KREDIT MICROFINANCE INSTITUTION PLC. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

Transcription

1 FINANCIAL STATEMENTS

2 FINANCIAL STATEMENTS CONTENTS Pages Directors report 1-3 Independent auditor s report 4-5 Balance sheet 6 Income statement 7 Statement of changes in equity 8 Cash flow statement 9 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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8 BALANCE SHEET AS AT 31 DECEMBER 2015 Note ASSETS Cash on hand 4 3,851,714 15,599,442 5,523,566 22,508,531 Balances with the Central Bank 5 7,568,577 30,652,737 7,027,698 28,637,869 Balances with banks 6 3,795,480 15,371,694 3,575,400 14,569,755 Loans to customers 7 127,789, ,548, ,170, ,196,426 Other assets 8 2,736,756 11,083,862 2,556,474 10,417,632 Property and equipment 9 2,444,429 9,899,937 1,615,230 6,582,062 Intangible assets ,363 3,739,620 1,039,673 4,236,667 Investment in Credit Bureau Cambodia 17,500 70,875 17,500 71,313 Total assets 149,127, ,966, ,526, ,220,255 LIABILITIES AND EQUITY LIABILITIES Deposits from banks and customers 12 53,655, ,304,816 35,592, ,039,197 Borrowings 13 65,866, ,757,397 59,145, ,019,828 Deferred grants , , , ,333 Current income tax liabilities ,198 1,677, ,893 2,114,488 Other liabilities 15 3,599,266 14,577,027 2,982,874 12,155,212 Deferred tax liabilities , ,675 4,500 18,337 Total liabilities 123,783, ,324,981 98,372, ,867,395 EQUITY Share capital 16 5,869,054 23,769,669 5,193,000 21,161,475 Share premium 2,811,431 11,386,296 1,487,485 6,061,501 Donated capital 1,194,900 4,839,345 1,194,900 4,869,218 Subordinated debts 17 3,000,000 12,150,000 5,050,000 20,578,750 Reserves 1,876,867 7,601,311 1,383,189 5,636,495 Retained earnings 10,591,318 42,894,838 8,845,502 36,045,421 Total equity 25,343, ,641,459 23,154,076 94,352,860 Total liabilities and equity 149,127, ,966, ,526, ,220,255 The accompanying notes on pages 10 to 47 form an integral part of these financial statements. 6

9 INCOME STATEMENT 31 December December 2014 Note US$ KHR 000 US$ KHR 000 Interest income 18 26,913, ,997,861 22,412,436 91,330,677 Interest expenses 19 (8,685,664) (35,176,939) (7,221,478) (29,427,523) Net interest income 18,227,388 73,820,922 15,190,958 61,903,154 Fee and commission income ,431 1,431, ,015 2,212,786 Fee and commission expenses (192,699) (780,431) (180,134) (734,046) Net fee and commission income 160, , ,881 1,478,740 Other operating income , , , ,185 Total operating income 18,620,253 75,412,026 15,702,596 63,988,079 Personnel expenses 22 (9,847,715) (39,883,246) (7,533,199) (30,697,786) Depreciation and amortisation expenses 23 (744,252) (3,014,221) (544,013) (2,216,853) General and administrative expenses 24 (3,900,128) (15,795,518) (3,632,176) (14,801,117) Other loss-net 25 (19,295) (78,145) (108,762) (443,205) (14,511,390) (58,771,130) (11,818,150) (48,158,961) Grant income , , ,724 1,518,850 Profit before provision for loan losses 4,346,126 17,601,811 4,257,170 17,347,968 Loan impairment charges (622,424) (2,520,817) (146,182) (595,692) Profit before income tax 3,723,702 15,080,994 4,110,988 16,752,276 Income tax expense 27 (786,047) (3,183,490) (824,664) (3,360,506) Profit for the year 2,937,655 11,897,504 3,286,324 13,391,770 The accompanying notes on pages 10 to 47 form an integral part of these financial statements. 7

