annual report 2013 - Banco Regional [PDF]

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Another year of growth and shared success

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Thank you for joining us for another year The results of this new reporting period make us feel we are realizing our Vision and Mission, aiming to become strategic partners in Paraguay’s development. Each commercial success of the Bank precedes the concretion of a good business deal by our clients and this fills us with pride. Hereby, we renew our commitment to continue working towards a country with more and better opportunities for all.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

INDEX ONE

About this report

TWO

Message from the President

10

THREE

Main Events of 2013

12

FOUR

Banco Regional, a bank committed to Paraguay 4.1 . Our Beginnings 4.2 . Awards and Recognition 4.3 . Nationwide Expansion

14 16 17 18

From the beginning to the establishment of lasting relationships 5.1 . Our team 5.2 . Our suppliers 5.3 . Our clients 5.4 . Our community and society 5.5 . Social and Environmental commitment

20 22 26 27 32 36

Corporate Governance 6.1 . Governance Structure 6.2 . Executive Management 6.3 . Management Team 6.4 . Functional Organizational Chart 6.5 . Corporate Structure 6.6 . Code of Conduct 6.7 . Risk Management

40 42 43 43 44 45 45 45

SEVEN

Accompanying our clients 7.1 . Interview : Oscar Ramírez 7.2 . Interview: José Patricio Acosta 7.3 . Interview: César Cerini

48 50 52 54

EIGHT

Economic and Financial Performance 8.1 . Economic Analysis and Outlook 8.2 . Main Indicators of Consolidated Balance 8.3 . Financial Statements

56 58 68 76

NINE

Opinions and Risk Rating 9.1 . Opinion of the Trustee 9.2 . External Auditor´s Opinion 9.3 . Risk Ratings

CREDITS

8

General Coordinator Emiliano Remonato, Marketing Manager

FIVE

Information Collection Coordinator Viviana Cano, Marketing Analyst Editorial Coordinator PROYECTARSE. Social Responsibility and Organizational Communication Commission. Graphic Design Estudio Madre Photography

SIX

Juan Villamayor Contacts Viviana Cano, Marketing Analyst E-mail: [email protected] Tel: (595) 71-2190000 Special Thanks: To Mr. Oscar Ramírez, Mr. Patricio José Acosta, and Mr. Cesar Cerini, who kindly shared their experiences as businessmen and clients of the Bank. Encarnación, Paraguay April 2014. 2014 ® All rights reserved. This document is property of BANCO REGIONAL S.A.E.C.A. It has non profit purposes; therefore, it cannot be commercialized in Paraguay nor abroad. Reproduction and dissemination, by any means, of the content of this material is authorized, provided that the source is acknowledged.

116 117 118 120

ANNUAL REPORT 2013 / Another year of growth and shared success

ONE

ABOUT THIS REPORT The anual and uninterrupted elaboration of this document allows us to leave tracks of our work and to report the progress and lessons we are learning in the search to contribute to Paraguay’s development. We are moved by the conviction that together we -society and company- can thrive to achieve a better future.

In this new edition of the Annual Report, we share a summary of the main commitments, systems, activities undertaken and results achieved in every area of Banco Regional. This version has a more institutional focus, through which we intend to make ourselves known beyond the numbers and economic performance. We also want to be known for our role as allies in the social development of Paraguay. Client interviews complement this focus and pose very interesting challenges so that we

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may continue supporting entrepreneurs in the realization of their dreams. In this report we adopt masculine generics to refer to men and women always. This is an option that only seeks to provide uniformity, simplicity and fluidity to the composition and reading of the text. The usage of this terminology in no way diminishes our company’s commitment to gender equality. We hope you enjoy these changes.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

TWO

MESSAGE FROM THE PRESIDENT During 2013, our Bank continued to consolidate its reputation as the most important financial institution for agribusiness in the country. Dear Shareholders, I have the honor to address you for the first time, with a message intended to summarize the most important topics of the annual management of our Banco Regional.

Raúl Vera Bogado Brief Biography Paraguayan, married. Education: • Master of Science in Policy Economics University of Illinois Urbana-Champaign USA. • Economist, National University of Asunción. Professional Background: • Consultant at IDB and UNDP • Deputy Manager, Louis Berger Group Inc. • President of the Central Bank of Paraguay. • Minister of Industry and Commerce. • Paraguayan Ambassador to Belgium, Netherlands, Luxembourg and the European Union. • General Manager of Banco Regional (2010 to April 2013)

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I believe that a thought that accurately describes the spirit of our institutional shareholders is the belief that dreams undertaken with entrepreneurial will and sustained commitment, transform into activities towards progress that leave a profound mark in our personal lives, our communities and our country. Banco Regional is a reflection of this spirit, supporting the most important productive sectors in our country, convinced that honest and daily work is the best legacy for future generations. Precisely, in terms of legacies, 2013 was a very special year for Banco Regional, as Mr. Nicolas Trociuk decided to devote more time to his family and his personal business activities, leaving the Presidency of the Bank after 14 years in office and after 22 years of uninterrupted cooperation with the Board of Directors. His legacy of hard work, to build an institution that highlights the support to the national producer, together with the steadfast collaboration of all the other Directors, is today an example that a long-term vision, along with teamwork, is a guaranteed formula to generate a positive impact on the lives of all the people involved with our Banco Regional: shareholders, employees and clients. To him, our greatest recognition for his vision and work.

During 2013, our Bank continued to consolidate its reputation as the most important financial institution for agribusiness in the country. We have rewarded the support of our most loyal clients by supporting their investment projects, and we have added new clients who have found our Bank to be a solvent and secure institution that will support their investments and dreams of economic and industrial development. Our operations have grown steadily for all our financial products for agribusiness, industry, trade and services, with a 28.84 % increase in our deposits and a 21.49 % increase in our credits. Our liquidity, both in local currency and foreign currency, has also evolved in an orderly fashion throughout the year, allowing us to obtain one of the most important liquidity and solvency indexes levels in the financial market. We continue to expand our relationship with foreign strategic partners, and today Banco Regional probably has one of the most extensive networks of international correspondents of the national financial system, with institutions in United States, Europe and Asia, and governmental, regional and multilateral financial agencies, in Latin America, United States and Europe. This has allowed us to access to foreign credit lines of USD 344 million in the last four years, and in 2013 we have prepared the Banco Regional’s first bond issuance in international capital markets, which was conducted successfully on January 16, 2014. Details of this bonds issuance sufficiently demonstrate its success: the bond offer was over-subscribed, having received 146 offers from Latin American, European and Asian investors for a total of USD 1.266 billion. Bonds were placed for a global amount of USD 300 million with a 5-year maturity, since when, Banco Regional is the only Paraguayan financial institution whose bonds form part of the J.P. Morgan’s Emerging Markets Bond Index Global. In addition, the orderly development of our businesses, the solvency that protects our shareholders, and innovations in our financial products, have allowed our institution to receive in 2013, and for the second consecutive year, the distinction of “Best Bank in Paraguay “awarded by Euromoney, the most prestigious

trade magazine specializing in global finance. We have approved and begun implementing a new Strategic Plan for the next 5 years. To this end, we have retained the services of Bain & Co, one of the most important strategic planning companies worldwide, so that our institution can organically grow taking advantage of the business potential we already possess as one of the largest banking institutions in Paraguay, with clear objectives for an orderly and profitable expansion of our business. Our strategic relationship with Rabobank has reached a status that we consider excellent, reflected in the close collaboration among the Board of Directors, the executive management team, and with the exchange of technical assistance in several units, products and tools identified as strategic by our Executive Management and Board of Directors. In this regard, the implementation of the new Strategic Plan has benefited greatly from the experiences of our partner, collected over several decades. Banco Regional’s institutional development is being forged thanks to the great effort and commitment of employees, managers and directors, who all share a common dream: to become more predictable and reliable for our shareholders, to be the best bank to work for our employees, and to constantly exceed the expectations of our clients, with a strong commitment to our communities for their sustainable economic progress. Within the Board of Directors we are convinced that we still have many areas to gradually improve, but with the will of our team and the support of our shareholders, every dream is achievable; our story is an example of this. Thank you for your continued support in building our Banco Regional! Raul Vera Bogado Chairman of the Board

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

1

2

3

Mr. Nicolas Trociuk leaves the Presidency of the Bank, after 14 years in office and 22 years in the Board of Directors.

Mr. Raúl Vera Bogado, former General Manager of the Bank, until April 2013, assumes the Presidency.

Mr. Orlando Villamayor takes over as the General Manager of the Bank.

MAIN EVENTS OF 2013

4

5

6

Innovation is an ongoing task at Banco Regional. The search for innovation keeps us competitive and responsive to environmental changes, to help us meet the expectations of internal and external clients, and to visualize business opportunities to continue supporting the development of the agricultural and industrial sector.

New Strategic Planning (2013 - 2017) for more effective operations of the Bank as a whole, considering its expansion and continuous growth.

Loan Agreement with The OPEC Fund for International Development / OFID (Vienna, Austria), for an amount of USD 10,000,000, to boost the Small and Medium Enterprise (SME) sector.

Confirmation of Banco Regional as guarantor Bank for financing the export of Brazilian products to Paraguayan importers; approval granted by the National Bank for Economic and Social Development (BNDES) (Brazil).

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8

9

Preparation of documents for the first bond issue of Banco Regional in international capital markets.

Launch of Credit Card with Smart Chip Technology.

Launch of Regional Mobile *734#, through which you can perform financial transactions using a cell phone.

THREE

10 Enabling of a toll-free Customer Service telephone number: 0800-11-1800.

Asunción

11 Presence of Banco Regional in Facebook and Twitter social networks.

Encarnación

ANNUAL REPORT 2013 / Another year of growth and shared success

FOUR

BANCO REGIONAL, A BANK COMMITTED TO PARAGUAY This past quarter of a century (24 years) has shown us that running a good business should be accompanied by a spirit that transcends the pursuit of wealth, accompanies the growth of the communities in which it operates and demonstrates its commitment through concrete action aligned with long-term goals. This is the path we have chosen at Banco Regional, which constitutes the main factor of our success.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Main Products and Services

4.1. OUR BEGINNINGS What began 24 years ago (1989) as the dream of a group of entrepreneurs from Itapúa –to found a local bank to support agricultural investments in the area—today is spreading across Paraguay and beyond, showing results that stand out in the agricultural, livestock, industrial and commercial sectors. Its empowerment was characterized by three events that changed the course of its history. First, the equity share purchase of Rabobank of the Netherlands (2008). Second, the Bank’s acquisition of ABN Amro Paraguay (2009), and third, its conversion into a Publicly Traded Company in 2011.

In this short and intense period of changes, the Bank had the ability to adapt and undertake a process of continuous improvement, thanks to the attitude and dedication of every individual within the company. The lessons learned were many and very complex. We had to make difficult decisions, but always respecting compliance with the law and seeking the best benefit for all involved parties. Banco Regional employs, as of December 31, more than 700 workers, 21% in the central headquarters and 79% distributed in its 38 branches. Training is considered a key investment,

thereby implementing an annual training calendar and a corresponding budget. In this sense, the Bank seeks to provide training opportunities to all of its collaborators, seeking to distribute training opportunities among all hierarchical levels, and throughout the different branches. As a Bank that has its roots deeply ingrained in the countryside, we work to develop a sense of belonging and seek to consolidate our organizational culture, respecting any differences.

Individuals:

SMEs and Corporations:

• Personal Loans • Credit and Debit Cards • Current accounts in local and foreign currency • Time deposits in local and foreign currency • Insurance • Internet Banking for Individuals (Regional Web)

• Financing: - Agricultural - Livestock - Industry and services • Invoice Discounting • AFD Loans (Development Loans) • Foreign Trade • Treasury services and Investments • Fund Management • Internet Banking for Businesses (Regional Web)

4.2. AWARDS AND RECOGNITION “Best Bank in Paraguay” Distinction awarded for a second consecutive year, by the magazine Euromoney, a global leader in finance, as part of its annual contest “The Euromoney Awards for Excellence 2013”. “Citi 2013 Performance Excellence Award” for the Best Performance in Operations Payments MT103 and MT202 transferences. Award won for the fourth consecutive year.

Key Data Points As described in our Vision and Mission, we seek to obtain profitability from the practice of the values for which we want to differentiate ourselves:

711

Number of Collaborators

76.015 Number of Clients

16

38

Customer Service Centers

36

Number of Branches

91

Automated Teller Machines (ATMs)

27

Cities in Paraguay where we operate

VISION

MISSION

VALUES

Permanently innovate to become the Bank of successful individuals and leading actors that contribute to the country’s development.

To be committed with the success of Our Customers.

Integrity, Proactivity, Identity, Professionalism and Positive Attitude.

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ANNUAL REPORT 2013 / Another year of growth and shared success

4.3. NATIONWIDE EXPANSION 5 6 7

8 9

10 Guairá Villarrica Caaguazú Cnel. Oviedo Canindeyú Curuguaty Katueté San Pedro Santa Rosa del Aguaray Amambay P. J. Caballero

Alto Paraná Naranjal Santa Rita C.D.E. Centro C.D.E. Km 4 C.D.E. (Área 1) San Cristóbal Presidente Franco Pab 3 Hernandarias San Alberto Sta. Rosa del Monday

Amambay 9

San Pedro 8 1

2

18

Asunción Asunción Centro Pab 1 Villa Morra Bulnes San Martín Mcal. López Shopping Eusebio Ayala Central Fdo. de la Mora Mariano R. Alonso Capiatá

3 4

Paraguarí Carapeguá Itapúa La Paz Fram Cnel. Bogado Superseis Encarnación Casa Matriz Bella Vista Obligado Pirapó Ma. Auxiliadora Buena Vista

Canindeyú 7

Asunción

Caaguazú

1

6

Central

Alto Paraná

Guairá

2

Paraguarí

10

5

3

Itapúa 4

ANNUAL REPORT 2013 / Another year of growth and shared success

FIVE

FROM THE BEGINNING TO THE ESTABLISHMENT OF LASTING RELATIONSHIPS The management of a company —today— can no longer be conceived without taking into account each of the stakeholders that interact with it and their potential impact on business sustainability. In Banco Regional we are establishing links with the aim of achieving customer satisfaction through the satisfaction of each member of our value chain. This constantly challenges us to continuously improve and encourages our commitment to the development of Paraguayan society.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

5.1. OUR TEAM

Human Resource Development

The operations of every business starts with the formation of their work team. In Banco Regional we understand each collaborator is an ally to achieve the established objectives and that is why we spend time and resources so their talents are strengthened to ensure they are aligned with our goals, values and principles. The following graph illustrates the profile of the members of Banco Regional, which at the end of 2013 exceeded 700 collaborators, who have been incorporated into our staff according to their suitability for each position, favoring the hiring of collaborators who reside in the cities where we operate.

Profile of Collaborators Indicator By Sex Number of men Number of women

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Summary of trainings

470 241 Main topics 0 232 326 127 26

By time spent working for the Bank Up to 5 years Between 6 and 10 years Between 11 and 20 years More than 20 years

331 147 208 25

Women in executive and/or management positions

During 2013, several trainings were conducted, nationally and internationally, and even implemented internships at the headquarters of our strategic partner, Rabobank (Netherlands). A brief summary of the accomplishments is presented in the following table:

2013

By Age From 18 to 19 years From 20 to 29 years From 30 to 39 years From 40 to 49 years More than 50 years

By position Executive Leadership Managers Supervisory positions Officers and Executive Banking Operations / Analysts Assistants / Helpers / Cashiers Outsourced staff

Enhancing the personal development of our team is increasing the Bank´s own opportunities. This is what we understand in Banco Regional, reason why we are strengthening the knowledge and capabilities of each of our team members.

Number of trainings conducted

155

Number of interns at Rabobank

8

Total investment in PYG (including international trainings) 10 79 94 123 334 81 167 10

Information Security and Compliance; Profitability; Segmentation; Payroll; Customer Service Guidelines; Products and Packages; Risks; Compliance; Leadership and specific workshops linked to the Development of the Strategic Plan. International trainings were oriented towards representatives of specific units and themes. The greater part of these took place abroad.

2.255.960.081

It is worth noting that the company counts with Regional University E-learning, a digital platform through which we conduct most of the trainings. From this system we broadcast, online, information on policies, procedures and practices of the Bank, as well as proposing more specific topics, ensuring constant training and updating. To accompany the new objectives of the Bank, a new training cycle began as outlined after the concretion of a new Strategic Plan (period 2013-2017). In October, a workshop denominated “Train the Trainers” was held, training the leaders of the sectors involved in the Strategic Plan. Subsequently, these trainers taught their first lessons to members of their sector.

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ANNUAL REPORT 2013 / Another year of growth and shared success

Selection and Hiring Process The search for collaborators of Banco Regional is, in first place, conducted internally. With this practice we encourage the recognition of the achievements of internal staff and promote the development of a professional career. For external hires, after determining the profile and skills required for the position, applicants remit the required documentation and participate in personal interviews, which allow a more comprehensive assessment. It is also important to note that hiring preference is given to residents of the geographic areas in which the Bank has branches, in order to contribute to local socio-economic development.

ANNUAL REPORT 2013 / Another year of growth and shared success

other institutional communications like the Bank’s intranet. From this instance we seek to consolidate daily operations as well as a sense of belonging to the organization. Similarly, this unit disseminates institutional statements of the Bank, such as the Vision, Mission and Values, in order to reinforce them among the collaborators, who receive this information during their orientation process once they begin working in the company. The orientation process, which is carried out at the headquarters in Encarnación, also includes an overview of the Bank’s history, its procedures and security policies, among other aspects related to the tasks to be performed.

The “Siembra” Program: Career plan

Benefits that benefit

Throughout the year 2013 we continued the program “Siembra” (Sowing) a still recent initiative (2012), through which we seek to identify the degree of presence of skills and values in our collaborators, to prepare an appropriate Individual Development Plan, aligned to the needs of each participant of this program and to the needs of the organization.

In Banco Regional, we aim for the personal welfare of our collaborators, in addition to their job satisfaction. That is why we have developed various recreational and community-building activities for them and their families, offering several benefits, beyond those required by law, to foster their satisfaction. Some featured activities are:

This program includes interviews and situational group exercises (Assessment Center); then, based on the results obtained, a career and development plan of the participants is designed.

Celebration of “Labor Day”, which includes the participation of family members. It is performed at each branch with a high participation rate of all collaborators.

Communication and culture

Celebration of “New Year’s Party” is performed in the city of Encarnación, where the headquarters are located, and includes the participation of spouses, in order to make them part of the processes and results of the company.

Communication is an essential factor in the management of processes and systems. This is why the Bank has an Internal Communications area, from which information on different projects is generated and disseminated, using traditional tools like emails, meetings, panels or murals, and

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Support for undertaking postgraduate and masters degrees. All collaborators have equal

access to this opportunity, provided they have obtained a university degree, at least 2 years of seniority and have received minimum assessment of “Good” in their job performance evaluation at the Bank. Reimbursement rates vary between 25% and 50% of the total costs, depending on the position held. 80% cost coverage of Health Insurance (Asismed and Migone) and Dental Care. In 2013 we hired the company “Best Doctors”, recognized by the high complexity medical coverage it offers internationally. All Bank products (loans, savings accounts, current accounts, time deposits, credit cards) are issued at preferential rates. Other benefits (monetary and non-monetary) are related with (I) leaves and special bonuses linked to family and personal events (marriage, birth and/or disease of children, death of family members, among other situations); (II) contribution to kindergarten costs of children (up to 4 years); (III) special leave for exams (university students) and (IV) additional salary bonus for earning a university or professional degree. An important data point is that for each season (summer and winter), we give each collaborator a set of uniform, the cost of which is entirely covered by the Bank.

More security, better life Just as we ensure the safety of our clients’ information, with the installation of systems and processes, we do the same for the physical security of our collaborators. To that effect, we have installed internal signage, control for the access of facilities, exit and emergency lights, security personnel trained in handling situations of assault, robbery, hostage taking, behavior in case of incidents (such as fire, short circuit, etc.).

Accidents at work in 2013 In the facilities of the Bank (slips, fainting, others)

3

In motorcycle

0

In car/truck

1

In the street

1

Total Safety Trainings/Drills Number of Collaborators trained Number of Evacuation Drills

28 170 3

We have collaborators who volunteer as firefighters, trainers and are also prepared for any emergency requirement. All recorded accidents exhibited no significant personal injuries; injured persons received appropriate medical assistance.

The Bank has a unit of Physical Safety, whose members have the mission to train all collaborators on issues regarding safety: First Aid, Using Fire Extinguishers, Evacuation from Facilities, Crisis Management, Thefts and Assaults, and Robberies against clients exiting the Bank. These activities take place in each of the branches, through audiovisual materials, and collaboration with the Volunteer Fire Brigade. In terms of total security personnel, we have 143 private guards and security monitors. Starting this year, the Monitoring Center, located at headquarters, displays 100% of the Bank branches and offices, 24 hours, all year long. While 100% of the branches and offices have installed Alarm Systems; similarly, 100% of the ATM (stand-alone units) have alarms and security reinforcements. We are also currently working to have cameras installed in critical ATMs. Furthermore, we would like to highlight that this year we began the implementation of the Occupational Safety Standard for collaborators and contractors.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

5.2. OUR SUPPLIERS

5.3. OUR CLIENTS

In the realization of the business of every company, a key link is the Supplier. The goods and services they provide allow us to keep our promises to the customers. This is why the establishment of provisions related to hiring of suppliers should be decided under conditions of fair negotiations, ethical practices and equal opportunities.

