AAB Annual Report 2016 by Shoqata Shqiptare Bankave

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SKY TOWER Str. “Ibrahim Rugova” No. 5, Ap 9/3 Tirana, Albania Prepared by: AAB Secretariat Design & Layout: FCB Afirma Printed by: Gentgrafik

Table of Content: Message from the Chairman............................................... Organizational Chart:.............................................................. • Executive Committee ..................................................... • Assembly of Members..................................................... • Secretariat............................................................................. • Technical Committees.................................................... • Memberships....................................................................... • Highlights of year 2016................................................... Albanian Banking System....................................................... • Facts and Figures................................................................ • Legal Amendments........................................................... • Regulations of Bank of Albania...................................... Activities........................................................................................ • Financial Education........................................................... • Trainings................................................................................ • Publications.......................................................................... • Technical Committees..................................................... • Other meetings.. ............................................................... • Events....................................................................................... • Projects................................................................................... • Social Activities.................................................................... Figures on the Member Banks.............................................. Financial Statements................................................................

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MESSAGE FROM THE CHAIRMAN Since the establishment of AAB, member banks have been closely committed to accomplish AABâ&#x20AC;&#x2122;s vision and mission, aiming at boosting cooperation among local banks by highlighting their role and contribution to the domestic economy and social development. Furthermore, AAB has always aimed at supporting and enhancing the performance of the Albanian banking sector through constant and constructive cooperation of Bank of Albania, towards underpinning the national economyâ&#x20AC;&#x2122;s growth fundamentals as well as monetary and financial pillars. During 2016, besides the global challenges related to the economic growth, which is ongoing since the crisis of 2008, Albania finalised another successful year by marking an upward trend in the growth of GDP, demonstrating the opportunities that structural reforms and the enforcement of the rule of law have brought forward. The banking sector strongly supported the economic developments and reforms designed for improving the business climate and enhancing the countryâ&#x20AC;&#x2122;s financial stability. At the end of December 2016, the non-performing loans ratio amounted to 18.3 percent, maintaining the same level compared to the end of 2015. Despite the moderate growth rate in the loan portfolio and the handling of non-performing loans that affected the 2016 profits of, the banking industry remained in a safe, reliable and stable position, representing a significant support for the economic growth. Driven from its crucial role and responsibility on providing efficient and constructive contribution to the economic development and soundness of the banking system, AAB endeavoured to interact with the decision makers and highly influent the relevant stakeholders, in order to effect the necessary legal amendments on the execution of collateral and the role of bailiffs, the extraordinary intervention to banks, the bankruptcy law, the security requirements applied during the transportation of monetary value (cash), where several criminal acts were recorded even during 2016.

The digital revolution represents vast opportunities and challenges for all stakeholders concerned. I strongly believe having in place the right strategy, our member banks will face and embrace such digital challenges, by adapting their respective systems and policies that will enable them to provide to their clients an easy, friendly, timely, secure and problem-free banking experience. AAB has been part of various panel discussions on raising awareness on technological transformations in the financial industry and the critical importance of cyber security. The numerous conferences and the forums organized throughout the year elaborating on these topics proved to clarify the current situation and trends in our banking industry, which doesn’t leave behind the progress achieved in the developed economies. AAB, highly motivated from its vision to provide continuous financial education to bank employees, has established firm cooperation with international partners and, for the first time in this framework, it awarded the certification of 16 bankers in the field of money laundering prevention and the fight against financial crimes. Furthermore, it is worth mentioning that AAB has actively participated in the process of the citizens’ financial education through various events held during the Global Money Week. Noteworthy are AAB’s publications and articles, which highly contributed to the financial education and empowered the role of AAB in the economy. In understanding the role of media in the public awareness, AAB marked quite a noticeable improvement in extending its visibility through better engagement and active dialogue participation. Our reputation is significantly growing and our slogan “Banks speak with one single voice” is most prominently represented. AAB’s achievements are attributed to many partners in success. In this regard, I would like to heartedly thank AAB’s Board Members, former Members and actual ones, for the immense role they played in attaining AAB’s key goals. I am confident that during the upcoming years we will witness a new stage of growth, development and further progress in the banking sector. Furthermore, I would like to express my gratitude to the Banks’ representatives and members of all committees for the rich and constructive input, discussions and suggestions they contributed in banking sector’s related issues and, last but not least, some special thanks go to AAB’s Secretary General and its staff for the key role they played in achieving AAB’s goals and objectives. Optimistically and enthusiastically, I look forward to further contributions of AAB in maintaining stability of the banking sector and supporting banking business operations, which will materialize into further achievements to the best interests of the Albanian economy and society, our employees and ultimately our shareholders.

Periklis DROUGKAS CHAIRMAN 6

ANNUAL REPORT 2016

Organizational Chart

AAB

Executive Committee Members

Mr. Periklis DROUGKAS CHAIRMAN Chief Executive Officer ALPHA BANK ALBANIA

Mr. Andi BALLTA MEMBER Chief Executive Officer AMERICAN BANK OF INVESTMENTS

Mr. Silvio PEDRAZZI DEPUTY CHAIRMAN Chief Executive Officer INTESA SANPAOLO BANK ALBANIA

Mr. Frédéric BLANC MEMBER Chief Executive Officer SOCIETE GENERALE ALBANIA

Mr. Dritan MUSTAFA MEMBER Chief Executive Officer TIRANA BANK

Mr. Bozhidar TODOROV MEMBER Chief Executive Officer FIBANK ALBANIA

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MISSION

â&#x20AC;&#x153;Development, stability and efficiency of the Albanian Banking Sectorâ&#x20AC;? AAB is a not-profit association, which aims to promote the most up-to-date banking standards of its member banks, as well as the development, stability and efficiency of the overall Albanian banking system in general, thereby contributing to the progress of the Albanian economy. AAB is a representative body designed to contribute in the wording of legislative proposals or in technical committees, at national and international level. The Albanian Association of Banks represents 16 commercial banks.

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Assembly of Members No

BANKS

AssemblyÂ of Members

ALPHA BANK ALBANIA

AMERICAN BANK OF INVESTMENTS

BANKA KOMBETARE TREGTARE

CREDINS BANK

CREDIT BANK OF ALBANIA

FIRST INVESTMENT BANK ALBANIA

INTERNATIONAL COMMERCIAL BANK

Gideon Van Den BROEK

INTESA SANPAOLO BANK ALBANIA

Silvio PEDRAZZI Chief Executive Officer

BANKA NBG ALBANIA

Ioannis AGATHOS Chief Executive Officer

PROCREDIT BANK

Adela LEKA Spokeperson of the Management Board

RAIFFEISEN BANK ALBANIA

SOCIETE GENERALE ALBANIA

TIRANA BANK

UNION BANK

UNITED BANK OF ALBANIA

VENETO BANKA

Periklis DROUGKAS Chief Executive Officer Andi BALLTA Chief Executive Officer Seyhan PENCABLIGIL Chief Executive Officer Maltin KORKUTI Chief Executive Officer Sherine KAMEL Chief Executive Officer Bozhidar TODOROV Chief Executive Officer

Chief Executive Officer

Christian CANACARIS Chief Executive Officer Frederic BLANC Chief Executive Officer Dritan MUSTAFA Chief Executive Officer Gazmend KADRIU Chief Executive Officer Muhamed PRLJA Chief Executive Officer Pierluigi CAFERRI Chief Executive Officer

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SECRETARIAT The Secretariat runs the AAB’s daily activities and provides a wide variety of services to the Association members. These services include: delivery of business plan approved from the Assembly, coordination of technical committees, follow up of technical committees’ respective related issues, organization of conferences, forums, financial education programs, training courses, etc. The Secretariat undertakes communications on behalf of the AAB, including periodical publications, AAB website, press releases and social media inputs. The Secretariat supports the elected body representing AAB, as the single voice of the banking sector.

• Currently, Mr. Spiro Brumbulli is appointed as the AAB Secretary General.

Technical Committees (as of December 2016)

COMMITTEE »» »» »» »» »» »» »» »» »» »»

CHAIRMAN

Bank Security Committee

Roland Tashi

Cards Committee

Imelda Koçaj

Compliance Committee

Ndue Maluta

Human Resources Committee

Valbona Zeneli

Information Security Committee

Akil Ndrenika

Internal Audit Committee

Dorida Stambolla

Legal Committee

Veronika Prifti

Public Relations Committee

Viola Smaja

Payment Systems Committee Treasury & Financial Market Committee

Najada Xhaxha Erion Taçe 12

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MEMBERSHIPS AAB is respectively a member, associate member or partner to the following international/national organizations.

