PRASAC MICROFINANCE INSTITUTION LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Transcription

1 FINANCIAL STATEMENTS

2 FINANCIAL STATEMENTS CONTENTS Page (s) DIRECTORS REPORT 1-3 INDEPENDENT AUDITOR S REPORT 4 FINANCIAL STATEMENTS Balance sheet 5 Income statement 6 Statement of changes in shareholders equity 7 Cash flow statement 8 Notes to the financial statements 9 51 APPENDIX: NOTES ON COMPLIANCE WITH THE CENTRAL BANK S PRAKAS* i-x *The Appendix does not form part of the audited financial statements.

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7 BALANCE SHEET Note Assets Cash on hand 4 32,621, ,931,492 21,327,744 85,204,337 Balances with the Central Bank 5 59,148, ,032,073 23,221,811 92,771,135 Balances with banks and other financial institutions 6 19,698,918 80,273,091 20,858,606 83,330,131 Loans and advances to customers 7 571,187,994 2,327,591, ,141,585 1,490,700,632 Other assets 8 11,179,052 45,554,637 7,916,560 31,626,657 Intangible assets 9 1,654,490 6,742,048 1,209,715 4,832,811 Property and equipment 10 5,459,877 22,248,998 3,713,048 14,833,626 Deferred tax assets ,458 2,544, ,182 2,014,207 Total assets 701,574,989 2,858,918, ,893,251 1,805,313,536 Liabilities and shareholders equity Liabilities Deposits from banks and other financial institutions 12 16,763,602 68,311,678 9,500,606 37,954,921 Deposits from customers ,400,205 1,175,230, ,118, ,829,598 Borrowings ,902,091 1,148,751, ,278, ,936,864 Other liabilities 15 12,169,992 49,592,716 9,050,790 36,157,906 Current income tax liabilities 26 6,738,740 27,460,366 3,861,933 15,428,422 Severance pay obligation 16 2,534,965 10,329,982 1,847,855 7,382,181 Total liabilities 608,509,595 2,479,676, ,658,296 1,552,689,892 Shareholders' equity Share capital 17 47,000, ,525,000 19,685,067 78,641,843 Reserves ,482,607 22,341,624 4,698,399 18,770,098 Subordinated debts 18 11,204,313 45,657,577 11,428,679 45,657,577 Retained earnings 29,378, ,717,282 27,422, ,554,126 Total shareholders' equity 93,065, ,241,483 63,234, ,623,644 Total liabilities and shareholders' equity 701,574,989 2,858,918, ,893,251 1,805,313,536 The accompanying notes on pages 9 to 51 form an integral part of these financial statements. 5

8 INCOME STATEMENT Note Interest income ,575, ,370,387 68,115, ,119,489 Interest expense 20 (34,609,507) (141,033,741) (20,778,382) (83,009,636) Net interest income 72,966, ,336,646 47,336, ,109,853 Fee and commission expenses 21 (1,061,976) (4,327,552) (912,807) (3,646,664) Other operating income 22 2,109,438 8,595, ,202 2,909,167 Personnel expenses 23 (21,877,355) (89,150,222) (14,296,893) (57,116,088) Depreciation and amortisation charges 24 (1,916,739) (7,810,711) (1,314,858) (5,252,858) General and administrative expenses 25 (9,333,094) (38,032,358) (7,648,705) (30,556,576) Operating profit 40,886, ,611,763 23,891,573 95,446,834 Provision for bad and doubtful loans 7(a) (3,441,488) (14,024,064) (2,822,706) (11,276,710) Grant income 219, ,718 79, ,559 Profit before income tax 37,664, ,483,417 21,148,356 84,487,683 Income tax expense 26 (7,609,837) (31,010,086) (4,265,009) (17,038,711) Profit for the year 30,054, ,473,331 16,883,347 67,448,972 Attributable to equity holders of the Company 30,054, ,473,331 16,883,347 67,448,972 The accompanying notes on pages 9 to 51 form an integral part of these financial statements. 6

9 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Subordinated Retained Share capital Reserves (*) debts earnings Total US$ US$ US$ US$ US$ For the year ended 31 December 2013 Balance as at 1 January ,685,067 3,809,529 11,428,679 11,428,333 46,351,608 Profit for the year ,883,347 16,883,347 Transferred to reserves - 888,870 - (888,870) - Balance as at 31 December ,685,067 4,698,399 11,428,679 27,422,810 63,234,955 Equivalent in KHR'000 78,641,843 18,770,098 45,657, ,554, ,623,644 For the year ended 31 December 2014 Balance as at 1 January ,685,067 4,698,399 11,428,679 27,422,810 63,234,955 Transferred to share capital 27,314, (27,314,933) - Profit for the year ,054,805 30,054,805 Transferred to reserves - 784,208 - (784,208) - Currency translation difference - - (224,366) - (224,366) Balance as at 31 December ,000,000 5,482,607 11,204,313 29,378,474 93,065,394 Equivalent in KHR' ,525,000 22,341,624 45,657, ,717, ,241,483 (*) Please refer to note 2.16 of the financial statements. The accompanying notes on pages 9 to 51 form an integral part of these financial statements. 7

