financial statements for the year ended 31 december 2010 ... · registered office no. 25, st. 294...

PRASAC MICROFINANCE

INSTITUTION LIMITED

Financial Statements

for the year ended 31 December 2010

and

Report of the Independent Auditors

-

Corporate Information

Company PRASAC MICROFINANCE INSTITUTION LIMITED

Registration No Co. 6931/04P (with MoC), MF10 (with NBC)

Registered office No. 25, St. 294 & St.57,Boeung Keng Kang I,Khan Chamkarmon,Phnom Penh,Kingdom of Cambodia,PO Box 2412

Shareholders Dragon Capital Group Limited (DCG)Belgian Investment Company for Developing Countries SA (BIO)The Nederlandse Financierings-Maatschappij voor

Ontwikkelingslanden N.V. (FMO)Lanka ORIX LEASING Company Ltd (LOLC)Oikocredit, Ecumenical Development Cooperative Society, U.A.

(Oikocredit)PRASAC Staff Company Ltd. (PSCo)

Board of Directors Mr. Joseph Hoess (appointed on 15 February 2011)Mr. Hanco Halbertsma (appointed on 5 November 2010)Mr. Ranjit FernandoMr. Ishara C. NanayakkaraMr. Stefan A. V. HarpeMr. Oum Sam OeunMr. Phai Touch (appointed on 5 November 2010)Mr. Michael A. Temple (resigned on 30 January 2011)Mrs. Anne Demeuse (resigned on 25 January 2011)

Auditor KPMG Cambodia Ltd

Principal bankers ACLEDA Bank Plc.ANZ Royal Bank (Cambodia) LtdNational Bank of Cambodia

PRASAC MICROFINANCE INSTITUTION LIMITED

Contents

Page

1 Report of the Board of Directors 1

2 Report of the independent auditors 6

3 Balance sheet 8

4 Income statement 9

5 Statement of changes in equity 10

6 Statement of cash flows 11

7 Notes to the financial statements 12


2

Report of the Board of Directors (continued)

Current assets

Before the income statement and balance sheet of the Company were prepared, the Board ofDirectors took reasonable steps to ensure that any current assets, other than debts, which wereunlikely to be realised in the ordinary course of business at their value as shown in the accountingrecords of the Company had been written down to an amount which they might be expected torealise.

At the date of this report, the Board of Directors is not aware of any circumstances, which wouldrender the values attributed to the current assets in the financial statements of the Companymisleading.

Valuation methods

At the date of this report, the Board of Directors is not aware of any circumstances which havearisen which render adherence to the existing method of valuation of assets and liabilities in thefinancial statements of the Company as misleading or inappropriate.

Contingent and other liabilities

At the date of this report, there does not exist:

1. any charge on the assets of the Company which has arisen since the end of the financialyear which secures the liabilities of any other person;

2. any contingent liability in respect of the Company that has arisen since the end of thefinancial year other than in the ordinary course of its business operations.

No contingent or other liability of the Company has become enforceable, or is likely to becomeenforceable within the period of twelve months after the end of the financial year which, in theopinion of the Directors, will or may substantially affect the ability of the Company to meet itsobligations as and when they fall due.

Change of circumstances

At the date of this report, the Board of Directors is not aware of any circumstances, not otherwisedealt with in this report or the financial statements of the Company, which would render anyamount stated in the financial statements misleading.


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Items of unusual nature

The results of the operations of the Company for the financial year were not, in the opinion of theBoard of Directors, substantially affected by any item, transaction or event of a material andunusual nature.

There has not arisen in the interval between the end of the financial year and the date of thisreport any item, transaction or event of a material and unusual nature likely, in the opinion of theBoard of Directors, to affect substantially the results of the operations of the Company for thecurrent financial year in which this report is made.

Events since the balance sheet date

No significant events occurred after the balance sheet date that requires disclosure or adjustmentother than those already disclosed in the accompanying notes to the financial statements.

The Board of Directors

The members of the Board of Directors during the year and at the date of this report are:

1. Mr. Joseph Hoess, representing Dragon Capital Group Limited, (Director appointed on 15February 2011)

2. Mr. Michael A. Temple, representing Dragon Capital Group Limited (resigned on 30 January2011)

3. Mr. Hanco Halbertsma, representing Belgian Investment Company for Developing CountriesSA, (Director, appointed on 5 November 2010)

4. Mrs. Anne Demeuse, representing Belgian Investment Company for Developing CountriesSA, (resigned on 25 January 2011)

5. Mr. Ranjit Fernando, representing the Nederlandse Financierings-Maatschappij voorOntwikkelingslanden N.V., (Director)

6. Mr. Ishara C. Nanayakkara, representing Lanka ORIX LEASING Company Ltd, (Director)

7. Mr. Stefan A.V. Harpe, representing Oikocredit, Ecumenical Development CooperativeSociety, U.A., (Director)

8. Mr. Oum Sam Oeun, representing PRASAC Staff Company Ltd., (Director)

9. Mr. Phai Touch (Independent Director, appointed on 5 November 2010)

All members are non-executive board members, except Mr. Oum Sam Oeun, who holds theposition of Executive Vice President and Chief Operating Officer.


4


Directors’ interests

The Directors are representing the interests of shareholders of PRASAC during the year and atthe date of this report are as follows:

Shareholder Represented by Holding Number of% Shares

KHR20,000 each

Dragon Capital Group Limited Mr. Joseph Hoess 18% 138,626Belgian Investment Company for

Developing Countries SA (BIO) Mr. Hanco Halbertsma 18% 138,626The Nederlandse Financierings-

Maatschappij voorOntwikkelingslandenN.V.(FMO) Mr. Ranjit Fernando 18% 138,626

Lanka ORIX LEASING CompanyLtd (LOLC) Mr. Ishara C. Nanayakkara 18% 138,626

Oikocredit, EcumenicalDevelopment Cooperative

Society, U.A. Mr. Stefan A. V. Harpe 18% 138,626PRASAC Staff Company Ltd. Mr. Oum Sam Oeun 10% 77,020

100% 770,150

Directors’ benefits

During and at the end of the financial year, no arrangements existed to which the Company is aparty with the object of enabling Directors of the Company to acquire benefits by means of theacquisition of shares in or debentures of the Company or any other body corporate.

Since the end of the previous financial year, no Director of the Company has received or becomeentitled to receive any benefit (other than a benefit included in the aggregate amount ofemoluments received or due and receivable by the Directors as disclosed in the financialstatements) by reason of a contract made by the Company or a related corporation with a firm ofwhich the Director is a member, or with a company in which the Director has a substantialfinancial interest other than as disclosed in the financial statements.


Balance sheetAs at 31 December 2010

8

2010 2009Note KHR’000 US$ KHR’000 US$

Assets

Cash on hand 5 3,103,632 765,762 1,923,944 461,488Deposits and placements

with banks 6 18,804,255 4,639,589 18,198,317 4,365,152Placement with other

financial institution - - 15,743 3,776Statutory deposits 7 1,622,342 400,282 830,292 199,159Loans to customers 8 415,330,233 102,474,768 261,525,129 62,730,902Other assets 9 7,760,420 1,914,735 5,406,607 1,296,859Deferred tax assets 10 1,022,736 252,340 606,641 145,512Intangible assets 11 3,999,635 986,833 3,946,405 946,607Property and equipment 12 3,222,416 795,069 3,071,960 736,858

Total assets 454,865,669 112,229,378 295,525,038 70,886,313

Liabilities and shareholders’ equity

Liabilities

Deposits from customers 13 749,531 184,932 2,006,347 481,254Borrowings 14 332,223,051 81,969,665 191,696,755 45,981,471Other liabilities 15 8,844,704 2,182,261 3,872,979 928,995Provision for income tax 10 3,382,299 834,517 3,109,199 745,790Provision for severance pay 16 4,613,455 1,138,282 3,531,731 847,141

Total liabilities 349,813,040 86,309,657 204,217,011 48,984,651

Shareholders’ equity

Share capital 17 15,403,000 3,800,395 15,403,000 3,694,651Other reserves 8,924,831 2,202,031 5,216,423 1,251,241Retained earnings 35,067,221 8,652,164 25,031,027 6,004,084

Net shareholders’ equity 59,395,052 14,654,590 45,650,450 10,949,976Subordinated debt 18 45,657,577 11,265,131 45,657,577 10,951,686

Total shareholders’ funds 105,052,629 25,919,721 91,308,027 21,901,662

Total liabilities andshareholders’ equity 454,865,669 112,229,378 295,525,038 70,886,313

The accompanying notes form part of these financial statements.


Income statementfor the year ended 31 December 2010

9

2010 2009Note KHR’000 US$ KHR’000 US$

Interest income 19 83,886,270 20,697,328 68,130,025 16,342,055

Interest expense 20 (21,448,635) (5,292,039) (15,952,420) (3,826,438)

Net interest income 62,437,635 15,405,289 52,177,605 12,515,617

Other operating income 21 2,256,436 556,732 526,846 126,372

Operating income 64,694,071 15,962,021 52,704,451 12,641,989

Fee and commissionexpenses 22 (1,572,259) (387,925) (2,898,985) (695,367)

Operating and otherexpenses 23 (42,453,181) (10,474,508) (34,169,466) (8,196,082)

Provision for bad anddoubtful loans 8 (4,385,488) (1,082,035) (2,116,245) (507,615)

Profit from operations 16,283,143 4,017,553 13,519,755 3,242,925

Grant income 24 1,217,245 300,332 1,189,226 285,255

Profit before income tax 17,500,388 4,317,885 14,708,981 3,528,180

Income tax expense 10 (3,755,786) (926,668) (3,551,075) (851,781)

Net profit for the year 13,744,602 3,391,217 11,157,906 2,676,399



Statement of changes in equityfor the year ended 31 December 2010

10

Share Subordinated Other Retainedcapital debt reserves earnings Total

KHR’000 KHR’000 KHR’000 KHR’000 KHR’000

Balance as at 1 January 2009 15,403,000 45,657,577 2,282,879 16,806,665 80,150,121

Net profit for the year - - - 11,157,906 11,157,906

Transfers of special reserve * - - 2,282,879 (2,282,879) -

Transfers of ICO loan reserve ** - - 650,665 (650,665) -

Balance as at31 December 2009 15,403,000 45,657,577 5,216,423 25,031,027 91,308,027

Net profit for the year - - - 13,744,602 13,744,602

Transfers of special reserve * - - 2,282,879 (2,282,879) -

Transfers of ICO loan reserve ** - - 1,425,529 (1,425,529) -

Balance as at31 December 2010 15,403,000 45,657,577 8,924,831 35,067,221 105,052,629

(US$ equivalents) 3,800,395 11,265,131 2,202,031 8,652,164 25,919,721

* Special reserve represents reserves transferred from net profit which are calculated based on 5% ofsubordinated debt. The amount is non-distributable.

