2022 ANNUAL REPORT BANRURAL

2022 ANUAL REPORT

of development or all

MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS

The results obtained allow me to affirm that we are advancing on the right path, innovating on the foundations that gave life to our institution a quarter of a century ago.

I am pleased to share the results of the 2022 management, which position Banrural as the second largest bank in terms of assets in Guatemala, the third in Central America, a condition that enables our Financial Group to rank second in the region.

The strategic planning derived from the guidelines of the Board of Directors constitutes a path to follow, with clearly defined objectives and rigorously planned and executed interventions to impact the economic development of the country.

The exponential growth in capital, especially from the base of the pyramid, has not only resulted in the bank’s strong leadership, but also denotes broad customer confidence.

Our participation in the credit portfolio by departments, especially in the interior of the country, is relevant. The impact on rural development through credit assistance and the provision of financial services to all productive segments of the country, especially those who were previously not served by traditional banks, has been essential for our sustained growth.

In 2022, Banrural paid one of every two remittances that entered the country, boosting the national economy through access and consumption of goods and services related to food, construction, education and services, to name a few.

The bank was present to support complementary initiatives that multiplied the economic, social or environmental impact.

As a result of its management and its financial soundness, the prestigious international risk agency Fitch Ratings gave Banrural the best rating for banks with national capital.

The results obtained allow me to affirm that we are advancing on the right path, innovating on the foundations that gave life to our institution a quarter of a century ago, inspired by continuous improvement and motivated to make Guatemala a better country.

Additionally, we are aware that our role transcends the economic growth of the clients we serve. For this reason, focused on the well-being of future generations, we are strengthening our participation in favor of social responsibility and environmental and climate solutions.

With the same vision that inspired the creation of the bank, we are ready to continue growing for the next 25 years.

Sincerely,

Mr. Bernardo Jesús López Figueroa Chairman of the Board of Directors

MESSAGE ROM THE GENERAL MANAGER

Banrural obtained the highest profits in its history, with robust liquidity, solvency and profitability indicators.

Shareholders and friendly clients:

I have the honor to present to you the report of the administration of Banco de Desarrollo Rural, S.A. corresponding to the year 2022.

I am pleased to inform you that, even with the adverse effects of a post-pandemic environment and with a global economy affected by the Russia-Ukraine conflict, Banrural obtained the highest profits in its history, with robust liquidity, solvency and profitability indicators. The capital adequacy was more than double what is required by Basel regulations and international standards. These results make us proud, but they also stimulate us to imagine bigger challenges and go after them with the conviction that we can overcome them.

In 2022, the capture of resources from different sources allowed us to stimulate the economy through credit support to all segments of the population, including support for social housing, for which we made Q2 billion available, within the framework of the Preferential Interest Law -LIP (for its acronym in Spanish)-.

We strongly continue with the digital transformation process to innovate products and services tailored to the needs of our clients and users.

We ratify our coverage leadership by strengthening our omnichannel approach

- the network of service points made up of agencies, Banrural local/community tellers and electronic channels-, among which, as can be seen in this Annual Report, our online platforms are being increasingly used

Banrural’s management model is backed by the best practices in the banking industry, such as certifications related to quality (ISO 9001:2015) and transparency (ISO 37001:2016)

I want to record my gratitude to the Board of Directors for their trust and support, extended to the management team and the thousands of employees who in all corners of the country and in their different areas of work, effectively fulfilled their duties, service, mysticism and achievement of your goals.

I also want to thank our correspondent banks who have seen in Banrural a way to support the development of Guatemala. With God’s blessing, we will continue to move forward with the same commitment and renewed faith in the future.

Sincerely,

Edgar Rolando Guzmán Bethancourth General Manager

ECONOMIC OUTLOOK IN 2022

After the negative effect of the pandemic and its subsequent recovery, the economic situation in 2022 was complicated, particularly due to the events derived from the conflict between Russia and Ukraine, due to the influence and commercial dependence that the world, especially Europe, has on these countries.

In addition to the effect produced by a growing demand for goods and services and an insufficient supply related to the post-pandemic economic recovery, the complication in the production and trade of fuels and cereals was added, due to the dependence that Europe has maintained in recent years, both for Russian and world gas, and for Ukraine’s grain production. The geographical location of both nations has had an effect on world trade.

All of the above exacerbated inflationary pressures and complicated the management of economic policy worldwide. This caused a dilemma as to which was the priority: attacking inflation to the detriment of the acceleration of the economy or continuing to boost growth with the risk that the scourge of inflation would entrench the economies.

