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1NLB BANKA SH.A. 2016 ANNUAL REPORT 1NLB BANKA SH.A. 2016 ANNUAL REPORT

3NLB BANKA SH.A. 2016 ANNUAL REPORT

TABLE OF CONTENTS

FINANCIAL HIGHLIGHTS 4

1. STATEMENT FROM THE PRESIDENT OF MANAGEMENT BOARD 6

2. MANAGEMENT BOARD OF NLB BANKA 8

3. MACROECONOMIC ENVIRONMENT AND MARKET DEVELOPMENT 10

4. STRATEGY 12

4.1. Mission, Values, and Vision 13

4.2. Strategic initiatives 14

5. FINANCIAL RESULTS 15

5.1 Statement of profit and loss and other comprehensive income 16

5.2 Statement of financial position 20

6. ACTIVITIES BY BUSINESS SEGMENTS 24

6.1 Corporate Banking 25

6.2. Retail Banking 27

6.3. Treasury and Payments 30

6.4. Information technology 31

7. RISK MANAGEMENT 32

8. CORPORATE SOCIAL RESPONSIBILITY 34

8.1. Social and environmental activities 35

9. HUMAN RESOURCES MANAGEMENT 36

10. CORPORATE GOVERNANCE 38

10.1. Corporate Governance and Management Bodies 39

10.2. Internal Audit 42

10.3. Compliance and PMLFT Sector 43

11. FINANCIAL STATEMENTS AND AUDITORS` REPORT 44

4 NLB BANKA SH.A. 2016 ANNUAL REPORT

Financial Highlights

Financial Highlights 2016 2015 2016/2015

Profit and loss account indicators (in EUR thousand)

Net operating income 27,755 26,347 5%

Net interest income 23,542 22,736 4%

Net non-interest income 4,213 3,611 17%

Total operating costs (11,118) (10,781) 3%

Employee costs (5,790) (5,893) -2%

Other general administrative expenses (4,277) (3,723) 15%

Depreciation (1,051) (1,165) -10%

Profit before provisions 16,637 15,566 7%

Net impairments and Provisions (4,084) (6,282) -35%

Credit impairments and provisions (3,075) (4,876) -37%

Other provisions and impairments (1,009) (1,406) -28%

Profit before Tax 12,553 9,284 35%

Tax (1,289) (1,042) 24%

Profit after Tax 11,264 8,242 37%

Balance sheet indicators (in EUR thousand)

Total assets 516,116 464,692 11%

Loans to non-banking sector (net) 329,607 289,339 14%

Loans to non-banking sector (gross) 357,589 313,471 14%

Deposits from non-banking sector 442,095 400,245 11%

Total equity 62,845 59,725 5%


2016 2015 2016/2015

Financial Highlights

Key indicators

ROE a.t (Return on equity after tax) 18.9% 14.9% 4%

ROA a.t (Return on assets after tax) 2.3% 1.8% 1%

CIR (Cost to income ratio) 40.1% 40.9% -1%

LTD (net loans NBS/deposits NBS) 74.6% 72.3% 2%

CAR (Capital adequacy ratio as per CBK) 16.6% 17.5% -1%

Tier 1 ratio 15.6% 16.5% -1%

Interest margin 5.3% 5.3% 0%

Average active interest rate 6.2% 6.4% -0%

Average passive interest rate 0.9% 1.1% -0%

Portfolio quality and provisions

Gross NPL (non-performing loans) 15,845 15,342 3.3%

Non-performing loans 3.60% 3.90% -0.3%

Share of NPL in total loans to NBS 4.40% 4.90% -0.5%

Cost of risk 98 176 -44.3

Other business indicators (IFRS)

Market share of total assets 14.9% 14.5% 0.4%

Market share of loans to NBS 15.9% 15.6% 0.3%

Market share of deposits to NBS 15.3% 14.8% 0.5%

Number of business units 45 46 -2.2%

Number of ATM's 68 61 11.5%

Number of active clients 185,315 170,697 8.6%

Number of employees 489 492 -0.6%

*Amounts presented by Index

*Percentages presented in difference


1. Statement from the President of Management BoardDEAR STAKEHOLDERS OF NLB BANKA

NLB Bank Prishtina maintains its

long-standing tradition of successfully

conducting business, and in its 9th year

of operations in Kosovo market it has

achieved its best result so far.

Through our responsible growth and

operational excellence we grew our revenues

managed risk prudently and increased

efficiency of cost utilization while continuing

to reinvest in our people and services.

Although, competition in the financial

market has developed quite strongly during

2016, the bank has managed to remain one

of the three largest banks and most

important in the Kosovo banking market.

The banking sector during the past year,

has been profitable, well-capitalized, liquid,

and has increased in all the main balance

sheet items. Unavoidably from global

trends, the situation of excessive liquidity

of banks increased the pressure towards

interest rates while country development

indicators remained at a steady level. Such

an environment required agile reactions and

proactive management in order to achieve

the outstanding results. In a dynamic, fast

changing business environment prompt

responsiveness and adoption to change while

aiming for long term goals was the key

success factor of the bank. During the year


2016 we continued our journey towards

being a simple and resilient financial

institution.

NLB Banka is member of the largest

banking group with headquarter in the

region. NLB Group underwent a successful

transformation process while remaining

the key driver of economic development

fostered by ethical and competitive services.

2016 was a year of success within NLB

Group, where net profit amounted to EUR

110 million outperforming prior year by

20% with sound asset base of around EUR

12 billion, and capital adequacy ratio of

above 16%. The NLB Group is increasingly

solid and competitive banking group with an

autonomous regional strategy.

The core strategy of the Bank remains the

commitment of improving financial affairs

by connecting clients to the resources and

expertise they need to achieve their goals.

Our approach of recognition of divergences

amongst clients has been one of the key

components of competitiveness. Operating

actively amongst our clients enabled us to

be closer to them and deliver client tailored

services.

Amongst many achievements during the last

year, it is worth noting:

- In 2016, the Bank has realized a net

profit of EUR 11.3 million representing

an increase of EUR 3.1 million or 36.7%

compared to the year 2015;

- Increase of total assets for 11.1% and

deposits for 10.5% compared to the

previous year;

- Net loans of non-banking sector as at

31.12.2016 were EUR 329.6 million,

increasing by EUR 40.3 million or 13.9%

compared to the previous year.

Annual plan is exceeded for 13.4%;

- Net interest incomes representing the

highest portion of income in the amount

of Euro 23.5 million, showing

exceeding of plan for 14.4%;

- Non-interest net income have also

increased for 16.7%;

- Operative expenses were lower for 3.3%

compared to the plan. Efficiency in the

management of expenses has contributed

on resulting towards excellent indicator of

CIR 40.1%;

- Adequate management of credit risk

and prudent approach towards lending has

enabled the Bank to have lower loan loss

provisions for 37% compared to prior

year.

Non-performing loans have decreased

from 4.9% to 4.4% of total loans, while

loan portfolio coverage with provisions

have increased continuously;

- However, last year, the most substantial

result was achieved in area of upgrade of

products and services offered by the bank,

advancement of digitalization and

modernization of sales channels (POS

project, Visa business card, Comfort card,

M-banking, Contactless card etc).

The Bank successfully moves forward to

remain an example of a stable and prudent

financial institution, maintaining its strategic

orientation as one of the economic

developers through direct contribution to

the real economy. Successful attainment of

all the business goals on all business

segments, enabled outperformance of the

key performance indicators.

Presently our Bank is stronger, and has

increased the delivery of long-term value to

our shareholders and valuable services to

our clients, resulting from the approach of

providing high quality services. The Bank’s

vision is to work towards a responsible and

prudent growth through meeting financial

needs of our clients on long term, remaining

focused on client driven growth and

contributing to the GDP increase, while

consistently generating value for our

shareholders.

I strongly believe that we will continue to

successfully reach our short and long-term

objectives through our outreaching and value

creation activates for our stakeholders.

Always, we take our commitment to our

team members, clients, shareholders,

community and other stakeholders very

seriously; we exist because of stakeholders.

Despite our current challenges, our

underlying business strengths and our focus

on the long term value creation will continue

to benefit us as we move forward towards

our joint journey.

At the end, allow me to thank all those

who contributed to the achievement

of results and implementation of very

ambitious development strategy of NLB

group in Kosovo starting from bank staff,

Board of Directors, professional services

of Group and honorable shareholders.


2. Management Board of NLB Banka


Lavdim KoshutovaMember of the Management Board

Albert LumeziPresident of the Management Board

Bogdan PodlesnikMember of the Management Board


3. Macroeconomic environment and market development


Kosovo’s economy continued to mark

positive economic growth rate in 2016. Main

financing sources of the economic growth

were covered by domestic sources such as

bank lending and public expenditures, while

the external sector income were

characterized with a more unfavorable

performance, as a consequence of export,

remittances and decrease of foreign direct

investments.

Although Kosovo’s economic growth

has outperformed its neighbors and has

been largely inclusive, it is not sufficient to

reduce the high rates of unemployment.

The current growth model relies heavily on

remittances and external aid.

Inflation (CPI) - In the year 2016 Kosovo’s

economy was characterized with an inflation

of 0.5%. Price movement in Kosovo is

similar to the movement of prices in

international markets as a result of high

dependence of the Kosovo’s economy on

imports.

Remittances - Remittances continued to

represent a stable source of income and a

main driver of domestic demand and growth

amounting EUR 691 thousand in 2016

(2015: EUR 752 thousand).

Unemployment – remained relatively high

at approximately 40%, the largest in the

region and EU.

GDP – Growth in Kosovo in 2016 was 3.6%

of GDP, (2015: 3.5% of GDP), generated

mainly by domestic demand. The increase

of domestic demand is estimated to have

led to an increase in imports and,

consequently, to an increase of the current

account deficit.

Public debt – the lowest public debt in

the region at 13.8% of the GDP as of

31.12.2016 (2015: 12.9%), however in the

near future it is expected to increase.

Illustration 1: Real GDP growth and remmintances


4. Strategy


4.1. Mission, Values, and VisionNLB Banka aims to be one of the banks

with highest quality services and the most

trustworthy financial institution in Kosovo

market. We will achieve this by focusing on

the needs of our clients and the society we

serve, therefore delivering long-term

sustainable value to all our stakeholders.

We are committed to developing a culture

of client focus, risk awareness, integrity,

efficient processes, and social responsibility.

Honoring the mutual trust of our clients,

employees, shareholders and the society in

which we work gives us great responsibility.

With uncompromising honesty and integrity

we honor this trust by working together with

our stakeholders for positive change, mutual

benefit, long-term growth and successfully

reaching for excellence. By incorporating

our values in everything we do, we have the

power to shape our

environment and further contribute to

positive changes.

NLB Banka will be focused on quality and

efficient day-to-day client service and will

meet or surpass clients’ expectations.

At NLB Banka we embody the following

core values within our corporate culture:

• Responsibility towards clients, employees

and social environment,

• Commitment to deliver on our promises

and objectives,

• Open communication and cooperation,

• A win-win player,

• Efficiency in fulfillment of our

commitments.

NLB Banka is innovative bank creating

simple customer-oriented solutions with

strategic focus on SME and retail segment:

• Simplicity champion (easy to

understand products and services, low

costs, fast processes);

• Service innovator (innovative solutions for

the clients);

• Client focus (everything built around and

driven by client needs);

• Local specialist (consistent strategy based

on the unique understanding of the home

markets).

NLB Banka will be a sustainably profitable

bank, predominantly working with clients in

core market segments where it can achieve

and hold a top three competitive position in

terms of (relative) profitability and market

share.

In its core, business the Bank will differentiate itself by in depth client understanding, by providing high service level and advisory competence, by easy accessibility and a competitive product/channel mix.


The Bank’s strategic initiatives are based on

the fact that we are a local bank with foreign

shareholders and our aim is to transfer the

best practices of banking standards from

mother bank and good banking practices to

the local specific environment like Kosovo

to increase economic growth and

development.

The main strategic orientations of the Bank

are:

1. Client oriented and market position,

2. Profitability and balance sheet

optimization,

3. SME and retail banking orientation,

4. Active risk management,

5. Cost optimization.

4.2. Strategic orientations


5. Financial ResultsNLB Banka achieved stable profits,

good returns and optimal structure

of balance sheet and liquidity

position reflecting its stability.

All main indicators from the annual

plan where fulfilled or exceeded. The

Bank remained cautious and committed

towards stable growth, by using a

prudent approach towards lending,

which was reflected to a sound

quality of loan and fund’s portfolio.


5.1 Statement of profit and loss and other comprehensive income

Income statement (000 EUR) 2016 2015 2016/2015

Total operating income 27,755 26,347 5%

Net interest income 23,542 22,736 4%

Interest income 27,062 27,221 -1%

Interest expenses (3,520) (4,485) -22%

Net non-interest income 4,213 3,611 17%

Net fee and commission income 4,691 3,866 21%

Fee and commission income 5,750 4,896 17 %

Fee and commission expenses (1,059) (1,030) 3%

Exchange differences 9 (130) -107%

Gains/Losses from FA&FL held for trading (net) 534 617 -13%

Other net operating profits/losses (1,021) (742) 38%

Total Operating Costs (11,118) (10,781) 3%

Staff expenses (5,790) (5,893) -2%

General and administrative expenses (4,277) (3,723) 15%

Depreciation (1,051) (1,165) -10%

Profit before impairments and tax 16,637 15,566 7%

Net Impairments and Provisions (4,084) (6,282) -35%

Profit before tax 12,553 9,284 35%

Tax (1,289) (1,042) 24%

Net profit 11,264 8,242 37%


NLB Banka during the year 2016 delivered

a net profit in amount of EUR 11,264

thousand (as per CBK EUR 11,282

thousand). The main drivers for such results

were: increase of loan portfolio, increase of

net interest income, increase of net fee and

commission income and other operating

income compared to previous year and

lower net impairments and provision.

Net profit compared to 2015, is higher by

37%. The Bank achieved higher ROE a.t. at

18.9% and a ROA a.t. at 2.3%, both higher

than previous year.

Profit before impairment and provisions

amounted to EUR 16,637 thousand and is

7% higher than last year.

Net interest income amounted to EUR

23,542 thousand, and is higher than previous

year by 4% as a result of higher income from

loan portfolio (volume is higher and also

active interest rates are decreasing slower

than expected) and lower deposits expenses.

Interest rates on deposits in 2016 were stable

but interest rates on NBS loans decreased

from month to month. Average active

interest rate of 2016 for corporate (existing

and new) was 7.5%; and average active

interest rate of 2016 for retail was 7.4%.

Illustration 2: Net profit 2015-2016


Net noninterest income (net fees and

other noninterest income) amounted to

EUR 4,213 thousand, which represents an

increase of 17% compared to the previous

year. The increase was as a result of the

increase of cards business, new card issued

andincrease of fees.

Regarding total operating costs the

Bank continued to focus on cost

management through effective operations

while improving processes and controls.

As a result, total operating costs amounted

to EUR 11,118 thousand, however a slight

increase compared to previous year by 337

thousand or 3% considering the business

increase, driven mainly by higher card

business expenses, implementation of POS,

IT software maintenance etc.

Staff expenses amounted to EUR 5,790

thousand and were lower than previous year

by 0.1 mil or 2%.

Depreciation costs amounted to EUR

1,051 thousand and are lower than previous

year by 10% as a result of postponing some

of the planned projects.

General and administrative expenses amounted to EUR 4,227 thousand and are

higher than previous year by 15% or EUR

554 thousand.

Illustration 3: Interest income/expenses 2015-2016


Provisions and Impairment – As of

December 31, 2016 total provisions and

impairments amounted to EUR 4,084

thousand and decreased by 35% compared

to the previous year. Provisions are lower

compared to the previous year as a result of

the improvement of portfolio quality.

Tax expenses increased as a result of high-

er profits compared to the previous years,

while tax rate of 10% remained the same.

Illustration 4: Operating expenses 2015-2016


5.2 Statement of financial positionBalance Sheet (000 EUR) 2016 2015 2016/2015

Total Assets 516,116 464,692

Cash and balances with central banks 61,547 50,593 11%

Placements to banks (net) 46,369 44,302 22%

Loans to non-banking sector (NBS)- gross 357,589 313,471 5%

Loan impairments to non-banking sector (27,982) (24,132) 14%

Loans to non-banking sector (net) 329,607 289,339 16%

Corporate Loans (net) 205,585 185,243 14%

Retail loans (net) 124,022 104,096 11%

Securities 65,944 67,924 19%

Fixed assets 11,915 12,027 -3%

Other assets 734 507 -1%

Total Liabilities 516,116 464,692 11%

Deposits from banks 1,339 221 506%

Borrowings (Leasing) 262 83 216%

Deposits from non-banking sector 442,095 400,245 11%

Deposits of corporate 101,937 91,325 12%

Deposits of retail 335,937 304,885 10%

Deposits of government 4,221 4,035 5%

Other liabilities 9,575 4,418 117%

Total equity 62,845 59,725 5%

Issued capital 51,287 51,287 0%

Reserves (including retained earnings) 178 167 6%

Other 116 28 314%

Profit/loss for the period 11,264 8,242 37%

Off balance sheet main items 37,303 41,251 -

Guarantees and letters of credit 23,178 26,359 -12%

Written-off loans in off balance 14,125 14,892 -5 %


Total balance sheet during 2016

increased by EUR 51.4 million (11%), and

as of 31.12.2016 amounted to EUR 516.1

million. Almost all active items in balance

sheets related to liquidity have increased as

a result of the increase of sight deposits. On

the other hand in 2016 the Bank was also

very successful in core business, where the

total gross loans of NBS amounted to EUR

357.6 million.

NLB Banka remains the third largest bank

in Kosovo, with a market share in total assets

of 15%. The market share in net loans was

16% and in deposits 15%.

Illustration 5: Total assets and assets structure

Illustration 6: Market Share


Cash and balances with CBK amounted

to EUR 61.5 million, compared to the end

of 2015, it increased by EUR 11 million (or

22%). Cash is above the minimum liquidity

reserve required from the Central Bank of the

Republic of Kosovo.

Placements with other banks (net) amounted to EUR 46.4 million. Compared

to 31.12.2015, they have increased by EUR 2

million (5%).

Securities amounted to EUR 65.9 million,

compared to 31.12.2015 it decreased by EUR

2 million or 3%. Majority part of securities are

placed in Kosovo Government treasury bills

with maturities of 3, 6 and 12 Months T-bills,

2, 3 and 5 Year’s bonds with average yield of

0.885%. Besides Kosovo Government treasury

bills in Securities are a small amount of equity

investment in VISA as per fair value

amounting EUR 303 thousand.

With the high commitment of the Bank,

Net loans of the nonbanking sector

increased by EUR 40.3 million or 14%

compared to the previous year, amounting to

EUR 329.6 million. During 2016, net

corporate loans increased by EUR 20.3

million and net retail loans increased by EUR

20 million. The structure of net loans to

nonbanking sector consists of 63% of loans to

corporate and 37% of loans to retail,

well-balanced portfolio and risk spread

avoiding concentration risk.

The LTD ratio (net) of NBS has been

increasing steadily compared to previous year

and it improved to 75% (2015: 72%), driven by

increase of loans and maintenance of deposits

at appropriate level and improvement of

quality.

Illustration 7: Net loans to NBS

Net impairment and provisions for loan losses - The Bank continued to have a

conservative approach for creating

impairment for loans and provisions. The

amount of provision amounts to EUR 27.9

million, which increased compared to the year

2015 as a result of the increase of the loan

portfolio.


Deposits of NBS remained stable and

amounted to EUR 442.1 million higher by

EUR 41.9 or 10% compared to the previous

year. The structure of deposits consists of 76%

of deposits to retail and 23% of deposits to

corporates; the remaining 1% is deposits to

government.

Borrowings amounted to EUR 0.2 million

as at December 31, 2016. All borrowings

represent lease contracts for vehicles and

POS-es.