10 CASH FLOW STATEMENT Note Cash flows from operating activities Cash used in operations 27 (9,617,511) (39,191,357) (66,218,641) (264,543,471) Cash flows from investing activities Statutory capital deposit (2,610,994) (10,639,801) - - Purchases of property and equipment 10 (3,357,916) (13,683,508) (2,047,500) (8,179,763) Purchases of intangible assets 9 (771,147) (3,142,424) (65,960) (263,510) Proceeds from sales of property and equipment 27, ,842 50, ,152 Cash used in investing activities (6,712,611) (27,353,891) (2,063,109) (8,242,121) Cash flows from financing activities Proceeds from borrowings 126,081, ,783, ,483, ,230,756 Repayments of borrowings (79,457,988) (323,791,301) (44,587,027) (178,125,173) Cash generated from financing activities 46,623, ,991,891 95,896, ,105,583 Net increase in cash and cash equivalents 30,293, ,446,643 27,614, ,319,991 Cash and cash equivalents at the beginning of the year 52,918, ,407,418 25,303, ,087,427 Currency translation differences - 4,233, Cash and cash equivalents at the end of the year 28 83,211, ,087,503 52,918, ,407,418 Non-cash transaction: - Transfer of retained earnings to share capital (note 17). The accompanying notes on pages 9 to 51 form an integral part of these financial statements. 8

11 1. BACKGROUND INFORMATION PRASAC Microfinance Institution Limited ( the Company or PRASAC ), is engaged in providing financial services to rural communities and micro-enterprises of Cambodia through its head office in Phnom Penh and various branches in Phnom Penh and provinces in Cambodia. The Company was incorporated in Cambodia and registered with the Ministry of Commerce as a private limited liability company under the register number Co-6931/04P, dated 12 August 2004 and latest renewed on 29 July Renewal is required every three years. The net assets of PCA (PRASAC Credit Association) were transferred to PRASAC as subordinated debt, as discussed in note 18 to these financial statements, in accordance with the asset transfer document effective from 31 December The Central Bank granted a microfinance license to the Company effective from 14 December On 8 February 2011, the Company received a license from the Central Bank to conduct a deposit-taking business. On 1 December 2011, the Company received a permission from the Central Bank to conduct the Automatic Teller Machine ( ATM ) and POS services. On 10 April 2014, the NBC approved for the increase of share capital to KHR188,000 million (equivalent to US$47 million) and the changes in par value to KHR4,000 (equivalent to US$1) per share. Such changes were amended in Memorandum and Articles of Association which acknowledged by the Ministry of Commerce on 29 July The Company s head office is at Building 212, Street 271, Sangkat Tuol Tumpung 2, Khan Chamkarmon, Phnom Penh, Cambodia. As at 31 December 2014, the Company had 4,100 employees (31 December 2013: 2,765). The financial statements were approved for issue by the Board of Directors on 27 February SUMMARY OF 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 year presented, unless otherwise stated. 2.1 Basis of preparation The Company s financial statements have been prepared in accordance with the guidelines issued by the Central Bank and Cambodian Accounting Standards ( CAS ). In applying CAS, the Company also applies CFRS 7: Financial Instruments: Disclosures. The financial statements are prepared using the historical cost convention. 9

12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) The accounting principles applied may differ from generally accepted accounting principles adopted in other countries and jurisdictions. The accompanying financial statements are therefore not intended to present the financial position, financial performance and cash flows in accordance with jurisdictions other than Cambodia. Consequently, these financial statements are only addressed to those who are informed about Cambodian accounting principles, procedures and practices. The preparation of financial statements in accordance with the guidelines issued by the Central Bank and CAS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management s best knowledge of current events and actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note Change in accounting framework On 28 August 2009, the National Accounting Council of the Ministry of Economy and Finance announced the adoption of Cambodian International Financial Reporting Standards ("CIFRS") which are based on all standards published by International Accounting Standard Board (IASB) including other interpretation and amendment that may occur in any circumstances to each standard by adding Cambodian. Public accountable entities shall prepare their financial statements in accordance with CIFRS for accounting period beginning on or after 1 January The National Accounting Council of the Ministry of Economy and Finance through Circular No. 086 MoEF.NAC dated 30 July 2012 approves Banking and financial institution to delay adoption of CIFRS until the periods beginning on or after 1 January The first financial statement of the Company which will be prepared under CIFRS is the year ending 31 December CAS, the current accounting standard used, is different to CIFRS in many areas. Hence, the adoption of CIFRS will have significant impact on the financial statements of the Company. 2.3 Basis of aggregation The financial statements include the financial statements of the head office and its branches within Cambodia. On aggregation of balances, all significant inter-branch balances and transactions are eliminated in full. 10

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4 Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates ( the functional currency ). The Company transacts in three main currencies, Khmer Riel ( KHR ), United States Dollars ( US$ ) and Thai Baht ( THB ). The management has determined the US$ to be the Company s functional currency owing to the significant influence of the US$ on its operations. The financial statements are presented in US$, which is the Company s functional and presentation currency. (ii) Transactions and balances Transactions in currencies other than US$, the functional and presentation currency, are translated into US$ at the exchange rate prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than US$, are recognised in the income statement. (iii) Presentation in Khmer Riel For the sole regulatory purpose of complying with the Prakas No. B dated 13 December 2007 of the Central Bank, a translation to Khmer Riel ( KHR ) is provided for the balance sheet, the income statement, the statement of changes in shareholders equity, the cash flow statement and notes to the financial statements as of and for the year ended 31 December 2014 using the official rate of exchange published by the Central Bank as at the reporting date. 31 December December 2013 KHR/US$ 4,075 3,995 KHR/THB Such translation amounts are unaudited and should not be construed as representations that the US$ amounts represent, or have been or could be, converted into KHR at that or any other rate. 2.5 Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less where the Company has full ability to withdraw for general purpose whenever needed. 11

