key figures - procreditbank.gr

Key Figures

EUR '000 2005 2004* Change

Balance Sheet Data

Total Assets 297,331 179,939 65%Gross Loan Portfolio 225,206 139,285 62% Business Loan Portfolio 200,973 126,918 58% EUR < 10,000 50,919 31,276 63% EUR > 10,000 < 50,000 60,442 36,573 65% EUR > 50,000 < 150,000 43,383 29,816 46% EUR > 150,000 46,229 29,253 58% Housing Loan Portfolio 11,092 4,602 141% Other 11,026 6,552 68%Allowance for Losses 4,284 2,279 88% Net Loan Portfolio 220,922 137,006 61% Liabilities to Customers 136,697 75,583 81%Liabilities to Banks and Financial Institutions 93,774 64,631 45%Shareholders' Equity 25,673 21,575 19%

Income Statement

Operating Income 20,851 15,141 38%Operating Expenses 13,560 9,779 39%Operating Profi t Before Tax 4,840 3,785 28%Net Profi t 4,098 2,983 37%

Key Ratios

Cost/Income Ratio 65% 65% ROE 19% 20% Capital Ratio 14% 13%

Operational Statistics

Number of Loans Outstanding 38,108 28,490 34%Number of Loans Disbursed within the Year 30,476 26,417 15%Number of Business Loans Outstanding 28,181 19,796 42%Number of Deposit Accounts 99,662 64,938 53%Number of Staff 751 623 21% Number of Branches and Outlets 42 35 20%

*Some fi gures diff er slightly from those in the 2004 annual report as they have been adjusted to refl ect new calcula-tion methods.

A n n u a l R e p o r t 2 0 0 52

Mission Statement 4

Letter from the Supervisory Board 5

Letter from the Management Board 6

The Bank and its Shareholders 8

The ProCredit Group – Banks Making a Difference 10

ProCredit in Eastern Europe 12

The Year in Review 16

Business Review 18

Risk Management 28

Branch Network 30

Organisation, Staff and Staff Development 32

Business Ethics and Environmental Standards 34

Our Clients 36

Financial Statements 40

Contact Addresses 58

C o n t e n t s 3

Mission Statement

ProCredit Bank Bulgaria 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 micro, 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. Our bank explicitly avoids all speculative lines

of business and issues large loans only in exceptional cases, thus minimising the risk

associated with such activities. Our shareholders expect a sustainable return on invest-

ment, but are not primarily interested in short-term profit maximisation. We invest ex-

tensively 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.

M i s s i o n S tat e m e n t4

Looking back at the main developments in 2005, we can easily see why ProCredit Bank once again suc-ceeded in strengthening its reputation among its customers, other financial institutions and observers of the market.

The bank continued to channel the inflow of fresh capital to the small and medium-sized businesses that form the backbone of the Bulgarian economy, disbursing 30,476 loans worth a total of EUR 230 million. The deposit base grew significantly, to EUR 137 million at year-end, while total assets rose to EUR 297 million.

This growth was supported by the ongoing enlargement of the branch network, with seven new branches opened in 2005, and also by the development of alternative distribution channels, increasing the acces-sibility of the bank for our target clientele throughout the country.

ProCredit Bank seeks to establish long-term partnerships with its customers, and at the same time is aware of its responsibility to offer financial services to the public in an ethically sound manner, describing them accurately and straightforwardly. With these considerations in mind, our bank launched the “Trans-parency” initiative, the aim of which is to help people to understand the real price of banking services and thus to safeguard them against making unwise financial decisions. This initiative is our response to the aggressive and misleading campaigns conducted by many commercial banks in Bulgaria in their fight for market share, and it will continue into 2006.

These efforts have been rewarded in the form of a sound and rapidly growing income base. It should be remembered that ProCredit Bank operates in a highly competitive environment where banks are striving hard to increase their market share by lowering interest rates on loans and by mounting aggressive mar-keting campaigns. The market is also constrained by new regulations imposed by the Bulgarian National Bank with the aim of limiting credit growth. Yet despite these factors, ProCredit Bank achieved a return on equity of 19% in its fourth successive profitable year of operation.

In July 2005, continuing the trend towards increasing ProCredit Holding’s direct stakes in each of the banks belonging to the ProCredit network, the shares of two shareholders in ProCredit Bank Bulgaria – IFC and KfW – were purchased by ProCredit Holding. Both institutions are shareholders in ProCredit Holding and will remain strongly involved in supporting the ProCredit group through their increased par-ticipation at the holding company level. ProCredit Holding also provided the bank with additional equity in the form of a hybrid instrument.

The bank’s successful performance was not only appreciated by the shareholders and the other inter-national financial institutions which continued to support its operations by providing funding, but was also recognised by observers like Fitch Ratings, which confirmed its long-term rating of BB+ for ProCredit Bank. And for the second year in a row the bank was awarded the title “Most Dynamic Bank in Bulgaria” by the country’s leading financial daily newspaper.

The professional competence and the dedication shown by our staff are key factors underlying our suc-cess. I would like to take this opportunity to thank all our partners, the management of the bank and especially our employees for their invaluable contributions, without which ProCredit Bank Bulgaria would not be where it is today.

Claus-Peter ZeitingerChairman of the Supervisory Board

Letter from the Supervisory Board

Members of the

Supervisory Board as at

December 31, 2005:

Claus-Peter Zeitinger

Hanns Martin Hagen

Judith Brandsma

Helmut Toellner

Christoph Freytag

L e t t e r f r o m t h e S u p e r v i s o r y B o a r d 5

Once again in 2005, ProCredit Bank notched up many notable achievements, including a 62% in-crease in the loan portfolio, to EUR 225 million, and an 81% increase in the customer base com-pared with the figures for 2004.

ProCredit Bank continued to focus on lending to micro, small and medium-sized businesses, as we believe that our mission remains as relevant as ever – even in a dynamically developing mar-ket like Bulgaria. We disbursed 30,476 loans to-talling EUR 230 million in the year under review. We launched agricultural loans for small farmers as a new line of business and plan to develop this product further. Housing and renovation loans for private individuals and small and medium companies were also introduced.

A significant increase of 81% over 2004 was achieved in the deposit base, which grew to EUR 137 million. Total assets grew to EUR 297 mil-lion, and an additional EUR 10 million of tier 2 capital was provided by ProCredit Holding. Seven new branches were opened. We were pleased to welcome 27,388 new clients, and now provide fi-nancing and modern banking services to a total of 80,782 customers.

We redesigned our front office departments in or-der to enhance our ability to provide fast service as well as comprehensive, customer-specific ad-vice. We brought our services into the homes and offices of our customers by being one of the first banks in Bulgaria to introduce telephone bank-ing. Our new call centre provides information on the bank’s products and services, supporting the loan officers and client advisers in the branches and helping to promote our new services. In addi-tion, we constantly upgrade our internet banking facilities, adding new functionalities to increase efficiency in transaction processing both for the customer and for the bank. Thanks to invest-ments in IT and in advanced banking equipment such as teller cash recycler (TCR) machines, we processed an increasing number of transactions without any difficulty. The automation and cen-

tralisation of certain operations will continue in 2006 in an effort to reduce transaction costs still further.

One result is that our front-office staff now have more time to devote to our customers in the branches.

In 2005 we continued to benefit greatly from the financial support provided by our partners, in-cluding the international financial institutions. We succeeded in mobilising an increased volume of financing on improved terms and conditions.

2005 was also a year of institutional strengthen-ing. New head office departments were estab-lished to support the branches in generating new business and refining credit risk assessment. The Management Board was closely involved in the risk management process, periodically revis-ing the bank’s risk management policy and strat-egy to respond to changing market conditions. In light of the dynamic growth of the bank and the launching of new products and services, head of-fice departments reviewed and updated in-house guidelines and procedures.

In this period of accelerating competition and change, the quality of corporate governance has become as important as financial performance. To remain true to our mission and to achieve our goals, we emphasised our corporate values, which are quintessential to ProCredit Bank’s suc-cess. Transparency and social responsibility to-wards customers, partners and colleagues are just two of the key principles that apply to all our activities and endeavours. Knowing that banking is based on trust, we made a constant effort to supply our customers, shareholders and employ-ees with clear, accurate information.

The most significant contribution to our bank’s success in 2005 has come directly from our employees, to whom we in turn have dedicated management time and resources in an effort to maintain or raise levels of motivation and job sat-

Letter from the Management Board

A n n u a l R e p o r t 2 0 0 56

isfaction. We would like to thank each and every person involved in this process. Your committed work has helped to make ProCredit Bank an ex-emplary provider of banking services to micro and small businesses.

We would also like to take this opportunity to thank our customers, business partners and shareholders for having placed their trust in us and given us their unfailing support.

Members of the

Management Board:

Susanne Decker,

Chief Executive Officer

and Chairwoman of the

Management Board

Kai Ilm,

Chief Operating Officer,

Retail Business

Petar Slavov,

Chief Financial Officer

Emilia Tzareva,

Chief Operating Officer,

Corporate Business

Susanne Decker Kai Ilm Petar Slavov Emilia Tzareva CEO COO-Retail CFO COO-Corporate

L e t t e r f r o m t h e M a n a g e m e n t B o a r d 7

The Bank and its Shareholders

Commerzbank AG was established in 1870 and following the takeover of Eurohypo AG, announced in November 2005, is now Germany’s second-largest bank and one of the leading commercial banks in Europe. With a strong international network comprising of-fices and shareholdings in more than 40 coun-tries, Commerzbank is a universal bank provid-ing retail, corporate and public-sector banking services. It also offers financial products and services via a number of subsidiaries, such as online banking, leasing, asset management and real-estate investment.

The European Bank for Recon-

struction and Development (EBRD)

was established in 1991. It aims to foster the transition towards open, market-oriented econo-mies and to promote private and entrepreneurial initiative in the countries of Central and Eastern Europe and the Commonwealth of Independent States (CIS) committed to democracy, pluralism and market economics. The EBRD seeks to help its 27 countries of operations to implement struc-tural and sectoral economic reforms, promoting competition, privatisation and entrepreneurship. In fulfilling its role as a catalyst of change, the Bank encourages cofinancing and foreign direct investment from the private and public sectors, helps to mobilise domestic capital, and provides technical cooperation in relevant areas.

Internationale Projekt Consult (IPC), a Frankfurt-based company, was found-

ed in 1981. IPC’s aim has always been to provide sound consulting and management services for meaningful development projects. The company has been particularly successful in its activities in the financial sector, a field in which IPC has been involved since 1984. IPC advises banks in developing countries and transition economies on how to build their capacity to provide financial services to micro and small enterprises. Over the last two decades, IPC has set new standards in the establishment of target group-oriented finan-cial institutions. It founded ProCredit Holding, and remains that company’s leading shareholder and strategic investor. IPC is the driving entrepre-neurial force behind the ProCredit group, provid-ing management services for all of the ProCredit Banks and seconding qualified personnel to Pro-Credit Holding.

ProCredit Holding AG was founded as Internationale Mi-

cro Investitionen AG (IMI) in 1998. Today it is the parent company of a global group of 19 microfi-nance banks located in transition and developing countries across three continents. The ProCredit group of banks aim to make a difference by pro-viding banking services to people whom other banks either do not serve at all (usually on the grounds of cost or risk) or only serve inadequate-ly. The holding company, working closely with In-ternationale Projekt Consult GmbH (IPC), guides

ProCredit Bank (Bulgaria) AD was established in June 2001 by international investors. In the four and a half years since its founding, it has devel-oped into a full-scale commercial bank providing a broad range of financial services, comprising various loan products tailored to meet the needs

of micro, small and medium enterprises and pri-vate customers, as well as savings and deposit programmes, domestic and international money transfers, documentary business, debit cards and internet banking.

Sector

BankingBankingConsulting

Investment

Shareholder

(as of Dec. 31, 2005)

Commerzbank EBRD IPCProCredit Holding

Total Capital

Headquarters

GermanyUKGermanyGermany

Share

19.71% 19.71%

1.45%59.13%

100%

Paid-in Capital

(in EUR million)

3.483.480.25

10.43

17.64

A n n u a l R e p o r t 2 0 0 58

the development of the ProCredit institutions, providing support in all key areas of banking op-erations and human resources management. The

company currently has an equity base of EUR 102 million. Its shareholders are a 50:50 mix of pri-vate and public investors.

In the course of 2005, the following shareholders sold their participation in ProCredit Bank Bulgar-ia to ProCredit Holding AG.

The International Finance Corporation,a member of the World Bank Group,

promotes the development of the private sector in its developing member countries.

The Deutsche Investitions- und

Entwicklungsgesellschaft, a key player in Germany’s development co-operation activities, supports private sector development in Africa, Asia and Latin America, as well as in Central and Eastern Europe and the CIS.

Both institutions are shareholders in ProCredit Holding and will remain strongly involved in supporting the ProCredit group through their increased participation at the holding company level.

Th e B a n k a n d i t s S h a r e h o l d e r sTh e B a n k a n d i t s S h a r e h o l d e r s 9

In the developing countries and transition econo-mies in which the ProCredit group operates, con-ventional commercial banks focus their lending operations on corporate finance and consumer lending. They tend to neglect micro and small businesses, because they supposedly have in-adequate accounting methods and insufficient collateral and are associated with high adminis-trative costs. However, these businesses are the main engine of growth and job creation. Moreover, in political terms, the middle class which emerges when they grow and flourish usually plays a sta-bilising role in society. Therefore the founding shareholders decided to establish specialised financial institutions to serve these neglected tar-get groups in Eastern Europe, Latin America and Africa, a process which began seven years ago.

Today, the ProCredit group comprises 19 banks and finance companies operating in as many coun-tries through 370 branches staffed by 8,400 em-ployees. All of these institutions share a common corporate mission. They aim to make a difference by providing banking services to people whom other banks either do not serve at all or only serve inadequately. Their focus is micro, small and me-dium-sized enterprises (MSMEs). At the same time they provide retail banking services to “ordinary” people, with a focus on low-income families.

Over the years, the ProCredit group and IPC, which developed the lending methodology used by the ProCredit group, have gained a profound understanding of both the problems faced by small businesses and the opportunities available to them, and have tailored the credit technology to reflect the realities of their operating environ-ment. Thanks to this credit technology, which combines careful analysis of all credit risks with a high degree of standardisation and efficiency, the ProCredit institutions are able to reach a large number of small borrowers: currently they dis-burse more than 50,000 loans totalling more than EUR 180 million every month. By the end of 2005, the number of loans outstanding had grown to more than 560,000 (representing EUR 1.5 billion), a 35% increase compared to 2004. The average loan amount outstanding is just EUR 2,500 and the loan portfolio quality remains excellent with

a ratio of loans in arrears (>30 days) to total loan portfolio of only 1.1%. This demonstrates that small borrowers are indeed creditworthy when served appropriately.