10 STATEMENT OF CHANGES IN EQUITY Share Share Donated Subordinated Retained capital premium capital debts Reserves earnings Total US$ US$ US$ US$ US$ US$ US$ Balance as at 1 January ,193,000 1,487,485 1,194,900 2,050, ,863 6,495,425 17,362,673 Subordinated debts ,000, ,000,000 Transfer to reserves ,226 (449,226) - Currency translation differences (7,900) - (7,900) Dividend paid (487,021) (487,021) Profit for the year ,286,324 3,286,324 Balance as at 31 Dec ,193,000 1,487,485 1,194,900 5,050,000 1,383,189 8,845,502 23,154,076 Equivalent in KHR ,161,475 6,061,501 4,869,218 20,578,750 5,636,495 36,045,421 94,352,860 Balance as at 1 January ,193,000 1,487,485 1,194,900 5,050,000 1,383,189 8,845,502 23,154,076 Transfer to capital and premium 676,054 1,323,946 - (2,000,000) Transfer to borrowings (50,000) - - (50,000) Transfer to reserves ,678 (493,678) - Dividend paid (698,161) (698,161) Profit for the year ,937,655 2,937,655 Balance as at 31 Dec ,869,054 2,811,431 1,194,900 3,000,000 1,876,867 10,591,318 25,343,570 Equivalent in KHR ,769,669 11,386,296 4,839,345 12,150,000 7,601,311 42,894, ,641,459 The accompanying notes on pages 10 to 47 form an integral part of these financial statements. 8

11 CASH FLOW STATEMENT Note Cash flows from operating activities Profit before income tax 3,723,702 15,080,994 4,110,988 16,752,276 Adjustments for: Depreciation and amortisation ,252 3,014, ,013 2,216,853 Deferred grant income 14 (237,263) (960,915) (372,724) (1,518,850) Property and equipment write-off 9 1,756 7,112 69, ,856 Allowance for bad and doubtful loans 7 622,424 2,520, , ,692 Net gain on disposals of property and equipment - - (9,522) (38,802) Net interest income and expenses (18,849,812) (76,341,739) (15,407,658) (62,786,206) (13,994,941) (56,679,510) (10,919,554) (44,497,181) Changes in working capital Balances with banks - - 1,000,000 4,075,000 Balances with the Central bank (1,577,458) (6,388,705) (1,394,211) (5,681,410) Loans to customers (27,618,795) (111,856,120) (23,915,024) (97,453,723) Other assets 93, ,274 (618,891) (2,521,981) Deposits from banks and customers 18,063,069 72,265,619 19,235,984 78,386,635 Other liabilities (7,319) (29,642) 864,856 3,524,288 Net cash used in operations (25,041,796) (102,309,084) (15,746,840) (64,168,372) Interest income received 26,639, ,888,444 22,678,960 92,416,762 Interest expense paid (8,061,953) (32,650,910) (6,795,622) (27,692,160) Income tax paid (770,137) (3,119,055) (845,451) (3,445,213) Grants received , , ,764 1,661,638 Net cash used in operating activities (7,001,347) (29,245,266) (301,189) (1,227,345) Cash flows from investing activities Purchases of property and equipment (PE) 9 (1,456,404) (5,898,436) (1,242,557) (5,063,420) Purchases of intangible assets 10 (2,493) (10,097) - - Proceed from disposals of PE ,227 70,200 Net cash used in investing activities (1,458,897) (5,908,533) (1,225,330) (4,993,220) Cash flows from financing activities Proceeds from borrowings 33,151, ,263,802 24,726, ,762,228 Repayments of borrowings (26,431,502) (107,047,583) (20,065,849) (81,768,335) Proceeds from subordinated debts ,000,000 12,225,000 Repayments of subordinated debt (50,000) (202,500) - - Currency translation reserve - - (7,900) (32,193) Dividend paid (698,161) (2,827,552) (487,021) (1,984,611) Net cash from financing activities 5,971,893 24,186,167 7,166,157 29,202,089 Net increase/(decrease) in cash and cash equivalents (2,488,351) (10,967,632) 5,639,638 22,981,524 Cash and cash equivalents at the beginning of the year 12,931,354 52,695,268 7,291,716 29,130,406 Currency translation differences - 566, ,338 Cash and cash equivalents at the end of the year 28 10,443,003 42,294,163 12,931,354 52,695,268 The accompanying notes on pages 10 to 47 form an integral part of these financial statements. Non-cash transaction The principal non-cash transaction was the conversion of subordinated debt to the capital as discussed in Note 17. 9

