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STRENGTHS TO KEEP ON GROWING
Annual and sustainable report 2009
• Savin gs • Cre dit an aly s
n atio rm o pf ou r
g din un F
• Pr om oti on •
2 3 Operative and ﬁnancial highlights Results of the generation of social, economic and human value 4 Message from the
Ma rke tR Resp e
g tin an Gr
h arc se
redits of c
Chairman of the Board of Directors 8 Social value 20 Economic value 36 Human value 60 Compartamos with the Community 72 Corporate Governance 80 Honors and distinctions 83 GRI Index 89 Audited Financial Statements
P r oﬁt a bili ty
g and Traini
n co nt me e e equ rs • Fr einbu r kly • Wee
Aguascalientes 2 Baja California 5 Baja California Sur 2 Campeche 4 Chiapas 22 Chihuahua 5 Coahuila 13 Colima 3 Distrito Federal 9 Durango Estado de México Guanajuato Guerrero Hidalgo Jalisco Michoacán Morelos Nayarit 5 26 14 16 6 11 13 8 3 Nuevo León Oaxaca Puebla Querétaro Quintana Roo San Luis Potosí Sinaloa Sonora Tabasco 13 16 22 3 6 7 6 8 11 Tamaulipas Tlaxcala Veracruz Yucatán Zacatecas 8 6 41 10 1
325 Service Oﬃces in Mexico
t nt act • F with ina cli nci ents al e du c ation
Financi al S e
s i on
e lo pm e nt
• Ne w
e Human Being
Sense of purpose and mystique, centered on the person
Passion Teamwork Proﬁtability Service Responsibility
Sence of transcendence
Integral development Human value
Operating and ﬁnancial results
e sustainability model of Compartamos Banco incorporates our interest groups, determined through a process of impact evaluation and consultation with diﬀerent areas, taking into account the strategic guidelines of the institution. Our sustainability model, which derives from our long-term vision, is based on our values and is in harmony with our business model.
We are a bank that generates social, economic, and human value. We are committed to people; we generate opportunities for development within low-income segments of the population. ese opportunities are based on innovative and eﬃcient, large scale business models and on transcendental values which generate an internal and external culture while building lasting relationships and trust, therefore contributing to a better world.
Working with self-accomplished individuals, to be the leading microﬁnance bank, oﬀering savings, credit and insurance products, and extending the borders of the ﬁnancial sector.
e essential goal of Compartamos Banco is the generation of social, economic, and human value.
Social value Promoting development by providing access to ﬁnancial services to the greatest number of people in the shortest possible time. Economic value We have created a proﬁtable and strong institution in which private capital may participate, making the industry more attractive for others to compete. Human value We trust people, we trust in their word, their willingness to succeed and their ability to develop their skills. is is why we promote means that oﬀer clients and employees the opportunity to become better people. Mystique: e experience of our six institutional values: e person: We want to help individuals to be better persons. For this, we promote their development according to an integrated model that considers all the dimensions of an individual (physical, intellectual, social-family and professional). Service: We oﬀer ourselves to others because we have an authentic interest in the individual. Responsibility: We comply with our duties with excellence and we assume the consequences of our actions. Passion: We love what we do. Teamwork: We collaborate with others, making every eﬀort to reach greater goals. Proﬁtability: We do more with less, being productive and eﬃcient. Our Ethics and Conduct Code To live according to our philosophy is one of our principal concerns. In order to do so, we have an Ethics and Conduct Code whose central objective is “to share our ethical values, deﬁning the conduct to be followed by stockholders, members of the Board of Directors, corporate secretaries, and employees.” We also have an Ethics and Conduct Code for all of our suppliers, by which the chain of value is further reinforced.
Operative and financial highlights
2007 Service Offices Employees Clients Loan portfolio (millions of Mexican pesos) Loan balance per client (Mexican pesos) Non-performing loans (Millions of Mexican pesos) Net operating income Interest income Interest expenses Net interest income Net interest income after provisions Net operating revenue Operating expenses Net operating income Net income Operating margin (Operating income/Average portfolio) Net margin (Net income/Average portfolio) Operating margin on productive assets (Operating income/Average productive assets) Net margin on productive assets (Net income/Average productive assets) Asset Total assets (millions of Mexican pesos) Total loan portfolio (millions of Mexican pesos) Non-performing loans (millions of Mexican pesos) Cash Liabilities Total liabilities (millions of Mexican pesos) Liabilities with cost (millions of Mexican pesos) Total stockholder’s equity (millions of Mexican pesos) Earnings per share/EPS (Mexican pesos) ROAA ROAE Book value per share (Mexican pesos) Prices at the end of the year (Mexican pesos) Total shares for calculation EPS and BVPS 252 4,277 838,754 4,186 4,991 1.4% 2,824 2,803 177 2,580 2,510 2,466 1,237 1,237 877 33.8% 24.1% 29.6% 21.1% 145 4,186 57 17.7% 2,818 2,608 2,285 2.1 20.8% 47.5% 5.3 47.3 427,836,876 2008 314 5,946 1,155,850 5,733 4,960 1.7% 3,623 3,567 248 3,375 3,290 3,247 1,807 1,440 1,120 29.5% 22.6% 22.7% 17.4% 198 5,733 98 27.2% 5,274 4,944 2,856 2.6 16.9% 43.6% 6.7 25.0 427,836,876 2009 325 7,364 1,503,006 7,645 5,086 2.4% 4,897 4,811 318 4,579 4,297 4,257 2,240 2,017 1,490 30.2% 22.3% 24.0% 17.7% 170 7,645 186 16.0% 5,187 4,697 4,061 3.5 17.1% 43.1% 9.5 67.5 427,836,876 Var 08/09 % 3.5% 23.8% 30.0% 33.4% 2.5% 41.2% 35.2% 34.9% 28.2% 35.7% 30.6% 31.5% 24.0% 40.1% 33.0% 2.4% -1.3% 5.7% 1.7% -14.1% 33.4% 89.8% -41.2% -1.6% -5.0% 42.2% 33.6% 1.2% -1.1% 41.8% 170.0% 0.0%
Results of the generation of social, economic, and human value
2007 Social value Disbursements (millions of Mexican pesos) Number of disbursements Number of clients /households benefited Economic value Service Offices Direct employment Indirect employment (1) Direct economic value created (2) (millions of Mexican pesos) Direct economic value distributed (3) (millions of Mexican pesos) Direct economic value retained (4) (millions of Mexican pesos) Human value Clients trained through business breakfast Clients who attended committee meeting Grants for employees benefited by Career Acceleration Program Compartamos with the Community Alliances and donations (millions of Mexican pesos) Number of volunteers The Environment Reforestation Trash collection Alliance with Televisa Verde Recyclable solid waste collection program Park improvements 18,452 2,467,859 838,754 252 4,277 1,090,380 2,905 1,917 988 2008 24,753 3,326,269 1,155,850 314 5,946 1,502,605 3,718 2,448 1,270 2009 32,659 4,493,981 1,503,006 325 7,364 1,953,907 5,036 3,180 1,856
1,968 94,133 48 5.2 1,216
3,350 102,293 77 8.6 4,700
3,068 90,180 125 14.3 3,498
 Number of clients at the close of the period multiplied by 1.3 persons hired by microbusinesses according to the segmentation and client values study performed by De la Riva.  Net income + financial income + sales of assets + other financial products.  Operating cost + salaries + employee benefits + training + taxes + dividends + interest payments + investment in the community + (reserves + amor tizations + depreciation).  Directed economic value retained = Direct economic value created - economic value distributed.
Message from the Chairman of the Board
Dear Shareholders: The year 2009 was a time of ups and downs throughout the world, and for Compartamos Banco it was no exception. On the one hand, Compartamos Banco had another year of success in our mission to generate social, economic, and human value. At the same time, we were saddened by the loss of our dear friend Alfredo Harp Calderoni, a founding partner and board member of Compartamos Banco, who played a key role in the bank’s evolution. The excellent results of Compartamos Banco in 2009 were achieved in the context of the worst crisis in decades in Mexico. This crisis meant the loss of jobs for thousands of people and a return to poverty for millions of others. Our results, within the realities of this adverse environment, strengthens in our commitment towards clients and reinforces our responsibility to stand by them, offering more and better products that add value to their lives. In 2009, we had the opportunity to demonstrate the strength and efficiency of our business model. Our results show that, even in an unfavorable economic environment, it is possible to grow with quality. The results are also evidence that there are still enormous opportunities in markets such as Mexico, with strong demand for quality financial services aimed at the low income sectors of society. The obstacles of the year 2009 were surpassed thanks to the efforts and dedication of our teams. Compartamos Banco managed to exceed expectations thanks to a world-class team and staff. Once more, the mystique of Compartamos –that is, the way we do things and the values we cherish– was an important part of our success. Compartamos Banco executed the strategy it had formulated at the beginning of 2009, working in accordance with four strategic guidelines: Growth, Loyalty, Efficiency, and Leadership. Committed to fostering the integral development of Mexicans, we continued to focus on offering financial services to the greatest number of people in the shortest possible time. This year, more than 1.5 million households were given access to a working capital loan, 347 thousand more than in 2008, representing an increase of 30%. Our total loan portfolio amounted to Ps. 7,645 million, reflecting growth of 33.4% over the previous year. Our core product, Crédito Mujer, which allows women to develop their businesses and generate wellbeing for their families and communities, continued to account for the largest part of our portfolio. Strengthening relations with our clients, in 2009 we grew considerably in terms of our home improvement loans (Crédito Mejora tu Casa), which increased by 136.9% over the previous year. The
Mensaje del Presidente del Consejo de Administracion
results obtained with this product are a particular source of pride, encouraging us to increase our efforts to offer our clients and their families an opportunity to improve their quality of life. We also fostered a culture of planning and foresight in our clients through our life insurance products. Compartamos Banco is the largest microinsurer in the world, with 90.3% of our clients having life insurance as an added feature of their loan. Active policies at the end of 2009 numbered 1.9 million, of which 1.4 million had been acquired or extended voluntarily in the course of the year. In spite of the difficulties of the credit market in 2009, Compartamos Banco was able to increase its financing for future growth, as well as to improve the terms and costs. Its primary objective was to ensure funding through the diversification of its sources of financing. An example of this was the successful placement of Ps. 1,500 million of long-term debt bonds in domestic market (Certificados Bursátiles). In line with our long-term strategy, our own capital base provides an important foundation for growth, making Compartamos Banco one of the most solid banks in the Mexican Financial system.1 The performance of our shares was outstanding, as the share price of COMPART O went from Ps. 25.0 at the end of 2008 to Ps. 67.5 at the end of 2009, representing a yield of 170.2%, which compared favorably with the 43.5% growth of the IPC, the main benchmark index of the Mexican Stock Exchange. We remain committed to reaching the greatest number of people in the shortest possible time, serving to the low income sectors of our society. An indicator that reflects the profile of our clients is the size of our average loan: Ps. 7,267, which represents 6.2% of GDP per capita.2 This percentage compares with the standard averages of 25.5% of GDP and 17.8% of GDP in the Latin American and Asian microfinance industries, respectively.3
Mensaje del Presidente del Consejo de Administracion
In 2009, we had the opportunity to demonstrate the strength and efficiency of our business model.
Source: CNBV data from December 2009. Source: INEGI data from December 2009. 3 Source: Microfinance Information Exchange (MIX) data from December 2008.
Managing to achieve more with less, Compartamos Banco reduced its annual cost per client by 5.38%, from Ps. 1,781 in 2008 to 1,685 in 2009. In comparison with the Latin American average of Ps. 2,488,4 this makes Compartamos Banco one of the most efficient microfinance institution in the region. Maintaining excellent credit quality is one of the main goals of Compartamos Banco. Our employees are given incentives to encourage successful collection and recovery of credits, so we have been able to maintain our leadership in this area. Non-performing loans represent only 2.4% of our total portfolio, up from a year before but still below the average of the Mexican banking. The rise can be attributed to a change in our product mix, with home improvement loans and business expansion loans (Crédito Mejora tu Casa, Crédito Comerciante, and Crédito Crece tu Negocio) increasing their share within the portfolio as a whole. These products have a different risk profile from that of Crédito Mujer, so their increasing share in the total portfolio can be expected to cause the percentage of non-performing loans to increase as well. We believe, nevertheless, that the growth of these products is in line with our strategy of offering more and better products and services to our clients. At the same time, as part of our effort to maintain excellent credit quality, the process through which these higher-risk products are granted has been restructured, and the tools designed to ensure that our clients avoid excessive debt loads have been reinforced. Thanks to the larger number of clients and subsequent increase in revenues, but above all thanks to our leadership in efficiency, net income increased this year by 33.0% to Ps. 1,490. In 2009 Compartamos Banco consolidated its position as one of the leading financial institutions in Mexico in terms of credit quality and financial strength. The bank’s performance has been recognized by the investment community, which has shown its confidence by acquiring long-term debt issued by Compartamos Banco and purchasing our shares. We will continue working with the ratings agencies to ensure that one day Compartamos Banco enjoys the credit rating it deserves. In 2009 we sought to consolidate the quality of our client service through 325 service offices and more than 9,000 convenience points where our clients can make their payments. It is a priority for Compartamos Banco to continue expanding this network and so facilitate transactions with our clients. Also, as part of our commitment to Mexico, we collaborate constantly with the regulators in building together a favorable environment for the microfinance industry in the country. We are working constantly with them to make it possible for more of our clients to be served through banking correspondents, creating a nationwide network where our clients can make payments easily and efficiently, significantly reducing their transaction costs. Consistent with our aim of creating human value, in 2009 we created 1,418 new jobs, bringing the total number of our employees to 7,364. Some 250,000 people in the communities where we operate were benefited by different Compartamos Banco social programs, carried out by volunteers from within team members and our employees, with the enthusiastic participation of clients and other civil society organizations. In 2009, we have put special emphasis on training in 2009, seeking to promote the integral development of our employees and reinforce their ethics and values. We implemented programs to develop both
Source: Microfinance Information Exchange (MIX) data from December 2008, based on an exchange rate of Ps. 13.45 to the US dollar.
professional and interpersonal skills which contributed to their growth as individuals. As a result of these efforts, we received several workplace distinctions in 2009. In line with our philosophy of social responsibility as an economic agent, we channeled more than Ps. 13 million into education, economic development, environment, and social projects, for the benefit of individuals that live in the same communities as our employees and clients live. Also, thanks to the participation of more than 2,200 employees, clients, and volunteers, and with the backing of local authorities, public spaces were rehabilitated to promote recreation in 23 different communities. In line with this efforts, I am happy to report that starting in 2010 Compartamos Banco is committed to channeling 2% of its net earnings into social programs every year. Our outlook for the year 2010 is positive, with an enormous market potential, highly trained and motivated personnel, a solid balance sheet, diversified sources of funding, consolidated leadership, and –most importantly– a great organizational mystique and a business model that fulfils our sense of purpose: the generation of social, economic, and human value. I would like to reiterate that this year’s excellent results were made possible by the passion, professionalism, and commitment of our employees, and my deepest recognition is extended to them. I would also like to thank our shareholders and top management for their support during my term as Chairman of the Board. My acknowledgement also to José Manuel Canal Hernando, who stepped down as Chairman in 2009. During his tenure and under his leadership, we defined the strategic direction under which we are operating today with success. I consider Manolo a friend, mentor, and example to follow, and I remain in debt with him for his excellent leadership. With Compartamos Banco prepared in all areas to achieve new goals, our future is promising.
Álvaro Rodríguez Arregui Chairman of the Board of Directors
Promoting development by providing access to financial services to the greatest number of people in the shortest possible time.
Breakdown of clients by product.
Crédito Mujer (Women Credit) Crédito Comerciante (Merchant Credit) Crédito Crece tu Negocio (Grow your Business Credit)
“Before Compartamos Banco gave me the first loan I did not have enough money to buy equipment and sometimes I could not fill orders, but now I have doubled my sales and much more customers have arrived. ” Juan Millán Pérez Puebla
We promote productive projects that translate into higher incomes, more jobs, and a better quality of life for more than 1,503,006 clients and their families all over Mexico. Since the founding of Compartamos Banco, we have been fully committed to the social development of Mexico.
In 2009: > We granted working capital loans to 714,069 new clients. > Our average credit was Ps. 7,267. > We granted 109,876 home improvement loans, benefiting the quality of life of our clients and their families. > All of our Crédito Mujer clients have a life insurance policy, granted free of charge, including loan remission in the event of decease. During the year, 1,350,408 additional life insurance policies were taken out.
We served to more than 86,000 people through our call center.
4,493,981 disbursements in 2009.
We care about every little detail of the service and to extend the positive impact of our efforts at all levels of our customers’ life.
Growth and leadership of Crédito Mujer
Crédito Mujer (Women Credit) 7.4% 8.2 % 39.8 %
Clients who have: Crédito Adicional (Additional Credit) Crédito Mejora tu Casa (Home Improvement Credit) One or more additional Life Insurance modules
Who are our clients?
We generate development opportunities in lower-income segments of the population.
> Almost all our clients fall into the C, D+, and D1 segments of the population. > 98% of them are women.
Contributing to the social, economic, and human development of lower-income segments of the population, which often have scant access to financial services, we directly and proactively promote the integral development of Mexico. According to the INEGI, the Mexican statistics bureau, there are 20 million people in Mexico who are in a position to get a working capital loan to start their own business. Based on figures provided by Consulta-Mitofsky, a market research firm affiliated with the Asociación Mexicana de Agencias de Investigación de Mercados (AMAI), Mexico has a population of approximately 64.7 million in the C, D+, and D socio-economic levels. These are the segments at which our products are aimed. It is estimated that the potential market of Compartamos Banco consists of 13.2 million people2 who have a business and/or are in a position to start one. Compartamos Banco currently serves 11% of this number. Through our credits we help microentrepreneurs who work in different sectors of the economy, reducing our dependence on economic cycles and crises.
Compartamos Banco Potential market
Breakdown of credits by sector
Sales of clothing and footwear Food services, snacks, and taco stands Corner stores Sales of perfume Others
C = Monthly family income of between P$11,600 and P$34,999; D+ = Monthly family income of between P$6,800 and P$11,599; D = Monthly family income of between P$2,700 and P$6,799. 4Q09 figure from a national employment survey performed by the INEGI.
How do they Invest?
In 2009, Compartamos Banco granted 4,493,981 loans, to be channeled into productive projects, in a total amount of Ps. 32,659 million. As of the end of 2009, 74.0% of our portfolio corresponded to the product called Crédito Mujer, loans to women who have their own business or are engaged in some economic activity. This product continues recording one of the lowest non-performing loan ratios of the sector 0.87%. We make a constant effort to offer our clients an ever wider range of financial products and services, which address not only the need for economic assistance in starting up or expanding a business, but which also improve quality of life and foster a culture of savings and forward planning. Our work methodology takes into account aspects of consumer protection such as transparency, diverse channels of communication, policies to prevent excessive debt load, decent collection practices, and ethical behavior on the part of our employees.
Disbursed loans Loan balance per client Non-performing loan ratio 2,467,859 Ps. 4,991 1.4%
3,326,269 Ps. 4,960 1.7%
4,493,981 Ps. 5,086 2.4%
35.1% 2.5% 41.1%
Clients by zone
15.7% 44.4% 27.5% 12.4% North Aguascalientes Chihuahua Coahuila Durango Nuevo León San Luis Potosí Tamaulipas North Center West South 236,407 15.7% Center Distrito Federal Edo. de México Guanajuato Hidalgo Morelos Puebla Querétaro Tlaxcala Zacatecas 412,713 27.5% West Baja California Baja California Sur Colima Jalisco Michoacán Nayarit Sinaloa Sonora 185,964 12.4% South Campeche Chiapas Guerrero Oaxaca Quintana Roo Tabasco Veracruz Yucatán 667,922 44.4%
Geographical distribution of our clients
Products and services
Crédito Mujer (Women Credit) Our principal product, this credit is granted to women individually and with solidary guarantees, the groups are from 12 to 50 women. It has a term of 16 weeks.
Crédito Adicional (Additional Credit) This additional credit is granted to Crédito Mujer clients who require further financing for their businesses. The terms of this credit is from 4 to 11 weeks.
Seguro de Vida3 (Life Insurance) Our Crédito Mujer clients may increase their life insurance benefits by purchasing additional modules of Seguro de Vida. Each additional module extends by 19 weeks the period during which the policy remains in effect.
Crédito Mejora tu Casa (Home Improvement Credit) This credit is granted to Crédito Mujer clients who require financing for home improvements. The term of this credit is from 6 to 24 months.
All of our products and services are subjected to an ongoing process of evaluation to determine their effectiveness. This allows us both to address our clients’ needs and at the same time to identify windows of opportunity. Owing to the financial nature of our products and services, and our complete fidelity to the values of Compartamos Banco, our employees ensure that every document submitted to our clients is clear to them in terms of rights and obligations, avoiding the use of misleading
Compartamos Banco insured its clients in 2009 through Seguros Banamex.
Crédito Comerciante (Merchant Credit) This group credit, granted with a solidary guarantee, is granted to groups from 5 to 8 entrepreneurs (men and/or women). The term of this credit is from 4 to 5 months.
Crédito Crece tu Negocio (Grow your Business Credit) This credit consists of major financing, with a personal or collateral guarantee, for those wishing to make a major investment in their business, in order to purchase merchandise or fixed assets. The term of this credit is from 4 to 24 months. Seguro de Vida Integral (Integral Life Insurance) This is a life insurance policy which Crédito Crece tu Negocio and Crédito Comerciante clients may acquire voluntarily to meet the immediate expenses of a death in the family, a terminal illness, or a permanent incapacity, including: medical or funeral expenses, business maintenance, maintenance of children, etc. Crédito de Emergencia (Emergency Credit) This individual credit, with a personal guarantee and minimal interest rate, is granted to active Compartamos Banco’s clients who have lost their businesses because of a natural disaster. The credit conditions are adapted to the needs of our clients on a case-by-case basis.
or irresponsible advertising. Thanks to this practice, in 2009 we received no legal or administrative sanctions for failure to comply with fair and responsible marketing regulations. Likewise, eager to know our clients’ opinion of the general performance of Compartamos Banco, we make ourselves available through a call center that allows them to express their complaints and opinions. The number is toll-free and complaints are attended to within an average of 72 hours.
Since 3 years ago, we recognize the commitment, effort and work of our clients through the “Compartamos Banco Microentrepreneur Award.”
Honoring our clients
Our clients are the cornerstone of Compartamos Banco’s sustainability model. That is why we attend to every detail of the service and make an effort to extend its possitive impact to all aspects of our clients’ lives. By increasing their incomes we also benefit both their families and their communities. For 3 years now we have been recognizing the commitment, work, and dedication of our clients through the “Compartamos Banco Microentrepreneur Award,” which singles out business success stories in the following categories:
> > > > >
Production Service Family Participation Social Responsibility Commerce
In 2009 the winners traveled to Mexico City with a companion to recieve their award and an economic clearing.
Compartamos Banco Microentrepreneur Award
Through the “Compartamos Banco Microentrepreneur Award,” we recognize the effort of our clients in the categories of: Production, Service, Family Participation, Social Responsibility and Commerce.
Marlene Tobilla Garduza
Category: Production State: Tabasco Main activity: Production of different kinds of traditional cheeses “My husband learned how to make cheese and we began the business with just a table and molds for the first cheeses we made. The first loans we received from Compartamos Banco were invested in the purchase of raw materials; later we bought land for the cheese-making operation and all the equipment. My plans include business training for myself, training for my employees, opening more stores, exporting, hiring more employees, taking my products to other sales points, purchasing machinery, and offering new products. I would like to grow a little more. With God’s will, and if we keep working, I think we will.”
