Annual Report

2017

www.tiranabank.al
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Annual Report
2017
TABLE OF CONTENTS

1. CHIEF EXECUTIVE OFFICER STATEMENT 4

2. PIREUS BANK GROUP 5
3. CORPORATION GOVERNANCE 6
4. ECONOMIC OUTLOOK 7
5. TIRANA BANK MAIN INDICATORS 9
A. RETAIL BANKING ACTIVITY

B. SME BANKING

C. CORPORATE BANKING DIVISION

D. TREASURY DIVISION

E. IT AND ORGANIZATION

F. RISK MANAGEMENT

G. COMPLIANCE DEPARTMENT

H. FUNDS TRANSFER

6. CORPORATE SOCIAL RESPONSIBILITY 26

A. SOCIAL ACTIVITIES

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

E. STATEMENTS OF CHANGES IN EQUITY

F. CASH FLOW STATEMENT

G. NOTES TO THE FINANCIAL STATEMENTS

9. TIRANA BANK COMMITTEES 102

 TIRANA BANK ANNUAL REPORT 2017

1 CHIEF EXECUTIVE OFFICER

STATEMENT
Tirana Bank has shown a steady commitment for performance, by also maintaining adequate
service level to our valued clients.

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.

Dritan Mustafa - Chief Executive Officer

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2 PIRAEUS BANK GROUP
CORPORATE PROFILE, WHO WE ARE
Piraeus Bank Group, with its legal seat in Athens
and employer to 13.300 employees, provides a wide
range of financial products and services for roughly
5.2 million clients. On 31 December 2017, the group’s
total assets was as high as 61.6 bn €, with net loans
standing at 41.6 bn € and client deposits at 40.9 bn €.
OUR COURSE
Piraeus Bank was founded in 1916. Since then, it has
rapidly grown in size and activities, representing today the
leading Bank in Greece with 30% market share in terms of
loans and deposits.
Along with its organic growth, Piraeus Bank has undertaken
a series of strategic actions, aiming at establishing a strong
presence in the domestic market.
Thus, in 1998, the Bank acquired the activities of Chase
Manhattan in Greece, took over Macedonia-Thrace
Bank interests, and acquired the specialized bank Credit
Lyonnais Hellas At the beginning of 1999, the Bank acquired
Xiosbank and the activities of National Westminster Bank
Plc in Greece. In June 2000, Piraeus Bank absorbed its
two commercial banks in Greece (Macedonia-Thrace Bank
and Xiosbank). In 2002, Piraeus Bank acquired the Hellenic
Industrial Development Bank (ETBA bank), which was
absorbed in December 2003.
In 2012, Piraeus Bank acquired the carve-out part of the
Agricultural Bank (selected assets and liabilities) and
Geniki Bank, a former subsidiary of Societe Generale. In
March 2013, Piraeus Bank acquired the Greek banking
operations of the Bank of Cyprus, Cyprus Popular Bank
and Hellenic Bank. In June 2013, Piraeus Bank acquired
Millennium Bank Greece, a BCP subsidiary. In April 2015,
Piraeus Bank acquired the carve-out part of Panellinia Bank
healthy assets. These transactions comprise important
steps towards the restructuring of the Greek banking
system, in which Piraeus Bank has participated from the
very beginning as a core pillar.
2017 was a critical juncture for Piraeus Bank. From the
financial point of view, this was the year which signaled the
stabilization of the Bank’s financial performance. Liquidity
Piraeus Bank Group December 2017
Assets 61.6 bn €
Net loans 41.6 bn €
Deposits 40.9 bn €
Branch 620
Employees 13.3 m
Clients 5.2 mio
and assets quality improved considerably at a quick pace,
as evidenced in all financial reports. At the institutional
level, the year was characterized by changes in the Board
of Directors, including the appointment of members with
international financial expertise and strengthening the
corporate governance, in compliance with international
best practices and regulatory frameworks. At the same
time, Piraeus Bank has reinvigorated its top management,
by empowering its executive management team. 2017
concluded with the appointment of our new CEO, Mr.
Christos Megalou, on April 2017. Bank’s institutional ring-
fencing enables further operational strengthening and
continuity, to our shareholders, customers and employees’
benefit.
We have now acquired the necessary know-how,
experience, and decisiveness to address present challenges
and to ensure that the well-positioning of the Bank, in
order to meet the operational and corporate governance
requirements, which derive from the best international
practices, as well as from ECB’s recommendations.
At the end of October 2017, Piraeus Bank issued a 5-year
covered bond, amounting to€500mn. The decision on
such issue was confidentially made in cooperation with
the European Investment Bank, the European Investment
Fund and the European Bank for Reconstruction and
Development. It is Piraeus Bank’s first covered bond
issue, which was based on a joint decision- making with
the investors.
At the end of December 2017, the Group’s total equity
amounted to € 9.5 bn, while the regulatory CET-1 capital to
€ 7.5 bn. On 1 January 2018, the SNRF9 Common Equity
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.

Dritan Mustafa - Chairman Chief Executive Officer BOARD OF DIRECTORS

Konstantinos Tsigaras Chief Financial Officer
Eralda Tafaj Gurga Chief Operations
OfficerManjola Capo Head of Credit Division
Elona Gjipali Head of Recovery
& REO-s Division
Eranda Shehu Chief Retail Officer
Grigorios Michailidis Chief Business Officer
Constantinos Loizides Chairman
Bedri Çollaku V/Chairman
Dritan Mustafa Member
Agkop Mardikian Member
Christos Bougiouklis Member

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4
WORLD ECONOMY
ECONOMIC OUTLOOK
In 2017 the world economy has been recovering, by
growing with approximately 3.7% compared to 3.2%
in 2016. According to IMF data, the global recovery is
contributing to a reassessment of monetary policies in a
number of countries, during which major Central Banks
including the USA Federal Reserve System, the European
Central Bank and the UK Bank signaled the end of an ultra
easy monetary policy. Nevertheless, the monetary policy
remained accommodative. Inflation, caused mainly by oil
and raw materials price increase, was on the upswing in
almost every country, by totally extinguishing the fear to
deflation, which had been persistently present in 2015-
2016.
The largest economy in the world, the American economy
grew 2.3 percent in 2017, acceleration from the 1.5 percent
logged in 2016. Economic growth is sustainable, as the
consumer’s trust has achieved its highest level since 2000,
the unemployment rate has reached its lowest level over
the last 17 years and new job positions have been created
each month for over seven years. The Federal Reserve
System (American Central Bank) raised the base interest
rate by threefold in 2017 from 0.75% to 1.5%.
ALBANIAN ECONOMY
The Albanian economy has experienced a growth from
3.36% in 2016 to 3.84% in 2017. Its growth rate has been
assessed at higher levels in the first half of the year, driven
mainly by the construction sector and mostly impacted
by direct foreign investment. Meanwhile, the economic
growth slackened off in the second half of the year, due
to investments downswing and the external trade negative
contribution. The economic growth in the second half of the
year relied mainly on the private consumption expansion.
Inflation has averagely amounted to 2.0% in 2017 compared
to 1.3% in 2016, thus remaining under the Central Bank’s
objective. The monetary policy pursued by the Central
Bank has been rather accommodative during the year,
The changes of the USA fiscal policy in 2018 are expected
to stimulate the activity mostly driven by the investments
response to corporate tax reduction. The USA DGP growth
is estimated to further increase by 2.7%. Additionally, the
growth strengthened further and the consumers› sentiment
considerably improved.
The Eurozone witnessed an economic upswing from 1.8%
in 2016 to 2.4% in 2017. Contrariwise, the UK economy
slackened off to 1.7% in 2017 from 1.9% in 2016.
The Eurozone and UK GDP growth is expected to slacken
off at a rate of respectively 2.2% and 1.5% in 2018.
China’s economy has challenged expectations of a marked
slowdown in 2017, by growing from 6.7% in 2016 to 6.8%
in 2017, due to the increase of its goods global demand,
sustainable state expenses on infrastructure and high
corporate profits.
The global growth is expected to be as high as 3.9% in
2018. Investments increase, global markets recovery, and
the high employment rate are contributing to the world-
scale recovery.
thus playing an important role in maintaining the economic
upswing trend and generating the internal pressure on
inflation.
Moody›s and S & P have affirmed in 2017 Albania›s
sovereign debt assessment rating at B1 and B + / B with
a stable outlook. The stable outlook of such assessments
mirrors the fiscal consolidation efforts of the country.
The real GDP is expected to follow an upswing trend in 2018,
based on a positive forecasting of the internal demand,
increase of European interest for Albanian commodities
and services, as well as banking conditions improvement.
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 TIRANA BANK ANNUAL REPORT 2017

BANKING SECTOR

Positive developments in
economy and banking sector have
contributed to the financial stability.
The banking sector indicators of
solvency indicators, liquidity,
reserves for specific risks have not
exceeded the regulatory level.
The non-performing loans to total
bank credits ratio dropped to 13.2%
in December, thus reflecting the
economic activity growth, the effects
of measures aiming at the further
reduction of this ratio, and
companies and bank’s continuous
efforts in cleaning and restructuring
their balances.
real The private sector credit portfolio higher yield, such as Albanian state
marked an average growth by 5.0% securities. Deposit performance in
in the first quarter, thus excluding the terms of structure indicates a shift
exchange rate effect. The main cause from deposits with less than two years
and leading to growth was the credit maturity to deposits with more than a
extension in LCY. two years maturity period. Meanwhile,
foreign currency deposits reflect a
Interest rates for deposits and LCY structural change by shifting towards
loans are at their historical minimum, demand deposits, due to low interest
in compliance with the Central Bank’s rates.
accommodative monetary policy.
Deposits increased by a total of 4.1%
in 2017, encouraged by the increase of
the foreign currency deposits.
A shift has been noted in the local
currency from bank deposits
towards alternative tools providing a

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5 TIRANA BANK
MAIN INDICATORS
Amount (thousand ALL)

Tirana Bank December 2017

Assets 77.843.781
Net credits 24.037.231
Deposits 60.957.146
EBA CT1 ratio 21.25 %
Branch 39
Employees 439

Clients

Credit/deposits ratio 45.05 %

Costs/revenues ratio 86.80 %

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 TIRANA BANK ANNUAL REPORT 2017

12
A. RETAIL BANKING ACTIVITY
Bank retail and other operations are performed by the
bank through the branches network and the digital service
channels (Winbank platform).
Retail customers are provided with a wide range of
products in deposits, credits, Albanian State investment
securities and payment-related banking services.
Due attention has been paid to the further development
of digital banking services, and our clients’ daily routine
improvement, so that to provide them with easy and
transparent 24/7 access to their bank accounts via our
Winbank platform, ATM network and POS.
2017 Retail Strategy aimed at increasing the number of
transactional clients, focusing mainly at increasing the
lending activity, deposits stability, and credits portfolio
management/maintenance.
In order to successfully implement the relevant strategy and
budgets, several significant changes have been made to
the retail business model related to the relevant structure,
standards and processes.
Branches network structure has been merged with the
retail division under the Retail Head responsibility.
The merging enabled the establishment of a solid structure,
harmoniously combining the experience and knowledge
on competition and market, so that the retail client be
responsibly and proactively provided with our support.
Retail Division Restructuring
Retail division has been restructured pursuant to the
segmentation philosophy, thus enabling the retail clients
base, focusing not only on retail customers, but also on
small enterprises.
Establishing and implementing a dedicated sale force
for the retail segment through fundamental changes to
the branch structure.
The Retail Customers Relations Officer position has been
recently established in the branch structure, dedicated
to the lending activity, thus materializing its activity
fundamental change focusing on sales rather than in
services.
Establishing/setting up the lending support unit (retail
middle office)
This unit makes a direct contribution to the identification
and improvement of issues on the lending process, as
well as sale force improvement, regarding the professional
capacitation in the lending process through continuous
support and monitoring, and group or tailored training
provision.
Setting individual performance targets and index at
branch and regional level
The branches officially materialized individual performance
indicators and targets, in the framework of their relevant
budgets.
Reviewing the lending policy for retail customers
Last revised in 2012, its update represents a quality and
relevant step, thus aligning credit terms and criteria with
market and competition developments. Additionally,
the review of this policy better serves to the client base
requirements and supports the retail strategy for 2017.
The policy allows for the first time in history the financing
of the freelancer activity, falling under the retail structure,
and introduces positive changes regarding the financing
limit increase, clients’ age, credit deadline, employment
stability, wide range of other collaterals.
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RETAIL CUSTOMER DEPOSITS
Retail customer deposits balances have decreased during
2017, in line with the retail strategy, maintaining though a
high liquidity level above the liquidity ratio required by the
Bank of Albania.
The sharpest decrease in time deposits was noted in local
currency (ALL), which brought about the investment of
quite a considerable part of such balances in alternative
tools, providing higher interest rates, especially in Albanian
State Securities with a two years maturity period. Although
an upward trend has been noted in the treasury interest
rates in the primary market in 2017, this increase has not
been reflected by our bank’s interest rates.
2016
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TIRANA BANK ANNUAL REPORT 2017
The decrease of foreign currency deposits has been lower,
since the market has already been unified with the set
interest rates, while the provided opportunities to invest in
alternative tools are rather limited.
However during 2017, several offers and action plans have
been promoted, aiming at local currency stability/increase
towards foreign currency deposits.
Provision of lower interest rates by the Bank for time
deposits has refrained clients from investing in such
products. This has led to a change of the deposit portfolio
structure, in which a shift from the time deposits products
to current and savings accounts has been noted.
2017
RETAIL CUSTOMERS LENDING
2017 has been quite a dynamic year with regards to the
retail customers lending, during which the annual target
was met with new disbursements up to 106%. Based
mainly in our clients base requirements and expectations,
as well as on the banking sector positive developments,
all the features and retail customers credit products terms
have been revised and improved.
In line with the Central Bank guidelines on encouraging
lending in local currency, the sale force has played an
essential advisory and guiding role for the clients seeking
to be financed in the Euro currency. During 2017, only 18%
of disbursements in mortgage loans were in Euro currency.
This phenomenon has influenced the yearly change of
credit portfolio structure, in which the ALL balances are
reaching up to 50% of this portfolio.
2016
The promotion of consumer and mortgage loans have
been at our focus for 2017,therefore we have actively
participated in three promotional campaign, of which
two were dedicated to mortgage loans and the other to
consumer loans.
Despite achieving great results on the disbursement
volume, we invested as well in the diligent management of
the current portfolio, aiming at maintaining the performing
balances and returning bad credits into performing loans.
Performing portfolio balances have increased by 11%
compared to the last year whereas bad credit balances
were considerably reduced- more than 40% of the foreseen
budget for 2017- thus marking a historical decrease of non-
performing loans by 11.8%.
2017
The main objectives for the retail customer lending
are:
• Increase of the retail customer performing portfolio;
• Continuous monitoring and management the non-
performing loans, by working hard towards its recovery;
• Deeper penetration in our current client base, of both
payroll and standard clients;
• Provision and development of new opportunities to
attract new clients.
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 TIRANA BANK ANNUAL REPORT 2017

winbank ATMs

In line with market developments, our bank continues to
commit itself to innovation, aiming at further improving the
banking electronic platform (Winbank). During 2017, other
services were added to the platform such as:
-Utility payments (OSSHE, UKT) and all fixed and mobile
operators
- Dues and taxes payment (VAT, tax deducted at source,
social insurances)
- Launch of digital time deposit «E-deposit»
- Credit application/ Credit Card
The electronic platform Winbank provides online access to
banking services, and account check 24 hours 7 days a
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%.
Tirana Bank has 70 ATMs (38 in its branches 33 in other
premises). The ATM network has obtained a certification
with regards to the capacity to read “EMV Chip” for VISA
cards, offering card holders the highest levels of transaction
security. In addition to money withdrawal, our customers
can change their PIN codes and receive a mini-statement
of their account.
The main goal for 2017 was to increase the quality and the
availability of our entire ATM network in order to increase
customer service. We believe we have achieved our goal,
maintaining a high availability standard at 95% in all our
ATMs throughout the year.

