KREDIT MICROFINANCE INSTITUTION PLC. (FORMERLY KNOWN AS CREDIT LIMITED) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013

Transcription

1 FINANCIAL STATEMENTS

2 FINANCIAL STATEMENTS CONTENTS Pages Directors report 1-4 Independent auditor s report 5-6 Balance sheet 7 Income statement 8 Statement of changes in equity 9 Cash flow statement 10 Notes to the financial statements APPENDIX: Notes on compliance with the Central Bank s Prakas * i - viii * The Appendix does not form part of the audited financial statements.

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9 BALANCE SHEET AS AT 31 DECEMBER 2013 Note ASSETS Cash on hand 4 3,188,770 12,739,135 2,495,743 9,970,491 Balances with the Central Bank 5 4,480,784 17,900,732 5,628,091 22,484,224 Balances with banks 6 2,348,055 9,380,480 1,279,775 5,112,701 Loans to customers 7 73,722, ,521,787 53,164, ,392,500 Other assets 8 1,580,932 6,315,823 1,214,672 4,852,615 Property and equipment 9 850,064 3,396, ,681 2,699,346 Intangible assets 10 1,110,050 4,434,650 11,091 44,309 Investment in Credit Bureau Cambodia 17,500 69,913 17,500 69,913 Deferred tax assets 11 82, ,894 59, ,758 Total assets 87,381, ,089,420 64,546, ,863,857 LIABILITIES AND EQUITY LIABILITIES Deposits from banks and customers 12 16,217,004 64,786,931 8,952,133 35,763,771 Borrowings 13 51,106, ,171,007 42,354, ,207,945 Deferred grants 14 92, ,133 84, ,072 Current income tax liabilities ,555 2,127, , ,167 Other liabilities 15 2,656,520 10,612,797 1,667,594 6,662,038 Total liabilities 70,605, ,068,425 53,286, ,877,993 EQUITY Share capital 16 4,970,700 19,857,947 3,868,200 15,453,459 Share premium 16 1,397,500 5,583, Donated capital 17 1,194,901 4,773,629 1,137,163 4,542,965 Subordinated debts 18 2,000,000 7,990,000 1,250,000 4,993,750 Reserves 936,562 3,741, ,723 1,133,473 Retained earnings 6,276,556 25,074,841 4,721,456 18,862,217 Total equity 16,776,219 67,020,995 11,260,542 44,985,864 Total liabilities and equity 87,381, ,089,420 64,546, ,863,857 The accompanying notes on pages 11 to 48 form an integral part of these financial statements. 7

10 (FORMERLY KNOW AS CREDIT LIMITED) INCOME STATEMENT Note US$ KHR 000 US$ KHR 000 Interest income 19 16,188,135 64,671,599 12,495,101 49,917,925 Interest expenses 20 (4,916,843) (19,642,787) (4,038,493) (16,133,780) Net interest income 11,271,292 45,028,812 8,456,608 33,784,145 Loan impairment charges 7 (132,530) (529,457) (62,912) (251,333) Net interest income after loan impairment charges 11,138,762 44,499,355 8,393,696 33,532,812 Other operating income 21 98, ,818 95, ,781 Personnel expenses 22 (5,425,632) (21,675,400) (4,232,920) (16,910,515) Depreciation and amortisation charges 23 (335,956) (1,342,144) (285,230) (1,139,494) General and administrative expenses 24 (2,473,202) (9,880,442) (2,150,019) (8,589,326) Other gain-net 25 25, ,141 66, ,341 Operating income 3,028,117 12,097,328 1,887,510 7,540,599 Grant income , , ,295 1,035,884 Profit before income tax 3,272,816 13,074,901 2,146,805 8,576,483 Income tax expense 27 (658,669) (2,631,383) (423,286) (1,691,028) Profit for the year 2,614,147 10,443,518 1,723,519 6,885,455 The accompanying notes on pages 11 to 48 form an integral part of these financial statements. 8

11 (FORMERLY KNOW AS CREDIT LIMITED) STATEMENT OF CHANGES IN EQUITY Reserve Share capital Currency translation reserve Share premium Donated capital Subordinated debt Legal reserve for capital strengthe ning Retained earnings Total US$ US$ US$ US$ US$ US$ US$ US$ US$ Balance as at 1 January ,868, ,057,389 1,250, ,587-3,420,989 9,792,165 Transfer to donated capital ,773-88,136 - (88,136) 79,773 Dividend paid (334,915) (334,915) Profit for the year ,723,519 1,723,519 Balance as at 31 December ,868, ,137,162 1,250, ,723-4,721,457 11,260,542 Equivalent in KHR ,453, ,542,962 4,993,750 1,133,473-18,862,220 44,985,864 Balance as at 1 January ,868, ,137,162 1,250, ,723-4,721,457 11,260,542 Transfer to donated capital , ,739 Share conversion of donated capital 1,102,500-1,397,500 - (1,250,000) ,250,000 Subordinated debts ,000, ,000,000 Transfer to reserves , ,534 (649,710) - Currency translation difference - 3, ,129 Dividend paid (409,338) (409,338) Profit for the year ,614,147 2,614,147 Balance as at 31 December ,970,700 3,129 1,397,500 1,194,901 2,000, , ,534 6,276,556 16,776,219 Equivalent in KHR ,857,947 12,500 5,583,013 4,773,629 7,990,000 1,477,747 2,251,318 25,074,841 67,020,995 The accompanying notes on pages 11 to 48 form an integral part of these financial statements. 9