Shareholders` equity as per IFRS amount-

ed to EUR 62.8 million, and compared to

2015 increased by EUR 3.1 million as a result

of higher net profit. In current year, Bank has

distributed as dividend the amount of EUR 8.2

million. The Bank is in compliance with the

regulation of the Central Bank of the Republic

of Kosovo regarding the capital adequacy,

maintaining higher capital adequacy ratio than

required minimum of 12%.

The total registered capital was EUR 51,287

thousand (2015: EUR 51,287 thousands),

whereas the total shareholders` equity as of

December 31, 2016 was EUR 62,844

thousand (2015: EUR 59,724 thousands).

Illustration 8: Deposits from NBS


6. Activities by business segments


6.1 Corporate BankingThe Bank is committed to be a key provider

of quality banking services to private

enterprises seeking a reliable Bank which

can support them on their business plans

and goals. During 2016, the Bank continued

to build strong relationships with the

corporate clients through providing a variety

of services and managing further increase

of the Bank’s position in the corporate

segment.

Being a part of a large banking group

enables us to provide high quality financial

services to the clients on a regional level and

it gives the Bank a competitive advantage in

the market. We’re dedicated to provide

assistance to the clients towards their

success. With this focus has come core

high-quality and low-risk sustainable growth.

The business activities with legal entities

continuously represent the largest share in

the Bank’s activities and recorded a solid

increase potential during 2016. During the

same year, the Bank provided services to

more than 15 thousand corporate and SME

clients, ranging from different industries,

including international companies and

financial institutions. By combining the

domestic market expertise with the

international know-how of NLB Group,

NLB Banka has already grown a reputation

for sophisticated concept for legal entities.

000 EUR 2016 2015 2016/2015

Amount of corporate loans (net) 205,585 185,243 11%

Amount of corporate & state deposits 106,158 95,360 11%

Number of clients 15,910 14,390 11%

Number of cards (debit) 8,811 5,762 53%

Number of E-banking 4,916 3,923 25%

Table 7.1.1. The main/key data on operations with corporate banking


Regardless of the decrease of interest rates,

the Bank’s deposits continued to increase as

a result of client trustworthiness, amounting

EUR 106 million as of December 31, 2016.

During 2016 the Bank was very active in

internal increase of operations and

international relations.

In internal operations Bank has started with

POS terminals aimed primarily for adding

services and products, improving the

stability, capacity and availability of the

services for clients.

While in international relations the bank has

signed the following:

- Credit facility of EUR 5 million under

the EBRD’s Trade Facilitation Program,

to help small and medium-sized

enterprises (SMEs) trade across borders.

The project was signed as at July 25th,

2016, during a visit to Pristina by EBRD

President Sir Suma Chakrabarti.

- Loan Portfolio Guarantee Agreement

with Kosovo Credit Guarantee Fund

(KCGF). The KCGF Guarantee is

intended to facilitate increased lending

by the Guaranteed Party to MSMEs in

Kosovo, improving both the conditions

of loans and increasing the quantity of

MSME loans, thereby stimulating

economic growth.

- Moreover in 2016 in cooperation with

IFC, the Bank has developed and

lunched a SME product for financing

energy efficiency. The product is designed

for financing of investments to increase

energy efficiency in companies.

Illustration 9: Trend of loans & deposits with corporate banking 2015-2016


6.2. Retail Banking NLB Banka during 2016 was mainly

focused on improvement of services and

strengthening the skills and competencies

of the branch staff in order to provide more

complex financial advice and solutions to

clients’ needs.

Optimization of the Bank’s branch business

network capacity, enriching distribution

channels with innovative products, especially

digital distribution channels, provided

simple and friendly platform to access

banking products by clients. This resulted in

increase of lending portfolio during the year

2016, and resulted in attracting more clients

as well as achieving higher levels of client

satisfaction. The Bank continued with

transfer of banking standards and best

practices from NLB d.d.

The Bank is present throughout the territory

of Kosovo, across 9 major regions with total

of 45 branches and sub-branches and

additional 68 ATM’s located in all Banks

units as well as in the most frequented

places.

35 branches and sub-branches are renovated

in compliance with NLB d.d. standards,

whereas high effort was made to improve

all banking services and products, to tailor it

focusing towards clients’ needs for safe and

modern banking services.

New products and services - The Bank

in 2016 introduced to its clients new

products as follows:

- POS terminals (911) -

the implementation of the most

important project of the year;

- New credit card, VISA Credit Business;

- New credit card with non interest

installments up to 36 months – Master

Card Comfort Card;

- Launching the mobile application m-klik

- a new service for customers with smart

phones;

- Contactless payments – the launch of

contactless cards, Visa and Master.

000 EUR 2016 2015 2016/2015

Amount of retail loans (net) 124,022 104,096 19%

Amount of deposits from retail 335,937 304,885 10%

Number of clients 260,518 232,722 12%

Number of cards (debit cards) 150,070 79,552 89%

Number of cards (credit cards) 15,152 5,957 254%

Number of E-banking 10,988 7,901 39%

Table 7.2.1. The main data on operations with retail banking


Year 2016 proved to be one of the most

successful in Retail loan business activity. The

Bank witnessed a significant increase both in

numbers and in amount of Retail loan

disbursement, which compared to the

previous year, increased by EUR 20 million or

19% (net).

The largest loan segment increase in numbers

and amounts is for housing loan segment,

which comprises around 55% of total loan

portfolio. During 2016 it was fulfilled one of

the main targets, which is quality improvement

of the loan portfolio. Around 98% of total

retail loan portfolio remained in “A” category.

Business with deposits to retail remains one of

the fundamental traditional and stable activities

of the Bank. Retail deposits at the end of

year 2016 amounted 335.9 million euro and

compared to 2015 it increased by EUR 31.1

million (increase of 10%) as a result of increase

of sight deposits at the end of 2016.

Professional treatment and customer care

has increased clients confidence to the bank.

During 2016, the bank increased number of

new clients by: 27,796 and were disbursed

EUR 76,835 thousand new loans. Total

balance as of yearend was EUR 124 million.

Illustration 10. Trend of loan & deposit operation with retail banking: 2015-2016


Modern distribution channels

The Bank continued to expand the product

portfolio of modern distribution channels by

introducing M-Klik and POS Acquiring

services as well as further development of

existing E-Klik, Cards and ATM services.

M-Klik (Mobile banking) platform of the

Bank now offers to all its users the possibility

to conduct all possible daily-banking activities

on the move from their mobile phone devices

and with significantly less costs.

POS Acquiring service platform has

broadened the opportunities of further

developing card business and increasing the

usage of card as a means of payment. As a

result we have developed new credit card

product COMFORT Card with interest free

installments for clients. This product from

the launching is proving to be the most sought

card from the range of credit card products

and it had a great impact in increasing the

number of credit card issuance and turnover.

As a result of development of electronic

business, number of transactions and turnover

from the clients using modern channels of

distribution has increased continuously.

Illustration 11. Structure of new loans of retail: 2015-2016


6.3. Treasury and PaymentsAssets and Liabilities ManagementRetail clients’ deposits remained the main

stable source of funding for the Bank in

2016.

In order to respond to the dynamic pricing

environment, the Bank regularly revised

its Pricing Policy on customer deposits and

loans.

Liquidity ManagementOver the year 2016 the surplus liquidity of

the whole banking sector maintained

downward pressure on the customers loans

and deposits interest rates.

During the year, NLB Banka optimized its

liquidity reserve by still maintaining plentiful

levels of liquidity buffers. Cash and current

account with Central Bank also moved

substantially by 21% upwards as a result of

the increase of liquidity.

During 2016 the Kosovo Central Bank

implemented the earlier announced ECB

deposit interest rate measures i.e.

introduction of negative interest rates on the

commercial banks balances with the Central

Bank over the liquidity reserve amount.

The negative interest rate of 0.4% p.a. was

implemented as from 1st of August 2016.

NLB Banka managed the secondary

liquidity reserve by keeping the funds in the

banks applying lower negative interest rate.

In the period between 1.1.-31.12.2016, the

average fulfillment of the Bank’s obligatory

minimum required liquidity reserve of 10%

was maintained during the year at the

average level of 13%.

The surplus liquidity of the Kosovo banks

in 2016 caused increase of Kosovo banks

appetite for buying local securities, which

caused reversed course in the Kosovo T-bills

yield curve by pivoting downward until the

end of the year.

The Bank complied with the debt ceilings

determined by the newly introduced

methodology of credit rating analysis and

classification based on the existing credit

rating from international credit rating

agencies and NLB Group internal

methodology.

Foreign Exchange Market and Payments systemsNLB Banka is the only one bank in the

Kosovo market offering foreign currency

exchange services in 9 (nine) liquid

currencies – USD, CHF, GBP, NOK, SEK,

AUD, CAD, HRK and DKK.

On the international foreign exchange

market, during 2016 over 9,330 transactions

were traded presenting an increase of 11%

compared to last year (2015: 8,382 trade

deals) for the almost doubled amount of

EUR 595 million (2015: EUR 340 million).

Most actively traded currency pairs were

EUR/CHF, EUR/USD, EUR/NOK and

EUR/GBP. The NOK sales by the clients

continued to increase of trading volumes,

but at the end of the year appears the GBP

sales increasing rapidly, comparing in the

beginning of the period GBP 2.6 million to

GBP 88 million at the end of the period.

In the scope of domestic payments on the

1st of July 2016 the Bank implemented the

newly launched KIPS (Kosovo Inter-Bank

Payment System) in compliance with the

latest messaging formats (ISO 20022)

enabling real-time payments processing

and high volumes of bulk payments in a

single system.In the scope of International

Payments, the bank signed Fixed fee Nostro

payments Agreement with NLB Skopje and

NLB Beograd.

In the field of international payment

transactions, in 2016, the turnover increased

by 11%; around 44 thousand payments

(2015: 49 thousand) were processed, as well

a total turnover of 680 million EUR (2015:

591 million EUR) was recorded.

In the field of domestic payment

transactions, in 2016 more than 2.10 million

payments were processed, as well the bank

reached a total turnover of EUR 2,09 billion

( 2015: EUR 2 billion, or 2% more than in

2015.

Trade FinanceDuring 2016, it was concluded the Trade

Finance Program Agreement with European

Bank for Reconstruction and Development

- EBRD. The Agreement helped the bank

to enhance and expand the assistance for the

importing clients in their international trade

transactions by issuing on their behalf all

types of required trade finance instruments,

as well to cooperate with more

correspondent banks and to easily manage

the encumbered liquidity reserve.

During 2016 it is also indicated an increase

in the number of Escrow Agreements

established between our Bank (acting as

Agent), the client and other third parties.


6.4. Information technologyDuring 2016, in addition to regular support

to business operations, a number of

infrastructure and application projects have

been implemented in IT field in order to

ensure proper IT support for the business

processes and development initiatives.

At the beginning of 2016, the bank

developed internally and implemented a

new interface for secure data transfer with

the Bankart card processing center replacing

the legacy Connect Direct application.

IT provided support for the

implementation of POS terminal and

mobile banking project, and for the related

CMS and core banking developments. IT

continued with its structured, planned and

phased approach towards private cloud

adoption through server virtualization and

consolidation efforts.

IT actively supported the development of

the new interface between the bank's core

system and new ISO 20022 standards based

Real-time Gross Settlement system

implemented by the Central Bank of

Kosovo (CBK) enabling efficient and

reliable clearing and settlement of financial

transactions between the bank and CBK.

Several other business processes where

supported by internal IT development

including new application for client personal

data cleansing project, automated interface

for account status reporting to Central Bank

of Kosovo (CBK), Early Warning System

module, automated interface with the

Deposit Insurance Fund of Kosovo (DIFK),

new scenarios for Anti Money Laundering

system, module for online application for

Guaranties, etc.


7. Risk Managment


As a financial institution the Bank has an

approach of taking risk on day to day

basis on all the decision making layers in

a responsible manner. Our organizational

culture underpins that we are one team with

shared responsibility on the risk

management, by taking risk with an

ownership mindset and sound judgment.

Robust risk management practices are

embedded within day to day activities of the

Bank, through a well -established

organizational structure supported and led

by a sound risk management strategy

ensuring appropriate overview and

accountability within the Bank.

Risk management activities are enhanced by

further involvement in the strategic decision

making process, also adding value and risk

awareness in scopes such as pricing, product

development and approach to the market.

Therefore, the main role of the risk

management is reflection and

implementation of the risk appetite of NLB

Banka sh.a, in the light of local market

specifics, with a sole objective of

maintaining and contributing on the effective

and efficient asset quality management.

The risk management function its wide

spread structure of non-executive and

executive risk governance ensures that credit

risk, market risk, liquidity risk, including

operational risk are effectively managed.

Employment of a three lines of defense

model is the backbone of the risk

governance structure of the Bank.

Credit Risk- one of the main activities of

NLB Banka sh.a is direct lending activity,

which is also the key driver of credit risk

exposure. Therefore in order to establish a

prudent approach towards risk management,

the Bank has employed practices aligned

with NLB Group risk management strategy

and CBK regulations acknowledging local

specifics and differences of business

environment prevailing in the Kosovo

market. Such an approach enabled

installment of an efficient and effective credit

risk management system.

Operational Risk - Purpose of risk

management is to manage the exposure

towards the operational risk and mitigate

the potential loss that may occur as a result

of inappropriate internal systems, process

of control, weaknesses and failures during

the process of work, illegal activities and

external events which may cause losses to

the Bank. In order to enable a sound system

of operational risk management, the Bank

has established appropriate structures

(operational risk management committee)

and assigned responsibility and

accountability through a decentralized

approach with in the organizational structure

of the Bank, in order to ensure efficient

risk identification, recording, mitigating and

monitoring of operational risk. The loss

events arising from operational risk were

followed on monthly basis, actively

monitored and reported to internal bodies

of the Bank.

Details on Risk Management including

credit risk, liquidity risk, interest rate risk,

capital management risk, etc. are disclosed

in note (31) in risk management section of

the audited financial statements.


8. Corporate social responsibilityThe Bank conducts activities in

accordance with the approved

“Social and Environmental Policy”

and best international practices for

corporate social responsibilities.

We strongly believe that being

economically successful and competitive

generates value for all of our stakeholders

including the shareholders, clients,

employees, as well the whole society and

economy. We continue to apply high

environmental and social standards to our

business to support a sustainable future.

Progress and prosperity are driving us when

we initiate and support educational, social,

and cultural projects that help people to

fulfill and reach their potential.


8.1. Social and environmental activities Progress and prosperity are driving us when

we initiate and support educational, social,

and cultural projects that help people to

fulfill and reach their potential.

The Bank applies the principle fair

treatment and equal opportunities for all

employees at Bank. The Bank continues to

have a balanced employee structure between

female and male employees.

In 2016, the Bank has made efforts to

increase the knowledge of its employees

through various seminars, trainings, best

practices and experiences from the NLB

Group Banks. The Bank has also

provided financial assistance for studying

and professional development in

Kosovo and abroad in order to maintain

high standard of services provided to all the

stakeholders.

NLB Banka’s contribution through 2016

was focused in supporting the activities and

projects of significant economic, social and

cultural value, which contribute directly to

facilitating and improving the lives of the

citizens of Kosovo in general.

NLB Banka supported financially the

following:

- The renovation on two floors at the

Pediatrics Hospital, Psychiatric neurology

ward, Hematology and Oncology ward,

Genetics and Gastroenterology ward

(chronic cases and cases acute);

- Donated at Gala Charity Dinner

organized by American Chamber of

Commerce in Kosovo for the purpose

of education fundraising that promotes

children with extraordinary intelligence

level, and 30% of the fund will be allocated

for the scholarship fund for students from

Kosovo;

- Donated to the event “Let’s Dance for

Mothers and Children” for the purpose to

acquire a pediatric vision screening system

to diagnose eye and vision disorders in

premature and newborn babies and

prevent blindness, procure supplies to

expand the neo-natal transportation

system, expand the services of the

Women’s Health Resource Centers, and

continue the delivery of Survanta

medication to cover the needs of all

premature babies in Kosovo;

- Collection of clothes that have been

donated to residents of the Special

Institute in Shtime organized by the

American Chamber of Commerce;

- Fourth Charity Tournament in Bowling

organized by the Foundation of American

Chamber of Commerce in Kosovo;

- Charity Football Tournament which was

organized by AmCham;

- Sponsorship to Kosovo Chess

Federation for European individual

championship in Chess, the biggest sport

tournament held in Kosovo with

participation of more than 400 chess

players, representatives from more than 50

European countries;

- Sponsorship to FC “Prishtina” during the

championship 2016/2017.

Health at work - With the purpose of

protecting the health of employees in the

Bank, through different modes of

communication has been raised the

awareness of employees to living a healthy

lifestyle, and the Bank signed the new

contract for health insurance of employees

and their family member’s.


9. Human resources management


NLB Banka is committed to use higher

standards of NLB Group which operates in

EU and all the time in line with Kosovo’s

law. Human Resources policies are oriented

towards the professional growth of staff

and level of expertise, strengthening and

maintaining a motivating work environment

and accountability for employees; achieving

long-term sustainability and continuity of

administrative capacity; and improving the

regulatory and organizational structure of the

Bank.

The Human Resources and Organization

Section in 2016 has proved that it is possible

to accomplish the mandatory expectations

as well as the preferable ones, for each

employee in each role within the Bank, by

exceeding most of the targets and to

accomplish adequately some of them.

The following key activities were conducted

in 2016:

- Measurement of organization culture -

considering that for the first time in the

Bank was conducted the measurement of

organization culture, it was important to

have a clearer picture of the difference

between the ideal culture and the current

culture. Based on the received results,

we are in the process of undertaking the

activities to improve the current culture as

well as to reduce the gap between the ideal

and current one.

- We actively continued the implementation

of management by objectives, i.e. the

setting of goals, assessment and

remuneration, and we have seen the

results and the commitment of employees

during the whole year, as well as the

positive results in the profit at the yearend

2016.

- Assessment of managerial competencies

with the Method 360°, where the managers

were able to see a clearer picture of how

were assessed their managerial

competencies and their approach towards

colleagues.

- E-training in ECHO application - During

2016 were organized e-trainings and

e-testing in several modules, in which

participated all the employees of the

Bank. NLB Banka has been using the

E-cho application as an effective,

easily available and cost-efficient method

of e-training, the aim of which is to transfer

knowledge and information to large groups

of employees.

Improvements in the organizational

structure of the Bank has been the focus of

Human Resources Policy, with the purpose

of increasing the efficiency of the Bank,

strengthening coordination and communi-

cation between units, adaptation of these

structures to the new activities arising from

the strategic objectives of the institution, as

well as meeting the standards of NLB Bank

d.d.

Table 9.1. Structure of employees as per education and gender

Illustration 12. Structure of employees

Educational background 2016 2015 2016/2015

Less than high school 1 1 0

High school degree 200 222 -22

Collage degree 24 24 0

University degree 238 221 17

Master and PHD 26 24 2

Structure by gender 2016 2015 2016/2015

Male 217 220 -3

Female 272 272 -


10. Corporate Governance


10.1. Corporate Governanceand Management Bodies

The Bank has a clear organizational structure that precisely defines the rights and responsibilities of the members of the Boards of Directors and other

Management Bodies, the other employees as well as the lines of control in the performance of daily duties.

The organizational structure of NLB Banka is as follows:


The Bank’s main bodies are:

• General Meeting of Shareholders

• Board of Directors

• Audit Committee

• Risk Committee

• Management Board

General Meeting of Shareholders

The General Meeting of Shareholders of

NLB Banka meets and makes decisions at

regular and extraordinary meetings, where

it adopts resolutions in accordance with the

law. The nominal shares assign the owner

the right on dividend payment and voting

right at the General meeting of

Shareholders.

On 31.12.2016 the Bank’s authorized share

capital consisted of 42,739 regular shares

at par value of 1,200 EUR per share. The

largest shareholder of the Bank is NLB d.d.

with 81.21%, whereas more detailed data are

presented in notes to the Audited financial

statements within this report.

The responsibilities of the General Meeting

of NLB Shareholders are stipulated by NLB

Banka Statute, which are also in compliance

with the requirements set from the

regulatory.