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 Loans to customers Loans to customers are stated in the balance sheet at the amount of principal outstanding less any amounts written off and specific and general provisions for bad and doubtful loans. The adequacy of the provision for bad and doubtful loans is evaluated monthly by management. The provision for doubtful loans charged to expense is based on the management s judgment of the amount necessary to maintain the provision balance at a level adequate to absorb losses. 2.7 Provision for bad and doubtful loans The Company follows the mandatory credit classification and provisioning as required by Prakas B , dated 13 September The Prakas requires microfinance institutions to classify their loan portfolio into the following four classes and ensure that the minimum mandatory level of specific provisioning is provided: Classification Number of days past due Provision Short term loan (less than one year): Standard 0-30 days 0% Substandard days 10% Doubtful days 30% Loss Over 90 days 100% Long term loan (more than one year): Standard 0-30 days 0% Substandard days 10% Doubtful days 30% Loss Over 360 days 100% In addition to the specific provisions, an additional general provision for bad and doubtful loans is made at the rate of 1.5% (2013: 1.5%) of total outstanding loans excluding staff loans as at balance sheet date which is based on the Company s experience and industry prospects. Loans are written off when there is no realistic prospect of recovery. Recovery of previously written-off loans to customers is recognised as other income in the income statement. 12

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.8 Severance pay Severance pay is accrued based on the monthly fixed salary of an employee with the rate of 8.33% (equal to one month salary for the year of service). This obligation will be paid to staff upon resignation or retirement. Staff are entitled to benefits based on their length of service (after completion of probation period and working at least six months) of regular employment, except termination due to serious offense. This obligation earns no interest. The severance obligation funds are maintained at saving accounts (non-interest bearing) under the name of each employee within the Company and the withdrawal can only be made upon resignation or retirement. 2.9 Property and equipment Items of property and equipment are recorded at cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred. Depreciation of property and equipment is charged to the income statement as the following: Description Method Annual rate Office furniture Declining 25% Motor vehicles Declining 25% Motorcycles Declining 25% Computers and peripherals Declining 50% Communication equipment Declining 25% Leasehold improvements Straight-line Lease period The assets residual values and useful lives are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. 13

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Intangible assets Computer software is stated at cost less accumulated amortisation and impairment loss, if any. Acquired computer software licenses are capitalised on the basis of the cost incurred to acquire the specific software and bring it to use. It is amortised at 50% annual rate using declining balance. Core Banking Licence is stated at cost less accumulated amortisation and accumulated impairment losses, if any. It is amortised over their estimated useful lives of 10 years using the straight-line method Impairment of non-financial assets Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably Deposits from customers Deposits from customers are stated at placement value Borrowings Borrowings are stated at the amount of the principal outstanding. Fees paid on the establishment of borrowing facilities are capitalised and amortised over the period of the borrowings using the straight-line method. Borrowing costs (interest expense) shall be recognised as an expense in the period in which they are incurred, except to the extent that they are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of that asset. Capitalisation of borrowing costs shall cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete Subordinated loans Subordinated loans are treated as financial liabilities when there are contractual obligations to deliver cash or financial assets to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity, if otherwise, it is treated as equity. The subordinated loans which are approved by the Central Bank are included as a Tier II line item in the calculation of the Company s net worth in accordance with the guidelines of the Central Bank. 14

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.15 Related party transactions Parties are considered to be related 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 the Company 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 the Company or voting rights and include any individual who participates in the administration, direction, management or internal control of the Company Reserves Special reserve Based on the memorandum and articles of association, the Company has to annually transfer an amount that provides capital protection from retained earnings into special reserves. The amount is equivalent to the annual inflation rate, but in any case no higher than 5%, multiplied by the subordinate debt amount. This reserve is non-distributable. ICO reserve Based on the loan agreement signed between Instituto De Crédito Oficial (ICO) of the Kingdom of Spain and PRASAC, the PRASAC shall undertake to establish and keep a reserve fund for the capital strengthening by transferring its net profit of each year, an amount equivalent to a 3.5% of the outstanding principal of the loan. This reserve is nondistributable Interest income and expense Interest income on loans to customers, balances with the Central Bank and balances with banks are recognised on an accrual basis. Where a loan becomes non-performing, the recording of interest income on loans to customers is suspended until it is realised on a cash basis. Loan administrative fee income is recognised as income when the loan is disbursed to customers. The loan fee income is calculated using the principal and fee rate. Expenses are recognised on an accrual basis. 15

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.18 Leases Leases in which a significant portion of risks and rewards of ownership of assets are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the leases Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are re-measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense Deferred income tax 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 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 taxes are calculated using a principal tax rate of 20%. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they related to income taxes levied by the same tax authority on the same taxable entity. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences 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. 3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates, assumptions and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 16