A company is created because there is a client who is willing to buy their services and products. This Client is -at the same time- the one who controls and judges the company’s behavior, and the way they generate their profitability. Today, it is not only a matter of how much revenue companies earn, but also how they earn them. It is an imperative necessity to assume this responsibility with the new generations.

At year’s end, Banco Regional counts with 112 active suppliers (for purchases over PYG 200 million), representing an annual purchase volume of PYG 135 billion.

Customer Service Channels

The aforementioned figure represents 85% of total purchases/expenses; the difference is distributed among smaller payments. The selection and hiring criteria are stated in the Expenses and Investments Policy, in which the following aspects, among others, are determined: •

•

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Define key Suppliers and the importance of their product or service for the performance of the Bank. Set a written record of the importance of each criterion. The basic criterions are: quality (functional, technical and safety), agreed level of service, cost, time and references. Preferably obtain several budgets from various suppliers. This will promote equal opportunities and contribute to the development of new suppliers.

•

•

• •

Determine the type of bidding process in which Suppliers will compete, in order to monitor the due transparency of the process. Evaluate the quality of each Supplier as well as the compliance with the requirements of the law. The Compliance Department will also evaluate each Supplier. Depurate contracts with Suppliers, on an annual basis, in order to ensure an updated database.

Automatic Teller Machines and SST: We have installed a total of 91 ATMs, across national territory. We also have Self Service Terminals (SST), which can perform banking transactions such as cash and check deposits, credit card payments, and loan payments, among others. Depending on the type of transaction, you must have a password.

Of all the Bank’s stakeholders, our relationship with Suppliers consist the biggest challenge. Even though the procedures are clear, we are conscious of the need to focus on their improvements as a necessary step for our own improvement.

Telephone Banking: This 24-hour service is another tool to realize various transactions, in a comfortable and safe manner, without requiring the customer to leave his residence. To use it, a prerequisite is to solicit the PIN (personal identification number), which can be requested by calling 0800-11-1800.

In many cases, the reputation of our company is in the hands of our suppliers; we understand that as we establish relationships, beyond the transactional aspects, our relationship will be strengthened and our image will be well represented.

Regional Web: This is another way in which we attend our client’s needs. Once the client has accessed the webpage (www.bancoregional. com.py,) they have the options, after inserting their PIN, to process payments, review their

statement, update their personal details, etc. The Bank’s commercial team periodically monitors competitor’s offers in the financial sector, in order to ensure our Bank is attentive and a market leader in providing effective customer service. Regional Mobile: Current Information and communication technologies allow an unlimited number of options. In the particular case of Regional Mobile, our customers can dial *734# to conduct banking transactions from a cell phone. This do-it-yourself and remote management service is free for customers since it does not incur mobile or data charges and can be used from any cell phone model, provided the customer has the respective PIN. With this service, customers remain close to our Bank and our services without visiting a branch or having to own a computer at home. Branches and BAPs: In 2013, improvements were made to the branches in the cities of Obligado and Ciudad del Este, with a final-year tally of 38 branches, including BAPs (Banking Attention Points).

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ANNUAL REPORT 2013 / Another year of growth and shared success

Call Center: The customer call center provides customer service over the telephone, where the Client is served by one of our operators, trained to offer solutions and answer questions. This is also a transactional channel. The customer service call center is open 24 hours a day, 365 days a year.

Customer Segmentation Banco Regional was created to support agribusiness investments. As such, it aims to become an ally for agricultural producers, as long as their operations adhere to local laws, as well as our values and principles. In this constant search for improvement and even anticipating the needs of our Clients, we regularly add to our commercial offers new products and services, provided to different segments of customers.

ANNUAL REPORT 2013 / Another year of growth and shared success

program which, according to the number of points accumulated, allows clients to access to different types of rewards. Non-financial Services: Our Clients may additionally use our non-financial services: our money exchange services, automatic debit, remittances from Spain, transfer of funds and customs payments. CORPORATE BANKING Besides the product of Current and Savings Accounts, in this segment our customers can count on: Financing for the agricultural, livestock, commerce, industry, services and SMEs sectors: with short-term loans to finance their working capital needs up to complex financial long-term projects.

BANKING FOR INDIVIDUALS Regional Junior: This product -in addition of the classic Savings and Accounts (Current and Combined) - is a savings account designed for children and adolescents, under the guardianship of parents or responsible adults. Its aim is to develop good financial habits from an early age. With a PYG 100,000 deposit, the account is opened. Loans: Credit is available for the purchase of vehicles and buildings at competitive rates. Other credits designed to promote entrepreneurship are available for personal, professional and business projects. University Students: We offer those who are studying, preferential financial conditions on credit cards and accounts (savings and checking). Insurance: Insurance is available for home, vehicle, group life, personal accidents, multi-risk and insurance against credit or debit card fraud. Credit Cards: We offer Classic, Gold and Platinum credit cards. The use of any of these cards generates benefits for the Client through the “Big Points” 28

Treasury and Investments: a modern and global service that combines the knowledge and skills of a team of “traders”, highly specialized in each area (Money Exchange, Money Market and Fixed Income) and “product managers”, with deep knowledge of treasury products and their application in the local and international market.

PRIVATE BANKING

Our system includes: • •

Foreign Trade: For import and export operations. This business line was created to facilitate the concretion of business transactions by entrepreneurs nationwide.

Through this segment, our customers have the option to receive tailored solutions for wealth management, with the safety and solvency offered by Banco Regional and its strategic partner, Rabobank (Netherlands). We provide an integral and proactive advisory service, in order to build trust in order to create long-term relationships. The Private Banking segment has exclusive offices for personalized attention.

Insurance: Our corporate clients have several options to meet their needs to insure assets.

Privacy of Customer Information. Security

Non-financial services: These services include (i) payments (salaries, suppliers, stores), (ii) Collections (services and automatic debits), (iii) Accounts (automatic confirmation of accounts, confirmed payment, registry of depositors, deposit of large sums, statements sending through email). We also offer Valuables Transport Services, and Custody and Administration of Securities and Checks.

The privacy of our Clients’ information is a key aspect in our operations. To achieve this, we have policies, procedures and tools to ensure this information remains protected and accessible only by who has the right and can demonstrate it (through proper identification and authentication).

Credit Cards: Business, Agribusiness, Mobile Card, and Gourmet Card.

• • •

Policy on information processing. Clients access data through an identification and authentication method. Double authentication process for corporate web access. Access control for the systems of the Bank. Monitoring of access to systems and data.

We would like to note that we regularly adjust Customer Due Diligence Systems, in order to comply with current regulations.

Customer Satisfaction We pay close attention to the needs and requirements of our clients and therefore regularly perform surveys using tools designed for this purpose. For Banking for Individuals we have conducted customer satisfaction surveys.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Financial Education for Clients One of the basics of our business is the financial education of our customers. In 2013 we started to develop thematic financial education modules for corporate clients, as in the case of Condor SACI. The meeting was aimed at its employees, with the support of an external consultant. A similar experience took place at Estrella S.A., specifically for its Mechanical Repairs and Industrial Paints and Plates divisions. The results of these workshops encourage us to pursue them further, with the objective of expanding the scope of the workshops to a larger number of customers.

Support to the livestock and agriculture segment As sponsors of events organized by the agricultural union, we took advantage of the opportunities to give lectures and/or conferences that contribute to the strengthening of the sector’s management.

Some results were: 59.6% of Clients interact exclusively with the attention of collaborators. The following attributes are valued: cordiality, client advice and responsiveness to customers’ needs. Customers pointed out several positive attributes of Banco Regional, such as: the location of the banking attention points, the number of branches, the waiting time to be assisted and the level of privacy, in addition to the cleanliness and order of the premises. We also measured the likelihood that our customers would switch to a competitor in the next 12 months, and 60% expressed their loyalty.

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Similarly, the call center telephone service was evaluated and a stress test was held in order to test problem solving skills and response to everyday situations. In the Corporate Banking segment, the results were similar, except for customer loyalty rate, which was superior. Customers appreciate that the focus of the Bank is in the Agricultural sector, which positions it as a leader in this area.

Our intention is to provide more than financing; we want to contribute to the sustained growth of our client’s businesses. The trade fairs were the main settings where we presented these lectures during 2013, among which, Expo Santa Rita stands out.

Regarding our clients from the livestock sector, we can highlight in 2013 our support for the relaunching of Paraguayan meat in Chile; event that had an impact beyond the region, repositioning the product at the previously held levels, which had been lost due to health status issues. Paraguayan meat regained Access to new international markets. We were also present in the main cattle fairs in Paraguay, in addition to being sponsors of the renowned cattle breeding ranches of Paraguay. Finally, for this section, it is important to outline that the Bank advises its clients to timely identify and evaluate any social and environmental risks of its activities and projects, with the intention of minimizing risks. Through financing we intend to collaborate to the economic development of the country, but on a sustainable basis, strengthening environmental conservation initiatives, environmental and social investments, to ensure a decent quality of life for present and future generations. We must not only respect the social and environmental principles in the offering of credit, but we must also remain committed to provide adequate resources for the promotion of long-term social and environmental sustainability.

Other training sessions for Clients of this sector were: (i) lectures on “Irrigation Systems”, (ii) workshops on “Agricultural Insurances”, (iii) lectures on the new accounting regulations for farmers, (iv) workshops on Soy and Sunflower, organized with the Universidad Nacional de Itapúa and the Association of Agricultural Engineers of Itapúa, and (v) workshops on “Good practices in soil management and use of seeds, mainly rice”.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Commitment to community initiatives

5.4. OUR COMMUNITY AND SOCIETY It is proven that the success of any enterprise is limited if it does not consider the development of the community and society in order to prosper together. The challenge to grow is associated with the increasing involvement and participation of the company in solving the needs and problems of its environment. Compliance of legal obligations gives a company the official license to operate, but society is who awards the social license to prosper. Banco Regional is a banking entity established in the department of Itapúa, whose founders also reside in the region. These two factors promote very strong bonds, which are displayed in its business focus and its community ties. That is why we promote and support, with contributions and efforts, several projects and initiatives that focus on the common good. Under our new Strategic Plan, we highlight the importance of planning these actions, defining the objectives and expected outcomes, in order to monitor its potential impact, including any social and environmental risks. At the end of the year, we began a systematization of activities, with the goal of defining a Corporate Social Responsibility Policy (CSR) and the structuring of a business unit responsible for this task, which should be comprehensive for the entire Bank. Below we share the most important initiatives of the year:

Student Internship Program One of the Bank’s internal initiatives is the Student Internship Program. Our goal is to support the training of young people during their academic development, satisfying the requirements set by the Ministry of Education (in terms of number of hours per day and in total hours for the academic period). Thus we temporarily hired high school students within the company, accompanying their learning process and introducing them to the working environment. The Bank incorporated various interns, women and men, from private and public schools, in its different branches.

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“Lactario” of the Encarnación Children’s Hospital: A public program that helps children born with nutrition problems due to insufficient or nonexistent prenatal preparation of mothers. This program has received our steady support since 2004. “Blood Donation” and “Diabetes Prevention” campaigns: These are programs designed by the Ministry of Health to increase public awareness and encourage blood donations, as well to take blood samples (by health professionals) to analyze the levels of blood sugar. Solidarity Foundation: We added this organization to our list of recipients this year. We specifically collaborated in the installation of 3 intensive care units, operating in its CERENIF center. This organization works with the recovery and rehabilitation of people with disabilities (PWDs), as well as their labor and social insertion initiatives. “Go, go, go Encarnación”: A drivers’ education campaign, promoted by the city of Encarnación for the last several years, together with media and local businesses, with the objective of creating awareness among citizens about traffic rules. The campaign includes educational talks in schools, workshops, public posters and media dissemination about Traffic Rules.

“Angel Investors” is an initiative that, through the provision of seed capital, supports young entrepreneurs. It is organized by the CIRD (Center for Information and Resources for Development) in conjunction with the Municipality of Encarnación and Universidad Nacional de Itapúa (UNI), with the support of the “Commission for Support of the Young Entrepreneurs Program of Encarnación”. The program provides tools for designing business plans. In a second phase, the program provides technical assistance to implement their business. Fundraising Events: We support the Social Centre of Encarnación, the Social Club of Pedro Juan Caballero and the Rotary Club of Encarnación in their fundraising events for their community projects. Several contributions: Under the concept of “donations” the contribution of the bank is also highlighted. In 2013 the Bank collaborated with: equipment for the Nursing Home of Encarnación and beds for the Clinical Hospital in Asunción (area of neurosurgery). We also note that in terms of sponsorship, we give preference to cultural and sports activities, thus contributing to the identification and development of local talents.

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ANNUAL REPORT 2013 / Another year of growth and shared success

Anti-Corruption Policies As members of a society that wants to grow and develop, Banco Regional maintains itself informed and aware of the laws and regulations issued by our supervisory regulator (Central Bank of Paraguay) and other regional and global banking norms which seek to prevent and eradicate corruption. Implementation of the “Topaz Trace” Since March, the Bank has implemented the Anti-Money Laundering “Topaz Trace” Monitoring System which seeks to improve controls in the prevention of money laundering and terrorist financing. Training on “Compliance”: This training was given to all collaborators of the Bank, having prevention of money laundering and terrorist financing as the key topics covered. Once the training had concluded, collaborators must take a test, in order to measure learning levels.

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Certification of the Procedures for Prevention of Money Laundering: The Board of Directors approved the hiring of the KROLL Company, in order to obtain international certification of the procedures for prevention of money laundering, which Banco Regional has implemented. The review for the appropriate certification is planned for the first semester of 2014.

Participation in Trade Associations and Business Groups • •

Association of Banks in Paraguay/ ASOBANC International Chamber of Commerce of Paraguay

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

5.5. SOCIAL AND ENVIRONMENTAL COMMITMENT Economic development on a sustainable basis, support for conservation initiatives and social investments, all form part of the Bank’s commitment to present and future generations. Not only must one respect the social and environmental principles in granting loans but one must also remain committed to make available adequate resources for the promotion of social and environmentally sustainable activities. (Introduction to Banco Regional’s Environmental and Social Policy).

1. Production of or trade in any product or activity deemed illegal under the laws or regulations of Paraguay or international conventions or agreements. 2. Production of or trade in arms and ammunition. 3. Production or activities involving harmful or exploitative forms of forced labor or child labor (1). 4. Production of or trade in alcoholic beverages (with the exception of wine and beer).

In Banco Regional we translate our social and environmental commitment into procedures and actions that help us establish ourselves as good allies and that mainly contribute to the creation of shared value, economically, socially and environmentally. We are aware that the policies and regulations are not enough if the day-to-day operations do not yield tangible results. That is why we are gradually integrating certain internal and external initiatives that could lead to better management indicators.

Socio-Environmental Risk Policy As a financial institution, Banco Regional is not exempt from its role in the promotion and responsible management of the environment and, therefore, from its social responsibility. In order to give an effective response to social and environmental challenges, we have Socio-Environmental Risk Policy, which aims to “sustainability”, since Paraguay’s development is strongly linked to the use and proper management of its natural resources, sustainable production, improved quality of living and social inclusion. The main objective of this Policy is to strengthen the relationship with clients, advising them on the easy and timely identification, assessment and management of social and environmental risks posed by their activities and projects.

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The Socio-Environmental Risk Policy forms part of the risk system and is applied to all SMEs and Corporate clients. The areas responsible for its implementation and enforcement are the credit Committee, the Commercial Unit and Risk Unit. The specific functions of these units, regarding the Policy are: Credit Committee: Within the structure of the organization, the Board of Directors is ultimately responsible for achieving the objectives of the Bank. As part of its role, we also find ultimate responsibility for the quality of risk management within the Bank. Commercial Unit: This unit has direct contact with customers, offering products and processing external customer requirements, under controlled conditions and seeking customer satisfaction. Risk Unit: This unit performs the measurement and analysis of risk allocation and proposes amendments thereto, according to approved methodologies and tools. It will calculate the results and evaluate the risk management in order to establish the profitability of the risks assumed. Regarding restrictions on granting loans, this Policy establishes that Banco Regional abstains from financing:

5. Gambling, casinos and related businesses. 6. Flora and fauna products covered by the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) (2). 7. Production of or trade in radioactive materials. 8. Production of or trade in unbounded asbestos fibers.

9. Production of or trade in products containing PCBs (3). 10. Production of or trade in pharmaceuticals subject to phase-out or prohibitions (4). 11. Production of or trade in pesticides or herbicides subject to phase-out or international bans (5). 12. Production of or trade in ODS subject to mandatory termination of production or international bans on sales (6). 13. Commercial logging operations or purchase of logging equipment for use in tropical rainforests and native forests. 14. Deforestation of raw materials or projects/ forestry operations that do not have sustainable management certifications. 15. Soybean crops and livestock production in the humid Chaco region (7) on land converted to agricultural or pasture use after May 2009 (8).

Members of the units involved, participate in workshops on the implementation of the SocioEnvironmental Risk Policy, its Manual of Procedures and the use of the Socio-Environmental Risk Assessment Questionnaires. Also, analysts and loan officers participated in the training workshop on Analysis of Environmental and Social Risk (ARAS). As part of the requirements to qualify for a loan, a questionnaire that surveys environmental aspects is requested among the documents to be submitted to the Bank. Each applicant must complete and sign this document, which will be considered a Sworn Statement.

(1) Forced labor means all work or service not voluntarily performed, that is imposed on an individual under threat of force or penalty. Harmful child labor means the employment of children in conditions of economic exploitation, or in situations of high danger or interference with their education, or that is harmful to health or may damage their physical, mental, spiritual, moral or social development. (2) Convention on International Trade in Endangered Species of Wild Fauna and Flora. (3) PCBs, polychlorinated biphenyls, are a group of highly toxic chemicals. PCBs are commonly found in electrical transformers using oil, and in capacitors and electrical fixtures built between 1950 and 1985. (4) According to the book entitled United Nations, Banned Products: Consolidated List of Products Whose Consumption and / or Sale Have Been Banned, Withdrawn, Severely Restricted or not Approved by Governments. (5) According to the Rotterdam Convention ( www.pic.int ) and the Stockholm Convention ( www.pops.int ) (6) ODS are Substances that Deplete the Ozone Layer: Chemical compounds that react with and damage the stratospheric ozone layer, causing the widely publicized ‘holes in the ozone layer “ The Montreal Protocol lists ODSs and their target reduction and phase-out schedule. The ODS are present in some aerosols, refrigerants, foaming agents, solvents and fire protection agents. (7) Defined in the map of humid Chaco and list of sensitive areas provided by the IFC. (8) This exclusion only applies to loans financed with funds of the IFC and does not limit the Bank to fund those activities with other funds.

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ANNUAL REPORT 2013 / Another year of growth and shared success

Reduce and Reuse A practice that we have been promoting in the Bank is the reduction in the use of paper and its reuse. Each office has boxes to place sheets that can be reused for photocopying or other internal purposes. Similarly, we stimulate electronic resolution of procedures, which -in addition to decreasing the amount of paper- optimizes ink usage and electricity. Most importantly, this promotes environmental awareness. Each branch and attention point has a mandate to send emails stressing the importance of not printing. In the same vein, we highlight the centralization of printers and photocopiers in each floor. This is another measure that aims to better practices in the care and use of resources. Continuing on environmental awareness issues, we emphasize the practice of separation of organic and inorganic waste in waste baskets differentiated for this effect, allowing cleaning service providers to perform the proper disposal thereof.

Sustainable Finance Bureau The Sustainable Finance Bureau is a cross-sector initiative, founded this year and integrated by four banks, including Banco Regional, which seeks to promote investments in green projects and businesses as a way to achieve a sustainable economy. From internal controls –in the first place- within the participating entities and subsequently, their customers, this proposal plans the establishment of prevention mechanisms and early warning alerts for incorrect or potentially harmful environmental practices. The idea is to assist clients to visualize the environmental risks of their businesses and

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ANNUAL REPORT 2013 / Another year of growth and shared success

provide solution opportunities; while granting long-term loans so they can make the necessary readjustments. Additionally, the documentary requirements for loan applications will be expanded; this with the intention of promoting and financing economically profitable and environmentally sustainable projects. The control of socio-environmental performance will have a benefit with the creation of triple results. For customers, because they can continue their business operations with no setbacks; for banks, because they can safely grant credits and contribute to the consolidation of sustainable business; and for society, because the enterprises will result in outcomes that will favorably impact the sustainable development of society.

Corporate Social Responsibility Given the important value of the CSR principles and practices for Banco Regional and its stakeholders (and society in general), we made the strategic decision to incorporate sustainable development as a fundamental part of our business strategy. This involves developing a systematic way working with corporate governance, rationale and objectives, consistent with the vision and values of the Bank and sensitive to their operational, environmental and social conditions. While we are already engaged in various activities, in different fields, typically classified as CSR, we firmly believe that in order to be a socially responsible company, it has to be fully integrated into the core business processes, strategy and its daily activities. This is why we will increase our focus and commitment to CSR. As part of the new Strategic Plan 2013-2017 of Banco Regional, we decided to create a Social Responsibility unit, to exclusively handle its management. This new unit will be

incorporated into the functional structure of the company. The bank will allocate the necessary resources for its creation and start of operations. Once the CSR unit is functional, we expect this unit to define an Annual Plan that responds to measurable goals and targets that contribute to sustainable development.