12 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, 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. On 26 May 2014, the Central Bank approved to merge CBIRD Microfinance Co., Ltd. into the Company. CBIRD Microfinance Co., Ltd. was de-registered with the Central Bank. 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 financial statements were authorised for issue by the Board of Directors on 31 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. 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. 10

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued). 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 Circular 058 MoEF.NAC dated 24 March 2016 issued by the National Accounting Council of the Ministry of Economy and Finance allowed banks and financial institutions to delay adoption of CIFRS until periods beginning on or after 1 January The first financial statements of the Company which will be prepared under CIFRS is for 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$, which is the Company s functional and presentation currency. For the sole regulatory purpose of complying with the Prakas No. B dated 13 December 2007 of the Central Bank, a translation to Khmer Riel (KHR) is provided for the balance sheet, income statement, statement of changes in equity, cash flow statement and notes to the financial statements as of and for the financial year ended 31 December 2015 using the official rate of exchange published by the Central Bank as at the reporting date, which was US$ 1 to KHR 4,050 (31 December 2014: US$ 1 to KHR 4,075). 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. (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. 11

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 or equal to 30 days 0% Sub-standard More than 30 days 10% Doubtful More than 60 days 30% Loss More than 90 days 100% Long-term loans (more than one year) Standard Less than or equal to 30 days 0% Sub-standard More than 30 days 10% Doubtful More than 180 days 30% Loss 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 nonperforming loans, as approved by the Board of Directors. 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. 12

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Property and equipment (continued) 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 3-6 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 core banking system 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 individual class of assets: Computer software Core banking system 3 years 10 years 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. 13

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 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 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. 14

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.14 Reserves (i) (ii) Legal reserve Reserve is calculated at 5% of the Company s profit for the year in accordance with the Memorandum and Articles of Association. 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 agreed by ICO Investment in unquoted equity instruments For investment in unquoted equity instruments without significant influence, the Company recognises and measures 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. The remaining grants as at and for the year ended are shown in the balance sheet as differed grant income. 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 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 Loan processing fee income The loan processing fee is immediately recognised in the income statement upon the loan disbursement. 15

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.19 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. 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 nonperforming loans, as approved by the Board of Directors. 16

19 3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS (continued) (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 182, , ,801 1,221,689 Branches 3,669,358 14,860,900 5,223,765 21,286,842 3,851,714 15,599,442 5,523,566 22,508, BALANCES WITH THE CENTRAL BANK Statutory capital deposit 579,660 2,347, ,921 1,988,278 Reserve requirement deposit 4,161,208 16,852,892 2,675,489 10,902,618 Current accounts 2,827,709 11,452,222 3,864,288 15,746,973 (i) Statutory capital deposit 7,568,577 30,652,737 7,027,698 28,637,869 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 the registered capital. This deposit is refundable should the Company voluntarily liquidate. (ii) Reserve requirement 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 requirement deposit and current accounts are non-interest bearing. The statutory capital deposit in US$ earns interest 3% per annum. The interest payment is settled semiannually. 17

20 6. BALANCES WITH BANKS Current accounts 155, , , ,927 Fixed accounts 31, ,195 31, ,993 Savings accounts 3,607,938 14,612,149 3,323,150 13,541,835 3,795,480 15,371,694 3,575,400 14,569,755 Current accounts are non-interest bearing. Annual interest rates on savings and fixed accounts are at the rates ranging 0.05% to 1% and 4.50% respectively. 7. LOANS TO CUSTOMERS Solidarity loans 13,043,350 52,825,568 12,287,802 50,072,793 Individual loans 115,531, ,901,501 88,194, ,393, ,574, ,727, ,482, ,466,395 Mandatory provision (406,904) (1,647,961) (137,313) (559,550) General provision (377,984) (1,530,835) (174,336) (710,419) Provision for bad and doubtful loans (784,888) (3,178,796) (311,649) (1,269,969) (a) Provision for bad and doubtful loans 127,789, ,548, ,170, ,196,426 The movements in provision for bad and doubtful loans to customers are as follows: At beginning of the year 311,649 1,262, , ,750 Provision during the year 622,424 2,520, , ,692 Bad debts written-off (147,453) (597,185) (63,830) (260,108) Currency translation differences (1,732) (7,014) (13,341) (54,365) At end of the year 784,888 3,178, ,649 1,269,969 18

