Annual Report 2018

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Key Figures

EUR ’000
ALL ’000
2018 2017 2018 2017

Balance Sheet Data

Total Assets 258,996 256,968 31,965,256 34,163,812
Gross Loan Portfolio 194,795 181,535 24,041,608 24,135,031
Business Clients Loan Portfolio 178,770 164,352 22,063,827 21,850,542
Private Clients Loan Portfolio 16,025 17,183 1,977,781 2,284,489

Loan Loss Provision (13,888) (10,199) (1,714,047) (1,356,000)

Net Loan Portfolio 180,907 171,335 22,327,561 22,779,031
Customer Deposits 167,487 180,867 20,671,213 24,046,245
Liabilities to Banks and Financial Institutions
(excluding PCH) 4,912 4,137 606,204 549,965
Total Equity 25,388 32,261 3,133,343 4,289,114

Income Statement
Operating Income 5,541 6,578 706,939 882,356
Operating Expenses 9,878 9,901 1,260,186 1,327,960
Operating Profit Before Tax (5,670) (4,338) (723,394) (581,834)
Net Profit (6,141) (3,998) (783,528) (536,204)
Key Ratios
Cost/Income Ratio 178.26% 150.50%
Return on Equity (ROE) -21.31% -11.75%
Capital Ratio 13.75% 13.42%

Operational Statistics
Number of Clients 21,002 41,441
of which Business Clients 3,857 7,953
Number of Loans Outstanding 3,494 6,181
Number of Deposit Accounts 40,244 75,520
Number of Staff 143 177
Number of Branches and Outlets 6 7

Exchange rate as of December 31:

2018: EUR 1 = ALL 123.42
2017: EUR 1 = ALL 132.95

Average exchange rate for the period:

2018: EUR 1 = ALL 127.58
2017: EUR 1 = ALL 134.13
 CO N T E N T S 3

Key Figures 2

Mission Statement 4

Comprehensive Statement 6

Risk tolerance / appetite of ProCredit Bank Albania 8

Financial Statements 10

Contact Addresses 63
4 A N N U A L R E P O R T 2 018

Mission Statement

ProCredit Bank is a development-oriented commercial bank. We offer excellent customer

service to small and medium enterprises and to private individuals who have the capac-
ity to save and who prefer to do their banking through electronic channels. In our opera-
tions, we adhere to a number of core principles: We value transparency in our communi-
cation with our customers, we do not promote consumer lending, we strive to minimise
our ecological footprint, and we provide services which are based both on an under-
standing of each client’s situation and on sound financial analysis.

We focus on small and medium-sized enterprises, as we are convinced that these busi-
nesses create jobs and make a vital contribution to the economies in which they operate.
By offering simple and accessible deposit facilities and online banking services and by
investing in financial education, we aim to promote a culture of saving and financial re-
sponsibility among business clients as well as private individuals.

Our shareholders expect a sustainable return on investment over the long term, rather
than being focused on short-term profit maximisation. We invest extensively in the train-
ing and development of our staff in order to create an open and efficient working atmos-
phere and to provide friendly and competent service for our clients.
 5

Management of ProCredit Bank Albania as of 31 December 2018:

• Adela Leka – Spokesperson of the Management Board

• Ardiola Hristiç – Member of the Management Board
• Agan Azemi – Member of the Management Board
• Mirsad Haliti – Member of the Management Board

Board of Directors as of 31 December 2018:

• Borislav Kostadinov, Chairman

• Wolfgang Bertelsmeier
• Jordan Damcevski
• Robert Scott Richards
• Jovanka Joleska Poposka
6 A N N U A L R E P O R T 2 018

Comprehensive Statement

In the context of specifications and principles set forth in the Regulatory Framework of the Bank of Albania,
“On the core management principles of banks and branches of foreign banks and the criteria on the ap-
proval of their administrators”, ProCredit Bank sh.a. hereby declares:

1. Remuneration policy
In accordance with the ProCredit Bank remuneration policy in force since 15 July 2010, members of ProCredit
Bank’s Board of Directors are not paid a salary, but receive a per diem allowance whose amount is set
periodically by the Shareholders’ Assembly.

