ANNUAL REPORT - Credins Bank · PDF file · 2017-03-28Bushati l.m.t company owns 4.73% of Credins Bank ... This governmental structure of Switzerland is one of ... Credins Bank signs

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a n n u a l r e p o r t ‘ 0 9

ANNUALREPORT

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c r e d i n s b a n k

C o n t e n t s

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Message froM the general Manager

shareholders

top exeCutives and ManageMent staff

history of Credins BankMajor developMents during 2003 – 2009

aChieveMents for 2009• Assets• LoAnIndIcAtors• deposIts• numberofcustomers

BranCh network / new BranChes

developMent of Bank personnel

Credins eMployee

Major produCts for 2009

soCial responsiBility/ sponsorships

institutional relations

oBjeCtives for 2010

Correspondent Banks

Bank loCations

independent auditor’s report

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12

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The year 2009 was a year of important challenges for Credins Bank as well as the entire Albanian banking system.

The global financial and economic crisis strained the macroeco-nomic and financial system stability as well as the long-term devel-opment perspectives of the global economy, especially during the first half of 2009.

Its effect was clearly visible even on the Albanian economy produc-ing a slow-down, which resulted in a decrease of investments, a de-crease of liquidity and a considerable decrease in the level of lend-ing offered by second-tier banks. It is important to note that despite the effects of the economic crisis, Albania’s economy did not slip into recession.

Under such circumstances, considering all the influencing factors, the results of Credins Bank were satisfactory, showing a good per-formance compared growth rate of the Albanian economy.

Thus, Bank assets at the end of 2009 resulted in Lek 49.5 billion, marking a 23.11% increase compared to 2008; investment of funds toward lending reached Lek 31 billion, an increase of 25.8% com-pared to 2008; while total customer accounts resulted in Lek 43.2 billion, a growth of 25.1%.

The financial result was a net profit of Lek 524 million, while the Shareholder’s Equity reached Lek 3.7 billion.

a Word FroM tHe General ManaGer

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During 2009, Credins Bank continued to expand its pres-ence by opening a branch in Kukës, in the northern most part of Albania, and increasing the number of its branches in important cities such as Tirana and Vlora.

Also during 2009, Credins Bank received an important in-ternational recognition with it being rated by the rating agency Moody’s on June 29, 2009, where Credins Bank was described as a financially stable Bank, with sufficient liquid-ity and profitability and high efficiency indicators. Moody’s rating of banks allows the comparison of international banks according to Moody’s unified standard.

Credins’ achievements for this year do not regard only its strong resistance against the effects of the crisis, which is proven by its positive financial results, but above all by the fact that there were no signs of instability or lack of trust on the part of our esteemed customers, whom I would like to thank heartily. It is the trust of our customers which be-comes a daily motive in our work to be near them and to offer them our best.

Our objectives for 2010, as those for the past year, continue to be very ambitious. Thus, plans are to open another 9 new branches, which at the end of the year will bring the num-ber of branches and agencies to a total of 42 by the end of the year.

Priority is being given to our lending policy, which will bring about the healthy growth of the business of the Bank as well as a better evaluation of investment risks. Our banking model is a diversified one, offering a variety of services and products to all customer segments. During 2010, besides the corporate segment, financing of the SME and Micro segments will be another priority, thus aiming at minimiz-ing the risk from large exposure.

Drafting of the budget and forecasting of objectives for 2010 has been done by taking into consideration the Al-banian macroeconomic environment as well as the inter-national one.

Compared to 2009, 2010 is forecasted to see a growth by 14% of assets, 17% growth in customer deposits, and 22% in lending. Based on these indicators we foresee a profit along the levels of those in 2009. We are confident that we will fulfill our 2010 objectives and forecasts, also relying heavily on the right decisions of our Board of Directors, on the valuable and dedicated efforts of our management and wonderful staff and the full trust of our honored customers.

Regards,Artan Santo

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sHareHoldersThe shareholders group of Credins Bank has Successful Entrepeneurs, Institutions and International Investment Funds, which are the major supporters of the very successful activity of the Bank in the Albanian market economy.

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Mr. Aleksandër Pilo owns 24.89% shares of Credins Bank.

Mr. Pilo is one of the founders of Credins Bank and the administrator of Emigres L.m.t., one of the major companies in the country importing and selling tiles and hydro-sanitary utilities. “Emigres” has been operating since 1992.

The three top executives of Credins Bank, Mr. Artan Santo (General Manager), Ms. Monika Milo (Deputy General Manager) and Mr. Maltin Korkuti (Deputy General Manager), own 14.15% of Credins Bank shares.

These Executives, Shareholders, having a strong background in the banking sector have been the key to the bank’s success. It has been this combination which has brought about innovations through competitive and flexible policies in the Albanian banking sector, thereby positioning Credins Bank as one of the most successful banks in the market.

Bushati l.m.t company owns 4.73% of Credins Bank shares.

Mr. Bushati is the administrator of Bushati L.m.t., a company established in February 1994. It has now commenced its second decade of success in the construction and reconstruction sector, establishing a very good name in the market.

The State Secretariat for Economic Affairs (SECO) owns 3.17% of Credins Bank shares.

This governmental structure of Switzerland is one of the most prestigious shareholders of Credins Bank. The Secretariat, a development agency of the Swiss Government has been given an AAA rating, and has undertaken major development projects. Its main goal is the development of the financial sector, which in turn helps to support and develop the SME sector. SECO is represented by the Swiss Investment Fund for Emerging Markets (SIFEM AG).

The Balkans Financial Sector Equity Holding B.V. – BFSE Holding BV) of the Netherlands owns 22.17% of the Credins Bank shares. It is represented by the Development Financial Equity Partners (DFE) Fund.

The main focus of the Fund is private investments in capital shares and the financial services sector, especially in the non-banking financial institutions and banking institutions with domestic capital. The Fund operates based on policies that aim to develop and fund the SME and Micro sectors, mainly in the Southeast of Europe.

Mr. Renis Tërshana owns 20.78% of Credins Bank shares.

He is the administrator for R&T L.m.t., a company established on November 23, 1995. R&T trades in the energy sector with various products as well as in the development of software packages for Civil Work/ Engineering Services, Telecommunications thus fulfilling a wide range of needs of the local and international businesses.

24.89%

14.15%

4.73% 3.17%

22.17%

20.78%

Mr. aleksandër pilo

Mr. artan santo, Ms. Monika Milo, Mr. Maltin korkuti

Bushati l.M.t seCo

Mr. renis tërshana

the Balkans finanCial seCtor equity holding B.v.

ManaGinG board

MaksiM haxhiaVice Chairman

Clive MoodyMember

Maltin korkuti Member

saiMir sallakuMember

Monika MiloMember

ilirjan BushatiChairman

elona gjikaMember

top executives

artan santoGeneral Manager

Maltin korkutiDeputy General Manager

Monika MiloDeputy General Manager

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Major developMents durinG 2003-2009

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Credins Banks is established as the first private bank with 100% domestic capital. The Bank’s slogan is: “We do the best for you, because, we speak your language”.

31 March

2003

Credins Bank ends the year 2004 with a positive net income and makes its plans toward progressive growth in the banking sector.

31 December

2004

Credins Bank signs an agreement with Monte Dei Paschi di Siena Group in Italy for all bank transfers toward Albania, offered at minimal costs for all emigrants, free for amounts up to 250 Euro.

Signing of agreement with UNOPS for the PASARP program, which focuses on lending to SMEs in the agricultural and agro-industrial sector, through development, rationalization and improvement of structures in the prefectures of Shkodra, Durres and Vlora.

Credins Bank signs an agreement with American Express for the marketing of its “Ameri-can Express” cards. Based on this agreement the bank issues 5 types of payment cards, by this company, which can be used in all the countries of the world where American Express is accepted.

Credins Bank starts offering the “Credins Online” service allowing bank transactions through the internet or the mobile.

Credins Bank becomes Principal Member for Visa cards thus offering to all its customers the Visa card services everywhere in the world.

1 September

2006

1 June

2007

Credins Bank increases its annual profit by 132%. Its network of branches and agencies grows to 21, providing a full offering of banking products and services.

Signing of the agreement for the Framework Loan at Euro 7 million, with the European Fund for Southeast Europe (EFSE).

27 May

2009

The participation of two major foreign funds with capital quotas, such as the Balkan Fi-nancial Sector Equity Holding B.V. (BFSE Holding B.V) in the Netherlands and the Swiss State Secretariat for Economic Affairs (SECO). Upon official approval by the Central Bank of Albania, in 2008, both these funds now own 25.34% shares of Credins Bank.

12 January

2008

Credins Bank is rated according to Moody’s Index based on its financial indicators.29 June

2009

22 September

2003

1 December

2003

20 December

2005

31 December

2007

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total assets 23.11%

total loans

25.87%

total custoMer deposits

25.11 %

43.235.02634.572.233

31.12.2008 31.12.2009

31.12.2008 31.12.2009

31.455.76024.991.32449.573.84840.265.671

31.12.2008 31.12.2009

acHieveMents For 2009

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447386

25

31.12.200831.12.2003 31.12.2009

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30

3

31.12.200831.12.2003 31.12.2009

447386

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31.12.200831.12.2003 31.12.2009

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30

3

31.12.200831.12.2003 31.12.2009

nuMber oF brancHes and

aGencies

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nuMber oF staFF

447

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bank expansion

neW brancHes in 2009

kukës BranCh

Lagjja Nr.2 Pallati 67

Phone (024) 224 903, Fax (024) 224 904

vlora 2 BranCh

Rruga “Demokracia”Lagjja “Osmen Haxhiu”

Phone (033) 237 170

tirana 12

Pranë Shkollës “Harry Fultz”, Rr. Jordan Misja,

Phone (04) 22 35 439Fax (04) 22 30 756

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Tiranë

Durrës

Kavajë

Lushnjë

Fier

Vlorë

Elbasan

Korçë

Fushë-Krujë

Lezhë

Shkodër

Kukës

Burrel

Peshkopi

Ballsh

our locations

during the first6 month period

of 2010

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developMent oF bank personnel

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Employee training was at the center of attention during 2009. The considerable employee

growth and the structural refinement of existing departments, directories, sectors, branches and agencies, as well as the creation of new banking units resulted in the taking of several organizational measures and the cre-ation of adequate conditions for the training of bank employees.

Besides the theoretical and prac-

tical training offered to new employ-ees, it’s worth mentioning seminars organized around lending policies, financial analysis for loans to SME and individuals, comprehending the lending technology in general and microlending in particular, the management of various risks, money laundering prevention, sales tech-niques, payment instruments, recog-nition and examination of counter-feit banknotes - both Albanian and foreign currency, security conditions

inside areas where banking transac-tions are carried out.

A number of employees have been trained in seminars and work-shops facilitated through special-ized institutions both in Albania and abroad, on topics such as: “RZB’s Vienna Cash Management Days”, “Retail Banking” , “Banking Manage-ment”, “Banknote Security Elements and Examination Techniques”.

"Our focus is on the client"

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credins eMploYee

alba shijaku Head of Audit Department

valentina prodani Head of Finance-Accounting

Department

luiza halilajDeputy Head of

Legal Department

anila Mucmataj Deputy Head of

Microcredit Department

almida asllaniHead of Debit and Credit

Card Unit

sofika nazaj Head of Corporate and Large

Business Unit

suela ÇelaDeputy Head of

Operational Department

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Credins Bank grows and develops based on the work of its fully dedicated personnel. It is a Bank with social values, that is sustained by a group of employees with high pro-fessional capabilities whose work helps realize the vision of Credins Bank in the banking market.