12 (FORMERLY KNOW AS CREDIT LIMITED) CASH FLOW STATEMENT Note Cash flows from operating activities Profit before income tax 3,272,816 13,074,901 2,146,805 8,576,483 Adjustments for: Depreciation and amortisation ,956 1,342, ,230 1,139,494 Deferred grant income 14 (244,699) (977,573) (259,295) (1,035,884) Property and equipment write-off 9 2,567 10, ,213 Allowance for bad and doubtful loans 7 132, ,457 62, ,333 Net gain on disposals of property and equipment (2,125) (8,491) (3,202) (12,792) Net interest income and expenses (11,271,292) (45,028,812) (8,410,974) (33,601,841) (7,774,247) (31,058,119) (6,177,970) (24,680,994) Changes in working capital Balances with banks (1,031,900) (4,122,441) 1,050,000 4,194,750 Balances with the Central bank (573,657) (2,291,760) (516,650) (2,064,017) Loans to customers (20,690,549) (82,658,743) (8,937,809) (35,706,547) Other assets (116,240) (464,378) (84,087) (335,928) Deposits from banks and customers 7,264,871 29,023,160 4,895,512 19,557,570 Other liabilities 440,293 1,758, ,311 1,890,882 Net cash used in operations (22,481,429) (89,813,305) (9,297,693) (37,144,284) Interest income received 15,938,115 63,672,769 12,287,922 49,090,248 Interest expense paid (4,368,209) (17,450,995) (3,886,983) (15,528,497) Income tax paid 27 (376,002) (1,502,128) (501,623) (2,003,984) Grant received ,212 1,239, ,188 1,434,958 Net cash used in operating activities (10,977,313) (43,854,362) (1,039,189) (4,151,559) Cash flows from investing activities Purchases of property and equipment 9 (520,560) (2,079,637) (465,148) (1,858,266) Purchases of intangible assets 10 (1,110,193) (4,435,221) (2,000) (7,990) Proceed from disposals of property and equipment 21,014 83,950 3,712 14,829 Net cash used in investing activities (1,609,739) (6,430,908) (463,436) (1,851,427) Cash flows from financing activities Proceeds from borrowings 27,352, ,271,803 24,772,981 98,968,059 Repayments of borrowings (17,350,437) (69,314,996) (16,038,848) (64,075,198) Proceeds from subordinated debts 18 2,000,000 7,990, Currency translation reserve 3,130 12, Dividend paid out (409,338) (1,635,305) (334,915) (1,337,985) Net cash from financing activities 11,595,496 46,324,006 8,399,218 33,554,876 Net increase/(decrease) in cash and cash equivalents (991,556) (3,961,264) 6,896,593 27,551,890 Cash and cash equivalents at the beginning of the year 8,219,166 32,835,566 1,322,572 5,341,868 Currency translation differences (58,192) Cash and cash equivalents at the end of the year 28 7,227,610 28,874,302 8,219,165 32,835,566 The accompanying notes on pages 11 to 48 form an integral part of these financial statements. 10

13 1. BACKGROUND INFORMATION KREDIT Microfinance Institution Plc., formerly known as CREDIT Limited ( the Company ) was registered as a limited liability company on 13 June 2003 with the Ministry of Commerce and granted a 99-year business licence (the remaining business licence is approximately 90 years), and the assets transfer was made from the World Relief Cambodia CREDIT Program to the Company on 1 January The National Bank of Cambodia ( the Central Bank ) granted KREDIT Microfinance Institution Plc. a permanent licence to conduct business as a micro-finance institution on 17 April On 29 December 2010, the Company received a licence from the Central Bank to conduct a deposit-taking business. The Company s Central office is at House No. 71, St. 163, Sangkat Toul Svay Prey I, Khan Chamkarmorn, Phnom Penh, the Kingdom of Cambodia. The Company has thirteen branch offices located in Phnom Penh, Kampong Cham, Kampong Chhnang, Siem Reap, Prey Veng, Neak Leoung, Battambang, Kandal, Takeo, Kratie, Svay Rieng, Kampot and Thbong Khmom. As at 31 December 2013, the Company had 994 employees (31 December 2012: 848 employees). The financial statements were authorised for issue by the Board of Directors on 13 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The financial statements have been prepared in accordance with the guidelines issued by the Central Bank and Cambodian Accounting Standards ( CAS ). 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 and results of operations and cash flows in accordance with jurisdictions other than Cambodia. Consequently, these financial statements are addressed only to those who are informed about Cambodia accounting principles, procedures and practices. The financial statements are prepared using the historical cost convention. 11

