HEAD OFFICE Address: Tel: Website: Page 1

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2 This report has been prepared by Research and Product Development Department of NIRON Microfinance Plc., to whom any comments or requests for further information should be sent. HEAD OFFICE Address: # , St.598, Sangkat Phnom Penh Thmey, Khan Sen Sok, Phnom Penh, Cambodia. Tel: (+855) info@niron.com.kh, Website: Page 1

3 NIRON s vision is to become Cambodia leading financial institution which operates closely with public stakeholders through providing highly transparent and effective financial services to enhance the standard of living and contribute to overall economic development. Each of us will contribute wholeheartedly in strengthening and extending the best quality, transparent, and easiest accessible financial services toward all citizens. By doing so, NIRON will develop human resources, extend their branches network, diversify products to meet all demands, and adhere firmly to Laws, Morality, Society and Environment. Page 2

4 KEY FINANCIAL INDICATORS Audited d As at December 31, 2015 KHR (000) USD Assets 60,781,787 15,007,849 Loans (Net of Provision) 44,425,770 10,969,326 Liabilities 23,631,296 5,834,888 Paid-up Capital 34,599,260 8,543,027 Shareholders Equity 37,150,491 9,172,961 Gross Income 13,461,984 3,323,947 Profit Before Income Tax 2,797, ,799 Profit for the Period 2,230, ,731 Page 3

5 KEY OPERATIONAL INDICATORS Dec-2015 Number of Offices Number of Staffs 55 1,095 Male 914 Female 181 CO per Total Staff Member Total Number of Clients Total Loan Outstanding (in USD) Number of Active Clients per Average CO % 59,176 $ 11,202, Total Loan Outstanding per Average CO (in USD) $ 21,217 Total Loan Outstanding per Average Clients (in USD) $ Page 4

6 CONTENTS Cambodia Key Economic Indicators 6 Chairman and CEO s Report 7 Organization Structure: NIRON Microfinance Plc. 9 Operational Network 10 Board of Directors 15 Executive Managements 17 AUDITED FINANCIAL STATEMENTS Independent Auditors Report to the Directors 21 Statement of Financial Position 23 Statement of Comprehensive Income 24 Statement of Changes in Equity 25 Statement of Cash Flow 26 Notes to the Financial Statements 28 Page 5

7 Cambodia Key Economic Indicators e 2016f 1. Gross Domestic Product (GDP) GDP % Change ,20 Per Capita GDP (in U.S Dollar) 973 1,043 1, , Consumer Price Index (CPI) N/A 3. Inflation Inflation (End Period) Inflation (Annual Average) Government Budge (in % of GDP) Revenue Expenditure Saving and Investment Balance (in % of GDP) Gross national Saving Gross fixed Saving Money and Credit (% Change) (M2) Total Deposits in the Banking System N/A Total Credit in the Banking System N/A Credit to Deposit (In %) e f Private Sector Credit Deposits to GDP e 74.00f Loans to GDP e Balance of Payment (In Millions USD) Exports 6, ,530 7,408e 8,212 9,116 Imports -84,26-9,744-10,991e -11,869-12,796 Trade Balance -2,967-3,214-3,583e -3,657-3,680 Current Account (Excluding Official Transfers) -1,835-2,171-2,356e -2,286-2,357 Nominal Account Exchange Rate (Riel per Dollar End Period) Source: IMF and National Bank of Cambodia Page 6

8 Chairman and CEO s Report The achievement in 2015 is indication of great success and evidence that NIRON Microfinance Plc. is implementing correctly, effectively and transparently conforming to the established strategic plan. Although NIRON Microfinance Plc. encountered some issues concerning full market competition and human resource market, the management and employees at all levels were still able to be in control of these tough situations by setting corrective strategies and effectively take responsive measures through cooperation with willingness, conscientious and responsibility for Think Together, Work Together and Solve Together in accordance with each function. Key Achievements in 2015 Expanded operational network with an increase from 11 to 55 offices across 25 provinces-cities in the Kingdom of Cambodia. Staff increases from 270 to 1,095 employees in 2014 and 2015 respectively. Total loan balance increased from 2,696,050 USD to 11,202,728 USD in 2014 and 2015 respectively. Page 7

9 Chairman and CEO s Report Active clients increased from 12,789 to 59,176 in 2014 and 2015 respectively. Profit increased positively from the net loss of 23,190 USD to the net income of 550,731 USD in 2014 and 2015 respectively. Revised the new organizational structure to ensure effective implementation. Revised allowance policy and performance measurement to increase more allowances to employees including health allowance, uniform allowance, New Year and Pchum Ben bonuses, year-end profit sharing, regional allowance and others. Multiplied training courses to build employee s capacities. Created internal control system by developing related policies and procedures. Organized and strengthened internal audit work to reduce and prevent potential risks. Built standard offices to ensure comfortable for customers and employees. Improved and developed information technologies and ensured high security. Challenges and Competitive Climate Increases in new market entrants with the opening of many Banks, MFIs and Loan Rural Credit Operators. Increase in immigrant population seeking jobs outside the country. Increase in excessive loans affecting customer s ability to repay. Strategies for 2016 Review existing products and develop new products in response to market demand. Further strengthen the internal control system and work flow of each position and duty. Cooperate with stakeholders inside and outside the country to improve quality services for customers and minimize the workload of employees. Maintain competitive advantage of quality services, timeliness, easiness and diversified products through sophisticated information technologies. Strengthen trainers abilities and increase training courses to develop employees abilities in line with the institution s progress. Boost up promotion to expand the market share. Further enhance and strengthen internal control mechanism through internal audit on a regular basis. Page 8

10 Chairman and CEO s Report Based on our prior experience, attentive analysis, monitoring and control on related challenges as well as potential risks compared to strategic plan for current and future implementation, I strongly believe that NIRON Microfinance Plc. will attain a success in the year 2016 and subsequent years in accordance with the set plan. I would like to take this opportunity to profusely thank the Royal Government, the National Bank of Cambodia, authorities at all levels, customers, employees at all level, the Board of Directors and shareholders for their physical and spiritual supports and full cooperation from the very beginning, having thus far made a great success and continued progress for NIRON Microfinance Plc. Finally, I would like to wish Samdach, His Excellency, Lok Chumteav, Lok Oknha, Ladies and Gentlemen, and NIRON Microfinance Plc. employees at all levels the four gems of Buddhist blessing: Longevity, Nobility, Health and Strength. Lay Kimchhen Chairman of Board of Directors and CEO 28 June, 2016 Page 9

