as income is suspended until it is realised on a cash basis. Commission and fee incomes and expenses are recognized in the income statement on an accrual basis. Operating leases Operating leases in which a significant portion of the risks and rewards of ownership are retained by the lesser are classified as operating leases. Payments made under operating leases (net of any incentives received from the lesser) are charged to the income statement on a straight-line basis over the period of the lease. 13

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund and grants Revenue grants are released to the income statement over the periods they are expected to be received as stipulated in their respective grant agreements. Grants received to subsidize technical assistance and training costs are recognized in the income statement in the period in which the eligible expenditure was incurred. Related parties Parties are considered to be related to PRASAC if one party 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 where PRASAC and the other party are subject to common 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. In accordance with the Law on Banking and Financial Institutions, related parties are defined as parties who hold, directly or indirectly, at least 10% of the capital of PRASAC or voting rights and include any individual who participates in the administration, direction, management or internal control of PRASAC. Risk management Financial risk management and policies By its nature the PRASAC s acti vities are principally related to the use of financial instruments. The PRASAC accepts funds from its shareholders and lenders and seeks to earn interest margins by lending at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due. PRASAC is exposed to risks from changes in market interest rates and in currency exchange rates. The PRASAC manages and assumes such risks by monitoring the market movements of interest and currency exchange rates. There is no hedging currently. The PRASAC does not hold or issue derivative instruments. Since the majority of the financial assets are short-term and the interest rates are subject to be changed with the market rate, the PRASAC does not use derivative financial instruments to hedge such risk. Interest rate risk The interest rate risk is the risk that future movements in market interest rates will affect the results of the PRASAC s operations and its cash flows. Its exposure to interest rate risk relates primarily to its loans and bank deposits. 14

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currency risk The PRASAC is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollars. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities. In accordance with Central Bank s guidelines, PRASAC is limited in foreign currency exposure to a ratio not to exceed 5% per individual currency and 15% of its aggregate net worth. There is no reserve for currency risk of unhedged borrowings which are denominated in United State Dollars (USD). In order to mitigate currency risk, PRASAC use the cash from borrowing in USD to provide loan in USD. Credit risk The PRASAC is exposed to credit risk primarily with respect to loans. Such risks are monitored on a revolving basis and subject to an annual or regular follow up visits. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Management believes that the PRASAC s maximum exposure to credit risk is limited to the carrying amount of loans less provisions for doubtful loans. Loans are also provided to those borrowers that are deemed profitable. Fair value Since the majority of financial assets are short-term (maturities of less than one year) with interest close to current market rates, the management believes the fair value of the PRASAC s financial assets do not materially differ from their carrying values. 15

18 3. CASH IN HAND 31 December Head Office 1,218,790 Provincial branches: Prey Veng 183,759 Tbong Khmum 173,583 Kampong Speu 148,359 Kampong Cham 126,371 Cheung Prey 113,848 Kampong Tralach 84,591 Kong Pisey 77,618 Neak Loeung 60,303 Kampong Chrey 55,201 Prey Kabas 47,542 Sa ang 47,233 Takeo 37,848 Kampong Popil 29,014 Svay Rieng 26,160 Kampot 19,169 Kien Svay 13,797 Boribo 10,526 Kampong Chhnang 8,054 Sithor Kandal 3,054 Chantrea 280 2,485, BALANCES WITH BANKS Current accounts, without interest 31 December Foreign Trade Bank of Cambodia 2,361,573 2,361,573 16

19 5. BALANCES WITH CENTRAL BANK 31 December Reserve requirement 69,610 Current account 18,773 Capital guarantee deposit 12, ,883 Following the Central Bank s Prakas No. B on the Licensing of Micro-Finance Institutions, PRASAC maintains an amount equal to 5% of its registered capital of Riel 250,000,000 as at 31 December in a permanent non-interest earning account with Central Bank. 6. LOANS AND ADVANCES TO CUSTOMERS a) Analysis by type of loan products 31 December Group loan 11,232,784 Individual loan 34,611,643 45,844,427 Provision for bad and doubtful loans (see g) (1,295,444) 44,548,983 Type of loan Interest rates Repayment terms Tenure Individual Loan 2.5% to 3.5% per month - Monthly interest and principal - Monthly interest and every 2 or 3 months for principal 4 to 24 months Group Loan 3% to 3.5% per month - End of Term for principal and interest - Monthly interest and principal - Monthly interest and every 2 or 3 months for principal - End of Term for principal and interest 4 to 12 months The principal can be repaid at any time without any penalty except for bigger (>Riels 8,000,000) loans which require at least 4 four months of scheduled interest to be paid. 17

