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									Annual Report

2   A nnual Repor t 2009

              Key Figures

                                                                                      EUR ’000   Change
                                                                              2009      2008*

              Balance Sheet Data
              Total Assets                                                 732,506    642,439    14.0%
              Gross Loan Portfolio                                         472,732    440,612      7.3%
                       Business Loan Portfolio                             290,290    283,807      2.3%
                             EUR < 10,000                                   49,897      51,293    -2.7%
                             EUR > 10,000 < 50,000                           67,834     67,581     0.4%
                             EUR > 50,000 < 150,000                         52,016      52,177    -0.3%
                             EUR > 150,000                                 120,542    112,757      6.9%
                       Agricultural Loan Portfolio                          33,142      32,302     2.6%
                       Housing Improvement Loan Portfolio                   92,778      75,360   23.1%
                       Other                                                56,522      49,143   15.0%
              Allowance for Impairment on Loans                            (19,166)   (16,045)   19.5%
              Net Loan Portfolio                                           453,566    424,567      6.8%
              Liabilities to Customers                                     638,335    569,532    12.1%
              Liabilities to Banks and Financial Institutions
              (excluding PCH)                                               27,646     18,469    49.7%
              Shareholders’ Equity                                          63,266     50,093    26.3%

              Income Statement
              Operating Income                                              52,117     50,434     3.3%
              Operating Expenses                                            28,159     26,430     6.5%
              Operating Profit Before Tax                                   23,958     24,004    -0.2%
              Net Profit                                                    21,376     19,027    12.3%

              Key Ratios
              Cost/Income Ratio                                             48.5%       45.2%
              ROE                                                           37.7%       41.5%
              Capital Ratio                                                 18.5%       13.5%

              Operational Statistics
              Number of Loans Outstanding                                   99,336     96,420      3.0%
              Number of Loans Disbursed within the Year                     56,446     67,468    -16.3%
              Number of Business and Agricultural
              Loans Outstanding                                             50,454     53,658     -6.0%
              Number of Deposit Accounts                                   399,539    402,214     -0.7%
              Number of Staff                                                1,177      1,158      1.6%
              Number of Branches and Outlets                                    62         60      3.3%

              * Some figures differ from those in the 2008 annual report
                because they have been adjusted to reflect accounting
                                                                                  Contents   3

Mission Statement                                                                   4

Letter from the Board of Directors                                                  5

The Bank and its Shareholders                                                       6

Highlights in 2009                                                                  8

Management Business Review                                                         10

Risk Management                                                                    20

Branch Network                                                                     24

Organisation, Staff and Staff Development                                          26

Business Ethics and Environmental Standards                                        29

The ProCredit Group: Responsible Banks for Small Businesses and Ordinary People    30

ProCredit in Eastern Europe                                                        34

Our Clients                                                                        38

Financial Statements                                                               42

Contact Addresses                                                                  76
4   A nnual Repor t 2009

              Mission Statement

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

              customer service and a wide range of banking products. In our credit operations, we

              focus on lending to very small, small and medium-sized enterprises, as we are convinced

              that these businesses create the largest number of jobs and make a vital contribution to

              the economies in which they operate.

              Unlike other banks, our bank does not promote consumer loans. Instead we focus on

              responsible banking, by building a savings culture and long-term partnerships with our


              Our shareholders expect a sustainable return on investment, but are not primarily

              interested in short-term profit maximisation. We invest extensively in the training of our

              staff in order to create an enjoyable and efficient working atmosphere, and to provide

              the friendliest and most competent service possible for our customers.
                                                                             Le t ter from the Board of Direc tors                  5

Letter from the Board of Directors

When ProCredit Bank Kosovo launched operations in January 2000, it had a single branch in Prishtina
and a staff of 24 dedicated young professionals. Ten years later, it has a network of 62 branches around
the country and over 1,200 employees. Since the first day, the bank has sought to improve financial in-
termediation by offering tailored loans and banking services to small business owners and agricultural
clients as well as a range of accessible deposit products to ordinary people. This simple business model
has enabled the bank to achieve stable growth over the years despite a frequently challenging macroeco-
nomic environment.

In 2009, Kosovo’s economy grew by more than 3.5%1. This was a remarkable development given the sig-
nificant impact of the global recession on most other countries in Southeast Europe. The major drivers of
this expansion were private sector investment and an increase in public spending, including government
infrastructure projects.

ProCredit Bank continued to make an important contribution to sustainable economic development in the
year under review by making credit available to its core target groups. The loan portfolio increased from
EUR 441 million to EUR 473 million. Thanks to a highly responsible approach to lending, portfolio quality
remained good: at the end of December, arrears of more than 30 days amounted to 2.02% of the total loan
portfolio. Demonstrating its commitment to social responsibility, the bank became the first in Kosovo to of-
fer loans specifically for investments in energy-saving measures. This new product – the “Eko Loan” – was
developed in co-operation with the German KfW Entwicklungsbank. It has been very well received by the
bank’s customers, especially by private households seeking to combat the rising cost of electricity bills.

On the deposit side, a growing customer base confirmed the high level of public confidence in the bank.
The number of account holders rose to 320,397 and total deposits increased from EUR 570 million to EUR
638 million. In line with ProCredit Bank’s mission to provide excellent service, investments were made in
modern banking technology to enhance efficiency in the branches, ensuring a pleasant and convenient
customer experience.

The bank posted a net profit for the year of EUR 21.4 million, translating into a return on equity of 37.7%.
This result proved once again that a development-oriented approach to banking can also be commercially            Members of the
successful.                                                                                                       Board of Directors
                                                                                                                  as of December 31, 2009:
As in previous years, one of the bank’s major priorities in 2009 was to provide staff with intensive training
                                                                                                                  Dr. Klaus Glaubitt
and opportunities for professional development. A total of EUR 584,000 was invested in this area, both in
                                                                                                                  Helen Alexander
local courses and in international programmes, workshops and seminars offered by the ProCredit group.
                                                                                                                  Rainer Ottenstein
Continuous training at all levels throughout the bank helps to ensure that staff are able to develop their
                                                                                                                  Frieder Wöhrmann
professional skills and broaden their horizons. Nevertheless, as the bank continues to grow, it is equally
                                                                                                                  Philip Sigwart
important to recruit individuals who have the necessary integrity, potential and motivation, and who iden-
tify with the bank’s value-driven approach to business.
                                                                                                                  Members of the
The impressive results recorded for the year – and indeed for the past decade – are thanks primarily to           Management Board
the commitment of the bank’s employees and the guidance of a strong management team. On behalf of                 as of December 31, 2009:
the Board of Directors, I would like to thank the entire staff for their efforts. In particular, I wish to con-   Philip Sigwart
gratulate the bank on the occasion of its tenth anniversary in 2010. In the coming year and beyond, I am          Eriola Bibolli
convinced that ProCredit Bank will continue to fulfil its mission to offer a valuable and professional service    Florin Lila
that at the same time also sets standards for the development of Kosovo’s banking sector.                         Ilir Aliu

                                              Dr. Klaus Glaubitt
                                       Chairman of the Board of Directors

    IMF, Aide-Mémoire, 16 September 2009.
6   A nnual Repor t 2009

              The Bank and its Shareholders

              ProCredit Bank Kosovo is a member of the ProCredit          The founding shareholders of ProCredit Bank Kosovo
              group, which is led by its Frankfurt-based parent           were Commerzbank, the EBRD, FMO, IFC, KfW and
              company, ProCredit Holding. ProCredit Holding is            Internationale Projekt Consult (IPC). Over the years,
              the majority owner of ProCredit Bank Kosovo and             ProCredit Holding has consolidated the ownership
              now holds 83.3% of the shares.                              and management structure of all the ProCredit banks
                                                                          to create a truly global group with a clear shareholder
              ProCredit Bank Kosovo was founded in January                structure and to bring to each ProCredit institution all
              2000 as “Micro Enterprise Bank” by an alliance of           the best practice standards, synergies and benefits
              international development-oriented investors. Their         that this implies.
              goal was to establish a new kind of financial institu-
              tion that would meet the demand of small and very           Today’s shareholder structure of ProCredit Bank Kos-
              small businesses in a socially responsible way. The         ovo is outlined below. Its current share capital is EUR
              primary aim was not short-term profit maximisation          28.05 million.
              but rather to deepen the financial sector and contrib-
              ute to long-term economic development while also
              achieving a sustainable return on investment.

                Shareholder                 Sector                   Headquarters              Share             Paid-in Capital
                (as of Dec. 31, 2009)                                                                                   (in EUR)
                ProCredit Holding           Investment               Germany                 83.33%                 23,374,400
                Commerzbank AG              Banking                  Germany                 16.67%                  4,675,600

                Total Capital                                                                  100%                 28,050,000

                                 ProCredit Holding is the                 IPC is the leading shareholder and strategic
                                 parent company of a global               investor in ProCredit Holding. IPC has been
              group of 22 ProCredit banks. ProCredit Holding              the driving entrepreneurial force behind the
              was founded as Internationale Micro Investitio-             ProCredit group since the foundation of the
              nen AG (IMI) in 1998 by the pioneering develop-             banks.
              ment finance consultancy company IPC.
                                                                          ProCredit Holding is a public-private partnership.
              ProCredit Holding is committed to expanding ac-             In addition to IPC and IPC Invest (the investment
              cess to financial services in developing countries          vehicle of the staff of IPC and ProCredit), the other
              and transition economies by building a group of             private shareholders of ProCredit Holding include
              banks that are the leading providers of fair, trans-        the Dutch DOEN Foundation, the US pension fund
              parent financial services for very small, small             TIAA-CREF, the US Omidyar-Tufts Microfinance
              and medium-sized businesses as well as the                  Fund and the Swiss investment fund responsAbil-
              general population in their countries of opera-             ity. The public shareholders of ProCredit Holding
              tion. In addition to meeting the equity needs of            include KfW (the German promotional bank), IFC
              its subsidiaries, ProCredit Holding guides the de-          (the private sector arm of the World Bank), FMO
              velopment of the ProCredit banks, provides their            (the Dutch development bank), BIO (the Belgian
              senior management, and supports the banks in                Investment Company for Developing Countries)
              all key areas of activity, including banking opera-         and Proparco (the French Investment and Promo-
              tions, human resources and risk management.                 tions company for Economic Cooperation).
              It ensures that ProCredit corporate values, in-
              ternational best practice procedures and Basel              ProCredit Holding has an investment grade rating
              II risk management principles are implemented               (BBB-) from Fitch Ratings Agency. As of the end of
              group-wide in line with standards also set by the           2009, the equity base of the ProCredit group is
              German supervisory authorities.                             EUR 388 million. The total assets of the ProCredit
                                                                          group are EUR 4.9 billion.
                                                                             Th e B a n k a n d i t s S h a r e h o l d e r s   7

                         Commerzbank is one of      Commerzbank AG is the parent company of a
Germany’s leading banks for private and corpo-      global financial services group. The group’s op-
rate customers. Following the merger of Dresdner    erating business is organised into six segments
Bank and Commerzbank in May 2009, its custom-       providing each other with mutually beneficial
ers will in future have access to around 1,200      synergies: Private Customers, Mittelstandsbank
branches, the largest branch network of any Ger-    (SME bank), Central & Eastern Europe, Corporates
man private bank. The new Commerzbank has           & Markets, Asset Based Finance and Portfolio Re-
approximately 15 million private and corporate      structuring Unit.
customers worldwide, who can now enjoy an even
broader and more attractive range of Commerz-       Today some 30% of German foreign trade is chan-
bank products and advisory services.                nelled through the new Commerzbank, the lead-
                                                    ing export financier for the German industry.
The new Commerzbank promises to be an even          The bank is directly represented in 46 countries
stronger and more reliable partner for corporate    as well as through a network of more than 6,000
customers, particularly export-dependent small      banking relationships worldwide.
and medium-sized firms (SMEs). It also manages
major corporate customers and institutions in       Commerzbank is well positioned in Central and
Europe as well as multinational enterprises. In     Eastern Europe, serving more than 3.7 million
addition, the new Commerzbank is also strength-     customers in the region. In Poland the bank holds
ening its position as a leading export financier,   a 70% stake in BRE Bank, Poland’s third-largest
supporting its customers in Germany and around      financial institution. In Ukraine it is the majority
the world.                                          shareholder of Bank Forum – a universal bank with
                                                    a nationwide network. Currently Commerzbank
                                                    operates in more than ten countries in the region.
8   A nnual Repor t 2009

              Highlights in 2009

              • ProCredit Bank Kosovo was serving more
                than 80,700 loan clients and around 240,000
                retail customers at the end of the year. The
                loan portfolio amounted to EUR 473 million,
                representing an increase of 7.29% over 2008.
                Total deposits had grown by 12.1% to EUR
                638 million.

              • In line with its mission to support sustainable
                development, the bank began offering energy
                efficiency loans in March. We developed the
                “Eko Loan” with technical assistance from
                KfW Entwicklungsbank to encourage busi-
                ness clients and private households to invest
                in energy-saving measures such as modern
                central heating systems and better insula-
                tion. Underscoring its commitment to social
                responsibility, ProCredit Bank was the first
                bank in Kosovo to provide tailored products
                for this purpose.

              • ProCredit Bank was recognised as the best
                bank in Kosovo for the second year running
                by The Banker and received the same acco-
                lade for the ninth consecutive year from the
                well-known British magazine Finance Central

              • In line with its efforts to maintain excellent
                customer service, the bank became the first
                institution in Kosovo to introduce teller cash
                recyclers. These units help to improve ef-
                ficiency by automating the handling of cash
                by branch staff, resulting in a shorter waiting
                time for our clients.

              • As part of our ongoing initiative to promote
                financial literacy from a young age, we pro-
                duced a colourful and engaging booklet
                called EDUKids in co-operation with the Min-
                istry of Education. A central aim of the pub-
                lication is to inform its young readers about
                the importance and advantages of saving.
                Each branch also held an open public event
                to encourage youngsters to visit the bank and
                open a deposit account.

              • The bank organised the fifth ProKid Games,
                involving more than 1,600 children from all
                over Kosovo. The event took place at a leisure
                                         Highlights in 2009   9

    centre and combined sports competitions
    with an entertaining educational programme.
    Schoolchildren, teachers and representatives
    from the Ministry of Education all praised the
    Games, part of which were broadcast on a na-
    tional television station during the timeslot
    provided for children’s programming.

•   ProCredit Bank increased its product range
    for business clients by introducing the Visa
    Business Enterprise debit card and the Visa
    Business Globe credit card. Both products
    enable cardholders to make electronic pay-
    ments at Visa merchant terminals worldwide.

•   We continued organising and participating in
    projects to improve the quality of life in the
    communities we serve. Our neighbourhood
    activities in 2009 included clearing litter from
    in main streets and planting trees and flowers
    in parks and other public places. ProCredit
    Bank also made donations to help build play
    areas for nursery schools and fund books for
    children’s libraries.
10   A nnual Repor t 2009

               Management Business Review

                                   Management            Ilir Aliu
                                   from left to right:   Deputy CEO

                                                         Eriola Bibolli
                                                         Deputy CEO

                                                         Florin Lila
                                                         Deputy CEO

                                                         Philip Sigwart
                                                                                        M anagement Business Re vie w   11

Political and Economic Environment                           investments remain the main drivers of growth,
                                                             which is expected to rise again in 2010.
The first complete year of independence was a
largely successful period for Kosovo in political            Following a 9.4% increase in consumer prices in
and economic terms. The UN Interim Adminis-                  2008, the annual rate of inflation turned negative
tration Mission in Kosovo (UNMIK) handed over                in 2009, declining by an estimated 2.2%. This
most of its responsibilities to the EU Rule of Law           decrease is mainly attributable to the decline in
Mission (EULEX) in 2008, maintaining a presence              food and oil prices.
only in the northern municipalities. The EU civil-
ian mission has since continued operating with a             Falling demand from export markets contributed
neutral status under the general framework of UN             to a further expansion of the trade deficit. The
Security Council Resolution 1244.                            current account deficit was expected to widen
                                                             from 24.1% to 27.3% of GDP in 2009. Although it
By the end of the year, 63 states had recognised             will have a limited effect on economic growth, the
Kosovo’s independence, which was declared in                 growing deficit remains an important concern for
February 2008. The Serbian government contin-                sustainable macroeconomic stability.
ues to oppose independence, however, and main-
tains a strong influence on the Serb community               The new taxation system introduced in early
in Kosovo.                                                   2009 has improved the government’s budget.
                                                             Revenues were equivalent to an estimated 29.5%
Despite the combined efforts of Kosovar authori-             of GDP. However, the high unemployment rate
ties and EULEX, the security situation remains               (43%)2 remains a serious economic problem, es-
fragile in Mitrovica. This is a critical issue for           pecially since many people who are registered as
long-term stability. Nevertheless, internal secu-            unemployed have been out of work for over 12
rity continued to improve in 2009: the Kosovo Se-            months.
curity Force was launched in January, and almost
all of the Kosovo Serb police officers who went on           Kosovo remains one of the most underdeveloped
strike in the previous year returned to work.                countries in the region. Recent government in-
                                                             frastructure investments have been limited and
The municipal elections in November, which were              mainly concentrated on transport routes. Prob-
won by the Democratic Party of Kosovo, met inter-            lems with the electricity and water supply remain
national standards and attracted a voter turnout             the key areas to facilitate domestic production
of around 45%. Other significant events included             and promote foreign direct investment.
the entry of Kosovo as a member of the IMF and
the World Bank, which will spur economic reform
and contribute to long-term development.                     Financial Sector Developments

Despite the effects of the global recession, the             The international financial crisis has had only a
economy of Kosovo and most of its neighbour-                 moderate impact on institutions in Kosovo, most
ing countries performed reasonably well in                   of which have no major exposures in foreign mar-
2009. The IMF projected GDP per capita to reach              kets. The banking system remained sound in the
EUR 1,731 in 2009, representing GDP growth of                year under review and operations continued as
around 3.8% (2008: 5.4%).1 Consumption and                   usual.

                                                              There were no major entrants or acquisitions in
    Macroeconomic data based on IMF, Aide-Mémoire,            2009. The banking sector consists of eight com-
    16 September 2009.                                       mercial banks, six of which are foreign-owned.
    CIA Factbook,       All of these institutions continued to expand their
    tions/the-world-factbook/geos/kv.html.                   networks, increasing the total number of branch-
    Financial sector data based on Central Bank of Kosovo,
                                                             es in Kosovo from 287 to 292.3
    “Monthly Statistics Bulletin”, December 2009,
12   A nnual Repor t 2009

               Asset growth was steady: the sector’s total as-      ProCredit Performance
               sets increased by 21.9% to EUR 2.2 billion, com-
               pared to growth of 26% in 2008. Foreign institu-     ProCredit Bank Kosovo is part of a global bank-
               tions accounted for 91.6% of total assets. The       ing group consisting of 22 institutions. Since its
               largest three banks – ProCredit Bank, Raiffeisen     foundation a decade ago, the bank has been the
               Bank and Nova Ljublanska Banka – dominated           leader in the Kosovo market.
               the market with a 77.4% share of total assets.
               Reflecting the high level of public trust in the     Customer orientation and strong risk manage-
               institution, ProCredit Bank remained the market      ment systems lie at the heart of our approach,
               leader in terms of both total assets (33.2%) and     and this has also made the institution a pillar
               customer deposits (36.6%).                           in the development of Kosovo’s financial sector.
                                                                    Furthermore, with tailored financial support, the
               Total deposits in the sector grew by 20.8% to        small and medium-sized businesses that repre-
               EUR 1.7 billion. Deposits from private individuals   sent our core target groups are able to expand,
               continued to comprise the majority of the sec-       create employment opportunities and make a sig-
               tor’s deposits (59.5%). Most customer funds are      nificant contribution to economic growth.
               placed on a short-term basis with a maturity of
               less than 12 months.                                 When the bank was established, Kosovo’s econo-
                                                                    my was very weak. Unemployment was high, and
               Although banks introduced more cautious lend-        there was minimal public confidence in the finan-
               ing policies in response to slower economic          cial sector due to the retreat of Yugoslav banks
               growth, the total volume of loans increased by       during the conflict in 1999. It was not easy to re-
               8.92%, reaching EUR 1.3 billion at the end of De-    establish trust in the banking sector. However,
               cember. The proportion of loans to total assets      our straightforward and transparent approach
               decreased from 65.4% to 58.5%.                       yielded good results. At a time when most people
                                                                    kept their money under the mattress, our staff
               Instalment loans continued to represent the larg-    worked hard to foster a savings culture, explain-
               est share of the consolidated portfolio. These       ing that ProCredit Bank is a reliable institution
               were mainly business loans to finance invest-        with a development goal. By offering simple and
               ments in real estate or other fixed assets. Loans    attractive products and excellent customer care,
               to SMEs generate the largest part of most finan-     we have since earned the trust of over 320,000
               cial institutions’ income and are the main vehicle   account holders.
               for private investment in Kosovo.
                                                                    Similarly, we believe in a responsible approach
               Domestic households are playing an increasingly      to the lending business. We apply a unique credit
               important role in the financial sector, however.     technology and take care to prevent our clients
               During the first half of 2009, banks introduced      from becoming overly indebted. In this way, the
               several new products aimed at private individu-      bank has been able to increase its loan portfolio
               als. These included ProCredit Bank’s “Eko Loans”     and maintain good portfolio quality despite the
               to finance energy-saving home and office im-         uncertain economy.
               provements, TEB’s “Starcard” consumer credit
               card, and a range of deposit and loan products       A strong focus on long-term client relationships
               from Raiffeisen Bank.                                is key to our success. Our staff are trained to ana-
                                                                    lyse each loan application in close detail without
               The Central Bank of Kosovo made only minor           relying on credit scoring systems. As part of their
               amendments to the existing regulatory frame-         training, our employees learn how to develop a
               work, and these did not affect banks’ lending ac-    full understanding of their clients’ businesses
               tivities or deposit mobilisation strategies.         and how best to build transparent and durable
                                                                    relationships. Branches also organise informa-
                                                                    tive events that aim to increase levels of finan-
                                                                    cial literacy and encourage people from all back-
                                                                    grounds to approach the bank.
M anagement Business Re vie w   13
14   A nnual Repor t 2009

               ProCredit Bank once again achieved good results                           significantly expand credit operations. In line
               in 2009. The liquidity position remained good                             with this aim, the Credit Department increased
               thanks to a growing and well-diversified deposit                          its staff capacity and implemented a broad range
               base, and the loan portfolio also showed stable                           of training measures, which also helped to en-
               growth. The following sections provide a more                             sure that our employees continued to provide an
               detailed overview of the bank’s development in                            excellent level of customer service.
               these areas.
                                                                                         The bank launched a major campaign in 2009 to
                                                                                         increase public awareness of its full range of fi-
               Lending                                                                   nancial services for small and medium business-
                                                                                         es, positioning itself as a reliable “house bank”
               ProCredit Bank actively continued its lending                             for all their day-to-day needs. Staff also visited
               operations throughout the year, supporting the                            the workplaces of potential clients to promote
               development of Kosovo’s economy. Results con-                             our tailored loan products, taking the first step
               firmed our position as the leading provider of                            to build long-term relationships. As a result of
               credit in the market with a 36.7% share of total                          these activities, the number of loans in the busi-
               loans.4                                                                   ness portfolio reached 28,422 with a combined
                                                                                         volume of EUR 290 million. Business loans repre-
               The loan portfolio developed steadily in all seg-                         sented 61.4% of the portfolio at year-end.
               ments, increasing by 7.3% to reach EUR 473 mil-
               lion. The number of outstanding loans grew by                             Very small business loans (up to EUR 10,000) ac-
               3.03% to more than 99,300.                                                counted for 10.6% of the total portfolio.

               Reflecting our focus on providing financing to                            Reflecting the bank’s strong focus on serv-
               very small and small businesses, the sector that                          ing small business clients, the volume of small
               makes the greatest contribution to economic                               loans (EUR 10,001 to EUR 150,000) increased by
               growth in Kosovo, the average outstanding loan                            6.51%. This segment contributed 35.4% of the
               amount was EUR 4,759.                                                     overall portfolio.

               As a responsible lending institution, our goal was                        Growth in the portfolio of loans to medium-sized
               to maintain good portfolio quality rather than to                         enterprises was moderate, at 8.0%. Loans out-
                                                                                         standing in this category (above EUR 150,000)
                    Based on ProCredit Bank’s audited financial statements               rose to EUR 149 million. At the end of the year,
                    for 2009 as well as central bank data for December

               Loan Portfolio Development                                                Number of Loans Outstanding – Breakdown by Loan Size*

               Volume (in EUR million)                           Number (in ’000)
               500                                                                 100   5.4%                                                 0.78%
               450                                                                 90
                                                                                   80                                                         o.34%
               350                                                                 70
               300                                                                 60
               250                                                                 50
               200                                                                 40
               150                                                                 30
                                                                                   20    46.8%
                   50                                                              10
                   0                                                               0
                        Jun Dec   Jun Dec     Jun Dec    Jun Dec        Jun Dec
                         05       06           07         08             09

                          < EUR 10,000                  > EUR 150,000                            < EUR 1,000               EUR 50,001 – EUR 150,000
                          EUR 10,001 – EUR 50,000       Total number outstanding                 EUR 1,001 – EUR 10,000    > EUR 150,000
                          EUR 50,001 – EUR 150,000                                               EUR 10,001 – EUR 50,000   * 31 Dec 2009
                                                                                                               M anagement Business Re vie w         15

the bank had a total of EUR 35.9 million in over-
drafts to business clients and EUR 14.0 million
in bank guarantees and documentary business

As in previous years, we aimed to make credit
more widely available to the agricultural sector.
By providing financial support to farmers and
other producers, our long-term goal is to help
increase incomes and employment opportuni-
ties in rural areas. To reach this target group, we
conducted frequent direct promotions and took
part in around 50 regional field days for farming
communities in co-operation with the Ministry of
Agriculture, Forestry and Rural Development. The
agricultural loan portfolio represented 7.0% of
the total portfolio.

