Annual Report

Transcription

1 Annual Report

2 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Table of Contents Macroeconomic Development...2 The Banking System...5 Mission...6 Positive Development.. 7 Bank Profile Corporate Status... 7 Participations and Memberships....8 Correspondent Relations...8 Branch Network.. 8 First Investment Bank: Dates and Facts Highlights Key Indicators Financial Results Balance Sheet...13 Loans Related Party Transactions..16 Commitments and Contingent Liabilities.17 Attracted Funds Risk Management. 19 Risk Management Framework Credit Risk Market Risk Liquidity Risk Operational Risk Information Technologies Corporate Governance.. 24 Human Capital.25 Business Structure Steering Council Directorate of Fibank Albania 28 Business Overview...29 Deposits Retail Lending.. 30 SME Lending Card Payments Gold and Commemorative Coins Payment Services...35 Depositary and Custodian Services Financial Statements for the year ended 31 December 2015 (with independent auditors report thereon) 37 2

3 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Macroeconomic Development Economic activity in Albania has shown positive trajectory. During the second half of 2015 it performed on the up side of expectations and it posted a 2.15% growth in the fourth quarter, while during the first nine months of the year it is estimated at 2.7%, nevertheless it continues to grow below its potential. Government Debt to GDP in 2015 is calculated %. Budget deficit stood at ALL 52.1 billion at the end of the year, estimated at around 3.6% of GDP. This performance constitutes a strong narrowing, by around 27.7% in annual terms. Public spending fell, reflecting the strong fiscal consolidation by the public sector The performance of exports was sluggish during the 2-nd half of 2015 due to unfavourable situation in Albania s trading partners and unfavorable conjuncture in international markets. Developments in Greece, low oil and commodity prices, and frequent fluctuations in the financial markets have led to low demand for Albanian exports. The unemployment rate for the population aged years old was 17.7 % in Q4, with a slight increase of 0.2 percentage points compared to previous quarter. Main macroeconomic indicators Real GDP (% yoy) Nominal GDP (Euro bn) 13.5 est Industrial output (% yoy) Producer prices (avg. % yoy) (2.30) Consumer prices (avg. % yoy) Consumer prices (eop % yoy) Unemployment rate (avg. %) General budget balance (% of GDP) (3.6) est. (5.1) (4.9) (3.4) (3.5) Public debt (% of GDP) Current account balance (%of GDP) (10.9) est. (12.1) (10.6) (10.20 (13.2) Net foreign direct investment (% of GDP) n/a Official FX reserves (Euro bn)

4 ANNUAL REPORT 2015 Macroeconomic Development ANNUAL REPORT 2015 Contribution of main branches of the economy to real growth rate of GDP Q4/2015 Net Taxes Arts, Entertainment & Recreation -0.3% 0.3% Public Administration, Education, Health 0.7% Professional, Scientific & Technical Activities 0.4% Real Estate Activities -0.6% Financial Activities -0.1% Information 0.2% Whole sale 0.7% Construction 1.5% Mining & Quarrying -0.4% Agriculture -0.4% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% Gross domestic product growth in % 7.5% 5.9% 3.7% 3.75% 3.17% 1% 1.45% 1.45% 2.15% Annual inflation averaged 1.6%, standing below Bank of Albania s target. Annual inflation ranged 1.4%-2.2%, but in December it recorded an unusually low rate of 0.7%. Compared to the previous year, inflation fell due to the positive shocks from the domestic and external costs, in the presence of demand-side low inflationary pressures. Annual inflation fluctuated around 1.9% in It went through a progressive rising trend in the second half of the year, reflecting the improvement of economic activity, however, remaining below Bank of Albania s target. This performance illustrates the fact that employment and the capacity utilization rate remain below their potential. It also highlights the need for an accommodative monetary policy stance in the medium term. On assessments for low inflationary pressures the Supervisory Council of the Bank of Albania lowered the key interest rate by 0.25 percentage points in November going down to 1.75% and will maintain low interest rates until a firm return of inflation to target. This move was followed by lowering of interest rates in instruments denominated in LCY which led to growth of credit to the private sector. The credit portfolio in Lek increased its share in the total credit portfolio to the private sector to 43% in Also the yields of government securities fell to new historic low. 4

5 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Foreign Direct Investment in Albania increased by Eur Million in the third quarter of The figure posted an increase from the previous quarter when the value of FDI-s was Eur million. Standard & Poor s has upgraded the rating for Albania s sovereign credit from B to B+ based on improvement of fiscal performance and the prospects it will remain strong over as the government continued to make progress under the IMF program that targets fiscal and structural reforms. The Banking System Assets of the banking system at the end of December amounted to ALL 1,318 billion, with an annual increase of 1.9%. Banking system remains liquid and sustainable, with a ratio of loans to deposits of about 52%, and highly capitalized with a capital adequacy ratio at 16.04% at the end of December Banking system indicators in% p.p % % Capital adequacy ratio (1.08) (1.16) Loans/ deposits (3.50) 0.2 Leverage ratio (equity/assets) Return-on-equity (ROE) Return-on-assets (ROA) Efficiency ratio (4.97) (6.3) Problem loans (90 days past due) (4.60) (0.4) Source: Bank of Albania The quality of the loan portfolio has improved continuously during the four quarters of 2015, mainly due to the coordinated efforts by the banks and Bank of Albania for the implementation of the measures mentioned above. The level of NPLs at the end of December 2015 was at 18.2%, the lowest level since September 2014, when NPLs reached their peak of 25%. Loans/deposits ratio was 52.0% (2014: 55.55%; 2013: 55.3%; 2012: 58.3%; 2011: 61.3%), reflecting the stable crediting of the economy and the growing of customer deposits, indicating that the banking system is less dependent on external financing, and has sufficient capacities to grow. In ALL million / change in % % % Net interest income 48,984 44,621 39, Net fee, commission & trading income 981 (962) 5,442 (201.98) (117.7) Impairments 5,025 4,203 9, (57.4) Administrative, taxes & other expenses 28,504 29,622 28,546 (3.77) 3.8 Net profit 15,699 11,192 6,