The ProCredit banks also mobilise deposits in their local markets, not only to fund their rapidly growing loan portfolio, but also because it is a cen-tral part of their development mission. ProCredit institutions strive to build public confidence in banks and foster a savings culture by setting new standards in customer service, transparency and business ethics. ProCredit deposit facilities are appropriate for a broad range of customers, espe-cially low income groups. We offer simple savings products with no minimum deposit. Over 2005, the group’s deposit base has increased from EUR 830 million to EUR 1.3 billion with 460,000 new accounts having been opened. Many of these ac-counts have been small family savings accounts – a good start in the ProCredit strategy to help build a savings culture in our countries of opera-tion. ProCredit banks aim to be “neighbourhood banks” and place great emphasis on children’s savings products and education campaigns as well as sponsoring local community events. In addition to deposit facilities, business clients are offered a full range of standard non-credit bank-ing services, including domestic and international transfers, debit and credit cards, documentary services and foreign exchange operations.

The Frankfurt-based ProCredit Holding, founded by the consulting firm IPC in 1998, is the parent company of the group. The other international shareholders include KfW/DEG, IFC, FMO, and the DOEN Foundation. These shareholders also participate in some individual banks. In addition, EBRD and Commerzbank are important share-holders in the Eastern European institutions. The activities of the group’s member institutions are guided and supervised by ProCredit Holding and by IPC, the consulting firm which provides man-agement services to the banks. This centralised management and supervision make it possible to achieve synergies which have a positive impact in many areas. ProCredit Holding has achieved an investment grade international credit rating from FITCH Ratings which enables it to raise debt and equity capital efficiently for the group as a whole. Furthermore it means highly effective group-wide approaches to business development, risk man-

The ProCredit Group – Banks Making a Difference

A n n u a l R e p o r t 2 0 0 510

ProCredit Bank Serbia

ProCredit Bank Bosnia and Herzegovina

ProCredit Bank Kosovo

ProCredit Bank Albania

ProCredit Bank Macedonia

ProCredit Savings and LoansGhana

ProCredit Bank DemocraticRepublic of Congo

NovoBanco Angola

NovoBanco Mozambique

ProCredit Bank Ukraine

ProCredit Moldova

ProCredit Bank Romania

ProCredit Bank Georgia

ProCredit Bank Bulgaria

Micro Credit NationalHaiti

Banco ProCredit El Salvador

Banco ProCreditNicaragua

Banco ProCredit Ecuador

Banco Los AndesProCredit Bolivia

agement, auditing and IT, as well as to training and human resources.

The ProCredit institutions can only be successful in their developmental mission if their sustain-ability is assured. Accordingly, they have been established as commercial, i.e. for-profit, enti-ties. However, the shareholders of the group aim to strike a balance between, on the one hand, the developmental goals which motivated their in-vestment in the ProCredit group, and on the other, the commercial success which forms the basis of long-term sustainability, and is reflected in an ad-equate return on investment. In 2005, the return on equity for the group as a whole, expressed in hard currency, after deduction of profit taxes, is expected to reach 15%.

This level of profitability is sufficient to ensure the further development of the group. By the end of 2010, the group expects to have institutions in 25 countries, with the total number of branches growing to almost 800, the number of employees rising to over 17,000, and the loan portfolio in-creasing to EUR 4.5 billion. To achieve the envis-aged level of growth, it will be necessary to mobil-ise substantial financial resources. But in itself, access to additional funding will not be enough: human resource development will continue to be a

key priority for the group. This will entail not only intensive training in technical and management skills, but also a continuous exchange of person-nel between the member institutions, so as to take full advantage of the opportunities for staff development which are created by their member-ship of a truly international group.

In 2005, there has been a particular emphasis on developing a group-wide approach to human resources management and strengthening our corporate culture. As ProCredit banks continue to expand rapidly in terms of staff, branches and products, finding, integrating and training the right staff with the right attitude, and building the strength of our middle management are priori-ties across the group. A key challenge is to make sure we grow whilst remaining true to our corpo-rate values which embed principles such as open communication, transparency and professional-ism into our day-to-day business. To this end, the group invests strongly in training both in individ-ual banks and internationally. The group has also set up the ProCredit Academy in Germany which will provide a three-year part-time “ProCredit Banker” training programme for its high potential local personnel, thereby securing a firm base for the development and management of our staff in the future.

The international group

of ProCredit institutions;

see also

www.procredit-holding.com

Th e P r o C r e d i t G r o u p – B a n k s M a k i n g a D i f f e r e n c e 11

A n n u a l R e p o r t 2 0 0 512

ProCredit in Eastern Europe

ProCredit is present in 10 countries across East-ern Europe, and with close to 300,000 loans out-standing is the region’s leading provider of bank-ing services to micro, small and medium-sized businesses. In Eastern Europe, financial sectors and private sector lending are rapidly expanding, often with heavy investment from foreign capi-tal and strong western banks. In this context we are sometimes asked: can ProCredit really claim to be different and to be making a difference in the region? Our answer is a resounding “yes”. We stand out as banks deeply committed to small business lending over the long term, to building a responsible savings culture rather than blindly fuelling consumer spending, and to setting new standards of transparency and service for our customers.

Across the region, the focus of most banks, including the western banks, is still corpo-rate finance and con-sumer lending. They neglect lending to informal, micro entre-preneurs and small family businesses. Yet these businesses are the driving force behind economic growth and job creation across Eastern Europe, and have been since the collapse of the Soviet influence and the large state-owned enterprises related to it. For most banks, it is sim-ply easier to make money with consumer lend-ing and large loans to corporate clients, since small business lending requires decentralised decision-making and good staff who are able to assess risk quickly and reliably and maintain durable client relationships. The importance of ProCredit in transition economies should be no surprise since even in well-developed western markets there are few banks that are dedicated to the long-term support of small business cus-tomers.

It is also no surprise that consumer lending, which is being so aggressively pursued by other banks in Eastern Europe, is not a business in which ProCredit actively engages. We believe that it tends to drive imports rather than domes-tic production, and if pushed irresponsibly in the

context of a market share gain game – thus with very little analysis of a customer’s repayment ca-pacity – quickly leads to over-indebtedness. This creates suffering for the individuals and families affected, and can threaten the stability of a fi-nancial sector. Our approach is to provide loans to businesses based on a careful, but efficient analysis of a client’s ability to repay. We aim to build lasting relationships and we never forget that a loan is also a debt. In this way, ProCredit is characterized by a responsible, long-term at-titude towards business development.

Across the region we provide agricultural loans since this is a sector that has been particularly neglected by other banks, and is vital for em-ployment and social cohesion outside of

the main urban areas. We also provide housing loan products to help low-income families reno-vate their homes and improve energy efficiency. ProCredit banks offer their business clients not only loans, but also other services, including plastic cards and fast, low-cost money transfer (‘ProPay’), providing a truly integrated service for entrepreneurs that are active across the region.

More widely, we believe it is a priority to create a ‘savings’ culture, not just a ‘spending’ culture because savings are an important buffer against the vagaries of life. Therefore we provide simple, reliable banking products, with a focus on sav-ings, to ordinary people. In keeping with our mis-sion to be accessible to clients wherever they are, the ProCredit group provides comprehensive cov-erage across the region with 238 branches and more than 6,000 staff. Our clients can now drive from Tirana in Albania to Kiev in Ukraine and en-joy the same friendly service and open, welcom-ing branches all along the way. We place a strong

P r o C r e d i t i n E a s t e r n E u r o p e 13

emphasis on transparency in all ProCredit banks: campaigns are being run to ensure that all cus-tomers understand the pricing of our products as well as those of our competitors, since we find that in aggressively growing markets, there is a lot of scope for confusing customers about the true price of banking services.

Our staff are the key element in our approach to being a stable, down-to-earth banking partner to clients across the region. The group has a strong commitment to staff training, professional devel-opment and cultivating an open, honest commu-

nication culture. Staff exchanges, cross-border training programmes and regional workshops are an important part of our approach. In the highly competitive Eastern European banking sectors, the well-trained, motivated ProCredit staff who have built strong, long-term relationships with clients, are in high demand from competitor banks. However, the ProCredit work environment, the investment we make in our staff and the inter-national opportunities that they enjoy has meant that so far we have been very successful in retain-ing our best people, providing a firm base for our ongoing growth in the region.

A n n u a l R e p o r t 2 0 0 514

Name Highlights Contact

ProCredit Bank Founded in March 1999 Rruga Sami Frasheri Albania 17 branches Tirana

23,961 borrowers / EUR 80.3 million in loans Tel./Fax: +355 4 271 272 / 276 80,403 depositors / EUR 158.2 million [email protected] 489 employees www.procreditbank.com.al

ProCredit Bank Founded in October 1997 Emerika Bluma 8Bosnia and Herzegovina 15 branches 71000 Sarajevo

29,167 borrowers / EUR 80.4 million in loans Tel./Fax: +387 33 250 950 / 250 971 36,501 depositors / EUR 42.4 million [email protected] 430 employees www.procreditbank.ba

ProCredit Bank Founded in May 1999 D. Agmashenebeli Ave 154 Georgia 24 branches Tbilisi 37,045 borrowers / EUR 112.2 million in loans Tel./Fax: +995 32-20 2222 / 0580 49,190 depositors / EUR 62.2 million [email protected] 944 employees www.procreditbank.ge

ProCredit Bank Founded in January 2000 Rr Skenderbeu Kosovo 22 branches 38000 Prishtina / Kosovo UNMIK

36,531 borrowers / EUR 162.5 million in loans Tel./Fax: +381 38-249624 / 248777 225,349 depositors / EUR 336.3 million [email protected] 574 employees www.procreditbank-kos.com

ProCredit Bank Founded in July 2003 Jane Sandanski 109aMacedonia 16 branches 1000 Skopje

12,781 borrowers / EUR 47.9 million in loans Tel./Fax: +389 2 321 99 00 / 01 35,727 depositors / EUR 47.1 million [email protected] 325 employees www.procreditbank.com.mk

ProCredit Founded in December 1999 Stefan cel Mare si Sfi nt, 65 Moldova 19 branches Off . 900, 902, 904, Chisinau

9,701 borrowers / EUR 15.9 million in loans Tel./Fax: +373 22 270707 / 34 88 172 employees offi [email protected] www.procredit.md

ProCredit Bank Founded in June 2002 Calea Buzesti, nr. 62-64, Sector 1

Romania 17 branches 011017 Bucharest 18,018 borrowers / EUR 89.40 million in loans Tel./Fax: +40 21 2016000 / 2016002 37,650 depositors / EUR 65.5 million headoffi [email protected] 502 employees www.procreditbank.ro

ProCredit Bank Founded in April 2001 Bulevar despota Stefana 68cSerbia 33 branches Belgrade

43,433 borrowers /EUR 183 million in loans Tel./Fax: +381 11 20 77 906 / 905 134,932 depositors / EUR 152 million [email protected] 1,005 employees www.procreditbank.co.yu

ProCredit Bank Founded in January 2001 107-A Pobedy Ave. Ukraine 32 branches Kyiv 03115

23,530 borrowers / EUR 146 million in loans Tel./Fax: +380 44 590 10 41 / 01 30,700 depositors / EUR 67.6 million [email protected] 1,079 employees www.procreditbank.com.ua

P r o C r e d i t i n E a s t e r n E u r o p e 15

January

• ProCredit Bank extends the successful Christ-mas deposit campaign, offering special pack-ages which include a deposit interest rate bonus, a ProCard and a children’s savings book with a present from the bank.• The Banker magazine names ProCredit Bank Bulgaria as the most dynamically developing bank in Central Europe, based on the first survey of rapidly growing banks in transition countries.

February

• The European Bank for Reconstruction and Development (EBRD) and ProCredit Bank sign a credit line agreement worth EUR 10 million.• New branches open in Svishtov and Plovdiv city centre, bringing the total number of branches to 37. The credit outlet in Troyan moves to a new building and becomes a full-fledged branch.

March

• The branch in Pleven moves to a new building in the city centre.• ProCredit Bank’s “Credit Bus” starts its tour of small villages along the coast, promoting and disbursing loans to micro and small entrepre-neurs.• Highest ever SME lending results achieved: 3,054 business loans totalling EUR 42 million. Of this total, 2,508 loans amounting to EUR 9.5 mil-lion went to micro enterprises.

April

• Tenth branch in Sofia opens in the Geo Milev district.• New advertising campaign launched in sup-port of the bank’s country-wide agricultural lend-ing programme.

May

• ProCredit Bank offers free debit cards to high school graduates; young people who leave home to study at universities in different cities are now able to receive money from their relatives free of charge.• A new promotional campaign focuses on the ProVlog deposit product – clients can withdraw money from a term deposit without loss of inter-est.

June

• Terms and conditions for micro and small loans improved, with lower interest rates and longer maturities.• The credit office in Kurdjali is converted into a branch and now operates from a new building in the centre of the town. Clients in Haskovo are also served in a new building in the very heart of the city.

July

• For the second consecutive year, ProCredit Bank is declared “most dynamic bank in Bulgar-ia” by the financial daily newspaper Pari.• The bank’s tier 2 capital increased by EUR 10 million as the result of an injection of funds by ProCredit Holding in the form of a hybrid equity instrument.

August

• ProCredit Bank and KfW (Kreditanstalt für Wiederaufbau) agree on a EUR 10 million credit line. The fixed-interest funds will finance hous-ing improvement loans, which also carry a fixed interest rate for the full duration.• A new branch opens in Vratza, in north-west-ern Bulgaria, providing clients in the region with access to the bank’s services for the first time.• The 11th Sofia branch opens – at the HIT super-market in Lulin, coinciding with the opening of the German chain’s second hypermarket in Sofia.

The Year in Review

A n n u a l R e p o r t 2 0 0 516

September

• ProCredit Bank launches “Transparency”, its public education campaign. The main purpose of this initiative is to explain to Bulgarian customers how to work out the real price of banking servic-es, thus helping people to ask for the right kind of information when applying for a loan or when making a deposit.• ProCredit Bank is the first bank in Bulgaria to offer its clients telephone banking facilities – all clients of ProCredit Bank can now check their bal-ance and perform banking transactions by phone whenever they want, from wherever they are.• In Pazadjik a second city branch opens on the main square, bringing the total number of branches in the country to 42.• ProCredit Bank is awarded the title “Best In-ternational Bank in Bulgaria” by the UK magazine Finance Central Europe.

October

• In the busy autumn season, ProCredit Bank offers new, considerably lower interest rates, and new, even quicker and more attractive financial solutions for businesses in Bulgaria.• ProCredit Bank offers two new services, “Au-tomatic Payment of Utility Bills” and “Standing Orders”.• Clients and partners are invited to the bank’s 4th anniversary celebration, held at the head of-fice in Sofia.