On the other hand, the thesis was generated that this unusual amount of money injected into the economy was the fundamental cause of this inflationary process. The evidence shows that this was not the case, since the greatest pressure on rising prices came from the lag in supply due to problems in the production and commercial chain, the best example being the rise in the price of oil.

However, there was a risk of maintaining these liquidity levels in the market, since, in an environment characterized by an increase in inflationary expectations, this could indeed generate an inflationary spiral, which was fueled by this liquidity and by the low cost of money. Therefore, as a containment measure, the central banks chose to increase their interest rates, sending a message to the economy that the growth that had been taking place after the pandemic had to wait a little while, since the priority was fight inflation.

Guatemala has not been immune to these fluctuations and, in one way or another, its economy has behaved similarly to other economies in the world and has taken similar policy measures, both when it was necessary to alleviate the scourge of Covid-19, as well as now that inflation is being fought. In 2022, economic growth began to normalize, after the post-pandemic recovery, although it has tended to slow down due to a more restrictive monetary policy and the reduction in external demand.

In the case of our country, a determining factor in economic growth was the flow of family remittances, which contributed to the financing of consumption, the main component of our production. Remittances, in turn, were also an important element in the financing of our balance of payments, generated an accumulation of international monetary reserves and influenced the maintenance of a stable currency, with a tendency to appreciate.

EXPECTATIONS FOR 2023

of the northern country. As can be deduced, uncertainty and volatility are surely present in this and next year, with the well-known effect of postponing investment and consumption decisions. In fact, every time the International Monetary Fund has revised global growth projections for 2023, it has done so downwards.

EVOLUTION OF AN ENVIRONMENT VUCA TO BANI

exception -, began under a VUCA environment, which means “volatile, uncertain, complex and ambiguous”. This implied that companies were forced to adapt to the continuous changes that affected their strategic programming and their operating plans.

After the pandemic, the geopolitical events -especially those resulting from the war between Russia and Ukraine- that have led to an increase in the prices of commodities, and the macroeconomic ones that were manifested by high inflation worldwide resulting in an increase in interest rates, further exacerbated the environment during 2022. This caused the VUCA environment to fall into obsolescence and transform into a BANI environment whose acronym stands for “brittle, anxious, nonlinear and incomprehensible.” According to experts, this environment is just beginning. Although the expectation is that it will dissipate over time, for companies to survive in the long term, they need to be permanently updated, flexible and prepared for constant changes.

At Banrural we are prepared for this environment: we are building a resilient environment, with empathy towards our clients, generating trust with our stakeholders, with adaptable and flexible processes, with transparency and teamwork, in which innovation, intuition and creativity play a fundamental role. We are constantly reinventing ourselves, supported by technology, with robust systems and processes, strengthening our people-focused leadership.

OUR ORGANIZATION

INSTITUTIONAL PHILOSOPHY

MISSION

We are a financial group oriented to the integral rural development of the country, with private and multisectoral capital with universal banking services and national and regional coverage, preferably aimed at micro, small and medium entrepreneur, farmer and artisan.

VISION VALUES

To occupy in the region the position of Leading Financial Group in development financing, through its branches and different channels; with fair profitability without neglecting social responsibility.

Transparency

Respect

Reliability Responsibility

Prudence

CAPITAL COMPOSITION

Guatemalan State

Mayan, Garífunas, Xinca and peasant organization.

Cooperative entities

Associations, federations or groups of micro, small and medium-sized entrepreneurs