International Memberships

• European Banking Federation (EBF) • INTERBALKAN Forum of Banking Associations • Banking Association for Central and Eastern Europe (BACEE) • OECD International Network on Financial Education (INFE) • European Banking & Financial Services Training Association (EBTN) • Financial Technology Transfer Agency (ATTF) National Memberships

• National Economic Council • Tax Council • Economic Council of Tirana Municipality • ICC Albania • National Labour Council • National Payment System Committee

Highlights of year 2016 »»The Assembly of Members held 3 regular meetings during 2016. »»The Executive Committee held 5 regular meetings during 2016. »»Mr. Spiro Brumbulli is appointed as the Secretary General of the Albanian Association of Banks (April 2016). »»During its meeting held in December 2016, the Assembly elected Mr. Periklis Drougkas, CEO of Alpha Bank Albania, as the new AAB Chairman and Mr. Silvio Pedrazzi, CEO of Intesa Sanpaolo Bank Albania, as the new deputy AAB Chairman.

»»On November 30, 2016, the representatives of the Albanian Association of Banks

(AAB) and the Montenegrin Banking Association (AMB) signed a Memorandum on Partnership and Cooperation.

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ALBANIAN BANKING SYSTEM Facts and Figures • Standardized payment order. • The first conference on “Digital Banking in Albania” in cooperation with the Bank of Albania and the National Payment System Committee, on May 2016. • The Bank of Albania, the Albanian Association of Banks, the Ministry of Finance and the Ministry of Economy signed a Memorandum of Understanding, under which the signatory institutions commit to undertake concrete measures for promoting sustainable credit growth. • Over 2016, the ALL credit portfolio to the private sector grew by 10.2%, whereas the total credit grew by 3.2%. • Deposits stock, as at end of December, were estimated approximately 4.9% higher in annual terms, accounting for around 73.7% of GDP, or around 1.1 percentage points higher compared to the previous year. • A good performance of both households and business’ deposits, with an average annual growth of 1.9% and 7.6%, respectively. • As at end of 2016, the share of sector’ assets were estimated at 95.8% of the Gross Domestic Product (GDP), marking a growth of 4.5 percentage points compared with the previous year. • The capital adequacy ratio stood at 15.7%. • In December 2016, liquidity indicators, expressed as the ratio of liquid assets to the total assets and the ratio of liquidity assets to the short-term liabilities, were 31.3% and 40.6%, respectively. • At the end of 2016, 14 of the 16 banks were offering different home banking products. (These products provide remote access to the bank account, via on-line, telephone or software tools enabled by the bank to its clients.) • We observed a significant increase of 27.63% of the volume of home banking payments and 21.51% of the value of the transactions, compared with the previous year.

• The interest rates applied on loans in ALL to non-financial private sector averaged to 7.52%, compared to 8.07% in 2015. • The average trend of banking sector profitability indicators confirms that RoA amounted to 0.7% whereas RoE amounted to 7.2%. • In December 2016, the non-performing loans accounted for 18.3% of the loan portfolio, remaining almost at the same ratio as the previous year. 14

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Legal Amendments Amendments to the Law “On Securing Charges” On October 20, 2016, the Albanian Parliament adopted the Law no. 101/2016 “On Some Amendments and Additions to Law no. 8537, dated 18.10.1999 “On Securing Charges” as amended” (hereinafter referred to as Securing Charges Law). Following certain amendments introduced to the Securing Charges Law on May 2013 (based on law no. 132/2013), “intangible properties”, “instruments”, “securities” and “accounts” could no longer be granted as collateral. Following the numerous efforts from the banking industry, the legislator re-instates the securing charge over intangibles, therefore providing creditors with more options to better choose their best-fitted security.

Amendments to the Law “On banks in the Republic of Albania” A new Law no. 131/2016 “On some amendments to Law no. 9962, dated 18.12.2006 “On banks in the Republic of Albania” as amended, was published in the Albanian Official Gazette on January 11, 2017 and became effective 6 months following the date of its official publication. The new amendments to the Law on Banks are not expected to substantially affect the entities subject to this law, as the main scope thereto was the alignment with the new Law no. 133/2016 “On recovery and extraordinary intervention in the banks in the Republic of Albania”, which caused the abrogation of some legal instruments which will be consequently introduced in the later law.

New Law on recovery and extraordinary intervention in the banks in Albania The Albanian Parliament passed the Law no. 133/2016 “On recovery and extraordinary intervention in the banks in the Republic of Albania”. The Law is partially aligned with the Directive 2014/59/EU, dated May 15, 2014 (Banking Recovery and Resolution Directive-BRRD). The new law aims to set a clear legal basis, determine the criteria, procedures, indicators and especially the role of the institutions involved in the recovery and extraordinary intervention in banks, where the later face serious financial crisis. Accordingly, it makes available to the Bank of Albania, as the Authority in charge for Extraordinary Interventions, a set of legal instruments to intervene in a stage that is sufficiently early, where a bank is in the verge of collapse, to ensure the continuity of financial and economic functions critical to the bank, thus, minimizing the effect that the collapse of a certain bank may cause over the financial system and economy of the country as a whole.

New Law on Bankruptcy On October 27, 2016, the Albanian Parliament passed the Law no. 110/2016 “On Bankruptcy”. The scope of this law is to set common binding rules, to facilitate the resolution and settlement of debtor liabilities in and/or out of the bankruptcy proceedings. In contrast to the previous law, the new draft law includes a subchapter of definitions defining terms serving only for purposes of this law. One of the major novelties of the new draft law is the new priority ranking for settlement of liabilities before and after distribution. 15

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ALBANIAN BANKING SYSTEM Changes to the Code of Civil Procedure A new draft law on some amendments and additions to the Code of Civil Procedure is under review in the Albanian Parliamentary Committees. Some of the amendments to the Code of Civil Procedure aim to align its existing provisions with the new draft law on bankruptcy. In consideration of the proposed amendments, the additional task assigned to the special sections established within the district courts for such kind of disputes, including inter alia commercial disputes, also includes the settlement of disputes on bankruptcy cases. The major amendments of the Code of Civil Procedure are related to the mandatory enforcement procedures. More clarity is expected to be introduced regarding the executive order issued by the court, the calculation of late payment interest, the rules on the payment of the enforcement fee on executive titles, appraisal of the value of the seized facilities, etc. One of the most important amendments imposes a statutory limitation period within which the debtor may file a request with the court requiring the statement of invalidity of the executive title or otherwise the repeal or extinguishment of such liability.

Regulations of Bank of Albania February - The Supervisory Council of the Bank of Albania, through Decision No. 15, dated 03.02.2016 carried out the revision of the Regulation “On granting the license and the exercise of banking activity of banks and branches of foreign banks in the Republic of Albania”. These revisions were executed to ensure compliance and consistency with the concepts applied in the Supervision Policy document. March - The Supervisory Council of the Bank of Albania adopted Decision No. 50, dated 30.03.2016, “On some amendments to the Regulation No. 62, dated 14.09.2011 “On Credit Risk Management from Banks and Branches of Foreign Banks”. The scope of this regulation is: a) to lay down the rules on credit risk management in the activity of banks and branches of foreign banks, and b) to lay down the criteria on credit risk assessment and the classification of loans and assets, and the calculation of reserves for loan loss provisions from their depreciation. March – The Supervisory Council of the Bank of Albania through Decisions No. 49 and 50, dated 30.03.2016, respectively revised the Regulations “On capital adequacy ratio” and the “On the management of credit risk by banks and branches of foreign banks”. The regulations were amended simultaneously, considering the commitments undertaken by the Bank of Albania under the plan of measures to reduce non-performing loans. June – The Supervisory Council of Bank of Albania adopted Decision No. 67, dated 1.06.2016 “On minimum security requirements regarding premises where banking and financial activities are conducted and transportation of monetary values”. This regulation shall set out the minimum-security requirements regarding the premises where banking and/or financial activities are conducted and the transportation of monetary values, for the normal and safe performance of these activities. 16

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ACTIVITIES Financial Education A crucial part of AAB mission is to increase the literacy of the general public and raise awareness on financial issues by educating consumers to take better-informed financial decisions. On these grounds, we’ve turned financial education into a significant component of our work. The AAB has undertaken several education initiatives over the entire year however, the initial initiatives were further continued or expanded.

Financial Forum: The best essay

On the May 26, the Department of Finance at the European University of Tirana (UET) organized the Annual Forum of the students pertaining to this department. During this forum, several essays were presented on topics related to banking and finance. The forum was organized in the form of a contest, whereby 3 presentations are awarded by the Commission. This year, the second- place winner of the “Financial Forum: The best essay” was rewarded by the AAB.

The Second National Conference on “The challenges for Albania’s economic development” On May 27, the Finance Department established with the Economic Faculty in the University of Tirana organized the Second National Conference on “The challenges for Albania’s economic development”. This activity brought together participants from different areas of scientific research, students and economy experts, aiming to provide a concrete contribution to the sustainable economic and financial development. The AAB Secretary General, during his speech focused on the importance of Financial Education, expressed his gratitude to the team of the Economic Faculty, who participated and were awarded the first place in one of the competitions organized during the Money Week.

