table of contents - tirana bank...total outstanding loan portfolio at the end of the year amounted...

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Table of Contents

1. LettertotheShareholders

2. ManagementStatement

3. TiranaBankBranchNetwork

4. TiranaBank1996-2010

5. EconomicOutlook

6. MainHighlightsofFinancialIndicatorsandResults

7. MainIssuesofBankPerformance

7.1. RetailBanking

7.2. SMEs

7.3. CorporateBankingDepartment&ProjectFinanceDepartment

7.4. Treasury

7.5. InformationTechnologyandInfrastructure

7.6. RiskManagement

7.7. Compliance

7.8. FundsTransfer

8. HumanResources

9. CorporateSocialResponsibility

10. FinancialStatements

11. IndependentAuditor’sReport

7

8

10

11

12

13

16

16

16

16

17

18

18

19

19

20

22

24

27

6 7

Dearshareholders,

2010 was a successful year for Tirana Bank. Despitethecontinuingeconomicdifficulties,theBankhasmadesignificantstepstowardsastronger,broaderandmoresolidfranchise.

Mainachievements:

TiranaBankhascomeoutfinanciallystronger,withanorganizationalstructureandhumanresourcesfullycapabletofacechallengesinthefutureyears.TheBankwithtotalassetsofover650millionEurosholdsoneofthetopthreepositionsinthecountryintermsoflending,qualityofassets,branchnetwork,andisthefourthlargestbankindeposits.

Despiteallthehardwork,thebigchangesandadjustmentsthatrequiredpatience,loyaltyandperseverancebythepersonnel,TiranaBankemployeeshaveappreciatedtheachievements,theprospectsandthehighpotentialoftheBank.TiranaBankemployeesexpressedpositivelyandshowedrelativelyhighlevelsofemployeesatisfactionatarecentSurvey,conductedamongstthesubsidiariesofPiraeusBankGroup.

Webelievethat2011isgoingtobeanothersuccessfulyearforTiranaBank,despitethedifficultiestheAlbanianeconomyisfacing.Ourmaingoalsforthisyearareto:

Wecanachievethesegoalswithhardwork,teamspiritandhighprofessionalism,butmostofallwithcare,fairnessandrespecttotheemployeesandcustomers,insideandoutsidethebank.

Sincerely,GeorgiosCharalampakisManagingDirector

Recordpre-taxprofitsof12.25millionEuros,despitetheinternalreorganizationandadditionofninebranches.Selffundingstatus(loantodepositratio91.7%),throughmajorincreaseofdepositsby23%(marketshare8.6%athistoricalrecords).NPLratiomuchlowerthanthebankingmarket(7.8%versus14.4%).Extensiveinternalreorganization,withbusinessorientedstructureandmentality.Renovationof22branchesand relocationof threeones,ninenewbranches, in total56branchesandagencies,becomingthethirdlargestbranchnetworkinAlbania.Administrativeexpensesdecreasedby2.0%andrestrainedpersonnelexpensesdespitetheexpansionofbranchnetworkandthecreationofninenewdepartmentsandunits.

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KeepupthequalityoftheassetsintheBalanceSheet.Maintainhighprofitability.Continuethegoodperformanceofdepositsandsolidifytheselffundingstatus.Expandthecooperationwithstateinstitutions.Improvesalesmentalityandcrosssellingofourproducts.ImproveourlevelofservicesandtheimageofTiranaBankintheAlbanianmarket.

••••••

Letter to the ShareholdersExecutive Committee

Georgios CharalampakisManagingDirectorandMemberofBoardofDirectors

Bedri ÇollakuDeputyManagingDirectorandMemberofBoardofDirectors

Athanasios PaloudisHeadofBranchNetwork&SME

Sotirios KousourisHeadofOperationsDivision

Jani GjikaHeadofCorporateBankingDivision

Manjola CapoHeadofCreditDivision

8 9

Management Statement

Michalis Sallas, Chairman of BoD

TheimprovementintheborrowingtermsandthefinancialsupportmechanismsforGreecebytheEUfacilitatessignificantlytheimplementationoftheeconomicstabilizationandrestructuringprogram.Tothisend,theGreekbankingsystemcontributestothiseffort inarealisticandresponsiblemanner,byconsolidatingandrestructuringitsassets,supportingtheeffortsofsoundentrepreneurshipandstrengtheningitscapitalbase,despitethecurrentliquidityconstraints.

PiraeusGroup’sstrategyisalongtheselines.Recently,theBankenhanceditscapitalbaseby€807millionwitharightsissue,whileitalsosafeguardeditsbalancesheetwithincreasedprovisionsasaresultofitshealthyrecurringprofitability.

Stavros Lekkakos, CEO

TheGroup’srecurringprofitability for2010, i.e.pre-provisionprofitability,excludingtradingresults,displayedresilienceandreached€611millioncomparedto€600millionin2009(+2%).Netinterestincome had the highest contribution in the Group’s profitability as it increased by 9% y-o-y andamountedto€1,207millionversus€1,105millionin2009,recordinganincreasingquarteronquartertrendfortheyear.Thissourceofrevenuecomprised81%oftheGroup’snetrevenuesin2010,andithasrecordeditsbestperformanceintheGroup’shistory.

Theannual reductionofoperatingcostsby4% inGreeceandby1%ataGroup levelwas in linewith the initial targetset for2010,while thegoal for2011 isa further reductionof5%ataGrouplevel.Provisionsincreasedby22%y-o-y(€601millionvs.€491millionin2009)duetotheeconomicconditions both in Greece and South Eastern Europe, with the coverage of loans in arrears byprovisions and tangible collaterals at 112%. Increased provisions affected significantly FY’10 netprofit,whichamountedto€4million.

Full Year 2010 Results

“Loanstodeposits”ratioat107%,adjustedforself-fundedloans,remainedstableonanannualbasis.Internationalsubsidiaries’fundingfromparentPiraeusBankwasdecreasedby€0.6billionin2010,mainlyduetotheincreaseby16%ininternationaldeposits.Loansinarrearsabove90days(IFRS7)stoodat7.6%,withtherespectiveprovisioncoverageratioat48.4%.Thecoverageratioreached112%,whentangiblecollateralsaretakenintoaccount.FollowingtheBank’scapitalincreaseby€807million,whichwascompletedinJanuary2011,theGroup’stotalequitystoodat€4.0billion(pro-forma).Regulatorycapitalamountedto€4.3billion,withthepro-formafortherightsissuecapitaladequacyratiotostandat11.2%,TierIat10.4%andEquityTierIat9.1%.

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•

•

TE/TA:Tangibleequity/tangibleassets(excludingintangibleassetsandpref.shares).Equity Tier I:TierIexcludinghybridsandpref.shares.Dec.’10pro-formaforsharecapitalincreaseof€807millioninJanuary2011.

Note:TheLoanstoDepositRatiofortheGroupandPiraeus-Greeceareadjustedforselffundedloans.

491 601

611600

2009 2010

Pre-Tax & Provision Profit excluding Trading

Piraeus - International

Piraeus - Group

Piraeus - Greece

+2%

+22%

Organic Pre-Provision Profitability (€ million)

Net Interest Income Evolution per Quarter (€ million)

Capital Adequacy (%) Loans to Deposits Ratio (%)

310305298293292285272255

Q1 '09 Q2 ΄09 Q3 '09 Q4 '09 Q1 ΄10 Q2 ΄10 Q3 ΄10 Q4 ΄10

Net Interest Income

5.8%5.4%

9.1%7.7%

11.2%9.8%

Dec.'09 Dec.'10 (pro-f orma)

TE/TA Equity Tier I

Capital Adequacy ratio

190%171%

140%

99%94%99%

112% 107% 107%

Dec.'08 Dec.'09 Dec.'10

Provisions

Pre-provisionprofit,excludingtradingresults,increasedby2%y-o-yat€611million(€600millionin‘09).Net interest income (NII) amounted to €1,207 million, +9% y-o-y (€1,105 million in ‘09). Thesystematic improvement of the asset side elements’ yield both in Greece and internationallyovercompensatedthehighdepositcost.ThisperformanceisthebestperformanceinnetinterestincomefortheGrouphistorically.NIM(netinterestincomeonaverageinterestearningassets)increasedto2.7%comparedto2.6%in‘09.Totalassetsreached€57.7billion,increasedby6%y-o-y.Netloansamountedto€37.6billion,remainingflaty-o-y.Depositsstoodat€30.0billion.

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10 11

Tirana Bank 1996 – 2010

TiranaBankislicensed,becomingthefirstprivateBankinthecountry.

Yearofofficialestablishment.

TiranaBankopensitsnewbranchesinFierandDurrës.

LaunchofVISApurchasingservice.Firstpositivefinancialresultsareachieved.

TiranaBankopensitsnewbranchesinGjirokastraandKorça.

Rapidgrowthachieved,withassets’figurestriplingcomparedwith1997.

Yearofnetworkexpansion.FirstVISACreditCardisissued.

TwomoreTiranaBankagenciesareopened.

TiranaBanknetworkhas22brancheswiththeopeningofsevenotherbranches,becomingtheBankwiththesecondlargestbranchnetwork.

Thebranchnetworkisfurtherexpandedtoreachthenumberof34branches,coveringmostofthecountry.Hugeorganizationalreshuffletakesplaceandmoreaggressiveretailactivitystarts.

Yearofstronggrowthboth inCorporateandRetail,coupledwiththe launchofnewproducts.Thebranchnetworkreaches36branches,43ATM’soperateandtheBankhas377employees.Branchnetworkreaches39brancheswithmorebranchesintheopeningprocess.45%growthrateofNetprofit,Loanportfoliogrowsby55.9%(yoy),totalassetsgrowby35%.

Thebranchnetworkgrowthcontinues, as thenumber reaches45.Highprofits are recordedduring2008.Bankhas500employees.

CompleteBankreorganizationwithaclientandbusinessfocus.Threenewbranchesareopenedandtwenty-twoarerenovated.ProfitabilityofEUR13.2million,despitecrisis.NPLportfolioanddepositsfullyprotected.

Recordprofitabilityexcludingforeignexchangegains.Expansionofbranchnetworkreaching56branchesandagencies.Self-fundingstatus,duetohighdepositsincrease.Significantpenetrationintothepublicandinstitutionalsector.Successfulprotectionofbalancesheet.

CURRENT STATUS: 2 nd in Lending

3 rd in Branch Network

4 th in Deposits

1996

1997 1998

1999 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Tirana Bank Branch Network

Despitethedifficulteconomicsituation,2010wasayearofbanknetworkexpansionandcompletionofrenovationofthebranches.Duetotheadditionofninenewbranchesandoneagency,theBranchNetworkreachedthenumberof56branches,rankingTiranaBankasthe third largest Branch NetworkinAlbania.

(2 branches)

(3 branches)

(23 branches)

(2 branches)

(2 branches)

(2 branches)

12 13

MainHighlightsofFinancialIndicatorsandResults

ProfitbeforeTaxeswasALL1.664million,increasedby66%(YoY)

TotaloutstandingLoanportfolioattheendoftheyearamounted to ALL 62.864 million, increased by 6%compared to previous year. Non Performing Loansamounted toALL4.902millionwith aNPL ratio of7.8%attheendoftheyear.TheProvisionfundwasincreasedby24%comparedwithpreviousyear.

TotalDepositsatyearendamountedtoALL68.581million, increased by almost 23% compared topreviousyear.During2010, theBankexpanded itscollaborationwithmanyPublicSectorentities.

Total Equity amounted to ALL 13.198 million,showing an increase of 13% compared with year2009.ThetotalRegulatoryCapitalwasALL10.866millionwithaCapitalAdequacyRatioof13.7%.

*Year2009isadjustedfortheexchangeraterevaluationofShareCapital

Profit and Loss AnalysisNet Interest Income increased by 21%, due toincreasedspreads(around4%).

Net Commission Income was increased by almost19%comparedtopreviousyear,reflectingthegoodperformanceoftheBank.

TheAdministrativeExpenseswererestrained,despitetheadditionalexpense fromthedeposits insurancepremiumincrease(66millionALL).Withoutthis,theincrease(50.1millionALL)wouldbeonly6%.

ExpensesforProvisionsamountedtoALL407million,increasedby28%comparedtoyear2009.

*TotalOperatingIncomeinyear2009areadjustedfortheexchangerate

revaluationofShareCapital

*TotalOperatingExpenses inyear2010areadjusted for theadditional

expensefromtheDepositsInsurancePremium

2009

2010

020040060080010001200140016001800

Profit before Taxes

Valu

e in

Mio

ALL

2009

2010

86889092949698100102104

Loans to Deposits Ratio

Valu

e in

%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2009 2010

Valu

e in

Mio

ALL

Total OperatingIncome*

OperatingExpenses*

Economic Outlook

TheAlbanianeconomyisaffectedbytheglobaleconomicandfinancialcrisisandithasanimpactalso fromtheGreekEconomy.Yet,duetoa flexiblemonetarypolicy framework,soundbanksanda substantial foreign exchange reserve system, the country still has limited integration into globalmarkets.Allthesefactorshelpedonmitigatingthenegativeimpactoftheglobalfinancialcrisisduringthisperiod.Nevertheless,incontrasttomostcountriesintheregion,theAlbanianeconomyshowedapositive growth of GDP.Asitwasforyear2009,whichendedwithapositivetrendof4.1%,thesamealsooccurredforyear2010:apositiveGDPgrowth,slightlybetterthanthepreviousyear.ThemajorimpactwasduetoInfrastructure InvestmentsandEnergyExports.AsregardsGDPGrowthprojectionsbyIMF,BankofAlbaniaandMinistryofFinanceconvergefrom3.5 to 4.2% until 2013,meaning“a growth trend either of the same rhythm as 2010 or to a moderated increase for the next three years”.

Thelevelof inflation isveryclosetothetargetof3%,setbytheCentralBank.Theprojections inthe short run are to maintain a generally controlled level of inflationary pressures. Meanwhile, theslowdowninimportedinflationisalsoduetothegrowingstabilityoftheexchangerate.Thecutbackofinflationrateisdedicatedtoagreatextenttodwindlingeffectsofpriceincrease.

ThetrendoftheExchange Ratewasrelativelystableduringyear2010.Throughout2010,thelocalcurrencyhasbeenatamoderatedpositiontowardstheEurocurrency.Theexchangeratewaseitherlessthanthatattheendofyear2009orstoodatthesamelevel.Byanaverage,theexchangerateisless than 138.5 versus Euro.Theperformanceoftheexchangeratefortheupcomingyear2011isexpectedtobelessstable:duetolessbalancedratiosofsupply&demandforforeigncurrency.

Total Loans of the economy, by the end of 2010, amounted to ALL 490 billion, with 9% annualincrease.Total Depositsbytheendof2010increasedbyALL122billionfromthebeginningoftheyear,whichmeansanannualgrowthof18%.

Remittances and other non-classified inflows, which are the main source of residential savings,continuedtofall,asobservedforthesecondcontinuousyear.TheglobalcrisisimpactedtheAlbanianeconomy through lower exports and remittances, reduced capital inflows, heightened risks in thefinancialsector,andamoderationofdomesticdemandduetohigherprecautionarysaving.

2011,duetoGreekEconomy,lowerremittancesandnomajorinvestmentsapartfrominfrastructuralprojects,is expected to be a difficult year.

NetInterestIncomeincreasedby21%(YoY)TotalOperatingExpenseincreasedby10%(YoY)TotalAssetsincreasedby7%(YoY)LoantoDepositsratioimprovedbyalmost11%(YoY)NPLs ratiowasestimatedat7.8%(much lowerthen14.4%NPLratioofBankingSystem)

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•

14 15

1Year2010adjustedfortheadditionalexpensefromtheDepositsInsurancePremium(66.3millionALL)

2Year2009adjustedfortheexchangeraterevaluationofShareCapital

90.558.535

60.319.003

68.580.659

7.219.972

56

478

Total Assets

Loans and Advances (Net)

Customer Deposits

Paid in Capital

Nr. of the Branches

Staff

84.641.423

57.163.534

55.721.495

6.938.124

47

460

7.0

5.5

23.0

4.1

19.1

3.9

Main Indicators (thousand ALL) 2010 2009 Change %

3.627.525

284.182

1.948.688

406.560

1.663.768

1.495.944

Net Interest Income

Net Commission Income

Operational Expenses 1

Provisions

Profit before Taxes 2

Profit after Taxes

3.000.232

239.753

1.824.524

686.941

1.003.056

900.905

20.9

18.5

6.8

(40.8)

65.8

66.0

Incomer & Expenses (thousand ALL) 2010 2009 Change %

1.71

12.01

49.32

91.7

4.1

ROA (after TAX)

ROE (after TAX)

Cost / Income

Loans / Deposits

Net Interest Margin

1.09

8.36

51.9

102.6

3.6

Main Ratios 2010 2009

MainHighlightsofFinancialIndicatorsandResults

31,736,550

40,250,568

49,817,567

67,103,490

81,425,29384,641,423

90,558,535

2004 2005 2006 2007 2008 2009 2010

27,733,073

34,143,065

42,573,707

51,190,65151,941,132

55,721,495

68,580,659

2004 2005 2006 2007 2008 2009 2010

8,910,091

15,826,357

25,701,296

54,503,195

60,319,003

40,898,835

57,163,534

2004 2005 2006 2007 2008 2009 2010

844,630

1,153,449

1,567,290

1,005,422

1,663,768

588,076

292,695

2004 2005 2006 2007 2008 2009 2010

258

349377

438

501460 478

2004 2005 2006 2007 2008 2009 2010

22

34 36 38

45 47

56

2004 2005 2006 2007 2008 2009 2010

Total Assets (thousands ALL) Customer Deposits (thousands ALL)

Loans (thousands ALL) Profit & Loss before Tax (thousands ALL)

Branch NetworkEmployees

*Year2009adjustedfortheexchangeraterevaluationoftheShareCapital

16 17

During2010,inaccordancewithbank’sstrategy,TreasuryDepartmentwasmainlyfocusedinfunding,aimingdiversificationofsourceswithinaflexiblepolicyoncounterpartiesandpricinginbalancewithcostcontrollingaswell.Inaverydifficultyearassociatedwithhighlycompetitiveinterbankmarket,andtheportfoliowithresidentbankswasconcludedby15millionEURequivalentandthenetworkwassupportedwithflexiblepricingonadepositportfolioof100millionEURequivalent,maintainingandestablishingnewrelationshipswithCorporate,SME,PrivateBankingandRetailcustomersaswell.Oureffortsinlinewiththerestofthebankfinalizedtoaverysuccessfulyearforthebank.Afterseveralyearsinashortforeigncurrencyliquidityposition,Tirana Bank during 2010 achieved self funding status.

Asamainactor towardmarket riskexposures,TreasuryDepartmentcontinuouslymonitors interest rate,FXexposuresandliquidityaswell,contributingintheALCOeffectivedecisions.

Ourstrategy is topositivelycontribute in thecountry’spublicdebt, investing in regularbasis ingovernmentsecuritiesauctions.UnderthispositivestrategywestronglysupportedthefirstissuancesovereigndebtofAlbaniaininternationalmarketsinvesting 20 million EUR in the first five years Albania Eurobond issuance.

Treasury Department continued to invest in the Albanian Government Securities T-Bills and Bonds in localcurrency,within theestablished limits,constantlycontributingpositively in theP&Lof theBank reachinganoutstandingportfolio110.5millionEURequivalentbytheendoftheyear.

Eventhough2010wasayearofdifficultiesforourcustomersandeconomyingeneral,wemanagedthelevelofprofitability fromFX transactions in the levelsof thepreviousyears.Ourstrategy is toestablish long termrelationshipswithourcustomerssupportedbyFXproductsasspotandforward.

CorporateBankingfocusremainedinmanagingalreadyestablishedrelationships,aswellasfocusinginnewfinancingsintheareasoftrade,industryandgeneralservices.Besidesassistingdirectlytheexistingclients in thenewchallengingeconomicenvironment,CorporateBankingestablishednewrelationshipswithleadingcompaniesintheareasofretail,healthandfinancialservices.

However,thegenerallackofinvestmentsentimentinthesesectorsandthecautiouslendingpolicy,resultedinamoderateincreaseofthecreditportfolioby9.6%,comparedtothepreviousyear.Ontheotherhand,problematicloanswerekeptundercontrolandclosedyear2010atsatisfactorylevelsandbelowBank’saverage.

TheoutstandingloanportfolioofProjectFinanceDepartmentincreasedfromEUR74million(endof2009)toEUR113million(endof2010),reflectinganincreaseof53%.TheNPLportfolioofCorporateclientsremainedatlowlevels,contributingsoatthelowleveloftheBank’sNPLratio.

ThefocusoftheProjectFinanceDepartmentwaslendingwithcaution,selectinggoodandprofitableprojects.

Although in its first yearof activity and in theperiodof crises, theportfolioof theProject Financeoccupied42%oftotalcorporateloanportfolio,or25%oftotalloanportfolioofthebank.

ThecreationofProjectFinanceDepartmentwaspositiveforthebanksinceitattractedmanybusinessaccountstothebank,reflectingpositivelyontheprofitabilityofthebank,throughfees,FX,servicecommissionandliquidity.

7.4 Treasury

Main Issues of Bank Performance

7.1 Retail Banking

7.2 SMEs

7.3 Corporate Banking Department & Project Finance Department

The Retail Banking of Tirana Bank marked a very good year, despite the difficulties of the Market. Byreviewingtheexistingandofferingawiderangeofcompetitivenewproducts&services,whichfitbettertotheneedsofindividualcustomers,Year2010showedabigsuccessinDeposits with23% increase,whichwastheBank’shighesthistoriclevelandcreateda“Self-Funding Status”fortheBankafterseveralyears.

RegardingLoans,wecontinuedtoretaintheexistingloanportfolio,throughaprudentlendingpolicy.Atthesametime,someexistingmortgageloanswererevisedandnewproductswerealsooffered,sothatallcustomerscanmeetfastandfit-to-their-needsfinancing.DespitetheincreasingleveloftheNon-PerformingLoansattheMarket,wewereabletokeeptheNPL ratioatthesamelevels.

Key factors inachieving these resultswere the internal reorganizationsof the Retail Department andtheestablishment of Private Banking and Sales Department. Inorder to takebettercarewith thewholesaleRetailBusiness,itwasappliedcrosssellingandmakingdirectsalestoclientsthroughtheentireBranchesNetwork.

Asuccessforthe2010wasalsothepenetrationintoPublic and Institutional Sector,throughincreasedlevelofTermDeposits,ForeignExchangedealsandMoneyTransfers. The Payroll accounts for theiremployeesacrossthecountrywasthemostsignificantbusinessconductedwiththissector.Morethan20,000 new accounts were opened, creating opportunities in cross selling products with increasedbalancesandnewindividualclients.

During2010SMEsDepartmentwasmainlyfocusedontheidentificationofthegroupofclients,whowereshowingdifficultiesonrepaying loanson time. Insuchcasesandafteraccurateanalyses,when itwasjustified,even restructuringprocedureswereapplied.Throughout thisprocess, it isnowobserved thatalmostalltherestructuredloanshavehadregularandnodelayonnormalrepayments.Thiswasalsoayearof internal reorganizations,withwell-defined responsibilitiesandprocedures tobefollowedsothatthebusinessunitsandtheRegions(wheretheSMEsloansareoriginated)wouldbemoreefficientinordertomaintainaconsolidatedandhealthySMEsportfolio.

Despite thedifficultbusinessenvironment in2010,TiranaBankcontinuedtosuccessfullymanageitsrelationshipswiththelargecorporatefirms,increaseitscreditportfoliowithnewclientsandkeepproblematicloansatsatisfactorylevels.

