2014 “SUSTAINABLE GROWTH” ANNUAL REPORT CONTENTS 01 BoD Chairman’s Message 03 President and CEO’s Message 05 Vision and Mission 06 Corporate Profile 07 Cambodia Key Economic Indicators 08 Key Financial Performance Indicators 09 Social Results 10 Social and Environmental Protection 15 Organizational Chart 16 Shareholders 17 Board of Directors 19 Committees of the Board 21 Executive Committee 23 Management Committee 25 Financial Services 29 Operational Performance Highlights 31 Financial Performance Highlights 39 Capacity Building 40 Marketing Activities 42 Risk Management and Internal Control 43 Balance Sheet 44 Income Statement 45 Statement of Changes in Shareholders’ Equity 46 Cash Flow Statement 47 Clienteles and Client Highlights 55 Branch Office Network BoD CHAIRMAN’S MESSAGE “THE BUSINESS IS DRIVEN TO BE THE BEST FINANCIAL INSTITUTION WHICH PROVIDES EXCELLENT SERVICES AND GREAT CONVENIENCE TO OUR CLIENTELE” CAMBODIA ECONOMY 2014 Cambodia's economic growth is forecasted to reach 7.2% in 2014 and 7.5% next year according to World Bank. The Cambodia's garments continues to be the key engine of growth, followed by construction. Poverty rate continued to fall to 18.6% in 2012; but the pace of poverty reduction has slowed down from 2004-2011, while higher rice prices propelled growth. The banking sector has stabilized with rising foreign direct investment and private sector deposits. But the growth could be at risk, if labor unrest, floods, a further drop in rice prices, and potential regional political uncertainty flared up. Key challenges for the Cambodia economy will be on how to stimulate agriculture, tourism and manufacturing sectors. Measures to increase investment interest in farm advisory service, seed development and irrigation infrastructure can increase agricultural productivity; and also business shall benefit from the removal of key constraints such as high electricity costs and intransparent practices. FINANCIAL SECTOR IN CAMBODIA The National Bank of Cambodia (NBC) continues to actively support the government’s policies and maintain macroeconomic stability by implementing flexible and prudent monetary policy to support economic growth and in accordance with prevailing domestic, regional and global economic conditions. NBC has maintained price and exchange rate stability. Inflation rate has been within the manageable range of 4%. The National Bank of Cambodia continues to improve payment systems to be more effective, secure and reliable in order to reduce the operation costs and facilitate the growth of economy and financial operations. Retail payment system is being devel- oped to ease the payment via ATM or POS, mobile phone and internet. As stated in banking and microfinance institute regulation, NBC has a supervisory role and issues licenses of banks and MFIs. Furthermore, this regulatory body oversees all operations of commercial banks, specialized banks, MFIs and credit operators. Public confidence in the financial sector has increased, which is led by NBC through the issuance of a number of Prakas and regula- tions designed to bring more order, better supervision and strengthening of the financial institutions. 1 Annual Report 2014 LONG TERM STRENGTHENING AND STABILITY GROWTH Over the last decade, PRASAC has multiplied double business size, customer base and number of employees. We have delivered strong and consistent long-term interest of shareholders. We have learned a lot from the challenges of the past several years that made PRASAC become a strong and stable institution for more than 20 years of sustainable growth. Our responsibility is to ensure the trust of our customers is ingrained in PRASAC’s culture. ACHIEVEMENTS IN 2014 With remarkable economic growth and maintaining political stability, safety social security, and macroeconomic stability especially stability in financial sector, PRASAC has achieved excellent results: Profit after-tax of USD 30 million Return on Equity (RoE) 45% Return on Assets (RoA) 5.2% Maintaining very low Non-Performing Loan (NPL) 0.21% Total Assets USD 701 million Loan portfolio reaching USD 581 million with a total of 251,112 borrowers Balance of savings and deposits USD 305 million with a total of 360,349 depositors Expanding office networks up to 176 branches Installing 82 ATMs Employing 4,100 staff members. PRASAC’s mission is beyond commercial as it holds the responsibility toward enhancing its clients’ living standard which contrib- utes to the country’s economic development, especially rural areas well-being enhanced. PRASAC has constructed 9 library buildings for public primary and high schools in Prey Veng, Kampong Cham, Kampong Thom, Siem Reap and Kampong Speu. A FUTURE OF GROWTH OPPORTUNITY We are confident that PRASAC’s culture will remain intact