ANNUAL REPORT 2018 - Fibank · 2019. 6. 28. · Expenditure growth profile was determined by...

ANNUALREPORT 2018

GROWTH & STABILITY

The Banking SystemBank Profile Corporate Status Participations and Memberships Correspondent Relations Branch Network First Investment Bank: Dates and Facts Highlights 2018 Key Indicators Financial Results Loans Related Party Transactions Commitments and Contingent Liabilities Attracted Funds Internal audit Risk Management Risk Management Framework Credit Risk Market Risk Liquidity Risk Internal Capital Adequacy Analysis Operational Risk Information TechnologiesCorporate Governance Human Capital Branch network Steering Council Business Overview Deposits Retail Lending SME Lending Gold and Commemorative Coins Payment Services Compliance and AML Depositary and Custodian Services Financial Statements for the year ended 31 December 2018(with independent auditors’ report thereon)

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TABLE OF CONTENTS

Message from the CEO

FIBANK ALBANIA /20194 THE Annual Report

BOZHIDAR TODOROVChief Executive Officer

Dear Shareholders, Partners and Employees,

I can proudly say that 2018 was the most successful year for Fibank Al-bania. We have achieved the highest profit in our history, exceeding EUR 3,5 million. We have recorded the highest growth rate in the banking system for lending, with more than 33%, in addition to 30% increase in deposits and 26% in assets. I would also like to mention that we have preserved and improved our liquidity and capital position.

The results are even more impressive when it comes to our branch net-work. We have inaugurated 5 new branches in the cities of Tirana, Lushn-ja, Lezha and Saranda. At a time when the banking system was shrinking, we saw the opportunity to offer our services to a wider range of Albani-ans and businesses. The new branches are fully operative and our annual financial result was not impacted by the increase in expenses. This year, just as we have done in the previous years, the profit will be reinvested here in Albania.

I believe and I wish the year 2019 will be an even better one, not only for Fibank, but for Albania and Albanians in general! Fibank will continue to expand its presence in Albania. We are planning to increase our busi-ness with at least 20%. This will be our response to the high demand for our services and the high interest that private individuals and companies have shown towards recognising Fibank Albania.

We have also started several projects for the modernisation and digital-isation of the bank, like mobile banking, further improvements in the e-banking platform and a new credit card system. During 2019 we ex-pect to complete all these projects, offering this way a full set of digital channels and services to our customers. This will help us to expand our presence in Retail and SME segments, which remain strategic for Fibank.

FIBANK ALBANIA /2019 5THE Annual Report

Main macroeconomic indicators

Macroeconomic Development The economic activity in Albania continued to improve. The Albanian economy grew by 4.3% during the first nine months of 2018, improving from the previous year. Economic growth reflected the expansion in consumption, investments and exports. Growth in electricity production also bolstered economic growth.

The number of employees recorded 3.5% annual growth during the first nine months of the year, while the unemployment rate fell to 12.2%. Also, survey data suggest that enterprises increased the capacity utilization rate. This trend shows that the Albanian economy is gradually moving towards its potential.

Albania’s public debt has gone down to 68.9% percent of GDP which is even below government’s forecast of not less than 69.1 percent of GDP. Domestic debt holders Q3 2018: Banking system 61.19%, BOA 8.1%, Individuals 15.15%, Financial Institutions 13.98%, Non Finanacial.Inst 1.57%

For 2018, budget deficit amounted to about ALL 26.5 billion, accounting for about 1.6% of GDP. Similar to the previous three years, deficit was dominantly financed by foreign sources. The main instrument of foreign financing during 2018 was the issuance of the 7-year Eurobond for EUR 500 million.

Budged expenditures in 2018 resulted around ALL 475.9 billion, or around 3.1% higher in annual terms. Expenditure growth profile was determined by capital expenditures, those for social security, as well as interest payments on existing debt received in previous years.

Budget revenues for 2018 amounted ALL 449.4 billion or around 4.4% higher than in the previous year. Tax revenues were estimated at about 25.6% of GDP, similar to the previous year. Tax policy was almost the same as last year. For this reason, the profile of the increase of tax revenues during 2018 has reflected the pervasiveness of private consumption, increased economic activity as well as the improved dynamics of labour market indicators.


Gross domestic product growth in %

Exports growth by about 25.7%, largely driven by the increase in the export of electricity, was offset by an increase of imports by about 5.8%..Regarding the countries of origin, Italy remains the main partner with a wide variety of imported products.Investment growth continued in 2018, although it showed lower growth rates Investments increased by 4.2% over the first nine months of 2018, compared to a 6.5% in 2017.

FDI inflows expanded by about 11.6% over the first nine months of the year, with investments in the energy sector as the main source. Consequently, the energy sector is ranked first in FDIs, accounting for about 26.9% of the total at the end of the first nine months of 2018.

Gross Domestic Product grew by 3.4% during the first nine months of 2018. This constitutes the highest growth rate since 2008. Growth in consumption was supported by increase of employment and wages, accommodative monetary policy, and eased lending conditions. Indirect indicators suggest that, in 2018, private consumption increased mainly in the categories of nondurable consumer goods and less in the category of durable consumer goods and services.


Annual inflation averaged 2.0%, unchanged from 2017. Domestic factors, such as the expansion of aggregate demand, decrease of unemployment and increased production capacities contributed to the rise of inflation. On the other hand, the exchange rate appreciation and fluctuations in international prices contributed to the decrease of imported inflation.


The Banking SystemThe activity of the banking and financial sectors during 2018 was stable and was conducted under favourable macroeconomic conditions. Monetary policy continued its accommodative trend in 2018, supporting the further fall of interest rates on deposits, loans and government securities. The banking sector, which has over 90% of the financial system’s assets, ended 2018, with a positive financial result, with a good capitalization level, with excessive liquidity, at levels higher than those required by the relevant regulation, and with a better credit quality compared to the previous year.Net interest income continued to represent the main source (about 70%) of the banking sector’s income. These revenues were almost the same as those of 2017, as income and interest expenditures remained at the same level of the previous year.

The banking sector’s capital adequacy ratio increased to 18.2%, from 17% in the previous year. The majority of banks’ adequacy ratio is higher than 15%. The increase of capitalization came mainly from the decline in the volume of risk-weighted assets as a result of regulatory changes undertaken during the year, while the regulatory capital of banks slightly declined.Bank of Albania decided to increase the minimum regulatory requirement for the ratio of liquid assets in foreign currency to short-term foreign currency liabilities at 20%. The minimum required ratio level for lek remained at 15%.

In September 2018, approval for the merger by absorption between Intesa Sanpaolo Albania and Veneto Banka, and between American Bank of Investments and NBG Albania was granted. The structural changes in the ownership in the banking system lowered the number of banks in the system to 14 (from 16 banks)

Banking system indicators

Through year 2018 the key interest rates were kept unchanged. In June, the Council decided to lower the key interest rates, namely: (i) the policy rate to 1.00%; (ii) the overnight deposit facility rate to 0.1%; and (iii) the overnight lending facility rate to 1.9%. The rates were kept unchanged till the end of 2018.Non-performing loans continues to represent the main risk of banking and financial activity, but this risk decreased during 2018 as a result of the measures taken by banks to write off and restructure the non-performing loans and as a result of stronger risk monitoring for lending to enterprises over the past few years. The coverage of non-performing loans with provisions and capital and the coverage


of outstanding loan with collateral remained at adequate levels. By the end of 2018, the ratio of non-performing loans (NPLs) was 11.1% from 13.2% in the previous year, while the non-performing loans ratio reduced by 20%. The greatest improvement in credit quality was recorded for loans in lek, loans to enterprises, long-term loans and loans to the trade sector.

Deposits stock in the banking system expanded by around 1.1% in annual average terms during the year. The largest contribution to deposit growth was given by foreign currency deposits, supported by high foreign exchange rates during the year. Deposits in lek have contributed to a lower extent, since a part of the domestic currency savings are channelled into government securities. In parallel, the shift from deposits with maturity under two years toward demand deposits and time deposits of over two years has continued. These categories account for 44% and 12% respectively of the total stock of deposits. Performance by economic agents confirms both household and enterprises deposit growth.

Lending activity appears to be slightly improved, supported by the steady growth of loans in lek Credit to the private sector grew by 2% on average, reaching 35.2% of GDP.The credit growth rate continues to be moderate, driven by the weak demand for loans by the private sector, conservative lending policies applied by banks, and the exchange rate appreciation effect. The accommodative monetary policy stance continued to maintain low interest rates and favourable lending conditions.

Credit portfolio in lek continued to contribute the most to the expansion of credit to the private sector. The average annual growth rate of this portfolio was at 6.6%. Credit in lek is channeled mainly to the segment of households. This portfolio grew steadily over the year, marking 8% average annual rate. Foreign currency loans showed an upward improvement, marking an average annual growth of 4%.


The expansion of foreign currency loans mainly supports the financing of enterprises.The Bank of Albania increased the average liquidity injected through open market operations about ALL 39 billion in 2018, from ALL 24 -34 billion over the past two years. In response to the increase of liquidity shortage, the Bank of Albania increased the share of injections up to 46%, from 19.3% and 39.4% in 2016 and 2017, respectively.

The Albanian Lek appreciated further during 2018 The foreign exchange market is characterized by a strong appreciation of the lek during 2018. Following a gradual appreciation trend during 2016 and 2017, the lek exchange rate against the euro appreciated by about 4.9% this year. The appreciation of the lek peaked in the second quarter, reflecting the shocks this market experienced during this periodThe appreciation of the lek was also observed against the US dollar. One US dollar was traded at ALL 108 on average, or 9.3% less compared to the previous year.Bank of Albania’s intervention in the foreign exchange market curbed the rapid pace of exchange rate appreciation and restored the activity in the foreign exchange market within normal parameters

MissionFirst Investment Bank, Albania Sha aims to be one of the top 10 banks in Albania and in the region that is known for a fast-growing, innovative, customer oriented that delivers products and quality services, to find excellent opportunities to develop their employees and contribute to friends.Our vision is that good leadership, employee interaction; innovation and flexibility allow us to better serve our customers, partners and attract intellectual capital and increase our shareholder value.

Positive DevelopmentIn 2018, Fibank Albania continued to successfully overcome the challenges of the external and internal environment and reported enhanced results. During last year the financial sector expanded its activity with significant rates. In all indicators of Bank performance 2018 was the most successful year and Fibank Albania showed a consistency increase at main financial figures. This was thanks to the strategic decisions and consistent measures implemented by the Bank in maintaining a balance between risk and profitability, as well as reinforcing the high quality of products and services while maintaining a flexible business model.


Bank ProfileCorporate StatusFirst Investment Bank (Fibank Albania) is a successor of the foreign branch of First Investment Bank AD, Tirana Branch which has started operating in the Albanian Market since 1999. Fibank is a subsidiary of First Investment Bank A.D. an entity incorporated in Bulgaria as a credit institution which owns 100% of the Bank’s shares.

Fibank Albania – was issued a general banking license from the Bank of Albania, on July 6th 2007. This license allowed Fibank to carry out all bank transactions in accordance to the Albanian legislation in force and absorbed all the activity of First Investment Bank AD, Tirana Branch. By obtaining a full license Fibank Management Albania launched: • Branch expansion• Full range of SME and Retail products Fibank is the first bank to be licensed by the Albanian Financial Supervisory Authority entitled to carry out depositary, custodian and brokerage services.In execution of the obligations resulting from Regulation (ЕС) № 648/2012 of the European Parliament and of the Counsel on OTC derivatives, central counterparties and trade repositories (EMIR), the Bank has a LEI code (Legal Entity Identifier): 529900TCJ9K2BDH3TR75 issued by Global Markets Entity Identifier (GMEI) Utility.

Fibank Albania Sh.a is FATCA compliant institution under status “Registered Deemed-Compliant Foreign Financial Institution”. The Global Intermediary Identification Number (GIIN) of the Bank is: SP7FU7.00001.ME.008.

First Investment Bank - Albania incorporated in the Republic of Albania is a joint stock company established on August 1st 2005 and has its registered office in Tirana, “Dëshmorët e Kombit” Blvd. Twin Towers, Tower 2, 14th-15th Floor.

Participations and Memberships • Albanian Association of Banks• Albanian Foreign Investors Association• Bulgarian-Albanian Chamber of Commerce and Industry

Correspondent RelationsFibank Albania has a network of 3 correspondent banks, through which it performs international payments and trade finance operations. The Bank executes international transfers in three foreign currencies and performs different documentary operations.Fibank is a reliable and fair partner, which has built over the years a good reputation among international


financial institutions and gained valuable experience and know-how from its business partners, customers and counterparties.

Branch NetworkBranch network at 31 December 2018 had a total of 1 branch and 11 agencies and Head Office. The agencies are located in Durres, Fier, Vlore, Elbasan, Korce, Shkoder, Berat, Lezhe, Lushnje, Sarande as well as in Tirana where is also the Head Office.


First Investment Bank:Dates and Facts


First Investment Bank:Dates and Facts

1999

2007

2008

2009

2010

2011

2012

2010-2012

2013

2014

2015

2017 – 2018

2018

First Investment Bank AD opens a Branch in Tirana.

First Investment Bank Albania receives a license from Bank of Albania as an independent Albanian bank, with its mother bank in Bulgaria.Opens three new branches in Elbasan, Vlora and Korca adding them to the existing branches in Tirana and Durres.Launches a wide range of innovative banking products for all customer groups aiming to penetrate the market through specific and interesting offers.

Branch network grows with other branches in Fier, Shkodra and Berat aiming to be present in the main cities by offering dedicated products and services to individual customers as well as businesses located in these cities.

Fibank assets increased by 77%, investment by 200% while deposits showed an increase by 160%.

Fibank Albania was licensed by Financial Supervisory Authority;To exercise intermediary activity (broker / dealer) in the securities of the Government of the Republic of Albania in stock exchange and the retail market.Custodian of securities of the Government of the Republic of Albania.Depository of Voluntary Pension Funds, with responsibility for safekeeping of the assets, operations and documents of the pension fund or investment fund. Fibank is the 6th bank licensed in the Albanian market.Increase on investments reached 370%, in deposits 75% and in loans 99%.

Fibank Albania was licensed by Financial Supervisory Authority;To act as Depository of Voluntary Pension Funds and Collective investment undertakings with responsibility for safekeeping of the assets, operations and documents of the investment fund.Continued the increase on main bank performance indicators, loans to customers and deposits with around 30%.

First in terms of growth rate in the Albanian banking system. Net profit showed a positive result of EUR 700 thousand. Assets reached to EUR 96 million at the end of the year with a capital adequacy ratio of 16.6% and a liquidity ratio of 38.6%.

In October 2010 and in February 2012 Fibank Albania signed the agreement with Raiffeisen Invest Fund, the biggest investment fund company in Albania and the only company in the country that manages the collective investment undertakings. Actually, FIBank Albania is acting as depositary of five investment and pension funds, four of which are managed from Raiffeisen Invest Albania and one from WVP Management Tirana.

Total assets reached EUR 120 million, and deposits exceeded EUR 100 million as well. Continued to increase net profit to approximately of EUR 800 thousand.

FIBank Albania was licensed by Financial Supervision Authority as Custodian of Corporate and Municipality Bonds. Actually, FIBank Albania is acting as custodian of two corporate bonds issued by Credins Bank and Digitalb SHA.

Fibank was honored with the award “Bank of the Year” for 2015 by Chamber of Commerce and Industry. Significant for this year was that net profit reached the highest value EUR 1.8 million since bank has been opened its first branch in April 1999. Recorded best years in all performance indicators and in the last 2 years in total: • Loans increased with 83%; • Total assets increased with 44%; • Deposits increase with 42%; • Net profit exceeded EUR 3 mio in each year;

• Fibank Albania is assigned as Primary Dealer in Albanian Banking System. This way, Fibank is among 5 banks assigned as Primary Dealer for Albanian Government Bonds in a country where exercise their activity 14 banks. • Fibank expanded its agency network with three additional branches in the cities of Saranda, Lushnja and Lezha.


Ι Highlights 2018


January - December 2018 Activities: GENDER EQUALITY #5 – Achieve gender equality and empower all women and girls#Celebrateher/6th of March 2018Gender inequality is present worldwide, depriving women and girls of their basic rights and opportunities. Achieving gender equality and the empowerment of women and girls will require more vigorous efforts, including legal frameworks, to counter deeply rooted gender-based discrimination that often results from patriarchal attitudes and social norms. The global indicator framework ensures the elimination of all forms of violence against all women and girls in the public and private spheres, including trafficking and sexual and other types of exploitation. In this framework Fibank in collaboration with the Mother and Child Hospital Foundation organized a Public Flash Mob campaign called #celebrateHer “The Waltz of Love” at the Skanderbeg Square among Albanian youth, young adults to end violence against women and girls especially during their pregnancy period. The public Flash Mob was organized with support from The Tirana Ballet School including several high schools.

On September 25th 2015 the United Nations and countries around the world adopted a set of goals to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. Each goal has specific targets to be achieved over the next 15 years. For the goals to be reached, everyone needs to do their part: governments, the private sector, civil society and people like you. During 2018 Fibank Albania has been active in a large number of SDG goals such as: Goal #9: Foster Innovation, Goal #3: Good health and wellbeing; Goal #4: Quality Education; Goal #5: Decent work and economic growth Goal #8: Promote economic growth as follows:

QUALITY EDUCATION #4 – Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all Global Money Week / From 12th of March – 8th of May 2018 During the week of 12-18 March 2018 Bank of Albania, in cooperation with the Albanian Association of Banks and the Ministry of Education, Sports and Youth, the Agency of Deposit Insurance (ASD), Junior Achievement (JA), the National Youth Services (SHKR), organized diverse activities for children and young people. At the heart of these activities lies financial education, more specifically how they care about money, how to save, how to think financially. Activities include lectures, competitions, visits to the Bank of Albania Museum and commercial banks, open class hours and competitions for financial literacy. This year, “Global Money Week” theme was: “Money Matters Matter!”. Each year Fibank Albania supports a specific activity related to this initiative.

Global Money Week Photo:


European Money Quiz / 16th of March – 8th of May 2018On 16th of March 2018 the Albanian Association of Banks organized for the first time in Europe the competition: “European Money Quiz”, among high school teens of ages 13-15 years old. European Money Quiz is an international financial literacy competition organized by each country’s national banking association. This competition took place in two phases first locally among school children who competed with each-other by playing Kahoot directly. The second phase was the EU final held in Brussels, where the winning local school would compete among other EU winning local schools. Fibank was one of the main supporters of the AAB for such an initiative. Fibank remains committed to contribute to the education of the young generation, empowering them with the right tools for money and finance management.

European Money Quiz Photo:

Career Job Fair / 25th of April 2018 Career Job Fair is organized by University of Tirana, Economics Faculty and takes place in April with this year’s theme: “To develop together…”. Fibank is one of the main participating companies that supports the “Career Job Fair” and is highly committed to issue internships and even employment opportunities to students who graduate with excellent results in Economics, Finance, Business Administration and Business Informatics. Fibank encourages students to be always active, to develop their potential and talent towards a secure professional future.

Career job fair photo:

INDUSTRY, INNOVATION AND INFRASTRUCTURE #9 – FOSTER INNOVATIONBuild resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

#LumturiaeSaj – e pare ne sy te femijeve / 28th April – 26th of June 2018 Digital Photography Despite steady improvements in manufacturing output and employment, renewed investment will be needed in the least developed countries to build needed infrastructure and ensure the doubling of industry’s share of GDP in those countries by 2030. The global indicator framework ensures significant increase access to information and communication technology and strives to provide universal and affordable access to the Internet in all countries by 2020. Based on these SDG indicators, Fibank launched several successful Social Media Campaigns such as “#LumturiaeSaj – e pare ne sy te femijeve”. Each of these campaigns had as its main focus the encouragement of the young generation to use internet mobile data and most importantly be able to see social media as a new tool for further investment opportunities. Since the campaigns proved to be very successful, Fibank will continue to further fine tune and implement them in its yearly bank strategy.