6 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Total deposits placed with banks reached at the end of December at ALL 1,100.3 billion, continuing the upward trend both in quarterly and annual terms, registering an annual growth of 2.6%, and reflecting the persisting trust of the customers in the banking system. Both individuals deposits and deposits of businesses and institutions have increased during the year, although the latter with a faster pace, recording an annual growth of 6.7%. As for the deposit interest rates, they fell slightly for short-term maturities and trended up for long long-term maturities. Interest rates on euro deposits experienced a similar situation. Partial shifting of households savings towards higher maturity instruments in the banking system or towards other financial instruments outside the banking system reflects the demand of the most favorable rates of interest. Banking system main balance sheet items In ALL million/% % % Assets 1,317,843 1,293,721 1,234, Business loans 388, , ,660 (12.36) 12.4 Household loans 154, , , Deposits from private sector 1,100,290 1,072,227 1,007, Source: Bank of Albania Outstanding loans at the end of the year were 1.5% lower than the same period of the previous year; however this figure is totally affected by the developments in the loan portfolio to businesses, while lending to individuals increased by 2% year-on-year. The outstanding loans to business have decreased significantly during the year due to the write-offs banks have undertaken in response to the measures initiated by the Bank of Albania for the reduction of NPLs. On the other side, the demand of business for loans remained very week throughout the year. Nevertheless, banks have continued to lend to the economy, granting a total of new loans of around ALL billion during year 2015.Only during the fourth quarter the amount of new loans was around ALL 77.7 billion, or 39% higher than the previous quarter. 81.6% of the total of new loans disbursed during year 2015 was granted to businesses. In terms of purpose of use, almost 45% of the new loans disbursed during the year were overdrafts. The average weighted interest rate on new Lek credit stood at 7.68% from 7.93%. The decrease was driven by both short and long-term interest rates, whereas the medium-term ones increased slightly compared to the previous quarter. The banking activity in terms of opening new branches did not change during The total number of outlets and agencies was 518 compared to 527 in December Assets structure 2.2% 12.9% 1.3% Cash& balances with central bank Fixed assets 28.9% 15.6% Loans and advances to banks and fin instit Loans and advances to other customers Financial instruments portofolio 39.1% Other In the total assets of the banking system, loans and advances to customers have the biggest share with 39.1%; followed by financial instruments portfolio with 28.9% and loans and advances to banks and financial institutions with 15.6%. This indicates the high capacity to credit the economy and the capability to grow of the banking system. 6

7 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Mission First Investment Bank Albania aspires to be one of the finest banks in Albania and the Balkan region, recognized as a rapidly growing, innovative, customer-oriented bank, offering outstanding products and services, ensuring excellent careers for its people, and contributing to the community. The Bank aims at developing, through sister banks and subsidiaries, a regional banking network to service the business needs of the Balkan region. Positive Development In 2015, Fibank Albania continued to successfully overcome the challenges of the external and internal environment and reported enhanced results. During last year the financial sector expanded its activity with slowly rates. In all indicators of Bank performance 2015 was a successful year and Fibank Albania showed a consistency at main financial figures. This was thanks to the strategic decisions and consistent measures implemented by the Bank in maintaining a balance between risk and profitability, as well as reinforcing the high quality of products and services while maintaining a flexible business model. Balance Sheet Indicators 20,000 16,000 12,000 8,000 4, Loan portofolio Assets Customer deposits Bank Profile Corporate Status First Investment Bank - Albania incorporated in the Republic of Albania is a joint stock company established on 1 August 2005 and has its registered office in Tirana, Deshmoret e Kombit Blvd. Twin Towers, Tower 2 Floor 14. The Bank has a general banking license issued by the Bank of Albania, on 6 July 2007, according to which it is allowed to conduct all banking transactions permitted by the Albanian legislation. The Bank is primarily involved in SME and retail banking. The Bank has also been licensed by Albanian Financial Supervisory Authority for carrying out depositary, custodian and brokerage services. The Bank is a subsidiary of First Investment Bank A.D. an entity incorporated in Bulgaria as a credit institution which owns 100% of the Bank shares. Fibank Albania is a successor of the foreign branch of First Investment Bank AD - First Investment Bank, Tirana Branch. On September 1, 2007 all assets and liabilities, rights and obligations of the Branch were transferred by Fibank Albania. The Branch has been operating on the Albanian market since