20 6. LOANS AND ADVANCES TO CUSTOMERS (Continued) b) Analysis by performing and non-performing loans 31 December Standard loans -secured 34,427,236 -unsecured 11,181,971 Substandard loans -secured 62,940 -unsecured 1,200 Doubtful loans -secured 26,170 -unsecured 862 Losses -secured 95,296 -unsecured 48,752 45,844,427 c) Analysis by relationship 31 December Non related parties 45,431,539 Related parties: Management 59,751 Staff 353,137 45,844,427 All staff members have access to one loan from PRASAC with loan conditions as follows: - Loans to purchase motor cycles: - Loan amount up to KHR 4.4 million or USD1,100 - Interest rate: 0% - Term: 24 months - General purposes: - Loan amount is equal to up-to six-month-salary - Interest rate: 12% p.a. - Term: 24 months 18

21 6. LOANS AND ADVANCES TO CUSTOMERS (Continued) d) Analysis by maturity 31 December Less than 1 month 155,526 From 1 month to 3 months 5,770,350 From 3 months to 1 year 31,453,622 Over 1 year 8,464,929 e) Analysis of gross loans by provinces 45,844, December Head Office 4,064 Kampong Cham 3,511,118 Cheung Prey 3,767,371 Tbong Khmum 2,684,358 Sithor Kandal 254,164 Kampong Chhnang 2,166,961 Kampong Tralach 3,261,685 Boribo 1,846,743 Takeo 1,728,526 Prey Kabas 1,838,688 Kampong Chrey 4,334,892 Sa ang 1,972,173 Kampong Speu 3,563,359 Kong Pisey 2,950,223 Prey Veng 2,701,559 Neak Loeung 3,571,662 Kampong Popil 1,753,631 Kien Svay 765,549 Svay Rieng 1,297,355 Chantrea - Kampot 1,870,346 45,844,427 19

22 6. LOANS AND ADVANCES TO CUSTOMERS (Continued) f) Analysis of gross loans by currencies 31 December Khmer Riel 41,158,160 US Dollar 4,686,267 g) The movements in provision for bad and doubtful loans are as follows: 45,844, December Specific provision in accordance with Central Bank s guidelines 158,571 General provision 1,136,873 Balance at end of the year 1,295,444 h) The movements in provision for bad and doubtful loans are as follows: Sp ecific General Provision Provision Total Balance at the beginning of year (based on the assets transferred from PCA-see note 15) 1,581, ,550 2,543,012 (Written back)/provision for the year (16,590) 175, ,733 Written off (1,406,301) - (1,406,301) Balance at end of the year 158,571 1,136,873 1,295, OTHER ASSETS December Accrued interest income - net Accrued interest income 1,822,440 Accrued interest loss reserve (58,393) Prepaid expenses 136,048 Advances to staff 19,001 Others 44,825 1,963,921

23 8. DEFERRED TAX ASSETS Provision for retirement and severance benefit Other accrued staff benefit Accrued commission to loan s Group Leader Total As at 1 January Charged to the income statement 54,090 63,454 19, ,680 As at 31 December 54,090 63,454 19, ,680 21

24 9. PROPERTY, PLANT AND EQUIPMENT Office Computer and Communication furniture Vehicles Motorcycles peripherals equipment Total Riel 000 Riel 000 Cost As at 31 December 2004 (based on the assets transferred from PCA see note 15) 395, , , , ,792 1,612,133 Additions 51, , ,193 20, ,142 Disposals (33,921) - (18,917) (173,723) (42,206) (268,767) As at 31 December 413, , , ,734 79,416 2,076,508 Accumulated depreciation As at 31 December 2004 (based on the assets transferred from PCA see note 15) 284, , , ,547 85,757 1,355,226 Depreciation 35,815 96,467 8,845 71,280 3, ,280 Disposals (28,903) - (18,661) (173,207) (40,855) (261,626) As at 31 December 291, , , ,620 48,775 1,309,880 Net book value As at 31 December 122, ,356 27, ,114 30, ,628 22