11 Organizational Structure NIRON Microfinance Plc. Page 10

12 Operational Network No. Branch Address 1 HEAD OFFICE N o , Street 598, Sangkat Phnom Penh Thmei, Khan Saensokh, Phnom Penh. 2 KHAN SENSOKH N o , Street 598, Sangkat Phnom Penh Thmei, Khan Saensokh, Phnom Penh. 3 ANGK SNUOL DISTRICT Borei Kammeakkar Village, Baek Chan Commune, Angk Snuol District, Kandal Province. 4 RATANAK KIRI PROVINCIAL 7 Makara Village, Sangkat Labansiek, Krong Ban Lung, Ratanak Kiri Province. 5 KRONG BATTAMBANG Rumchek 4 Village, Sangkat Rottanak, Krong Battambang, Battambang Province. 6 KRONG KAMPONGCHAM Phum 4, Sangkat Veal Vong, Krong Kampong Cham, Kampong Cham Province. Page 11

13 Operational Network No. Branch Address 7 PUOK DISTRICT Kouk Thmei Village, Puok Commune, Puok District, Siemreap Province. 8 TAKEO PROVINCIAL Louri Village, Sangkat Roka Knong, Krong Doun Kaev, Takeo Province. 9 SOUTR NIKUM DISTRICT Doun Hong Village, Dam Daek Commune, Soutr Nikom District, Siemreap Rrovince. 10 KOH KONG PROVINCIAL Street 48, Phum 1, Sangkat Smach Mean Chey, Krong Khemara Phoumin, Koh Kong Province. 11 KROUCH CHHMAR DISTRICT Krouch Chhmar Kraom Village, Krouch Chhmar Commune, Krouch Chhmar District, Tboung Khmum Province. 12 KRONG SIEMREAP Komai Street, Trapeang Ses Village, Sangkat Kok Chak, Kong Siemreap, Siemreap Province. 13 S ANG DISTRICT BRNCH Street 21, Preaek Snang Village, Preaek Koy Commune, S ang District, Kandal Province. 14 KIEN SVAY DISTRICT BRNCH National Road 1, Slab Ta Aon Village, Kokir Commune, Kien Svay District, Kandal Province. 15 KHSACH KANDAL DISTRICT Knong Village, Preaek Ta Meak Commune, Khsach Kandal District, Kandal Province. 16 KANDAL PROVINCIAL National Road 2, Ta Kdol Village, Sangkat Ta Kdol, Krong Ta Khmau, Kandal Province. 17 KAMPONG THOM PROVINCIAL National Road 6A, Kdei Village, Sangkat Prey Ta Hu, Krong Stueng Saen, Kampong Thom Province. 18 KRONG KAMPONG CHHNANG National Road 5, Srae Pring Villlage, Sangkat Kampong Chhnang, Krong Kampong Chhnang, Kampong Chhnang Province. 19 CHEUNG PREY DISTRICT Andoung Treang Village, Sramar Commune, Cheung Prey District, Kampong Cham Province. 20 BANTEAY MEANCHEY PROVINCIAL Street 1, Phum 3, Sangkat Preah Ponlea, Krong Serei Saophoan, Banteay Meanchey Province. Page 12

14 Operational Network No. Branch Address 21 KRONG SVAY RIENG Street 209, Kien Svay Village, Sangkat Svay Rieng, Krong Svay Rieng, Svay Rieng Province. 22 PREY VENG PROVINCIAL National Road 1, Stueng Slout Village, Neak Loeang Commune, Peam Ro District, Prey Veng Province. 23 KRONG KAMPOT N o 169, National Road 3, Svay Thum Village, Sangkat Krang Ampil, Krong Kampot, Kampot Province. 24 KRONG KRATIE Voat Village, Sangkat Kratie, Krong Kratie, Kratie Province. 25 KRONG PREAH SIHANOUK N o 322, Street Omuy, Phum 5, Sangkat 4, Krong Preah Sihanouk, Preah Sihanouk Province. 26 KRONG PURSAT Peal Nheaek 1 Village, Sangkat Phteah Prey, Krong Pursat, Pursat Province. 27 BATI DISTRICT National Road 2, Chak Village, Trapeang Sab Commune, Bati District, Takeo Province. 28 KAMPONG SPEU PROVINCIAL National Road 4, Mukh Khett Village, Sangkat Rokar Thum, Krong Chbar Mon, Kampong Speu Province. 29 TBOUNG KHMUM PROVINCIAL National Road 7, Thlok Village, Sangkat Suong, Krong Suong, Tboung Khmum Province. 30 CHHUK DISTRICT Chrey Village, Satv Pong Commune, Chhuk District, Kampot Province. 31 BASEDTH DISTRICT National Road 3, Prey Sroul Village, Pou Angkrang Commune, Basedth District, Kampong Speu Province. 32 KIRI VONG DISTRICT Kampong Village, Preah Bat Choan Chum Commune, Kiri Vong District, Takeo Province 33 MOUNG RUESSEI DISTRICT National Road 5, Pou 1 Village, Kear Commune, Moung Ruessei District, Battambang Province. 34 BAVEL DISTRICT Street 57B, Bavel 1 Village, Bavel Commune, Bavel District, Battambang Province. Page 13

15 Operational Network No. Branch Address 35 KAMPONG TRABAEK DISTRICT National Road 1, Chambak Village, Prasat Commune, Kampong Trabaek District, Prey Veng Province. 36 PONHEA LUEU DISTRICT Ampil Dam Tuek Village, Vihear Luong Commune, Ponhea Lueu District, Kandal Province. 37 SREI SANTHOUR DISTRICT Santey Village, Preaek Pou Commune, Srey Santhor District, Kampong Cham Province. 38 CHAMKAR LEU DISTRICT Street 71, Thnal Vaek Kaeut Village, Svay Teab Commune, Chamkar Leu District, Kampong Cham Province. 39 MEMOT DISTRICT Memot Kandal Village, Memot Commune, Memot District, Tbuong Khmum Province. 40 KAMPONG TRACH DISTRICT N o 68, Street 33, Kampong Trach 1 Village, Kampong Trach Khang Kaeut Commune, Kampong Trach District, Kampot Province. 41 KRONG STUENG TRAENG Street 22, Trapeang Pring Village, Sangkat Stueng Traeng, Krong Stueng Traeng, Stueng Traeng Province. 42 PREY CHHOR DISTRICT National Road 7, Doun Dei Village, Chrey Vien Commune, Prey Chhor District, Kampong Cham Province. 43 KRONG PREAH VIHEAR Andoung Pou Village, Sangkat Kampong Pranak, Krong Preah Vihear, Preah Vihear Province. 44 SVAY ANTOR DISTRICT Street 11, Pou Chentam Village, Svay Antor Commune, Svay Antor District, Prey Veng Province. 45 SRAE AMBEL DISTRICT Trapeang Village, Srae Ambel Commune, Srae Ambel District, Koh Kong Province. 46 BARAY DISTRICT Rumchek Village, Triel Commune, Baray District, Kampong Thom Province. 47 MONDUL KIRI PROVINCIAL Chamkar Tae Village, Sangkat Spean Mean Chey, Krong Saen Monourom, Mondul Kiri Province. 48 ODDAR MEANCHEY PROVINCIAL Street 68, Chhuk Village, Sangkat Samraong, Krong Samraong, Oddar Meanchey Province. Page 14

