annual report 2011 · liabilities to banks and financial institutions total equity income statement...

Annual Report 2011

A n n u A l R e p o R t 20112

Key Figures

*Some of the figures differ from those published in the 2010 Annual Report, due to changed calculation method

exchange rate as of December 31:2011: euR 1 = BGn 1.95582010: euR 1 = BGn 1.9558

EUR ’000 BGN ’000 Change 2011 2010* 2011 2010* BGN

Balance Sheet Data total Assets Gross loan portfolio Business loan portfolio < euR 10,000 > euR 10,000 < euR 30,000 > euR 30,000 < euR 150,000 > euR 150,000 Agricultural loan portfolio Housing Improvement loan portfolio other loan loss provisions net loan portfolio Customer Deposits liabilities to Banks and Financial Institutions total equity

Income Statement operating Income operating expenses operating profit Before tax net profit Key Ratios Cost/Income Ratio Return on equity (Roe) Capital Ratio Operational Statistics number of Clients of which Business Clients number of loans outstanding number of Deposit Accounts number of Staff number of Branches and outlets

5.4%4.0%4.0%

–13.1%8.8%

10.3%–0.7%

7.0%2.3%

–7.8%41.6%

2.7%16.4%–5.5%

6.4%

5.5%–1.9%

140.1%138.4%

–1.1%–5.6%

–16.0%–1.5%–8.1%

1.2%

1,307,0911,100,322

919,60091,562

155,638358,196314,204123,654

36,83520,233

–38,6591,061,663

737,294213,757129,437

74,56770,7113,8563,477

1,378,1821,144,679

956,09679,594

169,343395,107312,052132,260

37,67318,650

–54,7541,089,925

858,096202,019137,728

78,64269,382

9,2608,290

668,305562,586470,184

46,81579,576

183,143160,650

63,22318,83310,345

–19,766542,820376,972109,292

66,180

38,12636,154

1,9721,778

70.5%2.7%

18.7%

170,94745,73739,670

220,9711,513

82

704,653585,265488,844

40,69686,584

202,015159,550

67,62319,262

9,536–27,995557,270438,738103,291

70,419

40,20935,474

4,7354,239

68.3%6.2%

17.4%

169,13143,17733,337

217,5861,391

83

Mission Statement 4

Letter from the Supervisory Board 5

The Bank and its Shareholders 6

Special Feature 8

Management Business Review 10

Risk Management 20

Branch Network 26

Organisation, Staff and Staff Development 28

Business Ethics and Environmental Standards 30

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People 34

ProCredit in Eastern Europe 38

Our Clients 42

Financial Statements 46

Contact Addresses 72

3CO N T E N T S

Mission Statement

ProCredit Bank Bulgaria is a development-oriented full-service bank. We offer excellent

customer service to private individuals and enterprises. In our operations, we adhere to a

number of core principles: we value transparency in our communication with customers,

we do not promote consumer lending and we provide services which are based both on an

understanding of each client’s situation and on sound financial analysis. This responsible

approach to banking allows us to build long-term partnerships with our clients based on

mutual trust.

In our operations with business clients, we focus on very small, small and medium-sized

enterprises, as we are convinced that these businesses create jobs and make a vital

contribution to the economies in which they operate. By offering simple and accessible

deposit facilities and other banking services and by investing substantial resources in

financial education we aim to promote a culture of savings and responsibility which can

help to bring greater stability and security to ordinary households.

Our shareholders expect a sustainable return on investment over the long term, rather than

being focused on short-term profit maximisation. We invest extensively in the training and

development of our staff in order to create an open and efficient working atmosphere, and

to provide friendly and competent service for our customers.

A N N U A L R E P O R T 20114

2011 was a successful and very significant year for ProCredit Bank Bulgaria. The bank marked its tenth anniversary and further strengthened its market position as the “house bank” for Bulgarian entrepreneurs, small and medium-sized businesses. Thanks to investments in staff, technology and the branch network, significant progress was made in serving private clients in an efficient and trans-parent way, and in fostering a savings culture and financial literacy. Strong growth was also achieved in the area of green finance.Although the Bulgarian economy initially seemed to be coping well with the effects of the global cri-sis, the abrupt deterioration of the situation in the EU, especially in Greece, caused the recovery to stall. Nonetheless, ProCredit Bank continued to provide consistent support to its clients during this uncertain period. Despite the low overall demand for credit, especially in the second half of the year, the bank disbursed 13,000 loans totalling BGN 518 million (EUR 265 million). We also became the market leader in the Bulgarian agricultural sector, with a share of over 25% in some regions. In 2011 we focused on maintaining our high loan portfolio quality. At year-end, the portfolio at risk (PAR>30 days) was 4.31%, down from the 4.95% recorded in 2010. We also maintained a deposit base totalling BGN 850 million (EUR 435 million). Total assets stood at BGN 1.4 billion (EUR 705 million). During the course of the year we attracted 32,000 new clients, and now serve a total of over 30,000 credit clients and 139,000 depositors.ProCredit Bank continued to offer innovative services that contribute towards an equitable and sustain-able economy. The bank actively promoted its energy efficiency loans for private and business clients, increasing the range of environmental activities that are eligible for financing. In line with our socially responsible approach, ProCredit Bank organised a series of events for clients and suppliers to explain the advantages of energy efficient measures and the benefits of meeting EU energy standards. The bank remains firmly committed to providing comprehensive training opportunities for staff at all levels, thus maintaining a strong, professional and motivated team. A major innovation was the launch of the Young Bankers Programme for potential new employees early in the year. During 2011 the bank welcomed 204 new colleagues, closing the year with a total of 1,391 staff. The bank also launched a three-year project to redesign its branches and service points, underscor-ing our image as an experienced, responsible and reliable institution. Thanks to reorganised internal processes and the efforts of the entire staff, the bank made a profit of BGN 8.3 million (EUR 4.2 million), enabling a return on equity of 6.2%. Despite worsening global eco-nomic conditions and our substantial investments in infrastructure and training, our capital adequacy ratio at year-end stood at 17.4%. Our priority for 2012 will again be to develop our business with small and medium-sized enterprises and maintain our reputation as a reliable partner in a highly volatile environment. We will also place great emphasis on green finance projects, as these have a key role to play in economic development, and will continue to strive to be the bank of choice for private clients.As in previous years, I would like to thank our clients for the confidence they have shown in us, and their appreciation of our efforts to serve them well. I also thank our shareholders and partners who have supported the institution in its development. On behalf of the Supervisory Board, I would like to express my deep gratitude and respect to our staff at all levels, as well as the management team, for their enthusiasm and commitment. Their loyalty, hard work and dedication, their unique willingness to share knowledge and opinions, and the general mood of confidence throughout the bank were crucial to ProCredit Bank’s solid performance, not only in 2011, but throughout these past ten years.

Christoph FreytagChairman of the Supervisory Board

Letter from the Supervisory Board

Members of the

Supervisory Board

as of December 31, 2011:

Christoph Freytag

Claus-Peter Zeitinger

Borislav Kostadinov

Hanns Martin Hagen

Birgit Storz

Members of the

Management Board

as of December 31, 2011:

Petar Slavov

Mariana Petkova

Emilia Tzareva

Rumyana Todorova

L E T T E R F R O M T H E S U P E R v IS O R y B OA R D 5

The Bank and its Shareholders

ProCredit Bank Bulgaria is a member of the ProCredit group, which is led by its Frankfurt-based parent company, ProCredit Holding. ProCredit Holding is the majority owner of ProCredit Bank Bulgaria and holds 80.9% of the shares.

ProCredit Bank Bulgaria was founded in October 2001 by an alliance of international development-oriented investors, many of which are sharehold-ers in ProCredit Holding today. Their goal was to establish a new kind of financial institution that would meet the demand of small and very small businesses in a socially responsible way. The pri-mary aim was not short-term profit maximisation but rather to deepen the financial sector and con-

tribute to long-term economic development while also achieving a sustainable return on investment.

Over the years, ProCredit Holding has consolidat-ed the ownership and management structure of all the ProCredit banks to create a truly global group with a clear shareholder structure and to bring to each ProCredit institution all the best practice standards, synergies and benefits that this implies.

Today’s shareholder structure of ProCredit Bank Bulgaria is outlined below. Its current share capi-tal is EUR 59.6 million.

ProCredit Holding is the par-ent company of a global group

of 21 ProCredit banks. ProCredit Holding was founded as Internationale Micro Investitionen AG (IMI) in 1998 by the pioneering development fi-nance consultancy company IPC.

ProCredit Holding is committed to expanding ac-cess to financial services in developing countries and transition economies by building a group of banks that are the leading providers of fair, trans-parent financial services for very small, small and medium-sized businesses as well as the general population in their countries of operation. In addi-tion to meeting the equity needs of its subsidiar-ies, ProCredit Holding guides the development of the ProCredit banks, provides their senior man-agement, and supports the banks in all key areas of activity, including banking operations, human resources and risk management. It ensures that ProCredit corporate values, international best practice procedures and Basel II risk management principles are implemented group-wide in line with standards also set by the German superviso-ry authorities.

IPC is the leading shareholder and strategic inves-tor in ProCredit Holding. IPC has been the driving

entrepreneurial force behind the ProCredit group since the foundation of the banks.

ProCredit Holding is a public-private partnership. In addition to IPC and IPC Invest (the investment vehicle of the staff of IPC and ProCredit), the other private shareholders of ProCredit Holding include the Dutch DOEN Foundation, the US pension fund TIAA-CREF, the US Omidyar-Tufts Microfinance Fund and the Swiss investment fund responsAbili-ty. The public shareholders of ProCredit Holding include KfW (the German promotional bank), IFC (the private sector arm of the World Bank), FMO (the Dutch development bank), BIO (the Belgian Investment Company for Developing Countries) and Proparco (the French Investment and Promotions company for Economic Cooperation).

The legal form of ProCredit Holding is a so-called KGaA (Kommanditgesellschaft auf Aktien, or in English a partnership limited by shares). This is a legal form not uncommonly used in Germany which can basically be regarded as a joint stock company in which the role of the management board is assumed by a General Partner, and in which the General Partner has consent rights over certain key shareholder decisions. In the case of ProCredit Holding, the General Partner is a small

Sector

InvestmentBanking

Shareholder(as of Dec. 31, 2011) ProCredit Holding Commerzbank AG

Total Capital

Headquarters

GermanyGermany

Share

80.90%19.10%

100%

Paid-in Capital (in EUR million)

48.211.4

59.6


Commerzbank is a lead-ing bank for private and corporate customers in Germany. With the segments Private Customers, Mittelstandsbank, Corporates & Markets, Central & Eastern Europe as well as Asset Based Finance, the bank offers its customers an attractive product portfolio, and is a strong partner for the export-oriented SME sector in Germany and worldwide.

With a future total of some 1,200 branches, Commerzbank has one of the densest networks of branches among German private banks. It has a presence in over 60 locations in 52 countries and serves more than 14 million private clients as well as 1 million business and corporate clients world-wide. In 2011, it posted gross revenues of EUR 10.1 billion with some 58,160 employees.

Commerzbank is the largest German bank in Central & Eastern Europe and serves around 4.5 million clients in this region. In Poland the bank holds a 70% stake in BRE Bank, Poland’s third-largest financial institution. In Ukraine it is the majority shareholder of Bank Forum, a full service bank with a nationwide network.

separate company which is owned by the core shareholders of ProCredit Holding AG & Co. KGaA: IPC, IPC Invest, DOEN, KfW and IFC. The KGaA structure will allow ProCredit Holding to raise cap-ital in the future without unduly diluting the influ-ence of core shareholders in ensuring the group maintains dual goals: development impact and commercial success.

ProCredit Holding has an investment grade rat-ing (BBB-) from Fitch Ratings Agency. As of the end of 2011, the equity base of the ProCredit group is EUR 469 million. The total assets of the ProCredit group are EUR 5.5 billion.

7T H E B A N K A N D I T S S H A R E H O L D E R S

ProCredit Bank marked its ten-year anniversary in the most fitting way possible: by celebrating its clients’ achievements. On this occasion, the bank organised a series of special events to affirm its position as a reliable, long-term partner for small and medium-sized enterprises and to generate new opportunities for mutually beneficial collabo-ration between businesses.

Among other events, the bank arranged a trip to one of the biggest trade fairs in Bulgaria, the Technical Fair of Plovdiv. Over 90 clients of ProCredit banks in Eastern Europe (Georgia, Kosovo, Macedonia, Moldova, Romania and Serbia) and more than 100 clients of ProCredit Bank Bulgaria took up the offer. The clients included representatives from a wide range of different sectors, from IT to services, and from agriculture to mechanical engineering. visitors were also invited to see the manufactur-ing plants of two of ProCredit Bank Bulgaria’s

largest clients in the region: Leader 96, one of the top bicycle manufacturers in the country, and Nematex, a famous shoe company.

“I was very impressed by the fair and by the successful businesses of ProCredit Bank

Bulgaria’s clients,”commented Lia Shengelia, owner of a Georgian company called “Saga Impex”, which imports household appliances.

“The trip was very interesting overall and productive for me and my company. I met quite

a few potential suppliers. The event was well organised and I’m very grateful for the

opportunity that the bank gave me to develop the business potential of my company.”

On the last day of the visit, all foreign guests were invited to a special Business Breakfast event or-ganised by the bank in celebration of its tenth an-niversary. It was formally opened by Rumyana Todorova, the executive director of the bank.

Special Feature

ProCredit Bank Bulgaria – Celebrating 10 Years of Support for Small Business


“By organising this event, we want to express ProCredit Bank’s support for establishing

international business relations among small and medium-sized businesses,”

said Mrs. Todorova in her welcoming address.

“We believe that the new partnerships will help to stimulate local industries as well as overall

economic development in the countries in which the ProCredit banks operate.”

S P ECI A L F E AT U R E 9

Management

from left to right:

Mariana Petkova

Executive Director and Member of the Management Board

Rumyana Todorova


Petar Slavov

Executive Director and Chairman of the Management Board

Emilia Tzareva


Management Business Review


Political and Economic Environment1

The global economic crisis continued to define Bulgaria’s economic performance in 2011, with promising signs in the first half of the year stalled towards the end of the year as the situation in the EU worsened.

Politically, the most significant events in 2011 were the presidential and municipal elections, both of which were won by the governing party, GERB, thus strengthening its position and con-tributing towards political stability. However, the country failed to comply with entry requirements for the Schengen Agreement and its application was rejected for the second year in a row.

Despite the grim political and economic situation in neighbouring Greece, and the overall problems of the Eurozone, the Bulgarian economy remained stable in the first quarter of 2011, even showing some signs of recovery, with year-on-year GDP growth of 3.4%. Exports rose during the year, re-ducing the negative trade balance. The tourism sector also registered a successful summer sea-son. More good news came by way of Moody’s, the ratings agency, which, as a result of the coun-try’s low level of debt and the government’s strict fiscal policy, in July raised Bulgaria’s credit rating from BAA3 to BAA2 with a “Stable Outlook”.

However, the economic picture worsened in September as a result of the problems in Italy and Greece. Growing uncertainty of their partnerships with businesses in the Eurozone meant that many Bulgarian companies once again concentrated on improving efficiency and cutting costs. Un em ploy-ment thus climbed in the second half of the year. Jobs were created by tourism during the summer, bringing unemployment to its lowest point, but this provided only short-term relief, and the jobless figure was up again in the fourth quarter, reaching a high of 10.40% in December, a figure expected to rise in 2012. As a consequence of growing finan-cial uncertainty and high unemployment, individu-al consumption contracted by 0.3%, resulting in far higher private savings. The demand for loans remained low throughout the year and shows no likelihood of improvement in 2012.

The gloomy situation in several EU member states further reduced the inflow of foreign direct invest-

ment (FDI) to Bulgaria, which fell to 3.49% of GDP. This has become a serious threat to the recovery of the country, as Bulgaria is heavily dependent on foreign capital. The combination of less FDI, an abrupt decline in export growth and insignificant consumption meant that the year-end figures for GDP fell short of the government’s 3.5% target for the annual growth, amounting to only 1.70% year-on-year.

As the second wave of the crisis hits the EU, Bulgaria’s economic health will depend heavily on what measures the EU takes to address Eurozone debts and the political will of European leaders. However, Bulgaria has demonstrated its political and economic stability, which places it among the better-performing countries in the EU and will help it to withstand future economic challenges.

Financial Sector Developments2

The Eurozone’s economic crisis also affected Bulgaria’s banking system, some of whose main shareholders are banking groups located in Greece, Austria, Italy, France and Hungary. Several major parent banks represented in Bulgaria have already announced that they plan to sell part of their affili-ates in Central and Eastern Europe or to reduce funding to them. Despite this, the financial sector had undergone only a few structural changes by the end of 2011 (although this may change in 2012). As of that date, there were 31 banks and 233 non-banking financial institutions operating in Bulgaria.

Despite the slowdown in the Bulgarian economy, financial sector assets expanded at approximate-ly the same rate as the previous year, by 4.19% compared with 4.03% in 2010. At the same time, the top five banks’ share of total assets decreased to 51.7% (2010: 54.5%).

Despite the major banks’ lower share of total as-sets and reduced funding from parent banks, the

1 The figures in this section were taken from the following sources: Bulgarian National Bank (www.bnb.bg), Nation-al Statistical Institute (www.nsi.bg) and the Ministry of Finance of the Republic of Bulgaria (www.minfin.bg).

2 The figures in this section were taken from data pub-lished by the Bulgarian National Bank (www.bnb.bg)

M A N AG E M E N T B US I N E SS R E v I E W 11

local banking sector has successfully remained stable. Banks have concentrated on reviving lending, but have maintained a conservative ap-proach towards credit risk assessment. The ef-forts of the financial sector in encouraging loan take-up have focused on slight reductions to the interest rates for both housing and consumer loans. Average interest rates were 7.93% for housing loans (2010: 8.45%) and 11.21% for con-sumer loans (2010: 12.18%). The average inter-est rates for business loans remained almost un-changed (2011: 8.83%; 2010: 8.51%). Despite these reductions, loan portfolio growth was only EUR 1.5 million (3.89% compared to 2010), which owed more to the faster growth of business lend-ing (6.21% year on year) than to retail lending (–0.35% year on year). However, the ratio of loans to GDP decreased in 2011 to 72.57% (2010: 74.6%). Banks still faced difficulties in maintaining loan portfolio quality, and at the end of 2011 loans in arrears over 90 days stood at 14.93% for the banking sector as a whole (2010: 11.9%). Causes for this centred on high inter-company indebted-ness, stalled economic recovery and rising unem-ployment. The financial sector succeeded in lim-iting the fall-out from these trends by raising the level of loan loss provisions by over EUR 650 mil-lion to EUR 2.0 billion, and by remaining well cap-italised, with an overall capital adequacy ratio of 17.53% at year-end 2011 as opposed to the cen-tral bank’s requirement of 12%. The deposit base was up EUR 3,103 million or 12.8% in 2011, and rose as a share of GDP to 70.9% (2010: 60.1%). Less consumption and a restrained investment climate meant that people and companies pre-ferred saving in spite of declining deposit interest rates during 2011. The average interest rate for retail deposits was 5.15% (2010: 5.71%) and 3.68% for company deposits (2010: 4.18%).

ProCredit Performance

In the ten years since its establishment in 2001, ProCredit Bank Bulgaria has been dedicated to the development of local small and medium enterpris-es (SMEs). The global financial crisis has meant that 2011 was another challenging year for busi-nesses, a consequence of which has been lower demand for loans among SMEs. Nonetheless, ProCredit Bank has continued to build and main-tain its client relationships.

Our approach towards clients is based on a com-mitment to responsible banking and transparent communication, with the aim of creating long-term relationships. Our business strategies are defined by our corporate values and mission, and not by a desire to increase our market share and maximise financial performance at any cost. That allows us to follow a clear and reliable lending policy.

As a result, the bank’s loan portfolio quality in 2011 remained much higher than the sector aver-age and the level of arrears above 30 days dropped. We are convinced that this is attributa-ble to our proactive, client-centred approach: in cases where our borrowers encounter difficulties, we always strive to find the most appropriate so-lutions, redesigning payment plans if necessary.

An uncertain economic outlook led to a significant increase in savings in the Bulgarian banking sys-tem. However, loyal to its principles of transpar-ency and reliability, ProCredit Bank did not alter its terms and conditions to take unfair advantage of the prevailing market situation. Our deposit base increased by 16.4% in 2011, which is a clear sign that ProCredit Bank has come to be recog-nised as a strong institution which offers its client stability and security.

In 2011, ProCredit Bank continued its partnership with European financial institutions, working un-der several credit lines. The bank strengthened its co-operation with KfW under the Business Energy Efficiency Programme, and through a European Bank for Reconstruction and Development credit line the bank also financed energy efficiency and renewable energy projects for private households.