21 7. LOANS TO CUSTOMERS (continued) (b) By maturity Less than 1 month 6,852,021 27,750,685 4,813,662 19,615,673 1 month and less than 3 months 13,855,032 56,112,880 12,957,517 52,801,882 3 months and less than 12 months 57,116, ,320,294 51,652, ,485,017 1 year and less than 5 years 50,131, ,033,296 30,837, ,661,887 Over 5 years 619,732 2,509, , ,936 (c) By currency 128,574, ,727, ,482, ,466,395 US Dollars 105,917, ,965,535 77,958, ,681,098 Khmer Riel 21,301,478 86,270,986 21,918,233 89,316,800 Thai Baht 1,355,691 5,490, ,766 2,468,497 (d) By economic sector 128,574, ,727, ,482, ,466,395 Agriculture 40,651, ,639,349 31,563, ,622,624 Services 21,186,161 85,803,952 15,561,425 63,412,807 Trade and commerce 57,634, ,419,194 32,460, ,277,108 Other categories 9,102,364 36,864,574 20,896,652 85,153,856 (e) By relationship 128,574, ,727, ,482, ,466,395 External customers 126,734, ,275,916 99,510, ,506,271 Staff loans 1,839,791 7,451, ,810 3,960, ,574, ,727, ,482, ,466,395 19

22 7. LOANS TO CUSTOMERS (continued) (f) By location US$ KHR 000 US$ KHR 000 Kampong Cham 15,611,892 63,228,163 13,402,753 54,616,218 Phnom Penh 14,618,693 59,205,707 10,919,241 44,495,907 Prey Veng 14,406,648 58,346,924 15,474,091 63,056,921 Krong Soung 12,723,467 51,530,041 10,726,751 43,711,510 Siem Reap 11,244,213 45,539,063 8,722,568 35,544,465 Takeo 9,742,409 39,456,756 7,745,414 31,562,562 Kampong Chhnang 8,630,161 34,952,152 7,791,515 31,750,424 Svay Rieng 8,416,929 34,088,562 2,908,456 11,851,958 Battambang 7,809,058 31,626,685 6,741,054 27,469,795 Banteay Meanchey 6,801,571 27,546,363 3,375,676 13,755,880 Kandal 6,751,489 27,343,530 5,495,391 22,393,718 Kratie 3,886,257 15,739,341 2,861,748 11,661,623 Kampot 3,217,684 13,031,620 2,383,547 9,712,954 Pursat 2,807,300 11,369,565 1,934,346 7,882,460 Stueng Saen 668,695 2,708, Chbar Mon 546,008 2,211, Preah Sihanouk 488,036 1,976, Krong Ban Lung 108, , Krong Stueng Traeng 95, , ,574, ,727, ,482, ,466,395 20

23 7. LOANS TO CUSTOMERS (continued) (g) Analysis by security on performing and non-performing loans Standard loans: Secured 127,789, ,548, ,170, ,196,430 Unsecured Sub-standard loans: Secured 314,670 1,274, , ,961 Unsecured Doubtful loans: Secured 135, ,378 57, ,220 Unsecured Loans loss: Secured 334,816 1,356, , ,784 Unsecured ,574, ,727, ,482, ,466,395 (h) Interest rate The annual interest rates during the year are as follows: Loan in US$ 8%-36% 9%-36% Loan in Riel 23.4%-42% 26% Loan in THB 22.8%-36% 22.8%-36% 8. OTHER ASSETS Accrued interest receivable 1,568,583 6,352,761 1,294,653 5,275,711 Prepayments and deposits 1,100,949 4,458,843 1,192,306 4,858,647 Others 67, ,258 69, ,274 2,736,756 11,083,862 2,556,474 10,417,632 21