16 Operational Network No. Branch Address 49 KRONG PAILIN Voat Village, Sangkat Pailin, Krong Pailin, Pailin Province. 50 KRAKOR DISTRICT National Road 5, Kandal Village, Anlong Tnaot Commune, Krakor District, Pursat Province. 51 ANLONG VEAENG DISTRICT Street 67, Thnal Kaeng Village, Anlong Veaeng Commune, Anlong Veaeng District, Oddar Meanchey Province. 52 PREY NOB DISTRICT National Road 4, Boeng Veaeng Village, Veal Renh Commune, Prey Nob District, Preah Sihanouk Province. 53 BOTUM SAKOR DISTRICT Thma Sa Village, Thma Sa Commune, Botum Sakor District, Koh Kong Province. 54 CHI KRAENG DISTRICT Thmei Village, Kouk Thlok Kraom Commune, Chi Kraeng District, Siemreap Province. 55 SNUOL DISTRICT Kbal Snuol Village, Snuol Commune, Snuol District, Kratie Province. Page 15

17 BOARD OF DIRECTORS សម សភ ពក រ មក រ រ ភ ប ល គ តមរក ត មច ងឆ ន ២០១៤ 1. Mr. Lay Kimchhen Chairman of the Board of Directors Cambodian national, born in 1977, he obtained a Bachelor of General Management from Build Bright University in He has also attended various courses in microfinance management. Before founding NIRON, he worked as Retail Unit Manager for many years at Kampuchea Tela Co, Ltd. He is one of NIRON s founders and has been elected as Chairman of the Board of Directors and Chief Executive Officer since its inception in Mr. Chhun Sina Director Cambodian national, born in 1983, he obtained a Master of General Management from Build Bright University in He has also attended various courses in microfinance management. He is one of NIRON s founders since its inception in Before elected as a board member and Chief Financial Officer, he worked in various positions such as Credit Officer, Accountant and Head of Finance Department. 3. Mr. Chhun Srea Director Cambodian national, born in 1953, he has attended many courses in business management. At the moment, he is part of top management in one gasoline company. He is one of NIRON s founders and has been elected as a board member since its inception in Page 16

18 BOARD OF DIRECTORS 4. Mr. Chuon Sophal Independent Director Cambodian national, born in 1954, he obtained a Bachelor of Business Management from University of Business in He has attended various courses in microfinance management from Institute of Microfinance Institution Development from Manchester, the United States, as well as many other related courses in the Philippines, Vietnam and Cambodia. He has a lot of working experience as Chief of Business Office in Koh Thom District, Chief Accountant, Assistant to General Manager, Head of Finance Department and Deputy Chief Executive Officer. Before appointed as Independent Director, he was a CEO of Thaneakea Phum (Cambodia) Co, Ltd. 5. Mr. Yorn Chantha Independence Director Cambodian national, born in 1977, he obtained a Master of Finance and Banking from Western University in He has attended various courses in microfinance management. He has been appointed Independence Director since early Before joining NIRON, he has many years of experience as a doer and manager in Human Resources management at ACELDA Bank Plc. Page 17

19 Executive Management 1. Mr. Lay Kimchhen Chief Executive Officer Cambodian national, born in He obtained a Bachelor of General Management from Build Bright University in He has also attended various courses in microfinance management. Before founding NIRON, he worked as Retail Unit Manager for many years at Kampuchea Tela Co, Ltd. He is one of NIRON s founders and has been elected as Chairman of the Board of Directors and Chief Executive Officer since its inception in Mr. Chhun Sina Chief Financial Officer Cambodian national, born in 1983, he obtained a Master of General Management from Build Bright University in He has also attended various courses in microfinance management. He is one of NIRON s founders since its inception in Before elected as a board member and Chief Financial Officer, he worked in various positions such as Credit Officer, Accountant and Head of Finance Department. Page 18

20 Executive Management 3. Mr. Hing Kolsamnang Chief Operation Officer Cambodian national, born in 1976, he obtained a Bachelor of Agriculture from the Royal University of Agriculture in He has attended various courses in microfinance management. He is one of NIRON s founders and has been appointed as Chief Operational Officer in Before working at NIRON, he has many years of experience as doer and manager in Credit Work at ACLEDA Bank Plc. 4. Mr. Nguon Wattanak Head of Research and Product Development Department Cambodian national, born in 1988, he obtained a Master of Financial Management from Charles Sturt University, Australia. He has attended various courses in financial management, accounting and microfinance management. Currently, he is pursuing ACCA at CamEd Business School. He is one of NIRON s founders and has worked in various positions such as Credit Officer, Accountant, Chief Accountant, and Head of Finance Department before he was appointed Head of Research and Product Development Department in Mr. Meas Vandeth Head of Information Technology Department Cambodian national, born in 1974, he obtained a Master of Information Technology from the Royal University of Phnom Penh in He has attended various courses in microfinance management. Beside working at NIRON, he is also a part-time lecturer of Information Technology at the Royal University of Phnom Penh. Page 19

21 Executive Management 6. Mr. Keath Virak Head of Administration Department Cambodian national, born in 1982, he obtained a Master of General Management from Build Bright University in He has attended various courses in microfinance management. He was appointed Head of Administration Department in Before joining NIRON, he had many years of experience as a doer and manager in Administration Work at ACLEDA Bank Plc. 7. Mr. An Bora Head of Operation Department Cambodian national, born in 1981, he obtained a Master of Finance from Paññāsāstra University of Cambodia in He has attended various courses in microfinance management. He is one of NIRON s founders and has been appointed Head of Operation Department since Before joining NIRON, he had many years of experience as a doer and manager in credit work at ACLEDA Bank Plc. 8. Mr. Leng Leak Head of Internal Audit Department Cambodian national, born in 1982, he obtained a Master of Finance and Banking from Norton University in Currently, he is pursuing ACCA at CamEd Business School. He has attended various courses in auditing and microfinance management. He was appointed Head of Internal Audit Department in Before joining NIRON, he had many years of experience in the management of in Internal Audit Work at ACLEDA Bank Plc. Page 20

