TIRANA BANK ANNUAL REPORT 2015

Table of Content

Message from CEO

Piraeus Group

Governance

Tirana Bank Objectives & Overviews Branch Network: Map and Addresses

Economic Outlook

Tirana Bank during 2015 – Products, Performance & Others Retail Banking SME Banking Corporate Banking Branch Network Treasury IT and Infrastructure Developments Risk Management Compliance Transfer of Funds

Corporate Social Responsibility Environment Society Culture Education

Human Resources

Financial Statements (Tables and Graphs) Contents of the Financial Statements Independent Auditor’s Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Message from CEO

TIRANA BANK ANNUAL REPORT 2015 Dear Shareholders, Dear Customers, Dear Partners, Dear Employees,

Although 2015 has, in the region, been a year full of continuing political and economic developments which have hugely impacted on the activities of the financial industry, our Bank has successfully managed to solidly maintain the trust and support of its customers.

Tirana Bank,a strong player in the Albanian banking market during the last two decades, has remained close to its customers. We have continued to succeed in preserving the confidence of our loyal clients, partners and employees.

The staff of the Bank has operated with commitment and dedication, improving the quality of service and aiming to strengthen a fruitful and long-term relationship at every step of the way.

Financial performance, commitment to ethical leadership and corporate behavior are rooted deeply in our core values: high-quality service, ability to be flexible to the requirements of the market, prosperity and the career development for our employees.

In line with the Piraeus Group strategy, the Bank has been successful in:

• remaining one of the top five banks in the market

• maintaining a strong liquidity and capital position

• focusing on quality service improvement

• maintaining stability of its customers base, while being active in attracting new individual and business customers

• preserving and prudently enhancing the performing portfolio of customers, while focusing on the collection of distressed financial assets

In December 2015, Piraeus Bank, the largest bank in Greece, announced the successful completion of the coverage in full of the share capital increase, which paves the way for sustainable operations and a solid performance.

We thank you for your support and co-operation, which is essential to achieving our goals and a strong encouragement to delivering our best performance.

Dritan Mustafa Chief Executive Officer

7 Piraeus Group

TIRANA BANK ANNUAL REPORT 2015 Founded in 1916, Piraeus Bank operated as a private credit institution for many decades, while it went through a period of state ownership between 1975- 1991 until it was privatized in December 1991. Since then, it has rapidly grown in size and range of activities, and today it is the leading Bank in Greece with 30% market share in terms of loans and 27% in terms of deposits. With its Headquarters in Athens, Greece, and approximately 19 thousand employees in 8 countries in Greece and South East Europe, Piraeus Bank Group offers a full range of financial products and services to approximately 6 million customers. The total assets of the Group amount to €88 billion, net loans to €51 billion and customer deposits to €39 billion as at December 31, 2015

OUR JOURNEY Together with its organic growth in decades 1990 and 2000, Piraeus Bank made a series of strategic acquisitions and mergers aimed at establishing a strong presence in the domestic market. Thus, in 1998, the Bank absorbed the activities of Chase Manhattan in Greece, took over a controlling interest in Macedonia-Thrace Bank and acquired the specialized bank Credit Lyonnais Hellas. At the beginning of 1999, the Bank acquired Xiosbank and absorbed the activities of National Westminster Bank Plc in Greece. In June 2000, Piraeus Bank absorbed its two commercial banks in Greece (Macedonia-Thrace Bank and Xiosbank). In 2002, Piraeus Bank acquired the Hellenic Industrial Development Bank (ETBA bank), which was absorbed in December 2003. As part of its strategy for expansion in Southeastern Europe and Eastern Mediterranean markets, Piraeus Bank Group first reached an agreement for the acquisition of Pater Credit Bank in Romania (integrated into the Group in April 2000 as Piraeus Bank Romania SA). In 2005 it acquired the Bulgarian Eurobank (renamed Piraeus Bank Bulgaria), strengthening its 12 year presence in Bulgaria. In addition, Piraeus entered the Serbian market in 2005 by acquiring Atlas Bank (renamed Piraeus Bank Beograd). Finally, in 2007, Piraeus Group expanded its international presence in Ukraine by purchasing the International Commerce Bank (renamed

9 Piraeus Bank ICB) and in Cyprus by establishing Piraeus of 2015, while the fully loaded Basel III Common Equity Bank Cyprus through the acquisition of the Arab Bank Tier-1 ratio reached 16.6%. Accordingly, current capital Cypriot network. ratios has made Piraeus Bank one of the strongest In 2012, Piraeus Bank acquired the “good” part of capitalized banks in Europe. Agricultural Bank (selected assets and liabilities) and Geniki Bank, a former subsidiary of Société Générale. In March 2013, Piraeus Bank purchased the Greek banking WHAT WE DO operations of Bank of Cyprus, Cyprus Popular Bank and Today, Piraeus Bank leads a group of companies Hellenic Bank. In June 2013, Piraeus Bank acquired covering all financial activities in the Greek market Millennium Bank Greece, a subsidiary of BCP. In April, (universal bank). Piraeus Bank possesses particular 2015 Piraeus Bank took over part of Panellinia Bank’s know-how in the areas of medium-sized and small healthy assets. These transactions were an important enterprises, in agricultural banking, in consumer and component in the restructuring of the Greek banking mortgage credit and green banking, capital markets and system, in which Piraeus Bank has participated as a core investment banking, as well as leasing and factoring. pillar from the very beginning. These services are offered through nation-wide network Piraeus Bank has successfully integrated all the above of 709 branches and 1,817 ATMs, and also through its 2012-2015 banking acquisitions in its structure, offering innovative electronic banking network of winbank. a unique banking experience to all its customers. Piraeus Bank Group, possesses an international In December 2015, Piraeus Bank announced the full presence consisting of 280 branches focused in coverage of the share capital increase by an amount Southeastern Europe and Eastern Mediterranean. In totaling € 2.6 billion with the abolition of the pre- particular the Group operates in Romania through emption rights of existing shareholders; payment in cash; Piraeus Bank Romania with 120 branches, in Bulgaria liabilities’ capitalization equivalent to cash payment; through Piraeus Bank Bulgaria with 75 branches, in and contribution in kind by issuing 8,672,163,482 new Albania through Tirana Bank with 39 branches, in Serbia common dematerialized registered voting shares. The with 26 branches of Piraeus Bank Beograd, in Ukraine new shares were allocated to qualified investors under with 18 branches of Piraeus Bank ICB, in London and private placement, to holders of Non Transferable Frankfurt with a branch of Piraeus Bank each. Receipts under the Liability Management Exercise and to the Financial Stability Fund pursuant to the decision of the Bank’s Extraordinary General Meeting of 15.11.2015 WHAT WE STAND FOR and in accordance with the decisions of the Board of Piraeus Bank Group has a well-trained and experienced Directors of 20.11.2015 and 02.12.2015. Furthermore, workforce. The Group’s vision is the continuous in order to cover part of Piraeus’ capital needs as they development of a caring and responsible organization, were assessed by the Asset Quality Review (AQR) and where each employee, with specific competencies Stress Test released by the European Central Bank and personal motivation works collectively and with on October 31, 2015 under the adverse scenario, the dedication, capitalizing on company diversity and Bank issued Contingent Convertible Bonds under the creating value in what they do. In the selection and provisions of the Law in favor of the HFSF and the CA implementation process of human resources, objective 36 / 02.11.2015 to an amount of € 2.0 bn. criteria and methodology are incorporated with specific the recapitalization of Piraeus Bank increased the Group’s emphasis on equal opportunities and respect for total equity to €10.0 billion as at the end of December people. The Group invests in the continuous training 2015. The Group’s Common Equity Tier-1 ratio (pro- and development of its 19,000 people with innovative forma for the discontinued operations of Piraeus Bank measures and processes. At the same time the Group Cyprus and ATE Insurance) reached 17.8% at the end has created a work environment where innovation, the

TIRANA BANK ANNUAL REPORT 2015 exchange of ideas and , creativity are supported and environment and preservation of our cultural heritage. team spirit is promoted. Through tangible evaluation Piraeus Bank has built significant expertise and market procedures, the Group ensures that the performance of share in the field of green banking with dedicated its people are aligned with the Group’s objectives and branches and products, addressing both business and has created the necessary framework for recognition individual needs. At the same time, the Piraeus Bank and reward both at an individual and team level. Open Group Cultural Foundation carries out culturally-related communication and the necessary support of the people activities, which are part of the Piraeus Bank Group’s are continually improved, in many different areas and in corporate social responsibility and operates a series different aspects of life, ensuring an organization that is of themed museums in Greece. Through its growing both “and human and dynamic”. network, the museums are able to successfully bring cultural activities on a high standard to the rural regions The Piraeus Bank Group, combining business development of Greece. As one of systemic banks in Greece, Piraeus and social responsibility, maintains relations with its Bank undertakes initiatives that support sound business social partners on an on-going basis through specific plans to support the evolution of the Greek economy activities, particularly in the protection of the natural into a new model of sustainable development.

11 Governance

TIRANA BANK ANNUAL REPORT 2015 Supreme Management Bodies

The supreme body of Tirana Bank is the General Assembly of Shareholders, which elects the Bank’s Board of Directors as decision making and supervisory body. The Bank’s Articles of Association stipulate the operation mode of its bodies and the management of the Bank.This document makes special mention of the composition of the Board of Directors as well as the obligations / duties of the members thereof, according to Law 9901/14.04.2008 “On entrepreneurs and commercial Companies” and Law 9662/18.12.2006 “On banks in Repub- lic of Albania”.

Board of Directors

The Board of Directors consists of an odd number, five (5) minimum and nine (9) maximum, executive and non-executive members. Executive members shall be those engaged in the daily management issues of the Bank; non-executive member shall be those entrusted with the promotion of corporate af- fairs. The total number of executive members shall not con- stitute the majority of the total number of Board members. The majority of Board members shall be independent. The ca- pacity of the Board members, i.e. executive or non-executive shall be defined by the Board of the Directors. If a member is provisionally elected by the Board, until the next general Assembly meeting, to fill in for a resigned, deceased or oth- erwise forfeited independent member, such elected member shall also be independent.

Board of Directors Ioannis Kyriakopoulos (Chairman) Dritan Mustafa Bedri Collaku Agkop Mardikian Christos Bougiouklis

Executive Committee Dritan Mustafa (Chairman) Konstantinos Tsigaras Eralda Tafaj Gurga Elona Gjipali Athanasios Paloudis Manjola Capo

13 Objectives & Overview

TIRANA BANK ANNUAL REPORT 2015 1996 Tirana Bank is licensed, becoming the first private Bank in the country.

1997 Year of official incorporation.

1998 Tirana Bank opens its new branches in Fier and Durrës.

1999 Launch of VISA purchasing service. First positive fi- nancial results are achieved.

2000 Tirana Bank opens new branches in Gjirokastra and Korça.

2001 Rapid growth achieved, with assets’ figures tripling compared with 1997.

2002 Year of network expansion. First VISA Credit Card is issued.

2003 Two more Tirana Bank agencies are opened.

2004 Tirana Bank network has 22 branches with the open- ing of seven other branches, becoming the Bank with the second largest branch network.

2005 The branch network is further expanded to reach a total of 34 branches, covering most of the country. A major organizational reshuffle takes place and a more aggressive retail activity is initiated.

2006 Year of strong growth both in Corporate and Retail, coupled with the launch of new products. The branch network reaches 36 branches, 43 ATM’s operate and the Bank has 377 employees.

2007 Branch network reaches 39 branches with more branches in the opening process. 45% growth rate of Net profit, Loan portfolio grows by 55.9% (year on year) total assets grows by 35%.

2008 The branch network growth continues as the number reaches 45. High profits are recorded during 2008. Bank has 500 employees.

15 2009 Complete Bank reorganization with a client and business focus. Three new branches are opened and twenty-two are renovated. The bank reaches a level of profitability of EUR 13.2 million despite the crisis. NPL portfolio and deposits fully protected.

2010 Record profitability levels, excluding foreign exchange gains. Expansion of branch network reaching 56 branches. Self-funding status, due to an increase in high de- posits. Significant penetration into the public and institutional sector is achieved. Successful protection of balance sheet.

2011 Maintains a solid network of 56 branches with motivated staff and exceptional care towards customers; despite the first signs of the crisis appearing in the local market which certainly brings a shift of priorities. The focus was to strengthen capital levels and follow the correct and effective management of liquidity.

TIRANA BANK ANNUAL REPORT 2015 2012 A Significant investment in technological advancements to support the infrastructure of the bank is undertaken, for example: Implementation, in close cooperation with Piraeus Bank, of the new, centralized, system for payments - PPS. Improvement of the internet banking platform by introducing new functions and mobile applications for Android and IOS phones.

2013 Major reorganization of the Head Office structures emphasizing allocation of resources in terms of manpower, know-how and best practices, with the main focus on the effective manage- ment of problematic portfolios.

Re-launching of the all-inclusive electronic banking services under the innovative winbank platform; winbank Web Bank- ing, winbank for Cards, winbank Phone Banking, winbank Mobile Banking and winbank Mobile Applications.

17 2014

Tirana Bank is awarded as the “Best Consumer Inter- net Bank” in Albania, in recognition of the Group’s success story in Electronic Banking by the interna- tional banking magazine, Global Finance. 2015

Tirana Bank is certified for Quality Management Sys- According to the latest customer satisfaction survey, the tem in line with ISO 9001:2008 standard for Banking high level of satisfaction among our customers is a result Services. This certificate was awarded in accordance primarily of our competence, our commitment and the with TUV AUSTRIA HELLAS procedures in continua- customized advice and support we provide. We regard tion of our efforts to raise the quality and efficiency this high level of appreciation as an incentive to continue of the bank’s internal structures and the services we to grow the added value for our customers. provide to our clients.

Our main objectives

To remain one of the leading financial To be a pioneer in offering innovative institutions in the Albanian market services for individuals and businesses

To exploit synergies with The Piraeus

To be close to clients, finding Bank Group in offering the best value customized solutions to their needs in regional projects

TIRANA BANK ANNUAL REPORT 2015 Branch Network: Map and Addresses

19 Economic Outlook

TIRANA BANK ANNUAL REPORT 2015 Global Economy

Several interrelated themes stood out in 2015: the price of oil and other commodities, the resilience of the Chinese economy, and the timing and content of monetary policy measures in the US and the eurozone. The oil price seemed to have reached a low early in the year and soon started to climb. But it resumed its slide in the second half of the year. This coincided with turmoil on Chinese stock markets and worldwide concerns about Chinese economic growth. These worries spread to other emerging markets. While several emerging markets did indeed see economic growth decelerate, a sharp growth slowdown in China did not materialize in 2015, thanks in part to government stimulus measures. Meanwhile, the US economy continued to grow at a modest pace in 2015, despite headwinds from a stronger dollar and reduced investment in the oil industry because of low oil prices. The labor market in particular did well, with unemployment falling to levels well below the long-term average. In the eurozone, 2015 saw a policy of further monetary expansion, helping to bring about a broadening of the recovery. Exports and low oil prices supported the eurozone economy in the first half of the year, although the global slowdown started to weigh on exports towards the end of the year. The combination of low inflation and increasing employment boosted household purchasing power, fuelling consumer confidence and accelerating consumption growth. Lower interest rates helped shore up eurozone credit demand. Bank lending to households accelerated modestly in 2015, while lending to businesses finally turned positive after three years of deleveraging. Marked differences between countries remain, with credit growth generally more positive in northern European countries, while still negative in southern ones.

Albanian Economy

The Albanian economy performed steadily in 2015, successfully withstanding the impact of severe flooding in the south of the country in February and recording 2.6 per cent growth for the year as a whole. Economic activity

21 Banking Sector

The banking sector continues to be the main segment of financial intermediation in Albania. In general, the positive developments in the real economy and banking sector have contributed to the strengthening of financial stability. Prudential indicators of the banking sector on solvency, liquidity and reserves to specific risks are within regulatory levels. The main challenge of the Albanian banking sector during the coming period remains the improvement of asset quality indicators in order to facilitate lending and also to expand and deepen the financial intermediation continued its upward cycle, employment increased and in the economy. the domestic and external macroeconomic balances improved. The average annual inflation rate stood at Financial markets are liquid, interest rates have moved 1.9%, up 0.3 percentage points from last year. Despite the downwards, while the exchange rate has been relatively fluctuations experienced during the year, financial markets stable. The money supply expanded moderately during were characterized by improved liquidity performance, 2015, dictated by the lack of government financing in downward trend of interest rates and exchange rate the domestic market and by lower demand for financing stability. in the private sector. Deposits in the banking system Over the past year, weak aggregate demand and low continued to expand from the previous a year, while their imported inflation, as well as a decline in oil prices, have structure reflects the shift towards call deposit accounts. kept inflation below the central bank’s target of 3 per cent. Credit to the private sector is influenced by an expansion In line with the declining inflation rate, the central bank in moderate lending and the clean-up of bank balance has continued with monetary easing with a series of cuts sheets from non performing loans. Overall, lending in the base interest rate. activity has shown sluggish performance during 2015. Nonetheless, the IMF praised the authorities for a broadly successful policy implementation during the first year of the program, which is helping to strengthen public Sources: Bank of Albania, EBRD, IMF, World Bank and finance sustainability and reduce public sector arrears. Goldman Sachs Economic Research

TIRANA BANK ANNUAL REPORT 2015 The main challenge of the Albanian banking sector during the coming period remains the improvement of asset quality indicators in order to facilitate lending and also to expand and deepen the financial intermediation in the economy.

