1 NLB BANKA SH.A. 2016 ANNUAL REPORT
1NLB BANKA SH.A. 2016 ANNUAL REPORT 1NLB BANKA SH.A. 2016 ANNUAL REPORT
3NLB BANKA SH.A. 2016 ANNUAL REPORT
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS 4
1. STATEMENT FROM THE PRESIDENT OF MANAGEMENT BOARD 6
2. MANAGEMENT BOARD OF NLB BANKA 8
3. MACROECONOMIC ENVIRONMENT AND MARKET DEVELOPMENT 10
4. STRATEGY 12
4.1. Mission, Values, and Vision 13
4.2. Strategic initiatives 14
5. FINANCIAL RESULTS 15
5.1 Statement of profit and loss and other comprehensive income 16
5.2 Statement of financial position 20
6. ACTIVITIES BY BUSINESS SEGMENTS 24
6.1 Corporate Banking 25
6.2. Retail Banking 27
6.3. Treasury and Payments 30
6.4. Information technology 31
7. RISK MANAGEMENT 32
8. CORPORATE SOCIAL RESPONSIBILITY 34
8.1. Social and environmental activities 35
9. HUMAN RESOURCES MANAGEMENT 36
10. CORPORATE GOVERNANCE 38
10.1. Corporate Governance and Management Bodies 39
10.2. Internal Audit 42
10.3. Compliance and PMLFT Sector 43
11. FINANCIAL STATEMENTS AND AUDITORS` REPORT 44
4 NLB BANKA SH.A. 2016 ANNUAL REPORT
Financial Highlights
Financial Highlights 2016 2015 2016/2015
Profit and loss account indicators (in EUR thousand)
Net operating income 27,755 26,347 5%
Net interest income 23,542 22,736 4%
Net non-interest income 4,213 3,611 17%
Total operating costs (11,118) (10,781) 3%
Employee costs (5,790) (5,893) -2%
Other general administrative expenses (4,277) (3,723) 15%
Depreciation (1,051) (1,165) -10%
Profit before provisions 16,637 15,566 7%
Net impairments and Provisions (4,084) (6,282) -35%
Credit impairments and provisions (3,075) (4,876) -37%
Other provisions and impairments (1,009) (1,406) -28%
Profit before Tax 12,553 9,284 35%
Tax (1,289) (1,042) 24%
Profit after Tax 11,264 8,242 37%
Balance sheet indicators (in EUR thousand)
Total assets 516,116 464,692 11%
Loans to non-banking sector (net) 329,607 289,339 14%
Loans to non-banking sector (gross) 357,589 313,471 14%
Deposits from non-banking sector 442,095 400,245 11%
Total equity 62,845 59,725 5%
5NLB BANKA SH.A. 2016 ANNUAL REPORT
2016 2015 2016/2015
Financial Highlights
Key indicators
ROE a.t (Return on equity after tax) 18.9% 14.9% 4%
ROA a.t (Return on assets after tax) 2.3% 1.8% 1%
CIR (Cost to income ratio) 40.1% 40.9% -1%
LTD (net loans NBS/deposits NBS) 74.6% 72.3% 2%
CAR (Capital adequacy ratio as per CBK) 16.6% 17.5% -1%
Tier 1 ratio 15.6% 16.5% -1%
Interest margin 5.3% 5.3% 0%
Average active interest rate 6.2% 6.4% -0%
Average passive interest rate 0.9% 1.1% -0%
Portfolio quality and provisions
Gross NPL (non-performing loans) 15,845 15,342 3.3%
Non-performing loans 3.60% 3.90% -0.3%
Share of NPL in total loans to NBS 4.40% 4.90% -0.5%
Cost of risk 98 176 -44.3
Other business indicators (IFRS)
Market share of total assets 14.9% 14.5% 0.4%
Market share of loans to NBS 15.9% 15.6% 0.3%
Market share of deposits to NBS 15.3% 14.8% 0.5%
Number of business units 45 46 -2.2%
Number of ATM's 68 61 11.5%
Number of active clients 185,315 170,697 8.6%
Number of employees 489 492 -0.6%
*Amounts presented by Index
*Percentages presented in difference
6 NLB BANKA SH.A. 2016 ANNUAL REPORT
1. Statement from the President of Management BoardDEAR STAKEHOLDERS OF NLB BANKA
NLB Bank Prishtina maintains its
long-standing tradition of successfully
conducting business, and in its 9th year
of operations in Kosovo market it has
achieved its best result so far.
Through our responsible growth and
operational excellence we grew our revenues
managed risk prudently and increased
efficiency of cost utilization while continuing
to reinvest in our people and services.
Although, competition in the financial
market has developed quite strongly during
2016, the bank has managed to remain one
of the three largest banks and most
important in the Kosovo banking market.
The banking sector during the past year,
has been profitable, well-capitalized, liquid,
and has increased in all the main balance
sheet items. Unavoidably from global
trends, the situation of excessive liquidity
of banks increased the pressure towards
interest rates while country development
indicators remained at a steady level. Such
an environment required agile reactions and
proactive management in order to achieve
the outstanding results. In a dynamic, fast
changing business environment prompt
responsiveness and adoption to change while
aiming for long term goals was the key
success factor of the bank. During the year
7NLB BANKA SH.A. 2016 ANNUAL REPORT
2016 we continued our journey towards
being a simple and resilient financial
institution.
NLB Banka is member of the largest
banking group with headquarter in the
region. NLB Group underwent a successful
transformation process while remaining
the key driver of economic development
fostered by ethical and competitive services.
2016 was a year of success within NLB
Group, where net profit amounted to EUR
110 million outperforming prior year by
20% with sound asset base of around EUR
12 billion, and capital adequacy ratio of
above 16%. The NLB Group is increasingly
solid and competitive banking group with an
autonomous regional strategy.
The core strategy of the Bank remains the
commitment of improving financial affairs
by connecting clients to the resources and
expertise they need to achieve their goals.
Our approach of recognition of divergences
amongst clients has been one of the key
components of competitiveness. Operating
actively amongst our clients enabled us to
be closer to them and deliver client tailored
services.
Amongst many achievements during the last
year, it is worth noting:
- In 2016, the Bank has realized a net
profit of EUR 11.3 million representing
an increase of EUR 3.1 million or 36.7%
compared to the year 2015;
- Increase of total assets for 11.1% and
deposits for 10.5% compared to the
previous year;
- Net loans of non-banking sector as at
31.12.2016 were EUR 329.6 million,
increasing by EUR 40.3 million or 13.9%
compared to the previous year.
Annual plan is exceeded for 13.4%;
- Net interest incomes representing the
highest portion of income in the amount
of Euro 23.5 million, showing
exceeding of plan for 14.4%;
- Non-interest net income have also
increased for 16.7%;
- Operative expenses were lower for 3.3%
compared to the plan. Efficiency in the
management of expenses has contributed
on resulting towards excellent indicator of
CIR 40.1%;
- Adequate management of credit risk
and prudent approach towards lending has
enabled the Bank to have lower loan loss
provisions for 37% compared to prior
year.
Non-performing loans have decreased
from 4.9% to 4.4% of total loans, while
loan portfolio coverage with provisions
have increased continuously;
- However, last year, the most substantial
result was achieved in area of upgrade of
products and services offered by the bank,
advancement of digitalization and
modernization of sales channels (POS
project, Visa business card, Comfort card,
M-banking, Contactless card etc).
The Bank successfully moves forward to
remain an example of a stable and prudent
financial institution, maintaining its strategic
orientation as one of the economic
developers through direct contribution to
the real economy. Successful attainment of
all the business goals on all business
segments, enabled outperformance of the
key performance indicators.
Presently our Bank is stronger, and has
increased the delivery of long-term value to
our shareholders and valuable services to
our clients, resulting from the approach of
providing high quality services. The Bank’s
vision is to work towards a responsible and
prudent growth through meeting financial
needs of our clients on long term, remaining
focused on client driven growth and
contributing to the GDP increase, while
consistently generating value for our
shareholders.
I strongly believe that we will continue to
successfully reach our short and long-term
objectives through our outreaching and value
creation activates for our stakeholders.
Always, we take our commitment to our
team members, clients, shareholders,
community and other stakeholders very
seriously; we exist because of stakeholders.
Despite our current challenges, our
underlying business strengths and our focus
on the long term value creation will continue
to benefit us as we move forward towards
our joint journey.
At the end, allow me to thank all those
who contributed to the achievement
of results and implementation of very
ambitious development strategy of NLB
group in Kosovo starting from bank staff,
Board of Directors, professional services
of Group and honorable shareholders.
8 NLB BANKA SH.A. 2016 ANNUAL REPORT
2. Management Board of NLB Banka
9NLB BANKA SH.A. 2016 ANNUAL REPORT
Lavdim KoshutovaMember of the Management Board
Albert LumeziPresident of the Management Board
Bogdan PodlesnikMember of the Management Board
10 NLB BANKA SH.A. 2016 ANNUAL REPORT
3. Macroeconomic environment and market development
11NLB BANKA SH.A. 2016 ANNUAL REPORT
Kosovo’s economy continued to mark
positive economic growth rate in 2016. Main
financing sources of the economic growth
were covered by domestic sources such as
bank lending and public expenditures, while
the external sector income were
characterized with a more unfavorable
performance, as a consequence of export,
remittances and decrease of foreign direct
investments.
Although Kosovo’s economic growth
has outperformed its neighbors and has
been largely inclusive, it is not sufficient to
reduce the high rates of unemployment.
The current growth model relies heavily on
remittances and external aid.
Inflation (CPI) - In the year 2016 Kosovo’s
economy was characterized with an inflation
of 0.5%. Price movement in Kosovo is
similar to the movement of prices in
international markets as a result of high
dependence of the Kosovo’s economy on
imports.
Remittances - Remittances continued to
represent a stable source of income and a
main driver of domestic demand and growth
amounting EUR 691 thousand in 2016
(2015: EUR 752 thousand).
Unemployment – remained relatively high
at approximately 40%, the largest in the
region and EU.
GDP – Growth in Kosovo in 2016 was 3.6%
of GDP, (2015: 3.5% of GDP), generated
mainly by domestic demand. The increase
of domestic demand is estimated to have
led to an increase in imports and,
consequently, to an increase of the current
account deficit.
Public debt – the lowest public debt in
the region at 13.8% of the GDP as of
31.12.2016 (2015: 12.9%), however in the
near future it is expected to increase.
Illustration 1: Real GDP growth and remmintances
12 NLB BANKA SH.A. 2016 ANNUAL REPORT
4. Strategy
13NLB BANKA SH.A. 2016 ANNUAL REPORT
4.1. Mission, Values, and VisionNLB Banka aims to be one of the banks
with highest quality services and the most
trustworthy financial institution in Kosovo
market. We will achieve this by focusing on
the needs of our clients and the society we
serve, therefore delivering long-term
sustainable value to all our stakeholders.
We are committed to developing a culture
of client focus, risk awareness, integrity,
efficient processes, and social responsibility.
Honoring the mutual trust of our clients,
employees, shareholders and the society in
which we work gives us great responsibility.
With uncompromising honesty and integrity
we honor this trust by working together with
our stakeholders for positive change, mutual
benefit, long-term growth and successfully
reaching for excellence. By incorporating
our values in everything we do, we have the
power to shape our
environment and further contribute to
positive changes.
NLB Banka will be focused on quality and
efficient day-to-day client service and will
meet or surpass clients’ expectations.
At NLB Banka we embody the following
core values within our corporate culture:
• Responsibility towards clients, employees
and social environment,
• Commitment to deliver on our promises
and objectives,
• Open communication and cooperation,
• A win-win player,
• Efficiency in fulfillment of our
commitments.
NLB Banka is innovative bank creating
simple customer-oriented solutions with
strategic focus on SME and retail segment:
• Simplicity champion (easy to
understand products and services, low
costs, fast processes);
• Service innovator (innovative solutions for
the clients);
• Client focus (everything built around and
driven by client needs);
• Local specialist (consistent strategy based
on the unique understanding of the home
markets).
NLB Banka will be a sustainably profitable
bank, predominantly working with clients in
core market segments where it can achieve
and hold a top three competitive position in
terms of (relative) profitability and market
share.
In its core, business the Bank will differentiate itself by in depth client understanding, by providing high service level and advisory competence, by easy accessibility and a competitive product/channel mix.
14 NLB BANKA SH.A. 2016 ANNUAL REPORT
The Bank’s strategic initiatives are based on
the fact that we are a local bank with foreign
shareholders and our aim is to transfer the
best practices of banking standards from
mother bank and good banking practices to
the local specific environment like Kosovo
to increase economic growth and
development.
The main strategic orientations of the Bank
are:
1. Client oriented and market position,
2. Profitability and balance sheet
optimization,
3. SME and retail banking orientation,
4. Active risk management,
5. Cost optimization.
4.2. Strategic orientations
15NLB BANKA SH.A. 2016 ANNUAL REPORT
5. Financial ResultsNLB Banka achieved stable profits,
good returns and optimal structure
of balance sheet and liquidity
position reflecting its stability.
All main indicators from the annual
plan where fulfilled or exceeded. The
Bank remained cautious and committed
towards stable growth, by using a
prudent approach towards lending,
which was reflected to a sound
quality of loan and fund’s portfolio.
16 NLB BANKA SH.A. 2016 ANNUAL REPORT
5.1 Statement of profit and loss and other comprehensive income
Income statement (000 EUR) 2016 2015 2016/2015
Total operating income 27,755 26,347 5%
Net interest income 23,542 22,736 4%
Interest income 27,062 27,221 -1%
Interest expenses (3,520) (4,485) -22%
Net non-interest income 4,213 3,611 17%
Net fee and commission income 4,691 3,866 21%
Fee and commission income 5,750 4,896 17 %
Fee and commission expenses (1,059) (1,030) 3%
Exchange differences 9 (130) -107%
Gains/Losses from FA&FL held for trading (net) 534 617 -13%
Other net operating profits/losses (1,021) (742) 38%
Total Operating Costs (11,118) (10,781) 3%
Staff expenses (5,790) (5,893) -2%
General and administrative expenses (4,277) (3,723) 15%
Depreciation (1,051) (1,165) -10%
Profit before impairments and tax 16,637 15,566 7%
Net Impairments and Provisions (4,084) (6,282) -35%
Profit before tax 12,553 9,284 35%
Tax (1,289) (1,042) 24%
Net profit 11,264 8,242 37%
17NLB BANKA SH.A. 2016 ANNUAL REPORT
NLB Banka during the year 2016 delivered
a net profit in amount of EUR 11,264
thousand (as per CBK EUR 11,282
thousand). The main drivers for such results
were: increase of loan portfolio, increase of
net interest income, increase of net fee and
commission income and other operating
income compared to previous year and
lower net impairments and provision.
Net profit compared to 2015, is higher by
37%. The Bank achieved higher ROE a.t. at
18.9% and a ROA a.t. at 2.3%, both higher
than previous year.
Profit before impairment and provisions
amounted to EUR 16,637 thousand and is
7% higher than last year.
Net interest income amounted to EUR
23,542 thousand, and is higher than previous
year by 4% as a result of higher income from
loan portfolio (volume is higher and also
active interest rates are decreasing slower
than expected) and lower deposits expenses.
Interest rates on deposits in 2016 were stable
but interest rates on NBS loans decreased
from month to month. Average active
interest rate of 2016 for corporate (existing
and new) was 7.5%; and average active
interest rate of 2016 for retail was 7.4%.
Illustration 2: Net profit 2015-2016
18 NLB BANKA SH.A. 2016 ANNUAL REPORT
Net noninterest income (net fees and
other noninterest income) amounted to
EUR 4,213 thousand, which represents an
increase of 17% compared to the previous
year. The increase was as a result of the
increase of cards business, new card issued
andincrease of fees.
Regarding total operating costs the
Bank continued to focus on cost
management through effective operations
while improving processes and controls.
As a result, total operating costs amounted
to EUR 11,118 thousand, however a slight
increase compared to previous year by 337
thousand or 3% considering the business
increase, driven mainly by higher card
business expenses, implementation of POS,
IT software maintenance etc.
Staff expenses amounted to EUR 5,790
thousand and were lower than previous year
by 0.1 mil or 2%.
Depreciation costs amounted to EUR
1,051 thousand and are lower than previous
year by 10% as a result of postponing some
of the planned projects.
General and administrative expenses amounted to EUR 4,227 thousand and are
higher than previous year by 15% or EUR
554 thousand.
Illustration 3: Interest income/expenses 2015-2016
19NLB BANKA SH.A. 2016 ANNUAL REPORT
Provisions and Impairment – As of
December 31, 2016 total provisions and
impairments amounted to EUR 4,084
thousand and decreased by 35% compared
to the previous year. Provisions are lower
compared to the previous year as a result of
the improvement of portfolio quality.
Tax expenses increased as a result of high-
er profits compared to the previous years,
while tax rate of 10% remained the same.
Illustration 4: Operating expenses 2015-2016
20 NLB BANKA SH.A. 2016 ANNUAL REPORT
5.2 Statement of financial positionBalance Sheet (000 EUR) 2016 2015 2016/2015
Total Assets 516,116 464,692
Cash and balances with central banks 61,547 50,593 11%
Placements to banks (net) 46,369 44,302 22%
Loans to non-banking sector (NBS)- gross 357,589 313,471 5%
Loan impairments to non-banking sector (27,982) (24,132) 14%
Loans to non-banking sector (net) 329,607 289,339 16%
Corporate Loans (net) 205,585 185,243 14%
Retail loans (net) 124,022 104,096 11%
Securities 65,944 67,924 19%
Fixed assets 11,915 12,027 -3%
Other assets 734 507 -1%
Total Liabilities 516,116 464,692 11%
Deposits from banks 1,339 221 506%
Borrowings (Leasing) 262 83 216%
Deposits from non-banking sector 442,095 400,245 11%
Deposits of corporate 101,937 91,325 12%
Deposits of retail 335,937 304,885 10%
Deposits of government 4,221 4,035 5%
Other liabilities 9,575 4,418 117%
Total equity 62,845 59,725 5%
Issued capital 51,287 51,287 0%
Reserves (including retained earnings) 178 167 6%
Other 116 28 314%
Profit/loss for the period 11,264 8,242 37%
Off balance sheet main items 37,303 41,251 -
Guarantees and letters of credit 23,178 26,359 -12%
Written-off loans in off balance 14,125 14,892 -5 %
21NLB BANKA SH.A. 2016 ANNUAL REPORT
Total balance sheet during 2016
increased by EUR 51.4 million (11%), and
as of 31.12.2016 amounted to EUR 516.1
million. Almost all active items in balance
sheets related to liquidity have increased as
a result of the increase of sight deposits. On
the other hand in 2016 the Bank was also
very successful in core business, where the
total gross loans of NBS amounted to EUR
357.6 million.
NLB Banka remains the third largest bank
in Kosovo, with a market share in total assets
of 15%. The market share in net loans was
16% and in deposits 15%.
Illustration 5: Total assets and assets structure
Illustration 6: Market Share
22 NLB BANKA SH.A. 2016 ANNUAL REPORT
Cash and balances with CBK amounted
to EUR 61.5 million, compared to the end
of 2015, it increased by EUR 11 million (or
22%). Cash is above the minimum liquidity
reserve required from the Central Bank of the
Republic of Kosovo.
Placements with other banks (net) amounted to EUR 46.4 million. Compared
to 31.12.2015, they have increased by EUR 2
million (5%).
Securities amounted to EUR 65.9 million,
compared to 31.12.2015 it decreased by EUR
2 million or 3%. Majority part of securities are
placed in Kosovo Government treasury bills
with maturities of 3, 6 and 12 Months T-bills,
2, 3 and 5 Year’s bonds with average yield of
0.885%. Besides Kosovo Government treasury
bills in Securities are a small amount of equity
investment in VISA as per fair value
amounting EUR 303 thousand.
With the high commitment of the Bank,
Net loans of the nonbanking sector
increased by EUR 40.3 million or 14%
compared to the previous year, amounting to
EUR 329.6 million. During 2016, net
corporate loans increased by EUR 20.3
million and net retail loans increased by EUR
20 million. The structure of net loans to
nonbanking sector consists of 63% of loans to
corporate and 37% of loans to retail,
well-balanced portfolio and risk spread
avoiding concentration risk.
