Annual Report 2010 - ProCredit

Annual Report 2010

2
Annual Report 2010
Key Figures
EUR ’000 BAM ’000 Change
2010 2009 2010 2009 BAM
Balance Sheet Data
Total Assets 155,729 171,527 304,580 335,478 -9.2%
Gross Loan Portfolio 119,158 119,671 233,052 234,056 -0.4%
Business Loan Portfolio 82,498 74,439 161,352 145,590 10.8%
EUR < 10,000 14,358 22,857 28,081 44,704 -37.2%
EUR > 10,000 < 30,000 16,768 14,352 32,795 28,070 16.8%
EUR > 30,000 < 150,000 31,229 24,222 61,079 47,375 28.9%
EUR > 150,000 20,144 13,008 39,398 25,441 54.9%
Agricultural Loan Portfolio 10,161 19,220 19,873 37,592 -47.1%
Housing Improvement Loan Portfolio 6,695 5,563 13,094 10,881 20.3%
Other 19,804 20,448 38,733 39,993 -3.2%
Allowance for Impairment on Loans 3,596 7,072 7,033 13,832 -49.2%
Net Loan Portfolio 115,562 112,599 226,019 220,224 2.6%
Liabilities to Customers 111,676 124,104 218,420 242,727 -10.0%
Liabilities to Banks and Financial Institutions 18,782 20,608 36,735 40,305 -8.9%
Total Equity 16,230 17,882 31,743 34,975 -9.2%
Income Statement
Operating Income 11,857 9,744 23,191 19,057 21.7%
Operating Expenses 14,673 18,001 28,698 35,206 -18.5%
Operating Profit Before Tax -2,816 -8,257 -5,507 -16,149 -65.9%
Net Profit -2,675 -7,496 -5,232 -14,660 -64.3%
Key Ratios
Cost/Income Ratio 130.2% 116.6%
ROE -15.7% -36.8%
Capital Ratio 16.2% 17.3%
Operational Statistics
Number of Loans Outstanding 20,746 39,762 -47.8%
Number of Loans Disbursed within the Year 9,535 12,113 -21.3%
Number of Business and Agricultural
Loans Outstanding 13,040 30,422 -57.1%
Number of Deposit Accounts 97,249 105,106 -7.5%
Number of Staff 460 662 -30.5%
Number of Branches and Outlets 26 26 0.0%
Exchange rate as of December 31:
2010: EUR 1 = BAM 1.9558
2009: EUR 1 = BAM 1.9558

Contents 3
Mission Statement 4
Letter from the Supervisory Board 5
The Bank and its Shareholders 6
Special Feature 8
Management Business Review 10
Risk Management 20
Branch Network 26
Organisation, Staff and Staff Development 28
Business Ethics and Environmental Standards 30
The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People 32
ProCredit in Eastern Europe 36
Our Clients 40
Financial Statements 44
Contact Addresses 78

4
Annual Report 2010
Mission Statement
ProCredit Bank Bosnia and Herzegovina is a development-oriented full-service bank.
We offer excellent customer service and a wide range of banking products. In our
credit operations, we focus on lending to very small, small and medium-sized
enterprises, as we are convinced that these businesses create the largest number
of jobs and make a vital contribution to the economies in which they operate.
Unlike other banks, our bank does not promote consumer loans. Instead we focus on
responsible banking, by building a savings culture and long-term partnerships with our
customers.
Our shareholders expect a sustainable return on investment, but are not primarily
interested in short-term profit maximisation. We invest extensively in the training of our
staff in order to create an enjoyable and efficient working atmosphere, and to provide
the friendliest and most competent service possible for our customers.

Letter from the Supervisory Board 5
Letter from the Supervisory Board
The year under review in Bosnia and Herzegovina (BiH) was characterised by political turmoil and ongoing
economic difficulties. The recession of the previous two years had a severe impact on the BiH economy,
and the consequences are still visible today. After the GDP contraction of 2.9% in 2009, there was
a modest rebound, with year-on-year growth reaching 0.8% by the end of 2010. 1 Private consumption is
still constrained by the legacy of the recession, including higher unemployment and the measures taken
to reduce the budget deficit, such as cuts in public sector wages and social welfare benefits.
Access to loans has remained restricted, as the local subsidiaries of foreign-owned banks that were hit by
the global financial crisis are still reluctant to lend. In this environment, small and medium sized enterprises
(SMEs) face numerous obstacles, such as high taxes, low liquidity levels, and a decreased number
of domestic and international orders, all of which have lowered levels of production.
In line with its primary role as a house bank for SMEs in BiH, ProCredit Bank continued to provide tailormade
services, giving individual attention to every client. We strive to make credit available to our core
client group, as we believe that these businesses are integral to job creation and have the potential to make
a vital contribution to economic development. Various targeted initiatives resulted in a 33.6% increase in
our SME loan portfolio segment, which amounted to EUR 62.9 million at year-end. In addition to supplying
SME clients with credit, we also supported them by organising seminars on topics such as accounting and
tax law.
In line with a business strategy that is focused primarily on small private companies, ProCredit Bank
opened business centres in a number of key cities: Mostar, Banja Luka, Sarajevo and Ilidža. At these
specialised branches, SMEs have access not only to comprehensive banking services but also to reliable
professional advice provided by experienced ProCredit staff.
In response to the challenging operating environment, our risk management systems were strengthened
in 2010. New policies and procedures were implemented based on the Basel II risk requirements and
those of the German regulatory authorities. All employees received exhaustive training to keep them fully
aware of these changes.
Compared to the previous year, there was a 43.1% reduction in the portfolio at risk (loans in arrears by
over 30 days relative to the total portfolio), bringing the ratio down to 3.2% by the end of 2010. The capital
adequacy ratio remained safely above the required level throughout the year.
At ProCredit Bank we consider it important to raise public awareness of financial matters. To promote an
understanding of the importance of responsible banking practices and to disseminate our institutional
experience to a wider audience, we organised a seminar for journalists from the most important media
in the country.
Despite the general lack of public confidence in banks and the challenging economic environment, we
managed to maintain a stable base of deposit customers, with balances totalling EUR 111.7 million at
end-2010.
Looking ahead, ProCredit Bank will continue to expand and provide transparent banking services that
meet the specific needs of SME clients in 2011. At the same time, we will continue to offer easily understandable
and straightforward deposit services to retail clients.
In conclusion, on behalf of the Supervisory Board, I would like to thank the management and the staff for
their hard work during what was a truly challenging year.
Dr. Klaus Glaubitt
Chairman of the Board of Directors
Members of the
Supervisory Board
as of December 31, 2010:
Dr. Klaus Glaubitt
Helen Alexander
Dr. Claus-Peter Zeitinger
Rainer Ottenstein
Philipp Pott
Members of the
Management as of
December 31, 2010:
Dr. Frieder Wöhrmann
Sabina Mujanović
Edin Hrnjica
Vedran Hadžiahmetović
Maja Hrnjić
1
Economic Intelligence Unit, Country Report, December 2010

6
Annual Report 2010
The Bank and its Shareholders
ProCredit Bank Bosnia and Herzegovina (BiH) is
a member of the ProCredit group, which is led by
its Frankfurt-based parent company, ProCredit
Holding. ProCredit Holding is the majority owner
of ProCredit Bank BiH and holds 93.6% of
the shares.
ProCredit Bank BiH was founded in October 1997
as Micro Enterprise Bank (MEB) by an alliance of
international development-oriented investors,
many of which are shareholders in ProCredit
Holding today. Their goal was to establish a new
kind of financial institution that would meet the
demands of small and very small businesses in
a socially responsible way. The primary aim was
not short-term profit maximisation but rather
to deepen the financial sector and contribute
to long-term economic development while also
achieving a sustainable return on investment.
Over the years, ProCredit Holding has consolidated
the ownership and management structure
of all the ProCredit banks to create a truly global
group with a clear shareholder structure and to
bring to each ProCredit institution all the best
practice standards, synergies and benefits that
this implies.
Today’s shareholder structure of ProCredit Bank
BiH is outlined below. Its current share capital is
EUR 21.7 million.
Shareholder
(as of Dec. 31, 2010)
ProCredit Holding
Commerzbank AG
Sector
Headquarters
Share
Paid-in Capital
(in EUR million)
20.32
1.38
Investment
Banking
Germany
Germany
93.64%
6.36%
Total Capital
100%
21.70
ProCredit Holding is the parent
company of a global
group of 21 ProCredit banks. ProCredit Holding
was founded as Internationale Micro Investitionen
AG (IMI) in 1998 by the pioneering development
finance consultancy company IPC.
ProCredit Holding is committed to expanding access
to financial services in developing countries
and transition economies by building a group of
banks that are the leading providers of fair, transparent
financial services for very small, small
and medium-sized businesses as well as the
general population in their countries of operation.
In addition to meeting the equity needs of
its subsidiaries, ProCredit Holding guides the development
of the ProCredit banks, provides their
senior management, and supports the banks in
all key areas of activity, including banking operations,
human resources and risk management. It
ensures that ProCredit corporate values, international
best practice procedures and Basel II risk
management principles are implemented groupwide
in line with standards also set by the German
supervisory authorities.
IPC is the leading shareholder and strategic investor
in ProCredit Holding. IPC has been the driving
entrepreneurial force behind the ProCredit group
since the foundation of the banks.
ProCredit Holding is a public-private partnership.
In addition to IPC and IPC Invest (the investment
vehicle of the staff of IPC and ProCredit), the other
private shareholders of ProCredit Holding include
the Dutch DOEN Foundation, the US pension fund
TIAA-CREF, the US Omidyar-Tufts Microfinance
Fund and the Swiss investment fund responsAbility.
The public shareholders of ProCredit Holding
include KfW (the German promotional bank), IFC
(the private sector arm of the World Bank), FMO
(the Dutch development bank), BIO (the Belgian
Investment Company for Developing Countries)
and Proparco (the French Investment and Promotions
company for Economic Cooperation).
ProCredit Holding has an investment grade rating
(BBB-) from Fitch Ratings Agency. As of the end
of 2010, the equity base of the ProCredit group is
EUR 428 million. The total assets of the ProCredit
group are EUR 5.2 billion.

The Bank and its Shareholders 7
Commerzbank is
Germany’s leading bank for private and corporate
customers. Following the merger of Dresdner
Bank and Commerzbank in May 2009, its customers
will in future have access to around 1,200
branches, the largest branch network of any German
private bank. Commerzbank has approximately
15 million private and corporate customers
worldwide, who can now enjoy a broad and
attractive range of Commerzbank products and
advisory services.
Commerzbank is a strong and reliable partner
for corporate customers, particularly export-dependent
small and medium-sized firms (SMEs).
It also manages major corporate customers and
institutions in Europe as well as multinational
enterprises. In addition, Commerzbank is a
leading export financier, supporting its customers
in Germany and around the world.
Commerzbank AG is the parent company of a
global financial services group. The group’s operating
business is organised into six segments
providing each other with mutually beneficial
synergies: Private Customers, Mittelstandsbank
(SME bank), Central & Eastern Europe, Corporates
& Markets, Asset Based Finance and Portfolio
Restructuring Unit.
Today some 30% of German foreign trade is
channelled through the new Commerzbank, the
leading export financier for the German industry.
The bank is directly represented in more than 50
countries as well as through a network of more
than 6,000 banking relationships worldwide.
Commerzbank is well positioned in Central and
Eastern Europe, serving more than 4 million
customers in the region. In Poland the bank
holds a 70% stake in BRE Bank, Poland’s thirdlargest
financial institution. In Ukraine it is the
majority shareholder of Bank Forum – a universal
bank with a nationwide network. Currently
Commerzbank operates in more than ten countries
in the region.

8
Annual Report 2010
Special Feature
Launching tailor-made services for SMEs in times of economic crisis
Despite the challenging economic environment
in 2010, ProCredit Bank continued to provide tailored
services to its target groups and devote individual
attention to each of its clients. During the
course of the year, we introduced six new financial
services with terms and conditions specifically
designed to help our clients meet their business
objectives during these harsh economic times.
ProCredit Bank recognised early on that entrepreneurs
in BiH were having difficulty receiving
financial support as a result of the financial crisis.
To facilitate access to a variety of financial
services, ProCredit Bank introduced “ProBiznis
Partner” in January 2010 – a line of credit to provide
financing for production and service-related
business activities. In March 2010 we expanded
our efforts to promote long-term SME development
by introducing a credit line specifically for
the purchase or renovation of business premises,
allowing clients to further invest in the quality of
their businesses.
Taking into account that BiH is going through
an economic and tax reform, the bank also introduced
a package of banking services called
“ProAdvisor”, targeting professionals in the
fields of accounting and finance and facilitating
the quick realisation of business plans. Also as
part of this initiative, more than 350 accounting
technicians, accountants and auditors participated
in seminars organised by ProCredit Bank in
Sarajevo and Tuzla in 2010.
“It is a pleasure to see a bank take care of its
clients the way that ProCredit Bank does,”
said one of the participants at a seminar.
In May 2010 ProCredit Bank introduced loans
for working capital with favourable conditions
and repayment periods ranging from 36 to 60
months. This particular offer was available for
three months, during which the bank strived to
position itself as the house bank of SMEs through
its targeted approach and marketing efforts.

Special Feature 9
Similarly, in September 2010 we introduced loans
tailored to the specific needs of businesses active
on international markets. Dr. Frieder Wöhrmann,
Director of ProCredit Bank BiH, stated:
“In addition to tailor-made services for small
businesses, we provide financial advising and
education in the field of documentary business.
We carefully analyse the needs of SMEs in order
to be able to provide solutions in a prompt and
flexible manner.”
Towards year-end we introduced a refinancing
loan product that provides SMEs with longer repayment
periods and flexibility regarding instalment
amounts, leading to an overall reduction in
financing costs for SMEs. In the upcoming year,
we will continue to offer tailored services that
meet the particular needs of our clients. We remain
confident that this approach will continue to
yield positive results for our SME partners.

10
Annual Report 2010
Management Business Review
Management
from left to right:
Maja Hrnjić
Director of Operations
Vedran Hadžiahmetović
Executive Director
Dr. Frieder Wöhrmann
Director
Edin Hrnjica
Executive Director
Sabina Mujanović
Executive Director

Management Business Review 11
Political and Economic Environment
Political stability in Bosnia and Herzegovina (BiH)
remains elusive in the wake of parliamentary and
presidential elections held at state and entity levels
in October 2010. Politicians representing the
three constituent peoples show a lack of interest
in finding common ground on long-delayed constitutional
amendments and other reforms.
Following the signing of a Stabilisation and Association
Agreement (SAA) by the EU and BiH in
June 2008, the next step in BiH’s Euro-Atlantic integration
is to become an EU membership candidate.
However, given the slow pace of reforms in
recent years, which was highlighted in the European
Commission’s most recent annual progress
report from November 2010, the new central and
entity governments set to take office will need to
accelerate the reform process if BiH is to be granted
EU candidate status on schedule. BiH citizens
already benefit from visa liberalisation in the
Schengen area as a result of an EU decision from
November 2010. However, EU integration is likely
to be hindered by the waning interest in further
expansion among leading EU member countries.
The three-year stand-by facility arranged with the
IMF in May 2009, together with the SAA, will set
the broad policy framework for BiH in the coming
years, focusing on maintaining macroeconomic
stability by reducing government deficits and
debt accumulation. The SAA has already resulted
in the reduction or elimination of customs duties
on a wide range of imports from the EU, which will
continue to increase competition for many local
producers. The SAA requires that BiH authorities
strengthen policy co-ordination between the entity
governments and create a single economic
zone in BiH.
GDP grew moderately by 0.8%, following the 2.9%
contraction in 2009. Recovery remained modest
as growth in private consumption continues to be
negatively affected by the aftermath of the global
financial crisis, by ongoing unemployment and by
the measures taken to rein in the budget deficit
such as cuts in public-sector wages and social
welfare benefits. Inflation returned in 2010, with
the consumer price index rising by an estimated
2%, following a decline of 0.4% in 2009.
Industrial output in year-on-year terms increased
by 8.6% in the Federation of Bosnia and Herzegovina,
marking the largest increase since December
2008; in the Republika Srpska industrial
output also grew for most of the last two years,
but with two periods of contraction, so that as of
end-2010 the figure was 2.7% lower than at the
start of the year. 1
In year-on-year terms international trade continued
its recovery, with exports rising by 16.2%,
and imports increasing by 7.9%. 2
The Central Bank of BiH runs a currency board
regime, whereby the convertible mark (BAM) is
pegged to the euro at a fixed rate. The currency
board continues to promote macroeconomic stability
in the country.
Financial Sector Developments
In 2010, 30 commercial banks and 24 microcredit
organisations 3 were operating in Bosnia and
Herzegovina. In 2010, Balkan Investment Bank
took over Una Bank from Bihać, expanding its
network by 11 business units in Una Sana Canton.
The financial sector is dominated by the – mostly
foreign-owned – commercial banks, which account
for more than 80% of total assets. The three
largest bank groups, i.e. Raiffeisen, UniCredit and
Hypo Alpe Adria, hold approximately 60% of both
the loan and deposit markets.
As of December 31, 2010 total loans in the banking
sector amounted to BAM 14.6 billion (EUR 7.4
billion) and the deposit volume totalled BAM 12.5
billion (EUR 6.4 billion). Private sector debt is approximately
50% of GDP, which is relatively low
when compared to EU countries but above average
for the Western Balkans.
1
Agency for Statistics of BiH, Basic indicators available at
www.bhas.ba, December 2010.
2
Economic Intelligence Unit, Country Report,
December 2010.
3
If not otherwise stated, all statistics concerning the
banking sector and microcredit organisations are from
the Central Bank of BiH: www.cbbh.ba, the Federal
Banking Agency: www.fba.ba and Banking Agency of
Republic Srpska: www.abrs.ba.

12
Annual Report 2010
After a decline in the total volume of loans in
2009, moderate growth of 1% was achieved
mostly in the second half of 2010. Compared to
the years prior to 2008, the current growth rate is
still low, reflecting the limited demand for loans
and the heightened risk awareness of the banks.
Aggregate deposits grew by 14% in 2010, indicating
regained confidence in the banks, partly as a
consequence of the Deposit Insurance Agency’s
decision to raise its coverage from BAM 20,000
to BAM 30,000 in April.
Non-performing loans increased from 5.9% in
2009 to 9.2% of total loans at the end of 2010,
reflecting the spill-over of the financial crisis to
the real economy. Income from lending was also
reduced by the sector-wide lowering of interest
rates, especially on long-term loans, through
which the banks are trying to stimulate demand.
Despite these factors and their negative impact
on profitability, capital adequacy and liquidity
levels remained sound throughout 2010.
Microcredit organisations represent the third
largest group of financial intermediaries in the
financial sector after banks and leasing companies.
They account for more than 4% of the sector’s
total assets and 237,500 loan agreements 4 ,
or around 15% of the total number of loan agreements
5 in BiH. The gross loan portfolio of microcredit
organisations decreased by 20% during
2010, from BAM 910 million at the end of 2009
to around BAM 730 million as of December 2010.
Deteriorating loan portfolio quality had a significant
adverse impact on profitability in this
sector. Given the levels of indebtedness and the
limitations of the market, the trend towards consolidation
will certainly continue in 2011, with
fewer institutions remaining active.
ProCredit Performance
In 2010, ProCredit Bank reinforced its role as the
financial partner for the country’s small businesses,
providing lending, transaction and deposit
services. Despite difficult economic conditions,
the bank was successful in acquiring new clients
based on our individualised approach to offering
financial solutions to each customer.
In order to position ourselves as the house bank for
very small, small and medium-sized companies,
we continued to tailor credit products to our clients’
specific financial needs. Teams were reorganised
at head office and branch levels to improve
efficiency and provide optimal customer service.
ProCredit Business Centres were opened in cities
that are thriving business hubs: Sarajevo, Ilidža,
Mostar and Banja Luka. In addition, new positions
such as Small Client Advisers and Banking
Officers were established at the Business Centres
to enhance the level of specialised services and
advice provided to SME clients. Alongside our enhanced
range of products tailored to our business
clients, we also organised financial education initiatives
on topics such as accounting and tax law.
Recognising that almost all small companies continue
to face serious difficulties, we made every
effort to help our clients meet the challenges. Borrowers
finding it hard to repay their loans were
encouraged to discuss the issues openly with our
advisers in order to find workable solutions. In
many cases this resulted in the restructuring of
the loans. The bank also established a dedicated
Workout Department to centralise loan monitoring
and the collection of doubtful debt. This department
seeks to improve not only the bank’s
loan recovery performance, but also litigation
processes and procedures.
On the retail side, we continued to provide transparent
deposit and payment services, ensuring
that our products and services remain accessible
and understandable to all our clients.
Despite the difficulties experienced in 2010,
ProCredit Bank remains confident that our investment
in long-term relationships with our clients
will continue to yield positive results in the years
to come, not only for the bank but above all for the
small businesses it serves.
The following sections give a detailed overview of
4
Number of loans as of 31.12.2010; source: Association
of Microcredit Organisations.
5
Number of loans as of 31.12.2010; source: Banks Association
of Bosnia and Herzegovina.