23 Products, Performance and Other

TIRANA BANK ANNUAL REPORT 2015 Retail Banking

Tirana Bank continued to exhibit a customer-focused approach by introducing products and services that best meet the majority of customer needs. Our purpose is to empower these customers to stay a step ahead in both their private and professional lives. We aim to do this by ensuring our products and services are clear and easy, fairly priced and available anytime and anywhere. By using transparent tools, tailored offers and expert advice, we strive to help customers make the right financial decisions at important moments in their lives, be it buying a home, saving for retirement or expanding their business.

To reach a level of the primary relationship, we need to understand customers’ needs and meet their expectations. Understanding customers and building a relationship with them in an increasingly digital world requires new skills in data collection and analysis. Once we have established a primary relationship, we can collect richer customer data which in turn allows us to provide more individually-tailored products and services. Throughout 2015 we have revised and improved our products and services for individuals as a result of detailed analysis of the progress and needs of the market, the performance of our competitors and all in accordance with changes in legislation and guidelines for the protection of personal data.

Also the process of lending for mortgage and consumer products was oriented towards quality of crediting and optimizing the existing portfolio. Special attention was given to monitoring and managing the portfolio of nonperforming loans, with the aim of limiting their upturn and assuring the return of this portfolio in terms of quality and performance..

Our lending capabilities are at the heart of most of our client relationships. In the area of customer lending, Tirana Bank has offered competitive terms and interest rates; in this regard special attention is paid to our payroll customers. The development of our lending capabilities, helps to maintain Tirana Bank’s sustainable growth ambitions.

25 Deposit portfolio performance has been in line with the bank’s strategy, while maintaining a high level of liquidity, higher than what is required by the Central Bank of Albania. The bank has continued to support all its customers with the most competitive interest rates in the market, promotional offers and enrichment of products features by fulfilled their needs such as:

Advantage Package is a bundle of products that is instantly offered to Retail Customers by combining time deposit with overdraft facility allowing the winbank withdrawal of 80% of the deposited amount. Customers want both personal advice in a branch and My Savings is an account with no time limit which modern online banking. The electronic platform with the gives the option to our customers of depositing convenience of Internet Banking, 24/7 access to account their funds and benefit from the interest rate and balances, account transaction records, and the ability simultaneously having access to their savings to make different types of payments is one of the main account at any time. strengths of Tirana Bank retail services. It empowers clients to conduct transactions online and to get key information that affects their financial position from any Cards internet-enabled device, at any time.

Our clients are at the heart of our strategy. Throughout The number of users is on the rise for all the Bank’s 2015 we have focused on improving the ‘client electronic banking services. During 2015 our total experience’. We have aimed to broaden and deepen portfolio winbank users increased by 23%, thus relationships in line with our capabilities, and have made positively impacting both the number and the value of progress in achieving our bank’s strategy. Cards have transactions as well as the Average Monthly number of remained at a stable position in the market, focusing active users. mainly on the activation and usage increase of their portfolio. ATM In line with the bank strategy, several promotional campaigns were launched in order to increase cards Our main focus for 2015 was to increase the quality and usage and promote the education of customers toward the availability of our entire ATM network, in order to the usage of cards for purchases as a daily habit. As a enhance our service to the clients. We believe we have result, an increase of 17% is noticed in the volumes of achieved our goal by keeping a high standard of 96% transactions at point of sales (POS), positively impacting availability in all our ATMs during all year. and business line profitability and commissions. By year end 2015, Tirana Bank had 71 ATM’s (38 On Site In view of the fact that that cards usage has been & 33 Off Site). This wide network of ATMs is certified constantly growing, one of the main priorities in 2015 as Fully EMV Chip capable for the VISA brand offering was card security and data protection, with special cardholders the highest levels of transaction security. In attention to customer education and information on addition to cash withdrawal, our ATMs allow clients to transactions performed. change their PIN codes and receive a Mini Statement.

TIRANA BANK ANNUAL REPORT 2015 SME Banking

Increasing numbers of small and medium-sized businesses – at both the upper and lower ends of that bracket – are choosing Tirana Bank. They value our high product expertise and established customer relationship management approach. For us, strong customer focus POS and high-quality advice is at the very heart of the customer relationship. The Point of Sale service offers the cardholders the During this year, the main objective of the bank was opportunity of using their VISA cards (debit and credit), the improvement of nonperforming loans. To this end, to make purchases at Points of Sale and also Cash Tirana Bank has been focusing on the Bank-client Advance transactions at our branches. relationship, undertaking a number of initiatives in an effort to underpin the perception of Tirana Bank as a As of the end of 2015 Tirana Bank the POS Network bank for enterprises and entrepreneurs that appreciates reached a total of 245 terminals. Our POS network is those with the appetite and courage to do business. present in more than 30 towns and cities offering this service to more than 30 different business categories Tirana Bank successfully identified companies having including hotels, travel agencies, shops, restaurants, difficulties in repayment of loan obligations due to the petrol stations, hypermarkets and the largest shopping changes of economic environment and fiscal changes that malls in the country. business faced in 2015. In turn, we offered alternatives in order to adjust their cash flow with new payments During 2015 the bank’s focus was the improvement of its plans by reducing the risks which these companies were POS service and started the campaign to replace dial-up facing. That makes us the principal bank for SMEs POS for the newer GPRS devices. For businesses unable to fulfill their payment obligations, we accelerated the procedures of collateral Call Center liquidation and clearing bank balance. This process led to significantly improving the proportion that these Being a fair bank means we are there for our customers, loans have to total SME portfolio by the end of 2015, and specifically when it suits them to do their banking. compared to the previous year. We therefore offer our customers exceptional levels of service. Tirana Bank Customer Service is the Tirana Bank Special attention has been devoted to performing Call Center with its dedicated team of agents that offer loans portfolio, not only for the fulfillment of additional assistance, 24 hours per day, 7 days a week and 365 days needs for funding to existing customers but also the a year (24/7/365). These are all important steps towards renegotiation of the terms on loans in accordance with becoming a truly modern multi-channel bank at which the monetary policy of the Bank of Albania and the each customer can decide for him or herself how and competition that the banking industry is generating when they want to make contact with us. in the country. This was achieved despite the market environment remaining tough and competitive pressure Focusing on our customer needs, this team is dedicated persisting. Our strong willingness to lend reflects our to all in-bound queries providing information on bank understanding of what a long-term business partnership products and services according the needs of each to the mutual interest of both sides means. customer. Our goal continues to be supporting those businesses

27 that stimulate the use of internal resources and create new employment contributing to country’s development and reduction of imports.

Corporate Banking

2015 was not an easy year for business, following two aspects, the Group’s strategy and the Greek crisis. During 2015, loan portfolio in Corporate Banking did not note any expansion in terms of loan exposure, as Branch Network a result of following the strategy of Piraeus Group which consisted in bettering the management of actual Our promise to deliver services anytime, anywhere also portfolio. Consequently to this strategy Corporate implies a commitment to make them accessible to all Banking focused its work in strengthening the business sections of society. Tirana Bank offers a significant relationship with current customers, not only in loan network coverage and easy accessibility for all its clients. relationship but in operational one as well. Corporate The branch network of 39 branches and 71 ATMs Banking, as other business sectors of the bank, continues to be the basic executive component of the emphasized the need for the enhancement of bank’s bank’s multi - channel sales model. profitability on customer basis, meaning, increase incomes on operational products and services such Through our branch network we offer a financial advisory Funds Transferring, FOREX-es and others. and professional service for all segments of the bank: Another important aspect of Corporate Banking work Individuals, SMEs, private entrepreneurs and Corporate during 2015 was the refinement of loan portfolio in Customers. The branch network continues to be the terms of credit and operational risk. Corporate Banking basic stable executive component of the Bank’s multi- reevaluated each credit exposure aiming to lower the channel sales mode and the importance of its consulting unsecured risk and to strengthen the collateral coverage. role has been increasing. The Greek crisis, the closing of the banks during July 2015, directly affected our everyday business. Local As part of its effort to optimize regional coverage by the business aimed to direct their funds in other non-Greek branch network, Tirana Bank closely monitors its branch Banks, by reducing the volume of business activities with operation and analyses usage patterns. Based on these Tirana Bank. This situation was slowly over-passed by analyses, the bank makes changes to the network to the end of 2015, when Corporate paid special attention ensure that branches are available to clients of different to reestablishing relations with corporate clients by segments where and when they really need them and supporting them with new competitive services and that the Bank achieves maximum operating efficiency. enriching the relationships in all aspects. Supported During this challenging year we have managed to by new experienced staff and in a spirit of teamwork, centralize our core processes and procedures with the Corporate Banking successfully achieved the ambitious aim of increasing our customer in-branch experience, targets of the bank by the end of 2015. and also the efficiency of our Branch Network. Most financing of Corporate Banking portfolio is directed towards production and manufacturing sectors, Optimizing the functionality of the branch structure telecommunications, wholesale & retail trade sectors, will be one of our priorities for the next year as well as etc. Total Corporate Banking outstanding at year end to continue supporting the economy, businesses and 2015 reached EUR 63 Million. individuals, with innovative products and services.

TIRANA BANK ANNUAL REPORT 2015 Treasury The Treasury and Financial Markets Division is a significant player in the Albanian forex and financial In addition to the business activities of trade and sales, markets as a result of its trading and sales activity. the key objectives of Tirana Bank’s Treasury and Financial Foreign Exchange activities continued to yield Markets Division include, the preservation of the profitability for the bank, reflecting prudent Foreign bank’s liquidity and funding stability, and maximizing Exchange Trading and Sales activities. the bank’s profitability within a predefined level of counterparty, interest and foreign exchange risks, Our financial results were in line with targets was ensuring the continuity and security of their banking achieved by implementing business efficiencies. The activities. balance sheet interest rates sensitivity continued to be managed through continuous monitoring and During 2015, the Treasury and Financial Markets pricing strategies in order to satisfy balanced pricing Division actively managed the bank’s wholesale gaps. the possible impact on the bank’s profitability was deposits activity by facilitating the network and maintained within the respective limits. relevant business lines in the process of communication with our depositors’ demands and succeeding in maintaining deposits stability. IT and Infrastructure Development

In addition, we have continued to substantially Technology has helped us to operate more efficiently decrease the cost of deposits, our expectations/ as a bank. It enhances the overall experience and forecasts in regard to macro and interest rates trends quality of service we are able to provide to our clients. in domestic and international financial markets were It allows us to execute transactions more quickly and efficiently accomplished as part of the Bank’s activity. seamlessly, to provide better market analytics, data and The treasury is also responsible for the implementation other information, and to communicate faster and more of the bank’s long term financing plans. efficiently.

As the main ALCO contributor, and core pricing In the framework of harmonizing the Technology unit’s center in the bank’s activity; we continuously monitor priorities within the Tirana Bank’s business plan for and analyze major world economies macroeconomic 2015, the unit has focused on projects and activities that trends, indices and the indicators of the monetary supported the following: policies stance of the Bank of Albania. • Complying with institutional obligations as they The sales activities of the Treasury focuses on arise from the Regulatory Framework and the providing financial and investment products adjusted Supervisory Authorities; to customer demands as well as consulting services • Support of the operations on targeting increase in extended in connection with the products on offer. income from commissions; Customer’s intermediation in securities markets • upgrading the quality of customer service through continued to add value to the bank’s activities, further the upgrading of infrastructures, equipment and improving the customer relationship with the bank. applications; Treasury activities continued to yield substantial • Deployment of new utility systems to facilitate profitability for the bank, and Treasury transactions operations and improve functionality occupied 62.72% of bank’s total assets, as of 31 • Support of the operations regarding the December 2015. management of restructuring and non-performing portfolios;

29 Risk Management

At Tirana Bank, we adopt an informed approach to risk management by identifying specific risks, assessing their priority and implementing a rigorous approach to monitoring and controlling them Risk-taking is an Development and Improvement of IT systems inherent element of banking but excessive and poorly The development and improvement of IT systems were managed risk can lead to losses and thus endanger the undertaken in 2015, by optimizing and integrating safety of a bank’s depositors. Accordingly, Tirana Bank infrastructures, processes and systems. These are places significant emphasis on the adequacy of the risk required by the continuously changing business and management system. economic environment with the aim of achieving economies of scale, increased security, functionality, These risks are regularly updated according to external uniform management by the final user and consequently environmental changes and also changes to the bank’s increased competitiveness for the bank. business activities. The Bank has further developed risk mitigation measures to ensure any risks are controlled at all times. Risk levels are constantly monitored for any ATM/Card/Switching Support Systems subtle changes across the organization. We continue to make new technology offerings and channels available throughout our business. The value of The Bank also ensures the setting of reliable, effective innovation is when technology is aligned with the needs and complete policies and procedures, to evaluate and of our business. This means that all of our distribution maintain the composition and distribution of capital channels — locations, phone banks, online, and mobile levels, on a continuous basis set by management banking — work together, integrated with our products, as appropriate to cover the nature and level of risks to the benefit of our customers. Within the framework assumed or might be assumed by the Bank. Policies of developing new products and services as well as and procedures are subject to internal reassessment upgrading existing ones, a series a projects migration and evaluation from the Risk Management Department, of ATM’s into the Wincor Multivendor platform has been targeted to ensure that they are comprehensive, started. complete, adequate and correspond to the nature, range and complexity of Bank activities. Technological Infrastructure of IT Centers The bank continued to focus on driving greater The mission of Risk Management Department function: automation and building our IT capability to be in a “The creation of added value for the shareholders position to deliver improved products and services to through the optimization of the balance between our customers. risks assumed and capital efficiency, in the interests of other relative parties (e.g. employees, customers), by • Improvement as per number of systems supported adopting the best practices of risk management and by the back-up IT Center in order to cover all major corporate governance, and complying with the relevant bank applications and to reduce the maximum time obligations to the supervising authorities”. required for activation of the back-up IT center. • enhancing the monitoring of the performance The overall Tirana Bank risk appetite targets at a of applications through the upgrading of the prudent risk profile. In the medium term, given the monitoring system for Bank core systems and increased uncertainty and economic conditions, the networking Equipment Bank gives priority to: (a) the strengthening of capital, (b)

TIRANA BANK ANNUAL REPORT 2015 the maintenance of adequate liquidity and dispersion of • The third line of defense is responsible both for financing sources, (c) the strengthening of the balance the ex-ante monitoring (e.g. participation in the sheet, (d) the safeguarding of the quality of assets and evaluation of products) as well as the ex-post loan portfolio diversification and (e) the cost effective control and monitoring of risks. In this way, the third management of operating expenses. line of defense, monitors overall activities of risk- bearing and risk management, ensuring compliance The Bank must have sufficient liquidity and capital with the guidelines of the Bank’s Risk Management resources, to maintain stable and ongoing profitability. Strategy. The third line develops methodologies It aims to maintain an independent risk management and risk management systems, provides know-how culture with the strong involvement of top management. and the monitoring of risk in relation to policies, The Bank aims to maintain a culture of continuous systems and tools, reporting on the above stated improvement of processes, policies, models and tools issues to the Board of Directors and to the Top for measuring and monitoring risk exposures. Management of the Bank. • The fourth line of defense is responsible for the The Risk Management Governance Framework is independent review of the overall risk management designed to promote effective risk management within framework of the Bank. The fourth line checks the the Bank. It ensures that the risks taken by the Bank: adequacy and effectiveness of risk management a. are aligned with its strategic objectives; and control mechanisms in the first three lines of b. meet Regulator’s and Group’s requirements; defense. c. do not threaten the interests of shareholders, depositors, creditors, investors and employees The second governance dimension is composed of three levels: strategy, tactic, and operation. For the implementation of the adopted principles, the risk management governance framework is organized • Strategy level – Includes the risk management into two main areas . The first classifies risk management functions that are executed at Board of Director operations in four lines of defense, while the second one level. addresses the hierarchy levels in which these activities • Tactics level – Includes the risk management take place. functions that are executed at a senior level both by individuals as well as specialized committees. The first governance dimensionis composed of 4 lines • Operations level – Includes the risk management of defense as described below: functions that are carried out in various units of the • The first line of defense comprises the units which Bank are closest to the origin of risk. These units are deal with recognizing and evaluating risks related Throughout 2015, Tirana Bank paid careful attention to their business activities and operating within to the risks to which the banking system is exposed. the framework of risk limits, in order to maximize It has strengthened its organizational structure and return based on the risk appetite and the overall control functions, aiming at further improving its risk Risk Management Strategy of the Bank. The first line management practices, without harming its business of defense bears the responsibility for the risks that operations. The main focus has continued to be the originate within its operations. improvement of the quality of assets, especially the • The second line of defense is responsible for the recoverability of the non-performing portfolio. ex-ante risk management, since it is engaged in risk management activities that take place prior to risk Through the use of strict monitoring, It has maintained taking (credit scoring, new product risk assessment). its liquidity levels thus ensuring that they remain above