The LTD ratio (net) of NBS has been
increasing steadily compared to previous year
and it improved to 75% (2015: 72%), driven by
increase of loans and maintenance of deposits
at appropriate level and improvement of
quality.
Illustration 7: Net loans to NBS
Net impairment and provisions for loan losses - The Bank continued to have a
conservative approach for creating
impairment for loans and provisions. The
amount of provision amounts to EUR 27.9
million, which increased compared to the year
2015 as a result of the increase of the loan
portfolio.
23NLB BANKA SH.A. 2016 ANNUAL REPORT
Deposits of NBS remained stable and
amounted to EUR 442.1 million higher by
EUR 41.9 or 10% compared to the previous
year. The structure of deposits consists of 76%
of deposits to retail and 23% of deposits to
corporates; the remaining 1% is deposits to
government.
Borrowings amounted to EUR 0.2 million
as at December 31, 2016. All borrowings
represent lease contracts for vehicles and
POS-es.
Shareholders` equity as per IFRS amount-
ed to EUR 62.8 million, and compared to
2015 increased by EUR 3.1 million as a result
of higher net profit. In current year, Bank has
distributed as dividend the amount of EUR 8.2
million. The Bank is in compliance with the
regulation of the Central Bank of the Republic
of Kosovo regarding the capital adequacy,
maintaining higher capital adequacy ratio than
required minimum of 12%.
The total registered capital was EUR 51,287
thousand (2015: EUR 51,287 thousands),
whereas the total shareholders` equity as of
December 31, 2016 was EUR 62,844
thousand (2015: EUR 59,724 thousands).
Illustration 8: Deposits from NBS
24 NLB BANKA SH.A. 2016 ANNUAL REPORT
6. Activities by business segments
25NLB BANKA SH.A. 2016 ANNUAL REPORT
6.1 Corporate BankingThe Bank is committed to be a key provider
of quality banking services to private
enterprises seeking a reliable Bank which
can support them on their business plans
and goals. During 2016, the Bank continued
to build strong relationships with the
corporate clients through providing a variety
of services and managing further increase
of the Bank’s position in the corporate
segment.
Being a part of a large banking group
enables us to provide high quality financial
services to the clients on a regional level and
it gives the Bank a competitive advantage in
the market. We’re dedicated to provide
assistance to the clients towards their
success. With this focus has come core
high-quality and low-risk sustainable growth.
The business activities with legal entities
continuously represent the largest share in
the Bank’s activities and recorded a solid
increase potential during 2016. During the
same year, the Bank provided services to
more than 15 thousand corporate and SME
clients, ranging from different industries,
including international companies and
financial institutions. By combining the
domestic market expertise with the
international know-how of NLB Group,
NLB Banka has already grown a reputation
for sophisticated concept for legal entities.
000 EUR 2016 2015 2016/2015
Amount of corporate loans (net) 205,585 185,243 11%
Amount of corporate & state deposits 106,158 95,360 11%
Number of clients 15,910 14,390 11%
Number of cards (debit) 8,811 5,762 53%
Number of E-banking 4,916 3,923 25%
Table 7.1.1. The main/key data on operations with corporate banking
26 NLB BANKA SH.A. 2016 ANNUAL REPORT
Regardless of the decrease of interest rates,
the Bank’s deposits continued to increase as
a result of client trustworthiness, amounting
EUR 106 million as of December 31, 2016.
During 2016 the Bank was very active in
internal increase of operations and
international relations.
In internal operations Bank has started with
POS terminals aimed primarily for adding
services and products, improving the
stability, capacity and availability of the
services for clients.
While in international relations the bank has
signed the following:
- Credit facility of EUR 5 million under
the EBRD’s Trade Facilitation Program,
to help small and medium-sized
enterprises (SMEs) trade across borders.
The project was signed as at July 25th,
2016, during a visit to Pristina by EBRD
President Sir Suma Chakrabarti.
- Loan Portfolio Guarantee Agreement
with Kosovo Credit Guarantee Fund
(KCGF). The KCGF Guarantee is
intended to facilitate increased lending
by the Guaranteed Party to MSMEs in
Kosovo, improving both the conditions
of loans and increasing the quantity of
MSME loans, thereby stimulating
economic growth.
- Moreover in 2016 in cooperation with
IFC, the Bank has developed and
lunched a SME product for financing
energy efficiency. The product is designed
for financing of investments to increase
energy efficiency in companies.
Illustration 9: Trend of loans & deposits with corporate banking 2015-2016
27NLB BANKA SH.A. 2016 ANNUAL REPORT
6.2. Retail Banking NLB Banka during 2016 was mainly
focused on improvement of services and
strengthening the skills and competencies
of the branch staff in order to provide more
complex financial advice and solutions to
clients’ needs.
Optimization of the Bank’s branch business
network capacity, enriching distribution
channels with innovative products, especially
digital distribution channels, provided
simple and friendly platform to access
banking products by clients. This resulted in
increase of lending portfolio during the year
2016, and resulted in attracting more clients
as well as achieving higher levels of client
satisfaction. The Bank continued with
transfer of banking standards and best
practices from NLB d.d.
The Bank is present throughout the territory
of Kosovo, across 9 major regions with total
of 45 branches and sub-branches and
additional 68 ATM’s located in all Banks
units as well as in the most frequented
places.
35 branches and sub-branches are renovated
in compliance with NLB d.d. standards,
whereas high effort was made to improve
all banking services and products, to tailor it
focusing towards clients’ needs for safe and
modern banking services.
New products and services - The Bank
in 2016 introduced to its clients new
products as follows:
- POS terminals (911) -
the implementation of the most
important project of the year;
- New credit card, VISA Credit Business;
- New credit card with non interest
installments up to 36 months – Master
Card Comfort Card;
- Launching the mobile application m-klik
- a new service for customers with smart
phones;
- Contactless payments – the launch of
contactless cards, Visa and Master.
000 EUR 2016 2015 2016/2015
Amount of retail loans (net) 124,022 104,096 19%
Amount of deposits from retail 335,937 304,885 10%
Number of clients 260,518 232,722 12%
Number of cards (debit cards) 150,070 79,552 89%
Number of cards (credit cards) 15,152 5,957 254%
Number of E-banking 10,988 7,901 39%
Table 7.2.1. The main data on operations with retail banking
28 NLB BANKA SH.A. 2016 ANNUAL REPORT
Year 2016 proved to be one of the most
successful in Retail loan business activity. The
Bank witnessed a significant increase both in
numbers and in amount of Retail loan
disbursement, which compared to the
previous year, increased by EUR 20 million or
19% (net).
The largest loan segment increase in numbers
and amounts is for housing loan segment,
which comprises around 55% of total loan
portfolio. During 2016 it was fulfilled one of
the main targets, which is quality improvement
of the loan portfolio. Around 98% of total
retail loan portfolio remained in “A” category.
Business with deposits to retail remains one of
the fundamental traditional and stable activities
of the Bank. Retail deposits at the end of
year 2016 amounted 335.9 million euro and
compared to 2015 it increased by EUR 31.1
million (increase of 10%) as a result of increase
of sight deposits at the end of 2016.
Professional treatment and customer care
has increased clients confidence to the bank.
During 2016, the bank increased number of
new clients by: 27,796 and were disbursed
EUR 76,835 thousand new loans. Total
balance as of yearend was EUR 124 million.
Illustration 10. Trend of loan & deposit operation with retail banking: 2015-2016
29NLB BANKA SH.A. 2016 ANNUAL REPORT
Modern distribution channels
The Bank continued to expand the product
portfolio of modern distribution channels by
introducing M-Klik and POS Acquiring
services as well as further development of
existing E-Klik, Cards and ATM services.
M-Klik (Mobile banking) platform of the
Bank now offers to all its users the possibility
to conduct all possible daily-banking activities
on the move from their mobile phone devices
and with significantly less costs.
POS Acquiring service platform has
broadened the opportunities of further
developing card business and increasing the
usage of card as a means of payment. As a
result we have developed new credit card
product COMFORT Card with interest free
installments for clients. This product from
the launching is proving to be the most sought
card from the range of credit card products
and it had a great impact in increasing the
number of credit card issuance and turnover.
As a result of development of electronic
business, number of transactions and turnover
from the clients using modern channels of
distribution has increased continuously.
Illustration 11. Structure of new loans of retail: 2015-2016
30 NLB BANKA SH.A. 2016 ANNUAL REPORT
6.3. Treasury and PaymentsAssets and Liabilities ManagementRetail clients’ deposits remained the main
stable source of funding for the Bank in
2016.
In order to respond to the dynamic pricing
environment, the Bank regularly revised
its Pricing Policy on customer deposits and
loans.
Liquidity ManagementOver the year 2016 the surplus liquidity of
the whole banking sector maintained
downward pressure on the customers loans
and deposits interest rates.
During the year, NLB Banka optimized its
liquidity reserve by still maintaining plentiful
levels of liquidity buffers. Cash and current
account with Central Bank also moved
substantially by 21% upwards as a result of
the increase of liquidity.
During 2016 the Kosovo Central Bank
implemented the earlier announced ECB
deposit interest rate measures i.e.
introduction of negative interest rates on the
commercial banks balances with the Central
Bank over the liquidity reserve amount.
The negative interest rate of 0.4% p.a. was
implemented as from 1st of August 2016.
NLB Banka managed the secondary
liquidity reserve by keeping the funds in the
banks applying lower negative interest rate.
In the period between 1.1.-31.12.2016, the
average fulfillment of the Bank’s obligatory
minimum required liquidity reserve of 10%
was maintained during the year at the
average level of 13%.
The surplus liquidity of the Kosovo banks
in 2016 caused increase of Kosovo banks
appetite for buying local securities, which
caused reversed course in the Kosovo T-bills
yield curve by pivoting downward until the
end of the year.
The Bank complied with the debt ceilings
determined by the newly introduced
methodology of credit rating analysis and
classification based on the existing credit
rating from international credit rating
agencies and NLB Group internal
methodology.
Foreign Exchange Market and Payments systemsNLB Banka is the only one bank in the
Kosovo market offering foreign currency
exchange services in 9 (nine) liquid
currencies – USD, CHF, GBP, NOK, SEK,
AUD, CAD, HRK and DKK.
On the international foreign exchange
market, during 2016 over 9,330 transactions
were traded presenting an increase of 11%
compared to last year (2015: 8,382 trade
deals) for the almost doubled amount of
EUR 595 million (2015: EUR 340 million).
Most actively traded currency pairs were
EUR/CHF, EUR/USD, EUR/NOK and
EUR/GBP. The NOK sales by the clients
continued to increase of trading volumes,
but at the end of the year appears the GBP
sales increasing rapidly, comparing in the
beginning of the period GBP 2.6 million to
GBP 88 million at the end of the period.
In the scope of domestic payments on the
1st of July 2016 the Bank implemented the
newly launched KIPS (Kosovo Inter-Bank
Payment System) in compliance with the
latest messaging formats (ISO 20022)
enabling real-time payments processing
and high volumes of bulk payments in a
single system.In the scope of International
Payments, the bank signed Fixed fee Nostro
payments Agreement with NLB Skopje and
NLB Beograd.
In the field of international payment
transactions, in 2016, the turnover increased
by 11%; around 44 thousand payments
(2015: 49 thousand) were processed, as well
a total turnover of 680 million EUR (2015:
591 million EUR) was recorded.
In the field of domestic payment
transactions, in 2016 more than 2.10 million
payments were processed, as well the bank
reached a total turnover of EUR 2,09 billion
( 2015: EUR 2 billion, or 2% more than in
2015.
Trade FinanceDuring 2016, it was concluded the Trade
Finance Program Agreement with European
Bank for Reconstruction and Development
- EBRD. The Agreement helped the bank
to enhance and expand the assistance for the
importing clients in their international trade
transactions by issuing on their behalf all
types of required trade finance instruments,
as well to cooperate with more
correspondent banks and to easily manage
the encumbered liquidity reserve.
During 2016 it is also indicated an increase
in the number of Escrow Agreements
established between our Bank (acting as
Agent), the client and other third parties.
31NLB BANKA SH.A. 2016 ANNUAL REPORT
6.4. Information technologyDuring 2016, in addition to regular support
to business operations, a number of
infrastructure and application projects have
been implemented in IT field in order to
ensure proper IT support for the business
processes and development initiatives.
At the beginning of 2016, the bank
developed internally and implemented a
new interface for secure data transfer with
the Bankart card processing center replacing
the legacy Connect Direct application.
IT provided support for the
implementation of POS terminal and
mobile banking project, and for the related
CMS and core banking developments. IT
continued with its structured, planned and
phased approach towards private cloud
adoption through server virtualization and
consolidation efforts.
IT actively supported the development of
the new interface between the bank's core
system and new ISO 20022 standards based
Real-time Gross Settlement system
implemented by the Central Bank of
Kosovo (CBK) enabling efficient and
reliable clearing and settlement of financial
transactions between the bank and CBK.
Several other business processes where
supported by internal IT development
including new application for client personal
data cleansing project, automated interface
for account status reporting to Central Bank
of Kosovo (CBK), Early Warning System
module, automated interface with the
Deposit Insurance Fund of Kosovo (DIFK),
new scenarios for Anti Money Laundering
system, module for online application for
Guaranties, etc.
32 NLB BANKA SH.A. 2016 ANNUAL REPORT
7. Risk Managment
33NLB BANKA SH.A. 2016 ANNUAL REPORT
As a financial institution the Bank has an
approach of taking risk on day to day
basis on all the decision making layers in
a responsible manner. Our organizational
culture underpins that we are one team with
shared responsibility on the risk
management, by taking risk with an
ownership mindset and sound judgment.
Robust risk management practices are
embedded within day to day activities of the
Bank, through a well -established
organizational structure supported and led
by a sound risk management strategy
ensuring appropriate overview and
accountability within the Bank.
Risk management activities are enhanced by
further involvement in the strategic decision
making process, also adding value and risk
awareness in scopes such as pricing, product
development and approach to the market.
Therefore, the main role of the risk
management is reflection and
implementation of the risk appetite of NLB
Banka sh.a, in the light of local market
specifics, with a sole objective of
maintaining and contributing on the effective
and efficient asset quality management.
The risk management function its wide
spread structure of non-executive and
executive risk governance ensures that credit
risk, market risk, liquidity risk, including
operational risk are effectively managed.
Employment of a three lines of defense
model is the backbone of the risk
governance structure of the Bank.
Credit Risk- one of the main activities of
NLB Banka sh.a is direct lending activity,
which is also the key driver of credit risk
exposure. Therefore in order to establish a
prudent approach towards risk management,
the Bank has employed practices aligned
with NLB Group risk management strategy
and CBK regulations acknowledging local
specifics and differences of business
environment prevailing in the Kosovo
market. Such an approach enabled
installment of an efficient and effective credit
risk management system.
Operational Risk - Purpose of risk
management is to manage the exposure
towards the operational risk and mitigate
the potential loss that may occur as a result
of inappropriate internal systems, process
of control, weaknesses and failures during
the process of work, illegal activities and
external events which may cause losses to
the Bank. In order to enable a sound system
of operational risk management, the Bank
has established appropriate structures
(operational risk management committee)
and assigned responsibility and
accountability through a decentralized
approach with in the organizational structure
of the Bank, in order to ensure efficient
risk identification, recording, mitigating and
monitoring of operational risk. The loss
events arising from operational risk were
followed on monthly basis, actively
monitored and reported to internal bodies
of the Bank.
Details on Risk Management including
credit risk, liquidity risk, interest rate risk,
capital management risk, etc. are disclosed
in note (31) in risk management section of
the audited financial statements.
34 NLB BANKA SH.A. 2016 ANNUAL REPORT
8. Corporate social responsibilityThe Bank conducts activities in
accordance with the approved
“Social and Environmental Policy”
and best international practices for
corporate social responsibilities.
We strongly believe that being
economically successful and competitive
generates value for all of our stakeholders
including the shareholders, clients,
employees, as well the whole society and
economy. We continue to apply high
environmental and social standards to our
business to support a sustainable future.
Progress and prosperity are driving us when
we initiate and support educational, social,
and cultural projects that help people to
fulfill and reach their potential.
35NLB BANKA SH.A. 2016 ANNUAL REPORT
8.1. Social and environmental activities Progress and prosperity are driving us when
we initiate and support educational, social,
and cultural projects that help people to
fulfill and reach their potential.
The Bank applies the principle fair
treatment and equal opportunities for all
employees at Bank. The Bank continues to
have a balanced employee structure between
female and male employees.
In 2016, the Bank has made efforts to
increase the knowledge of its employees
through various seminars, trainings, best
practices and experiences from the NLB
Group Banks. The Bank has also
provided financial assistance for studying
and professional development in
Kosovo and abroad in order to maintain
high standard of services provided to all the
stakeholders.
NLB Banka’s contribution through 2016
was focused in supporting the activities and
projects of significant economic, social and
cultural value, which contribute directly to
facilitating and improving the lives of the
citizens of Kosovo in general.
NLB Banka supported financially the
following:
- The renovation on two floors at the
Pediatrics Hospital, Psychiatric neurology
ward, Hematology and Oncology ward,
Genetics and Gastroenterology ward
(chronic cases and cases acute);
- Donated at Gala Charity Dinner
organized by American Chamber of
Commerce in Kosovo for the purpose
of education fundraising that promotes
children with extraordinary intelligence
level, and 30% of the fund will be allocated
for the scholarship fund for students from
Kosovo;
- Donated to the event “Let’s Dance for
Mothers and Children” for the purpose to
acquire a pediatric vision screening system
to diagnose eye and vision disorders in
premature and newborn babies and
prevent blindness, procure supplies to
expand the neo-natal transportation
system, expand the services of the
Women’s Health Resource Centers, and
continue the delivery of Survanta
medication to cover the needs of all
premature babies in Kosovo;
- Collection of clothes that have been
donated to residents of the Special
Institute in Shtime organized by the
American Chamber of Commerce;
- Fourth Charity Tournament in Bowling
organized by the Foundation of American
Chamber of Commerce in Kosovo;
- Charity Football Tournament which was
organized by AmCham;
- Sponsorship to Kosovo Chess
Federation for European individual
championship in Chess, the biggest sport
tournament held in Kosovo with
participation of more than 400 chess
players, representatives from more than 50
European countries;
- Sponsorship to FC “Prishtina” during the
championship 2016/2017.
Health at work - With the purpose of
protecting the health of employees in the
Bank, through different modes of
communication has been raised the
awareness of employees to living a healthy
lifestyle, and the Bank signed the new
contract for health insurance of employees
and their family member’s.
36 NLB BANKA SH.A. 2016 ANNUAL REPORT
9. Human resources management
37NLB BANKA SH.A. 2016 ANNUAL REPORT
NLB Banka is committed to use higher
standards of NLB Group which operates in
EU and all the time in line with Kosovo’s
law. Human Resources policies are oriented
towards the professional growth of staff
and level of expertise, strengthening and
maintaining a motivating work environment
and accountability for employees; achieving
long-term sustainability and continuity of
administrative capacity; and improving the
regulatory and organizational structure of the
Bank.
The Human Resources and Organization
Section in 2016 has proved that it is possible
to accomplish the mandatory expectations
as well as the preferable ones, for each
employee in each role within the Bank, by
exceeding most of the targets and to
accomplish adequately some of them.
The following key activities were conducted
in 2016:
- Measurement of organization culture -
considering that for the first time in the
Bank was conducted the measurement of
organization culture, it was important to
have a clearer picture of the difference
between the ideal culture and the current
culture. Based on the received results,
we are in the process of undertaking the
activities to improve the current culture as
well as to reduce the gap between the ideal
and current one.
- We actively continued the implementation
of management by objectives, i.e. the
setting of goals, assessment and
remuneration, and we have seen the
results and the commitment of employees
during the whole year, as well as the
positive results in the profit at the yearend
2016.
- Assessment of managerial competencies
with the Method 360°, where the managers
were able to see a clearer picture of how
were assessed their managerial
competencies and their approach towards
colleagues.