25 10. CUSTOMERS DEPOSITS 31 December Certificate of deposits 211,986 Voluntary savings 1,365,285 1,577,271 Type of Deposits Tenure Interest rates Khmer Riel Saving for Staff unlimited 8% p.a. Saving for Customers unlimited 2.5% p.a. Fixed Deposit 3 months 3% p.a. 6 months 5.5% p.a. 12 months 8% p.a. US Dollar Saving for Staff unlimited 6% p.a. Saving for Customers unlimited 2% p.a. Fixed Deposit 3 months 2.5% p.a. 6 months 5% p.a. 12 months 6.5% p.a. 11. BORROWINGS Note 31 December Dexia Micro-Credit Fund/Sub Fund Blue Orchard Debt i) 4,127,000 Appui Au Development Autonome - ADA ii) 619,050 Impulse Microfinance Investment Fund iii) 4,127,000 Oikocredit, Ecumenical Development Cooperative iv) 2,063,500 10,936,550 23

26 11. BORROWINGS (Continued) i) DEXIA MICRO-CREDIT FUND/Sub Fund Blue Orchard Debt: Credit limit in original US$1,000,000 currency Equivalent in Riel Riel 4,127,000,000 Effective Date 1 st Disbursement of US$ 500,000: 12 July 2 nd Disbursement of US$ 500,000: 20 September Maturity Date 1 st Disbursement of US$ 500,000: US$250,000: 12 July 2006 US$250,000: 12 April nd Disbursement of US$ 500,000: 20 September 2006 Interest Rate Libor USD (6 months) % p.a. Repayment terms 1 st Disbursement of US$ 500,000: Principal of US$250,000 on 12 April 2006 and the rest at Maturity; Interest on semester basis (12 January 2006) & final payment on interest at Maturity. 2 nd Disbursement of US$ 500,000: Principal at Maturity Date; Interest on semester basis (20 March 2006) & final payment on interest at Maturity. ii) APPUI AU DEVELOPMENT AUTONOME- ADA Credit limit in original US$150,000 currency Equivalent in Riel Riel 619,050,000 Effective Date 1 October Maturity Date 30 September 2007 Interest Rate 8% p.a. Repayment terms Principal at Maturity & Interest on Quarterly Basis. iii) IMPULSE MICROFIANCE INVESTMENT FUND Credit limit in original US$1,000,000 currency Equivalent in Riel Riel 4,127,000,000 Effective Date 21 December Maturity Date US$500,000: May 2006 US$500,000: November 2006 Interest Rate 8% p.a. Repayment terms Principal of US$500,000 on May 2006 and the rest on November 2006 & Interest on Semi-annual Basis. 1% up front fee of disbursed amount. Swap cost PRASAC hedge its currency risk of the principal between Euro and US dollar by contracting a swap with KBC Bank. The total cost of USD37,560 to be paid in four equal installment every six months from 15 December. 24

27 11. BORROWINGS (Continued) iv) OIKOCREDIT, ECUMENICAL DEVELOPMENT C OOPERATIVE Credit limit in original US$1,000,000 currency Equivalent in Riel Riel 4,127,000,000 Effective Date 1 st Disbursement of US$500,000 on 29 December Maturity Date June 2007 Interest Rate 9.5% p.a. Repayment terms Principal of US$500,000 on 29 June 2007 and Interest on Semi-annual Basis. 1% up front fee of outstanding debt. 12. SEVERANCE BENEFIT OBLIGATION 31 December Balance at beginning of the year (based on the assets transferred from PCA see note 15) 133,996 Additions during the year 138,804 Distribution to employees (2,350) Balance at end of the year 270, ACCRUALS AND OTHER LIABILITIES 31 December Accrued expenses Commission 95,680 Bonus/incentives 606,482 Interest 184,963 Accrued taxes Withholding tax on other expenses 31,847 Withholding tax on Salary 29,014 Other payables 567,817 Others 38,229 1,554,032 25