Management Business Review 13

14
Annual Report 2010
our lending and retail operations and present the
financial results for the year under review.
Lending
ProCredit Bank continued providing loans to sustainable
businesses in 2010. The bank disbursed
9,535 loans for a total value of BAM 194.6 million
(EUR 99.5 million). The average loan amount
disbursed was BAM 20,407 (EUR 10,434), which
represents an increase of 72.0% in comparison
to 2009.
ProCredit Bank remained committed to increasing
its SME portfolio (i.e. exposures above EUR
30,000) in 2010, seeking out strong sustainable
businesses which are not over-indebted. We continued
to serve very small businesses with sound
and stable operations. However, the very small
and agricultural businesses loan portfolios were
affected by the difficult business environment
and the bank’s higher collateral requirements:
very small loan exposures decreased by 16.3%,
while agricultural loans contracted by 47.1%;
however, these portfolios showed signs of stabilisation
towards year-end. The gross loan portfolio
amounted to BAM 233.1 million (EUR 119.2
million) at year-end, of which the SME sector accounted
for a larger share than in 2009, while the
volume of agricultural loans and business loans
below EUR 10,000 decreased.
Our main focus this year was to provide financing
to SMEs. We pursued this goal by enhancing
our range of products and by offering our business
clients six new financial services, which are
described in detail in the Special Feature section
of this report. In 2010, the bank disbursed
1,366 loans to SMEs for a total of BAM 117.7 million
(EUR 60.2 million). The average outstanding
loan size in this category was BAM 86,163 (EUR
44,055). In 2010, we successfully maintained
the high quality of our SME portfolio: the portfolio
at risk (PAR – loans more than 30 days in
arrears) was 1.2% compared to 1.4% in 2009.
The volume of bank guarantees and letters of
credit amounted to BAM 12.3 million (EUR 6.3
million), which is an increase of 38.1% compared
to the previous year’s figures.
We continued to offer housing loans and home
improvement loans to customers with regular
salaries. At year-end, these two segments
represented 12.5% of the total portfolio.
PAR over 30 days for this category was 2.8%
(2009: 2.2%).
PAR over 30 days for the total portfolio was 3.2%
at the end of the year (2009: 5.6%).
Measures introduced to enhance arrears management
resulted in a significant improvement
in the quality of the portfolio and increased re-
Loan Portfolio Development
Number of Loans Outstanding – Breakdown by Loan Size*
Volume (in EUR million)
Number (in ’000)
180
160
140
90
80
70
6.6%
3.1%
0.4%
120
100
80
60
40
20
0
Jun
06
Dec
Jun
07
Dec
Jun
08
Dec
Jun
09
Dec
Jun
10
Dec
60
50
40
30
20
10
0
45.3%
44.7%
< EUR 10,000 > EUR 150,000
EUR 10,001 – EUR 30,000 Total number outstanding
EUR 30,001 – EUR 150,000
< EUR 1,000 EUR 30,001 – EUR 150,000
EUR 1,001 – EUR 10,000 > EUR 150,000
EUR 10,001 – EUR 30,000 * 31 Dec 2010

Management Business Review 15
covery of delinquent loans. At the close of 2010,
restructured loans constituted 3.1% of the total
portfolio (2.7% in 2009). Net write-offs totalled
BAM 8.6 million (EUR 4.4 million) and were
equivalent to 3.7% of the year-end portfolio.
Loan loss provisions decreased to BAM 7.0 million
(EUR 3.6 million), and thus covered the PAR
over 30 days by 94.3%.
Deposits and Other Banking Services
In 2010, ProCredit Bank remained focused on
maintaining an adequate liquidity position and on
further increasing the proportion of long-term deposits
by private individuals.
At year-end, there were a total of over 106,000
account holders, and total deposits amounted to
BAM 218.4 million (EUR 111.7 million). Term deposit
accounts contributed 60% to the total volume,
followed by saving accounts 14% and current
accounts 26%.
By the end of December, the volume of private individuals’
term deposits had decreased by 16.1%
compared to 2009, which reflects the fact that
many of these customers, faced with reduced pay-
Business Loan Portfolio – Breakdown by Maturity
Loan Portfolio Quality (arrears >30 days)
in %
in % of loan portfolio
100
90
80
70
60
50
40
30
20
10
0
Jun
06
Dec
Jun
07
Dec
Jun
08
Dec
Jun
09
Dec
Jun
10
Dec
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
Jun
06
Dec
Jun
07
Dec
Jun
08
Dec
Jun
09
Dec
Jun
10
Dec
< 12 months 12 – 24 months > 24 months
Net write-offs:
in 2006: EUR 254,409
in 2007: EUR 703,616 in 2009: EUR 5,492,202
in 2008: EUR 2,538,340 in 2010: EUR 4,404,495

16
Annual Report 2010
ment capacity, decided not to renew their term deposit
agreement, but rather to move their savings
to a standard savings account, which offers them
more flexibility and easier access to their money.
As a result of ProCredit’s commitment to establishing
long-term relationships with its savings clients,
private individuals’ contribution to total deposits
increased to 67.1% in 2010 (2009: 65.4%).
The average balance of private individuals’ term
deposits was BAM 16,889 (EUR 8,635), while business
clients’ terms deposits had an average balance
of BAM 532,686 (EUR 272,358).
ProCredit Bank continued to encourage its clients
to use payment cards as a safe and convenient
way of conducting payment transactions and making
cash withdrawals. By the end of December,
ProCredit Bank had issued more than 20,000 MasterCard
and VISA payment cards. In 2010, 269,783
transactions were conducted at our 36 ATMs for a
total of BAM 43.7 million (EUR 22.3 million). Our
retail and business clients performed 124,379
transactions at point-of-sale (POS) terminals for a
total volume of BAM 7.3 million (EUR 3.7 million). In
response to demand from many of our SME clients,
we introduced a new service to legal entities in August
2010: the installation of POS terminals. By
the end of December, we had concluded contracts
with 39 clients and installed 78 POS terminals.
We continued informing our clients – both private
individuals and business clients – about our internet
banking system (ProB@nking), which offers
an easy and cost-effective way of executing
domestic and international payment transfers.
At year-end there were a total of 1,847 registered
ProB@nking users and the volume of transactions
carried out via the system was BAM 200
million (EUR 102.2 million).
In its payment business ProCredit Bank executed
more than 1.4 million domestic money transfers
for a total amount of BAM 1.5 billion (EUR 776 million).
The number of international money transfers
executed in 2010 was 41,309, which amounts to
BAM 407 million (EUR 208 million).
Financial Results
Despite the economic crisis reaching its peak in
the local environment, ProCredit Bank managed
to stabilise its operations in 2010, and to position
itself as the financial partner for SME clients.
This was affirmed by 33.6% growth in the SME
loan portfolio, which amounted to BAM 123.1
million (EUR 62.9 million) at year-end. As a result,
loans above EUR 10,000 represent the largest
share (2010: 57.2%) of the total loan portfolio for
the first time in ProCredit Bank’s history.
Despite clear growth in the SME loan portfolio,
however, the difficult business environment and
higher collateral requirements of the bank did in
fact lead to a significant reduction in very small
Customer Deposits
Number of Customer Deposits – Breakdown by Size*
Volume (in EUR million)
Number (in ’000)
180
160
140
120
100
80
180
160
140
120
100
80
1.8%
9.4%
13.7%
0.2%
o.1%
60
40
20
0
Jun
06
Dec
Jun
07
Dec
Jun
08
Dec
Jun
09
Dec
Jun
10
Dec
60
40
20
0
74.9%
Term Savings Sight Total number
< EUR 100 EUR 10,001 – EUR 50,000
EUR 101 – EUR 1,000 EUR 50,001 – EUR 100,000
EUR 1,001 – EUR 10,000 > EUR 100,000
* 31 Dec 2010

Management Business Review 17
Domestic Money Transfers
International Money Transfers
Volume (in EUR million)
800
700
600
500
400
300
200
100
0
Jan–
Jun
06
Jul–
Dec
Jan–
Jun
07
Jul–
Dec
Jan–
Jun
08
Jul–
Dec
Jan–
Jun
09
Incoming Outgoing Number
Jul–
Dec
Number (in ’000)
Jan–
Jun
10
Jul–
Dec
1,600
1,400
1,200
1,000
800
600
400
200
0
Volume (in EUR million)
180
160
140
120
100
80
60
40
20
0
Jan–
Jun
06
Jul–
Dec
Jan–
Jun
07
Jul–
Dec
Jan–
Jun
08
Jul–
Dec
Jan–
Jun
09
Incoming Outgoing Number
Jul–
Dec
Number (in ’000)
Jan–
Jun
10
Jul–
Dec
45
40
35
30
25
20
15
10
5
0

18
Annual Report 2010
and agricultural loans, which in turn resulted in a
decrease in the total gross loan portfolio of 0.4%.
The bank maintained a very strong liquidity position
and closed the year with a liquid assets to
total assets ratio of 22.5%.
Liabilities were managed in accordance with
lending needs, i.e. the bank was able to reduce
its balances outstanding to large business clients
by 52.9% and its total deposits by 10.0%. As the
bank did not require any new external funding but
did in fact make regular repayments on existing
external funding sources, liabilities to banks and
other financial institutions were reduced by 8.9%
to BAM 36.7 million (EUR 18.8 million).
Total operating income for the year was BAM 23.2
million (EUR 11.9 million), of which net interest
income represented 71.8%. By expanding the

Management Business Review 19
SME client base and offering businesses favourable
terms and conditions, the bank managed to
maintain the same volume of net fee and commission
income as in the previous year despite lower
levels of business activity in the overall economy.
As a share of total operating income, net fees and
commissions increased to 18.8%. Although not a
significant contributor to total operating income
(1%), net trading income did increase by a factor
of twelve in comparison to 2009.
By strategically modifying the bank’s infrastructure
and through effective cost management
measures, the bank’s operating expenses were
reduced by 18.5% to BAM 28.7 million (EUR 14.7
million) at year-end.
Increased efficiency in arrears management and
recovery led to a release of provisions for impairment
losses, which in turn resulted in a positive
net effect on the income statement of BAM 1.1
million (EUR 0.6 million). Compared to the previous
year, the loan portfolio classified as being
in arrears over 30 days was reduced by 43.1%,
which in turn lowered PAR>30 to 3.2% of the total
portfolio at year-end (2009: 5.6%).
As a consequence of the difficult business environment
and the reduced demand for loans,
the bank posted a net loss of BAM 5.2 million
(EUR 2.7 million). However, this result did not affect
the capital adequacy ratio, which remained
safely above the required level throughout the
year. Confirming their long-term commitment to
ProCredit Bank’s vision and forthcoming expansion
in the SME sector, which will necessitate
the raising of credit exposure limits, the shareholders
increased their paid-in equity by BAM 2
million (EUR 1 million) in November 2010. This
further improved the capital adequacy ratio,
which stood at 16.2% at year-end. Fitch Ratings
awarded ProCredit Bank BiH a long-term foreign
currency rating of “B” with a stable outlook, and
a long-term local currency rating of “B+” with a
stable outlook.
to form coalitions based on the results of the October
2010 elections. In addition, both Republika
Srpska and the Federation of Bosnia and Herzegovina
will tighten fiscal policy in 2011 as required
by BiH’s stand-by arrangement with the IMF; such
austerity measures were avoided by both government
entities during the run up to the 2010 elections
in order to delay causing any social unrest.
It is estimated that economic growth will increase
by 2.1% in 2011.
Our key priority in 2011 will be to maintain
ProCredit’s position in the market as the leading financial
partner for sustainable and growing enterprises
in BiH. This will involve further expansion in
the SME sector, which will be achieved by identifying
financial needs through enhanced communication
with potential and existing clients. We will
also continue to tailor our products and services to
each client’s specific situation and offer not only a
wide range of credit products but also specialised
services such as liquidity management, documentary
business, payroll accounts, internet banking
and transactions.
We will continue to focus on fostering a culture of
savings and financial literacy throughout the country.
In 2011, ProCredit will strive to further improve
efficiency and make our services more convenient
for clients by informing about and encouraging the
use of our modern banking technologies, such as
internet banking and debit card services.
A top priority in 2011 will remain investing in training
measures to ensure our staff’s ability to provide
the highest quality of professional advice and
to build long-term relationships with our clients
based on mutual respect and trust. Despite the
ongoing challenges to be faced in the business environment
in BiH, ProCredit Bank is confident that
foundations have been laid in 2010 for sustainable
positive development in 2011.
Outlook
In 2011, the precarious political situation in BiH
will come under strain as elected officials attempt

20
Annual Report 2010
Risk Management
In 2010, banking operations were still very
strongly influenced by the financial crisis. At the
same time, however, this situation has created
opportunities for a bank that has consistently
taken a rigorous approach to risk management.
We believe that this has been one of the key factors
behind ProCredit Bank’s success in retaining
the trust of our customers.
While ultimate responsibility for risk management
lies with the Management Board, it is the Audit Department
which supervises the bank’s risk management
processes and the Risk and Compliance
Division which develops and implements mechanisms
to identify, assess, and mitigate the bank’s
exposure to risk. The two units which make up the
Risk and Compliance Division are the Credit Risk
Department, which is responsible for managing
the risk associated with individual exposures exceeding
BAM 100,000, and the Risk Department,
which monitors all other forms of risk to the bank
and also includes the Internal Control Unit. These
units report to the various committees which
are responsible for decision-making in connection
with risk. The Credit Risk Committee closely
monitors loan portfolio quality, the Assets and
Liabilities Committee (ALCO) manages the shortand
long-term liquidity position and exposures to
market risk, and the Operational Risk Committee
monitors the bank’s exposure to operational risks
and proposes measures to mitigate them. The
Risk Management Committee reviews the work
and proposals of the other committees and is responsible
for making the strategic proposals to
the Management Board.
The risk management policies in effect at
ProCredit Bank Bosnia and Herzegovina are
based on the Group Handbook on Risk Management
and Control, which in turn is based on the
German Federal Financial Supervisory Authority’s
policy document “Minimum Requirements
for Risk Management”. ProCredit Bank Bosnia
and Herzegovina reports its risk position to the
Group Risk Management Committee (GRMC) at
monthly intervals. The group’s risk management
departments also monitor the bank’s key risk
indicators on an ongoing basis, providing guidance
whenever required.
Risk management policies throughout the
ProCredit group are based on the concept of
“risk-bearing capacity”, i.e. the principle that
each bank’s aggregated risk exposures must
not exceed its capacity to bear risk and that the
resources available to cover risk are sufficient
to absorb any losses that may arise and protect
creditors’ investments. Statistical models and
other procedures are used to quantify the risks
incurred, and thresholds and limits are set for
each risk category and for the aggregate exposure.
Throughout 2010 the level of risk remained
well within the limit in every category.
ProCredit Bank’s culture of internal and external
transparency is crucial to our risk management
efforts. Thanks to our clearly defined procedures
and our encouragement of open communication,
our well-trained staff are in a strong position to

Risk Management 21
detect risks and take the steps necessary to mitigate
them.
Credit Risk Management
Given that lending to small businesses is
ProCredit Bank’s main asset-side operation, it
is not surprising that classical credit risk, i.e.
the risk that borrowers will be unable to repay,
accounts for the largest share of risk in
this category.
ProCredit Bank Bosnia and Herzegovina has
adopted the ProCredit Group Credit Risk Management
Policy and the Group Collateral Valuation
Policy, which together reflect the experience
gained in more than two decades of successful
lending operations in developing and transition
economies. Credit decision-making authority at
the bank is clearly defined; all decisions to issue
a loan, or change its terms, are taken by a credit
committee, and all credit risk assessments are
carefully documented. Above all, the bank seeks
to build and maintain long-term relationships
with its customers, thus ensuring that it is fully
aware of their financial situation, and great care
is taken to avoid over-indebting them.
Credit risk is also mitigated by the fact that our
portfolio is highly diversified. The businesses
we serve operate in a wide range of sectors, and
their exposure to global market fluctuations is
very limited. Moreover, the vast majority of our

22
Annual Report 2010
credit exposures are relatively small. As of end-
2010, loans under EUR 30,000 accounted for
43.3% of the total outstanding portfolio, and
the average amount outstanding was EUR 5,410,
while the ten largest exposures accounted for
only 9.8% of the portfolio.
As the vast majority of the bank’s loans are repayable
in monthly instalments, a borrower’s failure
to meet a payment deadline is treated as an initial
sign of potential default and draws an immediate
response from the bank. When a payment
of interest or principal is overdue by more than
30 days, the loan in question is assigned to the
portfolio at risk (PAR>30), which serves as the key
indicator of classical credit risk.
In 2010 the bank’s overall PAR>30 decreased
from 5.6% at the beginning of the year to 3.2% of
the gross loan portfolio as of year-end. While this
steady improvement has occurred across all segments,
the highest level of PAR is concentrated
in the very small loans segment and the agricultural
loans segment, both of which were severely
affected by the economic crisis. The steady decrease
is primarily due to extensive write-offs
undertaken throughout the year. It should be
noted that ProCredit Bank’s PAR is much better
than the average for the Bosnian banking sector
as a whole, where 9.4% of loans were still nonperforming
as of end-June, compared with only
4.4% at ProCredit Bank (source: Federal Banking
Agency (www.fba.ba) and the Banking Agency of
Republika Srpska (www.abrs.ba).
One of the ways in which ProCredit Bank has met
the challenge to portfolio quality posed by the
financial crisis is to offer loan restructuring to
those clients that are judged to have the potential
to regain stability. Restructurings follow a thorough
analysis of each client’s changed payment
capacity. The decision to restructure a credit exposure
is always taken by a credit committee and
aims at full recovery. As of end-2010, the total
volume of restructured loans in the “watch” category
came to EUR 4.7 million, with EUR 670,910
migrating to the “impaired” category. The aggregate
restructured portfolio stabilised in the third
quarter of 2010 and showed no signs of worsening
at year-end.
ProCredit Bank Bosnia and Herzegovina takes a
conservative approach to loan loss provisioning.
Impairment allowances for individually significant
exposures are calculated on the basis of historical
default rates. For all unimpaired credit exposures,
portfolio-based allowances for impairment are
made. At the end of the year the coverage ratio
(loan loss provisions as a percentage of PAR>30)
stood at 94.3%, while relative to the total loan
portfolio, provisions amounted to 3.0%.
Loans considered to be irrecoverable are consistently
written off. Nonetheless, recovery efforts
continue even after a loan has been written off,
and collateral collection is rigorously enforced.
In 2010 net write-offs totalled EUR 4.4 million, or
3.7% of the gross loan portfolio.
Counterparty and Issuer Risk
Management
Counterparty and issuer risks evolve especially
from the bank’s need to invest excess liquidity,
to conclude foreign exchange transactions, or to
buy protection on specific risk positions.
The risk of incurring losses caused by the unwillingness
or inability of a financial counterparty
or issuer to fulfil its obligations is managed according
to the ProCredit Group Counterparty Risk
Management Policy, which defines the counterparty
selection process and limits on the size of
exposures, and according to the Group Treasury
Policy, which specifies the set of permissible
transactions and the rules for their processing.
As a matter of principle, only large international
banks and local banks with a good reputation
and financial standing are eligible counterparties.
Exceptions to these size limits are conditional
on approval by the GRMC.
Country Risk Management
Given ProCredit Bank’s focus on lending to businesses
in the local market, it does not normally
enter into cross-border transactions, and therefore
its exposure to country risk is limited. However,
the bank sometimes needs to invest excess

Risk Management 23
liquidity in bonds issued by highly rated international
institutions, and exchanges currencies
with other members of the ProCredit group. The
group as a whole is exposed to country risk insofar
as all ProCredit banks operate in transition
economies or developing countries. However,
over the years the ProCredit business model has
proven to be relatively resistant to macroeconomic
and political shocks.
Liquidity Risk Management
To determine the robustness of the bank’s liquidity
in the face of potential shocks, the bank performs
regular stress tests based on scenarios defined
as a group standard by the Group Liquidity
Risk Management Policy. Whenever necessary to
bridge liquidity shortages, ProCredit Bank Bosnia
and Herzegovina, like the other group banks,
is able to obtain a standby line from ProCredit
Holding, although given the trend toward excess
liquidity in 2010 the bank has not needed to take
advantage of this mechanism.
Several factors inherent to the bank’s business
model offset liquidity risk. Firstly, the bank’s diversified,
high quality portfolio of loans means
that incoming cash flows are highly predictable.
Secondly, our customer deposits are spread
across a large number of depositors each holding
relatively small amounts. Indeed, during
2010 the average balance in our term deposit accounts
was EUR 11,301 and the ten largest customer
deposits taken together represented only
17.4% of total deposits.

24
Annual Report 2010
Currency Risk Management
ProCredit Bank Bosnia and Herzegovina has a
low level of exposure to market risk because it
does not trade in securities or in commodities,
nor does it engage in derivative transactions except
for hedging purposes.
Currency risk is managed in accordance with the
Group Foreign Currency Risk Management Policy.
The bank continuously monitors exchange rate
movements and foreign currency markets, and
determines its currency positions on a daily basis.
Any exceptions to group policy or violations
on group limits are subject to approval by the
GRMC. Stress tests are regularly carried out to
assess the impact of exchange rate movements
on open currency positions (OCP) in each operating
currency based on two scenarios: most probable
and worst case.
Group policy forbids the bank to maintain OCPs
for speculative purposes. However, FX derivatives
may be used for hedging purposes to close
certain positions, in which case they are closely
monitored at both local and group level. As of
year-end, the bank had an OCP of 5.8% (long position).
In order to comply with the requirements
of the Federal Banking Agency, strategic long positions
were approved as a hedging instrument
against the depreciation of the local currency,
although this was not deemed to be a significant
risk in 2010, especially bearing in mind that the
Bosnian convertible mark is pegged to the euro.
Interest Rate Risk Management
Interest rates in Bosnia and Herzegovina remained
stable in 2010. Maturity gap analysis and
stress testing are used to measure and analyse
the impact of interest rate shifts on interest income.
A key policy measure undertaken in 2010
to mitigate interest rate risk was the introduction
of variable interest rates on loans, allowing the
bank to raise (or lower) the rates it charges in line
with shifts in the market interest rates. In addition,
throughout 2010, the bank continued its
policy of minimising interest rate risk in its banking
book. The bank’s goal is to match repricing
profiles between assets and liabilities, and only
uses derivatives to hedge its interest rate risk
position in exceptional cases.
Operational Risk Management
The Group Operational Risk Policy is in full compliance
with Basel II and German banking legislation.
To minimise operational risk, all processes
are precisely documented and subject to effective
control mechanisms. Job descriptions are
comprehensive, duties are strictly segregated,
and dependency on key individuals is avoided.
When recruiting, then bank pays close attention
to personal integrity, a quality which is reinforced
through the bank’s strictly maintained
code of conduct and through comprehensive
training programmes designed to promote a culture
of transparency and risk-awareness.
The group-wide Risk Event Database (RED) ensures
that operational risks are addressed in
a systematic and transparent manner, with all
remedial and preventive action clearly documented
and accessible to management control,
both at bank level and at group level. Staff are
required to report all events which represent an
actual or potential loss exceeding EUR 100 using
the RED interface.
As part of their initial training, all new staff members
are taught how to recognise and avoid operational
risk and how to maintain information security.
Additional training on these issues, and on
how to use the RED, is given to the main users of
the system, i.e. to all managers at head office and
branch level. In 2010, ProCredit Bank Bosnia and
Herzegovina reported 101 risk events representing
a total net risk amount of EUR 23,517. Typical
events reported in RED include cash differences
and damage to bank-owned vehicles. One case of
actual robbery was reported in 2010 but the losses
were completely covered by insurance.
Every year the bank conducts a risk assessment
procedure by completing a group-wide questionnaire
on fraud risk and operational risk. Each of
the risks described here must be mitigated by
appropriate controls, the adequacy of which is
the subject of the assessment. If the controls are

Risk Management 25
judged to be insufficient, an action plan for remedying
the situation is drawn up. The completed
assessment is sent to the Group Operational
Risk Management Department.
In 2010 the bank introduced the group-wide New
Risk Approval (NRA) process, which is applied to
all materially new or changed products, services
or business processes. Only after the elimination
of any obstacles or deficiencies revealed by the
NRA process does management give its approval
for the innovation to go ahead. The NRA processes
carried out in 2010 included assessment
of the implementation of point-of-sale (POS) terminal
services/devices and the implementation
of teller cash recyclers (TCRs).
The bank’s Business Continuity Policy ensures
that the bank can maintain or restore its operations
in a timely manner in the event of a serious
disruption. As well as defining the steps to be
taken to restore normal operations, the bank’s
Business Continuity Plan specifies the procedure
for moving critical operations to temporary locations,
the resources that need to be mobilised in
each type of case and the expected cost of disruptions
in specific areas. It also offers guidance
on avoiding disruption in the first place.
Anti-Money Laundering
ProCredit Bank Bosnia and Herzegovina fully
endorses the fight against money laundering
and terrorist financing, and has implemented
the Group Anti-Money Laundering Policy, which
meets the requirements of German and EU legislation.
No customer is accepted and no transaction
is executed unless the bank understands
and agrees to the underlying purpose of the
business relationship. The Group Anti-Money
Laundering Department (Group AML) conducts
an annual survey of all ProCredit banks and
updates the policy accordingly. In addition, all
ProCredit banks submit quarterly reports on
their AML activities to Group AML.
At ProCredit Bank Bosnia and Herzegovina, responsibility
for AML activities is exercised by the
AML and Compliance Department, which currently
has a staff of three. According to local regulations,
any transaction (or any series of transactions)
amounting to or exceeding BAM 30,000
must be reported to the local Financial Intelligence
Department. In addition, any attempt to
execute a transaction that arouses suspicion of
money laundering, terrorist financing or some
other criminal activity must be reported. Frontoffice
staff receive intensive training in how to
recognise suspicious transactions. The bank
also uses internally developed AML software
to enhance its monitoring activities. In cases of
doubt, Group AML takes the final decision on
how to handle the suspicious transactions and
suspicious customers reported by the bank.
Capital Adequacy
The bank’s capital adequacy is calculated on
a monthly basis and reported both to the management
and to the Group Risk Management
Committee, together with rolling forecasts to
ensure future compliance with capital adequacy
requirements. Strong support from our shareholders
once again enabled the bank to maintain
a comfortable capital cushion. The loss posted
in 2010 led to a reduction in the bank’s capital,
which was reflected in the capital adequacy ratio.
At year-end 2010 the IFRS capital adequacy
ratio (Tier 1 and Tier 2 capital / risk-weighted assets)
stood at 16.7% (2009: 18.5%), remaining
well above the group-wide target of 12% and local
requirements.
ProCredit Bank’s overall risk rating of B, issued
by Fitch Ratings, remained unchanged in 2010.