- E-training in ECHO application - During
2016 were organized e-trainings and
e-testing in several modules, in which
participated all the employees of the
Bank. NLB Banka has been using the
E-cho application as an effective,
easily available and cost-efficient method
of e-training, the aim of which is to transfer
knowledge and information to large groups
of employees.
Improvements in the organizational
structure of the Bank has been the focus of
Human Resources Policy, with the purpose
of increasing the efficiency of the Bank,
strengthening coordination and communi-
cation between units, adaptation of these
structures to the new activities arising from
the strategic objectives of the institution, as
well as meeting the standards of NLB Bank
d.d.
Table 9.1. Structure of employees as per education and gender
Illustration 12. Structure of employees
Educational background 2016 2015 2016/2015
Less than high school 1 1 0
High school degree 200 222 -22
Collage degree 24 24 0
University degree 238 221 17
Master and PHD 26 24 2
Structure by gender 2016 2015 2016/2015
Male 217 220 -3
Female 272 272 -
38 NLB BANKA SH.A. 2016 ANNUAL REPORT
10. Corporate Governance
39NLB BANKA SH.A. 2016 ANNUAL REPORT
10.1. Corporate Governanceand Management Bodies
The Bank has a clear organizational structure that precisely defines the rights and responsibilities of the members of the Boards of Directors and other
Management Bodies, the other employees as well as the lines of control in the performance of daily duties.
The organizational structure of NLB Banka is as follows:
40 NLB BANKA SH.A. 2016 ANNUAL REPORT
The Bank’s main bodies are:
• General Meeting of Shareholders
• Board of Directors
• Audit Committee
• Risk Committee
• Management Board
General Meeting of Shareholders
The General Meeting of Shareholders of
NLB Banka meets and makes decisions at
regular and extraordinary meetings, where
it adopts resolutions in accordance with the
law. The nominal shares assign the owner
the right on dividend payment and voting
right at the General meeting of
Shareholders.
On 31.12.2016 the Bank’s authorized share
capital consisted of 42,739 regular shares
at par value of 1,200 EUR per share. The
largest shareholder of the Bank is NLB d.d.
with 81.21%, whereas more detailed data are
presented in notes to the Audited financial
statements within this report.
The responsibilities of the General Meeting
of NLB Shareholders are stipulated by NLB
Banka Statute, which are also in compliance
with the requirements set from the
regulatory.
During 2016, General Shareholders Meeting
had one meeting. The meeting was held on
March 31, 2016, which was a regular
meeting. In the meeting present were
89.63% of shareholders. On this General
Meeting of Shareholders were approved
several acts, among which the following:
External Auditors report for 2015, Business
plan, appointment of external auditor for the
year 2016 and supplements and
amendments of NLB Banka statute.
Composition of Board of Directors
Board of Directors is elected by the
shareholders of the Bank at the General
meeting of Shareholders and they are
responsible for the establishment of Bank
policies, including the Policies for risk
management and supervision of its
implementation. The BoD conducts its
activities in accordance with the provisions
of the laws on governing banks and the
Statute of the Bank.
The Board of Directors during the 2016 had
6 meetings.
The structure of BoD members of NLB
Banka sh.a. as of December 31, 2016, was
as follows:
• Archibald Kremser, chairman
• Jure Peljhan, vice chairman
• Andrej Baričič, member
• Božislava Javornik, member
• Ardiana Bunjaku, member
• Albert Lumezi, member – President of
Management Board of NLB Banka as per
function with no voting right.
NLB Banka Board of Directors has established the Audit Committee as required by the banking law.
The Audit Committee members as of
December 31, 2016 were:
• Andrej Baričič, President of Audit
Committee
• Ardiana Bunjaku, Member of the Audit
Committee
• Abdylmenaf Bexheti, Member of Audit
Committee
The Audit Committee work and activities
are defined in the Rules of Procedure of the
Audit Committee. Audit Committee is held
on quarterly basis in the Bank. During 2016
in total four (4) Audit Committee sessions
were held.
Areas covered by Audit Committee are:
approval of the internal audit reports,
assessment of audit procedures, assessment
of internal controls, review of the
compliance report, review of the bank’s
financial performance, review of the external
auditor’s management letter and final
audited financial statements and
recommends the external auditors. In
addition, audit committee also performs
acknowledgment, assessment and adoption
of recommendations and resolutions
regarding documents of external regulators.
Banks Risk Committee
As of December 31, 2016 the members of
Risk Committee were as follows:
• Bozislava Javornik, Chairman
• Jure Peljhan, member
• Ardiana Bunjaku, member
Risk Management Committee has been
established based on the law for banks
and operates based on the internal Rules
of Procedure for the Risk Management
Committee.
Risk management committee is the extended
arm of the supervisory board with a
specialized focus on the area of risk
management. The committee is employed
by three non -executive directors.
Risk management committee meets on
quarterly basis in order to monitor the risk
exposure and risk management of the bank.
41NLB BANKA SH.A. 2016 ANNUAL REPORT
As such the committee supervises the area
of credit risk, market risk and operational
risk, with the aim of efficient and effective
implementation of risk management appetite
and risk strategy of NLB Banka.
Composition of Management Board
NLB Banka Management Board governs,
represents and acts on behalf of the Bank,
independently and on its own responsibility,
as provided for by the Statute of Bank. The
president and members are appointed for a
term of four years, and may be
reappointed or recalled before their term
expires in accordance with law and Bank’s
Statute.
The Management Board of NLB Banka
consists of three persons Albert Lumezi as
President of the Management Board,
Bogdan Podlesnik as member of
Management Board and Lavdim Koshutova
as Member of Management Board.
In order to ensure the proper function of
the Bank’s business and monitor the regular
activities of the Bank, the following
operational Committees also operate within
the Bank:
• ALCO Committee (Within ALCO
Committee is established a
sub-committee called Pricing
Committee).
• Loan Committee
• Credit Risk management Committee
• Security Committee
• Operational Risk management
Committee
• IT Committee
• Personnel Committee
• Procurement Committee
• Marketing Committee.
42 NLB BANKA SH.A. 2016 ANNUAL REPORT
10.2. Internal AuditInternal Audit of the NLB Banka is carried
out by Internal Audit Sector. Internal Audit
Sector is independent function in the bank
that functionally reports directly to Audit
Committee of the Board of Directors of the
Bank, whereas administratively reports to a
member of Management Board of the Bank.
The main objective of the Internal Audit
Sector is to provide assurance and advice with
the aim of adding value and improving
operations in the Bank. This is achieved by
using a systematic and professional approach
to assess and improve the risk management,
system of internal control, governance and the
efficiency of operations of the bank. Internal
audit gives a significant contribution for the
bank to meet its strategic and business
objectives and applying best banking practices.
The Internal Audit’s work methodology, its
competencies and responsibilities are defined
in Charter for Internal Audit in NLB Banka
Prishtina and Internal Auditing
Methodology, which are prepared in
accordance with standards of Internal Audit
Center NLB d.d, international best practices
and local audit related laws and regulations of
Kosovo.
Internal Audit functions and complies with
International Standards for the Professional
Practice of Internal Auditing, Code of Ethics
of internal auditing and Kosovo rules and
regulations
Internal Audit Sector consists of four
employees that is adequate number of
resources at the moment. The Internal Audit
Plan 2016 was approved by the Audit
Committee of the Bank.
The audit plan for 2016 comprised of 16 audit
engagements, which was accomplished from
Internal Audit Sector on time. More
specifically, based on audit plan during 2016
were performed eleven (11) regular audit
reports covering key areas of bank`s
operations, five (5) un-announced
branch/sub-branch audits and 1 extraordinary
audit based on request from the Centre of
Internal Audit NLB d.d Lubljana. The total
number of given recommendation from
internal audit during 2016 was 125, out of
these 89 (or 71.2%) were closed/implemented,
34 (or 27.2%) are open recommendation/not
due yet and 2 (or 1.6%) recommendations are
still pending/not implemented on due date.
The findings and recommendations in the
audit reports are presented first to directors
of the organizational units subject to the audit
and Management Board. After, the internal
audit reports with the latter mentioned findings
and given recommendations are approved by
the Audit Committee of the Bank, which is
held on quarterly basis.
Additionally, Internal Audit regularly monitors
the implementation of recommendations
issued by the External Auditor, CBK and
Internal Audit Sector. The status of opened
recommendations has been reported on
quarterly basis to the Audit Committee of the
Board of Directors, the Center of Internal
Audit of NLB d.d. and Management Board of
the Bank.
Apart from status of opened recommendation,
Internal Audit reports to Center of Internal
Audit of NLB d.d also regarding important
findings and recommendations of the audit
engagements and all findings and
recommendations of the audit engagements
performed in group level. Finally, Internal
Audit also provides internal audit reports to
External auditors and external parties (police,
insurance companies, and the regulator) upon
their request.
43NLB BANKA SH.A. 2016 ANNUAL REPORT
10.3. Compliance and PMLFT 1Sector
1. PMLFT - Prevention of Money Laundry and Financing Terrorism
Compliance and PMLFT sector during 2016 continued to implement requirements in accordance to minimum standards of compliance and integrity of the NLB Group, by transmitting the most important issues related to code of ethics, misconduct, corruption, conflict of interest etc., to all employees, especially through organizing workshops and trainings.
Below are the most important activities within
the Compliance Sector:
- Supporting other business units by giving
opinions, advises and proposals in solving
different banking issues.
- Monitoring changes in the legal
environment.
- Trainings - education of employees in
focused topics related to code of ethics,
conflict of interest, corruption, misconduct.
The main activities of PMLFT are:
- Implementation of thematic reviews in bank
units of the adequacy of implementation of
legislative requirements related to the
PMLFT,
- Regular information to the employees in the
area of Compliance and PMLFT (by email,
during trainings),
- Trainings - education of employees in
focused topics related to Anti Money
Laundry.
- Regular monitoring and control of
compliance of operations with the PMLTF
Act, monitor’s guidelines, statutory
instruments and internal regulations,
- Upgrade of SironAML – Transaction
Monitoring System
- Monitoring and reporting of unusual/
suspicious transactions. Analysis of data,
information and documentation related to
the treatment of suspicious customer
operations
- Monitoring of guidelines related to the
international sanctions lists, Political
Exposed Persons, and other high-risk clients;
- The implementation of the
recommendations given by Central Bank of
Kosovo (CBK), Internal Audit.
44 NLB BANKA SH.A. 2016 ANNUAL REPORT
11. Financial Statements and Auditors` Report
NLB BANKA SH.A.
Financial Statements prepared in accordance with
International Financial Reporting Standards
For the year ended December 31, 2016
CONTENTS PAGE
STATEMENT OF MANAGEMENT’S RESPONSIBILITY 3
INDEPENDENT AUDITOR’S REPORT 4
STATEMENT OF FINANCIAL POSITION 6
STATEMENT OF COMPREHENSIVE INCOME 7
STATEMENT OF CHANGES IN EQUITY 8
STATEMENT OF CASH FLOWS 9
NOTES TO THE FINANCIAL STATEMENTS 10 - 80
NLB BANKA SH.A.
STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
7
Note
Year ended
December 31,
2016
Year ended
December 31,
2015
Interest and similar income 18 27,065 27,221
Interest and similar expense 19 (3,520) (4,485)
Net interest income 23,545 22,736
Fee and commission income 20 5,750 4,896
Fee and commission expense 21 (1,059) (1,030)
Net fee and commission income 4,691 3,866
Impairment losses on loans to customers 6 (3,079) (4,876)
Net Operating Income 25,157 21,726
Other operating income 22 543 616
Other operating expenses 22 (1,021) (871)
Other provisions 7 (1,009) (1,406)
Staff costs 23 (5,791) (5,893)
Depreciation and amortisation 10,11 (1,049) (1,165)
Administrative and other operating expenses 24 (4,277) (3,723)
Profit before tax 12,553 9,284
Income tax expense 25 (1,289) (1,042)
Net profit for the year 11,264 8,242
Other comprehensive income / (loss):
Items that are reclassified in profit and loss in
subsequent periods
Net gain/(loss) on change of fair value of AFS
securities 26 88
28
Total comprehensive income for the year 11,352 8,270
Basic and diluted earnings per share (in EUR per
share) 27 263.8 193.1
The accompanying notes from page 10 to 80 form an integral part of these financial statements.
NLB BANKA SH.A.
STATEMENT OF CHANGES IN EQUITY For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
8
Share
capital
Revaluation
reserve for
AFS securities
Retained
earnings Total
Balance as at January 1, 2015 20,498 - 30,956 51,454
Capitalization of retained earnings 30,789 - (30,789) -
Net profit for the year - - 8,242 8,242
Other comprehensive income (Note
26) - 28 - 28
Total comprehensive income loss
for the year
-
28
8,242
8,270
Balance as at December 31, 2015
51,287
28
8,409
59,724
Dividend paid - -
(8,232) (8,232)
Net profit for the year - - 11,264 11,264
Other comprehensive income (Note
26) -
88 - 88
Total comprehensive income loss
for the year - 88 11,264 11,352
Balance as at December 31, 2016
51,287
116
11,441
62,844
The accompanying notes from page 10 to 80 form an integral part of these financial statements.
NLB BANKA SH.A.
STATEMENT OF CASH FLOWS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
9
Notes
Year ended
December 31,
2016
Year ended
December 31,
2015
Cash flows from operating activities
Profit for the year before taxation 12,553 9,284
Depreciation 10 861 945
Amortization 11 188 220
Impairment losses on loans to customers 6 3,079 (4,876)
Write off of property and equipment 21 23
Other impairment losses and provisions 15 1,009 1,406
Interest income 18 (27,065) (27,221)
Interest expense 19 3,520 4,485
(5,834) (15,734)
Decrease in mandatory reserve with CBK 4.1 (1,103) 1,041
Decrease in loans and advances to banks 5 13,177 16,616
Increase in loans and advances to customers 6 (44,120) (32,020)
(Increase) / decrease in other assets (85) 397
Increase in due to banks 1,119 (794)
(Decrease)/increase in due to customers 41,851 (4,404)
Decrease in other financial liabilities 4,394 (492)
Increase/(Decrease) in other liabilities 782 1,127
10,181 (34,263)
Interest received 26,992 27,265
Interest paid (3,482) (5,945)
Income tax paid 25 (1,302) (810)
Cash inflows from operating activities 32,389 (13,753)
Cash flows from investing activities
Purchases of property and equipment 10 (687) (341)
Purchases of intangible assets 11 (271) (232)
Purchases of financial assets available for sale 8 (64,265) (92,331)
Matured/Sale of financial assets available for sale 8 66,245 73,641
Net cash from investing activities 1,022 (19,263)
Cash flows used in financing activities
Repayments of borrowings 16 (89) (2,547)
Payment of dividend (8,232) -
Cash inflows from financing activities (8,321) (2,547)
Increase in cash and cash equivalents 25,090 (35,563)
Cash and cash equivalents at January 1 4.1 59,688 95,251
Cash and cash equivalents at December 31 4.1 84,778 59,688
The accompanying notes from page 10 to 80 form an integral part of these financial statements.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
10
1. GENERAL
NLB Banka sh.a.is a commercial bank (the “Bank”) registered with the Kosovo Registry under
Certificate of Registration no. 70053484 dated December 18, 2007. The Bank was established by the
merger of two banks, NLB Kasabank and NLB New Bank of Kosova (during 2007 both banks were in
control of Nova Ljubljanska Banka d.d.) and it obtained the license for banking activities on December
19, 2007 from Central Bank of Kosovo (“CBK”).
The Bank is controlled by Nova Ljubljanska Banka d.d. Ljubljana incorporated in Slovenia (Parent),
which owns 81.21% of the ordinary shares as at December 31, 2016 (2015: 81.21% ordinary shares).
The solo shareholder of Nova Ljubljanska Banka d.d. Ljubljana is the Republic of Slovenia owning 100
% of shares as of December 31, 2015.
The Bank’s registered head office is located at Street. Ukshin Hoti no 124., Prishtina, Kosovo. The Bank
operates as a commercial bank to all categories of customers, through its network of 9 branches in
Prishtina, Gjakova, Peja, Ferizaj, Mitrovica, Gjilan, Besiana, Prizren, 39 sub-branches.
The bank as of December 31, 2016 had 489 employees. (December 31, 2015: 492).
The financial statements of the Bank for the year ended December 31, 2016 were approved by the
Management Board on March 3, 2017.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of compliance
The Bank prepares its financial statements according to International Financial Reporting Standards
(IFRS). The Bank’s financial statements for the year ended December 31, 2016 are prepared in
accordance with IFRS as issued by the IASB and its predecessor body. Additionally, the interpretations
issued by the International Financial Reporting Standards Interpretations Committee (IFRSIC) and its
predecessor body have been applied.
The Bank’s IFRS financial statements comprise the statement of financial position, statement of
comprehensive income, the statement of changes in equity, the statement of cash flows, significant
accounting policies and the notes to the financial statements. These financial statements cover the
individual entity as the Bank is not a parent.
2.2 Basis of preparation of financial statements
The financial statements have been prepared on a going concern basis, under the historical cost
convention as modified by the revaluation of available for sale financial assets and financial assets and
financial liabilities at fair value through profit or loss, if any. The principal accounting policies are set
out below.
2.2.1 Going concern
The Bank’s management has made an assessment of its ability to continue as a going concern and is
satisfied that it has the resources to continue in business for the foreseeable future. Furthermore,
management is not aware of any material uncertainties that may cast significant doubt upon the Bank’s
ability to continue as a going concern. Therefore, the financial statements continue to be prepared on
the going concern basis.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
11
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.2 Basis of preparation of financial statements (continued)
2.2.2 Estimates and assumptions
The preparation of financial statements in accordance with IFRS requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Although these estimates are based on management’s best
knowledge of current events and activities, actual results may ultimately differ from those estimates.
Accounting estimates and underlying assumptions are reviewed on an ongoing basis. Significant
estimates are disclosed in more detail in Note 2.21.
2.3 Comparative amounts
Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or
disclosed with comparative amounts. Where applicable, comparative figures have been reclassified to
conform to changes in presentation in the current year.
The amount of EUR 363 thousand for the year ended 31 December 2015 related to fees for deposit
insurance, previously included in Note 21 fee and commission expenses has been reclassified into Note
22 as other expenses. Securities available for sale in Note 8 are disclosed as current and non-current, as
of 31 December 2015 amount EUR 9,767 thousand is reclassified as non-current. The amount of EUR
81,327 thousand in Note 31 I Loans and advances for the year ended 31 December 2015 is reclassified
form category past due and collectively impaired to not past due but assessed collectively for
impairment.
2.4 Functional Currency
In accordance with IAS 21 the Bank’s functional currency is EUR as it is the currency of the primary
economic environment in which the Bank operates and it reflects the economic substance of the
underlying events.
2.5 Interest income and expense
Interest income and expense are recognised in the profit and loss for all interest bearing instruments on
an accrual basis using the effective yield method.
2.6 Fee and commission
The fee and commission income and expenses arisen from providing, using of banking services are
recorded in the profit and loss as incurred, at the moment the services are provided, used.
Loan management fees for loans that are likely to be drawn down are deferred (together with related
direct costs) and recognised as an adjustment to the effective interest rate on the loan.
Fee and commission income and expenses also include fees from letters of guarantees and letters of
credit issued by the Bank in favour of the clients, fees arising from domestic and international bank
charges, and other services provided by the Bank.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.7 Financial instruments
i. Initial recognition
All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Bank
becomes a party to the contractual provisions of the instrument. This includes regular way trades:
purchases or sales of financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the market place.
ii. Classification
Financial assets are classified in the following categories: financial assets available-for-sale and loans
and receivables. The classification of financial assets is determined at their initial recognition, depends
on the instrument’s characteristics and management’s intention.
Loans and receivables are non-derivative financial instruments with fixed or determinable payments that
are not quoted on active markets.