and that it will evolve and strengthen over time to meet the challenges in the years ahead. PRASAC is in good hand of the leadership of Mr. Senacheert Sim, President and CEO, who has a deep under- standing of banking with more than 20 years of experience across financial sectors. He is supported by a great management team and experienced in banking system. We believe that PRASAC is exceptionally well positioned in the future. On behalf of the board of directors, I wish to thank PRASAC’s management and staff for their hard work, dynamism and strong dedication to grow the business along with customers’ growth in harmony. I also wish to thank the board of directors, shareholders, customers, partners, suppliers, the Royal Government of Cambodia (RGC) and especially the National Bank of Cambodia (NBC) for their continuous support and advice. We wish you all the best in the coming years and grow together with TRUST. Ranjit Michael Samuel Fernando BoD Chairman 2 PRESIDENT AND CEO’S MESSAGE “PERFORMANCE OF 2014 WAS AN EXCELLENT AND WILL CONTINUE TO PROVIDE EXCELLENT FINANCIAL SOLUTIONS. IT WAS THE IMPORTANT MILESTONE OF BECOMING THE BEST FINANCIAL INSTITUTION” PRASAC has been receiving strong support from our shareholders, board of directors, customers, key stakeholders, regulators and employees. These supports make it clear that PRASAC is widely considered as a strong financial institution with excellent opportunities for growth. Our strategy is clear and well understood. Our customers appreciate the knowledge, expertise, service and commitment of our management and staff especially they have strong confidence with our institution. In 2014, PRASAC not only maintained the position as the market leader with the largest branch networks, high profitability, and loan portfolio, but also proved a record of sustainable growth. Here are some notes on key operational highlights: Total assets at year-end were USD 701 million, an increase of 55% compared to the end of 2013 Total loan portfolios was USD 581 million increased by 53% with the total of 251,112 borrowers PRASAC maintained its leading position in loan portfolio quality in the sector with the Non-Performing Loan (NPL) at 0.21 % By end of 2014, deposits outstanding balance reached USD 305 million with the total of 360,349 depositors Profit after-tax increased by 78% from USD 16.8 million to USD 30 million in 2014 Return on Equity (RoE) was 45% and Return on Assets (RoA) was 5.2%. BUILDING ON OUR STRENGTHS TO GROW OUR BUSINESSES Our businesses advancements and the change in technology and expectations have transformed business models and redefined the competitive landscape. Meanwhile, the regulatory environment for financial sectors will continue to evolve. Our financial strength gives us the flexibility to effectively manage regulatory changes while investing in our businesses growth. We have digitized and simplified processes to lower operation costs, deliver faster services and invest in our technology and innovation to shape the future with new products and services. For instance, this year we have invested in a new version of core banking system (Flexcube) which allowed us to customize our products and services to be more flexible based on demand of clients. 3 Annual Report 2014 CREATING OPPORTUNITIES FOR OUR EMPLOYEES Our staff’s commitment is to help clients succeed. They represent our brand with pride. We are particularly proud of how much our employees care about doing what’s right. Our employees, culture and brand are the key differentiations for our business. We enable success by fostering a culture of respect and inclusion where everyone can contribute and achieve their potential. The diversity of our workforce brings different ideas and abilities which plays a crucial role in serving our clients and driving productivity, innovation and growth. BRINGING THE BEST OF PRASAC TO OUR CLIENTS AND STAKEHOLDER Sustainable growth has been key to PRASAC since its foundation, as reflected in our core values, taking the interests of all our stakeholders into account. We have noticed that an increasing number of clients are looking for a long-term, customized talent strategy and we continue to build relationships with our customers and deliver value to our shareholders. Our common vision is to become the first choice of our clients. Therefore, we regard customers’ demands as the center of our operation. DELIVERING EXCELLENT SERVICES PRASAC positioned itself as the leading financial institution with strong infrastructure and platform to offer financial services to both rural and urban clients. For instance, PRASAC has a nationwide office network covering 25 provinces/cities through 176 branches of which 168 are online with real time transactions, 82 ATMs and operating in