POS CALL CENTER

Our POS network is present in more than 30 cities, offering
this service to more than 30 different business categories
such as hotels, tourist agencies, shops, restaurants, gas
stations, supermarkets and the largest shopping malls in
the country. Our POS network offers to VISA’s cardholders
(debit and credit) the possibility to make purchases at POS
and make cash advance withdrawals in our branches.
During 2017, the bank’s focus was to improve the POS
service and increase the volume of payments on these
terminals.
Call Center provides continuous services and assistance
to clients through incoming calls 24 hours a day, seven
days a week, and 365 days a year (24/7/2018). The activity
of Call Center focuses mainly in two directions: client
service through incoming calls, by providing information on
bank services and products as per any client’s needs, and
monitoring card transactions. When deemed necessary
the card holder is contacted and the authentication of
actions is confirmed, thus helping in fraud prevention.

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
level for small and medium enterprises, as a tool to revitalize
the small and medium enterprise, and to consequently
optimize bank’s revenues deriving from this client base. For
this purpose, the bank has been focusing on bank-client
relations, undertaking a number of initiatives in the frame
of promoting its image as a bank favoring enterprises and
entrepreneurs, which praises those willing and daring to
make business. Total new disbursements for 2017 reached
EUR 10.00 million, versus EUR 5.00 million in 2016, while
the number of clients for the SME Department increased
by 25%.
The close client-bank relation aids the bank in easily keeping
track of and identifying the companies encountering
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.
C. CORPORATE BANKING DIVISION
Tirana Bank has been and continues to be a trusted
principal bank for corporate customers providing
customized, effective solutions to each problem by virtue
of its comprehensive service approach and understanding
of its customers.
2017 has been a year of continuance of reactivation and
reassessment of our corporate clients for Business Lines.
On the other hand, Corporate has given a great importance
to the enlargement of Corporate customers’ pool by
supporting financially new corporate customers. On the
other hand, Corporate Banking System has paid due
importance to the enlargement of Corporate clients base,
by financially supporting new corporate customers. Our
focus was, not only to increase credit portfolio, but as well
to diversify our investments on different market sectors
economy. Supported by experienced staff and the spirit
of teamwork, the Banking Service achieved a great deal of
our ambitious targets of the bank in this sector.
A dedicated attention has been paid to the non-performing
loan portfolio, regarding both the meeting of extra
needs for the financing of current clients, and the credit
terms renegotiations in accordance with the monetary
policies of the bank of Albania and the domestic banking
sector competition. This has been achieved regardless
of an aggressive and competitive market environment,
characterized by continuous pressures. Our readiness to
lend mirrors our understanding of the long-term business
partnership, representing a joint interest to both parties.
Our aim remains supporting those businesses stimulating
the use of internal sources and the creation of new job
positions, thus contributing to the imports development
and reduction in the country.
The proven combination of corporate customer advisors
and product specialists enables Tirana Bank to act as a
reliable and trustworthy partner to its customers. Total
new disbursements for 2017 reached EUR 15.3 million,
being in line with the bank’s strategy and budgeted figures
for corporate clients, while the number of clients for the
Corporate Division increased by 28%. The bank extended
its customer base with new corporate clients, who are
leading companies in their respective sectors.
In addition to competitive and attractive financing terms,
our aim is to provide full support to our customers in all
segments and business cycles, by continually improving
service quality and our products and services offer with
new benefits, operating under the demanding conditions in
the market. Through our long-term successful cooperation
with local and international financial institutions, in 2017
we made available more attractive funding terms to our
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
control and manage the liquidity surplus and to ensure
that all bank business lines have access to the liquidity
they may need for their business activity. In this way, this
division ensures that the bank remains financially secure,
stable and capable of functioning efficiently. Among
other functions we can mention: maximizing profits at a
predetermined level, and safeguarding from the risk arising
from interest rate movements and foreign exchange rates.
2017 was marked by a very low level of interest rates,
based on the Central Bank’s accommodative monetary
policy. The Treasury Division has actively participated in
the management of deposit balances, ensuring funds
stability and low cost levels.
As the main contributor to ALCO and the main pricing
center for bank activities, we continuously monitor and
analyze the world’s largest economies, macroeconomic
trends, and Bank of Albania monetary policies and indexes,
as well as assess their potential impacts in our domestic
economy, particularly in the banking sector.
The activities of Treasury Division focus on providing
financial and investment products tailored to customer
requirements, as well as consultancy services related
to the products being offered. Mediation in securities
markets has been performed on an ongoing basis, adding
value to bank activities and further enhancing customer
relations with the bank. Treasury activities continued to
provide significant benefits to the bank and on December
31, 2017, treasury transactions accounted for 66% of total
bank assets.
Treasury and Financial Markets Division is an important
player in the foreign exchange market and financial
markets as a result of its trading and sales activity. Foreign
exchange operations have continued to be beneficial to the
bank, reflecting swearing and careful sales.
All treasury actions have been performed in compliance
with the bank’s policies and with regulatory requirements.
Our financial results in 2017 were consistent with the
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.

IT SYSTEMS DEVELOPMENT AND UPGRADE

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.

18
MIGRATION TO CHIP & CONTACTLESS VISA DEBIT CARD
In 2017, the Bank upgraded its Debit Card Management
and related systems in order to emboss new VISA
Debit Cards. The new cards will be equipped with chip
and contactless features. These two new features will
significantly increase the transactions security and enable
very quick transactions for small amounts.
In order to comply with regulatory requirements, system’s
upgrades and changes have been implemented in the
banking systems.
As per the new regulatory instructions, the bank needs to
provide for several developments and changes in Money
Laundry systems, Credit Register and Deposit assurance
system. Also to comply with the requirements of the
Albanian Deposit Insurance Agency and to improve the
OPERATION & TECHNOLOGICAL
INFRASTRUCTURES
In line with the goal to constantly improve the availability and
the efficiency of the Bank’s Technological Infrastructures
on the one hand, and effectively and safely manage their
operations on the other, a series of interventions have been
made, the most important of which are as follows:
Upgrade of Wintel Core Systems infrastructure and
improvement of DR site and solution
The main scope of this project has been the upgrade of
the Bank’s Core Wintel Systems in Primary and Disaster
sites as per: 1. Processing power, 2. Storage volumes
and speed, 3. Synchronization solution and recovery time
minimizing
operations with documents, the bank has implemented a
document management system. This system will ensure
the fulfillment of the regulatory request, and will be
instrumental to the bank in facilitating the organization of
documentary information in an electronic format.
Banking systems upgrades to facilitate Bank Business
needs
Following the business needs and technological changes,
the Bank performed several upgrades in 2017 such as:
“Payroll Application Upgrade and Centralization”, “In-
House Application Platform Upgrade”, “Retail Loan
Origination System Upgrade”, “HR Systems Upgrade”, etc.
ORGANIZATIONAL INTERVENTIONS
& CENTRAL SUPPORT
During the last year, the Organization has paid a special
attention to the improvement of basic procedures related
to operational systems of the Bank. The detection and
correction of malfunctions and problems in the Ban
system during the previous years have been particularly
emphasized.
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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.

The mission of the Risk Management Department is to:

“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;

• Monitoring of KRIs, specific per each type of risk.

Risk Management Department consists of the following risk lines/units:

• Credit risk management unit;

• Market, liquidity and operational risk unit;

• Capital management unit;

• Information security unit.

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.

20
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
the ex-ante risk management, since it is engaged
in risk management activities that take place prior
to risk taking (credit scoring, new product risk
assessment).
• The third line of defense is responsible both
for the ex-ante monitoring (e.g. participation in
evaluation of products) as well as the ex-post
control and monitoring of risks.
• The fourth line of defense is responsible
for the independent review of the overall risk
management framework of the Bank. The fourth
line checks the adequacy and effectiveness of
risk management and control mechanisms in the
first three lines of defense.
• Tactics level – Includes the risk management
functions that are executed at a high level of
authority both by individuals, as well as specialized
committees.
• Operations level – Includes the risk management
functions that are executed in various units of the
Bank.
During year 2017, Tirana Bank has paid a
particular attention to the risks the banking
system is exposed to. In this regard, it has further
strengthened the organizational structure and
the control functions, aiming at enhancing its risk
management practices, without damaging its
business operations. The main focus continued
to be the improvement of the assets quality,
especially non-performing portfolio recoverability.

21
 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.

December 2017 Limit December 2016

Loans/Deposits 45% NA 49%

Net Loans/Deposits 33% NA 32%

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%

23
 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.

December 2017 Limit December 2016

Net FX Open position/Regulatory Capital 5,6% 20% (regulatory limit) 3,5%

Exposure to IRR in the Banking Book/

7,5% 20% (regulatory limit) 5,7%
Regulatory Capital

12,000 EUR (internal

Balance Sheet IRR Exposure (PV01) 4.400 EUR 8.590 EUR
limit)

2,000 KEUR (internal

Earning at Risk 1.694 KEUR 1.578 KEUR
limit)

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.

December 2017 Limit December 2016

Capital Adequacy Ratio 21,25% 15% (regulatory limit) 17,89%

Regulatory capital (in Mio €) 61,8 57,8

RWA (in Mio €) 291 323

Of which:

Credit Risk 229 222

Market Risk 0 1,9

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.
25
 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.

G. REGULATORY COMPLIANCE DEPARTMENT

Compliance Department role is to respect all banking and financial regulations:

legal and regulatory provisions, professional and ethical standards, Group
procedures as well as protect client s’ interests and Piraeus Group’s reputation.
The role of Tirana Bank Compliance Department is to define and implement
rules to prevent non-compliance risk, including the risks associated with money
laundering and the financing of terrorism, violation of embargoes, conflicts of
interest and the personal data protection of customers and employees. All these
initiatives help reduce reputational risk.
The Compliance Department ensures as well that effective systems are in place
to achieve compliance. To this end, the compliance function:
• advises operating staff by providing its opinion on transactions when such
advice is requested;
• is part of the product marketing process, from design up to the distribution, and
issues compliance notices;
• together with Legal and Human Resources ensures that conflicts of interest are
identified in accordance with the Group policy on the conflict of interest as well
as the local legal framework;
• ensures that employees are trained in compliance issues;
• ensures that customer protection is effective at every stage regarding
the relations between the bank and its customers, from the provision of pre-
contractual information, provision of advice, and during the duration and
termination of the contract.
In order to achieve compliance within Tirana Bank, the Compliance function uses
the following tools and resources:
• the inclusion of compliance standards in bank’s procedures;
• periodic reporting on risk and compliance activities, enabling implementation of
compliance systems within the Group;
• AML software tools, which include customers profiling and account monitoring
tools to detect unusual or suspicious transactions and tools to monitor
international fund transfers for the enforcement of asset freezes and embargoes;

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

Children of Down Syndrome Albania Foundation have

staged on the occasion of this holiday a short theater play
“A short delay”, based on the eponymous popular movie.
This day coincides with the third anniversary of “Achievement
and Development Center at the Down Syndrome Albania
Foundation”. Tirana Bank has delightfully provided its
support to the Foundation for the organization of this
beautiful party.

Blood donation

Since 2009, Tirana Bank staff has established the blood

donation practice, considering its vital importance for the
lives of hundreds of people. Similar to previous years,
the activity was organized not only in the premises of the
Bank›s Headquarters, but also in all the Bank’s branches.
This year, the blood donation activity was dedicated to the
two thalassemic children of Troka family in Ada, Fier.
Through continuous communication, Tirana Bank aimed to
raise the awareness by inviting family members, customers
and partners to participate in this humanitarian act.
This initiative, which has turned into a tradition in Tirana
Bank, shows the humane face of the business, thus turning
into an example for other institutions, aiming at encouraging
all society to act alike.

Albania ploughs the land-Eat local food

Tirana Commerce and Industry Chamber, in cooperation

with the Ministry of Agriculture and Rural Development
organized on 29 November 2017, in Tirana, at Mother
Theresa Square the initiative “Albania ploughs the land-
Eat local food” for the agricultural sector promotion. Tirana
Bank was pleased to provide its support for this significant
activity.
The activity aimed at presenting and promoting the
agricultural sector development and local production.
500 exhibitors participated in the fair, from the following
main sectors: entrepreneurs in agriculture, agro-industry,
winery, alcohol, agrotourism, grocery, animal husbandry,
homemade products (traditional), bank, agricultural funds
etc.

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 TIRANA BANK ANNUAL REPORT 2017

Tirana Bank celebrates with the oncology and

haemophilia ward children

Tirana Bank put a smile on the face of many children

receiving treatment in the oncology ward at the Pediatrics
Hospital in Tirana.
The warm party atmosphere marked by the presence
of children’s dearest characters like Mickey Mouse,
Spiderman, Winnie-the-pooh and Princess Aurora made
the halls of this ward brimming with life.
Bank’s staff managed to organize the party and buy
presents on the year-end-holiday occasion thanks to a
year-long fund raising, by transferring personal donations
to a joint bank account.
Presents purchase for hospitalized 1-14 years old children
receiving treatment in this ward was made possible thanks
to this initiative. Children enjoyed their time by celebrating
and singing and choosing their own presents, reminding
us once again that such tiny and humane gestures may
add joy to the lives of those in need.
Tirana Bank staff has never refrained itself from giving
a helping hand to those in need, therefore the motto of
this initiative was: We can’t change fate, but we can make
people happy by changing their day. Tirana Bank cares!

Tirana Bank donates the New Year Tree

Donating to groups in need has always been quite

meaningful, especially in this special period of the year.
Tirana Bank staff organized one of the most beautiful
year-end-projects: “Our spruce!”
This initiative beautified and revitalized the lives of many
people, who unfortunately could not celebrate in their
own homes.
Tirana Bank donated the New Year tree and other
decorations, while its staff prepared the presents with
lots of love.
Tirana Bank cares!

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.

Path towards success

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.