Available for sale financial assets are those intended to be held for an indefinite period of time, which
may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity
prices.
iii. Measurement
Financial assets are measured initially at its fair value plus transaction costs, if any. Loans and
receivables are initially recognized at fair value plus transaction costs, if any. After initial recognition
these are subsequently measured at amortized costs using the effective interest rate method. Amortized
cost is calculated using the effective interest rate method. Premiums and discounts, including initial
transaction costs, are included in the carrying amount of the related instrument and amortized based on
the effective interest rate of the instrument, when applicable.
The effective interest method is a method of calculating the amortised cost of a financial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees on points paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial asset, or, where appropriate, a shorter period.
The amortized cost of a financial asset or financial liability is the amount at which the financial asset or
financial liability is measured at initial recognition minus principal repayments, plus or minus the
cumulative amortization using the effective interest method of any difference between that initial
amount and the maturity amount, and minus any reduction (through the use of an allowance account)
for impairment or un-collectability.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
13
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.7 Financial instruments (continued)
iv. Specific instruments
Cash and cash equivalents
Cash equivalents are items which can be converted into cash at short notice (with less than three months
original maturity). Amounts which relate to funds that are of a restricted nature are excluded from cash
and cash equivalents. Cash equivalent are carried at amortized cost.
Mandatory liquidity reserves
In accordance with the CBK rules, the Bank should meet the minimum average liquidity requirement.
The liquidity requirement is calculated on a weekly basis as 10% of the deposit base, defined as the
average total deposit liabilities to the non-banking public in EUR and other currencies, over the business
days of the maintenance period. The assets with which the Bank may satisfy its liquidity requirement
are the EUR deposits with the CBK and 50% of the EUR equivalent of cash denominated in readily
convertible currencies. Deposits with the CBK must not be less than 5% of the applicable deposit base.
As the respective liquid assets are not available to finance the Bank’s day to day operations, they have
been excluded from cash and cash equivalents for the purposes of the cash flow statement.
Financial assets available for sale
At initial recognition, available-for-sale financial assets are recorded at fair value plus transaction costs,
if any. Subsequently they are carried at fair value. The fair values reported are either observable market
prices or values calculated with a valuation technique based on current observable market. Gains and
losses arising from changes in fair value of available-for-sale financial assets are recognized through
other comprehensive income in the position “revaluation reserve from available-for-sale financial
instruments”, until the financial asset is derecognized or impaired. At this time, the cumulative gain or
loss previously recognized in other comprehensive income is transferred to profit or loss through
reclassification. Interest calculated using the effective interest rate method and foreign currency gains
and losses on monetary assets classified as available-for-sale are recognized in the profit or loss.
Loans and advances
Loans and advances to customers are classified as loans and receivables. Loans and receivables are
measured at amortized cost. The amortized cost of a financial asset or financial liability is the amount
at which the financial asset or financial liability is measured at initial recognition minus principal
repayments, plus or minus the cumulative amortization using the effective interest method of any
difference between that initial amount and the maturity amount, and minus any reduction (through the
use of an allowance account) for impairment or un-collectability. Loans and advances are reported net
of allowances for loans impairment to reflect the estimated recoverable amounts.
v. Derecognition
Financial assets are derecognized when the contractual rights to the cash flows from the financial assets
expire or financial assets are transferred and transfer qualifies for derecognition. The transaction is
treated as a transfer of a financial asset, where substantially all risks and rewards of ownership are
transferred. When the bank neither transfers nor retains substantially all the risks and rewards of
ownership of the financial asset, it shall determine whether it has retained control of the financial asset.
A financial liability is derecognized from statement of financial position when, and only when, it is
extinguished. When the obligation specified in the contract is discharged or cancelled or expires, i.e.
when the obligation specified in the contract is discharged, cancelled or expires.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
14
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.7 Financial instruments (continued)
vi. Impairment of financial assets
An assessment is made at each balance sheet date to determine whether there is objective evidence that
a financial asset or group of financial assets may be impaired. If such evidence exists, the estimated
recoverable amount and any impairment loss of that asset is determined, based on the net present value
of future anticipated cash flows, and is recognized for the difference between the recoverable amount
and the carrying amount as follows:
Loans and advances to customers are reported at amortized cost net of provision (allowances) to reflect
the estimated recoverable amounts.
A credit risk provision for loan impairment is established if there is objective evidence that the Bank
will not be able to collect the amounts due according to original contractual terms. The amount of the
provision is the difference between the carrying amount and estimated recoverable amount, calculated
as the present value of expected cash flows including amounts recoverable from guarantees and
collateral, discounted at the instrument’s original effective interest rate.
The allowances are made against the carrying amount of loans and advances that are identified as being
impaired based on regular reviews of outstanding balances to reduce these loans and advances to their
recoverable amounts. The allowance for loan impairment also covers losses where there is objective
evidence that probable losses are present in components of the loan portfolio at the balance sheet date.
These have been estimated based upon historical patterns of losses in each component and the credit
ratings assigned to the borrowers reflect the current economic environment in which the borrowers
operate.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets
that are individually significant, and individually or collectively for financial assets that are not
individually significant. If the Bank determines that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues
to be recognized are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss is recognized in the profit
or loss. The calculation of the present value of the estimated future cash flows of a collateralized
financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics (i.e., on the basis of the Bank’s grading process that considers asset
type, industry, geographical location, collateral type, past-due status and other relevant factors). Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being
indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets
being evaluated. All exposures towards Banks, Central Banks and Countries outside the zone A2 with
exposure greater than Euro 50 thousand, while for legal entities and retail customers categories D, DF
and E exposures greater than Euro 50 thousand are assessed individually while loans below this
threshold level are considered insignificant and assessed on a group basis for loans showing indications
of loss events.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
15
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.7 Financial instruments (continued)
vi. Impairment of financial assets (continued)
Financial assets available for sale - the Bank assesses at each balance sheet date whether there is
objective evidence that financial assets available for sale are impaired. In case of equity investments
classified as available for sale, significant or prolonged decline in the fair value of the security below its
cost is considered an objective evidence of impairment. If any such evidence exists, the cumulative loss
is removed from other comprehensive income and recognised in the profit and loss. Impairment losses
recognised in the profit and loss on equity instruments are not reversed through the profit and loss;
subsequent increases in fair value after impairment are recognized in other comprehensive income.
If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases
and the increase can be objectively related to an event occurring after the impairment loss was
recognised in the profit and loss, the impairment loss is reversed through the profit and loss.
The following factors are considered in determining impairment losses on debt instruments:
- Default or delinquency in interest or principal payments;
- Liquidity difficulties of the issuer;
- Breach of contract covenants or conditions;
- Bankruptcy of the issuer;
- Deterioration of economic and market conditions; and
- Deterioration in the credit rating of the issuer below the acceptable level.
Impairment losses recognized in the profit and loss are measured as the difference between the carrying
amount of the financial asset and its current fair value. The current fair value of the instrument is its
market price or discounted future cash flows, when the market price is not obtainable.
2.8 Foreign currencies
Transactions denominated in currencies other than Euro are translated in the functional currency at the
exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies are recognized in the profit and loss (as foreign exchange translation
gains and losses).
Non-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.
2.9 Property and equipment
Property and equipment are accounted for under the cost model of IAS 16. They are stated at cost less
accumulated depreciation and accumulated impairment loss, where required. Each year, the Bank
assesses whether there are indications that assets may be impaired. If any such indication exists, the
recoverable amounts are estimated. The estimated recoverable amount is the higher of an asset’s fair
value less costs to sell and its value-in-use. When the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down to its recoverable amount and the difference is charged
to the profit and loss.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
16
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.9 Property and equipment (continued)
Gains and losses on disposal of property and equipment are determined by reference to their carrying
amount and are taken into account in determining the operating result for the period. Repairs and
maintenance are charged to the profit or loss when the expenditures are incurred.
Depreciation is charged using the straight line method, over the estimated useful lives of each part of an
item of property and equipment. For additions depreciation is charged subsequent to the month of
purchase while for disposals up to the month of disposal. Depreciation does not begin until the assets
are available for use.
The annual depreciation rates used for each category of property and equipment are as follows:
Category of assets Depreciation rates used
Buildings 3%
Leasehold improvements Lower of the lease term or 20%
Furniture, fixtures and equipment 20%
Computers and related equipment 20%
Motor vehicles 20%
2.10 Intangible assets
The Bank’s intangible assets consist of computer software. Intangible assets acquired by the Bank are
recognised only when its cost can be measured reliably and it is probable that the expected future
economic benefits will flow to the Bank. Intangible assets are accounted for under the cost model of
IAS 38 and are stated at cost less accumulated amortisation and impairment losses, when required.
Amortisation is provided on a straight-line basis at an annual rate of 20%.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific assets to which it relates. All other expenditure is expensed
as incurred. Amortization does not begin until the assets are available for use.
2.11 Seized assets
Seized assets represent financial and non-financial assets acquired by the Bank in settlement of overdue
loans. The assets are initially recognised at fair value when acquired and included in premises and
equipment, other financial assets or inventories within other assets depending on their nature and the
Bank's intention in respect of recovery of these assets, and are subsequently re-measured and accounted
for in accordance with the accounting policies for these categories of assets.
2.12 Impairment of non-financial assets
An impairment loss is recognised whenever the carrying value of an asset exceeds its recoverable
amount. Recoverable amount of an asset is the higher of its fair value less costs to sell and value in use.
Value in use of an asset is the present value of estimated future cash flows expected from the continuing
use of an asset and from its disposal.
2.13 Due to banks
Due to banks are recorded when money or other assets are advanced to the bank by counterparty banks.
The non-derivative liability is carried at amortised cost.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
17
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.14 Due to customers
Due to customers are non-derivative liabilities to individuals, state or corporate customers and are
carried at amortized cost.
2.15 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost. Any interest or fee related to the borrowed funds is expensed
using the effective interest method and presented in the profit and loss for the period.
2.16 Share capital and revaluation reserves
Share capital represents the nominal value of issued shares. Revaluation reserve of available for sale
securities (AFS) represents the change in fair value of those securities. On maturity or sale of AFS
securities, the fair value reserve is transferred to profit and loss for the year.
2.17 Taxation
Current income tax is calculated based on the income tax regulations applicable in Kosovo, using tax
rates enacted at the balance sheet date. Effective from September 1, 2015, the tax rate on corporate
income is set at 10% in accordance with Kosovo tax regulations currently in force, Law no. 05/L-029
“On Corporate Income Tax”.
The income tax charge in the profit and loss for the year comprises current tax and changes in deferred
tax. Current tax is calculated on the basis of the expected taxable profit for the year using the tax rates
enforced or substantially enacted at the balance sheet date. Taxable profit differs from profit as reported
in the profit and loss because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or deductible. Taxes other than income
taxes are recorded within operating expenses.
Deferred income tax is accounted for using the balance sheet liability method for temporary differences
arising between the tax base of assets and liabilities and their carrying amounts for financial reporting
purposes. Deferred tax assets are recognised to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets
and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised
or the liability is settled based on tax rates that have been enacted or substantively enacted at the balance
sheet date. Deferred tax assets and liabilities are offset when there is legally enforceable right to set off
current tax assets against tax liabilities and when they relate to income taxes levied by the same taxation
authority.
In the ordinary course of its business, the Bank has entered into off-balance sheet commitments such as
guarantees, commitments to extend credit and letters of credit and transactions with financial
instruments. The provision for losses on commitments and contingent liabilities is maintained at a level
adequate to absorb probable future losses. Management determines the adequacy of the provision based
upon reviews of individual items, recent loss experience, current economic conditions, the risk
characteristics of the various categories of transactions and other pertinent factors.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
18
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.18 Off-balance sheet commitments and contingencies (continued)
Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in
accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial
institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking
facilities.
Financial guarantees at the date of issue are recognised at fair value which is equal to the amount of the
fee received. The fee is amortized to the profit and loss during the contract period using the straight line
method. The Bank’s liabilities under guarantees are subsequently measured at the greater of the initial
measurement, less amortization calculated to recognize fee income over the period of guarantee or the
best estimate of the expenditure required settling the obligation.
Guarantee for completion - are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to complete the work when due,
in accordance with the terms of contract.
Guarantees at the date of issue are recognised at fair value which is equal to the amount of the fee
received. The fee is amortized to the profit and loss during the contract period using the straight-line
method. The Bank’s liabilities under guarantees are subsequently measured at the greater of:
• The initial measurement, less amortization calculated to recognize fee income over the period of
guarantee; or
• The best estimate of the expenditure required to settle the obligation
2.19 Provisions
Provisions are recorded when the Bank has a present legal or constructive obligation as a result of past
events and it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are
measured at the management’s best estimate of the expenditure required to settle the obligation at the
balance sheet date and are discounted to present value where the effect is material.
2.20 Employee benefits
The Bank pays contributions to the publicly administered pension plan (KPST) on a mandatory basis.
The Bank has no further payment obligations once the contributions have been paid. The contributions
are recognized as employee benefit expense when they are due.
2.21 Operating leases
Payments made under operating leases are charged to expenses on a straight-line basis over the term of
the lease. When an operating lease is terminated before the lease period has expired, any payment
required to be made to the lessor by way of penalty is recognized as an expense in the period in which
termination takes place.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
19
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.22 Critical judgements in applying the accounting policies and key sources of estimation
uncertainty
In the application of the Bank’s accounting policies, which are described in note 2, the management is
required to make judgments, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are considered to be relevant. Actual results may
differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision and future periods if the revision affects
both current and future periods.
a) Impairment of loans and advances to customers
In determining, whether the loans to customers are impaired on individual basis requires the estimation
of the present value of expected cash flows from loans to customers including amounts recoverable from
guarantees and collateral. The management of the Bank is using judgment in estimating expected cash
flow from the loans portfolio. Key assumptions used in the evaluation of client’s credit worthiness is
based on the financial positions, profitability, market share, and the value of collateral, as two main
sources of expected cash flows. Similarly circumstances prevailing in the region of the client are taken
in to consideration, such as the court efficiency.
Loans and advances that have been assessed individually and found not to be impaired are also assessed
together with all individually insignificant loans and advances in groups of assets with similar risk
characteristics. The collective assessment takes account of historical data and uses probabilities of
default to ensure that appropriate levels of provisions are maintained.
b) Effective interest rate
As disclosed in Note 2.4 Interest income and expense are recognised in the profit and loss for all interest
bearing instruments on an accrual basis using the effective interest rate method. The effective interest
rate is the rate that exactly discounts estimated future cash payments or receipts through the expected
life of the financial instrument. The effective interest rate differs from the contractual rate as a result of
fees and commission that the Bank may charge, however, the Bank does not have any financial
instruments where additional fees and commissions represent significant cash flows in comparison to
the contractual rate. The most significant cash flows arise from lending fees that are applied on issuance
of the loan. Due to information system constrains, the Bank does not use the effective interest rate to
recognise overall interest income from loans, but defers lending fees separately over the life of each loan
using a method that approximates the effective interest rate and management estimates that no material
differences would arise.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
20
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.22 Critical judgements in applying the accounting policies and key sources of estimation
uncertainty (continued)
c) Taxation
Current tax expense
The Bank is subject to taxation laws in the Republic of Kosovo. Management uses its best estimate and
judgment to fully comply with the relevant tax laws. Owing to use of judgment in complying with certain
requirements of tax laws and depending on the tax authorities’ assessment, tax liabilities may differ
compared to the one reported in these financial statements, however Management is confident that no
material differences can arise.
Deferred tax assets
Deferred tax assets are recognised in respect of temporary differences to the extent that it is probable
that future taxable profit will be available against which the losses can be utilised. Judgement is required
to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and
level of future taxable profits, together with future tax-planning strategies. Tax losses can be used for a
period of 7 years in Kosovo.
d) Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the statement of financial
position cannot be derived from active markets, they are determined using a variety of valuation
techniques that include the use of mathematical models. The Bank available for sale financial assets are
the only assets measured at fair value and they are not significant to overall financial assets. For
disclosure purpose of the fair value of other financial assets and liabilities, valuation models are used
based on observable market data where possible, but if this is not available, judgement is required to
establish fair values. The disclosure of fair value of financial instruments and the methods used are
described in more detail in Note 30 (n).
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
21
3. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS
3.1. Standards and interpretations issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the
Bank financial statements are disclosed below. The Bank intends to adopt these standards, if applicable,
when they become effective.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39
Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9
brings together all three aspects of the accounting for financial instruments project: classification and
measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or
after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective
application is required but providing comparative information is not compulsory. For hedge accounting,
the requirements are generally applied prospectively, with some limited exceptions.
The Bank plans to adopt the new standard on the required effective date. The Bank is in the process of
performing a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment
is based on currently available information and may be subject to changes arising from further detailed
analyses or additional reasonable and supportable information being made available to the Bank in the
future.
(a) Classification and measurement
The Bank does not expect a significant impact on its balance sheet or equity on applying the
classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value
all financial assets currently held at fair value.
Loans and receivables are held to collect contractual cash flows and are expected to give rise to cash
flows representing solely payments of principal and interest, except for default loans that the bank will
derive its cash flows from execution of collaterals. Thus, the Bank expects that these will continue to be
measured at amortised cost under IFRS 9. However, the Bank will analyse the contractual cash flow
characteristics of those instruments in more detail before concluding whether all those instruments meet
the criteria for amortised cost measurement under IFRS 9.
(b) Impairment
FRS 9 requires the Bank to record expected credit losses on all of its debt securities, loans and
trade receivables, either on a 12-month or lifetime basis. The Bank will need to perform a more
detailed analysis which considers all reasonable and supportable information, including
forward-looking elements to determine the extent of the impact, to assess the full impact of the
new standard.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
22
3. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS
(CONTINUED)
3.1. Standards and interpretations issued but not yet effective (continued)
(c) Hedge accounting
The Bank believes that all existing hedge relationships that are currently designated in effective hedging
relationships will still qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general
principles of how an entity accounts for effective hedges, the Bank does not expect a significant impact
as a result of applying IFRS 9.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from
contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or services to
a customer.
The new revenue standard will supersede all current revenue recognition requirements under IFRS.
Either a full retrospective application or a modified retrospective application is required for annual
periods beginning on or after 1 January 2018, when the IASB finalises their amendments to defer the
effective date of IFRS 15 by one year. Early adoption is permitted. The Bank is assessing the potential
impact on its financial statements resulting from IFRS 15.
IAS 7 Disclosure Initiative – Amendments to IAS 7
The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and
require an entity to provide disclosures that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both changes arising from cash flows and non-cash
changes. On initial application of the amendment, entities are not required to provide comparative
information for preceding periods. These amendments are effective for annual periods beginning on or
after 1 January 2017, with early application permitted.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to account for all
leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g.,
personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the
commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease
liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the
right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease
liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g.,
a change in the lease term, a change in future lease payments resulting from a change in an index or rate
used to determine those payments). The lessee will generally recognise the amount of the remeasurement
of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17..
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is
permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using
either a full retrospective or a modified retrospective approach. The standard’s transition provisions
permit certain reliefs. In 2017, the Bank plans to assess the potential effect of IFRS 16 on its financial
statements.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
23
3. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS
(CONTINUED)
3.2 Standards and interpretations new or revised
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and
Amortisation
The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic
benefits that are generated from operating a business (of which the asset is part) rather than the economic
benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used
to depreciate property, plant and equipment and may only be used in very limited circumstances to
amortise intangible assets. The amendments are effective prospectively for annual periods beginning on
or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any
impact to the Bank given that the Bank has not used a revenue-based method to depreciate its non-
current assets.
Annual Improvements 2012-2014 Cycle
These improvements are effective for annual periods beginning on or after 1 January 2016. They include:
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The
amendment clarifies that changing from one of these disposal methods to the other would not be
considered a new plan of disposal, rather it is a continuation of the original plan.
IFRS 7 Financial Instruments: Disclosures
(i) Servicing contracts
The amendment clarifies that a servicing contract that includes a fee can constitute continuing
involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against
the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are
required. The assessment of which servicing contracts constitute continuing involvement must be done
retrospectively. However, the required disclosures would not need to be provided for any period
beginning before the annual period in which the entity first applies the amendments.
(ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements
The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim
financial statements, unless such disclosures provide a significant update to the information reported in
the most recent annual report. The bank does not prepare condensed interim statements.