• ProCredit Bank offers “Renovation and Heat-ing”, a new specialised loan. It is intended as a means of financing all construction and renova-tion work aimed at improving the client’s living conditions.• During the second half of 2005, the average number of loans to SMEs disbursed per month in-creases by 32%. In October alone, 2,821 business loans totalling EUR 23 million are disbursed.• On World Savings Day, “open days” for school classes are held at all branches in order to ex-plain the basics of banking and our services to the young students.

November

• ProCredit Holding acquires an additional 38.84% of the registered capital of ProCredit Bank Bulgaria, increasing its share to 59.13%.• FitchRatings, the international rating agency, confirms its “BB+” rating of the bank’s long-term liabilities, with a stable outlook.• The credit offices in Kazanlak, Gorna Oriaho-vitsa and Petrich are converted into fully fledged branches, and are moved to new city-centre loca-tions.• ProCredit Bank’s website wins first prize in the category “Best Financial Web Site” in the contest BG Site 2005, organised by the Bulgarian Web Association.

December

• ProCredit Bank is the first bank in Bulgaria to introduce teller cash recyclers (TCR), machines that allow customers not only to withdraw but also to deposit cash, thus speeding up cash transactions and improving the physical security of the handling and storage of cash.• ProCash is a new system for express cash remittances by private individuals between the ProCredit Banks in South-Eastern Europe – nei-ther the sender nor the recipient needs to main-tain an account with the bank, and the transfer fees are extremely competitive.• Christmas deposit campaign offers new cli-ents attractive interest rates and a special free gift – a piggy bank.

Th e Y e a r i n R e v i e w 17

Business Review

A n n u a l R e p o r t 2 0 0 518

Political and Economic Environment

In 2005 Bulgaria managed to maintain a high de-gree of macroeconomic stability, despite the par-liamentary elections which took place during the year, and the resulting change of government. In April the country signed the EU Accession Treaty, setting 2007 as the date of entry, with a safe-guard clause allowing for a year’s delay if Bul-garia fails to meet the conditions on time. How-ever, prolonged post-election disputes over the formation of the new government slowed down the process of legislative and administrative re-form. As a consequence, the country fell behind in its preparations for EU membership. Although the new coalition government had defined EU membership as a priority, it did not make up for this delay, and no one was surprised when the European Commission released a strongly criti-cal monitoring report highlighting many areas of concern, which Bulgaria will have to address satisfactorily by April 2006 in order to achieve accession in 2007. Despite its criticisms, the EU praised Bulgaria for its rapid economic progress. The outstanding macroeconomic results were also reflected in an upgrade by FitchRatings and Standard&Poor’s, which raised the country rat-ing from BBB- to BBB.

Bulgaria’s GDP growth in 2005 was forecast at 5.5% (2004: 5.6%), and was driven by increasing consumption and investments. FDI was roughly on a par with 2004 levels at about EUR 1.9 billion, over 50% of which went into greenfield projects and expansion, as no major privatisation deals were signed in 2005. Thanks to the development of the real sector, the unemployment rate gradu-ally dropped to below 11% (as against 12.16% in 2004). Inflation once again proved difficult to manage, however, because of the high volume of cash in circulation, fuelled by the high level of lending, and also because of oil price hikes and poor harvests. For 2005 as a whole, infla-tion is projected to have risen to 6.5%, from 4% in 2004. In 2005 the government bought back Brady bonds worth USD 1.6 billion, reducing the public external debt to 24.3% of GDP in August, from 33.1% of GDP in 2004. However, gross ex-ternal debt grew to 67.6%, compared with 64.4% of GDP a year earlier, due to the constant increase of the private external debt, additionally swelled by the transfer of loans to banks abroad. The

strict fiscal policy of the former government led to a budget surplus for a second successive year, even though corporate income tax was lowered to 15%.

Despite the constantly improving macroeco-nomic environment, Bulgaria is under pressure to deal with numerous problems in 2006 in or-der to ensure that it does not have to wait until 2008 to join the EU. The European Commission outlined a number of areas in which the country has fallen behind, five of which were described as of serious concern. The fight against corrup-tion and organised crime was singled out as the most pressing issue of all. The country’s insuf-ficient administrative capacity and mechanisms to utilise EU accession funds, the disregard for the EU’s agricultural, veterinary and food safety standards, and the inadequacy of Bulgaria’s bor-der controls and infrastructure were also regard-ed as areas in which improvements were urgently needed before the final decision on Bulgaria’s EU entry is taken. On the other hand, the IMF urged the government to take measures against the widening current account deficit, which swelled to -14.9% of GDP in 2005 from -7.5% of GDP a year ago. The deficit was largely attributable to exceptionally high imports, leaving a trade gap that FDI inflows and tourism revenues proved insufficient to cover. The IMF identified ongoing credit expansion as the core of the problem, argu-ing that consumption imports would slow down if consumer lending decreased. The EBRD reported weaknesses in the tourism infrastructure and in procedures for starting and financing new busi-nesses. Implementation of the EU legislation that was adopted was also found to be rather ineffi-cient.

Financial Sector Developments

Steady economic growth was the main factor be-hind the rapid development of the banking sys-tem. In 2005 most of the banks continued to de-velop in line with the expansion strategies they had introduced in 2003 and 2004. In the fight for larger market share, the commercial retail banks increased their presence by opening new branch-es, launching new banking products and lower-ing interest rates on credit. Aggressive expan-sion strategies led to more mergers in 2005: the

B u s i n e s s R e v i e w 19

Loan Portfolio Development

24022020018016014012010080604020

0

up to EUR 10,000 more than EUR 150,000

EUR 10,001 to EUR 50,000 Total number outstanding

EUR 50,001 to EUR 150,000

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

Mar Jun Sept Dec Mar Jun Sept Dec Mar Jun Sept Dec03 04 05

48444036322824201612840

Greek Piraeus Bank purchased Eurobank. Follow-ing the European merger of the Italian UniCredito and the German HVB, there was a three-way merger involving Bulbank, HVB Biochim and He-brosbank, which had previously been purchased by Biochim.

However, the potential growth of the banking system was impeded when in April the central bank introduced new restrictions in order to meet the IMF’s requirement that credit must not be al-lowed to grow by more than 30% per year. Banks exceeding the allowed quarterly growth rates had to deposit additional minimum reserves with the central bank. In practice, most banks evaded the restrictions by exporting corporate loans to their foreign shareholders. They focused on retail lending, as a real estate boom and rising incomes generated high demand for mortgages and consumer loans, which grew year-on-year by 101% and 49%, respectively. Interest rates on these loans are showing a tendency to fall, although the reduction has often been exagger-ated by misleading advertising. However, a first step towards fair competition was taken when the banks signed a gentlemen’s agreement com-mitting them to strive for transparency regarding the cost of consumer loans.

Increased lending to private individuals combined with underdeveloped credit risk control mecha-nisms poses a threat to loan portfolio quality, and increases the risk of over-indebtedness. In order to prevent a deterioration in loan portfolio quali-ty, the central bank tightened the lending restric-tions again, and imposed higher levels of provi-sioning for non-performing loans to individuals. These measures will come into force in 2006 and are supposed to reduce credit growth to 15–20%. Inevitably, the excess demand for loans among private households is being met to an increasing extent by non-banking financial institutions such as leasing companies or consumer financing com-panies. These are not regulated by the Bulgarian National Bank and thus not subject to its restric-tions. This explains why, due to the high level of competition in the regulated environment, credit growth in the banking sector dropped to 33% in 2005, from 47% in 2004, yet at the same time the ratio of loans to GDP increased to 44%, from 36% a year earlier.

The dynamic competitive situation broadened the supply of credit for small and medium-sized enterprises, as more and more banks, find-ing other niches already taken, began to target SMEs. Even so, the microenterprise sector is still largely neglected by commercial banks. More op-portunities to increase lending to SMEs are being created by the fact that Bulgarian companies will have to bring their operations into compliance with EU quality and safety standards within the next year, inducing them to seek medium-term investment loans from banks. Moreover, SMEs will be the most seriously affected by the lend-ing restrictions, as they are too small to obtain loans from abroad. ProCredit Bank is one of the few financial institutions that will concentrate its efforts on providing SMEs with appropriate financing packages.

Lending Performance

Loan portfolio development

Loan portfolio growth in 2005 was shaped by the BNB restrictions on lending. Nevertheless, ProCredit Bank managed to maintain its position as the leading Bulgarian financial institution for SMEs. The restrictions themselves did not affect the bank’s core segment, namely micro and small entrepreneurs, where we again succeeded in generating significant growth by attracting large numbers of new clients.

A n n u a l R e p o r t 2 0 0 520

34.4%55.7%

8.2%

1.4%

o.37%

Number of Loans Outstanding – Breakdown by Loan Size *

up to EUR 1,000 EUR 50,001 to EUR 150,000

EUR 1,001 to EUR 10,000 more than EUR 150,000

EUR 10,001 to EUR 50,000 * 31 Dec 2005

Loan Portfolio Quality (arrears >30 days)

Net write-offs in 2003: EUR 44,030



in % of loan portfolio


1.5

1.2

0.9

0.6

0.3

0

In lending to the bank’s larger clients – the “me-dium” segment – portfolio growth was generated mainly by the existing client base. In general, these are companies which will have to invest heavily in order to meet the future EU require-ments, and which already have a long-term busi-ness relationship with the bank. In view of the institution’s development mission, the manage-ment decided explicitly to continue to support these clients, thus avoiding any hold-ups in their business plans and ensuring their continued de-velopment and growth.

In 2005 the overall loan portfolio increased by 62% to EUR 225 million at year-end, with 38,108 loans outstanding. This figure represented an in-crease of 9,618 loans (up 34%), which indicates just how strong ProCredit Bank’s position is in the highly competitive Bulgarian market. The loan portfolio remained highly diversified. More than 50% of the loans went to microenterprises in the trade sector with no more than 2 or 3 employees, often family members, for whom the business is the main source of income. 5% of the loan port-folio is accounted for by the agriculture and food processing sector, whose volume increased by 105%. With the ongoing branch expansion, Pro-Credit Bank now offers its services in 42 branch-es spread across 24 regions, and the regional dispersion of the portfolio has continued to in-crease. As of the end of 2005, the country’s main economic centres – Sofia, Plovdiv and Varna –represented only 40% of the loan portfolio, as against 50% at end-2004.

An overview of the product range

The easy-access express loan “Sprint” (up to EUR 10,000) remains the most popular lending prod-uct, accounting for roughly 86% of the total num-ber of business loans disbursed during 2005. In the outstanding business portfolio the Sprint has a share of 71%, followed by the classical micro loan “Dynamo” (an instalment loan ranging from EUR 10,001 to EUR 50,000) with a share of 13%. The Dynamo has lost none of its popularity in the last four years thanks to its main features: swift decision-making and minimal paperwork. Although the size ranges and maturities of these products were adjusted during the year just ended, the average loan amounts outstanding in these segments, at EUR 2,700 and EUR 8,600 re-spectively, are still very low.

For our reliable and loyal customers we intro-duced seasonal overdrafts, which met with con-siderable demand. We also started to offer debit cards with overdraft facilities to owners and man-agers of SMEs as part of a standard business loan package, and this innovation too was very well received.

With utility prices rising, ProCredit Bank’s focus in the last months of the year shifted to energy ef-ficiency and housing improvement loans for pri-vate householders. In order to ensure that these clients can plan reliably without having to worry about interest rate fluctuations, the bank is fund-


Customer Deposits

140

120

100

80

60

40

20

0



Term Savings Sight Total number

140

120

100

80

60

40

20

0

Client Base – Total No. of Borrowers and Depositors

Number

Borrowers Depositors

50,000

40,000

30,000

20,000

10,000

0

Dec–01

Dec–02

Jan–05

Marc

h–05

May–

05

July–

05

Nov–05

Dec–03

Dec–04

Feb–05

April–05

June–05

Sept–05

Aug–05

Oct–05

Dec–05

ing these loans with a fixed-interest loan from KfW, which will be onlent to the sub-borrowers at a very small margin.

To serve customers in rural areas, ProCredit Bank offers special agricultural loans, which are sub-ject to a maximum size of EUR 25,000 and a ma-turity of up to five years. No collateral is required for loans up to EUR 2,500. The loan can be used for working capital or fixed asset investments, and comes with the option of a flexible repay-ment schedule reflecting the seasonal character of agricultural production.

Loan losses and portfolio at risk

Despite the expansion of credit in Bulgaria, and signs that some sections of the population are beginning to become over-indebted, the quality of ProCredit Bank’s loan portfolio remained very high. The portfolio at risk (PAR) ratio is still under 1%, which is a testimony to the effectiveness of the bank’s risk assessment procedures, and to the payment discipline of our clients.

Other Banking Services

During 2005, ProCredit Bank further strength-ened its position in the Bulgarian financial ser-vices market, not only as the bank of choice for micro and small entrepreneurs, but also as a

bank offering a full range of services to private individuals. Within a single year, the number of customers increased by 51%; as of the end of December 2005, the bank was serving more than 80,000 clients.

Enhancements to the bank’s product range, and especially the saving solutions offering both flex-ibility and a high return, resulted in a change in the structure of the customer base. For the first time since the establishment of the bank, the number of depositors exceeded the number of borrowers, accounting for 57% of the total as of year-end.

By offering favourable interest rates for standard term deposits, and for the wide range of flexible “ProDeposits”, ProCredit Bank was able to en-large its deposit base by 99%, compared with a deposit growth rate of less than 35% for the banking sector as a whole.

In 2005 the number of term and savings accounts grew by 87%, to over 24,000 accounts with an average balance of EUR 4,042, up from EUR 3,789 in 2004.

Of the total deposit volume of EUR 137 million, term and savings deposits amounted to EUR 99 million (72%), while total sight deposit balances came to EUR 38 million (28%), producing an an-nual growth rate of 46%. This increase reflects the favourable terms and conditions offered by

A n n u a l R e p o r t 2 0 0 522

37.8%7.2%

12.9%

0.1%

3.6%

12.1%

26.3%

Term Deposits – Breakdown by Size *

less than EUR 100 EUR 50,001 to EUR 100,000

EUR 100 to EUR 1,000 EUR 100,001 to EUR 500,000

EUR 1,001 to EUR 10,000 more than EUR 500,000

EUR 10,001 to EUR 50,000 * 31 Dec 2005

ProCredit Bank for account maintenance and banking transactions on behalf of both business clients and private individuals. At the end of De-cember, there were over 75,500 sight deposit ac-counts with an average balance of EUR 506.

