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Annual Report 2008

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Key Figures
EUR 000 ALL 000 Change
2008 2007 2008 2007 ALL
Balance Sheet Data
Total Assets 243,417 243,214 30,135,047 29,618,523 1.7%
Gross Loan Portfolio 134,041 117,494 16,594,245 14,308,432 16.0%
Business Loan Portfolio 96,375 87,081 11,931,283 10,604,704 12.5%
EUR < 10,000 39,890 33,954 4,938,332 4,134,893 19.4%
EUR > 10,000 < 50,000 30,550 28,088 3,782,068 3,420,496 10.6%
EUR > 50,000 < 150,000 14,088 12,666 1,744,069 1,542,429 13.1%
EUR > 150,000 11,848 12,374 1,466,814 1,506,885 -2.7%
Agricultural Loan Portfolio 11,907 8,535 1,474,051 1,039,354 41.8%
Housing Improvement Loan Portfolio 13,505 9,038 1,671,973 1,100,654 51.9%
Other 12,253 12,841 1,516,939 1,563,719 -3.0%
Allowance for Impairment on Loans (4,603) (5,500) (569,816) (669,843) -14.9%
Net Loan Portfolio 129,438 111,994 16,024,429 13,638,589 17.5%
Liabilities to Customers 203,825 213,817 25,233,538 26,038,614 -3.1%
Liabilities to Banks and Financial Institutions
(excluding PCH) 8,137 8,047 1,007,315 980,021 2.8%
Shareholders Equity 22,845 18,843 2,828,259 2,294,719 23.3%
Income Statement
Operating Income 20,258 17,865 2,487,024 2,208,353 12.6%
Operating Expenses 17,229 13,014 2,115,334 1,608,706 31.5%
Operating Profit Before Tax 3,028 4,851 371,690 599,647 -38.0%
Net Profit 2,609 3,511 320,257 433,858 -26.2%

Key Ratios
Cost/Income Ratio 82.8% 68.0% 82.8% 68.0%
ROE 12.5% 19.5% 12.5% 19.5%
Capital Ratio 15.6% 12.1% 15.6% 12.1%

Operational Statistics
Number of Loans Outstanding 40,122 32,581 23.1%
Number of Loans Disbursed within the Year 26,654 23,784 12.1%
Number of Business and Agricultural
Loans Outstanding 26,910 21,423 25.6%
Number of Deposit Accounts 177,630 198,668 -10.6%
Number of Staff 837 717 16.7%
Number of Branches and Outlets 34 26 30.8%
Exchange rate as of December 31:
2008: EUR 1 = ALL 123.8
2007: EUR 1 = ALL 121.78
Average exchange rate for the period:
2008: EUR 1 = ALL 122.77
2007: EUR 1 = ALL 123.61
Annual Report 2008 2
Mission Statement 4
Letter from the Board of Directors 5
The Bank and its Shareholders 6
The ProCredit Group: Responsible Banks for Ordinary People 8

ProCredit in Eastern Europe 11
Highlights in 2008 14
Management Business Review 16
Special Feature 24
Risk Management 26
Branch Network 30

Organisation, Staff and Staff Development 32

Business Ethics and Environmental Standards 35
Our Clients 36
Financial Statements 40
Contact Addresses 70
Cont ent s 3
Mission Statement
ProCredit Bank Albania is a development-oriented full-service bank. We offer excellent
customer service and a wide range of banking products. In our credit operations, we
focus on lending to very small, small and medium-sized enterprises, as we are
convinced that these businesses create the largest number of jobs and make a vital
contribution to the economies in which they operate.
Unlike other banks, our bank does not promote consumer loans. Instead we focus on
responsible banking, by building a savings culture and long-term partnerships with our
customers.
Our shareholders expect a sustainable return on investment, but are not primarily
interested in short-term profit maximisation. We invest extensively in the training of our
staff in order to create an enjoyable and efficient working atmosphere, and to provide
the friendliest and most competent service possible for our customers.
Annual Report 2008 4
Letter from the Board of Directors
Members of the Board
of Directors as of
December 31, 2008:
Claus-Peter Zeitinger
Anja Lepp
Roland Siller
Stephan Boven
Nicolas Baron Adamovich
Members of the
Management Board as of
December 31, 2008:
Borislav Kostadinov
Anila Denaj
ProCredit Bank Albania enjoyed a successful year in 2008. We continued our sound, sustainable growth
by opening eight offices, bringing the network to a total of 34 branches. In line with our institution-
al growth, we also recruited and trained 406 new employees. With a team of 837 people at year-end,
ProCredit Bank became the second largest bank in Albania in terms of staff numbers.
Given that the local economy was only marginally affected by the international financial crisis, one of the
central challenges in the development of our institution this year was to integrate so many new staff into
the company. Accordingly, we invested heavily in training for both new and existing employees; we also
established a staff appraisal system to help implement our vision of continous learning. Thanks to the
excellent quality of our local and international training programmes, we were able to ensure that all staff
members identified strongly with our mission and values as a socially responsible bank.