8 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Participations and Memberships Albanian Association of Banks Albanian Foreign Investors Association Bulgarian-Albanian Chamber of Commerce and Industry Correspondent Relations Fibank Albania has a network of 4 correspondent banks, through which it performs international payments and trade finance operations. The Bank executes international transfers in three foreign currencies and performs different documentary operations. Fibank is a reliable and fair partner, which has built over the years a good reputation among international financial institutions and gained valuable experience and know-how from its business partners, customers and counterparties. Branch Network As of December 31, 2015 Fibank Albania had a total of 9 branches throughout Albania. Branches are located in the cities of Durres, Fier, Vlore, Elbasan, Korce, Shkoder, Berat as well as in Tirana where is also the Head Office. First Investment Bank: Dates and Facts 1999 First Investment Bank AD opens a Branch in Tirana First Investment Bank Albania receives a license from Bank of Albania as an independent Albanian bank, with its mother bank in Bulgaria. Opens three new branches in Elbasan, Vlora and Korca adding them to the existing branches in Tirana and Durres. Launches a wide range of innovative banking products for all customer groups aiming to penetrate the market through specific and interesting offers Branch network grows with other branches in Fier, Shkodra and Berat aiming to be present in the main cities by offering dedicated products and services to individual customers as well as businesses located in these cities Fibank assets increased by 77%, investment by 200% while deposits showed an increase by 160% Fibank Albania was licensed by Financial Supervisory Authority; To exercise intermediary activity (broker / dealer) in the securities of the Government of the Republic of Albania in stock exchange and the retail market. Custodian of securities of the Government of the Republic of Albania. Depository of Voluntary Pension Funds, with responsibility for safekeeping of the assets, operations and documents of the pension fund or investment fund. Fibank is the 6th bank licensed in the Albanian market. Increase on investments reached 370%, in deposits 75% and in loans 99% Fibank Albania was licensed by Financial Supervisory Authority; To act as Depository of Voluntary Pension Funds and Collective investment undertakings with responsibility for safekeeping of the assets, operations and documents of the investment fund. Continued the increase on main bank performance indicators, loans to customers and deposits with around 30% First in terms of growth rate in the Albanian banking system. Net profit showed a positive result of EUR 700 thousand. Assets reached to EUR 96 million at the end of the year with a capital adequacy ratio of 16.6% and a liquidity ratio of 38.6% Total assets reached EUR 120 million, and deposits exceeded EUR 100 million as well. Continued to increase net profit to approximately of EUR 800 thousand Total assets reached EUR 113 million and deposits remained above EUR 100 million, while the net profit exceed EUR 600 thousand. Bank obtained licensed to operate as custodian of Corporate and Municipality Bonds this year as well. 8

9 ANNUAL REPORT 2015 ANNUAL REPORT Fibank was honored with the award Bank of the Year for 2015 by Chamber of Commerce and Industry. Significant for this year was that net profit reached the highest value EUR 1.8 million since bank has been opened its first branch in April Highlights 2015 In the framework of donations that Fibank contributes each year in all the cities that we are present for different social issues, please be informed that due to the heavy floods from the rain fall these past weeks, Fibank has donated a considerate amount in humanitarian aid. This humanitarian aid consisted in the form of food for the affected residents of Vlore, Fier, Berat but also Gjirokastra, where we actually do not have a branch. Our contribution also consisted in the form of livestock for animals. Our fund was well managed from the Ministry of Youth and Social Welfare and more exactly the Government Social Service and it was much appreciated from the Prime Minister and Minister of Youth and Social Welfare. Fibank Solidarity for Albania. According to the Strategy of Corporate Social Responsibility (CSR), causes that Fibank sponsors are aimed to provide concrete solutions to the problems of society and help improve the living conditions of various factors. In Albania 600 children are annually diagnosed with Thalassemia. To come to help to all people in need of blood transfusion, FIBANK in cooperation with the Albanian Red Cross organized in its headquarter premises the opportunity for voluntary non-remunerated blood donation for its employees. In June 2015 Fibank launched a promotional campaign for Credit Cards on two informativ televisions A1 Report and News 24. Also except the publiicisty in television the campaign was concentrated even on websites like Shqiptarja.com, Radio Club FM, City lights, public posters, facebook etc. In July 2015 Foreign Investors Association of Albania (FIAA) has celebrated the 15th Anniversary of its creation. Foreign Business Community members and the Highest Representatives of the Albanian Government were gathered at the Palace of Brigades in a friendly atmosphere. On this occasion, the Members who have trusted FIAA for 15 years were given special Awards in the presence of the Prime Minister of Albania. Fibank as FIAA s newest addition was also one of the main sponsors of this special event. Fibank believes in supporting foreign investment in Albania. In August 2015 Fibank announce that for the 1st year was the official sponsor of Korca Beer Fest. Korca Beer Fest is the biggest event in Albania. Within 5 days, over people visit the festival. The large number of visitors is mostly due to basic festival principles: free entrance, an exceptional music program, and a wide range of foreign and domestic beer brands. Fibank Agency in cooperation with the Korça Municipality has organized a stand with promotional materials for all interested visitors! In October 2015 Fibank organized the training with topic Communication techniques in the sales process with the external trainer from Center for Business, Technology and Leadership. The training took place in Prestige Hotel with attendance of about 50 participants divided in 3 groups. The training provides an opportunity to see issues and constraints in regards with the communication techniques in the sales process, negotiation skill and the way how to apply appropriate strategic negotiation tactics in sales procedure for the daily organizational process. In the year end evening organized by the Chamber of Commerce and Industry, in which participated representatives of business, media, politicians, diplomats and the Speaker of Parliament, Mr. Ilir Meta and Deputy Prime Minister Niko Peleshi honored FIBank Albania with the award "Bank of the Year" for This award was given with the motivation: 'Best Bank in meeting the high standards of customer service, offering products according to the needs that they have." 9

10 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Key Indicators Financial results (in ALL thousand) Net interest income 727, , , , ,544 Net fee and commission income 172,278 75,510 98,949 73,441 39,943 Net trading income (26,054) 8,493 18,612 18,369 10,229 Total income from banking operations 874, , , , ,652 Administrative expenses (417,475) (397,288) (368,366) (112,350) (129,890) Impairment (118,271) (238,349) (119,923) (34,288) (44,500) Profit after tax 250,948 97, ,395 99,542 (69,050) Balance-sheet indicators (in ALL thousand) Assets 16,939,994 15,948,617 17,063,368 13,615,866 9,265,820 Loans and advances to customers 6,198,085 5,869,704 6,508,549 5,903,270 4,118,084 Loans and advances to banks and financial institutions 1,238,433 2,872,821 3,955,771 3,108,818 1,849,509 Due to other customers 14,709,329 14,305,614 15,406,564 12,236,503 7,645,761 Equity 1,830,406 1,496,060 1,410,271 1,265,416 1,165,874 Key ratios (in %) Capital adequacy ratio Loans/ deposits Liquidity ratio Loan provisioning ratio Net interest income/ Total income from banking operations Return on equity (after tax) (6.31) Return on assets (after tax) (0.79) Resources (in numbers) Branches and offices Staff