During 2016, General Shareholders Meeting

had one meeting. The meeting was held on

March 31, 2016, which was a regular

meeting. In the meeting present were

89.63% of shareholders. On this General

Meeting of Shareholders were approved

several acts, among which the following:

External Auditors report for 2015, Business

plan, appointment of external auditor for the

year 2016 and supplements and

amendments of NLB Banka statute.

Composition of Board of Directors

Board of Directors is elected by the

shareholders of the Bank at the General

meeting of Shareholders and they are

responsible for the establishment of Bank

policies, including the Policies for risk

management and supervision of its

implementation. The BoD conducts its

activities in accordance with the provisions

of the laws on governing banks and the

Statute of the Bank.

The Board of Directors during the 2016 had

6 meetings.

The structure of BoD members of NLB

Banka sh.a. as of December 31, 2016, was

as follows:

• Archibald Kremser, chairman

• Jure Peljhan, vice chairman

• Andrej Baričič, member

• Božislava Javornik, member

• Ardiana Bunjaku, member

• Albert Lumezi, member – President of

Management Board of NLB Banka as per

function with no voting right.

NLB Banka Board of Directors has established the Audit Committee as required by the banking law.

The Audit Committee members as of

December 31, 2016 were:

• Andrej Baričič, President of Audit

Committee

• Ardiana Bunjaku, Member of the Audit

Committee

• Abdylmenaf Bexheti, Member of Audit

Committee

The Audit Committee work and activities

are defined in the Rules of Procedure of the

Audit Committee. Audit Committee is held

on quarterly basis in the Bank. During 2016

in total four (4) Audit Committee sessions

were held.

Areas covered by Audit Committee are:

approval of the internal audit reports,

assessment of audit procedures, assessment

of internal controls, review of the

compliance report, review of the bank’s

financial performance, review of the external

auditor’s management letter and final

audited financial statements and

recommends the external auditors. In

addition, audit committee also performs

acknowledgment, assessment and adoption

of recommendations and resolutions

regarding documents of external regulators.

Banks Risk Committee

As of December 31, 2016 the members of

Risk Committee were as follows:

• Bozislava Javornik, Chairman

• Jure Peljhan, member

• Ardiana Bunjaku, member

Risk Management Committee has been

established based on the law for banks

and operates based on the internal Rules

of Procedure for the Risk Management

Committee.

Risk management committee is the extended

arm of the supervisory board with a

specialized focus on the area of risk

management. The committee is employed

by three non -executive directors.

Risk management committee meets on

quarterly basis in order to monitor the risk

exposure and risk management of the bank.


As such the committee supervises the area

of credit risk, market risk and operational

risk, with the aim of efficient and effective

implementation of risk management appetite

and risk strategy of NLB Banka.

Composition of Management Board

NLB Banka Management Board governs,

represents and acts on behalf of the Bank,

independently and on its own responsibility,

as provided for by the Statute of Bank. The

president and members are appointed for a

term of four years, and may be

reappointed or recalled before their term

expires in accordance with law and Bank’s

Statute.

The Management Board of NLB Banka

consists of three persons Albert Lumezi as

President of the Management Board,

Bogdan Podlesnik as member of

Management Board and Lavdim Koshutova

as Member of Management Board.

In order to ensure the proper function of

the Bank’s business and monitor the regular

activities of the Bank, the following

operational Committees also operate within

the Bank:

• ALCO Committee (Within ALCO

Committee is established a

sub-committee called Pricing

Committee).

• Loan Committee

• Credit Risk management Committee

• Security Committee

• Operational Risk management

Committee

• IT Committee

• Personnel Committee

• Procurement Committee

• Marketing Committee.


10.2. Internal AuditInternal Audit of the NLB Banka is carried

out by Internal Audit Sector. Internal Audit

Sector is independent function in the bank

that functionally reports directly to Audit

Committee of the Board of Directors of the

Bank, whereas administratively reports to a

member of Management Board of the Bank.

The main objective of the Internal Audit

Sector is to provide assurance and advice with

the aim of adding value and improving

operations in the Bank. This is achieved by

using a systematic and professional approach

to assess and improve the risk management,

system of internal control, governance and the

efficiency of operations of the bank. Internal

audit gives a significant contribution for the

bank to meet its strategic and business

objectives and applying best banking practices.

The Internal Audit’s work methodology, its

competencies and responsibilities are defined

in Charter for Internal Audit in NLB Banka

Prishtina and Internal Auditing

Methodology, which are prepared in

accordance with standards of Internal Audit

Center NLB d.d, international best practices

and local audit related laws and regulations of

Kosovo.

Internal Audit functions and complies with

International Standards for the Professional

Practice of Internal Auditing, Code of Ethics

of internal auditing and Kosovo rules and

regulations

Internal Audit Sector consists of four

employees that is adequate number of

resources at the moment. The Internal Audit

Plan 2016 was approved by the Audit

Committee of the Bank.

The audit plan for 2016 comprised of 16 audit

engagements, which was accomplished from

Internal Audit Sector on time. More

specifically, based on audit plan during 2016

were performed eleven (11) regular audit

reports covering key areas of bank`s

operations, five (5) un-announced

branch/sub-branch audits and 1 extraordinary

audit based on request from the Centre of

Internal Audit NLB d.d Lubljana. The total

number of given recommendation from

internal audit during 2016 was 125, out of

these 89 (or 71.2%) were closed/implemented,

34 (or 27.2%) are open recommendation/not

due yet and 2 (or 1.6%) recommendations are

still pending/not implemented on due date.

The findings and recommendations in the

audit reports are presented first to directors

of the organizational units subject to the audit

and Management Board. After, the internal

audit reports with the latter mentioned findings

and given recommendations are approved by

the Audit Committee of the Bank, which is

held on quarterly basis.

Additionally, Internal Audit regularly monitors

the implementation of recommendations

issued by the External Auditor, CBK and

Internal Audit Sector. The status of opened

recommendations has been reported on

quarterly basis to the Audit Committee of the

Board of Directors, the Center of Internal

Audit of NLB d.d. and Management Board of

the Bank.

Apart from status of opened recommendation,

Internal Audit reports to Center of Internal

Audit of NLB d.d also regarding important

findings and recommendations of the audit

engagements and all findings and

recommendations of the audit engagements

performed in group level. Finally, Internal

Audit also provides internal audit reports to

External auditors and external parties (police,

insurance companies, and the regulator) upon

their request.


10.3. Compliance and PMLFT 1Sector

1. PMLFT - Prevention of Money Laundry and Financing Terrorism

Compliance and PMLFT sector during 2016 continued to implement requirements in accordance to minimum standards of compliance and integrity of the NLB Group, by transmitting the most important issues related to code of ethics, misconduct, corruption, conflict of interest etc., to all employees, especially through organizing workshops and trainings.

Below are the most important activities within

the Compliance Sector:

- Supporting other business units by giving

opinions, advises and proposals in solving

different banking issues.

- Monitoring changes in the legal

environment.

- Trainings - education of employees in

focused topics related to code of ethics,

conflict of interest, corruption, misconduct.

The main activities of PMLFT are:

- Implementation of thematic reviews in bank

units of the adequacy of implementation of

legislative requirements related to the

PMLFT,

- Regular information to the employees in the

area of Compliance and PMLFT (by email,

during trainings),

- Trainings - education of employees in

focused topics related to Anti Money

Laundry.

- Regular monitoring and control of

compliance of operations with the PMLTF

Act, monitor’s guidelines, statutory

instruments and internal regulations,

- Upgrade of SironAML – Transaction

Monitoring System

- Monitoring and reporting of unusual/

suspicious transactions. Analysis of data,

information and documentation related to

the treatment of suspicious customer

operations

- Monitoring of guidelines related to the

international sanctions lists, Political

Exposed Persons, and other high-risk clients;

- The implementation of the

recommendations given by Central Bank of

Kosovo (CBK), Internal Audit.


11. Financial Statements and Auditors` Report

NLB BANKA SH.A.

Financial Statements prepared in accordance with

International Financial Reporting Standards

For the year ended December 31, 2016

CONTENTS PAGE

STATEMENT OF MANAGEMENT’S RESPONSIBILITY 3

INDEPENDENT AUDITOR’S REPORT 4

STATEMENT OF FINANCIAL POSITION 6

STATEMENT OF COMPREHENSIVE INCOME 7

STATEMENT OF CHANGES IN EQUITY 8

STATEMENT OF CASH FLOWS 9

NOTES TO THE FINANCIAL STATEMENTS 10 - 80

NLB BANKA SH.A.

STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, 2016

(All amounts expressed in EUR thousand, unless otherwise stated)

7

Note

Year ended

December 31,

2016

Year ended

December 31,

2015

Interest and similar income 18 27,065 27,221

Interest and similar expense 19 (3,520) (4,485)

Net interest income 23,545 22,736

Fee and commission income 20 5,750 4,896

Fee and commission expense 21 (1,059) (1,030)

Net fee and commission income 4,691 3,866

Impairment losses on loans to customers 6 (3,079) (4,876)

Net Operating Income 25,157 21,726

Other operating income 22 543 616

Other operating expenses 22 (1,021) (871)

Other provisions 7 (1,009) (1,406)

Staff costs 23 (5,791) (5,893)

Depreciation and amortisation 10,11 (1,049) (1,165)

Administrative and other operating expenses 24 (4,277) (3,723)

Profit before tax 12,553 9,284

Income tax expense 25 (1,289) (1,042)

Net profit for the year 11,264 8,242

Other comprehensive income / (loss):

Items that are reclassified in profit and loss in

subsequent periods

Net gain/(loss) on change of fair value of AFS

securities 26 88

28

Total comprehensive income for the year 11,352 8,270

Basic and diluted earnings per share (in EUR per

share) 27 263.8 193.1

The accompanying notes from page 10 to 80 form an integral part of these financial statements.

NLB BANKA SH.A.

STATEMENT OF CHANGES IN EQUITY For the year ended December 31, 2016


8

Share

capital

Revaluation

reserve for

AFS securities

Retained

earnings Total

Balance as at January 1, 2015 20,498 - 30,956 51,454

Capitalization of retained earnings 30,789 - (30,789) -

Net profit for the year - - 8,242 8,242

Other comprehensive income (Note

26) - 28 - 28

Total comprehensive income loss

for the year

-

28

8,242

8,270

Balance as at December 31, 2015

51,287

28

8,409

59,724

Dividend paid - -

(8,232) (8,232)

Net profit for the year - - 11,264 11,264

Other comprehensive income (Note

26) -

88 - 88

Total comprehensive income loss

for the year - 88 11,264 11,352

Balance as at December 31, 2016

51,287

116

11,441

62,844


NLB BANKA SH.A.

STATEMENT OF CASH FLOWS For the year ended December 31, 2016


9

Notes

Year ended

December 31,

2016

Year ended

December 31,

2015

Cash flows from operating activities

Profit for the year before taxation 12,553 9,284

Depreciation 10 861 945

Amortization 11 188 220

Impairment losses on loans to customers 6 3,079 (4,876)

Write off of property and equipment 21 23

Other impairment losses and provisions 15 1,009 1,406

Interest income 18 (27,065) (27,221)

Interest expense 19 3,520 4,485

(5,834) (15,734)

Decrease in mandatory reserve with CBK 4.1 (1,103) 1,041

Decrease in loans and advances to banks 5 13,177 16,616

Increase in loans and advances to customers 6 (44,120) (32,020)

(Increase) / decrease in other assets (85) 397

Increase in due to banks 1,119 (794)

(Decrease)/increase in due to customers 41,851 (4,404)

Decrease in other financial liabilities 4,394 (492)

Increase/(Decrease) in other liabilities 782 1,127

10,181 (34,263)

Interest received 26,992 27,265

Interest paid (3,482) (5,945)

Income tax paid 25 (1,302) (810)

Cash inflows from operating activities 32,389 (13,753)

Cash flows from investing activities

Purchases of property and equipment 10 (687) (341)

Purchases of intangible assets 11 (271) (232)

Purchases of financial assets available for sale 8 (64,265) (92,331)

Matured/Sale of financial assets available for sale 8 66,245 73,641

Net cash from investing activities 1,022 (19,263)

Cash flows used in financing activities

Repayments of borrowings 16 (89) (2,547)

Payment of dividend (8,232) -

Cash inflows from financing activities (8,321) (2,547)

Increase in cash and cash equivalents 25,090 (35,563)

Cash and cash equivalents at January 1 4.1 59,688 95,251

Cash and cash equivalents at December 31 4.1 84,778 59,688


NLB BANKA SH.A.

NOTES TO THE IFRS FINANCIAL STATEMENTS For the year ended December 31, 2016


10

1. GENERAL

NLB Banka sh.a.is a commercial bank (the “Bank”) registered with the Kosovo Registry under

Certificate of Registration no. 70053484 dated December 18, 2007. The Bank was established by the

merger of two banks, NLB Kasabank and NLB New Bank of Kosova (during 2007 both banks were in

control of Nova Ljubljanska Banka d.d.) and it obtained the license for banking activities on December

19, 2007 from Central Bank of Kosovo (“CBK”).

The Bank is controlled by Nova Ljubljanska Banka d.d. Ljubljana incorporated in Slovenia (Parent),

which owns 81.21% of the ordinary shares as at December 31, 2016 (2015: 81.21% ordinary shares).

The solo shareholder of Nova Ljubljanska Banka d.d. Ljubljana is the Republic of Slovenia owning 100

% of shares as of December 31, 2015.

The Bank’s registered head office is located at Street. Ukshin Hoti no 124., Prishtina, Kosovo. The Bank

operates as a commercial bank to all categories of customers, through its network of 9 branches in

Prishtina, Gjakova, Peja, Ferizaj, Mitrovica, Gjilan, Besiana, Prizren, 39 sub-branches.

The bank as of December 31, 2016 had 489 employees. (December 31, 2015: 492).

The financial statements of the Bank for the year ended December 31, 2016 were approved by the

Management Board on March 3, 2017.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Statement of compliance

The Bank prepares its financial statements according to International Financial Reporting Standards

(IFRS). The Bank’s financial statements for the year ended December 31, 2016 are prepared in

accordance with IFRS as issued by the IASB and its predecessor body. Additionally, the interpretations

issued by the International Financial Reporting Standards Interpretations Committee (IFRSIC) and its

predecessor body have been applied.

The Bank’s IFRS financial statements comprise the statement of financial position, statement of

comprehensive income, the statement of changes in equity, the statement of cash flows, significant

accounting policies and the notes to the financial statements. These financial statements cover the

individual entity as the Bank is not a parent.

2.2 Basis of preparation of financial statements

The financial statements have been prepared on a going concern basis, under the historical cost

convention as modified by the revaluation of available for sale financial assets and financial assets and

financial liabilities at fair value through profit or loss, if any. The principal accounting policies are set

out below.

2.2.1 Going concern

The Bank’s management has made an assessment of its ability to continue as a going concern and is

satisfied that it has the resources to continue in business for the foreseeable future. Furthermore,

management is not aware of any material uncertainties that may cast significant doubt upon the Bank’s

ability to continue as a going concern. Therefore, the financial statements continue to be prepared on

the going concern basis.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Basis of preparation of financial statements (continued)

2.2.2 Estimates and assumptions

The preparation of financial statements in accordance with IFRS requires the use of estimates and

assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent

assets and liabilities at the date of the financial statements, and the reported amounts of revenue and

expenses during the reporting period. Although these estimates are based on management’s best

knowledge of current events and activities, actual results may ultimately differ from those estimates.

Accounting estimates and underlying assumptions are reviewed on an ongoing basis. Significant

estimates are disclosed in more detail in Note 2.21.

2.3 Comparative amounts

Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or

disclosed with comparative amounts. Where applicable, comparative figures have been reclassified to

conform to changes in presentation in the current year.

The amount of EUR 363 thousand for the year ended 31 December 2015 related to fees for deposit

insurance, previously included in Note 21 fee and commission expenses has been reclassified into Note

22 as other expenses. Securities available for sale in Note 8 are disclosed as current and non-current, as

of 31 December 2015 amount EUR 9,767 thousand is reclassified as non-current. The amount of EUR

81,327 thousand in Note 31 I Loans and advances for the year ended 31 December 2015 is reclassified

form category past due and collectively impaired to not past due but assessed collectively for

impairment.

2.4 Functional Currency

In accordance with IAS 21 the Bank’s functional currency is EUR as it is the currency of the primary

economic environment in which the Bank operates and it reflects the economic substance of the

underlying events.

2.5 Interest income and expense

Interest income and expense are recognised in the profit and loss for all interest bearing instruments on

an accrual basis using the effective yield method.

2.6 Fee and commission

The fee and commission income and expenses arisen from providing, using of banking services are

recorded in the profit and loss as incurred, at the moment the services are provided, used.

Loan management fees for loans that are likely to be drawn down are deferred (together with related

direct costs) and recognised as an adjustment to the effective interest rate on the loan.

Fee and commission income and expenses also include fees from letters of guarantees and letters of

credit issued by the Bank in favour of the clients, fees arising from domestic and international bank

charges, and other services provided by the Bank.

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2.7 Financial instruments

i. Initial recognition

All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Bank

becomes a party to the contractual provisions of the instrument. This includes regular way trades:

purchases or sales of financial assets that require delivery of assets within the time frame generally

established by regulation or convention in the market place.

ii. Classification

Financial assets are classified in the following categories: financial assets available-for-sale and loans

and receivables. The classification of financial assets is determined at their initial recognition, depends

on the instrument’s characteristics and management’s intention.

Loans and receivables are non-derivative financial instruments with fixed or determinable payments that

are not quoted on active markets.

Available for sale financial assets are those intended to be held for an indefinite period of time, which

may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity

prices.

iii. Measurement

Financial assets are measured initially at its fair value plus transaction costs, if any. Loans and

receivables are initially recognized at fair value plus transaction costs, if any. After initial recognition

these are subsequently measured at amortized costs using the effective interest rate method. Amortized

cost is calculated using the effective interest rate method. Premiums and discounts, including initial

transaction costs, are included in the carrying amount of the related instrument and amortized based on

the effective interest rate of the instrument, when applicable.

The effective interest method is a method of calculating the amortised cost of a financial asset and of

allocating interest income over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts (including all fees on points paid or received that form an

integral part of the effective interest rate, transaction costs and other premiums or discounts) through

the expected life of the financial asset, or, where appropriate, a shorter period.

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or

financial liability is measured at initial recognition minus principal repayments, plus or minus the

cumulative amortization using the effective interest method of any difference between that initial

amount and the maturity amount, and minus any reduction (through the use of an allowance account)

for impairment or un-collectability.

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2.7 Financial instruments (continued)

iv. Specific instruments

Cash and cash equivalents

Cash equivalents are items which can be converted into cash at short notice (with less than three months

original maturity). Amounts which relate to funds that are of a restricted nature are excluded from cash

and cash equivalents. Cash equivalent are carried at amortized cost.

Mandatory liquidity reserves

In accordance with the CBK rules, the Bank should meet the minimum average liquidity requirement.

The liquidity requirement is calculated on a weekly basis as 10% of the deposit base, defined as the

average total deposit liabilities to the non-banking public in EUR and other currencies, over the business

days of the maintenance period. The assets with which the Bank may satisfy its liquidity requirement

are the EUR deposits with the CBK and 50% of the EUR equivalent of cash denominated in readily

convertible currencies. Deposits with the CBK must not be less than 5% of the applicable deposit base.

As the respective liquid assets are not available to finance the Bank’s day to day operations, they have

been excluded from cash and cash equivalents for the purposes of the cash flow statement.

Financial assets available for sale

At initial recognition, available-for-sale financial assets are recorded at fair value plus transaction costs,

if any. Subsequently they are carried at fair value. The fair values reported are either observable market

prices or values calculated with a valuation technique based on current observable market. Gains and

losses arising from changes in fair value of available-for-sale financial assets are recognized through

other comprehensive income in the position “revaluation reserve from available-for-sale financial

instruments”, until the financial asset is derecognized or impaired. At this time, the cumulative gain or

loss previously recognized in other comprehensive income is transferred to profit or loss through

reclassification. Interest calculated using the effective interest rate method and foreign currency gains

and losses on monetary assets classified as available-for-sale are recognized in the profit or loss.