ProCredit Bank strengthened its position as a provider of financial services to the agricultural sector, becoming the market leader in this cate-gory with a share of over 25% in some regions of the country.3

Private individuals can also access our simple and clear services, and our Client Advisers are always willing to explain every detail of our loan and de-posit facilities. As part of our emphasis on service in 2011 we introduced a series of automated bank-

3 Ministry of Agriculture and Food, Republic of Bulgaria


ing facilities to give Client Advisers more time to respond our clients’ needs.

ProCredit Bank aims to become the “house bank” for very small, small and medium-sized enterpris-es in Bulgaria and we will continue to offer pay-ment facilities, deposit services and loans to busi-nesses throughout the country. At the same time, we will maintain our reputation as a responsible and accessible bank for ordinary people.

Lending

In 2011 ProCredit Bank disbursed over 10,000 business loans totalling BGN 482 million (EUR

246 million). At year-end, our outstanding loan portfolio was BGN 1,144 million (EUR 585 mil-lion), with business loans contributing BGN 1,088 million (EUR 556 million) to the total figure. The total portfolio volume increased by 4.03% to BGN 1.1 billion (EUR 585 million), but the total number of outstanding loans decreased by 15.9% due to our shift away from micro loans which started in 2010. For the same reason, the average loan amount rose from BGN 27,700 to BGN 34,200 (EUR 14,170 to EUR 17,500).

Our 2011 business lending strategy focused on strengthening our position in the very small and small business categories and improving our


< EUR 10,000 EUR 30,001 – EUR 150,000 EUR 10,001 – EUR 30,000 > EUR 150,000 * 31 Dec 2011

Number of Loans Outstanding – Breakdown by Loan Size*

Starting from 2011 the method of calculation for size categories has been changed: breakdown by initial loan amount

50.0%

30.9%

2.4%16.7%

Loan Portfolio Development

Number (in ’000) Volume (in EUR million)

< EUR 10,000 > EUR 150,000 EUR 10,001 – EUR 30,000 Total number outstanding EUR 30,001 – EUR 150,000

* Starting from 2011 the method of calculation for size categories has been changed

0

100

200

300

400

500

600

700

Dec 11*

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0

10

20

30

40

50

60

70

portfolio quality. Among the medium-sized client category, we concentrated on companies with clear structures, well-documented activities and a vision for the development of their business. Because of the international economic situation, some of our business clients faced difficulties in repaying their loans; however, as a result of our close and intensive communication with them, the level of arrears above 30 days actually improved from 4.95% to 4.31%.

In 2010 we concentrated on building up a team of well trained Business Client Advisers specialised in serving our small and very small clients, and in 2011 the results of these efforts were clearly visi-ble. At year-end very small loans amounted to BGN 216 million (EUR 110 million), or 18.9% of the total loan portfolio. During the year we disbursed 5,568 very small loans amounting to BGN 98.7 million (EUR 50.5 million).

In the small business category, we disbursed 3,300 small loans, amounting to BGN 195 million (EUR 99.5 million), and the portfolio increased by 11.4% to BGN 326 million (EUR 167 million), which is 28.5% of the total loan portfolio.

Thanks to our efforts to build relationships with both new and existing customers with significant development potential, we succeeded in issuing 902 medium loans amounting to BGN 184 million (EUR 93.9 million). This brought our medium loan

portfolio up to BGN 505 million (EUR 258 million), an increase of 5.6% compared to 2010.

Agriculture is of crucial importance to the Bulgarian economy, as it is characterised by stability, low lev-els of credit risk and continual growth. Our lending to this sector, and especially crop farmers, in-creased during the year. We disbursed 3,206 loans to agricultural producers, amounting to BGN 145 million (EUR 73.9 million), BGN 50.6 (EUR 25.9) more than in the previous year, growing the agricultural loan portfolio by BGN 37.7 million (EUR 19.3 million) to BGN 170 million (EUR 86.9 million). Arrears among agricultural borrowers are particularly low: here the PAR>30 is only 1.86%, compared to 4.31% for the overall loan portfolio.

ProCredit Bank disbursed 18 loans (BGN 3.8 mil-lion; EUR 1.9 million) as part of its Business Energy Efficiency Programme, which is financed with a EUR 10 million credit line from KfW and supported by the Council of Europe Development Bank (CEB).

In September 2011 ProCredit Bank joined the JEREMIE4 initiative, introduced by the European Investment fund, and has already disbursed 66 loans (BGN 5 million; EUR 2.6 million). The aim of the initiative in Bulgaria is to promote financing to

4 Joint European Resources for Micro to Medium Enterprises. See http://www.eif.org/what_we_do/jeremie/index.htm


0

1.0

2.0

3.0

4.0

5.0

6.0

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

Net write-offs:in 2007: EUR 2,162,029

in 2008: EUR 1,435,602 in 2009: EUR 6,114,269

in 2010: EUR 10,052,265in 2011: EUR 5,768,707

Loan Portfolio Quality (arrears >30 days)

in % of loan portfolioin %

Business Loan Portfolio – Breakdown by Maturity

0102030405060708090

100

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

< 12 months 12 – 24 months

24 – 60 months > 60 months


Customer Deposits


Term Savings Sight Total number

0

50

100

150

200

250

300

350

400

450

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0

30

60

90

120

150

180

210

240

270

58.6%

17.5%

0.3%

o.2%

3.1%

20.4%

< EUR 100 EUR 10,001 – EUR 50,000 EUR 101 – EUR 1,000 EUR 50,001 – EUR 100,000EUR 1,001 – EUR 10,000 > EUR 100,000 * 31 Dec 2011

Number of Customer Deposits – Breakdown by Size*

the SME sector for fixed asset investments by guar-anteeing 80% of the loan amount and offering a low credit price.

Loan write-offs for 2011 amounted to BGN 11.3 million (EUR 5.8 million). Allocated provisions for loans in arrears covered 4.69% of the total loan portfolio and 115% of PAR>30 days.

Deposits and Other Banking Services

In a climate of uncertainty, with businesses avoid-ing investments and ordinary Bulgarians holding back on their consumption, our deposit base grew by 16.6% to BGN 850 million (EUR 434 million).

The total volume of savings accounts increased significantly by 72.3% to BGN 60.2 million (EUR 30.8 million), held in 28,000 accounts (up 28.8% on 2010). Term deposits grew by 6.80% to BGN 513 million (EUR 262 million), whereas the number of accounts decreased by 18.1%. Term deposits represented 60.3% of the total deposit portfolio, of which business clients comprised 41.6% and private clients 58.4%. The total number of current accounts fell slightly by 0.9%, while balances in-creased by 29.7%, totalling BGN 277 million (EUR 142 million) and accounting for 32.6% of total de-posits. Of current account balances, business cli-ents and private clients accounted for 69.6% and 30.4% respectively.

The growth of the deposit base, and especially saving accounts, is a result of our efforts to pro-mote financial literacy through savings campaigns as well as face-to-face meetings with existing and potential clients. In 2011 we merged the positions of Client Adviser and Cashier, thus enhancing the quality of customer care. Current account packag-es for legal entities were launched, providing a full range of services. We also installed payment order stamping machines and the first of a new genera-tion of ATMs, capable of receiving cash deposits. These are the first steps in our project of providing 24-hour self-service units.

The number of Internet banking users increased by 17.7% to 64,360. The number of Point of Sale (POS) terminals installed on our clients’ premises rose by 23.6% to 750, with 22.3% growth in POS terminal usage.

We issued 9.3% more vISA Electron cards and 209% more visa Business Electron cards than in 2010, taking the number of cards in circulation at year-end to 87,000 and 9,020 respectively. The number of credit cards issued decreased slightly; at year-end there were 3,069 in circulation.

We also reported growth in the number and vol-ume of domestic and international transfers. Total outgoing and incoming transfers increased by 21% and 31% respectively, a year-on-year growth of 9% and 20%. Of the total money transfers, business clients accounted for 86%.


Incoming Outgoing Number

Domestic Money Transfers


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

0500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

International Money Transfers


Incoming Outgoing Number

0100200300400500600700800900

1,000

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

020406080100120140160180200

M a n ag e M e n t B us i n e ss R e v i e w 17

Financial Results

In 2011 the bank’s total assets grew by 9.2% to BGN 1.3 billion (EUR 653 million). The main drivers of growth were the business loan portfolio and placements in banks, which increased by 8.36% to BGN 982 million (EUR 502 million) and by 14.4% to BGN 63.4 million (EUR 32.4 million) re-spectively. The increase in bank placements was attributable to the fact that customer funds grew faster than the loan portfolio.

Customer deposits increased by 16.6% to BGN 850 million (EUR 434 million), due mainly to de-creased consumption and overall economic un-certainty. Growth was registered in current ac-counts (BGN 63.3 million; EUR 32.4 million), term deposits (BGN 32.8 million; EUR 16.8 million) and savings deposits (BGN 25.2 million; EUR 12.9 mil-lion). During the year the structure of customer deposits changed: the relative share of current ac-counts and savings deposits grew to 32.6% (2010: 29.3%) and 7.1% (2010: 4.8%) respectively, while term deposits decreased to 60.3% (2010: 65.9%). The year-end deposit-to-loan ratio reached 81.1%

(2010: 74.8%). Funds provided by IFIs increased by BGN 35.8 million (EUR 18.3 million) while short-term liabilities to other banks decreased by BGN 47.6 million (EUR 24.3 million). Customer deposits as a share of total funding grew by 9.5% to 75.7% (2010: 71.2%).

Interest income, of which 98.9% was generated by lending, amounted to BGN 110 million (EUR 56.3 million). Interest expenses grew by 2.1% to BGN 35.5 million (EUR 18.2 million). Net interest income reached BGN 75 million (EUR 38.4 million) and represents 73.9% (2010: 70.6%) of total op-erating income before provisions. The develop-ment of the loan portfolio deviated from the busi-ness plan, but the average volume was higher than planned. This led to higher than expected in-terest income (BGN 3.2 million; EUR 1.6 million). Customer deposits also exceeded business plan expectations by BGN 109 million (EUR 55.9 mil-lion), resulting in higher interest expenses (BGN 2.9 million; EUR 1.5 million). Consequently, total year-end net interest income was in line with busi-ness plan figures.


Provision expenses totalled BGN 22.9 million (EUR 11.7 million) in 2011, down 10.8% (2010: BGN 25.8 million; EUR 13.2 million) as a result of improved portfolio quality. The ratio of loans in arrears by more than 30 days was 4.31% (2010: 4.95%).

Net fee and commission income decreased by 11.1% to BGN 21.4 million (EUR 10.9 million) in 2011 (2010: BGN 24.0 million; EUR 12.3 million), due mainly to lower income from securitisation, the conditions of which were changed in May 2011. Despite this de-crease, however, net fee and commission income was in line with the planned figures.

In 2011 the total operating income grew by 5.5% to BGN 78.6 million (EUR 40.2 million). Increased ef-ficiency reduced operating expenses by 1.9% (BGN 1.3 million; EUR 0.7 million). The cost-income ratio was reduced by 3.1% to 68.3% (2010: 70.5%).

Net profit grew to BGN 8.3 million (EUR 4.2 million), 138.5% higher than 2010, while the return on eq-uity was 6.2% (2010: 2.7%). Increased profits were due mainly to higher net interest income, lower loan loss provisions and lower operating costs.

In 2011 there were no significant changes in the shareholder structure. In August the bank paid a dividend of BGN 3.6 million (EUR 1.9 million), which was reinvested in equity. The capital ade-quacy ratio remained well above the local regula-tory requirement (12%); at year-end it stood at 17.4% (2010: 18.7%).

In May the securitisation transaction was re-newed with a limit of EUR 85.3 million. In 2011 the volume of the securitised loan portfolio under management fell by 22.0% to BGN 108 million (EUR 55.0 million).

Outlook

2012 will be another challenging year for the Bulgarian economy as a result of developments in the European Union. Despite reporting fiscal sta-bility and displaying no signs of debt crisis itself, the country is expected to suffer because of its close relations with most of the affected states. The fall in exports, the continuing scarcity of for-eign investments and stagnating consumption are expected to adversely affect GDP growth in

2012, leading to higher unemployment and reluc-tance by companies to invest.

The Bulgarian banking sector has accumulated enough experience to deal with economic decline. Banks are thus entering 2012 with high liquidity and adequate capitalisation which guarantee sta-bility for their clients. They will target quality management of the existing loan portfolio and the acquisition of new clients with low credit risk pro-files. In line with the market situation, ProCredit Bank will continue to promote its prudent lending approach to small and medium enterprises, with the aim of bolstering their stability and accelerat-ing their recovery. The bank will maintain its long-term relationships with its current clients and strive to attract new businesses.

The bank’s development strategy for 2012 is con-sistent with its philosophy: ProCredit Bank believes that its transparent communication with clients, its responsible everyday banking and its premium quality services place it among the first choice banks in Bulgaria. The bank will also remodel its branches and improve its online services. ProCredit Bank aims to become a “green bank” by further de-veloping its energy efficiency loans and by improv-ing its own approach to the environment.


Risk Management

While ultimate responsibility for risk management lies with the Management Board, it is the Risk Management Department which develops and im-plements mechanisms to identify, assess, and mitigate the bank’s exposure to risk. This depart-ment reports its findings to several committees, one of which is the Risk Management Committee, led by a Management Board member. The commit-tee is responsible for monitoring the full range of risks to which the bank is exposed, as well as for bearing decision-making authority in connection with risks. The Assets and Liabilities Management Committee also supports the risk management structure, as it is responsible for decision-making on all of the financial risks faced by the bank. A separate Operational Risk Assessment Committee,

also led by a Management Board member, is re-sponsible for defining policies on people risks, process risks, IT and systems-related risks, exter-nal risks and other aspects of operational risk, and for monitoring adherence to these policies. It also discusses significant entries in the bank’s Risk Event Database.

The risk management policies in effect at ProCredit Bank Bulgaria, which have been ap-proved by the bank’s Supervisory Board, are in full compliance with the legal regulations valid in Bulgaria and with the requirements imposed by the Bulgarian National Bank. The policies are based on the Group Handbook on Risk Manage-ment and Control, which in turn is based on the


German Federal Financial Supervisory Authority’s policy document “Minimum Requirements for Risk Management”. ProCredit Bank Bulgaria reports its risk position to the Group Risk Management Committee (GRMC) at monthly intervals. The group’s risk management departments also moni-tor the bank’s key risk indicators on an ongoing basis, providing guidance whenever required.

Risk management throughout the ProCredit group is based on the concept of “risk-bearing capacity”, i.e. the principle that each bank’s aggregated risk exposures must not exceed its capacity to bear risk, and that the resources available to cover risk are sufficient to absorb any losses that may arise and protect creditors’ investments. Statistical

models and other procedures are used to quantify the risks incurred, and targets are set for each risk category and a limit for the aggregate exposure. The bank’s actual overall risk exposure relative to its risk bearing-capacity remained fairly stable throughout the year, which shows the prudent ap-proach of the bank towards risk appetite and risk management. The level of risk remained well with-in the predefined targets.

ProCredit Bank’s culture of internal and external transparency is crucial to our risk management efforts. Thanks to our clearly defined procedures and our encouragement of open communication, our well-trained staff are in a strong position to detect risks and take the steps necessary to miti-gate them.

Credit Risk Management

Lending to small businesses is ProCredit Bank’s main asset-side operation and consequently clas-sical credit risk, i.e. the risk that borrowers will be unable to repay, is the most important risk that the bank faces. Credit risk accounts for the largest share of risk in the context of risk bearing capaci-ty calculation.

ProCredit Bank Bulgaria has adopted credit risk policies based on the ProCredit Group Credit Risk Management Policy and the Group Collateral valuation Policy, which together reflect the expe-rience gained in more than two decades of suc-cessful lending operations in developing and transition economies and are in full compliance with regulations set by the Bulgarian National Bank. For every single customer of the bank a credit exposure limit is set and credit decision-making authority is clearly defined; all decisions to issue a loan, or change its terms, are taken by a credit committee, and all credit risk assessments are carefully documented. Above all, the bank seeks to build and maintain long-term relation-ships with its customers, thus ensuring that it is fully aware of their financial situation, and great care is taken to avoid over-indebting them.

Credit risk is also mitigated by the fact that our portfolio is highly diversified, and the businesses we serve operate in a wide range of sectors. Moreover, the majority of our credit exposures are

21R IS K M A N AG E M E N T

relatively small. As of end-2011, loans under EUR 30,000 accounted for 30.2% of the total outstand-ing portfolio, and the average amount outstand-ing was EUR 17,500, while the ten largest expo-sures accounted for only 3.46% of the portfolio.

As the vast majority of the bank’s loans are repay-able in monthly instalments, a borrower’s failure to meet a payment deadline is treated as an initial sign of potential default and draws an immediate response from the bank. When a payment of inter-est or principal is overdue by more than 30 days, the loan in question is assigned to the portfolio at risk (PAR>30), which serves as the key indicator for the quality of the loan portfolio and for meas-uring classical credit risk.

As of end-2011, the bank’s overall PAR>30 days stood at 4.31%, down from the 4.95% recorded in December 2010. At the same time, PAR>90 days, which serves as the basis for calculation of the Bulgarian National Bank, remained relatively stable, moving from 3.24% at the start of 2011 to 3.44% at year-end. It should be noted that ProCredit Bank’s PAR>90 days is much better than the average for the Bulgarian banking sector as a whole. According to figures published by the Bulgarian National Bank in 2011, 14.9% of all loans in the banking sector were in arrears above 90 days at year-end.

One of the ways in which ProCredit Bank has met the challenge to portfolio quality posed by the fi-nancial crisis is to offer loan restructuring to those clients that are judged to have the potential to regain stability. Restructurings follow a thor-ough analysis of each client’s changed payment capacity. The decision to restructure a credit exposure is always taken by the Credit Risk Assessment Committee and aims at full recovery. As of end-2011, the total volume of restructured loans in the “watch” category came to EUR 45.5 million, while EUR 1.9 million had migrated to the “impaired” category.

ProCredit Bank Bulgaria takes a conservative ap-proach to loan loss provisioning. Allowances for individually significant exposures with signs of im-pairment are set aside based on the results of an individual assessment of impairment, while provi-sioning for impaired loans that are not individually significant is calculated according to historical de-

fault rates. For all unimpaired credit exposures, portfolio-based allowances for impairment are made. At the end of the year the coverage ratio (loan loss provisions as a percentage of PAR>30) stood at 115%, and as a percentage of the total loan portfolio, provisions amounted to 4.69%.

Loans considered to be irrecoverable are consist-ently written off. Nonetheless, recovery efforts continue even after a loan has been written off, and collateral collection is rigorously enforced. In 2011 net write-offs totalled EUR 5.8 million, or 1.0% of the gross loan portfolio.

Counterparty and Issuer Risk Management

Counterparty and issuer risks evolve especially from the bank’s need to invest its liquidity re-serve, to conclude foreign exchange transactions, or to buy protection on specific risk positions. The risk of incurring losses caused by the unwilling-ness or inability of a counterparty or issuer to ful-fil its obligations is managed according to the ProCredit Group Counterparty Risk Management Policy (incl. Issuer Risk), which defines the coun-terparty selection and limit setting process, as well as according to the Group Treasury Policy, which specifies the set of permissible transac-tions and the rules for their processing. These policies are fully in line with the regulations set by the Bulgarian National Bank. As a matter of princi-ple, only large international banks and local banks with a good reputation and financial stand-ing are eligible counterparties. Limits above cer-tain thresholds are conditional on approval by the Group ALCO. In 2011, in response to the latest sovereign debt crisis, counterparty limits were re-viewed and in some cases adjusted.

Country Risk Management

Given ProCredit Bank’s focus on lending to busi-nesses in the local market, it does not normally enter into cross-border transactions with high-risk countries, and therefore its exposure to coun-try risk is limited. The group as a whole is exposed to country risk insofar as PCH provides funding to ProCredit banks and these operate in transition economies or developing countries, where trans-


R IS K M A N AG E M E N T

fer, convertibility, expropriation, bank regulatory, macroeconomic and security risks play a role. The incurred country risk is however limited through a high degree of diversification across regions and countries and a group exposure limit system de-fined within the Group Country Risk Management Policy. Furthermore, ProCredit Bank has years of experience in the local market and the business model has proven to be relatively resistant to macroeconomic and political shocks.

Liquidity Risk Management

Several factors inherent to the bank’s business model offset liquidity risk. Firstly, the bank’s di-versified, high quality portfolio of loans means that incoming cash flows are highly predictable. Secondly, our customer deposits are spread across a large number of depositors each holding relatively small amounts. As of December 2011 the average balance in deposit accounts of all types came to EUR 1,980, and the ten largest depositors made up only 9.9% of total deposit volume.

To determine the robustness of the bank’s liquidi-ty in the face of potential shocks, the bank per-forms regular stress tests based on scenarios de-fined as a group standard by the Group Liquidity

Risk Management Policy. In light of the 2011 sov-ereign debt crisis, the assumptions on which the stress tests are based were challenged and the calculation and targets of the group liquidity re-serve were revised. Whenever necessary to bridge liquidity shortages, ProCredit Bank Bulgaria, like the other group banks, is able to obtain short-term funding from ProCredit Holding.