ProCredit Bank is driven by a strong ethical code and is dedicated to making a significant contribution
to the communities in which it operates. In co-operation with business owners and residents in our local
neighbourhoods, we organised and took part in many successful projects such as sports competitions,
educational activities, initiatives to promote the arts and public entertainment events. We also undertook a
number of environmental initiatives, including tree-planting projects in various regions of the country and
community care projects with a focus on senior citizens.
The bank once again achieved solid growth in its business operations. By the end of 2008 we were serving
more than 143,000 clients and the gross loan portfolio had reached ALL 16.6 billion (EUR 134.0 million).
The agricultural loan portfolio alone grew by 41.8% to almost ALL 1.5 billion (EUR 11.9 million), making
ProCredit Bank one of the largest lenders to the agricultural sector. We aim to foster local economic de-
velopment by providing accessible financing to farmers and other rural clients, and by building long-term
business relationships with them based on mutual trust. In line with our mission to serve as many small
producers as possible, we invested in a fleet of mobile offices to reach such clients in their own communities
and held over one hundred public meetings to promote the importance of increased co-operation among
rural producers.
ProCredit Bank has also gained the trust of many ordinary people who have chosen to save with one of its
many attractive deposit options. The volume of savings and term deposit accounts accounted for 83.0% of
the total deposit volume at year-end, resulting in a favourable maturity structure in the portfolio which facili-
tated management of the overall structure of the banks assets and liabilities. In the coming year, education-
al measures to promote a savings culture in Albania will continue to be a key focus in our deposit business.
With total income up by 12.6% from 2007 and a net profit of ALL 320 million (EUR 2.6 million), ProCredit
Bank posted a return on equity of 12.5%. A capital increase of ALL 490 million (EUR 4 million) funded
branch network expansion and loan portfolio growth. However, although it experienced dynamic growth,
the bank maintained a good liquidity position throughout the year.
In conclusion, on behalf of the Board of Directors, I would like to express my sincere appreciation to the
executive management of ProCredit Bank Albania and to all of our staff for their hard work and dedication in
a year of truly outstanding achievements. This success would not have been possible without the support
of our shareholders and business partners, and I thank them too for their contribution towards our contin-
ued growth. Our challenge in the coming years is to make sure that ProCredit Bank remains a truly unique
bank one that that is accessible for everyone and is recognised as the most transparent and responsible
financial institution in Albania.
Claus-Peter Zeitinger
Chairman of the Board
Claus-Peter Zeitinger
L e t t er f rom t he Board of Di rec tors 5
The Bank and its Shareholders
ProCredit Holding is the
parent company of a global
group of 22 ProCredit banks. ProCredit Holding
was founded as Internationale Micro Investitionen
AG (IMI) in 1998 by the pioneering development
finance consultancy company IPC.
ProCredit Holding is committed to expanding ac-
cess to financial services in developing countries
and transition economies by building a group of
banks that are the leading providers of fair, trans-
parent financial services for very small, small and
medium-sized businesses as well as the general
population in their countries of operation. In ad-
dition to meeting the equity needs of its subsidi-
aries, ProCredit Holding guides the development
of the ProCredit banks, provides their senior man-
agement, and supports the banks in all key areas
of activity, including banking operations, human
resources and risk management. It ensures that
ProCredit corporate values, best-practice banking
operations and Basel II risk management princi-
ples are implemented group-wide.
IPC is the leading shareholder and strategic
investor in ProCredit Holding. IPC has been
the driving entrepreneurial force behind the
ProCredit group since the foundation of the
banks.
ProCredit Holding is a public-private partnership.
In addition to IPC and IPC Invest (the investment
vehicle of the staff of IPC and ProCredit), the
other private shareholders of ProCredit Hold-
ing include the Dutch DOEN Foundation, the US
pension fund TIAA-CREF, the US Omidyar-Tufts
Microfinance Fund and the Swiss investment
fund responsAbility. The public shareholders of
ProCredit Holding include KfW (the German pro-
motional bank), IFC (the private sector arm of the
World Bank), FMO (the Dutch development bank)
and BIO (the Belgian Investment Company for De-
veloping Countries).
ProCredit Holding has an investment grade rat-
ing (BBB-) from Fitch Ratings Agency. As of the
end of 2008, the equity base of the ProCredit
group is EUR 387 million. The total assets of the
ProCredit group are EUR 4.8 billion.
ProCredit Bank Albania is a member of the ProCredit
group, which is led by its Frankfurt-based parent
company, ProCredit Holding. ProCredit Holding is
the majority owner of ProCredit Bank Albania and
now holds 80% of the shares.
ProCredit Bank Albania was founded in October
1998 as FEFAD Bank by an alliance of international
development-oriented investors. Their goal was to
establish a new kind of financial institution that
would meet the demand of small and very small
businesses in a socially responsible way. The pri-
mary aim was not short-term profit maximisation
but rather to deepen the financial sector and con-
tribute to long-term economic development while
also achieving a sustainable return on investment.
The founding shareholders of ProCredit Bank Al-
bania were FEFAD Foundation, ProCredit Holding,
the European Bank for Reconstruction and Devel-
opment (EBRD) and the International Finance Cor-
poration (IFC). Over the years, ProCredit Holding,
working closely with the consulting company IPC,
has consolidated the ownership and management
structure of all the ProCredit banks and financial
institutions to create a truly global group with a
clear shareholder structure and to bring to each
ProCredit institution all the synergies and benefits
that this implies.
Todays shareholder structure of ProCredit Bank
Albania is outlined below. Its current share capi-
tal is EUR 15.8 million.
Sector
Investment
Banking
Shareholder
(as of Dec. 31, 2008)
ProCredit Holding AG
Commerzbank AG
Total Capital
Headquarters
Germany
Germany
Share
80.00%
20.00%
100%
Paid-in Capital
(in EUR)
12,659,070.00
3,164,767.50
15,823,837.50
Annual Report 2008 6
Commerzbank runs a nationwide banking network
in its domestic market. Following the acquisition
of Dresdner Bank, it is the leading bank for private
and corporate banking with some 1,200 branches
in Germany and a strong presence in Central and
Eastern Europe. In Asia and the US, the bank is ac-
tive in all major commercial centres.
Commerzbank AG is the parent company of a glo-
bal financial services group. The groups operating
business is organised into five segments provid-
ing each other with mutually beneficial synergies:
Private Customers, Mittelstandsbank (SME bank),
Central & Eastern Europe, Corporates & Markets
and Commercial Real Estate / Shipping.
Commerzbank AG, es-
tablished in 1870, is Germanys second-largest
bank and one of the leading financial institu-
tions in Europe. The bank is a competent pro-
vider of financial services, primarily for private
customers and small- and medium-sized enter-
prises (SMEs). It also manages major corporate
customers and institutions in Europe as well
as multinational enterprises around the world.
Commerzbank aims to enhance its market share
among these core target groups and, in particu-
lar, to establish itself as the number one bank for
Germanys SME market.
The Bank and i t s Sharehol ders The Bank and i t s Sharehol ders 7
The ProCredit Group: Responsible Banks for Ordinary People
The ProCredit group comprises 22 financial in-
stitutions whose business focus is on providing
responsible banking services in transition econo-
mies and developing countries. We aim to provide
accessible, reliable services to small businesses
and the ordinary people who live and work in the
neighbourhoods in which we operate. Today our
21,400 employees, working in 814 branches,
serve 2.9 million customers in Eastern Europe,
Latin America and Africa.
The first ProCredit banks were founded more than
a decade ago with the aim of making a significant
development impact by promoting the growth of
small businesses. We sought to achieve this by
providing loans tailored to their requirements and
offering attractive deposit facilities that would en-
able and encourage low-income individuals and
families to save. The group has grown strongly over
the years today we are one of the leading provid-
ers of banking services to small business clients in
most of the countries in which we operate.
Our development mission and socially respon-
sible approach remain as relevant today as they
have ever been. Indeed, their importance has
been underscored by the global financial cri-
sis and the challenges this has created for indi-
vidual clients as well as for national economies.
The impact of the credit crunch will differ from
country to country and from region to region, but
now more than ever our customers need a reliable
banking partner. That is why we have consistently
applied the principles that have defined the Pro-
Credit group since its foundation.
Our mission is to provide credit in a responsible
manner to very small, small and medium-sized
enterprises, as we are convinced that these busi-
nesses create the largest number of jobs and
make a vital contribution to the local economy.
Unlike most other banks operating in our mar-
kets, we avoid aggressive consumer lending and
all speculative lines of business. Instead, the
ProCredit banks work in close contact with their
clients to gain a profound understanding of the
problems small businesses face and the opportu-
nities that are available to them.
Our tailored credit technology reflects the re-
alities of our clients operating environment. De-
veloped by the German consulting firm IPC, this
technology combines careful individual analysis
of all credit risks with a high degree of standardi-
sation and efficiency. It enables ProCredit institu-
tions to reach a large number of small businesses
while maintaining high loan portfolio quality. By
making the effort to know our clients well and
build long-term working relationships based on
trust and understanding, we are well positioned
to support them not only when the economy is
buoyant, but also during a downturn.
Furthermore, our targeted efforts to foster a sav-
ings culture in our countries of operation have en-
abled us to build a stable deposit base. ProCredit
deposit facilities are appropriate for a broad
range of customers, and for low-income groups
in particular. We offer simple savings products
with no minimum deposit requirement. ProCredit
banks place great emphasis on childrens savings
products and on running financial literacy cam-
paigns in the broader community. In addition to
deposit facilities, we offer our clients a full range
of standard non-credit banking services.
The ProCredit group has a simple business mod-
el: lending to a diverse range of enterprises and
mobilising local deposits. As a result, our banks
have a transparent, low-risk profile. We do not
rely heavily on capital market funding and have
no exposure to complex financial products. Fur-
thermore, our well-trained staff are highly flex-
ible and able to provide competent advice to
clients, guiding them through difficult times. De-
spite the turmoil of the global financial markets,
the performance of the ProCredit group has been
remarkably stable: we ended 2008 with approxi-
mately 15.4% year-on-year growth in assets over
the year and a comfortable level of profitability.
Our shareholders have always taken a conserva-
tive, long-term view of business development,
aiming to strike the right balance between a
shared developmental goal reaching as many
small enterprises and small savers as possible
and achieving commercial success.
Strong shareholders provide a solid foundation
for the ProCredit group. It is led by ProCredit
Holding AG, a German-based company that was
founded by IPC in 1998. ProCredit Holding is a
public-private partnership. The private sharehold-
ers include: IPC and IPC Invest, an investment ve-
Annual Report 2008 8
ProCredit Bank Serbia
ProCredit Bank
Bosnia and Herzegovina
ProCredit Bank Kosovo
ProCredit Bank Albania
ProCredit Bank Macedonia
ProCredit Bank
Sierra Leone
ProCredit
Savings and Loans Ghana
ProCredit Bank
Democratic Republic of Congo
Banco ProCredit Mozambique
ProCredit Bank Ukraine
ProCredit Bank Moldova
ProCredit Bank Romania
ProCredit Bank Georgia
ProCredit Bank Armenia
ProCredit Bank Bulgaria
ProCredit
Mexico
Banco ProCredit
Honduras
Banco ProCredit
El Salvador
Banco ProCredit
Nicaragua
Banco ProCredit
Colombia
Banco ProCredit
Ecuador
Banco Los Andes
ProCredit Bolivia
The international group
of ProCredit institutions;
see also
www.procredit-holding.com
hicle set up by IPC and ProCredit staff members;
the Dutch DOEN Foundation; the US pension fund
TIAA-CREF; the US Omidyar-Tufts Microfinance
Fund; and the Swiss investment fund responsA-
bility. The public shareholders include the Ger-
man KfW Bankengruppe (KfW banking group);
IFC, the private sector arm of the World Bank; the
Dutch development bank FMO; and the Belgian
Investment Company for Developing Counties
(BIO). The group also receives strong support
from the EBRD and Commerzbank, our minority
shareholders in Eastern Europe, and from the IDB
in Latin America.
ProCredit Holding is not only a source of equity
for its subsidiaries, but also a guide for the de-
velopment of the ProCredit banks, providing the
personnel for their senior management and of-
fering support in all key areas of activity. The
holding company ensures the implementation of
ProCredit corporate values, best practice bank-
ing operations and Basel II risk management
principles across the group. The groups busi-
ness is run in accordance with the rigorous regu-
latory standards imposed by the German banking
supervisory authority (BaFin).
ProCredit Holding and the ProCredit group place
strong emphasis on human resource manage-
ment. Our neighbourhood banking concept is
not limited to our target customers and how we
reach them, it is also about our staff: how we
work with one another and how we work with
our customers. The strength of our relationships
with our customers will be central to working with
them effectively in 2009 and achieving steady
The ProCredi t Group: Re sponsi bl e Banks f or Ordi nary Peopl e 9
business results. A responsible neighbourhood
bank approach requires a decentralised decision-
making process and a high level of judgment and
creativity from all staff members, especially our
branch managers. Our corporate values embed
principles such as honest communication, trans-
parency and professionalism into our day-to-day
business. Key to our success is therefore the re-
cruitment and training of a dedicated staff. We
maintain a corporate culture which strengthens
the professional development of our staff, while
fostering their deep sense of personal and so-
cial responsibility. This entails not only intensive
training in technical and management skills, but
also a continuous exchange of personnel among
our member institutions in order to take full ad-
vantage of the opportunities for staff develop-
ment that are created by their participation in a
truly international group.
A central plank in our approach to training is the
groups ProCredit Academy in Germany, which
provides a three-year, part-time ProCredit Bank-
er training programme for high-potential person-
nel from each of the ProCredit institutions. The
programme includes intensive technical training
and also exposes participants to a very multicul-
tural learning environment and to subjects such as
anthropology, history, philosophy and ethics. The
programme provides an opportunity for our future
leaders to develop their views of the world, as well
as their communication and staff management
skills. The first year of ProCredit Academy partici-
pants graduated in September 2008. The profes-
sional development of local middle managers is
further supported by three regional academies in
Latin America, Africa and Eastern Europe, which
provide similar off-site training for a larger number
of people.
The groups strategy for 2009 will reflect the
prevailing conditions of the countries in which
we work. We plan to intensify our focus on loan
portfolio quality and to offer personal support to
our existing clients. We will continue to invest in
our staff since it is their skills which enable us to
work effectively with our clients under changing
macroeconomic conditions. As responsible banks
for ordinary people, with prudent policies and an
excellent staff to ensure our steady performance,
we look forward to consolidating our position in
all our countries of operation.
Annual Report 2008 10
ProCredit in Eastern Europe
ProCredit operates in 11 countries across Eastern
Europe. With more than 611,000 loans outstand-
ing, it is the regions leading provider of banking
services to very small, small and medium-sized
businesses.
2008 proved to be a challenging year for the region.
After several years of strong economic growth and
rapid expansion of banking sector assets, the ef-
fects of the global financial crisis were felt in the
latter half of the year as credit growth slowed and
public trust wavered. Although the medium-term
implications are not yet clear, the region will cer-
tainly be affected by both the worldwide economic
downturn and, with the banking sector dominated
by western European banks, the turmoil in the glo-
bal financial sector. We anticipate lower economic
growth and higher levels of market volatility in
our countries of operation conditions to which
ProCredit and its clients must adapt.
Given our consistent, reliable approach, ProCredit
institutions are well placed to succeed in the cur-
rent economic environment. We have a stable,
straightforward balance sheet and a highly diver-
sified client base. Our expansion in the first half of
the year continued to be strong. Growth levelled
off during the final two quarters as we introduced
more conservative lending policies in response to
greater credit risk. Our staff focused on working
closely with our debtors and retail clients to help
them understand and respond to changing condi-
tions.
Across the region, the focus of most other banks in
recent years has been on corporate financing and
consumer lending. In comparative terms, these
institutions have neglected the provision of credit
to small entrepreneurs and family businesses.
At ProCredit, we consider such clients to be our
core target group. We are their banking partner
of choice, able to understand their needs and of-
fer sound, professional advice. These businesses
will remain the driving force behind economic
growth and job creation across Eastern Europe,
just as they have been since the collapse of Soviet
influence and large, state-owned enterprises. As
other banks provide fewer loans in the region, due
to either domestic or international constraints, it
will be more important than ever that we provide
our clients with access to sufficient finance to
support their operations.
ProCredit has always emphasised the fact that
consumer lending, which has been so aggressive-
ly pursued by other banks in Eastern Europe, has
never been a line of business in which we wish to
engage. Such loans can easily lead to over-indebt-
edness when banks advertise and disburse them
irresponsibly in a competition to gain market
share. We fear that the widespread practice of ap-
proving loans with an inadequate analysis of cus-
tomers repayment capacity may now exacerbate
the problems that individuals and families face in
less prosperous times. This poses further poten-
tial difficulties for the banking sector as a whole.
Our approach is to provide primarily business
loans following a careful, individual analysis of
each clients ability to meet his or her obligations.
We have decentralised decision-making systems
in place and a body of highly qualified staff who
are able to conduct an efficient and reliable risk
assessment even in more volatile economic condi-
tions. ProCredit is guided by a responsible, long-
term attitude towards business development. We
aim to build lasting relationships with our clients
and do not forget that a loan is also a debt. These
values will be particularly pertinent when manag-
ing potential arrears in cases where clients have
to adapt to lower than anticipated sales.
Our lending activities include the provision of
agricultural loans; we are keen to support a sec-
tor that has been particularly neglected by other
banks and that is vital for employment and social
cohesion outside the main urban areas. We also
provide housing improvement loans to help low-
income families renovate their homes and im-
prove energy efficiency.
Alongside its credit operations, ProCredit has
invested strongly over the years in creating a
savings culture amongst clients and the broader
public. We believe that setting money aside can
help protect savers against the uncertainties of
life. This is perhaps truer now than ever before.
The ratio of deposits to GDP in Eastern European
countries is well below Western European levels,
typically at around 50%. Through promotional
events and direct, personal communication, we
encourage people particularly those who do not
yet have a bank account to make use of banking
services and to regularly save a portion of their
earnings.
ProCredi t i n E ast ern Europe 11
Poland
Belarus
Turkey
Slovakia
Czech Republic
Hungary
Austria
Slovenia
Greece
Syria
Armenia Azerbaan
Georgia
Russia
Ukraine
Moldova
Romania
Bulgaria
Serbia
Kosovo
Macedonia
Albania
Bosnia
and
Herze-
govina
Montenegro
Croatia
Italy
Germany
Switzerland
We offer simple and reliable retail banking servic-
es, including flexible savings and deposit accounts
to accommodate depositors long- and short-term
needs. Our belief in transparent, direct commu-
nication is particularly important in fostering cli-
ents trust in these difficult times. We understand
that our clients want to know in simple language
how to save safely; they also want to access their
money when they need it without unexpected
complications. Thanks to the trust that the pub-
lic has placed in ProCredit, local deposits are the
principal source of funding for our lending activi-
ties to local businesses. We have therefore not had
to rely on unpredictable capital markets. All the
ProCredit institutions in Eastern Europe ended the
year with a comfortable liquidity position and a sta-
ble, indeed increasing, net interest margin.
In line with our mission to reach clients in their
neighbourhoods wherever they are, the ProCredit
group continued to expand in 2008: we opened
116 branches and recruited more than 2,500 peo-
ple in Eastern Europe alone, bringing the regional
total to over 13,500 employees in 557 branches.
In the coming year we will focus on strengthen-
ing our business operations from this base. We
place a strong emphasis on transparency and will
continue to run information campaigns in 2009 to
ensure that people understand the pricing of our
products as well as those of our competitors.
Our staff is the key element in our approach to be-
ing a stable, down-to-earth and personal banking
partner. The ProCredit group has a strong commit-
ment to staff training, professional development
and the cultivation of an open, honest communica-
tion culture. Staff exchanges, cross-border train-
ing programmes and regional workshops are an
important part of our approach. In September 2008
construction was completed on the new Eastern Eu-
ropean Academy, located near Skopje in Macedo-
nia. Dedicated to the training of ProCredit middle
managers, the Academy is an important channel for
rapid and consistent communication region-wide
and one that helps us adapt quickly to face new
challenges: 210 managers have already graduated
from the six-week intensive course since the facil-
ity was founded. A language centre at the Academy
also provides residential English courses, maximis-
ing the potential for international exchange within
the group. Like all prudent banks, we will continue
to focus on efficient cost management in 2009 and
beyond. Investment in our staff is however an on-
going commitment and will remain a central plank
in the ProCredit Bank approach. A qualified, moti-
vated and professional team lies at the root of our
lasting success across Eastern Europe.
Annual Report 2008 12
* The figures in this section have been compiled on the basis of the financial and operational reporting performed in accordance with group-
wide standards; they may differ from the figures reported in the banks local GAAP statements.
** including trainees
Name
ProCredit Bank
Albania
ProCredit Bank
Armenia
ProCredit Bank
Bosnia and Herzegovina
ProCredit Bank
Bulgaria
ProCredit Bank
Georgia
ProCredit Bank
Kosovo
ProCredit Bank
Macedonia
ProCredit
Moldova
ProCredit Bank
Moldova
ProCredit Bank
Romania
ProCredit Bank
Serbia
ProCredit Bank
Ukraine
Highlights*
Founded in October 1998
34 branches
40,619 loans / EUR 134.1 million in loans
177,630 deposit accounts / EUR 203.9 million
1,003 employees**
Founded in December 2007
4 branches
2,340 loans / EUR 16.7 million in loans
6,592 deposit accounts / EUR 6.7 million
203 employees
Founded in October 1997
44 branches
65,277 loans / EUR 162.9 million in loans
113,096 deposit accounts / EUR 171.5 million
888 employees
Founded in October 2001
87 branches
66,612 loans / EUR 578.9 million in loans
220,023 deposit accounts / EUR 341.9 million
1,955 employees
Founded in May 1999
58 branches
66,083 loans / EUR 221.8 million in loans
364,742 deposit accounts / EUR 126.1 million
1,815 employees
Founded in January 2000
60 branches
98,366 loans / EUR 439.6 million in loans
402,214 deposit accounts / EUR 570.0 million
1,158 employees
Founded in July 2003
40 branches
35,493 loans / EUR 129.1 million in loans
129,687 deposit accounts / EUR 127.6 million
791 employees
Founded in December 1999
13 branches
13,221 loans / EUR 23.5 million in loans
175 employees
Founded in December 2007
17 branches
2,973 loans / EUR 8.7 million in loans
9,226 deposit accounts / EUR 5.1 million
350 employees
Founded in May 2002
40 branches
41,948 loans / EUR 214.0 million in loans
142,379 deposit accounts / EUR 148.1 million
1,121 employees
Founded in April 2001
86 branches
133,043 loans / EUR 453.3 million in loans
478,745 deposit accounts / EUR 332.3 million
2,058 employees
Founded in January 2001
74 branches
45,858 loans / EUR 262.6 million in loans
105,656 deposit accounts / EUR 122.8 million
2,035 employees
Contact
Rruga Sami Frasheri
Tirana
Tel./Fax: +355 4 2 271 272 / 276
info@procreditbank.com.al
www.procreditbank.com.al
31, Moskovyan Str.
Building 99
Yerevan 0002
Tel./Fax: + 374 10 514 860 / 853
info@procreditbank.am
www.procreditbank.am
Emerika Bluma 8
71000 Sarajevo
Tel./Fax: +387 33 250 950 / 250 971
info@procreditbank.ba
www.procreditbank.ba
131, Hristo Botev Blvd.
Sofia 1233
Tel./Fax: +359 2 813 51 00 / 51 10
contact@procreditbank.bg
www.procreditbank.bg
154 D. Agmashenebeli Ave.
0112 Tbilisi
Tel./Fax: +995 32 20 2222 / 24 3753
info@procreditbank.ge
www.procreditbank.ge
Mother Tereze Boulevard No. 16
10 000 Prishtina
Tel./Fax: +381 38 555 777 / 248 777
info@procreditbank-kos.com
www.procreditbank-kos.com
Bul. Jane Sandanski 109a
1000 Skopje
Tel./Fax: +389 2 321 99 00 / 01
info@procreditbank.com.mk
www.procreditbank.com.mk
65, Stefan cel Mare Ave.
office 900, Chisinau
Tel./Fax: +373 22 836555 / 273488
office@procredit.md
www.procredit.md
65, Stefan cel Mare Ave.
office 901, Chisinau
Tel./Fax: +373 22 836555 / 273488
office@procreditbank.md
www.procreditbank.md
62-64 Buzesti Str., Sector 1
011017 Bucharest
Tel./Fax: +40 21 2016000 / 305 5663
headoffice@procreditbank.ro
www.procreditbank.ro
Milutina Milankovica 17
Belgrade
Tel./Fax: +381 11 20 77 906/ 905
info@procreditbank.rs
www.procreditbank.rs
107a Peremogy Ave.
Kyiv 03115
Tel./Fax: +380 44 590 10 17 / 01
info@procreditbank.com.ua
www.procreditbank.com.ua
ProCredi t i n E ast ern Europe 13
Highlights in 2008