31 the regulatory minimums. Market risk continued being The role of Tirana Bank’s Compliance department limited while operational risk has received special is to define and implement rules to prevent non- attention, through constant reviewing of the Bank’s compliance risk, including the risks associated with operations, aimed at identifying areas of possible money laundering and the financing of terrorism, improvement for the purpose of reducing operational infringement of embargoes, conflicts of interest and the losses and other negative impacts (such as reputation, personal data protection of customers and employees. regulatory and others). All these initiatives help reduce the risk of damage to our reputation. Careful monitoring of operational losses, key risk indicators and annual performance of the risk control self The Compliance Department must also ensure that assessment exercise remains the main elements in the effective systems are in place to achieve compliance. operational risk management framework while the Bank The role of Compliance is to: has initiated the drafting of the fraud risk management framework under a permanent control platform. • advise operating staff by giving its view on transactions when such advice is requested Tirana Bank aims to avoid those operational risk • be part of the product marketing process, from the events/losses which are due to the inadequacy and design phase to the distribution phase, and issues ineffectiveness of the internal control system (internal compliance notices control environment) or in non-compliance with the • together with Legal and Human Resources ensure principles and objectives of this system. that conflicts of interest are identified in accordance with the Group policy on conflict of interest as well The Bank seeks to completely prevent losses generated as the local legal framework from internal fraud. Continuous compliance of human • ensure that employees are trained in compliance resources with the code of ethics as well as the rules issues of corporate governance and operation of the Bank is • ensure that customer protection is effective at every required in order to avoid such losses. stage in the relationship between the bank and its customers, from the provision of pre-contractual The Bank aims to prevent those situations that have information, the subsequent giving of advice, and a significantly negative impact on its reputation and during the life and final termination of the contract corporate image. Such situations concern, for example, loss of life, health of clients and employees, compliance In order to achieve compliance within Tirana Bank, with the regulatory and supervisory framework, the Compliance function uses the following tools and inconsistency with the principles of Corporate and Social resources: Responsibility or business continuity and / or information systems operation. • the inclusion of compliance standards in the bank’s procedures • periodic reporting on risk and compliance activities, Compliance enabling implementation of compliance systems within the Group The role of compliance is to conform to all banking and • AML software tools, which include customer financial regulations: legal and regulatory provisions, profiling and account monitoring tools to detect professional and ethical standards, Group procedures as unusual or suspicious transactions and tools to well as to protect clients’ interests and Piraeus Group‘s monitor international fund transfers for enforcement reputation. of asset freezes and embargoes

TIRANA BANK ANNUAL REPORT 2015 Fund Transfers The focus on standardization and streamlining is demonstrated by our adherence to the “STP rate” of We aim to build “primary relationships” with customers, 99% for many years. Our performance and development earning their loyalty so that they consider us as their ‘first strategy is underlined by our high standards of quality bank of choice’ with which they conduct their financial and professionalism. The year 2015 has marked a business. Transfer of funds is one of the main services satisfactory level of achievement regarding the volume performed in the banking system. Security, sustainability of transfers, where we continue maintaining an 8% and efficiency of the payment system are primary market share. elements for standard and scrupulous functioning of the financial system. Bank Name SWIFT Code CCY

As payment systems execute the transfer of funds, Piraeus Bank, Athens PIRBGRAA EUR general expenses and liquidity of participants, special Raiffeisen Bank, Vienna RZBAATWW “ importance is paid to performance, dedication and Deutsche Bank, Fr DEUTDEFF “ professionalism. We seek to support our clients’ core processes and daily financial operations through tailor- Bank of Albania STANALTR ALL made, integrated solutions and advice. These activities Deutsche Bankers Trust, NY BKTRUS33 USD require a strong focus on operational processing. Fast Raiffeisen Bank, Vienna RZBAATWW “ and secure operations, favorable prices, interactive Deutsche Bank, Fr DEUTDEFF GBP communication, transparency and personalized services to our customers are the main focus of our Fund All other currencies through Piraeus Bank

Transfers at Tirana Bank. We are developing our business WITH SLA relationship platforms by implementing new technology and through (Special agreement regarding emigrants) increased standardization across borders, products and services. Banca Popolare BAPPIT22 EUR

33 Corporate Social Responsibility

TIRANA BANK ANNUAL REPORT 2015 Corporate social responsibility towards our customers, employees, investors, local communities and national economy is a defining feature of our bank. As one of the leading providers of financial services in Albania, Tirana Bank is also an important player in promoting and supporting institutions, initiatives and projects relating to social welfare, culture and education. The bank supports a wide array of humanitarian, educational, cultural and environmental institutions in Albania, paying special attention to specific regional characteristics and local needs.

Social Activities

Tirana Bank’s long tradition of cooperation with established local and international organizations reflects its commitment to the promotion of social welfare. The focus is on providing practical and prompt assistance to people facing difficult life situations and on support for initiatives for the long-term personal development of disadvantaged people and the creation of new opportunities.

Tirana Bank has embraced the Albania Solidarity movement in the support of flooded areas. It responded to the call for intervention from The Prime Minister of the country, along with Ministers of Finance, Economy and Agriculture, as well as the presence of the newly elected Governor of the Bank of Albania. In addition, Tirana Bank has also launched an awareness campaign for its staff, bank customers and other interested persons to make donations to help families in need, in the opened account numbers specifically for this cause.

Every child needs a loving family who cares for them. For this reason Tirana Bank supports SOS families that provide sustainable care, safe and loving family environment for children who have lost their parents or cannot live with their biological family.

Showing unwavering commitment to social issues and assistance of our help in solving current social

35 problems, Tirana Bank is engaged in the “adoption” For the third consecutive year, Tirana Bank helped those of three children from the SOS Village. Sponsorship of in need during the End of the Year period. Instead of the lives of these children is a long-term cooperation buying and distributing gifts to our clients and partners, that enables life-long support of our company for the the planned amount was allocated to support the individualized care and promotion of the development, families in need identified by Tirana Municipality. education, health care, social activities, sports and entertainment of these children. Our gifts this end of the year went to families in need in Zall-Herr, in cooperation with the Municipality of A good understanding of money and finance is of Tirana. Tirana Bank prepared food packages for 105 the utmost importance as it enables individuals and families in need, which were distributed under the households to improve and secure their economic backing of the Municipality of Tirana and its mayor situation. From 9th to 13th March, Albania was part of Mr. Erion Veliaj. the Money Week activities organized around the world. Tirana Bank, in cooperation in European University of Tirana Bank continuously cares about society and the Tirana, organized a workshop with students from the end of the year period is particularly dedicated to Faculty of Finance and Banking. The workshop included groups in need. Its employees supported a fundraising several case studies where students needed to think dedicated to children with health problems. The and act like bankers and present practical solutions to two main groups were the children undergoing these issues. chemotherapy treatment at the Pediatric Hospital and kids suffering from thalassemia at Tirana University For the seventh consecutive year, on October 28, 2015, Hospital. With the money raised from Tirana Bank’s Tirana Bank has its humanitarian initiative of blood staff donation it was possible to organize an end of donations. This act of humanity involves assisting year party for these children as well as the distribution people in need, especially children who suffer from the of gifts to them. We did our modest part in making disease of thalassemia and leukemia. This initiative was the festivities a memorable experience for this part of joined by Tirana Bank clients but also by volunteers society. who responded to its call in the media.

October is designated as breast cancer awareness Cultural Activities month. It is a powerful and inspiring opportunity to unite as a community to honor breast cancer survivors, Tirana Bank supports and promotes partnerships raise awareness about steps we can take to reduce the between cultural and social institutions with the aim of risk of getting breast cancer. Tirana Bank is dedicated jointly developing ideas and strategies for deepening to raising awareness and educating individuals about the understanding and appreciation of art and culture. this disease. This year too, the bank joined the YWCA During 2015, Tirana Bank continued its support to of Albania’s initiative by supporting breast cancer cultural events as part of its tradition such as: awareness campaigns on TV as well as producing and Classical music concert “Ndërmendje” held in Shkodra distributing posters, which promoted awareness and Wine Party 2015 organized in Pogradec encouraged checkups, in all its branches and head Shkodra n’fest: Cultural activities held in Shkodra offices in order to increase awareness to its staff, clients during end of the year and community. Fine Arts Exhibition 5: Faces Organized by Kalo Gallery and supported by Tirana Bank

TIRANA BANK ANNUAL REPORT 2015 Environmental Activities Educational Activities

Tirana Bank is utilizing its knowledge and capital to Tirana Bank sees education as a cornerstone for the assist the communities it serves to respond to their country’s development, thus taking the initiative to environmental sustainability challenge. In addition, the support the project presented by Korça Educational bank is also managing the environmental impact of the Directorate. 2015 was the 50th Anniversary of use of resources in its own operations. In this context, Themistokli Germenji High School in Korça. On this Tirana Bank supported Shijak municipality in their call important date for this high school, the academic board to action in cleaning public areas in this municipality. decided to establish a museum on the school premises. What we do together is fundamental to achieving a cleaner and greener city. Tirana Bank supports the Professional school of Pogradec in updating their teaching and working tools. In this way it was made possible the new teaching technique for these students so they can successfully compete into the labor market.

Tirana Bank has supported several Educational Directories on their work for better education for the new generation. Tirana Bank has provided computers and other high tech appliances for Pogradec Educational Directorate in order to enable them to better organize their work load and increase their efficiency. In addition, in cooperation with Lezha Regional Educational Directorate, Tirana Bank organized a party for high school graduates who scored the highest points in state exams.

37 Human Resources

TIRANA BANK ANNUAL REPORT 2015 Our vision for human resources management is based on a wide-ranging set of activities and operations which are undertaken in order to acquire, retain and utilize professional employees who successfully and productively execute their tasks. Excellent staffing according to business needs and the creation of strong relations with employees are both key points of the Bank’s philosophy.

Special emphasis is placed on issues of ethics, trust, devotion, team spirit and acceptance of diversity in the workplace; these issues ensure equal opportunities in continual employee development as well as non- discriminatory practices in the recruitment process through specific candidate selection systems.

During 2015, the Bank reaffirmed its commitment towards the support and strengthening of human resources through innovative training, developmental and supportive programs.

Commitment to safeguarding Human Rights Tirana Bank is committed to the protection of human rights, applies equal opportunity principles in all its activities and is opposed to any form of discrimination, inequality and to all forms of harassment in the workplace.

All our bank’s policies, procedures and human resource management practices are governed by respect for human rights, ensuring equal opportunities and a work environment that accepts and incorporates diversity.

Number of employees working at Tirana Bank At the end of 2015, distribution of employees was:

Employee Numbers 2015

Men Women Total

Total Employees 123 299 422

29% 71% Executives 45% 55% by Gender Middle Management by 45% 55% Gender

39 The merger of a few branches in some of the regions Selecting the Right People for the Right Roles was the main reason for a slight decrease in employee Most of the banks staffing needs are covered through numbers. 60% of employees of the merged branches internal reallocation. Tirana Bank places special emphasis stayed with the bank, filling the vacant positions in other on respect for human value, ethics and integrity. This is branches of Head Office. reflected in our philosophy, management practices and 52% of Bank’s employees work in the Branch Network the HR selection and recruitment process. while 48% are at Head Office, supporting the Bank’s activity. For the purpose of candidate selection and evaluation, the bank uses a set of standard tools, which vary according ‘Y’ ‘X’ ‘Baby to the candidate’s level of education and experience and Distribution Generation Generation Boomers’ which ensure a transparent and objective recruitment by Generations (22-35) (36-50) over 51 Years procedure. The tools include job simulation exercises, 23% 70% 7% competency tests and a structured interview.

The average age of the employees is 38 years. 70% This active policy has contributed to the optimal utilization of employees are seasoned professionals, with a of existing human resources based on their skills and combination of experience and commitment which is knowledge. More specifically, in 2015, the need arose to continuously passed on to the younger generation of cover 110 positions at Bank level. 63% of those positions banking employees. were covered by internal transfers and promotions, and only 37% of positions were covered by external hiring in Through its policies, the Bank has managed to retain this case due to the need for a completely specialized experienced staff, despite volatility in the market; the work force. average length of service is 7.7 years Tirana Bank places particular emphasis on the locality Promoting Equal Opportunities for Career Development of candidates in order to enhance local communities in Tirana Bank endeavors to cover any hiring needs which the Bank operates. internally, giving priority to its existing human resources. Most business needs are covered by internal reallocations Locality is one of the key criteria for the bank where new and promotions. hiring is concerned. By placing particular emphasis on local candidates, the bank strengthens the local communities With transparency and merit as the focal point and with where it operates as well as better understanding local a strong sense of responsibility, the Bank’s operational needs, leading to achievement of business goals. needs have been covered by placing people in positions Employee development is an intrinsic part of the bank’s which correspond to their competences and experience. culture. Consequently, there is continuous further improvement in the working environment thus providing equal opportunities irrespective of gender, age, religion, Internal External nationality or physical ability. In the framework of open Recruitment Recruitment Vacant Positions Filled communication and compliance to selection and staffing 63% 37% procedures, the following are applied: • Open communication of vacancies and fully transparent selection processes • Development and career incentives to all employees Men Women Internal Promotions in combination with each individual’s prospects for 21 47 development.

TIRANA BANK ANNUAL REPORT 2015 Human Resources Communication Philosophy self-assessment and, prior to finalization of the procedure, Tirana Bank recognizes the vital importance of internal review their evaluation and openly express their views. communication, as it promotes open, two-way In addition, refreshment workshops were conducted communication between Management and employees, with new and experienced managers aimed at a it creates a sense of security, dignity and collaboration. better alignment and understanding of performance It reduces any possible tensions and achieves greater management philosophy, criteria and process and to and more effective dissemination of knowledge and effectively apply it. information – useful for developing new products and services to all levels. In total, 7,136 training man-hours were recorded in Tirana Bank during 2015 - on average 16.9 training man-hours During 2015, quarterly meetings took place between per person. all levels of management and employees, in particular branch network staff, where results, strategy and other Distribution according to the Bank’s internal hierarchy was issues were thoroughly discussed. as follows: 85% of training man-hours were addressed to employees, 15% to middle and higher management. In addition, two management meetings took place, in a discussion-based environment. During these meetings Particular emphasis was placed by the Bank to issues of working groups were formed, partly using organized Operational Risk and Regulatory Compliance. Within presentations on current projects of the bank. The the framework of Tirana Bank Policies, which are posted working groups discussed and shared ideas on how to on the Bank’s internal communication channel, and by further improve the customer experience as well as our continuous training of its employees, the Bank seeks to employee’s engagement and enablement. define, determine and prevent the risk of operations, legal and supervisory sanctions, financial losses, damage Both meetings used The Customer Satisfaction Survey to Bank’s reputation, all of which may be incurred by the and Employee Engagement Survey Results as basis for Bank and/or its stakeholders as a result of non- or partial discussion and also working groups’ suggestions initiated compliance to procedures, laws, supervisory authorities’ projects at bank level. decisions, self-regulatory rules and the code of ethics. In addition during 2015, 11 senior managers graduated The newly renovated intranet during 2015 has helped “Harvard Manage Mentor” program, which is certified by employees to be informed about all operational and the prominent Harvard Business School Publishing. business issues as well as brief news items. Providing a Safe Working Environment Investing in People’s Development Tirana Bank complies with the legislative regulations Tirana Bank consistently invests in the development and regarding employees’ health and safety. Fully respecting improvement of its employees’ competencies and skills, its legal obligations, and showing particular sensitivity creating a learning and development environment, with to employees’ physical health, the Bank takes care to the aim of bringing out the full potential of its people. provide a modern, healthy and safe workplace.