Leader for 1 Day On March 23, AAB joined the event organized by Junior Achievement Albania (JA). During the day, AAB welcomed a high-school student, who followed the agenda of the Secretary General in all meetings during the entire business day. The student was introduced to the staff which works with the leader and he was provided with an overview of the organizational structure of the hosting institution. 17

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ACTIVITIES Money Week, 14 – 18 March 2016 Albania Leading Organizations: Bank of Albania (BoA), Ministry of Social Welfare and Youth, Ministry of Education and Sport, Albanian Banking Association (AAB). Number of participating organizations: 21 Number of children reached: 13,000 Number of activities: 16 The opening ceremony of the Global Money Week in Albania took place on March 14, with the participation of the Governor of the Bank of Albania, the Minister of Social Welfare and Youth, the Minister of Education and the Chairman of the Albanian Association of Banks. The event was launched at the park next to BoA’s building. Following the ceremony, several educational and entertainment activities designed for children were carried out in the park. Children were also gifted branded piggy boxes labelled with the slogan of the Week. On Tuesday, March 15, the Bank of Albania hosted a roundtable discussion on the “Need for a National Strategy on Financial Education”, which was coorganized with the participation of representatives from AAB, Institute of Education Development, National Agency of Vocational Education and Training & Qualifications, Albanian Financial Supervisory Authority, Albanian Insurance Deposit Agency and the Ministry of Economy, together with students of excellency, personalities and experts from the sector (professors and non-profit organizations). Open lesson organized at the University of Elbasan by experts from FIBank and Bank of Albania. On Wednesday, March 16, a Karl Popper debate was organized among six teams from three main Albanian universities specifically focusing on the topic “Should financial education be part of the pre-university obligatory curriculum? (Pro/Cons)”. The event was organized by AAB and hosted by the Youth Center of Tirana. High school students visited a bank’s branch to get acquainted with its main operational activities. 18

ANNUAL REPORT 2016

On Thursday, March 17, another interesting roundtable discussion took place on “Financial Education and Entrepreneurship”, focused on discussion on young entrepreneurs and economic success, entrepreneurial competences, financial resilience and practical business experiences. The event was organized in cooperation with Junior Achievement Albania, the AAB and the Ministry of Social Welfare and Youth. Organization of a training designed for young entrepreneurs and civil society organizations on drafting the “Budgeting” at the Youth Center in Tirana. Open Lesson organized at the Economic Faculty at the University of Tirana by experts from Credins Bank and Bank of Albania. On Friday, March 18, Competition “Acting like bankers” took place at the University of Integrated Studies, Durrës. Open lessons organized at “Aleksandër Moisiu” University Durrës delivered by experts from Alpha Bank, Bank of Albania and the Deposit Insurance Agency. At the University of Korça, open lessons were delivered by the experts from Union Bank and Bank of Albania. Primary school pupils visited a bank’s branch with a view to be introduced for the first time with the bank. Plenty of other exciting and interesting events were organized for children and young people in Albania during the entire week, including: School students visits at BoA’s Museum, competition between three high schools which selected the elective subject “Personal Finance in your hands”, which was broadcasted on “Scan TV”, training of students on the Social Insurance Scheme. Furthermore, GMW was extensively covered by the national media and press, establishing social media and radio promotions, as well as interviews on television and publications in the daily press. During the Week, graphic artistic creations on different aspects of money designed for children were showcased on the show “Little artists” on the Çufo TV Channel, on the Digitalb platform. 19

ANNUAL REPORT 2016

TRAININGS

During 2016:

in-house trainings organized

Collaboration

with partners

Attended

346

by employees

ANNUAL REPORT 2016

Learning and development is one of the AAB’s main Pillars. The AAB’s capacity building function has notably increased. During the last years, we have organized more and more professional in-house trainings with the best international experts. We have continued the excellent collaboration with our training partners and we have also welcomed new professional ones. For the first time this year, we provided a certified training program with the support of our main international partner “House of Trainings Luxembourg” (ATTF).

January Date: January 25-29 Topic: Project Management - Advanced Level No. of participants: 9 representatives of the member banks Training partner/Trainer: Dynact Austria / Alexander Kagl, Senior Managing Partner Dynact & President at PMI Austria Date: January 26 Topic: Supporting Employees through Organizational Change in the Banking Sector No. of participants: 11 representatives of the member banks Training partner/Trainer: Dr. Leslie Szamosi, Executive MBA Academic Director and a senior lecturer of HRM at the International Faculty of The University of Sheffield 21

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TRAININGS February Date: February 8 - 9 Topic: Fraud Detection and Prevention No. of participants: 20 representatives of the member banks Training partner/Trainer: Hellenic Banking Institute / Kostas Triantafyllidis, international trainer and board member of Hellenic Institute of Internal Auditors Date: February 16 Topic: Regional Seminar on the better implementation of AML regulatory framework No. of participants: 42 representatives of the member banks Training partner/Trainer: AAB & General Directorate for Prevention of Money Laundering (GDPML), Ndue Maluta, member of the Chairmanship of the AAB Compliance Committee and Head of Risk Group at BKT, and representatives of GDPML. Date: February 24 â&#x20AC;&#x201C; 26 Topic: Retail Banking and New Distribution Channels No. of participants: 27 representatives of the member banks Training partner/Trainer: House of Trainings of Luxembourg /Pierre Voos, Secretary-General, Head of Strategy, Project and Product Management, ING Luxembourg, Official ATTF Senior Expert.

March Date: March 10-11 Topic: Win-Win Negotiation No. of participants: 5 representatives of the member banks Training partner/Trainer: Lincoln Centres in Albania, David Turner Date: March 15-16 Topic: Emotional Intelligence No. of participants: 12 representatives of the member banks Training partner/Trainer: WIFI Albania, Larissa Winter Date: March 17-18 Topic: Manage your energy, not your time No. of participants: 10 representatives of the member 22

ANNUAL REPORT 2016

banks Training partner/Trainer: WIFI Albania, Larissa Winter Date: March 23-24 Topic: Customer Relationship Banking No. of participants: 10 representatives of the member banks Training partner/Trainer: Paul Gauci Date: March 25 Topic: Bank Liquidity Risk Management in the Basel III & Capital Requirements Directive IV (CRD4) Framework No. of participants: 19 representatives of the member banks Training partner/Trainer: IFC, Victor Hill, International Expert

April Date: April 20-21 Topic: Risk Management for Risk and Internal Audit Professional No. of participants: 16 representatives of member banks Training partner/Trainer: Albanian Institute of Internal Auditors (AIIA)

May Date: May 25-27 Topic: Trainâ&#x20AC;&#x201C;theâ&#x20AC;&#x201C;Trainer: Didactic and Methodology No. of participants: 10 representatives of member banks Training partner/Trainer: Austrian Institute of Excellence Date: May 27-28 Topic: Sales & Negotiation Training No. of participants: 14 representatives of member banks Training partner/Trainer: Austrian Institute of Excellence, Eric Molin, communication training expert

June Date: June 15 Topic: Operational Risk and Financial Crime Workshop No. of participants: 19 representatives of member banks Training partner/Trainer: IFC, experts of IFC

ANNUAL REPORT 2016

TRAININGS September Date: September 20 Topic: Emotional Intelligence at Work No. of participants: 6 representatives of member banks Training partner/Trainer: David Turner, international trainer Date: September 22 Topic: Workshop “On Information Security” No. of participants: 14 representatives of member banks Training partner/Trainer: Nicola Gordon, Regional Manager for Emerging Markets with Mark Monitor (part of Thomson Reuters). Date: September 29-30 Topic: Strategic Leadership and Effective Governance No. of participants: 12 representatives of member banks Training partner/Trainer: Austrian Institute of Excellence, Larissa Winter

October Date: October 11-13 Topic: SME: from business plan to bank financing No. of participants: 27 representatives of member banks Training partner/Trainer: ATTF in Luxembourg Date: October 26 - 27 Topic: Win-Win Negotiations No. of participants: 6 representatives of member banks Training partner/Trainer: Lincoln Centres in Albania, David Turner Date: October 31 – November 04 Topic: Applied Risk Management in Banking No. of participants: 20 representatives of member banks Training partner/Trainer: ATTF in Luxembourg, Stefano Bragoli, Member of the House of Training Quality Circle ALRiM in Risk Management

ANNUAL REPORT 2016

November Date: November 7 Topic: Investing with UBS No. of participants: 11 representatives of member banks Training partner/Trainer: ICC Albania

December Date: December 5-9 Topic: Prevention of Money Laundering & CounterTerrorist Financing (AML & CTF) Foundation level No. of participants: 16 representatives of member banks Training partner/Trainer: House of Trainings, Luxembourg Date: December 12 Topic: Developing High Performance Teams through Collaboration No. of participants: 11 representatives of member banks Training partner/Trainer: Mark Engelhardt trainer

AAB – House of Trainings (ATTF Luxembourg) Thanks to the AAB’s cooperation with House of Trainings in Luxembourg, from the year 2014, Albanian bankers have attended the high-quality training certifications that the Financial Technology Transfer Agency Luxembourg (ATTF) provides in Luxembourg, in cooperation with other international professional bodies. This represents a great opportunity to assist their continuous professional trainings in support of their personal and professional development, as well as to encourage the spirit of enterprise. More than 20 participants from Albania applied and most of them participated at the 15 professional trainings organized in Luxembourg, whereby they benefited from the Luxembourg’s financial expertise. ATTF has established contacts with AAB with a view to potentially build, maintain and deliver high quality learning resources and transfer technical knowledge that fit the Albanian Financial Market needs. 25

ANNUAL REPORT 2016

PUBLICATIONS

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CSR Report 2015 – Banking for Society

AAB publications are divided into two main categories: periodical and nonperiodical, i.e., press releases or other written messages that appear on particular occasions to inform the media and the public. Through annual reports, magazines, newsletters and informative videos, AAB provides the due resources to inform the public on the banking system developments in general, issues of concerns and the activities carried out by the Association. The preparation (form and content) and dissemination of written communications is followed by the AAB Secretariat.