Víctor Casarrubias García
Category: Service State: Mexico City Main activity: Swimming school, therapy, gymnasium, and multi-use hall. “I learned to swim thanks to my uncle; I enrolled at the Olympic pool and began to take courses that motivated me to become a swimming coach myself. With my savings I found a space and received help from my family and friends, until I learned about Compartamos Banco I began with aquatic therapy for people with disabilities; now it is a swimming school, but we still give therapy. My future plans include opening a cafeteria, training myself and my employees, encouraging their studies, and offering new services. I love my business. I am proud of it and have made every effort to continue improving, not only economically but also professionally, in order to offer ever better service.”
Adelina Sánchez Flores
Category: Family Participation State: Tlaxcala Main activity: Manufacture of wooden furniture, sales of living room sets, beds, and electrical appliances. “I learned this business from my father when I was a little girl. I have invested the loans Compartamos Banco has given me in improving my store, offering more products, and opening a carpentry shop. We started with one worker, and now there are nine or ten of us, all family members. My husband buys the wood, I buy the fabrics and varnishes, and we all contribute here to make sure sales are good. My future plans include business training for myself and training for my employees, the offer of new products, and the purchase of more machinery, furniture, and transport vehicles. We would also like to participate in a trade fair and produce the living room sets ourselves, rather than buying them already made.”
Leocadia Cruz Gómez
Category: Social Responsibility State: Veracruz Principal activity: Handicrafts and pottery, including the fabrication of rebozos, hammocks, slips, blouses, and clay figures. “My mother and my aunt taught me everything I know. I have received 16 credits from Compartamos Banco. I invested the first in looms and thread. With the second I bought more material. I used the third to renovate the workshop. When I learned about Compartamos Banco I was very happy. I thought: I’m going to build a place to work, I’m going to buy some land and build a house, and now here it is. My future plans for my business include training my employees and continuing my studies, opening more stores, exporting, buying machinery, and taking my products to other sales points.”
Laura Rogel Ochoa
Category: Commerce State: Veracruz Main activity: Stationary, hardware articles, footwear, and customer service. “I began the business by selling stationary and shoes on the sidewalk. Later, thanks to the help of my husband and loans from Compartamos Banco, we opened a shoe store, a stationary shop, and a hardware store. I invested the first and second Compartamos Banco credit in the purchase of shoes. I used the following credits to buy more material, set up the stores, and purchase inventory. I feel great satisfaction because I can help my husband as a small businesswoman, and my children have a better quality of life. I want to keep working. I have been able to make the most of the credits granted by Compartamos Banco to keep growing.”
“Over 19 years, Compartamos Banco has distinguished itself as a solid institution specialized in microfinance.” María Teresa Chavira Investor Relations
We have created a profitable and strong institution in which private capital may participate, making the industry more attractive for others to compete.
The number of clients reached 1,503,006, representing a growth of 30.0% over to 2008.
Our growth objectives, based on fostering the development of micro-entrepreneurs through financing working capital, generated positive results in 2009.
> We granted 4,493,981 working capital loans. > Our total loan portfolio increased to Ps. 7,645 million. > We maintained excellent credit quality, with a NPL ratio of 2.4%. > We issued - Ps. 1,500 million in long-term debt, with a 3-year term. > We ensured funding to finance growth in 2010. > Net operating income in 2009 was Ps. 2,017 million, up by 40.1% over 2008.
We gained 347,156 new clients in 2009.
We opened 11 new offices, bringing the total to 325.
> Net income was Ps. 1,490 millions, representing growth of 33.0%. > EPS1 was Ps. 3.48, representing growth of 32.8%. > The performance of our share was outstanding representing a yield of 170.2% for the year, in Mexican Pesos and in US dollars.
We maintained our Standard & Poor’s and Fitch credit ratings of mx AA- y AA- (mex), respectively.
> In 2009, for the second year in a row, Compartamos Banco’s Series “O” shares (COMPART O) were listed on the Stock Market Index (IPC), the main benchmark stock index of the Mexican Stock Exchange. They were likewise ratified to be listed in 2010. > Average client balance was Ps. 5,086. > The performance of our shares was one of the 5 best on the IPC.
We created 1,418 new jobs.
Excellent potential market, a successful business model, committed employees, and sufficient resources to support operations explain our solid growth.
Earnings per share, excluding shares repurchased.
Growth and profitability
The economic environment in 2009 demanded a great deal of caution on our part, but we were also aware that, given the strength of our business model, we could make 2009 a year of very positive results by adhering to our clear strategy.
By following four well-defined strategic lines –growth, loyalty, efficiency, and leadership– we were able to increase the number of our clients to 1,503,006 and the number of our employees to 7,364. This meant the creation of 1,418 new jobs during the year and the opening of 11 new Service Offices. Realizing that demand for credit would be of vital importance in the Mexican economic situation, we sought to support the development of the communities where we operate not only with loans but also with sustainable commercial practices, ensuring that our clients avoided excessive debt loads all year round and creating jobs for suppliers and employees on a local level. As a result of the successful implementation of this strategy, our loan portfolio increased by 33.4%, as we attracted 347,156 new clients and boosted net income by 33.0%.
Total portfolio (Millions of Mexican pesos)
8000 7000 6000 5000 4000 3000 2000 1000 0
Number of clients (Millions)
2000 1500 1000 500 0
1,503 1,156 839
Non-performing loans ratio
2.5 2.0 1.5 1.0 0.5 0.0
Net income (Millions of Mexican pesos)
1500 1200 900 600 300 0
1,490 1,120 877
Efficiency and funding
Efficiency is a vital element in our strategy for creating a business model that is sustainable in the long term. In 2009 we continued to work on the premise of bringing our products and services to the greatest number of people in the shortest possible time, and of offering incentives to our employees to save resources. This translated into an efficiency ratio2 of 25.8%. At the same time, on a financial level, in spite of the challenges of the local credit market, we were able to ensure funding to support operations for the entire year. Thanks to our solid equity structure, we had access to diverse sources of financing and were the only microfinance institution to participate in the local debt market, issuing Ps. 1,500 millon in debt (Certificados Bursátiles Bancarios) with a 3-year term at very favorable conditions. Thanks to this strategy of diversified funding, we have ensured the financing of our operations through 2010.
GRI Economic Indicators Item
Millions of Mexican pesos
2,905 1,917 988 877
3,718 2,448 1,270 1,120
5,036 3,180 1,856 1,490
Direct economic value created Distributed economic value Retained economic value Net Income
Number of clients Net interest income (millions of Mexican pesos) Operating efficiency Net income
(millions of Mexican pesos)
Net Interest income – Net income (millions of Mexican pesos)
838,754 2,580 29.3% 877
1,155,850 3,375 26.8% 1,120
1,503,006 4,579 25.8% 1,490
100 80 60 40 20 0 Dic-08
4.24% 30.06% 29.02% 36.69%
4.01% 6.39% 28.25% 43.12%
17.33% 3.81% 8.64% 24.37% 45.84%
Dec-08 Sep-09 Dec-09
30.06% 6.39% 8.64%
29.02% 28.25% 24.37%
4.24% 4.01% 3.81%
0.00% 18.23% 17.33%
100.00% 100.00% 100.00%
36.69% 43.12% 45.84%
Efficiency Ratio = Operating Expenses / Operating Income * 100
Notes on financial statements and stock market performance
There was a sharp drop in economic activity in Mexico in 2009, with low investment, a steep decrease in formal employment, a generalized fall in aggregate demand, and a consequent contraction of gross domestic product. All of this was the result of the serious economic crisis in the countries with which Mexico maintains its principal commercial relations, detonated by the collapse of important financial institutions worldwide. The negative impact was also felt in the Mexican microfinance sector. In this difficult environment Compartamos Banco not only showed strong operating and financial growth but also improved its profitability and efficiency ratios. At the same time, it grew in terms of infrastructure and number of clients, even as it maintained a non-performing loans ratio that is below average in the Mexican banking sector. All of this was possible thanks to the implementation of a proven business strategy, successful in spite of the of difficult environment, the guiding elements of which are:
Growth > Loyalty > Efficiency > Leadership
2009 was another record year for Compartamos Banco, as we accelerated growth and reined in costs, thanks to our business model, the strength of our institution, and the efficient work of all those who belong to it. In spite of the good results, we are watching closely the development of our market and the key variables that will affect our performance. One of these is funding, so in 2009 we ensured sufficient resources to support our operations by diversifying our sources of financing. These ranged from development banks to commercial banks to the issue of Ps. 1,500 million in long-term debt, part of a program which will allow the issue of an additional Ps. 4,500 million over the next 5 years. Operating results Net interest income In 2009 net interest income after provisions was Ps. 4,297 million, up 30.6% from the Ps. 3,290 recorded in 2008. This positive performance reflects an increase in interest income, which went from Ps. 3,623 million in 2008 to Ps. 4,897 million in 2009, as the bank’s total loan portfolio grew by 33.4%, derived from 33.0% growth in the number of clients. Interest expenses in 2009 were Ps. 318 million, up by 28.2% from the Ps. 248 million recorded in 2008, as available resources were increased to ensure funding and so maintain growth in a particularly volatile environment.
Average cost of funding (interest expenses / average interest-bearing liabilities) dropped from 8.5% in 2008 to 7.0% in 2009, as a result of a generalized decrease in interest rates in the Mexican money market. In 2008 we changed the methodology for calculating loan-loss reserves in order to comply with the National Banking and Securities Commission (CNBV) standards, so these provisions increased by Ps. 101 million in 2009. Based on our policy to write-off loans that are 270 days past due, write-offs in 2009 totaled Ps. 184 million, giving a write-off ratio (write-offs / total loan portfolio) of 2.4%, up from the 1.6% registered in 2008. The bank’s net interest margin (NIM = net interest income after loan-loss reserves / average yielding assets) in 2009 was 51.2%, up a notch from the 51.1% recorded in 2008, in spite of higher leveraging, the aforementioned increase in loan-loss reserves, a slight drop in active interest rates, derived from a pricing model which offers lower rates to clients with a good credit history. Operating income Total operating income in 2009 was Ps. 4,257 million, up by 31.1% from the Ps. 3,247 million registered in 2008. This increase was due to strong growth in net interest income after provisions and fee income of Ps. 116 million, up by 63.4% over the previous year. The latter increase was the result of fees generated from voluntary life insurance products and fees charged to clients with past-due loans. These revenues were offset, however, by Ps. 144 million in fee and commission expenses derived from third-party transactions. Compartamos Banco has no exposure to foreign exchange risks or derivative instruments that might affect operating results in the prevailing market volatility. Operating results Operating income was Ps. 2,017 million in 2009, up by 40.0% from the Ps. 1,440 million registered in 2008. Operating expenses increased by 24.0%, from Ps. 1,807 million in 2008 to Ps. 2,240 million in 2009, owing mainly to an 3.5% increase in installed capacity, as 11 new offices brought the total number to 325. The number of employees increased by 1,418 to a total of 7,364. Nevertheless, in a reflection of the bank’s ever greater efficiency and profitability, the increase in operating expenses was less than growth in client base, total loan portfolio, and interest income. Payroll accounted from the greater part of operating expenses, representing 57.5% of the total. Other important expenses were derived from marketing and advertising, increasing by 3.7% to Ps. 94 million. In line with new CNBV regulations, employee profit sharing, which amounted to Ps. 53 million in 2009, is registered as an operating expense. Even when this is taken into account, the bank’s efficiency ratio dropped from 54.8% in 2008 to 52.6% in 2009, demonstrating its strong operating efficiency. Excluding the effect of profit-sharing expenses, the efficiency ratio improved considerably from 54.8% in 2008 to 51.4% in 2009.
Income before taxes Income before taxes in 2009 was Ps. 2,033 million, up by 39.6% over 2008, as a result of higher income in general and the effect of including employee profit sharing among operating expenses. Taxes Incomes tax provisions were Ps. 599 million in 2009, up by 58.5% over the Ps. 378 million provisioned in 2008, while deferred income tax went from a gain of Ps. 42 million in 2008 to a gain of Ps. 56 million in 2009. Net income tax therefore increased by 61.6%, from Ps. 336 million in 2008 to Ps. 543 million in 2009. Net income Net income in 2009 was Ps. 1,490 million, up by 33.0% from the Ps. 1,120 registered in 2008. This growth was due to greater revenues and improvements in operating and financial efficiency. Earnings per share (EPS), excluding shares repurchased in 2009, went from Ps. 2.62 in 2008 to Ps 3.48 in 2009, representing an increase of 32.8%. Balance sheet Liquidity Cash and other investments went from Ps. 2,210 million in 2008 to Ps. 1,481 million in 2009, showing a decrease of 33.0%. Nevertheless, the bank’s cash position at the end of 2009 constitutes a solid platform for growth in 2010. The cash surplus was invested in short-term instruments evaluated and approved by our internal risk unit and the Risk Committee of the Board of Directors. The counterparties are commonly the Mexican government or local banks. Total loan portfolio The bank’s total loan portfolio increased to Ps. 7,645 million in 2009, up by 33.4% from the Ps. 5,733 million registered in 2008. This was the result of 30.0% growth in the base of clients, whose number increased by 347,156, from 1,115,850 in 2008 to 1,503,006 in 2009. As expected, the slowdown in economic activity did not affect demand for the bank’s products, demonstrating the strength of Compartamos Banco’s business model and its effective strategic focus. The average outstanding balance per client increased by 2.5%, from Ps. 4,960 in 2008 to Ps. 5,086 in 2009, as a result of more home improvement loans (which generally involve larger amounts), a rise in urban clients, and the gradual development of our market. Credit quality As we expected, the complicated economic situation was a factor in putting pressure on our clients’ payment capacities and credit quality. Non-performing loans increased by 89.8%, going from Ps. 98 million in
2008 to Ps. 186 million in 2009. As a result, the NPL ratio rose from 1.7% in 2008 to 2.4% in 2009. This behavior is to be accounted for by the change in the mix of products in the total loan portfolio. The NPL ratio of Crédito Mujer, the bank’s principal product, which accounted for 74.0% of the total portfolio in 2009, rose to 0.87%. Maintaining excellent credit quality is one of the principal goals of Compartamos Banco, so the process by which our highest-risk products are extended has been restructured. These stricter policies will ensure that our clients avoid excessive debt loads. The internal policy of Compartamos Banco is to write off all loans more than 270 days past due. Writeoffs went from Ps. 92 million in 2008 to Ps. 184 million in 2009, representing an increase of 100.0%. The bank’s coverage ratio (loan loss provisions / non-performing loans) dropped to 141.4% at the close of 2009 from 165.3% in 2008. This variation is mainly to be attributed to the methodology established by the CNBV, which takes into account the number of defaulted payment rather than non-performing loans calculated by number of days past due.
Non-performing loans by product 4Q 08
Products CM CC CCN CA CMC Total Total loan portfolio 4,457 337 383 118 438 5,733 Non-performing loans 24 21 32 1 20 98 NPL ratio 0.54% 6.23% 8.36% 0.85% 4.57% 1.71%
Total loan Non-performing portfolio loans 5,655 434 378 156 1,022 7,645 49 30 43 2 62 186 NPL ratio 0.87% 6.91% 11.38% 1.28% 6.07% 2.43%
CM: Crédito Mujer | CC: Crédito Comerciante | CCN: Crédito Crece tu Negocio | CA: Crédito Adicional | CMC: Crédito Mejora tu Casa
Other assets Accounts receivable decreased by 7.1%, going from Ps. 84 million in 2008 to Ps. 78 million in 2009, as a result of payments made by clients through supermarkets and convenience stores. Apart from the effect of deferred tax deductions, these stores are not required to pay Compartamos Banco immediately. This trend is likely to continue, since our clients prefer to make their payments in convenience stores in their localities Total liabilities Total liabilities at the close of 2009 amounted to Ps. 5,187 million, down by 1.6% from the Ps. 5,274 million registered in 2008, due to the improvement of credit conditions in the country at the end of the year. As part of its strategy to increase liquidity, in 3Q09 Compartamos Banco issued Ps. 1,500 million in long-term debt, with a term of three years, in two stages. The first issue of Ps. 500 million and second issue of Ps, 1,000 million are part of a program which will allow the issue of an additional Ps. 4,500 million over the next 5 years. With these issues we returned to the debt market for the first time in four years,
diversifying our sources of funding, reducing the concentration of debt with commercial banks, and increasing the term of our debt. Compartamos Banco’s sources of funding consist of: 1. A solid capital base: 43.9% of total assets were funded with equity in 2009, compared to 35.1% in 2008. The bank’s ROAE in 2009 was 43.1%. 2. Short-term bank obligations: the advantage of having a banking license is the ability to issue deposit certificates on the local market. At the close of 2009 Compartamos Banco had issued Ps. 300 million in short-term bank obligations. 3. Long-term debt: the issue of Ps. 1,500 million in long-term debt is part of a program which allows the issue of an additional Ps. 4,500 million over the next 5 years. 4. Lines of credit with banks and other institutions: Compartamos Banco has credit lines with several commercial banks and development banks, as well as other financial institutions. Compartamos Banco’s liabilities are entirely denominated in pesos, freeing it from exposure to foreign exchange fluctuations. Total shareholders’ equity Total shareholders’ equity at the close of 2009 was Ps. 4,061 million, an increase of Ps. 1,205 million, or 42.2%, over the Ps. 2,856 million recorded at the close of 2008. The ratio of equity to assets was 43.9%. Compartamos Banco’s solid capital base has three main objectives: 1. To maintain a solid base; 2. To reduce financing costs; 3. To ensure funding for continued growth. In 2009, a total of 185,400 shares were repurchased, in the amount of Ps. 4.12 million representing 0.59% of the approved amount of Ps. 700 million. Ratios and performance indicators ROAE/ROAA Return on average equity (ROAE) at the close of 2009 was 43.1%, compared to 43.6% at the close of 2008. The 33.0% increase in net income partly accounts for this rise. Return on average assets (ROAA) was 17.1% in 2009, compared to 16.9% in 2008. Efficiency The efficiency ratio (operating expenses / net operating income) at the close of 2009 was 52.6%, down from 55.7% in 2008. This ratio falls within the bank’s expectations, in spite of the increase in operating expenses derived from the new regulation that requires employee profit sharing to be registered as an operating expense. This amount of Ps. 53 million was formerly reported under Other Expenses. Excluding this effect, the bank’s efficiency ratio would stand at 51.4%.
Stock market performance In 2009 Compartamos Banco showed an excellent recovery on the stock markets due mainly to strong operating results, in combination with good expectations for growth in 2010. The performance of the bank’s shares was one of the five best on the IPC, yielding 170.2% for shareholders during the year. Thanks to this recovery, the bank’s shares went from 35th to 26th place in the listing of most traded shares, an encouraging indicator that reflects the excellent results of Compartamos Banco.
Stock market performance
Prices (Mexican pesos) Value (millions of Mexican pesos) Volume (millions of Mexican pesos) Number of transactions
24.59 5,584.69 161 32,800
58.99 7,957.82 208 74,075
139.92 42.49 29.19 125.84
We trust people, we trust in their word, their willingness to succeed and their ability to develop their skills. This is why we promote means that offer clients and employees the opportunity to become better people.
“Through my daily effort Compartamos Banco helped me to recognize that I can achieve the goals I set.” Guadalupe Jiménez Pérez Oaxaca
At Compartamos Banco we know that the economic development of our clients must go hand by hand with their integral development. We believe in people, in their honesty and capacity for transformation.
One of the virtues of Compartamos Banco’s business model is the close daily personal contact between our clients and our employees. This allows us to understand the concerns and needs of both, and on that basis we design programs that promote their integral development.
> We created 1,418 new positions.
Our employees numbered 7,364 at the end of 2009.
> A 24% increase in the size of our staff. > 100% of our employees certified in our Ethics and Conduct Code.
The programs developed for our clients and employees deal with subjects such as family, economy, health, and balance between work and personal life.
873 courses aimed at the development of our employees.
105 business workshops and 289 committee meetings for our clients.
Development for our clients
At Compartamos Banco we know that the economic development of our clients must go hand in hand with personal development on other levels. This is the only way to achieve integral wellbeing. The person is the beginning and end of Compartamos Banco, which is why we offer opportunities to complement our clients’ growth as persons. In 2009 more than 93,000 clients were benefitted by business workshops and committee meetings. In addition to the benefits reaped by our clients, these activities strengthened three fundamental aspects of our strategy: leadership, loyalty, and growth. As part of our efforts to support and develop our clients, we have implemented workshops and committee meetings, and we have published a magazine “Avancemos hacia el éxito” and disseminate our values. This important work is performed by highly trained personnel with wide experience in the field. In 2009 we distributed 2,604,600 among our clients. The programs developed in 2009 were: Business workshops In 2009 we held 105 business workshops (two workshops per week), devoted to subjects such as financial education, business administration, and values. Clearly and directly, with examples from everyday life, we seek to clarify our clients’ doubts and uncertainties. Various credit and savings products are also presented in these workshops.
105 business workshops.
Committee meetings1 In 2009 we also held 288 committee meetings, attended by Crédito Mujer clients, at which subjects such as self-esteem and financial education were dealt with. This represents more than 5 committee meetings per week, clearly demonstrating the interest of our clients and the decided commitment of Compartamos Banco to their development. The magazine “Avancemos hacia el éxito” This publication, distributed free to the majority of our clients, offers valuable content that is accessible and easily readable. Through this way we share success stories and articles on financial education,
289 committee meetings.
About 84% of the clients who attended business workshops in 2009 renewed their loan.
In Crédito Mujer, committees are formed by the president, the secretary and the treasurer of the group, chosen by the integrants.
About 86% of the clients who attended committee meetings in 2009 renewed their loan.
family, and values, as well as recipes and other subjects of general interest. This effort is inspired by our philosophy of fostering the integral development of our clients, employees, and the communities where we operate. Our efforts to maintain close links with our clients by means of active communication through various activities and events, as well as successful advertising campaigns, have produced positive results. Compartamos Banco’s positioning as a brand in the “Microfinance Banking” segment went from 32% in 2008 to 70% in 20092 and shows, part of the achievement. Children’s drawing contest In July 2009 we held the first children’s drawing contest for the families of our employees, called “Compartamos Banco and My Family.” More than 600 drawings were submitted and 10 winners were chosen from different parts of the country. They traveled to Mexico City accompanied by relatives to receive their awards and enjoyed a day of fun at a famous amusement park. Breakfast for Champions It is very important for Compartamos Banco to offer our clients additional benefits in appreciation of their preference and trust. In November 2009, 150 clients were invited to participate, with a companion, in an exclusive event with the Mexican soccer teams Chivas of Guadalajara, Rayados of Monterrey and Cruz Azul. Participants attended a team practice and then an autograph session at the teams facility. The lucky ones were selected from among 1,900 stories, recounting how, through their own efforts and a Compartamos Banco credit, they have set up a business in the league of champions.
10 winning drawings.
2,604,600 copies of the “Avancemos hacia el éxito“ magazine.
150 clients participate with the Chivas of Guadalajara, Rayados of Monterrey and Cruz Azul soccer teams.
Source: Brand Tracking 2009
In 2009 we created 1,418 new positions.
Development for our employees
One of the pillars of the growth of Compartamos Banco has always been the generation of human value. The quest to be a better person is part of our philosophy, and during this past year we have continued to intensify actions aimed at reinforcing our employees’ commitment to good leadership skills and ethical behavior. In addition to constituting the engine of Compartamos Banco’s growth, image, and positioning, our employees are the people who put our philosophy into practice and carry out our actions on behalf of people and their wellbeing. We therefore seek to ensure that the development of Compartamos Banco is accompanied by our employees’ personal and professional development, in a balanced manner. One indication of our relationship of mutual commitment is the fact that 88.7% of our employees have a permanent contract. Compartamos Banco is a young institution. The average age of our employees is less 29 years old of whom 54% are women. And 90.1% of our staff is engaged in work related to customer service and promotion.
One of the pillars our of growth has always been the generation of human value. The quest to be a better person is part of our philosophy.