IAS 19 Employee Benefits
The amendment clarifies that market depth of high quality corporate bonds is assessed based on the
currency in which the obligation is denominated, rather than the country where the obligation is located.
When there is no deep market for high quality corporate bonds in that currency, government bond rates
must be used.
Other standards that have been recently issued or revised but are not applicable to the Bank include:
IAS 34 Interim Financial Reporting
IFRS 14 Regulatory Deferral Accounts
Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests
Amendments to IAS 27: Equity Method in Separate Financial Statements
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
24
4. CASH AND BALANCES WITH THE CENTRAL BANK
December 31,
2016
December 31,
2015
Cash on hand 19,674 11,385
Cash at banks–current accounts with correspondent banks 28,813 11,945
Amounts held at the CBK
Current account 7,669 7,210
Statutory reserve account 34,204 31,999
Cash and balances with the Central Bank 90,360 62,539
During 2016 most of the correspondent banks applied negative interest rates over a certain threshold.
The rates varied between from -0.40% to 0.60% for EUR Currency and 0.25% to 1.0% for other
currencies. There are still few correspondent banks paying close to zero positive interest rates on the
Nostro accounts.
During the third quarter of 2016 the Kosovo Central Bank implemented the earlier announced ECB
deposit interest rate measures i.e. introduction of negative interest rates on the commercial banks
balances with the Central Bank over the liquidity reserve amount. The negative interest rate of 0.4% p.a.
was implemented as from 1st of August 2016.
Balance and obligatory reserve with Central Bank of Kosovo (“CBK”) represents the mandatory reserve
under the CBK regulations as discussed in note 2.6 (iv). The statutory reserve is not available for day-
to-day use by the bank. The restricted liquidity reserves balance with CBK is excluded from cash and
cash equivalents for the purpose of cash flow statement. The Central Bank of Kosovo does not possess
external credit rating.
4.1 CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the statement of cash flows comprise of:
December 31,
2016
December 31,
2015
Cash and balances with the Central Bank 90,360
62,539
Less: Liquidity reserve (17,102) (16,000)
Deposits with maturity with less than 3 months (note 5) 11,520 13,149
Cash and cash equivalents 84,778
59,688
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
25
5. LOANS AND ADVANCES TO BANKS
December 31,
2016
December 31,
2015
Term deposits 17,537 32,344
Accrued interest 18 12
Total loans and advances to banks 17,555 32,356
Current 17,555 32,356
As at December 31, 2016 included in the total term deposits are EUR 6,570 thousand which are pledged
funds for Trade Finance activities (included in this amount are EUR 5,335 thousand as blocked), (2015:
EUR 7,823 thousand pledged funds, included in this amount are EUR 102 thousand as blocked).
In order to avoid the increased excess liquidity fee costs and negative interest rates on the Money Market
deals, NLB Banka decreased the money market placements portfolio and kept the funds at the Nostro
accounts.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
26
6. LOANS AND ADVANCES TO CUSTOMERS
Analysis by class of advance
December 31,
2016
December 31,
2015
Loans to customers 283,138 257,936
Overdrafts 71,843 53,858
Credit cards 2,610 1,677
Called guarantees - -
357,591 313,471
Provision for impairment on loans to customers (27,982) (24,132)
Total loans to customers 329,609 289,339
Current 140,068 122,930
Non-current 189,541 166,409
Loans and advances to customers include accrued interest income in the amount of EUR 1,515 thousand
(December 31, 2015: EUR 998 thousand). Loans and advances to customers include deferred
disbursement fee from loans to customers in the amount of EUR 1,047 thousand (2015: EUR 1,151
thousand). Overdraft facilities represent short term revolving facility and consumer loans.
The Current – Non Current classification is made based on contractual basis.
Analysis by sector is as follows:
December 31,
2016
December 31,
2015
Loans to Corporate 205,586 185,243
Loans to Retail 124,023 104,096
329,609 289,339
The movement in the provision for impairment on loans to customers is as follows:
December 31,
2016
December 31,
2015
Provision for loan impairment at January 1, 24,132 29,086
Charge during the year 15,370 14,107
Recoveries (11,540) (9,010)
Written off loans - (10,051)
Provision for loan impairment at December 31, 27,982 24,132
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
27
6. LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)
Impairment charge to profit and loss is detailed below:
December 31,
2016
December 31,
2015
Impairment charge for the year 3,850 5,097
Recovery of fully provided loans (772) (221)
Charge to profit and loss 3,079 4,876
Analysis of provision charge on sectors and industry:
December 31,
2016
December 31,
2015
Provision charged to individuals: Housing loans 270 153
Consumer loans 158 (1)
Other loans to individuals 43 159
471 311
Provision charged to corporate entities: Loans to small and medium entities 17,923 (183)
Loans to large entities (14,544) 4,969 3,379 4,786 Total 3,850 5,097
An industry analysis of the gross portfolio of loans to corporate customers before provisions is as
follows:
December 31,
2016
December 31,
2015
Trade and commerce 26% 36%
Services & Production 24% 24%
Construction 6% 6%
Other 44% 34%
100% 100%
As at December 31, 2016, the ten major borrowers accounted for 13.48% (2015: 16.4%) of the total loan
portfolio.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
28
7. OTHER PROVISIONS
Other provisions are included in Other Liabilities in Note 15. Provision charge to profit and loss for the
year is detailed below.
December 31,
2016
December 31,
2015
Provisions for legal cases, guarantees, commitments and
other 1,009 1,406
Charge to profit and loss 1,009 1,406
8. FINANCIAL ASSETS AVAILABLE FOR SALE
Analysis by class financial assets available for sale
December 31,
2016
December 31,
2015
Treasury bills issued by Government of Kosovo 65,641 67,763
AFS Investment in shares 303 161
Total financial assets available for sale 65,944 67,924
Current 49,389 58,157
Non-current 16,555 9,767
The Kosovo government treasury discount bills with maturities ranging from three to twelve months
have yields ranging from 0.11% – 1.03 %. The Kosovo government bonds with maturities ranging from
2 years to 3 years have yields ranging from 0.48 % - 3.15%. All financial assets available for sale are
with fixed interest yield.
Despite the decreasing trend of the yields on the securities during 2016, due to high liquidity in the
banking sector, the bid-to-cover ratio in all the Auctions during the year ranged over 2.
As of 31 December 2016 there are no pledged debt securities to third parties.
Available for sale financial assets include accrued interest in the amount of EUR 88 thousand (2015:
EUR 40 thousand), and a remaining discount of EUR 77 thousand (2015: 289 thousand).
AFS investment in shares represents shares in VISA Inc, Class C Common stock, quoted in active
market. These equity instruments were granted by VISA inc to all of its members at no considerations.
The fair value of the instruments on grant date was recognised by the Bank in the current year income.
9. OTHER ASSETS
December 31,
2016
December 31,
2015
Prepaid expenses 230 145
Seized collateral on irrecoverable loans 31 30
Inventories 35 27
Other financial assets 64 71
Total other assets 360 273
Current 360 273
Seized collateral on irrecoverable loans consists of real estate and equipment.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
29
10. PROPERTY AND EQUIPMENT
Buildings
Leasehold
improvements
Furniture, fixtures
and equipment
Computers and
related equipment
Motor
vehicles Total
Cost:
As at January 1, 2015 11,121 988 3,823 1,729 457 18,118
Additions during the year 2 13 86 109 131 341
Write offs/disposals (31) (28) (77) (51) - (187)
As at December 31, 2015 11,092 973 3,832 1,787 588 18,272
Additions during the year 3 2 424 78 180 687
Write offs/disposals - (3) (74) (205)
(86) (368)
As at December 31, 2016 11,095 972 4,182 1,660 682 18,591
Accumulated depreciation:
As at January 1, 2015 482 703 3,097 1,282 394 5,958
Charge for the year 344 111 281 169 40 945
Write offs (11) (27) (76) (50) - (164)
As at December 31, 2015 815 787 3,302 1,401 434 6,739
Charge for the year 333 76 236 157 59 861
Write offs - (3) (77) (197) (70) (347)
As at December 31, 2016 1,148 860 3,461 1,361 423 7,253
Net book value:
As at December 31, 2015 10,277 186 530 386 154 11,533
As at December 31, 2016 9,947 112 721 299 259 11,338
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
30
11. INTANGIBLE ASSETS
Software
Cost:
As at January 1, 2015 2,305
Additions 232
As at December 31, 2015 2,537
Additions 271
As at December 31, 2016 2,808
Accumulated amortization:
As at January 1, 2015 1,823
Charge for the year 220
As at December 31, 2015 2,043
Charge for the year 188
As at December 31, 2016 2,231
Net book value:
As at December 31, 2015 494
As at December 31, 2016 577
All intangible assets are acquired assets and are amortized during its useful life.
12. DUE TO BANKS
December 31,
2016
December 31,
2015
Current accounts 1,339 221
Total due to banks 1,339 221
Current 1,339 221
Due to banks represents deposits of local and foreign banks which have accounts in the Bank.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
31
13. DUE TO CUSTOMERS
December 31,
2016
December 31,
2015
Demand Deposits
Enterprises 80,792 71,676
Citizens 200,153 172,572
Governments 5,057 4,035
286,002 248,283
Term Deposits
Enterprises 5,038 19,649
Citizens 151,056 132,314
156,094 151,963
Total due to customers 442,096 400,246
Current 355,709 330,928
Non-Current 86,387 69,318
Due to customers include accrued interest in the amount of EUR 1,571 thousand (2015: EUR 1,533
thousand). The Current – Non Current distinction is made on contractual basis.
Analysis by class of business for term deposits and current accounts is as follows:
December 31, 2016 December 31, 2015
Sector % of total due to
customers
% of total due to
customers
Citizens 78% 76%
Enterprises, governments and other legal
entities 22% 24%
100% 100%
Amounts total due to
customers
Amounts of total due
to customers
Citizens 351,209 304,886
Enterprises, governments and other legal
entities 90,887 95,360
442,096 400,246
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
32
14. OTHER FINANCIAL LIABILITIES
December 31,
2016
December 31,
2015
Pending clients transfers 4,676 922
Accrued expenses 454 440
Due to suppliers 87 37
Liabilities for bonuses 409 216
Liabilities on transfers remote on - us 78 172
Others 372 194
Total other financial liabilities 6,076 1,981
Current 6,076 1,981
Pending client’s transfers represents the payments collected on behalf of third parties through the
clearing system, which remained unpaid to the intended recipients at the year end. In this amount is
included amount of EUR 3,271 thousands (2015: EUR 593 thousands) payable to Customs Authorities,
which was transferred on January 04, 2017 to the customs authorities bank account. The remaining
balance represents amounts payable to other recipients.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
33
15. PROVISIONS AND OTHER LIABILITIES
December 31,
2016
December 31,
2015
Provisions for legal cases 2,080 2,169
Provisions for fines and penalties 24 29
Tax provision for write off loans 907 -
Provisions for guarantees 8 7
Other provisions 70 70
Total Provisions 3,089 2,275
Deferred income from guarantees 49 73
Withholding tax payable 41 55
Pension and tax payable on payroll 33 31
VAT and other tax payable 287 3
Total other liabilities 410 162
Total provisions and other liabilities 3,499 2,437
Current 3,499 2,437
The current year effect of provision for legal cases and other provisions is presented in Note 7 and Note
29. The movement of provisions is as follows:
December 31,
2016
December 31,
2015
Balance on January 1, 2,275 1,075 Provision charge for legal cases, guaranties and other (Note
7) 1,009 1,406
Provision charge for unused leave days (Note 23) - 11 Release of provisions (195) (217) Closing balance at 31 December 3,089 2,275
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
34
16. BORROWINGS
December 31,
2016
December 31,
2015
Current portion
EFSE loan 1 - 45
Leasing for vehicles 17 -
Leasing for POS 36 -
Other - 38
Total current portion 53 83
Non-current portion
Leasing for vehicles 59 -
Leasing for POS 150 -
Total non-current portion 209 -
Total borrowings 262 83
Loan 1 from EFSE
The Bank inherited this loan from New Bank of Kosova, which was signed with Kreditanstaltfür
Wiederaufbau Frankfurt (KfW) under a Framework agreement dated April 26, 2006 for a total loan of
Euro 450 thousand for the purpose of obtaining loans from European Funds for Kosovo (“EFK”). The
loan carries interest at the rate of 3% plus 6 months EURIBOR and is repayable on bi-annual instalments
basis. The loan matures on September 30, 2016. KfW is managing the EFK which has been funded by
European Agency for Reconstruction (EAR) and the purpose of the fund is to refinance sub-loans to
borrowers in Kosovo for housing activities and small and medium enterprises (SME) and according to
the criteria established by EFK.
All loans from EFSE have remained current as the Bank has met timely all repayments.
The bank has signed three contracts for leasing vehicles, one dated August 7, 2014 and maturity June 7,
2018, and two agreements dated April 18, 2016 and maturity March 16, 2021. These entire leases have
fixed interest rates of 7%.
Lease for POS-as has been signed on August 7, 2016 for five years period, and in total 2000 POS-es
will be installed. As of December 31, 2016 a total of 911 POS-es were installed.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
35
17. SHARE CAPITAL
As at December 31, 2016, the share capital amounted to EUR 51,287 thousand (2015: EUR 51,287
thousand.
Authorised share capital
42,739 Ordinary shares at par value of EUR 1,200
each 51,287 51,287
Paid up share capital
42,739 Ordinary shares at par value of EUR 1,200
each 51,287 51,287
All shares have rights to dividends and carry equal voting rights. There are no restrictions attached to
the shares. The capital of the Bank has been increasing organically during the years through
capitalization of retained earnings.
During 2016 the bank paid dividend in the amount of EUR 8,242 thousand, EUR 193 per share.
A summary of share ownership of the Bank is as follows:
Percentage
ownership 31-Dec-16
Percentage
ownership 31-Dec-15
Shareholders
Nova Ljubljanska Banka
d.d 81.21 41,652 81.21 41,652
Agjencioni Turizmit "
MCM" 4.70 2,412 4.7 2,412
Mr.Hashim Deshishku 2.48 1,271 2.48 1,271
Mr.Rizah Deshishku 1.24 636 1.24 636
Mr. Bashkim Deshishku 1.24 636 1.24 636
Mr.Remzi Ejupi 1.16 596 1.16 596
Mr.Nerimane Ejupi 1.22 625 1.22 625
Mr.Naim Ejupi 1.21 622 1.21 622
Mr.Metush Deshishku 0.90 462 0.9 462
"Dardania" - 2" Sh.p.k. 0.63 323 0.63 323
Mr. Xhemajl Ismajli 0.60 310 0.6 310
NPTSh "Jehona" 0.60 308 0.6 308
Mr.BlerinaEjupi 0.51 259 0.51 259
ELEZ SYLAJ 0.44 223 0.44 223
KADRI SHALAKU 0.34 174 0.34 174
"Raf II" sh.p.k. 0.24 124 0.24 124
Others 1.28 654 1.28 654
100 51,287 100 51,287
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
36
18. INTEREST AND SIMILAR INCOME
Analysis by class of assets:
Year ended
December 31,
2016
Year ended
December 31,
2015
Income from loans and advances to customers 26,272 26,145
Income from financial assets available for sale 751 1,018
Income on loans and advances to banks 42 58
Total interest income 27,065 27,221
In the income from loans and advances to customers is included interest income for impaired loans
amounting EUR 16 thousand (2015: EUR 26 thousand).
19. INTEREST AND SIMILAR EXPENSE
Analysis by class of liabilities
Year ended
December 31,
2016
Year ended
December 31,
2015
Interest to customers 3,506 4,379
Interest on borrowings 9 99
Interest on due to banks 5 7
Total interest expense 3,520 4,485
20. FEE AND COMMISSION INCOME
Analysis of fee and commission income relating to activities:
Year ended
December 31,
2016
Year ended
December 31,
2015
Payment transfers and transactions
2,490
2,066
Guarantees and letters of credit 556 642
Card and ATM operations 931 750
Account maintenance fee 876 725
Payments -account maintenance fee for retirees 453 471
Others 444 242
Total fee and commission income 5,750 4,896
Payments from account maintenance fee from retirees represents fee income paid by the Ministry of
Labour of Kosovo for retirees based on the Memorandum of Understanding concluded between the bank
and Ministry of Labour of Kosovo for all retirees having a bank account with the Bank. For each retiree
an amount of EUR 5 is paid to the bank on an annual basis.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
37
21. FEE AND COMMISSION EXPENSES
Analysis of fee and commission expenses relating to activities:
Year ended
December 31,
2016
Year ended
December 31,
2015
Payment transfers and transactions 218 202
Guarantees and Letters of Credit 71 63
Card and ATM operations 553 567
Payments –CBK related fees 151 148
Other fees 66 50
Total fee and commission expenses 1,059 1,030
22. OTHER OPERATING INCOME/EXPENSES, NET
Year ended
December 31, 2016
Year ended
December 31, 2015
Licensing expense (312) (309)
Other expense (772) (493)
Other Income 63 61
Other operating income/expenses, net (1,021) (741)
Foreign exchange translation loss (325,664) (552,359)
Foreign exchange translation gain 325,673 552,229
Foreign exchange translation (loss)/gain 9 (130)
Foreign exchange trading income 3,108 1,795
Foreign exchange trading expense (2,574) (1,179)
Foreign exchange trading income 534 616
Net foreign exchange gain 543 486
Other operating income/expenses, net (478) (255)
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
38
23. STAFF COSTS
Year ended
December 31, 2016
Year ended
December 31, 2015
Salaries and wages 4,840 4,805
Mandatory staff pension contributions 255 266
Staff health insurance costs 200 198
Termination Benefits 249 368
Other staff costs 247 256
Total staff costs 5,791 5,893
24. ADMINISTRATIVE AND OTHER OPERATING EXPENSES
Year ended
December 31,
2016
Year ended
December 31,
2015
Maintenance 1,029 641
Operating lease expenses 836 703
Security and insurance costs 582 806
ATM, Visa Card and E-Banking 324 185
Office supplies 286 316
Marketing and sponsorship 272 209
Utilities 244 272
Charge for professional services 202 89
Telecommunications 201 213
Fuel (Generators and Cars) 82 95
Travel 78 70
Others 73 59
Representation 46 54
Taxes and commissions 22 11
Total Administrative and other operating expense 4,277 3,723
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
39
25. INCOME TAX EXPENSES
Year ended
December 31,
2016
Year ended
December 31,
2015
Current income tax expense 1,407 1,044
Deferred tax expense/(credit) (118) (2)
Tax expense 1,289 1,042
Detailed below is the calculation of current income tax expense.
Year ended
December 31,
2016
Year ended
December 31,
2015
Profit for the year before taxation 12,553 9,284
Profit tax on profit at the rate of 10% 1,255
928 Tax effect of expenses not deductible for tax purposes 152 116
Deferred tax charge (credit) (118) (2)
Tax expense 1,289 1,042
Effective from September 1, 2015, the tax rate on corporate income is set at 10% in accordance with
Kosovo tax regulations currently in force, Law no. 05/L-029 “On Corporate Income Tax”.
According to tax legislation in Kosovo, the tax authorities have the right to examine tax returns six
years after their submission. Movement of current tax receivable is as follows:
December 31, 2016 December 31, 2015
Current income tax receivable at January 1, 22 256 Income tax expense (1,422) (1,044) Income tax expense paid during the year 1,163 810 Transfer to prepaid tax for previous years - -
Current income tax payable/receivable
at December 31,
(237)
22
Deferred tax asset has been recognised as follows for the temporary differences:
December 31, 2016 December 31, 2015
Loan and guarantees impairment provision (50) 70
Property and equipment and intangible assets (661) (583)
Interest expense on deposits 535 211
Provision for legal and other 3,479 2,392
Available for sale revaluation reserve - 31
Total deductible temporary difference 3,303 2,121
Total net deferred tax asset @ 10%
330
212
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
40
25. INCOME TAX EXPENSES (CONTINUED)
The movement in the deferred tax asset account is as follows:
December 31, 2016 December 31, 2015
Deferred tax asset as at January 1, 212 208
Deferred tax income/ charge 118
2
Available for sale revaluation reserve (equity) -
2
Deferred tax asset as at December 31, 330 212
26. OTHER COMPREHENSIVE INCOME
Year ended
December 31, 2016
Year ended
December 31, 2015
Gain on change of fair value of AFS securities 116 28
Loss on change of fair value of AFS securities - -
Credit/Debit to other comprehensive income 116 28
The movement in revaluation reserve is as follows:
December 31, 2016 December 31, 2015
Revaluation reserve as at January 1 28 -
Revaluation reserve of AFS 98 31
Deferred tax on Available for sale (10) (3)
Net as presented in other comprehensive income /
profit or loss 88
28
Balance as of December 31 116 28
27. EARNING PER SHARE
Earnings per share are calculated by dividing net profit attributable to the ordinary shareholders by the
number of ordinary shares for the period.