Loans and advances

Loans and advances to customers are classified as loans and receivables. Loans and receivables are

measured at amortized cost. The amortized cost of a financial asset or financial liability is the amount

at which the financial asset or financial liability is measured at initial recognition minus principal

repayments, plus or minus the cumulative amortization using the effective interest method of any

difference between that initial amount and the maturity amount, and minus any reduction (through the

use of an allowance account) for impairment or un-collectability. Loans and advances are reported net

of allowances for loans impairment to reflect the estimated recoverable amounts.

v. Derecognition

Financial assets are derecognized when the contractual rights to the cash flows from the financial assets

expire or financial assets are transferred and transfer qualifies for derecognition. The transaction is

treated as a transfer of a financial asset, where substantially all risks and rewards of ownership are

transferred. When the bank neither transfers nor retains substantially all the risks and rewards of

ownership of the financial asset, it shall determine whether it has retained control of the financial asset.

A financial liability is derecognized from statement of financial position when, and only when, it is

extinguished. When the obligation specified in the contract is discharged or cancelled or expires, i.e.

when the obligation specified in the contract is discharged, cancelled or expires.

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vi. Impairment of financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that

a financial asset or group of financial assets may be impaired. If such evidence exists, the estimated

recoverable amount and any impairment loss of that asset is determined, based on the net present value

of future anticipated cash flows, and is recognized for the difference between the recoverable amount

and the carrying amount as follows:

Loans and advances to customers are reported at amortized cost net of provision (allowances) to reflect

the estimated recoverable amounts.

A credit risk provision for loan impairment is established if there is objective evidence that the Bank

will not be able to collect the amounts due according to original contractual terms. The amount of the

provision is the difference between the carrying amount and estimated recoverable amount, calculated

as the present value of expected cash flows including amounts recoverable from guarantees and

collateral, discounted at the instrument’s original effective interest rate.

The allowances are made against the carrying amount of loans and advances that are identified as being

impaired based on regular reviews of outstanding balances to reduce these loans and advances to their

recoverable amounts. The allowance for loan impairment also covers losses where there is objective

evidence that probable losses are present in components of the loan portfolio at the balance sheet date.

These have been estimated based upon historical patterns of losses in each component and the credit

ratings assigned to the borrowers reflect the current economic environment in which the borrowers

operate.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets

that are individually significant, and individually or collectively for financial assets that are not

individually significant. If the Bank determines that no objective evidence of impairment exists for an

individually assessed financial asset, whether significant or not, it includes the asset in a group of

financial assets with similar credit risk characteristics and collectively assesses them for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is or continues

to be recognized are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present

value of estimated future cash flows (excluding future credit losses that have not been incurred)

discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is

reduced through the use of an allowance account and the amount of the loss is recognized in the profit

or loss. The calculation of the present value of the estimated future cash flows of a collateralized

financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling

the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of

similar credit risk characteristics (i.e., on the basis of the Bank’s grading process that considers asset

type, industry, geographical location, collateral type, past-due status and other relevant factors). Those

characteristics are relevant to the estimation of future cash flows for groups of such assets by being

indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets

being evaluated. All exposures towards Banks, Central Banks and Countries outside the zone A2 with

exposure greater than Euro 50 thousand, while for legal entities and retail customers categories D, DF

and E exposures greater than Euro 50 thousand are assessed individually while loans below this

threshold level are considered insignificant and assessed on a group basis for loans showing indications

of loss events.

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vi. Impairment of financial assets (continued)

Financial assets available for sale - the Bank assesses at each balance sheet date whether there is

objective evidence that financial assets available for sale are impaired. In case of equity investments

classified as available for sale, significant or prolonged decline in the fair value of the security below its

cost is considered an objective evidence of impairment. If any such evidence exists, the cumulative loss

is removed from other comprehensive income and recognised in the profit and loss. Impairment losses

recognised in the profit and loss on equity instruments are not reversed through the profit and loss;

subsequent increases in fair value after impairment are recognized in other comprehensive income.

If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases

and the increase can be objectively related to an event occurring after the impairment loss was

recognised in the profit and loss, the impairment loss is reversed through the profit and loss.

The following factors are considered in determining impairment losses on debt instruments:

- Default or delinquency in interest or principal payments;

- Liquidity difficulties of the issuer;

- Breach of contract covenants or conditions;

- Bankruptcy of the issuer;

- Deterioration of economic and market conditions; and

- Deterioration in the credit rating of the issuer below the acceptable level.

Impairment losses recognized in the profit and loss are measured as the difference between the carrying

amount of the financial asset and its current fair value. The current fair value of the instrument is its

market price or discounted future cash flows, when the market price is not obtainable.

2.8 Foreign currencies

Transactions denominated in currencies other than Euro are translated in the functional currency at the

exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting

from the settlement of such transactions and from the translation of monetary assets and liabilities

denominated in foreign currencies are recognized in the profit and loss (as foreign exchange translation

gains and losses).

Non-monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

2.9 Property and equipment

Property and equipment are accounted for under the cost model of IAS 16. They are stated at cost less

accumulated depreciation and accumulated impairment loss, where required. Each year, the Bank

assesses whether there are indications that assets may be impaired. If any such indication exists, the

recoverable amounts are estimated. The estimated recoverable amount is the higher of an asset’s fair

value less costs to sell and its value-in-use. When the carrying amount of an asset is greater than its

estimated recoverable amount, it is written down to its recoverable amount and the difference is charged

to the profit and loss.

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2.9 Property and equipment (continued)

Gains and losses on disposal of property and equipment are determined by reference to their carrying

amount and are taken into account in determining the operating result for the period. Repairs and

maintenance are charged to the profit or loss when the expenditures are incurred.

Depreciation is charged using the straight line method, over the estimated useful lives of each part of an

item of property and equipment. For additions depreciation is charged subsequent to the month of

purchase while for disposals up to the month of disposal. Depreciation does not begin until the assets

are available for use.

The annual depreciation rates used for each category of property and equipment are as follows:

Category of assets Depreciation rates used

Buildings 3%

Leasehold improvements Lower of the lease term or 20%

Furniture, fixtures and equipment 20%

Computers and related equipment 20%

Motor vehicles 20%

2.10 Intangible assets

The Bank’s intangible assets consist of computer software. Intangible assets acquired by the Bank are

recognised only when its cost can be measured reliably and it is probable that the expected future

economic benefits will flow to the Bank. Intangible assets are accounted for under the cost model of

IAS 38 and are stated at cost less accumulated amortisation and impairment losses, when required.

Amortisation is provided on a straight-line basis at an annual rate of 20%.

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future

economic benefits embodied in the specific assets to which it relates. All other expenditure is expensed

as incurred. Amortization does not begin until the assets are available for use.

2.11 Seized assets

Seized assets represent financial and non-financial assets acquired by the Bank in settlement of overdue

loans. The assets are initially recognised at fair value when acquired and included in premises and

equipment, other financial assets or inventories within other assets depending on their nature and the

Bank's intention in respect of recovery of these assets, and are subsequently re-measured and accounted

for in accordance with the accounting policies for these categories of assets.

2.12 Impairment of non-financial assets

An impairment loss is recognised whenever the carrying value of an asset exceeds its recoverable

amount. Recoverable amount of an asset is the higher of its fair value less costs to sell and value in use.

Value in use of an asset is the present value of estimated future cash flows expected from the continuing

use of an asset and from its disposal.

2.13 Due to banks

Due to banks are recorded when money or other assets are advanced to the bank by counterparty banks.

The non-derivative liability is carried at amortised cost.

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2.14 Due to customers

Due to customers are non-derivative liabilities to individuals, state or corporate customers and are

carried at amortized cost.

2.15 Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are

subsequently stated at amortized cost. Any interest or fee related to the borrowed funds is expensed

using the effective interest method and presented in the profit and loss for the period.

2.16 Share capital and revaluation reserves

Share capital represents the nominal value of issued shares. Revaluation reserve of available for sale

securities (AFS) represents the change in fair value of those securities. On maturity or sale of AFS

securities, the fair value reserve is transferred to profit and loss for the year.

2.17 Taxation

Current income tax is calculated based on the income tax regulations applicable in Kosovo, using tax

rates enacted at the balance sheet date. Effective from September 1, 2015, the tax rate on corporate

income is set at 10% in accordance with Kosovo tax regulations currently in force, Law no. 05/L-029

“On Corporate Income Tax”.

The income tax charge in the profit and loss for the year comprises current tax and changes in deferred

tax. Current tax is calculated on the basis of the expected taxable profit for the year using the tax rates

enforced or substantially enacted at the balance sheet date. Taxable profit differs from profit as reported

in the profit and loss because it excludes items of income or expense that are taxable or deductible in

other years and it further excludes items that are never taxable or deductible. Taxes other than income

taxes are recorded within operating expenses.

Deferred income tax is accounted for using the balance sheet liability method for temporary differences

arising between the tax base of assets and liabilities and their carrying amounts for financial reporting

purposes. Deferred tax assets are recognised to the extent that it is probable that future taxable profit

will be available against which the temporary differences can be utilised. Deferred tax assets are reduced

to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets

and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised

or the liability is settled based on tax rates that have been enacted or substantively enacted at the balance

sheet date. Deferred tax assets and liabilities are offset when there is legally enforceable right to set off

current tax assets against tax liabilities and when they relate to income taxes levied by the same taxation

authority.

In the ordinary course of its business, the Bank has entered into off-balance sheet commitments such as

guarantees, commitments to extend credit and letters of credit and transactions with financial

instruments. The provision for losses on commitments and contingent liabilities is maintained at a level

adequate to absorb probable future losses. Management determines the adequacy of the provision based

upon reviews of individual items, recent loss experience, current economic conditions, the risk

characteristics of the various categories of transactions and other pertinent factors.

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2.18 Off-balance sheet commitments and contingencies (continued)

Financial guarantee contracts are contracts that require the issuer to make specified payments to

reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in

accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial

institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking

facilities.

Financial guarantees at the date of issue are recognised at fair value which is equal to the amount of the

fee received. The fee is amortized to the profit and loss during the contract period using the straight line

method. The Bank’s liabilities under guarantees are subsequently measured at the greater of the initial

measurement, less amortization calculated to recognize fee income over the period of guarantee or the

best estimate of the expenditure required settling the obligation.

Guarantee for completion - are contracts that require the issuer to make specified payments to

reimburse the holder for a loss it incurs because a specified debtor fails to complete the work when due,

in accordance with the terms of contract.

Guarantees at the date of issue are recognised at fair value which is equal to the amount of the fee

received. The fee is amortized to the profit and loss during the contract period using the straight-line

method. The Bank’s liabilities under guarantees are subsequently measured at the greater of:

• The initial measurement, less amortization calculated to recognize fee income over the period of

guarantee; or

• The best estimate of the expenditure required to settle the obligation

2.19 Provisions

Provisions are recorded when the Bank has a present legal or constructive obligation as a result of past

events and it is probable that an outflow of resources embodying economic benefits will be required to

settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are

measured at the management’s best estimate of the expenditure required to settle the obligation at the

balance sheet date and are discounted to present value where the effect is material.

2.20 Employee benefits

The Bank pays contributions to the publicly administered pension plan (KPST) on a mandatory basis.

The Bank has no further payment obligations once the contributions have been paid. The contributions

are recognized as employee benefit expense when they are due.

2.21 Operating leases

Payments made under operating leases are charged to expenses on a straight-line basis over the term of

the lease. When an operating lease is terminated before the lease period has expired, any payment

required to be made to the lessor by way of penalty is recognized as an expense in the period in which

termination takes place.

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2.22 Critical judgements in applying the accounting policies and key sources of estimation

uncertainty

In the application of the Bank’s accounting policies, which are described in note 2, the management is

required to make judgments, estimates and assumptions about the carrying amounts of assets and

liabilities that are not readily apparent from other sources. The estimates and associated assumptions are

based on historical experience and other factors that are considered to be relevant. Actual results may

differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognized in the period in which the estimate is revised if the

revision affects only that period or in the period of the revision and future periods if the revision affects

both current and future periods.

a) Impairment of loans and advances to customers

In determining, whether the loans to customers are impaired on individual basis requires the estimation

of the present value of expected cash flows from loans to customers including amounts recoverable from

guarantees and collateral. The management of the Bank is using judgment in estimating expected cash

flow from the loans portfolio. Key assumptions used in the evaluation of client’s credit worthiness is

based on the financial positions, profitability, market share, and the value of collateral, as two main

sources of expected cash flows. Similarly circumstances prevailing in the region of the client are taken

in to consideration, such as the court efficiency.

Loans and advances that have been assessed individually and found not to be impaired are also assessed

together with all individually insignificant loans and advances in groups of assets with similar risk

characteristics. The collective assessment takes account of historical data and uses probabilities of

default to ensure that appropriate levels of provisions are maintained.

b) Effective interest rate

As disclosed in Note 2.4 Interest income and expense are recognised in the profit and loss for all interest

bearing instruments on an accrual basis using the effective interest rate method. The effective interest

rate is the rate that exactly discounts estimated future cash payments or receipts through the expected

life of the financial instrument. The effective interest rate differs from the contractual rate as a result of

fees and commission that the Bank may charge, however, the Bank does not have any financial

instruments where additional fees and commissions represent significant cash flows in comparison to

the contractual rate. The most significant cash flows arise from lending fees that are applied on issuance

of the loan. Due to information system constrains, the Bank does not use the effective interest rate to

recognise overall interest income from loans, but defers lending fees separately over the life of each loan

using a method that approximates the effective interest rate and management estimates that no material

differences would arise.

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2.22 Critical judgements in applying the accounting policies and key sources of estimation

uncertainty (continued)

c) Taxation

Current tax expense

The Bank is subject to taxation laws in the Republic of Kosovo. Management uses its best estimate and

judgment to fully comply with the relevant tax laws. Owing to use of judgment in complying with certain

requirements of tax laws and depending on the tax authorities’ assessment, tax liabilities may differ

compared to the one reported in these financial statements, however Management is confident that no

material differences can arise.

Deferred tax assets

Deferred tax assets are recognised in respect of temporary differences to the extent that it is probable

that future taxable profit will be available against which the losses can be utilised. Judgement is required

to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and

level of future taxable profits, together with future tax-planning strategies. Tax losses can be used for a

period of 7 years in Kosovo.

d) Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial

position cannot be derived from active markets, they are determined using a variety of valuation

techniques that include the use of mathematical models. The Bank available for sale financial assets are

the only assets measured at fair value and they are not significant to overall financial assets. For

disclosure purpose of the fair value of other financial assets and liabilities, valuation models are used

based on observable market data where possible, but if this is not available, judgement is required to

establish fair values. The disclosure of fair value of financial instruments and the methods used are

described in more detail in Note 30 (n).

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3. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS

3.1. Standards and interpretations issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the

Bank financial statements are disclosed below. The Bank intends to adopt these standards, if applicable,

when they become effective.

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39

Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9

brings together all three aspects of the accounting for financial instruments project: classification and

measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or

after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective

application is required but providing comparative information is not compulsory. For hedge accounting,

the requirements are generally applied prospectively, with some limited exceptions.

The Bank plans to adopt the new standard on the required effective date. The Bank is in the process of

performing a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment

is based on currently available information and may be subject to changes arising from further detailed

analyses or additional reasonable and supportable information being made available to the Bank in the

future.

(a) Classification and measurement

The Bank does not expect a significant impact on its balance sheet or equity on applying the

classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value

all financial assets currently held at fair value.

Loans and receivables are held to collect contractual cash flows and are expected to give rise to cash

flows representing solely payments of principal and interest, except for default loans that the bank will

derive its cash flows from execution of collaterals. Thus, the Bank expects that these will continue to be

measured at amortised cost under IFRS 9. However, the Bank will analyse the contractual cash flow

characteristics of those instruments in more detail before concluding whether all those instruments meet

the criteria for amortised cost measurement under IFRS 9.

(b) Impairment

FRS 9 requires the Bank to record expected credit losses on all of its debt securities, loans and

trade receivables, either on a 12-month or lifetime basis. The Bank will need to perform a more

detailed analysis which considers all reasonable and supportable information, including

forward-looking elements to determine the extent of the impact, to assess the full impact of the

new standard.

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(CONTINUED)

3.1. Standards and interpretations issued but not yet effective (continued)

(c) Hedge accounting

The Bank believes that all existing hedge relationships that are currently designated in effective hedging

relationships will still qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general

principles of how an entity accounts for effective hedges, the Bank does not expect a significant impact

as a result of applying IFRS 9.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from

contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the

consideration to which an entity expects to be entitled in exchange for transferring goods or services to

a customer.

The new revenue standard will supersede all current revenue recognition requirements under IFRS.

Either a full retrospective application or a modified retrospective application is required for annual

periods beginning on or after 1 January 2018, when the IASB finalises their amendments to defer the

effective date of IFRS 15 by one year. Early adoption is permitted. The Bank is assessing the potential

impact on its financial statements resulting from IFRS 15.

IAS 7 Disclosure Initiative – Amendments to IAS 7

The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and

require an entity to provide disclosures that enable users of financial statements to evaluate changes in

liabilities arising from financing activities, including both changes arising from cash flows and non-cash

changes. On initial application of the amendment, entities are not required to provide comparative

information for preceding periods. These amendments are effective for annual periods beginning on or

after 1 January 2017, with early application permitted.

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an

Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the

Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the

recognition, measurement, presentation and disclosure of leases and requires lessees to account for all

leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.

The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g.,

personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the

commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease

liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the

right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease

liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g.,

a change in the lease term, a change in future lease payments resulting from a change in an index or rate

used to determine those payments). The lessee will generally recognise the amount of the remeasurement

of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17..

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is

permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using

either a full retrospective or a modified retrospective approach. The standard’s transition provisions

permit certain reliefs. In 2017, the Bank plans to assess the potential effect of IFRS 16 on its financial

statements.

NLB BANKA SH.A.



23


(CONTINUED)

3.2 Standards and interpretations new or revised

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and

Amortisation

The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic

benefits that are generated from operating a business (of which the asset is part) rather than the economic

benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used

to depreciate property, plant and equipment and may only be used in very limited circumstances to

amortise intangible assets. The amendments are effective prospectively for annual periods beginning on

or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any

impact to the Bank given that the Bank has not used a revenue-based method to depreciate its non-

current assets.

Annual Improvements 2012-2014 Cycle

These improvements are effective for annual periods beginning on or after 1 January 2016. They include:

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The

amendment clarifies that changing from one of these disposal methods to the other would not be

considered a new plan of disposal, rather it is a continuation of the original plan.

IFRS 7 Financial Instruments: Disclosures

(i) Servicing contracts

The amendment clarifies that a servicing contract that includes a fee can constitute continuing

involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against

the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are

required. The assessment of which servicing contracts constitute continuing involvement must be done

retrospectively. However, the required disclosures would not need to be provided for any period

beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements

The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim

financial statements, unless such disclosures provide a significant update to the information reported in

the most recent annual report. The bank does not prepare condensed interim statements.

IAS 19 Employee Benefits

The amendment clarifies that market depth of high quality corporate bonds is assessed based on the

currency in which the obligation is denominated, rather than the country where the obligation is located.

When there is no deep market for high quality corporate bonds in that currency, government bond rates

must be used.

Other standards that have been recently issued or revised but are not applicable to the Bank include:

IAS 34 Interim Financial Reporting

IFRS 14 Regulatory Deferral Accounts

Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests

Amendments to IAS 27: Equity Method in Separate Financial Statements

NLB BANKA SH.A.