Total employees Men (%) Women (%) Average age Average seniority
3,203 47.5 52.5 28 years 2.5 years
4,277 48.3 51.7 29 years 2.5 years
7,364 46.0 54.0 29 years 1.9 years
Personnel by position
Officers Sub officers Managers Administrative Total main office personnel Managers Sub managers Administrative assistants Systems administrators Consultants Loan officers coordinators Crédito Mujer coordinators Loan officers Specialized loan officers Total sales personnel Regional managers Recruiting and selection coordinators Regional recruiters Lawyers/Regional intermediaries Total regional personnel Total Compartamos personnel Employees with a collective contract
15 28 64 382 489 315 2 336 325 615 125 574 2,751 285 5,328 34 8 34 53 129 5,946 5,336
0.2 0.5 1.1 6.4 8.2 5.3 0.0 5.5 5.6 10.3 2.1 9.7 46.3 4.8 89.6 0.6 0.1 0.6 0.9 2.2 100 89.7
17 32 81 445 575 325 57 502 335 559 129 676 3,565 485 6,633 43 7 38 68 156 7,364 6,533
0.2 0.4 1.1 6.1 7.8 4.4 0.8 6.8 4.5 7.6 1.8 9.2 48.4 6.6 90.1 0.6 0.1 0.5 0.9 2.1 100 88.7
Leader Formation Program
One of the most important events in the personal field and therefore reflected in improving workplace, was the creation of the leadership department. In keeping with our philosophy, strategy goals and decentralized labor scheme, this area focuses primarily on the design and delivery of programs to develop leadership, both personal and professional of employees. Pyxis is the leadership brand of Compartamos Banco, at the same time encompasses our Compartamos Banco leadership program. Developed 100% at home, by people who know the operation, business strategy and microfinance in the world, so we can meet the needs in the areas of personal development and transformation of our employees. As a first practice, the Leadership Training Program was provided to 116 officers and managers at headquarters “Seas”3 , our target group are those people with high impact and influence inside and outside Compartamos Banco, subsequently the leadership culture move to other levels. One important factor in achieving a healthy work environment is the design of selection processes suited not only to the needs of the position but also in empathy with the values and mystique of
SeaS means service to branches and it is Compartamos Banco headquarters.
Compartamos Banco, keeping employee turnover and desertion to a minimum. As a result of these practices, we ranked 13th in 2009 on the list of the Best Companies to Work for in Mexico,4 a recognition of our efforts in the area of human management and organizational climate. Turnover by age group
18-25 years old 26-35 years old Over 35 years old
Number of employees
914 1,476 273
Full-time employee benefits
Christmas bonus Paid vacation 1st year 2 year
30 days’ salary 8 days 9 days As required by law 25% 12% of salary with a limit 4%
3rd year Vacation bonus Food coupons Pension fund IMSS INFONAVIT Life insurance Major medical expenses Savings fund Mortgage credit Special permits Birth of a child Decease of a close family member Wedding Discretional permit Flexible Friday Gymnasium
48 months of base salary Extended to headquarters, sales regional managers and managers Voluntary, minimum of Ps. 50 per every 15 days Preferential terms with two years of seniority 2 days 2 days 2 days 2 days a year, with seniority On the headquarters
List published by the Great Place to Work® Institute
Seeks to monitor and increase awareness among middle management 35.9% turnover in order to hold on to the best employees, drawing up a specific plan focused on areas of opportunity for reducing turnover. Aimed at fostering the personal development of employees through workshops on subjects such as responsibility, teamwork, loyalty. Encourages employees to propose initiatives that contribute to improving processes, working methods, and new products. Flexible Fridays, physical conditioning through the use of our gymnasium and psychological support through the Employee Attention Program (PAC). Evaluation takes into account the achievement of goals in accord with institutional objectives. Selects employees with high potential and follows up their performance with a view to considering them for promotion. Promotes employees’ professional development through scholarships or full financing. Competitive salaries, with greater benefits than required by Mexican labor legislation, as well as monthly incentives and performance bonuses. 1,580 sessions given
INNOVA project Balanced life practices Performance evaluation Promotion planning Career acceleration Compensation Employee share-purchasing
2 initiatives 345 employees served by PAC 100% of the employees evaluated 1,142 promotions 3,344 ascents 125 scholarships granted -
Employees with more than one year’s seniority can purchase shares of 99 employees Compartamos Banco in any amount ranging from Ps. 2,500 to the equivalent of half a month’s participated salary (every six months). This program seeks to give access to the stock market to those who work day by day in achieving the objectives of Compartamos Banco. The employees had the opportunity to share with their families the pride of working in Compartamos Banco. (Headquarters and Services Offices). At the headquarters two confereces were held to reflect and give practical advice to built healthy and long lasting relationships at work and family.
Participation central office: 153 employees, 132 guests,
and 117 children. 317
Service Officers participated.
Ethical criteria workshops
Workshop adapts to different positions, lawyer, recruiters, leader, moderators, etc. 378 participants The main purpose: the way to work, discovering attitudes according to Compartamos Philosophy that help them in their daily administration, become aware of their work as a coordinators; to make daily decisions having as a guide the Ethics and Conduct Code. To motivate the volunteer participation of our employees, we created “Círculo Peces”, integrated by different programs such as human formation program, induction, volunteers, financial education and reporters. Círculo Peces is a employees’ club agents of change that guide, encourage and promote the Sense of purpose and Mystic to their co-workers and community. 742 volunteers
In 2009 we continued with major programs focused on the development of skills among our employees, within work place, personal and ethical.
Permanent training is one of the most significant aspects of Compartamos Banco and a factor that explains its solid growth.
Training is consistent with our principles and is an indispensable element in achieving our goals, which involve the continual development of people and of the Institution. This is why we have invested Ps. 23 million in the professional development of our employees, using the most up-to-date online tools, such as e-learning, virtual classrooms, and video tutorials, as well as conventional courses and field work. Depending on our particular training needs, we use various methodologies –both our own and those of others– in a process of continual improvement. We have training centers at our main offices and at other points around Mexico, where we strike alliances with suppliers, ensuring wider coverage and lower costs. The Compartamos Banco training program includes a large number of areas and specializations: induction into the company and its products, sales workshops, systems practices, administrative skills, administration processes, management procedures, etc. These help to give our employees both the technical competence and the frame of mind necessary to carrying out the tasks entrusted to them.
More than Ps.23 million invested in training.
We have training center in different cities of the country.
We use different methodologies, both third party and own, in a process of continuous improvement.
All new employees receive an induction course. Its aim is for new employees to understand and adopt the organizational culture of Compartamos Banco, to master the basic skills with which to perform their work, and to learn what is expected of them. This induction course constitutes their first encounter with the Compartamos Philosophy, which they will experience in their daily activities through their fellow workers and the way the organization conducts itself.
Ethics and Conduct Code
Since its founding, Compartamos Banco has worked from a clear ethical vision, whereby social, economic, and human value are generated. That is why it is of vital importance for all of our employees, and especially new ones, to be certified in our Ethics and Conduct Code. This translates into a commitment to live by our philosophy and our standards of conduct. All of our employees reaffirm their ethical commitment annually.
> 3,493 new employees certified in the Ethics and Conduct Code. > 100% of the employees recertified annually in the Ethics and Conduct Code. > 140 complaints attended.
Our Ethics and Conduct Code is a guide to defining our objectives, determining the strategies and actions required to achieving them, and to decision-making in general. Our vigorous Code does not shy away from any aspect of ethical conduct in situations such as conflict of interest, information handling, interpersonal relations, human rights, corruption, harassment, use of assets and services, custody of the Compartamos brand, and work environment. Ethical conduct brings great benefits to Compartamos Banco, to the communities where we operate, and to our other key publics, by fostering trust, improving work environments, encouraging mutually beneficial relations, and reinforcing loyalty and good understanding. It is essential to have the means to detect, prevent, and remedy actions contrary to our Ethics and Conduct Code, so our employees have free and entirely confidential channels through which to submit complaints, including email, a toll-free number, and prepaid mail service. Our Honor Commission is responsible for following up the complaints, listening to the parties involved, ruling on the case, and imposing penalties if necessary. The annual review and continuous circulation of our Ethics and Conduct Code is vital to Compartamos Banco, and is supervised by top management and the Honor Commission.
Since its founding, Compartamos Banco has worked from a clear ethical vision in order to generate social, economic and human value.
An excellent work environment is the result of who we are and what we do. Since its beginnings, Compartamos Banco has focused on people, seeking to provide a fair, participative, respectful, safe, stimulating, and human work environment. This is the first step in ensuring that our employees feel motivated, satisfied, and happy to work in a company with policies, programs, and activities focused on improving the quality of their working lives from a balanced and integral perspective. Integration with employees is intensive, involving a monthly meeting in every work center (a total of 12 integration meetings per year), as well as participation by all employees in annual encounters to reinforce the Compartamos Philosophy, follow up on objectives and strategies, recognize outstanding performance, and promote communication and general integration. In order to keep abreast of the work environment, surveys are conducted among all employees to gather perceptions and suggestions, which are then translated into actions that solve problems or implement improvements. The results of the last survey were very positive, showing a clear trend toward
Annual meetings are organized to reinforce the Compartamos Philosophy and 100% of the employees participate.
ince its beginnings, Compartamos Banco has been focused on people.
continual improvement, reflecting the solid organizational culture of Compartamos Banco and the practice of our values and philosophy. This past year, our main offices and all of our Service Offices celebrated the “Compartamos Family Day”, where the parents, spouses, and children were able to get to know Compartamos Banco and better understand the day-to-day activities of our employees. Other factors that impact positively on the good work environment of Compartamos Banco are the open channels of communication with our employees, and our programs to increase motivation and fulfill expectations. At Compartamos Banco we have always recognized commitment, dedication, goal achievement, individual initiative, teamwork, and the practice of our philosophy. We therefore award an Annual Prize for outstanding performance to the best Service Offices and regions, as well as the “Abrazo Compartamos” to the employee who best exemplifies the values of the Institution: service, responsibility, enthusiasm, honesty, and a cooperative and transparent attitude.
An excellent work environment is the result of who we are and what we do. Since its beginnings, Compartamos Banco has been focused on people.
For Compartamos Banco it is essential that the public in general and our clients in particular have access to better financial education, so that they are able to make the best decisions and take fuller advantage of different financial services, yielding benefits both for themselves and their communities. Financial education is therefore an important part of our social responsibility.
Financial education has become a vital issue in various sectors of Mexico. In recent years national and international conferences and congresses have been organized to discuss the strategies that need to be implemented in this area, especially in the context of the economic situation we are going through. For Compartamos Banco this is nothing new. Our business model, based on personal and direct contact with our clients, has allowed us to:
> Foster a culture of savings and forward planning through our services. > Promote an awareness of how much debt can safely be assumed, in order to avoid excessive debt load. > Offer useful information to those wishing to compare different financial products and services. In 2009, our financial education activities were designed to go beyond our business model, developing channels of communication adapted to our different publics, such as the entrepreneur workshop, videos, audios and flyers.
SAVINGS AND INSURANCE TESTIMONIALS
Antonia Contreras Betancour
Mexico City Life Insurance beneficiary Aurora, the daughter of Doña Antonia, was a client of Compartamos Banco. Sadly, she passed away at a young age, leaving her two children in Doña Antonia’s care. As a member of a Crédito Mujer group, Aurora had a life insurance policy from Compartamos Banco, of which the beneficiary was Doña Antonia. Doña Antonia recounts: “When my daughter was ill we had a lot of expenses; when she passed away, apart from the grief that it caused us, we were facing a lot of debts. Compartamos Banco did its part and quickly gave us the insurance money, so that we could pay some of our debts and invest a little in our business.” Doña Antonia adds: “When they first offered us the insurance policy I thought it was a good idea, but I didn’t give it much importance. Unfortunately, one has to live through certain experiences to realize the benefits a life insurance policy can bring.”
Virginia Flores Juárez
Mexico City Business area: Catalogue sales Doña Virginia was invited by a friend to take part of a group. At first she wasn’t very keen because she didn’t understand how it worked, but she soon saw that it was a good way to finance her business, and she began to save as well. Doña Virginia explains: “I save at least fifty pesos a week, and even more if I can. It’s important for me to have savings in case of an emergency. I used to participate in “credit rounds,” but I didn’t like it because you have to wait your turn. Now, with Compartamos Banco, I know exactly when I will receive my loan, and in addition to making my weekly payment, I am able to save.” She continues: “Another thing I have liked a lot is that the loan officers help us plan, preventing us from requesting more money than we will be able to pay back. They guide us so we don’t fall too deeply into debt.”
In our day-to-day operations we therefore promote a financial education which allows our clients and employees to make better financial decisions, ensuring their personal welfare and that of their families.
EMPLOYEES > We train all of our employees through an e-learning Microfinance Course. > We deal with issues such as excessive indebtedness, saving, budgeting, and credit in our magazine Compartips and through Regional Encounters. > We have prepared a Financial Education section in our Intranet that deals with subjects such as financial administration, indebtedness, savings calculations, and trivia.
EMPLOYEE INSTRUCTORS OF THE ENTREPRENEUR WORkSHOPS TESTIMONIALS
José Antonio Varela Figueroa
Office manager, Compostela Service Office “It was exciting to hear what the clients said; they were grateful for the attention and patience, since many of them were not very good with numbers. The most important thing is what they carry within: a positive mental attitude to accomplish what they propose, the care of their loan, the care from Compartamos Banco, and the confidence in themselves.”
Thelma Sarahí Lazcano Rodríguez
Administrative assistant, Zacatelco Service Office “Most of the people who took the course were Compartamos Banco employees. At first it was discouraging not to have people from outside, but when I saw my fellow workers’ interest I became enthusiastic, because they are 100% in contact with the clients. What I liked best was to be able to help –with what little I had to offer– those who are trying to get ahead and help their families. In my office we only grant loans to women; it is very important at this time for women also to be creators of jobs and generators of income; it’s an important support for their families.”
CLIENTS > Through our methodology we train our clients to maintain a control over their payments and savings through pay books. We create an awareness of payment capacity and the importance of managing credits responsibly in order to avoid excessive indebtedness. > In 2009 about one hundred employees voluntarily offered training to approximately 1,000 clients in the Entrepreneur Courses, dealing with subjects such as administration, entrepreneurial culture, and financial education. We also developed a social service program that involved the participation of university students, who gave the courses at different places in Mexico City. > We distributed video capsules on subjects such as intelligent consumption, saving, budgeting, credit, and excessive indebtedness, at different events directed to our clients, reaching some 135,000 people. > We distributed 150,000 informative flyers on subjects such as saving, intelligent consumption, and the responsible use of credit, at different events attended by our clients. > We dealt with issues such as overindebtedness, saving, budgeting, and credit in our magazine “Avancemos hacia el éxito,” with a circulation of 2,604,580.
Client, Hermosillo Service Office
“The Entrepreneurs course taught me a lot about how to prosper in my business. Thank you so much.”
Client, Ixmiquilpan Service Office
“With the Entrepreneurs course I learned things and reinforced other things I already knew, such as the importance of saving.”
Client, Grajales Service Office
“The course is very good and helps us all to learn our own business. I hope you continue giving more courses to help us develop as individuals. Thank you for offering this kind of course, which helps us to improve day by day.”
COMMUNITY > 1,228 people, including employees, clients, and the general public, visited the Interactive Economics Museum. > Some 36,000 public high school students were impacted by our Life Project and Financial Education lecture program, by which we sought to create awareness amongst adolescents about the contribution of financial education to the formation of a life project, through an understanding of saving and budgeting as tools to achieve personal goals. This project was carried out in collaboration with the Fundación NEMI in Puebla, Mexicali, and Villahermosa. > We participated in National Financial Education Week, led by the National Commission of Users of Financial Services (CONFUSEF), providing informative material that reached some 180,000 people. We also collaborated as lecturers at two conferences on the Responsible Use of Credit, directed at students and academics at the Universidad Tecnológico de Ciudad Nezahualcóyotl and the Tuxtla Gutiérrez (Chiapas) campus of the Universidad del Valle de México. > We posted a Financial Education section on the Compartamos Banco website. > We were present on the radio in the greater Mexico City area, dealing with issues of personal finances in the “Cuida tu Monedero” section of the program “Día a Día,” which enjoys a rating of 0.98 in the morning schedule.
“Compartamos Banco is concerned not only to give us a loan for our business, but also for our community by supporting actions that will benefit us all.” María Luisa Carrasco López Estado de México
The philosophy of Compartamos Banco is focused on the integral development of the person.
Supporting the communities in which we operate represents not only a commitment, but also an opportunity to heighten the awareness of our employees, our clients, and civil society in general, creating greater solidarity by which to address the challenges that surround us.
Since our founding, we have been deeply committed to programs that seek to foster the social, economic, and human growth of the communities where we operate.
In accord with our sense of purpose,1 we have always sought to foster an internal and external culture committed to constant efforts in the area of sustainable social responsibility.
> This year the Board of Compartamos Banco approved a policy whereby the bank, in keeping with its social vocation channels 2% of net annual earnings toward social projects. This policy will go into effect in 2010. > In 2009, a total of Ps. 13 million were donated to various social projects. > Through the “Convocatoria Compartamos con la Comunidad” a total of Ps. 5 million were channeled into education and community development projects. > 23 communities were benefited through Compartamos with the Community Day, representing an investment of more than Ps. 4 million and the participation of more than 2,200 volunteers. > 3 volunteer campaigns were carried out, as well as more than 70 local volunteer projects, to the benefit of several communities in the country. > More than 4,500 people benefited with free medical evaluations in conjunction with Pfizer Foundation.
Sense of Purpose refers to the daily experience of our Mission and Vision.
Through volunteer work, our employees form an action network that seeks to benefit different aspects of the communities in which we operate. Sustained by our values, our community work is aimed principaly at children and seniors.
1,745 seniors benefited.
Description Collection of grocery articles and clothing for needy seniors “Boteo”2 Collection through small individual donations Collection of toys and clothing
Number of Volunteers 1,298 volunteers
Results 1,745 seniors in 47 institutions Ps. 530,000 collected
Fundación Teletón Christmas collection
Participation of all our employees Participation of all employees in our headquarters
494 children in three different institutions: Casa Hogar Don de Dios, Fundación Domus Alipio, A.C., and Hogar Paz y Alegría
Boteo Teletón is a program of Telethon Foundation through which volunteers collect money for the foundation using a collection box.
Alliances and donations
For Compartamos Banco, collaboration with other institutions in support of projects that contribute to social welfare represents an opportunity to join efforts on behalf of a better quality of life in the communities where we operate.
Institution Fundación Pfizer Description Results Website www.udp.com.mx
The “Pfizer Alliance for Health” Medical attention given campaign, whereby medical to 4,942 people services are offered to our clients, our employees, and their families. Program to provide needy 100 children benefited children with a balanced daily diet, enabling them to perform at their best at school.
Comedor Santa María
Program to encourage environmental awareness.
150,000 books and www.fundaciontelevisa.org/televisaverde magazines distributed in magazine stands for children and young people concerned about the environment. 85,091 favoured through the Association of Banks of Mexico (ABM), the largest banks and Fundación Televisa 11,000 children benefited in collaboration with member banks of the Asociation of Banks of Mexico (ABM) 52,093 young people attended these talks in Mexicali, Cancún, Campeche, Oaxaca and Mexico City. www.fundaciontelevisa.org/becalos/
Economic incentive program for teachers and students in junior high school and high school.
Foundation of the Association of Banks of Mexico created to provide scholarships to needy children and young people living on the street. Talks about drug addiction and drug street peddler in public high schools.
Compartamos with the Community Open Call
In 2009 we launched the Compartamos with the Community Open Call, whose objective is to support projects proposed by institutions of civil society to promote development in Mexico, especially in the area of education and community development.
Out of a total of 57 projects submitted, 17 were selected by an external jury. Members of the institutions whose projects were selected attended a workshop on institutional consolidation aimed at helping them in their process of professionalization. Compartamos Banco follows up the projects selected in order to monitor their impact. The institutions benefited were: 1. Fundación Tarahumara José A. Llaguno, A.B.P. 2. Fundación Amigos del Mundo Estado de México I.A.P. 3. CreeSer, A.B.P. 4. Niños Unidos de Tetitla, I.A.P. 5. Industrias de Buena Voluntad, I.A.P. 6. Mundo Unitatis, A.C. 7. México Unido pro Derechos Humanos, A.C. 8. Fundación Comunitaria Morelense, I.A.P. 9. Centro Comunitario El Cuernito, I.A.P. 10. Unión de Empresarios para la Tecnología en la Educación, A.C. (UNETE) 11. Escuela Vasco de Quiroga de Huejutla, A.C. 12. Fundación El Peñón, I.A.P. 13. Red Social UP / Centros Culturales de México, A.C. 14. Fondo para la Paz, I.A.P. 15. Comunidad Down, A.C. 16. Promoción y Acción Comunitaria, I.A.P. (PACO) 17. Fundación Renacimiento, I.A.P. We would like to thank the members of the jury of the Compartamos with the Community Open Call: Dra. Gina Zabludovsky Kuper Dr. Carlos Elizondo Mayer-Sierra Mtro. Carlos Heredia Zubieta Lic. Santiago Alonso Pinzón, (Compartamos Banco Northern Gulf Regional Manager)
17 institutions were benefited through Compartamos with the Community Open Call.
Compartamos with the Community Day
Over the past year we have continued reconditioning recreational spaces, public parks, and land reserved for reforestation, as part of Compartamos with the Community Day, held on different dates in communities with a Service Office.
This event, which contributes to quality family life and environmental awareness, involves company employees, their families, and other members of the community. Following the day of volunteer work, a movie is projected in the open air as a mean to encourage community integration and shared recreational time.
In 2009, 23 public spaces were rehabilitated, thanks to the participation of 2,200 employees, clients, and volunteers from various communities. These events represented a total investment of more than Ps. 4 million.
Forest cleaning in Tláhuac
“This event strengthened the bond between the people of Ciudad Valles and Compartamos Banco, as people saw social commitment being put into practice.” Karla Irene García Compartamos Banco employee in Ciudad Valles
“I liked it a lot. I like to help people and I saw the impression the park made when it was being reconditioned. People came up and gladly asked us how they could help. I think people were happy with the result and saw that Compartamos Banco is an institution that is also concerned about our way of life.” Óscar González Compartamos Banco employee in Querétaro
Care of the environment
Although our activities have a relatively minor environmental impact, at Compartamos Banco we implement actions on behalf of the environment and are actively engaged in disseminating a culture of environmental awareness. One of these actions is our campaign for collecting recyclable solid waste in our main offices, which generates significant savings. Also, our main offices employ water-saving systems and energysaving light bulbs in order to optimize the use of these resources. This culture of environmental awareness is spread among our clients through articles and public service announcements in our quarterly magazine and through Compartamos with the Community Day. More than 800 trees were planted and more than 1,400 kilos of trash collected in parks, along avenues, and on beaches in communities where Compartamos Banco has a presence. As part of our effort to educate the younger generation, we joined with Fundación Televisa this past year to publish “Mi Libro Verde” (My Green Book), a practical guide to the care of the environment, of which 150,000 copies were distributed all over Mexico. The book was also distributed among our employees, reaching more than 7,000 families.
Recyclable solid waste collection program and its environmental impact Material Recycled Paper Quantity Impact Equivalent to
18,356 liters of water saved
Leaving a shower running for 15.5 hours. Leaving a television turned on for 8,436 hours. Enough to produce 1,269 extra large T-shirts.
Aluminum 2,812 cans
6,554 PET bottles
At Compartamos Banco we are committed to fostering environmental awareness among our clients and employees.
A solid corporate governance structure is one of the pillars of the success of our Institution, acting as a coordinated instrument to regulate and supervise every aspect of the operations, and functioning as a link between the multiple audiences of Compartamos Banco. Board of Directors
The Board of Directors has the important task of approving the operating and financial objectives of the Institution, of analyzing and directing the strategy for the achievement of its goals, and of ensuring that the Mission, Vision, and Values of Compartamos Banco are reflected in all of its actions. It is also the responsibility of the Board of Directors to evaluate the risks inherent of the operations and to supervise the standards and sustainability of the Institution. The directors play a very active role in the development of the strategy of Compartamos Banco. They are in constant communication with the banks executives, guaranteeing a channel of openness and availability amongst the various interest groups: clients, employees, suppliers, government authorities, the community, competitors, and investors. Compartamos Banco’s Board of Directors is made up of eleven principal directors and their respective alternates, designated by the General Shareholders’ Assembly; independent directors represent 45% of them.