Currency Risk Management

ProCredit Bank Bulgaria has a low level of expo-sure to currency risk because it does not enter into speculative open currency positions, nor does it engage in derivative transactions except for hedging and liquidity purposes. Currency risk is managed in accordance with the Group Foreign Currency Risk Management Policy and local regu-lations. The bank continuously monitors ex-change rate movements and foreign currency markets, and manages its currency positions on a daily basis. Any exceptions to the group policy or violations of group limits are subject to approval by the Group ALCO. Stress tests are regularly car-ried out to assess the impact of exchange rate movements on open currency positions (OCP) in each operating currency.

23

The Group Foreign Currency Risk Management Policy allows ProCredit banks to hold strategic open currency positions for the purpose of hedg-ing equity, in which case these positions are closely monitored at both local and group level. As of end-2011, ProCredit Bank Bulgaria had an OCP of 104% of regulatory capital in euros. This strategic position was held in order to maintain the value of the bank’s equity, which is denomi-nated in euros.

Interest Rate Risk Management

During the second half of 2011 interest rates ex-hibited a downward trend. Maturity gap analysis and stress testing are used to measure and ana-lyse the impact of interest rate shifts on the eco-nomic value and interest income. In response to the high volatility of interest rates in recent years, ProCredit Bank continually reviews the structure of its fixed and floating interest rates and under-takes relevant measures to mitigate the risks aris-ing from any mismatches.

Operational and Fraud Risk Management

The operational risk policy of ProCredit Bank Bulgaria is in full compliance with local regula-tions as well as with the Group Operational Risk Policy and the Group Fraud Prevention Policy. To minimise operational risk and the risk of fraud, all processes are precisely documented and subject to effective control mechanisms. Job descriptions are comprehensive, duties are strictly segregat-ed, and dependency on key individuals is avoid-ed. When recruiting, the bank pays close atten-tion to personal integrity, a quality which is reinforced through the bank’s strictly enforced code of conduct and through comprehensive training programmes designed to promote a cul-ture of transparency and risk-awareness.

The group-wide Risk Event Database (RED) en-sures that operational and fraud risks are ad-dressed in a systematic and transparent manner, with all remedial and preventive action clearly documented and accessible to management con-trol, both at bank level and at group level. Staff are required to report all events which represent

an actual or potential loss exceeding EUR 100 us-ing the RED interface. Those reported events that entail the most extensive risks, or which are con-sidered most likely to be repeated, are subjected to in-depth analysis by the Operational Risk Assessment Committee, which then proposes ap-propriate preventive measures.

As part of their initial training, all new staff mem-bers are taught how to recognise and avoid opera-tional and fraud risk and how to maintain informa-tion security. In 2011, ProCredit Bank Bulgaria reported 93 risk events representing a total net risk amount of EUR 20,863.96. All events were clas-sified as immaterial and did not expose the bank to any significant operational risks. There is no sub-stantial concentration of risk events in any individ-ual process in the bank. The risk events were re-lated to immaterial errors or deficiencies in the everyday activities of the branches, card-related fraud and damage due to natural or human causes.

Every year the bank conducts a risk assessment procedure by completing a group-wide question-naire on fraud risk and operational risk. Each of the risks described here must be mitigated by ap-propriate controls, the adequacy of which is the subject of the assessment. If the controls are judged to be insufficient, an action plan for reme-dying the situation is drawn up. The completed assessment is sent to the Group Operational Risk Management Department.

A group-wide New Risk Approval (NRA) process is applied to all materially new or changed products, services or business processes. Only after the elimination of any obstacles or deficiencies re-vealed by the NRA process does management give its approval for the innovation to go ahead.

The bank’s Business Continuity Policy ensures that the bank can maintain or restore its opera-tions in a timely manner in the event of a serious disruption. As well as defining the steps to be tak-en to restore normal operations, the bank’s Business Continuity Plan specifies the procedure for moving critical operations to temporary loca-tions, the resources that need to be mobilised in each type of case and the expected cost of disrup-tions in specific areas. It also offers guidance on avoiding disruption in the first place.


Anti-Money Laundering

ProCredit Bank Bulgaria fully endorses the fight against money laundering and terrorist financing, and has implemented the Group Anti-Money Laundering Policy, which meets the requirements of German and EU legislation as well as the stipu-lations of the Bulgarian authorities. No customer is accepted and no transaction is executed unless the bank understands and agrees to the underly-ing purpose of the business relationship. The Group Anti-Money Laundering Department (Group AML) conducts an annual risk assessment of all ProCredit banks and updates the policy accord-ingly. In addition, all ProCredit banks submit quar-terly reports on their AML activities to Group AML.

At ProCredit Bank Bulgaria, responsibility for AML activities is exercised by the AML Unit, which forms part of the bank’s Organisation Department. The AML Unit is staffed by two AML specialists who are supported by the head of the unit. According to local regulations, any cash transac-tion exceeding EUR 15,000 must be reported to the local authorities. In addition, any attempt to execute a transaction that arouses suspicion of money laundering, terrorist financing or some oth-er criminal activity must be reported. Front-office

staff receive intensive training in how to recognise suspicious transactions. An additional automated safeguard is provided by the use of three modules of the AML software manufactured by Tonbeller AG: Siron Embargo, Siron PEP and Siron AML. In cases of doubt, Group AML takes the final decision on how to handle the suspicious transactions and suspicious customers reported by the bank.

Capital Adequacy

The bank’s capital adequacy is calculated on a monthly basis and reported both to the manage-ment and to the Group Risk Management Committee, together with rolling forecasts to en-sure future compliance with capital adequacy re-quirements. Strong support from our sharehold-ers once again enabled the bank to maintain a comfortable capital cushion. At year-end 2011 the capital adequacy ratio (tier 1 and tier 2 capi-tal / risk-weighted assets) stood at 17.4%, well above the group-wide minimum standard of 12%, which is also the locally required minimum. ProCredit Bank’s overall risk rating, issued by FitchRatings, remained unchanged in 2011 at BB+ with stable outlook.

25R IS K M A N AG E M E N T

Greece

Serbia

Macedonia

Turkey

Bulgaria

Sofia (18)

Pernik (2)

Dupnitsa

Blagoevgrad

Petrich

Montana

Vratsa

Pleven (2)

Troyan

Karlovo

Plovdiv (6)

Assenovgrad

Kardzhali

Haskovo (2)

Stara Zagora (2)

Kazanlak

Gabrovo

Veliko Tarnovo (2)

Sliven

Shumen (2)

Razgrad

Russe (2)

Dobrich (2)

Varna (6)

Burgas (6)Yambol (2)

Gorna Oriahovitsa

Svishtov

RomaniaSilistra

Vidin

Pazardzhik (2)

Gotse Delchev

Branch Network

At the end of 2011, ProCredit Bank Bulgaria had a total of 83 offices located in 32 different towns and cities, thus providing country-wide coverage. The bank opened a new office in the centre of Sofia and one in the centre of varna. In addition, we relocated some of our offices, such as those in Pazardjik and Karlovo, to more accessible locations.

The structure of our branch network is designed to enable us to be close to our customers and re-spond in a differentiated manner to their needs. Our enterprise lending business is concentrated in a number of specialised branches, where the ma-jority of our business client advisers and credit analysts are based. These branches provide not only credit but also all of the bank’s other services for business clients and private individuals, in-cluding various types of account services, foreign exchange, money transfers and utilities payments.

In addition to these full-scale branches, the bank also operates smaller service points in strategic, often densely populated neighbourhoods. The service points are designed to be convenient plac-es for both private clients and business clients to do their day-to-day retail banking business, but do not process loan applications. Potential bor-rowers may submit their applications at a service point, if it is more convenient to do so, but the ac-

tual credit analysis and approval takes place at the nearest full-fledged branch.

At the other end of the scale, the bank operates a small number of business centres, which are spe-cifically oriented towards serving the more com-plex needs of our larger-scale business clients, i.e. up to medium-sized enterprises. These spe-cialised branches are located in the capital, Sofia, and in the regional centres Plovdiv, varna, Burgas, Haskovo, Pleven and Blagoevgrad.

The interior design of the branches is geared to maximising customer convenience. Signposting directs business clients to physically separate ar-eas staffed by experts in serving enterprises, and rooms for confidential negotiations have been created wherever space has allowed. At the same time, we have introduced a “one-stop” system that allows customers to perform cash and non-cash transactions at a single front office desk. This streamlined service is available at most of our branches and service points.

During the year, we also launched a three-year renovation project with the aim of redesigning our branch network. Three bank’s service points in Sofia, varna and Karlovo were renovated in line with the new corporate design.


In order to increase the outreach and efficiency of our branch network, we reinforced the usage of various technologies by encouraging our custom-ers to make active use of our technology-based services, particularly in connection with pay-ments. Examples include the increased number of transactions via Internet, operations made by ac-count statement machines and ATMs. In enabling clients to perform their routine banking transac-tions from other locations and outside normal banking hours, we not only make life more con-venient for them, but are also able to devote more time to talking to them in person at the branches about more complex facilities, such as long-term savings options or company payroll services.

Among our most popular technology-based serv-ices are the vISA debit cards, which both business clients and private individuals can use to with-draw cash at any of our 132 ATMs, or to make cashless purchases using POS terminals operat-ed by local merchants, many of whom are them-selves customers of ProCredit Bank Bulgaria.

In 2012 we will focus our efforts on redesigning and renovating our branches and service points so as to create an even more comfortable and pro-fessional environment for our clients.

B R A N CH N E T W O R K 27

Organisation, Staff and Staff Development

ProCredit Bank is aware that the quality of our re-lationship with our customers and the quality of service we provide to them depend crucially on the ability of our staff to understand their needs and respond to them in a responsible manner. For this reason, the bank takes great care to ensure that the people we hire identify wholeheartedly with its mission, and are dedicated to developing the skills they need in order to serve our clients well.

Recruitment is overseen by the Human Resources Committee, which includes members of the bank’s management. It is co-ordinated on a centralised basis by the HR department, following a carefully designed procedure. In line with the ProCredit group’s recruitment policy, all shortlisted appli-cants are now invited to take a “maths and logic” test, which is set by ProCredit Holding. While these technical skills are obviously necessary, they are not sufficient criteria in themselves. More importantly, the bank seeks candidates who are intrinsically motivated to work for an ethical, development-oriented financial institution, and for whom the beneficial impact of their work on the society in which they live is more important than personal financial gain. In order to assess candidates’ interpersonal skills and above all

their potential commitment to ProCredit’s objec-tives and principles, they are invited to take part in group discussions, followed by individual in-depth interviews with senior staff of the bank.

For university graduates and individuals with practical working experience who are interested in finding out whether a career with ProCredit is right for them, the bank has set up the “young Bankers Programme”. For the duration of this six-month course, which covers maths, basic ac-counting and various banking-specific subjects as well as soft skills, participants receive a sti-pend. It is a unique opportunity both for them and for the bank to gauge whether their aptitudes and personal qualities fit in well with the special “ProCredit way of working”. Those who success-fully complete the course are eligible for an offer of a permanent position with the bank.

The first two groups of the “yong Bankers Programme” have successfully completed their training in 2011. The third group of the programme is expected to graduate in March 2012 and four more groups will be selected in the next year. 28 participants from the first two groups already work in different positions within the bank.


Given the importance of human resources for the future of the bank, highly qualified people have been chosen to serve as the head of the HR depart-ment and as managers of its three sub-units – Recruitment, Training and Development, and Administration. Aside from the young Bankers Programme, the Training and Development unit or-ganises ongoing training to advance the profes-sional and personal development of the staff. During the year, our employees participated in a to-tal of 1,067 internal training days, not including at-tendance at the international ProCredit Academies.

Continuing the group-wide initiative to raise the level of mathematical knowledge among its staff, in 2011 ProCredit Bank’s training activities fo-cused on advanced financial mathematics and ac-counting. During the year, 708 of the bank’s em-ployees reached the ProCredit group’s “Maths 2” standard, while another 702 successfully com-pleted the group-wide Basic Accounting course.

Other noteworthy training measures were direct-ed at key positions in the bank. In 2011 we final-ised the process of training our Banking Services Experts, a position introduced in 2010 that sub-sumes the duties of cashiers. various follow-up trainings for major bank positions, such as Business Client Advisers and Banking Services Experts, took place throughout 2011. We also conducted our annual training in risk manage-ment for all bank staff.

A large proportion of the training provided to cur-rent and potential middle managers takes place outside Bulgaria at the international ProCredit Academies. In 2011, 26 colleagues from ProCredit Bank Bulgaria graduated from the ProCredit Regional Academy for Eastern Europe in veles, Macedonia. Four of the bank’s staff earned their “ProCredit Banker” diploma, marking the suc-cessful completion of the highly intensive three-year programme offered at the central ProCredit Academy in Fürth, Germany.

The bank’s organisational structure is designed to support the building of long-term customer re-lationships. At head office level, our business cli-ent departments are devoted to the development and implementation of our strategy to meet the needs of our very small, small and medium busi-ness clients, while the Private Clients Department

focuses on cultivating relationships with non-business clients.

The front office area provides tailored services to both business and private clients, and our staff are well prepared to offer the full range of services at our convenient “one-stop” desk. Business Client Advisers at the branches are responsible for advising Small and very Small enterprises on all of the bank’s services and for acquiring new customers, while the function of Credit Analysts is to evaluate applications for credit services sub-mitted by larger business clients.

Given the bank’s continued focus on consolida-tion and quality in 2011, recruitment of new per-sonnel took place on a relatively limited scale. Nonetheless, 204 people joined the bank in 2011, bringing the total at year-end to 1,391 (including support staff).

ProCredit Bank Bulgaria understands that the key to providing high quality service lies in building a team of motivated, professionally competent staff who are jointly committed to the bank’s mission and objectives, and who work well together on the basis of mutual trust and respect. For this reason, in addition to its substantial investment in training, the bank also organises regular meetings where employees can engage in shared activities in an in-formal setting. On the occasion of bank’s tenth an-niversary, the staff gathered at a remarkable cele-bration that was crowned by spectacular fireworks.

29O R G A N IS AT I O N , S TA F F A N D S TA F F D E v E LO P M E N T

Business Ethics and Environmental Standards

Business Ethics

Part of the overall mission of the ProCredit group is to set standards in the financial sectors in which we operate. We want to make a difference not only in terms of the target groups we serve and the quality of the financial services we pro-vide, but also with regard to business ethics. Our strong corporate values play a key role in this re-spect. Six essential principles guide the opera-tions of the ProCredit institutions:

• Transparency: We provide transparent informa-tion to our customers, to the general public and to our employees. For example, we ensure that customers fully understand the terms of the contracts they conclude with us, and we engage in financial education in order to raise public awareness of the dangers of intransparent fi-nancial offers.

• A culture of open communication: We are open, fair and constructive in our communication with each other, and deal with conflicts at work in a

professional manner, working together to find solutions.

• Social responsibility and tolerance: We offer our clients sound, well founded advice. Before offering loans to our clients, we assess their economic and financial situation, their busi-ness potential and their repayment capacity. On this basis we help them to choose appropri-ate loan options from which they can genuinely benefit, and to avoid becoming overindebted. Promoting a savings culture is another impor-tant part of our mission, as we believe that pri-vate savings play an especially crucial role in societies with relatively low levels of publicly funded social welfare provision. And we are committed to treating all customers and em-ployees with fairness and respect, regardless of their origin, colour, language, gender or reli-gious or political beliefs.

• Service orientation: Every client is served in a friendly, competent and courteous manner. Our employees are committed to providing excel-


We also ensure that requests for loans are evalu-ated in terms of the applicant’s compliance with ethical business practices. No loans are issued to enterprises or individuals if it is suspected that they are making use of unsafe or morally objec-tionable forms of labour, in particular child labour.

Another aspect of ensuring that our institution ad-heres to the highest ethical standards is our con-sistent application of best practice systems and procedures to protect ourselves from being used as a vehicle for money laundering, the financ-ing of terrorism or other illegal activities. Staff members are trained to apply the “know your customer” principle, and to carry out sound monitoring and reporting in line with the applicable regulations. Anti-money laundering and fraud prevention policies are regu-larly updated and exercised throughout the group to en-sure compliance with local and international regulato-ry standards.

lent service to all customers, regardless of their background or the size of their business.

• High professional standards: Our employees take personal responsibility for the quality of their work and always strive to grow as pro-fessionals.

• A high degree of personal integrity and commit-ment: Complete honesty is required of all em-ployees in the ProCredit group at all times, and any breaches of this principle are dealt with swiftly and rigorously.

These six values represent the backbone of our corporate culture and are discussed and actively applied in our day-to-day operations. Moreover, they are reflected in the ProCredit Code of Conduct, which transforms the group’s ethical principles into practical guidelines for all staff. To make sure that new employees fully understand all of the principles that have been defined, induction train-ing includes sessions dedicated to the Code of Conduct and its significance for all members of our team. Regular refresher training sessions help to ensure that employees remain committed to our high ethical standards and are kept abreast of new issues and developments which have an ethical dimension for our institution. These events allow existing staff to analyse recent case studies and discuss any grey areas.

31B US I N E SS E T H I C S A N D E N v I R O N M E N TA L S TA N DA R DS

Environmental Standards

All of the banks belonging to the ProCredit group set high standards regarding the impact of their operations on the environment. ProCredit banks take a three-pronged approach to environmental challenges:

Pillar 1: Internal environmental management system

ProCredit Bank Bulgaria is putting in place an ap-proach to better understand and improve the sus-tainability of its own energy use and environmen-tal impact. For example, the bank has invested in running its head office in Sofia and redesigned branches in an environmentally friendly manner, thus demonstrating the importance of reducing resource use.

Environmental issues are an essential component of the training provided to ProCredit Bank staff at the local, regional and international level. In addi-tion, we have implemented green initiatives to raise environmental awareness, including the publication of a newsletter on saving energy, wa-

ter and paper. We also took the further steps of replacing conventional lightbulbs with energy-saving models, promoting the use of glasses and porcelain mugs instead of single-use plastic cups, and printing on recycled paper. The bank has made a concerted effort to minimise the use of pa-per in all of our internal processes and daily oper-ations by introducing electronic signatures and documents wherever possible.

Pillar 2: Management of environmental risk in lending

ProCredit Bank Bulgaria has implemented an en-vironmental management system based on con-tinuous assessment of the loan portfolio accord-ing to environmental criteria, an in-depth analysis of all economic activities which potentially involve environmental risks, and the rejection of loan ap-plications from enterprises engaged in activities which are deemed environmentally hazardous and appear on our institution’s exclusion list. By incorporating environmental issues into the loan approval process, ProCredit Bank Bulgaria is also able to raise its clients’ overall level of environ-mental awareness.


Pillar 3: Promotion of “green finance”

ProCredit Bank Bulgaria aims to promote econom-ic development that is as environmentally sus-tainable as possible. In 2006, we launched a pro-gramme of green finance products – the first of its kind in Bulgaria – consisting of energy efficiency loans initially for private individuals and then lat-er adapted for businesses. This year we reintro-duced our energy efficiency loans for private cli-ents, extending the scope of environmental activities that are eligible for financing and focus-ing on housing improvement projects. This initia-tive has also involved building relationships with suppliers of environmentally friendly equipment and services, and encouraging them to offer prod-ucts bearing the EU standard energy efficiency labels. Since the start of this programme, the bank has disbursed 9,000 home improvement en-ergy efficiency loans and 28 loans to businesses to finance investments in energy efficient fixed assets. At the end of 2011 the home improvement loan portfolio amounted to approximately EUR 1.6 million, while outstanding business energy effi-ciency loans totalled just over EUR 1.8 million.

The bank aims to use its green finance products and approach to increase public awareness and un-derstanding. With the same goal in mind, ProCredit Bank was also involved in a number of environmen-tal initiatives in 2011. For example, the bank organ-ised meetings with pri-vate individuals and business owners to pro-vide information on how energy efficiency could improve their homes and workplaces. In ad-dition, the bank par-ticipated in a number of conferences and events at which we promoted the idea of saving energy.

B US I N E SS E T H I C S A N D E N v I R O N M E N TA L S TA N DA R DS 33

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People

The ProCredit group comprises 21 financial insti-tutions providing banking services in transition economies and developing countries. ProCredit banks are responsible neighbourhood banks. This means, in the neighbourhoods in which we work, we aim to:

• be the house bank of choice for the very small, small and medium-sized enterprises which cre-ate jobs and drive economic development, and

• provide secure, fair and transparent savings and banking services to ordinary people who are looking for an affordable bank they can trust.

At the end of 2011 our 16,183 employees, working in some 775 branches, were serving 2.9 million customers in Eastern Europe, Latin America and Africa.

The history of the ProCredit group is a rich one and forms the basis of what we are today. The first ProCredit banks were founded more than a dec-ade ago with the aim of making a development im-pact by providing loans to help small business to grow and offering deposit facilities that would en-courage lower-income individuals and families to save. The group has grown strongly over the years, and today we are one of the leading provid-ers of banking services to small business clients in most of the countries in which we operate.