The Bank continues to invest in the training of its Tirana Bank places special emphasis on the wellbeing employees. The performance appraisal process ensures of its employees. In addition to legal requirement, the continuous communication and guidance of employees Bank provides a Private Health Insurance Plan for all by their managers and creates the framework for its employees, fully covered by the bank, the highest recognizing individual contribution. private health insurance plan on average per employee Similarly, employees are given the opportunity to make compared to the banking sector in Albania.

41 Rewarding Human Resources The remuneration-defining procedures are clear, recorded Promoting effectiveness and efficiency, employees’ high and with internal transparency. performance is recognized and rewarded. The Remuneration Policy is based on the following A remuneration policy is in place, as an integral part of principles: the Bank’s corporate governance, aimed at deterring from • Maximization of performance excessive risk-taking and at continually strengthening the • Talent attraction and retention Bank’s values and long-term interests. • Alignment of remuneration and rewards with profitability, risk, capital adequacy and sustainable The remuneration policy is in accordance with the Bank’s growth. business strategy and supports its performance-driven • Compliance with the regulatory framework culture, which aligns the organization’s goals with those • Internal transparency of the interested parties, employees, management and • Discouraging excessive risk-taking shareholders.

TIRANA BANK ANNUAL REPORT 2015 Independent Audit report and Financial Statements as of and for the year ended 31 December 2015

43 CONTENT

INDEPENDENT AUDITOR’S REPORT

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME 44

STATEMENT OF FINANCIAL POSITION 45

STATEMENT OF CHANGES IN EQUITY 46

STATEMENT OF CASH FLOWS 47

NOTES TO THE FINANCIAL STATEMENTS 48-105 AUDITOR’S REPORT

To the Management and Shareholders of Banka e Tiranës Sh.A

We have audited the accompanying financial statements of Banka e Tiranës Sh.A. (the “Bank”), which comprise the statement of financial position as at December 31, 2015, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is nec- essary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the finan- cial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assess- ments, the auditor considers internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by manage- ment, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the statement of financial position of the Bank as at December 31, 2015 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Tirana, Albania Elvis Ziu June 10, 2016 Engagement Partner

45 STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2015

Notes 2015 2014

Interest income 6 2,886,219 4,190,048

Interest expense 7 (696,318) (1,671,289) Net interest income 2,189,901 2,518,759

Impairment of loans and advances (3,478,991) (1,637,433) Net interest income after provision for loan impairment (1,289,089) 881,326

Fee and commission income 8 390,692 307,127 Fee and commission expense 8 (15,901) (15,711) Net fee and commission income 374,791 291,416

Foreign exchange gains less (losses) (247,175) 130,588 Other operating income (7,065) 25,997 Personnel expenses 9 (607,773) (581,056) Other operating expenses 10 (942,299) (1,048,672) Unrealised gain/ (loss) on property revaluation (225,968) 182,210 Other Provisions (145,956) (360,578) Depreciation and amortisation (266,192) (282,235) (2,442,428) (1,933,746) Loss before income tax (3,356,726) (761,004)

Income tax credit/(expense) 11 41,061 3,763 Loss for the year (3,315,665) (757,241) Other comprehensive income/(expense), net of tax: Items that may be reclassified subsequently to profit or loss:

- Net fair value gain on available-for-sale financial assets 209,948 (133,381) - Deferred tax related to fair value gain recorded directly in other comprehensive (31,492) 18,188 income Other comprehensive income/(expense)for the year 178,456 (115,193) Total comprehensive expense for the year (3,137,209) (987,627)

The accompanying notes on pages 9 to 71 form an integral part of these financial statements. The financial state- ments were approved by the Board of Directors on 10 June 2016 and signed on their behalf by:

Dritan Mustafa Konstantinos Tsigaras Tedi Zeri Chief Executive Officer Chief Financial Officer Financial Control Manager

Financial Statements STATEMENT OF FINANCIAL POSITION as at 31 December 2015

Notes December 31, 2015 December 31, 2014

ASSETS Cash and balances with the Central Bank 12 16,674,410 19,026,572 Loans and advances to banks 12 11,279,991 8,213,104 Loans and advances to customers 13 28,796,615 39,252,338 Financial assets available for sale 14 20,427,529 27,357,916 Financial assets held to maturity 15 - 3,794,048 Corporate income tax receivable 300,914 300,679 Investment properties 16 2,314,308 1,978,927 Intangible assets 17 334,470 362,222 Property and equipment 18 598,670 737,123 Deferred tax assets 38,335 13,328 Other assets 19 696,564 672,242 TOTAL ASSETS 81,461,806 101,708,499 LIABILITIES AND EQUITY Due to banks 20 2,024,630 4,853,195 Due to customers 21 63,746,983 78,083,284 Other liabilities 22 346,981 240,173 Provisions 23 383,392 434,818 TOTAL LIABILITIES 66,501,986 83,611,470 Equity Paid-in capital 24 14,754,741 14,754,741 Share premium 24 1,735,494 1,735,494 Other reserves 25 1,704,370 1,525,914 Retained earnings/(Accumulated losses) (3,234,785) 80,880 TOTAL EQUITY 14,959,820 18,097,029

TOTAL LIABILITIES AND EQUITY 81,461,806 101,708,499

The accompanying notes on pages 9 to 71 form an integral part of these financial statements. The financial state- ments were approved by the Board of Directors on 10 June 2016 and signed on their behalf by:

Dritan Mustafa Konstantinos Tsigaras Tedi Zeri Chief Executive Officer Chief Financial Officer Financial Control Manager

47 STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2015

Paid-in Share Retained Other Total Equity Capital Premium Earnings Reserves

At 1 January 2014 14,754,741 1,735,494 838,121 1,641,107 18,969,463

Loss for the year - - (757,241) - (757,241)

Change in retained earnings - - - (115,193) (115,193)

At 31 December 2014 14,754,741 1,735,494 80,880 1,525,914 18,097,029

At 1 January 2015 14,754,741 1,735,494 80,880 1,525,914 18,097,029

Loss for the year - - (3,315,664) (3,315,655)

Change in retained earnings - - - 178,456 178,456

At 31 December 2015 14,754,741 1,735,494 (3,234,785) 1,704,370 14,959,820

The accompanying notes on pages 9 to 71 form an integral part of these financial statements. The financial state- ments were approved by the Board of Directors on 10 June 2016 and signed on their behalf by:

Dritan Mustafa Konstantinos Tsigaras Tedi Zeri Chief Executive Officer Chief Financial Officer Financial Control Manager

Financial Statements STATEMENT OF CASH FLOWS for the year ended 31 December 2015

Notes 2015 2014

Cash flow from OPERATING ACTIVITIES Loss before tax (3,356,726) (761,004) Adjustments for: - Depreciation and amortisation 17, 18 266,192 282,235 Impairment of loans and advances 13 3,478,991 1,637,433 Net changes in fair value of financial assets 578,886 (182,210) Net interest income 6,7 (2,285,560) (2,597,392) Other non-cash items 160,871 (95,690) (1,157,346) (1,716,628) Increase in compulsory reserve with the Central Bank 1,345,876 (23,014) Decrease/(increase) in loans and advances to customers 10,384,280 (1,612,694) Increase in other assets (8,738) (173,182) Decrease in due to banks (2,828,565) 1,617,410 Increase in due to customers (18,095,764) (564,666) (Decrease)/increase in other liabilities (90,340) 148,945 Interest received 2,981,878 4,282,988 Interest paid (696,316) (1,955,887) Income tax paid - - Net cash generated from operating activities (8,165,085) 3,272 Cash flow from INVESTING ACTIVITIES Purchase of property & equipment 18 (12,962) (40,055) Purchase of intangible assets 17 (87,025) (118,142) Purchases of investment properties 16 (667,442) (708,386) Proceeds from sale of property & equipment 106,093 - Proceeds from sales of investment properties 67,085 Proceeds from maturing financial assets held to maturity 14 3,794,048 421,656 Purchase of financial assets available for sale 15 6,598,190 (25,824,047) Proceeds from maturing available for sale financial assets 15 510,653 14,733,094 Net cash from/(used in) investing activities 10,241,554 (11,468,795) Cash flow from FINANCING ACTIVITIES Increase of share capital - - Net cash (used in)/from financing activities - - Net increase/(decrease) increase in cash and cash equivalents 2,076,469 (11,465,523) Cash and cash equivalents at 1 January 19,754,025 31,219,548 Cash and cash equivalents at 31 December 27 21,830,494 19,754,025

The accompanying notes on pages 9 to 71 form an integral part of these financial statements. The financial state- ments were approved by the Board of Directors on 10 June 2016 and signed on their behalf by:

Dritan Mustafa Konstantinos Tsigaras Tedi Zeri Chief Executive Officer Chief Financial Officer Financial Control Manager

49 1. Corporate information Tirana Bank sh.a. is a banking institution operating in accordance with the provisions of Law 9901, dated 14 April 2008 “On Entrepreneurs and Commercial Companies”, and Law 9662, dated 18 December 2006 “On Banks in the Republic of Albania” as amended, Law 10481 dated 17 November 2011, as well as other relevant laws. According to article 4 of its Statute, the scope of work of the Bank is to execute, on its behalf or on behalf of third parties, any and every operation acknowledged or delegated by law to banks. Tirana Bank sh.a. is incorporated and domiciled

in Albania and operates in Albania. Tirana Bank sh.a. is owned by Piraeus Bank S.A which owns 98.83% of shares. The Bank has 39 branches (2014: 47) within the Republic of Albania and has no overseas operations. The total number of the Bank’s employees is 422 (2014:448). The financial statements for the year ended 31 December 2015 were authorized for issue by the Board of Directors on 10 June 2016. Approval of the financial statements by the Shareholders will take place in the Annual General Meeting of the Shareholders.

Principal activity The Bank’s principal business activity is commercial and retail banking operations within the Republic of Albania. The Bank has been operating under a full banking licence issued by the Central Bank of the Republic of Albania (“Bank of Albania” or “BoA”) since 1996.

Financial Statements 2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

2.1 Statement of compliance The financial statements of Tirana Bank sh.a. have been prepared in accordance with International Financial Re- porting Standards (IFRSs) and IFRIC interpretations). The accounting policies adopted are consistent with those of the previous financial year.

2.2 Basis of preparation The Bank’s financial statements are prepared, in all material respects, in accordance with International Accounting Standards. The main accounting policies used in the preparation of these financial statements are set out below. The financial statements have been prepared on a historical cost basis, except for available-for-sale financial invest- ments that have been measured at fair value. The financial statements are presented in Albanian Lek and all values are rounded to the nearest thousand (LEK ‘000) except when otherwise indicated.

(a) Position of the Group Piraeus Group branch network at the end of December 2015, totaled 989 units, of which 709 operated in Greece and 280 in 7 other countries. On April 17, 2015 Piraeus Bank acquired the “good” part of Panellinia Bank, contrib- uting that way to the further consolidation of the Greek banking system. The acquired perimeter included EUR 504 million customer deposits, EUR 261 million net loans as well as 26 branches and 163 employees. On November 11, 2015, Piraeus Bank announced the completion of the sale of its stake (98.5%) in its Egyptian subsidiary Piraeus Bank Egypt S.A.E.During 2015, Piraeus Group reduced its branch network in Greece by 120 units during 2015 as a result of the rationalization plan, following the acquisitions. At the same time, the Group’s headcount totalled 19,279 employees in the continuing operations, of which 15,599 were employed in Greece and 3,680 abroad. The Group’s international continuing operations on December 31, 2015, accounted for 6% of its total assets, 28% of its branch network and 19% of its headcount. Its total Capital Adequacy Ratio according to Basel III reached 17.5% at the end of December 2015. On December 2, 2015, Piraeus Bank announced the completion of the capital raising by a total amount of EUR 4.7 billion through share capital increase in cash, the capitalization of liabilities equivalent to cash contribution and the contribution in kind of ESM bonds, as well as the issuance of contingent convertible bonds exclusively covered by the HFSF. On December 4, 2015, the rating agency Standard & Poor’s upgraded Piraeus’ credit rating to “SD” from “D” and the credit rating rating of its senior bonds to “CCC+” from “D” following the completion of Piraeus Bank’s securi- ties exchange offer.

(b) Position of the Bank In the current environment the focus of the Bank has been on liquidity and capital adequacy. As disclosed in Notes 22 and 23, the Bank’s main source of funding is locally collected deposits from corporate and retail customers. The Bank’s capital adequacy ratio (as prescribed by BoA) as at 31 December 2015 amounts to 17.98% (2014: 17.98%) and is higher than the specifically-set regulatory minimum of 15%. Additionally, the Bank’s liquidity ratio

51 as of 31 December 2015 was 38% (2014: 39%, which is in compliance with the article 71 of the Bank of Albania regulation on liquidity, dated 14 October 2009. Bank is in compliance with the regulatory requirements and did not exceed the amount prescribed by the Law. Consequently, the going concern assumption has been applied in the preparation of the financial statements. Management prepared these financial statements on a going concern basis, which assumes that the Bank will continue to operate in the foreseeable future. In order to assess the reasonability of this assumption, management reviews the forecasts of the future cash inflows and the support provided by shareholders. Based on the current financial plans, the actual situation of the Bank and the support of the Parent Bank, manage- ment is satisfied that the Bank will be able to continue to operate as a going concern in the foreseeable future and, therefore, this principle is applied in the preparation of these financial statements.

2.3 Foreign currency translation The financial statements are presented in Albanian Lek, which is the Bank’s functional and presentation currency.

Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction. 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 “Foreign exchange translation (losses)/gains” in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The applicable rates of exchange (Lek to foreign currency unit) for the principal currencies as at 31 December 2015 and 2014 were as follows:

2015 2014

USD 125.79 115.23

EUR 137.28 140.14

2.4 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 generally established by regulation or convention in the marketplace are recognised on the trade date, i.e. the date that the Bank commits to purchase or sell the asset.

(b) Initial recognition of financial instruments The classification of financial instruments at initial recognition depends on the purpose for which the financial in- struments were acquired and their characteristics. All financial instruments are measured initially at their fair value

Financial Statements plus, in case of financial assets and liabilities not at fair value through profit and loss, transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable cur- rent market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

(c) Financial assets held to maturity Financial assets held to maturity are those investments which carry fixed or determinable payments and have fixed maturities and which the Bank has the intention and ability to hold to maturity and which do not meet definition of loans and receivables. If the Bank were to sell other than an insignificant amount of held to maturity investments, the entire category would be reclassified to available for sale. Financial assets held to maturity are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment. Amortised cost is calculated by taking into account any discount or pre- mium on acquisition and fees that are an integral part of the effective interest rate. The amortisation is included in “Interest and similar income” in profit or loss. The losses arising from impairment of such investments are recog- nised in profit or loss as “Impairment losses on financial investments”, if any.

(d) Loans and receivables Loans and receivables include “Due from banks” and “Loans and advances to customers”, which are financial as- sets with fixed or determinable payments and fixed maturities that are 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 “Financial investment available-for-sale’ or “Financial assets designated at fair value through profit or loss”. After initial measurement, amounts due from banks and loans and advances to customers are subsequently measured at amortised cost using the effective interest rate method, less allowance for impair- ment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortisation is included in “Interest and similar income” in profit or loss. The losses arising from impairment are recognised in profit or loss in “Impairment losses on loans and advances”.

(e) Financial assets at fair value through profit or loss This category includes treasury bills issued by the Albanian Government. Financial assets at fair value through profit or loss include financial assets which are managed and their perfor- mance is evaluated on a fair value basis, in accordance with the Bank’s risk management strategy. Financial assets at fair value through profit or loss are carried at fair value. All changes in the fair value and gains or losses on derec- ognising are recorded in profit or loss as other gains the period in which they arise.

(f) Available for sale financial assets This classification includes investment securities which the Bank intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Investment securities available for sale are carried at fair value. Interest income on available-for-sale debt securi- ties is calculated using the effective interest method and recognised in profit or loss for the year. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year when the Bank’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired, at

53 which time the cumulative gain or loss is reclassified from other comprehensive income to profit or loss for the year. The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate prevailing at the end of the reporting period. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset. Other foreign exchange gains and losses are recognised in other comprehensive income. As at December 31, 2015 and 2014 the Bank classified its financial assets as held-to-maturity and available-for-sale financial investments, loans and receivables. The Bank did not classify any financial assets designated at fair value through profit or loss during reporting period.

(g) Financial liabilities After initial measurement, debt issued and other borrowings are subsequently measured at amortized cost using the effective interest rate method. There is no financial liability measured at fair value through profit and loss. Any differences between proceeds net of transactions costs and the redemption value is recognised in “Interest and similar expenses” in profit or loss. Amortized cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate.