31

C. CULTURE
Summer day in Përmet
Convivium Slow Food Përmet and Municipality of Përmeti
organized for the second consecutive year Përmet Summer
Day. The 14th of March was a real celebration, which drove
many visitors and tourists to reveal the area’s values and
the traditions, transmitted from generation to generation.
Tirana Bank was pleased to support this holiday festivities,
thus aiding to the display of Përmet traditional dishes to a
wider public.
Celebrating Greece National Day
On March 24, the Greek Embassy in Tirana organized a
reception at Plaza Hotel to celebrate its196th independence
anniversary from the Ottoman Empire.
Tirana Bank was the general sponsor of this important
activity. Members of diplomatic bodies accredited in
Tirana, politicians, members of parliament, heads of
constitutional and independent institutions, entrepreneurs
etc., were present in this reception.
In the opening speech, the Greek Ambassador in Tirana,
Eleni Sourani, stated the significance of this day for Greece,
and its influence on other Balkan countries.
Mrs. Sourani also expressed her highest estimations on
the two peoples› friendship.
32
TIRANA BANK ANNUAL REPORT 2017
Teacher’s Day in Lezha
On March 7, we pay tribute to all teachers for their great
contribution in educating future generations.
Lezha Regional Education Directorate organized with the
support of Tirana Bank the festivities of March 7, in the
premises of the Palace of Culture of the city, marked by the
presence of all teachers and students of the region.
Tirana Bank celebrates “Lake Day” and the opening
of summer tourism season in Pogradec
The opening of the summer tourism season is among the
most all-inclusive events of the Municipality of Pogradec,
which has turned into a festivity intertwining culture,
tourism, culinary, local business and many other sectors.
The simultaneous opening of the summer tourism year on
this day brought the cities of Ohrid, Struga and Pogradec
closer to each other. Tirana Bank, was among the
supporters of this project, which invited the tourists to visit
the historical and cultural assets of this beautiful city.
Two-day cultural activities in tribute to the Greek
composer Mikis Theodorakis
Tirana Bank has provided its assistance to the Orthodox
Autocephalous Church of Albania in organizing a two-day
cultural activity on 17-18 November 2017 in Tirana in tribute
to the distinguished Greek composer, Mikis Theodorakis.
Other project activities included:
• «Dear poets by Mikis», organized in the Orthodox Church
Cathedral in Tirana.
• Concert by «The Popular Orchestra - Mikis Theodorakis»
in the Orthodox Church Cathedral cultural center.
In addition, an exhibition with Mikis’ personal items was
organized in one of the halls of the Cultural Center.
Tirana Bank supports the Badminton Federation
of Albania

During the 3-7 July period, the Badminton Federation

of Albania organized in Korça a training camp with the
Bulgarian, Macedonian, Greek and Albanian teams.
Viewing Albanian footballers’ great enthusiasm and the
quality physical training, Tirana Bank supported this
tournament for the second consecutive year, to enable the
training of the novice Albanian footballers and in making
this special sport more popular in our country.
In the end, the training camp organized a closing
tournament called “IDAs Friends”, marked by the presence
of the Balkans Federation President, Z. Kassabian. The
activity was a sports festival for the city of Korça, in which
many youth participated.

Song marathon (Maratona e Këngës)

Tirana Bank was the principal sponsor of the “Song

Marathon” festival, organized at the downtown of Shkodra
on 17 August, in cooperation with the Municipality of
Shkodra. This festival drove the Shkodra’s citizens out
of their homes to the city’s main square to watch closely
the greatest Albanian musicians both in the country and
abroad.
The same festival was held in the city of Përmet on 24.08.
2018, in the downtown, which was attended by many
citizens.

2018 Agenda designing, «Scanderbeg Year» project

On the occasion of November holidays and taking into
account the declaring of 2018 as the “Scanderbeg Year”, the
Minister of State for Diaspora, a newly established ministry,
asserted its involvement on the large scale governmental
project by designing posters, agendas, and calendars with
our national symbols. In order to support this important
project, Tirana Bank sponsored the designing of 1350
agendas.
In November, the ministry organized many activities and
the materials were disseminated to many distinguished
personalities, diplomatic bodies etc.

33
 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.

Below, you will find some highlights, regarding workforce:

Number of employees at the end of 2017: 439

Distribution by Gender Hierarchy

Distribution by Generation

Average age of the Bank’s employees is 38 years.

Average length of service 7.7 years.

34
RECRUITMENT

Our recruitment process aims at selecting

the most qualified and experienced staff with
high integrity, which is achieved through a set
of standard tools, which are job simulation
exercises, competency test and a structured
interview by an interview panel.

Although, our staffing needs during 2017

have been covered by new employees (55
new hires), our internal candidates, due
to their good performance and personal
developments, are our main potential
for covering our job vacancies. In this
regard, we promote our internal staff by
providing them with career development
opportunities, with the aim of rewarding
our staff.

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.

EMPLOYEES’ TRAINING & DEVELOPMENT

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

35
 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.

HUMAN RESOURCES COMMUNICATION

PHILOSOPHY

Tirana Bank recognizes the vital importance of internal communication, as it

promotes open, two-way communication between Management and employees.
It creates a sense of security, dignity and collaboration, reduces any possible
tensions, and achieves greater and more effective dissemination of knowledge
and information, which is deemed useful for developing new products and
services at all levels.

A SAFE WORK ENVIRONMENT

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

Tirana Bank offers to its employees (new or existing) a competitive remuneration

package, in order to attract highly motivated employees to its team and to retain
existing ones.

A remuneration policy is in place, as an integral part of the Bank’s corporate

governance, aimed at deterring from excessive risk-taking and at continually
strengthening the Bank’s values and long-term interests.
The remuneration policy is in accordance with the Bank’s business strategy and
supports its performance-driven culture, which aligns the organization’s goals
with those of the interested parties, employees, management and shareholders.
The remuneration-defining procedures are clear, recorded and with internal
transparency.

The Remuneration Policy is based on the following principles:

• Maximization of performance;

• Talent attraction and retention;

• Alignment of remuneration and rewards with profitability, risk, capital adequacy

and sustainable growth;

• Compliance with the regulatory framework;

• Internal transparency;

• Deterring from excessive risk-taking;

8 FINANCIAL STATEMENTS
- INDEPENDENT AUDITOR’S REPORT
TABLE OF CONTENT
AUDITOR’S REPORT
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 38
STATEMENT OF FINANCIAL POSITION 39
STATEMENT OF CHANGES IN EQUITY 40
STATEMENT OF CASH FLOWS 41
1. CORPORATE INFORMATION 42
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 43
3. FINANCIAL RISK MANAGEMENT 54
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS 72
5. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS 73
6. INTEREST INCOME 82
7. INTEREST EXPENSE 82
8. NET FEES AND COMMISSION INCOME 82
9. PERSONNEL EXPENSES 83
10. OTHER OPERATING EXPENSES 83
11. INCOME TAX EXPENSE 83
12.CASH AND BALANCES WITH THE BANK 86
13.LOANS AND ADVANCES TO CUSTOMERS 89
14. FINANCIAL ASSETS AVAILABLE FOR SALE 91
15. INVESTMENT PROPERTIES 92
16. INTANGIBLE ASSETS 93
17. PROPERTY AND EQUIPMENT 94
18. OTHER ASSETS 95
19. DUE TO BANKS 95
20. DUE TO CUSTOMERS 95
21. OTHER LIABILITIES 96
22. PROVISIONS 96
23. PAID-IN CAPITAL AND SHARE PREMIUM 97
24. OTHER RESERVES 97
25. DIVIDEND PER SHARE 98
26. CASH AND CASH EQUIVALENTS 98
27. RELATED PARTIES 98
28. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY 100
29. COMMITMENTS AND CONTINGENCIES 101
30. EVENTS AFTER THE REPORTING DATE 101
 TIRANA BANK ANNUAL REPORT 2017

Notes 2017 2016

Interest income 6 1,884,387 2,215,787
Interest expense 7 (198,854) (364,736)
Net interest income 1,685,533 1,851,051

Impairment of loans and advances 13 (130,578) (758,768)

Net interest income after provision for loan impairment 1,554,955 1,092,283

Fee and commission income 8 423,747 418,819

Fee and commission expense 8 (20,227) (16,651)
Net fee and commission income 403,520 402,168

Foreign exchange gains less (losses) (254,313) (159,437)

Other operating income 190,676 94,471

Personnel expenses 9 (632,536) (534,837)
Other operating expenses 10 (939,964) (942,290)
Unrealised gain/ (loss) on property revaluation (118,836) (194,886)

Other Provisions 60,991 (68,298)

Depreciation and amortisation (185,621) (212,972)

(1,879,603) (2,018,249)

Profit/(Loss) before income tax 78,872 (523,798)

Income tax credit/(expense) 11 (9,493) 3,393

Profit/(Loss) for the year 69,379 (520,405)

Other comprehensive income/(expense), net of tax:

Items that may be reclassified subsequently to profit or loss:

- Net fair value (loss)/gain on available-for-sale financial assets (117,979) 113,648

- Deferred tax related to fair value loss/gain recorded directly in
17,697 (17,424)
other comprehensive income
Other comprehensive income/(expense)for the year (100,282) 96,224

Total comprehensive income for the year (30,903) (424,181)

Notes 31 December 2017 31 December 2016

The accompanying notes on pages 11 to 80 form an integral part of these financial statements.

Dritan Mustafa Konstantinos Tsigaras Tedi Zëri

Chief Executive Officer Chief Financial Officer Financial Control Manager

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

TOTAL ASSETS 77,784,899 81,364,754

DETYRIME DHE KAPITALI

Due to banks 19 1,252,282 2,286,163
Due to customers 20 60,957,146 63,585,400
Other liabilities 21 758,515 515,875
Provisions 22 312,521 441,978
TOTAL LIABILITIES 63,280,464 66,829,416

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

Retained earnings/(Accumulated losses) (3,685,811) (3,755,190)

TOTAL EQUITY 14,504,435 14,535,338

TOTAL LIABILITIES AND EQUITY 77,784,899 81,364,754

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:

Dritan Mustafa Konstantinos Tsigaras Tedi Zëri

Chief Executive Officer Chief Financial Officer Financial Control Manager

41
 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

Loss for the year - - - (520,405) (520,405)

Change in retained earnings - - 95,923 - 95,923

At 31 December 2016 14,754,741 1,735,494 1,800,293 (3,755,190) 14,535,338

Profit for the year - - - 69,379 69,379

Change in retained earnings - - (100,282) - (100,282)

At 31 December 2017 14,754,741 1,735,494 1,700,011 (3,685,811) 14,504,435

The accompanying notes on pages 11 to 80 form an integral part of these financial statements.

Dritan Mustafa Konstantinos Tsigaras Tedi Zëri

Chief Executive Officer Chief Financial Officer Financial Control Manager

42
 Notes 2017 2016

CASH FLOW FROM OPERATING ACTIVITIES

Profit/(Loss) before tax 78,872 (523,798)

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

Other non-cash items (214,539) (1,165,568)

(1,386,165)

Increase in compulsory reserve with the Central Bank 361,227 536,951

Decrease/(increase) in loans and advances to customers 1,030,410 2,194,070

Decrease/(Increase) in other assets 160,322 (389,333)

(Decrease)/Increase in due to banks (1,033,881) 261,533

Decrease in due to customers 2,597,005) (328,416)

(Increase)/Decrease in Repossessed collaterals inventory (301,384) 407,699

(Decrease)/increase in other liabilities 242,640 159,183

Interest received 1,959,818 1,645,448

Interest paid (230,103) (197,903)

Income tax paid 25,096 -

Net cash generated from operating activities (1,769,025) 3,123,664

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property & equipment 17 57,307) (52,006)
Purchase of intangible assets 16 (29,631) (66,605)
Purchase of financial assets available for sale 14 (7,499,004) (8,572,805)
Proceeds from maturing available for sale financial assets 14 13,638,858 7,691,275
Net cash from/(used in) investing activities 6,052,916 (1,000,141)

CASH FLOW FROM FINANCING ACTIVITIES

Increase of share capital - -

Net cash (used in)/from financing activities - -

Net increase/(decrease) increase in cash and cash equivalents 4,283,891 2,123,523

Cash and cash equivalents at 1 January 23,953,064 21,829,541

Cash and cash equivalents at 31 December 26 28,236,955 23,953,064

The accompanying notes on pages 11 to 80 form an integral part of these financial statements.

Dritan Mustafa Konstantinos Tsigaras Tedi Zëri

Chief Executive Officer Chief Financial Officer Financial Control Manager

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.

2.2 BASIS OF PREPARATION

The financial statements have been prepared on a historical cost basis, except for available-for-sale financial investments
that have been measured at fair value. The financial statements are presented in Albanian Lek and all values are rounded to
the nearest thousand (LEK ‘000) except when otherwise indicated.

a) Position of the Group b) Position of the Bank

Piraeus Group branch network at 31st December 2017
totaled 753 units, of which 620 operated in Greece and 133
in 5 other countries. The branch network in Greece was
reduced by 40 units and abroad by 128 units during 2017
as a result of the rationalization plan. At the same time,
the Group’s headcount totaled 15.115 employees in the
continuing operations, of which 13.253 were employed in
Greece (2016: 18,075 and 14,492 respectively).
The Group’s international continuing operations on 31st
December 2017 accounted for 6% of its total; assets, 17.7
% of its branch network and 12.3% of its headcount.
2017 was a significant year for Piraeus Bank. From a
financial point of view, this was the year which showed
e stabile financial performance of the bank, especially
during the second half of the year, when market conditions
allowed it. The improvement in liquidity and asset quality
accelerated and that was visible across financial ratios.
On an institutional level, the year was characterized by the
completion of the changes in the Board of Directors, in
compliance with international best practices and regulatory
rules, which was sealed with the Group’s new CEO taking
office on April 2017. The institutional ring-fencing of the Bank
allows further strengthening and unceasing operational
continuity to the benefit of the shareholders, customers and
employees.
In the current environment the focus of the Bank has been
on liquidity and capital adequacy. As disclosed in Notes 20
and 21, the Bank’s main source of funding is locally collected
deposits from corporate and retail customers.
The Bank’s capital adequacy ratio (as prescribed by
BoA) as at 31 December 2017 amounts to 21.25% (2016:
17.89%) and is higher than the specifically-set regulatory
minimum of 15%. Additionally, the Bank’s liquidity ratio
as of 31 December 2017 was 46.7% (2016: 47%), which
is in compliance with the article 71 of the Bank of Albania
regulation on liquidity, dated 14 October 2009.
Bank is in compliance with the regulatory requirements and
did not exceed the amount prescribed by the Law.
Consequently, the going concern assumption has been
applied in the preparation of the financial statements.
Management prepared these financial statements on a
going concern basis, which assumes that the Bank will
continue to operate in the foreseeable future. In order to
assess the reasonability of this assumption, management
reviews the forecasts of the future cash inflows and the
support provided by shareholders.
Based on the current financial plans, the actual situation
of the Bank, management is satisfied that the Bank will
be able to continue to operate as a going concern in the
foreseeable future and, therefore, this principle is applied in
the preparation of these financial statements.
The main accounting policies used in the preparation of
these financial statements are set out below.