To evaluate the work performance of its personnel, Cre-dins Bank has established an evaluation standard called the “NJERIU CREDINS” (the CREDINS EMPLOYEE), which is represented by those employees who are comparable with dedication, professionalism and a visionary spirit.

The “CREDINS EMPLOYEE” is a standard of values. These values include the highest standards of professionalism and work ethic that a Credins Bank employee should attain. They serve to create the model of the distinguished em-ployee who gives his/her contribution to the added value of the banking service by becoming an example for all the other employees through his/her professional and organi-zational capabilities.

The “CREDINS EMPLOYEE” is capable of working under the dynamic pressures of the banking sector and the mar-ket economy, of offering effective solutions to issues with a high efficiency thus maximizing the values of the bank.

At his/her work the “CREDINS EMPLOYEE” shows com-mitment, seriousness, and submits his/her work improve-

ment ideas by gathering and implementing the innova-tions of the banking sector.

Based on this framework, the following people were recognized as the “CREDINS EMPLOYEE” for the year 2009. They all received personal congratulations for their achieve-ments by the General Manager, Mr. Artan Santo. These em-ployees are:

1. alba shijakuHead of Audit Department2. sofika nazajHead of Corporate and Large Business Unit3. almida asllaniHead of Debit and Credit Card Unit4. valentina prodaniHead of Finance-Accounting Department5. luiza halilajDeputy Head of Legal Department6. suela CelaDeputy Head of Operational Department7. anila MucmatajDeputy Head of Microcredit Department

Following this recognition, Credins Bank organized a ceremony where certificates bearing this title where submitted as well as symbolic gifts for all the employees awarded with the “CREDINS EMPLOYEE” award.

luiza halilajDeputy Head of

Legal Department

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The consumers market needed a new and more competitive Mi-

crocredit product. Credins Bank answered that challenge. The year

2009 marked the creation of the Microcredit Department including

at the same time all our network of branches to offer micro loans. In

December 2009, the microcredit portfolio reached a total of Lek 891

million compared to Lek 415 million at the end of 2008.

In today’s global economy conditions everyone may need to use their funds not only in Albania, but in every part of the world in real time and easily. The Visa card offered by Credins Bank provides this service on favor-able financial terms, supported also by its ATM, POS Network and the Inter-net. Thus, at the end of December 2009 the total amount of transactions through Visa cards reached USD 44 million, which represented a 65% in-crease compared to that of 2008.

Microcredit

Major products For 2009

visa cards

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If you are an emigrant or live in Albania, you are always welcome

at Credins Bank. “Mirë se vini” - Welcome! This was the name that was

given to this product which resulted in one of the most successful for

2009. The portfolio for this deposit doubled in the summer season

and grew by 20% in the winter season.

This is the most special loan offered by Credins Bank for vacations.

It facilitates and enables the planning of vacations for all. Through

the Happy Summer loan, all you need is to choose where you want

to go and your vacations are going to be fantastic.

This long-term deposit for children by Credins Bank, offers very

competitive interest rates allowing all parents and relatives of the

children, to invest, thus building a more secure future for them.

HappY suMMer

“kaltra” deposit

“Mirë se vini” deposit

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Sponsorship for the humanitarian organization Red Cross – Tirana and Shkodra branches. It is of value to mention the activity organized on the “World Hunger Day”, which sought to sensitize the population about those living on insufficient sources of income.

Sponsorship for the student organization SIFE. Credins Bank is among the sponsors for the National Competition between the different national universities, thus being part of the academic development of Albanian youth.

social responsibilitY/ sponsorsHips

April 2009 April 2009 May, September 2009

Sponsorship for the National Opera and Ballet Theater and the Popular Ensemble. For the past three years Credins Bank has been a dedicated Partner supporting the realization of various cultural activities during different artistic periods and participating in opera masterpiece shows such as Falstaff, Copelia,Rigoletto, all these were events that represent a special importance to our culture and art.

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December 2009

Sponsorship for the Tirana Association’s well known activity organized in the capital called “Sofra e Tiranës”. This cultural-artistic activity is held every year at the Palace of Congresses. Credins Bank always offers its support for this jubilary event celebrating the citizenship of Tirana while aiming to maintain and promote the cultural values of the vicinities of Tirana.

November 2009

Sponsorship for the International Conference on “Economic Policies and European Union Integration” organized by “Aleksandër Moisiu” University, in Durrës.

Sponsorship for “Fshati SOS”, a hu-manitarian organization support-ing children in need through its activities. Credins Bank facilitated the purchase of gifts for the end-of-year celebrations, thus becom-ing part of smile for their future.

December 2009

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institutional relations

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During 2009, the goal of the policies of Credins Bank has been to grow

lending for the Micro and SME business sector, with the aim to reduce large exposure to a small number of customers through the diversification of its loan portfolio and the reduction of risk.

These policies helped to bring about a better management of the loan portfolio, and aimed to increase the customer base at the same time, to be made up of stable and consolidated busi-nesses and with great develop-ment opportunities, while at the same time taking into consid-eration the characteristics that dominate the market and econ-omy of Albania.

During the year Credins Bank signed two agreements which served the established strategy well and are considered very im-portant for the commencement of several projects focusing on the financing of SME customers.

The first project, which started in April 2009, is the one with the Ministry of

Economy, Commerce and Energy (METE). Credins Bank is one of five banks selected for a project between METE and the Italian Government, valued at Euro 25 million. The goal is the financing of sectors of the economy which cooperate with Italian business-es. 70% of the Loan will be uti-lized for the purchase/financing of assets and raw materials that will be provided by Italian com-panies (in Italy or with affiliates here in Albania), while 30% will be used for purchases/financing purposes here in Albania.

The second project, was the signing of the Framework Agreement between Cre-

dins Bank and the European Fund for Southeast Europe (EFSE) for a Euro 7 million loan. Signing of this Framework Agreement and of the individual loans agree-ments, will serve the continued development of the lending ac-tivity of Credins Bank, by focus-

ing mainly on micro and small businesses.

In December 2009, Credins Bank was part of another im-portant project, this time with

the Ministry of Foreign Affairs. At the focus of this initiative is the promotional campaign for the promotion of economic diplo-macy and the image of Albania in the international arena, through Albanian embassies around the world.

The goal of this project is to promote the potential of Albania offering an improved climate for businesses and its rich cultural heritage, but above all the image of economic stability. Part of this project will be the successful ac-tivity of Credins Bank, as an Alba-nian financial reality, which has now become part of the impor-tant historical economical devel-opments in Albania.

Signing of the agreement for the Framework Loan with the European

Fund for Southeast Europe (EFSE)

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objectives For 2010

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Our objectives for 2010 compared to 2009 are as follows:

Goals

expansion of the branch network

For 2010 the plan is to open another 9 new branches seeking to cover all districts of Albania. The expansion of the branch network is one of the priorities of the bank which will allow the offering of its products and services to potential customers everywhere they are.

Cards, atMs and atM transactions

Based on the progress of 2009, it has been forecasted that the number of cards and transactions should grow by a total average of 20%.The ATM network is to expand its coverage area of service with another 12 new ATMs.

Microcredit

The objective for microcredit in 2010 is to double again its lending portfolio, by increasing it to a total of Lek 1.8 billion, which means that the objective for disbursed loans will be about 5,000 new loans with a total value of Lek 1.5 billion.

internet Banking

The addition of new options in the Internet Banking service will increase its flexibility and offer facilities in the use of this service by customers.

assets to grow by

14%

Customer deposits

to grow by

17%

shareholders capital to grow by

16.27%

number of customers to grow by

7.5%

lending to grow by

22.8 %

number of employees to grow to

550

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correspondent banks

lek

• Bank of Albania, Tirana, Albania LEK Acct. 2221059 L Code No. 212

eur

• Deutsche Bank AG EUR Acct. No. 100 921 2127 00 Frankfurt Am Main, Frankfurt, Germany IBAN: DE90 5007 0010 0921 2127 00 Swift Code: DEUTDEFFXXX

• Standard Chartered Bank EUR Acct. No. 18122409 Frankfurt Am Main, Frankfurt, Germany Swift Code: SCBLDEFXXXX

• Raiffeisen Zentralbank Oesterreich AG, EUR Acct. No. 55.061.469 Vienna, Austria IBAN: AT563100000055061469 Swift Code: RZBAATWWXXX

• Bank Austria Creditanstalt AG, EUR Acct. No. 51010261001 Vienna, Austria Swift Code: BKAUATWWXXX

• Intesa Sanpaolo SPA EUR Acct. No. 9952195.01.21 Milano, Italy Swift Code: BCITITMMXXX

• Banca Monte dei Paschi di Siena EUR Acct. No. 560.50032.21 Milano, Italy Swift Code: PASCITMMXXX

• Banca Popolare Dell’ Emilia Romagna EUR Acct. No. 242031 Modena, Italy Swift Code: BPMOIT22XXX

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• KBC BANK NV EUR Acct. No. 488-5917860-21 Brussels, Belgium Swift Code: KREDBEBBXXX

• NLB Prishtina D.D Prishtina, Kosova EUR Acct. No. 1701002010004726

usd

• Standard Chartered Bank USD Acct. No. 3582023443001 New York, USA Swift Code: SCBLUS33XXX • Raiffeisen Zentralbank Oesterreich AG USD Acct. No. 70-55.061.469 Vienna, Austria Swift Code: RZBAATWWXXX

• NLB PRISHTINA D.D, Prishtina, Kosova USD Acct. No. 1701002010004726

• Deutsche Bank AG USD Acct. No. 100 921 2127 00. USD Frankfurt Am Main, Frankfurt, Germany Swift Code: DEUTDEFFXXX

Chf • Zuercher Kantonalbank, CHF Acct. No. 0700-00044296 Zurich, Switzerland Swift Code: ZKBKCHZZXXX

• Raiffeisen Zentralbank Oesterreich AG CHF Acct. No. 73-55.061.469 Vienna, Austria Swift Code: RZBAATWWXXX

gBp

• Raiffeisen Zentralbank Oesterreich AG GBP Acct. No. 83-55.061.469 Vienna, Austria Swift Code: RZBAATWWXXX • Deutsche Bank AG GBP Acct. No. 100 921 2127 00.GBP Frankfurt Am Main, Frankfurt, Germany Swift Code: DEUTDEFFXXX

Cad

• Raiffeisen Zentralbank Oesterreich AG CAD Acct. No. 71-55.061.469 Vienna, Austria Swift Code: RZBAATWWXXX

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Head oFFice Dega Tirana 1: Rruga Ismail Qemali, Nr 21, Tel. (04 )22 34 096; 069 20 69666;

(04 ) 22 50 994; Fax. (04) 22 22 916; SWIFT Code: CDISALTR; www.bankacredins.com; [email protected]

tirana 2 brancH. Bulevardi “Zogu i I”, Qendra VeVe. Tel. (04) 22 58 252; (04) 22 57 988; Fax. (04) 22 48 654.