** ICO loan reserve represents reserves transferred from net profit for the year which are calculated basedon 3.5% of outstanding principal of loan obtained from Instituto De Crédito Oficial of the Kingdom ofSpain. The amount is non-distributable.



Statement of cash flowsfor the year ended 31 December 2010

11

2010 2009Note KHR’000 US$ KHR’000 US$

Cash flows from operating activities

Net cash used in operatingactivities 25 (137,031,667) (33,809,935) (10,857,637) (2,604,374)

Cash flows from investing activities

Purchase of property and equipment (1,644,302) (405,700) (2,351,330) (564,003)Purchase of intangible assets (93,308) (23,022) (3,948,331) (947,069)Proceeds from disposals of

property and equipment 12,864 3,174 78,985 18,946

Net cash used in investing activities (1,724,746) (425,548) (6,220,676) (1,492,126)

Cash flows from financing activities

Proceeds from borrowings 220,328,370 54,361,799 50,707,141 12,162,902Repayments of borrowings (79,802,074) (19,689,631) (15,983,498) (3,833,893)Repayment of share subscription

received in advance - - (172,897) (41,472)

Net cash generated fromfinancing activities 140,526,296 34,672,168 34,550,746 8,287,537

Net increase in cash andcash equivalents 1,769,883 436,685 17,472,433 4,191,037

Cash and cash equivalentsat beginning of year 20,138,004 4,830,416 2,665,571 653,166

Translation difference - 138,250 - (13,787)

Cash and cash equivalentsat end of year 26 21,907,887 5,405,351 20,138,004 4,830,416



Notes to the financial statementsfor the year ended 31 December 2010

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1. Background and principal activities

PRASAC Microfinance Institution Limited, a licensed micro-finance institution(“PRASAC”), was incorporated in Cambodia and registered with the Ministry ofCommerce as a private limited liability company under register number Co-6931/04P dated12 August 2004. Its activities are an offshoot of the PRASAC Credit Association (“PCA”),which was managed and funded by the European Union (“EU”). PCA was initiallyestablished in 1995 as a support program for the agricultural sector in Cambodia, covering10 provinces around Phnom Penh.

PRASAC’s operations are based on the asset transfer document dated 10 May 2005,effective from 31 December 2004, whereby the net assets of PCA were transferred toPRASAC as subordinated debt, as discussed in note 18 to these financial statements.

PRASAC obtained its licence from the National Bank of Cambodia (“NBC”) to conductbusiness as a micro-finance institution in the Kingdom of Cambodia as set out in theNBC’s register No. 10 dated 15 November 2004. The licence expired on 1 December2007. PRASAC obtained renewal of its licence for an indefinite period from the NBC on14 December 2007.

PRASAC is engaged primarily in the provision of micro-finance services to the ruralpopulation of Cambodia through its headquarters in Phnom Penh and various provincialand district offices in the Kingdom of Cambodia.

The amended Memorandum and Articles of Association for the changes in shareholderswere certified by the Ministry of Commerce and the National Bank of Cambodia on 14October 2008 and 6 November 2008 respectively.

On 27 August 2010, PRASAC obtained a Microfinance Deposit Taking Institution(“MDI”) license for the Head Office to conduct deposit taking business from the NationalBank of Cambodia.

As at 31 December 2010 the Company had 1,440 employees (31 December 2009: 1,246).

2. Basis of preparation

(a) Statement of compliance

The financial statements have been prepared in accordance with Cambodian AccountingStandards and the guidelines of the National Bank of Cambodia (“NBC”) relating to thepreparation and presentation of financial statements.

The financial statements were authorised for issue by the Board of Directors on 28 March2011.


Notes to the financial statements (continued)for the year ended 31 December 2010

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2. Basis of preparation (continued)

(b) Basis of measurement

The financial statements of the Company have been prepared on the historical cost basis.

(c) Functional and presentation currency

The Company transacts its business and maintains its accounting records in two currencies,Khmer Riel (“KHR”) and United States Dollars (“US$”). Management have determinedthe KHR to be the Company’s currency for measurement and presentation purposes as itreflects the economic substance of the underlying events and circumstances of theCompany.

Transactions in currencies other than KHR are translated into KHR at the exchange rateruling at the date of the transaction. Monetary assets and liabilities denominated incurrencies other than KHR at the balance sheet date are translated into KHR at the rates ofexchange ruling at that date. Exchange differences arising on translation are recognised inthe income statement.

(d) Use of estimates and judgments

The preparation of financial statements requires management to make judgements,estimates and assumptions that affect the application of accounting policies and thereported amounts of assets, liabilities, and income and expenses. Actual results may differfrom these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimates are revised and inany future periods affected.

3. Significant accounting policies

The significant accounting policies adopted in the preparation of these financial statementsare set out below. These policies have been consistently applied to all the years presented,unless otherwise stated.

(a) Financial instruments

The Company’s financial assets and liabilities include cash and cash equivalents, originatedloans and receivables, deposits, other receivables and payables. The accounting policiesfor the recognition and measurement of these items are disclosed in the respectiveaccounting policies.



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3. Significant accounting policies (continued)

(b) Segment information

The Company operates within one business segment, commercially oriented micro-financeservices, and within one geographical segment, the Kingdom of Cambodia.

(c) Basis of aggregation

The Company’s financial statements comprise the financial statements of the head officeand its branches. All inter-branch balances and transactions have been eliminated.

(d) Cash and cash equivalents

Cash and cash equivalents consist of cash and bank balances, demand deposits and short-term highly liquid investments with maturities of three months or less when purchased, andthat are readily convertible to known amounts of cash and subject to an insignificant risk ofchanges in value.

(e) Loans to customers

Loans to customers are stated in the balance sheet at the amount of principal outstandingless any amounts written off and specific and general provisions.

The adequacy of the provision for bad and doubtful loans is evaluated monthly bymanagement. Factors considered in evaluating the adequacy of the provision include thesize of the portfolio, previous loss experience, current economic conditions and their effecton clients, the financial situation of clients and the performance of loans in relation tocontract terms.

(f) Provision for bad and doubtful loans

In compliance with the NBC Guidelines, a specific provision for bad and doubtful loans ismade on loans that are identified as non-performing, as follows:

Classification Number of days past due Provision

Short term loans (less than one year):

Sub-standard 31 - 60 days 10%Doubtful 61 - 90 days 30%Loss Over 90 days 100%



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(f) Provision for bad and doubtful loans (continued)

Classification Number of days past due Provision

Long term loans (more than one year):

Sub-standard 31 - 180 days 10%Doubtful 181 - 360 days 30%Loss Over 360 days 100%

An additional general provision for bad and doubtful loans is set at the rate of 1.5% ongross loans outstanding as at year end, excluding loans to related parties (staff loans).

Overdue loans

In accordance with Prakas B700-51K issued by the National Bank of Cambodia on17 February 2000, overdue loans are defined as the total outstanding principal whereprincipal or interest are past due unless the payment terms on interest or principal havebeen adjusted.

The provision will be calculated as a percentage of the loan amount outstanding at the timethe loan is classified, excluding accrued interest. The provision shall be recorded in theinstitution’s accounts and charged to the income statement for the month during which thecorresponding loan has been classified below standard. The analysis of overdue loans is setout in note 8(g).

Recoveries on loans previously written off and reversal of previous provisions are disclosedas a deduction from the bad debts and doubtful accounts expense in the income statement.

An uncollectible loan or portion of a loan classified as bad is written off after taking intoconsideration the realisable value of the collateral, if any, when, in the judgement of themanagement with the approval of the Board of Directors, there is no prospect of recovery.Loans written off are reviewed on a quarterly basis.

(g) Deposits and placement with banks

Deposits and placements with banks are stated at cost.

(h) Other receivables

Other receivables are carried at estimated realisable value. An estimate is made fordoubtful receivables based on a review of outstanding amounts at the end of the fiscal year.



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(i) Intangible assets

1. Computer software is stated at cost less accumulated amortisation and accumulatedimpairment losses, if any. Intangible assets are amortised on a declining method at the rateof 50%.

2. Core Banking License is stated at cost less accumulated amortisation and accumulatedimpairment losses, if any. Intangible assets are amortised over their estimated useful livesof 10 years using the straight-line method.

(j) Property and equipment

(i) Items of property and equipment are stated at cost less accumulated depreciation andaccumulated impairment losses, if any. Where an item of property comprises majorcomponents having different useful lives, the components are accounted for as separateitems of property and equipment.

(ii) Depreciation of property and equipment is charged to the income statement on a decliningbasis over the estimated useful lives of the individual assets at the following rates:

Office furniture 25%

Motor vehicles 25%

Motorcycles 25%

Computers and peripherals 50%

Communication equipment 25%

Leasehold improvements 33%

(iii) Subsequent expenditure relating to an item of property and equipment that has already beenrecognised is added to the carrying amount of the asset when it is probable that futureeconomic benefits, in excess of the originally assessed standard of performance of theexisting asset, will flow to the Company. All other subsequent expenditure is recognised asan expense in the period in which it is incurred.

(iv) Gains or losses arising from the retirement or disposal of an item of property and equipmentare determined as the difference between the estimated net disposal proceeds and thecarrying amount of the assets and are recognised in the income statement on the date ofretirement or disposal.

(v) Fully depreciated items of property and equipment are retained in the financial statementsuntil disposed of or written off.



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(j) Property and equipment (continued)

(vi) The carrying amounts of property and equipment are reviewed for impairment when there isan indication that the assets might be impaired. Impairment is measured by comparing thecarrying values of the assets with their recoverable amounts. An impairment loss is chargedto the income statement immediately.

(k) Impairment

(i) Financial assets

A financial asset is assessed at each reporting date to determine whether there is anyobjective evidence that it is impaired. A financial asset is considered to be impaired ifobjective evidence indicates that one or more events have had a negative effect on theestimate future cash flows of that asset. This does not apply to loans to customers whichhas a separate accounting policy stated in Note 3(e).