22 Executive Management 9. Mr. Yorn Chantha Head of Human Resources Department Cambodian national, born in 1977, he obtained a Master of Finance and Banking from Western University in He has attended various courses in microfinance management. He has been appointed Head of Human Resources Department since Before joining NIRON, he has many years of experience as a doer and manager in Human Resources management at ACELDA Bank Plc. 10. Mrs. Touch Chivorn Head of Finance Department Cambodian national, born in 1985, she obtained a Bachelor of Accounting from Cambodian University of Specialist in Currently, she is pursuing Master of Finance and Banking at National University of Management. She has attended various courses in finance, accounting and microfinance management. She was appointed Head of Finance Department in Before joining NIRON, she had many years of experience in the management of Accounting and Finance Work at Sathapana Limited. Page 21

23 INDEPENDENT AUDITORS REPORT Report on the financial Report We have audited the financial statements of NIRON Microfinance Plc., which comprise the statement of financial position as at 31 December 2015 and the statement of income, statement of changes in equity and statement of cash flow for the financial period from 01 August 2015 to 31 December 2015, and a summary of significant accounting policies and other explanatory information, as set out on Pages 9 to 30. Directors responsibility for the financial statements The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with the guidelines of the National Bank of Cambodia and Cambodian Accounting Standards, and for such internal control as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud and error. In making those risk assessments, we consider the internal control relevant to the Company s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Page 22

24 INDEPENDENT AUDITORS REPORT Opinion In our opinion, the financial statements have been properly drawn up in accordance with the guidelines of the National Bank of Cambodia and Cambodian Accounting Standards so as to give a true and fair view of the financial position of the Company as at 31 December 2015 and of its financial performance and cash flows for the financial period from 01 August 2015 to 31 July Phnom Penh, Kingdom of Cambodia. Dated: 11 April 2016 Page 23

25 STATEMENT OF FINANCIAL POSITION STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 Asset Note US$ KHR'000 US$ KHR'000 4,050 4,050 Cash and bank balances 4 1,327,584 5,376, ,740 1,319,204 Balance with NBC 5 80, ,381 80, ,427 Balance with banks and other financial institutions 6 511,397 2,071,158 1,651,762 6,793,697 Advance, prepaid and deposits 7 1,145,928 4,641, ,539 4,098,765 Loans and advances to customers 8 10,969,326 44,425,770 9,996,257 41,114,605 Intangible assets 9 135, , , ,653 Property, plant and equipment 9 838,517 3,395, ,333 3,933,398 15,007,849 60,781,787 14,137,065 58,145,748 Liabilities Accounts payable and other liabilities 10 58, ,820 24, ,184 Provision for Income Tax , ,630 1,275 5,244 Accrued expenses and provisions ,423 1,718, ,006 1,546,513 Subordinated Debts ,000 2,187, Suspense, clearing and inter branch accounts 166, , , ,808 Loan payable 14 4,516,435 18,291,563 4,991,435 20,529,772 Total liabilities 5,834,888 23,631,296 5,514,836 22,682,520 Net asset 9,172,961 37,150,491 8,622,229 35,463,228 FINANCED BY: Share capital 15 1,500,000 6,075,000 1,500,000 6,169,500 Paid Up Capital 16 7,043,027 28,524,260 7,043,027 28,967,970 Revenue Reserves , ,758 Retained profits 629,934 2,551, Shareholders' funds 9,172,961 37,150,491 8,622,229 35,463,228 Page 24

26 STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 Note US$ KHR'000 4,050 REVENUE 17 3,323,947 13,461,984 Gross profit 3,323,947 13,461,984 Foreign Exchange gain/loss , ,291 Non Interest Income 19 59, ,862 Other Income 4,396 17,802 General and administrative expenses 20 (2,461,504) (9,969,092) Profit from operations 1,053,543 4,266,848 Finance costs (362,744) (1,469,114) Profit before tax 690,799 2,797,734 Income tax expense 21 (140,067) (567,272) Profit after tax for the financial year 550,731 2,230,462 Page 25

27 STATEMENT OF CHANGES IN EQUITY STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 Share capital Paid up capital Revenue Reserves Retained profits Total US$ US$ US$ US$ US$ As at 1 August ,500,000 7,043, ,622,229 Profit after tax for the financial year Change in other reserves As at 31 December 2015 As at 31 December 2015 (KHR'000) , , ,500,000 7,043, ,934 9,172,961 6,075,000 28,524,260-2,551,232 37,150,491 Page 26

28 STATEMENT OF CASH FLOW STATEMENT OF CASH FLOW FOR THE FINANCIAL YEAR ENDED 31 DECEMBER Note US$ KHR 000 Cash flows from operating activities Profit before tax 690,803 2,797,752 Adjustment for: Bad debts written off 245, ,643 Depreciation and amortization 195, ,272 Recovery on loans written off (4,396) (17,804) Operating profit before working capital changes 1,126,633 4,562,864 Advance, prepaid and deposits (149,390) (605,030) Loans and advances to customers (1,213,770) (4,915,785) Accounts payable and other liabilities 34, ,186 Accrued expenses and provisions 48, ,089 Loan payable 540,000 2,187,000 Provision for income tax 127, ,464 Suspense, clearing and inter branch accounts 44, ,221 Loan payable (475,000) (1,923,750) Net cash generated from/(used in) operating activities 83, ,260 Cash flows from investing activities Purchase fixed assets (76,975) (311,749) Net cash used in investing activity (76,975) (311,749) Page 27

29 STATEMENT OF CASH FLOW STATEMENT OF CASH FLOW FOR THE FINANCIAL YEAR ENDED 31 DECEMBER to Note US$ KHR 000 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year (133,519) (540,760) 2,052,596 8,313,014 1,919,077 7,772,254 CASH AND CASH EQUIVALENTS COMPRISE: Balance with banks and other financial institutions 511,397 2,071,158 Balance with NBC 80, ,381 Cash and bank balances 1,327,584 5,376,717 1,919,075 7,772,256 Page 28