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued). 2.1 Basis of preparation (continued) The preparation of financial statements in accordance with 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 event and actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3 to the financial statements. 2.2 New accounting standards and interpretations 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 including other interpretations and amendments 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 banks and financial institutions to delay adoption of CIFRS until the periods beginning on or after 1 January The first financial statements 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 Foreign currencies (a) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in US$, which is the Company s functional and presentation currency. For the sole regulatory purpose of complying with the Prakas No. B dated 13 December 2007 of the Central Bank, a translation to Khmer Riel ( KHR ) is provided for the balance sheet, income statement, statement of changes in equity, cash flow statement and notes to the financial statements as of and for the financial period ended 31 December 2013 using the official rate of exchange regulated by the Central Bank as at the reporting date, which was US$ 1 to KHR 3,995 (31 December 2012: US$ 1 to KHR 3,995). 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. 12

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued). 2.3 Foreign currencies (continued). (b) Transactions and balances Transactions in currencies other than US$, the functional and presentation currency, are translated into US$ at the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rate of monetary assets and liabilities denominated in currencies other than US$ are recognised in the income statement. 2.4 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, the non-restricted balances with the Central Bank, and balances with banks, with original maturities of three months or less from the date of acquisition. 2.5 Loans to customers Loans to customers are stated in the balance sheet at the amount of the principal outstanding less any amounts written off and provision for bad and doubtful loans. Loans are written off when there is no realistic prospect of recovery. Recovery of previously written-off loans to customers is recognised in the income statement. 2.6 Provision for bad and doubtful loans The Company follows the mandatory credit classification and provisioning as required by the Prakas No. 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 loans (less than one year) Standard Less than 30 days 0% Sub-standard Equal to or more than 30 days 10% Doubtful Equal to or more than 60 days 30% Loss Equal to or more than 90 days 100% Long-term loans (more than one year) Standard Less than 30 days 0% Sub-standard Equal to or more than 30 days 10% Doubtful Equal to or more than 180 days 30% Loss Equal to or more than 360 days 100% In addition to the above provision, an additional provision for loan losses is made based on the Company s experience and industry prospects mainly focusing on Risk Coverage Ratio. Every month, the Risk Coverage Ratio must be equal to 100%. Risk Coverage Ratio is calculated by taking the provision for bad and doubtful loans (including specific provision) divided by non-performing loans, as approved by the Board of Directors. 13

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is possible that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repair 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 on a straight-line basis over the estimated useful lives of the individual assets as follows: Computers Motor vehicles Office furniture and equipment 3 years 3-5 years 3-8 years 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. 2.8 Intangible assets Intangible assets consist of computer software and are stated at cost less accumulated amortisation and accumulated impairment losses. Acquired computer software is capitalised on the basis of the cost incurred to acquire the specific software and bring it into use. Intangible assets are amortised over their estimated useful lives of four years using the straight-line method. 2.9 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. 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 assessing impairment, assets are grouped at the lowest levels for which there are separately identified cash flows (cash-generating units). 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. 14

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Borrowings Borrowings are stated at the amount of the principal outstanding Subordinated debts Subordinated debts are treated as financial liabilities when there are contractual obligations to deliver cash or financial assets to the other entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Company; if otherwise, it is treated as equity. The subordinated debts 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 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 Provident fund The Company provides its employees with benefits under the provident fund policy. A monthly provision equal to 1/12 of each employee s salary for those who work for five years or less; and 1.3/12 of each employee s salary for those who work more than five years is accrued for this provident fund. This provident fund will be fully paid to employees upon their retirement or resignation of employment. The Company accrues the liability annually under a provident fund liability account and transfers this provident fund to individual staff s saving account in the following year. The employee s saving account earns interest at 5% per annum. 15

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.14 Reserves (i) Legal reserve Reserve is calculated at 5% of the Company s profit for the year in accordance with the Memorandum and Articles of Association. This transfer shall cease when the reserve fund equals 10% of the Company s registered capital. (ii) Reserve for capital strengthening According to the loan agreement between Instituto De Crédito Oficial (ICO) of the Kingdom of Spain and the Company, the Company is required, during the life of the loan, to transfer annually the retained earnings to reserve capital strengthening at 3.5% of outstanding principal of the loan from ICO, under the Spanish Microfinance Program. The reserve is for Institutional Strengthening, and still retained in the reserve account of the life of the loan, except otherwise agrees by ICO Investment in unquoted equity instruments For investment in unquoted equity instruments without significant influence, the Company recognise and measure the investment in unquoted shares at cost, less any impairment Donation and grants Grants received to subsidise the Company s operating and administrative expenses are released to the income statement as grant income over the periods in which they are expected to be utilised for intended purposes as stipulated in their respective grant agreements. Grant received to be used by the Company for funding its loan disbursements are treated as donated capital as part of shareholders equity in the balance sheet. However, if the donors advise clearly in the grant agreement that it should be the Company s income, it will be treated as grant income in the income statement. The remaining grants as of and for the year ended are shown in the balance sheet as differed grant income 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. Interest expenses on deposits from customers, borrowings and subordinated debts are recognised on an accrual basis. 16

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.18 Loan processing income The processing income from loan is immediately recognised in the income statement upon the initial loan disbursement Borrowing processing expense Fees paid on the establishment of borrowing facilities are capitalised and amortised over the period of the borrowings using the straight-line method Leases Leases in which a significant portion of risks and rewards of ownership of assets are retained by the leaser 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 Current and deferred income tax The current income tax charge is calculated on the basis of the tax law enacted or substantively enacted at the reporting date in Cambodia where the Company operates and generates taxable income. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates expected to be applied to temporary differences when they reverse, based on laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which temporary difference 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. 17