28 14. SHARE CAPITAL The details of shareholding are as follows: % of ownership Number of shares Amount Cambodia Rural Development Foundation (CRDF) 95% 11, ,500 PRASAC Staff Company (PSCo) 5% , % 12, ,000 Each ordinary share has one vote and participates equally in all dividends and other distributions of PRASAC. The movement in share capital during the year is as follows: CRDF PSCo Total As at 1 January Proceeds during the year 237,500 12, ,000 As at 31 December 237,500 12, , SUBORDINATED DEBT On 31 December 2004, the net assets of PCA (see following page) was transferred by the EU to RGC and then transferred by the RGC to PRASAC as subordinated debt. The value of the net assets were based on audited balance sheet of PCA as at 31 December 2004 with the terms and conditions of the agreement as following: - The fund is to be recorded as Subordinated Debt in the accounting records of PRASAC, - PRASAC shall repay the total value of the Subordinated Debt to RGC on the following terms and conditions: (a) The Subordinated Debt will not be repayable to the RGC unless PRASAC ceases to provide credit to rural communities and micro enterprises in Cambodia or unless PRASAC elects at its own discretion to repay all or part of the Subordinated debt to RGC. (b) The Subordinated Debt is a non-distributable fund. (c) The Subordinated Debt is considered as Tier II Capital in the context of Article 15 of Prakas No.B on the licensing of Micro-Finance Institutions dated 11 January 2000 and shall be included when calculating the Capital Adequacy Ratio of PRASAC - The Subordinated Debt bears no interest. 26

29 15. SUBORDINATED DEBT (continued) ASSETS 31 December 2004 Cash in hand 1,023,387 Balances with banks 1,163,406 Balances with Central Bank 726,211 Loans and advances to customers 31,449,490 Grants receivable - Other assets 1,687,571 Deferred tax assets - Intangible assets - Property, plant and equipment 256,907 Total Assets transferred 36,306,972 LIABILITIES AND SHAREHOLDERS EQUITY LIABILITIES Customers deposits 792,033 Borrowings - Provision for retirement benefits 133,996 Deferred grant income - Current income tax liabilities - Accruals and other liabilities 706,270 Total Liabilities transferred 1,632,299 Net assets transferred 34,674, CASH AND CASH EQUIVALENTS Cash on hand 2,485,100 Balance with Banks 2,361,573 Current account with NBC 18,773 4,865,446 27

30 17. INTEREST INCOME Group loan 3,908,852 Individual loan 9,414,053 13,322, INTEREST AND FEES EXPENSE Borrowings 276,300 Customers deposits 75, , FEE AND COMMISSION EXPENSE For the year ended 31 December Group loan 142, ,603 As compensation and to facilitate the collection of interest and principal amount for group loans, PRASAC pays the loan s Group Leader commission: Commission Group loan 4% This commission includes withholding tax and is paid based on interest collection. 28

31 20. OTHER OPERATING INCOME For the year ended 31 December Riel 000 Penalty income 92,681 Bad debts recovered 227,360 Foreign exchange gain, net 1,382 Loss on disposal of equipments, net (7,141) Other Income 13, , GRANT INCOME For the year ended 31 December CGAP Financial Transparency Award 20,425 CGAP rating fund 32,712 53, OPERATING AND OTHER EXPENSES Salaries and staff benefits 5,911,151 Management adviser fee 672,016 Fuel expense 623,701 Occupancy expenses 568,055 Office supplies 358,603 Marketing expense 302,061 Training 299,316 Depreciation 216,280 Printing 196,256 Transportation 179,644 Consultants and professional fee 170,066 Meals and perdiem allowances 143,505 Communication expense 89,694 Maintenance 69,243 Other operating expenses 164,938 9,964,529 29

32 23. INCOME TAX EXPENSE (a) Tax on profit expense Current 753,878 Deferred tax (Note 8) (136,680) (b) Reconciliation between tax on profit expense and accounting profit 617,198 US$ Profit before tax 3,085,991 Profit tax at 20% of accounting profit 617, , CURRENCY ANALYSIS (RIEL 000) An analysis of PRASAC s assets and liabilities by currency is as follows: US$ Riel Total ASSETS Cash in hand 2,088, ,651 2,485,100 Balances with banks 2,361, ,361,573 Balances with Central bank - 100, ,883 Loans and advance to customers 4,686,112 39,862,871 44,548,983 Other assets 218,425 1,745,496 1,963,921 Deferred tax assets - 136, ,680 Property, plant and equipment - 766, ,628 Total Assets 9,354,226 43,009,542 52,363,768 LIABILITIES Customers deposits 194,244 1,383,027 1,577,271 Borrowings 10,936,550-10,936,550 Provision for retirement benefits - 270, ,450 Current income tax liabilities - 631, ,999 Accruals and other liabilities 184,097 1,369,935 1,554,032 Total Liabilities 11,314,891 3,655,411 14,970,302 Net asset/(liability) position (1,960,665) 39,354,131 37,393,466 30