19 3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS (continued) a) Impairment losses on loans to customers The Company is required to follow the mandatory credit classification and provisioning in accordance with the Central Bank s Prakas No. B , dated 13 September The Central Bank requires microfinance institutions to classify their loan portfolios into four classes, and a minimum mandatory level of provision is made depending on the classification concerned. For the purpose of loan classification, the Company is required to take into account the borrower s historical payment experience and financial condition. In addition to the required provision, an additional provision for loan losses is made at the rate of 1.5% (2013: 1.5%) of all outstanding loans excluding staff loans, which has been approved by the Board of Directors. b) Income tax Taxes are calculated on the basis of current interpretation of the tax regulations. However, these regulations are subject to periodic variation and the ultimate determination of tax expense will be made following inspection by the General Department of Taxation. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the year in which such determination is made. 4. CASH ON HAND Head office 9,270,542 37,777,459 10,040,378 40,111,310 Branches 23,350,683 95,154,033 11,287,366 45,093,027 32,621, ,931,492 21,327,744 85,204, BALANCES WITH THE CENTRAL BANK Statutory capital deposit (i) 4,613,497 18,800,000 2,002,503 7,999,999 Reserve requirement (ii) 23,643,964 96,349,153 10,487,656 41,898,186 Current accounts (iii) 18,130,778 73,882,920 10,731,652 42,872,950 Term Deposit (iv) 12,760,736 52,000, ,148, ,032,073 23,221,811 92,771,135 17

20 5. BALANCES WITH THE CENTRAL BANK (continued) (i) Statutory capital deposit In compliance with Prakas B dated 13 December 2007 on the Licensing of Deposit- Taking Microfinance Institutions, the Company is required to maintain a statutory capital deposit with the Central Bank at 10% of registered capital. This deposit is refundable should the Company voluntarily liquidate. The statutory capital deposit is denominated in KHR and earns interest at 3% per annum. (ii) Reserve requirement The reserve requirement represents the minimum reserve requirement which is calculated at 8% of the total deposits from customers as required by Prakas B on the Licensing of Deposit-Taking Microfinance Institutions. Reserve deposit earns no interest. (iii) Current accounts Current accounts earn no interest. (iv) Term deposits Term deposits bear interest rate at from 1.27% to 1.32% per annum. 6. BALANCES WITH BANKS AND OTHER FINANCIAL INSTITUTIONS Current accounts 2,710,075 11,043,555 3,261,189 13,028,450 Savings accounts 16,988,843 69,229,536 13,686,399 54,677,164 Term deposits - - 3,911,018 15,624,517 19,698,918 80,273,091 20,858,606 83,330,131 Current accounts are non-interest bearing. The savings and term deposit accounts bear interest rates per annum as set out below: Savings accounts 0.05% to 0.50% 0.05% to 0.50% Term deposits 0.75% to 1.35% 0.75% to 1.20% 18

21 7. LOANS AND ADVANCES TO CUSTOMERS Group loans 4,799,490 19,557,922 4,226,836 16,886,210 Individual loans 575,744,276 2,346,157, ,846,593 1,497,512, ,543,766 2,365,715, ,073,429 1,514,398,349 Provision for bad and doubtful loans Specific (678,257) (2,763,897) (268,594) (1,073,033) General (8,677,515) (35,360,874) (5,663,250) (22,624,684) (9,355,772) (38,124,771) (5,931,844) (23,697,717) 571,187,994 2,327,591, ,141,585 1,490,700,632 (a) Provision for bad and doubtful loans The movements in provision for bad and doubtful loans to customers are as follows: At the beginning of the year 5,931,844 23,697,717 3,349,542 13,381,420 Provision during the year 3,441,488 14,024,064 2,822,706 11,276,710 Written off during the year - (224,841) (898,240) Currency translation differences (17,560) 402,990 (15,563) (62,173) At the end of the year 9,355,772 38,124,771 5,931,844 23,697,717 (b) By economic sector Trade and commerce 99,388, ,006,707 74,517, ,697,828 Agriculture 191,001, ,331, ,389, ,947,970 Consumption 165,039, ,534,577 95,651, ,126,316 Services 78,131, ,387,619 55,523, ,815,488 Transportation 43,261, ,289,341 28,406, ,482,761 Construction 3,721,653 15,165,737 2,585,228 10,327, ,543,766 2,365,715, ,073,429 1,514,398,349 19

22 7. LOANS AND ADVANCES TO CUSTOMERS (continued) (c) By relationship External customers 578,500,871 2,357,391, ,549,959 1,508,312,086 Staff loans 2,042,895 8,324,798 1,523,470 6,086, ,543,766 2,365,715, ,073,429 1,514,398,349 (d) By performance Standard loans: Secured 201,805, ,357, ,503, ,419,657 Unsecured 377,543,670 1,538,490, ,899,274 1,038,297,600 Sub-standard loans: Secured 44, , , ,392 Unsecured 240, , , ,803 Doubtful loans: Secured 101, ,694 26, ,989 Unsecured 269,844 1,099, , ,844 Loss loans: Secured 88, ,625 4,794 19,152 Unsecured 449,864 1,833, , , ,543,766 2,365,715, ,073,429 1,514,398,349 (e) Interest rate Group loans 22.8% % 22.8% % Individual loans 12% % 12% % Staff loans 12% 12% % 20