At the beginning of the year the bank launched
“Eko Loans” for businesses and private custom-
ers who wish to make investments in energy
efficiency measures such as efficient heating
systems and better insulation. Reflecting our
commitment to social responsibility, we were the
first bank in Kosovo to offer such a product. At
year-end our portfolio of energy efficiency loans
amounted to EUR 3.28 million and consisted of
669 loans.

Although our core focus is on enterprise clients,
we also offer financing to private individuals who
receive a regular salary through a current account
at the bank. Loans outstanding in this category

Business Loan Portfolio – Breakdown by Maturity                          Loan Portfolio Quality (arrears >30 days)

in %                                                                     in % of loan portfolio
100                                                                      5.0
90                                                                       4.5
80                                                                       4.0
70                                                                       3.5
60                                                                       3.0
50                                                                       2.5
40                                                                       2.0
30                                                                       1.5
20                                                                       1.0
 10                                                                      0.5
 0                                                                         0
       Jun     Dec    Jun   Dec   Jun   Dec   Jun   Dec      Jun   Dec         Jun   Dec    Jun   Dec    Jun   Dec    Jun    Dec    Jun   Dec
        05             06          07          08             09                05           06           07           08            09

             < 12 months    12 – 24 months     > 24 months                     Net write-o s:       in 2006: EUR 1,084,003 in 2008: EUR 2,708,922
                                                                               in 2005: EUR 581,236 in 2007: EUR 999,146    in 2009: EUR 2,871,525
16   A nnual Repor t 2009

               amounted to EUR 114 million, most of which                    Our branches organised regular informative
               was accounted for by home improvement loans                   events for their local communities to present the
               (76.8%). Our prudent approach to providing con-               bank’s range of savings options. These included
               sumer loans was confirmed by the low rate of ar-              presentations for the general public, at which our
               rears in this segment: the portfolio at risk (PAR             staff explained how banks operate and the vari-
               – loans overdue by more than 30 days) did not                 ous advantages of holding a deposit account, and
               exceed 0.46% in 2009.                                         evening discussions with small business owners,
                                                                             many of whom were already loan customers.
               For the entire loan portfolio, PAR increased from             These activities underlined our commitment to
               1.42% to 2.02%, and the proportion of loans                   being a true “neighbourhood bank”.
               overdue by more than 90 days rose to 1.42%.
               A decrease in remittances and reduced consump-                As in previous years, we ran a large-scale sum-
               tion were the main reasons for this development,              mer savings campaign from mid-June until the
               and are primarily attributable to the international           end of August. This was aimed to appeal in par-
               economic crisis.                                              ticular to the large number of emigrant workers
                                                                             from Kosovo who return to visit their families dur-
               Our loan officers continued to maintain close                 ing the holidays. The remittances from this target
               personal contact with their clients and made an               group represent a major source of income for the
               intensive effort to recover overdue loans, initiat-           domestic economy.
               ing legal proceedings if necessary. Net write-offs
               totalled EUR 2.87 million and were equivalent to              As a result of these efforts, the volume of depos-
               0.61% of the year-end portfolio. Loan loss provi-             its from private individuals grew by 25.6% to EUR
               sions were equivalent to 4.05% of the portfolio               418 million. Deposits held by business clients
               and covered the PAR over 30 days by a comfort-                decreased by 10.0% due to withdrawals by Post
               able margin of 201%.                                          and Telecommunications of Kosovo, and at year-
                                                                             end contributed 32.4% of the deposit base. Term
                                                                             deposit accounts constituted the majority of all
               Deposits and Other Banking Services                           customer funds (56.2%), followed by current ac-
                                                                             counts (24.5%) and regular savings accounts
               ProCredit Bank continued to record strong growth              (17.3%).
               in its deposit operations in 2009, maintaining its
               leading position in the market. Total customer                The number of people who receive their salaries
               funds grew by 12.1% to EUR 638 million.                       through a current account at ProCredit Bank con-

               Customer Deposits                                             Number of Customer Deposits – Breakdown by Size*

               Volume (in EUR million)                    Number (in ’000)
               700                                                     700   2.2%                                                 0.3%

               600                                                     600                                                        o.1%
               500                                                     500

               400                                                     400

               300                                                     300   19.8%

               200                                                     200                                                       68.3%
               100                                                     100
                 0                                                     0
                     Jun Dec   Jun Dec   Jun Dec   Jun Dec   Jun Dec
                      05        06        07        08        09

                      Term     Savings    Sight    Total number                      < EUR 100                EUR 10,001 – EUR 50,000
                                                                                     EUR 101 – EUR 1,000      EUR 50,001 – EUR 100,000
                                                                                     EUR 1,001 – EUR 10,000   > EUR 100,000
                                                                                                              * 31 Dec 2009
                                                                                                M anagement Business Re vie w   17

tinued to grow as we promoted our payroll service               In addition to a nationwide network of 62 branch-
to employers. Many salary receivers also opened                 es and service points in urban and rural loca-
a savings account to set aside a fixed amount of                tions, the bank operates a total of 122 ATMs,
their income on a regular basis. These accounts                 12 of which were installed in 2009. We also in-
offer a favourable interest rate and allow custom-              stalled 348 POS terminals at clients’ workplaces
ers to withdraw funds with no penalty fee.                      in 2009, bringing the total network to 2,313. The
                                                                number of electronic payment transactions ex-
The Retail Department continued to promote pay-                 ecuted via these terminals rose by 43.0% to more
ment cards as a secure and convenient alternative               than 81,000.
to cash. The number of debit cards in circulation
grew to more than 200,000, while the number of
charge cards rose to 5,510.

Domestic Money Transfers                                        International Money Transfers

Volume (in EUR million)                     Number (in ’000)    Volume (in EUR million)                     Number (in ’000)
700                                                       210   600                                                       120

600                                                       180   500                                                       100

500                                                       150                                                             80
400                                                       120
                                                                300                                                       60
300                                                       90
                                                                200                                                       40
200                                                       60
                                                                100                                                       20
100                                                       30

  0                                                       0       0                                                       0
      Jan– Jul– Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul-               Jan– Jul– Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul-
       Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec                         Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
        05       06        07        08        09                       05       06        07        08        09
        Incoming    Outgoing    Number                                  Incoming    Outgoing    Number
18   A nnual Repor t 2009

               Our payment business continued to develop fa-          In addition to achieving a steady increase in the
               vourably. In total, we handled over 120,000 do-        volume of saving and term deposit accounts, the
               mestic and international transfers with a com-         bank strengthened its long-term funding base by
               bined volume of EUR 348 million, representing an       increasing external borrowings by EUR 17.5 mil-
               increase of 15.6% over 2008.                           lion to EUR 26.2 million. The bank signed new
                                                                      subordinated loans with responsAbility Global
               At ProCredit Bank, we are committed to invest-         Microfinance Fund, Credit Suisse Microfinance
               ing in modern banking technology to ensure             Fund, and the European Fund for Southeast Eu-
               that our customers receive prompt and efficient        rope (EFSE). The bank also restructured its out-
               service. In 2009 we became the first bank in Kos-      standing subordinated loans with EFSE, increas-
               ovo to install teller cash recyclers in many of our    ing the total capital adequacy ratio to 18.5%
               branches. These units automate cash handling           (2008: 13.5%).
               and increase on-site security. We also provide
               an Internet banking platform, which continued to       PAR over 30 days rose by 0.6 percentage points
               grow in popularity with over 8,700 registered us-      to 2.02%. Given the stable rate of arrears, provi-
               ers by the end of the year, and an SMS notification    sions for loan impairment were raised from EUR
               service for customers who wish to receive details      16.0 million to EUR 19.1 million. This increase re-
               of recent account activity on their mobile phones.     flects the moderate growth of the loan portfolio
                                                                      and underscores ProCredit Bank’s prudent, con-
                                                                      servative approach to the lending business.
               Financial Results
                                                                      Total operating income after provisions amounted
               ProCredit Bank continued to develop its opera-         to EUR 52.1 million, representing an increase of
               tions well in 2009, as reflected in its financial      3.34% over the previous year. Net interest income
               results for the year. Despite a slightly depressed     amounted to EUR 51.8 million. The level of net in-
               economy, the bank showed solid growth. Total           terest income is determined primarily by the vol-
               assets grew by 14.0% to EUR 733 million. The           ume of the bank’s lending activities, which gener-
               net loan portfolio increased by 6.8% to EUR 454        ated 90.0% of total interest income in 2009.
               million and accounted for 61.9% of total assets at
               year-end.                                              Net fee and commission income rose by 22.8% to
                                                                      EUR 5.28 million. This growth was mainly a result
               Despite modest expansion of the loan portfolio         of the favourable development of domestic and
               and a global shortage of liquidity, the bank main-     international payment transfers, the documen-
               tained a very strong liquidity position. Highly liq-   tary credit business and card operations. Income
               uid assets accounted for 32.1% of total assets at      from transfers amounted to EUR 3.30 million,
               year-end. Excess liquidity was invested in finan-      while fees and commissions for card products
               cial instruments issued by highly rated European       generated a total of EUR 2.09 million.
               governments and commercial banks domiciled in
               OECD countries rated “AA-” or better. Addition-        Total operating expenses were EUR 28.2 million,
               ally, excess liquidity in the amount of EUR 54.1       representing an increase of 6.5%. The cost-to-in-
               million was placed at the Central Bank of Kosovo       come ratio remained stable, at 48.5% compared
               to provide contingency funds for any adverse           to 45.2% in 2008.
               scenarios resulting from the financial sector cri-
               sis. The bank has very conservative investment         With strong results, the bank paid out dividends
               guidelines and avoids all types of speculative         totalling EUR 19.0 million from the previous year’s
               transactions.                                          profits in September. The shareholders confirmed
                                                                      their long-term support of the institution’s mis-
               The funding base for lending activities remained       sion by increasing the total paid-in capital by EUR
               well diversified. Customer deposits, the primary       10.0 million at the same time.
               funding source, grew by 12.1% to EUR 638 million
               and were thus equivalent to 140.7% of the loan         ProCredit Bank recorded a net profit for the year
               portfolio at year-end.                                 of EUR 21.4 million, translating into a return on
                                                                                M anagement Business Re vie w   19

equity of 37.7% (2008: 41.5%). The return on         small, small and medium-sized enterprises. Our
assets also fell, but only slightly, amounting to    staff will also run frequent promotions and cam-
2.92% compared to 3.22% in 2008.                     paigns to foster a savings culture among people
                                                     of all ages.

Outlook                                              Additionally, we plan to restructure and expand
                                                     our network in line with our goal to offer broader
The political and economic environment in Kos-       financial services to a growing number of clients.
ovo remains rather challenging. The young state      We will retain a strong presence in rural areas,
is still highly dependent on international aid and   ensuring that as many people as possible have
the remittances of the diaspora. Long-standing       access to reliable banking services. In this sense,
problems such as unemployment, poverty, and          and by playing an active role in the communities
a high trade deficit are ongoing concerns for the    we serve, we will remain Kosovo’s “neighbour-
government. Furthermore, the inadequate infra-       hood bank”.
structure remains a major impediment to eco-
nomic growth.                                        To provide more efficient service for our custom-
                                                     ers in the capital, we plan to relocate the main
However, the country’s new status as a member        branch in Prishtina to one of the busiest areas in
of the IMF and the World Bank is expected to spur    the city. The new branch will share a building with
reform and economic development. Large-scale         our Business Center, which provides a dedicated
projects have also been scheduled, including a       service for SME clients.
new power plant and a major road from Prishtina
to Durres in Albania. The government is expected     As in previous years, the bank will ensure its con-
to privatise the Post and Telecommunications         tinued success by investing significant resources
Company of Kosovo (PTK), which would generate        in staff training. Our employees are our greatest
funds for further infrastructure projects.           asset and play a key role in our pledge to provide
                                                     excellent customer care.
The main priorities for ProCredit Bank in the com-
ing year will be to sustain growth and maintain
high portfolio quality. We will continue to make
credit available to our core target groups of very
20   A nnual Repor t 2009

               Risk Management

               ProCredit Bank has a comprehensive risk man-
               agement system based on international best
               practices which is supported by strong internal
               controls. Our bank is guided by its commitment
               to responsible banking and to the high ethical
               standards set forth in its Code of Conduct. We op-
               erate in accordance with a simple business model
               and offer transparent banking products and serv-
               ices which are reliable and easy for our clients to
               understand. All these factors help us to minimise
               our risk exposure.

               The organisational framework for risk manage-
               ment is defined by the Management Board, which
               bears overall responsibility for this aspect of the
               bank’s operations. Working under the supervi-
               sion of the Management Board, the Risk Depart-
               ment and the Credit Risk Department ensure that
               risk exposures are properly identified and man-
               aged. The tools employed by these departments
               in analysing and addressing risks include con-
               tinuous monitoring using the Key Risk Indicator
               (KRI) system.

               The Management Board has established various
               committees to deal with individual risk areas.
               These bodies include the Credit Risk Manage-
               ment Committee, the Risk Management Commit-
               tee, the Assets and Liabilities Committee (ALCO),
               and the Operational Risk Committee. Members of
               the Management Board participate in all of these
               committees, which provide a decision-making
               structure through which the Board can effectively
               manage risks and ensure that they do not exceed
               the bank’s risk-bearing capacity.

               In 2009 for each risk area we implemented re-
               vised policies, as established by ProCredit Hold-
               ing through the group’s new risk management           procedures. Frequent training measures promote
               policies. These require all ProCredit institutions    transparency in communication throughout the
               to comply with the minimum risk management            institution as well as a high level of risk aware-
               standards of the German Federal Financial Su-         ness among our employees.
               pervisory Authority (BaFin). We submit regular
               reports on our risk position to the Supervisory
               Board and also to ProCredit Holding’s Group Risk      Credit Risk
               Management Department, which provides valu-
               able guidance on all aspects of risk management.      Given the nature of its business, credit risk, or
                                                                     the possibility of losses due to borrowers’ failure
               Our risk management system is supported by            to meet their obligations on time, is a key area of
               our culture of open communication, as well as         risk exposure for the bank. With its focus on indi-
               clearly defined, well-documented processes and        vidual credit assessments, our highly developed
                                                                                               Risk M anagement   21

credit technology facilitates the sound manage-     Our portfolio comprises loans to a large number
ment of credit risk. Each applicant’s business      of clients operating in a variety of sectors, and
and financial situation are carefully analysed by   broad diversification is one of our key risk-mitiga-
the responsible loan officer; group assessments     tion strategies. It is also in line with our mission
or scoring models are not used. The analysis is     to promote the development of very small, small
reviewed by an independent credit committee,        and medium-sized enterprises. In 2009, 71.4% of
which takes the lending decision based on a re-     the loans disbursed were for amounts under EUR
alistic assessment of the client’s requirements     150,000, while the average outstanding amount
and repayment capacity. We strictly adhere to       on December 31 was EUR 4,759. The ten largest
our rule of not granting loans that would cause     exposures accounted for only 6.15% of the total
borrowers to become over-indebted. Following        loan portfolio.
disbursement, the responsible loan officer rigor-
ously monitors the status of the loan and remains
in close contact with the client.
22   A nnual Repor t 2009

               Credit risk is managed by the Credit Risk Manage-      Market Risk
               ment Committee and the Credit Risk Department.
               In 2009, Kosovo also began to feel the effects of      Overall exposure to market risk is low since the
               the global economic crisis, which in turn had an       bank focuses on its core business activities –
               adverse impact on some of our clients. Accord-         lending and deposit-taking – and does not en-
               ingly, the bank strengthened the capacity of the       gage in risky operations such as proprietary trad-
               Credit Risk Department, especially in risk assess-     ing and speculative transactions. Management
               ment and portfolio quality management. In addi-        of market risk focuses on protecting against
               tion, Arrears Recovery Units were established in       the possible adverse effects of interest- and ex-
               all branches to support the loan officers in portfo-   change-rate fluctuations.
               lio monitoring and arrears management.
                                                                      ProCredit Bank operates in various currencies,
               Despite these measures, the portfolio at risk (PAR     and it monitors its net foreign exchange position
               – loans in arrears over 30 days) rose slightly in      on a daily basis with the aim of minimising the
               2009: on December 31 it stood at 2.02%, com-           open currency position (OCP). The average OCP
               pared to 1.42% at the end of 2008. This increase       in 2009 was equivalent to only 0.39% of the total
               reflected the overall deterioration in economic        year-end capital, which prevented exchange rate
               conditions in Kosovo, but it was also due in part      volatility from impacting the bank’s financial re-
               to specific repayment problems encountered by a        sults or equity.
               number of medium-sized borrowers.
                                                                      ProCredit Bank measures and manages its expo-
               Net write-offs at year-end amounted to EUR 2.9         sure to interest rate risk by using duration gap
               million, or 0.61% of the loan portfolio. The allow-    analysis and scenario analysis. Management of
               ance for loan impairment was equal to 4.05% of         interest rate risk is also facilitated by the high
               the loan portfolio, or 201% of the PAR, reflecting     proportion of shorter-term loans in the portfolio:
               the bank’s policy of maintaining sufficient re-        at year-end, only 17.9% of the outstanding loan
               serves at all times to cover credit risk. We closely   volume had a remaining maturity period of more
               monitored all delinquent borrowers and, where          than five years.
               necessary and appropriate, we modified repay-
               ment plans to make allowance for clients’ reduced
               cash flow.                                             Liquidity Risk

               We will continue our rigorous monitoring of cli-       The ALCO monitors the bank’s liquidity posi-
               ents’ businesses in order to maintain loan port-       tion on a weekly basis by analysing the maturity
               folio quality. However, we will place equal em-        structure of its assets and liabilities. The Risk
               phasis on providing financing to support the           Management Committee conducts monthly li-
               development of our customers’ businesses, and          quidity stress tests using worst-case scenarios.
               on strengthening our long-term relationships with
               them.                                                  Loan instalments are typically paid on a monthly
                                                                      basis, generating a stable inflow of cash from a
               Implementation of the group’s new credit risk pol-     large number of borrowers operating in a range
               icies, which require a much more conservative ap-      of sectors and regions. The deposit portfolio is
               proach to credit risk management, was supported        well diversified and the level of concentration is
               by a number of targeted training measures. In the      continuously monitored. At year-end, the bank’s
               coming year we plan to implement the new group         ten largest depositors accounted for 19.0% of its
               policies for small and medium loans.                   total deposits.

                                                                      During 2009, ProCredit Bank had a high level of
                                                                      liquidity despite the global financial crisis. Our
                                                                      liquidity ratios substantially exceeded both the
                                                                      minimum regulatory requirements and our own
                                                                      internal requirements; at year-end, the ratio of
                                                                                                      Risk M anagement   23

highly liquid assets to customer deposits stood        services, our exposure to operational risks has
at 36.8%. We had a loans-to-deposits ratio of          continuously increased.
71.1% (2008: 74.5%). Although we had ample li-
quidity in 2009, we know that we can rely on the       A risk event database (RED) has been imple-
ProCredit group to provide funding support if we       mented and all material risks are recorded in it.
should face liquidity constraints in the future.       Reports summarising the information in the RED
                                                       and analyses of specific risks are provided to the
                                                       Operational Risk Committee to support its regular
Operational Risk                                       monitoring. In addition, the Internal Audit Depart-
                                                       ment evaluates the control mechanisms which are
ProCredit Bank’s approach to the management            in place to facilitate operational risk management.
of operational risk is based on international best
practices in this area. We have implemented the
group’s operational risk management policy,            Capital Adequacy
which is line with the requirements of the German
regulatory authorities. The “four eyes” principle,     Support by our shareholders was strong during
and that of the segregation of duties between          the year. Most notably, they carried out capital
units and departments, are applied wherever ap-        increases totalling EUR 10 million, ensuring the
propriate in our systems, processes and proce-         availability of sufficient funding to support the
dures. This approach, which is supported by in-        bank’s investment programmes and its continued
tensive training at all levels, has proved effective   growth.
in the mitigation of operational risk.
                                                       Despite payment of a gross dividend of EUR
ProCredit defines operational risk as the risk of      18,896,000, our capital adequacy ratio (CAR)
losses resulting from inadequate or failed inter-      consistently exceeded both the local requirement
nal processes, from human error or fraud, from         (ratio of Tier I and Tier II capital to risk-weighted as-
system error, or from external events. Due to the      sets >12%) and the Basel II standard (12%), which
continuous growth of our staff, greater reliance       has also been adopted by the ProCredit group.The
on technological systems and automated proc-           year-end CAR according to local requirements was
esses, and the development of new products and         18.5% (2008: 13.5%).
24   A nnual Repor t 2009

               Branch Network

               ProCredit Bank’s extensive branch network is at              Underscoring our commitment to investing in
               the heart of its operations. Our offices are more            high-quality technology, we became the first
               than an important source of revenue for the insti-           bank in Kosovo to install teller cash recyclers.
               tution, however; they are also the main vehicle              These units both improve the efficiency of cash
               by which we achieve our mission to make reliable             handling in our branches and provide a secure
               and transparent banking services available to                repository for banknotes, thereby reducing the
               everyone in Kosovo.                                          risk of theft. To further enhance our rigorous se-
                                                                            curity standards, we also revised our on-site pro-
               At the end of December, the bank was operating               cedures.
               a total of 62 branches around the country, five of
               which were established in 2009. After a period               With a presence in more than 31 towns and cities,
               of strong network expansion, our main priorities             ProCredit Bank is a true “neighbourhood bank”,
               were to upgrade the technology infrastructure at             able to serve its clients near to their homes as
               our premises and to further strengthen our secu-             well as their workplaces. In line with our efforts
               rity systems. These measures were adopted in                 to increase customer outreach in rural areas, we
               response to the higher crime rates reported in the           opened two sub-branches in village locations.
               country since the economy began to deteriorate.              Our new offices in Pozharana (Gjilan region) and

                                                       Leposaviq                                  Serbia

                                                         Mitrovicë (3)


          Montenegro                                                                    Obiliq
                                       Istog                                              Prishtinë (13)
                                            Skënderaj                                                   Dardanë
                                        Klinë                        Fushë Kosovë (2)            Graçanicë
                            Pejë (4)                                     Malishevë
                               Junik           Rahovec                                           Gjilan (3)
                                           Deçan                         Shtime
                                                            Xërxë                       Ferizaj (3)           Viti
                                                         Mamushë                      Kaçanik

                                         Gjakovë (3)                                     Hani i Elezit (2)

                                                                    Prizren (4)

                       Albania                                                                               Macedonia
                                                                                                 Br anch Ne t work   25

Xerxa (Gjakova region) were the first to bring for-   nia. The main activity of this branch is processing
mal financial services directly to the residents      the payment of custom duties.
of these communities. We also opened another
branch in Ferizaj to meet the increasing demand       In addition to expanding the branch network, we
for our services in the city centre.                  relocated three of our larger offices in Mitrovica
                                                      and Gjilan to more modern premises in conven-
In order to enhance the level of dedicated custom-    ient and visible locations. We also extended the
er care we are able to offer business clients, we     sub-branch in Istog, creating a more spacious and
established a sub-branch in the industrial zone of    secure environment for our clients. Such projects
Prishtina that specialises in serving the SME sec-    will remain a priority in 2010 as we continue to
tor. Additionally, we opened a small office in Hani   upgrade our offices by investing in new technolo-
i Elezit on the south-eastern border to Macedo-       gies.
26   A nnual Repor t 2009

               Organisation, Staff and Staff Development

               ProCredit Bank is widely recognised as one of          sibilities. We strongly encourage the profession-
               the most stable employers in Kosovo, offering          al development of our employees, and around
               its staff both excellent career prospects and fair     170 internal transfers and promotions took place
               remuneration for their work. Our people are our        in 2009. The average age of our staff members is
               greatest asset, and we firmly believe in building      just over 30 years.
               and maintaining long-term employment relation-
               ships with them. In line with this policy, we invest   The Training Department continued to update
               significant resources in training, ensuring that       and implement the successful staff development
               our team has the necessary skills and motivation       programmes that were conceived in previous
               to provide excellent customer service.                 years. In total, the bank organised more than
                                                                      540 training events, translating to over 15,300
               The bank’s proven recruitment strategy is to tar-      person training days. Our intensive investments
               get motivated professionals who not only dem-          in training amounted to EUR 584,000.
               onstrate a high level of potential, but who are
               also able to identify closely with our mission and     Induction training is offered to all new employ-
               corporate values. To increase public awareness         ees over a period of 16 weeks so that they have
               of the opportunities that exist within our institu-    ample time to prepare themselves for a career
               tion, we have a strong presence at university job      with ProCredit Bank. An introductory seminar ex-
               fairs and career events. In 2009, we hired 97 new      plains the history of the ProCredit group and the
               employees. The total number of staff at the end        philosophy behind our value-driven approach to
               of December was 1,177, and staff turnover for the      business. We also provide extensive on-the-job
               year fell from 9.2% in 2008 to 5.5%.                   training to help our trainees acquire a high level
                                                                      of relevant technical competence.
               Given our strong growth, we frequently create po-
               sitions for existing staff seeking greater respon-
                                                       O rg a nis at ion, Sta f f a nd Sta f f D e v el opmen t   27

In response to the changing needs of our custom-
ers, we intensified the enrichment training given
to front-office staff in 2009. This ensured that our
client advisers, cashiers and loan officers were
fully abreast of institutional changes and thus in
a position to offer their clients the best possible

Reflecting our commitment to open communica-
tion, the Training Department introduced a new
grading system for the introductory and enrich-
ment training programmes. Each participant now
receives comprehensive feedback regarding their
technical knowledge and communication skills
as well as an objective personal evaluation from
their mentor or coach.