tirana 3 brancH: Kryqëzimi 21-Dhjetorit. Tel. (04) 22 39 042. Fax. (04) 22 38 995

tirana 4 brancH: Rruga Komuna e Parisit, Tel. (04) 23 20 234, Fax. (04) 23 20 233

tirana 5 brancH: Rr. e Elbasanit, pranë “Shkollës së Baletit”. Tel/Fax. (04) 23 47 809

tirana 6 brancH :Brenda Qendrës Spitalore Universitare “Nënë Tereza”. Tel/Fax. (04) 23 76 305

tirana 7 brancH: Rruga Ali Demi, Tel/Fax. (04) 23 58 083

tirana 8 brancH: Rruga “Bardhyl”, (tek kryqëzimi i Rr.”Bardhyl” me Rr.”Hoxha Tahsim”), Tel. (04) 23 47 572

tirana 9 brancH: Rruga Bajram Curri, pranë kryqëzimit të Shkollës së Bashkuar. Tel/Fax. (04) 23 47 560

tirana 10 brancH: Rr. ”Ferrit Xhajko”, ( ish-Frigoriferi). Tel. (04) 22 48 485

tirana 11 brancH : Rruga Gjin Bue Shpata, pranë stadiumit Selman Stermasi. Tel/Fax. (04) 22 56 694

tirana 12 brancH: Pranë Shkollës “Harry Fultz”, Rr. Jordan Misja, Tel. (04) 22 35 439, Fax. (04) 22 30 756

laprakë brancH: Tek Blloku “Gintash” (dykatëshet) në Laprakë. Tel. (04) 23 56789; Fax. (04) 23 56 285

vorë brancH: Tel. (047) 26 00 435; Fax. (047) 26 00 422.

kaMëz brancH: Në qendër të Kamzës. Tel. (04) 22 00 485; Fax. (04) 22 00 487

tirana 1 aGencY: Rr. “Irfan Tomini”, Agjencia e Kolaudimit, Tiranë. Tel/Fax. (04) 22 24 228

tirana 2 aGencY : Autostrada Tiranë – Durrës, Km 11, pranë Emigres Sh.p.k. Tel/Fax. (048) 23 01 260

durrës brancH: Bulevardi kryesor, Rruga Tregtare, Nr 42. Tel. (052) 236 256, (052) 239 925; Fax. (052) 239 500.

porti durrës aGencY: Tek sheshi i trageteve në Portin detar. Tel/Fax. (052) 234 500

durres 2 aGencY: Pranë Qendrës Tregtare Industriale, Lagjja 17, Rr. Unazës,Tel/Fax. (052) 236 257

sHkozet brancH: Lagja 14, Përballë Shkollës së Mesme “Olsi Lasko”, Shkozet, Durrës. Tel. (052) 237 668; Fax. (052) 237 669

sHijak brancH: Lagjja Kodër, Shijak. Tel. (0571) 23 069; Fax. (0571) 23 070

kavajë brancH: Lagjja Nr. 5, Kavajë. Tel. (0554) 227 858; Fax. (0554) 227 859

FusHë-krujë brancH: Lagjja Kastrioti; Tel. (0563) 22 489; Fax. (0563) 22 490

Fier brancH: Bulevardi “Jakov Xoxe”. Tel. (034) 29 131; (034) 29 132; Fax. (034) 229 130

lezHë brancH: Lagjja Besëlidhja, Rruga “Luigj Gurakuqi” Nr 48. Tel. (0215) 23 500; Fax. (0215) 23 600

vlora 1 brancH: Lagjja Pavarësia, Banesë 12 katëshe, Skelë, Vlorë. Tel. (033) 229 958; Fax. (033) 229 959

vlora 2 brancH: Rr. “Demokracia“, Lagjja. “Osmen Haxhiu”, Vlorë. Tel. (033) 237 170

elbasan brancH: Lagjja Aqif Pasha, Rruga 28 Nëntori, (pranë Drejtorisë së Policisë). Tel. (0544) 224 213; (0544) 24 472; Fax. (0544) 24204.

sHkodër brancH: Lagjja Vasil Shanto, Rruga “Vaso Kadia”. Tel. (022) 250 643; (022) 250 645; Fax. (022) 250 633

korçë brancH: Bulevardi “Republika”, Lagja 12, (tek “Ish-Vetëshërbimi”). Tel. (082) 254 300; Fax. (082) 254 400

lusHnjë brancH: Bulevardi Kryesor, Ish-Hotel Myzeqeja Tel. (022) 2986; Fax. (022) 2983

kukës brancH: Lagjja Nr.2 Pallati 67, Tel. (024) 224 903, Fax. (024) 224 904

finanCial stateMents as at 31 deCeMBer 2009

(with in

(with independent auditor’s report thereon)

3838


stateMent oF coMpreHensive incoMe For tHe Year ended 31 deceMber

(in Lek ‘000)

Interest incomeInterest expensenet interest income

Fee and commission incomeFee and commission expensenet fee and commission income

Other expenses, netProfit from foreign exchange transactionsOther banking income

Provision for loan lossesAmortization of intangible assetsDepreciation of property and equipmentPersonnel expensesAdministrative expenses

Profit before taxes Income tax expenseprofit for the period

other comprehensive income, net of income taxRevaluation of available-for-sale financial assets, net of taxother comprehensive income for the period, net of income taxtotal comprehensive income for the period attributed to owners

notes

777

888

151817

910

11

16,19

2009

3,748,815(1,884,454)1,864,361

288,200(34,220)

253,980

5,110321,404

326,514

(625,256)(10,231)

(122,795)(484,083)(612,682)

(1,855,047)

589,808(65,043)

524,765

55,19955,199

579,964

2008

3,287,020(1,533,054)1,753,966

217,738(30,841)

186,897

(3,280)205,737

202,457

(341,528)(8,122)

(113,752)(385,141)(472,093)

(1,320,636)

822,684(83,751)

738,933

(2,784)(2,784)

736,149

The notes on pages 6 to 50 are an integral part of these financial statements.These financial statements have been approved by the Board of Directors of Credins Bank Sh.a. on 16 April 2010 and signed on its behalf by:

Artan Santo Valentina ProdaniGeneral Manger Head of Finance Accounting Department

F i n a n c i a l s t at e M e n t ‘ 0 9

3939

stateMent oF Financial position as at 31 deceMber 2009

(in Lek ‘000)

assetsCash and cash equivalentsRestricted balances with Central BankLoans and advances to banks Loans and advances to customers Investment securitiesProperty and equipment Intangible assets Deferred tax assets Current tax assetAssets held for saleInvestment PropertyOther assets total assetsliabilitiesDue to banks and other financial institutionsBorrowingsDue to customersSubordinated debtOther liabilitiesprovisionstotal liabilitiesshareholders’ equityShare capitalShare premiumGeneral reserveOther comprehensive itemsRevaluation reserveRetained earnings

total liabilities and shareholders’ equity

notes

1213141516171819

202122

232425262728

29

30

16,19

31 december 2009

10,333,8534,167,056

236,02330,242,343

3,461,404760,511

38,49330,83553,337

-88,076

161,91749,573,848

1,007,826124,651

43,235,0261,419,794

40,65314,673

45,842,623

2,404,771336,334412,940

-52,415

524,7653,731,225

49,573,848

31 december 2008

6,821,7843,250,567

748,21424,436,133

3,891,698774,697

36,07851,712

1,08656,655

-197,047

40,265,671

1,241,551-

34,572,2331,274,970

25,659 -

37,114,413

2,119,762336,334258,618

(299,605)(2,784)

738,9333,151,258

40,265,671

The notes on pages 6 to 50 are an integral part of these financial statements.

4040


stateMent oF cHanGes in equitY For tHe Year ended 31 deceMber 2009

balance at 1 january 2008total comprehensive income for the periodCurrent year profit

other comprehensive income, net of income taxRevaluation of available for sale securitiesTotal other comprehensive income Total comprehensive income for the period

transactions with owners, recorded directly in equitycontribution by and distribution from ownersAppropriation of retained earningsIncrease of paid-up capitalTotal contributions by and distribution from ownersbalance at 31 december 2008

balance at 1 january 2009

total comprehensive income for the periodCurrent year profit

other comprehensive income, net of income taxRevaluation of available for sale securitiesTotal other comprehensive income Total comprehensive income for the period

transactions with owners, recorded directly in equitycontribution by and distribution to ownersAppropriation of retained earningsTotal contributions by and distribution from ownersbalance at 31 december 2009

share capital

1,598,110

-

---

272,935248,717521,652

2,119,762

2,119,762

-

---

285,009285,009

2,404,771

share premium

84,814

-

-

-

-251,520251,520

336,334

336,334

-

---

--

336,334

General reserve

-

-

---

258,618-

258,618258,618

258,618

-

---

154,322154,322

412,940

other compre-hensive items

(146,123)

-

---

(153,482)-

(153,482)(299,605)

(299,605)

-

---

299,605299,605

-

revaluation reserve

-

-

(2,784)(2,784)

(2,784)

---

(2,784)

(2,784)

-

55,199 55,199 55,199

--

52,415

retained earnings

378,071

738,933

--

738,933

(378,071)-

(378,071)738,933

738,933

524,765

--

524,765

(738,933)(738,933)524,765

totalequity

1,914,872

738,933

(2,784)(2,784)

736,149

-500,237500,237

3,151,258

3,151,258

524,765

55,199 55,199 579,964

33

3,731,225


(in Lek ‘000)


4141

stateMent oF casH FloWs For tHe Year ended 31 deceMber 2009(in Lek ‘000)

cash flows from operating activitiesProfit for the periodAdjustments for:Depreciation and amortizationDisposed fixed assetsImpairment on financial assetsLoans written offNet interest incomeIncome tax expenseForeign exchange effect on subordinated debt Change in loans and advances to banksChange in loans and advances to customersChange in restricted balances with Central bankChange in other assetsChange in deposits from banksChange in deposits from customersChange in other liabilitiesInterest receivedInterest paidIncome tax paidnet cash from/(used in) operating activitiescash flows used in investing activitiesSale/(purchase) of investment securitiesIncrease in assets available for salePurchase of property and equipmentPurchase of intangible assetsnet cash from investing activitiescash flows from financing activitiesIncrease in subordinated liabilitiesPaid up capitalnet cash from financing activitiesnet increase/(decrease) in cash and cash equivalentsCash and cash equivalents at 1 Januarycash and cash equivalents at 31 december

notes

17,1817,18

1515

711

1718

12

Year ended 31 december 2009

524,765

133,0262,720

625,256(985)

(1,864,361)65,043

144,824509,768

(6,455,672)(916,766)

35,130(109,073)8,662,793

29,6673,573,380

(1,884,454)(96,417)

2,978,644

581,208(31,421)

(110,391)(13,587)

425,809

-107,616

107,6163,512,069

6,821,78410,333,853


738,933

121,8743,385

341,528(1,252)

(1,753,966)83,751

-677,637

(8,873,701)(466,578)

(56,178)(522,209)3,213,769

(21,263)3,333,916

(1,378,380)(136,278)

(4,695,012)

2,444,074(49,375)

(213,901)(7,743)

2,173,055

517,066500,239

1,017,305(1,504,652)

8,326,4366,821,784


4242


notes to tHe Financial stateMents For Year ended 31 deceMber 2009(amounts in Lek‘000, unless otherwise stated)

1. reportinG entitYCredins Bank Sh.A. (hereinafter “the Bank”) is an Albanian financial institution which was incorporated on 1 April 2003 under the Albanian Commercial Law and was licensed by the Bank of Albania on 31 March 2003 to operate as a bank in all fields of banking activity in Albania in accordance with the law No. 8365, “On banks in the Republic of Albania”, dated July 1998. The Bank is also subject to law No. 8269, dated December 1997, “On the Bank of Albania”.

As at 31 December 2009, the Bank was operating through a head office located in Tirana, 29 branches located in Tirana, Durres, Fier, Lezha, Elbasan, Vlora, Shkodra, Korca, Shijak, Shkozet, Kavaja and Lushnja and 4 agencies in Tirana and in Durres Port. As at 31 December 2009 the Bank had 447 employees (31 December 2008: 386 employees).