30 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2015 AND FOR THE PERIOD FROM 01 AUGUST 2015 TO 31 DECEMBER GENERAL Niron Microfinance Plc. ( the Company ) is engaged in the provision of microfinance activities in fifty four branches in Kandal, Koh Kong, Kratié, Kampong Cham, Kampong Chhnang, Kampong Thom, Kampong Speu, Kampot, Takéo, Tbong Khmum, Banteay Meanchey, Battambang, Pailin, Pursat, Prey Veng, Preah Vihear, Preah Sihanouk, Mondulkiri, Ratanakiri, Siem Reap, Stung Treng, Svay Rieng and Oddar Meanchey provinces and through its head office in Phnom Penh. The Company was incorporated with the Ministry of Commerce on 18 October The Company obtained its license from the National Bank of Cambodia to operate as a microfinance institution on 12 February Under the microfinance license, the Company is authorised to grant credit services to improve living standards in term of rural development in the Kingdom of Cambodia. The registered office is located in Phnom Penh at Building , St. 598, Sangkat Phnom Penh Thmey, Khan Sen Sok, Phnom Penh. The Company has 1,095 employees as at 31 December BASIS OF PREPARATION AND AGGREGATION The financial statements of the Company are prepared under the historical cost convention in accordance with the guideline issued by the NBC and Cambodian Accounting Standards and practice within the microfinance industry. Those principles require that financial instruments be carried at cost less provision for impairment. This practice differs from the International Financial Reporting Standards which require that loans and receivables be carried at amortised cost using the effective interest method of any difference between the initial amount and maturity amount, and minus any reduction for impairment or uncollectability. The financial statements include the financial statements of the head office in Phnom Penh and branches in Kandal, Koh Kong, Kratié, Kampong Cham, Kampong Chhnang, Kampong Thom, Kampong Speu, Kampot, Takéo, Tbong Khmum, Banteay Meanchey, Battambang, Pailin, Pursat, Prey Veng, Preah Vihear, Preah Sihanouk, Mondulkiri, Ratanakiri, Siem Reap, Stung Treng, Svay Rieng and Oddar Meanchey provinces. All significant inter-branch transactions are eliminated in full on aggregation of balances. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Cash and cash equivalents Cash and cash equivalents comprise cash, bank balances and short-term funds liquid able in less than one month. 3.2 Statutory deposits Statutory deposits represent mandatory reserve deposits and cash maintained with the NBC in compliance with the Law on Banking and Financial Institutions ( LBFI ) and are not available to finance the Company s day-today operations and hence are not considered as part of cash and cash equivalents for the purpose of the statement of cash flows. Page 29

31 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.3 Loans and advances Loans and advances are presented using the principal amounts outstanding at the end of the period after deducting any provisions for doubtful loans. 3.4 Allowance for bad and doubtful loans The Company records the mandatory credit classification and provisioning as required by Prakas B dated 13 September The Prakas requires microfinance institutions to classify their loan portfolio into the following four classes and ensure that the minimum mandatory level of specific provisioning is provided: Classification Number of days past due Allowance Short-term loans (less than one year): Standard 0-29 days 0% Sub-standard days 10% Doubtful days 30% Loss 90 days or more 100% Long-term loans (more than one year): Standard 0-29 days 0% Sub-standard days 10% Doubtful days 30% Loss 360 days or more 100% The specific provision is calculated as a percentage of the loans outstanding at the time the loan is classified and is charged as expense in the income statement. Loans are written off when they are considered uncollectible. Loans written off are taken out of the outstanding loan portfolio and deducted from the allowance for loan loss. 3.5 Recognition of income and expense Interest income earned on loans is recognized on an accrual basis after offsetting Loans Incentive Expenses granted to borrowers for good performing loans upon their settlement. Expenses are recognized when incurred. 3.6 Interest and fee expenses Interest expense on deposits from borrowers is recognized on an accrual basis. Page 30

32 NOTES TO THE FINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.7 Property, plant and equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line and declining-balance basis over the estimated useful lives of the assets at the following rates per annum: Vehicle Declining balance 25% Leasehold improvement Straight line 5% Formation expenses Straight line 10% Computer equipment Declining balance 50% Equipment Declining balance 25% Other fixed assets Declining balance 20% Furniture and fixture Declining balance 25% Intangible assets Straight line 10% (unlimited useful life) Fully depreciated assets are retained in the accounts until they are no longer in use and no further charge for depreciation is made in respect of these assets. 3.8 Foreign currency translation The Company transacts essentially in US dollar (USD) and maintains its books of accounts in USD. Transactions arising in currencies other than USD during the period are converted into USD at the rates of exchange ruling at the transaction dates. Assets and liabilities in foreign currencies are translated into USD at the rate of exchange prevailing on the transaction dates. Exchange differences arising from conversion are reported on a net basis in the statement of income. In compliance with the requirement of the NBC, all assets, liabilities, profit and loss statement items in foreign currencies at the end of the period are converted into Khmer riel (KHR) using the official exchange rate announced by the NBC at the balance sheet date, of USD1 = KHR 4,050. Such conversions should not be construed as representations that the KHR amounts have been, could be, or could in the future be, converted into USD at this or any other rate of exchange. 3.9 Related Parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions Deferred taxation Provision is made, where material, for deferred taxation in respect of timing difference arising from the recognition of items of income and expenditure in the financial statements on bases different form that used for taxation purposes. Page 31

33 NOTES TO THE FINANCIAL STATEMENTS 4. CASH AND CASH EQUIVALENTS US$ KHR'000 US$ KHR'000 Cash in Vault and on Hand: KHR 116, , , ,496 Cash in Vault and on Hand: USD 1,197,360 4,849,307 97, ,705 Petty Cash: KHR 13,583 55,010 13,373 55,003 1,327,584 5,376, ,740 1,319, BALANCE WITH NBC The Company is required to maintain a statutory deposit of 5% of its capital to comply with the NBC s Prakas No. B dated 11 January 2000 and Prakas No. B date 25 February No Interest is earned on this statutory deposit US$ KHR'000 US$ KHR'000 Capital Guarantee Deposit with NBC: USD 75, ,750 75, ,475 Other Demand Deposit with NBC: USD 5,094 20,631 5,094 20,952 80, ,381 80, , BALANCE WITH BANKS AND OTHER FINANCIAL INSTITUTIONS US$ KHR'000 US$ KHR'000 Current Accounts (Nostro)-: ABA: USD ,044 Current Accounts (Nostro)-: HWANG DBS: USD 5,616 22, Current Accounts (Nostro)-ACLEDA: KHR 57, ,122 1,076,774 4,428,771 Current Accounts (Nostro)-ACLEDA: USD 9,783 39, ,615 1,516,113 Current Accounts (Nostro)-HWANG DBS: USD - - 5,551 22,831 Demand and Savings Deposits : ACLEDA: KHR 276,877 1,121,352 2,848 11,714 Demand and Savings Deposits : ACLEDA: USD 161, ,322 42, ,746 Demand and Savings Deposits-: ABA: USD , , ,397 2,071,158 1,651,762 6,793,696 Page 32