The ProCredit Academies provide intensive man-
agement training at the group level and are an
invaluable platform for sharing ideas and experi-
ence within the organisation. Three senior man-
agers graduated from the ProCredit Academy in
Germany, while a further three employees at-
tended the part-time programme offered over
three years at this facility. An additional 17 staff
were enrolled at the ProCredit Regional Academy
in Macedonia, and 29 team members attended an
intensive residential language course to improve
the English and communication skills that are so
vital for participation in international training

We are continuously improving our in-house
courses: towards the end of 2009, we began
delivering lessons in English and mathematics
in collaboration with teaching staff from the
ProCredit Academies. At a higher level, specialist
training is organised in close co-operation with
the Kosovo Bankers’ Association and Schwartz
and Partners. These external trainers offer ad-
vanced workshops in sales, negotiation and busi-
ness communication.

All of our staff understand and share the high
professional standards and ethical values that
define our institution. We are convinced that our
efforts to promote professional development
help to create a positive working atmosphere. To
reward our employees for their dedication, the
bank offers a range of benefits, including private
health insurance and complementary social ac-
tivities that foster a strong team spirit.
28   A nnual Repor t 2009
                                                           Busine ss Et hic s a nd En v ironmen ta l Sta nda r ds   29

Business Ethics and Environmental Standards

Part of the overall mission of the ProCredit group    make sure that new employees fully understand
is to set standards in the financial sectors in       all of the principles that have been defined, in-
which we operate. We want to make a difference        duction training includes sessions dedicated to
not only in terms of the target groups we serve       the Code of Conduct and its significance for all
and the quality of the financial services we pro-     members of our team. Regular refresher training
vide, but also with regard to business ethics. Our    sessions help to ensure that employees remain
strong corporate values play a key role in this       committed to our high ethical standards and are
respect. Six essential principles guide the opera-    kept abreast of new issues and developments
tions of the ProCredit institutions:                  which have an ethical dimension for our institu-
                                                      tion. These events allow existing staff to analyse
•   Transparency: We adhere to the princip-           recent case studies and discuss any grey areas.
    le of providing transparent information both
    to our customers and the general public           Another aspect of ensuring that our institution
    and to our employees, and our conduct is          adheres to the highest ethical standards is our
    straightforward and open;                         consistent application of best practice systems
•   A culture of open communication: We are           and procedures to protect ourselves from being
    open, fair and constructive in our communi-       used as a vehicle for money laundering or other
    cation with each other, and deal with con-        illegal activities such as the financing of terror-
    flicts at work in a professional manner, work-    ist activities. An important focus here is to “know
    ing together to find solutions;                   your customer”, and, in line with this principle,
•   Social responsibility and tolerance: We of-       to carry out sound reporting and comply with
    fer our clients sound advice and assess their     the applicable regulations. Updated anti-money
    economic and financial situation, business        laundering and fraud prevention policies are be-
    potential and repayment capacity so that          ing introduced across the group to ensure compli-
    they can benefit from the most appropriate        ance with German regulatory standards.
    loan products. Promoting a savings culture is
    an important part of our mission, and we are      We also set standards regarding the impact
    committed to treating all customers and em-       of our lending operations on the environment.
    ployees with fairness and respect, regard-        ProCredit Bank Kosovo has imple-
    less of their origin, colour, language, gender    mented an environmental manage-
    or religious or political beliefs;                ment system based on continuous
•   Service orientation: Every client is served in    assessment of the loan portfolio
    a friendly, competent and courteous manner.       according to environmental cri-
    Our employees are committed to providing          teria, an in-depth analysis of all
    excellent service to all customers, regard-       economic activities which po-
    less of their background or the size of their     tentially involve environmental
    business;                                         risks, and the rejection of loan
•   High professional standards: Our employees        applications from enterprises
    take personal responsibility for the quality of   engaged in activities which
    their work and always strive to grow as pro-      are deemed environmentally
    fessionals;                                       hazardous and appear on our
•   A high degree of personal commitment: This        institution’s exclusion list. By
    goes hand-in-hand with integrity and hon-         incorporating environmental
    esty – traits which are required of all employ-   issues into the loan approval
    ees in the ProCredit group.                       process, ProCredit Bank Kosovo
                                                      is also able to raise its clients’ overall level of
These six values represent the backbone of our        environmental awareness. We also ensure that
corporate culture and are discussed and actively      requests for loans are evaluated in terms of the
applied in our day-to-day operations. Moreover,       applicant’s compliance with ethical business
they are reflected in the ProCredit Code of Con-      practices. No loans are issued to enterprises or
duct, which transforms the group’s ethical prin-      individuals if it is suspected that they are making
ciples into practical guidelines for all staff. To    use of unsafe or morally objectionable forms of
                                                      labour, in particular child labour.
30   A nnual Repor t 2009

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

               The ProCredit group comprises 22 financial in-        ProCredit banks work in close contact with their
               stitutions whose business focus is on providing       clients to gain a full understanding of the prob-
               responsible banking services in transition econo-     lems small businesses face and the opportuni-
               mies and developing countries. We aim to provide      ties that are available to them.
               accessible, reliable services to small businesses
               and the ordinary people who live and work in the      Our credit technology, developed over many years
               neighbourhoods in which we operate. At the end        with the support of the German consulting com-
               of 2009 our 19,600 employees, working in more         pany IPC, relies on the careful individual analysis
               than 830 branches, were serving 3.1 million cus-      of all credit risks. By making the effort to know
               tomers in Eastern Europe, Latin America and Af-       our clients well and maintain long-term working
               rica.                                                 relationships based on trust and understanding,
                                                                     we are well positioned to support them not only
               The first ProCredit banks were founded more than      when the economy is buoyant, but also during a
               a decade ago with the aim of making a significant     downturn and recovery. In 2009, the ability of our
               development impact by promoting the growth of         loan officers to proactively make appropriate ad-
               small businesses. We sought to achieve this by        aptations to payment plans where necessary to
               providing loans tailored to their requirements        reflect clients’ new and more challenging sales
               and offering attractive deposit facilities that       environments has played an important role in
               would enable and encourage low-income individ-        maintaining good loan portfolio quality.
               uals and families to save. The group has grown
               strongly over the years, and today we are one of      We not only extend loans, but also offer our en-
               the leading providers of banking services to small    terprise clients a broad range of other banking
               business clients in most of the countries in which    services such as cash management, domestic
               we operate.                                           and international money transfers, payroll servic-
                                                                     es, POS terminals and payment and credit cards.
               Our development mission and socially respon-          These services are geared towards assisting our
               sible approach remain as relevant today as they       business clients to operate more efficiently and
               have always been. Indeed, their importance has        more formally and thus help to strengthen the
               been underscored by the widespread macroeco-          real economy and the banking sector as a whole.
               nomic decline which most of our countries of
               operation experienced in 2009. The challenges         Furthermore, our targeted efforts to foster a
               this has created for individual clients as well as    savings culture in our countries of operation
               for national economies are significant. While the     have enabled us to build a stable deposit base.
               impact has differed from country to country and       ProCredit deposit facilities are appropriate for
               from region to region, it is clear that our custom-   a broad range of lower- and middle-income cus-
               ers need a reliable banking partner now more          tomers. We place particular emphasis on working
               than ever. Many small businesses have adjusted        with the owners, employees and families asso-
               to the new environment and are beginning to in-       ciated with our core target group of very small,
               vest again, and ordinary people are regaining         small and medium-sized businesses. ProCredit
               their trust in banks. That is why we will contin-     banks offer simple savings products and place
               ue to apply the principles that have defined the      great emphasis on promoting children’s savings
               ProCredit group since its foundation.                 accounts and on running financial literacy cam-
                                                                     paigns in the broader community. In addition to
               Our mission is to provide credit in a responsible     deposit facilities, we offer our clients a full range
               manner to very small, small and medium-sized          of standard retail banking services. Despite con-
               enterprises, as we are convinced that these busi-     siderable public nervousness about the safety
               nesses create the largest number of jobs and          of banks and intense competition in the deposit
               make a vital contribution to the local economy.       market, the ProCredit institutions managed to
               Unlike most other banks operating in our mar-         steadily increase their overall retail deposit
               kets, we avoid aggressive consumer lending and        base in 2009, increasing the number of deposit
               all speculative lines of business. Instead, the       accounts by some 300,000 and securing a very
                                                                     comfortable liquidity position for the group.
                    Th e P r o C r e d i t G r o u p : R e s p o n s i b l e B a n k s f o r S m a l l B u s i n e s s e s a n d O r d i n a r y P e o p l e     31

The ProCredit group has a simple business mod-                           Our shareholders have always taken a conserva-
el: providing banking services to a diverse range                        tive, long-term view of business development,
of enterprises and mobilising deposits from the                          aiming to strike the right balance between a
ordinary people who live and work around our                             shared developmental goal – reaching as many
branches. As a result, our banks have a trans-                           small enterprises and small savers as possible –
parent, low-risk profile. We do not rely heavily                         and achieving commercial success.
on capital market funding and have no exposure
to complex financial products. Furthermore, our                          Strong shareholders provide a solid foundation
staff are well trained, flexible and able to pro-                        for the ProCredit group. It is led by ProCredit
vide competent advice to clients, guiding them                           Holding AG, a German-based company that was
through difficult times as well as good times. De-                       founded by IPC in 1998. ProCredit Holding is a
spite the turmoil of the global financial markets,                       public-private partnership. The private share-
the performance of the ProCredit group has been                          holders include: IPC and IPC Invest, an invest-
remarkably stable: we ended 2009 with a good                             ment vehicle set up by IPC and ProCredit staff
liquidity position, comfortable capital adequacy,                        members; the Dutch DOEN Foundation; the US
PAR over 30 days of 2.68%, and a modest profit.                          pension fund TIAA-CREF; the US Omidyar-Tufts                             The international group
Given the very difficult macroeconomic situation                         Microfinance Fund; and the Swiss investment                              of ProCredit institutions;
in many of our countries of operation, this was a                        fund responsAbility. The public shareholders                             see also
strong performance.                                                      include the German KfW Bankengruppe (KfW                       

                                                                     ProCredit Holding Germany
                                                                                                                                                  ProCredit Bank Ukraine
                                                                     ProCredit Bank Serbia
                                                                                                                                                  ProCredit Bank Moldova
                                                                     ProCredit Bank
                                                                     Bosnia and Herzegovina                                                       ProCredit Bank Romania

                                                                     ProCredit Bank Kosovo                                                        ProCredit Bank Georgia

                                                                     ProCredit Bank Albania                                                       ProCredit Bank Armenia
Mexico                                                               ProCredit Bank Macedonia                                                     ProCredit Bank Bulgaria

Banco ProCredit

Banco ProCredit                                                      ProCredit Bank
El Salvador                                                          Sierra Leone

Banco ProCredit                                                      ProCredit
Nicaragua                                                            Savings and Loans Ghana

Banco ProCredit                                                      ProCredit Bank
Colombia                                                             Democratic Republic of Congo

Banco ProCredit                                                      Banco ProCredit Mozambique

Banco Los Andes
ProCredit Bolivia
32   A nnual Repor t 2009

               banking group); IFC, the private sector arm of the      ProCredit Holding and the ProCredit group place
               World Bank; the Dutch development bank FMO;             a strong emphasis on human resource manage-
               the Belgian Investment Company for Developing           ment. Our “neighbourhood bank” concept is not
               Countries (BIO) and Proparco, the French Invest-        limited to our target customers and how we reach
               ment and Promotions Company for Economic                them; it also concerns the way in which we work
               Co-operation. The group also receives strong            with our staff and how we encourage them to
               support from the EBRD and Commerzbank, our              work with their customers. The strength of our re-
               minority shareholders in Eastern Europe, and            lationships with our customers will continue to be
               from the Inter-American Development Bank (IDB)          central to working with them effectively in 2010
               in Latin America. With the strong support of its        and achieving steady business results.
               shareholders and other partners, the ProCredit
               group ended the year with a total capital adequa-       A responsible approach to neighbourhood bank-
               cy ratio of 16% – a figure that reflects their confi-   ing requires a decentralised decision-making
               dence in the group.                                     process and a high level of judgment and adapt-
                                                                       ability from all staff members, especially our
               ProCredit Holding is not only a source of equity        branch managers. Our corporate values embed
               for its subsidiaries, but also a guide for the de-      principles such as open communication, trans-
               velopment of the ProCredit banks, providing the         parency and professionalism into our day-to-
               personnel for their senior management and of-           day business. Key to our success is therefore
               fering support in all key areas of activity. The        the recruitment and training of dedicated staff.
               holding company ensures the implementation of           We maintain a corporate culture that promotes
               ProCredit corporate values, best practice bank-         the professional development of our employees
               ing operations and Basel II risk management             while fostering a deep sense of personal and so-
               principles across the group. The group’s busi-          cial responsibility. This entails not only intensive
               ness is run in accordance with the rigorous regu-       training in technical and management skills, but
               latory standards imposed by the German banking          also frequent staff exchanges between our mem-
               supervisory authority (BaFin).                          ber institutions. In this way, we take full advan-
              Th e P r o C r e d i t G r o u p : R e s p o n s i b l e B a n k s f o r S m a l l B u s i n e s s e s a n d O r d i n a r y P e o p l e   33

tage of the opportunities for staff development                    increase the minimum loan size for enterprise cli-
that are created by the existence of a truly inter-                ents to EUR/USD 1,000-2,000 in most countries
national group.                                                    since we have found that below this limit there
                                                                   is broad access to loans from consumer finance
A central plank in our approach to training is the                 providers, a situation which prevents us from
ProCredit Academy in Germany, which provides a                     maintaining loyal client relationships and keep-
part-time “ProCredit Banker” training programme                    ing arrears levels at a sustainable level in that
over a period of three years for high-potential                    particular segment. It follows that for these client
staff from each of the ProCredit institutions. The                 groups we would rather offer deposit accounts
curriculum includes intensive technical training                   and other banking services. Furthermore, we be-
and also exposes participants to subjects such                     lieve that our development impact can be more
as anthropology, history, philosophy and ethics                    significant if we focus on issuing slightly larger
in an open and multicultural learning environ-                     loans to businesses with the greatest capacity
ment. Our goal in covering such varied topics is                   for job creation. Our other priorities in the coming
to give our future managers the opportunity to                     year will be to focus on loan portfolio quality and
develop their knowledge and views of the world.                    on further improving the efficiency of our bank-
At the same time, we aim to improve their commu-                   ing services.
nication and staff management skills. The first
ProCredit Academy participants graduated in                        Strong investment in our staff will also remain a
September 2008. The group also operates three                      key priority since it is their skills which enable
Regional Academies in Latin America, Africa and                    us to build strong, broad-based relationships
Eastern Europe to support the professional devel-                  with our clients, which are a particularly impor-
opment of middle managers at the local level.                      tant factor of success in volatile macroeconomic
                                                                   conditions. As a group of responsible banks for
The group’s strategy for 2010 will reflect the pre-                ordinary people with prudent policies and well-
vailing conditions of the countries in which we                    trained staff to ensure our steady performance,
work. We will further expand our business as the                   we look forward to consolidating our position as a
“house bank” of choice for small and very small                    “house bank” for small businesses, their employ-
enterprises, offering tailored loans and other                     ees, and the ordinary people who live and work in
banking services. In our lending activities, we will               the neighbourhoods around our branches.
34   A nnual Repor t 2009

               ProCredit in Eastern Europe

               ProCredit operates in 11 countries across Eastern      in the region is close to 90%. Thus, in 2009 we
               Europe. It is a leading provider of banking serv-      did not have to rely on unpredictable capital mar-
               ices to very small, small and medium-sized busi-       kets for funds.
               nesses in the region. It prides itself on the high
               standard of transparent, professional services         And our experience in 2009 confirmed that our
               it provides to all its clients – the ordinary peo-     clients appreciate the transparent, responsible
               ple who live and work in the vicinity of the 539       approach we take. We offer simple and reliable
               ProCredit branches across the region.                  retail banking services, including flexible savings
                                                                      and deposit accounts to accommodate deposi-
               2009 proved to be a very challenging year for          tors’ long- and short-term needs. Our belief in
               Eastern Europe. The region had enjoyed sev-            transparent, direct communication is particularly
               eral years of sustained economic growth, in part       important in fostering clients’ trust in these diffi-
               fuelled by the rapid expansion of banking sectors      cult times. We understand that our clients want to
               dominated by Western European banks. The ef-           know in simple language how to save safely; they
               fects of the global financial crisis and the ensu-     also want to access their money when they need
               ing global recession were bound to be felt across      it. Thanks to the trust that the public has placed
               the region. In nearly all the countries in which we    in ProCredit, the group reported solid growth in
               operate, banking sector growth stalled and there       customer deposits in 2009, although we did not
               was a strong GDP decline in 2009. The nature           participate in the very aggressive pricing cam-
               and severity of the impact differed from country       paigns that many other banks undertook to shore
               to country. At one extreme was Ukraine, in which       up their liquidity positions. All the ProCredit in-
               GDP is estimated to have declined by more than         stitutions in Eastern Europe ended the year with
               15%, whilst other countries such as Kosovo and         a comfortable liquidity position, most without a
               Albania experienced a less severe recession.           significant increase in the average cost of funds.

               As a rule for banking sectors across Eastern Eu-       ProCredit banks were also in a strong position to
               rope, though, 2009 was a year dominated by             manage loan portfolio growth and quality. They
               concerns first about liquidity and then about          had never participated in the aggressive consum-
               non-performing loans. The performance of the           er and corporate lending in which other banks
               ProCredit group in Eastern Europe this year as         had engaged, and which is now creating signifi-
               regards liquidity and loan portfolio quality high-     cant loan portfolio problems in the region. We
               lights both the important development role that        had always maintained that consumer loans have
               the ProCredit banks play in the region and their       only limited development impact and risk creat-
               relatively low risk profile.                           ing overindebtedness if aggressively advertised
                                                                      and disbursed without adequate analysis of cli-
               The ProCredit banks in Eastern Europe quickly          ents’ ability to repay a loan – and this is precisely
               built a comfortable liquidity buffer in 2009, de-      the approach that financial institutions usually
               spite the strong withdrawals of customer funds         took to consumer lending in much of Eastern Eu-
               that most of our markets experienced in the last       rope in recent years.
               quarter of 2008. This reflected the trust and con-
               fidence of our retail deposit clients.                 Instead, at ProCredit we focus on providing re-
                                                                      sponsible banking services to small entrepre-
               ProCredit has focused for many years on promot-        neurs and family businesses. We aim to be their
               ing a savings culture amongst its clients. Setting     banking partner of choice, able to understand
               money aside can help protect savers against the        their needs and offer sound, professional advice.
               uncertainties of life, and since the ratio of depos-   We believe that these businesses are still an im-
               its to GDP in Eastern European countries is well       portant driving force behind economic growth and
               below Western European levels, we believe that         job creation across Eastern Europe. We continued
               mobilising savings is an important development         lending strongly to small businesses throughout
               priority. Accordingly, ProCredit banks fund most       2009, although other banks significantly scaled
               of their lending activities from local savings. The    back their lending activities. The only segment in
               ratio of deposits to loans in the ProCredit banks      which we slowed lending was that of very small
                                                                                                        ProCredit in E astern Europe              35

                                                                        Belarus                                Russia


                       Czech Republic                                    Ukraine


                                        Hungary                         Moldova
                       Slovenia                            Romania

                        Croatia     Bosnia
               Italy                 and
                                     Herze-     Serbia

                                  Montenegro    Kosovo       Bulgaria
                                          Albania                                                                        Armenia     Azerbaijan




              “microenterprise loans” with volumes of less                                                            Iraq
                                                                            respond to changing conditions. This approach                              Iran
           than EUR 2,000. In this segment, we found many                   meant that our Eastern European banks ended
              families to indeed be overindebted due to exces-              the year with a PAR (>30 days) of 2.81% and a PAR
              sive use of consumer loans, and businesses to be              (>90 days) of 1.93%. Only in our two most difficult
                                                                                                  Jordan                    Kuwait
              less viable than in the past. Looking ahead, we               markets, Ukraine and Bosnia, did the PAR (>30
              plan to stop serving this segment of the market           Egypt                               Saudi Arabia
                                                                            days) rise above 5% during the year. Relative to
              and focus above all on small and medium-sized                 the banking sectors as a whole, this was a signifi-
              clients taking loans in the size range from EUR               cant achievement.
              2,000 – EUR 150,000.
                                                                            Our lending activities aim in particular to foster
              Our approach is to provide business loans based               local production and service industries, and in-
              on a careful, individual analysis of each client’s            clude the provision of agricultural loans. We are
              ability to meet his or her obligations. We have               keen to support a sector that has been particu-
              decentralised decision-making systems in place                larly neglected by other banks and that is vital
              and a body of highly qualified staff who are able             for employment and social cohesion outside the
              to conduct an efficient and reliable risk assess-             main urban areas. We also provide housing im-
              ment even in more volatile economic conditions.               provement loans to help families renovate their
              ProCredit is guided by a responsible, long-term               homes and improve energy efficiency.
              attitude towards business development. We aim
              to build lasting relationships with our clients and           Given our focus on quality rather than quan-
              do not forget that a loan is also a debt.                     tity, the group did not increase the number of
                                                                            branches significantly in 2009, and the number
              These values are particularly pertinent when                  of staff was also reduced. In 2010 we expect
              managing potential arrears in cases where cli-                the macroeconomic situation in Eastern Europe
              ents have to adapt to lower-than-expected sales.              to continue to be difficult. Our focus will still be
              In anticipation of the difficulties we felt would             on the quality of our staff and on deepening our
              emerge in 2009, we introduced more conserva-                  relationships with our clients. Only our newer
              tive lending policies and more intensive arrears              banks, in Armenia and Moldova, are likely to add
              management procedures in response to greater                  branches. In all countries, we aim to consolidate
              credit risk. Our staff focused on working closely             our position as the most reliable banking partner
              with our clients to help them understand and                  for small and medium-sized enterprises.
36   A nnual Repor t 2009

               Our staff is the key element in our approach to be-   was founded. A language centre at the Academy
               ing a stable, down-to-earth and personal banking      also provides residential English courses, max-
               partner. The ProCredit group has a strong commit-     imising the potential for international exchange
               ment to staff training, professional development      within the group. Like all prudent banks, we will
               and the cultivation of an open, honest commu-         continue to focus on efficient cost management
               nication culture. Staff exchanges, cross-border       in 2010 and beyond. Investment in our staff is,
               training programmes and regional workshops            however, an ongoing commitment and will remain
               are an important part of our approach. We have        a central plank in the ProCredit Bank approach.
               an Eastern European Academy, located near Sko-        A qualified, motivated and professional team lies
               pje in Macedonia, which is dedicated to the train-    at the root of our lasting success across Eastern
               ing of ProCredit middle managers. The Academy         Europe.
               is an important channel for rapid and consistent
               communication region-wide and one that helps
               us adapt quickly to face new challenges: More
               than 200 managers have already graduated from
               the six-week intensive course since the facility
                                                                                                ProCredit in E astern Europe                   37

        Name                             Highlights*                                            Contact

        ProCredit Bank                   Founded in October 1998                                Legal address: Sami Frasheri St., Tirana
        Albania                          42 branches                                            Mailing address: Dritan Hoxha St., Tirana
                                         39,443 loans / EUR 153.6 million in loans              P.O. Box 2395
                                         192,840 deposit accounts / EUR 246.5 million           Tel./Fax: +355 4 2 271 272 / 276
                                         867 employees                                

        ProCredit Bank                   Founded in December 2007                               31/99 Moskovyan St.
        Armenia                          9 branches                                             0002 Yerevan
                                         3,847 loans / EUR 23.5 million in loans                Tel./Fax: + 374 10 514 860 / 853
                                         15,479 deposit accounts / EUR 13.0 million   
                                         239 employees                                

        ProCredit Bank                   Founded in October 1997                                8 Emerika Bluma
        Bosnia and Herzegovina           26 branches                                            71000 Sarajevo
                                         39,762 loans / EUR 119.7 million in loans              Tel./Fax: +387 33 250 950 / 971
                                         105,106 deposit accounts / EUR 124.1 million 
                                         662 employees                                

        ProCredit Bank                   Founded in October 2001                                26 Todor Aleksandrov Blvd.
        Bulgaria                         86 branches                                            1303 Sofia
                                         55,504 loans / EUR 550.8 million in loans              Tel./Fax: +359 2 813 5100 / 5110
                                         227,104 deposit accounts / EUR 334.7 million 
                                         1,797 employees                              

        ProCredit Bank                   Founded in May 1999                                    154 D. Agmashenebeli Ave.
        Georgia                          59 branches                                            0112 Tbilisi
                                         63,993 loans / EUR 220.9 million in loans              Tel./Fax: +995 32 20 2222 / 24 3753
                                         400,215 deposit accounts / EUR 159.0 million 
                                         1,680 employees                              

        ProCredit Bank                   Founded in January 2000                                16 “Mother Tereze” Boulevard
        Kosovo                           62 branches                                            10000 Prishtina
                                         99,336 loans / EUR 471.7 million in loans              Tel./Fax: +381 38 555 777 / 248 777
                                         399,539 deposit accounts / EUR 638.3 million 
                                         1,177 employees                              

        ProCredit Bank                   Founded in July 2003                                   109a Jane Sandanski Blvd.
        Macedonia                        41 branches                                            1000 Skopje
                                         31,999 loans / EUR 135.8 million in loans              Tel./Fax: +389 2 321 99 00 / 01
                                         134,603 deposit accounts / EUR 142.3 million 
                                         689 employees                                

        ProCredit                        Founded in December 1999                               65 Stefan cel Mare Ave.
        Moldova                          1 branch                                               office 900, Chisinau
                                         7,108 loans / EUR 13.0 million in loans                Tel./Fax: +373 22 836555 / 273488
                                         85 employees                                 

        ProCredit Bank                   Founded in December 2007                               65 Stefan cel Mare Ave.
        Moldova                          27 branches                                            office 901, Chisinau
                                         6,715 loans / EUR 22.4 million in loans                Tel./Fax: +373 22 836555 / 273488
                                         22,646 deposit accounts / EUR 12.7 million   
                                         533 employees                                

        ProCredit Bank                   Founded in May 2002                                    62-64 Buzesti St., Sector 1
        Romania                          43 branches                                            011017 Bucharest
                                         35,533 loans / EUR 180.5 million in loans              Tel./Fax: +40 21 201 6000 / 305 5663
                                         136,576 deposit accounts / EUR 133.3 million 
                                         1,006 employees                              

        ProCredit Bank                   Founded in April 2001                                  17 Milutina Milankovica
        Serbia                           79 branches                                            11070 Belgrade
                                         118,249 loans / EUR 472.9 million in loans             Tel./Fax: +381 11 20 77 906 / 905
                                         450,656 deposit accounts / EUR 345.7 million 
                                         1,864 employees                              

        ProCredit Bank                   Founded in January 2001                                107a Peremohy Ave.
        Ukraine                          64 branches                                            03115 Kyiv
                                         25,510 loans / EUR 188.3 million in loans              Tel./Fax: +380 44 590 10 17 / 01
                                         121,435 deposit accounts / EUR 104.7 million 
                                         1,417 employees                              

* 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.
38   A nnual Repor t 2009

               Our Clients

               Kadrush Bajrami is a farmer in Përlepnicë, a vil-
               lage in the Gjilan region of eastern Kosovo. Now
               56 years old, he is married with four children. Be-
               fore the war in 1999, Kadrush was involved in the
               village agricultural cooperative. However, when
               this stopped running during the conflict, he had       “I received a loan to expand my business, but I
               to find a new way to secure a stable income. The       got much more than that – I got a partner who
               cooperative had taught him a lot about poultry          helped me through tough times and offered
               and egg farming, so he immediately thought of           advice about my investment plan whenever I
               establishing a small business in this field.                              needed it.”