Year ended
December 31, 2016
Year ended
December 31,
2015
Net profit 11,265 8,242
Number of ordinary shares (in thousands) 42.7 42.7
Earnings per share
263.8
193.1
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
41
28. RELATED PARTY DISCLOSURES
In determination of related parties the Bank applies IAS 24 requirements. Related parties include:
The parties which directly, or indirectly through one or more intermediaries, control, or are
controlled by, or are under common control with the entity,
Parties in which the Bank has an interest that gives it significant influence or joint control over
the entity,
Private individuals who directly or indirectly have voting power in the Bank that gives them
significant influence over the Bank, and entities controlled or jointly controlled by such
individuals, members of the key management personnel, i.e. individuals with authority and
responsibilities for planning, managing and controlling the Bank’s operations, including
directors,
When taking into account each possible transaction with a related party, attention is focused on
the substance of the relationship not just the legal form.
The Bank is controlled by Nova Ljubljanska Banka d.d. Ljubljana incorporated in Slovenia (Parent),
which owns 81.21% of the ordinary shares as at December 31, 2016 (2015: 81.21% ordinary shares).
The remaining shares are held by other small shareholders (18.79 %).
The Bank performs a number of related party transactions in the course of its regular operations. The
transactions include investments, deposits, borrowings, and foreign currency transactions. These
transactions were carried out on normal commercial terms and market prices.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
42
28. RELATED PARTY DISCLOSURES (CONTINUED)
The following table summarizes the scope of related party transactions, balances of assets and liabilities
at December 31, 2016 and related income and expenses for the year then ended.
December 31, 2016
NLB d.d.
Ljubljana
NLB
Tutunska
Banka
NLB
Montenegr
o
NLB
Leasing
Key
management
personnel Total
Receivables Loans and advances to
banks
591
68
9
- -
668
Loans and advances to
customers
-
-
-
- 75 75
Securities - - - -
Other receivables - - - - - -
Total Receivables 591 68 9 - 75 743
Liabilities
Deposits - - - - 1,209 1,209
Borrowings - - - - - -
Other liabilities 4 - - 76 46 126
Total Liabilities 4 - - 76 1,255 1,335
Net Receivables/
(Liabilities)
587
68
9
(76)
(1,180)
(592)
Confirmed guarantees - 1,909 - - - 1,909
Income
Interest income - - - - 1 -
Foreign exchange gain 2,880 - - - - 2,880
Total Income 2,880 - - - 1 2,880
Expenses
Interest expenses (5) - - (6) (16) (27)
Fee expenses (12)
(12) - - - (24)
Foreign exchange loss (2,528) - - - - (2,528)
Salaries rents and other
expenses
(43)
-
-
- - (43)
Total Expenses (2,588)
(12) - (6) (16) (2,622)
Net income/(expense) 292
(12) - (6) (15) 258
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
43
28. RELATED PARTY DISCLOSURES (CONTINUED)
The following table summarizes the scope of related party transactions, balances of assets and liabilities
at December 31, 2015 and related income and expenses for the year then ended.
December 31, 2015
NLB d.d.
Ljubljana
NLB
Tutunska
Banka
NLB
Montenegro
NLB
Leasing
Key
management
personnel Total
Receivables Loans and advances to
banks
550
50
56
1
-
657
Loans and advances to
customers
-
-
-
-
76
76
Securities - - - - - -
Other receivables - - - - - -
Total Receivables 550 50 56 1 76 733
Liabilities
Deposits 44 - - - 1,496 1,540
Borrowings - - - - - -
Other liabilities 8 - - 38 40 86
Total Liabilities 52 - - 38 1,536 1,626
Net Receivables/
(Liabilities)
498
50
56
(37)
(1,460)
(893)
Confirmed guarantees 750 2,006 - - - 2,756
Income
Interest income - - - - 4 4
Foreign exchange gain 1,209 - - - - 1,209
Total Income 1,209 - - 4 1,213
Expenses
Interest expenses (8) - - (3) (25) (36)
Fee expenses (14) (6) - - - (20)
Foreign exchange loss (906) - - - - (906)
Salaries rents and other
expenses
(39)
-
-
-
-
(39)
Total Expenses (967) (6) - (3) (25) (1,001)
Net income/(expense) 242 (6) - (3) (21) 212
Key management Compensation: Key management consists of the management board of the bank
and its compensation was as follows:
Year ended
December 31, 2016
Year Ended
December 31, 2015
Salaries 262 253
Bonus 103 102
Total 365 355
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
44
29. OFF BALANCE SHEET, COMMITMENTS AND CONTINGENCIES
a. Guarantees and letters of credit
Credit related commitments include commitments to extend credit, letters of credit and guarantees given,
which are designed to meet the requirements of the Bank’s customers. Letters of credit and guarantees
given to customers commit the Bank to make payments on behalf of customers contingent upon the
failure of the customer to perform under the terms of the contract. Commitments to extend credit
represent contractual commitments to make loans and revolving credits. Commitments generally have
fixed expiration dates, or other termination clauses. Since commitments may expire without being drawn
upon, the total amounts do not necessarily represent cash requirements.
The aggregate outstanding amount of guarantees, letters of credit and stand by letter of credit issued by
the Bank are as follows:
December 31, 2016 December 31, 2015
Customs 1,406 3,933
Guarantees for payments 14,135 13,089
Public tenders guarantees 2,046 4,233
Letters of Credit 165 241
Standby letter of Credit 745 458
18,497 21,954
Guarantees for completion of work 4,681 4,405
23,178 26,359
Committed loans to customers not yet issued 43,238 39,422
Total 66,416 65,781
December 31, 2016 December 31, 2015
Guarantees:
Secured
Secured by cash deposits 2,857 4,685
Secured by other collateral 18,756 18,086
21,613 22,771
Unsecured 1,565 3,588
Total 23,178 26,359
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
45
b. Legal cases
From time to time and in the normal course of business, claims against the Bank may be received. On
the basis of its own estimates and both internal and external professional advice, management has
calculated provision for expected losses, and accordingly provision has been made in these financial
statements in the amount of EUR 2,080 thousand (note other liabilities) as at December 31, 2016. The
nature of the most significant cases is as follows:
Disagreement with supplier of headquarter building in relation to the surface are of the property
(Eur 936)
Claimed unfairness of dismissal by former employees
Disagremeent with Lessors in relation to the amount of rent
The cases are expected to be closed in the next two or three years. In case of, no reimbursement from
insurance or other sources is expected. The Bank has provided the maximum exposure in each legal
case.
29. OFF BALANCE SHEET, COMMITMENTS AND CONTINGENCIES (CONTINUED)
c. Operating lease commitments
The Bank has outstanding commitments under non-cancellable rental contracts which fall due as
follows:
December 31, 2016 December 31, 2015
Within one year 581 771
Within two to five years 2,777 2,167
Total 3,358 2,938
30. EVENTS AFTER THE END OF THE REPORTING PERIOD
Management Board of the Bank on February 2016 has planned to propose in the General Assembly the
distribution of profit of the year 2016 in amount of EUR 10 mil
No other material events subsequent to the date of the statement of financial position have occurred
which require disclosure in the financial statements.
31. FAIR VALUES AND RISK MANAGEMENT
a. Capital Risk Management
The Bank manages its capital to ensure that the Bank will be able to continue as a going concern while
maximising the return to shareholders through the optimisation of the debt and equity balance.
The capital structure of the Bank consists of debt, which includes the borrowings, and the equity
attributable to equity holders, comprising paid up capital and retained earnings.
Tier I capital means a bank’s permissible permanent paid-in capital which may be comprised of
any or all of the following:
(i) Common equity shares and their related surplus;
(ii) Earnings which have not been distributed.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
46
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
a. Capital Risk Management (Continued)
Additional Tier 1 capital – means:
(i) Perpetual preferred shares (being those which, in the event of liquidation of the bank, are not
paid any amounts until all depositors and other creditors have been fully addressed, but are paid
in full, (preferred) before any common shareholder is paid and which have rights to agreed
dividend payments but which have no maturities or options of their holders to redeem);
(ii) Such other instruments as may be approved by the CBK as permissible permanent capital from
time to time by rule or order.
Deductions from Tier 1 Capital:
(i) Goodwill and intangible assets are to be deducted from a bank’s Tier 1 capital before the Tier 2
capital portion of the calculation is made;
(ii) Investments in equity of banks or other financial institutions that comprise above ten per cent
(10%) of their capital (this percentage shall include also the subordinated rights), or investments
in amounts less than 10% of their capital, but with a significant influence in decision making of
these financial institutions. Investments in equity of banks and other financial institutions
(including here also the subordinated rights) that comprise less than 10% of the bank’s equity
before deductions, where the amount above the 10% threshold shall be deducted.;
(iii) Deferred tax assets;
(iv) Lending to a Bank-Related Person, except lending covered with cash.
Tier II capital includes a Bank’s:
(i) Reserves for loan losses up to a maximum of 1.25 % (one point twenty-five percent ) of its risk
weighted assets at any one time or such other percentage as may be established by the CBK
from time to time by rule or order;
(ii) Ordinary preferred shares (being preferred shares which have maturities or are redeemable at
the option of their holders and which are cumulative (have the right to payment of past dividends
missed) if the bank has the option to defer payment of dividends;
(iii) Term preferred shares (shares whose holders have the right to redeem them and which have
terms of 5 years or more). These shares are subject to approval as capital from time to time
throughout their terms by the CBK. The amount of long-term preferred shares (shares with
maturities in excess of ten (10) years eligible to be included in Tier 2 capital will be reduced by
20 % (twenty percent) of their original amounts at the beginning of each of the last 5 years of
their terms;
(iv) Term debt instruments which are fully subordinated to the rights of depositors (those which, in
the event of liquidation of the bank, are not paid any amounts until all depositors have been
paid. The amount of long-term subordinated debt instruments (those with maturities in excess
of ten years) eligible to be included in Tier 2 capital will be reduced by 20% (twenty percent)
of their original amounts at the beginning of each of the last five (5) years of the instrument’s
life;
(v) Debt instruments which are mandatory convertible into common shares and which are unsecured
and fully paid-in;
(vi) Subordinated term debt are liabilities, but if subordinated term debt was issued with an original
term to maturity of over five years, then it may be included as Tier 2 capital to a maximum of
50% (fifty percent) of Tier 1 capital;
(vii) Tier 2 capital cannot be higher than 100% (one hundred percent) of Tier 1 capital.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
47
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
a. Capital Risk Management (continued)
Minimum Risk-Based Capital Ratios
The bank maintains a minimum total capital to risk-weighted asset ratio of 12% and a Tier I capital to
risk- weighted asset ratio of 8 % in accordance with the rule on Capital Adequacy issued by the Central
Bank of Republic of Kosovo. Also the bank is required to maintain a minimum 7 percent leverage ratio.
(Leverage ratio equals total equity / total assets).
i. A bank’s risk adjusted capital is obtained by dividing its capital base by its risk weighted assets.
ii. The minimum ratio set forth above may be increased by the CBK by rule or order from time to
time.
As of reporting period, the capital adequacy ratios in accordance with CBK’s framework for the
preparation of financial statements are as follows:
December 31, 2016 December 31, 2015
Tier 1 capital Share capital 51,287 51,287
Reserves 116 28
Retained earnings 11,401 8,350
less: deductions from capital (1,590) (1,352)
Total qualifying Tier 1 capital 61,214 58,313
Tier 2 capital
Subordinated liability - -
Provisions for loan losses (limited to 1.25% of RWA) 3,933 3,280
Total qualifying Tier 2 capital 3,933 3,280
Total regulatory capital 65,147 61,593
Risk-weighted assets:
On-balance sheet 340,700
306,139
Off-balance sheet 18,653 18,611
Risk assets for operational risk 32,198 27,677
Total risk-weighted assets 391,551 352,427
Tier I capital to risk- weighted asset ratio 15.6% 16.6%
Total capital to risk-weighted asset ratio 16.6% 17.5%
Total equity to total assets 12.1% 12.8%
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
48
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
b. Categories of Financial Instruments
The table below is reconciliation of financial instruments classes to IAS 39 measurement categories.
As at the year end the Bank has the following financial instruments:
December 31, 2016 December 31, 2015
Loans and advances
Cash and balances with Central bank 90,360 62,539
Loans and advances to banks 17,556 32,356
Loans and advances to customers 329,608 289,339
Financial assets available for sale 65,944 67,924
Total financial assets 503,468 452,158
Financial liabilities at amortized cost
Due to banks 1,339 221
Due to customers 442,095 400,246
Borrowings from banks 76 -
Borrowing from other financial institutions 186 83
Other financial liabilities 6,076 1,981
Total financial liabilities 449,772 402,531
c. Financial Risk Management Objectives
The Bank’s corporate treasury function provides services to the business, coordinates access to domestic
and international financial markets, monitors and manages the financial risks relating to the operations
of the Bank through internal risk reports which analyse exposures by degree and magnitude of risks.
These risks include market risk (including currency risk, interest rate risk), credit risk and liquidity risk.
Compliance with policies and exposure limits is reviewed by the management committees and internal
auditors on a continuous basis. The Bank does not enter into or trade significant derivative financial
instruments.
d. Market Risk
The Bank’s activities expose it primarily to the financial risks of changes in foreign currency exchange
rates and interest rates. The market risk is not concentrated to currency risk or interest rate risk, as major
transactions of the Bank are in local currency and majority of the interest rates are fixed.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
49
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
e. Foreign Currency Risk
The Policy on Management of the currency risk of NLB Banka, defines the methods of currency risk
management in the bank. The purpose of currency risk management policy is the management and
limitation of the potential loss, which is created as a result of changes on the foreign currency rates and,
reflected on the business results and capital adequacy of the bank. The currency risk presents the
probability of realizing the losses as per on balance and off balance sheet items, as a result of changes
on the currency rates and/or non-harmonization on the level of assets, liabilities and off balance items
in the same currency. The Bank manages foreign currency risk through managing currency structure of
assets and liabilities in line with expected changes in foreign currency rates. Foreign exchange rate risk
is managed and governed according to the policies of the NLB group. As such NLB Banka continuously
monitors exchange rate movements and foreign currency markets, and determines its currency positions
on a daily basis. Any exception to the policy shall be subject of approval by the Supervisory Board of
NLB Banka and the Risk Management Department of NLB group. The bank and group policy forbids
the bank to maintain open currency position for speculative purposes. Nevertheless, foreign exchange
derivatives may be used for hedging purposes to close certain positions, in which case they are closely
monitored at both local and group level.
The Bank undertakes transactions in both Euro and foreign currencies. The Bank has not entered into
significant forward exchange or any embedded derivative transactions during the year ended December
31, 2016 and 2015.
The Bank is exposed to currency risk through transactions in foreign currencies. As the currency in
which the Bank presents its financial statements is Euro, the Bank’s financial statements are effected by
movements in the exchange rates between the Euro and other currencies.
The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognized in
the profit and loss. These exposures comprise the monetary assets and monetary liabilities of the Bank
that are not denominated in the functional currency of the Bank.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
50
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
f. Foreign Currency Risk (continued)
Foreign currency sensitivity analysis
The Bank is mainly exposed to US Dollar (USD) and Swiss Franc (CHF). The following table details
the Bank’s sensitivity to the respective increase and decrease in the value of Euro against the foreign
currencies. The percentage used is the sensitivity rate used when reporting foreign currency risk
internally to key management personnel and represents management’s assessment of the reasonably
possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation at the period end for a respective
change in foreign currency rates. The Bank has applied a 10% increase or decrease to the current
currency exchange rates. A positive number below indicates an increase in profit and other equity where
the Euro strengthens with respective percentages against the relevant currency.
+10% of Euro -10% of Euro
December 31, 2016
Assets:
Impact on cash and due from banks 1,662 (1,662)
Liabilities:
Impact on due to banks and customers (1,826) 1,826
Net impact on profit and loss and equity (164) 164
December 31, 2015
Assets:
Impact on cash and due from banks 1,419 (1,419)
Liabilities:
Impact on due to banks and customers (1,599) 1,599
Net impact on profit and loss and equity (180) 180
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
51
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
f. Foreign Currency Risk (continued)
The following table summarises the Bank’s currency position as at December 31, 2016:
EURO USD CHF Others Total
Financial assets Cash and balances
with CBK
81,741
2,102
6,277
240
90,360
Due from banks 7,637 8,540 - 1,379 17,555
Loans to customers
– net
329,608
-
-
-
329,609
Financial assets
available for sale
65,641
303
-
-
65,944
Total assets
484,627
10,945
6,277
1,619
503,468
Financial liabilities
Due to banks
130 1,201 7 1 1,339
Due to customers 424,799 9,431 6,209 1,656 442,095
Borrowings 262 - - - 262
Other financial
liabilities
6,072
4
-
-
6,076
Total liabilities
431,263
10,636
6,216
1,657
449,772
Net currency
position as at
December 31, 2015
53,364
309
61
(38)
53,696
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
52
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
f. Foreign Currency Risk (continued)
The following table summarises the Bank’s currency position as at December 31, 2015:
EURO USD CHF Others Total
Financial assets Cash and balances with CBK 54,124 3,540 4,351 524 62,539
Due from banks 27,107 3,703 - 1,546 32,356
Loans to customers – net 289,339 - - - 289,339
Financial assets available for sale 67,763 161 - - 67,924
Total assets 438,333 7,404 4,351 2,070 452,158
Financial liabilities
Due to banks 165 7 4 45 221
Due to customers 386,643 7,264 4,259 2,080 400,246
Borrowings 83 - - - 83
Other financial liabilities 1,981 - - - 1,981
Total liabilities 388,872 7,271 4,263 2,125 402,530
Net currency position as at December
31, 2015 49,461 133 88 (55) 49,628
The exchange rates applied for principal currencies against the Euro were as follows:
December 31,
2016
December 31,
2015
United States Dollar (USD) 1.0541 1.0887
British Pound (GBP) 0.8561 0.7339
Swiss Franc (CHF) 1.0739 1.0835
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
53
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
f. Interest rate risk
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market
interest rates and the risk that the maturities of interest bearing assets differ from the maturities of the
interest bearing liabilities used to fund those assets (re-pricing risk). The length of time for which the
rate of interest is fixed on a financial instrument therefore indicates to what extent it is exposed to interest
rate risk. The assets and customer term deposits of the bank carry fixed interest rates while borrowings
are at variable interest rate. The interest rates applicable to financial assets and liabilities are disclosed
in relevant note to these financial statements. Interest rate risk management policy of the bank defines
the method of identification, measurement, following up and controlling the risk in the event of interest
rate modification. The purpose of policy is management on the exposure to interest rate risk and
limitation of potential loss, which is created as a result of modification of levels of interest rates in the
market and the effect of those changes on business results and the market value of bank capital.
With the policy are defined methodologies of risk assessment from the interest rate:
Gap analysis
NII (Net Interest Income) methodology – sensitivity of NII
Basis Point Value (“BPV”) methodology
The risk management department monitors exposure to interest-rate risk using the interest-rate gap
analysis methodology. To that end, NLB Banka defines a set of input data that are based on cash flows
by individual time interval. The principle of residual maturity is applied to agreements with a fixed
interest rate, while the interest rate re-pricing date is taken into account for agreements with a variable
interest rate.