Individually significant financial assets are tested for impairment on an individual basis.The remaining financial assets are assessed collectively in groups that share similar creditrisk characteristics.

All impairment losses are recognised in the income statement.

An impairment loss is reversed if the reversal can be related objectively to an eventoccurring after the impairment loss was recognised.

(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets are reviewed at each reportingdate to determine whether there is any indication of impairment. If any such indicationexists, the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in useand its fair value less cost to sell. In assessing value in use, the estimated future cash flowsare discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. For thepurpose of impairment testing, assets are grouped together into the smallest group of assetsthat generates cash inflows from continuing use that are largely independent of the cashinflows of other assets or groups of assets (the “cash-generating unit”).

An impairment loss is recognised if the carrying amount of an asset or its cash-generatingunit exceeds its estimated recoverable amount. Impairment losses are recognised in theincome statement.



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(l) Deposits from customers

Deposits from customers are stated at placement value.

(m) Borrowings

Borrowings are stated at cost.

(n) Provisions

A provision is recognised in the balance sheet when the Company has a legal orconstructive obligation as a result of a past event, and it is probable that an outflow ofeconomic benefits will be required to settle the obligation. If the effect is material,provisions are determined by discounting the expected future cash flows at a pre-tax ratethat reflects current market assessments of the time value of money and, where appropriate,the risks specific to the liability.

(o) Provision for severance pay

Severance pays are conditional on the employee remaining in the service of the Companyup to the completion of a minimum service period as follows:

Number of Percentage (%) of Decemberworking years salary provided

Less than 3 years 50%More than 3 years and less than 6 years 80%More than 6 years 100%

Severance pay is accrued based on the monthly fixed salary of an employee with the rate of8.3% (equal to one month of fixed salary per year of employment).



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(p) Other reserves

(i) Special reserve

Based on the memorandum and articles of association, the Company has to transfer to thisreserve fund from retained earnings an annual amount caps at 5% on subordinated debtfrom RGC for the annual capital protection of the subordinated debt. This reserve is non-distributable.

(ii) ICO reserve

Based on the loan agreement signed between Instituto De Crédito Oficial of the Kingdomof Spain and Prasac Microfinance Institution Limited, the Company shall undertake toestablish and keep a reserve fund for the capital strengthening by transferring its net profitof each year, an amount equivalent to a 3.5% of the outstanding principal of the loan. Thisreserve is non-distributable.

(q) Income and expense recognition

Interest income on loans is recognised on an accruals basis. Where a loan becomes non-performing, the recording of interest as income is suspended until it is realised on a cashbasis. Interest on loans is calculated using the declining balance method on monthlybalances of the principal amount outstanding.

Loan administrative fee income is recognised as income when the loan is disbursed tocustomers. The loan fee income is calculated using the principal and fee rate.

Expenses are recognised on an accrual basis.

(r) Grants

Grants received to subsidise the Company’s operating expenses are released to the incomestatement on a systematic and rational basis, matching the related costs which they areintended to compensate.

(s) Operating leases

Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Lease commitments are not recognised asliabilities until the obligation to pay become due.



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(t) Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income taxis recognised in the income statement except to the extent that it relates to items recognisedas a component of shareholders’ equity, in which case it is also disclosed as a component ofshareholders’ equity.

Current tax is the expected tax payable on the taxable income for the year using tax ratesenacted or substantially enacted at the balance sheet date, and any adjustment to taxpayable in respect of previous years.

Deferred tax is provided using the balance sheet method, providing for temporarydifferences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. The amount of deferred tax providedis based on the expected manner of realisation or settlement of the carrying amount ofassets and liabilities, using tax rates enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxableprofits will be available to permit the realisation of the asset. Deferred tax assets arereduced to the extent that it is no longer probable that the related tax benefit will berealised.

(u) Related parties

Parties are considered to be related to the Company if one party has the ability, directly orindirectly, to control the other party or exercise significant influence over the other party inmaking financial and operating decisions, or where the Company and the other party aresubject to common control or significant influence. Related parties may be individuals orcorporate entities and include close family members of any individual considered to be arelated party.

Under the Law on Banking and Financial Institutions, related parties include individualswho hold directly or indirectly a minimum of 10 percent of the capital of the Company orvoting rights therefore, or who participates in the administration, direction, management orthe design and implementation of the internal controls of the Company.



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(v) New standards and interpretations not yet adopted

The National Accounting Council of Cambodia, as mandated by Prakas (Circular)No. 068-MEF-Pr dated 8 January 2009 issued by the Ministry of Economy and Finance ofCambodia on the adoption of Cambodian Financial Reporting Standards, has decided toadopt International Financial Reporting Standards (IFRS) issued by the InternationalAccounting Standards Board (IASB) effective for financial statements with periodsbeginning on or after 1 January 2012. The new standards will be referred to as“Cambodian International Financial Reporting Standards” (CIFRS). The adoption ofCIFRS is expected to have a significant impact on the financial statements of the Company.

4. Translation of Khmer Riel into United States Dollars

The financial statements are stated in Khmer Riel. The translations of Khmer Riel amountsinto United States Dollars are included solely for presentation purposes and have beenmade using the prescribed official exchange rate of US$1: KHR4,053 and (2009: US$1:KHR4,169) published by the NBC on 31 December 2010. These translations should not beconstrued as representations that the Khmer Riel amounts have been, could have been, orcould in the future be, converted into United States Dollars at this or any other rate ofexchange.



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5. Cash on hand

2010 2009KHR’000 US$ KHR’000 US$

Head Office 110,015 27,144 106,069 25,442

ProvincialPrey Veng 285,125 70,349 279,585 67,063Svay Rieng 281,982 69,574 117,078 28,083Kampot 271,054 66,877 50,481 12,109Takeo 247,073 60,961 227,417 54,550Kampong Speu 220,194 54,329 129,705 31,112Kandal 199,130 49,132 204,543 49,063Tbong Khmum 198,260 48,917 78,949 18,937Mukh Kampul 197,078 48,625 113,192 27,151Siem Reap 172,562 42,576 41,007 9,836Pursat 157,435 38,844 111,292 26,695Banteay Meanchey 133,476 32,933 102,444 24,573Kratie 127,841 31,542 8,786 2,108Kampong Chhnang 127,308 31,411 52,659 12,631Battambang 101,321 24,999 2,638 633Kampong Cham 74,745 18,442 125,036 29,992Kampong Thom 73,380 18,105 25,807 6,190Preah Sihanouk 72,364 17,854 12,282 2,945Phnom Penh 53,289 13,148 134,974 32,375

3,103,632 765,762 1,923,944 461,488

The above amounts are analysed as follows:

2010 2009

KHR’000 US$ KHR’000 US$By currency:

Khmer Riel 1,441,964 355,777 1,000,915 240,085US Dollars 1,639,568 404,532 923,029 221,403Thai Baht 22,100 5,453 - -

3,103,632 765,762 1,923,944 461,488



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6. Deposits and placements with banks

2010 2009KHR’000 US$ KHR’000 US$

Current accounts, without interest

National Bank of Cambodia 96,496 23,809 101,112 24,253

Acleda Bank Plc. 107,530 26,531 116,480 27,940

Current accounts, with interest

ANZ Royal Bank 11,690 2,884 68,140 16,345

Savings accounts

Acleda Bank Plc. 18,588,539 4,586,365 15,828,085 3,796,614

Fixed deposit

ANZ Royal Bank - - 2,084,500 500,000

18,804,255 4,639,589 18,198,317 4,365,152


2010 2009KHR’000 US$ KHR’000 US$

1. By maturity:

Within 1 month 18,804,255 4,639,589 18,198,317 4,365,152

2. By currency:

Khmer Riel 6,524,964 1,609,910 7,825,877 1,877,160US Dollars 10,345,278 2,552,499 10,372,440 2,487,992Thai Baht 1,934,013 477,180 - -

18,804,255 4,639,589 18,198,317 4,365,152

3. By interest rate (per annum):

31 December 2010 31 December 2009

Current accounts 0.75% 0.75%Savings accounts 0.25% to 0.05% 0.75% to 2%Fixed deposit Nil 1.5% to 3.5%



24

7. Statutory deposits

2010 2009KHR’000 US$ KHR’000 US$

Statutory deposits on:

Capital guarantee deposit 1,540,300 380,040 770,150 184,733Reserve requirement 82,042 20,242 60,142 14,426

1,622,342 400,282 830,292 199,159

The statutory deposits are maintained with the NBC in compliance with PrakasNo. B7-00-006 on the Licensing of Micro-Finance Institutions, the amounts of which aredetermined by defined percentages of the Company’s registered share capital andcustomers’ deposits with the Company.

The statutory deposit on registered share capital is refundable when the Companyvoluntarily liquidates and has no deposit liabilities. The statutory deposit on customers’deposits fluctuates depending on the level of the customers’ deposits.

From September 2006, the statutory deposit on registered capital placed with NBC earnsinterest at the rate of 3% per annum. The statutory deposit relating to customers’ depositsdoes not earn interest.