20 3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS The Company makes estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. 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. (a) Impairment losses on loans to customers The Company is required to follow the mandatory credit classification and provisioning in accordance with the Prakas No. B dated 13 September 2002 on the classification and provisioning for bad and doubtful debts. The Central Bank requires microfinance institutions to classify their loan portfolios into four classes and ensure that the minimum mandatory level of specific provision is made depending on the classification concerned and regardless of the assets (except for cash) pledged as collateral. 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 based on the Company s experience and industry prospects mainly focusing on Risk Coverage Ratio every month, the Risk Coverage Ratio must be equal to 100%. Risk Coverage Ratio is calculated by taking the provision for bad and doubtful loans (including specific provision) divided by non-performing loans, as approved by the Board of Directors. (b) Taxes Taxes are calculated on the basis of current interpretations of the tax regulations. However, these regulations are subject to periodic variation and the ultimate determination of tax expenses will be made following inspection by the tax authorities. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 4. CASH ON HAND Head office 123, , , ,951 Branches 3,065,338 12,246,025 2,378,358 9,501,540 3,188,770 12,739,135 2,495,743 9,970,491 18

21 5. BALANCES WITH THE CENTRAL BANK Statutory capital deposit 497,692 1,988, ,692 1,988,280 Reserve requirement 1,260,407 5,035, ,751 2,743,568 Current accounts 2,722,685 10,877,126 4,443,648 17,752,376 (i) Statutory capital deposit 4,480,784 17,900,732 5,628,091 22,484,224 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 of 5% of the registered capital. This deposit is refundable should the Company voluntarily liquidate and have no deposit liabilities. (ii) Reserve deposit The reserve deposit represents the minimum reserve requirement, which is calculated at 8% of the total deposits from customers, as required by the Prakas B on the Licensing of Deposit-Taking Microfinance Institutions. (iii) Interest rates Reserve deposit and current accounts are non-interest bearing. The statutory capital deposit in US$ earns interest ranging from 0.28% to 0.68%. The interest payment is settled semiannually. 6. BALANCES WITH BANKS Current accounts 26, , , ,746 Fixed accounts 1,031,900 4,122, Savings accounts 1,289,465 5,151,414 1,083,093 4,326,955 2,348,055 9,380,480 1,279,775 5,112,701 Current accounts are non-interest bearing. Annual interest rates on savings accounts and fixed accounts are at the rate ranging 0.05% to 2% and 1% to 4.25% respectively. 19

22 7. LOANS TO CUSTOMERS Solidarity loans 5,361,441 21,418,957 3,501,742 13,989,459 Individual loans 68,568, ,932,116 49,800, ,951,362 73,930, ,351,073 53,301, ,940,821 Mandatory provision (71,746) (286,625) (61,441) (245,457) General provision (135,835) (542,661) (75,811) (302,864) Provision for bad and doubtful loans (207,581) (829,286) (137,252) (548,321) (a) Provision for bad and doubtful loans 73,722, ,521,787 53,164, ,392,500 The movements in provision for bad and doubtful loans to customers are as follows: At beginning of the year 137, , , ,479 Provision during the year 132, ,457 62, ,333 Bad debts written-off (61,887) (247,240) (75,081) (299,949) Currency translation differences (314) (1,252) 365 1,458 At end of the year 207, , , ,321 (b) By maturity Less than 1 month 3,300,046 13,183,684 3,431,565 13,709,100 1 month and less than 3 months 10,040,618 40,112,269 7,629,659 30,480,488 3 months and less than 12 months 40,539, ,953,557 30,442, ,617,212 1 year and less than 5 years 19,990,452 79,861,856 11,798,253 47,134,021 Over 5 years 60, , ,930, ,351,073 53,301, ,940,821 20

23 7. LOANS TO CUSTOMERS (continued) (c) By currency US Dollars 58,728, ,620,749 41,832, ,121,658 Khmer Riel 15,201,583 60,730,324 11,469,127 45,819,163 (d) By economic sector 73,930, ,351,073 53,301, ,940,821 Agriculture 23,178,696 92,598,891 16,942,829 67,686,598 Services 11,612,171 46,390,623 8,864,279 35,412,795 Trade and commerce 24,990,926 99,838,749 19,129,657 76,422,980 Other categories 14,148,388 56,522,810 8,365,068 33,418,448 (e) By relationship 73,930, ,351,073 53,301, ,940,821 External customers 73,339, ,665,032 52,770, ,816,419 Staff loans 590,999 2,686, ,765 2,124,402 73,930, ,351,073 53,301, ,940,821 21