ProCredit Holding AG increased its stake in


ProCredit Bank Albania sh.a. to 80%. The
Bank of Albania approved the transfer of the
shares previously held by the IFC (25%) and
the FEFAD Foundation (11.25%) at the start of
the year.
The banks loan portfolio grew by 16% to ALL
16.6 billion (EUR 134.0 million) at year-end.
With its agricultural loan portfolio totalling
just under ALL 1.5 billion (EUR 12 million),
ProCredit Bank is one of the largest lenders
to the sector in Albania. We have now been
offering rural producers what they appreci-
ate most for five years: speed, simplicity and
tailor-made services.
ProCredit Bank expanded its branch network
by opening eight new offices throughout the
country, bringing the total number to 34. In
addition to broadening our outreach in Tirana
and other areas where the bank already had
a presence, we launched operations in three
cities.
At the end of the summer, ProCredit Bank be-
gan operating a fleet of mobile offices. These
specially equipped vans enable the bank to
expand its outreach by providing information
to existing and potential clients in rural areas
with a focus on farmers and the operators of
other agricultural businesses.
ProCredit Bank Albania launched a success-
ful campaign to attract deposits in the sum-
mer. As part of our mission to foster a savings
culture, we carried out intensive direct pro-
motions in busy high street and commercial
districts to inform potential clients about the
advantages of our numerous savings options.
Customer deposits grew by 5.1% over the
campaign period.
Annual Report 2008 14

The bank launched a Visa Business Electron


card service in January. This popular debit
card enables business clients to make pay-
ments via POS terminals and to withdraw
cash at ATMs around the world.
We hired a further 406 employees, increas-
ing the total number of staff to 837. The bank
invested significant resources in training new
recruits and in other measures to facilitate
their rapid integration into its team.
Hi ghl i ght s i n 2008 15

Management Business Review
Management
from left to right:
Borislav Kostadinov
Chief Executive Officer
Anila Denaj
Deputy Chief Executive Officer
Annual Report 2008 16
Political and Economic Environment
Continuing the trend of recent years, the Albanian
economy showed strong expansion in 2008 with
annual GDP growth of 6.0%. The service sector is
one of the most dynamic and contrbuted 57.9%
of GDP; industry also showed substantial growth
and contributed 18.8%, while agriculture had a
share of 23.3% and showed a slower rate of ex-
pansion. Over half of the total national output is
produced by informal businesses.
1

The consumption of electric power grew by about
12% during 2008. Abundant rainfall helped to im-
prove the energy situation in the country, which
relies almost entirely on hydropower for its elec-
tricity supply. Energy imports declined by 32%
as a result of greater domestic electricity produc-
tion, although fuel and food prices increased in
line with global market trends.
Average year-on-year inflation was slightly higher
in the first quarter of 2008 than it had been in the
final quarter of 2007, rising by ten basis points
to 3.7%. In March, the CPI inflation rate rose to
4.6%, exceeding the central banks upper toler-
ance band of 4%. Inflation remained high in April,
but then declined through the summer months
and hovered in a range between 2.5% and the
Bank of Albanias 3% target from August until the
close of the year.
The local currency, the lek, depreciated by an an-
nual average of 1.7% against the euro and 6.1%
against the dollar, due in part to developments in
the international financial markets.
2
In the political sphere, the governing coalition
of seven parties continued to clash with the op-
position regarding policy reforms required by the
Stabilisation and Association Process. The Euro-
pean Commission has emphasised the urgency of
judicial reform in particular, as well as the need
for greater efforts in the fight against crime and
corruption.
While only limited progress was made in the de-
velopment of civil policies, the government con-
tinued to improve the legal and regulatory frame-
work for businesses. Albania has participated in
the European Charter for Small Enterprises proc-
ess since 2003 and joined the Competitiveness
and Innovation Programme in June this year, which
has facilitated exchange between Albanian small
businesses and SMEs in EU member states. New
food safety and veterinary policies were beneficial
for agricultural operations, and the government
also invested in rural development programmes.
Nevertheless, compliance with EU standards re-
mains generally poor and regulatory reform has
so far been limited to inspection and control in
the fishery sector. Improved government regula-
tory capacity is needed to secure greater access
to EU markets for agricultural producers.
Albania was provisionally invited to become a
member of NATO in 2008. It will be eligible to join
the alliance if its application is approved by the
current 26 member countries.
Financial Sector Developments
At the end of 2008, there were 16 commercial
banks operating in Albania, most of them foreign-
owned, with a total of 515 branches. These institu-
tions manage 95.5% of the assets within the coun-
trys financial system. The banking sector is highly
concentrated, with the top five banks controlling
73.5% of total banking assets.
3
Asset growth continued at a stable rate through-
out the year. The sectors total assets reached ALL
834.1 billion (EUR 6.7 billion), representing an
increase of 12.3% over 2007. Credit growth was
reined in somewhat after reaching excessive levels
over recent years but was still strong. Total private
loans were equivalent to 37.1% of GDP at year-end,
while the consolidated loan portfolio showed an
annual increase of 35.7%.
Consumer deposits provided the main funding
source for banks. Total deposits stood at ALL
619.9 billion (EUR 5.0 billion), having grown by
2.9%. 61.8% of the total deposit volume was be-
ing used to fund lending; most of the remainder
was invested in treasury bills.
4
With a capital-as-
1
IMF Country Report No. 09/73.
2
Bank of Albania, Monthly Statistical Report, Dec. 2008.
3
Unless otherwise indicated, data in this section are
based on Bank of Albania, Annual Report 2008.
4
Bank of Albania, www.bankofalbania.org.
Manage ment Busi ne ss Re vi e w 17
< EUR 1,000 EUR 50,001 EUR 150,000
EUR 1,001 EUR 10,000 > EUR 150,000
EUR 10,001 EUR 50,000 * 31 Dec 2008
Number of Loans Outstanding Breakdown by Loan Size*
44.1%
50.4%
4.9% 0.5%
o.11%
Loan Portfolio Development
Number (in 000) Volume (in EUR million)
0
15
30
45
60
75
90
105
120
135
150
Dec Jun
08
Dec Jun
07
Dec Jun
06
Dec Jun
05
Dec Jun
04
0
5
10
15
20
25
30
35
40
45
50
set ratio of 17.3%, the Albanian banking system
was well capitalised, and liquidity levels were
high, even when public confidence was shaken
by media coverage of the banking sector crisis
during the fourth quarter.
Returns were once again high in the financial sec-
tor. The return on equity was 16.6%, and while this
was down from 20.7% in 2007, it shows a consid-
erable level of profitability by international stand-
ards.
Given recent developments in the international fi-
nancial markets, however, increased vigilance is
required on the part of local financial institutions to
maintain their current low exposure to the risks as-
sociated with transactions on those markets. The
Bank of Albania has required banks to take further
steps to maintain the current stable environment.
It introduced a regulation reducing the extent of
the exposure which institutions belonging to in-
ternational banking groups may incur to their par-
ent banks, or to other banks within these groups,
down from 25% to 10% of their regulatory capital.
In addition, a new regulation has enhanced the
transparency of banking services and products.
Lending Performance
ProCredit Bank improved the performance and ef-
ficiency of its lending operations in 2008 with a fo-
cus on building operational capacity and strength-
ening the relevant institutional structures at both
branch and head office level. The bank increased
staff numbers in all areas within the Credit Divi-
sion: there are now almost 200 loan officers alone.
It also provided additional personnel for the Con-
trol and Compliance Unit, which monitors overall
lending operations and develops fraud-prevention
measures. In our credit administration activities
we gave priority to training staff in arrears manage-
ment with the specific aim of improving the quality
of individual staff members loan portfolios.
As a result of these efforts, the loan portfolio in-
creased by 16% to ALL 16.6 billion (EUR 134.0
million) in 2008. The number of outstanding loans
including credit card loans rose by 22.9% to over
40,600 and the average loan size was ALL 409,955
(EUR 3,311) at the close of the year.
We redesigned our product range to enhance the
banks competitive advantage and respond to the
changing needs of our target group of small and
medium-sized businesses. New collateral require-
ments were also introduced for loans below EUR
40,000 to streamline the application process. Fol-
lowing these measures and the expansion of our
operations in large towns, the gross volume of
business loans grew by 12.5%.
Small business lending remained the central focus
of our credit operations: 41.4% of the outstanding
portfolio volume was accounted for by loans be-
low EUR 10,000 and 29.1% of all loans disbursed
Annual Report 2008 18
in %
Business Loan Portfolio Breakdown by Maturity
< 12 months 12 24 months > 24 months
0
10
20
30
40
50
60
70
80
90
100
Dec Jun
08
Dec Jun
07
Dec Jun
06
Dec Jun
05
Dec Jun
04
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Dec Jun
08
Dec Jun
07
Dec Jun
06
Dec Jun
05
Dec Jun
04
Net write-os:
in 2004: EUR 105,000