8. Loans to customers2010 2009

KHR’000 US$ KHR’000 US$

Group loans 9,373,145 2,312,644 6,816,472 1,635,038Individual loans 416,000,437 102,640,127 260,366,518 62,452,991

425,373,582 104,952,771 267,182,990 64,088,029

Provision for bad anddoubtful loans

Specific (3,708,752) (915,063) (1,687,207) (404,703)General (6,334,597) (1,562,940) (3,970,654) (952,424)

(10,043,349) (2,478,003) (5,657,861) (1,357,127)

415,330,233 102,474,768 261,525,129 62,730,902



25

8. Loans to customers (continued)

The movements in allowance for bad and doubtful loans to customers were as follows:

2010 2009KHR’000 US$ KHR’000 US$

At beginning of year 5,657,861 1,357,127 3,898,227 955,214Provision for the year 4,385,488 1,082,035 2,116,245 507,615Written off during the year - - (356,611) (85,539)Translation difference 38,841 - (20,163)

At end of year 10,043,349 2,478,003 5,657,861 1,357,127

The loans to customers are analysed as follows:

(a) By maturity:

Within 1 month 6,523,189 1,609,472 3,813,290 914,6781 to 3 months 16,244,671 4,008,061 11,367,955 2,726,7823 months to 12 months 158,736,479 39,165,181 121,032,602 29,031,567More than 12 months 243,869,243 60,170,057 130,969,143 31,415,002

425,373,582 104,952,771 267,182,990 64,088,029

(b) By currency:

US Dollars 307,868,042 75,960,533 159,613,599 38,285,824Khmer Riel 117,096,760 28,891,379 107,569,391 25,802,205Thai Baht 408,780 100,859 - -

425,373,582 104,952,771 267,182,990 64,088,029

(c) By economic sector:

Trade and commerce 146,480,096 36,141,154 95,379,324 22,878,226Agriculture 131,188,718 32,368,300 78,556,789 18,843,077Household/family 67,864,643 16,744,299 37,378,174 8,965,741Services 44,942,535 11,088,708 30,060,995 7,210,601Transportation 30,957,484 7,638,165 22,735,957 5,453,576Construction 3,940,106 972,145 3,071,751 736,808

425,373,582 104,952,771 267,182,990 64,088,029



26


2010 2009KHR’000 US$ KHR’000 US$

(d) By residency status:

Residents 425,373,582 104,952,771 267,182,990 64,088,029

(e) By relationship:

External customers 422,306,442 104,196,013 264,710,271 63,494,908Staff loans 3,067,140 756,758 2,472,719 593,121

425,373,582 104,952,771 267,182,990 64,088,029

(f) by location

Head Office 507,760 125,280 247,464 59,358

Provincial- Takeo 51,773,719 12,774,172 43,245,108 10,373,017- Kampong Speu 36,994,955 9,127,795 21,719,430 5,209,746- Prey Veng 35,373,065 8,727,625 24,864,496 5,964,139- Kandal 34,206,067 8,439,691 25,328,180 6,075,361- Mukh Kampul 27,216,519 6,715,154 18,203,491 4,366,393- Tbong Khmum 26,349,669 6,501,275 16,509,409 3,960,041- Phnom Penh 25,508,535 6,293,742 15,705,388 3,767,183- Kampong Cham 24,726,588 6,100,811 15,247,739 3,657,409- Svay Rieng 20,940,974 5,166,784 15,218,280 3,650,343- Pursat 20,227,193 4,990,672 15,244,630 3,656,663- Kampot 19,797,843 4,884,738 14,191,256 3,403,995- Battambang 18,041,947 4,451,504 5,103,013 1,224,038- Kratie 18,033,165 4,449,338 9,336,211 2,239,437- Banteay Meanchey 15,895,488 3,921,907 7,659,983 1,837,367- Kampong Thom 14,799,326 3,651,450 6,785,599 1,627,632- Siem Reap 12,731,637 3,141,287 5,150,942 1,235,534- Kampong Chhnang 12,693,604 3,131,903 5,430,361 1,302,557- Preah Sihanouk 9,555,528 2,357,643 1,992,010 477,816

425,373,582 104,952,771 267,182,990 64,088,029



27


2010 2009KHR’000 US$ KHR’000 US$

(g) By performance:

Standard loans:Secured 109,100,139 26,918,366 66,412,821 15,930,156Unsecured 311,947,297 76,967,011 196,333,537 47,093,676

Sub-standard loans:Secured 100,237 24,732 218,262 52,354Unsecured 323,251 79,756 1,338,275 321,006

Doubtful loans:Secured 38,458 9,489 204,571 49,070Unsecured 306,059 75,514 1,721,917 413,029

Loans loss:Secured 294,642 72,697 31,103 7,461Unsecured 3,263,499 805,206 922,504 221,277

425,373,582 104,952,771 267,182,990 64,088,029

(h) By interest rate (per month):

2010 2009

Loans in Khmer Riel 1.8%-3.5% 2.5%-3.5%Loans in US Dollars 1.0%-3.3% 1.8%-3.3%Loans in Thai Baht 2.3%-3.0% Nil

9. Other assets

2010 2009KHR’000 US$ KHR’000 US$

Interest receivable 7,298,805 1,800,840 5,023,531 1,204,973Allowance for interest

receivable (1,438,240) (354,858) (590,779) (141,708)

Net interest receivable 5,860,565 1,445,982 4,432,752 1,063,265Prepayments 1,252,863 309,120 840,829 201,686Advances to suppliers 95,799 23,637 59,818 14,348Advances to employees - - 16,431 3,941Others 551,193 135,996 56,777 13,619

7,760,420 1,914,735 5,406,607 1,296,859



28

10. Income tax

(a) Deferred tax assets

Deferred tax assets comprise:

2010 2009KHR’000 US$ KHR’000 US$

Deferred tax assets 1,233,506 304,344 760,430 182,401Deferred tax liabilities (210,770) (52,004) (153,789) (36,889)

At end of the year 1,022,736 252,340 606,641 145,512

The movement in the net deferred tax assets is as follows:

Balance at beginning of year 606,641 145,512 407,822 99,932Credited to income statement 416,095 102,664 198,819 47,690Translation difference - 4,164 - (2,110)

Balance at end of the year 1,022,736 252,340 606,641 145,512

Deferred tax assets/(liabilities) are attributable to the following:

Provisions 922,691 227,656 706,346 169,428Unrealised exchange loss 310,815 76,688 54,084 12,973Depreciation and amortisation (210,770) (52,004) (153,789) (36,889)

1,022,736 252,340 606,641 145,512

(b) Provision for income tax2010 2009


Balance at beginning of year 3,109,199 745,790 3,427,838 839,951Income tax expense 4,171,881 1,029,332 3,749,894 899,471Income tax paid (3,898,781) (961,949) (4,068,533) (975,901)Translation difference - 21,344 - (17,731)

Balance at end of the year 3,382,299 834,517 3,109,199 745,790



29

10. Income tax (continued)

(b) Provision for income tax (continued)

In accordance with Cambodian law, the Company has an obligation to pay corporate income taxof either the profit tax at the rate of 20% of taxable profits or the minimum tax at 1% of grossrevenues, whichever is higher.

(c) Income tax expense2010 2009


Current income tax 4,171,881 1,029,332 3,749,894 899,471Deferred tax assets (416,095) (102,664) (198,819) (47,690)

Income tax expense 3,755,786 926,668 3,551,075 851,781

The reconciliation of current income tax computed at the statutory tax rate of 20% to the incometax expense shown in the income statement is as follows:

2010 2009KHR’000 US$ % KHR’000 US$ %


Income tax usingstatutory rate 3,500,078 863,577 20.0% 2,941,796 705,636 20.0%

Non-deductible expenses 255,708 63,091 1.5% 609,256 146,139 4.0%Under provision in respect

of prior year - - 23 6 -

Income tax expense 3,755,786 926,668 21.5% 3,551,075 851,781 24.0%

The calculation of taxable income is subject to the review and approval of the tax authorities.



30

11. Intangible assets

Computer Capital work Core bankingsoftware in progress system Total

KHR’000 KHR’000 KHR’000 KHR’000 US$Cost

At 1 January 2010 15,941 3,932,390 - 3,948,331 947,069Additions - 93,308 - 93,308 23,022Transfers - (4,025,698) 4,025,698 - -Translation difference - - - - 27,106

At 31 December 2010 15,941 - 4,025,698 4,041,639 997,197

Less: accumulated amortisation

At 1 January 2010 1,926 - - 1,926 462Charge for the year 7,008 - 33,070 40,078 9,889Translation difference - - - - 13

At 31 December 2010 8,934 - 33,070 42,004 10,364

Net book value

As at 31 December 2010 7,007 - 3,992,628 3,999,635 986,833

Net book value

As at 31 December 2009 14,015 3,932,390 - 3,946,405 946,607

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32

13. Deposits from customers

2010 2009KHR’000 US$ KHR’000 US$

Savings 749,531 184,932 2,006,347 481,254


(a) By maturity:

Within 1 month 749,531 184,932 2,006,347 481,254

(b) By currency:

Khmer Riel 9,202 2,270 7,525 1,805US Dollars 740,329 182,662 1,998,822 479,449

749,531 184,932 2,006,347 481,254

(c) By interest rates:

Interest rates (per annum)KHR US$

Savings for staff (Unlimited) 8.0% 6.0%

Savings for customer (Unlimited) 2.5% 2.0%



33

14. Borrowings2010 2009

Note KHR’000 US$ KHR’000 US$

Credit Suisse Microfinance FundManagement Company i 51,878,400 12,800,000 31,267,500 7,500,000

Instituto De Crédito Oficialof the Kingdom of Spain (ICO) ii 40,729,408 10,049,200 18,590,405 4,459,200

Dexia Micro-Credit Fund (SubFund Blueorchard Debt) iii 30,397,500 7,500,000 31,267,500 7,500,000

Global Microfinance Facility iv 20,265,000 5,000,000 - -Dual Return Fund SICAV v 20,265,000 5,000,000 5,836,600 1,400,000Microfinance Enhancement

Facility SA (Blue Orchard Pool) vi 20,262,000 4,999,260 - -responsAbility SICAV

Mikrofinanz-Fonds (LUX) vii 19,049,100 4,700,000 16,676,000 4,000,000Belgian Investment Company

for DevelopingCountries SA (BIO) viii 17,731,875 4,375,000 3,126,750 750,000

VDK Spaarbank n.v. ix 16,212,000 4,000,000 16,676,000 4,000,000Triodos SICAV II- Triodos

Microfinance Fund x 14,185,500 3,500,000 - -Oikocredit, Ecumenical

Development CooperativeSociety, U.A. xi 13,578,835 3,350,317 8,338,000 2,000,000

SNS Institutional Microfinance xii 12,159,000 3,000,000 12,507,000 3,000,000Selectum SICAV-SIF xiii 12,159,000 3,000,000 - -The Nederlandse Financierings-

Maatschappij voorOntwikkelingslanden

N.V. (FMO) xiv 12,142,333 2,995,888 18,228,000 4,372,271Pettelaar Effectenbewaarbedrijf

N.V xv 8,106,000 2,000,000 8,338,000 2,000,000EMF Microfinance Agmvk xvi 6,079,500 1,500,000 - -VOLKSVERMOGEN N.V xvii 6,079,500 1,500,000 - -Calvert Social Investment

Foundation xviii 4,863,600 1,200,000 4,169,000 1,000,000Finethics Microfinance SCA xix 4,053,000 1,000,000 4,169,000 1,000,000



34

14. Borrowings (continued)2010 2009

Note KHR’000 US$ KHR’000 US$

Impulse Microfinance InvestmentFund NV xx 2,026,500 500,000 4,169,000 1,000,000

Global Commercial MicrofinanceConsortium Ltd. - - 8,338,000 2,000,000

332,223,051 81,969,665 191,696,755 45,981,471

(i) Credit Suisse Microfinance Fund Management Company

Terms 2 years, maturing on

First loan 20 May 2011

Second loan 28 November 2011

Third loan 31 August 2012

Fourth loan 14 September 2012

Fifth loan 22 November 2012

Sixth loan 10 December 2012

Seventh loan 22 December 2012

Credit facilities First loan US$1,500,000

Second loan US$500,000

Third loan US$3,000,000

Fourth loan US$2,500,000

Fifth loan US$1,500,000

Sixth loan US$1,500,000

Seventh loan US$2,300,000

Total US$12,800,000



35

14. Borrowings (continued)

(i) Credit Suisse Microfinance Fund Management Company (continued)

RepaymentFirst to fifth loan: principal is due on the maturity date and interest is paidsemi-annually.