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ANNUAL REPORT 2013 / Another year of growth and shared success

SIX

CORPORATE GOVERNANCE “The presence of an effective corporate governance system, within an individual company and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy” (OECD-Quoted by the Basel Committee, 2006), “The improvement of Corporate Governance in banking organizations. “

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

6.1. GOVERNANCE STRUCTURE Banco Regional’s structures of Corporate Governance aim to support and guide the direction of the company, its internal and external functioning, towards efficient, comprehensive and transparent management to respond adequately to its various stakeholders and ensure a comprehensive ethical behavior.

Composition of the Board of Directors

The composition of the Corporate Governance includes the General Assembly, the Board of Directors, the Managers and Committees.

General Assembly

Board of Directors

Managements

The Assembly is the main deliberative organ of the company; it is composed by its shareholders. The ordinary meeting takes place on the first quarter of each year.

The Board of Directors is the highest governing body of the Bank; its function is the representation, direction and supervision of the institution and the enforcement of programs and plans necessary to achieve the established objectives.

Management is the executive level where officials have the prerogative to solve operational issues and the autonomy to lead creative management processes, as long as the practices are aligned with the principles and values of the Bank.

In this space they review, discuss and vote on the financial statements submitted by the administrators, they deliberate about the allocation of the earnings of the accounting year, they discuss the distribution of dividends and the election of Board members. They can also meet in extraordinary sessions, for specific cases as contemplated in current legal and regulatory legislations.

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The General Assembly elects the members of the Board of Directors, who remain in office for 2 years with the possibility of reelection. The Board is supported in its management by five specialized committees, namely: Assets and Liabilities, Human Resources, Credit, Audit and Compliance.

A total of four committees accompany the task of this level of corporate governance. These are: Management, Planning Services for IT (Information Technology), Quality and Change.

Executive President Raúl Vera Bogado

Principal Director Francisco Yanagida

Alternate Director Erik Peek

Vice-President Cornelis J. Beijer

Alternate Director Alfredo Raatz

Alternate Director Wolfgang Brönstrup

Principal Director Irene Memmel de Matiauda

Alternate Director Erik Heyl

Principal Trustee Roland Wolff

Principal Director Rafael Benatti Pilla

Alternate Director Mirian Raatz de Soley

Alternate Trustee Sandra Yshizuka

6.2. EXECUTIVE MANAGEMENT General Manager

Orlando Villamayor

Corporate Risk Management

Jorge Sienkawiec

Corporate Treasury Management

Gustavo Matiauda

Corporate Management of Corporate Banking

Walter Duarte Kallus

Corporate Management of Personal Banking

Julio Vázquez

Corporate Management of Information Technology, Administration and Operations

Matheus Den Exter

6.3. MANAGEMENT TEAM Branches Manager

Juan Manuel Figueredo

Audit Manager

Juan Carlos Meza

Finance Manager

Oscar Godoy

Operations Manager

Isabel Galiano

Human Resources Manager

María del Carmen Valenzuela

Administrative Manager and Assistant to COO

Fabio Sitzmann

Legal Advisory Manager

Marcos Dalla Fontana

Compliance Manager

Erica Werner

Strategic Planning Manager

Juan José Benítez

Information Technology Manager

Mirtha Acuña

Segments and Products Manager

Justin Van Der Sluis

Corporate Advisory Manager

Mats Hernegard

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

6.4. FUNCTIONAL ORGANIZATIONAL CHART

6.5. CORPORATE STRUCTURE

The functional areas that make up the corporate governance of Banco Regional are responsible for managing, in a rigorous way, the market, credit, operational and reputational risks. The Structure of the Board of Directors is sustained by the Executive and Technical Management teams, which also count on departments that are responsible for the management of the various business areas.

General Organizational Chart December 2013

Since then, the bank is directed by a Board of Directors, composed mainly by its founders.

Presidency and Board of Directors Staff

General Assembly of Shareholders Syndic Audit Manager

Board of Directors

Compliance Manager

Audit Committee Compliance Committee Credit Committee HR Committee ALCO Committee Strategic Management Committee

Executive President Legal Advisory Manager

Division Managers

Corporate Managements

General Management Staff

General Manager (CEO)

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Strategic Management Manager

Human Resources Manager

Management Committee Planning of IT Services Committee

Corporate Advisory Manager

Corporate Risk Manager

Corporate Manager of Personal Banking

Corporate Manager of Corporate Banking

Corporate Treasury Manager

Corporate Manager of

Operations, Administration and IT (COO)

Business Intelligence Manager Segments and Products Manager

Banco Regional is a corporation, a publicly traded corporation (since 2008), which began operations under the name of Banco Regional Sociedad Anonima de Inversion y Fomento (in 1991), approved by Executive Power Decree No. 4321 of January 6, 1990 and by the Central Bank of Paraguay’s resolution No. 5, Minute No. 11, dated February 13, 1991.

Branch Management

Finance Manager

Adm. Information Manager Tecnology and Assitant Manager to COO

Operations Manager

The corporation is composed of 60% local Paraguayan shareholders and the remaining 40% belongs to Rabo Development B.V. from Holland. The same percentage distribution is reflected within the Preferred Shares. While the General Assembly remains the principal sphere of involvement of shareholders, these, at all times, can communicate their concerns, recommendations and realize queries directly to the units that are responsible for tasks related to the issues raised.

6.6. CODE OF CONDUCT In order to ensure compliance with the rules, regulations and laws set by regulators and the Bank Statutes, the Bank developed a Code of Conduct, which sets a Model of Performance, linked to knowledge of the rules, implementing them, following procedures and acting with ethics and integrity. These directives and mandates are considered essential to achieve the fulfillment of our Mission and Vision, within a Culture of Compliance.

6.7. RISK MANAGEMENT The administration of risks in Banco Regional is based on the standards defined by the Central Bank of Paraguay. Risk assessment is the identification and analysis of relevant risks to which the entity is exposed. In order to ensure proper risk management, Banco Regional implements the following policies: • Credit Policy • Liquidity Management Policy • Market Risk Policy • Operational Risk Policy • Social and Environmental Risk Policy

Operational Risk Management The Bank has a department called “Unit of Operational Risks”, whose specific role is to manage operational risks, which directly reports to the Corporate Risk Manager. The creation of a “Risk Committee” was also defined, which aims to manage the risks to which the Bank is exposed and monitor that the completion of transactions adjusts to the objectives, guidelines and policies for risk management, as well as exposure to risk limits that have been previously approved by the Board of Directors. Credit Risk Management In the area of Credit Risk, and according to the different segments which the Bank serves, the Bank has established procedures and tools by which loan requests are evaluated, assuming and controlling credit risk for various types of debtors (Corporate Clients, SMEs, Individuals, Small Business.) Furthermore, there is an area of Followup and Monitoring of Loan Portfolios, which is responsible for keeping track of early warning signs in the loan portfolio of clients. The primary basis for the analysis is the debtor’s repayment

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ANNUAL REPORT 2013 / Another year of growth and shared success

capacity as stipulated by the regulator, the Central Bank of Paraguay (BCP), in order to maintain the Bank’s loan portfolio classified and create previsions to cover estimated losses in recovery of loans. Management of Liquidity Risk In the area of Liquidity Risk Management, the measurement of risk is performed through a gaps system of future flow of revenues and expenditures. At the same time, the limits are defined based on liquidity ratios and minimum levels of liquidity buffers in each currency. Market Risk Management For the measurement of market risks, we have risk measurement tools for Interest Rates, Exchange Rates and their limits. The Interest Rate Risk establishes limits for risk measurement in both Guarani and Dollars, through the model of the Present Value of Basis Point Change (PVBP), which consists in updating the active and passive portfolio rates to one year varying the market rate one basis point (0.01%). The measurements of the Value at Risk (VAR) Interest Rate are also performed. Measurement of Exchange Rate risk is performed by a model of Value at Risk (VAR) for parametric foreign currency position. We also have another structure based on exposure ceilings for each currency. This structure is subject to compliance of the VAR limit.

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ANNUAL REPORT 2013 / Another year of growth and shared success

Environmental and Social Risk Management Social and Environmental Risk care is focused on strengthening the relationship with the customer, identifying, evaluating and managing the risks posed by the activities and projects of their business activities. This, in order to minimize the chances of being indirect accomplices. The Bank has a list of non-financeable activities; as well as a Risk Matrix based on an estimate of the risks of the funded activity and a determination of the Bank’s exposure to that risk. The intensity of due diligence and depth of credit terms is defined based on these two factors above. It is noteworthy to mention that for the management of these risks, the Bank undertakes efforts to maintain a staff of trained collaborators, in order to adequately assess and measure these risks. See more details in “Social and Environmental Commitment”.

ANNUAL REPORT 2013 / Another year of growth and shared success

SEVEN

ACCOMPANYING OUR CLIENTS The perception that our Clients may have regarding the products and services we offer at Banco Regional is key to measure their satisfaction levels and to establish opportunities for improvement. Talking with our clients, to know them better and understand their concerns, is an activity that we will strengthen in our daily management.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Interview to: Oscar Ramírez Benítez. Manager of Arrosur S.R.L. and President of the Association of Rice Producers of Itapúa.

“I FEEL ACCOMPANIED” Funding is essential in the agribusiness sector, but not so easy to obtain when the results are conditioned on various unpredictable factors, such as climate and environmental factors. The uncertainty that comes hand in hand with any agricultural innovation needs, besides a good project, a financial ally who will also take a risk with one. And that is what I found in Banco Regional.

I felt and feel I have an ally. In a crisis, in the time of success, at different times, I can affirm –as a Client– that I feel accompanied by the Bank. Much of the agricultural achievements of the department of Itapúa were obtained thanks to the trust that Banco Regional constantly bestowed upon the agricultural producers.

WHAT DO YOU ASK THE BANK? That the bank continues supporting the sector with funding, offering differential rates for the sector and in flexible terms.

PROFILE OF ARROSUR S.R.L. ARROSUR SRL was founded in 1993 as a family business. Its main product is rice seeds in different varieties; its production capacity is 8,500 kilos per hectare. It has 5,000 hectares. Its production processes are monitored by international customers that set high standards in the use of natural resources and products for a successful harvest. The employees of the company consist of 100 collaborators, a number that is multiplied by two during harvest time.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Interview: José Patricio Acosta. Co-Owner of Agrotransportadora Acosta S.A. PROFILE OF AGROTRANSPORADORA ACOSTA A multi-sector company, focused on agricultural production and services. Currently, the company is managed by the second-generation of the founding family. The company produces, industralizes and exports rice; has 2,800 head of cattle (2,200 for fattening and 600 for breeding). They also have their own fleet of vehicles that transports their grains and agro products, and that of third parties. They have approximately 100 employees, for which they provide a convenience store, so that they can buy goods –at purchase cost and with a 30-day financing– for their family´s consumption.

“THEY KNOW US… THEY ARE FROM OUR REGION” I have been working in the agricultural business for 25 years. Growing up in this environment I realized that in order to be successful we cannot do the same old thing, much less in the same way. We need to modernize our equipment and techniques. The company exports since 1999 and eventually I got to know other countries where I learned how to run a better business, even with the wastes. It turns out that, until recently, the husk and all the other parts, asides from the grain of rice, were discarded. Now these residues are recycled and turned into cattle feed, and due to the amount available, they are being bagged and sold.

What at first was used to feed a few milking cows today is consumed by 2,800 head of cattle. However, this enterprise is not done alone; we need someone to help in the process. In that sense, for me, Banco Regional is the best bank in the sector, they take risks every day to support our sector. I think this is because they know us, they are from our region, they are our like our next door neighbor. Fear is always present; however it is reduced when we count with someone like that.

WHAT DO YOU ASK THE BANK? To conduct management and business plan trainings. Most of the agricultural producers are trained on the jobs, not in university. The above mentioned is one of the issues that we do not learn on the job. 52

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Interview: César Cerini, Co-Owner of Commercial El Faro President of the Chamber of Commerce of Encarnación

“IT FILLS US WITH PRIDE” For a business to have variety, good price and a good reputation a significant flow of operating capital is required. The growth of competition and diversification of this sector are issues that we must consider if we want our business to be profitable and continue to exist. Financing then becomes an option that we frequently resort to. We become dependent on third party’s financing. I say this as a good thing, in the sense that, when someone lends you money, you become vulnerable.

This company has been a client of Banco Regional for the last decade and, I must say, the financing they give goes beyond the Client-Consumer treatment. We receive personalized attention, good terms and payment conditions; their services make our lives easier, we almost have no need to go to the branch. We are probably only one, among the many companies the Bank serves, but they make us feel unique. Being from Encarnación and growing with the support of the Bank, fills us with pride because it is a local Bank, from this city, our city.

WHAT DO YOU ASK THE BANK? I ask the Bank to promote specific campaigns for the formalization of the commercial sector and to continue supporting the development of the department of Itapúa, with a special attention to youth.

BUSINESS PROFILE OF EL FARO It is a company with two decades of service in wholesale sale of school supplies, convenience goods and others. It also has its own clothing production factory. They operate as a distributor in the cities of the interior of the Department of Itapúa. Their team of employees consists of about 30 people. As a member of the Chamber of Commerce, El Faro supports youth entrepreneurship in the department of Itapúa.

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ANNUAL REPORT 2013 / Another year of growth and shared success

EIGHT

ECONOMIC AND FINANCIAL PERFORMANCE Accountability is an exercise which orders and transparents management; helps to promote the formalization of the economy and encourages similar practices. In the financial and banking institutions, although this is a mandatory practice, exposure of the numbers comes as more human sense when accompanied by information that allows understanding. Thus, the public can measure the extent of its impact, both economically and socially.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

GDP Growth Rate (en %)

8.1. ECONOMIC ANALYSIS AND OUTLOOK

7.7

2013 estimated

World and Regional Overview On a worldwide basis the year 2013 displayed moderate economic growth, with a handful of key players still struggling to regain the stability enjoyed in previous years. While several advanced economies showed improvement, others, such as leading emerging markets, were not so lucky. The less fortunate experienced slower growth levels, encountering tighter financial conditions worldwide and fairly volatile capitalflows. United States of America In 2013, according to official sources, US Gross Domestic Product (GDP) increased by 1.9%, almost 100 basis points lower than the 2.8% registered in the previous term. As of late May, financial and stock markets around the globe grew impatient on possible reductions in the Federal Reserve’s Quantitative Easing programs, which were seen as imminent before year end. On a different note, in October, the White House was forced to shut down all non-essential government offices and operations due to the end of fiscal year 2013 and the lack of an approved budget for 2014. At the same time, the government was close to reaching its debt ceiling (US$ 16.7 trillion) and, if the limit was not increased, the U.S. Government would have to default on its debt for the first time since 1789, due to a lack of funds. The real issue behind these events was based on political differences between the Republican Party

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7.5

2014 proyected

(majority in the House of Representatives) and the Democratic Party, whose influence lies in the Senate. After a 16 day face-off, legislators finally agreed to pass a provisional measure to lift the debt ceiling until February 2014, in order to extend talks for long-term budget reduction. Finally, in the last meeting of 2013 the Federal Reserve announced it would gradually reduce the QE programs starting 2014. In January, the stimulus package would be reduced by U$S 10 billion, from 85 to 75 billion dollars. During the meeting, officials indicated that further reductions would be undertaken in measured steps.

5.4 4.4 3.7 3.0

2.8

2.6

1.9

1.7

2.3

2.3

1.7

1.0

-0.4 World

USA

Euro Zone

Japan

China

India

Latina America

Brazil

Source: Investor Economia with data from the IMF

Europe

Brazil and Argentina

On the other side of the Atlantic, several economies have been unable to recover from the 2012 recession that spread throughout the European continent. In 2013, adding to the high levels of unemployment, Euro Zone GDP experienced a 0.4% retreat. As of year end, unemployment reached 12% in the EU as a unit, while some troubled economies, such as Spain and Greece, saw their figures pass the 25% mark.

Brazil’s third quarter GDP suffereda 0.5% decrease with regards to the previous quarter, but a 2.2% rise compared to 2012 Q3 data. The industrial sector struggled to regain momentum, but slow-rising investment levels have raised warning signs about the challenges that still lie ahead.

The delicate economic situation prompted the European Central Bank (ECB) to reduce interest rates from 1% to 0.5% in May, and a few months later, the monetary authority reduced them to a historic low of 0.25%. Low inflation, added to standardized nominal rates make matters worse for several Euro Zone members, given the lack of control over short-term interest rates, which might lead to a rise in real rates.

3.0

Overall, Brazilian Gross Domestic Product increased by 2.3% in 2013, lower than the 3.0% projected earlier that year. In its November meeting, the Brazilian Central Bank Monetary Policy Committee (COPOM) increased the SELIC benchmark interest rate from 9.5% to 10%, marking the sixth increase in a row. It had been almost two years since the last time the SELIC reached a two-digit figure, but the rise did not surprise financial markets. Greater inflationary pressures are expected for 2014, leading to even greater increases in the SELIC rate.

Considering the low economic growth rates, especially in the industrial sector, towards mid-2013 the Brazilian Central Bank (BACEN) decided to relax the Real/US$ exchange rate, which allowed it to rise towards 2.4 R$/US$ in mid-august. For the next two months, the depreciation toned down, but regained momentum towards November. As for Argentina, the Peso continues devaluating under tight government controls and, due to exchange rate restrictions, the unofficial Peso/US$ exchange rate follows a continual upward trend. At the same time, their International Reserves have been falling rapidly because the government has been using this account to finance its operations. In only two years, Argentina´s ability to cover its monetary base was cut in half.

59

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Local Overview

•

Economic Activity •

•

•

dec-13

aug-13

apr-13

dec-12

aug-12

apr-12

dec-11

aug-11

apr-11

dec-10

aug-10

apr-10

Annual Inflation

•

Source: Investor Economia with data from the BACEN

• Currencies and commodities

A few months later, the dollar would lose ground against the major currencies due to the government shutdown during the first weeks of October. The downtrend continued, and the North American currency reached 1.38 US$/Euro. With the oncoming stimulus tapering, the dollar’s depreciation will come to an end and might, eventually, revert itself given the lower quantities available in the market. With regards to agricultural commodities, the international price for soybeans remains at a good level. The US had a positive production campaign, which will lead to improvements in the stock-tousage ratio and might push prices downward.

60

However, in the medium term, this effect will be compensated by strong demand for human consumption, vegetable oil and animal feed. On another note, the United States, the greatest corn producer and exporter, planted a record surface area and has been experiencing positive weather conditions. Important production levels are also expected for China, the EU and Ukraine which, altogether, will harvest 20 million tons more than the previous campaign. This forecast will limit possible price appreciations, at least for the next six months. As for wheat, the 2013/14 campaign is expected to yield positive production levels, while consumption might increase at a slower pace due to a reduction in wheat use for animal feed given lower corn prices. The low stock-to-usage ratio present during the last four campaigns will maintain prices elevated for the wheat grain. As for petroleum, prices have been relatively stable during the last few months, around US$ 110 per barrel.

The Paraguayan economy experienced the highest growth ratein Latin America (well above the average) and the second highest worldwide, taking into account the International Monetary Fund’s (IMF) projections for the rest of the world. For 2014, the BCP estimates a growth rate around 4.8%, near the national historic average. Investor Economics preliminary estimates came up at 5.4% (+/-2%), which could be corrected towards late February when the first round of soybeans are harvested.

GDP Growth Rate 15%

10%

5%

0%

4.3%

4.1%

2.1%

4.8%

5.4%

6.4%

13.1%

4.3%

-4.0%

13.6% -1.2%

-5% 2006

The Federal Reserve’s mid-year announcement, which set the stage for eventual reductions in the stimulus program, strengthened the dollar with regards to other major currencies, reaching 1.28 US$/Euro. However, later clarifications that the stimulus package would continue well past 2013 lowered tensions in the financial markets and reduced the US Dollar’s swift appreciation.

2005

SELIC Rate

dec-09

aug-09

apr-09

dec-08

aug-08

apr-08

dec-07

aug-07

apr-07

dec-06

aug-06

apr-06

0

Excellent year for the agricultural sector, which rose at a rate of 51% due to the superb campaign for soybeans (whose production increased by 115%) and its production chain. An important multiplier effect was seen towards related activities such as industry, finance, transport, commerce, and others. Strong growth in the cattle and livestock sector, which increased 9.6%, driven by rising exports. Good year for the industrial sector (8%), mainly due to growing beef exports, abundant agricultural production and recently inaugurated industrial facilities.

2013

5.91

5

2012

7.31

6.37

•

2011

10.00

2010

10

2004

%

2008

12.50

In 2013, according to the Central Bank of Paraguay (BCP), GDP increased by 13.6%. The main economic drivers include:

2007

13.75

2003

15

Excellent growth in services, especially in the transport (20%) and services to businesses (15%) subsectors. Increase in construction (14%), driven by significant private sector works and several public sector projects. Growth in private investment, with increases in machinery and equipment imports. Record year for exports.