11 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Financial Results In 2015 Fibank Albania reported profit after tax in the amount of ALL 250,948 thousand (2014: profit in ALL 97,492; 2013: profit in ALL 118,395; 2012: profit of ALL 99,727 thousand; 2011: loss of ALL 73,574 thousand). This was due to higher income from banking operations, especially from an increase in net interest income and a significant decrease in general and administrative expenses. Fibank Albania ranked seventh in terms of profit among the banks in the country. Return on equity (after tax) in 2015 reached 13.71% (2014: 6.52%; 2013: 8.4%;2012: 7.9%;2011: negative 6.3%)) and return on assets (after tax) decreased slightly to 1.48% (2014: 0.61%; 2013: 0.69; 2012: 0.7%; 2011: negative 0.8%). Profit after tax Income from banking operation Net trading income (50) Profit after tax Net fee and commission income Net interest income During the reporting period Fibank Albania continued its business development in accordance with the economic environment and the need of financing. Total income from banking operations increased by 9.17% and reached ALL 874,907 thousand (2014: ALL 801,451 thousand 2013: ALL 632,376 thousand; 2012: ALL 505,506 thousand; 2011: ALL 376,652 thousand). Interest income meet a slightly decrease by 9.94% to ALL 992,546 thousand (2014: ALL 1,033,249 thousand; 2013: ALL 1,093,666 thousand; 2012: ALL 807,159 thousand; 2011: ALL 640,936 thousand), a main contributor was loans to small and medium enterprises which decreased by 6.8% to ALL 435,009 thousand (2014: ALL 466,984 thousand; 2013: ALL 512,831 thousand; 2012: ALL 402,820 thousand; 2011: ALL 298,998 thousand), also interest income from retail customers decreased, by 7.5% to (2014: 176,286 thousand; 2013: ALL 173,219 thousand; 2012: ALL 137,041 thousand; 2011: ALL 104,791 thousand) and together represent 63.6% of total interest income. An increase by 7.65% was also reported for securities transactions, whose interest income amounted to ALL 368,876 thousand (2014 ALL 342,655 thousand; 2013: ALL 289,226 thousand; 2012: ALL 186,781 thousand; 2011: ALL 155,703 thousand) and formed 33.2% of total interest income. 11

12 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Interest income structure 15.1% 1.2% 17.8% Acc with and placements to banks and fin instit Retail loans 22.0% Loans to SME 43.8% Debt instruments available for sale Debt instruments held to maturity Net fee and commission income faced a slightly decrease by 1.84% or ALL 3,232 thousand and amounted to ALL 172,278 (2014: ALL 175,510 thousand; 2013: ALL 98,949 thousand; 2012: ALL 73,441 thousand; 2011: ALL 39,943 thousand) due to increased business volumes and customers of the Bank. Meanwhile net fee and commission income had a relative share of 19.7% of total income from banking operations, compared to 21.9% in 2014 and 15.7% in 2013, as a result of the Bank s consistent policy on the diversification of income from banking operations. The predominant share of fee and commission income was formed from other fees and commission income with 34.5% followed by 33.3% of income from customer accounts and then with 15.9% and 15.4% of income from payment transactions and card business income respectively. Fee and commission income structure 0.9% 34.5% 15.9% Letters of credit and guarantees - income Payments transactions Customer accounts 33.3% Cards business - income 15.4% Other - fee and commission income General administrative expenses increased by 4.9% and reached ALL 165,193 thousand for the reporting period (2014: ALL 157,448 thousand; 2013: 133,601 thousand; 2012: ALL 112,350 thousand; 2011: ALL 129,890 thousand). Personnel expenses formed the biggest portion of 43.5% while the smallest share of 2.6% is presented by the group Advertising & PR expenses. 12

13 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Structure of administrative expenses Personnel expenses 30.0% Advertising & PR expenses 43.5% Rent expense 7.0% Maintenance and repair 16.9% Administration, consultancy and other costs 2.6% Net impairment losses of loan exposures accrued by the Bank amounted to ALL 118,271 thousand for 2015, compared to ALL 238,392 thousand in the previous year (2013: ALL 119,923 thousand; 2012: ALL 34,288 thousand; 2011: ALL 44,500 thousand). Balance Sheet As at the end of December 2015, the total assets of Fibank Albania reached ALL 16,939,994 thousand (2014: ALL 15,948,617 thousand; 2013: ALL 17,063,368 thousand; 2012: ALL 13,615,866 thousand; 2011: ALL 9,265,820 thousand ) increased by 6.2% (amounted ALL 991,377) resulted mainly from increase in financial instruments, cash and other assets. Loans and advances to customers faced a slightly increase with 5.6% menawhile loans and advances to banks and financial institutions.resulted with a significant decerease by 57%. During 2015 FiBank Albania showed a consolidated financial position for the fifth year in a row with an increase by 0.13% in market position in the whole banking system. 20,000 Fibank total assets 15,000 10,000 Total Assets (in mln ALL) 5,