24 7. LOANS TO CUSTOMERS (continued) (f) By location Head Office 821,695 3,282, ,832 2,715,924 Phnom Penh 7,722,939 30,853,141 6,148,408 24,562,889 Kampong Cham 10,805,335 43,167,313 8,584,018 34,293,151 Prey Veng 4,630,899 18,500,442 3,250,555 12,985,967 Neak Leoung 7,749,589 30,959,608 6,388,903 25,523,666 Thbong Khmom 8,422,896 33,649,470 6,610,312 26,408,196 Kampong Chhnang 6,582,983 26,299,017 5,110,673 20,417,140 Siem Reap 5,917,515 23,640,472 4,252,927 16,990,443 Battambang 6,787,191 27,114,828 4,548,259 18,170,293 Takeo 5,693,384 22,745,069 4,460,754 17,820,710 Kandal 4,251,169 16,983,420 2,576,543 10,293,288 Kratie 1,762,922 7,042, ,007 2,460,950 Svay Rieng 1,667,704 6,662,477 74, ,204 Kampot 1,113,960 4,450, (g) Analysis by security on performing and non-performing loans 73,930, ,351,073 53,301, ,940,821 Standard loans: Secured 73,722, ,521,787 53,164, ,392,504 Unsecured Sub-standard loans: Secured 44, ,117 55, ,628 Unsecured Doubtful loans: Secured 126, ,008 36, ,138 Unsecured Loans loss: Secured 36, ,161 44, ,551 Unsecured ,930, ,351,073 53,301, ,940,821 22

25 7. LOANS TO CUSTOMERS (continued) (h) Interest rate The annual interest rates during the year are as follows: Loan in US$ 9%-36% 22%-30% Loan in Riel 23%-36% 24%-36% Staff loans 12% 12% 8. OTHER ASSETS Accrued interest receivable 968,154 3,867, ,134 2,868,945 Prepayments and deposits 551,076 2,201, ,056 1,738,049 Others 61, ,499 61, ,621 1,580,932 6,315,823 1,214,672 4,852,615 23

26 9. PROPERTY AND EQUIPMENT Office furniture Computers Motor vehicles and equipment Total US$ US$ US$ US$ Year ended 31 December 2012 Opening net book value 66, , , ,507 Additions 97, , , ,148 Disposals - net (33) - (1,033) (1,066) Depreciation charge (note 23) (57,503) (144,429) (74,976) (276,909) Closing net book value 106, , , ,681 At 31 December 2012 Cost 283, , ,149 1,544,283 Accumulated depreciation (177,130) (527,529) (163,943) (868,602) Net book value 106, , , ,681 Equivalent in KHR 000 (Unaudited) 423,997 1,291, ,593 2,699,346 Year ended 31 December 2013 Opening net book value 106, , , ,681 Additions 59, , , ,560 Write off - net - - (2,567) (2,567) Disposals - net - (13,184) (5,704) (18,888) Depreciation charge (note 23) (65,512) (161,891) (97,319) (324,722) Closing net book value 99, , , ,064 At 31 December 2013 Cost 314, , ,383 1,976,773 Accumulated depreciation (214,314) (665,699) (246,696) (1,126,709) Net book value 99, , , ,064 Equivalent in KHR 000 (Unaudited) 398,977 1,296,409 1,700,620 3,396,006 24

27 10. INTANGIBLE ASSETS Computer software US$ Year ended 31 December 2012 Opening net book value 17,412 Additions 2,000 Amortisation charge (note 23) (8,321) Closing net book value 11,091 At 31 December 2012 Cost 19,412 Accumulated amortisation (8,321) Net book value 11,091 Equivalent in KHR 000 (Unaudited) 44,309 Year ended 31 December 2013 Opening net book value 11,091 Additions 1,110,193 Amortisation charge (note 23) (11,234) Closing net book value 1,110,050 At 31 December 2013 Cost 1,121,284 Accumulated amortisation (11,234) Net book value 1,110,050 Equivalent in KHR 000 (Unaudited) 4,434,650 25

28 11. DEFERRED TAX ASSETS 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. Deferred tax is calculated on the temporary differences under the liability method using the tax rate of 20% (2012: 20%) The following amounts, determined after appropriate offsetting, are shown in the balance sheet: Deferred tax assets 104, ,223 82, ,832 Deferred tax liabilities (21,359) (85,329) (22,797) (91,074) 82, ,894 59, ,758 Deferred tax assets and liabilities mainly arise from the temporary differences resulting from provision for staff provident fund, provision for 13 th month salary and staff retreat and unrealised loss on foreign exchange and depreciable assets respectively. The movements of net deferred tax assets are as follows: Balance at beginning of year 59, , , ,266 Charged/(Credited) to the income statement 23,313 93,136 (79,977) (319,508) 82, ,894 59, ,758 26

29 11. DEFERRED TAX ASSETS (continued) Provident fund obligation Provision Total Deferred tax assets US$ US$ US$ At 1 January ,458 41, ,286 Credited/(Charged) to the income statement (84,510) 535 (83,975) At 31 December ,948 42,363 82,311 Equivalent in KHR 000 (Unaudited) 159, , ,832 Credited to the income statement 21, ,875 At 31 December ,045 43, ,186 Equivalent in KHR 000 (Unaudited) 243, , ,223 Accelerated Unrealised tax exchange depreciation gain Total Deferred tax liabilities US$ US$ US$ At 1 January 2012 (10,618) (16,176) (26,794) Credited to the income statement 675 3,322 3,997 At 31 December 2012 (9,943) (12,854) (22,797) Equivalent in KHR 000 (Unaudited) (39,722) (51,352) (91,074) Credited to the income statement (6,778) 8,216 1,438 At 31 December 2013 (16,721) (4,638) (21,359) Equivalent in KHR 000 (Unaudited) (66,800) (18,529) (85,329) 27