2. basis oF preparation

a) statement of Compliance

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

b) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following:• available-for-sale financial assets are measured at fair value• investment property is measured at fair value

c) functional and presentation currency

These financial statements are presented in Lek, which is the Bank’s functional currency. Except as indi-cated, financial information presented in Lek has been rounded to the nearest thousand.

d) use of estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to make judg-ments, 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. Es-timates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting esti-mates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgments in applying ac-counting policies that have the most significant effect on the amounts recognised in the financial state-ments are described in note 6, 15, 16 and 19.


4343

2. basis oF preparation (continued)

e) Changes in accounting policies

Effective 1 January 2009 the Bank has changed its accounting policy in respect of presentation of finan-cial statements. The Bank applies revised IAS 1 Presentation of Financial Statements (2007), which be-came effective as of 1 January 2009. As a result, the Bank presents in the statement of changes in equity all owner changes in equity, whereas non-owner changes in equity are presented in the statement of comprehensive income.

Comparative information has been re-presented to conform with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on the earnings per share.

3. siGniFicant accountinG policies

a) foreign currency

Transactions in foreign currencies are translated into the respective functional currency of the operation at the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into the functional currency at the spot ex-change rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the spot ex-change rate at the end of the period. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

The applicable rate of exchange (Lek to foreign currency unit) for the principal currencies as at 31 De-cember 2009 and 31 December 2008 were as follows:

31 december 2009 31 december 2008

USD 95.81 87.91

EUR 137.96 123.80

GBP 154.64 127.66

CHF 93.04 82.97

CAD 91.34 72.22

b) interest

Interest income and expense are recognised in the 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. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.

4444


3. siGniFicant accountinG policies (continued)

b) interest (continued)

The calculation of the effective interest rate includes all fees and points paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial as-set or liability.

Interest income and expense presented in profit or loss include interest on financial assets and liabilities at amortised cost on an effective interest rate basis.

c) fee and Commissions

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

Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are per-formed. Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the services are received.

d) 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.

e) income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehen-sive income.

Current tax is the expected tax payable on the taxable income 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 in accordance with the Albanian tax legislation. Taxable income is calculated by adjusting the statutory profit before taxes for certain income and expenditure items as required under Albanian law.

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 measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset 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.


4545


f) financial assets and liabilities

i) recognition

The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated li-abilities 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 as-sets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instru-ment.

A financial asset or financial liability is initially measured at fair value plus (for an item not subsequently mea-sured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.

ii) Classification

See accounting policies 3 (g), (h), (i) and (n)

iii) derecognition

The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or 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 trans-ferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability.

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

The Bank enters into transactions whereby it transfers assets recognised on its statement of financial posi-tion, but retains either all 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 from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.

When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction similar to repurchase transactions. In trans-actions where the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, it derecognises the asset if control over the asset is lost. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers where 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 rights to service a transferred financial asset for a fee. The trans-ferred asset is derecognised in its entirety if it meets the derecognition criteria. An asset or liability is recognised for the servicing rights, depending on whether the servicing fee is more than adequate to cover servicing expenses (asset) or is less than adequate for performing the servicing (liability).The Bank writes off certain loans when they are determined to be uncollectible (see note 3.f.vii).

4646



f) financial assets and liabilities (continued)

iv) 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.

v) 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.

vi) fair value Measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowl-edgeable, 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 mar-ket 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. Valua-tion 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 maxi-mum 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 eco-nomic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably rep-resent 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 cur-rent 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 evi-denced 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 valu-ation is supported wholly by observable market data or the transaction is closed out.


4747



vi) 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 posi-tion 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.

vii) identification and measurement of impairment

At each reporting date the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably.

The Bank considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics.

Objective evidence that the financial assets (including equity securities) are impaired can include de-fault 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 will enter bankruptcy, the dis-appearance 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 correlate with defaults in the group.

In assessing collective impairment the Bank uses statistical modelling of historical trends of the prob-ability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the ex-pected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

Impairment losses on assets carried at amortised cost are measured as the difference between the car-rying amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount.

When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss.

4848




vii) identification and measurement of impairment (continued)

Impairment losses on available-for-sale investment securities are recognised by transferring the cumu-lative loss that has been recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impair-ment provisions attributable to time value are 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 can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is 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 is recognised in other comprehensive income.

g) Cash and cash equivalents

Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.

h) loans and advances

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

When the Bank is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the arrangement is presented within loans and ad-vances.

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

i) investment securities

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


4949

3. siGniFicant accountinG policies (continued)(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 desig-nated at fair value through profit or loss or available-for-sale. 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 cat-egory 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 is recognised in profit or loss.

j) property and equipment

(i) recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly at-tributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

(ii) subsequent cost

The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. The costs of the day-to-day servicing of property and equip-ment are recognised in profit or loss as incurred.

5050



i) property and equipment (continued)

(iii) depreciation

Depreciation is recognised in profit or loss on a declining balance method over the estimated useful life of the assets, except for depreciation of property which is based on the straight line method. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The depreciation rates for the current and comparative periods are as follows:

Buildings 5%

Electronic and office equipment 20%

Vehicles 20%

Furniture and fittings 20%

Leasehold improvements 5%-20%

Depreciation methods, useful lives and residual values are reassessed at the reporting date.

k) intangible assets

(i) software

Software acquired by the Bank is stated at cost less accumulated amortisation and accumulated impair-ment losses. Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it is available for use. The estimated useful life of software is five years.

(ii) licenses

Licences and rights to use that are acquired by Bank are stated at cost less accumulated amortisation and impairment losses, if any. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss when incurred. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the license, from the date that it is available for use. The estimated useful life of licenses is ten years.

l) leased assets

Leases are operating leases which are not recognised in the Bank’s statement of financial position.

m) 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.


5151


m) impairment of non-financial assets (continued)

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. 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.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

n) deposits and subordinated liabilities

Deposits, debt securities issued and subordinated liabilities are the Bank’s chief sources of debt funding. When the Bank sells a financial asset and simultaneously enters into a “repo” or “stock lending” agree-ment to repurchase the asset (or a similar asset) at a fixed price on a future date, 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 instrument.

Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus trans-action 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.

o) provisions

A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive ob-ligation that can be estimated reliably, 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.

A provision for restructuring is recognised when the Bank has approved a detailed and formal restruc-turing plan, and the restructuring either has commenced or has been announced publicly. Future oper-ating costs are not provided for.

5252



o) provisions (continued)

A provision for onerous contracts is recognised when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Bank recognises any impairment loss on the assets associated with that contract.

p) financial guarantee

Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amor-tised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are included within other liabilities.

q) employee benefits

(i) Compulsory social security contributions

The Bank makes only compulsory social security contributions that provide pension benefits for em-ployees upon retirement. The social insurance authorities are responsible for providing the legally set minimum threshold for pensions under a defined contribution pension plan. The Bank’s contributions to the benefit pension plan are charged to the profit or loss as incurred.

(ii) paid annual leave

The Bank recognizes as a liability the undiscounted amount of the estimated costs related to an-nual leave expected to be paid in exchange of the employee’s service for the period completed.

r) foreign exchange netting operations

Foreign currency contracts are agreements to exchange specific amounts of currencies at a specified rate of exchange, at a spot or at forward date. The notional amount of these contracts does not repre-sent the actual market or credit risk associated with this product.

s) non-current assets held for sale

Non-current assets that are expected to be recovered primarily through sale rather than through con-tinuing use are classified as held for sale. Immediately before classification as held for sale, the assets are remeasured in accordance with the Bank’s accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.


5353


t) investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in supply of services or for administrative pur-poses. The Bank holds some investment property that it has acquired through enforcement of collateral over loans and advances. Investment property is measured at fair value with any change therein recog-nised in the profit or loss in other operating income.

u) new standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these financial state-ments:

Amendments to IFRS 2 Share-based Payment - Group Cash-settled Share-based Payment Transactions. The amendments to the Standard require that an entity receiving goods or services in a share-based payment transaction that is settled by any other entity in the group or any share-holder of such an entity in cash or other assets to recognize the goods or services received in its financial statements. Previously group cash-settled share-based payment transactions were not addressed directly in IFRS 2. The amendments will be mandatory for the Bank’s 2010 financial state-ments and is not relevant to the Bank’s operations as the Bank has not put in place any share based payments plan for its personnel or directors.

Revised IFRS 3 Business Combinations (2008) incorporates the following changes:- The definition of a business has been broadened, which may result in more acquisitions

being treated as business combinations.- Contingent consideration will be measured at fair value, with subsequent changes in fair

value recognised in profit or loss.- Transaction costs, other than share and debt issue costs, will be expensed as incurred.- Any pre-existing interest in an acquiree will be measured at fair value, with the related gain

or loss recognised in profit or loss.- Any non-controlling (minority) interest will be measured at either fair value, or at its pro-

portionate interest in the identifiable assets and liabilities of an acquiree, on a transaction-by-trans-action basis.

Revised IFRS 3, which becomes mandatory for the Bank’s 2010 financial statements, is not rel-evant to the Bank’s operations.

IFRS 9 Financial Instruments, published on 12 November 2009 as part of phase I of the IASB’s comprehensive project to replace IAS 39, deals with classification and measurement of financial assets. The requirements of this standard represent a significant change from the existing require-ments in IAS 39 in respect of financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if its is held within a business model whose objective is to hold as-sets in order to collect contractual cash flows, and asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of assets held to maturity, available for sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevo-cable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognized in other comprehensive income would ever be reclassified to profit or loss at a later date.

5454



u) new standards and interpretations not yet adopted (continued)

The standard requires that derivatives embedded in contracts with a host that is a financial asset with the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its as to whether it should measured at amortised cost or fair value.

IFRS 9 is effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted. The Bank is currently in the process of evaluating the potential effect of this standard.

Revised IAS 24 Related Party Disclosure (effective for annual periods beginning on or after 1 January 2011) introduces amendment that exempts government-related entities from the dis-closure requirements in relation to related party transactions and outstanding balances, including commitments, with (a) a government that has control, joint control or significant influence over the reporting entity; and (b) another entity that is a related party because the same government has control, joint control or significant influence over both the reporting entity and the other entity. The revised Standard requires specific disclosures to be provided if a reporting entity takes advan-tage of this exemption.The revised Standard also amends the definition of a related party which resulted in new relations being included in the definition, such as, associates of the controlling shareholder and entities controlled, or jointly controlled, by key management personnel. Revised IAS 24 is not relevant to the Bank’s financial statements as the Bank is not a government-related entity and the revised definition of a related party is not expected to result in new relationships requiring disclosure in the financial statements.

Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires ac-counting for changes in ownership interests in a subsidiary that occur without loss of control, to be recognised as an equity transaction. When the Bank loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to IAS 27, which become mandatory for the Bank’s 2010 financial statements, are not expected to have any impact on the financial statements.

Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010). The amendment requires that rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or war-rants pro rata to all of its existing owners of the same class of its own non-derivative equity instru-ments. The amendments to IAS 32 are not relevant to the Bank’s financial statements as the Bank has not issued such instruments at any time in the past.

Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items clarifies the application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedging relationship. The amendments will become mandatory for the Bank’s 2010 financial statements, with retrospective application required. The Bank is currently in the process of evaluating the potential effect of this amendment.


5555



IFRS for Small and Medium-sized Entities (The IFRS for SMEs does not contain an effective date; instead, it will take effect from a date determined by the national regulator in each jurisdiction). The IFRS for SMEs is intended to facilitate financial reporting by small and medium-sized entities (SMEs) that want to use international standards by providing an accounting standard suitable for them. It is a simpli-fied and slimmed-down version of full IFRSs and is available for entities that do not have public account-ability. It will be up to the national regulators and legislators to decide who is permitted or required to prepare IFRS for SMEs in each jurisdiction.