Children’s international day photos:


EPPC Albania Staff Training / yearly trainings 2018 As an equal opportunity employer Fibank continuously invests in staff trainings. On October 8th 64 staff members took place in a 6-day intense training highly focused on the ability to negotiate in practice; interactivity and discussions with Fibank Albania’s sales and negotiating team. Negotiation can relieve relationships and can give you a positive edge in sales and business. These trainings are an ongoing practice which serve Fibank to improve employee and customer quality.

EPPC Albania staff training photos:

Innovate your way out / 31st of May 2018 “Innovate your way out” it’s an independent project initiated from the University of Tirana Economics Faculty as its aim to foster innovative projects from students. The subject of “Innovation” is offered during the second semester of the first year to over 400 students, who study in the field of Business Administration and Business Informatics. Fibank decided to support the third prize of winning students along with their innovative presentation.

Innovate your way photo:

Good health and well-being #3 – Ensure healthy lives and promote well-being for all at all ages Tirana Marathon/7th of October 2018 On 7 October 2018, Fibank Albania became part of the 3rd edition of the Tirana Marathon. With a participation of over 2,500 contestants of different ages from 40 different countries, this event was rated as the biggest sporting event of the capital and not only. Fibank Albania was represented by 20 staff members who ran for the category of half marathons.

Tirana Marathon photos:


Red Cross Albania - Blood donation / 19th of December 2018On December 19, Fibank Albania joined the cause by organizing a day of blood donation at its premises. Fibank staff, but also external donors, responded to our call in all our social media channels to come and donate blood. Fibank joined this cause as one of the primary blood donors in helping people who are indispensable to continue life, especially children with blood diseases, by also raising awareness for this human necessity.

Red Cross Albania blood donation event:

Decent work and economic growth #8 – Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

New Branch Openings / during 2018 Achieving healthy lives and promoting well-being for all at all ages its highly important when it comes to bringing businesses close to people’s needs. Such was the 2018 expansion of new branch openings of Fibank Albania in three major cities, respectively in Lezha, Lushnje and Saranda. The new branch openings will create at least over 40 new job opportunities for these cities and foster new ways of supporting Albanian families for their personal or business purposes through Fibank products.

Opening of Lushnja Branch:

Opening of Saranda Branch:

Opening of Lezha Branch:


No Poverty #1 – End poverty in all its forms everywhere.

Social Center, Red Cross Albania / 17th of October 2018 On 17th of October, in the framework of the International Day against Poverty, Fibank engaged in a human activity at the Tirana Social Center, opened by the Albanian Red Cross. Fibank Albania was among the first supporters for this social center to help families in need, elderly people and children who are excluded due to their difficult economic social situation, unemployment, violence, neglect or discrimination and do not benefit the necessary care or services. Fibank staff along with media characters of the Albanian showbiz and Red Cross volunteered, generously offering warm lunch for this part of society.

Social Center Red Cross event:


Key Indicators


Financial Results


Deposits In 2018 Fibank Albania reported profit after tax in the amount of ALL 401,032 thousand (2017: ALL 435,676 thousand; 2016: ALL 363,088 thousand). This was due to higher income from banking operations, especially from an increase in net interest income and net fee and commis-sion income. Fibank Albania ranked seventh in terms of profit among the banks in the country. Return on equity (after tax) in 2018 reached 14.39% (2017: 17.2%; 2016: 15.8%) and return on assets (after tax) reached 1.79% (2017: 2.2%; 2016: 1.90%).

During the reporting period Fibank Albania continued its business development in accordance with the economic environment and the need of financing. Total income from banking opera-tions increased by 4.52% and reached ALL 1,131,058 thousand (2017: ALL 1,082,071 thousand; 2016: ALL 973,722 thousand).

Interest income meet an increase by 12.73% to ALL 1,157,472 thousand (2017: ALL 1,026,758 thousand; 2016: ALL 999,793 thousand), a main contributor was loans to small and medium enterprises which increased by 25.59% to ALL 545,727 thousand (2017: ALL 434,543 thousand; 2016: ALL 417,985 thousand), meanwhile interest income from retail customers increased by 16.02% to ALL 218,253 thousand (2017: ALL 188,122 thousand; 2016: ALL 172,222 thousand) and together represent 66% of total interest income.


A slight deacrease by 2.57% was also reported for securities transactions, whose interest in-come amounted to ALL 385,682 thousand (2017: ALL 395,852 thousand; 2016: ALL 396,322 thousand) and formed 33.32% of total interest income.

Net fee and commission income faced an increase by 3.72% or ALL 7,780 thousand and amount-ed to ALL 217,187 thousand (2017: AL 209,407 thousand; 2016: ALL 188,422 thousand) due to increased business volumes and customers of the Bank. Meanwhile net fee and commission income had a relative share of 19.20% of total income from banking operations, with apoxime-lly the same share as in 2017 19.35% and 19.35% in 2016, as a result of the Bank’s consistent policy on the diversification of income from banking operations. The predominant share of fee and commission income was formed from customer accounts fees with 36.74% followed by 33.19% of income other fees and commission income and then with 16.44% and 12.84% of income from card business income and payment transactions re-spectively.


General administrative expenses increased by 18.66% and reached ALL 574,932 thousand for the reporting period (2017: ALL 484,518 thousand; 2016: ALL 368,308 thousand). Personnel expenses formed the biggest portion of 52.65% while the smallest share of 5.79% is presented by the group Maintenance and repair.

Net impairment losses of loan exposures accrued by the Bank amounted to ALL 71,880 thou-sand for 2018, compared to ALL 84,430 thousand in the previous year (2016: ALL 89,608 thou-sand).

Balance SheetAs at the end of December 2018, the total assets of Fibank Albania reached ALL 24,632,952 thousand (2017: ALL 20,994,963 thousand; 2016: ALL 18,795,225 thousand) increased by 17.33% (amounted ALL 3,637,989 thousand) resulted mainly from investment in securities at FVOCI faced an increase by 60% , increase in loans and advances to customers by 23.1%, cash and balances with central bank faced an increase by 12.92%.During 2018 Fibank Albania showed a consolidated financial position for the seven year in a row and reach in 2.13% of market position in the whole banking system.


The asset structure remained relatively unchanged with a slight decrease in financial instru-ments portofolio, reflecting market conditions and the Bank’s strategy for maintaining an ad-equate balance between risk, capital and return. Portfolio loans and advances to customers preserved first majority share and formed 47.6% (2017: 45.3%; 2016: 37.5%, leads by financial instruments (investment in securities at FVOCI) 30.6% (2017: 33.5%; 2016: 39.3%) of total as-sets, and loans and advances to banks and financial institutions at 9.9% (2017: 8.9%; 2016: 9.6%).Cash and balances with central banks increased by 12.9% (ALL 250,925 thousand) to ALL 2,192,658 thousand (2017:1,941,733 thousand; 2016: ALL 1,989,402 thousand) while cur-rent accounts and balances with the Central Bank are icreased with 11.19% amounted ALL 1,721,734 thousand (2017: 1,548,405 thousand; 2016: ALL 1,580,253 thousand), resulting from the increased deposit base and the maintenance of minimum required reserves. Cash on hand increased by 19.73% (ALL 77,596 thousand) to ALL 470,924 thousand (2017: 393,328 thousand; 2016: ALL 409,149 thousand), as a percentage of total assets were at level of share 1.91% (2017: 1.87%; 2016: 2.18%) as the Bank manage cash in respect of its daily operations and in accordance with the market environment and external conditions.


Loans and advances to banks and financial institutions increased to ALL 2,448,132 thousand, compared to ALL 1,859,013 thousand at the end of 2017, (2016: ALL 1,791,915 thousand) as a result of an increase on customer deposits.

Portfolio of financial instruments is comprised of investments in securities at FVOCI. At the end of the year such portfolio faced an increase with approximately 7.31% to ALL 7,540,289 thou-sand (2017: ALL 7,026,487 thousand; 2016: ALL 7,394,258 thousand) as a result of a significant increase in investments in securities at FVOCI that reached ALL 7,540,289 thousand (2017: ALL 4,708,543 thousand; 2016: ALL 6,082,403 thousand)

The entire portfolio is comprised from papers of Albanian Government, Belgium Government, EFSF and other coorporate bonds.

LoansIn 2018 Fibank Albania gross loan portfolio increase by 21.02% (ALL 2,139,356 thousand) and reached ALL 12,315,114 thousand at the end of the period (2017: ALL 10,175,758 thousand; 2016: ALL 7,638,316 thousand). The year has been very good in lending; the growth rate is following the same trend as per the last two years. It was affected by the increase in loans in both segments; retail and small and medium enterprises, respectively with 54.35% and 7.78%. This was also in compliance with the Bank’s strategy for increasing lending as consequently of increasing funds received.

During 2018, the Bank opened three new branches and increased its presence to new cities. By increasing the network, Fibank intends to be nearer to the client. The newly opened branches will also support the organic growth already established in the last years by the Bank.

Loan portfolio by business line:

At the end of 2018 loans to small and medium enterprises lowered its share in the Bank’s loan portfolio, at 63.7% (2017; 71.6%; 2016; 71.5%) meanwhile loans to retail customers significantly increased its share at 36.3% (2017:28.4%: 2016: 28.5%). Fibank continued to support sound pro-jects in accordance with the need for financing and market conditions in the country. Meanwhile retail focus was to increase the number of the salary receivers in Fibank, through designing new and innovative products tailored for them.


Loan portfolio by currency:

Loans and advances in EUR continue to form a predominant share almost at the same level and equal to 61.5% (2017:60.1%; 2016: 60.3%) in the currency structure of the loan portfolio. They reached the amount of ALL 7,575,740 thousand at the end of the period (2017: ALL 6,111,546; 2016: 4,603,640). The effort of the Bank is to lend in local currency, minimizing though foreign exchange risk for the borrowers. Loans in ALL increased in absolute value, to ALL 4,371,140 thousand (2017: ALL 3,752,990; 2016: ALL 2,492,767 thousand) and loans in other currencies increased in absolute value, to ALL 368,203 (2017: ALL 311,222 thousand; 2016: ALL 541,909 thousand) respectively.

The quality of the loan portfolio is improved compared to prior year and is also better than the NPL ratio of banking system. At year end of 2018 the NPL ratio is 10.6% (NPL’s of banking system in 2018: 11.1%) as problematic loans (those classified as non-performing) amounted to ALL 1,305,363 thousand of gross loans at the end of the year. Allowances for impairment de-creased and reached ALL 602,040 thousand (2017: ALL 657,978 thousand; 2016: ALL 588,887 thousand). In accordance with the Bank prudency in lending and based also on the effective


collection process, total allowances for loans to customers decreased by 8.36%. Allowances for impairment for loans, classified as non-performing amounted to ALL 355,643 thousand. The Bank applies rules for the classification and impairment of risk exposures which are in compliance with the criteria provided by International Financial Reporting Standards. The loan provisioning ratio was 4.9% (2017: 6.5%; 2016: 7.7%).

The policy of the Bank requires proper collateral coverage before granting a loan. In this re-spect, it accepts all types of collateral permitted by law and applies discount rates depending on the expected realizable net value of the collateral. At the end of 2018 the collateral with the largest share in the Bank’s portfolio were mortgages at 71.3%, followed by money deposit at 7.72% and pledge of machinery at 6.12%.

Related Party TransactionsIn the normal course of business the Bank carries out transactions with related parties. These transactions were effected in market conditions. The internal rules and regulations of the Bank with respect to such transactions and agreements are in compliance with the effective legisla-tion.

For further information regarding related party transactions, see Note 31 “Related parties” of the Financial Statements as at 31 December 2018 together with the Report of the Independent Auditor.


Commitments and Contingent LiabilitiesCommitments and contingent liabilities of the Bank include bank guarantees and commitments given on behalf of customers. These are issued in compliance with the general loan policy of the Bank on risk assessment and collateral sufficiency. Contingent liabilities are preferred in-struments for credit institutions because they carry lower credit risk and at the same time are good sources of fee and commission income. They are also preferred by clients because they not only facilitate payments but also reduce the cost of financing as compared to direct financ-

ing and immediate payment.At the end of the reporting period, the total amount of off-balance sheet commitments increased to ALL 489,977 thousand (2017: ALL 509,104 thousand 2016: ALL 402,567 thousand). Unused credit lines have a predominant share of 80.2% in the total amount of contingent liabilities, followed by bank guarantees at 19.8%. Unused credit lines decreased by ALL 88,637 thousand reaching the value of ALL 393,193 thousand (2017: ALL 481,829 thousand; 2016: ALL 371,909 thousand).

Attracted FundsIn 2018 attracted funds from customers increased by 20.77% (ALL 3,577,800 thousand) and reached ALL 20,807,370 thousand (2017: ALL 17,229,570 thousand; 2016: ALL 16,093,343 thou-sand; 2015: ALL 14,709,329 thousand) remaining the Bank’s major source of funding.


Attracted funds from retail customers increased by 18.14% (ALL 2,833,663 thousand) up to ALL 18,458,733 thousand (2017: ALL 15,625,070 thousand; 2016: ALL 14,995,089 thousand) during the year, preserving their upward trend over the last year and maintaining their predominant share in total attracted funds from customers at 88.71%. In the currency structure of attract-ed funds from retail customers those in ALL were greatest at 45.24% of total attracted funds from customers (2017: 50.43% ;2016: 53.7%; 2015: 51.7%) those in EUR were at 40.24% (2017: 36.9%;2016: 36.4%; 2015: 36.9%) and those in other currencies at 3.23%.


Fibank Albania sets aside the required annual premiums in accordance with the law “On insured deposits”, which serves to increase the safety of the Bank’s depositors. According to regulatory requirements the amount guaranteed by the Insurance Deposit Agency on customer’s bank ac-counts held with the Bank is ALL 2,500,000 per retail customer.Attracted funds from corporate, stated-owned and public institutions increased by 46.43% (ALL 744,722 thousand) up to ALL 2,348,637 thousand (2017: ALL 1,603,915 thousand;2016: ALL 1,098,254 thousand; 2015: ALL 1,214,247 thousand) during the year, increasing their relative share to 11.29% of total attracted funds from customers (2017: 9.3%; 2016: 6.8%; 2015: 8.3%). In the currency structure of attracted funds from corporate, stated-owned and public institu-tions those in ALL formed 2.72% of all attracted funds from customers (2017: 2.76%; 2016: 2.8%; 2015: 3.0%), those in EUR were at 8.12% (2017: 6.13%; 2016: 3.7%; 2015: 4.4%).


Internal auditThe internal Audit department in First Investment Bank Albania carries out an independent, objective assurance and consulting activities, having the adequate resources and access to the management and supervisory bodies. It contributes to add value and improve Bank’s operations, while accomplishing its objectives.The internal Audit de-partment in First Investment Bank Albania carries out an independent, objective assurance and consulting activities, having the adequate resources and access to the management and supervisory bodies. It contributes to add value and improve Bank’s operations, while accomplishing its objectives.It evaluates the effectiveness of risk management, control, and governance processes and gives reasonable assur-ance that laws and regulations, strategies, and policies are strictly adhered to, and appropriate and timely corrective actions are taken.Internal Audit carries out periodic planned and extraordinary inspections to ensure efficient use of resources, ade-quate control of various risks, protection of assets, reliability and integrity of financial and management information, and compliance with current internal and external regulatory framework.The Steering Council approved the Annual report on the Internal Audit activities of 2018 in March 2019, which in-forms Steering Council members on the main results of the control activities of Internal Audit, the measures taken, and their fulfillment. Risk ManagementRisk Management has the responsibility to identify measure and monitor credit, market and operational risk in all its banking operations. Risk Management monitors bank’s exposures that carry credit risk as loans, overdrafts, guar-antees, letter of credit, deposit accounts with other banks, investment securities and all other products where the debtor has or may have a contingent or direct obligation to the bank.Fibank aims to constantly develop, update and improve to the highest risk management systems in order to meet the challenges of the market environment and in the legal framework.

Risk appetiteRisk appetite reflects the types and size of risks the Bank is able and willing to take in order to achieve its strategic business goals. The risks identified in the risk map are included in the risk appetite. With the aim of maintaining a moderate risk profile, the main goals on the basis of which the risk strategy is structured, are defined, as follows: • achieving a sustainable level of capital to ensure good risk taking capacity, as well as capacity to cover risks in the long term; • maintaining good asset quality while providing for an efficient decision-making process; • achieving a balanced risk/return ratio for all business activities of the Bank.The risk demand is subject to Managing Board review one yearly basis or in accordance with the business environ-ment dynamics, capital support, liquidity, regulatory limits. It is part of the annual process for defining the strategy and planning within the Bank.Risk cultureIn compliance with the best risk management standards, the Bank seeks to develop a risk culture that will further enhance visibility and prevention in terms of individual risk types, their identification, evaluation and monitoring, including by applying appropriate forms of training among the employees and senior management involved in risk management.

Risk Management FrameworkThe Board of Directors has an overall responsibility for the establishment and oversight of the bank’s risk manage-ment. For the purpose of managing various types of risk in compliance with the requirements of the Bank of Albania, the following bodies operate in Head Office:Credit Committee of Fibank Albania has the authority to approve loan applications as per limits approved, as of February 2017. Credit Committee Members consists of: Chief Executive Officer, Executive Director, Head of Risk


Management, Chief Financial Officer and Head of Legal Department.Operational Risk Committee (ORC) is responsible for implementing policies, processes and procedures for adminis-trating operational risk for all services/products, activities, processes and systems relevant to the bank. Operational Risk Event Committee is composed of: Head of Risk Management, Head of Operational and Loan Admin, AML & Com-pliance Unit manager, Operational & Loan Admin Specialist, Head of IT Department and Senior Credit & Operational Risk Analyst.The Bank risk’s management policies are established to identify and analyze the risks faced by the Bank, to set ap-propriate risk limits and controls and to monitor these limits. Risk Management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered.

Credit RiskCredit Risk is the risk of financial loss to the bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Bank’s loans and advances to customers, other banks and investment securities. Credit Risk Management performs independent credit and risk analysis of loan proposals which are being proposed.Credit Risk Management monitors the performance of borrowers; this includes non-performing loans to ensure ap-propriate action is being taken due to the improvement of the loan quality of the portfolio. Credit amounts requested above authority approval of Branch Managers and up to equivalent ALL 15 MIO and ALL 10 MIO are approved by Risk Management together with SME and Retail respectively. Credit amounts requested above ALL 15 MIO for SME and ALL 10 MIO for Retail and up to EUR 500,000 are approved by Credit Committee and above EUR 500,000 are approved by the Board of Directors.

Market RiskMarket risk is the risk of losses due to changes in the prices of financial instruments resulting from general risk fac-tors not related to the specific characteristics of individual instruments such as changes in interest rates, exchange rates. The main objective of administrating market risk is to manage and control market risk and to keep it within required limits.Stress-testing is a useful method to analyze the resilience of a financial institution. Stress testing is a general term encompassing various techniques for assessing resilience to extreme events. They involve testing beyond normal operational capacity, often to a breaking point, in order to observe the results.Stress-testing can be thought as a process that includes identification of specific vulnerabilities or areas of concern; construction of a scenario; mapping the outputs of the scenario into a form that is usable for an analysis of financial institutions. Stress test allows a more detailed assessment of the capital adequacy commensurate with Bank’s risk profile and the current operating environment. RM performs the stress testing techniques on quarterly basis and all respective analysis are reported to ALCO and Board of Directors.Interest rate risk is the exposure of a bank’s financial condition to adverse movements in interest rates. Accepting this risk is an essential part of banking and can be an important source of profitability and shareholder value. How-ever, excessive interest rate risk can pose a significant threat to a bank’s earnings and capital base.Interest rate risk in the banking book is monitored and analyzed in order to assess the impact of interest rate sce-narios on the economic value of the Bank and on the net interest income with a one-year horizon. The evaluation of the impact on net interest income is based on a maturity/re-pricing table of assets and liabilities and the estimated change in interest rates by classes of instruments following a change in market interest rates. Taking in consider-ation the sensitivity of interest rate risk in the financial position of the Bank, RM monitors internal as well as Bank of Albania`s limit on monthly bases, and respective analysis are reported to ALCO on monthly basis and Board of Directors on quarterly basis.Evaluating the complexity of operations of Fibank Albania, Risk Management has oriented the risk management structures toward the main resource or risk from interest rates, which is the re-pricing risk.The risk from exchange rate means the loss caused to the bank due to the unfavorable development of exchange rates in ALL, incomes and expenses in foreign currency (risk from transactions) or the value in ALL of net assets of


the bank (risk from translation). Fibank Albania has limits for the foreign exchange position in a currency as well as total positions for all currencies.Based on the regulation from Bank of Albania “On the open foreign exchange positions risk management”, Risk Man-agement monitors on daily basis the limits for each position in individual currency the limit of all positions, while in weekly bases reports to ALCO for Value-at-Risk for the basket of currencies.

