AFORWARD YEARTIRANA BANK 2013 ANNUAL REPORT

A YEAR FORWARD ANNUAL REPORT / TIRANA BANK 20131 CONTENTS

1. MESSAGE FROM CEO 5.7. RISK

2. PIRAEUS BANK GROUP 5.8. COMPLIANCE

3. TIRANA BANK OVERVIEW 5.9. FUNDS TRANSFER

3.1. GENERAL INFORMATION 6. CORPORATE SOCIAL RESPONSIBILITY

3.2. BRANCH NETWORK: MAP AND 6.1. ENVIRONMENT

ADDRESSES 6.2. SOCIETY

3.3. MAIN HIGHLIGHTS (TIMELINE) 6.3. CULTURE WHAT’S INSIDE 4. ECONOMIC OUTLOOK 6.4. EDUCATION 4.1. INTERNATIONAL ECONOMY 7. HUMAN RESOURCES

4.2. ALBANIAN ECONOMY 8. FINANCIAL STATEMENTS THIS REPORT 4.3. ALBANIAN BANKING SECTOR 8.1. CONTENTS OF THE FINANCIAL 5. TIRANA BANK DURING 2012 – 2013 STATEMENTS

PRODUCTS, PERFORMANCE & OTHERS 8.2. INDEPENDENT AUDITOR’S REPORT

5.1. RETAIL BANKING 8.3. INCOME STATEMENT

5.2. SMEs BANKING 8.4. BALANCE SHEET

5.3. CORPORATE BANKING 8.5. STATEMENT OF CHANGES IN EQUITY

5.4. BRANCHES 8.6. CASH FLOW STATEMENT

5.5. TREASURY 8.7. NOTES TO THE FINANCIAL

5.6. TECHNOLOGY DEVELOPMENTS STATEMENTS

A YEAR2 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK 20133 Dear stakeholders

The global economy has continued to portray a rather gloomy outlook for yet another year. The search for the dynamics that would stimulate activity and job creation has come in the form of new policy changes, efforts to restore the financial sector and fiscal consolidation. Without exception, 2013 has been a year of slowed economic activity for Albania with an even lower growth than last year. Moreover, the vulnerability to external and regional developments, MESSAGE especially towards the traditional neighboring economic partners, has remained strong. Nevertheless, the financial environment has remained stable and been made secure by closely monitoring monetary policy which has given some protection from potential economic shocks. Annual inflation was below 2% thus indicating slow economic activity, while investments, currently still subdued, has led to negative credit growth throughout the year. As part of the essential pillars of the monetary policy, the lowering of the key interest rates has led to an equivalent reaction by the commercial banks, resulting in a downturn in interest rates, both in deposits and loans. Continuing low consumer spending has changed FROMAs our clients are the drivingCEO force around which the the economic outlook. On the political front, structural reforms have been intensified in the direction of the country’s orientation towards Europe and in a publically stated effort to build bank strategic approach is built, we have remained consumer confidence. Tirana Bank has continued moving towards the realization of its strategic objectives in 2013 with prudence and committed to providing personal and business banking effectiveness in:

solutions that would add real value to them and to their • Maintaining the bank’s capital base • Preserving adequate liquidity operations • Implementing essential risk management policies • Strengthening its AML policies and procedures • Successfully managing problematic portfolios

Accordingly, the bank this year has taken all necessary action to strengthen its capital base well above acceptable levels while it has carried out a major refinement of its balance sheet in relation to its problematic portfolios. In addition, through a major reorganization of its operational structure, the bank has provided new capacity, in volume and quality, for the effective management of the problematic portfolios and other prioritized operational areas which required strengthening. At the same time the bank has managed to further improve its liquidity position.

As our clients are the driving force around which the bank strategic approach is built, we have remained committed to providing personal and business banking solutions that would add real value to them and to their operations. In line with this, the bank aims to offer new favorable and rewarding retail products to its retail clients, in a transparent manner. Moreover, recognizing the importance of the SME sector for the economic well-being of the country, the bank has intensified its focus on openly supporting this critical business sector. At the same time, the bank, through a comprehensive and prudent lending policy, has also continued to embrace the corporate arm of the economy - the elite economic stratum. However, slow market demand for investments is the prevailing situation, as a result of investor skepticism in the light of the adverse economic outlook.

In keeping with its avowed policy of corporate social responsibility, Tirana Bank has continued to be an active member of society. We have consistently aimed at being amongst those organizations that set a good example at all social and economic levels, including both companies and individuals. Any tangible achievement in this direction would necessitate leading the way to creating socially responsible behavior in the community at large. Accordingly, we have engaged the organization as a whole, as well as encouraged staff involvement in several environmental, social, cultural and educational activities throughout the year.

Tirana Bank is entering 2014 with a clear view of its strategic objectives, aiming to add value to its shareholders and to all other stakeholders. As part of this effort, the organization is actively partnering with its staff, its clients and Albanian society to focus on those areas that it may have a direct or indirect impact on, through its positive contribution. However, it will closely monitor any developments in the wider economic sphere that may have adverse ramifications, so that we can implement contingencies.

Looking ahead, we continue to demonstrate optimism, persistence and continual adaptation in the face of change - leading to healthy growth.

Sincerely. Savvas Thalasinos Managing Director and CEO A YEAR4 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK 20135 PIRAEUS BANK

GROUPFounded in 1916, Piraeus Bank has operated as a private credit institution for many decades, while it underwent state ownership for the period 1975-1991 until it was privatized in December 1991. Since then, it has rapidly grown in size and activities, now being the leading Bank in Greece with 30% market share in terms of loans and 29% in terms of deposits.

A YEAR6 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK 20137 CORPORATE PROFILE - WHO WE ARE Piraeus Bank Egypt). Finally, in 2007, Piraeus Group Piraeus Bank Group December 2013 With its headquarters in Athens, Greece, and with expanded its international presence in Ukraine Assets €92.0 bn more than 22 thousand employees in its offices by acquiring the International Commerce Bank Net Loans €62.4 bn in 10 countries around the world, Piraeus Bank (renamed Piraeus Bank ICB) and in Cyprus by Deposits €54.3 bn Group offers a full range of financial products and establishing Piraeus Bank Cyprus through the EBA CT1 ratio 13.9% services to approximately 7 million customers. Total acquisition of the Arab Bank Cypriot network. Branches 1,449 assets of the Group amounted to €92 billion, net In 2012, Piraeus Bank acquired the “good” part of Employees 22.500 loans to €62 billion and customer deposits to €54 Agricultural Bank (selected assets and liabilities) Market cap (06 Mar 2014) €10.1 bn billion as at December 31, 2013. and Geniki Bank, a former subsidiary of Societe Founded in 1916, Piraeus Bank has operated as a Generale. In March 2013, Piraeus Bank acquired LONDON private credit institution for many decades, while the Greek banking operations of Bank of Cyprus, FRANKFURT it underwent state ownership for the period 1975- Cyprus Popular Bank and Hellenic Bank. In June 1991 until it was privatized in December 1991. Since 2013, Piraeus Bank acquired Millennium Bank UKRAINE then, it has rapidly grown in size and activities, now Greece, a subsidiary of BCP. These transactions ROMANIA

being the leading Bank in Greece with 30% market represent important steps towards the restructuring SERBIA share in terms of loans and 29% in terms of deposits. of the Greek banking system, in which Piraeus Bank BULGARIA has participated as a major player from the very ALBANIA OUR OPERATIONS beginning. Today Piraeus Bank has successfully GREECE Along with its organic growth during the decades completed the integration of all the above 2012- of 1990 and 2000, Piraeus Bank has made a series 2013 banking operations (excluding Geniki) in its CYPRUS of strategic acquisitions and mergers aimed at systems offering a unique banking experience to establishing a strong presence in the domestic all its customers. market. Thus, in 1998, the Bank absorbed the

activities of Chase Manhattan in Greece, took WHAT WE DO EGYPT a controlling interest in Macedonia-Thrace Piraeus Bank today leads a group of companies Bank and acquired the specialized bank, Credit covering all financial activities in the Greek market Lyonnais Hellas. At the beginning of 1999, the (as a universal bank). Piraeus Bank possesses Bank acquired Xiosbank and absorbed the particular expertise in the areas of medium-sized activities of National Westminster Bank Plc in and small enterprises, in agricultural banking, with 42 branches of Piraeus Bank Beograd, in of green banking with dedicated branches and Greece. In June 2000, Piraeus Bank absorbed its in consumer and mortgage credit and green Ukraine with 37 branches of Piraeus Bank ICB, in products, addressing both business and individual two commercial banks in Greece (Macedonia- banking, capital markets and investment banking, Cyprus with 14 branches of Piraeus Bank Cyprus, needs. At the same time, the Piraeus Bank Group Thrace Bank and Xiosbank). In 2002, Piraeus Bank as well as leasing and factoring. These services are in Egypt with 41 branches of Piraeus Bank Egypt, Cultural Foundation is active in cultural activities, acquired the Hellenic Industrial Development Bank offered through the Group’s nation-wide network of in London and Frankfurt with a branch of Piraeus which form part of Piraeus Bank Group’s corporate (ETBAbank), which was absorbed in December 1,037 branches and 1,879 ATMs at the end of 2013, Bank each. social responsibility policy. The bank operates a 2003. and also through its innovative electronic banking network of themed museums in Greece, which is In 2005, The Piraeus Bank Group, as part of its network of winbank. WHAT WE STAND FOR constantly growing and has the aim of bringing a strategy for expansion in Southeastern Europe As at December 31, 2013 Piraeus Bank Group Piraeus Bank Group, combining business high standard of cultural activity to the Greek rural and Eastern Mediterranean markets, acquired the has an international presence consisting of 412 development and social responsibility, is regions which have been both well-organized and Bulgarian Evrobank (renamed into Piraeus Bank branches focused in Southeastern Europe and systematically strengthening relations with its successful. Bulgaria), strengthening its 12 year presence in Eastern Mediterranean. More specifically, the social partners through specific activities, while As one of the systemically important banks in Bulgaria. Furthermore, in 2005, Piraeus entered the Group operates in Romania through Piraeus Bank special emphasis is placed on the protection Greece, Piraeus Bank undertakes initiatives that Serbian market by acquiring Atlas Bank (renamed Romania with 140 branches, in Bulgaria through of the natural environment and preservation of support sound business plans and encourage the Piraeus Bank Beograd), and the Egyptian market by Piraeus Bank Bulgaria with 83 branches, in Albania our cultural heritage. Piraeus Bank has built up evolution of the Greek economy into a new model acquiring Egyptian Commercial Bank (renamed through Tirana Bank with 53 branches, in Serbia significant expertise and market share in the field of sustainable development. A YEAR8 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK 20139 53 TIRANA BANK 45 OVERVIEW 34 36 39

NUMBER OF BRANCHES THROUGH THE YEARS 22 2005 2002 The branch network is Year of network expansion. further expanded to 5 reach the number of 34 First VISA Credit Card is issued. 3 1998 2000 branches, covering most 1 Tirana Bank opens its Tirana Bank opens of the country. Huge new branches in Fier and its new branches in organizational reshuffle Durrës. Gjirokastra and Korça. 2003 takes place and more Two more Tirana Bank aggressive retail activity 1996 1997 agencies are opened. starts. Tirana Bank is licensed, becoming Year of official establishment. the first private Bank in the country. 2001 1999 Rapid growth Launch of VISA achieved, with 2004 2006 purchasing service. First assets’ figures tripling Tirana Bank network has 22 A year of strong growth both in Corporate and positive financial results compared branches with the opening Retail, coupled with the are achieved. with 1997. of seven other branches, becoming the Bank with launch of new products. the second largest branch The branch network network. reaches 36 branches, 43 ATM’s operate and the Bank has 377 employees.

BOARD OF TIRANA BANK (LEFT TO RIGHT) 1. Sotiris Kousouris - Head of Operations Division 2. Athanasios Paloudis - Head of Branch Network and SME 3. Savvas Thalassinos - Managing Director and CEO 4. Jani Gjika - Head of Corporate Banking Division 5. Nikos Chaniotis - Head of Credit and Recoveries 6. Manjola Capo - Head of Credit Division A YEAR10 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK11 2013 Branch Network Tirana Bank has 53 branches spread across Albania

2007 The branch network counts 39 branches 2010 with more branches in the process of Record profits excluding foreign exchange gains. The expansion being established. Net profit reaches of the branch network has resulted in 56 branches. It has gained a growth rate of 45%, the loan portfolio self-funding status, due to a substantial increase in deposits. grows by 55.9% (year on year) and total There is significant penetration into the public and institutional 2013 assets grow by 35%. sector and a successful protection of balance sheet is achieved. A major reorganization of the Head Office structure is carried out, emphasizing the allocation of resources in terms of 2008 2011 manpower, know-how and best practice, The branch network continues to grow as Tirana Bank maintains a solid network of 56 branches with with the main focus on the effective the number reaches 45 branches. High motivated staff and exceptional customer care. This is despite the management of problematic portfolios. profits are recorded during 2008. The bank first signs of the crisis appearing in the local market which brings has 500 employees. a shift of priorities. The focus is to strengthen capital and to correctly Re-launches a comprehensive electronic and effectively manage liquidity. banking services under the innovative winbank platform; winbank Web Banking, 2009 2012 winbank for Cards, winbank Phone A complete Bank reorganization with a There is significant investment in technological advancement Banking, winbank Mobile Banking and client and business focus is undertaken. to support the infrastructure of the bank. For example: the winbank Mobile Applications. Three new branches are opened and implementation of the new, centralized, system for payments – twenty-two are renovated. Profitability PPS - in close cooperation with Piraeus Bank. Also, the internet reaches EUR 13.2 million despite the banking platform is upgraded by introducing new functions crisis. NPL portfolio and deposits are fully and mobile applications for Android and IOS phones. protected.

A YEAR12 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK13 2013 ECONOMIC

OUTLOOK4.1. INTERNATIONAL ECONOMY The general elections held in 2013 heightened The global economy regained momentum in 2013, uncertainties on the part of investors and financial led by faster growth in the advanced economies markets, thus adversely impacting on their and helped by decisive policy action in the U.S.A., consumption and investment decisions. The weak The European Union, U.K., and Japan. Uncertainties aggregate demand was reflected in low and below- regarding U.S. fiscal policy were reduced substantially potential economic growth in Albania. This eventually by year-end, as were extreme downside risks to led to a slower increase in employment and wages, performance in the Eurozone and China that had and produced weak inflationary pressures. CPI inflation been of concern earlier in the year. The rate of was low due to weak demand-side pressures and unemployment continued to remain high in many anchored inflation expectations. Weak economic advanced economies. During 2013, the U.S. Federal activity was also reflected in the labor market: the Reserve, the Bank of England and the Bank of Japan unemployment rate has remained almost unchanged each left policy interest rates unchanged, while the at 12.8%. Albanian businesses were faced with financial European Central Bank reduced its policy interest constraints and the banks’ balance sheets with a rate. The U.S. dollar weakened against both the worsened non-performing loan portfolio. The economic Euro and the British pound, while it strengthened slowdown also affected public finances, which saw a significantly against the Japanese yen. rapid increase in the budget deficit and public debt.

4.2. ALBANIAN ECONOMY 4.3. ALBANIAN BANKING SECTOR 2013 was a challenging year for the Albanian Despite the fragile situation of the Albanian economy economy and financial markets. Aggregate demand and increased vulnerability in the financial system, was weak, and the fiscal stimulus and external the key financial strength indicators improved in demand only partially offset the poor performance 2013. There was an increase in profit. The levels of of consumption and private investments. Demand liquidity and capitalization were adequate. The in the private sector continued to be negatively banking sector continues to be the main sector of impacted by low confidence in the economy, financial intervention in Albania. Non-performing a slowing down in income and relatively tight loans accounted for 23.5% of total loan portfolio, financing conditions. In addition, the external increasing very slowly compared to previous years. economic environment, which saw sharp economic Stress-test results show that under all scenarios, the constraints for Albania’s trading partners and a low banking sector remains well capitalized but in an appetite for financing developing economies, did adverse climate some banks are showing the need not favor domestic economic activity. for additional capital at the end of 2014.

Sources: Bank of Albania, IMF, INSTAT, European Commission, Economic and Financial Affairs Directorate-General, A YEAR14 FORWARD ANNUAL REPORT / TIRANA BANK 2013 GS Economic Research and JP Morgan. A YEAR FORWARD ANNUAL REPORT / TIRANA BANK15 2013 TIRANA BANK

DURINGIn an effort to adapt to the ever2013 changing needs of retail customers, Tirana Bank was the first bank to offer the “Monthly Installment” service for Credit Cards, launched in 2013. Through this added value service, the Tirana Bank cardholder is provided the option to pay Credit Card expenses for purchasing goods and services in equal monthly installments.