In 2010a newspecializedDepartment for Project Finance&Real Estatewascreated in order todirectlysupportfinanciallynewprojectsandconsiderspecialfundingrequestsindifferentsectorsoftheeconomy.

18 19

During year2010many InformationTechnologyand Infrastructure projectsweredevelopedand improved.TheITDepartmentinaccordancetoitsmanagerialrequirementsandtechnicalresponsibilitieshasgivenitsfullsupporttotheTBstaffsothatitcancreatefacilitiesandsupportfortheircustomers.

AspernewdevelopmentsinglobalandlocalBankingmarket,ITDepartmenthasimplementedmanyITprojectstorespondbettertothebank’sspecialneedssuchas:

Alltheseprojectshaveservedthefacilitytoperformeverythingelectronicallyratherthanmanuallyasithasbeenbefore.Employeesaregettingmoreautomatedreportswhichhelpthemtoperformbetter,saferandquicker,increasingourBank’sbenefitstogainhigherconfidenceandhigherproductivity.ITDepartmentiscontinuouslyimprovingitsITinfrastructuretorelatetorapidchangesofthelatesttechnology,withinandoutsidethebankingsystem.

Afterbeingestablishedasaunitwithallfunctions,during2010,Compliancewasfullystaffedwithveryqualifiedpersonnelandithasbeenveryactiveinfulfillingallitsregulatoryduties.Newprocedureshavebeenpreparedandothersare induecourseforcreatinganoverallgeneralComplianceframeworkinthebank.

AML and Compliance auditsbeganstricterandresultedfruitfulforbranchesnetwork.ThebranchesstaffwasmoreawareoftheComplianceandAMLrisk,duetotheverystrictandprofessionalaudits,andalsoassistancefromComplianceauditors.

Two largeComplianceonline projects, incooperationwithPiraeusGroupCompliance related toGroupAMLsystemonlineareinduecourse.TheseprojectshaverequestedcooperationwithotherdepartmentsofTiranaBankandattheircompletion,theywillhaveadirectimpactinbankcustomersriskscoring,riskanalyzesandinoverallAML/CTFbankprotection.

OurintentionremainsaverystrongComplianceposition,asabankprotectorforitsoverallimageandreputationinthebankingsystem.

2010wasthebeginningofthereorganizationandcentralizationofthepayments’processing,whichwillbeassociatedwithinvestmentsintermsofsystems,changesthatwillstrengthenthepositionofourbankintheareaofpayments,bothinthedomesticmarket,aswellasinternationally.

During 2010, the bank increased its performance both in terms of volume and the quality of thepayments,reachingalmost11% of the volume of the Albanian market.Also,therewasasignificantincreaseinthevolumeoffundstransfersandpaymentsoperationsby20%.

TiranaBankwastheonlybankinAlbaniatobeawardedbyDeutscheBank,forthesecondconsecutiveyear,withthe“EUR STP Excellence Award for the exceptional quality of payment messages”,reachingarateof99.3%globally.

Meanwhile,thereviewandincreaseoftheefficiencyinoperatingsystemshada25% reduction in annual costs,whichenabledustoreviewourchargesandcommissions, inordertocreatemoreefficiencyonusingbankingservicesbyconsumers.

7.7 Compliance

7.8 Funds Transfer

Main Issues of Bank Performance

ThisyearTiranaBankfurtherandsignificantlyenhanceditsliquidityandseveralratiosgotimprovedin comparison with the previous year: Loan to Deposit ratio (from 106.1% to 91.7%), Foreign toLocalCurrencyratio(from5.3 : 1to 2.8 : 1inLoansandfrom1.1 : 1to1.3 : 1inDeposits).CapitalAdequacyRatio13.7%.The‘self-funding’statusthatTiranaBankachievedduringthisyearmadepossibletounwindvariouspositionsandmoderate the risk concentration.TheapprovedLendingLimitswerekeptandservedas guidelines to reduce the portfolio volatility through diversification of loans by Industry Sector,currencyandmaturity.During this year we adopted Stress Testing as a tool to estimate the potential vulnerability toexceptional,butplausiblescenariosinordertoadverseunexpectedoutcomes,especiallyfromnewproductsthatgrowrapidlyandforwhichlimitedornolossdataisavailable.RegardingOperationalRisk,itwasappliedtoallbusinessunitsoftheBanktheRisk Control Self-Assessment projectinordertomanage,controlandreducetherisksthroughKeyRiskIndicatorsassessed.

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ImplementationofAIScustodysystem1stand2ndphases.EMV/ATMImplementation,tomakepossiblethechipreadingofcards,alsotheElectronicJournalCollection.Journalsarestoredinacentralserver,avoidingtheusageoffloppydiscsandimprovetheaccesstojournals.ApplicationandPerformanceDataforRetailPortfolioandRetailDepositModule.ImprovementofDocumentmanagementusingSharePoint.AlsoCatapult implementation,andAuditReportSystem.Dealingroomcallrecording(NICEPerformExpress).Paymentstogovernmentinstitutions.ATLAS-upgradesystemfortheGeneralLedgerandqualityofreporting.

7.6 Risk Management

7.5 Information Technology and Infrastructure

20 21

Human Resources

TiranaBankappreciatesitsemployeesasthedrivingforcebehindtheBank’ssuccessfulperformance.2010 was the year of development, promotions and hiring of new valuable employees of younggenerationwhocurrentlyrepresent65%oftheentirestaffofTiranaBank.

Newdepartmentswererecentlycreated,suchas:theSalesDepartmentandPropertyManagementUnit,inordertobetterreflectthechangesintheAlbanianbankingsector.

ThemissionoftheDepartmentofHumanResourcesistocreateaworkenvironmentwhichpromotesemployee’sselfreliance.72newemployeeswerehiredduring2010.Highlevelprofessionalsfromthebankingsystemwereattractedthroughthisprocess,inordertoaddvaluetotheBankthroughtheirexpertiseinsimilarmanagerialpositions.Entrylevelemployeeswerealsohiredbasedontheireducationbackground,knowledgeof foreign languages,professionalconductand individualskills.Theimplementationof“Abilitytests”begantothisextendduring2010asaprofessionalassessmenttoolintherecruitmentprocess.

TrainingcontinuedtobeapriorityobjectiveforTiranaBankaimingatimprovingtheskillsandbuildingthecapacitiesof human resources.During2010, therewere30.940 trainingmanhoursprovidedtoTiranaBankemployeesandTiranaBankstaffreceivedseveraltrainingsinthefieldsof:businessdevelopment, improved sales skills and customer service quality, individual development. EnglishlanguagecoursesweresuccessfullycompletedbyallTiranaBankemployees.

Thetwo promotional bonusesfordeposits’gatheringandforcontributiontotherecordprofitsofthebankwerealsoappliedtoemployees.

26-46-

2%

10%

23%

44%

21%

0%

10%

20%

30%

40%

50%

>= 56 55 36-45 35 <= 25

Active workforce broken down by age groups

Tirana Bank donates blood for Red Cross

22 23

Corporate Social Responsibility

TiranaBank isverysensitivetowardCorporateSocialResponsibility issues.Aconsiderablepartofthemarketingbudgetisallocatedforsocial&environmentalcausesandculturalevents.OursincerecommitmenttowardSocialResponsibilityismanifestedinoursupportforthefollowingprojectsandactivities:

Social ActionsOnanannualbasis,TiranaBanktogetherwithRedCrossembracesanimportantinitiativeforblooddonationamongouremployees,whounderstandtheneed forsuchan importantact.TiranaBankhasproved tonotonlybeaprofit-orientedcompany,butalsooneguidedbyhumanitarianvaluesandbeliefs.Theproof for thisvision is found in thecontinued traditionofTiranaBankemployees’participation in the blood donation campaign 2010, where participation was increased by 23.4%comparedto2009.

During2010TiranaBank expressed its solidaritywith the families in need and its commitment totheAlbaniansocietywith itssupportbydonating20 thousandEuros for the floodaffectedarea inthenorthern regionofShkodra.Also,TiranaBanksponsored thepurchaseof200 foodpackagesdistributedtohouseholdsaffectedbythefloodsinShengjiniandLezhaareas.

Environmental ActionsTiranaBank togetherwithTiranaMunicipalityandother institutionssuccessfullycollaborated in theprojectof“Onecitizen,onetree”andothersimilarprojectsthatprovidenotonlyagreenercityforourcitizens,butalsoahealthieronetolivein.

Cultural ActivitiesTiranaBanksupportsavarietyofculturaleventsheldinpartnershipwithlocalinstitutionsinodertopromotelocaltraditions&values.Someoftheminclude:

•HellenicCultureFoundation•WindBandFestival•ZorbaBallet

Wind Band Festival supported by Tirana Bank

24 25

Financial Statements

TABLEOFCONTENT

GENERALINFORMATIONINDEPENDENTAUDITOR`SREPORTSTATEMENTOFCOMPREHENSIVEINCOMESTATEMENTOFFINANCIALPOSITIONSTATEMENTOFCHANGESINEQUITYSTATEMENTOFCASHFLOWS

CORPORATEINFORMATIONSUMMARYOFSIGNIFICANTACCOUNTINGPOLICIESBASISOFPREPARATIONADOPTIONOFNEWORREVISEDSTANDARDSANDINTERPRETATIONSFOREIGNCURRENCYTRANSLATIONFINANCIALINSTRUMENTS–INITIALRECOGNITIONANDSUBSEQUENTMEASUREMENTREPURCHASEANDREVERSEREPURCHASEAGREEMENTSDETERMINATIONOFFAIRVALUEIMPAIRMENTOFFINANCIALASSETSLEASINGREVENUERECOGNITIONCASHANDCASHEQUIVALENTSPROPERTYANDEQUIPMENTINTANGIBLEASSETSIMPAIRMENTOFNON-FINANCIALASSETSFINANCIALGUARANTEECONTRACTSPENSIONSANDOTHERPOSTEMPLOYMENTBENEFITSPROVISIONSINCOMETAXDIVIDENDSONORDINARYSHARESCOMPARATIVESFINANCIALRISKMANAGEMENTCREDITRISKCREDITRISKMEASUREMENTRISKLIMITCONTROLANDMITIGATIONPOLICIESIMPAIRMENTANDPROVISIONINGPOLICIESMAXIMUMEXPOSURETOCREDITRISKBEFORECOLLATERALHELDOROTHERCREDITENHANCEMENTSLOANSANDADVANCESLOANSANDADVANCESRENEGOTIATEDREPOSSESSEDCOLLATERALCASHANDBALANCESWITHCENTRALBANKDEBTSECURITIES,TREASURYBILLSANDOTHERELIGIBLEBILLSCONCENTRATIONOFRISKSOFFINANCIALASSETSWITHCREDITRISKEXPOSURE

MARKETRISKFOREIGNEXCHANGERISKINTERESTRATERISKLIQUIDITYRISKLIQUIDITYRISKMANAGEMENTPROCESSOFF-BALANCESHEETITEMSFAIRVALUEOFFINANCIALASSETSANDLIABILITIESCAPITALMANAGEMENT CRITICALACCOUNTINGESTIMATESANDJUDGMENTSINTERESTANDSIMILARINCOMEINTERESTANDSIMILAREXPENSENETFEESANDCOMMISSIONINCOMEOTHERGAINSOTHEROPERATINGINCOMEPERSONNELEXPENSESOTHEROPERATINGEXPENSESINCOMETAXEXPENSECASHANDBALANCESWITHCENTRALBANKLOANSANDADVANCESTOBANKSLOANSANDADVANCESTOCUSTOMERSFINANCIALASSETSDESIGNATEDATFAIRVALUETHROUGHPROFITORLOSSFINANCIALASSETSAVAILABLEFORSALEFINANCIALASSETSHELDTOMATURITYINTANGIBLEASSETSPROPERTYANDEQUIPMENTOTHERASSETSDUETOBANKSDUETOCUSTOMERSOTHERLIABILITIESPROVISIONSPAID-INCAPITALANDSHAREPREMIUMOTHERRESERVESDIVIDENDPERSHARECASHANDCASHEQUIVALENTSRELATEDPARTIESPRESENTATIONOFFINANCIALINSTRUMENTSBYMEASUREMENTCATEGORYEVENTSAFTERTHEREPORTINGDATE

122.12.22.32.4

2.52.62.72.82.92.102.112.122.132.142.152.162.172.182.1933.13.1.13.1.23.1.33.1.4

3.1.53.1.63.1.73.1.83.1.93.1.10

3.23.2.13.2.23.33.3.13.3.23.43.54567891011121314151617181920212223242526272829303132

2627282930313232323237

383940404242434344444444454546464848485051

52535757575858

58586063636667686970707171717172727475767778788080818182828383848484858686

26 27

GENERALINFORMATION

Board of Directors during 2010

IliasMilis(Chairman)GeorgiosPapaioannouDimitriosSantixisBedriÇollakuGeorgiosMantakasGeorgiosPoulopoulosVasileiosKoutentakisKonstantinosGeorgiouToulaEfthimiou

Registered office

DËSHMORËTE4SHKURTITSTR.,POBOX2400/1TIRANA,ALBANIA

Auditor

PricewaterhouseCoopersAuditsh.p.kBlvd.DëshmorëteKombitTwinTowers,Tower1,10thfloorTirana,AlbaniaTelephone+35542242254/280423Facsimile+35542241639

INDEPENDENT AUDITOR`S REPORT

TotheShareholdersandtheBoardofDirectorsofTiranaBanksh.a

Report on the Financial Statements

We have audited the accompanying financial statements of Tirana`s Bank sh.a, which comprisethestatementoffinancialpositionasof31December2010andthestatementsofcomprehensiveincome,changesinequityandcashflowsfortheyearendedandasummaryofsignificantaccountingpoliciesandotherexplanatorynotes.

Management`s Responsibility for the Financial StatementsManagement is responsible for thepreparation and fair presentationof these financial statementsin accordance with the International Financial Reporting Standards. This responsibility includes:designing, implementing and maintaining, internal control relevant to the preparation and fairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccountingestimatesthatarereasonableincertaincircumstances.

Auditor`s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. WeconductedourauditinaccordancewithInternationalStandardsonAuditing.ThoseStandardsrequirethatwecomplywithethicalrequirements,planandperformtheaudittoobtainreasonableassurancewhetherthefinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor`sjudgment,includingtheassessmentofthematerialmisstatement’srisksofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity`spreparation and fair presentation of the financial statements in order to design audit proceduresthatareappropriate inthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectiveness of entity`s internal control. An audit also includes evaluating the appropriateness ofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditoptions.

OpinionIn our opinion, the accompanying financial statements present fairly, in all materials respects, thefinancialpositionofTiranaBanksh.a.asof31December2010andofitsfinancialperformanceanditscashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards.

20May2011Tirana,Albania

28 29

STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2010

InterestandsimilarincomeInterestandsimilarexpenseNet interest income ProvisionsforimpairmentofloansandadvancesNet interest income after provision for loan impairment

FeeandcommissionincomeFeeandcommissionexpenseNet fee and commission income OthergainsForeignexchangetranslationgainslesslossesOtheroperatingincomePersonnelexpensesOtheroperatingexpensesDepreciationandamortisation

Profit before income taxIncometaxexpense

Profit for the year

Other comprehensive income:Available-for-saleinvestments:-Gainslesslossesarisingduringtheyear-Incometaxrecordeddirectlyinothercomprehensiveincome

Other comprehensive (loss)/income for the year

Total comprehensive income for the year

Theaccompanyingnotesonpages28to86formanintegralpartofthesefinancialstatements.

ThefinancialstatementswereapprovedbytheBoardofDirectorson19May2011andsignedontheirbehalfby:

Georgios CharalampakisManagingDirector

Aleko PoloManagerFinancialControlDepartment

(5,957)596

(5,361)

1,490,583

20,807(2,081)

18,726

1,807,368

Notes

56

15

77

8

91011

19, 20

12

2010

6,324,543(2,697,018)3,627,525

(406,560)3,220,965

297,242(13,060)284,182

476,495

(311,029)8,178

(590,031)(970,897)(454,095)

1,663,768

(167,824)

1,495,944

2009

5,716,613(2,716,381)3,000,232

(686,941)2,313,291

250,063(10,310)239,753

156,006993,831

12,436(546,165)(834,214)(444,145)

1,890,793

(102,151)

1,788,642

STATEMENT OF FINANCIAL POSITIONas at 31 December 2010

ASSETS

CashandbalanceswiththeCentralBankLoansandadvancestobanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossFinancialassetsavailableforsaleFinancialassetsheldtomaturityIntangibleassetsPropertyandequipmentCorporateincometaxrecoverableOtherassetsTOTAL ASSETSLIABILITIESANDEQUITYDuetobanksDuetocustomersDeferredtaxliabilitiesCorporateincometaxpayableOtherliabilitiesProvisionsOTALLIABILITIESEquityPaid-incapitalSharepremiumOtherreservesRetainedearningsTOTALEQUITY

TOTAL LIABILITIES AND EQUITY





Notes 1314151617181920

21

222312

2425

262627

2010

8,055,8971,255,537

60,404,36613,376,734

35,8365,180,359

334,7611,547,353

-367,692

90,558,535

7,426,73569,586,443

52,3658,565

242,62043,956

77,360,684

7,219,9721,735,7371,183,5653,058,577

13,197,851

90,558,535

2009

6,995,416172,454

57,399,03614,986,551

38,5032,705,304

291,8451,711,743

57,589282,982

84,641,423

16,074,32956,546,248

30,162-

239,46043,956

72,934,155

6,938,1241,735,7371,016,2002,017,207

11,707,268

84,641,423

30 31

STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2010

At 1 January 2009

ProfitfortheyearOthercomprehensiveincomefortheyearTotal comprehensive income for the yearCapitalisationofretainedearningsintopaid-incapitalandsharepremium(Note25)TransferfromretainedearningstootherreservesAt 31 December 2009 At 1 January 2010

ProfitfortheyearOthercomprehensivelossfortheyearTotal comprehensive income for the yearCapitalisationofretainedearningsintopaid-incapitalandsharepremium(Note25)TransferfromretainedearningstootherreservesAt 31 December 2010





6,102,618

-

-

-

835,506

-

6,938,124

6,938,124

-

-

-

281,848

-

7,219,972

Paid-in Capital

1,735,643

-

-

-

94

-

1,735,737

1,735,737

-

-

-

-

-

1,735,737

1,378,183

1,788,642

-

1,788,642

(835,600)

(314,018)

2,017,207

2,017,207

1,495,944

-

1,495,944

(281,848)

(172,726)

3,058,577

683,456

-

18,726

18,726

314,018

1,016,200

1,016,200

1,016,200

-

(5,361)

(5,361)

-

172,726

1,183,565

9,899,900

1,790,771

16,597

1,807,368

-

-

11,707,268

11,707,268

1,495,944

(5,361)

1,490,583

-

-

13,197,851

Share Premium

Retained Earnings

Other Reserves

Total Equity

STATEMENT OF CASH FLOWSfor the year ended 31 December 2010

CASH FLOW FROM OPERATING ACTIVITIES ProfitbeforetaxAdjustmentsfor:DepreciationandamortisationChangesinloanimpairmentNetchangesinfairvalueoffinancialassetsNetinterestincomeOthernon-cashitems

IncreaseincompulsoryreservewiththeCentralBankIncreaseinloansandadvancestocustomersIncreaseinotherassetsDecreaseinduetobanksIncreaseinduetocustomersIncrease/(decrease)inotherliabilitiesInterestreceivedInterestpaidIncometaxpaidNet cash generated from operating activitiesCASH FLOW FROM INVESTING ACTIVITIES Purchaseofproperty&equipmentPurchaseofintangibleassetsProceedsfromsaleofproperty&equipmentProceedsfrommaturingfinancialassetsdesignatedatfairvaluethroughprofitandlossProceedsfromsaleoffinancialassetsdesignatedatfairvaluethroughprofitorlossProceedsfromavailableforsalefinancialassetsProceedsfrommaturedfinancialassetsheld-to-maturityPurchaseoffinancialassetsdesignatedatfairvaluethroughprofitandlossPurchaseoffinancialassetsheld-to-maturityNet cash (used in)/from investing activities Netincrease/(decrease)increaseincashandcashequivalentsCashandcashequivalentsat1JanuaryCash and cash equivalents at 31 December





Notes

19, 2015

5, 69, 16

2019-

16

16

1718

16

18

2929

2010

1,663,768

454,095493,494(72,619)

(3,627,525)26,714

(1,062,073)(1,034,742)(3,565,380)

(112,001)(8,614,838)12,859,164

3,1606,367,594

(2,521,452)(78,870)

2,240,562

(212,155)(150,597)

6,083

15,134,238

456,718

-1,770,000

(13,914,477)

(4,222,000)(1,132,190)

1,108,3721,794,5042,902,876

2009

1,893,159

444,145686,941(72,689)

(3,000,232)(1,880)

(50,556)(358,738)

(3,347,280)(15,122)

(2,290,441)3,780,363

(2,176)5,617,313

(2,825,527)(45,375)462,461

(195,756)(184,671)

29,444

3,284,995

-

8,5939,591,023

(14,916,228)

-(2,382,600)(1,920,139)3,714,6431,794,504

32 33

1 Corporate information

TiranaBanksh.a.isabankinginstitutionoperatinginaccordancewiththeprovisionsofLaw9901,dated14April2008“OnEntrepreneursandCommercialCompanies”,andLaw9662,dated18December2006“OnBanksintheRepublicofAlbania”,aswellasotherrelevantlaws.Accordingtoarticle4ofitsStatute,theobjectoftheBankistoexecute,onitsbehalforonbehalfofthirdparties,anyandeveryoperationacknowledgedordelegatedbylawtobanks.TiranaBanksh.a.isincorporatedanddomiciledinAlbaniaandoperatesinAlbania.TiranaBanksh.a.isan96.71%ownedsubsidiaryofPiraeusBankS.A.

TheBankhas56branchesandagencies(2009:47)withintheRepublicofAlbaniaandhasnooverseasoperations.

Thefinancialstatementsfortheyearended31December2010wereauthorizedforissuebytheBoardofDirectorson19May2011.ApprovalofthefinancialstatementsbytheShareholderswilltakeplaceintheAnnualGeneralMeetingoftheShareholders.

Principal activityTheBank’sprincipalbusinessactivityiscommercialandretailbankingoperationswithintheRepublicofAlbania.TheBankhasoperatedunderafullbankinglicenceissuedbythetheCentralBankoftheRepublicofAlbania(“BankofAlbania”or“BoA”)since1996.

2 Summary of significant accounting policies

Theprincipalaccountingpoliciesapplied in thepreparationof these financialstatementsaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoallyearspresented,unlessotherwisestated.

2.1 Basis of preparation Thefinancialstatementshavebeenpreparedonahistoricalcostbasis,exceptforavailable-for-salefinancialinvestmentsandfinancialassetsdesignatedatfairvaluethroughprofitorlossthathavebeenmeasuredatfairvalue.ThefinancialstatementsarepresentedinAlbanianLekandallvaluesareroundedtothenearestthousand(LEK‘000)exceptwhenotherwiseindicated.

Statement of compliance

ThefinancialstatementsofTiranaBanksh.a.havebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)andinterpretationsissuedbytheInternationalAccountingStandardsBoard(IASB).

Theaccountingpoliciesadoptedareconsistentwiththoseofthepreviousfinancialyear.

2.2 Adoption of new or revised standards and interpretations

a) Thefollowingstandards,amendmentsandinterpretationstoexistingstandardsaremandatoryfortheBank’saccountingperiodsbeginningonorafter1January2010,buttheyarenotrelevanttotheBank’soperations.

IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectivelytobusinesscombinationsforwhichtheacquisitiondateisonorafterthebeginningofthefirstannualreportingperiodbeginningonorafter1July2009.

TherevisedstandardcontinuestoapplytheacquisitionmethodtobusinesscombinationsbutwithsomesignificantchangescomparedtoIFRS3.

Forexample,allpaymentstopurchaseabusinessarerecordedat fairvalueattheacquisitiondate,withcontingentpaymentsclassifiedasdebtsubsequentlyre-measuredthroughthestatementofcomprehensiveincome.Thereisachoiceonanacquisition-by-acquisitionbasistomeasurethenon-controllinginterestintheacquireeeitheratfairvalueor at thenon-controlling interest’s proportionate shareof the acquiree’s net assets.All acquisition-relatedcosts areexpensed.TherevisedstandarddoesnotimpactthefinancialstatementsoftheBankasitisnotinvolvedinanybusinesscombination.

2 Summary of significant accounting policies (continued)

2.2 Adoption of new or revised standards and interpretations (continued)

IAS 27(revised)requirestheeffectsofalltransactionswithnon-controllingintereststoberecordedinequityifthereisnochangeincontrolandthesetransactionswillnolongerresultingoodwillorgainsandlosses.Thestandardalsospecifiestheaccountingwhencontrolislost.Anyremaininginterestintheentityisre-measuredtofairvalue,andanygainorlossisrecognizedinprofitorloss.TherevisedstandarddoesnotimpactthefinancialstatementsoftheBankasitdoesnotprepareconsolidatedfinancialstatements.

IFRIC 17, ‘Distribution of non-cash assets to owners’(effectiveonorafter1July2009).Theinterpretationwaspublished inNovember2008.This interpretationprovidesguidanceonaccounting for arrangementswherebyanentitydistributesnon-cashassetstoshareholderseitherasadistributionofreservesorasdividends.IFRS5hasalsobeenamendedtorequirethatassetsareclassifiedasheldfordistributiononlywhentheyareavailablefordistributionintheirpresentconditionandthedistributionishighlyprobable.TheinterpretationisnotrelevanttotheBankasitdoesnotdistributenon-cashassetstoitsowners.

IFRIC 18, ‘Transfers of assets from customers’,effectivefortransferofassetsreceivedonorafter1July2009.ThisinterpretationclarifiestherequirementsofIFRSsforagreementsinwhichanentityreceivesfromacustomeranitemofproperty,plantandequipmentthattheentitymustthenuseeithertoconnectthecustomertoanetworkortoprovidethecustomerwithongoingaccesstoasupplyofgoodsorservices(suchasasupplyofelectricity,gasorwater).

Insomecases,theentityreceivescashfromacustomerthatmustbeusedonlytoacquireorconstructtheitemofproperty,plant,andequipmentinordertoconnectthecustomertoanetworkorprovidethecustomerwithongoingaccesstoasupplyofgoodsorservices(ortodoboth).TheinterpretationisnotrelevanttothefinancialstatementsoftheBankasithasnotbeentransferredassetsfromcustomers.

Eligible Hedged Items—Amendment to IAS 39,FinancialInstruments:RecognitionandMeasurement(effectivewithretrospectiveapplicationforannualperiodsbeginningonorafter1July2009).Theamendmentclarifieshowtheprinciplesthatdeterminewhetherahedgedriskorportionofcashflowseligiblefordesignationshouldbeappliedinparticularsituations.Theamendmentdidnothaveamaterialimpactonthesefinancialstatements.

Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS(effectiveforannualperiodsbeginningonorafter1January2010).Theamendmentsexemptentitiesusingthefullcostmethod from retrospectiveapplicationof IFRSs foroilandgasassetsandalsoexemptentitieswithexistingleasingcontracts from reassessing theclassificationof thosecontracts inaccordancewith IFRIC4, ‘DeterminingWhetheranArrangementContainsaLease’whentheapplicationoftheirnationalaccountingrequirementsproducedthesameresult.Theamendmentsdidnothaveamaterialimpactonthesefinancialstatements.

Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 areeffective forannualperiodsbeginningonorafter1January2010).Theimprovementsconsistofamixtureofsubstantivechangesandclarificationsinthefollowingstandardsandinterpretations:clarificationthatcontributionsofbusinessesincommoncontroltransactionsandformationof jointventuresarenotwithinthescopeof IFRS2;clarificationofdisclosurerequirementssetbyIFRS5andotherstandardsfornon-currentassets(ordisposalgroups)classifiedasheldforsaleordiscontinuedoperations; requiring to report ameasureof total assets and liabilities for each reportablesegmentunderIFRS8onlyifsuchamountsareregularlyprovidedtothechiefoperatingdecisionmaker;amendingIAS1toallowclassificationofcertainliabilitiessettledbyentity’sownequityinstrumentsasnon-current;changingIAS7suchthatonlyexpendituresthatresultinarecognisedassetareeligibleforclassificationasinvestingactivities;allowingclassificationof certain long-term land leasesas finance leasesunder IAS17evenwithout transferofownershipofthelandattheendofthelease;providingadditionalguidanceinIAS18fordeterminingwhetheranentityactsasaprincipalorasanagent;clarificationinIAS36thatacashgeneratingunitshallnotbelargerthananoperatingsegmentbeforeaggregation;supplementingIAS38regardingmeasurementoffairvalueofintangibleassetsacquiredinabusinesscombination.

34 35



amendingIAS39(i)toincludeinitsscopeoptioncontractsthatcouldresultinbusinesscombinations,(ii)toclarifytheperiodofreclassifyinggainsorlossesoncashflowhedginginstrumentsfromequitytoprofitorlossfortheyearand(iii)tostatethataprepaymentoptioniscloselyrelatedtothehostcontract ifuponexercisetheborrowerreimburseseconomiclossofthelender;amendingIFRIC9tostatethatembeddedderivatives,incontractsacquiredincommoncontroltransactionsandformationofjointventuresarenotwithinitsscope;andremovingtherestrictioninIFRIC16thathedginginstrumentsmaynotbeheldbytheforeignoperationthatitselfisbeinghedged.

Inaddition,theamendmentsclarifyingclassificationasheldforsaleunder IFRS5incaseofa lossofcontroloverasubsidiarypublishedaspartof theAnnual Improvements to InternationalFinancialReportingStandards,whichwereissuedinMay2008,areeffectiveforannualperiodsbeginningonorafter1July2009.Theamendmentsdidnothaveamaterialimpactonthesefinancialstatements.

IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’,effective1July2009.

ThisamendmenttoIFRIC9requiresanentitytoassesswhetheranembeddedderivativeshouldbeseparatedfromahostcontractwhentheentityreclassifiesahybridfinancialassetoutofthe‘fairvaluethroughprofitorloss’category.Thisassessmentistobemadebasedoncircumstancesthatexistedonthelaterofthedatetheentityfirstbecameapartytothecontractandthedateofanycontractamendmentsthatsignificantlychangethecashflowsofthecontract.Iftheentityisunabletomakethisassessment,thehybridinstrumentmustremainclassifiedasatfairvaluethroughprofitorlossinitsentirety.

IFRIC 16, ‘Hedges of a net investment in a foreign operation’effective1July2009.Thisamendmentstatesthat,inahedgeofanetinvestmentinaforeignoperation,qualifyinghedginginstrumentsmaybeheldbyanyentityorentitieswithin thegroup, including the foreignoperation itself,as longas thedesignation,documentationandeffectivenessrequirementsofIAS39thatrelatetoanetinvestmenthedgearesatisfied.

Inparticular,theBankshouldclearlydocumentitshedgingstrategybecauseofthepossibilityofdifferentdesignationsatdifferentlevelsofthegroup.TheinterpretationisnotrelevanttothefinancialstatementsoftheBankasitdoesnothaveinvestmentsinforeignoperations.

IAS 38 (amendment), ‘Intangible assets’,effective1January2010.Theamendmentclarifiesguidanceinmeasuringthefairvalueofanintangibleassetacquiredinabusinesscombinationandpermitsthegroupingofintangibleassetsasasingleassetifeachassethassimilarusefuleconomiclife.TheamendmentisnotrelevanttothefinancialstatementsoftheBankasithasnotbeeninvolvedinanybusinesscombinations.

IAS 1 (amendment), ‘Presentation of financial statements’.Theamendmentclarifiesthatthepotentialsettlementofaliabilitybytheissueofequityisnotrelevanttoitsclassificationascurrentornon-current.Byamendingthedefinitionof current liability, the amendment permits a liability to be classified as non-current (provided that the entity has anunconditionalrighttodefersettlementbytransferofcashorotherassetsforatleast12monthsaftertheaccountingperiod)notwithstandingthefactthattheentitycouldberequiredbythecounterpartytosettleinsharesatanytime.TheamendmentisnotrelevanttotheBankasitisnotsettlinganyliabilitiesthroughissueofshares.

IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010.Theamendmentclarifiesthatthelargestcash-generatingunit(orgroupofunits)towhichgoodwillshouldbeallocatedforthepurposesofimpairmenttestingisanoperatingsegment,asdefinedbyparagraph5ofIFRS8,‘Operatingsegments’(thatis,beforetheaggregationofsegmentswithsimilareconomiccharacteristics).TheamendmentisnotrelevanttothefinancialstatementsoftheBankasitdoesnothaveanyoperatingsegments.

IFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’,effectiveform1January2010.InadditiontoincorporatingIFRIC8,‘ScopeofIFRS2’,andIFRIC11,‘IFRS2-Groupandtreasurysharetransactions’,theamendmentsexpandontheguidanceinIFRIC11toaddresstheclassificationofgrouparrangementsthatwerenotcoveredbythatinterpretation.

TheamendmenttothestandardisnotrelevanttotheBank’sfinancialstatementsasitisnotinvolvedinsucharrangements.



IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendmentclarifiesthatIFRS5specifiesthedisclosuresrequiredinrespectofnon-currentassets(ordisposalgroups)classifiedasheldforsaleordiscontinuedoperations.ItalsoclarifiesthatthegeneralrequirementofIAS1stillapply,inparticularparagraph15(toachievea fairpresentation)andparagraph125(sourcesofestimationuncertainty)of IAS1.Theamendment isnotrelevanttotheBank’sfinancialstatementsasitdoesnothavenon-currentassetsqualifyingforclassificationasheldforsaleordiscontinuedoperations.

b) Standards,amendmentsandinterpretationstoexistingstandardsthatarenotyeteffectiveandhavenotbeenearlyadoptedbytheBank

The following standards, amendments and interpretations to existing standards are mandatory for the Bank’saccountingperiodsbeginningonoraftertheeffectivedate,buttheBankhasnotearlyadoptedthem:

IFRS 9, ‘Financial instruments’,issuedinNovember2009.ThisstandardisthefirststepintheprocesstoreplaceIAS39,‘Financialinstruments:recognitionandmeasurement’.

IFRS9introducesnewrequirementsforclassifyingandmeasuringfinancialassetsanditislikelytoaffecttheBank’saccounting for its financialassets.Thestandard isnotapplicableuntil1January2013,but it isavailable forearlyadoption.

TheBankisyettoassessIFRS9’sfullimpact.However,initialindicationsarethatitmayaffecttheBank’saccountingforitsdebtavailable-for-salefinancialassets,asIFRS9onlypermitstherecognitionoffairvaluegainsandlossesinothercomprehensiveincome,iftheyrelatetoequityinvestmentsthatarenotheldfortrading.Fairvaluegainsandlossesonavailable-for-saledebtinvestments,forexample,willthereforehavetoberecognizeddirectlyinprofitorloss.

Revised IAS 24 (revised), ‘Related party disclosures’,issuedinNovember2009.ItsupersedesIAS24,‘Relatedpartydisclosures’,issuedin2003.IAS24(revised)ismandatoryforperiodsbeginningonorafter1January2011.Earlierapplication,inwholeorinpart,ispermitted.

The revised standard clarifies and simplifies the definition of a related party and removes the requirement forgovernment-relatedentitiestodisclosedetailsofalltransactionswiththegovernmentandothergovernment-relatedentities.TheBankwillnotbeimpactedbytherevisedstandard.

IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’,effective1July2010.Theinterpretationclarifiestheaccountingbyanentitywhenthetermsofafinancialliabilityarerenegotiatedandresultintheentityissuingequityinstrumentstoacreditoroftheentitytoextinguishallorpartofthefinancialliability(debtforequityswap).Itrequiresagainorlosstoberecognizedinprofitorloss,whichismeasuredasthedifferencebetweenthecarryingamountofthefinancialliabilityandthefairvalueoftheequityinstrumentsissued.Ifthefairvalueoftheequityinstrumentsissuedcannotbereliablymeasured,theequityinstrumentsshouldbemeasuredtoreflectthefairvalueofthefinancialliabilityextinguished.TheBankwillapplytheinterpretationfrom1January2011.ItisnotexpectedtohaveanyimpactontheBankfinancialstatements.

‘Prepayments of a minimum funding requirement’ (amendments to IFRIC 14). The amendments correct anunintendedconsequenceofIFRIC14,‘IAS19-Thelimitonadefinedbenefitasset,minimumfundingrequirementsandtheirinteraction’.Withouttheamendments,entitiesarenotpermittedtorecognizeasanassetsomevoluntaryprepaymentsforminimumfundingcontributions.ThiswasnotintendedwhenIFRIC14wasissuedandtheamendmentscorrect this.Theamendmentsareeffective forannualperiodsbeginning in1January2011.Earlierapplication ispermitted.Theamendmentsshouldbeappliedretrospectivelytotheearliestcomparativeperiodpresented.Thesefinancialstatementsarenotimpactedbythisamendment.

Classification of Rights Issues - Amendment to IAS 32 (issuedon8October2009;effectiveforannualperiodsbeginningonorafter1February2010).The amendment exempts certain rights issues of shares with proceeds denominated in foreign currencies fromclassificationasfinancialderivatives.TheBankdoesnotexpecttheamendmentstohaveanymaterialeffectonitsfinancialstatements.

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Limited exemption from comparative IFRS 7 disclosures for first-time adopters - Amendment to IFRS 1(effective for annual periodsbeginningonor after 1 July 2010). Existing IFRSpreparerswere granted relief frompresentingcomparative information for thenewdisclosures requiredby theMarch2009amendments to IFRS7,FinancialInstruments:Disclosures.ThisamendmenttoIFRS1providesfirst-timeadopterswiththesametransitionprovisionsasincludedintheamendmenttoIFRS7.TheBankdoesnotexpecttheamendmentstohaveanyeffectonitsfinancialstatements.

Disclosures—Transfers of Financial Assets – Amendments to IFRS 7(issuedinOctober2010andeffectiveforannualperiodsbeginningonorafter1July2011.).Theamendmentrequiresadditionaldisclosuresinrespecttoriskexposures arising from transferred financial assets. The amendment includes a requirement to discloseby classofasset thenature,carrying theamountandadescriptionof the risksand rewardsof financial assets thathavebeentransferredtoanotherpartyyetremainontheentity’sbalancesheet.Disclosuresarealsorequiredtoenableausertounderstandtheamountofanyassociatedliabilities,andtherelationshipbetweenthefinancialassetsandassociatedliabilities.Wherefinancialassetshavebeenderecognisedbuttheentityisstillexposedtocertainrisksandrewardsassociatedwiththetransferredasset,additionaldisclosureisrequiredtoenabletheeffectsofthoseriskstobeunderstood.TheBankiscurrentlyassessingtheimpactoftheamendedstandardondisclosuresinitsfinancialstatements.TheamendmentisnotexpectedtohaveanyimpactontheBank’sfinancialstatements.

Improvements to International Financial Reporting Standards (issued in May 2010 and effective from 1 January 2011).The improvementsconsistofamixtureofsubstantivechangesandclarifications in the followingstandardsandinterpretations:IFRS1wasamended(i)toallowpreviousGAAPcarryingvaluetobeusedasdeemedcostofanitemofproperty,plantandequipmentoranintangibleassetifthatitemwasusedinoperationssubjecttorateregulation,(ii)toallowaneventdrivenrevaluationtobeusedasdeemedcostofproperty,plantandequipmenteveniftherevaluationoccursduringaperiodcoveredbythefirstIFRSfinancialstatementsand(iii)torequireafirst-timeadoptertoexplainchangesinaccountingpoliciesorintheIFRS1exemptionsbetweenitsfirstIFRSinterimreportanditsfirstIFRSfinancialstatements;IFRS3wasamended(i)torequiremeasurementatfairvalue(unlessanothermeasurementbasisisrequiredbyotherIFRSstandards)ofnon-controllingintereststhatarenotpresentownershipinterestordonotentitle theholder toaproportionateshareofnetassets in theeventof liquidation, (ii) toprovideguidanceonacquire’sshare-basedpaymentarrangementsthatwerenotreplacedorwerevoluntarilyreplacedasaresultofabusinesscombinationand(iii)toclarifythatthecontingentconsiderationsfrombusinesscombinationsthatoccurredbeforetheeffectivedateofrevisedIFRS3(issuedinJanuary2008)willbeaccountedforinaccordancewiththeguidanceinthepreviousversionofIFRS3;

IFRS7wasamendedtoclarifycertaindisclosure requirements, inparticular (i)byaddinganexplicitemphasisontheinteractionbetweenqualitativeandquantitativedisclosuresaboutthenatureandextentoffinancialrisks,(ii)byremovingtherequirementtodisclosecarryingamountofrenegotiatedfinancialassetsthatwouldotherwisebepastdueorimpaired,(iii)byreplacingtherequirementtodisclosefairvalueofcollateralbyamoregeneralrequirementtodiscloseitsfinancialeffect,and(iv)byclarifyingthatanentityshoulddisclosetheamountofforeclosedcollateralheldat thereportingdateandnot theamountobtainedduringthereportingperiod; IAS27wasamendedbyclarifyingthe transition rules for amendments to IAS21,28and31madeby the revised IAS27 (asamended in January2008);IAS34wasamendedtoaddadditionalexamplesofsignificanteventsandtransactionsrequiringdisclosurein a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes inclassificationof financialassetsorchanges inbusinessoreconomicenvironment thataffect the fairvaluesof theentity’sfinancialinstruments;andIFRIC13wasamendedtoclarifymeasurementoffairvalueofawardcredits.TheBankdoesnotexpecttheamendmentstohaveanymaterialeffectonitsfinancialstatements.

IFRS 10, Consolidated financial statements (issuedinMay2011andeffectiveforannualperiodsbeginningonorafter1January2013),replacealloftheguidanceoncontrolandconsolidationinIAS27“Consolidatedandseparatefinancialstatements”andSIC-12“Consolidation-specialpurposeentities”.IFRS10changesthedefinitionofcontrolso that the samecriteria are applied to all entities todeterminecontrol. Thisdefinition is supportedbyextensiveapplicationguidance.



IFRS 11, Joint arrangements, (issued in May 2011 and effective for annual periods beginning on or after1 January 2013), replace IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities—Non-MonetaryContributionsbyVentures”.Changes in thedefinitionshave reduced thenumberof “types”of jointarrangementstotwo:jointoperationsandjointventures.Theexistingpolicychoiceofproportionateconsolidationforjointlycontrolledentitieshasbeeneliminated.Equityaccountingismandatoryforparticipantsinjointventures.

IFRS 12, Disclosure of interest in other entities, (issued in May 2011 and effective for annual periodsbeginningonorafter1January2013),appliestoentitiesthathaveaninterestinasubsidiary,ajointarrangement,an associate or an unconsolidated structured entity; it replaces the disclosure requirements currently foundin IAS 28 “Investments in associates”. IFRS 12 requires entities to disclose information that helps financialstatement readers to evaluate the nature, risks and financial effects associated with the entity’s interests insubsidiaries,associates, jointarrangementsandunconsolidatedstructuredentities.Tomeettheseobjectives,thenewstandardrequiresdisclosuresinanumberofareas,includingsignificantjudgementsandassumptionsmade indeterminingwhetheranentitycontrols, jointlycontrolsorsignificantly influences its interests inotherentities,extendeddisclosuresonshareofnon-controllinginterestsingroupactivitiesandcashflows,summarisedfinancialinformationofsubsidiarieswithmaterialnon-controllinginterestsanddetaileddisclosuresofinterestsinunconsolidatedstructuredentities.

IFRS 13, Fair value measurement,(issuedinMay2011andeffectiveforannualperiodsbeginningonorafter1January2013),aimsto improveconsistencyandreducecomplexitybyprovidingaprecisedefinitionof fairvalue,andasinglesourceoffairvaluemeasurementanddisclosurerequirementsforuseacrossIFRSs.

TheBankdoesnotexpectthenewIFRSs(10to13)tohaveanyeffectonitsfinancialstatements.

Unlessotherwisedescribedabove,thenewstandardsandinterpretationsarenotexpectedtosignificantlyaffecttheBank’sfinancialstatements.

Theprincipalaccountingpoliciesappliedtothepreparationofthesefinancialstatementsaresetoutbelow.

2.3 Foreign currency translation

ThefinancialstatementsarepresentedinAlbanianLek,whichistheBank’sfunctionalandpresentationcurrency.

Transactions and balances

Transactionsinforeigncurrenciesareinitiallyrecordedinthefunctionalcurrencyattherateofexchangerulingatthedateofthetransaction.

Monetaryassetsand liabilitiesdenominated in foreigncurrenciesareretranslated intofunctionalcurrencyrateof exchange ruling at the reporting date. All differences are taken to “Foreign exchange translation (losses)/gains” inprofitor loss.Non-monetaryitemsthataremeasuredintermsofhistoricalcost inaforeigncurrencyaretranslatedusingtheexchangeratesasatthedatesoftheinitialtransactions.Non-monetaryitemsmeasuredat fairvalue inaforeigncurrencyaretranslatedusingtheexchangeratesat thedatewhenthefairvaluewasdetermined.

Theapplicableratesofexchange(Lektoforeigncurrencyunit)fortheprincipalcurrenciesasat31December2010and2009wereasfollows:

USDEUR

2010104.00138.77

200995.81137.96

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2.4 Financial instruments – initial recognition and subsequent measurement

a) Date of recognition

Purchasesorsalesoffinancialassetsthatrequiredeliveryofassetswithinthetimeframegenerallyestablishedbyregulationorconventioninthemarketplacearerecognisedonthetradedate,i.e.thedatethattheBankcommitstopurchaseorselltheasset.

b) Initial recognition of financial instruments

Theclassificationoffinancialinstrumentsatinitialrecognitiondependsonthepurposeforwhichthefinancialinstrumentswereacquiredandtheircharacteristics.Allfinancialinstrumentsaremeasuredinitiallyattheirfairvalueplus,incaseoffinancialassetsandliabilitiesnotatfairvaluethroughprofitandloss,transactioncosts.Fairvalueatinitialrecognitionisbestevidencedbythetransactionprice.Againorlossoninitialrecognitionisonlyrecordedifthereisadifferencebetweenfairvalueandtransactionpricewhichcanbeevidencedbyotherobservablecurrentmarkettransactionsinthesameinstrumentorbyavaluationtechniquewhoseinputsincludeonlydatafromobservablemarkets.