(h) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

(i) Derecognition Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognising). Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

2.5 Repurchase and reverse repurchase agreements Securities sold under agreements to repurchase at a specified future date (“repos”) are not derecognised from the balance sheet. The corresponding cash received, including accrued interest, is recognised in the statement of financial position as a “Due to Banks”, reflecting its economic substance as a loan to the Bank. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of the agree- ment using the effective interest rate method. Conversely, securities purchased under agreements to resell at a specified future date (‘reverse repos’) are recorded as due from other banks or loans and advances to customers, as appropriate. The corresponding cash paid, including accrued interest, is recognised in the statement of financial position as “Due from Banks”. The difference between the purchase and resale prices is treated as interest income and is accrued over the life of the agreement using the effective interest rate method.

2.6 Determination of fair value For financial instruments that are traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations. A financial instrument is regarded

Financial Statements as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indicators that a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions, a significant decrease in the average daily trading volume of all the shares under consideration in country 2 over the last 5 years, etc..

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instru- ments for which market observable prices exist and other relevant valuation models. Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees, are used to measure fair value of certain financial instruments for which external market pric- ing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs).

2.7 Impairment of financial assets The Bank assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an (negative) impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the high probability that they will enter bankruptcy or other finan- cial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(a) Due from banks and loans and advances to customers For amounts due from banks and loans and advances to customers carried at amortised cost, the Bank first as- sesses whether objective evidence of impairment exists for financial assets that are individually significant, or col- lectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss.

55 Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was rec- ognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account.

If a future write-off is later recovered, the recovery is credited to the “Provisions for impairment of loans and ad- vances”. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effec- tive interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system that considers credit risk characteristics such as asset type, industry, collateral type, past-due status and other relevant factors. Future cash flows on a group of financial assets that are collectively eval- uated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteris- tics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

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

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

Financial Statements classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss for the year.

(d) Renegotiated loans Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been re- negotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.

2.8 Leasing The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

(a) Bank as a Lessee Finance leases, which transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at commencement of the lease term at the fair value of the leased property or, if lower, at the present value of the minimum lease payments and included in “Property and equipment” with the corresponding liability to the lessor included in “Other liabilities”. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income in “Interest and similar expense”. The Bank did not have significant financial lease agreements during the reporting period. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Bank will obtain ownership by the end of the lease term. Any op- erating lease rentals payable are accounted for on a straight-line basis over the lease term and included in “Other operating expenses”. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.

(b) Bank as a Lessor Where the Bank is a lessor in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the Bank to the leasee, the total lease payments are recognised in profit or loss for the year (rental income – note 2.8, c) on a straight-line basis over the period of the lease.

2.9 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

(a) Interest and similar income and expense Interest and similar income includes coupons earned on fixed income investments, any discount and premium on zero coupon treasury bills recognised using in profit or loss the effective interest rate method and interest income

57 on loans and advances. For all financial instruments measured at amortised cost and interest bearing financial instruments classified as available-for-sale financial investments, interest income or expense is recorded at the ef- fective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment op- tions) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calcu- lated based on the original effective interest rate and the change in carrying amount is recorded as interest income or expense. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the original effective interest rate applied to the new carrying amount.

Fee and commission income The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee in- come can be divided into the following two categories:

i. Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees in- clude commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (to- gether with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan. ii. Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are rec- ognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

(b)Rental income Rental income is accounted for on a straight-line basis over the lease terms on ongoing leases and is recorded in profit or loss in “Other operating income”. The Bank did not have significant investment property as at year end and during the reporting period.

2.10 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. For the purpose of the Cash Flow Statement, cash and cash equivalents consist of cash on hand, current accounts with Central Bank and amounts due from other banks on demand and with an original maturity of three months or less. The statutory reserve with the Central Bank is not available for the Bank’s day-to-day operations and is not included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Cash and cash equivalents are carried at amortised cost. Further details of what cash and cash equivalents com- prises can be found in note 28.

Financial Statements 2.11 Property and equipment Property and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated deprecia- tion and accumulated impairment in value. Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows: • Own Buildings: up to 20 years • Furniture and other equipment: 5 years • Vehicles: 5 years • Computer hardware: 4 years • Leasehold improvements: the shorter of useful life and lease term The assets’ residual value and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the differ- ence between the net disposal proceeds and the carrying amount of the asset) is recognised in “Other operating income” or “Other operating expenses” in profit or loss in the year the asset is derecognised.

2.12 Intangible assets Intangible assets acquired separately: Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Internally-generated intangible assets - research and development expenditure: Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-gen- erated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated am- ortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Intangible assets include the Bank’s software with an estimated useful life of five years.

59 2.13 Investment properties Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. All of the Bank’s property interests held under operating leases to earn rentals or for capital appreciation purposes are accounted for as investment properties and are measured using the fair value model. Gains and losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecogni- tion of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. Investment properties includes collateral obtained due to legal process include land, building and business prem- ises which are not used by the Bank for its core operations.

2.14 Impairment of non-financial assets The Bank assesses at each reporting date or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, whether there is an indication that a non-financial asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Bank makes an estimate of the asset’s recoverable amount. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is considered impaired and is written down to its recover- able amount. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount to the extent that the increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

2.15 Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the bank’s liabili- ties under such guarantees are measured at the higher of the initial measurement, less amortization calculated to recognize in profit or loss the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the reporting date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by

Financial Statements the judgment of Management. Any increase in the liability relating to guarantees is taken to profit or loss under other operating expenses. Financial guarantees and commitments to provide a loan are initially recognised at their fair value, which is nor- mally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the commitment.

2.16 Pensions and other post-employment benefits The Bank contributes to its employees post retirement plans as prescribed by the domestic social security legisla- tion. Bank’s pension obligations, relate only to defined contribution plans. Defined contribution plans, based on salaries, are made to the state administered institution (i.e. Social Security Institute) responsible for the payment of pensions. Once the contributions have been paid, the Bank has no further payment obligations. The contribu- tions constitute net periodic costs for the year in which they are due and as such they are included in “Personnel expenses” in the statement of comprehensive income.

2.17 Provisions Provisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

2.18 Income tax Income taxes have been provided for in the financial statements in accordance with Albanian legislation enacted or substantively enacted by the reporting date. The income tax charge comprises current tax and deferred tax and is recognised in the statement of comprehensive income except if it is recognised in other comprehensive income because it relates to transactions that are also recognised, in the same or a different period, in other comprehen- sive income.

Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recov- ered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.(2015:15%, 2014: 15%).

Deferred tax Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and li- abilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except where the deferred tax liability arises from the initial recognition of goodwill

61 or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, af- fects neither the accounting profit nor taxable profit or loss. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Bank. Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.

Financial Statements 3. Financial risk management

The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s financial performance. The Bank’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by a risk department in the Bank under policies approved by the Board of Direc- tors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as, credit risk, foreign exchange risk, interest rate risk and liquidity risk. In addition, internal audit is responsible for the independent review of risk management and the control environ- ment. The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk includes currency risk, interest rate and other price risk.

3.1 Credit risk The Bank takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Bank by failing to fulfil obligations to the Bank. Credit risk is the most important risk for the Bank’s business; manage- ment therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into 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 risk department at both local and group (Piraeus Bank SA) level and reported to the Board of Directors.

The main targets of the Bank’s Credit Risk Management are to: 1) Set centralized policies aligned with the Group Policies and in compliance with Central Bank requirements; 2) Monitor the Bank’s portfolio. 3) Managing risk pro-actively to identify and analyse risk at an early stage 4) Create risk management function independent of commercial lines of the business 5) Integrate the risk management function into the organizational business process 6) Report on risk across the organization

The Credit Risk Management Committee is responsible for: • Developing Credit Risk management systems and infrastructure: analysing results and reporting to the man- agement • Preparing the Bank for Basel II implementations • Relationship with Bank of Albania (Central Bank), Piraeus Bank and/or other authorities in the terms of effec-

63 tiveness of Credit Risk Management The Audit Committee and Internal Auditing Department follow up the compliance with policies and procedures.

3.1.1 Credit risk measurement The procedures described below relate to credit risk measurements for operational purpose as well as for reporting under Bank of Albania regulation. Impairment losses on loans and advances for financial reporting are determined based on the procedures described in Note 3.1.3.

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

(i) The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally available data. Clients of the Bank are segmented into five rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events.

Bank’s internal ratings scale

Bank’s rating Description of the grade

A Investment Grade B Standard C Special Monitoring D Substandard E Doubtful and Loss

Criterion for classification of Financial Assets into groups A, B, C, D and E are as follows: Financial Assets are classified into Group A if they are toward debtors that have been evaluated in investment grade ratings by external raters, e.g. Moody’s, S&P, Fitch, regardless of the internal MRA rating. The bank has no such customers as at 31 December 2015 and 2014.

Financial Assets are classified into Group B if they are towards: • Bank of Albania and Albanian Government;

Financial Statements • debtors which are not likely to default and who repay their obligations within the maturity, or with a delay of 30 days; and • exposures secured by pledging collateral graded as first class collateral.

Financial Assets are classified into Group C if they are towards debtors: • whose cash flows are assessed as adequate to duly fulfil its due obligations, regardless its present financial position is assessed as weak, without signs of further deterioration in the future; and • who settle their liabilities with delay of up to 30 days, occasionally with delay between 31 and 90 days. • • Financial Assets are classified into Group D if they are towards debtors: • for which it is assessed, that cash flows will not be sufficient for regular repayment of matured liabilities; • that settle their liabilities with delay of up to 90 days, occasionally with delay between 91 to 180 days; • that are clearly undercapitalized; • that do not have sufficient long term capital resources for financing long term investments; and • from whom bank does not receive currently satisfactory information or adequate documentation concern- ing repayment of liabilities.

Financial Assets are classified into Group E if they are towards debtors: • for which exists a strong likelihood of loss of part of financial asset; • that settle their liabilities with delay of more than 90 to 180 days, occasionally with delay between 181 to 360 days; • which are insolvent; • for which a motion for commencement of process of liquidation or declaration of bankruptcy began and was filed at the provisional court; • that are in the process of reform or in the process of liquidation; • that declared bankruptcy; • from whom no repayment is expected; and • with questionable legal grounds.

(ii) Exposure at default is based on the amounts the Bank expects to be owed at the time of default. For example, for a loan this is the face value. For a commitment, the Bank includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur. (iii) Loss given default or loss severity represents the Bank’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of coun- terparty, 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 de- pending 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 require- ment at the same time. Investment is allowed only in liquid securities that have high credit rating. Given their high credit ratings manage- ment 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.

65 3.1.2 Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular, to individual counterparties and groups, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product and industry sector are approved by the Board of Directors. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrow- ers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below.

(a) Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the tak- ing of security for funds advances, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: • Cash, banks and first class companies’ guarantees; • Mortgages over residential properties; • Charges over business assets such as premises, inventory and accounts receivable; and • Charges over financial instruments such as debt securities and equities.

Loans to corporate entities and individuals are generally secured; over drafts and credit cards issued to individu- als are secured mostly by cash deposits and collateral in cases of credit customers at the full amount of principal, interest and other charges. In addition, in order to minimise the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Debt securities, treasury and other eligible bills are generally unsecured.

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

Financial Statements 3.1.3 Impairment and provisioning policies The internal rating systems described in Note 3.1.1 focus more on credit-quality mapping from the inception of the lending and investment activities. In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the reporting date based on objective evidence of impairment (see Note 2.6). The impairment provision shown in the balance sheet at year-end is derived from each of the five internal rating grades. However, the majority of the impairment provision comes from bottom two grades. The table below shows the percentage of the Bank’s on-balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank’s internal rating categories:

Bank’s rating 2015 2014 Loans and advances Impairment provision Loans and advances Impairment provision (%) level (%) (%) level (%) Investment Grade - - - - Standard 41,15 3,21 47,37 3.54 Special monitoring 11,72 9,46 13,19 3.46 Sub-standard 13,40 35,46 10,61 36.84 Doubtful and Loss 33,75 44,45 28,83 39.33 Total 100.00 22,18 100.00 14.75

The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following criteria set out by the Bank: • Delinquency in contractual payments of principal or interest; • Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales); • Breach of loan covenants or conditions; • Initiation of bankruptcy proceedings; • Deterioration of the borrower’s competitive position; and • Deterioration in the value of collateral.

The Bank’s policy requires the review of individual financial assets that are individually significant at least annually or more regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are ap- plied to all individually significant accounts. The assessment encompasses collateral held (including re-confirma- tion of its enforceability) and the anticipated receipts for that individual account. Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are not indi- vidually significant; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience and experienced judgment.

67 3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum exposure 2015 2014 Credit risk exposures relating to on-balance sheet assets are as follows: Balances with Central Bank 15,472,594 17,515,189 Loans and advances to banks 11,279,991 8,213,104

Loans and advances to customers: Loans to individuals 7,741,174 9,793,233 Loans to Corporate and SMEs entities: 21,055,441 29,459,104 Total loans and advances to customers 28,796,615 39,252,337 Financial assets available for sale 20,427,529 27,357,916 Financial assets held to maturity - 3,794,048 Credit risk exposures relating to off-balance sheet items are as follows: Letters of Guarantees 465,248 799,784 Letters of Credit - - Loans Commitment 854,690 4,292,961 At 31 December 77,296,667 101,225,339

The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2015 and 2014, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following: • 52.86% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2014: 60.56% %); • Loans to Corporate and SMEs, which represents the biggest group in the portfolio, are backed by col- lateral; • 41.2% of the loans and advances portfolio are considered to be neither past due nor impaired (2014:46%); and • The Bank has introduced a more stringent selection process upon granting loans and advances.

Financial Statements 3.1.5 Loans and advances Loans and advances are summarised as follows:

31 December 2015 31 December 2014 Loans and Loans and Loans and Loans and advances to advances to advances to advances to customers banks customers banks

Neither past due nor impaired 15,223,294 11,279,991 21,386,265 8,213,104 Past due but not impaired 4,803,242 6,475,422 - Individually impaired 16,977,123 18,219,611 - Gross 37,003,658 46,081,298 8,213,104 Less: allowance for impairment (8,207,043) (6,828,961) -

Loans to customers, net 28,796,615 11,279,991 39,252,37 8,213,104

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

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

At December 31, 2015 At December 31, 2014

Consumer / overdrafts 1,141,720 1,798,973 Credit Cards 138,405 155,020 Mortgages 4,277,718 5,431,321 Loans to Corporate and SMEs 9,665,452 14,000,951 Loans and advances to customers, net 15,223,295 21,386,265 Loans and advances to banks 11,279,991 8,213,104 Total loan and advances neither past due nor impaired 26,503,286 29,599,369

Loans and advances in the Sub-standard and Doubtful grades were considered not to be impaired after taking into consideration the recoverability from collateral for retail customer mortgage and consumer loans.

Loans and advances past due but not impaired Gross amount of loans and advances that are past due but not impaired: Loans and advances to customers

69 31 December 2015 Individual (retail customers) Consumer/ Mortgages Visa Card Total Overdrafts Past due 1 up to 90 days 197,647 993,452 12,461 1,203,560 Past due 91-180 days 252,833 252,833 Past due 181-360 days 55,610 55,610 Past due > 360 days 12,022 12,022 Total 197,647 1,313,917 12,461 1,524,025

31 December 2015 Corporate and SMEs

Past due 1 up to 90 days 950,342 Past due 91-180 days 556,078 Past due 181-360 days 568,175 Past due > 360 days 1,204,621 Total 3,279,217

Total loans and advances past due but not impaired at 31 December 2015 4,803,242

31 December 2014 Individual (retail customers) Consumer/ Mortgages Visa Card Total Overdrafts Past due 1 up to 90 days 157,003 1,012,810 7,498 1,177,311 Past due 91-180 days - 114,022 - 114,022 Past due 181-360 days - 58,277 58,277 Past due > 360 days - 7,937 7,937 Total 157,003 1,193,046 7,498 1,357,547

31 December 2014 Corporate and SMEs

Past due 1 up to 90 days 4,320,717 Past due 91-180 days 497,930 Past due 181-360 days 140,484 Past due > 360 days 158,744 Total 5,117,875

Total loans and advances past due but not impaired at 31 December 2014 6,475,422

Financial Statements Loans and advances to banks There are no loans and advances to banks as at 31 December 2015, which are past due but not impaired (2014: Nil).

Loans and advances to customers The breakdown of the gross amount of individually impaired loans and advances by class, are as follows:

Consumer and Mortgage Corporate and SMEs Total Visa Cards 31 December 2015 Individually impaired loans 13,798 298,521 14,762,751 15,075,069

31 December 2014 Individually impaired loans - 16,110,620 16,110,620

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

Consumer and Corporate and Mortgage Total Visa Cards SMEs 31 December 2015 Collectively impaired loans 634,352 944,900 322,802 1,902,054

31 December 2014 Collectively impaired loans 617,197 1,491,794 2,108,991

The disclosed fair value of collateral is determined by local certified valuators and represents value realisable by the legal owners of the assets. Management considers the loans covered by collateral on corporate loans as impaired because experience shows that a significant proportion of the collateral on corporate loans cannot be enforced due to administrative and legal difficulties such as such as decrease of collateral value at auctions admin- istered by bailiff office, time necessary for collaterals to be enforced. The impairment provisions reflect the prob- ability that management will not be able to enforce its rights and repossess collateral on defaulted loans. Despite difficulties in enforcing repossession of collateral, the Bank’s management will vigorously pursue the outstanding debts with all possible means at their disposal.