2009

Benchmark Interest Rate and Inflation in Brasil

20

10 year average Source: Investor Economia with data from the BCP

61

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Monetary Sector

Financial System

In 2013, consumer prices expanded at a rate of 3.7%, slightly lower than the 4% registered the previous year, below the target inflation established by the BCP (5% +/- 2.5%). Prices remained under control, with low inflationary pressures for the most part of 2013. The main determinants were:

The Central Bank of Paraguay (BCP) has an established policy of inflation targeting, aimed at maintaining controlled price levels.

•

In December, the BCP increased its benchmark interest rate from 5.5% to 6% in an effort to control inflationary pressures expected during the initial months of 2014. The move also came about as the US Federal Reserve announced decreases in its stimulus program, which will lead to an appreciation in the North American currency.

Through its monetary policies it controls currency flows by either issuing regulatory instruments or exchanging Guaranies for US Dollars.

30% 25% 20% 15% 10% 5%

dec-13

sep-13

jun-13

mar-13

dec-12

sep-12

jun-12

mar-12

dec-11

sep-11

jun-11

mar-11

dec-10

sep-10

jun-10

mar-10

dec-09

sep-09

jun-09

mar-09

dec-08

0% mar-08

•

The measure might not exert much influence on prices, given that the pressures will originate from the supply side, not the other way around.

35%

sep-08

•

Annual Credit Growth

40%

jun-08

Starting in February, downward pressures kept prices at low levels, deriving from certain food (beef, oil and sugar) and petroleum products. Towards mid-year, increases in dairy products, flour and baked goods pushed prices upward, mostly due to shortages in raw materials and a large demand for wheat coming from Brazil. At the same time, the surge in beef exports led to increases in local meat prices. Throughout the year, prices related to rented goods and services, communications, tourism and entertainment exhibited upward trends.

At year end, deposits in the financial system reached US$ 12.65 billion (Gs. 57.7 trillion), a yearly increase of 24% and 19% in nominal and real terms. During the same twelve month period the loans portfolio reached US$ 11.06billion (Gs. 50.5 trillion), also increasing by 24% and 19% in both nominal and real terms.

Source: Investor Economia with data from the BCP

Inflation

14

In regards to the financial indicators, the Paraguayan banking sector exhibited improvements in several key variables with regards to December 2012. The cash-to-deposit ratio increased from 42.7% to 44.4%, while the cash-toliabilities was kept at 35.8%. The profitability ratios came in with mixed results, with a slight decrease in ROA from 2.6% to 2.4%, while ROE increased from 28.5% to 29.4%.

12 10 8 %

6 4 2

Anual Inflation

dec-13

sep-13

jun-13

mar-13

dec-12

sep-12

jun-12

mar-12

dec-12

sep-11

jun-11

mar-11

dec-10

sep-10

jun-10

mar-10

dec-09

sep-09

jun-09

mar-09

dec-08

sep-08

jun-08

mar-08

dec-07

sep-07

jun-07

mar-07

0

The average Non-Performing Loans (NPL) ratio increased through the first semester of 2013, but ended the year at 2.1%, slightly lower than the 2.2% from December of 2012.

The banking sector’s indicator came in at 2.0%, while the financial houses (financieras) averaged 4.1%. In December 2013, loan interest rates in local currency for banks averaged 21%, similar to the 21.3% registered a year earlier. Deposit rates in guaranies came in at 5.9%, lower than last year’s 7%. Loan rates in foreign currency (US Dollars) also exhibited a downward trend, averaging 8.9%, lower than the 9.3% from 2012. Lastly, deposit rates averaged 2.5%, down from 3.6%.

Target

Source: Investor Economia with data from the BCP

62

63

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Foreign Trade Bank Deposit Rates in Local Currency

60

48.6

50

In 2013, Paraguay’s foreign trade balance displayed important improvements with regards to the previous year. In absolute terms, the growth in exports vastly exceeded that for imports, leading to a 46% reduction in the trade balance deficit, closing 2013 at U$S -1.87 billion. It should be noted that Paraguay improved its trade balance with every single one of its commercial partners with the exception of Brazil.

50.5

40 30 20

25.5 19.2 14.3

18.7

18.5

13.5

10.7

10

9.5

12.4

19.3

23.0

21.3

21.0

Exports and Imports

12.4

0 Comercial 1 Comercial 1 Comercial 1 Comercial 1 Comercial 1 year year year year year dec-12

Credit card

Average Millones de US$

Comercial 1 year

dec-13

Source: Investor Economia with data from the BCP

12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 -1,000 -2,000 -3,000

1,584 1,378

2,237

2,232

1,059

796 4,553

2,878

Bank Loan Rates in Local Currency

14

3,670

3,727

761

785

2,653

2,693

2013

2012

Soybean Chain Others Intermediate Goods

12.1

2013 Imports

Exports

Beef Chain Non-Durable Consumer Goods Capital Goods

2012

-1,870

2013 Trade Balance

Electric Energy Durable Consumer Goods Trade Balance

Source: Investor Economia with data from the BCP

12 8.2

10

6.6

6.5

8

7.0 5.9

4.0

6 4 0.7

0.8

2 Cash

CD up to 180 CD up to 365 CD up to 365 days days days dec-12

dec-13

Source: Investor Economia with data from the BCP

64

4,097

-3,473 2012

12.5

3,682

Average

Exchange Rate During the final months of 2012 analysts predicted that in 2013, the Guarani/US Dollar exchange rate would be pressured downwards, at least through the first halfof the year due toa rise in exports, the issue of sovereign bonds in international markets, royalties and increased levels of Foreign Direct Investment (FDI). However, around mid-March, several external and internal factors began pressing the dollar

upwards due to a lower-than-average rate of capital influx added to an unexpected flight of cash to Argentina. Unexpected logistic setbacks in Brazilian and Argentine ports delayed foreign currency inflows. At the same time, business transactions at border towns were negatively impacted by the rapid depreciation of the Brazilian Real relative to the US Dollar.

65

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

On the other border, capital controls imposed by the Argentinian government promoted arbitrage and smuggling.

The exchange rate remained stable throughout the first week of December, but began ascending on the second week. The rise accelerated towards mid-month after the US Federal Reserve confirmed the stimulus program would start winding down in January 2014, which prompted significant purchases of the North American currency, aside from the usual year-end acquisitions, lower inflows from Paraguayan exports and the BCP’s noninterventionist approach.

Towards mid-June the exchange rate leveled off, fluctuating around 4,480 Gs./US$ until late November. As the month of November came to an end, the BCP announced it would not intervene in the currency exchange market during December unless immediate action was deemed necessary.

Nominal Exchange Rate

GS./US$ 4,700

4,650 4,620

4,600 4,500 4,350

4,300 4,200 4,100 4,000

26-dec-13

11-dec-13

26-nov-13

11-nov-13

27-oct-13

12-oct-13

27-sep-13

12-sep-13

28-aug-13

13-aug-13

29-jul-13

14-jul-13

29-jun-13

14-jun-13

30-may-13

15-may-13

30-apr-13

15-apr-13

31-mar-13

16-mar-13

1-mar-13

14-feb-13

30-jan-13

15-jan-13

31-dec-12

3,900

Source: Investor Economia with data from the BCP

In 2013, the Paraguayan Government raised Gs. 15.1 trillion (US$ 3.3 billion), 6.8% more than the previous year. The increase was mainly due to the sums collected by the Sub-secretaría de Estado de Tributación (tax collection agency), which raised Gs. 7.8 trillion (US$ 1.7 billion), 10.6% more than 2012, driven mainly by income taxes. On the other hand, the Dirección

66

On November of 2013, Paraguay’s external debt balance reached US$ 2.681 billion, 19% more than a year earlier. As for internal debt, the Ministry of Finance sold bonds in the local market on March, July, September, October, November and December, for a grand total of Gs. 1.1 trilion(US$ 243 million).

•

Outlook

•

The perspectives for Paraguayan agricultural production are positive. Soybean prices will depend on weather conditions and regional production levels. •

4,320

Fiscal Sector

•

•

•

•

4,470

4,430

4,400

to 2.7% of GDP. It should be noted that the fiscal accounts will gradually adhere to the limits established by the new Law of Fiscal Responsibility, which caps deficits at 1.5% of GDP.

Global demand for beef will increase, especially in emerging economies.

- Paraguay has regained the “free from FMD (foot-and-mouth disease) with vaccination” sanitary status in November 2013, allowing initial procedures to reactivate beef exports to premium markets such as the European Union and Taiwan, closed after an FMD outbreak two years ago.

•

Consumer expenditures for 2014 will remain around current levels as variations to its determinant factors are not expected. For 2014, GDP is expected to rise at more moderate levels, around 5.4% ± 2%. Rising inflationary pressures are likely, but consumer prices should end the year around the target established by the Central Bank (5% ± 2%). Exports will maintain current levels given the positive year for the agricultural sector and rising beef exports, as Paraguayan meat regains entry to the Chilean market. Regional exchange rate differences will remain, as well as the uncertainty regarding Argentina’s future and Brazil’s expansionary measures. The exchange rate could be pressured upwards, mainly towards the second half of the year. Itisexpectedtofinish offaround 4,840 ± 200 Gs./US$. Greater investments in public infrastructure are anticipated, with a positive impact on consumption. It should be noted that the US$ 500 million from the emission of sovereign bonds on international markets carried out on January 2013 remain unspent.

- Production and price increases in the beef sector due to the restoration of sales to premium markets might lead to high export levels over US$ 1.1billion.

Nacional de Aduanas (customs agency) raised Gs. 7.3 trillion (US$ 1.6 billion), a 3% increase. The Central Government ended 2013 with a 1.7% fiscal deficit (measured against GDP) according to preliminary data. Expenditures on Personnel increased 11%, while budget implementation rose by 2.4%, data as of November 2013. For 2014, the approved National Budget exhibits a Gs. 3.8 trillion (US$ 840 million) deficit, equal

67

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

LOANS

8.2. MAIN INDICATORS OF CONSOLIDATED BALANCE December 31

2009

2010

2011

2012

2013

Millions of Guarani (Except stated otherwise) At Year End Active

6,523,989

7,124,772

8,570,325

9,214,818

11,984,800

Loans

3,733,752

4,748,074

6,108,307

6,656,769

8,087,198

6,339,082

5,232,218

5,702,018

6,853,675

8,830,002

Equity

612,242

647,764

747,792

826,609

928,460

Result

88,381

75,832

140,807

141,137

150,679

18.76%

14.00%

24.56%

22.19%

20.36%

1.51%

1.12%

1.74%

1.65%

1.32%

259,037

302,783

403,541

411,921

442,099

26,705

63,940

52,841

79,561

75,293

86.53%

127.39%

132.64%

115.50%

119.26%

9.38%

9.09%

8.73%

8.97%

7.75%

61.13%

63.35%

57.22%

55.74%

56.89%

2.58%

1.94%

1.79%

2.48%

2.47%

18.11%

16.50%

15.88%

15.53%

16.23%

17.45%

17.07%

Deposits

Evolution of Loan Portfolio

Portfolio Distribution by Sector

Banco Regional has maintained a steady growth of its portfolio, which includes the integration of the acquired ABN AMRO Paraguay (2009).

With 42%, the agricultural sector continues to lead the portfolio of loans granted by Banco Regional, followed by approximately 29%, which is intended for livestock, industrial and service sectors.

It reached 78% in 2012, despite the adverse economic conditions of the farming sector that year, mainly caused by drought and the outbreak of FMD. The year 2013 was no exception, a growth of 21% over the previous year was recorded, which places us 2nd place in the financial system, with a share of 17%.

These numbers demonstrate the validity of our commitment to the productive sector; simultaneously positions us as the “mayor” of the financial system, with a share of 28.79% of loans in that sector. In sum, with the other sectors, tops the list of financial entities, with 16.77% of total loans.

Indicators

Assets

17.66%

15.85%

15.76%

15.25%

15.76%

Equity

16.00%

13.45%

13.22%

11.89%

11.67%

Integrated Capital

27.00%

25.16%

16.55%

16.25%

15.61%

15

16

15

16

16

4600

4558

4478

4224

4585

Number of Banks Financial System (Units) Exchange Rates (in Guarani for American Dollar)

27%

Agriculture 42% Wholesale trade 14% 8,087,198

18.01%

29%

6,656,769

19.70%

9%

6,108,307

Loans

18.22%

21%

4,748,074

Deposits

117%

3,733,752

Market Share

Evolution of Loan Portfolio

Millions of Gs.

Return on Equity (ROE) Return on Assets (ROA) Interest Income Projections for the Year Projections for Past Due Loans Equity as Percentage of Total Assets Efficiency Delinquency

Industry 10% Livestock 10% Service 9% Consumption 6%

Currency

2009

2010

2011

2012

2013

4600

4558

4478

4224

4585

Financial Sector 5% Retail Trade 4% Export 0.03%

Balance in millions of Guarani / Includes interest

68

69

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

FINANCIAL INVESTMENTS

Evolution of the Portfolio Deposit

Distribution of Portfolio by Currency

Portfolio Investments, consolidated as of December 31 was Gs. 1,899,969 million. Liquid investments made by the Bank are supported by a Liquidity Policy, which supports the growth of assets. In 2013 the diversification of loans it committed as a strategy to increase return on investment and minimize risk.

At year end, the deposits amounted to Gs. 8.8 billion; representing a growth of 29% over the previous year and this bank positions in 2nd place by market share, with 16.23% of total deposits in the financial system.

The distribution of the Portfolio, by currency, shows the preference of savers to keep your balance, mostly in Guarani.

The balance of the year shows a significant percentage of liquid assets comprise monetary regulation instruments (38.33%), deposits in the BCP (29.90%), Treasury of the Republic of Paraguay (14.57%) , Placements Abroad (9.65%) and deposits Other Institutions (6.59%), among other. This gives you a good liquidity position.

At the end of 2013, this Portfolio composed 52% of deposits in local currency and 48% in foreign currency. The tendency to maintain investments in Guarani shows greater strength of our currency.

Evolution of the Portfolio Deposit 69% 29%

Portfolio Composition in Guarani / Balance in millions of Gs. Public and Corporate Bonds Guarani

8%

2,500

Treasury Bonds Guarani

276,786

Term Deposits at Other Institutions

123,016

Bonds AFD

11% 9%

4,000

Composition of the Portfolio Dollar/Equivalent balances in million Gs. Placements Abroad

183,400

Term Deposits at Other Institutions

8,830,002

568,168

City Hall of Asuncion bonds

6,853,675

715

Deposits for BCP

6,339,082

Trusts bonds

5,702,018

728,323

5,232,218

MRI

Millions of Gs.

10,000

2009

2010

2011

2012

2013

4600

4558

4478

4224

4585

2,240

Trusts bonds

822

USD currency

4,585.00

EUR currency

6,335.55

Currency

Balance in millions of Guarani / Excluding accrued interest

Guarani 52%

USD 48%

Portfolio Distribution by Fixed Term Of the total deposits, 48% are “Fixed-term” and 52% “In sight”. This allows inference of customer confidence in the management of the entity.

MRI 38.33% BCP Deposit 29.90% Treasury Bonds 14.57% Placements abroad 9.65% Time deposits in other institutions 6.59% AFD Bonds 0.53% City Hall of Asuncion bonds 0.21% Public and private bonds 0.13% Trusts Bonds 0.08 In sight 52%

70

Fixed-term 48%

71

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Evolution of Assets

Evolution of the Patrimony

Results

Late Payment

Total assets at December 31, reached Gs. 11.9 billion, registering a growth of 30% and 84% in the last five years. This constant progress and sustainable growth positions us with 15.75% market share in the financial system.

In the last 5 years the patrimony of Banco Regional was distinguished by its continuous growth, which reached 52%, with an adequate level of capitalization. With this, its Integrated Capital amounts to Gs. 598 billion, ranking among institutions with more capital in the financial system.

The comparative record of the years 2011 to 2013 shows an evolution of the results from year to year, in which the downward trend was influenced by lower margins, extraordinary charges for the merger and the increase in loan provisions. That said, it is stressed that this year closed with a 7% earnings growth, compared to the previous year, equivalent to Gs. 151 billion.

The Late Payment Rate in 2013 was maintained in controlled ranges (2.47%); this was made possible by the measures taken which led to the strengthening of the loan portfolio and the recovery of this ratio, which is offset by a strong increase of security on the total portfolio, which reaches 43.49%.

Evolution of Assets

Evolution of the Patrimony

Evolution of Utilities

84%

52% 12%

30% 11%

612,242

647,764

747,792

826,609

928,460

2013

4600

4558

4478

4224

4585

9,214,818

2012

8,570,325

2011

7,124,772

2010

6,523,989

2009

2010

2011

2012

4600

4558

4478

4224

4585

150,679

88,381

Millions of Gs.

Millions of Gs.

11,984,800

dec-09 dec-10 dec-11 dec-12 dec-13

2013

2009

141,137

6%

9%

140,807

15%

20%

75,832

Millions of Gs.

8%

Currency

Banco Regional Late Payment

Currency

Integrated Capital

Currency

2009

2010

2011

2012

2013

4600

4558

4478

4224

4585

dec-09

2.70%

dec-10

1.94%

dec-11

1.79%

dec-12

2.48%

dec-13

2.47%

Reserves and Results 2.70% 2.48% 1.94%

2.47%

1.79% 2.09%

2.01%

1.71%

1.60% 1.27% dec-09

dec-10

dec-11 Banco Regional

72

dec-12

dec-13

System

73

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

8.3. FINANCIAL STATEMENTS Balance Sheet as of December 31, 2013 and 2012 (Figures stated in Paraguayan guaraníes) Assets

December 31, 2013

December 31, 2012

Cash on hand Central Bank of Paraguay (Note c.3) Other financial institutions

252,767,009,775

195,122,867,235

1,779,328,545,378

1,366,853,564,830

221,263,611,119

Checks and other offset documents

December 31, 2012

10,510,347,942

8,252,375,471

532,561,327,332

419,093,170,851

154,245,220,057

Central Bank of Paraguay Other financial institutions Correspondents - deferred documentary letters of credit

42,373,990,604

Receivables from accrued financial products

955,299,383

648,445,960

Transactions pending settlement

Allowances (Note c.7)

(58,392,957)

(7,901,842)

Accrued financial charges payable

2,293,312,325,883

Government and private securities (note c.4)

993,590,880,700

1,759,236,186,844 287,305,307,414

Financial intermediation - nonfinancial sector (note c.6.1) Other financial institutions

707,057,319,940

Transactions pending settlement

89,312,000,000

Loans used in checking accounts Receivables from accrued financial products Valuation gains recognition suspended Allowances (Note c.7)

643,916,878,156 25.468.320.772

26,626,395

212,785,910

12,421,537,653

13,143,051,994

(49,858,654)

-

(1,582,655,576) 807,184,969,758

Performing loans to the nonfinancial sector (note c.6.2) 7,480,351,876,457

6,068,379,929,838

44,526,639,839

43,112,862,481

113,881,747,780

159,396,130,458

Loans to the government sector

4,558,232,923

37,816,885

Valuation gains recognition suspended

(407,539,167)

(997,529,466)

Receivables from accrued financial products

144,251,231,933

125,811,649,090

Allowances (Note c.7)

(83,844,677,085)

(73,823,965,033)

7,703,317,512,680

6,321,916,894,253

38,069,851,561

27,784,421,907

Loans to the private sector Receivables from deferreddocumentary letters of credit Transactions pending settlement

Miscellaneous receivables (note c.6.4) Nonperforming loans - financial intermediation (note c.6.3) Nonfinancial sector

192,377,604,592

158,369,171,897

Valuation gains recognition suspended

(525,095,388)

(488,033,545)

Receivables from accrued financial products

7,413,353,800

6,424,222,974

(152,849,684,472)

(116,459,815,552)

46,416,178,532

47,845,545,774

5,350,022,901

5,340,639,583

17,060,600,409

14,339,657,383

2,980,250

2,745,600

42,123,183

41,095,827

(1,323,071,374)

(186,882,016)

21,132,655,369

19,537,256,377

Property, plant and equipment (note c.9)

70,799,868,525

59,856,517,853

Deferred charges (note c.10)

10,975,687,229

8,649,312,359

11,984,799,930,237

9,214,818,240,538

Allowances (Note c.7)

Investments (note c.8) Private securities Assets received in the recovery of loans Other investments Income from investments in the private sector Allowances (Note c.7)

The accompanying notes are an integral part of the financial statements.

