Professional Documents
Culture Documents
Annual Report 2017
Annual Report 2017
Annual Report 2017
2017
www.tiranabank.al
1
Annual Report
2017
TABLE OF CONTENTS
B. SME BANKING
D. TREASURY DIVISION
E. IT AND ORGANIZATION
F. RISK MANAGEMENT
G. COMPLIANCE DEPARTMENT
H. FUNDS TRANSFER
B. EDUCATION
C. CULTURE
7. HUMAN RESOURCES 32
8. FINANCIAL STATEMENTS 36
A. FINANCIAL STATEMENTS CONTENT
B. INDEPENDENT AUDITOR’S REPORT
C. INCOME STATEMENT
D. BALANCE SHEET
The Bank’s hefty capital and strong liquidity position remain the basis for our steadily
improving financial indicators, as well as for a resilient balance sheet.
With due consideration to the performance in various aspects of the Bank, I would like to
extend my gratitude to:
• Our Shareholders, for the trust in their investment as well as the extensive support delivered
for improving the Bank’s position and standing in the local market.
• Our esteemed Clientele allover the country, for their loyalty and collaboration with our Bank.
• Our wonderful Staff and Management at any level, for their dedication and work, the great
sense of achievement shown over the years, as well as for the extensive efforts made towards
the turnaround in the financial results and keeping the Bank afloat in the business.
The Bank remains a systemic institution for the local financial industry, it holds a strong
reputation among peers and is perceived to be a local ‘brand’, able to cope successfully with
sound strategic developments.
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2 PIRAEUS BANK GROUP
CORPORATE PROFILE, WHO WE ARE
Piraeus Bank Group, with its legal seat in Athens Piraeus Bank Group December 2017
and employer to 13.300 employees, provides a wide Assets 61.6 bn €
range of financial products and services for roughly Net loans 41.6 bn €
5.2 million clients. On 31 December 2017, the group’s Deposits 40.9 bn €
total assets was as high as 61.6 bn €, with net loans Branch 620
standing at 41.6 bn € and client deposits at 40.9 bn €. Employees 13.3 m
Clients 5.2 mio
OUR COURSE
Piraeus Bank was founded in 1916. Since then, it has and assets quality improved considerably at a quick pace,
rapidly grown in size and activities, representing today the as evidenced in all financial reports. At the institutional
leading Bank in Greece with 30% market share in terms of level, the year was characterized by changes in the Board
loans and deposits. of Directors, including the appointment of members with
Along with its organic growth, Piraeus Bank has undertaken international financial expertise and strengthening the
a series of strategic actions, aiming at establishing a strong corporate governance, in compliance with international
presence in the domestic market. best practices and regulatory frameworks. At the same
Thus, in 1998, the Bank acquired the activities of Chase time, Piraeus Bank has reinvigorated its top management,
Manhattan in Greece, took over Macedonia-Thrace by empowering its executive management team. 2017
Bank interests, and acquired the specialized bank Credit concluded with the appointment of our new CEO, Mr.
Lyonnais Hellas At the beginning of 1999, the Bank acquired Christos Megalou, on April 2017. Bank’s institutional ring-
Xiosbank and the activities of National Westminster Bank fencing enables further operational strengthening and
Plc in Greece. In June 2000, Piraeus Bank absorbed its continuity, to our shareholders, customers and employees’
two commercial banks in Greece (Macedonia-Thrace Bank benefit.
and Xiosbank). In 2002, Piraeus Bank acquired the Hellenic We have now acquired the necessary know-how,
Industrial Development Bank (ETBA bank), which was experience, and decisiveness to address present challenges
absorbed in December 2003. and to ensure that the well-positioning of the Bank, in
In 2012, Piraeus Bank acquired the carve-out part of the order to meet the operational and corporate governance
Agricultural Bank (selected assets and liabilities) and requirements, which derive from the best international
Geniki Bank, a former subsidiary of Societe Generale. In practices, as well as from ECB’s recommendations.
March 2013, Piraeus Bank acquired the Greek banking At the end of October 2017, Piraeus Bank issued a 5-year
operations of the Bank of Cyprus, Cyprus Popular Bank covered bond, amounting to€500mn. The decision on
and Hellenic Bank. In June 2013, Piraeus Bank acquired such issue was confidentially made in cooperation with
Millennium Bank Greece, a BCP subsidiary. In April 2015, the European Investment Bank, the European Investment
Piraeus Bank acquired the carve-out part of Panellinia Bank Fund and the European Bank for Reconstruction and
healthy assets. These transactions comprise important Development. It is Piraeus Bank’s first covered bond
steps towards the restructuring of the Greek banking issue, which was based on a joint decision- making with
system, in which Piraeus Bank has participated from the the investors.
very beginning as a core pillar. At the end of December 2017, the Group’s total equity
2017 was a critical juncture for Piraeus Bank. From the amounted to € 9.5 bn, while the regulatory CET-1 capital to
financial point of view, this was the year which signaled the € 7.5 bn. On 1 January 2018, the SNRF9 Common Equity
stabilization of the Bank’s financial performance. Liquidity Tier-1 i SNRF9 was as high as 15.4%, thus maintaining its
strong capital base.
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TIRANA BANK ANNUAL REPORT 2017
3 CORPORATION GOVERNANCE
SENIOR MANAGEMENT BODIES BOARD OF DIRECTORS
The supreme body of Tirana Bank is the General The Board of Directors consists of an odd number, five
Assembly of Shareholders, which elects the Bank’s (5) minimum and nine (9) maximum, executive and non-
Board of Directors as decision-making and supervisory executive members. Executive members shall be those
body. engaged in the daily management issues of the Bank;
The Bank’s Articles of Association stipulate the non-executive member shall be those entrusted with
operation mode of its bodies and the management of the promotion of corporate affairs. The total number of
the Bank. executive members shall not constitute the majority of the
This document makes special mention of the total number of Board members. The majority of Board
composition of the Board of Directors as well as the members shall be independent. The capacity of the Board
obligations / duties of the members thereof, according members, i.e. executive or non-executive shall be defined
to Law 9901/14.04.2008 “On entrepreneurs and by the Board of the Directors. If a member is provisionally
commercial Companies” and Law 9662/18.12.2006 elected by the Board, until the next general Assembly
“On banks in Republic of Albania”. meeting, to fill in for a resigned, deceased or otherwise
forfeited independent member, such elected member
KOMITETI EKZEKUTIV shall also be independent.
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4
WORLD ECONOMY
ECONOMIC OUTLOOK
In 2017 the world economy has been recovering, by The changes of the USA fiscal policy in 2018 are expected
growing with approximately 3.7% compared to 3.2% to stimulate the activity mostly driven by the investments
in 2016. According to IMF data, the global recovery is response to corporate tax reduction. The USA DGP growth
contributing to a reassessment of monetary policies in a is estimated to further increase by 2.7%. Additionally, the
number of countries, during which major Central Banks growth strengthened further and the consumers› sentiment
including the USA Federal Reserve System, the European considerably improved.
Central Bank and the UK Bank signaled the end of an ultra
easy monetary policy. Nevertheless, the monetary policy The Eurozone witnessed an economic upswing from 1.8%
remained accommodative. Inflation, caused mainly by oil in 2016 to 2.4% in 2017. Contrariwise, the UK economy
and raw materials price increase, was on the upswing in slackened off to 1.7% in 2017 from 1.9% in 2016.
almost every country, by totally extinguishing the fear to The Eurozone and UK GDP growth is expected to slacken
deflation, which had been persistently present in 2015- off at a rate of respectively 2.2% and 1.5% in 2018.
2016. China’s economy has challenged expectations of a marked
slowdown in 2017, by growing from 6.7% in 2016 to 6.8%
The largest economy in the world, the American economy in 2017, due to the increase of its goods global demand,
grew 2.3 percent in 2017, acceleration from the 1.5 percent sustainable state expenses on infrastructure and high
logged in 2016. Economic growth is sustainable, as the corporate profits.
consumer’s trust has achieved its highest level since 2000,
the unemployment rate has reached its lowest level over The global growth is expected to be as high as 3.9% in
the last 17 years and new job positions have been created 2018. Investments increase, global markets recovery, and
each month for over seven years. The Federal Reserve the high employment rate are contributing to the world-
System (American Central Bank) raised the base interest scale recovery.
rate by threefold in 2017 from 0.75% to 1.5%.
ALBANIAN ECONOMY
The Albanian economy has experienced a growth from thus playing an important role in maintaining the economic
3.36% in 2016 to 3.84% in 2017. Its growth rate has been upswing trend and generating the internal pressure on
assessed at higher levels in the first half of the year, driven inflation.
mainly by the construction sector and mostly impacted
by direct foreign investment. Meanwhile, the economic Moody›s and S & P have affirmed in 2017 Albania›s
growth slackened off in the second half of the year, due sovereign debt assessment rating at B1 and B + / B with
to investments downswing and the external trade negative a stable outlook. The stable outlook of such assessments
contribution. The economic growth in the second half of the mirrors the fiscal consolidation efforts of the country.
year relied mainly on the private consumption expansion.
Inflation has averagely amounted to 2.0% in 2017 compared The real GDP is expected to follow an upswing trend in 2018,
to 1.3% in 2016, thus remaining under the Central Bank’s based on a positive forecasting of the internal demand,
objective. The monetary policy pursued by the Central increase of European interest for Albanian commodities
Bank has been rather accommodative during the year, and services, as well as banking conditions improvement.
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TIRANA BANK ANNUAL REPORT 2017
BANKING SECTOR
Positive developments in real The private sector credit portfolio higher yield, such as Albanian state
economy and banking sector have marked an average growth by 5.0% securities. Deposit performance in
contributed to the financial stability. in the first quarter, thus excluding the terms of structure indicates a shift
The banking sector indicators of exchange rate effect. The main cause from deposits with less than two years
solvency indicators, liquidity, and leading to growth was the credit maturity to deposits with more than a
reserves for specific risks have not extension in LCY. two years maturity period. Meanwhile,
exceeded the regulatory level. foreign currency deposits reflect a
Interest rates for deposits and LCY structural change by shifting towards
The non-performing loans to total loans are at their historical minimum, demand deposits, due to low interest
bank credits ratio dropped to 13.2% in compliance with the Central Bank’s rates.
in December, thus reflecting the accommodative monetary policy.
economic activity growth, the effects Deposits increased by a total of 4.1%
of measures aiming at the further in 2017, encouraged by the increase of
reduction of this ratio, and the foreign currency deposits.
companies and bank’s continuous A shift has been noted in the local
efforts in cleaning and restructuring currency from bank deposits
their balances. towards alternative tools providing a
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5 TIRANA BANK
MAIN INDICATORS
Amount (thousand ALL)
Clients
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TIRANA BANK ANNUAL REPORT 2017
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A. RETAIL BANKING ACTIVITY
Bank retail and other operations are performed by the Establishing and implementing a dedicated sale force
bank through the branches network and the digital service for the retail segment through fundamental changes to
channels (Winbank platform). the branch structure.
Retail customers are provided with a wide range of The Retail Customers Relations Officer position has been
products in deposits, credits, Albanian State investment recently established in the branch structure, dedicated
securities and payment-related banking services. to the lending activity, thus materializing its activity
Due attention has been paid to the further development fundamental change focusing on sales rather than in
of digital banking services, and our clients’ daily routine services.
improvement, so that to provide them with easy and
Establishing/setting up the lending support unit (retail
transparent 24/7 access to their bank accounts via our
middle office)
Winbank platform, ATM network and POS.
This unit makes a direct contribution to the identification
and improvement of issues on the lending process, as
2017 Retail Strategy aimed at increasing the number of
well as sale force improvement, regarding the professional
transactional clients, focusing mainly at increasing the
capacitation in the lending process through continuous
lending activity, deposits stability, and credits portfolio
support and monitoring, and group or tailored training
management/maintenance.
provision.
In order to successfully implement the relevant strategy and
budgets, several significant changes have been made to Setting individual performance targets and index at
the retail business model related to the relevant structure, branch and regional level
standards and processes. The branches officially materialized individual performance
indicators and targets, in the framework of their relevant
Branches network structure has been merged with the
budgets.
retail division under the Retail Head responsibility.
The merging enabled the establishment of a solid structure,
Reviewing the lending policy for retail customers
harmoniously combining the experience and knowledge
Last revised in 2012, its update represents a quality and
on competition and market, so that the retail client be
relevant step, thus aligning credit terms and criteria with
responsibly and proactively provided with our support.
market and competition developments. Additionally,
the review of this policy better serves to the client base
Retail Division Restructuring
requirements and supports the retail strategy for 2017.
Retail division has been restructured pursuant to the
The policy allows for the first time in history the financing
segmentation philosophy, thus enabling the retail clients
of the freelancer activity, falling under the retail structure,
base, focusing not only on retail customers, but also on
and introduces positive changes regarding the financing
small enterprises.
limit increase, clients’ age, credit deadline, employment
stability, wide range of other collaterals.
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TIRANA BANK ANNUAL REPORT 2017
Retail customer deposits balances have decreased during The decrease of foreign currency deposits has been lower,
2017, in line with the retail strategy, maintaining though a since the market has already been unified with the set
high liquidity level above the liquidity ratio required by the interest rates, while the provided opportunities to invest in
Bank of Albania. alternative tools are rather limited.
The sharpest decrease in time deposits was noted in local However during 2017, several offers and action plans have
currency (ALL), which brought about the investment of been promoted, aiming at local currency stability/increase
quite a considerable part of such balances in alternative towards foreign currency deposits.
tools, providing higher interest rates, especially in Albanian
State Securities with a two years maturity period. Although Provision of lower interest rates by the Bank for time
an upward trend has been noted in the treasury interest deposits has refrained clients from investing in such
rates in the primary market in 2017, this increase has not products. This has led to a change of the deposit portfolio
been reflected by our bank’s interest rates. structure, in which a shift from the time deposits products
to current and savings accounts has been noted.