24

4. CASH AND BALANCES WITH THE CENTRAL BANK

December 31,

2016

December 31,

2015

Cash on hand 19,674 11,385

Cash at banks–current accounts with correspondent banks 28,813 11,945

Amounts held at the CBK

Current account 7,669 7,210

Statutory reserve account 34,204 31,999

Cash and balances with the Central Bank 90,360 62,539

During 2016 most of the correspondent banks applied negative interest rates over a certain threshold.

The rates varied between from -0.40% to 0.60% for EUR Currency and 0.25% to 1.0% for other

currencies. There are still few correspondent banks paying close to zero positive interest rates on the

Nostro accounts.

During the third quarter of 2016 the Kosovo Central Bank implemented the earlier announced ECB

deposit interest rate measures i.e. introduction of negative interest rates on the commercial banks

balances with the Central Bank over the liquidity reserve amount. The negative interest rate of 0.4% p.a.

was implemented as from 1st of August 2016.

Balance and obligatory reserve with Central Bank of Kosovo (“CBK”) represents the mandatory reserve

under the CBK regulations as discussed in note 2.6 (iv). The statutory reserve is not available for day-

to-day use by the bank. The restricted liquidity reserves balance with CBK is excluded from cash and

cash equivalents for the purpose of cash flow statement. The Central Bank of Kosovo does not possess

external credit rating.

4.1 CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the statement of cash flows comprise of:

December 31,

2016

December 31,

2015

Cash and balances with the Central Bank 90,360

62,539

Less: Liquidity reserve (17,102) (16,000)

Deposits with maturity with less than 3 months (note 5) 11,520 13,149

Cash and cash equivalents 84,778

59,688

NLB BANKA SH.A.



25

5. LOANS AND ADVANCES TO BANKS

December 31,

2016

December 31,

2015

Term deposits 17,537 32,344

Accrued interest 18 12

Total loans and advances to banks 17,555 32,356

Current 17,555 32,356

As at December 31, 2016 included in the total term deposits are EUR 6,570 thousand which are pledged

funds for Trade Finance activities (included in this amount are EUR 5,335 thousand as blocked), (2015:

EUR 7,823 thousand pledged funds, included in this amount are EUR 102 thousand as blocked).

In order to avoid the increased excess liquidity fee costs and negative interest rates on the Money Market

deals, NLB Banka decreased the money market placements portfolio and kept the funds at the Nostro

accounts.

NLB BANKA SH.A.



26

6. LOANS AND ADVANCES TO CUSTOMERS

Analysis by class of advance

December 31,

2016

December 31,

2015

Loans to customers 283,138 257,936

Overdrafts 71,843 53,858

Credit cards 2,610 1,677

Called guarantees - -

357,591 313,471

Provision for impairment on loans to customers (27,982) (24,132)

Total loans to customers 329,609 289,339

Current 140,068 122,930

Non-current 189,541 166,409

Loans and advances to customers include accrued interest income in the amount of EUR 1,515 thousand

(December 31, 2015: EUR 998 thousand). Loans and advances to customers include deferred

disbursement fee from loans to customers in the amount of EUR 1,047 thousand (2015: EUR 1,151

thousand). Overdraft facilities represent short term revolving facility and consumer loans.

The Current – Non Current classification is made based on contractual basis.

Analysis by sector is as follows:

December 31,

2016

December 31,

2015

Loans to Corporate 205,586 185,243

Loans to Retail 124,023 104,096

329,609 289,339

The movement in the provision for impairment on loans to customers is as follows:

December 31,

2016

December 31,

2015

Provision for loan impairment at January 1, 24,132 29,086

Charge during the year 15,370 14,107

Recoveries (11,540) (9,010)

Written off loans - (10,051)

Provision for loan impairment at December 31, 27,982 24,132

NLB BANKA SH.A.



27

6. LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

Impairment charge to profit and loss is detailed below:

December 31,

2016

December 31,

2015

Impairment charge for the year 3,850 5,097

Recovery of fully provided loans (772) (221)

Charge to profit and loss 3,079 4,876

Analysis of provision charge on sectors and industry:

December 31,

2016

December 31,

2015

Provision charged to individuals: Housing loans 270 153

Consumer loans 158 (1)

Other loans to individuals 43 159

471 311

Provision charged to corporate entities: Loans to small and medium entities 17,923 (183)

Loans to large entities (14,544) 4,969 3,379 4,786 Total 3,850 5,097

An industry analysis of the gross portfolio of loans to corporate customers before provisions is as

follows:

December 31,

2016

December 31,

2015

Trade and commerce 26% 36%

Services & Production 24% 24%

Construction 6% 6%

Other 44% 34%

100% 100%

As at December 31, 2016, the ten major borrowers accounted for 13.48% (2015: 16.4%) of the total loan

portfolio.

NLB BANKA SH.A.



28

7. OTHER PROVISIONS

Other provisions are included in Other Liabilities in Note 15. Provision charge to profit and loss for the

year is detailed below.

December 31,

2016

December 31,

2015

Provisions for legal cases, guarantees, commitments and

other 1,009 1,406

Charge to profit and loss 1,009 1,406

8. FINANCIAL ASSETS AVAILABLE FOR SALE

Analysis by class financial assets available for sale

December 31,

2016

December 31,

2015

Treasury bills issued by Government of Kosovo 65,641 67,763

AFS Investment in shares 303 161

Total financial assets available for sale 65,944 67,924

Current 49,389 58,157

Non-current 16,555 9,767

The Kosovo government treasury discount bills with maturities ranging from three to twelve months

have yields ranging from 0.11% – 1.03 %. The Kosovo government bonds with maturities ranging from

2 years to 3 years have yields ranging from 0.48 % - 3.15%. All financial assets available for sale are

with fixed interest yield.

Despite the decreasing trend of the yields on the securities during 2016, due to high liquidity in the

banking sector, the bid-to-cover ratio in all the Auctions during the year ranged over 2.

As of 31 December 2016 there are no pledged debt securities to third parties.

Available for sale financial assets include accrued interest in the amount of EUR 88 thousand (2015:

EUR 40 thousand), and a remaining discount of EUR 77 thousand (2015: 289 thousand).

AFS investment in shares represents shares in VISA Inc, Class C Common stock, quoted in active

market. These equity instruments were granted by VISA inc to all of its members at no considerations.

The fair value of the instruments on grant date was recognised by the Bank in the current year income.

9. OTHER ASSETS

December 31,

2016

December 31,

2015

Prepaid expenses 230 145

Seized collateral on irrecoverable loans 31 30

Inventories 35 27

Other financial assets 64 71

Total other assets 360 273

Current 360 273

Seized collateral on irrecoverable loans consists of real estate and equipment.

NLB BANKA SH.A.



29

10. PROPERTY AND EQUIPMENT

Buildings

Leasehold

improvements

Furniture, fixtures

and equipment

Computers and

related equipment

Motor

vehicles Total

Cost:

As at January 1, 2015 11,121 988 3,823 1,729 457 18,118

Additions during the year 2 13 86 109 131 341

Write offs/disposals (31) (28) (77) (51) - (187)

As at December 31, 2015 11,092 973 3,832 1,787 588 18,272

Additions during the year 3 2 424 78 180 687

Write offs/disposals - (3) (74) (205)

(86) (368)

As at December 31, 2016 11,095 972 4,182 1,660 682 18,591

Accumulated depreciation:

As at January 1, 2015 482 703 3,097 1,282 394 5,958

Charge for the year 344 111 281 169 40 945

Write offs (11) (27) (76) (50) - (164)

As at December 31, 2015 815 787 3,302 1,401 434 6,739

Charge for the year 333 76 236 157 59 861

Write offs - (3) (77) (197) (70) (347)

As at December 31, 2016 1,148 860 3,461 1,361 423 7,253

Net book value:

As at December 31, 2015 10,277 186 530 386 154 11,533

As at December 31, 2016 9,947 112 721 299 259 11,338

NLB BANKA SH.A.



30

11. INTANGIBLE ASSETS

Software

Cost:

As at January 1, 2015 2,305

Additions 232

As at December 31, 2015 2,537

Additions 271


Accumulated amortization:

As at January 1, 2015 1,823

Charge for the year 220


Charge for the year 188


Net book value:

As at December 31, 2015 494

As at December 31, 2016 577

All intangible assets are acquired assets and are amortized during its useful life.

12. DUE TO BANKS

December 31,

2016

December 31,

2015

Current accounts 1,339 221

Total due to banks 1,339 221

Current 1,339 221

Due to banks represents deposits of local and foreign banks which have accounts in the Bank.

NLB BANKA SH.A.



31

13. DUE TO CUSTOMERS

December 31,

2016

December 31,

2015

Demand Deposits

Enterprises 80,792 71,676

Citizens 200,153 172,572

Governments 5,057 4,035

286,002 248,283

Term Deposits

Enterprises 5,038 19,649

Citizens 151,056 132,314

156,094 151,963

Total due to customers 442,096 400,246

Current 355,709 330,928

Non-Current 86,387 69,318

Due to customers include accrued interest in the amount of EUR 1,571 thousand (2015: EUR 1,533

thousand). The Current – Non Current distinction is made on contractual basis.

Analysis by class of business for term deposits and current accounts is as follows:

December 31, 2016 December 31, 2015

Sector % of total due to

customers

% of total due to

customers

Citizens 78% 76%

Enterprises, governments and other legal

entities 22% 24%

100% 100%

Amounts total due to

customers

Amounts of total due

to customers

Citizens 351,209 304,886

Enterprises, governments and other legal

entities 90,887 95,360

442,096 400,246

NLB BANKA SH.A.



32

14. OTHER FINANCIAL LIABILITIES

December 31,

2016

December 31,

2015

Pending clients transfers 4,676 922

Accrued expenses 454 440

Due to suppliers 87 37

Liabilities for bonuses 409 216

Liabilities on transfers remote on - us 78 172

Others 372 194

Total other financial liabilities 6,076 1,981

Current 6,076 1,981

Pending client’s transfers represents the payments collected on behalf of third parties through the

clearing system, which remained unpaid to the intended recipients at the year end. In this amount is

included amount of EUR 3,271 thousands (2015: EUR 593 thousands) payable to Customs Authorities,

which was transferred on January 04, 2017 to the customs authorities bank account. The remaining

balance represents amounts payable to other recipients.

NLB BANKA SH.A.



33

15. PROVISIONS AND OTHER LIABILITIES

December 31,

2016

December 31,

2015

Provisions for legal cases 2,080 2,169

Provisions for fines and penalties 24 29

Tax provision for write off loans 907 -

Provisions for guarantees 8 7

Other provisions 70 70

Total Provisions 3,089 2,275

Deferred income from guarantees 49 73

Withholding tax payable 41 55

Pension and tax payable on payroll 33 31

VAT and other tax payable 287 3

Total other liabilities 410 162

Total provisions and other liabilities 3,499 2,437

Current 3,499 2,437

The current year effect of provision for legal cases and other provisions is presented in Note 7 and Note

29. The movement of provisions is as follows:

December 31,

2016

December 31,

2015

Balance on January 1, 2,275 1,075 Provision charge for legal cases, guaranties and other (Note

7) 1,009 1,406

Provision charge for unused leave days (Note 23) - 11 Release of provisions (195) (217) Closing balance at 31 December 3,089 2,275

NLB BANKA SH.A.



34

16. BORROWINGS

December 31,

2016

December 31,

2015

Current portion

EFSE loan 1 - 45

Leasing for vehicles 17 -

Leasing for POS 36 -

Other - 38

Total current portion 53 83

Non-current portion

Leasing for vehicles 59 -

Leasing for POS 150 -

Total non-current portion 209 -

Total borrowings 262 83

Loan 1 from EFSE

The Bank inherited this loan from New Bank of Kosova, which was signed with Kreditanstaltfür

Wiederaufbau Frankfurt (KfW) under a Framework agreement dated April 26, 2006 for a total loan of

Euro 450 thousand for the purpose of obtaining loans from European Funds for Kosovo (“EFK”). The

loan carries interest at the rate of 3% plus 6 months EURIBOR and is repayable on bi-annual instalments

basis. The loan matures on September 30, 2016. KfW is managing the EFK which has been funded by

European Agency for Reconstruction (EAR) and the purpose of the fund is to refinance sub-loans to

borrowers in Kosovo for housing activities and small and medium enterprises (SME) and according to

the criteria established by EFK.

All loans from EFSE have remained current as the Bank has met timely all repayments.

The bank has signed three contracts for leasing vehicles, one dated August 7, 2014 and maturity June 7,

2018, and two agreements dated April 18, 2016 and maturity March 16, 2021. These entire leases have

fixed interest rates of 7%.

Lease for POS-as has been signed on August 7, 2016 for five years period, and in total 2000 POS-es

will be installed. As of December 31, 2016 a total of 911 POS-es were installed.

NLB BANKA SH.A.



35

17. SHARE CAPITAL

As at December 31, 2016, the share capital amounted to EUR 51,287 thousand (2015: EUR 51,287

thousand.

Authorised share capital

42,739 Ordinary shares at par value of EUR 1,200

each 51,287 51,287

Paid up share capital

42,739 Ordinary shares at par value of EUR 1,200

each 51,287 51,287

All shares have rights to dividends and carry equal voting rights. There are no restrictions attached to

the shares. The capital of the Bank has been increasing organically during the years through

capitalization of retained earnings.

During 2016 the bank paid dividend in the amount of EUR 8,242 thousand, EUR 193 per share.

A summary of share ownership of the Bank is as follows:

Percentage

ownership 31-Dec-16

Percentage

ownership 31-Dec-15

Shareholders

Nova Ljubljanska Banka

d.d 81.21 41,652 81.21 41,652

Agjencioni Turizmit "

MCM" 4.70 2,412 4.7 2,412

Mr.Hashim Deshishku 2.48 1,271 2.48 1,271

Mr.Rizah Deshishku 1.24 636 1.24 636

Mr. Bashkim Deshishku 1.24 636 1.24 636

Mr.Remzi Ejupi 1.16 596 1.16 596

Mr.Nerimane Ejupi 1.22 625 1.22 625

Mr.Naim Ejupi 1.21 622 1.21 622

Mr.Metush Deshishku 0.90 462 0.9 462

"Dardania" - 2" Sh.p.k. 0.63 323 0.63 323

Mr. Xhemajl Ismajli 0.60 310 0.6 310

NPTSh "Jehona" 0.60 308 0.6 308

Mr.BlerinaEjupi 0.51 259 0.51 259

ELEZ SYLAJ 0.44 223 0.44 223

KADRI SHALAKU 0.34 174 0.34 174

"Raf II" sh.p.k. 0.24 124 0.24 124

Others 1.28 654 1.28 654

100 51,287 100 51,287

NLB BANKA SH.A.



36

18. INTEREST AND SIMILAR INCOME

Analysis by class of assets:

Year ended

December 31,

2016

Year ended

December 31,

2015

Income from loans and advances to customers 26,272 26,145

Income from financial assets available for sale 751 1,018

Income on loans and advances to banks 42 58

Total interest income 27,065 27,221

In the income from loans and advances to customers is included interest income for impaired loans

amounting EUR 16 thousand (2015: EUR 26 thousand).

19. INTEREST AND SIMILAR EXPENSE

Analysis by class of liabilities

Year ended

December 31,

2016

Year ended

December 31,

2015

Interest to customers 3,506 4,379

Interest on borrowings 9 99

Interest on due to banks 5 7

Total interest expense 3,520 4,485

20. FEE AND COMMISSION INCOME

Analysis of fee and commission income relating to activities:

Year ended

December 31,

2016

Year ended

December 31,

2015

Payment transfers and transactions

2,490

2,066

Guarantees and letters of credit 556 642

Card and ATM operations 931 750

Account maintenance fee 876 725

Payments -account maintenance fee for retirees 453 471

Others 444 242

Total fee and commission income 5,750 4,896

Payments from account maintenance fee from retirees represents fee income paid by the Ministry of

Labour of Kosovo for retirees based on the Memorandum of Understanding concluded between the bank

and Ministry of Labour of Kosovo for all retirees having a bank account with the Bank. For each retiree

an amount of EUR 5 is paid to the bank on an annual basis.

NLB BANKA SH.A.



37

21. FEE AND COMMISSION EXPENSES

Analysis of fee and commission expenses relating to activities:

Year ended

December 31,

2016

Year ended

December 31,

2015

Payment transfers and transactions 218 202

Guarantees and Letters of Credit 71 63

Card and ATM operations 553 567

Payments –CBK related fees 151 148

Other fees 66 50

Total fee and commission expenses 1,059 1,030

22. OTHER OPERATING INCOME/EXPENSES, NET

Year ended

December 31, 2016

Year ended

December 31, 2015

Licensing expense (312) (309)

Other expense (772) (493)

Other Income 63 61

Other operating income/expenses, net (1,021) (741)

Foreign exchange translation loss (325,664) (552,359)

Foreign exchange translation gain 325,673 552,229

Foreign exchange translation (loss)/gain 9 (130)

Foreign exchange trading income 3,108 1,795

Foreign exchange trading expense (2,574) (1,179)

Foreign exchange trading income 534 616

Net foreign exchange gain 543 486

Other operating income/expenses, net (478) (255)

NLB BANKA SH.A.



38

23. STAFF COSTS

Year ended

December 31, 2016

Year ended

December 31, 2015

Salaries and wages 4,840 4,805

Mandatory staff pension contributions 255 266

Staff health insurance costs 200 198

Termination Benefits 249 368

Other staff costs 247 256

Total staff costs 5,791 5,893

24. ADMINISTRATIVE AND OTHER OPERATING EXPENSES

Year ended

December 31,

2016

Year ended

December 31,

2015

Maintenance 1,029 641

Operating lease expenses 836 703

Security and insurance costs 582 806

ATM, Visa Card and E-Banking 324 185

Office supplies 286 316

Marketing and sponsorship 272 209

Utilities 244 272

Charge for professional services 202 89

Telecommunications 201 213

Fuel (Generators and Cars) 82 95

Travel 78 70

Others 73 59

Representation 46 54

Taxes and commissions 22 11

Total Administrative and other operating expense 4,277 3,723

NLB BANKA SH.A.



39

25. INCOME TAX EXPENSES

Year ended

December 31,

2016

Year ended

December 31,

2015

Current income tax expense 1,407 1,044

Deferred tax expense/(credit) (118) (2)

Tax expense 1,289 1,042

Detailed below is the calculation of current income tax expense.

Year ended

December 31,

2016

Year ended

December 31,

2015

Profit for the year before taxation 12,553 9,284

Profit tax on profit at the rate of 10% 1,255

928 Tax effect of expenses not deductible for tax purposes 152 116

Deferred tax charge (credit) (118) (2)

Tax expense 1,289 1,042

Effective from September 1, 2015, the tax rate on corporate income is set at 10% in accordance with

Kosovo tax regulations currently in force, Law no. 05/L-029 “On Corporate Income Tax”.

According to tax legislation in Kosovo, the tax authorities have the right to examine tax returns six

years after their submission. Movement of current tax receivable is as follows:


Current income tax receivable at January 1, 22 256 Income tax expense (1,422) (1,044) Income tax expense paid during the year 1,163 810 Transfer to prepaid tax for previous years - -

Current income tax payable/receivable

at December 31,

(237)

22

Deferred tax asset has been recognised as follows for the temporary differences:


Loan and guarantees impairment provision (50) 70

Property and equipment and intangible assets (661) (583)

Interest expense on deposits 535 211

Provision for legal and other 3,479 2,392

Available for sale revaluation reserve - 31

Total deductible temporary difference 3,303 2,121

Total net deferred tax asset @ 10%

330

212

NLB BANKA SH.A.



40

25. INCOME TAX EXPENSES (CONTINUED)

The movement in the deferred tax asset account is as follows:


Deferred tax asset as at January 1, 212 208

Deferred tax income/ charge 118

2

Available for sale revaluation reserve (equity) -

2

Deferred tax asset as at December 31, 330 212

26. OTHER COMPREHENSIVE INCOME

Year ended

December 31, 2016

Year ended

December 31, 2015

Gain on change of fair value of AFS securities 116 28

Loss on change of fair value of AFS securities - -

Credit/Debit to other comprehensive income 116 28

The movement in revaluation reserve is as follows:


Revaluation reserve as at January 1 28 -

Revaluation reserve of AFS 98 31

Deferred tax on Available for sale (10) (3)

Net as presented in other comprehensive income /

profit or loss 88

28

Balance as of December 31 116 28

27. EARNING PER SHARE

Earnings per share are calculated by dividing net profit attributable to the ordinary shareholders by the

number of ordinary shares for the period.