A YEAR16 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK17 2013 TIRANA BANK MAIN INDICATORS to offer the “Monthly Installment” service for Credit In this context efforts have been directed to those 5.4. BRANCH NETWORK Amounts in lekë Cards, launched in 2013. Through this added value enterprises which are directly concerned with Tirana Bank maintains a network of 53 branches Assets 101,379,321 service, the Tirana Bank cardholder is provided the the local production of goods and promotion of and 83 ATM’s covering the whole of Albania. In this Loans 38,700,399 option to pay Credit Card expenses for purchasing employment. respect, Tirana Bank maintains a leading role in the Deposits 78,648,027 goods and services in equal monthly installments. wider financial sector as the bank with one of the Capital Adequacy Ratio 16.14% biggest branch networks and points of sale. Liquidity Ratio 38.82% Furthermore the bank has introduced a new 5.3. CORPORATE BANKING Branches 53 approach in its ‘First-to-Meet’ interaction with During the course of 2013, Tirana Bank has As branch banking has come under scrutiny in the new customers, aiming to deliver excellence in Employees 467 remained one of the leading banks in financing new era of remote banking, our dedicated staff customer service. In this scheme, new customers large corporate clients with a significance across our nation-wide branch network have, are provided with a welcome pack promoting the presence in the main sectors of the economy. 5.1. RETAIL BANKING concept of “Your Bank in a Box”, with a number of Although this has been of strategic importance, • offered an outstanding personal service to The individual client has been the center of our what we consider basic and needed retail banking the external environment has unfortunately those clients who would still prefer frequent attention at all times. Throughout 2013 Tirana products. remained challenging, with the slowing-down bank-branch visits, feeling more comfortable Bank has continued its people-focused search of the Albanian economy, resulting in a weak with face to face interaction for excellence in a comprehensive Retail Banking In addition Retail banking has launched the ‘highly demand for new investments. • undertaken their role as community bankers approach. Through its innovative and enhanced sought after Reward Scheme “Gëzo Kudo”, rewarding in the most effective way, contributing to their products the requirement has been to provide all the bank’s cardholders. Unique in Albania, this In this situation in an effort to mitigate risk on one social responsibilities within the geographic such services with added value to our clients. scheme offers exclusive discounts to all Tirana Bank hand and at the same time to pursue a prudent area they operate. debit or credit cardholders, from a wide range of lending growth strategy, corporate banking has With equal focus is our intention to build a merchants and businesses all over the country. focused its attention on putting a priority on Nowadays the role of branch banking is undergoing deeper and more enduring relationship with those industry sectors with the most potential a transformation and rationalization. While it is still our customers, through a better understanding for fundamental development and expansion. the most essential channel. it is being supported of their needs and transactional behavior and 5.2. SME BANKING In this context, industries such as trade and by other options such as internet, phone, mobile thus servicing them more effectively. Tirana SME’s have proven to be the backbone of most manufacturing were placed at the forefront. and ATM banking. Bank continues to offer a wide range of deposit of the economies in the world, and Albania is no In addition, the Corporate Banking Division has products enabling customers to choose what is exception. As such they provide sizeable financial reorganized its lending and marketing efforts, with In summary, the expansion of our customer base more suitable for them. With a balanced pricing revenue and create job opportunities. As a result, regard to its current portfolio relationships. has been realized for yet another year by offering policy always in line with market trends, the bank their contribution to greater economic activity is a dedicated service, with equal emphasis on the had managed to increase its deposit base by the substantial. As the existing client corporate base is of particular personal side of the interaction as well as on the end of 2013. importance to Tirana Bank, we have actively business aspect itself. In an effort to further enhance Recognizing the value of the SME sector, Tirana revisited our client- bank level of cooperation with the service provided to clients through the branch The prudent growth of the Retail Loans portfolio has Bank is dedicated to its commercial clients across a view to adding value and enhancing the type network, the centralization of procedures and continued to be one of the bank’s main objectives. the entire spectrum of industry sectors. The business and volume of existing transactional banking. processes still remains one of our priorities. Within Aiming towards a steady growth in retail lending, model applied is based on the specialization Accordingly, a new client support review model this context, Tirana Bank’s branch network staff will the bank has established its position in the market of its staff for a better understanding of business has been introduced, resulting in developing client be given more time to devote attention to their through attractive and enhanced products with specifics, a smooth “delivery” process for meeting action plans and a new approach to segmentation important customers and their banking needs. competitive features. Consequently, retail loan their banking needs and overall efficiency. in terms of transactional banking. disbursements have grown considerably through Identifying commercial clients with knowledgeable the year, especially Housing Loans, one of the management expertise and an entrepreneurial Partnering with our clients, working alongside them 5.5. TREASURY traditional retail lending products. spirit and showing real business potential has and introducing them to new industry players with In the wake of the global economy, the Albanian been one of the main focuses of the Small and a comprehensive servicing model has produced economy continues to be faced with a weak In an effort to adapt to the ever changing needs Medium Enterprises Department in providing favorable results in 2013 and led to a fresh business aggregate demand and lower economic growth. of retail customers, Tirana Bank was the first bank quality financing. perspective. Nonetheless, the market remains liquid with

A YEAR18 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK19 2013 a relatively stable deposit base, albeit with a in order to improve operational efficiency. During In view of this, the Risk Management Department Bank to effectively manage Liquidity Risk. The slowdown in lending activity. 2013, the process of ISO 9001 has been initiated runs stress tests on a regular basis, as part of the Liquidity Risk Management Policy is adjusted to for banking services and the bank is expected to routine risk management processes and conducts internationally applied practice and the local The Treasury department has successfully be certified in 2014. tailored stress tests on an ad hoc basis, in response regulatory environment, adapted to the specific coordinated the management of the asset/liability to market developments. activities and organizational structure of Tirana base changes in the bank. Treasury activities have Throughout the year, the main focus has been Bank. Liquidity stress tests show the liquidity provided healthy returns for Tirana Bank, with the on: Tirana Bank consistently ensures compliance to position of the bank and it closely monitors liquidity prudent measurement of liquidity and market statutory requirements and any other requirement gaps as well as other regulatory and internal limits, risks, together with investments and borrowing • Centralized data storage infrastructure introduced by the Group with regards to Credit thus supporting the maintenance of liquidity risk to structures. By means of systematically measuring and migration of servers from HW to virtual Risk. Following this process requires continuous low levels. the sensitivity to changes in the prevailing interest solutions improvement. To this end, Tirana Bank has rates, Tirana bank has effectively managed to • Enriching the operations of bank application strengthened its monitoring requirements, paying maintain funding stability, and achieved the systems, particular attention to maintaining high standards 5.8. COMPLIANCE establishment of a base for decreasing funding • Upgrading the network infrastructure and of lending. Tirana Bank has always demonstrated an ability to costs while keeping the growth of deposits to very implementing a new IP telephony solution, Improvement of credit risk management has quickly and effectively adapt to regulatory change. a satisfactory level. • New innovative software solutions, therefore led to the need for a more careful loan As an institution that interacts with many entities, it This has also been reflected in the pricing strategy • Enhancing the MIS reporting function, analysis process and post-closure monitoring. benefits from the general raising of standards, and of the bank’s loan products. Foreign exchange will continue to work towards meaningful changes activity has continued its substantial contribution These projects required capital investment Likewise Operational Risk has been also subject that improve our financial system. to Tirana Bank returns; while the primary focus has in state of the art hardware and software to exceptional focus and has been treated further been on building and maintaining long systems. The projects implemented during 2013 as a separate category of risk as a reflection Tirana Bank is working constructively with term relationships with the client base. aimed at improving operational efficiency, of a single, comprehensive and transparent regulators to contribute to an effective and realistic reducing operational costs and providing the management approach across the Business implementation of new legislation and regulations, In its capacity as one of the biggest investors in necessary competitive advantage to the bank’s Units of the Bank. The Bank, with the development such as the AML legislation and the Regulation government securities at the end of 2013, the business clients in order to help them achieve and implementation of the Operational Risk of Bank of Albania on “Corporate Governance”, nominal value of the securities portfolio of the their goals. Management framework across its activities, aims and remains fully aware of what reforms may Albanian government maintained its high level Information Technology has always been an to achieve certain specific business and strategic mean to the banking sector, to our bank and most reaching ALL 20.5 billion equivalent. Moreover, important and integral cornerstone to success objectives, including: importantly, to our clients. Tirana Bank serves as a mediator at the primary for Tirana Bank. Thus further technological market auctions of Albanian government securities improvements will be a part of Tirana Bank • Improvement of its operations and its Internal for ‘non-bank’ investors and also offers custody strategic planning. Control System. 5.9. FUNDS TRANSFER services for traded securities. A substantial number • Continuous amendments in order to meet the During 2013 Tirana Bank has continued its high of clients depend on Tirana Bank for these core most recent regulatory framework. quality service in payments processing by client services. 5.7. RISK MANAGEMENT • Minimization of financial losses caused by saving time and costs, increasing efficiency and The bank’s risk management framework operational risk incidents. minimizing operational risk. and governance structure are intended to • Enhancement of human resource efficiency For the sixth consecutive year, Tirana Bank was 5.6. IT AND INFRASTRUCTURE DEVELOPMENTS provide comprehensive controls and ongoing and a reduction in operating costs. credited by Deutsche Bank with the “Euro 2013 In 2013, emphasis was directed to the upgrading management of the major risks inherent in its • Prevention of unexpected and severe losses STP Award for the quality of payments”. This of the network and server infrastructures, aiming business activities. Effective risk management from potential Operational Risk incidents. award, is given for having a performance of 99% to enhance the system and application is of primary importance to the success of the • The creation of added value for its shareholders, exceptional quality of payments, and awarded by accessibility as well as incorporating up-to-date bank. To this end, Tirana Bank has adopted customers and human resources. a prestigious financial institution such as Deutsche and widely used technological advances into the comprehensive risk management processes Bank. This confirms our commitment to successfully bank’s infrastructure. Additionally, Tirana Bank through which it monitors, evaluates and manages Lastly, in order to be able to meet liabilities meeting the requirements of our customers to a has continued to invest in systems and processes the risks assumed in conducting its activities promptly and without loss, it is essential for Tirana professional level. A YEAR20 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK21 2013 CORPORATE SOCIAL RESPONSIBILITY Tirana Bank’s strong commitment to corporate social responsibility has been achieved for yet another year. As this is the core of our organizational values, such commitment characterizes the way we conduct business since our long-term success depends on the success of our community

A YEAR22 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK23 2013 Tirana Bank’s strong commitment to corporate environmental impact of the use of resources in of its contribution to this social cause. social responsibility has been achieved for its own operations, such as paper recycling. Through the umbrella project “Tirana Bank yet another year. As this is the core of our Tirana Bank embraced Green Line initiative “Let’s Cares” it has held numerous activities and organizational values, such commitment Clean Albania in One Day”. Employees of Tirana made donations for the most vulnerable characterizes the way we conduct business since Bank volunteered in cleaning different areas of group in Albania, children. In this context, our long-term success depends on the success various Albanian cities. Tirana Bank has organized New Year of our community, people, the companies and parties and distributed gifts for the children institutions we work with. A balanced approach to of the policemen who had given their social, environmental, educational and cultural 6.2. SOCIETY lives in the line of duty, children suffering projects has demonstrated our dedication to The employees of Tirana Bank have constantly from thalassemia and leukemia as well as fulfilling our corporate social responsibility. supported the Albanian Red Cross in its annual orphans living in the SOS Village, Tirana. initiative of voluntary blood donations. Over 200 Furthermore, Tirana Bank has supported employees, showed their willingness to donate and financed the Foundation of Down 6.1. ENVIRONMENT blood at Tirana Bank offices. The Bank has Syndrome Albania (DSA). Instead of Tirana Bank is applying its knowledge and capital extended the voluntary blood donation in its delivering Corporate Gifts to its clients to assist the community it serves to respond to 53 branches across the country. Moreover, the during the year-end period, Tirana their challenge of environmental sustainability. Albanian Red Cross has awarded the Certificate Bank has allocated its funds to finance In addition, the bank is also managing the of Appreciation to Tirana Bank as an indication research into the causes of DSA; helping A YEAR24 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK25 2013 and integrating children suffering from Down is showing its concern for the community in part of its staff, clients and community at large. Robo in Fier syndrome. which it operates. With this in mind, it has made • “Sunday Lunches - Greek Cuisine” and “Week During the year-end period, employees of Tirana possible the financing of the photometer for 6.3. CULTURE of Greek Cuisine” Bank collected all their children’s unwanted or blood analysis at Fier Regional Hospital as well During 2013, Tirana Bank continued its support to unused toys and donated them to children who as providing stationary goods for the Regional cultural events as part of its tradition such as: have found shelter at “Shpresa Centre” in Tirana Hospital in Shkodra. • Classical music concert “Ndërmendje” held 6.4. EDUCATION Albania. Tirana Bank is dedicated to raising awareness in Shkodra Tirana Bank sees the European Integration of During 2013, Tirana Bank joined the initiative and educating individuals about breast cancer. • Celebration of Wine 2013 organized in Albania as a substantial part of its operations. It of the Albanian Red Cross “Think about those This year it joined an initiative by supporting Pogradec sponsored the event “Europe starts at your home” who are not like you”. Tirana Bank facilitated the breast cancer awareness campaigns on TV as • Concert recital for Violin and Cello at organized by Vlora Univeristy “Ismail Qemali”. distribution of boxes of food, which were donated well as producing and distributing posters, which Albanian Radio Television Notable speakers from the Ministry of Education to elderly people living alone, at the offices of the promoted awareness and encouraged checkups, • International Boxing Memorial, Vllaznia 2013” and Sports, and other personalities such as the Red Cross in Tirana. in all its branches and head offices in order to in Shkodra Advisor of Prime Minister, Mr. Fate Velaj, as well as By lending support to the hospitals, Tirana Bank increase awareness and understanding on the • Painting Exhibition of the painter Dhimitraq many others participated in this event.

A YEAR26 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK27 2013 HUMAN RESOURCES Tirana Bank took the lead in reinforcing its human resources’ creative commitment to the future of the organization. Through an internal competition to elicit ideas on Cost Reduction with a view to reducing operating cost, the staff had the opportunity to contribute to the overall welfare of the organization.

2013 was a year of reorganization for the bank within the Bank through more than 70 transfers in order to reflect the adjustments required and promotions, offering internal staff new in response to the ever-changing external development and career opportunities. environment. This has been mainly in the areas Implementation of the e-learning platform in of Recoveries & Properties Management, where Tirana Bank was successfully finalized during the organizational structure has been amended 2013 aiming at having an all-inclusive year of to incorporate an effective Business Restructuring internal training opportunities to all employees. Team for a comprehensive management of The e-learning platform in this context will problematic portfolios. Similarly, a specialized Retail constitute the basis on which staff can reinforce Restructuring Team has been introduced, thus the technical skills and develop their knowledge bringing a new focus to its area of responsibility. and competencies through the implementation The commitment of our staff, sustainable of customized training courses. performance and strong development are Tirana Bank took also the lead in reinforcing its key drivers for success. One of the initiatives human resources’ creative commitment to the undertaken in this regard, was the “Stepping future of the organization. Through an internal up to Management” e-learning program, in competition to elicit ideas on Cost Reduction collaboration with Piraeus Bank Group, giving with a view to reducing operating cost, the staff the opportunity to future potential Managers had the opportunity to contribute to the overall to develop their managerial and leadership welfare of the organization. This competition competences, which will eventually contribute successfully generated a number of useful ideas. to the successful fulfilment of their current and In appreciation of their contribution those who future career goals. Career opportunities were gave the 3 top ranked ideas were rewarded at a given to high performers and identified talents celebration event. A YEAR28 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK29 2013 FINANCIAL STATEMENTS

A YEAR30 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK31 2013 TABLE OF CONTENT 3.1.1 CREDIT RISK MEASUREMENT 3.1.2 RISK LIMIT CONTROL AND MITIGATION POLICIES GENERAL INFORMATION 3.1.3 IMPAIRMENT AND PROVISIONING POLICIES AUDITOR’S REPORT 3.1.4 MAXIMUM EXPOSURE TO CREDIT RISK BEFORE COLLATERAL HELD STATEMENT OF COMPREHENSIVE INCOME OR OTHER CREDIT ENHANCEMENTS STATEMENT OF FINANCIAL POSITION 3.1.5 LOANS AND ADVANCES STATEMENT OF CHANGES IN EQUITY 3.1.6 LOANS AND ADVANCES RENEGOTIATED STATEMENT OF CASH FLOWS 3.1.7 REPOSSESSED COLLATERAL 3.1.8 CASH AND BALANCES WITH CENTRAL BANK 1. CORPORATE INFORMATION 3.1.9 DEBT SECURITIES, TREASURY BILLS AND OTHER ELIGIBLE BILLS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1.10 CONCENTRATION OF RISKS OF FINANCIAL ASSETS WITH 2.1 BASES OF PREPARATION CREDIT RISK EXPOSURE 2.2 FOREIGN CURRENCY TRANSLATION 3.2 MARKET RISK 2.3 FINANCIAL INSTRUMENTS – INITIAL RECOGNITION AND SUBSEQUENT 3.2.1 FOREIGN EXCHANGE RISK MEASUREMENT 3.2.2 INTEREST RATE RISK 2.4 REPURCHASE AND REVERSE PURCHASE AGREEMENTS 3.3 LIQUIDITY RISK 2.5 DETERMINATION OF FAIR VALUE 3.3.1 LIQUIDITY RISK MANAGEMENT PROCESS 2.6 IMPAIRMENT OF FINANCIAL ASSETS 3.3.2 OFF- BALANCE SHEET ITEMS 2.7 LEASING 3.4 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 2.8 REVENUE RECOGNITION 3.5 CAPITAL MANAGEMENT 2.9 CASH AND CASH EQUIVALENTS 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS 2.10 PROPERTY AND EQUIPMENT 5 ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS 2.11 INTANGIBLE ASSETS 6 INTEREST AND SIMILAR INCOME 2.12 IMPAIRMENT OF NON FINANCIAL ASSETS 7 INTEREST AND SIMILAR EXPENSE 2.13 FINANCIAL GUARANTEE CONTRACTS 8 NET FEES AND COMMISSION INCOME 2.14 PENSIONS AND OTHER POST EMPLOYMENT BENEFITS 9 OTHER GAINS 2.15 PROVISIONS 10 OTHER OPERATING INCOME 2.16 INCOME TAX 11 PERSONNEL EXPENSES 2.17 COMPARATIVES 12 OTHER OPERATING EXPENSES 3. FINANCIAL RISK MANAGEMENT 13 INCOME TAX EXPENSE 3.1 CREDIT RISK 14 CASH AND BALANCES WITH CENTRAL BANK A YEAR32 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK33 2013 15 LOANS AND ADVANCES TO BANKS GENERAL INFORMATION

16 LOANS AND ADVANCES TO CUSTOMERS Board of Directors during 2013 17 FINANCIAL ASSETS AVAILABLE FOR SALE

18 FINANCIAL ASSETS HELD TO MATURITY Ilias Milis (Chairman) 19 INTANGIBLE ASSETS Georgios Papaioannou 20 PROPERTY AND EQUIPMENT Georgios Mantakas 21 OTHER ASSETS Savvas Thalassinos 22 DUE TO BANKS Kostandinos Paschalis 23 DUE TO CUSTOMERS Ioanna Kouna 24 OTHER LIABILITIES Bedri Çollaku 25 PROVISIONS 64 26 PAID-IN CAPITAL AND SHARE PREMIUM 27 OTHER RESERVES 28 DIVIDEND PER SHARE Registered office 29 CASH AND CASH EQUIVALENTS Rr. Ibrahim Rugova, PO BOX 2400/1

30 RELATED PARTIES Tirana, Albania 31 PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY

32 EVENTS AFTER THE REPORTING DATE Auditor

PricewaterhouseCoopers Audit sh.p.k

Blvd. Dëshmorët e Kombit

Twin Towers, Tower 1, 10th floor

Tirana, Albania

Telephone +355 42 242254/280423

Facsimile +355 42 241639

A YEAR34 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK35 2013 STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION For the year ended 31 December 2013 as at 31 December 2013

Notes 2013 2012 Notes 2013 2012

ASSETS Interest and similar income 6 4,585,088 5,627,640 Interest and similar expense 7 (2,940,403) (2,769,155) Cash and balances with the Central Bank 14 15,812,560 13,866,273 Net interest income 1,644,685 2,858,485 Loans and advances to banks 15 22,870,941 13,171,181 Loans and advances to customers 16 38,700,399 50,659,319 Provisions for impairment of loans and advances 16 (1,315,316) (1,540,112) Financial assets available for sale 17 16,573,427 12,211,401 Net interest income after provision for loan impairment 329,369 1,243,297 Financial assets held to maturity 18 4,215,704 4,718,685 Corporate income tax receivable 13 300,679 259,726 Fee and commission income 8 249,171 247,245 Intangible assets 19 353,690 401,822 Fee and commission expense 8 (36,930) (19,984) Property and equipment 20 869,693 1,065,802 Net fee and commission income 212,241 227,261 Deferred tax assets 13 27,752 25,726

Other assets 21 1,654,476 1,105,446 Foreign exchange translation gains less losses 9 337,856 239,959

Other gains/(losses) 9 (101,822) (38,201) TOTAL ASSETS 101,379,321 97,485,381 Other operating income 10 52,329 1,120