Nonprofit organizations

Women’s organizations and the general public

OFFICERS OF THE BOARD OF DIRECTORS*

*Sorted by shareholder series

Amador Carballido Orriols

Nelson Milián Cruz

Luis Antonio Suárez Roldán

Luis Óscar Estrada Burgos

Ulrich Gurtner Kappeler

Edgar Benjamín Arriaza Acevedo

Rodolfo Timoteo Orozco Velásquez

Edwin Haroldo Matul Ruano

Ramón Benjamín Tobar Morales

Bernardo Jesús López Figueroa

Luis Noel Alfaro Gramajo

Lizardo Arturo Sosa López

SENIOR MANAGEMENT

Edgar Rolando Guzmán Bethancourth

General Manager

Max Leonel Florián Farfán

General Sub Manager of Support

Luis Armando Samayoa Boror

Financial Administrative

General Sub Manager

René Rocael Orozco Fuentes

Business General Sub Manager

ORGANIZATIONAL STRUCTURE

Shareholders Assembly Board Of Directors

External Audit

Support Committees to the Board of Directors

Internal Audit

Risk Management Department

Compliance Office

Ethics and Transparency Department

Business General SubManagement

Micro, Small and Medium Enterprises Management

Agencies Management

Corporate Banking Management

Institutional Banking Management

Personal Banking Management

Marketing Management

Support General SubManagement

Operations Management

Technology and Communications Management

Process and Project Management

Compliance Administrative Unit

General Management

General Management Advisors Comptrollership

Financial Administrative General SubManagement

Administrative and Services Management

Financial Management

Credit Analysis Management

Management of Administration and Recovery of Portfolio

Foreign Trade Management

Human Talent Management Legal Management

Innovation and Digital Transformation Management

Security Management

CORPORATE GOVERNANCE STRUCTURE

Shareholders Assembly

Other companies of Banrural Financial Group

Board of Directors

General Management

Support Committees to the Board of Directors

OUR PEOPLE

Total employees

9,099

60.5%

Women 39.5%

Men

INTERNATIONAL CERTIFICATIONS

ISO CERTIFICATIONS

ISO 37001:2016

As part of the strengthening of the Culture of Ethics and Transparency, Banrural has been certified since 2021 with the ISO 37001:2016 standard, Anti-Bribery Management by the World Compliance Association.

It is the first bank in Central America to obtain that certification. The application of this best practice generates competitive advantage and confidence in clients, employees, users and suppliers.

ISO 9001:2015

Committed to the satisfaction of our clients, in 2022 we continued with the expansion of the Quality Management System under the ISO-9001-2015 standard.

The certifying body Société Générale de Surveillance -SGS-, guarantor of the certification process, indicated that Banrural has become a benchmark in Central America in deploying an ISO 9001 quality management system on a continuous basis.

Banrural applies the best practices of the banking industry at an international level.

COVERAGE AND TRANSACTIONALITY

ELECTRONIC CHANNELS

APP Banrural, No. 1 in Guatemalan financial institutions apps downloads, with more than 900,000 users.

New security and experience technologies were integrated

Now our clients have greater service coverage:

Account opening

Salary advance (Money “al chilazo”)

Referred credit (Credit self-management)

Credit card extra financing

User recovery

Data update

Check deposit

Debit card request and replacement

Debit card activation

Purchase of insurance (I Live Safe and I Live Healthy)

Payment of supplies

Payments to EMETRA (Municipal office for transit)

Payments to the PNC (Civil National Police) Transit Department

95.5

million transactions in 2022

Banrural Virtual with more than 510,000 users.

Our customers can carry out a variety of transactions through Virtual Banking.

Payments to institutions, schools, insurance, companies and churches

Payment of services with the option to pay by credit card

Payments to Renap (National Registry of Persons)

Collection of family remittances

Salary advance

Purchase of insurance

Credit card PIN change

28.8

million transactions in 2022

4,901 Local/Community Tellers

THE LARGEST GEOGRAPHICAL COVERAGE NATIONWIDE

Agencies and annexes

Local/Community Tellers

ATMs

10,022

4,901

4,309

CUSTOMER SERVICE

CUSTOMER SERVICE PROGRAM

In order to offer clients and users an easier and more friendly experience, the bank’s new website was launched, which offers customized interactive solutions, according to their needs. Service and credit requests can be managed in a simple and secure way through the new page, which even allows them to pre-qualify.

The QR code was implemented in the workstations of our entire network of agencies, so that clients can rate the service they receive, with a precise indication of the position and the agency where they were attended, which makes it possible to provide personalized follow-up to make decisions for improvement in the areas of opportunity that arise.

Additionally, the implementation of the customer experience improvement programs continued: Service Ambassadors, Measurement and Training Plan “Servicio de Altura”, important pillars for the promotion of a service-oriented culture of excellence.

The results of our indicators were:

CORPORATE SOCIAL RESPONSIBILITY, PERMANENT COMMITMENT TO GUATEMALA

Banrural works every day for and because of Guatemalans, bringing financial inclusion to rural areas of the country. It also contributes through participation in social causes that promote education, literature and the insertion of people with different abilities.

In September, the Banrural Million World Cup 2022 promotion was launched, promoting the participation of our customers and users, through our different channels.

The objective of the promotion was to benefit the Techo Guatemala, FUNDAL and Aldo Castañeda foundations, with an important donation.