26
Annual Report 2010
Branch Network
At the end of 2010, ProCredit Bank Bosnia and
Herzegovina had a total of 26 offices located in 16
different towns and cities across the country. In
order to ensure efficient communication between
the branches and the bank’s headquarters, and
among branches in the same part of the country,
the network is organised into six regions, each
headed by a regional manager. Five branches in
three different regions focus their efforts on serving
agricultural businesses and have a sizeable
farming clientele.
In 2010, as part of our effort to respond in a more
differentiated manner to our customers’ needs, we
made significant improvements to the structure of
our branch network. Our lending business is now
concentrated in a smaller number of specialised
branches, where the majority of our business client
advisers and credit analysts are now based.
These branches provide not only credit products
but also all of the bank’s other services for business
clients and private individuals, including various
types of account services, foreign exchange,
money transfers and utilities payments.
In addition to these full-scale branches, the bank
now also operates smaller service points in strategic,
often densely populated neighbourhoods.
The service points are designed to be convenient
places for both private individuals and enterprises
to do their day-to-day retail banking business,
but do not process loan applications. Before deciding
which branches should be converted into
service points, the bank performed a careful
analysis of the market potential and available
resources in each location. Based on the results
of these analyses, a total of three branches were
converted into service points in 2010. At the other
Cazin
Prijedor
Zalužani
Gradačac
Brčko
Bijeljina (2)
Bihać
Doboj
Banja Luka (2)
Bosnia and Herzegovina
Zavidovići
Tuzla (2)
Serbia
Travnik
Zenica
Sarajevo (5)
Croatia
Ilidža (2)
Pale
Posušje
Mostar (2)
Montenegro
Adriatic Sea

Branch Network 27
end of the scale, four branches were converted
into Business Centres, i.e. branches offering additional
specialist services to meet the more complex
needs of larger-scale customers, in Sarajevo,
Ilidza, Banja Luka and Mostar.
Also in line with the shift towards a more pronounced
customer focus, improvements were
made to the interior design of the branches. Signposting
now directs business clients to physically
separate areas staffed by experts in serving enterprises,
and rooms for confidential negotiations
have been created wherever space has allowed.
Our retail services include MasterCard and VISA
cards, which both business clients and private
individuals can use to withdraw cash at any of
our 36 ATMs, or to make cashless purchases using
POS terminals operated by local merchants.
By the end of 2010 POS terminals were installed
on the premises of 78 of our business customers.
In the interest of providing more efficient transaction
processing services for our clients, in 2010
we installed six teller cash recyclers (TCRs) as
well as nine electronic verification devices for the
national payment system in several branches.
In 2010, our renewed focus on building long-term
relationships with our clients led to many positive
internal and external changes within our branch
network. In line with our commitment to build on
these successes in 2011, branches in Zenica and
Bijelijina have been identified as excellent candidates
for conversion into two new Business Centres
in order to serve the growing needs of enterprises
in these areas.

28
Annual Report 2010
Organisation, Staff and Staff Development
In line with the group-wide focus on enhancing
the quality of the relationship with our customers
and improving service quality in 2010, the bank
intensified its efforts to advance the professional
and personal development of its staff. During the
year, our employees participated in a total of 557
internal training days, not including attendance
at the international ProCredit Academies.
The bank’s Training Department is an integral
part of the HR Department, promoting the advancement
of our staff’s professional skills. In
2010, the training facilities at Head Office were
completely renovated and outfitted with updated
equipment. In line with our commitment
to ensuring the staff’s continuous professional
development, the bank designated a Training
Specialist responsible for identifying the staff’s
training needs, organising training measures
and following up on the success of such measures.
Trainings are provided by a team of experienced
managers and employees with specialised
knowledge.
In the context of the ProCredit group’s international
initiative to raise the level of mathematical
knowledge among its staff, ProCredit Bank
Bosnia and Herzegovina hired a dedicated
maths trainer and organised classroom and online
trainings each month for all staff members.
In addition to the regularly scheduled trainings,
269 staff members participated in a special
five-day maths training programme. To ensure
staff success, an intranet portal was set up for
maths-related issues and support was provided
to individuals and smaller groups in preparation
of the group-wide maths tests. As of the end of
2010, nearly all of the bank’s employees had

Organisation, Staff and Staff Development 29
successfully reached the group’s level 1 standard;
level 2 maths training for specific employees
is already in preparation for 2011.
A large proportion of the training provided to current
and potential middle managers takes place
outside Bosnia and Herzegovina at the international
ProCredit Academies. In 2010, seven colleagues
from ProCredit Bank Bosnia and Herzegovina
graduated from the ProCredit Regional
Academy for Eastern Europe in Veles, Macedonia,
while another seven completed the first year of
their two-year course. Three of the bank’s staff
earned their “ProCredit Banker” diploma, marking
the successful completion of the highly intensive
three-year programme offered at the central
ProCredit Academy in Fürth, Germany.
The adoption of a new group-wide business
strategy in 2010, with its increased emphasis
on building long-term customer relationships,
necessitated various changes to the bank’s organisational
structure. At bank level, two departments
were created to reflect the shift from
a product-based to a client-based approach: the
Small and Medium Business Sector and the Retail
Sector. These departments research, define
and develop strategies and products tailored
to the specific needs of target client groups
and thereby provide specialised support to the
branch-level business units with client acquisition.
In addition, the Workout Department was
introduced in order to centralise the monitoring
and recovery of doubtful loans and increase productivity
in this area.
The internal organisation of the branches was
also revised, with separate front office areas for
business clients and private individuals, respectively.
In this context, various assessments were
undertaken to ensure that staff had the requisite
skills for their assignments within this modified
structure. For example, the Small Client Advisers,
who are responsible for advising clients on
all of the bank’s products and services and for acquiring
new customers, were chosen for this new
position on the strength of their communication
skills. At the same time, experienced loan officers
with the strongest analytical expertise were
appointed to the newly created Credit Analyst position,
whose function is to evaluate applications
for credit services submitted by comparatively
large, complex business clients. In all cases, intensive
training was given to reassigned staff to
prepare them for their new duties.
Given the bank’s focus on consolidation and
quality in 2010, recruitment of new personnel
took place on a much more limited scale than
in previous years. 40 people joined the bank in
2010, bringing the total at year-end to 501. In
line with the ProCredit group’s new recruitment
policy, all shortlisted applicants are now invited
to take a maths and logic test, which is set by
ProCredit Holding. Successful candidates then
take part in group discussions and role plays,
where among other things their interpersonal
skills are assessed, followed by individual
in-depth interviews with senior staff of the bank.
ProCredit Bank Bosnia and Herzegovina understands
that the key to providing high quality
service lies in building a team of motivated, professionally
competent staff who are jointly committed
to the bank’s mission and objectives, and
who work well together on the basis of mutual
trust and respect. For this reason, in addition to
its substantial investment in training, the bank
also has team-building events planned for summer
2011 where employees will have the opportunity
to gather and engage in shared activities
in an informal setting.

30
Annual Report 2010
Business Ethics and Environmental Standards
Part of the overall mission of the ProCredit group
is to set standards in the financial sectors in which
we operate. We want to make a difference not only
in terms of the target groups we serve and the
quality of the financial services we provide, but
also with regard to business ethics. Our strong
corporate values play a key role in this respect.
Six essential principles guide the operations of
the ProCredit institutions:
• Transparency: We adhere to the principle of
providing transparent information both to our
customers and the general public and to our
employees, and our conduct is straightforward
and open;
• A culture of open communication: We are
open, fair and constructive in our communication
with each other, and deal with conflicts
at work in a professional manner, working together
to find solutions;
• Social responsibility and tolerance: We offer
our clients sound advice and assess their economic
and financial situation, business potential
and repayment capacity so that they can
benefit from the most appropriate loan products.
Promoting a savings culture is an important
part of our mission, and we are committed
to treating all customers and employees with
fairness and respect, regardless of their origin,
colour, language, gender 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 background or the size of their business;
• High professional standards: Our employees
take personal responsibility for the quality of
their work and always strive to grow as professionals;
• A high degree of personal commitment: This
goes hand-in-hand with integrity and honesty –
traits which are required of all employees in the
ProCredit group.

Business Ethics and Environmental Standards 31
These six values represent the backbone of our
corporate culture and are discussed and actively
applied in our day-to-day operations. Moreover,
they are reflected in the ProCredit Code of Conduct,
which transforms the group’s ethical principles
into practical guidelines for all staff. To make
sure that new employees fully understand all of
the principles that have been defined, induction
training includes sessions dedicated to the Code
of Conduct and its significance for all members of
our team. Regular refresher training sessions help
to ensure that employees remain committed to
our high ethical standards and are kept abreast of
new issues and developments which have an ethical
dimension for our institution. These events allow
existing staff to analyse recent case studies
and discuss any grey areas.
Another aspect of ensuring that our institution adheres
to the highest ethical standards is our consistent
application of best practice systems and
procedures to protect ourselves from being used
as a vehicle for money laundering or other illegal
activities such as the financing of terrorist activities.
An important focus here is to “know your customer”,
and, in line with this principle, to carry out
sound reporting and comply with the applicable
regulations. Updated anti-money laundering and
fraud prevention policies are being introduced
across the group to ensure compliance with German
regulatory standards.
We also set standards regarding the impact
of our lending operations on the environment.
ProCredit Bank Bosnia and Herzegovina has
implemented an environmental management
system based on continuous
assessment of the loan portfolio according
to environmental criteria, an
in-depth analysis of all economic activities
which potentially involve environmental
risks, and the rejection of loan
applications from enterprises engaged
in activities which are deemed
environmentally hazardous and appear
on our institution’s exclusion
list. By incorporating environmental
issues into the loan approval process,
ProCredit Bank Bosnia and
Herzegovina is also able to raise
its clients’ overall level of environmental
awareness. We also ensure
that requests for loans are evaluated in terms of
the applicant’s compliance with ethical business
practices. No loans are issued to enterprises or
individuals if it is suspected that they are making
use of unsafe or morally objectionable forms of
labour, in particular child labour.

32
Annual Report 2010
The ProCredit Group: Responsible Neighbourhood Banks for
Small Businesses and Ordinary People
The ProCredit group comprises 21 financial institutions
providing banking services in transition
economies and developing countries. ProCredit
banks are responsible neighbourhood banks.
This means, in the neighbourhoods in which we
work, we aim to:
• be the house bank of choice for the very small,
small and medium-sized enterprises which create
jobs and drive economic development, and
• provide secure and transparent savings and
banking services to ordinary people who are
looking for an affordable bank they can trust.
At the end of 2010 our 15,600 employees, working
in some 740 branches, were serving 3 million
customers in Eastern Europe, Latin America
and Africa.
The history of the ProCredit group is a rich one
and forms the basis of what we are today. The
first ProCredit banks were founded more than
a decade ago with the aim of making a development
impact by promoting the growth of small
businesses. We sought to achieve this by providing
loans tailored to their requirements and
offering deposit facilities that would encourage
low-income individuals and families to save. The
group has grown strongly over the years, and today
we are one of the leading providers of banking
services to small business clients in most of
the countries in which we operate.
Our origins lie in our pioneering microfinance
positioning. This positioning has developed as
our markets and our clients have developed so
our socially responsible approach remains as relevant
today as ever. Its importance has been underscored
by the financial crisis and subsequent
significant macroeconomic decline which most
of our countries of operation experienced over
the last two years. As enterprises adjust to and
expand again in their new economic reality and
ordinary people rebuild their trust in banks, it is
clear that our customers need a reliable banking
partner now more than ever. This has also given
us the impetus to further strengthen our comprehensive
customer-oriented approach with more
highly specialised and well trained staff.
Unlike most other banks operating in our markets,
we have always avoided aggressive consumer
lending and speculative lines of business.
Instead, the ProCredit banks work in close contact
with their clients to gain a full understanding
of the problems small businesses face and
the opportunities that are available to them. Our
credit technology, developed over many years
with the support of the German consulting company
IPC, relies on the careful individual analysis
of credit risks. By making the effort to know our
clients well and maintain long-term relationships
based on trust and understanding, we are well
positioned to support them not only when the
economy is buoyant, but also during a downturn
and recovery. Over the last two years, the ability
of our loan officers to proactively make appropriate
adaptations to payment plans where necessary
to reflect clients’ new and more challenging
sales environments has played an important role
in maintaining good loan portfolio quality.
We not only extend loans, but also offer our enterprise
clients a broad range of other banking
services such as cash management, domestic
and international money transfers, payroll services,
POS terminals and payment and credit cards.
These services are geared towards assisting our
business clients to operate more efficiently and
more formally and thus help to strengthen the
real economy and the banking sector as a whole.
In these terms ProCredit has a “whole customer”
focus rather than a simple product focus. Our
staff and our branches are becoming more specialised
and better equipped to cater to the needs
of different client segments.
Today we have less of a focus on traditional “microfinance”
than we did in the past. At the end of
2009, we increased the minimum loan size for enterprise
clients to EUR/USD 2,000 in most countries
since we found that below this limit there
is such broad access to loans from consumer finance
providers that “excess” had become more
of a challenge for many clients than “access”. For
these groups we prefer to offer deposit accounts
and other banking services rather than credit.
Our targeted efforts to foster a savings culture
in our countries of operation have enabled us
to build a stable deposit base. ProCredit deposit
facilities are appropriate for a broad range
of lower- and middle-income customers. We
place particular emphasis on working with the

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People 33
owners, employees and families associated with
our core target group of very small, small and
medium-sized businesses. ProCredit banks offer
simple savings products and place great emphasis
on promoting children’s savings accounts and
on running financial literacy campaigns in the
broader community. In addition to deposit facilities,
we offer our clients a full range of standard
retail banking services. Over 2010 ProCredit institutions
managed to maintain a high level of
liquidity given the stability of their loyal retail
deposit base.
The ProCredit group has a simple business model:
providing banking services to a diverse range
of enterprises and the ordinary people who live
and work around our branches. As a result, our
banks have a transparent, low-risk profile. We
do not rely heavily on capital market funding and
have no exposure to complex financial products.
Furthermore, our staff are well trained, flexible
and able to provide competent advice to clients,
guiding them through difficult times as well as
good times. Despite the turmoil of the global financial
markets, the performance of the ProCredit
group has been remarkably stable: we ended
2010 with a good liquidity position, comfortable
capital adequacy, PAR over 30 days of 3.7%, and
a modest profit. Given the very difficult macroeconomic
situation in many of our countries of
operation, this was a strong performance.
Our shareholders have always taken a conservative,
long-term view of business development,
The international group
of ProCredit institutions;
see also
www.procredit-holding.com
ProCredit
Mexico
Banco ProCredit
Honduras
Banco ProCredit
El Salvador
Banco ProCredit
Nicaragua
Banco ProCredit
Colombia
Banco ProCredit
Ecuador
Banco Los Andes
ProCredit Bolivia
ProCredit Holding Germany
ProCredit Bank Serbia
ProCredit Bank
Bosnia and Herzegovina
ProCredit Bank Kosovo
ProCredit Bank Albania
ProCredit Bank Macedonia
ProCredit
Savings and Loans Ghana
ProCredit Bank
Democratic Republic of Congo
Banco ProCredit Mozambique
ProCredit Bank Ukraine
ProCredit Bank Moldova
ProCredit Bank Romania
ProCredit Bank Georgia
ProCredit Bank Armenia
ProCredit Bank Bulgaria

34
Annual Report 2010
aiming to strike the right balance between a
shared developmental goal – reaching as many
small enterprises and small savers as possible –
and achieving commercial success.
Strong shareholders provide a solid foundation
for the ProCredit group. It is led by ProCredit
Holding AG, a German-based company that was
founded by IPC in 1998. ProCredit Holding is a
public-private partnership. The private shareholders
include: IPC and IPC Invest, an investment
vehicle set up by IPC and ProCredit staff
members; the Dutch DOEN Foundation; the US
pension fund TIAA-CREF; the US Omidyar-Tufts
Microfinance Fund; and the Swiss investment
fund responsAbility. The public shareholders
include the German KfW Bankengruppe (KfW
banking group); IFC, the private sector arm of the
World Bank; the Dutch development bank FMO;
the Belgian Investment Company for Developing
Countries (BIO) and Proparco, the French Investment
and Promotions Company for Economic
Co-operation. The group also receives strong
support from the EBRD and Commerzbank, our
minority shareholders in Eastern Europe, and
from the Inter-American Development Bank (IDB)
in Latin America. With the strong support of its
shareholders and other partners, the ProCredit
group ended the year with a total capital adequacy
ratio of 16.5% – a figure that reflects their confidence
in the group.
ProCredit Holding is not only a source of equity
for its subsidiaries, but also a guide for the development
of the ProCredit banks, providing the
personnel for their senior management and offering
support in all key areas of activity. The
holding company ensures the implementation of
ProCredit corporate values, best practice banking
operations and Basel II risk management
principles across the group. The group’s business
is run in accordance with the rigorous regulatory
standards imposed by the German banking
supervisory authority (BaFin).
ProCredit Holding and the ProCredit group place
a strong emphasis on human resource management.
Our “neighbourhood bank” concept is not
limited to our target customers and how we reach
them; it also concerns the way in which we work
with our staff and how we encourage them to work
with their customers. The strength of our relationships
with our customers will continue to be
central to working with them effectively in 2010
and achieving steady business results. In 2010
there was a strong focus on staff quality and efficiency,
which resulted in a 20% reduction in the
number of staff over the year. This focus has been

The ProCredit Group: Responsible Neighbourhood Banks for Small Businesses and Ordinary People 35
supported by the introduction of a new groupwide
recruitment policy and a demanding training
programme for all staff. This is complemented by
a six month stipend or intern programme provided
by ProCredit banks for new entrants into the banking
sector which symbolises our commitment to
skill development in all our countries of operation.
A responsible approach to neighbourhood banking
requires a decentralised decision-making
process and a high level of judgment and adaptability
from all staff members, especially our
branch managers. Our corporate values embed
principles such as open communication, transparency
and professionalism into our day-today
business. Key to our success is therefore
the recruitment and training of dedicated staff.
We maintain a corporate culture that promotes
the professional development of our employees
while fostering a deep sense of personal and
social responsibility. This entails not only intensive
training in technical and management skills,
but also frequent staff exchanges between our
member institutions. In this way, we take full
advantage of the opportunities for staff development
that are created by the existence of a truly
international group.
A central plank in our approach to training is the
ProCredit Academy in Germany, which provides a
part-time “ProCredit Banker” training programme
over a period of three years for high-potential
staff from each of the ProCredit institutions. The
curriculum includes intensive technical training
and also exposes participants to subjects such
as anthropology, history, philosophy and ethics
in an open and multicultural learning environment.
Our goal in covering such varied topics is
to give our future managers the opportunity to
develop their knowledge and views of the world.
At the same time, we aim to improve their communication
and staff management skills. The group
also operates three Regional Academies in Latin
America, Africa and Eastern Europe to support
the professional development of middle managers
at the local level.
The group’s strategy for 2011 focuses on two key
interrelated themes “high quality customer relations”
and “efficiency”. We will further expand
our business as the “house bank” of choice for
small and very small enterprises, offering tailored
loans and other banking services. At the
same time we will continue to improve the speed
and convenience of our services for all clients.
Strong investment in our staff will also remain a
key priority since it is their skills which enable
us to build strong, broad-based relationships
with our clients, which are a particularly important
factor of success in volatile macroeconomic
conditions. As a group of responsible banks for
ordinary people with prudent policies and welltrained
staff to ensure our steady performance,
we look forward to consolidating our position as a
“house bank” for small businesses, their employees,
and the ordinary people who live and work in
the neighbourhoods around our branches.