IFRS for SMEs simplifies the recognition and measurement requirements compared to full IFRSs in some areas and excludes topics not considered relevant for SMEs and removes the more complex option in certain areas in which full IFRSs allow more than one accounting option. An entity follows either the requirements of the IFRS for SMEs in full or else uses full IFRSs. The only exception is that an entity ap-plying the IFRS for SMEs can choose for financial instruments to apply either the provisions of the IFRS for SMEs, or the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and the disclosure requirements of the IFRS for SMEs. IFRS for SMEs is not relevant as the Bank is considered an entity with public accountability and is therefore excluded from applying IFRS for SMEs. Amendment to IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Re-quirements and their Interaction (effective for annual periods beginning on or after 1 January 2011). The amendment of IFRIC 14 addresses the accounting treatment for prepayments made when there is also a minimum funding requirements (MFR). Under the amendments, an entity is required to recognize certain prepayments as an asset on the basis that the entity has a future economic benefit from the pre-payment in the form of reduced cash outflows in future years in which MFR payments would otherwise be required. The amendments to IFRIC 14 is not relevant to the Bank’s financial statements as the Bank does not have any defined benefit plans with minimum funding requirements. IFRIC 17 Distributions of Non-cash Assets to Owners. This Interpretation applies to non-recip-rocal distributions of non-cash assets to owners acting in their capacity as owners. In accordance with the Interpretation a liability to pay a dividend shall be recognized when the dividend is appropriately authorized and is no longer at the discretion of the entity and shall be measured at the fair value of the assets to be distributed. The carrying amount of the dividend payable shall be remeasured at each reporting date, with any changes in the carrying amount recognized in equity as adjustments to the amount of the distribution. When the dividend payable is settled the difference, if any, between the carrying amount of the assets distributed and the carrying amount of the dividend payable shall be recognized in profit or loss.

As the interpretation becomes mandatory for the Bank’s 2010 financial statements and will be appli-cable prospectively, it will have no impact on the financial statements for periods prior to the date of adoption of the interpretation. Further, since it relates to future dividends that will be at the discretion of the board of directors/shareholders, it is not possible to determine the effects of application in ad-vance.

5656




IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual pe-riods beginning on or after 1 July 2010). The Interpretation clarifies that equity instruments issued to a creditor to extinguish all or part of a financial liability in a ‘debt for equity swap’ are consideration paid in accordance with IAS 39.41. The initial measurement of equity instruments issued to extinguish a financial liability is at the fair value of those equity instruments, unless that fair value cannot be reli-ably measured, in which case the equity instrument should be measured to reflect the fair value of the financial liability extinguished. The difference between the carrying amount of the financial liability (or part of the financial liability) extinguished and the initial measurement amount of equity instruments issued should be recognized in profit or loss. The Bank did not issue equity to extinguish any financial liability during the current period. Therefore, the Interpretation will have no impact on the comparative amounts in the Bank’s financial statements for the year ending 31 December 2010. Further, since the Interpretation can relate only to transactions that will occur in the future, it is not possible to determine in advance the effects the application of the Interpretation will have.

IAS 17, Leases (effective for annual periods beginning on or after 1 January 2010). IAS 17 is amended to delete paragraph 14, which stated that a lease of land with an indefinite economic life is normally classified as an operating lease, unless at the end of the lease term title is expected to pass to the lessee. Under the amendments, a land lease with a lease term of several decades or longer may be classified as a finance lease, even if at the end of the lease term title will not pass to the lessee, because in such arrangements substantially all risks and rewards are transferred to the lessee and the present value of the residual value of the leased asset is considered negligible. The amendment to IAS 17 is not relevant to the Bank’s financial statements as the Bank does not have any lease of land.

4. Financial risk ManaGeMent

a) introduction and overview

The Bank has exposure to the following risks from its use of financial instruments:• credit risk• liquidity risk• market risks• operational risks.This note presents information about the Bank’s exposure to each of the above risks, the Bank’s objec-tives, policies and processes for measuring and managing risk, and the Bank’s management of capital.

risk management framework

The Board of Directors has overall responsibility for the establishment and oversight and control of the Bank’s risk management framework. The Board has established the Bank Asset and Liability Committee (ALCO) and the Credit Committee, which are responsible for developing and monitoring Bank risk man-agement policies in specified areas up to predetermined limits of exposure.

The risk management policies are established to identify and analyze the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.


5757

4. Financial risk ManaGeMent (continued)

a) introduction and overview (continued)

The Bank Audit Committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank Audit Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and proce-dures, the results of which are reported to the Audit Committee.

b) Credit risk

Credit 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 and other banks and investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).

The risk arising from investments in securities is maintained in low levels as investments are made only in government securities, Treasury Bills and Bonds, considered as risk free investments.

The Board of Directors has delegated responsibility for the management of credit risk to its Bank Credit Committee for all credit exposures granted within 10% of the regulatory capital. The Board of Directors in cooperation with the Credit Committee are responsible for oversight of the Bank’s credit risk, includ-ing:

Formulating credit policies, covering collateral requirements, credit assessment, documentary and legal procedures, and compliance with regulatory and statutory requirements.

Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to Branches Credit Committees and the Heads of Corporate and SME & Individuals Credit Departments. Larger facilities require approval by Credit Committee or the Board of Directors as appropriate.

Reviewing and assessing credit risk. Credit Committee assesses all credit exposures in excess of des-ignated limits, prior to facilities being committed to customers. Renewals and reviews of facilities are subject to the same review process.

Limiting concentrations of exposure to counterparties, different industries, currency and maturity.

Developing and maintaining the Bank’s risk classifications in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grad-ing system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of five grades in accordance with the Bank of Albania Credit Risk Management Regulation, reflecting varying degrees of risk of default and the avail-ability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approval by Credit Committee and these grades are subject to regular monthly reviews.

Reviewing compliance of business units with agreed exposure limits, including those for selected in-dustries, country risk and product types. Regular reports are provided to Bank Credit Committe on the credit quality of local portfolios and appropriate corrective action is taken.

Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk.

5858



b) Credit risk (continued)

Each branch and business unit is required to implement credit policies and procedures, with credit ap-proval authorities delegated from the Credit Committee. Each business unit/branch has a Chief Credit Risk officer who reports on all credit related matters to local management and the Bank Credit Com-mittee. Each business unit/branch is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.

Regular audits of business units and Bank Credit processes are undertaken by Internal Audit.

exposure to credit risk

loans and advances to customersIndividually impairedStandardSpecial mentionSubstandardDoubtfulLostGross amountAllowance for impairmentcarrying amountCollectively impairedStandardSpecial mentionSubstandardDoubtfulLostGross amountAllowance for impairmentcarrying amounttotal carrying amount

loans and advances to banks Neither past due nor impairedStandardtotal carrying amount

investment securitiesNeither past due nor impairedStandardtotal carrying amount

Year ended31 december 2009

2,074,837944,411945,688318,132128,768

4,411,836(757,017)

3,654,819

23,043,3772,283,3141,232,723

313,846170,663

27,043,923(456,399)

26,587,52430,242,343

236,023236,023

3,461,4043,461,404


660,703837,606447,043

14,45366,509

2,026,314(301,320)

1,724,994

22,049,442572,108243,343

45,96854,149

22,965,010(253,871)

22,711,13924,436,133

748,214748,214

3,891,6983,891,698


5959



impaired loans and securities

Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan / securities agreement(s).

allowances for impairment

The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance is the specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for Banks of ho-mogeneous assets in respect of losses that have been incurred but not identified on loans subject to individual assessment for impairment.

write-off policy

The writing off of losses is done with the decision from the Board of Directors when the legal process of demanding payment from the borrower is completed and the borrower continues to be a debtor to the bank for the unpaid portion.

Set out below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired assets by risk grade.

31 december 2009Standard: Individually impairedSpecial mention: Individually impairedSubstandard: Individually impairedDoubtful: Individually impairedLost: Individually impairedtotal

31 december 2008Standard: Individually impairedSpecial mention: Individually impairedSubstandard: Individually impairedDoubtful: Individually impairedLost: Individually impairedtotal

Gross

2,074,837944,411945,688318,132128,768

4,411,836

660,703837,606447,043

14,45366,509

2,026,314

net

1,662,740819,573808,455242,687121,364

3,654,819

609,594716,879332,798

11,69054,033

1,724,994

loans and advances to customers

6060




The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks. Collateral is not usually held against investment securities, and no such collateral was held at 31 December 2009 or 2008.

An estimate of the fair value of collateral and other security enhancements held against financial assets is shown below:

Against individually impaired: Property OtherAgainst collectively impaired: Property Othertotal

31 december 2009

4,905,7031,715,947

82,202,61231,989,785

120,814,047

31 december 2009

6,118,6908,099,9665,712,3643,050,7552,375,0411,317,0732,331,301

496,727370,515241,230151,541

32,176386,625771,756

31,455,760

31 december 2008

2,364,31421,599

74,044,63823,634,104

100,064,655

31 december 2008

6,214,5795,926,9974,437,9642,800,1881,680,8951,268,0661,234,908

388,036283,799221,710205,363

73,34848,002

207,46924,991,324

The Bank monitors concentrations of credit risk by sector, by maturity and by currency. An analysis of concentrations of credit risk at the reporting date is shown below:

loans and advances to customers

ConstructionCommerceConsumer loansPublic, social and personal servicesProcessing industryHotels and restaurantsProduction and distribution of electricity/waterReal estateTransport and telecommunicationFinancial activitiesAgricultureMiningHealth and social activitiesOthertotal


6161


c) liquidity risk

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities.

Management of liquidity risk

The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have suffi-cient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Bank’s reputation.

Short-term liquidity is managed by the Treasury Department, while mid-term and long-term liquidity is managed by ALCO. The Risk Management Division reports regularly to ALCO and the Treasury Depart-ment on level of exposure to liquidity risk.

Treasury Department maintains a portfolio of short-term liquid assets, made up of short-term liquid in-vestment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained by the Bank.

Daily reports produced by Treasury as well as weekly and monthly reports produced by the Risk Man-agement Department cover the liquidity position of the Bank. All liquidity policies and procedures are subject to review and approval by ALCO.

exposure to liquidity risk

The key measures used by the Bank for managing liquidity risk are the calculation of liquidity ratios and the evaluation of liquidity gaps for specific periods.

volatility in global and albania’s financial markets

The ongoing global financial and economic crisis has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector, and, at times, higher interbank lending rates and volatility in stock markets. Further adverse developments resulting from the crisis might result in negative implications on the financial and liquidity position of the Bank.