2016 2017
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RETAIL CUSTOMERS LENDING
2017 has been quite a dynamic year with regards to the The promotion of consumer and mortgage loans have
retail customers lending, during which the annual target been at our focus for 2017,therefore we have actively
was met with new disbursements up to 106%. Based participated in three promotional campaign, of which
mainly in our clients base requirements and expectations, two were dedicated to mortgage loans and the other to
as well as on the banking sector positive developments, consumer loans.
all the features and retail customers credit products terms Despite achieving great results on the disbursement
have been revised and improved. volume, we invested as well in the diligent management of
In line with the Central Bank guidelines on encouraging the current portfolio, aiming at maintaining the performing
lending in local currency, the sale force has played an balances and returning bad credits into performing loans.
essential advisory and guiding role for the clients seeking Performing portfolio balances have increased by 11%
to be financed in the Euro currency. During 2017, only 18% compared to the last year whereas bad credit balances
of disbursements in mortgage loans were in Euro currency. were considerably reduced- more than 40% of the foreseen
This phenomenon has influenced the yearly change of budget for 2017- thus marking a historical decrease of non-
credit portfolio structure, in which the ALL balances are performing loans by 11.8%.
reaching up to 50% of this portfolio.
2016 2017
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TIRANA BANK ANNUAL REPORT 2017
winbank ATMs
In line with market developments, our bank continues to Tirana Bank has 70 ATMs (38 in its branches 33 in other
commit itself to innovation, aiming at further improving the premises). The ATM network has obtained a certification
banking electronic platform (Winbank). During 2017, other with regards to the capacity to read “EMV Chip” for VISA
services were added to the platform such as: cards, offering card holders the highest levels of transaction
-Utility payments (OSSHE, UKT) and all fixed and mobile security. In addition to money withdrawal, our customers
operators can change their PIN codes and receive a mini-statement
- Dues and taxes payment (VAT, tax deducted at source, of their account.
social insurances) The main goal for 2017 was to increase the quality and the
- Launch of digital time deposit «E-deposit» availability of our entire ATM network in order to increase
- Credit application/ Credit Card customer service. We believe we have achieved our goal,
The electronic platform Winbank provides online access to maintaining a high availability standard at 95% in all our
banking services, and account check 24 hours 7 days a ATMs throughout the year.
week.
The number of users for all banking electronic services
is increasing, thus positively influencing on the number
and value of online transactions. During 2017, the monthly
average number of active users increased by 37.41%, while
the number of transactions through Winbank increased by
39.72%.
Our POS network is present in more than 30 cities, offering Call Center provides continuous services and assistance
this service to more than 30 different business categories to clients through incoming calls 24 hours a day, seven
such as hotels, tourist agencies, shops, restaurants, gas days a week, and 365 days a year (24/7/2018). The activity
stations, supermarkets and the largest shopping malls in of Call Center focuses mainly in two directions: client
the country. Our POS network offers to VISA’s cardholders service through incoming calls, by providing information on
(debit and credit) the possibility to make purchases at POS bank services and products as per any client’s needs, and
and make cash advance withdrawals in our branches. monitoring card transactions. When deemed necessary
During 2017, the bank’s focus was to improve the POS the card holder is contacted and the authentication of
service and increase the volume of payments on these actions is confirmed, thus helping in fraud prevention.
terminals.
CARDS
Cards marked a stable performance, by simultaneously maintaining their position in the market.
Portfolio activation and cards use promotion, has been among the main priorities for 2017, thus encouraging the client to
perform their daily-purchases-related transactions within the country with their cards.
The results show a significant average increase mainly during the last 3-4 years, by 36% in terms of card transactions
number and 28% in terms of purchases volumes at the points of sale (POS), by increasing the profitability of cards business.
Tirana Bank continues to be in a great competitive advantage in the market with the Debit Card “On the Spot”, considering it
a significant service provided to our customers by offering the debit card immediately when the client applies in the branch.
Additionally, in line with the recent technological novelties, the Contactless Debit Card has been successfully launched for
the first time in the market, the additional safety elements of which enable clients to make faster payments in any sale point.
Tirana Bank always cares about the cards safety therefore during 2017 has remained vigilant for customer’s data protection
by ensuring more security.
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B. SMALL AND MEDIUM
ENTERPRISES (SME)
In 2017, the Bank’s main goal was to increase the credit A dedicated attention has been paid to the non-performing
level for small and medium enterprises, as a tool to revitalize loan portfolio, regarding both the meeting of extra
the small and medium enterprise, and to consequently needs for the financing of current clients, and the credit
optimize bank’s revenues deriving from this client base. For terms renegotiations in accordance with the monetary
this purpose, the bank has been focusing on bank-client policies of the bank of Albania and the domestic banking
relations, undertaking a number of initiatives in the frame sector competition. This has been achieved regardless
of promoting its image as a bank favoring enterprises and of an aggressive and competitive market environment,
entrepreneurs, which praises those willing and daring to characterized by continuous pressures. Our readiness to
make business. Total new disbursements for 2017 reached lend mirrors our understanding of the long-term business
EUR 10.00 million, versus EUR 5.00 million in 2016, while partnership, representing a joint interest to both parties.
the number of clients for the SME Department increased
by 25%. Our aim remains supporting those businesses stimulating
the use of internal sources and the creation of new job
The close client-bank relation aids the bank in easily keeping positions, thus contributing to the imports development
track of and identifying the companies encountering and reduction in the country.
difficulties in paying off loan obligations, and consequently
to adopt at the soonest possible an alternative to adjust
the business cash flow with other payment plans, thus
mitigating the risk such companies face.
Tirana Bank has been and continues to be a trusted The proven combination of corporate customer advisors
principal bank for corporate customers providing and product specialists enables Tirana Bank to act as a
customized, effective solutions to each problem by virtue reliable and trustworthy partner to its customers. Total
of its comprehensive service approach and understanding new disbursements for 2017 reached EUR 15.3 million,
of its customers. being in line with the bank’s strategy and budgeted figures
for corporate clients, while the number of clients for the
2017 has been a year of continuance of reactivation and Corporate Division increased by 28%. The bank extended
reassessment of our corporate clients for Business Lines. its customer base with new corporate clients, who are
On the other hand, Corporate has given a great importance leading companies in their respective sectors.
to the enlargement of Corporate customers’ pool by
supporting financially new corporate customers. On the In addition to competitive and attractive financing terms,
other hand, Corporate Banking System has paid due our aim is to provide full support to our customers in all
importance to the enlargement of Corporate clients base, segments and business cycles, by continually improving
by financially supporting new corporate customers. Our service quality and our products and services offer with
focus was, not only to increase credit portfolio, but as well new benefits, operating under the demanding conditions in
to diversify our investments on different market sectors the market. Through our long-term successful cooperation
economy. Supported by experienced staff and the spirit with local and international financial institutions, in 2017
of teamwork, the Banking Service achieved a great deal of we made available more attractive funding terms to our
our ambitious targets of the bank in this sector. customers, resulting in new credit lines. The total Corporate
Banking at the end of 2017 reached EUR 65.8 Million.
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TIRANA BANK ANNUAL REPORT 2017
D. TREASURY DIVISION
One of the main functions of the Treasury Division is to The activities of Treasury Division focus on providing
control and manage the liquidity surplus and to ensure financial and investment products tailored to customer
that all bank business lines have access to the liquidity requirements, as well as consultancy services related
they may need for their business activity. In this way, this to the products being offered. Mediation in securities
division ensures that the bank remains financially secure, markets has been performed on an ongoing basis, adding
stable and capable of functioning efficiently. Among value to bank activities and further enhancing customer
other functions we can mention: maximizing profits at a relations with the bank. Treasury activities continued to
predetermined level, and safeguarding from the risk arising provide significant benefits to the bank and on December
from interest rate movements and foreign exchange rates. 31, 2017, treasury transactions accounted for 66% of total
bank assets.
2017 was marked by a very low level of interest rates,
based on the Central Bank’s accommodative monetary Treasury and Financial Markets Division is an important
policy. The Treasury Division has actively participated in player in the foreign exchange market and financial
the management of deposit balances, ensuring funds markets as a result of its trading and sales activity. Foreign
stability and low cost levels. exchange operations have continued to be beneficial to the
As the main contributor to ALCO and the main pricing bank, reflecting swearing and careful sales.
center for bank activities, we continuously monitor and
analyze the world’s largest economies, macroeconomic All treasury actions have been performed in compliance
trends, and Bank of Albania monetary policies and indexes, with the bank’s policies and with regulatory requirements.
as well as assess their potential impacts in our domestic Our financial results in 2017 were consistent with the
economy, particularly in the banking sector. objectives and were achieved thanks to efficient work.
E. IT AND ORGANIZATION
In the framework of harmonizing IT & Organization Strategy with the Bank’s Business Strategy, and in accordance with
regulatory requirements, the Information Technology and Organization Units have been focusing on the following projects
and activities:
• Improvement of the Bank’s IT operations reliability and quality, by using cutting edge technology;
• Institutional obligations as per regulatory changes;
• Review and upgrade procedures and operations;
• Upgrade and further Integration of the information systems;
• Mitigation of Risks in IT systems infrastructure.
Information systems development and improvement for 2017, have been mainly driven by the optimization and the increase
of the reliability of IT infrastructures solutions, procedures, and systems which is being required by the constant business,
economic and technological environment changes, with the main goal of achieving economies of scale, increased security,
functionality, integrated management from the end user and the competitiveness of the Bank.
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MIGRATION TO CHIP & CONTACTLESS VISA DEBIT CARD
In 2017, the Bank upgraded its Debit Card Management operations with documents, the bank has implemented a
and related systems in order to emboss new VISA document management system. This system will ensure
Debit Cards. The new cards will be equipped with chip the fulfillment of the regulatory request, and will be
and contactless features. These two new features will instrumental to the bank in facilitating the organization of
significantly increase the transactions security and enable documentary information in an electronic format.
very quick transactions for small amounts.
Banking systems upgrades to facilitate Bank Business
In order to comply with regulatory requirements, system’s needs
upgrades and changes have been implemented in the
banking systems. Following the business needs and technological changes,
the Bank performed several upgrades in 2017 such as:
As per the new regulatory instructions, the bank needs to “Payroll Application Upgrade and Centralization”, “In-
provide for several developments and changes in Money House Application Platform Upgrade”, “Retail Loan
Laundry systems, Credit Register and Deposit assurance Origination System Upgrade”, “HR Systems Upgrade”, etc.
system. Also to comply with the requirements of the
Albanian Deposit Insurance Agency and to improve the
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TIRANA BANK ANNUAL REPORT 2017
F. RISK MANAGEMENT
The Board of Directors and the Senior Management acknowledge that the Bank is exposed to various
types of risks deriving from its operations. Taking into account the current economic, financial and market
environment, the Bank has been focusing on the effectiveness of its risk management practices, aiming
to mitigate the risks while maximizing the return for the shareholders.
The efficient risk management is considered vital for the Bank in achieving its strategic objectives and
ensuring quality returns to its shareholders on an on-going basis.
“Create added value for shareholders, by using risk management best practices for the optimization
of the Bank’s risk-return profile, while ensuring compliance with regulatory requirements”.
The Bank pays particular attention to the effective risks monitoring and management, with the view to
maintain stability, financial soundness and its operations continuity.
The BoD is responsible for developing and supervising the implementation of the risk management
framework, which is ensured as well through a number of specialized committees. Risk Management
Department is administratively independent from the other units of the Bank. The Bank has established
detailed processes and adequate risk control mechanisms for identifying/managing/monitoring/reporting
risks. This ensures independence between risk taking, risk management, and control functions.
The existing organizational structure ensures division of responsibilities and aims to prevent instances
that could lead to a conflict of interest.
The Bank must have sufficient liquidity and capital resources to maintain a stable and recurring
profitability. It aims to maintain an independent risk management culture with the active involvement of
the top management.
The Bank aims as well to maintain a culture of continuous improvement of processes, policies, models
and tools for measuring and monitoring risk exposures.
Through the Risk and Capital Strategy, the principles of an integrated risk management framework are
set to achieve the Bank’s strategic and business objectives as determined by the BoD, without exceeding
the risk taking ability.
The risk management framework is constantly evaluated and evolving, taking into account the current
economic and market dynamics, the regulatory requirements, and international best practices. Its
effectiveness is assessed by means of:
• Parallel assessment of the bank’s results/profile vs the risk appetite and business objectives;
The department is subject to the independent audit of the Internal Audit review in terms of the adequacy
and effectiveness of the applied risk management processes.
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The purpose of the Risk Management Governance Framework is to promote an effective and prudent
management of all risks, ensuring appropriate allocation of responsibilities and accountability based on the
risk origin, aiming at aligning the risk taking process with the Bank’s risk appetite. A robust communication
of risk information is essential across the Bank, with the focus on maintaining risk awareness at all levels
and in particular at BoD and Senior Management levels.
For the implementation of the adopted principles, the risk management governance framework is organized
in two main dimensions. The first dimension classifies the risk management operations in four lines of
defense, while the second one addresses the hierarchy levels in which the above-mentioned activities
take place.
The first governance dimension is composed of The second governance dimension constitutes
4 lines of defense as described below: of three levels: strategy, tactics, and operations.
• The first line of defense is comprised by the • Strategy level – Includes the risk management
units that are closest to the origin of risk. functions that are executed at a BoD level.
• The second line of defense is responsible for • Tactics level – Includes the risk management
the ex-ante risk management, since it is engaged functions that are executed at a high level of
in risk management activities that take place prior authority both by individuals, as well as specialized
to risk taking (credit scoring, new product risk committees.
assessment).
• Operations level – Includes the risk management
• The third line of defense is responsible both functions that are executed in various units of the
for the ex-ante monitoring (e.g. participation in Bank.
evaluation of products) as well as the ex-post
During year 2017, Tirana Bank has paid a
control and monitoring of risks.
particular attention to the risks the banking
• The fourth line of defense is responsible system is exposed to. In this regard, it has further
for the independent review of the overall risk strengthened the organizational structure and
management framework of the Bank. The fourth the control functions, aiming at enhancing its risk
line checks the adequacy and effectiveness of management practices, without damaging its
risk management and control mechanisms in the business operations. The main focus continued
first three lines of defense. to be the improvement of the assets quality,
especially non-performing portfolio recoverability.
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TIRANA BANK ANNUAL REPORT 2017
CREDIT RISK
Credit risk is the most significant source of risk for the Bank, therefore, its
effective monitoring and management are among its Management’s priorities.