               After starting out with 460 laying hens, Kadrush      His relationship with ProCredit Bank continued
               was pleased with the development of his farm.         getting stronger. Between 2005 and 2007, he
               He saw that the operation had good potential and      took out three more loans with a total volume of
               decided to build a barn on his hectare of land to     EUR 32,000. These enabled him to extend the
               breed chickens. However, he needed external fi-       farm further and equip it with modern tools and
               nancing to carry out this project.                    machines.

               One of Kadrush’s cousins had already heard            In 2008 Kadrush obtained a fifth loan, this time
               about ProCredit Bank’s agricultural loans and         for EUR 75,000 – a figure that demonstrates the
               encouraged him to visit the main branch in Gjilan     strong growth of his operation. He acquired more
               in 2004. Once the loan officer had explained the      land and purchased additional livestock and feed
               terms and conditions and answered all his ques-       machinery, ensuring the continued expansion of
               tions, Kadrush submitted an application. The          his business.
               loan was quickly approved, and he received EUR
               2,000.                                                Everyone in the family is now involved in the farm.
                                                                     Kadrush’s wife, Shemsije, and his 21-year-old
               Since the barn was built, the farm has grown con-     son, Qamil, help look after the birds. The busi-
               siderably: Kadrush now owns 5,000 hens and            ness is a reliable source of income for the whole
               2,400 chickens. This is what he has to say about      family, and it supplies many of the grocery stores
               his first loan from the bank:                         in the Gjilan region with eggs.
                                                                                                       Our Clients   39

Apiculture is a long-standing tradition in the        about ProCredit Bank – the largest and longest-
Mahmutaj family, and Ferim has had a passion          serving bank in the country. He had also already
for bees since he was a child. Both his father and    encountered some of the bank’s staff, as he re-
his grandfather kept bees, and he always used to      calls:
enjoy watching the bustling hives as a boy.
                                                         “ProCredit Bank was sponsoring a local pro-
Ferim is now the owner of Apikos, a honey pro-         duce fair where I had a stall. Some loan officers
duction business located in the picturesque city      from the bank approached me during the day to
of Peja in western Kosovo. He lives with his wife     promote the services they could offer. I kept their
and their three children in a house that they share    leaflets, and one day I decided to go to my local
with his parents.                                     branch and ask more about the loan conditions.”

In total, there are over 500 hives on the honey       In March 2008, Ferim received a small loan from
farm, and production levels are so high that the      his local branch and purchased the machinery
business has provided jobs and a regular income       he had in mind. Having met his scheduled re-
for the whole family for over 15 years. The Apikos    payments, he is now considering applying for a
brand is known for a diverse range of products in     larger loan from ProCredit Bank to support his
addition to honey, including propolis, pollen and     ambitious expansion plans, which include buy-
royal jelly.                                          ing more land and investing in facilities to sup-
                                                      port winter production.
Many local shops are loyal customers of Apikos,
but the company also supplies larger retail firms     Not only a loan customer, Ferim has also opened a
from other regions of Kosovo. Ferim and his fam-      term deposit account and uses a current account
ily are very proactive in attracting new customers    at ProCredit Bank to make and receive payments.
and regularly participate in trade fairs.             Looking to the future, he knows he will remain a
                                                      loyal customer:
After years of steady growth, Ferim decided that
some specialist machinery for honey production        “I will definitely knock on ProCredit Bank’s door
would be a wise investment to help meet increas-        again. I appreciate the patience and friendli-
ing demand. He knew that external financing           ness of the staff, and there is no other bank that
would be necessary and immediately thought                explains everything in such clear detail.”
40   A nnual Repor t 2009

               Abdyl Kurteshi lives with his wife in the suburbs      were in high demand, he made a success of the
               of Gjilan. He is the owner of Te Andi, one of the      venture and invested his profits in a wider variety
               largest grocery stores in the neighbourhood.           of food items.
               Even though he manages the store, Abdyl can still
               be seen with his wife behind the counter, serving         “My business has been growing since the
               customers and chatting with the regulars.                   first day thanks to the financial support
                                                                                       of ProCredit Bank,”
               A little less than ten years ago, Abdyl began work-    says Abdyl.
               ing for a friend who had his own grocery store. He
               watched this business blossom and thought that         The bank provides many convenient and reliable
               it might be quite a good idea to try his own hand at   services for clients like Abdyl. He has a POS ter-
               running a similar kind of shop. On friendly terms,     minal installed in his shop so that he can accept
               he quit his job and began preparing the opening        card payments from his customers, and he de-
               of Te Andi. He had been at first rather uncertain      posits the daily takings into a current account. He
               about this decision because of the financial risks     also uses payment transfers to settle invoices.
               involved, but eventually he was convinced that         This is how he views his relationship with his
               the business would perform well.                       chosen bank:

               Abdyl needed a loan to make all of the necessary        “I’m grateful to ProCredit Bank because it rec-
               investments, but he had no experience as a bor-         ognised the potential of my business and gave
               rower. A friend who was already a satisfied cus-        me the loan I required to make my dream come
               tomer of ProCredit Bank praised the professional       true. The staff are friendly and provide excellent
               service he had received, and on this recommen-            service. With a reliable partner at my side,
               dation Abdyl visited the same branch.                          I’m optimistic about my future.”

               After speaking to a loan officer about his financ-     Abdyl intends to purchase some new premises
               ing requirements, Abdyl applied for a loan of EUR      in a nearby neighbourhood so that he can open
               10,000 in September 2005. He used this capital         a second, larger food store. To help finance this
               to stock up on inventory and cover some of the         project, he recently applied for a medium-sized
               initial costs. By providing everyday products that     loan from ProCredit Bank.
                                                                                                       Our Clients   41

                                                     One of Cen’s colleagues was among the first cli-
                                                     ents of the bank when it opened in 2000 under
                                                     the name of MEB. He told Cen about his positive
                                                     experience, but Cen was very sceptical about
                                                     opening an account with any bank, as he ex-

                                                      “Before the war, I lost all my savings at a Yugo-
                                                     slav bank and resolved that I would never entrust
Dr. Cen Bytyqi was born in the city of Peja in          my money to a bank again. However, when I
western Kosovo. Just six months after gaining an       visited the bank for myself, I learnt that it is a
advanced degree in orthopaedic medicine at the       sound, foreign-owned institution, and I felt that I
University of Prishtina, he was offered a position   could trust the staff. They were extremely friendly
at the main hospital in Peja. After two years, he      but also consummate professionals, and this
transferred to the regional hospital in Prishtina,   helped to change my mind – I’ve been a customer
where he is still enjoying his job as consultant     ever since, and I’ve recommended the bank to my
orthopaedist.                                                 family, friends and colleagues.”

Cen is dedicated to his career and also teaches      ProCredit Bank offers a diverse range of deposit
at the University of Prishtina, giving lectures on   options, and Cen regularly pays money into a sav-
physiotherapy and medical practice. Further-         ings account for his retirement. He believes that
more, he serves as the Chairman of the Orthopae-     it is never too early to start planning for the fu-
dic Association of Kosovo. His wife is a full-time   ture, so he was happy to see that the bank also
lecturer at the University of Prishtina, and the     welcomes younger savers. When he learnt about
couple have four children.                           the “ProKid” account, he took his children to the
                                                     Sunny Hill branch in Prishtina, where they all de-
                                                     posited some of their savings.
42     A nnual Repor t 2009

     Financial Statements
     Prepared in accordance with International Financial Reporting Standards.
     For the year ended 31 December 2009.
                                  Fin a nci a l Stat e men t s   43

General Information
Board of Directors
Dr. Klaus Glaubitt, Chairman of the Board of Directors
Ms. Helen Alexander
Mr. Rainer Ottenstein
Dr. Frieder Woehrmann
Mr. Philip Sigwart

Registered office
Mother Theresa Boulevard, No. 16
10000 Prishtina

Solicitors (in house)
Preveza Muharremi

Deloitte Kosova sh.p.k.
St Bedri Pejani, No. 3,
10000 Prishtina,
Republic of Kosova
44   A nnual Repor t 2009
                                                                                                     Fin a nci a l Stat e men t s    45

Statement of Comprehensive Income
For the year ended 31 December 2009

                                                                               Notes            Year ended            Year ended
  in EUR ’000                                                                            December 31, 2009    December 31, 2008
  Interest and similar income                                                      5               70,864                 70,099
  Interest and similar expenses                                                    6              (18,981)               (15,288)
  Net interest income                                                                              51,883                  54,811

  Fee and commission income                                                        7                 8,251                  6,993
  Fee and commission expenses                                                      8               (2,972)                (2,695)
  Net fee and commission income                                                                      5,279                  4,298

  Total income                                                                                      57,162                59,109

  Net results from investment securities                                           9                  (710)                (1,529)
  Net foreign exchange gain                                                                             574                    597
  Other operating income                                                                             1,012                    329
  Impairment losses                                                               10                (5,921)               (8,072)
  Other operating expenses                                                        11               (28,159)              (26,430)
                                                                                                  (33,204)               (35,105)
  Profit before taxation                                                                            23,958                 24,004

  Income tax expense                                                              12               (2,582)                (4,977)

  Net profit for the year                                                                          21,376                 19,027

  Other comprehensive income:
  Change in fair value of AFS securities, net of tax                                                  609                   (808)
  Reclassification adjustment for AFS investments sold                                                 84                     280

  Total comprehensive income for the year                                                          22,069                 18,499

The accompanying notes from 1 to 30 form an integral part of the financial statements.
46     A nnual Repor t 2009

     Statement of Financial Position
     For the year ended 31 December 2009
                                                                                                       Fin a nci a l Stat e men t s    47

Statement of Cash Flows
For the year ended 31 December 2009

                                                                                     Notes          Year ended        Year ended
  in EUR ’000                                                                                 December 31, 2009 December 31, 2008
  Cash flows from operating activities
  Profit before tax                                                                                     23,958              24,004
  Adjustments to reconcile net profit to net cash flows from operating activities:
  Depreciation                                                                                           2,595               2,730
  Amortization                                                                                             335                 336
  Gain on sale of property and equipment                                                                   (39)                  –
  Impairment losses                                                                                      5,993               8,072
  Fair value adjustment to investment securities                                                           710                (557)

  Net cash flow from operating activities
  before changes in operating assets and liabilities                                                    33,552              34,585
  Changes in operating assets and liabilities
  Increase / (decrease) in due from banks (maturity more than 3 months)                                    (745)                 873
  Increase in loans and advances to customers                                                          (34,993)            (97,362)
  Decrease/(increase) in other assets                                                                      1,582             (1,136)
  Increase in statutory reserve with CBK                                                                 (1,952)            (3,228)
  (Decrease)/increase in due to banks                                                                    (8,430)              8,108
  Increase in due to customers                                                                          68,803               77,418
  (Decrease) in other liabilities                                                                          (304)               (206)

  Cash generated from operations                                                                         57,513             19,052

  Income taxes paid                                                                                     (3,364)             (6,064)

  Net cash generated from operating activities                                                          54,149              12,988

  Cash flows from investing activities
  Proceeds from sale of investments securities                                                           51,573             53,299
  Payments to acquire investment securities                                                            (67,447)            (16,715)
  Proceeds from sale of property and equipment                                                              449                   –
  Acquisition of property and equipment                                                                 (4,539)             (6,356)
  Acquisition of intangible assets                                                                        (623)               (316)

  Net cash (used in)/generated from investing activities                                               (20,587)             29,912

  Cash flow from financing activities
  Increase of borrowed funds, net                                                                        17,606                  –
  New capital subscribed                                                                                 10,000                   –
  Dividends paid                                                                                       (18,896)            (10,000)

  Net cash generated from/(used in) financing activities                                                  8,710            (10,000)

  Net increase in cash and cash equivalents                                                             42,272              32,900
  Cash and cash equivalents at the beginning of the year                                 28            129,627              96,727
  Cash and cash equivalents at the end of the year                                       28            171,899             129,627

The accompanying notes from 1 to 30 form an integral part of the financial statements.
48     A nnual Repor t 2009

     Statement of Changes in Equity
     For the year ended December 31, 2009

                                                            Share           Contin-           Retained     Revaluation       Total
                                                           capital            gency           earnings      reserve for
       in EUR ’000                                                          reserve                      AFS securities
       Balance at January 1, 2008                          18,050               511             23,143            (110)     41,594
       Dividends paid                                           –                 –           (10,000)                –   (10,000)
       Change in fair value of AFS securities                   –                 –                  –           (808)       (808)
       Reclassification adjustment for investments sold         –                 –                  –             280         280
       Profit for the year                                      –                 –             19,027                –     19,027

       Balance at December 31, 2008                        18,050               511            32,170            (638)     50,093

       Dividends paid                                           –                 –           (18,896)               –    (18,896)
       Capital subscribed                                  10,000                 –                  –               –      10,000
       Change in fair value of AFS securities                   –                 –                  –             609         609
       Reclassification adjustment for investments sold         –                 –                  –              84          84
       Profit for the year                                      –                 –             21,376               –      21,376

       Balance at December 31, 2009                        28,050               511            34,650               55     63,266

     The accompanying notes from 1 to 30 form an integral part of the financial statements.
                                                                                                               Fin a nci a l Stat e men t s           49

                                                                               vised presentation (effective for annual periods beginning on
Notes to the Financial Statements
                                                                               or after 1 January 2009),
For the year ended 31 December 2009
                                                                           •   IAS 23 (revised) “Borrowing Costs” (effective for annual periods
(All amounts expressed in EUR thousand, unless otherwise stated)
                                                                               beginning on or after 1 January 2009),
                                                                           •   Amendments to IFRS 2 “Share-based Payment” – Vesting con-
1.   Corporate information                                                     ditions and cancellations (effective for annual periods begin-
                                                                               ning on or after 1 January 2009),
ProCredit Bank, Kosovo (“the Bank”) was founded on 9 December              •   Amendments to IFRIC 9 “Reassessment of Embedded Deriva-
1999, and began activity on 12 January 2000. The Bank was licensed             tives” and IAS 39 “Financial Instruments: Recognition and
to operate as a bank in all fields of banking activity in Kosovo accord-       Measurement” – Embedded Derivatives (effective for annual
ing to the rules of the Central Banking Authority of Kosovo (“CBAK”)           periods ending on or after 30 June 2009),
and is subject to the Regulation of United Nations Interim Adminis-        •   IFRIC 13 “Customer Loyalty Programmes” (effective for annual
tration Mission in Kosovo (“UNMIK”), No. 1999/21 “On Bank Licens-              periods beginning on or after 1 July 2008),
ing, Supervision and Regulation”. The Bank’s head office is located        •   IFRIC 15 “Agreements for the Construction of Real Estate” (effec-
at ‘Mother Theresa’ Boulevard, 10000 Prishtina, Kosovo.                        tive for annual periods beginning on or after 1 January 2009),
ProCredit Bank, Kosovo was the first licensed bank in Kosovo. The          •   IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
Bank was founded through the initiative of several international               (effective for annual periods beginning on or after 1 October
financial institutions and investment companies, namely Com-                   2008).
merzbank AG, ProCredit Holding AG (at the time under the name
of Internationale Micro Investitionen AG), the European Bank for           The adoption of these amendments to the existing standards and
Reconstruction and Development (“EBRD”), International Finance             interpretations has not led to any significant changes in the Bank’s
Corporation (“IFC”), Kreditanstalt fur Wiederaufbau (“KfW”) and            accounting policies.
Nederlandse Financieringsmaatschappij voor Ontwikkelings-
landen (“FMO”). Its objective is to provide efficient, reliable and        2.2 Standards and Interpretations in issue but not yet effective
easily accessible banking service for all legal entities and private
persons throughout Kosovo. During 2009, the Bank operated with             At the date of authorisation of these financial statements the fol-
main branches in: Prishtina, Peja, Prizren, Gjakova, Gjilan, Mitro-        lowing standards, revisions and interpretations were in issue but
vica and Ferizaj.                                                          not yet effective:
The financial statements of the Bank for the year ended 31 Decem-
ber 2009 were approved by the Management Board on February 12,             •   IFRS 9 “Financial Instruments” (effective for annual periods be-
2010.                                                                          ginning on or after 1 January 2013),
                                                                           •   IFRS 3 (revised) “Business Combinations” (effective for annual
                                                                               periods beginning on or after 1 July 2009),
2.   Adoption of new and revised International Financial Reporting         •   IFRS 1 (revised) “First-time Adoption of IFRS” (effective for an-
     Standards                                                                 nual periods beginning on or after 1 July 2009),
                                                                           •   Amendments to IFRS 1 “First-time Adoption of IFRS” – Addi-
2.1 Standards and Interpretations effective in the current period              tional Exemptions for First-time Adopters (effective for annual
                                                                               periods beginning on or after 1 January 2010),
The following amendments to the existing standards issued by the           •   Amendments to IFRS 2 “Share-based Payment” – Group cash-
International Accounting Standards Board and interpretations is-               settled share-based payment transactions (effective for annual
sued by the International Financial Reporting Interpretations Com-             periods beginning on or after 1 January 2010),
mittee are effective for the current period:                               •   Amendments to IAS 24 “Related Party Disclosures” – Simplify-
                                                                               ing the disclosure requirements for government-related enti-
•    IFRS 8 “Operating Segments” (effective for annual periods be-             ties and clarifying the definition of a related party (effective for
     ginning on or after 1 January 2009),                                      annual periods beginning on or after 1 January 2011),
•    Amendments to IFRS 7 “Financial Instruments: Disclosures” –           •   Amendments to IAS 27 “Consolidated and Separate Financial
     Improving disclosures about financial instruments (effective              Statements” (effective for annual periods beginning on or after
     for annual periods beginning on or after 1 January 2009),                 1 July 2009),
•    Amendments to IFRS 1 “First-time Adoption of IFRS” and IAS            •   Amendments to IAS 32 “Financial Instruments: Presentation” –
     27 “Consolidated and Separate Financial Statements” – Cost of             Accounting for rights issues (effective for annual periods begin-
     investment in a subsidiary, jointly-controlled entity or associ-          ning on or after 1 February 2010),
     ate (effective for annual periods beginning on or after 1 January     •   Amendments to IAS 39 “Financial Instruments: Recognition and
     2009),                                                                    Measurement” – Eligible hedged items (effective for annual pe-
•    Amendments to various standards and interpretations resulting             riods beginning on or after 1 July 2009),
     from the Annual quality improvement project of IFRS published         •   Amendments to various standards and interpretations resulting
     on 22 May 2008 (IAS 1, IFRS 5, IAS 8, IAS 10, IAS 16, IAS 19,             from the Annual quality improvement project of IFRS published
     IAS 20, IAS 23, IAS 27, IAS 28, IAS 29, IAS 31, IAS 34, IAS 36,           on 16 April 2009 (IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS
     IAS 38, IAS 39, IAS 40, IAS 41) primarily with a view to removing         18, IAS 36, IAS 38, IAS 39, IFRIC 9, IFRIC 16) primarily with a
     inconsistencies and clarifying wording (most amendments are               view to removing inconsistencies and clarifying wording (most
     to be applied for annual periods beginning on or after 1 January          amendments are to be applied for annual periods beginning on
     2009),                                                                    or after 1 January 2010),
•    Amendments to IAS 32 “Financial Instruments: Presentation”            •   Amendments to IFRIC 14 “IAS 19 — The Limit on a defined ben-
     and IAS 1 “Presentation of Financial Statements” – Puttable               efit Asset, Minimum Funding Requirements and their Interac-
     financial instruments and obligations arising on liquidation              tion” - Prepayments of a Minimum Funding Requirement (effec-
     (effective for annual periods beginning on or after 1 January             tive for annual periods beginning on or after 1 January 2011),
     2009),                                                                •   IFRIC 17 “Distributions of Non-Cash Assets to Owners” (effec-
•    IAS 1 (revised) “Presentation of Financial Statements” – A re-            tive for annual periods beginning on or after 1 July 2009),
50        A nnual Repor t 2009

     •     IFRIC 18 “Transfers of Assets from Customers” (effective for        3.4 Foreign exchange transactions
           transfer of assets from customers received on or after 1 July
           2009),                                                              Foreign exchange transactions are recorded at the rate ruling at
     •     IFRIC 19 “Extinguishing Liabilities with Equity Instruments” (ef-   the day of the transaction. Monetary assets and liabilities denomi-
           fective for annual periods beginning on or after 1 July 2010).      nated in foreign currencies are translated at the rate of exchange
                                                                               ruling at the balance sheet date. Foreign exchange gains and losses
     The Bank has elected not to adopt these standards, revisions and          resulting from the settlement of such transactions and from the
     interpretations in advance of their effective dates. The Bank antici-     translation at year-end exchange rates of monetary assets and li-
     pates that the adoption of these standards, revisions and interpre-       abilities denominated in foreign currencies are recognized in the
     tations will have no material impact on the financial statements of       profit or loss for the year.
     the Bank in the period of initial application.
                                                                               Official exchange rates for major currencies used in the translation
                                                                               of the balance sheet items denominated in foreign currencies were
     3.    Summary of significant accounting policies                          as follows (in EUR):

     3.1 Statement of compliance                                                                              31 Dec 2009            31 Dec 2008
                                                                                 1 USD                             0.6941                 0.7185
     The financial statements have been prepared in accordance with              1 CHF                             0.6740                 0.6734
     International Financial Reporting Standards.                                1 GBP                             1.1259                      –