All balance sheet and off balance sheet positions which are sensitive to interest rate risk are classified in
the banking book and trading book. Positions are observed pursuant to these segments:
Interest rate sensitive positions in Euros
Interest rate sensitive positions in other currencies (aggregate base and as per each currency
severally)
At the current stage trading activities are not applicable for NLB Banka, as per required criteria of NLB
Group policies. As part of NLB group NLB Banka is subject to NLB policies and procedures.
Management believes that the Bank is not exposed to interest rate risk on its financial instruments except
borrowings which are at variable interest rates. Funds and obligations which do not have defined
maturity (such as deposits due on demand) or which have variable maturities in relation with original
achievement specified with contract, are classified in the category as demand to deposits for the purpose
of gap analysis.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
54
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
g. Interest rate risk (continued)
Interest rate risk management in the Bank’s book is carried out based on Gap analysis and Basis Point
Value methodology.
Gap analysis relates to an interest rate risk measurement technique by means of which asset, liabilities
and off-balance sheet assets are categorized into corresponding time buckets by the earlier of contractual
re-pricing (for instruments with floating interest rate) or maturity date (for instruments with fixed interest
rate).
Assets and liabilities with no maturity date (e.g. on-demand deposits) or with maturity dates which may
be different from the original maturity dates defined by the contracts are categorised into corresponding
time buckets based on the Bank’s estimate and considering its previous experience.
With a view to more adequate interest rate risk management and measurement, BPV (Basis Point Value)
methodology is used, measuring the financial instruments’ sensitivity to changes of market interest rates.
Based on this method, it is estimated how the position value will change if the market interest rates
change by +/- 200 basis points.
The main tool for management of interest rate exposure is gap analysis, i.e. gap analysis for interest
bearing assets and liabilities. The Assets and Liabilities Committee (ALCO) based on the proposal
suggested by expert services, adopts the strategy of adjusting the assets and liabilities items based on the
estimated changes in market interest rates.
Sensitivity analysis
Interest rate risk management is supplemented by monitoring the sensitivity of the Banks profit or loss
and equity to various floating interest rate scenarios. The interest rate sensitivity analysis has been
determined based on the exposure to interest rate risk at the reporting date. The analysis assumes a
parallel increase of interest rates of 200 basis points (± 2%) on the level of net profit and equity.
Exposure to interest rate risk and its impact on the bank’s statement of changes in equity and profit and
loss is measured through Basis Point Value methodology. Results presented below represent the changes
in profit and loss and equity, which would occur if interest rates will increase or decrease by 200 basis
points.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
55
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
g. Interest rate risk (continued)
Analysis of the sensitivity of profit or loss and equity to changes in interest rates is as follows:
Sensitivity of the profit and loss
Interest rate sensitivity 2016 2015
Increase in basic points
+200 bps parallel shift 1,575 1455
Sensitivity of the profit and loss
Interest rate sensitivity 2016 2015
Decrease in basic points
-200 bps parallel shift (2,005) (2,206)
Basis Point Value (BPV) results as at December 31, 2016 is 7.7% of capital (2015: 7.7%). As per interest
rate risk management policy the maximum limit of BPV result is 10% of total capital.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
56
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
g. Interest rate risk (continued)
The table below gives the net interest rate position for financial assets and financial liabilities as monitored by management.
December 31, 2016 Total
NON-
interest
bearing
Interest
bearing Sight
1
month
2
month
From 3 -
6 months
From 6 -
12
months
From 1
- 2
years
From 2
- 5
years
From
5 - 10
years
Over
10
years
Total - (228,035) 228,035 (24,443) 15,794 9,950 70,763 36,497 42,973 43,773 29,705 3,023
Fixed interest rate - (228,035) 228,035 (24,442) 15,794 9,950 70,763 36,497 42,973 43,773 29,705 3,023
Floating EURIBOR - - - - - - - - - - - -
Fixed interest rate
(Euro)
(333)
(211,509)
211,176
(31,406)
7,014
9,950
69,625
36,519
42,973
43,773
29,705
3,023
Floating EURIBOR
(Euro)
-
-
-
-
-
-
-
-
-
-
-
-
Fixed interest rate
(USD)
311
(10,065)
10,376
1,858
7,402
-
1,138
(22)
-
-
-
-
Fixed interest rate
(CHF)
61
(4,834)
4,895
4,895
-
-
-
-
-
-
-
-
Fixed interest rate
(Other)
(38)
(1,627)
1,589
211
1,378
-
-
-
-
-
-
-
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
57
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
g. Interest rate risk (continued)
December 31, 2015 Total
NON-
interest
bearing
Interest
bearing Sight
1
month
2
month
From 3
- 6
months
From 6
- 12
months
From 1
- 2
years
From 2
- 5
years
From 5
- 10
years
Over
10
years
Total -
(193,006)
193,006
(41,383)
19,637
8,139
62,079
38,118
34,906
43,743
24,880
2,887
Fixed interest rate 46 (193,006) 193,052 (41,383) 19,637 8,139 62,125 38,118
34,906 43,743
24,880 2,887
Floating EURIBOR (46)
- (46) - - - (46) - - - - -
Fixed interest rate (Euro) (128) (181,819) 181,691 (47,512) 14,874 7,831 62,125 37,957 34,906 43,743 24,880 2,887
Floating EURIBOR (Euro) (46) - (46) - - - (46) - - - - -
Fixed interest rate (USD) 141 (6,958) 7,099 3,413 3,217 308 - 161 - - - -
Fixed interest rate (CHF) 87 (2,285) 2,372 2,372 - - - - - - - -
Fixed interest rate (Other) (54) (1,944) 1,890 344 1,546 - - - - - - -
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
58
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
h. Credit risk
The Bank is subject to credit risk through its lending activities and in cases where it acts as an intermediary
on behalf of customers or other third parties or issues guarantees. In this respect, the credit risk for the Bank
stems from the possibility that different counterparties might default on their contractual obligations. The
management of the credit risk exposures to borrowers is conducted through regular analysis of the borrowers’
credit worthiness. Exposure to credit risk is also managed in part by obtaining collateral and guarantees.
The Bank’s primary exposure to credit risk arises through its loans and advances to customers. The amount of
credit exposure in this regard is represented by the carrying amounts of the assets on the balance sheet. In
addition, the Bank is exposed to off-balance sheet credit risk through guarantees issued.
Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for
counterparties when they have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other conditions. The major
concentrations of credit risk arise by type of customer in relation to the Bank’s loans and advances, and
guarantees issued.
For subsequent measurement and impairment of assets the bank assesses whether objective evidence of
impairment exists individually for financial assets that are individually significant, and individually or
collectively for financial assets that are not individually significant. If it is determined that no objective
evidence of impairment exists for an individually assessed financial asset, whether significant or not, it
includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses
them for impairment. Assets that are individually assessed for impairment and for which an impairment loss
is or continues to be recognized are not included in a collective assessment of impairment.
Terms and conditions of use of collateral
Collateral held under loan agreement can only be possessed by the bank in case of borrower’s default and
conduct of legal procedures in accordance with legislation of Kosovo which enable the bank to take full legal
title and ownership. Only after the completion of these procedures, the bank can sell or transfer the collateral.
In addition, the Bank recognises seized collateral as an asset only when it has full legal title and physical
possession of the collateral and the fair value of collateral can be determined reliably.
The Bank cannot sell, transfer or re-pledge the collateral while the borrowers are performing or legal
procedures for transfer of ownership as a result of default have not been completed.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
59
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
h. Credit risk (continued)
Maximum exposure to credit risk:
As at December 31, 2016
Gross
maximum
exposure
Impairment
Provision
Net
maximum
exposure
Fair value
of
collateral
Cash and balances with
central bank
90,360 -
90,360 -
Loans and advances to
banks
17,555 -
17,555 -
Loans to individuals 126,349 (2,327) 124,022 180,947
Granted Overdrafts 2,593 (40) 2,553 994
Housing loans 69,293 (1,341) 67,952 149,572
Consumer loans 51,848 (857) 50,992 30,264
Other loans to individuals
2,614
(89)
2,525
117
Loans to legal entities 231,242 (25,655) 205,586 730,284
Loans to small and
medium entities
158,995
(18,909)
140,085
549,701
Loans to large entities 72,210 (6,745) 65,465 180,492
Loans to financial
organizations
36
(0)
36
90
Total loans & advances
to customers
357,591
(27,982)
329,609
911,231
Financial assets available
for sale
65,944 -
65,944 -
Letters of credit 910 - 910 1,104
Short-term guarantees 17,587 (7) 17,579 33,487
Long-term guarantees 4,681 (1) 4,680 17,981
Loan commitments 43,238 - 43,238 37,237
Contingent liabilities 66,416 (8) 66,416 89,809
Within other loans to individuals are also included cash cover loans in the amount of EUR 16,170 thousand.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
60
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
h. Credit risk (continued)
Maximum exposure to credit risk (continued)
As at December 31, 2015
Gross
maximum
exposure
Impairment
provision
Net
maximum
exposure
Fair value
of
collateral
Cash and balances with
central bank
62,539
-
62,539
-
Loans and advances to
banks 32,356 - 32,356 -
Loans to individuals 105,952 (1,856) 104,096 167,977
Housing loans 56,727 (1,071) 55,656 140,057
Consumer loans 201 (6) 195 312
Other loans to individuals
49,024
(779)
48,245
27,608
Loans to legal entities
207,519
(22,276)
185,243
730,662
Loans to small and medium
entities
19,076
(987)
18,089
82,038
Loans to large entities 188,443 (21,289) 167,154 648,624
Total loans and advances
to customers
313,471
(24,132)
289,339
898,639
Financial assets available
for sale
67,924 -
67,924 -
Letters of credit 699 - 699 867
Short-term guarantees 22,024 (6) 22,018 42,320
Long-term guarantees 3,635 (1) 3,634 10,057
Loan commitments 39,422 - 39,422 40,875
Contingent liabilities 65,780 (7) 65,773 94,119
Within other loans to individuals are also included cash cover loans in the amount of EUR 10,678 thousand.
Financial assets available for sale are all neither past due, nor impaired.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
61
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances
Loans and advances are summarized as follows:
31-Dec-16 31-Dec-15
Loans and
advances to
customers
Loans and
advances to
banks
Loans and
advances to
customers
Loans and
advances to
banks
Neither past due nor impaired 11,039 17,555 10,362 32,356
Past due but not impaired 344 - 315 -
Not pas due but assessed
collectively for impairment
310,418
-
266,371
-
Past due and collectively impaired 22,003 - 22,694 -
Individually Impaired 13,787 - 13,729 -
Gross loans 357,591 17,555 313,471 32,356
Less: allowances for impairment
(27,982)
- (24,132) -
Net loans
329,609
17,555 289,339 32,356
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
62
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
a) Loans and advances neither past due nor impaired:
As at December 31, 2016 internal rating system
A B C D Total Fair value
of collateral
Loans to banks 17,556 - - - 17,556 -
Loans to individuals 7,440 12 - - 7,452 175,844
Housing loans 125 - - - 125 145,278
Other loans to individuals 7,315 12 - - 7,327 30,566
Loans to legal entities 3,043 393 150 - 3,586 658,636
Loans to financial organizations 1 - - - 1 90
Loans to small and medium entities 3,042 393 - - 3,435 489,104
Loans to large entities - - 150 - 150 169,442
Total loans and advances to customers 10,483 405 150 - 11,039 834,481
Total 28,039 405 150 - 28,595 834,481
As at December 31, 2015 Internal rating system
A B C D Total Fair value
of collateral
Loans to banks 32,356 32,356
Loans to individuals 7,061 20 2 7,083 10,232
Housing loans 27 - - 27 43
Other loans to individuals 7,034 20 2 7,056 10,189
Loans to legal entities 3,167 112 - 3,279 7,395
Loans to small and medium entities 555 - - 555 1,116
Loans to large entities 2,612 112 - 2,724 6,279
Total loans and advances to customers 10,228 132 2 10,362 17,627
Total 42,584 132 2 - 42,718 17,627
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
63
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances(continued)
b) Loans and advances not pas due but assessed collectively for impairment:
As at December 31, 2016 internal rating system
A B C D E Total Fair value of
collateral
Loans to individuals 112,453 526 239 145 5 113,368 180,947
Housing loans 65,198 310
159
85
1 65,754 149,572
Other loans to
individuals 47,255 215
81
60
4 47,614 31,375
Loans to legal entities 58,475 85,343
53,099
46
88 197,050 730,284
Loans to financial
organizations 35 - - - 35 90
Loans to small and
medium entities 51,216 48,221
32,557
46
88 132,128 549,701
Loans to large entities 7,224 37,121
20,542 64,887 180,492
Total loans and
advances to customers 170,927 85,868 53,338 191 93 310,418 911,231
As at December 31, 2015 internal rating system
A B C D E Total Fair value of
collateral
Loans to individuals 94,170 281 116 99 12 94,679 144,516
Housing loans 53,170 157 76 44 8 53,996 128,656
Other loans to
individuals 40,459 124
40
56
4 40,683 15,890
Loans to legal entities 86,304 65,746
19,620
21
7 171,698 591,395
Loans to small and
medium entities 16,013 143
55
21
7 16,239 65,111
Loans to large entities 70,291 65,603 19,565 - - 155,459 526,284
Total loans and
advances to customers 180,474 66,026 19,736 121 19 266,377 735,911
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
64
FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances(continued)
Category A
All direct loans or facilities and off-balance sheet exposures of the bank that carry normal banking risk.
Available information concerning the credit exposure, the performance of the customer’s account, and the
financial data all indicate that the settlement of the exposure is reasonably certain without difficulties, (or the
obligation is fully secured by eligible collateral). Similarly within A graded clients/exposures are all direct
loans or facilities and off-balance sheet exposures of the bank which are risk free. Exposures which have as
collateral cash deposit or a guarantee issued by a bank which has an external credit rating of grater the BBB,
grade evaluated by Moody’s or S&P credit rating agencies.
Category B- Watch
Special Attention (or Watch) - This classification is used to identify and monitor exposures which contain
weaknesses or potential weaknesses that, at the time of review, do not jeopardize the repayment of the credit
or reflect a potential for loss, but which, if not addressed or corrected could result in the deterioration of the
credit to a substandard or more severe classification. Absent any documented evidence to the contrary, the
bank classifies as “special attention” those exposures that are overdue more than 30 days but less than 60
days or those with continuous indebtedness in excess of 5% of approved lines for more than 30 days but less
than 60 days. This category of classification is intended to identify and address potentially weak relationships
at an early stage.
Category C-Substandard
Substandard - Exposures which, based upon a review of all factors attendant to the credit, have well defined
credit weaknesses that jeopardize repayment of the credit in the normal course. A substandard credit is one
which, by an analysis of financial data and other factors, is not currently protected by the sound worth and
paying capacity of the borrower or guarantors or the value of the collateral, if any. Recourse to a responsible
and able guarantor for repayment that would involve prolonged negotiations before liquidation of the credit
would invoke a substandard classification. The need for recourse to the collateral as the means of satisfying
the obligation also would be the basis for a substandard classification. Absent any documented evidence to
the contrary, an exposure is classified at least substandard if any of the following criteria apply:
(a) If deposits/cash flows into the customer’s overdraft account are insufficient to liquidate the outstanding
balance within 60 days from the expiration date of the facility.
(b) If the customer exceeded the authorized limit of the facility by 5% or more for over 60 days without
paying this excess or without bank management formally raising the authorized limit.
(c) If the customer is overdue in repaying contractual instalments (including interest) for over 60 days.
(d) If the maturity of the loan or facility is over 60 days past due without repayment.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
65
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances(continued)
Category D-Doubtful
Doubtful - Exposures which, based upon a review of all factors attendant to the credit, contain all the
weaknesses that are inherent in a substandard credit, but which are so pronounced that there is a strong
probability that a significant portion of the principal amount will not be paid. There is a likelihood of loss,
but the exact amount cannot be clearly defined at the time of review or is dependent upon the occurrence of
a future act or event. Although the possibility of loss is thus extremely high, because of significant pending
factors, reasonably specific, which could be expected to work to the advantage and strengthening of the asset,
its classification as an estimated loss is deferred until more exact status may be determined. Such pending
factors include but are not limited to mergers, acquisitions, capital restructuring, and the furnishing of new
collateral or realistic refinancing plans. Uncooperative guarantors or those who are in weak financial
condition should not be considered as being able to provide strength to the credit.
Recourse to any available collateral that would not be sufficient to cover the amount owing may also justify
a doubtful classification.
vi. Impairment of financial assets (continued)
Absent any documented evidence to the contrary, an exposure is classified at least doubtful if any of the
following criteria apply:
(a) If deposits/cash flows into the customer’s overdraft account are insufficient to liquidate the outstanding
balance within 90 days from the date of expiration of the overdraft facility.
(b) If the customer exceeded the authorized limit of the facility by 5% or more for over 90 days without
paying this excess or without bank management formally raising the authorized limit.
(c) If the customer is overdue in repaying any contractual instalment (including interest) for over 90 days.
(d) If there are deficiencies in the customer’s financial condition that have caused negative equity.
(e) If the maturity/expiration date of the loan or facility is over 90 days past due without repayment.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
66
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances(continued)
Category E- Loss
Bad (Loss) - Exposures which, based upon a review of all factors attendant to the credit are of such little
value or will require such an extended period to realize any value, are no longer justifiable for carrying on
the active books of the bank.
An exposure is classified bad (loss) if any of the following criteria apply:
(a) If deposits/cash flows into the customer’s overdraft account are insufficient to liquidate the balance of
the outstanding overdraft within 180 days from the expiration date of the overdraft facility.
(b) If the customer exceeded the authorized limit of the facility by 5% or more for over 180 days without
paying the excess or without bank management formally raising the authorized limit.
(c) If the customer fails to repay a contractual instalment (including interest) for over 180 days.
(d) If the maturity/expiration date of the loan or facility is over 180 days past due without repayment.
Impairments and provisions for the remaining part of the portfolio of companies, sole proprietors and retail
clients (receivables from clients which are not individually relevant) and for the receivables from individually
significant clients (except banks) for which there is no evidence of impairment is calculated on group basis
(portfolio approach). Loans in group are further divided in categories, as companies and sole proprietors
group of retail clients on balance sheet. All the three groups are further divided in to five sub categories A,
B, C, D, and E.
When a loan is considered to be uncollectible, it is written off against the related provision for loan
impairment. Such loans are written off after all the necessary procedures have been completed and the amount
of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the
profit or loss.
If the amount of the provision for loan impairment subsequently decreases due to an event occurring after the
write down, the release of the provision is credited to the profit of loss.