Our origins lie in our pioneering microfinance posi-tioning. This positioning has developed as our markets and our clients have developed so our so-cially responsible approach remains as relevant today as ever. Its importance has been under-scored by the financial crisis and subsequent mac-roeconomic decline which most of our countries of operation experienced. As enterprises adjust to and expand again in their new economic reality and ordinary people rebuild their trust in banks, it is clear that our customers need a reliable banking partner now more than ever. This has also given us the impetus to further strengthen our comprehen-sive customer-oriented approach with more highly specialised and well trained staff.

Unlike most other banks operating in our markets, we have always avoided aggressive consumer lending and speculative lines of business. Instead, the ProCredit banks work in close contact with their clients to gain a full understanding of

the problems and opportunities of small busi-nesses. Our credit technology, developed over many years with the support of the German con-sulting company IPC, relies on the careful individ-ual analysis of credit risks. By making the effort to know our clients well and maintain long-term rela-tionships based on trust and understanding, we are able to support them not only when the econo-my is buoyant, but also during a downturn and re-covery. Over the last two years, the ability of our business client advisers to proactively make ap-propriate adaptations to payment plans where necessary to reflect clients’ new and more chal-lenging sales environments has played an impor-tant role in maintaining good loan portfolio quali-ty. This is in contrast to many of the markets in which we operate where Non Performing Loan portfolios have been very high, also in the SME sector, which suggests that bank behaviour has in many cases increased the risk of bankruptcy rath-er than help businesses emerge more strongly from the economic shock.

We not only extend loans, but also offer our enter-prise clients a broad range of other banking serv-ices such as cash management, domestic and in-ternational money transfers, payroll services, POS terminals and payment and credit cards. Using our rigorous approach to financial analysis, we promote, in so far as we can, financial educa-tion and enhanced financial record keeping amongst our clients. These services are geared towards assisting our business clients to operate more efficiently and more formally and thus help to strengthen the real economy and the banking sector as a whole. In these terms ProCredit has a “whole customer” service orientation rather than a “product selling” approach. Our staff and our branches are becoming more specialised and bet-ter equipped to cater to the needs of different cli-ent categories.

Today we have less of a focus on “micro-micro loans” than we did in the past. The minimum loan size for enterprise clients is EUR/USD 2,000 in most countries since we found that below this limit there is such broad access to loans from con-sumer finance providers that “excess” had be-come more of a challenge for many clients than “access”. For these groups we prefer to offer de-posit accounts and other banking services rather than credit. We would judge our development im-


ProCredit Holding Germany

ProCredit Bank Serbia

ProCredit Bank Bosnia and Herzegovina

ProCredit Bank Kosovo

ProCredit Bank Albania

ProCredit Bank Macedonia

ProCredit Savings and Loans Ghana

ProCredit Bank Democratic Republic of Congo

Banco ProCredit Mozambique

ProCredit Bank Ukraine

ProCredit Bank Moldova

ProCredit Bank Romania

ProCredit Bank Georgia

ProCredit Bank Armenia

ProCredit Bank BulgariaProCredit Mexico

Banco ProCredit Honduras

Banco ProCredit El Salvador

Banco ProCreditNicaragua

Banco ProCreditColombia

Banco ProCredit Ecuador

Banco Los AndesProCredit Bolivia

The international group of ProCredit institutions; see also www.procredit-holding.com

pact not just by the number of loans disbursed, but also by the sustainability of the enterprises we work with – in economic, social and environ-mental terms; by the stability and quality of the income that associated families and employees enjoy; by the reduction of household vulnerability because people save; by the calibre of our staff; and by the impact we have in promoting transpar-ent financial institutions more widely.

Our targeted efforts to foster a savings culture in our countries of operation have enabled us to build a stable deposit base. ProCredit deposit fa-cilities are appropriate for a broad range of lower- and middle-income customers. We place particu-lar emphasis on working with the owners, employees and families associated with our core target group of very small, small and medium-sized businesses. ProCredit banks offer simple

savings accounts and place great emphasis on promoting financial literacy in the broader com-munity. In addition to deposit facilities, we offer our clients a full range of standard retail banking services. Over 2011 ProCredit institutions man-aged to maintain a high level of liquidity given the stability of their loyal retail deposit base.

The ProCredit group has a simple business model: providing banking services to a diverse range of enterprises and the ordinary people who live and work around our branches. As a result, our banks have a transparent, low-risk profile. We do not rely heavily on capital market funding and have no ex-posure to complex financial products. Furthermore, our staff are well trained, flexible and able to pro-vide competent advice to clients, guiding them through difficult times as well as good times. Despite the turmoil of the global financial markets,

35T HE PROCREDIT GROUP: RE SPONSIBLE NEIGHBOURHOOD BANKS FOR SM ALL BUSINE SSE S AND ORDINARy PEOPLE

the performance of the ProCredit group has been remarkably stable: we ended 2011 with a good li-quidity position, comfortable capital adequacy, PAR over 30 days of 3.8%, and a Return on Equity of 10.4%. Given the depressed macroeconomic sit-uation in many of our countries of operation, this was a strong performance.

Our shareholders have always taken a conserva-tive, long-term view of business development, aiming to strike the right balance between a shared developmental goal – reaching as many small enterprises and small savers as possible – and achieving commercial success.

Strong shareholders provide a solid foundation for the ProCredit group. It is led by ProCredit Holding AG & Co. KGaA, a German-based company that was founded by IPC in 1998. ProCredit Holding is a public-private partnership. The pri-vate shareholders include: IPC and IPC Invest, an investment vehicle for ProCredit staff members; the Dutch DOEN Foundation; the US pension fund TIAA-CREF; the US Omidyar-Tufts Microfinance Fund; and the Swiss investment fund responsAbil-ity. The public shareholders include the German KfW Bankengruppe (KfW banking group); IFC, the private sector arm of the World Bank; the Dutch development bank FMO; the Belgian Investment Company for Developing Countries (BIO) and

Proparco, the French Investment and Promotions Company for Economic Co-operation. The group also receives strong support from the EBRD and Commerzbank, our minority shareholders in Eastern Europe, and from the Inter-American Development Bank (IDB) in Latin America. With the strong support of its shareholders and other partners, the ProCredit group ended the year with a total capital adequacy ratio of 15% – a figure that reflects their confidence in the group.

ProCredit Holding is not only a source of equity for its subsidiaries, but also a guide for the develop-ment of the ProCredit banks, providing the per-sonnel for their senior management and offering support in all key areas of activity. The holding company ensures the implementation of ProCredit corporate values, best practice banking opera-tions and Basel II risk management principles across the group. The group’s business is run in accordance with the rigorous regulatory stand-ards imposed by the German banking supervisory authority (BaFin).

ProCredit Holding and the ProCredit group place a strong emphasis on human resource manage-ment. Our “ethical neighbourhood bank” concept is not limited to our target customers and how we reach them; it above all concerns the way in which we work with our staff and how we encourage


them to work with their customers. The strength of our relationships with our customers will continue to be central to working with them effectively in 2012 and achieving steady business results. In 2011 there was a strong focus on staff quality, re-cruitment and training. The 6-month young Banker stipend programme, which all ProCredit banks of-fer to all potential new recruits, continues to de-velop. This symbolises our commitment to skill development in all our countries of operation.

A responsible approach to neighbourhood bank-ing requires decentralised decision-making and a high level of judgment and adaptability from all staff members, especially our branch managers. Our corporate values embed principles such as open communication, transparency and profes-sionalism into our day-to-day business. Key to our success is therefore the recruitment and training of dedicated staff. We maintain a corporate cul-ture that promotes the professional development of our employees while fostering a deep sense of personal and social responsibility.

A central plank in our approach to training is the ProCredit Academy in Germany, which provides an intensive part-time training programme over a pe-riod of three years for high-potential staff from each of the ProCredit institutions. The curriculum includes technical training and also exposes par-ticipants to subjects such as anthropology, histo-ry, philosophy and ethics in an open and multicul-tural learning environment. Our goal in covering such varied topics is to give our future managers the opportunity to develop their knowledge and

views of the world. At the same time, we aim to im-prove their communication and staff management skills. The group also operates two Regional Academies in Latin America (Colombia) and in Eastern Europe (for our African and Eastern European colleagues) to support the professional development of middle managers at the local level.

The group’s strategy for 2012 is to consolidate the tremendous efforts we have made over the last two years to strengthen our institutions and our client relationships. We will further expand our business as the “house bank” of choice for small and very small enterprises, offering tailored loans and other banking services. At the same time we will continue to improve the speed and conven-ience of our services for all clients.

2012 will also be the year that we begin operations at our planned ProCredit Bank in Germany and bring the group under the supervision of the German Federal supervising authorities (BaFin, the Bundesanstalt für Finanzdienstleistungsaufsicht, and the Bundesbank). The group is well prepared, having overhauled its reporting and risk manage-ment systems to bring all institutions into line with the requirements of German banking regulations (KWG). Nevertheless full implementation will re-quire our attention.

Strong investment in our staff remains the key pri-ority. Together we look forward to further strength-ening the development impact and commercial success of the group.

37T HE PROCREDIT GROUP: RE SPONSIBLE NEIGHBOURHOOD BANKS FOR SM ALL BUSINE SSE S AND ORDINARy PEOPLE

ProCredit in Eastern Europe

ProCredit banks operate in 11 countries across Eastern Europe. As a leading provider of banking services to very small, small and medium-sized businesses, we position ourselves as the “house bank for small business” in the region. ProCredit banks provide a high standard of transparent, professional services to all their clients – the ordi-nary people who live and work in the vicinity of the 475 ProCredit branches across the region.

The macroeconomic environment continued to be challenging in 2011 for most of the South Eastern and Eastern European countries in which ProCredit works, particularly in the last quarter of 2011 in the wake of deep uncertainty about the economic future of Greece and the euro zone. There was little GDP or banking sector growth in most Balkan countries in South Eastern Europe. Only in Serbia and Albania did banking sectors grow by more than 5%. The countries further east (Armenia, Georgia, Moldova and Ukraine) experienced more steady GDP growth of 4-5%, with growth in the banking sector in Georgia being notably strong. Non-performing loans (NPLs, i.e. loans more than 90 days overdue) of banking sectors were also per-sistently high, at well over 10% in most markets where ProCredit operates. Many Western bank groups were reducing risk-weighted assets in the region with more stringent central capital adequa-cy requirements. Generally, government spending remained tight, consumer confidence low and in-vestment activity by the small and medium enter-prise sector depressed in 2011. Prospects for 2012 are similar since there is unlikely to be an economic turnaround in the euro zone which could drive growth in the region. The role of ProCredit banks against this still vulnerable economic back-drop is a valuable one as our clients and the finan-cial markets in which we operate adjust to the new economic reality in the region.

For the financial sectors in which we work, ProCredit banks have represented consistency, good risk management and a high degree of fi-nancial transparency throughout the recent un-settled years. ProCredit banks have been notable in continuing to lend steadily and responsibly to support small businesses while banking sectors as a whole have tended to be erratic.

For our business clients, ProCredit banks remain a reliable and responsible partner. We specialise in

working with very small, small and medium enter-prises, because these clients are central to develop-ing the economy and employment opportunities. Our approach is based on building relation ships with our clients and a thorough understanding of their business.

In the current climate, we support our business clients with prudent business development and efficient cash management. Given the overall weak investment climate in 2011, we put particu-lar emphasis on efficient working capital facilities in the form of credit lines and overdrafts. We work with each client to identify their credit capacity based on their ability to repay their debt even in volatile times.

The outstanding loan portfolio of the 11 ProCredit banks in Eastern Europe stood at EUR 2.9 billion at the end of 2011 (an increase of 7.2% from the end of 2010). Growth was particularly strong in our core “Small Business” client category (defined as busi-ness clients with a credit capacity of EUR 30,000–150,000) which grew by 14.1% in 2011. We have ap proximately 321 thousand business clients in total across the region. ProCredit staff have been proactive in acquiring new clients and serving ex-isting clients. Our lending activities aim to foster local production and service industries, and include the provision of agricultural loans. We are keen to support a sector that has been particularly neglect-ed by other banks and that is vital for employment and social cohesion outside the main urban areas.

For clients facing difficulties we support busi-nesses to restructure to avoid bankruptcy where appropriate. Given our thorough understanding of our clients’ businesses, we are able, where neces-sary, to adapt loan repayment schedules if the sales pattern of a business has changed signifi-cantly. This has meant that arrears and write-off figures for the ProCredit banks in Eastern Europe are low relative to banking sectors as a whole. The combined portfolio at risk (PAR) >30 days for the Eastern European institutions as a percentage of their loan portfolio was 4.2% at the end of 2011 (PAR>90 days stood at 3.1%). Write-offs for the group in the region amounted to 1.4% of the loan portfolio. In these terms ProCredit continues to demonstrate that with a responsible approach to lending, based on an assessment of the real situa-tion of an enterprise, a high degree of financial


Poland

Belarus

Turkey

Slovakia

Czech Republic

HungaryAustria

Slovenia

Greece

Syria

Iraq

Armenia Azerbaijan

Georgia

Russia

Ukraine

Moldova

Romania

Bulgaria

Serbia

Kosovo

MacedoniaAlbania

Bosnia and Herze- govina

Montenegro

CroatiaItaly

Kyrgyzstan

Kazakhstan

Turkmenistan

Uzbekistan

Iran Afghanistan

Tajikistan

Kashmir

Sinkiang

Pakistan

Saudi Arabia

KuwaitJordanIsrael

EgyptLibya

India

Tunesia

Germany

Switzerland

France

stability can be achieved for clients and in bank performance.

ProCredit banks have also had to strengthen their structures for the recovery of written-off and non-performing loans, however. The weaknesses of the legal system in many countries in the region in supporting banks to realise registered collateral have become very apparent since the financial cri-sis. The ultimate success and timeliness of recov-ery efforts will be an important factor in determin-ing banks’ willingness to expand SME finance in the future.

For our private clients, ProCredit banks have also been a symbol of stability and transparency in turbulent years. ProCredit has focused for many years on promoting a savings culture because set-ting money aside can help clients build a buffer against the vagaries of life. The ratio of deposits to GDP in Eastern European countries is still well below Western European levels.

We offer simple and reliable retail banking servic-es. Our belief in transparent, direct communica-

tion is particularly important in fostering clients’ trust. We understand that our clients want to know in simple language how to save safely; they also want to access their money when they need it and they want access to convenient and efficient transaction services. Our experience confirms that customers appreciate the transparent, re-sponsible approach we take.

ProCredit banks fund most of their lending activi-ties with local savings. The ratio of deposits to loans in the ProCredit banks in the region is 84%. Not only did we not have to rely on unpredictable capital markets for funds in 2011, but ProCredit banks in the region remained highly liquid through-out the year and our cost of funds declined.

Looking forward, in addition to the savings servic-es they provide, ProCredit banks will continue to be conservative with consumer loans for their pri-vate clients, but will expand their provision of con-venient banking services, such as e-banking and direct debit, and will continue to provide responsi-ble housing improvement, energy efficiency and other loans which help build a family’s assets.

P R O CR E D I T I N E A S T E R N E U R O P E 39

For our staff, ProCredit banks offer unique oppor-tunities for professional development and job sat-isfaction given our strong client orientation, open communication culture and unusual commitment to staff training. In terms of institution building activities, ProCredit banks in Eastern Europe were focused on consolidating many of the measures introduced in 2010 to improve the quality and ef-ficiency of our services.

Our staff is the key element in our approach to be-ing a stable, down-to-earth and personal banking partner. The ProCredit group invests heavily to achieve high standards in staff recruitment and de-velopment. The six-month “young Banker” stipend programme introduced by all ProCredit banks in the region is fast becoming a well-known and in-novative feature of bank recruitment in many coun-

tries, with its strong emphasis not just on a broad-based technical training, but also on individual ethics and the responsibilities of a banking sector to promote sustainable economic development.

To complement the international ProCredit Academy in Germany, we have an Eastern European academy, located near Skopje in Macedonia, which is dedicated to the training of ProCredit middle managers. The regional academy is an important channel for rapid and consistent communication region-wide and one that helps us adapt quickly to face new challenges. Investment in our staff is an ongoing commitment and will remain a central plank in the ProCredit Bank approach. A qualified, motivated and professional team lies at the root of our lasting success across Eastern Europe.


* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with group-wide standards; they may differ from the figures reported in the bank’s local statements.

** Not including finance company ProCredit Moldova.

Highlights*

Founded in October 199840 branches24,658 loans / EUR 178 million in loans180,000 deposit accounts / EUR 232 million635 employees

Founded in December 200711 branches5,613 loans / EUR 48 million in loans20,733 deposit accounts / EUR 22 million284 employees

Founded in October 199730 branches17,427 loans / EUR 126 million in loans82,722 deposit accounts / EUR 108 million425 employees

Founded in October 200183 branches33,337 loans / EUR 586 million in loans217,586 deposit accounts / EUR 437 million1,391 employees

Founded in May 199961 branches43,968 loans / EUR 316 million in loans435,440 deposit accounts / EUR 238 million1,525 employees

Founded in January 200063 branches85,656 loans / EUR 517 million in loans426,851 deposit accounts / EUR 664 million1,071 employees

Founded in July 200335 branches22,796 loans / EUR 164 million in loans108,797 deposit accounts / EUR 144 million461 employees

Founded in December 200723 branches11,177 loans / EUR 90 million in loans45,831 deposit accounts / EUR 33 million540 employees

Founded in May 200228 branches24,541 loans / EUR 192 million in loans111,314 deposit accounts / EUR 159 million783 employees

Founded in April 200162 branches79,403 loans / EUR 532 million in loans282,248 deposit accounts / EUR 274 million1,315 employees

Founded in January 200140 branches14,478 loans / EUR 176 million in loans133,857 deposit accounts / EUR 147 million1,337 employees

Contact

Legal address: Rr. “Dritan Hoxha”. Nd. 92, H.15, Njësia Bashkiake Nr. 11TiranaP.O. Box 1026Tel./Fax: +355 4 2 389 300 / 22 33 [email protected]

105/1 Teryan St., area 110009 yerevanTel./Fax: + 374 10 514 860 / [email protected]

8 Emerika Bluma71000 SarajevoTel./Fax: +387 33 250 950 / [email protected]

26 Todor Aleksandrov Blvd.1303 SofiaTel./Fax: +359 2 813 5100 / [email protected]

154 D. Agmashenebeli Ave.0112 TbilisiTel./Fax: +995 32 220 22 22 / 220 22 [email protected]

16 “Mother Tereze” Boulevard10000 PrishtinaTel./Fax: +381 38 555 777 / 248 [email protected]

109a Jane Sandanski Blvd.1000 SkopjeTel./Fax: +389 2 321 99 00 / [email protected]

65 Stefan cel Mare Ave.office 901, ChisinauTel./Fax: +373 22 836 555 / 273 [email protected]

62–64 Buzesti St., Sector 1011017 BucharestTel./Fax: +40 21 201 6000 / 305 [email protected]

17 Milutina Milankovica11070 BelgradeTel./Fax: +381 11 20 77 906 / [email protected]

107a Peremohy Ave.03115 KyivTel./Fax: +380 44 590 10 00/[email protected]

Name

ProCredit BankAlbania

ProCredit BankArmenia

ProCredit BankBosnia and Herzegovina

ProCredit BankBulgaria

ProCredit BankGeorgia

ProCredit BankKosovo

ProCredit BankMacedonia

ProCredit BankMoldova**

ProCredit BankRomania

ProCredit BankSerbia

ProCredit BankUkraine

P R O CR E D I T I N E A S T E R N E U R O P E 41

Our Clients

Krassimir Ivanov, 44, started his own business for importing tiles and bathroom furniture 17 years ago. His company was the first in Bulgaria to im-port bathroom equipment. Gradually, he started producing his own furniture for bathrooms under the trademark AMIK 94, becoming one of the first manufacturers of these products in the country.

Although Mr. Ivanov employed 15 workers in 1996, it was difficult to find people with the skills and experience necessary to produce these spe-cific types of furniture. That is why he invested in training his personnel right from the start and soon developed a highly qualified team. As the business grew, he also began investing in the pro-duction facility and purchasing equipment, which led him to ProCredit Bank: in 2004 he applied for a loan of EUR 15,000 to purchase new equipment. He has long since repaid the loan and now keeps all of his company’s accounts at the bank, through which he makes and receives almost all of his pay-ments. He also takes advantage of an overdraft.

“This is the bank with the most appealing face. First of all, the staff are young and down-to-earth.

In some other banks they create the impression that you are insignificant and that they are this

great institution. Doing business at such places is hard. ProCredit Bank is different. Here the people

are very open and outgoing.”

When the crisis struck in 2008, the company felt the decline in demand, and Mr. Ivanov had to reor-ganise his business somewhat, shifting the em-phasis to exports. He also downsized the staff and rethought his production and sales concept. The first thing he did was launch a line of higher end products in terms of design and quality. Next, he introduced a new “maximum customer satis-faction” concept into the company’s sales ap-proach, which improved turnover. The company currently employs 65 people and is hiring new personnel as sales begin to pick up.