In early February, to serve clients seeking a maxi-mum return on short-term investments, the bank introduced 7-day and 14-day call deposits. The fact that the required minimum balance is as low as EUR 250 ensures that these new deposit fa-cilities are accessible both for private customers and for business clients with a temporary surplus of funds.

Growth was stronger in the 6–24 month range than among short-term deposits of up to 6 months, which is a sign of increasing confidence among the bank’s depositors both in the Bulgar-ian economy and in ProCredit Bank.

Emphasis on electronic banking services

We are well aware that our customers expect us to offer modern banking services, and therefore we continued to develop innovative service chan-nels that would both save them time and cut their costs.

In July 2005 ProCredit Bank Bulgaria launched a 24-hour telephone banking service, which is available in five languages. “Phone Banking”

gives customers quick and easy access to their accounts and allows them to carry out banking operations, either through an automated self-service procedure or via the operator. Customers can obtain information on all of the bank’s prod-ucts and services, order money transfers in local currency and apply for loans over the telephone.

ProB@nking, ProCredit Bank’s internet bank-ing service, is increasingly gaining acceptance among clients. As of the end of December 2005, some 42% of all domestic payments were being effected through ProB@nking, compared to 30% as of December 2004, and 7% of our clients are using ProB@nking regularly.

To complete the range of services, ProCredit Bank Bulgaria became a principal member of Visa In-ternational in July 2005. In early 2006 we will start issuing Visa cards, giving our customers ac-cess to their money all over the world.

Automation of routine banking services

In 2005 ProCredit Bank also applied new technol-ogy to routine banking operations such as cash deposits and withdrawals, which are very active-ly used by our clientele.

We were the first bank in Bulgaria to introduce ATMs which are able to receive as well as dis-pense cash. Teller automation greatly enhances the branches’ cash handling capacity, reduces processing time and provides a high degree of authenticity control, even when operating with different currencies. Moreover, the installation of a TCR at the cashiers’ desks is in line with the phi-losophy behind our “open branch architecture”,

Telephone Banking Centre


Domestic Money Transfers


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42003 2004 2005

Incoming Outgoing Number

500

450

400

350

300

250

200

150

100

50

0

500

450

400

350

300

250

200

150

100

50

0

International Money Transfers

100

90

80

70

60

50

40

30

20

10

0


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42003 2004 2005

Incoming Outgoing Number

10

9

8

7

6

5

4

3

2

1

0

insofar as it creates more opportunity for commu-nication with the clients.

As our branch network expanded into the coun-tryside in 2005 and bank card usage in Bulgaria increased, we continued to enlarge our network of ATMs and POS terminals. As of December 2005 ProCredit Bank maintains 55 ATMs, and more will be installed in 2006, bringing our services even closer to card-holders. The 50% growth in the number of ATM transactions in 2005 was also very encouraging.

Development of payment services

Compared to the figure for 2004, the number of domestic payments was up by 71% in 2005. The number of international payments increased by 36%. Documentary payments also developed very strongly, with 30% more transactions of this type effected than in 2004.

Strengthening co-operation within the ProCreditGroup

Co-operation between the institutions belong-ing to the ProCredit Bank network continued to strengthen in 2005, and our intragroup payment product ProPay became the method of choice for transferring money between ProCredit Banks in South-Eastern Europe. ProPay was launched in

April 2004 with 30 cross-border payments in the first month, but by the end of 2005 the number of transactions had increased to more than a thou-sand per month.

ProPay is used mainly by our business customers. To extend a similar service to private individuals we created the ProCash facility, which was intro-duced in December 2005. ProCash makes use of the existing correspondent relationships be-tween the banks, and enables private individuals to transfer money person-to-person, even if nei-ther party maintains an account at the respective banks. It is faster than other systems of a similar nature, and the commission rates are lower. The main target groups for this new payment system are people with relatives living abroad, tourists visiting the countries of South-Eastern Europe, students and business travellers.

In 2005, co-operation between the ProCredit Banks in South-Eastern Europe also intensified substantially in the area of treasury transactions. The banks continued to engage in money mar-ket and foreign exchange deals on a daily basis, thus improving their liquidity positions by taking advantage of the more advanced money market in Bulgaria. ProCredit Bank Bulgaria engaged in foreign exchange deals totalling EUR 140 million and money market deals totalling EUR 210 million in 2005 on behalf of the other South-Eastern Eu-ropean ProCredit Banks.

A n n u a l R e p o r t 2 0 0 524

Special feature:

Focus on Transparency

In 2005 the battle for market share in the Bulgar-ian banking sector intensified considerably, and some of the commercial banks resorted to partic-ularly aggressive marketing strategies. More and more frequently, banks would publish incomplete and misleading information on both their credit products and their deposit services, omitting cer-tain fundamental details. This made it very diffi-cult for customers to compare offers and choose the one that best suited them. The press started to publish articles under headlines such as “How Banks Lie”, “10 Tricks That Banks Use To Cheat Us”, etc., and the gap between the clients and the banks seemed to be growing larger.

In a bid to raise customers’ awareness of banking principles and thus to safeguard them against making wrong financial decisions on the basis of inadequate information, ProCredit Bank launched its “Transparency” campaign in September 2005. The main purpose was to explain what customers needed to know in order to make the right choice when applying for a loan or for leasing, or when depositing their money with a bank. “Transpar-ency” sets out to explain the meaning of sophis-ticated banking terminology, the differences be-tween banking products of a similar type, and the essential parameters that influence the actual price of each product, including the types of fees and commissions charged for credit or deposit facilities.

It was not our aim to compare the specific terms and conditions offered by the variousfinancial institutions, but rather to help customers to reach a financial decision that is appropriateto their actual busi-ness or private ob-jectives. The launchof the Transparen-cy initiative wassupported by ma-ny Bulgarian jour-nalists who regu-

larly report on the banking sector. Thus, our joint efforts have contributed to preserving the good reputation of the industry and to improving the general level of confidence in the banks in Bul-garia.

In October 2005, as part of the Transparency ini-tiative, ProCredit Bank organised an “Open Door Day” at all the branches. The bank invited every-one, including groups of schoolchildren, to come and find out more about the bank, its activities and its daily operations. Clients were taken on a tour of the bank’s departments, led by a guide who explained in detail the specific features of the products and the duties of the employees. There will be more Open Door Days in 2006.

By the end of the year, reason had prevailed: most of the banks signed a gentlemen’s agreement to abide by EU Directives No. 87/102/EEC, 90/88/EEC and 98/7/EC regarding consumer loans be-

tween BGN 400 and 40,000 (EUR 200 and 20,000).


Financial Results

For ProCredit Bank, 2005 was another year of sustained growth and strengthened financial performance. The excellent financial results were largely attributable to the expansion of both the branch network and the customer base, rein-forced by the improved competitiveness of the bank’s products. The asset growth of around 65% was mainly driven by the growth of the loan port-folio and the improved stock of short-term funds. The gross loan portfolio rose by 62% to EUR 225 million. Cash and liquid assets increased accord-ingly, ensuring that the liquidity ratio (liquid as-sets to total assets) remained above 20%.

The bank continued to diversify its funding base and actively manage its maturity and currency structure. The rapid asset growth was supported by various sources of external funding, mainly deposits, corporate bonds, and credit lines from international financial institutions (IFIs). Need-less to say, mobilising deposits was a major pri-ority, and in 2005 the total volume of deposits entrusted to us increased by more than 80%. In other words, deposits alone supported more than three quarters of the loan portfolio growth. The IFIs were the second most important source of funding. The bank signed credit agreements with a number of first-class financial institutions, such as CEB and KfW. Although still important, this source of funds lost some ground to depos-its in 2005: IFI loans as a share of total liabili-ties shrank by 2 percentage points (from 32% to 30%). With its fourth bond issue – BGN 20 mil-lion (roughly EUR 10 million) of three-year corpo-rate bonds placed through its leasing company – ProCredit Bank demonstrated its commitment to maintaining a presence in the Bulgarian capi-tal market and to using it regularly as a source of medium-term financing.

The strong growth of the loan portfolio was ac-companied by a further improvement in the bank’s income. Interest income increased from EUR 18 million in 2004 to EUR 26.5 million in 2005, whereas net income from fees and com-missions in 2005 was only slightly higher than in the previous year, reflecting the bank’s policy of keeping its fees at competitive and affordable levels. Taking all income streams together, the bank reported total operating income of around

EUR 20.8 million, up from the EUR 15.1 million posted in 2004 (an increase of almost 40%).

To sustain its growth, ProCredit Bank has adopted a policy of opening new branches and enlarging and training its human resources. Accordingly, as a consequence of adding 7 branches to the net-work, and hiring and training staff for them, the bank’s general and administrative expenses in-creased by 39% year-on-year to almost EUR 13.5 million. Marketing and advertising expenses in-creased by less than 10%.

ProCredit Bank grew dynamically but was able to control its costs as reflected in the operating effi-ciency and performance indicators. For example, the ratio of personnel expenses to average risk-weighted assets and the ratio of other adminis-trative expenses (excluding personnel expenses) to average risk-weighted assets both improved over the year, while the cost-to-income ratio re-mained stable at close to 60% throughout 2005. After a dip in the early part of the year, income growth pushed the return on equity (ROE) up to 19% for the year as a whole. In the second half of 2005 the bank added EUR 10 million to its tier 2 capital in the form of a hybrid equity instrument, which substantially improved its capital adequa-cy. Total capital to risk weighted assets stood at 14% in the latter months of the year, exceeding by a safe margin the local regulatory requirement of 12%. This leaves ProCredit Bank Bulgaria with plenty of room for future loan portfolio growth.

In 2005, the Bulgarian National Bank issued new regulations aimed at restricting annual loan dis-bursement growth to 30%. This will inevitably affect ProCredit Bank’s financial outlook for the coming years. The regulations were designed to prevent the financial system from accumulating non-performing loans, and to safeguard macro-economic stability. The commercial banks that violate the regulations must deposit additional (non-interest bearing) reserves with the central bank, inevitably creating an increased demand for funding and liquidity. The new regulations also make it harder for banks that had achieved stronger growth in the past to raise their opera-tional profitability.

Given that our portfolio growth in 2005 exceeded the limits set by the national regulator, ProCredit

A n n u a l R e p o r t 2 0 0 526

Bank will have to place funds with the Bulgarian National Bank in 2006. Although these regula-tions will impact on both our liquidity and our profitability, ProCredit Bank has sufficient fund-ing to secure its liquidity and intends to offset the negative effect on its profitability by increasing internal cost efficiency.

Outlook

ProCredit Bank Bulgaria will continue to pursue the goals it set itself at its inception: to reach out to as many clients as possible that had no access to the local banking sector, to provide its share-holders with a good return on their investment and to create a rewarding and productive working environment for its employees.

We expect our assets, loan portfolio and net in-come to continue growing in 2006. The increases will be achieved mainly by reaching new custom-ers in towns and regions where we do not yet have a presence. The bank plans to open 16 new branches in 2006, bringing the total up to 58, so that by the end of the year we will have come very close to attaining countrywide coverage. From then on, branching out will continue, but at a more moderate pace. The rapid expansion of the branch network in 2006 will require a consider-able financial commitment. Therefore, although we foresee an increase in net interest income of around 15%, and an increase of more than 20% in

total operating income in 2006, we do not project a significant increase in net profits. In 2006, the bank expects to pay dividends to its sharehold-ers for the first time since its foundation, and to further increase its tier 2 equity.

The loan portfolio is projected to continue grow-ing at a substantial rate in the coming years, but within the limits set by the local regulators, which would compel the bank to deposit additional re-serves with the central bank. Thus in 2006 the loan portfolio will probably grow by around 15% to more than EUR 259 million. By the end of 2006 the bank is expected to have more than 50,000 loans outstanding, roughly one-third more than a year earlier. Especially strong performance is ex-pected in the agricultural and housing improve-ment loan segments, which grew dynamically in 2005 as well.

In line with our strategy, we will continue to focus on improving our customer service by constantly upgrading our product portfolio and by making our services accessible to more people in more locations. We will strive to deliver competitively priced products that are tailored to the needs of our clients while at the same time delivering a satisfactory return to our shareholders. In short, we will do everything within our power to contin-ue to support the many thousands of businesses and individuals in Bulgaria who choose to bank with us.


Risk Management

In 2005 ProCredit Bank grew faster than the Bul-garian banking system as a whole. The average asset growth of the banking sector is estimated at less than 32%, with growth in the volume of credit at around 33%. We grew at almost twice these rates. In regard to deposits, we achieved 81% annual growth, compared to less than 26% for the banking system as a whole. This strong growth was mission-driven: ProCredit Bank was committed not to expanding its market presence, but rather to responding to the increasing de-mand on the part of Bulgarian small and medium enterprises (SMEs), which are still not adequately served by the local banking sector.

The rapid growth created opportunities, but it also amplified risk. The Management Board is fully aware of the importance of developing the bank’s risk reporting and risk management ca-pabilities to ensure that they keep pace as the institution grows. The bank monitors the risks it confronts on a monthly and on an ad hoc basis and prepares internal reports accordingly. The major shareholders receive all relevant reports and monitor and evaluate risk on a regular basis.

Though the loan portfolio grew by more than 60%, the quality of the portfolio did not deterio-

A n n u a l R e p o r t 2 0 0 528

rate. The share of loans classified as “standard” was just below 98% a year ago, and remained high, ending 2005 at 97%. PAR over seven days came to 0.73% of the gross loan portfolio as of the end of 2004 and was still below 1% as of the end of 2005. The share of portfolio volume at risk over 30 days is well below 1%, and loan loss pro-visions cover about 400% of the amount at risk.

The bank’s strategy of loan portfolio diversifica-tion serves to eliminate a great deal of the poten-tial credit risk. The portfolio consists of tens of thousands of small to medium-sized loans, less

than 30% of which are for amounts greater than EUR 100,000. Specialised departments deal with the more sizeable loans and manage the credit risk associated with them. The portfolio is diver-sified in terms of economic activities as well, with clients operating in sectors ranging from trade and services to manufacturing.

Like all financial institutions, ProCredit Bank is exposed to market risk, i.e. fluctuations in for-eign exchange rates and interest rates. Foreign currency risk is minimised by keeping open cur-rency positions at a very low level. As far as inter-est rate risk is concerned, the bank attracts EUR- and USD-denominated funding, and EURIBOR and LIBOR are thus the key interest rates influencing the bank’s exposure. The exposure to this type of risk is negligible, however, due to the small duration gap between assets and liabilities and the relatively short loan maturities in the bank’s portfolio; only 11% of the loans in the portfolio have maturities of more than seven years.

ProCredit Bank devotes as much attention to operational risk as it does to market and credit risks, as the potential losses in this area can be substantial. The bank continued to expand its loss event database. Also, a working group is as-sessing the steps required to ensure that by the end of 2006 the bank is in full compliance with BASEL II regulations in regard to market, credit and operational risk.