Year ended

December 31, 2016

Year ended

December 31,

2015

Net profit 11,265 8,242

Number of ordinary shares (in thousands) 42.7 42.7

Earnings per share

263.8

193.1

NLB BANKA SH.A.



41

28. RELATED PARTY DISCLOSURES

In determination of related parties the Bank applies IAS 24 requirements. Related parties include:

The parties which directly, or indirectly through one or more intermediaries, control, or are

controlled by, or are under common control with the entity,

Parties in which the Bank has an interest that gives it significant influence or joint control over

the entity,

Private individuals who directly or indirectly have voting power in the Bank that gives them

significant influence over the Bank, and entities controlled or jointly controlled by such

individuals, members of the key management personnel, i.e. individuals with authority and

responsibilities for planning, managing and controlling the Bank’s operations, including

directors,

When taking into account each possible transaction with a related party, attention is focused on

the substance of the relationship not just the legal form.

The Bank is controlled by Nova Ljubljanska Banka d.d. Ljubljana incorporated in Slovenia (Parent),

which owns 81.21% of the ordinary shares as at December 31, 2016 (2015: 81.21% ordinary shares).

The remaining shares are held by other small shareholders (18.79 %).

The Bank performs a number of related party transactions in the course of its regular operations. The

transactions include investments, deposits, borrowings, and foreign currency transactions. These

transactions were carried out on normal commercial terms and market prices.

NLB BANKA SH.A.



42

28. RELATED PARTY DISCLOSURES (CONTINUED)

The following table summarizes the scope of related party transactions, balances of assets and liabilities

at December 31, 2016 and related income and expenses for the year then ended.

December 31, 2016

NLB d.d.

Ljubljana

NLB

Tutunska

Banka

NLB

Montenegr

o

NLB

Leasing

Key

management

personnel Total

Receivables Loans and advances to

banks

591

68

9

- -

668

Loans and advances to

customers

-

-

-

- 75 75

Securities - - - -

Other receivables - - - - - -

Total Receivables 591 68 9 - 75 743

Liabilities

Deposits - - - - 1,209 1,209

Borrowings - - - - - -

Other liabilities 4 - - 76 46 126

Total Liabilities 4 - - 76 1,255 1,335

Net Receivables/

(Liabilities)

587

68

9

(76)

(1,180)

(592)

Confirmed guarantees - 1,909 - - - 1,909

Income

Interest income - - - - 1 -

Foreign exchange gain 2,880 - - - - 2,880

Total Income 2,880 - - - 1 2,880

Expenses

Interest expenses (5) - - (6) (16) (27)

Fee expenses (12)

(12) - - - (24)

Foreign exchange loss (2,528) - - - - (2,528)

Salaries rents and other

expenses

(43)

-

-

- - (43)

Total Expenses (2,588)

(12) - (6) (16) (2,622)

Net income/(expense) 292

(12) - (6) (15) 258

NLB BANKA SH.A.



43

28. RELATED PARTY DISCLOSURES (CONTINUED)

The following table summarizes the scope of related party transactions, balances of assets and liabilities

at December 31, 2015 and related income and expenses for the year then ended.

December 31, 2015

NLB d.d.

Ljubljana

NLB

Tutunska

Banka

NLB

Montenegro

NLB

Leasing

Key

management

personnel Total

Receivables Loans and advances to

banks

550

50

56

1

-

657


customers

-

-

-

-

76

76

Securities - - - - - -

Other receivables - - - - - -

Total Receivables 550 50 56 1 76 733

Liabilities

Deposits 44 - - - 1,496 1,540

Borrowings - - - - - -

Other liabilities 8 - - 38 40 86

Total Liabilities 52 - - 38 1,536 1,626

Net Receivables/

(Liabilities)

498

50

56

(37)

(1,460)

(893)

Confirmed guarantees 750 2,006 - - - 2,756

Income

Interest income - - - - 4 4

Foreign exchange gain 1,209 - - - - 1,209

Total Income 1,209 - - 4 1,213

Expenses

Interest expenses (8) - - (3) (25) (36)

Fee expenses (14) (6) - - - (20)

Foreign exchange loss (906) - - - - (906)

Salaries rents and other

expenses

(39)

-

-

-

-

(39)

Total Expenses (967) (6) - (3) (25) (1,001)

Net income/(expense) 242 (6) - (3) (21) 212

Key management Compensation: Key management consists of the management board of the bank

and its compensation was as follows:

Year ended

December 31, 2016

Year Ended

December 31, 2015

Salaries 262 253

Bonus 103 102

Total 365 355

NLB BANKA SH.A.



44

29. OFF BALANCE SHEET, COMMITMENTS AND CONTINGENCIES

a. Guarantees and letters of credit

Credit related commitments include commitments to extend credit, letters of credit and guarantees given,

which are designed to meet the requirements of the Bank’s customers. Letters of credit and guarantees

given to customers commit the Bank to make payments on behalf of customers contingent upon the

failure of the customer to perform under the terms of the contract. Commitments to extend credit

represent contractual commitments to make loans and revolving credits. Commitments generally have

fixed expiration dates, or other termination clauses. Since commitments may expire without being drawn

upon, the total amounts do not necessarily represent cash requirements.

The aggregate outstanding amount of guarantees, letters of credit and stand by letter of credit issued by

the Bank are as follows:


Customs 1,406 3,933

Guarantees for payments 14,135 13,089

Public tenders guarantees 2,046 4,233

Letters of Credit 165 241

Standby letter of Credit 745 458

18,497 21,954

Guarantees for completion of work 4,681 4,405

23,178 26,359

Committed loans to customers not yet issued 43,238 39,422

Total 66,416 65,781


Guarantees:

Secured

Secured by cash deposits 2,857 4,685

Secured by other collateral 18,756 18,086

21,613 22,771

Unsecured 1,565 3,588

Total 23,178 26,359

NLB BANKA SH.A.



45

b. Legal cases

From time to time and in the normal course of business, claims against the Bank may be received. On

the basis of its own estimates and both internal and external professional advice, management has

calculated provision for expected losses, and accordingly provision has been made in these financial

statements in the amount of EUR 2,080 thousand (note other liabilities) as at December 31, 2016. The

nature of the most significant cases is as follows:

Disagreement with supplier of headquarter building in relation to the surface are of the property

(Eur 936)

Claimed unfairness of dismissal by former employees

Disagremeent with Lessors in relation to the amount of rent

The cases are expected to be closed in the next two or three years. In case of, no reimbursement from

insurance or other sources is expected. The Bank has provided the maximum exposure in each legal

case.

29. OFF BALANCE SHEET, COMMITMENTS AND CONTINGENCIES (CONTINUED)

c. Operating lease commitments

The Bank has outstanding commitments under non-cancellable rental contracts which fall due as

follows:


Within one year 581 771

Within two to five years 2,777 2,167

Total 3,358 2,938

30. EVENTS AFTER THE END OF THE REPORTING PERIOD

Management Board of the Bank on February 2016 has planned to propose in the General Assembly the

distribution of profit of the year 2016 in amount of EUR 10 mil

No other material events subsequent to the date of the statement of financial position have occurred

which require disclosure in the financial statements.

31. FAIR VALUES AND RISK MANAGEMENT

a. Capital Risk Management

The Bank manages its capital to ensure that the Bank will be able to continue as a going concern while

maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Bank consists of debt, which includes the borrowings, and the equity

attributable to equity holders, comprising paid up capital and retained earnings.

Tier I capital means a bank’s permissible permanent paid-in capital which may be comprised of

any or all of the following:

(i) Common equity shares and their related surplus;

(ii) Earnings which have not been distributed.

NLB BANKA SH.A.



46

31. FAIR VALUES AND RISK MANAGEMENT (CONTINUED)

a. Capital Risk Management (Continued)

Additional Tier 1 capital – means:

(i) Perpetual preferred shares (being those which, in the event of liquidation of the bank, are not

paid any amounts until all depositors and other creditors have been fully addressed, but are paid

in full, (preferred) before any common shareholder is paid and which have rights to agreed

dividend payments but which have no maturities or options of their holders to redeem);

(ii) Such other instruments as may be approved by the CBK as permissible permanent capital from

time to time by rule or order.

Deductions from Tier 1 Capital:

(i) Goodwill and intangible assets are to be deducted from a bank’s Tier 1 capital before the Tier 2

capital portion of the calculation is made;

(ii) Investments in equity of banks or other financial institutions that comprise above ten per cent

(10%) of their capital (this percentage shall include also the subordinated rights), or investments

in amounts less than 10% of their capital, but with a significant influence in decision making of

these financial institutions. Investments in equity of banks and other financial institutions

(including here also the subordinated rights) that comprise less than 10% of the bank’s equity

before deductions, where the amount above the 10% threshold shall be deducted.;

(iii) Deferred tax assets;

(iv) Lending to a Bank-Related Person, except lending covered with cash.

Tier II capital includes a Bank’s:

(i) Reserves for loan losses up to a maximum of 1.25 % (one point twenty-five percent ) of its risk

weighted assets at any one time or such other percentage as may be established by the CBK

from time to time by rule or order;

(ii) Ordinary preferred shares (being preferred shares which have maturities or are redeemable at

the option of their holders and which are cumulative (have the right to payment of past dividends

missed) if the bank has the option to defer payment of dividends;

(iii) Term preferred shares (shares whose holders have the right to redeem them and which have

terms of 5 years or more). These shares are subject to approval as capital from time to time

throughout their terms by the CBK. The amount of long-term preferred shares (shares with

maturities in excess of ten (10) years eligible to be included in Tier 2 capital will be reduced by

20 % (twenty percent) of their original amounts at the beginning of each of the last 5 years of

their terms;

(iv) Term debt instruments which are fully subordinated to the rights of depositors (those which, in

the event of liquidation of the bank, are not paid any amounts until all depositors have been

paid. The amount of long-term subordinated debt instruments (those with maturities in excess

of ten years) eligible to be included in Tier 2 capital will be reduced by 20% (twenty percent)

of their original amounts at the beginning of each of the last five (5) years of the instrument’s

life;

(v) Debt instruments which are mandatory convertible into common shares and which are unsecured

and fully paid-in;

(vi) Subordinated term debt are liabilities, but if subordinated term debt was issued with an original

term to maturity of over five years, then it may be included as Tier 2 capital to a maximum of

50% (fifty percent) of Tier 1 capital;

(vii) Tier 2 capital cannot be higher than 100% (one hundred percent) of Tier 1 capital.

NLB BANKA SH.A.



47


a. Capital Risk Management (continued)

Minimum Risk-Based Capital Ratios

The bank maintains a minimum total capital to risk-weighted asset ratio of 12% and a Tier I capital to

risk- weighted asset ratio of 8 % in accordance with the rule on Capital Adequacy issued by the Central

Bank of Republic of Kosovo. Also the bank is required to maintain a minimum 7 percent leverage ratio.

(Leverage ratio equals total equity / total assets).

i. A bank’s risk adjusted capital is obtained by dividing its capital base by its risk weighted assets.

ii. The minimum ratio set forth above may be increased by the CBK by rule or order from time to

time.

As of reporting period, the capital adequacy ratios in accordance with CBK’s framework for the

preparation of financial statements are as follows:


Tier 1 capital Share capital 51,287 51,287

Reserves 116 28

Retained earnings 11,401 8,350

less: deductions from capital (1,590) (1,352)

Total qualifying Tier 1 capital 61,214 58,313

Tier 2 capital

Subordinated liability - -

Provisions for loan losses (limited to 1.25% of RWA) 3,933 3,280

Total qualifying Tier 2 capital 3,933 3,280

Total regulatory capital 65,147 61,593

Risk-weighted assets:

On-balance sheet 340,700

306,139

Off-balance sheet 18,653 18,611

Risk assets for operational risk 32,198 27,677

Total risk-weighted assets 391,551 352,427

Tier I capital to risk- weighted asset ratio 15.6% 16.6%

Total capital to risk-weighted asset ratio 16.6% 17.5%

Total equity to total assets 12.1% 12.8%

NLB BANKA SH.A.



48


b. Categories of Financial Instruments

The table below is reconciliation of financial instruments classes to IAS 39 measurement categories.

As at the year end the Bank has the following financial instruments:


Loans and advances

Cash and balances with Central bank 90,360 62,539

Loans and advances to banks 17,556 32,356

Loans and advances to customers 329,608 289,339

Financial assets available for sale 65,944 67,924

Total financial assets 503,468 452,158

Financial liabilities at amortized cost

Due to banks 1,339 221

Due to customers 442,095 400,246

Borrowings from banks 76 -

Borrowing from other financial institutions 186 83

Other financial liabilities 6,076 1,981

Total financial liabilities 449,772 402,531

c. Financial Risk Management Objectives

The Bank’s corporate treasury function provides services to the business, coordinates access to domestic

and international financial markets, monitors and manages the financial risks relating to the operations

of the Bank through internal risk reports which analyse exposures by degree and magnitude of risks.

These risks include market risk (including currency risk, interest rate risk), credit risk and liquidity risk.

Compliance with policies and exposure limits is reviewed by the management committees and internal

auditors on a continuous basis. The Bank does not enter into or trade significant derivative financial

instruments.

d. Market Risk

The Bank’s activities expose it primarily to the financial risks of changes in foreign currency exchange

rates and interest rates. The market risk is not concentrated to currency risk or interest rate risk, as major

transactions of the Bank are in local currency and majority of the interest rates are fixed.

NLB BANKA SH.A.



49


e. Foreign Currency Risk

The Policy on Management of the currency risk of NLB Banka, defines the methods of currency risk

management in the bank. The purpose of currency risk management policy is the management and

limitation of the potential loss, which is created as a result of changes on the foreign currency rates and,

reflected on the business results and capital adequacy of the bank. The currency risk presents the

probability of realizing the losses as per on balance and off balance sheet items, as a result of changes

on the currency rates and/or non-harmonization on the level of assets, liabilities and off balance items

in the same currency. The Bank manages foreign currency risk through managing currency structure of

assets and liabilities in line with expected changes in foreign currency rates. Foreign exchange rate risk

is managed and governed according to the policies of the NLB group. As such NLB Banka continuously

monitors exchange rate movements and foreign currency markets, and determines its currency positions

on a daily basis. Any exception to the policy shall be subject of approval by the Supervisory Board of

NLB Banka and the Risk Management Department of NLB group. The bank and group policy forbids

the bank to maintain open currency position for speculative purposes. Nevertheless, foreign exchange

derivatives may be used for hedging purposes to close certain positions, in which case they are closely

monitored at both local and group level.

The Bank undertakes transactions in both Euro and foreign currencies. The Bank has not entered into

significant forward exchange or any embedded derivative transactions during the year ended December

31, 2016 and 2015.

The Bank is exposed to currency risk through transactions in foreign currencies. As the currency in

which the Bank presents its financial statements is Euro, the Bank’s financial statements are effected by

movements in the exchange rates between the Euro and other currencies.

The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognized in

the profit and loss. These exposures comprise the monetary assets and monetary liabilities of the Bank

that are not denominated in the functional currency of the Bank.

NLB BANKA SH.A.



50


f. Foreign Currency Risk (continued)

Foreign currency sensitivity analysis

The Bank is mainly exposed to US Dollar (USD) and Swiss Franc (CHF). The following table details

the Bank’s sensitivity to the respective increase and decrease in the value of Euro against the foreign

currencies. The percentage used is the sensitivity rate used when reporting foreign currency risk

internally to key management personnel and represents management’s assessment of the reasonably

possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign

currency denominated monetary items and adjusts their translation at the period end for a respective

change in foreign currency rates. The Bank has applied a 10% increase or decrease to the current

currency exchange rates. A positive number below indicates an increase in profit and other equity where

the Euro strengthens with respective percentages against the relevant currency.

+10% of Euro -10% of Euro

December 31, 2016

Assets:

Impact on cash and due from banks 1,662 (1,662)

Liabilities:

Impact on due to banks and customers (1,826) 1,826

Net impact on profit and loss and equity (164) 164

December 31, 2015

Assets:

Impact on cash and due from banks 1,419 (1,419)

Liabilities:

Impact on due to banks and customers (1,599) 1,599

Net impact on profit and loss and equity (180) 180

NLB BANKA SH.A.



51



The following table summarises the Bank’s currency position as at December 31, 2016:

EURO USD CHF Others Total

Financial assets Cash and balances

with CBK

81,741

2,102

6,277

240

90,360

Due from banks 7,637 8,540 - 1,379 17,555

Loans to customers

– net

329,608

-

-

-

329,609

Financial assets

available for sale

65,641

303

-

-

65,944

Total assets

484,627

10,945

6,277

1,619

503,468

Financial liabilities

Due to banks

130 1,201 7 1 1,339

Due to customers 424,799 9,431 6,209 1,656 442,095

Borrowings 262 - - - 262

Other financial

liabilities

6,072

4

-

-

6,076

Total liabilities

431,263

10,636

6,216

1,657

449,772

Net currency

position as at

December 31, 2015

53,364

309

61

(38)

53,696

NLB BANKA SH.A.



52



The following table summarises the Bank’s currency position as at December 31, 2015:

EURO USD CHF Others Total

Financial assets Cash and balances with CBK 54,124 3,540 4,351 524 62,539

Due from banks 27,107 3,703 - 1,546 32,356

Loans to customers – net 289,339 - - - 289,339

Financial assets available for sale 67,763 161 - - 67,924

Total assets 438,333 7,404 4,351 2,070 452,158


Due to banks 165 7 4 45 221

Due to customers 386,643 7,264 4,259 2,080 400,246

Borrowings 83 - - - 83

Other financial liabilities 1,981 - - - 1,981

Total liabilities 388,872 7,271 4,263 2,125 402,530

Net currency position as at December

31, 2015 49,461 133 88 (55) 49,628

The exchange rates applied for principal currencies against the Euro were as follows:

December 31,

2016

December 31,

2015

United States Dollar (USD) 1.0541 1.0887

British Pound (GBP) 0.8561 0.7339

Swiss Franc (CHF) 1.0739 1.0835

NLB BANKA SH.A.



53


f. Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market

interest rates and the risk that the maturities of interest bearing assets differ from the maturities of the

interest bearing liabilities used to fund those assets (re-pricing risk). The length of time for which the

rate of interest is fixed on a financial instrument therefore indicates to what extent it is exposed to interest

rate risk. The assets and customer term deposits of the bank carry fixed interest rates while borrowings

are at variable interest rate. The interest rates applicable to financial assets and liabilities are disclosed

in relevant note to these financial statements. Interest rate risk management policy of the bank defines

the method of identification, measurement, following up and controlling the risk in the event of interest

rate modification. The purpose of policy is management on the exposure to interest rate risk and

limitation of potential loss, which is created as a result of modification of levels of interest rates in the

market and the effect of those changes on business results and the market value of bank capital.

With the policy are defined methodologies of risk assessment from the interest rate:

Gap analysis

NII (Net Interest Income) methodology – sensitivity of NII

Basis Point Value (“BPV”) methodology

The risk management department monitors exposure to interest-rate risk using the interest-rate gap

analysis methodology. To that end, NLB Banka defines a set of input data that are based on cash flows

by individual time interval. The principle of residual maturity is applied to agreements with a fixed

interest rate, while the interest rate re-pricing date is taken into account for agreements with a variable

interest rate.

All balance sheet and off balance sheet positions which are sensitive to interest rate risk are classified in

the banking book and trading book. Positions are observed pursuant to these segments:

Interest rate sensitive positions in Euros

Interest rate sensitive positions in other currencies (aggregate base and as per each currency

severally)

At the current stage trading activities are not applicable for NLB Banka, as per required criteria of NLB

Group policies. As part of NLB group NLB Banka is subject to NLB policies and procedures.