Mr. Ivanov is glad that his bank has supported him through this process.

“ProCredit Bank is my bank because it ‘breathes’ with me. I know that whenever I have a business idea or I need funding, I can find support. I have the feeling that I know everyone in the bank and

everyone knows me, from my personal client adviser to the cashier to the executive director.”

Krassimir Ivanov, Bathroom Furniture Producer


valentin Kolarski, 35, started his small baked goods production facility in 2000, when he was only 24. He bakes traditional Bulgarian banitsa as well as pastries, pizzas, muffins, cakes, etc. In the beginning, production was carried out in a rented space of about 40m2, with only two employees.

In 2002 some friends and fellow business owners recommended ProCredit Bank as a timely provider of small loans. At that time Mr. Kolarski applied for and received a loan for home repairs and did not intend to seek financing for his business. However, the polite service and competent advice he received at ProCredit Bank caused him to re-consider. He took out a small loan and bought an oven for the bakery. That was the beginning of his long and very active relationship with the bank.

In 2002 the bakery entered into an agreement un-der the state programme “Breakfast with Warm Milk” for pupils in the first to the fourth grades. Thanks to his participation in the programme, he tripled his production capacity and today em-ploys 12 full-time staff. Although it was his first contract with an educational institution, it would not be the last.

As business was going well, Mr. Kolarski and his wife, a philologist, decided to join forces and diver-sify the activities of the company. In 2004 they es-tablished a foreign language training centre, which Mrs. Kolarski manages. Due to the success of the business and to the financial support they received from ProCredit Bank, the couple were able to pur-chase property and construct a facility to accom-modate both the bakery and the language centre, which now employs seven full-time teachers.

This investment helped Mr. Kolarski to increase productivity and enlarge the range of goods that he can provide to his customers. In 2010 the bak-ery received a European standard certificate for food quality, which is considered to be a great achievement and very good for business.

“ProCredit offers various loan options tailored to the needs of my type of production. I can

describe my relationship with the bank in two words – honest partnership.”

Valentin Kolarski,Bakery Owner

O U R CL I E N T S 43

Toshko Metodiev, 57, lives in the small village of vasilovtsi, near the town of Lom in northwestern Bulgaria. The purchasing power in this region is among the lowest in the EU*, and industry is not well developed in vasilovtsi, where the traditional livelihood is growing cereals. Mr. Metodiev is no exception: like his father and grandfather before him, he is a farmer.

Over the years, Mr. Metodiev has developed his property and acquired more and more land. He now cultivates about 10,000 acres, raising sunflowers, maize, barley and wheat. Until recently, he mainly focused on expanding the size of his holding.

Last year, however, when Mr. Metodiev was plan-ning to purchase farming equipment, including a brand new harvester, he approached ProCredit Bank. He hadn’t known much about the bank until a business client adviser contacted him to recom-mend agricultural loan opportunities.

“I was pleasantly surprised by the loan expert who approached me just a few weeks before

I became a client of ProCredit Bank. She recom-mended the bank’s special offers for farmers at a time when I was not looking for banking services.

However, she was very well informed about the agricultural business and understood my needs

perfectly. That is why I called ProCredit when I was about to purchase the harvester.”

In 2010 Mr. Metodiev received a loan from ProCredit Bank to purchase the combine. In addi-tion to this investment loan, he was granted a credit line and has since taken out a few more working capital loans. ProCredit Bank’s financing helped the ambitious entrepreneur to expand his farm, bring his machinery up to date and purchase more seeds for the new season.

“After 20 years of experience in agriculture I’m glad to have found a partner that I can rely on. I’m pleased that the bank takes my work seriously

and that we have a responsible partnership.”

Mr. Metodiev is happy that his three children are now working on the farm with him. His four grand-sons, still students, also help out during their summer holidays. In the farming business, the key to success is hard work and continual devel-opment. That is what Mr. Metodiev wants to teach his children.

Toshko Metodiev,Agricultural Producer

*Source: Eurostat statistics of 02.2011


It was during the cold winter of 2009 that the resi-dents in the apartment house at 19 Dimcho Debelianov Street in Pazarjik decided that they needed to renovate their building. The window frames were already very old and the walls were not insulated at all, which resulted in enormous heating energy losses and high bills for everyone living in the five-storey building. They agreed to undertake all of the repairs at once, as renovating the entire building would be more efficient than repairing it little by little.

A few families in the building had some savings, but additional funding was needed for the project. One of the residents therefore began searching for a bank that would issue a loan to finance new window frames. A handful of banks made offers, but the apartment house owners were most fa-vourably impressed by the conditions of ProCredit Bank’s energy efficiency loans for private clients.

“ProCredit Bank’s expert explained to us in detail how taking out this type of loan would enable us

to receive up to 20% of the loan amount as an incentive grant under a special energy efficiency programme. At the same time, we could heat our building more efficiently and reduce our utility bills by as much as 40%. Last but not least, our window frames would function better and our

building would look nicer,”explains Mrs. Pancheva, a resident.

The building owners calculated that the cost of re-placing the window frames and insulating the walls would amount to EUR 20,000. They decided to fi-nance the project with a loan for energy efficient home improvements, and at the beginning of 2010 they received the financing from ProCredit Bank.

“What made us choose ProCredit Bank was the expert who came to visit us a few times in person

at the apartment house,”recalls Mr. vulchev, one of the residents of the Dimcho Debelianov Street building.

“She spent a lot of time with all of us, explaining every detail of the financing and loan application process. She was clear about the loan conditions and transparent about all of the fees and required

documents. Her expertise, patience and ability to communicate with many people at once just

made it so simple.”

After the investment for energy efficiency im-provement, the neighbours at Dimcho Debelyanov Street have seen their heating bills drop by rough-ly 40%. They are very pleased with the financing from the ProCredit Bank and are considering ap-plying for another energy efficiency loan to repair the roof of their building.

Dimcho Debelianov Street Housing Co-operative, Borrowers of Energy Efficiency Loans

O U R CL I E N T S 45

Financial StatementsFor the year ended 31 December 2011.Prepared in accordance with International Financial Reporting Standards.


F I N A N CI A L S TAT E M E N T S 47

Notes to the Financial StatementsFor the year ended 31 December 2011All amounts in ’000 BGN unless otherwise stated

1. Reporting Entity ProCredit Bank (Bulgaria) AD (“ProCredit Bank“ or “the bank”) was established on 6 June 2001 as a result of the foundation meeting held by the shareholders, namely the European Bank for Recon-struction and Development (“EBRD”), the International Finance Corporation (“IFC”), ProCredit Holding AG & Co. KGaA (“ProCredit Holding”), Deutsche Investitions- und Entwicklungsgesellschaft GmbH (“DEG”) and Commerzbank AG. The bank was registered as a Bulgarian joint stock company on 28 September 2001 with the Sofia City Court. In 2004 a new shareholder joined the bank – In-ternationale Projekt Consult GmbH. In November 2005 ProCredit Holding acquired an additional 38.84% of the capital of ProCredit Bank (Bulgaria) AD, increasing its share to 59.13 % of the regis-tered capital of the bank. ProCredit Holding acquired the shares from IFC and DEG. The two financial institutions remain sharehold-ers (DEG through Kreditanstalt für Wiederaufbau (“KfW”)) and continue to be strongly involved in ProCredit Holding. In December 2007 ProCredit Holding acquired an additional 1.45% of the capital of ProCredit Bank (Bulgaria) AD, increasing its share to 60.58% of the registered capital of the bank. ProCredit Holding acquired the shares from Internationale Projekt Consult GmbH which remains a shareholder and continues to be strongly involved in ProCredit Holding. In April 2008 ProCredit Holding acquired an additional 19.71% of the capital of ProCredit Bank (Bulgaria) AD by purchasing the shares of EBRD and thus increasing its share to 80.29% of the registered capital of the bank. Following the bank’s capital increase in 2011 amounting to BGN 3,621 thousand, ProCredit Holding in-creased its share to 80.90% of the bank’s registered capital with the remaining 19.10% held by Commerzbank.The bank has two wholly owned subsidiaries – ProLease (Bulgaria) EAD, a financial leasing company and ProCredit Properties EAD (re-ferred to collectively in these statements as “the Group”). Together with the bank, ProCredit Properties EAD co-owns the head office building of the Group of ProCredit Bank (Bulgaria) AD. The bank is also part of the international group of financial institutions owned by ProCredit Holding. ProCredit Holding is the ultimate parent and ultimate controlling party of the ProCredit group of banks (“the Pro-Credit group”).The Group is managed by a Supervisory Board consisting of five mem-bers and a Management Board consisting of four members elected for a period of three years.

2. Basis of Presentation a Compliance with International Financial Reporting Standards The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). These financial statements were prepared on a consolidated basis according to the Accountancy Act. The consolidated financial statements were ap-proved by the Management Board on 9 March 2012. The financial statements were prepared on the historical cost basis except for the derivative financial instruments, financial assets and liabilities at fair value through profit or loss and available-for-sale financial assets that are measured at fair value. The preparation of financial statements in conformity with IFRS, which require the use of certain critical accounting estimates and assumptions that affect the re-ported amounts of assets and liabilities as well as disclosure of con-tingent assets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses during the reporting period. It also requires management to exercise its judge-ment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas in which assumptions and estimates are significant to the financial statements are disclosed in note 2c. The financial state-ments are presented in Bulgarian leva (BGN), which is the Group’s functional currency. b Consolidation The consolidated financial statements comprise the financial state-ments of ProCredit Bank (Bulgaria) AD and its subsidiaries as of 31 December 2011. Subsidiaries are all companies which are control-led by the Group, i.e. for which the Group can determine the finan-cial and operating policies. All subsidiaries are fully consolidated. New subsidiaries are fully consolidated from the end of the month during which control is transferred to the Group. The Group has two wholly owned subsidiaries: ProLease (Bulgaria) EAD and Pro-Credit Properties EAD. Intercompany transactions, balances and unrealised gains and losses on transactions between the bank and its subsidiary companies are eliminated. Where necessary, the ac-counting policies of the subsidiary have been changed to ensure consistency with the policy adopted by the Group. The purchase method of accounting is used to account for the acquisition of sub-sidiaries by the Group. The goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is rec-ognised immediately in profit or loss. c Use of assumptions and estimates The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities in conformity with IFRS. Estimates and judgements are continually evaluated and are based on histori-cal experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Impairment losses on loans and advancesThe Group reviews its loan portfolios to assess impairment at least once per month. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there are any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observ-able data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local eco-nomic conditions that correlate with defaults on assets in the group of borrowers. The bank’s management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the port-folio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

d Accounting developments

International Financial Reporting Standards (IFRS) and interpreta-tions adopted from the European Commission (“EC”) not yet effec-tive as of the date of the StatementsA number of new standards, amendments to standards and inter-pretations are effective for annual periods beginning after 1 Janu-ary 2011, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect


on the financial statements of the bank. The following standards, amendments to standards and interpretations, which were not ef-fective at the time these statements were prepared and have not been applied earlier, have been endorsed by the EC.

• Amendments to IFRS 7 Disclosures – Transfers of Financial As-sets (issued October 2010) – effective from the first financial year that starts after 1 July 2011.

• Improvements to the 2010 IFRS (issued May 2010), various ef-fective dates, generally 1 January 2011.

IASB/IFRIC documents not yet endorsed by the ECManagement believes that it is appropriate to disclose that the fol-lowing new or revised standards, new interpretations and amend-ments to current standards issued by the International Accounting Standards Board (IASB) have not yet been endorsed for adoption by the European Commission, and therefore were not taken into ac-count in preparing these financial statements. The actual effective dates will depend on the EC’s endorsement decisions.

• IFRS 9 Financial Instruments (issued November 2009 and Ad-ditions to IFRS 9 issued October 2010) has an effective date of 1 January 2015 and could change the classification and meas-urement of financial instruments.

• In May 2011 the IASB issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests in Other Entities and IFRS 13 Fair value Measure-ment, which all have an effective date of 1 January 2013. The IASB also issued IAS 27 Separate Financial Statements (2011), which supersedes IAS 27 (2008) and IAS 28 Investments in As-sociates and Joint ventures (2011), which supersedes IAS 28 (2008). All of these standards have an effective date of 1 Janu-ary 2013.

• Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets (issued December 2010) has an effective date of 1 Janu-ary 2012.

• Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (issued December 2010) have an effective date of 1 July 2012.

• In June 2011 the IASB issued Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) with an effec-tive date of 1 July 2012.

• In June 2011 the IASB issued an amended IAS 19 Employee Benefits with an effective date of 1 January 2013.

• In December 2011 the IASB issued amendments to IFRS 7 Dis-closures – Offsetting Financial Assets and Financial Liabilities with an effective date of 1 January 2013.

• In December 2011 the IASB issued amendments to IAS 32 Off-setting Financial Assets and Financial Liabilities with an effec-tive date of 1 January 2014.

3. Summary of significant accounting policies

a Measurement basis

These consolidated financial statements were prepared under the amortised cost convention, unless IFRS require recognition at fair value. Financial instruments measured at fair value for account-ing purposes on an ongoing basis include all instruments at fair value through profit or loss and financial instruments classified as available-for-sale. Details on the applied measurement techniques for the balance sheet positions are part of the accounting policies listed below.Fair value is defined as the amount at which a transaction could be concluded between two knowledgeable, willing parties at arm’s length. IFRS define a so-called hierarchy of fair value determination

which reflects the relative reliability of different ways of obtaining a fair value: (a) Active market: Quoted price (Level 1)

Observable quoted prices for identical financial instruments in ac-tive markets. (b) Valuation technique using observable inputs (Level 2)

Observable quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets or use valuation models where all significant inputs are observable.

(c) Valuation technique with significant non-observable inputs (Level 3)Use valuation models where one or more significant inputs are not observable.Only if the first best way of determining the fair value is not avail-able may the next best determination method be applied. If pos-sible, the Group obtains fair values from quoted market prices; oth-erwise, the next best available measurement technique is applied.Information about the distribution of the financial assets in the dif-ferent levels regarding the determination of their fair value is pre-sented in notes 16 and 17.

b Foreign currency translation

(a) Functional and presentation currencyItems 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 Bulgarian leva, which is the Group’s functional and presentation currency. (b) Transactions and balancesForeign currency transactions are translated into the functional cur-rency using the exchange rates prevailing on the dates of the trans-actions. Foreign exchange gains and losses resulting from the set-tlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement (trading result).Monetary items denominated in foreign currency are translated with the closing rate as of the reporting date. In the case of changes in the fair value of monetary assets denominated in foreign cur-rency classified as available for sale, a distinction is made between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the securi-ty. Translation differences related to changes in the amortised cost are recognised in profit or loss, while other changes in the carrying amount are recognised in equity.Non-monetary items measured at historical cost denominated in foreign currency are translated with the exchange rate as of the date of initial recognition.As of 31 December 2011, monetary assets and liabilities denomi-nated in foreign currency were translated into Bulgarian leva at the official central bank exchange rate – BGN 1.95583 for EUR 1 and BGN 1.511580 for USD 1 (2010: BGN 1.95583 for EUR 1 and BGN 1.47276 for USD 1). In 1997 a currency board was introduced in Bulgaria by law. The local currency is pegged to the EUR at a rate of BGN 1.95583 for EUR 1. c Offsetting financial instruments Financial assets and liabilities are offset and the net amount is re-ported in the statement of financial position when there is a legally

A N N U A L R E P O R T 20115454

enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and to settle the liability simultaneously. d Interest income and expenses Interest income and expenses for all interest-bearing financial in-struments, except for those classified as at fair value through profit or loss, are recognised within “Interest income” and “Interest ex-pense” in the income statement using the effective interest rate method. Interest income and expense are recognised in the income statement in the period in which they arise.The effective interest method is a method of calculating the amor-tised cost of a financial asset or a financial liability and of allocat-ing the interest income or interest expense over the relevant pe-riod. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter pe-riod to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the fi-nancial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premi-ums or discounts.Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest in-come is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. For loans where there is objective evidence that an impair-ment loss has been incurred, the accrual of interest income is ter-minated not later than 90 days after the last payment. Payments received with respect to written-off loans are not recognised in “Net interest income”. e Fee and commission income and expenses Fees and commissions consist mainly of fees for Bulgarian leva and foreign currency transactions, and are generally recognised on an accrual basis. Fee and commission expenses concern fees incurred by the Group in dealings with other banks and are recognised on the date of the transaction. Asset management fees related to the servicing of loans, originated by the Group and transferred to other companies are recognised over the period to which they relate. f Net trading income

Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differ-ences of trading assets and liabilities.

g Net income from other financial instruments at fair value

Net income from other financial instruments at fair value relates to financial assets and liabilities designated at fair value through profit or loss, and include all realised and unrealised fair value changes, interest, dividends and foreign exchange differences of financial assets and liabilities designated at fair value. h Financial assets The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and re-ceivables, and available-for-sale financial assets. The Group holds no held-to-maturity instruments. Management determines the

classification of financial assets at initial recognition.(i) Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trad-ing (“trading assets”), i.e. the derivatives held, and financial as-sets designated at fair value through profit or loss at inception. The Group does not apply hedge accounting.Financial assets are designated at fair value through profit or loss when they are part of a separate portfolio that is managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy. The monthly reporting on these portfolios and the included assets to key management per-sonnel is also done on a fair value basis. The fair values reported are usually observable market prices; as a guideline, the Group prefers to invest in securities for which market prices in active mar-kets can be observed. Only in rare circumstances is the fair value calculated based on current observable market data by using a val-uation technique. The valuation techniques applied are references to the current fair value of other instruments that are substantially the same, and discounted cash flow analysis using observable mar-ket parameters, e.g. interest rates and foreign exchange rates.Financial assets at fair value through profit or loss are initially rec-ognised at fair value, and transaction costs are expensed in the in-come statement. Subsequently, they are carried at fair value. Gains and losses arising from changes in their fair value are immediately recognised in the income statement of the period. Together with in-terest earned on financial instruments designated as at fair value through profit and loss they are shown as “Net result from financial assets at fair value through profit or loss”.Purchases and sales of financial assets at fair value through profit or loss are recognised on the trade date – the date on which the Group commits to purchase or sell the asset. Financial assets at fair value through profit or loss are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership.

(ii) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or serv-ices directly to a debtor with no intention of trading the receivable.Loans and receivables are initially recognised at fair value includ-ing transaction costs; subsequently they are measured at amor-tised cost using the effective interest method. At each balance sheet date and whenever there is evidence of potential impairment, the Group assesses the value of its loans and receivables. Their carrying amount may be reduced as a consequence through the use of an allowance account (see note 3l for the accounting policy for impairment of loans, and notes 4b and 18 for details on impair-ment of loans). If the amount of the impairment loss decreases, the impairment allowance is reduced accordingly, and the amount of the reduction is recognised in the income statement. The maximum reduction of the impairment is equal to the amortised cost of the asset before impairment.Loans are recognised when the principal is advanced to the bor-rowers. Loans and receivables are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. (iii) Available-for-sale financial assetsAvailable-for-sale assets are those intended to be held for an indefi-nite amount of time, which may be sold in response to needs for li-quidity or changes in interest rates, exchange rates or equity prices.At initial recognition, available-for-sale financial assets are record-ed at fair value including transaction costs. Subsequently they are carried at fair value. The fair values reported are either observable


market prices in active markets or values calculated with a valua-tion technique based on currently observable market data. For very short-term financial assets it is assumed that the fair value is best reflected by the transaction price itself. Gains and losses arising from changes in fair value of available-for-sale financial assets are recognised directly in equity in other comprehensive income in the position “Revaluation reserve from available-for-sale financial as-sets”, until the financial asset is derecognised or impaired (for de-tails on impairment, see note 3l). At the time of derecognition, the cumulative gain or loss previously recognised in equity in “Other comprehensive income” is recognised in profit or loss as “Gains and losses from available-for-sale financial assets”. Interest calcu-lated using the effective interest rate method and foreign currency gains and losses on monetary assets classified as available-for-sale are recognised in the income statement. Dividends on availa-ble-for-sale equity instruments are recognised in the income state-ment when the entity’s right to receive the payment is established.Purchases and sales of available-for-sale financial assets are re-corded on the trade date. The available-for-sale financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership.

i Sale and repurchase agreements

Securities sold subject to repurchase agreements (“repos”) are re-classified as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the collateral; the counter-party liability is included in liabilities to other banks or liabilities to customers, as appropriate. Securities purchased under agreements to resell (“reverse repos”) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. j Cash and cash equivalents

For the purposes of the balance sheet, cash and cash equivalents comprise cash and balances with the Bulgarian National Bank (“BNB”). Generally, all cash and cash equivalent items are recog-nised at their nominal value.For the purposes of the cash flow statement, cash and cash equiva-lents comprise balances with less than three months’ maturity from the date of acquisition including: cash, balances with the BNB excluding the minimum required reserve, and amounts due from other banks.

k Loans and receivablesThe amounts reported under ”Loans and advances to customers” consist mainly of loans and advances issued. In addition to over-night and term deposits, the amounts reported under ”Loans and advances to banks” include current account balances.All loans and receivables to banks as well as loans and receivables to customers fall under the category “Loans and receivables” and are carried at amortised cost, using the effective interest method. Amortised premiums and discounts are accounted for over the respective terms in the income statement under “Net interest in-come”. Impairment of loans is recognised on separate allowance accounts (see note 3l).For the purposes of the cash flow statement, claims to banks with a remaining maturity of less than three months from the date of ac-quisition are recognised under “Cash and cash equivalents” (see note 14).

l Allowance for losses on loans and advances

(i) Impairment of loans and advancesThe Group assesses at each balance sheet date whether there is ob-jective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence that impairment of a loan or a portfolio of loans has occurred which influences the future cash flow of the financial asset(s), the respective losses are immediately recognised. Depending on the size of the exposure, such losses are either calculated on an individual client basis or are collectively as-sessed for a portfolio of loans. The carrying amount of the exposure is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. The Group does not recognise losses from expected future loss events.

a) Individually assessed loans and advancesExposures are considered individually significant if they exceed EUR 30,000. For such exposures, it is assessed whether objective evidence of impairment exists, i.e. any factors which might influ-ence a customer’s ability to fulfil contractual payment obligations towards the bank:– Delinquencies in contractual payments of interest or principal– Breach of covenants or conditions– Initiation of bankruptcy proceedings– Any specific information on the customer’s business (e.g. re-

flected by cash flow difficulties experienced by the client) – Changes in the customer’s market environment– The general economic situation.Additionally, the aggregate exposure to the client and the market value of collateral held are taken into account when deciding on the allowance for impairment.If there is objective evidence that an impairment loss has been in-curred, the amount of the loss is measured as the difference be-tween the asset’s carrying amount and the present value of its esti-mated future cash flows discounted at the financial asset’s original effective interest rate (specific impairment). If a credit exposure has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. b) Collectively assessed loans and advancesThere are two cases in which exposures are collectively assessed for impairment:• individually insignificant exposures that show objective evi-

dence of impairment;• a group of loans that does not show signs of impairment, in

order to cover all losses which have already been incurred but not detected on an individual loan basis.