23 8. OTHER ASSETS Accrued interest receivable 6,967,712 28,393,426 4,516,386 18,042,962 Allowance for interest receivable (204,156) (831,936) (73,966) (295,494) Net interest receivable 6,763,556 27,561,490 4,442,420 17,747,468 Prepayments 3,975,982 16,202,127 3,166,049 12,648,366 Deposits 258,443 1,053, , ,352 Investment 28, ,781 28, ,527 Others 152, ,084 55, ,944 4,415,496 17,993,147 3,474,140 13,879,189 11,179,052 45,554,637 7,916,560 31,626, INTANGIBLE ASSETS Computer software Core banking system Total US$ US$ US$ Year ended 31 December 2013 Opening net book value 506, ,927 1,295,762 Additions 65,960-65,960 Adjustment 6, ,440 Amortisation charge (58,831) (99,616) (158,447) Closing net book value 520, ,398 1,209,715 At 31 December 2013 Cost 586, ,707 1,583,517 Accumulated amortisation (66,493) (307,309) (373,802) Net book value 520, ,398 1,209,715 Equivalent in KHR'000 2,078,666 2,754,145 4,832,811 Year ended 31 December 2014 Opening net book value 520, ,398 1,209,715 Additions 232, , ,147 Amortisation charge (226,756) (99,616) (326,372) Closing net book value 526,022 1,128,468 1,654,490 At 31 December 2014 Cost 819,271 1,535,393 2,354,664 Accumulated amortisation (293,249) (406,925) (700,174) Net book value 526,022 1,128,468 1,654,490 Equivalent in KHR'000 2,143,540 4,598,508 6,742,048 21

24 10. PROPERTY AND EQUIPMENT Office furniture Motor vehicles Motorcycles Computer and peripherals Leasehold improvements Communication equipment Work in progress Total US$ US$ US$ US$ US$ US$ US$ US$ Year ended 31 December 2013 Opening net book value 1,157, ,070 36, , , ,958-2,859,643 Additions 704, , , ,857 16, ,813 2,047,500 Disposals net (10,098) (13,914) (2,254) (1,986) (4,917) (4,515) - (37,684) Depreciation charge (360,757) (145,199) (8,557) (465,034) (143,002) (33,862) - (1,156,411) Closing net book value 1,490, ,157 25, , , , ,813 3,713,048 At 31 December 2013 Cost 2,159,185 1,084,894 55,219 1,917, , , ,813 6,346,440 Accumulated depreciation (668,286) (456,737) (29,622) (1,247,252) (180,508) (50,987) - (2,633,392) Net book value 1,490, ,157 25, , , , ,813 3,713,048 Equivalent in KHR'000 5,956,142 2,509, ,260 2,677,524 2,707, , ,663 14,833,626 22

25 10. PROPERTY AND EQUIPMENT (continued) Office furniture Motor vehicles Motorcycles Computer and peripherals Leasehold improvements Communication equipment Work in progress Total US$ US$ US$ US$ US$ US$ US$ US$ Year ended 31 December 2014 Opening net book value 1,490, ,157 25, , , , ,813 3,713,048 Additions 881, , , , , ,729 23,158 3,357,916 Disposals net (9,092) (8,368) - (455) (2,410) (395) - (20,720) Depreciation charge (461,524) (240,931) (57,101) (517,749) (276,519) (36,543) - (1,590,367) Closing net book value 1,901,419 1,026, , ,969 1,063, , ,971 5,459,877 At 31 December 2014 Cost 2,986,600 1,699, ,961 2,650,316 1,509, , ,971 9,569,965 Accumulated depreciation (1,085,181) (673,190) (82,315) (1,738,347) (445,901) (85,154) - (4,110,088) Net book value 1,901,419 1,026, , ,969 1,063, , ,971 5,459,877 Equivalent in KHR'000 7,748,282 4,183, ,557 3,716,273 4,335, , ,457 22,248,998 23

26 11. DEFERRED TAX ASSETS The movements of net deferred tax assets are as follows: Balance at beginning of year 504,182 2,014, ,201 1,015,533 Debited to income statement (note 26) 126, , , ,674 Currency translation differences (5,909) 16, Deferred tax assets/ (liabilities): Severance pay obligation 624,458 2,544, ,182 2,014,207 Unused annual leave Unrealised exchange loss Accelerated depreciation and amortisation Total US$ US$ US$ US$ US$ At 1 January ,878 86,509 72,221 (174,407) 254,201 Debited to the income statement 99,695 28, ,487 (16,370) 249,981 At 31 December , , ,708 (190,777) 504,182 Equivalent in KHR'0000 1,476, , ,778 (762,154) 2,014,207 At 1 January , , ,708 (190,777) 504,182 Debited to the income statement 137,422 47,927 (29,028) (30,136) 126,185 Translation difference (7,255) (2,251) (4,136) 7,733 (5,909) At 31 December , , ,544 (213180) 624,458 Equivalent in KHR'0000 2,036, , ,492 (868,709) 2,544,666 24

27 12. DEPOSITS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS Term deposits 16,485,822 67,179,725 9,439,414 37,710,459 Savings deposits 277,780 1,131,953 61, ,462 Interest rates are analysed as follows: 16,763,602 68,311,678 9,500,606 37,954,921 KHR US$ THB KHR US$ THB Term deposits 1.50%-7.50% 1.00%-5.50% %-9.50% 3.00%-7.00% - Savings deposits 0.50% 0.25% % 2.50% 2.00% 13. DEPOSITS FROM CUSTOMERS Term deposits 255,861,358 1,042,635, ,546, ,624,506 Savings deposits 32,538, ,595,801 16,571,988 66,205,092 The interest rates are analysed as follows: 288,400,205 1,175,230, ,118, ,829,598 KHR US$ THB KHR US$ THB Term deposits 5.25%-9.75% 4.75%-8% 5%-8.5% 5.25%-10% 4.5%-8.5% 5%-8.55% Savings accounts staff 2.5% 2% - 2.5%-2.5% 2%-2% - Savings deposits customers 0%-4% 0%-8.3% 0%-4% 0%-4% 0%-8.3% 0%-2% 14. BORROWINGS Related parties 42,595, ,575,501 44,361, ,222,691 Non-related parties 239,306, ,175, ,917, ,714, ,902,091 1,148,751, ,278, ,936,864 25