in 2005: EUR 202,606
in 2006: EUR 780,441
in 2007: EUR 854,253
in 2008: EUR 1,544,875
Loan Portfolio Quality (arrears >30 days)
in % of loan portfolio
in 2008 were in this size range. As our clients
businesses develop, they become eligible for larg-
er loan amounts: loans between EUR 10,000 and
EUR 150,000 represented 46.3% of the portfolio
at year-end and increased in volume by 9.5% over
2007 to some ALL 5.5 billion (EUR 44.6 million).
The agricultural sector is of particular importance
with regard to local economic development and
remains a large source of employment in Albania.
In our fifth year of lending to this vital sector, we
developed new terms and conditions for agri-
cultural loans including lower collateral require-
ments and longer maturities for some loan sizes;
we also offered a more favourable interest rate to
encourage producers to develop their operations.
In addition, we improved customer service for this
target group by ensuring that a sufficient number
of qualified agricultural loan officers were avail-
able at all times throughout the branch network.
As a result of these measures, the volume of our
agricultural loan portfolio increased by 39.5% to
ALL 1.5 billion (EUR 11.9 million).
Unlike many financial institutions, ProCredit Bank
does not offer consumer loans to people who do
not have a regular salary. This policy underscores
our commitment to socially responsible banking
by making it even less likely that we will issue
loans to people who will become overly indebted.
Our housing improvement loans are neverthe-
less a popular product among eligible clients and
showed record growth this year: the outstand-
ing volume increased by 49.4% to ALL 1.7 billion
(EUR 13.5 million).
To better protect clients from exchange rate risks,
the bank increased its lending in local currency.
Loans denominated in ALL accounted for 91% of
the total number of loans disbursed in 2008 (2007:
90.8%), and at year-end they comprised 62.4% of
the total loan portfolio volume.
Deposits and Other Banking Services
ProCredit Bank had a successful year in its retail
operations. Most notably, we achieved a signifi-
cant increase in our deposit base by attracting a
greater volume of savings accounts and term de-
posits. This was primarily the result of a highly
successful promotion which ran from June to Au-
gust and contributed to an increase in total de-
posits of approximately ALL 1 billion (EUR 10 mil-
lion) over the first three quarters. Nevertheless,
low public confidence in the banking system led
to a high level of withdrawals in the final quar-
ter. At year-end, total deposits were down by 6%
from December 31, 2007, totalling ALL 25.2 bil-
lion (EUR 203.8 million).
The growth of our retail banking business was
primarily a result of the expansion of our branch
network into areas where the bank had not previ-
ously operated. Frequent neighbourhood projects
in all areas where the bank has a presence, such as
Manage ment Busi ne ss Re vi e w 19
Customer Deposits
Number (in 000) Volume (in EUR million)
Term Savings Sight Total number
0
25
50
75
100
125
150
175
200
225
250
Dec Jun
08
Dec Jun
07
Dec Jun
06
Dec Jun
05
Dec Jun
04
0
25
50
75
100
125
150
175
200
225
250
72.0%
12.4%
0.1%
o.04%
2.2%
13.3%
< EUR 100 EUR 10,001 EUR 50,000
EUR 101 EUR 1,000 EUR 50,001 EUR 100,000
EUR 1,001 EUR 10,000 > EUR 100,000
* 31 Dec 2008
Number of Customer Deposits Breakdown by Size*
Annual Report 2008 20
Incoming Outgoing Number
Domestic Money Transfers
Number (in 000) Volume (in EUR million)
0
7
14
21
28
35
42
49
56
63
70
Jul
Dec
Jan
Jun
08
Jul
Dec
Jan
Jun
07
Jul
Dec
Jan
Jun
06
Jul
Dec
Jan
Jun
05
Jul
Dec
Jan
Jun
04
0
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
13.5
15.0
International Money Transfers
Number (in 000) Volume (in EUR million)
Incoming Outgoing Number
0
14
28
42
56
70
84
98
112
126
140
Jul
Dec
Jan
Jun
08
Jul
Dec
Jan
Jun
07
Jul
Dec
Jan
Jun
06
Jul
Dec
Jan
Jun
05
Jul
Dec
Jan
Jun
04
0
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
13.5
15.0
environmental initiatives and the building of play-
grounds, highlight our active involvement in the
communities we serve.
ProCredit Bank undertook a large-scale national
campaign to promote the importance of saving
in 2008 and introduced new products geared to
the needs of various target groups. We believe
in allowing people to choose how much or how
little they wish to set aside and provide a broad
range of transparent savings accounts. The suc-
cess of our positioning in the deposit market was
reflected in the volume of customer funds in sav-
ings accounts, which increased by 142.6% to ALL
2 billion (EUR 15.9 million).
The ProBonus Plan is one of our new savings prod-
ucts. Launched in March, it is aimed at clients who
receive a regular income and rewards monthly de-
posits with an interest bonus. Approximately 850
ProBonus accounts had been opened by the end
of the year.
By way of providing a more attractive range of
deposit options, we redesigned our term deposit
accounts this year, introducing 9- and 18-month
maturity periods as well as the new ProKomfort
Deposit, which has a maturity of between 5 and
15 months and pays interest at the end of each
month.
At the end of 2008, around 20,000 customers
were having their salaries paid into an account at
ProCredit Bank. To better meet the needs of cli-
ents with regular incomes, we introduced a new
package that includes a current account, a sav-
ings account and an international debit card.
Reflecting its ongoing efforts to make banking
services more accessible, ProCredit Bank oper-
ates a network of 73 POS terminals and 51 ATMs,
15 of which were installed this year. Many of our
ATMs are at off-site locations to give our clients
more convenient access to their funds. ProCredit
Bank also introduced the Western Union money
transfer service with the aim of making payment
services more widely available and attracting
new clients into our branches.
In January, in another important move, we intro-
duced the VISA Business Electron card to comple-
ment our Maestro and regular Visa Electron card
options. The bank now has some 41,270 debit
cards in circulation which allow customers to
make cashless payments at home and abroad or
to withdraw cash at ATMs worldwide.
Reflecting a higher demand for cashless transac-
tions, domestic transfers increased by 56.6% in
number and by 26.1% in volume to reach ALL 13.6
billion (EUR 107.1 million). International transfers
were up by 13% in number and 26.2% in volume,
totalling ALL 28.2 billion (EUR 227.9 million).

Busi ne ss Re vi e w Manage ment Busi ne ss Re vi e w 21
Financial Results
ProCredit Bank showed solid financial perform-
ance in the year under review, making steady
progress along a path of sustainable growth. To-
tal assets increased by 1.7% to reach ALL 30.1 bil-
lion (EUR 243.4 million).
The year-end gross loan portfolio amounted to
ALL 16.6 billion (EUR 134.0 million) and its share
in total assets had increased from 48.3% to
55.1%. The bank maintained a good liquidity po-
sition throughout 2008 and closed the year with
a ratio of liquid assets to total assets of 26.2%.
Although deposit mobilisation had been strong
over the first three quarters, high withdrawals
during the final three months resulted in an over-
all annual decrease in customer deposits of 3.1%
to ALL 25.2 billion (EUR 203.8 million). The ratio
of net loans to deposits therefore improved from
55.0% in 2007 to 65.8% in 2008. Local deposits
remained our main funding source, although we
also drew on deposits from other banks to sup-
port our credit operations. At EUR 7.1 million,
loans from international financial institutions
constituted only a small portion of our funding
base. A further EUR 5.5 million consisted of sub-
ordinated loans provided by ProCredit Holding.
Total operating income grew by 12.6% to ALL 2.5
billion (EUR 20.3 million). Net interest income in-
creased by 2.1% to ALL 2.2 billion (EUR 17.9 mil-
lion) and contributed 88.2% of total operating
income. The bulk of interest income (77.5%) was
generated through lending activities. Net fee and
commission income rose by 86.8% to ALL 236.6
million (EUR 1.9 million). This increase in revenue
was greater than expected and reflected strong
growth in our payments and card businesses. The
introduction of an account maintenance fee for
private individuals was also an important factor.
Although deposit interest expenses rose to ALL
1.1 billion (EUR 9.2 million) because of increasing
rates worldwide and intense local competition,
this rise was largely offset by higher interest in-
come.
The bank made considerable investments in fixed
assets during 2008 in line with the expansion of
its branch network. Eight new sites were opened
and a further 19 were renovated. We also hired
406 employees, increasing the number of staff by
over 16.7% to 837.
As a result of these investments, total operat-
ing expenses were up by 31.5% to ALL 2.1 billion
(EUR 17.2 million). The cost-income ratio rose
from 68.0% in 2007 to 82.8% due to the costs in-
volved in network expansion and the associated
increase in staff numbers and personnel costs.
Following a carefully planned strategy of growth,
the bank was able to post a net profit for the year
of ALL 320.3 million (EUR 2.6 million). Return
on equity declined, but was still satisfactory at
12.5% (2007: 19.5%).
ProCredit Bank carried out a capital increase of
EUR 4 million in 2008. This additional capital,
along with retained earnings and legal reserves,
increased shareholders funds to EUR 22.8 mil-
lion at year-end. The capital adequacy ratio was
15.6%, 3.6 percentage points above the regula-
tory requirement. Dividends of EUR 2.3 million
were paid in July from the previous years profit.
In 2007, the banks shareholders approved the
transfer of shares held by the FEFAD Founda-
tion (36.25%) and the IFC (11.25%) to ProCredit
Holding AG. Following these transfers, which
were officially registered in January 2008,
ProCredit Holding AG held 80% of the banks
share capital and Commerzbank AG held the re-
maining 20%.
Outlook
The present situation in international financial
markets and a decline in remittances will cause
banks in Albania to rely more on local deposits as
a source of funding in the coming year. Deposit
interest rates will be driven up as competition in-
tensifies further in this area. On the lending side,
banks will seek to increase their assets through
more diverse credit operations and are likely to
turn to the agricultural and SME sectors now that
the consumer lending bubble has finally burst.
ProCredit Bank is well positioned to continue in
its development mission and to further increase
its market share. We will focus on our target cli-
Annual Report 2008 22
entele, providing responsible financing services
and straightforward retail banking products. Our
commitment to the neighbourhood bank concept
and to the promotion of a savings culture will en-
hance our ability to attract customer deposits.
By improving operational efficiency in all areas,
we aim to reduce costs and boost profitability to
support future branch network expansion. There
is strong potential for private sector development
in the cities where we plan to open branches, and
we therefore expect to tap significant new sourc-
es of growth. In response to customer demand,
many new sites will be retail agencies that offer
non-credit services these smaller branches also
involve lower overhead costs. A greater number of
mobile offices will also enable us to serve remote
rural areas where it is not be feasible to estab-
lish a permanent presence. ProCredit Bank also
strives to be a leader in technically innovative
banking in the Albanian market and will further
develop its ATM and POS networks in 2009 in ad-
dition to installing its first teller cash recyclers.
The long-term relationships we build with our
clients depend on an excellent standard of cus-
tomer care and professional competence, and
thus it is clear that the quality of our staff will re-
main the key to our success. Accordingly, we will
continue to invest in ongoing training to enhance
their technical skills and further strengthen our
unique corporate culture.
Manage ment Busi ne ss Re vi e w 23
ProCredit Bank has played an important role
in the development of agriculture for over five
years. It was the first bank in Albania to lend to
farmers, and its commitment to the sector is re-
flected in the ongoing growth of its agricultural
loan portfolio, which had increased to ALL 1.5
billion (EUR 11.9 million) by the end of 2008. But
ProCredit Bank does more than just lend to over
4,700 farmers and other rural producers it also
supports the growth of their businesses through
various initiatives, bringing the neighbourhood
banking concept to rural regions.
In 2008, the bank organised over one hundred
public meetings with farmers throughout the
country, as well as a number of fairs for local
agricultural producers. Representatives of local
government authorities and the Ministry of Agri-
culture, Food and Consumer Protection played a
key role at these events.
Special Feature
Supporting Rural Development
Annual Report 2008 24
The meetings, the first of their kind in Albania,
brought together agricultural and banking ex-
perts, politicians, farmers and processors of ag-
ricultural products. The overall objective was to
foster a dialogue between the participants and,
while encouraging an exchange of views and
ideas, to provide information on topics of crucial
importance to farmers. ProCredit Bank ultimately
aimed to help farmers make their operations
more efficient and profitable by discussing the
main legal, institutional, cultural, social and eco-
nomic factors that affect agricultural activities.
This was a valuable opportunity for farmers in
the area to meet with experts and representatives
of the local authorities to talk about the problems
that we face every day, comments Mr. Naim Ali-
jahej, a dairy farmer from Shkodra who attended
one of the meetings.
Building on the success of this initiative, ProCredit
Bank hopes to promote the nationwide develop-
ment of local communication networks for farm-
ers. By helping people to get to know one another
and stay in touch, such informal networks can en-
able those in the same line of work to learn from
one another and to co-operate more effectively.
Our efforts complement similar activities that
have been organised by various associations of
agricultural producers in Albania.