Liquidity RiskLiquidity Risk is the risk that the bank will encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. Liquidity risk tolerance level is defined as the level of liquidity risk that the bank is willing to undertake. The tolerance level appropriates the business strategy of the bank and reflects the bank’s financial condition and funding capacity. The tolerance ensures that the bank man-ages its liquidity strongly in normal times and that it is able to withstand a prolonged period of stress. Liquidity Risk Management policy includes how the Bank identifies, measures, monitors and control that risk.Fibank Albania estimates the liquid position of the bank by means of the following indirect indicators: assets with high liquidity in relation to assets in total and assets with high liquidity in relation to short-term liabilities.The liquidity risk management practices integrates and considers a variety of factors, regarding the time horizons over which to identify, measure, monitor and control liquidity risk. These include vulnerabilities to changes in liquidity needs and funding capacity on an intraday basis; day-to-day liquidity needs and funding capacity over short and me-dium-term horizons; longer-term, fundamental liquidity needs over one year; and vulnerabilities to events, activities and strategies that can put a significant strain on internal cash generation capacity.

Internal Capital Adequacy AnalysisBased on the decision of Supervisory Council of Bank of Albania No 26 dated 03.05.2017 on the Guideline “On Inter-nal Capital Adequacy Assessment Process”, Internal Capital Adequacy Assessment Process (ICAAP) is mandatory for all banks licensed to conduct banking and financial activity in the Republic of Albania. ICAAP report is produced annually and represents First Investment Bank Albania Sh.a`s own assessment of its internal capital requirements.The ICAAP report serves two key purposes:• It informs Steering Council and the Management how the Bank assesses its risks, how it intends to mitigate those risks and how much current and future capital is deemed necessary to support operations in light of those risks.• The ICAAP report is also the means by which the Bank evidences its internal capital adequacy assessment processes to the regulations issued by Bank of Albania.The primary purpose of the Internal Capital Adequacy Assessment Process (ICAAP) is to ensure that the Bank has sufficient capital at all times to cover the risks associated with its activities, as well as to inform the Steering Coun-cil for ongoing assessment of risks, how the Bank intends to mitigate those risks and how much current and future capital is necessary having considered other mitigating factors.The Bank applies Bank of Albania`s regulation and guidelines on risk management and capital adequacy, which, together with internal policies, regulations and decisions for managing credit, market, operational and other risks builds its overall internal system of the Bank to manage the risks associated with the Bank’s operations and the adequacy of its capital.The Bank’s approach on calculating its own internal capital requirements is to take the minimum capital required for credit, market and operational risk under Pillar 1 as the starting point, assess whether this is sufficient to cover risks, and then identify other risks and assess prudent levels of capital to meet them.ICAAP is adopted at the highest levels of Fibank Albania structure and risk management processes. ICAAP assump-tions are being challenged and examined to ensure that Fibank Albania continues to retain its focus on the risks it faces.

Recovery PlanRecovery Plan (Plan) of First Investment Bank Albania SH.A has been prepared pursuant to Bank of Albania reg-ulation “On Banks Recovery Plan” Nr.72 dated 06.12.2017 for all banks licensed to conduct banking and financial activity in the Republic of Albania.The recovery plan defines the measures to be taken to counteract negative factors and shocks of various kinds, as


well as to demonstrate the ability of Fibank to restore viability. The plan contributes to building a stable recovery strategy of the Bank in a crisis situation to cover the widest possible range of potential threats. This recovery plan does not provide access to or receipt of extraordinary public financial support. The plan defines people and depart-ments in the Bank who are responsible for developing, updating and implementing as well as the process for its approval. Indicates also people in charge as coordinators of Recovery Plan. An essential element of the Plan is the procedure for timely implementation of recovery measures, which sets out the relevant departments to monitor spe-cific indicators of recovery, escalation timetable for decision-making, monitoring their application and notifications.Sets the following quantitative and qualitative early warning signals and indicators of recovery, the occurrence of which triggers the implementation of recovery measures:• Capital Indicators• Liquidity Indicators• Profitability Indicators• Assets quality Indicators• Market Based IndicatorsKey Business Lines of the Bank includes SME lending, Retail Lending, Investments in Securities and Deposit taking. Critical functions necessary for the smooth functioning serving depositors and borrowers - the main source, appro-priate resource and incomes for the Bank.Recovery measures include the measures related to availability of credit line from First Investment Bank AD (mother bank), sale of security portfolio, the sale of loan portfolio, optimizing the conditions of deposit products, limiting lending, sale of repossessed assets and sale of loan portfolio. As a permanent measure is provided internal sources of capital increase. For each measure of recovery is an assessment of its impact including on critical bank functions assess, the feasibility and risks associated with its implementation and identify the necessary time for implementa-tion and evaluation of its effectiveness.An important element is a plan for public relations and information disclosure, which describes various methods for dealing with negative effects on the market (false rumors, misleading publications) when there are conditions for the implementation of recovery measures. The Bank has specialists in communications who know the high professional media market, and are aware of communication channels both in the bank and external to it.

Operational RiskOperational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and sys-tems or from external events. This definition includes Legal Risk, but excludes Strategic and Reputation Risk. The bank handles Operational Risk as a distinct risk category. Sound and comprehensive operational risk manage-ment is a vital part in achieving the Vision, Mission and Values of the Bank. This will underline the commitment of the Bank to meet high ethical and business standards in the way it conducts its business. The bank has created and developed an adequate internal system (policies, procedures, rules and techniques) for administrating operational risk management. The purpose of this system is to identify, evaluate, control and monitor regularly the operational risk.Risk Management defines and categorizes operational events across event types and business lines inherent in banking; the department also defines the responsibilities of employees from different departments tasked with data collection. ALCO of the Bank assigns Operational Risk Committee (ORC) with the role of managing the operational risk.Operational Risk Committee is responsible for:• Implementing policies, processes and procedures for administrating operational risk for all services / prod-ucts, activities, processes and systems relevant to the bank• Implementing of internal acts for administrating operational risk management to all business lines• Implementing of the responsibilities and development of reporting lines to encourage and maintain account-ability, provide financial and human resources needed to effectively manage operational risk• Clear communication of the policy subject to operational risk to employees of the bank at all levels, especial-ly in units that are exposed to operational risk• Ensuring that personnel responsible for monitoring the implementation of the Policy of administrating oper-ational risk, to be independent from the business lines they control.• Reviewing and analyzing the Key Risk Indicators which are used by business lines for their self- assessment.


• Introduce benchmarks for each key risk indicator from reporting department and monitor all deviations from these benchmarks with related arguments and proposed measures. • Establishing on yearly basis Budget for operational losses based on historical data and divides this budget into different business lines in order to better monitor operational losses.• Analyzing and taking decisions for reimbursements of credit cardholders claim related to fraud transac-tions, reimbursements of annual fees, interest etc. based on analysis and investigation performed by Card Depart-ment for amount over EUR 20. • Analyzing and taking decisions based on results of Self-Assessment of operational risk and controls, fol-lowed by allocation of tasks and responsibilities to related departments. Further, to elicit bank’s performance in the long term, the need for measuring the risks in advance becomes an im-portant procedure for management to assess the potential impact of an activity performed and the possible risks it carries. Such evaluation metrics are essential to pro-actively manage the prospective risky ventures and facilitate timely detection and take appropriate steps to prevent malfunctions. The timing plays a significant role as the sooner a risk is identified and tackled, better would be the chances to avert it and would ensure timely action and assist in long term success of the organization. While using KRIs the following criteria are taken into consideration:• Select the right indicators to anticipate potential problems.• Identify and specify an indicator and integrate it within your risk management framework.• Understand the methods and strategies to use KRIs efficiently.• Learn how to avoid subjectivity in operational risk reporting.• Master how to avoid useless information to ensure the right decisions.• Collect the right information and work with effective indicators.Risk and control self-assessment is another tool to assess the exposure of Fibank Albania to operational risk and operational controls to reduce this type of risk.Self-Assessment can be conducted in the form of questionnaires or by analyzing the work processes.The results of self-assessment are used to reduce operational losses, to identify gaps in controls and respectively improve control mechanisms and are reported to Operational Risk Committee (ORC) and ALCO. Reporting of the pro-cess results and the follow ups is also submitted to Operational Risk Management Fibank Bulgaria.


Distribution Channels

AGJENCITE

Twin Towers

Blvd. Dëshmorët e Kombit

Twin Towers, Nr.1, Kati 1

Tiranë, Shqipëri

Tel.: (+355 4) 2276 793

Tirana 1

Rr. Kavajës, nr.122/1,

në krah të Poliambulancës

“At Luigji Monti”

Tiranë, Shqipëri

Tel.: (+355 4) 22 76 794

Tirana 2

Rr. Teodor Keko, Unaza e Re,

Tiranë, Shqipëri

Tel.: (+355) 69 40 87 788

Tirana 3

Blvd. Zogu i Parë,

(Pranë Fakultetit të Shkencave)

Tiranë, Shqipëri

Durrës

Lagjia nr.12, Rr. “Dëshmorët”

Tel.: (+355 52) 293 702

Vlorë

Kompleksi i ri, Rr. “Sadik Zotaj”

Godina 6-katëshe tek

ish-fabrika e orizit

Tel.: (+355 33) 236 101

Elbasan

Lagjia “Qemal Stafa”

Rr. “11 Nëntori”

Tel.: (+355 54) 210 001

Korçë

Rr. “Midhi Kostani”

Kompleksi “City Center”,

Kati i parë

Tel.: (+355 82) 259 001

Fier

Lagjia “29 Nëntori”,

sheshi “Fitorja”,

ish-klubi “Partizani”

Tel.: (+355 34) 249 852

Shkodër

Blvd. “Zogu I”

Sheshi i Parrucës,

Kulla B

Tel.: (+355 22) 252 833

Lezhë

Lagjia Skëndërbeg,

Rr. H.Ali Ulqinaku,

Tel.: (+355) 68 60 80 406

Berat

Lagjia “10 Korriku”

Rruga Antipatrea,

pranë Gjykatës Berat

Tel.: (+355 32) 259 202

Sarandë

Rr.Onhezmi 18

Tel.: (+355) 69 70 70 351

Lushnje

Lagjia Çlirimi

(ish Hotel Myzeqeja)

Tel.: (+355) 69 30 65 613

DREJTORIA E PËRGJITHSHME

Blvd. Dëshmorët e Kombit,

Twin Towers,

kulla nr.2, kati 13/14/15

Tiranë, Shqipëri

Tel.: (+355 4) 2276 702/3

Dega Virtuale

http://e-banking.fibank.alNumër pa Pagesë

0800 01 11


Information TechnologiesNew Migration of the of Core Banking DatabaseIn March 2018 because of problems with migrated Primary Oracle Database on Virtual Machine done in 2017 we did new Migration to a Physical Server. We also created a new Data Guard (a second one) on a Physical Server. Now we have two Data Guards of our Primary Oracle Database. Now our Primary Database is better secured and it is working on a Physical Server (not on a Virtual Machine) which is supported by the Oracle Company.

New Implementations in the Core Banking SystemIn the Core Banking System (Datamax Software) we did changes related with generating and reading of the UETR Field for outgoing and incoming SWIFT, AIPS and AECH messages. This change was initiated by SFIWT Company for all the banks, and indicated also in the Albanian National Payment Systems AIPS and AECH maintained by Bank of Albania (BoA). We consider this change as a first step of transition of joining or Bank to the SWIFT Global Payment Initiative (GPI).

With the implementation of the Document Management Module in the Core Banking System we started actively using it on 01.08.2018 by adding scanned files with clients’ ID Cards, Specimens, Contracts for Deposits and Accounts, Requests for account opening, etc. for newly registered clients. We’ll continue this process in 2019 by extending it with new documents types and for existing clients also.

Another project that we implemented in 2018 was the payment of pensions by using Web Service of Albanian Nation-al Social Security Institute (ISSH). For this purpose we created a satellite application which was consuming the Web Service and was connected to our Core Banking System.

In 2018 we also opened four new offices – three in cities outside of Tirana (Lezha, Saranda and Lushnja) and one in Tirana. This was done in accordance with Bank’s strategy to expand its activity in Albania and to get bigger market share of the Bank Market in Albania.

Changes related with securityWe successfully installed Splunk monitoring system in our Bank. The purpose is to monitor important activities on our servers (database, file, mail, etc.).

Changes related with MarketingRelated with Marketing we introduced some new fields (like Channel Source) in some important objects in our Core Banking Systems (like applications for loans, overdrafts, debit cards and account opening) which will give us possibil-ity to analyse which of our marketing strategies are working better and to concentrate our efforts on it in the future.

Changes related to IT infrastructureNetwork ChangesWe replaced all network devices in Branches (routers and switches). The purpose is to improve network performance and security.

Implementation of Cloudflare Service We purchased Cloudflare subscription service to protect internet facing sites such as www.fibank.al, e-banking.fib-ank.al,mail.fibank.al. Also Cloudflare is configured as External DNS for these sites with no additional costs.Upgrade of Cisco Call Manager

The existing call manager was very old and out of support and moreover it was not possible to add additional phones for new Bank staff. We upgraded to version 10.5 which provided support for existing phones and new ones also.Digicert Multidomain SSL certificate


We purchased Multidomain SSL certificate from Digicert Certificate Authority to increase security for www.fibank.al,mail.fibank.al ,autodiscover.fibank.al. This was a mandatory requirement.New SWIFT Servers and Platform Upgrade

We purchased two new SWIFT servers and upgraded SWIFT Platform to latest version provided by SWIFT.New data storage device for the Primary Data Center (HP 3 PAR Storage)

We purchased and configured a new data storage for the Primary data Center to increase capacity and processing powers in response also to enlargement of Bank’s network.We moved to Disaster Recovery Site (DRS) the existing data storage device of Primary Site to replace the old storage device that we had in our DRS.

Corporate GovernanceFirst Investment Bank, Albania Sha is a joint-stock company registered with Tirana district Court dated 19 April 2006. Since 2007 the Bank has been registered in the Commercial Register at the National registration center. The Bank owns a banking license for domestic and international operations. First Investment Bank, Albania Sha has a one-tier governance system. The corporate governance of First Investment Bank, Albania Sha is a system with clearly defined functions, rights and responsibilities at all levels - the Shareholder assambley, Stering council and its committees, Audit committe, Directorate and structures at the Head Office and the branches. First Investment Bank, Albania Sha offers a wide range of services in the sphere of corporate banking, lending to companies, servicing individuals, card payments, payment and trade operations.

The Shareholder assembly - the highest governance body, allowing the shareholders to take decisions on principle matters relating to the existence and the activity of the Bank.

Steering council (SC) - defines the strategy for development of the Bank manages the Bank by resolving all issues within its scope of activity, except those within the exclusive competence of the Shareholder assembly. It carries out the strategy for development of the Bank. The Steering council is supported in its activity by committees (Credit Committee, Alco, HR Committee, Workout Committee, Operational Risk Committee, Compliance Committee, IT Risk assessment Committee, Anti Fraud Committee) and which carry out their activities on the basis of a pre-determined written structure, scope of activities and functions. The Steering council of Fibank Albania holds sessions every month.

The Directorate carries out the management of the Bank by resolving all issues in its line of business, except those within the exclusive competence of the Steering Council.

Human CapitalThe policy of Fibank Albania on personnel management is oriented towards achieving long-term correspondence between the personal goals of employees and those of the institution as a whole – the fulfillment of the objectives and strategy of Fibank Albania, linking payment incentives with the sustainability of achieved results and the reliable management of risks, and the affirmation of the Bank as a preferred workplace for employees. It is based on the principles of transparency, the prevention of conflicts of interest, accountability, and objectivity.

First Investment Bank, Albania carried out activities and aimed at motivating employees through recognition, distin-guishing and encouraging their contribution and achievements, as well as at promoting business behaviors impor-tant for the success of the Bank.

Development of expert and social competencies of First Investment Bank employees was accomplished through


the implementation of an annual training plan, according to the business objectives and identified needs. In order to maintain a high standard of service, excellent professional skills and achieve effective results in attracting new cus-tomers, several significant educational projects were realized during the year, including: Team building “All together in board” • Training for middle management about “Managers Personal Excellence”. The training focus is to improve them in two critical aspects, in their: 1) Personal excellence and 2) Management structure and approach. •Training for Front – Line Personal Excellence. The training encouraged participants to reflect and improve their sales approach. The training motivates a customer service-driven business model by putting the customer in the driver seat, being their ally, learning about who they are and what problems they need to solve. Training for Managers: “How to improve your teams; Coaching; Feedback to people” and training for Front line: “New era of selling; Consultative selling; Rela-tionship Selling and Negotiations Win-Win”.

As at 31.12.2018, the number of staff of First Investment Bank on a consolidated basis amounted to 183 employees against 143 a year earlier, the dynamics reflecting activities related to the optimization of processes and resources, and adherence to a policy of synergy and optimal efficiency.Variable remunerations are based on performance results and the targets achieved in the long term, using an evalu-

ation based on financial (quantitative) and non-financial (qualitative) criteria.

During the year, Fibank focused on motivating employees towards a higher contribution and the achievement of individual and corporate objectives through enhancing their personal and professional competencies in people man-agement, customer service, and the offering of banking products and services.As at 31 December 2018, the number of staff has a dynamic increase 183 compared to previous year (2017:143; 2016: 140; 2015: 126; 2014: 122) employees.

The training program was delivered by “EPPC Albania & Kosovo”. • The learning approaches, structures and activities aim to accommodate from management level to the net-work staff and business department enable to explore their own issues of understanding and communicating with each other. The training encouraged participants to reflect and improve their sales approach. The training motivates a customer service-driven business model by putting the customer in the driver seat, being their ally, learning about who they are and what problems they need to solve. The training also provided an opportunity to see issues and constraints in regards with the communication techniques in the sales process, negotiation skill and the way how to apply appropriate strategic negotiation tactics in sales procedure for their daily organ-izational process.• Participation of all Fibank Staff (Head office and branches) in the meeting “All together in board”. Presenta-tion of the Fibank financial achievements of 2017 and objectives for 2018, Breakout session topics “Fibank as intermediary and custodian Bank”, “Loyalty is matter for Bank employees”.

Also Human Resources Department in cooperation with Albanian Association of Banks (AAB) & ATTF has made


possible to participate in training and certification for many of the employees from Head Office inside and outside of Albania in order to be familiar with the latest changes and HR has tried to distribute trainings for all departments. Some of the training are as follows: “EU supervisory framework 2017-2018”, EU banking regulatory transformation etc. “Conference: Cyber dilemmas in the new millennium. Stop, think, and connect, Quality Assurance and Improve-ments, Enhancing Corporate Governance Leadership, Human Resources Management in Digital Banking etc. Partic-ipating on various workshops and conferences like The retail payment costs for users in Albania- How much does it cost consumers, business and government authorities in Albania to pay? VISA Conference etc.

Branch networkBranch network at 31 December 2018 had a total of 1 branch and 11 agencies and Head Office. Durres, Fier, Vlore, Elbasan, Korce, Shkoder, Berat, Lezhe, Lushnje, Sarande as well as in Tirana where is also the Head Office.