Financial effect of collateral on impairment In 2015 the Bank analysed individually for impairment all credit exposures exceeding EUR 300,000 (2014: EUR 50,000). A credit exposure groups together all credits granted to financial interdependent clients, identified as related parties in the Bank’s risk management systems. In assessing impairment the Bank considers all available sources of business cash flows and cash flow realisable from collateral forced sale.

71 At December 31, 2015 the Bank tested individually for impairment 76% of the total outstanding loans and advanc- es to customers (2014: 77%). Individually impaired loans comprised 53% of the total loans individually tested at December 31, 2015 (2014: 44%). Impairment allowance on individually impaired loans was assessed at 41% of the outstanding exposures (2014: 37%). This assessment was mostly affected by the fair value of cash flow expected to be realised from the forced execution of the credit collaterals.

Loans and advances to banks There are no individually impaired loans and advances to banks as at 31 December 2015 and 2014.

3.1.6 Loans and advances renegotiated Restructuring activities include extended payment arrangements, modification and deferral of payments. Follow- ing restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judg- ment of bank management, indicate that payment will most likely continue. These policies are kept under continu- ous review. During year 2015, there were 75 renegotiated for a total of LEK 891,112 thousand (during 2014, there were 165 loans renegotiated for a total of LEK 4,716,661 thousand) as detailed in the following table.

2015 2014 Outstanding Number of Outstanding Number of balance loans balance loans Consumer 33,348 33 63,315 49 Mortgage 116,703 28 355,780 70 SME 361,300 12 293,620 17 Corporate 379,762 2 4,003,946 29 Total 891,112 75 4,716,661 165

Financial Statements 3.1.7 Cash and balances with Central Bank As at 31 December 2015 and 2014 the amounts due from Central Bank and corresponding banks were neither past due nor impaired.

3.1.8 Debt securities, treasury bills and other eligible bills Held to maturity and fair value through profit and loss are made up of T-bills and bonds. The issuer of such in- vestment securities is the Albanian Government. Standard & Poor’s Ratings Services assigned its ‘BB/B’ foreign currency and ‘BB+/B’ local currency sovereign credit ratings to Albania. As at 31 December 2015 and 2014 these investments were neither past due nor impaired.

3.1.9 Concentration of risks of financial assets with credit risk exposure

(a) Geographical sectors Loans and advances to banks are held with banks in OECD countries. All other financial assets are held in Albania except for the VISA share holdings, which are held with VISA Corporation.

(b) Industry sectors The analysis of the Bank’s main credit exposure on loans and advances to customers by industry is presented in Note 14.

3.2 Market risk Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit standing) will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Market Risk issues are followed up in regular basis by “Asset & Liabilities Management Committee” (ALCO).

3.2.1 Foreign exchange risk The Bank is exposed to currency risk through transactions in foreign currencies. The Bank ensures that the net exposure is kept to an acceptable level by buying or selling foreign currency at spot when necessary to address short-term imbalances. The Management sets limits on the level of exposure by currencies, which are monitored daily. Concentrations of currency risk – on and off-balance sheet financial instruments:

73 Other At 31 December 2015 EUR USD LEK Total currencies Assets Cash and balances with the Central 11,371,888 796,393 112,311 4,393,819 16,674,410 Bank Due from banks 10,981,437 - 298,553 - 11,279,991 Loans and advances to customers 16,553,173 1,848,609 22,595 10,372,238 28,796,615 Investment securities available for 6,992,912 190,417 - 13,244,200 20,427,529 sale Financial assets held to maturity - - - - - Total financial assets 45,899,411 2,835,418 433,459 28,010,257 77,178,545

Liabilities Due to banks 189,097 377,375 19,013 1,439,145 2,024,630 Due to customers 26,537,494 2,341,669 412,804 34,455,015 63,746,983 Total financial liabilities 26,726,591 2,719,044 431,818 35,894,160 65,771,613 Net on-balance sheet currency 19,172,820 116,374 1,641 (7,883,904) 11,406,931 position Off-balance sheet items 490,815 168,598 298,544 361,982 1,319,939 Sensitivity if exchange rates 490,815 168,598 298,544 361,982 1,319,939 increase by 5% Sensitivity if exchange rates 983,182 14,249 15,009 - 1,012,440 decrease by 5%

The Bank manages its foreign currency exposure taking into consideration that its share capital and share premium is denominated in EUR. The sensitivity presented in the table above calculates the increase/decrease of pre-tax profit if at the reporting date, Lek exchange rate had increased/decreased by 5% against the respective foreign currencies with all other variables held constant.

Financial Statements Other EUR USD LEK Total At 31 December 2014 currencies Assets Cash and balances with the Central Bank 12,270,741 1,084,028 779,098 4,892,705 19,026,572 Due from banks 8,213,104 - - - 8,213,104 Loans and advances to customers 22,565,611 2,733,938 26,042 13,926,747 39,252,338 Investment securities available for sale 9,723,474 147,299 - 17,487,143 27,357,916 Financial assets held to maturity 2,833,828 - - 960,220 3,794,048

Total financial assets 55,606,758 3,965,265 805,140 37,266,815 97,643,978

Liabilities and equity Due to banks 2,816,346 6 45,296 1,991,547 4,853,195 Due to customers 32,698,407 3,605,539 738,053 41,041,285 78,083,284

Total financial liabilities 35,514,753 3,605,545 783,349 43,032,832 82,936,479

Net on balance sheet currency position 20,092,005 359,720 21,791 (5,766,017) 14,707,499 Off balance sheet items 3,902,506 428,810 - 761,409 5,092,725 Sensitivity if exchange rates increase by 5% 7,592 525 74 - 8,191 Sensitivity if exchange rates decrease by 5% (7,592) (525) (74) - (8,191)

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

75 - -

Total 2,024,630 16,674,410 11,279,991 28,796,615 63,746,983 20,427,529 65,771,613 11,406,932 77,178,545 ------

98,438 98,438 bearing 1,201,816 1,103,378 1,201,816 Non-interest Non-interest - - - -

- Over 1 year 175,850 2,197,982 2,197,982 12,545,849 10,523,716 12,721,699 - - - - -

months 5,701,704 12,572,842 31,946,394 31,946,394 18,274,545 (13,671,848) From 3 to 12 From - - - - -

months (131,677) 6,513,216 1,065,208 7,710,101 7,710,101 7,578,423 From 1 to 3 From - -

month 9,534,708 1,114,769 2,024,630 15,472,594 11,279,991 21,794,069 13,583,363 23,818,699 37,402,062 L ess than one At 31 December 201 5 Assets Cash and balances with the Central Bank banks Due from Loans and advances to customers Investment Securities Available for Sale Investment Securities Available nterest sensitivity gap I nterest Due to customers financial liabilities Total Financial assets held to maturity financial assets Total L iabilities Due to banks

Financial Statements

Total 4,853,195 3,794,048 8,213,104 78,083,284 27,357,916 39,252,338 19,026,572 14,707,499 82,936,479 97,643,978 - - - -

Non- 26,374 26,374 1,511,383 1,485,009 1,511,383 interest bearing interest - - -

-

Over 43,389 1 year 476,105 3,296,482 2,863,766 3,296,482 3,339,871 - - -

3,794,048 9,840,463 36,985,015 19,455,751 From 3 to From (3,894,753) 36,985,015 33,090,262 12 months - - - -

10,638,375 From 1 to From 12,524,337 10,036,189 3 months 11,922,151 10,638,375 22,560,526 -

month 4,853,195 2,129,350 8,213,104 9,284,293 5,151,703 27,137,038 17,515,189 31,990,233 37,141,936 L ess than one nterest sensitivity gap I nterest

Total financial liabilities Total Due to banks Due to customers L iabilities

Financial assets held to maturity financial assets Total Investment Securities Available for Sale Investment Securities Available Assets banks Due from Loans and advances to customers At 31 December 2014 Cash and balances with the Central Bank The following table includes figures of comparative period: The following table includes figures

77 Due to specifics of Albanian market, a large amount of customer deposits has a maturity of less than one month. However, the potential negative effect of adverse evolution in interest rates is significantly reduced due to low interest rates set by the Bank on customer demand deposits. The interest rate sensitivity analysis has been determined based on the exposure to interest rate risk at the report- ing date. At 31 December 2015, if interest rates had been 100 basis points higher/lower with all other variables were held constant, the Bank’s pre-tax profit for the twelve month period ended 31 December 2014 would respec- tively increase/(decrease) by approximately LEK 51,690 thousand (2014: LEK 43,191 thousand). Interest rate sensitivity analysis by currency is presented below.

Other EUR USD LEK Total currencies At 31 December 2015 Total interest bearing financial assets 34,527,523 2,039,026 321,148 23,616,438 60,504,135 Total interest bearing financial liabilities 26,653,188 2,716,372 431,818 35,970,235 65,673,176 Interest sensitivity gap 7,874,335 (677,346) (110,669) (12,353,797) (5,169,041) Sensitivity if interest rates increase 78,743 (6,773) (1,107) (122,554) (51,690) by 100 bp Sensitivity if interest rates decrease (78,743) 6,773 1,107 122,554 51,690 by 100 bp

Other EUR USD LEK Total currencies At 31 December 2014 Total interest bearing financial assets 43,336,017 2,881,237 26,042 32,374,110 78,617,406 Total interest bearing financial liabilities 35,514,753 3,605,545 783,349 43,032,832 82,936,479 Interest sensitivity gap 7,821,264 (724,308) (757,307) (10,658,722) (4,319,073) Sensitivity if interest rates increase by 78,213 (7,243) (7,573) (106,587) (43,191) 100 bp Sensitivity if interest rates decrease (78,213) 7,243 7,573 106,587 43,191 by 100 bp

3.3 Liquidity risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend. A Liquidity Risk Management Policy has been applied in all Bank units since the end of 2003. This policy is adjusted to internationally applied practices and regulatory environments and adapted to the specific activities of Piraeus Bank. The policy specifies the principal liquidity risk assessment definitions and methods, defines the roles and respon- sibilities of the units and staff involved and sets out the guidelines for liquidity crisis management. The policy is focused on the liquidity needs expected to emerge, in one week or one month, on the basis of hypothetical liquid- ity crisis scenarios.

Financial Statements Furthermore, the Policy defines a contingency funding plan to be used in the case of a liquidity crisis. Such a crisis can take place either due to a Tirana Bank specific event or a general market event. Triggers and warning signals serve as indicators of when the contingency plan should be put into operation. This contingency plan is mainly based on additional financing to be received from the Parent upon request. In addition, Tirana Bank calculates and monitors the Liquidity ratios, “Liquid Assets/ Total Liabilities” and “Net Current Assets/Total Liabilities”, as they are defined in the Bank of Albania Directive, which refers to the control framework of banks’ liquidity adequacy, by the Bank of Albania (note 2.1.b). The levels of these particular ratios are daily communicated to the responsible business units, and comments, as well as respective assessments, are included in the reporting package to the members of ALCO. The ALCO has the responsibility: to design the bank’s strategy on the assets and liabilities development, depend- ing on the qualitative and quantitative data of the organization and development of the business environment; to ensure high competitiveness and effectiveness of the organization, maintaining assumed risk within the set lim- its; to manage the assets and liabilities by applying a pricing policy on products and services at the same time.

3.3.1 Liquidity risk management process The table below analyses assets and liabilities into relevant time periods based on the remaining period at report- ing date to the contractual maturity date. Assets and liabilities in foreign currency are converted into LEK using EX rates as at the year end. The assumptions made are that scheduled payments to the bank are honoured in full and on time and in addition, all contractual payments are discharged in full – e.g. that depositors will withdraw their money rather than roll it over on maturity. Those assets and liabilities lacking actual maturities (e.g. open accounts, sight deposits, or sav- ings accounts) are assigned to the time band less than one month.

79 Less than From 1 to 3 From 3 to 12 From 1 to 5 Over 5 At 31 December 2015 Total one month months months years Years

Assets liquidity Cash and balances with the 16,674,410 - - - - 16,674,410 Central Bank Due from banks 11,279,991 - - - - 11,279,991 Loans and advances to 7,562,623 2,808,914 2,870,890 6,595,623 8,958,565 28,796,615 customers Investment Securities available 1,114,769 1,065,208 5,701,704 12,545,849 - 20,427,529 for Sale Financial assets held to ------maturity Total financial assets 36,631,793 3,874,121 8,572,594 19,141,472 8,958,565 77,178,545

Liabilities liquidity Due to banks 2,024,630 - - - - 2,024,630 Due to customers 21,892,506 7,710,101 31,946,394 2,197,982 - 63,746,983 23,917,137 7,710,101 31,946,394 2,197,982 - 65,771,613 Total financial liabilities Net liquidity gap 12,714,656 (3,835,979) (23,373,800) 16,943,490 8,958,565 11,406,932

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

Financial Statements Less than one From 1 to From 3 to 12 From 1 to 5 At 31 December 2014 Over 5 years Total month 3 months months years

Assets liquidity Cash and balances with 19,026,572 - - - - 19,026,572 the Central Bank Due from banks 8,213,104 - - - - 8,213,104 Loans and advances to 6,296,645 4,370,492 7,714,316 8,993,768 11,877,117 39,252,338 customers Investment Securities 2,129,350 12,524,337 9,840,463 2,863,766 27,357,916 available for Sale Financial assets held to - - 3,794,048 - - 3,794,048 maturity Total financial assets 35,665,671 16,894,829 21,348,827 11,857,534 11,877,117 97,643,978

Liabilities liquidity Due to banks 4,853,195 - - - - 4,853,195 Due to customers 27,163,412 10,638,375 36,985,015 3,296,482 - 78,083,284 Total financial liabilities 32,016,607 10,638,375 36,985,015 3,296,482 - 82,936,479

Net liquidity gap 3,649,064 6,256,454 (15,636,188) 8,561,052 11,877,117 14,707,499

The table below presents the cash flows payable by the Bank under non-derivative financial liabilities by remaining contractual maturities at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Bank manages the inherent liquidity risk based on expected discounted cash inflows.

Less than one From 1 to 3 From 3 to 12 From 1 to 5 Over 5 At 31 December 2015 Total month months months years Years

Due to banks 2,032,150 - - - - 2,032,150 Due to customers 21,831,901 8,055,538 31,946,655 2,482,628 - 64,316,722 Total financial 23,864,051 8,055,538 31,946,655 2,482,628 - 66,348,872 liabilities

Less than one From 1 to 3 From 3 to 12 From 1 to 5 Over 5 At 31 December 2014 Total month months months years Years Due to banks 4,855,274 - - - - 4,855,274 Due to customers 27,150,730 10,639,053 37,214,337 3,404,207 - 78,408,327 Total financial liabilities 32,006,004 10,639,053 37,214,337 3,404,207 - 83,263,601

81 Off-balance sheet items Less than From 1 to From 3 to From 1 to Over 5 At 31 December 2015 one month 3 months 12 months 5 years Years Total Loan commitments 342,575 1,992 436,405 13,877 59,842 854,690 Letters of Guarantees 18,630 82,161 364,457 - - 465,248 Letters of Credit ------361,205 84,153 800,862 13,877 59,842 1,319,939 Operating lease commitments 80 167 153,280 367,580 15,885 536,993 Total 361,285 84,320 954,142 381,457 75,727 1,856,931

At 31 December 2014

Loan commitments 1,630,154 1,722,247 842,015 19,325 79,220 4,292,961 Letters of Guarantees 9,081 130,219 660,464 - - 799,764 Letters of Credit ------1,639,235 1,852,466 1,502,479 19,325 79,220 5,092,725 Operating lease commitments - - 176,508 533,762 64,085 774,355 Total 1,639,235 1,852,466 1,678,987 553,087 143,305 5,867,080

Letters of credit and guarantees given to customers commit the Bank to make payments on behalf of customers contingent upon the failure of the customer to perform under the terms of the contract. Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commit- ments generally have fixed expiration dates, or other termination clauses. The Tirana Bank branch network includes 39 (2014: 47) rented buildings which are rented under operating leases. The Bank’s policy is to enter into long term contracts, which vary from 10 years to 20 years. The contracts are re- newed following a negotiation between both parties in order to agree new terms of the contract.