Álvaro Rodríguez Arregui Alfredo Humberto Harp Calderoni U Carlos Antonio Danel Cendoya Carlos Labarthe Costas Guillermo José Simán Dada* John Anthony Santa María Otazúa* José Ignacio Ávalos Hernández José Manuel Canal Hernando* Juan José Gutiérrez Chapa Luis Fernando Velasco Rodríguez* Martha Elena González Caballero*
* Independent directors
Monica Lynne Brand Luis Fernando Narchi karam Javier Fernández Cueto González de Cosío Óscar Iván Mancillas Gabriele Alejandro González Zabalegui* Juan Ramón Félix Castañeda* Juan Carlos Letayf Yapur Manuel Constantino Gutiérrez García* Juan Carlos Domenzain Arizmendi Pedro Fernando Landeros Verdugo* Jerónimo Luis Patricio Curto de la Calle*
Chairman Secretary Alternate Secretary Principal Statutory Examiner Alternate Statutory Examiner
Álvaro Rodríguez Arregui Fernando de Ovando Pacheco Raquel Reyes Cubillo Eduardo Manuel Arturo Argil y Aguilar Alberto Napolitano Niosi
The members of the Board of Directors have wide experience in macroeconomic issues and the working of the financial sector.
The compensation of the Board of Directors is determined by market standards. The remuneration of company executives, like that of the rest of our employees, is directly related to the achievement of the strategic goals of the Institution. The performance of the Board is evaluated annually by the General Shareholders’ Assembly. Aware of the importance of having a solid and efficient Corporate Governance structure, in 2009 we created a new committee designated the Executive Committee, in charge of supporting the management in the analysis and discussion of strategy and other issues of vital importance to the Institution, as well as of communicating and interacting with government authorities and the Institution’s various audiences. Corporative Governance is entrusted to the following committees: Audit Committee
Martha Elena González Caballero* Jerónimo Luis Patricio Curto de la Calle José Ignacio Ávalos Hernández Juan Carlos Domenzain Arizmendi
Evaluation and Compensation Committee
José Manuel Canal Hernando* Luis Fernando Narchi karam Carlos Labarthe Costas Martha Elena González Caballero
Juan José Gutiérrez Chapa* Álvaro Rodríguez Arregui Carlos Labarthe Costas John Anthony Santa María Otazúa José Ignacio Ávalos Hernández Luis Fernando Narchi karam
Finance and Planning Committee
Álvaro Rodríguez Arregui* Carlos Antonio Danel Cendoya Guillermo José Simán Dada Luis Fernando Velasco Rodríguez
Luis Fernando Velasco Rodríguez* Carlos Antonio Danel Cendoya Carlos Labarthe Costas José Manuel Canal Hernando Fernando Álvarez Toca Mayra Lizette Escamilla Miranda Óscar Luis Ibarra Burgos
Álvaro Rodríguez Arregui* Carlos Antonio Danel Cendoya Carlos Labarthe Costas José Ignacio Ávalos Hernández Juan José Gutiérrez Chapa
In charge of supervising the following aspects: internal controls, external and internal audits, compliance with the Ethics and Conduct Code and dealing with breaches thereof, transactions with related parties, compliance with legal requirements, unusual transactions, financial information, and accounting practices and policies.
Its responsibilities include: i) evaluating the commercial and operating strategy of Compartamos Banco, as well as the development of new products and services; ii) evaluating field operations and recommending the policies and measures deemed necessary to ensuring optimal client service; iii) validating growth goals and coverage of products, as well as objectives in the mix of products and services offered by the Institution.
Its responsibilities include: i) supporting management in the analysis and discussion of strategy and other issues of vital importance to the Institution; ii) analyzing and discussing practices of communication and interaction with government authorities and the Institution’s various publics; iii) reviewing opportunities for mergers and acquisitions, without necessarily approving them.
Evaluation and Compensation Committee
In charge of the following actions: i) suggesting guidelines to the Board of Directors for the designation and/ or removal of top executives, as well as criteria for their evaluation and compensation; ii) ensuring that there are adequate mechanisms in place to develop and hold on to key persons in the Institution; iii) preparing appropriate succession plans; iv) proposing general policies for employee salaries and compensations.
Finance and Planning Committee
Its principal activities are: i) evaluating and suggesting investment and financing policies (capital or debt) for the Institution; ii) recommending general guidelines for the determination of strategic planning; iii) reviewing the premises of the annual budget; iv) helping the Board of Directors to review financial projections, ensuring that they are consistent with the Institution’s strategic plan; v) proposing to the Board of Directors policies for the payment of dividends and for the acquisition and placement of company shares.
It responsibilities consist of the following: i) proposing to the Board of Directors the goals, guidelines, and policies of integral risk management, as well as possible modifications thereof; ii) proposing specific global risk exposure limits; iii) establishing the methodology and procedures for indentifying, measuring, overseeing, limiting, controlling, revealing, and informing about the different types of risk to which the Institution is exposed, as well as potential modifications thereof; iv) informing the Board of Directors of the level of risk assumed by the Institution.
Information about the directors
Álvaro Rodríguez Arregui Economist graduated from the Instituto Tecnológico Autónomo de México (ITAM). Currently Director of IGNIA Partners, LLC, and a member of the board of various institutions. Carlos Antonio Danel Cendoya Architect graduated from the Universidad Iberoamericana. Currently Executive Vice-President of Compartamos Banco and a member of the board of various institutions. Carlos Labarthe Costas Industrial engineer graduated from the Universidad Anáhuac. Executive President and Chief Executive Officer of Compartamos Banco. Guillermo José Simán Dada Graduated with a degree in Business Administration and Economics from Loyola University (New Orleans). Currently Vice-Chairman of the Board of Directors and Executive Vice-President of Grupo Comercio Siman. John Anthony Santa María Otazúa Holds a degree in Business Administration from the Southern Methodist University in Dallas, Texas. Currently Director of Strategic Planning and Commercial Development at Coca-Cola FEMSA. José Ignacio Ávalos Hernández Holds a degree in Business Administration from the Universidad Anáhuac. Executive and board member of various institutions dedicated to social assistance planning, development, and direction. José Manuel Canal Hernando Public Accountant graduated from the Universidad Nacional Autónoma de México (UNAM). Currently serves as statutory examiner, board member, and consultant at various prestigious institutions. Alfredo Harp Calderoni U Holds a degree in Business Administration from the Universidad Anáhuac. President and Vice President of the Board of Directors of several Institutions. Juan José Gutiérrez Chapa Industrial and Systems Engineer graduated from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). Member of the Board of Directors and other institutions. Luis Fernando Velasco Rodríguez Civil Engineer graduated from the Universidad Anáhuac. A member of the board of various institutions. Martha Elena González Caballero Certified Public Accountant graduated from the Universidad Iberoamericana. Currently a member of the audit committee of various financial institutions.
Monica Lynne Brand Economist graduated from Williams College (Williamstown, MA). Currently Director of Global Investment at ACCION International. Luis Fernando Narchi Karam Holds a degree in Business Administration from the Universidad Anáhuac. Holds executive positions and serves as a member of the board at various institutions. Javier Fernández Cueto González de Cosío Holds a degree in Business Administration from the Instituto Tecnológico Autónomo de México (ITAM). Currently Director of Strategy and New Business at Compartamos Banco. Óscar Iván Mancillas Gabriele Industrial Engineer graduated from the Universidad Anáhuac. Currently Executive Director of Talent at Compartamos Banco. Alejandro González Zabalegui Holds a degree in Business Administration from the Universidad Anáhuac. Currently Executive Vice-President of Operadora OMX, S.A. de C.V. Juan Ramón Félix Castañeda Industrial and Systems Engineer graduated from the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). Currently Commercial Director for Mexico at Coca-Cola FEMSA México. Juan Carlos Letayf Yapur Industrial engineer graduated from the Universidad Anáhuac. Currently serves as Assistant General Director of Grupo Industrias Ideal. Manuel Constantino Gutiérrez García Public accountant graduated from the Instituto Tecnológico Autónomo de México (ITAM). Independent consultant, statutory examiner, board member, and audit committee member of various institutions. Juan Carlos Domenzain Arizmendi Holds a degree in Business Administration from the Universidad Anáhuac, with further studies at the IPADE and McGill University. General Director of Promotora Social México. Pedro Fernando Landeros Verdugo Holds a degree in Law from the Universidad Iberoamericana. Currently serves as Chairman of the Fundación Teletón. Jerónimo Luis Patricio Curto de la Calle Certified public accountant graduated from the Universidad Iberoamericana. Member of the audit committee of various institutions.
Executive body Position
Executive President and Chief Executive Officer Executive Vice-President Chief Financial Officer General Counsel Chief Business and Sales Officer Sales Officer (North) Sales Officer (South) Chief Operations Officer Operations Officer Networks and Distribution Officer Information Technology Officer Chief Talent Officer Personnel Officer Strategy and New Business Officer External Relations Officer Compartamos’ Philosophy Officer Internal Control Officer
1 1 1
Name Carlos Labarthe Costas Carlos Antonio Danel Cendoya Fernando Álvarez Toca Manuel de la Fuente Morales Enrique Majós Ramírez Francisco Javier González Pérez Wilmer Guevara Gutiérrez Federico Hernández Martínez Jaime Juárez Ramírez Ladislao Antonio de Hoyos Parra Juan Antonio Rueda de León Villasana Oscar Iván Mancillas Gabriele Héctor Cerviño Iglesias Javier Fernández Cueto González de Cosío Alejandro Puente Barron Lilian Ayleen Margarita Cortés Sandoval Francisco Gandarillas González 1992 to the present 1996 to the present 2005 to the present 2006 to the present 1992 - 1993 2004 to the present 1997 to the present 2006 to the present 1997 to the present 1999 to the present 2002 to the present 2009 to the present 1992 to the present 1994 - 1999 2007 to the present 1998 to the present 2008 to the present 1998 to the present 2009 to the present
As a pioneering microfinance institution in Mexico, Compartamos Banco has always sought to develop the sector. To this end, we make constant efforts to provide policy-makers and government authorities with information that helps them to understand our business model. In this way we also address questions and concerns that arise out of communication with our various interest groups. Principal associations to which we belong: A Favor de lo Mejor, A.C. Asociación de Bancos de México, A.C. (ABM) Asociación Mexicana de Comunicadores, A.C. (AMCO) Asociación Mexicana de Directores de Recursos Humanos, A.C. (AMEDIRH) Asociación Mexicana de Relación con Inversionistas A.C. (AMERI) Microfinance Information Exchange Mix Market MicroFinance Network Prodesarrollo Finanzas y Microempresa, A.C. Red Acción Unión Nacional de Instituciones Financieras Mexicanas (UNIFIM) Unión Social de Empresarios de México, A.C. (USEM)
1 At the Board of Directors meeting held on December 2nd. 2009, Mr. Carlos Labarthe Costas and Mr. Carlos Antonio Danel Cendoya were ratified as Executive President and Executive Vice President, respectively, and Mr. Fernando Álvarez Toca was appointed new General Director, as of January 1st. 2010.
Alfredo Humberto Harp Calderoni U
Always involved to the dream of providing development opportunities and a better quality of life to more people. Founding partner and member of the board of Compartamos Banco. He brought his commitment, talent and vision, leaving and indelible work on the mission and the results of our Institution. As director always helped bringing certainty to the direction of Compartamos Banco and was noted for leading the effort to bring strength and maturity to it. Philanthropist, entrepreneur and successful man. Alfredo, we will always remember you with gratitude, affection and admiration, we know you are still here with us as a guide and guardian of our mission.
Honors and Distinctions
During 2009, at Compartamos Banco we have received various distinctions for our work and achievements. These distinctions not only reflect the commitment of all us who work at Compartamos Banco, but also provide and incentive to better performance to all whose who participate in a rapidly growing sector of the Mexican economy.
> The rating agency MicroRate graded Compartamos Banco as an institution with high
social commitment, with a combination of “Good Social Results” and “Excellent Social Commitment.”1 > Eighth place in the classification of the 100 best microfinancers in Latin America, according to the Inter-American Development Bank and Mix Market. > Third place in the Mid-Capital Banks Corporate Governance rating made by LatinFinance > Standard & Poor’s has given Compartamos Banco a rating of mx AA-. > Fitch has given Compartamos Banco a rating of AA- (mex). > Compartamos Banco was ranked 23rd among the 40 most valuable brands in Mexico, according to the consulting firm Interbrand and the magazine Expansión. > The Great Place to Work Institute Mexico ranked us 13th among the best companies to work for in Mexico. > Expansión Magazine ranked Compartamos Banco in 11th place among the “Super Empresas para Trabajar“.
> We were among the 10 finalists for the Corporate Citizen of the Americas Award 2009, granted by The Trust of the Americas, affiliated with the Organization of American States. > Bronze medal at the ARC Awards in the “Overall Annual Report” category (subcategory “Banks: savings and loans.”) > AMCO honorable mention in the Publications category for our 2008 annual and sustainability report. > AMCO award in the Publication Design category for our annual and sustainability report 2008. > AMCO honorable mention in the Audiovisual category for the video launching our new image. > AMCO award in the Audiovisual category for the video celebrating our millionth client. > Special mention at the Festival Pantalla de Cristal 2009 for originality, visual concept, and casting, in the corporate video category, for our Financial Education videos.
About This Report
This report covers the results, actions, and progress of Compartamos Banco in the course of 2009. Like the 2008 report, it has been prepared in accordance with the methodology of the Global Reporting Initiative (GRI), specifically the guidelines for sustainability reports version 3.0. The reporting cycle is annual and this methodology will be maintained in the future. In order to define the content of this report, a process of analysis and inclusion was performed of the most significant aspects of the activities of Compartamos Banco in economic, social, and environmental areas and in its relation with stakeholders, determined on the basis of the degree of interaction they maintain with the institution, as well as its impact on them. McBride Corp. assisted in the determination of materiality, analysis, research, and methodology. All of the information and figures reported in this document consolidate Compartamos Banco’s operations in Mexico. Interviews with Compartamos Banco employees, field visits, and meetings with clients were conducted in the course of preparing this report. The calculation of the figures contained in this report was made in accordance with the accounting rules and practices issued by the Comisión Nacional Bancaria y de Valores applying to commercial banks, as well as with internal measurements performed by area for personnel, training, and other social indicators. These procedures and the restatement of figures from previous years did not show significant changes with respect to the 2008 report. This annual report was verified externally by Redes Sociales LT, S.A. de C.V.
1. Strategy and analysis 1.1 1.2 Statement from the most senior decision-maker of the organization. Description of key impacts, risks, and opportunities. Page 4 4, 5
2. Organizational profile 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Name of the organization. Primary brands, products, and/or services. Operational structure of the organization. Location of the organization’s headquarters. Number of countries where the organization operates. Nature of ownership and legal form. Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries). Scale of reporting organization. Significant changes during the reporting period. Awards received in the reporting period. Fold Out 82 80, 81 Cover 14 Fold Out
Inside the cover back
Fold Out Cover 12, 13
3. Report parameters 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Reporting period for information provided. Date of most recent previous report. Reporting cycle. Contact point for questions regarding the report or its contents. Process for defining report content. Boundary of the report. State any specific limitations on the scope or boundary of the report. Basis for reporting on joint ventures. Data measurement techniques and the bases of calculations. 82 82 82
Inside the cover back
82 82 82 82 82
3.10 3.11 3.12 3.13
Explanation of the effect of any restatements of information provided in earlier reports. Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report. Table identifying the location of the Standard Disclosures in the report. Policy and current practice with regard to seeking external assurance for the report.
82 82 82 82
4. Governance 4.1 4.2 4.3 4.4 4.5 Governance structure of the organization. Chair of the highest governance body. Number of members of the highest governance body. Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body. Linkage between compensation for members of the highest governance body, senior managers, and executives, and the organization’s performance. 4.6 4.7 Processes in place for the highest governance body to ensure conflicts of interest are avoided. Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social topics. 4.8 4.9 Internally developed statements of mission or values, and codes of conduct, and relevant principles. Procedures of the highest governance body for overseeing the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities. 4.10 4.11 Processes for evaluating the highest governance body’s own performance. Explanation of whether and how the precautionary approach or principle is addressed by the organization. 73 72 73 Fold Out 72 73 73 73 72 72 72
4.12 4.13 4.14 4.15 4.16 4.17
Externally developed economic, environmental, and social charters and principles. Memberships in associations. List of stakeholder groups engaged by the organization. Basis for identification and selection of stakeholders with whom to engage. Approaches to stakeholder engagement. Key topics and concerns that have been raised through stakeholder engagement.
20,60 77 Fold Out Fold Out Fold Out 73
Economic performance EC1 EC2 EC3 EC4 EC6 EC7 EC8 EC9 Direct economic value generated and distributed. Financial implications and other risks and opportunities for the organization’s activities due to climate change. Coverage of the organization’s defined benefit plan obligations. Significant financial assistance received from government. Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation. Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation. Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement. Understanding and describing significant indirect economic impacts. 54 6, 34 27 49 26, 49 27 27
Environmental performance EN1 EN2 EN7 EN8 EN22 EN26 Materials used by weight or volume. Percentage of materials used that are recycled input materials. Initiatives to reduce indirect energy consumption and reductions achieved. Total water withdrawal by source. Total weight of waste by type and disposal method. Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation. 70 70 70 70 70
Social performance LA1 LA2 LA3 LA4 LA5 LA8 Total workforce by employment type, employment contract, and region. Total number and rate of employee turnover by age group, gender, and region. Benefits provided to full-time employees. Percentage of employees covered by collective bargaining agreements. Minimum notice period(s) regarding significant operational changes, including whether it is specified in collective agreements. Education, training, counseling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases. LA10 LA11 LA13 Average hours of training per year per employee by employee category. Programs for skills management and lifelong learning that support the continued employability of employees. Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity. SO2 SO3 SO5 PR1 Percentage and total number of business units analyzed for risks related to corruption. Percentage of employees trained in organization’s anti-corruption policies and procedures. Public policy positions and participation in public policy development and lobbying. Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures. 14,15 72 50 50 75 46 49 46, 64 44 45 44 43 44
Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements.
Practices related to customer satisfaction, including results of surveys measuring customer satisfaction. Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.
58 14, 15
Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.
Results of the independent review of the Annual and Sustainability Report 2009 of Compartamos Banco, S. A.
The Scope of Our Work
This independent verification consists of a review of the contents and performance indicators presented in the Annual and Sustainability Report of Compartamos Banco, S.A. Our review is based on International Standard on Assurance Engagements 3000 (ISAE 3000) and the methodology of the Global Reporting Initiative 3.0 for sustainability reports (GRI G3).
The responsibility of Redes Sociales LT, S.A. de C.V. has been to review the contents of the document, to which end we conducted interviews with members of the department of public affairs and communication of Compartamos Banco, as well as with personnel who are employed in various areas related to the sustainability of the institution and participated actively in preparing the Annual and Sustainability Report 2009. Various kinds of analytic procedures and sample testing, described below, were also performed:
• • •
Analysis of information-gathering and validation processes. Verification of the principal indicators contained in the report. Meetings with personnel responsible for preparing the report, with a view to understanding the principles, business model, sustainability model, working methods, and management of programs related to sustainability. Consistency between the annual report, the information concerning Corporative Governance, and different aspects of sustainability. Consistency between the 2008 and 2009 reports in terms of indicators, follow-up of programs, depth of information, and indicator increases. Verification of quantitative and qualitative information based on a selection of GRI indicators from the 2008 and 2009 reports.
Based on our review, we are aware of no aspect that leads us to believe that: • The Annual and Sustainability Report 2009 of Compartamos Banco, S.A. has not been prepared in accordance with the Guidelines of the Global Reporting Initiative 3.0 for sustainability reports (GRI G3). • The information included in this report, relative to the indicators reviewed and the sustainability processes and actions of the institution, contains significant errors. • Any aspect has been revealed that implies inconsistency of information between the 2008 and 2009 reports. The review process demonstrates that in this report Compartamos Banco presents the performance indicators selected for verification in a balanced and appropriate manner. The Annual and Sustainability Report 2009 of Compartamos Banco, S.A., was prepared in accordance with Guidelines of the Global Reporting Initiative version 3.0 for sustainability reports (GRI G3), with a level of application of B+.
As a result of our review, we make the following recommendations: • That the information gathering process be automated. • That the measurement of the social impact of the institution’s business and philanthropic activities be further improved. • That actions performed on behalf of the environment be extended to all the institution’s offices.
Ing. Andrea Morales Morales Partner Redes Sociales
Report of Statutory Auditor
Mexico City, February 22, 2010
To the Stockholders of Banco Compartamos, S.A., Institución de Banca Múltiple In my capacity as Statutory Auditor and in compliance with article 166, of the Ley General de Sociedades Mercantiles (Corporate Law) and the by laws of Banco Compartamos, S.A., Institución de Banca Múltiple (the Institution) I render my opinion on the credibility, sufficiency and reasonability of the information the Board of Directors submitts on the performance of the Institution and its financial statements for the year ended December 31, 2009. I have attended the Stockholders’ and Board of Directors’ meetings I have been invited to and gathered from the directors and management as well as the independent auditors and other sources, the information about the opertations, supporting documents and accounting entries that I considered necessary for my review. My review has been conducted in accordance with generally accepted auditing standards in Mexico applicable in the circumstances. As mentioned in Note 2 to the financial statements, the Institution is required to prepare and present its financial statements in accordance with the rules and accounting practices prescribed by the Mexican National Banking and Securities Commission (CNBV, as its acronym in Spanish), applicable to credit institutions. These rules and practices do not conform with Mexican financial reporting standards, in the instances mentioned in this note. In my opinion, the rules and accounting and information policies used by the Institution and considered by management to prepare the information they submitted to the Stockholders’ meeting are adequate and sufficient. As a result, the information submitted by management to this meeting, present in a reliable, reasonable and sufficient mode, the financial position of Banco Compartamos, S.A., Institución de Banca Múltiple as of December 31, 2009, the results of its operations, the changes in the stockholders’ equity and the cash flows for the year then ended, in conformity with the rules and accounting practices prescribed by the Commission.
C.P.C. Eduardo Argil Aguilar
Report Of Independent Auditors
Mexico City, February 22, 2010
To the Stockholders of Banco Compartamos, S.A., Institución de Banca Múltiple
PricewaterhouseCoopers, S.C. Mariano Escobedo 573 Col. Rincón del Bosque 11580 México, D.F. Teléfono: 5263 6000 Fax: 5263 6010 www.pwc.com
We have audited the balance sheets of Banco Compartamos, S.A., Institución de Banca Múltiple (Institution) as of December 31, 2009 and 2008, and the related statements of income and of changes in stockholders’ equity for the years then ended; also we have audited statement of cash flows and of changes in financial position for the years ended on December 31, 2009 and 2008, respectively. These financial statements are the responsibility of the Institution´s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they were prepared in accordance with the accounting practices applicable to the Institution. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures contained in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As mentioned in Note 2 to the financial statements, the Institution is required to prepare and present its financial statements on the basis of accounting prescribed by the National Banking and Securities Commission (Banking Commission), applicable to credit institutions. These rules differ to the Mexican Financial Reporting Standards (MFRS), in the cases specified in the aforementioned note. In addition, as explained in Note 2, as of January 1, 2009 new MFRS bécame effective, which particularities and prospective adoption effects as of 2009 are described in that note, being applicable to the Institution standard D-4 “Statement of cash flows” and the Interpretation to the MFRS 18 “Recognition of effects of the tax reform 2010 in the income tax.” In our opinion, the financial statements referred above, present fairly, in all material respects, the financial position of Banco Compartamos, S.A., Institución de Banca Múltiple at December 31, 2009 and 2008, and the results of its operations and the changes in its stockholders’ equity for the years then ended, also its cash flows and changes in financial position for the years then ended at December 31, 2009 and 2008, respectively, in conformity with the accounting practices prescribed by the Banking Commission.