Personnel expenses 11 (579,999) (515,199) Other operating expenses 12 (988,745) (986,537) LIABILITIES AND EQUITY Impairment of repossessed collaterals 25 (61,433) - Due to banks 22 3,235,785 7,513,888 Other Provisions 25 (157,103) (75,077) Due to customers 23 78,648,027 72,869,393 Depreciation and amortisation 19, 20 (376,465) (368,684) Other liabilities 24 346,090 399,560 Provisions 25 179,956 84,027 Loss before income tax (1,333,772) (196,984) TOTAL LIABILITIES 82,409,858 80,866,868

Income tax credit/(expense) 13 31,290 (546) Equity Paid-in capital 26 14,754,741 11,248,500 Loss for the year (1,302,482) (197,530) Share premium 26 1,735,494 1,735,494 Other comprehensive income: Other reserves 27 1,641,107 1,493,916 Available-for-sale investments: Retained earnings 838,121 2,140,603 - Gains less losses arising during the year 176,455 57,369 TOTAL EQUITY 18,973,463 16,618,513 - Income tax recorded directly in other comprehensive income (29,264) (5,737)

Other comprehensive income for the year 147,191 51,632 TOTAL LIABILITIES AND EQUITY 101,379,321 97,485,381

Total comprehensive income for the year (1,155,291) (145,898) The accompanying notes on pages 40 to 117 form an integral part of these financial statements. The financial statements were approved by the Board of Directors on 5 June 2014 and signed on their The accompanying notes on pages 40 to 117 form an integral part of these financial statements. The behalf by: financial statements were approved by the Board of Directors on 5 June 2014 and signed on their behalf by: Savvas Thalassinos Aleko Polo Savvas Thalassinos Aleko Polo Managing Director Financial Control Department Managing Director Financial Control Department

A YEAR36 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK37 2013 STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS For the year ended 31 December 2013 For the year ended 31 December 2013

Paid-in Share Retained Other Total Capital Premium Earnings Reserves Equity Notes 2013 2012 CASH FLOW FROM OPERATING ACTIVITIES Loss before tax (1,333,772) (196,984) At 1 January 2012 11,248,500 1,735,494 2,338,133 1,442,284 16,764,411 Adjustments for:

Loss for the year - - (197,530) - (197,530) Depreciation and amortisation 19, 20 376,465 368,684 Changes in loan impairment 16 1,315,316 1,540,111 Other comprehensive income for the year - - - - - Net changes in fair value of financial assets (147,191) (33,669) Net interest income 6,7 (1,644,685) (2,858,485) Total comprehensive income for the year - - (197,530) - (197,530) Other non-cash items 3,681 75,077 Capitalisation of retained earnings into (1,430,186) (1,105,266) paid-in capital and share premium - - - - - Increase in compulsory reserve with the Central Bank (619,331) (417,117) Other comprehensive income from AFS Decrease/(increase) in loans and advances to customers 11,871,024 2,900,657 Securities - - - 51,632 51,632 Increase in other assets (849,709) (541,294) Capital Increase - - Decrease in due to banks (4,278,103) 752,780 Increase in due to customers 5,708,115 3,157,771 At 31 December 2012 11,248,500 1,735,494 2,140,603 1,493,916 16,618,513 (Decrease)/increase in other liabilities (219,572) 228,410 Interest received 4,948,118 5,310,066

Interest paid (2,899,866) (2,975,859) Income tax paid (40,953) (142,424) At 1 January 2013 11,248,500 1,735,494 2,140,603 1,493,916 16,618,513 Net cash generated from operating activities 12,076,569 7,167,724 Loss for the year - - (1,302,482) - (1,302,482) CASH FLOW FROM INVESTING ACTIVITIES Other comprehensive income from AFS Purchase of property & equipment 20 (54,798) (53,241) Securities - - - 147,191 147,191 Purchase of intangible assets 19 (79,034) (134,710) Proceeds from sale of property & equipment (1,608) 18,500 Capital Increase (Note 26) 3,506,241 - - - 3,506,241 Proceeds from maturing financial assets designated at fair value through profit and loss 17 - 4,489,432 Total comprehensive income for the year - - - - - Purchase of financial assets available for sale (15,526,679) (11,624,745) Proceeds from available for sale financial assets 17 11,089,195 5,886,782 At 31 December 2013 14,754,741 1,735,494 838,121 1,641,107 18,969,463 Net cash from/(used in) investing activities (4,572,924) (1,417,982) CASH FLOW FROM FINANCING ACTIVITIES Increase of share capital 3,506,241 - Net cash (used in)/from financing activities 3,506,241 - Net increase/(decrease) increase in cash and cash The accompanying notes on pages 40 to 117 form an integral part of these financial statements. equivalents 11,009,886 5,749,742 The financial statements were approved by the Board of Directors on 5 June 2014 and signed on their Cash and cash equivalents at 1 January 29 20,209,662 14,459,920 behalf by: Cash and cash equivalents at 31 December 29 31,219,548 20,209,662

Savvas Thalassinos Aleko Polo The accompanying notes on pages 40 to 117 form an integral part of these financial statements. The Managing Director Financial Control Department financial statements were approved by the Board of Directors on 5 June 2014 and signed on their behalf by:

Savvas Thalassinos Aleko Polo Managing Director Financial Control Department

A YEAR38 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK39 2013 1. CORPORATE INFORMATION a) Position of the Group Tirana Bank sh.a. is a banking institution operating in accordance with the provisions of Piraeus Bank Group is affected by the ongoing economic variability and the increased Law 9901, dated 14 April 2008 “On Entrepreneurs and Commercial Companies”, and Law volatility of the global financial markets and is exposed to risks that could potentially arise 9662, dated 18 December 2006 “On Banks in the Republic of Albania” as amended, Law in other financial institutions, mainly due to the debt crisis in peripheral Eurozone countries. 10481 dated 17 November 2011, as well as other relevant laws. According to article 4 of its Statute, the scope of work of the Bank is to execute, on its behalf or on behalf of third parties, 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES any and every operation acknowledged or delegated by law to banks. Tirana Bank sh.a. is 2.1 Basis of preparation incorporated and domiciled in Albania and operates in Albania. Tirana Bank sh.a. is owned The economic situation in Greece, though improving fiscally, still remains the main risk factor by Piraeus Bank S.A which owns 96.71% of shares. for the Greek banking sector. In case of negative developments in this area, the Bank’s and as a consequence the Group’s liquidity, the quality of its loan portfolio, its profitability, and The Bank has 53 branches (2012: 56) within the Republic of Albania and has no overseas ultimately, its capital adequacy may significantly be affected. operations. Greece’s public debt sustainability consists an additional risk factor for the Greek banking system. At the same time, both the risks of a deceleration in the global economic growth The financial statements for the year ended 31 December 2013 were authorized for issue and of the debt crisis in other peripheral European economies are also added to the external by the Board of Directors on 05 June 2014. Approval of the financial statements by the factors of uncertainty. Shareholders will take place in the Annual General Meeting of the Shareholders. The completion of the share capital increase of Piraeus Bank Greece in June 2013 resulted Principal activity in the enhancement of its capital base and the restoration of the EBA Core Tier I at a level The Bank’s principal business activity is commercial and retail banking operations within the much higher than the minimum required (9%). From the total amount raised for the share Republic of Albania. The Bank has been operating under a full banking licence issued by the capital increase, approximately €1.4 billion was covered by private investors and € 7 billion the Central Bank of the Republic of Albania (“Bank of Albania” or “BoA”) since 1996. approximately by the HFSF.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Despite the uncertainties and the risks existing in the Greek banking system, the following The principal accounting policies applied in the preparation of these financial statements are factors provide support to the economy and the Greek banking sector and shall therefore be set out below. These policies have been consistently applied to all years presented, unless taken into consideration: otherwise stated. • the completion of the recapitalisation programme of systemic banks. • the availability of additional capital, in case this is required for the further recapitalisation 2.1 Basis of preparation of the Greek banks and for the reorganization of the banking sector (the total amount of The financial statements have been prepared on a historical cost basis, except for available- capital has been already provided to the HFSF for the support of the Greek banking system for-sale financial investments that have been measured at fair value. The financial statements is € 50 billion, while €39 billion have already been provided). are presented in Albanian Lek and all values are rounded to the nearest thousand (LEK ‘000) • The financial support mechanism from the International Monetary Fund as well as from the except when otherwise indicated. European Union, in the context of the second economic adjustment programme for Greece. The Bank’s financial statements have been prepared on a going concern basis, which assumes • the capability to raise liquidity through the Eurosystem. that the Bank will continue in operational existence for the foreseeable future. • the application of the economic adjustment programme and the observed recovery of the greek economy (i.e. primary fiscal surplus for 2013 compared to a deficit in 2012, and current account surplus for 2013 after many decades of deficits). A YEAR40 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK41 2013 b) Position of the Bank 2.2 Foreign currency translation In the current environment the focus of the Bank has been on liquidity and capital adequacy. The financial statements are presented in Albanian Lek, which is the Bank’s functional and As disclosed in Notes 22 and 23, the Bank’s main source of funding is locally collected presentation currency. deposits from corporate and retail customers. The Bank’s capital adequacy ratio (as prescribed by BoA) as at 31 December 2013 amounts Transactions and balances to 16.14 % (2012 7.42%) and is higher than the specifically-set regulatory minimum of 15%. Transactions in foreign currencies are initially recorded in the functional currency at the rate Additionally, the Bank’s liquidity ratio as of 31 December 2013 was 38 % (2012; 31%), which of exchange ruling at the date of the transaction. is in compliance with the article 71 of the Bank of Albania regulation on liquidity, dated 14 October 2009. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to Following the global situation at the year-end 31 December 2013 and as of the date of “Foreign exchange translation (losses)/gains” in profit or loss. Non-monetary items that are approval of these financial statements, the Bank’s exposure to the persons related to the measured in terms of historical cost in a foreign currency are translated using the exchange Bank is in compliance with the regulatory requirements and did not exceed the amount rates as at the dates of the initial transactions. Non-monetary items measured at fair value prescribed by the Law. in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The applicable rates of exchange (Lek to foreign currency unit) for the principal currencies 2.1 Basis of preparation as at 31 December 2013 and 2012 were as follows:

Consequently, the going concern assumption has been applied in the preparation of the 2013 2012 financial statements. Management prepared these financial statements on a going concern USD 101,86 105,85 basis, which assumes that the Bank will continue to operate in the foreseeable future. In EUR 140,20 139,59 order to assess the reasonability of this assumption, management reviews the forecasts of the future cash inflows and the support provided by shareholders. 2.3 Financial instruments – initial recognition and subsequent measurement a) Date of recognition Purchases or sales of financial assets that require delivery of assets within the time frame Based on the current financial plans, the actual situation of the Bank and the support of generally established by regulation or convention in the marketplace are recognised on the the Parent Bank, management is satisfied that the Bank will be able to continue to operate trade date, i.e. the date that the Bank commits to purchase or sell the asset. as a going concern in the foreseeable future and, therefore, this principle is applied in the preparation of these financial statements.

Statement of compliance 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Tirana Bank sh.a. have been prepared in accordance with 2.3 Financial instruments – initial recognition and subsequent measurement International Financial Reporting Standards (IFRSs) and IFRIC interpretations). b) Initial recognition of financial instruments The classification of financial instruments at initial recognition depends on the purpose The accounting policies adopted are consistent with those of the previous financial year. for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus, in case of financial assets and A YEAR42 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK43 2013 liabilities not at fair value through profit and loss, transaction costs. Fair value at initial 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES recognition is best evidenced by the transaction price. A gain or loss on initial recognition is 2.3 Financial instruments – initial recognition and subsequent measurement only recorded if there is a difference between fair value and transaction price which can be e) Financial assets designated at fair value through profit or loss evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. This category includes treasury bills issued by the Albanian Government. Financial assets designated at fair value through profit or loss is financial assets which are The Bank classifies its financial assets in the following categories: held-to-maturity and managed and their performance is evaluated on a fair value basis, in accordance with the available-for-sale financial investments, loans and receivables. The Bank did not classify any Bank’s risk management strategy. Financial assets designated at fair value through profit or financial assets designated at fair value through profit or loss during reporting period. loss is carried at fair value. Interest earned on financial assets designated at fair value through profit or loss calculated using the effective interest method is presented in the statement of c) Financial assets held to maturity comprehensive income as interest income. All other elements of the changes in the fair value Financial assets held to maturity are those investments which carry fixed or determinable and gains or losses on derecognising are recorded in profit or loss as other gains the period payments and have fixed maturities and which the Bank has the intention and ability to in which they arise. hold to maturity. If the Bank were to sell other than an insignificant amount of held to maturity investments, the entire category would be reclassified to available for sale. f) Available for sale financial assets This classification includes investment securities which the Bank intends to hold for an Financial assets held to maturity are subsequently measured at amortised cost using the indefinite period of time and which may be sold in response to needs for liquidity or changes effective interest rate method, less allowance for impairment. Amortised cost is calculated by in interest rates, exchange rates or equity prices. taking into account any discount or premium on acquisition and fees that are an integral part Investment securities available for sale are carried at fair value. Interest income on available- of the effective interest rate. The amortisation is included in “Interest and similar income” in for-sale debt securities is calculated using the effective interest method and recognised in profit or loss. The losses arising from impairment of such investments are recognised in profit profit or loss for the year. Dividends on available-for-sale equity instruments are recognised or loss as “Impairment losses on financial investments”, if any. in profit or loss for the year when the Bank’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair d) Loans and receivables value are recognised in other comprehensive income until the investment is derecognised or Loans and receivables include “Due from banks” and “Loans and advances to customers”, impaired, at which time the cumulative gain or loss is reclassified from other comprehensive which are financial assets with fixed or determinable payments and fixed maturities that are income to profit or loss for the year. not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as “Financial assets held for trading”, designated as f) Available for sale financial assets “Financial investment available-for-sale’ or “Financial assets designated at fair value through Impairment losses are recognised in profit or loss for the year when incurred as a result of profit or loss”. After initial measurement, amounts due from banks and loans and advances one or more events (“loss events”) that occurred after the initial recognition of investment to customers are subsequently measured at amortised cost using the effective interest rate securities available for sale. A significant or prolonged decline in the fair value of an equity method, less allowance for impairment. Amortised cost is calculated by taking into account security below its cost is an indicator that it is impaired. The cumulative impairment loss – any discount or premium on acquisition and fees and costs that are an integral part of the measured as the difference between the acquisition cost and the current fair value, less any effective interest rate. The amortisation is included in “Interest and similar income” in profit impairment loss on that asset previously recognised in profit or loss – is reclassified from other or loss. The losses arising from impairment are recognised in profit or loss in “Impairment comprehensive income to profit or loss for the year. Impairment losses on equity instruments losses on loans and advances’. are not reversed and any subsequent gains are recognised in other comprehensive income. A YEAR44 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK45 2013 If, in a subsequent period, the fair value of a debt instrument classified as available for loans and advances to customers, as appropriate. The corresponding cash paid, including sale increases and the increase can be objectively related to an event occurring after the accrued interest, is recognised in the statement of financial position as “Due from Banks”. impairment loss was recognised in profit or loss, the impairment loss is reversed through The difference between the purchase and resale prices is treated as interest income and is profit or loss for the year. accrued over the life of the agreement using the effective interest rate method.