For the twelfth consecutive year, Banrural supported Empresarios por la Educación (Entrepreneurs for Education), together with the Ministry of Education, to carry out the “Teachers 100 Points” contest, which recognized the work of 10 teachers and two directors nationwide, who have implemented the best practices for virtual or hybrid teaching, demonstrating its commitment to the education of the new generations.

We continue to be the bank of the “Teletón”. We collaborated once again with the telethon, supporting the collection of funds to make possible the operation of 26 rehabilitation centers that provide their services, both in the metropolitan area and in the interior of the country.

Banrural supported the XIX edition of the International Book Fair (FILGUA, by its acronym in Spanish), which was held in a hybrid manner, both virtually and in person, substantially increasing the scope in terms of attendance and activities carried out in the context of the fair.

CREDIT PROGRAMS THAT CONTRIBUTE TO THE DEVELOPMENT OF THE COUNTRY

Banrural is aware of the importance of housing for Guatemalan families, which is why it made available a credit line of Q. 2 billion (About 255 million dollars at the exchange rate as of December 31, 2022) to facilitate access to social housing, within the framework of the Preferential Interest Law - LIP-; In addition, a programmed savings plan for the housing down payment was launched

People who can apply for this type of credit:

Wage earners in dependency relationship

Own business (formal and informal economy)

Remittances (the person that sends from abroad or the one that receives in Guatemala)

Independent professionals

Participation in fairs and events aimed at promoting social housing:

Publicidad Mi Casa

Open House Entre Valles, Portales Campollo

Festival Chapín Housing Projects

Expocasa event

Cofi Fair – Cementos Progreso Acenvi events

Acenvi events

Digital platform that provides farmers, Banrural clients, support for the application of good agricultural practices, with the aim of increasing their productivity and the quality of their products.

The platform is free of charge for the client and allows:

Register the polygons of their parcels

Know the productive areas of the parcels

Analyze the viability of their selected crops, production cycles, phenological process of the crop, ordering and monitoring of their activities

Obtain references in production costs

Apply the best practices for environmental care

FELABAN 2022

Banrural was one of the main sponsors of the 56th Annual Assembly of the Latin American Federation of Banks in Guatemala City, in which more than 1,500 people from more than 35 countries participated, from more than 557 financial entities and other institutions.

We offered the inaugural event of the Assembly, which took place on Calle de los Museos in Zone 13 of the city, with a large attendance. The event recreated the main traditions of our country and included the presentation of national artists such as Malacates and the Marimba Soberana.

As a special attention to our correspondents, we invited them to a “city tour” to the city of Antigua Guatemala.

City Tour to Antigua

SUPPORT FOR SPORTS

During 2022 we sponsored most of the teams that participate in the National Soccer League:

Major League Teams

Second Division Teams

08 09 11 01

MAKING HISTORY

First Division Teams

Third Division Teams

We also supported the Guatemalan mountaineer Jaime Viñals with an important contribution to completing the World Trilogy that consists of going around the World three times, and in each turn climbing seven exceptional and unique peaks (the highest volcanoes in the world) from each of the 7 continents.

We sponsored: Jaime Viñals

STRATEGIC ALLIANCE WITH THE BANKING SCHOOL OF GUATEMALA

We were the most important sponsor of the congresses program of the Banking School of Guatemala:

XVII Congress of Remittances, Microfinance and Financial Inclusion, COREMIF

I Regional Congress of Sustainable Finance, COREFIS

XIX Congress on Prevention of Money or Other Assets Laundering and Financing of Terrorism, CLADIT

XIII Banking and Financial Technology Congress, CORETIC y XI Banking and Financial Security Congress, CORESEB

II Education and Financial Inclusion Fair

XIV Financial Risk Management Congress, CORERIF

VIII Family Financial Fair

CONTINUITY OF THE MODERNIZATION PROCESS AND DIGITAL TRANSFORMATION

During 2022, Banrural continued working to accelerate the modernization and maintain the competitiveness of the bank, meeting the demand of current and potential clients.

Products and services

Digital account opening

Home loan application

Self-managed credits in APP Banrural

Digital channels

Commercial website modernization

APP optimized and with new services

New virtual business banking

Multiple factor authentication

Automation

Process robotization (RPA)

Business process del management (BPM) Advanced electronic signature

Clients

Knowledge and relationship (CRM)

Client analytics

Segmented offer and cross-selling

Enterprise architecture

Simple and agile processes

Enterprise Resource Planning (ERP)

Design of new core placement processes

Technology

Renewal of technological infraestructure

(hardware and software)

Cyber security tools

Facial biometric recognition tool

BANRURAL IN FIGURES

RISK RATING The best national risk rating for a bank with Guatemalan capital.