14 ANNUAL REPORT 2015 ANNUAL REPORT % Assets structure 1.2% 7.3% 8.4% 2.5% Cash Balances with Bank Of Albania Other assets Loans and advances to customers 43.3% 36.6% Financial instruments Fixed assets Loans and advances to banks and financial institutions The asset structure remained relatively unchanged, reflecting market conditions and the Bank s strategy for maintaining an adequate balance between risk, capital and return. Loans and advances to customers preserved second majority share and formed 36.6% (2014: 36.8%; 2013: 38.1%;2012: 43.4%; 2011: 44.4%) of total assets, leads by the portfolio of financial instruments (financial assets available for sale investments and financial assets held to maturity) at 43.3% (2014: 32.2%; 2013: 27.9%; 2012: 21.7%; 2011: 22.5%) and balances with Bank of Albania at 8.4% (2014: 18.0% ;2013: 23.2%; 2012: 22.8%; 2011: 20.0%). Cash and balances with central banks increased by 0.2% (ALL 2,339 thousand) to ALL 1,618,277 thousand (2014: ALL 1,615, : ALL 1,465,792 thousand; 2012: ALL 1,333,794 thousand; 2011: ALL 884,310 thousand) while current accounts and balances with the Central Bank are decreased with 3.7% amounted ALL 1,417,209 thousand (2014: ALL 1,471,613 thousand;2013: ALL 1,307,122 thousand; 2012: ALL 1,121,767 thousand; 2011: ALL 746,883 thousand), resulting from the increased deposit base and the maintenance of minimum required reserves. Cash on hand increased by 39.3% (ALL 2,339 thousand) to ALL 201,066 thousand (2014: ALL 144,324 thousand; 2013: ALL 158,669 thousand; 2012: ALL 212,027 thousand, 2011: ALL 137,427 thousand), as a percentage of total assets remained at level of share 1.19% (2014: 0.9%; 2013: 0.9%;2012: 1.6%; 2011: 1.5%) as the Bank manage cash in respect of its daily operations and in accordance with the market environment and external conditions. Loans and advances to banks and financial institutions decreased to ALL 1,238,433 thousand, compared to ALL 2,872,821 thousand at the end of 2014, (2013: ALL 2,315,434 thousand 2012: ALL 2,046,578 thousand;) as a result of an increase on financial instruments investments. Portfolio of financial instruments is comprised of available for sale investments and financial assets held to maturity. At the end of the year such portfolio increased by 42.9% to ALL 7,337,337 thousand (2014: ALL 5,134,371 thousand; 2013: ALL 4,767,108 thousand; 2012: ALL 2,952,915 thousand; 2011: ALL 2,086,232 thousand)) as a result of an increase in financial assets available for sales, that reached ALL 5,379,780 thousand (2014: ALL 2,663,517 thousand ; 2013: ALL 2,083,518 thousand; 2012: ALL 1,067,337 thousand; 2011: ALL 1,310,258 thousand2012: ALL 1,067,337 thousand; 2011: ALL 1,310,258 thousand2012: ALL 1,067,337 thousand; 2011: ALL 1,310,258 thousand) and a decrease in held to maturity financial instruments, that reached ALL 1,957,557 thousand (2014: ALL 2,470,853 thousand; 2013: ALL 2,683,590 thousand; 2012: ALL 1,885,578 thousand; 2011: ALL 775,974 thousand). The entire portfolio is comprised from papers of Albanian Government, Belgium Government, Bulgarian Government and Austrian Government. 14

15 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Loans In 2015 Fibank Albania gross loan portfolio decrease by 5.58% (ALL 358,110 thousand) and reached ALL 6,416,753 thousand at the end of the period (2014: ALL 6,416,753 thousand; 2013: ALL 6,817,249 thousand; 2012: ALL 6,092,047 thousand; 2011: ALL 4,272,573 thousand). This was main affected by the increase in loans to retail and small and medium enterprises, respectively with 5.9% and 5.5%. This was also in compliance with the Bank s strategy for increasing lending as consequently of increasing funds received. Loan portfolio by business line: In ALL thousand / % of total 2015 % 2014 % 2013 % 2012 % 2011 % Retail customers 1,931, ,824, ,615, ,410, ,134, Small and medium enterprises 4,843, ,592, ,201, ,681, ,137, Gross loan portfolio 6,774, ,416, ,817, ,092, ,272, Impairment (576,779) (547,049) (308,700) (188,777) (154,489) Loan portfolio 6,198,084 5,869,704 6,508,549 5,903,270 4,118,084 At the end of 2015 loans to small and medium enterprises maintained their majority share in the Bank s loan portfolio, at 71.5% (2014: 71.6%; 2013: 76.3%;2012: 76.9%; 2011: 73.4%) and loans to retail customers at 28.5% (2014:28.4%; 2013: 23.7%;2012: 23.1%; 2011: 26.6%). Fibank continued to support sound projects in accordance with the need for financing and market conditions in the country. Loan portfolio by currency: In ALL thousand / % of total 2015 % 2014 % 2013 % 2012 % 2011 % Loans in ALL 2,308, ,145, ,974, ,697, ,218, Loans in EUR 4,051, ,946, ,521, ,149, ,954, Loans in other currency 414, , , , , Gross loan portfolio 6,774, ,416, ,817, ,092, ,272, Impairment (576,779) (547,049) (308,700) (188,777) (154,489) Loan portfolio 6,198,084 5,869,704 6,508,549 5,903,270 4,118,084 Loans and advances in EUR formed a predominant share of 59.8% (2014: 61.5%; 2013: 66.3%; 2012: 68.1%; 2011: 69.2%)) in the currency structure of the loan portfolio. They reached the amount of ALL 3,946,460 thousand at the end of the period (2014: ALL 3,946,460 thousand; 2013: ALL 4,521,722 thousand; 2012: ALL 4,149,466 thousand; 2011: ALL 2,954,692 thousand). A contributor to the decrease of loans denominated in euro, in terms of percentage over the total loans and advances, is the effort of the Bank to lend in local currency, minimizing though foreign exchange risk for the borrowers. Loans in ALL and in other currencies increased in absolute value, to ALL 2,308,807 thousand (2014: ALL 2,145,901 thousand; 2013: ALL 1,974,196 thousand; 2012: ALL 1,697,691 thousand; 2011: ALL 1,218,284 thousand)) and to ALL 414,071 thousand (2014: ALL 324,391 thousand; 2013: ALL 321,330; 2012: ALL 244,910 thousand; 2011: ALL 99,597 thousand) respectively. 15