45

2.3 FOREIGN
CURRENCY
TRANSLATION
The financial statements
presented in Albanian Lek, which
is the Bank’s functional and
presentation currency.
Transactions and balances
Transactions in foreign currencies
are translated into the respective
functional currency of
operation at the spot exchange
rate at the date of the transaction.
Monetary assets and liabilities
denominated in foreign
currencies at the reporting date
are retranslated into the functional
currency at the spot exchange
rate at that date. The foreign
currency gain or loss on monetary
items is the difference between
amortised cost in the functional
currency at the beginning of the
period, adjusted for effective
interest and payments during the
period, and the amortised cost in
foreign currency translated at the
spot exchange rate at the end of
the period.
Non-monetary assets
liabilities denominated in foreign
currencies, which are stated at
historic cost, are translated at
the prevailing foreign exchange
rate at the date of the transaction.
Non-monetary assets
liabilities denominated in foreign
currencies that are measured at
fair value are retranslated into the
functional currency at the spot
exchange rate at the date that the
fair value was determined.
Foreign currency differences
arising on translation
generally recognised in profit or
loss, except for foreign currency
differences arising from
translation of available-for-sale
equity instruments, which are
recognised in OCI.
46
TIRANA BANK ANNUAL REPORT 2017
The applicable rates of exchange (Lek to foreign currency unit) for the principal
currencies as at 31 December 2017 and 2016 were as follows:
2017 2016
are
USD 111.10 128.17
EUR 132.95 135.23
2.4 FINANCIAL INSTRUMENTS – INITIAL
RECOGNITION AND SUBSEQUENT MEASUREMENT
the
a) Date of recognition
Purchases or sales of financial assets that require delivery of assets within the
time frame generally established by regulation or convention in the marketplace
are recognised on the trade date, i.e. the date that the Bank commits to purchase
or sell the asset.
b) Initial recognition of financial instruments
The classification of financial instruments at initial recognition depends on
the purpose for which the financial instruments were acquired and their
characteristics. All financial instruments are measured initially at their fair value
plus, in case of financial assets and liabilities not at fair value through profit and
loss, transaction costs. Fair value at initial recognition is best evidenced by the
transaction price. A gain or loss on initial recognition is only recorded if there is
a difference between fair value and transaction price which can be evidenced
by other observable current market transactions in the same instrument or by
a valuation technique whose inputs include only data from observable markets.
c) Financial assets held to maturity
Financial assets held to maturity are those investments which carry fixed or
and
determinable payments and have fixed maturities and which the Bank has the
intention and ability to hold to maturity and which do not meet definition of loans
and receivables. If the Bank were to sell other than an insignificant amount of held
to maturity investments, the entire category would be reclassified to available for
sale.
Financial assets held to maturity are subsequently measured at amortised cost
and
using the effective interest rate method, less allowance for impairment. Amortised
cost is calculated by taking into account any discount or premium on acquisition
and fees that are an integral part of the effective interest rate. The amortisation is
included in “Interest and similar income” in profit or loss. The losses arising from
impairment of such investments are recognised in profit or loss as “Impairment
losses on financial investments”, if any.
d) Loans and receivables
are
Loans and receivables include “Due from banks” and “Loans and advances to
customers”, which are financial assets with fixed or determinable payments and
fixed maturities that are not quoted in an active market. They are not entered
the
into with the intention of immediate or short-term resale and are not classified as
“Financial assets held for trading”, designated as “Financial investment available-
for-sale’ or “Financial assets designated at fair value through profit or loss”.
After initial measurement, amounts due from banks and loans and advances to
customers are subsequently measured at amortised cost
using the effective interest rate method, less allowance
for impairment. Amortised cost is calculated by taking
into account any discount or premium on acquisition and
fees and costs that are an integral part of the effective
interest rate. The amortisation is included in “Interest and
similar income” in profit or loss. The losses arising from
impairment are recognised in profit or loss in “Impairment
losses on loans and advances”.
e) Financial assets at fair value through profit or loss
This category includes treasury bills issued by the Albanian
Government.
Financial assets at fair value through profit or loss include
financial assets which are managed and their performance
is evaluated on a fair value basis, in accordance with the
Bank’s risk management strategy. Financial assets at
fair value through profit or loss are carried at fair value.
All changes in the fair value and gains or losses on
derecognising are recorded in profit or loss as other gains
the period in which they arise.
f) Available for sale financial assets
This classification includes investment securities which
the Bank intends to hold for an indefinite period of time
and which may be sold in response to needs for liquidity or
changes in interest rates, exchange rates or equity prices.
Investment securities available for sale are carried at fair
value. Interest income on available-for-sale debt securities
is calculated using the effective interest method and
recognised in profit or loss for the year. Dividends on
available-for-sale equity instruments are recognised in
profit or loss for the year when the Bank’s right to receive
payment is established and it is probable that the dividends
will be collected. All other elements of changes in the fair
value are recognised in other comprehensive income until
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.
As at December 31, 2017 and 2016 the Bank classified its
financial assets available-for-sale financial investments,
loans and receivables. The Bank did not classify any
financial assets designated at fair value through profit or
loss during reporting period.
g) Financial liabilities
After initial measurement, debt issued and other borrowings
are subsequently measured at amortized cost using
the effective interest rate method. There is no financial
liability measured at fair value through profit and loss.
Any differences between proceeds net of transactions
costs and the redemption value is recognised in “Interest
and similar expenses” in profit or loss. Amortized cost is
calculated by taking into account any discount or premium
on the issue and costs that are an integral part of the
effective interest rate.
h) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position when there is
a legally enforceable right to offset the recognized amounts
and there is an intention to settle on a net basis, or realize
the asset and settle the liability simultaneously.
i) Derecognition
Financial assets are derecognised when the contractual
rights to receive the cash flows from these assets have
ceased to exist or the assets have been transferred and
substantially all the risks and rewards of ownership of the
assets are also transferred (that is, if substantially all the
risks and rewards have not been transferred, the Bank
tests control to ensure that continuing involvement on the
basis of any retained powers of control does not prevent
derecognising). Financial liabilities are derecognised when
they have been redeemed or otherwise extinguished.
47

2.5 REPURCHASE AND REVERSE
REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase at a
specified future date (“repos”) are not derecognised from
the balance sheet. The corresponding cash received,
including accrued interest, is recognised in the statement
of financial position as a “Due to Banks”, reflecting its
economic substance as a loan to the Bank. The difference
between the sale and repurchase prices is treated as interest
expense and is accrued over the life of the agreement using
the effective interest rate method. Conversely, securities
purchased under agreements to resell at a specified future
2.6 DETERMINATION OF FAIR VALUE
For financial instruments that are traded in active markets,
the determination of fair values of financial assets and
financial liabilities is based on quoted market prices or
dealer price quotations. A financial instrument is regarded
as quoted in an active market if quoted prices are readily
and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency, and
those prices represent actual and regularly occurring
market transactions on an arm’s length basis. If the above
criteria are not met, the market is regarded as being
inactive. Indicators that a market is inactive are when
there is a wide bid-offer spread or significant increase in
the bid-offer spread or there are few recent transactions, a
significant decrease in the average daily trading volume of
all the shares under consideration in country 2 over the last
5 years, etc..
For all other financial instruments not listed in an active
market, the fair value is determined by using appropriate
valuation techniques. Valuation techniques include net
48
TIRANA BANK ANNUAL REPORT 2017
date (‘reverse repos’) are recorded as due from other banks
or loans and advances to customers, as appropriate. The
corresponding cash paid, including accrued interest, is
recognised in the statement of financial position as “Due
from Banks”. The difference between the purchase and
resale prices is treated as interest income and is accrued
over the life of the agreement using the effective interest
rate method.
present value techniques, comparison to similar instruments
for which market observable prices exist and other relevant
valuation models. Valuation techniques such as discounted
cash flow models or models based on recent arm’s length
transactions or consideration of financial data of the
investees, are used to measure fair value of certain financial
instruments for which external market pricing information is
not available.
Fair value measurements are analysed by level in the fair
value hierarchy as follows: (i) level one are measurements
at quoted prices (unadjusted) in active markets for identical
assets or liabilities, (ii) level two measurements are valuations
techniques with all material inputs observable for the asset
or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices), and (iii) level three measurements
are valuations not based on solely observable market data
(that is, the measurement requires significant unobservable
inputs).
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.

a) Due from banks and loans and advances to customers

For amounts due from banks and loans and advances to customers carried at amortised cost, the
Bank first assesses whether objective evidence of impairment exists for financial assets that are
individually significant, or collectively for financial assets that are not individually significant. If the Bank
determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment. Assets that are individually assessed
for impairment and for which an impairment loss is, or continues to be recognised are not included in a
collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is
measured as the difference between the assets’ carrying amount and the present value of estimated
future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying
amount of the asset is reduced through the use of an allowance account and the amount of the loss is
recognised in profit or loss.
Loans together with the associated allowance are written off when there is no realistic prospect of future
recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent
year, the amount of the estimated impairment loss increases or decreases because of an event occurring
after the impairment was recognised, the previously recognised impairment loss is increased or reduced by
adjusting the allowance account.
If a future write-off is later recovered, the recovery is credited to the “Provisions for impairment of loans and
advances”.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective
interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the
current effective interest rate. The calculation of the present value of the estimated future cash flows of a
collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining
and selling the collateral, whether or not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the
Bank’s internal credit grading system that considers credit risk characteristics such as asset type, industry,
collateral type, past-due status and other relevant factors. Future cash flows on a group of financial assets
that are collectively evaluated for impairment are estimated on the basis of historical loss experience for
assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on
the basis of current observable data to reflect the effects of current conditions that did not affect the years
on which the historical loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally
consistent with, changes in related observable data from year to year (such as changes in unemployment
rates, property prices, payment status, or other factors that are indicative of incurred losses in the group
and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed
regularly to reduce any differences between loss estimates and actual loss experience.

49
 TIRANA BANK ANNUAL REPORT 2017

b) Financial assets held to maturity

For held-to-maturity investments the Bank assesses individually whether
there is objective evidence of impairment. If there is objective evidence that
an impairment loss has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value
of estimated future cash flows. The carrying amount of the asset is reduced
and the amount of the loss is recognised in profit or loss.
If, in a subsequent year, the amount of the estimated impairment loss
decreases because of an event occurring after the impairment was
recognised, any amounts formerly charged are credited to the “Impairment
losses on financial investments”.

c) Assets classified as available for sale

The Bank assesses at each reporting date whether there is objective
evidence that a financial asset or a group of financial assets is impaired. In
the case of debt investments classified as available for sale, a significant or
prolonged decline in the fair value of the security below its cost is considered
in determining whether the assets are impaired.
Impairment losses are recognised in profit or loss for the year when incurred
as a result of one or more events (“loss events”) that occurred after the
initial recognition of investment securities available for sale. The cumulative
impairment loss – measured as the difference between the acquisition cost
and the current fair value, less any impairment loss on that asset previously
recognised in profit or loss – is reclassified from other comprehensive income
to profit or loss for the year. Impairment losses on equity instruments are not
reversed and any subsequent gains are recognised in other comprehensive
income. If, in a subsequent period, the fair value of a debt instrument
classified as available for sale increases and the increase can be objectively
related to an event occurring after the impairment loss was recognised in
profit or loss, the impairment loss is reversed through profit or loss for the
year.

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
The determination of whether an arrangement is, or contains
a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset
or assets and the arrangement conveys a right to use the
asset.
i. Bank as a Lessee
Finance leases, which transfer to the Bank substantially all
the risks and benefits incidental to ownership of the leased
item, are capitalised at commencement of the lease term
at the fair value of the leased property or, if lower, at the
present value of the minimum lease payments and included
in “Property and equipment” with the corresponding
liability to the lessor included in “Other liabilities”. Lease
payments are apportioned between the finance charges
and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly against
income in “Interest and similar expense”. The Bank did
not have significant financial lease agreements during the
reporting period.
Capitalised leased assets are depreciated over the shorter
of the estimated useful life of the asset and the lease term,
if there is no reasonable certainty that the Bank will obtain
ownership by the end of the lease term. Any operating
lease rentals payable are accounted for on a straight-line
basis over the lease term and included in “Other operating
expenses”. When an operating lease is terminated before
the lease period has expired, any payment required to be
made to the lessor by way of penalty is recognized as an
expense in the period in which termination takes place.
ii. Bank as a Lessor
Where the Bank is a lessor in a lease which does not
transfer substantially all the risks and rewards incidental
to ownership from the Bank to the leasee, the total lease
payments are recognised in profit or loss for the year (rental
income – note 2.8, c) on a straight-line basis over the period
of the lease.
2.9 REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable
that the economic benefits will flow to the Bank and the
revenue can be reliably measured. The following specific
recognition criteria must also be met before revenue is
recognised
a) Interest and similar income and expense
Interest and similar income includes coupons earned on
fixed income investments, any discount and premium on
zero coupon treasury bills recognised using in profit or
loss the effective interest rate method and interest income
on loans and advances. For all financial instruments
measured at amortised cost and interest bearing financial
instruments classified as available-for-sale financial
investments, interest income or expense is recorded at
the effective interest rate, which is the rate that exactly
discounts estimated future cash payments or receipts
through the expected life of the financial instrument or
a shorter period, where appropriate, to the net carrying
amount of the financial asset or financial liability.
The calculation takes into account all contractual terms of
the financial instrument (for example, prepayment options)
and includes any fees or incremental costs that are directly
attributable to the instrument and are an integral part of
the effective interest rate, but not future credit losses. The
carrying amount of the financial asset or financial liability
is adjusted if the Bank revises its estimates of payments
or receipts. The adjusted carrying amount is calculated
based on the original effective interest rate and the change
in carrying amount is recorded as interest income or
expense. Once the recorded value of a financial asset or
a group of similar financial assets has been reduced due
to an impairment loss, interest income continues to be
recognised using the original effective interest rate applied
to the new carrying amount.
Fee and commission income
The Bank earns fee and commission income from a diverse
range of services it provides to its customers. Fee income
can be divided into the following two categories:
i. Fee income earned from services that are provided
over a certain period of time
Fees earned for the provision of services over a period
of time are accrued over that period. These fees include
commission income and asset management, custody and
other management and advisory fees. Loan commitment
fees for loans that are likely to be drawn down and
other credit related fees are deferred (together with any
incremental costs) and recognised as an adjustment to the
effective interest rate on the loan.
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 TIRANA BANK ANNUAL REPORT 2017

ii. Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction
for a third party – such as the arrangement of the acquisition of shares or other
securities or the purchase or sale of businesses – are recognised on completion
of the underlying transaction. Fees or components of fees that are linked to a
certain performance are recognised after fulfilling the corresponding criteria.

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.

2.10 CASH AND CASH EQUIVALENTS

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.