TheBankclassifiesitsfinancialassetsinthefollowingcategories:held-to-maturityfinancialinvestments,loansandreceivablesandfinancialassetsdesignatedatfairvaluethroughprofitorloss.TheBankdidnotclassifyanyfinancialassetsasavailable-for-saleduringreportingperiod.

c) Financial assets held to maturity

FinancialassetsheldtomaturityarethoseinvestmentswhichcarryfixedordeterminablepaymentsandhavefixedmaturitiesandwhichtheBankhastheintentionandabilitytoholdtomaturity.IftheBankweretosellotherthananinsignificantamountofheldtomaturityinvestments,theentirecategorywouldbereclassifiedtoavailableforsale.Financial assetsheld tomaturityaresubsequentlymeasuredatamortisedcostusing theeffective interest ratemethod,lessallowanceforimpairment.Amortisedcostiscalculatedbytakingintoaccountanydiscountorpremiumonacquisitionandfeesthatareanintegralpartoftheeffectiveinterestrate.Theamortisationisincludedin“Interestandsimilarincome”inprofitorloss.Thelossesarisingfromimpairmentofsuchinvestmentsarerecognisedinprofitorlossas“Impairmentlossesonfinancialinvestments”,ifany.

d) Loans and receivables

Loansand receivables include “Due frombanks”and “Loansandadvances tocustomers”,whichare financialassetswithfixedordeterminablepaymentsandfixedmaturitiesthatarenotquotedinanactivemarket.Theyarenotenteredintowiththeintentionofimmediateorshort-termresaleandarenotclassifiedas“Financialassetsheldfortrading”,designatedas“Financialinvestmentavailable-for-sale’or“Financialassetsdesignatedatfairvaluethroughprofit or loss”. After initial measurement, amounts due from banks and loans and advances to customers aresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestratemethod,lessallowanceforimpairment.

Amortisedcost iscalculatedbytakingintoaccountanydiscountorpremiumonacquisitionandfeesandcoststhatareanintegralpartoftheeffectiveinterestrate.Theamortisationisincludedin“Interestandsimilarincome”inprofitorloss.Thelossesarisingfromimpairmentarerecognisedinprofitorlossin“Impairmentlossesonloansandadvances’.

e) Financial assets designated at fair value through profit or loss

ThiscategoryincludestreasurybillsissuedbytheAlbanianGovernment.

Financialassetsdesignatedat fairvaluethroughprofitor lossare financialassetswhicharemanagedandtheirperformanceisevaluatedonafairvaluebasis,inaccordancewiththeBank’sriskmanagementstrategy.Financialassetsdesignatedatfairvaluethroughprofitorlossarecarriedatfairvalue.Interestearnedonfinancialassets


2.4 Financial instruments – initial recognition and subsequent measurement (continued)

designatedatfairvaluethroughprofitorlosscalculatedusingtheeffectiveinterestmethodispresentedinthestatementofcomprehensiveincomeasinterestincome.AllotherelementsofthechangesinthefairvalueandgainsorlossesonderecognisingarerecordedinprofitorlossasOthergainstheperiodinwhichtheyarise.

f) Available for sale financial assets

ThisclassificationincludesinvestmentsecuritieswhichtheBankintendstoholdforanindefiniteperiodoftimeandwhichmaybesoldinresponsetoneedsforliquidityorchangesininterestrates,exchangeratesorequityprices.Investmentsecuritiesavailableforsalearecarriedatfairvalue.Interestincomeonavailable-for-saledebtsecuritiesiscalculatedusingtheeffectiveinterestmethodandrecognisedinprofitorlossfortheyear.Dividendsonavailable-for-saleequityinstrumentsarerecognisedinprofitorlossfortheyearwhentheBank’srighttoreceivepaymentisestablishedand it isprobable that thedividendswillbecollected.Allotherelementsofchanges in the fair valuearerecognisedinothercomprehensiveincomeuntiltheinvestmentisderecognisedorimpaired,atwhichtimethecumulativegainorlossisreclassifiedfromothercomprehensiveincometoprofitorlossfortheyear.

Impairmentlossesarerecognisedinprofitorlossfortheyearwhenincurredasaresultofoneormoreevents(“lossevents”)thatoccurredaftertheinitialrecognitionofinvestmentsecuritiesavailableforsale.Asignificantorprolongeddeclineinthefairvalueofanequitysecuritybelowitscostisanindicatorthatitisimpaired.Thecumulativeimpairmentloss–measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatassetpreviouslyrecognisedinprofitorloss–isreclassifiedfromothercomprehensiveincometoprofitorlossfortheyear.Impairmentlossesonequityinstrumentsarenotreversedandanysubsequentgainsarerecognisedinothercomprehensiveincome.If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailableforsaleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,theimpairmentlossisreversedthroughprofitorlossfortheyear.

g) Financial liabilities

After initialmeasurement,debt issuedandotherborrowingsaresubsequentlymeasuredat amortizedcostusingtheeffective interest ratemethod.There isno financial liabilitymeasuredat fairvalue throughprofitand loss.Anydifferencesbetweenproceedsnetof transactionscosts and the redemption value is recognised in “Interest andsimilarexpenses”inprofitorloss.Amortizedcostiscalculatedbytakingintoaccountanydiscountorpremiumontheissueandcoststhatareanintegralpartoftheeffectiveinterestrate.

h) Offsetting financial instruments

Financialassetsandliabilitiesareoffsetandthenetamountreportedinthestatementoffinancialpositionwhenthereisalegallyenforceablerighttooffsettherecognizedamountsandthereisanintentiontosettleonanetbasis,orrealizetheassetandsettletheliabilitysimultaneously.

i) Derecognition

Financial assetsarederecognisedwhen thecontractual rights to receive thecash flows from theseassetshaveceasedtoexistortheassetshavebeentransferredandsubstantiallyalltherisksandrewardsofownershipoftheassets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Banktestscontroltoensurethatcontinuinginvolvementonthebasisofanyretainedpowersofcontroldoesnotpreventderecognition).Financialliabilitiesarederecognisedwhentheyhavebeenredeemedorotherwiseextinguished.

2.5 Repurchase and reverse repurchase agreements

Securitiessoldunderagreementstorepurchaseataspecifiedfuturedate(“repos”)arenotderecognisedfromthebalancesheet.Thecorrespondingcashreceived,includingaccruedinterest,isrecognisedinthestatementoffinancialpositionasa“DuetoBanks”,reflectingitseconomicsubstanceasaloantotheBank.Thedifferencebetweenthesaleandrepurchasepricesistreatedasinterestexpenseandisaccruedoverthelifeoftheagreementusingtheeffectiveinterestratemethod.Conversely,securitiespurchasedunderagreementstoresellataspecifiedfuturedate

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2.5 Repurchase and reverse repurchase agreements (continued)

(‘reverserepos’)arerecordedasduefromotherbanksor loansandadvancestocustomers,asappropriate.Thecorrespondingcashpaid,includingaccruedinterest,isrecognisedinthestatementoffinancialpositionas“DuefromBanks”.Thedifferencebetweenthepurchaseandresalepricesistreatedasinterestincomeandisaccruedoverthelifeoftheagreementusingtheeffectiveinterestratemethod.

2.6 Determination of fair value

Forfinancialinstrumentsthataretradedinactivemarkets,thedeterminationoffairvaluesoffinancialassetsandfinancialliabilitiesisbasedonquotedmarketpricesordealerpricequotations.

Afinancialinstrumentisregardedasquotedinanactivemarketifquotedpricesarereadilyandregularlyavailablefromanexchange,dealer,broker,industrygroup,pricingserviceorregulatoryagency,andthosepricesrepresentactualandregularlyoccurringmarkettransactionsonanarm’slengthbasis.Iftheabovecriteriaarenotmet,themarketisregardedasbeinginactive.Indicatorsthatamarketisinactivearewhenthereisawidebid-offerspreadorsignificantincreaseinthebid-offerspreadortherearefewrecenttransactions.

Forallotherfinancialinstrumentsnotlistedinanactivemarket,thefairvalueisdeterminedbyusingappropriatevaluation techniques. Valuation techniques include net present value techniques, comparison to similarinstrumentsforwhichmarketobservablepricesexistandotherrelevantvaluationmodels.

2.7 Impairment of financial assets

TheBankassessesateachreportingdatewhether there isanyobjectiveevidencethata financialassetoragroupoffinancialassetsisimpaired.

Afinancialassetoragroupoffinancialassetsisdeemedtobeimpairedif,andonlyif,thereisobjectiveevidenceof impairmentasaresultofoneormoreeventsthathasoccurredafter the initial recognitionof theasset (anincurred ‘lossevent’)andthat lossevent (orevents)hasan impactontheestimated futurecash flowsof thefinancialassetorthegroupoffinancialassetsthatcanbereliablyestimated.Evidenceofimpairmentmayincludeindications that the borrower or a group of borrowers is experiencing significant financial difficulty, default ordelinquency in interestorprincipalpayments, theprobability that theywill enterbankruptcyorother financialreorganisationandwhereobservabledataindicatethatthereisameasurabledecreaseintheestimatedfuturecashflows,suchaschangesinarrearsoreconomicconditionsthatcorrelatewithdefaults.

a) Due from banks and loans and advances to customers

Foramountsdue frombanksand loansandadvances tocustomerscarriedatamortisedcost, theBank firstassesseswhetherobjectiveevidenceof impairmentexists for financial assets thatare individually significant,orcollectively for financialassets thatarenot individuallysignificant. If theBankdetermines thatnoobjectiveevidenceofimpairmentexistsforanindividuallyassessedfinancialasset,whethersignificantornot,itincludestheasset inagroupof financial assetswith similar credit riskcharacteristicsandcollectively assesses themfor impairment. Assets that are individually assessed for impairment and for which an impairment loss is, orcontinuestoberecognisedarenotincludedinacollectiveassessmentofimpairment.

If there isobjectiveevidence thatan impairment losshasbeen incurred, theamountof the loss ismeasuredas thedifferencebetween theassets’carryingamountand thepresent valueofestimated futurecash flows(excludingfutureexpectedcreditlossesthathavenotyetbeenincurred).Thecarryingamountoftheassetisreduced through theuseofanallowanceaccountand theamountof the loss is recognised inprofitor loss.Loanstogetherwiththeassociatedallowancearewrittenoffwhenthereisnorealisticprospectoffuturerecoveryandallcollateralhasbeenrealisedorhasbeentransferredto theBank. If, inasubsequentyear, theamountof theestimated impairment loss increasesordecreasesbecauseofaneventoccurringafter the impairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisincreasedorreducedbyadjustingtheallowanceaccount.Ifafuturewrite-offislaterrecovered,therecoveryiscreditedtothe“Provisionsforimpairmentofloansandadvances”.


2.7 Impairment of financial assets (continued)

Thepresentvalueoftheestimatedfuturecashflowsisdiscountedatthefinancialasset’soriginaleffectiveinterestrate.Ifaloanhasavariableinterestrate,thediscountrateformeasuringanyimpairmentlossisthecurrenteffectiveinterestrate.Thecalculationofthepresentvalueoftheestimatedfuturecashflowsofacollateralisedfinancialassetreflectsthecashflowsthatmayresultfromforeclosurelesscostsforobtainingandsellingthecollateral,whetherornotforeclosureisprobable.

For thepurposeofacollectiveevaluationof impairment, financialassetsaregroupedon thebasisof theBank’sinternalcreditgradingsystemthatconsiderscreditriskcharacteristicssuchasassettype,industry,collateraltype,past-duestatusandotherrelevantfactors.

Futurecashflowsonagroupoffinancialassetsthatarecollectivelyevaluatedforimpairmentareestimatedonthebasisofhistoricallossexperienceforassetswithcreditriskcharacteristicssimilartothoseinthegroup.Historicallossexperienceisadjustedonthebasisofcurrentobservabledatatoreflecttheeffectsofcurrentconditionsthatdidnotaffecttheyearsonwhichthehistoricallossexperienceisbasedandtoremovetheeffectsofconditionsinthehistoricalperiodthatdonotexistcurrently.Estimatesofchangesinfuturecashflowsreflect,andaredirectionallyconsistentwith, changes in related observable data from year to year (such as changes in unemployment rates, propertyprices,paymentstatus,orotherfactorsthatareindicativeofincurredlossesinthegroupandtheirmagnitude).Themethodologyandassumptionsusedforestimatingfuturecashflowsarereviewedregularlytoreduceanydifferencesbetweenlossestimatesandactuallossexperience.

b) Financial assets held to maturity

Forheld-to-maturityinvestmentstheBankassessesindividuallywhetherthereisobjectiveevidenceofimpairment.Ifthereisobjectiveevidencethatanimpairmentlosshasbeenincurred,theamountofthelossismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows.Thecarryingamountoftheassetisreducedandtheamountofthelossisrecognisedinprofitorloss.

If,inasubsequentyear,theamountoftheestimatedimpairmentlossdecreasesbecauseofaneventoccurringaftertheimpairmentwasrecognised,anyamountsformerlychargedarecreditedtothe“Impairment lossesonfinancialinvestments”.

c) Assets classified as available for sale

TheBankassessesateachreportingdatewhetherthereisobjectiveevidencethatafinancialassetoragroupoffinancialassetsisimpaired.Inthecaseofdebtinvestmentsclassifiedasavailableforsale,asignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscostisconsideredindeterminingwhethertheassetsareimpaired.Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativeloss–measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue, lessany impairment lossonthatfinancialassetpreviouslyrecognisedinprofitorloss–isremovedfromothercomprehensiveincomeandrecognisedinprofitorloss.If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailableforsaleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,theimpairmentlossisreversedthroughprofitorloss.d) Renegotiated loans

Wherepossible,theBankseekstorestructureloansratherthantotakepossessionofcollateral.Thismayinvolveextending the payment arrangements and the agreement of new loan conditions. Once the terms have beenrenegotiated, the loan isno longerconsideredpastdue.Managementcontinuously reviewsrenegotiated loanstoensurethatallcriteriaaremetandthatfuturepaymentsarelikelytooccur.Theloanscontinuetobesubjecttoanindividualorcollectiveimpairmentassessment,calculatedusingtheloan’soriginaleffectiveinterestrate.

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2.8 Leasing

Thedeterminationofwhetheranarrangementis,orcontainsaleaseisbasedonthesubstanceofthearrangementandrequiresanassessmentofwhetherthefulfilmentofthearrangementisdependentontheuseofaspecificassetorassetsandthearrangementconveysarighttousetheasset.

(i) Bank as a Lessee

Financeleases,whichtransfertotheBanksubstantiallyalltherisksandbenefitsincidentaltoownershipoftheleaseditem,arecapitalisedatcommencementoftheleasetermatthefairvalueoftheleasedpropertyor,if lower,atthepresent valueof theminimum leasepaymentsand included in “Propertyandequipment”with thecorrespondingliability to the lessor included in “Other liabilities”. Leasepayments are apportionedbetween the financechargesand reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of theliability.Financechargesarechargeddirectlyagainstincomein“Interestandsimilarexpense”.TheBankdidnothavesignificantfinancialleaseagreementsduringthereportingperiod.

Capitalisedleasedassetsaredepreciatedovertheshorteroftheestimatedusefullifeoftheassetandtheleaseterm,ifthereisnoreasonablecertaintythattheBankwillobtainownershipbytheendoftheleaseterm.

Anyoperatingleaserentalspayableareaccountedforonastraight-linebasisovertheleasetermandincludedin“Otheroperatingexpenses”.Whenanoperatingleaseisterminatedbeforetheleaseperiodhasexpired,anypaymentrequiredtobemadetothelessorbywayofpenaltyisrecognizedasanexpenseintheperiodinwhichterminationtakesplace.

(ii) Bank as a LessorWhere theBank isa lessor ina leasewhichdoesnot transfersubstantiallyall the risksandrewards incidental toownershipfromtheBanktotheleasee,thetotalleasepaymentsarerecognisedinprofitorlossfortheyear(rentalincome–note2.9)onastraight-linebasisovertheperiodofthelease.

2.9 Revenue recognition

RevenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheBankandtherevenuecanbereliablymeasured.Thefollowingspecificrecognitioncriteriamustalsobemetbeforerevenueisrecognised.

a) Interest and similar income and expense

Interestandsimilarincomeincludescouponsearnedonfixedincomeinvestments,accrueddiscountandpremiumontreasurybillsandinterestincomeonloansandadvances.Forallfinancialinstrumentsmeasuredatamortisedcostandinterestbearingfinancialinstrumentsclassifiedasavailable-for-salefinancialinvestments,interestincomeorexpenseisrecordedattheeffectiveinterestrate,whichistheratethatexactlydiscountsestimatedfuturecashpaymentsorreceiptsthroughtheexpectedlifeofthefinancialinstrumentorashorterperiod,whereappropriate,tothenetcarryingamountofthefinancialassetorfinancialliability.

Thecalculationtakesintoaccountallcontractualtermsofthefinancialinstrument(forexample,prepaymentoptions)andincludesanyfeesorincrementalcoststhataredirectlyattributabletotheinstrumentandareanintegralpartoftheeffectiveinterestrate,butnotfuturecreditlosses.ThecarryingamountofthefinancialassetorfinancialliabilityisadjustediftheBankrevisesitsestimatesofpaymentsorreceipts.Theadjustedcarryingamountiscalculatedbasedontheoriginaleffectiveinterestrateandthechangeincarryingamountisrecordedasinterestincomeorexpense.

Oncetherecordedvalueofafinancialassetoragroupofsimilarfinancialassetshasbeenreducedduetoanimpairmentloss,interestincomecontinuestoberecognisedusingtheoriginaleffectiveinterestrateappliedtothenewcarryingamount.


2.9 Revenue recognition (continued)

b) Fee and commission income

TheBankearnsfeeandcommissionincomefromadiverserangeofservicesitprovidestoitscustomers.Feeincomecanbedividedintothefollowingtwocategories:

Fee income earned from services that are provided over a certain period of timeFeesearnedfortheprovisionofservicesoveraperiodoftimeareaccruedoverthatperiod.Thesefeesincludecommissionincomeandassetmanagement,custodyandothermanagementandadvisoryfees.Loancommitmentfeesforloansthatarelikelytobedrawndownandothercreditrelatedfeesaredeferred(togetherwithanyincrementalcosts)andrecognisedasanadjustmenttotheeffectiveinterestrateontheloan.

Fee income from providing transaction servicesFeesarisingfromnegotiatingorparticipatinginthenegotiationofatransactionforathirdparty–suchasthearrangementoftheacquisitionofsharesorothersecuritiesorthepurchaseorsaleofbusinesses–arerecognisedoncompletionoftheunderlyingtransaction.Feesorcomponentsoffeesthatarelinkedtoacertainperformancearerecognisedafterfulfillingthecorrespondingcriteria.c) Rental income

Rentalincome(note2.8)isaccountedforonastraight-linebasisovertheleasetermsonongoingleasesandisrecordedinprofitorlossin“Otheroperatingincome”.TheBankdidnothavesignificantinvestmentpropertyasatyearendandduringthereportingperiod.

2.10 Cash and cash equivalents

Cashandcashequivalentscomprisecashbalancesandcalldepositswithanoriginalmaturityofthreemonthsorless.For thepurposeof theCashFlowStatement,cashandcashequivalentsconsistofcashonhand,currentaccountswithCentralBankandamountsduefromotherbanksondemandandwithanoriginalmaturityofthreemonthsorless.ThestatutoryreservewiththeCentralBankisnotavailablefortheBank’sday-to-dayoperationsandisnotincludedasacomponentofcashandcashequivalentsforthepurposeofthestatementofcashflows.Cashandcashequivalentsarecarriedatamortisedcost.Furtherdetailsofwhatcashandcashequivalentscomprisescanbefoundinnote29.

2.11 Property and equipment

Propertyandequipmentisstatedatcostexcludingthecostsofday-to-dayservicing,lessaccumulateddepreciationandaccumulatedimpairmentinvalue.

Depreciationiscalculatedusingthestraight-linemethodtowritedownthecostofpropertyandequipmenttotheirresidualvaluesovertheirestimatedusefullives.Landisnotdepreciated.Theestimatedusefullivesareasfollows:

•OwnBuildings:upto20years.•Furnitureandotherequipment:5years.•Vehicles:5years.•Computerhardware:4years.•Leaseholdimprovements:theshorterofusefullifeandleaseterm.

Theassets’residualvalueandusefullivesarereviewed,andadjustedifappropriate,ateachreportingdate.

Anitemofpropertyandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Anygainorlossarisingonde-recognitionoftheasset(calculatedasthedifferencebetweenthenetdisposalproceedsandthecarryingamountoftheasset)isrecognisedin“Otheroperatingincome”or“Otheroperatingexpenses”inprofitorlossintheyeartheassetisderecognised.

44 45


2.12 Intangible assets

IntangibleassetsacquiredbytheBankarestatedatcostlessaccumulatedamortizationandimpairmentlosses,ifany.

Intangibleassetsareentirelycomprisedofacquiredcomputersoftwarewhicharecapitalisedonthebasisofthecostsincurred to acquire andbring to use the specific software andare amortizedusing the straight-linemethodover ausefullifeoffouryears.Amortizationischargedtoprofitorlossfromthemomenttheassetsareavailableforuse.Costsassociatedwithmaintainingcomputersoftwareprogrammesarerecognisedasanexpenseasincurred.Expenditurewhichenhancesorextends theperformanceofcomputersoftwareprogrammesbeyond theiroriginalspecificationsorsoftwareupgradeexpensesarerecognisedascapitalimprovementandtheyareaddedtotheoriginalcostofthesoftware,aslongastheycanbemeasuredreliably.

2.13 Impairment of non-financial assets

TheBankassessesateachreportingdateormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired,whetherthereisanindicationthatanon-financialassetmaybeimpaired.Ifanysuchindicationexists,orwhenannualimpairmenttestingforanassetisrequired,theBankmakesanestimateoftheasset’srecoverableamount.Wherethecarryingamountofanasset(orcash-generatingunit)exceedsitsrecoverableamount,theasset(orcash-generatingunit)isconsideredimpairedandiswrittendowntoitsrecoverableamount.

Forassetsexcludinggoodwill,anassessment ismadeateach reportingdateas towhether there isany indicationthatpreviouslyrecognisedimpairmentlossesmaynolongerexistormayhavedecreased.Ifsuchindicationexists,therecoverableamountisestimated.Apreviouslyrecognisedimpairmentlossisreversedonlyiftherehasbeenachangeintheestimatesusedtodeterminetheasset’srecoverableamountsincethelastimpairmentlosswasrecognised.Ifthatisthecase,thecarryingamountoftheassetisincreasedtoitsrecoverableamount.

2.14 Financial guarantee contracts

Financialguaranteecontractsarecontractsthatrequiretheissuertomakespecifiedpaymentstoreimbursetheholderforalossitincursbecauseaspecifieddebtorfailstomakepaymentswhendue,inaccordancewiththetermsofadebtinstrument.

Suchfinancialguaranteesaregiventobanks,financialinstitutionsandotherbodiesonbehalfofcustomerstosecureloans,overdraftsandotherbankingfacilities.

Financialguaranteesareinitiallyrecognizedinthefinancialstatementsatfairvalueonthedatetheguaranteewasgiven.Subsequentto initialrecognition,thebank’s liabilitiesundersuchguaranteesaremeasuredatthehigherofthe initialmeasurement,lessamortizationcalculatedtorecognizeinprofitorlossthefeeincomeearnedonastraightlinebasisoverthelifeoftheguaranteeandthebestestimateoftheexpenditurerequiredtosettleanyfinancialobligationarisingatthereportingdate.Theseestimatesaredeterminedbasedonexperienceofsimilartransactionsandhistoryofpastlosses,supplementedbythejudgmentofManagement.Anyincreaseintheliabilityrelatingtoguaranteesistakentoprofitorlossunderotheroperatingexpenses.

Financialguaranteesandcommitments toprovidea loanare initially recognisedat their fair value,which isnormallyevidencedbytheamountoffeesreceived.Thisamountisamortisedonastraightlinebasisoverthelifeofthecommitment.