28 14. BORROWINGS (continued) Included in the borrowings are subordinated debts approved by the Central Bank: Related parties 5,000,000 20,375,000 5,000,000 19,975,000 Non-related parties 16,000,000 65,200,000 10,000,000 39,950,000 Subordinated debts 21,000,000 85,575,000 15,000,000 59,925,000 The Company did not default any payment of principal, interest or redemption amounts during the year (2013: nil). The borrowings bear interest rates per annum as set out below. All borrowings are unsecured. Khmer Riel 4.65% to 11.63% 4% to 11.63% US Dollars 6.39% to 11.13% 5.50% to 10.40% Thai Baht 10.28% to 11.05% 8.10% to 10.81% 15. OTHER LIABILITIES Accrued interest payable 9,576,449 39,024,030 5,286,095 21,117,950 Accrued bonuses/incentives* 14,598 59,487 1,967,306 7,859,387 Accrued expenses 1,406,820 5,732,790 1,106,544 4,420,643 Withholding taxes 152, , , ,883 Tax on salary 591,071 2,408,614 50, ,428 Other payable 428,161 1,744, ,990 1,873,615 12,169,992 49,592,716 9,050,790 36,157,906 * Performance bonuses and incentives for the financial year ended 31 December 2014 were paid in December SEVERANCE PAY OBLIGATION At beginning of the year 1,847,855 7,382,181 1,349,381 5,390,777 Charges during the year (note 23) 887,650 3,617, ,939 2,456,682 Payments during the year (200,540) (817,201) (116,465) (465,278) Currency translation differences - 147, Balance at the end of year 2,534,965 10,329,982 1,847,855 7,382,181 26

29 17. SHARE CAPITAL PSCo 5,170,000 21,067,748 2,165,475 8,651,071 BIO 10,457,500 42,614,313 4,379,898 17,497,693 DCG 10,457,500 42,614,313 4,379,898 17,497,693 FMO 10,457,500 42,614,313 4,379,898 17,497,693 LOLC 10,457,500 42,614,313 4,379,898 17,497,693 47,000, ,525,000 19,685,067 78,641,843 On 10 April 2014, the Company got approval from NBC to increase its registered capital from KHR80,000 million to KHR188,000 million (equivalent to US$47 million) by way of transferring from the retained earnings and splitting its par value per share from KHR20,000 to KHR4,000. Such changes were amended in Memorandum and Articles of Association which acknowledged by the Ministry of Commerce 29 July Ownership and number of shares are presented as below: Ownership Shares Ownership Shares PSCo 11.00% 5,170, % 440,024 BIO 22.25% 10,457, % 889,994 DCG 22.25% 10,457, % 889,994 FMO 22.25% 10,457, % 889,994 LOLC 22.25% 10,457, % 889, % 47,000, % 4,000,000 The total authorised number of ordinary shares at year end was 47,000,000 shares (2013: 4,000,000 shares) with a par value of KHR4,000 (2013: KHR20,000) per share. Abbreviation PSCo BIO DCG FMO LOLC : PRASAC Staff Company Limited : Belgian Investment Company for Developing Countries : Dragon Capital Group Limited : The Netherlands Development Finance Company : Lanka ORIX Leasing Company Limited 27

30 18. SUBORDINATED DEBTS Subordinated debt from the RGC 8,509,122 34,674,673 8,679,517 34,674,673 Subordinated debt from CRDF 2,695,191 10,982,904 2,749,162 10,982,904 11,204,313 45,657,577 11,428,679 45,657,577 i) Subordinated debt from the Royal Government of Cambodia ( the RGC ) The subordinated debt was denominated in KHR currency. The outstanding amount of KHR34,674,672,150 (equivalent to US$8,509,122 as at 31 December 2014) consists of the funds transferred by European Commission to the RGC and transferred by the RGC to PRASAC as subordinated debt on 31 December 2004 with the terms and conditions of the agreement as follows: a) The funds are recorded as Subordinated Debt in the accounting records of PRASAC. b) PRASAC shall repay the total value of the Subordinated Debt to the RGC on the following terms and conditions: 1. 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 the RGC. 2. The Subordinated Debt is non-distributable funds. 3. The Subordinated Debt is considered as Tier II Capital in the context of Article 15 of Prakas No. B on the licensing of Microfinance Institutions dated 11 January 2000 and shall be included when calculating the Capital Adequacy Ratio of PRASAC. Subsequently, this was superseded by the Central Bank s letter dated 22 May 2007 which recommended that PRASAC should request permission from the Central Bank to include Subordinated Debt as Tier II Capital in Capital Adequacy Ratio calculation. On 14 August 2007, PRASAC wrote a letter to the Central Bank requesting approval as subordinated debt in the calculation of net worth. It was approved by NBC on 12 December c) The subordinated debt bears no interest. 28