24 9. PROPERTY AND EQUIPMENT Office furniture Motor and Buildings Computers vehicles equipment Total US$ US$ US$ US$ US$ Year ended 31 December 2014 Opening net book value 70, , , , ,649 Additions - 536, , ,696 1,242,557 Write off - net (67,880) - - (1,287) (69,167) Disposals - net - - (4,590) (3,114) (7,704) Depreciation charge (note 23) (2,540) (128,731) (177,449) (170,385) (479,105) Closing net book value - 510, , ,519 1,615,230 At 31 December 2014 Cost 26, ,779 1,224,353 1,158,843 3,300,595 Accumulated depreciation (26,620) (380,273) (843,148) (435,324) (1,685,365) Net book value - 510, , ,519 1,615,230 Equivalent in KHR 000-2,080,312 1,553,410 2,948,340 6,582,062 Year ended 31 December 2015 Opening net book value - 510, , ,519 1,615,230 Additions - 67, ,195 1,186,771 1,456,404 Write off - net - (376) - (665) (1,041) Disposals - net (715) (715) Depreciation charge (note 23) - (164,633) (175,605) (285,211) (625,449) Closing net book value - 412, ,795 1,623,699 2,444,429 At 31 December 2015 Cost - 898,000 1,398,739 2,315,152 4,611,891 Accumulated depreciation - (485,065) (990,944) (691,453) (2,167,462) Net book value - 412, ,795 1,623,699 2,444,429 Equivalent in KHR 000-1,672,387 1,651,570 6,575,980 9,899,937 22

25 10. INTANGIBLE ASSETS Intangible assets US$ Year ended 31 December 2014 Opening net book value 1,110,050 Disposals - net (5,469) Amortisation charge (note 23) (64,908) Closing net book value 1,039,673 At 31 December 2014 Cost 1,115,815 Accumulated amortisation (76,142) Net book value 1,039,673 Equivalent in KHR 000 4,236,667 Year ended 31 December 2015 Opening net book value 1,039,673 Additions 2,493 Amortisation charge (note 23) (118,803) Closing net book value 923,363 At 31 December 2015 Cost 1,104,117 Accumulated amortisation (180,754) Net book value 923,363 Equivalent in KHR 000 3,739,620 23

26 11. DEFERRED TAX LIABILITIES 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% (2014: 20%) The following amounts, determined after appropriate offsetting, are shown in the balance sheet: Deferred tax assets 97, , , ,728 Deferred tax liabilities (222,995) (903,130) (127,378) (519,065) (125,105) (506,675) (4,500) (18,337) Deferred tax assets and liabilities mainly arise from the temporary differences resulting from provision for 13 th month salary and unrealised loss/gain on foreign exchange and depreciable assets respectively. The movements of net deferred tax assets/liability are as follows: Balance at beginning of year (4,500) (18,337) 82, ,520 Charged to the income statement (120,605) (488,338) (87,327) (355,857) (125,105) (506,675) (4,500) (18,337) 24

27 11. DEFERRED TAX LIABILITIES (continued) Unrealised exchange loss Provident fund obligation Provision Total US$ US$ US$ US$ Deferred tax assets At 1 January ,045 43, ,186 Credited to the income statement - 13,117 5,575 18,692 At 31 December ,162 48, ,878 Equivalent in KHR , , ,728 Credited/(charged) to the income statement 3,788 (74,162) 45,386 (24,988) At 31 December ,788-94,102 97,890 Equivalent in KHR , , ,454 Accelerated tax depreciation Unrealised exchange gain Total US$ US$ US$ Deferred tax liabilities At 1 January 2014 (16,721) (4,638) (21,359) Credited/(Charged) to the income statement (134,315) 28,296 (106,019) At 31 December 2014 (151,036) 23,658 (127,378) Equivalent in KHR 000 (615,472) 96,406 (519,065) Charged to the income statement (71,959) (23,658) (95,617) At 31 December 2015 (222,995) - (222,995) Equivalent in KHR 000 (903,130) - (903,130) 25