36
Annual Report 2010
ProCredit in Eastern Europe
ProCredit operates in 11 countries across Eastern
Europe. It is a leading provider of banking services
to very small, small and medium-sized businesses
in the region. ProCredit banks provide a
high standard of transparent, professional services
to all their clients – the ordinary people who
live and work in the vicinity of the 457 ProCredit
branches across the region.
2010 proved to be another challenging year for
the South Eastern and Eastern European countries
in which ProCredit works. Most countries
in South Eastern Europe experienced no GDP
growth or GDP decline over the year as they continued
to adjust to the fallout of the financial
sector crisis. Only Albania and the more eastern
countries (Armenia, Georgia, Moldova and
Ukraine) experienced more steady GDP growth
of 4-5%. The development of banking sectors
in the region also continued to be depressed as
non-performing loans (NPLs, i.e. loans more than
90 days overdue) that were originally disbursed
in the pre-crisis boom years now work their way
through the system. In most markets, sector
NPLs were over 10% at the end of 2010.
Macroeconomic stability and signs of recovery
are currently being driven above all by strong
commodity prices. However, government spending
remained very tight, consumer confidence
low and activity in the small and medium enterprise
sector depressed in 2010. Prospects
for 2011 are somewhat more encouraging and
ProCredit banks are working closely with their
enterprise clients to support their ability to respond
to gradually emerging opportunities. Indeed,
more widely, the role of ProCredit banks
against this still vulnerable economic backdrop
is a valuable one as our clients and the financial
markets in which we operate adjust to the new
economic reality in the region.
For the financial sectors in which we work,
ProCredit banks have represented consistency,
good risk management and a high degree of financial
transparency throughout the past two unsettled
years. ProCredit banks have been notable
in continuing to lend steadily and responsibly to
support small businesses whilst banking sectors
as a whole have tended to be restrictive or erratic.
For our enterprise clients, ProCredit banks remain
a reliable and responsible partner. We
specialise in working with very small, small and
medium enterprises, because these segments
are central to developing the economy and employment
opportunities. Our approach is based
on building strong relationships with our clients
and a thorough understanding of their business.
This means we disburse loans which help a business
to develop and are in line with a company’s
ability to repay. It also allows us, for example,
where necessary to appropriately adapt loan repayment
schedules if the sales pattern of a business
has changed significantly. This has helped
some of our clients endure through the crisis and
has meant that arrears and write-off figures for
the ProCredit banks in Eastern Europe are relatively
low. The combined PAR (Portfolio at Risk
> 30 days) for the Eastern European institutions
as a percentage of their loan portfolio was 4.1%
at the end of 2010 (PAR>90 days stood at 3.0%).
Write-offs for the group in the region amounted
to 1.2% of the loan portfolio.
Asset quality decline amongst the Eastern European
institutions was concentrated in Bosnia,
Bulgaria, Romania and Ukraine, countries in
which the pre-crisis boom in consumer lending
was most extreme and the level of overindebtedness
in the banking sector as a whole therefore
most marked. The performance of ProCredit
banks across the region and in these countries remains
very strong when compared to the market
as a whole. In these terms ProCredit continues to
demonstrate that with a responsible approach to
lending, based on a thorough understanding of
the real situation of an enterprise, a high degree
of financial stability can be achieved for clients
and in bank performance.
At the same time our enterprise loan portfolio
grew over 2010. The outstanding loan portfolio
of the 11 ProCredit banks in Eastern Europe stood
at EUR 2.7 billion at the end of 2010 (an increase
of 6.9% from the end of 2009). In 2010, ProCredit
staff have been proactive in acquiring new clients
and serving existing clients, especially supporting
responsible investment opportunities
as well as good management of working capital,

ProCredit in Eastern Europe 37
Belarus
Russia
Germany
Poland
Czech Republic
Ukraine
Slovakia
Switzerland
Austria
Slovenia
Hungary
Romania
Moldova
Italy
Croatia
Bosnia
and
Herzegovina
Serbia
Montenegro Kosovo
Macedonia
Albania
Bulgaria
Georgia
Armenia
Azerbaijan
Turkey
Greece
liquidity and receivables. Our lending activities
aim in particular to foster local production and
service industries, and include the provision of
agricultural loans. We are keen to support a sector
that has been particularly neglected by other
banks and that is vital for employment and social
cohesion outside the main urban areas.
In 2010, in addition to developing their core segments
(very small and small enterprises taking
loans with a volume of less than EUR 150,000),
ProCredit banks also grew with clients in the
“medium enterprise” segment (defined as clients
taking loans above EUR 150,000) by some 20%,
illustrating a need from such businesses for capital
which was not being provided by other banks.
For very small and small businesses in the region,
ProCredit banks remain the leading bank group
specialised in meeting their needs. These businesses
are still relatively informal, but are operating
in steadily formalising markets which are
becoming more competitive. It takes a focused
bank with well trained staff to work sustainably
with this segment. In summary, ProCredit banks
have firmly established themselves as broadbased
enterprise banks able to cover the full
spectrum of demand.
For our private person clients, ProCredit banks
have also been a symbol of stability and transparency
in turbulent years. ProCredit has focused
for many years on promoting a savings culture because
setting money aside can help clients build
a buffer against the vagaries of life, and the ratio
of deposits to GDP in Eastern European countries
is still well below Western European levels.
We offer simple and reliable retail banking services.
Our belief in transparent, direct communication
is particularly important in fostering clients’
trust in these difficult times. We understand that
our clients want to know in simple language how
to save safely; they also want to access their
money when they need it and they want access to
convenient and efficient transaction services. In
2010, as in 2009, our experience confirmed that
our clients appreciate the transparent, responsible
approach we take.
ProCredit banks fund most of their lending activities
from local savings. The ratio of deposits to
loans in the ProCredit banks in the region is close
to 90%. Not only did we not have to rely on unpredictable
capital markets for funds in 2010, but
ProCredit banks in the region remained highly

38
Annual Report 2010
liquid throughout the year and our cost of funds
declined.
Looking forward, in addition to the savings services
they provide, ProCredit banks will continue
to be very conservative with consumer loans for
their private person clients, but will expand their
provision of convenient banking services, such
as e-banking and direct debit, and will continue
to provide responsible housing improvement, energy
efficiency and other loans which help build
a family’s assets.
For our staff, ProCredit banks offer unique opportunities
for professional development and job
satisfaction given our strong client orientation,
open communication culture and unusual commitment
to staff training. In terms of institution
building activities, ProCredit banks in Eastern
Europe were, like the rest of the ProCredit group,
focused above all on quality and efficiency rather
than quantity in 2010. The pre-crisis boom
years in Eastern Europe encouraged all banks,
including ProCredit banks, to invest heavily in
staff numbers and branch infrastructure, which
needed to be brought back in line with prevailing
economic conditions. This has provided the
context for ProCredit banks to also review staff
standards and our training efforts as well as bank
processes and procedures – to ensure our institutions
are ideally aligned with demand and the
efficient services required by our clients. As a
result, branch infrastructure has been reviewed,
staff numbers reduced and greater job specialisation
implemented.
Our staff is the key element in our approach to being
a stable, down-to-earth and personal banking
partner. The ProCredit group invests a lot to
achieve high standards in staff recruitment and
development. Staff exchanges, cross-border
training programmes and regional workshops
are an important part of our approach. To complement
the international academy in Germany, we
have an Eastern European Academy, located near
Skopje in Macedonia, which is dedicated to the
training of ProCredit middle managers. The regional
academy is an important channel for rapid
and consistent communication region-wide and
one that helps us adapt quickly to face new challenges.
A language centre at the academy also
provides residential English courses, maximising
the potential for international exchange within
the group. Investment in our staff is an ongoing
commitment and will remain a central plank in the
ProCredit Bank approach. A qualified, motivated
and professional team lies at the root of our lasting
success across Eastern Europe.

ProCredit in Eastern Europe 39
Name
ProCredit Bank
Albania
ProCredit Bank
Armenia
ProCredit Bank
Bosnia and Herzegovina
ProCredit Bank
Bulgaria
ProCredit Bank
Georgia
ProCredit Bank
Kosovo
ProCredit Bank
Macedonia
ProCredit Bank
Moldova**
ProCredit Bank
Romania
ProCredit Bank
Serbia
ProCredit Bank
Ukraine
Highlights*
Founded in October 1998
40 branches
29,791 loans / EUR 172.1 million in loans
195,053 deposit accounts / EUR 242.0 million
672 employees
Founded in December 2007
9 branches
4,512 loans / EUR 39.0 million in loans
18,116 deposit accounts / EUR 19.4 million
240 employees
Founded in October 1997
26 branches
20,746 loans / EUR 119.2 million in loans
97,249 deposit accounts / EUR 111.7 million
460 employees
Founded in October 2001
75 branches
42,286 loans / EUR 562.5 million in loans
220,971 deposit accounts / EUR 373.5 million
1,268 employees
Founded in May 1999
58 branches
49,060 loans / EUR 250.7 million in loans
436,898 deposit accounts / EUR 202.4 million
1,640 employees
Founded in January 2000
62 branches
93,510 loans / EUR 494.8 million in loans
409,502 deposit accounts / EUR 676.1 million
1,107 employees
Founded in July 2003
30 branches
26,790 loans / EUR 148.5 million in loans
118,067 deposit accounts / EUR 139.2 million
541 employees
Founded in December 2007
23 branches
11,249 loans / EUR 61.4 million in loans
38,802 deposit accounts / EUR 24.7 million
454 employees
Founded in May 2002
37 branches
28,900 loans / EUR 180.8 million in loans
118,147 deposit accounts / EUR 133.5 million
830 employees
Founded in April 2001
57 branches
95,198 loans / EUR 507.2 million in loans
329,216 deposit accounts / EUR 316.2 million
1,299 employees
Founded in January 2001
40 branches
17,089 loans / EUR 190.3 million in loans
125,129 deposit accounts / EUR 130.0 million
1,017 employees
Contact
Legal address: Sami Frashëri St., Tirana
Mailing address: Dritan Hoxha St., Tirana
P.O. Box 2395
Tel./Fax: +355 4 2 389 300 / 22 33 918
info@procreditbank.com.al
www.procreditbank.com.al
105/1 Teryan St., area 11
0009 Yerevan
Tel./Fax: + 374 10 514 860 / 853
info@procreditbank.am
www.procreditbank.am
8 Emerika Bluma
71000 Sarajevo
Tel./Fax: +387 33 250 950 / 971
info@procreditbank.ba
www.procreditbank.ba
26 Todor Aleksandrov Blvd.
1303 Sofia
Tel./Fax: +359 2 813 5100 / 5110
contact@procreditbank.bg
www.procreditbank.bg
154 D. Agmashenebeli Ave.
0112 Tbilisi
Tel./Fax: +995 32 202222 / 202223
info@procreditbank.ge
www.procreditbank.ge
16 “Mother Tereze” Boulevard
10000 Prishtina
Tel./Fax: +381 38 555 777 / 248 777
info@procreditbank-kos.com
www.procreditbank-kos.com
109a Jane Sandanski Blvd.
1000 Skopje
Tel./Fax: +389 2 321 99 00 / 01
info@procreditbank.com.mk
www.procreditbank.com.mk
65 Stefan cel Mare Ave.
office 901, Chisinau
Tel./Fax: +373 22 836555 / 273488
office@procreditbank.md
www.procreditbank.md
62-64 Buzesti St., Sector 1
011017 Bucharest
Tel./Fax: +40 21 201 6000 / 305 5663
headoffice@procreditbank.ro
www.procreditbank.ro
17 Milutina Milankovica
11070 Belgrade
Tel./Fax: +381 11 20 77 906 / 905
info@procreditbank.rs
www.procreditbank.rs
107a Peremohy Ave.
03115 Kyiv
Tel./Fax: +380 44 590 10 17 / 01
info@procreditbank.com.ua
www.procreditbank.com.ua
* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with
group-wide standards; they may differ from the figures reported in the bank’s local statements.
** Not including finance company ProCredit Moldova.

40
Annual Report 2010
Our Clients
Adem Velić,
Producer of Blinds
and Curtains
Adem Velić is a 55-year-old engineer from Sarajevo
and the owner of EFEKT d.o.o. Adem has
been producing, selling and installing high quality
blinds and curtains for more than 10 years.
He began operating the business years ago from
his own home, but now when you enter one of his
factories, the interior design and the level of professionalism
are positively impressive. In addition,
his daughter Armina, a 29-year-old economist,
supports the family business as a manager
of the company.
A friend recommended ProCredit to Adem in 2000
as a bank that supports the development of very
small businesses. In that same year, he became a
client of ProCredit Bank and was issued a loan in
the amount of EUR 10,000 to purchase materials
and several machines for the production of curtains
and blinds. Within a short period of time, he
was able to hire five skilled workers to help him
with his growing business. Adem then visited companies
all over Bosnia and Herzegovina in order to
present his business and products, which resulted
in a significant number of new clients. According
to Adem, the demand for blinds and curtains at
this time was surprisingly high, which led him to
apply for another loan in the same amount.
“This was when I realised I had found my partner
bank in ProCredit Bank. My loan officer truly
understood my needs and carefully monitored my
business. I would not have anything you see here
if it was not for ProCredit Bank,”
said Adem.
Since 2000 ProCredit Bank has provided his business
with financing support, which he uses to purchase
production materials and new machinery.
So far, Adem has been approved for 15 loans in
amounts ranging from EUR 10,000 to EUR 40,000.
As a result of his continued success, Adem was
able to build a factory in Sarajevo and relocate
his business operations to the new premises. He
now has 15 employees, all of whom benefit from
ProCredit Bank’s payment transaction and card
services as well as savings accounts.
Adem’s goal is to further expand his business
by building another facility, which will allow him
to increase production, hire additional workers
and respond more quickly to the demands of the
market in BiH. Adem is confident that ProCredit
Bank – his partner bank – will continue to support
these business objectives.

Our Clients 41
Šemun Pezirović,
Producer of Steel and
Aluminium Materials
for Façades
Limoplast d.o.o, headquartered in Gradačac,
began producing various construction materials
in 1998 with only five employees. Since then the
company has experienced steady growth and now
employs more than 60 skilled workers. Limoplast
is known throughout Bosnia and Herzegovina for
its professional and high-quality production and
installation services.
Šemun Pezirović, the 58-year-old owner of the
company, is proud of what he and his company
have achieved over the past 12 years. The company’s
production facilities occupy 4,000 m 2 and
use the most advanced machinery and technology
available for the manufacture of his products. His
daughter, Hasiba Osmanović, assists him in managing
the production operations of the various areas
of the business.
Šemun first learned about the bank in 2009
through a friend, a satisfied ProCredit customer.
Following a meeting with ProCredit staff at his local
branch in Gradačac, he decided to seek financing
support for the company. ProCredit decided to
offer Limoplast a credit line of up to EUR 400,000
to optimise the company’s obligations to creditors
and to lower total monthly repayment instalments.
Šemun also takes advantage of the other ProCredit
products and services tailored to SMEs:
“I use ProCredit Bank’s overdraft and payment
transaction services. I particularly appreciate
the excellent working relationship with ProCredit
Bank’s dynamic and motivated staff, as they
understand the situation of my business and my
goals for the future.”
Over the last few years, Šemun has invested heavily
in the company’s production methods and technology,
and he expects a positive return in the near
future. In order to ensure continued growth and
development, it has become clear to Šemun that
he needs a reliable partner bank – one that is interested
in building a close, long-term relationship.
Šemun is certain that he and his company have
found their partner bank and will continue to rely
on ProCredit’s support while pursuing their future
business goals.

42
Annual Report 2010
Sevda Ćatić,
Clothing Designer and Producer
Bellissima is a symbol of profound elegance and
style for many women in Bosnia and Herzegovina.
This popular brand of women’s clothing has
established itself throughout the country alongside
the world’s most famous brand names.
Bellissima is a leader in the country’s fashion
industry, offering high standards of quality at
reasonable prices.
It all began 12 years ago when Sevda Ćatić started
producing her own line of women’s clothing with
the support of only a few employees. Interest in
Sevda’s designs steadily increased over the years,
and the business grew accordingly. Sevda’s son
Harun is now the company’s executive director
and her daughter, Belma, is the financial director.
Following an initial meeting with ProCredit Bank
staff regarding the various services available to
businesses, Bellissima d.o.o became a ProCredit
client in 2010. In order to optimise and consolidate
loan repayment obligations to other banks,
Sevda was issued a loan by ProCredit Bank in the
amount of EUR 150,000. This loan also ensured
an adequate level of liquidity for the company to
break into new markets. In early 2010, Bellissima
successfully opened the doors of their store in Vienna,
Austria, which was their first store in the EU.
Sevda and her son Harun are particularly
pleased with the quality of service provided by
ProCredit Bank’s staff. Although they had extensive
experience with other banks, they now
prefer ProCredit because of the bank’s understanding
of, and commitment to, Bellissima’s
business objectives.
“We are very pleased that ProCredit Bank approved
our loan application, giving our business
the boost of funds we needed to develop and expand.
We also use payment transaction services,
short- and long-term loans, overdraft services
and e-banking. We plan on continuing our collaboration
with ProCredit Bank in order to ensure
the positive development of our family business,”
explains Sevda.
Bellissima currently employs 60 workers for production
and sales activities. Despite today’s challenging
economy, Bellissima opened a new production
facility in 2010. Sevda and her family are
confident that they will be able to further expand,
establishing themselves in additional regional
and international markets with ProCredit Bank
at their side.

Our Clients 43
Mirsad Omić and
Amir Šukalo,
Coffee Producers
In March 1996, business partners and entrepreneurs
Mirsad Omić (51) and Amir Šukalo (47)
founded Prima, a small coffee roasting company.
Their goal was to provide the people of Sarajevo
with a unique and enjoyable experience in each
cup of Bosnian coffee.
“Looking back, I can say that we definitely
achieved this goal,”
exclaimed Mirsad.
Prima has grown from a small coffee roaster employing
five workers to a larger operation with 14
employees. Over the past 14 years, customer recognition
of the quality of their products has steadily
grown, and as a result, sales of their ground
coffee and espresso beans have continuously
increased. The company now has two retail outlets:
the first is the coffee roasting and wholesale
facility, which also houses the head office of the
company, and the second is a small coffee shop
named Prima.
Mirsad and Amir’s first contact with ProCredit
was in 2004 when they visited a nearby branch to
open a current account. Two years later, ProCredit
Bank approved their first loan application for EUR
10,000 to purchase raw coffee.
“We are particularly pleased with the efficiency
of the bank’s staff. This is one of the most important
factors for my business,”
said Mirsad.
In addition to having obtained several loans over
the years, the company also benefits from the
other ProCredit services which are tailored to the
needs of small business, such as overdrafts. As
they directly import raw materials from well-established
coffee producers around the world, they
also regularly use guarantees and letters of credit
issued by ProCredit Bank.
“Our company has a solid position in the market
and positive growth potential. My goal for the upcoming
period is to significantly increase sales.
Therefore, we will need to continue investing
in modern equipment and a fleet of vehicles to
facilitate the distribution of our products,”
explains Mirsad.
Mirsad and Amir intend to continue using
ProCredit as their company’s partner bank because
of the high quality of customer care and the
professionalism of the ProCredit staff.

44
Annual Report 2010
Financial Statements
For the year ended 31 December 2010.
Prepared in accordance with International Financial Reporting Standards.
Responsibilities of the Management and Supervisory Boards for the preparation and approval of
the annual financial statements
The Management Board of the Bank is required to prepare financial statements of the Bank for each
financial year which give a true and fair view of the financial position of the Bank and of the results
of its operations and cash flows, in accordance with International Financial Reporting Standards,
and is responsible for maintaining proper accounting records to enable the preparation of such financial
statements at any time. It has a general responsibility for taking such steps as are reasonably
available to it to safeguard the assets of the Bank and to prevent and detect fraud and other
irregularities.
The Management Board is responsible for selecting suitable accounting policies to conform with applicable
accounting standards and then apply them consistently; making judgements and estimates
that are reasonable and prudent; and preparing the financial statements on a going concern basis
unless it is inappropriate to presume that the Bank will continue in business.
The Management Board is responsible for the submission to the Supervisory Board of its annual
report on the Bank together with the annual financial statements, following which the Supervisory
Board is required to approve the annual financial statements for submission to the General Assembly
of Shareholders for adoption.
The financial statements set out on pages 4 to 63 were authorised by the Management Board on 21
March 2011 for issue to the Supervisory Board and are signed below to signify this.
On behalf of ProCredit Bank d.d., Sarajevo:
Dr. Frieder Wöhrmann
Director
Sabina Mujanović
Executive Director

Financial Statements 45

46
Annual Report 2010

Financial Statements 47
Statement of Comprehensive Income
For the year ended 31 December 2010
Notes Year ended Year ended
(all amounts are in BAM thousands, unless otherwise indicated) 31 Dec 2010 31 Dec 2009
Interest and similar income 6 27,485 40,375
Interest expense and similar charges 6 (10,626) (15,028)
Net interest income 16,859 25,347
Fee and commission income 7 5,453 5,674
Fee and commission expense 7 (1,098) (1,371)
Net fee and commission income 4,355 4,303
Net trading income 8 243 19
Other operating income 9 582 537
Operating income 22,039 30,206
Personnel expenses 10 (14,391) (17,942)
Depreciation and amortisation 18,19 (3,294) (3,963)
Other operating expenses 11 (11,013) (13,301)
Net impairment losses 12 1,152 (11,149)
Loss before tax (5,507) (16,149)
Income tax benefit 13 275 1,489
Loss for the year (5,232) (14,660)
Other comprehensive income – –
Total comprehensive loss for the period (5,232) (14,660)
The accompanying notes on pages 51 to 75 form an integral part of these financial statements.

48
Annual Report 2010
Statement of Financial Position
For the year ended 31 December 2010
Notes At 31 Dec At 31 Dec
(all amounts are in BAM thousands, unless otherwise indicated) 2010 2009
Assets
Cash and cash equivalents 14 44,157 75,619
Obligatory reserves with Central Bank 15 24,356 26,691
Loans and advances to customers 16 226,019 220,224
Financial assets available for sale 17 227 227
Property and equipment 18 5,401 7,896
Intangible assets 19 948 967
Deferred tax assets 20 1,811 1,536
Other assets 21 1,661 2,318
Total assets 304,580 335,478
Liabilities
Deposits from customers 22 218,420 242,727
Borrowings 23 36,936 40,393
Subordinated debt 24 16,085 16,083
Provisions 25 222 332
Other liabilities 26 1,174 968
Total liabilities 272,837 300,503
Equity
Share capital 27 42,458 40,458
Share premium 293 293
Statutory reserves – 1,633
(Accumulated losses) (11,008) (7,409)
Total equity 31,743 34,975
Total liabilities and equity 304,580 335,478
The accompanying notes on pages 51 to 75 form an integral part of these financial statements.