     3.2 Basis of preparation
                                                                               3.5 Classification of financial assets
     The financial statements have been prepared on the historical
     cost basis except for financial assets at fair value through profit       Financial assets are classified in the following categories: financial
     and loss, available-for-sale financial assets and derivative instru-      assets at fair value through profit or loss, available-for-sale finan-
     ments, which are carried at their fair value. Historical cost is gener-   cial assets and loans and receivables. The classification of finan-
     ally based on the fair value of the consideration given in exchange       cial assets is determined at their initial recognition. The Bank did
     for assets.                                                               not classify any financial asset as held-to-maturity. Management
     IFRS defines a so-called hierarchy of fair value determination which      determines the classification of its investments at initial recogni-
     reflects the relative reliability of different ways of obtaining a fair   tion.
     value:                                                                    All regular way purchases and sales of financial assets are recog-
                                                                               nized on the trade date, i.e. the date the Bank commits to purchase
     (a) Active market: Quoted price (Level 1)                                 the asset. Regular way purchases or sales are purchases or sales
     Observe quoted prices for identical financial instruments in active       of financial assets that require delivery of assets within the period
     markets.                                                                  generally established by regulation or convention in the market-
     (b) Valuation technique using observable inputs (Level 2)                 Gains and losses arising from changes in the fair value of the ‘finan-
     Observe quoted prices for similar instruments in active markets or        cial assets at fair value through profit or loss’ category are included
     quoted prices for identical or similar instruments in inactive mar-       in the profit or loss for the period in which they arise. Gains and
     kets or use valuation models where all significant inputs are ob-         losses arising from changes in the fair value of available-for-sale
     servable.                                                                 financial assets are recognized through other comprehensive in-
                                                                               come, until the financial asset is derecognized or impaired. At this
     (c) Valuation technique with significant non-observable inputs            time, the cumulative gain or loss previously recognized in other
         (Level 3)                                                             comprehensive income is transferred to profit or loss of the period
     Use valuation models where one or more significant inputs are not         through adjustment. However, interest calculated using the ef-
     observable.                                                               fective interest method and foreign currency gains and losses on
                                                                               monetary assets classified as available for sale is recognized in the
     Only if the first best way of determining the fair value is not avail-    profit or loss for the period.
     able may the next best determination method be applied. If pos-           The fair values of quoted investments in active markets are based
     sible, the bank obtains fair values from quoted market prices; oth-       on current bid prices. If there is no active market for a financial as-
     erwise, the next best available measurement technique is applied.         set, the Bank establishes fair value using valuation techniques.
     Financial instruments measured at fair value for accounting pur-          These include the use of recent arm’s length transactions, dis-
     poses on an ongoing basis include all instruments at fair value           counted cash flow analysis, and other valuation techniques com-
     through profit or loss and financial instruments classified as            monly used by market participants.
     available-for-sale. Details on the applied measurement techniques
     for the balance sheet positions are part of the accounting policies       The investments and other financial assets of the Bank are classi-
     listed below.                                                             fied into the following categories:
     The principal accounting policies are set out below.
                                                                               3.5.1 Financial assets at fair value through profit and loss
     3.3 Currency of presentation                                              (a) Financial assets at fair value through profit or loss
                                                                               This category has two sub-categories: financial assets held for
     In accordance with IAS 21 the Bank’s measurement currency used            trading (“trading assets”), including the derivatives held, and fi-
     in preparing the financial statements is EUR as it is the currency of     nancial assets designated at fair value through profit or loss at in-
     the primary economic environment in which the bank operates and           ception. The Bank does not apply hedge accounting.
     it reflects the economic substance of the underlying events (“func-       Financial assets are designated at fair value through profit or loss
     tional currency”).                                                        when they are part of a separate portfolio that is managed and
                                                                               evaluated on a fair value basis in accordance with a documented
                                                                                                                 Fin a nci a l Stat e men t s            51

risk management or investment strategy. The monthly reporting               of available-for-sale financial assets are recognized through other
on these portfolios to key management personnel is also done on             comprehensive income in the position “revaluation reserve from
a fair value basis. The fair values reported are usually observable         available-for-sale financial instruments”, until the financial asset
market prices; as a guideline, the Bank prefers to invest in secu-          is derecognized or impaired. At this time, the cumulative gain or
rities for which market prices in active markets can be observed.           loss previously recognized in other comprehensive income is trans-
Only in rare circumstances is the fair value calculated based on cur-       ferred to profit or loss through adjustment. Interest calculated us-
rent observable market data by using a valuation technique.                 ing the effective interest rate method and foreign currency gains
Financial assets at fair value through profit or loss are initially rec-    and losses on monetary assets classified as available-for-sale are
ognized at fair value, and transaction costs, if any, are expensed in       recognized in the profit or loss. Dividends, if any, on available-for-
the profit or loss. Subsequently, they are carried at fair value. Gains     sale equity instruments, are recognized in the profit or loss when
and losses arising from changes in their fair value are immediately         the entity’s right to receive the payment is established.
recognized in the profit or loss for the period. Together with interest     Purchases and sales of available-for-sale financial assets are re-
earned on financial instruments designated as at fair value through         corded on the trade date. The available-for-sale financial assets
profit and loss they are shown as “net result from financial assets         are derecognized when the rights to receive cash flows from the
at fair value through profit or loss”.                                      financial assets have expired or where the Bank has transferred
Purchases and sales of financial assets at fair value through profit        substantially all risks and rewards of ownership.
or loss are recognized on the trade date – the date on which the
Bank commits to purchase or sell the asset. Financial assets at fair        3.5.3 Loans and receivables
value through profit or loss are derecognized when the rights to re-
ceive cash flows from the financial assets have expired or where            Loans and receivables are non-derivative financial assets with
the Bank has transferred substantially all risks and rewards of own-        fixed or determinable payments that are not quoted in an active
ership.                                                                     market. All loans and advances are initially recognized at fair value,
This category has two sub-categories: financial assets held for             being the cash advanced to borrowers. After initial recognition,
trading, and those designated at fair value through profit or loss          these are subsequently measured at amortized costs using the ef-
at inception.                                                               fective interest rate method. Amortized cost is calculated by taking
A financial asset is classified as held for trading if it is acquired or    into account any issue costs and any discount or premium on set-
incurred principally for the purpose of selling or repurchasing in the      tlement.
near term or if it is part of a portfolio of identified financial instru-
ments that are managed together and for which there is evidence of          Loans and advances are reported net of provisions for loan losses
a recent actual pattern of short-term profit-taking. Derivatives are        as described in Note 3.9 below.
also categorized as held for trading unless they are designated as
hedging instruments.                                                        3.5.4 Offsetting financial instruments
                                                                            Financial assets and liabilities are offset and the net amount re-
Financial assets and financial liabilities are designated at fair value     ported in the balance sheet when there is a legally enforceable
through profit or loss when:                                                right to offset the recognized amounts and there is an intention to
• Doing so significantly reduces measurement inconsistencies                settle on a net basis, or realize the asset and settle the liability si-
    that would arise if the related derivatives were treated as held        multaneously.
    for trading and the underlying financial instruments were car-
    ried at amortized cost for loans and advances to customers or           3.6 Derivative financial instruments
    banks and debt securities in issue,
• Certain investments, such as equity investments, are managed              Derivatives are initially recognized at fair value on the date on
    and evaluated on a fair value basis in accordance with a docu-          which a derivative contract is entered into and are subsequently
    mented risk management or investment strategy and reported              measured at their fair value. Fair values are obtained from quoted
    to key management personnel on that basis are designated at             market prices in active markets, including recent market transac-
    fair value through profit and loss; and                                 tions, and valuation techniques, including discounted cash flow
• Financial instruments, such as debt securities held, contain-             models as appropriate. All derivatives are carried as assets when
    ing one or more embedded derivatives significantly modify the           fair value is positive and as liabilities when fair value is negative.
    cash flows, are designated at fair value through profit and loss.       Gains and losses arising from changes in fair value of derivatives
                                                                            are included in ‘Gains and Losses from investment securities’ in
Gains and losses arising from changes in the fair value of deriva-          profit or loss for the period.
tives that are managed in conjunction with designated financial as-         The Bank uses derivative financial instruments such as over the
sets or financial liabilities are included in net income from financial     counter (OTC) interest rate options and forward currency contracts
assets designated at fair value through profit or loss.                     to hedge its risk arising from fluctuations of market interest rates
                                                                            and foreign currency fluctuations. No hedge accounting is applied
3.5.2 Available-for-sale financial assets                                   for derivative instruments. Derivative financial instruments are
(b) Available-for-sale financial assets                                     initially recognized at fair value on the date on which the deriva-
Available-for-sale assets are those intended to be held for an in-          tive contract is entered into and are subsequently measured at fair
definite amount of time, which may be sold in response to needs             value and the change in fair values is recognized in profit or loss.
for liquidity or changes in interest rates, exchange rates or equity
prices.                                                                     3.7 Interest income and expense
At initial recognition, available-for-sale financial assets are record-
ed at fair value plus transaction costs, if any. Subsequently they are      Interest income and expense for all interest-bearing financial in-
carried at fair value. The fair values reported are either observable       struments are recognized through profit or loss for the period
market prices or values calculated with a valuation technique based         within ‘interest income’ and ‘interest expense’ using the effective
on current observable market. For very short-term financial assets          interest method.
it is assumed that the fair value is best reflected by the transac-         The effective interest method is a method of calculating the amor-
tion price itself. Gains and losses arising from changes in fair value      tized cost of a financial asset or a financial liability and of allocating
52     A nnual Repor t 2009

     the interest income or interest expense over the relevant period.         use of an allowance account and the amount of the loss is recog-
     The effective interest rate is the rate that exactly discounts esti-      nized in the profit or loss for the year.
     mated future cash payments or receipts through the expected life          The calculation of the present value of the estimated future cash
     of the financial instrument or, when appropriate, a shorter period        flows of a collateralized financial asset reflects the cash flows that
     to the net carrying amount of the financial asset or financial liabil-    may result from foreclosure less costs for obtaining and selling the
     ity. When calculating the effective interest rate, the Bank estimates     collateral, whether or not foreclosure is probable.
     cash flows considering all contractual terms of the financial instru-     For the purposes of a collective evaluation of impairment, financial
     ment but does not consider future credit losses. The calculation          assets are grouped on the basis of similar credit risk characteris-
     includes all fees and points paid or received between parties to          tics (i.e., on the basis of the Bank’s grading process that considers
     the contract that are an integral part of the effective interest rate,    asset type, industry, geographical location, collateral type, past-
     transaction costs and all other premiums or discounts.                    due status and other relevant factors). Those characteristics are
     Once a financial asset or a group of similar financial assets has         relevant to the estimation of future cash flows for groups of such
     been written down as a result of an impairment loss, interest in-         assets by being indicative of the debtors’ ability to pay all amounts
     come is recognized using the rate of interest used to discount the        due according to the contractual terms of the assets being evalu-
     future cash flows for the purpose of measuring the impairment             ated.
     loss.                                                                     All loans having outstanding amount of EUR 30 thousand or more
                                                                               (2008: EUR 50 thousand or more) are assessed individually while
     3.8 Fee and commission income                                             loans below this threshold level are considered insignificant and
                                                                               assessed on group basis showing indications of loss events. So
     Fees and commissions are generally recognized on an accrual ba-           for insignificant impaired loans the following allowance levels are
     sis when the service has been provided. Loan commitment fees for          calculated based on the historical experience of the Bank in the
     loans that are likely to be drawn down are deferred (together with        similar economic environments, where during 2009 the Bank has
     related direct costs) and recognized as an adjustment to the effec-       reassessed the group allowance levels based on historic and per-
     tive interest rate on the loan.                                           formance analysis. The impact of change of this assessment has
                                                                               been recognised in current year profit and loss.
     3.9 Impairment of financial assets
                                                                                                           Allowance Level        Allowance Level
     (a) Impairment of loans and advances                                                                             2009                  2008
     The Bank assesses at each balance sheet date whether there is ob-           arrears 0–30 days (2008: 0-7 days) 1.4%                      1%
     jective evidence that a financial asset or group of financial assets is                        (2008: 8-30 days) 1.4%                   30%
     impaired. A financial asset or a group of financial assets is impaired      arrears 31–90 days                    50%                   60%
     only if there is objective evidence of impairment as a result of one        arrears > 90 days                    80%                    90%
     or more events that occurred after the initial recognition of the as-       arrears > 180 days                  100%                  100%
     set (a ‘loss event’) and that loss event (or events) has an impact on
     the estimated future cash flows of the financial asset or group of        Future cash flows in a group of financial assets that are collectively
     financial assets that can be reliably estimated.                          evaluated for impairment are estimated on the basis of the contrac-
                                                                               tual cash flows of the assets in the Bank and historical loss experi-
     The criteria that the Bank uses to determine that there is objective      ence for assets with credit risk characteristics similar to those in
     evidence of an impairment loss include:                                   the Bank. Historical loss experience is adjusted on the basis of cur-
     • Delinquency in contractual payments of principal or interest;           rent observable data to reflect the effects of current conditions that
     • Cash flow difficulties experienced by the borrower (for exam-           did not affect the period on which the historical loss experience is
         ple, equity ratio, net income percentage of sales);                   based and to remove the effects of conditions in the historical pe-
     • Breach of loan covenants or conditions;                                 riod that do not currently exist.
     • Initiation of bankruptcy proceedings;                                   Estimates of changes in future cash flows for groups of assets
     • Deterioration of the borrower’s competitive position;                   should reflect and be directionally consistent with changes in re-
     • Deterioration in the value of collateral.                               lated observable data from period to period (for example, changes
                                                                               in unemployment rates, property prices, payment status, or other
     The estimated period between a loss occurring and its identifica-         factors indicative of changes in the probability of losses in the Bank
     tion is determined by local management for each identified portfo-        and their magnitude). The methodology and assumptions used for
     lio. In general, the periods used vary between three months and 12        estimating future cash flows are reviewed regularly by the Bank to
     months; in exceptional cases, longer periods are warranted.               reduce any differences between loss estimates and actual loss ex-
     The Bank first assesses whether objective evidence of impairment          perience.
     exists individually for financial assets that are individually signifi-   When a loan is uncollectible, it is written off against the related pro-
     cant, and individually or collectively for financial assets that are      vision for loan impairment. Such loans are written off after all the
     not individually significant. If the Bank determines that no objec-       necessary procedures have been completed and the amount of the
     tive evidence of impairment exists for an individually assessed fi-       loss has been determined.
     nancial asset, whether significant or not, it includes the asset in       If, in a subsequent period, the amount of the impairment loss de-
     a group of financial assets with similar credit risk characteristics      creases and the decrease can be related objectively to an event
     and collectively assesses them for impairment. Assets that are in-        occurring after the impairment was recognized (such as an im-
     dividually assessed for impairment and for which an impairment            provement in the debtor’s credit rating), the previously recognized
     loss is or continues to be recognized are not included in a collective    impairment loss is reversed by adjusting the allowance account.
     assessment of impairment.                                                 The amount of the reversal is recognized in the profit or loss in im-
     The amount of the loss is measured as the difference between the          pairment charge for credit losses.
     asset’s carrying amount and the present value of estimated future
     cash flows (excluding future credit losses that have not been in-         (b) Impairment of available-for-sale financial assets
     curred) discounted at the financial asset’s original effective inter-     The Bank assesses at each balance sheet date whether there is ob-
     est rate. The carrying amount of the asset is reduced through the         jective evidence that a financial asset or a group of financial assets
                                                                                                            Fin a nci a l Stat e men t s         53

is impaired. In the case of debt investments classified as available       Description                     Useful life          Useful life
for sale, a significant or prolonged decline in the fair value of the                                            2009                 2008
security below its cost is considered in determining whether the as-       Buildings                      15-40 years              20 years
sets are impaired. If any such evidence exists for available-for-sale      Leasehold improvements            Based on            Based on
financial assets, the cumulative loss – measured as the difference                                         lease term           lease term
between the acquisition cost and the current fair value, less any          Computers                         2-5 years            2-5 years
impairment loss on that financial asset previously recognised in           Furniture                        5-10 years              5 years
profit or loss – is removed from other comprehensive income and            Motor vehicles                    3-5 years              5 years
recognised in the profit or loss. If, in a subsequent period, the fair     Other fixed assets                2-7 years              5 years
value of a debt instrument classified as available for sale increases      Intangible assets
and the increase can be objectively related to an event occurring          in our property                    5 years               5 years
after the impairment loss was recognised in profit or loss, the im-
pairment loss is reversed through the profit or loss for the year.       The assets’ residual values and useful lives are reviewed, and ad-
                                                                         justed if appropriate, at each balance sheet date. Assets which are
3.10 Cash and cash equivalents                                           below 50 EUR are depreciated 100% (2008: below 1,000 EUR).
                                                                         Gains and losses on disposals are determined by comparing pro-
Cash and cash equivalents are items which can be converted into          ceeds with carrying amount. These are included in other income or
cash at short notice (less than three months maturity) and which         other operating expenses (as appropriate) in profit or loss.
are subject to an insignificant risk of changes in value. Amounts
which relate to funds that are of a restricted nature are excluded       3.11(a) Intangible assets
from cash and cash equivalents.
                                                                         Intangible assets are recognized if it is probable that the future
3.11 Property and equipment                                              economic benefits that are attributable to the asset will flow to the
                                                                         Bank and the cost of the asset can be measured reliably. Intangible
Property and equipment are stated at historical cost less accumu-        assets are measured initially at cost. The carrying values of intan-
lated depreciation and accumulated impairment, if any. Historical        gible assets are reviewed for impairment when events or changes
cost includes expenditure that is directly attributable to the acqui-    in circumstances indicate that the carrying value may not be recov-
sition of the items of property and equipment.                           erable. Intangible assets are entirely comprised of computer soft-
Subsequent costs are included in the asset’s carrying amount or          ware which is amortized using the straight-line method over their
are recognized as a separate asset, as appropriate, only when it         estimated useful life of five years.
is probable that future economic benefits associated with the item
will flow to the Bank and the cost of the item can be measured reli-     3.12 Borrowings
ably. All other repairs and maintenance are charged to other operat-
ing expenses during the financial period in which they are incurred.     Borrowings are recognized initially at fair value net of transaction
The carrying values of property and equipment are reviewed for im-       costs incurred. Borrowings are subsequently stated at amortized
pairment when events change or changes in circumstances indicate         cost; any difference between proceeds net of transaction costs and
that the carrying value may not be recoverable. If any such indica-      the redemption value is recognized in the profit or loss over the pe-
tions exist and where the carrying values exceed the estimated re-       riod of the borrowings using the effective interest method.
coverable amount, the assets or cash-generating units are written
down to their recoverable amount.                                        3.13 Provisions
The recoverable amount of property and equipment is the greater
of fair value less costs to sell and value in use. In assessing the      Provisions for legal claims are recognized when: the Bank has a
value in use, the estimated future cash flows are discounted to          present legal or constructive obligation as a result of past events;
their present value using a pre-tax discount rate that reflects cur-     it is more likely than not that an outflow of resources will be re-
rent market assessments of the time value of money and the risks         quired to settle the obligation; and the amount has been reliably
specific to the assets.                                                  estimated.
For an asset that does not generate largely independent cash flows,      Where there are a number of similar obligations, the likelihood that
the recoverable amount is determined for the cash-generating unit        an outflow will be required in settlement is determined by consid-
to which the asset belongs. Impairment losses are recognized in          ering the class of obligations as a whole. A provision is recognized
the profit or loss.                                                      even if the likelihood of an outflow with respect to any item includ-
Land is not depreciated. Depreciation of assets is charged on a          ed in the same class of obligations may be small.
straight-line basis at prescribed rates to allocate the cost of prop-    Provisions are measured at the present value of the expenditures
erty and equipment over their estimated useful lives. The annual         expected to be required to settle the obligation using a pre-tax
depreciation rates are determined by the estimated useful lives of       rate that reflects current market assessments of the time value of
certain assets as per the table below:                                   money and the risks specific to the obligation. The increase in the
                                                                         provision due to passage of time is recognized as interest expense.

                                                                         3.14 Employee benefits

                                                                         The Bank pays only contributions to a publicly administered pen-
                                                                         sion plan on a mandatory basis. The Bank has no further payment
                                                                         obligations once the contributions have been paid. The contribu-
                                                                         tions are recognized as employee benefit expense when they are
54     A nnual Repor t 2009

     3.15 Operating leases                                                      Estimates and judgments are continually evaluated and based on
                                                                                historical experience and other factors, including expectations of
     Payments made under operating leases are charged to expenses on            future events that are believed to be reasonable under the circum-
     a straight-line basis over the term of the lease. When an operating        stances.
     lease is terminated before the lease period has expired, any pay-
     ment required to be made to the lessor by way of penalty is recog-         a) Impairment charge for credit losses
     nized as an expense in the period in which termination takes place.        The Bank reviews its loan portfolios to assess impairment at least
                                                                                on a quarterly basis. In determining whether an impairment loss
     3.16 Off-balance sheet commitments and contingencies                       should be recorded in the profit or loss, the Bank makes judgments
                                                                                as to whether there is any observable data indicating that there is
     In the ordinary course of its business, the Bank enters into credit        a measurable decrease in the estimated future cash flows from a
     related commitments, which are recorded to off-balance sheet ac-           portfolio of loans before the decrease can be identified with an in-
     counts and primarily include guarantees, letters of credit and un-         dividual loan in that portfolio. This evidence may include observ-
     drawn loan commitments. Such financial commitments are record-             able data indicating that there has been an adverse change in the
     ed in the Bank’s balance sheet if and when they become payable.            payment status of borrowers in a Bank, or national or local eco-
                                                                                nomic conditions that correlate with defaults on assets in the Bank.
     3.17 Income tax                                                            Management uses estimates based on historical loss experience
                                                                                for assets with credit risk characteristics and objective evidence
     Current income tax is calculated based on the income tax regula-           of impairment similar to those in the portfolio when scheduling
     tions applicable in Kosovo, using tax rates enacted at the balance         its future cash flows. The methodology and assumptions used for
     sheet date. Effective from January 1, 2009, the tax rate on corpo-         estimating both the amount and timing of future cash flows are re-
     rate income is set at 10% in accordance with Kosovo tax regulations        viewed regularly to reduce any differences between loss estimates
     currently in force, Law no. 03/L-113 “On Corporate Income Tax”.            and actual loss experience.
     The income tax charge in the profit or loss for the year comprises
     current tax and changes in deferred tax. Current tax is calculated         b) Impairment of available for-sale investments
     on the basis of the expected taxable profit for the year using the tax     The Bank determines that available-for-sale investments are im-
     rates in force at the balance sheet date. Taxable profit differs from      paired when there has been a significant or prolonged decline in
     profit as reported in the profit or loss because it excludes items of      the fair value below its cost. This determination of what is signifi-
     income or expense that are taxable or deductible in other years and        cant or prolonged requires judgment. In making this judgment, the
     it further excludes items that are never taxable or deductible. Taxes      Bank evaluates among other factors, the normal volatility in share
     other than income taxes are recorded within operating expenses.            price. In addition, impairment may be appropriate when there is
     Deferred income tax is accounted for using the balance sheet liabil-       evidence of deterioration in the financial health of the investee,
     ity method for all temporary differences arising between the tax           industry and sector performance, changes in technology, and op-
     base of assets and liabilities and their carrying amounts for finan-       erational and financing cash flows.
     cial reporting purposes.
     Deferred tax liabilities are recognized for all taxable temporary dif-     c) Impairment of foreclosed assets
     ferences. Deferred tax assets are recognized for all deductible tem-       The process of calculating impairment loss requires that the man-
     porary differences, carry-forward of unused tax assets and unused          agement make significant and complex assumptions regarding the
     tax losses, to the extent that it is probable that taxable profit will     projected period of sale of foreclosed assets, their estimated net
     be available against which the deductible temporary differences,           sales value and the corresponding discount rate, in order to dis-
     carry-forward of unused tax assets and unused tax losses can be            count to net present value the expected cash flow from sale of spe-
     utilized. The carrying amount of deferred income tax assets is re-         cific items of foreclosed properties.
     viewed at each balance sheet date and reduced to the extent that it        Management of the Bank are confident that the foreclosed assets
     is no longer probable that sufficient taxable profit will be available     will be sold in a reasonable time frame, with no loss. On the con-
     to allow all or part of the deferred income tax asset to be utilized.      trary, adjustments will be made in future periods if future market
     Deferred income tax assets and liabilities are measured at the tax         activity indicates that such adjustments are appropriate.
     rates that are expected to apply to the period when the asset is real-
     ized or the liability is settled, based on tax rates (and tax laws) that   d) Recent volatility in global financial markets
     have been enacted or substantively enacted at the balance sheet            The unprecedented crisis in international financial markets, during
     date.                                                                      2008, did not have a direct impact in the financial sector in Kos-
                                                                                ovo, as there was no major exposure of the sector abroad. The Ko-
     3.18 Share capital                                                         sovo banking sector continued its normal operations by relying on
                                                                                lending to the domestic economy, while its main source of finance
     (a) Share issue costs                                                      remained deposits in Kosovo. As a result, the banking sector was
     Incremental costs directly attributable to the issue of new shares         characterized by a significant growth in terms of its assets.
     are shown in equity as a deduction, net of tax, from the proceeds.         To maintain stability of the Bank, the management has reduced the
                                                                                inter-bank risk. Exposures with ProCredit Group sister banks have
     (b) Dividends on ordinary shares                                           been reduced and maintained within internal limits. Exposures
     Dividends on ordinary shares are recognized in equity in the period        with correspondent banks were also closely monitored. In order to
     in which they are approved by the Bank’s shareholders.                     further diversify the inter-bank risk, we have opened three new cor-
     Dividends for the year that are declared after the balance sheet           respondent accounts during 2008 with highly rated banks.
     date are dealt with in the subsequent events note.
                                                                                3.20 Corresponding figures
     3.19 Critical accounting judgments and key sources
          of estimation uncertainty                                             Certain corresponding figures, as detailed below, are reclassified
                                                                                in order to conform to the current year financial statements pres-
     The Bank makes estimates and assumptions that affect the report-           entation.
     ed amounts of assets and liabilities within the next financial year.
                                                                                                             Fin a nci a l Stat e men t s          55

a) Charges regarding financial and ATM services from Quipu                The operational measurements can be contrasted with impairment
amounting to EUR 1,391 thousand are reclassified as “fee and com-         allowances required under IAS 39, which are based on losses that
mission expense” instead of ‘operating expenses.                          have been incurred at the balance sheet date (the ‘incurred loss
                                                                          model’) rather than expected losses (Note 3.9 above).