For the purposes of the evaluation of impairment of individually insignificant exposures, they are grouped on the basis of similar credit risk characteristics, i.e. according to the number of days in arrears. Arrears of 30 or more days are considered to be a sign of impairment. This characteristic is relevant for the estimation of fu-ture cash flows for the so defined groups of such assets, based on historical loss experiences with loans that showed similar charac-teristics.The collective assessment of impairment for individually insignifi-cant exposures (lump-sum impairment) and for unimpaired expo-sures (portfolio-based impairment) belonging to a group of finan-cial assets is based on a quantitative analysis of historical default rates for loan portfolios with similar risk characteristics.


Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contrac-tual cash flows of the assets in the group and historical loss experi-ence for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of cur-rent observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical pe-riod that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether individ-ually significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively as-sesses them for impairment (impairment for collectively assessed exposures). (ii) Reversal of impairmentIf, in a subsequent period, the amount of the impairment loss de-creases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. (iii) Writing off loans and advancesWhen an exposure is uncollectible, it is written off against the re-lated allowance for impairment. Such exposures are written off af-ter all the necessary legal procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the allow-ance for impairment in the income statement.

(iv) Restructured credit exposuresRestructured credit exposures which would otherwise be past due or impaired and which are considered to be individually significant are provisioned on an individual basis. The amount of the loss is measured as the difference between the restructured loan’s carry-ing amount and the present value of its estimated future cash flows discounted at the loan’s original effective interest rate (specific im-pairment). Restructured loans which would otherwise be past due or impaired and which are individually insignificant are collectively assessed for impairment. (v) Repossessed propertyNon-financial assets acquired in exchange for loans as part of an orderly realisation are reported in “Other assets”. The asset ac-quired is recorded at the lower of its fair value less costs to sell and the carrying amount of the loan at the date of exchange. No depreciation is charged for assets held for sale. Any subsequent write-down of the acquired asset to fair value less costs to sell is recognised in the income statement in “Other operating income”. Any subsequent increase in the fair value less costs to sell, to the extent this does not exceed the cumulative write-down, is also rec-ognised in “Other operating income”, together with any realised gains or losses on disposal. m Derivative financial instruments Derivatives are initially recognised at the fair value of the consid-eration given (when acquiring financial assets) or received (when undertaking financial liabilities). Subsequently, derivatives are remeasured at fair value. If possible, fair values are obtained from quoted markets or from recent market transactions. Otherwise, they are appraised via discounted cash flow models or options pric-

ing models, as appropriate. Derivatives with a positive fair value at the balance sheet date are carried as financial assets and reported under “Financial assets at fair value through profit or loss”. Deriva-tives with a negative fair value are carried as financial liabilities and are reported under “Other liabilities”. n Equipment and intangible assets All equipment and intangible assets are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the ac-quisition of the items. Component parts of an asset are recognised separately if they have different useful lives or provide benefits to the enterprise in a different pattern.Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reli-ably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.Depreciation is calculated using the straight-line method to allo-cate their cost to their residual values over their estimated useful lives. Methods of depreciation, useful life and carrying values of equipment and intangible assets are reviewed and adjusted if ap-propriate at each balance sheet date. Land is not depreciated. The useful lives of equipment and intangible assets are as follows:

Equipment Buildings 40 yearsFurniture 10 yearsLeasehold improvements 7 yearsComputers 5 yearsMotor vehicles 5 yearsOther fixed assets 7 years

Intangible assets Licences 7 yearsSoftware 5 years

Both assets that are subject to amortisation and land are reviewed for impairment whenever events or changes in circumstances indi-cate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount exceeds its estimated recov-erable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the in-come statement.The Group does not hold investment property. o Leases (i) Finance leasesA Group company is a lessor. Agreements which transfer to the les-see substantially all the risks and rewards incidental to the owner-ship of assets, but not necessarily a legal title, are classified as finance leases. When assets are held subject to a finance lease, the present value of the minimum lease payments is recognised as a receivable from customers under “Loans and advances to custom-ers”. Payments received under leases are divided into an amortisa-tion component which is not recognised in the income statement and an income component. The income component is recognised under “Interest income”. Premiums received are recognised over the term of the lease using the effective interest rate method under “Interest income”.


(ii) Operating leasesThe total payments made under operating leases are charged to the income statement under “Other administrative expenses” on a straight-line basis over the period of the lease. The leasing objects are recognised by the lessor. All operating leases are cancellable with six months’ notice. p Income taxes Taxation has been provided for in the consolidated financial state-ments in accordance with Bulgarian legislation currently in force. Current tax is calculated on the basis of the taxable profit for the year, using the tax rates enacted at the reporting date. Taxes other than on income are recorded under “Other administrative expenses”.Deferred income tax is provided using the balance sheet liability method, for all temporary differences arising between the tax bas-es of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used in the de-termination of deferred income tax.Income tax payable on profits, based on the applicable tax law in Bulgaria is recognised as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.Deferred tax assets and liabilities are offset if there is a legally en-forceable right to offset current tax liabilities against current tax assets, and they relate to income taxes levied by the same tax au-thority on the same taxable entities. q Liabilities to banks, customers and institutions Liabilities to banks, customers and institutions are recognised ini-tially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is rec-ognised in the income statement over the period of the borrowings using the effective interest rate method. All financial liabilities are derecognised when they are extinguished – that is, when the obliga-tion is discharged, cancelled or expires. r Subordinated debt and hybrid capital Subordinated debt and hybrid capital consists mainly of liabilities to shareholders which in the event of insolvency or liquidation are not repaid until all non-subordinated creditors have been satisfied. While the subordinated debt has a fixed repayment term, there is no obligation to early repayment of the equity hybrid instruments (hybrid capital). Following initial recognition at acquisition cost, the subordinated debt and hybrid capital are recognised at am-ortised cost. Premiums and discounts are accounted for over the respective terms in the income statement under “Net interest in-come”. Subordinated debt and equity hybrid instruments are pre-sented as liabilities in the statement of financial position, but are part of the Group’s capital base for capital adequacy purposes (see notes 25 and 26). s Provisions Provisions are recognised if:i. there is a present legal or constructive obligation resulting from

past events;ii. it is more likely than not that an outflow of resources will be

required to settle the obligation;iii. and the amount can be reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow of resources will be required in a settlement is deter-mined by considering the class of obligations as a whole. Provisions for which the timing of the outflow of resources is known are measured at the present value of the expenditures, if the out-flow is not expected to occur before one year’s time. The increase in the present value of the obligation due to the passage of time is recognised as an interest expense.Contingent liabilities are possible obligations that arise from past events. As their occurrence, or non-occurrence, depends on uncer-tain future events not wholly within the control of the Group, they are not recognised in the financial statements but are disclosed off-balance sheet unless the probability of settlement is remote.Employee entitlements to annual leave are recognised when they are accrued to employees. A provision is made for the estimated annual leave as a result of services rendered by employees up to reporting date. t Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it in-curs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bod-ies on behalf of customers to secure loans, overdrafts and other banking facilities.Financial guarantees are initially recognised in the financial state-ments at fair value on the date the guarantee was given. Subse-quent to initial recognition, the Group’s liabilities under such guar-antees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the income statement the fee income earned on a straight line basis over the life of the guar-antee and the best estimate of the expenditure required to settle any financial obligation arising at the reporting date. These esti-mates are determined based on experience of similar transactions and history of past losses, supplemented by the judgement of the Management.Any increase in the liability relating to guarantees is taken to the income statement under “Other administrative expenses”. u Employee benefits (i) Defined contribution plansA defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate en-tity and will have no legal or constructive obligation to pay further amounts. The Government of Bulgaria is responsible for providing pensions in Bulgaria under a defined contribution pension plan. The Group’s contributions to the defined contribution pension plan are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation with respect to defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is dis-counted to determine its present value. The Group has an obligation to pay certain amounts to each em-ployee who retires with the Group in accordance with Art. 222, § 3 of the Labour Code (“LC”). According to the regulations in the LC, when a labour contract of a Group employee, who has acquired a pension right, is ended, the Group is obliged to pay the employee compensation equivalent to two gross monthly salaries. In the


event that the employee’s length of service in the Group is equal to or exceeds 10 years, as of the date of retirement, then the com-pensation shall amount to six gross monthly salary payments. As of the reporting date, the Management of the Group estimates the ap-proximate amount of the potential expenditures for every employee based on a calculation performed by a qualified actuary using the projected unit credit method. The Group recognises all actuarial gains and losses arising from defined benefit plans in personnel expenses for the period/other comprehensive income. (iii) Termination benefitsTermination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of with-drawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination bene-fits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of ac-ceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discount-ed to their present value.

4. Risk Management a Strategy in using financial instruments By nature the Group’s activities are principally related to the use of financial instruments. The Group accepts deposits from custom-ers and seeks to earn above-average interest margins by investing these funds in high-quality assets. The Group also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to commercial borrowers with a range of credit standing. Such exposures involve not just on-balance sheet loans and advances as the Group also enters into guarantees and other commitments.The Management Board places trading limits on the level of expo-sure that can be taken in relation to both overnight and intra-day market positions. b Credit risk The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers or geographical and industry segments. Such risks are monitored on a revolving basis and are subject to at least one review per year. Limits on the level of credit risk accord-ing to product and economic sector are approved by the Manage-ment Board. The exposure to any one borrower, including banks, is further restricted by sub-limits covering on- and off-balance sheet exposures and daily delivery risk limits in relation to trading items. Actual exposures against limits are monitored daily. Exposure to credit risk is managed through regular analysis of the ability of bor-rowers and potential borrowers to meet interest and capital repay-ment obligations and changing these lending limits where appro-priate. Exposure to credit risk is additionally managed by obtaining collateral and corporate and personal guarantees.Credit risk management is an integral part of the bank’s lending process. The Group’s Management Board has, in consultation with the credit risk departments, assigned specific disbursement limits to credit analysts and branch managers based on their level of expe-rience and expertise. Loan exposures are subject to periodic moni-toring to determine if there is objective evidence of impairment. If

such evidence exists, the Group takes the most appropriate meas-ures for both the customer and the Group to ensure settlement.In its lending activities the Group’s focus is on very small, small and medium-sized enterprises. The bank requires staff members who are involved in the lending process to master specific skills. The Group has developed a special training system which is imple-mented on a regular basis and allows staff who work in the busi-ness units, especially credit analysts, to become an integral part of the overall credit management system.For the purpose of determining the amount of allowances to be set aside for impairment of loans and advances to customers, exposures are considered individually significant if the outstanding amount ex-ceeds a certain threshold. All exposures with an outstanding amount exceeding EUR 30,000 are individually assessed for impairment. For such exposures, it is assessed whether objective evidence of impair-ment exists, i.e. any factors which might influence the customer’s ability to fulfil contractual payment obligations towards the Group. Additionally the amount of the allowance for impairment is calcu-lated as the difference between the asset’s carrying amount and the present value of its estimated future cash flows discounted at the fi-nancial asset’s original effective interest rate (specific impairment), reflecting also the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.Credit risk from customer credit exposures is defined as the risk of losses due to a potential non-fulfilment of the contractual payment obligations associated with a customer credit exposure. The manage-ment of credit default risk from customer credit exposures is based on a thorough implementation of the Group’s lending principles:• Intensive analysis of the debt capacity of the Group’s clients• Careful documentation of the credit risk assessments, assur-

ing that the analysis performed can be understood by knowl-edgeable third parties

• Rigorous avoidance of over indebting our clients• Building a personal and long-term relationship with the client

and maintaining regular contact• Strict monitoring of loan repayment• Practising tight arrears management• Exercising strict collateral collection in the event of default• Investing in well-trained and highly motivated staff• Implementing carefully designed and well-documented proc-

esses• Rigorous application of the “four-eyes principle”. For the purposes of the evaluation of impairment of individually insignificant exposures, they are grouped on the basis of similar credit risk characteristics, i.e. according to the number of days in arrears. Arrears of 30 or more days are considered to be a sign of impairment. This characteristic is relevant for the estimation of fu-ture cash flows for the so defined groups of such assets, based on historical loss experience with loans that showed similar charac-teristics.The Group monitors the quality of the loan portfolio on an ongo-ing basis. One measure for loan portfolio quality is the portfolio at risk (PAR). The Group defines PAR as all loan exposures outstand-ing with one or more payment of interest or principal past due by more than 30 days. The Group chose this measure because the vast majority of all loans have fixed instalments entailing monthly pay-ments of principal and interest. Exceptions are seasonal agricultur-al loans and investment loans, which can have grace periods. The Group does not deduct any collateral and does not apply any other exposure-reducing measures when determining PAR. The value of PAR for the loan portfolio managed by the Group as of 31 December 2011 was 4.3%.Restructured credit exposures are treated according to their cur-rent status. Restructurings of credit exposures are generally ne-cessitated by economic or payment problems encountered by the client. If a credit exposure is restructured, amendments are made


to the parameters of the exposure. Otherwise, these credit expo-sures for which the terms have been renegotiated would be past due or impaired. Exposure to credit riskCredit risk exposures can be aggregated into the following groups:(1) Collectively assessed impaired exposures (below EUR 30,000)

– for which objective evidence exists that the quality of the ex-posures has deteriorated. Loan loss provisions for these expo-sures are determined based on the number of days in arrears;

(2) Individually assessed impaired exposures (above EUR 30,000) – for which objective evidence exists that the quality of the ex-posures has deteriorated. Loan loss provisions for these expo-

sures are determined after performing an individual review of future cash flow expectations from the exposure, discounted at the effective interest rate of the exposure in order to calcu-late a net present value of the expected future cash flows;

(3) Loans and advances which are not impaired – these expo-sures also include loans with renegotiated terms, which are loans that have been restructured due to deterioration in the borrower’s financial position and where the bank has made concessions that it would not otherwise consider. Once the ex-posure is restructured it remains in this category independent of satisfactory performance after restructuring. The allowance for collectively assessed exposures is based on a quantitative analysis of historical default rates for loan portfolios with simi-lar risk characteristics. The obtained rates are applied to the collectively assessed exposures.

Loans and advances to customers

Business Clients Private Individuals Business Clients Private Individuals 2011 2011 2010 2010 Collectively assessed impaired exposures (below EUR 30,000)31-90 days in arrears 3,055 572 10,032 1,36591-180 days in arrears 2,763 267 7,180 959over 180 days in arrears 9,407 661 6,847 442Provision for impairment (13,298) (1,137) (14,448) (1,435)Carrying amount 1,927 363 9,611 1,331 Individually assessed impaired exposure (above EUR 30,000)up to 30 days in arrears 46,526 2,146 46,913 91631-90 days in arrears 5,091 – 3,286 34991-180 days in arrears 2,680 146 6,166 226over 180 days in arrears 20,791 747 16,764 1,065Provision for impairment (17,066) (610) (9,273) (222)Carrying amount 58,022 2,429 63,856 2,334 Collectively assessed exposures which are not impaired below EUR 30,000Gross amount 184,726 43,408 174,473 53,760Provision for collectively assessed exposures (6,172) (948) (6,760) (573)Carrying amount 178,554 42,460 167,713 53,187Including with renegotiated terms 19,397 1,232 14,280 1,317 Collectively assessed exposures which are not impaired above EUR 30,000Gross amount 674,911 46,702 585,659 45,962Provision for collectively assessed exposures (9,297) (561) (5,631) (317)Carrying amount 665,614 46,141 580,028 45,645Including with renegotiated terms 5,295 328 7,999 1,573 Total carrying amount of loans and advances to customers 904,117 91,393 821,208 102,497


Business loans include loans for business purposes (working capi-tal or investments) disbursed to SMEs and entrepreneurs. SMEs are clients defined as very Small, Small and Medium according to the applied internal classification and national legislation. Business loans include agricultural loans as well as business overdrafts and revolving loans. Retail loans include consumer and housing loans as well as consumer overdrafts and credit card receivables. Collateral heldThe Group applies various instruments available to reduce the risk on individual transactions related to loans and advances to cus-tomers, including security in the form of physical assets and guar-antees. The most frequently provided forms of collateral are mort-gage of real estate property and movables such as vehicles, goods and machines. Collateral generally is not held over other financial assets except over loans and advances to banks when securities are held as part of reverse repurchase and securities borrowing ac-tivity. The distribution of the loans and advances to customers by type of collateral is presented in the table below:

2011 2010Mortgage 696,935 652,366Cash collateral 20,520 11,900Bank guarantee 14,874 22,288Other types of collateral 263,181 237,151 995,510 923,705

Credit related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees, which repre-sent irrevocable assurance that the Group will make the payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans.

Commitments to extend credit represent unused portions of au-thorisations to extend credit in the form of loans and guarantees. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total commitments since commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments be-cause longer-term commitments generally carry a greater degree of credit risk than shorter-term commitments. Geographical concentration of assets, liabilities and off balance sheet itemsThe loan customers of the Group are mainly situated in Bulgaria (98% of loans and advances to customers); placements and cur-rent accounts are with both local and non-local banks (note 15). The Group is exposed to many sectors of the Bulgarian economy. However, credit risk is well distributed across a diverse range of individual and commercial customers.

Financial assets designated at fair value through profit or loss and available for sale financial assetsThe Group holds financial assets designated at fair value through profit or loss. The table below displays the credit quality of the maximum credit exposure on the basis of the ratings issued by Standard & Poor’s:

Government and supranational bonds 2011 2010Rated AAA (European Investment Bank) 2,265 –Rated BBB+ (Bulgarian Government bonds) 22,579 8,274Total financial assets at fair value through P&L 24,844 8,274

The table below represents the financial assets designated at fair value through profit or loss and the available for sale (AFS) finan-cial assets, held by the Group, distributed by country of counter-party’s origination and remaining maturity:

As of 31 December 2011 Up to 1 – 3 3 – 12 1 – 5 Over 5 With no Total 1 month months months years years maturityFinancial assets at fair value through profit or loss Government bonds Bulgaria 896 17 26 18,512 3,128 – 22,579Supranational bonds European Investment Bank 35 – 1,228 1,002 – – 2,265Total 931 17 1,254 19,514 3,128 – 24,844 AFS financial assets Capital instruments Bulgaria – – – – – 695 695Belgium – – – – – 55 55Great Britain – – – – – 34 34Total – – – – – 784 784 Total assets 931 17 1,254 19,514 3,128 784 25,628


c Market risk The Group takes on exposure to market risks. Market risks arise from open positions in interest rate and currency products, all of which are exposed to general and specific market movements. The Group estimates the market risk of positions held and the maxi-mum losses expected based upon a number of assumptions for various changes in market conditions. The Management Board sets limits on the value of risk that may be accepted.

d Currency risk The Group takes on exposures to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Management Board sets limits on the level of exposure by currency, which are monitored daily. As a matter of principle, the Group does not trade in currencies. The Group man-ages its currency risk through the use of currency deals. The larg-est total net open currency position as a percentage of the Group’s equity on a daily basis was (0.1%) in 2011. The Management Board therefore considers that the possible adverse effects from currency risk exposure are not substantial for the Group. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2011.