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“Bankieri” Magazine The 18th, 19th 20th & 21th editions of “Bankieri” Magazine were published in January, April, July and October, respectively. The magazine is downloadable online and available at social network and it is also delivered in hard copies to all interested parties.

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The AAB Annual Report, published in July, enclosed the main developments and activities of the Association during year 2015.

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For the second consecutive year, AAB publishes the “CSR Report 2015 – Banking for Society”. For the first time, this publication endeavours to provide an overview of the activities of banks in the context of CSR, in compliance with the 17 Sustainable Development Goals, adopted in 2015 by the United Nations, 15 of which are classified as social activities undertaken by banks, although the 2030 Agenda for Sustainable Development was adopted on September 25, 2015.

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ANNUAL REPORT 2016

Statistics

AAB publishes the quarterly unaudited financial reports of commercial banks based on International Financial Reporting Standards (IFRS) and the monthly aggregated data for the system.

Monthly Newsletters The monthly newsletter drafted by AAB Secretariat is submitted both at management and senior level. It includes information on new developments and updates on AAB activities.

Videos AAB continued with the publication of the successive informative videos of the series “My Bank” on Financial Education: • Banking Cards • Variable rate loans • Protect your electronic mail • Protect your identity on-line • Protect your mobile

ANNUAL REPORT 2016

TECHNICAL COMMITTEES Our 11 committees featured in the AAB annual report, guide our collective efforts to discuss and share experiences and concerns on both operational and legislative issues, to meet specific objectives. The Technical Committees gathered in more than 50 meetings during 2016 and the issues identified were further followed up by the AAB Secretariat. This year, the AAB Secretariat organized a special meeting with the chairmen of all the Technical Committees. In this first meeting of its kind, the AAB Secretary General called for the need to strengthen the partnership between the committees, aiming to enhance the positive image of the banking system and being more active in the financial education field.

Bank Security Committee The Committee members carried out several meetings during the year. During the first quarter, the AAB Secretariat and the chairmanship was intensively engaged in meetings with the General Director of the Public Security at the State Police. Together, they mainly addressed issues on the security provided during transportation of monetary values and the Instruction of the Minister that regulates and sets forth the standards to be followed by the Private Security Companies with regards to transportation of monetary values. Members of the Committee were afterwards employed in the working group established at the State Police focused on the revision of the guideline “On the functions of physical security private services and the private training centre”. The aggregated comments of the sector drafted by AAB Secretariat were submitted to the State Police within April 2016. Another valuable contribution of the Committee accomplished during this year on the revised regulation “On minimum security requirements in the premises where banking and financial activities are carried out” presented by the Bank of Albania, which sets out the minimumsecurity requirements needed in bank premises. The Committee members and AAB Secretariat provided all the relevant remarks and suggestions on the sector, filed within an aggregated material which was duly submitted to Bank of Albania. The

later incorporated most of these remarks and suggestions in the final output, which was afterwards approved from the Supervisory Board. Various issues on the implementation of the contracts entered with private security companies, the difficulties encountered to be granted a license by the State Police Academy on the use of firearms by their employees and the equipment used by the private security companies’ employees accompanied with a certificate on “the theoretical and practical ability on the use of firearms” were on the Committee’s agenda for the second and third quarter. The Committee developed different joint meetings with State Police and the Association of Private Security Service to discuss different solutions considering also the existence of the legal gaps. After the robbery occurred at the International Airport of Albania, AAB Bank Security Committee and Secretariat met with the Director of Mother Teresa’s Airport and its staff to address the concerns in question and to suggest the increase of security measures. A major focus was stressed on the airport security for processing monetary values transportation, the construction of a special cargo area for commercial banks and a protected cargo area and safe movement to the entry gate inside the Airport’s territory. During the last quarter, the agenda of the Committee concentrated on 28

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sharing experience between members on the implementation of the regulation “On minimum security requirements” and the features of inspections carried out by Bank of Albania to different banks, the new law “On additional public security measures” and on benefits of a security operations centre. AAB Secretary General and the Chairman

of the Committee thoughtfully followed the issue of high security measures on the monetary values transportation inside or outside the airport premises. During the last meeting of the year, the Executive Director of Civil Aviation Authority committed to put the security measures at the International Airport as priority on his agenda.

Card Committee The Committee met twice during the year and had frequent email communications regarding reports on Card Products and fraudulent incidents occurred. The members requested vast collaboration on a special project to raise awareness on credit cards usage in the country and to organize the second training of VISA School International on Dispute Resolution

in Tirana. The Committee focused on the upcoming payment schemes mandates and pricing, which require technical implementations from the members and their respective third-party processors. In addition, banks raised their concerns on compliance with timeframes.

Compliance Committee Following the training and ongoing meetings between FIU and commercial banks, the Committee and the AML directorate organized a joint meeting focusing on several issues, such as: reporting performance of suspicious cases from the banking system, the manner of dealing with fraud cases, detection of suspected cases of terrorism financing, preparation for Albania’s next assessment by MONEYVAL, etc. In August, the Committee members gathered to discuss on the initiative of the General Directorate of Anti Money Laundering (GDAML) on the execution of some amendments and additions to the Law “On anti-Money Laundering and

Terrorism Financing”. Under the Secretariat coordination, banks continued written communication with the Authority for submitting their comments and proposals. During the 3 meetings organized throughout the year, among other topics of discussion were the unification of banks reports to the High Inspectorate of Declaration and Audit of Assets and Conflict of Interest (HIDAACI), the implementation of Common Reporting Standard (CSR), as well as the project on developing a training program (in Albanian) for AML and Combating Financing of Terrorism. The committee elected Mr. Ndue Maluta, representative of Banka Kombëtare Tregtare, as its new Chairman.

HR Committee The Committee met 4 times and addressed most of the issues on the training programmes managed and delivered by AAB such as: employment opportunities

for persons with disabilities, “Mapping of Job Positions” for Salary Survey of Hay Group, KPI Report, etc. 29

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TECHNICAL COMMITTEES The meeting of a working group established by the HR Committee was dedicated to the development of the standard format for the “Risk Assessment at the workplace” to be delivered to every member and be further considered as a basic document. Another topic of discussion was the participation of member banks at the Salary Survey of Hay Group. AAB Secretariat coordinated the communication of member banks with Hay Group focused on the organisation of the work of data delivery for the annual round of the annual Banking Salary Survey. The report was delivered to participating banks during the second half of the year. These meetings included presentations from the Head of the Hellenic Banking Institute, as follows: one presentation on training programs provided by the institute and further collaboration with AAB and the second presentation focused on the Triple E Quality Standard provided by EBTN on the brand-new Triple E EFCB (European Certificate in Banking).

During the trainings, among important issues addressed by the Committee members were the drafting of certified programs managed by AAB for “Anti Money Laundering” in Albanian language, compliance (supported by ATTF or Hellenic Banking Institute), the execution of a “Training needs Assessment” as well as an intensive training program to educate young jobseekers in cooperation with Partners Albania. AAB Secretariat, with the assistance of HR Committee, identified the most necessary technical trainings which are considered as adequate for Albanian banks employees, which could be financially supported by the House of Training of Luxembourg. During this meeting (November 15), the AAB proposal was discussed, elaborating on how the later could accommodate such technical training within its agenda. AAB also proposed the organization of certified programmes in Albania, by providing an opportunity to many participants to benefit from the expertise of the international trainers.

Information Security Committee The Committee gathered 3 times during the year. By the beginning of year, they reviewed the work program for the 2016. The members discussed on the necessity for trainings in the field of information security, accompanied with the relevant certifications awarded from well-known international institutions, as well as possible cooperation channels established with the Kosovo Banking Association. The Committee members also considered taking other initiatives during the year, such as: a pool of information on fraud/ breach cases in the Albanian banking sector, drafting of basic information on the protection and prevention by users and realization of an informative video, presentation on Security Intelligence Systems, joint meeting with Card and

Compliance Committee common interest.

issues

In May, the Chairmanship of the Committee represented AAB at the roundtable organized from the Ministry of Innovation, where the new draft law on Cyber Security was discussed. The consultative meeting aimed at promoting the new initiative of the Albanian Government in line with the initiative of the European Union on the security of networks and systems that provide critical services to the country. In October, the Committee, in collaboration with the AAB Secretariat, organized the Forum on Banking Security. This annual forum serves as a platform to exchange ideas, experiences and the latest national and international developments, as well as the dynamics occurring on banking 30

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information security. National experts were invited as well. Some of the topics included in the agenda were as follows: Digital Security, Threat evolution, how to protect from Ransomware, Incident response and protection in the evolved threat landscape, best practices and pitfalls to avoid. In

addition to this event and in the framework of the awareness-raising month on cyber security, AAB Secretariat delivered three informative videos, which were included in the “My Bank” series respectively on “Protect your electronic mail”, “Protect your identity on-line” and “Protect your mobile”.