34 NOTES TO THE FINANCIAL STATEMENTS 7. ADVANCES, PREPAID AND DEPOSITS US$ KHR'000 US$ KHR'000 Advance Payment / Deposits-Cash Advance: KHR - - 1,196 4,919 Advance Payment / Deposits-Cash Advance: USD 215, ,086 21,325 87,710 Advance Payment / Deposits-Employee Advance: USD 255 1,031 3,456 14,215 Advance Payment / Deposits-Office Rent: USD 849,690 3,441, ,860 3,561,282 Advance Payment / Deposits-Travelling: USD 580 2,349 1,263 5,195 Other receivable ,612 Prepaid Insurance: USD - - 2,979 12,253 Prepaid License Fee: KHR - - 5,267 21,663 Prepaid License Fee: USD ,418 Prepaid Other: KHR Prepaid Other: USD 5,207 21,086 15,550 63,957 Prepaid Rent-Office Rent: USD 56, ,410 45, ,651 Prepaid-Uniform: USD ,392 92,098 Stationary Supply & Inventory: KHR Stationary Supply & Inventory: USD 17,670 71,563 9,918 40,793 1,145,928 4,641, ,539 4,098,765 Page 33

35 NOTES TO THE FINANCIAL STATEMENTS 8. LOANS AND ADVANCES TO CUSTOMERS USD KHR 000 USD KHR 000 Individual loans 11,107,688 44,986,138 10,055,135 41,356,770 Group loans 95, , , ,140 11,202,729 45,371,051 10,186,217 41,895,910 Accrued interest standard 385,968 1,563, ,217 1,308,827 Accrued interest sub-standard/double full/loss 166, , , , ,232 2,236, ,693 1,808,458 Provision for loan losses: At beginning of period (629,654) (2,550,098) - - Charge during the period (155,981) (631,724) (629,653) (2,589,763) Write off during the period - - Net Loans 10,969,326 44,425,770 9,996,257 41,114,605 Further analysis of the above loans and advances is provided below. Note: comparative figures are not available. (a) By maturity period Within three months 1,981,109 8,023,493 1,998,894 8,221,451 Four to twelve months 6,856,202 27,767,619 6,781,667 27,892,996 One to three years 1,938,207 7,849,737 1,195,624 4,917,602 Four years and more 427,210 1,730, , ,866 11,202,729 45,371,051 10,186,217 41,895,911 (b) By security Secured 3,779,105 15,305,375 3,552,056 14,609,606 Unsecured 7,423,624 30,065,677 6,634,161 27,286,304 11,202,729 45,371,051 10,186,217 41,895,911 (c) By Currency denomination US dollar 1,648,869 6,677,918 1,448,919 5,959,404 Khmer riel 9,553,860 38,693,133 8,737,299 35,936,511 11,202,729 45,371,051 10,186,217 41,895,911 (d) By status of residence Residents 11,202,729 45,371,051 10,186,217 41,895,911 11,202,729 45,371,051 10,186,217 41,895,911 (e) By relationship Related parties 520,123 2,106,497 Non related parties 10,682,606 43,264,554 10,186,217 41,895,911 11,202,729 45,371,051 10,186,217 41,895,911 (f) By economic sectors Household/Family 11,202,729 45,371,051 10,186,217 41,895,911 11,202,729 45,371,051 10,186,217 41,895,911 (g) By large exposure Large exposure 478,500 1,937,925 Non large exposures 10,724,229 43,433,126 10,186,217 41,895,911 11,202,729 45,371,051 10,186,217 41,895,911 Page 34

36 NOTES TO THE FINANCIAL STATEMENTS 9. PROPERTY, PLANT AND EQUIPMENT Vehicles Leasehold Improvement Computer Equipment Equipment Intangible Assets Formation Expenses Other Fixed Assets Furniture and Fixtures Land Improvement Total US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Cost At ,697, , , ,545 93,750 79,360 57,605 43,048 3,990 2,454,637 Additions - 17,959 44,286 2,102 7, ,347-76,978 Disposals At ,697, , , , ,250 79,360 58,389 47,395 3,990 2,531,616 Accumulated depreciation At ,055,479 29, ,682 73,459 16,527 21,243 29,508 27, ,362,966 Additions 139,374 4,526 26,134 8,625 4,573 3,265 5,084 3, ,131 Disposals At ,194,853 34, ,815 82,084 21,100 24,508 34,592 31, ,558,096 Net book value At , ,767 76,428 56,563 80,150 54,852 23,798 16,010 3, ,519 (KHR 000) 2,034, , , , , ,151 96,381 64,842 14,543 3,942,753 At , ,334 58,275 63,086 77,223 58,117 28,097 15,130 3,674 1,091,670 (KHR 000) 2,639, , , , , , ,563 62,230 15,111 4,490,039 Page 35

37 NOTES TO THE FINANCIAL STATEMENTS 10. ACCOUNT PAYABLE AND OTHER LIABILITIES US$ KHR'000 US$ KHR'000 Other Accounts Payable: KHR 489 1,980 2,931 12,055 Other Accounts Payable: USD 5,028 20,363 4,778 19,652 Other Accounts Payable-Funeral Fund: USD 7,180 29,079 5,096 20,960 Other Accounts Payable-CBC: USD 564 2, ,464 Other WHD Taxes-Interest Resident: USD 30, , Other WHD Taxes-Rent: KHR Other WHD Taxes-Rent: USD 5,796 23,475 3,363 13,832 Other WHD Taxes-Salary: USD 7,891 31,957 7,383 30,366 Other WHD Taxes-Services Resident: KHR 335 1, Other WHD Taxes-Services Resident: USD 921 3, , ,820 24, , PROVISION FOR INCOME TAX US$ KHR'000 US$ KHR'000 Balance at the beginning of the period 1,275 5,164 1,575 6,478 Charge during the period 267,837 1,084,739 10,361 42,615 Taxation paid during the period (140,067) (567,272) (10,661) (43,849) Balance at the end of the period 129, ,630 1,275 5, ACCRUED EXPENES AND PROVISION US$ KHR'000 US$ KHR'000 Accrued Employee Benefits Payable-Bonus: USD 245, , ,164 1,312,722 Accrued Employee Benefits Payable-Pchum Ben: USD ,795 97,869 Accrued Expenses and Provisions-Medical Care: USD ,603 97,079 Accrued Expenses and Provisions-Other: KHR 4,122 16, Accrued Expenses and Provisions-Other: USD 2,138 8,659 9,444 38,843 AIP-LT Borrowed Funds-Other FIs: USD 172, , ,423 1,718, ,006 1,546,513 Page 36