30 12. DEPOSITS FROM BANKS AND CUSTOMERS Voluntary savings Savings deposits 2,968,512 11,859,205 1,832,693 7,321,608 Term deposits 13,248,492 52,927,726 7,119,440 28,442,163 Deposit from banks and customer are breakdown as follows: 16,217,004 64,786,931 8,952,133 35,763,771 US$ KHR 000 US$ KHR 000 Deposit from banks 1,250,654 4,996, ,524 2,838,543 Deposit from customers 14,966,350 59,790,568 8,241,609 32,925,228 The term deposits bear interest at the following annual rates: 16,217,004 64,786,931 8,952,133 35,763,771 US$ Riel US$ Riel One-month term 4.75% 5.25% - - Three-month term 5.75% 6.75% 5% 7% Six-month term 6.50% 8% 6% 8.50% 12-month term 8% 10% 7.50% 10% 24-month term 8.5% 10.50% 8.50% 11% 36-month term 8.5% 12%

31 13. BORROWINGS Related parties: Phillip Capital (i) - - 1,250,000 4,993, ,250,000 4,993,750 ICO-Spain 9,905,600 39,572,872 9,905,600 39,572,872 Planet Finance/Planis 5,591,666 22,338,706 6,500,000 25,967,500 Developing World Market 5,010,964 20,018,801 5,010,964 20,018,801 Oikocredit 4,734,668 18,914,999 5,226,948 20,881,657 INCOFIN International Investment 3,501,877 13,989,999 3,501,877 13,989,999 BlueOrchard Finance SA 3,500,000 13,982, Symbiotic 3,118,773 12,459,498 3,100,000 12,384,500 Responsiblity 2,000,000 7,990, BIB-Germany 2,000,000 7,990,000 1,000,000 3,995,000 Sym-DRF-SICAV 2,000,000 7,990, Maruhan Japan Bank 1,575,000 6,292,125 2,075,468 8,291,495 ConCap 1,500,000 5,992, VDK Spaar Bank 1,500,000 5,992, Microfinance Enhancement Facility (ii) 1,400,000 5,593, Micro Credit Enterprise 1,250,000 4,993, ,000 2,996,250 HwangDBS 875,000 3,495, GoodDeed 500,000 1,997, Individual lender 369,196 1,474, ,492 2,355,020 Etimos (Consorzio Etimos s.c) 323,791 1,293,545 1,447,588 5,783,114 KIVA 222, , ,472 2,758,436 Partner for Development (PFD) 200, , , ,000 Triple Jump - - 1,000,000 3,995,000 World Hope International 27, , , ,551 51,106, ,171,007 41,104, ,214,195 51,106, ,171,007 42,354, ,207,945 The borrowings mature between 6 May 2014 and 15 September 2023 and bear interest rates ranging from 4.75% to 13.15% per annum (2012: 4.75% to 15.29%). All borrowings are unsecured. The Company has not had any defaults of principal, interest or redemption amounts during the year on its borrowings (2012: nil). (i) The debt from shareholder of US$ 1,250,000 was converted into capital during year (See note 16) 29

32 13. BORROWINGS (continued) (ii) Borrowing from Microfinance Enhancement Facility amounting to US$1,400,000, starting from 14 August 2013 to 08 October 2015 with net interest rate of 6.90% per annum to be paid semi-annually. As at 31 December 2013, the Company breached the covenant by failure to maintain Open Foreign Currency Exposure within the requirement threshold between 50% and 60%. The actual level of Open Foreign Currency as at 31 December 2013 was 69.57%. The Company has agreed with the lender to adjust the covenant requirement from 60% to 80% on 3 February DEFERRED GRANTS Balance at beginning of year 84, ,072 64, ,691 Grants received during the year 310,212 1,239, ,188 1,434,958 Transfers to donated capital (Note 17) (57,738) (230,663) (79,773) (318,693) Grants recognised as income during the year (Note 26) (244,699) (977,573) (259,295) (1,035,884) Balance at the end of the year 92, ,133 84, , OTHER LIABILITIES Accrued interest payable 1,260,436 5,035, ,802 2,843,649 Staff benefits payable 571,751 2,284, ,789 1,992,662 Other liabilities 435,118 1,738, , ,468 Provident fund payable (i) 305,230 1,219, , ,973 Accrued other tax payable 83, ,520 64, ,286 2,656,520 10,612,797 1,667,594 6,662,038 (i) Provident fund payable represents the accrued amount with respect to their benefit entitlement for the year ended 31 December 2013 and 2012 respectively. The provident fund is transferred to the staff saving s account in the following year. 30