The implementation of the credit policy, which describes the Bank’s credit risk
management principles, ensures that credit risk is uniformly and efficiently
addressed and that the credit risk practices, with respect to the assessment
methods and processes for credit approving, renewing and monitoring are unified
with the Group’s.
• The Bank seeks to control credit risk through stringent credit criteria, which
necessarily include the repayment option (first way out), the provision of collaterals
(second way out) and the evaluation of the customer. The process is supported by
the use of internal rating systems with strong discriminating ability and systems
for credit risk measurement and calculation of capital requirements.
• The Bank focuses on deleveraging in sectors with a poor outlook and rebalancing
its portfolio towards key sectors with better growth prospects.
• The Bank aims at curbing new arrears, through credit risk identification,
continuous monitoring and countervailing measures.
• The Bank seeks to effectively manage its current NPL/NPE levels through
the Recovery Banking Division by reducing the rate of NPL/NPE formation and
ultimately lowering the absolute level of NPLs/NPEs.
• The Bank operates within the credit, approving limits defined by the Group
which are regularly updated and cover all Bank activities in order to mitigate the
credit risk. All lending decisions are made in compliance with the Credit Policy &
Practice Manual of Piraeus Bank.
• The Group aims at the direct and centralized monitoring of all credit risk
exposures at debtor portfolio level, as well as at connected borrowers level.
• The Bank has minimal appetite for FX lending risk, ensured through the
implementation of appropriate credit policy statements. In general, lending in
foreign currency is acceptable only when hedging is apparent.
22
LIQUIDITY RISK
Liquidity risk is the risk of not being able to fulfill the financial obligations when
they are due. The Bank recognizes liquidity risk as one of the major risk types that
may have a significant impact on the capacity of the Bank to fund its commercial
operations and to meet its financial obligations.
The management of liquidity risk is among the Bank’s key objectives and envolves
a wide range of activities, spanning from its liquidity position close monitoring to its
funding sources and funds use management, in a way that does not compromise the
ability of the Bank to meet its obligations.
The Bank has adopted the best practices and regulatory/supervisory guidelines in
depicting the Bank’s liquidity position and the potential effects of adverse changes
arising from its funding sources maturity (and non-renewal), and the potential
reduction of its liquid assets.
It closely monitors liquidity costs, and has ensured compliance with the regulatory
liquidity risk framework, while maintaining and regularly reviewing methodologies,
policies, procedures and systems so as to effectively manage liquidity risk.
The bank has carefully monitored liquidity levels, by ensuring they remain above the
regulatory minimums.
Deposits from customers are considered to be well diversified, of which 90% are
deposits from retail customers, while the deposits decrease at an annual basis is
assessed at ~3%. Over the past years, there has been a clear trend of shifting from
time deposits to savings deposits, which has been noted in the market as well.
Deposits in LCY have shown a higher decrease as compared to those in FCY, a
change highly impacted by the competition of State Securities considering the very
low environment of interest rates. Key liquidity indicators are above the minimum
regulatory ones and indicate the abundant liquidity.
Liquid Assets/Short Term Liabilities – Total 47% 30% (regulatory limit) 47%
Liquid Assets/Short Term Liabilities – Total FCY 54% 25% (regulatory limit) 54%
Liquid Assets/Short Term Liabilities – Total LCY 40% 25% (regulatory limit) 40%
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TIRANA BANK ANNUAL REPORT 2017
MARKET RISK
Market risk is defined as the risk of incurring losses due to adverse changes of
level or volatility of interest rates, currency exchange rates, equity prices and
commodity prices.
The Bank has established and applied adequate measurement methods for
the monitoring and controlling the market risk, including interest rate risk in the
banking book. Market risk exposure was limited during 2017 as well.
Tirana Bank applies an interest rate risk management policy and adopts risk
assessment techniques based on the Interest Rate Gap Analysis. It assesses
interest rate risk through “Earnings-at-Risk” measure, which expresses the
negative impact on projected annual interest rate over a specified period, caused
by a change in interest rates across all maturities and currencies.
In addition, it assesses interest rate risk through the expected change in the Net
Present Value of Assets and Liabilities, caused by a change of interest rates by
1 basis points.
24
OPERATIONAL RISK
Operational risk has received special attention, through reviewing Bank’s operations,
aiming at identifying possible improvements for the purpose of reducing operational
losses and other negative impacts (being those reputational, regulatory, etc).
Careful monitoring of the operational losses, key risk indicators and annual performance
of the risk control self-assessment, remained the main sources of operational risk
management framework, while the Bank successfully implemented the Permanent
Control platform.
Tirana Bank wishes to avoid operational risk events/losses, caused by the inadequacy
and ineffectiveness of the internal control system (internal control environment), or in non-
compliance with the principles and objectives of this system.
It wishes to completely avoid losses generated from internal fraud, as well as completely
avoid events with significant negative impact on its reputation and corporate image.
CAPITAL ADEQUACY
The Bank recognizes the importance of maintaining a strong capital base against
the risks undertaken. It has retained a sound capital base, capable to support
the Bank’s business/strategic plan/s and safeguard the ability to continue its
operations smoothly.
Capital requirements are calculated against all material types of risks that the
Bank undertakes, in full compliance with all applicable regulatory and supervisory
requirements.
Capital adequacy ratio has exceeded the minimum regulatory limit; at the end of
2017, it was at the level of 21.25% as opposed to the minimum regulatory level at
15%, thus ensuring the confidence of depositors and its sufficient armor against
the challenges of the current economic conditions.
Of which:
Operational Risk 37 40
Other 24 59
The Bank aims to maintain adequate infrastructure, policies, processes and methodologies to support and meet the
supervisory and regulatory compliance needs regarding capital management.
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TIRANA BANK ANNUAL REPORT 2017
INFORMATION SECURITY
A risk management framework, aiming at mitigating the ICT and cyber risks,
has been developed and documented by the Information Security Unit. A Cyber
Security Awareness Program, addressed to all personnel, aiming at enhancing
the risk culture in terms of Cyber Security and IT related risks.
The Bank has established a framework of policies and procedures for mitigating
the risk arising from the use of risk assessment models, through review, challenge,
training and validation processes.
Information security has been at the focus throughout 2017, and a number of
projects have been implemented to increase security. Continuous awareness
raising on the topic is considered of ultimate importance.
26
We have also enhanced our system to improve the quality of the collected know-
your-customer (KYC) data, both at the beginning and throughout the business
relation. Customer identification checks are the first filters at the beginning of any
relation. This relies on our information on our customers and beneficial owners.
We carry out suitable and risk-appropriate monitoring throughout the relation.
Bank’s employees are assisted in this regard by AML software for profiling
customers and detecting unusual transactions.
Based on risk assessment and regulatory changes, we are continuously
strengthening our overall AML/CFT system.
H. FUNDS TRANSFER
2017 was another successful year for fund transfer operations in Tirana Bank.
Our efforts to provide high standards of quality in the processing of commercial
payments have been acknowledged by our highly praised partner Deutsche
Bank, which granted Tirana Bank the 2016 Gold Euro STP Excellence award.
This award has been granted in recognition of the exceptional direct processing
of international payments following the evaluation of the quality and accuracy of
SWIFT payment messages routed through Deutsche Bank.
We want our customers to feel secure when transferring money either to their
loved ones, or to their trusted business partners, by offering them a variety of
products according to their needs and by continuously improving technical and
security issues to maintain an error-free rate for remittances. Our main motivation
is to offer the best customer service experience, by ensuring consistency in
service quality, while embracing innovation in a fast changing environment.
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TIRANA BANK ANNUAL REPORT 2017
6 CORPORATE SOCIAL
RESPONSIBILITY
A. SOCIAL ACTIVITIES
Tirana Bank Continues to support SOS Children›s Village
Any child needs a family to care and show love to them. In this framework, Tirana
Bank has continued to support SOS Families, which provide
a sustainable, safe and loving care in a family environment to children who have
lost their parents, or who cannot live with their biological family.
Showing our continuous commitment to social issues, and our willingness to
provide assistance to solving current social problems, Tirana Bank has committed
itself to the “adoption” of three children from the SOS Village. The sponsoring
of such children’s lifestyle is a long-term cooperation, relying on our company’s
continuous support to provide tailored care and promote development, education,
health care, and social, sports and entertainment activities for such children.
Donate a bag!
Get the School Year Off to a Good Start, Kids! Tirana Bank was pleased to support
the initiative “Donate a bag”, organized by “Fundjavë Ndryshe” organization.
500 girls and 500 boys from families in difficult economic situations all over
Albania were given as a present one bag from Tirana Bank.
These bags were distributed from “Fundjavë Ndryshe” in cooperation with Tirana
Bank staff in several villages and cities of the country, with the good will to wish
them a good start of the school year!
28
Celebrating June 1st with DSA Albania
Blood donation
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TIRANA BANK ANNUAL REPORT 2017
30
B. EDUCATION
“Financial Education Through Art” Exhibition
Tirana Bank has provided its support to the opening of the “Financial Education
Through Art” Exhibition, in the framework of the “Money Week” project, organized
by the Albanian Association of Banks. Over 30 children from the 9-year schools
in Tirana and Durrësi, under the auspices of the painter Kosta Zhongo, displayed
their drawings and paintings on economic concepts. Such paintings will be part
of an economic dictionary, which will provide explanations and definitions to
various economic concepts.
Following its success in the previous year, the project “Path towards success”
was reintroduced in November 9th at the Palace of Congress, hosted by Vasil
Naçi. Over 2000 people, among which Businessmag, were provided with the
opportunity to learn, to get motivated and to break free from the daily routine
thanks to this innovative training, which reminded us the most famous international
speakers in our small Albania.
Tirana Bank supports this activity as the “Silver” sponsor, which was attended
by many experts from various fields. In addition to the presentation, the seminar
entailed exercises, aiding participant to reflect on the path they should tread into
to achieve success.
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TIRANA BANK ANNUAL REPORT 2017
C. CULTURE
Summer day in Përmet Teacher’s Day in Lezha
Convivium Slow Food Përmet and Municipality of Përmeti On March 7, we pay tribute to all teachers for their great
organized for the second consecutive year Përmet Summer contribution in educating future generations.
Day. The 14th of March was a real celebration, which drove Lezha Regional Education Directorate organized with the
many visitors and tourists to reveal the area’s values and support of Tirana Bank the festivities of March 7, in the
the traditions, transmitted from generation to generation. premises of the Palace of Culture of the city, marked by the
Tirana Bank was pleased to support this holiday festivities, presence of all teachers and students of the region.
thus aiding to the display of Përmet traditional dishes to a
wider public.
32
Tirana Bank supports the Badminton Federation
of Albania
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TIRANA BANK ANNUAL REPORT 2017
7 HUMAN RESOURCES
HUMAN RESOURCES DEPARTMENT
Human capital is to Tirana Bank the key factor in achieving the bank’s strategic
goals and objectives. The bank’s philosophy is excellent staffing according to
business needs and establishment of strong relations with employees.
Moral integrity, team spirit, professional skills, trust, devotion and acceptance of
diversity are the main features of our employees.
Distribution by Generation
34
RECRUITMENT
INTERNSHIPS
During 2017, Tirana bank has established an internship practice, which provides growth and learning opportunities to
the students attending local universities, or universities abroad. We have designed a working program that is suitable to
interns’ needs and studies, and we also give them the opportunity, when applicable, to be our future staff.
Tirana bank consistently invests in the development and improvement of its employees’ competencies and skills, by creating
a learning and development environment, aiming to bring out the full potential of its people. Training and development
programs are a key investment for our people and for our business.
During 2017, Tirana bank offered to its senior managers strategic leadership tailored training. The objective of the training
was to enhance the Bank’s leadership capacities and further develop an effective common leadership culture in the Bank.
Training man hours by gender: total 9367
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TIRANA BANK ANNUAL REPORT 2017
HUMAN RIGHTS
The safeguarding of human rights at work has always been of a high importance
to Tirana Bank. Respect of human rights characterizes all bank policies,
procedures and human management practices, by ensuring equal opportunities
in the working environment, which accepts and integrates diversity.
During 2017 all the employees of the Bank participated in a lesson regarding
“Human Rights, Diversity and Equal Opportunities at Work”, through the
e-learning platform.
Tirana Bank complies with the legislative regulations regarding employees’ health
and safety. Fully respecting its legal obligations, and showing particular sensitivity
to employees’ physical health, the Bank takes care to provide a modern, healthy
and safe workplace.
Tirana Bank places special emphasis to the wellbeing of its employees. In addition
to legal requirements, the Bank provides a Private Health Insurance Plan for all its
employees, fully covered by the bank, the highest private health insurance plan
on average per employee compared to the banking sector in Albania.
In addition, Tirana Bank offers to its employees trainings on yearly basis, related
to fire protection and safety, as well as first aid, which endow the staff with skills
such as: rescue operations, first aid provision, turning off fire, guide evacuation
through certain actions etc.
36
REWARDING HUMAN RESOURCES
• Maximization of performance;
• Internal transparency;
Net interest income after provision for loan impairment 1,554,955 1,092,283
(1,879,603) (2,018,249)
The accompanying notes on pages 11 to 80 form an integral part of these financial statements.
40
ASSETS
Cash and balances with the Central Bank 12 6,914,728 7,128,006
Loans and advances to banks 12 26,544,252 22,408,310
Loans and advances to customers 13 24,037,231 25,273,650
Financial assets available for sale 14 15,343,098 21,447,552
Prepaid corporate income tax 11 275,818 300,914
Investment properties 15 117,464 109,864
Repossessed collaterals inventory 15 2,921,930 2,746,982
Intangible assets 16 242,035 293,286
Property and equipment 17 498,064 545,496
Deferred tax assets 11 33,004 24,800
Other assets 18 857,275 1,085,894
Equity
Paid-in capital 23 14,754,741 14,754,741
Share premium 23 1,735,494 1,735,494
Other reserves 24 1,700,011 1,800,293
The accompanying notes on pages 11 to 80 form an integral part of these financial statements.
Pasqyrat financiare u miratuan nga Bordi i Drejtorëve At 25 maj 2018 dhe nënshkruan në emër të tyre nga:
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TIRANA BANK ANNUAL REPORT 2017
Retained
Paid-in Capital Share Premium Other Reserves Total Equity
Earnings
At 1 January 2016 14,754,741 1,735,494 1,704,370 (3,234,785) 14,959,820
The accompanying notes on pages 11 to 80 form an integral part of these financial statements.