The bank strives to increase its efficiency, thus improving its financial results and creating a buf-fer against external shocks. In 2005, in order to enhance efficiency, ProCredit Bank introduced an activity-based costing system. Activity-based costing, or “ABC”, allocates costs to products, as opposed to the traditional method of allocating them to resources. The costs associated with a specific product can then be estimated, and ar-eas for improvement and cost cutting identified. For roughly two months, more than two-thirds of the staff were engaged in providing the ABC team with day-to-day information. By the end of 2005, the ABC database was finished, and the project is expected to be fully implemented in the first quarter of 2006.

R i s k M a n a g e m e n t 29

Greece

Serbia

Macedonia

Turkey

Bulgaria

Sofia (12)

Pernik

Dupnitsa

Blagoevgrad

Petrich

Montana

Vratsa

Pleven

Troian

Karlovo

Pazardjik (2)

Plovdiv (3)

Asenovgrad

Kardjali

Haskovo

Dimitrovgrad

Stara Zagora (2)

Kazanlak

Gabrovo

Veliko Tarnovo

Sliven

Shumen

Razgrad

Russe

Dobrich

Varna (4)

BurgasJambol

Gorna Oriahovitsa

Vidin

Svistov

Romania

Branch Network

Proximity to its clients is crucial for the success of ProCredit Bank’s operations. The bank aims to continuously increase its total number of branch-es and outlets, both in Bulgaria’s regions and in the urban centres. In 2005 ProCredit Bank’s branch network grew by 7 branches, bringing the total to 42 in 24 different regions. Two branches were opened in Svishtov and Vratza, regions where ProCredit Bank did not yet have a presence, and thus, the bank now covers the whole country. Six additional city branches were opened during the year in urban centres such as Sofia, Plovdiv and Varna and in regional centres such as Stara Zagora and Pazardjik, and more outlets will be established in these cities in the future in order to serve the growing demand.

In view of the increasing demand for a variety of banking services, four credit outlets – Kakzan-luk, Kardzhali, Petrich and Gorna Oryahovitza –were converted into branches offering the full

range of banking services, and at the same time moved to new buildings in better locations. Now they attract not only clients seeking loans, but also customers interested in current accounts, deposits, debit cards, etc.

To accelerate the process of expansion into rural areas, we introduced the “creditmobile” – a bus which travels from village to village on a fixed schedule, serving as a mobile branch. Based on good experiences in the previous year, in 2005 ProCredit Bank continued to visit small towns and villages with two creditmobiles to offer micro and agricultural loans, or just to advertise the bank. During the spring the creditmobiles covered the Black Sea coast; during the summer and autumn months, they visited the rural areas around some of the cities where we have branches – Plovdiv, Pazardzhik, Shumen, Razgrad, Pernik and Bla-goevgrad. In the course of 12 tours, more than 120 small towns and villages were visited, some

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of which had no more than 500 inhabitants. The customers greatly appreciated our approach of coming to them where they live and work. Based on the good results to date, ProCredit Bank has decided to increase the number of creditmobiles.

We believe that this is an appropriate way to sup-port the development of micro and small busi-nesses in rural regions and of agricultural clients and small farmers, which is a part of ProCredit Bank’s mission.

In accordance with our customer-oriented and friendly approach, we continued to renovate and refurbish our branches, introducing the ProCredit uniform design standards. We believe that our open branch design creates a welcoming atmo-sphere which is conducive to establishing the sound and long-lasting relationships which we aim to have with our customers. The renovation of branches and the expansion of the branch net-work will continue in 2006, with the total number of branches expected to reach 58.

B r a n c h N e t w o r k 31

In light of the strong growth of the bank in 2005 and to mitigate the usual risks associated with day-to-day banking operations, and in order to promote our client-oriented approach, we made several adjustments to our organisational struc-ture and workflows.

We considerably strengthened the support pro-vided by the head office to the branches. Busi-ness development, administration and risk-con-trol units were restructured and expanded. New departments were established in the head office to support smooth lending operations and the ef-ficient monitoring and management of the loan portfolio. The aim of all these structural changes was to ensure smooth workflows and the swift processing of all types of customer requests, bal-anced with adequate risk assessment and con-trol.

The achievement of our goals is possible only thanks to our staff members. Our aim is to at-tract and retain bright professionals or young graduates with a great deal of potential who are down-to-earth, ready to learn on the job and face the challenge of living our corporate values. It is our policy to be open, fair, professional and con-sistent when recruiting and selecting new staff members. We are an equal-opportunity employer and do not discriminate on the basis of sex, race or religion. Previous banking experience or a de-gree in economics is usually not required; rath-er, we look for individuals who are responsible, loyal, flexible and friendly and who will meet our

high standards of professional and personal con-duct. Our staff grew roughly by 120 in 2005, and we currently have about 751 staff members. The average age is around 30, and women outnumber men three to one.

Given that we do not require specific qualifica-tions, we instead provide intensive training to our employees. All new employees attend a two-day induction seminar at which they are familiarised with the bank’s mission, shareholders, products and Code of Conduct. We organise both internal and external training for all of our staff; each em-ployee participated in three training seminars on average in 2005. For example, we designed a cus-tomer service seminar to help front-office staff to fully develop their skills in this area and meet the bank’s high standards. Moreover, the bank pro-vides training not only in “soft skills” and profes-sional skills, but also on relevant topics such as the prevention of money laundering, what to do in the event of a terrorist attack in the bank, etc.

We believe in our staff’s potential and expect a long-term commitment from them. Accordingly, we offer various opportunities for career devel-opment. Based on their performance, ability and skills, staff members can be promoted to more senior positions and/or become internal trainers. During 2005, for example, 14 loan officers whom we had trained and who achieved excellent job performance were promoted to the position of branch manager. Another 20 employees became internal trainers.

Organisation, Staff and Staff Development

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In order to strengthen our middle management still further, we will send senior staff members to the new ProCredit Academy in Frankfurt, Ger-many. During a three-year course consisting of five two-week sessions, our colleagues will learn

the essentials of banking theory, leadership and management, and the values of the ProCredit group, together with their colleagues from Pro-Credit Banks in 19 countries on three different continents.

The “Give a Hand” Charity Fund

Our staff have a strong sense of social respon-sibility. Coming into contact on a daily basis with micro entrepreneurs who are often among society’s less privileged, they decided to found a charity fund for the least privileged of all - ill children from poor families, many of them living in orphanages. Started as a private initiative, the charity fund “PROtegni Raka” was officially reg-istered as a non-profit organisation in 2005. 385 employees were contributing regular monthly do-nations to the charitable cause as of the end of the year. The employees of the bank also organ-ised several internal and in-house events such as the inauguration of a new section of the head office, a football championship, lunch in the bank with home-cooked food etc. and combined the fun with additional contributions to the fund.

This year we introduced the activities of the fund to our customers and business partners as well. The fund started its own website, www.protegni-raka.bg, where information on the current cam-

paigns and other activities of the fund is posted both in Bulgarian and in English. Our clients re-sponded immediately, underscoring their own sense of responsibility for their community, and they consistently support us with contributions in kind or with funds.

About 20 children received donations from the fund in the last year, which gratifies us, but also inspires us to do more. We set high standards for ourselves both in our work and in our social be-haviour, and we believe that this is the key to our success.

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Business Ethics and Environmental Standards

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

• Transparency: We adhere to the principle of providing transparent information both to our customers and the general public and to our em-ployees, and our conduct is straightforward and open;

• Culture of open communication: We are open, fair and constructive in our communication with each other, and deal with conflicts at work in a professional manner, working together to find so-lutions;

• Social responsibility and tolerance: We give our clients sound advice; their economic and fi-nancial situation, their potential and their needs are assessed and are translated into appropri-ate “products”; promoting a culture of savings is important to us; we are committed to treating all customers and employees respectfully and fairly, irrespective of their origin, color, language, gen-der or religious or political beliefs;

• Service orientation: Every client is served in a friendly, competent and courteous manner. Our employees are committed to providing excellent service to all customers, regardless of their back-ground or the size of their business;

• High professional standards: Every employee takes responsibility for the quality of his/her work and strives to do his/her job even better;

• High degree of personal commitment: This goes hand-in-hand with personal integrity and honesty – traits which are required of all employ-ees in all ProCredit institutions. These ProCredit values represent the backbone of our corporate culture and are discussed and are actively applied in our day-to-day opera-tions. Moreover, they are reflected in the Code of

Conduct, which translates the ProCredit group’s ethical principles into practical guidelines for all ProCredit staff. In order to ensure that staff fully understand all of the principles that have been defined, several training sessions were conducted during the year under review at which case studies were presented and grey areas dis-cussed. We will not only continue to conduct such training sessions, but will carry them out even more frequently in the coming years.

Another aspect of ensuring that our institution adheres to the highest ethical standards is our consistent application of international best-prac-tice methods and procedures to protect ourselves from being used as a vehicle for money launder-ing or other illegal activities such as the financing of terrorist activities. The important thing here is to “know your customer”, and, in line with this principle, to carry out sound reporting and com-ply with the applicable regulations.

We also set standards when it comes to the im-pact of our lending operations on the environ-ment. ProCredit Bank Bulgaria has implemented an environmental management system which calls for continuous assessment of the loan port-folio according to environmental criteria, an in-depth analysis of all economic activities which po-tentially involve environmental risks, and the rejection of loan applications from enterprises engaged in activities which aredeemed environmentally haz-ardous and appear on our institution’s exclusion list. By incorporating environmental issues into the loan approval process, ProCredit Bank Bul-garia is also able to raise itsclients’ overall level of envi-ronmental awareness. It goeswithout saying that when loan ap-plications are evaluated, compliance with ethical business practices is also a key consideration. No loans are issued to enterprises or individuals if it is suspected that they are making use of un-safe or morally objectionable forms of labour, in particular child labour.

B u s i n e s s E t h i c s a n d E n v i r o n m e n ta l S ta n d a r d s 35

Our Clients

Reputation built on compliance with EU standards

Like many officers leaving the Bulgarian army in the early 1990s, Tashko Dimitrov was unable to find suitable employment, and had no alternative but to start his own private business. With two friends who were both experts in meat process-ing technology, he established a company called Orion Burgas in 1994.

When the friends quit only two years later, Mr. Dimitrov was determined to continue without them, and taught himself the specifics of the food industry. In a crucial period of economic transition in Bulgaria, he continued to develop the range of meat products, supported by his brother, another former army officer. Having gained substantial management experience in those transition years, Mr. Dimitrov felt confident enough to enter a new market in 2003 – the pro-duction and sale of convenience foods and frozen vegetables.

In early 2004, when Mr. Dimitrov first borrowed from ProCredit Bank, he was about to move his entire business into new rented premises, and he used the loan to bring the facility into line with EU requirements. Later he was granted two over-drafts and a credit line. In June 2005, when the manufacturing process was transferred to the newly renovated production plant, a team of EU inspectors gave their seal of approval to the mod-ern production equipment and quality control systems.

ProCredit Bank has also issued bank guarantees enabling the company to participate in tenders. The fully modernised production facility, which meets all hygienic standards and delivers high quality products, has helped to make Orion Bur-gas a valued business partner with a reputation as a reliable supplier. The company now has its own extended network of customers, and the Ori-on Burgas brand is well known in supermarkets, restaurants and stores throughout Bulgaria.

Tashko Dimitrov, Owner of a Meat Processing Company

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A warm welcome is guaranteed

In 1993, Angel Linchev opened a small roadside stall on the main road from Pazardjik to Velin-grad, serving hot soup and other meals to pass-ing tourists. After managing the business suc-cessfully for few years, Mr. Linchev purchased a neighbouring plot of land where he constructed a permanent restaurant with his own savings. He also embarked on a new venture – a small family bed and breakfast hotel.

The bank he was using at that time refused to offer him a loan because his business was too small – Mr. Linchev and his wife ran the entire restaurant and hotel business on their own, with only one additional person employed on a sea-sonal basis. However, in May 2004 Mr. Linchev applied to ProCredit Bank for a loan in order to enlarge the restaurant area and redecorate the interior. With the funds he received, he was not only able to double the number of tables in the restaurant, but even built a small swimming pool for the guests to relax in. Both the restaurant and the hotel have become very popular in the area,

and are well known for the friendly service they provide. Mr. Linchev believes that the many natu-ral resources and especially the mineral water springs located near his restaurant could attract many tourists from all over Bulgaria.

The development of rural tourism in the area is now a priority for the municipality and Mr. Linchev is eager to cater to the increased demand which the growing influx of tourists will create. In Octo-ber 2005 he took out another loan from ProCredit Bank to enlarge the hotel service and provide more comfort for his guests by purchasing three additional wooden chalets.

Angel Linchev, Hotel and Restaurant Owner

O u r C l i e n t s 37

business. In order to maintain the very high qual-ity standards they set themselves, Elena and Sil-via realise how important it is to co-operate with partners who appreciate their efforts. In early 2004, they were looking for a bank that did pre-cisely that, and were very pleased with the quick and competent service they were offered by Pro-Credit Bank Bulgaria. So much so, in fact, that they transferred the company’s deposits to Pro-Credit Bank, and were more than satisfied with the favourable interest rates and the flexibility of the bank’s deposit facilities. Soon afterwards they also took out a loan.

The company now maintains a corporate account with ProCredit Bank and makes all of its salary, tax and insurance payments via the Internet us-ing the ProB@nking system. The corporate ac-count also comes with an overdraft facility, which gives the company even more flexibility in its operations. When Daneli 2000 has repaid its first loan, the company plans to borrow again from ProCredit Bank to pay for the construction of a second confectionery workshop.

Elena and Silvia Ganchevi, Confectioners

Combining traditional recipes with a modern approach to business

When the Ganchevi sisters, Elena and Silvia, took over their father’s bakery business in 2000, they decided to develop it into a modern confectionery workshop and a small store selling the compa-ny’s own products. Thanks to their hard work and enthusiasm, and their determination to meet the highest professional standards, their company, Daneli 2000 has been successful and its prod-ucts have found their niche in the market.

There is a stable demand for the tasty sweets, biscuits and crackers produced by Daneli 2000 according to traditional Bulgarian recipes. Sales have increased steadily and since 2000 the num-ber of employees has doubled to more than 60. The sisters invest not only their savings but all their professional skills and time in the family

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Exciting taste buds in Bulgaria and beyond

Established in the early 1990s, Bioset OOD ini-tially produced spices and flavouring products for the local market. Aware of the business opportu-nities presented by the seasoning that character-ises typical Bulgarian cuisine, and by the rapidly changing local market conditions at that time, the owners of the company quickly managed to build a well diversified product range that now com-prises over 170 different flavourings and spices intended for home use.