Both members of Management Board of ProCredit Bank, as the highest executive officers, in accordance
with the risk profile of the Bank, are paid on a monthly basis for an aggregated yearly amount of
ALL 18 306 000. The bank’s remuneration policy consists of monthly salaries which are set according to the
job position, experience, responsibilities and tasks of each employee and does not provide for bonuses.

Other forms of compensation for employees include:

• Yearly private health insurance
• Compensation for child care (up to 12 months)
• Newborn child remuneration
• Travel and rental compensation
• Mobile telephone package

In order to ensure the legitimacy, safety and efficiency of its operations, ProCredit Bank sets and
implements the following:
• Risk management policies and procedures
• Procedures establishing the criteria for appointing administrators and preparing the respective
documentation for Bank of Albania approval
• Procedures for ensuring legal compliance with external regulatory frameworks

Our salary policy is in line with the salary policy of the ProCredit group, and defines the role of ProCredit
Holding in relation to internal policy with regard to remuneration.

The purpose of this policy is to define the principles upon which the salary structure is based, but reference
is also made to changes in positions, organisational structures and training needs for each salary group.

The group salary structure is a core component of the group’s HR policy. It aims at providing a simple and
coherent framework of salary ranges for all key positions at ProCredit institutions and clear career
development paths in one concise document. Each position at the Bank appears in the salary grid with a
salary range consisting of a certain number of salary steps that can be used depending on the performance
of each employee.

The principle of a fixed (non-variable) salary was strongly reaffirmed as a key element of the group salary
policy. Not only have performance-based bonuses been abolished, but additional financial benefits, such
as a 13th or 14th month of pay, allowances of any type, vouchers, holiday money, etc., are also not practised
within the group beyond what is legally required. This is to ensure a stable form of remuneration for our
employees over the long term, rather than a highly unpredictable package that can be modified (downward)
during difficult times.
 CO M P R E H E N S I V E S T AT E M E N T 7

Each position is also situated relative to all the other positions, reflecting their different degrees of
complexity and contribution to the Bank’s development. The number of different positions in the salary grid
is intentionally limited to reflect the relatively flat hierarchical organisation of the banks. The mere
existence of this concise salary framework illustrates clearly the identity of ProCredit banks as coherent
entities sharing a common vision embracing all their employees under the same shared “roof” of principles.

Salary reviews are conducted annually for all employees and, based on the assessment of each employee,
the HR committee decides whether or not a salary increase should be offered.

The HR committee guides the development of human resources through discussion of and decision-making
on strategic issues which are usually proposed by the Human Resources department, Executive Board
members, and members of the committee, as well as proposals that may come from the managers of the
business units or departments/units at Head Office. The Human Resources committee meets once per
month.
8 A N N U A L R E P O R T 2 018

Risk tolerance / appetite of ProCredit Bank Albania

ProCredit Bank Albania provides financial services to small and medium-sized businesses and private indi-
viduals, and thus contributes to the economic development of its clients. The business strategy of the bank
is straightforward: the only services offered are those that are beneficial to small and medium-sized busi-
nesses, as well as simple savings products designed for both business and private clients.

The bank explicitly refrains from engaging in speculative lines of business. As a matter of principle, the bank
does not engage in proprietary trading and does not enter into any speculative positions for the purpose of
generating potential additional income. Therefore, it is strictly a non-trading book institution. The overall
orientation is geared towards stability, particularly with regard to the earnings situation and the risk profile
of the bank.

The bank’s risk appetite is expressed, among other things, in the following core principles:
• Focus on core business: the provision of financial services to small and medium-sized businesses
• Provision of simple, transparent financial products for the target clientele
• Avoidance of financing consumer goods
• Avoidance of risk concentrations
• Careful selection of clients with the objective of long-term cooperation
• Structured, multi-phase selection process for all staff as well as careful training of staff, during
which great importance is placed on ethical and social aspects
• A vibrant risk culture that underlines the responsibility of each and every employee in the context
of taking risks and which emphasises open communication and flat hierarchies

An awareness of risk among all managers and employees, an inherently conservative approach to risk man-
agement and the consistent application of the principle of diversification are integral parts of the bank’s
business strategy.