33,950,615,381

1,591,330,597,896

1,016,462,195,798

90,363,247,666

25,580,432,707

17,718,626,109

21,657,899,811

2,285,882,172,847

1,524,996,690,019

Liabilities from financial intermediation – nonfinancial sector (note c.14) Deposits – Private Sector

7,292,778,229,883

5,441,222,503,140

Deposits – Government Sector

1,004,662,216,677

993,359,130,308

80,357,760,067

59,178,719,779

Debentures and bonds issued and outstanding (Note c.11)

119,069,130,000

95,641,432,000

Transactions pending settlement

120,297,701,082

153,402,253,189

Other obligations

Accrued financial charges payable

87,662,217,652

68,251,885,843

8,704,827,255,361

6,811,055,924,259

56,069,156,436

38,990,389,540

9,560,876,725

13,166,728,913

-

-

11,056,339,461,369

8,388,209,732,731

December 31, 2013

December 31, 2012

Capital (Notes b.5 and c.11 f )

597,587,100,000

538,039,600,000

Shares of common stock

347,587,100,000

288,039,600,000

Shares of preferred stock

250,000,000,000

250,000,000,000

-

2,673

28,465,474,948

26,124,267,675

151,729,072,467

121,308,102,287

(54,239,075) 682,686,797,757

43,398,025,902

Loans from financial institutions

39,056,253,185

Total assets

December 31, 2013

Liabilities from financial intermediation – financial sector (note c.14)

Cash and due from banks

76

Liabilities

Miscellaneous liabilities (note c.17) Provisions Allowances Total liabilities Equity

Non-capitalized contributions Adjustments to equity Reserves Retained earnings

-

-

150,678,821,453

141,136,535,172

For the legal reserve

31,668,929,740

30,420,970,180

Net to be distributed-preferred shares

45,000,000,000

45,000,000,000

Income for the year

Net to be distributed-ordinary shares

Total equity Total liabilities and equity Contingency, memorandum and trust accounts Guarantees provided Documentary letters of credit Lines of credit Other contingencies

Total contingencies accounts Total memorandum accounts Total trust memorandum accounts

74,009,891,713

65,715,564,992

928,460,468,868

826,608,507,807

11,984,799,930,237

9,214,818,240,538

December 31, 2013

December 31, 2012

166,831,885,192

243,626,121,923

72,610,896,628

54,839,218,264

592,735,183,115

621,207,156,257

2

2

832,177,964,937

919,672,496,446

10,851,084,448,424

8,549,748,886,158

-

-

The accompanying notes are an integral part of the financial statements.

77

ANNUAL REPORT 2013 / Another year of growth and shared success STATE OF INCOME AS OF DECEMBER 31, 2013 AND 2012

December 31, 2013

December 31, 2012

Financial income

913,839,744,125

785,885,560,629

Performing Loans – Financial sector

119,372,478,863

79,455,202,728

Performing Loans – Nonfinancial sector

750,966,362,953

675,650,921,899

Nonperforming Loans

12,226,308,160

13,478,155,994

Income and listed price differences of government securities

25,239,648,356

15,440,077,991

6,034,945,793

1,861,202,017

(471,740,693,603)

(373,964,608,473)

(83,722,031,730)

(74,543,814,952)

(388,018,661,873)

(299,420,793,521)

Listed price differences of government securities

-

-

Valuation of financial assets and liabilities in foreign currency (Note f.2)

-

-

Financial income before allowances

442,099,050,522

411,920,952,156

Allowances

(75,293,227,284)

(79,560,513,224)

(371,137,171,525)

(269,679,627,105)

Allowances reversed (Note c.7)

295,843,944,241

190,119,113,881

Financial income after allowances

366,805,823,238

332,360,438,932

92,351,335,261

Service charge income

Valuation of financial assets and liabilities in foreign currency (Note f.2)

Financial losses Liabilities – Financial sector Liabilities – Nonfinancial sector

Allowances set (Note c.7)

December 31, 2013

December 31, 2012

150,678,821,453

141,136,535,172

Depreciation for the year

10,407,831,550

10,067,294,672

Amortization for the year

3,023,995,427

12,107,511,794

Allowances set

371,137,171,525

269,679,627,105

Accrued financial charges unpaid

105,380,843,761

89,909,785,654

Allowance reversal

(295,843,944,241)

(190,119,113,881)

Accrued financial products not collected

(186,247,753,833)

(150,680,275,994)

(1,414,721,227,701)

(742,990,151,578)

Increase / (Decrease) in miscellaneous receivables, net

(10,285,429,654)

3,829,464,019

Increase in liabilities from financial intermediation, net

NET INCOME PLUS EXPENSES NOT INVOLVING USE OF CASH

LESS INCOME NOT INVOLVING CASH INFLOW

OPERATING ACTIVITIES Increase in loans, net

2,549,275,970,169

477,067,761,126

Increase in miscellaneous liabilities, net

17,078,766,896

1,991,208,422

80,140,863,533

(Decrease) in provisions, net

(3,605,852,188)

(3,291,651,356)

107,400,289,295

98,313,333,827

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

1,296,279,193,164

(81,292,004,845)

Service charge losses

(15,048,954,034)

(18,172,470,294)

Gross income

459,157,158,499

412,501,302,465

Decrease in government securities, net

(685,079,242,222)

335,259,847,149

Other operating profit

161,495,888,777

80,102,164,128

Decrease / (Increase) in investments, net

(1,595,398,992)

12,797,441,467

Profit from miscellaneous receivables

159,330,669,842

70,060,868,106

Decrease / (Increase) in property, plant and equipment, net

(19,009,974,949)

935,061,446

31,216,932

44,973,543

(5,350,370,297)

(2,739,462,235)

2,134,002,003

1,941,408,211

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(711,034,986,460)

346,252,887,827

-

8,054,914,268

FINANCING ACTIVITIES

Other operating losses

(467,572,196,479)

(344,643,080,727)

Payment of dividends

(51,168,064,992)

(64,788,656,585)

Compensation to personnel and other payroll taxes

(159,519,944,475)

(141,989,310,697)

Additional paid-in capital

(2,673)

2,673

General expenses

(125,928,943,736)

(111,806,060,892)

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

(51,168,067,665)

(64,788,653,912)

(10,407,831,550)

(10,067,294,672)

(DECREASE) INCRASE IN CASH, NET

534,076,139,039

200,172,229,070

(3,023,995,427)

(12,107,511,794)

Cash and cash equivalents at beginning of year

1,759,236,186,844

1,559,063,957,774

(165,127,131,575)

(68,672,902,672)

Cash and cash equivalents at end of year

2,293,312,325,883

1,759,236,186,844

(3,564,349,716)

-

Net operating profit

153,080,850,797

147,960,385,866

Extraordinary items

852,787,106

3,610,230,053

Extraordinary income

2,276,477,131

8,882,996,460

(1,423,690,025)

(5,272,766,407)

Adjustments to prior-year income (loss)

4,411,010,794

534,234,979

Income

4,501,399,478

785,044,154

(90,388,684)

(250,809,175)

158,344,648,697

152,104,850,898

(7,665,827,244)

(10,968,315,726)

150,678,821,453

141,136,535,172

Service charge income (loss)

Income on assets Other (Note f.3) Valuation of other assets and liabilities in foreign currency (Note f.2)

Property, plant and equipment depreciation Deferred charges amortization Other (Note f.3) Valuation of other assets and liabilities in foreign currency (Note f.2)

Extraordinary losses

Loss

Income for the period before income tax Income tax (note f.4)

Net income

78

STATEMENT OF CASH FLOWS PRESENTED COMPARTIVELY For the year between January 1 and December 31 (Figures stated in Paraguayan guaraníes)

The accompanying notes are an integral part of the financial statements.

INVESTING ACTIVITIES

Increase in deferred charges, net

The accompanying notes are an integral part of the financial statements.

79

ANNUAL REPORT 2013 / Another year of growth and shared success Statement of changes in equity as of december 31, 2013 (Figures stated in Paraguayan guaraníes)

Concept Balance as of December 31, 2011

Non-capitalized contributions

Shares of preferred stock

Adjustments to equity

Retained earnings (accumulated losses)

Legal reserve

-

Income (Loss) for the year

Total

241,866,100,000

250,000,000,000

-

23,655,972,204

91,462,916,847

140,807,342,025

747,792,331,076

-

-

-

-

-

140,807,342,025 (140,807,342,025)

-

46,173,500,000

-

-

-

-

(46,173,500,000)

-

-

Share premium

-

-

-

-

-

-

-

-

Capitalization of premiums

-

-

-

-

-

-

-

-

Booking of legal reserve

-

-

-

-

29,845,185,440

(29,845,185,440)

-

-

Distribution of dividends – preferred shares

-

-

-

-

-

(45,000,000,000)

-

(45,000,000,000)

Distribution of dividends – common shares

-

-

-

-

-

(19,788,656,585)

-

(19,788,656,585)

Account adjustment

-

-

2,673

-

-

-

-

2,673

Net increase of the appraisal revaluation reserve

-

-

-

2,468,295,471

-

-

-

2,468,295,471

Transfer of income from the prior year Capitalization of dividends

-

-

-

-

-

-

141,136,535,172

141,136,535,172

288,039,600,000

250,000,000,000

2,673

26,124,267,675

121,308,102,287

-

141,136,535,172

826,608,507,807

-

-

-

-

-

141,136,535,172 (141,136,535,172)

-

59,547,500,000

-

-

-

-

(59,547,500,000)

-

-

Share premium

-

-

-

-

-

-

-

-

Capitalization of premiums

-

-

-

-

-

-

-

-

Booking of legal reserve

-

-

-

-

30,420,970,180

(30,420,970,180)

-

-

Distribution of dividends – preferred shares

-

-

-

-

-

(45,000,000,000)

-

(45,000,000,000)

Distribution of dividends – common shares

(6,168,064,992)

Net income Balance as of December 31, 2012 Transfer of income from the prior year Capitalization of dividends

--

--

--

-

-

(6,168,064,992)

-

Account adjustment

-

-

(2,673)

-

-

-

-

(2,673)

Net increase of the appraisal revaluation reserve

-

-

-

2,341,207,273

-

-

-

2,341,207,273

-

-

-

-

-

-

150,678,821,453

150,678,821,453

347,587,100,000

250,000,000,000

-

28,465,474,948

151,729,072,467

-

150,678,821,453

928,460,468,868

Net income Balance as of December 31, 2013

80

Capital

Shares of common stock

The accompanying notes are an integral part of the financial statements.

ANNUAL REPORT 2013 / Another year of growth and shared success

NOTES TO THE FINANCIAL STATEMENT As of December 31, 2013 A. Consideration by the shareholders’ meeting and purpose of preparation of these financial statements The financial statements as of December 31, 2011, were approved by the Regular Shareholders’ Meeting held on April 27, 2012. The financial statements as of December 31, 2012, were approved by the Regular Shareholders’ Meeting held on April 26, 2013. These financial statements correspond to the year ended on December 31, 2013 and they were prepared in a comparative manner with the same period from the previous year. B. Basic information on the bank b.1 Legal status Banco Regional Sociedad Anónima Emisora de Capital Abierto began doing business under the name of Banco Regional S.A. de Inversión y Fomento, authorized by Presidential Decree No. 4321 dated January 6, 1990, and by the Central Bank of Paraguay through Resolution No. 5, Record No. 11 dated February 13, 1991. Through Resolution No. 3, Record No. 214, dated December 1, 1998, the Board of Directors of the Central Bank of Paraguay authorized Banco Regional S.A. de Inversión y Fomento to amend its Bylaws, as resolved by Special Shareholders’ Meeting held on April 24, 1998, to change its original name to Banco Regional S.A. Through Resolution No. 1, Record No. 96, dated November 19, 2008, the Board of Directors of the Central Bank of Paraguay authorized Banco Regional S.A. to amend its Bylaws, as resolved by Special Shareholders’ Meeting held on September 30, 2008, to change its previous business name 82

ANNUAL REPORT 2013 / Another year of growth and shared success

to Banco Regional S.A.E.C.A. The amendment was registered with the Public Registries on November 21, 2008, and with the CNV (Paraguayan securities commission) on December 4, 2008, through CNV Resolution No. 1156/08. On April 22, 2009, the acquisition of 100% of the shares of Banco ABN AMRO Paraguay S.A. was completed, with the purpose of merging the latter with and into Banco Regional SAECA. This process was completed in late 2009. On September 3, 2009, the final merger agreement involving Banco ABN AMRO Paraguay S.A. was executed. On September 4, 2009, the Special Shareholders’ Meeting of Banco Regional S.A.E.C.A. was held, during which the merger agreement between both banks was officially approved. In view of this process, Banco Regional S.A.E.C.A., as the surviving company, assumes all rights and obligations of the acquired company. b.2 Basis of preparation of the financial statements The financial statements were prepared in accordance with the accounting standards, regulations and guidelines set forth by the Central Bank of Paraguay, which differ from the generally accepted accounting standards in Paraguay, mainly with regard to the following aspects: a. They do not require the issuance of the statement of cash flows and the comparative financial statements.

e. There are specific criteria for the classification and valuation of the loan portfolio, the accrual and suspension of recognition of interest and gains from valuation, as mentioned in note c.6. f. Banks are required to set allowances for loan losses, provisions for contingent risks and assets in general based on the parameters set forth in Resolution 1, Record No. 60, of the Board of Directors of the Central Bank of Paraguay dated September 28, 2007, and Resolution No. 37, Record No. 72, dated November 29, 2011. g. No disclosure is required of P&E movements. h. No disclosure is required of the concentration of liabilities by numbers of depositors. i. No disclosure is required of the average interest rates or of the average assets and liabilities that have accrued interest. The effect of these differences has not been disclosed or–as the case may be- quantified by the Bank, as this is not required by Central Bank of Paraguay regulations. The amounts included in the financial statements have been prepared based on historical costs, except for the case of accounts in foreign currency and P&E, as explained in points c.1) and c.9) of note C), and do not comprehensively recognize the effects of inflation in the Bank’s financial position or in the results of its operations, given

that the comprehensive monetary correction is not a generally accepted accounting practice in Paraguay. According to the General Consumer Price Index published by the Central Bank of Paraguay, accumulated inflation for December 31, 2013 and 2012 was 3.7% and 4.0%, respectively. The preparation of these financial statements requires that the Board of Directors and Management of the Bank make certain estimates and assumptions that affect asset and liability balances, the disclosures of contingencies and the recognition of income and expenses. Assets and liabilities are recognized in the financial statements when it is likely that future economic benefits will flow to or from the Bank and the different items have a cost or value that can be reliably measured. If in the future these estimates and assumptions, which are based on Management’s best judgment as of the date of these financial statements, change with regard to the current circumstances, the original estimates and assumptions will be appropriately amended on the date on which those changes took place. The main estimates related to the financial statements refer to the allowances for doubtful accounts, PP&E depreciations, the amortization of deferred charges and provisions to cover other contingencies. b.3 Foreign branches The Bank has no foreign branches.

b. The adjustments to income (loss) for the prior periods are recorded as income (loss) for the period without affecting the Bank’s equity accounts. c. They do not contemplate the booking of deferred taxes. d. Earnings per share do not need to be calculated or disclosed. 83

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

b.4 Interests in other companies

As mentioned in note c.12 d), Monetary correction of capital stock, the Bank’s current level of paid in capital is above the legal minimum required by the Central Bank of Paraguay for this fiscal year.

Interest in the capital stock of other companies as of December 31, 2013, and 2012, is as follows: Company name

Condition

Investment currency

Face value

% equity interest

Carrying value in PYG

b.6 Board of Directors and Executive Officers As of December 31, 2013, the Board of Directors and the Executive Officers are as follows:

December 31th 2013 Affiliate

PYG

1,923,000,000

7.69%

2,730,846,968

VISA INC - USA

Non-affiliate

USD

0.0001

Minority

5,043

SWIFT

Non-affiliate

EUR

19,800.0000

Minority

119,170,890

Bancard S.A. - Paraguay

Total

2,850,022,901

December 31th 2012

Chairperson

Raul Vera Bogado

General Manager

Orlando Villamayor Closs

Vice-chairperson

Cornelis J. Beijer

Internal Audit Manager

Juan Carlos Meza

Treasury Corporate Manager

Gustavo Matiauda G.

Affiliate

PYG

1,923,000,000

7.69%

2,730,846,968

VISA INC - USA

Non-affiliate

USD

0.0001

Minority

4,646

SWIFT

Non-affiliate

EUR

19,800.0000

Minority

109,787,969

Rafael Benatti Pilla

Corporte Retail Banking Manager

Julio Vázquez Piatti

2,840,639,583

Francisco Yanagida

Finance Manager

Oscar Godoy S.

Alfredo Ricardo Raatz

Operations Manager

Isabel Galiano de Ayala

Erik Heyl

Compliance Manager

Erica Werner

Mirian Raatz de Soley

Legal Affaris Manager

Marcos Dalla Fontana

Wolfgang Brönstrup

Human Resources Manager

María del Carmen Valenzuela

Erik Peek

Information Technology Manager

Mirta González

Statutory Auditor

Roland Wolff

Administrative Manager and Assistant to CCO

Fabio Sitzmann Hein

Alternate Statutory Auditor

Sandra Yshizuka

Individual Risk Manager

Rodrigo Rojas Vera

Marketing Manager

Emiliano Remonato

Managing Credit Risk

Ricardo Nowosad

Recoveries Manager

Hernan Galeano Burgos

Agribusiness Manager

Carlos Vera Bogado

Livestock Banking Manager

Pablo Gonzalez Gimenez

Alternative Channels Manager

Juan Carlos Spiess

Mass Fund Raising Manager

Hugo Marin Morinigo

Bancard S.A. - Paraguay

Total

The abovementioned investments are stated in the “Investments in securities issued by the private sector – variable income” assets account. See also note c.8.

Directors

Alternate Directors

b.5 Capital structure and characteristics of the shares The structure of paid in capital as of December 31, 2013, and 2012, by type of share, is as follows: As of December 31, 2013 Common, subscribed and paid in shares Type Number

Votes per share

PYG

Irene Memmel de Matiauda Corporate Risk Manager

Jorge Sienkawiec

Founders Class “A” common shares

135,809

5

13,580,900,000

Common Class “A” common shares

1,949,710

1

194,971,000,000

90,539

5

9,053,900,000

Common Class “B” common shares

1,299,813

1

129,981,300,000

IFIP’s and New Businesses Manager

Alejandro Ferrara Pastore

Preferred

2,500,000

0

250,000,000,000

Commercial Intelligence Manager

Enrique Escobar Masi

Strategic Planning Manager

Juan José Benitez Nuñez

Agricultura Producers Manager

Alberto Paredes Ocampos

Branches Manager

Juan Manuel Figueredo

Corporate Banking Acting Manager

Walter Duarte Kallus

Asunción Regional and Private Banking Manager

Anahi Heisecke

South Zone Regional Manager

Fabian Kobayashi Ihara

Industry, Commerce, Services and IFIS Manager

Oscar Lopez Gastiaburo

North Zone Regional Corporate Banking Manager

Douglas Schindler Luft

East Zone Regional Corporate Banking Manager

Guillermo Britez Vera

Regular Notary

Leticia Perez Dominguez

General Accountant

Francisco Furman S.

Multiple Class “B” common shares

597,587,100,000

5,975,871

As of December 31, 2012 Common, subscribed and paid in shares Type Number

Votes per share

PYG

Founders Class “A” common shares

135,809

5

13,580,900,000

Common Class “A” common shares

1,592,425

1

159,242,500,000

90,539

5

9,053,900,000

Common Class “B” common shares

1,061,623

1

106,162,300,000

Preferred

2,500,000

0

250,000,000,000

Multiple Class “B” common shares

5,380,396

84

Executive Officers

Board of Directors

538,039,600,000

85

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

C. Information on main assets and liabilities

As of December 31, 2013, the position in foreign currency did not exceed the position cap set by our bank pursuant to the Note submitted to the Central Bank of Paraguay on January 3, 2013, established in Resolution No. 25, Record No. 77 dated December 28, 2011.

c.1 Valuation of foreign currency and foreign exchange position The assets and liabilities stated in foreign currency are valued at the exchange rates prevailing as of each period end, provided by the Foreign Exchange Desk of the International Transactions Department at the Central Bank of Paraguay, and do not differ materially from the exchange rates in effect on the foreign exchange market: Currency

Exchange rate as of December 31, 2013 (PYG per foreign currency unit)

Exchange rate as of December 31, 2012 (PYG per foreign currency unit)

1 US dollar

4,585.00

4,224.00

1 Euro

6,335.55

5,579.06

1 Yen

43.66

49.10

1 Real

1,944.86

2,065.02

1 Argentine peso

702.68

860.29

1 pound sterling

7,577.17

6,811.62

1 Swiss franc

5,174.94

4,618.92

713.86

650.36

1 Canadian dollar

4,303.55

4,246.93

1 Australian dollar

4,088.44

4,387.89

756.39

677.87

1 Swedish krona

1 Chinese yuan

As of December 31, 2012, the position in foreign currency did not exceed the position cap set by our bank pursuant to the Note submitted to the Central Bank of Paraguay on January 27, 2012, established in Resolution No. 25, Record No. 77 dated December 28, 2011. Market risk management: Market risk is the risk that the changes in market prices, for instance, interest rates, changes in foreign currency, etc., will affect the Bank’s equity depending on the positions taken on the financial market. The Bank controls market risk by monitoring the limits established by the Assets and Liabilities Committee and/or by the Board of Directors. c.3 Deposits in the Central Bank of Paraguay The deposits in the Central Bank of Paraguay as of December 31, 2013, and 2012, are as follows:

December 31th, 2013 - PYG

December 31th, 2012 - PYG

Minimum cash requirement in PYG

384,372,064,285

330,737,773,699

Minimum cash requirements in USD

784,160,963,063

567,775,158,044

Minimum cash requirement in EUR

12,002,741,860

7,512,770,453

1,707,323,052

70,963,200

Item

Special cash requirement in USD – early redemption

The foreign exchange differences resulting from fluctuations in the exchange rates between the date on which a transaction is closed and the date on which it is settled or valued at the end of each period, are recognized in the income (loss) for the period, with the exceptions indicated in note f.1. c.2 Position in foreign currency

Total assets in foreign currency Total liabilities in foreign currency Long position in foreign currency

86

1,170,583,000

175,000,000

568,168,000,000

-

Current accounts in PYG

1,540,791

451,790,088,842

Current accounts in USD

25,640,131,866

5,395,780,812

Monetary Transactions Operations

Current accounts EUR Total

The foreign exchange position as of December 31, 2013, and 2012, is as follows: Item

Special cash requirement in PYG – Resolution 1/131 and 189/93

December 31th, 2013 Equivalent amount Amount in USD in PYG

December 31th, 2012 Equivalent amount in PYG Amount in USD

1,324,397,763.24

6,072,363,744,469

1,028,135,641.23

4,342,844,948,556

(1,321,409,427.10)

(6,058,662,223,254)

(1,026,098,319.72)

(4,334,239,302,497)

2,988,336.14

13,701,521,216

2,037,321.51

8,605,646,058

2,105,197,461

3,396,029,780

1,779,328,545,378

1,366,853,564,830

C.4 Government and private securities The government and private securities acquired by Banco Regional S.A.E.C.A. involve Paraguayan Treasury Bonds, Bonds from the Development Finance Agency (AFD), Monetary Regulation Instruments and Private Bonds not listed on securities markets, and the securities of private companies in Paraguay listed on the stock exchange or secondary market. All are booked at cost value plus accrued income to be collected at the end of each period, which does not exceed their estimated realization value.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

As of December 31, 2013 Amount in Paraguayan guaraníes Nominal value Carrying value

Issuance currency

Amount in issuance currency

Paraguayan Treasury Bonds (*)

PYG

276,785,612,903

276,785,612,903

232,525,215,123

Development Finance Agency Bonds

PYG

10,000,000,000

10,000,000,000

10,000,000,000

Monetary Regulation Instruments

PYG

761,580,000,000

761,580,000,000

728,322,690,455

Private Bonds

PYG

729,572,603,00

715,069,921

715,069,921

U$S

179,187.38

821,574,137

821,574,137

-

-

21,206,331,064

1,049,902,256,961

993,590,880,700

Government securities

Private Bonds Accrued interest Total

The loan portfolio has been valued at nominal value plus accrued interest the end of each period, net of provisions, which were calculated according to the Bank’s internal credit valuation policies and the provisions set forth in Central Bank of Paraguay Board of Directors’ Resolution No. 1, Record No. 60 dated September 28, 2007, and Resolution No. 37, Record 72, dated November 29, 2011, for which: a) Borrowers have been classified into the following groups: a) Large Borrowers; b) Medium and Small Borrowers; c) Personal Borrowers of consumer or mortgage loans and d) Microcredits.