2.11 PROPERTY AND EQUIPMENT

Property and equipment is stated at cost excluding the costs of day-to-day

servicing, less accumulated depreciation and accumulated impairment in value.
Depreciation is calculated using the straight-line method to write down the cost of
property and equipment to their residual values over their estimated useful lives.
Land is not depreciated.

The estimated useful lives are as follows:

• Own Buildings: up to 20 years
• Furniture and other equipment: 5 years
• Vehicles: 5 years
• Computer hardware: 4 years
• Leasehold improvements: the shorter of useful life and lease term

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.

53

2.14 IMPAIRMENT OF NON-
FINANCIAL ASSETS
The Bank assesses at each reporting date or more
frequently if events or changes in circumstances indicate
that the carrying value may be impaired, whether there is an
indication that a non-financial asset may be impaired. If any
such indication exists, or when annual impairment testing
for an asset is required, the Bank makes an estimate of the
asset’s recoverable amount. Where the carrying amount of
an asset (or cash-generating unit) exceeds its recoverable
amount, the asset (or cash-generating unit) is considered
impaired and is written down to its recoverable amount.
For assets excluding goodwill, an assessment is made at
each reporting date as to whether there is any indication
that previously recognised impairment losses may no
longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously
recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss
was recognised. If that is the case, the carrying amount
of the asset is increased to its recoverable amount to the
extent that the increased carrying amount of an asset other
than goodwill attributable to a reversal of an impairment
loss does not exceed the carrying amount that would have
been determined (net of amortisation or depreciation) had
no impairment loss been recognised for the asset in prior
years.
2.16 PENSIONS AND OTHER POST-
EMPLOYMENT BENEFITS
The Bank contributes to its employees post retirement
plans as prescribed by the domestic social security
legislation. Bank’s pension obligations, relate only to
defined contribution plans. Defined contribution plans,
based on salaries, are made to the state administered
institution (i.e. Social Security Institute) responsible for the
payment of pensions. Once the contributions have been
paid, the Bank has no further payment obligations. The
contributions constitute net periodic costs for the year
in which they are due and as such they are included in
“Personnel expenses” in the statement of comprehensive
income.
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TIRANA BANK ANNUAL REPORT 2017
2.15 FINANCIAL GUARANTEE
CONTRACTS
Financial guarantee contracts are contracts that require
the issuer to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails
to make payments when due, in accordance with the terms
of a debt instrument.
Such financial guarantees are given to banks, financial
institutions and other bodies on behalf of customers to
secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognized in the financial
statements at fair value on the date the guarantee was
given. Subsequent to initial recognition, the bank’s liabilities
under such guarantees are measured at the higher of
the initial measurement, less amortization calculated to
recognize in profit or loss the fee income earned on a
straight line basis over the life of the guarantee and the
best estimate of the expenditure required to settle any
financial obligation arising at the reporting date. These
estimates are determined based on experience of similar
transactions and history of past losses, supplemented by
the judgment of Management. Any increase in the liability
relating to guarantees is taken to profit or loss under other
operating expenses.
Financial guarantees and commitments to provide a loan
are initially recognised at their fair value, which is normally
evidenced by the amount of fees received. This amount
is amortised on a straight line basis over the life of the
commitment.
2.17 PROVISIONS
Provisions are recognised when the Bank has a present
obligation (legal or constructive) as a result of a past
event, and it is it is more likely than not that an outflow of
resources will be required to settle the obligation; and the
amount has been reliably estimated.
Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a
whole. A provision is recognized even if the likelihood of an
outflow with respect to any item included in the same class
of obligations may be small.
Provisions are measured at the present value of the
expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due
to passage of time is recognized as interest expense.
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

Proçedurat e përshkruara At poshtë lidhen me matjen e rrezikut të kredisë me qëllim

operacional si dhe me raportimin sipas rregullores të Bankës së Shqipërisë. Humbjet e
zhvlerësimit të huave dhe paradhënieve për raportim financiar përcaktohen duke ndjekur
proçedurat e përshkruara në shënimin 3.1.3.

a) Loans and advances

In measuring credit risk of loan and advances to customers and to banks at a counterparty
level, the Bank reflects three components (i) the ‘probability of default’ by the client or
counterparty on its contractual obligations; (ii) current exposures to the counterparty and
its likely future development, from which the Bank derives the ‘exposure at default’; and (iii)
the likely recovery ratio on the defaulted obligations (the ‘loss given default’).

(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.

Bank’s internal ratings scale

Bank’s rating Description of the grade
A Investment Grade

B Standard

C Special Monitoring

D Substandard

E Doubtful and Loss

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.

(b) Debt securities and other bills

For debt securities and other bills, the risk department for managing of the
credit risk exposures uses ratings depending on the issuer, which is Albanian
Government. The investments in those securities and bills are viewed as a way
to gain a better credit quality mapping and maintain a readily available source to
meet the funding requirement at the same time.
Investment is allowed only in liquid securities that have high credit rating. Given
their high credit ratings management of the Bank does not expect any counterpart
to fail to meet its obligations. The maximum exposure to credit risk is represented
by the carrying amount of each financial asset in the balance sheet

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.

The Bank implements guidelines on the acceptability of specific classes of

collateral or credit risk mitigation. The principal collateral types for loans and
advances are:
• Cash, banks and first class companies’ guarantees;
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts
receivable; and
• Charges over financial instruments such as debt securities and equities.

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

(b) Credit-related contingencies

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and
standby letters of credit carry the same credit risk as loans and are secured with same collateral as loans. Documentary and
commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party to
draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralised by the underlying
shipments of goods to which they relate and therefore carry less risk than a direct loan.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees
or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an
amount equal to the total unused commitments.
However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit
are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit
commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term
commitments.

3.1.3 IMPAIRMENT AND PROVISIONING POLICIES

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:

• Delinquency in contractual payments of principal or interest;

• Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales);
• Breach of loan covenants or conditions;
• Initiation of bankruptcy proceedings;
• Deterioration of the borrower’s competitive position; and
• Deterioration in the value of collateral.

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.

3.1.4 MAXIMUM EXPOSURE TO CREDIT RISK BEFORE COLLATERAL HELD OR

OTHER CREDIT ENHANCEMENTS

Maximum exposure

2017 2016

Credit risk exposures relating to on-balance sheet assets are as follows:

Cash and balances with Central Bank 5,222,274 5,583,251
Loans and advances to banks 26,544,252 22,408,522
Loans and advances to customers:

Loans to individuals

− Consumer/Overdrafts 1,854,145 1,594,628

− Credit cards 134,162 135,686
− Mortgages 5,989,826 5,731,887

7,978,133 7,462,201
Loans to corporate entities:

− Large corporate customers 2,134,042 1,993,133

− Small and medium size enterprises (SMEs) 13,925,056 15,818,316

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.

3.1.5 LOANS AND ADVANCES

Loans and advances are summarised as follows:

31 December 2017 31 December 2016

Loans and Loans and Loans and Loans and

advances to advances to advances to advances to
customers banks customers banks
Neither past due nor impaired 14,228,527 26,544,252 13,388,710 22,408,310
Past due but not impaired 5,698,629 - 5,338,148 -
Individually impaired 7,444,629 - 11,944,854 -
Gross 27,371,785 26,544,252 30,671,712 22,408,310
Less: allowance for impairment (3,334,554) - (5,398,062) -
Net 24,037,231 26,544,252 25,273,650 22,408,310

Further information of the impairment allowance for loans and advances to banks and to customers is provided in Notes 12
and 13.

a) Loans and advances neither past due nor impaired

The credit quality of the portfolio of loans and advances that were neither past due nor impaired (classified as standard) can
be assessed by reference to the internal rating system adopted by the Bank.

31 December 2017

Loans and advances to customers

Individual (retail customers) Corporate entities

Large Total Loans and Loans and
Consumer/ corporate advances to advances
Overdrafts Credit cards Mortgages customers SMEs customers to banks

1,390,534 116,201 3,494,560 1,567,418 7,659,814 14,228,527 22,408,310

31 December 2016

Hua dhe paradhënie për klientët

Individual (retail customers) Corporate entities
Large Total Loans and Loans and
Consumer/ corporate advances to advances
Overdrafts Credit cards Mortgages customers SMEs customers to banks
1,138,763 106,006 3,175,530 1,882,091 7,086,320 13,388,710 22,408,310

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

31 December 2017 Individë

Consumer/
Overdrafts Mortgages Visa Card Total
Past due 1 up to 90 days 402,596 2,052,697 26,002 2,481,295
Past due 91-180 days - 99,524 - 99,524
Past due 181-360 days - 17,947 - 17,947
Past due > 360 days - 67,198 - 67,198
Total 402,596 2,237,366 26,002 2,665,964
Fair value of collateral 313,852 2,209,786 1,918 2,525,556

31 December 2017 Corporate and SMEs

Past due 1 up to 90 days 2,309,925
Past due 91-180 days 60,407
Past due 181-360 days 53,110
Past due > 360 days 609,224
Total 3,032,666
Fair value of collateral 2,988,402
Total loans and advances past due but not
impaired at 31 December 2017 5,698,630

31 December 2016 Individë

Consumer/
Overdrafts Mortgages Visa Card Total
Past due 1 up to 90 days 370,761 2,020,703 29,666 2,421,130
Past due 91-180 days - 76,831 - 76,831
Past due 181-360 days - 23,007 - 23,007
Past due > 360 days - 29,211 - 29,211
Total 370,761 2,149,752 29,666 2,550,179
Fair value of collateral 302,830 2,117,409 - 2,420,239

31 December 2016 Corporate and SMEs

Past due 1 up to 90 days 1,918,739
Past due 91-180 days 144,778
Past due 181-360 days 190,526
Past due > 360 days 533,926
Total 2,787,969
Fair value of collateral 2,651,493
Total loans and advances past due but not
impaired at 31 December 2017 5,338,148

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 TIRANA BANK ANNUAL REPORT 2017

Loans and advances to banks

There are no loans and advances to banks as at 31 December 2017, which are past due but not impaired (2016: Nil).

b) Loans and advances individually impaired

Loans and advances to customers
The breakdown of the gross amount of individually impaired loans and advances by class, along with the fair value of related
collateral held by the Bank as security, are as follows:

Consumer Corporate and

and Visa Cards Mortgage SMEs Total
31 December 2017
Individually impaired loans 1,205 95,777 6,715,518 6,812,500
Fair value of collateral - 76,452 6,302,233 6,378,685

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:

Consumer Corporate and

and Visa Cards Mortgage SMEs Total
31 December 2017
Collectively impaired loans 243,423 363,849 24,857 632,129
Fair value of collateral 101,229 351,065 12,086 464,380

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.

3.1.8 DEBT SECURITIES, TREASURY BILLS AND

OTHER ELIGIBLE BILLS

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.

3.1.9 CONCENTRATION OF RISKS OF FINANCIAL

ASSETS WITH CREDIT RISK EXPOSURE
Geographical sectors
Loans and advances to banks are held with banks in OECD countries. All other
financial assets are held in Albania except for the VISA share holdings, which are held
with VISA Corporation.

Industry sectors
The analysis of the Bank’s main credit exposure on loans and advances to customers
by industry is presented in Note 13.

3.2 MARKET RISK

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).

3.2.1 FOREIGN EXCHANGE RISK

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

Concentrations of currency risk – on and off-balance sheet financial instruments:

Other
At 31 December 2017 EUR USD LEK Total
currencies
Assets
Cash and balances with the Central
3,202,924 411,662 18,214 3,281,928 6,914,728
Bank
Due from banks 24,738,436 1,276,316 64,625 464,874 26,544,252
Loans and advances to customers 13,527,180 1,063,069 17,802 9,429,181 24,037,231
Investment securities available for sale 2,998,893 - - 12,344,205 15,343,098
Financial assets held to maturity - - - - -
Total financial assets 44,467,433 2,751,047 100,641 25,520,188 72,839,309

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
fluctuations to the extent that interest-earning assets (including
investments) and interest-bearing liabilities mature or re-price
at different times or in differing amounts. In the case of floating
rate assets and liabilities, the Bank is also exposed to basis
risk, which is the difference in re-pricing characteristics of the
various floating rate indices, such as the savings rate, LIBOR and
different types of interest.
Risk management activities are aimed at optimising net interest
income, given market interest rate levels consistent with the
Bank’s business strategies.
Asset-liability risk management activities are conducted in the
context of the Bank’s sensitivity to interest rate changes.
In decreasing interest rate environments, margins earned will
narrow as liabilities interest rates will decrease with a lower
percentage compared to assets interest rates. However the
actual effect will depend on various factors, including stability of
the economy, environment and level of the inflation.
The Bank attempts to mitigate this interest rate risk by monitoring
the reprising dates of its assets and liabilities and setting product
reprising terms in order to manage gain / loss from changes in
market base rates. In addition, the Bank has contractual rights to
revise the interest rates on the major part of its loan portfolio on
a quarterly basis.
The following table presents the interest rate reprising dates for
the Bank’s assets and liabilities. Variable-rate assets and liabilities
have been reported according to their next rate change date.
Fixed-rate assets and liabilities have been reported according to
their scheduled principal repayment dates:

Less than From 1 to 3 From 3 to 12 Over Non-interest

Total
At 31 December 2017 one month months months 1 year bearing

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

Interest sensitivity gap 8,395,567 1,762,030 (5,265,901) 4,139,035 1,599,150 10,629,881

The following table includes figures of comparative period:

Less than From 1 to 3 From 3 to 12 Over Non-interest
Total
At 31 December 2016 one month months months 1 year bearing

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).

Interest rate sensitivity analysis by currency is presented below.

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)

3.3 LIQUIDITY RISK

Liquidity risk is the risk that the Bank is unable to meet its
payment obligations associated with its financial liabilities
when they fall due and to replace funds when they are
withdrawn. The consequence may be the failure to meet
obligations to repay depositors and fulfil commitments to
lend.
A Liquidity Risk Management Policy has been applied
in all Bank units since the end of 2003. This policy is
adjusted to internationally applied practices and regulatory
environments and adapted to the specific activities of
Piraeus Bank.
The policy specifies the principal liquidity risk assessment
definitions and methods, defines the roles
responsibilities of the units and staff involved and sets out
the guidelines for liquidity crisis management. The policy is
focused on the liquidity needs expected to emerge, in one
week or one month, on the basis of hypothetical liquidity
crisis scenarios.
Furthermore, the Policy defines a contingency funding plan
to be used in the case of a liquidity crisis. Such a crisis can
take place either due to a Tirana Bank specific event or a
general market event. Triggers and warning signals serve
as indicators of when the contingency plan should be put
into operation. This contingency plan is mainly based on
additional financing to be received from the Parent upon
request.
In addition, Tirana Bank calculates and monitors the
Liquidity ratios, “Liquid Assets/ Total Liabilities” and “Net
Current Assets/Total Liabilities”, as they are defined in
the Bank of Albania Directive, which refers to the control
framework of banks’ liquidity adequacy, by the Bank of
Albania (note 2.1.b).
The levels of these particular ratios are daily communicated
to the responsible business units, and comments, as well
and as respective assessments, are included in the reporting
package to the members of ALCO.
The ALCO has the responsibility: to design the bank’s
strategy on the assets and liabilities development,
depending on the qualitative and quantitative data of the
organization and development of the business environment;
to ensure high competitiveness and effectiveness of the
organization, maintaining assumed risk within the set
limits; to manage the assets and liabilities by applying a
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
time periods based on the remaining period at reporting
date to the contractual maturity date. Assets and liabilities
in foreign currency are converted into LEK using EX rates
as at the year end.
The assumptions made are that scheduled payments to
the bank are honoured in full and on time and in addition,
all contractual payments are discharged in full – e.g. that
depositors will withdraw their money rather than roll it over
on maturity. Those assets and liabilities lacking actual
maturities (e.g. open accounts, sight deposits, or savings
accounts) are assigned to the time band less than one
month.