Internal Auditors Committee During the 2 meetings organized throughout the year, the participants raised their concerns on the efforts to be undertaken for the correct perception of the internal audit functions. The members raised their concerns on the regulation “On the internal control system in banks and branches of foreign banks”, especially on the requirements of annual reporting to the Bank of Albania. The Committee also discussed on the list of priorities regarding trainings to be organized in the current year and other possibilities for cooperation. During the meetings, it was emphasized that the internal auditors should become

part of AAB activities, such as providing their contribution with articles and publications on “Bankieri” magazine and deliver open lessons in universities as part of AAB Financial Education agenda. In November, within the framework of the collaboration established with the Albanian Institute for Internal Auditors (AIIA), a meeting was organized between AAB Secretariat and the AIIA’ representatives. In the course of this meeting, the participants discussed on the cooperation of the AAB and AIIA on internal audit profession in the banking sector, as well as the organization of joint trainings and workshops.

Legal Committee The Committee met seven times during 2016 mainly to discuss on the need for legal amendments and legal issues related to the banking sector. Throughout the year, the Committee was focused on: (i) the law “On Securing Charges”, as amended, which caused the abrogation of some important definitions regarding financial collaterals. On the other hand, AAB in cooperation with the Ministry of Economy insisted that the later abrogation should be repealed, considering the difficult position of banks when dealing with such financial collaterals. The law was finally amended taking into the consideration the concerns of the banking sector, (ii) the necessary amendments to the legal framework aiming at a successful collateral execution, by being deeply involved in amendments applied to the Civil Code, Code of Civil Procedure, and the recommendations to

the new draft law “On bankruptcy”, (iii) the draft law “On the recovery and resolution of banks in the Republic of Albania”. In addition, the working group established by the committee organised three meetings with BoA’s representatives to discuss on the unified remarks of banking system regarding the draft law and the new joint Guidelines of the Minister of Justice and Minister of Finance “On the payment of private bailiff service”. Considering the changes to the Code of Civil Procedure, the Committee was gathered several times to discussed on the main issue concerning the tariffs and the payment method, which were further submitted for review to the Ministry of Justice and the Ministry of Finance.

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TECHNICAL COMMITTEES Public Relations Committee The Committee organized 4 meetings during the year, where the members predominantly discussed on the activities developed and coordinated by the Secretariat on media relations, financial education and social responsibility activities undertaken by banks. The Committee was the principal supporter of the activities organized by AAB during the Money Week. The annual AAB CSR Report drafted for the first time in compliance with to the Sustainable Development Goals was another broad topic of discussion. In this regard, the AAB Secretary General organized a meeting with the Environment Advisor & SDG Focal Point, Resident Coordinator’s Office at United Nations Albania. In the course of this meeting, the collaboration between the banking sector

and the UN was highlighted with a view to develop a set of sustainable development goals for consideration and the appropriate action expected to be undertaken by AAB members. Upon Secretariat request, the members provided their contribution on the scenarios of informational videos, produced in the framework of the Financial Education activities undertaken by AAB. The elections for the Committee chairmanship were held twice during the year. At the end of the year, the chairmanship was chaired by Ms. Viola Smaja from Raiffeisen Bank Albania who was elected as the new chairwoman, while Ms. Lutjana Konomi from Tirana Bank and Ms. Lauresha Basha from Credins Bank were appointed as vice chairwomen.

Payment Systems Committee The Committee was gathered in 8 regular meetings and other 3 meetings of the working groups established for the followup of the three projects deriving from the National Payment Systems Committee (NPSC), accordingly, the standardized payment order, the improvement/ implementation of the Direct Debit scheme and the project on “Clearing and Settlement of payments in EUR within the country”. In view of the standardized payment order project, the wording of the Standardized Payment Order was drafted by the working group established within the Committee, based on the comments submitted by each member bank. The form, which will be used for domestic and international transfer purposes, took into consideration most of the technical data suggested by the banks, which were further

implemented into the final draft. Further on, the banks granted the preliminary approval on the technical form and, based on the agreement entered between them, the form was adopted by all the member banks. With a view to support its adoption and use, along with the final format, a payment order manual was drafted and distributed. On May 24, the format concerned, which represented the first phase of its unification, was introduced to the meeting of the National Payment Systems Committee. By means of an agreement signed on December 14, the AAB member banks approved the unified format of the payment order. Regarding the activation of the Intra-Banking Direct Debit Scheme, Bank of Albania introduced the workflow of the process including the system development needed and the tests to 32

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be performed by banks in cooperation with utilities and the central bank. On such considerations, various meetings were organised at technical level, with the participation of representatives from the Ministry of Innovation and Public Administration, Bank of Albania, banks’ payment systems & IT departments and utility companies (OSHEE, UK Tirana, Albtelekom), to further discus on the cooperation agreement between the related parties on the execution of interbank direct debit and the formalization of this process. Committee members provided their contributions to the questionnaire drafted by Bank of Albania, which will serve to a feasibility study carried out on the costs of payments transactions in EUR within the Albanian territory. This project is significantly considered as an added value to the market and to the banks as well. It will also serve as a research study on the services provided by the correspondent banks at institutional level compared to the market and it will generate data on the costs of cash utilization.

In April 2016, the Committee chairmanship elections were held and Ms. Najada Xhaxha from Tirana Bank was re-elected as the new Chairwoman, whereas Ms. Marseda Dumani from BKT and Mr. Almir Zeneli from Raiffesien Bank were elected as vice chairmen. With regards to the presentation of the platform for the settlement of mobile payments clearing, on August 2016, the AAB Secretary General, the Chairwoman of AAB Payments System Committee and other representatives of the Payments Department of the Bank of Albania held a meeting with representatives of ProgressSoft Company. The meeting focused on the progress of three ongoing projects, respectively: clearing euro payments within the country, the improvement/implementation of the Interbank Direct Debit Scheme and the mobile payment clearing and the establishment of a company from the banking industry projected for the management of the above-mentioned projects.

Treasury and Financial Market Committee The committee organized 3 regular meetings during the year, which focused on the Master Agreement for Financial Derivatives Transactions. AAB Secretariat coordinated the work of the working group involved in drafting the initial content of the Master Agreement, which was afterwards agreed upon by all member banks.

for establishing bilateral relations among member banks. AAB Secretariat, in cooperation with Thomson Reuter, organized several trainings on Thomson Reuter’s product certification on EIKON desktop.

Afterwards, the agreement in question was revised by the AAB Legal Committee to ensure compliance with the Albanian legislation so that it could serve as a basis 33

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OTHER MEETINGS AAB – Government On February 2016, the AAB Chairman and Secretary General held a meeting with the Deputy Minister of the Internal Affairs with a view to elaborate on the security of transportation of banks’ monetary values. As a follow-up of the discussion points included in the written agenda, Mr. Canacaris raised the issues of armored vehicles used by Private Security Companies to transport cash, which do not meet the minimal criteria or standards for performing such a task, as well as other issues of concern on the matter. Subsequently, the issue was further discussed in detail in technical meetings held with the State Police. On August 30, AAB Secretariat in collaboration with the Bank of Albania, organized a meeting with the Ministry of Internal Affairs’ representatives on the needs for security measures improvement. The meeting developed at the Ministry’s premises was attended by Mr Stefan Çipa, Deputy Minister of the Internal Affairs, representatives from the Minister’s Cabinet, the State Police Directorate and Directorate of Immigration and Border Protection, the BoA’ Ms. Natasha Ahmetaj, Deputy Governor, Mr Christian Canacaris, AAB Chairman, and Mr. Spiro Brumbulli, AAB Secretary General. The participants discussed on the measures to be undertaken to improve security at the banks premises and the security of banks’ monetary values during transportation. On May 9, the Compliance and IT Security Committee members along with AAB Secretariat representatives participated at the meeting organized by the Ministry of Justice in the framework of the visit of the Council of Europe experts mission on the Joint Project of the European Union and the Council of Europe ‘On targeting crime proceeds on the Internet in SouthEastern Europe and Turkey” (iPROCEEDS).