38 NOTES TO THE FINANCIAL STATEMENTS 13. SUBORDINATED DEBTS (SUP-SPEED) US$ KHR'000 Mr. Lay Kimchhen 540,000 2,187, ,000 2,187,000 This subordinated debts start on 31 December 2015 with net interest as dividend rate per annum and will accumulate with 20% per year transfer to share capital. 14. LONG-TERM LOAN The long-term loan amount USD 4,991,435 is start on 31 July 2015 with bear gross interest of % per annum (9.00% net of tax). This interest is accrued monthly based on Outstanding Loan Balance on a monthly basis. 15. SHARE CAPITAL Authorised: US$ KHR 000 US$ KHR 000 Ordinary shares of USD1 each Balance at the beginning of the period 1,500,000 6,169,500 1,500,000 6,169,500 Balance at the end of the period: 1,500,000 6,169,500 1,500,000 6,169, PAID UP CAPITAL US$ KHR'000 US$ KHR'000 Mr. Lay Kimchhen 2,680,540 10,856,187 2,680,540 11,025,061 Mr. Chhun Sina 534,349 2,164, ,349 2,197,777 Mr. Chhun Srea 3,072,536 12,443,771 3,072,536 12,637,341 Ms. Chhun Vannouch 755,602 3,060, ,602 3,107,791 7,043,027 28,524,259 7,043,027 28,967,970 Page 37

39 NOTES TO THE FINANCIAL STATEMENTS 17. REVENUE US$ KHR'000 Accounts with banks and other financial institutions 2,246 9,094 Loans and advances to customers 3,310,801 13,408,746 Other Income 10,900 44,144 3,323,947 13,461, FOREIGN EXCHAGE GAIN/LOSS US$ KHR'000 Gain on Foreign Exchange-Conversion: USD 167, ,415 Gain on Foreign Exchange-Realized: USD 4,142 16,775 Loss on Foreign Exchange-Realized: USD (8,736) (35,381) Loss on Foreign Exchange-Conversion: USD (35,683) (144,518) 127, , NON-INTEREST INCOME US$ KHR'000 Other Non-Interest Income-Loan Early Payoff : KHR 33, ,127 Other Non-Interest Income-Loan Early Payoff : USD 7,231 29,287 Other Non-Interest Income-Others: KHR 308 1,249 Other Non-Interest Income-Others: USD 13,840 56,053 Fees and Commissions on Loans: KHR 1,064 4,310 Fees and Commissions on Loans: USD 3,910 15,836 59, , GENERAL AND ADMINISTRATIVE EXPENSES US$ KHR'000 Depreciation and amortization 195, ,279 Occupancy Expenses 337,367 1,366,337 Office expenses 80, ,995 Other general and administrative expenses 140, ,928 Personnel expenses 1,517,512 6,145,923 Travel Expense/Meal /per diem 57, ,896 Vehicle Operating Expense 132, ,735 2,461,504 9,969,092 Page 38

40 NOTES TO THE FINANCIAL STATEMENTS 21. INCOME TAX EXPENSE This represents prepaid profit tax 1% and profit tax at 20% of the current s year profit before tax after a differences relating to items not allowed as deductions for tax purposes. 22. RELATED PARTY TRANSACTIONS (a) Parties are considered related to the Company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other parties. Key management personnel comprise persons (including the directors of the Company) having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly. 23. TAXATION CONTINGENCIES The taxation system in Cambodia is relatively new and is characterized by numerous taxes and frequently changing legislation, which is often unclear, contradictory, and subject to interpretation, Taxes are subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. These facts may create tax risks in Cambodia substantially more significant than in other countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have differing interpretations and the effects could by significant. 24. FINANCIAL INTRUMENTS (a) Categories of financial instruments Financial assets USD KHR'000 Cash on hand 1,327,584 5,376,717 Balance with NBC 80, ,381 Accounts with banks and other financial institutions 511,397 2,071,158 Advances, prepayments and deposits 1,145,928 4,641,008 Loans to customers 10,969,326 44,425,770 Financial liabilities 14,034,329 56,839,034 Subordinated debts 540,000 2,187,000 Other liabilities 778,453 3,152,733 1,318,453 5,339,733 Not financial (liabilities)/assets 12,715,877 51,499,301 Page 39

41 NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies The Company s financial risk management objective is to optimize value creation for shareholders whilst minimizing the potential adverse impact arising from fluctuations in interest rates and the unpredictability of the financial markets. The Company operates within an established risk management framework and clearly defined guidelines that are regularly reviewed by the directors and does not trade in derivative financial instruments. Financial risk management is carried out through risk review programs, internal control systems and adherence to the Company financial risk management policies. The Company is exposed mainly to credit risk, interest rate risk and liquidity risk. Information on the management of the related exposures is detailed below. (i) Credit risk The Company assumes exposure to credit risk which is the risk that a counterparty will be unable to pay the amounts in full when due. The Company structures the levels of credit risk undertaken by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and the geographical and industry segments. Procedures of risk limit setting, monitoring, usage, control are governed by internal regulations. Such risks are monitored on a regular basis. Exposure to credit risk is managed through regular analysis of the ability of the borrowers and potential borrowers to meet the interest and capital repayment obligations and reviewing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate or personal guarantees as well as by providing for loan losses. a. Risk limit control and mitigation policies The Company operated 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 wherever 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: Collateral pledges over residential properties ( land, building and other properties); and Charges over business assets such as land and buildings Page 40

42 NOTES TO THE FINANCIAL STATEMENTS 11. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (i) Credit risk (continued) b. Maximum exposure to credit risk before collateral held or other credit enhancements USD KHR'000 Credit exposure relating to on-balance sheet assets: Deposits and placements with banks 511,397 2,071,158 Loans to customers 10,969,326 44,425,770 Advances, prepayments and deposits 1,145,928 4,641,008 12,626,651 51,137,936 The above table represents a worst case scenario for credit risk exposure to the Company at 31 December 2015, 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. c. Loans to customers Loans to customers are summarized as follows USD KHR'000 Loans to customers neither past due nor impaired 10,163,661 41,162,826 Loans to customers past due but not impaired 104, ,476 Loans to customers individually impaired 934,506 3,784,749 Gross loan 11,202,729 45,371,051 Allowance for bad and doubtful loans (785,635) (3,181,822) Net loans to customers 10,417,094 42,189,229 For the purpose of loan provisioning, the expected recovery from collateral (except cash is not taken into consideration in accordance with the National Bank of Cambodia s requirements. The total allowance for bad and doubtful loans is USD 785,635, which represents the mandatory provision required by the Central Bank and additional provision for the loan losses. (a) Loans to customers neither past due nor impaired (b) Loans to customers not past due are not considered impaired, unless other information is available to indicate the contrary. (b) Loans to customers past due but not impaired Loans to customers which past due are not considered impaired, unless other information is available to indicate the contrary. Page 41