As of September 30, 2015 there were written off EUR 10,008 thousand loan principal and EUR 45
thousand interest, based on the CBK rules and regulations and NLB Ljubljana standards. All these written
off loans, were provisioned 100%, and as such there was no effect on the financial statements for the year
ended December 31, 2015.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
67
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
c) Loans and advances past due but not impaired:
As at December 31, 2016
Up to 30
days
Up to 90
days
Over 90
days Total
Fair value of
collateral
Loans to individuals 311 - - 311 427
Housing loans - - - - -
Other loans to individuals 311 - - 311 427
Loans to legal entities 33 - - 33 153
Loans to small and medium entities 33 - - 33 153
Loans to large entities - - - - -
Total loans and advances to
customers
344 - -
344 580
As at December 31, 2015
Up to 30
days
Up to 90
days
Over 90
days Total
Fair value of
collateral
Loans to individuals 260 - - 260 566
Housing loans 4 - - 4 20
Other loans to individuals 256 - - 256 546
Loans to legal entities 55 - - 55 238
Loans to small and medium entities 38 - - 38 188
Loans to large entities 17 - - 17 50
Total loans and advances to customers 315 - - 315 804
d) Loans and advances past due and collectively impaired
As at December 31, 2016
Up to 30
days
Up to 90
days
Over 90
days Total
Fair value
of collateral
Loans to individuals 4,540 19 456 5,015 180,947
Housing loans 2,908 10 292 3,209 149,572.44
Other loans to individuals 1,632 10 164 1,806 31,374.961
Loans to legal entities 16,197 29 763 16,989 730,284
Loans to small and medium entities 11,254 29 718 12,001 549,791.45
Loans to large entities 4,943 - 45 4,988 180,492.49
Total loans and advances to
customers 20,737 48 1,219 22,003 911,231
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
68
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
d ) Loans and advances past due and collectively impaired (continued)
Up to 30 days Up to 90 days Over 90
days Total
Fair
value of
collateral
Loans to individuals 3,157 185 594 3,936 12,660
Housing loans 2,173 128 400 2,701 11,337
Other loans to individuals 985 57 193 1,235 1,323
Loans to legal entities 16,606 1,476 676 18,758 71,485
Loans to small and medium entities 1,317 192 642 2,151 14,983
Loans to large entities 15,289 1,284 34 16,607 56,503
Total loans and advances to
customers 19,763 1,661 1,270 22,694 84,146
e) Loans and advances individually impaired
The breakdown of the gross amount of individually impaired loans and advances by class, are as follows:
Gross loans and advances
individually impaired Impairment
Net loans and
advances
individually
impaired
December 31, 2016
Loans to bank - - -
Loans for houses and flats 205 (131) 74
Loans to large corporate customers 2,183 (2,138) 44
Loans to small and medium size
enterprises
11,398
(10,873)
525
Loans and advances to customers 13,786 (13,143) 643
Total 13,786 (13,143) 643
Gross loans and
advances
individually
impaired Impairment
Net loans
and advances
individually
impaired
December 31, 2015
Loans to bank - - -
Loans to large corporate customers 13,638 (12,546) 1,092
Loans to small and medium size enterprises 91 (82) 9
Loans and advances to customers 13,729 (12,628) 1,101
Total 13,729 (12,628) 1,101
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
69
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
f) Loans and advances collectively impaired
The breakdown of the gross amount of collectively impaired loans and advances by class, are as follows:
Gross loans and
advances collectively
impaired Impairment
Net loans and
advances
collectively
impaired
December 31, 2016
Loans to individuals 68,962 (1,210) 67,753
Other loans to individuals 49,418 (986) 48,432
Loans to financial organizations 35 0 35
Loans to large entities 69,877 (4,607) 65,271
Loans to small and medium
entities
144,128
(8,036)
136,092
Loans and advances to
customers
332,421
(14,839)
317,582
Total 332,421 (14,839) 317,582
Gross loans and
advances collectively
impaired Impairment
Net loans and
advances
collectively
impaired
December 31, 2015
Loans to individuals 60,395 (1,163) 59,232
Other loans to individuals 38,214 (693) 37,521
Loans to large entities 172,066 (8,743) 163,323
Loans to small and medium entities 18,390 (905) 17,485
Loans and advances to customers 289,065 (11,504) 277,561
Total 289,065 (11,504) 277,561
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
70
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
The financial effect of collateral as of December31, 2016 is presented below:
Loans to large
corporate
customers
Loans to small and
medium size
enterprises
Loans to
financial
organizations
Credit
cards
Loans for
houses and flats
Consumer
loans
Other
loans Total
Loans collateralized by:
- residential real estate
42,395 72,462 - - 27,437 523
14 142,831
- other real estate
25,269 67,256 - - 3,259 7
- 95,791
- cash deposits 150 3,503 1 21 232 7,195 427 11,529
- other assets 4,397 15,598 35 117 38,029 43,671 2,079 103,925
Total 72,210 158,819 36 138 68,957 51,396
2,519 354,076
Unsecured exposures - 175 - 2,476 336 453
75 3,515
Total loans and
advances to customers 72,210 158,994 36 2,614 69,293 51,849
2,594 357,591
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
71
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
The financial effect of collateral as of December 31, 2015 is presented below:
Loans to large
corporate
customers
Loans to small
and medium
size enterprises
Credit
cards
Loans to
financial
organizations
Loans for
houses and
flats
Consumer
loans Other loans Total
Loans collateralized by:
- residential real
estate 88,510 4,886 -
- 25,748 6 529 119,679
- other real estate 92,511 1,205 - - 2,836 - 64 96,616
- cash deposits 2,739 595 18 - 30 - 7,296 10,678
- other assets 4,529 12,330 76 - 27,844 194 39,033 84,006
Total 188,289 19,016 94 - 56,458 200 46,922 310,979
Unsecured exposures
154
60
1,582
- 268
1 427
2,492
Total loans and
advances to
customers
188,443 19,076 1,676
- 56,726 201 47,349 313,471
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
72
The effect of collateral at December 31, 2016:
Over-collateralized Under-collateralized
Assets Assets
Carrying value of the
assets Fair value of collateral
Carrying value of the
assets
Fair value of
collateral
Loans to individuals 45,049 166,616 78,973 14,365
Granted overdrafts 422 717 2,133 277
Credit cards 26 139 2,499 12
Loans for houses and flats 33,418 142,235 34,534 7,337
Consumer loans 11,182 23,525 39,808 6,739
Other loans - - - -
Loans to financial organizations 24 79 12 11
Loans to large corporate customers 65,465 180,492 - -
Loans to small and medium size enterprises 137,485 548,052 2,600 1,649
Total 248,023 895,239 81,585 16,026
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
73
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
i. Loans and advances (continued)
The effect of collateral at December 31, 2015:
Over-collateralized Under-collateralized
Assets Assets
Carrying value
of the assets
Fair value of
collateral
Carrying value
of the assets
Fair value of
collateral
Loans to individuals 27,517 117,424 74,356 50,553
Granted overdrafts 30 98 2,239 1,384
Credit cards - 16 93 101
Loans for houses and flats 26,931 115,085 28,460 24,972
Consumer loans 5 89 189 223
Other loans 551 2,136 43,375 23,873
Loans to large corporate
customers 152,130 618,685 15,024 29,939
Loans to small and medium size
enterprises 5,402 41,246 12,628 40,792
Total 185,049 777,355 102,008 121,284
The analysis of identification of over or under collateralized loans is performed by the Bank at the gross
carrying amount of loans. The table above presents total net loans against total collateral.
The collaterals taken in consideration for the mitigation of the credit risk consists of immoveable properties
such as land and buildings and pledge on moveable properties such as stocks and any other moveable property
which could be converted in to liquid assets on an arm's length transaction. As prescribed by the credit policy
the exposure of the Bank should be covered at least 163% with residential property and/or 200% with
commercial property in correlation with the market value of the collateral. Risk free items include loans
covered by cash or any other easily converted asset into liquid assets in an arms’ length transaction, as defined
by the Credit risk management policy of the Bank and the CBK Rule on large exposures.
Collateral security is taken into consideration in the impairment loss calculation process. The fair market and
liquidation values of the collateral are documented by a current appraisal made by a competent party. The
Bank’s ability to access and liquidate the collateral within a reasonable period also is considered. Within the
collaterals are included movable and immovable properties of the counterparties, in order to cover the
exposure towards the credit risk and the risk of failure to repay the loan.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
74
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
j. Financial assets available for sale
The table below presents the whole portfolio of debt securities, and their credit grade assigned by Moody’s
or Fitch credit rating agencies:
December 31, 2016
Ratings Available for sale financial assets Total
AA - -
A+ 303 303
Not-rated 65,641 65,641
Total 65,944 65,944
December 31, 2015
Ratings Available for sale financial assets Total
AA - -
A- 161 161
Not-rated 67,763 67,763
Total 67,924 67,924
k. Loans and advances to banks
Loans and advances to banks are neither past due not impaired and are granted without collateral. Table below
presents current account and time deposits with corresponding banks (also refer to note 4 and 5). The table
below presents credit grade assigned by Moody’s or Fitch credit rating agencies:
December 31, 2016
Ratings Current accounts Deposits with banks
Long term Ratings
A 9,968 934
A+ 3,867 6,203
A- 4,819 4,791
AA- - -
BBB+ 4,747 3,796
BBB 4,717 1,330
BB- 591 -
Not rated 105 501
Total 28,814 17,555
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
75
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
k. Loans and advances to banks (continued)
December 31, 2015
Ratings Current accounts Deposits with banks
Long term Ratings
A 781 -
A+ - 3,000
A- 5,266 10,496
AA- - 1,378
BBB+ 434 8,866
BBB 4,802 7,916
BB- 549 -
Not rated 113 700
Total 11,945 32,356
Not Rated December 31, 2016 Current accounts Deposits with banks
Local bank 7 501
Member of NLB Group 77 -
Other bank (International banks) 21 -
Total 105 501
Not Rated December 31, 2015 Current accounts Deposits with banks
Local bank 7 700
Member of NLB Group 106 -
Other bank (International banks) 1 -
Total 114 700
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
76
31. FAIRVALUES AND RISK MANAGEMENT (CONTINUED)
l. Concentrations
NLB Banka has a credit strategy which determines the types of investments (concentrations) based primarily
on economic segments such as industry, trade, construction, etc. Due to the small size of the Republic of
Kosovo, geographical concentrations within Kosovo are not significant; this strategy is reviewed and updated
on an annual basis by the management board or the bank.
The following table breaks down the Bank’s main credit exposure at their net amounts, as categorized by the
industry sectors of our counterparties.
As of December 31, 2016 and 2015, an analysis of loans to customers and banks by industry sectors was as
follows:
Industry concentration
December 31, 2016 December 31, 2015
Net loans % Net loans %
Banks 17,556 5% 32,356 10%
Citizens 124,008 36% 104,096 32%
Construction industry 21,280 6% 16,315 5%
Industry 20,892 6% 20,547 6%
Agriculture 11 -% 1,067 -%
Services 62,275 18% 28,820 9%
Hospitality 998 -% 7,991 3%
Transport and communications 11,468 3% 8,022 2%
Trading 88,677 26% 102,481 32%
Total 347,165 100% 321,695 100%
m. Liquidity risk
Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It
includes both the risk of being unable to fund assets at appropriate maturity and rates and the risk of being
unable to liquidate an asset at a reasonable price and in an appropriate time frame to meet the liability
obligations. The Bank monitors its liquidity on a daily basis in order to manage its obligations as and when
they fall due. Funds are raised using a broad range of instruments including deposits, borrowings and share capital. This
enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of
funds. The Bank makes its best efforts to maintain a balance between continuity of funding and flexibility
through the use of liabilities with a range of maturities. The Bank continually assesses liquidity risk by
identifying and monitoring changes in funding required for meeting business goals and targets set in terms of
the overall Bank strategy. In addition the Bank holds a portfolio of liquid assets as part of its liquidity risk
management strategy. The amount disclosed in tables below is contractual undiscounted cash flows.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
77
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
m. Liquidity risk (continued)
December 31, 2016
On demand and
less than one
month
One month to
three months
Three months
to twelve
months
One year to
five years
Five years
onward Total
Financial assets
Cash and balances with the Central Bank
56,156
-
-
-
-
56,156
Due from other banks 9,086 2,438 6,060 - - 17,584
Loans to customers, net 12,455 26,654 118,585 185,449 38,023 381,167
Financial assets available for sale
2,600
17,705
28,782 16,555
-
65,641
Total financial assets 80,297 46,797 153,427 202,004 38,023 520,548
Financial liabilities
Customer accounts 290,365 10,111 59,535 90,635 - 450,646
Borrowings 9 20 87 210 - 326
Other financial liabilities 6,359 - - - - 6,359
Loan commitments 2,383 4,341 23,810 10,287 3,119 43,939
Financial guarantees 777 4,373 11,265 636 536 17,587
Total financial liabilities 299,893 18,844 94,697 101,769 3,655 518,857
Liquidity gap as at December 31, 2016
(219,596)
27,953
58,731
100,235
34,368
1,691
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
78
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
n. Liquidity risk (continued)
December 31, 2015
On demand and
less than one
month
One month to
three months
Three months
to twelve
months
One year to
five years
Five years
onward Total
Financial assets Cash and balances with the Central Bank 30,540 - - - - 30,540
Due from other banks 7,491 5,664 19,220 - - 32,375
Loans to customers, net 11,375 25,234 103,354 166,109 32,784 338,856
Financial assets available for sale 12,224 10,585 36,116 9,606 161 68,692
Total financial assets 61,630 41,483 158,690 175,715 32,945 470,463
Financial liabilities
Customer accounts 255,412 12,240 66,132 72,979 - 406,763
Borrowings 83 - - - - 83
Other financial liabilities 1,981 - - - - 1,981
Loan commitments 1,145 6,276 20,620 8,092 3,289 39,422
Financial guarantees 3,037 5,296 12,617 300 5 21,255
Total financial liabilities 261,658 23,812 99,369 81,371 3,294 469,504
Liquidity gap as at December 31, 2015 (200,028) 17,671 59,321 94,344 29,651 959
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
79
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
o. Fair value of financial instruments
(a) Fair values of financial instruments carried at amortised cost
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. Fair values have been based on
management assumptions according to the profile of the asset and liability base.
The following table summarizes the carrying amounts and fair values to those financial assets and liabilities
not presented on the statement of financial position at their fair value.
December 31, 2016 December 31, 2015
Carrying amount Fair value Carrying
amount
Fair value
Loans and advances to banks 17,555 17,569 32,356 32,375
Loans and advances to customers 329,607 383,757 289,339 315,505
Due to banks 1,339 1,339 221 221
Due to customers 442,094 449,151 400,246 406,193
Borrowing 267 267 83 82
Other financial liabilities 6,356 6,356 1,981 1,981
All fair value disclosures are based on management estimates and valuation techniques and fall under Level
2 of the fair value hierarchy. The valuation techniques and estimates for most significant assets and liabilities
are described below:
Loans to banks
Loans and advances to other banks comprise inter-bank placements. The fair value of placements and
overnight deposits is their carrying amount due to their short-term nature.
Loans to customers
Loans to customers in the balance sheet are presented in net amount, i.e. net of allowances for impairment.
For the purpose of calculating the fair value, the Bank used discounted cash flow method. Thus, the
calculation is based on contractual cash flows. Credit risk of individual clients is taken into consideration
through the expected impairment.
Deposits and borrowings
The estimated fair value of deposits and borrowings is based on discounted contractual cash flows, taking
into consideration market interest rates, which would have been payable by the Bank in need of replacing the
old sources with the new ones of equal remaining maturity.
NLB BANKA SH.A.
NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016
(All amounts expressed in EUR thousand, unless otherwise stated)
80
31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)
o. Fair value of financial instruments (continued)
a) Analysis by fair value hierarchy of financial instruments carried at fair value
The Bank measures fair values using the following fair value hierarchy that reflects the significance of the
inputs used in making the measurements:
a) Level 1: Quoted market price (unadjusted) in an active market for an identical instrument
b) Level 2: Valuation techniques based on observable inputs other than quoted prices, either directly (i.e.
as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using:
quoted market prices in active markets for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or other valuation techniques where all
significant inputs are directly or indirectly observable from market data.
c) Level 3: Valuation techniques using significant unobservable inputs. This category includes all
instruments where the valuation technique includes inputs not based on observable data and the
unobservable inputs have a significant effect on the instrument’s valuation. This category includes
instruments that are valued based on quoted prices for similar instruments where significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
The following table shows the distribution of fair values over the different fair value hierarchies.
December 31, 2016
Total Fair
Value Level 1 Level 2 Level 3
Financial Assets
Debt instruments
65,641 - 65,641 -
Equity instruments 303 303 -
Total available for sale financial assets 65,944 303 65,641 -
December 31, 2015:
Total Fair
Value Level 1 Level 2 Level 3
Financial Assets
Debt instruments 67,763 - 67,763 -
Equity instruments 161 161 - -
Total available for sale financial assets 67,924 161 67,763 -
The availability of observable market prices and model inputs reduces the need for management judgment
and estimation and also reduces the uncertainty associated with determination of fair values. The availability
of observable market prices and inputs varies depending on the products and markets and is prone to changes
based on specific events and general conditions in the future markets.
The Bank does not possess instruments that are subject to possible movements from one level to another of
fair value category.
Nr Name Unit ADDRESS
1 Branch 0001 PRISHTINË F Str. “Ukshin Hoti” nr.124, Prishtinë
2 Cash office – Customs Terminal "Amortizatorët" S Magjistralja Prishtine Fushë Kosovë
3 Sub-branch near Xhamia e LLapit E Str.”Ilir Konushevci” nr. 75, - Prishtinë
4 Sub-branch in “Al Trade” E Magjistralja Prishtinë - Shkup, Veternik
5 Sub-branch Drenas E Str. “Skënderbeu” p.n. - Drenas
6 Sub-branch Bregu i Diellit E Qendra Tregëtare "Bregu i Diellit", Prishtinë
7 Cash office - Terminal in Intereuropa S Zona Industriale në Prishtinë
8 Branch 1001 PRISHTINË F Str. “Rexhep Luci’ nr. 11, - Prishtinë
9 Sub-branch Graqanicë E Str. “Kralj Milutin” p.n
10 Sub-branch – Business center E Str. “Eqrem Qabej” nr.1, Prishtinë
11 Sub-branch Fushë Kosovë E Str. Zona Industriale në Prishtine, objekti Al-Trade, p.n
12 Sub-branch Kastriot E Str. “Hasan Prishtina” p.n.
13 Sub-branch Lypjan E Str. Lidhja e Prizrenit 20/3, - Lypjan
14 Branch 1002 GJILAN F Str.”Adem Jashari” nr. 116 Gjilan
15 Sub-branch Gjilan E Str. “Bulevardi I Pavarsisë” nr 92, Gjilan
16 Sub-branch Viti E Str. “Adem Jashari” p.n. - Viti
17 Sub-branch Kamenicë E Str. “Skenderbeu” p.n - Dardanë
18 Branch 1003 FERIZAJ F Str. “Rexhep Bislimi” pn.
19 Sub-branch Ferizaj E Str. “Dëshmorët e Kombit” pn.
20 Sub-branch Kaçanik E Str. “Ismajl Raka” p.n - Kaçanik
21 Sub-branch Shterpca E Str. Kryesore p.n. në Shtërpcë
22 Sub-branch Hani i Elezit E Str. “Adem Jashari” p.n.
23 Cash office - Terminal Hani i Elezit S Str.”ShaStr Sallonit”.nr. 15.
24 Branch 1004 GJAKOVË F Str. “Nëna Terezë” nr. 363
25 Sub-branch Gjakovë E Str. “UÇK” p.n.
26 Branch 1005 PRIZREN F Str. Str. “De Rada” p.n.
27 Sub-branch Prizren E Str. “Adem Jashari”
28 Sub-branch Suhareke E Str. “Brigada 123”, pn
29 Sub-branch Rahovec E Str. “Xhelal Hajda-Toni”, p.n. – Rahovec,
30 Sub-branch Malisheve E Magjistralja Prishtinë-Rahovec
31 Cash office- Terminal Holandez S Str.Tranzit pn.
32 Branch 1006 PEJË F Str. “Petro Marko” nr. 1 në Pejë
33 Sub-branch Peje E Str. “Mbreteresha Teutë” nr.67 në Pejë
34 Cash office- Terminal Peje S Str. “Zahir Pajaziti” p.n.
35 Sub-branch Kline E Str.”Abedin Rexha” nr.4 në Klinë
36 Sub-branch Istog E Str. “Fadil Ferati” p.n. në Istog
37 Sub-branch Deçan E Str. “Luan Haradinaj” p.n. në Deçan
38 Branch 1007 MITROVICË F Str.”Afrim Zhitia” p.n. - Mitrovicë
39 Sub-branch Mitrovice E Str. “Mbreteresha Teuta” nr.33. - Mitrovicë
40 Cash office- Terminal Mitrovicë S Str. Terminali Mitrovicë nr.28
41 Sub-branch Mitrovica Veriore E Str. “Kralja Petra" në Mitrovicë
42 Sub-branch Vushtri E Str. “Sheshi i Lirisë" nr.17– VushtStri
43 Sub-branch Skenderaj E Str. “28 Nëntori” p.n. 41000 Skenderaj
44 Branch 1009 PODUJEVË F Str.”Zahir Pajaziti” p.n. në Podujevë
45 Cash office- Terminal Podujevë S Magjistralja Podujevë - Merdare
Territorial units of NLB Banka
Rr. Ukshin Hoti nr. 124, 10 000 PrishtinëT: + 381 (0)38 240 230 100E: [email protected]: www.nlb-kos.com