4.   Financial risk management                                            (b) Due from banks
                                                                          Interbank exposures are closely monitored on daily basis by risk
The Bank’s activities expose it to a variety of financial risks and       management and treasury department. The Bank limits its depos-
those activities involve the analysis, evaluation, acceptance and         its and other banking transactions to sound local or international
management of some degree of risk or combination of risks. Taking         banks. Before a business relationship is initiated with a given bank,
risk is core to the financial business, and the operational risks are     the management as well as Risk Department carries out an analysis
an inevitable consequence of being in business. The Bank’s aim is         of the institution’s financial standing. The financial performance
therefore to achieve an appropriate balance between risk and re-          of the counterparties is continuously monitored. Moreover, all cor-
turn and minimize potential adverse effects on the Bank’s financial       respondent banks as well as bond issuers in which the Bank has
performance.                                                              investment exposures are continuously monitored for their ratings
The Bank’s risk management policies are designed to identify and          by international rating agencies like: Standard & Poor’s, Fitch and
analyze these risks, to set appropriate risk limits and controls, and     Moody’s.
to monitor the risks and adherence to limits by means of reliable         A function independent from the treasury department, usually risk
and up-to-date information systems. The Bank regularly reviews its        management, has to monitor that the exposure toward all banks
risk management policies and systems to reflect changes in mar-           does not exceed the limits set by the regulatory or internal limits
kets, products and emerging best practice.                                set by the management of the Bank. Thus, risk management is sup-
Risk management is carried out primarily by the risk department           porting the treasury department by providing daily reports that
and the risk management department in the Bank works under the            indicate the exposures and placements that can be made to all cor-
policies approved by the Board of Directors. The Board provides           respondent banks without violating present exposure limits.
written principles for overall risk management, as well as written        In addition, all large placements are approved by the Asset and Li-
policies covering specific areas, such as creditt risk, foreign ex-       ability Committee (“ALCO”), in which Management Board Members
change risk, interest rate risk and liquidity risk. In addition, inter-   and senior management staff members participate. Only when
nal audit is responsible for the independent review of risk manage-       both Treasury and Risk Management agree to a limit for a bank (two
ment and the control environment.                                         positive vetoes) should Management approve a line.
The Bank is exposed to credit risk, liquidity risk, market risk and       In accordance to the Amended Rule II of the Central Bank of Kosovo
other operational risk. Market risk includes currency risk, interest      on Credit Risk Exposures Authorized under Section 27 of UNMIK
rate and other price risk.                                                Regulations 1999/21, banks shall not have any aggregate credit
                                                                          risk exposure to related counterparties exceeding 20% of Tier I
4.1 Credit risk                                                           Regulatory Capital. In addition, to further reduce the counterparty
                                                                          risk, the ALCO has approved internal limits on counterparty expo-
The Bank takes on exposure to credit risk, which is the risk that a       sures slightly below the regulatory requirements, which limits have
counterparty will cause a financial loss for the Bank by failing to       continuously been maintained by the Bank.
discharge an obligation. Credit risk is the most important risk for       Exposure to debt securities are regulated by the Investment Guide-
the Bank’s business; management therefore carefully manages               line which is part of Treasury Policy and Procedures.
its exposure to credit risk. Credit exposures arise principally in
lending activities that lead to loans and advances, and invest-           (c) Debt securities: financial assets at fair value through profit and
ment activities that bring placements and debt securities into            loss and financial assets available for sale
the Bank’s asset portfolio. There is also credit risk in off-balance      Investments in debt securities are done in sovereigns, central
sheet financial instruments, such as letter of credits, guarantees        banks and other supranational borrowers rated as AAA by Fitch,
and loan commitments. The credit risk management and control              S&P or Moody’s.
for loans and advances are centralized in the credit risk manage-         Investments are allowed only in liquid securities that have high
ment department, while the interbank risk for placements and debt         credit rating. Given their high credit ratings, management of the
securities are concentrated in the Treasury and Risk Management           Bank does not expect any counterparty to fail to meet its obliga-
Departments. All departments responsible for credit risk manage-          tions. The maximum exposure to credit risk is represented by the
ment and control, report to the Management Board and to the Board         carrying amount of each financial asset in the balance sheet.
of Directors, regularly.
                                                                          4.1.2 Risk limit control and mitigation policies
4.1.1 Credit risk measurement                                             The Bank manages, limits and controls the concentrations of credit
(a) Loans and advances to customers                                       risk wherever they are identified − in particular, to individual coun-
In measuring credit risk of loans and advances at a counterparty          terparties and groups, and to affiliates.
level, the Bank reflects three components (i) the ‘probability of de-     The Bank structures the levels of credit risk it undertakes by plac-
fault’ by the client or counterparty on its contractual obligations;      ing limits on the amount of risk accepted in relation to one bor-
(ii) current exposures to the counterparty and its likely future de-      rower, or group of borrowers, and to geographical and industry
velopment, from which the Bank derive the ‘exposure at default’;          segments. Such risks are monitored on a regular basis and subject
and (iii) the likely recovery ratio on the defaulted obligations (the     to an annual or more frequent review, when considered necessary.
‘loss given default’).                                                    Limits on the level of credit risk by product and industry sector are
These credit risk measurements, which reflect expected loss (the          approved by the Board of Directors.
‘expected loss model’) and are required by the Basel Committee            Exposure to credit risk is also managed through regular analysis of
on Banking Regulations and the Supervisory Practices (the “Basel          the ability of borrowers and potential borrowers to meet interest
Committee”), are embedded in the Bank’s daily operational man-            and capital repayment obligations and by changing these lending
agement.                                                                  limits where appropriate. Some other specific control and mitiga-
                                                                          tion measures are outlined below.
56       A nnual Repor t 2009

     a) Collateral                                                               The Bank’s policy requires the review of individual loans and ad-
     The Bank employs a range of policies and practices to mitigate              vances to customers that are above materiality thresholds of EUR
     credit risk. The most traditional of these is the taking of security for    30 thousand (2008: EUR 50 thousand) at least quarterly or more
     funds advances, which is common practice. The Bank implements               regularly when individual circumstances require. Impairment al-
     guidelines on the acceptability of specific classes of collateral or        lowances on individually assessed accounts are determined by an
     credit risk mitigation. The principal collateral types for loans and        evaluation of the incurred loss at balance-sheet date on a case-by-
     advances are:                                                               case basis, and are applied to all individually significant accounts.
                                                                                 The assessment normally encompasses collateral held (including
     •    Mortgages over residential properties;                                 re-confirmation of its enforceability) and the anticipated receipts
     •    Charges over business assets such as premises, equipment               for that individual account.
          and inventory;
     •    Charges over cash and cash equivalents (cash collateral).              4.1.4 Maximum exposure to credit risk before collateral held or
                                                                                       other credit enhancements
     Loans to corporate entities and individuals are generally secured;
     private individual overdrafts and credit cards issued to individuals                                                     Maximum Exposure
     are secured by cash collateral at the full amount of principal, inter-                                         December 31    December 31
     est and other charges. In addition, in order to minimize the credit                                                   2009           2008
     loss the Bank will seek additional collateral from the counterparty           Credit risk exposures relating to
     as soon as impairment indicators are noticed for the relevant indi-           on-balance sheet assets are as follows:
     vidual loans and advances.                                                    Due from banks                        71,676         69,689
                                                                                   Loans and advances to customers:
     b) Credit-related contingencies                                               Loans to individuals:
     The primary purpose of these instruments is to ensure that funds                Overdrafts                           2,032           1,431
     are available to a customer as required. Guarantees and standby                 Credit cards                         1,462           1,772
     letters of credit carry the same credit risk as loans and are secured           Consumer loans                       11,555        13,240
     with same collateral as loans.                                                  Home improvement                    98,673         80,069
                                                                                   Loans to corporate entities:
     4.1.3 Impairment and provisioning                                               Business overdrafts                 34,329          27,772
     Impairment provisions are recognized for financial reporting pur-               Business up to EUR 150 thousand 194,310           203,250
     poses only for losses that have been incurred at the balance sheet              Business greater than
     date based on objective evidence of impairment (see Note 3.9                    EUR 150 thousand                   130,370        113,078
     above).                                                                       Financial assets at fair value
     The Bank’s policy requires the review of individual financial as-             through profit and loss               46,461         22,535
     sets that are above materiality thresholds at least annually or more          Financial assets available for sale    9,078          17,363
     regularly when individual circumstances require. Impairment al-               Derivative financial instruments         226               8
     lowances on individually assessed accounts are determined by an               Other assets                           4,096           5,678
     evaluation of the incurred loss at balance-sheet date on a case-by-
     case basis, and are applied to all individually significant accounts.         Credit risk exposures relating to off-balance
     The assessment normally encompasses collateral held (including                sheet items are as follows:
     re-confirmation of its enforceability) and the anticipated receipts           Loan commitments and other
     for that individual account.                                                  credit related liabilities             35,736           44,432
     The collective assessment of the impairment of a group of finan-              Financial guarantees                    12,357          12,029
     cial assets is based on a quantitative analysis of historical default         Letters of credit                        1,665           17,622
     rates for loan portfolios with similar risk characteristics. The quan-        Total                                 654,027          629,968
     titative default rates calculated in this manner were subjected to a
     qualitative analysis (migration analysis).                                  The above table represents a worst case scenario of credit risk ex-
     According to internal methodology of the Bank, classification is            posure of the Bank at 31 December 2009 and 2008, without tak-
     done by applying the principle of the number of days in arrears in          ing account of any collateral held or other credit enhancements at-
     repayment of the loan liabilities by clients.                               tached. For on-balance-sheet assets, the exposures set out above
                                                                                 are based on net carrying amounts as reported in the balance sheet.
     The table below shows the percentage of the Bank’s on- and off-             As shown above, 83% (2008: 80%) of the total maximum on balance
     balance sheet items relating to loans and advances and the asso-            sheet exposure is derived from loans and advances to banks and
     ciated impairment provision for each of the Bank’s internal rating          customers.
     categories:                                                                 Management is confident in its ability to continue to control and
                                                                                 sustain minimal exposure of credit risk to the Bank resulting from
     Bank’s rating                                                               both its loan and advances portfolio and debt securities.

                                                                                        2009                                               2008
         in %                            Loans and advances              Impairment provision     Loans and advances        Impairment provision
         Standard (0–30 days in arrears)              95.87                             2.46                   98.57                        2.30
         Watch (31–60 days in arrears)                 2.12                              9.25                   0.24                      46.41
         Substandard (61–90 days in arrears)           0.43                            47.98                    0.12                      66.13
         Doubtful (91–180 days in arrears)             0.17                            45.52                    0.34                      92.88
         Loss (more than 180 days in arrears           1.42                            85.86                    0.73                      98.09
                                                     100.00                                                   100.00
                                                                                                            Fin a nci a l Stat e men t s    57

4.1.5 Loans and advances
Loans and advances are summarized as follows:

                                                                         December 31, 2009                             December 31, 2008
                                                Loans and advances      Loans and advances      Loans and advances    Loans and advances
                                                       to customers                to banks            to customers              to banks
  Neither past due nor impaired                             443,622                  71,676                 421,642                69,761
  Past due but not impaired                                  12,541                       –                   5,595                     –
  Impaired                                                   16,569                       –                  13,375                     –
  Gross loans                                               472,732                  71,676                 440,612                69,761

  Less: allowances for impairment                           (19,166)                      –                (16,045)                  (72)

  Net loans                                                 453,566                  71,676                424,567                69,689

a) Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were
neither past due nor impaired can be assessed by reference to the
internal rating system adopted by the Bank.

                                  December 31,      December 31,
                                        2009              2008
  Loans to individuals:
   Overdrafts                             1,965             1,436
   Credit cards                           1,455             1,772
   Consumer loans                        11,425            13,127
   Home improvement                      97,949            79,519

  Loans to corporate entities:
   Business overdrafts               33,319                26,508
   Business up to EUR 150 thousand 191,364                195,001
   Business greater than
   EUR 150 thousand                 106,145              104,279
  Total                            443,622               421,642

(b) Loans and advances past due but not impaired
Loans and advances less than 30 days (2008: 8 days) past due are
not considered impaired, unless other information is available to in-
dicate the contrary. Carrying amount of loans and advances by class
to customers that were past due but not impaired were as follows:

31 December 2009

                                                    Individual (retail customers)                                      Corporate entities
                            Overdraft         Credit   Consumer             Home    Business        Business   Business            Total
                                              Cards         Loans Improvement       Overdraft        <=150K      >150K
  Past due 1– 7 days                 –            1             20              9         47             524          –              601
  Past due 8 – 30 days               9            2             53            225        222           1,903      3,968            6,382
  Past due 31 – 90 days              3            –             26            172         51           1,231          –            1,483
  Past due 91 – 180 days            10            4             32            298        192           3,380        159            4,075
  Total                             22            7           131             704        512           7,038      4,127           12,541

31 December 2008

                                                    Individual (retail customers)                                      Corporate entities
                            Overdraft         Credit   Consumer             Home    Business       Business    Business            Total
                                              Cards         Loans Improvement       Overdraft       <=150K       >150K
  Past due 1– 7 days                 –            –             17             15         90             167          –              289
  Past due 8 – 30 days               5            –             35            126          9           1,044          –            1,219
  Past due 31 – 90 days              –            –              9            126        101             994          –            1,230
  Past due 91 – 180 days             8            –             49            246        375           2,179          –            2,857
  Total                             13            –           110             513        575           4,384          –            5,595
58     A nnual Repor t 2009

     (c) Loans and advances individually impaired                               on indicators or criteria which, in the judgment of local manage-
     The breakdown of the gross amount of individually impaired loans           ment, indicate that payment will most likely continue. These poli-
     and advances by class, along with the fair value of related collateral     cies are kept under continuous review. Restructuring is most com-
     held by the Bank as security, are as follows:                              monly applied to term loans, in particular customer finance loans.
                                                                                Renegotiated loans that would otherwise be past due or impaired
                                                     Corporate entities         totaled EUR 11,647 thousand (2007: EUR 4,755 thousand).
                                 Business         Business       Total
                            (up to EUR 150    (over EUR 150                     (e) Repossessed collateral
                                thousand)        thousand)
       December 31, 2009                                                                              Outstanding amount                Fair Value
       Individually impaired loans 4,949             11,619     16,569             2009:
       Fair value of collateral       830             4,154      4,984             Land                               16                       16
                                                                                   Building or apartment             166                      143
       December 31, 2008                                                                                             182                      159
       Impaired loans               4,361             9,014     13,375             2008:
       Fair value of collateral       398             1,039      1,437             Land                               16                       16
                                                                                   Building or apartment             136                      143
     (d) Loans and advances renegotiated                                                                             152                      159
     Mostly driven by the significantly changed macro-economic envi-
     ronment the client operates in, restructurings follow a thorough,
     careful and individual analysis of the new payment capacity of the         4.1.6 Debt securities
     client. The decision to restructure a credit exposure is always taken      During 2009 the Bank was more conservative in regard to its risk
     by a credit committee and aims at full recovery of the credit expo-        taking activities from investments in debt securities since there
     sure.                                                                      were investments only in sovereigns, governments and central
     Restructuring activities include extended payment arrangements,            banks rated AAA (from Fitch, S&P or Moody’s). However, the table
     approved external management plans, modification and deferral of           below presents the whole portfolio of debt securities (other than
     payments. Following restructuring, a previously overdue customer           accrued interest) which consists also from lower rated securities,
     account is reset to a normal status and managed together with oth-         than ones mentioned above, which are in our portfolio from the
     er similar accounts. Restructuring policies and practices are based        previous years.

                                                                               31 December 2009

       Ratings                                             Financial assets with fair values                   Available                     Total
                                                                    through profit and loss                     for sale
       AAA                                                                           42,430                       1,751                   44,181
       AA+ to AA-                                                                          –                      2,054                    2,054
       A+ to A-                                                                        3,022                      4,814                    7,836
       Not-rated                                                                           –                        400                      400
       Total                                                                         45,452                       9,019                   54,471

                                                                                31 December 2008

       Ratings                                             Financial assets with fair values                   Available                     Total
                                                                    through profit and loss                     for sale
       AAA                                                                             5,096                      1,782                    6,878
       AA- to AA+                                                                    10,602                       7,219                   17,821
       A- to A+                                                                        5,929                      5,069                   10,998
       Lower than A-                                                                     800                      2,690                    3,490
       Not- rated                                                                          –                        400                      400
       Total                                                                         22,427                      17,160                   39,587

                                                                                4.1.7 Due from banks
                                                                                Due from banks are neither past due not impaired. Loans and ad-
                                                                                vances to banks are granted without collateral.

                                                                                4.1.8 Concentrations
                                                                                Concentrations arise when a number of counterparties are en-
                                                                                gaged in similar business activities, or activities in the same geo-
                                                                                graphical region, or have similar economic features that would
                                                                                cause their ability to meet contractual obligations to be similarly
                                                                                affected by changes in economic, political or other conditions.
                                                                                Concentrations indicate the relative sensitivity of the Bank’s per-
                                                                                formance to developments affecting a particular industry or geo-
                                                                                graphical location.
                                                                                                                Fin a nci a l Stat e men t s    59

a) Geographical sectors
The following table breaks down the Bank’s main credit exposure
at their carrying amounts, as categorized by geographical region
as of 31 December 2009. For this table, the Bank has allocated
exposures to regions based on the country of domicile of its coun-

  31 December 2009                                            OECD countries         Other countries             Kosovo                Total
  Due from banks                                                     58,215                   13,461                  –              71,676
  Loans and advances to customers:
  Loans to individuals:
   Overdrafts                                                                –                      –             2,032              2,032
   Credit cards                                                              –                      –             1,462              1,462
   Consumer loans                                                            –                      –            11,555             11,555
   Home improvement                                                          –                      –            98,673             98,673
  Loans to corporate entities:
    Business overdrafts                                                      –                      –
    Business up to 150K                                                      –                      –            34,329             34,329
    Business greater than 150K                                               –                      –           194,310            194,310
  Financial assets at fair value through profit and loss                46,461                      –                 –             46,461
  Available-for-sale financial assets                                    9,078                      –                 –              9,078
  Derivative financial instruments                                         226                      –                 –                226
  Other assets                                                               –                      –             4,096              4,096

  As at December 31, 2009                                               113,980                13,461          476,828             604,269

   31 December 2008                                           OECD countries          Other countries            Kosovo                Total
   Due from banks                                                    56,281                   13,408                  –              69,689
   Loans and advances to customers:
   Loans to individuals:
     Overdrafts                                                               –                      –            1,436               1,436
     Credit cards                                                             –                      –            1,772               1,772
     Consumer loans                                                           –                      –           13,240              13,240
     Home improvement                                                         –                      –           80,069              80,069
   Loans to corporate entities:
     Business overdrafts                                                      –                      –           27,772              27,772
     Business up to 150K                                                      –                      –          203,250             203,250
     Business greater than 150K                                               –                      –          113,078             113,078
   Financial assets at fair value through profit and loss                22,535                      –                –              22,535
   Available-for-sale financial assets                                   17,363                      –                –              17,363
   Derivative financial instruments                                           8                      –                –                   8
   Other assets                                                               –                      –            5,678               5,678

   As at December 31, 2008                                               96,187                13,408           446,295             555,890

b) Industry sectors
The following table breaks down the Bank’s main credit exposure                   Industry sector               As at Dec 31,   As at Dec 31,
at their carrying amounts, as categorized by the industry sectors                                                       2009            2008
of our counterparties.                                                            Trade                               151,947        153,108
                                                                                  Housing                             96,834          80,486
As of December 31, 2009 and 2008, an analysis of loans to custom-                 Industry and other production       53,899          82,369
ers, other than overdraft, credit cards and related interest thereon,             Services other than transport       60,305           27,761
by industry sectors was as follows:                                               Agriculture                         32,904          32,766
                                                                                  Transport                            13,394          14,535
                                                                                  Construction                         25,827         18,807
                                                                                  Total                              435,110        409,832
60     A nnual Repor t 2009

     4.2 Market risk                                                           4.2.1 Foreign currency risk
                                                                               Currency risk is the risk that the value of a financial instrument will
     Market risk is the risk that changes in market prices, such as inter-     fluctuate due to changes in foreign exchange rates. The Bank aim
     est rate, equity prices, foreign exchange rates and credit spreads        not to profit from any speculative transaction, it tries to keep its
     (not relating to changes in the obligor’s / issuer’s credit standing)     open foreign currency position close to zero all times. Open cur-
     will affect the Bank’s income or the value of its holdings of financial   rency position limits and risk taking capacity for the Bank are set
     instruments. The objective of market risk management is to man-           by respective policies, which are approved by Board of Directors, in
     age and control market risk exposures within acceptable param-            place and reviewed daily from risk management department. In ad-
     eters, while optimizing the return on risk.                               dition there are regulatory limits adhered all the time by the Bank.
                                                                               The following table summarizes the assets and liabilities of the
                                                                               Bank denominated in foreign currencies as of 31 December 2009:

        December 31, 2009                                                           EUR            USD            CHF           GBP           Total
        Cash and balances with the Central Bank                                125,797           1,812          2,190              –      129,799
        Loans and advances to banks                                             48,920          22,400            348              8       71,676
        Loans and advances to customers                                        456,256           1,230              –              –      457,486
        Financial assets at fair value through profit and loss                  39,286           7,175              –              –       46,461
        Derivative financial instruments                                           226               –              –              –          226
        Available-for-sale financial assets                                      1,513           7,565              –              –        9,078
        Other assets                                                               301             567              –              –          868
        Total                                                                  672,299          40,750          2,538              8      715,595

        Due to banks                                                               126             852            559              –        1,537
        Due to customers                                                       595,977          40,272          1,995             18      638,262
        Other borrowed funds                                                    26,473               –              –              –       26,473
        Other liabilities                                                        2,271               –              –              –        2,271
        Total                                                                  624,847          41,124          2,554             18      668,543

        Net on-balance sheet financial position                                  47,452           (374)           (16)           (10)       47,051

        Credit commitments                                                       35,330            406               –             –        35,736
        Off balance sheet - Letters of credit                                     1,168            497               –             –         1,665
        Off balance sheet - Bank guarantees                                      11,486            871               –             –        12,357
        Total credit related commitments                                         47,984          1,774               –             –        49,758

        31 December 2008                                                                           EUR           USD             CHF          Total
        Cash and balances with the Central Bank                                                82,853          1,661           2,303       86,817
        Loans and advances to banks                                                            58,102         11,999            (412)      69,689
        Loans and advances to customers                                                       424,567              –               –      424,567
        Financial assets at fair value through profit and loss                                 22,535              –               –       22,535
        Derivative financial instruments                                                            8              –               –            8
        Available-for-sale financial assets                                                     2,262         15,101               –       17,363
        Other assets                                                                            4,553            583                4       5,140
        Total                                                                                 594,880         29,344           1,895      626,119

        Due to banks                                                                            9,539            279              76        9,894
        Due to customers                                                                      537,627         30,086           1,819      569,532
        Other borrowed funds                                                                    8,575              –               –        8,575
        Other liabilities                                                                       3,043              –               –        3,043
        Total                                                                                 558,784         30,365           1,895      591,044

        Net on-balance sheet financial position                                                 36,096        (1,021)              –        35,075

        Credit commitments                                                                      44,432              –              –       44,432
        Off balance sheet - Letters of credit                                                   17,221            401              –       17,622
        Off balance sheet - Bank guarantees                                                     11,388            641              –       12,029
        Total credit related commitments                                                        73,041          1,042              –       74,083
                                                                                                              Fin a nci a l Stat e men t s         61

4.2.2 Interest rate risk                                                  terest rate sensitive accrued or to be accrued in the future together
The Bank is exposed to various risks associated with the effects of       with its principal, whereas the new report takes into consideration
fluctuations in the prevailing levels of market interest rates on its     as interest rate sensitive only the principal (nominal value), the ac-
financial position and cash flows. In contrast to other commercial        crued and fair value changes are considered as non interest rate
banks, ProCredit banks do not aim to earn profits through maturity        sensitive. Loans and advances to customers in arrears more than
transformation or other forms of speculation in the interest rate         90 days are considered as non-interest rate sensitive be it fixed or
market. Rather, the Bank seeks to ensure that the balance sheet           variable.
structure is balanced across all maturities.                              The tables below summarize the Bank’s exposure to interest rate
Since August 2009 the Bank has started to use a new model on in-          risks. Included in the tables are the Bank’s monetary assets and
terest rate risk management which is in full accordance with Basel        liabilities both fixed and non-fixed split up by balance sheet cat-
II. Main difference between two models are that assets and liabili-       egories.
ties were reported based on their cash flow basis, including as in-

EUR Interest Sensitivity GAP 2009:

  At December 31, 2009                                                                                         more         Total      Non
                                                                                                               than      interest interest
                                     0 − 1M     1 − 3M       3 − 6M     6M − 1Y       1 − 2Y      2 − 5Y         5Y     sensitive sensitive
  Cash                                     –          –            –         –             –           –           –            –     31,077
  Central bank
  balances (including MR)            54,138           –          –            –           –            –          –       54,138      42,772
  Nostro accounts                         –           –          –            –           –            –          –            –       9,963
  T-bills & marketable    Fixed      13,000           –     10,000       10,000       2,000            –      1,000       36,000       2,003
  securities           Variable       3,022           –          –            –           –            –          –        3,022           –

  Placements with banks
  and group companies                30,300      9,000           –           –           –            –           –      39,300           13
  Loans and advances     Fixed       20,848     35,128      49,420      87,210     106,328      120,734      20,760     440,428      -14,167
  to customers        Variable          279        587         959      24,226           –            –           –      26,051            –

  Other assets                            –          –            –           –          –            –           –            –      20,775
  Total assets                      121,587     44,715       60,379     121,436    108,328      120,734      21,760      598,938      92,436

  Current liabilities
  to banks (due daily)                     –          –            –         –             –           –           –            –        611
  Current liabilities
  to customers                       96,824           –            –         –             –           –           –      96,824     151,691

  Liabilities to IFIs       Fixed       –            –           –        1,278           –           –           –        1,278       -173
                         Variable       –            –           –            –           –           –           –            –          –
  Liabilities to customers         69,575       66,789      55,966      108,023      10,299      16,297      15,365      342,314      7,235
  Subordinated debt         Fixed       –            –           –            –           –       7,500           –        7,500          –
                         Variable       –            –      17,045            –           –           –           –       17,045        531
  Other liabilities                     –            –           –            –           –           –           –            –     66,517
  Total liabilities               166,399       66,789      73,011      109,301      10,299      23,797      15,365      464,961    226,412

  IR sensitivity
  GAP- Open Position                (44,812) (22,074)      (12,633)      12,135      98,029      96,937       6,395      133,977 (133,976)
62     A nnual Repor t 2009

     EUR Interest Sensitivity Gap 2008:

       At December 31, 2008                                                                               more        Total      Non
                                                                                                          than     interest interest
                                           0 − 1M   1 − 3M   3 − 6M    6M − 1Y      1 − 2Y     2 − 5Y       5Y    sensitive sensitive
       Cash on hand                             –        –        –          –           –          –        –            –   23,519
       Correspondent accounts               2,471        –        –          –           –          –        –       2,471    19,402
       Mandatory reserves                  50,233        –        –          –           –          –        –      50,233     9,100
       Financial assets at fair value       8,730   14,982        –          –          83       904     1,048      25,747          –
       Financial assets at cost                 –        –        –          –           –          –        –            –      400
       Due from Banks                      38,300        –        –          –           –          –        –      38,300          –
       Loans to customers                  23,563   42,621   82,227    102,633    128,937    141,815    24,176     545,972     2,314
       Other assets                             –        –        –          –           –          –        –            –   21,180
       Total assets                       123,297   57,603   82,227    102,633    129,020    142,719    25,224     662,723    75,915

       Liabilities to banks                7,807         –        –         –           –          –         –      7,807      2,610
       Liabilities to IFIs                     –         –      268       268       4,183      1,050     5,350     11,119          –
       Demand deposits                    88,664         –        –         –           –          –         –     88,664    138,184
       Time deposits                       (885)    56,485   52,233    92,838      90,194     23,774         –    314,639          –
       Other liabilities                       –         –        –         –           –          –         –          –      5,364
       Total liabilities                  95,586    56,485   52,501    93,106      94,377     24,824     5,350    422,229    146,158

       IR Sensitivity
       Gap -Open Position                  27,711    1,118   29,726      9,527     34,643    117,895    19,874    240,494    (70,243)

                                                                          During 2009, the Bank management has followed the new report-
                                                                          ing methodologies, as required by the Group.