2.15 Pensions and other post employment benefits

TheBankcontributestoitsemployeespostretirementplansasprescribedbythedomesticsocialsecuritylegislation.Bank’spensionobligations,relateonlytodefinedcontributionplans.Definedcontributionplans,basedonsalaries,aremadetothestateadministeredinstitution(i.e.SocialSecurityInstitute)responsibleforthepaymentofpensions.Oncethecontributionshavebeenpaid,theBankhasnofurtherpaymentobligations.Thecontributionsconstitutenetperiodiccostsfortheyear inwhichtheyaredueandassuchtheyareincludedin“Personnelexpenses” inthestatementofcomprehensiveincome.


2.16 Provisions

ProvisionsarerecognisedwhentheBankhasapresentobligation(legalorconstructive)asaresultofapastevent,anditisitismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamounthasbeenreliablyestimated.

Where there are a number of similar obligations, the likelihood that an outflowwill be required in settlement isdeterminedbyconsideringtheclassofobligationsasawhole.Aprovisionisrecognizedevenifthelikelihoodofanoutflowwithrespecttoanyitemincludedinthesameclassofobligationsmaybesmall.

Provisionsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettletheobligationusingapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation.Theincreaseintheprovisionduetopassageoftimeisrecognizedasinterestexpense.

2.17 Income tax

IncometaxeshavebeenprovidedforinthefinancialstatementsinaccordancewithAlbanianlegislationenactedorsubstantivelyenactedbythereportingdate.Theincometaxchargecomprisescurrenttaxanddeferredtaxandisrecognisedinthestatementofcomprehensiveincomeexceptifitisrecognisedinothercomprehensiveincomebecauseitrelatestotransactionsthatarealsorecognised,inthesameoradifferentperiod,inothercomprehensiveincome.

Current tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to berecoveredfromorpaidtothetaxationauthorities.Thetaxratesandtaxlawsusedtocomputetheamountarethosethatareenactedorsubstantivelyenactedbythereportingdate.

Deferred tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets andliabilitiesandtheircarryingamountsfor financial reportingpurposes.Deferredtax liabilitiesarerecognisedforalltaxabletemporarydifferences,exceptwherethedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwillorofan

assetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss/

Deferredtaxassetsarerecognisedforalldeductibletemporarydifferences,carryforwardofunusedtaxcreditsandunusedtaxlosses,totheextentthatitisprobablethattaxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferences,andthecarryforwardofunusedtaxcreditsandunusedtaxlossescanbeutilisedexceptwherethedeferredtaxassetrelatingtothedeductibletemporarydifferencearisesfromtheinitialrecognitionofanassetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss.

Thecarryingamountofdeferredtaxassetsisreviewedateachreportingdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowallorpartofthedeferredtaxassettobeutilised.

Unrecogniseddeferredtaxassetsarereassessedateachreportingdateandarerecognisedtotheextentthatithasbecomeprobablethatfuturetaxableprofitwillallowthedeferredtaxassettoberecovered.Deferredtaxassetsand liabilitiesaremeasuredat thetaxratesthatareexpectedtoapply in theyearwhentheassetisrealisedortheliabilityissettled,basedontaxrates(andtaxlaws)thathavebeenenactedorsubstantivelyenactedatthereportingdate.

Deferredtaxassetsanddeferredtaxliabilitiesareoffsetifalegallyenforceablerightexiststosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandthedeferredtaxesrelatetothesametaxableentityandthesametaxationauthority.

46 47


2.18 Dividends on ordinary shares

Dividendsonordinary sharesare recognisedasa liability anddeducted fromequitywhen theyareapprovedbytheBank’sshareholders. InterimdividendsaredeductedfromequitywhentheyaredeclaredandnolongeratthediscretionoftheBank.

Dividendsfortheyearthatareapprovedafterthereportingdatearedisclosedasaneventafterthereportingdate.

2.19 Comparatives

ThecomparativeinformationispresentedconsistentlyapplyingtheBank’saccountingpolicies.

Comparativeshavebeenreclassifiedforthepurposeofcomparabilityasexplainedinthefollowingparagraphs.

a) Foreignexchange translationgains less losseswerepreviously included inOthergains in theStatementof Comprehensive Income. Foreign exchange translation gains less losses are now presented separately in theStatementofComprehensiveIncome.

b) Foreignexchangetranslationgainsoninvestmentsecuritiesheldasfinancialassetsavailableforsalehavebeenreclassifiedfrom“Othergains”toothercomprehensiveincomeasthetranslationeffectsareincludedinthefairvalueofsuchnon-monetaryitems.Thereclassificationisfollowedbythereclassificationoftherelateddeferredtaxchargedtoprofitorloss.Thisimpactedthestatementoffinancialposition,reservesandretainedearningsaswell.

Statement of Comprehensive Income for the year ended 31 December 2009:


2.19 Comparatives (continued)

InterestandsimilarincomeInterestandsimilarexpenseNet interest incomeProvisionsforimpairmentofloansandadvancesNet interest income after provision for loan impairment

FeeandcommissionincomeFeeandcommissionexpenseNet fee and commission income OthergainsForeignexchangetranslationgainslesslossesOtheroperatingincomePersonnelexpensesOtheroperatingexpensesDepreciationandamortisation

Profit before income tax

Incometaxexpense

Profit for the year

Other comprehensive income:Available-for-saleinvestments:-Gainslesslossesarisingduringtheyear-Incometaxrecordeddirectlyinothercomprehensiveincome

Other comprehensive income for the yearTotal comprehensive income for the year

2009

5,716,613(2,716,381)3,000,232

(686,941)2,313,291

250,063(10,310)239,753

1,152,203

-12,436

(546,165)(834,214)(444,145)

1,893,159

(102,388)

1,790,771

18,441

(1,844)

16,5971,807,368

Reclassifications

(a),(b)(996,197)

(a)993,831

237

2,366

(237)

2009 Restated

5,716,613(2,716,381)3,000,232

(686,941)2,313,291

250,063(10,310)239,753

156,006993,831

12,436(546,165)(834,214)(444,145)

1,890,793

(102,151)

1,788,642

20,807

(2,081)

18,7261,807,368

ASSETS

CashandbalanceswiththeCentralBankLoansandadvancestobanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossFinancialassetsavailableforsaleFinancialassetsheldtomaturityIntangibleassetsPropertyandequipmentCorporateincometaxrecoverableOtherassets

TOTAL ASSETS

2009

6,995,416172,454

57,399,03614,986,551

38,5032,705,304

291,8451,711,743

57,589282,982

84,641,423

2009 Restated

6,995,416172,454

57,399,03614,986,551

38,5032,705,304

291,8451,711,743

57,589282,982

84,641,423

LIABILITIES AND EQUITY

DuetobanksDuetocustomersDeferredtaxliabilitiesCorporateincometaxpayableOtherliabilitiesProvisionsTOTAL LIABILITIESEquityPaid-incapitalSharepremiumOtherreservesRetainedearningsTOTAL EQUITY

TOTAL LIABILITIES AND EQUITY

16,074,32956,546,248

30,162-

239,46043,956

72,934,155

6,938,1241,735,7371,014,0712,019,336

11,707,268

84,641,423

16,074,32956,546,248

30,162-

239,46043,956

72,934,155

6,938,1241,735,737 1,016,2002,017,207

11,707,268

84,641,423

(a)2,129(a)(2,129)

Reclassifications

48 49

3 Financial risk management

TheBank’sactivitiesexposeittoavarietyoffinancialrisksandthoseactivitiesinvolvetheanalysis,evaluation,acceptanceandmanagementof somedegreeof riskorcombinationof risks.Taking risk iscore to the financialbusiness,andtheoperational risksarean inevitableconsequenceofbeing inbusiness.TheBank’saim is therefore toachieveanappropriatebalancebetweenriskandreturnandminimisepotentialadverseeffectsontheBank’sfinancialperformance.

TheBank’sriskmanagementpoliciesaredesignedtoidentifyandanalysetheserisks,tosetappropriaterisklimitsandcontrols,andtomonitortherisksandadherencetolimitsbymeansofreliableandup-to-dateinformationsystems.TheBankregularlyreviewsitsriskmanagementpoliciesandsystemstoreflectchangesinmarkets,productsandemergingbestpractice.

RiskmanagementiscarriedoutbyariskdepartmentintheBankunderpoliciesapprovedbytheBoardofDirectors.TheBoardprovideswrittenprinciplesforoverallriskmanagement,aswellaswrittenpoliciescoveringspecificareas,suchas,creditrisk,foreignexchangerisk,interestrateriskandliquidityrisk.

Inaddition,internalauditisresponsiblefortheindependentreviewofriskmanagementandthecontrolenvironment.

Themostimportanttypesofriskarecreditrisk,liquidityrisk,marketriskandotheroperationalrisk.Marketriskincludescurrencyrisk,interestrateandotherpricerisk.

3.1 Credit risk

TheBanktakesonexposuretocreditrisk,whichistheriskthatcounterpartywillcauseafinanciallossfortheBankbyfailingtofulfilobligationstotheBank.CreditriskisthemostimportantriskfortheBank’sbusiness;managementthereforecarefullymanagesitsexposuretocreditrisk.Creditexposuresariseprincipallyinlendingactivitiesthatleadtoloansandadvances,andinvestmentactivitiesthatbringdebtsecuritiesandotherbillsintotheBank’sassetportfolio.Thereisalsocreditriskinoff-balancesheetfinancial instruments.Thecreditriskmanagementandcontrolarecentralisedincreditriskmanagementteamofriskdepartmentatbothlocalandgroup(PiraeusBankSA)levelandreportedtotheBoardofDirectors.

ThemaintargetsoftheBank’sCreditRiskManagementareto:1)SetcentralizedpoliciesandmonitortheBank’sportfolio.2) Managingriskpro-activelytoidentifyandanalyzeriskatanearlystage.3) Createriskmanagementfunctionindependentofcommerciallinesofthebusiness.4)Integratetheriskmanagementfunctionintotheorganizationalbusinessprocess.5)Reportonriskacrosstheorganization.

TheCreditRiskManagementCommitteeisresponsiblefor:•DevelopingCreditRiskmanagementsystemsandinfrastructure:analyzingresultsandreportingtothemanagement.•PreparingtheBankforBaselIIimplementations.•RelationshipwithBankofAlbania(CentralBank),PiraeusBankand/orotherauthoritiesinthetermsofeffectivenessofCreditRiskManagement.

TheAuditCommitteeandInternalAuditingDepartmentfollowupthecompliancewithpoliciesandprocedures.

3.1.1 Credit risk measurement

TheproceduresdescribedbelowrelatetocreditriskmeasurementsforoperationalpurposeaswellasforreportingunderBankofAlbaniaregulation.ImpairmentlossesonloansandadvancesforfinancialreportingaredeterminedbasedontheproceduresdescribedinNote3.1.3.

(a) Loans and advances

Inmeasuringcreditriskofloanandadvancestocustomersandtobanksatacounterpartylevel,theBankreflectsthreecomponents(i)the‘probabilityofdefault’bytheclientorcounterpartyonitscontractualobligations;(ii)currentexposurestothecounterpartyanditslikelyfuturedevelopment,fromwhichtheBankderivesthe‘exposureatdefault’;and(iii)thelikelyrecoveryratioonthedefaultedobligations(the‘lossgivendefault’).

3 Financial risk management (continued)

3.1 Credit risk (continued)

3.1.1 Credit risk measurement (continued)

(i) TheBankassessestheprobabilityofdefaultof individualcounterpartiesusinginternalratingtoolstailoredtothevariouscategoriesofcounterparty.Theyhavebeendevelopedinternallyandcombinestatisticalanalysiswithcreditofficerjudgmentandarevalidated,whereappropriate,bycomparisonwithexternallyavailabledata.ClientsoftheBankaresegmented into five ratingclasses.TheBank’s ratingscale,which isshownbelow, reflects the rangeofdefaultprobabilitiesdefinedforeachratingclass.Thismeansthat, inprinciple,exposuresmigratebetweenclassesastheassessmentoftheirprobabilityofdefaultchanges.Theratingtoolsarekeptunderreviewandupgradedasnecessary.TheBankregularlyvalidatestheperformanceoftheratingandtheirpredictivepowerwithregardtodefaultevents.

Bank’sinternalratingsscale

CriterionforclassificationofFinancialAssetsintogroupsA,B,C,DandEareasfollows:FinancialAssetsareclassifiedintoGroupAiftheyaretowarddebtorsthathavebeenevaluatedininvestmentgraderatingsbyexternalraters,e.g.Moody’s,S&P,Fitch,regardlessoftheinternalMRArating.Thebankhasnosuchcustomersasat31December2010and2009.

FinancialAssetsareclassifiedintoGroupBiftheyaretowards:

•BankofAlbaniaandAlbanianGovernment;•debtorswhicharenotlikelytodefaultandwhorepaytheirobligationswithinthematurity,orwithadelayof30 days;and•exposuressecuredbypledgingcollateralgradedasfirstclasscollateral.

FinancialAssetsareclassifiedintoGroupCiftheyaretowardsdebtors:

•whosecashflowsareassessedasadequatetodulyfulfilitsdueobligations,regardlessitspresentfinancial positionisassessedasweak,withoutsignsoffurtherdeteriorationinthefuture;and•whosettletheirliabilitieswithdelayofupto30days,occasionallywithdelaybetween31and90days.

FinancialAssetsareclassifiedintoGroupDiftheyaretowardsdebtors:

•forwhichitisassessed,thatcashflowswillnotbesufficientforregularrepaymentofmaturedliabilities;•thatsettletheirliabilitieswithdelayofupto90days,occasionallywithdelaybetween91to180days;•thatareclearlyundercapitalized;•thatdonothavesufficientlongtermcapitalresourcesforfinancinglongterminvestments;and•fromwhombankdoesnotreceivecurrentlysatisfactoryinformationoradequatedocumentationconcerning repaymentofliabilities.

FinancialAssetsareclassifiedintoGroupEiftheyaretowardsdebtors:

•forwhichexistsastronglikelihoodoflossofpartoffinancialasset;•thatsettletheirliabilitieswithdelayofmorethan90to180days,occasionallywithdelaybetween181to 360days;•whichareinsolvent;

Bank’s rating

ABCDE

Description of the grade

InvestmentGradeStandardSpecialMonitoringSubstandardDoubtfulandLoss

50 51

3 Financial risk Management (continued)

3.1 Credit Risk (continued)

3.1.2 Risk limit control and mitigation policies (continued)

Loanstocorporateentitiesandindividualsaregenerallysecured;overdraftsandcreditcardsissuedtoindividualsaresecuredmostlybycashdepositsandcollateralincasesofcreditcustomersatthefullamountofprincipal,interestandothercharges.Inaddition,inordertominimisethecreditlosstheBankwillseekadditionalcollateralfromthecounterpartyassoonasimpairmentindicatorsarenoticedfortherelevantindividualloansandadvances.Debtsecurities,treasuryandothereligiblebillsaregenerallyunsecured.

(b) Credit-related contingencies

Theprimarypurposeoftheseinstrumentsistoensurethatfundsareavailabletoacustomerasrequired.Guaranteesandstandbylettersofcreditcarrythesamecreditriskasloansandaresecuredwithsamecollateralasloans.Documentaryandcommerciallettersofcredit–whicharewrittenundertakingsbytheBankonbehalfofacustomerauthorisingathirdpartytodrawdraftsontheBankuptoastipulatedamountunderspecifictermsandconditions–arecollateralisedbytheunderlyingshipmentsofgoodstowhichtheyrelateandthereforecarrylessriskthanadirectloan.

Commitmentstoextendcreditrepresentunusedportionsofauthorisationstoextendcreditintheformofloans,guaranteesorlettersofcredit.Withrespecttocreditriskoncommitmentstoextendcredit,theBankispotentiallyexposedtolossinanamountequaltothetotalunusedcommitments.

However,thelikelyamountoflossislessthanthetotalunusedcommitments,asmostcommitmentstoextendcreditarecontingentuponcustomersmaintainingspecificcreditstandards.TheBankmonitorsthetermtomaturityofcreditcommitments because longer-term commitments generally have a greater degree of credit risk than shorter-termcommitments.

3.1.3 Impairment and provisioning policies

The internal ratingsystemsdescribed inNote3.1.1 focusmoreoncredit-qualitymapping fromthe inceptionof thelendingandinvestmentactivities.

Incontrast,impairmentprovisionsarerecognisedforfinancialreportingpurposesonlyforlossesthathavebeenincurredatthereportingdatebasedonobjectiveevidenceofimpairment(seeNote2.1(f)).

Theimpairmentprovisionshowninthebalancesheetatyear-endisderivedfromeachofthefiveinternalratinggrades.However,themajorityoftheimpairmentprovisioncomesfrombottomtwogrades.ThetablebelowshowsthepercentageoftheBank’son-balancesheetitemsrelatingtoloansandadvancesandtheassociatedimpairmentprovisionforeachoftheBank’sinternalratingcategories:

Bank’s rating



3.1.1 Credit Risk Measurement (continued)

•forwhichamotionforcommencementofprocessofliquidationordeclarationofbankruptcybeganandwas filedattheprovisionalcourt;•thatareintheprocessofreformorintheprocessofliquidation;•thatdeclaredbankruptcy;•fromwhomnorepaymentisexpected;and•withquestionablelegalgrounds.

(ii) ExposureatdefaultisbasedontheamountstheBankexpectstobeowedatthetimeofdefault.Forexample,foraloanthisisthefacevalue.Foracommitment,theBankincludesanyamountalreadydrawnplusthefurtheramountthatmayhavebeendrawnbythetimeofdefault,shoulditoccur.

(iii) LossgivendefaultorlossseverityrepresentstheBank’sexpectationoftheextentoflossonaclaimshoulddefaultoccur.Itisexpressedaspercentagelossperunitofexposureandtypicallyvariesbytypeofcounterparty,typeandseniorityofclaimandavailabilityofcollateralorothercreditmitigation.

(b) Debt securities and other bills

Fordebtsecuritiesandotherbills,theriskdepartmentformanagingofthecreditriskexposuresusesratingsdependingontheissuer,whichisAlbanianGovernment.Theinvestmentsinthosesecuritiesandbillsareviewedasawaytogainabettercreditqualitymappingandmaintainareadilyavailablesourcetomeetthefundingrequirementatthesametime.

Investment isallowedonly in liquidsecuritiesthathavehighcreditrating.Giventheirhighcreditratingsmanagementof theBankdoesnotexpectanycounterpart to fail tomeet itsobligations.Themaximumexposure tocredit risk isrepresentedbythecarryingamountofeachfinancialassetinthebalancesheet.

3.1.2 Risk limit control and mitigation policies

TheBankmanages,limitsandcontrolsconcentrationsofcreditriskwherevertheyareidentified−inparticular,toindividualcounterpartiesandgroups,andtoindustriesandcountries.

TheBankstructuresthelevelsofcreditriskitundertakesbyplacinglimitsontheamountofriskacceptedinrelationtooneborrower,orgroupofborrowers,andtogeographicalandindustrysegments.Suchrisksaremonitoredonarevolvingbasisandsubjecttoanannualormorefrequentreview,whenconsiderednecessary.LimitsonthelevelofcreditriskbyproductandindustrysectorareapprovedbytheBoardofDirectors.Exposuretocreditriskisalsomanagedthroughregularanalysisoftheabilityofborrowersandpotentialborrowerstomeetinterestandcapitalrepaymentobligationsandbychangingtheselendinglimitswhereappropriate.

Someotherspecificcontrolandmitigationmeasuresareoutlinedbelow.

(a) Collateral

TheBankemploysarangeofpoliciesandpracticestomitigatecreditrisk.Themosttraditionaloftheseisthetakingofsecurityforfundsadvances,whichiscommonpractice.

TheBankimplementsguidelinesontheacceptabilityofspecificclassesofcollateralorcreditriskmitigation.Theprincipalcollateraltypesforloansandadvancesare:

•Cash,bank’sandfirstclasscompanies’guarantees.•Mortgagesoverresidentialproperties.•Chargesoverbusinessassetssuchaspremises,inventoryandaccountsreceivable.•Chargesoverfinancialinstrumentssuchasdebtsecuritiesandequities.

InvestmentGradeStandardSpecialmonitoringSub-standardDoubtfulandLossTotal

Loans and advances (%)

-81.8610.39

2.874.88

100.00

Impairment provision level (%)

-1.309.22

30.3023.16

4.02

Loans and advances (%)

-87.78

5.642.58

4.0100.00

Impairment provision level (%)

-2.321.749.68

27.643.45

2010 2009

52 53



3.1.3 Impairment and provisioning policies (continued)

TheinternalratingtoolassistsmanagementtodeterminewhetherobjectiveevidenceofimpairmentexistsunderIAS39,basedonthefollowingcriteriasetoutbytheBank:•Delinquencyincontractualpaymentsofprincipalorinterest.•Cashflowdifficultiesexperiencedbytheborrower(e.g.equityratio,netincomepercentageofsales).•Breachofloancovenantsorconditions.•Initiationofbankruptcyproceedings.•Deteriorationoftheborrower’scompetitiveposition.•Deteriorationinthevalueofcollateral.

TheBank’spolicy requires the reviewof individual financialassets thatare individuallysignificantat leastannuallyormore regularlywhen individualcircumstances require. Impairmentallowanceson individuallyassessedaccountsaredeterminedby anevaluationof the incurred loss at balance-sheet dateon a case-by-casebasis, andare appliedto all individually significant accounts. The assessment encompassescollateral held (including re-confirmationof itsenforceability)andtheanticipatedreceiptsforthatindividualaccount.

Collectivelyassessedimpairmentallowancesareprovidedfor:(i)portfoliosofhomogenousassetsthatarenotindividuallysignificant; and (ii) losses thathavebeen incurredbuthavenot yetbeen identified,byusing theavailablehistoricalexperienceandexperiencedjudgment.

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



3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements (continued)

TheabovetablerepresentsaworstcasescenarioofcreditriskexposuretotheBankat31December2010and2009,withouttakingaccountofanycollateralheldorothercreditenhancementsattached.Foron-balance-sheetassets,theexposuressetoutabovearebasedonnetcarryingamountsasreportedinthebalancesheet.

Asshownabove,66%ofthetotalmaximumexposureisderivedfromloansandadvancescustomers(2009:67%);20%representsinvestmentsindebtsecurities(2009:21%),7%representscashandbalanceswithCentralBank(2009:7%)and1%representsloansandadvancestobanks(2009:1%).

Management isconfident in itsability tocontinue tocontrolandsustainminimalexposureofcredit risk to theBankresultingfrombothitsloanandadvancesportfolioanddebtsecuritiesbasedonthefollowing:

•92%oftheloansandadvancesportfolioiscategorisedinthetoptwogradesoftheinternalratingsystem (2009:94%).•LoanstoSMEs,whichrepresentsthebiggestgroupintheportfolio,arebackedbycollateral.•75%oftheloansandadvancesportfolioareconsideredtobeneitherpastduenorimpaired(2009:82%).•TheBankhasintroducedamorestringentselectionprocessupongrantingloansandadvances.•AllinvestmentsindebtsecuritiesandotherbillsareinsecuritiesissuedbytheAlbanianGovernment.

3.1.5 Loans and advances

Loansandadvancesaresummarisedasfollows:

FurtherinformationoftheimpairmentallowanceforloansandadvancestobanksandtocustomersisprovidedinNotes14and15.