28 12. DEPOSITS FROM BANKS AND CUSTOMERS Voluntary savings Savings deposits 8,453,752 34,237,696 5,868,601 23,914,549 Term deposits 45,201, ,067,120 29,723, ,124,648 Deposits from banks and customer are breakdown as follows: 53,655, ,304,816 35,592, ,039,197 US$ KHR 000 US$ KHR 000 Deposits from banks 2,584,307 10,466,443 1,780,220 7,254,396 Deposits from customers 51,071, ,838,373 33,812, ,784,801 The saving deposits bear interest from 1.5% to 7% per annum. The term deposits bear interest at the following annual rates: 53,655, ,304,816 35,592, ,039,197 US$ Riel US$ Riel One-month term 4.75% 5.25% 4.75% 5.25% Three-month term 5.50% 6.75% 5.63% 6.63% Six-month term 6.25% 8.00% 6.38% 7.75% 12-month term 7.75% 10.00% 7.88% 9.75% 18-month term 8.00% 10.00% 8.00% 10.00% 24-month term 8.25% 10.25% 8.38% 10.25% 36-month term 8.25% 12.00% 8.38% 11.50% 26

29 13. BORROWINGS US$ KHR 000 US$ KHR 000 Related parties: Phillip MFI Pte , , , ,750 ResponsAbility 11,275,000 45,663,750 11,675,000 47,575,625 ICO-Spain 9,905,600 40,117,680 9,905,600 40,365,320 Incofin Investment Management 7,981,481 32,324,998 5,972,393 24,337,501 BlueOrchard Finance S.A 7,000,000 28,350,000 5,125,000 20,884,375 Oikocredit 6,567,901 26,599,999 5,428,834 22,122,499 BIB-Germany 4,250,000 17,212,500 3,500,000 14,262,500 ConCap 4,250,000 17,212,500 2,750,000 11,206,250 Developing World Market 4,000,000 16,200,000 3,845,970 15,672,328 Symbiotic Pte Ltd 3,350,000 13,567,500 4,214,417 17,173,749 Micro Credit Enterprise 1,500,000 6,075, ,000 3,056,250 Etimos Fund (Consorzio Etimos s.c) 1,500,000 6,075,000 1,500,000 6,112,500 AFD 1,000,000 4,050, Vattanac Bank 1,000,000 4,050, Maruhan Japan Bank 575,000 2,328,750 1,075,000 4,380,625 ABA Bank 500,000 2,025, ,333 3,395,832 KIVA 541,423 2,192, ,802 1,531,393 Other short term borrowing 284,619 1,152, ,621 1,078,331 Partner for Development (PFD) 200, , , ,000 Habitat for Humanity 185, , , ,875 Phillip Bank Plc - - 1,145,000 4,665,875 LMDF ,000 1,426,250 65,866, ,757,397 59,095, ,816,078 The borrowings mature between 25 January 2016 and 15 September 2023 and bear interest rates ranging from 2.5% to 12.50% per annum (2014: 5% to 12.5%). All borrowings are unsecured. The Company has not had any defaults of principal, interest or redemption amounts during the year on its borrowings (2014: nil). 27

30 14. DEFERRED GRANTS Balance at beginning of year 127, ,333 92, ,133 Grants received during the year 233, , ,764 1,661,638 Grants recognised as income during the year (Note 26) (237,263) (960,915) (372,724) (1,518,850) Translation differences - (3,194) - 7,412 Balance at the end of the year 123, , , , OTHER LIABILITIES Accrued interest payable 2,521,839 10,213,448 1,898,128 7,734,872 Staff benefits payable 755,721 3,060, ,885 3,471,432 Accrued other tax payable 120, , , ,563 Other liabilities 201, , , ,345 3,599,266 14,577,027 2,982,874 12,155, SHARE CAPITAL Phillip MFIs Pte Ltd 4,244,554 17,190,444 3,574,000 14,564,050 World Relief Corporation 1,624,500 6,579,225 1,619,000 6,597,425 Ownership and number of shares are presented as below: 5,869,054 23,769,669 5,193,000 21,161,475 Ownership Shares Ownership Shares Phillip MFIs Pte Ltd 72.10% 84, % 70,032 World Relief Corporation 27.90% 32, % 33, % 117, % 103,860 28