As of December 31, 2012 Amount in Paraguayan guaraníes Nominal value Carrying value

Issuance currency

Amount in issuance currency

Paraguayan Treasury Bonds (*)

PYG

181,000,000,000

181,000,000,000

Development Finance Agency Bonds

PYG

15,500,000,000

15,500,000,000

15,500,000,000

Monetary Regulation Instruments

PYG

120,000,000,000

120,000,000,000

119,128,461,896

-

-

4,652,905,976

316,500,000,000

287,305,307,414

Government securities

Accrued interest Total

148,023,939,542

(*) As of September 30, 2013, and 2012 the Bank provided Paraguayan Treasury Bonds as security, which it held in its portfolio as of those dates, for a total of PYG 44,260,397,780 and PYG 32,976,060,458, respectively, the availability of which is restricted, as mentioned in note c.12b).

c.5 Assets and liabilities with adjustment clauses Except for the loans borrowed (liabilities) from the Development Finance Agency and the loans granted (assets) using the Development Finance Agency funds and certain loans granted using the Bank’s own funds, which involve contractual clauses for potential adjustments to the annual interest rates, of December 31, 2013, and 2012, there were no assets or liabilities with adjustment clauses.

88

c.6 Loan portfolio Credit risk is controlled by the Bank’s Board of Directors and Management, mainly through the evaluation and analysis of individual transactions, for which certain clearly-defined aspects in the Bank’s credit policies are taken into consideration, such as: the proven payment ability and indebtedness of the borrower, the credit concentration of groups of companies, individual credit-granting limits, evaluation of economic sectors, preferred securities and the working capital requirement, depending on the market risks.

b) Borrowers have been classified based on the assessment and rating of the ability a borrower or a group of borrowers made up of related parties has of making payment, with regard to all of their obligations, into six risk categories. c) Interests accrued on receivables in performing portfolios classified in the lower risk categories (1 and 2), have been recognized as income in full. An allowance has been booked for the full amount of interest accrued and not collected as of period end regarding nonperforming loans and/or performing loans with a classification above “2”, which has been recognized as income until it has fallen into arrears.

Item

d) The accrual of interest and the recognition of gains from the valuation of non performing loans and performing loans classified in categories 3, 4, 5 and 6 have been suspended, and are recognized as gains at the time the same are collected, as mentioned in note f.1. Amortized loans are considered non performing after 61 days of default on any of their installments, and term loans or bullet loans, on the day after maturity. e) Specific allowances have been set which are required to cover potential losses that may arise if the portfolio is not recovered, following the methodology included in the above mentioned Resolution. f ) As of December 31, 2013, generic allowances have been set of 0.50% of the total loan portfolio, net of specific allowances. As of December 31, 2012, the percentage was 0.50% of the total loan portfolio. c.6.1 Performing loans to the financial sector The performing loans portfolio of the financial sector was made up as follows:

2013 - PYG

December 31

2012 - PYG

707,057,319,940

643,916,878,156

Transactions pending settlement

89,312,000,000

25,468,320,772

Loans used in checking accounts

26,626,395

212,785,910

12,421,537,653

13,143,051,994

(49,858,654)

-

Other financial institutions

Receivables from accrued financial products (-) Valuation gains recognition suspended (-) Allowances Total

(1,582,655,576)

(54,239,075)

807,184,969,758

682,686,797,757

89

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

According to the valuation standards for credit risks and assets set forth by the Banks Regulatory Authority of the Central Bank of Paraguay, the Bank’s performing loan portfolio for the financial sector is classified by risk as follows: As of December 31, 2013 Risk category

Carrying amount before allowances (a)

Guarantees computable for allowances

Allowances Minimum % (b) Booked (d)

Carrying amount after allowances

771,787,416,996

63,700,740,000

0%

-

50,417,308

-

0,5%

(252,087)

50,165,221

2

35,511,228,893

26,224,966,221

5%

(1,339,090,494)

34,172,138,399

3

1,418,562,137

713,300,050

25%

(243,312,995)

1,175,249,142

(1,582,655,576)

807,184,969,758

1a

Total

808,767,625,334

90,639,006,271

As of December 31, 2012 Risk category

Carrying amount before allowances (a)

Guarantees computable for allowances

Allowances Minimum % (b) Booked (d)

Carrying amount after allowances

1

681,456,339,270

80,761,661,721

0%

-

681,456,339,270

2

1,284,697,562

1,230,458,487

5%

(54,239,075)

1,230,458,487

682,741,036,832

81,992,120,208

(54,239,075)

682,686,797,757

Total

The performing loans portfolio of the non financial sector was made up as follows: December 31

Item

771,787,416,996

1

c.6.2 Performing loans to the non financial sector

(a) Includes principal and interest and transactions pending settlement/repo transactions, net of allowances.

(c) Including the generic allowances established by the Bank according to the requirements of Resolution 1/2007 of the Central Bank of Paraguay.

(b) The percentages of allowances and risk categories defined for the classification and booking of credit portfolio allowances as of December 31, 2013, and 2012, are based on the criteria set forth for this purpose in Resolution No. 1, Record No. 60 issued by the Central Bank of Paraguay Board of Directors on September 28, 2007, and Resolution No. 37, Record No. 72, dated November 29, 2011, issued by the Central Bank of Paraguay Board of Directors.

(d) Contingent amounts are also taken into consideration when setting allowances. In the case of borrowers with no computable guarantees, the allowance is calculated on the total risk (monetary liability plus contingent liability). As to the remaining borrowers, the allowance is calculated in two tranches, whereas guarantees are computed as from the second tranche.

2013 - PYG

Term loans not subject to adjustment Amortized loans not subject to adjustment Checks acquired in Paraguay Loans used in checking accounts

2012 - PYG

269,459,788,445

589,868,755,378

6,086,744,184,261

4,746,311,836,024

1,493,587,227

875,897,478

138,640,842,163

106,284,604,392

Receivables from deferred credit documents

44,526,639,839

43,112,862,481

Receivables from use of credit cards

87,033,677,772

86,384,541,753

Loans with managed resources

203,554,691,192

89,498,181,005

Bills discounted

236,573,002,369

178,605,492,574

Deferred checks discounted

456,852,103,028

270,550,621,234

Transactions pending settlement

113,881,747,780

159,396,130,458

4,558,232,923

37,816,885

144,251,231,933

125,811,649,090

(407,539,167)

(997,529,466)

(83,844,677,085)

(73,823,965,033)

7,703,317,512,680

6,321,916,894,253

Loans to the government sector Receivables from accrued financial products (-) Valuation gains recognition suspended (-) Allowances Total

According to the valuation standards for credit risks and assets set forth by the Banks Regulatory Authority of the Central Bank of Paraguay, the Bank’s performing loan portfolio to the non financial sector is classified by risk as follows: As of December 31, 2013 Risk category

Carrying amount before allowances (a)

Guarantees computable for allowances

Allowances Minimum % (b) Booked (d)

7,403,415,280,779

3,011,005,567,778

0%

(352,626,495)

7,403,062,654,284

1a

139,266,950,500

44,966,699,549

0,5%

(959,896,544)

138,307,053,956

1b

34,978,825,161

18,067,575,327

1.5%

(394,108,942)

34,584,716,219

(9,602,522,053)

135,793,505,242

1

2

145,396,027,295

76,442,017,897

5%

3

30,453,494,838

10,906,514,995

25%

(14,418,581,644)

16,034,913,194

4

25,139,627,676

11,092,814,889

50%

(13,194,744,546)

11,944,883,130

5

4,433,355,449

181,084,029

75%

(3,228,495,837)

1,204,859,612

813,908,863

100%

(3,280,055,517)

798,572,550

0.50%

(38,413,645,507)

(38,413,645,507)

(83,844,677,085)

7,703,317,512,680

6

4,078,628,067

Generic allowances (c) Total

90

Carrying amount after allowances

7,787,162,189,765

3.173.476.183.327

91

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

As of December 31, 2012 Risk category

Carrying amount before allowances (a)

Guarantees computable for allowances

Allowances Minimum % (b) Booked (d)

Carrying amount after allowances

5,968,535,020,678

2,445,672,576,234

0%

(86,962,911)

5,968,448,057,767

1a

141,419,121,079

37,306,711,172

0.5%

(922,596,364)

140,496,524,715

1b

27,131,446,714

9,015,849,539

1.5%

(346,106,675)

26,785,340,039

2

185,714,463,642

116,376,770,998

5%

(12,327,214,444)

173,387,249,198

(4,325,715,825)

23,616,356,730

1

3

27,942,072,555

21,709,718,518

25%

4

33,437,624,201

8,700,000,195

50%

(17,470,150,623)

15,967,473,578

5

3,083,124,873

1,528,299,432

75%

(1,628,205,473)

1,454,919,400

6

8,477,985,544

3,096,531,733

Generic allowances (c) Total

6,395,740,859,286 2,643,406,457,821

100%

(5,477,709,370)

3,000,276,174

0.50%

(31,239,303,348)

(31,239,303,348)

(73,823,965,033)

6,321,916,894,253

(a) Includes principal and interest and transactions pending settlement/repo transactions, before of allowances.

According to the valuation standards for credit risks and assets set forth by the Banks Regulatory Authority of the Central Bank of Paraguay, the Bank’s non performing loan portfolio is classified by risk as follows: As of December 31, 2013 Risk category

Carrying amount before allowances (a)

Guarantees computable for allowances

Allowances Minimum % (b) Booked (d)

Carrying amount after allowances

1b

1,241,255,001

500,000,000

1.5%

(23,657,657)

1,217,597,344

2

14,087,360,302

6,081,347,191

5%

(1,144,115,349)

12,943,244,953

3

11,664,899,469

4,135,073,022

25%

(2,617,906,107)

9,046,993,362

4

19,227,381,581

2,178,406,863

50%

(9,115,072,608)

10,112,308,973

5

17,186,646,912

1,679,020,187

75%

(11,980,733,115)

5,205,913,797

6

135,858,319,739

7,938,853,547

100%

(127,968,199,636)

7,890,120,103

199,265,863,004

22,512,700,810

(152,849,684,472)

46,416,178,532

Total

As of December 31, 2012 (b) The percentages of allowances and risk categories defined for the classification and booking of credit portfolio allowances as of December 31, 2013, and 2012, are based on the criteria set forth for this purpose in Resolution No. 1, Record No. 60 issued by the Central Bank of Paraguay Board of Directors on September 28, 2007, and Resolution No. 37, Record No. 72, dated November 29, 2011, issued by the Central Bank of Paraguay Board of Directors. (c) Including the generic allowances established by the Bank according to the requirements of Resolution 1/2007 of the Central Bank of Paraguay. (d) Contingent amounts are also taken into consideration when setting allowances. In the case of borrowers with no computable guarantees, the allowance is calculated on the total risk (monetary liability plus contingent liability). As to the remaining borrowers, the allowance is calculated in two tranches, whereas the guarantees are computed from the second tranche. c.6.3 Non performing loans The non performing loans portfolio was made up as follows: Item

2012 - PYG

Non performing loans. Status: past due.

20,083,614,291

12,376,710,773

Non performing loans. Status: undergoing proceedings

20,806,487,291

21,746,567,509

151,487,503,010

124,245,893,615

Receivables from accrued financial products

7,413,353,800

6,424,222,974

(-) Valuation gains recognition suspended

(525,095,388)

(488,033,545)

(152,849,684,472)

(116,459,815,552)

46,416,178,532

47,845,545,774

Non performing loans. Status: delinquent.

(-) Allowances Total

92

December 31 2013 - PYG

Risk category

Carrying amount before allowances (a)

Guarantees computable for allowances

1,660,792,354

5%

(886,568,381)

8,494,550,766

25%

(3,245,765,960)

8,943,305,110

50%

(11,777,565,906)

14,539,483,553

1,455,892,485

75%

(12,580,960,334)

5,113,357,739

97,030,643,870

9,097,416,648

100%

164,305,361,326

18,263,745,758

67,767,823

2

9,381,119,147

1,018,675,213

3

12,189,071,070

950,645,795

4

26,317,049,459

5,673,347,794

5

17,694,318,073

6 Total

Carrying amount after allowances

(32,367,353)

1,693,159,707

1b

Allowances Minimum % (b) Booked (d) 1.5%

(87,936,587,618)

9,094,056,252

(116,459,815,552)

47,845,545,774

(a) Includes principal and interest and transactions pending settlement/ repo transactions, before of allowances. (b) The percentages of allowances and risk categories defined for the classification and booking of credit portfolio allowances as of December 31, 2013, and 2012, are based on the criteria set forth for this purpose in Resolution No. 1, Record No. 60 issued by the Central Bank of Paraguay Board of Directors on September 28, 2007, and Resolution No. 37, Record No. 72, dated November 29, 2011, issued by the Central Bank of Paraguay Board of Directors. (c) Contingent amounts are also taken into consideration when setting allowances. In the case of borrowers with no computable guarantees, the allowance is calculated on the total risk (monetary liability plus contingent liability). As to the remaining borrowers, the allowance is calculated in two tranches, whereas the guarantees are computed from the second tranche.

93

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

c.6.4 Miscellaneous receivables

As of December 31, 2013

As of Decembre 31, 2013, and 2012, breaks down as follows:

Item 12/31/2013

12/31/2012

Prepayment of goods and services purchases

1,063,084,148

2,386,835,715

Performing loans – non financial sector

Prepaid expenses

6,848,166,259

1,836,265,536

Miscellaneous receivables

Item

Unrestricted Performing loans – financial sector

National tax prepayments Value-added tax deductible Advances to personal Receivables from forward sale of goods Expenses to be recovered Other

17,129,126,412

14,804,017,361

2,103,642,531

1,102,877,320

-

-

1,172,825,362

182,743,356

476,598,103

446,162,434

15,297,299,174

13,505,940,319

Valuation gains to be realized

(19,970,000)

-

Uncollected accrued interest

347,547,508

377,775,611

(6,348,467,936)

(6,858,195,745)

38,069,851,561

27,784,421,907

Allowances set (Note c.7) Total

Non performing loans Investments Total

Item Unrestricted

Performing loans – non financial sector

Investments Total

On a regular basis, Bank Management reviews and analyzes the loan portfolio pursuant to credit valuation standards established by the Banks Regulatory Authority of the Central Bank of Paraguay so as to adjust the allowances for loan losses. All allowances necessary to cover potential losses on direct and contingent risks have been set, pursuant to the criterion of Bank Management and the requirements of Central Bank of Paraguay Board of Directors’ Resolution No. 1, Record No. 60, dated September 28, 2007, and Resolution No. 37, Record No. 72, dated November 29, 2011. The movement recorded during the period ended December 31, 2013, and 2012, in the allowance accounts is summarized as follows:

94

(976,562,222)

-

930,004,886

(3,933,779)

(58,392,957)

(54,239,075)

(5,502,125,863)

-

4,039,823,349

(66,113,987)

(1,582,655,576)

(73,823,965,033)

(201,440,801,154)

2,306,809

193,780,000,000

(2,362,217,707)

(83,844,677,085)

(6,858,195,745)

(1,627,280,722)

1,981,149,172

195,903,158

(40,043,799)

(6,348,467,936)

(116,459,815,552)

(160,450,701,443)

28,193,833,967

96,894,702,085

(1,027,703,529)

(152,849,684,472)

-

(1,323,071,374)

(186,882,016)

(1,139,700,121)

-

3,510,763

(197,390,999,263)

(371,137,171,525)

30,177,289,948

295,843,944,241

(3,500,012,801) (246,006,949,400)

Reclassifications Reversal of Allowances Changes from and adjustments booked for the to allowances for allowances for the valuation in period period foreign currency the period

Balance at beginning of period (11,064,954)

(245,785,303)

252,171,034

(3,222,619)

Balance at end of period (7,901,842)

-

(675,657,885)

616,607,879

4,810,931

(54,239,075)

(71,629,598,738)

(147,322,166,716)

142,791,792,276

2,336,008,145

(73,823,965,033)

Performing loans – financial sector

Non performing loans

Allowances for loan losses and other assets are determined at the end of each period based on the examination of the portfolio to determine the portion of those portfolios that are not recoverable and considering the provisions, for each type of credit risk, laid down in Central Bank of Paraguay Board of Directors’ Resolution No. 1, Record No. 60 dated September 28, 2007, and Resolution No. 37, Record No. 72 dated November 29, 2011.

(7,901,842)

Balance at end of period

As of December 31, 2012

Miscellaneous receivables

c.7 Provisions for direct and contingent risks

Reclassifications Allowances Reversal of Changes from and adjustments booked for the to allowances for allowances for the valuation in period period foreign currency the period

Balance at beginning of period

(5,507,194,708)

(1,845,269,433)

(73,256,835,183)

(118,642,877,708)

30,380,607,002

464,861,564

29,406,832

(6,858,195,745)

44,453,815,164

605,475,173

(116,459,815,552)

(778,877,920)

(947,870,060)

1,539,865,964

(186,882,016)

(151,183.571,503)

(269,679,627,105)

30,380,607,002 190,119,113,881

2,972,478,462 (197,390,999,263)

c.8 Investments The investments account includes: Assets received in the recovery of loans: These assets are valued at the lowest of the following three values: Appraisal value, allocation value and balance of the receivable immediately before allocation, pursuant to the provisions of the Central Bank of Paraguay in this regard. Additionally, for assets exceeding the terms established by the Central Bank of Paraguay for their possession, allowances are set forth pursuant to the provisions in Resolution No. 1, Record No. 60 dated September 28, 2007, and Resolution No. 37, Record No. 72, dated November 29, 2011, issued by the Board of Directors of the Central Bank of Paraguay. After three years of possession, an allowance is set for 100% of the assets.

95

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

Private securities:

c.9 Property, plant and equipment

a) Long-term investments in interests in companies, which have been valued at acquisition value as they represent a minority interest of the Bank. This value does not exceed their market value, calculated based on the equity method value of those investments.