(Notes 1, 2 and 3) Millions of Mexican pesos (Note 2)
December 31, 2009 2008
Cash and due from banks (Note 6) Investments in securities (Note 7): Trading securities Ps 1,281 200 200 Derivatives (Note 8) Trading purposes Hedging purposes 12 12 Performing loans (Note 9): Consumer Total performing loans Non-performing loans (Note 9): Consumer Total loan portfolio Less: Allowance for loan losses (Note 9) Loan portfolio - Net Other accounts receivable - Net (Note 10) Furniture and equipment - Net (Note 11) Deferred taxes - Net (Note 16) Other assets, deferred charges and intangibles - Net (Note 12) (263) 7,382 78 170 90 35 (162) 5,571 84 198 33 34 7,459 7,459 186 7,645 5,635 5,635 98 5,733 Ps 1,525 685 685
December 31 2009 2008
Other contingent obligations Interest earned note collected arising from the loan portfolio Amounts contracted in derivative instruments Other accounts received Ps 1,289 12 Ps 2,782 Ps 206 4 Ps 723
December 31, 2009 2008
Liabilities and Stockholders’ Equity
Liabilities Deposits Of the public in general (Note 13): Time deposits: Money market Debt securities issued Interbank and other entities loans (Note 14): Short-term Long-term Derivatives: Trading purposes Hedging purposes Other accounts payable: Income taxes payable Income tax and employees’ statutory profit sharing Other accounts payable
879 1,507 2,386 2,011 300 2,311 132 54 304 490
Ps 2,580 2,580 994 1,370 2,364 40 290 330 5,274
Deferred taxes - Net (Note 16) Total liabilities Stockholders’ equity (Note 18): Contributed capital: Capital stock Earned capital: Capital reserves Retained earnings Result from valuation of hedging cash flows Net income for the year
487 487 665 1,422 (3) 1,490 3,574
487 487 557 692 1,120 2,369 2,856
Total stockholders’ equity Commitments (Note 19) Total liabilities and stockholders’ equity
The historical amount of capital stock at the date of these balance sheets is Ps428. Capitalization index: (total capital/net/assets at risk) = 42.6% and (capital/net/assets at credit risk) = 48.7%.
The above balance sheets were formulated in conformity with the Accounting Criteria issued for Banks by the National Banking and Securities Commission as per the provisions of articles 99, 101 and 102 of the Banks Law, applied on a consistent basis, thus reflecting the operations conducted by the Bank up to the above-mentioned dates, which were realized and valued in adherence with sound banking practices and the applicable legal and administrative provisions. These balance sheets were prepared under the responsibility of the undersigned officers and were approved by the Board of Directors. The accompanying twenty three notes are an integral part of these financial statements. Carlos Labarthe Costas Chief Executive Officer Francisco Gandarillas González Internal Control Director Fernando Álvarez Toca Chief Financial Officer Oscar Luis Ibarra Burgos General Internal Auditor
Statements of Income
Millions of Mexican pesos (Note 2) except earning per share
Year ended December 31, 2009 2008
Interest income (Notes 21 y 22) Interest expense (Notes 21 y 22) Monetary loss - Net Financial margin Provision for loan losses (Note 9) Financial margin after provision for loan losses Commissions and fees collected Commissions and fees paid (Note 22) Brokerage revenue Other income (expenses) from the operation (Note 21) Net operating revenue Administrative and promotion expenses Result of operations Other income Other expenses Total income before income tax Current income tax (Note 16) Deferred income tax (Note 16)
Ps 4,897 (318) 4,579 (282) 4,297 116 (144) (12) 4,257 (2,240) 2,017 23 (7) 2,033 599 (56) 543
Ps 3,623 (248) 3,375 (85) 3,290 71 (104) (2) (8) 3,247 (1,807) 1,440 22 (6) 1,456 378 (42) 336 1,120 1,120 Ps 1,120 Ps 2.62
Income before equity of non consolidated subsidiaries and associated companies Equity in net income of non consolidated subsidiaries and associated companies Income before discontinuous operations Discontinuous operations Net income Earning per share
1,490 1,490 Ps 1,490 Ps 3.48
The above statements of income were formulated in conformity with the Accounting Criteria issued for Banks by the National Banking and Securities Commission as per the provisions of articles 99, 101 and 102 of the Banks Law, applied on a consistent basis, thus reflecting the operations conducted by the Bank up to the above-mentioned dates, which were realized and valued in adherence with sound banking practices and the applicable legal and administrative provisions. These statements of income were prepared under the responsibility of the undersigned officers and were approved by the Board of Directors. The accompanying twenty three notes are an integral part of these financial statements. Carlos Labarthe Costas Chief Executive Officer Francisco Gandarillas González Internal Control Director Fernando Álvarez Toca Chief Financial Officer Oscar Luis Ibarra Burgos General Internal Auditor
Statements Of Changes In Stockholders’ Equity
for the Years ended december 31, 2009 and 2008 (Note 18). Millions of Mexican pesos (Note 2)
Earned capital Contributed capital Result from valuation of hedging cash flows Total stockholders´ equity
Net income for the year
Balances as of January 1, 2008 CHANGES RELATED TO STOCKHOLDERS’ DECISIONS: Transfer from net result to prior years result Application to legal reserve Dividend payment Repurchase shares reserve Repurchase shares Total CHANGES RELATED TO RECOGNITION OF COMPREHENSIVE INCOME: Net income Total Balances as of December 31, 2008 CHANGES RELATED TO STOCKHOLDERS’ DECISIONS: Repayment of principal payment Transfer from net result to prior year result Dividend payment Total CHANGES RELATED TO RECOGNITION OF COMPREHENSIVE INCOME: Net income Result from valuation of hedging cash flows Total Balances as of December 31,2009
88 700 (331) 457
877 (88) (218) (700) (129)
(218) (331) (549)
1,120 1,120 1,120
1,120 1,120 2,856
(4) 112 108
1,008 (278) 730
(4) (278) (282)
(3) (3) (Ps 3)
1,490 1,490 Ps 1,490
1,490 (3) 1,487 Ps 4,061
The above statements of changes in stockholders’ equity were formulated in conformity with the Accounting Criteria issued for Banks by the National Banking and Securities Commission as per the provisions of articles 99, 101 and 102 of the Banks Law, applied on a consistent basis, thus reflecting the operations conducted by the Bank up to the above-mentioned dates, which were realized and valued in adherence with sound banking practices and the applicable legal and administrative provisions. These statements of changes in stockholders’ equity were prepared under the responsibility of the undersigned officers and were approved by the Board of Directors. The accompanying twenty three notes are an integral part of these financial statements. Carlos Labarthe Costas Chief Executive Officer Francisco Gandarillas González Internal Control Director Fernando Álvarez Toca Chief Financial Officer Oscar Luis Ibarra Burgos General Internal Auditor
Statement of cash flows for the Year ended december 31, 2009
Millions of Mexican pesos (Note 2)
Net income Adjustment from items not implying cash flows: Gain or loss from restatement to pesos of investment and financing activities Preventive loan loss reserve Allowance for irrecoverable or doubtful accounts Impairment loss or effect of reversal of impairment related to investment and financing activities Depreciation and amortization Provisions Currently-payable and deferred tax on profits Equity in nonconsolidated subsidiary and associated companies Discontinued operations Other Adjustment from items not implying cash flows: Operation activities Variation in investments in securities Variation in derivatives (asset) Variation in loan portfolio Variation in other operating assets Variation in traditional fund entries Variation in interbank loans and loans from other entities Variation in derivatives (liability) Variation in other operating liabilities Variation in hedging instruments (of items hedged related to operating activities) Other Net cash flows from operating activities Investing activities Collections on disposal of property, furniture and equipment Payments on disposal of property, furniture and equipment Collections of cash dividends Payments on acquisition of intangible assets Collections from disposal of long-lived assets available for sale Other Flows net of cash from investment activities Financing activities Collections on issuance of shares Payments from capital stock reimbursement Payments on cash dividends Payments related to the purchase of own shares Collections from issuance of subordinated debentures with characteristics of capital Payments related to subordinated debentures with characteristics of capital Other Flows net of cash from financing activities Net increase or decrease in cash Adjustments to cash flow from variations in the exchange rate and in inflation levels Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
Ps 1,490 (1) 282 7 84 105 543 1,020 485 (2,092) (2) (194) (52) (545) (17) 93 2 (57) (55) (278) (4) (282) (244) 1,525 Ps 1,281
The above statement of cash flows was prepared in accordance with the Accounting Criteria for Credit Institutions issued by the National Banking and Securities Commission as per the provisions of Articles 99, 101 and 102 of the Banking Law, which is general and compulsory, consistently applied, and the Bank’s cash inflows and outflows arising from operations are reflected during the above-mentioned period, which were conducted and valued in accordance with sound banking practices and with applicable legal and administrative provisions. The above statement of cash flows was approved by the Board of Directors under the responsibility of the undersigned officers. The accompanying twenty three notes are an integral part of these financial statements. Carlos Labarthe Costas Chief Executive Officer Francisco Gandarilla González Internal Control Director Fernando Álvarez Toca Chief Financial Officer Oscar Luis Ibarra Burgos General Internal Auditor
Statement of changes in financial position for the year ended december 31, 2008
Millions of Mexican pesos (Note 2)
Operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses Depreciation and amortization Deferred income taxes Changes in operating assets and liabilities: Decreased in notes payable Increase in loan portfolio Increase in trading securities Decreased in securities and derivative transactions Increase in interbank and other entities loans Decrease in other accounts receivable and other accounts payable and others - Net Resources provided by operating activities Financing activities: Dividend payment Decrease in other financing activities Resource used in financing activities Investing activities: Property, furniture and equipment - Net Resources used in by investing activities Increase in cash and due from banks for the year Cash and cash due from banks at the beginning of year Cash and cash due from banks at the end of year (118) (118) 1,083 442 Ps 1,525 (218) (331) (549) Ps 1,120 85 65 (42) 1,228 (28) (1,637) (225) (1) 2,364 49 1,750
The above statement of changes in financial position was formulated in conformity with the Accounting Criteria issued for Banks by the National Banking and Securities Commission as per the provisions of articles 99, 101 and 102 of the Banks Law, applied on a consistent basis, thus reflecting the operations conducted by the Bank up to the above-mentioned dates, which were realized and valued in adherence with sound banking practices and the applicable legal and administrative provisions. This statement of changes in financial position under the responsibility of the undersigned officers and was approved by the Board of Directors. The accompanying twenty three notes are an integral part of these financial statements. Carlos Labarthe Costas Chief Executive Officer Francisco Gandarilla González Internal Control Director Fernando Álvarez Toca Chief Financial Officer Oscar Luis Ibarra Burgos General Internal Auditor
Notes to the Financial Statements
December 31, 2009 and 2008 Millions of Mexican pesos (Note 2), except exchange-rates, foreign currency, profit per share and the par value of shares
NOTE 1 - HISTORY AND ACTIVITIES OF THE INSTITUTION:
Incorporation and authorization Until May 31, 2006, Banco Compartamos, S. A., Institución de Banca Múltiple (Institution) was organized and operated as a Special Purpose Financial Entity (Sofol, by its initials in Spanish) under the name of Financiera Compartamos, S. A. de C. V. By official letter number101-340 issued on May 17, 2006, by “Secretaría de Hacienda y Crédito Público (Ministry of Finance)” authorizing the organization and operation of a Multiple Banking Institution published in the official journal of the Federation. The Institution is incorporated and operates under Mexican Law. It was incorporated for an indefinite period and is regulated by the Credit Institutions Law (Law), Banco de México (Central Bank) and the provisions issued by the National Banking and Securities Commission (Banking Commission) as the inspection and surveillance organism for these entities. See Note 3.
Business purpose The Institution is mainly engaged in rendering banking and loan services in the terms of the Law, and may therefore engage in bank services such as the acquisition, sale, holding, leasing and the general use and administration of the rights, goods and real estate necessary to achieve its objectives.
Operating guidelines The principal regulatory factors require the Institution to maintain a minimum capitalization ratio in relation to the market and credit risk of its operations, compliance with certain deposits acceptance limits, obligations and other types of funding that can be denominated in foreign currency, and establish minimum limits for paid-in capital and capital reserves.
NOTA 2 - BASIS OF PREPARATION:
The accompanying financial statements as of December 31, 2009 and 2008, have been prepared for compliance with the accounting bases and practices established by the Banking Commission through the “Accounting criteria for credit institutions” (Accounting Criteria), which differ from Mexican Financial Reporting Standards (MFRS) issued by the Mexican Financial Reporting Standards Board (CINIF for its initials in Spanish) as concerns the matters mentioned in points d., f., m. and w. of Note 3. The Institution has prepared its statement of income in accordance with the presentation required in the Accounting Criteria, which differ from the methods established by the respective MFRS for classification of the statement of income as per its function or the nature of the items contained therein. As from 2009, said Accounting Criteria require presentation of ordinary income (expenditures) as part of operating income (expenditures). At December 31, 2008, all other operating income (expenditures) were classified under administration and promotion expenses, other products and other expenditures and were therefore reclassified for comparison purposes. According to the guidelines of the MFRS B-10 “Inflation effects”, the Mexican economy is not an inflationary environment, since there has been a cumulative inflation below 26% in the last three years (maximum limit to define that an economy should be considered as non inflationary), therefore, as of January 1, 2008 is required to discontinue the recognition of the inflation effects in the financial information (disconnection from inflationary accounting). Consequently, the figures of the financial statements as of December 31, 2009 and 2008 are stated in historical millions of Mexican pesos modified by the cumulative inflation effects on the financial information recognized up to December 31, 2007.
The inflation percentages are indicated as follows:
December 31, 2009 2008
Year inflation Cumulative inflation in the last three years
Current accounting standards in 2009
On April 27, 2009, through the resolution amending the general provisions applicable to credit institutions, the Banking Commission issued the following Accounting Criteria, which have been adopted by the Institution in preparing its financial statements. Note 3 sets out the new accounting policies and, if applicable, the effects of adoption thereof. Accounting Criteria D-4 “Statement of cash flows” became effective in 2009, due to which, the Institution presents the statement of cash flows for the year ended December 31, 2009 as a core financial statement, which shows the cash inflows and outflows representing the generation or application of the Institution’s resources during the year, classified as operating, investment and financing. Consequently and in accordance with the Accounting Criteria, the Institution used the indirect method, by which net income for the period is increased or decreased due to the effects of transactions involving items that do not imply a cash flow (except those affecting the balances of operating items); changes occurring in the balances of operating items, and the cash flows related to investment or financing activities. The guidelines of this criterion are to be applied on a prospective basis. At December 31, 2008, the statement of changes in financial position is presented as a core financial statement, which classifies the changes in financial position per operating, financing and investment activities. In addition, other Accounting Criteria went into effect in 2009, that had no effect on the Institution: B-3 “Repurchase agreements”, B-4 “Securities lending” and B-5 “Consolidation of Special Purpose Entities.”
MFRS effective from January 1, 2009
Interpretation to the MFRS 18 “Recognition of effects of the tax reform 2010 in the income tax”. This Interpretation specially deals with the recognition of some topics included in the Act for which they are reformed add and abrogate diverse tax provisions such as: a) changes in income tax, and b) flat tax credit for tax losses. In addition, other Accounting Criteria went into effect in 2009, that had no effect on the Institution: B-7 “Business acquisitions”, B-8 “Consolidated and combined financial statements”, C-8 “Intangible assets” and D-8 “Shared-based payments.” The accompanying financial statements and their notes were authorized for its issuance on February 22, 2010 by the Board.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Following is a summary of the most significant accounting policies, which have been applied consistently during the years presented, unless otherwise specified. Additionally, in accordance with the current Law , the Banking Commission can require that the Institutions’ financial statements be issued with the pertinent modifications, in the terms established for those purposes. MFRS require the use of certain critical accounting estimations in preparing the financial statements. MFRS also require that management exercise its judgment in determining the Institution’s accounting policies.
The most significant accounting policies are summarized as follows: a. Cash and due from banks - Are recorded at nominal value. Foreign currency cash and due from banks are valued at the exchange rate published by Central Bank at the date of preparation of these financial statements. The yields generated by cash and cash equivalents are applied to income as they arise. See Note 6. Restricted cash and cash equivalents pertain to the Monetary Regulation Deposit with Central Bank and bear interest at the bank funding rate. That caption also includes short-term interbank loans (call money) not exceeding three days, and is recognized as restriced cash and cash equivalents. b. Investments in securities - Investments in securities include investments in government securities, bank bonds, fixed and variable rate investments, and are classified according to the intention of use assigned thereto by the Institution at the time of their acquisition as “trading securities.” Initially, these securities are recorded at fair value, which includes, if any, the discount or surcharge. Transaction costs pertaining to the acquisition of trading securities are applied to income for the periods. Interests are recorded in the statement of income as it is earned. See Note 7. Financial securities and instruments forming part of the investment portfolio are valued using restated valuation prices provided by specialists in calculating and issuing prices to value portfolios of securities authorized by the Banking Commission, who are denominated “price vendors.” Trading securities are valued at fair value, which closely resembles market value. Fair value is the amount for which a financial instrument may be exchanged between interested and willing parties in a transaction free of influence. Adjustments arising from valuations in this category are recorded directly against income for the period. c. Derivatives - All derivative financial instruments classified as trading or hedging are recognized in the balance sheet as assets and/or liabilities. These instruments are recorded at the agreed value and subsequently priced at fair value on the basis of their intended use, either as coverage for an open risk position or for negotiation. Assets and/or liabilities arising from operations with derivative financial instruments are recognized or cancelled on the date on which the operation becomes known, regardless of the date on which the item in question is paid for or delivered. Hedging operations of an open risk position consist of buying or selling derivative financial instruments, for the purpose of mitigate the risk of a transaction or group of transactions. These operations must meet all hedging requirements, document their designation at the outset of the hedging operation, describe the objective, primary position, risks to be hedged, types of derivatives and the measurement of the effectiveness, characteristics, book recognition and the manner by which effectiveness is measured, with regard to that operation. Based on the aforementioned categories, Institution transactions with derivative financial instruments are recorded as follows:
Management entered into an option agreement (CAP) to hedge against the potential upwards trend of the interest rate of traded notes known as Certificados Bursátiles Bancarios, [Cebures] (see Note 13), whereby the holder has the right, yet not obligation, to purchase the underlying asset, when the option becomes usable when the Average Interbank Interest Rate (TIIE by its initials in Spanish) exceeds an 8% value in each of the maturity dates of the Cebures coupons.
The exercise price is that agreed in the option and which is exercised if convenient for the buyer of the option. The instrument on which said price is set is the reference or underlying value. The premium is the price paid by the holder to the issuer for the right conferred by the option. The option premium was recorded as an asset on the date on which the operation was entered into. With respect to fluctuations arising from market valuation of the option premium, because it is classified as a cash flow hedge, the effective portion is applied to comprehensive income under stockholders’ equity in the “Income (loss) from valuation of cash flow hedging instruments” and the ineffective portion is applied to income for the period. The Institution suspends hedge accounting when the derivative matures, has been sold, is cancelled or exercised, when the derivative fails to reach an effective high to offset the changes in fair value or cash flows of the item hedged, or when it is decided to cancel the hedge designation. Upon suspending the hedge accounting of cash flows, the accumulated gain or loss corresponding to the effective portion of the hedging derivative recorded in stockholders’ equity as part of comprehensive income remains in stockholders’ equity until such time as the effects of the forecasted transaction or firm commitment affect income. In the event the firm commitment or forecasted transaction are no longer likely to occur, the gain or loss recognized in the comprehensive income account is immediately applied to income. When hedging of a forecasted transaction was shown as prospectively satisfactory and is subsequently shown not to be highly effective, the accrued effects on comprehensive income in stockholders’ equity are proportionately applied to income, to the extent that the forecasted asset or liability affects income. At December 31, 2009, management determined that hedging is fully effective. d. Loan Portfolio - Represents the unpaid balance of the amounts actually delivered to borrowers, plus uncollected interest earned and is recorded at its value determined as per the Law. Loans are granted based on an analysis of the customer’s application, the socioeconomic study conducted and the consultations made at the credit information bureaus. In some cases, an analysis is conducted of the borrower’s financial position, the economic feasibility of the investment projects and other general characteristics established in the law, the Institution’s manuals and internal policies. Loans are controlled by periodic visits to the client by Institution personnel, and by daily monitoring (through the system), where the personnel in question can follow-up on late payments. Loans are a recovered weekly, every two weeks or monthly, when clients make loan payments in the form of deposits in accounts contracted by the Institution at other multiple banking institutions exclusively for that purpose, as well as the correspondents to conduct this type of operations. Evaluation and follow-up on the credit risk of each client is handled on the basis of their credit history with the Institution, and of consultations of clients’ credit ratings at credit bureaus. The Institution’s policy for avoiding risk concentration is based principally on setting maximum amount limits on loans. The loan portfolio is considered to be non performing in the amount of overall unpaid loan balances when the debts consist of loans to be paid in installments of principal and interest and are 90 or more calendar days overdue. Interest is recorded as income when earned. However, this is no longer done when loans are transferred to non performing loans rather interest earned is controlled in memorandum accounts and is recorded as income when collec-
ted. As concerns regular interest earned but not collected on loans transferred to non performing loans, estimation is created for an amount equivalent to overall interest on the date of the transfer. The NIFs require recognition of interest earned and, when necessary, the creation of an allowance for doubtful accounts based on a recoverability study. Once the outstanding balances of past-due loans (principal and interest, among others) are settled, those loans are once again considered as current portfolio. Commissions on late payment of loans are recorded as income when the delay occurs. At December 31, 2009 and 2008, the Institution has mainly a short-term loan portfolio. e. Allowance for loan losses - This reserve is determined applying the Accounting Criteria issued by the Banking Commission, for consumer lending, whose general methodology requires that the level of preventive reserves be calculated applying default probabilities based on the number of billing periods showing default at the date of rating and the likelihood of a 100% loss, using the following proceed: i. The portfolio is strategized in terms of the number of billing periods reporting default of the payment due established by the Institution at the date of the rating, using the historical date pertaining to payments of each loans of at least 18, 13 or 9 periods prior to that date, with respect to loans with weekly, biweekly or monthly payments according to the following tables. With respect to new loans in which the record of payments does not meet the minimum required number of periods, the date available so far is used.
ii. For each stratum, the preventive reserves resulting from applying the percentages of the following preventive reserves to the total outstanding balance of loans in each tier, depending on whether or not the billing periods showing default are weekly, biweekly or monthly. In any event, the amount subject to rating does not include uncollected interest earned recorded in the balance sheet, pertaining to loans in the past-due portfolio.