16 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Loan portfolio and impairment 8,000 6,000 4,000 Impairment Loan portfolio 2, Loan portofolio by collateral 4.7% 3.3% 5.2% 5.0% 5.3% 2.0% 0.8% 73.7% Money deposit Mortgage Securities Guarantee Pledge of machines Pledge of goods Pledge of receivables Unsecured The quality of the loan portfolio remained at the same level with banking system ((NPL s of banking system in 2015: 18.2%) as problematic loans (those classified as non-performing) amounted to ALL 1,231,465 thousand or 18.7% of gross loans at the end of the year. Allowances for impairment increased and reached ALL 576,779 thousand (2014: 547,049; 2013: 308, : ALL 188,777 thousand; 2011: ALL 154,489 thousand) as a result of the negative impact of the economic cycle and increased credit risk in the country. In accordance with the Bank prudency in lending, total allowances for loans to customers increased by 5.43% compared to only 63.5% increase in the previous year. Allowances for impairment for loans, classified as non-performing amounted to ALL 213,039 thousand. The Bank applies rules for the classification and impairment of risk exposures which are in compliance with the criteria provided by International Financial Reporting Standards. The loan provisioning ratio was 8.5% (2014:8.5%; 2013:3.39%;2012: 2.7%; 2011: 2.54%).). The policy of the Bank requires proper collateral coverage before granting a loan. In this respect, it accepts all types of collateral permitted by law and applies discount rates depending on the expected realizable net value of the collateral. At the end of 2015 the collateral with the largest share in the Bank s portfolio were mortgages at 73.7%, followed by pledges of machines at 5.33%, money deposit at 5.21% and pledge of goods at 4.95%. Related Party Transactions In the normal course of business the Bank carries out transactions with related parties. These transactions were effected in market conditions. The internal rules and regulations of the Bank with respect to such transactions and agreements are in compliance with the effective legislation. 16

17 In ALL millions ANNUAL REPORT 2015 ANNUAL REPORT 2015 For further information regarding related party transactions, see Note 29 Related parties of the Financial Statements as at 31 December 2015 together with the Report of the Independent Auditor. Commitments and Contingent Liabilities Commitments and contingent liabilities of the Bank include bank guarantees and commitments given on behalf of customers. These are issued in compliance with the general loan policy of the Bank on risk assessment and collateral sufficiency. Contin gent liabilities are preferred instruments for credit institutions because they carry lower credit risk and at the same time are good sources of fee and commission income. They are also preferred by clients because they not only facilitate payments but also reduce the cost of financing as compared to direct financing and immediate payment. Contingent liabilities Structure of contingent liabilities 3.9% 10.2% 85.9% Letters of credit Bank guarantees Commitments given to customers At the end of the reporting period, the total amount of off-balance sheet commitments decreased to ALL 307,430 thousand (2014: ALL 307,430 thousand; 2013: ALL 332,130 thousand; 2012: ALL 303,137 thousand; 2011: ALL 565,328 thousand). Unused credit lines have a predominant share of 85.9% in the total amount of contingent liabilities, followed by bank guarantees at 10.2%. Unused credit lines increased by ALL 64,484 thousand, total amount is ALL 318,786 thousand (2014: ALL 254,302 thousand; 2013: ALL 308,190; 2012: ALL 222,696 thousand; 2011: ALL 193,927 thousand). 17

18 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Attracted Funds In 2015 attracted funds from customers increased by 2.8% (ALL 403,716 thousand) and reached ALL 14,305,613 thousand (2014: ALL 14,305,613 thousand; 2013: ALL 15,406,564 thousand; 2012: ALL 12,236,503 thousand; 2011: 7,645,761 thousand) remaining the Bank s major source of funding. Customer Deposits by Clients 16,000 12,000 8,000 Entities Individuals 4, Customer deposits by Currencies 16,000 12,000 8,000 4,000 Other EUR ALL Attracted funds from retail customers rose by 2.71% (ALL 356,698 thousand) up to ALL 13,495,082 thousand (2014: ALL 13,143,745 thousand; 2013: ALL 12,412,416 thousand; 2012: ALL 9,095,242 thousand; 2011: ALL 6,704,260 thousand) during the year, preserving their upward trend over the last years and maintaining their predominant share in total attracted funds from customers at 91.7%. In the currency structure of attracted funds from retail customers those in ALL were greatest at 51.7% of total attracted funds from customers (2014: 52.1%; 2013: 46.4%;2012: 42.9%; 2011: 45.4%) those in EUR were at 36.9% (2014: 37.0%; 2013: 30.9%;2012: 28.4%; 2011: 38.6%) and those in other currencies at 3.1% (2014:2.7%; 2013: 3.2%;2012: 3.1%; 2011: 3.7%). 18