33 16. SHARE CAPITAL AND SHARE PREMIUM (i) Share capital Phillip MFIs Pte Ltd 3,351,700 13,390,042 2,249,200 8,985,554 World Relief Corporation 1,619,000 6,467,905 1,619,000 6,467,905 Ownership and number of shares are presented as below: 4,970,700 19,857,947 3,868,200 15,453,459 Ownership Shares Ownership Shares Phillip MFIs Pte Ltd 67.43% 67, % 44,984 World Relief Corporation 32.57% 32, % 32, % 99, % 77,364 The total number of shares is 99,414 shares (31 December 2012: 77,364 shares) with a par value of US$50 per share (31 December 2012: US$50 per share). All issued shares are fully paid up. The amendment on the Memorandum and Articles of Association of the Company was approved by the National bank of Cambodia on 19 September The final approval on the additional capital injection was approved by Ministry of Commerce on 21 May (ii) Share premium The amendment of the Memorandum and Article of Association of the Company was approved on the conversion from subordinated debts and non-subordinated debts amounting US$2,500,000 into paid up capital of US$1,102,500 and share premium of US$1,397,500 The movement of share capital and share premium are as follows: Share capital US$ Share premium US$ Beginning, 1 January ,868,200 - Converted form subordinated debts 1,102,500 1,397,500 Ending balance, 31 December ,970,700 1,397,500 In KHR 000 equivalent 19,857,947 5,583,013 31

34 17. DONATED CAPITAL World World Relief Relief US Canada Others Total US$ US$ US$ US$ At 1 December , , ,319 1,057,390 Additions during the year ,773 79,773 At 31 December , , ,092 1,137,163 Equivalent in KHR 000 2,006,429 1,385,610 1,150,926 4,542,965 At 1 December , , ,092 1,137,163 Additions during the year ,738 57,738 At 31 December , , ,830 1,194,901 Equivalent in KHR 000 2,006,429 1,385,610 1,381,590 4,773, SUBORDINATED DEBTS Phillip MFIs Pte Ltd 2,000,000 7,990,000 1,250,000 4,993,750 The movement subordinated debt as follows: US$ Balance as at 1 January 1,250,000 1,250,000 Converted into capital (note 16) (1,250,000) - Addition 2,000,000-2,000,000 1,250,000 On 25 September 2013, the Company entered into a subordinated convertible debt agreement for the sum of US$2,000,000 with an interest rate at 5.81% per annum. The subordinated debt is expected to be converted into share capital no later than June

35 19. INTEREST INCOME Individual loans 14,350,505 57,330,267 11,409,492 45,580,922 Solidarity loans 1,584,326 6,329, ,091 3,783,624 Loan processing fee 227, , , ,384 Balances with the Central Bank and other banks 25, ,578 17,771 70,995 16,188,135 64,671,599 12,495,101 49,917, INTEREST EXPENSES Long-term borrowings 3,778,452 15,094,914 3,503,881 13,998,006 Deposits from customers 966,962 3,863, ,991 1,446,154 Borrowing processing fees 113, ,974 75, ,076 Short-term borrowings 58, ,884 97, ,544 4,916,843 19,642,787 4,038,493 16,133, OTHER OPERATING INCOME Bad loan recoveries 51, ,312 67, ,594 Others 47, ,506 27, ,187 98, ,818 95, ,781 33

36 22. PERSONNEL EXPENSES Salaries and wages 4,651,145 18,581,322 3,635,937 14,525,568 Employee provident fund 309,314 1,235, , ,223 Employee trainings 159, , , ,732 Other employees benefits 131, , , ,799 Medical care 79, ,480 67, ,453 Business meals and entertainment 76, ,257 59, ,907 Board of directors' fees 18,933 75,636 10,221 40,833 5,425,632 21,675,400 4,232,920 16,910, DEPRECIATION AND AMORTISATION CHARGES Depreciation charge 324,722 1,297, ,909 1,106,252 Amortisation charge 11,234 44,880 8,321 33, ,956 1,342, ,230 1,139, GENERAL AND ADMINISTRATION EXPENSES Rental expenses 578,840 2,312, ,067 1,722,111 Vehicle and gasoline expense 438,847 1,753, ,233 1,491,066 Professional fees 354,398 1,415, ,008 1,446,222 Marketing and advertising expenses 226, , , ,085 Office Supplies and stationery expenses 215, , , ,054 Security expenses 181, , , ,715 Communication expense 133, , , ,122 Utility expenses 131, , , ,326 Insurance expense 76, ,673 65, ,348 Transportation costs 60, ,255 82, ,215 Correspondent bank charges 38, ,750 39, ,616 Repairs and maintenance expenses 28, ,077 25,001 99,879 Miscellaneous expenses 7,243 28,936 17,690 70,672 Commission expenses 2,657 10,615 3,478 13,895 2,473,202 9,880,442 2,150,019 8,589,326 34

37 25. OTHER GAIN-NET Gain on foreign exchange 23,192 92,652 64, ,763 Gain from disposal of property and equipment 2,125 8,489 2,648 10,578 25, ,141 66, , GRANT INCOME Erikjshapen , , , ,689 Kiva-EDU 16,175 64, Erikjshapen 6,748 26,958 20,268 80,971 Tearfund Netherland-MIS 6,455 25,788 8,550 34,157 Tearfund New Zealand-Trust Bank ,530 42, , , ,295 1,035, INCOME TAX EXPENSES Current tax 681,982 2,724, ,309 1,371,520 Deferred tax (23,313) (93,135) 79, , ,669 2,631, ,286 1,691,028 (i) Provision for income tax Balance at the beginning of the year 226, , ,889 1,537,631 Income tax expense 681,982 2,724, ,309 1,371,520 Income tax paid (376,002) (1,502,128) (501,623) (2,003,984) 532,555 2,127, , ,167 35