Duringtheyearended31December2010,theBank’sgrossloansandadvancestocustomersincreasedby6%.Whenenteringintonewmarketsornewindustries,inordertominimisethepotentialincreaseofcreditriskexposure,theBankfocusedmoreon thebusinesswith largecorporateenterprisesorbankswithgoodcredit ratingor retailcustomersprovidingsufficientcollateral.

Loans and advances neither past due nor impaired

ThecreditqualityoftheportfolioofloansandadvancesthatwereneitherpastduenorimpairedcanbeassessedbyreferencetotheinternalratingsystemadoptedbytheBank.

Creditriskexposuresrelatingtoon-balancesheetassetsareasfollows:CashandbalanceswithCentralBankLoansandadvancestobanksLoansandadvancestocustomers:Loanstoindividuals−Consumer/Overdrafts−Creditcards−Mortgages

Loanstocorporateentities:−Largecorporatecustomers−Smallandmediumsizeenterprises(SMEs)

Totalloansandadvancestocustomers

FinancialassetsdesignatedatfairvaluethroughprofitorlossFinancialassetsavailableforsaleFinancialassetsheldtomaturityOtherfinancialassets

Creditriskexposuresrelatingtooff-balancesheetitemsareasfollows:LettersofGuaranteesLettersofCreditLoansCommitmentAt 31 December

2010

6,784,1341,255,537

2,978,225172,588

10,339,25113,490,064

840,84346,073,45946,914,30260,404,366

13,376,73435,836

5,180,359122,816

1,819,54921,508

2,756,83291,757,671

2009

6,069,234172,454

3,286,794167,321

12,801,32516,255,440

2,784,25938,359,33741,143,59657,399,036

14,986,55138,503

2,705,304138,859

1,223,63811,311

2,833,47885,578,368

Maximum exposure

NeitherpastduenorimpairedPastduebutnotimpairedIndividuallyimpairedGrossLess:allowanceforimpairment

Net

Loans and advances to

customers

47,375,0394,312,412

11,261,48762,948,938(2,544,572)

60,404,366


banks

1,255,537--

1,255,537-

1,255,537

31 December 2010 31 December 2009Loans and

advances to customers

48,785,6384,460,8616,203,615

59,450,114(2,051,078)

57,399,036


banks

172,454--

172,454-

172,454

54 55

Loans and advances to customers

Individual (retail customers) Corporate entitiesTotal Loans and



banks

Consumer/ Overdrafts

-2,423,471

---

2,423,471

Grades:InvestmentGradeStandardSpecialmonitoringSub-standardDoubtfulTotal

Credit cards

-102,704

---

102,704

Mortgages

-8,583,665

---

8,583,665

Large corporate

customers

-876,265

---

876,265

SMEs

-35,388,934

---

35,388,934

-47,375,039

---

47,375,039

-1,255,537

---

1,255,537

31 December 2010

LoansandadvancesintheSub-standardandDoubtfulgradeswereconsiderednottobeimpairedaftertakingintoconsiderationtherecoverabilityfromcollateralforretailcustomers’mortgageandconsumerloans.

(a) Loans and advances past due but not impaired

Grossamountofloansandadvancesthatarepastduebutnotimpaired:

(i) Loans and advances to customers



3.1.5 Loans and advances (continued)





Individual (retail customers) Corporate entitiesTotal Loans and



banks


-2,841,552

---

2,841,552

Grades:InvestmentGradeStandardSpecialmonitoringSub-standardDoubtfulTotal

Credit cards

-86,474

---

86,474

Mortgages

-11,173,650

---

11,173,650

Large corporate

customers

-2,771,396

---

2,771,396

SMEs

-31,912,566

---

31,912,566

-48,785,638

---

48,785,638

-172,454

---

172,454

31 December 2009



276,09065,516

--

341,606251,657

Mortgages

1,244,801229,705165,751550,878

2,191,1352,328,097

Visa Card

24,6059,959

34,564-

Total

1,545,496305,180165,751550,878

2,567,3052,579,754

Pastdue1upto90daysPastdue91-180daysPastdue181-360daysPastdue>360daysTotalFair value of collateral

31 December 2010

Corporate entities

Total

1,307,621104,285232,937100,264

1,745,1071,843,303

4,312,412


Total loans and advances past due but not impaired at 31 December 2010

31 December 2010

SMEs

1,307,621104,285232,937100,264

1,745,1071,843,303

Large Corporate

------


Overdrafts

255,59161,589

--

317,180255,286

Mortgages

1,019,318227,292294,486544,885

2,085,9811,864,030

Visa Card

44,5009,463

53,963-

Total

1,319,409298,344294,486544,885

2,457,1242,119,316


31 December 2009

56 57




Thedisclosedfairvalueofcollateral isdeterminedby localcertifiedvaluersandrepresentsvaluerealisablebythelegalownersoftheassets.Managementconsiderstheloanscoveredbycollateraloncorporateloansasimpairedbecauseexperienceshowsthatasignificantproportionofthecollateraloncorporateloanscannotbeenforcedduetoadministrativeandlegaldifficultiessuchassuchasdecreaseofcollateralvalueatauctionsadministeredbybailiffoffice,timenecessaryforcollateralstobeenforced.Theimpairmentprovisionsreflecttheprobabilitythatmanagementwill not be able to enforce its rights and repossess collateral on defaulted loans. Despite difficulties in enforcingrepossessionof collateral, theBank’smanagementwill vigorously pursue theoutstandingdebtswith all possiblemeansattheirdisposal.

(ii) Loans and advances to banks

Therearenoindividuallyimpairedloansandadvancestobanksasat31December2010and2009.

3.1.6 Loans and advances renegotiated

Restructuringactivities includeextendedpaymentarrangements,modificationanddeferralofpayments.Followingrestructuring,apreviouslyoverduecustomeraccountisresettoanormalstatusandmanagedtogetherwithothersimilaraccounts.Restructuringpoliciesandpracticesarebasedonindicatorsorcriteriawhich, inthejudgmentofbankmanagement,indicatethatpaymentwillmostlikelycontinue.Thesepoliciesarekeptundercontinuousreview.Duringyear2010therewere157loansrenegotiatedforatotalofLEK2,508,921thousand(during2009therewere160loansrenegotiatedforatotalofLEK2,643,626thousand)asdetailedinthefollowingtable.

3.1.7 Repossessed collateral

Collateralobtaineddue to legalprocess include land,buildingandbusinesspremiseswhicharenotusedby theBankforitscoreoperations.Collateralobtainedduetolegalprocessaretobesoldassoonaspracticablewiththeproceedsusedtoreducetheoutstandingindebtedness.During2010,theBankobtainedassetsbytakingpossessionofcollateralfortheamountofLEK52,259(2009:44,147).

3.1.8 Cash and balances with Central Bank

Asat31December2010and2009theamountsduefromCentralBankandcorrespondingbankswereneitherpastduenorimpaired.

Corporate entities

Total

1,251,076453,246174,380125,035

2,003,7371,645,262

4,460,861


Total loans and advances past due but not impaired at 31 December 2009

31 December 2009

SMEs

1,251,076453,246174,380125,035

2,003,7371,645,262

Large Corporate

------




(ii) Loans and advances to banks

Therearenoloansandadvancestobanksasat31December2010,whicharepastduebutnotimpaired(2009:Nil).(b) Loans and advances individually impaired

(i) Loans and advances to customers

Thebreakdownofthegrossamountofindividuallyimpairedloansandadvancesbyclass,alongwiththefairvalueofrelatedcollateralheldbytheBankassecurity,areasfollows:

31 December 2010Individuallyimpairedloans

Fairvalueofcollateral

31 December 2009Individuallyimpairedloans

Fair value of collateral

Consumer and Visa Cards

381,197

-

277,505

-

SMEs

10,880,290

17,735,201

5,926,110

4,821,474

Large Corporate

-

-

-

-

Total

11,261,487

17,735,201

6,203,615

4,821,474

Corporate entities

ConsumerMortgageSMECorporate

Total

Outstanding balance

90,060181,637

1,234,4791,002,745

2,508,921

Numberof loans

454459

9

157

Outstanding balance

98,953189,165

1,304,5041,051,004

2,643,626

Number of loans

47406211

160

2010 2009

58 59



3.1.9 Debt securities, treasury bills and other eligible bills

HeldtomaturityandfairvaluethroughprofitandlossaremadeupofT-billsandbonds.TheissuerofsuchinvestmentsecuritiesistheAlbanianGovernment.Standard&Poor’sRatingsServicesassignedits‘BB/B’foreigncurrencyand‘BB+/B’ localcurrencysovereigncreditratingstoAlbania.Asat31December2010and2009theseinvestmentswereneitherpastduenorimpaired.

3.1.10 Concentration of risks of financial assets with credit risk exposure

(a) Geographical sectors

LoansandadvancestobanksareheldwithbanksinOECDcountries.AllotherfinancialassetsareheldinAlbaniaexceptfortheVISAshareholdings,whichareheldwithVISACorporation.

(b) Industry sectors

TheanalysisoftheBank’smaincreditexposureonloansandadvancestocustomersbyindustryispresentedinNote15.

3.2 Market risk

Marketriskistheriskthatchangesinmarketprices,suchasinterestrate,equityprices,foreignexchangeratesandcreditspreads(notrelatingtochangesintheobligor’s/issuer’screditstanding)willaffecttheBank’sincomeorthevalueof itsholdingsof financial instruments.Theobjectiveofmarket riskmanagement is tomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturnonrisk.

TheMarketRiskissuesarefollowedupinregularbasisby“Asset&LiabilitiesManagementCommittee”(ALCO).

3.2.1 Foreign exchange risk

TheBank is exposed to currency risk through transactions in foreign currencies. TheBank ensures that the netexposure iskept toanacceptable levelbybuyingorselling foreigncurrencyatspotwhennecessary toaddressshort-termimbalances.

TheManagementsetslimitsonthelevelofexposurebycurrencies,whicharemonitoreddaily.


3.2 Market Risk (continued)

3.2.1 Foreign exchange risk (continued)

Concentrationsofcurrencyrisk–onandoff-balancesheetfinancialinstruments:

TheBankmanagesitsforeigncurrencyexposuretakingintoconsiderationthatitssharecapitalandsharepremiumisdenominatedinEUR.

At 31 December 2010

AssetsCashandbalanceswiththeCentralBankDuefrombanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossInvestmentsecuritiesavailableforsaleFinancialassetsheldtomaturityOtherfinancialassetsTotal financial assetsLiabilitiesDuetobanksDuetocustomersOtherfinancialliabilitiesTotal financial liabilitiesNet on-balance sheet currency positionOff-balance sheet itemsSensitivity if exchange rates increase by 5%Sensitivity if exchange rates decrease by 5%

EUR

3,899,827735,515

42,763,873--

-49,531

47,448,746

5,774,81433,319,853

26,550

39,121,217

8,327,5293,134,104

415,012(415,012)

USD

654,428520,022

2,032,615

-35,836

2,794,9331,399

6,039,233

371,1395,191,252

27,923

5,590,314

448,91944,49322,446

(22,446)

Other currencies

51,330-

30,879

----

82,209

31,243513,519

62

544,824

(462,615)-

(23,131)23,131

LEK

3,450,312-

15,576,999

13,376,734-

2,385,42671,886

34,861,357

1,249,53930,561,819

167,383

31,978,741

2,882,6161,419,292

--

Total

8,055,8971,255,537

60,404,366

13,376,73435,836

5,180,359122,816

88,431,545

7,426,73569,586,443

221,918

77,235,096

11,196,4494,597,889

414,327(414,327)

60 61



3.2.1 Foreign exchange risk (continued)

Concentrationsofcurrencyrisk–onandoff-balancesheetfinancialinstruments:

3.2.2 Interest rate risk

TheBank’soperationsaresubject to the riskof interest rate fluctuations to theextent that interest-earningassets(includinginvestments)andinterest-bearingliabilitiesmatureorrepriceatdifferenttimesorindifferingamounts.Inthecaseoffloatingrateassetsandliabilities,theBankisalsoexposedtobasisrisk,whichisthedifferenceinrepricingcharacteristicsofthevariousfloatingrateindices,suchasthesavingsrate,LIBORanddifferenttypesofinterest.Riskmanagementactivitiesareaimedatoptimisingnetinterestincome,givenmarketinterestratelevelsconsistentwiththeBank’sbusinessstrategies.Asset-liabilityriskmanagementactivitiesareconductedinthecontextoftheBank’ssensitivitytointerestratechanges.In decreasing interest rate environments,margins earnedwill narrowas liabilities interest rateswill decreasewitha lowerpercentagecompared toassets interest rates.However theactual effectwill dependonvarious factors,includingstabilityoftheeconomy,environmentandleveloftheinflation.TheBankattemptstomitigatethis interestrateriskbymonitoringthereprisingdatesof itsassetsandliabilities. Inaddition,theBankhascontractualrightstorevisetheinterestratesonthemajorpartofitsloanportfolioonaquarterlybasis.ThefollowingtablepresentstheinterestratereprisingdatesfortheBank’sassetsandliabilities.Variable-rateassetsandliabilitieshavebeenreportedaccordingtotheirnextratechangedate.Fixed-rateassetsandliabilitieshavebeenreportedaccordingtotheirscheduledprincipalrepaymentdates:

At 31 December 2009

AssetsCashandbalanceswiththeCentralBankDuefrombanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossInvestmentsecuritiesavailableforsaleFinancialassetsheldtomaturityOtherfinancialassetsTOTAL FINANCIAL ASSETSLIABILITIES AND EQUITYDuetobanksDuetocustomersOtherfinancialliabilitiesTotal financial liabilitiesNet on-balance sheet currency positionOff-balance sheet itemsSensitivity if exchange rates increase by 5%Sensitivity if exchange rates decrease by 5%

EUR

2,694,570172,454

46,603,678

-

--

13,780

49,484,482

13,846,40823,412,672

101,325

37,360,405

12,124,0772,938,553

606,204(606,204)

USD

792,015-

1,580,001

-

38,503

38

2,410,557

952,6395,558,783

17,293

6,528,715

(4,118,158)57,120

(205,908)205,908

Other currencies

47,177-

26,952

-

--

74,129

27,851459,747

1

487,599

(413,470)-

(20,674)20,674

LEK

3,461,654-

9,188,405

14,986,551

2,705,304125,041

30,466,955

1,247,43127,115,046

105,406

28,467,883

1,999,0721,072,754

--

Total

6,995,416172,454

57,399,036

14,986,551

38,5032,705,304

138,859

82,436,123

16,074,32956,546,248

224,025

72,844,602

9,591,5214,068,427

379,622(379,622)



3.2.2 Interest rate risk (continued)

At 31 December 2010

AssetsCashandbalanceswiththeCentralBankDuefrombanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossInvestmentSecuritiesAvailableforSaleFinancialassetsheldtomaturityOtherfinancialassetsTotal financial assetsLiabilitiesDuetobanksDuetocustomersOtherfinancialliabilitiesTotal financial liabilities Interest sensitivity gap

Less than one month

6,784,134

1,255,537

19,503,452

898,522

-

--

28,441,645

4,665,44824,794,302

-

29,459,750

(1,018,105)

From 1 to 3 months

-

-

32,543,367

3,274,454

1,166,005-

36,983,826

-12,090,528

-

12,090,528

24,893,298

From 3 to 12 months

-

-

8,223,339

9,203,758

707,961-

18,135,058

2,761,28731,486,435

-

34,247,722

(16,112,666)

Over 1 year

-

-

134,208

-

35,836

3,306,393-

3,476,437-

1,204,070-

1,204,070

2,272,367

Non-interest bearing

1,271,763

-

-

-

-

122,816

1,394,579-

11,108221,918

233,026

1,161,553

Total

8,055,897

1,255,537

60,404,366

13,376,734

35,836

5,180,359122,816

88,431,545

7,426,73569,586,443

221,918

77,235,096

11,196,449

62 63




Thefollowingtableincludesfiguresofcomparativeperiod:

At 31 December 2009

AssetsCashandbalanceswiththeCentralBankDuefrombanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossInvestmentSecuritiesAvailableforSaleFinancialassetsheldtomaturityOtherfinancialassetsTotal financial assets

LiabilitiesDuetobanksDuetocustomersOtherfinancialliabilitiesTotal financial liabilities Interest sensitivity gap

Less than one month

6,069,234

172,454

16,359,250

1,297,337

-

12,685-

24,210,960

12,073,48922,974,161

-

35,047,650

(10,836,690)

From 1 to 3 months

-

-

37,430,388

1,982,838

461,507-

39,874,733

4,000,84011,376,516

-

15,377,356

24,497,377

From 3 to 12 months

-

-

3,593,231

11,706,376

1,030,493-

16,330,100-

21,752,897-

21,752,897

(5,422,797)

Over 1 year

-

-

16,167

-

38,503

900,619-

955,289-

407,801-

407,801

547,488

Non-interest bearing

926,182

-

-

-

-

138,859

1,065,041

-34,873

224,025

258,898

806,143

Total

6,995,416

172,454

57,399,036

14,986,551

38,503

2,705,304138,859

82,436,123

16,074,32956,546,248

224,025

72,844,602

9,591,521

DuetospecificsofAlbanianmarket,a largeamountofcustomerdepositshasamaturityof lessthanonemonth.However,thepotentialnegativeeffectofadverseevolutionininterestratesissignificantlyreducedduetolowinterestratessetbytheBankoncustomerdemanddeposits.

Theinterestratesensitivityanalysishasbeendeterminedbasedontheexposuretointerestrateriskatthereportingdate.At31December2010, if interestrateshadbeen100basispointshigher/lowerwithallothervariableswereheldconstant,theBank’spre-taxprofitforthetwelvemonthperiodended31December2010wouldrespectivelydecrease/increasebyapproximatelyLEK10,008thousand(2009:LEK8,785thousand).

Interestratesensitivityanalysisbycurrencyispresentedbelow.

3.3 Liquidity risk

LiquidityriskistheriskthattheBankisunabletomeetitspaymentobligationsassociatedwithitsfinancialliabilitieswhen they falldueand to replace fundswhen theyarewithdrawn.Theconsequencemaybe the failure tomeetobligationstorepaydepositorsandfulfilcommitmentstolend.

ALiquidityRiskManagementPolicyhasbeenappliedinallBankunitssincetheendof2003.ThispolicyisadjustedtointernationallyappliedpracticesandregulatoryenvironmentsandadaptedtothespecificactivitiesofPiraeusBank.Thepolicyspecifiestheprincipalliquidityriskassessmentdefinitionsandmethods,definestherolesandresponsibilitiesoftheunitsandstaffinvolvedandsetsouttheguidelinesforliquiditycrisismanagement.Thepolicyisfocusedontheliquidityneedsexpectedtoemerge,inaweek’sormonth’stime,onthebasisofhypotheticalliquiditycrisisscenarios.

Furthermore,thePolicydefinesacontingencyfundingplantobeusedinthecaseofaliquiditycrisis.SuchacrisiscantakeplaceeitherduetoaTiranaBankspecificeventorageneralmarketevent.Triggersandwarningsignalsserveasindicatorsofwhenthecontingencyplanshouldbeputintooperation.ThiscontingencyplanismainlybasedonadditionalfinancingtobereceivedfromtheParentuponrequest.

Inaddition,TiranaBankcalculatesandmonitorstheLiquidityratios,“LiquidAssets/TotalLiabilities”and“NetCurrentAssets/TotalLiabilities”,astheyaredefinedintheBankofAlbaniaDirective,whichreferstothecontrolframeworkofbanks’liquidityadequacy,bytheBankofAlbania.

Thelevelsoftheseparticularratiosaredailycommunicatedtotheresponsiblebusinessunits,andcomments,aswellasrespectiveassessments,areincludedinthereportingpackagetothemembersofALCO.

TheALCOhastheresponsibility:todesignthebank’sstrategyontheassetsandliabilitiesdevelopment,dependingonthequalitativeandquantitativedataoftheorganizationanddevelopmentofthebusinessenvironment;toensurehighcompetitivenessandeffectivenessof theorganization,maintainingassumed risk within theset limits; tomanagetheassetsandliabilitiesbyapplyingapricingpolicyonproductsandservicesatthesametime.

3.3.1 Liquidity risk management process

TiranaBankacknowledges that, inorder tobeable tomeet liabilitiespromptly andwithout losses, it is essentialtoeffectivelymanageLiquidityRisk.LiquidityRisk is the risk thata financial institutionwill notbeable tomeet itsobligationsastheybecomedue,becauseofalackoftherequiredliquidity.

Ingeneral,liquiditymanagementisamatterofbalancingcashflowswithinforwardrollingtimebands,sothatundernormalconditions,theBankiscomfortablyplacedtomeetallitspaymentobligationsastheyfalldue.

At 31 December 2010

TotalinterestbearingfinancialassetsTotalinterestbearingfinancialliabilitiesInterestsensitivitygapSensitivity if interest rates increase by 100 bpSensitivity if interest rates decrease by 100 bp

EUR

46,866,81439,094,6677,772,147

7,772(7,772)

USD

5,880,2105,562,391

317,819318

(318)

Other currencies

62,793544,762

(481,969)(482)

482

LEK

34,227,14931,800,2502,426,899

2,427(2,427)

Total

87,036,96677,002,07010,034,896

10,034(10,034)

At 31 December 2009

TotalinterestbearingfinancialassetsTotalinterestbearingfinancialliabilitiesInterestsensitivitygapSensitivity if interest rates increase by 100 bpSensitivity if interest rates decrease by 100 bp

EUR

49,174,14437,259,08011,915,064

11,915(11,915)

USD

2,299,2706,511,422

(4,212,152)(4,212)

4,212

Other currencies

51,799487,598

(435,799)(436)

436

LEK

29,845,86928,327,604

1,518,2651,518

(1,518)

Total

81,371,08272,585,704

8,785,3788,785

(8,785)




64 65


3.3 Liquidity Risk (continued)

3.3.1 Liquidity risk management process (continued)

Theliquiditygapofupto3monthishighbutitisimprovedwhentakinginconsiderationthefactthatamountsduetobanksrelatedtotheloanfromparentandtheparenthasprovenovertheyearstobeareliablesourceoffinanceabletosupporttheneedsoftheBank.

Thefollowingtableincludesfiguresofcomparativeperiod:


3.3 Liquidity risk (continued)


LiquidityGapAnalysisprovidesanoverviewoftheexpectedcashflows,whicharisefromallbalancesheetitems.Thecashflowsareassignedandaggregatedtotime-bandsaccordingtowhentheyoccur.

Thetablebelowanalyzesassetsandliabilitiesintorelevanttimeperiodsbasedontheremainingperiodatreportingdatetothecontractualmaturitydate.AssetsandliabilitiesinforeigncurrencyareconvertedintoLEKusingFXratesasattheyearend.

Theassumptionsmadearethatscheduledpaymentstothebankarehonouredinfullandontimeandinaddition,allcontractualpaymentsaredischargedinfull–e.g.thatdepositorswillwithdrawtheirmoneyratherthanrollitoveron maturity. Those assets and liabilities lacking actual maturities (e.g. open accounts, sight deposits, or savingsaccounts)areassignedtothetimebandlessthanonemonth.