Furthermore, to promote agricultural produc-
tion in targeted areas, ProCredit Bank organised
a number of local and regional farming conven-
tions. These events gave participants an oppor-
tunity to exhibit their products and to gauge the
demand for them. Bank staff gave speeches and
provided advice to individual producers, encour-
aging them to work more closely with each other
and with the agricultural associations in their ar-
eas.
ProCredit Bank will continue to make credit read-
ily available to eligible producers in the agricul-
tural sector. Moreover, by being involved in lo-
cal communities, it will also continue to put the
neighbourhood bank concept into practice in ru-
ral areas.
Speci al Fe at ure 25
Risk Management
Risk management at ProCredit Bank is an integral
part of the organisational structure and day-to-
day business processes. The Risk Management
Sector is responsible for the identification and
analysis of risk exposures in all areas of opera-
tions and reports its findings in monthly reports
to senior management. Through its various units
and committees, the sector also takes action to
eliminate or mitigate the risks that it identifies.
A number of specialist teams are responsible for
defined areas of risk management, including the
Credit Risk Committee, the Assets and Liabilities
Committee (ALCO), the Operational Risk Commit-
tee and the General Risk Committee. These bod-
ies define the banks risk-bearing capacity and
decide on measures to minimise identified risks.
They are convened at regular intervals, and par-
ticipation by the banks senior management in
their meetings is obligatory.
The bank complies with the Risk Management
Policy of the ProCredit group, which sets out
best-practice standards for risk management
and reporting. All key risks are presented to the
Group Risk Management Department of ProCredit
Holding and the banks Board of Directors for dis-
cussion on a quarterly basis.
The institution has a low risk profile given the
nature of its core activites: its assets and liabili-
ties are highly diversified across thousands of
small enterprises and lower- and middle-income
savers. This minimises the risk that a default by
a single borrower or group of borrowers could
substantially affect portfolio quality, or that with-
drawals by individual depositors could impair the
banks liquidity position.
Our emphasis on building long-term relationships
with our clients is another key aspect of our risk
management strategy. Together with a sophisti-
cated lending methodology and simple, straight-
forward credit products, a deep understanding of
the businesses and people we work with enables
us to make sound lending decisions.
Rigorous risk management procedures must
naturally be implemented by a professional and
competent staff. For this reason, ProCredit Bank
invests heavily in ongoing staff training to ensure
that its employees are able to recognise and deal
Annual Report 2008 26
Ri sk Manage ment 27
with risk in their respective areas. The Internal
Audit Department plays a crucial role in this re-
spect by ensuring compliance with internal con-
trol policies and procedures. It identifies areas in
which there is a potential risk of fraud and imme-
diately notifies management of all its findings.
Credit Risk
ProCredit Bank has a prudent approach to credit
risk management in line with its socially respon-
sible business model. A loan officer first conducts
a thorough analysis of each applicants business
to assess his or her creditworthiness. The results
of the analysis are submitted with the application
for review by a credit committee, which makes its
decisions on a case-by-case basis without using
automated credit scoring systems. Once a loan
has been disbursed, loan officers and the Credit
Administration Sector continuously monitor the
portfolio to identify any potential arrears prob-
lems in a timely manner.
The Credit Risk Committee also monitors the loan
portfolio to gauge its diversification in terms of
loan sizes, maturities and the regional and sec-
toral breakdown. It determines portfolio quality
and reviews the risk ratings assigned to individ-
ual loans. Based on its risk classifications and
the banks overall exposure, the committee then
decides on the necessary level of loan loss provi-
sions.
The strategic diversification of our loan portfo-
lio resulted in an average disbursement of ALL
485,000 (EUR 3,917) in 2008. No fewer than 49%
of all loans outstanding were for amounts of less
than EUR 10,000 at year-end and the ten largest
exposures accounted for only 6.55% of the gross
portfolio.
Thanks to its sound credit risk management in
times of economic uncertainty, ProCredit Bank
kept the portfolio at risk (PAR the volume of
loans in arrears by more than 30 days) at an ac-
ceptable level. The outstanding portfolio grew by
14% and many of our clients faced reduced cash
flows. Nevertheless, the bank reduced its PAR
from 2.05% in 2007 to 2.20% of the total port-
folio. Actual loan losses amounted to ALL 569.8
million (EUR 4.6 million), or 3.4% of the gross
loan portfolio. The bank sets prudent levels of
loan loss provisions, which were equal to 167%
of the PAR on December 31.
Maintaining high portfolio quality is a central
principle in our credit activities. To account for a
higher level of credit risk in the current financial
climate, we have begun including a worst case
scenario analysis in the initial credit assesment,
reducing expected income by 20-50% depending
on the sector in which our clients operate. In addi-
tion, more rigorous loan monitoring is conducted
in the segments of the portfolio where clients are
at greater risk due to the economic environment,
including construction and the production or sale
of high-order consumer goods. Our experienced
staff will continue to work in close contact with
credit clients in 2009 to ensure that they receive
the advice and support they need to be able to
meet their payment obligations.
Market Risk
The bank has a low exposure to market risk as it
does not engage in any speculative lines of busi-
ness. Risk management in this area focuses on
reducing the impact of unfavourable movements
in interest and exchange rates on the banks prof-
it and its capital.
More than 62% of the banks loan portfolio is de-
nominated in the local currency. The ALCO moni-
tors foreign exchange rates to ensure that the
open currency position does not exceed the limit
set by the central bank. At year-end, the average
aggregate open currency position was equivalent
to 13.3% of equity and consisted primarily of the
accumulated profits from prior years.
With regard to interest rate risk, we frequently as-
sess the maturity structure of our assets and lia-
bilities and apply methods based on duration gap
and sensitivity analysis to measure the banks risk
exposure. In line with the limit set by the Board
of Directors, the modified duration gap was kept
within +/-1 for all currencies during 2008.
Annual Report 2008 28
Liquidity Risk
Due to the nature of our lending business, we
have a continuous inflow of cash from loan repay-
ments, which are typically monthly instalments.
The ALCO assesses potential liquidity gaps on a
weekly basis and reports its findings to ProCredit
Holding along with other key risk data. Sufficient
liquidity levels were maintained at all times in
2008, even when customers began to make large
withdrawals in the final quarter. At year-end,
highly liquid assets covered customer deposits
by 32.5% and the ratio of liquid assets to total as-
sets was 26.2%.
Total deposits were equivalent to 152% of the
gross loan portfolio on December 31. Following
intensive savings campaigns throughout the year,
deposits from individuals and corporate clients
accounted for 95% of our liabilities and remained
highly diversified, ensuring the stability of this
key funding source.
In 2008 our shareholders provided ALL 490.6 mil-
ion (EUR 3.9 million) of additional capital and sub-
ordinated debt in the amount of ALL 680.9 million
(EUR 5.5 million). This assured the availability of
sufficient funding to support our growth plans
throughout the year. Moreover, as part of a global
group, the bank has access to further sources of
short-term liquidity and long-term funding if nec-
essary.
Operational Risk
Due to the growth of its staff, an increased reli-
ance on automated technology and integrated
systems, and the introduction of new products
and services, ProCredit Bank faces the ongoing
challenge of minimising operational risk.
A sound organisational framework is in place to
segregate duties between staff members and to
provide a comprehensive, integrated system of
internal controls. The bank operates in accord-
ance with transparent and well-documented pro-
cedures and adheres to the four eyes principle
to protect against human error and verify auto-
matically generated data.
The bank also maintains a risk event database.
The collection and assessment of the informa-
tion it contains was substantially improved over
the course of the year to provide an even sounder
basis for the decisions made by the Operational
Risk Committee.
Capital Adequacy
The banks equity provided an appropriate level
of coverage for all risks throughout 2008. The
groups policy stipulates that sufficient capital
(Tiers 1 and 2) should be maintained to cover
the banks risk-weighted assets by at least 12%.
ProCredit Bank ended the year with a comfortable
capital adequacy ratio of 15.6% (2007: 12.1%).
Ri sk Manage ment 29
Fier (2)
Tirana (9)
Shkodra
Vlora (2)
Lushnja
Pogradec (2)
Kora (2)
Saranda
Berat
Elbasan
Durrs (4)
Lezha
Albania
Adriatic Sea
Ionian Sea
Greece
Macedonia
Kosovo Montenegro
Gjirokastra
Lac
Kuova
Bilisht
Kuks
Kavaja
Divjaka
Branch Network
ProCredit Bank continued to expand its branch
network in 2008. We opened a total of eight of-
fices at locations throughout the country, bringing
the total to 34. Moreover, in line with our objective
of bringing the bank closer to our clients, we also
operate a number of agencies in some cities to sup-
port the retail operations of our larger branches.
One of our priorities was to increase the banks
presence in cities where we have experience
of the local market and recognised substantial
growth potential. We therefore opened four more
branches in Tirana and a second office in the cit-
ies of Vlora, Kora and Fier. In Durrs, we broad-
ened the base for our operations considerably,
doubling the number of offices to four. The signifi-
cant expansion of our outreach in these six cities
has strengthened our position in the central and
southern parts of the country.
Our second major goal in 2008 was to increase the
scale of our operations in rural areas. To this end,
in August we opened a branch in Divjaka, a small
town near the coast in west-central Albania. To
bring us closer to our target groups outside urban
areas, we also began using mobile information of-
fices to provide potential clients with details of our
product range and services at market squares in
small towns across eastern, northern and central
Albania.
Annual Report 2008 30
In addition to establishing new branches, we also
renovated three of our older offices to create a
more attractive and inviting environment in which
to serve our clients. These renovation projects
included the extension of our main branch in Fier
and helped to enhance our image as a sound,
modern financial institution.
Finally, our ATM network grew rapidly during
2008. We installed 15 terminals at off-site loca-
tions, marking the beginning of an intensive in-
vestment in facilities to make access to key bank-
ing services easier and more convenient for our
customers.
Our plans for the coming year call for continued
growth of the branch network, particularly in Ti-
rana. Construction of our new, larger head office
building is underway, and the move to this facil-
ity will improve our capacity both to support the
daily operations of our branches and to manage
the future development of the institution.
Br anch Ne t work 31
Given the pace of our branch network expansion
and the growth of the banks business, staff re-
cruitment and training was an important focus in
2008. Over 400 employees were hired, trained
and integrated into the ProCredit team during the
year. This process was facilitated by the success
of our induction training programme in communi-
cating our corporate values and ensuring that new
employees are fully committed to our business
ethics. Indeed, thanks to our experience in select-
ing candidates who are both able and motivated,
staff turnover declined further this year to 11%.
In addition to our introductory training and the
ongoing refresher courses we conduct for our
existing employees, we offer advanced training
to current and potential middle managers. These
activities include leadership training and courses
to develop the participants own training skills as
well as instruction in technical subjects. Most of
the specialised training for middle management
personnel is provided at the ProCredit groups Re-
gional Academy for Eastern Europe in Macedonia,
and twelve members of our staff completed this
facilitys six-week course in 2008.
At year-end, seven of our high-potential managers
were participating in the three-year part-time pro-
fessional development programme at the ProCredit
Academy in Germany. A further 18 junior and mid-
dle managers attended the intensive English cours-
es offered by ProCredit Holding at its language cen-
tres in Germany and Macedonia, improving their
knowledge of the groups working language.
Organisation, Staff and Staff Development
Annual Report 2008 32
All local training is provided by specialist in-house
staff and a range of expert external providers. In
addition, over 60 employees assumed the role of
trainer for a number of seminars and shared their
experience in different fields. The total number
of training days was over 1,500, an increase of
around 73% in comparison with the previous
year, and our employees received an average of
10 days of training. The bank invested some EUR
746,000 in staff development measures.
Our employees appreciate that everyone who
works at ProCredit Bank must be open and honest
in their dealings both with our customers and with
each other, and that fulfilment of our corporate
mission requires a very strong commitment on the
part of the whole team. In order to help maintain
a culture of direct communication and to promote
a greater understanding of the practical implica-
tions of our corporate values, we organise open
forums for our staff to discuss topics such as the
ProCredit Code of Conduct and our responsible
approach to the banking business with members
of our management team. These meetings further
strengthen the ties between the bank and its em-
ployees and between sectors.
Reflecting our commitment to internal transpar-
ency, we conducted our first-ever staff appraisal
in March. This gave all our employees the oppor-
tunity to define goals for their future professional
development and to identify any problems at the
workplace. Staff discussed their roles in detail
with their supervisors or managers, a process
which strengthened internal relationships and
motivated employees to improve their overall per-
formance.
As a responsible employer, we recognise that our
commitment to our employees should be reflected
in more than just fair and equitable compensation
for their work and ample opportunities for career
advancement. Accordingly, the Human Resources
Sector began developing benefit packages for
all staff members that include the provision of
daycare facilities for their children and medical
check-ups for their families. We have made great
progress on this front, but a good deal remains to
be done. We hope to be able to start offering the
packages to our staff in 2009.
Organi sat i on, Staf f and Staf f De vel opment 33
Annual Report 2008 34
Part of the overall mission of the ProCredit group
is to set standards in the financial sectors in which
we operate. We want to make a difference not only
in terms of the target groups we serve and the
quality of the financial services we provide, but
also with regard to business ethics. Our strong
corporate values play a key role in this respect. We
have established six essential principles which
guide the operations of ProCredit institutions:
Transparency: We adhere to the principle of
providing transparent information both to our
customers and the general public and to our
employees, and our conduct is straightfor-
ward and open;
A culture of open communication: We are
open, fair and constructive in our communica-
tion with each other, and deal with conflicts
at work in a professional manner, working to-
gether to find solutions;
Social responsibility and tolerance: We give
our clients sound advice; their economic and
financial situation, their potential and their
capacities are assessed so that they can ben-
efit from appropriate products; promoting a
culture of savings is important to us; we are
committed to treating all customers and em-
ployees respectfully and fairly, regardless of
their origin, colour, language, gender or reli-
gious or political beliefs;
Service orientation: Every client is served in
a friendly, competent and courteous manner.
Our employees are committed to providing ex-
cellent service to all customers, regardless of
their background or the size of their business;
High professional standards: Every employee
takes responsibility for the quality of his/her
work and strives to do his/her job even better;
A high degree of personal commitment: This
goes hand-in-hand with personal integrity
and honesty traits which are required of all
employees in all ProCredit institutions.
These ProCredit values represent the backbone
of our corporate culture and are discussed and
actively applied in our day-to-day operations.
Moreover, they are reflected in the Code of Con-
duct, which transforms the ProCredit groups
ethical principles into practical guidelines for all
ProCredit staff. To make sure that new staff fully
understand all of the principles that have been
defined, the induction training for new employees
includes dedicated sessions dealing exclusively
with the Code of Conduct and its significance
for all members of our team. And to ensure that
employees remain committed to our high ethical
standards and are made aware of new issues and
developments which have an ethical dimension
for our institution, refresher training sessions at
which case studies are presented and grey areas
discussed are regularly conducted for existing
staff.
Another aspect of ensuring that our institution
adheres to the highest ethical standards is our
consistent application of international best-prac-
tice methods and procedures to protect ourselves
from being used as a vehicle for money laundering
or other illegal activities such as the financing of
terrorist activities. The important focus here is to
know your customer, and, in line with this princi-
ple, to carry out sound reporting and comply with
the applicable regulations. In 2009 we will imple-
ment updated anti-money laundering and fraud
prevention policies to ensure compliance with Ger-
man regulatory standards across the group.
We also set standards regarding the impact of our
lending operations on the environment. ProCredit
Bank Albania has implemented an environmental
management system based on continuous as-
sessment of the loan portfolio ac-
cording to environmental criteria,
an in-depth analysis of all economic
activities which potentially involve
environmental risks, and the re-
jection of loan applications from
enterprises engaged in activi-
ties which are deemed environ-
mentally hazardous and appear
on our institutions exclusion
list. By incorporating environ-
mental issues into the loan ap-
proval process, ProCredit Bank
Albania is also able to raise its
clients overall level of environ-
mental awareness. We ensure
that when loan applications
are evaluated, compliance with ethical business
practices is a key consideration. No loans are is-
sued to enterprises or individuals if it is suspect-
ed that they are making use of unsafe or morally
objectionable forms of labour, in particular child
labour.
Business Ethics and Environmental Standards
Busi ne ss Et hi cs and Envi ronmental Standards 35
Our Clients
Katerina Abdiu was born in Tirana in 1954. After
completing her studies at a medical high school,
she trained in nursing at the Mother Teresa Uni-
versity Hospital Centre in Tirana. It was not long
before she found employment at the main city hos-
pital, where she still enjoys her vocation as a nurse
to this day.
Katerina learnt about ProCredit Bank during a di-
rect promotion in the streets of Tirana during 2006.
By talking to branch staff at the event, Katerina dis-
covered a range of deposit options that was both
easy to understand and very diverse. Unlike many
banks, which did not do much to encourage or re-
ward saving, she found that ProCredit Bank offered
numerous products to suit her needs as well as
attractive interest rates. Katerina soon opened a
savings account and, a few months later, a term de-
posit account to maximise the return on her funds.
In early 2007 a baby granddaughter brought new
joy into Katerinas life. By that time a regular saver,
she wanted to set aside a small amount for the ba-
bys future every so often. Once again, she spoke
to staff at the branch, and they told her all about
the ProKid account. Since November that year, Kat-
erina has been saving ALL 100 just over EUR 0.80
every day for little Amelia, who is now almost two
years old.
Katerina feeds her ProKid squirrel a money box
provided by the bank so well that she has to take
it to her local branch every month to empty it and
deposit her savings into Amelias account. But this
loving grandmother also has her own daughter in
mind, as she explains:
It can be very hard to hold a job and bring up a
child. I dont want my daughter to forego the nice
things in life by putting Amelia first all the time.
Things were much harder back in my day, but
now I want to help where I can. My granddaugh-
ter will have a good education and everything
she needs at home. I would also like Amelia
to have her own savings, a little nest egg that
will help her to plan her own future when she is
older.
Katerina is a dedicated saver and is pleased to use
the services of a trustworthy bank that values its
deposit clients. Of course, she also appreciates the
security and peace of mind that come from know-
ing her savings are safe and growing all the time.
Katerina Abdiu, Nurse
and Savings Customer
Annual Report 2008 36
Naim Alijahej is the manager and co-owner of a
dairy production plant in Brdica, a commune
near Shkodra. He is now in his early fifties and
owns the business with his two younger brothers,
Zija and Izet.
Naim worked as an agronomist before the 1990s.
Like most other Albanians, he and his brothers
then lost their jobs after the collapse of the com-
munist regime. Drawing on the experience that Zija
and Izet had gained while working for four years at
a dairy in Greece, the three brothers started their
own cheese production business in 1994, using
their initials as the name for their company: NZI
Dairy. As the oldest brother, Naim has managed
the business from the very beginning.
Albania had no dairy industry when they started.
Dairy production was limited to what individual
farmers made for their own families or for sale at
local markets. In the early days, Naim used to col-
lect milk in the neighbouring villages, transporting
it for several kilometres using a small wheelbar-
row. His brothers were responsible for the produc-
tion, distribution and sale of the cheese. During
the first few years, their only customers were local
residents.
While attending a presentation about agricultural
loans given by ProCredit Bank in Shkodra five years
ago, Naim talked to staff from the local branch.
They told him about the banks range of tailored
products for agricultural clients as well as its vari-
ous deposit facilities, and he realised that it would
be good for the company to deposit its daily cash
takings in a current account. NZI Dairy took out its
first loan in July 2005, securing working capital
of EUR 20,000 for its operations. Since then, the
brothers have borrowed a total of EUR 90,000 to
expand their business and build a new house close
to the dairy.
ProCredit Bank made it possible for us to focus
on expanding our business. Over the last three
years, we have achieved remarkable growth, not
without thanks to ProCredit Banks support,
says Naim.
Now, 14 years after they started, the Alijahej broth-
ers own one of the largest milk processing plants in
northern Albania and have 17 full-time employees.
Their business is likely to grow, and Naim plans to
finance the construction of a new processing facil-
ity and lease additional retail outlets with further
loans from ProCredit Bank.
One of ProCredit Banks greatest advantages is
its employees. The bank and its team stood by us
during difficult times for our business and always
offered sound, reliable advice,
Naim explains.
Naim Alijahej,
Co-Owner and
Manager of a Dairy
Our Cl i ent s 37
Agriculture is a family tradition for Edmond Kas-
api, whose parents used to run a small livestock
farm. He helped look after the animals at an early
age and soon decided that he, too, wanted to be a
farmer when he grew up. Today, married with four
children, Edmond runs a farm in Savr, a village in
the region of Lushnja.
Having worked as a border guard in Divjaka until
he became unemployed following the collapse of
the communist regime, Edmond finally became a
farmer in 1991. He bought a cow to produce milk,
and invested in a small herd of sheep. The limited
income from such an operation was, however, not
enough to provide for his family, and Edmond was
forced to do something else. Later that year, he be-
gan trading cattle. He woke up early every morning
and walked several kilometres from his village to
the livestock markets to buy cows. He then sold the
animals at the well-known cattle market in Lush-
nja, which is frequented by a number of interna-
tional traders.
Encouraged by his family, Edmond decided to invest
in his own herd of cows in 2004. He had learnt about
ProCredit Banks tailored credit services for rural
producers when a loan officer visited him to pro-
mote the banks agricultural loans. When his ap-
plication for a loan of EUR 4,000 was approved,
Edmond bought 25 cows and a supply of feed to
get started. Since then, he has taken out nine more
loans from ProCredit Bank to develop his busi-
ness.
I have been fortunate enough to have the sup-
port of ProCredit Bank at every step of the way
as I have expanded my business, and I always
recommend the bank to other farmers,
says Edmond.
Not satisfied with 150 cattle and a workforce of five
people, Edmond is already making plans to estab-
lish a second farm: he intends to buy more animals
and 20 hectares of land. Based on his positive ex-
perience with ProCredit Bank, he hopes to realise
these ambitious plans with further support from
his reliable banking partner.
Edmond Kasapi,
Cattle Farmer
Annual Report 2008 38 38
Idris Bytyi is 51 years old and lives in Durrs
with his wife and their three sons, Klodian, Alket
and Fjorald. He used to work as a telephone op-
erator at the Post and Telecommunications Office
in Lushnja. Following the collapse of communism
in 1991, he became unemployed and decided to
move to Durrs, where he hoped to provide a bet-
ter life for his family.
Keen to make a new start, Idris worked for over
three years at his uncles garage, where he ac-
quired the skills he needed to become a me-
chanic. At the same time, two of his sons were
employed in Greece, where they had found simi-
lar work. Given the experience that both he and
his sons had gained in repairing and maintaining
cars, he decided to open a garage with them.
We bought a house in Durrs with the aim of
extending it and creating enough space to use as
business premises,
Idris explains.
Altogether, he has taken out three loans from
ProCredit Bank, the first of which was for EUR
2,000 with a term of 18 months. This loan ena-
bled him to undertake some construction work on
his house.
I began with a small car repair service in a sub-
urban area of the city. I had to work very hard and
put in extra hours to support my family,
Idris recalls.
Having established a good credit history with the
bank, he then took out a housing improvement
loan for EUR 8,000 over two years to finance fur-
ther work on his new property. A third loan in Oc-
tober 2008 allowed him to purchase machinery
and tools for the business.
I chose ProCredit Bank because of its fast and
friendly service,
he says.
Idris is planning to expand his business and hire
more employees with the help of additional fi-
nancing from ProCredit Bank. His plans do not
end there, however. Like many credit clients, he
also uses a broad range of the banks other serv-
ices for his business, including a current account
and payment facilities. He also holds a savings
account and, once the new investments have
been made, Idris intends to start putting more
money aside to provide for his familys future. He
currently has a term deposit account at another
institution, and when it matures he plans to tran-
fer the funds to ProCredit Bank to take advantage
of its favourable interest rates.
Idris Bytyi,
Owner of a Garage
Our Cl i ent s Our Cl i ent s 39
Financial Statements
Prepared in accordance with International Financial Reporting Standards.
For the year ended 31 December 2008.
Annual Report 2008 40
Fi nanci al Stat e ment s 41
Annual Report 2008 42
Income Statement
For the year ended 31 December 2008
Fi nanci al Stat e ment s
In LEK000 *In EUR000 (unaudited)
Notes 2008 2007 2008 2007
Interest and similar income 19 3,433,154 3,055,579 27,964 24,720
Interest and similar expense 20 (1,239,070) (906,605) (10,093) (7,334)
Net interest income 2,194,084 2,148,974 17,871 17,386