42
Notes 2017 2016
Adjustments for:
Depreciation and amortisation 17, 18 185,621
Impairment of loans and advances 13 130,578
Net changes in fair value of financial assets 5,6 (118,836)
Net interest income (1,685,533) 262,687
(1,386,165)
The accompanying notes on pages 11 to 80 form an integral part of these financial statements.
43
TIRANA BANK ANNUAL REPORT 2017
1. Corporate
information
Tirana Bank sh.a. is a banking
institution operating in accordance
with the provisions of Law 9901, dated
14 April 2008 “On Entrepreneurs and
Commercial Companies”, and Law
9662, dated 18 December 2006 “On
Banks in the Republic of Albania”
as amended, Law 10481 dated 17
November 2011, as well as other
relevant laws. According to article 4 of
its Statute, the scope of work of the
Bank is to execute, on its behalf or on
behalf of third parties, any and every
operation acknowledged or delegated
by law to banks. Tirana Bank sh.a. is
incorporated and domiciled in Albania
and operates in Albania. Tirana Bank
sh.a. is owned by Piraeus Bank S.A
which owns 98.83 % of shares.
The Bank has 39 branches (2016: 39)
within the Republic of Albania and
has no overseas operations. The total
number of the Bank’s employees is
439 (2016: 432)
The financial statements for the
year ended 31 December 2017 were
authorized for issue by the Board of
Directors on 25 May 2018. Approval
of the financial statements by the
Shareholders will take
the Annual General Meeting of the
place in 39
Shareholders.
Branches
Principal activity in the Republic
The Bank’s principal business activity of Albania
is commercial and retail banking
operations within the Republic of
Albania. The Bank has been operating
439
under a full banking licence issued by
the Central Bank of the Republic of
Albania (“Bank of Albania” or “BoA”)
since 1996. Number
of Bank
employees
44
2. Summary of significant
accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies
have been consistently applied to all years presented, unless otherwise stated.
2.1STATEMENT OF COMPLIANCE
The financial statements of Tirana Bank Sh.A. have been prepared in accordance with International Financial Reporting
Standards (IFRSs) and IFRIC interpretations. The accounting policies adopted are consistent with those of the previous
financial year.
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TIRANA BANK ANNUAL REPORT 2017
2.3 FOREIGN The applicable rates of exchange (Lek to foreign currency unit) for the principal
currencies as at 31 December 2017 and 2016 were as follows:
CURRENCY
TRANSLATION 2017 2016
The financial statements are
USD 111.10 128.17
presented in Albanian Lek, which
EUR 132.95 135.23
is the Bank’s functional and
presentation currency.
46
customers are subsequently measured at amortised cost As at December 31, 2017 and 2016 the Bank classified its
using the effective interest rate method, less allowance financial assets available-for-sale financial investments,
for impairment. Amortised cost is calculated by taking loans and receivables. The Bank did not classify any
into account any discount or premium on acquisition and financial assets designated at fair value through profit or
fees and costs that are an integral part of the effective loss during reporting period.
interest rate. The amortisation is included in “Interest and
g) Financial liabilities
similar income” in profit or loss. The losses arising from
After initial measurement, debt issued and other borrowings
impairment are recognised in profit or loss in “Impairment
are subsequently measured at amortized cost using
losses on loans and advances”.
the effective interest rate method. There is no financial
e) Financial assets at fair value through profit or loss liability measured at fair value through profit and loss.
This category includes treasury bills issued by the Albanian Any differences between proceeds net of transactions
Government. costs and the redemption value is recognised in “Interest
Financial assets at fair value through profit or loss include and similar expenses” in profit or loss. Amortized cost is
financial assets which are managed and their performance calculated by taking into account any discount or premium
is evaluated on a fair value basis, in accordance with the on the issue and costs that are an integral part of the
Bank’s risk management strategy. Financial assets at effective interest rate.
fair value through profit or loss are carried at fair value.
All changes in the fair value and gains or losses on h) Offsetting financial instruments
derecognising are recorded in profit or loss as other gains Financial assets and liabilities are offset and the net amount
the period in which they arise. reported in the statement of financial position when there is
a legally enforceable right to offset the recognized amounts
f) Available for sale financial assets and there is an intention to settle on a net basis, or realize
This classification includes investment securities which the asset and settle the liability simultaneously.
the Bank intends to hold for an indefinite period of time
and which may be sold in response to needs for liquidity or i) Derecognition
changes in interest rates, exchange rates or equity prices. Financial assets are derecognised when the contractual
Investment securities available for sale are carried at fair rights to receive the cash flows from these assets have
value. Interest income on available-for-sale debt securities ceased to exist or the assets have been transferred and
is calculated using the effective interest method and substantially all the risks and rewards of ownership of the
recognised in profit or loss for the year. Dividends on assets are also transferred (that is, if substantially all the
available-for-sale equity instruments are recognised in risks and rewards have not been transferred, the Bank
profit or loss for the year when the Bank’s right to receive tests control to ensure that continuing involvement on the
payment is established and it is probable that the dividends basis of any retained powers of control does not prevent
will be collected. All other elements of changes in the fair derecognising). Financial liabilities are derecognised when
value are recognised in other comprehensive income until they have been redeemed or otherwise extinguished.
the investment is derecognised or impaired, at which
time the cumulative gain or loss is reclassified from other
comprehensive income to profit or loss for the year.
The fair value of AFS monetary financial assets denominated
in a foreign currency is determined in that foreign currency
and translated at the spot rate prevailing at the end of
the reporting period. The foreign exchange gains and
losses that are recognised in profit or loss are determined
based on the amortised cost of the monetary asset. Other
foreign exchange gains and losses are recognised in other
comprehensive income.
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TIRANA BANK ANNUAL REPORT 2017
Securities sold under agreements to repurchase at a date (‘reverse repos’) are recorded as due from other banks
specified future date (“repos”) are not derecognised from or loans and advances to customers, as appropriate. The
the balance sheet. The corresponding cash received, corresponding cash paid, including accrued interest, is
including accrued interest, is recognised in the statement recognised in the statement of financial position as “Due
of financial position as a “Due to Banks”, reflecting its from Banks”. The difference between the purchase and
economic substance as a loan to the Bank. The difference resale prices is treated as interest income and is accrued
between the sale and repurchase prices is treated as interest over the life of the agreement using the effective interest
expense and is accrued over the life of the agreement using rate method.
the effective interest rate method. Conversely, securities
purchased under agreements to resell at a specified future
For financial instruments that are traded in active markets, present value techniques, comparison to similar instruments
the determination of fair values of financial assets and for which market observable prices exist and other relevant
financial liabilities is based on quoted market prices or valuation models. Valuation techniques such as discounted
dealer price quotations. A financial instrument is regarded cash flow models or models based on recent arm’s length
as quoted in an active market if quoted prices are readily transactions or consideration of financial data of the
and regularly available from an exchange, dealer, broker, investees, are used to measure fair value of certain financial
industry group, pricing service or regulatory agency, and instruments for which external market pricing information is
those prices represent actual and regularly occurring not available.
market transactions on an arm’s length basis. If the above Fair value measurements are analysed by level in the fair
criteria are not met, the market is regarded as being value hierarchy as follows: (i) level one are measurements
inactive. Indicators that a market is inactive are when at quoted prices (unadjusted) in active markets for identical
there is a wide bid-offer spread or significant increase in assets or liabilities, (ii) level two measurements are valuations
the bid-offer spread or there are few recent transactions, a techniques with all material inputs observable for the asset
significant decrease in the average daily trading volume of or liability, either directly (that is, as prices) or indirectly (that
all the shares under consideration in country 2 over the last is, derived from prices), and (iii) level three measurements
5 years, etc.. are valuations not based on solely observable market data
For all other financial instruments not listed in an active (that is, the measurement requires significant unobservable
market, the fair value is determined by using appropriate inputs).
valuation techniques. Valuation techniques include net
48
2.7 IMPAIRMENT OF FINANCIAL ASSETS
The Bank assesses at each reporting date whether there is any objective evidence that a financial asset
or a group of financial assets is impaired.
A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that has occurred after the initial recognition
of the asset (an incurred ‘loss event’) and that loss event (or events) has an (negative) impact on the
estimated future cash flows of the financial asset or the group of financial assets that can be reliably
estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is
experiencing significant financial difficulty, default or delinquency in interest or principal payments, the
high probability that they will enter bankruptcy or other financial reorganisation and where observable
data indicate that there is a measurable decrease in the estimated future cash flows, such as changes
in arrears or economic conditions that correlate with defaults.
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TIRANA BANK ANNUAL REPORT 2017
d) Kontrata të ristrikturuara
Kur është e mundur, banka mundohet të ristrukturojë një hua në vend që të
marrë kolateralin. Kjo mund të përfshijë shtyrjen e marrëveshjeve të ripagesës
dhe një marrëveshje të re për kushtet e kredisë. Me ri-negocimin e kushteve,
kredia nuk konsiderohet At në vonesë. Drejtimi rishikon vazhdimisht kreditë
e ristrukturuara për t’u siguruar që të gjitha kriteret përmbushen dhe pagesat
e ardhshme kanë mundësi të kryhen. Kreditë vazhdojnë të jenë subjekt i një
vlerësimi individual apo kolektiv për zhvlerësim, të llogaritur duke përdorur
normën efektive fillestare të interesit të kredisë.
50
2.8 LEASING 2.9 REVENUE RECOGNITION
The determination of whether an arrangement is, or contains Revenue is recognised to the extent that it is probable
a lease is based on the substance of the arrangement and that the economic benefits will flow to the Bank and the
requires an assessment of whether the fulfilment of the revenue can be reliably measured. The following specific
arrangement is dependent on the use of a specific asset recognition criteria must also be met before revenue is
or assets and the arrangement conveys a right to use the recognised
asset.
a) Interest and similar income and expense
i. Bank as a Lessee Interest and similar income includes coupons earned on
Finance leases, which transfer to the Bank substantially all fixed income investments, any discount and premium on
the risks and benefits incidental to ownership of the leased zero coupon treasury bills recognised using in profit or
item, are capitalised at commencement of the lease term loss the effective interest rate method and interest income
at the fair value of the leased property or, if lower, at the on loans and advances. For all financial instruments
present value of the minimum lease payments and included measured at amortised cost and interest bearing financial
in “Property and equipment” with the corresponding instruments classified as available-for-sale financial
liability to the lessor included in “Other liabilities”. Lease investments, interest income or expense is recorded at
payments are apportioned between the finance charges the effective interest rate, which is the rate that exactly
and reduction of the lease liability so as to achieve a discounts estimated future cash payments or receipts
constant rate of interest on the remaining balance of the through the expected life of the financial instrument or
liability. Finance charges are charged directly against a shorter period, where appropriate, to the net carrying
income in “Interest and similar expense”. The Bank did amount of the financial asset or financial liability.
not have significant financial lease agreements during the The calculation takes into account all contractual terms of
reporting period. the financial instrument (for example, prepayment options)
Capitalised leased assets are depreciated over the shorter and includes any fees or incremental costs that are directly
of the estimated useful life of the asset and the lease term, attributable to the instrument and are an integral part of
if there is no reasonable certainty that the Bank will obtain the effective interest rate, but not future credit losses. The
ownership by the end of the lease term. Any operating carrying amount of the financial asset or financial liability
lease rentals payable are accounted for on a straight-line is adjusted if the Bank revises its estimates of payments
basis over the lease term and included in “Other operating or receipts. The adjusted carrying amount is calculated
expenses”. When an operating lease is terminated before based on the original effective interest rate and the change
the lease period has expired, any payment required to be in carrying amount is recorded as interest income or
made to the lessor by way of penalty is recognized as an expense. Once the recorded value of a financial asset or
expense in the period in which termination takes place. a group of similar financial assets has been reduced due
to an impairment loss, interest income continues to be
ii. Bank as a Lessor recognised using the original effective interest rate applied
Where the Bank is a lessor in a lease which does not to the new carrying amount.
transfer substantially all the risks and rewards incidental
to ownership from the Bank to the leasee, the total lease Fee and commission income
payments are recognised in profit or loss for the year (rental The Bank earns fee and commission income from a diverse
income – note 2.8, c) on a straight-line basis over the period range of services it provides to its customers. Fee income
of the lease. can be divided into the following two categories:
b) Rental income
Rental income is accounted for on a straight-line basis over the lease terms on
ongoing leases and is recorded in profit or loss in “Other operating income”. The
Bank did not have significant investment property as at year end and during the
reporting period.
Cash and cash equivalents comprise cash balances and call deposits with
an original maturity of three months or less. For the purpose of the Cash Flow
Statement, cash and cash equivalents consist of cash on hand, current accounts
with Central Bank and amounts due from other banks on demand and with an
original maturity of three months or less. The statutory reserve with the Central
Bank is not available for the Bank’s day-to-day operations and is not included
as a component of cash and cash equivalents for the purpose of the statement
of cash flows. Cash and cash equivalents are carried at amortised cost. Further
details of what cash and cash equivalents comprises can be found in note 27.
The assets’ residual value and useful lives are reviewed, and adjusted if
appropriate, at each reporting date.
An item of property and equipment is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any gain or loss
arising on de-recognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is recognised in
“Other operating income” or “Other operating expenses” in profit or loss in the
year the asset is derecognised.
52
2.12 INTANGIBLE ASSETS 2.13 INVESTMENT PROPERTIES
Intangible assets acquired separately Investment properties are properties held to earn rentals
Intangible assets with finite useful lives that are acquired and/or for capital appreciation (including property under
separately are carried at cost less accumulated amortisation construction for such purposes). Investment properties
and accumulated impairment losses. Amortisation is are measured initially at cost, including transaction costs.
recognised on a straight-line basis over their estimated Subsequent to initial recognition, investment properties are
useful lives. The estimated useful life and amortisation measured at fair value. All of the Bank’s property interests
method are reviewed at the end of each reporting period, held under operating leases to earn rentals or for capital
with the effect of any changes in estimate being accounted appreciation purposes are accounted for as investment
for on a prospective basis. Intangible assets with indefinite properties and are measured using the fair value model.
useful lives that are acquired separately are carried at cost Gains and losses arising from changes in the fair value of
less accumulated impairment losses. investment properties are included in profit or loss in the
period in which they arise.