At 31 December 2010

Assets liquidityCashandbalanceswiththeCentralBankDuefrombanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossInvestmentSecuritiesavailableforSaleFinancialassetsheldtomaturityOtherfinancialassets

TotalfinancialassetsLiabilities liquidityDuetobanksDuetocustomersOtherfinancialliabilities

Total financial liabilities Net liquidity gap

Less than one month

8,055,897

1,255,537

8,419,511

898,522

-

-122,816

18,752,283

4,318,30924,805,410

221,918

29,345,637

(10,593,354)

From 1 to 3 months

-

-

3,049,385

3,274,454

-

--

6,323,839

347,13912,090,528

-

12,437,667

(6,113,828)

From 3 to 12 months

-

-

13,172,924

9,203,758

--

22,376,682

2,761,28731,486,435

-

34,247,722

(11,871,040)

From 1 to 5 years

-

-

14,750,404

-

35,836

5,180,359-

19,966,599-

1,204,070-

1,204,070

18,762,529

Over 5 Years

-

-

21,012,142

-

-

-

21,012,142 ---

-

21,012,142

Total

8,055,897

1,255,537

60,404,366

13,376,734

35,836

5,180,359122,816

88,431,545

7,426,73569,586,443

221,918

77,235,096

11,196,449

AllBank’scustomercurrentaccountsareincludedinliabilitiesmaturinglessthanonemonth.Currentaccountsdorepresentbalancesthathaveanhistoryandadeviationinamountswhichismeasuredbythebankandisfarlessthantheshownnegativegapontenorslessthanonemonth.Anyissuearisingfromliquiditymismatchismanagedthroughinterbankactivity(borrowing,lending)withinthepreapprovedcreditlines.

TheBankdoesnothavealetterofsupportfromPiraeusBankSA.However,ithasacreditlinewhichincludesanamountofEUR97millionthatcanbewithdrawnbytheBankintheMoneyMarket(withamaturityof3monthsifused).IthasalsonegotiatedacreditlimitofEUR10millionthatcanbeusedforcommerciallendingwithamaturityofupto12months,whichcanincreaseto3yearsifEUR6millionoutofthetotalEUR10millionisusedformortgagelending.

At 31 December 2009

Assets liquidity CashandbalanceswiththeCentralBankDuefrombanksLoansandadvancestocustomersFinancialassetsdesignatedatfairvaluethroughprofitorlossInvestmentSecuritiesavailableforSaleFinancialassetsheldtomaturityOtherfinancialassets

TotalfinancialassetsLiabilities liquidityDuetobanksDuetocustomersOtherfinancialliabilities

Total financial liabilities Net liquidity gap

Less than one month

6,995,416

172,454

5,907,881

1,297,337

-

312,685

138,859

14,824,632

12,073,48923,009,034

224,025

35,306,548

(20,481,916)

From 1 to 3 months

-

-

4,385,856

1,982,838

-

461,507-

6,830,201

4,000,84011,376,516

-

15,377,356

(8,547,155)

From 3 to 12 months

-

-

13,365,278

11,706,376

-

--

26,102,147 -

21,752,897-

21,752,897

4,349,250

From 1 to 5 years

-

-

9,921,167

-

38,503

900,619-

10,860,289-

407,801-

407,801

10,452,488

Over 5 Years

-

-

23,818,854

-

-

-

23,818,854 ---

-

23,818,854

Total

6,995,416

172,454

57,399,036

14,986,551

38,503

2,705,304138,859

82,436,123

16,074,32956,546,248

224,025

72,844,602

9,591,521

ThetablebelowpresentsthecashflowspayablebytheBankundernon-derivativefinancial liabilitiesbyremainingcontractualmaturitiesatthereportingdate.Theamountsdisclosedinthetablearethecontractualundiscountedcashflows,whereastheBankmanagestheinherentliquidityriskbasedonexpecteddiscountedcashinflows.

At 31 December 2010

DuetobanksDuetocustomersOtherfinancialliabilities Total financial liabilities

Less than one month

4,320,40824,866,767

221,918

29,409,093

From 1 to 3 months

349,254

12,212,091-

12,561,345

From 3 to 12 months

2,821,353

32,358,299-

35,179,652

From 1 to 5 years

-1,313,990

-

1,313,990

Over 5 Years

---

-

Total

7,491,01570,751,147

221,918

78,464,080

66 67


3.3 Liquidity Risk (continued)


3.3.2 Off-balance sheet items


3.4 Fair value of financial assets and liabilities

Financial instruments not measured at fair valueThetablebelowsummarisesthecarryingamountsandfairvaluesofthosefinancialassetsandliabilitiesnotpresentedontheBank’sstatementoffinancialpositionattheirfairvalue.

a) Loans and advances to banks

Loans and advances to other banks include inter-bank placements. The fair value of fixed rate placements andovernightdeposits istheircarryingamount.Theestimatedfairvalueof fixed interestbearingdeposits isbasedondiscountedcashflowsusingprevailingmoney-market interestratesfordebtswithsimilarcreditriskandremainingmaturity.WithrespecttodepositsinCreditInstitutions,theseareshort-termdeposits,forwhichthecarryinginterestratedoesnotsignificantlydifferfromthemarketinterestrateasat31December.

b) Loans and advances to customers

Loansandadvancesarenetofallowancesforimpairment.TheBank’sloanportfoliohasanestimatedfairvaluewhichissmallerthanitsbookvalueduetothehighermarketinterestratesprevailingattheendof2010asaresultoftheglobalfinancialcrisis.Themajorityoftheloanportfolioissubjecttore-pricingwithinayear.

Thefairvalueofloansandadvancestocustomersistheirexpectedcashflowdiscountedatcurrentmarketrates.Currentmarketratesareinterestrateswewouldchargeatthemoment(yearend).

c) Financial assets held to maturity

The fair valueofheld tomaturity investments isdeterminedbyusingquotedprices forsimilar instrumentsas thediscountingrateoffuturecashflowsatthereportingdate.Suchinvestmentsareshortterm,andagainthecarryinginterestratedoesnotsignificantlydifferfromthemarketinterestrateasat31December2010.

d) Due to other banks and customers, other deposits and other borrowings.

Theestimated fair valueof depositswith no statedmaturity,which includesnon-interest-bearingdeposits, is theamountrepayableondemand.

Theestimated fairvalueof fixed interest-bearingdepositsandotherborrowingsnotquoted inanactivemarket isbasedondiscountedcashflowsusinginterestratesfornewdebtswithsimilarremainingmaturity.Thecarryingvaluediffersfromthefairvaluebecausethecarryinginterestratesarehigherthanthemarketinterestrateasat31December2010,becauseatyearendthebanksaregrantinghigherinterestratesinthecompetitiontoattractdeposits.

At 31 December 2009

DuetobanksDuetocustomersOtherfinancialliabilities Total financial liabilities

Less than one month

12,084,62523,036,485

224,025

35,345,135

From 1 to 3 months

4,014,385

11,461,390-

15,475,775

From 3 to 12 months

-

22,464,183-

22,464,183

From 1 to 5 years

-452,524

-

452,524

Over 5 Years

---

-

Total

16,099,01057,414,582

224,025

73,737,617

At 31 December 2010

LoancommitmentsLettersofGuaranteesLettersofCredit

OperatingleasecommitmentsTotal

At 31 December 2009

LoancommitmentsLettersofGuaranteesLettersofCredit

OperatingleasecommitmentsTotal

Less than one month

113,55974,951

-188,51017,312

205,822

463,61062,129

-525,73914,003

539,742

From 1 to 3 months

198,255133,92621,508

353,68951,935

405,624

145,735114,90311,311

271,94944,407

316,356

From 3 to 12 months

2,445,0161,610,673

-4,055,689

136,7454,192,434

2,224,1331,046,606

-3,270,739

112,0723,382,811

From 1 to 5 years

----

856,921856,921

----

594,010594,010

Over 5 Years

----

361,793361,793

----

418,720418,720

Total

2,756,8311,819,549

21,5084,597,8881,424,7066,022,595

2,833,4781,223,638

11,3114,068,4271,183,2115,251,638

Lettersofcreditandguaranteesgiven tocustomerscommit theBanktomakepaymentsonbehalfofcustomerscontingentuponthefailureofthecustomertoperformunderthetermsofthecontract.

Commitmentstoextendcreditrepresentcontractualcommitmentstomakeloansandrevolvingcredits.Commitmentsgenerallyhavefixedexpirationdates,orotherterminationclauses.

TheTiranaBankbranchnetworkincludes45rentedbuildingswhicharerentedunderoperatingleases.TheBank’spolicyistoenterintolongtermcontracts,whichvaryfrom10yearsto20years.Thecontractsarerenewedfollowinganegotiationbetweenbothpartiesinordertoagreenewtermsofthecontract.

Financial assetsLoansandadvancestobanksLoansandadvancestocustomersBusinessConsumerMortgage

HeldtomaturityFinancialInvestmentFinancial liabilitiesDuetocustomersDuetobanks

2010

1,255,53760,404,36649,169,816

3,302,2967,932,254

5,180,359

54,613,5587,453,923

2009

172,45457,399,03641,118,573

2,947,90513,332,558

2,705,304

44,727,41416,074,329

Carrying value Fair value2010

1,255,53754,742,99444,901,747

2,611,7947,229,453

5,242,843

59,534,6317,453,923

2009

172,45451,943,70837,289,635

3,627,52211,026,551

2,659,365

46,535,10616,074,329

68 69


3.4 Fair value of financial assets and liabilities (continued)

Duetobanksmainlyreferstoloanstakenfromtheparentwithamaturityofonemonthfromthedateofthebalancessheetandthereforetheirfairvalueisconsidertobeapproximatetothecarryingvalue.

Financial instruments measured at fair valueFairvaluehierarchyThefollowingtwohierarchieshavebeenusedbytheBankindeterminingthefairvaluesofitsfinancialassetsdesignatedatfairvaluethroughprofitorlossandavailableforsaleasat31December2010and2009:

•Level1Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilitiesareusedtodeterminethefairvalueoffinancialassets.Thislevelincludesequitysecuritiesonexchangemarkets.

•Level2InputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(i.e.asprices)orindirectly(i.e.derivedfromprices).

Thetablebelowsummarisesthecarryingamountsandfairvaluesofthosefinancialassetsthataremeasuredatfairvalueasat31December2010and2009.

3.5 Capital management

TheBank’sobjectiveswhenmanagingcapital,whichisabroaderconceptthanthe‘equity’onthefaceofbalancesheets,are:

•TocomplywiththecapitalrequirementssetbytheBankofAlbania.•TosafeguardtheBank’sabilitytocontinueasagoingconcernsothatitcancontinuetoprovidereturnsforshareholdersandbenefitsforotherstakeholders.•Tomaintainastrongcapitalbasetosupportthedevelopmentofitsbusiness.

Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employingtechniquesbasedontheguidelinesdevelopedbytheBaselCommitteeandtheEuropeanCommunityDirectives,asimplementedbyBankofAlbania,forsupervisorypurposes.TherequiredinformationisfiledwithBankofAlbaniaonaquarterlybasis.

BankofAlbaniarequireseachbankorbankingGroupto: (a)holdtheminimumlevelof theregulatorycapitalof1billionLEKand(b)maintainaratiooftotalregulatorycapitaltotherisk-weightedasset(the‘Baselratio’)atorabovetheinternationallyagreedminimumof12%.

TheBank’sregulatorycapitalasmanagedbyitsRiskDepartmentisdividedintotwotiers:•Tier1capital:sharecapital(netofanybookvaluesofthetreasuryshares),retainedearningsandreserves createdbyappropriationsofretainedearnings.

•Tier2capital:qualifyingsubordinatedloancapital,collectiveimpairmentallowancesandunrealisedgains arisingonthefairvaluationofequityanddebtinstrumentsheldasavailableforsale.

Financial assetsFinancialassetsdesignatedatfairvaluethroughprofitorlossFinancialassetsavailableforsale

Level 1

-

35,836

Level 2

13,376,734

-

2010 2009Level 1

-

38,503

Level 2

14,986,551

-

3 Financial risk management (continued)

3.5 Capital management (continued)

Therisk-weightedassetsaremeasuredbymeansofahierarchyoffourriskweightsclassifiedaccordingtothenatureof−andreflectinganestimateofcredit,marketandotherrisksassociatedwith−eachassetandcounterparty,takingintoaccountanyeligiblecollateralorguarantees.Asimilartreatmentisadoptedforoff-balancesheetexposure,withsomeadjustmentstoreflectthemorecontingentnatureofthepotentiallosses.

ThetablebelowsummarisesthecompositionofregulatorycapitalandtheratiosoftheBankfortheyearsended31December.Duringthosetwoyears,theBankcompliedwithalloftheexternallyimposedcapitalrequirementstowhichtheyaresubject.

Deductionsrepresentinvestmentsinfinancialinstitutionsover10%andintangibleassets.TheintangibleassetsarealsodeductibleamountfromTierIandTierIIcapital.

Thecapitaladequacyratioiscalculatedbasedonthestatutoryfinancialinformation,shownabove.

4 Critical accounting estimates and judgments

TheBankmakes estimates and assumptions that affect the reported amounts of assets and liabilitieswithin thenextfinancialyear.Estimatesandjudgmentsarecontinuallyevaluatedandbasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.

(a) Impairment losses on loans and advances

TheBankreviews its loanportfoliostoassess impairmentat leastonaquarterlybasis. Indeterminingwhetheranimpairmentlossshouldberecordedinprofitorloss,theBankmakesjudgmentsastowhetherthereisanyobservable

Tier 1 capitalSharecapitalStatutoryreserveRevaluationdifferencesforstatutoryreporting

Total qualifying Tier 1 capital

Tier 2 capitalSubordinatedliabilityRevaluationreserve

Total qualifying Tier 2 capital

Deductionsfromregulatorycapital

Total regulatory capital

Risk-weighted assets:On-balancesheetOff-balancesheet

Total risk-weighted assets

CAR ratio

2010

9,250,2051,154,502

575,867

10,980,574

--

-

(114,359)

10,866,215

77,354,8081,907,147

79,261,955

13.71%

2009

8,964,442981,776519,668

10,465,886

--

-

(118,843)

10,347,043

64,004,9701,780,555

65,785,525

15.73%

70 71

4 Critical accounting estimates and judgments (continued)

dataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsfromaportfolioofloansbeforethedecreasecanbe identifiedwithan individual loan inthatportfolio.Thisevidencemay includeobservabledataindicatingthattherehasbeenanadversechangeinthepaymentstatusofborrowersinaBank,ornationalorlocaleconomic conditions that correlate with defaults on assets in the Bank. Management uses estimates based onhistorical lossexperienceforassetswithcredit riskcharacteristicsandobjectiveevidenceof impairmentsimilar tothoseintheportfoliowhenschedulingitsfuturecashflows.

Themethodologyandassumptionsusedforestimatingboththeamountandtimingoffuturecashflowsarereviewedregularly to reduceanydifferencesbetween lossestimatesandactual lossexperience.Totheextent that thenetpresentvalueofestimatedcashflowsdiffersby-/+5%,theprovisionwouldbeestimatedLEK372,644thousandhigherorLEK313,387thousandlower(2009:LEK224,927thousandhigherorLEK218,818thousand).

(b) Recent volatility in global financial markets

Therecenteconomiccrisishasresultedin,amongotherthings,asevereeffectsontheAlbanianeconomy,alowerlevelofcapitalmarketfunding,lowerliquiditylevelsacrossthebankingsector,and,attimes,higherinterbanklendingratesandveryhighvolatility instockmarkets. Indeedthefullextentof the impactof theongoingfinancialcrisis isprovingtobeimpossibletoanticipateorcompletelyguardagainst.

BorrowersoftheBankmaybeaffectedbythelowerliquiditysituationwhichcouldinturnimpacttheirabilitytorepaytheamountsowed.Deterioratingoperatingconditionsforborrowersmayalsohaveanimpactonmanagement’scashflowforecastsandassessmentoftheimpairmentoffinancialandnon-financialassets.Totheextentthatinformationisavailable,managementhaveproperlyreflectedrevisedestimatesofexpectedfuturecashflowsintheirimpairmentassessments.

Theamountofprovisionforimpairedloansisbasedonmanagement’sappraisalsoftheseassetsatthereportingdateaftertakingintoconsiderationthecashflowsthatmayresultfromforeclosurelesscostsforobtainingandsellingthecollateral.

ThemarketinAlbaniaformanytypesofcollateral,especiallyrealestate,hasbeenaffectedbytherecentvolatilityinglobalfinancialmarketsresultingintherebeingalowlevelofliquidityforcertaintypesofassets.Asaresult,theactualrealisablevalueonforeclosuremaydifferfromthevalueascribedinestimatingallowancesforimpairment.

5 Interest and similar income

Loancommissions recognized inprofit& lossarecalculatedusingeffective interest ratemethod. Interest incomeaccruedonimpairedfinancialassetsduring2010isLEK58,819thousand(2009:LEK492,467thousand).

6 Interest and similar expense

7 Net fees and commission income

8 Other gains

9 Other operating income

TheBankhasenteredintoleasingagreementsasalessorforpremisesowned.Theseareannualcontractswhicharerenewableuponconsentbybothparties.Therearenocontingentrentsrelatedtotheseoperatingleaseagreements.Theminimumnon-cancellableleasepaymentsareasfollows.

10 Personnel expenses

DuefrombanksincludingCentralBankFinancialassetsdesignatedatfairvaluethroughprofitorlossHeldtomaturity-financialinvestmentsInterestonloansandadvancestocustomersInterestsonoverdrafts

2010

124,6511,231,765

231,3914,568,149

168,5876,324,543

2009

128,810954,644420,521

4,087,067125,571

5,716,613

DuetobanksDuetocustomers

2010

241,8292,455,1892,697,018

2009

479,7812,236,600

2,716,381

FXtransactionsLettersofCreditMoneyTransferAccountmaintenancefeeOtherfeesreceivedTotal fees and commission incomeCreditCardsCorrespondentBanksOtherfeespaidTotal fees and commission expenseNet fee and commission income

2010

7,67233,518

106,583102,773

46,696297,242

(6,335)(2,597)(4,128)

(13,060)284,182

2009

8,24120,313

100,93881,37239,199

250,063

(3,846)(3,364)(3,100)

(10,310)239,753

ForeignexchangetransactiongainslesslossesFairvaluegain/(loss)onfinancialassetsdesignatedatfairvaluethroughprofitorloss

2010

480,156

(3,661)

476,495

2009

87,442

70,929

158,371

RentalincomeProceedsfromVisasharesOtheroperatingincome

2010

2,164-

6,0148,178

2009

2,3708,1861,880

12,436

Wages&salariesContributionstostatepensionfundsSocialsecurity’scostsOtherstaffcosts

2010

521,53850,189

6,98911,315 590,031

2009

467,17255,533

6,29517,165 546,165

NotlaterthanoneyearLaterthanoneyearandnotlaterthanfiveyearsLaterthanfiveyears

2010

2,300--

2009

2,100

72 73

11 Other operating expenses

Duringitsoperatingactivities,theBankentersintooperatingleaseagreementsasaleaseeforthepremisesitusesforitsbranches.TheoperatingleaseagreementsaredenominatedinEURandUSD.Theminimumleasepaymentsundernon-cancellableoperatingleasesaredisclosedinnote3.3.2.

12 Income tax expense

Thecomponentsofincometaxexpensefortheyearsended31December2010and2009are:

ReconciliationbetweenthetaxexpenseandtheaccountingprofitmultipliedbyAlbania’sdomestictaxratefor theyearsended31December2010and2009isasfollows:

Theeffectiveincometaxratefor2010is10.06%(2009:5.4%).AccordingtoAlbanianTaxlegislationtheTaxauthoritieshaverighttoexaminetaxreturnsforthe5yearsfollowingsubmissionofthereturn.

Thedeferredtaxincludedinthebalancesheetandchangesrecordedintheincometaxexpenseareasfollows:

RentalchargespayableunderoperatingleasesFeesfordepositsinsurance(ASD)TelecommunicationexpensesAdvertisingandmarketingSecurityandmaintenanceexpensesSubscriptionsUtilityexpensesStationeriesandconsumablesTravelexpenseOtherinsuranceexpensesFeesandothersimilarexpensesOther

2010 187,236148,743

143,122110,396

81,46279,598

54,07945,304

17,86811,62511,529

79,935970,897

2009

155,58082,410144,528

100,23372,697

83,31244,22848,899

16,71735,12218,803

31,685 834,214

CurrenttaxCurrentincometaxDeferredtaxRelatingtooriginationandreversaloftemporarydifferencesIncome tax expense reported in profit or loss

2010

145,025

22,799167,824

2009

59,235

43,153

102,388

AccountingprofitbeforetaxAtAlbanianstatutoryincometaxrateof10%Non-deductibleexpensesEffectoftranslationofequityOtherIncometaxexpensereportedinprofitorloss

2010

1,663,768166,377

11,025(5,620)(3,958)

167,824

2009

1,893,159189,316

7,859(88,774)

(6,013)102,388

12 Income tax expense (continued)

InitialvaluationandhistoricalcostofPPEFairvaluethroughprofitandlossAvailableforsalesecuritiesStartupcostsandcapitalisedexpensesAdjustmentfordepreciationoffixedassetsLoancommissiondeferredLoanprovisionscalculatedunderCentralBank’srulesandIFRSOtherliabilitiesTotalDeferred tax liability, net

Deferred taxassets

----

55,604

23,085

-

-78,68952,365

Deferred taxLiabilities

8,8646,6662,264

22,040

-

-

91,220

-131,054

IncomeStatement

(Dr)/Cr639366

(1,016)(4,740)

3,405

(4,508)

(18,715)

1,770(22,799)

Financial assets available for sale Reserve

(Dr)/Cr--

596-

-

-

-

-596

2010

InitialvaluationandhistoricalcostofPPEFairvaluethroughprofitandlossAvailableforsalesecuritiesStartupcostsandcapitalisedexpensesAdjustmentfordepreciationoffixedassetsLoancommissiondeferredLoanprovisionscalculatedunderCentralBank’srulesandIFRSOtherliabilitiesTotalDeferred tax liability, net

Deferred taxassets

----

52,199

27,593

-

-79,79230,162

Deferred taxLiabilities

9,5037,032

1,84417,300

-

-

72,505

1,770109,954

IncomeStatement

(Dr)/Cr734

(7,093)-

(8,976)

8,116

(5,782)

(31,012)

860(43,153)

Financial assets available for sale Reserve

(Dr)/Cr--

(2,081)-

-

-

-

-(2,081)

2009

74 75

13 Cash and balances with Central Bank (continued)

CurrentaccountswiththeCentralBankarenon-interestbearing.Theinterestratesfornostrosandsightaccountsarefloating.Nostroandsightaccountsaredetailedinthefollowingtable.

14 Loans and advances to banks

Theinterestratesforduefrombanksarefixed.

Loansandadvancestobanksaredetailedinthefollowingtable.

13 Cash and balances with Central Bank

CompulsoryreserveswithCentralBankarenotforeverydayusebyTiranaBankandrepresentaminimumreservedeposit,requiredbytheCentralBankofAlbania.Suchreservesarecalculatedasapercentageof10%oftheaverageamountofdepositsforthemonthowedtobanksandcustomers,andarebothinLEKandinforeigncurrency(USDandEUR).CashandbalanceswithCentralBank,excludingcashinhand,isincludedintheanalysisofthemaximumexposuretocreditrisk(Note3.1.4).