Fee and commission income 21 273,835 157,348 2,230 1,273
Fee and commission expense 22 (37,260) (30,728) (303) (249)
Net fee and commission income 236,575 126,620 1,927 1,024

Other operating income 23 57,363 96,214 467 778
Net foreign exchange result 24 65,951 (7,285) 537 (59)
Impairment charge for credit losses 25 (66,949) (156,170) (545) (1,263)
Other operating expenses 26 (2,115,334) (1,608,706) (17,229) (13,014)

Profit before income tax 371,690 599,647 3,028 4,852

Income tax expense 28 (51,433) (165,789) (419) (1,341)

Net profit for the year 320,257 433,858 2,609 3,511
The accompanying notes on pages 46 to 69 form an integral part of these financial statements.
* The Euro equivalent figures are provided for information purposes only and do not form part of the audited financial statements (refer to
note 2(c)).
43
Statement of Changes in Equity
For the year ended 31 December 2008
The accompanying notes on pages 46 to 69 form an integral part of these financial statements.
* The Euro equivalent figures are provided for information purposes only and do not form part of the audited financial statements (refer to
note 2(c)).
Share Legal Revaluation Reserve Retained Total
capital Reserve available-for- Earnings
In LEK000 sale investments
Balance at 1 January 2007 1,535,329 243,188 (23,681) 389,233 2,144,069
Net change in AFS, net of tax 3,068 3,068
Current year profit 433,858 433,858
Total recognised income for 2007 3,068 433,858 436,926
Appropriation of retained earnings 97,702 (97,702)
Distribution of dividends for 2006 (286,276) (286,276)
Balance at 31 December 2007 1,535,329 340,890 (20,613) 439,113 2,294,719
Net change in AFS, net of tax 4,782 4,782
Current year profit 320,257 320,257
Total recognised income for 2008 4,782 320,257 325,039
Increase in share capital 490,620 490,620
Appropriation of retained earnings 122,193 (122,193)
Distribution of dividends for 2007 (282,119) (282,119)
Balance at 31 December 2008 2,025,949 463,083 (15,831) 355,058 2,828,259

Share Legal Revaluation Reserve Retained Total
capital Reserve available-for- Earnings
*In EUR000 (unaudited) sale investments
Balance at 1 January 2007 12,397 1,964 (191) 3,142 17,312
Net change in AFS, net of tax 25 25
Current year profit 3,510 3,510
Translation adjustment 210 33 (3) 107 347
Total recognised income for 2007 210 33 22 3,617 3,882
Appropriation of retained earnings 802 (802)
Distribution of dividends for 2006 (2,351) (2,351)
Balance at 31 December 2007 12,607 2,799 (169) 3,606 18,843
Net change in AFS, net of tax 39 39
Current year profit 2,587 2,587
Translation adjustment (206) (46) 3 (59) (308)
Total recognised income for 2008 (206) (46) 41 2,528 2,317
Increase in share capital 3,963 3,963
Appropriation of retained earnings 987 (987)
Distribution of dividends for 2008 (2,279) (2,279)
Balance at 31 December 2008 16,365 3,740 (127) 2,868 22,845
Annual Report 2008 44
Cash Flow Statement
For the year ended 31 December 2008
In LEK000 *In EUR000 (unaudited)
Notes 2008 2007 2008 2007
Cash flows from operating activities
Profit before income tax 28 371,690 599,647 3,002 4,924
Adjustments to reconcile profit before income
tax to net cash flows from operating activities
Depreciation of fixed assets 7 279,146 213,966 2,255 1,757
Amortization of intangible assets 8 10,829 8,692 87 71
Impairment charges for credit losses 25 66,949 156,170 541 1,282
(Gain)/loss on disposal of assets (241) 1,995 (2) 16
Other provision (25,033) 7,114 (202) 58
Release of grant to income statement (2,632) (22)
Decrease/(increase)in interest receivable 15,544 (47,429) 126 (389)
Increase in interest payable 176,552 125,829 1,426 1,035
Income tax paid (86,060) (134,400) (695) (1,104)
Operating profit before changes in
operating assets and liabilities 809,376 928,952 6,538 7,628