     USD Interest Sensitivity Gap 2009:

       At December 31, 2009                                                                               more        Total      Non
                                                                                                          than     interest interest
                                           0 − 1M   1 − 3M   3 − 6M    6M − 1Y      1 − 2Y     2 − 5Y       5Y    sensitive sensitive
       Cash                                    –        –         –          –          –          –         –           –     1,812
       Central bank balances
       (including MR)                          –         –        –          –          –          –         –          –          –
       Nostro accounts                     3,894         –        –          –          –          –         –      3,894      2,025
       T-bills & marketable     Fixed          –         –        –      6,247        694          –         –      6,942        234
       securities            Variable      1,388     6,247        –          –          –          –         –      7,636        (70)

       with banks and
       group companies                     12,495    3,492        –        490          –          –         –     16,477          4
       Loans and advances    Fixed             11       20       48        734        140        295         –      1,249          5
       to customers       Variable              –        –        –          –          –          –         –          –          –
       Other assets                             –        –        –          –          –          –         –          –        926
       Total assets                        17,789    9,760       48      7,471        834        295         –     36,198      4,935

       Current liabilities
       to banks (due daily)                    –        –         –          –          –          –         –           –       852
       Current liabilities
       to customers                       13,680        –         –          –          –          –         –     13,680     10,144

       Liabilities to IFIs       Fixed          –        –        –          –          –          –         –          –          –
                              Variable          –        –        –          –          –          –         –          –          –
       Liabilities to customers             4,758    5,094    2,860      3,107        416          –         –     16,236        212
       Subordinated debt         Fixed          –        –        –          –          –          –         –          –          –
                              Variable          –        –        –          –          –          –         –          –          –
       Other liabilities                        –        –        –          –          –          –         –          –          9
       Total liabilities                   18,438    5,094    2,860      3,107        416          –         –     29,916     11,217

       IR sensitivity
       GAP- Open Position                   (649)    4,666   (2,812)     4,364        418        295         –       6,282    (6,282)
                                                                                                              Fin a nci a l Stat e men t s          63

USD Interest Sensitivity Gap 2008:

  At December 31, 2008                                                                                         more            Total      Non
                                                                                                               than         interest interest
                                     0 − 1M     1 − 3M       3 − 6M     6M − 1Y      1 − 2Y       2 − 5Y         5Y        sensitive sensitive
  Cash on hand                            –          –            –           –           –            –          –                –    1,661
  Correspondent accounts                  –          –            –           –           –            –          –                –    5,122
  Financial assets at fair value      3,265     12,627            –           –           –            –          –          15,892          –
  Financial assets at cost                –          –            –           –           –            –          –                –         –
  Loans to banks                      5,041          –        1,834           –           –            –          –           6,875          –
  Loans to customers                      –          –            –           –           –            –          –                –    2,314
  Other assets                            –          –            –           –           –            –          –                –      596
  Total assets                        8,306     12,627        1,834           –           –            –          –          22,767     9,693

  Liabilities to banks                    –          –            –          –            –            –           –             –        279
  Demand deposits                     9,469          –            –          –            –            –           –         9,469      5,228
  Time deposits                       2,900      3,968        2,926      2,666            6            –           –        12,466          –
  Other liabilities                       –          –            –          –            –            –           –             –      2,976
  Total liabilities                  12,369      3,968        2,926      2,666            6            –           –        21,935      8,483

  IR Sensitivity
  Gap - Open Position                (4,063)     8,659      (1,092)     (2,666)          (6)           –           –           832      1,210

During 2009, the Bank management has followed the new report-             ovo operates still serve as a reasonable buffer capable of absorb-
ing methodologies, as required by the Group.                              ing interest rate shocks to some degree.
                                                                          Considering that concentration of EUR deposits in time bucket 1
The Bank’s interest rate risk position is monitored weekly by the         month is high, the Bank has hedged interest rate risk by purchas-
Bank’s ALCO. The interest rate margins with which ProCredit Kos-          ing a 1 month Euribor interest rate cap with strike rate 3.5%. The
                                                                          notional amount of hedged deposits is EUR 65,000 thousand.

OTC interest rate caps at December 31, 2009

                                                   Notional amount                  Premium                 Fair value             Caps strike
  OTC interest rate caps:
  1 month                                                    65,000                      246                      226                   3.50%

OTC interest rate caps at December 31, 2008

                                                   Notional amount                  Premium                 Fair value             Caps strike
  OTC interest rate caps:
  1 month                                                    65,000                      150                           8               4.90%

Potential losses based on extraordinary or rare changes in the yield      weighted modified duration gap of the assets and liabilities should
curve are taken into account in the overall process of guiding the        be less than 1 (and greater than -1) while aiming at a modified dura-
Bank’s operations. At the same time, the Bank is aware that the EUR       tion gap of zero; the limits were met during the reporting period.
or USD interest rates frequently used as benchmarks (Euribor, Li-         In addition, a parallel shift in the yield curve by 200 basis points
bor, Swap or US Treasury interest rate curves) have a limited impact      may not lead to a loss of more than 20% of the regulatory capital
on our business with customers.                                           (Basle interest rate shock). Below is the table containing modified
In quantitative terms, the Bank currently limits the risks associated     duration figures for EUR and USD Positions at December 31, 2009
with interest rate fluctuations by stipulating that the maximum           (at December 31, 2008).

                                                                                        EUR                                              USD
                                                              2009                     2008                    2009                     2008
 Modified Duration GAP                                         0.72                    0.45                     0.12                   (0.05)

                                                                          The Bank does not aim to profit from movements of interest rates.
                                                                          All analysis and calculations are done to quantify the effect on the
                                                                          interest rate movements on economic value of capital and interest
                                                                          earning capacities during certain period of time, consequently miti-
                                                                          gate risks which have an impact on these two parameters.
                                                                          Considering EUR assets and liabilities structure as of 31 December
                                                                          2009 and 2008, and under assumption of parallel shift on inter-
                                                                          est rate for +/-200bp in both asset rate sensitive and liabilities rate
                                                                          sensitive the Banks interest rate risk profile looks as below, where
                                                                          negative figures represent losses.
64     A nnual Repor t 2009

                                                 Interest earning decline           Interest earning decline              Economic Value impact
                                                  over the next 3 months                over the next 1 year
                                                        2009        2008                   2009        2008                      2009       2008
       Increase on interest rates of 2%                 (224)        (75)                (1,325)        778                    (8,572)    (4,899)

     Whereas, considering on USD assets and liabilities structure as
     of 31 December 2009 and 2008, the Bank’s risk profile looks as

                                                 Interest earning decline           Interest earning decline              Economic Value impact
                                                  over the next 3 months                over the next 1 year
                                                        2009        2008                   2009        2008                      2009       2008
       Decrease on interest rates of 2%                     5          46                     52           5                      (85)       (21)

     4.3 Liquidity risk                                                        In the liquidity gap table presented below the following definitions
                                                                               are considered relevant:
     Liquidity risk is the risk that the Bank will no longer be able to meet   • Assets 1 - are assets which do not have a contractual maturity
     its current and future payment obligations in full, or in a timely             and/or can be converted into cash very quickly,
     manner. The Bank must therefore maintain at all times sufficient          • Assets 1-S – are considered assets that have a contractual ma-
     liquid funds available to meet its obligations, even in view of poten-         turity and the distribution into the time buckets is based on the
     tial extraordinary circumstances.                                              remaining maturities,
     Liquidity risk is also the risk that additional funding can no longer     • Liabilities 1 – are considered liabilities which contractually are
     be obtained, or can only be obtained at increased market interest              due on demand,
     rates. It can be caused by market disruptions or credit downgrades        • Liabilities 1-S – are considered liabilities that have a contractu-
     which may cause certain sources of funding to become unavailable.              al maturity and the distribution into the time buckets is based
     To mitigate liquidity risk, the Bank diversifies funding sources and           on the remaining maturities.
     manages the assets with liquidity caution, maintaining a balance of
     cash and cash equivalents sufficiently enough to meet immediate
     liability calls.
     The table below presents the liquidity analysis by remaining con-
     tractual maturities at the balance sheet date as well as by expected
     maturities of the financial data. The amounts disclosed in the first
     part of the table are contractual undiscounted cash flows, whereas
     the Bank manages the inherent liquidity risk on an expected basis,
     based on expected undiscounted cash inflows and outflows re-
     ported on the second part. In transforming the liabilities from con-
     tractual to expected, the bank considers two sets of assumptions:
     first assumptions which are recommended by ProCredit Holding
     and which are based on German Liquidity Regulation, and second
     assumptions are derived from historical analysis of customer de-
     posits and their withdrawal pattern.
     The Bank aims to keep all times the expected cumulative maturity
     gap positive. Should the expected cumulative maturity gap be not
     positive the Bank considers the liquidity as a “watch liquidity posi-
     The figures reported on the reporting tool below do not match with
     the balance sheet figures, which is due to the fact that apart from
     balance sheet positions the Bank has taken into consideration the
     off-balance sheet positions as well. All financial assets and liabili-
     ties are reported based on the timing when liabilities (including
     off BS contingent liabilities from B/G´s and L/C´s and other credit
     related commitments) become due and assets can be used as re-
     payment source (including the off-BS items like unused irrevocable
     and unconditional credit commitments which the Bank can use as a
     liquidity source at any time without a prior approval).
                                                                                                Fin a nci a l Stat e men t s   65

As at December 31, 2009                           Up to 1 month   1 – 3 months 3 – 6 months 6 – 12 months   More than 1 year
Assets 1
Cash                                                    32,889               –           –             –                   –
Central bank balances (including min. reserves)         96,910               –           –             –                   –
Current accounts with banks                             14,432               –           –             –                   –
Unused irrevocable
and unconditional credit commitments                         –               –           –             –                   –
Marketable securities                                   47,940               –           –             –                   –
Assets 1-S
Placements with banks                                   42,795         12,822        5,944           740              1,057
Loans and advances to customers                         22,116         36,050       50,842        90,559            272,939

Total Assets                                           257,082         48,872       56,786        91,299            273,996

Contractual Liabilities
Liabilities 1
Due to banks (due daily)                                 1,537               –           –             –                   –
Due to customers (due daily)                           267,257               –           –             –                   –
Contingent liabilities from guarantees                  10,744               –           –             –                   –
Unused irrevocable credit commitments                   35,737               –           –             –                   –
Liabilities 1-S
Liabilities to IFIs and banks (excl. MM)                     –              –            –         1,278                  –
Due to customers                                        74,333         71,883       58,826       126,495             27,012
Subordinated debt                                            –              –            –             –             24,545

Total Contractual Liabilities                          389,608         71,883       58,826       127,773             51,557

Periodic Contractual Liquidity Gap                    (132,526)        (23,011)     (2,040)      (36,474)           222,439
Cumulative Contractual Liquidity Gap                  (132,526)      (155,538)    (157,578)     (194,052)            28,387

Expected Liabilities
Liabilities 1
Due to banks (due daily)                                   768            768            –             –                  –
Due to customers (due daily)                            53,549         13,387       13,387        13,387            174,035
Contingent liabilities from guarantees                   1,074              –            –             –                  –
Unused irrevocable credit commitments                   10,721              –            –             –                  –
Liabilities 1-S
Liabilities to IFIs and banks (excl. MM)                     –              –            –         1,278                  –
Due to customers                                        74,333         71,883       58,826       126,495             27,012
Subordinated debt                                            –              –            –             –             24,545

Total Expected Liabilities                             140,446         86,039       72,214       141,160            225,259

Periodic Expected Liquidity Gap                        116,635        (37,166)     (15,428)      (49,861)            48,403
Cumulative Expected Liquidity Gap                      116,635         79,469        64,041        14,181            62,584
66     A nnual Repor t 2009

       As at December 31, 2008                              Up to 1 month   1 – 3 months 3 – 6 months 6 – 12 months        More than 1 year
       Assets 1
       Cash                                                        27,483              –              –               –                    –
       Central bank balances (including min. reserves)             59,334              –              –               –                    –
       Current accounts with banks                                 21,640              –              –               –                    –
       Unused irrevocable
       and unconditional credit commitments                         5,000              –              –               –                    –
       Marketable securities                                       22,055              –              –               –                    –
       Assets 1-S
       Placements with banks                                       28,132             –         15,539           8,393               11,284
       Loans and advances to customers                             20,372        33,733         49,257          82,970              254,163

       Total Assets                                               184,016        33,733         64,796          91,363             265,447

       Contractual Liabilities
       Liabilities 1
       Due to banks (due daily)                                     1,714              –              –               –                    –
       Due to customers (due daily)                               249,413              –              –               –                    –
       Contingent liabilities from guarantees                      10,441              –              –               –                    –
       Unused irrevocable credit commitments                       44,432              –              –               –                    –
       Liabilities 1-S
       Liabilities to IFIs and banks (excl. MM)                         –             –              –           1,000                1,278
       Due to customers                                            51,094        59,357         68,814          90,760               43,840
       Subordinated debt                                                –             –              –               –                7,045

       Total Contractual Liabilities                              357,094        59,357         68,814          91,760               52,163

       Periodic Contractual Liquidity Gap                       (173,078)       (25,624)        (4,018)           (397)            213,284
       Cumulative Contractual Liquidity Gap                     (173,078)      (198,702)      (202,720)       (203,117)             10,167

       Expected Liabilities
       Liabilities 1
       Due to banks (due daily)                                       857           857              –               –                    –
       Due to customers (due daily)                                87,294        37,412         24,941          12,471               87,294
       Contingent liabilities from guarantees                       1,044             –              –               –                    –
       Unused irrevocable credit commitments                       13,330             –              –               –                    –
       Liabilities 1-S
       Liabilities to IFIs and banks (excl. MM)                         –             –              –           1,000               1,278
       Due to customers                                            47,080        23,540         23,540          31,386             188,318
       Subordinated debt                                                –             –              –               –               7,045

       Total Expected Liabilities                                 149,605        61,809         48,481          44,857             283,935

       Periodic Expected Liquidity Gap                             34,411      (28,076)         16,315          46,506             (18,488)
       Cumulative Expected Liquidity Gap                           34,411         6,335         22,650          69,156               50,668

     The Bank classifies, for liquidity purposes, demand and saving         ProCredit Holding, starting from less to more conservative. In case
     deposits as due on demand, consequently report the same in ma-         that Management Board and Risk Management Department sees
     turity time backed one (up to one month). This leads to quite high     any difficulties in performing of these scenarios, takes the neces-
     contractual liquidity gap in time buckets up to twelve months.         sary measures to ensure the possibility of performing.
     However the possibility that huge amount of customer deposit will
     leave the Bank is very unlikely. Therefore the Bank does not consid-
     er having liquidity gap on short term. It rather focuses on expected
     maturity gap which represents a more accurate view.
     The Bank is maintaining a portfolio of highly marketable financial
     assets (assets designated at fair value through profit and loss and
     available for sale financial assets) that can easily be liquidated
     as protection against any unforeseen interruption to cash flow.
     The Management of the Bank is monitoring balance sheet liquid-
     ity ratios against internal and regulatory requirements on a daily,
     weekly and monthly basis. As a result, Management believes that
     the Bank has no liquidity gap on short term basis.
     During 2009 the Bank applied liquidity stress testing on a month-
     ly basis for all operating currencies and discusses it regularly in
     Bank’s Risk Management Committee and ALCO. The stress test is
     performed throughout three different scenarios recommended by
                                                                                                               Fin a nci a l Stat e men t s          67

4.4 Fair value of financial assets and liabilities

Financial instruments not measured at fair value:

                                                              carrying value            fair value        carrying value             fair value
                                                                       2009                  2009                  2008                   2008
  Financial Assets
  Loans and advances to banks                                            71,676           71,676                 69,689                67,987
  Loans and advances to customers                                       453,566          455,601                424,567               430,141

  Financial Liabilities
  Due to banks                                                            1,464            1,464                  9,984                 9,984
  Customers’ deposits                                                   638,335          632,706                569,532               557,283
  Liabilities to International Financial Institutions                    26,182           26,079                  8,575                 8,610

Fair value is the amount at which a financial instrument could be
exchanged in a current transaction between the willing parties,
other than in a forced sale or liquidation, and is best evidenced by
a quoted market price. The estimated fair values of financial instru-
ments have been determined by the Bank using available market
information, where it exists, and appropriate valuation methodolo-
gies. However, judgment is necessarily required to interpret market
data to determine the estimated fair value.

The following table shows the distribution of fair values over the
different fair value hierarchies as at December 31, 2009:

                                                             Total Fair Value              Level 1               Level 2                Level 3
  Financial Assets
  Loans and advances to banks                                            71,676                 –                71,676                       –
  Loans and advances to customers                                       455,601                 –               455,601                       –
  Financial assets at fair value through profit and loss                 46,461            46,461                     –                       –
  Derivative financial instruments                                          226               226                     –                       –
  Available-for-sale financial assets                                     9,078             9,078                     –                       –
  Total                                                                 583,042            55,765                     –                       –

   Financial Liabilities
   Liabilities to banks                                               1,464                      –                1,464                       –
   Liabilities to customers                                         632,706                      –              632,706                       –
   Liabilities to International Financial Institutions               26,079                      –               26,079                       –
   Total                                                            660,249                      –              660,249                       –

Due from banks
                                                                            a very small amount of deposits where this is the case management
The fair value of placements with and loans to other banks approxi-
                                                                            believes, that the difference between the fair value and the carry-
mately equals the carrying amount since they all have less than a
                                                                            ing amount is immaterial.
twelve-month maturity and therefore no calculation is needed.

                                                                            Other borrowed funds
Loans and advances to customers
                                                                            Fair value of other borrowed funds shows that the Bank, based
The fair value of loans and advances to customers is their expected
                                                                            on its current position in the market, strong shareholders and
cash flow discounted at current market rates. Current market rates
                                                                            achieved results was able to contract very good conditions for long
are interest rates we would charge at the moment (year end). Loans
                                                                            term loans. Fair value is smaller than carrying amount, discounted
and advances to customers are stated net of provisions for impair-
                                                                            by interest rate that ProCredit Holding would ask for.

                                                                            4.5 Capital management
Deposits and loans from banks
The fair value of due to banks approximately equals the carrying
                                                                            The Bank’s objectives when managing capital are: (i) to comply with
                                                                            the capital requirements set by the CBK; (ii) to safeguard the Bank’s
                                                                            ability to continue as a going concern so that it can continue to pro-
Due to customers
                                                                            vide returns for shareholders and benefits for other stakeholders
The estimated fair value of deposits with no stated maturity, which
                                                                            and (iii) to maintain a strong capital base to support the develop-
includes non-interest-bearing deposits, is the amount repayable
                                                                            ment of its business.
on demand.
                                                                            Capital adequacy and the use of regulatory capital are monitored
The estimated fair value of term deposits is calculated by discount-
                                                                            monthly by the Bank’s management, employing techniques based
ing the cash flows at agreed dates with today’s rates on deposit
                                                                            on the guidelines of the CBK. The required information is provided
that have more than a six-month maturity and where actual interest
                                                                            to the CBK on a quarterly basis.
rate is not the same as the agreed for these deposits. Since there is
68        A nnual Repor t 2009

     The risk-weighted assets are measured by means of a hierarchy of         6.    Interest and similar expense
     five risk weights classified according to the nature of and reflecting
     an estimate of credit, market and other risks associated with each       Interest expense was incurred on the following liabilities:
     asset is adopted for off-balance sheet exposure, with some adjust-
     ments to reflect the more contingent nature of the potential losses.                                             Year ended   Year ended
     The CBK requires the Bank to: (a) hold the minimum level of the reg-                                            Dec 31, 2009 Dec 31, 2008
     ulatory capital of EUR 5,000 thousand, to maintain a ratio of Tier I          Due to customers                        17,467      14,690
     capital to the risk-weighted asset (the ‘Basel ratio’) at or above the        Borrowed funds                           1,442           515
     minimum of 8%, and to maintain a total regulatory capital, Tier II, to        Other                                       72            83
     risk -weighted assets at or above the minimum 12%. As of Decem-               Total                                  18,981       15,288
     ber 31, 2009 the Bank’s capital adequacy ratios in accordance with
     CBK are: Tier I capital adequacy ratio 12.29% (2008:11.08%) and
     total regulatory capital ratio 18.50% (2008: 13.53%).                    7.    Fee and commission income
     As decided in the Group level, from 2009 the Bank has started to
     calculate and monitor capital adequacy in accordance with Basel II       Fee and commission income for the years ended 31 December 2009
     as well. So far, besides credit risk, the Bank has started to mark out   and 2008 was as follows:
     capital for market and operational risk. As of December 31, 2009
     the Bank’s capital adequacy ratios in accordance with Basel II are:                                              Year ended  Year ended
     Tier I capital adequacy ratio 10.00% and total regulatory capital                                              Dec 31, 2009 Dec 31, 2008
     ratio 16.25%.                                                                 Payment transfers and transactions      3,296         3,152
                                                                                   Letters of credit and guarantees           617          732
     As of reporting period, the capital adequacy ratios in accordance             Account maintenance fee                  1,558          875
     with CBK are as follows:                                                      Card business                           2,094        2,220
                                                                                   Other commission income                   686            14
                                      Dec 31, 2009        Dec 31, 2008             Total                                   8,251        6,993
          Tier 1 capital
          Share capital
          (net of the treasury shares)     28,050                18,050       8. Fee and commission expenses
          Reserves                              567                (127)
          Retained earnings                32,476                32,170       Fee and commission expense for the years ended 31 December
          less: Intangible assets             (416)                (128)      2009 and 2008 was as follows:
          Total qualifying Tier 1 capital   60,677               49,965
                                                                                                                     Year ended  Year ended
          Tier 2 capital                                                                                           Dec 31, 2009 Dec 31, 2008
          Subordinated liability          24,545                  5,409            Quipu fee expenses                      1,351        1,391
          Provisions for loan losses       6,174                  5,635            Fees and commissions on nostro accounts 141            156
          Total qualifying Tier 2 capital 30,719                 11,044            Other fees and commissions             1,480         1,148
                                                                                   Total                                  2,972        2,695
          Total regulatory capital         91,396               61,009
                                                                              Other fees and commissions include correspondent bank charges
          Risk-weighted assets:                                               and commissions.
          On-balance sheet                483,778              440,954
          Off-balance sheet                10,127                9,838
          Total risk-weighted assets      493,905              450,792        9.    Net results from investment securities

          Tier I capital adequacy ratio 12.29%                  11.08%        Gains less loss from investment securities for the years ended 31
          Tier II capital adequacy ratio 18.50%                 13.53%        December 2009 and 2008 was as follows:

                                                                                                                      Year ended   Year ended
     5.     Interest and similar income                                                                              Dec 31, 2009 Dec 31, 2008
                                                                                   Net losses from financial
     Interest income was earned on the following assets:                           instruments designated at fair value
                                                                                   through profit and loss                     610          1,196
                                               Year ended   Year ended             Net losses from disposal of available
                                              Dec 31, 2009 Dec 31, 2008            for sale securities                         84            280
          Loans to customers                        63,770      58,946             Net loss from changes in the fair
          Financial assets at fair value               755         1,582           value of derivative financial instruments    16             53
          Available for sale financial assets          192           558           Total                                       710          1,529
          Loans to banks                               562        3,266
          Loan disbursement fee income               3,679        3,972
          Penalty interest income                    1,086           750
          Other                                        820         1,025
          Total                                    70,864       70,099

     Interest income accrued on impaired financial assets during 2009
     is EUR 145 thousand (2008: EUR 110 thousand).
                                                                                                          Fin a nci a l Stat e men t s        69

10. Impairment losses – Net                                                                                  Year ended   Year ended
                                                                                                            Dec 31, 2009 Dec 31, 2008
Fee and commission expense for the years ended 31 December              Profit before tax                        23,958       24,004
2009 and 2008 was as follows:                                           Less: allowable expenses
                                                                        (additional provision for loans
                                        Year ended   Year ended         based on CBK rules)                      (2,286)             –
                                       Dec 31, 2009 Dec 31, 2008        Add: non-allowable expenses:               1,733           879
  Due from banks (Note 14)                      (72)         (59)       Taxable income                           23,404         24,883
  Loans and advances                                                    Current income tax
  to customers (Note 15)                     5,993         8,131        at the rate of 10% (2008: 20%)             2,340          4,977
  Total                                      5,921         8,072        Total income tax expense                   2,340          4,977

                                                                      According to tax legislation in Kosovo the tax authorities have right
11. Other operating expenses                                          to examine tax returns 6 years following the submission of the re-
                                   Year ended   Year ended
                                  Dec 31, 2009 Dec 31, 2008           Deferred tax asset:
  Personnel expenses                    12,979       11,385           Given below is the deferred tax liability component, where the Bank
  Depreciation and amortization          2,930        3,066           has recognized the liability at the rate of 10%, being the rate en-
  Security services                      1,342        1,242           acted as at December 31, 2009 and 2008.
  Advertising and promotion costs        2,263         2,397
  Rental expenses                         2,131       2,090                                                Dec 31, 2009 Dec 31, 2008
  Consulting and legal fees                488         1,249            Deferred tax liability
  Training costs                            422          429            on provision for loans to customers         242            13
  Insurance                                  77           99            Deferred tax liability not recognized         –          (13)
  Other                                   5,527       4,473             Net deferred tax liability
  Total                                28,159       26,430              as at December 31, 2009                     242             –