The Bank calculates on a weekly basis the following ratios: liquid assets to short-term liabilities, loans to deposits, and liquid assets to deposits. Liquid assets are considered as including cash and cash equiva-lents, Albanian government treasury bills and any short term deposits with banks maturing within one month. Details of the liquid assets to short-term liabilities ratio during the reporting period were as follows:

Average for the periodMinimum for the periodMaximum for the period


132.33%102.95%170.75%


127.55%81.81%

181.14%

Maturity gaps for each major currency are calculated and analyzed by the Bank on a monthly basis. The tables below show an analysis of the Bank’s assets and liabilities as of 31 December 2009 and 31 Decem-ber 2008 according to their remaining maturity:

6262



c) liquidity risk (continued)

Residual contractual maturities of financial assets and liabilities

31 december 2009Financial assetsCash and Central BankRestricted balances with Central BankLoans and advances to banksInvestment securitiesLoans and advances to customersInvestment propertyOther assetstotalFinancial liabilitiesDue to banks and other financial institutionsBorrowingDue to customersSubordinated debtOther liabilities totalliquidity risk as at 31 december 2009cumulative31 december 2008total financial assetstotal financial liabilitiesliquidity risk as at 31 december 2008cumulative

up to 1 month

9,919,916874,832

29,662253,697

3,813,494-

215,25415,106,855

308,194-

8,723,706-

55,3269,087,2266,019,6296,019,629

10,706,6149,637,5281,069,0861,069,086

1 to 3 months

413,937875,548

55,614301,362

3,130,256--

4,776,717

--

8,689,52823,639

-8,713,167

(3,936,450)2,083,179

3,674,0246,840,468

(3,166,444)(2,097,358)

3-6 months

-766,771

-714,557

2,100,219--

3,581,547

--

8,050,357--

8,050,357(4,468,810)(2,385,631)

3,141,3526,658,340

(3,516,988)(5,614,346)

6-12 months

-1,482,169

370,7943,982,285

--

5,835,248

--

15,608,474--

15,608,474(9,773,226)

(12,158,857)

4,706,37310,785,673(6,079,300)

(11,693,646)

1 to 5 years

-167,736150,747

1,820,99412,397,862

88,076-

14,625,415

699,632124,651

2,156,0611,396,155

-4,376,499

10,248,916(1,909,941)

13,018,6083,192,4049,826,204

(1,867,442)

over 5 years

----

4,818,227--

4,818,227

--

6,900--

6,9004,811,3272,901,386

4,156,213 -4,156,2132,288,771

total

10,333,8534,167,056

236,0233,461,404

30,242,34388,076

215,25448,744,009

1,007,826124,651

43,235,0261,419,794

55,32645,842,623

2,901,386 -

39,403,18437,114,413

2,288,771 -


6363


d) Market risks

Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates will affect the Bank’s income or the value of its holdings of financial instruments.

Management of market risks

ALCO is responsible for the overall management of market risks. The risk of foreign exchange positions is measured and reported by the Risk Management Department on a daily basis. The Bank manages this risk by closing daily open foreign currency positions and by establishing and monitoring limits on open positions. The Bank manages interest rate risk by conducting repricing gap analysis and profit margin analysis for each major currency. The Risk Management Department produces these reports on a monthly basis.

exposure to foreign exchange risk

The analysis of assets and liabilities as of 31 December 2009 and 31 December 2008 by the foreign cur-rencies in which there were denominated is as follows:

AssetsCash and Cash equivalentRestricted balances with Central BankLoans and advances to banksLoans and advances to customers Investment securities Property, equipment and intangiblesInvestment PropertyDeferred taxesOther assetstotalLiabilities and equityDue to banks and other financial institutionsBorrowingsDue to customersOther liabilitiesSubordinated debtShareholders’ equitytotalnet position as at 31 december 200931 december 2008total assetstotal liabilities and equitynet position as at 31 december 2008

all

1,309,2632,198,650

88,55516,539,736

3,461,404799,004

88,07630,835

204,53024,720,053

182,361124,651

22,646,30455,320

-1,706,847

24,715,4834,570

21,648,72621,496,676

152,050

usd

2,374,401561,599

43,1634,288,266

-----

7,267,429

83,521-

5,693,168--

1,465,0717,241,760

25,669

6,589,3196,606,947

(17,628)

eur

6,230,1451,406,807

104,3059,414,341

----

10,72417,166,322

741,789-

14,474,6303

1,419,794559,307

17,195,523(29,201)

11,699,30611,844,122

(144,816)

other

420,044--------

420,044

155-

420,9243--

421,082(1,038)

328,320317,926

10,394

total

10,333,8534,167,056

236,02330,242,343

3,461,404799,004

88,07630,835

215,25449,573,848

1,007,826124,651

43,235,02655,326

1,419,7943,731,225

49,573,848 -

40,265,67140,265,671

-

6464



d) Market risk (continued)

exposure to interest rate risk

A summary of the Bank’s interest rate gap position as of 31 December 2009 and 2008 is as follows:

31 december 2009assetsCash and cash equivalentsRestricted balances with Central BankLoans and advances to banksLoans and advances to customersInvestment securitiestotal assets

liabilitiesDue to banks and other financial institutionsBorrowingDue to customersSubordinated debttotal liabilities

Gap as at 31 december 2009

notes

1213141516

23242526

less than 1 months

6,193,303874,832

3,572,034253,697

10,893,866

1,007,826124,651

12,039,576-

13,172,053

(2,278,187)

1-3 months

413,937875,548

43,16222,830,057

944,48525,107,189

-

7,101,545574,167

7,675,712

17,431,477

3-12 months

-766,771144,169352,532

1,506,3342,769,806

-

18,310,492-

18,310,492

(15,540,686)

1-5 years

-1,482,169

48,6921,693,927

422,6503,647,438

-

2,090,769845,627

2,936,396

711,042

over 5 years

-167,736

-299,351334,238

801,325

-

6,900-

6,900

794,425

non allocated

3,726,613--

1,494,442-

5,221,055

-

3,685,744-

3,685,744

1,535,311

carrying amounts

10,333,8534,167,056

236,02330,242,343

3,461,40448,440,679

1,007,826124,651

43,235,0261,419,794

45,787,297

2,653,382


6565

31 december 2008assetsCash and cash equivalentsRestricted balances with Central BankLoans and advances to banksLoans and advances to customersInvestment securitiestotal assets

liabilitiesDue to banks and other financial institutionsDue to customersSubordinated debttotal liabilities

Gap as at 31 december 2008



exposure to interest rate risk (continued)

notes

1213141516

232526

less than 1 months

1,946,1561,133,070

193,4272,068,029

690,0296,030,711

1,241,55112,125,641

-13,367,192

(7,336,481)

1-3 months

2,734,075507,787367,856

19,878,9911,414,284

24,902,993

-5,382,810

269,7145,652,524

19,250,469

3-12 months

-1,267,754

180,455363,639

1,687,7373,499,585

-13,438,861

-13,438,861

(9,939,276)

1-5 years

-182,966

4,4581,463,207

99,6481,750,279

-1,939,5461,005,256

2,944,802

(1,194,523)

over 5 years

--

2,01887,747

-89,765

----

89,765

non allocated

2,141,553158,990

-574,520

-2,875,063

-1,685,375

-1,685,375

1,189,688

carrying amounts

6,821,7843,250,567

748,21424,436,133

3,891,69839,148,396

1,241,55134,572,233

1,274,97037,088,754

6666




exposure to interest rate risk (continued)

To supplement repricing gap analysis, the Bank also monitors on a monthly basis the sensitivity of net interest income over a one-year horizon to parallel shifts in the yield curve. An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates over a one-year horizon (assuming parallel shifts in the yield curve and a constant statement of financial position position) for each currency is as follows:

e) Capital management

regulatory capital

The Bank’s regulator, Bank of Albania, sets and monitors capital requirements measured by the capital adequacy ratio according to the Regulation on Capital Adequacy dated 5 May 1999. The capital ad-equacy ratio is calculated as the percentage of the regulatory capital to total risk-weighted assets and off balance-sheet items.

the Bank’s regulatory capital is analysed into two categories:

1. Base capital, where are added ordinary share capital; premiums of emissions and mergers; retained earnings; and are subtracted unpaid share capital; debit re-valuation differences included in equity for regulatory reporting purposes, which reflect the changes of the historical currency exchange rates com-pared to the year end exchange rates when the equity is paid in currencies other than the reporting currency; and intangible assets.

2. Additional capital, which includes subordinated liabilities, general reserves and other regulatory ad-justments.


LEKUSDEURO and other currencies


LEKUSDEURO and other currencies

100 basis pointparallel increase

43,42614,98440,804

100 basis pointparallel increase

10,08728,93445,731

100 basis point parallel decrease

(43,426)(14,984)(40,804)

100 basis point parallel decrease

(10,087)(28,934)(45,731)


6767


e) Capital management (continued)

regulatory capital (continued)

Risk-weighted assets and off balance-sheet items 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 recognises the need to maintain a balance between the higher returns that might be possible with higher risk weighted investments and the requirements for capital adequacy ratio higher than 12% which is the minimum capital adequacy ratio required by the regulator.

The Bank has complied with all externally imposed capital requirements throughout the period. There have been no material changes in the Bank’s management of capital during the period.

The Bank’s regulatory capital position at 31 December 2009 and 2008 was as follows:

base capitalSubscribed CapitalShare premiumGeneral reserveRetained earnings as per regulatory purposesDebit re-valuation differences (negative)Intangible fixed assets

Additional capitalTime subordinated liabilitiesOther regulative acts of Bank of Albania

total regulatory capital

Risk-weighted assetsRisk weighted off balance sheet exposuresTotalCapital adequacy ratioMinimum required capital adequacy ratio

31 december 2009

2,404,771336,334412,940570,837

(158,784)(38,493)

3,527,605

1,419,794 -1,419,794

4,947,339

33,908,5311,752,390

35,660,92113.87%12.00%

31 december 2008

2,119,763336,334258,618558,829

(336,993)(36,086)

2,900,465

1,274,970 -

1,274,9704,175,442

27,719,7321,431,933

29,151,66514.32%12.00%

Capital allocation

The allocation of capital between specific operations and activities is, to a large extent, driven by optimi-sation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is also dependant upon the regulatory capital. The process of allocating capital to specific operations and activities is undertaken independently of those responsible for the operation, and is subject to review by the Bank Credit Committee or ALCO as appropriate.

6868


5. use oF estiMates and judGMentsThe Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the financial year. Estimates and judgments are continually evaluated and are based on available relevant market information and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(i) impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in the profit or loss, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio.

This evidence may include observable data indicating that there has been an adverse change in the pay-ment status of borrowers in a Bank, or national or local economic conditions that correlate with defaults on assets in the Bank.

(ii) determining fair values

The Bank's accounting policy on fair value measurement is discussed in accounting policy 3(f ). 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 ac-tive 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 instru-ments where the valuation technique includes inputs not based on observable data and the unobserv-able 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 adjust-ments 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 deter-mination 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.


6969

5. use oF estiMates and judGMents continued(ii) determining fair values (continued)

The Bank uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usu-ally available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement 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 2009 and 2008 all financial instruments are measured at amortized cost and the respective fair values have been disclosed in note 6. Fair values as at 31 December 2009 and 2008 have been measured based on Level 2 hierarchy.

(iii) Calculation of corporate income tax

Starting from 1 January 2008 the Bank has applied as its statutory accounting framework the Interna-tional Financial Reporting Standards. Accordingly, the application of International Financial Reporting Standards provides the basis for the underlying records when an entity is subject to corporate tax. How-ever, at the date of release of these financial statements there are limited amendments to the existing income tax law and respective guidelines on the tax on profit calculation which might offer guidance following the introduction of the International Financial Reporting Standard as a statutory framework. Management believes that the tax on profit provision calculation is prudent given the uncertainty of the Albanian tax environment and existing legislation in force and any future tax audit will have not a significant effect on the Bank’s financial position, or results of operations.

7070


6. Fair value disclosuresFair value estimates are based on existing statement of financial position financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities not considered financial instruments.

Due from Banks accounts - Due from Banks accounts include inter-bank placements and items in the course of collection. As deposits are short term and at floating rates their fair value is considered to ap-proximate their carrying amount.

Investment securities - Treasury bills and Government bonds are interest-bearing assets held to matu-rity. Because no active market exists for these securities, the fair value has been estimated using a dis-counted cash flow model based on a current yield curve appropriate for the remaining term to maturity.