Management believes that the Bank is not exposed to interest rate risk on its financial instruments except

borrowings which are at variable interest rates. Funds and obligations which do not have defined

maturity (such as deposits due on demand) or which have variable maturities in relation with original

achievement specified with contract, are classified in the category as demand to deposits for the purpose

of gap analysis.

NLB BANKA SH.A.



54


g. Interest rate risk (continued)

Interest rate risk management in the Bank’s book is carried out based on Gap analysis and Basis Point

Value methodology.

Gap analysis relates to an interest rate risk measurement technique by means of which asset, liabilities

and off-balance sheet assets are categorized into corresponding time buckets by the earlier of contractual

re-pricing (for instruments with floating interest rate) or maturity date (for instruments with fixed interest

rate).

Assets and liabilities with no maturity date (e.g. on-demand deposits) or with maturity dates which may

be different from the original maturity dates defined by the contracts are categorised into corresponding

time buckets based on the Bank’s estimate and considering its previous experience.

With a view to more adequate interest rate risk management and measurement, BPV (Basis Point Value)

methodology is used, measuring the financial instruments’ sensitivity to changes of market interest rates.

Based on this method, it is estimated how the position value will change if the market interest rates

change by +/- 200 basis points.

The main tool for management of interest rate exposure is gap analysis, i.e. gap analysis for interest

bearing assets and liabilities. The Assets and Liabilities Committee (ALCO) based on the proposal

suggested by expert services, adopts the strategy of adjusting the assets and liabilities items based on the

estimated changes in market interest rates.

Sensitivity analysis

Interest rate risk management is supplemented by monitoring the sensitivity of the Banks profit or loss

and equity to various floating interest rate scenarios. The interest rate sensitivity analysis has been

determined based on the exposure to interest rate risk at the reporting date. The analysis assumes a

parallel increase of interest rates of 200 basis points (± 2%) on the level of net profit and equity.

Exposure to interest rate risk and its impact on the bank’s statement of changes in equity and profit and

loss is measured through Basis Point Value methodology. Results presented below represent the changes

in profit and loss and equity, which would occur if interest rates will increase or decrease by 200 basis

points.

NLB BANKA SH.A.



55



Analysis of the sensitivity of profit or loss and equity to changes in interest rates is as follows:

Sensitivity of the profit and loss

Interest rate sensitivity 2016 2015

Increase in basic points

+200 bps parallel shift 1,575 1455

Sensitivity of the profit and loss

Interest rate sensitivity 2016 2015

Decrease in basic points

-200 bps parallel shift (2,005) (2,206)

Basis Point Value (BPV) results as at December 31, 2016 is 7.7% of capital (2015: 7.7%). As per interest

rate risk management policy the maximum limit of BPV result is 10% of total capital.

NLB BANKA SH.A.



56



The table below gives the net interest rate position for financial assets and financial liabilities as monitored by management.

December 31, 2016 Total

NON-

interest

bearing

Interest

bearing Sight

1

month

2

month

From 3 -

6 months

From 6 -

12

months

From 1

- 2

years

From 2

- 5

years

From

5 - 10

years

Over

10

years

Total - (228,035) 228,035 (24,443) 15,794 9,950 70,763 36,497 42,973 43,773 29,705 3,023

Fixed interest rate - (228,035) 228,035 (24,442) 15,794 9,950 70,763 36,497 42,973 43,773 29,705 3,023

Floating EURIBOR - - - - - - - - - - - -

Fixed interest rate

(Euro)

(333)

(211,509)

211,176

(31,406)

7,014

9,950

69,625

36,519

42,973

43,773

29,705

3,023

Floating EURIBOR

(Euro)

-

-

-

-

-

-

-

-

-

-

-

-

Fixed interest rate

(USD)

311

(10,065)

10,376

1,858

7,402

-

1,138

(22)

-

-

-

-

Fixed interest rate

(CHF)

61

(4,834)

4,895

4,895

-

-

-

-

-

-

-

-

Fixed interest rate

(Other)

(38)

(1,627)

1,589

211

1,378

-

-

-

-

-

-

-

NLB BANKA SH.A.



57



December 31, 2015 Total

NON-

interest

bearing

Interest

bearing Sight

1

month

2

month

From 3

- 6

months

From 6

- 12

months

From 1

- 2

years

From 2

- 5

years

From 5

- 10

years

Over

10

years

Total -

(193,006)

193,006

(41,383)

19,637

8,139

62,079

38,118

34,906

43,743

24,880

2,887

Fixed interest rate 46 (193,006) 193,052 (41,383) 19,637 8,139 62,125 38,118

34,906 43,743

24,880 2,887

Floating EURIBOR (46)

- (46) - - - (46) - - - - -

Fixed interest rate (Euro) (128) (181,819) 181,691 (47,512) 14,874 7,831 62,125 37,957 34,906 43,743 24,880 2,887

Floating EURIBOR (Euro) (46) - (46) - - - (46) - - - - -

Fixed interest rate (USD) 141 (6,958) 7,099 3,413 3,217 308 - 161 - - - -

Fixed interest rate (CHF) 87 (2,285) 2,372 2,372 - - - - - - - -

Fixed interest rate (Other) (54) (1,944) 1,890 344 1,546 - - - - - - -

NLB BANKA SH.A.



58


h. Credit risk

The Bank is subject to credit risk through its lending activities and in cases where it acts as an intermediary

on behalf of customers or other third parties or issues guarantees. In this respect, the credit risk for the Bank

stems from the possibility that different counterparties might default on their contractual obligations. The

management of the credit risk exposures to borrowers is conducted through regular analysis of the borrowers’

credit worthiness. Exposure to credit risk is also managed in part by obtaining collateral and guarantees.

The Bank’s primary exposure to credit risk arises through its loans and advances to customers. The amount of

credit exposure in this regard is represented by the carrying amounts of the assets on the balance sheet. In

addition, the Bank is exposed to off-balance sheet credit risk through guarantees issued.

Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for

counterparties when they have similar economic characteristics that would cause their ability to meet

contractual obligations to be similarly affected by changes in economic or other conditions. The major

concentrations of credit risk arise by type of customer in relation to the Bank’s loans and advances, and

guarantees issued.

For subsequent measurement and impairment of assets the bank assesses whether objective evidence of

impairment exists individually for financial assets that are individually significant, and individually or

collectively for financial assets that are not individually significant. If it is determined that no objective

evidence of impairment exists for an individually assessed financial asset, whether significant or not, it

includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses

them for impairment. Assets that are individually assessed for impairment and for which an impairment loss

is or continues to be recognized are not included in a collective assessment of impairment.

Terms and conditions of use of collateral

Collateral held under loan agreement can only be possessed by the bank in case of borrower’s default and

conduct of legal procedures in accordance with legislation of Kosovo which enable the bank to take full legal

title and ownership. Only after the completion of these procedures, the bank can sell or transfer the collateral.

In addition, the Bank recognises seized collateral as an asset only when it has full legal title and physical

possession of the collateral and the fair value of collateral can be determined reliably.

The Bank cannot sell, transfer or re-pledge the collateral while the borrowers are performing or legal

procedures for transfer of ownership as a result of default have not been completed.

NLB BANKA SH.A.



59


h. Credit risk (continued)

Maximum exposure to credit risk:

As at December 31, 2016

Gross

maximum

exposure

Impairment

Provision

Net

maximum

exposure

Fair value

of

collateral

Cash and balances with

central bank

90,360 -

90,360 -


banks

17,555 -

17,555 -

Loans to individuals 126,349 (2,327) 124,022 180,947

Granted Overdrafts 2,593 (40) 2,553 994

Housing loans 69,293 (1,341) 67,952 149,572

Consumer loans 51,848 (857) 50,992 30,264

Other loans to individuals

2,614

(89)

2,525

117

Loans to legal entities 231,242 (25,655) 205,586 730,284

Loans to small and

medium entities

158,995

(18,909)

140,085

549,701

Loans to large entities 72,210 (6,745) 65,465 180,492

Loans to financial

organizations

36

(0)

36

90

Total loans & advances

to customers

357,591

(27,982)

329,609

911,231

Financial assets available

for sale

65,944 -

65,944 -

Letters of credit 910 - 910 1,104

Short-term guarantees 17,587 (7) 17,579 33,487

Long-term guarantees 4,681 (1) 4,680 17,981

Loan commitments 43,238 - 43,238 37,237

Contingent liabilities 66,416 (8) 66,416 89,809

Within other loans to individuals are also included cash cover loans in the amount of EUR 16,170 thousand.

NLB BANKA SH.A.



60


h. Credit risk (continued)

Maximum exposure to credit risk (continued)


Gross

maximum

exposure

Impairment

provision

Net

maximum

exposure

Fair value

of

collateral

Cash and balances with

central bank

62,539

-

62,539

-


banks 32,356 - 32,356 -

Loans to individuals 105,952 (1,856) 104,096 167,977

Housing loans 56,727 (1,071) 55,656 140,057

Consumer loans 201 (6) 195 312

Other loans to individuals

49,024

(779)

48,245

27,608

Loans to legal entities

207,519

(22,276)

185,243

730,662

Loans to small and medium

entities

19,076

(987)

18,089

82,038

Loans to large entities 188,443 (21,289) 167,154 648,624

Total loans and advances

to customers

313,471

(24,132)

289,339

898,639

Financial assets available

for sale

67,924 -

67,924 -

Letters of credit 699 - 699 867

Short-term guarantees 22,024 (6) 22,018 42,320

Long-term guarantees 3,635 (1) 3,634 10,057

Loan commitments 39,422 - 39,422 40,875

Contingent liabilities 65,780 (7) 65,773 94,119

Within other loans to individuals are also included cash cover loans in the amount of EUR 10,678 thousand.

Financial assets available for sale are all neither past due, nor impaired.

NLB BANKA SH.A.



61


i. Loans and advances

Loans and advances are summarized as follows:

31-Dec-16 31-Dec-15

Loans and

advances to

customers

Loans and

advances to

banks

Loans and

advances to

customers

Loans and

advances to

banks

Neither past due nor impaired 11,039 17,555 10,362 32,356

Past due but not impaired 344 - 315 -

Not pas due but assessed

collectively for impairment

310,418

-

266,371

-

Past due and collectively impaired 22,003 - 22,694 -

Individually Impaired 13,787 - 13,729 -

Gross loans 357,591 17,555 313,471 32,356

Less: allowances for impairment

(27,982)

- (24,132) -

Net loans

329,609

17,555 289,339 32,356

NLB BANKA SH.A.



62


i. Loans and advances (continued)

a) Loans and advances neither past due nor impaired:

As at December 31, 2016 internal rating system

A B C D Total Fair value

of collateral

Loans to banks 17,556 - - - 17,556 -

Loans to individuals 7,440 12 - - 7,452 175,844

Housing loans 125 - - - 125 145,278

Other loans to individuals 7,315 12 - - 7,327 30,566

Loans to legal entities 3,043 393 150 - 3,586 658,636

Loans to financial organizations 1 - - - 1 90

Loans to small and medium entities 3,042 393 - - 3,435 489,104

Loans to large entities - - 150 - 150 169,442

Total loans and advances to customers 10,483 405 150 - 11,039 834,481

Total 28,039 405 150 - 28,595 834,481

As at December 31, 2015 Internal rating system

A B C D Total Fair value

of collateral

Loans to banks 32,356 32,356

Loans to individuals 7,061 20 2 7,083 10,232

Housing loans 27 - - 27 43

Other loans to individuals 7,034 20 2 7,056 10,189

Loans to legal entities 3,167 112 - 3,279 7,395

Loans to small and medium entities 555 - - 555 1,116

Loans to large entities 2,612 112 - 2,724 6,279

Total loans and advances to customers 10,228 132 2 10,362 17,627

Total 42,584 132 2 - 42,718 17,627

NLB BANKA SH.A.



63


i. Loans and advances(continued)

b) Loans and advances not pas due but assessed collectively for impairment:


A B C D E Total Fair value of

collateral

Loans to individuals 112,453 526 239 145 5 113,368 180,947

Housing loans 65,198 310

159

85

1 65,754 149,572

Other loans to

individuals 47,255 215

81

60

4 47,614 31,375

Loans to legal entities 58,475 85,343

53,099

46

88 197,050 730,284

Loans to financial

organizations 35 - - - 35 90

Loans to small and

medium entities 51,216 48,221

32,557

46

88 132,128 549,701

Loans to large entities 7,224 37,121

20,542 64,887 180,492

Total loans and

advances to customers 170,927 85,868 53,338 191 93 310,418 911,231


A B C D E Total Fair value of

collateral

Loans to individuals 94,170 281 116 99 12 94,679 144,516

Housing loans 53,170 157 76 44 8 53,996 128,656

Other loans to

individuals 40,459 124

40

56

4 40,683 15,890

Loans to legal entities 86,304 65,746

19,620

21

7 171,698 591,395

Loans to small and

medium entities 16,013 143

55

21

7 16,239 65,111

Loans to large entities 70,291 65,603 19,565 - - 155,459 526,284

Total loans and

advances to customers 180,474 66,026 19,736 121 19 266,377 735,911

NLB BANKA SH.A.



64

FAIR VALUES AND RISK MANAGEMENT (CONTINUED)


Category A

All direct loans or facilities and off-balance sheet exposures of the bank that carry normal banking risk.

Available information concerning the credit exposure, the performance of the customer’s account, and the

financial data all indicate that the settlement of the exposure is reasonably certain without difficulties, (or the

obligation is fully secured by eligible collateral). Similarly within A graded clients/exposures are all direct

loans or facilities and off-balance sheet exposures of the bank which are risk free. Exposures which have as

collateral cash deposit or a guarantee issued by a bank which has an external credit rating of grater the BBB,

grade evaluated by Moody’s or S&P credit rating agencies.

Category B- Watch

Special Attention (or Watch) - This classification is used to identify and monitor exposures which contain

weaknesses or potential weaknesses that, at the time of review, do not jeopardize the repayment of the credit

or reflect a potential for loss, but which, if not addressed or corrected could result in the deterioration of the

credit to a substandard or more severe classification. Absent any documented evidence to the contrary, the

bank classifies as “special attention” those exposures that are overdue more than 30 days but less than 60

days or those with continuous indebtedness in excess of 5% of approved lines for more than 30 days but less

than 60 days. This category of classification is intended to identify and address potentially weak relationships

at an early stage.

Category C-Substandard

Substandard - Exposures which, based upon a review of all factors attendant to the credit, have well defined

credit weaknesses that jeopardize repayment of the credit in the normal course. A substandard credit is one

which, by an analysis of financial data and other factors, is not currently protected by the sound worth and

paying capacity of the borrower or guarantors or the value of the collateral, if any. Recourse to a responsible

and able guarantor for repayment that would involve prolonged negotiations before liquidation of the credit

would invoke a substandard classification. The need for recourse to the collateral as the means of satisfying

the obligation also would be the basis for a substandard classification. Absent any documented evidence to

the contrary, an exposure is classified at least substandard if any of the following criteria apply:

(a) If deposits/cash flows into the customer’s overdraft account are insufficient to liquidate the outstanding

balance within 60 days from the expiration date of the facility.

(b) If the customer exceeded the authorized limit of the facility by 5% or more for over 60 days without

paying this excess or without bank management formally raising the authorized limit.

(c) If the customer is overdue in repaying contractual instalments (including interest) for over 60 days.

(d) If the maturity of the loan or facility is over 60 days past due without repayment.

NLB BANKA SH.A.



65



Category D-Doubtful

Doubtful - Exposures which, based upon a review of all factors attendant to the credit, contain all the

weaknesses that are inherent in a substandard credit, but which are so pronounced that there is a strong

probability that a significant portion of the principal amount will not be paid. There is a likelihood of loss,

but the exact amount cannot be clearly defined at the time of review or is dependent upon the occurrence of

a future act or event. Although the possibility of loss is thus extremely high, because of significant pending

factors, reasonably specific, which could be expected to work to the advantage and strengthening of the asset,

its classification as an estimated loss is deferred until more exact status may be determined. Such pending

factors include but are not limited to mergers, acquisitions, capital restructuring, and the furnishing of new

collateral or realistic refinancing plans. Uncooperative guarantors or those who are in weak financial

condition should not be considered as being able to provide strength to the credit.

Recourse to any available collateral that would not be sufficient to cover the amount owing may also justify

a doubtful classification.

vi. Impairment of financial assets (continued)

Absent any documented evidence to the contrary, an exposure is classified at least doubtful if any of the

following criteria apply:

(a) If deposits/cash flows into the customer’s overdraft account are insufficient to liquidate the outstanding

balance within 90 days from the date of expiration of the overdraft facility.


paying this excess or without bank management formally raising the authorized limit.

(c) If the customer is overdue in repaying any contractual instalment (including interest) for over 90 days.

(d) If there are deficiencies in the customer’s financial condition that have caused negative equity.

(e) If the maturity/expiration date of the loan or facility is over 90 days past due without repayment.

NLB BANKA SH.A.



66



Category E- Loss

Bad (Loss) - Exposures which, based upon a review of all factors attendant to the credit are of such little

value or will require such an extended period to realize any value, are no longer justifiable for carrying on

the active books of the bank.

An exposure is classified bad (loss) if any of the following criteria apply:

(a) If deposits/cash flows into the customer’s overdraft account are insufficient to liquidate the balance of

the outstanding overdraft within 180 days from the expiration date of the overdraft facility.


paying the excess or without bank management formally raising the authorized limit.

(c) If the customer fails to repay a contractual instalment (including interest) for over 180 days.

(d) If the maturity/expiration date of the loan or facility is over 180 days past due without repayment.

Impairments and provisions for the remaining part of the portfolio of companies, sole proprietors and retail

clients (receivables from clients which are not individually relevant) and for the receivables from individually

significant clients (except banks) for which there is no evidence of impairment is calculated on group basis

(portfolio approach). Loans in group are further divided in categories, as companies and sole proprietors

group of retail clients on balance sheet. All the three groups are further divided in to five sub categories A,

B, C, D, and E.

When a loan is considered to be uncollectible, it is written off against the related provision for loan

impairment. Such loans are written off after all the necessary procedures have been completed and the amount

of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the

profit or loss.

If the amount of the provision for loan impairment subsequently decreases due to an event occurring after the

write down, the release of the provision is credited to the profit of loss.

As of September 30, 2015 there were written off EUR 10,008 thousand loan principal and EUR 45

thousand interest, based on the CBK rules and regulations and NLB Ljubljana standards. All these written

off loans, were provisioned 100%, and as such there was no effect on the financial statements for the year

ended December 31, 2015.

NLB BANKA SH.A.



67



c) Loans and advances past due but not impaired:


Up to 30

days

Up to 90

days

Over 90

days Total

Fair value of

collateral

Loans to individuals 311 - - 311 427

Housing loans - - - - -

Other loans to individuals 311 - - 311 427

Loans to legal entities 33 - - 33 153

Loans to small and medium entities 33 - - 33 153

Loans to large entities - - - - -

Total loans and advances to

customers

344 - -

344 580


Up to 30

days

Up to 90

days

Over 90

days Total

Fair value of

collateral

Loans to individuals 260 - - 260 566

Housing loans 4 - - 4 20

Other loans to individuals 256 - - 256 546

Loans to legal entities 55 - - 55 238

Loans to small and medium entities 38 - - 38 188

Loans to large entities 17 - - 17 50

Total loans and advances to customers 315 - - 315 804

d) Loans and advances past due and collectively impaired


Up to 30

days

Up to 90

days

Over 90

days Total

Fair value

of collateral


Housing loans 2,908 10 292 3,209 149,572.44

Other loans to individuals 1,632 10 164 1,806 31,374.961

Loans to legal entities 16,197 29 763 16,989 730,284

Loans to small and medium entities 11,254 29 718 12,001 549,791.45

Loans to large entities 4,943 - 45 4,988 180,492.49


customers 20,737 48 1,219 22,003 911,231

NLB BANKA SH.A.