The risk management of the bank greatly benefits from the group’s experience that has been gained over
the past 20 years in its markets of operation. ProCredit Bank Albania, as part of the ProCredit group, ad-
heres to international best practices in the area of risk management.

The bank performs a risk inventory process on an annual basis. The risk inventory is the instrument we use
to identify the material risks the bank is exposed to, and thus shows the overall risk profile. It forms the ba-
sis of the risk management system of ProCredit Bank. This inventory and the identified material risks are
subject to review and approval from the bank’s Risk Management Committee; they are also sent to the re-
sponsible structures at ProCredit Holding. All of the identified material risks are included in the bank’s risk
management framework and are also included in the Internal Capital Adequacy Assessment Process.

In line with the business and risk strategy, the bank assumes the following material risks and assigns these
risks percentages of the resources available to cover risk (RAtCR). The risk-taking potential is not divided up
according to mathematical formulae, but rather reflects our business model and is based on our under-
standing of the market’s developments over the years.
 9

Credit risk: As we are the “Hausbank” for small and medium-sized businesses and focus on the provision of
financial services, credit risk represents the most significant risk category for the bank. Credit risk refers to
the risk that the party to a transaction will fail to meet its contractual obligations in full or on time and there-
fore includes the categories of customer credit risk, counterparty and issuer risk, and country risk.
Accordingly, this risk is assigned the highest share (38% = 33% for credit risk + 5% for counterparty risk) of
the bank’s RAtCR.

Thanks to highly trained staff, as well as a strong internal control system and various instruments used
specifically to manage operational risk (such as a risk event database), the bank has historically experi-
enced a stable and low level of losses from operational risks (including fraud risks). This risk is therefore
assigned a share of 10% of the RAtCR.

Since the deposits of our clients often have short maturities, and as the local financial market offers no
mechanisms for hedging the interest rate risk, acceptance of interest rate risk by the bank is necessary for
achieving the strategic objectives. This risk has thus been allocated a share of 10% of the RAtCR.

Although the bank pursues a conservative strategy with respect to foreign currency risk, and it is obliged to
keep closed currency positions, it is impossible to avoid currency risks in specific circumstances. Therefore,
this risk is assigned a share of 2% of the RAtCR.

Furthermore, a 40% buffer of the RAtCR is intended to cover other risks, such as funding, business and in-
come risk.
10 A N N U A L R E P O R T 2 018

Financial Statements
For the year ended 31 December 2018 .
Prepared in accordance with International Financial Reporting Standards.
F I N A N C I A L S T AT E M E N T S 11
12 A N N U A L R E P O R T 2 018

STATEMENT OF FINANCIAL POSITION

For the year ended 31 December

In ALL ’000 In EUR ’000

Assets Notes 2018 2017 2018 2017
Cash and balances with Central Bank 16 5,951,907 6,710,872 48,225 50,477
Loans and advances to financial institutions 17 19,020 119,326 154 898
Loans and advances to customers 18 22,327,562 22,779,031 180,907 171,335
Financial assets available-for-sale 19 - 1,831,349 - 13,775
Debt securities held at fair value through
other comprehensive income 19 1,632,790 - 13,230 -
Deferred income tax assets 15 4,575 64,980 37 489
Corporate income tax receivable 84,260 55,154 683 415
Other assets 20 849,595 1,287,503 6,884 9,684
Investment property 21 34,982 92,057 283 692
Property and equipment 22 1,006,496 1,121,939 8,155 8,439
Intangible assets 23 54,068 101,601 438 764
Total assets 31,965,255 34,163,812 258,996 256,968