Internally-generated intangible assets - research and
development expenditure
An investment property is derecognised upon disposal or
Expenditure on research activities is recognised as an
when the investment property is permanently withdrawn
expense in the period in which it is incurred.
from use and no future economic benefits are expected
An internally-generated intangible asset arising from
from the disposal. Any gain or loss arising on derecognition
development (or from the development phase of an internal
of the property (calculated as the difference between the
project) is recognised if, and only if, all of the following have
net disposal proceeds and the carrying amount of the
been demonstrated:
asset) is included in profit or loss in the period in which the
• the technical feasibility of completing the intangible asset
property is derecognised.
so that it will be available for use or sale;
• the intention to complete the intangible asset and use or
Investment properties includes collateral obtained due to
sell it;
legal process include land, building and business premises
• the ability to use or sell the intangible asset;
which are not used by the Bank for its core operations.
• how the intangible asset will generate probable future
economic benefits;
• the availability of adequate technical, financial and other
resources to complete the development and to use or sell
the intangible asset; and
• the ability to measure reliably the expenditure attributable
to the intangible asset during its development.
The amount initially recognised for internally-generated
intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the
recognition criteria listed above. Where no internally-
generated intangible asset can be recognised, development
expenditure is recognised in profit or loss in the period in
which it is incurred.
Subsequent to initial recognition, internally-generated
intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on
the same basis as intangible assets that are acquired
separately.
Intangible assets include the Bank’s software with an
estimated useful life of five years.
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TIRANA BANK ANNUAL REPORT 2017
The Bank assesses at each reporting date or more Financial guarantee contracts are contracts that require
frequently if events or changes in circumstances indicate the issuer to make specified payments to reimburse the
that the carrying value may be impaired, whether there is an holder for a loss it incurs because a specified debtor fails
indication that a non-financial asset may be impaired. If any to make payments when due, in accordance with the terms
such indication exists, or when annual impairment testing of a debt instrument.
for an asset is required, the Bank makes an estimate of the Such financial guarantees are given to banks, financial
asset’s recoverable amount. Where the carrying amount of institutions and other bodies on behalf of customers to
an asset (or cash-generating unit) exceeds its recoverable secure loans, overdrafts and other banking facilities.
amount, the asset (or cash-generating unit) is considered Financial guarantees are initially recognized in the financial
impaired and is written down to its recoverable amount. statements at fair value on the date the guarantee was
For assets excluding goodwill, an assessment is made at given. Subsequent to initial recognition, the bank’s liabilities
each reporting date as to whether there is any indication under such guarantees are measured at the higher of
that previously recognised impairment losses may no the initial measurement, less amortization calculated to
longer exist or may have decreased. If such indication recognize in profit or loss the fee income earned on a
exists, the recoverable amount is estimated. A previously straight line basis over the life of the guarantee and the
recognised impairment loss is reversed only if there has best estimate of the expenditure required to settle any
been a change in the estimates used to determine the financial obligation arising at the reporting date. These
asset’s recoverable amount since the last impairment loss estimates are determined based on experience of similar
was recognised. If that is the case, the carrying amount transactions and history of past losses, supplemented by
of the asset is increased to its recoverable amount to the the judgment of Management. Any increase in the liability
extent that the increased carrying amount of an asset other relating to guarantees is taken to profit or loss under other
than goodwill attributable to a reversal of an impairment operating expenses.
loss does not exceed the carrying amount that would have Financial guarantees and commitments to provide a loan
been determined (net of amortisation or depreciation) had are initially recognised at their fair value, which is normally
no impairment loss been recognised for the asset in prior evidenced by the amount of fees received. This amount
years. is amortised on a straight line basis over the life of the
commitment.
54
2.18 INCOME TAX
Income taxes have been provided for in the financial statements in accordance with
Albanian legislation enacted or substantively enacted by the reporting date. The
income tax charge comprises current tax and deferred tax and is recognised in the
statement of comprehensive income except if it is recognised in other comprehensive
income because it relates to transactions that are also recognised, in the same or a
different period, in other comprehensive income.
Current tax
Current tax assets and liabilities for the current and prior years are measured at
the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the reporting date.(2017:15%, 2016: 15%).
Deferred tax
Deferred tax is provided on temporary differences at the reporting date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes. Deferred tax liabilities are recognised for all taxable temporary differences,
except where the deferred tax liability arises from the initial recognition of goodwill or
of an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences,
carry forward of unused tax credits and unused tax losses, to the extent that it is
probable that taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can
be utilised except where the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future taxable profit will
allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply in the year when the asset is realised or the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively enacted at the reporting
date.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right
exists to set off current tax assets against current tax liabilities and the deferred
taxes relate to the same taxable entity and the same taxation authority.
Dividends on ordinary shares are recognised as a liability and deducted from equity
when they are approved by the Bank’s shareholders. Interim dividends are deducted
from equity when they are declared and no longer at the discretion of the Bank.
Dividends for the year that are approved after the reporting date are disclosed as an
event after the reporting date.
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TIRANA BANK ANNUAL REPORT 2017
3. Financial risk
management
The Bank’s activities expose it
3.1 CREDIT RISK
to a variety of financial risks and
The Bank takes on exposure to credit risk, which is the risk that counterparty
those activities involve the analysis,
will cause a financial loss for the Bank by failing to fulfil obligations to
evaluation, acceptance and
the Bank. Credit risk is the most important risk for the Bank’s business;
management of some degree of risk
management therefore carefully manages its exposure to credit risk. Credit
or combination of risks. Taking risk
exposures arise principally in lending activities that lead to loans and
is core to the financial business, and
advances, and investment activities that bring debt securities and other
the operational risks are an inevitable
bills into the Bank’s asset portfolio. There is also credit risk in off-balance
consequence of being in business.
sheet financial instruments. The credit risk management and control are
The Bank’s aim is therefore to achieve
centralised in credit risk management team of risk department at both local
an appropriate balance between risk
and group (Piraeus Bank SA) level and reported to the Board of Directors.
and return and minimise potential
adverse effects on the Bank’s financial
performance.
The Bank’s risk management policies
are designed to identify and analyse
The main targets of the Bank’s Credit Risk Management are to:
these risks, to set appropriate risk
limits and controls, and to monitor the
• Set centralized policies aligned with the Group Policies and in compliance
risks and adherence to limits by means
with Central Bank requirements;
of reliable and up-to-date information
• Monitor the Bank’s portfolio.
systems.
• Managing risk pro-actively to identify and analyse risk at an early stage
The Bank regularly reviews its risk
• Create risk management function independent of commercial lines of the
management policies and systems to
business
reflect changes in markets, products
• Integrate the risk management function into the organizational business
and emerging best practice.
process
Risk management is carried out by
• Report on risk across the organization
a risk department in the Bank under
policies approved by the Board of
Directors. The Board provides written
principles for overall risk management,
The Credit Risk Management Committee is responsible for:
as well as written policies covering
specific areas, such as, credit risk,
• Developing Credit Risk management systems and infrastructure: analysing
foreign exchange risk, interest rate risk
results and reporting to the management
and liquidity risk.
In addition, internal audit is responsible
• Preparing the Bank for Basel II implementations
for the independent review of
risk management and the control
• Relationship with Bank of Albania (Central Bank), Piraeus Bank and/or
environment.
other authorities in the terms of effectiveness of Credit Risk Management
The most important types of risk are
credit risk, liquidity risk, market risk
The Audit Committee and Internal Auditing Department follow up the
and other operational risk. Market risk
compliance with policies and procedures.
includes currency risk, interest rate
and other price risk
56
3.1.1 CREDIT RISK MEASUREMENT
(i) The Bank assesses the probability of default of individual counterparties using internal
rating tools tailored to the various categories of counterparty. They have been developed
internally and combine statistical analysis with credit officer judgment and are validated,
where appropriate, by comparison with externally available data. Clients of the Bank
are segmented into five rating classes. The Bank’s rating scale, which is shown below,
reflects the range of default probabilities defined for each rating class. This means that,
in principle, exposures migrate between classes as the assessment of their probability
of default changes. The rating tools are kept under review and upgraded as necessary.
The Bank regularly validates the performance of the rating and their predictive power with
regard to default events.
B Standard
C Special Monitoring
D Substandard
Criterion for classification of Financial Assets into groups A, B, C, D and E are as follows:
Financial Assets are classified into Group A if they are toward debtors that have been
evaluated in investment grade ratings by external rating agencies, e.g. Moody’s, S&P,
Fitch, regardless of the internal MRA rating. The bank has no such customers as at 31
December 2017 and 2016.
Financial Assets are classified into Group B if they are towards:
• Bank of Albania and Albanian Government;
• debtors which are not likely to default and who repay their obligations within the maturity,
or with a delay of 30 days; and
• exposures secured by pledging collateral graded as first class collateral.
Financial Assets are classified into Group C if they are towards debtors:
• whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless
its present financial position is assessed as weak, without signs of further deterioration in
the future; and
• who settle their liabilities with delay of up to 30 days, occasionally with delay between
31 and 90 days.
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TIRANA BANK ANNUAL REPORT 2017
Financial Assets are classified into Group D if they are towards debtors:
• for which it is assessed, that cash flows will not be sufficient for regular
repayment of matured liabilities;
• that settle their liabilities with delay of up to 90 days, occasionally with delay
between 91 to 180 days;
• that are clearly undercapitalized;
• that do not have sufficient long term capital resources for financing long term
investments; and
• from whom bank does not receive currently satisfactory information or adequate
documentation concerning repayment of liabilities.
Financial Assets are classified into Group E if they are towards debtors:
• for which exists a strong likelihood of loss of part of financial asset;
• that settle their liabilities with delay of more than 90 to 180 days, occasionally
with delay between 181 to 360 days;
• which are insolvent;
• for which a motion for commencement of process of liquidation or declaration
of bankruptcy began and was filed at the provisional court;
• that are in the process of reform or in the process of liquidation;
• that declared bankruptcy;
• from whom no repayment is expected; and
• with questionable legal grounds.
(ii) Exposure at default is based on the amounts the Bank expects to be owed at
the time of default. For example, for a loan this is the face value. For a commitment,
the Bank includes any amount already drawn plus the further amount that may
have been drawn by the time of default, should it occur.
(iii) Loss given default or loss severity represents the Bank’s expectation of the
extent of loss on a claim should default occur. It is expressed as percentage
loss per unit of exposure and typically varies by type of counterparty, type and
seniority of claim and availability of collateral or other credit mitigation.
58
3.1.2 RISK LIMIT CONTROL AND MITIGATION
POLICIES
The Bank manages, limits and controls concentrations of credit risk wherever
they are identified − in particular, to individual counterparties and groups, and to
industries and countries.
The Bank structures the levels of credit risk it undertakes by placing limits on the
amount of risk accepted in relation to one borrower, or group of borrowers, and
to geographical and industry segments. Such risks are monitored on a revolving
basis and subject to an annual or more frequent review, when considered
necessary. Limits on the level of credit risk by product and industry sector are
approved by the Board of Directors.
Exposure to credit risk is also managed through regular analysis of the ability
of borrowers and potential borrowers to meet interest and capital repayment
obligations and by changing these lending limits where appropriate.
Some other specific control and mitigation measures are outlined below.
(a) Collateral
The Bank employs a range of policies and practices to mitigate credit risk. The
most traditional of these is the taking of security for funds advances, which is
common practice.
Loans to corporate entities and individuals are generally secured; over drafts
and credit cards issued to individuals are secured mostly by cash deposits and
collateral in cases of credit customers at the full amount of principal, interest and
other charges. In addition, in order to minimise the credit loss the Bank will seek
additional collateral from the counterparty as soon as impairment indicators are
noticed for the relevant individual loans and advances.
Debt securities, treasury and other eligible bills are generally unsecured.
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TIRANA BANK ANNUAL REPORT 2017
The internal rating systems described in Note 3.1.1 focus more on credit-quality mapping from the inception of the lending
and investment activities.
In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at
the reporting date based on objective evidence of impairment (see Note 2.7).
The impairment provision shown in the balance sheet at year-end is derived from each of the five internal rating grades.
However, the majority of the impairment provision comes from bottom two grades. The table below shows the percentage
of the Bank’s on-balance sheet items relating to loans and advances and the associated impairment provision for each of
the Bank’s internal rating categories:
Bank’s rating
2017 2016
Loans and advances Impairment provision Loans and advances Impairment provision
(%) level (%) (%) level (%)
Investment Grade - - - -
Standard 64.89 0.64 53.05 1.30
Special monitoring 8.75 9.37 9.28 10.15
Sub-standard 2.08 20.26 3.25 22.94
Doubtful and Loss 24.29 43.35 34.42 44.23
Total 100.00 12.18 100.00 17.60
60
The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39,
based on the following criteria set out by the Bank:
The Bank’s policy requires the review of individual financial assets that are individually significant at least annually or more
regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined
by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually
significant accounts. The assessment encompasses collateral held (including re-confirmation of its enforceability) and the
anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are not individually
significant; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience
and experienced judgment.
Maximum exposure
2017 2016
Loans to individuals
7,978,133 7,462,201
Loans to corporate entities:
16,059,098 17,811,449
Total loans and advances to customers 24,037,231 25,273,650
Financial assets available for sale 15,333,682 21,447,552
Financial assets held to maturity - -
Credit risk exposures relating to off-balance sheet items are as follows:
Letters of Guarantees 329,461 370,609
Letters of Credit 21,242 -
Loans Commitment 4,794,011 7,931,132
At 31 December 76,282,153 83,014,716
The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2017 and 2016, without
taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures
set out above are based on net carrying amounts as reported in the balance sheet.
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TIRANA BANK ANNUAL REPORT 2017
Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting
from both its loan and advances portfolio and debt securities based on the following:
• 73,64 %of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2016: 62,33%);
• Loans to SMEs, which represents the biggest group in the portfolio, are backed by collateral;
• 51,98% of the loans and advances portfolio are considered to be neither past due nor impaired (2016: 43,65%); and
• The Bank has introduced a more stringent selection process upon granting loans and advances.