g) Financial liabilities 2.5 Determination of fair value After initial measurement, debt issued and other borrowings are subsequently measured For financial instruments that are traded in active markets, the determination of fair values at amortized cost using the effective interest rate method. There is no financial liability of financial assets and financial liabilities is based on quoted market prices or dealer price measured at fair value through profit and loss. Any differences between proceeds net of quotations. A financial instrument is regarded as quoted in an active market if quoted prices transactions costs and the redemption value is recognised in “Interest and similar expenses” are readily and regularly available from an exchange, dealer, broker, industry group, pricing in profit or loss. Amortized cost is calculated by taking into account any discount or premium service or regulatory agency, and those prices represent actual and regularly occurring on the issue and costs that are an integral part of the effective interest rate. market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indicators that a market is inactive are when there is a wide bid- h) Offsetting financial instruments offer spread or significant increase in the bid-offer spread or there are few recent transactions. Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts For all other financial instruments not listed in an active market, the fair value is determined and there is an intention to settle on a net basis, or realize the asset and settle the liability by using appropriate valuation techniques. Valuation techniques include net present value simultaneously. techniques, comparison to similar instruments for which market observable prices exist and other relevant valuation models. Valuation techniques such as discounted cash flow i) Derecognition models or models based on recent arm’s length transactions or consideration of financial Financial assets are derecognised when the contractual rights to receive the cash flows from data of the investees, are used to measure fair value of certain financial instruments for these assets have ceased to exist or the assets have been transferred and substantially all which external market pricing information is not available. Fair value measurements are the risks and rewards of ownership of the assets are also transferred (that is, if substantially analysed by level in the fair value hierarchy as follows: (i) level one are measurements at all the risks and rewards have not been transferred, the Bank tests control to ensure that quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two continuing involvement on the basis of any retained powers of control does not prevent measurements are valuations techniques with all material inputs observable for the asset or derecognising). Financial liabilities are derecognised when they have been redeemed or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) otherwise extinguished. level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). 2.4 Repurchase and reverse repurchase agreements Securities sold under agreements to repurchase at a specified future date (“repos”) are not 2.6 Impairment of financial assets derecognised from the balance sheet. The corresponding cash received, including accrued The Bank assesses at each reporting date whether there is any objective evidence that a interest, is recognised in the statement of financial position as a “Due to Banks”, reflecting its financial asset or a group of financial assets is impaired. economic substance as a loan to the Bank. The difference between the sale and repurchase A financial asset or a group of financial assets is deemed to be impaired if, and only if, there prices is treated as interest expense and is accrued over the life of the agreement using is objective evidence of impairment as a result of one or more events that has occurred the effective interest rate method. Conversely, securities purchased under agreements to after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or resell at a specified future date (‘reverse repos’) are recorded as due from other banks or events) has an impact on the estimated future cash flows of the financial asset or the group A YEAR46 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK47 2013 of financial assets that can be reliably estimated. Evidence of impairment may include For the purpose of a collective evaluation of impairment, financial assets are grouped on the indications that the borrower or a group of borrowers is experiencing significant financial basis of the Bank’s internal credit grading system that considers credit risk characteristics difficulty, default or delinquency in interest or principal payments, the probability that they such as asset type, industry, collateral type, past-due status and other relevant factors. Future will enter bankruptcy or other financial reorganisation and where observable data indicate cash flows on a group of financial assets that are collectively evaluated for impairment are that there is a measurable decrease in the estimated future cash flows, such as changes in estimated on the basis of historical loss experience for assets with credit risk characteristics arrears or economic conditions that correlate with defaults. similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on a) Due from banks and loans and advances to customers which the historical loss experience is based and to remove the effects of conditions in the For amounts due from banks and loans and advances to customers carried at amortised historical period that do not exist currently. Estimates of changes in future cash flows reflect, cost, the Bank first assesses whether objective evidence of impairment exists for financial and are directionally consistent with, changes in related observable data from year to year assets that are individually significant, or collectively for financial assets that are not (such as changes in unemployment rates, property prices, payment status, or other factors individually significant. If the Bank determines that no objective evidence of impairment exists that are indicative of incurred losses in the group and their magnitude). The methodology for an individually assessed financial asset, whether significant or not, it includes the asset in a and assumptions used for estimating future cash flows are reviewed regularly to reduce any group of financial assets with similar credit risk characteristics and collectively assesses them for differences between loss estimates and actual loss experience. impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment. b) Financial assets held to maturity For held-to-maturity investments the Bank assesses individually whether there is objective If there is objective evidence that an impairment loss has been incurred, the amount of the evidence of impairment. If there is objective evidence that an impairment loss has been loss is measured as the difference between the assets’ carrying amount and the present incurred, the amount of the loss is measured as the difference between the asset’s carrying value of estimated future cash flows (excluding future expected credit losses that have not amount and the present value of estimated future cash flows. The carrying amount of the yet been incurred). The carrying amount of the asset is reduced through the use of an asset is reduced and the amount of the loss is recognised in profit or loss. allowance account and the amount of the loss is recognised in profit or loss. If, in a subsequent year, the amount of the estimated impairment loss decreases because of Loans together with the associated allowance are written off when there is no realistic an event occurring after the impairment was recognised, any amounts formerly charged are prospect of future recovery and all collateral has been realised or has been transferred to credited to the “Impairment losses on financial investments”. the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously c) Assets classified as available for sale recognised impairment loss is increased or reduced by adjusting the allowance account. If a The Bank assesses at each reporting date whether there is objective evidence that a financial future write-off is later recovered, the recovery is credited to the “Provisions for impairment asset or a group of financial assets is impaired. In the case of debt investments classified as of loans and advances”. available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for The present value of the estimated future cash flows is discounted at the financial asset’s available-for-sale financial assets, the cumulative loss – measured as the difference between the original effective interest rate. If a loan has a variable interest rate, the discount rate for acquisition cost and the current fair value, less any impairment loss on that financial asset previously measuring any impairment loss is the current effective interest rate. The calculation of recognised in profit or loss – is removed from other comprehensive income and recognised in profit the present value of the estimated future cash flows of a collateralised financial asset reflects or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale the cash flows that may result from foreclosure less costs for obtaining and selling the increases and the increase can be objectively related to an event occurring after the impairment loss collateral, whether or not foreclosure is probable. was recognised in profit or loss, the impairment loss is reversed through profit or loss. A YEAR48 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK49 2013 d) Renegotiated loans 2. Summary of significant accounting policies Where possible, the Bank seeks to restructure loans rather than to take possession of 2.7 Leasing collateral. This may involve extending the payment arrangements and the agreement of new (ii) Bank as a Lessor loan conditions. Once the terms have been renegotiated, the loan is no longer considered Where the Bank is a lessor in a lease which does not transfer substantially all the risks and past due. Management continuously reviews renegotiated loans to ensure that all criteria rewards incidental to ownership from the Bank to the leasee, the total lease payments are are met and that future payments are likely to occur. The loans continue to be subject to an recognised in profit or loss for the year (rental income – note 2.8, c) on a straight-line basis individual or collective impairment assessment, calculated using the loan’s original effective over the period of the lease. interest rate. 2.8 Revenue recognition 2.7 Leasing Revenue is recognised to the extent that it is probable that the economic benefits will flow The determination of whether an arrangement is, or contains a lease is based on the substance to the Bank and the revenue can be reliably measured. The following specific recognition of the arrangement and requires an assessment of whether the fulfilment of the arrangement criteria must also be met before revenue is recognised. is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. a) Interest and similar income and expense Interest and similar income includes coupons earned on fixed income investments, accrued (i) Bank as a Lessee discount and premium on treasury bills and interest income on loans and advances. For all Finance leases, which transfer to the Bank substantially all the risks and benefits financial instruments measured at amortised cost and interest bearing financial instruments incidental to ownership of the leased item, are capitalised at commencement of the lease classified as available-for-sale financial investments, interest income or expense is recorded term at the fair value of the leased property or, if lower, at the present value of the minimum at the effective interest rate, which is the rate that exactly discounts estimated future cash lease payments and included in “Property and equipment” with the corresponding liability to payments or receipts through the expected life of the financial instrument or a shorter period, the lessor included in “Other liabilities”. Lease payments are apportioned between the finance where appropriate, to the net carrying amount of the financial asset or financial liability. charges and reduction of the lease liability so as to achieve a constant rate of interest on the The calculation takes into account all contractual terms of the financial instrument (for remaining balance of the liability. Finance charges are charged directly against income in example, prepayment options) and includes any fees or incremental costs that are directly “Interest and similar expense”. The Bank did not have significant financial lease agreements attributable to the instrument and are an integral part of the effective interest rate, but not during the reporting period. future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is Capitalised leased assets are depreciated over the shorter of the estimated useful life of calculated based on the original effective interest rate and the change in carrying amount the asset and the lease term, if there is no reasonable certainty that the Bank will obtain is recorded as interest income or expense. Once the recorded value of a financial asset or ownership by the end of the lease term. Any operating lease rentals payable are accounted a group of similar financial assets has been reduced due to an impairment loss, interest for on a straight-line basis over the lease term and included in “Other operating expenses”. income continues to be recognised using the original effective interest rate applied to the When an operating lease is terminated before the lease period has expired, any payment new carrying amount. required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place. b) Fee and commission income The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

A YEAR50 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK51 2013 Fee income earned from services that are provided over a certain period of time • Own Buildings: up to 20 years Fees earned for the provision of services over a period of time are accrued over that • Furniture and other equipment: 5 years period. These fees include commission income and asset management, custody and other • Vehicles: 5 years management and advisory fees. Loan commitment fees for loans that are likely to be drawn • Computer hardware: 4 years down and other credit related fees are deferred (together with any incremental costs) and • Leasehold improvements: the shorter of useful life and lease term recognised as an adjustment to the effective interest rate on the loan. The assets’ residual value and useful lives are reviewed, and adjusted if appropriate, at each Fee income from providing transaction services reporting date. Fees arising from negotiating or participating in the negotiation of a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the An item of property and equipment is derecognised upon disposal or when no future purchase or sale of businesses – are recognised on completion of the underlying transaction. economic benefits are expected from its use or disposal. Any gain or loss arising on de- Fees or components of fees that are linked to a certain performance are recognised after recognition of the asset (calculated as the difference between the net disposal proceeds fulfilling the corresponding criteria. and the carrying amount of the asset) is recognised in “Other operating income” or “Other operating expenses” in profit or loss in the year the asset is derecognised. c) Rental income Rental income is accounted for on a straight-line basis over the lease terms on ongoing 2.11 Intangible assets leases and is recorded in profit or loss in “Other operating income”. The Bank did not have Intangible assets acquired by the Bank are stated at cost less accumulated amortization significant investment property as at year end and during the reporting period. and impairment losses, if any Intangible assets are entirely comprised of acquired computer 2.9 Cash and cash equivalents software which are capitalised on the basis of the costs incurred to acquire and bring to use the specific software and are amortized using the straight-line method over a useful life of Cash and cash equivalents comprise cash balances and call deposits with an original four years. Amortization is charged to profit or loss from the moment the assets are available maturity of three months or less. For the purpose of the Cash Flow Statement, cash and for use. Costs associated with maintaining computer software programmes are recognised cash equivalents consist of cash on hand, current accounts with Central Bank and amounts as an expense as incurred. Expenditure which enhances or extends the performance of due from other banks on demand and with an original maturity of three months or less. The computer software programmes beyond their original specifications or software upgrade statutory reserve with the Central Bank is not available for the Bank’s day-to-day operations expenses are recognised as capital improvement and they are added to the original cost of and is not included as a component of cash and cash equivalents for the purpose of the the software, as long as they can be measured reliably. statement of cash flows. Cash and cash equivalents are carried at amortised cost. Further details of what cash and cash equivalents comprises can be found in note 29. 2.12 Impairment of non-financial assets 2.10 Property and equipment The Bank assesses at each reporting date or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, whether there is an Property and equipment is stated at cost excluding the costs of day-to-day servicing, less indication that a non-financial asset may be impaired. If any such indication exists, or when accumulated depreciation and accumulated impairment in value. annual impairment testing for an asset is required, the Bank makes an estimate of the asset’s Depreciation is calculated using the straight-line method to write down the cost of property recoverable amount. Where the carrying amount of an asset (or cash-generating unit) and equipment to their residual values over their estimated useful lives. Land is not exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired depreciated. The estimated useful lives are as follows: and is written down to its recoverable amount.

A YEAR52 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK53 2013 For assets excluding goodwill, an assessment is made at each reporting date as to whether 2.15 Provisions there is any indication that previously recognised impairment losses may no longer exist Provisions are recognised when the Bank has a present obligation (legal or constructive) as or may have decreased. If such indication exists, the recoverable amount is estimated. A a result of a past event, and it is it is more likely than not that an outflow of resources will be previously recognised impairment loss is reversed only if there has been a change in the required to settle the obligation; and the amount has been reliably estimated. estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its Where there are a number of similar obligations, the likelihood that an outflow will be required recoverable amount. in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same 2.13 Financial guarantee contracts class of obligations may be small. Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make Provisions are measured at the present value of the expenditures expected to be required to payments when due, in accordance with the terms of a debt instrument. settle the obligation using a pre-tax rate that reflects current market assessments of the time Such financial guarantees are given to banks, financial institutions and other bodies on behalf value of money and the risks specific to the obligation. The increase in the provision due to of customers to secure loans, overdrafts and other banking facilities. Financial guarantees passage of time is recognized as interest expense. are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the bank’s liabilities under such guarantees are 2.16 Income tax measured at the higher of the initial measurement, less amortization calculated to recognize Income taxes have been provided for in the financial statements in accordance with Albanian in profit or loss the fee income earned on a straight line basis over the life of the guarantee and legislation enacted or substantively enacted by the reporting date. The income tax charge the best estimate of the expenditure required to settle any financial obligation arising at the comprises current tax and deferred tax and is recognised in the statement of comprehensive reporting date. These estimates are determined based on experience of similar transactions income except if it is recognised in other comprehensive income because and history of past losses, supplemented by the judgment of Management. Any increase in it relates to transactions that are also recognised, in the same or a different period, in other the liability relating to guarantees is taken to profit or loss under other operating expenses. comprehensive income. Financial guarantees and commitments to provide a loan are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised Current tax on a straight line basis over the life of the commitment. Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES reporting date. 2.14 Pensions and other post employment benefits The Bank contributes to its employees post retirement plans as prescribed by the domestic Deferred tax social security legislation. Bank’s pension obligations, relate only to defined contribution Deferred tax is provided on temporary differences at the reporting date between the tax plans. Defined contribution plans, based on salaries, are made to the state administered bases of assets and liabilities and their carrying amounts for financial reporting purposes. institution (i.e. Social Security Institute) responsible for the payment of pensions. Once the Deferred tax liabilities are recognised for all taxable temporary differences, except where the contributions have been paid, the Bank has no further payment obligations. The contributions deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in constitute net periodic costs for the year in which they are due and as such they are included a transaction that is not a business combination and, at the time of the transaction, affects in “Personnel expenses” in the statement of comprehensive income. neither the accounting profit nor taxable profit or loss. A YEAR54 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK55 2013 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3. FINANCIAL RISK MANAGEMENT 2.16 Income tax The Bank’s activities expose it to a variety of financial risks and those activities involve the Deferred tax assets are recognised for all deductible temporary differences, carry forward of analysis, evaluation, acceptance and management of some degree of risk or combination of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit risks. Taking risk is core to the financial business, and the operational risks are an inevitable will be available against which the deductible temporary differences, and the carry consequence of being in business. The Bank’s aim is therefore to achieve an appropriate forward of unused tax credits and unused tax losses can be utilised except where the deferred balance between risk and return and minimise potential adverse effects on the Bank’s tax asset relating to the deductible temporary difference arises from the initial recognition of financial performance. an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. The Bank’s risk management policies are designed to identify and analyse these risks, to The carrying amount of deferred tax assets is reviewed at each reporting date and reduced set appropriate risk limits and controls, and to monitor the risks and adherence to limits by to the extent that it is no longer probable that sufficient taxable profit will be available to means of reliable and up-to-date information systems. The Bank regularly reviews its risk allow all or part of the deferred tax asset to be utilised. management policies and systems to reflect changes in markets, products and emerging best practice. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred Risk management is carried out by a risk department in the Bank under policies approved by tax asset to be recovered. the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as, credit risk, foreign exchange risk, Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in interest rate risk and liquidity risk. the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. In addition, internal audit is responsible for the independent review of risk management and the control environment. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists The most important types of risk are credit risk, liquidity risk, market risk and other operational to set off current tax assets against current tax liabilities and the deferred taxes relate to the risk. Market risk includes currency risk, interest rate and other price risk. same taxable entity and the same taxation authority. 3.1 Credit risk Dividends on ordinary shares are recognised as a liability and deducted from equity when The Bank takes on exposure to credit risk, which is the risk that counterparty will cause they are approved by the Bank’s shareholders. Interim dividends are deducted from equity a financial loss for the Bank by failing to fulfil obligations to the Bank. Credit risk is the when they are declared and no longer at the discretion of the Bank. most important risk for the Bank’s business; management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to Dividends for the year that are approved after the reporting date are disclosed as an event loans and advances, and investment activities that bring debt securities and other bills into after the reporting date. the Bank’s asset portfolio. There is also credit risk in off-balance sheet financial instruments. The credit risk management and control are centralised in credit risk management team of 2.17 Comparatives risk department at both local and group (Piraeus Bank SA) level and reported to the Board The comparative information is presented consistently applying the Bank’s accounting of Directors. policies. The main targets of the Bank’s Credit Risk Management are to: A YEAR56 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK57 2013 1) Set centralized policies and monitor the Bank’s portfolio. reflects the range of default probabilities defined for each rating class. This means that, 2) Managing risk pro-actively to identify and analyze risk at an early stage in principle, exposures migrate between classes as the assessment of their probability of 3) Create risk management function independent of commercial lines of the business default changes. The rating tools are kept under review and upgraded as necessary. The 4) Integrate the risk management function into the organizational business process Bank regularly validates the performance of the rating and their predictive power with 5) Report on risk across the organization regard to default events.

The Credit Risk Management Committee is responsible for: Bank’s internal ratings scale • Developing Credit Risk management systems and infrastructure: analyzing results and reporting to the management Bank’s rating Description of the grade A Investment Grade • Preparing the Bank for Basel II implementations B Standard • Relationship with Bank of Albania (Central Bank), Piraeus Bank and/or other authorities C Special Monitoring in the terms of effectiveness of Credit Risk Management D Substandard E Doubtful and Loss

The Audit Committee and Internal Auditing Department follow up the compliance with policies and procedures. Criterion for classification of Financial Assets into groups A, B, C, D and E are as follows:

3.1.1 Credit risk measurement Financial Assets are classified into Group A if they are toward debtors that have been evaluated in investment grade ratings by external raters, e.g. Moody’s, S&P, Fitch, regardless of the internal The procedures described below relate to credit risk measurements for operational purpose MRA rating. The bank has no such customers as at 31 December 2012 and 2011. as well as for reporting under Bank of Albania regulation. Impairment losses on loans and Financial Assets are classified into Group B if they are towards: advances for financial reporting are determined based on the procedures described in Note 3.1.3. • Bank of Albania and Albanian Government; • debtors which are not likely to default and who repay their obligations within the maturity, a) Loans and advances or with a delay of 30 days; and • exposures secured by pledging collateral graded as first class collateral. In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank reflects three components (i) the ‘probability of default’ by the client or Financial Assets are classified into Group C if they are towards debtors: counterparty on its contractual obligations; (ii) current exposures to the counterparty and • whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless its likely future development, from which the Bank derives the ‘exposure at default’; and (iii) its present financial position is assessed as weak, without signs of further deterioration the likely recovery ratio on the defaulted obligations (the ‘loss given default’). in the future; and • who settle their liabilities with delay of up to 30 days, occasionally with delay between i. The Bank assesses the probability of default of individual counterparties using internal 31 and 90 days. rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally available data. Clients of the Bank are segmented into five rating classes. The Bank’s rating scale, which is shown below, A YEAR58 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK59 2013 3 FINANCIAL RISK MANAGEMENT Financial Assets are classified into Group E if they are towards debtors: 3.1 Credit Risk 3.1.1 Credit Risk Measurement • for which exists a strong likelihood of loss of part of financial asset; • that settle their liabilities with delay of more than 90 to 180 days, occasionally with delay Financial Assets are classified into Group D if they are towards debtors: between 181 to 360 days; • which are insolvent; • for which it is assessed, that cash flows will not be sufficient for regular repayment of • for which a motion for commencement of process of liquidation or declaration of matured liabilities; bankruptcy began and was filed at the provisional court; • that settle their liabilities with delay of up to 90 days, occasionally with delay between • that are in the process of reform or in the process of liquidation; 91 to 180 days; • that declared bankruptcy; • that are clearly undercapitalized; • from whom no repayment is expected; and • that do not have sufficient long term capital resources for financing long term investments; • with questionable legal grounds. and • from whom bank does not receive currently satisfactory information or adequate ii. Exposure at default is based on the amounts the Bank expects to be owed at the time documentation concerning repayment of liabilities. of default. For example, for a loan this is the face value. For a commitment, the Bank includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur.

iii. Loss given default or loss severity represents the Bank’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation.

b) Debt securities and other bills

For debt securities and other bills, the risk department for managing of the credit risk exposures uses ratings depending on the issuer, which is Albanian Government. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time.

Investment is allowed only in liquid securities that have high credit rating. Given their high credit ratings management of the Bank does not expect any counterpart to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

A YEAR60 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK61 2013 3.1.2 Risk limit control and mitigation policies 3 FINANCIAL RISK MANAGEMENT 3.1 Credit Risk The Bank manages, limits and controls concentrations of credit risk wherever they are identified 3.1.2 Risk limit control and mitigation policies − in particular, to individual counterparties and groups, and to industries and countries. credit customers at the full amount of principal, interest and other charges. In addition, in The Bank structures the levels of credit risk it undertakes by placing limits on the amount of order to minimise the credit loss the Bank will seek additional collateral from the counterparty risk accepted in relation to one borrower, or group of borrowers, and to geographical and as soon as impairment indicators are noticed for the relevant individual loans and advances. industry segments. Such risks are monitored on a revolving basis and subject to an annual Debt securities, treasury and other eligible bills are generally unsecured. or more frequent review, when considered necessary. Limits on the level of credit risk by product and industry sector are approved by the Board of Directors. b) Credit-related contingencies

Exposure to credit risk is also managed through regular analysis of the ability of borrowers The primary purpose of these instruments is to ensure that funds are available to a customer and potential borrowers to meet interest and capital repayment obligations and by changing as required. Guarantees and standby letters of credit carry the same credit risk as loans and these lending limits where appropriate. are secured with same collateral as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party Some other specific control and mitigation measures are outlined below. to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore a) Collateral carry less risk than a direct loan.

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional Commitments to extend credit represent unused portions of authorisations to extend of these is the taking of security for funds advances, which is common practice. credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to The Bank implements guidelines on the acceptability of specific classes of collateral or credit the total unused commitments. risk mitigation. The principal collateral types for loans and advances are: However, the likely amount of loss is less than the total unused commitments, as most • Cash, bank’s and first class companies’ guarantees; commitments to extend credit are contingent upon customers maintaining specific credit • Mortgages over residential properties; standards. The Bank monitors the term to maturity of credit commitments because • Charges over business assets such as premises, inventory and accounts receivable; and longer-term commitments generally have a greater degree of credit risk than shorter-term • Charges over financial instruments such as debt securities and equities. commitments.