31 18. SUBORDINATED DEBTS (continued) ii) Subordinated debt from Cambodia Rural Development Foundation ( CRDF ) In 2007, the proceeds of the sale ( the Funds ) of Cambodia Rural Development Foundation ( CRDF ) s share transfer in the amount of KHR10,982,903,325 (equivalent to US$2,695,191 as at 31 December 2014) was treated as subordinated debt with conditions as follows: The Funds shall be made available to PRASAC as a perpetual subordinated debt as provided below and shall be utilised solely for the purpose of the long-term provision of microfinance to communities and micro-enterprises of Cambodia. a) The Funds are recorded as perpetual Subordinated Debt, CRDF Share Sale ( SDCSS ) in the accounting records of PRASAC with the following conditions: 1. The SDCSS is recorded into a separate account in the balance sheet of PRASAC; 2. The full amount of the SDCSS shall be included for the calculation of the net worth as Tier II Capital in the context of the Calculation of Net Worth and for all prudential ratio purposes, such as the Capital Adequacy Ratio; 3. The SDCSS shall bear no interest. 4. Any transfer of the SDCSS to a third party should be approved by all the parties to the agreement. b) The SDCSS shall only be repayable by PRASAC to CRDF in the following circumstances: 1. If PRASAC ceases to provide credit to rural communities and micro enterprises in Cambodia. If CRDF forms the view that PRASAC MFI has ceased to provide credit to rural communities and micro enterprises in Cambodia, CRDF may call upon PRASAC to repay the SDCSS. However, CRDF may not call upon PRASAC to repay the SDCSS without such allegations being first confirmed by an audit (the Audit ) to be carried out by a private international audit firm. The Audit will be carried out at the initiative of and will be financed by PRASAC; 2. If PRASAC does not approve the transfer of the SDCSS to a third party proposed by CRDF pursuant to clause 2.2. (d) of the agreement; 3. If PRASAC decides at any time and at its sole discretion to repay the SDCSS in full. c) In the event CRDF is dissolved, PRASAC shall no longer have the obligation to repay the SDCSS, and the amount outstanding will be converted into a special protected reserve in PRASAC s accounts, not distributable to shareholders. In case PRASAC is dissolved due to insolvency, the RGC shall be considered owner of the Funds. d) On 12 December 2007, PRASAC obtained the approval from the Central Bank to include subordinated debt above as Tier 2 in the net worth calculation, however, limited to 100% of base net worth (Tier 1). 29

32 18. SUBORDINATED DEBTS (continued) ii) Subordinated debt from Cambodia Rural Development Foundation ( CRDF ) (continued) On 19 September 2008, CRDF and the Ministry of Economy and Finance (MEF) signed agreement with the terms and conditions as follows: a) PRASAC will continue to use CRDF Funds solely for the purpose of the long-term provision of microfinance to individuals, rural and urban communities, and micro enterprise in Cambodia. b) The CRDF Funds shall be recorded as subordinated debt ( SD ) in the accounting records of PRASAC. c) PRASAC shall comply with the following terms and conditions: 1. The SD will not be repaid to the MEF unless PRASAC ceases to provide credit to individuals, rural and urban communities, and micro-enterprises in Cambodia as shall be evidenced in accordance with the provisions of (4) hereunder or unless PRASAC elects at its own discretion to repay all or part of the SD to MEF. 2. The SD is a non-distributable funds, i.e. the SD cannot be distributed to any party, except as stated in condition (4) below. 3. The SD will be considered as Tier II Capital and shall be included in the calculation of the net worth of PRASAC as per the regulations of the National Bank of Cambodia. 4. PRASAC is entitled to use part or all of the SD for facilitating the extension of short and long term credit to individuals, rural and urban communities and microenterprises in Cambodia. 5. If MEF forms the view that PRASAC has ceased to provide credit to individuals, rural and urban communities, and micro-enterprises in Cambodia or has violated its approved Memorandum and Articles of Association (MoA), with respect to Article 2: vision, mission and business objectives, Article 21: profit or loss restrictions on declaring dividend or has amended the MoA in violation of Article 24, paragraph 4, MEF may call upon PRASAC to repay the SD. However, MEF may not call upon PRASAC to repay the SD without such allegations being first confirmed by an audit to be carried out by a private internationally recognised audit firm. 6. In the unlikely event the individuals, rural and urban communities, and microenterprises in Cambodia to which PRASAC extended credit, are not able to honour debts, MEF agrees to these debts being offset against and thereby reducing the SD, to the extent that the losses of those credits cannot be covered by the accumulated own capital of PRASAC. The SD shall bear no interest, but the value of this SD shall be protected, to the extent that annual allocation shall be made to a Special Reserve based on the inflation rate published by National Institute of Statistic (NIS), capped at 5% p.a. As a condition for the non-interest bearing SD, PRASAC is obliged to strictly adhere to Article 21 of its MoA. This Special Reserve Account will be non-distributable to the shareholders. 30

33 19. INTEREST INCOME Individual loans 105,927, ,652,851 67,179, ,380,249 Group loans 1,454,097 5,925, ,960 3,355,640 Deposits with banks 194, ,090 96, , ,575, ,370,387 68,115, ,119, INTEREST EXPENSE Borrowings 20,226,213 82,421,818 14,211,997 56,776,928 Deposits from customers 14,383,294 58,611,923 6,566,385 26,232,708 34,609, ,033,741 20,778,382 83,009, FEE AND COMMISSION EXPENSES Fee on borrowings 983,493 4,007, ,411 3,477,292 Bank charges on borrowings 75, ,788 40, ,965 Others 3,443 14,030 1,854 7,407 1,061,976 4,327, ,807 3,646,664 31