Less than From 1 to 3 From 3 to 12 From 1 to 5

At 31 December 2017 one month months months years Over 5 Years Total
Assets liquidity
Cash and balances with the Central
6,914,728 - - 6,914,728
Bank - -
Due from banks 26,544,252 - - - - 26,544,252
Loans and advances to customers 2,258,372 1,504,051 6,907,618 10,020,735 3,346,455 24,037,231
Investment Securities available for Sale 401,898 4,173,070 3,019,242 7,739,472 - 15,333,682
Financial assets held to maturity
- - - -
- -
Total financial assets 36,119,250 5,677,121 9,926,860 17,760,207 3,346,455 72,829,893

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
which is measured by the Bank and is far less than the shown
negative gap on tenors less than one month. Any issue arising
from liquidity mismatch is managed through inter-bank
activity (borrowing, lending) within the pre-approved credit
lines.
The Bank has a credit line with Piraeus Bank S.A which
includes an amount of EUR 175 million that can be
withdrawn by the Bank in the Money Market (with a maturity
of 3 months if used). It has also negotiated a credit limit of
EUR 10 million that can be used for commercial lending
with a maturity of up to 12 months, which can increase to 3
years if EUR 6 million out of the total EUR 10 million is used
for mortgage lending.
The following table includes figures of comparative period:

Less than From 1 to 3 From 3 to 12 From 1 to 5

At 31 December 2016 one month months months years Over 5 Years Total
Assets liquidity
Cash and balances with the Central
7,128,006 - - 7,128,006
Bank - -
Due from banks 22,408,310 - - - - 22,408,310
Loans and advances to customers 4,824,167 2,632,214 4,528,335 5,998,911 7,290,023 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 34,383,766 11,167,550 9,850,755 13,565,424 7,290,023 76,257,518

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

Off-balance sheet items

Less than one From 1 to 3 From 3 to 12 From 1 to 5 Over 5 Years Total

At 31 December 2017 month months months years
Loan commitments 4,468,798 27,342 247,667 14,821 35,383 4,794,011
Letters of Guarantees 40,244 12,896 276,321 - - 329,461
Letters of Credit - 21,242 - - - 21,242
Total 4,509,042 61,480 523,988 14,821 35,383 5,144,714

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
commit the Bank to make payments on behalf of customers
contingent upon the failure of the customer to perform
under the terms of the contract.
Commitments to extend credit represent contractual
commitments to make loans and revolving credits.
Commitments generally have fixed expiration dates, or
other termination clauses.
The Tirana Bank branch network includes 39 (2016: 39)
rented buildings which are rented under operating leases.
The Bank’s policy is to enter into long term contracts,
which vary from 10 years to 20 years. The contracts are
renewed following a negotiation between both parties in
order to agree new terms of the contract.

3.4 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Financial instruments not measured at fair value
The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on
the Bank’s statement of financial position at their fair value.

Carrying value Fair value

2017 2016 2017 2016
Financial assets

26,544,252 22,408,310 26,544,252 22,408,310

Loans and advances to banks
24,037,231 25,273,650 23,200,582 24,979,927
Loans and advances to customers

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

Loans and advances to banks Loans and advances to customers

Loans and advances to other banks include inter-bank
placements. The fair value of fixed rate placements
and overnight deposits is their carrying amount. The
estimated fair value of fixed interest bearing deposits is
based on discounted cash flows using prevailing money-
market interest rates for debts with similar credit risk and
remaining maturity. With respect to deposits in Credit
Institutions, these are short-term deposits, for which the
carrying interest rate does not significantly differ from the
market interest rate as at 31 December.
Loans and advances are net of allowances for impairment.
The Bank’s loan portfolio has an estimated fair value which
is smaller than its book value due to the higher market
interest rates prevailing at the end of 2016 as a result of the
actual market conditions. The majority of the loan portfolio
is subject to re-pricing within a year.
The fair value of loans and advances to customers is their
expected cash flow discounted at current market rates.
Current market rates are interest rates we would charge at
the moment (year-end).

70
Financial assets held to maturity
The fair value of held to maturity investments is determined
by using quoted prices for similar instruments as the
discounting rate of future cash flows at the reporting date.
Due to other banks and customers, other deposits
and other borrowings.
The estimated fair value of deposits with no stated
maturity, which includes non-interest-bearing deposits, is
the amount repayable on demand.
The estimated fair value of fixed interest-bearing deposits
and other borrowings not quoted in an active market is
based on discounted cash flows using interest rates for
new debts with similar remaining maturity. The carrying
value differs from the fair value because the carrying
interest rates are higher than the market interest rate as
at 31 December 2017, because at year end the banks are
granting higher interest rates in the competition to attract
deposits.
Due to banks mainly refers to loans taken from the parent
with a maturity of one month from the date of the balances
sheet and therefore their fair value is consider to be
approximate to the carrying value.
Financial instruments measured at fair value
Fair value measurements are analysed by level in the fair
value hierarchy as follows:
(i) Level 1 are measurements at quoted prices (unadjusted)
in active markets for identical assets or liabilities;
(ii) Level 2 measurements are valuations techniques with all
material inputs observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices); and
(iii) Level 3 measurements are valuations not based on
observable market data (that is, unobservable inputs).
Management applies judgement in categorising financial
instruments using the fair value hierarchy. If a fair value
measurement uses observable inputs that require
significant adjustment, that measurement is a Level 3
measurement. The significance of a valuation input is
assessed against the fair value measurement in its entirety.
Recurring fair value measurements are those that the
accounting standards require or permit in the statement
of financial position at the end of each reporting period.
Fair values analysed by level in the fair value hierarchy and
carrying value of assets not measured at fair value are as
follows:

31 December 2017

Level 1 Level 2 Level 3 Total

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

Level 1 Level 2 Level 3 Total

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

3.5 CAPITAL MANAGEMENT

The Bank’s objectives when managing capital, which is a
broader concept than the ‘equity’ on the face of balance
sheets, are:
• to comply with the capital requirements set by the Bank
of Albania;
• to safeguard the Bank’s ability to continue as a going
concern so that it can continue to provide returns for
shareholders and benefits for other stakeholders; and
• to maintain a strong capital base to support the
development of its business.
Capital adequacy and the use of regulatory capital are
monitored daily by the Bank’s management, employing
techniques based on the guidelines developed by the Basel
Committee and the European Community Directives, as
implemented by Bank of Albania, for supervisory purposes.
The required information is filed with Bank of Albania on a
quarterly basis.
Bank of Albania requires generally each bank or banking
Group to: (a) hold the minimum level of the regulatory capital
of 1 billion LEK and (b) maintain a ratio of total regulatory
capital to the risk-weighted asset (the ‘Basel ratio’) at or
above the Bank of Albania required minimum of 12% (2016:
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.
The Bank’s regulatory capital as managed by its Risk
Department is divided into two tiers:
• Tier 1 capital: share capital (net of any book values of the
treasury shares), retained earnings and reserves created
by appropriations of retained earnings ; and
• Tier 2 capital: qualifying subordinated loan capital,
collective impairment allowances and unrealised gains
arising on the fair valuation of equity and debt instruments
held as available for sale.
The risk-weighted assets are measured by means of a
hierarchy of four risk weights classified according to the
nature of − and reflecting an estimate of credit, market and
other risks associated with − each asset and counterparty,
taking into account any eligible collateral or guarantees.
A similar treatment is adopted for off-balance sheet
exposure, with some adjustments to reflect the more
contingent nature of the potential losses.
The table below summarises the composition of regulatory
capital and the ratios of the Bank for the years ended 31
December 2017 and 2016. The Bank complied with all of
the externally imposed capital requirements to which they
are subject in 2017.

2017 2016

Tier 1 capital

Share capital 16,490,344 16,490,344

Statutory reserve 1,374,250 1,374,250
Revaluation differences for statutory reporting (181,922) 97,756
Total qualifying Tier 1 capital 17,682,672 17,962,350
Tier 2 capital

Subordinated liability - -
Revaluation reserve - -
Total qualifying Tier 2 capital - -

Deductions from regulatory capital (9,462,534) (10,097,085)

Total regulatory capital 8,220,138 7,865,265
Risk-weighted assets:

On-balance sheet 37,968,803 42,958,307

Off-balance sheet 713,203 731,302
Total risk-weighted assets 38,682,006 43,689,609

CAR ratio 21.25% 17.89%

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.

Impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment at least on a quarterly
basis. In determining whether an impairment loss should be recorded in profit
or loss, the Bank makes judgments as to whether there is any observable data
indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of loans before the decrease can be identified with an individual
loan in that portfolio. This evidence may include observable data indicating that
there has been an adverse change in the payment status of borrowers in a Bank,
or national or local economic conditions that correlate with defaults on assets
in the Bank. Management uses estimates based on historical loss experience
for assets with credit risk characteristics and objective evidence of impairment
similar to those in the portfolio when scheduling its future cash flows.

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

Uncertain tax positions Determining fair values

The Bank’s uncertain tax positions are reassessed by Information about fair values of financial assets and
management at the end of each reporting period. Liabilities liabilities that were valued using assumptions that are not
are recorded for income tax positions that are determined based on observable market data is disclosed in Note 3.4
by management as more likely than not to result in
additional taxes being levied if the positions were to be
challenged by the tax authorities. The assessment is based
on the interpretation of tax laws that have been enacted
or substantively enacted by the end of the reporting
period, and any known court or other rulings on such
issues. Liabilities for penalties, interest and taxes other
than on income are recognised based on management’s
best estimate of the expenditure required to settle the
obligations at the end of the reporting period.

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:

• Amendments to IAS 7 “Statement of Cash Flows” - Disclosure Initiative (effective for

annual periods beginning on or after 1 January 2017),

• Amendments to IAS 12 “Income Taxes” - Recognition of Deferred Tax Assets for

Unrealised Losses (effective for annual periods beginning on or after 1 January 2017),

• Amendments to IFRS 12 due to “Improvements to IFRSs (cycle 2014-2016)” resulting

from the annual improvement project of IFRS (IFRS 1, IFRS 12 and IAS 28) primarily with a
view to removing inconsistencies and clarifying wording (amendments to IFRS 12 are to be
applied for annual periods beginning on or after 1 January 2017).

The adoption of these amendments to the existing standards and interpretations has not led
to any changes in the Company’s accounting policies.

(b) Standards and Interpretations in issue not yet adopted

At the date of authorisation of these financial statements, the following new standards,
amendments to existing standards and new interpretation were in issue, but not yet effective:

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments. IFRS 9
is effective for annual periods beginning on or after 1 January 2018, with early adoption
permitted. It replaces IAS 39 Financial Instruments:

Recognition and Measurement

In October 2017, the IASB issued Prepayment Features with Negative Compensation
(Amendments to IFRS 9). The amendments are effective for annual periods beginning on or
after 1 January 2019, with early adoption permitted.
The Bank will apply IFRS 9 as issued in July 2014 initially on 1 January 2018 and will the
amendments to IFRS 9 on 1 January 2019. The Bank has finalized the impact assessment
of transition to IFRS 9. Including the impact of transition to the new standard, the total
provisions fund does not exceed the level of this fund for regulatory purposes.

Classification – Financial assets

IFRS 9 contains a new classification and measurement approach for financial assets that
reflects the business model in which assets are managed and their cash flow characteristics.
IFRS 9 includes three principal classification categories for financial assets: measured at
amortized cost, FVOCI and FVTPL. It eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available for sale.

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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.

Business model assessment

The Bank has finalized its business model as well as the SPPI testing and has concluded as below
stated:

Government bonds and treasury bills portfolio

For the Bank’s treasury products (bonds and t-bills), the identified business model is:
• the “Hold to collect and sell” that requires measurement at fair value through other comprehensive
income (FVTOCI).

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.

Loans and advances to customers

For the Bank’s loans and advances to customers portfolio the business model identified is the “Hold
to collect” business model and therefore, loans classified in this business model will be measured at
amortized cost. Any loans that will fail the SPPI test will be measured at fair value through PL.
According to the IFRS 9 (4.1.2), a financial asset shall be measured at amortized cost if both of the
following conditions are met:
• the financial asset is held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows 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.