Liabilities
Due to banks 24 3,821,376 2,879,406 30,962 21,658
Due to customers 25 20,671,213 24,046,245 167,487 180,867
Other borrowed funds 3,474,113 1,860,486 28,149 13,994
Other liabilities 27 179,158 364,592 1,452 2,954
Other Provisions 27 49,315 38,064 400 75
Subordinated debt 26 636,738 685,905 5,159 5,159
Total liabilities 28,831,913 29,874,698 233,608 224,707
Shareholders’ equity
Share capital 28 3,763,884 3,387,148 30,497 25,477
(Accumulated deficit)/Retained earnings 28 (1,315,585) 221,320 (10,639) 1,706
Legal reserves 28 708,110 708,110 5,737 5,326
Currency translation reserve - - (20) (43)
Revaluation reserve for available-for-sale securities 19 - (27,464) - (205)
Revaluation reserve for debt securities at fair value
through other comprehensive income 19 (23,067) - (187) -
Total shareholders’ equity 3,133,342 4,289,114 25,388 32,261
Total liabilities and shareholders’ equity 31,965,255 34,163,812 258,996 256,968

EUR equivalent figures are provided for information purposes only and do not form part of the audited financial statements (refer to note 2).

These financial statements have been approved by Management on 28 June 2019 and signed on their behalf by:

The statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements set out on
pages 16 to 62.
 F I N A N C I A L S T AT E M E N T S 13

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December

In ALL ’000 In EUR ’000

Notes 2018 2017 2018 2017
Interest income 10 1,444,349 1,340,420 11,321 9,993
Interest expense 10 (250,711) (200,764) (1,965) (1,497)
Net interest income 1,193,638 1,139,656 9,356 8,496

Allowance for expected credit losses 18 (379,777) (162,203) (2,977) (1,209)

Net interest income after provision
for impairment of loans 813,861 977,453 6,379 7,287

Fee and commission income 11 320,924 268,909 2,515 2,005

Fee and commission expense 11 (112,610) (122,934) (883) (917)
Other operating income 12 162,493 92,888 1,274 693
Foreign exchange translation gains less losses (83,530) (30,855) (653) (230)
Personnel expense 14 (366,220) (424,834) (2,871) (3,167)
Other operating expenses 13 (1,458,312) (1,342,461) (11,431) (10,009)
Loss before income tax (723,394) (581,834) (5,670) (4,338)

Income tax expense/(credit) 15 (60,134) 45,630 (471) 340

Loss for the year (783,528) (536,204) (6,141) (3,998)

Other comprehensive (loss)/income
Items that may be reclassified subsequently
to profit or loss:
Revaluation of available-for-sale financial assets 19 - (13,283) - (100)
Debt securities at FVOCI 1,814 - 14 -
Deferred tax 15 (272) 1,992 (2) 15
Total comprehensive loss for the year (781,986) (547,495) (6,129) (4,083)

EUR equivalent figures are provided for information purposes only and do not form part of the audited financial statements (refer to note 2).

The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out on
pages 16 to 62.
14 A N N U A L R E P O R T 2 018

Statement of Changes in Equity

For the year ended 31 December

Share Legal Revaluation Retained Total

In ALL ’000 Capital Reserve Reserve/(Deficit) Earnings
Balance at 1 January 2017 3,387,148 707,672 (16,173) 757,962 4,836,609
Total comprehensive loss for the year
Loss for the year - - - (536,204) (536,204)
Available-for-sale financial assets - - (13,283) - (13,283)
Deferred tax - - 1,992 - 1,992
Total comprehensive loss - - (11,291) (536,204) (547,495
Appropriation of retained earnings - 438 - (438) -
Balance at 31 December 2017
as previously reported 3,387,148 708,110 (27,464) 221,320 4,289,114
Impact of new or revised accounting
standards - - - (753,377) (753,377)
Adjusted balance at 1 January 2018 3,387,148 708,110 (27,464) (532,056) 3,535,738
Total comprehensive loss for the year
Loss for the year - - - (783,528) (783,528)
Debt securities at fair value through other
comprehensive income - - 4,669 - 4,669
Deferred tax - - (272) - (272)
Total comprehensive loss - - 4,397 (783,528) (779,131)
Transactions with owners recorded
directly in equity
Increase in Paid Capital 376,736 - - - 376,736
Balance at 31 December 2018 3,763,884 708,110 (23,067) (1,315,585) 3,133,342