The original values of property, plant and equipment and their accumulated depreciations at the beginning of the period are revalued through December 31, 2013, and 2012, pursuant to the change in the Consumer Price Index published by the Central Bank of Paraguay. According to this index, accumulated inflation in the period from January 1, through September 30, 2013, and 2012, was 3.7% and 4.0%, respectively. The net increase of the revaluation reserve for the period ended December 31, 2013, and 2012, was PYG 2,341,207,273 and 2,468,295,471, respectively, and are disclosed in the “Adjustments to equity” account of the Bank’s shareholders’ equity.

b) Private sector debt securities that are valued at nominal value plus accrued interest, which do not exceed their recoverable value. Special investments: Related to works of art that are valued at acquisition cost, which does not exceed its recoverable value. Below is a list of the Bank’s investments: As of December 31, 2013 Carrying amount before allowances

Allowances

Carrying amount after allowances

17,060,600,409

(1,323,071,374)

15,737,529,035

Investments in fixed income securities issued by the private sector

2,500,000,000

-

2,500,000,000

Investments in variable income securities issued by the private sector (note b.4)

2,850,022,901

-

2,850,022,901

2,980,250

-

2,980,250

42,123,183

-

42,123,183

Item Assets received in the recovery of loans

Special investments Income from investments in the private sector Total

22,455,726,743

(1,323,071,374)

21,132,655,369

Improvements or additions are capitalized, while maintenance and repair expenses that do not increase the value of the assets or their useful life are charged to income (loss) for the period in which they take place. Depreciations are computed as from the month after their addition to the Bank’s equity, through monthly charges to income (loss) based on a straight-line basis, in the estimated years of useful life, except for the assets acquired in the merger process of Banco ABN AMRO Paraguay S.A., which continue with their original method and are computed as from the year after their addition. The residual value of revalued assets, taken as a whole, does not exceed the recoverable value thereof as of December 31, 2013, and 2012. The breakdown of property, plant and equipment as of December 31, 2013, and 2012 is as follows: As of December 31, 2013 Original value Deletions

Balance at the beginning of year

Additions

6,626,457,994

2,832,709,360

-

242,074,853

9,701,242,207

Real property - Buildings

36,845,172,163

320,000,000

(43,885,665)

1,391,576,056

38,512,862,554

Furniture and office supplies

41,120,642,279

5,575,954,578

(7,274,421,938)

1,028,069,401

40,450,244,320

Computer hardware

47,992,871,129

8,113,326,348

(7,856,851,405)

827,682,693

49,077,028,765

Bank safe-deposit boxes

1,893,447,435

90,333,837

(79,987,914)

55,749,325

1,959,542,683

Transport materials

1,786,501,202

330,467,196

(341,508,666)

68,846,169

1,844,305,901

678,613,374

4,011,864,192

(2,365,260,420)

-

2,325,217,146

136,943,705,576

21,274,655,511

Item

Balance at end of year

Revaluation

Bank Owned:

As of December 31, 2012 Item Assets received in the recovery of loans

Carrying amount before allowances

Carrying amount after allowances

Allowances

14,339,657,383

(186,882,016)

14,152,775,367

Investments in fixed income securities issued by the private sector

2,500,000,000

-

2,500,000,000

Investments in variable income securities issued by the private sector (note b.4)

2,840,639,583

-

2,840,639,583

2,745,600

-

2,745,600

41,095,827

-

41,095,827

19,724,138,393

(186,882,016)

19,537,256,377

Special investments Income from investments in the private sector Total

96

Real property - Land

Under Financial Lease: Computer hardware Total 2013

(17,961,916,008) 3,613,998,497 143,870,443,576

97

ANNUAL REPORT 2013 / Another year of growth and shared success

Item

ANNUAL REPORT 2013 / Another year of growth and shared success

Percentage of anual depreciation

Balance at the beginning of year

Depreciations Additions

Deletions

Revaluation

Balance at end of year

Bank Owned: 0%

-

-

-

-

-

2.5%

(11,543,514,670)

(920,590,399)

5,577,132

(455,656,903)

(12,914,184,840)

Furniture and office supplies

10.0%

(26,207,171,593)

(3,026,173,329)

7,180,011,495

(426,821,223)

(22,480,154,650)

Computer hardware

25.0%

(37,194,197,757)

(5,071,761,004)

7,790,164,107

(392,097,082)

(34,867,891,736)

Bank safe-deposit boxes

10.0%

(1,013,626,226)

(67,063,353)

-

(26,243,266)

(1,106,932,845)

Transport materials

20.0%

(756,687,666)

(357,110,341)

316,251,474

(29,749,429)

(827,295,962)

25.0%

(371,989,811)

(521,167,508)

19,042,301

-

(874,115,018)

Real property - Land Real property - Buildings

Under Financial Lease: Computer hardware Total 2013

(77,087,187,723)

(9,963,865,934) 15,311,046,509 (1,330,567,903) (73,070,575,051)

As of December 31, 2012 Item

Balance at the beginning of year

Additions

Original value Deletions

Balance at end of year

Revaluation

-

(2,746,950,859)

147,108,780

6,626,457,994

Real property - Buildings

42,498,527,862

-

(7,224,694,966)

1,571,339,267

36,845,172,163

Furniture and office supplies

38,942,931,581

2,203,260,883

(1,078,849,382)

1,053,299,197

41,120,642,279

Computer hardware

45,956,529,427

2,992,231,161

(1,684,936,663)

729,047,204

47,992,871,129

Bank safe-deposit boxes

1,800,420,201

33,627,470

(741,183)

60,140,947

1,893,447,435

Transport materials

1,733,858,466

552,627,249

(571,031,610)

71,047,097

1,786,501,202

As of December 31, 2013 and 2012, this account breaks down as follows: As of December 31, 2013

3,740,862,939

213,507,970

(3,275,757,535)

143,899,430,549

5,995,254,733

(16,582,962,198)

-

Improvements and facilities in leased real property (*) Deferred charges authorized by the Central Bank of Paraguay

Percentage of anual depreciation

Balance at the beginning of year

Item

678,613,374

3,631,982,492 136,943,705,576

Depreciations Additions

Deletions

Revaluation

Balance at end of year

0%

-

-

-

-

-

2.5%

(13,207,435,044)

(1,008,602,768)

3,129,997,039

(457,473,897)

(11,543,514,670)

Furniture and office supplies

10.0%

(23,645,756,584)

(2,978,687,219)

835,395,758

(418,123,548)

(26,207,171,593)

Computer hardware

25.0%

(33,937,081,817)

(4,693,951,919)

1,669,558,243

(232,722,264)

(37,194,197,757)

Bank safe-deposit boxes

10.0%

(841,814,377)

(150,393,277)

-

(21,418,572)

(1,013,626,226)

Transport materials

20.0%

(880,979,111)

(341,509,016)

508,346,172

(42,545,711)

(756,687,666)

25.0%

(2,995,785,116)

(834,707,530)

3,458,502,835

-

(371,989,811)

Real property - Buildings

Net amount at end in PYG

6,529,757,113

3,213,094,488

(1,211,852,606)

8,530,998,995

-

-

-

-

2,119,555,246

2,260,487,690

(1,935,354,702)

2,444,688,234

5,473,582,178 (3,147,207,308)

10,975,687,229

8,649,312,359

Net amount at Increases in beginning in PYG PYG

Amortization for the period Net amount at end in PYG in PYG

Improvements and facilities in leased real property (*)

8,526,348,927

1,507,814,900

(3,504,406,714)

6,529,757,113

Deferred charges authorized by the Central Bank of Paraguay (**)

8,607,862,650

-

(8,607,862,650)

-

883,150,341

3,726,399,681

(2,489,994,776)

2,119,555,246

Office supplies and others

Bank Owned: Real property - Land

Amortization for the period in PYG

As of December 31, 2012

Total

Item

Increases in PYG

Net amount at beginning in PYG

Total

Under Financial Lease:

Total 2012

c.10 Deferred charges

Office supplies and others 9,226,300,073

Computer hardware

Bank law sets a limit for investments in property, plant and equipment which is 50% of the shareholders’ equity. Investment in the Bank’s P&E as of December 31, 2013 and 2012 amounted to 7,47% and 7.10% respectively.

Item

Bank Owned: Real property - Land

According to bank legislation, financial entities operating in Paraguay are prohibited from giving property, plant and equipment as security, unless they are granted to secure financial lease transactions and to the Central Bank of Paraguay.

18,017,361,918 5,234,214,581 (14,602,264,140) 8.649.312.359

(*) The Bank amortizes improvements and facilities in leased real property on a straight-line basis considering a useful life of 5 years. (**) According to Resolution SB.SG. No. 00205/2009 dated 09/25/2009 issued by the Central Bank of Paraguay, authorizing the deferral of expenses incurred as a result of the merger with Banco ABN AMRO Paraguay S.A. with an amortization term of 36 months.

Under Financial Lease: Computer hardware Total 2012

98

(75,508,852,049) (10,007,851,729)

9,601,800,047 (1,172,283,992) (77,087,187,723)

99

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

c.11 Subordinated liabilities The items “Liabilities from financial intermediation – Non financial sector” in the balance sheet include subordinated bonds. Their issuance breakdown and amounts as of December 31, 2013 and 2012, are as follows: As of December 31, 2013 Authorization Resolution Issuance issued by the Central currency Bank of Paraguay

Issuance amount (*)

Maturity

As of December 31, 2013 PYG/USD

Amounts as of December 31, 2013 Equivalent PYG

00196/2010

PYG

25,000,000,000

1463 days

25,000,000,000

25,000,000,000

00196/2010

PYG

25,000,000,000

1827 days

25,000,000,000

25,000,000,000

00196/2010

PYG

20,000,000,000

1827 days

20,000,000,000

20,000,000,000

00196/2010

PYG

20,000,000,000

1820 days

20,000,000,000

20,000,000,000

00196/2010

PYG

20,000,000,000

2002 days

20,000,000,000

20,000,000,000

PYG Total

110,000,000,000

110,000,000,000

00196/2010

US$

5,000,000.00

1820 days

1,550,000.00

7,106,750,000

00196/2010

US$

5,000,000.00

2184 days

428,000.00

1,962,380,000

U$S Total

10,000,000.00

1,978,000.00 119,069,130,000

Total

Issuance amount (*)

Maturity

As of December 31, 2012 PYG/USD

Amounts as of December 31, 2012 Equivalent PYG

00196/2010

PYG

25,000,000,000

1463 days

25,000,000,000

25,000,000,000

00196/2010

PYG

25,000,000,000

1827 days

25,000,000,000

25,000,000,000

00196/2010

PYG

20,000,000,000

1827 days

20,000,000,000

20,000,000,000

00196/2010

PYG

20,000,000,000

1820 days

11,125,000,000

11,125,000,000

00196/2010

PYG

20,000,000,000

2002 days

9,266,000,000

9,266,000,000

110,000,000,000

PYG Total

90,391,000,000

00196/2010

US$

5,000,000.00

1820 days

1,069,000.00

4,515,456,000

00196/2010

US$

5,000,000.00

2184 days

174,000.00

734,976,000

U$S Total Total

Section 28 of of this Law establishes that the legal reserve resources shall be automatically applied to cover losses recorded in the fiscal period. In the following periods, all earnings should be allocated to the legal reserve until its minimum amount is restored once more, or the highest amount reached in the process of its creation.

c.12 Limitations on available Assets or Equity and any other restrictions on property rights

d) Monetary correction of capital stock:

As of December 31, 2013 and 2012, the following limitations were in place: a) Minimum cash requirement: The Central Bank of Paraguay account as of December 31, 2013 and 2012, includes PYG 1,183,413,675.260 and PYG 906,271,665,396, respectively, which are restricted accounts held by the Bank as the minimum cash requirements. b) Government securities:

As of December 31, 2012 Authorization Resolution Issuance issued by the Central currency Bank of Paraguay

Subordinated bonds will be convertible into shares, upon operation of law, in the event the Bank needs to cover the minimum capital requirements set forth by law or to replace capital losses (Law 861/96). The subordinated bonds do not have the deposit guarantee protection provided in Law No. 2334/03.

10,000,000.00

1,243,000.00 95,641,432,000

As of December 31, 2013 and 2012, the balance in “Government securities” (see note c.4) includes Paraguayan Treasury Bonds for a total of PYG 44,260,397,780 and PYG 32,976,060,458, respectively, which secure repo transactions. c) Legal reserve: According to Section 27, Law 861/96, financial institutions should have a reserve that at least equals their capital stock one hundred percent (100%), which will be created by transferring at least twenty percent (20%) of net earnings each fiscal year to that reserve.

According to Section 11, Law No. 861/96, financial institutions should adjust their capital stock on a yearly basis according to the Consumer Price Index (CPI) calculated by the Central Bank of Paraguay. The adjusted value of the minimum capital requirement for fiscal 2013 and 2012 is PYG 36,434,000,000 and PYG 33,857,000,000 respectively, according to Circular SB SG No.014/2013 and Circular SB SG No. 010/2012, respectively. The Bank’s Paid-in Capital (common and preferred shares) as of December 31, 2013, and 2012, totals PYG 597,587,100,000 and PYG 538,039,600,000 (see note b.5.), respectively, which exceeds the abovementioned minimum capital. e) Distribution of earnings: According to provisions of Law No. 861/96 “General Law on Banks, Financial and Other Credit Institutions”, financial institutions may distribute their earnings after first obtaining approval of their respective audited annual financial statements by the Banks Regulatory Authority, provided it grants its approval within a period of one hundred and twenty days after year-end. After this term has elapsed without any findings by the Banks Regulatory Authority, earnings may be distributed.

(*) The Central Bank of Paraguay authorized the issuance of subordinated bonds in foreign currency for up to USD 10,000,000 and in local currency for up to PYG 110,000,000,000. Thus, as of December 31, 2013 and 2012, the Bank issued securities in the amount of PYG 119,069,130,000 and PYG 95,641,432,000, respectively.

100

101

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

The Regular Shareholders’ Meeting held on April 26, 2013, approved the distribution of dividends of 2012 fiscal year as follows:

c.13 Guarantees granted with respect to liabilities As of December 31, 2013, the following guarantees had been granted with regard to liabilities:

Item

Currency

Amounts

Booking of legal reserve

PYG

30,420,970,180

Capitalization of dividends

PYG

59,547,500,000

Distribution of dividends - preferred shares

PYG

45,000,000,000

Distribution of dividends - common shares

PYG

6,168,064,992

Total dividends year 2012

The loans borrowed from GOVCO LLC, under an agreement with Citibank N.A. New York and secured by the Overseas Private Investment Corporation (OPIC), for a total of USD 33,750,000 with maturity dates on March 1, 2018, and March 1, 2020; and USD 11,250,000 with maturity dates on March 1, 2014, and March 1, 2016, which total USD 45,000,000, are secured through customer promissory notes pledged for a total value of USD 49,715,364.03.

141,136,535,172

As of December 31, 2012, the following guarantees had been granted with regard to liabilities: The Regular Shareholders’ Meeting held on April 27, 2012, approved the distribution of dividends of 2011 fiscal year as follows: Item

Currency

Amounts

Booking of legal reserve

PYG

29,845,185,440

Capitalization of dividends

PYG

46,173,500,000

Distribution of dividends - preferred shares

PYG

45,000,000,000

Distribution of dividends - common shares

PYG

19,788,656,585

Total dividends year 2011

140,807,342,025

f) Preferred share dividends

h) Guarantees given in favor of Bancard S.A.:

According to the issuance conditions of preferred shares, the Shareholders’ Meeting shall recognize a preferred dividend for them amounting to 18% of the year’s liquid earnings, which equals to PYG 45,000,000,000.

As of December 31, 2013, the Bank granted Bancard S.A. a stand by guarantee in the amount of USD 2,319,000.00 securing the balances resulting from user transactions at automatic teller machines (ATMs) or points of sale (POS) of the Red Infonet network, as well as obligations that may arise from MasterCard, VISA and Bancard Check credit card transactions.

g) Additional income tax for dividend distribution:

The loans borrowed from GOVCO LLC, under an agreement with Citibank N.A. New York and secured by the Overseas Private Investment Corporation (OPIC), for a total of USD 3,750,000 with a maturity date on March 1, 2014, USD 7,500,000 with a maturity date on March 1, 2016, USD 11,250,000 with a maturity date on March 1 2018 and USD 22,500,000 with a maturity date on March 1, 2020, which total USD 45,000,000, are secured through customer promissory notes pledged for a total value of USD 50,421,214.03. There are no other limitations on available assets or equity or any other restrictions on property rights. c.14 Distribution of financial intermediation receivables and obligations according to maturity dates Below are the placements and acquisitions as of December 31, 2013, and 2012, classified according to remaining maturity. Balances include interest accrued through the end of the period, repo transactions and loans net of allowances. As of December 31, 2013 Item Performing loans financial sector Performing loans nonfinancial sector

According to the provisions of Law 125/91, as amended by Law 2421/04, additional income tax of 5% is levied on the distribution of earnings in cash. The Bank records the additional income tax charge in the year in which the Shareholders’ Meeting decides on the distribution.

102

As of December 31, 2012, the Bank granted Bancard S.A. a stand by guarantee in the amount of USD 1,780,000,00 securing the balances resulting from user transactions at automatic teller machines (ATMs) or points of sale (POS) of the Red Infonet network, as well as obligations that may arise from MasterCard, VISA and Bancard Check credit card transactions.

Total Performing loans Obligations financial sector Obligations nonfinancial sector Total Obligations

Up to 30 days

From 31 up to 180 days

297,496,660,855

331,277,685,872

Terms remaining to maturity From 181 days up to 1 year

Over 1 year up to 3 years

Over 3 years

TOTAL

53,546,955,899

81,386,526,843

43,477,140,289

807,184,969,758

980,343,639,833

3,486,507,209,331

1,234,820,398,509

998,342,186,604

1,003,304,078,403

7,703,317,512,680

1,277,840,300,688

3,817,784,895,203

1,288,367,354,408

1,079,728,713,447

1,046,781,218,692

8,510,502,482,438

481,191,211,567

924,013,787,034

264,789,681,961

306,770,651,596

309.116.840,689

2,285,882,172,847

4,615,623,844,711

1,637,971,121,556

1,292,089,334,456

944,078,305,702

215,064,648,936

8,704,827,255,361

5,096,815,056,278

2,561,984,908,590

1,556,879,016,417

1,250,848,957,298

524,181,489,625 10,990,709,428,208

103

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

As of December 31, 2012

Number of customers

Total Obligations

7%

968,172,043,782

96%

990,878,910,894

14%

36,490,172,895

4%

100 next largest depositors

22,568,121,654

4%

872,889,662,802

12%

-

0%

15.164,469,252

17,529,935,139

682,686,797,757

839,786,436,413

2,961,772,543,048

1,328,143,864,074

701,862,334,365

490,351,716,353

6,321,916,894,253

1,120,718,513,920

3,255,729,907,944

1,403,246,815,037

717,026,803,617

507,881,651,492

7,004,603,692,010

312,834,338,407

513,715,700,851

193,054,795,505

236,145,419,658

269,246,435,598

1,524,996,690,019

Total As of December 31, 2012

3,524,155,005,239

923,982,977,196

973,171,756,654

1,247,242,534,740

142,503,650,430

6,811,055,924,259

3,836,989,343,646

1,437,698,678,047

1,166,226,552,159

1,483,387,954,398

411,750,086,028

8,336,052,614,278

Others depositors

liquidity stress test are conducted on a regular basis in a variety of different scenarios that cover both normal market conditions and more severe ones. All liquidity policies and procedures are subject to the review and approval of the Assets and liabilities Committee and Board of Directors.

Performing PYG (*)

%

c. 15 Concentration of the loans and deposits portfolio c.15.1 Concentration of the financial intermediation portfolio - Financial Sector and Nonfinancial Sector

Nonperforming PYG (*)

Amount and percentage of the Nonfinancial Sector loan portfolio

%

Performing PYG (*)

%

0%

4,887,586,479,438

67%

-

0%

100%

7,292,778,229,883

100%

1,004,662,216,677

100%

10 largest depositors

196,938,073,859

47%

424,665,524,579

8%

951,470,357,967

96%

50 next largest depositors

196,324,439,765

47%

639,847,811,395

12%

41,888,772,341

4%

25,830,657,227

6%

631,325,956,143

12%

1

0%

-

0%

3,745,383,211,023

69%

1

0%

419,093,170,851

100%

5,441,222,503,140

100%

993,359,130,310

100%

Total

(*) The table shows the 10 largest depositors, the next 50 largest depositors and so on. Includes amounts in demand deposits and time deposits without interest. c.15.2 Concentration by geographic area and currency Item

Amount and percentage of the Financial Sector loan portfolio

Government Sector PYG (*)

-

Others depositors

Additionally, the Bank has defined contingency plans for situations requiring temporary liquidity. The liquidity position is monitored and the

%

532,561,327,332

100 next largest depositors

Liquidity risk is the risk that a bank will encounter difficulties in meeting its obligations related to financial assets that are settled with a delivery of cash or other financial asset. The Bank`s Board of Directors and Management control its liquidity mainly by matching the maturities of its assets and liabilities, pursuant to the short, medium and long term strategies in place and monitored (Treasured, ALM and Market Risk ) on ongoing basis, for both assets and liabilities.