Steering Council


Mr. Nedelcho Nedelchev Chairman and Member of Steering council of Fibank, AlbaniaChairman of the Steering council and Chief Executive Director of Fibank, Bulgaria

Chavdar Zlatev (Member)Director of Corporate Banking Department of Fibank Bulgaria

Mr. Nedelcho Nedelchev was appointed Chief Executive Officer (CEO) and Chairman of the Management Board of First Investment Bank AD in May 2017. During the 2007-2012 period Mr. Nedelchev was member of the Supervi-sory Board of First Investment Bank AD, and in 2013 he managed the project of acquisition of Unionbank EAD, and was member of its Supervisory Board until its merger into Fibank.

Mr. Nedelchev started his career in the Aval In brokerage house. In 1997 he was financial analyst in First Financial Brokerage House OOD, was soon thereafter promoted to Head of Analysis, and in 2001 became one of its manag-ers. In 2003 he was appointed Deputy Minister of Transport and Communications of the Republic of Bulgaria, and in the 2003-2005 period was also Deputy Chairman and Chairman of the Board of Directors of Bulgarian Telecom-munications Company AD. From September 2005 to March 2006, Mr. Nedelchev was an adviser to the Minister of State Administration. During his professional career he has been involved in the management of a number of companies operating in the energy and telecommunications sector in Bulgaria, as well as in the field of financial consulting.

Mr. Nedelchev holds a Master’s degree in International Economic Relations from the University of National and World Economy in Sofia and has professional licenses and certifications in the field of international financial and commodity markets, investment services and activities, management, business planning, issued by internationally recognized institutions such as the World Bank, the Wholesale Markets Brokers’ Association (London) and others.

Apart from his position in the Bank, Mr. Nedelchev is also manager of Debita OOD and Realtor OOD.Starting from April 2018, he’s appointed Chairman and member of Steering council of Fibank, Albania.

Mr. Chavdar Zlatev joined Fibank’s team in 2004 as a senior specialist in the SME Lending Department. Soon after that he was promoted to deputy director of the same department. From 2006 to 2009 he was manager of the Fibank’s Vitosha branch. Subsequently he was appointed as a deputy director of the Branch Network Department and in 2010 Mr. Zlatev was promoted as a director of the same department. Since the beginning of 2011 he has been director of the Corporate Banking Department.

Previously, Mr. Zlatev had worked as a senior banking employee “Corporate clients” in Commercial bank Union-bank AD. He holds a Master’s degree in Macroeconomics from the University of National and World Economy, Sofia.

Besides his position in Fibank Bulgaria and Fibank Albania, Mr. Zlatev is also a member of the Board of Directors of Health Insurance Fund FI Health AD.


Stanimir Mutafchiev (Member)

Petya Stoyanova (member)

Nikolai Dragomirevski (Member)

Mr. Stanimir Mutafchiev joined Fibank’s team in 1999 as a Legal Adviser in the Legal Department. Soon after that he was promoted to Chief Legal Adviser and in 2003 he was promoted to Head of Legal Department. Besides his position in the Fibank, Sofia Bulgaria Mr. Mutafchief was also Deputy Director of National Union of Legal Advisers, Director of First Investment Finance BV, Hollande and member of Supervisory council of Unibank, Macedonia. From June 2013 he’s member of Steering Council of First Investment Bank, Albania Sha.

Petya Stoyanova has occupied different management positions for more than 10 years. The positions are consid-ered to be complex, combining the responsibilities for the operations excellence, the strategic achievements as well as engagements with current and future customers from various countries and industries.

For the last over 3 years, Petya Stoyanova is a Bid Manager for DXC Technology (formed by the merge of CSC and the Enterprise Services business of Hewlett Packard Enterprise Company, previously part of Hewlett-Packard Company), the world’s leading independent, end-to-end IT services company, serving private and public sector clients from various industries across 70 countries.

In addition to the above, within her previous experience, she has occupied the position of Head of Retail depart-ment in First Investment Bank Albania for 6 years. One of the main initial objectives of the position was to struc-ture and set up the Retail department which proved successful over time. In addition to her contribution to the establishment and the development of the Retail department, she has been part of different internal projects and contributed to the implementation of improvements in other departments (products, processes and procedures). From march 2018 she’s member of Steering Council of First Investment Bank, Albania Sha.

Mr. Nikolai Dragomirevski is also member of Supervisory Board of “Universal Investment Bank” in Republic of Macedonia. In 1994 hebegun his career as commissioner near “First financial brokerage house” and from 1995 until 2001 hold a position of deal neaby Monetary Market Department of “First financial brokerage house”. Soon after that in 2001 he was promoted as a chief dealer and hold this position up to 2011.

Mr. Dragomirevski holds a Master’s degree in Economics from the University of National and World Economy in Sofia.


Directorate ofFibank Albania


Bozhidar TodorovChief Executive Officer

Elma Lloja Executive Director

Mr. Bozhidar Todorov was appointed as CEO of Fibank Albania in October of 2007 after 11 years of successful banking experience. Previously, he held a position as Director of “Impaired assets and provisioning” Depart-ment for First Investment Bank Bulgaria.

Earlier, Mr. Todorov had worked as a senior corporate loan officer, reporting and customer service for Fibank and Tokuda Bank Bulgaria. He holds a Master’s in Finance from the University of National and World Economy in Sofia.In the Bank he is responsible for the Finance and Control Department, SME and Retail Banking Department, Ad-ministration and Security Department as well as Marketing and PR Department. He is focused on implementing a customer oriented and strategic business development in Fibank Albania and there is a significant progress in the bank during these last years.

In addition to his position in the Bank, Mr. Todorov, is Vice Chairman of the Supervising Board of MKB Union Bank since October 2013. Furthermore, Mr. Todorov is a member of Executive Committee of Albanian Asso-ciation of Banks and also since February 2011, Chairman of Bulgarian - Albanian Chamber of Commerce and Industry.

Mrs. Elma Lloja joined Fibank Albania in 2007 as Head of Treasury and Custody Department. In December of 2013 Mrs.Lloja was appointed as Executive Director of Fibank Albania.

She has a long experience in the banking sector for more than 20 years. Prior to joining Fibank Mrs. Lloja has worked for Savings Bank of Albania and afterwards with Raiffeisen Bank Albania. She has gained a considera-ble experience in banking. Her last position with Raiffeisen Bank was as Chief Dealer for the Treasury Depart-ment.

As Head of Treasury and Custody Department at Fibank Albania, Mrs. Lloja was responsible for Treasury activi-ties and for the Retail banking related to deposit products and their pricing. She is a member of Assets-Liability Committee. Mrs. Lloja established the new structure of Custody and Depository unit in Fibank. She managed the full process for obtaining licenses on behalf of the bank to act as Custodian of the Pension Fund and Col-lective Investment Undertakings.

As Executive Director of Fibank Albania, she is responsible for the Treasury and Custody Department, the Branch Network, Information & Technology Department, Card Department as well as Operational and Loan Admin Department.


Ina PaskalevaHead of Risk Management (Procurator)

Mrs. Paskaleva has spent more than 20 years in the Banking system and financial markets with international banks in Bulgaria and South-eastern Europe. She joined Fibank Albania in 2006 as Head of Risk Management. Technical know –how in the areas of credit and risk management, capital markets and financial instruments, compliance and corporate governance. Post graduate level education in banking and finance in Wisconsin Uni-versity, US and Exeter University, UK. She held several management positions as: Country Manager, Credit and Risk Management division, in Raiffeisen Bank, Albania; Head of Risk Management, at Bank of Austria (Hebro-sbank AD), Sofia, Bulgaria; Country Director for Bulgaria, Demirbank, Istanbul, Turkey , Senior Corporate banking manager with ING bank, Sofia, etc.


Business Overview


Year 2018 was an important year for deposits in the banking system because it reached a good level of stability and during 2018 the deposits in banking system are increased by ALL 96.2 miliard. Fibank Albania attracted funds during 2018 were increased by 20.77% (2017: 7.10%; 2016: 9.42%;) and reached ALL 20,807,370 thou-sand (2017: ALL 17,229,570 thousand)

Deposits from individuals increased by 18.13% and amounted ALL 18,458,733 thousand (2017: ALL 15,625,655 thousand; 2016: ALL 14,995,089 thousand). The due to term deposits were increased by 22.05% (or ALL 2,225,150 thousand) reaching ALL 12,315,211 thousand (2017: ALL 10,090,061 thousand; 2016: ALL 9,379,107 thousand) retaining a share of the attracted funds from individuals at 66.72% (2017: 64.6%; 2016: 62.5% and due to a increase in demand deposits by 9.42% reaching ALL 4,770,719 thousand (2017: ALL 4,360,099 thou-sand; 2016: ALL 4,588,941 thousand).

Deposits from entities recorded a significant increase of 46.38% compared to prior year and reached ALL 2,348,637 thousand (2017: ALL 1,604,501 thousand ; 2016: ALL 1,098,254). The increase in deposits from entities came as a result of movement in current accounts which increased by 73.68% or ALL 1,325,241 thou-sand (2017: ALL 841,451 thousand ; 2016: ALL 459,840 thousand), with also an increase in term deposits with 21.62% amounted ALL 1,023,396 thousand.


Fibank Albania’s policy was to offer to its clients a variety of flexible deposit products aiming to meet custom-ers demand for low-risk savings instruments, by focusing on maintaining high standards of customer service. Deposit products are tailored to different segments of clients which could choose products that offer a good combination of high return and flexibility in depositing and withdrawing. In addition Fibank Albania offered products with a variety of maturities and interest payments or full access to their funds at any time without any limitations or cost.

Retail LendingThe portfolio of loans to individuals to total lending portfolio is 36.3% as at the end of December 2018. The portfolio of loans to individuals increased by ALL 1,573,025 thousand reaching a total value of ALL 4,467,103 (2017: 2,893,988 thousand; 2016: ALL 2,178,899 thousand). The growth results from ALL 308,961 thousand in consumer loans and ALL 1,236,014 thousand in mortgage loans. The number of consumer loans as at the end of December 2018 was increased due to preferential terms and conditions offered. Consumer loans covered with Treasury Bills or Treasury Bonds continued to be in high level of request. Different consumer loan condi-tions were tailored for different companies and promotions. In general the credit standards eased on consumer loans.

Mortgage loans reached ALL 3,298,452 thousand (2017: 2,062,438, 2016: 1,580,130 thousand) as at the end of December 2018, constituting an increase of 59.9%, compared to the end of the previous year. The share of the mortgage loans in the portfolio of the loans to individuals increased at 73.8% (2017; 71.3%; 2016: 72.5%). Mortgage loans has an increase in nominal value four times higher than consumer loans.

The achievements in mortgage loans were influenced by the market changes that the banking sector faced last year. The fast and flexible procedure and decision-making process as well as the terms and conditions offered for the mortgage loans continued to be preferential. The mortgage product “5 stars”, which was reviewed dif-ferent times, continued to be very competitive. The product offers a one or two years period with a fixed interest rate and floating interest rate after, the longest loan term in the market, preferential fees and commissions, a credit card as a bonus and the possibility to finance every need.


Consumer loans increased by 46.8% and reached ALL 969,071 compared to ALL 660,110 thousand for the pre-vious year. The share of the consumer loans in the portfolio of the loans to individuals is 21.7% as at the end of December 2018 (2017: 22.8%; 2016: 20.2%).

During the year, we continued to advertise Consumer loan “Limited Offer” with a maximum amount of ALL 1,000 thousand and a maximum maturity of 84 months. The offer featured some preferential terms and conditions like no fees including application, renegotiation and early repayment. The conditions are reviewed during the year, resulting in more flexible and facilitating the lending requirements. The “VIP” consumer loan is offered with a twelve-month period with fixed interest rate and floating interest rate after, preferential and flexible terms and conditions.

Credit cards increased by 16.4% and reached ALL 199,491 thousand at the end of December 2018 (2017: ALL 171,440 thousand; 2016: ALL 157,576 thousand). The portfolio of credit cards is at 4.5% share in the portfolio of loans to individuals (2017: 5.9%; 2016: 7.2%).

The increase in loan/deposits ratio is due to a higher growth rate of loans compared to the growth rate of at-tracted funds. The growth of the portfolio of the loans to individuals was supported by the professional teams of every branch and office of the Bank. The constant trainings and the improvements in the internal procedures facilitated the smooth and successful process of lending. In addition, the product definitions were reviewed on a regular basis to ensure the competitive position of the bank in the retail lending sector.

SME LendingSME client’s portfolio increased with 7.8% during 2018 and reached 7,848,101 thousand, (2017: ALL 7,281,769 thousand; 2016: ALL 5,459,417 thousand). This increase comes mainly for loans granted in Tirana,Fier, Berati and Korca area. This result comes due to market conditions, efforts done from newly hired and existing sales force and the positive impression left in the market from Fibank. The aggressive strategy of the Bank to in-crease the market share and the fact that many Banks are not active for the moment facilitated the increase process. Big number of the new clients is referred from the existing performing clients, due to the very positive collaboration with our Bank. The Bank focus was in maintaining the existing good portfolio, granting new loans


for low risk clients and reviewing the conditions of the clients in difficulties and collection. In order to support SME clients and increase their capacity to access financing in the current economic envi-ronment, Fibank Albania extended its lending product portfolio, offering to the customers with good turnover in their accounts special products with very good interest rates in Euro and in ALL. Meantime the preferential operational offer (half of the standard prices) is still offered to new clients and to the good existing portfolio.

During 2018 SME interest income increased by 25.6% reaching ALL 545,727 thousand (2016: ALL 434,543 thousand; 2015: ALL 417,986 thousand). This result comes from the continuous increase of the portfolio in the last years.

The predominant share of loan portfolio is still formed by trade sector at 36% followed by industry at 17.4%, construction sector at 13.5% and services at 12.6%. Comparing to the portfolio of 2017, there is an increase of the industry and construction sectors.

Card PaymentsOur focus during 2018 was to promote credit cards and debit cards to potential customers by offering excellent value proposition and benefits in an excellent service.During the year we continued to make several promotions and offer good service for our cards. This year was a decision to move on with new technologies especially contactless cards where changes started in this year. In


the beginning of 2019 Fibank was the first bank which starting issuing contactless cards with the latest tech-nology. This upgrade was offered free of charge to cardholders who embraced it by adopting daily purchases with this tap and pay technology without entering PIN for amounts up to 20 Eur.

For all the clients who have already an existing credit card in other banks we offered a pre-approved credit card “Half cost” with special conditions. The interest rate and annual commission were the lowest in the market, half of the average interest rate and annual commission of the other banks.

Our partnership with booking.com continued and more travelers benefit from discounts using Fibank cards. The portal www.travel.fibank.al was frequently contacted by Cardholders and has increased satisfactions and also the number of online transactions.

The credit cards products continue to be competitive in the market, offering preferential fees and commis-sions, the best interest rates, the shortest period to deliver the card to the client.

The number of active debit cards has been in a stable growth as well as the number of credit cards.The transaction volume of the credit cards increased with 69% compared with 2014 and tripled compared with 2013. Meanwhile the transaction volume of debit cards has increased in a steadier pace at around 24% com-pared with 2 years ago.

The transaction volume of the credit cards has increased with 26% from the previous year ALL 1,563,159 thou-sand (2017 ALL1,240,102 thousand; 2016 ALL 1,199,695 thousand; 2015: ALL 1,014,628 thousand)

The transaction volume of the debit cards has a slight decrase with 0.6 %, ALL 2,024,991 thousand compared with the previous year 2017, (2017: ALL 2,037,778 thousand; 2016: 1,796,072 thousand).

Gold and Commemorative CoinsFibank Albania offers a wide range of gold products as per the business development of precious metals from Fibank AD. Fibank Albania imports these products directly from Fibank AD which has already established a successful cooperation with many leading well-known institutions worldwide like Swiss mint PAMP (Produits Artistiques de Métaux Précieux), UBS and Credit Suisse, the New Zealand Mint, the National Bank of Mexico, the Austrian Mint, the British auction house SPINK, and others.Fibank Albania offers products of the precious metals as coins, bars, medals and medallions. The distribution of a new gold investment coin from the New Zeland Mint started at the beginning of 2011.


Payment ServicesFibank Albania carries out its activity related to money transfers and other payment services in compliance with Albanian legislation, including the Regulation No.55 “On the function of Albanian Electronic Clearing House – AECH”, the Regulation No.53 “On the function of Albanian Interbank Payments System – AIPS”, the Decision No.12 dated 23.02.2011 “On the adoption of some amendments in the Regulation “On the functioning of Albanian Interbank Payment System – AIPS” and “On the functioning of Automated Clearing House System – AECH”.Currently, Fibank Albania is a member and participant in the payment systems, central securities depository and agent of other payment service providers, as follows:• Real-Time Gross Settlement System (AIPS)• Automated Clearing House System (AECH)• Society Worldwide Interbank Financial Telecommunication (SWIFT)• Albanian Financial Instrument Settlement and Registration System (AFISAR)• MoneyGram AgentRegarding outgoing transfers in foreign currency done in 2018, their respective number ordered by Fibank customers increased by around 33% compared to 2017,also the number of incoming international transfers in favor of the clients of Fibank increased by around 68% compared to 2017.Meanwhile the domestic money transfers in local currency in 2018 was more or less at the same levels com-pared to one year before. The increase of foreign currency transfers was due to the increased customer base, the competitive conditions offered by the Bank and the high quality of customer service.

Compliance and AMLAML Compliance Unit carries out activities of identifying, assessing and managing the risk of non-compliance, ensures adequate and legitimate internal regulatory framework on money laundering and terrorist financing prevention, and other financial crimes and ensures that the Bank is in full compliance with the relevant laws and regulations in force.

The Bank has implemented the Annual AML Compliance Plan, which aims to identify, assess and mitigate risk of money laundering and terrorism financing. The Bank performs annual risk assessment of AML/CFT activities, by means of proper customer data verification, due-diligence and enhanced due-diligence policies and procedures, by developing systems to detect, monitor and report the riskier customers, suspicious trans-actions and economic sanctions screening, which along with the culture of the corporate are decisive in risk mitigation towards financial crime and unethical behaviours.

The Bank has developed a compliance function, which main objective is to identify, assess, monitor and report the risk of non-compliance. The Compliance function includes the Head of Risk Management, AML Compli-ance Manager, Head of Legal, Head of International Payments and Correspondent Banking, Chief Financial Officer in the quality of members of Compliance Committee. Compliance Committee is established to ensure ongoing Bank compliance with all applicable laws, regulations, standards, internal policies, procedures and processes concerning the Compliance function.


Depositary and Custodian ServicesIn its capacity as an investment intermediary of government securities, Fibank carries out transactions with financial instruments in the country including transactions of government securities, as well as money market instruments. The Bank also offers custodian services to private individuals and corporates, including maintain-ing registers of accounts of securities, and servicing payments under transactions in financial instruments.

Fibank Albania custodian activities are in compliance with Bank of Albania and Financial Supervision Authority regulations, which ensure a higher level of protection for non-professional customers. Custody & Depositary Unit is the unit which controls the custodian services and ensures the observing of the requirements regarding Fibank’s activity as an investment intermediary and custodian.

At the end of 2018 funds under Custody amounted in ALL were: ALL 75,145,108.88 thousand (ALL 62,040,785 thousand in ALL; ALL 12,655,792 thousand in EUR and ALL 448,531 thousand in USD) compared to ALL 81,998,520 (ALL 64,905,428 thousand in ALL, ALL 16,797,566 thousand in EUR and ALL 295,526 thousand in USD) at the end of 2017, (2016: ALL 57,365,093 thousand in ALL, ALL 15,038,385 thousand in EUR and ALL 130,733 thousand in USD.