Loans and advances to customers - Loans and advances are net of allowances for impairment. The Bank’s loan portfolio has an estimated fair value approximately equal to its book value due to either their short-term nature or underlying interest rates (which are floating rates: T–Bills, LIBOR plus interest margin), which approximate market rates. The majority of the loan portfolio is subject to re-pricing within a year, by changing the base rate.

Due to other banks and customers-The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand.

Customer time deposits and Subordinated liabilities - Because no active market exists for these instru-ments, the fair value has been estimated using a discounted cash flow model based on a current yield curve appropriate for the remaining term to maturity.

31 december 2009Cash and cash equivalentsRestricted balances with Central BankLoans and advances to banksLoans and advances to customersInvestment securitiesDeposits from banksBorrowingsDeposits from customersSubordinated liabilities31 december 2008Cash and cash equivalentsRestricted balances with Central BankLoans and advances to banksLoans and advances to customersInvestment securitiesDeposits from banksDeposits from customersSubordinated liabilities

Held-to-maturity

5,835,310----- --

3,962,495-------

available for sale

----

3,461,404-

--

----

3,891,698---

loans and receivables

823,2634,167,056

236,023---

--

717,7363,250,567

748,21424,436,133

----

other amortised cost

3,675,280--

30,242,343-

1,007,826124,651

43,235,0261,419,794

2,141,553----

1,241,55134,572,233

1,274,970

total carrying amount

10,333,8534,167,056

236,02330,242,343

3,461,4041,007,826

124,65143,235,026

1,419,794

6,821,7843,250,567

748,21424,436,133

3,891,6981,241,551

34,572,2331,274,970

Fair value

10,333,8534,167,056

236,02330,242,343

3,461,4041,007,826

124,65144,749,466

1,573,101

6,821,7843,250,567

748,21424,436,133

3,891,6981,241,551

35,683,2581,371,516


7171

7. interest incoMe and interest expense

interest incomeLoans and advances to customersInvestment securitiesCash and cash equivalentsLoans and advances to banksRestricted cash with Central Banktotal interest incomeInterest expenseDeposits from customersSubordinated liabilitiesDeposits from banksTotal interest expensenet interest income


3,201,586

354,09843,34454,34295,445

3,748,815

(1,770,420)(94,144)(19,890)

(1,884,454)1,864,361


2,455,235

465,368175,257

39,720151,440

3,287,020

(1,442,862)(66,999)(23,193)

(1,533,054)1,753,966

Included in interest income from loans and advances to customers for the year ended 31 December 2009 is a total of Lek 38,401 thousand (2008: Lek 23,986 thousand) accrued on impaired financial assets.

8. Fee and coMMission incoMe and expense

Fee and commission incomeBanking customer feesFee and commissions from lending servicesTotal fee and commission income Fee and commission expenseTreasury operationsInter bank transaction feesOtherTotal fee and commission expensenet fee and commission income


275,566

12,634288,200

(19,736)(14,248)

(236)(34,220)

253,980


209,583

8,155217,738

(16,549)(4,911)(9,381)

(30,841)186,897

Fee and commissions from lending services do not include fees included in determining the effective interest rate of loans and advances to customer at amortised cost.

7272


9. personnel costs

10. adMinistrative expenses

SalariesSocial insuranceBonuses and rewardsOther


383,06549,57538,97512,468

484,083


293,06943,51237,06311,497

385,141

RentInsurance and surveillanceMarketing and subscriptionsMaintenance UtilitiesThird party feesTax penalties (refer to note 28)Transport and travelSuppliesOther


136,381109,084125,873

35,75451,41142,57939,59715,552

3,71552,736

612,682


108,11293,74888,93422,67452,76244,428

-12,223

6,44042,772

472,093

11. incoMe tax expense

Current taxDeferred tax expense/(benefit)Income tax expense


49,98915,054

65,043


102,174(18,423)83,751


7373

11. incoMe tax expense (continued)

In accordance with Albanian tax regulations, the applicable income tax rate for 2009 and 2008 is 10%. The reconciliation of effective income tax rate is summarised as follows:

Profit before taxPrima facie tax calculated at Non tax deductible expensesincome tax expense

%

101.011


589,80858,981

6,06265,043

%

100.110


822,68482,268

1,48383,751

Tax returns are filed annually but the profits or losses declared for tax purposes remain provisional until such time as the tax authorities examine the returns and the records of the taxpayer and a final assessment is issued. Albanian tax laws and regulations are subject to interpretations by the tax authorities.

12. casH and casH equivalents

Cash on handUnrestricted balances with central bankCurrent accounts with banksMoney market placements

31 december 20093,675,279

451,333771,931

5,435,31010,333,853

31 december 20082,318,281

63,472477,536

3,962,4956,821,784

13. restricted balances WitH central bank

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. The statutory reserve is not available for the Banks’ day-to-day operations.

14. loans and advances to banks and Financial institutions

Resident banks and financial institutionsNon-resident banks and financial institutionsTotal

31 december 2009

88,555147,468

236,023

31 december 2008

329,075419,139

748,214

7474


15. loans and advances to custoMers

Loans and advances to customers consisted of the following:

Loans and advances to customers at amortized costLoan loss allowances for impairment

Corporate lending Mortgage lendingPrivate individuals lending Finance leasesOther secured lending

Impairment allowance

31 december 200931,455,760(1,213,417)

30,242,343

31 december 20098,834,3222,862,184

18,717,105737,595304,554

31,455,760(1,213,417)

30,242,343


555,191625,256

(985)33,955

1,213,417

31 december 200824,991,324

(555,191)24,436,133

31 december 200815,424,483

7,117,8622,023,099

410,28515,595

24,991,324(555,191)

24,436,133


209,954341,528(1,252)

4,961555,191

Loans and advances to customers by sector can be detailed as follows:

Movements in the provision for loan losses can be detailed as follows:

Balance at the beginning of the yearAllowance for loan loss impairment Written offsEffect of foreign currency movementsbalance at the end of the year


7575

16. investMent securities

Investment securities are held-to-maturity and are comprised as follows:

Available for SaleTreasury BillsGovernment bonds

31december 2009

1,537,5671,923,837

3,461,404

31 december 2008

2,101,1451,790,553

3,891,698

As at 31 December 2008 the Bank reclassified its Held-to-Maturity investment securities as Available-for-Sale. The Bank identified that during 2008 more than a significant amount of investments were sold prior to their maturity due to the Bank financial resources necessities. Based on the facts and circum-stances the Bank management considered that a tainting situation arose and in accordance with IAS 39 these investment were classified as Available-for-Sale for a period of two years.

treasury bills

The effective interest rates on treasury bills for the year ended 31 December 2009 fluctuated between 7.66% and 9.45% p.a. (2008: 7.20% and 8.65% p.a.). Details of treasury bills by type are presented as follows:

6 months12 months

6 months12 months

Nominal value

256,6581,391,047

1,573,798

Nominal value

231,8811,903,283

2,135,164

Deferred discount

(9,213)(67,249)

(15,895)

Deferred discount

(813)(36,228)

(37,041)

Book value

247,4451,283,170

1,530,616

Book value

231,0681,867,055

2,098,123

Revaluation difference

4186,534

6,952

Revaluation difference

672,955

3,022

Fair value

247,8631,289,704

1,537,567

Fair value

231,1351,870,010

2,101,145

31 december 2009

31 dhjetor 2008

7676


16. investMent securities (continued)

government Bonds

As at 31 December 2009, the Bank had a portfolio of 2-year, 3-year and 5-year government bonds, denominated in the local currency (Lek). Inter-est is received semi annually at a respective coupon rate of 9.46 % and 9.70 % (2-year), 8.7 % and 8.6 % (3-year), 11.74 %,and 10.97 % (5-year)) (2008: 8.25% (2-year), 8.2%, 8.6% and 8.7% (3-year), 9.06%, 9.08%, 9.65%, 9.83%, 10.14% and 10.42% (5-year)).Details on government bonds are as follows:

24 months36 months60 months

24 months36 months60 months

nominal value

328,190150,000

1,347,5611,825,751

nominavalue

253,333150,000

1,347,5611,750,894

deferred pre-mium/ (discount)

-(116)

-(116)

deferred pre-mium/ (discount)

39(546)

-(507)

accrued interest

3,9754,389

38,54946,913

accrued interest

7,6943,792

34,48645,972

book value

332,165154,273

1,386,1101,872,548

book value

261,066153,246

1,382,0471,796,359

revaluation difference

2,074425

48,79051,289

revaluation difference

(247)494

(6,053)(5,806)

Fair value

334,239154,698

1,434,9001,923,837

Fair value

260,819153,740

1,375,9941,790,553

31 december 2009

31 december 2008


7777

17. propertY and equipMent

Cost

Balance at 1 January 2008AcquisitionsTransfersDisposalsBalance at 31 December 2008AcquisitionsDisposalsBalance at 31 December 2009

DepreciationBalance at 1 January 2008Depreciation for the yearDisposalsBalance at 31 December 2008Depreciation for the yearDisposalsBalance at 31 December 2009

Balance at 1 January 2008Balance at 31 December 2008Balance at 31 December 2009

buildings

286,839---

286,839--

286,839

(37,889)(14,342)

-(52,231)(14,342)

-(14,342)

248,950234,608272,497

electronic and office

equipment

388,082120,097

5,180(8,803)

504,55669,026-2,039

571,543

(125,915)(67,030)

5,507(187,438)

(71,959)1,017

(70,942)

262,167317,118500,601

vehicles, Furniture &

Fittings

74,43342,685

-(199)

116,91914,511-1,039

130,391

(19,409)(13,972)

114(33,267)(17,100)

279(16,821)

55,02483,652

113,570

leasehold improvements

134,14151,119

--

185,26026,854

-212,114

(27,533)(18,408)

-(45,941)(19,394)

-(19,394)

106,608139,319192,720

prepayments for fixed assets

5,180-

(5,180)-----

-------

5,180--

total

888,675213,901

-(9,002)

1,093,574110,391(3,078)

1,200,887

(210,746)(113,752)

5,621(318,877)(122,795)

1,296(440,376)

677,929774,697760,511

No impairment losses were incurred for the years ended 31 December 2009 and 2008 for property and equipment.

7878


18. intanGible assets

costBalance at 1 January 2008Acquisitions DisposalsBalance at 31 December 2008Acquisitions Disposalsbalance at 31 december 2009

amortizationBalance at 1 January 2008Amortization for the year DisposalsBalance at 31 December 2008Amortization for the yearDisposalsbalance at 31 december 2009

carrying amountsbalance at 1 january 2008balance at 31 december 2008balance at 31 december 2009

software

59,5711,652

-61,22311,104

(880)71,447

(32,816)(6,723)

-(39,539)

(7,437)345

(46,631)

26,75521,68424,816

patents and licenses

11,5056,091

(6)17,590

2,483(422)

19,651

(1,799)(1,399)

2(3,196)(2,794)

16(5,974)

9,70614,39413,677

total

71,0767,743

(6)78,81313,587(1,302)91,098

(34,615)(8,122)

2(42,735)(10,231)

361(52,605)

36,46136,07838,493


7979

19. deFerred tax assetDeferred tax assets and liabilities are attributable to the following:

Share capitalDeferred loan disbursement feesAllowance for loan lossesAllowance for guarantee lossesOtherNet deferred tax assets

assets41,54219,099

---

60,641

liabilities--

(23,910)(70)

(5,826)(29,806)

net41,54219,099

(23,910)(70)

(5,826)30,835

assets41,54215,783

--1

57,326

liabilities--

(3,580)(2,034)

-(5,614)

net41,54215,783(3,580)(2,034)

151,712

The deferred tax assets have been recorded net of the deferred tax liabilities as the amounts are due to the same tax authority and are expected to be settled on a net basis. As at 31 December 2009 all the de-ferred tax assets and liabilities above are recognised in the financial statements. As previously discussed in note 5(iii) due to the limited amendments to the tax legislation there are uncertainties if the deferred tax assets will be realised in the future, however management believes that there is remote likelihood that no future benefits will arise.