Along with the training expenses above, the total costs related to    As at December 31, 2008, the Bank did not recognize deferred tax
training during 2009 amounted to EUR 584 thousand including rent      liability for the amount being immaterial.
and related expenses for training purposes. Other expenses are
further split as follows:                                             Given below is a numerical reconciliation between tax expense and
                                                                      the product of accounting profit multiplied by the applicable tax
                                        Year ended   Year ended       rate.
                                       Dec 31, 2009 Dec 31, 2008
  Communication                                                                                                          Dec 31, 2009
  (telephone, on-line connection)              816           959        Profit before tax                                      23,958
  Transport (fuel, maintenance etc.)           375           480        Product of profit before tax
  Office supplies                              555           745        with applicable tax rate (10%)                          2,396
  Maintenance & repairs                        620           454        Tax effect of provision for loans from opening balance     13
  Utilities and electricity                    746           993        Tax effect of permanent non-deductible expenses           173
  Other                                      2,415           842        Income tax expense                                      2,582
                                             5,527         4,473

                                                                      13. Cash and balances with the Central Bank
12. Income tax expense
                                                                                                            Dec 31, 2009 Dec 31, 2008
The income tax expense comprises the charge for the current year        Cash on hand                             32,889        27,483
corporate income tax and deferred tax as detailed below.                Amounts held at the CBK
                                                                        Current account                          69,841          34,217
                                        Year ended   Year ended         Statutory reserve                        27,069           25,117
                                       Dec 31, 2009 Dec 31, 2008        Total                                   129,799          86,817
  Corporate income tax                        2,340        4,977
  Deferred tax expense                          242            –      The Statutory reserve represents a minimum reserve deposit held
  Total income tax expense                    2,582        4,977      in accordance with the requirements of the Central Bank of Republic
                                                                      of Kosovo (“CBK”), for liquidity purposes. Such reserves are cal-
Corporate income tax:                                                 culated as a minimum required percentage of 10% on the average
A reconciliation of corporate income tax expense applicable to        monthly customer deposits of the Bank with maturities up to one
profit from operating activities before income tax at the statutory   year, for the previous month and where statutory reserve with CBK
income tax rate to income tax expense at the Bank’s effective in-     must not be less that 5% of the applicable deposit base. The statu-
come tax rate for the years ended 31 December 2009 and 2008 was       tory reserve is not available for day-to-day use of the bank.
as follows:                                                           The Bank receives interest on the balances held at the CBK up to
                                                                      the amount of the 10% minimum required reserve ratio. The inter-
                                                                      est rate received at 31 December 2009 was 0.1% per annum (2008:
                                                                      1.25% per annum).
70     A nnual Repor t 2009

     14. Loans and advances to banks                                        15. Loans and advances to customers

                                          Dec 31, 2009 Dec 31, 2008                                               Dec 31, 2009 Dec 31, 2008
       Current accounts                         15,882      28,695            Loans to customers                       435,110     409,832
       Time deposits with banks                 55,777       39,571           Overdrafts                                35,934        28,787
       Loans to banks, net                           –         1,365          Credit cards receivable                     1,462        1,835
       Accrued interest                             17            58          Deferred disbursement fee                 (3,920)      (3,720)
       Total                                   71,676       69,689            Accrued interest on loans                   4,146        3,878
                                                                                                                      472,732      440,612
     For the purpose of cash flow statement, current accounts and time        Provision for loan losses                (19,166)     (16,045)
     deposits with banks are included in cash and cash equivalents            Total                                   453,566      424,567
     (Note 28).
                                                                            The movement in the provision for loan losses at 31 December 2009
     The annual interest rates on time deposits with banks at the end of    is as follows:
     the reporting period are as follows:
     • Deposits in EUR: from 0.20% to 0.69% p.a.                                                                           2009            2008
       (2008: from 2.15% to 4.55%) and                                        At 1 January                                16,045           9,598
     • Deposits in USD: from 0.10% to 0.60% p.a.                              Charge for the year                          5,993           8,131
       (2008: from 2.74% to 7.50%)                                            Loans written-off                          (2,872)         (1,684)
                                                                              At 31 December                             19,166          16,045
     The movement in the provision for loan losses at 31 December 2009
     is as follows:                                                         At 31 December 2009, the loan portfolio includes loans to employ-
                                                                            ees of the Bank with special rights of EUR 6,769 thousand (De-
                                                  2009          2008        cember 31, 2008: EUR 5,472 thousand). These loans are granted
       At 1 January                                  72           131       at terms prevailing in the market and are monitored by the Central
       Charge / (recovery) for the year            (72)          (59)       Bank of Kosovo (“CBK”), which places a maximum allowed limit for
       At 31 December                                 –            72       such loans in relation to the Regulatory Capital of the Bank.

     The provision for loan losses of loans and advances to banks was
     calculated as 5% on the outstanding balance of loans to banks at       16. Financial assets at fair value through profit and loss
     31 December 2008, as an estimated provision for certain country
     risk.                                                                                                        Dec 31, 2009 Dec 31, 2008
                                                                              Debt securities – at fair value:
                                                                              Fixed interest rate securities             42,430               –
                                                                              Variable interest rate securities           3,022          22,427
                                                                              Accrued interest                            1,009             108
                                                                              Total                                      46,461          22,535

                                                                            17. Derivative financial instruments

                                                                           Notional amount          Premium           Fair value    Caps strike
       OTC interest rate caps at December 31, 2009
       OTC interest rate caps:
       1 month                                                                      65,000                241              226           3.50%

       OTC interest rate caps at December 31, 2008
       OTC interest rate caps:
       1 month                                                                      65,000                150                 8          4.90%

                                                                            18. Available-for-sale financial assets

                                                                                                    Dec 31, 2009                   Dec 31, 2008
       Equity investments – at cost
        Participation in ProCredit Training Academy Macedonia                                                   400                        400
       Shares in companies situated in OECD countries                                                            18                          –
       Debt securities – at cost:
        Fixed interest rate securities                                                                     1,057                         1,703
        Variable interest rate securities                                                                  7,562                        15,695
       Accrued interest                                                                                       41                            203
                                                                                                           8,660                        17,601
       Deficit on the revaluation of AFS securities                                                            –                          (638)
       Total                                                                                               9,078                        17,363
                                                                                                           Fin a nci a l Stat e men t s   71

19. Intangible assets

  At 1 January 2008                                        1,459
  Additions                                                  316
  Disposals                                                    –
  At 31 December 2008                                      1,775
  Additions                                                  623
  Disposals                                                    –
  At 31 December 2009                                      2,398

  Accumulated depreciation
  At 1 January 2008                                         1,311
  Charge for the year                                        336
  Disposals                                                     –
  At 31 December 2008                                      1,647
  Charge for the year                                        335
  Disposals                                                     –
  At 31 December 2009                                      1,982

  Net carrying value
  At 31 December 2009                                        416
  At 31 December 2008                                        128

20. Property and equipment

                                  Land       Buildings     Assets under         Furniture     Electronic         Leasehold       Total
                                                            construction      and fixtures   equipment        improvements
  At 1 January 2008              5,000             770                1,672         1,729       10,090                1,880     21,141
  Additions                        450           4,675                    –           376        2,882                  628      9,011
  Disposals/transfers          (1,493)               –              (1,194)           (44)      (1,517)                   –    (4,248)
  At 31 December 2008            3,957           5,445                  478         2,061       11,455                2,508    25,904
  Additions                         30             234                   14           225        3,444                  592      4,539
  Disposals                          –               –                    –         (829)       (1,510)                   –    (2,339)
  At 31 December 2009            3,987           5,679                  492         1,457       13,389                3,100     28,104

  Accumulated depreciation
  At 1 January 2008                  –             124                   –          1,395         6,554                965      9,038
  Charge for the year                –             230                   –            439        1,682                 379      2,730
  Disposals                          –                                   –            (23)      (1,495)                        (1,518)
  At 31 December 2008                –             354                   –          1,811         6,741               1,344    10,250
  Charge for the year                –             282                   –            241         1,676                 396      2,595
  Disposals                          –               –                   –          (820)       (1,109)                   –    (1,929)
  At 31 December 2009                –             636                   –          1,232         7,308               1,740    10,916

  Net carrying value
  At 31 December 2009            3,987           5,043                 492            225         6,081               1,360    17,188
  At 31 December 2008            3,957           5,091                 478            250         4,714               1,164    15,654

During 2008, the amount of EUR 1,493 thousand has been reclas-
sified from land to building after fair price allocation between the
building and land.
72       A nnual Repor t 2009

     21. Other assets                                                     European Fund for Southeast Europe (EFSE)
                                                                          The Bank signed a senior loan agreement with KfW on 19 July, 2002
                                            Dec 31, 2009 Dec 31, 2008     which was transferred to EFSE in 15 December, 2005 in amount of
         Accrued account maintenance fee             632         1,371    EUR 1,278 thousand and will mature on 30 June, 2010.
         Prepaid expenses                            727           538    During June 2009, the Bank agreed to restructure the outstanding
         Receivable from employees                    52            78    subordinated loan agreements with EFSE into a new subordinated
         Security deposits                           559           578    loan agreement with new terms and conditions. The amount of the
         Receivable from group                                            restructured subordinated loan agreement is EUR 7,045 thousand,
         and other financial institutions           731            376    with variable interest rate: six month EURIBOR plus a fixed margin
         Other financial assets                   1,384          2,705    of 6.25%, for the first five years of the agreement. The subordinat-
         Advances paid for fixed assets               11            32    ed loan has a ten year maturity.
         Total                                    4,096          5,678    Further during June 2009, the Ban k signed two new subordinat-
                                                                          ed loan agreements with EFSE, in amount of EUR 5,000 thousand
                                                                          each. The loans have a variable interest rate: six month EURIBOR
     22. Due to banks                                                     plus a fixed margin of 6.25%, and ten years maturity.

                                            Dec 31, 2009 Dec 31, 2008     responsAbility SICAV Luxemburg
         Current accounts                          1,464         7,185    During September 2009 the Bank signed a subordinated promisso-
         Saving accounts                               –        1,682     ry note with responsAbility, in amount of EUR 2,250 thousand, with
         Term deposit accounts                         –        1,008     fixed interest rate of 10.01% for the first five years of note (variable
         Interest accrued                              –            19    interest rate from year six onwards) and ten year maturity. Further
         Total                                     1,464        9,894     during September 2009, the Bank signed a subordinated promis-
                                                                          sory note with Credit Suisse Microfinance Fund Management Com-
                                                                          pany, on behalf of responsAbility Global Microfinance Fund. The
     23. Due to customers                                                 subordinated note amount is EUR 5,250 thousand, with fixed inter-
                                                                          est rate of 10.01% for the first five years of the loan (variable inter-
                                            Dec 31, 2009 Dec 31, 2008     est rate from year six onwards), and ten year maturity.
         Current accounts                        157,242      149,156
         Saving accounts                         110,504       98,324     The Bank has obtained permission from the Central Bank of Kosova
         Term deposit accounts                   358,550      308,713     to recognize all the subordinated loan agreements as regulatory
         Other customer accounts                   4,588         6,563    Tier II capital.
         Interest accrued                           7,451       6,776
         Total                                  638,335      569,532      Kreditanstalt für Wiederaufbau (KfW)
                                                                          At 31 December 2009, the Bank had available EUR 25,000 thou-
     Included in Customers’ deposits, the amount of EUR 25,299 thou-      sand of undrawn committed borrowing facilities. These undrawn
     sand (2008: EUR 21,157 thousand) representing blocked deposits       facilities include a senior debt line in amount of EUR 15,000 thou-
     as collateral for granted loans, issued guarantees, opened letters   sand and two energy efficiency loan agreements in total amount of
     of credit and payment orders abroad on behalf of customers.          EUR 10,000 thousand.

     Current accounts generally do not bear interest. Saving accounts
     bear interest at 2.5% per annum. The annual interest rates applied   25. Other liabilities
     on time deposits at December 31, 2009 and 2008, are as follows:
                                                                                                              Dec 31, 2009 Dec 31, 2008
         in %                                                               Provisions for accrued
         Time deposits                                                      expenses and additional taxes             1,120         990
           One month                                       2.10 – 2.40      Suppliers payable                           782          745
           Three months                                    2.25 – 3.15      Pension funds payable to third parties      167          195
           Six months                                      2.75 – 3.95      Other liabilities                           670        1,113
           One year                                        3.75 – 4.75                                               2,739        3,043

                                                                          Provisions have been made in respect of costs arising from con-
     24. Other borrowed funds                                             tractual commitments, and performance related compensations
                                                                          (bonuses) for the Bank employees, and for costs arising from ad-
                                            Dec 31, 2009 Dec 31, 2008     ditional tax obligation with respect to the nondeductible expenses,
         Borrowings from                                                  as per the local tax code.
         International Financial Institutions      1,278         1,278
         Subordinated borrowings                  24,545         7,045
         Deferred front-end-fees                    (291)          (34)
         Interest accrued                            649           286
         Total                                   26,182         8,575

     Borrowed funds represent one senior loan agreement with the Eu-
     ropean Fund for Southeast Europe (“EFSE”) to provide funding for
     the Bank’s lending activities as well as subordinated loan agree-
     ments with EFSE, responsAbility and Credit Suisse Microfinance
     Fund, on behalf of responsAbility.
                                                                                                              Fin a nci a l Stat e men t s        73

26. Share capital

The Bank’s authorized, issued and fully paid in capital:

                                                                     At 31 December 2009                               At 31 December 2009
                                       Number of shares                         EUR ‘000       Number of shares                   EUR ‘000
  Ordinary shares of EUR 5 each
  as at 31 December                             5,610,000                         28,050              3,610,000                      18,050

At year end the Bank had the following shareholder structure:

                                       Number of shares                     Amount of participation                     Participation in %
  At 31 December 2009
  Commerzbank                                     935,120                               4,675,600                                  16.67%
  ProCredit Holding                             4,674,880                              23,374,400                                  83.33%
  Total                                         5,610,000                              28,050,000                                    100%

  At 31 December 2008
  Commerzbank                                    601,720                                 3,008,600                                 16.67%
  ProCredit Holding                            3,008,280                                15,041,400                                 83.33%
  Total                                        3,610,000                                18,050,000                                   100%

There are no restrictions, conditions or preferences attached to the       transactions were carried out on commercial terms and at market
ordinary shares.                                                           rates. The related parties with whom the Bank entered into busi-
                                                                           ness transactions are (year-end balances presented):
Contingency reserve:
In December 2000, a contingency reserve of EUR 511 thousand                                                             2009          2008
(DEM 1 million) was created by a distribution from retained earn-             Shareholders and
ings. The reserve represents a provision against political risk.              ProCredit Group Companies:
                                                                              Assets as at December 31
                                                                              Time deposit and nostro accounts
27. Revaluation reserve for available-for-sale financial invest-              with Commerzbank                         3,120          5,004
    ments                                                                     Available for sale financial
                                                                              assets with IPC                               –           758
                                               2009         2008              Receivables from other
  Balance at 1 January                         (638)         (110)            ProCredit Banks                          4,193          3,576
  Net gain/(loss) from change
  in fair value of AFS financial investments    609         (808)             Liabilities as at December 31
  Net losses transferred to profit                                            Liabilities to other ProCredit Banks       278          1,622
  or loss on disposal of AFS
  financial investments                          84           280             Income for the year
  Balance at 31 December                         55         (638)             Interest and other income                  208            481

                                                                              Expenses for the year
28. Cash and cash equivalents                                                 Interest and other expenses                760            624

For the purposes of the cash flow statement, cash and cash equiva-         During the year 2009, the Board of Directors members were not
lents comprise the following at 31 December 2009:                          compensated for their engagement and contribution to the Board.
                                                                           Commerzbank is a shareholder of the Bank. ProCredit Ecuador is a
                                    Dec 31, 2009 Dec 31, 2008              fellow group company where the ProCredit Holding has share par-
  Cash on hand (Note 13)                  32,889       27,483              ticipation.
  Current account                                                          At 31 December 2009, the Bank had a management contract with
  with Central Bank (Note 13)              59,217      22,841              ProCredit Holding (“PCH”). Currently, the Chief Executive Officer is
  Deposits with maturity                                                   an employee of PCH. In 2008, the Bank had a management contract
  of less than three months (Note 15)     69,169       67,927              with IPC (IPC GmbH) and the Bank paid to IPC an amount of EUR 422
  Total                                  161,275      118,251              thousand as a management fee. Also, part of the Bank’s invest-
                                                                           ment portfolio for trading purposes in amount of EUR 3,021 thousand
                                                                           (2008: EUR 9,630 thousand) is managed by COMINVEST Asset Man-
29. Related party transactions                                             agement GmbH, where the counterparty borrower is Commerzbank
                                                                           (one of the Bank’s shareholders).
The Parent and ultimate controlling entity of the Bank is ProCredit
Holding AG.

In the course of conducting its banking business, the Bank entered
into various business transactions with related parties. These
74     A nnual Repor t 2009

     30. Off-balance sheet commitments and contingencies                     30.4 Operating lease commitments

     30.1 Commitments and contingencies                                      The Bank has entered into commercial property leases for its of-
                                                                             fices. At 31 December, the Bank’s future minimum rentals payable
     Credit-related commitments include commitments to extend credit,        under operating leases are as follow:
     letters of credit and guarantees given, which are designed to meet
     the requirements of the Bank’s customers.                                                                   Dec 31, 2009 Dec 31, 2008
     Letters of credit and guarantees given to customers commit the            No later than 1 year                     1,860          143
     Bank to make payments on behalf of customers contingent upon              Later than 1 year and not later
     the failure of the customer to perform under the terms of the con-        than 5 years                            5,483        2,853
     tract.                                                                    Later than 5 years                      4,986        7,270
     Commitments to extend credit represent contractual commitments            Total                                  12,329       10,266
     to make loans and revolving credits. Commitments generally have
     fixed expiration dates, or other termination clauses. Since commit-
     ments may expire without being drawn upon, the total amounts do
     not necessarily represent cash requirements.

     At December 31, the Bank had the following commitments and con-

       Credit-related commitments                2009            2008
       Letters of credit                         1,665          17,622
       International guarantees                  5,729           5,788
       Local guarantees                          6,628           6,241
       Credit-related commitments               35,736         44,432
       Total                                    49,758         74,083

     Two letters of credit, a total of EUR 15.9 million, with the Post and
     Telecom of Kosovo matured during 2009.

     At December 31, the credit-related commitments of the Bank are
     analysed as follows:

       Loan commitments comprise of:             2009           2008
       Unused credit card facilities             4,693         12,445
       Unused overdraft limits approved         24,915         24,546
       Non-disbursed loans tranches              6,128          7,423
       Total                                    35,736         44,414

     30.2 Legal cases

     The Bank is involved in legal disputes arising from its ordinary
     course of business. The Bank’s management believes that the fi-
     nal outcome of these lawsuits will not have a material effect on the
     Bank’s operations.

     30.3 Current income tax liability

     The Bank’s financial statements for the year ended December 31,
     2009 are subject to tax audit by local tax authorities, where the
     Bank’s management used its best estimate and judgment to com-
     ply with the tax laws. Owing to use of judgment in complying with
     certain requirements of tax laws and depending on the tax authori-
     ties’ assessment, tax liability as at December 31, 2009 may differ
     compared to the one reported in these financial statements.
Fin a nci a l Stat e men t s   75
76   A nnual Repor t 2009

               Contact Addresses

               Head Office                  Branches

               Blv. Nena Terezë 16          Prishtina Region                     Main Branch
               10 000 Prishtina                                                  Skënderbeu St.
               Tel.: +381 (0) 38 555 777    Bregu i Diellit 1                    (përballë Komunës)
               Fax: +381 (0) 38 248 777     Qendra Tregtare                      Tel.: +381 (0) 38 240 248
        Tel.: +381 (0) 38 541 065            Fax: +381 (0) 38 248 777
                                            Bregu i Diellit 2                    Obiliq
                                            Aktash no.1                          Hasan Prishtina St.
                                            Regjioni 14                          Tel.: +381 (0) 38 560 554
                                            Tel.: +381 (0) 38 248 538
                                            Business Center                      Zahir Pajaziti St. 701
                                            Qyteza Pejton,                       Tel.: +381 (0) 38 571 86
                                            Pashko Vasa St.
                                            Tel.: +381 (0) 38 243 026, 245 515   Prishtinë 1
                                                                                 Agim Ramadani St.
                                            Çamëria                              Tel.: +381 (0) 38 225 736
                                            Llapi St. 17
                                            Tel.: +381 (0) 38 225 430            Taslixhe
                                                                                 Nazim Gafurri St.
                                            Dardania                             Tel.: +381 (0) 38 516 995
                                            Blv. Bill Clinton 4/1
                                            Tel.: +381 (0) 38 240 045            Ulpiana
                                                                                 Dëshmorët e Kombit St. 1
                                            Fushë Kosova 1                       Tel.: +381 (0) 38 550 507
                                            Nena Terezë St. 168/3
                                            Tel.: +381 (0) 38 535 101
                                                                                 Ferizaj Region
                                            Fushë Kosova 2
                                            Nena Terezë St.                      Hani i Elezit
                                            Tel.: +381 (0) 38 534 403            Tel.: +38 (0)290 385 557

                                            Industrial Zone 1                    Ferizaj – Main Branch
                                            Tregu me shumicë no. 186             Rexhep Bislimi St. 36/A
                                            Tel.: +381 (0) 38 545 410            Tel.: +38 (0)290 321 055

                                            Industrial Zone 2                    Ferizaj 1
                                            Prishtina – Skopje Highway           Dëshmorët e Kombit St.
                                            Tel: +381 (0) 38 555 777 ext. 1355   Tel.: +38 (0)290 320 888

                                            Kodra e Trimave                      Ferizaj 2
                                            Vëllezërit Fazliu St. 124            Vëllezërit Gërvalla St.
                                            Tel.: +381 (0) 38 249 055            Tel.: +38 (0)290 325 020

                                            Lipjan                               Kaçanik
                                            Shqipëria St.                        Ismail Raka St.
                                            Tel.: +381 (0) 38 580 303            Tel.: +38 (0)290 380 404

                                            Loan Department                      Shtërpce
                                            UÇK St.                              In front of Municipality
                                            Tel.: +381 (0) 38 240 248            Tel.: +381 (0) 38 555 777 ext. 7601
                                            Fax: +381 (0) 38 248 777
                                                                                 Tirana St.
                                                                                 Tel.: +381 (0) 38 390 999
                                                                                                        Con tac t A ddr e sse s   77

Gjakova Region                       Viti                                 Klinë
                                     Adem Jashari St.                     Abedin Rexha St.
Gjakovë 1                            Tel.: +381 (0) 280 381 610           Tel.: +381 (0) 39 71 026
Yll Morina St.
Tel.: +381 (0) 390 324 550                                                Pejë 1
                                     Mitrovica Region                     Adem Jashari St.
Gjakovë 2                                                                 Tel.: +381 (0) 39 432 075
Nena Terezë St.                      Drenas
Tel.: +381 (0) 390 327 426           Fehmi e Gjevë LLadrovci St.          Pejë 2
                                     Tel.: +381 (0) 38 585 192            Mbretëresha Teuta St.
Gjakovë 3                                                                 Tel.: +381 (0) 39 442 026
Nena Terezë St.                      Graçanicë
Tel.: +381 (0) 390 330 426           Main Street                          Pejë 3
                                     Tel.: +381 (0) 38 64 947             Blv. i Dëshmorëve 6
Junik                                                                     Tel.: +381 (0) 39 433 128
In front of Municipality             Leposaviq
Tel.: +381 (0) 390 370 300           Armata Jugosllave St.                Pejë 4
                                     Tel.: +381 (0) 28 84 471             TMK St.
Malishevë                                                                 Tel.: +381 (0) 39 432 075
Rilindja Kombëtare St.               Mitrovicë 1
Tel.: +381 (0) 38 569 378            Mbretëresha Teuta St.
                                     Tel.: +381 (0) 28 530 235, 530 236   Prizren Region
Xhelal Hajdar Toni St.               Mitrovicë 2                          Dragash56
Tel.: +381 (0) 29 277 377            Mbretëresha Teuta St.                Blv. i Martirëve
                                     Tel.: +381 (0) 28 532 236            Tel.: +381 (0) 29 281 010
Tel.: + 381 (0) 38 555 777 ext. 3700 Mitrovicë 3                          Mamushë
                                     Mbretëresha Teuta St.                Main Street
                                     Tel.: +381 (0) 28 532 235            Tel.: +381 (0) 38 555 777 ext. 12600
Gjilan Region
                                     North Mitrovicë                      Prizren 1
Dardanë                              Knjaz Milos St.                      Brigada 123 St.
Skënderbeu St.                       Tel.: +381 (0) 28 424 601            Tel.: +381 (0) 29 271 243
Tel.: +381 (0) 280 372 293
                                     Skënderaj                            Prizren 2
Gjilan 1                             Blv. Adem Jashari                    Shadërvani St.
Nëntori St. 28                       Tel.: +381 (0) 28 582 600            Tel.: +381 (0) 29 242 550
Tel.: +381 (0) 280 320 350
                                     Vushtrri                             Prizren 3
Gjilan 2                             Dëshmorët e Kombit St.               Trepça St.
Blv. i Pavarësisë                    Tel.: +381 (0) 28 572 663            Tel.: +381 (0) 29 244 877
Tel.: +381 (0) 280 330 180
                                                                          Prizren 4
Gjilan 3                             Peja Region                          UÇK St. 108
Prishtina St. 4                                                           Tel.: +381 (0) 29 231 943
Tel.: +381 (0) 280 322 246           Deçan
                                     Dëshmorët e Kombit St.               Prizren 5
Pozhoran                             Tel.: +381 (0) 390 61 201            Zahir Pajaziti St.
Village centre (near the monument)                                        Tel.: +381 (0) 29 243 149
Tel.: +381 (0) 280 385 435 / 436     Istog
                                     Dy Korriku St.
Roganë                               Tel.: +381 (0) 38 502 641
Main Street
Tel.: +381 (0) 38 555 777
78   A nnual Repor t 2009
Br anch Ne t work   79

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