Financial Statements 49
Statement of Changes in Equity
For the year ended 31 December 2010
Share Share Statutory Retained Total
(all amounts are in BAM thousands, unless otherwise indicated) capital premium reserve earnings equity
Balance at 1 January 2010 40,458 293 1,633 (7,409) 34,975
Issue of share capital 2,000 – – – 2,000
Loss for the year – – – (5,232) (5,232)
Appropriations from statutory reserve – – (1,633) 1,633 –
Balance at 31 December 2010 42,458 293 – (11,008) 31,743
Balance at 1 January 2009 35,458 293 1,623 7,261 44,635
Issue of share capital 5,000 – – – 5,000
Loss for the year – – – (14,660) (14,660)
Appropriations to statutory reserve – – 10 (10) –
Balance at 31 December 2009 40,458 293 1,633 (7,409) 34,975
As per Resolution of the Shareholders dated 15 April 2010 the Bank has transferred BAM 1,633 thousand from the statutory reserves to
retained earnings.
The accompanying notes on pages 51 to 75 form an integral part of these financial statements.

50
Annual Report 2010
Cash Flow Statement
For the year ended 31 December 2010
Notes Year ended Year ended
(all amounts are in BAM thousands, unless otherwise indicated) 31 Dec 2010 31 Dec 2009
Operating activities
Loss before tax (5,507) (16,149)
Adjustments:
Depreciation and amortisation 3,294 3,963
Impairment losses and provisions 12 (1,152) 11,149
Changes in other provisions (110) 10
Property and equipment written off 124 533
Cash flows from operating activities before changes in operating assets and liabilities (3,351) (494)
(Increase)/decrease in operating assets
Obligatory reserve with Central Bank 2,335 32,226
Loans and advances to customers (4,624) 76,054
Other assets 903 442
Increase/(decrease) in operating liabilities
Deposits from customers (24,307) (92,731)
Other liabilities 206 (453)
Current tax liability – (155)
Net cash inflow from operating activities (28,838) 14,889
Investing activities
Purchase of property and equipment (792) (564)
Purchase of intangible assets (377) (469)
Increase of financial investments available for sale – (2)
Net cash outflow from investing activities (1,169) (1,035)
Financing activities
Issued share capital 2,000 5,000
Proceeds from borrowings and subordinated debt 5,000 160
Repayments of borrowings and subordinated debt (8,457) (25,459)
Net cash outflow from financing activities (1,455) (20,299)
Net (decrease)/increase in cash and cash equivalents (31,462) (6,445)
Cash and cash equivalents at 1 January 75,619 82,064
Cash and cash equivalents at 31 December 14 44,157 75,619
The accompanying notes on pages 51 to 75 form an integral part of these financial statements.

Financial Statements 51
Notes to the Financial Statements
For the year ended 31 December 2010
(all amounts are in BAM thousands, unless otherwise indicated)
been consistently applied to all the years presented, unless otherwise
stated.
3.1 Foreign currency
1. Reporting entity
ProCredit Bank d.d., Sarajevo (further “the Bank”) is incorporated
to perform all banking activities in accordance with the law.
The Bank has been registered as a joint stock company domiciled
in Bosnia and Herzegovina. ProCredit Bank d.d., Sarajevo is part of
a global network of financial institutions, managed and controlled
by ProCredit Holding AG.
The Bank is incorporated to perform all banking activities in accordance
with the law and the main activities include commercial lending,
receiving of deposits, foreign exchange deals, and payment
operation services in the country and abroad and retail banking
services. In addition, it provides trade finance facilities to companies
for export and import purposes.
Transactions in foreign currencies are translated into the respective
functional currency of the operation at the exchange rate at
the date of transaction. Monetary assets and monetary liabilities
denominated in foreign currency at the reporting date are retranslated
into the functional currency using the exchange rates prevailing
at the reporting date. Income and expenses denominated
in foreign currency are translated into functional currency at the
exchange rates valid 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
foreign currencies are recognised in the income statement. Nonmonetary
assets and items that are measured in terms of historical
cost in foreign currency are translated using the exchange rate at
the date of the transaction and are not retranslated at the reporting
date.
2. Basis of preparation
2.1 Statement of compliance
The financial statements of ProCredit Bank d.d., Sarajevo have
been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards
Board (IASB).
These financial statements were authorised for issue by the Management
Board on 21 March 2011.
2.2 Basis of measurement
The financial statements have been prepared on the historical cost
basis except for loans, receivables and borrowings that are stated
at amortised cost.
2.3 Functional and presentation currency
The Bank’s financial statements are presented in Bosnian Marks
(“BAM”), which is the Bank’s functional and presentation currency,
rounded to the nearest thousand.
2.4 Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires
the use of estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of income and expenses
during the reporting period. Although these estimates are based on
management’s best knowledge of current events and actions, actual
results ultimately may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revision to accounting estimates are recognised in the period
in which the estimate is revised and in any future period affected.
Information about significant areas of estimation uncertainty and
critical judgments in applying accounting policies that have the
most significant effect on the amounts recognised in the financial
statements are described in note 5.
Exchange rates 31 Dec 2010 31 Dec 2009
BAM BAM
USD 1.472764 1.364088
EUR 1.955830 1.955830
3.2 Interest income and expense
Interest income and expense are recognised in the income statement
for all interest-bearing instruments on an accrual basis using
the effective interest rate, i.e. at the rate that discounts estimated
future cash flows to net present value over the life of the underlying
contract. Such income and expense is presented as interest
and similar income or interest expense and similar charges in the
income statement. Interest income and expense also includes fee
and commission income and expense in respect of loans to and receivables
from customers or borrowings from other banks, recognised
on an effective interest basis.
The effective interest method is a method of calculating the amortised
cost of a financial asset or a financial liability and of allocating
the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts over the expected life
of the financial instrument or, when appropriate, a shorter period
to the net carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Bank estimates
cash flows considering all contractual terms of the financial instrument
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.
3.3 Fee and commission income and expenses
Fees and commission income and expenses mainly comprise fees
received from enterprises arising from domestic and foreign payments,
the issue of guarantees and letters of credit and credit card
business. Fees and commissions, except for those which form part
of the effective interest rate of the instrument, are generally recognised
on an accrual basis when the service has been provided.
3.4 Dividends
3. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
Dividend income is recognised when the right to receive income is
established.

52
Annual Report 2010
3.5 Income tax expense
Income tax charge is based on taxable profit for the year and comprises
current and deferred tax.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantially enacted at the
reporting date, and any adjustment to tax payable in respect of
previous years. The statutory corporate profit tax rate for 2010, applicable
to taxable profits is 10% (2009: 10%).
Deferred income tax is provided in full, using the balance sheet
method, for all temporary differences arising between the tax basis
of assets and liabilities and their carrying values for financial
reporting purposes. The movement of deferred tax liabilities and
deferred tax assets reflects the tax consequences that would follow
from the manner in which the enterprise expects, at the reporting
date, to recover or settle carrying amount of its assets and liabilities,
based on tax rates enacted or substantially enacted at the
reporting date. Currently enacted tax rates are used in the determination
of deferred income tax.
Deferred tax assets are recognised for unused tax losses to extend
that it is probable that future taxable profit will be available against
which the deferred tax assets can be utilised.
3.6 Financial assets and financial liabilities
Classification
The Bank classifies its financial assets and liabilities in the following
categories: loans and receivables, held to maturity investments,
financial assets at fair value through profit or loss,
available-for-sale financial assets and other financial liabilities.
The classification depends on the purpose for which the financial
assets and liabilities were acquired. Management determines the
classification of its investments upon initial recognition. At the reporting
date the Bank did not have held to maturity investments nor
financial assets at fair value through profit and loss.
a) Loans and receivables
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 Bank provides money, goods or
services directly to a debtor with no intention of trading with the
receivable and include loans to and receivables from banks, loans
to and receivables from customers and obligatory reserves with the
Central Bank.
b) Financial assets available for sale
Available-for-sale financial assets are non-derivative investments
that are designated as available-for-sale or are not classified as another
category of financial assets.
Financial assets designated as available for sale are intended to be
held to an indefinite period of time but may be sold as a response
to needs in liquidity of change in interest rate. Available-for-sale
financial assets include equity securities.
c) Other financial liabilities
Other financial liabilities comprise all financial liabilities which are
not designated at fair value through profit or loss. Other financial liabilities
include borrowings, deposits, subordinated liabilities and
other liabilities.
Recognition and derecognition
Purchase and sales of financial assets available for sale are recognised
on the trade date which is the date when the Bank commits to
purchase or sell the instrument.
Loans and receivables and other financial liabilities are recognised
when cash is advanced to borrowers or received from lenders.
The Bank derecognises financial assets (in full or part) when the
contractual right to receive cash flows for the financial instrument
have expired or when it loses control over the contractual rights
on those financial assets. This occurs when the Bank transfers
substantially all the risks and rewards of ownership to another
business entity or when the rights are realised, surrendered or
have expired.
The Bank derecognises financial liability only when the financial liability
ceases to exists, ie when it is discharged, cancelled or has
expired. If the terms of a financial liability change, the Bank will
cease recognising that liability and will instantaneously recognise
a new financial liability, with new terms and conditions.
Initial and subsequent measurement
Loans and receivables are initially recognised at fair value plus
transaction costs. Subsequently, they are measured at amortised
cost using the effective interest method.
Available-for-sale financial assets are initially recognised at fair
value plus transaction cost that are directly attributable to its acquisition
or issue.
Available-for-sale financial assets are subsequently measured at
their fair value. Gains and losses from a change in the fair value
of available-for-sale financial assets are recognised directly in a
fair value reserve within equity. Equity instruments classified as
available for sale that do not have a quoted market price in an active
market and whose fair value cannot be reliably measured are
stated at cost.
Impairment of financial assets
a) Loans and receivables
The Bank assesses at each reporting date whether there is objective
evidence that a financial asset or group of financial assets is
impaired. If there is objective evidence that impairment of a loan or
a portfolio of loans has occurred which influences the future cash
flow of the financial asset(s), the respective losses are immediately
recognised. Impairment losses on loans and receivables are measured
as the difference between the carrying amount of the financial
asset and the present value of estimated future cash flows, including
amounts recoverable from guarantees and collateral, discounted
at the original effective interest rate of loans. Depending on the
size of the loan, such losses are either calculated on an individual
loan basis or are collectively assessed for a portfolio of loans. The
carrying amount of loans and receivables is reduced through the
use of an allowance account and the amount of the loss is recognised
in the income statement. We do not recognise losses from expected
future events. Interest on impaired assets continues to be
recognised through unwinding of the discount in interest income.
Individually assessed loans and advances
For individually significant loans, it is assessed whether objective
evidence of impairment exists, i.e. any factors which might influence
the customer’s ability to fulfil his contractual payment obligations
towards the bank:
• delinquencies in contractual payments of interest or principal
• breach of covenants or conditions
• initiation of bankruptcy proceedings
• any specific information on the customer’s business (e.g. reflected
by cash flow difficulties experienced by the client)
• changes in the customer’s market environment
• the general economic situation.

Financial Statements 53
Additionally, the aggregate exposure to the client and the realisable
value of collateral held are taken into account when deciding
on the allowance for impairment.
If there is objective evidence that an impairment loss has been incurred,
the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of its estimated
future cash flows discounted at the financial asset’s original
effective interest rate (specific impairment). 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.
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.
Collectively assessed loans and advances
There are two cases in which loans are collectively assessed for
impairment:
• individually insignificant loans that show objective evidence of
impairment;
• the group of loans which do not show signs of impairment, in
order to cover all losses which have already been incurred but
not detected on an individual loan basis.
For the purposes of the evaluation of impairment of individually
insignificant loans, the loans are grouped on the basis of similar
credit risk characteristics, i.e. according to the number of days they
are in arrears. Arrears of 30 or more days are considered to be a
sign of impairment. This characteristic is relevant for the estimation
of future cash flows for the so defined group of such assets,
based on historical loss experiences with loans that showed similar
characteristics.
The collective assessment of impairment for individually insignificant
loans and for unimpaired loans (portfolio-based impairment)
belonging to a group of financial assets is based on a quantitative
analysis of historical default rates for loan portfolios with similar
risk characteristics in the individual subsidiaries (migration
analysis), grouped into geographical segments with a comparable
risk profile. After a qualitative analysis of this statistical data, the
holding company’s management prescribed appropriate rates to
the banks of the ProCredit group as the basis for their portfoliobased
impairment allowances. Deviations from this guideline were
allowed, if necessitated by the specific situation of a ProCredit
institution.
Future cash flows in a group of financial assets that are collectively
evaluated for impairment are estimated on the basis of the contractual
cash flows of the assets in the group and historical loss experience
for assets with credit risk characteristics similar to those in
the group. Historical loss experience is adjusted on the basis of current
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 period
that do not exist currently. 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.
If the Bank determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether individually
significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively
assesses them for impairment (impairment for collectively
assessed loans).
Reversal of impairment
If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed by adjusting the allowance
account. The amount of the reversal is recognised in the
income statement.
Writing off loans and advances
When a loan is uncollectible, it is written off against the related allowance
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 the amounts
previously written off decrease the amount of the allowance for
loan impairment in the income statement.
Loans and advances with renegotiated terms
Loans and advances with renegotiated terms which are considered
to be individually significant are provisioned on an individual basis.
The amount of the loss is measured as a difference between
the restructured loan’s carrying amount and the present value of
its estimated future cash flows discounted at the loan’s original
effective interest rate (specific impairment). Loans and advances
with renegotiated terms which are individually insignificant are collectively
assessed for impairment.
b) Financial assets available for sale
The Bank assesses at each reporting date whether there is objective
evidence that a financial asset or group of financial assets
is impaired.
In the case of equity investments classified as available for sale, a
significant or prolonged decline in the fair value of the security below
its cost is considered in determining whether the assets are impaired.
If any such evidence exists the cumulative loss – measured
as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously
recognised in profit or loss – is removed from other comprehensive
income and recognised in the income statement.
Impairment losses recognised in the income statement on equity
instruments are not reversed through the income statement at
any point thereafter. If, in a subsequent period, the fair value of a
debt instrument classified as available for sale increases and the
increase can be objectively related to an event occurring after the
impairment loss was recognised in profit or loss, the impairment
loss is reversed through the income statement.
3.7 Cash and cash equivalents
Cash and cash equivalents include notes and coins on hand, unrestricted
balances held with the Central Bank, current accounts with
domestic and foreign banks and highly liquid financial assets with
original maturities of less than three months, which are subject to
insignificant risk of changes in their fair value, and are used by the
Bank in the management of its short-term commitments.
3.8 Property and equipment
Property and equipment are tangible assets that are held for use
in the supply of services, for rentals to others or administrative
purposes.
Property and equipment are stated at historical cost less accumulated
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.

54
Annual Report 2010
Subsequent cost is included in the asset’s carrying amount or is
recognised as a separate asset, only when it is probable that future
economic benefits associated with the item will flow to the Bank
and the rest of the item can be measured reliably. All other repairs
and maintenance costs are charged to the income statement during
the financial period in which they are incurred.
Property and equipment are periodically reviewed for impairment.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable
amount.
Assets in the course of construction are reported at their cost of
construction including costs charged by third parties. Upon completion,
all accumulated costs of the asset are transferred to the
relevant tangible property and equipment category and subsequently
subject to the applicable depreciation rates.
Gains and losses on disposal of property and equipment are recognised
in the income statement.
Depreciation is provided on all assets except assets in the course of
construction on a straight line basis so as to write off the cost of the
assets over their estimated useful lives to their estimated recoverable
amounts at the following annual rates:
Assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment. Assets that are subject
to amortisation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash-generating
units).
3.11 Leases
To date, premises rental contracts entered into by the Bank are operating
leases. The total payments made under operating leases
are charged to the income statement on a straight-line basis over
the period of the lease. When an operating lease is terminated before
the lease period has expired, any payment required to be made
to the lessor by way of penalty is recognised as an expense in the
period in which termination takes place.
3.12 Provisions
Provisions are recognised when the Bank has a present legal or
constructive obligation as a result of past events, 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.
Provisions for liabilities and charges are maintained at the level
that the Bank’s management considers sufficient absorption of
incurred losses. The management determines sufficiency of provisions
on the basis of insight in specific items, current economic circumstances,
risk characteristics of certain transaction categories,
as well as other relevant factors.
Provisions are released only for such expenditure in respect of
which provisions are recognised at inception. If the outflow of economic
benefits to settle obligations is no longer probable, the provision
is reversed.
in % 2010 2009
Buildings 2.5 2.5
Computers and
telephone equipment 20-33 20-33
Furniture and equipment 17-25 17-25
Leasehold improvements Over the Over the
lease period lease period
The assets’ residual values and useful lives are reviewed, and adjusted
if appropriate, at each reporting date.
3.9 Intangible assets
Intangible assets that are acquired by the Bank are stated at cost
less accumulated amortisation and impairment losses.
Subsequent expenditure is capitalised only if all of the features required
by IAS 38 are satisfied. All other expenditures are expensed
as incurred.
Amortisation is charged to the income statement on a straight-line
basis over the estimated useful lives as follows:
2010 2009
Software 5 years 5 years
Licences and other intangible assets 5 years 5 years
3.10 Impairment of non-financial assets
3.13 Employee benefits
a) Defined contribution plans
The Bank, in the normal course of business, makes payments on
behalf of its employees for pensions, health care, employment and
personnel tax that are calculated on the basis of gross salaries and
wages, food allowances and travel expenses according to the legislation.
The Bank makes these contributions to the Government’s
health and retirement funds, at the statutory rates in force during
the year, based on gross salary payments.
The Bank pays contributions to the public pension insurance fund
on a mandatory basis. Once the contributions have been paid, the
Bank has no further payment obligations. The regular contributions
constitute costs for the year in which they are due and as such
are included in staff costs. The cost of these payments is charged to
the income statement in the same period as the related salary cost.
b) Short-term benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service
is provided.
A provision is recognised for the amount expected to be paid under
short-term cash bonus or profit-sharing plans if the Bank has
a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee and the obligation
can be estimated reliably.
c) Long-term employee benefits
According to local legal requirements, employees of the Bank are
entitled to receive a one-time benefit on retirement, dependent
on factors such as age, years of service and salary they had with
the bank.
Such payments are treated as other long-term employee benefits
and the liability recognised in the statement of financial position
is the present value of the defined benefit obligation at the reporting
date less the fair value of plan assets (if any), together with
adjustments for unrecognised actuarial gains or losses and past
service costs.
This obligation is calculated annually by independent actuaries using
the projected unit credit method. The present value of the defined
benefit obligation is determined by discounting the estimated
future cash outflows using the average interest rate of long term
time deposit accounts kept with commercial banks in the country,

Financial Statements 55
as the local capital market is not developed and neither high quality
corporate bonds nor government bonds exist on the market.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are recognised immediately
in profit and loss as well as all past service cost.
3.14 Deposits, borrowings and subordinated liabilities
Deposits, borrowings and subordinated liabilities are the Bank’s
sources of funding.
The Bank classifies capital instruments as financial liabilities or
equity instruments in accordance with the substance of the contractual
terms of the instrument.
Deposits, borrowings and subordinated liabilities are initially measured
at fair value net of transaction costs, and subsequently measured
at their amortised cost using the effective interest method.
3.15 Statutory reserve
The statutory reserve is created in accordance with the Company
Law of the Federation of Bosnia and Herzegovina, which requires
10% of the profit for the year to be appropriated to this reserve until
reaching 25% of issued share capital. If the statutory reserve does
not reach 25% of issued share capital within 5 business years, a
joint stock company is required to increase its appropriations to
this reserve to 20% of its profit for the year at the end of the fifth
and any following business years until it reaches 25% of the issued
share capital. This reserve can be used for covering current and prior
year losses.
Under the banking law as lex specialis there is no requirement for
banks in BiH to form such a reserve nor on their proportion to total
equity. Accordingly, in the line with the FBA interpretation, banks
have no obligation to allocate part of their profit to statutory reserve.
3.16 Retained earnings/accumulated losses
Any profit (after appropriations) or loss for the year is transferred to
retained earnings/accumulated losses.
3.17 Share capital
Share capital represents the nominal value of paid-in ordinary
shares classified as equity and denominated in BAM. Dividends are
recognised as liability in the period in which they are declared.
3.18 Off-balance-sheet commitments and contingencies
In the ordinary course of business, the Bank enters into related
commitments which are recorded in off-balance-sheet accounts
and primarily comprise guarantees, letters of credit, undrawn loan
commitments and credit card limits. Such financial commitments
are recorded in the Bank’s statement of financial position if and
when they become payable.
3.19 Comparatives
Where necessary, comparative figures have been adjusted to conform
with changes in presentation in the current year.
3.20 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations
are not yet effective for the year ended 31 December
2010, and have not been applied in preparing these financial statements.
None of these will have an effect on the financial statements
of the Bank, with the exception of:
• Additions to IFRS 9 Financial Instruments (issued in 2010) (effective
for annual periods beginning on or after 1 January 2013,
early application is permitted).
The 2010 additions to IFRS 9 replace the guidance in IAS 39
Financial Instruments: Recognition and Measurement, about
classification and measurement of financial liabilities and the
derecognition of financial assets and financial liabilities.
The Standard retains almost all of the existing requirements
from IAS 39 on the classification and measurement of financial
liabilities and for derecognition of financial assets and financial
liabilities.
The Standard requires that the amount of change in fair value
attributable to changes in the credit risk of a financial liability
designated at initial recognition as fair value through profit or
loss be presented in other comprehensive income (OCI), with
only the remaining amount of the total gain or loss included in
profit or loss. However, if this requirement creates or enlarges
an accounting mismatch in profit or loss, then the whole fair
value change is presented in profit or loss.
Amounts presented in OCI are not subsequently reclassified to
profit or loss but may be transferred within equity.
Derivative financial liabilities that are linked to and must be
settled by delivery of an unquoted equity instrument whose
fair value cannot be reliably measured are required to be measured
at fair value under IFRS 9.
It is not expected that IFRS 9 issued in 2010 will have a material
impact on the financial statements. The classification
and measurement of the Bank’s financial liabilities under IFRS
9 are not expected to significantly change because of the nature
of the Bank’s operations and the types of financial assets
that it holds.
• IFRS 9 Financial Instruments (issued in 2009) (effective for annual
periods beginning on or after 1 January 2013, earlier application
is permitted).
This Standard replaces the guidance in IAS 39, Financial Instruments:
Recognition and Measurement, about classification
and measurement of financial assets. The Standard eliminates
the existing IAS 39 categories of held to maturity, available for
sale and loans and receivables. Financial assets will be classified
into one of two categories on initial recognition: financial
assets measured at amortised cost; or financial assets measured
at fair value.
A financial asset is measured at amortised cost if the following
two conditions are met: the asset is held within a business
model whose objective is to hold assets in order to collect
contractual cash flows; and, its contractual terms give rise
on specified dates to cash flows that are solely payments of
principal and interest on the principal outstanding. All other
financial assets are measured at fair value.
Gains and losses on remeasurement of financial assets measured
at fair value are recognised in profit or loss, except that
for an investment in an equity instrument which is not held for
trading, IFRS 9 provides, on initial recognition, an irrevocable
election to present all fair value changes from the investment
in other comprehensive income (OCI). The election is available
on an individual share-by-share basis. No amount recognised
in OCI is ever reclassified to profit or loss at a later date.
It is not expected that IFRS 9 will materially impact the Bank’s
financial statements. Considering the nature of the Bank’s operations
and the classes of financial assets it holds, it is expected
that the classification and measurement of the Bank’s
financial assets will not change significantly under IFRS 9.