43 NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (i) Credit risk (continued) (c) Loans to customers individually impaired In accordance with Prakas B dated 12 September 2002 on loan classification and provisioning loans past due more than 30days are considered impaired and a minimum level of specific provision for impairment is made depending on the classification concerned, unless other information is available to indicate the contrary USD KHR'000 Past due over days 319,713 1,294,839 (d) Loans to customers renegotiated There were no renegotiated loans to customers at 31 December d. Repossessed collateral During the period ended 31 December 2015, the Company did not obtain any assets by taking possession of collateral held as security. (ii) Interest rate risk Interest rate risk refers to the volatility in net interest income as a result of changes in the levels of interest rate and shifts in the composition of the assets and liabilities. Interest rate risk is managed through close monitoring of returns on investment, market pricing, cost of funds and through interest rate sensitivity gap analysis. The potential reduction in net interest income from an unfavorable interest rate movement is monitored against the risk tolerance limits set. An analysis of the interest rate risk pertaining to the Company s assets and liabilities is disclosed below. Page 42

44 NOTES TO THE FINANCIAL STATEMENTS Assets 24. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (ii) Interest rate risk (continued) Up to 1 Month >1-3 Months >3-12 Months >1-5 Years Over 5 Years Non-interest Bearing USD USD USD USD USD USD USD % Cash in hand ,327,584 1,327,584 - Deposits and placements with banks 511, , % Statutory deposit with central bank ,094-80,094 - Loans and advances to customers: - - Performing 108,434 1,024,907 6,795,388 2,291,862 47,631-10,268,223 14% - Non-performing 750,397 97,371 60,814 25, , Specific provision (717,019) (47,764) (16,749) (4,103) - - (785,635) - - Accrual Interest 140,659 67, ,709 34, ,232 Other Assets ,145,928 1,145,928 - Liabilities 793,869 1,141,687 7,149,162 2,348, ,767 2,473,512 14,034,329 Loan payable , ,000 0% Interest in suspense 137,085 18,174 9,108 1, ,264 provision for income tax , ,044 - Other liabilities ,516, ,144 4,999,579 - Interest sensitivity gap 31 December 2015(USD) 137,085 18,174 9,108 4,518,432-1,152,188 5,834, ,784 1,123,513 7,140,054 (2,170,000) 127,767 1,321,324 8,199,442 Total Weighted Average Interest Page 43

45 NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (iii) Liquidity risk Liquidity risk relates to the ability to maintain sufficient liquid assets to meet its financial commitments and obligations when the y fall due at a reasonable cost. In addition to full compliance of all liquidity requirements, the management of the Company closely monitors all inflows and out flows and the maturity gaps through periodical reporting. Movements in loans and customers deposits are monitored and liquidity requirements adjusted to ensure sufficient liquid assets to meet its financial commitments and obligations as and when they fall due. The following table provides and analysis of the financial liabilities of the Company into relevant maturity groupings based on the remaining periods to repayment. Assets Total Less than From No fixed 1 month 1 month to Over maturity 1 year 1 year date Cash in hand 1,327,584 1,327, Deposits and placements with banks 511, , Statutory deposit with central bank 80, ,094 - Loans and advances Performing 10,268, ,434 7,820,295 2,339, Non-performing 934, , ,185 25, Specific provisions (785,635) (717,019) (64,513) (4,103) - - Accrual interest 552, , ,882 34,691 - Other Assets 1,145, ,145,928 - Total Assets 14,034,329 2,121,453 8,290,849 3,622,027 - Page 44

46 NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (iii) Liquidity risk (continued) Total Less than From No fixed 1 month 1 month to Over maturity 1 year 1 year date Liabilities Loan payable 540, ,000 - Interest in suspense 166, ,085 27,283 1,897 - Provision for income tax 129, , Other liabilities 4,999,579 58, ,423 4,516,435 - Total Liabilities 5,834, , ,750 5,058,332 - Net liquidity surplus/(gap) 8,199,441 1,925,648 7,710,099 (1,436,305) - Net liquidity surplus/(gap) KHR'000 33,207,737 7,798,872 31,225,902 (5,817,037) - Page 45

47 NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL INSTRUMENTS (continued) (b) Financial risk management objectives and policies (continued) (iv) Foreign currency risk Foreign currency risk is the risk that the value of financial instruments will fluctuate due to the changes in foreign exchange rates. The Company has no material exposures to currency risk as it transacts essentially in US Dollar. Significant presence of US dollar is a normal practice of banks operating in Cambodia as this is a currency widely in use in Cambodia. At 31 December 2015 USD KHR ($) Total Financial assets Cash on hand 1,197, ,225 1,327,584 Balance with NBC 80,094-80,094 Accounts with banks and other financial institutions 176, , ,397 Advance, prepaid and deposits 1,145, ,145,928 Loans and advances to customers 1,656,174 9,313,152 10,969,326 Total financial assets 4,256,457 9,777,872 14,034,329 Financial liabilities Subordinated debts 540, ,000 Other liabilities 5,125, ,024 5,294,888 Total financial liabilities 5,665, ,024 5,834,888 Net on-balance sheet position (1,409,407) 9,608,848 8,199,441 Gap-in KHR'000 equivalent (5,708,097) 38,915,835 33,207,737 USD (v) Capital risk management policies and objectives The Company s objectives when managing capital are: (i) to safeguard the Company s ability to continue as a going concern, so that it can continue to provide returns for its shareholder and other stakeholders; and (ii) to provide an adequate return to its shareholder by pricing products and services commensurately with the level risk. (jj) The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. 25. FAIR VALUES OF FINANCIAL INSTRUMENT Fair value represents the amount at which an asset could be exchanged or a liability settled on an arms-length basis. As verifiable market prices are not available, market prices are not availed for a significant proportion of the Company s financial assets and liabilities, Fair values, therefore, have been based on management assumptions according to the profile of the asset and liability base, In the opinion of the management, the carrying amounts of the financial assets and liabilities included in the balance sheet are reasonable estimation of their fair values. In making this assessment, the management assumes that loans and advances are mainly held to maturity with fair values equal to the book value of loans adjusted for allowance for loan losses, if any. Page 46

48