Changes in operating assets and liabilities
Decrease/ (increase) in loans and advances
to banks and other financial institutions (1,933,977) 1,404,792 (15,622) 11,535
Increase in loans and advances to customers (2,440,933) (2,748,921) (19,717) (22,573)
Decrease/(increase) in other assets 67,290 (72,605) 544 (596)
Increase/ (decrease) in due to banks 81,232 (211,373) 656 (1,736)
(Decrease)/increase in due to customers (916,828) 2,139,791 (7,406) 17,571
Increase in other liabilities 39,999 89,100 323 732
Net cash (used in)/from operating activities (4,293,841) 1,529,736 (34,684) 12,561

Cash flows from investing activities
Proceeds from sale of Treasury Bills 2,642,827 1,804,846 21,348 14,821
Proceeds from sale/(purchase) of
government bonds and REPOs 50,918 (274,495) 411 (2,254)
Proceeds from sale of property and equipment 580 6,114 5 50
Purchases of intangible assets (39,360) (10,019) (318) (82)
Purchases of property and equipment (757,060) (730,524) (6,115) (5,999)
Net cash from investing activities 1,897,905 795,922 15,330 6,536
Cash flows from financing activities
Dividend paid (282,118) (286,277) (2,279) (2,351)
Issue of subordinated debt 16 680,900 5,500
Increase of share capital 490,620 3,963
Repayment of other borrowed funds (53,837) (71,884) (435) (590)
Net cash from/(used in) financing activities 835,565 (358,161) 6,749 (2,941)