56
Annual Report 2010
4. Financial risk management
The Bank’s activities expose it to a variety of financial risks; credit
risk, liquidity risk and market risk. The Bank has established an integrated
system of risk management by introducing a set of policies
and procedures for analysis, evaluation, acceptance and risk management.
Taking risk is core to the financial business, and the operational
risks are an inevitable consequence of being in business.
The Management Board has overall responsibility for the establishment
and oversight of the Bank’s risk management framework.
Risk management is carried out by the Bank’s Risk Sector under policies
approved by the Management Board. Risk Management policies
and systems are reviewed regularly to reflect changes in market conditions,
products and services offered.
The most important types of risk are credit risk, liquidity risk, market
risk and other operational risk. Market risk includes currency risk,
interest rate and other price risks.
Risk steering and risk controlling processes are adjusted in a timely
manner to reflect changes in the operating environment.
4.1 Credit risk
The Bank is subject to credit risk through its lending activities and
in cases where it acts as an intermediary on behalf of customer or
third parties. Credit risk arises from customer credit exposures,
credit exposure from interbank placements and issuer risk. It is
divided into credit default risk and credit portfolio risk in order to
facilitate focused risk management.
4.1.1 Risk limit control and mitigation policies
The Bank takes on exposure to credit risk, which is the most important
risk for the Bank’s business; management therefore carefully
manages its exposure to credit risk. Credit exposures arise principally
in lending activities that lead to loans and advances and there
is also credit risk in off-balance-sheet financial instruments, such
as loan commitments.
Credit default risk from customer credit exposures is defined as the
risk of losses due to a potential non-fulfillment of the contractual
payment obligations associated with a customer credit exposure.
For risk management reporting purposes the Bank considers and
consolidates all elements of credit risk exposure (such as individual
obligor default risk and sector risk).
The credit risk management and control are centralised in the Risk
and Compliance Sector of the Bank and managed by the Credit
Risk Committee.
The Bank 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 to geographical and industry segments.
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 by changing these lending limits
where appropriate. Exposure to credit risk is also managed in part
by obtaining collateral and corporate and personal guarantees.
(a) Collateral
The Bank measures the exposure to credit risk toward certain kinds
of collateral. Accordingly, the Bank monitors its reliance on different
kinds of collateral. To the extent that real estate prices drop
significantly, the Bank expects that its credit risk losses on impaired
lending may increase significantly as the value of collateral
decreases.
The Bank employs a range of policies and practices to mitigate
credit risk. The Bank implements guidelines on the acceptability of
specific classes of collateral or credit risk mitigation. The principal
collateral types for loans and advances are:
• Cash;
• Bank and corporate guarantees;
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and
accounts receivable;
• Charges over financial instruments such as debt securities and
equities.
In order to minimise the credit loss the Bank will seek additional
collateral from the counterparty as soon as impairment indicators
are noticed for the relevant individual loans and advances. Debt securities,
treasury and other eligible bills are generally unsecured.
(b) Credit-related contingencies
The primary purpose of these instruments is to ensure that funds
are available to a customer as required. Guarantees and standby
letters of credit carry the same credit risk as loans and are secured
with similar collateral as are loans.
4.1.2 Credit risk management
The Bank accounts for counterparty risks arising from the loan
portfolio by making allowances for impaired loans. Individually impaired
loans are loans for which the Bank determines that there is
objective evidence of impairment and it does not expect to collect
all principal and interest due according to the contractual terms of
the loan. 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
occurred 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. The Bank assesses at each reporting
date whether there is objective evidence that a financial asset or
group of financial assets is impaired.
Credit exposures in arrears are defined as credit exposures for which
contractual interest and/or principal payments are overdue.
The quality of the loan portfolio is monitored on an ongoing basis.
The measure for loan portfolio quality is the portfolio at risk (PAR),
which the bank defines as all credit exposures outstanding with one
or more payment of interest and/or principal in delay by more than
30 days.
Typically, the primary sign for impairment of a credit exposure are
arrears of more than 30 days. This means that any principal and/or
interest payment from a client that is overdue by more than 30 days
is viewed as evidence for impairment.
The Bank should also view a credit exposure as being impaired
in case it obtains objective evidence for impairment – even if the
credit exposure is not in arrears of more than 30 days.
If the loan is impaired, the total credit exposure towards the client
is taken into consideration and the contamination principle applies.
This means that once one loan is impaired, every individual
loan to the client and to related parties will be reviewed in order to
determine the extent to which other loans to the client or the group
are also impaired.
The Bank assesses the probability of default of individual counterparties
using internal rating tools tailored to the various categories
of counterparty. They have been developed internally and combine
statistical analysis with credit officer judgment and are validated,
where appropriate, by comparison with externally available data.
Clients of the Bank are segmented into four rating classes. The
Bank’s rating scale, which is shown below, reflects the range of default
probabilities defined for each rating class. This means that, in
principle, exposures migrate between classes as the assessment
of their probability of default changes. The rating tools are kept under
review and upgraded as necessary.

Financial Statements 57
The Bank regularly validates the performance of the rating and
their predictive power with regard to default events.
Bank’s internal ratings scale
Bank’s rating
Description of the grade
180 days Sub-standard
Criteria for classification of financial assets or contingent liabilities
into these groups are as follows:
Financial assets or contingent liabilities are classified into Group
Investment grade if they are towards:
• debtors which is not likely to default and who repay their obligations
on a timely basis with maximum delay payment up to
30 days and
• exposures secured by pledging collateral graded as first class
collateral.
Financial assets or contingent liabilities are classified into Group
Standard monitoring if they are towards debtors:
• whose cash flows are assessed as adequate to duly fulfil their
due obligations, regardless of whether or not their present financial
position is assessed as weak, without signs of further
deterioration in the future; and
• who settle their liabilities with delay between 31 and 90 days.
Financial assets or contingent liabilities are classified into Group
Special monitoring if they are towards debtors:
• for which it is assessed that their cash flows will not be sufficient
for regular repayment of matured liabilities, or
• that settle their liabilities delay between 91 to 180 days, or
• that are clearly undercapitalised, or
• that do not have sufficient long term capital resources for financing
long term investments, or
• from whom the Bank does not receive currently satisfactory
information or adequate documentation concerning repayment
of liabilities.
policies are kept under continuous review.
Loans and advances with renegotiated terms include extended payment
arrangements, approved external management plans, modification
and deferral of payments.
Restructuring of a credit exposure is generally necessitated by
economic problems encountered by the client that adversely affect
the payment capacity, mostly caused by the significantly changed
macro-economic environment in which the Bank’s clients currently
operate. Restructurings follow a thorough, careful and individual
analysis of the client’s changed payment capacity.
The decision to restructure a credit exposure is always taken by a
credit committee or arrears committee and aims at full recovery of
the credit exposure. If a credit exposure is restructured, amendments
are made to the parameters of the loan.
Restructured credit exposures are not generally considered to be in
arrears but are treated according to their current status. The Bank
draws a distinction between standard restructured, watch restructured
and impaired restructured credit exposures. Restructurings
of credit exposures are generally necessitated by economic or payment
problems encountered by the client. If a credit exposure is
restructured, amendments are made to the parameters of the loan.
Otherwise, these credit exposures for which the terms have been
renegotiated would be past due or impaired.
4.1.3 Impairment and provisioning policies
The internal rating systems described in Note 4.1.2 focus more
on credit-quality mapping from the inception of the lending and
investment activities. In contrast, impairment provisions are recognised
for financial reporting purposes only for losses that have
been incurred at the reporting date based on objective evidence of
impairment. The impairment provision shown in the statement of
financial position at year-end is derived from each of the internal
rating grades. However, the majority of the impairment provision
comes from the bottom two gradings. The table below shows the
percentage of the Bank’s on balance sheet items relating to loans
and advances and the associated impairment provision for each of
the Bank’s internal rating categories:
Financial assets or contingent liabilities are classified into Group
Sub-standard if they are towards debtors:
• for which a strong likelihood of loss of part or all of the financial
asset exists or of payment for contingent liabilities, or
• that settle their liabilities with delay of more than 180 days, or
• which are insolvent, or
• for which a motion for commencement of process of liquidation
or declaration of bankruptcy began and was filed at the provisional
court, or
• that are in the process of reform or in the process of liquidation, or
• that have declared bankruptcy, or
• from whom no repayment is expected, or
• whose legal title to the items they have offered to the bank as
collateral is questionable.
Loans and advances with renegotiated terms include extended payment
arrangements, approved external management plans, modification
and deferral of payments. Once the loan is restructured, it
remains in this category independent of the satisfactory performance
after restructuring. Restructuring policies and practices are
based on indicators or criteria which, in the judgment of local management,
indicate that payment will most likely continue. These

58
Annual Report 2010
Bank’s rating Loans and Impairment Other Impairment
advances provision assets provision
to customers
in %
2010
Investment grade 96.8 1.6 91.4 1.1
Standard monitoring 1.8 31.0 5.7 50.0
Special monitoring 0.8 54.3 0.6 75.0
Sub-standard 0.6 74.4 2.3 100.0
100 3.0 100 1.8
2009
Investment grade 94.3 1.8 77.8 1.4
Standard monitoring 2.9 54.6 3.3 60.0
Special monitoring 1.5 90.5 1.5 90.0
Sub-standard 1.3 100.0 17.4 100.0
100 5.9 100 4.8
The internal rating tool assists management to determine whether
objective evidence of impairment exists under IAS 39, based on the
criteria set out in Note 3.6.
The Bank’s policy requires the review of individual financial assets
that are above materiality thresholds at least annually or more
regularly when required by individual circumstances. Impairment
allowances on individually assessed accounts are determined by
an evaluation of the incurred loss at reporting date on a case-bycase
basis, and are applied to all individually significant accounts.
The assessment normally encompasses collateral held (including
re-confirmation of its enforceability) and the anticipated receipts
for that individual account.
Collectively assessed impairment allowances are provided for: (i)
portfolios of homogenous assets that are considered individually
insignificant; and (ii) losses that have been incurred but have not
yet been identified, by using the available historical experience,
experienced judgment and statistical techniques.
4.1.4 Maximum exposure to credit risk before collateral held or
other credit enhancement
Maximum exposure
2010 2009
Loans and advances to customers 226,019 220,224
– Overdrafts 998 1,210
– Housing 17,536 16,617
– Consumer 9,744 12,516
– Very small business 33,063 59,243
– Small and medium-sized enterprises
(SMEs) 142,184 111,785
– Business overdrafts 22,494 18,853
Financial assets available for sale 227 227
Other assets 1,661 2,318
Credit risk exposure relating to
off-balance sheet items are as follows:
Loan commitments 15,273 13,351
Financial guarantees and
letters of credits 12,250 8,871
Total 255,430 244,991
The above table represents a worst case scenario of credit risk exposure
to the Bank at 31 December 2010 and 31 December 2009,
without taking account of any collateral held or other credit enhancements
attached.
For on-balance-sheet assets, the exposures set out above are
based on net carrying amounts as reported at the statement of financial
position.
4.1.5 Assets exposed to credit risk
Set out below is an analysis of the gross and net (of allowances for
impairment) amounts of loans and advances to customers:
31 Dec 31 Dec
2010 2009
Neither past due nor impaired
(no arrears) 210,154 203,981
Past due but not impaired (1-30 days) 15,358 16,628
Impaired (arrears of more than 30 days) 7,540 13,447
Gross 233,052 234,056
Specific impairment 350 58
Collective impairment 6,683 13,774
Total impairment 7,033 13,832
Net 226,019 220,224

Financial Statements 59
(a) Assets neither past due nor impaired (no arrears)
The credit quality of the portfolio of loans and advances that were
neither past due nor impaired can be assessed by reference to the
internal rating system adopted by the Bank.
Loans and advances to customers
Overdraft Housing Others Very small SMEs Others Total
business
31 December 2010 948 16,846 9,048 26,606 134,512 22,194 210,154
Total 948 16,846 9,048 26,606 134,512 22,194 210,154
31 December 2009 1,158 16,132 11,948 47,972 108,225 18,546 203,981
Total 1,158 16,132 11,948 47,972 108,225 18,546 203,981
Information disclosed in the above tables is presented in gross
amounts.
(b) Assets past due but not impaired (1-30 days)
Gross amount of loans and advances to customers by class that
were past due but not impaired were as follows:
Loans and advances to customers
Overdraft Housing Others Very small SMEs Others Total
business
31 December 2010
Past due up to 30 days 38 752 646 6,120 7,424 378 15,358
Total 38 752 646 6,120 7,424 378 15,358
Collateral
Pledge, mortgage and
cash collateral – 171 68 1,828 5,729 281 8,077
Other collateral 38 581 578 4,292 1,695 97 7,281
31 December 2009
Past due up to 30 days 67 680 707 10,491 4,230 453 16,628
Total 67 680 707 10,491 4,230 453 16,628
Collateral
Pledge, mortgage and
cash collateral – 215 120 963 1,909 216 3,423
Other collateral 67 465 587 9,528 2,321 237 13,205
Information disclosed in the above tables is presented in gross
amounts.
(c) Assets impaired (arrears of more than 30 days)
The breakdown of the gross amount of individually impaired loans
and advances to customers by class are as follows:
Loans and advances to customers
Overdraft Housing Others Very small SMEs Others Total
business
31 December 2010
Impaired 87 287 440 3,271 3,245 210 7,540
Total 87 287 440 3,271 3,245 210 7,540
Collateral
Pledge, mortgage and
cash collateral – 28 51 564 2,376 64 3,083
Other collateral 87 259 389 2,707 869 146 4,457
31 December 2009
Impaired 88 333 282 9,197 3,037 510 13,447
Total 88 333 282 9,197 3,037 510 13,447
Collateral
Pledge, mortgage and
cash collateral – 57 9 450 1,921 262 2,699
Other collateral 88 276 273 8,747 1,116 248 10,748
Information disclosed in the above tables is presented in gross
amounts.

60
Annual Report 2010
(d) Loans and advances with renegotiated terms
Renegotiated loans that would otherwise be past due or impaired
totalled BAM 7,125 thousand at 31 December 2010 (2009: BAM
6,210 thousand).
2010 2009
Loan portfolio 233,052 234,056
Restructured loans 7,125 6,210
Restructured loans in % of loan portfolio 3.1% 2.7%
(e) Loans and advances to customers
The Bank holds collateral against loans and advances to customers
in the form of mortgage interest over property, pledge over moveable
assets, cash deposits, as well as other collateral in the form
of guarantees, co-debtorship and bills of exchange. Estimates of
fair value of property and moveable assets pledged as collateral
are based on the value of collateral assessed at the time of borrowing,
weighted by the value of the loan in the total exposure secured
by the same collateral, up to the outstanding balance of related secured
exposure. Value of other collateral, which includes guarantees,
co-debtorship and bills of exchange is weighted in the same
manner up to the outstanding balance of related secured exposure.
Collateral is not held over loans and advances to banks and financial
assets available for sale.
The breakdown of the gross amount of loans and advances by class,
along with the value of related collateral held by the Bank as security,
are as follows:
Overdraft Housing Others Very small SMEs Others
business
31 December 2010
Individually impaired loans 7 186 153 79 3,118 153
Collectively impaired loans 1,067 17,700 9,981 35,916 142,063 22,629
Collateral
Pledge, mortgage
and cash collateral 11 8,249 2,637 16,126 126,688 15,123
Other collateral 1,063 9,637 7,497 19,869 18,493 7,659
31 December 2009
Individually impaired loans – – – – 944 –
Collectively impaired loans 1,312 17,145 12,959 67,639 114,546 19,511
Collateral
Pledge, mortgage and
cash collateral – 7,322 2,938 8,027 91,251 13,577
Other collateral 1,312 9,823 10,021 59,612 24,239 5,934
Management considers the loans covered by collateral as impaired
because experience shows that a significant proportion of the
collateral cannot be enforced due to administrative and legal difficulties.
The impairment provisions reflect the probability that
management will not be able to enforce its rights and repossess
collateral on defaulted loans.
As at 31 December 2010 the Bank did not have any repossessed
property or some other type of collateral.
4.1.6 Concentration of risks of financial assets with credit risk
exposure
The Bank monitors concentrations of credit risk by economic sector
and by geographic location. The structure of the loan portfolio
is regularly reviewed within the Bank in order to identify potential
events which could have an impact on large areas of the loan portfolio
(common risk factors) and, if necessary, limit the exposure
towards certain sectors of the economy.
Credit portfolio risk is limited by the Bank’s credit strategy; in
particular the focus on small and very small loans and the broad
geographical and economic sector diversification of the loan portfolio.
An analysis of such concentrations at the reporting date is
shown below:
Economic sector risk concentrations
Wholesale Agriculture, Production Individuals Tourism, Other Total
and retail forestry catering
and fishing
Loans and advances to customers
– Overdrafts – 31 – 967 – – 998
– Housing – – 100 17,436 – – 17,536
– Consumer – – – 9,744 – – 9,744
Loans to corporate entities:
– Very small business 5,623 17,426 1,436 474 1,109 6,995 33,063
– Small and medium-sized enterprises (SMEs) 65,680 2,065 33,642 8,676 10,444 21,677 142,184
– Business overdrafts 14,683 357 3,365 2,177 109 1,803 22,494
Financial assets available for sale – – – – – 227 227
Other assets – – – – – 1,661 1,661
As at 31 December 2010 85,986 19,879 38,543 39,474 11,662 32,363 227,907
As at 31 December 2009 77,491 34,917 25,877 38,955 9,476 36,053 222,769

Financial Statements 61
The Bank follows a guideline that limits concentration risk in the
loan portfolio by ensuring that large credit exposures (those exceeding
10% of regulatory capital) require the approval by the
Group Risk Management Committee.
Larger credit exposures are analysed and monitored, both by the
responsible employees through regular monitoring activities enabling
early detection of risks, and through the regular reviews carried
out by the Credit Risk Management Committee of the Bank.
Full information about any related parties is typically collected
prior to lending.
Geographic risk concentrations of the loan portfolio mainly relate
to the region of Bosnia and Herzegovina.
Bosnia and Non-OECD Total
Herzegovina
countries
Loans and advances to customers
– Overdrafts 998 – 998
– Housing 17,536 – 17,536
– Consumer 9,744 – 9,744
– Very small business 33,063 – 33,063
– Small and medium-sized enterprises (SMEs) 142,184 – 142,184
– Business overdrafts 22,494 – 22,494
Financial assets available for sale – 227 227
Other assets 1,661 – 1,661
As at 31 December 2010 227,680 227 227,907
As at 31 December 2009 222,542 227 222,769
In addition, the structure of the loan portfolio is regularly reviewed
within the Risk Department and Credit Risk Committee in order to
identify potential events which could have an impact on large areas
of the loan portfolio (common risk factors) and if necessary limit the
exposure toward certain sectors of the economy.
4.2 Market risk
The Bank takes on exposure to market risks. Market risk is the risk
that changes in market prices (such as interest rates, equity prices,
foreign exchange prices and credit spreads) will have effect of relating
to changes in the obligor’s/issuer’s credit standing) on bank’s
income. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while
optimising the return on risk. Market risks arise from open positions
in interest rate, foreign currency and equity products, all of which are
exposed to general and specific market movements and changes in
the level of volatility of market rates or prices such as interest rates,
credit spreads, foreign exchange rates and equity prices.
The Management Board sets limits and guidelines for managing,
analysing and controlling market risk exposures within acceptable
parameters while optimising the return on risk. The Assets and
Liabilities Committee (ALCO) manages the short- and long-term
liquidity position and exposures to market risk which is regularly
monitored by Risk Committees of the Bank. The Risk department is
responsible for development and implementation of risk management
policies.
The Bank has a low level of exposure to market risk because it does
not engage in speculative transactions or in proprietary trading.
Management of risk in this area is limited to protecting the institution
from adverse movements in exchange and interest rates: the
Bank does not trade in securities or in commodities, nor does it engage
in derivative transactions except for hedging purposes.
4.2.1 Foreign exchange risk
The Bank is exposed to currency risk through transactions in foreign
currencies. The Bank has a low level of exposure to market
risk because it does not engage in speculative transactions or in
proprietary trading. Management of risk in this area is limited to
protecting the institution from adverse movements in exchange
and interest rates: the Bank does not trade in securities or in commodities,
nor does it engage in derivative transactions except for
hedging purposes. Foreign currency exposure arises from credit,
deposit-taking and trading activities. The Management sets limits
on the level of exposure by currency and in total for overnight positions,
which are monitored on a daily basis by Treasury department.
Based on the department’s reports, the Bank’s ALCO takes
strategic currency decisions. Bosnia and Herzegovina is under a
Currency Board regime where the local currency (BAM) is pegged
to the EUR. The Bank’s balance sheet positions are mainly in local
currency and EUR so the Bank’s exposure toward foreign exchange
risk is low. The table below summarises the Bank’s exposure to foreign
currency exchange rate risk at 31 December 2010. Included in
the table are the Bank’s assets and liabilities at carrying amounts
categorised by currency.
The assets and liabilities of the Bank are denominated in more
than one currency. If the assets and liabilities in one currency do
not match, the Bank has an open currency position (OCP) and is exposed
to potentially unfavourable changes in exchange rates.