As of 31 December 2010 Up to 1 – 3 3 – 12 1 – 5 Over 5 With no Total 1 month months months years years maturityFinancial assets at fair value through profit or loss Government bonds Bulgaria 324 – 26 4,920 3,004 – 8,274Total 324 – 26 4,920 3,004 – 8,274

AFS financial assets Capital instruments Bulgaria – – – – – 695 695Belgium – – – – – 55 55Great Britain – – – – – 33 33Macedonia – – – – – 196 196Total – – – – – 979 979 Total assets 324 – 26 4,920 3,004 979 9,253

As of 31 December 2011 BGN EUR USD Other TotalAssets Cash and cash equivalents 93,140 23,880 2,274 1,073 120,367Loans and advances to banks 100 38,966 11,020 5,774 55,860Financial assets through profit or loss 5,172 10,939 8,733 – 24,844Available–for–sale financial assets 695 55 34 – 784Loans and advances to customers 433,390 554,055 8,065 – 995,510Equipment and intangible assets 52,297 – – – 52,297Current tax assets 590 – – – 590Deferred tax assets 95 – – – 95Other assets 17,816 8,024 4 – 25,844Total assets 603,295 635,919 30,130 6,847 1,276,191 LiabilitiesLiabilities to banks 10,147 27,811 1,027 – 38,985Liabilities to customers 542,881 278,747 29,692 6,776 858,096Liabilities to institutions 1,969 161,501 – – 163,470Subordinated debt – 8,113 – – 8,113Hybrid capital – 64,889 – – 64,889Current tax liabilities 374 – – – 374Deferred tax liabilities 468 – – – 468Other liabilities 2,757 1,248 53 11 4,069Total liabilities 558,596 542,309 30,772 6,787 1,138,464 Net balance sheet position 44,699 93,610 (642) 60 137,727Credit commitments (note 30) 93,409 38,283 1,515 – 133,207Open spot and derivative transactions (48,896) 48,262 665 (32) (1) As of 31 December 2010Total assets 550,910 589,663 22,138 6,422 1,169,133Total liabilities 442,504 555,133 35,670 6,389 1,039,696

Net balance sheet position 108,406 34,530 (13,532) 33 129,437Credit commitments (note 30) 63,072 34,807 1,663 – 99,542Open spot and derivative transactions (111,482) 97,778 13,541 – (163)


e Cash flow and fair value interest rate risk The Group takes on exposures to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unex-pected movements arise. The Management Board sets limits on the level of mismatch of interest rate repricing that may be undertaken,

which is monitored daily. The Management Board is satisfied that the Group’s position is such that exposure to movements in interest rates is minimised. Interest sensitivity of assets, liabilities and off balance sheet items – repricing analysisThe table below summarises the Group’s exposure to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repric-ing or maturity dates. The securities classified as financial assets through profit or loss are presented with maturities up to one month.

Regarding interest rate risk, the Group is mainly exposed to changes in the six-month Euribor rate. Based on historical movements and volatilities for the last year in this market variable, the Group be-lieves that change of 0.07% from the current level in the six-month Euribor rate is reasonably possible. If this movement were to occur, the impact on the profit and loss after tax for the reporting period would be as follows:

ChangeSix-month Euribor rate (0.07%) +0.07%Impact on the profit and loss after tax (216) 216

The impact is calculated based on the GAP analysis of assets and liabilities with floating interest rates. Separate analyses were pre-pared for assets and liabilities linked to the six-month Euribor rate.

f Liquidity risk

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan drawdowns, and guarantees. The Group does not maintain cash re-sources to meet all of these needs as experience shows that a mini-mum level of reinvestment of maturing funds can be predicted with

As of 31 December 2011 Up to 1 – 3 3 – 12 1 – 5 Over 5 Non– interest Total 1 month months months years years bearingAssets Cash and cash equivalents – – – – – 120,367 120,367Loans and advances to banks 36,186 – – – – 19,674 55,860Financial assets through P&L 24,844 – – – – – 24,844Available-for-sale financial assets – – – – – 784 784Loans to customers 149,289 246,791 453,003 101,108 20,653 24,666 995,510Equipment and intangible assets – – – – – 52,297 52,297Current tax assets – – – – – 590 590Deferred tax assets – – – – – 95 95Other assets – – – – – 25,844 25,844Total assets 210,319 246,791 453,003 101,108 20,653 244,317 1,276,191 Liabilities Liabilities to banks 19,569 128 – 10,000 – 9,288 38,985Liabilities to customers 161,116 107,590 274,284 41,549 574 272,983 858,096Liabilities to institutions – 85,802 69,700 7,968 – – 163,470Subordinated debt 347 – – 7,766 – – 8,113Hybrid capital – 42,397 – – 22,492 – 64,889Current tax liabilities – – – – – 374 374Deferred tax liabilities – – – – – 468 468Other liabilities – – – – – 4,069 4,069Total liabilities 181,032 235,917 343,984 67,283 23,066 287,182 1,138,464Interest sensitivity gap 29,287 10,874 109,019 33,825 (2,413) (42,865) 137,727

As of 31 December 2010Total assets 189,488 232,296 422,345 85,230 22,151 217,623 1,169,133Total liabilities 250,311 202,748 289,429 42,293 30,869 224,046 1,039,696Interest sensitivity gap (60,823) 29,548 132,916 42,937 (8,718) (6,423) 129,437


reasonable certainty. The Management Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of interbank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand. The Group is trying to maintain a balance between ma-turity terms of attracted funds and flexibility in the usage of funds of various maturity structures. The maintenance and management of liquidity of the Group is accomplished with a view to minimising liquidity risk, by current monitoring and regular control over the as-sets and liabilities. The Assets and Liabilities Management Commit-tee (ALCO), established by the Group, is the main body, along with other relevant departments, which is operationally responsible for liquidity management. The ALCO comprises Management Board members and it is convened at least once per month. The minimis-ing of liquidity risk is reflected in the establishment of an optimal and acceptable ratio between the risk level and the desired yield from operations. Liquidity is also monitored and managed by static

and dynamic indices. They represent ratios and percentages which are internally set. The Group monitors and manages its liquidity led by the “going concern” principle and the principle of prudence. The “going concern” principle regarding liquidity means that the Group does not plan to liquidate itself or to restrict the scope of its activities in the future. The principle of prudence regarding liquid-ity entails considering cash inflows on the latest possible date and considering cash outflows on the earliest possible date. The Group manages its liquidity by providing compliance with the structure of the liabilities with the appropriate structure of the assets in a way that the expected cash outflows at each point in time are covered by cash inflows. The Group aims to maintain a positive cumulative net cash flow at all times.The table below presents the assets and liabilities of the Group ac-cording to the time remaining to the contractual maturity date at bal-ance sheet date. The securities classified as financial assets through profit or loss are presented according to their maturity. They com-prise highly liquid government bonds which are quoted daily and are traded on the capital market.

Maturities of assets and liabilities

Liabilities to customers with maturity up to 1 month include all sight deposits amounting to BGN 271,598 thousand. The Group’s management expects that these funds will not be withdrawn at the same time or within the period in which they are reflected. Addi-tionally, an analysis of depositor behaviour revealed that 79% of term deposits at maturity date were not withdrawn but automati-cally renegotiated under the same terms and conditions.The table below categorises the Group’s financial liabilities accord-ing to the remaining period to the contractual maturity date as of the reporting date. The amounts disclosed in the table are the con-tractual undiscounted cash flows.

As of 31 December 2011 Up to 1 1 – 3 3 – 12 1 – 5 Over 5 Total month months months years yearsAssets Cash and cash equivalents 120,367 – – – – 120,367Loans and advances to banks 55,860 – – – – 55,860Financial assets through P&L 931 17 1,254 19,514 3,128 24,844Available–for–sale financial assets – – – – 784 784Loans and advances to customers 50,781 55,643 293,409 406,080 189,597 995,510Equipment and intangible assets – – – – 52,297 52,297Current tax assets – – 590 – – 590Deferred tax assets – – 95 – – 95Other assets 16,732 – – – 9,112 25,844Total assets 244,671 55,660 295,348 425,594 254,918 1,276,191 Liabilities Liabilities to banks 23,274 861 3,300 11,550 – 38,985Liabilities to customers 432,685 108,293 288,924 27,620 574 858,096Liabilities to institutions 11 12,252 39,625 86,192 25,390 163,470Subordinated debt 346 – – – 7,767 8,113Hybrid capital – 3,281 – – 61,608 64,889Current tax liabilities – – – – 374 374Deferred tax liabilities – – 468 – – 468Other liabilities 4,069 – – – – 4,069Total liabilities 460,385 124,687 332,317 125,362 95,713 1,138,464Net liquidity gap (215,714) (69,027) (36,969) 300,232 159,205 137,727 As of 31 December 2010 Total assets 226,032 46,380 254,825 352,508 289,388 1,169,133Total liabilities 463,197 119,931 268,824 98,141 89,603 1,039,696Net liquidity gap (237,165) (73,551) (13,999) 254,367 199,785 129,437


Maturity analysis for financial liabilities

g Operational risk management The Group is exposed to operational risk. Operational risk means the risk of loss resulting from inadequate or failed internal process-es, people and systems or from external events, and includes legal risk. Operational risk may arise from inadequate information sys-tems, technological errors, breaches in internal controls, frauds, unforeseen circumstances or other problems of an operational na-ture, which could result in unexpected losses. The Group has estab-lished an Operational Risk Assessment Committee as the body with primary responsibility for managing operational risk. Its primary activities are to monitor the overall operational risk and the risk to which the Group is exposed on the basis of regularly received operational risk reports and to prepare plans of action for extreme situations and cases of uninterrupted operations. To further reduce the impact of possible operational risk events and ensure the conti-nuity of business operations, the Group has developed disaster re-covery plans pertaining to the core banking application database, international payments and Internet banking. h Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for the shareholders, protect its customers and maintain an optimal capital structure so as to reduce the cost of capital. The Group calculates the total capital adequacy (the “Basel ratio”) as the ratio between the total of its own funds for solvency purposes and the total of its risk-weighted assets for credit, market and op-erational risks. Tier I capital adequacy is the ratio between the Tier I capital and the risk-weighted assets and should be higher than 6%. The total capital adequacy ratio should be higher than 12%.

The Group’s regulatory capital is divided into two tiers:• Tier 1 capital, which includes ordinary share capital, share pre-

miums, legal and other reserves formed from the net profit;• Tier 2 capital, which includes received equity (hybrid) instru-

ments which are subordinated debt with no maturity.Tier 2 capital cannot exceed the amount of Tier 1 capital. The Group does not have a trading book so its core operations are categorised as banking book. Risk-weighted assets and capital re-quirements are determined according to the specific requirements of the BNB. The Group’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain future development of the business. The Group aims to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Group’s regulatory capital position as of 31 December 2011 was as follows:

2011 2010Regulatory capital Tier 1 capital 123,253 120,468Tier 2 capital 69,432 69,432Discounts (specific provisions according to BNB’s Ordinance 9) (12,249) (15,757)Total regulatory capital 180,436 174,143 Capital requirements Capital requirements for credit risk 103,215 92,439Capital requirements for operational risk 21,073 19,091Total capital requirements 124,288 111,530 Capital ratiosTotal regulatory capital ratio 17.4% 18.7%Tier 1 regulatory capital ratio 11.3% 12.1%

5. Fair values of financial assets and liabilities Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quot-ed market price.The estimated fair values of financial instruments have been de-termined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is required to interpret market data to determine the es-timated fair value. While Management has used available market information in estimating the fair value of financial instruments, this information may not be fully reflective of the value that could be realised in the current circumstances.Management has estimated that the fair value of certain balance sheet instruments is not materially different than their recorded values. These balance sheet instruments include cash, nostros and term deposits, placements with banks and other financial institu-tions, securities held for trading or available for sale purposes, deposits from banks and other financial institutions, current ac-counts and deposits from customers, and other short-term assets and liabilities which are of a contractual nature. Management be-lieves that the carrying amount of these particular financial assets and liabilities approximates their fair value, partially due to the fact that it is standard practice to renegotiate interest rates to reflect current market conditions.

As of 31 December 2011 Up to 1 1 – 3 3 – 12 1 – 5 Over 5 Total Total carrying month months months years years amountLiabilities to banks 23,321 1,158 3,697 12,331 – 40,507 38,985Liabilities to customers 434,452 111,568 302,317 33,774 609 882,720 858,096Other borrowed funds 757 21,390 44,387 115,603 165,278 347,415 236,472Total financial liabilities 458,530 134,116 350,401 161,708 165,887 1,270,642 1,133,553

As of 31 December 2010 Up to 1 1 – 3 3 – 12 1 – 5 Over 5 Total Total carrying month months months years years amountLiabilities to banks 66,554 1,183 3,952 17,352 – 89,041 86,582Liabilities to customers 374,057 112,539 244,871 27,803 602 759,872 737,294Other borrowed funds 86,419 13,544 38,670 91,990 153,290 383,913 211,384Total financial liabilities 527,030 127,266 287,493 137,145 153,892 1,232,826 1,035,260


(i) Loans and advances to banksDue from other banks includes inter-bank placements and items in the course of collection.The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevail-ing money-market interest rates for debts with similar credit risk and remaining maturity. (ii) Loans and advances to customersLoans and advances are net of provision for impairment. The esti-mated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Ex-pected cash flows are discounted at current market rates to deter-mine fair value. Difference in fair values and carrying amounts rep-resents the changes in the current market interest rates. Fair value incorporates expected future losses, while amortised cost and re-lated impairment include only incurred losses at the reporting date. (iii) Deposits and borrowingsThe estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing de-posits and other borrowings without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity. The following table summarises the carrying amounts and fair val-ues of those financial assets and liabilities not presented in the Group’s statement of financial position at their fair value.

Carrying value Fair value 2011 2010 2011 2010Financial assetsLoans and advances to banks 55,860 55,436 55,860 55,436Loans and advances to customers 995,510 923,705 989,729 917,334Financial liabilitiesDeposits and borrowings 1,133,553 1,035,260 1,143,839 1,029,192

6. Net interest income

2011 2010Interest income Loans and advances to customers 110,020 104,911Loans and advances to banks 565 694Total interest income 110,585 105,605 Interest expense Liabilities to customers 21,484 22,319Liabilities to banks and institutions 8,885 7,483Hybrid capital 4,360 4,188Subordinated debt 820 820Total interest expense 35,549 34,810

Included under the position “Interest income from loans and ad-vances to customers” for 2011 is BGN 4,457 thousand of accrued interest on irregular loans (2010: BGN 4,326 thousand).

7. Net fee and commission income

2011 2010Fee and commission income Money transfers 7,173 6,050Opening and maintenance of accounts 4,606 4,722Asset management and related fees (note 31) 4,411 9,121Card business 2,959 2,611Cash operations 1,573 1,041Documentary business 570 477Others 1,198 974Total fee and commission income 22,490 24,996 Fee and commission expense Fees related to cards 760 681Correspondent accounts 265 231Others 81 41Total fee and commission expense 1,106 953

Asset management and related fee income comprises fee income for the servicing of loans, originated by the Group and transferred to ProCredit Company EAD.

8. Trading result

2011 2010Gains less losses from foreign currency transactions 3,589 3,708Gains less losses from foreign currency revaluation 272 162Total trading result 3,861 3,870

Gains less losses from foreign currency translation include FX trad-ing result and revaluations of FX derivatives BGN (15) thousand. 9. Net result from financial assets at fair value

2011 2010Interest income from financial assets at fair value 698 562Gains less losses from fair value changes (89) 170Total net result from financial assets at fair value 609 732

10. Net other operating income

2011 2010Income from sale of available for sale securities 124 –Dividends from available for sale securities 67 –Others, net 538 893Total net other operating income 729 893


11. Personnel expenses

2011 2010Wages and salaries 25,115 28,271Pension costs 1,484 1,451Other social security costs 2,517 2,827Other employee costs 325 337Total staff costs 29,441 32,886

The number of staff was 1,177 (excluding 214 employees on ma-ternity leave and support staff) at the end of 2011 (2010: 1,253 (excluding 260 employees on maternity leave and support staff)). 12. Other administrative expenses

2011 2010Operating lease rentals 9,007 10,193Administrative expenses 7,748 8,023Professional services, including audit 5,881 5,704Depreciation (note 19) 5,277 4,615Unallowed vAT credit 3,562 2,954Payments to Deposit Insurance Fund 3,300 3,051Advertising and marketing 1,931 1,007Materials 1,161 892Other 2,074 1,386Total other operating expenses 39,941 37,825

13. Income tax expense

2011 2010Current tax 753 100Deferred tax 217 279Total income tax expense 970 379

Further information about deferred income tax is presented in note 20. The tax on the operating profit differs from the theoretical amount that would arise using the basic tax rate as follows:

2011 2010Profit before income tax 9,260 3,856Theoretical tax at a tax rate of 10 % (2009: 10 %) 926 386Tax effect from non-taxable income (7) (28)Tax effect of expenses not deductible for tax purposes 51 21Total income tax expense 970 379 Deferred tax relating to prior year (217) (279) Current income tax payable 753 100

The effective tax rate for 2011 is: 10.5% (2010: 9.8%). The tax authorities may at any time inspect the books and records within five years subsequent to the reported tax year, and may im-pose additional tax assessments and penalties. The Group’s man-agement is not aware of any circumstances, which may give rise to a potential liability in this respect.

14. Cash and cash equivalents

2011 2010Cash in hand 35,344 32,333Balances with central bank (incl. mandatory reserve) 85,023 86,213Total cash and cash equivalents 120,367 118,546

At 31 December 2011 the mandatory reserve with the central bank represented 10% of amounts mobilised from residents and 5% from amounts mobilised from non-residents, except for the depos-its of local banks and amounts received as equity hybrid instru-ments and subordinated debt. The Bulgarian National Bank did not change the methodology for calculating the mandatory reserves in 2011. The total amount of cash and cash equivalents for the pur-pose of the Cash Flow Statement is BGN 102,264 thousand (2010: BGN 111,986 thousand) and comprises cash in hand, balances with the central bank except for mandatory reserves and loans and ad-vances to banks with maturities of less than three months. 15. Loans and advances to banks

2011 2010Placements with local banks 36,186 43,273Current accounts with local banks 99 38Current accounts with non-local banks 19,575 12,125Total loans and advances to banks 55,860 55,436

16. Financial assets at fair value through profit or loss

2011 2010Bulgarian Government bonds 22,579 8,274European Investment Bank bonds 2,265 –Total financial assets at fair value through profit or loss 24,844 8,274

Included within financial assets through profit or loss is related accrued interest receivable of BGN 974 thousand (2010: BGN 350 thousand). The fair value of all financial assets at fair value through profit or loss is obtained by applying Level 1 of the IFRS hierarchy of fair value determination (note 3a).

17. Available-for-sale financial assets The balance comprises shares in local and foreign financial institu-tions in the amount of BGN 784 thousand (2010: BGN 979 thou-sand) which are classified as available-for-sale. The fair value of all available-for-sale financial assets is obtained applying Level 3 of the IFRS hierarchy of fair value determination (note 3a).


18. Loans and advances to customers

2011 2010Total gross loans and advances 1,044,599 962,364Less provision for impairment (49,089) (38,659)Total net loans and advances 995,510 923,705

Included within loans and advances to customers is related ac-crued interest receivable of BGN 12,397 thousand (2010: BGN 9,767 thousand).

Movement in provisions was as follows:

Balance at 1 January 2010 26,439Increase in provisions for loan impairment 29,029Loans written off (16,809)Balance at 31 December 2010 38,659Increase in provisions for loan impairment 27,377Loans written off (16,947)Balance at 31 December 2011 49,089

Allowance for loan impairment was formed as follows:

Increase in provisions for loan impairment 27,377 29,029Less recoveries on loans previously written off (4,400) (3,263)Recognised in the income statement 22,977 25,766

Economic sector risk concentrations within the customer loan port-folio were as follows:

2011 % 2010 %Trade 281,607 27% 266,501 28%Services 231,739 22% 220,635 23%Agriculture and food processing 236,580 23% 192,423 20%Industry and other production 87,609 8% 80,854 8%Construction 61,324 6% 62,649 7%Transport 43,148 4% 38,382 4%Households 102,592 10% 100,920 10%Total gross loans and advances 1,044,599 100% 962,364 100%

Loans to households include housing improvement loans in the amount of BGN 84,350 thousand (2010: BGN 79,782 thousand).