19 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Due to other customers In ALL thousand / % of total 2015 % 2014 % 2013 % 2012 % 2011 % Retail customers 13,495, ,138, ,412, ,095, ,704, In ALL 7,610, ,449, ,149, ,243, ,467, In EUR 5,432, ,299, ,767, ,477, ,952, In other currency 452, , , , , Corporate, state-owned and public institutions 1,214, ,167, ,994, ,141, , In ALL 445, , ,332, ,397, , In EUR 647, , , , , In other currency 121, , , , , Total attracted funds from customers 14,709, ,305, ,406, ,236, ,645, Fibank Albania sets aside the required annual premiums in accordance with the law On insured deposits, which serves to incr ease the safety of the Bank s depositors. According to regulatory requirements the amount guaranteed by the Insurance Deposit Agency on customer s bank accounts held with the Bank is ALL 2,500,000 per retail customer. Attracted funds from corporate, stated-owned and public institutions decreased by 8.3% (ALL 47,017 thousand) up to ALL 1,214,247 thousand (2014: ALL 1,167,230 thousand; 2013: ALL 2,994,148 thousand; 2012: ALL 3,141,261 thousand; 2011: ALL 941,501 thousand) during the year, increasing their relative share to 8.3% of total attracted funds from customers (2014: 8.2%; 2013: 19.4%;2012: 25.7%; 2011: 12.3%).). In the currency structure of attracted funds from corporate, stated-owned and public institutions those in ALL formed 3.0% of all attracted funds from customers (2014: 3.7%; 2013: 15.1%;2012: 19.6%; 2011: 5.7%), those in EUR were at 4.4% (2014: 4.3%; 2013: 4.2%;2012: 6.0%; 2011: 6.6%). Risk Management Risk Management has the responsibility to identify measure and monitor credit, market and operational risk in all its banking operations. Risk Management monitors bank s exposures that carry credit risk as loans, overdrafts, guarantees, letter of credit, deposit accounts with other banks, investment securities and all other products where the debtor has or may have a contingent or direct obligation to the bank. Fibank aims to constantly develop, update and improve to the highest risk management systems in order to meet the challenges of the market environment and in the legal framework. Risk Management Framework The Board of Directors has an overall responsibility for the establishment and oversight of the bank s risk management. For the purpose of managing various types of risk in compliance with the requirements of the Bank of Albania, the following bodies operate in Head Office: Credit Committee of Fibank Albania has the authority to approve loan applications as per limits approved, as of the end of Credit Committee Members consists of: Chief Executive Officer, Executive Director, Head of Risk Management, Chief Financial Officer and Head of Legal Department. Operational RiskEvent Committee (OREC) is responsible for implementing policies, processes and procedures for administrating operational risk for all services/products, activities, processes and systems relevant to the bank. Operational Risk Event Committee is composed of: Head of Risk Management, Market Risk Analyst, Head of Loan Admin and M.I.S., Head of Payments and Correspondent Banking and Retail Coordinator. 19

20 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Compliance Committee is an independent function within the Bank, which identifies, assesses, monitors, reports, and provides advice regarding the compliance risk. The Compliance Committee is composed by Head of Risk Management, AML Compliance Manager, Head of Legal, Head of International Payments and Correspondent Banking, Chief Financial Officer in the quality of members of Compliance Committee. The committee ensures ongoing compliance with all applicable laws, rules and regulations against money laundering and financing o f terrorism. Provides assistance to AML Compliance Unit and makes decisions on behalf of fulfilling liabilities arising by Law on Prevention of Money Laundering and Financing of Terrorism The Bank risk s management policies are established to identify and analyze the risks faced by the Bank, to set appropriate risk limits and controls and to monitor these limits. Risk Management policies and systems are reviewed regularly to reflect chang es in market conditions, products and services offered. Credit Risk Credit Risk is the risk of financial loss to the bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Bank s loans and advances to customers, other banks and investment securities. Credit Risk Management performs independent credit and risk analysis of loan proposals which are being proposed. Credit Risk Management monitors the performance of borrowers; this includes non-performing loans to ensure appropriate action is being taken due to the improvement of the loan quality of the portfolio. Credit amounts requested above authority approval of Branch Managers and up to equivalent EUR 36,000 are approved by Risk Management together with SME/Retail. Credit amounts requested above EUR 36,000 and up to EUR 350,000 are approved by Credit Committee and above EUR 350,000 are approved by the Board of Directors. Market Risk Market risk is the risk of losses due to changes in the prices of financial instruments resulting from general risk factors n ot related to the specific characteristics of individual instruments such as changes in interest rates, exchange rates. The main objective of administrating market risk is to manage and control market risk and to keep it within required limits. Stress-testing is a useful method to analyze the resilience of a financial institution. Stress testing is a general term encompassing various techniques for assessing resilience to extreme events. They involve testing beyond normal operational capacity, often to a breaking point, in order to observe the results. Stress-testing can be thought as a process that includes identification of specific vulnerabilities or areas of concern; construction of a scenario; mapping the outputs of the scenario into a form that is usable for an analysis of financial institutions. Stress test allows a more detailed assessment of the capital adequacy commensurate with Bank s risk profile and the current operating environment. Interest rate risk is the exposure of a bank s financial condition to adverse movements in interest rates. Accepting this risk is an essential part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can pose a significant threat to a bank s earnings and capital base. Interest rate risk in the banking book is monitored and analyzed in order to assess the impact of interest rate scenarios on the economic value of the Bank and on the net interest income with a one-year horizon. The evaluation of the impact on net interest income is based on a maturity/re-pricing table of assets and liabilities and the estimated change in interest rates by classes of instruments following a change in market interest rates. 20