Loans to corporate entities and individuals are generally secured; over drafts and credit 3.1.3 Impairment and provisioning policies cards issued to individuals are secured mostly by cash deposits and collateral in cases of The internal rating systems described in Note 3.1.1 focus more on credit-quality mapping from the inception of the lending and investment activities.

In contrast, impairment provisions are recognised for financial reporting purposes only A YEAR62 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK63 2013 for losses that have been incurred at the reporting date based on objective evidence of The Bank’s policy requires the review of individual financial assets that are individually impairment (see Note 2.1(f)). significant at least annually or more regularly when individual circumstances require. The impairment provision shown in the balance sheet at year-end is derived from each of the Impairment allowances on individually assessed accounts are determined by an evaluation five internal rating grades. However, the majority of the impairment provision comes from of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all bottom two grades. The table below shows the percentage of the Bank’s on-balance sheet individually significant accounts. The assessment encompasses collateral held (including re- items relating to loans and advances and the associated impairment provision for each of the confirmation of its enforceability) and the anticipated receipts for that individual account. Bank’s internal rating categories: Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are not individually significant; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience and experienced judgment. 3 FINANCIAL RISK MANAGEMENT 3.1 Credit Risk 3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements 3.1.3 Impairment and provisioning policies Maximum exposure 2013 2012 BANK’S RATING 2013 2012 Credit risk exposures relating to on-balance sheet assets are as follows:

Impair- Cash and balances with Central Bank 14,153,253 12,309,366 Loans ment Loans Impairment Loans and advances to banks 22,870,941 13,171,181 and ad- provi- and ad- provision level vances sion vances Loans and advances to customers: (%) (%) level (%) Loans to individuals (%) − Consumer/Overdrafts 2,416,274 2,280,510 Investment - - - - Grade − Credit cards 218,393 214,628 Standard 43,26 3,43 46,30 4,49 − Mortgages 7,593,008 8,851,304 Special 10,227,675 11,346,442 14,66 4,62 21,10 9,90 monitoring Loans to corporate entities: Sub-stan- 13,93 4,51 16,36 11,66 − Large corporate customers 1,328,267 1,726,523 dard − Small and medium size enterprises (SMEs) 27,144,457 37,586,354 Doubtful 28,15 31,56 16,24 20,24 and Loss 28,472,724 39,312,877 Total 100.00 11,68 100.00 9.29 Total loans and advances to customers 38,700,399 50,659,319

Financial assets available for sale 16,573,427 12,211,401 The internal rating tool assists management to determine whether objective evidence of Financial assets held to maturity 4,215,704 4,718,685 impairment exists under IAS 39, based on the following criteria set out by the Bank:

• Delinquency in contractual payments of principal or interest; Credit risk exposures relating to off-balance sheet items are as follows: • Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income Letters of Guarantees 908,357 1,203,542 percentage of sales); Letters of Credit 37,820 39,014 Loans Commitment 1,872,949 4,387,254 • Breach of loan covenants or conditions; At 31 December 99,332,850 98,699,762 • Initiation of bankruptcy proceedings; • Deterioration of the borrower’s competitive position; and The above table represents a worst case scenario of credit risk exposure to the Bank at • Deterioration in the value of collateral. 31 December 2013 and 2012, without taking account of any collateral held or other credit A YEAR64 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK65 2013 enhancements attached. For on-balance-sheet assets, the exposures set out above are 31 December 2013 based on net carrying amounts as reported in the balance sheet. Loans and advances to Management is confident in its ability to continue to control and sustain minimal exposure of Loans and advances to customers banks Total Loans and credit risk to the Bank resulting from both its loan and advances portfolio and debt securities advances to Individual (retail customers) Corporate entities customers based on the following: Consumer/ Large corporate • 58% of the loans and advances portfolio is categorised in the top two grades of the Overdrafts Credit cards Mortgages customers SMEs internal rating system (2012: 67%); Grades: Investment Grade - -, - - - - -

• Loans to SMEs, which represents the biggest group in the portfolio, are backed by Standard 1,936,603 126,259 5,712,099 854,360 9,721,222 18,294,059 22,870,941

collateral; Special monitoring ------• 42% of the loans and advances portfolio are considered to be neither past due nor Sub-standard ------Doubtful ------impaired (2012:46%); Total 1,936,603 126,259 5,712,099 854,360 9,721,222 18,294,059 22,870,941 • The Bank has introduced a more stringent selection process upon granting loans and 31 December 2012 advances; and Loans and • All investments in debt securities and other bills are in securities issued by the Albanian advances Loans and advances to customers to banks Government Total Loans and advances to 3.1.5 Loans and advances Individual (retail customers) Corporate entities customers Large Loans and advances are summarised as follows: Consumer/ Credit corporate Overdrafts cards Mortgages customers SMEs Grades: 31 December 2013 31 December 2012 Investment Grade - -, - - - - - Loans and Loans and Loans and Loans and advances to advances to advances to advances to Standard 1,860,660 116,873 5,792,740 1,775,549 16,310,248 25,856,069 13,171,181 customers banks customers banks Special monitoring ------Sub-standard ------Neither past due nor impaired 18,294,059 22,870,941 25,856,069 13,171,181 Doubtful ------Past due but not impaired 10,165,120 - 6,333,059 - Total 1,860,660 116,873 5,792,740 1,775,549 16,310,248 25,856,069 13,171,181 Individually impaired 15,371,437 - 23,676,147 - Gross 43,830,616 22,870,941 55,865,275 13,171,181 Less: allowance for impairment (5,130,217) - (5,205,956) - 3. FINANCIAL RISK MANAGEMENT 3.1 Credit Risk Net 38,700,399 22,870,941 50,659,319 13,171,181 3.1.5 Loans and advances Loans and advances in the Sub-standard and Doubtful grades were considered not to be Further information of the impairment allowance for loans and advances to banks and to impaired after taking into consideration the recoverability from collateral for retail customers’ customers is provided in Notes 15 and 16. mortgage and consumer loans.

Loans and advances neither past due nor impaired (a) Loans and advances past due but not impaired The credit quality of the portfolio of loans and advances that were neither past due nor Gross amount of loans and advances that are past due but not impaired: impaired can be assessed by reference to the internal rating system adopted by the Bank. (i) Loans and advances to customers A YEAR66 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK67 2013 31 December 2013 3 FINANCIAL RISK MANAGEMENT Individual (retail customers) 3.1 Credit Risk Consumer/ Overdrafts Mortgages Visa Card Total 3.1.5 Loans and advances Past due 1 up to 90 days 310,527 1,258,333 39,857 1,608,717 Past due 91-180 days 67,513 243,383 6,795 317,691 (ii) Loans and advances to banks Past due 181-360 days - 270,770 270,770

Past due > 360 days - 1,019,493 1,019,493 There are no loans and advances to banks as at 31 December 2013, which are past due but Total 380,515 2,791,979 46,652 3,216,671 not impaired (2012: Nil). Fair value of collateral 236,683 2,791,979 32,821 3,061,483

31 December 2013 Corporate entities b) Loans and advances individually impaired SMEs Total (i) Loans and advances to customers

Past due 1 up to 90 days 3,604,793 3,604,793 Past due 91-180 days 3,021,315 3,021,315 The breakdown of the gross amount of individually impaired loans and advances by class, Past due 181-360 days 89,196 89,196 along with the fair value of related collateral held by the Bank as security, are as follows: Past due > 360 days 289,629 289,629 Total 7,004,933 7,004,933 Corporate entities Fair value of collateral 6,688,391 6,688,391 Consumer and Visa Cards Large SMEs Corporate Total Total loans and advances past due but not impaired at 31 10,221,604 December 2013 31 December 2013 Individually impaired loans 577,974 14,433,506 359,957 15,371,437 31 December 2012 Fair value of collateral - 13,347,372 307,038 13,654,410 Individual (retail customers) Overdrafts Mortgages Visa Card Total Past due 1 up to 90 days 360,543 1,446,096 34,707 1,841,346 31 December 2012 Past due 91-180 days 62,845 381,310 5,243 449,398 Individually impaired loans 517,253 23,158,894 - 23,676,147 Past due 181-360 days - 390,329 390,329 Fair value of collateral - 21,416,167 - 21,416,167 Past due > 360 days - 833,481 833,481 Total 423,388 3,051,216 39,950 3,514,554 The disclosed fair value of collateral is determined by local certified valuers and represents Fair value of collateral 304,739 3,051,216 - 3,355,955 value realisable by the legal owners of the assets. Management considers the loans covered 31 December 2012 Corporate entities by collateral on corporate loans as impaired because experience shows that a significant

Past due 1 up to 90 days SMEs Total proportion of the collateral on corporate loans cannot be enforced due to administrative Past due 91-180 days and legal difficulties such as such as decrease of collateral value at auctions administered Past due 181-360 days 2,182,195 2,182,195 by bailiff office, time necessary for collaterals to be enforced. The impairment provisions Past due > 360 days 213,516 213,516 reflect the probability that management will not be able to enforce its rights and repossess Total 159,426 159,426 collateral on defaulted loans. Despite difficulties in enforcing repossession of collateral, the Fair value of collateral 263,368 263,368 Bank’s management will vigorously pursue the outstanding debts with all possible means at 2,818,505 2,818,505 2,705,765 2,705,765 their disposal.

Total loans and advances past due but not impaired at 31 8,732,908 December 2012 A YEAR68 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK69 2013

(ii) Financial effect of collateral on provision 2013 2012 The financial effect of collateral is presented by disclosing impact of collateral and other Outstanding Number of Outstanding Number of balance loans balance loans credit enhancements on impairment provisions recognised at the end of the reporting period.

Without holding collateral and other credit enhancements, the impairment provisions would Consumer 42,786 31 23,086 15 have the effect presented by the following amounts: Mortgage 313,585 75 106,798 25 SME 289,712 21 401,636 22 Corporate 3,875,145 26 1,742,574 13 In 2013 Categories Actual allowance Collateral effect Variance Total 4,530,228 153 2,274,094 75 *Significant loans individually impaired 4,075,006 6,685,767 (2,610,761) *Significant loans not impaired individually 373,116 373,116 - Business loans less than Euro 50,000 146,489 146,489 - 3.1.7 Repossessed collateral Consumer loans - - - Collateral obtained due to legal process include land, building and business premises which Housing 424,822 424,822 - are not used by the Bank for its core operations. Collateral obtained due to legal process Real Estate 56,720 56,720 - are to be sold as soon as practicable with the proceeds used to reduce the outstanding Visa cards 54,064 54,064 - Total 5,130,217 7,740,977 (2,610,761) indebtedness. During 2013, the Bank obtained assets by taking possession of collateral for In 2011 the amount of Lek 678,701(2012: Lek 538,148). Categories Actual allowance Collateral effect Variance *Significant loans individually impaired 4,168,961 12,773,501 (8,604,540) 3.1.8 Cash and balances with Central Bank *Significant loans not impaired individually 543,395 543,395 - As at 31 December 2013 and 2012 the amounts due from Central Bank and corresponding

Business loans less than Euro 50,000 44,511 44,511 - banks were neither past due nor impaired. Consumer loans 161,175 161,175 - Housing 168,205 168,205 - 3.1.9 Debt securities, treasury bills and other eligible bills Real Estate 119,709 119,709 - Held to maturity and fair value through profit and loss are made up of T-bills and bonds. The Visa cards - - - Total 5,205,955 13,810,495 (8,604,540) issuer of such investment securities is the Albanian Government. Standard & Poor’s Ratings Services assigned its ‘BB/B’ foreign currency and ‘BB+/B’ local currency sovereign credit

(iii) Loans and advances to banks ratings to Albania. As at 31 December 2013 and 2012 these investments were neither past There are no individually impaired loans and advances to banks as at 31 December 2013 and 2012. due nor impaired.

3.1.6 Loans and advances renegotiated 3.1.10 Concentration of risks of financial assets with credit risk exposure Restructuring activities include extended payment arrangements, modification and deferral of (a) Geographical sectors payments. Following restructuring, a previously overdue customer account is reset to a normal Loans and advances to banks are held with banks in OECD countries. All other status and managed together with other similar accounts. Restructuring policies and practices are financial assets are held in Albania except for the VISA share holdings, which are based on indicators or criteria which, in the judgment of bank management, indicate that payment held with VISA Corporation. will most likely continue. These policies are kept under continuous review. During year 2012 there were 75 loans renegotiated for a total of LEK 2,274,094 thousand (during 2011 there were 263 loans (b) Industry sectors renegotiated for a total of LEK 4,484,464 thousand) as detailed in the following table. The analysis of the Bank’s main credit exposure on loans and advances to customers by industry is presented in Note 16. A YEAR70 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK71 2013 3.2 Market risk 3 FINANCIAL RISK MANAGEMENT Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign 3.2 Market Risk exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit 3.2.1 Foreign exchange risk standing) will affect the Bank’s income or the value of its holdings of financial instruments.

Other The objective of market risk management is to manage and control market risk exposures EUR USD LEK Total At 31 December 2012 currencies within acceptable parameters, while optimising the return on risk. Assets

The Market Risk issues are followed up in regular basis by “Asset & Liabilities Management Cash and balances with the Central Bank 9,035,939 578,583 69,174 4,182,577 13,866,273 Committee” (ALCO). Due from banks 10,653,521 2,118,736 398,924 - 13,171,181 Loans and advances to customers 32,208,990 1,509,998 28,063 16,912,268 50,659,319 The Bank is exposed to currency risk through transactions in foreign currencies. The Bank Investment securities available for sale - 78,555 - 12,132,846 12,211,401 ensures that the net exposure is kept to an acceptable level by buying or selling foreign Financial assets held to maturity 2,817,081 - - 1,901,604 4,718,685 currency at spot when necessary to address short-term imbalances. Other financial assets 92,734 24,854 - 69,156 186,744 The Management sets limits on the level of exposure by currencies, which are monitored daily. TOTAL FINANCIAL ASSETS 54,715,531 4,285,872 496,161 35,129,295 94,626,859 Concentrations of currency risk – on and off-balance sheet financial instruments:

LIABILITIES AND EQUITY Other EUR USD LEK Total Due to banks 3,643,303 10,897 23,131 3,836,557 7,513,888 At 31 December 2013 currencies Due to customers 33,702,174 4,060,787 466,532 34,639,900 72,869,393 Assets

Cash and balances with the Central Bank 10,072,483 920,394 164,488 4,655,195 15,812,560 Total financial liabilities 37,345,477 4,071,684 489,663 38,476,457 80,383,281 Due from banks 20,131,774 2,139,076 600,091 - 22,870,941

Loans and advances to customers 21,905,505 1,143,267 25,608 15,626,119 38,700,499 Net on balance sheet currency position 17,370,054 214,188 6,498 (3,347,162 14,243,578 Investment securities available for sale - 110,426 - 16,463,002 16,573,428 Off balance sheet items 4,117,661 547,898 - 964,252 5,629,811 Financial assets held to maturity 2,832,216 - - 1,383,487 4,215,704 Sensitivity if exchange rates increase by 5% 264,846 5,355 5,120 - 275,321

Sensitivity if exchange rates decrease by 5% (264,746) (5,355) (5,120) - (275,321) Total financial assets 54,941,978 4,313,163 790,187 38,127,703 98,173,032

Liabilities 3.2.2 Interest rate risk Due to banks 2,202,433 115 28,767 1,004,471 3,235,785 The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that Due to customers 32,389,924 4,261,344 698,164 41,298,595 78,648,027 interest-earning assets (including investments) and interest-bearing liabilities mature or re-

Total financial liabilities 34,592,357 4,261,459 726,931 42,303,066 81,883,812 price at different times or in differing amounts. In the case of floating rate assets and liabilities, the Bank is also exposed to basis risk, which is the difference in re-pricing characteristics Net on-balance sheet currency position 20,349,621 51,704 63,256 (4,175,363) 16,289,220 of the various floating rate indices, such as the savings rate, LIBOR and different types of Off-balance sheet items 794,836 1,219,233 - 805,057 2,819,126 interest. Sensitivity if exchange rates increase by 5% 2,043 246 382 - 2,671 Sensitivity if exchange rates decrease by 5% (2,043) (246) (382) - (2,671) Risk management activities are aimed at optimising net interest income, given market The Bank manages its foreign currency exposure taking into consideration that its share interest rate levels consistent with the Bank’s business strategies. capital and share premium is denominated in EUR. Asset-liability risk management activities are conducted in the context of the Bank’s The sensitivity presented in the table above calculates the increase/decrease of pre-tax sensitivity to interest rate changes. profit if at the reporting date, Lek exchange rate had increased/decreased by 5% against the In decreasing interest rate environments, margins earned will narrow as liabilities interest respective foreign currencies with all other variables held constant. rates will decrease with a lower percentage compared to assets interest rates. However the A YEAR72 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK73 2013 actual effect will depend on various factors, including stability of the economy, environment The following table includes figures of comparative period: and level of the inflation.

Non- The Bank attempts to mitigate this interest rate risk by monitoring the reprising dates of its Less than From 1 to From 3 to Over interest Total one 3 months 12 months 1 year assets and liabilities. In addition, the Bank has contractual rights to revise the interest rates At 31 December 2012 bearing on the major part of its loan portfolio on a quarterly basis. month From 1 to

3 months From 3 to - - - 1,196,865 8,611,453

12 months Over - 34,906 - - 12,262,981 3 FINANCIAL RISK MANAGEMENT 1 year Non- 24,603,476 10,877,935 659,426 - 54,785,214 3.2 Market Risk interest bearing Total 3,156,947 197,083 - - 4,489,432 3.2.2 Interest rate risk Assets The following table presents the interest rate reprising dates for the Bank’s assets and Cash and balances with the Central liabilities. Variable-rate assets and liabilities have been reported according to their next Bank 12,309,365 - - - 1,556,908 13,866,273 rate change date. Fixed-rate assets and liabilities have been reported according to their Due from banks 13,171,181 - - - - 13,171,181 scheduled principal repayment dates: Loans and advances to customers 18,141,911 19,088,341 13,368,324 60,743 - 50,659,319 Investment Securities Available Non- Less than From 1 to 3 From 3 to 12 Over 1 interest Total for Sale 2,459,194 3,083,560 5,639,130 1,029,517 12,211,401 one month months months year At 31 December 2013 bearing Financial assets Non- held to maturity - - - 4,718,685 - 4,718,685 From 1 to 3 From 3 to Over 1 year interest Total months 12 months Less than one month bearing Assets Total financial assets 46,081,651 22,171,901 19,007,454 5,808,945 1,556,908 94,626,859 Cash and balances with the Central Bank 14,153,253 - - - 1,659,307 15,812,560 Due from banks 16,276,106 6,594,835 - - - 22,870,941 Loans and advances to customers 10,671,159 13,141,866 14,190,753 696,621 - 38,700,399 Liabilities Investment Securities Available for Sale 955,645 3,100,357 10,740,657 1,776,768 16,573,427 Due to banks 5,261,047 - 2,252,841 - - 7,513,888 Financial assets held to maturity 417,207 - - 3,798,497 - 4,215,704 Due to customers 21,967,270 10,075,579 40,207,848 611,402 7,294 72,869,393

Total financial assets 42,473,370 22,837,058 24,931,410 6,271,886 1,659,307 98,173,031 46,081,651 22,171,901 19,007,454 5,808,945 1,743,652 94,813,603 Total financial liabilities 27,228,317 10,075,579 42,460,689 611,402 7,294 80,383,281

Liabilities Due to banks 3,235,785 - - - - 3,235,785 Interest sensitivity gap 18,853,334 12,096,322 (23,453,235) 5,197,543 1,549,614 14,243,578 Due to customers 25,279,688 11,075,675 39,940,421 2,334,968 17,275 78,648,027

Total financial liabilities 28,515,473 11,075,675 39,940,421 2,334,968 17,275 81,883,812 Due to specifics of Albanian market, a large amount of customer deposits has a maturity of less than one month. However, the potential negative effect of adverse evolution in interest Interest sensitivity gap 13,901,413 11,761,383 (15,009,011) 3,936,918 1,642,022 16,232,725 rates is significantly reduced due to low interest rates set by the Bank on customer demand deposits.