Further information of the impairment allowance for loans and advances to banks and to customers is provided in Notes 12
and 13.
31 December 2017
31 December 2016
Loans and advances in the Sub-standard and Doubtful grades were considered not to be impaired after taking into
consideration the recoverability from collateral for retail customer mortgage and consumer loans.
62
Loans and advances past due but not impaired
Gross amount of loans and advances that are past due but not impaired:
Loans and advances to customers
63
TIRANA BANK ANNUAL REPORT 2017
31 December 2016
Individually impaired loans 1,134 189,193 10,551,949 10,742,276
Fair value of collateral 1,134 111,608 9,933,870 10,046,612
Detajimi i shumës bruto të huave dhe paradhënieve të zhvlerësuara në mënyrë kolektive sipas kategorisë së bashku me
vlerën e drejtë të kolateralëve përkatës të regjistruar si siguri për bankën janë si në vijim:
31 December 2016
Collectively impaired loans 341,088 708,778 152,712 1,202,578
Fair value of collateral 185,866 675,207 91,871 952,944
The disclosed fair value of collateral is determined by local certified valuators and represents value realisable by the legal
owners of the assets. Management considers the loans covered by collateral on corporate loans as impaired because
experience shows that a significant proportion of the collateral on corporate loans cannot be enforced due to administrative
and legal difficulties such as such as decrease of collateral value at auctions administered by bailiff office, time necessary
for collaterals to be enforced. The impairment provisions reflect the probability that management will not be able to enforce
its rights and repossess collateral on defaulted loans.
Despite difficulties in enforcing repossession of collateral, the Bank’s management will vigorously pursue the outstanding
debts with all possible means at their disposal.
There are no individually impaired loans and advances to banks as at 31 December 2017 and 2016.
64
3.1.7 CASH AND BALANCES WITH CENTRAL BANK
As at 31 December 2017 and 2016 the amounts due from Central Bank and
corresponding banks were neither past due nor impaired.
Held to maturity and fair value through profit and loss are made up of T-bills and
bonds. The issuer of such investment securities is the Albanian Government. Standard
& Poor’s Ratings Services assigned its ‘BB/B’ foreign currency and ‘BB+/B’ local
currency sovereign credit ratings to Albania. As at 31 December 2017 and 2016 these
investments were neither past due nor impaired.
Industry sectors
The analysis of the Bank’s main credit exposure on loans and advances to customers
by industry is presented in Note 13.
Market risk is the risk that changes in market prices, such as interest rate, equity
prices, foreign exchange rates and credit spreads (not relating to changes in the
obligor’s / issuer’s credit standing) will affect the Bank’s income or the value of its
holdings of financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while
optimising the return on risk.
The Market Risk issues are followed up in regular basis by “Asset & Liabilities
Management Committee” (ALCO).
The Bank is exposed to currency risk through transactions in foreign currencies. The
Bank ensures that the net exposure is kept to an acceptable level by buying or selling
foreign currency at spot when necessary to address short-term imbalances.
The Management sets limits on the level of exposure by currencies, which are
monitored daily.
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TIRANA BANK ANNUAL REPORT 2017
Liabilities
Due to banks 135,922 - 15,954 1,100,405 1,252,282
Due to customers 25,956,351 2,539,180 528,443 31,933,173 60,957,146
Total financial liabilities 26,092,273 2,539,180 544,397 33,033,578 62,209,428
Net on-balance sheet currency
18,375,160 211,867 (443,756) 10,629,881
position (7,513,390)
Off-balance sheet items 4,704,308 116,848 479,840 271,545 5,572,540
Sensitivity if exchange rates in-
(8,098) (49) 999 (7,148)
crease by 5%
Sensitivity if exchange rates de-
8,098 49 (999) 7,148
crease by 5%
The Bank manages its foreign currency exposure taking into consideration that its share capital and share premium is
denominated in EUR.
The sensitivity presented in the table above calculates the increase/decrease of pre-tax profit if at the reporting date,
Lek exchange rate had increased/decreased by 5% against the respective foreign currencies with all other variables held
constant.
Other
EUR USD LEK Total
At 31 December 2016 currencies
Assets
Cash and balances with the Central
Bank 3,303,747 430,288 19,579 3,374,392 7,128,006
Due from banks 21,211,939 877,447 118,924 200,000 22,408,310
Loans and advances to customers 14,160,930 1,853,344 21,157 9,238,218 25,273,650
Investment securities available for sale 8,611,330 195,211 - 12,641,010 21,447,552
Financial assets held to maturity - - - - -
Total financial assets 47,287,946 3,356,290 159,660 25,453,620 76,257,518
Liabilities
Due to banks 1,363,068 - 23,955 899,140 2,286,163
Due to customers 26,961,802 2,609,159 586,866 33,427,573 63,585,400
Total financial liabilities 28,324,870 2,609,159 610,821 34,326,713 65,871,563
Net on-balance sheet currency
position 18,963,076 747,131 (451,161) (8,873,093) 10,385,955
Off-balance sheet items 7,952,830 58,497 - 740,248 8,751,575
Sensitivity if exchange rates in-
crease by 5% 12,856 1,227 670 14,753
Sensitivity if exchange rates de-
crease by 5% (12,856) (1,227) (670) (14,753)
66
3.2.2 INTEREST RATE RISK
The Bank’s operations are subject to the risk of interest rate percentage compared to assets interest rates. However the
fluctuations to the extent that interest-earning assets (including actual effect will depend on various factors, including stability of
investments) and interest-bearing liabilities mature or re-price the economy, environment and level of the inflation.
at different times or in differing amounts. In the case of floating The Bank attempts to mitigate this interest rate risk by monitoring
rate assets and liabilities, the Bank is also exposed to basis the reprising dates of its assets and liabilities and setting product
risk, which is the difference in re-pricing characteristics of the reprising terms in order to manage gain / loss from changes in
various floating rate indices, such as the savings rate, LIBOR and market base rates. In addition, the Bank has contractual rights to
different types of interest. revise the interest rates on the major part of its loan portfolio on
Risk management activities are aimed at optimising net interest a quarterly basis.
income, given market interest rate levels consistent with the The following table presents the interest rate reprising dates for
Bank’s business strategies. the Bank’s assets and liabilities. Variable-rate assets and liabilities
Asset-liability risk management activities are conducted in the have been reported according to their next rate change date.
context of the Bank’s sensitivity to interest rate changes. Fixed-rate assets and liabilities have been reported according to
In decreasing interest rate environments, margins earned will their scheduled principal repayment dates:
narrow as liabilities interest rates will decrease with a lower
ASSETS
Cash and balances with the Central
5,222,274 - - - 1,692,454 6,914,728
Bank
Due from banks 26,544,252 - - - - 26,544,252
Loans and advances to customers 5,039,065 4,123,027 14,779,866 95,273 - 24,037,231
Investment Securities Available for
401,898 4,173,070 3,028,658 7,739,472 - 15,343,098
Sale
Financial assets held to maturity - - - - - -
Total financial assets 37,207,489 8,296,097 17,808,524 7,834,745 1,692,454 72,839,309
Liabilities
Due to banks 1,252,282 - - - - 1,252,282
Due to customers 27,559,640 6,534,067 23,074,425 3,695,710 93,304 60,957,146
Total financial liabilities 28,811,922 6,534,067 23,074,425 3,695,710 93,304 62,209,428
ASSETS
Cash and balances with the Central
Bank 5,583,463 - - - 1,544,543 7,128,006
Due from banks 22,408,310 - - - - 22,408,310
Loans and advances to customers 6,405,384 5,857,480 12,733,731 277,055 - 25,273,650
Investment Securities Available for
Sale 23,283 8,535,336 5,322,420 7,566,513 - 21,447,552
Financial assets held to maturity - - - - - -
Total financial assets 34,420,440 14,392,816 18,056,151 7,843,568 1,544,543 76,257,518
Liabilities
Due to banks 2,286,163 - - - - 2,286,163
Due to customers 25,653,076 7,448,555 26,789,302 3,589,111 105,356 63,585,400
Total financial liabilities 27,939,239 7,448,555 26,789,302 3,589,111 105,356 65,871,563
- 67
Interest sensitivity gap 6,481,201 6,944,261 (8,733,152) 4,254,457 1,439,187 10,385,955
TIRANA BANK ANNUAL REPORT 2017
Due to specifics of Albanian market, a large amount of customer deposits has a maturity of less than one month. However,
the potential negative effect of adverse evolution in interest rates is significantly reduced due to low interest rates set by the
Bank on customer demand deposits.
The interest rate sensitivity analysis has been determined based on the exposure to interest rate risk at the reporting date.
At 31 December 2017, if interest rates had been 100 basis points higher/lower with all other variables were held constant,
the Bank’s pre-tax profit for the twelve month period ended 31 December 2017 would respectively increase/decrease by
approximately LEK 90,305 thousand (2016: LEK 89,468 thousand).
Other
At 31 December 2017 EUR USD currencies LEK Total
Total interest bearing financial assets 43,683,400 2,590,698 82,427 24,780,664 71,137,189
Total interest bearing financial liabilities 26,022,893 2,536,819 544,348 33,012,063 62,116,123
Interest sensitivity gap 17,660,507 53,879 (461,921) (8,231,399) 9,021,066
Sensitivity if interest rates increase by 100 bp 176,605 539 (4,619) (82,314) 90,211
Sensitivity if interest rates decrease by 100 bp (176,605) (539) 4,619 82,314 (90,211)
Other
At 31 December 2016 EUR USD currencies LEK Total
Total interest bearing financial assets 46,546,507 3,155,150 140,081 24,871,237 74,712,975
Total interest bearing financial liabilities 28,245,196 2,606,417 610,820 34,303,775 65,766,208
Interest sensitivity gap 18,301,311 548,732 (470,739) (9,432,537) 8,946,767
Sensitivity if interest rates increase by 100 bp 183,013 5,487 (4,707) (94,325) 89,468
Sensitivity if interest rates decrease by 100 bp (183,013) (5,487) 4,707 94,325 (89,468)
Liquidity risk is the risk that the Bank is unable to meet its as indicators of when the contingency plan should be put
payment obligations associated with its financial liabilities into operation. This contingency plan is mainly based on
when they fall due and to replace funds when they are additional financing to be received from the Parent upon
withdrawn. The consequence may be the failure to meet request.
obligations to repay depositors and fulfil commitments to In addition, Tirana Bank calculates and monitors the
lend. Liquidity ratios, “Liquid Assets/ Total Liabilities” and “Net
A Liquidity Risk Management Policy has been applied Current Assets/Total Liabilities”, as they are defined in
in all Bank units since the end of 2003. This policy is the Bank of Albania Directive, which refers to the control
adjusted to internationally applied practices and regulatory framework of banks’ liquidity adequacy, by the Bank of
environments and adapted to the specific activities of Albania (note 2.1.b).
Piraeus Bank. The levels of these particular ratios are daily communicated
The policy specifies the principal liquidity risk assessment to the responsible business units, and comments, as well
definitions and methods, defines the roles and as respective assessments, are included in the reporting
responsibilities of the units and staff involved and sets out package to the members of ALCO.
the guidelines for liquidity crisis management. The policy is The ALCO has the responsibility: to design the bank’s
focused on the liquidity needs expected to emerge, in one strategy on the assets and liabilities development,
week or one month, on the basis of hypothetical liquidity depending on the qualitative and quantitative data of the
crisis scenarios. organization and development of the business environment;
Furthermore, the Policy defines a contingency funding plan to ensure high competitiveness and effectiveness of the
to be used in the case of a liquidity crisis. Such a crisis can organization, maintaining assumed risk within the set
take place either due to a Tirana Bank specific event or a limits; to manage the assets and liabilities by applying a
general market event. Triggers and warning signals serve pricing policy on products and services at the same time.
68
3.3.1 LIQUIDITY RISK MANAGEMENT PROCESS
The table below analyses assets and liabilities into relevant the bank are honoured in full and on time and in addition,
time periods based on the remaining period at reporting all contractual payments are discharged in full – e.g. that
date to the contractual maturity date. Assets and liabilities depositors will withdraw their money rather than roll it over
in foreign currency are converted into LEK using EX rates on maturity. Those assets and liabilities lacking actual
as at the year end. maturities (e.g. open accounts, sight deposits, or savings
The assumptions made are that scheduled payments to accounts) are assigned to the time band less than one
month.
Liabilities liquidity
Due to banks 1,252,282 - - - - 1,252,282
Due to customers 27,640,865 6,488,424 22,961,144 3,532,965 333,748 60,957,146
Total financial liabilities 28,893,147 6,488,424 22,961,144 3,532,965 333,748 62,209,428
Net liquidity gap 7,226,103 (811,303) (13,034,284) 14,227,242 3,012,707 10,620,465
All Bank’s customer current accounts are included in liabilities maturing less than one month. Current accounts do represent
balances that have an history and a deviation in amounts withdrawn by the Bank in the Money Market (with a maturity
which is measured by the Bank and is far less than the shown of 3 months if used). It has also negotiated a credit limit of
negative gap on tenors less than one month. Any issue arising EUR 10 million that can be used for commercial lending
from liquidity mismatch is managed through inter-bank with a maturity of up to 12 months, which can increase to 3
activity (borrowing, lending) within the pre-approved credit years if EUR 6 million out of the total EUR 10 million is used
lines. for mortgage lending.
The Bank has a credit line with Piraeus Bank S.A which The following table includes figures of comparative period:
includes an amount of EUR 175 million that can be
Liabilities liquidity
Due to banks 2,286,163 - - - - 2,286,163
Due to customers 25,758,431 7,448,555 26,789,302 3,589,112 - 63,585,400
Total financial liabilities 28,044,594 7,448,555 26,789,302 3,589,112 - 65,871,563
Net liquidity gap 6,339,173 3,718,995 (16,938,548) 9,976,312 7,290,023 10,385,955
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TIRANA BANK ANNUAL REPORT 2017
At 31 December 2016
Loan commitments 7,586,107 3,132 287,714 10,366 43,813 7,931,132
Letters of Guarantees 16,536 46,529 307,544 - - 370,609
Letters of Credit - - - - - -
Total 7,602,643 49,661 595,258 10,366 43,813 8,301,741
Letters of credit and guarantees given to customers The Tirana Bank branch network includes 39 (2016: 39)
commit the Bank to make payments on behalf of customers rented buildings which are rented under operating leases.
contingent upon the failure of the customer to perform The Bank’s policy is to enter into long term contracts,
under the terms of the contract. which vary from 10 years to 20 years. The contracts are
Commitments to extend credit represent contractual renewed following a negotiation between both parties in
commitments to make loans and revolving credits. order to agree new terms of the contract.