Fibank Albania has given its continuous support and contribution to update information on the performance of the Government Securities yield in its branches, intending to provide accurate and explicit information to its customers and encourage their participation in the primary and secondary market.Fibank Albania was the first bank in Albania licensed by Financial Supervision Authority as Depositary of Vol-untary Pension Fund (August 2010) and as Depository (Custodian) of Collective Investment Undertakings (end of 2011). This service and other services to be provided in a near future are part of our efforts and goals to become part of the domestic market developments. In 2018 Fibank Albania continued to offer depositary service to two asset management companies that man-ages collective investment undertakings and voluntary pension funds.The agreement with Raiffeisen Invest Albania, the biggest management company in Albania, was signed on October 2010 for Raiffeisen Pension Fund and on February 2012 for the investment funds Raiffeisen Prestige and Raiffeisen Invest EUR. In September 2018 was launched Raiffeisen Vizion Fund that is the third Investment Fund from Raiffeisen In-vest. From March 2018 we offered depositary service to WVP Fund Management Tirana which manages WVP Top Investment Fund.From the end of 2014 Fibank Albania was licensed by Financial Supervision Authority as Custodian of Corpo-rate and Municipality Bonds. From January 2015 Fibank Albania offered this service to Credins Bank for its corporate bonds and from December 2018 offered the service for the corporate bond of Digitalb sha.


Financial Statements

for the year ended 31 December 2018(with independent auditors’ report thereon)


INDEPENDENT AUDITORS’REPORT FINANCIAL STATEMENTS: Statement of comprehensive income for the year ended 31 December 2018 Statement of financial position as at 31 December 2018 Statements of cash flows for the year ended 31 December 2018 Statement of changes in equity for the year ended 31 December 2018 NOTES TO THE FINANCIAL STATEMENTS

62

63

64

65

67

TABLE OF CONTENTS


RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS

The Management of First Investment Bank – Albania sh.a. (“the Bank”) is responsible for ensuring that the an-nual financial statements for the year 2018, prepared in accordance with the International Financial Reporting Standards, give a true and fair view of the financial position, the financial performance, the changes of equity and the cash flows of the Bank for that period.

After making enquiries, the Management reasonably expects the Bank to have adequate resources to continue to operate in the foreseeable future. Accordingly, the Management prepared the annual financial statements using the going concern basis of accounting.

In preparing the annual financial statements, the Management is responsible for:• selection and consistent application of suitable accounting policies in accordance with the applicable financial reporting standards;• giving reasonable and prudent judgments and estimates;• using the going concern basis of accounting, unless it is inappropriate to presume so.

The Management is responsible for keeping the proper accounting records, which at any time with reasonable certainty present the financial position and the financial performance of the Bank, and also their compliance with the International Financial Reporting Standards. The Management is also responsible for safe keeping the assets of the Bank and also for taking reasonable steps for prevention and detection of fraud and other irregularities.

For and on behalf of the Management:

First Investment Bank – Albania sh.a.Blvd. “Dëshmorët e Kombit”Twin Towers, Tower no. 2, Fl. 14Tiranë, Albania

27 March 2019

Bozhidar TodorovChief Executive Officer

Edvin LikoChief Financial Officer

Elma LlojaExecutive Director


INDEPENDENT AUDITOR’S REPORTTo the Management and Shareholder of First Investment Bank – Albania sh.a.


Statement of comprehensive income for the year ended 31 December 2018 in thousands ALL

1

Year ended Year ended Note 31 December 2018 31 December 2017

Interest and similar income 1,157,472 1,026,758

Interest expense and similar charges (180,994) (191,827)

Net interest income 7 976,478 834,931

Fee and commission income 263,752 246,240

Fee and commission expense (46,565) (36,834)

Net fee and commission income 8 217,187 209,406

Net trading income 9 (106,151) (13,045)

Other operating income 10 43,543 50,778

TOTAL INCOME FROM BANKING OPERATIONS 1,131,057 1,082,070

Net impairment losses 5 c (73,534) (84,497)

Net impairment loss on off-balance sheet (112) 67

Personnel expenses 11 (253,281) (207,032)

Operating lease expenses (72,742) (68,495)

Depreciation and amortization 21,22 (30,094) (30,777)

General administrative expenses 12 (155,015) (124,449)

Other expenses, net 13 (63,799) (53,765)

(648,577) (568,948)

PROFIT BEFORE TAX 482,480 513,122

Income tax expense 14 (81,448) (77,446)

NET PROFIT FOR THE YEAR 401,032 435,676 Other comprehensive income / (loss), net of income tax 191,042 (83,773) TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTED TO THE OWNERS 592,074 351,903

The notes on pages 6 to 66 are an integral part of these financial statements.

Statement of Financial Position as at 31 December 2018 in thousands ALL

2

As at As at Note 31 December 2018 31 December 2017

ASSETS

Cash and balances with Central Bank 15 514,799 480,897

Restricted balances 16 1,677,859 1,460,836

Investment in securities at FVOCI 17 7,540,288 4,708,543

Investment in securities at amortized cost 18 - 2,317,944

Loans and advances to banks and financial institutions 19 2,448,132 1,859,013

Loans and advances to customers 20 11,713,074 9,518,779

Property and equipment 21 138,632 82,566

Intangible assets 22 25,326 22,022

Repossessed assets 23 519,189 476,751

Other assets 24 55,652 67,612

TOTAL ASSETS 24,632,951 20,994,963 LIABILITIES AND SHAREHOLDERS' EQUITY

Due to banks 25 16,045 347,323

Due to customers 26 20,807,370 17,229,570

Liabilities evidenced by paper 27 202,770 618,520

Other liabilities 28 131,268 129,120

Deferred tax liability 14 67,958 14,417

Total liabilities 21,225,411 18,338,950

Issued share capital 29 1,516,517 1,516,517

Legal reserve 39,938 18,154

Other reserve 133,235 - Revaluation reserve in investment in securities at FVOCI 436,323 129,616

Retained earnings 1,281,527 991,726

Shareholders‘ equity 3,407,540 2,656,013

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 24,632,951 20,994,963


Statement of Cash Flow for the year ended 31 December 2018 in thousands ALL

3

Year ended Year ended Note 31 December 2018 31 December 2017

Cash flow from operating activities: Net profit for the period 401,032 435,676 Non-cash items in the statement of comprehensive income Net impairment losses 73,646 84,430 Depreciation and amortization 21,22 30,094 30,777 Net interest income 7 (976,478) (834,931) Tax expense 14 81,448 77,446 Loss from sale of tangible assets 580 - Loss from sale of other assets 670 996 (389,008) (205,606) Changes in working capital: Change in investments in securities at FVOCI (2,529,428) 1,290,087 Change in loans to customers (2,195,176) (2,523,110) Change in other assets (40,854) (85,966) Change in obligatory reserve (217,023) 104,349 Change in deposits from banks (331,239) 132,058 Increase in amounts owed to other depositors 3,566,925 1,167,312 Change in other liabilities 42,950 (16,116) Interest paid (170,352) (222,685) Interest received 1,132,997 986,512 Income tax paid (68,820) (100,261)

NET CASH FLOWS (USED IN) / FROM OPERATING ACTIVITIES (1,199,028) 526,574

Cash flow from / (used in) investing activities: Net proceeds from investments 2,317,944 (996,580) Purchase of intangible assets 22 (10,877) (4,279) Purchase of property and equipment 21 (80,437) (20,258) Sale of tangible and intangible fixed assets 1,270 - Sale of other assets 9,705 -

NET CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES 2,237,605 (1,021,117)

Cash flow (used in) / from financing activities: (Decrease) / Increase in borrowings 27 (415,556) 618,321

NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES (415,556) 618,321

NET INCREASE IN CASH AND CASH EQUIVALENTS 623,021 123,778 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 32 2,339,910 2,216,132 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 32 2,962,931 2,339,910


Statement of changes in Equity for the year ended 31 December 2018 In thousands of ALL, unless otherwise stated

4

Share Capital Reserve Retained

earnings

Fair value

reserve on

Available for

sale

investments Total

Balance at 1 January 2017 1,516,517 - 574,204 213,389 2,304,110 Total comprehensive income for the period

Profit of the year - - 435,676 - 435,676 Other comprehensive loss, net of income tax - - - (83,773) (83,773) Total comprehensive income for the year 435,676 (83,773) 351,903 Transaction with owners, recorded directly in equity

Contribution by the owners - - - - -

Issued share capital - - - - -

Legal reserve - 18,154 (18,154) - - Total contributions by and distributions to owners - 18,154 (18,154) - -

Balance at 31 December 2017 1,516,517 18,154 991,726 129,616 2,656,013


Statement of changes in Equity for the year ended 31 December 2018 In thousands of ALL, unless otherwise stated

5

Share Capital Reserve

Retained

earnings

Fair value

reserve on

investments

at FVOCI Total

Balance at 31 December 2017 1,516,517 18,154 991,726 129,616 2,656,013 Adjustments on initial application of IFRS 9 43,788 113,900 157,688

Balance at 1 January 2018 1,516,517 18,154 1,035,514 243,516 2,813,701 Total comprehensive income for the period

Profit of the year - - 401,032 - 401,032 Other comprehensive income, net of income tax - - - 192,807 192,807 Total comprehensive income for the year 401,032 192,807 583,839 Transaction with owners, recorded directly in equity

Contribution by the owners

Issued share capital - - - - -

Changes in reserve

Legal reserve - 21,784 (21,784) - -

Other reserve - 133,235 (133,235) - - Total contributions by and distributions to owners - 155,019 (155,019) - -

Balance at 31 December 2018 1,516,517 173,173 1,281,527 436,323 3,407,540


The financial statements have been approved by the Management on 27 March 2019 and signed on its behalf by:

Bozhidar Todorov Elma Lloja

Chief Executive Director Executive Director

Edvin Liko

Chief Financial Officer

Notes to the financial statements for the year ended 31 December 2018 In thousands of ALL, unless otherwise stated

6

1. General

First Investment Bank Albania (the Bank) incorporated in the Republic of Albania is a joint stock company established on 1 August 2005 and has its registered office in Tirana, "Dëshmorët e Kombit" Blvd., Twin Towers, Tower 2 Floor 14.

The Bank has a general banking license issued by the Bank of Albania (hereinafter “BoA"), on 6 July 2007, according to which it is allowed to conduct all banking transactions permitted by the Albanian legislation. The Bank is primarily involved in corporate and retail banking.

The Bank has also been licensed by Albanian Financial Supervisory Authority for carrying out depositary, custodian and brokerage services.

The Bank is a subsidiary of First Investment Bank A.D. (hereinafter the “Parent”), an entity incorporated in Bulgaria as a financial institution which owns 100% of the Bank shares. Previously it operated as a foreign branch of the Parent in Albania since February 1999.

The shareholders structure of the parent as at 31 December 2018 was as follows:

Shareholders % of issued

share capital

Mr. Ivailo Dimitrov Mutafchiev 42.50

Mr. Tzeko Todorov Minev 42.50 Other shareholders (shareholders holding shares subject to free trade on Bulgarian Stock Exchange - Sofia)

15.00

Total 100.00

The headquarters of First Investment Bank – ALBANIA sh.a. is located in Tirana. The network of branches includes 12 branches. Two branches are located in Tirana (Tirana 1, Twin Towers) and other branches are located in Berat, Durrës, Elbasan, Fier, Korçë, Lezhë, Lushnjë, Sarandë, Shkodër and Vlorë.

The Bank had 183 employees as at 31 December 2018 (31 December 2017: 143).

2. Basis of preparation

a) Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).

b) Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial assets at FVOCI (applicable from 1 January 2018), available-for-sale financial assets (applicable before 1 January 2018) which have been measured at fair value.


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2. Basis of preparation (continued)

c) Functional and presentation currency

The financial statements are presented in Albanian Lekë (ALL) rounded to the nearest thousand, which is the Bank’s functional currency.

Management chose ALL as the functional currency due to the fact that the Bank operates in an environment whose prices, in the judgment of Management, are driven by the domestic currency ALL. Costs and contracts are driven by ALL, even if their formal denomination is in different currencies.

d) Use of estimated and judgments

The preparation of the financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

A. Judgments

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements is included in the following notes.

- Applicable to 2018 only:

-Note 4 (g) (ii): classification of financial assets: assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are SPPI on the principal amount outstanding.

-Note 5 (c): establishing the criteria for determining whether credit risk on the financial asset has increased significantly since initial recognition, determining methodology for incorporating forward-looking information into measurement of ECL and selection and approval of models used to measure ECL.


8

2. Basis of preparation (continued)

B. Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended 31 December 2018 is included in the following notes.

- Applicable to 2018 only:

- Note 5 (c): impairment of financial instruments: determining inputs into the ECL impairment model, including incorporation of forward-looking information

- Applicable to 2018 and 2017

- Note 4 (g) (vii): determination of the fair value of financial instruments with significant unobservable inputs

- Note 4 (f) (ii): recognition of deferred tax assets

- Note 4(p): recognition and measurement of contingencies: key assumption about the likelihood and magnitude of an outflow of resources

- Note 4 (m): net realizable value of inventory: fair value measurement with significant unobservable inputs

- Note 4 (g) (vii): impairment of financial instruments: key assumptions used in estimating recoverable cash flows

3. Changes in accounting policy

The Bank has initially adopted IFRS 9 (see A) and IFRS 15 (see B) from 1 January 2018. A number of other new standards are also effective from 1 January 2018 but they do not have a material effect on the Bank’s financial statements. Due to the transition method chosen by the Bank in applying IFRS 9, comparative information throughout these financial statements has not generally been restated to reflect its requirements. The adoption of IFRS 15 did not impact the timing or amount of fee and commission income from contracts with customers and the related assets and liabilities recognised by the Bank. Accordingly, the impact on the comparative information is limited to new disclosure requirement.

Except for the changes below, the Bank has consistently applied the accounting policies as set out in Note 4 to all periods presented in these financial statements.

A. IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The requirements of IFRS 9 represent a significant change from IAS 39. The new standard brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities.

Additionally, the Bank has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018, but have not been applied to the comparative information. The key changes to the Bank’s accounting policies resulting from its adoption of IFRS 9 are summarised below. The full impact of adopting the standard is set out in Note 6 (b).


9

3. Changes in accounting policy (continued)

A. IFRS 9 Financial Instruments (continued)

Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows. The standard eliminates the previous IAS 39 categories of held-to-maturity, loans and receivables and available-for-sale. For an explanation of how the Bank classifies financial assets under IFRS 9, see note 4 (g) (ii). IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. For an explanation of how the Bank classifies financial liabilities under IFRS 9, see note note 4 (g) (ii).

Impairment of financial assets

IFRS 9 replaces the “incurred losses” model in IAS 39 with an ‘expected loss’ model. The new impairment model also applies to certain loan commitments and financial guarantees contracts but not to equity investments.

Under IFRS 9, credit losses are recognized earlier than under IAS 39. For an explanation of how the Bank applies the impairment requirements of IFRS 9, see note 4 (g) (viii).

Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below.

Comparative periods generally have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.

The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

- The determination of the business model within which a financial asset is held.

- If a debt security had low credit risk at the date of initial application of IFRS 9, then the Bank has assumed that credit risk on the asset had not increased significantly since its initial recognition.

For more information and details on the changes and implications resulting from the adoption of IFRS 9, see Note 4 (g).

B. IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

The Bank initially applied IFRS 15 on 1 January 2018 retrospectively in accordance with IAS 8 without any practical expedients. The timing or amount of the Bank’s fee and commission income from contracts with customers was not impacted by the adoption of IFRS 15. The impact of IFRS 15 was limited to the new disclosure requirements (see Note 4).


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4. Significant accounting policies

a) Foreign currency transactions

Transactions in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the reporting date are retranslated to the functional currency at the 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 year, adjusted for effective interest and payments during the year, and the amortised costs in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are generally recognised in profit or loss.

b) Interest

Policy applicable from 1 January 2018

Effective Interest rate

Interest income and expense are recognised in profit or loss using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to

- The gross carrying amount of the financial asset; or

- The amortised cost of the financial liability

When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Bank estimates future cash flows considering all contractual terms of the financial instrument, but not ECL. For purchased or originated credit-impaired financial assets, a credit adjusted effective interest rate is calculated using estimated future cash flows including ECL.

The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

Amortised cost and gross carrying amount

The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018). The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.


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4. Significant accounting policies (continued)

b) Interest (continued)

Calculation of interest income and expense

The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial asset or a financial liability. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability. The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating rate instruments to reflect movements in market rates of interest.

However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves.

For information on when financial assets are credit-impaired, see Note 4(g)(viii).

Policy applicable before 1 January 2018

Interest income and expense were recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Bank estimated future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate included all fees and points paid or received that were an integral part of the effective interest rate. Transaction costs included incremental costs that were directly attributable to the acquisition or issue of a financial asset or liability.

c) Fees and commission

Fee and commission income and expenses that are integral to the effective interest rate on a financial asset or liabilities are included in the measurement of the effective interest rate.

Other fee and commission income, including account servicing fees, investment management fees, sales commission and placement fees are recognized as the related services are performed. If a loan commitment is not expected to result in a draw-down of a loan, then the related loan commitment fees are recognized on a straight line basis over the commitment period.

A contract with a customer that results in a recognised financial instrument in the Bank’s financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Bank first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.

Other fees and commission income and expenses arise on financial services operated by the Bank and are recognized when the corresponding service is provided or received.


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d) Net trading income

Net trading income comprises gains less losses related to realized and unrealized foreign exchange differences.

e) Lease payments made

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

f) Tax expense

Tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to items recognised directly in equity or in other comprehensive income.

(i) Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

(ii) Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit nor loss.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which it can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.


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(iii) Tax exposures

In determining the amount of current and deferred tax, the Bank takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Bank to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

g) Financial assets and financial liabilities

(i) Recognition

The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Bank commits to purchase or sell the asset. All other financial assets and liabilities are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability is initially measured at fair value plus transaction costs that are directly attributable to its acquisition or issue.

(ii) Classification

Financial Assets – Policy applicable after 1 January 2018.

On initial recognition, the Bank classified a financial asset as measured at amortised cost, FVOCI or FVTPL.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

– the asset is held within a business model whose objective is to hold assets to collect contractual cash flows;

- the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:

– the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets;

- the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.

On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment by- investment basis.

All other financial assets are classified as 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 amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.


14


g) Financial assets and financial liabilities (continued)

(ii) Classification (continued)

Business model assessment

The Bank makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

-the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;

- how the performance of the portfolio is evaluated and reported to the Bank’s management;

-the risks that affect the performance of the business model (and the financial assets held within that business model) and its strategy for how those risks are managed;

-how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected);

-the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Bank stated objective for managing the financial assets is achieved and how cash flows are realised.

Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

Assessment of 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 and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as profit margin.

In assessing whether the contractual cash flows are SPPI, the Bank considers the contractual terms of the instrument. This includes 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 loans);

- and features that modify consideration of the time value of money (e.g. periodical reset of interest rates).


15



(ii) Classification (continued)

Reclassifications

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Bank changes its business model for managing financial assets.

Financial Assets – Policy applicable before 1 January 2018.

The Bank classified its financial assets in one of the following categories:

• loans and receivables;

• held to maturity; or

• available-for-sale.

See accounting policies 4. (h,i, and j)

Financial Liabilities

The Bank classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortized cost or fair value through profit or loss. See accounting policy 4.o.

(iii) Derecognition

Financial Assets

The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability.

The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, it derecognises the asset if it does not retain control over the asset. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers in whom control over the asset is retained, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

In certain transactions the Bank retains the obligation to service the transferred financial asset for a fee. The transferred asset is derecognised in its entirety if it meets the derecognising criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing. The Bank writes off certain loans when they are determined to be uncollectible (see note 4.g.viii).


The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.


16



(iv) Modification of financial assets and financial liabilities


Financial assets

If the terms of a financial asset are modified, then the Bank evaluates whether the cash flows of the modified asset are substantially different.

If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised (see iii) and a new financial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the modification are accounted for as follows:

– fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and

– other fees are included in profit or loss as part of the gain or loss on derecognition.

If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Bank plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place (see below for write-off policy). This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases.

If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Bank first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. For floating-rate financial assets, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification.

Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset.

If such a modification is carried out because of financial difficulties of the borrower (see 4.g.(viii)), then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest rate method (see 3 (b)).