33 25. MATURITY PROFILE The maturity profile of assets and liabilities (in Riel 000) is as follows: From 1 From From No fixed Less than month to 3 months 1 year to Over maturity 31 December Total 1 month 3 months to 1 year 5 years 5 years date ASSETS Cash in hand 2,485,100 2,485, Balances with banks 2,361,573 2,361, Balances with central bank 100,883-18, ,110 Loans and advances to customers 44,548,983 22,911 5,611,038 30,661,647 8,253, Other assets 1,963,921 1,963, Deferred tax assets 136, ,680 Property, plant and equipment 766, , , Total Assets 52,363,768 6,833,505 5,629,811 30,887,083 8,794, ,790 LIABILITIES Customers deposits 1,577,271 1,365, , Borrowings 10,936, ,254,000 2,682, Provision for retirement benefits 270, ,450 Current income tax liabilities 631, , Accruals and other liabilities 1,554,032 1,141, , Total Liabilities 14,970,302 2,506, ,935 8,885,999 2,682, ,450 Net liquidity surplus 37,393,466 4,327,137 5,004,876 22,001,084 6,112,029 - (51,660) 31

34 26. INTEREST RATE RISK The interest rate risk exposure of financial assets and financial liabilities (in Riel 000) are as follows: From 1 From From No fixed Less than month to 3 months 1 year to Over maturity 31 December Total 1 month 3 months to 1 year 5 years 5 years date ASSETS Cash in hand 2,485, ,485,100 Balances with banks 2,361, ,361,573 Balances with central bank 100, ,883 Loans and advances to customers 44,548,983 22,911 5,611,038 30,661,647 8,253, Other assets 1,963, ,963,921 Deferred tax assets 136, ,680 Property, plant and equipment 766, ,628 Total Rate-sensitive assets 52,363,768 22,911 5,611,038 30,661,647 8,253,387-7,814,785 LIABILITIES Customers deposits 1,577,271 1,365, , Borrowings 10,936, ,254,000 2,682, Provision for retirement benefits 270, ,450 Current income tax liabilities 631, ,999 Accruals and other liabilities 1,554, ,554,032 Total Rate-sensitive liabilities 14,970,302 1,365, ,986 8,254,000 2,682,550-2,456,481 Total Interest Sensitive Gap 37,393,466 (1,342,374) 5,399,052 22,407,647 5,570,837-5,358,304 32

35 27. LEASE COMMITMENTS PRASAC has lease commitments for the lease of its headquarters and provincial offices as follows: Not more than one year 453,535 More than 1 year and not more than 5 years 1,018,305 1,471, COMPARATIVES There are no comparative figures as this is the first year of incorporation for PRASAC. 33

36 APPENDIX 1: ANALYSIS BY TYPE OF INDUSTRY AND PAR ANALYSIS ANALYSIS OF OVERDUE LOAN

37 APPENDIX 1 Analysis by type of industry and PAR analysis: 31 December 31 December 2004 Agriculture 32,318,930 22,005,197 Overdue 112, ,109 PAR amount 108, ,884 PAR ratio 0.33% 3.57% Trade & Commerce 7,558,772 6,479,370 Overdue 58, ,242 PAR amount 73, ,727 PAR ratio 0.97% 13.52% Service 3,985,135 3,265,104 Overdue 15,494 81,710 PAR amount 17,074 92,876 PAR ratio 0.43% 2.84% Transportation 1,153,142 1,154,664 Overdue 12,688 18,729 PAR amount 19,065 37,030 PAR ratio 1.65% 3.21% Construction 223, ,776 Overdue 3,489 3,592 PAR amount 3,335 4,638 PAR ratio 1.49% 3.78% Household/Family 249, ,882 Overdue 1,531 11,283 PAR amount 1,674 11,667 PAR ratio 0.67% 6.49% Others 354, ,509 Overdue 12,410 67,547 PAR amount 12,187 80,728 PAR ratio 3.43% 10.28% Total 45,844,427 33,992,502 Overdue 216,806 1,764,212 PAR amount 235,219 1,887,550 PAR ratio 0.51% 5.55% 1