%

Nonperforming PYG (*)

%

As of December 31, 2013 574,163,071,815

84%

-

0%

751,772,942,715

11%

45,673,793,350

21%

50 next largest borrowers

234,604,553,519

15%

-

0%

1,772,270,565,942

22%

73,595,191,651

35%

100 next largest borrowers

-

1%

-

0%

1,577,145,599,249

20%

47,081,411,928

24%

Other

-

0%

-

0%

3,685,973,081,859

47%

32,915,466,075

20%

808,767,625,334

100%

-

0%

7,787,162,189,765

100%

199,265,863,004

100%

10 largest borrowers

477,369,849,092

76%

-

0%

558,942,408,188

10%

37,240,108,952

21%

50 next largest borrowers

179,902,866,984

22%

-

0%

995,121,868,708

22%

41,291,014,264

29%

100 next largest borrowers

25,468,320,756

2%

-

0%

982,798,562,270

20%

31,254,728,040

24%

Other

-

0%

-

0%

3,858,878,020,120

48%

54,519,510,070

26%

Total

682,741,036,832

100%

-

0%

6,395,740,859,286

100%

164,305,361,326

100%

As of December 31, 2012

%

Credits Non financial Sector PYG (*)

%

Residents in Paraguay

625,365,893,213

77%

7,787,162,189,765

100%

Non residents in Paraguay

183,401,732,121

23%

-

0%

808,767,625,334

100%

7,787,162,189,765

100%

Sub-Total Allowances Total

(1,582,655,576)

(83,844,677,085)

807,184,969,758

7,703,317,512,680

In Paraguayan guaraníes

437,571,276,341

54%

3,149,446,236,377

40%

In foreign currency

371,196,348,993

46%

4,637,715,953,388

60%

808,767,625,334

100%

7,787,162,189,765

100%

Sub-Total Allowances

(1,582,655,576)

(83,844,677,085)

807,184,969,758

7,703,317,512,680

As of September 30, 2012 Residents in Paraguay Non residents in Paraguay Sub-Total Allowances

(*)The table shows the 10 largest borrowers, the next 50 largest borrowers and so on. The amounts are presented before allowances and include capital, interest and repurchase agreement operations.

Credits Financial Sector PYG (*)

As of September 30, 2013

Total

10 largest borrowers

Total

541,423,176,749

40%

75,102,950,963

Liquidity risk management:

Number of customers

56%

210,502,559,747

293,957,364,896

Performing loans nonfinancial sector

Obligations nonfinancial sector

299,490,645,931

50 next largest depositors

TOTAL

280,932,077,507

Obligations financial sector

10 largest depositors

Over 3 years

Performing loans financial sector

Non-Financial Sector PYG (*)

As of December 31, 2013

Over 1 year up to 3 years

From 31 up to 180 days

Total Performing loans

%

From 181 days up to 1 year

Up to 30 days

Item

Terms remaining to maturity

Amount and percentage of deposit portfolio Financial Sector PYG (*)

Total

492,229,211,568

72%

6,395,740,859,286

100%

190,511,825,264

28%

-

0%

682,741,036,832

100%

6,395,740,859,286

100%

(54,239,075)

(73,823,965,033)

682,686,797,757

6,321,916,894,253

In Paraguayan guaraníes

330,765,850,354

48%

3,153,568,008,500

49%

In foreign currency

351,975,186,478

52%

3,242,172,850,786

51%

682,741,036,832

100%

6,395,740,859,286

100%

Sub-Total Allowances Total

(54,239,075)

(73,823,965,033)

682,686,797,757

6,321,916,894,253

(*) Including amounts of credits, accrued interests, net of allowances. 104

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

%

Obligations Nonfinancial Sector PYG

%

532,561,327,332

100%

8,297,456,171,200

100%

-

0%

-

0%

Sub-Total (*)

532,561,327,332

100%

8,297,456,171,200

100%

Other Obligations (**)

1,753,320,845,515

Item

Obligations Financial Sector PYG

c.15.3 Loans Portfolio of the nonfinancial sector broken down by economic sector and residual term

As of September 30, 2013 Residents in Paraguay Non residents in Paraguay

Total

407,371,084,161

In Paraguayan guaraníes

427,923,158,000

80%

4,127,022,346,012

50%

In foreign currency

104,638,169,332

20%

4,170,433,825,188

50%

Sub-Total (*)

532,561,327,332

100%

8,297,456.171,200

100%

Other Obligations (**)

1,753,320,845,515

Total

407,371,084,161

Residents in Paraguay Non residents in Paraguay Sub-Total (*) Other Obligations (**) Total

100%

6,434,581,633,448

100%

45,805,425

0%

-

0%

419,093,170,851

100%

6,434,581,633,448

100%

1,105,903,519,168

376,474,290,811

1,524,996,690,019

6,811,055,924,259

TOTAL 808,767,625,334

331,227,827,217

81,386,526,843

256,104,612,395

1,687,288,683,785

554,415,994,791

463,302,927,848

564,439,114,136

3,525,551,332,955

Livestock

98,871,253,830

318,525,083,693

188,246,333,124

119,357,905,239

92,959,898,005

817,960,473,891

Industry

158,278,758,206

384,193,057,886

108,145,380,422

89,887,768,646

76,847,447,595

817,352,412,755

Wholesale Trade

170,159,173,402

585,213,399,589

168,738,460,248

87,466,257,130

112,494,581,491

1,124,071,871,860

89,865,394,792

152,990,362,838

62,328,801,929

32,692,195,980

8,941,057,739

346,817,813,278

100,816,948,875

174,895,052,528

180,375,617,106

76,302,177,614

42,462,974,896

574,852,771,019

99,420,200,339

53,120,590,063

51,000,725,545

108,483,276,446

20,716,161,960

332,740,954,353

Consumption - Housing

3,169,334,299

9,883,953,388

5,572,864,188

16,797,513,307

84,442,842,619

119,866,507,801

Others

1,408,226,389

1,174,417,403

248,437,427

-

-

2,831,081,219

Exports

2,219,393,910

118,309,000,399

-

-

-

120,528,394,309

30,343,401

558,232,923

-

4,000,000,001

-

4,588,576,325

Government Sector

Non-performing loans

297,087,813,653

71%

3,389,433,779,454

53%

In foreign currency

122,005,357,198

29%

3,045,147,853,994

47%

Sub-Total (*)

419,093,170,851

100%

6,434,581,633,448

100%

Other Obligations (**)

1,105,903,519,168

376,474,290,811

1,524,996,690,019

6,811,055,924,259

(*) Includes amounts in demand deposits and time deposits without interest. (**) Includes other liabilities and accrued interests, not considered as deposits.

Over 3 years

Performing loans non-financial and goverment sector 980,343,639,838 3,486,151,834,495 1,319,072,614,780

In Paraguayan guaraníes

Total

From 181 days Over 1 year up to 1 year up to 3 years

297,496,660,858

Agriculture

Consumption

419,047,365,426

Terms remaining to maturity

43,477,140,287

Services

As of September 30, 2012

Up to 30 days

From 31 up to 180 days

55,179,470,129

Retail Trade

8,704,827,255,361

2,285,882,172,847

Item Performing loans financial sector

8,704,827,255,361

2,285,882,172,847

As of December 31, 2013

85,310,492,418

23,113,164,076

38,620,894,812

998,290,022,211 1,003,304,078,441 7,787,162,189,765 39,594,941,965

12,626,369,733

199,265,863,004

Includes accrued interest, income to be realized and transactions pending settlement/repo transactions net of allowances. As of December 31, 2012 Item Performing loans financial sector

Up to 30 days

From 31 up to 180 days

Terms remaining to maturity From 181 days Over 1 year up to 1 year up to 3 years

Over 3 years

TOTAL

280,932,077,507

293,957,364,896

75,157,190,038

15,164,469,252

17,529,935,139

682,741,036,832

168,431,533,587

1,468,258,658,291

531,659,786,047

253,809,615,658

240,489,804,849

2,662,649,398,432

Livestock

69,007,950,348

292,661,073,234

234,543,064,971

94,851,342,936

52,858,213,942

743,921,645,431

Industry

173,133,251,334

312,114,965,026

110,156,380,764

78,485,675,055

64,132,674,011

738,022,946,190

Wholesale Trade

130,257,669,325

424,326,722,332

146,515,415,065

38,013,047,691

13,812,894,631

752,925,749,044

Retail Trade

71,828,162,915

85,719,035,885

76,182,198,140

28,653,022,564

4,935,784,668

267,318,204,172

Services

91,377,800,342

302,538,418,210

145,722,964,360

101,559,832,048

30,558,773,939

671,757,788,899

Consumption

98,808,089,804

53,200,312,176

40,439,669,905

96,191,448,780

18,625,711,903

307,265,232,568

1,603,827,747

4,090,765,417

2,988,653,945

10,297,666,685

64,937,858,410

83,918,772,204

12,357,846

152,408,409

401,655,378

-

-

566,421,633

35,325,529,003

17,674,837,676

114,355,570,000

682,949

-

167,356,619,628

264,200

37,816,885

-

-

-

38,081,085

Performing loans non-financial and goverment sector 839,786,436,451 2,960,775,013,541 1,402,965,358,575

701,862,334,366

Agriculture

Consumption - Housing Exports Others Government Sector

Non-performing loans

122,574,869,847

10,099,962,037

11,400,297,299

17,672,120,423

490,351,716,353 6,395,740,859,286 2,558,111,717

164,305,361,323

Includes accrued interest, income to be realized and transactions pending settlement/repo transactions net of allowances.

106

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

c.16 Credits and contingencies involving related parties

c.17 Miscellaneous liabilities

Pursuant to Section 59, Law 861/96, related parties are natural or artificial persons holding a direct or indirect interest in the property of the bank, when such interest exceeds 10% of the shares of capital stock; and persons who, without holding an interest in the property, have a position of authority and responsibility in the planning, management and control of the bank’s activities.

This account as of December 31, 2013 and 2012, breaks down as follows: Item Taxes payable

It also establishes that any transaction with a related party shall not be carried out under conditions that are more favorable than those prevailing on the market. Furthermore, limits are set on loans that can be granted to related parties and these cannot exceed an equivalent of 20% of the shareholders’ equity.

Performing loans (*) Credit-related contingencies Total (**)

Dividends payable

Allowances

Carrying amount net of allowances

138,027,008,822

-

138,027,008,822

2,648,999,848

-

2,648,999,848

140,676,008,670

-

140,676,008,670

(*) Accrued interests are not included herein. (**) Information included in the Credit Portfolio Summary, Resolution No. 1/2007

5,531,501,960

4,472,265,737

452,062,649

193,782,535

37,016,053

32,328,234

1,704,807,446

326,475,368

Accounts payable

4,526,615,752

4,542,139,019

40,850,928,261

26,501,055,826

2,966,224,315

2,922,342,821

56,069,156,436

38,990,389,540

Cashier’s check issued

Total

Carrying amount Before allowances

Amounts as of 12/31/12 PYG

Financial lease payables

Other liabilities

As of December 31, 2013 Item

Social security payables

Amounts as of 12/31/13 PYG

c.18 Derivative financial instruments Derivate financial instruments are those that meet the following requirements: (a) their reasonable value fluctuates in response to changes in the rank or price of an underlying asset; (b) they do not require a net initial investment or only require an investment of less than what would be required in contracts that respond in a similar way to changes in market variables and (c) they liquidate on a future date. These instruments correspond to derivative financial instruments for trade.

As of December 31, 2012 Item Performing loans (*) Credit-related contingencies Total (**)

Carrying amount Before allowances

Allowances

Carrying amount net of allowances

98.137.951.381

-

1.533.432.870

-

1,533,432,870

99.671.384.251

-

99,671,384,251

(*) Accrued interests are not included herein. (**) Information included in the Credit Portfolio Summary, Resolution No. 1/2007

Contracts of future mandatory exchange at a previously agreed exchange rate (“Forwards” of currency) are initially recorded with the agreed value. Subsequently, any change in said amount is charged to results, at face value in initial spot prices; and all contracts in foreign currency are updated to the spot exchange rate as of the date of presentation of financial statements.

98,137,951,381

This account as of December 31, 2013 and 2012, breaks down as follows: Item Receivables from Future Sales Accounts payable from Future Sales of Foreign Currency Net amount from futures transactions in foreign currency

Item Receivables from Future Purchases Accounts payable from Future Purchases of Foreign Currency Net amount from future purchases of foreign currency

108

Amounts as of 12/31/13 PYG

Amounts as of 12/31/12 PYG

158,933,350,000

126,740,250,000

(166,400,550,968)

(120,176,841,786)

(7,467,200,968)

6,563,408,214

Amounts as of 12/31/13 PYG

Amounts as of 12/31/12 PYG

158,933,350,000

126,740,250,000

(166,400,550,968)

(120,176,841,786)

(7,467,200,968)

6,563,408,214

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

D. Equity d.1 Shareholders’ Equity Financial institutions’ restrictions are determined based on their shareholders’ equity. The Bank’s shareholders’ equity as of December 31, 2013 and 2012, totaled PYG 947,564,000,000 and PYG 843,390,000,000, respectively. According to Resolution No. 1, Record 44, dated July 21, 2011, as amended by Resolution No. 3, Record 4 dated February 2, 2012, the minimum percentage of Equity to be held by financial institutions in Paraguay, as of December 31, 2012 is as follows: Level 1 (Main Capital) of 8% and Level 2 (Main Capital plus Supplementary Capital) of 11%. And as of December 31, 2013 is as follows: Level 1 (Main Capital) of 8% and Level 2 (Main Capital plus Supplementary Capital) of 12%. As of December 31, 2013 and 2012 the Bank’s ratio for Level 1 was 11.84% and 12.24%, respectively; and for Level 2 was 13.46% and 14.16 %, respectively. d.2 Minimum capital The minimum capital adjusted for inflation in 2013 that, pursuant to Central Bank of Paraguay provisions on this matter, is mandatory for banks operating in the Paraguayan financial system to hold as paid in capital totals PYG 36,434,000,000 as of December 31, 2013, (PYG 33,857,000,000 as of December 31, 2012). The potential capital deficit of a bank with regard to the minimum capital required annually to financial institutions must be covered prior to the end of the first six months of each year. As of December 31, 2013, and 2012, the Bank had a paid in capital in common and preferred shares of PYG 597,587,100,000 and PYG 538,039,600,000, respectively, which exceeded the minimum amount required by Central Bank of Paraguay regulations as of those dates.

110

E. Information regarding contingencies d.3 Adjustments in retained earnings (accumulated losses) The adjustments to retained earnings (accumulated losses) are disclosed in the statement of income.

The amounts of contingency accounts as of December 31, 2013 and 2012, are related to the lines of credit granted to borrowers in relation to credit card transactions, loans granted in checking accounts and other agreed lines of credit yet to be drawn down. Those lines of credit as a whole do not exceed 10% of total assets. The Bank recorded the following amounts related to commitments or liabilities inherent to the course of business:

d.4 Earnings (loss) per share The Bank calculates the net earnings (loss) per share based on the following criteria: Preferred shares: Preferred yearly dividend of 18% to be paid on the face value of the shares. The annual preferred dividend shall be paid from the liquid profits of each year, so that if there are no profits in a year there will be no amount due whatsoever to preferred shareholders or an offset obligation against the following year’s profit. They shall have preference over common shares in collecting dividends. Preferred shares will have preference in the collection of dividends over commons shares that may be issued subsequently by the Bank. Common shares: Based on the income of the year to be distributed to common shareholders (less the amounts to be allocated to the legal reserve, capital adjustment, compensation to directors and statutory auditors chargeable to profits, as decided by the Shareholders’ Meeting pursuant to the bylaws and preferred share dividends) divided by the number of common shares. As set forth in the bylaws, holders of common shares are entitled to receive at least 10% of net profit for the year on account of dividends, if there is any such profit.

December 31, 2013 PYG

December 31, 2012 PYG

166,831,885,192

243,626,121,923

72,610,896,628

54,839,218,264

Credit to be used in checking accounts

430,604,514,885

459,369,740,685

Credit to be used through credit cards

162,130,668,230

161,837,415,572

2

2

832,177,964,937

919,672,496,446

Items Guarantees provided Documentary letters of credit to be negotiated

Other Total contingencies accounts

F. Information regarding income (loss) f.1 Recognition of income and loss The Bank applied the accrual method in recognizing income and allocating expenses and costs incurred, with the following exceptions referred to the fact that income is recognized as profit upon collection, as set forth by Resolution No. 1, Record No. 60 issued by the Central Bank of Paraguay on September 28, 1007, and Resolution No. 37, Record No. 72, dated November 29, 2011: a) Financial products accrued and not collected from borrowers with non performing loans. b) Financial products accrued and not collected related to borrowers and credits classified in categories 3, 4, 5 and 6.The same are recognized as profit upon collection. c) Gains from valuation of borrowers with non performing loans, which are classified in categories 3, 4, 5 and 6. The same are recognized as profit upon collection. d) Income to be realized through the forward sale of assets. e) Income from valuation of forward sale transactions.

The number of preferred and common shares of the Bank as of December 31, 2013 and 2012, is indicated in note b.5.

f ) Certain fees for bank services.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

f.2 Foreign exchange difference

f.4 Income tax

Foreign exchange differences related to holding assets and liabilities in foreign currency are shown as net amounts in the “Valuation of assets and liabilities in foreign currency” line of the statement of income, and their breakdown is as follows:

Income tax which is charged to income for the year at a rate of 10% is based on book income before tax, adjusted by the items that the law and is regulations include or exclude for the assessment of net taxable income.

Item

12/31/2013

12/31/2012

3,440,686,845,991

4,681,226,524,678

(3,434,651,900,198)

(4,679,365,322,661)

Net foreign exchange differences on financial assets and liabilities in foreign currency

6,034,945,793

1,861,202,017

Income from valuation of other assets and liabilities in foreign currency

22,442,558,608

29,985,795,895

Loss from valuation of other assets and liabilities in foreign currency

(26,006,908,324)

(21,930,881,651)

Net foreign exchange differences on other assets and liabilities in foreign currency

(3,564,349,716)

8,054,914,244

2,470,596,077

9,916,116,261

Income from valuation of financial assets and liabilities in foreign currency Loss from valuation of financial assets and liabilities in foreign currency

Net foreign exchange differences on total assets and liabilities in foreign currency

As described in point (b) of note f.1 above, the foreign exchange differences related to loans in foreign currency that are non performing and/or performing and classified in categories “3”, “4”, “5” and “6”, are recognized as income as they are realized. The net foreign exchange differences from foreign exchange and arbitrage transactions are disclosed in the lines of the statement of income called “Other operating profit – Profit from miscellaneous receivables”.

The charge to income on account of income tax for the periods ended December 31, 2013 and 2012, total PYG 7,665,827,244 and PYG 10,968,315,726, respectively. This amount does not include the provision of the additional 5% related to the distribution of earnings mentioned in note c.12e), as the Bank books this additional income tax charge in the year in which the Shareholders’ Meeting decides the distribution.

G. Effects of inflation No adjustment for inflation procedures have been applied, except as mentioned in note c.9.

H. Adjustments to financial statements In the attached balance sheet and the statement of income, the following adjustments that affect the result from the fiscal year were made, but they were not included in the balance sheet filed in the Central Bank of Paraguay at the end of the fiscal year on December 31, 2013.

f.3 Other operating profit and losses Debit

The “Other operating profit – Other” account as of December 31, 2013, and 2012, are composed as follows: Item Miscellaneous – Foreign Trade Other miscellaneous operating profit Total

12/31/2013

12/31/2012

1,825,650,898

1,890,821,732

308,351,105

50,586,479

2,134,002,003

1,941,408,211

DB.: 25010 270001

PROVISION FOR NATIONAL TAXES

CR.: 73010 769002

INCOME TAX

DB.: 71050 743002

LOSSES FROM BAD DEBTS

CR.: 14090 231092

ALLOWANCES

Credit

709,199,513 709,199,513

8,343,523,688 8,343,523,688

The “Other operating losses – Other” accountas of December 31, 2013, and 2012, are composed as follows: Item

12/31/2013

12/31/2012

Value-added tax – cost

2,080,645,826

1,960,850,687

Other national taxes

6,193,682,260

4,308,724,828

Department assessments

4,864,873,016

4,078,680,087

Fines, surcharges and interest Donations Miscellaneous losses Losses on foreign exchange transactions Losses from miscellaneous obligations Total

112

-

1,100,000

325,042,490

6,222,248

89,407,717

202,701,601

136,402,574,765

54,745,010,369

15,170,905,501

3,369,612,852

165,127,131,575

68,672,902,672

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ANNUAL REPORT 2013 / Another year of growth and shared success

I. Events subsequent to period-end In a historical event for the private banking system in Paraguay, on January 24, 2014, our institution issued bonds for the international market for 300 million dollars. They were placed for 5 years with an 8.125% rate. To issue bonds internationally, the bank was reviewed by international risk rating agencies. Moody’s granted a Ba2 rating and Standard and Poor’s a BB- rating. The providers for structured finances were Citigroup Global Market Inc. and Deutsche Bank Securities Inc. The operation was issued through the Luxembourg stock exchange. The funds of said issue will be used to fund medium and long-term projects for productive sectors, promoting the growth and development of the Paraguayan economy. There are no events that took place after December 31, 2013, and 2012, entailing significant changes in equity and income for the year.

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

9.1. OPINION OF THE TRUSTEE

NINE

OPINIONS AND RISK RATING The professional judgments made in the opinions and risk ratings will determine the levels of competitiveness with which a company advances in the management of their businesses. The serious and timely attention to the considerations arising from these analysis enable informed and sustained growth.

116

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

9.2. EXTERNAL AUDITOR’S OPINION

118

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ANNUAL REPORT 2013 / Another year of growth and shared success

ANNUAL REPORT 2013 / Another year of growth and shared success

9.3. RISK RATINGS

120

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ANNUAL REPORT 2013 / Another year of growth and shared success