31 17. SUBORDINATED DEBTS Phillip MFIs Pte Ltd 3,000,000 12,150,000 5,000,000 20,375,000 Poem Pte Ltd , ,750 The movement subordinated debts are as follows: 3,000,000 12,150,000 5,050,000 20,578,750 Balance as at 1 January 5,050,000 20,578,750 2,050,000 8,189,750 Converted into capital (2,000,000) (8,100,000) - - Repayments (50,000) (202,500) - - Additions - - 3,000,000 12,225,000 Translation differences - (126,250) - 164,000 3,000,000 12,150,000 5,050,000 20,578, INTEREST INCOME Solidarity loans 4,377,603 17,729,292 3,324,461 13,547,177 Individual loans 22,498,767 91,120,006 19,062,483 77,679,618 Balances with the Central Bank and banks 36, ,563 25, ,882 26,913, ,997,861 22,412,436 91,330, INTEREST EXPENSES Long-term borrowings 5,228,117 21,173,874 5,118,169 20,856,539 Short-term borrowings 183, , , ,650 Deposits from customers 3,273,592 13,258,047 1,859,714 7,578,334 8,685,664 35,176,939 7,221,478 29,427,523 29

32 20. FEE AND COMMISSION INCOME Loan commission fees 196, ,959 27, ,027 Others 156, , ,769 2,101, ,431 1,431, ,015 2,212, OTHER OPERATING INCOME Bad loan recoveries 55, ,609 66, ,347 Others 176, ,530 82, , , , , , PERSONNEL EXPENSES Salaries and wages 8,343,571 33,791,463 6,435,114 26,223,091 Employee provident fund 492,748 1,995, ,568 1,607,865 Employee trainings 423,495 1,715, ,939 1,079,626 Business meals and entertainment 191, , , ,320 Medical care 111, ,340 95, ,237 Board of directors' fees 49, ,143 50, ,206 Other employees benefits 236, , , ,441 9,847,715 39,883,246 7,533,199 30,697, DEPRECIATION AND AMORTISATION EXPENSES Depreciation charge 625,449 2,533, ,105 1,952,353 Amortisation charge 118, ,153 64, , ,252 3,014, ,013 2,216,853 30

33 24. GENERAL AND ADMINISTRATION EXPENSES Rental expenses 899,221 3,641, ,536 2,919,887 Professional fees 831,972 3,369, ,010 3,671,614 Vehicle and gasoline expense 569,622 2,306, ,855 2,130,636 Marketing and advertising expenses 319,886 1,295, ,802 1,873,693 Office Supplies and stationery expenses 305,844 1,238, ,400 1,187,453 Communication expense 233, , , ,551 Utility expenses 190, , , ,668 Commission expenses 163, ,344 2,780 11,327 Transportation costs 128, , , ,235 Insurance expense 123, ,037 94, ,745 Correspondent bank charges 60, ,130 48, ,316 Security expenses 35, ,123 68, ,077 Miscellaneous expenses 21,923 88,787 8,563 34,896 Repairs and maintenance expenses 16,833 68,174 49, ,019 3,900,128 15,795,518 3,632,176 14,801, OTHER LOSS-NET Gain/(loss) on foreign exchange (19,359) (78,404) (118,285) (482,011) Gain from disposals of property and equipment ,523 38,806 (19,295) (78,145) (108,762) (443,205) 26. GRANT INCOME Erikjshapen , , ,338 1,317,602 Kiva-EDU , ,016 Erikjshapen - - 5,583 22,751 Handicap - - 5,480 22,331 Vittana ,150 Interest income from grant 3,921 15, , , ,724 1,518,850 31