EUR equivalent figures are provided for information purposes only and do not form part of the audited financial statements
(refer to note 2 (e)).
 F I N A N C I A L S T AT E M E N T S 15

Statement of Cash Flows

For the year ended 31 December

In ALL ’000 In EUR ’000

Notes 2018 2017 2018 2017
Cash flows from operating activities
Loss before income tax (723,394) (581,834) (5,670) (4,338)
Adjustments to reconcile profit before income
tax to net cash flows from operating activities
Depreciation of property and equipment and
investment property 21,22 110,538 152,098 896 1,144
Amortization of intangible assets 23 27,352 31,690 222 238
Impairment charge for credit losses 18 379,777 162,203 3,077 1,220
Interest income 10 (1,444,349) (1,340,420) (11,703) (10,082)
Interest expense 10 250,711 200,764 2,031 1,510
Loss/(gain) on disposal of assets (8,913) (776) (70) (6)
Charge of other provisions 136,972 75,450 1,110 568
Income tax credited (29,106) - (236) -
(1,300,412) (1,300,825) (10,343) (9,746)

Changes in operating assets and liabilities:

Compulsory reserve 351,178 322,382 2,845 2,425
Loans and advances to financial institutions 100,306 543,774 813 4,090
Loans and advances to customers (712,970) (3,066,593) (5,777) (23,066)
Other assets 106,216 122,001 861 918
Repossessed property 230,345 336,509 1,866 2,531
Due to banks 938,901 2,735,035 7,607 20,572
Due to customers (3,344,056) (3,231,236) (27,095) (24,304)
Other liabilities (181,952) 117,247 (1,474) 882
(3,812,444) (3,421,706) (30,697) (25,698)
Interest received 1,481,092 1,360,295 12,000 10,232
Interest paid (259,088) (221,851) (2,099) (1,669)
Income tax paid - 33,037 - 248
Net cash used in operating activities (2,590,440) (2,250,225) (20,795) (16,887) 

Cash flows from investing activities

Acquisition of debt securities at fair value through
other comprehensive income (1,632,790) - (13,230) -
Acquisition of investment securities available for sale - (1,424,507) - (10,715)
Proceeds from matured financial assets available-for-sale 1,830,941 2,452,526 14,835 18,447
Proceeds from sale of premises and equipment 95,740 59,025 776 444
Acquisition/disposal of intangible assets - (1,353) - (10)
Acquisition/disposal of premises and equipment (46,862) (67,816) (380) (510)
Net cash from investing activities 247,029 1,017,875 2,002 7,656

Cash flows from financing activities

Repayment of subordinated debt (47,650) (11,400) (386) (86)
Capital Increase 376,737 – – –
Dividend paid – – – –
Other borrowed funds 1,592,581 1,859,500 12,904 13,986
Net cash used in financing activities 1,921,668 1,848,100 12,518 13,900
Translation differences – – 5,536 462
Decrease in cash and cash equivalents (421,743) 615,750 (740) 5,131
Cash and cash equivalents at beginning of the year 4,600,949 3,985,199 34,602 29,471
Cash and cash equivalents at end of the year 16 4,179,206 4,600,949 33,862 34,602

EUR equivalent figures are provided for information purposes only and do not form part of the audited financial statements
(refer to note 2 (e)).
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 CO N T A C T A D D R E S S E S 63

Contact Addresses

Head Office

ProCredit Bank sh.a.

Place of Registration: Tiranë
No. of Court Regist:
KIB:
Nipt:
Legal address:

Tel.:
Contact Center:

informacion@procredit-group.com
www.procreditbank.com.al

Branches

Tirana Branch
Rr. ”Dritan Hoxha”

Rr. ”Dritan Hoxha” Rruga “Midhi Kostani”, Korçë

Rr. “Ded Gjo Luli “, pranë Muzeut Kombëtar,

Tiranë

Pranë Qendrës Monum (ose pranë Portit)

As at 31 December 2018