Commitments generally have fixed expiration dates, or
other termination clauses.
Financial liabilities
60,957,146 63,585,400 60,992,112 63,664,489
Due to customers
2,286,163 2,286,163 2,286,163 2,286,163
Due to banks
70
Financial assets held to maturity Financial instruments measured at fair value
The fair value of held to maturity investments is determined Fair value measurements are analysed by level in the fair
by using quoted prices for similar instruments as the value hierarchy as follows:
discounting rate of future cash flows at the reporting date. (i) Level 1 are measurements at quoted prices (unadjusted)
in active markets for identical assets or liabilities;
Due to other banks and customers, other deposits (ii) Level 2 measurements are valuations techniques with all
and other borrowings. material inputs observable for the asset or liability, either
The estimated fair value of deposits with no stated directly (that is, as prices) or indirectly (that is, derived from
maturity, which includes non-interest-bearing deposits, is prices); and
the amount repayable on demand. (iii) Level 3 measurements are valuations not based on
The estimated fair value of fixed interest-bearing deposits observable market data (that is, unobservable inputs).
and other borrowings not quoted in an active market is Management applies judgement in categorising financial
based on discounted cash flows using interest rates for instruments using the fair value hierarchy. If a fair value
new debts with similar remaining maturity. The carrying measurement uses observable inputs that require
value differs from the fair value because the carrying significant adjustment, that measurement is a Level 3
interest rates are higher than the market interest rate as measurement. The significance of a valuation input is
at 31 December 2017, because at year end the banks are assessed against the fair value measurement in its entirety.
granting higher interest rates in the competition to attract Recurring fair value measurements are those that the
deposits. accounting standards require or permit in the statement
Due to banks mainly refers to loans taken from the parent of financial position at the end of each reporting period.
with a maturity of one month from the date of the balances Fair values analysed by level in the fair value hierarchy and
sheet and therefore their fair value is consider to be carrying value of assets not measured at fair value are as
approximate to the carrying value. follows:
31 December 2017
FINANCIAL ASSETS
Loans and advances to banks - 26,544,252 - 26,544,252
Loans and advances to customers - - 23,200,582 23,200,582
Investments securities held to maturity - - - -
Investment securities available for sale - 15,333,682 - 15,333,682
FINANCIAL LIAIBILITIES
Customer accounts - - 60,992,112 60,992,112
Due to banks - - 1,252,282 1,252,282
31 December 2016
FINANCIAL ASSETS
Loans and advances to banks - 22,408,310 - 22,408,310
Loans and advances to customers - - 24,979,927 24,979,927
Investments securities held to maturity - - - -
Investment securities available for sale 5,828,976 15,618,576 - 21,447,552
FINANCIAL LIAIBILITIES
Customer accounts - - 63,664,489 63,664,489
Due to banks - - 2,286,163 2,286,163
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TIRANA BANK ANNUAL REPORT 2017
The Bank’s objectives when managing capital, which is a The Bank’s regulatory capital as managed by its Risk
broader concept than the ‘equity’ on the face of balance Department is divided into two tiers:
sheets, are: • Tier 1 capital: share capital (net of any book values of the
• to comply with the capital requirements set by the Bank treasury shares), retained earnings and reserves created
of Albania; by appropriations of retained earnings ; and
• to safeguard the Bank’s ability to continue as a going • Tier 2 capital: qualifying subordinated loan capital,
concern so that it can continue to provide returns for collective impairment allowances and unrealised gains
shareholders and benefits for other stakeholders; and arising on the fair valuation of equity and debt instruments
• to maintain a strong capital base to support the held as available for sale.
development of its business. The risk-weighted assets are measured by means of a
Capital adequacy and the use of regulatory capital are hierarchy of four risk weights classified according to the
monitored daily by the Bank’s management, employing nature of − and reflecting an estimate of credit, market and
techniques based on the guidelines developed by the Basel other risks associated with − each asset and counterparty,
Committee and the European Community Directives, as taking into account any eligible collateral or guarantees.
implemented by Bank of Albania, for supervisory purposes. A similar treatment is adopted for off-balance sheet
The required information is filed with Bank of Albania on a exposure, with some adjustments to reflect the more
quarterly basis. contingent nature of the potential losses.
Bank of Albania requires generally each bank or banking The table below summarises the composition of regulatory
Group to: (a) hold the minimum level of the regulatory capital capital and the ratios of the Bank for the years ended 31
of 1 billion LEK and (b) maintain a ratio of total regulatory December 2017 and 2016. The Bank complied with all of
capital to the risk-weighted asset (the ‘Basel ratio’) at or the externally imposed capital requirements to which they
above the Bank of Albania required minimum of 12% (2016: are subject in 2017.
12%). Bank of Albania has requested specifically that
Tirana Bank maintains a minimum capital adequacy ratio
of 15%, amidst the uncertainties of the financial crisis in
Greece and its potential effect in Albania.
2017 2016
Tier 1 capital
Subordinated liability - -
Revaluation reserve - -
Total qualifying Tier 2 capital - -
The capital adequacy ratio is calculated based on the Bank of Albania’s financial
72
4.
Critical accounting estimates
and judgments
The Bank makes estimates and assumptions that affect the reported amounts
of assets and liabilities within the next financial year. Estimates and judgments
are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under
the circumstances.
The methodology and assumptions used for estimating both the amount and
timing of future cash flows are reviewed regularly to reduce any differences
between loss estimates and actual loss experience. To the extent that the net
present value of estimated cash flows differs by -/+5%, the provision would be
estimated LEK 206,343 thousand higher or LEK 205,507 thousand lower (2016:
338,000 thousand higher or LEK 338,000 thousand).
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TIRANA BANK ANNUAL REPORT 2017
74
5.
Adoption of New or Revised
Standards and Interpretations
(a) Standards and Interpretations effective in the current period
The following new amendments to the existing standards issued by the International
Accounting Standards Board (IASB) are effective for the current reporting period:
The adoption of these amendments to the existing standards and interpretations has not led
to any changes in the Company’s accounting policies.
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TIRANA BANK ANNUAL REPORT 2017
A financial asset is measured at amortized cost if it meets both of the following conditions and is not
designated as at FVTPL:
• it is held within a business model whose objective is to hold assets to collect contractual cash flows;
and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest (SPPI) on the principal amount outstanding.
A financial asset is measured at FVOCI only if it meets both of the following conditions and is not
designated as at FVTPL:
• it is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling financial assets; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
All financial assets not classified as measured at amortized cost or FVOCI as described above are
measured at FVTPL. In addition, on initial recognition the Bank may irrevocably designate a financial asset
that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing
so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
A financial asset is classified into one of these categories on initial recognition.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of IFRS
9 are not separated. Instead, the hybrid financial instrument as a whole is assessed for classification.
According to IFRS 9 (4.1.2A), a financial asset shall be measured at fair value through other
comprehensive income if both of the following conditions are met:
• the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Tirana Bank does not maintain securities portfolio for trading purposes therefore, with the objective of
actively buying/selling depending on the assets’ fair value.
The Bank’s business model is to originate loans and to collect their contractual cash flows. Any sales of
financial assets within this business model are carried out due to the loans’ credit deterioration and in order
to reduce NPE’s and NPL’s and does not in any case reflect the initial purpose of the lending activity.
76
IAS 39 IFRS 9
Impact on total
Portfolio Measurement Business model Measurement
equity
No impact on initial
Loans and advances to customers Amortized cost Hold to collect Amortized cost mapping but subject
to SPPI test
No impact on initial
AFS (bonds and t- bills) FVTOCI Hold to collect & sell FVTOCI mapping but subject
to SPPI test
Assessment whether contractual cash flows are solely All of the Banks retail loans contain prepayment features.
payments of principal and interest A prepayment feature is consistent with the SPPI criterion
For the purposes of this assessment, ‘principal’ is defined if the prepayment amount substantially represents unpaid
as the fair value of the financial asset on initial recognition. amounts of principal and interest on the principal amount
‘Interest’ is defined as consideration for the time value of outstanding, which may include reasonable compensation
money, for the credit risk associated with the principal for early termination of the contract.
amount outstanding during a particular period of time and
for other basic lending risks and costs (e.g. liquidity risk Impact assessment
and administrative costs), as well as a profit margin. The Bank has estimated that, the adoption of IFRS 9 at
In assessing whether the contractual cash flows are 1 January 2018, will not bring changes to its current
solely payments of principal and interest, the Bank will measurement of the financial assets under IAS 39. The
consider the contractual terms of the instrument. This will classification of its financial assets held as at 1 January
include assessing whether the financial asset contains a 2018 will change as follows.
contractual term that could change the timing or amount • Loans and advances to banks and to customers that
of contractual cash flows such that it would not meet this are classified as loans and receivables and measured at
condition. In making the assessment, the Bank considers: amortized cost under IAS 39 will be measured at amortized
cost under IFRS 9.
• contingent events that would change the amount and • Debt investment securities that are classified as available-
timing of cash flows; for-sales under IAS 39 will be measured at FVTOCI, under
• leverage features; IFRS 9, as these assets meet the SPPI conditions and the
• prepayment and extension terms; Bank’s current business model is to hold these assets for
• terms that limit the Bank’s claim to cash flows from the purpose of collecting contractual cash flows as well as
specified assets – e.g. non-recourse asset arrangements; sell them.
and
Impairment – Financial assets, loan commitments and
• features that modify consideration for the time value of
financial guarantee contracts
money – e.g. periodic reset of interest rates.
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a
forward-looking ‘expected credit loss’ (‘ECL’) model. This
Interest rates on retail loans made by the Bank are based
will require considerable judgment over how changes in
on standard fixed rates that are set at the discretion of the
economic factors affect ECLs, which are determined on a
Bank. In these cases, the Bank assess whether the SFR
probability-weighted basis.
set are in line with market rates and provide the Bank with
sufficient returns to cover for the:
In addition to loans and receivables, the new impairment
• time value of money,
model applies also to the following financial instruments
• credit risk associated with the principal amount
that are not measured at FVTPL:
outstanding during a particular period of time, and
• financial assets that are debt instruments; and
• other basic lending risks and costs, as well as a profit
• loan commitments and financial guarantee contracts
margin.
issued (previously, impairment was measured under IAS 37
Provisions, Contingent Liabilities and Contingent Assets).
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TIRANA BANK ANNUAL REPORT 2017
IFRS 9 requires a loss allowance to be recognized at an The impairment requirements of IFRS 9 are complex
amount equal to either 12-month ECLs or lifetime ECLs and require management judgments, estimates and
depending on the assessment of the risk of default. Lifetime assumptions, particularly in the following areas, which are
ECLs are the ECLs that result from all possible default discussed in detail below:
events over the expected life of a financial instrument, • assessing whether the credit risk of an instrument has
whereas 12-month ECLs are the portion of ECLs that result increased significantly since initial recognition; and
from default events that are possible within the 12 months • incorporating forward-looking information into the
after the reporting date. measurement of ECLs.
78
• undrawn loan commitments: the present value of the difference between the contractual cash flows
that are due to the Bank if the commitment is drawn down and the cash flows that the Bank expects to
receive; and
• financial guarantee contracts: the present value of the expected payments to reimburse the holder less any
amounts that the Bank expects to recover.
Financial assets that are credit-impaired are defined by IFRS 9 in a similar way to financial assets that are
impaired under IAS 39.
Definition of default
Under IFRS 9, the Bank will consider a financial asset to be in default when:
• the borrower is unlikely to pay its credit obligations to the Bank in full, without recourse by the Bank to actions
such as realizing security (if any is held); or
• the borrower is more than 90 days past due on any material credit obligation to the Bank.
This definition is largely consistent with the definition used for regulatory purposes for loans classified as
substandard, doubtful or lost.
The identification of the below characteristics results to default.
a) Days past due (DPD). Exposures more than 90 days past due at the reporting date (using the pulling effect
of 20% - at debtor level).
b) Unlikeliness to Pay (UTP)
c) Credit impaired asset as defined in IFRS 9 requirements
d) Forborne Non Performing Exposures (FNPEs)
e) Forborne Performing Exposures (FPEs) during the probation period (24 months after cure period) for which
either additional forbearance measures are extended or they have more than 90 days past due
Inputs into the assessment of whether a financial instrument is in default and their significance may vary over
time to reflect changes in circumstances.
The quantitative element is calculated based on the change in lifetime PDs by comparing:
• the remaining lifetime PD as at the reporting date; with
• the remaining lifetime PD that was estimated based on facts and circumstances at the time of initial
recognition of the exposure
The bank defines criteria for the relative quantitative increases in PD that are indicative of a significant
increase in credit risk.
The Bank has set three kind of indicators, a) primary, b) secondary and c) backstop to demonstrate the
priority of indicators used to assess whether significant increase in credit risk has occurred. Despite their
priority, all criteria have the same weight in the assessment process for significant increase in credit risk.
79
TIRANA BANK ANNUAL REPORT 2017
80
most exposures, key macro- economic indicators are likely to include GDP growth,
interest rates and unemployment. The Bank’s approach to incorporating forward-
looking information into this assessment is discussed below.
LGD is the magnitude of the likely loss if there is a default. The Bank will estimate
LGD parameters based on the history of recovery rates of claims against defaulted
counterparties. The LGD models will consider the structure, collateral, seniority of the
claim and recovery costs of any collateral that is integral to the financial asset. For loans
secured by retail property, loan-to-value (LTV) ratios are likely to be a key parameter in
determining LGD.
EAD represents the expected exposure in the event of a default. The Bank will derive
the EAD from the current exposure to the counterparty and potential changes to the
current amount allowed under the contract, including amortization, and prepayments.
The EAD of a financial asset will be the gross carrying amount at default. For lending
commitments and financial guarantees, the EAD will consider the amount drawn, as
well as potential future amounts that may be drawn or repaid under the contract, which
will be estimated based on historical observations and forward-looking forecasts.