62
Annual Report 2010
Concentration of currency risk of on- and off-balance sheet assets
and liabilities
The Bank had the following significant currency positions:
As at 31 December 2010 EUR and USD BAM Other Total
EUR linked
Assets
Cash and cash equivalents 6,253 1,880 35,125 899 44,157
Obligatory reserve with Central Bank – – 24,356 – 24,356
Loans and advances to customers 190,300 – 35,719 – 226,019
Financial investments available for sale 227 – – – 227
Property and equipment – – 5,401 – 5,401
Intangible assets – – 948 – 948
Deferred tax assets – – 1,811 – 1,811
Other assets 169 26 1,466 – 1,661
Total assets 196,949 1,906 104,826 899 304,580
Liabilities and equity
Deposits from customers 120,084 1,874 96,444 18 218,420
Borrowings 28,700 – 8,236 – 36,936
Subordinated debt 16,085 – – – 16,085
Provisions – – 222 – 222
Other liabilities 168 – 1,006 – 1,174
Equity – – 31,743 – 31,743
Total liabilities and equity 165,037 1,874 137,651 18 304,580
Net foreign exchange position 31,912 32 (32,825) 881 –
Contingencies and commitments 2,953 305 24,130 36 27,424
Regarding the Currency Board Regime the local currency (BAM) is
pegged to the EUR under a currency board arrangement.
A 10% fall in currencies (other than EUR) against the BAM, with
other variables held constant would result with a decrease of the
result of the year by BAM 88 thousand (2009: BAM 79 thousand).
A 10% rise in such currencies would result in an increase of the result
of the year of BAM 88 thousand (2009: BAM 79 thousand).
As at 31 December 2009 EUR and USD BAM Other Total
EUR linked
Assets
Cash and cash equivalents 56,054 2,168 16,647 750 75,619
Obligatory reserve with Central Bank – – 26,691 – 26,691
Loans and advances to customers 184,050 – 36,174 – 220,224
Financial investments available for sale 227 – – – 227
Property and equipment – – 7,896 – 7,896
Intangible assets – – 967 – 967
Deferred tax assets – – 1,536 – 1,536
Other assets 161 75 2,082 – 2,318
Total assets 240,492 2,243 91,993 750 335,478
Liabilities and equity
Deposits from customers 161,217 2,204 79,306 – 242,727
Borrowings 37,156 – 3,237 – 40,393
Subordinated debt 16,083 – – – 16,083
Provisions – – 332 – 332
Other liabilities 129 – 839 – 968
Equity – – 34,975 – 34,975
Total liabilities and equity 214,585 2,204 118,689 – 335,478
Net foreign exchange position 25,907 39 (26,696) 750 –
Contingencies and commitments 1,607 79 20,315 – 22,001

Financial Statements 63
4.2.2 Interest rate risk
Interest rate risk specifies the risk that movements in market interest
rates will adversely affect the Bank’s capital and interest earnings.
Two subcategories are identified as the economic value risk
and interest earnings risk. The principal risk to which non-trading
portfolios are exposed is the risk of loss from fluctuations in the future
cash flows or fair values of financial instruments because of a
change in market interest rates. The Bank’s operations are subject
to the risk of interest rate fluctuations to the extent that interest
earning assets and interest-bearing liabilities mature at different
time and different amounts. The ALCO is a body which is responsible
for managing the compliance with set limits. Both the Bank’s
ALCO and the Bank’s Risk Management Committee have the authority
to approve interest rate exposure modifications within the set
limits. Principally, the interest rate risk is managed through monitoring
interest rate gaps and by having the pre-approved limits for
reprising bands.
Interest rate risk arises from differences between the maturities of
assets and those of liabilities, and in particular from the fact that
the average maturity of loans tends to exceed that of customer deposits,
as a result of which there is a danger that the refinancing
of loans will become more expensive if deposit interest rates increase.
In fact, interest rates in Bosnia and Herzegovina remained
stable in 2010.
Among the various tools used to measure and analyse interest
rate risk is maturity gap analysis. All interest rate-sensitive on
and off-balance sheet assets and liabilities are classified in predefined
time buckets according to their remaining contractual
maturity or next scheduled interest rate adjustment, and the gap
(assets minus liabilities) is calculated for each time bucket. Stress
testing is also used to analyse the impact of interest rate shifts on
interest income.
A key policy measure undertaken in 2010 to mitigate interest rate
risk was the introduction of variable interest rates on loans, allowing
the bank to raise (or lower) the rates it charges in line with shifts
in the market interest rates. In addition, throughout 2010, the bank
continued its policy of minimising interest rate risk in its banking
book. The bank’s goal is to match reprising profiles between assets
and liabilities, and only uses derivatives to hedge its interest rate
risk position in exceptional cases.
Scenario analyses of yield curve shifts carried out separately for
each material operating currency as total economic value impact
in present value and cumulative interest earnings impact (profit or
loss) for a 3-month and 1-year period in present value. The analyses
are completed separately for both the most expected scenario
and the worst case scenario.
The scenario analysis provides the estimation on how the changes
in the interest rate structure may affect the earnings and the economic
value of the Bank.
The Bank seeks to ensure that the balance sheet structure is as
balanced as possible across all maturities. If is it is not possible,
derivative may be used, but only for hedging purposes.
Interest sensitivity of assets and liabilities
The table below summarises the Bank’s exposure to interest rate
risks. Included in the table are the Bank’s assets and liabilities at
carrying amounts, categorised by the earlier of contractual repricing
or maturity dates.
As at 31 December 2010 Up to 1 – 3 3 – 12 1 – 5 Over Non–interest Total
1 month months months years 5 years bearing
Assets
Cash and cash equivalents 26,832 – – – – 17,325 44,157
Obligatory reserve with Central Bank 24,356 – – – – – 24,356
Loans and advances to customers 30,909 29,564 55,069 99,300 11,112 65 226,019
Financial investments available for sale – – – – – 227 227
Property and equipment – – – – – 5,401 5,401
Intangible assets – – – – – 948 948
Deferred tax assets – – – – – 1,811 1,811
Other assets – – – – – 1,661 1,661
Total assets 82,097 29,564 55,069 99,300 11,112 27,438 304,580
Liabilities and equity
Deposits from customers 35,747 18,981 58,338 48,383 412 56,559 218,420
Borrowings 3,939 11,533 7,921 2,151 3,170 8,222 36,936
Subordinated debt – – – 8,801 6,846 438 16,085
Provisions – – – – – 222 222
Other liabilities – – – – – 1,174 1,174
Equity – – – – – 31,743 31,743
Total liabilities and equity 39,686 30,514 66,259 59,335 10,428 98,358 304,580
Interest sensitivity gap 42,411 (950) (11,190) 39,965 684 (70,920) –

64
Annual Report 2010
As at 31 December 2009 Up to 1 – 3 3 – 12 1 – 5 Over Non–interest Total
1 month months months years 5 years bearing
Assets
Cash and cash equivalents 45,099 – – – – 30,520 75,619
Obligatory reserve with Central Bank 26,691 – – – – – 26,691
Loans and advances to customers 29,981 18,144 64,346 96,414 11,339 – 220,224
Financial investments available for sale – – – – – 227 227
Property and equipment – – – – – 7,896 7,896
Intangible assets – – – – – 967 967
Deferred tax assets – – – – – 1,536 1,536
Other assets – – – – – 2,318 2,318
Total assets 101,771 18,144 64,346 96,414 11,339 43,464 335,478
Liabilities and equity
Deposits from customers 30,956 15,716 76,216 57,327 737 61,775 242,727
Borrowings – 15,559 8,146 4,303 3,170 9,215 40,393
Subordinated debt – – – – 16,083 – 16,083
Provisions – – – – – 332 332
Other liabilities – – – – – 968 968
Equity – – – – – 34,975 34,975
Total liabilities and equity 30,956 31,275 84,362 61,630 19,990 107,265 335,478
Interest sensitivity gap 70,815 (13,131) (20,016) 34,784 (8,651) (63,801) –
Based on the above interest rate sensitivity, at 31 December 2010,
if interest rates had been 1% lower with all other variables held constant,
the result for the year would have been BAM 360 thousand
(2009: BAM 499 thousand) higher. Conversely, the same effect
with opposite result would have been in a case of 1% increase of
interest rates.
The interest rate sensitivity analysis includes all variable interest
rate assets and liabilities and assumes that all short term fixed rate
assets and liabilities will be reinvested upon maturity.
4.3 Liquidity risk
Liquidity risk in the narrowest sense (risk of insolvency) is the
danger that the bank will no longer be able to meet its current and
future payment obligations in full, or in a timely manner. Liquidity
risk in a broader sense (funding risk) is the danger that additional
funding can no longer be obtained, or can only be obtained at increased
market interest rates. The Bank’s ALCO is responsible for
deciding on all final proposals undertaken to manage liquidity
and it is also responsible for making the strategic proposals to the
Management Board.
The Supervisory Board has approved the Liquidity Risk Management
Policy Programme. The Bank manages liquidity risk by seeking
to apply the optimum combination of maturity and foreign currency
structure of the assets and liabilities. To determine the robustness
of the Bank’s liquidity in the face of potential shocks, the Risk Department
performs regular stress tests based on scenarios defined
in the Liquidity Risk Management Policy. If negative gaps are found
in the first time bucket, contingency plans are promptly discussed
with the ALCO, and if the ALCO approves them, the plans are then
forwarded to the Management Board for approval. Throughout
2010, all of the Bank’s liquidity indicators remained in compliance
with the defined limits (except for the limit prescribed in the borrowing
contract between the Bank and KfW; please see Note 23). Several
factors inherent to the Bank’s business model serve to offset
liquidity risk. Firstly, the Bank has a diversified portfolio of loans
that are mostly repaid in monthly instalments. Secondly, customer
deposits are diversified, i.e. they are spread across a large number
of depositors each holding relatively small amounts.
Sources of liquidity are regularly reviewed by the Treasury Department
and Risk Department which are performed by ALCO and Risk
Committee of the Bank with the goal to maintain a wide diversification
by currency, geography, provider, product and term.
The primary responsibility for identifying, assessing, addressing,
monitoring and communicating its liquidity and funding risk lies
with the Bank. The treasury manages the liquidity situation on a
daily basis. Liquidity risk is monitored in the regular ALCO meetings,
in which members of the management board participate. The
risk management department is responsible for controlling and
monitoring liquidity risk, including ensuring that it is in line with
the Liquidity Risk Management Policy Programme and the limits
which it sets and also is responsible for monitoring to ensure that
the measures defined by the ALCO are being put into practice.
The key tools for measuring liquidity risks are liquidity gap analyses,
which estimate future funding needs or the levels of excess liquidity,
applying different assumptions. Based on the maturity gap
analyses, certain key liquidity indicators are calculated on at least
a monthly basis and are closely monitored. One important indicator
of short-term liquidity is the sufficient liquidity indicator (SLI),
which compares the amounts of assets and liabilities available
within the next 30 days, and must not fall below 1 for each material
currency. This implies that the bank always has sufficient funds to
be able to repay the liabilities expected to be due within the next 30
days. At 31 December 2010 this ratio was 2.2.
Another short-term key indicator is the highly liquid assets indicator,
which relates highly liquid assets to customer deposits. The
indicator must always exceed 20%, which implies that the Bank always
holds funds which can quickly be converted into cash in order
to repay 20% of all customer deposits. At 31 December 2010 this
ratio was 33%.
The Bank also analyses its liquidity situation from a more structural
perspective, taking into account the liquidity gaps of the different
time buckets and additional sources of potential liquidity. This
analysis also takes into account credit lines which can be drawn
by the Bank with some lead time, potential outflows due to margin
calls, and other assets which take some time to liquidate.
Depositor concentrations are monitored in order to avoid dependencies
on a few large depositors. According to the Bank’s internal
guidelines a significant depositor concentration exists if the 10
largest deposits exceed 20% of total customer deposits. At 31 December
2010 this ratio was 18%.
In 2010 there were no significant changes to the Bank’s loan portfolio
and deposits remained stable. The Bank therefore experienced a
period of excess liquid funds.

Financial Statements 65
The table below analyses the assets and liabilities of the Bank into
relevant maturity groupings based on the remaining period at the
reporting date to the contractual maturity date. Other assets and
liabilities which do not have contractual maturity are classified into
relevant maturity groupings in accordance with the Bank’s plan.
As at 31 December 2010 Up to 1 – 3 3 – 12 1 – 5 Over Total
1 month months months years 5 years
Assets
Cash and cash equivalents 44,157 – – – – 44,157
Obligatory reserve with Central Bank 24,356 – – – – 24,356
Loans and advances to customers 30,971 14,210 56,579 107,333 16,926 226,019
Financial investments available for sale 196 – – – 31 227
Property and equipment – – – – 5,401 5,401
Intangible assets – – – – 948 948
Deferred tax assets – – – 1,811 – 1,811
Other assets 1,661 – – – – 1,661
Total assets 101,341 14,210 56,579 109,144 23,306 304,580
Liabilities and equity
Deposits from customers 91,764 19,046 58,693 48,505 412 218,420
Borrowings* 3,939 7,813 10,279 11,735 3,170 36,936
Subordinated debt – – 438 8,801 6,846 16,085
Provisions 222 – – – – 222
Other liabilities 1,174 – – – – 1,174
Equity – – – – 31,743 31,743
Total liabilities and equity 97,099 26,859 69,410 69,041 42,171 304,580
Net liquidity gap 4,242 (12,649) (12,831) 40,103 (18,865) –
Contingencies and commitments 2,483 4,866 17,750 2,325 – 27,424
* As explained in Note 23 the Bank is in breach with two financial
covenants defined in the loan agreement with Kreditanstalt
fuer Wiederaufbau as at 31 December 2010. Due to this, borrowing
in amount of BAM 3,939 thousand is formally repayable
on demand as at 31 December 2010 and it is included in the
column “up to 1 month”.
As at 31 December 2009 Up to 1 – 3 3 – 12 1 – 5 Over Total
1 month months months years 5 years
Assets
Cash and cash equivalents 75,619 – – – – 75,619
Obligatory reserve with Central Bank 26,691 – – – – 26,691
Loans and advances to customers 29,981 18,144 64,346 96,414 11,339 220,224
Financial investments available for sale 196 – – – 31 227
Property and equipment – – – – 7,896 7,896
Intangible assets – – – – 967 967
Deferred tax assets – – – 1,536 – 1,536
Other assets 2,318 – – – – 2,318
Total assets 134,805 18,144 64,346 97,950 20,233 335,478
Liabilities and equity
Deposits from customers 92,731 15,716 76,216 57,327 737 242,727
Borrowings 145 3,995 3,728 29,355 3,170 40,393
Subordinated debt – – 436 – 15,647 16,083
Provisions 332 – – – – 332
Other liabilities 968 – – – – 968
Equity – – – – 34,975 34,975
Total liabilities and equity 94,176 19,711 80,380 86,682 54,529 335,478
Net liquidity gap 40,629 (1,567) (16,034) 11,268 (34,296) –
Contingencies and commitments 14,286 1,721 4,253 1,741 – 22,001

66
Annual Report 2010
Off-balance sheet items maturity
(a) Loan commitments
The dates of the contractual amounts of the Bank’s off-balancesheet
financial instruments that commit it to extend credit to customers
and other facilities are summarised in the table below.
(b) Financial guarantees and letters of credits
Financial guarantees and letters of credits are also included in the
table below based on the earliest contractual maturity date.
(c) Operating lease commitments
Where the Bank is the lessee, the future minimum lease payments
under non-cancellable operating leases are summarised in the table
below.
No later than 1 – 5 Over Total
1 year years 5 years
As at 31 December 2010
Loan commitments 15,273 – – 15,273
Financial guarantees and letters of credits 9,917 2,333 – 12,250
Operating lease commitments 49 3,218 10,425 13,692
Total 25,239 5,551 10,425 41,215
As at 31 December 2009
Loan commitments 13,351 – – 13,351
Financial guarantees and letters of credits 7,130 1,741 – 8,871
Operating lease commitments 249 1,181 12,941 14,371
Total 20,730 2,922 12,941 36,593
4.4 Operational risk
Operational risk is recognised as an important risk factor for the
bank, given that it relies on decentralised processing and decisionmaking.
In line with Basel II, the Bank defines operational risks as
the risk of loss resulting from inadequate or failed internal processes,
people and systems and/or external events. This category includes
all “risk events” in the areas of personnel, processes, and information
technology. To further expand the processes for managing
operational risks, a new Operational Risk Policy was implemented in
the Bank in 2009; this policy was updated in 2010. The principles
outlined in this document have been designed to effectively manage
the Bank’s operational risk exposure. They are in compliance with the
Basel II requirements for the “standard approach”.
The overall framework for managing operational risks is best described
as a complementary and balanced system comprising the
following key components: Corporate Culture, Governance Framework,
Policies and Procedures, Risk Assessments, New Risk Approvals
(NRAs), Key Risk Indicators and the Risk Event Database.
While the Corporate Culture, the Governance Framework, and Policies
and Procedures define the basic cultural and organisational
parameters, Risk Assessments, New Risk Approvals (NRAs), Key
Risk Indicators and the Risk Event Database form the key instruments
with which the risk management process is executed.
The overall objectives of the ProCredit Bank’s approach to the management
of operational risks are:
• to understand the drivers of the Bank’s operational risks;
• to be able to identify critical issues as early as possible;
• to avoid losses caused by operational risks; and
• to ensure efficient use of the Bank’s capital.
To deliver on these goals the following tools and processes have
been implemented within the framework outlined above. They are
presented in the sequence in which they are used within the operational
risk management process. This process is subdivided into
the following phases: identification, evaluation, treatment, monitoring,
documentation and communication, and follow up.
• Identification
– Annual operational risk assessments
– Detailed process reviews as appropriate
– New risk approval (NRA) process
– Risk identification and documentation in the Risk Event
Database (RED)
– Ad hoc identification of potential risks
• Evaluation / quantification
– Agreed standards to quantify risks
• Mitigation and treatment
– Implementation of measures to avoid, reduce or mitigate the
risks depending on priorities, efficiency considerations and
regulations
– Transfer of risk to an insurer or other party
• Monitoring and control
– Process owners’ responsibility to monitor risks
– Key risk indicators (KRIs) and operational risk reports, riskbearing
capacity calculation and monitoring
• Communication, escalation, documentation
– Escalation levels to management bodies, regular reporting,
risk committees
– RED, management summary documents for risk events
• Issue tracking / follow-up tables for material action plans
– Follow-up tools used in the bank
As part of their initial training, all new staff members are taught
how to recognise and avoid operational risk and how to maintain
information security.
As of 31 December 2010, no significant legal proceedings were
pending.

Financial Statements 67
4.5 Fair values of financial assets and liabilities
The table below summarises the carrying amounts and fair values
of those financial assets and liabilities not presented on the Bank’s
statement of financial position at their fair value.
Carrying value
Fair value
2010 2009 2010 2009
Assets
Loans and advances to customers 226,019 220,224 224,628 219,292
Liabilities
Deposits from customers 218,420 242,727 220,910 244,656
Borrowings 36,936 40,393 34,064 35,613
Subordinated debt 16,085 16,083 17,094 15,597
Financial assets available for sale are carried at cost as they do not
have a quoted market price in an active market and their fair value
cannot be reliably measured.
(i) Loans and advances to customers
The fair value of loans and advances is calculated based on discounted
expected future principal and interest cash flows. Loan
repayments are assumed to occur at contractual repayment dates,
where applicable. The estimated fair values of loans reflect changes
in credit status since the loans were made and changes in interest
rates in the case of fixed rate loans. The carrying value of loans
with variable interest rate approximates their fair value.
(ii) Deposits from customers, borrowings and subordinated debt
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
other borrowings not quoted in an active market is based on discounted
cash flows using interest rates for new debts with similar
remaining maturity.
The fair value of the term deposits at variable interest rates approximates
their carrying values as of the reporting date.
bearing capacity are monitored on a monthly basis by the Bank’s
Risk Management Committee and the ProCredit Group Risk Management
Committee.
The table below summarises the composition of regulatory capital
and the capital adequacy ratio of the Bank for the year ended
31 December 2010 prepared in accordance with Banking Agency
regulations.
2010 2009
Bank’s net capital according to
Banking Agency regulations 47,633 52,689
Risk of Risk Weighted Assets
and Loan Equivalent 248,410 259,094
Weighted operational risk 46,331 44,865
Total weighted risk 294,741 303,959
Capital adequacy ratio 16.2% 17.3%
The minimum capital requirement according to the Banking Agency
regulations amounts to 12%.
5. Critical accounting estimates and judgements
4.6 Capital management
The Bank’s objectives when managing capital, which is a broader
concept than the ‘equity’ on the face of the statement of financial
position, are:
• To comply with the capital requirements set by the regulators of
the banking market in local environment;
• To safeguard the Bank’s ability to continue as a going concern
so that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
• To maintain a strong capital base to support the development of
its business.
Capital adequacy and the balance of capital are monitored regularly
by the ALCO and Bank’s Management Board and by the Group
Risk Management Committee, based on the relevant internal acts
and regulations prescribed by the supervisory authority (Banking
Agency of Federation of Bosnia and Herzegovina “FBA”). The
required information and reports are submitted to the Banking
Agency on a quarterly basis. Aside from the ratio prescribed by local
regulator and Basel II capital ratios, the leverage ratio and risk-
The Bank makes estimates and assumptions that affect the reported
amounts of assets and liabilities within the next financial year.
Estimates and judgements are continually evaluated and based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
(a) Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment at least
on a quarterly basis. In determining whether an impairment loss
should be recorded in the income statement, the Bank 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 identified
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 the Bank’s borrowers, or national
or local economic conditions that correlate with defaults on assets
in the Bank.
Management uses estimates based on historical loss experience
for assets with credit risk characteristics and objective evidence
of impairment similar to those in the portfolio when scheduling
its future cash flows. The methodology and assumptions used for

68
Annual Report 2010
estimating both the amount and timing of future cash flows are reviewed
regularly to reduce any differences between loss estimates
and actual loss experience.
Assets accounted for at amortised cost are evaluated for impairment
on the basis described in Note 3.6.
(b) Taxation
The Bank provides for tax liabilities in accordance with the tax laws
of the Federation of Bosnia and Herzegovina. Tax returns are subject
to the approval of the tax authorities who are entitled to carry
out subsequent inspections of taxpayers’ records.
(c) Regulatory requirements
The Banking Agency of the Federation of Bosnia and Herzegovina
is entitled to carry out regulatory inspections of the Bank’s operations
and to request changes to the carrying values of assets and
liabilities, in accordance with the underlying regulations.
6. Net interest income
2010 2009
Interest and similar income
Loans and advances to customers 27,224 39,617
Cash and cash equivalents 148 392
Obligatory reserve with the Central Bank 113 366
27,485 40,375
Interest expense and similar charges
Current accounts and
deposits from customers (7,955) (11,677)
Borrowings and subordinated debt (2,671) (3,351)
(10,626) (15,028)
7. Net fee and commission income
2010 2009
Fee and commission income
Foreign payment transactions 1,048 979
Domestic payment transactions 1,014 1,166
Guarantees and letters of credit 397 342
Foreign exchange transactions 790 854
Western Union and card business 271 302
Penalty income for premature
deposits withdrawal 188 430
Accounts maintenance fees 908 765
Other payment transaction fees 378 570
Other fees and commissions 459 266
5,453 5,674
Fee and commission expense
Banks (239) (287)
Other (859) (1,084)
(1,098) (1,371)
9. Other operating income
2010 2009
Net income from disposal
of property and equipment 229 –
Other 353 537
582 537
10. Personnel expenses
2010 2009
Salaries and wages 7,652 9,514
Taxes and contributions 5,033 6,173
Other long-term employee
benefits (Note 25) (13) (82)
Food allowances and transportation 1,529 2,134
Other 190 203
14,391 17,942
The number of persons employed by the Bank at year-end was 501
(2009: 662).
11. Other operating expenses
2010 2009
Rent 2,981 3,440
Promotion and marketing 625 743
Consulting services 668 1,048
Insurance premiums 1,676 2,151
Post and telecommunication services 589 772
Stationery 195 307
Maintenance of fixed assets and equipment 757 734
Utilities and electricity 630 863
Administrative, court and other legal fees 472 664
Transport 247 308
ProCredit Group management fee 817 455
ProCredit Group consulting services 408 357
Net losses on disposal of
property and equipment – 293
Net impairment losses for maintenance
fee and off balance 14 217
Other consumables 20 97
Other 914 852
11,013 13,301
12. Net impairment losses
2010 2009
Loans to individuals (Note 16) (157) 598
Loans to corporate entities (Note 16) (1,014) 10,473
Other assets (Note 21) 19 78
(1,152) 11,149
8. Net trading income
13. Income tax benefit/(expense)
2010 2009
Positive foreign exchange differences 69,397 49,494
Negative foreign exchange differences (69,154) (49,475)
243 19
Income tax recognised in the income statement includes current
and deferred tax.
2010 2009
Current tax expense – –
Net deferred tax credit (Note 20) (275) (1,489)
Total income tax (benefit)/expense (275) (1,489)