38 27. INCOME TAX EXPENSES (continued) (ii) Reconciliation between accounting profit and income tax expense The reconciliation of income tax expense computed at the statutory tax rate to the income tax expense shown in the income statement is as follows: Profit before income tax 3,272,814 13,074,894 2,146,805 8,576,487 Tax calculated at a rate of 20% 654,563 2,614, ,361 1,715,298 Expenses not deductible for tax purposes 4,106 16,404 (6,075) (24,270) 658,669 2,631, ,286 1,691,028 In accordance with Cambodian tax laws, the Company has an obligation to pay corporate income tax in the form of either Tax on Profit at the rate of 20% of taxable profit or minimum tax at 1% of turnover, whichever is higher. iii) Other tax matters The Company s tax returns are subject to periodic examination by the General Department of Taxation. Some areas of tax law and regulations may be open to different interpretation; therefore, the tax amounts reported in the financial statements could be changed at a later date upon final determination by the General Department of Taxation. 28. CASH AND CASH EQUIVALENTS Cash on hand 3,188,770 12,739,135 2,495,743 9,970,491 Balances with the Central Bank 2,722,685 10,877,126 4,443,648 17,752,376 Balances with banks 1,316,155 5,258,041 1,279,774 5,112,699 7,227,610 28,874,302 8,219,165 32,835,566 36

39 29. RELATED PARTY TRANSACTIONS AND BALANCES The Company entered into a number of transactions with related parties in the normal course of business. The volumes of related-party transactions, outstanding balances at the year end, and related expense and income for the year are as follows: (a) Related-party transactions Board of directors Fees and related expenses 18,933 75,636 10,221 40,833 Interest expense 64, ,578 63, ,141 Shareholders Interest expense 13,371 53,417 67, ,773 Key Management Management remuneration 117, , , ,513 (b) Loans to and deposits from Directors and key management personnel Directors and key management Loans 95, ,894 89, ,102 Deposits 325,038 1,298,528 69, ,017 Short-term borrowings from Board of Directors 384,885 1,537, ,491 1,707,827 Shareholders Borrowings from Phillip MFIs Pte Ltd - - 1,250,000 4,993,750 Subordinated debts from Phillip MFIs Ptd Ltd 2,000,000 7,990,000 1,250,000 4,993,750 Borrowings from World Hope International , ,675 (c) Provident fund expenses Provident fund 305,230 1,219, , ,973 37

40 30. COMMITMENTS (i) Operating lease commitments These operating leases mainly relate to the office rental, which is renewable upon mutual agreement. Where the Company is the lessee, the future minimum lease payments under noncancellable operating leases are as follows: No later than 1 year 64, ,386 45, ,585 Later than 1 year and no later than 5 years 274,789 1,097, , , ,717 1,357, ,075 1,154,855 (ii) Loan commitments As at 31 December 2013, the Company has loan commitment of US$329,777 which have been approved before year-end and disbursed after year-end. 31. FINANCIAL RISK MANAGEMENT The Company s activities expose it to a variety of financial risks: credit risk, market risk (including currency risk, interest rate risk and price risk), and liquidity risk. Taking risks is core to the financial business, and the operational risks are an inevitable consequence of being in business Credit risk The Company takes on exposure to credit risk, which is the risk that counterparties will cause a financial loss to the Company by failing to discharge an obligation. Credit risk is the most important risk for the Company s business. Credit exposure arises principally in lending activities that lead to loans to customers. There is also credit risk in off-balance sheet financial instruments, such as loan commitments. The credit risk management is carried out by the Company s credit committee. The lending activities are guided by the Company s credit policy to ensure that the overall objectives in the area of lending are achieved; i.e., that the loan 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 Central Bank guidelines. 38

41 31. FINANCIAL RISK MANAGEMENT (continued) 31.1 Credit risk (continued) (a) Credit risk measurement The Company assesses the probability of default of counterparties by focusing on borrowers forecast profit and cash flow. The credit committee is responsible for approving loans to customers. (b) Risk limit control and mitigation policies The Company operates and provides loans to individuals or small-medium enterprises within the Kingdom of Cambodia. The Company manages limits and controls the concentration of credit risk whenever it is identified. The Company 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); and Charges over business assets such as land and buildings. (c) Impairment and provisioning policies The Company is required to follow the mandatory credit classification and provisioning in accordance with Prakas B dated 13 September 2002 on loan classification and provisioning. The Central Bank requires microfinance institutions to classify their loan portfolio into four classes and ensure that the minimum mandatory level of specific provision is made depending on the classification concerned and regardless of the assets (except for cash) pledged as collateral. Refer to Note 7. (d) Maximum exposure to credit risk before collaterals held or other credit enhancements Credit exposure relating to onbalance sheet assets: Balances with banks 2,348,055 9,380,480 1,279,775 5,112,701 Loans to customers 73,930, ,351,073 53,301, ,940,823 Other assets 1,047,357 4,184, ,810 3,207,226 77,325, ,915,744 55,384, ,260,750 The above table represents a worst case scenario for credit risk exposure to the Company at 31 December 2013 and 2012, without taking into account any collateral held or other credit enhancement attached. For on-balance sheet assets, the exposure set out above is based on net carrying amounts. 39