It was ProCredit Bank Bulgaria that issued the owners’ first ever loan, which they spent on mod-ernising the firm’s equipment. The second loan, received in early 2003, enabled the enterprise to enlarge both its manufacturing capacity and its office space. The most significant development in the company’s history to date was the acquisition of a vegetable drying factory. This real estate pur-chase, which was supported by ProCredit Bank, enabled the company to considerably increase its

production capacity, allowing it to process more than 3,000 tons of dried produce every season.

Thanks to the hard work and dedication of the owners and staff, and the financial support it has received from the bank, Bioset has succeeded in acquiring a substantial market share. The compa-ny now supplies the biggest chains of foodstores and warehouses throughout Bulgaria. Looking ahead, the owners of Bioset are currently work-ing to broaden their horizons by exciting the taste buds of consumers in other countries. The company has established promising business re-lationships with partners in Macedonia, Poland, Canada, the U.S. and Australia.

Krassimir Mihov and Asen Kehajov, Makers and Distributors of Spices

O u r C l i e n t s 39

Financial Statements

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F i n a n c i a l S tat e m e n t s 41

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1. General information and significant accounting policies

ProCredit Bank (Bulgaria) AD was established on 6 June 2001 as a result of the foundation meeting held by the shareholders, namely the European Bank for Reconstruction and Development, the Inter-national Finance Corporation, ProCredit Holding (formerly Interna-tionale Micro Investitionen AG), Deutsche Investitions- und Ent-wicklungsgesellschaft GmbH and Commerzbank AG. The Bank was registered as a Bulgarian joint stock company on 28 September 2001 with the Sofia City Court. In 2004 a new shareholder joined the Bank - Internationale Projekt Consult GmbH. In November 2005 ProCredit Holding acquired an additional 38.84% of the capital of ProCredit Bank Bulgaria, increasing its share to 59.13% of the registered capital of the bank. The holding company acquired the additional shares from IFC and DEG. The two financial institutions continue to be strongly involved in ProCredit Holding.The Group is managed through a Supervisory Board consisting of 5 members and a Management Board consisting of 4 members elected for a period of 3 years. ProCredit Bank (Bulgaria) AD is a development-oriented full-ser-vice bank. The Group offers a wide range of banking products. The Group is focused on serving and financing small businesses. Its principal business activity is lending to micro, small and me-dium-sized businesses within Bulgaria. ProCredit Bank Bulgaria’s fifth year of operations was driven by expansion and growth. The Bank’s activities are conducted through its headquarters in Sofia and branches in Varna, Bourgas, Plovdiv, Pleven, Haskovo, Stara Zagora, Shoumen, Pazardjik, Blagoevgrad, Veliko Tarnovo, Kurd-jali Ruse, Sliven, Pernik, Dobrich, Gabrovo, Trojan, Svishtov, As-senovgrad and Razgrad as well as seventeen city sub-branches in Sofia, Plovdiv, Varna, Pazardjik and Stara Zagora. The three offices in Kazanlak, Gorna Oriahovitsa and Petrich started operations as branches. The first new branch in the north-western part of Bul-garia, in the town of Vratza, opened doors for the clients in that region. This way the Bank provides a full range of banking services throughout the entire country.In 2005 ProLease (Bulgaria) EAD, the wholly owned leasing com-pany of the Bank, continued to grow and strengthen its financial performance. The expansion of the branch network in Varna, Bour-gas, Plovdiv, Haskovo and Stara Zagora improved the competitive-ness of the company. ProCredit Bank Bulgaria is part of an international network of fi-nancial institutions, managed by ProCredit Holding AG. In 2005 strong co-operation was built up among the banks within the Pro-Credit Holding Group.The significant accounting policies used in the preparation of these financial statements are set out overleaf:

a. Basis of presentation

The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union. The consoli-dated financial statements are presented in the national currency of Bulgaria, the Leva (BGN). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets held at fair value through profit or loss and all derivative contracts.The preparation of consolidated financial statements in conformity with IFRS, which require the use of certain critical accounting esti-mates and assumptions that affect the reported amounts of assets

and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assump-tions and estimates are significant to the financial statements are disclosed in Note 4.

Adoption of new and revised standards

In 2005 the Bank adopted the following IFRSs, which are relevant to its operations. The 2004 accounts have been amended as required, in accordance with the relevant requirements.

IAS 1 (revised 2003) Presentation of Financial Statements IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 (revised 2003) Events after the Balance Sheet Date IAS 16 (revised 2003) Property, Plant and Equipment IAS 17 (revised 2003) Leases IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates IAS 24 (revised 2003) Related Party Disclosures IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation IAS 39 (revised 2003) Financial Instruments: Recognition and Measurement IAS 36 (revised 2004) Impairment of Assets IAS 38 (revised 2004) Intangible Assets

The adoption of the revised IAS 1, 8, 10, 16, 17, 21, 24, 32, and 39 (all revised 2003) and IAS 36 and 38 (all revised 2004) resulted in certain additional disclosures, but did not result in material chang-es to the Bank’s accounting policies and accounting treatment of transactions. The securities classified as available-for-sales in-vestments as at 31 December 2004 were designated upon transi-tion to the revised IAS 39 as financial assets at fair value through profit and loss.

Standards, interpretations and amendments to published stan-dards that are not yet effective

Certain new standards, amendments and interpretations to ex-isting standards have been published that are mandatory for the Bank’s accounting periods beginning on or after 1 January 2006 or later periods but which the Bank did not adopt ahead of the effec-tive date of the requirement.

IFRS 7, Financial Instruments: Disclosures, and a complementary

Amendment to IAS 1, Presentation of Financial Statements - Capi-

tal Disclosures (effective from 1 January 2007). IFRS 7 introduces new disclosures to improve the information about financial instru-ments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instru-ments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces IAS 30, Disclosures in the Financial State-ments of Banks and Similar Financial Institutions, and disclosure requirements in IAS 32, Financial Instruments: Disclosure and Pre-sentation. It is applicable to all entities that report under IFRS. The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Bank assessed the impact of IFRS 7 and the amendment to IAS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of IAS 1. The Bank will apply IFRS 7 and the amendment to IAS 1 from annual periods beginning 1 January 2007.

Notes to the Consolidated Financial StatementsFor the year ended 31 December 2005Amounts in ‘000 BGN unless otherwise stated

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IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts

(effective from 1 January 2006). This amendment requires issued financial guarantees, other than those previously asserted by the entity to be insurance contracts, to be initially recognised at their fair value, and subsequently measured at the higher of (a) the un-amortised balance of the related fees received and deferred, and (b) the expenditure required to settle the commitment at the bal-ance sheet date. There are a number of other new standards or amendments to exist-ing ones but the management concluded they are not relevant to the Bank’s operations. These amendments and standards include:• IAS 19 (Amendment), Employee Benefits (effective from 1 Janu-ary 2006)• IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup Transactions (effective from 1 January 2006)• IAS 39 (Amendment), The Fair Value Option (effective from 1 January 2006)• IFRS 1 (Amendment), First-time Adoption of International Fi-nancial Reporting Standards and IFRS 6 (Amendment), Exploration for and Evaluation of Mineral Resources (effective from 1 January 2006)• IFRS 6, Exploration for and Evaluation of Mineral Resources (ef-fective from 1 January 2006)• IFRIC 4, Determining whether an Arrangement contains a Lease (effective from 1 January 2006)• IFRIC 5, Rights to Interests arising from Decommissioning, Res-toration and Environmental Rehabilitation Funds (effective from 1 January 2006)• IFRIC 6, Liabilities arising from Participating in a Specific Mar-ket – Waste Electrical and Electronic Equipment (effective from 1 December 2005)

b. Group accounts

Subsidiaries are those companies and other entities in which the Group, directly or indirectly, has power to govern the financial and operating policy. The Bank has one wholly owned subsidiary. The subsidiary is consolidated from the date on which control is trans-ferred to the Group.Intercompany transactions, balances and unrealised gains and losses on transactions between the Bank and its subsidiary com-pany are eliminated. Where necessary, accounting policies of the subsidiary have been changed to ensure consistency with the poli-cy adopted by the Group.

c. Foreign currencies

Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in for-eign currencies are recognised in the income statement. As at 31 December 2005, monetary assets and liabilities denomi-nated in foreign currency are translated into Bulgarian Leva at the official Central Bank exchange rate – BGN 1.95583 for EUR 1 and BGN 1.65790 for USD 1 (2004: BGN 1.95583 for EUR 1 and BGN 1.43589 for USD. In 1997 a currency board was introduced in Bul-garia by law. The local currency is pegged to the EUR at a rate of BGN 1.95583 for EUR 1.

d. Offsetting financial instruments

Financial assets and liabilities are offset and the net amount re-ported in the balance sheet when there is a legally enforceable

right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and to settle the liability simultaneously.

e. Income and expense recognition

Interest income and expense are recognised in the income state-ment for all interest bearing instruments on an effective interest rate basis. Interest income includes coupons earned on fixed in-come securities and accrued discount and premium on treasury bills and other discounted instruments. The effective interest method is a method of calculating the amor-tised cost of a financial asset or a financial liability and of allocat-ing the interest income or interest expense over the relevant pe-riod. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter pe-riod to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the fi-nancial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.When loans become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

f. Fees and commissions

Fees and commissions consist mainly of fees for Bulgarian Leva and foreign currency transactions, and are generally recognised on an accrual basis. Fees and commission expense relates to fees incurred by the Group in dealings with other banks, and are recognised at the date of the transaction.

g. Financial assets at fair value through profit and loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception.A) Held for trading - A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or re-purchasing it in the near term and for which there is evidence of a recent actual pattern of short-term profit-taking. The only trading assets held by the Group are the derivative financial instruments.B) Financial assets at fair value through profit and loss, designat-ed at inception - Any financial asset may be designated when ini-tially recognised as a financial asset at fair value through profit or loss except for investments in equity instruments that do not have a quoted market price in an active market, and whose fair values cannot be reliably measured.

h. Derivative financial instruments

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transac-


tions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

i. Sale and repurchase agreements

Securities sold subject to linked repurchase agreements (‘repos’) are retained in the consolidated financial statements as securi-ties available-for-sale and the counterparty liability is included in amounts due to other banks, or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘re-verse repos’) are recorded as loans and advances to other banks or customers as appropriate. The difference between sale and re-purchase price is treated as interest and accrued over the life of repo agreements using the effective yield method. Securities lent to counterparties are also retained in the financial statements.Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded with the gain or loss included in trading in-come. The obligation to return them is recorded at fair value as a trading liability.

j. Loans and provisions for loan impairment

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money to a debtor with no intention of trading the receivable and are carried at amortised cost, which is defined as the fair value of cash consideration given to originate those loans as is determinable by reference to market prices at origination date.All loans and advances are recognised when cash is advanced to borrowers.The Group assesses at each balance sheet date whether there is ob-jective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that oc-curred after the initial recognition of the asset (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 financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events:

(i) significant financial difficulty of the issuer or obligor;(ii) a breach of contract, such as a default or delinquency in inter-est or principal payments;(iii) the Bank granting to the borrower, for economic or legal rea-sons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider;(iv) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or(v) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:– adverse changes in the payment status of borrowers in the group; or– national or local economic conditions that correlate with defaults on the assets in the group.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually signifi-cant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objec-tive evidence of impairment exists for an individually assessed fi-nancial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are in-dividually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been in-curred) discounted at the financial asset’s original effective inter-est rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recog-nised in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price.The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteris-tics (i.e., on the basis of the Group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evalu-ated.Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contrac-tual cash flows of the assets in the Bank and historical loss experi-ence for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of cur-rent observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical pe-riod that do not exist currently.Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in re-lated observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.When a loan is uncollectable, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement.If, in a subsequent period, the amount of the impairment loss de-creases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an im-provement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

A n n u a l R e p o r t 2 0 0 548

k. Finance leases

A Group company is a lessor. When the assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net in-vestment method (before tax), which reflects a constant periodic rate of return.

l. Equipment and other fixed assets

All equipment and other fixed assets are stated at historical cost less depreciation.

The following depreciation rates have been used:

Computers 50% Office equipment and software 20% Other fixed assets 15%

Equipment and other fixed assets are periodically reviewed for im-pairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The assets’ residual values and useful lives are reviewed, and ad-justed if appropriate, at each balance sheet date.Gains and losses on disposal of property and equipment are de-termined by reference to their carrying amount and are taken into account in determining operating profit. Repairs and maintenance are charged to the income statement when the expenditure is incurred.

m. Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equiva-lents comprise balances with less than 90 days maturity from the date of acquisition including: cash, balances with the Bulgarian National Bank (BNB) excluding the statutory minimum required re-serve, and amounts due from other banks.

n. Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated annual leave as a result of services rendered by employees up to the bal-ance sheet date.

o. Operating leases

Payments made under operating leases are charged against in-come in equal instalments over the period of the lease. All operat-ing leases are cancellable within six months’ notice.

p. Income taxes

Taxation has been provided for in the consolidated financial state-ments in accordance with Bulgarian legislation currently in force. Current tax is calculated on the basis of the taxable profit for the year, using the tax rates enacted at the balance sheet date. Taxes other than on income are recorded within operating expenses.Deferred income tax is provided using the balance sheet liability method, for all temporary differences arising between the tax bas-es of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used in the de-termination of deferred income tax.Income tax payable on profits, based on the applicable tax law in Bulgaria is recognised as an expense in the period in which prof-its arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.

q. Debt securities in issue and borrowings

Debt securities in issue and borrowings are recognised initially at ‘cost’, being their issue proceeds (fair value of consideration re-ceived) net of transaction costs incurred. They are subsequently stated at amortised cost and any difference between net proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective yield method. Capital hybrid instruments are presented as liabilities in the bal-ance sheet, but are part of the Bank’s capital base for capital ad-equacy purposes.

r. Comparatives

Where necessary, comparative figures have been adjusted to con-form with changes in presentation in the current year.

2. Financial risk management

a. Strategy in using financial instruments

By its nature the Group’s activities are principally related to the use of financial instruments. The Group accepts deposits from custom-ers and seeks to earn above average interest margins by investing these funds in high quality assets. The Group seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquid-ity to meet all claims that might fall due.The Group also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to com-mercial borrowers with a range of credit standing. Such exposures involve not just on-balance sheet loans and advances, rather the Group also enters into guarantees and other commitments.The Management Board places trading limits on the level of expo-sure that can be undertaken in relation to both overnight and intra-day market positions.


b. Credit risk

The Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and the geographical and industry seg-ments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Limits on the level of credit risk by product and industry sector are approved by the Manage-ment Board.The exposure to any one borrower including banks is further re-stricted by sub-limits covering on and off-balance sheet exposures and daily delivery risk limits in relation to trading items. Actual ex-posures against limits are monitored daily.Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees.