Sixth loan: Two equal instalments of principal repayment commencing on10 June 2012 and interest is paid semi-annually.

Seventh loan: Three equal instalments of principal repayment commencingon 22 December 2011 semi-annually and interest is paid semi-annually.

Movement Beginning: US$7,500,000

Disbursement:US$10,800,000

Repayment:US$5,500,000

Outstanding:US$12,800,000

Security This loan is unsecured.

(ii) Instituto De Crédito Oficial of the Kingdom of Spain (ICO)

Terms 12 years, maturing on 16 October 2021.

Credit facilities US$10,049,200

Repayment Interest is due quarterly and principal is due annually startingfrom 16 October 2016.


Disbursement: US$5,590,000

Repayment: Nil

Outstanding: US$10,049,200




36


(iii) Dexia Micro-Credit Fund (Sub Fund Blueorchard Debt)

Terms 3 years, maturing on:

First loan 31 May 2011

Second loan 27 June 2011

Third loan 6 September 2011


Second loan US$2,000,000


Total US$7,500,000

Repayment Principal is due on the maturity date and interest on semi-annualbasis.


Disbursement: Nil

Repayment: Nil


Security These loans are unsecured.



37


(iv) Global Microfinance Facility (“GMF”)

Terms First loan: 4 years, maturing on 11 April 2014.

Second loan: 3 years and 9 months, maturing on11 April 2014.

Credit facilities First loan US$3,000,000Second loan US$2,000,000Total US$5,000,000

Repayments First loan: Two equal instalments of principal repaymentcommencing on 11 January 2014 and interest is due quarterly.

Second loan: Two equal instalments of principal repaymentcommencing on 11 January 2014 and interest is due quarterly.

Movement Beginning: NilDisbursement: US$5,000,000Repayment: NilOutstanding: US$5,000,000




38


(v) Dual Return Fund SICAV


First loan 9 August 2012

Second loan 10 September 2012

Third loan 8 November 2012

Total credit facilities First loan US$2,000,000



Total US$5,000,000

Repayment Principal is due on the maturity date and interest is duesemi-annually.

MovementBeginning: US$1,400,000Disbursement: US$5,000,000Repayment: US$1,400,000Outstanding: US$5,000,000


(vi) Microfinance Enhancement Facility SA (Blue Orchard Pool)


First loan: 29 October 2012

Second loan: 8 November 2012

Third Loan: 17 November 2012



Third loan US$999,260 (original currency: THB 30,000,000)

Total US$4,999,260

Repayment Principal is due on maturity date and interest is duesemi-annually.



39


(vi) Microfinance Enhancement Facility SA (Blue Orchard Pool) (continued)

Movement Beginning: Nil

Disbursement: US$4,999,260Repayment: NilOutstanding: US$4,999,260

(vii) responsAbility SICAV Mikrofinanz-Fonds (LUX)

Terms First loan: 3 years, maturing on 28 November 2011

Second loan: 2 years, maturing on 14 September 2012

Third loan: 2 years, maturing on 14 September 2012

Fourth loan: 2 years, maturing on 22 November 2012

Fifth loan: 2 years, maturing on 10 December 2012

Sixth loan: 2 years, maturing on 22 December 2012

Credit facilities First loan US$500,000



Fourth loan US$500,000

Fifth loan US$500,000

Sixth loan US$700,000

Total US$4,700,000

Repayment First to fourth loan: Principal is due on maturity date and interest ispaid semi-annually.

Fifth loan: Two equal instalments of principal repayment commencingon 10 June 2012 and interest is paid semi-annually.

Sixth loan: Three equal instalments of principal repaymentcommencing on 22 December 2011 semi-annually and interest is paidsemi-annually.



40


(vii) responsAbility SICAV Mikrofinanz-Fonds (LUX) (continued)



Repayment: US$3,500,000



(viii) Belgian Investment Company for Developing Countries SA (BIO)

Terms First loan: 3 years and 9 months, maturing on31 December 2011.Second loan: 4 years, maturing on 15 July 2014.

Credit facilities First loan US$375,000Second loan US$4,000,000Total: US$4,375,000

Repayment Principal and interest are due semi-annually.

Movement Beginning: US$750,000Disbursement: US$4,000,000Repayment: US$375,000Outstanding: US$4,375,000




41


(ix) VDK Spaarbank n.v.

Terms First loan: 3 years, maturing on 3 August 2011

Second loan: 2 years, maturing on 9 August 2012



Total US$4,000,000

Repayment First loan: Two equal principal instalments are due on 3August 2010 and 3 August 2011. Interest is due quarterly.

Second loan: Principal is due on maturity date and interest isdue semi-annually.






(x) Triodos SICAV II- Triodos Microfinance Fund


First loan: 1 June 2013

Second loan: 1 February 2014



Total US$3,500,000

Repayment First loan: Principal is due on maturity date and interest is due semi-annually



42


(x) Triodos SICAV II- Triodos Microfinance Fund (continued)

Repayment Second Loan: Two equal instalments of principal starting on 1 July

2013 and interest is due semi-annually



Repayment: Nil



(xi) Oikocredit, Ecumenical Development Cooperative Society, U.A.

Terms First loan: 5 years, maturing on 8 November 2011

Second loan: 5 years, maturing on 18 February 2014

Third Loan: 2 years, maturing on 2 November 2012



Third Loan US$2,072,539 (Original Currency: KHR8.4Billion)

Total US$3,350,317

Repayment First loan: The first repayment of principal will be made within18 months after the effective date of the loan on 8 November2006. The principal and interest repayment are due semi-annually.

Second loan: The first repayment of principal is due 12 monthsafter effective date of the loan on 18 February 2009. Theprincipal and interest repayment are due semi-annually.

Third Loan: Two equal instalments of principal repaymentcommencing on 2 November 2011 and interest is due semi-annually.



43


(xi) Oikocredit, Ecumenical Development Cooperative Society, U.A (continued).



Repayment: US$722,222



(xii) SNS Institutional Microfinance

Terms 3 years and 4 months, maturing on 22 June 2012.


Repayment Two equal principal instalments are due on 31 August 2011 and22 June 2012 and interest is due on a semi-annual basis.

MovementBeginning: US$3,000,000

Disbursement: Nil

Repayment: Nil





44


(xiii) Selectum SICAV-SIF

Terms 3 years, maturing on 16 November 2013


Repayment Three equal instalments of principal repayment commencingon 16 September 2013 monthly and interest is due annually



Repayment: Nil



(xiv) The Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO)

TermsFirst loan: 9 years and 6 months, maturing on 1 October 2017.

Second loan: 4 years and 6 months, maturing on 1 October 2012.



Total US$2,995,888

Equivalent inKHR’000

First loan KHR 8,105,000,000

Second loan KHR 4,037,333,334

Total KHR 12,142,333,334

Repayment First loan: Ten equal annual instalments of principal repaymentcommencing on 1 April 2013 on semester basis and interest is paidsemi-annually.

Second loan: Six equal annual instalments of principal and interestrepayment commencing on 1 April 2010 semi-annually and interestis paid semi-annually.



45


(xiv) The Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO)

Movement Beginning: KHR 18,228,000,000

Disbursement: Nil

Repayment: KHR 6,085,666,667

Outstanding: KHR 12,142,333,333


(xv) Pettelaar Effectenbewaarbedrijf N.V

Terms 3 year and 4 months, maturing on 22 June 2012.


Repayment Two equal principal instalments are due on date 31 August2011 and on the maturity date and interest is due semi-annually.


Disbursement: Nil

Repayment: Nil





46


(xvi) EMF Microfinance Agmvk


First loan: 15 October 2012

Second loan: 21 October 2012



Total: US$1,500,000

RepaymentPrincipal is due on maturity date and interest is due semi-annually.



Repayment: Nil



(xvii) VOLKSVERMOGEN N.V

Terms 2 years, maturing on 23 June 2012


Repayment Principal is due on the maturity date and interest is due semi-annually



Repayment: Nil





47


(xviii)Calvert Social Investment Foundation

Terms First loan: 1 year and 9 months, maturing on 1 August2011.

Second loan: 3 years, maturing on 1 August 2011

Third loan: 1 year and 5 months maturing on 1 August2011



Third loan US$200,000

Total US$1,200,000

Repayments Principal is due on the maturity date and interest is duequarterly.


Disbursement: US$200,000

Repayment: Nil



(xix) Finethics Microfinance SCA

Terms 2 years, maturing on 20 October 2012.


Repayment Principal is due on the maturity date and interest is duesemi-annually.



48


(xix) Finethics Microfinance SCA (continued)






(xx) Impulse Microfinance Investment Fund NV

Terms 3 years, maturing on 14 December 2011.


Repayment Two equal principal instalments are due on 14 December 2010and on 14 December 2011 respectively. Interest is duequarterly.