FitchRatings

Revision as of May 9, 2022

Source: https://www.fitchratings.com/entity/banco-de-desarrollo-rural-sa-86519511#ratings

FINANCIAL INFORMATION

EXPONENTIAL GROWTH

Evolution of assets

Historical growth

Evolution of liabilities

Historical growth

MAIN FUNDING SOURCES

STRUCTURE OF DEPOSITS BY SECTOR

CREDIT PORTFOLIO AND MORTGAGE CERTIFICATES

Gross loan portfolio

Housing financing through mortgage certificates

2020 2021 2022

LOANS GRANTED IN 2022

Less than Q 25 thousand

From Q 25 thousand to Q 50 thousand

From Q 50 thousand to Q 100 thousand

From Q 100 thousand to Q 500 thousand

Greater than Q 500 thousand

Less than Q 25 thousand

From Q 25 thousand to Q 50 thousand

From Q 50 thousand to Q 100 thousand

From Q 100 thousand to Q 500 thousand

Greater than Q 500 thousand

PARTICIPATION BY DEPARTAMENT IN THE LOAN PORTFOLIO

Percentage data

From 0% to 30%

From 31% to 50%

From 51% to 100%

Source: Superintendencia de Bancos de Guatemala as of December 31, 2022

1 Gross loan portfolio amount, does not include credit card

LEADER IN THE PAYMENT OF REMITTANCES

During 2022 remittances for USD 9,379.4 million were paid. This represented a growth compared to the previous year of USD 1,591.9 million, with a market share of 52.0%.

48% 52%

ROBUST FINANCIAL INDICATORS

Liquidity

Immediate liquidity (IL)

Represents the proportion of immediately available resources that the entity has to meet its depositary obligations and financial obligations.

Mediate liquidity (ML)

Represents the proportion of immediately available resources and easy realization investments that the entity has to meet its deposit obligations, financial obligations and other obligations.

Solvency

Equity in relation to assets (PA)

Represents the proportion of the asset that is financed with the equity of the entity’s shareholders.

Capital adequacy (CA)

Represents the proportion of equity that the entity has to face the risks and contingencies to which it is exposed.

Cost effectiveness

Return on equity (ROE)

Represents the annual rate of return generated by the equity of the entity’s shareholders.

Return on assets (ROA)

Represents the annual rate of return generated by the total assets of the entity.

Asset quality

Overdue loan portfolio in relation to gross loan portfolio (CVC). It represents the proportion of the total portfolio that is overdue.

Coverage of credit portfolio at risk (CCR)

Represents the percentage of provisions that cover the credit portfolio at risk.

19.7%

62.1%

10.5%

21.1%

26.1% 2.2%

2.6% 400.0%

MARKET SHARE IN THE NATIONAL BANKING SYSTEM

POSITION IN THE CENTRAL AMERICAN BANKING SYSTEM

AUDITED FINANCIAL STATEMENTS REPORT OF INDEPENDENT AUDITORS

The aforementioned financial statements reasonably represent in all their important aspects, the financial situation of Banco de Desarrollo Rural, S.A. as of December 31, 2022, as well as the result of its operations, the movements of stockholders’ equity and its cash flows for the year ended on that date, in accordance with the provisions of the Manual of Accounting Instructions for Entities Subject to Surveillance and Inspection of the Superintendency of Banks of Guatemala1 issued by the Monetary Board2.

1 Superintendencia de Bancos de Guatemala

2 The text included in quotation marks is a free translation of what is expressed in the independent auditors’ report.

BALANCE SHEET

INCOME STATEMENT

OUR STRATEGY TO CONTINUE GROWING

VISION

To occupy in the region the position of Leading Financial Group in development financing, through its branches and different channels; with fair profitability without neglecting social responsibility

We are a financial group oriented to the integral rural development of the country, with private and multisectoral capital with universal banking services and national and regional coverage, preferably aimed at micro, small and medium entrepreneur, farmer and artisan.

MISSION

Financial and operational efficiency

Excellence in customer care and service

Corporate governance, risk management and control

Digital transformation

Ethics and transparency

Corporate social responsibility

Quality management

Innovation and continuous improvement

Committed and motivated human talent

VALUES

Enterprise architecture

Accountability culture

The friend that helps you grow