17



(iv) Modification of financial assets and financial liabilities (continued)

Financial liabilities

The Bank derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid includes nonfinancial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.

If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or loss is recognised in profit or loss. For floating-rate financial liabilities, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs and fees incurred are recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.


Financial assets

If the terms of a financial asset were modified, then the Bank evaluated whether the cash flows of the modified asset were substantially different. If the cash flows were substantially different, then the contractual rights to cash flows from the original financial asset were deemed to have expired. In this case, the original financial asset was derecognised (see 4.(g).(iii)) and a new financial asset was recognised at fair value.

If the terms of a financial asset were modified because of financial difficulties of the borrower and the asset was not derecognised, then impairment of the asset was measured using the pre-modification interest rate (see 4.(g).(viii)).


The Bank derecognised a financial liability when its terms were modified and the cash flows of the modified liability were substantially different. In this case, a new financial liability based on the modified terms was recognised at fair value. The difference between the carrying amount of the financial liability extinguished and consideration paid was recognised in profit or loss. Consideration paid included nonfinancial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability

If the modification of a financial liability was not accounted for as derecognition, then any costs and fees incurred were recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.


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(v) Offsetting

Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.

(vi) Amortized cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

(vii) Fair Value Measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date.

When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis.

If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Bank, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Bank calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e., the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e., without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.


19



(vii) Fair Value Measurement (continued)

Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Bank has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Bank believes a third-party market participant would take them into account in pricing a transaction.

(viii) Impairment


The Bank recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL:

- financial assets that are debt instruments;

- financial guarantee contracts issued; and

- loan commitments issued.

The Bank measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:

- debt investment securities that are determined to have low credit risk at the reporting date; and

- other financial instruments on which credit risk has not increased significantly since their initial recognition.

The Bank considers a debt investment security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade’. The Bank does not apply the low credit risk exemption to any other financial instruments.

12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as ‘Stage 1 financial instruments’.

Life-time ECL are the ECL that result from all possible default events over the expected life of the financial instrument. Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 financial instruments’.


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(viii) Impairment (continued)

Measurement of ECL

ECL are a probability-weighted estimate of credit losses. They are measured as follows:

- financial assets that are not credit-impaired at the reporting date: as 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: as the difference between the gross carrying amount and the present value of estimated future cash flows;

- undrawn loan commitments: as 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 expected payments to reimburse the holder less any amounts that the Bank expects to recover.

Credit-impaired financial assets

At each reporting date, the Bank assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

- significant financial difficulty of the borrower or issuer;

- a breach of contract such as a default or past due event;

- the restructuring of a loan or advance by the Bank on terms that the Bank would not consider otherwise;

- it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

or

- the disappearance of an active market for a security because of financial difficulties.


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Credit-impaired financial assets (continued)

A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment. In making an assessment of whether an investment in sovereign debt is credit-impaired, the Bank considers the following factors.

- The market’s assessment of creditworthiness as reflected in the bond yields.

- The rating agencies’ assessments of creditworthiness.

- The country’s ability to access the capital markets for new debt issuance.

- The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt forgiveness.

- The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulfil the required criteria.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for ECL are presented in the statement of financial position as follows:

- financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;

- loan commitments and financial guarantee contracts: generally, as a provision;

- where a financial instrument includes both a drawn and an undrawn component, and the Bank cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Bank presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision; and

- debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.


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Write-off

Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Bank determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level. Recoveries of amounts previously written off are included in ‘impairment losses on financial instruments’ in the statement of profit or loss and OCI.

Financial assets that are written off could still be subject to enforcement activities in order to comply with the Bank’s procedures for recovery of amounts due.


At each reporting date the Bank assessed whether there was objective evidence that financial assets not carried at fair value through profit and loss were impaired. Financial assets or a group of financial assets were impaired when objective evidence demonstrated that a loss event had occurred after the initial recognition of the asset, and that the loss event had an impact on the future cash flows of the asset that could be estimated reliably.

Objective evidence that financial assets were impaired could include default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer would enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlated with defaults in the group.

The Bank considered evidence of impairment for loans and advances and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and advances and held-to-maturity investment securities were assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired were then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances and held-to-maturity investment securities that were not individually significant were collectively assessed for impairment by grouping together loans and advances and held-to-maturity investment securities with similar risk characteristics.

In assessing collective impairment the Bank used statistical modeling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions were such that the actual losses were likely to be greater or less than suggested by historical modeling. Default rates, loss rates and the expected timing of future recoveries were regularly benchmarked against actual outcomes to ensure that they remained appropriate.


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Impairment losses on assets carried at amortised cost were measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses were recognised in profit or loss and reflected in an allowance account against loans and advances or held-to-maturity investment securities. When an event occurred after the impairment was recognised caused the amount of impairment loss to decrease, the decrease in impairment loss was reversed through profit or loss.

Impairment losses on available-for-sale investment securities, if any, were recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that was reclassified from equity to profit or loss was the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in impairment provisions attributable to application of the effective interest method were reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase could be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss was reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security was recognised in other comprehensive income.

h) Cash and cash equivalents

Cash and cash equivalents comprise cash balances on hand, cash deposited with central banks and short-term highly liquid investments with original maturity of three months or less.

i) Loans and advances to customers


Loans and advances captions in the statement of financial position include loans and advances measured at amortised cost. They are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method.

When the Bank purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Bank’s financial statements.


Loans and advances were non-derivative financial assets with fixed or determinable payments that were not quoted in an active market and that the Bank did not intend to sell immediately or in the near term.

When the Bank purchased a financial asset and simultaneously entered into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (“reverse repo” or “stock borrowing”), the arrangement was accounted for as a loan or advance, and the underlying asset was not recognised in the Bank’s financial statements.

Loans and advances were initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.


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j) Investment Securities


The “investment securities” caption in the statement of financial position includes

-debt investment securities measured at amortised cost (see g (ii)); these are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method;

-debt securities measured at FVOCI;

For debt securities measured at FVOCI, gains and losses are recognised in OCI, except for the following, which are recognised in profit or loss in the same manner as for financial assets measured at amortised cost:

- Interest revenue using the effective interest method

- ECL and reversals, and

- Foreign exchange gains and losses

When debt security measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss.


Investment securities were initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity, available-for-sale or fair value through profit or loss (if any).

(i) Held to maturity

Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity and which are not designated at available-for-sale or fair value through profit or loss,(if any). Held-to-maturity investments are carried at amortised cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Bank from classifying investment securities as held-to-maturity for the current and the following two financial years.

(ii) Available for sale investments

Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value.

Interest income is recognised in profit or loss using the effective interest method. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss. Other fair value changes are recognised directly in other comprehensive income until the investment is sold or impaired and the cumulated gain or loss previously recognised in other comprehensive income are reclassified to profit or loss.

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k) Property and equipment

Items of property and equipment are measured at their acquisition cost less accumulated depreciation and accumulated impairment losses. Useful life is estimated based on Management expectations on the serviceability of assets.

Depreciation is calculated on a straight line basis at prescribed rates designed to decrease the cost or valuation of fixed assets over the expected useful lives of each part of an item of property and equipment. The following are the useful lives:

Leasehold improvements 5-20 years

Fittings, fixtures and installations 10 years

Motor vehicles 10 years

Machinery and electronic equipment 10 years

Computer and IT system equipment 5 years

Other office equipment 10 years

Assets are not depreciated until they are brought into use and transferred from assets in the course of construction into the relevant asset category.

l) Intangible assets

Intangible assets are stated at cost less accumulated amortization and any impairment losses. Amortization is calculated on a straight-line basis over the expected useful life of the asset. The following are the useful lives:

Patents, copyrights and trademarks 5 years

Software & other intangible assets 5 years

m) Repossessed assets

Repossessed assets acquired through enforcement of security over non-performing loan and advances to customer that are not held for sale, do not earn rental, not own used and are intended for disposal in a reasonably short period of time, without significant restructuring, are classified as inventory. Repossessed assets are measured at the lower of cost and net realizable value and any write down is recognized in the profit or loss. Any gain or loss on disposal is recognized in profit or loss.

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n) Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

o) Deposits

Deposits are the Bank's main sources of debt funding.

When the Bank sells a financial asset and simultaneously enters into an agreement to repurchase the asset (or a similar asset) at a fixed price on a future date ("repo" or "stock lending"), the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank's financial statements.

The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. Deposits and subordinated liabilities are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the Bank chooses to carry the liabilities at fair value through profit or loss.

p) Provisions

A provision is recognized if the Bank has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

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q) New standards, interpretations and amendments not yet effective

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018. However, the Bank has not early applied the following new or amended standards in preparing these financial statements.

Of those standards that are not yet effective, IFRS 16 is expected to have a significant impact on the Bank’s financial statements in the period of initial application.

IFRS 16 – Leases

The Bank is required to adopt IFRS 16 Leases from 1 January 2019. The Bank has assessed the estimated impact that the initial application of IFRS 16 will have on its consolidated financial statements, as described below. The actual impact of adopting the standard on 1 January 2019 may change because the Bank has not finalised the testing and assessment of its respective internal controls and the new accounting policies are subject to change until the Bank presents its first financial statements that include the date of initial application.

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.

IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The Bank has completed an initial assessment of the potential impact on its financial statements but has not yet completed its detailed assessment.

Transition

The Bank plans to apply IFRS 16 initially on 1 January 2019, using a modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening.

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5) Risk Management Disclosures

Below is a discussion of the various risks the Bank is exposed to as a result of its non-trading activities and the approach taken to manage those risks.

a) Liquidity risk

Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It includes both the risk of being unable to fund assets at appropriate maturity and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame to meet the liability obligations.

Funds are raised using a broad range of instruments including deposits and share capital. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. The Bank makes its best efforts to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturity. The Bank continually assesses liquidity risk by identifying and monitoring changes in funding required meeting business goals and targets set in terms of the overall Bank strategy. As at 31 December 2018 the thirty largest non-financial institution depositors represent 11.74% (2017: 9.27%) of total deposits from other customers. The following table provides an analysis of the financial assets and liabilities of the Bank into relevant maturity groupings based on the remaining periods to repayment.

Maturity table as at 31 December 2018

Less than

1 month

Between 1 month

and 3 months

Between 3 months

and 1 year

More Than 1 year

Maturity not

defined Total

Financial Assets Cash and balances with Central Bank 514,799 - - - - 514,799

Restricted balances - - - - 1,677,859 1,677,859 Investment in securities at FVOCI 14,288 534,918 1,616,961 5,374,121 - 7,540,288 Loans and advances to banks and financial institutions 1,213,881 1,234,251 - - - 2,448,132 Loans and advances to customers 461,185 154,510 1,709,221 9,388,158 - 11,713,074

Total 2,204,153 1,923,679 3,326,182 14,762,279 1,677,859 23,894,152


Due to banks 16,045 - - - - 16,045

Due to customers 1,309,720 623,254 5,899,614 5,459,449 7,515,333 20,807,370 Liabilities evidenced by paper 202,770 - - - - 202,770

Total 1,528,535 623,254 5,899,614 5,459,449 7,515,333 21,026,185

Net liquidity gap 675,618 1,300,425 (2,573,432) 9,302,830 (5,837,474) 2,867,967

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5. Risk Management Disclosures (continued)

a) Liquidity risk (continued)

Maturity table as at 31 December 2017

Less than

1 month

Between 1 and

3 months

Between 3 and 1 year

More than

1 year Maturity not

defined Total

Financial Assets Cash and balances with Central Bank 480,897 - - - - 480,897

Restricted balances - - - - 1,460,836 1,460,836 Available for sale investments 67,961 276,694 729,570 3,634,318 - 4,708,543 Financial Assets held to maturity - 163,578 50,454 2,103,912 - 2,317,944 Loans and advances to banks and financial institutions 1,859,013 - - - - 1,859,013 Loans and advances to customers 510,313 204,158 1,228,438 7,575,870 - 9,518,779

Total 2,918,184 644,430 2,008,462 13,314,100 1,460,836 20,346,012


Due to banks 347,323 - - - - 347,323

Due to customers 8,014,540 1,036,342 4,426,553 3,752,135 - 17,229,570 Liabilities evidenced by paper 618,520 - - - - 618,520

Total 8,980,383 1,036,342 4,426,553 3,752,135 - 18,195,413

Net liquidity gap (6,062,199) (391,912) (2,418,091) 9,561,965 1,460,836 2,150,599

The Bank expects cash flows on certain financial assets and financial liabilities to vary significantly from the remaining contractual cash flows presented above. The principal differences are as follows:

- 70% of the restricted balances with central bank for deposits in ALL is available for the Bank’s day-to-day operations and otherwise used for any Bank liquidity needs.

- Available for sale investments have a remaining contractual maturity from 1 month to 10 years but management may not keep those until final maturity.

- A large portion of saving and current accounts due from customers are reinvested of rolled over despite being in the category “less than 1 month”.

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b) Market risk

Interest rate risk

The Bank evaluates the Interest rate risk as the risk that its interest rate gap from interest bearing assets and liabilities might vary due to unexpected changes of core interest rates in the market. The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets and interest-bearing liabilities mature or reprise 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 reprising characteristics of the various floating rate indices, such as the Bank of Albania repo rate, the LIBOR and EURIBOR. In addition, the actual effect will depend on a number of other factors, including the extent to which repayments are made earlier or later than the contracted dates and variations in interest rate sensitivity within reprising periods and among currencies.

In order to quantify the interest rate risk of its non-trading activities, the Bank measures the impact of a change in the market rates on net interest income.

The interest rate risk on the Bank’s net interest income one year forward following a change of +100bp/-100bp as at 31 December 2018 is ALL +5.96/-5.96 Million (2017: ALL +23.4/-23.4 Million). An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant statement of financial position) is shown in the following table where the effective interest rates as indicated at 31 December 2018 and the periods in which financial liabilities and assets reprise.

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b) Market risk (continued)

Interest rate risk (continued)

At 31 December 2018 the effective interest rates were:

Total

Weighted avg.

effective IR Floating rate instruments

Fixed Rate Instruments

<=1

month 1-3

months 3 months

1 year More than 1

year

Financial Assets Cash and balances with Central Bank 514,799 - - 514,799 - - -

Restricted balances 1,677,859 0.40% 1,677,859 - - - - Investment in securities at FVOCI 7,540,288 5.60% - 14,287 534,918 357,934 6,633,149 Loans and advances to banks and financial institutions 2,448,132 (0.17%) 1,213,881 1,234,251 - - - Loans and advances to customers 11,713,074 5.51% 9,803,028 270,187 10,797 521,126 1,107,936

Total 23,894,152 4.51% 12,694,768 2,033,524 545,715 879,060 7,741,085


Due to banks 16,045 0.00% - 16,045 - - -

Due to customers 20,807,370 0.92% - 8,825,053 623,254 5,899,614 5,459,449 Liabilities evidenced by paper 202,770 0.85% - 202,770 - - -

Total 21,026,185 0.91% - 9,043,868 623,254 5,899,614 5,459,449 REPRICING / DURATION GAP 2,867,967 3.60% 12,694,768 (7,010,344) (77,539) (5,020,554) 2,281,636

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Interest rate risk (continued)

At 31 December 2017 the effective interest rates were:

Total

Weighted avg.

effective IR

Floating rate

instruments

Fixed Rate Instruments

<=1

Month 1-3

months 3 months

1 year More than 1

year

Financial Assets Cash and balances with Central Bank 480,897 0.00% - 480,897 - - -

Restricted balances 1,460,836 0.41% 1,404,343 56,493 - - - Available for sale investments 4,708,543 5.11% - 67,961 276,694 729,570 3,634,318 Financial Assets held to maturity 2,317,944 5.73% - - 163,578 50,454 2,103,912 Loans and advances to banks and financial institutions 1,859,013 (0.56%) 184,920 1,674,093 - - - Loans and advances to customers 9,518,779 5.93% 7,810,766 283,915 7,262 423,557 993,279

Total 20,346,012 4.59% 9,400,029 2,563,359 447,534 1,203,581 6,731,509


Due to banks 347,323 1.21% - 347,323 - - -

Due to customers 17,229,570 0.93% - 8,014,540 1,036,342 4,426,553 3,752,135 Liabilities evidenced by paper 618,520 1.23% - 618,520 - - -

Total 18,195,413 0.91% - 8,980,383 1,036,342 4,426,553 3,752,135

REPRICING / DURATION GAP 2,150,599 3.68% 9,400,029 (6,417,024) (588,808) (3,222,972) 2,979,374

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Bank is exposed to currency risk through transactions in foreign currencies and on financial instruments that are denominated in a foreign currency.

The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognized in the profit or loss. These exposures relate to those monetary assets and monetary liabilities of the Bank that are not denominated in the presentation currency of the Bank.

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Currency risk (continued)

As at 31 December 2018 the exposures were as follows (with all amounts denominated in foreign currency being translated to ALL):

ALL USD EUR OTHER TOTAL

Financial Assets Cash and balances with Central Bank 172,962 70,986 249,766 21,085 514,799

Restricted balances 789,721 65,091 823,047 - 1,677,859

Investment in securities at FVOCI 993,017 - 6,547,271 - 7,540,288 Loans and advances to banks and financial institutions - 238,969 2,203,604 5,559 2,448,132

Loans and advances to customers 4,029,659 349,425 7,333,956 34 11,713,074

Assets held for sale 449,981 - 69,208 - 519,189

Total 6,435,340 724,471 17,226,852 26,678 24,413,341


Due to banks - - 16,045 - 16,045

Due to other customers 9,978,594 741,136 10,061,975 25,665 20,807,370

Liabilities evidenced by paper 202,770 - - - 202,770

Total 10,181,364 741,136 10,078,020 25,665 21,026,185

Net Currency position (3,746,024) (16,665) 7,148,832 1,013 3,387,156

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Currency risk (continued)

As at 31 December 2017 the exposures were as follows (with all amounts denominated in foreign currency being translated to ALL):

ALL USD EUR OTHER TOTAL

Financial Assets Cash and balances with Central Bank 248,332 77,232 147,756 7,577 480,897

Restricted balances 742,040 56,493 662,303 - 1,460,836

Available for sale investments 4,162,088 - 546,455 - 4,708,543

Financial Assets held to maturity 2,101,729 - 216,215 - 2,317,944 Loans and advances to banks and financial institutions - 218,762 1,622,702 17,549 1,859,013

Loans and advances to customers 3,484,611 289,609 5,744,525 34 9,518,779

Assets held for sale 396,706 - 80,045 - 476,751

Total 11,135,506 642,096 9,020,001 25,160 20,822,763


Due to banks 330,039 - 17,284 - 347,323

Due to other customers 9,165,552 627,123 7,412,535 24,360 17,229,570

Liabilities evidenced by paper 618,520 - - - 618,520

Total 10,114,111 627,123 7,429,819 24,360 17,576,893

Net Currency position 1,021,395 14,973 1,590,182 800 2,627,350

In respect of monetary assets and liabilities denominated in foreign currencies that are not economically hedged, the Bank manages foreign currency risk in line with a policy that sets limits on currency positions and dealer limits.

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c) Credit risk

The Bank is subject to credit risk through its lending activities and in cases where it acts as an intermediary on behalf of customers or other third parties or issues guarantees. In this respect, the credit risk for the Bank stems from the possibility that different counterparties might default on their contractual obligations. The management of the credit risk exposures to borrowers is conducted through regular analysis of the borrowers’ credit worthiness and the assignment of a rating grade. Exposure to credit risk is also managed in part by obtaining collateral and guarantees.

IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition. Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. Instruments in Stages 2 or 3 have their ECL measured based on expected credit losses on a lifetime basis.

According to the Bank’s methodology, all exposures are classified between Performing (including Stage 1 and Stage 2) and Non- Performing exposures (Stage 3).

The following table summarizes the criteria that Fibank has approved for Staging of Loans:

Stage 1 Stage 2 Stage 3

§ Performing exposures up to 30 days past due.

§ Performing exposures more than 30 days past due.