The Bank will measure ECLs considering the risk of default over the maximum
contractual period (including any borrower’s extension options) over which it is exposed
to credit risk, even if, for risk management purposes, the Bank considers a longer
period. The maximum contractual period extends to the date at which the Bank has the
right to require repayment of an advance or terminate a loan commitment or guarantee.
For retail overdrafts and credit card facilities and certain corporate revolving facilities
that include both a loan and an undrawn commitment component, the Bank may
measure ECLs over a period longer than the maximum contractual period if the Bank’s
contractual ability to demand repayment and cancel the undrawn commitment does
not limit the Bank’s exposure to credit losses to the contractual notice period. These
facilities do not have a fixed term or repayment structure and are managed on a
collective basis. The Bank can cancel them with immediate effect but this contractual
right is not enforced in the normal day-to-day management, but only when the Bank
becomes aware of an increase in credit risk at the facility level. This period will be
however estimated taking into account the credit risk management actions that the
Bank expects to take and that serve to mitigate ECLs. These include a reduction in
limits and cancellation of the facility.
The groupings will be subject to regular review to ensure that exposures within a
particular group remain appropriately homogeneous.
For investments in debt securities in respect of which the Bank has limited historical
data, external benchmark information published by recognised external credit rating
agencies such as Moody’s will be used to supplement the internally available data.
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TIRANA BANK ANNUAL REPORT 2017
82
• Amendments to IAS 28 “Investments in Associates and
Joint Ventures” - Long-term Interests in Associates and
Joint Ventures (effective for annual periods beginning on or
after 1 January 2019),
83
TIRANA BANK ANNUAL REPORT 2017
6. Interest income
2017 2016
Interest income from accounts with banks 36,087 14,941
Interest income from financial assets available for sale 577,564 654,250
Interest on loans and advances to customers - -
Interesa mbi huatë dhe paradhënie klientëve 1,270,736 1,546,596
Total 1,884,387 2,215,787
7. Interest expense
2017 2016
Interest on due to banks 14,053 9,514
Interest on due to customers 184,801 355,222
Total 198,854 364,736
84
9. Personnel expenses
2017 2016
Wages & salaries 545,658 452,665
Contributions to state pension funds 68,218 62,794
Other staff costs 18,660 19,378
Total 632,536 534,837
2017 2016
Current tax
Current tax expense - -
Deferred tax
Relating to origination and reversal of temporary differences
(9,493) 3,393
Income tax benefit/(expense) reported in profit or loss
(9,493) 3,393
85
TIRANA BANK ANNUAL REPORT 2017
Reconciliation between the tax expense and the accounting profit multiplied by Albania’s domestic tax rate for the years
ended 31 December 2017 and 2016 is as follows:
2017 2016
Deferred tax
Repossessed collaterals revaluation (4,783) 17,838
Other deferred tax items (4,710) (14,445)
Deferred tax income charged in profit and loss (9,493) 3,393
Available for sale securities 17,697 (17,424)
Deferred tax expense charged in other
comprehensive income 17,697 (17,424)
The Bank has unrecognised potential deferred tax assets in respect of unused tax loss carry forwards of Lek 211,303
thousand (2016: Lek 448,357 thousand). The tax loss carry forwards expire as follows:
2017 2016
Tax loss carry-forwards expiring by the end of:
- 31 December 2016 - -
- 31 December 2017 - -
- 31 December 2018 44,018 209,988
Total tax loss carry forwards 44,018 209,988
The effective income tax rate for 2017 is nil (2016: nil). According to Albanian Tax legislation the Tax authorities have right to
examine tax returns for the 5 years following submission of the return.
2017 2016
86
The deferred tax included in the balance sheet and changes recorded in the income tax expense are as follows:
2017 2016
Financial Financial
Deferred tax Deferred tax Income assets Deferred tax Deferred tax Income assets
available for available for
sale sale
Assets Liabilities Statement Reserve Assets Liabilities Statement Reserve
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TIRANA BANK ANNUAL REPORT 2017
2017 2016
Cash in hand
Notes and coins in LEK 730,107 582,595
Notes and coins in foreign currency 962,348 961,948
Total 1,692,455 1,544,543
Compulsory reserves with Central Bank are not for everyday use by Tirana Bank and represent a minimum reserve deposit,
required by the Central Bank of Albania. Such reserves are calculated as a percentage of 10% of the average amount of
deposits for the month owed to banks and customers, and are both in LEK and in foreign currency (USD and EUR).
Cash and balances with Central Bank, excluding cash in hand, is included in the analysis of the maximum exposure to credit
risk (Note 3.1.4).
88
Loans and advances to banks
Current accounts
Placements
Placements– Resident - 200,000
Placements – non resident 17,301,830 8,487,353
Accrued Interest 7,988 4,673
Total placements 17,309,818 8,692,026
The interest rates on compulsory reserves during 2017 and 2016 fluctuated as follows:
2017
Currency Minimum Maximum Method of calculation
LEK 0,875% 0,875% 70% of the yield on REPO with Central Bank
USD 0% 0% -
EUR -0,40% -0,40% -
2016
Currency Minimum Maximum Method of calculation
LEK 0,875% 1,1225% 70% of the yield on REPO with Central Bank
USD 0% 0% -
EUR -0,40% -0,40% -
Current accounts with the Central Bank are non-interest bearing. The interest rates for nostros and sight accounts are
floating. Nostro and sight accounts are detailed in the following table.
S&P
LT/ST 2017 2016
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TIRANA BANK ANNUAL REPORT 2017
S&P
31 December 2017 LT/ST Currency Original Currency In Lek ‘000
Total 17,309,818
S&P Në monedhë
31 December 2016 LT/ST Monedha origjinale Në Lekë ‘000
Total 8,692,026
90
13. Loans and advances to customers
The table below shows the industry analysis of gross loans
2017 2016
(without taking into consideration the “Loan commissions
deferred” and “Accrued interest”) granted to corporate and
Corporate lending 2,143,580 2,015,884
SMEs clients.
SME lending 16,769,334 20,337,725
Total corporate and SME 2017 2016
lending 18,912,914 22,353,609
2016
LEK 12 months TRIBOR 3.0%
+ (1.5 - 8)%
USD 12 months LIBOR 3.0%
+ (2.5 – 7.0)%
EUR 12 months EURIBOR 3.0%
+ (2.5 - 9)%
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TIRANA BANK ANNUAL REPORT 2017
The movement in allowances (impairment) for losses on loans and advances to customers is as follows:
2017 2016
3,334,554 5,398,062
The movement in allowances for losses by classes of loans during 2017 is as follows:
The movement in allowances for losses by classes of loans during 2016 is as follows:
92
14. Financial assets available for sale
2017 2016
Shitje (195,211)
At 31 December - 195,211
The shares in Visa Inc. held by the Bank are granted by Visa as a form of reward for the long-standing cooperation with the Bank.
The shares are granted on the basis of the performance against revenue and marketing expenditure targets. No impairment is
recognised on financial assets available for sale at December 31, 2017 (2016: Nil).
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TIRANA BANK ANNUAL REPORT 2017
Movement in investment properties for the years ended December 31, 2017 and 2016
is presented as follows:
31 December 2017 31 December 2016
Balance at beginning of year 109,864 2,314,308
Acquisitions through legal process for
- 1,145,123
settlement of loans to customers
Disposals - (407,699)
Gain/(loss) on property revaluation 7,600 (194,886)
Transfers to repossessed collaterals
- (2,746,982)
inventory at cost
Balance at the end of the year 117,464 109,864
The fair value of the Bank’s investment property as at 31 December 2017 and 31
December 2016 has been arrived at on the basis of a valuation carried out on the
respective dates by several independent appraisers, including the bailiff offices, not
related to the Bank. All appraisers are registered and certified in accordance with the
Albanian Laws. They have appropriate qualifications and recent experience in the
valuation of properties in the relevant locations. The fair value was determined based
on the market comparable approach that reflects recent transaction prices for similar
properties.
There has been no change to the valuation technique during the year. In estimating
the fair value of the properties, the highest and best use of the properties is their
current use. There were no investment properties classified as Level 1 or Level 3, nor
transfers between levels 1, 2 and 3 during the year.
94
Details of the Group’s investment properties and information about the fair value
hierarchy as at 31 December 2017 and 2016 are as follows:
Cost: Software
Additions 66,605
Additions 29,631
Amortization:
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TIRANA BANK ANNUAL REPORT 2017
Furniture and
Land and electronic Leasehold
buildings Vehicles equipment improvement Total
Cost:
Depreciation:
96
18. Other
assets 19. Due
to banks
31 December 31 December
31 31
Current accounts 2017 2016
Other financial assets December December
Residents 202,459 65,050
2017 2016
Non residents 502 295
Other Debtors 173,386 285,895
202,961 65,345
Claims Visa Card - -
Borrowings
Other Receivables from Customers 72,177 64,276
Total other financial assets 245,563 350,171 Residents 1,033,097 2,196,853
Non residents 15,952 23,950
1,049,049 2,220,803
Advance Payments 629 792
Accrued interest 272 15
Inventory 28,319 32,316
Total 1,252,282 2,286,163
Prepaid Expenses 166,856 73,848
Other Assets 415,908 628,767
Total other assets 857,275 1,085,894
Corporate customers
6,904,410 6,837,790
Retail customers
53,842,161 56,493,734
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TIRANA BANK ANNUAL REPORT 2017
22. Provisions
2017 2016
Balance include provision for legal
At 1 January 441,978 383,392 cases related to liabilities raised by
Reversals (156,112) (9,712) tax authorities amounting of Lek 250
million (2016: Lek 337 million) and legal
Charge of the year 26,825 68,298
cases with third parties amounting of
Other (170) - Lek 63 million (2016: Lek 104 million)
Reclasification (68,297) -
98
23. Paid-in capital
and share premium
Revaluation differences - -
The table below shows the shareholders structure of the Bank as 31 December 2017 and 2016.
On 31 December 2017 and 2016, the authorised and issued share capital of the Bank was comprised of 501,975 shares with
the nominal value of EUR 216.24 all fully paid.
The statutory reserve has been established according to article no. 39 of the
bank’s statute, which requires establishing of reserves by taking 5% of the bank’s
net income after deducting the losses of the previous years. This procedure it’s
not obligatory if the reserves exceed 1/10th of the bank’s share capital.
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TIRANA BANK ANNUAL REPORT 2017
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31 December 2017 31 December 2016
Tirana Leasing
(subsidiary of Piraeus Bank SA)
Loans given - -
Due to Tirana Leasing (433,351) (450,504)
Total (433,351) (450,504)
2017 2016
Tirana Leasing
Interest income - -
- -
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TIRANA BANK ANNUAL REPORT 2017
Loans and
2017 Available for sale Held to maturity Total
receivables
Loans and
Available for sale Held to maturity Total
2016 receivables
As of 31 December 2017 and 2016, the available for sale securities are measured at fair value with the changes in fair value
taken to the statement of comprehensive income for the period. Loans and receivables are measured at amortised cost.
As of 31 December 2017 and 31 December 2016 all of the Bank’s financial liabilities were carried at amortised cost.
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29. Commitments
and contingencies
Contingencies and commitments include guarantees extended to customers and received from Piraeus Bank. The balances
as at December 31, 2017 and 2016 are composed of the following:
Granted
Received
LITIGATION
Litigation is a common occurrence in the banking industry due to the nature of the business undertaken.
The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the
amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may
have on its financial standing.
LEASE COMMITMENTS
The Bank leases office premises in Tirana, Tiranë, Durrës, Korçë, Vlorë, Lezhë, Elbasan, Gjirokastër, Fushë Krujë, Shkodër,
Lushnjë, Pogradec, Berat, Sarandë, Fier etc. These leases are cancellable with three months’ notice.
Lease commitments are classified as follows:
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TIRANA BANK ANNUAL REPORT 2017
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INTERNAL OPERATIONAL RISK PROCUREMENT COMMITTEE
COMMITTEE
1. Head of Risk Department
1. CEO as Chairman 2. Business Development Advisor
2. Chief Operations Officer 3. Head of Legal Department
3. Chief Retail Officer 4. Head of Financial Control Department
4. Risk Department Manager 5. Supporting Services Manager
5. Internal Audit Manager
6. Compliance Department Manager FRAUD RISK MANAGEMENT
7. Business Development Advisor COMMITTEE
(with non-voting rights)
1. CEO as Chairman
SPONSORSHIP COMMITTEE 2. Risk Department Manager – Vice Chairman
3. Compliance Department Manager
1. CEO as Chairman – Permanent Member
2. Chief Financial Officer 4. Human Resources Department Manager
3. Chief Operations Officer – Permanent Member
4. Chief Retail Officer 5. Head of Operational & Market Risk Unit
5. Marketing & PR Department Manager – Secretary of the Committee
6. Business Development Advisor with non-voting rights Invited members:
- Internal Audit
IT STEERRING COMMITTEE - COO
- Legal
- Head of Information Security Unit
1. CEO as Chairman
- Head of the respective Unit
2. International Banking, PB Group
3. Group Information Systems
– Core Banking, PB Group ESMS STEERING COMMITTEE
4. Group IT Operations, PB Group
5. International Organosis, PB Group 1. Country ESMS Officer as Chairman
6. Chief Financial Officer 2. Chief Operations Officer
7. Chief Operations Officer 3. Chief Business Officer
8. Risk Manager 4. Credit Division Head
9. Information and Organization Manager 5. Recovery Division Head
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TIRANA BANK ANNUAL REPORT 2017
AUDIT COMMITTEE
The Audit Committee assists the Board of Directors in exercising its internal control
duties.
The members of the Audit Committee are appointed by General Meeting of
shareholders. The main competencies of the Audit Committee, as well as its mode
of operation are regulated by the provisions of Law no 9662/18.12.2006 “On banks in
Republic of Albania”.
The Board Risk Management Committee is appointed by the BOD of the Bank and
consists of members with adequate knowledge and experience in the risk management
field. The Committee consist of an odd number of members (at least three members)
with voting rights and the Executive Secretary with no voting right. The head of the
Risk Management Department is appointed as Executive Secretary of the Board Risk
Management Committee, who is responsible for collecting material and information
that is useful or necessary for the work of the Committee. He also prepares the issues
to be discussed in the Committee.
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