The purpose of this meeting held with the relevant national stakeholders was collection of information and drafting of an overall report on the situation. Representatives of Bank of Albania, AML, Ministry of Justice and State Police were also present during this meeting. On September 7, the Secretary General and two representatives of Chairmanship of the AAB Legal Committee represented AAB in the hearing session of the Parliamentary Legal Commission elaborating on the legal package on NPL reduction (five draft laws). The AAB representatives mainly focused on the draft amendments to the law on private and state bailiffs (which consists on the success fee), as well as to the proposed amendments to the Code of Civil Procedure (Article 511) and to the Civil Code. On November 17, AAB Chairman and General Secretary met with the Deputy Minister of Finance to discuss on the contribution of banks in compliance with the draft law “On banks resolutions” and law “On Deposit Insurance Agency”, which should also be foreseen in the tax legislation as bank deductible expenses not reimbursed for taxation purposes. Following the meeting, the AAB Secretariat filed a letter with the Parliamentary Commission of Economy whereby such issue was addressed, with the scope to include such provision in the draft amendments of the Law “On income tax”, which at that time was under discussion with the Commission. On December 21, bank representatives gathered in a meeting with Mr. Eduart Shalsi, Chairman of the Parliamentary Committee on Productive Activities, Trade and Environment to discuss on the impact that the new draft law “On renewable energy” has on hydroelectric power companies (HECs), especially the small ones financed by the banking sector. 34

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In the framework of the EU Twinning Project “Improvement of the Enforcement System in Albania”, upon request of the Ministry of Justice, on September 22 and 26, the AAB Secretariat organized two meetings with the participation of the twining team. One of the actions recommended was the establishment of the Public Auction Centre, which would enable the management and sales of seized properties available from Public and Private Bailiff Services. The goal of such project is the simplification of the enforcement procedure, reduction of the enforcement procedure term, decrease of the courts’ workload and reduction of the inflow of the courts’ enforcement cases. It is also expected to improve the performance and professionalism within the enforcement

bodies through the emerging of a new law on bailiff procedures. Following the meeting with AAB Secretariat, the twining team continued its successive meetings with representatives of individual banks in Albania to obtain a clear view of the most important technical issues and problems of the banking system related to bailiff procedures. On October 21 and 22, two representatives of AAB Legal Committee Chairmanship and Secretariat representatives attended the round table organized with the Ministry of Justice by EU Twining Project “Awareness on the execution issues”. This round table was attended by judges, prosecutors, lawyers, notaries, bailiffs and other related stakeholders.

AAB - Bank of Albania During the year, bank representatives (committee members or ad-hoc groups) held various meetings with the Bank of Albania representatives for addressing identified problems, or focusing on relevant regulations under revision. In the frame of the projects undertaken by the National Payment Systems Committee, several meetings were organized during the year. These meetings guided participants towards accomplishment of the meeting goals, and helped them attain a clear understanding of what is expected from them to best support this project. On March 2016, AAB Secretariat organized a meeting with the attendance of representatives from banks, BoA, National Electronic Certification Authority and the ALEAT Company, to discuss on the latest stance of the Bank of Albania regarding the validity of electronic signature on banking contracts, in accordance to the applicable Regulations in place. Among other topics discussed during the

joint meetings we may list the revised regulation “On consolidated supervision”, “Business - Banking Relationships: Lending perspective 2016”, etc. On March 2016, during the Banks – Businesses meeting organized under the initiative and the auspices of the Governor of the Bank of Albania, with the participation of the executives of the commercial banks and representatives of business associations, Mr. Christian Canacaris, Chairman of the Albanian Association of Banks, highlighted the optimistic expectations for the economic activity in 2016. On one hand, the meeting aimed to promote the dialogue and understanding between the banking systems and o the other hand with the business community, with the ultimate goal of boosting loans to the economy, thus accelerating economic activity. After several communications and meetings between the Chairmen of AAB and the National Chamber of Bailiffs (NCHB), on January 2016, representatives 35

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OTHER MEETINGS of the two institutes developed a meeting with the participation of representatives of BoA. The broad range of topics involved: the identification of the recent problematic between NCHB and AAB, the development

of negotiations and discussions aiming at practical solutions, discussions regarding the change in the payment of bailiff tariffs, concerns raised on the execution of bailiff orders in banks’ clients’ accounts, etc.

AAB – European Commission and institutions In the framework of the drafting of 2016 Annual Country Report for Albania and more specifically, the developments in the economic criteria, the EU Delegation held consultative meetings with the AAB Secretary General, respectively in April, September and October. On December 6, in the context of the Economic Reform Programme for Albania, Ms. Ana Vukosavlevic from DG Employment, Social Affairs and Inclusion

visited Albania and met with AAB to discuss on issues concerning the banking sector contribution to the improvement of the financial inclusion. On November 21, during the meeting held with the Secretary General, the Finance in Motion (FiM) representatives introduced the Funds and briefly reflected on the activities and developments in Albania regarding banking sector and financial education.

AAB - World Bank AAB Secretariat welcomed the Word Bank’ representatives in the framework of the two projects, respectively on financial inclusion and remittances, as approved by the Payment National Committee. The team also met with the representatives from two member banks, whereby they discussed on the payments and electronic services the banks are currently providing, with special focus on facilitating remittances, possible partnerships established between companies that provide money transfer services (Money Gram, Western Union), the minimum requirements for opening an account on behalf of Retail/ Business customers, etc. During the year, Mr. Brumbulli met with the World Bank’ representatives, particularly focusing on the issue of non- performing loans (NPL) and debt restructuring, as well as on private bailiff procedures and tariffs. The AAB Chairman and AAB Secretary

General organised a farewell meeting with the World Bank’s Lead Financial Sector specialist for Europe and Central Asia Region, Mr. Mike Edwards, as part of the final engagements of Mr. Edwards’ mandate in Albania. The meeting represented a good opportunity to highlight the contribution provided and to discuss on the future of the sector. In the frame of the visit of Ms. Alexandra Kristic, IFC Senior Investment Officer, in Albania, on November 23, a meeting between IFC and AAB Secretariat representatives was organized. In this context, further information was required for discussion concerning recent developments in the financial sector and, more specifically, in the banking sector, the recent developments in the regulatory framework, the future prospects and the evaluation of the potential IFC role in this regard. 36

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AAB - Agency for Financial Technology Transfer (ATTF) On April 19, Mr. Spiro Brumbulli, AAB Secretary General, welcomed Mr. Ben Lyon, Business Manager of the Financial Technology Transfer Agency Luxembourg (ATTF) at a special meeting at the AAB premises. The scope of Mr. Lyon’s visit was to further enrich the understanding of the needs for Albania and to explore how ATTF could most effectively serve these needs. Furthermore, Mr. Lyon held other several

meetings in Albania with representatives of the Ministry of Finance and the Bank of Albania. ATTF already has e a very constructive cooperation in place with the Albanian Association of Banks in Tirana, where it runs seminars transferring technical knowledge to the Albanian financial sector.

AAB - European Banking & Financial Services Training Association (EBTN) AAB, as an associate member, participated in the two activities of the EBTN during 2016. On January 22, the EBTN Members’ Meeting was organized. The event was planned in cooperation with EBTN’s Italian member ABIFormazione - training division of the Italian Banking Association - which hosted the meeting in their premises in Rome, Italy. 30 executives representing 24 EBTN member bodies participated in the meeting, which focused on Triple E accreditation, an initiative of EBTN that enables any organization providing

professional qualifications in financial services to apply for quality recognition of their designations under the EBTN Triple E Standard. On October 6, the EBTN’s conference was organized, focused on future skills and competences of the banking workforce. EBTN, the united voice of professional training and qualifications providers in banking & financial services, met with stakeholders in Brussels to discuss the forecast on the future skills and competences of the banking workforce.

ANNUAL REPORT 2016

EVENTS Events represent an essential strategic and communication tool for AAB, which bring together local and regional banking industry professionals. These activities are a good opportunity to promote developments occurring in the banking system and to attain information on the progress of other countries. This section introduces the various kinds of events organized by AAB during the year.

Amendments to the Labour Code The meeting was organized on April 6, by AAB in collaboration with the Ministry of Social Welfare and Youth and the Work Inspectorate. Participants elaborated on the concerns raised by the banks and specific acts that need to be interpreted. The event was attended by the Chief Inspector of Labour Inspectorate, the Director of Inspection of Labour Relations and Social Dialogue at the Ministry of Social Welfare and other representatives of the relevant authorities.

The 42th EBF Associates meeting On April 29, 2016 in Tirana, AAB hosted for the second time the EBF Meeting of Associates Members. This annual meeting brought together high-level managers of national banking associations both from emerging Europe countries and EU Member States. The meeting included speeches delivered by high level guest speakers such as Mr. Erion LUCI, Deputy Minister of Finance, Ms. Natasha AHMETAJ, Deputy Governor of Bank of Albania and Mr. Christian CANACARIS, AAB Chairman.

Conference on “Digital Banking in Albania” On May 25, AAB, in cooperation with the Bank of Albania and the National Payment System Committee, organized the first national conference on “Digital Banking in Albania”. This conference aimed at promoting new technologies employed by the banking sector to provide services and products to Albanian citizens. Among other hot topics addressed during the three sessions of the 38

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conference were as follows: the innovative payment services, the latest developments regarding the digital transformation and its role in the banking industry, challenges for the future, the regulatory framework in the European Union and its impact in Albania and the current situation in the domestic market. More than 160 participants from the banking sector and public and private financial institutions attended the event.