38 APPENDIX 1 Analysis of overdue loans Default Reasons Outstanding as at 31 December Principal Installment Disbursed Disbursed Balance Total in in 2004 Business failure 54,487 50,086 2,539 47,547 Flood, Drought and other natural disaster 13,980 13, ,154 Disease/Illness, Death 15,703 10,021 3,001 7,020 Migration temporary, or permanent 37,532 33,741 3,762 29,979 Willful default, Political influence 21,913 16,678 3,168 13,510 On-lent, Over capacity, Paid other debt 35,596 27,369 5,591 21,777 Fake names, on remittance CO, improper loan assessment 7,681 7, ,883 Other reason 263,343 57,863 38,032 19,832 Loan Default 450, ,806 57, ,702 Performing Loans 45,394,192 Total Loans 45,844, ,806 57, ,702 Default Reasons Outstanding as at 31 December 2004 Principal Installment Disbursed Disbursed Balance Total in 2004 in 2003 Business failure 556, ,015 5, ,375 Flooding, Drought and other natural disaster 662, ,739 1, ,444 Diseases/Illness, Death 36,583 31,248 1,068 26,117 Migration temporary, permanence 206, ,824 8, ,527 Willful default, Political influent 105, ,423 1, ,632 On-lent, Over capacity, Paid other debt 262, ,783 4, ,967 Fake names, on remittance CO, improper loan assessment 211, , ,981 Other reason 67, ,039 71, ,967 Loan Default 2,109,514 1,764,078 93,127 1,459,010 Performing Loans 31,882, Total Loans 33,992,503 1,764,078 93,127 1,459,010 2

39 APPENDIX 2: NOTES ON COMPLIANCE WITH THE CENTRAL BANK S PRAKAS

40 APPENDIX 2: NOTES ON COMPLIANCE WITH THE CENTRAL BANK S PRAKAS 1. CAPITAL ADEQUACY RATIO (SOLVENCY RATIO), Prakas No. B A licensed Micro-finance Institution shall, at all times, maintain capital adequacy ratio of more than 20%. As at 31 December, Capital Adequacy Ratio of PRASAC is 74.29%. The Capital Adequacy Ratio calculation is detailed in Schedule LIQUIDITY RATIO, Prakas No. B A licensed Micro-finance Institution shall, at all times, maintain a liquidity ratio of more than 100%. As at 31 December, the Liquidity Ratio of PRASAC is 1,261%. The Liquidity Ratio calculation is detailed in Schedule CALCULATION OF FOREIGN CURRENCY EXPOSURE, Prakas No B Foreign currency exposure ratio should not exceed 5% of net worth for each currency and 15% of net worth aggregate. As at 31 December, the foreign currency exposure ratio (US dollars) is -5.24%% in individual and aggregate. Foreign currency exposure ratio calculation is detailed in Schedule RESERVE REQUIREMENT, Prakas No. B A licensed Micro-finance Institution shall deposit 5% of their deposits into an account maintained with the Central Bank. As at 31 December, the reserve requirement is Riel 78,864,000 PRASAC shall deposit with the Central Bank Riel 78,864,000. As at 31 December, PRASAC has deposited Riel 69,610,000 with Central Bank. PRASAC topped up Riel 9,254,000 with NBC during the 15 days of January The Reserve Requirement calculation is detailed in Schedule LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO, Prakas No. B A licensed Micro-finance Institution shall classify their loan portfolio into the following four classes, depending on the financial situation of the borrower and the timeliness of principal and interest payments. Loan term of one year or less than one year Standard: good financial condition and punctual payment of principal and interest. Sub-standard: some payments of principal and/or interest are overdue by 30 days or more. Doubtful: some payments of principal and/or interest are overdue 60 days or more. Loss: some payments of principal and/or interest are overdue 90 days or more. 1

41 APPENDIX 2: NOTES ON COMPLIANCE WITH THE CENTRAL BANK S PRAKAS 5. LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO, Prakas No. B (continued) Loan term more than one year Standard: good financial condition and punctual payment of principal and interest. Sub-standard: some payments of principal and/or interest are overdue by 30 days or more. Doubtful: some payments of principal and/or interest are overdue 180 days or more. Loss: some payments of principal and/or interest are overdue 360 days or more. Specific provisions on the loans classified as follow: Sub-standard : 10% regardless of the collateral value except cash. Doubtful : 30% regardless of the collateral value except cash. Loss : 100% regardless of the collateral value except cash. As at 31 December, the specific provision provided by PRASAC is Riel 158,571,000 which is in compliance with Central Bank s Prakas. Loan classification, provision and delinquency ratio calculation are detailed in Schedule 5. 2