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
Portfolio Measurement
Loans and advances to customers Amortized cost
AFS (bonds and t- bills) FVTOCI
Assessment whether contractual cash flows are solely
payments of principal and interest
For the purposes of this assessment, ‘principal’ is defined
as the fair value of the financial asset on initial recognition.
‘Interest’ is defined as consideration for the time value of
money, for the credit risk associated with the principal
amount outstanding during a particular period of time and
for other basic lending risks and costs (e.g. liquidity risk
and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are
solely payments of principal and interest, the Bank will
consider the contractual terms of the instrument. This will
include assessing whether the financial asset contains a
contractual term that could change the timing or amount
of contractual cash flows such that it would not meet this
condition. In making the assessment, the Bank considers:
• contingent events that would change the amount and
timing of cash flows;
• leverage features;
• prepayment and extension terms;
• terms that limit the Bank’s claim to cash flows from
specified assets – e.g. non-recourse asset arrangements;
and
• features that modify consideration for the time value of
money – e.g. periodic reset of interest rates.
Interest rates on retail loans made by the Bank are based
on standard fixed rates that are set at the discretion of the
Bank. In these cases, the Bank assess whether the SFR
set are in line with market rates and provide the Bank with
sufficient returns to cover for the:
• time value of money,
• credit risk associated with the principal amount
outstanding during a particular period of time, and
• other basic lending risks and costs, as well as a profit
margin.
IFRS 9
Impact on total
Business model Measurement
equity
No impact on initial
Hold to collect Amortized cost mapping but subject
to SPPI test
No impact on initial
Hold to collect & sell FVTOCI mapping but subject
to SPPI test
All of the Banks retail loans contain prepayment features.
A prepayment feature is consistent with the SPPI criterion
if the prepayment amount substantially represents unpaid
amounts of principal and interest on the principal amount
outstanding, which may include reasonable compensation
for early termination of the contract.
Impact assessment
The Bank has estimated that, the adoption of IFRS 9 at
1 January 2018, will not bring changes to its current
measurement of the financial assets under IAS 39. The
classification of its financial assets held as at 1 January
2018 will change as follows.
• Loans and advances to banks and to customers that
are classified as loans and receivables and measured at
amortized cost under IAS 39 will be measured at amortized
cost under IFRS 9.
• Debt investment securities that are classified as available-
for-sales under IAS 39 will be measured at FVTOCI, under
IFRS 9, as these assets meet the SPPI conditions and the
Bank’s current business model is to hold these assets for
the purpose of collecting contractual cash flows as well as
sell them.
Impairment – Financial assets, loan commitments and
financial guarantee contracts
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a
forward-looking ‘expected credit loss’ (‘ECL’) model. This
will require considerable judgment over how changes in
economic factors affect ECLs, which are determined on a
probability-weighted basis.
In addition to loans and receivables, the new impairment
model applies also to the following financial instruments
that are not measured at FVTPL:
• financial assets that are debt instruments; and
• loan commitments and financial guarantee contracts
issued (previously, impairment was measured under IAS 37
Provisions, Contingent Liabilities and Contingent Assets).
77

IFRS 9 requires a loss allowance to be recognized at an
amount equal to either 12-month ECLs or lifetime ECLs
depending on the assessment of the risk of default. Lifetime
ECLs are the ECLs that result from all possible default
events over the expected life of a financial instrument,
whereas 12-month ECLs are the portion of ECLs that result
from default events that are possible within the 12 months
after the reporting date.
The Bank will recognize loss allowances at an amount
equal to lifetime ECLs, except in the following cases, for
which the amount recognized will be 12-month ECLs:
• debt investment securities that are determined to have
low credit risk at the reporting date. The Bank considers
a debt security to have low credit risk when its credit risk
rating is equivalent to the globally understood definition of
‘investment-grade’; and
• loans and debt investment securities for which credit risk
has not increased significantly since initial recognition.
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TIRANA BANK ANNUAL REPORT 2017
The impairment requirements of IFRS 9 are complex
and require management judgments, estimates and
assumptions, particularly in the following areas, which are
discussed in detail below:
• assessing whether the credit risk of an instrument has
increased significantly since initial recognition; and
• incorporating forward-looking information into the
measurement of ECLs.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses
and will be measured as follows:
• financial assets that are not credit-impaired at the
reporting date: the present value of all cash shortfalls – i.e.
the difference between the cash flows due to the entity in
accordance with the contract and the cash flows that the
Bank expects to receive;
• financial assets that are credit-impaired at the reporting
date: the difference between the gross carrying amount
and the present value of estimated future cash flows;
• 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.

Credit risk grades

The Bank allocates each business exposure to a credit risk grade based on requirements set forth by Credit
Risk Management regulation by using qualitative and quantitative factors that are indicative of the risk of
default. In addition to the risk classes introduced for regulatory purposes, the Bank identifies and monitors
separately standard loans in past due from standard loans not in past due.
Each business exposure is allocated to a credit risk grade on initial recognition based on available information
about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being
moved to a different credit risk grade.
Determining whether credit risk has increased significantly
Under IFRS 9, when determining whether the credit risk (i.e. risk of default) on a financial instrument has
increased significantly since initial recognition, the Bank will consider reasonable and supportable information
that is relevant and available without undue cost or effort, including both quantitative and qualitative information
and analysis based on the Bank’s historical experience, expert credit assessment and forward-looking
information.
The Bank considers both quantitative and qualitative criteria in order to assess whether significant
increase in credit risk has occurred.

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.

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Primary or secondary indicators may
vary per each portfolio, while backstop
indicator is present on the following
conditions:
• Instruments which are more than 30
days past due
All loans showing significant increase
in credit risk are classified in Stage 2.
The Bank will monitor the effectiveness
of the criteria used to identify
significant increases in credit risk by
regular reviews to confirm that:
• the criteria are capable of identifying
significant increases in credit risk
before an exposure is in default;
• the average time between the
identification of a significant increase
in credit risk and default appears
reasonable; and
• exposures are not generally
transferred directly from 12-month
ECL measurement to credit-impaired.
Modified financial assets
The contractual terms of a loan may
be modified for a number of reasons,
including changing market conditions,
customer retention and other factors
not related to a current or potential
credit deterioration of the customer.
An existing loan whose terms have
been modified may be derecognised
and the renegotiated loan recognized
as a new loan at fair value.
Under IFRS 9, when the terms of
a financial asset are modified and
the modification does not result in
derecognition, the Bank will consider
whether the asset’s credit risk has
increased significantly by analyzing
quantitative and qualitative factors
affecting risk of default.
The Bank renegotiates loans to
customers in financial difficulties
(referred to as ‘forbearance activities’)
to maximize collection opportunities
and minimize the risk of default. Under
the Bank’s forbearance policy, loan
forbearance is granted on a selective
basis if the debtor is currently in
default on its debt or if there is a high
risk of default, there is evidence that
the debtor made all reasonable efforts
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TIRANA BANK ANNUAL REPORT 2017
to pay under the original contractual
terms and the debtor is expected to be
able to meet the revised terms.
The revised terms usually include
extending the maturity, changing
the timing of interest payments and
amending the terms of loan covenants.
Both retail and business loans are
subject to the forbearance policy.
Generally, forbearance is a qualitative
indicator of default and credit
impairment and expectations of
forbearance are relevant to assessing
whether there is a significant increase
in credit.
Following forbearance, a customer
needs to demonstrate consistently
good payment behavior over twenty-
four months before the exposure
is measured at an amount equal to
12-month ECLs.
Inputs into measurement of ECLs
The key inputs into the measurement
of ECLs are likely to be the term
structures of the following variables:
– PD;
– loss given default (LGD); and
– exposure at default (EAD).
These parameters are derived from
internally developed statistical models
and other historical data that leverage
regulatory models. They are adjusted
to reflect forward-looking information
as described below.
Credit risk grades will be a primary
input into the determination of the term
structure of PD for exposures. The
Bank will employ statistical models
to analyse the data collected and
generate estimates of the remaining
lifetime PD of exposures and how
these are expected to change as a
result of the passage of time.
This analysis will include the
identification and calibration of
relationships between changes in
default rates and changes in key
macro-economic factors, as well as
in-depth analysis of the impact of
certain other factors (e.g. forbearance
experience) on the risk of default. For
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.

Where modeling of a parameter is carried out on a collective basis, the financial

instruments will be grouped on the basis of shared risk characteristics that include:
– instrument type; and
– credit risk grading.

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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Forward-looking information
Under IFRS 9, the Bank will incorporate forward-looking
information into both its assessment of whether the credit
risk of an instrument has increased significantly since
initial recognition and its measurement of ECLs. The Bank
will formulate a ‘base case’ view of the future direction of
relevant economic variables and a representative range of
other possible forecast scenarios based on advice from
the Bank Risk Committee and economic experts and
consideration of a variety of external actual and forecast
information.
This process will involve developing two or more additional
economic scenarios and considering the relative
probabilities of each outcome. External information
may include economic data and forecasts published
by governmental bodies and monetary authorities in
the countries where the Bank operates, supranational
organizations such as the Organisation for Economic
Co-operation and Development and the International
Monetary Fund, and selected private sector and academic
forecasters.
The base case will represent a most-likely outcome and
be aligned with information used by the Bank for other
purposes, such as strategic planning and budgeting. The
other scenarios will represent more optimistic and more
pessimistic outcomes. The Bank will also periodically carry
out stress-testing of more extreme shocks to calibrate its
determination of these other representative scenarios.
The Bank has identified and documented key drivers of
credit risk and credit losses for each portfolio of financial
instruments and, using an analysis of historical data,
has estimated relationships between macro-economic
variables and credit risk and credit losses. These key drivers
include CPI, unemployment rates and GDP forecasts.
Predicted relationships between the key indicators and
default and loss rates on various portfolios of financial
assets have been developed based on analyzing historical
data over the past 5 years.
Impact assessment
The most significant impact on the Bank’s financial
statements from the implementation of IFRS 9 results from
the new impairment requirements.
The Bank has estimated that, on the adoption of IFRS
9 at January 1, 2018, the loss allowances (before tax)
is expected to increase but not exceed the provisions
recognized for regulatory purposes.
Transition
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TIRANA BANK ANNUAL REPORT 2017
Changes in accounting policies resulting from the adoption
of IFRS 9 will generally be applied retrospectively, except
as described below.
– The Bank will take advantage of the exemption
allowing it not to restate comparative information for prior
periods with respect to classification and measurement
(including impairment) changes.
Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 will
be recognised in retained earnings and reserves as at 1
January 2018.
The determination of the business model within which a
financial asset is held has been made on the basis of the
facts and circumstances that exist at the date of initial
application.
• IFRS 15 “Revenue from Contracts with Customers” and
further amendments (effective for annual periods beginning
on or after 1 January 2018),
• IFRS 16 “Leases” (effective for annual periods beginning
on or after 1 January 2019),
• IFRS 17 “Insurance Contracts” (effective for annual
periods beginning on or after 1 January 2021),
• Amendments to IFRS 2 “Share-based Payment” -
Classification and Measurement of Share-based Payment
Transactions (effective for annual periods beginning on or
after 1 January 2018),
• Amendments to IFRS 4 “Insurance Contracts” - Applying
IFRS 9 “Financial Instruments” with IFRS 4 “Insurance
Contracts” (effective for annual periods beginning on or
after 1 January 2018 or when IFRS 9 “Financial Instruments”
is applied first time),
• Amendments to IFRS 9 “Financial Instruments” -
Prepayment Features with Negative Compensation
(effective for annual periods beginning on or after 1 January
2019),
• Amendments to IFRS 10 “Consolidated Financial
Statements” and IAS 28 “Investments in Associates and
Joint Ventures” - Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture and further
amendments (effective date deferred indefinitely until
the research project on the equity method has been
concluded),
• 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),

• Amendments to IAS 40 “Investment Property” - Transfers

of Investment Property (effective for annual periods
beginning on or after 1 January 2018),

• Amendments to IFRS 1 and IAS 28 due to “Improvements

to IFRSs (cycle 2014-2016)” resulting from the annual
improvement project of IFRS (IFRS 1, IFRS 12 and IAS
28) primarily with a view to removing inconsistencies and
clarifying wording (amendments to IFRS 1 and IAS 28 are
to be applied for annual periods beginning on or after 1
January 2018),

• Amendments to various standards due to “Improvements

to IFRSs (cycle 2015-2017)” resulting from the annual
improvement project of IFRS (IFRS 3, IFRS 11, IAS 12 and
IAS 23) primarily with a view to removing inconsistencies
and clarifying wording (effective for annual periods
beginning on or after 1 January 2019),

• IFRIC 22 “Foreign Currency Transactions and Advance

Consideration” (effective for annual periods beginning on
or after 1 January 2018),

• IFRIC 23 “Uncertainty over Income Tax Treatments”

(effective for annual periods beginning on or after 1 January
2019).

The Bank has elected not to adopt these standards,

revisions and interpretations in advance of their effective
dates. Except for the impact of IFRS 9, which will be finalised
during 2018, the Bank anticipates that the adoption of the
other standards, revisions and interpretations will have no
material impact on the financial statements of the Bank in
the period of initial application.

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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

8. Net fees and commission income

2017 2016
FX transactions 27 25
Letters of Credit 6,930 7,874
Money Transfer 72,202 66,404
Commission Visa Card 75,526 83,222
Import-Export 12,618 13,326
Other fees received 256,444 247,968
Total fees and commission income 423,747 418,819

Credit Cards (5,183) (3,919)

Correspondent Banks (15,044) (12,732)
Total fees and commission expense (20,227) (16,651)
Net fee and commission income 403,520 402,168

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

10. Other operating expenses

2017 2016
Fees for deposits insurance (ASD) 169,665 169,277
Rental charges payable under operating leases 216,813 218,223
Telecommunication expenses 116,340 111,184
Advertising and marketing 36,546 44,376
Security and maintenance expenses 116,665 98,143
Subscriptions - 77,212
Utility expenses 40,462 42,400
Stationeries and consumables 13,570 19,130
Travel expense 16,945 11,101
Other insurance expenses 21,401 22,063
Fees and other similar expenses 39,288 10,709
Other 152,269 118,472
Total 939,964 942,290

11. Income tax expense

The components of income tax expense for the years ended 31 December 2017 and 2016 are:

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

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 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

Accounting profit/(loss) before tax 78,872 (523,798)

Theoretical tax charge (credit) at statutory rate (2017: 15%;
2016: 15%) 11,831 (78,570)
Tax effect of permanent differences: 154,139 316,939
-Income which is exempt from taxation (21,127) (1,913)
-Non-deductible expenses 175,266 318,852
Unrecognised tax loss carry forwards (165,970) (238,369)

Current tax expense -

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.