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

Carrying value Fair value 2015 2014 2015 2014 Financial assets Loans and advances to banks 11,279,991 8,213,104 11,279,991 8,213,104 Loans and advances to customers 28,964,103 38,700,399 28,406,824 35,730,696 Business 21,177,904 29,459,104 21,170,646 27,902,973 Individuals 7,786,199 9,793,233 7,236,178 8,132,991 Held to maturity Financial Investment - 3,794,048 - 3,840,105 Financial liabilities Due to customers 63,746,983 78,083,284 64,362,533 77,964,685 Due to banks 2,024,630 4,853,284 2,024,630 4,853,284

Financial Statements (a) Loans and advances to banks Loans and advances to other banks include inter-bank placements. The fair value of fixed rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity. With respect to deposits in Credit Institutions, these are short-term deposits, for which the carrying inter- est rate does not significantly differ from the market interest rate as at 31 December.

(b) Loans and advances to customers Loans and advances are net of allowances for impairment. The Bank’s loan portfolio has an estimated fair value which is smaller than its book value due to the higher market interest rates prevailing at the end of 2013 as a result of the actual market conditions. The majority of the loan portfolio is subject to re-pricing within a year. The fair value of loans and advances to customers is their expected cash flow discounted at current market rates. Current market rates are interest rates we would charge at the moment (year-end).

(c) Financial assets held to maturity The fair value of held to maturity investments is determined by using quoted prices for similar instruments as the discounting rate of future cash flows at the reporting date. Such investments are short term, and again the carrying interest rate does not significantly differ from the market interest rate as at 31 December 2015 and 2014

(d) Due to other banks and customers, other deposits and other borrowings. The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity. The carrying value differs from the fair value because the carrying interest rates are higher than the market interest rate as at 31 December 2014, because at year end the banks are granting higher interest rates in the competition to attract deposits. Due to banks mainly refers to loans taken from the parent with a maturity of one month from the date of the bal- ances sheet and therefore their fair value is consider to be approximate to the carrying value.

Financial instruments measured at fair value Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) Level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities; (ii) Level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and (iii) Level 3 measurements are valuations not based on observable market data (that is, unobservable inputs).

Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measure- ment. The significance of a valuation input is assessed against the fair value measurement in its entirety. Recurring fair value measurements are those that the accounting standards require or permit in the statement of financial position at the end of each reporting period. Fair values analysed by level in the fair value hierarchy and carrying value of assets not measured at fair value are as follows:

83 31 December 2015 Level 1 Level 2 Level 3 Total FINANCIAL Assets Loans and advances to banks - - 11,279,991 11,279,991 Loans and advances to customers - - 28,406,824 28,406,824 Investments securities held to maturity - - - - Investment securities available for sale 6,144,480 14,283,049 - 20,427,529

FINANCIAL LIAIBILITIES

Customer accounts - - 64,362,533 64,362,533 Due to banks - - 2,024,630 2,024,630

31 December 2014 Level 1 Level 2 Level 3 Total FINANCIAL Assets Loans and advances to banks - - 8,213,104 8,213,104 Loans and advances to customers - - 39,252,338 39,252,338 Investments securities held to maturity - 3,794,048 - 3,794,048 Investment securities available for sale - 27,357,916 - 27,357,916 FINANCIAL LIAIBILITIES Customer accounts - - 78,083,284 78,083,284 Due to banks - - 4,853,195 4,853,195

3.5 Capital management The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are: . to comply with the capital requirements set by the Bank of Albania; . to safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and . to maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing techniques based on the guidelines developed by the Basel Committee and the European Community Directives, as implemented by Bank of Albania, for supervisory purposes. The required information is filed with Bank of Alba- nia on a quarterly basis. Bank of Albania requires generally each bank or banking Group to: (a) hold the minimum level of the regulatory capital of 1 billion LEK and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the ‘Basel ratio’) at or above the Bank of Albania required minimum of 12% (2014: 12%). Bank of Albania has requested specifically that Tirana Bank maintains a minimum capital adequacy ratio of 15%, amidst the uncertainties of the financial crisis in Greece and its potential effect in Albania. The Bank’s regulatory capital as managed by its Risk Department is divided into two tiers:

Financial Statements . Tier 1 capital: share capital (net of any book values of the treasury shares), retained earnings and reserves created by appropriations of retained earnings ; and . Tier 2 capital: qualifying subordinated loan capital, collective impairment allowances and unrealised gains arising on the fair valuation of equity and debt instruments held as available for sale. The risk-weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of − and reflecting an estimate of credit, market and other risks associated with − each asset and counter- party, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent nature of the potential losses. The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended 31 December 2015 and 2014. The Bank complied with all of the externally imposed capital requirements to which they are subject in 2015.

2015 2014

Tier 1 capital Share capital 16,490,344 16,490,344 Statutory reserve 1,374,250 1,374,250 Revaluation differences for statutory reporting 349,221 700,045 Total qualifying Tier 1 capital 18,213,815 18,564,639

Tier 2 capital Subordinated liability - - Revaluation reserve - -

Total qualifying Tier 2 capital - -

Deductions from regulatory capital (10,158,930) (10,324,772) Total regulatory capital 8,054,885 8,239,867

Risk-weighted assets: On-balance sheet 39,255,859 45,183,000 Off-balance sheet 877,834 652,545 Total risk-weighted assets 40,133,693 45,835,545

CAR ratio 20,07% 17.98 %

The capital adequacy ratio is calculated based on the Bank of Albania’s financial information, shown above.

85 4. Critical accounting estimates and judgments

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in profit or loss, the Bank makes judgments as to whether there is any observ- able data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observ- able data indicating that there has been an adverse change in the payment status of borrowers in a Bank, or na- tional or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are re- viewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by -/+5%, the provision would be estimated LEK 386 thousand higher or LEK 372 thousand lower (2014: LEK 342,105 thousand higher or LEK 310,785 thousand).

(b) Uncertain tax positions. The Bank’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in ad- ditional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting pe- riod, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

(c) Determining fair values 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

Financial Statements 5. Adoption of New or Revised Standards and Interpretations

The following standards, amendments to the existing standards and interpretations issued by the International Accounting Standards Board are effective for the current period: • Amendments to IAS 19 “Employee Benefits” - Defined Benefit Plans: Employee Contributions (effec- tive for annual periods beginning on or after 1 July 2014), • Amendments to various standards “Improvements to IFRSs (cycle 2010-2012)” resulting from the an- nual improvement project of IFRS (IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38) primarily with a view to removing inconsistencies and clarifying wording (amendments are to be applied for annual periods beginning on or after 1 July 2014), • Amendments to various standards “Improvements to IFRSs (cycle 2011-2013)” resulting from the an- nual improvement project of IFRS (IFRS 1, IFRS 3, IFRS 13 and IAS 40) primarily with a view to removing inconsistencies and clarifying wording (amendments are to be applied for annual periods beginning on or after 1 July 2014). The adoption of these amendments to the existing standards and interpretations has not led to any changes in the Entity’s accounting policies.

New Accounting Pronouncements At the date of authorisation of these financial statements the following standards, amendments to existing stan- dards and interpretations were in issue, but not yet effective: • IFRS 9 “Financial Instruments” (effective for annual periods beginning on or after 1 January 2018), • IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after 1 January 2016), • IFRS 15 “Revenue from Contracts with Customers” and further amendments (effective for annual peri- ods beginning on or after 1 January 2018), • IFRS 16 “Leases” (effective for annual periods beginning on or after 1 January 2019), • Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associ- ates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date was deferred indefinitely until the research project on the equity method has been concluded), • Amendments to IFRS 10 “Consolidated Financial Statements”, IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures” - Investment Entities: Ap- plying the Consolidation Exception (effective for annual periods beginning on or after 1 January 2016), • Amendments to IFRS 11 “Joint Arrangements” – Accounting for Acquisitions of Interests in Joint Op- erations (effective for annual periods beginning on or after 1 January 2016), • Amendments to IAS 1 “Presentation of Financial Statements” - Disclosure Initiative (effective for an- nual periods beginning on or after 1 January 2016), • Amendments to IAS 7 “Statement of Cash Flows” - Disclosure Initiative (effective for annual periods beginning on or after 1 January 2017), • Amendments to IAS 12 “Income Taxes” - Recognition of Deferred Tax Assets for Unrealised Losses (ef- fective for annual periods beginning on or after 1 January 2017), • Amendments to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” - Clarifica- tion of Acceptable Methods of Depreciation and Amortisation (effective for annual periods beginning on

87 or after 1 January 2016), • Amendments to IAS 16 “Property, Plant and Equipment” and IAS 41 “Agriculture” - Agriculture: Bearer Plants (effective for annual periods beginning on or after 1 January 2016), • Amendments to IAS 27 “Separate Financial Statements” - Equity Method in Separate Financial State- ments (effective for annual periods beginning on or after 1 January 2016), • Amendments to various standards “Improvements to IFRSs (cycle 2012-2014)” resulting from the an- nual improvement project of IFRS (IFRS 5, IFRS 7, IAS 19 and IAS 34) primarily with a view to removing inconsistencies and clarifying wording (amendments are to be applied for annual periods beginning on or after 1 January 2016). The Entity has elected not to adopt these standards, revisions and interpretations in advance of their effective dates. Apart from IFRS 9, the Entity anticipates that the adoption of these standards, revisions and interpretations will have no material impact on the financial statements of the Entity in the period of initial application. As at De- cember 31, 2015 the entity is in process of evaluating the effects from the adoption of IFRS 9.

6. Interest income

2015 2014

Due from banks including Central Bank 43,564 288,275 Interest income from financial assets available for sale 666,787 787,991 Interest income from held to maturity - financial investments 257,042 270,799 Interest on loans and advances to customers 1,547,642 2,484,666 Interests on overdrafts 371,184 358,317 2,886,219 4,190,048

7. Interest expense

2015 2014

Due to banks 67,026 102,661 Due to customers 629,292 1,568,628 696,318 1,671,289

Financial Statements 8. Net fees and commission income

2015 2014

FX transactions 160 4,003 Letters of Credit 15,918 17,968 Money Transfer 66,897 75,377 Commission Visa Card 95,659 78,632 Import-Export 13,959 23,518 Other fees received 198,099 107,629 Total fees and commission income 390,692 307,127

Credit Cards (4,080) (3,547) Correspondent Banks (11,820) (12,164) Total fees and commission expense (15,901) (15,711) Net fee and commission income 374,791 291,416

9. Personnel expenses

2015 2014

Wages & salaries 520,950 489,159 Contributions to state pension funds 61,128 66,777 Other staff costs 25,695 25,120 607,773 581,056

89 10. Other operating expenses

2015 2014

Rental charges payable under operating leases 184,527 209,230 Fees for deposits insurance (ASD) 217,004 220,783 Telecommunication expenses 101,296 106,464 Advertising and marketing 40,625 43,076 Security and maintenance expenses 105,300 119,351 Subscriptions 70,276 97,823 Utility expenses 44,554 44,454 Stationeries and consumables 24,643 28,575 Travel expense 10,040 15,398 Other insurance expenses 23,591 34,267 Fees and other similar expenses 29,244 12,196 Other 91,199 117,055 942,299 1,048,672

11. Income tax expense

The components of income tax expense for the years ended 31 December 2015 and 2014 are:

2015 2014

Current tax Current tax expense - - Deferred tax Relating to origination and reversal of temporary differences 41,061 3,763 Income tax benefit/(expense) reported in profit or loss 41,061 3,763

Financial Statements Reconciliation between the tax expense and the accounting profit multiplied by Albania’s domestic tax rate for the years ended 31 December 2015 and 2014 is as follows:

2015 2014

Accounting profit/(loss) before tax (3,356,726) (761,004) Theoretical tax charge (credit) at statutory rate (2015: 15%; 2014: 15%) (503,509) (114,151) Tax effect of permanent differences: 125,521 14,480 -Income which is exempt from taxation (2,002) (18,476) -Non-deductible expenses 123,519 32,956 Unrecognised tax loss carry forwards 377,988 99,671 Current tax expense - -

Deferred tax Initial valuation and historical cost of PPE 786 (21) Start-up costs and capitalised expenses 5,239 (3,179) Adjustment for depreciation of fixed assets 37,038 27,559 Loan commission deferred (2,002) (2,480) Other liabilities - (18,116) Deferred tax income/(expense) charged in profit and loss 41,061 3,763

Available for sale securities (31,492) 18,188 Deferred tax income/(expense) charged in other comprehensive income (31,492) 18,188

The Bank has unrecognised potential deferred tax assets in respect of unused tax loss carry forwards of Lek 566,092 thousand (2014: Lek 150,937 thousand). The tax loss carry forwards expire as follows:

2015 2014

Tax loss carry-forwards expiring by the end of: - 31 December 2013 - - - 31 December 2014 - 884 - 31 December 2015 88,433 88,433 - 31 December 2016 99,671 99,671 - 31 December 2017 377,988 Total tax loss carry forwards 566,092 188,104

The effective income tax rate for 2015 is nil (2014: nil). According to Albanian Tax legislation the Tax authorities have right to examine tax returns for the 5 years following submission of the return.

91 Corporate income tax receivable

2015 2014

1 January 300,679 300,679 Prepayments during the year - - Income tax expense - - 31 December 300,679 300,679

The deferred tax included in the balance sheet and changes recorded in the income tax expense are as follows:

2015 Financial assets Deferred tax Deferred tax Income available for sale Assets Liabilities Statement Reserve (Dr)/Cr (Dr)/Cr Initial valuation and historical cost of (6,723) 786 - PPE Available for sale securities (56,011) - (31,492) Start-up costs and capitalised expenses (40,894) 5,239 - Adjustment for depreciation of fixed 124,273 - 37,038 - assets Loan commission deferred 17,349 - (2,002) - Other liabilities 341 - - Total 141,963 (103,628) 41,061 (31,492) Deferred tax assets, net 38,335

2014

Financial assets Deferred tax Deferred tax Income available for sale

assets Liabilities statement reserve (Dr)/Cr (Dr)/Cr Initial valuation and historical cost of - 7,091 (21) - PPE Available for sale securities - 59,140 18,188 Start-up costs and capitalised expenses - 46,133 (3,179) - Adjustment for depreciation of fixed 124,457 - 27,559 - assets Loan commission deferred 19,351 - (2,480) - Other liabilities - 18,116 (18,116) - Total 143,808 130,480 3,763 18,188 Deferred tax assets, net 13,328

Financial Statements 12. Cash and balances with the bank

2015 2014 Cash in hand Notes and coins in LEK 586,413 792,028 Notes and coins in foreign currency 615,403 719,355 1,201,816 1,511,383 Balances with the Central Bank Current account in LEK 497,212 - in foreign currency 2,654,242 221,957 3,151,454 221,957 Compulsory reserves in LEK 3,283,409 3,867,745 in foreign currency 2,834,351 3,591,591 6,117,760 7,459,336 Accrued interest 7,100 11,400 Total balances with Central Bank 9,276,314 7,692,693 Nostro and sight accounts with banks 6,059,000 9,355,387 Cash in transit to correspondent banks 137,280 467,108 Total nostro and sight accounts with banks 6,196,280 9,822,495 Total Cash in hand, nostro accounts and sight accounts with banks 16,674,410 19,026,571

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 aver- age amount of deposits for the month owed to banks and customers, and are both in LEK and in foreign currency (USD and EUR).

Loans and advances to banks (placements) Placements– Resident - 350,350 Placments – non resident 11,280,944 7,847,840 Accrued Interest (954) 14,914 Total Placments 11,279,991 8,213,104

Total Cash and Placments 27,954,400 27,239,675

The amount 137,280 thousand Lek dated December 31,2015 represent cash in transit, which are deposit on the first days of January from Raiffeisen Bank International AG Banka Kombëtare Tregtare account. The interest rates of placements are not repriced. The interest rates on compulsory reserves during 2015 and 2014 fluctuated as follows:

93 2015

Currency Minimum Maximum Method of calculation

LEK 1.225% 1.40% 70% of the yield on REPO with Central Bank USD 0% 0% - EUR 0% 0% -

2014

Currency Minimum Maximum Method of calculation

LEK 1.575% 2.10% 70% of the yield on REPO with Central Bank USD 0% 0% - EUR 0% 0% -

Current accounts with the Central Bank are non-interest bearing. The interest rates for nostros and sight accounts are floating. Nostro and sight accounts are detailed in the following table.