20. assets Held For saleOther assets held for sale represent properties acquired as a result of collateral execution, for which the Bank intends to sell in the short term.

21. investMent propertYDuring 2009 the Bank management reclassified those properties discussed in note 20 that remained unsold and any similar properties possessed during 2009 as Investment Property due to uncertainty on their ongoing use and further sale. The carrying amount of investment property is the fair value of the properties as determined by a registered independent appraisal.

22. otHer assets

VAT deductibleTransactions as agent (State Treasury)DebtorsPrepaid expenses

31 decembe 200992,470

-42,15627,291

161,917

31 decembe 200878,87074,22737,712

6,238197,047

Transactions as agent represent services provided by the Bank on behalf of the State Treasury. As at 31 December 2009 and 2008 asset and liability amounts are off-set for each counterparty representing the amount to be received from the State Treasury by virtue of the agent contract and are expected to be settled on net basis.

2009 2008

8080


23. due to banks and otHer Financial institutionsDue to banks and other financial institutions are detailed as follows:

Current accounts: ResidentNon residentMoney market deposits: Resident Non resident

31 december 2009

166,47412,467

129,254699,631

1,007,826

31 december 2008

531,20189,726

408620,216

1,241,551

24. borroWinGsDuring 2009 the Bank obtained a borrowing from Ministry of Economy, Commerce and Energy amount-ing Lek 124,651 thousand with an interest bearing at 3.5% p.a. The borrowing was obtained in the frame-work of the Italian-Albanian Development Cooperation “Programme for Development of the Albanian Private Sector through a credit line for SMEs and relevant technical assistance” in order to finance Alba-nian SMEs as prescribed in the agreement dated 11 December 2008. Principal and interest repayment are paid according to the same repayment schedules between the Bank and the SME loan borrower.

25. due to custoMersDue to customers are detailed as follows:

Due to customers by currency are detailed as follows:

Private individualsCorporateSovereign governmentsOther customers

31 december 200931,818,443

5,944,0655,227,551

244,96743,235,026

31 december 200824,420,089

6,939,9422,536,528

675,67434,572,233

Current accounts Local currency Foreign currencySaving accounts Local currency Foreign currencyTerm deposits Local currency Foreign currencyOther customers accounts Local currency Foreign currency

31 december 2009

4,376,4973,150,197

660,492626,743

17,532,60516,457,205

76,710

354,57743,235,026

31 december 2008

3,195,9532,481,565

902,370380,989

15,509,74311,575,614

91,664

434,33534,572,233


8181

26. subordinated debtSubordinated debt can be detailed as follows:

SECOEuropean Fund for Southeast Europe

31 december 2009574,237845,557

1,419,794

31 december 2008515,811759,159

1,274,970

On 12 December 2007 the General Assembly of Shareholders approved the borrowing of a subordinated debt of Euro 2 million from State Secretariat for economic Affairs (SECO) acting through the Swiss Investment Fund for Emerging Markets (SIFEM). The debt in Euro bears interest of six-month Euribor + margin of 3% p.a. This debt is to be repaid with equal instalments of Euro 666,666 on 31 December 2013, 2014, 2015, or the Bank can repay it prior to its maturity. Notwithstanding the above schedule of payments, in the event that there is a change in the control of the Bank, the debt shall be immediately repaid to SECO.

On 8 February 2008, The General Assembly of Shareholders approved the borrowing of a subordinated debt of Euro 3 million from European Fund for Southeast Europe. On 31 July 2008, an additional amount of Euro 3 Million was disbursed to the Bank. The debt bears a fixed interest rate of 7.85% p.a. until the 5th anniversary of the day of the disbursements which thereafter is increased to 12.85% p.a. Any payment under the debt shall be repaid on the 10th anniversary of the disbursement; nevertheless, the Bank can repay the loan on any March 22 or September 22 follow-ing the 5th anniversary of the disbursement upon 90 days prior notice.

On 11 November 2008, The General Assembly of Shareholders approved the borrowing of a subordinated debt of Euro 2,120,000 from SECO. The debt bears an interest rate of Eurobor+3% p.a. As at 31 December 2009 the outstanding Subordinated Debt was EUR 10,291,370 (2008: EUR 10,298,626).

27. otHer liabilitiesOther liabilities are comprised of the following:

Suppliers and accrued payablesPayments in transit

31 december 200940,653

-40,653

31 december 200825,659

-25,659

Payments in transit represent mainly payments to be performed on behalf of third parties.

28. provisionsDuring 2008, the Bank was subject to an audit by the Albanian tax authorities on the Value Added Tax (for the period January 2004 – September 2008) and corporate income taxes (for the years 2004 – 2007). At the end of December 2008, the tax audit was completed and a Tax Reassessment Notification issued to the Company on 30 December 2008. The total assessment amounted to Lek 39,957 thousand, includ-ing interest and penalties.

8282


28. provisions (continued)The Bank is following all legal steps to defend itself as it believes the findings are neither in accordance with the Albanian legislation nor applicable withholding tax legislation. The Bank has presented the case at the first district Tirana court and is waiting for the scheduling of the hearing. In accordance with tax procedures during 2009 the Bank paid an amount of approximately Lek 24,924 thousand and recognised as a provision the cash flow paid and expected to be paid for which the Bank will not be reimbursed.

29. sHare capitalThe share capital is composed of type A shares and normal shares both with a nominal value of 1 USD for each share. The subscribed share capital contributed by the shareholders of the Bank is denominat-ed in USD, EUR and Lek and is reported in the financial statements with the historical rates of exchange. As at 31 December 2009 the subscribed share capital amounts to USD 14,390,490, EUR 2,015,709 and Lek 557,942,109. All shares rank equally towards Bank’s residual assets and are owned by the following shareholders:

Mr. Aleksander PiloB.F.S.E Holding BVMr. Renis TershanaMr. Artan Santo (Executive Manager)Mrs. Monika Milo (Vice Executive Manager)“Bushati” CompanyEmigres S.l.Mr. Maltin Korkuti (Vice Executive Manager)SECO (SIFEM-IT)Mr. Sejdin ZereMr. Asllan GrezdaMrs. Elena DaciMr. Leonat KocoMrs. Jorgji BalliMrs. Arjana SantoMr. Kostaq MiloTotal

31 december 2009 (%)24.8922.1720.78

5.005.004.730.294.153.172.021.23

-0.830.813.301.64100

31 december 2008 (%)23.6422.1717.30

7.886.304.734.153.943.173.151.170.790.790.81

-100

The paid up capital of the Bank as of 31 December 2009 is Lek 2,404,771 thousand translated at the his-torical rate of exchange (31 December 2008: Lek 2,119,762 thousand) with a nominal value of USD 1 each.A reconciliation of share capital at the beginning and end of the year are as follows:

At the beginning of the yearIncrease in number of sharesAt the end of the year

Normal shares Type A shares

200917,855,011

3,101,15620,956,167

200814,390,491

3,464,52017,855,011

20092,957,059

-2,957,059

2008-

2,957,0592,957,059


8383

30. General reserve

The Bank have created two reserves through appropriations from retained earnings being the general reserve, which represents the risk weighted assets reserve, as required by the Bank of Albania, and the statutory reserve, as required by the by-laws of the Bank. The general reserve is calculated as 1.25% of the risk weighted assets, whereas the statutory reserve is calculated as 5% of annual profit.

General reserveStatutory reserve

31 december 2009364,396

48,544412,940

31 december 2008232,041

26,577258,618

other comprehensive items

Prior to transition to IFRS the Bank capitalised its accumulated profit as an increase in share capital. Upon the transition to IFRS the resulting accumulated difference between the retained earning as per previous GAAP and IFRS was classified within equity as other comprehensive items. Based on decision of Shareholders Assembly dated 29 July 2009, the Bank has settled such item against accumulated re-tained earnings.

31. related partY transactionsRelated parties of the Bank comprise shareholders of the bank and their close relatives; supervisory council members and their close relatives; management members and their close relatives. The transac-tion values that have occurred with the related parties of the Bank are as follows:

Related party

ShareholderShareholderAffiliateAffiliate

Transaction

Lease expensePurchase of goods

Sale of assetsLeasing income


26,294---


16,388---

For the year ended 31 December 2009 and 2008 outstanding balances are detailed as follows:

Type of transactionCredit lineOverdraftsTerm LoansDebtCurrent accountsTerm depositsSubordinated debtGuaranteesCollateral placed in favour of the Bank

31 December 2009(300,001)(347,062)(486,827)

(3,548)298,118156,526

(574,232)(56,401)

(1,893,670)

Interest rates (in % p.a.)6.25-20

5.00-31.003.22-18.00

n/a0.5-0.82.2-8.6

4.018n/an/a

8484


31. related partY transactions (continued)

Type of transactionCredit lineOverdraftsTerm LoansCurrent accountsTerm depositsSubordinated debtGuaranteesCollateral placed in favour of the Bank

31 december 2008(171,016)

(25,468)(585,226)

625,110169,681

(510,056)(81,911)

(2,060,811)

interest rates (in % p.a.)10.27

00.8 - 10.39

0.5-0.80.8 - 7

7.73n/an/a

In addition the key management remuneration has been as follows:

Year ended 31 december 2009Key management remunerationSupervisory Council remunerationYear ended 31 december 2008Key management remunerationSupervisory Council remuneration

salaries61,253

2,491

48,3772,260

bonuses5,421

236

7,603220

32. coMMitMents and continGent liabilities

Commitments and contingencies include guarantees extended to customers and received from credit institutions. The balance is comprised of the following:

Contingent AssetsGuarantees in favour of customersCommitments in favour of customersContingent liabilitiesGuarantees pledged from credit customersGuarantees received from credit customers

31 december 2009

2,262,0241,164,521

1,463,311121,915,598

31 december 2008

2,426,805603,880

2,166,323100,843,029

guarantees and letters of credit

Guarantees received from the customers include cash collateral, mortgages, inventory and other assets pledged in favour of the bank from its borrowers. The Bank issues guarantees and letters of credit for its customers. These instruments bear a credit risk similar to that of loans granted. Based on management’s estimate, no material losses related to guarantees and letters of credit outstanding at 31 December 2009 will be incurred.


8585

32. coMMitMents and continGent liabilities (continued)

lease commitments

The Bank leases office premises in Tirana, Durres, Fier, Vlora, Lezha, Elbasan, Shkodra, Korca and Vora mostly under ten year operating leases. Such future commitments for the years ended 31 December 2009 and 2008 are detailed as follows:

Not later than 1 yearLater than 1 year and not later than 5 yearsLater than 5 yearsTotal


159,137585,538361,556

1,106,231


125,116481,855333,216940,187

litigation and claims

The Company is subject to other legal proceedings, claims, and litigation arising in the ordinary course of business. Management believes that the ultimate costs to resolve these matters will not have a material adverse effect on Bank’s financial position, results of operations, or cash flows.

33. subsequent events

The management of the Bank is not aware of any other events after the reporting date that would require either adjustments or additional disclo-sures in the financial statements.

86


87


88


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