Financial Statements 69
Further information about deferred income tax is presented in Note
20. The official tax rate is 10% (2009: 10%).
Reconciliation of the accounting profit and income tax expense
2010 2009
Loss before tax (5,507) (16,149)
Tax calculated at a tax rate
of 10% (2009:10%) (551) (1,615)
Tax effects of items which
are not deductible:
– non-taxable income (6) (9)
– non-deductible expenses 282 135
Income tax (benefit)/expense
for the year (275) (1,489)
In accordance with the Law on Corporate Profit Tax, tax losses can
be carried forward for relief against profit of future accounting periods,
but for not longer than 5 years.
Tax losses can be carried forward as follows:
2010 2009
Up to 5 years 3,824 14,640
Up to 4 years 14,640 –
Up to 3 years – –
Up to 2 years – –
Up to 1 year – –
18,464 14,640
The Bank’s tax liabilities are ascertained in tax statements prepared
by the Bank and might be a matter of subsequent inspection
and consequent adjustment by tax authorities in a five year period
after recognition. The Bank’s Management Board is not aware of
any circumstances which may give rise to a potential material
liability in this respect.
16. Loans and advances to customers
2010 2009
Loans to individuals
– short term 3,045 3,529
– long term 84,655 117,265
87,700 120,794
Loans to corporate entities
– short term 25,119 18,326
– long term 120,233 94,936
145,352 113,262
Gross loans and advances to customers 233,052 234,056
Less: allowance for impairment (7,033) (13,832)
Net loans and advances to customers 226,019 220,224
Current (net) 103,145 112,471
Non-current (net) 122,874 107,753
Loans and advances to customers are presented including accrued
interest in the amount of BAM 1,561 thousand (2009: BAM 1,734
thousand), and net of deferred fees in the amount of BAM 1,500
thousand (2009: BAM 1,613 thousand).
The movement in impairment allowance for loans and advances to
customers is as follows:
Individuals
Overdraft Housing Others Total
Balance at 1 January 2010 103 528 442 1,073
Net charge/(release) to
income statement (Note 12) 53 (166) (44) (157)
Amounts written off (80) (12) (26) (118)
Balance at
31 December 2010 76 350 372 798
14. Cash and cash equivalents
2010 2009
Cash in hand 15,227 14,206
Current accounts with other banks 3,002 16,282
Balances with the Central Bank other
than obligatory reserve 25,928 9,909
Money market placements – 35,222
44,157 75,619
Corporate entities
Very small SMEs Others Total
business
Balance at 1 January 2010 8,396 3,705 658 12,759
Net charge/(release) to
income statement (Note 12) (718) (155) (141) (1,014)
Amounts written off (4,745) (550) (211) (5,506)
Unwinding of discount – (3) – (3)
Balance at
31 December 2010 2,933 2,997 306 6,235
15. Obligatory reserve with the Central Bank
2010 2009
Obligatory reserve with the
Central Bank 24,356 26,691
24,356 26,691
The Central Bank determines the requirement for banks to hold obligatory
reserves in the form of amounts required to be deposited
with the Central Bank. The obligatory reserve requirement at 31
December 2010 amounted to 7% for liabilities with maturity above
1 year, and for liabilities with maturity up to 1 year 14%. The obligatory
reserve is maintained through the average balance on the
ordinary reserve account with the Central Bank.
Individuals
Overdraft Housing Others Total
Balance at 1 January 2009 26 277 233 536
Net charge/(release) to
income statement (Note 12) 98 231 269 598
Amounts written off (21) 20 (60) (61)
Balance at
31 December 2009 103 528 442 1,073
Corporate entities
Very small SMEs Others Total
business
Balance at 1 January 2009 7,427 2,417 434 10,278
Net charge/(release) to
income statement (Note 12) 8,203 1,854 416 10,473
Amounts written off (7,234) (566) (192) (7,992)
Unwinding of discount – – – –
Balance at
31 December 2009 8,396 3,705 658 12,759

70
Annual Report 2010
17. Financial assets available for sale
2010 2009
Investment in ProCredit Regional
Academy EE LLC Skopje 196 196
SWIFT shares 31 31
227 227
As at December 17, 2007 the Bank signed an Agreement for establishment
of ProCredit Regional Academy EE LLC Skopje, together
with 7 other banks from the ProCredit banking network.
Financial assets available for sale are carried at cost as they do not
have a quoted market price in an active market and their fair value
cannot be reliably measured.
18. Property and equipment
The cost of property and equipment and related depreciation for
2010 is presented below:
2010 Buildings Leasehold Furniture & Assets in course Total
improvements Equipment of construction
Cost
Balance at 1 January 2010 728 4,034 14,821 521 20,104
Additions – 177 359 256 792
Transfers (280) 22 185 (207) (280)
Disposals and write off – (17) (1,283) – (1,300)
Balance at 31 December 2010 448 4,216 14,082 570 19,316
Accumulated depreciation
Balance at 1 January 2010 315 2,087 9,806 – 12,208
Charge for the year 8 470 2,420 – 2,898
Transfers (15) – – – (15)
Disposals and write off – (6) (1,170) – (1,176)
Balance at 31 December 2010 308 2,551 11,056 – 13,915
Carrying amount at
31 December 2010 140 1,665 3,026 570 5,401
1 January 2010 413 1,947 5,015 521 7,896
Assets in course of construction mainly relate to equipment not
yet put into use.
In 2010 the Bank made a decision to sell business premises with
carrying value as at 31 December 2010 in the amount of BAM
265 thousand and accordingly has transferred this property to
other assets.
The cost of property and equipment and related depreciation for
2009 is presented below:
2009 Buildings Leasehold Furniture & Assets in course Total
improvements Equipment of construction
Cost
Balance at 1 January 2009 727 4,432 15,149 1,066 21,374
Additions 1 274 256 33 564
Transfers – 41 537 (578) –
Disposals and write off – (713) (1,121) – (1,834)
Balance at 31 December 2009 728 4,034 14,821 521 20,104
Accumulated depreciation
Balance at 1 January 2009 288 1,778 7,975 – 10,041
Charge for the year 27 583 2,859 – 3,469
Disposals and write off – (274) (1,028) – (1,302)
Balance at 31 December 2009 315 2,087 9,806 – 12,208
Carrying amount at
31 December 2009 413 1,947 5,015 521 7,896
1 January 2009 439 2,654 7,174 1,066 11,333

Financial Statements 71
19. Intangible assets
2010 Software Licences and Total
other intangible
assets
Cost
Balance at 1 January 2010 265 2,254 2,519
Additions 39 338 377
Balance at
31 December 2010 304 2,592 2,896
2009 Software Licences and Total
other intangible
assets
Cost
Balance at 1 January 2009 262 1,788 2,050
Additions 3 466 469
Balance at
31 December 2009 265 2,254 2,519
Accumulated amortisation
Balance at 1 January 2010 172 1,380 1,552
Charge for the year 79 317 396
Balance at
31 December 2010 251 1,697 1,948
Accumulated amortisation
Balance at 1 January 2009 132 926 1,058
Charge for the year 40 454 494
Balance at
31 December 2009 172 1,380 1,552
Carrying amount at
31 December 2010 53 895 948
1 January 2010 93 874 967
Carrying amount at
31 December 2009 93 874 967
1 January 2009 130 862 992
20. Deferred tax assets
Deferred income taxes are calculated on all temporary differences
under the balance sheet method using an effective tax rate of 10%
(2009: 10%).
In accordance with the law on corporate profit tax, tax losses can
be carried forward for relief against profit of future accounting periods,
but for not longer than 5 years. The Bank has recognised
deferred tax assets for the carry forward of unused tax losses as
the Management Board estimates that there will be future taxable
profit against which the Bank can utilise the benefits.
Movement in deferred tax assets
Loan Other Tax loss Total
impairment items carry forward
Balance at 1 January 2010 67 4 1,465 1,536
Origination and reversal of temporary differences (152) 1 426 275
Balance at 31 December 2010 (85) 5 1,891 1,811
Balance at 1 January 2009 40 7 – 47
Origination and reversal of temporary differences 27 (3) 1,465 1,489
Balance at 31 December 2009 67 4 1,465 1,536
21. Other assets
2010 2009
Prepaid rent 145 492
Prepaid income tax 247 903
Advance payments 139 123
Receivables from card operators 252 209
Other property (Note 18) 265 –
Other assets 643 703
Impairment allowance (30) (112)
1,661 2,318
Current (net) 1,661 2,318
Non-current (net) – –

72
Annual Report 2010
Movement in allowances for other assets impairment are as follows:
2010 2009
Balance at 1 January 112 41
Net charge to income statement (Note 12) 19 78
Amounts written off (101) (7)
Balance at 31 December 30 112
22. Deposits from customers
2010 2009
Corporate
– Current accounts and demand deposits 37,074 43,247
– Term deposits 34,060 40,163
Individual customers
– Current accounts and demand deposits 48,930 43,236
– Term deposits 98,356 116,081
218,420 242,727
24. Subordinated debt
2010 2009
Subordinated debt 16,085 16,083
16,085 16,083
Current 438 436
Non-current 15,647 15,647
Subordinated loan agreement was signed between ProCredit Bank
d.d. Sarajevo and ProCredit Holding AG on 31 August 2005. The
loan bears interest of 8.9% p.a. The loan shall expire on 7 September
2015 and is repayable upon maturity.
An additional Subordinated loan agreement was signed between
ProCredit Bank d.d. Sarajevo and ProCredit Holding AG on 26 September
2007. The loan bears interest of 10.51% p.a. The loan shall
expire on 26 September 2022 and is repayable upon maturity.
The Bank has not had any defaults of principal, interest or other
breaches with respect to its subordinated debt.
25. Provisions
Current 169,504 184,663
Non-current 48,916 58,064
Deposits from corporate customers include BAM 10,604 thousand
(2009: BAM 6,262 thousand) linked to EUR by revaluation clauses.
2010 2009
Provisions for contingencies
and commitments 99 221
Provisions for severance payments 98 111
Provisions for court cases 25 –
222 332
23. Borrowings
2010 2009
The Commission of the European Union 7,801 8,810
Kreditanstalt für Wiederaufbau 3,939 6,099
The European Fund for Southeast Europe 9,881 14,819
Commerzbank 6,878 6,875
ProCredit Holding 201 88
International Fund for
Agricultural Development 3,225 3,227
Partners for Development – 475
Nova Banka AD Banja Luka 5,011 –
36,936 40,393
Current 22,031 7,868
Non-current 14,905 32,525
The Bank obtains long term financing from institutions sponsored
by European Union at interest rates at which such institutions ordinarily
lend in Bosnia and Herzegovina and other emerging markets
and which may be lower than rates at which the Bank could source
the funds from other local lenders. As a result of such financing,
the Bank advances funds to specific customers at favourable rates.
The Bank has not had any defaults of principal or interest with respect
to its borrowings.
Borrowing agreement between Kreditanstalt für Wiederaufbau and
the Bank includes certain financial covenants which must be adhered
to. Two of these financial covenants have been breached as
at 31 December 2010. The Management expects to obtain waiver
for covenants in breach. The outstanding amount of BAM 3,939
thousand has been presented in Note 4.3.
As of 31 December 2010 the Bank has signed a contract with
ProCredit Holding AG in the amount of EUR 10 million, which has not
been drawn as yet. Amounts presented in the note above relates to
accrued commitment fee.
Movements in provisions for contingencies and commitments are
as follows:
2010 2009
Balance at 1 January 221 129
Net (release)/charge to income statement (122) 92
Balance at 31 December 99 221
Movements in provisions for severance payments are as follows:
2010 2009
Balance at 1 January 111 193
Net (release)/charge to
income statement (Note 10) (13) (82)
Balance at 31 December 98 111
Movements in provisions for court cases are as follows:
2010 2009
Balance at 1 January – –
Net charge to income statement 25 –
Balance at 31 December 25 –
26. Other liabilities
2010 2009
Payables to suppliers 191 281
Accrued expenses 317 281
Other liabilities 666 406
1,174 968

Financial Statements 73
27. Share capital
In BAM’000
Share capital
2010 2009
On issue at 1 January 40,458 35,458
New shares issued 2,000 5,000
At 31 December 42,458 40,458
In number of shares
Ordinary shares
2010 2009
On issue at 1 January 4,045,777 3,545,777
New shares issued 200,000 500,000
At 31 December 4,245,777 4,045,777
The Bank’s share capital consists of 4,245,777 ordinary shares. All
shares have a par value of BAM 10 and are fully paid.
Share premium represents the excess of paid-in amount over the
nominal value of the issued shares.
Statutory reserves represent additional capital set aside by appropriation
from net income. These reserves are used to cover losses
and are not distributable.
The shareholder structure of the Bank was as follows:
Name
% of voting share capital
2010 2009
ProCredit Holding AG 93.6 93.3
Commerzbank AG 6.4 6.7
100% 100%
28. Commitments and contingencies
The following table indicates the contractual amounts of the Bank’s
contingencies and commitments by category:
2010 2009
Guarantees
– in domestic currency 8,940 7,185
– in foreign currency 2,858 1,566
Letter of credits 452 120
Undrawn lending commitments 15,273 13,351
27,523 22,222
Less: Provision for contingencies
and commitments (note 25) (99) (221)
27,424 22,001
29. 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. A number of banking
transactions are entered into with related parties in the normal
course of business. These include loans, deposits and borrowings.
These transactions were carried out on commercial terms and at
market rates. The volumes of related party transactions, outstanding
balances at the year-end, are as follows:
Related party transactions for 2010
ProCredit Bank’s Bank’s management Total
Holding management close family members
Loans
Loans outstanding at 1 January – 280 – 280
Loans issued during the year – 27 – 27
Loan repayments during the year – (55) – (55)
Other decreases – (118) – (118)
Loans outstanding at 31 December – 134 – 134
Interest income earned – 9 – 9
Impairment losses for loans – (2) – (2)
Deposits
Balance at beginning of year – 83 3 86
Deposits received during the year – 409 29 438
Deposits repaid during the year – (464) (13) (477)
Other decreases – – (2) (2)
Balance at 31 December – 28 17 45
Interest expenses on deposits – 1 – 1
Borrowings
Loans outstanding at 1 January 16,083 – – 16,083
Loans issued during the year 1,523 – – 1,523
Loans repayments during the year (1,521) – – (1,521)
Balance at 31 December 16,085 – – 16,085
Interest expenses on borrowings 1,524 – – 1,524
Consulting fee 1 1,047 – – 1,047
1
Consulting fee relates to management fee for providing management
services and support.

74
Annual Report 2010
Related party transactions for 2009
ProCredit Bank’s Bank’s management Total
Holding management close family members
Loans
Loans outstanding at 1 January – 327 3 330
Loans issued during the year – 188 18 206
Loan repayments during the year – (235) (21) (256)
Loans outstanding at 31 December – 280 – 280
Interest income earned – 20 – 20
Impairment losses for loans – (1) – (1)
Deposits
Balance at beginning of year – 114 10 124
Deposits received during the year – 615 114 729
Deposits repaid during the year – (646) (121) (767)
Balance at 31 December – 83 3 86
Interest expenses on deposits – 3 – 3
Borrowings
Loans outstanding at 1 January 16,081 – – 16,081
Loans issued during the year 1,523 – – 1,523
Loans repayments during the year (1,521) – – (1,521)
Balance at 31 December 16,083 – – 16,083
Interest expenses on borrowings 1,524 – – 1,524
Consulting fee 1 650 – – 650
1
Consulting fee relates to management fee for providing management
services and support.
Key management compensation
During the reporting period, total compensation paid to the management
of the Bank amounted to:
2010 2009
Salaries and other short-term benefits 246 293
Other long-term employee benefits 2 3
248 296

Financial Statements 75
Additional information
The addresses of the Bank’s registered offices are as follows:
Head office: Sarajevo
Address: Emerika Bluma 8
Bosnia and Herzegovina
Branch offices:
Sarajevo
Address: Topal Osman paše 26
Ilidža
Address: Ibrahima Ljubovića 20
Bihać
Address: Safvet-bega Bašagića 18
Tuzla
Address: Džafer Mahala 29
Mostar
Address: Biskupa Čule bb
Banja Luka
Address: Kralja Petra I Karađorđevića 91
Bijeljina
Address: Karađorđeva 6/Atinska 1
Travnik
Address: Bosanska bb
Zenica
Address: Maršala Tita bb
Sub-branch offices:
Gradačac
Address: H. K. Gradaščevića bb
Zavidovići
Address: 8. Marta bb
Prijedor
Address: Svetosavska 12
Doboj
Address: Svetog Save 95
Posušje
Address: Fra Grge Martića bb
Outlets:
Sarajevo
Address: Muvekita 1
Mostar
Address: Braće Fejića bb
Banja Luka
Address: Brace Potkonjaka 2
Bijeljina
Address: Trg Kralja Petra I Karađorđevića 1
Pale
Address: Milana Simovića bb
Zalužani-Trn
Address: Put srpskih branilaca 167
Otoka
Address: Gradačačka 1
Ciglane
Address: Husrefa Redžića 1
Ilidža
Address: Hrasnička cesta 4
Cazin
Address: ZC”Stara Čaršija”
Bošnjačkih šehida 1
Brčko
Address: Bosne Srebrene 22
Tuzla / outlet;
Address:Bulevar 15.maja bb
Employees
As of 31 December 2010 ProCredit Bank d.d., Sarajevo employed
501 persons (2009: 662 persons).
Directors
The names of the Directors of the Bank serving during the financial
year and to the date of this report are as follows:
Director
Dr. Frieder Wöhrmann
Executive Director
Sabina Mujanović
Executive Director
Edin Hrnjica
Executive Director
Vedran Hadžiahmetović

76
Annual Report 2010

Financial Statements 77

78
Annual Report 2010
Contact Addresses
Head Office
Branches
Emerika Bluma 8
Sarajevo
Tel. +387 33 250 950
Fax +387 33 250 971
www.procreditbank.ba
info@procreditbank.ba
Banja Luka
Brace Potkonjaka 2
Tel. +387 51 430 000
Fax +387 51 431 537
Banja Luka
Kralja Petra I Karađorđevića 91
Tel. +387 51 229 340
Fax +387 51 229 373
Ilidža
Ibrahima Ljubovića 20
Tel. +387 33 761 580 / 622 869
Fax +387 33 761 681
Ilidža Business center
Hrasnička cesta 4
Tel. +387 33 771 130 / 137
Fax +387 33 771 131/132
Banja Luka Business Center
Kralja Petra I Karađorđevića 91
Tel. +387 51 229 340
Fax +387 51 229 373
Mostar Business Center
Biskupa Čule bb
Tel. +387 36 449 720
Fax +387 36 449 729
Bihać
Safvet-bega Bašagića 18
Tel. + 387 37 313 203
Fax +387 37 319 121
Mostar
Braće Fejić bb
Tel. +387 36 502 050
Fax +387 36 502 051
Bijeljina
Karađorđeva 6 / Atinska 1
Tel. + 387 55 220 980 / 225 955
Fax + 387 55 220 980
Pale
Milana Simovića bb
Tel. +387 57 202 140
Fax + 387 57 202 181
Bijeljina
Trg Kralja Petra I Karađorđevića 1
Tel. + 387 55 224 541
Fax + 387 55 224 540
Posušje
Šimuna Čuturića 4
Tel. +387 39 685 020
Fax +387 39 685 021
Brčko
Bosne Srebrene 22
Tel. +387 49 231 960
Fax +387 49 231 966
Prijedor
Svetosavska 12
Tel. +387 52 243 666
Fax +387 52 243 635
Cazin
ZC “Stara čaršija”
Bošnjačkih šehida 1
Tel. +387 37 539 116 / 117
Fax +387 37 511 693
Doboj
Svetog Save 95
Tel. +387 53 206 290
Fax +387 53 206 292
Gradačac
H.K. Gradaščevića bb
Tel. +387 35 821 715
Fax +387 35 821 727
Sarajevo
Ciglane
Husrefa Redžića 1
Tel. +387 33 554 955 / 995
Fax +387 33 554 996
Sarajevo Business Center
Topal Osman paše 32
Tel. +387 33 721 130
Fax +387 33 721 149
Grbavica
Topal Osman paše 26
Tel. +387 33 615 771
Fax +387 33 613 406

Contact Addresses 79
Otoka
TC Otoka - Merkur
Gradačačka 1
Tel. +387 33 716 485 / 486
Fax +387 33 716 487
Sarajevo
Muvekita 1
Tel. +387 33 561 970
Fax +387 33 561 978
Travnik
Bosanska bb
Tel. +387 30 510 510
Fax + 387 30 510 522
Trn-Zalužani
Put srpskih branilaca 167
Tel.: +387 51 366-440,
Fax.: +387 51 366-441
Tuzla
Turalibegova bb
Tel: +387 35 301-200,
Fax.:+387 35 258-341
Tuzla Business Centre
Bulevar 15. maja bb
Tel. +397 35 319 800
Fax +397 35 319 801
Zavidovići
8. Marta bb
Tel. +387 32 868-530
Fax. +387 32 868 531
Zenica
Corner of Maršala Tita and Islambegovića put
Tel. +387 32 449 960 / 961
Fax +387 32 449 964