Credit-related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees, which repre-sent irrevocable assurance that the Group will make the payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Commitments to extend credit represent unused portions of au-thorisations to extend credit in the form of loans and guarantees. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total commitments since commitments to extend credit are contingent upon customers maintaining specific credit standards.

The Group monitors the term to maturity of credit commitments be-cause longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

Geographical concentration of assets, liabilities and off-balance sheet items The loan customers of the Group are only in Bulgaria, placements and current accounts are either with local banks or with foreign ones (Note 12). The Group is exposed to many sectors of the Bulgarian economy. However, credit risk is well spread over a diversity of individual and commercial customers.

c. Market risk

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

d. Currency risk

The Group takes on exposures to effects of fluctuations in the pre-vailing foreign currency exchange rates on its financial position and cash flows. The Management Board sets limits on the level of exposure by currency, which are monitored daily. As a principle, the Group does not trade in currencies. The Group manages its cur-rency risk through the use of currency swaps. The table below sum-marises the Group’s exposure to foreign currency exchange rate risk at 31 December 2005.

As at 31 December 2005 BGN USD EUR Other Total

Assets

Cash and balances with Central Bank 31,179 1,747 41,475 433 74,834 Loans and advances to other banks 34 5,181 51,414 366 56,995 Loans and advances to customers 223,602 2,509 201,839 – 427,950 Financial assets through profi t and loss 95 817 7,766 – 8,678 Derivative fi nancial instruments 1,346 – – – 1,346 Other assets 1,301 43 1,339 1 2,684 Equipment 9,041 – – – 9,041

Total assets 266,598 10,297 303,833 800 581,528

Liabilities

Due to other banks 18,043 15,808 8,084 – 41,935 Due to customers 178,329 22,964 71,864 654 273,811 Other borrowed funds 8,001 5,023 148,522 – 161,546 Debt securities in issue 41,104 – 9,926 – 51,030 Other liabilities 2,475 48 470 2 2,995

Total liabilities 247,952 43,843 238,866 656 531,317

Net balance sheet position 18,646 (33,546) 64,967 144 50,211

Credit commitments (Note 23) 21,020 1,683 14,695 – 37,398

Open spot and derivative transactions (5,038) 33,520 (27,177) 41 1,346

As at 31 December 2004

Total assets 154,621 22,140 174,925 243 351,929 Total liabilities 140,737 22,564 146,226 206 309,733

Net balance sheet position 13,884 (424) 28,699 37 42,196

Credit commitments (Note 23) 11,721 2,068 10,724 – 24,513

Open spot and derivative transactions (4,409) 497 3,912 – –

A n n u a l R e p o r t 2 0 0 550

e. Cash flow and fair value interest rate risk

The Group takes on exposures to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unex-pected movements arise. The Management Board sets limits on the

in % BGN USD EUR


Assets

Loans and advances to other banks – 7.53 2.67 Financial assets through profi t and loss – 8.25 6.38 Loans and advances to customers 13.62 10.77 10.31

Liabilities

Due to other banks 3.26 4.30 5.38 Other borrowed funds 7.00 7.55 5.35 Due to customers 4.33 2.97 2.98 Debt securities in issue 5.56 – 6.45


Assets

Loans and advances to other banks – 4.48 2.85 Financial assets through profi t and loss – 8.25 6.38 Loans and advances to customers 15.17 8.34 11.58

Liabilities

Due to other banks 2.87 2.09 3.85 Other borrowed funds 7.00 5.49 5.00 Due to customers 3.75 2.96 2.87 Debt securities in issue 6.69 – 6.45

As at 31 December 2004 Up to 1 – 3 3 – 12 1 – 5 Over 5 Non-interest Total

1 month months months years years bearing

Assets

Cash and balances with Central Bank – – – – – 74,834 74,834 Loans to other banks 48,415 5,903 – – – 2,677 56,995 Loans to customers 37,902 89,708 187,602 111,157 1,544 37 427,950 Financial assets through profi t and loss 8,583 – – – – 95 8,678 Derivative fi nancial instruments – – – – – 1,346 1,346 Other assets – – – – – 2,684 2,684 Equipment – – – – – 9,041 9,041

Total assets 94,900 95,611 187,602 111,157 1,544 90,714 581,528

Liabilities

Due to other banks 28,962 11,431 1,542 – – – 41,935 Due to customers 126,891 31,448 80,416 26,446 10 8,600 273,811 Other borrowed funds 7,980 33,576 87,704 12,210 20,076 _ 161,546 Debt securities in issue – – 10,501 40,529 – – 51,030 Other liabilities – – – – – 2,995 2,995

Total liabilities 163,833 76,455 180,163 79,185 20,086 11,595 531,317

Interest sensitivity gap (68,933) 19,156 7,439 31,972 (18,542) 79,119 50,211


Total assets 61,898 36,297 113,919 99,235 1,664 38,916 351,929 Total liabilities 93,665 49,623 104,271 49,966 – 12,208 309,733

Interest sensitivity gap (31,767) (13,326) 9,648 49,269 1,664 26,708 42,196

level of mismatch of interest rate repricing that may be undertaken, which is monitored daily. The Management Board is satisfied that the Group’s position is such that exposure to movements in interest rates is minimised. The table below summarises the effective weighted average inter-est rate by major currencies for monetary financial instruments at year end.

Interest sensitivity of assets, liabilities and off-balance sheet

items – repricing analysis

The table below summarises the Group’s exposure to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repric-ing or maturity dates. The securities classified as financial assets

through profit and loss are presented with maturity up to 1 month.Expected repricing and maturity dates do not differ significantly from the contract dates, except for the maturity of BGN 126,837 thousand (2004: BGN 72,011 thousand) of Due to customers up to 1 month, of which 57% (2004: 58%) represent balances on current accounts considered by the Bank as a relatively stable core source of funding of its operations.


As at 31 December 2005 Up to 1 – 3 3 – 12 1 – 5 Over 5 Total

1 month months months years years

Assets

Cash and balances with Central Bank 74,834 – – – – 74,834 Loans and advances to other banks 51,092 5,903 – – – 56,995 Loans and advances to customers 16,601 35,182 127,721 217,437 31,009 427,950 Financial assets through profi t and loss 8,583 – – – 95 8,678 Derivative fi nancial instruments 1,346 – – – – 1,346 Other assets 2,684 – – – – 2,684 Equipment – – – – 9,041 9,041

Total assets 155,140 41,085 127,721 217,437 40,145 581,528

Liabilities

Due to other banks 22,482 11,620 5,283 2,550 – 41,935 Due to customers 135,212 31,519 80,614 26,332 134 273,811 Other borrowed funds 1,245 3,500 39,275 96,842 20,684 161,546 Debt securities in issue 430 387 10,501 39,712 – 51,030 Other liabilities 2,545 450 – – – 2,995

Total liabilities 161,914 47,476 135,673 165,436 20,818 531,317

Net liquidity gap (6,774) (6,391) (7,952) 52,001 19,327 50,211


Total assets 87,819 32,090 89,957 128,241 13,822 351,929 Total liabilities 98,220 28,983 48,294 132,617 1,619 309,733

Net liquidity gap (10,401) 3,107 41,663 (4,376) 12,203 42,196

f. Liquidity risk

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan drawdowns, and guarantees. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with reasonable certainty. The Management Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of interbank and other borrowing fa-cilities that should be in place to cover withdrawals at unexpected levels of demand. The Group tries to maintain a balance between maturity terms of attracted funds and flexibility in the usage of funds of various maturity structures. The table analyses assets and liabilities of the Group, broken down into relevant maturity group-ings based on the remaining period to the contractual maturity date at balance sheet date.

The securities classified as financial assets through profit and loss are presented with maturity up to 1 month. They comprise highly liquid government bonds which are quoted daily and are traded on the capital market. The maturity of the bonds as at the date of the balance sheet is as follows:

Issue No. Currency Fair Value Maturity

XS0138976385 EUR 3,197 1 – 5 years XS0145623624 USD 816 Over 5 years DE0001135150 EUR 1,092 1 – 5 years BG2040203213 EUR 1,134 1 – 5 years BG2040403219 EUR 2,344 Over 5 years Total 8,583

Maturities of assets and liabilities

Due to customers relate to borrowed funds with maturity up to 1 month, all sight deposits amounting to BGN 74,415 thousand are included. The Group’s management considers that these funds will not be withdrawn at the same time or within the period in which they are reflected. Additionally, analysing the Group depositors’ conduct it was concluded that 85% of term deposits at maturity date were not withdrawn but rather automatically renegotiated un-der the same terms and conditions.

A n n u a l R e p o r t 2 0 0 552

3. Fair values of financial assets and liabilities

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

a. Due from other banks

Due from other banks includes inter-bank placements and items in the course of collection.The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest- bearing deposits is based on discounted cash flows using prevail-ing money-market interest rates for debts with similar credit risk and remaining maturity.

b. Loans and advances to customers

Loans and advances are net of provision for impairment. The esti-mated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to de-termine fair value. Difference in fair values and carrying amounts represents the changes in the current market interest rates. Fair value incorporates expected future losses, while amortised cost and related impairment include only incurred losses at the balance sheet date.

c. Deposits and borrowings

The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand.The estimated fair value of fixed interest-bearing deposits and oth-er borrowings without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity.

d. Debt securities in issue

The aggregate fair values are calculated based on quoted market prices. For those securities where quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term of the maturity.The following table summarises the carrying amounts and fair val-ues of those financial assets and liabilities not presented in the Bank’s balance sheet at their fair value.

Carrying value Fair value

2005 2004 2005 2004

Financial assets Due from other banks 56,995 40,096 56,995 40,096 Loans and advances to customers 427,950 265,587 437,634 265,750

Financial liabilities Deposits and borrowings 477,292 275,938 478,002 275,938 Debt securities in issue 51,030 30,572 51,592 31,796

4. Critical accounting estimates, and judgements in applying

accounting policies

The Group makes estimates and assumptions that affect the re-ported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expec-tations of future events that are believed to be reasonable under the circumstances.

Impairment losses on loans and advancesThe Group reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identi-fied with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objec-tive evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assump-tions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

5. Net interest income

Interest income 2005 2004

Loans and advances to customers 50,244 34,011 Banks and financial institutions 1,145 658 Financial assets at fair value through profit and loss 487 487 Total interest and similar income 51,876 35,156 Interest expense

Banks and other financial institutions, including IFIs 7,511 4,504 Customer deposits 4,930 2,123 Debts securities in issue 2,461 1,790

Total interest expense and similar charges 14,902 8,417


6. Net fee and commission income

Fee and commission income 2005 2004

Money transfers 1,960 1,381 Cash operations 579 436 Documentary business 190 161 Other 274 131 Total fee and commission income 3,003 2,109 Fee and commission expense

Correspondent accounts 122 136 Other 207 99 Total fee and commission expense 329 235

7. Net trading income

2005 2004

Gains less losses from foreign currency transactions 1,238 687 Gains less losses arising from financial assets at fair value through profit and loss 109 299 Gains less losses from foreign currency revaluation 9 44 Other trading income/ (expense), net (30) (48)

Total trading income / (expense), net 1,326 982

8. Operating expenses

2005 2004

Staff costs (Note 9) 10,233 7,942 Administrative expenses 3,742 2,242 Advertising and marketing 2,673 2,745 Operating lease rentals 2,291 1,772 Professional services 2,379 1,793 Depreciation (Note 17) 1,758 1,146 Unallowed VAT credit 1,663 449 Materials 1,054 790 Payments to Deposit Insurance Fund 462 175 Other 247 10 Total operating expenses 26,502 19,064

9. Staff costs

2005 2004

Wages and salaries 6,676 5,021 Social security costs 1,914 1,576 Other employee costs 1,643 1,345 Total staff costs 10,233 7,942

The average number of employees in 2005 was 667 (2004: 558).

10. Income tax expense

The tax on the operating profit differs from the theoretical amount that would arise using the basic tax rate as follows:

2005 2004

Profit before income tax 9,467 7,404 Theoretical tax at a tax rate of 15% (2004: 19.5%) 1,420 1,444 Tax effect of expenses not deductible for tax purposes 32 125

Income tax expense 1,452 1,569

11. Cash and balances with Central Bank

2005 2004

Cash in hand 14,650 8,428 Current account with Central Bank – – Included in cash and cash equivalents (Note 25) 14,650 8,428 Mandatory reserve with Central Bank 60,184 21,769

Total cash and balances with Central Bank 74,834 30,197

At 31 December 2005 the statutory minimum required reserve rep-resented 8% of attracted amounts in local and foreign currency, except for the deposits of local banks and amounts received as capital hybrid instruments. In accordance with the new restrictions imposed by the Bulgarian National Bank in 2005 banks exceeding the allowed quarterly growth rates of the loan portfolio had to de-posit additional mandatory required reserves.

12. Loans and advances to other banks

2005 2004

Placements with foreign banks 17,347 15,367 Placements with local banks 36,970 23,668 Current accounts with foreign banks 42 142 Current accounts with local banks 2,636 919

Total loans and advances to other banks 56,995 40,096

13. Loans and advances to customers

2005 2004

Individuals 150,543 79,055 Private enterprises 285,785 190,990 Total gross loans and advances 436,328 270,045 Less provision for impairment (8,378) (4,458)

Total net loans and advances 427,950 265,587

The loans to individuals represent advances to customers granted to finance business activity. Included within loans and advances to customers is related accrued interest receivable of BGN 2,594 thousand (2004: BGN 1,771 thousand).

Movement in provisions is as follows:

Balance at 1 January 2004 1,483 Increase in provisions for loan impairment 3,127 Loans written off (152)

Balance at 31 December 2004 4,458 Increase in provisions for loan impairment 5,005 Loans written off (1,085)

Balance at 31 December 2005 8,378

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

2005 % 2004 %

Commerce 181,008 41% 114,149 42% Services 70,420 16% 43,611 16% Manufacturing 47,338 11% 35,397 13% Agriculture and forestry 21,399 5% 10,416 4% Transport and communications 34,289 8% 23,496 9% Construction 11,467 3% 4,946 2% Miscellaneous 70,407 16% 38,030 14%

Total gross loans and

advances 436,328 100% 270,045 100%

A n n u a l R e p o r t 2 0 0 554

Included within Loans and advances to customers is the following:

2005 2004

Gross investment in finance leases, receivable Not later than 1 year 1,244 388 Later than 1 year and not later than 5 years 12,322 6,263 13,566 6,651

Unearned future finance income on finance leases (236) (132)

Investment in finance leases 13,330 6,519

The allowance for uncollectible lease receivables of BGN 110 thou-sand (2004: BGN 47 thousand) was included in the provision for impairment for loans and advances to customers.