21 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Evaluating the complexity of operations of Fibank Albania, Risk Management has oriented the risk management structures toward the main resource or risk from interest rates, which is the re-pricing risk. The risk from exchange rate means the loss caused to the bank due to the unfavorable development of exchange rates in ALL, incomes and expenses in foreign currency (risk from transactions) or the value in ALL of net assets of the bank (risk from translation). Fibank Albania has limits for the foreign exchange position in a currency as well as global positions for all currencies. Based on the regulation from Bank of Albania On the open foreign exchange positions risk management, Risk Management monitors on daily basis the limits for each position in individual currency the limit of all positions, while in weekly bases reports to ALCO for Value-at-Risk for the basket of currencies. Liquidity Risk Liquidity Risk is the risk that the bank will encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. Liquidity risk tolerance level is defined as the level of liquidity risk that the bank is willing to undertake. The tolerance level appropriates the business strategy of the bank and reflects the bank s financial condition and funding capacity. The tolerance ensures that the bank manages its liquidity strongly in normal times and that it is able to withstand a prolonged period of stress. Liquidity Risk Management policy includes how the Bank identifies, measures, monitors and control that risk. Fibank Albania estimates the liquid position of the bank by means of the following indirect indicators: assets with high liquidity in relation to assets in total and assets with high liquidity in relation to short-term liabilities The liquidity risk management practices integrates and considers a variety of factors, regarding the time horizons over which to identify, measure, monitor and control liquidity risk. These include vulnerabilities to changes in liquidity needs and funding capacity on an intraday basis; day-to-day liquidity needs and funding capacity over short and medium-term horizons; longer-term, fundamental liquidity needs over one year; and vulnerabilities to events, activities and strategies that can put a significant strain on internal cash generation capacity. Operational Risk Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes Legal Risk, but excludes Strategic and Reputation Risk. The Bank s objective is to manage operational risk as to balance the avoidance of financial losses and damages to the Bank s reputation with overall cost effectiveness. Risk Management defines and categorizes operational events across event types and business lines inherent in banking; the department also defines the responsibilities of employees from different departments tasked with data collection. Operational Risk Event Committee is responsible for: Implementing policies, processes and procedures for administrating operational risk for all services / products, activities, processes and systems relevant to the bank. Implementing of internal acts for administrating operational risk management to all business lines Implementing of the responsibilities and development of reporting lines to encourage and maintain accountability, provide financial and human resources needed to effectively manage operational risk Clear communication of the policy subject to operational risk to employees of the bank at all levels, especially in units that are exposed to operational risk Ensuring that personnel responsible for monitoring the implementation of the policy of administrating operational risk, to be independent from the business lines they control. Reviewing and analyzing the KPIs which is used by business lines for their self- assessment and implementing benchmarks for the most risky indicator of each reporting department. 21

22 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Establishing on yearly basis Budget for operational losses based on historical data and divides this budget into different business lines in order to better monitor operational losses. Analyzing and taking decisions for reimbursements of credit cardholders claim related to fraud transactions based on analysis and investigation performed by Card Department. Analyzing and taking decisions based on results of Self-Assessment followed by allocation of tasks and responsibilities to related departments. Further, to elicit bank s performance in the long term, the need for measuring the risks in advance becomes an important procedure for management to assess the potential impact of an activity performed and the possible risks it carries. Such evaluation metrics are essential to pro-actively manage the prospective risky ventures and facilitate timely detection and take appropriate steps to prevent malfunctions. The timing plays a significant role as the sooner a risk is identified and tackled, better would be the chances to avert it and would ensure timely action and assist in long term success of th e organization. While using KRIs the following criteria are taken into consideration: Select the right indicators to anticipate potential problems Identify and specify an indicator and integrate it within your risk management framework Understand the methods and strategies to use KRIs efficiently Learn how to avoid subjectivity in operational risk reporting Master how to avoid useless information to ensure the right decisions Collect the right information and work with effective indicators Risk and control self-assessment is a tool to assess the exposure of Fibank Albania to operational risk and operational controls to reduce this type of risk Self-Assessment can be conducted in the form of questionnaires or by analyzing the work processes. Flows of Self-Assessment through four stages: Identification of risks Documentation of existing controls Evaluation of risks and effectiveness of controls Determination the follow-up. Risk Management prepares the necessary materials related with the self assessment, coordinate and summarize the results. Subject of Self-Assessment are all Branches/Agencies and departments. Self-assessment is conducted annually by Risk Management as well as under conditions of increased operational risk. 22

23 ANNUAL REPORT 2015 ANNUAL REPORT 2015 Distribution Channels Head Office Tirana Blvd. Dëshmorët e Kombit, Twin Towers, Nr.2 Kati 14/15 Tel.: (+355 4) /3 Fax:(4) Shkoder Tirana Twin Towers Blvd. Dëshmorët e Kombit, Twin Towers Tel.: (+355 4) /2 Fax:(4) Tirana Tirana 1 Rr. Kavajës, pranë Ministrisë së MSR-se Tel.: (+355 4) /80 Fax:(4) Durres L.12, Rr. Deshmoret, Tel.: ( ) /1/2/3 Fax:(52) Durres Rr. Kavajes Twin Towers Vlorë Blvd. Ismail Qemali, L. Lef Sallata Tel.:( ) /1/2/3 Fax:(33) Elbasan Elbasan Lgj. Qemal Stafa, Rr. 11 Nëntori Tel.: ( ) /1/2/3 Fax:(54) Korça Fier Berat Korce Rr. Midhi Kostani, Kompleksi City Center, Kati i pare Tel.: ( ) /1/2/3 Fax: (82) Fier Vlore Lgj. 29 Nëntori, Sheshi Fitorja Ish klubi Partizani Tel.: ( ) /1/2/3 Fax: (34) Shkodër Lagjia Qemal Stafa, Rr. Vasil Shanto, Sheshi i Parruces, Kulla B Tel.: ( ) /1/2/3 Berat Lagjia 22 Tetori Tel.: ( ) /2/3 Fax. ( )