Disbursement: Nil

Repayment: US$500,000

Outstanding: US$500,000



2010 2009KHR’000 US$ KHR’000 US$

(a) By maturity:

From 1 to 3 months 450,333 111,111 463,222 111,111From 3 to 12 months 84,558,975 20,863,305 76,483,863 18,345,853From 1 to 5 years 203,242,335 50,146,147 91,296,265 21,898,840Over 5 years 43,971,408 10,849,102 23,453,405 5,625,667

332,223,051 81,969,665 191,696,755 45,981,471



49


(b) By currency:

2010 2009KHR’000 US$ KHR’000 US$

Khmer Riel 20,542,334 5,068,427 18,228,000 4,372,271US Dollars 307,630,717 75,901,978 173,468,755 41,609,200Thai Baht 4,050,000 999,260 - -

332,223,051 81,969,665 191,696,755 45,981,471

(c) By interest rate (including withholding tax):

2010 2009

Khmer Riel 11.28% 6.38% + 3-6 month rateUS Dollars 8.02% + swap rate 10.15% + 6 month Libor rateThai Baht 8.84% Nil

15. Other liabilities2010 2009


Accrued expensesInterest 3,906,276 963,799 2,676,067 641,897Bonus/incentives 1,256,273 309,961 - -

Accrued taxesWithholding on others 363,535 89,695 314,300 75,390Salary tax 80,525 19,868 360,753 86,532

Other payables 176,527 43,555 248,193 59,533Others 3,061,568 755,383 273,666 65,643

8,844,704 2,182,261 3,872,979 928,995

16. Provision for severance pay2010 2009


Balance at beginning of year 3,531,731 847,141 2,365,976 579,754Additions during year 1,278,933 315,552 1,241,028 297,680Payments (197,209) (48,658) (75,273) (18,055)Translation difference - 24,247 - (12,238)

Balance at end of year 4,613,455 1,138,282 3,531,731 847,141



50

17. Share capital

The details of shareholding are as follows:

2010 2009Number of Amount Number of Amount

shares KHR’000 shares KHR’000

PSCo 77,020 1,540,400 77,020 1,540,400BIO 138,626 2,772,520 138,626 2,772,520DCG 138,626 2,772,520 138,626 2,772,520FMO 138,626 2,772,520 138,626 2,772,520LOLC 138,626 2,772,520 138,626 2,772,520Oikocredit 138,626 2,772,520 138,626 2,772,520

770,150 15,403,000 770,150 15,403,000

(US$ equivalents) 3,800,395 3,694,651

The total authorised numbers of shares is 770,150 shares (2009: 770,150 shares) with a parvalue of KHR 20,000 per share (2009: KHR 20,000).

18. Subordinated debt

2010 2009KHR’000 US$ KHR’000 US$

Subordinated debt from theRoyal Government of

Cambodia 34,674,673 8,555,310 34,674,673 8,317,264Subordinated debt

from CRDF 10,982,904 2,709,821 10,982,904 2,634,422

45,657,577 11,265,131 45,657,577 10,951,686



51

18. Subordinated debt (continued)

(i) Subordinated debt from the Royal Government of Cambodia (“RGC”)

The amount of KHR34,674,673,914 consists of the funds transferred by EC to RGC andtransferred by RGC to PRASAC as subordinated debt on 31 December 2004 with the termsand conditions of the agreement as follows:

1. The fund is to be recorded as “Subordinated Debt” in the accounting records ofPRASAC.

2. PRASAC shall repay the total value of the Subordinated Debt to RGC on the followingterms and conditions:

1. The Subordinated Debt will not be repayable to RGC unless PRASAC ceases toprovide credit to rural communities and micro enterprises in Cambodia or unlessPRASAC elects at its own discretion to repay all or part of the Subordinated Debtto RGC.

2. The Subordinated Debt is a non-distributable fund.

3. The Subordinated Debt is considered as “Tier II Capital” in the context of Article15 of Prakas No. B700-006 on the licensing of Micro-Finance Institutions dated11 January 2000 and shall be included when calculating the Capital AdequacyRatio of PRASAC.

Subsequently, this was superseded by the NBC letter dated 22 May 2007 whichrecommended that PRASAC should request permission from NBC to includeSubordinated Debt as Tier II Capital in Capital Adequacy Ratio calculation. On14 August 2007, PRASAC wrote a letter to NBC requesting inclusion ofsubordinated debt in the calculation of net worth.

3. The subordinated debt bears no interest.

(ii) Subordinated debt from Cambodia Rural Development Foundation (“CRDF”)

In 2007, the proceeds of the sale (“the Fund”) of Cambodia Rural Development Foundation(“CRDF”)’s share transfer in the amount of KHR 10,982,904,400 was treated assubordinated debt with conditions as follows:



52


(ii) Subordinated debt from Cambodia Rural Development Foundation (“CRDF”)(continued)

The Funds shall be made available to PRASAC as a perpetual subordinated debt as providedbelow and shall be utilised solely for the purpose of the long-term provision of micro-finance tocommunities and micro-enterprises of the Kingdom of Cambodia.

1. The Funds will be recorded as perpetual “Subordinated Debt, CRDF Share Sale”(“SDCSS”) in the accounting records of PRASAC with the following conditions:

i. The SDCSS will be booked into a separate account in the balance sheet ofPRASAC;

ii. The full amount of the SDCSS shall be included for the calculation of the net worthas Tier II Capital in the context of the Calculation of Net Worth and for allprudential ratio purposes, such as the Capital Adequacy Ratio;

iii. The SDCSS shall bear no interest.

iv. Any transfer of the SDCSS to a third party should be approved by all the parties tothis agreement.

2. The SDCSS shall only be repayable by PRASAC to CRDF in the followingcircumstances:

a) If PRASAC ceases to provide credit to rural communities and micro enterprises inCambodia. If CRDF forms the view that PRASAC MFI has ceased to providecredit to rural communities and micro enterprises in Cambodia, CRDF may callupon PRASAC to repay the SDCSS. However, CRDF may not call upon PRASACto repay the SDCSS without such allegations being first confirmed by an audit (the“Audit”) to be carried out by a private international audit firm. The Audit will becarried out at the initiative of and will be financed by PRASAC;

b) If PRASAC does not approve the transfer of the SDCSS to a third party proposedby CRDF pursuant to clause 2.2. (d) of this Agreement;

c) If PRASAC decides at any time and at its sole discretion to repay the SDCSS infull.



53


(ii) Subordinated debt from Cambodia Rural Development Foundation (“CRDF”) (continued)

3. In the event CRDF is dissolved, PRASAC shall no longer have the obligation to repay theSDCSS, and the amount outstanding will be converted into a special protected reserve inPRASAC’s accounts, not distributable to shareholders. In case PRASAC is dissolved dueto insolvency, RGC shall be considered owner of the funds.

On 12 December 2007, PRASAC obtained the approval from the Central Bank to include:

4. subordinated debt (i) above as Tier 2 in the net worth calculation, however, limited to 100%of base net worth; and

On 19 September 2008, CRDF and the MEF signed agreement with the terms and conditions asfollows:

1. PRASAC will continue to use CRDF Funds solely for the purpose of the long-termprovision of micro-finance to individuals, rural and urban communities, and micro-enterprises in Cambodia.

2. The CRDF Funds shall be recorded as Subordinated Debt (“SD”) in the accountingrecords of PRASAC.

3. PRASAC shall comply with the following terms and conditions:

a. The SD will not be repaid to the MEF unless PRASAC ceases to provide credit toindividuals, rural and urban communities, and micro-enterprises in Cambodia asshall be evidenced in accordance with the provisions of (d) hereunder or unlessPRASAC elects at its own discretion to repay all or part of the SD to MEF.

b. The SD is a non-distributable fund, i.e. the SD cannot be distributed to any party,except as stated in condition (d) below.

c. The SD will be considered as ‘Tier II Capital’ and shall be included in thecalculation of the net worth of PRASAC as per the regulations of the National Bankof Cambodia.

d. PRASAC is entitled to use part or all of the Subordinated Debt for facilitating theextension of short and long term credit to individuals, rural and urban communitiesand micro-enterprises in Cambodia.



54


(ii) Subordinated debt from Cambodia Rural Development Foundation (“CRDF”) (continued)

4. PRASAC shall comply with the following terms and conditions: (continued)

a. If MEF forms the view that PRASAC has ceased to provide credit to individuals,rural and urban communities, and micro-enterprises in Cambodia or has violated itsapproved Memorandum and Articles of Association (MoA), with respect to Article2: vision, mission and business objectives, Article 21: Profit or loss restrictions ondeclaring dividend or has amended the MoA in violation of Article 24, paragraph 4,MEF may call upon PRASAC to repay the SD. However, MEF may not call uponPRASAC to repay the SD without such allegations being first confirmed by anAudit to be carried out by a private internationally recognised audit firm.

b. In the unlikely event the individuals, rural and urban communities, and micro-enterprises in Cambodia to which PRASAC extended credit, are not able to honourdebts, MEF agrees to these debts being offset against and thereby reducing the SD,to the extent that the losses of those credits cannot be covered by the accumulatedown capital of PRASAC.

5. The SD shall bear no interest, but the value of this Subordinated Debt shall be protected,to the extent that annual allocation shall be made to a Special Reserve based on theinflation rate published by National Institute of Statistic (NIS), capped at 5% p.a. As acondition for the non interest bearing SD, PRASAC is obliged to strictly adhere to Article21 of its MoA. This “Special Reserve Account” will be non-distributable to theshareholders.