A YEAR74 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK75 2013 The interest rate sensitivity analysis has been determined based on the exposure to interest Furthermore, the Policy defines a contingency funding plan to be used in the case of a liquidity rate risk at the reporting date. At 31 December 2013, if interest rates had been 100 basis crisis. Such a crisis can take place either due to a Tirana Bank specific event or a general market points higher/lower with all other variables were held constant, the Bank’s pre-tax profit for event. Triggers and warning signals serve as indicators of when the contingency plan should be the twelve month period ended 31 December 2013 would respectively increase/decrease by put into operation. This contingency plan is mainly based on additional financing to be received approximately LEK 4,202 thousand (2012: LEK 37,692 thousand). from the Parent upon request. Interest rate sensitivity analysis by currency is presented below. In addition, Tirana Bank calculates and monitors the Liquidity ratios, “Liquid Assets/ Total Liabilities” and “Net Current Assets/Total Liabilities”, as they are defined in the Bank of Albania

Other EUR USD LEK Total Directive, which refers to the control framework of banks’ liquidity adequacy, by the Bank of currencies At 31 December 2013 Albania (note 2.1.b).

Total interest bearing financial assets 44,869,495 3,392,769 625,699 33,416,024 82,303,987 Total interest bearing financial liabilities 34,592,357 4,261,459 726,931 42,303,026 81,883,773 The levels of these particular ratios are daily communicated to the responsible business units, Interest sensitivity gap 10,277,138 (868,690) (101,232) (8,887,002) 420,214 and comments, as well as respective assessments, are included in the reporting package to the Sensitivity if interest rates increase by 100 bp 102,771 (8,687) (1,012) (88,870) 4,202 members of ALCO. Sensitivity if interest rates decrease by 100 bp (102,771) 8,687 1,012 88,870 (4,202)

Other The ALCO has the responsibility: to design the bank’s strategy on the assets and liabilities EUR USD LEK Total currencies development, depending on the qualitative and quantitative data of the organization and At 31 December 2012 development of the business environment; to ensure high competitiveness and effectiveness of Total interest bearing financial assets 45,679,592 3,704,289 426,987 34,341,645 84,152,513 Total interest bearing financial liabilities 37,345,477 4,071,684 489,663 38,476,457 80,383,281 the organization, maintaining assumed risk within the set limits; to manage the assets and Interest sensitivity gap 8,334,115 (367,395) (62,676) (4,134,812) 3,769,232 liabilities by applying a pricing policy on products and services at the same time. Sensitivity if interest rates increase by 100 bp 83,341 (3,674) (627) (41,348) 37,692 Sensitivity if interest rates decrease by 100 bp (83,341) 3,674 627 41,348 (37,692) 3.3.1 Liquidity risk management process Tirana Bank acknowledges that, in order to be able to meet liabilities promptly and without 3.3 Liquidity risk losses, it is essential to effectively manage Liquidity Risk. Liquidity Risk is the risk that a financial Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with institution will not be able to meet its obligations as they become due, because of a lack of the its financial liabilities when they fall due and to replace funds when they are withdrawn. The required liquidity. consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend. In general, liquidity management is a matter of balancing cash flows within forward rolling time bands, so that under normal conditions, the Bank is comfortably placed to meet all its payment A Liquidity Risk Management Policy has been applied in all Bank units since the end of 2003. obligations as they fall due. This policy is adjusted to internationally applied practices and regulatory environments and Liquidity Gap Analysis provides an overview of the expected cash flows, which arise from all adapted to the specific activities of Piraeus Bank. balance sheet items. The cash flows are assigned and aggregated to time-bands according to when they occur. The policy specifies the principal liquidity risk assessment definitions and methods, defines the The table below analyzes assets and liabilities into relevant time periods based on the remaining roles and responsibilities of the units and staff involved and sets out the guidelines for liquidity period at reporting date to the contractual maturity date. Assets and liabilities in foreign currency crisis management. The policy is focused on the liquidity needs expected to emerge, in a week’s are converted into LEK using FX rates as at the year end. or month’s time, on the basis of hypothetical liquidity crisis scenarios. A YEAR76 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK77 2013 The assumptions made are that scheduled payments to the bank are honoured in full and on which can increase to 3 years if EUR 6 million out of the total EUR 10 million is used for time and in addition, all contractual payments are discharged in full – e.g. that depositors will mortgage lending. withdraw their money rather than roll it over on maturity. Those assets and liabilities lacking actual maturities (e.g. open accounts, sight deposits, or savings accounts) are assigned to the The liquidity gap of up to 3 month is high but it is improved when taking in consideration the time band less than one month. fact that amounts due to banks are related to the loan from the Parent.

3 FINANCIAL RISK MANAGEMENT 3 FINANCIAL RISK MANAGEMENT 3.3 Liquidity Risk 3.3 Liquidity Risk 3.3.1 Liquidity risk management process 3.3.1 Liquidity risk management process

Less than From 1 to 3 From 3 to 12 From 1 to 5 Over 5 Years Total The following table includes figures of comparative period: At 31 December 2013 one month months months years Assets liquidity Less than From 1 to 3 From 3 to 12 From 1 to 5 Cash and balances with the Central Bank 15,812,560 - - - - 15,812,560 Over 5 years Total A t 3 1 D e c e m b e r 2 0 1 2 one month months months years Due from banks 16,276,106 6,594,835 - - - 22,870,941 Assets liquidity Loans and advances to customers 7,052,873 4,260,505 5,801,065 10,351,427 11,234,529 38,700,399 Cash and balances with the Central Investment Securities available for Sale 955,645 3,100,357 10,740,657 1,776,768 16,573,427 Bank 13,866,273 - - - - 13,866,273 Financial assets held to maturity 417,207 - - 3,798,497 - 4,215,704 Due from banks 13,171,181 - - - - 13,171,181 Loans and advances to customers 12,080,930 4,216,742 6,673,714 13,325,479 14,362,453 50,659,319 Total financial assets 40,514,391 13,955,697 16,541,722 15,926,692 11,234,529 98,173,031 Financial assets designated at fair value through profit or loss ------

Investment Securities available for Liabilities liquidity Sale 2,459,194 3,083,560 5,639,130 1,029,517 12,211,401 Due to banks 3,235,785 - - - - 3,235,785 Financial assets held to maturity - - - 4,718,685 - 4,718,685 Due to customers 25,296,963 11,075,675 39,940,421 2,334,968 - 78,648,027

Total financial assets 41,577,578 7,300,302 12,312,844 19,073,681 14,362,453 94,626,859 Total financial liabilities 28,532,748 11,075,675 39,940,421 2,334,968 - 81,883,812

Liabilities liquidity Net liquidity gap 11,981,643 2,880,022 (23,398,699) 13,591,724 11,234,529 16,289,219 Due to banks 5,261,047 - 2,252,841 - - 7,513,888 Due to customers 21,967,270 10,075,579 40,207,848 611,402 7,294 72,869,393 All Bank’s customer current accounts are included in liabilities maturing less than one month. Other financial liabilities 387,443 - - - - 387,443

Current accounts do represent balances that have an history and a deviation in amounts Total financial liabilities 27,228,317 10,075,579 42,460,689 611,402 7,294 80,383,281 which is measured by the Bank and is far less than the shown negative gap on tenors less

than one month. Any issue arising from liquidity mismatch is managed through inter-bank Net liquidity gap 14,349,261 (2,775,277) (30,147,845) 18,462,279 14,355,159 14,243,578 activity (borrowing, lending) within the pre-approved credit lines. The table below presents the cash flows payable by the Bank under non-derivative The Bank does not have a letter of support from Piraeus Bank SA. However, it has a credit financial liabilities by remaining contractual maturities at the reporting date. The line which includes an amount of EUR 175 million that can be withdrawn by the Bank in the amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Money Market (with a maturity of 3 months if used). It has also negotiated a credit limit of Bank manages the inherent liquidity risk based on expected discounted cash inflows. EUR 10 million that can be used for commercial lending with a maturity of up to 12 months, A YEAR78 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK79 2013 Less than one From 1 to 3 From 3 to From 1 to 5 Over 5 Letters of credit and guarantees given to customers commit the Bank to make payments on Total At 31 December 2013 month months 12 months years Years behalf of customers contingent upon the failure of the customer to perform under the terms Due to banks 3,239,170 - - - - 3,239,170 Due to customers 25,306,556 11,118,834 40,157,699 2,441,694 - 79,024,783 of the contract.

Commitments to extend credit represent contractual commitments to make loans and Total financial liabilities 28,545,726 11,118,834 40,157,699 2,441,694 - 82,263,953 revolving credits. Commitments generally have fixed expiration dates, or other termination Total financial liabilities 27,822,913 10,203,207 40,820,241 3,115,143 7,294 81,968,798 clauses. The Tirana Bank branch network includes 45 (2012: 45) rented buildings which are rented Less than one From 1 to 3 From 3 to From 1 to 5 Over 5 Total At 31 December 2012 month months 12 months years Years under operating leases. The Bank’s policy is to enter into long term contracts, which vary Due to banks 5,267,193 - - 2,442,721 - 7,709,914 from 10 years to 20 years. The contracts are renewed following a negotiation between both Due to customers 21,996,639 10,203,207 40,820,241 672,422 7,294 73,699,803 parties in order to agree new terms of the contract.

Total financial liabilities 27,263,832 10,203,207 40,820,241 3,115,143 7,294 81,409,717 Total financial liabilities 27,051,325 11,369,312 34,797,872 4,766,958 - 77,985,467 3. FINANCIAL RISK MANAGEMENT 3.4 Fair value of financial assets and liabilities Financial instruments not measured at fair value 3 FINANCIAL RISK MANAGEMENT The table below summarises the carrying amounts and fair values of those financial assets 3.3 Liquidity Risk and liabilities not presented on the Bank’s statement of financial position at their fair value. 3.3.1 Liquidity risk management process

Carrying value Fair value Off-balance sheet items 2013 2012 2013 2012 Less than From 1 to 3 From 3 to 12 From 1 to 5 Over 5 Years Financial assets At 31 December 2013 one month months months years Loans and advances to banks 22,870,941 13,171,181 22,870,941 13,171,181 Total Loans and advances to customers 38,700,399 50,659,319 35,730,696 43,977,752 Business 27,783,926 39,312,877 26,552,313 36,318,388 Loan commitments 1,146,037 104,865 523,932 17,499 80,616 1,872,949 Consumer 2,840,386 2,795,620 2,422,289 2,087,591 Letters of Guarantees 50,854 194,197 663,306 - - 908,357 Mortgage 8,019,603 8,550,822 6,756,094 5,571,773 Letters of Credit - - 37,820 - - 37,820 1,196,891 299,062 1,225,058 17,499 80,616 2,819,126 Held to maturity Financial Investment 4,215,704 4,718,685 4,215,704 4,718,685 Operating lease commitments - - 191,026 584,193 138,780 913,999 Financial liabilities Total 1,196,891 299,062 1,416,084 601,692 219,396 3,733,123 Due to customers 78,648,027 72,869,393 67,165,160 60,748,023 Due to banks 3,235,785 7,513,888 3,235,785 7,513,888 At 31 December 2012

Loan commitments 3,374,985 195,306 732,998 14,768 69,197 4,387,255 Letters of Guarantees 42,683 190,242 970,616 - - 1,203,542 a) Loans and advances to banks Letters of Credit - - 39,014 - - 39,014 Loans and advances to other banks include inter-bank placements. The fair value of fixed 3,417,668 385,548 1,742,628 14,768 69,197 5,629,811 rate placements and overnight deposits is their carrying amount. The estimated fair value of Operating lease commitments - - 203,035 710,992 200,319 1,114,346 fixed interest bearing deposits is based on discounted cash flows using prevailing money- Total 3,417,668 385,548 1,945,663 725,760 269,516 6,744,157 market interest rates for debts with similar credit risk and remaining maturity. With respect to A YEAR80 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK81 2013 deposits in Credit Institutions, these are short-term deposits, for which the carrying interest Financial instruments measured at fair value rate does not significantly differ from the market interest rate as at 31 December. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) Level 1 are measurements at quoted prices (unadjusted) in active markets for identical b) Loans and advances to customers assets or liabilities; Loans and advances are net of allowances for impairment. The Bank’s loan portfolio has an (ii) Level 2 measurements are valuations techniques with all material inputs observable for the estimated fair value which is smaller than its book value due to the higher market interest asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and rates prevailing at the end of 2012 as a result of the actual market conditions. The majority of (iii) Level 3 measurements are valuations not based on observable market data (that is, the loan portfolio is subject to re-pricing within a year. unobservable inputs). The fair value of loans and advances to customers is their expected cash flow discounted at Management applies judgement in categorising financial instruments using the fair value current market rates. Current market rates are interest rates we would charge at the moment hierarchy. If a fair value measurement uses observable inputs that require significant (year end). adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety. Recurring fair value c) Financial assets held to maturity measurements are those that the accounting standards require or permit in the statement of The fair value of held to maturity investments is determined by using quoted prices for financial position at the end of each reporting period. Fair values analysed by level in the fair similar instruments as the discounting rate of future cash flows at the reporting date. Such value hierarchy and carrying value of assets not measured at fair value are as follows: investments are short term, and again the carrying interest rate does not significantly differ from the market interest rate as at 31 December 2013. 31 December 2013 2011 Level 1 Level 2 Level 3 Total FINANCIAL ASSETS d) Due to other banks and customers, other deposits and other borrowings. Loans and advances to banks - - 22,870,941 22,870,941 The estimated fair value of deposits with no stated maturity, which includes non-interest- Loans and advances to customers - - 38,700,399 38,700,399 bearing deposits, is the amount repayable on demand. Investments securities held to maturity - 4,215,704 - 4,215,704 Investment securities available for sale - 16,573,427 - 16,573,427

FINANCIAL LIAIBILITIES 3. FINANCIAL RISK MANAGEMENT Customer accounts - - 78,648,027 78,648,027 3.4 Fair value of financial assets and liabilities Due to banks - - 3,235,785 3,235,785 The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted

in an active market is based on discounted cash flows using interest rates for new debts with 31 December 2012 2011 similar remaining maturity. The carrying value differs from the fair value because the carrying Level 1 Level 2 Level 3 Total FINANCIAL ASSETS interest rates are higher than the market interest rate as at 31 December 2013, because at Loans and advances to banks - - 13,171,181 13,171,181 year end the banks are granting higher interest rates in the competition to attract deposits. Loans and advances to customers - - 50,659,319 50,659,319 Investments securities held to maturity - 4,718,685 - 4,718,685 Due to banks mainly refers to loans taken from the parent with a maturity of one month from Investment securities available for sale - 12,211,401 - 12,211,401 the date of the balances sheet and therefore their fair value is consider to be approximate to FINANCIAL LIAIBILITIES the carrying value. Customer accounts - - 72,869,393 72,869,393 Due to banks - - 7,513,888 7,513,888 A YEAR82 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK83 2013 3 FINANCIAL RISK MANAGEMENT The table below summarises the composition of regulatory capital and the ratios of the Bank 3.5 Capital management for the years ended 31 December 2012 and 2011. During those two years, the Bank complied with all of the externally imposed capital requirements to which they are subject. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are: Deductions represent investments in group’s financial institutions in excess of 10% of regulatory capital and intangible assets. The intangible assets are also deductible amount • to comply with the capital requirements set by the Bank of Albania; from Tier I and Tier II capital. • to safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • to maintain a strong capital base to support the development of its business. 3 FINANCIAL RISK MANAGEMENT 3.5 Capital management Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee 2013 2012 Tier 1 capital and the European Community Directives, as implemented by Bank of Albania, for supervisory Share capital 16,490,344 12,984,103 purposes. The required information is filed with Bank of Albania on a quarterly basis. Statutory reserve 1,374,250 1,374,250 Revaluation differences for statutory reporting 707,405 649,078 Bank of Albania requires generally each bank or banking Group to: (a) hold the minimum level of the regulatory capital of 1 billion LEK and (b) maintain a ratio of total regulatory Total qualifying Tier 1 capital 18,571,999 15,007,431 capital to the risk-weighted asset (the ‘Basel ratio’) at or above the Bank of Albania required Tier 2 capital minimum of 12% (2012: 12%). Bank of Albania has requested specifically that Tirana Bank Subordinated liability - - maintains a minimum capital adequacy ratio of 15%, amidst the uncertainties of the financial Revaluation reserve - - crisis in Greece and its potential effect in Albania. Total qualifying Tier 2 capital - - The Bank’s regulatory capital as managed by its Risk Department is divided into two tiers: Deductions from regulatory capital (10,891,797) (10,894,081) Tier 1 capital: share capital (net of any book values of the treasury shares), retained earnings and reserves created by appropriations of retained earnings ; and Total regulatory capital 7,680,202 4,113,350

Tier 2 capital: qualifying subordinated loan capital, collective impairment allowances and Risk-weighted assets: unrealised gains arising on the fair valuation of equity and debt instruments held as available for On-balance sheet 46,462,135 54,836,681 sale. Off-balance sheet 1,135,614 555,463