68



d ) Loans and advances past due and collectively impaired (continued)

Up to 30 days Up to 90 days Over 90

days Total

Fair

value of

collateral


Housing loans 2,173 128 400 2,701 11,337

Other loans to individuals 985 57 193 1,235 1,323

Loans to legal entities 16,606 1,476 676 18,758 71,485

Loans to small and medium entities 1,317 192 642 2,151 14,983

Loans to large entities 15,289 1,284 34 16,607 56,503


customers 19,763 1,661 1,270 22,694 84,146

e) Loans and advances individually impaired

The breakdown of the gross amount of individually impaired loans and advances by class, are as follows:

Gross loans and advances

individually impaired Impairment

Net loans and

advances

individually

impaired

December 31, 2016

Loans to bank - - -

Loans for houses and flats 205 (131) 74

Loans to large corporate customers 2,183 (2,138) 44

Loans to small and medium size

enterprises

11,398

(10,873)

525

Loans and advances to customers 13,786 (13,143) 643

Total 13,786 (13,143) 643

Gross loans and

advances

individually

impaired Impairment

Net loans

and advances

individually

impaired

December 31, 2015

Loans to bank - - -

Loans to large corporate customers 13,638 (12,546) 1,092

Loans to small and medium size enterprises 91 (82) 9

Loans and advances to customers 13,729 (12,628) 1,101

Total 13,729 (12,628) 1,101

NLB BANKA SH.A.



69



f) Loans and advances collectively impaired

The breakdown of the gross amount of collectively impaired loans and advances by class, are as follows:

Gross loans and

advances collectively

impaired Impairment

Net loans and

advances

collectively

impaired

December 31, 2016

Loans to individuals 68,962 (1,210) 67,753

Other loans to individuals 49,418 (986) 48,432

Loans to financial organizations 35 0 35

Loans to large entities 69,877 (4,607) 65,271

Loans to small and medium

entities

144,128

(8,036)

136,092


customers

332,421

(14,839)

317,582

Total 332,421 (14,839) 317,582

Gross loans and

advances collectively

impaired Impairment

Net loans and

advances

collectively

impaired

December 31, 2015

Loans to individuals 60,395 (1,163) 59,232

Other loans to individuals 38,214 (693) 37,521

Loans to large entities 172,066 (8,743) 163,323

Loans to small and medium entities 18,390 (905) 17,485

Loans and advances to customers 289,065 (11,504) 277,561

Total 289,065 (11,504) 277,561

NLB BANKA SH.A.



70



The financial effect of collateral as of December31, 2016 is presented below:

Loans to large

corporate

customers

Loans to small and

medium size

enterprises

Loans to

financial

organizations

Credit

cards

Loans for

houses and flats

Consumer

loans

Other

loans Total

Loans collateralized by:

- residential real estate

42,395 72,462 - - 27,437 523

14 142,831

- other real estate

25,269 67,256 - - 3,259 7

- 95,791

- cash deposits 150 3,503 1 21 232 7,195 427 11,529

- other assets 4,397 15,598 35 117 38,029 43,671 2,079 103,925

Total 72,210 158,819 36 138 68,957 51,396

2,519 354,076

Unsecured exposures - 175 - 2,476 336 453

75 3,515

Total loans and

advances to customers 72,210 158,994 36 2,614 69,293 51,849

2,594 357,591

NLB BANKA SH.A.



71



The financial effect of collateral as of December 31, 2015 is presented below:

Loans to large

corporate

customers

Loans to small

and medium

size enterprises

Credit

cards

Loans to

financial

organizations

Loans for

houses and

flats

Consumer

loans Other loans Total

Loans collateralized by:

- residential real

estate 88,510 4,886 -

- 25,748 6 529 119,679

- other real estate 92,511 1,205 - - 2,836 - 64 96,616

- cash deposits 2,739 595 18 - 30 - 7,296 10,678

- other assets 4,529 12,330 76 - 27,844 194 39,033 84,006

Total 188,289 19,016 94 - 56,458 200 46,922 310,979

Unsecured exposures

154

60

1,582

- 268

1 427

2,492

Total loans and

advances to

customers

188,443 19,076 1,676

- 56,726 201 47,349 313,471

NLB BANKA SH.A.



72

The effect of collateral at December 31, 2016:

Over-collateralized Under-collateralized

Assets Assets

Carrying value of the

assets Fair value of collateral

Carrying value of the

assets

Fair value of

collateral

Loans to individuals 45,049 166,616 78,973 14,365

Granted overdrafts 422 717 2,133 277

Credit cards 26 139 2,499 12

Loans for houses and flats 33,418 142,235 34,534 7,337

Consumer loans 11,182 23,525 39,808 6,739

Other loans - - - -

Loans to financial organizations 24 79 12 11

Loans to large corporate customers 65,465 180,492 - -

Loans to small and medium size enterprises 137,485 548,052 2,600 1,649

Total 248,023 895,239 81,585 16,026

NLB BANKA SH.A.



73



The effect of collateral at December 31, 2015:

Over-collateralized Under-collateralized

Assets Assets

Carrying value

of the assets

Fair value of

collateral

Carrying value

of the assets

Fair value of

collateral

Loans to individuals 27,517 117,424 74,356 50,553

Granted overdrafts 30 98 2,239 1,384

Credit cards - 16 93 101

Loans for houses and flats 26,931 115,085 28,460 24,972

Consumer loans 5 89 189 223

Other loans 551 2,136 43,375 23,873

Loans to large corporate

customers 152,130 618,685 15,024 29,939

Loans to small and medium size

enterprises 5,402 41,246 12,628 40,792

Total 185,049 777,355 102,008 121,284

The analysis of identification of over or under collateralized loans is performed by the Bank at the gross

carrying amount of loans. The table above presents total net loans against total collateral.

The collaterals taken in consideration for the mitigation of the credit risk consists of immoveable properties

such as land and buildings and pledge on moveable properties such as stocks and any other moveable property

which could be converted in to liquid assets on an arm's length transaction. As prescribed by the credit policy

the exposure of the Bank should be covered at least 163% with residential property and/or 200% with

commercial property in correlation with the market value of the collateral. Risk free items include loans

covered by cash or any other easily converted asset into liquid assets in an arms’ length transaction, as defined

by the Credit risk management policy of the Bank and the CBK Rule on large exposures.

Collateral security is taken into consideration in the impairment loss calculation process. The fair market and

liquidation values of the collateral are documented by a current appraisal made by a competent party. The

Bank’s ability to access and liquidate the collateral within a reasonable period also is considered. Within the

collaterals are included movable and immovable properties of the counterparties, in order to cover the

exposure towards the credit risk and the risk of failure to repay the loan.

NLB BANKA SH.A.



74


j. Financial assets available for sale

The table below presents the whole portfolio of debt securities, and their credit grade assigned by Moody’s

or Fitch credit rating agencies:

December 31, 2016

Ratings Available for sale financial assets Total

AA - -

A+ 303 303

Not-rated 65,641 65,641

Total 65,944 65,944

December 31, 2015

Ratings Available for sale financial assets Total

AA - -

A- 161 161

Not-rated 67,763 67,763

Total 67,924 67,924

k. Loans and advances to banks

Loans and advances to banks are neither past due not impaired and are granted without collateral. Table below

presents current account and time deposits with corresponding banks (also refer to note 4 and 5). The table

below presents credit grade assigned by Moody’s or Fitch credit rating agencies:

December 31, 2016

Ratings Current accounts Deposits with banks

Long term Ratings

A 9,968 934

A+ 3,867 6,203

A- 4,819 4,791

AA- - -

BBB+ 4,747 3,796

BBB 4,717 1,330

BB- 591 -

Not rated 105 501

Total 28,814 17,555

NLB BANKA SH.A.



75


k. Loans and advances to banks (continued)

December 31, 2015

Ratings Current accounts Deposits with banks

Long term Ratings

A 781 -

A+ - 3,000

A- 5,266 10,496

AA- - 1,378

BBB+ 434 8,866

BBB 4,802 7,916

BB- 549 -

Not rated 113 700

Total 11,945 32,356

Not Rated December 31, 2016 Current accounts Deposits with banks

Local bank 7 501

Member of NLB Group 77 -

Other bank (International banks) 21 -

Total 105 501

Not Rated December 31, 2015 Current accounts Deposits with banks

Local bank 7 700

Member of NLB Group 106 -

Other bank (International banks) 1 -

Total 114 700

NLB BANKA SH.A.



76

31. FAIRVALUES AND RISK MANAGEMENT (CONTINUED)

l. Concentrations

NLB Banka has a credit strategy which determines the types of investments (concentrations) based primarily

on economic segments such as industry, trade, construction, etc. Due to the small size of the Republic of

Kosovo, geographical concentrations within Kosovo are not significant; this strategy is reviewed and updated

on an annual basis by the management board or the bank.

The following table breaks down the Bank’s main credit exposure at their net amounts, as categorized by the

industry sectors of our counterparties.

As of December 31, 2016 and 2015, an analysis of loans to customers and banks by industry sectors was as

follows:

Industry concentration


Net loans % Net loans %

Banks 17,556 5% 32,356 10%

Citizens 124,008 36% 104,096 32%

Construction industry 21,280 6% 16,315 5%

Industry 20,892 6% 20,547 6%

Agriculture 11 -% 1,067 -%

Services 62,275 18% 28,820 9%

Hospitality 998 -% 7,991 3%

Transport and communications 11,468 3% 8,022 2%

Trading 88,677 26% 102,481 32%

Total 347,165 100% 321,695 100%

m. Liquidity risk

Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It

includes both the risk of being unable to fund assets at appropriate maturity and rates and the risk of being

unable to liquidate an asset at a reasonable price and in an appropriate time frame to meet the liability

obligations. The Bank monitors its liquidity on a daily basis in order to manage its obligations as and when

they fall due. Funds are raised using a broad range of instruments including deposits, borrowings and share capital. This

enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of

funds. The Bank makes its best efforts to maintain a balance between continuity of funding and flexibility

through the use of liabilities with a range of maturities. The Bank continually assesses liquidity risk by

identifying and monitoring changes in funding required for meeting business goals and targets set in terms of

the overall Bank strategy. In addition the Bank holds a portfolio of liquid assets as part of its liquidity risk

management strategy. The amount disclosed in tables below is contractual undiscounted cash flows.

NLB BANKA SH.A.



77


m. Liquidity risk (continued)

December 31, 2016

On demand and

less than one

month

One month to

three months

Three months

to twelve

months

One year to

five years

Five years

onward Total

Financial assets

Cash and balances with the Central Bank

56,156

-

-

-

-

56,156

Due from other banks 9,086 2,438 6,060 - - 17,584

Loans to customers, net 12,455 26,654 118,585 185,449 38,023 381,167

Financial assets available for sale

2,600

17,705

28,782 16,555

-

65,641

Total financial assets 80,297 46,797 153,427 202,004 38,023 520,548


Customer accounts 290,365 10,111 59,535 90,635 - 450,646

Borrowings 9 20 87 210 - 326

Other financial liabilities 6,359 - - - - 6,359

Loan commitments 2,383 4,341 23,810 10,287 3,119 43,939

Financial guarantees 777 4,373 11,265 636 536 17,587

Total financial liabilities 299,893 18,844 94,697 101,769 3,655 518,857

Liquidity gap as at December 31, 2016

(219,596)

27,953

58,731

100,235

34,368

1,691

NLB BANKA SH.A.



78


n. Liquidity risk (continued)

December 31, 2015

On demand and

less than one

month

One month to

three months

Three months

to twelve

months

One year to

five years

Five years

onward Total

Financial assets Cash and balances with the Central Bank 30,540 - - - - 30,540

Due from other banks 7,491 5,664 19,220 - - 32,375

Loans to customers, net 11,375 25,234 103,354 166,109 32,784 338,856

Financial assets available for sale 12,224 10,585 36,116 9,606 161 68,692

Total financial assets 61,630 41,483 158,690 175,715 32,945 470,463


Customer accounts 255,412 12,240 66,132 72,979 - 406,763

Borrowings 83 - - - - 83

Other financial liabilities 1,981 - - - - 1,981

Loan commitments 1,145 6,276 20,620 8,092 3,289 39,422

Financial guarantees 3,037 5,296 12,617 300 5 21,255

Total financial liabilities 261,658 23,812 99,369 81,371 3,294 469,504

Liquidity gap as at December 31, 2015 (200,028) 17,671 59,321 94,344 29,651 959

NLB BANKA SH.A.



79


o. Fair value of financial instruments

(a) Fair values of financial instruments carried at amortised cost

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date. Fair values have been based on

management assumptions according to the profile of the asset and liability base.

The following table summarizes the carrying amounts and fair values to those financial assets and liabilities

not presented on the statement of financial position at their fair value.


Carrying amount Fair value Carrying

amount

Fair value

Loans and advances to banks 17,555 17,569 32,356 32,375

Loans and advances to customers 329,607 383,757 289,339 315,505

Due to banks 1,339 1,339 221 221

Due to customers 442,094 449,151 400,246 406,193

Borrowing 267 267 83 82

Other financial liabilities 6,356 6,356 1,981 1,981

All fair value disclosures are based on management estimates and valuation techniques and fall under Level

2 of the fair value hierarchy. The valuation techniques and estimates for most significant assets and liabilities

are described below:

Loans to banks

Loans and advances to other banks comprise inter-bank placements. The fair value of placements and

overnight deposits is their carrying amount due to their short-term nature.

Loans to customers

Loans to customers in the balance sheet are presented in net amount, i.e. net of allowances for impairment.

For the purpose of calculating the fair value, the Bank used discounted cash flow method. Thus, the

calculation is based on contractual cash flows. Credit risk of individual clients is taken into consideration

through the expected impairment.

Deposits and borrowings

The estimated fair value of deposits and borrowings is based on discounted contractual cash flows, taking

into consideration market interest rates, which would have been payable by the Bank in need of replacing the

old sources with the new ones of equal remaining maturity.

NLB BANKA SH.A.



80


o. Fair value of financial instruments (continued)

a) Analysis by fair value hierarchy of financial instruments carried at fair value

The Bank measures fair values using the following fair value hierarchy that reflects the significance of the

inputs used in making the measurements:

a) Level 1: Quoted market price (unadjusted) in an active market for an identical instrument

b) Level 2: Valuation techniques based on observable inputs other than quoted prices, either directly (i.e.

as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using:

quoted market prices in active markets for similar instruments; quoted prices for identical or similar

instruments in markets that are considered less than active; or other valuation techniques where all

significant inputs are directly or indirectly observable from market data.

c) Level 3: Valuation techniques using significant unobservable inputs. This category includes all

instruments where the valuation technique includes inputs not based on observable data and the

unobservable inputs have a significant effect on the instrument’s valuation. This category includes

instruments that are valued based on quoted prices for similar instruments where significant

unobservable adjustments or assumptions are required to reflect differences between the instruments.

The following table shows the distribution of fair values over the different fair value hierarchies.

December 31, 2016

Total Fair

Value Level 1 Level 2 Level 3

Financial Assets

Debt instruments

65,641 - 65,641 -

Equity instruments 303 303 -

Total available for sale financial assets 65,944 303 65,641 -

December 31, 2015:

Total Fair

Value Level 1 Level 2 Level 3

Financial Assets

Debt instruments 67,763 - 67,763 -

Equity instruments 161 161 - -

Total available for sale financial assets 67,924 161 67,763 -

The availability of observable market prices and model inputs reduces the need for management judgment

and estimation and also reduces the uncertainty associated with determination of fair values. The availability

of observable market prices and inputs varies depending on the products and markets and is prone to changes

based on specific events and general conditions in the future markets.

The Bank does not possess instruments that are subject to possible movements from one level to another of

fair value category.

Nr Name Unit ADDRESS

1 Branch 0001 PRISHTINË F Str. “Ukshin Hoti” nr.124, Prishtinë

2 Cash office – Customs Terminal "Amortizatorët" S Magjistralja Prishtine Fushë Kosovë

3 Sub-branch near Xhamia e LLapit E Str.”Ilir Konushevci” nr. 75, - Prishtinë

4 Sub-branch in “Al Trade” E Magjistralja Prishtinë - Shkup, Veternik

5 Sub-branch Drenas E Str. “Skënderbeu” p.n. - Drenas

6 Sub-branch Bregu i Diellit E Qendra Tregëtare "Bregu i Diellit", Prishtinë

7 Cash office - Terminal in Intereuropa S Zona Industriale në Prishtinë

8 Branch 1001 PRISHTINË F Str. “Rexhep Luci’ nr. 11, - Prishtinë

9 Sub-branch Graqanicë E Str. “Kralj Milutin” p.n

10 Sub-branch – Business center E Str. “Eqrem Qabej” nr.1, Prishtinë

11 Sub-branch Fushë Kosovë E Str. Zona Industriale në Prishtine, objekti Al-Trade, p.n

12 Sub-branch Kastriot E Str. “Hasan Prishtina” p.n.

13 Sub-branch Lypjan E Str. Lidhja e Prizrenit 20/3, - Lypjan

14 Branch 1002 GJILAN F Str.”Adem Jashari” nr. 116 Gjilan

15 Sub-branch Gjilan E Str. “Bulevardi I Pavarsisë” nr 92, Gjilan

16 Sub-branch Viti E Str. “Adem Jashari” p.n. - Viti

17 Sub-branch Kamenicë E Str. “Skenderbeu” p.n - Dardanë

18 Branch 1003 FERIZAJ F Str. “Rexhep Bislimi” pn.

19 Sub-branch Ferizaj E Str. “Dëshmorët e Kombit” pn.

20 Sub-branch Kaçanik E Str. “Ismajl Raka” p.n - Kaçanik

21 Sub-branch Shterpca E Str. Kryesore p.n. në Shtërpcë

22 Sub-branch Hani i Elezit E Str. “Adem Jashari” p.n.

23 Cash office - Terminal Hani i Elezit S Str.”ShaStr Sallonit”.nr. 15.

24 Branch 1004 GJAKOVË F Str. “Nëna Terezë” nr. 363

25 Sub-branch Gjakovë E Str. “UÇK” p.n.

26 Branch 1005 PRIZREN F Str. Str. “De Rada” p.n.

27 Sub-branch Prizren E Str. “Adem Jashari”

28 Sub-branch Suhareke E Str. “Brigada 123”, pn

29 Sub-branch Rahovec E Str. “Xhelal Hajda-Toni”, p.n. – Rahovec,

30 Sub-branch Malisheve E Magjistralja Prishtinë-Rahovec

31 Cash office- Terminal Holandez S Str.Tranzit pn.

32 Branch 1006 PEJË F Str. “Petro Marko” nr. 1 në Pejë

33 Sub-branch Peje E Str. “Mbreteresha Teutë” nr.67 në Pejë

34 Cash office- Terminal Peje S Str. “Zahir Pajaziti” p.n.

35 Sub-branch Kline E Str.”Abedin Rexha” nr.4 në Klinë

36 Sub-branch Istog E Str. “Fadil Ferati” p.n. në Istog

37 Sub-branch Deçan E Str. “Luan Haradinaj” p.n. në Deçan

38 Branch 1007 MITROVICË F Str.”Afrim Zhitia” p.n. - Mitrovicë

39 Sub-branch Mitrovice E Str. “Mbreteresha Teuta” nr.33. - Mitrovicë

40 Cash office- Terminal Mitrovicë S Str. Terminali Mitrovicë nr.28

41 Sub-branch Mitrovica Veriore E Str. “Kralja Petra" në Mitrovicë

42 Sub-branch Vushtri E Str. “Sheshi i Lirisë" nr.17– VushtStri

43 Sub-branch Skenderaj E Str. “28 Nëntori” p.n. 41000 Skenderaj

44 Branch 1009 PODUJEVË F Str.”Zahir Pajaziti” p.n. në Podujevë

45 Cash office- Terminal Podujevë S Magjistralja Podujevë - Merdare

Territorial units of NLB Banka

Rr. Ukshin Hoti nr. 124, 10 000 PrishtinëT: + 381 (0)38 240 230 100E: [email protected]: www.nlb-kos.com

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