19. Interest income

2010 2009KHR’000 US$ KHR’000 US$

Group loans 2,305,123 568,745 2,235,139 536,133Individual loans 81,443,570 20,094,639 65,198,133 15,638,795Placements with banks 137,577 33,944 696,753 167,127

83,886,270 20,697,328 68,130,025 16,342,055



55

20. Interest expense

2010 2009KHR’000 US$ KHR’000 US$

Borrowings 21,390,578 5,277,715 15,923,803 3,819,574Deposits from customers 58,057 14,324 28,617 6,864

21,448,635 5,292,039 15,952,420 3,826,438

21. Other operating income

2010 2009KHR’000 US$ KHR’000 US$

Foreign exchange gain-realised 1,379,525 340,371 14,837 3,559Penalty income 536,449 132,359 288,639 69,234Loan loss recovered 182,244 44,965 132,315 31,738Fee income from loans 86,897 21,440 - -Gain on disposal of property

and equipment 7,500 1,850 42,767 10,259Other income 63,821 15,747 48,288 11,582

2,256,436 556,732 526,846 126,372

22. Fee and commission expenses

2010 2009KHR’000 US$ KHR’000 US$

Tax on borrowing fund 879,038 216,886 2,619,672 628,369Fee on borrowings 397,825 98,156 189,531 45,462Bank charges on borrowings 280,918 69,311 89,591 21,490Fee on group loans 14,478 3,572 191 46

1,572,259 387,925 2,898,985 695,367



56

23. Operating and other expenses

2010 2009KHR’000 US$ KHR’000 US$

Salaries and staff benefits 26,862,395 6,627,781 23,608,019 5,662,753Rental 2,800,108 690,873 1,990,047 477,344Fuel for cars and generators 2,172,038 535,909 1,862,907 446,847Communications 1,400,557 345,561 393,512 94,390Depreciation and amortisation 1,528,560 377,143 854,359 204,931Foreign exchange

loss - unrealised 1,283,618 316,708 270,421 64,865Professional fees 932,937 230,184 606,523 145,484Office supplies 721,868 178,107 852,365 204,453Maintenance 701,632 173,114 498,236 119,510Utilities 692,535 170,870 480,904 115,352Per diem and travelling expense 637,858 157,379 486,326 116,653Transportation 637,482 157,286 537,692 128,974Marketing and promotions 557,722 137,607 546,551 131,099Printing and stationery 535,029 132,008 430,585 103,283Training 298,082 73,546 311,304 74,671Other tax expenses 228,166 56,296 170,379 40,868Others 462,594 114,136 269,336 64,605

42,453,181 10,474,508 34,169,466 8,196,082

24. Grant income2010 2009


ECOSORN * 595,143 146,840 881,040 211,332FMO for NBP Project** 545,763 134,657 277,680 66,606Appui au Dévelopment

Autonome (“ADA”) - - 30,506 7,317BIO for strategic planning

& management 76,339 18,835 - -� � �

1,217,245 300,332 1,189,226 285,255

*: This represents grant received from the European Community in order to support smallloans to establish operational access to financial services for farmers and villagers inECOSORN target areas; Siem Reap, Battambang and Banteay Meanchey province.

**: This represents subsidies received from the Nederlandse Financierings-Maatschappijvoor Ontwikkelingslanden N.V. (FMO) for providing concessional loans to buildbiodigester plants which cooperates with the National Biodigester Programme Cambodia.The subsidy is US$50 per loan disbursed for this biodigester plant.



57

25. Net cash flows from operating activities

2010 2009KHR’000 US$ KHR’000 US$


Adjustments for:

Severance expense 1,278,933 315,552 1,241,028 297,680Depreciation and

amortisation 1,528,560 377,143 854,359 204,931Provision for bad and

doubtful loans 4,385,488 1,082,035 2,116,245 507,615Gain on disposals of property

and equipment (7,500) (1,850) (42,767) (10,259)Property and equipment

written off - - 1,025 246

Operating profit beforechanges in operating

assets and liabilities 24,685,869 6,090,765 18,878,871 4,528,393(Increase)/decrease in

operating assets:Statutory deposits (792,050) (195,423) (5,902) (1,416)Loans to customers (158,190,592) (39,030,494) (27,145,144) (6,511,188)Other assets (2,353,813) (580,758) 603,115 144,666Increase/(decrease) in

operating liabilities:Deposits from customers (1,256,816) (310,095) 1,751,475 420,119Other liabilities 4,971,725 1,226,677 (796,246) (190,992)

Cash used in operations (132,935,677) (32,799,328) (6,713,831) (1,610,418)

Severance pay paid (197,209) (48,658) (75,273) (18,055)

Income tax paid (3,898,781) (961,949) (4,068,533) (975,901)

Net cash used in operatingactivities (137,031,667) (33,809,935) (10,857,637) (2,604,374)



58

26. Cash and cash equivalents

2010 2009KHR’000 US$ KHR’000 US$

Cash on hand 3,103,632 765,762 1,923,944 461,488Deposits and placements

with banks 18,804,255 4,639,589 18,198,317 4,365,152Placement with other

financial institution - - 15,743 3,776

21,907,887 5,405,351 20,138,004 4,830,416

27. Financial risk management

The guidelines and policies adopted by the Company to manage the risks that arise in theconduct of their business activities are as follows:

(a) Credit risk

Credit risk is the potential loss of revenue and principal losses in the form of specificprovisions as a result of defaults by the borrowers or counterparties through its lending andinvesting activities.

The primary exposure to credit risk arises through its loans to customers. The amount ofcredit exposure in this regard is represented by the carrying amounts of the assets on thebalance sheet. The lending activities are guided by the Company’s credit policy to ensurethat the overall objectives in the area of lending are achieved; i.e., that the loans portfolio isstrong and healthy and credit risks are well diversified. The credit policy documents thelending policy, collateral policy and credit approval processes and procedures implementedto ensure compliance with NBC Guidelines.

The Company holds collateral against loans to customers in the form of mortgage interestsover property and guarantees. Estimates of fair value are based on the value of collateralassessed at the time of borrowing, and generally are not updated except when a loan isindividually assessed as doubtful.



59

27. Financial risk management (continued)

(b) Operational risk

The operational risk losses which would result from inadequate or failed internal processes,people and systems or from external factors is managed through established operationalrisk management processes, proper monitoring and reporting of the business activities bycontrol and support units which are independent of the business units and oversightprovided by the management.

The operational risk management entail the establishment of clear organisational structure,roles and control policies. Various internal control policies and measures have beenimplemented. These include the establishment of signing authorities, defining systemparameters controls, streamlining procedures and documentation. These are reviewedcontinually to address the operational risks of its micro-finance business.

(c) Market risk

Market risk is the risk of loss arising from adverse movement in the level of market pricesor rates, the two key components being foreign currency exchange risk and interest raterisk.

Market risk arising from the trading activities is controlled by marking to market thetrading positions against their predetermined market risk limits.

(i) Foreign currency exchange risk

The Company is exposed to foreign exchange risk arising from various currency exposures,primarily with respect to the US$. Foreign exchange risk arises from future commercialtransactions and recognised assets and liabilities.

The Company has maintained a minimum foreign currency exposure ratio in accordancewith guidelines issued by National Bank of Cambodia. Management does not enter intocurrency hedging transactions since it considers that the cost of such instruments outweighsthe potential risk of exchange rate fluctuations.



60


(c) Market risk (continued)

(i) Foreign currency exchange risk (continued)

Concentration of currency risk

The aggregate amounts of assets and liabilities, by currency denomination, are as follows:

KHR’000 equivalent TotalKHR’000 US$ THB KHR’000

31 December 2010

Assets

Cash on hand 1,441,964 1,639,568 22,100 3,103,632Deposit and placementswith bank 6,524,964 10,345,278 1,934,013 18,804,255Statutory deposits 1,622,342 - - 1,622,342Loan to customers 113,794,398 301,133,187 402,648 415,330,233Other assets 2,448,598 5,264,966 46,856 7,760,420

Total financial assets 125,832,266 318,382,999 2,405,617 446,620,882

Liabilities

Deposits from customers 9,202 740,329 - 749,531Borrowings 20,542,334 307,630,717 4,050,000 332,223,051Other liabilities 1,519,249 7,282,131 43,324 8,844,704Provision for income tax 3,382,298 - - 3,382,298Provision for severance pay - 4,613,455 - 4,613,455

Total financial liabilities 25,453,083 320,266,632 4,093,324 349,813,039

Net financial asset/(liability)position 100,379,183 (1,883,633) (1,687,707) 96,807,843

31 December 2009

Total assets 117,207,728 170,692,304 - 287,900,032Total liabilities 22,574,154 181,642,857 - 204,217,011

Net financial asset/(liability)position 94,633,574 (10,950,553) - 83,683,021



61


(c) Market risk (continued)

(ii) Interest rate risk

Interest rate risk refers to the volatility in net interest income as a result of changes in thelevels of interest rate and shifts in the composition of the assets and liabilities. Theexposure to interest rate risk relate primarily to its loans and bank deposits.

Since the majority of financial assets are short-term and the interest rates are subject tochange with the market rates, the company does not use derivative financial instruments tohedge such risk.

Cash flow sensitivity analysis for variable-rate instruments

The change of 150 basis points (“bp”) in interest rates at the reporting date would haveincreased (decreased) equity and income statement by the amounts shown below. Thisanalysis assumes that all other variables remain the same. The analysis is performed on thesame basis for 2009.

Income statement150 bp 150 bp

increase decreaseKHR’000 KHR’000

31 December 2010

Variable rate instruments (651,796) 651,796

Cash flow sensitivity (651,796) 651,796

31 December 2009

Variable rate instruments (198,746) 198,746

Cash flow sensitivity (198,746) 198,746

The following table indicates the effective interest rates at the balance sheet date and theperiods in which the financial instruments re-price or mature, whichever is earlier.

PR

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AC

MIC

RO

FIN

AN

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INS

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KH

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80,7

25

--

--

217,5

92

18,1

98,3

17

1.5

%P

lace

men

tw

ith

oth

erfi

nan

cial

inst

ituti

on

--

--

-15,7

43

15,7

43

Sta

tuto

rydep

osi

ts-

--

-7

70,1

50

60,1

42

830,2

92

3.0

%L

oan

sto

cust

om

ers

-P

erfo

rmin

g2

,148

,325

10,8

91,1

34

118,8

68,5

25

13

0,8

38,3

74

--

262,7

46

,358

-N

on

per

form

ing

1,6

64

,965

476,8

21

2,1

64,0

77

130

,76

9-

-4,4

36,6

32

-A

llow

ance

(1,0

83

,37

8)

(296,0

60

)(2

,313,9

43

)(1

,964,4

80

)-

-(5

,657,8

61

)O

ther

asse

ts-

--

--

5,4

06,6

07

5,4

06,6

07

Def

erre

dta

xas

sets

--

--

-6

06,6

41

606,6

41

20

,710

,637

11

,071,8

95

118,7

18

,659

129

,004

,663

770,1

50

8,2

30,6

69

288

,506

,673

Lia

bil

itie

s

Dep

osi

tsfr

om

cust

om

ers

2,0

06,3

47

--

--

-2

,006,3

47

2.5

%B

orr

ow

ings

-463,2

22

76

,483,8

63

91

,296,2

65

23

,453,4

05

-1

91,6

96

,755

8.3

%O

ther

liab

ilit

ies

--

--

-3,8

72,9

79

3,8

72,9

79

Pro

vis

ion

for

inco

me

tax

--

--

-3,1

09,1

99

3,1

09,1

99

Pro

vis

ion

for

sever

ance

pay

--

--

-3,5

31,7

31

3,5

31,7

31

2,0

06

,347

463,2

22

76

,483,8

63

91

,296,2

65

23

,453,4

05

10

,513,9

09

204,2

17

,011

Mat

uri

tyg

ap1

8,7

04

,290

10

,608

,67

342

,234

,796

37

,708,3

98

(22,6

83,2

55)

(2,2

83,2

40

)8

4,2

89

,662



64


(d) Liquidity risk

Liquidity risk relates to the ability to maintain sufficient liquid assets to meet its financialcommitments and obligations when they fall due at a reasonable cost.