Total risk-weighted assets 47,597,749 55,392,144 The risk-weighted assets are measured by means of a hierarchy of four risk weights classified

according to the nature of − and reflecting an estimate of credit, market and other risks CAR ratio 16,14 % 7,42% associated with − each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposure, with some The capital adequacy ratio is calculated based on the Bank of Albania’s financial adjustments to reflect the more contingent nature of the potential losses. information, shown above. A YEAR84 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK85 2013 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS 5. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS The Bank makes estimates and assumptions that affect the reported amounts of assets and The following new standards and interpretations became effective for the Bank from 1 liabilities within the next financial year. Estimates and judgments are continually evaluated January 2013: and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. IFRS 10 “Consolidated Financial Statements” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) replaces all of the guidance on control a) Impairment losses on loans and advances and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In “Consolidation - special purpose entities”. IFRS 10 changes the definition of control so that determining whether an impairment loss should be recorded in profit or loss, the Bank makes the same criteria are applied to all entities to determine control. This definition is supported judgments as to whether there is any observable data indicating that there is a measurable by extensive application guidance. The Standard did not have any material impact on the decrease in the estimated future cash flows from a portfolio of loans before the decrease can Bank’s financial statements. be identified with an individual loan in that portfolio. This evidence may include observable IFRS 11 “Joint Arrangements” (issued in May 2011 and effective for annual periods beginning data indicating that there has been an adverse change in the payment status of borrowers in on or after 1 January 2013) replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly a Bank, or national or local economic conditions that correlate with defaults on assets in the Controlled Entities—Non-Monetary Contributions by Bank. Management uses estimates based on historical loss experience for assets with credit Venturers”. Changes in the definitions have reduced the number of types of joint risk characteristics and objective evidence of impairment similar to those in the portfolio arrangements to two: joint operations and joint ventures. The existing policy choice of when scheduling its future cash flows. proportionate consolidation for jointly controlled entities has been eliminated. Equity The methodology and assumptions used for estimating both the amount and timing of accounting is mandatory for participants in joint ventures The Standard did not have any future cash flows are reviewed regularly to reduce any differences between loss estimates material impact on the Bank’s financial statements. and actual loss experience. To the extent that the net present value of estimated cash flows differs by -/+5%, the provision would be estimated LEK 273,997 thousand higher or LEK IFRS 12 “Disclosure of Interests in Other Entities” (issued in May 2011 and effective for 247,902 thousand lower (2011: LEK 372,644 thousand higher or LEK 313,387 thousand). annual periods beginning on or after 1 January 2013) applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured (b) Recent volatility in global financial markets entity. It replaces the disclosure requirements previously found in IAS 28 “Investments in The Bank’s uncertain tax positions are reassessed by management at the end of each associates”. IFRS 12 requires entities to disclose information that helps financial statement reporting period. Liabilities are recorded for income tax positions that are determined by readers to evaluate the nature, risks and financial effects associated with the entity’s management as more likely than not to result in additional taxes being levied if the positions interests in subsidiaries, associates, joint arrangements and unconsolidated structured were to be challenged by the tax authorities. The assessment is based on the interpretation entities. To meet these objectives, the new standard requires disclosures in a number of of tax laws that have been enacted or substantively enacted by the end of the reporting areas, including significant judgements and assumptions made in determining whether period, and any known court or other rulings on such issues. Liabilities for penalties, interest an entity controls, jointly controls, or significantly influences its interests in other entities, and taxes other than on income are recognised based on management’s best estimate of the extended disclosures on share of non-controlling interests in group activities and cash expenditure required to settle the obligations at the end of the reporting period. flows, summarised financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities The (c) Determining fair values Standard did not have any material impact on the Bank’s financial statements. Information about fair values of financial assets and liabilities that were valued using assumptions that are not based on observable market data is disclosed in Note 3.4 IFRS 13 “Fair Value Measurement” (issued in May 2011 and effective for annual periods A YEAR86 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK87 2013 beginning on or after 1 January 2013) improved consistency and reduced complexity by have any material impact on the Bank’s financial statements. providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Standard did not have any material “Disclosures - Offsetting Financial Assets and Financial Liabilities” - Amendments to IFRS impact on the Bank’s financial statements. 7 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures that enable users of an entity’s [consolidated] IAS 27 “Separate Financial Statements” (revised in May 2011 and effective for annual financial statements to evaluate the effect or potential effect of netting arrangements, periods beginning on or after 1 January 2013) was changed and its objective is now to including rights of set-off. The Standard did not have any material impact on the Bank’s prescribe the accounting and disclosure requirements for investments in subsidiaries, financial statements. joint ventures and associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced by IFRS 10 Improvements to International Financial Reporting Standards (issued in May 2012 and “Consolidated Financial Statements”. The Standard did not have any material impact on effective for annual periods beginning 1 January 2013). The improvements consist of the Bank’s financial statements. changes to five standards. IFRS 1 was amended to (i) clarify that an entity that resumes preparing its IFRS financial statements may either repeatedly apply IFRS 1 or apply IAS 28 “Investments in Associates and Joint Ventures” (revised in May 2011 and effective all IFRSs retrospectively as if it had never stopped applying them, and (ii) to add an for annual periods beginning on or after 1 January 2013). The amendment of IAS 28 exemption from applying IAS 23 “Borrowing costs”, retrospectively by first-time adopters. resulted from the Board’s project on joint ventures. When discussing that project, the IAS 1 was amended to clarify that explanatory notes are not required to support the third Board decided to incorporate the accounting for joint ventures using the equity method balance sheet presented at the beginning of the preceding period when it is provided into IAS 28 because this method is applicable to both joint ventures and because it was materially impacted by a retrospective restatement, changes in accounting associates. With this exception, other guidance remained unchanged. The Standard did not policies or reclassifications for presentation purposes, while explanatory notes will be have any material impact on the Bank’s financial statements. required when an entity voluntarily decides to provide additional comparative statements. IAS 16 was amended to clarify that spare parts, stand-by and servicing equipment are Amendments to IAS 1 “Presentation of Financial Statements” (issued in June 2011, effective classified as property, plant and equipment rather than inventory when they meet the for annual periods beginning on or after 1 July 2013) changed the disclosure of items definition of property, plant and equipment. The requirement to account for spare parts presented in other comprehensive income. The amendments require entities to separate and servicing equipment as property, plant and equipment only if they were used in items presented in other comprehensive income into two groups, based on whether or not connection with an item of property, plant and equipment was removed because this they may be reclassified to profit or loss in the future. The requirement was too restrictive when compared with the definition of property, plant and suggested title used by IAS 1 has changed to “statement of profit or loss and other equipment. IAS 32 was amended to clarify that certain tax consequences of distributions comprehensive income”. The Standard did not have any material impact on the Bank’s to owners should be accounted for in the income statement as was always required by IAS financial statements. 12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 now requires disclosure of a measure of total assets and liabilities for an operating segment only if Amended IAS 19 “Employee Benefits” (issued in June 2011, effective for periods beginning such information is regularly provided to chief operating decision maker and there has on or after 1 January 2013) makes significant changes to the recognition and measurement been a material change in those measures since the last annual [consolidated] financial of defined benefit pension expense and termination benefits, and to the disclosures for statements. The amended standards did not have any material impact on the Bank’s all employee benefits. The standard requires recognition of all changes in the net defined financial statements. benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Standard did not “Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12” (issued in June 2012 A YEAR88 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK89 2013 and effective for annual periods beginning 1 January 2013). The amendments clarify the contractual cash flow characteristics of the instrument. transition guidance in IFRS 10 “Consolidated Financial • An instrument is subsequently measured at amortised cost only if it is a debt Statements”. Entities adopting IFRS 10 should assess control at the first day of the annual instrument and both (i) the objective of the entity’s business model is to hold the period in which IFRS 10 is adopted, and if the consolidation conclusion under IFRS 10 asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows differs from IAS 27 and SIC 12, the immediately preceding comparative period (that is, year represent payments of principal and interest only (that is, it has only “basic loan 2012) is restated, unless impracticable. The amendments also provide additional transition features”). All other debt instruments are to be measured at fair value through profit or relief in IFRS 10, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of Interests in Other loss. Entities”, by limiting the requirement to provide adjusted comparative information only • All equity instruments are to be measured subsequently at fair value. Equity for the immediately preceding comparative period. Further, the amendments remove the instruments that are held for trading will be measured at fair value through profit or requirement to present comparative information for disclosures related to unconsolidated loss. For all other equity investments, an irrevocable election can be made at initial structured entities for periods before IFRS 12 is first applied. The amended standards did recognition, to recognise unrealised and realised fair value gains and losses through not have any material impact on the Bank’s financial statements. other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an Other revised standards and interpretations: IFRIC 20 “Stripping Costs in the Production instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long Phase of a Surface Mine”, considers when and how to account for the benefits arising from as they represent a return on investment. the stripping activity in mining industry. The interpretation did not have an impact on the • Most of the requirements in IAS 39 for classification and measurement of financial Group’s [consolidated] financial statements. Amendments to liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities IFRS 1 “First-time adoption of International Financial Reporting Standards - Government designated at fair value through profit or loss in other comprehensive income. Loans”, which were issued in March 2012 and are effective for annual periods beginning • Hedge accounting requirements were amended to align accounting more closely with 1 January 2013, give first-time adopters of IFRSs relief from full retrospective application risk management. The standard provides entities with an accounting policy choice of accounting requirements for loans from government at below market rates. The between applying the hedge accounting requirements of IFRS 9 and continuing to amendment is not relevant to the Bank. apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. New Accounting Pronouncements Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2014 or later, and which the Bank has not early adopted.

IFRS 9 “Financial Instruments: Classification and Measurement”. Key features of the standard issued in November 2009 and amended in October 2010, December 2011 and November 2013 are: • Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the A YEAR90 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK91 2013 6. INTEREST AND SIMILAR INCOME 9. OTHER GAINS

2013 2012 2013 2012

Due from banks including Central Bank 354,643 276,048 Foreign exchange transaction gains less losses 337,856 239,959 Financial assets available for sale 688,887 705,502 Fair value gain/(loss) on financial assets (101,822) (38,201) Held to maturity - financial investments 529,591 492,904

Interest on loans and advances to customers 2,779,987 3,958,375 236,034 201,758 Interests on overdrafts 231,980 194,811 4,585,088 5,627,640 10. OTHER OPERATING INCOME

Loan commissions recognized in profit or loss are calculated using effective interest rate 2013 2012 method. Interest income accrued on impaired financial assets during 2013 is LEK 48.126 thousand (2012: LEK 26,738 thousand). Rental income 2,749 1,120 Other operating income 49,580 -

7. INTEREST AND SIMILAR EXPENSE 52,329 1,120

2013 2012 The bank has received the reimbursement from the insurance company for the amount of Lek 48,187 thousand in relation to the fraud losses incurred in 2012. Due to banks 117,536 261,709 The Bank has entered into leasing agreements as a lessor for premises owned. These are Due to customers 2,822,867 2,507,446 annual contracts which are renewable upon consent by both parties. There are no contingent 2,940,403 2,769,155 rents related to these operating lease agreements. The minimum non-cancellable lease payments are as follows.

8. NET FEES AND COMMISSION INCOME 2013 2012 Not later than one year 2,749 1,120 2013 2012 Later than one year and not later than five years - -

Later than five years - - FX transactions 3,328 3,579 Letters of Credit 23,039 26,996 Money Transfer 74,537 73,057 11. PERSONNEL EXPENSES Import-Export 33,376 22,835 Other fees received 114,891 120,778 2013 2012

Total fees and commission income 249,171 247,245 Wages & salaries 496,793 441,158 Credit Cards (24,883) (8,185) Contributions to state pension funds 56,980 56,497 Correspondent Banks (12,047) (11,799) Social security’s costs 6,458 6,403 Total fees and commission expense (36,930) (19,984) Other staff costs 19,768 11,141 Net fee and commission income 212,241 227,261 579,999 515,199 A YEAR92 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK93 2013 12. OTHER OPERATING EXPENSES 13. INCOME TAX EXPENSE The components of income tax expense for the years ended 31 December 2013 and 2012 are:

2013 2012

2013 2012 Rental charges payable under operating leases 219,939 224,806 Fees for deposits insurance (ASD) 210,234 194,688 Current tax Telecommunication expenses 104,387 115,606 Current income tax - - Advertising and marketing 53,261 50,146 Deferred tax Security and maintenance expenses 109,449 107,257 Relating to origination and reversal of temporary differences 31,290 (546)

Subscriptions 78,864 74,918 Income tax benefit/(expense) reported in profit or loss 31,290 (546) Utility expenses 51,242 53,938 Stationeries and consumables 31,409 39,687 Reconciliation between the tax expense and the accounting profit multiplied by Albania’s Travel expense 15,017 14,023 Other insurance expenses 23,681 15,866 domestic tax rate for the years ended 31 December 2013 and 2012 is as follows: Fees and other similar expenses 8,565 8,400 Other 82,697 87,202 Income tax expense 988,745 986,537 2013 2012

During its operating activities, the Bank enters into operating lease agreements as a leasee for the premises it uses for its branches. The operating lease agreements are denominated Accounting profit/(loss) before tax (1,333,772) (196,984) Theoretical tax charge (credit) at statutory rate (2013: 10%; 2012: 10%) (133,377) (19,698) in EUR and USD. The minimum lease payments under non-cancellable operating leases are Tax effect of items which are not deductible or assessable for taxation 44,944 18,814 disclosed in note 3.3.2. purposes:

-Income which is exempt from taxation (3,537) (4,493)

-Non-deductible expenses 48,481 23,307

Unrecognised tax loss carry forwards 88,433 884

Deferred tax income/(expense) 31,290 (546)

Income tax credit/(expense) reported in profit or loss 31,290 (546)

A YEAR94 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK95 2013 The Bank has unrecognised potential deferred tax assets in respect of unused tax loss carry 13. INCOME TAX EXPENSE forwards of Lek 89,317 thousand (2012: Lek 884 thousand). The tax loss carry forwards expire

as follows: 2013

2013 2012 Financial Tax loss carry-forwards expiring by the end of: assets - 31 December 2013 - - available for Deferred tax Deferred tax Income sale - 31 December 2014 - - Assets Liabilities Statement Reserve

- 31 December 2015 884 884 (Dr)/Cr (Dr)/Cr - 31 December 2016 88,433 - Initial valuation and historical cost of PPE - 7,070 -910 -

- 31 December 2017 - - Fair value through profit and loss - - - - Available for sale securities - 40,952 - 29,264 Start up costs and capitalised expenses - 42,954 (8,619) - Total tax loss carry forwards 89,317 884 Adjustment for depreciation of fixed assets 96,898 - 35,599 - Loan commission deferred 21,831 - 5,221 - Loan provisions calculated under Central Bank’s rules and IFRS - - - - The effective income tax rate for 2013 is nil (2012: nil). According to Albanian Tax legislation Other liabilities - - - - the Tax authorities have right to examine tax returns for the 5 years following submission of Total 118,729 90,976 31,290 29,264 the return. Deferred tax assets, net 27,752

Corporate income tax receivable

2013 2012 2012

1 January 259,726 148,541 Financial assets Prepayments during the year 40,953 111,185 available for Deferred tax Deferred tax Income sale Income tax expense - - Assets Liabilities Statement Reserve 31 December 300,679 259,726 (Dr)/Cr (Dr)/Cr Initial valuation and historical cost of PPE - 6,160 1,162 - The deferred tax included in the balance sheet and changes recorded in the income tax Fair value through profit and loss - - 3,407 - expense are as follows: Available for sale securities - 11,688 63 (5,675) Start up costs and capitalised expenses - 34,335 (5,723) - Adjustment for depreciation of fixed assets 61,299 - 3,420 - Loan commission deferred 16,610 - (2,875) - Loan provisions calculated under Central Bank’s rules and IFRS - - - - Other liabilities - - - - Total 77,909 52,183 (546) (5,675) Deferred tax assets, net 25,726 A YEAR96 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK97 2013 14. CASH AND BALANCES WITH CENTRAL BANK The interest rates on compulsory reserves during 2013 and 2012 fluctuated as follows:

2013 2012 2013

Currency Minimum Maximum Method of calculation Cash in hand

Notes and coins in LEK 761,756 718,236 LEK 1.75% 2.275% 70% of the yield on REPO with Central Bank Notes and coins in foreign currency 897,551 838,671 USD 0% 0% - 1,659,307 1,556,907 EUR 0% 0% - Balances with the Central Bank Current account 2012 in LEK - 232,507 Currency Minimum Maximum Method of calculation in foreign currency 3,786,282 576 3,786,282 233,083 LEK 2.80% 2.80% 70% of the yield on REPO with Central Bank Compulsory reserves USD 0% 0% in LEK 3,893,439 3,214,526 EUR 0% 0% in foreign currency 3,539,384 3,598,966 7,432,823 6,813,492 Current accounts with the Central Bank are non-interest bearing. The interest rates for nostros

Accrued interest 14,900 14,300 and sight accounts are floating. Nostro and sight accounts are detailed in the following table.

Total balances with Central Bank 11,234,005 7,060,875 S&P LT/ST 2013 2012

Nostro and sight accounts with banks Cash in transit to correspondent banks - 362,934 Deutche Bank AG A+/A- 2,468,588 4,761,829 Nostro and sight accounts with banks 2,919,248 4,885,557 Deutsche Bank Trust Bank Americas A/A-1 352,380 39,389 Accrued interest - - Piraeus Bank SA CCC/C 53,313 62,460 Total nostro and sight accounts with banks 2,919,248 5,248,491 National Westminster Bank plc A+/A-1 17,365 2,953 Raiffeisen Bank International AG A/A-1 4,395 6,214

Banca Popolare di Vicenza BBB+/A-2 10,863 9,955 15,812,560 13,866,273 Standard Chartered Bank Frankfurt A+/A-1 5,041 1,640 Current 15,812,560 13,866,273 Standard Chartered Bank New York A+/A-1 4,407 - Non-current - - Banco Popolare 2,896 1,117 Total 2,919,248 4,885,557 Compulsory reserves with Central Bank are not for everyday use by Tirana Bank and represent a minimum reserve deposit, required by the Central Bank of Albania. Such reserves are calculated as a percentage of 10% of the average amount of deposits for the month owed to banks and customers, and are both in LEK and in foreign currency (USD and EUR). Cash and balances with Central Bank, excluding cash in hand, is included in the analysis of the maximum exposure to credit risk (Note 3.1.4).