Applicable table for loan with weekly billing:
Number of billing periods showing default Default probabilities (%) Percentage’s severity loss (%) Percentage of the preventive reserves (%)
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 or more
.5 1.5 3 5 10 20 30 40 50 55 60 65 70 75 80 85 90 95 100
0.5 1.5 3 5 10 20 30 40 50 55 60 65 70 75 80 85 90 95 100
Applicable table for loan with biweekly billing:
Number of billing periods showing default Default probabilities (%) Percentage’s severity loss (%) Percentage of the preventive reserves (%)
0 1 2 3 4 5 6 7 8 9 10 11 12 13 or more
.5 3 10 25 45 55 65 70 75 80 85 90 95 100
0.5 3 10 25 45 55 65 70 75 80 85 90 95 100
Applicable table for loan with monthly billing:
Number of billing periods showing default Default probabilities (%) Percentage’s severity loss (%) Percentage of the preventive reserves (%)
0 1 2 3 4 5 6 7 8 9 or more
.5 10 45 65 75 80 85 90 95 100
0.5 10 45 65 75 80 85 90 95 100
The Institution periodically evaluates whether or not a past due loan should remain in the balance sheet, or be charged off. When applicable, said charge off is conducted by canceling the unpaid balance of the loan against the preventive loan loss reserve. In the event the loan balance to be charged off exceeds that corresponding to the related reserve, prior to the charge off, said reserve is increased up to the amount of the difference. Repercussions related to charged off loans or loans eliminated from the balance sheet are applied to income for the period. The last rating of the loan portfolio was conducted as of December 31, 2009 and Management considers that the reserves resulting from said rating are sufficient to absorb the portfolio’s loan loss risks. See Note 9. f. Other accounts receivable - Accounts receivable other than the Institution’s loan portfolio represent, among other items, loans made to employees and items directly related to the loan portfolio, such as litigation expenses and debts of the correspondents. For employee loans and other accounts receivable, including debts of the correspondents related to debts whose maturity is more than 90 calendar days, a reserve is set up for the total amount of the debt. MFRS require, when applicable, setting up an allowance for doubtful account, after conducting an analysis and evaluation of the real possibilities of recovering accounts receivable likely to be irrecoverable. See Note 10. g. Furniture and equipment - As of December 31, 2009, furniture and equipment are stated as follows: i) acquisitions conducted as from January 1, 2008 at their historical cost, and ii) domestic acquisitions made up to December 31, 2007 at their restated values, determined applying factors derived from the Investment Units (UDI, by its initials in Spanish), to their acquisition costs up to December 31, 2007. See Note 11. Depreciation is calculated using the straight-line method, based on its estimated usefull life by the administration of the Institution. In the period ended December 31, 2009, the charge to income in the item of administrative and promotion expenses for depreciation was Ps62 (Ps49 in 2008) and for amortization was Ps22 (Ps16 in 2008). See Note 11. h. Deferred income tax - Is recorded by the comprehensive asset-and-liability method, which consists of recognizing deferred tax on all temporary differences between the book and tax values of assets and liabilities expected to materialize over time, at the rates set forth in the tax provisions in effect at the date of the financial statements. See Note 16. The effects of deferred Employees’ Statutory Profit Sharing (ESPS) are not calculated, as is determined based on the provisions of article 127, section III, of the Federal Labor Law. i. Other assets, differed charges and intangibles - These are recorded in the balance sheet, they are identifiable, and generate future economic benefits that are controlled by the Institution. When applicable, amortization is calculated based on the estimated useful life of said assets. At December 31, 2009, amortization is stated as follows: i) acquisitions conducted as from January 1, 2008, at their historical cost, and ii) domestic acquisitions made up to December 31, 2007, at their restated values, determined applying factors derived from the UDI to their acquisition costs up to December 31, 2007. See Note 12. j. Long life assets, both tangible and intangible, are subject to impairment testing. Assets with an indefinite life are subject to annual impairment testing and assets with a definite life are only subject to impairment testing when there are signs of impairment.
k. Liabilities arising from deposits include resources pertaining to promissory notes issued which are recorded at placement cost, plus interest earned, determined by the straight-line method for days elapsed at the close of each month, which is charged to income for the period as accrued. See Note 13. Issue expenses are initially recognized as deferred charges and amortized against income for the period, according to the term of the securities from which they arose. l. Interbank and other entities loans - Refer to credit lines and other loans obtained from banks. They are recorded at the contractual value of the liability recognizing interest as it is accrued. See Note 14. m. Provisions - Provisions for liabilities represent present obligations arising from past events, likely to require the use of economic resources to settle the obligation in the short term. These provisions have been recorded under Management’s best estimate. At December 31, 2009, the Institution recognized provisions totaling Ps105, arising from the remaining balance payable of the productivity bonus, ESPS, commissions and expenses pertaining to projects still in the implementation phase of Ps5, Ps53, Ps17 and Ps30, respectively. At December 31, 2008, the Institution recognized provisions totaling Ps68, pertaining to the productivity bonus and ESPS, Ps28 and Ps40, respectively. Which were recognized in the administration and promotional expenses caption. NIF require that ESPS currently payable and deferred be shown under other expenses. n. Employee benefits - The benefits granted by the Institution to its employees are described as follows: Direct benefits (salaries, vacations, holidays and paid leave of absence, among others) are applied to income as they arise and the related liabilities are stated at their nominal value, due to their short-term nature. Absences payable under legal or contractual provisions are noncumulative. Employee benefits upon termination of employment for reasons other than restructuring (severance), as well as retirement benefits (seniority premium) are recorded based on actuarial studies conducted by independent experts by the projected unit credit method. See Note 15. The net cost for the period of each benefit plan is recognized as an operating expense in the year in which it becomes payable, which includes, among other items, amortization of the labor cost of past services and prior years’ actuarial gains. Unamortized items as of December 31 2007, recognized as a transition liability, including the labor costs of past services and unamortized actuarial gains (losses), are amortized as from January 1, 2008, over a five-year period, rather than over the employees’ estimated working lifetime up to 2007, of 19 and 8 years, for seniority premiums and severance, respectively. As a result of this change, income for the 2008 period showed an additional charge of Ps.21, corresponding only to termination of employment benefits. As from January 1, 2008, actuarial studies of employee benefits incorporate a hypothesis based on salary history. The effect of having considered this item in the actuarial calculations gave rise to an additional charge to income for the 2008 period of Ps.11, corresponding to benefits upon termination of employment. o. Interest income - Interest gained from investments in securities and from the loan portfolio is applied to income as it arises, as per the imputed-interest or straight-line method, as applicable. See Notes 21 and 22. p. Interest expense - This item includes interest accrued on financing received to fund the operations of the Institution and the interest accrued from the term deposits received, cebures issued and interbank loans. See Notes 21 and 22.
q. Stockholders’ equity - Capital stock, the capital reserves and prior years’ income are stated as follows: i) movements made as from January 1, 2008 at their historical cost, and ii) movements made prior to January 1, 2008, at their restated values determined by applying factors derived from UDI to their historical values at December 31, 2007. Consequently, the different stockholders’ equity items are stated at their modified historical cost. r. Repurchase of own shares - The own shares acquired are shown as a decrease in the fund for repurchase of own shares, included in the financial statements under capital reserves. Dividends received are recognized by decreasing their cost. With respect to the sale of shares, the amount obtained in excess or deficit of their restated cost is recognized in the premium on the sale of shares. In 2009 and 2008, the Institution has conducted no sales of repurchased shares. s. Comprehensive income - Comprehensive income comprises the net income, result from valuation of cash flow hedging instruments and items required by specific accounting standards to be included in the stockholders’ equity but which do not constitute capital contributions, reductions or distributions. The amounts of the comprehensive income from 2009 and 2008 are expressed at their modified historical million pesos. t. Earnings per share - This represents the result of dividing the profit for the period by the weighted average number of current shares. For the periods ended on December 31, 2009 and 2008, the profit per share is Ps3.48 and Ps2.62, respectively. u. Fees paid to the Institute for Protection of Bank Savings (IPAB by its initials in Spanish) - Fees payable by multiple banking institutions for protection of bank savings are covered to establish a system for protection of bank savings of parties conducting guaranteed operations in the terms and with the restrictions stipulated in the law, as well as to regulate the financial support granted to multiple banking institutions for the protection of the saving public’s interests. See Note 17. v. Foreign currency transactions - Are initially recorded in the recording currency, applying the exchange rate prevailing on the transaction date. Assets and liabilities denominated in foreign currency are stated in local currency at the rate of exchange in effect on the balance-sheet date. Differences arising from fluctuations in exchange rates between the dates on which transactions are entered into and those on which they are settled, or valuation at the close of the period, are applied to income in the intermediation result caption. See Note 5. w. Information per segment - The Accounting Criteria establishes that in order to identify the different operating segments that comprise multiple banking institutions, said institutions must segregate their activities according to the following segments: i) loan operations; ii) treasury and investment banking operations, and iii) operations conducted on behalf of third parties. In addition, due to the importance of the matter in question, additional operating segments and subsegments can be identified. MFRS do not require said predetermined desegregation. See Note 22. Accounting criteria do not require disclosure per geographic area where the Institution is represented, from which the segment identified derives income or maintains productive assets as if required under MFRS. See Note 9.
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS:
The CINIF issued, during December 2009, a series of MFRS and their Interpretations (INIF by its initials in Spanish) which became effective on January 1, 2010, with exception of the INIF 18, which became effective as of December 7, 2009, and the MFRS B-5 and B-9 which will take effect as of January 1, 2011. Such MFRS and interpretations are not considered to have a significant impact in the financial information presented by the Institution. MFRS B-5 “Financial information by segments” It establishes the general standards to disclose financial information by segments, additionally it allows the user or such information analyze the entity from the same vision as the management and allows to present information by segment more consistent with its financial statements. This standard leaves the Statement B-5 “Financial information by segment” without effect, which will be effective up to December 31, 2010. MFRS B-9 “Financial information at interim dates” It establishes standards for the determination and presentation of financial information at interim dates for external use where it is required, among other, the presentation of the statement of changes in stockholders’ equity and of cash flows, such statements were not required by Statement B-9 “Financial information at interim dates”, which will be effective up to December 31, 2010. INIF 18 “Recognition of effects of the tax reform 2010 in the income tax”. The INIF 18 was issued to give response to diverse questioning of the financial information preparatory related with the tax reform 2010 effects, specially for the changes established in the tax consolidation regime and modifications to the income tax rate.
NOTE 5 - FOREING CURRENCY POSITION:
Central Bank regulations establish the following standards and ceilings for operations in foreign currencies carried out by the credit institutions: 1. The (short or long) position in US dollars (Dlls.) must not exceed a maximum of 15% of the Institution’s net capital. 2. The foreign currency position must not exceed 2% of net capital, except as concerns the dollar or currencies referred to the US dollar, which can reach up to 15%. 3. Liabilities in foreign currency must not exceed 1.83 times the Institution’s basic capital. 4. The foreign currency operations investment regulations make it necessary to hold a minimum amount of liquid assets, in accordance with a calculation mechanism established by Central Bank, based on the maturity of operations in foreign currency. As of December 31 2009 and 2008, there are assets and liabilities in dollars:
Assets Liabilities Long position in dollars
At December 31, 2009 and 2008 the exchange rate determined by Central Bank and used by the Institution to value its assets and liabilities in foreign currency was Ps13.0659 for the US dollar (Ps13.7738 in 2008). At February 22, 2010, issued date of the financial statements the exchange rate was Ps12.8337 for the US dollar.
During October 2008, the Mexican peso suffered devaluation against foreign currencies; as regards the US dollar, the exchange rate slipped by approximately 25% with respect to the exchange rate at January 1, 2008. As a result, the Institution obtained an exchange gain of Ps1 and an exchange loss of Ps1 at December 31, 2008, as shown in the income statement under other income and other expenses, respectively.
NOTE 6 - CASH AND DUE FROM BANKS:
This item is composed as follows:
December 31, 2009 2008
Cash Central Bank Mexican banks Foreign banks Restricted availabilities*
29 1,252 1,281 -
54 1,470 1,524 1
At December 31, 2009, the Institution has restricted cash and cash equivalents of Ps207 (Ps205 in 2008) corresponding to monetary regulation deposits with Central Bank (Banxico by its initials in Spanish), as per Circular 36/208 of August 1, 2008 issued by Central Bank, and include the savings fund of Institution employees totaling Ps2. During 2009, interbank loans (call money) were conducted with a several institutions at an average rate of 5.53%, totaling Ps1,045 (Ps1,265 in 2008, at an average rate of 7.75%). At December 31, 2009, interest obtained from monetary regulation totaled Ps12 (Ps5 in 2008). As of December 31, 2009, the average call money contracting term is one day, and interest obtained total Ps43, where as of December 31, 2008, interest totaled Ps37. As of December 31, 2009 and 2008, the Institution has no precious metals, coins or position in foreign bills and coins.
NOTE 7 - INVESTMENTS IN SECURITIES:
Cash surpluses resulting from Institution operations are invested in debt instruments, and the best available rate is always arranged with the counterparties involved. Investments in securities are subject to different types of risks directly related to the market in which they operate, such as interest rates and risks inherent to credit and market liquidity. Risk management policies, as well as the analysis of the risks which the Institution is exposed to are described in Note 23. Investments in securities are as follows:
December 31, Acquisition cost Interest accrued 2009 Valuation increase (decrease) Market value 2008 Market value
Debt securities: Promissory note with liquefiable yield to maturity Debt instruments: Government securities: Cetes
The purpose of securities classified as trading is to obtain short-term earnings as a market participant. The average maturity terms of these securities range between 28 and 40 days for 2009 and between 28 and 42 days for 2008. At December 31, 2009 and 2008, the average rates of investments were 5.76 and 7.59%, respectively. In addition, for the years ended December 31, 2009 and 2008, interest income from investments of trading securities amounted to Ps32 and Ps9, respectively. In addition, in 2009 and 2008, the appreciation (depreciation) in market value credited (charged) to income totaled Ps - y Ps - , respectively, as concerns valuation results, and Ps - y Ps - , respectively, as concerns results from purchase/sale; both recognized in the “intermediation result” caption in the statement of income. As of December 31, 2009 and 2008, the Institution had no investments in securities other than government securities comprised of debt securities pertaining to the same issuer, accounting for 5% of the Institution’s net capital.
NOTE 8 - DERIVATIVIES:
At December 31, 2009, the Institution has entered into the following option agreement:
2009 Type of operation Underlying asset Reference amount Premium paid Fair value 2008 Fair value
As of December 31, 2009, the Management does not expect that any terms and conditions that could significantly affect the amount, term and degree of certainty of future cash flows: At December 31, 2009, the Institution entered into an interest rate hedging option to cover the upwards trend of interest rates on Cebures (see Note 13), generating a loss of Ps4, which was recognized in result from valuation of cash flow hedging instruments caption under stockholders’ equity as part of comprehensive income. At December 31, 2009, no option caplets have yet been exercised. The Institution documented the hedge as pertaining to cash flows, as it expects that as a result of the volatility of financial markets, the rate could be affected and exceed 8% during issuance of the Cebures. Based on the value of TIIE at December 31, 2009, Management does not expect to exercise any of the caplets; therefore, the charge or credit to income will be conducted as each of the caplets matures, with respect to the premium originally paid.
The description of the following aspects is mentioned in Note 23, Risk management: a) Methodology used to value the option; b) manner of evaluating the effectiveness of the hedge, and c) risks to which the operation is exposed.
NOTE 9 - LOAN PORTFOLIO:
The loan portfolio is composed principally of fixed rate loans for a term of four months with a fixed rate and joint guarantee. Capital and interest is paid weekly. As of December 31, 2009 and 2008, performing loans and non performing loans are composed as follows:
Performing loans: Principal 2009 Accrued interest Total portfolio
Consumer Non-performing loans: Consumer Total loan portfolio
Ps 7,367 175 Ps 7,542
Ps 92 11 Ps 103
2008 Accrued interest
Ps 7,459 186 Ps 7,645
Consumer Non-performing loans: Consumer Total loan portfolio
Ps 5,562 94 Ps 5,656
Ps 73 4 Ps 77
Ps 5,635 98 Ps 5,733
Income from interest and commissions segmented by type of loan are composed as follows:
Interest income Year ended December 31, 2009 2008
Ps 4,810 Ps 70
Ps 3,567 Ps 54
As of December 31, 2009 and 2008 loans made, segmented by economic sector, are as follows:
2009 Economic activity Amount % Amount 2008 %
Commerce Construction Professional services Agriculture Cattle raising Manufacturing Other Total
Ps 6,817 3 166 41 109 56 453 Ps 7,645
89 2 1 1 1 6 100
Ps 5,052 3 121 31 94 51 381 Ps 5,733
88 2 2 1 7 100
The distribution of the loan portfolio by geographical region is as follows:
December 31, 2009 State: Current Overdue Current 2008 Overdue
Aguascalientes Baja California Baja California Sur Campeche Chiapas Chihuahua Coahuila Colima Distrito Federal Durango Estado de México Guanajuato Guerrero Hidalgo Jalisco Michoacán Morelos Nayarit Nuevo León Oaxaca Puebla Querétaro Quintana Roo San Luis Potosí Sinaloa Sonora Tabasco Tamaulipas Tlaxcala Veracruz Yucatán Zacatecas Total principal Interest accrued Total portfolio
28 60 23 93 536 36 224 42 111 116 616 116 387 138 132 258 163 34 348 408 583 48 172 149 85 137 436 275 236 1,186 160 31 7,367 92
1 1 29 1 6 1 14 2 20 2 6 1 4 6 2 1 13 9 6 1 4 6 1 2 8 4 1 15 8 175 11
18 11 3 66 539 17 181 16 85 89 454 59 288 89 71 211 141 16 261 353 466 49 140 100 45 68 312 174 188 883 151 18 5,562 73
Ps 1 1 10 1 3 6 1 14 3 2 2 4 1 6 3 6 1 4 1 2 4 2 1 14 1 94 4 Ps 98
As of December 31, 2009 and 2008 no loans have been granted to related parties. As of December 31, 2009 and 2008 aging of the overdue loan portafolios is as follows:
December 31, 2009 Days old Type of portfolio: 1 to 180 181 to 365 1 to 2 years more than 2 years Total
Total portfolio Consumer loans
December 31, 2008 Days old
Type of portfolio:
1 to 180
181 to 365
1 to 2 years
more than 2 years
Total portfolio Consumer loans
Following is an analysis of the movements of the past-due portfolio, for the years ended December 31, 2009 and 2008:
December 31, 2009 2008
Balance at the beginning of the year Plus: Transfer of performing loan Less: Write off Collected Non-performing loans at the end of the period
171 166 Ps 186
84 66 Ps 98
Interest and commission income for the 2009 and 2008 periods according to the type of credit was comprised as follows:
Performing loans: Interest 2009 Commission Total 2008 Total
5 Ps 4,810
70 Ps 70
75 Ps 4,880
56 Ps 3,621
Interest on the past-due portfolio, not applied to income as per the accounting criteria, in 2009 totaled Ps9 (Ps2 in 2008). As of December 31, 2009 and 2008, the amount recovered on the previously charged-off loan portfolio totaled Ps1. The authorization of loans as the responsibility of the Board of Directors is centralized around committees and officers empowered to authorize loans, who in turn can delegate this authorization to the service office’s personnel.
As concerns loan management, the general process is defined from the promotion to recovery of the loan, and the policies, procedures and responsibilities of the officers involved and the tools to be used in each stage of the process are specified by business unit. The loan process is based on an in-depth analysis of loan applications in order to determine the overall risk of the borrower. During the periods ended December 31, 2009 and 2008, the loans were not restructured and therefore, no interest arising from capitalization from loan restructurings was recognized.
Allowance for loan loss reserve
As of December 31, 2009 and 2008, the rating of the overall portfolio and the provisions created are as follows:
December 31, 2009 Risk Rated loan portfolio % Amount % Required provision Amount
[A] [B] [C] [D] [E]
91 6 1 1 1 100
Ps 6,922 452 69 92 110 7,645
13 9 11 26 41 100
Ps 35 24 28 68 108 263
Loan portfolio Additional allowance reserve for own methodology Allowance for loan reserves recorded
Ps 7,645 Ps 263
December 31, 2008
Rated loan portfolio %
Required provision Amount
[A] [B] [C] [D] [E]
90 7 1 1 1 100
Ps 5,166 400 58 52 57 5,733
16 12 14 24 34 100
Ps 26 19 23 38 56 162
Loan portfolio Additional allowance reserve for own methodology Allowance for loan loss reserve recorded
Ps 5,733 Ps 162
The movements in the allowance for the coverage of credit risks in the 2009 and 2008 were as follows:
December 31, 2009 2008
Balance at the beginning of the period Plus: Increase in the preventive loan loss reserve Less: Application of reserves Preventive loan loss reserve
181 Ps 263
90 Ps 162
At December 31, 2009 and 2008, the preventive loan loss reserve set up by the Institution totals Ps2 and Ps1, respectively, as a complement to reserve 100% of past-due interest at the closing of said periods. The preventive loan loss reserve is determined applying the “General provisions applicable to credit institutions” (Provisions) issued by the Banking Commission, for the non-revolving consumer loan portfolio, whose general methodology requires that the level of preventive reserves be calculated applying default probabilities based on the number of billing periods showing default at the date of rating and the likelihood of a 100% loss. The preventive reserves set up for the non-revolving consumer loan portfolio with an A risk level as considered as general. Said determination is conducted in accordance with the Provisions. Following is a breakdown of the general and specific preventive reserves:
2009 Portfolio General Specific General
Total consumer loans
NOTE 10 - OTHER ACCOUNTS RECEIVABLE - NET:
At December 31, 2009 and 2008 this item is comprised as follows:
December 31, 2009 2008
Portfolio accessories Other receivables Social securities receivable Debit by intermediation
Ps 11 5 4 71 91
Ps 7 2 5 84 98 (14) Ps 84
Less: Allowance for doubtful accounts
(13) Ps 78
NOTE 11 - FURNITURE AND EQUIPMENT ANALISYS:
As of December 31, 2009 and 2008, this item is comprised as follows:
December 31, Destined for the Institution’s own use 2009 2008 Depreciation rate (%)
Office furniture and equipment Transportation equipment Computer equipment Less accumulated depreciation
Ps 81 40 188 309 (162) 147 23 Ps 170
Ps 74 36 161 271 (111) 160 38 Ps 198
10 25 30 y 25
Installation expenses (leasehold improvements) - Net
Assets entirely depreciated total Ps76 and Ps48, respectively at December 31, 2009 and 2008, corresponding to transportation equipment, computer equipment and improvements. Furniture and equipment are not securing bank loans or any other type of loans.
* The amortization rate for leasehold improvements installation expenses is based on the term of the lease agreement for each service offices..
NOTE 12 - OTHER ASSETS, DEFERRED CHARGES AND INTAGIBLES:
As of December 31, 2009 and 2008, this item is comprised as follows:
December 31, 2009 2008
Guarantee deposits (a) Insurance (b) Other intangibles Issuance costs
Ps 15 5 2 16 38 3 Ps 35
Ps 15 1 18 34 Ps 34
(a) Not amortizable, subject to recovery upon expiration of each leasing agreement for the respective service office. (b) Insurance is amortized according to the duration of each policy. The amounts charged to income in the 2009 and 2008 periods were Ps14 and Ps12, respectively.
NOTE 13 - DEPOSITS:
Traditional fund entries include time deposits. As of December 31, 2009 and 2008, the interest rate on time deposits was 3 and 6%, and the rate for certificates of deposit (Cedes, by its acroyan in Spanish) was determined as the TIIE plus an average of 1%. During 2009, the unsecured long-term Cebures were issued, as follows:
Amount of program
Amount of issue
Date of issuance
Date of maturity
COMPART 09* Interest payable Total debt issuance
TIIE 28 days + 20.0 pb Ps 1,500 7 Ps 1,507
* There is a CAP hedging this operation..
The notes are unsecured. Interest earned in 2009 were Ps42. Time deposits At December 31, 2009, the certificates of deposit and Cebures as follows::
Concept 1 to 179 days 6 to 12 months More than 1 to 2 years Over 2 years Balance Contractual value
Certificates of deposit Cebures Total
Ps 549 Ps 549
Ps 330 Ps 330
At December 31, 2008, the certificates of deposits matured as follows:
Concept 1 to 179 days 6 to 12 months More than 1 to 2 years Over 2 years Balance Contractual value
Certificates of deposit Total
Ps 1,647 Ps 1,647
Ps 602 Ps 602
Ps 331 Ps 331
Ps 2,580 Ps 2,580
Ps 2,570 Ps 2,570
NOTE 14 - INTERBANK LOANS AND LOANS FROM OTHER ORGANISMS:
As of December 31, 2009, the Institution had contracted the following loans:
December 31, 2009 2008
Immediate demandability and short-term: Loans of multiple banking Development banks loans Promotions funds Total immediate demandability and short-term Long-term: Loans of multiple banking Promotion funds Total long-term Total interbank loans and loans from other organisms 200 100 300 Ps 2,311 1,370 1,370 Ps 2,364 Ps 1,126 885 2,011 Ps 100 704 190 994
With respect to the lines of credit received by the Institution, at December 31, 2009, the unused portion is as shown below:
Institution Line of credit received Portion still unused
FIRA Nafin BBVA Bancomer, S. A. Banco Nacional de México, S. A. Banco Interacciones, S. A. Banco Ve por Más, S. A. CAF Banco Mercantil del Norte, S. A.