Promotion of “CSR Report 2015 – Banking for Society” On July 13, AAB organized a ceremony to promote the CSR Report 2015 “Banking for Society”. The participants were welcomed by Ms. Milva Ekonomi, Minister of Economic Development, Tourism, Trade and Enterprise, Ms. Natasha Ahmetaj, Deputy Governor of the Bank of Albania, Mr. Bas Berends, UNDP representatives, Ms. Brunilda Paskali, Deputy Mayor and Ms. Emanuela Zaimi, CEO / Founder of Down Syndrome Albania Foundation.

The annual meeting of SWIFT UGM On September 8, AAB hosted the annual meeting of SWIFT UGM with the participation of SWIFT Austria and CIS. Representatives of payments and compliance’ departments of member banks attended the meeting. The agenda included topics, such as: systems /application security, new initiatives in payments sector, the “Upgrade” of the SWIFT, Release 7.2.0.0 system as well as the application of an annual fee on the new application named SWIFT Smart, which will enable remote learning, KYC Registry, etc.

5th Forum of Physical Security in Banking AAB, with the support of Bank Security Committee, organized the 5th Forum of Physical Security in Banking, which was held on September 21. The forum was attended by representatives from commercial banks, operating in Albania and Kosovo, representatives from Bank of Albania, General Directorate of State Police,

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EVENTS Kosovo Bankers Association, Physical Security Protection Companies and TIA. The agenda of the forum stressed the importance of security structures’ organization, legal framework, recent events incurred to the banking sector concerning the robbery of monetary values issues and it expressed the necessity of organizing such meetings in the future. The event was widely covered by media.

Information Security Forum On October 13, AAB, with the support of the Information Security Committee organised the Information Security Forum. The participants at the event were among Albanian and international banks’ experts, representatives of the National Agency for Information Society (NAIS), the Bank of Albania, Kosovo Banking Association, consulting companies, etc. This Forum was in line with the awareness raising campaign launched by the EU countries, which promotes cyber security among citizens and advocates for changes in the perception of cyber-threats by promoting data and information security, education, sharing of good practices and competitions.

Projects

• Standardized Payment Order • The Intra-Banking Direct Debit Scheme • Clearing and Settlement of payments in euro within the country • KPI HR 2016 Benchmark • Cooperation with 10 international Training Partners, including: IFC, House of Trainings, Institute for Training in Banking (IFBL), Hellenic Banking Institute (HBI) and ATTF Luxembourg for building in house qualifications.

ANNUAL REPORT 2016

SOCIAL ACTIVITIES Activities with media representatives On January 14, on the occasion of commencing the New Year, AAB organized a meeting with economic journalists of the print and electronic media, analysts and media executives in Albania. The AAB Chairman welcomed the invitees and informed them on the overall situation of the banking system at the end of 2015, as well as the future plans of the Association for the forthcoming year. On October 21-22, in Montenegro, AAB organized an educational trip for 23 journalists from print, electronic and broadcast media. The training programme was headed by banks’ expert. Participants learned about some specific aspects on financial reporting, banking system and media relation, credit risk and non-performing loans, on line banking, digitalization, security and the transportation of monetary value. A visit organised at the Association of Banks of Montenegro was an important integral part of the agenda.

Receptions AAB hosted a farewell reception in honour of Ms. Endrita Xhaferaj, who left the position as AAB Secretary General.

Year End Dinner On December 14, AAB organized the Year End dinner, attended by member banks’ Directors and representatives, special guests by BoA, such as the Governor, Deputy Governor, Director of Supervisory Departments and Chief of Cabinet, the Director of the Deposit Insurance Agency, and the members of the Editorial Board of “Bankieri” magazine.

ANNUAL REPORT 2016

MEMBER BANKS / FACTS AND FIGURES Bank

Shareholders’ Structure

Country of origin

Assets (€000)

Loans, Net (€000)

Investment in Government Securities (€000)

ALPHA BANK ALBANIA

Alpha Bank A.E. 100%

Greece

545,766

240,802

109,387

AMERICAN BANK OF INVESTMENTS

Tranzit Sh.p.k 100%

Albania

272,958

68,694

132,068

BKT

Calik Finansal Hizmetler A.S. _ 100%

Turqi

2,861,046

954,487

1,114,246

CREDINS BANK

Individuals and ASC Union 49.83%

Albania

B.F.S.E Holding BV 15.12 %

Netherland

1,223,799

698,213

157,425

Other (less than 5% of shareholding 35.05%

Albania

CBA

Kharafi Group 100%

Kwait

21,141

2,299

696

FIBANK ALBANIA

Fibank AD 100%

Bulgaria

138,987

52,129

54,679

ICB

ICB Financial Group Holding (100%)

Switzerland

73,712

30,590

26,228

INTESA SANPAOLO BANK

Intesa Sanpaolo S.p.A. 100%

Italy

1,105,735

334,541

406,950

NBG

National Bank of Greece S.A. (100%)

Greqi

308,465

215,867

38,406

PROCREDIT BANK

ProCredit Holding AG & Co. KGaA 100%

Germany

245,832

147,111

21,224

RAIFFEISEN BANK

Raiffeisen SEE Region Holding GmbH - 100%

Austria

1,996,859

670,425

510,743

SOCIETE GENERALE ALBANIA

SOCIETE GENERALE 88.64%

France

Minority Shareholders 11,36%

600,621

336,092

145,103

Albania

PIREAUS BANK 98.83%

Greece 601,677

186,894

158,601

307,736

124,630

111,622

55,695

24,593

195,440

81,010

3,039

TIRANA BANK

TZIVELIS IOANNIS 1.17% UNION BANK

UBA

Unioni Financiar Tirane (UFT) Sh.p.k. 86.34%

Albania

EBRD 10.12%

Individuals 3.54%

Albania

Islamic Development Bank (86.70%)

Saudi Arabia

Ithmaar Bank (4.63%)

Bahrain

Dallah Albaraka Holding Co. (2.32%)

Bahrain

Business Focus SDN BHD (1.47%)

Malaysia

Saudi Brother Saudi Arabia Commercial Co. (0.58%)

VENETO BANKA

Individuals (4.31%)

Saudi Arabia

Veneto Banca Italy 100%

Italy

ANNUAL REPORT 2016

Equity Capital (€000)

Deposits (€000)

Net profit (€000)

No. of outlets

No. of employees

Nr of ATMs

Nr of Cards Issued

Debit

Credit

Nr of POS

Internet Banking

76,215

435,093

(10,331)

416

85,205

76,618

8,587

1,283

YES

29,702

232,635

3,054

243

13,821

13,156

665

N/A

YES

331,428

2,225,593

55,391

1,311

151

333,048

281,563

51,485

4,305

YES

99,553

1,063,501

1,959

800

70,315

66,391

3,924

514

Yes

YES

9,748

9,620

(279)

N/A

YES

17,038

119,007

2,685

140

30,848

27,146

3,702

YES

10,715

55,715

(379)

966

YES

144,232

931,555

16,626

575

88,472

N/A

543

YES

60,857

228,501

196

309

19,855

19,403

452

35,766

201,894

258

40,823

40,220

603

267

YES

185,893

1,695,916

(32,912)

1,363

174

223,260

200,796

22,464

1,370

YES

65,662

474,745

2,234

410

44,408

44,282

126

YES

107,486

470,202

(3,848)

432

64,587

60,504

4,083

189

YES

27,311

252,118

1,509

362

31,301

28,285

3,016

YES

11,312

44,155

230

25,088

167,039

(27,669)

132

10,800

10,400

400

135

YES

Audited Data according to IFRS, as of 30.12.2016 (1 EUR = 135.23 ALL)

Mobile E- comBanking merce

ANNUAL REPORT 2016

AAB - FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2016

Contents: Statement of Financial Position Statement of Income and Expenditure Statement of Cash Flow Notes on the Fianncial Statements

ANNUAL REPORT 2016

Statement of Financial Position Notes

31 December 2016

31 December 2015

14,755,093

9,325,817

1,713,732

1,246,430

16,468,825

10,572,247

914,482

723,870

914,482

723,870

17,383,307

11,296,117

1,305,556

934,462

1,305,556

934,462

16,077,751

10,361,654

17,383,307

11,296,117

ASSETS Current Assets Cash on hand and at banks Prepaid expenses

4 5, 6, 7

Total current assets

Non-current Assets Fixed assets, net

Total non-current assets

TOTAL ASSETS LIABILITIES Payable accounts

Total current liabilities Net assets

TOTAL LIABILITIES

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 the notes 4 to 16.

ANNUAL REPORT 2016

AAB - FINANCIAL STATEMENTS Statement of Income and Expenditure Notes INCOME

31 December 2016

31 December 2015

36,984,000

33,000,000

3,717,480

4,032,055

7,885

40,701,480

37,039,940

Membership fee Training fees Interest Income Total income

EXPENDITURES Depreciation

(163,119)

(170,238)

Losses from disposal of fixed assets

(17,582)

(10,851)

(31,629,506)

(29,506,273)

Administration and general expenses

12, 13, 16

Training expenses

(3,175,176)

(4,020,423)

Donations & Contributions

(8,758,141)

(33,367)

(34,985,383)

(42,499,293)

Excess /deficit of income over expenditures

5,716,097

(5,459,353)

Net assets at the beginning of the year

10,361,654

15,821,008

Net assets at the end of the year

16,077,751

10,361,655

Exchange Loss / Gain Total expenditures

The statement of income and expenditure is to be read in conjunction with the notes to and forming part of the financial statements set out on the notes 4 to 16.