A YEAR98 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA BANK99 2013 15. LOANS AND ADVANCES TO BANKS 16. LOANS AND ADVANCES TO CUSTOMERS

2013 2012 2013 2012

Term placements with banks: Corporate lending 1,489,328 1,755,919 Resident - - SME lending 30,435,910 41,602,425 Non resident 15,847,779 13,121,266 Total corporate and SME lending 31,925,238 45,122,079 Reverse repurchase agreements 7,006,931 - Consumer lending 2,321,900 2,426,654 22,854,710 13,121,266 Mortgage 8,513,712 8,842,636 Overdrafts 380,515 300,976 Accrued interest 16,231 49,915 Credit cards 244,875 215,686

Loan commissions deferred (221,231) (256,603) 22,870,941 13,171,181 Accrued interest 665,607 977,582

Current 22,870,941 13,171,181 Gross loans and advances 43,830,616 55,865,275 Non-current - - Less: Allowance for impairment losses (5,130,217) (5,205,956) The interest rates for due from banks are fixed. 38,700,399 50,659,319 Loans and advances to banks are detailed in the following table. Current 17,114,443 22,880,603 Non-current 21,585,956 27,778,716 S&P 31 December 2013 Currency In original currency In LEK ‘000 LT/ST Piraeus Bank SA CCC/C EUR 56,500,000 7,921,300 The table below shows the industry analysis of gross loans (without taking into Piraeus Bank SA (reverse repurchase) CCC/C EUR 49,978,111 7,006,931 consideration the “Loan commissions deferred” and “Accrued interest”) granted to Piraeus Bank SA CCC/C JPY 176,000,000 170,685 corporate and SMEs clients. San Paolo di Torino BBB+/A-2 EUR 10,000,000 1,402,000 Deutsche Bank USD 10,000,000 1,018,600 2013 2012 Deutsche Bank GBP 2,550,000 429,394

Societe Generale EUR 27,000,000 3,785,400 Manufacturing 6,570,387 9,698,065 Raiffeisen Austria A/A-1 USD 11,000,000 1,120,400 Electricity 3,170,767 3,298,492 Total 22,854,710 Trade 8,499,772 9,858,163 Construction 4,537,848 9,081,368 31 December 2012 Currency In original currency In LEK ‘000 Other industries 9,146,464 11,422,256 Piraeus Bank SA CCC/C EUR 56,000,000 7,817,040 Total gross loans 31,925,238 43,358,344 Piraeus Bank SA CCC/C USD 1,500,000 158,775 Piraeus Bank SA CCC/C GBP 2,310,000 395,426 San Paolo di Torino BBB+/A-2 EUR 20,000,000 2,791,800 Raiffeisen Austria A/A-1 EUR 18,500,000 1,958,225 Total 13,121,266

A YEAR100 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA101 BANK 2013 The interest rates for loans and overdrafts are floating as follows: The movement in allowances for losses by classes of loans during 2013 is as follows:

Credit Corporate SME Consumer Mortgages cards and Total Currency Interest Rate Additional Penalty Interest Rate overdrafts 2013 At 1 January 2013 48,639 4,708,229 161,175 287,913 - 5,205,956 LEK 12 months TRIBOR + (2-10,2)% 3,0% USD 12 months LIBOR + (4-7.0)% 3,0% Write off (1,391,054) (1,391,054) EUR 12 months EURIBOR+ (3-7,5)% 3,0% Charge for the 945 1,227,852 (161,175) 193,629 54,064 1,315,316 year At 31 December 2013 49,584 4,545,027 - 481,542 54,064 5,130,217

2012 LEK 12 months TRIBOR + (2-10,2)% 3,0% The movement in allowances for losses by classes of loans during 2012 is as follows: USD 12 months LIBOR + (4-7.0)% 3,0% EUR 12 months EURIBOR+ (3-7,5)% 3,0% Credit cards Corporate SME Consumer Mortgages and over- Total drafts At 1 January The movement in allowances (impairment) for losses on loans and advances to customers 38,401 2,893,019 241,680 475,180 17,564 3,665,844 2012 is as follows: Charge for the 10,238 1,815,210 (80,505) (187,267) (17,564) 1,540,112 year At 31 December 2013 2012 48,639 4,708,229 161,175 287,913 - 5,205,956 2012 At 1 January 5,205,956 3,665,844 Write off (1,391,054) - Charge for the year 1,315,316 1,540,112 At 31 December 5,130,217 5,205,956

Individual impairments 4,075,006 4,168,961 Collective impairments 1,055,211 1,036,995

5,130,217 5,205,956

Gross Amounts of Loans, individually determined to be impaired, be- 29,065,664 23,267,644 fore deducing any individually assessed impairment allowances

A YEAR102 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA103 BANK 2013 17. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 18. FINANCIAL ASSETS HELD TO MATURITY

2013 2012 2013 2012

Visa shares 110,426 78,555 Security Investments Government bonds 1,986,685 1,443,651 Cost 4,150,600 4,638,400 Government treasury bills 14,476,316 10,689,195 Accrued interest 70,305 88,276 16,573,427 12,211,401 Un-amortised discount (5,201) (7,991) 4,215,704 4,718,685

Shares in Visa Inc 2013 2012 Current 417,207 510,977

Non-current 3,798,497 4,207,708 At 1 January 78,555 53,457 (Losses)/gains from change in fair value 31,871 25,098 The amount of Lek 4,215,704 thousand as at 31 December 2013 is made up of Lek 1,383,488 At 31 December 110,426 78,555 thousand, investments in Albanian Government’s Bonds denominated in Albanian Lek and Lek 2,832,216 thousand of investments in Albanian Government’s Bonds denominated in The shares in Visa Inc held by the Bank are granted by Visa as a form of reward for the long- Euro. standing cooperation with the Bank. The shares are granted on the basis of the performance against revenue and marketing expenditure targets. Albanian Government Securities are rated “BB+/B” by “Standard’s and Poor’s”. There are no past due amounts as at 31 December 2013. Government bonds 2013 2012

At 1 January 1,443,651 409,629 The interest rates for Albanian Government Bonds are fixed. The maturities of the Albanian Purchase 800,000 1,017,189 Government Bonds are as follows: Matured (382,989) -

Gains from change in fair value 126,023 16,833 31 December 2013 At 31 December 1,986,685 1,443,651 Un- Accrued Maturity Cost amortised Book Value Interest discount

Government treasury bills 2013 2012 Up 12 Months 400,000 17,207 - 417,207 At 1 January 10,689,195 5,030,730 12-24 Months 3,750,600 53,098 (5,201) 3,798,497 Purchase 14,726,679 10,624,035 4,150,600 70,305 (5,201) 4,215,704 Matured during the year (10,958,119) (4,980,946) (Losses)/gains from change in fair value 18,561 15,376 31 December 2012 At 31 December 14,476,316 10,689,195 Un- Accrued Maturity Cost amortised Book Value Interest discount

Up 12 Months 500,000 10,977 - 510,977 12-24 Months 4,138,400 77,299 (7,991) 4,207,708 4,638,400 88,276 (7,991) 4,718,685 A YEAR104 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA105 BANK 2013 The movements in the Albanian Government Bonds are as follows: 20. PROPERTY AND EQUIPMENT

Government bonds 2013 2012 Furniture Land and and elec- Leasehold Vehicles Total buildings tronic improvement At 1 January 4,718,685 5,600,728 equipment Purchases during the year - 710 Cost: Matured during the year (502,981) (882,753) At 1 January 2012 709,450 154,072 1,512,480 1,086,897 3,462,899 At 31 December 4,215,704 4,718,685 Additions - 6,894 38,787 7,560 53,241 Disposals - (8,529) (19,906) - (28,435)

At 31 December 2012 709,450 152,437 1,531,361 1,094,457 3,487,705

19. INTANGIBLE ASSETS At 1 January 2013 709,450 152,437 1,531,361 1,094,457 3,487,705 Additions - 535 50,910 3,353 54,798 Software Disposals - (9,343) (24,874) (51,830) (86,047) Cost: At 1 January 2012 862,243 At 31 December 2013 709,450 143,629 1,557,397 1,045,980 3,456,456 Additions 134,710 At 31 December 2012 996,953 Depreciation: At 1 January 2013 996,953 At 1 January 2012 170,281 101,557 1,238,922 648,735 2,159,495 Additions 79,034 Depreciation charge for the year 33,840 21,489 127,079 89,935 272,343 At 31 December 2013 1,075,987 Disposals - (518) (9,417) - (9,935) Amortization: At 31 December 2012 204,121 122,528 1,356,584 738,670 2,421,903 At 1 January 2012 498,790 Amortization charge for the year 96,341 At 1 January 2013 204,121 122,528 1,356,584 738,670 2,421,903 At 31 December 2012 595,131 Depreciation charge for the year 33,839 20,156 92,801 102,503 249,299 At 1 January 2013 595,131 Disposals (9,343) (24,335) (50,761) (84,439) Amortization charge for the year 127,166 At 31 December 2013 722,297 At 31 December 2013 237,960 133,341 1,425,050 790,412 2,586,763

Net book value At 31 December 2012 401,822 Net book value: At 31 December 2013 353,690 At 31 December 2012 505,329 29,909 174,777 355,787 1,065,802 At 31 December 2013 471,490 10,288 132,347 255,568 869,693

A YEAR106 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA107 BANK 2013 21. OTHER ASSETS 22. DUE TO BANKS

2013 2012 2013 2012 Other financial assets Current accounts Other Debtors 244,485 154,169 Residents 206,699 6,882 Claims Visa Card 35 852 Non residents 4,823 12,294 Other Receivables from Customers 59,602 31,723 211,522 19,176 Total other financial assets 304,122 186,744 Borrowings Residents 891,633 3,880,865

Advance Payments 292 905 Non residents 2,131,603 3,582,838 Inventory 54,461 62,344 3,023,236 7,463,703 Repossessed collaterals 1,155,416 754,719 Accrued interest 1,027 31,009 Prepaid Expenses 47,476 60,610 3,235,785 7,513,888 Other Assets 92,709 40,124 Current 3,235,785 7,513,888 Total other assets 1,654,476 1,105,446 Non-current - 1,105,446 567,669 Current 300,679 259,726 Non-current 1,654,476 1,105,446 Borrowings from non residents, mainly relate to borrowings from Piraeus Bank S.A. Greece (the Parent), to fulfil the needs of the Bank for liquidity in Euro. The accrued interest from Repossessed collateral represents real estate assets acquired by the Bank in settlement of Borrowings with non-resident banks for 2013 is 628 thousand LEK (2012: 19,846 thousand overdue loans. The Bank expects to dispose of the assets in the foreseeable future. The LEK). Balances due to banks bear floating rates. assets do not meet the definition of non-current assets held for sale, and are classified as inventories in accordance with IAS 2 “Inventories”. The assets were initially recognised at fair value when acquired. An impairment loss of Leke 61,433 thousand was recognised during the year.

2013 2012 At 1 January 754,719 263,564 Repossessed during the year 462,130 491,155 Impairment loss (61,433) - At 31 December 1,155,416 754,719

All of the above assets are expected to be recovered more than twelve months after the year-end, except for prepayments for income tax after the tax inspection of Lek 300,679 thousand (2012: nil).

A YEAR108 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA109 BANK 2013 23. DUE TO CUSTOMERS 25. PROVISIONS

2013 2012

Corporate customers 2013 2012 Current accounts 4,072,062 3,198,390 Term deposits 2,840,170 2,801,223 At 1 January 84,027 8,950 Other deposits 580,746 722,895 Write down (61,173) - 7,492,978 6,722,508 Charges to Profit or loss 157,102 75,077 Retail customers At 31 December 179,956 84,027 Current / Savings accounts 8,453,344 7,105,673 Term deposits 60,679,500 56,908,769 According to Albanian Tax Legislation, tax authorities have the right to examine tax returns Other deposits 1,134,151 1,324,849 for five years following their submission. 70,266,995 65,339,291 Accrued interest 870,819 800,300 Currently, the Bank has initiated a claim against tax authorities. The claim is based on the Cheques payables and remittances 17,275 7,294 last tax inspection report issued during 2012 by tax authorities. Inspection was performed for the financial years ended 2009-2011. The report released on 31 October 2012 has 78,648,027 72,869,393 assessed additional obligation of the Bank in respect to treatment of impairment provisions Current 76,312,980 69,902,068 for tax deductibility purposes (Lek 119,416 thousand) and the need to withhold tax on sale Non-current 2,335,007 618,696 transactions between shareholders (Lek 98,401 thousand). Included in the customer accounts were deposits of LEK 665,726 thousand (2012: LEK 916,802 thousand) held as collateral for irrevocable commitments under documentary business. The The Bank has won the case on the withholding tax in the appeal against the tax authorities. fair value of those deposits approximates the carrying amount. The Bank is following the impairment provision case in the court. The bank has reversed The deposits to customers are with fixed rates. the provision for the fraud case for the amount of Lek 61,173 thousand since it was partially reimbursed (EUR 343,242 or Lek 48,187 thousand) by the insurance company. An additional 24. OTHER LIABILITIES provision of Lek 157,102 thousand was recorded based on the recommendation from the 2013 2012 last inspection of the Bank of Albania with regard to the Bank Lending Rate (BLR) rate Dividend payable 87 90 Payables on foreign exchange transactions 172 21,662 used predominantly in retail loans. The Bank was requested to amend all the loan contracts Accrued expenses 85,043 104,596 to which were previously applied the BLR rate and to substitute with the floating interest Other liabilities 242,207 261,095 rate deriving from the Treasury Bills market. As consequence, the Bank has to return the Other financial liabilities 327,509 387,443 additional interest income gained during the previous year that BLR was applicable and Other taxes payable 2,787 3,369 decrease the actual interest income for the cases that BLR was applicable during the year Social insurance payable 15,794 8,748 ended 31 December 2013. 346,090 399,560 399,560 171,150 Current 346,090 399,560 Non-current - -

Accrued expenses include expenses on utilities, telephone expenses and bonuses related to current year and will be paid the year after. A YEAR110 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA111 BANK 2013 26. PAID-IN CAPITAL AND SHARE PREMIUM 27. OTHER RESERVES

2013 2012 Other reserves are comprised as follows:

Paid in Capital-authorized, issued and fully paid 14,754,741 11,248,500 2013 2012 Share premium 1,735,494 1,735,494 Legal and Legal and Total other Total other statutory re- AFS reserves statutory re- AFS reserves reserves reserves serves serves As at 1 January 1,389,948 103,968 1,493,916 1,389,948 52,336 1,442,284 26. PAID-IN CAPITAL AND SHARE PREMIUM Revaluation of invest- ment securities avail- - 176,455 176,455 - 57,307 57,307 able for sale The table below shows the shareholders structure of the Bank as 31 December 2012 and 2011. Deferred tax on revalu- ation of securities avail- - (29,264) (29,264) - (5,675) (5,675) able for sale Number of shares Share in % Number of shares Share in % Transfer from Retained Shareholder’s name ------2012 31 December 2012 2011 31 December 2011 Earnings 2012

Piraeus Bank S.A 496,098 98,83 380,486 98,48 Greece As at 31 December 1,389,948 251,159 1,641,107 1,389,948 103,968 1,493,916 Mr. Tzivelis Ioannis 5,877 1.17 5,877 1,52 Total 501,975 100,00 386,363 100,00 Legal reserves have been established according to the Bank of Albania regulation “On the minimum initial capital for allowed activities of banks and branches of foreign licensed On 31 December 2013, the authorised and issued share capital of the Bank was comprised of banks”, no.51, dated 22 April 1999. Banks and branches of foreign banks shall create 501,975 shares with the nominal value of EUR 216,24 (2012: 386,363 shares with the nominal reserves at 1,25% up to 2% of total risk weighted assets by deducting 1/5 of the profit value of EUR 216,24) all fully paid. after taxes before paying dividends. The statutory reserve has been established according to article no. 39 of the bank’s statute, which requires establishing of reserves by taking 5% The movement in share capital and share premium is as follows: of the bank’s net income after deducting the losses of the previous years. This procedure it’s not obligatory if the reserves exceed 1/10th of the bank’s share capital. Number of Paid-in capital Share premium shares The legal and statutory reserves are not distributable. At 1 January 2012 386,363 11,248,500 1,735,494 Increase from Shareholder’s contribution - - - 28. DIVIDEND PER SHARE At 31 December 2012 386,363 11,248,500 1,735,494 The General Assembly of Shareholders has decided that no dividends should be distributed from the profit of the year 2012 and that it would be used for the increase of the Share Increase from Shareholder’s contribution 115,612 3,506,241 - At 31 December 2013 501,975 14,754,741 1,735,494 Capital of the Bank. No decision is made on 2013 profits. Increase from retained earnings - - - At 31 December 2012 386,363 10,954,079 1,735,494

A YEAR112 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA113 BANK 2013 29. CASH AND CASH EQUIVALENTS 2013 2012

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

Notes 2013 2012 Piraeus Bank S.A. Greece Interest income 250,647 173,736

Cash in hand 14 1,659,307 1,556,907 Interest expenses (34,042) (25,064) Current accounts with Central Bank 14 3,786,283 233,083 Fees and commission income 8 5 Cash in transit with banks 14 - 362,934 Fees and commission expenses (373) (1,137) Nostro and sight accounts with banks 14 2,919,248 4,885,557 216,240 147,540 Due from banks 15 22,854,710 13,171,181 Tirana Leasing 31,219,548 20,209,662 Interest income 7,147 5,380 Other expenses - - 7,147 5,380 30. RELATED PARTIES In the course of conducting its banking business, the Bank entered into various business transactions with related parties. Related parties include (a) Piraeus Bank S.A Greece for Key management compensation sight deposits, inter-bank placements and borrowings, and (b) Tirana Leasing (subsidiary of 2013 2012 the parent) for lending and deposits. Short-term benefits The immediate and ultimate parent of the Bank is Piraeus Bank SA (Greece). Salaries 26,182 43,421

2013 2012 Bonuses 2,962 2,641 Piraeus Bank SA Greece 29,144 46,062 Sight deposits 53,313 62,460

Placements 15,098,916 8,371,241 Only short term employee benefits (i.e. salaries and bonuses) are included in key management REPO with Piraeus 7,007,096 - compensation. The post employment benefits, share-based payments and long term benefits Due to banks (4,744) (944) are not applicable as no such benefits are granted. Borrowings (2,131,603) (1,350,576) 20,022,978 7,082,181

2013 2012 Tirana Leasing (subsidiary of Piraeus Bank SA) Loans given (Tirana Leasing) 677,772 65,494 Due to Tirana Leasing (3,874) (6,360) 673,898 59,134 Bank Directors Loans given 35,835 33,413 Deposits (74,817) (3,077) (38.982) 30,336 The interest rate applied for placements with Piraeus Bank for year 2013 vary from 0.4% to 3.95% (2012 from 0.57% to 3,60%). For Borrowings, the interest rates vary for year 2013 from 2,10% to 3% (2012 from 0,50% to 1,10%). A YEAR114 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA115 BANK 2013 31. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY As of 31 December 2013 and 2012, the trading securities are measured at fair value, with the The following table provides a reconciliation of classes of financial assets with the changes in fair value taken to the profit and loss account for the period, the available for sale measurement categories as of 31 December 2013: securities are measured at fair value with the changes in fair value taken to the statement of comprehensive income for the period. Loans and receivables and held-to-maturity financial assets are measured at amortised cost. Loans and receiv- 2013 Available for sale Held to maturity Total ables As of 31 December 2013 and 31 December 2012 all of the Bank’s financial liabilities were Cash and balances with Central 15,812,560 - - 15,812,560 Bank carried at amortised cost. Loans and advances to banks 22,870,941 - - 22,870,941 Financial assets designated at fair - - - - value 32. EVENTS AFTER THE REPORTING DATE Held to maturity financial assets - - 4,215,704 4,215,704 Financial assets available for sale 16,573,427 16,573,427 There are no other events after the reporting date that would require either adjustments or Loans and advances to customers 38,643,915 - - 38,643,915 additional disclosures in the financial statements. Total financial assets 77,327,416 16,573,427 4,215,704 98,116,547 Other assets 3,262,674 Total Assets 101,379,221

Loans and receiv- 2012 Available for sale Held to maturity Total ables

Cash and balances with Central 13,866,273 - - 13,866,273 Bank Loans and advances to banks 13,171,181 - - 13,171,181 Financial assets designated at fair - - - - value Held to maturity financial assets - - 4,718,685 4,718,685 Financial assets available for sale 12,211,401 12,211,401 Loans and advances to customers 50,659,319 - - 50,659,319 Other financial assets 186,744 - - 186,744 Total financial assets 77,696,773 12,211,401 4,718,685 94,626,859 Other assets 2,851,404 Total Assets 97,478,263

A YEAR116 FORWARD ANNUAL REPORT / TIRANA BANK 2013 A YEAR FORWARD ANNUAL REPORT / TIRANA117 BANK 2013 A YEAR11 FORWARD8 ANNUAL REPORT / TIRANA BANK 2013