S&P 2015 2014 LT/ST Nostro and sight accounts with banks Raiffeisen Bank International AG BBB+ 65,302 5,289,012 Deutche Bank AG BBB+ 5,561,476 3,297,810 Deutsche Bank Trust Bank Americas BBB+ 377,831 547,833 Piraeus Bank SA CCC/+ 53,205 219,252 Banco Popolare BBB- 1,186 1,480 Total 6,059,000 9,355,387

Financial Statements S&P Currency Original Currency In Lek ‘000 Decmber 31, 2015 LT/ST San Paolo di Torino BBB- EUR 20,000,000 2,745,600 Raiffeisen Bank International AG BBB+ EUR 40,000,000 5,491,200 BBVA BBB EUR 20,000,000 2,745,600 San Paolo di Torino BBB- GBP 1,600,000 298,544 Totali 11,280,944

S&P Currency Original Currency In Lek ‘000 Decmber 31, 2014 LT/ST

Piraeus Bank SA CCC/C EUR 56,000,000 7,847,840 Banka Kombëtare Tregtare B EUR 2,500,000 350,350 Totali 8,198,190

13. Loans and advances to customers

2015 2014

Corporate lending 2,432,735 2,820,287 SME lending 24,917,685 32,010,184 Total corporate and SME lending 27,350,420 34,830,471 Consumer lending 1,566,680 2,132,721 Mortgage 6,841,093 7,906,853 Overdrafts 311,180 352,129 Credit cards 252,257 249,542 Loan commissions deferred (167,488) (218,686) Accrued interest 849,517 828,268

Gross loans and advances 37,003,659 46,081,298

Less: Allowance for impairment losses (8,207,043) (6,828,961) 28,796,615 39,252,337

95 The table below shows the industry analysis of gross loans (without taking into consideration the “Loan commis- sions deferred” and “Accrued interest”) granted to corporate and SMEs clients.

2015 2014

Manufacturing 7,172,566 9,081,880 Electricity 793,712 2,564,180 Trade 8,162,762 8,293,255 Construction 5,906,762 5,191,191 Other industries 5,314,619 9,699,965 Total gross loans 27,350,420 34,830,471

The interest rates for loans and overdrafts are floating as follows:

Currency Interest Rate Additional Penalty Interest Rate

2015 LEK 12 months TRIBOR + (2-10.2)% 3.0% USD 12 months LIBOR + (4-7.0)% 3.0% EUR 12 months EURIBOR+ (3-7.5)% 3.0%

2014 LEK 12 months TRIBOR + (2-10.2)% 3.0% USD 12 months LIBOR + (4-7.0)% 3.0% EUR 12 months EURIBOR+ (3-7.5)% 3.0%

The movement in allowances (impairment) for losses on loans and advances to customers is as follows:

2015 2014

At 1 January 6,828,961 5,130,217 Write off (2,011,944) 61,311 Charge for the year 3,478,991 1,637,433 Exchange rate effect (88,965) - At 31 December 8,207,043 6,828,961

Individual impairments 6,198,407 5,677,615 Collective impairments 2,008,637 1,151,346 8,207,043 6,828,961 The movement in allowances for losses by classes of loans during 2015 is as follows:

Financial Statements Corporate and Credit cards Consumer Mortgage Total SME and overdrafts

At 1 January 2015 5,990,492 187,749 596,656 54,441 6,828,961

Write Offs (1,730,541) (22,811) (258,592) - (2,011,944) Charge for the year 2,797,206 222,149 410,035 49,601 3,478,991 Exchange rate effect (77,591) (1,384) (9,991) - (88,965) At 31 December 2015 6,979,566 385,703 738,108 104,042 8,207,043

The movement in allowances for losses by classes of loans during 2014 is as follows:

Corporate and Credit cards and Consumer Mortgage Total SME overdrafts At 1 January 2014 4,594,611 - 481,542 54,064 5,130,217 Write Off (61,311) - - - (61,311) Charge for the year 1,334,193 187,749 115,114 377 1,637,433 At 31 December 2014 5,867,493 187,749 596,656 54,441 6,706,339

97 14. Financial assets available for sale

2015 2014

Visa shares 190,417 147,299 Government bonds 13,681,390 3,279,559 Government treasury bills 6,555,722 23,931,058 20,427,529 27,357,916

Shares in Visa Inc 2015 2014

At 1 January 147,299 110,426 (Losses)/gains from change in fair value 43,118 36,873 At 31 December 190,417 147,299

The shares in Visa Inc held by the Bank are granted by Visa as a form of reward for the long-standing cooperation with the Bank. The shares are granted on the basis of the performance against revenue and marketing expenditure targets. No impairment is recognised on financial assets available for sale at December 31, 2015 (2014: Nil).

Government bonds 2015 2014

At 1 January 3,279,559 1,986,685 Purchase 10,672,078 1,539,887 Matured (415,792) (213,244) Gains from change in fair value 145,546 (33,769) At 31 December 13,681,390 3,279,559

Government treasury bills 2015 2014

At 1 January 23,931,058 14,476,316 Purchase 6,598,190 24,092,889 Matured during the year (23,991,344) (14,513,435) (Losses)/gains from change in fair value 17,818 (124,712) At 31 December 6,555,722 23,931,058

Financial Statements 15. Financial assets held to maturity

Security Investments 2015 2014

Cost - 3,749,400 Accrued interest - 47,023 Un-amortised discount - (2,375) - 3,794,048

Government bonds 2015 2014

At 1 January 3,794,048 4,215,704 Matured during the year (3,794,048) (400,000) Foreign exchange difference - (21,656) At 31 December - 3,794,048

The amount of Lek 3,794,048 thousand as at 31 December 2014 is made up of Lek 960,220 thousand, investments in Albanian Government’s Bonds denominated in Albanian Lek and Lek 2,833,828 thousand of investments in Albanian Government’s Bonds denominated in Euro. Albanian Government Securities are rated “BB+/B” by “Standard’s and Poor’s”. There are no past due amounts as at 31 December 2015. No impairment is recognised on financial assets held to maturity at December 31, 2015 (2014: Nil).The interest rates for Albanian Government Bonds are fixed. The maturities of the Albanian Government Bonds are as follows:

16. Investment properties Investment properties include repossessed collateral real estate assets acquired by the Bank in settlement of overdue loans. The Bank intends to hold the properties for capital appreciation. None of the properties is rented out on operating lease in 2015 and 2014. No maintenance and repair works were performed to investment properties in 2015 and 2014.

December 31, 2015 December 31, 2014

Investment Properties 2,314,308 1,978,928

Movement in investment properties for the years ended December 31, 2015 and 2014 is presented as follows:

2015 2014

Balance at beginning of year 1,978,927 1,155,416 Acquisitions through legal process for settlement of loans to customers 652,206 700,778 Disposals (90.858) (59,477) Gain/(loss) on property revaluation (225,968) 182,210 Balance at the end of the year 2,314,308 1,978,927 Unrealised gain/ (loss) on property revaluation included in profit or loss (225,968) 182,210

99 16.1 Fair value measurement of the Bank’s investment properties The fair value of the Bank’s investment property as at 31 December 2015 and 31 December 2014 has been arrived at on the basis of a valuation carried out on the respective dates by several independent appraisers, including the bailiff offices, not related to the Bank. All appraisers are registered and certified in accordance with the Albanian Laws. They have appropriate qualifications and recent experience in the valuation of properties in the relevant lo- cations. The fair value was determined based on the market comparable approach that reflects recent transaction prices for similar properties. There has been no change to the valuation technique during the year. In estimating the fair value of the properties, the highest and best use of the properties is their current use. There were no investment properties classified as Level 1 or Level 3, nor transfers between levels 1, 2 and 3 during the year. Details of the Group’s investment properties and information about the fair value hierarchy as at 31 December 2014 and 2015 are as follows:

December 31, 2015 December 31, 2014 Level 2 Level 2 Tirana 848,545 545,830 Durres 489,367 541,418 Elbasan 147,027 209,664 Kavaja 175,142 160,143 Other 654,226 521,873 Total 2,314,308 1,978,928

17. Intangible assets

Software

Cost: At 1 January 2014 1,075,987 Additions 118,143 At 31 December 2014 1,194,130 At 1 January 2015 1,194,130 Additions 87,025 At 31 December 2015 1,281,155 Amortization: At 1 January 2014 722,297 Amortization charge for the year 109,610 At 31 December 2014 831,907 At 1 January 2015 831,907 Amortization charge for the year 114,777 At 31 December 2015 946,684 Net book value At 31 December 2014 362,223 At 31 December 2015 334,471

Financial Statements 18. Property and equipment

Furniture and Land and Leasehold Vehicles electronic Total buildings improvement equipment Cost: At 1 January 2014 709,450 143,629 1,557,397 1,045,980 3,456,456 Additions - 2,104 33,925 8,400 44,429 Disposals - (34,715) (37,747) (56,385) (128,847)

At 31 December 2014 709,450 111,018 1,553,575 997,995 3,372,038

At 1 January 2015 709,450 111,018 1,553,575 997,995 3,372,038 Additions - - 15,211 - 15,211 Disposals - (14,096) (74,299) (92,943) (181,338)

At 31 December 2015 709,450 96,922 1,494,487 905,052 3,205,911

Depreciation: At 1 January 2014 237,960 133,341 1,425,050 790,412 2,586,763 Depreciation charge for the 33,842 7,743 65,236 65,804 172,625 year Disposals - (33,296) (35,178) (55,999) (124,473)

At 31 December 2014 271,802 107,788 1,455,108 800,217 2,634,915

At 1 January 2015 271,802 107,788 1,455,108 800,217 2,634,915 Depreciation charge for the 33,840 2,267 46,439 68,869 151,415 year Disposals - (13,802) (72,344) (92,943) (179,090)

At 31 December 2015 305,642 96,253 1,429,203 776,142 2,607,240

Net book value: At 31 December 2014 437,648 3,230 98,467 197,778 737,123 At 31 December 2015 403,808 669 65,284 128,909 598,671

101 19. Other assets

December 31, 2015 December 31, 2014

Other financial assets Other Debtors 308,814 334,438 Claims Visa Card 4,519 8,314 Other Receivables from Customers 50,537 47,226 Total other financial assets 363,870 389,978

Advance Payments 663 907 Inventory 35,407 47,655 Prepaid Expenses 70,797 72,502 Other Assets 225,782 161,200 Total other assets 696,519 672,242

20. Due to banks

December 31, 2015 December 31, 2014

Current accounts Residents 13,688 5,114 Non residents 1,059 6,751 14,746 11,865 Borrowings Residents 1,990,791 2,217,343 Non residents 19,011 2,622,481 2,009,802 4,839,824 Accrued interest 82 1,506 Total 2,024,630 4,853,195

Financial Statements 21. Due to customers

December 31, 2015 December 31, 2014

Corporate customers Current accounts 4,754,956 5,703,825 Term deposits 945,804 2,299,084 Other deposits 575,740 512,803 6,276,500 8,515,712 Retail customers Current / Savings accounts 9,736,999 10,443,119 Term deposits 47,002,472 57,921,807 Other deposits 317,221 580,446 57,056,692 68,945,372 Accrued interest 315,353 595,825 Cheques payables and remittances 98,438 26,374 Total 63,746,983 78,083,284

22. Other liabilities

December 31, 2015 December 31, 2014

Accrued expenses 158,683 66,658 Other liabilities 157,253 149,629 Other financial liabilities 315,936 216,287 Other taxes payable - 881 Social insurance payable 31,045 23,005 346,981 240,173

Accrued expenses include expenses on utilities, telephone expenses and bonuses related to current year and will be paid the year after.

23. Provisions

2015 2014

At 1 January 434,818 179,956 Write down (197,382) (105,716) Charges to Profit or loss 145,956 360,578 At 31 December 383,392 434,818

103 24. Paid-in capital and share premium

December 31, 2015 December 31, 2014

Paid in Capital-authorized, issued and fully paid 14,754,741 14,754,741 Share premium 1,735,494 1,735,494 Statutory Reserve 260,623 260,623 Legal Reserve 1,113,627 1,113,627 Other reserves 330,120 151,664 Total 18,194,605 18,016,149

The table below shows the shareholders structure of the Bank as 31 December 2015 and 2014.

Number of Share in % Number of shares Share in % Shareholder’s name shares 31 December in 2014 31 December 2014 in 2015 2015 Piraeus Bank S.A Greece 496,098 98,83 496,098 98,83 Mr. Tzivelis Ioannis 5,877 1.17 5,877 1,17 Total 501,975 100,00 501,975 100,00

On 31 December 2015, the authorised and issued share capital of the Bank was comprised of 501,975 shares with the nominal value of EUR 216.24 all fully paid.

25. Other reserves Legal reserves have been established according to the Bank of Albania regulation “On the minimum initial capital for allowed activities of banks and branches of foreign licensed banks”, no.51, dated 22 April 1999. Banks and branches of foreign banks shall create reserves at 1,25% up to 2% of total risk weighted assets by deducting 1/5 of the profit after taxes before paying dividends. The statutory reserve has been established according to article no. 39 of the bank’s statute, which requires estab- lishing of reserves by taking 5% of the bank’s net income after deducting the losses of the previous years. This procedure it’s not obligatory if the reserves exceed 1/10th of the bank’s share capital.

26. Dividend per share The General Assembly of Shareholders has decided that no dividends should be distributed from the retained earnings as at December 31, 2014. No decision is taken on retained earnings as at December 31, 2015.

Financial Statements 27. Cash and cash equivalents

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

Notes December 31, 2015 December 31, 2014

Cash in hand 8 1,201,816 1,511,383 Current accounts with Central Bank 8 3151454 221,957 Nostro and sight accounts with banks 8 6,196,280 9,822,495 Due from banks 8 11,280,944 8,198,190 21,830,494 19,754,025

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

December 31, 2015 December 31, 2014

Piraeus Bank SA Greece Sight deposits 53,205 219,252 Placements - 7,847,840 Due to banks (1,059) (6,751) Borrowings (19,011) (2,622,481) 33,135 5,437,860

December 31, 2015 December 31, 2014

Tirana Leasing (subsidiary of Piraeus Bank SA) Loans given (Tirana Leasing) - 430,935 Due to Tirana Leasing (424,373) (43,017) (424,373) 387,918 Bank Directors Loans given 12,076 32,080 Deposits (6,428) (36,704) 5,648 (4,624)

Guarantees received form Piraeus Bank as at December 31, 2015 and 2014 are Lek 3,449,482 and Lek 6,425,977 (note 25).

105 2015 2014

Income and expenses Piraeus Bank S.A. Greece Interest income 10,879 172,099 Interest expenses (15,183) (51,367) Fees and commission income - 6 Fees and commission expenses (165) (198) (4,469) 120,540 Tirana Leasing Interest income 9,286 16,340 9,286 16,340

29. Presentation of financial instruments by measurement category The following table provides a reconciliation of classes of financial assets with the measurement categories as of 31 December 2015:

Loans and Held to 2015 Available for sale Total receivables maturity Cash and balances with Central Bank 16,674,410 - - 16,674,410 Loans and advances to banks 11,279,991 - - 11,279,991 Held to maturity financial assets - - - - Financial assets available for sale - 20,427,529 - 20,427,529 Loans and advances to customers 28,796,615 - - 28,796,615 Total financial assets 77,178,545 Other assets 363,870 Total Assets 77,542,415

Loans and 2014 Available for sale Held to maturity Total receivables Cash and balances with Central Bank 19,026,572 - - 19,026,572 Loans and advances to banks 8,213,104 - - 8,213,104 Held to maturity financial assets - - 3,794,048 3,794,048 Financial assets available for sale - 27,357,916 - 27,357,916 Loans and advances to customers 39,252,338 - - 39,252,338 Total financial assets 66,492,014 27,357,916 3,794,048 97,643,978 Other assets 389,978 Total Assets 98,033,956

As of 31 December 2015 and 2014, the trading securities are measured at fair value, with the changes in fair value taken to the profit and loss account for the period, the available for sale securities are measured at fair value with the changes in fair value taken to the statement of comprehensive income for the period. Loans and receivables and held-to-maturity financial assets are measured at amortised cost. As of 31 December 2015 and 31 December 2014 all of the Bank’s financial liabilities were carried at amortised cost.

Financial Statements 30. Commitments and contingencies Contingencies and commitments include guarantees extended to customers and received from Piraeus Bank. The balances as at December 31, 2015 and 2014 are composed of the following:

December 31, 2015 December 31, 2014

Granted Loan commitments 854,690 4,292,961 Letters of Guarantees 465,248 799,764 Letters of Credit

Received Guarantees received 3,449,482 6,425,977

Litigation Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may have on its financial standing.

Lease commitments The Bank leases office premises in Tirana, Durrës Korça, Vlora, Lezhë, Elbasan, Gjirokastër, Fushë Krujë, Shkodër, Lushnje, Pogradec, Berat, Sarandë, Fier, Patos etc. These leases are cancellable with three months’ notice. Lease commitments are classified as follows:

December 31, 2015 December 31, 2014

Within one year 153,528 176,508 From one to five years 367,580 533,762 More than five years 15,885 64,085 Total 536,993 774,355

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

107