34 22. OTHER OPERATING INCOME Fee income from local remittance and other services 662,268 2,698, ,813 1,065,918 Fee income from loans 637,572 2,598, ,194 1,466,940 Penalty income 421,332 1,716, , ,450 Foreign exchange loss/(gain)- unrealised 145, ,447 (692,439) (2,766,294) Loan loss recovered 124, ,064 99, ,361 Foreign exchange gain-realised 33, , ,119 1,622,445 Gain on disposal of property 6,744 27,482 13,431 53,657 Other income 78, ,318 22,951 91,690 2,109,438 8,595, ,202 2,909, PERSONNEL EXPENSES Salaries 16,505,628 67,260,434 11,385,914 45,486,728 Staff bonuses/incentives 3,881,700 15,817,928 1,837,322 7,340,101 Severance benefits (note 16) 887,650 3,617, ,939 2,456,681 Other staff benefits 602,377 2,454, ,718 1,832,578 21,877,355 89,150,222 14,296,893 57,116, DEPRECIATION AND AMORTISATION CHARGES Depreciation (noted 10) 1,590,367 6,480,746 1,156,411 4,619,862 Amortisation (note 9) 326,372 1,329, , ,996 1,916,739 7,810,711 1,314,858 5,252,858 32

35 25. GENERAL AND ADMINISTRATIVE EXPENSES Rental expenses 2,160,244 8,802,994 1,754,685 7,009,967 Fuel costs 991,766 4,041, ,053 3,084,352 Communications 729,399 2,972, ,896 2,320,680 Utilities 649,475 2,646, ,538 1,819,874 Printing and stationery 608,709 2,480, ,152 1,950,167 Maintenance 550,462 2,243, ,018 1,042,767 Per diem and travelling 525,259 2,140, ,368 1,511,580 Professional fees 499,024 2,033, ,222 1,882,532 Office supplies 443,476 1,807, ,992 1,190,478 License fees 435,823 1,775,979 16,746 66,900 Transportation 387,114 1,577, ,937 1,186,263 Marketing and promotions 341,586 1,391,963 1,126,318 4,499,640 Training 178, ,927 77, ,132 Bank charges 172, , , ,579 Other tax expenses 128, ,495 22,920 91,565 Others 530,909 2,163, ,896 1,985,100 9,333,094 38,032,358 7,648,705 30,556, INCOME TAX EXPENSE Current income tax 7,736,022 31,524,290 4,514,990 18,037,385 Deferred income tax (noted 11) (126,185) (514,204) (249,981) (998,674) Total income tax expense 7,609,837 31,010,086 4,265,009 17,038,711 (i) Provision for income tax Balance at the beginning of the year 3,861,933 15,428,422 2,465,405 9,849,293 Income tax expense 7,736,022 31,524,290 4,514,990 18,037,385 Income tax paid (4,859,215) (19,801,301) (3,118,462) (12,458,256) Currency translation differences - 308, ,738,740 27,460,366 3,861,933 15,428,422 33

36 26. INCOME TAX EXPENSE (continued) (ii) Reconciliation between accounting profit and income tax expense Profit before income tax 37,664, ,483,417 21,148,356 84,487,683 Tax calculated at a rate of 20% 7,532,928 30,696,683 4,229,671 16,897,537 Tax effects in respect of: Expenses not deductible for tax purpose 76, ,403 35, ,174 7,609,837 31,010,086 4,265,009 17,038, CASH USED IN OPERATIONS Note Profit before income tax 37,664, ,483,417 21,148,356 84,487,683 Adjustments for: Depreciation 24 1,590,367 6,480,746 1,156,411 4,619,862 Amortisation ,372 1,329, , ,996 Provision for bad and doubtful loans 3,441,488 14,024,064 2,822,706 11,276,710 Net interest income (72,966,048) (297,336,646) (47,336,634) (189,109,853) Gain on disposal of property and equipment (6,744) (27,482) (13,426) (53,637) Unrealised exchange gain on subordinated debts (224,366) (914,291) - - (30,174,289) (122,960,227) (22,064,140) (88,146,239) Changes in: Loans and advances to customers (201,487,897) (821,063,180) (164,456,239) (657,002,675) Reserve requirement (13,156,308) (53,611,955) (6,478,266) (25,880,673) Other assets (935,429) (3,811,874) (1,705,288) (6,812,626) Deposits from banks and financial institutions 7,262,996 29,596,709 3,588,621 14,336,541 Deposits from customers 159,281, ,071,734 77,819, ,887,025 Severance pay obligation 687,110 2,799, ,474 1,991,404 Other liabilities (1,171,152) (4,772,444) 1,640,753 6,554,808 Cash used in operations (79,693,562) (324,751,265) (111,157,055) (444,072,435) Interest income received 105,254, ,911,757 66,238, ,623,455 Interest expense paid (30,319,153) (123,550,548) (18,181,786) (72,636,235) Income tax paid (4,859,215) (19,801,301) (3,118,462) (12,458,256) Cash used in operating activities (9,617,511) (39,191,357) (66,218,641) (264,543,471) 34