§ Forborne performing exposures up to 30 days

§ Exposures classified as non-performing under the Bank of Albania regulation

§ Forborne performing exposures more than 30 days past due.

The application of each criteria is described below:

- Stage 1 is assigned to performing exposures if none of Stage 2 & 3 criteria is met. - The indicators of significant increase of credit risk that classify a loan into Stage 2 are the following:

o Counterparties in a situation of more than 30 dpd. o Forborne status in the last 12 months for performing exposures (FPE). Forborne / restructured

is identified as another criterion of credit deterioration since it represents a risk of concession towards a client facing or about to face difficulties in meeting its financial commitments.

- The indicators of significant increase of credit risk that classify a loan into Stage 3 are the following: o Counterparties classified as substandard (more than 90 days in delay) or worse under the

Bank of Albania Regulation “On Credit Risk Management” o Restructured /Forborne performing exposures (FPE) restructured /forborne in the last 12

months that are more than 30 days in delay at the reporting date. o Debtor is considered unlikely to pay because Bank has information of (i)significant financial

difficulties, (ii) legal actions started for the borrower from state authorities etc. (iii) disappearance of an active market where the borrower had a market share because of financial difficulties;

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c) Credit risk (continued)

Credit quality by class of financial assets

The following table sets out information about the credit quality of loans and advances measured at amortized cost, FVOCI debt investments (2018) and available-for-sale debt assets (2017). Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.

31 December 2018 31 December

Stage 1 Stage 2 Stage 3 Total 2017

Loans and advances to customers

-Performing 10,407,066 573,412 - 10,980,478 8,999,840

-Past due - - 441,069 441,069 213,741

-Unlikely to pay - - 354,990 354,990 439,190

-Doubtful - - 538,577 538,577 522,986

Total 10,407,066 573,412 1,334,636 12,315,114 10,175,758

Loss allowance (174,119) (63,219) (364,702) (602,040) (656,979)

Carrying amount 10,232,947 510,192 969,934 11,713,074 9,518,779

Investment securities at FVOCI (2017 available for sale)

-Performing 7,540,288 - - 7,540,288 4,708,543

Total 7,540,288 - - 7,540,288 4,708,543

Carrying amount 7,540,288 - - 7,540,288 4,708,543

Loss allowance 6,155 - - 6,155 -

Loss allowance for investment securities at FVOCI is recognised in other comprehensive income and not as a contra account to the carrying amount of the financial asset in the statement of financial position (see Note 4 (g) (vii) Presentation of allowance for ECL in the statement of financial position).

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Credit quality by class of financial assets (continued)

The following table sets out information about the overdue status of loans and advances to customers in Stages 1, 2 and 3.

As per days past due as at 31 December 2018

Stage 1 Stage 2 Stage 3 Total

Gross carrying amount

-Current 7,447,850 71,949 - 7,519,799

-Overdue < 30 days 2,959,216 141,753 456,244 3,557,213

-Overdue > 30 days - 359,709 878,393 1,238,102

Total 10,407,066 573,411 1,334,637 12,315,114

As at 31 December 2017:

Collectively Individually Total

Gross carrying amount

-Current 6,002,580 - 6,002,580

-Overdue < 30 days 2,491,783 219,691 2,711,474

-Overdue > 30 days 614,310 847,394 1,461,704

Total 9,108,673 1,067,085 10,175,758

Amount arising from ECL

Inputs, assumptions and techniques used for estimating impairment

See accounting policy in Note 4 (g)(viii).

During 2018, the Bank complied with the “Rules on the measurement of expected credit loss pursuant to standard IFRS 9 (Impairment Policy)” approved by Steering Council which defines the methodological rules adopted on Stage Assignment and on calculation of Expected Credit Loss for the financial assets included in the following accounting categories: Amortised Cost (“AC”) and Fair Value Through Other Comprehensive Income (“FVOCI”) pursuant to IFRS 9 standard. The main changes introduced, refer to the shift from incurred losses to expected losses, the division of Performing Portfolio into two distinct Stages (Stage 1 for which 12- month expected loss is calculated and Stage 2 for which lifetime expected loss is calculated) and the inclusion of forward looking elements when assessing expected loss. For the Non –Performing category (Stage 3 according to IFRS 9 standard) an Add-On calculation is introduced when calculating expected loss in order to include forward looking elements. Assessments for impairment are made in accordance with the Impairment Methodology of expected credit loss pursuant to standard IFRS 9 (Impairment Policy)” according to which the performing category is subject to collective assessment for impairment, while the other three categories (non-performing) can be subject to either individual or collective assessment for impairment.

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Amount arising from ECL (continued)

Significant increase in credit risk

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Bank’s historical experience and expert credit assessment and including forward-looking information. The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure.

Generally, there is a significant increase in credit risk before a financial asset becomes credit-impaired or an actual default occurs: this simple fact is crucial to the purpose of IFRS9, which aims at recognizing expected losses in a timely manner.

Together with “quantitative” indicators for increase in credit risk, a number of “qualitative” ones can support the assessment. The IFRS9 Principle itself specifies a non-exhaustive list of such indicators; among those figures:

- an actual or expected significant change in the operating results of the borrower;

- decisions by the Bank that credit risk on that instrument is significantly higher or that additional collateral and/or covenant should be required with respect to when that specific instrument was originated;

- significant changes, such as reductions in financial support from a parent entity or other affiliate or an actual or expected significant change in the quality of credit enhancement, that are expected to reduce the borrower’s economic incentive to make scheduled contractual payments;

- expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument;

- changes in the Bank’s credit management approach in relation to the financial instrument.

In practice, qualitative and quantitative indicators can be employed together.

Definition of default

In terms of Stage 3, IFRS 9 specifies that when defining default for the purposes of determining the risk of a default occurring, the Bank shall apply a default definition that is in compliance with the definition used for internal credit risk management purposes for the relevant financial instrument and consider qualitative indicators (for example, financial covenants) when appropriate. However, there is a rebuttable presumption that default does not occur later than when a financial asset is 90 days past due unless the Bank has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. In any case, guidelines from competent authorities specify that institutions should be guided by the definition used for regulatory purposes provided in Article 178 of Regulation (EU) 575/2013 (Capital Requirement Regulation CRR).

39




Expected credit losses

The new framework, IFRS 9 (International Financial Reporting Standard) – Financial Instruments, is based on the estimation of expected losses, different from the incurred losses used under IAS 39. When significant deterioration of the credit quality is recognized, the new concept of Lifetime expected loss is introduced. Lifetime expected loss covers expected loss for the whole IFRS 9 specifies that if the credit risk on a financial instrument has increased significantly since initial recognition, an entity shall measure the loss allowance for that financial instrument at an amount equal to Lifetime expected credit losses and if the credit risk on such instrument has not increased significantly, 12-months expected losses should be calculated instead.

For performing exposures without a significant increase in credit risk that are classified in Stage 1, at the origination of each non-impaired financial instrument, 12-months expected credit losses are recognized. The formulas used for impairment calculation for IFRS9 purposes for 12-months Expected Loss (Stage 1) is by multiplying the 12-month PD by LGD and EAD.

Lifetime ECL is calculated by multiplying the lifetime PD by LGD and EAD. The Bank employs 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. The Bank collects performance and default information about its credit risk exposures analysed by type of product and borrower

LGD is the magnitude of the likely loss if there is a default. The Bank estimates LGD parameters based on the history of loss rates from defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. LGD estimates are calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.

EAD is an estimate of the total exposure at the reporting date, taking into account expected changes in the exposure after reporting date, including expected drawdowns on committed facilities. The credit conversion factor is used to convert the amount of a credit line (the unused part) and other off-balance sheet amounts to an EAD amount. It is a modelled assumption, which represents a proportion of any undrawn exposure that is expected to be drawn prior to default event occurring. For each type of product, the CCF factor the Bank is applying is as below:

Unused part of Term Loans= 0%

Unused part of Overdrafts= 100%

Unused part of Credit Cards = 100%

Unused part of Credit Cards classified as “blocked”, “closed” or “Grey List” = 0%

40




Loss allowances

The following tables show reconciliations from the opening to the closing balance of the loss allowance for loans and advances to customers. Comparative amounts for 2017 represent the allowance account for credit losses and reflect the measurement basis under IAS 39.

2018 2017

Stage 1 Stage 2 Stage 3 Total Total

Loans and advances to customers

Balance at 1 January 189,156 36,604 383,040 608,800 588,887

-Transfer to stage 1 23,126 (15,351) (7,775) -

-Transfer to stage 2 (15,351) 18,049 (2,698) -

-Transfer to stage 3 (7,775) (769) 8,544 - -Net remeasurment of loss allowances (64,027) 22,526 61,759 20,258 84,497 - New loans originated 77,362 4,343 16,483 98,188

-Write-offs - - (68,437) (68,437) (16,405)

-Other movements (28,372) (2,183) (26,214) (56,769) Balance at 31 December 174,119 63,219 364,702 602,040 656,979

41




Loss allowances (continued)

The exposures as per risk category at 31 December 2018 were as follows:

Gross

exposure Expected credit

losses Net

Exposure

Stage 1

-Standard 10,380,841 (173,706) 10,207,135

-Watch 26,225 (413) 25,812

-Substandard - - -

-Doubtful - - -

-Lost - - -

Total Stage 1 10,407,066 (174,119) 10,232,947

Stage 2

-Standard 109,444 (7,197) 102,247

-Watch 463,967 (56,022) 407,945

-Substandard - - -

-Doubtful - - -

-Lost - - -

Total Stage 2 573,411 (63,219) 510,192

Stage 3

-Standard - - -

-Watch 29,273 (9,059) 20,214

-Substandard 411,796 (39,300) 372,496

-Doubtful 354,990 (56,504) 298,486

-Lost 538,578 (259,839) 278,739

Total Stage 3 1,334,637 (364,702) 969,935

Total 12,315,114 (602,040) 11,713,074

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The exposures as at 31 December 2017 were as follows:

Gross

exposure Allowance for

Impairment Net

exposure

Collectively impaired

-Standard 8,632,447 (206,356) 8,426,091

-Watch 367,393 (8,754) 358,639

-Substandard 62,624 (1,500) 61,124

-Doubtful 46,209 (1,101) 45,108

-Lost - - -

Total collectively 9,108,673 (217,711) 8,890,962

Individually impaired

-Standard - - -

-Watch - - -

-Substandard 151,118 (24,536) 126,582

-Doubtful 392,981 (89,793) 303,188

-Lost 522,986 (324,939) 198,047

Total individually 1,067,085 (439,268) 627,817

Total 10,175,758 (656,979) 9,518,779

In addition, the Bank is exposed to off-balance sheet credit risk through commitments to extend credit and guarantees issued (see note 30).

Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The major concentrations of credit risk arise by location and type of customer in relation to the Bank’s investments, loans and advances, commitments to extend credit and guarantees issued.

Write-off policy

The Bank writes off a loan (and any related allowances for impairment losses) when the Bank’s Steering Council determines that the loans are uncollectible. This is generally the case when the Steering Council determines that significant changes in the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. The loan is classified as lost for regulatory reporting purpose for a period of at least 3 years. The Bank’s policy is also in compliance with the amended Regulation no.62 dated 14.09.2011 “On Administration of Credit Risk for Banks and Foreign Banks Subsidiaries”.

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An analysis of concentration of credit risk by economic sector and their respective impairment allowances for loans and advances to customers are presented in the table below:

As at As at 31 December 2018 31 December 2017

Trade 2,836,408 2,983,049 Private individuals 4,427,976 2,863,669

Communication 19,876 1,081

Construction 1,062,288 767,756

Tourism 301,473 369,862 Agriculture 321,718 306,863

Transportation 368,228 276,544

Industry 1,375,028 1,072,481

Services 997,601 1,040,806 Finance 604,518 493,647

Gross credit risk 12,315,114 10,175,758

Trade (207,175) (227,414) Private individuals (248,222) (220,085)

Communication (350) (26)

Construction (63,022) (78,225)

Tourism (1,705) (12,838) Agriculture (7,323) (16,116)

Transportation (5,932) (7,320)

Industry (24,140) (34,998)

Services (34,440) (48,217) Finance (9,731) (11,740)

Less allowance for impairment (602,040) (656,979)

Net Credit Risk 11,713,074 9,518,779

The amounts reflected in the tables represent the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. The amounts, therefore, greatly exceed expected losses, which are included in the allowance for impairment.

The Bank’s policy is to require suitable collateral to be provided by certain customers prior to the disbursement of approved loans. Guarantees and letters of credit are also subject to strict credit assessments before being provided. The agreements specify monetary limits for the Bank’s obligations. The extent of collateral held for guarantees and letters of credit is at least 100 percent of the amount extended.

Collateral for loans, guarantees, and letters of credit is usually in the form of cash, mortgage, inventory, listed investments, or other property.

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Collaterals held and other credit enhancements

The estimated cash flows derived from the collateral, including guarantees securing the exposures, are usually the main source of future cash flows from non-performing loans. Some of the valuation parameters used for the calculation are:

- Realizable value of collaterals, which is estimated by reducing the appraised market value of the collateral with a discount factor. This takes into account the characteristics of similar groups of collaterals. It presumes an average recoverable value of specific collateral, based on the Bank’s experience.

- Timing of the expected cash flow, which represents the expected recovery time (in years) for a specific type of collateral.

Collateral, generally, is not held over loans and advances to financial institutions, except when securities are held as part of reverse repurchase and securities borrowing activity. Usually, collateral is not held against investment securities, and no such collateral was held at 31 December 2018 and 2017. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and are updated every one to three years.

The table below shows a breakdown of total credit extended to customers by the Bank and their respective impairment allowances, other than financial institutions, by type of collateral, up to a maximum of the outstanding liability:


Money deposits 945,563 556,075

Mortgage 8,638,118 6,988,793

Guarantee 5,064 355,396

Pledge of machines 741,000 538,388

Pledge of receivables 516,000 1,171,628

Other collateral 1,469,369 565,478

Gross credit risk 12,315,114 10,175,758

Money deposits (18,504) (13,343)

Mortgage (276,572) (375,706)

Guarantee (2,413) (12,475)

Pledge of machines (58,433) (44,877)

Pledge of receivables (36,552) (75,183)

Other collateral (209,566) (135,395)

Less allowance for impairment (602,040) (656,979)

Net Credit Risk 11,713,074 9,518,779

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d) Capital management

Regulatory capital

The Bank’s lead regulator, BoA sets and monitors capital requirements. In implementing current capital requirements, the Bank is required to maintain a minimum prescribed ratio of 12% of total capital to total risk-weighted assets. Risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.

The Bank calculates requirements for credit risk for its exposures based on capital adequacy regulations established by the BoA. Exposures are taken into account using their statement of financial position amount. Off-balance-sheet credit related commitments are taken into account by applying different categories of conversion factors, designed to convert these items into statement of financial position equivalents. The resulting equivalent amounts are then weighted for risk using different percentages (0%, 20%, 50%, 100%, and 150%) depending on the class of exposure. Various credit risk mitigation techniques are used, for example collateralized transactions and guarantees. The Bank’s regulatory capital is analyzed into two tiers:


d) Capital management (continued)

Regulatory capital (continued)

● Tier 1 capital (core capital), which includes ordinary share capital, share premium, statutory reserve, other general reserves, retained earnings from prior years and minority interests after deductions for goodwill, intangible assets and unrealized loss from available for sale investments.

● Tier 2 capital (supplementary capital), which includes qualifying subordinated liabilities, namely perpetual debt and subordinated term debt.

The following limits are applied to elements of the capital base: Qualifying tier 2 capital cannot exceed tier 1 capital; and qualifying term subordinated loan capital may not exceed 50 percent of tier 1 capital. The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Bank recognizes the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The management of the Bank performs daily monitoring over all positions of assets and liabilities, income and expenses. The management analyzes profitability, liquidity and the cost of funds and implements measures in respect to credit, market (primarily interest rate) and liquidity risk, thus limiting possible negative effects from the global financial and economic crisis. In this way the Bank responds to the challenges of the market environment, seeking to maintain a stable capital and liquidity position.

Capital Ratios

The Bank has complied with all externally imposed capital requirements throughout the period. According to the requirements of BoA the capital adequacy ratio as at 31 December 2018 was 15.56% (31 December 2017: 17.36%) compared to a minimum of 12% stipulated by the Bank of Albania.

During 2014 the Supervisory Council of Bank of Albania issued a new draft “On Regulatory Capital” which entered in force for reporting purpose in 30 April 2015. Meanwhile new regulation regarding the Capital Adequacy Ratio (CAR) which has entered in force in 31 December 2014. is based on Basel II criteria and is in line with the European Directives for Financial Institutions resulting in a reducing CAR. However due to the capital the Bank possesses, management consider the Bank has and will continue to remain well above the minimum level required.

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6. Financial assets and liabilities

a) Accounting classification and fair values

The Bank's accounting policy on fair value measurement is discussed in accounting policy 4.g.(vii).

The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:'

-Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

-Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

-Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and based on a current yield curve appropriate for the remaining term to maturity. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, which would have been determined by market participants acting at arm's length.

The Bank uses widely recognised valuation models for determining the fair value and use only observable market data and require little management judgments and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

As at 31 December 2018 and 2017 all financial instruments are measured at amortized cost, except available for sale assets which have been measured at fair value and the respective fair values have been disclosed in note 6. All financial assets and liabilities fair values disclosed have been measured based on Level 2 hierarchy.

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6. Financial assets and liabilities (continued)

a) Accounting classification and fair values

The table below sets out the carrying amounts and fair values of the Bank’s financial assets and financial liabilities:

As at 31 December 2018

Note

Investment in securities at

FVOCI

Loans and

Receivables

Other amortized

cost Total carrying

amount Fair

Value Cash and balances with Central Bank 15 - 514,799 - 514,799 514,799 Restricted balances 16 - 1,677,859 - 1,677,859 1,677,859 Investment in securities at FVOCI 17 7,540,288 - - 7,540,288 7,540,288 Loans and advances to banks and financial institutions 19 - 2,448,132 - 2,448,132 2,448,132 Loans and advances to customers 20 - 11,713,074 - 11,713,074 11,713,074

Due to credit institutions 25 - 16,045 - 16,045 16,045 Due to customers 26 - 20,807,370 - 20,807,370 20,807,370 Liabilities evidenced by paper 27 - 202,770 - 202,770 202,770

As at 31 December 2017

Note

Held to

Maturity Available for

Sale

Loans and

Receivables Total carrying

amount Fair

Value Cash and balances with Central Bank 15 - - 480,897 480,897 480,897 Restricted balances 16 - - 1,460,836 1,460,836 1,460,836 Available for sale investments 17 - 4,708,543 - 4,708,543 4,708,543 Financial Assets held to maturity 18 2,317,944 - - 2,317,944 2,446,779 Loans and advances to banks and financial institutions 19 - - 1,859,013 1,859,013 1,859,013 Loans and advances to customers 20 - - 9,518,779 9,518,779 9,518,779

Due to credit institutions 25 - - 347,323 347,323 347,323 Due to customers 26 - - 17,229,570 17,229,570 17,246,546 Liabilities evidenced by paper - - 618,520 618,520 618,520

The fair value of cash and cash equivalents, loan and advances to banks is approximately equal to the carrying value, because of their short-term maturity. The fair value of loans and advances to customers is approximately equal to their carrying value due to fact that the main part of the loan portfolio carries floating interest rates which reflect the changes in the market conditions.

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6. Financial assets and liabilities (continued)

b) Classification of financial assets and financial liabilities on the date of initial application of IFRS 9

The following table shows the original measurement categories in accordance with IAS 39 and the new measurement categories under IFRS 9 for financial assets and financial liabilities as at 1 January 2018.