ANNUAL REPORT 2016

Statement of Cash Flow 31 December 2016

31 December 2015

5,716,097

(5,459,353)

8 8

163,119 17, 582

459,520 (926,822) 371,093 5,800,588

170,238 10,851 (7,884) (180,740) 307,817 7,884 (5,151,187)

(371,312)

(94,265)

(371,312)

(94,265)

Notes Cash flow from operating activities Excess /deficit of income over expenditures Adjustments for: Depreciation Losses from disposal of fixed assets Interest Income (current accounts) Payments for prepaid expenses Receivable accounts Proceeds for payable accounts Interest received (current accounts) Cash from operating activities Cash flows from investing activities Purchase of fixed assets Cash from investing activities NET INCREASE IN CASH Cash on hand at banks at the beginning of the year Cash on hand at banks at the end of the year

5,429,276 (5,245,452) 4

9,325,816

14,571,268

14,755,093

9,325,816

The statement of cash flow is to be read in conjunction with the notes to and forming part of the financial statements set out on the notes 4 to 16. The financial statements of Albanian Association of Banks have been issued on 29.03.2017 and signed by:

Spiro BRUMBULLI Secretary General Albanian Association of Banks

Albana HALLVAXHIU Financial Department Department Manager Société Générale Albania 47

ANNUAL REPORT 2016

AAB - FINANCIAL STATEMENTS Notes to the Financial Statements for the year ended on 31 December 2016 1. Background information The Albanian Association of Banks (AAB) was established on 15 April 1999. The Registered Office of AAB is located at Rr. Ibrahim Rugova, Sky Tower, Floor 9, Ap. 3, Tirana, Albania. AAB is a not-for-profit association, seeking to promote the latest banking standards of its member banks, the development, stability, and effectiveness of the Albanian banking system in general, thus contributing to the progress of the Albanian economy. AAB is constituted by 16 voluntary members: Alpha Bank Albania; American bank of Investments; Banka KombĂŤtare Tregtare; Societe Generale Albania; Credins Bank; Credit Bank of Albania; FIBank Albania; International Commercial Bank; Intesa Sanpaolo Bank Albania; NBG Bank Albania; ProCredit Bank; Raiffeisen Bank Albania; Tirana Bank; Union Bank; United Bank of Albania; and Veneto Banka. 2. Basis of preparation Financial Statements are prepared according to the SKK standards for NGOs and Law on Accounting and Financial Statements. The SKK for NGOs has come into force from 1 January 2016. The Financial Statements are presented in ALL, which is the functional currency of the Association 3. Important accounting policies - Revenue and expenses Revenues are recognized at fair value of the amount received or payable. Expenses are recognized in the same period with the income related to them. The main revenues of the Association are generated by membership fees, which are subject of Assembly of Members approval. Revenue is recorded when realized and expenses are recorded when occurred. - Transactions in foreign currency The AAB measurement and presentation currency is the ALL. All contributions and the majority of transactions are carried out in ALL. Transactions in foreign currency are converted in ALL at the rate of exchange of the day the transaction is carried out. All balances in foreign currency at the end of the year are converted in ALL at the exchange rate of Bank of Albania as at the last day of the year as follows: Exchange rate at December 31

Euro

31/12/2016

31/12/2015

135.23

137.28 48

ANNUAL REPORT 2016

- Long term Material Assets (LMA) The initial valuation of the elements that meet the recognition criteria as AAM in the balance sheet is made at purchase cost plus other direct costs related to the assetâ&#x20AC;&#x2122;s behaviour at the location and the conditions necessary for its operation, according to the purposes of the association. The following valuation is made according to the cost model, and the AAMs are presented in the balance sheet at their net value (minus accumulated amortization and depreciation, if any). Depreciation is charged starting from the month following the month of acquisition. Amortization rates and method according to AAM groups: Amortization rate

Used method

Computer equipment

25%

residual value

Office equipment

20%

residual value

Other AMMs

20%

residual value

- Taxes and local taxes AAB is a non-profit organization and is excluded from income tax. The association is subject to withholding tax, personal income tax, local taxes and fees, and social and health insurance contributions 4. Cash on hand and their equivalents Cash on hand and at banks is composed as follows: In ALL

31/12/2016

31/12/2015

Current account in ALL

14,571,976

9,258,375

Current account in EUR

124,193

42,403

Cash on hand

58,925

25,038

14,755,093

9,325,816

Total 5. Rights and receivable interest

31/12/2016

31/12/2015

91,377

Other obligations

142,695

Rent Guarantee

280,160

Total

514,232

280,160

Prepayment

ANNUAL REPORT 2016

AAB - FINANCIAL STATEMENTS 6. Contributions Receivable Contributions Receivable is composed as follows: In ALL

31 December 2016

31 December 2015

Membership

692,750

Total

692,750

7. Inventory and prepaid expenses Inventory and prepaid expenses are composed as follows: In ALL

31 December 2016

31 December 2015

10,918

9,785

3,833

4,833

272,100

604,760

25,999

30,061

Domain Hosting

16,816

Health Insurance

193,900

196,630

103,386

506,750

966,270

Internet Expenses Electronic and Postal Communications Authority / AKEP Membership Fee Prepaid to BACEE Maintenance and web hosting

Invoices of travels Total 8. Fixed assets Fixed assets are composed as follows: Â In ALL

Furniture

Electronic equipment

Total

1,953,925

1,173,221

3,127,146

111,766

259,546

371,312

(51,990)

(210,000)

(261,990)

2,013,701

1,222,767

3,236,468

1,477,711

925,565

2,403,276

73,106

90,013

163,119

(45,549)

(198,858)

(244,408)

1,505,267

816,720

2,321,987

At 31.12.2015

476,214

247,656

723,870

At 31.12.2016

508,434

406,048

914,482

Cost At 31.12.2015 Additions for year 2016 Reductions for year 2016 At 31.12.2016 Accumulated depreciation At 31.12.2015 Depreciation for the year 2016 Reductions for year 2016 At 31.12.2016

Net carrying value

ANNUAL REPORT 2016

9. Payable Accounts In ALL

2016

2015

Suppliers

672,637

497,656

Health and Insurance Contributions

192,456

171,680

TAP

368,174

227,628

72,259

10,120

1,305,556

934,463

Withholding Tax Personnel Total 10.

Net Assets

Net Assets is the difference between the assets and liabilities of the NPO at the statement of financial position. The change in net assets presented in the statement of operations is articulated in net assets presented in the statement of financial position. Net assets presented as unrestricted are used in the following periods only for the objectives set out in the charter of the association In ALL Balance carried at the beginning of the period Increase from change of net assets Impairment losses on net assets Balance that is carried forward in the coming year 11.

2015

10,361,654

15,821,008

5,716,097

(5,459,353)

16,077,751

10,361,654

2016

2015

36,984,000

33,000,000

3,717,480

4,032,055

7,884

40,701,480

37,039,940

Incomes

In ALL Membership fee member banks Trainings member banks Credit Interests Total

2016

ANNUAL REPORT 2016

AAB - FINANCIAL STATEMENTS 12.

Activity A - Organization Expenses

In ALL

2016

2015

Events and Workshop

6,454,899

2,841,516

Memberships

1,500,645

1,679,200

679,866

473,946

3,175,176

4,020,423

11,810,586

9,015,085

Trips Trainings member banks Total

13.

Activity B - Promotion, publications and publicity Expenses

In ALL

2016

2015

3,652,851

3,729,631

692,260

1,335,326

4,345,111

5,064,957

Publications Informative materials and publicity Total

14.

Activity C - Consultancy & Consultancy Services

2016

2015

Legal Services

1,157,566

Financial Services

780,681

Total

1,938,247

2016

2015

Donation to the flooded areas in south Albania

6,000,000

Support to the publicity campaign of the Government anti informality

2,758,141

Total

8,758,141

15.

Activity D - Donations & Contributions

In ALL

ANNUAL REPORT 2016

16.

Administration and general expenses 2016

2015

11,258,281

9,852,053

1,114,606

1,068,640

584,430

540,260

3,300,500

3,357,880

Communication

796,369

1,015,053

Utilities

204,668

240,205

Local Taxes

15,000

10,120

Bank Fee & Commissions

82,524

75,671

Translation Services

277,462

246,442

Stationary & Supplies

308,254

533,502

Media Subscriptions

191,614

171,381

22,140

14,400

Other Expenses

472,756

362,780

Exchange Rates

10,310

33,367

Penalties

10,071

20,020

180,701

181,088

18,829,686

17,722,863

Personnel Salaries Health & Insurance Contributions Health Insurance SIGAL Rent

Legal Services

Amortization & Depreciation Total

Prepared:

ALBANIAN ASSOCIATION OF BANKS

Elona Bisha AAP shpk

Spiro Brumbulli Secretary General