Theinterestratesoncompulsoryreservesduring2010and2009fluctuatedasfollows:

Cash in handNotesandcoinsinLEKNotesandcoinsinforeigncurrencyBalances with the Central BankCurrent accountinLEKinforeigncurrencyCompulsory reservesinLEKinforeigncurrencyAccrued interestTotal balances with Central BankCashintransittocorrespondentbanksNostroandsightaccountswithbanksAccruedinterestTotal nostro and sight accounts with banksCurrentNon-current

2010 562,322709,441

1,271,763

16,5291,393

17,922

2,855,0073,534,5516,389,558

19,000

7,698,243

261,305

96,349-

357,654

8,055,897 8,055,897

-

2009

496,045430,137926,182

325,219241

325,460

2,624,5372,730,2795,354,816

18,500

6,624,958

204,809165,599

50370,458

6,995,416 6,995,416

2010 Currency

LEKUSDEUR

Minimum

3.50%0.09%0,70%

Maximum

3.5%0.09%0.70%

Methodofcalculation

70%oftheyieldonrepurchaseagreements70%oftheFed’sfundsrate70%oftheECBinterventionrate

2010 Currency

LEKUSDEUR

Minimum

3.68%0,70%0.86%

Maximum

3.68%1.56%2.14%

Methodofcalculation

70%oftheyieldonrepurchaseagreements70%oftheonemonthUSDLIBORrate70%oftheonemonthEURLIBORrate

NostroandsightaccountswithbanksDeutcheBankAGDeutscheBankTrustCompanyAmericasPiraeusBankSANationalWestminsterBankplcRaiffeisenBankInternationalAGBancaPopolarediVicenzaIntesaSanpaoloSpAStandardCharteredBankFrankfurtStandardCharteredBankNewYorkTotal

S&PLT/ST

A+/A-A/A-1

B/CA+/A-1

A/A-1BBB+/A-2

A+/A-1A+/A-1A+/A-1

2010

69,385-

18,9972,2991,8541,6661,747

401-

96,349

2009

68,98265,36614,416

1,1215,891

-1,8665,4392,518

165,599

Termplacementswithbanks:ResidentNonresident

Accruedinterest

CurrentNon-current

2010 520,000735,481

1,255,481

56

1,255,537

1,255,537-

2009

-172,450172,450

4

172,454

172,454-

31 December 2010

PiraeusBankSAStandardCharteredBankFrankfurtNationalBankofGreece(Albania)Total

S&PLT/STB/CA+/A-1B/C

In original currency5,050,000

5,000,000

In LEK ‘000

700,78934,692520,0001,255,481

Currency

EUREURUSD

31 December 2009

PiraeusBankSA(London)StandardCharteredBankFrankfurtTotal

In original currency250,0001,000,000

In LEK ‘000

34,490137,960172,450

Currency

EUREUR

76 77

15 Loans and advances to customers

Thetablebelowshowstheindustryanalysisofgrossloans(withouttakingintoconsiderationthe“Loancommissionsdeferred”and“Accruedinterest”)grantedtocorporateandSMEsclients.

Theinterestratesforloansandoverdraftsarefloatingasfollows:

CorporatelendingSMElendingTotal corporate and SME lendingConsumerlendingMortgageOverdraftsCreditcardsLoancommissionsdeferredAccruedinterestGross loans and advancesLess:Allowanceforimpairmentlosses

CurrentNon-current

2010 869,701

47,929,80148,799,502

2,808,39210,783,053

291,742180,886

(359,509)444,872

62,948,938

(2,544,572)

60,404,366 24,641,82035,762,546

2009

2,692,48139,684,55742,377,038

3,046,55413,266,555

350,361174,104

(275,926)511,428

59,450,114

(2,051,078)

57,399,036 23,659,01533,740,021

ManufacturingElectricityTradeConstructionOtherindustriesTotal gross loans

2010

9,862,8412,005,967

11,135,38015,007,24110,788,07348,799,502

2009

7,589,1894,033,9219,515,313

14,534,3516,704,264

42,377,038

Currency

2010LEKUSDEUR

2009LEKUSDEUR

Interest Rate

12monthsBLR+(2,2-10,3)%12monthsUSD+(4,5-7.0)%12monthsEUR+(3,5-8,7)%

12monthsAIRTB+(2,0-9,5)%12monthsUSDLIBOR+(5-7)%12monthsEURLIBOR+(4,5-9)%

Additional Penalty Interest Rate

3,0%3,0%3,0%

3,0%3,0%3,0%

15 Loans and advances to customers (continued)

Themovementinallowances(impairment)forlossesonloansandadvancestocustomersisasfollows:

Thechargefor impairmentduring2010differsfromtheamountpresentedinprofitor lossfortheyearduetoALL86,934thousandofrecoveryfromamountspreviouslywrittenoffasuncollectable.Theamountoftherecoverywascrediteddirectlytotheprovisionslineinprofitorlossfortheyear.Itrelatestoloansandadvancestocustomers(“SME”category).

Themovementinallowancesforlossesbyclassesofloansduring2010isasfollows:

16 Financial assets designated at fair value through profit or loss

Financialassetsdesignatedatfairvaluethroughprofitorlossarecarriedatfairvaluewhichalsoreflectsanycreditriskandrelatedwrite-downs.Asfinancialassetsdesignatedatfairvaluethroughprofitorlossarecarriedattheirfairvaluesbasedonobservablemarketdata,beingthelastauctionforthetradingofsimilarsecuritiesheldbyBankofAlbania,theBankdoesnotanalyseormonitorimpairmentindicators.Therearenoanypastdueamountsrelatedtothesefinancialassets.

At1JanuaryChargefortheyearAt 31 December IndividualimpairmentsCollectiveimpairmentsGrossAmountsofLoans,individuallydeterminedtobeimpaired,beforededucinganyindividuallyassessedimpairmentallowances

2010

2,051,078493,4942,544,572

941,4611,603,1112,544,572

10,942,430

2009

1,364,137686,941

2,051,078

796,6631,254,4152,051,078

5,953,615

At1January2010ChargefortheyearAt 31 December 2010

At1January2009ChargefortheyearAt 31 December 2009

Corporate

59,235(34,273)24,962

59,950(715)

59,235

SME

1,559,406389,234

1,948,640

876,419682,987

1,559,406

Consumer

85,50139,355

124,856

84,3111,190

85,501

Mortgages

333,008100,446433,454

331,0781,930

333,008

Credit cards and overdrafts

13,928(1,268)12,660

12,3801,548

13,928

Total

2,051,078493,494

2,544,572

1,364,137686,941

2,051,078

At1JanuaryPurchasedduringtheyearFairvaluegainsSoldduringtheyearMaturedduringtheyearAt31DecemberCurrentNon-current

2010

14,986,55113,914,477

66,662(456,718)

(15,134,238)13,376,73413,376,734

-

2009

3,284,99514,916,228

70,323-

(3,284,995)14,986,55114,986,551

-

78 79

16 Financial assets designated at fair value through profit or loss (continued)

AllfinancialassetsdesignatedatfairvaluethroughprofitorlossconsistoftreasurybillsissuedbytheGovernmentofAlbania.Treasurybillsasof31December2010relatetozerocoupontreasurybillsoftheAlbanianGovernment.Thesetreasurybillshave12monthsmaturityandbearfixedannualinterestratesranging,during2009,between8.65%and9.45%.

All financialassetsdesignatedat fairvalue throughprofitor lossare issuedby theGovernmentofAlbania.AlbanianGovernmentSecuritiesarerated“BB/B”ifinforeigncurrencyand“BB+/B”ifinlocalcurrencyby“StandardandPoor’s”.

17 Financial assets available for sale

ThesharesinVisaIncheldbytheBankaregrantedbyVisaasaformofrewardforthelong-standingcooperationwiththeBank.Thesharesaregrantedonthebasisoftheperformanceagainstrevenueandmarketingexpendituretargets.

18 Financial assets held to maturity

18 Financial assets held to maturity (continued)

TheamountofLek5,180,359thousandasat31December2010ismadeupofLek2,385,426thousand,investmentsinAlbanianGovernment’sBondsdenominatedinAlbanianLekandLek2,794,933thousandofinvestmentsinAlbanianGovernment’sBondsdenominatedinEuro.

AlbanianGovernmentSecuritiesinforeigncurrencyarerated“BB/B”and“BB+/B”inlocalcurrencyby“Standard’sandPoors”.Therearenopastdueamountsasat31December2010.

TheinterestratesforAlbanianGovernmentBondsarefixed.ThematuritiesoftheAlbanianGovernmentBondsareasfollows:

ThemovementsintheAlbanianGovernmentBondsareasfollows:

During2009,anamountofLEK5,054,523thousandwhichconsistedofthenominalvalueofTreasuryBillsoftheAlbanianGovernmentclassifiedasfinancialassetsheldtomaturityasat31December2008wasalsomaturedanditisincludedinthestatementofcashflowsasproceedsfrommaturedfinancialassetsheld-to-maturity.

Maturity

Upto1Month1to3Months3to6MonthsUp12Months

Nominal value

900,0003,298,5923,815,5205,751,880

13,765,992

Accrued interest

71,267215,413163,483108,609558,772

Discount

(73,907)(253,127)(280,993)(406,664)

(1,014,691)

Change in fair value

94914,01523,34028,35866,662

Fair value

897,9323,274,8933,721,3505,482,559

13,376,734

31 December 2010

Maturity

Upto1Month1to3Months3to6MonthsUp12Months

Nominal value

1,300,0002,000,0004,641,3917,635,865

15,577,256

Accrued interest

102,742138,106245,466157,489643,803

Discount

(106,851)(162,000)(389,137)(646,843)

(1,304,831)

Change in fair value

1,4476,733

27,97534,16870,323

Fair value

1,297,3381,982,8394,525,6957,180,679

14,986,551

31 December 2009

Shares in Visa Inc At1JanuaryPurchaseSold(Losses)/gainsfromchangeinfairvalueAt31December

2010

38,503--

(2,037)35,836

2009

26,289-

(8,593)20,80738,503

Security Investments

CostAccruedinterestUn-amortiseddiscount

CurrentNon-current

2010

5,103,33390,570

(13,544)5,180,359

-5,180,359

2009

2,651,33355,124(1,153)

2,705,3041,804,685

900,619

Maturity

Up12Months12-24Months

Cost

881,3334,222,0005,103,333

Accrued Interest

18,31572,25590,570

Un-amortised discount

-(13,544)(13,544)

Book Value

899,6484,280,7115,180,359

31 December 2010

Maturity

Upto1Month1to3Months3to6MonthsUp12Months12-24Months

Cost

300,000450,000520,000500,000881,333

2,651,333

Accrued Interest

12,69211,507

1,35910,28019,28655,124

Un-amortised discount

(7)--

(1,146)-

(1,153)

Book Value

312,685461,507521,359509,134900,619

2,705,304

31 December 2009

Government bonds At1JanuaryPurchasesduringtheyearMaturedduringtheyearAt31December

2010

2,651,3334,222,000

(1,770,000)5,103,333

2009

7,187,833-

(4,536,500)2,651,333

80 81

21 Other assets

22 Due to banks

Borrowingsfromnonresidents,mainlyrelatetoborrowingsfromEuropeanBankforDevelopmentandPiraeusBankS.A.Greece(theParent),tofulfiltheneedsoftheBankforliquidity.TheaccruedinterestfromBorrowingswithnon-resident banks for 2010 are 13,621 thousand LEK (2009: 21,248 thousand LEK). Balances due to banks bearfloatingrates.

19 Intangible assets

20 Property and equipment

Cost:At1January2009AdditionsAt 31 December 2009At1January2010AdditionsAt 31 December 2010

Amortization:At1January2009AmortizationchargefortheyearAt 31 December 2009

At1January2010AmortizationchargefortheyearAt 31 December 2010 Net book value At 31 December 2009At 31 December 2010

Software

410,788184,671595,459

595,459150,597746,056

213,53590,079

303,614

303,614107,681411,295

291,845 334,761

Cost:At1January2009AdditionsDisposalsAt 31 December 2009

At1January2010AdditionsDisposalsAt 31 December 2010Depreciation:At1January2009DepreciationchargefortheyearDisposalsAt 31 December 2009

At1January2010DepreciationchargefortheyearDisposalsAt 31 December 2010Netbookvalue:At 31 December 2009At 31 December 2010

Land and buildings

689,81231,778

(21,810)699,780

699,780--

699,780

70,93533,430(1,051)

103,314

103,31433,357

-136,671

596,466563,109

Vehicles

131,98018,534

(330)150,184

150,18415,627(8,944)

156,867

47,49318,460

-65,953

65,95321,905(4,656)83,202

84,23173,665

Furniture and electronic equipment

1,334,58572,617

(34,696)1,372,506

1,372,506129,132(12,345)

1,489,293

779,448201,892(28,221)953,119

953,119161,363(10,193)

1,104,289

419,387385,004

Leasehold improvement

984,98272,827

-1,057,809

1,057,80967,396

(48,964)1,076,241

345,866100,284

-446,150

446,150129,789(25,273)550,666

611,659525,575

Total

3,141,359195,756(56,836)

3,280,279

3,280,279212,155(70,253)

3,422,181

1,243,742354,066(29,272)

1,568,536

1,568,536346,414(40,122)

1,874,828

1,711,7431,547,353

Other financial assetsOtherDebtorsClaimsVisacardOtherAccruedInterestOtherReceivablesfromCustomersTotalotherfinancialassets

AdvancePaymentsInventoryForeclosedcollateralsPrepaidExpensesOtherAssetsTotalotherassetsCurrentNon-current

2010

94,59111,73314,105

2,387122,816

85490,47378,30134,01541,233

367,692367,692

-

2009

52,80615,90066,875

3,278138,859

61962,34426,68034,77319,707

282,982 282,982

-

Current accountsResidentsNonresidentsBorrowingsResidentsNonresidentsAccrued interestCurrentNon-current

2010

8,697128,340137,037

3,382,5343,890,2677,272,801

16,8977,426,735 7,426,735

2009

19,03498,370

117,404

3,765,66512,168,89815,934,563

22,362 16,074,329 16,074,329

-

82 83

25 Provisions

Provisions were raised in 2008 for Lek 31,811 thousand to cover the suspense accounts which are still to bematchedtocounterpartiesfollowingtheupgradeoftheaccountingsoftware,whichtookplaceduringtheyear.Itisexpectedtobereversedin2011throughadecisionoftheBoardofDirectors.Theprovisionsasat1January2008relatedtoacashshortage(differences)identifiedinoneoftheATMsofLek3,195thousandandtotheassessmentbymanagementthatcertaintaxpositionstakenbytheBankwouldmostprobablynotbesustained,ifchallengedbythetaxauthorities,whichresultedinaprovisionamountofLek8,950whichincludestaxliabilitiesandrelatedinterestsandpenalties.AccordingtoAlbanianTaxlegislationtheTaxauthoritieshaverighttoexaminetaxreturnsfor5yearsfollowingsubmissionofthereturn.

26 Paid-in capital and share premium

During2010therewasanincreaseinsharecapital.Theincreasetookplaceon7December2010uponthedecisiontocapitalisetheprofitfor2009foranamountofEuro2,062,975.83theequivalentofLek281,848thousand.

ThetablebelowshowstheshareholdersstructureoftheBankas31December2010and2009.

On31December2010,theauthorisedandissuedsharecapitaloftheBankcomprisedof293,873shareswiththenominalvalueofEUR192,80(2009:293,873shareswiththenominalvalueofEUR185,88)allfullypaid.

Themovementinsharecapitalandsharepremiumisasfollows:

23 Due to customers

IncludedinthecustomeraccountsweredepositsofLEK1,086,595thousand(2009:LEK903,844thousand)heldascollateralforirrevocablecommitmentsunderdocumentarybusiness.Thefairvalueofthosedepositsapproximatesthecarryingamount.

Thedepositstocustomersarewithfixedrates.

24 Other liabilities

Accruedexpensesincludeexpensesonutilities,telephoneexpensesandbonusesrelatedtocurrentyearandwillbepaidtheyearafter.

Corporate customersCurrentaccountsTermdepositsOtherdepositsRetail customersCurrent/SavingsaccountsTermdepositsOtherdepositsAccrued interest Cheques payables and remittances

CurrentNon-current

2010

4,976,2997,156,000

723,91912,856,218

6,729,235

47,457,5581,526,540

55,713,333

1,005,784

11,108

69,586,443 68,382,373

1,204,070

2009

4,509,7554,763,382

311,2699,584,406

5,849,089

39,964,032289,096

46,102,217

824,753

34,872

56,546,248 56,138,447

407,801

DividendpayablePayablesonforeignexchangetransactionsAccruedexpensesOtherliabilitiesOther financial liabilitiesOthertaxespayableSocialinsurancepayable

CurrentNon-current

2010

8947,210

166,6198,000

221,9183,746

16,956

242,620242,620

-

2009

823,110

144,88275,951

224,0252,129

13,306

239,460239,460

-

At1JanuaryChargestoProfitorlossAt31December

2010 43,956

-43,956

2009

43,956-

43,956

PaidinCapital-authorized,issuedandfullypaidSharepremium

2010

7,219,9721,735,737

2009

6,938,1241,735,737

Shareholder’s name

PiraeusBankS.AGreeceDafnilaS.aMr.TzivelisIoannisTotal

Number of shares 2010

284,2193,7775,877

293,873

Share in % 31 December 2010

96,711,292,00

100,00

Number of shares 2009

284,2193,7775,877

293,873

Share in % 31 December 2009

96,711,292,00

100,00

At1January2009IncreasefromShareholder’scontributionIncreasefromretainedearningsAt 31 December 2009

IncreasefromShareholder’scontributionIncreasefromretainedearningsAt 31 December 2010

Number of shares

293,873--

293,873

--

293,873

Paid-in capital

6,102,618-

835,5066,938,124

-281,848

7,219,972

Share premium

1,735,643-

951,735,737

--

1,735,737

84 85

30 Related parties

Inthecourseofconductingitsbankingbusiness,theBankenteredintovariousbusinesstransactionswithrelatedparties.Relatedpartiesinclude(a)PiraeusBankS.AGreeceforsightdeposits,inter-bankplacementsandborrowings,and(b)TiranaLeasing(subsidiaryoftheparent)forlendinganddeposits.

TheimmediateandultimateparentoftheBankisPiraeusBankSA(Greece).

TheinterestrateappliedforPlacementswithPiraeusBankforyear2010varyfrom0.50%to1.80%(2009from0.25%to2.00%).

ForBorrowings,theinterestratesvaryforyear2010from2.30%to3.50%(2009from2.30%to4.08%).

Keymanagementcompensation

Onlyshorttermemployeebenefits(i.e.salariesandbonuses)areincludedinkeymanagementcompensation.Thepostemploymentbenefits,share-basedpaymentsandlongtermbenefitsarenotapplicableasnosuchbenefitsaregranted.

27 Other reserves

Otherreservesarecomprisedasfollows:

LegalreservehasbeenestablishedaccordingtotheBankofAlbaniaregulation“Ontheminimuminitialcapital for allowed activities of banks and branches of foreign licensed banks”, no.51, dated 22 April1999.Banksandbranchesofforeignbanksshallcreatereservesat1,25%upto2%oftotalrisk weighted assetsbydeducting1/5of theprofitafter taxesbeforepayingdividends.Thestatutoryreservehasbeenestablishedaccordingtoarticleno.39ofthebank’sstatute,whichrequiresestablishingofreservesbytaking5%ofthebank’snetincomeafterdeductedthelossesofthepreviousyears.Thisprocedureit’snotobligatoryifthereservesamountto1/10ofthebank’scapital.

Thelegalandstatutoryreservesarenotdistributable.

28 Dividend per share

The General Assembly of Shareholders has decided that no dividends should be distributed from theprofitoftheyear2009andthatitwouldbeusedfortheincreaseoftheShareCapitaloftheCompany.Nodecisionismadeon2010profits.

29 Cash and cash equivalents

ForthepurposeofCashFlowStatement,cashandcashequivalentcomprisesasfollows:

Asat1JanuaryRevaluationofinvestmentsecuritiesavailableforsaleDeferredtaxonrevaluationofsecuritiesavailableforsaleTransferfromRetainedEarnings2007

As at 31 December

Legal and statutory reserves

997,474

-

-

172,726

1,170,200

AFS reserves

18,726

(5,957)

596

-

13,365

Total other reserves

1,016,200

(5,957)

596

172,726

1,183,565

Legal and statutory reserves

683,456

-

-

314,018

997,474

AFS reserves

-

20,807

(2,081)

-

18,726

2010 2009

Total other reserves

683,456

20,807

(2,081)

314,018

1,016,200

CashinhandCurrentaccountswithCentralBankCashintransitwithbanksNostroandsightaccountswithbanksDuefrombanks

Notes

1313131314

2010

1,271,76317,922

261,30596,349

1,255,5372,902,876

2009

926,182325,460204,809165,599172,454

1,794,504

AssetsPiraeus Bank SA GreeceSightdepositsPlacementsDuetobanksBorrowings

2010

18,997700,789(58,835)

(1,142,158)(481,207)

2009

14,416137,960

(6,001)(12,168,898)(12,022,523)

LiabilitiesTirana Leasing (subsidiary of Piraeus Bank SA)Loansgiven(TiranaLeasing)DuetoTiranaLeasingBankDirectorsLoansgivenDeposits

2010 504,019

(6,797)497,222

48,516

(25,480)23,036

2009

787,976(11,569)776,407

65,089(6,471)58,618

Income and expensesPiraeus Bank S.A. GreeceInterestincomesInterestexpensesFeesandcommissionincomeFeesandcommissionexpensesTirana LeasingInterestincomesOtherexpenses

2010

3,255(163,636)

-(265)

(160,646)

23,206-

23,206

2009

141(423,786)

129(527)

(424,013)

43,047-

43,047

Short-term benefitsSalariesBonuses

2010

43,6967,189

50,885

2009

42,00415,41657,420

86

31 Presentation of financial instruments by measurement category

Thefollowingtableprovidesareconciliationofclassesoffinancialassetswiththemeasurementcategoriesasof31December2010:

Asof31December2010and2009,thetradingsecuritiesaremeasuredatfairvalue,withthechangesinfairvaluetakentotheprofitandlossaccountfortheperiod,theavailableforsalesecuritiesaremeasuredatfairvaluewiththechangesinfairvaluetakentothestatementofcomprehensiveincomefortheperiod.Loansandreceivablesandhelt-to-maturityfinancialassetsaremeasuredatamortisedcost.Asof31December2010and31December2009alloftheBank’sfinancialliabilitieswerecarriedatamortisedcost.

32 Events after the reporting date

Therearenoothereventsafterthereportingdatethatwouldrequireeitheradjustmentsoradditionaldisclosuresinthefinancialstatements.

CashandbalanceswithCentralBankLoansandadvancestobanksFinancialassetsdesignatedatfairvalueHeldtomaturityfinancialassetsFinancialassetsavailableforsaleLoansandadvancestocustomersOtherfinancialassetsTotal financial assetsOtherassetsTotal Assets

Loans and receivables

6,784,1341,255,537

---

60,404,366122,816

68,566,853

Designated at fair value through

profit and loss--

13,376,734----

13,376,734

Available for sale

----

35,836--

35,836

Held to maturity

---

5,180,359

--

5,180,359

Total

6,784,1341,255,537

13,376,7345,180,359

35,83660,404,366

122,81687,159,782

3,426,04490,585,826

2010

CashandbalanceswithCentralBankLoansandadvancestobanksFinancialassetsdesignatedatfairvalueHeldtomaturityfinancialassetsFinancialassetsavailableforsaleLoansandadvancestocustomersOtherfinancialassetsTotal financial assetsOtherassetsTotal Assets

Loans and receivables

6,069,234172,454

---

57,399,036138,859

63,779,583

Designated at fair value through

profit and loss

--

14,986,551----

14,986,551

Available for sale

----

38,503--

38,503

Held to maturity

---

2,705,304---

2,705,304

Total

6,069,234172,454

14,986,5512,705,304

38,50357,399,036

138,85981,509,941

3,131,48284,641,423

2009

table of contents - tirana bank...total outstanding loan portfolio at the end of the year amounted...

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