Ps 2,000 1,500 550 350 200 200 131 100
Ps 1,015 375 302 350 200 131 100
At the December 2009 and 2008 close, the Institution had resources obtained from NAFIN and FIRA were Ps2, 111 and Ps2, 264, respectively. As of December 31, 2009, the Institution has entered into a current account loan agreement. • In accordance with the loan agreement, the resources provided by FIRA were intended to grant short-term loans for working capital to individuals and entities engaged in the production, stockpiling and distribution of goods and services from and for the farming, forestry and fishing sectors; as well as for agro-industry and other related activities, or that conduct activities in the rural sector, whether directly or through third parties handling methodologies and systems to begin and manage microloan operations authorized by FIRA. • With respect to Nafin, the resources were assigned to Micro-entrepreneurs. Interest earned in the period on Nafin and FIRA loans totaled Ps159. Loans at December 31, 2009, had average interest rates of 6.31% for loans in Mexican pesos. Under article 106, sections I, II and III of the law, the Institution may not: “I. Pledge its property. II. To provide as a guarantee, including pledge, surety bond guarantee or guarantee trust, cash, credit rights or certificates were securities in its portfolio, except in the case of operations with the Central Bank, with development banks, with the Institute for the Protection of Bank Savings or public trusts created by the Federal Government to boost the economy. III. Pledge debt securities issued or accepted by them or kept in their treasury”.
NOTA 15 - EMPLOYEES’ BENEFITS:
a. Reconciliation between the initial and final balances of the defined benefit obligations (OBD by its initials in Spanish) present value for the period 2009 and 2008:
Financial position of assets and liabilities
Pre-retirement legal compensation 2009 2008
Pre-retirement seniority premium 2009 2008
Seniority premium at retirement 2009 2008
OBD at beginning of period More (lees): Labor cost of current service Financial cost Actuarial earnings generated in the period Paid benefits OBD reductions Paid benefits OBD at the end of the period
(Ps 11.169) (Ps 8.374) (6.283) (0.791) (4.546) (0.612)
(Ps 2.723) (Ps 1.920) (1.203) (0.213) (0.996) (0.149)
(Ps 1.093)(Ps 1.052) (0.490) (0.089) (0.468) (0.086)
2.414 1.005 1.792 1.358 (Ps 14.037) (Ps 11.169)
(0.043) 0.183 0.317 0.159 (Ps 3.865) (Ps 2.723)
(0.023) 0.513 (0.006) 0.143 (Ps 1.558)(Ps 1.093)
b. The value of the acquired benefits obligations at December 31, 2009 and 2008 amounted Ps 0.037 and Ps 0.024, respectively. c. Conciliation of the OBD, plan assets (AP, by its initials in Spanish) and the Net Projected Liability (PNP, by its initials in Spanish). Reconciliation between the OBD present value and the AP fair value and the PNP recognized in the balance sheet:
Labor liabilities Pre-retirement legal compensation 2009 2008 Pre-retirement seniority premium 2009 2008 Seniority premium at retirement 2009 2008
OBD at beginning of period Plan assets Financial position of plan Amortization pending items Actuarial (gains) losses Transition liability Compensation increase PNP
(Ps 14.037) (Ps 11.169) (14.037) (11.169)
(Ps 3.865) (Ps 2.723) (3.865) (2.723)
(Ps 1.558)(Ps 1.093) (1.558) (1.093)
1.091 1.455 (Ps 12.946) (Ps 9.714)
0.080 0.107 (Ps 3.785) (Ps 2,616)
0.069 0.071 (0.337) (0.399) (Ps 1.825)(Ps 1.421)
d. Period net cost (CNP by its Spanish acronym) An analysis of the CNP by plan type is presented as follows:
Financial position of assets and liabilities CNP 2009 Pre-retirement legal compensation 2009 2008 Pre-retirement seniority premium 2009 2008 Seniority premium at retirement 2009 2008
Labor cost of the current service Financial cost Net actuarial (earning) loss Labor cost of past service Reduction/Liquidation Amortization transition liability Total
Ps 6.283 0.791 (2.415) 0.364 Ps 5.023
Ps 4.546 0.612 (1.873) 0.122 0.364 Ps 3.771
Ps 1.203 Ps 0.996 0.213 0.043 0.027 0.149 0.027 0.027 0.005
Ps 0.490 Ps 0.468 0.089 (0.008) 0.002 (0.169) 0.086 0.002 0.003
Ps 1.486 Ps 1.204
Ps 0.404 Ps 0.559
e. Main actuarial assumptions:
The main actuarial assumptions used, expressed in absolute terms, as well as the discount rates, assets yield plan, salaries increases and changes in the indexes or other changes, referred at December 31, 2009, are as follows:
Age Death % 2009 2008 Disability % 2009 2008 Dismissal % 2009 2008 Resignation % 2009 2008
15 25 35 45 55 64
0.05 0.06 0.11 0.27 0.81 2.07
0.04 0.09 0.19 0.35 0.71 1.55
0.09 0.09 0.11 0.26 1.40 0.61
0.02 0.04 0.07 0.12 0.20 0.27
2.38 1.24 0.63 0.24 0.09 0.008
3.28 1.82 0.96 0.42 0.15 0.07
19.25 10.10 5.11 2.00 0.74 0.07
20.46 10.84 5.57 2.42 0.84 0.38
Discount rate: Rate of salary increases: Rate of increases to the minimum salary:
% 8.48 5.82 5.04
% 8.16 5.82 5.04
f. OBD and AP value and plan situation at the end of the last five annual periods:
The OBD value, the AP fair value, the plan situation, as well as the adjustments by experience of the last five years are shown as follows:
Seniority premium plan
Year OBD Historical values AP Plan situation Adjustments by experience OBD (%)
2009 2008 2007 2006 2005
Ps 5.423 3.816 2.972 1.633 1.048
Ps 5.423 3.816 2.972 1.633 1.048
6 10 11 1 5
Benefit plan at termination
Year OBD Historical values AP Plan situation Adjustments by experience OBD (%)
2009 2008 2007 2006 2005
Ps14.037 11.169 8.374 4.900 3.050
Ps14.037 11.169 8.374 4.900 3.050
10 21 11
During 2009 and 2008, the Institution used the provisions of article 127, section III of the Federal Labor Law as the basis for calculation of ESPS. For 2009 totaled Ps40 and in 2008 was Ps28, recognized under administrative and promotion expenses in the income statement. ESPS shown in the financial statement for the year ended December 31, 2008 has been reclassified from the other expenses item to administration and promotion expenses, for purposes of comparison with that used in 2009.
NOTE 16 - INCOME TAX AND FLAT TAX: a. Income tax
In 2009 and 2008 the Institution determined tax profits of Ps2, 137 and Ps1, 350, respectively, which exceeded those determined for flat tax (IETU by its initials in Spanish) purposes. The tax results differ from the accounting result, mainly in such items cumulative by the time and deducted differently for accounting and tax purposes, by the recognition of the inflation effects for tax purposes, as well as such items only affecting either the accouting or tax results. Based on its financial and tax projections, the Institution’s management determined that the tax to be paid in the future will be the income tax, therefore it has been recognized the deferred income tax. On December 7, 2009 the decreed by which diverse provisions of the Income Tax Law are reformed, added an derogated for 2010, which establishes, among other, that the Income Tax Rate applicable from 2010 to 2012 will be 30%, for 2013 will be 29% and as of 2014 will be 28%. At December 2009, the rate change previously described produced an increasing to the income tax deferred balance of Ps6, with its corresponding effect in the income statement of the year, wich was determined based on the expectatives of temporary reversion to the effective rates. The reconciliation between the current and effective tax rates is shown below:
December 31, 2009 2008
Income tax at the real rate (28%) Plus (minus) the effective income tax on: Deductible annual inflation adjustment Nondeductible preventive reserve for a credit risks Difference between book and tax depreciation Other (deductible) non deductible - Net Current income tax Deferred income tax Income tax provision Effective income tax rate
Ps 569 (31) 33 5 23 599 (56) Ps 543 27%
Ps 408 (43) 7 5 1 378 (42) Ps 336 23%
At December 31, 2009 and 2008 the principal temporary differences on which deferred income tax was recognized were as shown below:
December 31, 2009 2008
Provision for loan loss reserves Furniture and equipment Expenses of installation Valuation of instruments Provisions
Ps 116 (18) 66 5 132 301 30% Ps 90
(Ps 2) (22) 44 97 117 28% Ps 33
Income tax rate Deferred income tax
IETU of the period is calculated at the 17% rate (16.5% for 2008) on the profit determined with base on the cash flow, such net income represents the difference between the total income collected by taxable activities, less the authorized tax deduction paid. In addition, it is also allowed to reduce this amount with the Flat tax credits, based on the procedures established in the law. As from 2010, the flat tax rate is 17.5%.
NOTE 17 - INSTITUTE FOR THE PROTECTION OF BANK SAVINGS:
The Bank Savings Protection Law went into effect on January 20, 1999 as part of the measures adopted by the federal government to deal with the economic crisis arising in late 1994. The law provides for the creation of the IPAB to replace the Bank Savings Protection Fund. The purpose of the IPAB is to apply a series of preventive measures designed to avoid financial problems at banks and ensure compliance with bank obligations towards their depositors. The IPAB administers the Bank Savings Protection System, which was gradually restructured as per the transition guidelines established. The new System for the Protection of Bank Savings, in effect as from 2005, comprises, among other changes, that protection of deposits from the general public amount to the equivalent of 400,000 UDI (approximately Ps1.74 and Ps1.67 at December 31, 2009 and 2008, respectively), thus excluding interbank deposits and those payable to its stockholders and upper bank management, among others. Fees paid to the IPAB during 2009 and 2008 amounted to Ps14 and Ps9, respectively, charged directly to the results of each year.
NOTE 18 - STOCKHOLDERS’ EQUITY:
The Institution’s subscribed and exhibit was composed as follows, and continued unchanged at December 31, 2009 and 2008:
Series Shares* Description Amount
Minimum fixed capital with no withdrawal rights Accumulated inflationary restatement up to December 31, 2007 Capital stock as of December 31, 2009
Ps 428 59 Ps 487
* Ordinary nominative shares with a par value of Ps1 and a book value of Ps1.14 each one.
At the April 20, 2009 Ordinary General Stockholders’ Meeting, the stockholders agreed to apply income for the year ended December 31, 2008, increasing the legal reserve by Ps112, payment of dividends of Ps278, corresponding to Ps0.67 per share for payment of dividends through S. D. Indeval, S. A. de C. V., and the remaining balance of Ps730 to be applied to retained earnings. At the April 21, 2008 Ordinary General Stockholder’s Meeting, the stockholder’s agreed to apply income for the year ended December 31, 2007, increasing the legal reserve by Ps88, payment of dividends of Ps218, corresponding to Ps0.51 per share for payment of dividends through S. D. Indeval, S. A. de C. V., and the remaining balance of Ps571, to be applied to retained earnings.
At the August 26, 2008 Extraordinary and Ordinary General Stockholders’ Meeting, the stockholders agreed to set aside Ps700 million from the retained earnings shown in the financial statements at December 31, 2007 for the repurchase of own shares. Said amount can be exercised by management until it is exhausted and with no time restrictions. The net income for the year is subject to the legal provision requiring that at least 10% of the net income for each period be set aside to increase the legal reserve until it reaches an amount equivalent of the capital stock. Dividends paid are not subject to income tax if paid from the net tax profit account. Any dividends paid in excess of this account will cause a tax equivalent to 38.91% if they are paid on 2010. This tax would be payable by the Institution and may be credited against its income tax in the same year or the following two years or in its case against the flat tax of the period. Dividends paid that come from earnings previously taxed by income tax will not be subject of any kind of retention or additional tax payment. In the event of a capital reduction, the provisions of the Income Tax Law arrange any excess of stockholders’ equity over capital contributions, is accounted with the same tax treatment as dividends. The Ministry of Finance requires banks to have a percentage of capitalization on assets at risk, which are calculated by applying certain percentages depending on assigned risk. As of December 31, 2009, the Institution had complied with the percentage.
Minimum capital stock
The Institution’s subscribed and paid-in minimum capital is equivalent, in Mexican pesos, to the value of ninety million UDIs. The minimum capital stock required for the Institution to operate must be subscribed and paid-in. When the capital stock exceeds the minimum, at least 50% must be paid-in, provided this percentage is not below the established minimum. In order to comply with minimum capital requirements, the Institution can consider the net capital held, as per the provisions of article 50 of the Law. At no time can the minimum capital exceed net capital.
Capitalization a. Net capital
The Institution maintains net capital related to the market, credit and operating risk to which it is exposed, and which is not below the sum of the capital requirements pertaining to said types of risk, in terms of the Capitalization Requirement Rules for Multiple Banking Institutions issued by the Ministry of Finance. At December 31, 2009, the Institution is in compliance with the capitalization rules, which require it to maintain a certain net capital in relation to market and credit risks incurred in their operations, which may not be less than the amount arrived at by adding capital requirements for both types of risk.
Capitalization index Capitalization rules for financial institutions establish requirements for specific levels of net capital, such as a percentage of assets subject to market, credit or operating risks. The Institution’s capitalization Index (Icap by its acroyan in Spanish) at December 31, 2009 and 2008 is as follows: 42.6 and 44.6%, respectively. To calculate the Icap, assets are weighted according to the related market, credit and operating risk. The Icap on assets subject to credit risk at December 31, 2009 and 2008 is 48.7 and 48.6%, respectively. Following are the most relevant items of said Icap:
December 31, 2009 2008
Assets in market risk Assets in credit risk Assets in operating risk Total risk assets Net capital Index over assets subject to credit risk Index over assets subject to total risk
Ps 688 8,413 507 9,608 Ps 4,095 49% 43%
Ps 367 5,924 173 6,464 Ps 2,882 49% 45%
The Institution’s net capital requirement for its exposure to credit risk must have a minimum Icap of 8%, which is the result of multiplying the weighted assets for which the standards method was used. The net capital is determined by decreasing the amounts corresponding to investments in shares and intangible assets from stockholders’ equity, plus the general preventive reserves set up in an amount not exceeding 1.25% of the weighted assets subject to credit risk, as follows: Basic capital:
Stockholders’ equity Subordinated debentures and capitalization instruments Deduction of investments in subordinated instruments Deduction of investments in shares of financial entities Deduction of investments in shares of non - financial entities Deduction of financing granted for the acquisition of the Institution’s shares or entities, shares pertaining to the financial group Deduction of deferred taxes Deduction of intangibles and deferred expenses or costs Basic capital Complementary capital: Debentures and capitalization instruments General preventive loan loss reserves Complementary capital Net capital
Ps 4,061.0 (0.2)
Ps 2,856.7 (0.2)
34.6 34.6 Ps 4,094.9
25.8 25.8 Ps 2,882.3
In 2004, the Banking Commission issued general rules for rating multiple banking institutions on the basis of their capitalization indexes (categories I to V, with I being the best and V the worst) and, when pertinent, applying the necessary corrective measures to guarantee a proper capital amount that will allow for facing solvency problems experience by this type of institution. Multiple banking institutions will be notified by the Banking Commission of their rating with respect to their categories, as well as of the corresponding minimum corrective measures and/or special additional measures. In that regard, the minimum corrective measures include issuing reports to the Board of Directors of those institutions, the prohibition against entering into operations that can reduce the Institution’s Icap the preparation and presentation of a plan for the restoration of capital, the suspension of dividend payments to the stockholders and of the payment of compensations and bonuses to employees and officers, and obtaining authorization from the Banking Commission for opening new branches or purchasing assets, among others. Special additional corrective measures could be applied by the Banking Commission in addition to minimum corrective measures, which, depending on the category, could include from the requirement to issue more detailed reports to the Board of Directors of those institutions and the Commission, and contracting special auditors to deal with specific questions with external auditors authorized by the Banking Commission, to the replacement of officers, directors, statutory auditors and auditors, the modification of interest rate policies and withdrawal of the multiple banking institution’s operating permit. At December 31, 2009 and 2008, the Institution was classified in Category I.
b. Market risk
The capital required for the position of assets at market risk at December 31, 2009 and 2008 is as follows:
Amount of equivalent positions 2009 2008 Capital requirement 2009 2008
Operations at nominal rate in local currency Operations with debt instruments in Mexican pesos with spread and a reviewable rate Operations in Mexican pesos with real rates or denominated in UDI Operations in Mexican pesos with rate of return referred to the growth rate of the General Minimum Salary Positions in UDI or with return referred to the National Consumer Price Index Positions in Mexican pesos with rate of return referred to the growth rate of the General Minimum Salary Operations at nominal rate in foreign currency Positions in foreign currency or with return indexed to exchange rates Positions in shares or with return indexed to the price of a share or group of shares
Ps 687.2 0.5 Ps 687.7
Ps 323.3 43.5 0.2 Ps 367.0
Ps 55.0 Ps 55.0
Ps 25.9 3.5 Ps 29.4
c. Credit risk
The amount corresponding to weighted assets subject to credit risk and their respective capital requirements at December 31, 2009 and 2008 is described below per risk group and item:
Risk-weighted assets 2009 2008 Capital requirement 2009 2008
Risk Item group: Group I (weighted at 0%) Group III (weighted at 20%) Group III (weighted at 50%) Group III (weighted at 100%) Group VI (weighted at 100%) Group VIII (weighted at 125%) Permanent investments and other assets Ps 80.3 341.3 200.0 7,395.4 26.3 370.0 Ps 10.8 5,585.7 14.2 313.7 Ps 6.4 27.3 16.0 391.7 3.0 29.6 Ps 0.9 446.9 1.1 25.1
d. Credit risk
The capital requirement pertaining to exposure to operational risk for December 2009 and 2008 is Ps41 and Ps14, respectively, both equivalent to the corresponding percentage (15%), as established in Transitory Rule Eight of the rules setting forth the capitalization requirements for multiple banking institutions, of the average of the requirement for market and credit risks. Capital requirements are calculated periodically and the sufficiency of the Institution’s capital is evaluated. Over the past few years, the Institution has maintained high Icap, without relevant fluctuations.
NOTE 19 - COMMITMENTS:
The Institution entered into a number of lease agreements for its head office and service offices. The terms of these agreements range from two to five years. Rent payments to be made over the next three years amount to Ps180 (Ps94 in 2010, Ps56 in 2011 and Ps30 in 2012). The lease agreements for the service offices are, for the most part, Institution forms, containing the following clauses: purpose, intent, duration, rent, guarantee deposit, form of payment, expense, additional obligations, rescission, returning of the building, maintenance and leasehold improvements, assignment, absence of flaws and jurisdiction.
For the most part, contract renewals require that the lessor respect the preemptive right established in the legislation, as well as signature of a new lease agreement in the same terms and conditions set forth in the expiring agreement. The lessor is to grant the Institution 60 days prior to expiration of the agreement to conduct the renewal. The lessee will enjoy a term of 10 business days as from the first working date after the lessor delivers the agreement, in order for the former to decide whether or not to sign the agreement. The Institution does not sign lease agreements with an option to buy. Rent conditions are updated annually and increases are determined as per the National Consumer Price Index published by Central Bank the month immediately prior to signing the agreement supporting said increase.
In most cases, the annual increase is capped at 10% of the rent price paid the prior year, as a result of which, in the event of macroeconomic contingencies, said percentage will be applied. Rent increases must be supported through an amending agreement, to be signed 30 days prior to the date on which the rent is to be increased. The Institution’s lease agreements do not consider caps on dividend payments and debt contracting. At December 31, 2009 and 2008 lease payments of Ps107 and Ps90, respectively, were applied to income statement.
NOTE 20 - BALANCES AND OPERATIONS WITH RELATED PARTIES (SUBSIDIARIES AND THIRD PARTIES):
During the normal course of operations, the Institution conducted transactions with related parties. Related parties are defined as either individuals or entities holding direct or indirect control of 2% or more of the shares representing the Institution’s capital and the members of the Institution’s Board of Directors. Also considered as related parties are entities, as well as the advisors and officers thereof, in which the Institution has direct or indirect control over 10% or more their capital. The total sum of operations with related parties does not exceed 50% of the basic portion of the Institution’s net capital, as set out in article 50 of the Law. At December 31, 2009 and 2008, there are no accounts receivable from or payable to related parties. During the years ended December 31, 2009 and 2008, the following operations were conducted with related parties as if the compensation agreed for operations conducted with related parties were equivalent to that used in similar operations with independent parties. During the period, the Institution granted its key managerial personnel the following benefits:
Year ended December 31, 2009 2008
Short and long-term direct benefits
The principal transactions with related parties were as follows:
Year ended December 31, 2009 2008
Commissions Donations Advisory and services Others
Ps 2 Ps 3 Ps 2
Ps 33 Ps -
NOTE 21 - ADDITIONAL INFORMATION ON THE INCOME STATEMENT: Financial margin
For the years ended on December 31, 2009 and 2008 the financial margin is comprised as follows:
Year ended December 31, Interest income: 2009 2008
Loan portfolio interest Interest on cash equivalents Interest and premiums on repurchase operations Interest arising from investments in securities Interest expense: Time deposits Cebures (includes Ps3 by expenses of issuance) Interbank loans and loans from other organisms
Ps 4,810 55 32 Ps 4,897
Ps 3,567 42 5 9 Ps 3,623
Ps 109 45 164 Ps 318
Ps 200 48 Ps 248
Interests and commissions per type of loan
Interests and commissions per type of loan, for the years ended December 31, 2009 and 2008, are comprised as follows:
2009 Performing Non-performing Performing 2008 Non-performing
Consumer loans Total
Ps 4,805 Ps 4,805
Ps 75 Ps 75
Ps 3,565 Ps 3,565
Ps 56 Ps 56
Total operating revenue Intermediation result
In 2008 and 2009, the intermediation result showed a profit (loss) of Ps - and (Ps2), respectively. The items having an effect on the determination of this result are as follows:
Year ended December 31, 2009 2008
Result from valuation Investments in securities Repurchase operations and securities loans Derivative operations Total Other operating income (expenses) Loan portfolio recovered Donations Ps 2 (14) Ps 1 (9) Ps Ps Ps (1) (1) 2)
Operating result Other income and expenses
Following is a breakdown of other products and expenses:
Other income: Sales of buildings, securities and awarded Cancellation of provisions and sundry creditors Other items Total other income Other expenses: Diverse losses Other items Total other expenses
2 1 20
Ps 22 Ps 22
1 6 7
1 5 6
NOTE 22 - INFORMATION ABOUT OPERATIONS AND SEGMENTS: Financial margin
For the years ended on December 31, 2009 and 2008 the financial margin is comprised as follows:
Loan portfolio interest Interest arising from investments in securities Interest on cash equivalents Interest of premiums on repurchase operations
Ps 4,810 32 55 Ps 4,897
Ps 3,567 9 42 5 Ps 3,623
Interest expense: Time deposits Cebures Interbank loans and loans from other organisms Ps 109 45 164 Ps 318 Ps 200 48 Ps 248
The Institution has only loans classified as consumer loans, which means that they arise from interest earned on credit products offered, in addition to treasury operations such as interest arising from investments in securities and repurchase operations. Liability operations include time deposits, long term notes (Cebures) and interbank loans and loans from other organisms, which results in interest expense. The presentation of information by segment uses a different grouping from that used in the statement of income.