In addition to full compliance of all liquidity requirements, the management of theCompany closely monitors all inflows and outflows and the maturity gaps throughperiodical reporting. Movements in loans and customers’ deposits are monitored andliquidity requirements adjusted to ensure sufficient liquid assets to meet its financialcommitments and obligations as and when they fall due.

The following table provides an analysis of the financial assets and liabilities of theCompany into relevant maturity groupings based on the remaining periods to repayment.

PR

AS

AC

MIC

RO

FIN

AN

CE

INS

TIT

UT

ION

LIM

ITE

D

No

tes

toth

efi

na

nci

al

sta

tem

ents

(co

nti

nu

ed)

for

the

yea

ren

ded

31D

ecem

ber

20

10

65

27.

Fin

an

cial

risk

man

age

men

t(c

on

tin

ued

)

(d)

Liq

uid

ity

risk

(con

tin

ued

)

Up

to1

–3

3–

12

1–

5O

ver

5N

o2

010

1m

on

thm

onth

sm

onth

syea

rsyea

rsfi

xed

term

sT

ota

lK

HR

’000

KH

R’0

00

KH

R’0

00

KH

R’0

00

KH

R’0

00

KH

R’0

00

KH

R’0

00

Ass

ets

Cas

hon

han

d3,1

03,6

32

--

--

-3,1

03,6

32

Dep

osi

tsan

dpla

cem

ents

wit

hb

anks

18,8

04

,255

--

--

-18

,804

,255

Sta

tuto

rydep

osi

ts-

--

1,6

22,3

42

1,6

22,3

42

Loan

sto

cust

om

ers

-P

erfo

rmin

g2,7

53,4

60

16,1

67,1

64

158,4

12,4

34

243,7

14,3

78

--

421,0

47,4

36

-N

on

per

form

ing

3,7

69,7

29

77

,507

324,0

45

15

4,8

65

--

4,3

26,1

46

-A

llow

ance

(3,6

83,8

89

)(2

76,5

92)

(2,4

35

,559

)(3

,64

7,3

09

)-

-(1

0,0

43,3

49)

Oth

eras

sets

5,9

03,3

18

18

8,9

14

1,1

05,5

48

54

9,8

05

-12

,835

7,7

60,4

20

Def

erre

dta

xas

sets

--

--

-1,0

22,7

36

1,0

22,7

36

30,6

50,5

05

16,1

56,9

93

157,4

06,4

68

240,7

71,7

39

-2,6

57,9

13

44

7,6

43,6

18

Lia

bil

itie

s

Dep

osi

tsfr

om

cust

om

ers

74

9,5

31

--

--

-749,5

31

Borr

ow

ings

-45

0,3

33

84,5

58,9

75

203,2

42,3

35

43,9

71,4

08

-3

32,2

23,0

51

Oth

erli

abil

itie

s4,9

92,8

17

66

4,7

97

3,1

73,7

96

13,2

94

-8,8

44,7

04

Pro

vis

ion

for

inco

me

tax

82,1

89

3,3

00

,110

--

--

3,3

82,2

99

Pro

vis

ion

for

sever

ance

pay

--

--

-4,6

13,4

55

4,6

13,4

55

5,8

24,5

37

4,4

15,2

40

87,7

32,7

71

203,2

55,6

29

43,9

71,4

08

4,6

13,4

55

349,8

13,0

40

Ma

turi

tyga

p24

,825,9

68

11

,74

1,7

53

69

,673,6

97

37

,51

6,1

10

(43,9

71,4

08

)(1

,955,5

42

)97

,830,5

78

PR

AS

AC

MIC

RO

FIN

AN

CE

INS

TIT

UT

ION

LIM

ITE

D

No

tes

toth

efi

na

nci

al

sta

tem

ents

(co

nti

nu

ed)

for

the

yea

ren

ded

31D

ecem

ber

20

10

66

27.

Fin

anci

al

risk

man

ag

emen

t(c

onti

nu

ed)

(d)

Liq

uid

ity

risk

(con

tin

ued

)

Up

to1

–3

3–

12

1–

5O

ver

5N

o2

009

1m

on

thm

onth

sm

onth

syea

rsyea

rsfi

xed

term

sT

ota

lK

HR

’000

KH

R’0

00

KH

R’0

00

KH

R’0

00

KH

R’0

00

KH

R’0

00

KH

R’0

00

Ass

ets

Cas

hon

han

d1,9

23,9

44

--

--

-1,9

23,9

44

Dep

osi

tsan

dpla

cem

ents

wit

hb

anks

18,1

98

,317

--

--

-18

,198

,317

Pla

cem

ent

wit

ho

ther

fin

anci

alin

stit

uti

on

15,7

43

--

--

-15

,743

Sta

tuto

rydep

osi

ts-

--

830,2

92

830,2

92

Loan

sto

cust

om

ers

-P

erfo

rmin

g2,1

48,3

25

10,8

91,1

34

118,8

68,5

25

130,8

38,3

74

--

262,7

46,3

58

-N

on

per

form

ing

1,6

64,9

65

47

6,8

21

2,1

64,0

77

13

0,7

69

--

4,4

36,6

32

-A

llow

ance

(1,0

83,3

78

)(2

96,0

60)

(2,3

13

,943

)(1

,96

4,4

80

)-

-(5

,657,8

61)

Oth

eras

sets

4,4

68,5

86

40

,736

423,7

57

47

3,5

28

--

5,4

06,6

07

Def

erre

dta

xas

sets

--

--

-60

6,6

41

60

6,6

41

27,3

36,5

02

11,1

12,6

31

119,1

42,4

16

129,4

78,1

91

-1,4

36,9

33

28

8,5

06,6

73

Lia

bil

itie

s

Dep

osi

tsfr

om

cust

om

ers

2,0

06,3

47

--

--

-2,0

06,3

47

Borr

ow

ings

-46

3,2

22

76,4

83,8

63

91

,29

6,2

65

23,4

53,4

05

-191,6

96,7

55

Oth

erli

abil

itie

s958,8

41

34

2,1

37

2,2

98,3

35

27

3,6

66

-3

,872

,979

Pro

vis

ion

for

inco

me

tax

62,4

24

3,0

46

,775

--

--

3,1

09,1

99

Pro

vis

ion

for

sever

ance

pay

--

--

-3,5

31,7

31

3,5

31,7

31

3,0

27,6

12

3,8

52,1

34

78,7

82,1

98

91,5

69,9

31

23,4

53,4

05

3,5

31,7

31

204,2

17,0

11

Ma

turi

tyga

p24

,308,8

90

7,2

60,4

97

40

,360,2

18

37

,90

8,2

60

(23,4

53,4

05

)(2

,094,7

98

)84

,289

,662



67


(e) Capital management

(i) Regulatory capital

The Company’s lead regulator, the National Bank of Cambodia (“NBC”), sets and monitorscapital requirements for the Company as a whole.

The Company’s policy is to maintain a strong capital base so as to maintain marketconfidence and to sustain further development of the business. The impact of the level ofcapital on shareholders’ return is also recognised and the Company recognised the need tomaintain a balance between the higher returns that might be possible with greater gearingand advantages and security afforded by a sound capital position.

The Company and its individually regulated operations have complied with all externallyimposed capital requirements throughout the year.

(ii) Capital allocation

The allocation of capital between specific operations and activities is, to a large extent,driven by optimisation of the return achieved on the capital allocated. The amount ofcapital allocated to each operation or activity is based primarily upon the regulatory capital.

28. Commitments and contingencies

(a) Lease commitments

The Company has lease commitments for the lease of its headquarters and provincialoffices as follows:

2010 2009KHR’000 US$ KHR’000 US$

Within one year 2,810,472 693,430 2,017,992 484,047Two to five years 2,662,187 656,844 2,854,948 684,804

5,472,659 1,350,274 4,872,940 1,168,851

(b) Taxation contingencies

The taxation system in Cambodia is relatively new and is characterised by numerous taxesand frequently changing legislation, which is often unclear, contradictory, and subject tointerpretation. Often, differing interpretations exist among numerous taxation authoritiesand jurisdictions. Taxes are subject to review and investigation by a number of authorities,who are enabled by law to impose severe fines, penalties and interest charges.



68

28. Commitments and contingencies (continued)

(b) Taxation contingencies (continued)

These facts may create tax risks in Cambodia substantially more significant than in othercountries. Management believes that it has adequately provided for tax liabilities based onits interpretation of tax legislation. However, the relevant authorities may have differinginterpretations and the effects could be significant.

29. Related parties transactions

The Company had significant related party transactions during the year as follows:

2010 2009KHR’000 US$ KHR’000 US$

Board of Directors:

Salary and other benefits 272,233 67,168 308,673 74,040Fee and related expenses 64,328 15,872 192,701 46,222

336,561 83,040 501,374 120,262

Interest expenses:

The Nederlandse Financiering-Maatschappij voor

OntwikkelingslandenN.V.(FMO) 830,831 204,992 1,719,045 412,340

Belgian Investment Company forDeveloping Countries

SA (BIO) 734,653 181,261 316,427 75,900Oikocredit Ecumenical

Development CooperativeSociety U.A. 666,352 164,410 794,619 190,602

2,231,836 550,663 2,830,091 678,842



69

29. Related parties transactions (continued)

2010 2009KHR’000 US$ KHR’000 US$

Borrowings’ Disbursed Amount:

Belgian Investment Company forDeveloping Countries

SA (BIO) 16,212,000 4,000,000 - -Oikocredit Ecumenical

Development CooperativeSociety U.A. 8,400,000 2,072,539 4,169,000 1,000,000

The Nederlandse Financiering-Maatschappij voor

OntwikkelingslandenN.V.(FMO) - - 4,110,000 985,848

24,612,000 6,072,539 8,279,000 1,985,848

30. Fair values of financial assets and liabilities

The aggregate fair values of financial assets and liabilities carried on the balance sheet areapproximately equal to their carrying values as at 31 December 2010.

financial statements for the year ended 31 december 2010 ... · registered office no. 25, st. 294...

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