Included under “Loans and advances to customers” is the following:

2011 2010Gross investment in finance leases, receivable Not later than 1 year 12,664 15,467 Later than 1 year and not later than 5 years 12,235 15,604 Later than 5 years 1,652 544Total finance lease receivables 26,551 31,615Unearned future finance income on finance leases (3,213) (3,975)Investment in finance leases 23,338 27,640

The analysis of the ten largest loan exposures to customers com-pared to the gross loan portfolio is as follows:

2011 2010The ten largest loan exposuresto customers 36,102 37,445Percentage of gross loans 3% 4%


19. Equipment and intangible assets

20. Deferred tax assets and liabilities

The deferred tax charge in the income statement and related de-ferred tax assets include the following temporary differences:

2011 2010Deferred tax assets Unused staff holiday time from previous years 62 57Repossessed property 17 24Other temporary differences 16 –Total deferred tax assets 95 81

Deferred tax liabilities Property, plant and equipment 422 191Available for sale financial assets 46 46Total deferred tax liabilities 468 237

21. Other assets

2011 2010Repossessed property 10,934 1,327Claims related to transfer of loans 7,311 735Accounts receivable 5,122 2,619Prepayments and deferred expenses 2,320 6,277Tax receivables 157 570Total other assets 25,844 11,528

Claims related to the transfer of loans comprise the amount receiv-able in respect of loans transferred, but not yet paid by the transfer-ee (ProCredit Company, see note 31) as well as receivables related to the servicing of the loans transferred. The amount is settled on the 15th day of the following month. Repossessed property totalling BGN 1,114 thousand was sold in 2011. 22. Liabilities to banks

2011 2010Current accounts 3,327 3,735Term deposits 19,569 62,378Loans 16,089 20,469Total liabilities to banks 38,985 86,582

Liabilities to banks include accrued interest of BGN 152 thousand as of 31 December 2011 (2010: BGN 172 thousand).

Land and Furnitures IT and other Leasehold Intangible Total buildings and fixtures equipment improvements assetsCostBalance at 1 Jan 2010 29,980 1,647 27,555 9,926 4,154 73,262Acquisitions 234 269 1,580 166 1,473 3,722Disposals (6) (145) (823) (1,142) (109) (2,225)Balance at 31 Dec 2010 30,208 1,771 28,312 8,950 5,518 74,759 DepreciationBalance at 1 Jan 2010 151 852 15,977 2,755 1,500 21,235Depreciation for the period 732 111 2,442 753 577 4,615Accumulated depreciation of disposal – (66) (702) (399) – (1,167)Balance at 31 Dec 2010 883 897 17,717 3,109 2,077 24,683 Carrying amountsBalance at 1 Jan 2010 29,829 795 11,578 7,171 2,654 52,027Balance at 31 Dec 2010 29,325 874 10,595 5,841 3,441 50,076

CostBalance at 1 Jan 2011 30,208 1,771 28,312 8,950 5,518 74,759Acquisitions 2,558 203 2,944 712 2,795 9,212Disposals – (145) (900) (594) (1,453) (3,092)Balance at 31 Dec 2011 32,766 1,829 30,356 9,068 6,860 80,879

DepreciationBalance at 1 Jan 2011 883 897 17,717 3,109 2,077 24,683Depreciation for the period 786 122 2,747 744 878 5,277Accumulated depreciation of disposal (338) (78) (737) (225) – (1,378)Balance at 31 Dec 2011 1,331 941 19,727 3,628 2,955 28,582

Carrying amountsBalance at 1 Jan 2011 29,325 874 10,595 5,841 3,441 50,076Balance at 31 Dec 2011 31,435 888 10,629 5,440 3,905 52,297


23. Liabilities to customers

2011 2010Private Individuals Sight deposits 84,092 69,849 Term deposits 352,913 379,872 Saving deposits 59,199 34,262Total Private Individuals 496,204 483,983 Business Clients Sight deposits 192,703 143,600 Term deposits 159,780 100,077 Saving deposits 1,049 706Total Business Clients 353,532 244,383Payments in transit 8,360 8,928Total liabilities to customers 858,096 737,294

Included within due to customers is related accrued interest pay-able of BGN 10,787 thousand as of 31 December 2011 (2010: BGN 8,912 thousand).

24. Liabilities to institutions The Group signed new loan agreements with the following institu-tions in 2011:• Kreditanstalt für Wiederaufbau (aimed towards financing of

loans to very Small, Small and Medium enterprises) in the amount of EUR 15,000 thousand (BGN equivalent: 29,337 thousand) – fully utilised;

• European Fund for Southeast Europe (aimed towards financ-ing of loans to very Small, Small and Medium enterprises and housing improvement loans of Private Individuals) in the amount of EUR 15,000 thousand (BGN equivalent: 29,337 thousand) – fully utilised;

• European Bank for Reconstruction and Development (aimed to-wards financing of energy efficiency loans to Private Individu-als) in the amount of EUR 10,000 thousand (BGN equivalent: 19,558 thousand) – partially utilised;

• European Investment Bank (aimed towards financing of loans to very Small, Small and Medium enterprises) in the amount of EUR 20,000 thousand (BGN equivalent: 39,117 thousand) – still to be utilised;

• State Fund Agriculture (aimed towards financing of loans to ag-ricultural producers) – partially utilised;

• ProCredit Holding (aimed towards financing of loans to very Small, Small and Medium enterprises) in the amount of EUR 4,300 thousand (BGN equivalent: 8,410 thousand) – fully uti-lised.

As of 31 December 2011 the Group did not have any defaults of principal, interest or other breaches with respect to its borrowed funds. The outstanding amount of the liabilities to institutions is presented in the table below:

2011 2010Kreditanstalt für Wiederaufbau (KfW) 73,574 33,587European Bank for Reconstruction and Development (EBRD) 31,160 39,358European Fund for Southeast Europe (EFSE) 29,491 17,652Black Sea Trade and Development Bank (BSTDB) 18,727 28,476ProCredit Holding 8,549 19,563State Fund Agriculture 1,969 –Total liabilities to institutions 163,470 138,636

25. Subordinated debt The Group has subordinated debt from the SNS Institutional Micro-finance Fund. The principal amount (BGN 7,823 thousand) of the subordinated debt is included in Tier 2 equity for capital adequacy purposes. 26. Hybrid capital The Group has hybrid capital solely from ProCredit Holding. The principal amount (BGN 61,609 thousand) of the hybrid capital is included in Tier 2 equity for capital adequacy purposes. 27. Other liabilities

2011 2010Creditors 1,704 1,517Other due payments 929 1,287Deferred income 722 639Other accruals 439 570Non-income taxes payable 275 186Total other liabilities 4,069 4,199

28. Share capital and share premium

Shareholder 2011 2010 Share capital % Share capital % and share and share premium premium ProCredit Holding 94,362 81% 90,741 80%Commerzbank 22,276 19% 22,276 20%Total share capital and share premium 116,638 100% 113,017 100%

As of end 2011 the registered capital of the bank was divided into 113,142 thousand shares with a nominal value of BGN 1 each. All shares confer equal voting power and are fully paid.

29. Retained earnings and reserves

2011 2010Legal reserves 3,971 3,971Other reserves 6,514 6,514Retained profit 10,604 5,935Total retained earnings 21,089 16,420

Dividends of BGN 3,621 relating to the profit for 2010 were de-clared and paid by the bank to its shareholders in 2011. 30. Contingent liabilities and commitments Off-balance sheet commitmentsThe following table indicates the contractual amounts of the Group’s off-balance sheet financial instruments that commit it to extend credit to customers.

2011 2010Commitments to extend credit 107,495 80,656Letters of credit and letters of guarantee 25,712 18,886Total contingencies and commitments 133,207 99,542


Operating lease commitmentsThe Group leases a number of branch premises under operating leases. The leases typically run for a period of up to ten years. The leases are cancellable with prior notification up to six months. As a lessee under operating leases, the Group has committed to make the following minimum rental payments:

2011 2010Up to 1 year 2,796 2,162

Tax uncertaintiesBulgarian tax legislation is subject to varying interpretations and frequent changes. Furthermore, the interpretations of tax legisla-tion by tax authorities as applied to the transactions and activities of the Group may not coincide with those of the Group’s manage-ment. As a result the tax authorities may challenge the Group’s ap-proach to calculating tax losses carried forward as well as assess additional taxes, penalties and interest, which can be significant. Management is of the view that there will be no additional tax li-abilities as of 31 December 2011 and thus no further provision is considered necessary. Assets pledged

Asset Related liability 2011 2010 2011 2010Finance lease receivables 4,852 9,241 6,000 10,397Total 4,852 9,241 6,000 10,397

Pledged assets represent finance lease receivables pledged ac-cording to the terms of loan contracts between ProLease (Bulgaria) EAD and other banks.

31. Related party transactions ProCredit Holding is the ultimate parent and ultimate controlling party of the Group. ProCredit Bank has a stand-by line agreement with ProCredit Holding, directed towards liquidity management, which had not been utilised as of end 2011. The Group has received a loan under a credit line agreement and equity hybrid instruments (notes 24 and 26) from ProCredit Holding. ProCredit Holding is the main shareholder of ProCredit Bank and holds 81% of the bank’s share capital.Commerzbank is also one of the Group’s shareholders and holds 19% of its share capital.As of end 2011 the bank had sold loans under a securitisation agreement in the amount of BGN 107,655 thousand to ProCredit Company EAD and subsequently derecognised these loans from its statement of financial position. ProCredit Company EAD is wholly owned subsidiary of ProCredit Company B.v., which is controlled by ProCredit Holding. The bank does not consolidate ProCredit Company EAD as control over it is ultimately exercised by ProCredit Holding. The bank continues to service these loans and received fees in the amount of BGN 4,411 thousand (note 7). BGN 330 thou-sand of the interest and similar income presented in note 6 consist of interest income resulting from an interest swap deal between the bank and ProCredit Company EAD. The bank has receivables from ProCredit Company EAD in the amount of BGN 7,311 thousand (rep-resenting sold loans to customers) as well as liabilities on current accounts to the company in the amount of BGN 3,610 thousand.The related party transactions were carried out on commercial terms and at market rates. The volumes of related party transac-tions outstanding at year end, and associated expenses and in-come for the year are as follows:

Transactions with shareholders

2011 2010Loans and advances at the beginning of the period 6,932 3,480Net change during the period 7,566 3,452Loans and advances at the end of the period 14,498 6,932

Interest income earned 18 7Other income earned 6 1

Liabilities at the beginning of the period 92,041 79,309Net change during the period (18,603) 12,732Liabilities at the end of the period 73,438 92,041

Interest expense incurred 5,252 5,159Other expenses incurred 1,980 1,863

Transactions with other entities within the ProCredit group

2011 2010Loans and advances at the beginning of the period 982 982Net change during the period – –Loans and advances at the end of the period 982 982

Interest income earned 74 82

Liabilities at the beginning of the period 3,493 7,335Net change during the period (221) (3,842)Liabilities at the end of the period 3,272 3,493

Interest expense incurred – 38Other expenses incurred 1,096 796

In 2011, the total compensation of key management personnel was BGN 514 thousand (2010: BGN 401 thousand).

32. Group entities At 31 December 2011 the bank had a participating interest in its wholly owned leasing company ProLease (Bulgaria) EAD. At year-end the total share capital of the Company was BGN 2,500 thou-sand. The registered capital of the Company is divided into 2,500 shares with a nominal value of BGN 1,000 each. All shares confer equal voting power and are fully paid. The bank also owns the total share capital of ProCredit Properties EAD, which is the co-owner of the head office building of the Group. The registered capital of ProCredit Properties EAD is divided into 165 shares with a nominal value of BGN 5,000 each. All shares confer equal voting power and are fully paid. 33. Capital commitments There were no significant capital commitments undertaken by the Group as of 31 December 2011.

34. Subsequent events There were no events after the reporting date that required addition-al disclosures or adjustments to the Group’s financial statements.


Contact Addresses

Head Office

Sofia 130326 Todor Aleksandrov Blvd.Tel. + 359 2 813 51 00Fax + 359 2 813 51 10

Sofia Branches

Sofia 1233131 Hristo Botev Blvd.Tel. + 359 2 813 51 11Fax + 359 2 813 51 10

Sofia 100053 Dondukov Blvd.Tel. + 359 2 981 26 53Fax + 359 2 981 67 34

Sofia 1612Gotse Delchev Blvd., Block 28Tel. + 359 2 958 94 82Fax + 359 2 958 94 85

Sofia 1359Lyulin 4, Zahari Stoyanov Blvd.,Block 417, Ent. ETel. + 359 2 925 21 61Fax + 359 2 925 20 76

Sofia 15105 Rezbarska St.Tel. + 359 2 942 98 48Fax + 359 2 942 98 10

Sofia 1712Mladost 3, Aleksandar Malinov Blvd., opposite Block 310Tel. + 359 2 875 02 68Fax + 359 2 875 00 84

Sofia 1000151 G. S. Rakovski St.Tel. + 359 2 981 65 76Fax + 359 2 981 65 39

Sofia 160650 Konstantin Irechek St.Tel. + 359 2 815 46 60Fax + 359 2 815 46 61

Sofia 1220Lomsko Shosse Blvd., Block 171Tel. + 359 2 936 25 23 Fax + 359 2 936 20 97

Sofia 111349 Geo Milev St., Block 19Tel. + 359 2 971 00 51Fax + 359 2 971 00 52

Sofia 111315 Geo Milev St.Tel. + 359 2 973 36 12Fax + 359 2 973 39 42

Sofia 112452 Tsar Ivan Assen II St.Tel. + 359 2 815 58 51Fax + 359 2 815 58 54

Sofia 1408131 vitosha Blvd., Block 19, Ent. BTel. + 359 2 953 21 96Fax + 359 2 953 35 61

Sofia 1632Ovcha Kupel, 63 Montevideo Blvd.Tel. + 359 2 956 22 59Fax + 359 2 956 09 99

Sofia 1330Krasna Polyana, 38 vazkressenie Blvd.Tel. + 359 2 920 14 46Fax + 359 2 920 15 41

Sofia 114268 Patriarh Evtimiy Blvd.Tel. + 359 2 895 79 10Fax + 359 2 895 79 11

Sofia 130326 Todor Aleksandrov Blvd.Tel. + 359 2 813 57 70Fax + 359 2 813 57 74

Sofia 170017 Akad. Boris Stefanov Blvd.Tel. + 359 2 962 23 91Fax + 359 2 962 43 28

Sofia 130141 Kyaginia Maria Luiza Blvd.Tel. +359 2 889 94 45Fax +359 2 889 90 46


Other Branches

Assenovgrad 42306 Maritsa St.Tel. + 359 331 6 31 30Fax + 359 331 6 31 28

Blagoevgrad 27001 Krali Marko St.Tel. + 359 73 83 58 40Fax + 359 73 88 28 53

Burgas 80001 Mitropolit Simeon St.Tel. + 359 56 89 64 00Fax + 359 56 89 64 40

Burgas 8000Demokratsiya Blvd., Block 117Tel. + 359 56 80 83 60Fax + 359 56 80 83 69

Burgas 8000Slaveykov, Block 107Tel. + 359 56 89 66 41Fax + 359 56 89 66 49

Burgas 8000Meden Rudnik, Zone A, Block 117Tel. + 359 56 89 66 02Fax + 359 56 89 66 09

Burgas 8000Transportna St.Tel. + 359 56 89 67 60Fax + 359 56 89 67 72

Burgas 80007 Demokratsiya Blvd.Tel. + 359 56 53 10 99Fax + 359 56 53 10 97

Gabrovo 53001A Konstantin Irechek St.Tel. + 359 66 80 63 70Fax + 359 66 80 60 76

Gorna Oryahovitsa 51001 Tsar Osvoboditel St.Tel. + 359 618 6 45 15Fax + 359 618 6 45 17

Gotse Delchev 290015 Byalo More St.Tel. + 359 751 6 98 41Fax + 359 751 6 08 48

Dobrich 930060 25-ti Septemvri Blvd.Tel. + 359 58 65 14 72Fax + 359 58 65 14 70

Dobrich 930034 Otets Paissiy St.Tel. + 359 58 60 03 36Fax + 359 58 60 03 36

Dupnitsa 260020A Ivan Rilski St.Tel. + 359 701 5 02 10Fax + 359 701 5 27 01

Kazanluk 61003 Aleksandar Batenberg Blvd.Tel. + 359 431 6 36 49Fax + 359 431 6 26 49

Karlovo 43001 20-ti July SquareTel. + 359 335 9 25 33Fax + 359 335 9 25 38

Kurdzhali 66008 Stefan Karadzha St. Tel. + 359 361 6 19 96Fax + 359 361 6 19 98

Montana 340090 3-ti Mart Blvd.Tel. + 359 96 30 11 90Fax + 359 96 30 03 63

Pazardzhik 440019 Bulgaria Blvd.Tel. + 359 34 40 15 40Fax + 359 34 40 15 48

Pazardzhik 44001 Gurko St.Tel. + 359 34 44 00 13Fax + 359 34 44 00 12

Pernik 230030 Targovska St.Tel. + 359 79 60 12 66Fax + 359 79 60 32 66

Pernik 230041 Krakra St.Tel. + 359 79 60 10 05Fax + 359 79 60 12 19

Petrich 285012B Gotse Delchev St.Tel. + 359 745 6 30 65Fax + 359 745 6 30 68

Pleven 580011 Ivan vazov St.Tel. + 359 64 88 16 30Fax + 359 64 88 16 46

Pleven 580017 San Stefano St.Tel. + 359 64 88 06 48Fax + 359 64 88 06 60

Plovdiv 40009-11 Brezovska St.Tel. + 359 32 90 40 88Fax + 359 32 90 40 96

Plovdiv 40002 Krakra St.Tel. + 359 32 27 12 02Fax + 359 32 27 12 12

Plovdiv 40002 Dzhumaya SquareTel. + 359 32 26 15 75Fax + 359 32 26 15 72

Plovdiv 4000Trakiya, Branislav veleshki St., Cinema ComplexTel. + 359 32 27 99 00Fax + 359 32 27 99 01

Plovdiv 4000180 Brezovsko Shosse St., Trakiya Trade Centre Tel. + 359 32 90 48 20Fax + 359 32 90 48 21

73CO N TAC T A D D R E SS E S

Plovdiv 400063 Makedoniya Blvd.Tel. + 359 32 27 19 20Fax + 359 32 27 19 33

Razgrad 720044 Bulgaria Blvd.Tel. + 359 84 66 22 48Fax + 359 84 66 21 92

Russe 70006 Borissova St.Tel. + 359 82 82 06 29Fax + 359 82 82 31 28

Russe 70004 Aleksandrovska St.Tel. + 359 82 81 37 30Fax + 359 82 81 37 37

Svishtov 52501 Nikola Petkov St.Tel. + 359 631 6 46 40Fax + 359 631 6 46 43

Silistra 750025 Simeon veliki St.Tel. + 359 86 82 01 78Fax + 359 86 82 03 26

Sliven 88001 Dragan Tsankov St.Tel. + 359 44 62 44 40Fax + 359 44 62 44 30

Shumen 970020 veliki Preslav Blvd.Tel. + 359 54 83 02 88Fax + 359 54 83 07 96

Shumen 970059A Simeon veliki Blvd.Tel. + 359 54 87 43 87Fax + 359 54 87 43 80

Stara Zagora 600072 Tsar Simeon veliki Blvd.Tel. + 359 42 22 00 07Fax + 359 42 22 00 10



Troyan 56001 vazrazhdane SquareTel. + 359 670 6 05 83Fax + 359 670 6 05 97

Haskovo 630035 Suedinenie Blvd.Tel. + 359 38 66 42 63Fax + 359 38 66 43 64

Haskovo 630010-12 veliko Tarnovo St.Tel. + 359 38 66 00 42Fax + 359 38 66 00 62

Varna 90003 General Kolev St.Tel. + 359 52 68 78 78Fax + 359 52 68 78 68

Varna 9000vladislavovo, Piccadilly Supermarket Tel. + 359 52 59 86 40Fax + 359 52 59 86 43

Varna 900010 yan Palah St., Mambo StoreTel. + 359 52 68 99 00Fax + 359 52 68 99 11

Varna 900055 Osmi Primorski Polk Blvd.Tel. + 359 52 68 07 31Fax + 359 52 68 07 38

Varna 90092 Tsanko Dyustabanov St.Tel. + 359 52 73 93 43Fax + 359 52 73 93 53

Varna 900053-57 Drin St.Tel. + 359 52 68 88 44Fax + 359 52 68 88 50

Varna 900020 27-mi July St.Tel. + 359 52 68 88 44Fax + 359 52 68 88 50

Veliko Tarnovo 50001 Ivaylo St.Tel. + 359 62 60 34 75Fax + 359 62 63 78 26

Veliko Tarnovo 500040 Bulgaria St.Tel. + 359 62 68 23 14Fax + 359 62 68 23 22

Vidin 370027 Targovska St.Tel. + 359 94 60 00 47Fax + 359 94 60 00 97

Vratsa 30001 Targovska St.Tel. + 359 92 66 69 60Fax + 359 92 66 69 62

Yambol 860029 Targovska St.Tel. + 359 46 66 53 90Fax + 359 46 66 53 86


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annual report 2011 · liabilities to banks and financial institutions total equity income statement...

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