Following are the different interest and commission income and expenses used to analyze the financial information by segment:
Year ended December 31, 2009 2008
Loan portfolio interest Interest arising from investments in securities Interest on cash equivalents
Ps 4,810 32 55 4,897
Ps 3,567 14 42 3,623 54 Ps 3,677 Ps 200 48 248 104 Ps 352
Commissions received on credit operations Total income Interest payable on traditional fund entries Interest payable of Cebures Interest payable on interbank loans
70 Ps 4,967 Ps 109 45 164 318
Commissions and fees paid Total
144 Ps 462
NOTE 23 - COMPREHENSIVE RISK MANAGEMENT (CRM):
The Institution’s recognizes that the essence of its business is to assume risks in seeking potential financial and social returns. Consequently, CMR is a core component of the business strategy, as it promotes a risk management culture, establishing the guidelines for identifying, measuring, oversight and control of the different types of risks faced during the normal course of operations. The Institution’s CRM is considered to be an on-going process involving all levels of management. The structure for the Institution’s CRM is based on the following guidelines: a. b. c. d. e. f. Commitment of Top Management and the Board of Directors to properly manage risks encountered. On-going supervision of CRM policies and procedures. Clear segregation of duties to ensure independence and objectivity in risk management. Formal cooperation between the CRM structure and the business units. Clear determination of responsibilities pertaining to CRM. On-going supervision of the Internal Control and Audit area, to ensure proper compliance with CRM duties.
The Board of Directors has set up a Risk Committee to ensure that operations are conducted in line with the objectives, policies and procedures for CRM, as well as with the exposure limits approved by said committee. This committee meets at least monthly and works in conformity with the guidelines set out in the General Provisions Applicable to Credit Institutions. The Risk Committee is aided by the Comprehensive Risk Management Unit (CRMU) for identification, measurement, oversight and disclosure of risks as per the General Provisions Applicable to Credit Institutions in effect and applicable best practices. Comprehensive management of discretional risks is mainly based on the determination of a structure of global and specific limits, and on applying of risk methodology authorized by the Board of Directors. Credit risk Credit risk management considers: identification, quantification, establishing of limits, risk policies and risk monitoring, potential losses due to borrower or counterparty default in operations with financial instruments. The Institution’s loan portfolio is made up entirely by loans made to individuals for a specific purpose (consumer portfolio) in Mexican pesos. The portfolio is sufficiently diversified to represent no concentration risk and occur a short value of individual positions. In accordance with the criteria set forth in paragraph 70 of “International convergence of capital measurements and capital standards” Basel II, we classified the Institution’s portfolio as wholesale or retain portfolio. At December 31, 2009, the portfolio is comprised of 1.7 million loans, the average outstanding balance during 2009 and 2008 of which has remained at four thousand five hundred pesos, at an average term of four months. The maximum authorized amount for a loan is Ps100 thousand; as a result of which, the maximum financing limits established in the provisions for one individual or group of individuals representing a common risk were complied with no exceptions. In addition, no operations were conducted with customers considered as an individual or group of individuals representing, in one or more passive operations of the Institution, more than 100% of the basic capital. Analyses of the quality of the portfolio and credit risk rating thereof are conducted at least monthly. The loans are rated by the methodology mentioned in Note 3. Rating-based distribution of the portfolio, that could be interpreted as the risk profile of the Institution’s loan portfolio, shows its greatest concentration in rating A, current portfolio.
Rating-based distribution of loan portfolio (percentages with respect to overall portfolio)
Raiting 2009 (%) Average 2009 (%) 2008 (%) Average 2008 (%)
A B C D E Total
90.5 5.9 0.9 1.3 1.4 100.00
86.3 10.3 0.9 1.1 1.4 100.00
90.1 7.0 1.0 0.9 1.0 100.00
86.3 10.9 0.9 0.8 1.1 100.00
The measurement methodology used in calculating expected and unexpected losses arising from the portfolio’s credit risk is a Credit Risk+ model, which generates a thousand scenarios for each loan pertaining to the portfolio considered. The risk exposure considered by the model is that of the loan portfolio that has shown no default at the date of the analysis, defining default as an event in which a loan has not been paid in the allotted time and in the proper form. The expected loss is calculated, multiplying the exposure of the operation by the likelihood of default by the borrower, using the aforementioned rating model for assigning of likelihood of default. The quantitative information pertaining to Credit Risk at December 31, 2009 and 2008 is as follows:
Average Item 2009 2009 2008 Average 2008
Consumer portfolio Total exposure Expected loss Unexpected loss at 95% Expected loss/total exposure Unexpected loss/total exposure 7,494 143 145 1.90% 1.93% 6,652 130 131 1.91% 1.94% 5,638 92 94 1.58% 1.61% 5,011 81 83 1.52% 1.57%
The expected loss pertaining to the portfolio under consideration at December 31, 2009 represents 1.90% of the overall balance exposed to default. The Institution has set up loan loss reserves totaling Ps263, equivalent to 3.44% of the balance of the overall portfolio. At December 31, 2008, the expected loan was of 1.58% and the reserves amounted to Ps162; 2.83% with respect to the balance of the overall portfolio . The loan portfolio is rated in accordance to the rules for rating the loan portfolio issued by the Ministry of Finance and the methodology established by the National Banking and Securities Commission (NBSC). The Institution only sets up preventive reserves additional to those created, as a result of the portfolio rating process, in compliance with the Title Two, Chapter I, Section Four, Art. 39 of the General Provisions Applicable to Credit Institutions. At December 31, 2009, no additional reserves were required. See Note 9. Expected and unexpected losses are calculated monthly in different scenarios (sensitivity analyses), including stress scenarios. The results of the analyses are presented to the areas involved in portfolio risk management, to the Chief Executive Officer’s Office and to the Risk Committee. The efficiency of the model and assumptions assumed are evaluated periodically (backtesting); in the event the projected results and those observed differ significantly, the necessary corrections are made; however, this has not been necessary, as the expected loss has been smaller than the loss observed in 100% of the cases in a one-year horizon. Income from loan operations at December 31, 2009 totaled Ps4,810, representing 98.2% of the Institution’s total income. Compared to the same item at December 31, 2008, the variation in income, in percentage terms, is +35%.
The overall preventive loan loss reserves are comprised of general reserves (A rating) and the specific reserves (B, C, D and E reserves).
Income from loan operations
2009 2008 % variation
Income credit Total income % income from loan operations
Ps 4,810 Ps 4,897 98%
Ps 3,567 Ps 3,623 98%
With respect to Credit-Risk management in operations with financial instruments or counterparty risk, the credit risk exposure in operations with financial instruments, and the expected and unexpected loss thereof are calculated on a daily basis. Said reserve forms part of the daily report on market risk. At December 31, 2009, the Institution’s position in financial instruments, subject to counterparty risk totals Ps1,246, 84% in call money operations and 16% in direct positions in PRLVs. The expected loss pertaining to counterparty risk is 6.1% of the overall exposure. In comparison, at December 31, 2008, the Institution’s position in financial instruments subject to counterparty risk totaled Ps1,751; 72% in call money operations and 28% in direct positions in Cetes, with an expected loss from counterparty risk of 1.95%, with respect to the overall exposure. The methodology for managing credit risk in financial operations consists of a Credit Risk+ model to calculate expected and unexpected risks at a 99% confidence level. Likelihood of default: This information is obtained from 4 sources, which are used in the following order: 1) Standard & Poors, rating granted to financial institutions based on their rating scale known as CAVAL over the long term; 2) Moodys, like S&P, according to the rating granted over the long-term; 3) Fitch, is the third source to learn the rating granted by this agency, and, 4) in the event the Institution has no rating in any of the 3 agencies, an average rating is assigned according to its group. The above grouping refers to the group to which it pertains in the market (P8, AAA, P12, other). In the event of rating differences, the lowest rating is used. Exposure to counterparty risk is shown per purchase/sale of securities and interbank loans at December 31, 2009 and 2008, as well as the maximum exposure to said risk during said years:
Exposure to counterparty risk at December 31, 2009
Amount at closure Maximum exposure Concentration at the end (%)
Total position Purchase/sale of securities Rating AAA Rating A Rating ACall money
1,246 200 100 100 1,046
1,246 200 100 100 1,046
16.07 0.00 8.04 8.04 83.93
Amount at closure
Concentration at the end (%)
Total position Purchase/sale of securities Rating AAA Rating A Rating ACall money
1,751 490 490 1,261
2,517 247 247 2,270 28.00 28.00 72.00
In order to reduce risk exposure related to movements in interest rates or exchange rates, operations with derivative financial instruments conducted by the Institution are solely intended for hedging purposes. Due to the nature of its business, it is Institution policy not to conduct brokerage operations or to act as issuer of derivative products. At December 31, 2009, the Institution has operations with derivative financial instruments intended solely for cash flow hedging. To recognize said purpose, the requirements set forth in the Accounting Criteria of Statement C-10 of MFRS must be met, such as showing, among other aspects, that there is significant inverted relation between the changes in the fair value of the hedging instrument and the value of the liability to be hedged. In compliance with Title Two, Chapter IV, Section Four, Point A, Article 85 of the General Provisions Applicable to Credit Institutions. Following are the features of the Institution’s only derivative: Counterparty: Banamex Date of operation: 14/10/2009 Notional amount: Ps 1,500 Reference: TIIE 28 Maturity date: 18/06/2012 Net initial investment: Ps16.6 CAP or Floor, as applicable: Cap (C) or Floor (F): C Long (L) or Short (S): L Style in exercising option (A, E, other): European Exercising price or return: 8.0% First date of review of reference rate: 09/11/2009 Frequency of review: Every 28 days Number of periods to be hedged: 34 The operation in question was conducted to manage risk arising from interest rates on interest payments pertaining to issuance of unsecured notes known as COMPART 09. The effectiveness of the hedge is determined based on changes in the intrinsic and extrinsic values of the option (time value and volatility) are excluded from measurement of the effectiveness of this option-based hedge. Due to the fact that the changes in the reference rate observable on the date of review of the rate for calculation and settlement of interest of the unsecured note are made simultaneously on the same reference rate and review/settlement date as that of the European option acquired, and that the effectiveness of the comprehensive income account pertains solely to changes in the intrinsic value of the option in a hedge factor or ratio of 100% of inverse correlation, the option is expected to be highly effective when the reference rate exceeds the 8% level for the 34 periods of maturity. Because the characteristics of the option and of the COMPART 09 unsecured note are the same (notional amount, reference rate, review and interest payment dates, frequency of review, term of agreement), the changes in fair value attributable to the risk being hedged are completely offset at the beginning, during and up until maturity of the hedging, as a result of which, evaluating and measuring the effectiveness of the hedging is unnecessary. The valuation methodology used for the European call option (European rates CAP) is the Black & Scholes model, whereby the value of the premium is restated with respect to the valuation of each Caplet in effect at the valuation date.
Hedging derivative operation
Due to the nature of the operation, the Institution is only exposed to Credit Risk with the counterparty, which is rated AAA and no impairment is expected in the rating that could affect compliance with its obligations. Because it is considered a held-to-maturity instrument, there is no exposure to market risk and, because the liability flows of the unsecured note (certificado bursátil) and active flows of the option are on the same days, there is no liquidity risk.
Market risk management considers, at least, identification, quantification and establishing of limits and monitoring of risks arising from changes in the risk factors affecting the valuation or expected results of active or passive operations or those giving rise to contingent liabilities. At December 31, 2009, the Institution’s portfolio of financial instruments subject to market risk is comprised solely of Call Money operations and purchase of PRLV’s. As a result, the main risk factors that could affect the value of the investment portfolio are: interest rates, spreads, and the prices of other financial instruments. It should be mentioned that the Institution’s treasury operation is limited to investment of cash surpluses from the credit operation. The means for measurement of risk assumed by the Institution to manage this type of risk is the Value at Risk (VaR), which is calculated daily. VaR is an estimation of the potential loss in value of a determined period of time given the level of confidence. The method used by the Institution is the historical simulation method. Parameters used in calculating the VaR. • Method: Historical simulation. • Level of confidence: 99%. • Investment horizon: 1 day. • Number of observations: 252 days. • Weighting of scenarios: equiprobable.
Following is the quantitative information for market risk at December 31, 2009:
Value at Risk, 1 day (VaR) on December 31, 2009
Portfolio Market value VaR at 99 % Position % use of limit1
Total position Money 2 Purchase securities Call Money Derivatives 3 Curriencies Capital
1,246 1,246 200 1,046 -
0.2 0.2 0.2 0.2 -
.002 .002 .008 .001 -
.21 .21 .17 .16
*/The authorized risk limit is .25% of the Institution’s last known net capital. The Institution’s net capital at December 31, 2009 amounts to Ps3, 870. 1 The positions subject to market risk referred to call money operations and purchase of PRLVs. 2 There are no derivative operations for trade or hedge purposes to be sold.
Following is the quantitative information for market risk at December 31, 2008:
Value at Risk, 1 day (VaR) on December 31, 2008
Portfolio Market value VaR at 99 % Position % use of limit1
Total position Money2 Purchase securities Call Money Derivatives3 Curriencies Capital
1,751 1,751 490 1,261 -
.11 .11 .11 .02 -
.006 .006 .022 .001 -
.39 .39 .38 .06
* The authorized risk is 1% of the Institution’s last know net capital at December 31, 2008 of Ps2, 882. 1 The positions subject to market risk referred to are call money operations and purchase of CETES. 2 There are no derivative operations.
The market VaR is calculated daily, including the main positions, asset and liability, subject to market risk shown in the balance sheet; which is also used for interest rate risk management. The daily average VaR during 2009 was Ps18, 309 pesos, corresponding to 0.0005% of the last known net capital. The daily average VaR during 2008 was seventy five thousand pesos, corresponding to 0.003% of the last known net capital at December 31, 2008. As part of the market-risk management process, backtesting, sensitivity and stress scenario tests are conducted. Backtesting is conducted monthly to compare the losses and gains that would have been observed had the same positions been maintained, considering only the change in value due to market movements, against the calculation of the VaR. This allows for evaluating the accuracy of the prediction. To date, testing has been highly effective by more than 99.2%. The sensitivity analyses conducted periodically normally consider movements of ±100 base points in rates or risk factors. Whereas to generate stress scenarios, movements of ±150 base points are considered in rates or risk factors. Following are the sensitivity and stress tests conducted at December 31, 2009 and 2008, respectively.
Sensitivity analysis at December 31,
Market value VaR at 99 % Sensitivity + 100 pb Stress +150pb
Total position Money Purchase securities Call money
1,246 1,246 200 1,046
.02 .02 .02 .02
.23 .23 .11 .12
.34 .34 .17 .17
Sensitivity analysis at December 31,
Market value VaR at 99 % Sensitivity + 100 pb Stress +150pb
Total position Money Purchase securities Call money
1,751 1,751 490 1,261
.11 .11 .11 .02
.87 .87 .73 .14
1.33 1.33 1.13 0.20
Income from treasury operations at the 2009 close totaled Ps87, accounting for 2% of the Institution’s overall income. The variation in treasury income was determined comparing the same item for last year (2008) of Ps56.
Income from Treasury operations
2009 2008 Variation (%)
Income from treasury operations Total income % income from treasury operations
87 4,897 2%
56 3,623 2%
Settlement risk Liquidity risk management includes, at least, identification, measurement and establishment of limits and follow up on risks or potential losses arising from the impossibility or difficulty of renewing liabilities or of contracting others under normal Institution conditions, due to early or forced sale of assets at unusual discounts to settle its obligations, or to the fact that a position can not be promptly sold, acquired or hedged by means of establishing an equivalent contrary position. The Institution’s business model is based on its reputation as a solid institution that always responds to its customers’ credit needs. Therefore, liquidity risk management is an essential element, for timely prevention of the differences arising from the possible “gap” between its main positions in terms of liquidity risk: expected cash flows (payments on current loans) and projected outflows (current expenses, placement of new loans).
The measurement methodology used in liquidity risk management is: • Liquidity gap analyses consider the Institution’s main assets and liabilities, whether recorded on or off the balance sheet, establishing maturity bands according to the characteristics of the products offered. A limit is established for each band. • Liquidity Value at Risk (liquidity VaR) for measurement of the market’s liquidity risk determines the possible inability to liquidate positions in one day and is calculated like the market VaR with a 10-day horizon.
At December 31, 2009, the quantitative information for the analysis of liquidity gaps shows:
Analysis of liquidity gaps 2009
Band Gap Limit * Use of limit %
1-8 days 9-30 days 31-60 days 61-90 days 91-120 days 121-211 days 212-360 days 361-720 days más 720 days
2,352 1,806 1,600 1,130 92 61 (6) (475) (5,464)
(925) (1,850) (1,850) (2,774) (2,774) (2,774) (2,774) (4,624) (6,473)
.2 10.3 84.4
At December 31, 2008, the quantitative information for the analysis of liquidity gaps shows:
Analysis of liquidity gaps 2008
Band Gap Limit * Use of limit %
1-8 days 9-30 days 31-60 days 61-90 days 91-120 days 121-211 days 212-360 days 361-720 days más 720 days
2,328 2,054 1,305 406 (318) (316) (10) (477) (2,625)
(813) (1,626) (1,626) (2,439) (2,439) (2,439) (2,439) (4,065) (5,691)
13 13 0.4 11 46
* The authorized risk limit is calculated as a percentage of total assets considered.
Differences in flows (gaps) show excesses (greater asset flows than liability flows) in the first bands, which is natural for the type of operation handled by the Institution, as 79% of the assets considered correspond to cash flows arising from recovery of loans with an average term of four months and investments at terms below 90 days, while liability flows correspond to financing contracted at the short and medium term, giving rise to a positive accumulated gap at 360 days, at the 2009 close, of Ps7,035. The overall accumulated gap is positive.
Following is the quantitative information for market liquidity risk at December 31, 2009:
VaR liquidity, 10 days 2009
Value Position (%) Use of limit (%) *
VaR liquidity at 99% Money Purchase securities Call money Limit *
.06 .063 .052 .048
.005 .005 .026 .005
.21 .21 .17 .16 30.57
* The authorized risk limit is .79% of the Institution’s last known net capital. The Institution’s net capital at December 31, 2009, amounts to Ps3,870.
Following is the quantitative information for market liquidity risk at December 31, 2008:
VaR liquidity, 10 days 2008
Value Position (%) Use of limit (%) *
VaR liquidity at 99% Money Purchase securities Call money Limit *
.33 .33 .348 .057
.019 .019 .071 .005
.32 .32 .30 .05 109.80
* The authorized risk is 4% of the Institution’s last know net capital at December 31, 2008 of Ps2, 882.3.
The average liquidity VaR for 2009 was Ps150 thousand pesos, equivalent to 0.001% of net capital. Sensitivity and stress tests are also conducted for liquidity risk management. The average liquidity VaR for 2008 was 238 thousand pesos, equivalent to 0.32% of net capital applicable at December 31, 2008. Diversification of the Institution’s sources of financing are assessed periodically, assuming the related risk limits established in Chapter III of the General Provisions Applicable to Credit Institutions on Risk Diversification in conducting Active and Passive Operations. Said diversification is evaluated through the aforementioned liquidity indicators. Additionally, in compliance with the General Provisions Applicable to Credit Institutions, there is a Liquidity Contingency Plan in place, the purpose of which is the ensure that the Bank will be able to face its daily obligations under any circumstance, including a liquidity crisis, and is included in the policies and procedures manual for the AIR.
Operational Risk (including legal and technological risk)
The operational risk can be defined as the potential loss due to defects or deficiencies in internal controls resulting from errors in processing and storing operations or in the transmission of information, as well as to adverse administrative and legal resolutions, fraud or theft, and includes the legal and technological risks, which are understood to be: In the Institution’s methodology, management and control of the operational risk includes the following aspects, among others: The processes that describe each area’s duties are identified and documented. The Institution has areas engaged in developing and documenting methods, procedures and processes under the Internal Control Director’s Office. Inherent operational risks and the controls pertaining to the processes that describe the Institution’s substantial processes as “Risk and Control Matrixes” are identified and documented. Additionally, the internal audit area has implemented its audit model based on risks. Consequences for the business arising from materialization of identified risks are assessed and reported to the heads of the areas involved, to the Chief Executive Officer and the Risk Committee. Each area must be aware and participate in the control and management of own risks. A global level of tolerance has been established for operational risks, taking into account the causes, origin and risk factors thereof. Loss events identified by both the Risks area and the other areas of the Institution are recorded. Said areas are responsible for reporting any operating risk event that could arise or that has represented a loss for the Institution, all in a risk culture environment. Loss events arising related to operational risks, including technological and legal risks, are recorded systematically, with an association to the corresponding lines of business or business units, as well as to the type of loss. The Institution considers events of fraud or asset damage is its main exposures. There is a Business Continuity Management (BCM) Plan in place that includes a Disaster Recovery Plan (DRP) focusing on technological risks, and a Business Contingency Plan (BCP). Special leaders are designated to ensure that said plans are duly updated. Technological risk One important aspect of operational risk management is that pertaining to technological risk, which involves potential loss due to damage or failure from use or reliance on hardware, software, systems, applications, networks and any other means of conveying information in the Institution’s providing of services to its customers. There are policies and procedures in place intended to minimize the negative impacts of materialization of technological risks such as: historical filing of all operations and transactions entered into, daily reconciliations, contingency policies in the event of: failure in the supply of electrical power, communication failure, acts of vandalism, and natural disasters, among others. Due to the nature and characteristics of the market served by the Institution, there are no channels of distribution for banking operations conducted with customers via the Internet.
Legal risk With respect to legal risk management, the Institution has implemented policies and procedures for minimizing this risk, that consider the following, among other aspects: i. Review and approval of all agreements by the Legal Director’s Office to ensure proper instrumentation of agreements and contracts.
ii. Detailed management of powers granted to the Board of Directors to avoid misuse. iii. Procedures for filing and custody of agreements and other legal information. iv. Preparation of reports on the likelihood of issuance of adverse legal or administrative rulings. Said reports are prepared at least on a quarterly basis.
The Institution estimates, based on unaudited methodology, that materialization of operational risks identified would generate an annual loss of no more than .06% of the Institution’s annual income, which is considerably below the authorized level of tolerance, which, at the closing
Carlos Labarthe Costas Chief Executive Officer
Francisco Gandarillas González Internal Control Director
Fernando Álvarez Toca Chief Financial Officer
Oscar Luis Ibarra Burgos General Internal Auditor
Interior photos: Compartamos Banco´s archive and Ricardo Bernal Valderrama
Banco Compartamos, S.A., Institución de Banca Múltiple Av. Insurgentes Sur 553, piso 1 de oﬁcinas Col. Escandón, C.P. 11800 México, D.F. www.compartamos.com Investor Relations: Patricio Diez de Bonilla firstname.lastname@example.org María Teresa Chavira Mendoza email@example.com Compartamos Banco, S.A. firstname.lastname@example.org External Auditor: PricewaterhouseCoopers, S.C.
is report has a limited print run. An electronic version can be found at: www.compartamos.com If you wish to receive a copy, please request it at: email@example.com At Compartamos Banco we are interested in your opinion For more information about this report, or if you wish to comment on it, please contact our External Relations Department: firstname.lastname@example.org email@example.com firstname.lastname@example.org
Cover photo: Ricardo Bernal Valderrama
Registration date: April 2007
is report is printed on acid-free, elemental chlorine-free paper made from controlled forest reserves.
is annual report contains certain statements of a general nature about the activities of Compartamos Banco to date. It includes a summary of information with no claim to covering all of the information about Compartamos Banco, nor has such information been included with a view to oﬀering speciﬁc advice to investors. Some of the statements contained in this annual report reﬂect the current vision of Compartamos Banco with regard to future events and are subject to certain risks and uncertain aspects and premises. Many factors could cause the future results, performance, or achievements of Compartamos Banco to be diﬀerent than those expressed or assumed in said statements. If one or several of these risks were to materialize, or if the premises or estimates should prove to be incorrect, future results could vary signiﬁcantly from those described, anticipated, assumed, estimated, expected, or presupposed herein. Compartamos Banco does not attempt to render actual, nor can it assume any liability for, the statements contained herein. Some of these statements contain words such as “we believe,” “we think,” “we expect,” “we seek,” “we anticipate,” “we estimate,” “strategy,” “plans,” “pattern,” “calculation,” “should,” and other similar terms, although these are not the only means by which to identify such statements.
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