Corporate income tax receivable

2017 2016

1 January 300,914 300,914

Prepayments during the year - -
Income tax expense - -

Other payment (25,096)

31 December 275,818 300,914

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

(Dr)/Cr (Dr)/Cr (Dr)/Cr (Dr)/Cr

28,830 - (4,783) - 33,616 17,838 -

Available
for sale - (55,736) - 17,697 - (73,436) (17,424)
securities
Other
deferred tax 59,910 - (4,710) 64,620 (14,445)
- -
items
Total 88,740 (55,736) (9,493) 17,697 98,236 (73,436) 3,393 (17,424)
Deferred tax
33,004 24,800
assets, net

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 TIRANA BANK ANNUAL REPORT 2017

12. Cash and balances with Central Bank

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

Balances with the Central Bank

Current account
in LEK - -
in foreign currency 248 211
248 211
Compulsory reserves
in LEK 2,548,021 2,787,597
in foreign currency 2,671,800 2,793,213
5,219,821 5,580,810

Accrued interest 2,204 2,442

Total balances with Central Bank 5,222,273 5,583,463

Total cash and balances with Central Bank 6,914,728 7,128,006

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

Nostro and sight accounts with banks 9,101,484 5,738,168

Cash in transit to correspondent banks 132,950 -
Total current accounts 9,234,434 5,738,168

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

Financial assets under REPO - 7,978,116

Total loans and advances to banks 26,544,252 22,408,310

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

Nostro and sight accounts with banks

Raiffeisen Bank International AG BBB+ 1,905,547 63,285
Deutche Bank AG AA- 7,223,308 5,226,078
Deutsche Bank Trust Bank Americas A+ 72,178 420,220
Piraeus Bank SA CCC+ 33,401 27,011
Banco Popolare BBB- - 1,574

Total 9,234,434 5,738,168

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 TIRANA BANK ANNUAL REPORT 2017

S&P
31 December 2017 LT/ST Currency Original Currency In Lek ‘000

Piraeus Bank CCC+ EUR 72,000,000 9,598,990

BBVA BBB+ EUR 45,500,000 6,049,225

BBVA BBB+ GBP 3,100,000 464,845

San Paolo di Torino BBB USD 10,700,000 1,188,770

Accrued Interest 7,988

Total 17,309,818
S&P Në monedhë
31 December 2016 LT/ST Monedha origjinale Në Lekë ‘000

Piraeus Bank CCC+ EUR 41,000,000 5,544,430

BBVA BBB+ EUR 18,500,000 2,501,755

BBVA BBB GBP 2,800,000 441,168

San Paolo di Torino B+ ALL 200,000,000 200,000

Accrued Interest 4,673

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

Consumer lending 1,718,225 1,504,799 Manufacturing 4,833,733 4,485,055

Mortgage 6,188,792 6,227,023

Electricity 907,735 1,128,148
Overdrafts 243,382 277,141
Trade 6,169,832 7,829,705
Credit cards 212,295 202,108

Loan commissions deferred (86,015) (150,591) Construction 2,965,201 4,236,413

Accrued interest 182,192 257,623

Other industries 4,036,413 4,674,288

Gross loans and advances 27,371,785 30,671,712

Total gross loans 18,912,914 22,353,609

Less: Allowance for impairment

losses (3,334,554) (5,398,062) The interest rates for loans and overdrafts are floating as
follows:
Total 24,037,231 25,273,650

Currency Interest Rate Additional Penalty

Current 12,441,512 11,984,716
Interest Rate
Non-current 11,595,719 13,288,934 2017

LEK 12 months TRIBOR 5.0% -10 %

+ (1.6-8)%
USD 12 months LIBOR 5.0%
+ (6.0)%
EUR 12 months EURIBOR 5.0%
+ (3.7-5)%

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

At 1 January 5,398,062 8,207,043

Write off (2,225,842) (3,522,568)

Charge for the year 130,578 758,768

Exchange rate effect (72,831) (72,018)

Other movements (payment from WO) 104,587 26,837

At 31 December 3,334,554 5,398,062

Individual impairments 2,736,323 4,196,332

Collective impairments 598,231 1,201,730

3,334,554 5,398,062

The movement in allowances for losses by classes of loans during 2017 is as follows:

Corporate and Credit cards

Consumer Mortgages Total
SME and overdrafts

At 1 January 2017 4,658,899 189,263 484,287 65,613 5,398,062

Write Offs (2,015,494) (54,861) (142,380) (13,107) (2,225,842)

Charge for the year 285,201 (26,832) (152,938) 25,147 130,578

Exchange rate effect (65,202) (689) (6,940) - (72,831)

Other (payment from WO) 80,012 6,854 17,719 104,585

At 31 December 2017 2,943,416 113,735 199,748 77,653 3,334,552

The movement in allowances for losses by classes of loans during 2016 is as follows:

Corporate and Credit cards

Consumer Mortgages Total
SME and overdrafts

At 1 January 2016 6,979,190 385,703 738,108 104,042 8,207,043

Write Offs (3,035,055) (180,220) (237,093) (70,200) (3,522,568)

Charge for the year 752,741 (14,537) (11,207) 31,771 758,768

Exchange rate effect (62,921) (2,556) (6,541) - (72,018)

Other (payment from WO) 24,945 872 1020 - 26,837

At 31 December 2016 4,658,900 189,262 484,287 65,613 5,398,062

92
14. Financial assets available for sale
2017 2016

Visa shares - 195,211

Government bonds 10,805,926 16,207,807

Government treasury bills 4,537,172 5,044,534

Total 15,343,098 21,447,552

Shares in Visa Inc 2017 2016

At 1 January 195,211 190,417

(Losses)/gains from change in fair value - 4,794

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).

Government bonds 2017 2016

At 1 January 16,207,807 13,681,390

Purchase 2,972,213 3,498,163

Matured (8,399,113) (1,135,552)

Gains from change in fair value 25,019 163,806

At 31 December 10,805,926 16,207,807

Government treasury bills 2017 2016

At 1 January 5,044,534 6,555,722

Purchase 4,526,791 5,074,642

Matured during the year (5,044,534) (6,555,723)

(Losses)/gains from change in fair value 10,381 (30,107)

At 31 December 4,537,172 5,044,534

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 TIRANA BANK ANNUAL REPORT 2017

15. Investment properties

Investment properties include repossessed collateral real estate assets acquired by
the Bank in settlement of overdue loans. The Bank intends to hold the properties for
capital appreciation. None of the properties is rented out on operating lease in 2017
and 2016. No maintenance and repair works were performed to investment properties
in 2017 and 2016.

31 December 2017 31 December 2016

Investment Properties 117,464 109,864

Property and equipment Inventory
Assets 2,921,930 2,746,982

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

Unrealised gain/ (loss) on property

7,600 (194,886)
revaluation included in profit or loss

15.1 FAIR VALUE MEASUREMENT OF THE BANK’S

INVESTMENT PROPERTIES

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:

31 December 2017 31 December 2016

Tirana 981,333 805,418

Durres 855,835 882,596

Elbasan 84,930 99,223

Kavaja 179,558 179,558

Other 937,738 890,051

Total 3,039,394 2,856,846

16. Intangible assets

Cost: Software

At 1 January 2016 1,281,154

Additions 66,605

At 31 December 2016 1,347,759

At 1 January 2017 1,347,759

Additions 29,631

At 31 December 2017 1,377,390

Amortization:

At 1 January 2016 (946,684)

Amortization charge for the year (107,789)

At 31 December 2016 (1,054,473)

At 1 January 2017 (1,054,473)

Amortization charge for the year (80,882)

At 31 December 2017 (1,135,355)

Net book value

At 31 December 2016 293,286

At 31 December 2017 242,035

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 TIRANA BANK ANNUAL REPORT 2017

17. Property and equipment

Furniture and
Land and electronic Leasehold
buildings Vehicles equipment improvement Total

Cost:

At 1 January 2016 709,450 96,922 1,494,487 905,052 3,205,911

Additions 34 482 49,787 1,705 52,008

Disposals - - (3,809) - (3,809)

At 31 December 2016 709,484 97,404 1,540,465 906,757 3,254,110

At 1 January 2017 709,484 97,404 1,540,465 906,757 3,254,110

Additions 4,034 510 35,403 17,362 57,309

Disposals - - (879) - (879)

At 31 December 2017 713,518 97,914 1,574,989 924,119 3,310,540

Depreciation:

At 1 January 2016 (305,642) (96,253) (1,429,203) (776,142) (2,607,240)

Depreciation charge for the
year (33,840) (833) (32,945) (37,565) (105,183)

Disposals - - 3,809 - 3,809

At 31 December 2016 (339,482) (97,086) (1,458,339) (813,709) (2,708,616)

At 1 January 2017 (339,482) (97,086) (1,458,339) (813,709) (2,708,616)

Depreciation charge for the
year (33,892) (670) (35,820) (34,357) (104,739)

Disposals - - 879 - 879

At 31 December 2017 (373,374) (97,756) (1,493,280) (848,066) 2,812,476

Net book value:

At 31 December 2016 370,002 318 82,126 93,050 545,496

At 31 December 2017 340,144 158 81,709 76,053 498,064

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

Other assets include mainly suspense accounts amounting

of Lek 361,432 thousand (2016: Lek 541,736 thousand)

20. Due to customers

31 December 2017 31 December 2016

Corporate customers

Current accounts 5,531,394 5,582,909

Term deposits 541,351 709,165

Other deposits 831,665 545,716

6,904,410 6,837,790

Retail customers

Current / Savings accounts 18,242,028 15,223,530

Term deposits 35,347,365 40,999,619

Other deposits 252,768 270,585

53,842,161 56,493,734

Accrued interest 117,271 148,520

Cheques payables and remittances 93,304 105,356

Total 60,957,146 63,585,400

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 TIRANA BANK ANNUAL REPORT 2017

21. Other liabilities

31 December 2017 31 December 2016
Accrued expenses include expenses
Accrued expenses 187,831 168,698
on utilities, telephone expenses and
Other liabilities 545,956 317,845 bonuses related to current year and
will be paid the year after.
Other financial liabilities 733,787 486,543

Other taxes payable 14,493 -

Social insurance payable 10,234 29,332

Total 758,514 515,875

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) -

At 31 December 312,521 441,978

98
23. Paid-in capital
and share premium

31 December 2017 31 December 2016

Paid in Capital-authorized, issued and
fully paid 14,754,741 14,754,741

Share premium 1,735,494 1,735,494

Revaluation differences - -

Statutory Reserve 260,623 260,623

Legal Reserve 1,113,627 1,113,627

Other reserves 325,761 426,043

Total 18,190,246 18,290,528

The table below shows the shareholders structure of the Bank as 31 December 2017 and 2016.

Number of shares Share in % Number of shares Share in %

Shareholder’s name in 2017 31 December 2017 in 2016 31 December 2016

Piraeus Bank S.A Greece

496,098 98,83 496,098 98,83
Mr. Tzivelis Ioannis
5,877 1.17 5,877 1,17
Total
501,975 100,00 501,975 100,00

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.

24. Other reserves

Legal reserves have been established according to the Bank of Albania regulation
“On the minimum initial capital for allowed activities of banks and branches of
foreign licensed banks”, no.51, dated 22 April 1999. Banks and branches of
foreign banks shall create reserves at 1,25% up to 2% of total risk weighted
assets by deducting 1/5 of the profit after taxes before paying dividends.

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

25. Dividend per share

The General Assembly of Shareholders has decided that no dividends should be distributed from the retained earnings as
at December 31, 2017. No decision is taken on retained earnings as at December 31, 2017.

26. Cash and

cash equivalents
For the purpose of Cash Flow Statement, cash and cash equivalent comprises as follows:

Notes 31 December 2017 31 December 2016

Cash in hand 8 1,692,454 1,544,543

Current accounts with Central Bank 8 248 211

Nostro and sight accounts with banks 8 9,234,434 5,738,168

Repo deals 8 - 7,978,116

Due from banks 8 17,309,818 8,692,026

Total 28,236,954 23,953,064

27. Related parties

In the course of conducting its banking business, the Bank entered into various business transactions with related parties. Related
parties include (a) Piraeus Bank S.A Greece for sight deposits, inter-bank placements and borrowings, and (b) Tirana Leasing
(subsidiary of the parent) for lending and deposits.
The immediate and ultimate parent of the Bank is Piraeus Bank SA (Greece).

31 December 2017 31 December 2016

Piraeus Bank SA Greece

Sight deposits 33,401 17,029
Placements 9,607,219 5,549,188
Financial assets under Repo - 7,978,116
Due to banks (502) (295)
Borrowings (15,954) (23,950)
Total 9,624,164 13,520,088

10 0
 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)

31 December 2017 31 December 2016

Piraeus Real Estate Tirana shpk
Loans given - -
Due to (2,448) (3,491)
Total (2,448) (3,491)

31 December 2017 31 December 2016

Cielo Consultancy shpk
Loans given - -
Due to (51,852) (79,966)
Total (51,852) (79,966)

31 December 2017 31 December 2016

Edificio Enterprise shpk
Loans given - -
Due to (4) (9)
Total (4) (9)

31 December 2017 31 December 2016

Tierra Projects shpk
Loans given - -
Due to (9) (15)
Total (9) (15)

31 December 2017 31 December 2016

Bank Directors
Loans given 26,055 22,489
Due to (10,735) (9,269)
Total 15,320 13,220

2017 2016

Income and expenses

Piraeus Bank S.A. Greece

Interest income 33,587 22,294
Interest expenses (293) (680)
Fees and commission income 16 -
Fees and commission expenses (19) (65)
33,291 21,549

Tirana Leasing
Interest income - -
- -

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 TIRANA BANK ANNUAL REPORT 2017

28. Presentation of financial instruments

by measurement category
The following table provides a reconciliation of classes of financial assets with the measurement categories as of 31
December 2017:

Loans and
2017 Available for sale Held to maturity Total
receivables

Cash and balances with Central Bank 6,914,728 - - 6,914,728

Loans and advances to banks 26,544,252 - - 26,544,252

Held to maturity financial assets - - - -

Financial assets available for sale - 15,343,098 - 15,343,098

Loans and advances to customers 24,037,231 - - 24,037,231

Total financial assets 72,839,309

Other assets 313,860

Total Assets 73,153,169

Loans and
Available for sale Held to maturity Total
2016 receivables

Cash and balances with Central Bank 7,128,006 - - 7,128,006

Loans and advances to banks 22,408,310 - - 22,408,310

Held to maturity financial assets - - - -

Financial assets available for sale - 21,447,552 - 21,447,552

Loans and advances to customers 25,273,650 - - 25,273,650

Total financial assets 76,257,518

Other assets 350,171

Total Assets 76,607,689

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.

10 2
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:

31 December 2017 31 December 2016

Granted

Loan commitments 4,794,011 7,931,132

Letters of Guarantees
329,461 370,609

Letters of Credit 21,242 -

Received

Guarantees received 2,643,806 4,473,125

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:

31 December 2017 31 December 2016

Up to 1 year 125,327 140,556

From 1 to 5 years 261,927 301,862

More than 5 year 40,573 7,415

Total 427,827 449,833

30. Events after the reporting date

There are no other events after the reporting date that would require either adjustments or additional disclosures in the
financial statements.

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 TIRANA BANK ANNUAL REPORT 2017

9 TIRANA BANK COMMITTEES

CREDIT COMMITTEES CLASSIFICATION & PROVISIONING

COMMITTEE
A) Corporate Credit Committee
1. CEO as Chairman 1. CEO as Chairman
2. Head of Credit Division 2. Credit Division Head
3. Acting Chief Business Officer 3. Chief Retail Officer
4. Acting Head of Corporate Division 4. Chief Business Office
5. Manager of Risk Department 5. Recovery Division Head
6. Manager of Business Department, Credit Division 6. Risk Department Manager
7. Business Development Advisor (with non-voting rights)
B) SME Credit Committee
1. CEO as Chairman
2. Head of Credit Division
ASSET-LIABILITY COMMITTEE (ALCO)
3. Acting Chief Business Officer
4. SME Manager 1. CEO - Chairman
5. Manager of Risk Department 2. Chief Financial Officer
6. Manager of Business Department, Credit Division 3. Chief Operations Officer
4. Chief Retail Officer
5. Chief Business Officer
RECOVERY BANKING COMMITTEES
6. Treasury & Financial Markets Head
7. Credit Division Head
A) Recovery Banking Committee (RBU)
8. Risk Department Manager
1. CEO as Chairman
9. Business Development Advisor
2. Head of Credit Division
(with non-voting rights)
3. Head of RBU
4. Chief Financial Officer
5. Risk Department Manager DISCIPLINARY COMMITTEE
6. Legal Department Manager
7. Manager Business Department, Credit Division 1. CEO as Chairman
2. Chief Operations Officer
B. Recovery Banking Sub Committee 3. Head of respective Division/Department
1. Head of Credit Division as Chairman the employee belongs to
2. Head of RBU 4. Legal Department Manager
3. Manager, Retail Department, Credit Division 5. Human Resources Manager
4. Retail Recovery Department Acting Manager

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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”.

BOARD RISK MANAGEMENT COMMITTEE

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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