The analysis of the 10 largest loans and advances to customers compared to the gross loan portfolio is as follows:

2005 2004

The ten largest loans and advances to customers 16,136 12,227 Percentage of gross loans 4% 5%

14. Financial assets at fair value through profit and loss

2005 2004

Foreign government treasury bills 1,092 1,106 Bulgarian government treasury bills 7,491 7,256 Equity securities, unlisted 95 37

Total financial assets through profit and loss 8,678 8,399

Included within financial assets through profit and loss is related accrued interest receivable of BGN 286 thousand (2004: BGN 283 thousand).

15. Derivative financial instruments

The Group uses currency swaps as derivative financial instru-ments.Currency swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of curren-cies. No exchange of principal takes place, except for certain cur-rency swaps. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. The fair values of derivative instruments held as of 31 December 2005 (2004: nil) are set out below.

Contract/ Fair values

notional Assets Liabilities

amount

Derivatives held for trading Foreign exchange derivatives Currency swaps 33,987 1,346 – 33,987 1,346 –

16. Other assets

2005 2004

Transit payments 1,157 – Prepayments and deferred expenses 577 400 VAT receivable 555 333 Other 395 268

Total other assets 2,684 1,001

17. Equipment and other fixed assets

At 31 December 2003

Gross book amount 5,824 Accumulated depreciation (1,107)

Net book amount 4,717

Year ended December 2004

Opening net book amount 4,717 Additions 3,078 Disposals – Depreciation charge (Note 8) (1,146)

Closing net book amount 6,649

At 31 December 2004



Year ended December 2005

Opening net book amount 6,649 Additions 4,150 Disposals – Depreciation charge (Note 8) (1,758)

Closing net book amount 9,041

At 31 December 2005



18. Due to other banks

Amounts due to banks are of short-term maturity and include ac-crued interest of BGN 271 thousand as at 31 December 2005 (2004: BGN 61 thousand).

19. Due to customers

2005 2004

Retail customers Current/demand accounts 29,513 15,097 Term deposits 145,729 74,040 Corporate customers Current/settlement accounts 47,289 33,771 Term deposits 44,471 22,767 Governmental authorities Current/settlement accounts – – Term deposits – 308 Restricted deposits 354 1,845 Payments in transit 6,455 1,704 Total due to customers 273,811 149,532


Restricted deposits represent amounts blocked to secure guar-antees issued by the Group. Included within Due to customers is related accrued interest payable of BGN 2,544 thousand as at 31 December 2005 (2003: BGN 1,276 thousand).

20. Other borrowed funds

The Group signed four new credit line agreements in 2005 for the purpose of onlending the funds to small and medium-sized enter-prises in Bulgaria. They are as follows: Council of Europe Devel-opment Bank – EUR 5,000 thousand (BGN equivalent: BGN 9,779 thousand), final maturity in July 2010; Kreditanstalt für Wieder-aufbau (KfW) – EUR 10,000 thousand (BGN equivalent: BGN 19,558 thousand), final maturity in June 2015; BRE Bank Spolska Akcyjna – EUR 5,000 thousand (BGN equivalent: BGN 9,779 thousand), final maturity in December 2006; ProCredit Holding – EUR 4,300 thousand (BGN equivalent: BGN 8,410 thousand), final maturity in December 2010. The Bank has signed an agreement with ProCredit Holding for a capital hybrid instrument amounting to EUR 10,000 thousand (BGN equivalent: BGN 19,558 thousand).As at 31 December 2005 the Group did not have any defaults of principal, interest or other breaches with respect to its borrowed funds.

21. Debt securities in issue

At 31 December 2005 the Bank has four bond issues. Two issues are mortgage bonds. The principal amounts of the issues were BGN 10,000 thousand each. The bonds were issued under the Bulgarian Mortgage Bonds Act and are collateralised with a lien on the receiv-ables of a predetermined pool of mortgage loans. The outstanding principal amount of loans pledged was BGN 22,867 thousand in December 2005. The third and the fourth issues are corporate bonds and are not collateralised. The principal amount of the third issue was EUR 5,000 thousand (BGN equivalent: BGN 9,779 thousand). On 8 July 2005 the Group completed its second corporate bond issue. The principal amount of the issue was BGN 20,000 thousand, term to maturity was 3 years and the coupon rate was 4.4375%, payable semi-annually. The due date of the issue is 8 July 2008. Included within debt securities in issue is related accrued interest payable of BGN 1,327 thousand as at 31 December 2004 (2003: 902).

22. Other liabilities

2005 2004

Creditors 1,149 1,440 Current tax payable 344 1,129 Non-income taxes payable 520 88 Other 156 55 Accruals 257 171 Deferred income 569 340

Total other liabilities 2,995 3,223

23. Contingent liabilities and commitments

Off-balance sheet commitments. The following table indicates the contractual amounts of the Group’s off-balance sheet financial in-struments that commit it to extend credit to customers.

2005 2004

Commitments to extend credit 33,630 19,971 Guarantees 3,348 4,494 Letters of credit 420 48

Total contingencies and commitments 37,398 25,613

Operating lease commitments. As a lessee under operating leases of office premises, the Group has committed to make the following minimum rental payments:

2005 2004

Up to 1 year 799 591Total contingencies and commitments 799 591

Assets pledged

Asset Related liability

2005 2004 2005 2004

Loans and finance lease receivables 28,192 26,950 24,792 24,645 Mandatory reserve in BNB 60,184 21,769 – – Financial assets through profit and loss – 3,381 – 3,200

Total 88,376 52,100 24,792 27,845

24. Share capital

2005 2004

Share Share

capital % capital %

ProCredit Holding 20,400 59% 7,000 20% European Bank for Reconstruction and Development 6,800 20% 6,800 20% Commerzbank 6,800 20% 6,800 20% Internationale Projekt Consult GmbH 500 1% 500 1% Deutsche Investitions- und Entwicklungs- gesellschaft mbH – – 6,800 20% International Finance Corporation – – 6,600 19%

Total share capital 34,500 100% 34,500 100%

In November 2005 ProCredit Holding acquired the shares held by DEG and IFC. DEG and IFC remain strongly involved in ProCredit Holding.

25. Cash and cash equivalents

2005 2004

Cash and balances with Central Bank (Note 11) 14,650 8,428 Loans and advances to banks (Note 12) 56,938 40,035

Total cash and cash equivalents 71,588 48,463

A n n u a l R e p o r t 2 0 0 556

26. Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. The Group is controlled by ProCredit Holding, based in Germany.The Group has received a deposit, a loan under a credit line agree-ment and a capital hybrid instrument (Note 20) from ProCredit Holding. ProCredit Holding is the main shareholder of ProCredit Bank and holds 59% of the Bank’s share capital.The Group has a loan from EBRD under a credit line agreement (Note 20). EBRD is one of ProCredit Bank’s shareholders and holds 20% of the Bank’s share capital. The Group has a loan from Commerzbank under a credit line agree-ment (Note 20). During 2005 the Bank has received and placed deposits with Commerzbank. Commerzbank is one of the Bank’s shareholders with 20% of its share capital.The Group has loans from KfW (KfW owns DEG) and IFC undersigned credit line agreements. DEG and IFC were shareholders of the Bank. In November 2005 their shares were bought by ProCredit Holding.

The related party transactions were carried out on commercial terms and at market rates. The volumes of related party transac-tions outstanding at the year end, and relating expense and income for the year are as follows:

2005 2004

Loans

Interest income earned 36 –

Borrowings

At beginning of period 81,184 42,546

Credit lines drawn down during the period 19,801 41,946 Credit lines repaid during the period (1,506) (3,308) Capital hybrid instruments received during the year 20,076 – Deposits received during the period 16,491 6,957 Deposits (principal) withdrawn during the period (20,025) (6,957) Change in related parties (47,420) –

As at end of period 68,601 81,184

Interest expense incurred 1,704 3,148

In 2005 the total compensation of key management personnel was BGN 1,298 thousand (2004: BGN 971 thousand). The remunera-tions of two foreign Board members were paid under a Management Services Agreement signed with IPC.

27. Principal subsidiaries

The Group has a participation in its wholly owned subsidiary leas-ing company ProLease (Bulgaria) EAD of BGN 500 thousand. At 31 December 2005 the total share capital of the Company was BGN 500 thousand, divided into 500 shares with a nominal value of BGN 1,000 each. All shares give equal voting power and are fully paid.

Exchange rate as of Dec. 31, 2005: 1 EUR = 1.95583 BGN


Contact Addresses

Head Office

Sofia 1233131 Hristo Botev Blvd.Tel.: +359 2 921 71 00Fax: +359 2 921 71 10

Sofia Branches

Sofia Central Branch

Sofia 1233131 Hristo Botev Blvd.Tel.: +359 2 921 7100Fax: +359 2 921 7110

Beli Brezi City Branch

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

Dondukov City Branch

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

Geo Milev City Branch

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

Liulin City Branch

Sofia 1359Liulin 4, Zahari Stoianov Blvd., block 417, entr. ETel.: +359 2 925 21 61Fax: +359 2 925 20 76

Liulin Hit City Branch

Sofia 138720 Obelsko Shausse St., Hit SupermarketTel.: +359 2 824 48 22Fax: +359 2 824 49 22

Mladost City Branch

Sofia 1712Mladost 3, Alexander Malinov Blvd., in front of block 310Tel.: +359 2 875 00 83Fax: +359 2 875 00 84

Mladost Hit City Branch

Sofia 1799Alexander Malinov Blvd., Hit SupermarketTel.: +359 2 974 48 87Fax: +359 2 974 47 59

Nadejda City Branch

Sofia 1220Lomsko Shausse Blvd., block 171Tel.: +359 2 936 25 23Fax: +359 2 936 20 97

Rakovski City Branch

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

Rezbarska City Branch

Sofia 15105 Rezbarska St.Tel.: +359 2 942 98 48Fax: +359 2 942 98 46

Other Branches

Assenovgrad Branch

Assenovgrad 42301 Tsarevets St.Tel.: +359 331 6 31 30Fax: +359 331 6 31 28

Blagoevgrad Branch

Blagoevgrad 270010 Vassil Levski Blvd.Tel.: +359 73 88 28 51Fax: +359 73 88 28 53

Bourgas Branch

Bourgas 80001 Mitropolit Simeon St.Tel.: +359 56 84 62 43Fax: +359 56 84 62 49

Dobrich Branch

Dobrich 9300 60 25th September St.Tel.: +359 58 69 02 00Fax: +359 58 69 04 00

Gabrovo Branch

Gabrovo 530015 Radion Umnikov St.Tel.: +359 66 80 63 70Fax: +359 66 80 60 76

Gorna Oriahovitsa Branch

Gorna Oriahovitsa 5100 1 Tsar Osvoboditel St.Tel.: +359 618 6 45 16Fax: +359 618 6 45 17

A n n u a l R e p o r t 2 0 0 558

Haskovo Branch

Haskovo 6300 10-12 Veliko Tarnovo St.Tel.: +359 38 66 42 63Fax: +359 38 66 43 64

Kardjali Branch

Kardjali 6600 8 Stephan Karadja St.Tel.: +359 361 6 19 96Fax: +359 361 6 19 98

Kazanlak Branch

Kazanlak 61003 Alexander Batenberg Blvd.Tel.: +359 431 6 36 49Fax: +359 431 6 26 49

Pazardjik Central Branch

Pazardjik 440036 Georgi Benkovski St.Tel.: +359 34 40 15 40Fax: +359 34 40 15 48

Pazardjik City Branch

Pazardjik 4400 1 Gurko St.Tel.: +359 34 44 00 13Fax: +359 34 44 00 12

Pernik Branch

Pernik 230030 Targovska St.Tel.: +359 76 60 12 66Fax: +359 76 60 32 66

Petrich Branch

Petrich 2850 22 Bulgaria St.Tel.: +359 745 6 30 65Fax: +359 745 6 30 66

Pleven Branch

Pleven 5800 11 Ivan Vazov St.Tel.: +359 64 80 20 64Fax: +359 64 80 70 09

Plovdiv Central Branch

Plovdiv 40009-11 Brezovska St.Tel.: +359 32 90 40 80Fax: +359 32 90 40 96

Plovdiv Ivan Vazov City Branch

Plovdiv 4000 2 Krakra St.Tel.: +359 32 63 40 62Fax: +359 32 63 41 78

Plovdiv Djumaia City Branch

Plovdiv 4000 2 Djumaia Sq.Tel.: +359 32 65 33 45Fax: +359 32 65 33 45

Razgrad Branch

Razgrad 7200 44 Bulgaria Blvd.Tel.: +359 84 66 22 48Fax: +359 84 66 21 92

Rousse Branch

Rousse 7000 6 Borisova St.Tel.: +359 82 82 06 29Fax: +359 82 82 31 28

Shoumen Branch

Shoumen 9700 20 Veliki Preslav Blvd.Tel.: +359 54 83 02 88Fax: +359 54 83 07 96

Sliven Branch

Sliven 8800 1 Dragan Tsankov Blvd.Tel.: +359 44 62 44 40Fax: +359 44 62 25 00

Stara Zagora City Branch

Stara Zagora 600072 Tsar Simeon Veliki Blvd.Tel.: +359 42 60 40 60Fax: +359 42 60 06 54

Stara Zagora Central Branch

Stara Zagora 6000 142 Tsar Simeon Veliki Blvd.Tel.: +359 42 63 50 70Fax: +359 42 63 55 22

Svishtov Branch

Svishtov 52502 Gen. Kiselov St., block Radetski 3Tel.: +359 631 6 46 40Fax: +359 631 6 46 43

Troian Branch

Troian 5600 68 Vassil Levski St.Tel.: +359 670 6 05 83Fax: +359 670 6 05 97

Varna Central Branch

Varna 9000 3 General Kolev St.Tel.: +359 52 68 78 78Fax: +359 52 68 78 68

Varna Preslav City Branch

Varna 9000 37A Preslav St.Tel.: +359 52 61 07 03Fax: +359 52 61 09 97

Varna Vladislavovo City Branch

Varna 9023 Vladislavovo, Piccadilly Supermarket420 Konstantin I Frujin Blvd.Tel.: +359 52 59 86 40Fax: +359 52 59 86 43

Varna Mambo City Branch

Varna 9000 10 Yan Palah St.Tel.: +359 52 61 22 80Fax: +359 52 61 2 5 94

Veliko Tarnovo Branch

Veliko Tarnovo 5000 1 Ivalio St.Tel.: +359 62 60 34 75Fax: +359 62 63 78 26

Vratsa Branch

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

ProLease Bulgaria EAD

Sofia 1233131 Hristo Botev Blvd. Tel.: +359 2 813 52 01Fax: +359 2 813 52 13

C o n ta c t A d d r e s s e s 59

key figures - procreditbank.gr

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