IAS 39 Classification

Measurement SPPI Test

New classification under IFRS 9

Original carrying

amount under IAS 39 Remeasurement

New carrying amount under

IFRS 9

Financial assets

Placements and Balances with the Banks Loans and Receivables Met SPPI Test - Amortised cost 3,800,746 - 3,800,746

Available for sale investments Available for Sale Did not met SPPI Test FVOCI 4,708,543 - 4,708,543

Financial Assets held to maturity Held to Maturity Met SPPI Test FVOCI 2,317,944 128,835 2,446,779

Loans and advances to customers Loans and Receivables Met SPPI Test- Amortised cost 9,518,779 48,178 9,566,957


Due to credit institutions Loans and Receivables Met SPPI Test- Amortised cost 347,323 - 347,323

Due to customers Loans and Receivables Met SPPI Test- Amortised cost 17,246,546 - 17,246,546

Liabilities evidenced by paper Loans and Receivables Met SPPI Test- Amortised cost 618,520 - 618,520 The effect of initially applying IFRS 9 on loan impairment was recognized in retained earnings. Loss allowance for investment securities at FVOCI is recognised in other comprehensive income and not as a contra account to the carrying amount of the financial asset in the statement of financial position (see Note 4 (g) (vii). Management expected that financial assets held to maturity at 31.12.2017 to be accounted at fair value in other comprehensive income, because they represented government securities and are held as part of a business model for the purpose of collecting contractual cash flows, as well as of the cash flows from sale of the asset. Besides, the contractual cash flows from these financial instruments give rise only to principal and interest payments. This change resulted in increase in revaluation reserve of investments in securities amounting to ALL 128,836 thousand.

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7. Net interest income

Year ended Year ended 31 December 2018 31 December 2017 Interest and similar income Interest and similar income arises from: Accounting with and placements with banks 7,806 8,241 Loans to individuals and households 218,253 188,122 Loans to small and medium enterprises 545,728 434,543 Income from securities transactions 385,685 395,852

1,157,472 1,026,758 Interest expense and similar charges Interest expense and similar charges arise from: Deposits from banks (11,828) (9,176) Deposits from customers (161,676) (179,046) Liabilities evidenced by papers (7,490) (3,605)

(180,994) (191,827)

Net interest income 976,478 834,931

Included within various line items under interest income for the year ended 31 December 2018 is a total of ALL 133,724 thousand (2017: ALL 101,514 thousand) accrued on individually impaired loans.

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8. Net fee and commission income

Year ended Year ended 31 December 2018 31 December 2017 Fee and commission income Customer accounts 96,895 89,574 Payments and transactions 33,856 34,725 Card business 43,370 37,530 Letters of credit and guarantees 2,082 731 Other 87,549 83,680

263,752 246,240 Fee and commission expense Card business (34,792) (27,745) Correspondent accounts (5,465) (3,349) Other (6,308) (5,740)

(46,565) (36,834)

Net fee and commission income 217,187 209,406

In other fees and commission income are included fees from depositary, custodian and brokerage services in the amount of ALL 69,759 thousand (2017: ALL 64,420 thousand). The first one derive from safekeeping of assets of investment and pension funds for which Fibank Albania serves as depositary. Custody fees are generated from the service of safekeeping corporate securities on behalf of the clients. Meanwhile brokerage services consist in intermediary for transaction with financial instruments, including participation in primary markets of Government of Albania securities on behalf of clients and execution of transactions on behalf of investment and pension funds for which Fibank Albania serves as depositary.

9. Net Trading Income

Net trading income comprises foreign exchange gains and losses.

10. Other operating income

Other operating income mainly are comprise as net of income from sale of investment securities in the amount of ALL 57,934 thousand (2017: ALL 67,684 thousand) and amortisation of premiums or discounts of investment securities in amount of ALL 14,421 thousand (2017: ALL 16,906 thousand).

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11. Personnel expenses

Year ended Year ended 31 December 2018 31 December 2017

Wages and salaries 211,988 178,207

Compulsory social security obligations 23,358 19,849

Voluntary social security obligations 6,794 2,803

Training expenses 6,603 3,553

Other allowances to staff 4,538 2,620

Total 253,281 207,032

At 31 December 2018, the Bank employed a total of 183 (2017: 143) staff and senior management.

12. General administrative expenses


Advertising and PR 38,918 21,738

Maintenance and repair 27,844 28,256

Administration, consultancy and other costs 88,253 74,455

Total 155,015 124,449

13. Other income/(expenses), net


Premium contribution to deposit insurance schemes (61,478) (57,154)

Penalties and fines (4,020) (197)

Other income/(expenses), net 1,699 3,586

Total (63,799) (53,765)

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14. Income tax expense

The amount recognized in profit or loss:


Current tax (80,946) (77,798)

Deferred tax (502) 353

Income tax (expense)/income (81,448) (77,446)

The amount recognized in other comprehensive income:


Investment in securities at FVOCI (53,039) (14,783)

Total (53,039) (14,783)

The following is a reconciliation of effective tax rate:

Effective Effective 2018 Tax rate 2017 Tax rate

Profit for the period 401,032 435,676

Total income tax 81,448 77,446

Profit excluding income tax expense 482,480 513,122

Income tax using the Bank’s domestic tax rate 72,372 15.0% 76,968 15.0%

Non-deductible expenses 1,447 0.2% 478 0.1%

Change in unrecognized temporary differences 7,629 0.1% - 0.0%

Total tax expense 81,448 20.3% 77,446 17.8%

54

14. Income tax expense (continued)


Profit for the period excluding tax expense 482,480 513,122

Non-deductible expenses 9,644 3,183

Personnel expenses 2,810 2,620

Other expenses 6,834 563

Amortization and depreciation expense (662) 2,351

Effect of initial application of IFRS 9 48,178

Taxable profit 539,640 518,656

Current year tax @ 15% (2017: 15%) (80,946) (77,798)

Deferred tax are calculated on all temporary differences by using tax rate of 15%. Movements in deferred tax are shown in the following table.

2018 2017

Balance at 1 January (14,417) (29,553)

Accelerated depreciation of fixed assets (502) 353

Revaluation of Investment in securities at FVOCI (53,039) 14,783

Deferred tax asset / (liability) at 31 December (67,958) (14,417)

Recognized deferred tax assets and liabilities as at 31 December 2018 and 2017 are attributable to the following:

2018 2017 Assets Liabilities Net Assets Liabilities Net

Investment in securities at FVOCI - (75,912) (75,912) - (22,873) (22,873)

Accumulated depreciation 7,954 - 7,954 8,456 - 8,456

Net tax assets / (liabilities) 7,954 (75,912) (67,958) 8,457 (22,873) (14,417)

55

15. Cash and balances with Central Bank


Cash on hand

in Albanian Lek 129,200 160,833

in foreign currencies 341,724 232,495

Balances with central bank 43,875 87,569

Total 514,799 480,897

16. Restricted balances


Statutory reserve 1,677,859 1,460,836

Total 1,677,859 1,460,836

In accordance with the Bank of Albania’s requirement relating to the deposit reserve, the Bank should maintain a minimum of 10% of customer deposits with the Central Bank as a reserve account. Supervisory Council of Bank of Albania with the decision no.13, dated 7 February 2018 that entered in force during 2018, the minimum of obligatory reserve for client deposits in Albanian Lek applied 7.5% and 5.0% respectively for deposits with maturity less than 12 months and with maturity between 1 and 2 years.

Meanwhile for client deposits in foreign currency the minimum obligatory reserve is 12.5% if the deposits in foreign currency are less than 50% of total deposits covered by obligatory reserve regulation and 20% for that part of deposits in foreign deposits over 50% of total deposits.

Up to 40% of the statutory reserve in ALL is available for the Bank’s day-to-day operations. Supervisory Council of Bank of Albania with the decision no.12, dated 7 February 2018 that entered in force during 2018, defined that up to 70% of the statutory reserve in ALL can be available for the Bank’s day-to-day operations.

17. Investments in securities at FVOCI

Investment in securities at FVOCI (2017: Available for sale) comprise treasury bills and bonds of the Albanian and EU countries Governments. As at 1 January 2018 financial assets at amortised cost in the amount ALL 2,317,944 thousand were measured at FVOCI (ref. note 6(b)).


Treasury Bills 161,981 655,968

Government Bonds 7,378,307 4,052,575

Total 7,540,288 4,708,543

As at 31 December 2018 Treasury Bonds with a carrying amount of ALL 201,000 thousand (2017: ALL 280,000 thousand) were pledged as security for the purchase agreements portfolio (note 27)

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18. Investments in securities at amortised cost

Investment in securities at amortised cost (2017: investment securities held-to-maturity) represented bonds of the Albanian Government.


Government Bonds - 2,317,944

Total - 2,317,944

After the review of the classification and measurement of the Bank’s financial assets as of 1 January 2018 financial assets at amortised cost in the amount ALL 2,317,944 thousand were measured at fair value through other comprehensive income because the Management expect that they will be held as part of a business model with the objective to hold assets in order to collect contractual cash flows or to sell the asset. The contractual cash flows give rise only to principal and interest payments.


Nominal value of bonds - 2,261,425

Premium - 15,277

Accrued interest - 41,242

Total - 2,317,944

As at 31 December 2018 Treasury Bonds with a carrying amount of nil (2017: 397,900) were pledged as security for the purchase agreements portfolio (refer to note 27).

19. Loans and advances to banks and financial institutions

(a) Analysis by type


Current accounts with banks 1,213,881 1,859,013

Placements due from banks 1,234,251 -

Total 2,448,132 1,859,013

(b) Geographical analysis


Domestic banks and financial institutions 1,234,251 -

Foreign banks and financial institutions 1,213,881 1,859,013

Total 2,448,132 1,859,013

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20. Loans and advances to customers


Loans and advances to customers 12,315,114 10,175,758

Less impairment loss allowance (602,040) (656,979)

Net loans and advances to customers 11,713,074 9,518,779 Loans by sector as at 31 December 2018 and 2017


Retail customers 4,467,014 2,893,989

Consumer loans 969,071 660,110

Mortgage loans 3,298,452 2,062,438

Credit cards 199,491 171,441

Small and medium enterprises 7,848,100 7,281,769

Less allowances (602,040) (656,979)

Net loans and advances to customers 11,713,074 9,518,779

Loans and advances to customers composed by sector as at 31 December 2018 were as follows:

Gross

Amount Expected credit

losses Carrying Amount

Retail customer 4,467,014 (266,649) 4,200,365

Consumer loans 969,071 (110,837) 858,234

Mortgage loans 3,298,452 (82,102) 3,216,350

Credit cards 199,491 (73,710) 125,781

Small and medium enterprises 7,848,100 (335,391) 7,512,709

Total 12,315,114 (602,040) 11,713,074

Loans and advances to customers composed by sector as at 31 December 2017 were as follows:

Gross

Amount Impairment

allowance Carrying Amount

Retail customer 2,893,989 (233,412) 2,660,577

Consumer loans 660,110 (74,376) 585,734

Mortgage loans 2,062,438 (102,045) 1,960,393

Credit cards 171,441 (56,991) 114,450

Small and medium enterprises 7,281,769 (423,567) 6,858,202

Total 10,175,758 (656,979) 9,518,779

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20. Loans and advances to customers (continued)

Changes in expected credit losses for year ended 31 December 2018 were as follows:

2018 Stage 1

Balance at January 1 (189,156)

Net (loss) / recoveries for the year 15,038

charge for the year (78,853)

recoveries 93,891

Write-offs -

Balance at December 31 (174,118)

Stage 2


Net (loss)/recoveries for the year (26,616)


recoveries 31,553

Write-offs -


Stage 3


Net (loss)/recoveries for the year (60,191)


recoveries 51,539

Write-offs 78,529


Total ECL allowance (602,040)

59

20. Loans and advances to customers (continued)

Changes in impairment losses for year ended 31 December 2017 were as follows:

2017 Specific impairment allowance


Net (Impairment loss) / recoveries for the year (46,829)


recoveries 60,835

Write-offs 16,405


Collective impairment allowance


Net (Impairment loss)/recoveries for the year (37,668)


recoveries 66,523

Write-offs -


Total allowance for impairment (656,979)

60

21. Property and equipment

Leasehold

improvements Fittings, fixtures & installations

Motor Vehicles

Machinery and electronic Equipment

Computer and IT system

Office equipment and other

Fixed assets in progress Total

Cost Balance at 1 January 2017 120,465 49,253 21,938 90,505 79,928 49,009 20,709 431,807 Additions 731 463 5,351 424 144 903 12,242 20,258 Disposals - - - - - - - Transfers - 1,172 - 42 11,426 881 (13,521) - Balance at 31 December 2017 121,196 50,888 27,289 90,971 91,498 50,793 19,430 452,065 Additions 12,463 15,366 - 8,342 25,765 10,448 8,053 80,437 Disposals - - (4,531) - - - - (4,531) Transfers 2,138 5,559 - 112 3,680 618 (12,107) - Balance at 31 December 2018 135,797 71,813 22,758 99,425 120,943 61,859 15,376 527,971

Accumulated Depreciation Balance at 1 January 2017 (105,879) (39,214) (13,465) (73,897) (72,504) (40,619) - (345,578) Charge for the period (4,687) (3,574) (1,754) (7,352) (3,242) (3,312) - (23,921) Disposals - - - - - - -

Balance at 31 December 2017 (110,566) (42,788) (15,219) (81,249) (75,746) (43,931) - (369,499) Charge for the period (4,268) (3,031) (1,678) (4,167) (6,788) (2,589) - (22,521) Disposals - - 2,681 - - - - 2,681

Balance at 31 December 2018 (114,834) (45,819) (14,216) (85,416) (82,534) (46,520) - (389,339)

Net book value

As at 1 January 2017 14,586 10,039 8,473 16,608 7,424 8,390 20,709 86,229

As at 31 December 2017 10,630 8,100 12,070 9,722 15,752 6,862 19,430 82,566

As at 31 December 2018 20,963 25,994 8,542 14,009 38,409 15,339 15,376 138,632

61

21. Property and equipment (continued)

Other

Fixed assets in progress include all assets purchased and not yet put in use. Leasehold improvements consists in investments done for rented premises.

22. Intangible assets

Patents, copyrights

and trademarks

Software and other

intangible assets

Intangible assets

in progress Total Cost Balance at 1 January 2017 8,834 62,629 1,532 72,995

Additions 3,160 - 1,119 4,279

Balance at 31 December 2017 11,994 62,629 2,651 77,274

Additions 2,577 4,716 3,584 10,877

Transfers - 1,532 (1,532) -

Balance at 31 December 2018 14,571 68,877 4,703 88,151

Accumulated amortization Balance at 1 January 2017 (8,284) (40,112) - (48,396)

Charge for the period (264) (6,592) - (6,856)

Balance at 31 December 2017 (8,548) (46,704) - (55,252)

Charge for the period (1,064) (6,509) - (7,573)

Balance at 31 December 2018 (9,612) (53,213) - (62,825)

Net book value

As at 1 January 2017 550 22,517 1,532 24,599

As at 31 December 2017 3,446 15,925 2,651 22,022

As at 31 December 2018 4,959 15,664 4,703 25,326

62

23. Repossessed assets

Repossessed assets are acquired collaterals through enforcement of security over non-performing loans and advances to customers. Repossessed assets comprise a number of properties including land and buildings not earning income rentals or own used. During 2018, the Bank tested the related properties for impairment and resulted that no impairment allowance was necessary (2017: nil).

The movement of repossessed assets item during the reporting period is presented as follows:


At the beginning of the period 476,751 394,796

Additions during the period 58,449 108,991

Disposals during the period (16,011) (27,036)

Total 519,189 476,751

Disposals represent properties sold by the Bank during 2018.

24. Other assets


Prepaid taxes 48,721 48,721

Deferred expenses 5,441 3,865

Gold bullion 7,195 7,407

Other, net (5,705) 7,619

Total 55,652 67,612

Prepaid taxes are composed of the following:


Withholding tax 48,721 48,721

Prepaid income tax - -

Total 48,721 48,721

Prepaid withholding tax is related to interest income the Bank has generated in countries with which the Republic of Albania has signed agreements for Avoidance of Double Taxation.


25. Due to banks and other financial institutions


Payable on demand 16,045 17,284

Term deposits - 330,039

Total 16,045 347,323

26. Due to customers


Retail customers 18,458,733 15,625,070

payable on demand 6,143,522 5,534,670

term deposits 12,315,211 10,090,061

other clients account - 339

Corporate customers 2,348,637 1,604,500

payable on demand 1,205,836 685,012

term deposits 1,023,396 841,450

other client accounts 119,405 78,038

Total 20,807,370 17,229,570

27. Liabilities evidenced by paper

Bank had liabilities evidenced by paper agreement at 31 December 2018 with a carrying amount of ALL 202,770 thousand (31 December 2017: 618,520 thousand). They yielded interest 0.85% per annum. Treasury bond with a carrying amount of ALL 210,000 thousand (2017: ALL 677,900 thousand) was pledged as security for these agreements. (refer to note 17).


28. Other liabilities


Payment in transit 70,593 85,159

Other creditors 28,230 22,871

Fiscal administration 14,602 11,290

Income tax payable 16,237 4,110

Accruals for expenses 648 477

Suppliers 958 5,213

Total 131,268 129,120

29. Capital and reserves

Number and face value of registered shares

As at 31 December 2018 and 2017 the registered share capital of the Bank is Euro 11,974,576.26 or ALL equivalent 1,516,517 thousand divided into 1,413,000 ordinary shares with par value each of Euro 8.47457626 or ALL 1,073.26.


30. Commitments and contingent liabilities

a) Memorandum items

The Bank provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. These agreements have fixed limits and generally extend for a period of up to two years. The contractual amounts of commitments and contingent liabilities are set out in the following table by category. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognized at the reporting date if each counterpart failed completely to perform as contracted.


Bank guarantees 96,784 27,275

Commitments given on behalf of customers 393,193 481,829

Letter of credit - -

Total 489,977 509,104

These commitments and contingent liabilities have off balance-sheet credit risk because only organization fees and accruals for probable losses are recognized in the statement of financial position until the commitments are fulfilled or expire. Many of the contingent liabilities and commitments will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash flows. As at the reporting date there are no significant commitments and contingencies which require additional disclosure. At 31 December 2018 guarantees and letters of credit are fully collateralized.

b) Lease commitments

As at As at 31 December 2018 31 December 2017 Up to 1 year 81,720 61,081

Above 1 year and less than 5 years 287,415 78,957

Above 5 years 241,476 29,310

Total 610,611 169,348

The Bank is entitled to renew the existing lease contracts at terms previously agreed with the owners, although is under no legal obligation to do so. Lease contracts are cancelable, if notified for a period of 30 up to 180 days in advance. Minimum lease commitment for the year ending 31 December 2018 are ALL 24.491 thousand (2017: ALL 17,626 thousand).


31. Related Parties

Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party on making financial or operational decisions, or the parties are under common control. A number of banking transactions are entered into with the related party First Investment Bank A.D. (Bulgaria) in the normal course of business. Such transactions include loans, deposits and other transactions. The outstanding balances at the end of respective periods are as follows:

As at and for the year ended 31 December 2018 31 December 2017

Loans and advances 994,239 278,884

Accounts receivables 8,599 9,098

Due to banks - -

Interest income 1,125 6

Interest expense (180) (1,043)

Commission income 612 116

Commission expense (163) (124)

The key management personnel of the Bank received remuneration of ALL 24,222 thousand (2017: ALL 28,195 thousand) for the year ending 31 December 2018. Key management received other benefits amounting ALL 8,615 thousand (2017: 5,006 thousand) for the year ending 31 December 2018.

32. Cash and cash equivalents


Cash on hand (note 15) 470,924 393,328

Current accounts

central bank (note 14) 43,875 87,569

correspondent banks (note 19) 1,213,881 1,859,013

Loans and advances to banks and financial institutions with maturity less than 90 days (note 19) 1,234,251 -

Total 2,962,931 2,339,910

33. Subsequent events

The management of the Bank is not aware of any subsequent events that would require either adjustments or additional disclosures in the financial statements.

Blvd. Dëshmorët e Kombit, Twin Towers,

kulla nr.2, kati 13/14/15, Tiranë, Shqipëri

(+355 4) 2276 702/3

[email protected]

www.fibank.al

CONTACT US

ANNUAL REPORT 2018 - Fibank · 2019. 6. 28. · Expenditure growth profile was determined by...

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