42 SCHEDULE 1 CAPITAL ADEQUACY RATIO AS AT 31 DECEMBER 1-NUMERATOR : ELIGIBLE CAPITAL Riel CORE CAPITAL Less : - Paid in capital 250,000 - Reserves - - Retained earnings - - Net profit for the year 2,468,793 Sub total A 2,718,793 - Unpaid capital - - Loan to related parties 412,888 - Intangible asset - Sub-total B 412,888 Core capital (A-B) 2,305, HYBRID CAPITAL - Nun-refundable grants - - Public guarantee funds - - Perpetual subordinated debt 34,674,673 Hybrid capital 34,674, ELIGIBLE CAPITAL ( Core capital + Hybrid capital ) (E) 36,980,578 2-DENOMINATOR:RISK-WEIGHTED ASSET (R) Asset Amount Weighting - Cash 2,485,100 0% - - Gold - 0% - - Balances with Central Bank 100,883 0% - - Balances with bank rated AAA to AA- 20% - Balances with bank rated A+ to A- - 50% - - Loans and advances to customers 44,548, % 44,548,983 - Others asset 5,228, % 5,228,802 Total 52,363,768 49,777,785 CAPITAL ADEQUACY RATIO ( C=E/R ) 74.29% 3

43 SCHEDULE 2 LIQUIDITY RATIO AS AT 31 DECEMBER Riel Numerator: liquid assets - Cash on hand 2,485,100 - Balances with Central Bank 100,883 - Balances with banks 2,361,573 Sub-total A 4,947,556 Less : - Amount owed to Central Bank - - Amount owed to banks - Sub-total B - Net liquidity (A-B) 4,947,556 Plus : Portion of loans maturing in less than month 22,911 Liquid assets (L) 4,970,467 2-Denominator: Adjusted amount of deposits (A) Category of Deposits Amount % Term deposits 211,986 25% 52,997 Saving Deposit 1,365,285 25% 341,321 Total 1,577, ,318 LIQUIDITY RATIO (L/A) 1,261% 4

44 SCHEDULE 3 CALCULATION OF FOREIGN CURRENCY EXPOSURE AS AT 31 DECEMBER Foreign currency-us$ Riel Assets in foreign currency 9,354, Minus: liabilities in that currency 11,314, Net position (long or short) (1,960,665) 4- Minus: provision for FX losses - 5-Adjusted net position (long or short) (1,960,665) 6- Net worth 37,393, Foreign currency exposure ratio: 5/6-5.24% 5

45 SCHEDULE 4 RESERVE REQUIREMENT AS AT 31 DECEMBER Riel Voluntary 1-1 Demand Saving 1,365, Term 211, Other Total Reservable Deposits 1,577,271 2-Compulsary 2-1 Program (5% for guarantee, Individual Credit) Program Program Total compulsory saving - 3-Total saving mobilized 1,577,271 5% Reservable Deposit 78,864 6

46 SCHEDULE 5 LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO AS AT 31 DECEMBER Specific PRASAC Amount Rate Provision Provision Loan classification Riel 000 % Riel 000 Riel Loans of one year or less 1-1 Standard 31,690,633 0% Substandard Past Due >30 days 11,157 10% 1,116 1, Doubtful Past Due >180 days 6,473 30% 1,942 1, Loss Past Due >360 days 109, % 109, , General Provision for ST Loans ,942 Sub-Total 1 31,817, , ,085 2-Loans of more than one year 2-1 Standard 13,918,575 0% Substandard Past Due >30 days 52,984 10% 5,298 5, Doubtful Past Due >60 days 20,558 30% 6,167 6, Loss Past Due >90 days 34, % 34,962 34, General Provision for ST Loans ,930 Sub-Total 2 14,027,079 46, ,357 Total 45,844, ,570 1,295,442 All loan past due > 30 days (A) 235,219 Loan outstanding (B) 45,844,427 Delinquency Ratio (A/B) 0.51% 7