34 27. INCOME TAX EXPENSE Current income tax 665,443 2,695, ,164 3,342,168 Deferred income tax 120, ,446 4,500 18, ,047 3,183, ,664 3,360,506 (i) Provision for income tax Balance at the beginning of the year 518,893 2,114, ,179 2,217,529 Current income tax expense 665,443 2,695, ,164 3,342,168 Income tax paid (770,138) (3,132,030) (845,450) (3,445,209) 414,198 1,677, ,893 2,114,488 (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 3,723,702 15,080,994 4,110,989 16,752,280 Tax calculated at a rate of 20% 744,740 3,016, ,198 3,350,456 Expenses not deductible for tax purposes 41, ,291 2,466 10, ,047 3,183, ,664 3,360,506 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. 32

35 28. CASH AND CASH EQUIVALENTS Cash on hand 3,851,714 15,599,442 5,523,566 22,508,531 Balances with the Central Bank 2,827,709 11,452,222 3,864,288 15,746,974 Balances with banks 3,763,580 15,242,499 3,543,500 14,439,763 10,443,003 42,294,163 12,931,354 52,695, 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 49, ,143 50, ,206 Interest expense 125, ,010 79, ,557 Shareholders Interest expense 211, , , ,984 Key Management Management remuneration 259,286 1,050, , , ,327 2,613, ,238 1,981,420 33

36 29. RELATED PARTY TRANSACTIONS AND BALANCES (continued) (b) Loans to and deposits from Directors and key management personnel Amount due to directors and key management 347,343 1,406, , , ,343 1,406, , ,616 Deposits 1,637,166 6,630, ,076 1,887,035 Short-term borrowings from Board of Directors 284,619 1,152, ,621 1,078,331 Shareholders Borrowings from Phillip MFIs Pte Ltd , ,750 Subordinated debts from Phillip MFIs Ptd Ltd 3,000,000 12,150,000 5,000,000 20,375,000 Amount due from directors and key management 4,921,785 19,933,231 5,777,697 23,544,116 (c) Provident fund expenses Provident fund 19,856 80,417 38, ,947 34

37 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 non-cancellable operating leases are as follows: No later than 1 year 226, ,301 27, ,908 Later than 1 year and no later than 5 years 1,458,871 5,908,428 1,057,440 4,309,068 Later than 5 years 4,687,046 18,982, ,556 3,038,141 6,372,658 25,809,265 1,830,458 7,459,117 (ii) Loan commitments As at 31 December 2015, the Company had loan commitment of US$94,751 (2014: US$203,888) which had 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 s guidelines. 35

38 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. 36

39 31. FINANCIAL RISK MANAGEMENT (continued) 31.1 Credit risk (continued) (d) Maximum exposure to credit risk before collaterals held or other credit enhancements Credit exposure relating to onbalance sheet assets: Balances with banks 3,795,480 15,371,694 3,575,400 14,569,755 Loans to customers 127,789, ,548, ,170, ,196,426 Other assets 1,653,304 6,695,894 1,798,196 7,327, ,238, ,615, ,544, ,093,830 The above table represents a worst case scenario for credit risk exposure to the Company at 31 December 2015 and 2014, 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. As shown above, 96% of total maximum exposure is derived from loans to customers (2014: 95%). Management is confident in its ability to continue to control and sustain minimal credit risk exposure to the Company relating to its loans to customers on the following basis: 98.97% of the loans in the portfolio are considered to be neither past due nor impaired (2014: 99.43%) The Company has introduced a more stringent selection and collection process for granting loans to customers (e) Loans to customers Loans to customers are summarised as follows: Loans to customers neither past due nor impaired 127,254, ,380,223 99,968, ,369,824 Loans to customers past due but not impaired 535,321 2,168, , ,602 Loans to customers individually impaired 784,888 3,178, ,649 1,269,969 Gross 128,574, ,727, ,482, ,466,395 Provision for bad and doubtful loans (784,888) (3,178,796) (311,649) (1,269,969) Net loans to customers 127,789, ,548, ,170, ,196,426 37