(Decrease)/ increase in cash and cash equivalents (1,560,372) 1,967,497 (12,604) 16,156
Cash and cash equivalents, beginning of the year 5,950,821 3,983,324 48,068 32,709
Cash and cash equivalents, end of the year 29 4,390,450 5,950,821 35,464 48,865
Cash flow for the year ended 31 December 2008 include interest received in the amount of ALL 1,594,758 thousand (2007: ALL 3,008,150
thousand) and interest paid in the amount of ALL 398,808 thousand (2007: ALL 780,776 thousand).
The accompanying notes on pages 46 to 69 form an integral part of these financial statements.
* The Euro equivalent figures are provided for information purposes only and do not form part of the audited financial statements (refer to
note 2(c)).
Fi nanci al Stat e ment s 45
1. Introduction
FEFAD Bank Sh.a (the Bank) was incorporated in February 1999
and in March of that year, was licensed to operate as a bank in all
fields of banking activity in Albania in accordance with Law No.
8365, For the Banking System in Albania, dated July 1998. The
Bank is also subject to Law No. 8269, dated December 1997, On
the Bank of Albania. The official address of the Bank is Rr. Sami
Frashri, Tirana e Re, Pall. 11 katsh, kati 2-10-11 -P. O. Box 2395.
FEFAD Bank, upon the decision made at the Extraordinary Assem-
bly of Shareholders, changed its name to ProCredit Bank sh.a. on
6 August 2003.
On 25 June 2007, the Bank convened an Assembly of Shareholders
and approved the transfer of 40,000 shares of FEFAD Foundation
in ProCredit Bank sh.a. from FEFAD Foundation to ProCredit Hold-
ing AG and the transfer of 18,000 shares of IFC in ProCredit Bank
sh.a. from IFC to ProCredit Holding AG. The transfer is approved
by the Competition Authority and Bank of Albania in January 2008
and registered in the Trade Register. During 2008 the Bank issued
54,125 new common shares.
As at 31 December 2008 the shareholders held the following per-
centages of shares:
%
ProCredit Holding 80.00
Commerzbank AG 20.00
As at 31 December 2008 the Bank was operating from a head office
in Tirana with 34 branches and agencies in Tirana, Durrs, Fier, El-
basan, Kor, Shkodr, Lezh, Lushnja, Pogradec, Berat, Saranda,
Vlor, Gjirokastr, Bilisht, Kucove, Lac, Kavaj dhe Kukes.
2. Significant accounting policies
(a) Statement of compliance
The financial statements have been prepared in accordance with
the International Financial Reporting Standards (IFRS) and its in-
terpretations adopted by the International Accounting Standards
Board (IASB).
(b) Adoption of new and revised Standards
In the current year, the Bank has adopted all of the new and revised
Standards and Interpretations issued by the International Account-
ing Standards Board (the IASB) and the International Financial Re-
porting Interpretations Committee (the IFRIC) of the IASB that are
relevant to its operations and effective for annual reporting periods
beginning on 1 January 2008.
Certain new interpretations became effective for the Bank from 1
January 2008:
IFRIC 11, IFRS 2Group and Treasury Share Transactions (ef-
fective for annual periods beginning on or after 1 March 2007);
IFRIC 12, Service Concession Arrangements (effective for an-
nual periods beginning on or after 1 January 2008); and
IFRIC 14, IAS 19The Limit on a Defined Benefit Asset, Mini-
mum Funding Requirements and their Interaction (effective for
annual periods beginning on or after 1 January 2008).
These interpretations did not have any significant effect on the
Banks financial statements.
Reclassification of Financial AssetsAmendments to IAS 39, Fi-
nancial Instruments: Recognition and Measurement, and IFRS 7,
Financial Instruments: Disclosures and a subsequent amendment,
Reclassification of Financial Assets: Effective Date and Transition.
The amendments allow entities the options (a) to reclassify a fi-
nancial asset out of the held for trading category if, in rare circum-
stances, the asset is no longer held for the purpose of selling or
repurchasing it in the near term; and (b) to reclassify an available-
for-sale asset or an asset held for trading to the loans and receiva-
bles category, if the entity has the intention and ability to hold the
financial asset for the foreseeable future or until maturity (subject
to the asset otherwise meeting the definition of loans and receiva-
bles). The amendments may be applied with retrospective effect
from 1 July 2008 for any reclassifications made before 1 November
2008; the reclassifications allowed by the amendments may not be
applied before 1 July 2008 and retrospective reclassifications are
only allowed if made prior to 1 November 2008. Any reclassification
of a financial asset made on or after 1 November 2008 takes effect
only from the date when the reclassification is made. The Bank has
not elected to make any of the optional reclassifications during the
period.
New Accounting Pronouncements
Certain new standards and interpretations have been published
that are mandatory for the Banks accounting periods beginning on
or after 1 January 2009 or later periods and which the Bank has not
early adopted:
IFRS 8, Operating Segments (effective for annual periods begin-
ning on or after 1 January 2009). The standard applies to entities
whose debt or equity instruments are traded in a public market or
that file, or are in the process of filing, their financial statements
with a regulatory organisation for the purpose of issuing any class
of instruments in a public market. IFRS 8 requires an entity to re-
port financial and descriptive information about its operating seg-
ments, with segment information presented on a similar basis to
that used for internal reporting purposes. Management does not
expect IFRS 8 to affect the Banks financial statements.
Puttable Financial Instruments and Obligations Arising on Liqui-
dationIAS 32 and IAS 1 Amendment (effective for annual periods
beginning on or after 1 January 2009). The amendment requires
classification as equity of some financial instruments that meet
the definition of financial liabilities. The Bank does not expect the
amendment to affect its financial statements.
IAS 23, Borrowing Costs (revised March 2007; effective for annual
periods beginning on or after 1 January 2009). The main change to
IAS 23 is the removal of the option of immediately recognising as an
expense borrowing costs that relate to assets that take a substan-
tial period of time to get ready for use or sale. An entity is, there-
fore, required to capitalise such borrowing costs as part of the cost
of the asset. The revised standard applies prospectively to borrow-
ing costs relating to qualifying assets for which the commencement
date for capitalisation is on or after 1 January 2009. The Bank does
not expect the amendment to the standard to have a material effect
on its financial statements.
IAS 1, Presentation of Financial Statements (revised September
2007; effective for annual periods beginning on or after 1 January
2009). The main change in IAS 1 is the replacement of the income
statement by a statement of comprehensive income which will also
include all non-owner changes in equity, such as the revaluation of
Notes to the Financial Statements
For the year ended 31 December 2008
All amounts expressed in Lek000, unless otherwise stated
Annual Report 2008 46
available-for-sale financial assets. Alternatively, entities will be al-
lowed to present two statements: a separate income statement and
a statement of comprehensive income. The revised IAS 1 also in-
troduces a requirement to present a statement of financial position
(balance sheet) at the beginning of the earliest comparative period
whenever the entity restates comparatives due to reclassifications,
changes in accounting policies, or corrections of errors. The Bank
expects the revised IAS 1 to affect the presentation of its financial
statements but to have no impact on the recognition or measure-
ment of specific transactions and balances.
IAS 27, Consolidated and Separate Financial Statements (revised
January 2008; effective for annual periods beginning on or after 1
July 2009). The revised IAS 27 will require an entity to attribute total
comprehensive income to the owners of the parent and to the non-
controlling interests (previously minority interests) even if this
results in the non-controlling interests having a deficit balance (the
current standard requires the excess losses to be allocated to the
owners of the parent in most cases). The revised standard speci-
fies that changes in a parents ownership interest in a subsidiary
that do not result in the loss of control must be accounted for as
equity transactions. It also specifies how an entity should measure
any gain or loss arising on the loss of control of a subsidiary. At
the date when control is lost, any investment retained in the former
subsidiary will have to be measured at its fair value. The Bank does
not expect the amended standard to have a material effect on its
financial statements.
Vesting Conditions and CancellationsAmendment to IFRS 2,
Share-based Payment (issued in January 2008; effective for annual
periods beginning on or after 1 January 2009). The amendment clar-
ifies that only service conditions and performance conditions are
vesting conditions. Other features of a share-based payment are
not vesting conditions. The amendment specifies that all cancella-
tions, whether by the entity or by other parties, should receive the
same accounting treatment. The Bank does not expect the amend-
ment to have a material effect on its financial statements.
IFRS 3, Business Combinations (revised January 2008; effective for
business combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or
after 1 July 2009). The revised IFRS 3 will allow entities to choose to
measure non-controlling interests using the existing IFRS 3 method
(proportionate share of the acquirees identifiable net assets) or at
fair value. The revised IFRS 3 is more detailed in providing guid-
ance on the application of the purchase method to business com-
binations. The requirement to measure at fair value every asset
and liability at each step in a step acquisition for the purposes of
calculating a portion of goodwill has been removed. Instead, in a
business combination achieved in stages, the acquirer will have to
remeasure its previously held equity interest in the acquiree at its
acquisition-date fair value and recognise the resulting gain or loss,
if any, in profit or loss.
Acquisition-related costs will be accounted for separately from the
business combination and therefore recognised as expenses rather
than included in goodwill. An acquirer will have to recognise at the
acquisition date a liability for any contingent purchase considera-
tion. Changes in the value of that liability after the acquisition date
will be recognised in accordance with other applicable IFRSs, as
appropriate, rather than by adjusting goodwill. The revised IFRS 3
brings into its scope business combinations involving only mutual
entities and business combinations achieved by contract alone.
IFRS 3 is not relevant to the Bank as it does not expect a business
combination to occur.
IFRIC 13, Customer Loyalty Programmes (effective for annual periods
beginning on or after 1 July 2008). IFRIC 13 clarifies that where goods
or services are sold together with a customer loyalty incentive (for
example, loyalty points or free products), the arrangement is a multi-
ple-element arrangement and the consideration receivable from the
customer is allocated between the components of the arrangement
using fair values. IFRIC 13 is not relevant to the Banks operations be-
cause no Bank companies operate any loyalty programmes.
IFRIC 15, Agreements for the Construction of Real Estate (effective
for annual periods beginning on or after 1 January 2009). The in-
terpretation applies to the accounting for revenue and associated
expenses by entities that undertake the construction of real estate
directly or through subcontractors, and provides guidance for de-
termining whether agreements for the construction of real estate
are within the scope of IAS 11 or IAS 18. It also provides criteria for
determining when entities should recognise revenue on such trans-
actions. IFRIC 15 is not relevant to the Banks operations because it
does not have any agreements for the construction of real estate.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effec-
tive for annual periods beginning on or after 1 October 2008). The
interpretation explains which currency risk exposures are eligible
for hedge accounting and states that translation from the function-
al currency to the presentation currency does not create an expo-
sure to which hedge accounting could be applied. The IFRIC allows
the hedging instrument to be held by any entity or entities within a
group except the foreign operation that itself is being hedged. The
interpretation also clarifies how the gain or loss recycled from the
currency translation reserve to profit or loss is calculated on dis-
posal of the hedged foreign operation. Reporting entities will apply
IAS 39 to discontinue hedge accounting prospectively when their
hedges do not meet the criteria for hedge accounting in IFRIC 16.
IFRIC 16 does not have any impact on these financial statements as
the Bank does not apply hedge accounting.
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or
AssociateIFRS 1 and IAS 27 Amendment (issued in May 2008; ef-
fective for annual periods beginning on or after 1 January 2009).
The amendment allows first-time adopters of IFRS to measure in-
vestments in subsidiaries, jointly controlled entities or associates
at fair value or at previous GAAP carrying value as deemed cost in
the separate financial statements. The amendment also requires
distributions from pre-acquisition net assets of investees to be rec-
ognised in profit or loss rather than as a recovery of the investment.
The amendments will not have any impact on the Banks consoli-
dated financial statements.
Eligible Hedged ItemsAmendment to IAS 39, Financial Instru-
ments: Recognition and Measurement (effective with retrospective
application for annual periods beginning on or after 1 July 2009).
The amendment clarifies how the principles that determine wheth-
er a hedged risk or portion of cash flows is eligible for designation
should be applied in particular situations. The amendment is not
expected to have any impact on the Banks financial statements as
the Bank does not apply hedge accounting.
Improvements to International Financial Reporting Standards (is-
sued in May 2008). In 2007, the International Accounting Stand-
ards Board decided to initiate an annual improvements project as a
method of making necessary, but non-urgent, amendments to IFRS.
The amendments consist of a mixture of substantive changes, clari-
fications, and changes in terminology in various standards. The
substantive changes relate to the following areas: classification as
held for sale under IFRS 5 in case of a loss of control over a sub-
sidiary; possibility of presentation of financial instruments held for
trading as non-current under IAS 1; accounting for sale of IAS 16
assets which were previously held for rental and classification of
the related cash flows under IAS 7 as cash flows from operating
Fi nanci al Stat e ment s 47
activities; clarification of definition of a curtailment under IAS 19;
accounting for below market interest rate government loans in ac-
cordance with IAS 20; making the definition of borrowing costs in
IAS 23 consistent with the effective interest method; clarification
of accounting for subsidiaries held for sale under IAS 27 and IFRS 5;
reduction in the disclosure requirements relating to associates and
joint ventures under IAS 28 and IAS 31; enhancement of disclosures
required by IAS 36; clarification of accounting for advertising costs
under IAS 38; amending the definition of the fair value through
profit or loss category to be consistent with hedge accounting
under IAS 39; introduction of accounting for investment proper-
ties under construction in accordance with IAS 40; and reduction
in restrictions over manner of determining fair value of biological
assets under IAS 41. Further amendments made to IAS 8, 10, 18,
20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial
changes only, which the IASB believes have no or minimal effect on
accounting. The Bank does not expect the amendments to have any
material effect on its financial statements.
IFRIC 17, Distribution of Non-Cash Assets to Owners (effective
for annual periods beginning on or after 1 July 2009). The amend-
ment clarifies when and how distribution of non-cash assets as
dividends to the owners should be recognised. An entity should
measure a liability to distribute non-cash assets as a dividend to
its owners at the fair value of the assets to be distributed. A gain or
loss on disposal of the distributed non-cash assets will be recog-
nised in profit or loss when the entity settles the dividend payable.
IFRIC 17 is not relevant to the Banks operations because it does not
distribute non-cash assets to owners.
IFRS 1, First-time Adoption of International Financial Reporting
Standards (following an amendment in December 2008, effective
for the first IFRS financial statements for a period beginning on or
after 1 July 2009). The revised IFRS 1 retains the substance of its
previous version but within a changed structure in order to make
it easier for the reader to understand and to better accommodate
future changes. The Bank concluded that the revised standard does
not have any effect on its financial statements.
IFRIC 18, Transfers of Assets from Customers (effective for annual
periods beginning on or after 1 July 2009). The interpretation clari-
fies the accounting for transfers of assets from customers, namely,
the circumstances in which the definition of an asset is met; the
recognition of the asset and the measurement of its cost on initial
recognition; the identification of the separately identifiable serv-
ices (one or more services in exchange for the transferred asset);
the recognition of revenue, and the accounting for transfers of cash
from customers. IFRIC 18 is not expected to have any impact on the
Banks financial statements.
Improving Disclosures about Financial Instruments - Amendment
to IFRS 7, Financial Instruments: Disclosures (issued in March
2009; effective for annual periods beginning on or after 1 January
2009). The amendment requires enhanced disclosures about fair
value measurements and liquidity risk. The entity will be required
to disclose an analysis of financial instruments using a three-level
fair value measurement hierarchy.
The amendment (a) clarifies that the maturity analysis of liabilities
should include issued financial guarantee contracts at the maxi-
mum amount of the guarantee in the earliest period in which the
guarantee could be called; and (b) requires disclosure of remain-
ing contractual maturities of financial derivatives if the contractual
maturities are essential for an understanding of the timing of the
cash flows. An entity will further have to disclose a maturity analy-
sis of financial assets it holds for managing liquidity risk, if that
information is necessary to enable users of its financial statements
to evaluate the nature and extent of liquidity risk. The Bank is cur-
rently assessing the impact of the amendment on disclosures in its
financial statements.
Embedded Derivatives - Amendments to IFRIC 9 and IAS 39 (ef-
fective for annual periods ending on or after 30 June 2009). The
amendments clarify that on reclassification of a financial asset out
of the at fair value through profit or loss category, all embedded
derivatives have to be assessed and, if necessary, separately ac-
counted for.
Improvements to International Financial Reporting Standards
(issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and
IFRIC 16 are effective for annual periods beginning on or after 1 July
2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36
and IAS 39 are effective for annual periods beginning on or after
1 January 2010). The improvements consist of a mixture of sub-
stantive changes and clarifications in the following standards and
interpretations: clarification that contributions of businesses in
common control transactions and formation of joint ventures are
not within the scope of IFRS 2; clarification of disclosure require-
ments set by IFRS 5 and other standards for non-current assets (or
disposal groups) classified as held for sale or discontinued opera-
tions; requiring to report a measure of total assets and liabilities
for each reportable segment under IFRS 8 only if such amounts are
regularly provided to the chief operating decision maker; amend-
ing IAS 1 to allow classification of certain liabilities settled by en-
titys own equity instruments as non-current; changing IAS 7 such
that only expenditures that result in a recognised asset are eligible
for classification as investing activities; allowing classification of
certain long-term land leases as finance leases under IAS 17 even
without transfer of ownership of the land at the end of the lease;
providing additional guidance in IAS 18 for determining whether an
entity acts as a principal or an agent; clarification in IAS 36 that a
cash generating unit shall not be larger than an operating segment
before aggregation; supplementing IAS 38 regarding measurement
of fair value of intangible assets acquired in a business combina-
tion; amending IAS 39 (i) to include in its scope option contracts
that could result in business combinations, (ii) to clarify the period
of reclassifying gains or losses on cash flow hedging instruments
from equity to profit or loss and (iii) to state that a prepayment op-
tion is closely related to the host contract if upon exercise the bor-
rower reimburses economic loss of the lender; amending IFRIC 9 to
state that embedded derivatives in contracts acquired in common
control transactions and formation of joint ventures are not within
its scope; and removing the restriction in IFRIC 16 that hedging in-
struments may not be held by the foreign operation that itself is
being hedged. The Bank does not expect the amendments to have
any material effect on its financial statements.
(c) Basis of preparation
The financial statements are presented in Albanian Lek, rounded to
the nearest thousand. They are prepared under the historical cost
convention. In addition to presenting the financial statements in
Lek, supplementary information in EUR has been prepared for the
convenience of users of the financial statements. The supplemen-
tary information has been prepared by translating from Lek000 to
EUR000 as follows:
Euro equivalent figures
The balance sheet, statement of changes in equity and cash flow
statement for the year ended 31 December 2008 have been trans-
lated at the official rate of the Bank of Albania as at 31 December
2008 of Lek 123.80 to EUR 1 (2007 figures: 121.78). The income
statement, the statement of changes in equity and cash flow state-
ment have been translated with the average exchange rate for 2008
of 122.77 to Eur 1 (2007 figures: 123.61).
Annual Report 2008 48
The accounting policies have been applied consistently to all the
periods presented.
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assump-
tions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an on-
going 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.
Judgments made by management in the application of IFRSs that
have significant effect on the financial statements and estimates
with a significant risk of material adjustment in the next year are
discussed in note 2 (t)).
(d) Financial instruments
(i) Classification
The Bank classifies its financial assets in the following categories:
loans and receivables and financial assets available for sale. Man-
agement determines the classification of its investments at initial
recognition. The Bank did not classify any financial asset as at fair
value through profit or loss and held to maturity during the report-
ing period.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. All loans and advances are initially recognized at fair value.
All loans and advances are recognized when cash is advanced to
borrowers. After initial recognition, these are subsequently meas-
ured at amortized costs using the effective interest rate method.
Amortized cost is calculated by taking into account any issue costs
and any discount or premium on settlement.
Financial assets available for sale
Available-for-sale investments are those intended to be held for an in-
definite period of time, which may be sold in response to needs for li-
quidity or changes in interest rates, exchange rates or equity prices.
Regular-way purchases and sales of financial assets at fair value
through profit or loss, held to maturity and available for sale are
recognized on trade-date the date on which the Group commits to
purchase or sell the asset.
(ii) Measurement
Financial assets are initially recognized at fair value plus transaction
costs for all financial assets not carried at fair value through profit or
loss. Available-for-sale financial assets are subsequently carried at
fair value. Loans and receivables and held-to-maturity investments
are carried at amortized cost using the effective interest method.
(iii) Fair value measurement principles
The fair values of quoted investments in active markets are based
on current bid prices. If the market for a financial asset is not active
(and for unlisted securities), the Bank establishes fair value by us-
ing valuation techniques, commonly used by market participants.
Where discounted cash flow techniques are used, estimated future
cash flows are based on managements best estimates and the dis-
count rate is a market related rate at the balance sheet date for an
instrument with similar terms and conditions. Where pricing mod-
els are used, inputs are based on market related measures at the
balance sheet date.
(iv) Gains and losses on subsequent measurement
Gains and losses arising from changes in the fair value of the avail-
able for sale financial assets are recognised directly in equity, until
the financial asset is derecognized or impaired. At this time, the
cumulative gain or loss previously recognized in equity is recog-
nized in profit or loss. However, interest calculated using the ef-
fective interest method and foreign currency gains and losses on
monetary assets classified as available for sale is recognized in the
income statement.
Where these investments are interest-bearing, interest calculated
using the effective interest method is recognized in profit or loss.
(v) Specific instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call depos-
its with an original maturity of three months or less. The statutory
reserve with the Central Bank is not available for the Banks day-
to-day operations and is not included as a component of cash and
cash equivalents for the purpose of the statement of cash flows.
Further details of what comprises cash and cash equivalents can
be found in note 29.
(vi) Derecognition
A financial asset is derecognised when the Bank loses control over
the contractual rights that comprise that asset. This occurs when
the rights are realised, expire or are surrendered. A financial liabil-
ity is derecognised when it is extinguished.
(vii) Financial guarantees
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for a loss it in-
curs 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 bod-
ies on behalf of customers to secure loans, overdrafts and other
banking facilities.
Financial guarantees are initially recognized in the financial state-
ments at fair value on the date the guarantee was given. Subse-
quent to initial recognition, the banks liabilities under such guar-
antees are measured at the higher of the initial measurement, less
amortization calculated to recognize in the income statement the
fee income earned on a straight line basis over the life of the guar-
antee and the best estimate of the expenditure required to settle
any financial obligation arising at the balance sheet date. These
estimates are determined based on experience of similar transac-
tions and history of past losses, supplemented by the judgment of
Management.
Any increase in the liability relating to guarantees is taken to the
income statement under other operating expenses.
The Bank did not have any financial guarantees during the reporting
period.
(e) Impairment of financial assets carried at amortized cost
The Bank assesses at each balance sheet date whether there is ob-
jective evidence that a financial asset or group of financial assets is
impaired. A financial asset or a group of financial assets is impaired
and impairment losses are incurred only if there is objective evi-
dence of impairment as a result of one or more events that occurred
after the initial recognition of the asset (a loss event) and that loss
event (or events) has an impact on the estimated future cash flows
of the financial asset or group of financial assets that can be reli-
ably estimated.
Fi nanci al Stat e ment s 49
The criteria that the Bank uses to determine that there is objective
evidence of an impairment loss include:
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower (for exam-
ple, equity ratio, net income percentage of sales);
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrowers competitive position;
Deterioration in the value of collateral; and
Downgrading below investment grade level.
The estimated period between a loss occurring and its identifica-
tion is determined by local management for each identified portfo-
lio. In general, the periods used vary between three months and 12
months; in exceptional cases, longer periods are warranted.
The Bank first assesses whether objective evidence of impairment
exists individually for financial assets that are individually signifi-
cant, and individually or collectively for financial assets that are
not individually significant. If the Bank determines that no objec-
tive evidence of impairment exists for an individually assessed fi-
nancial 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 in-
dividually 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
assets carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been in-
curred) discounted at the financial assets original effective inter-
est rate. The carrying amount of the asset is reduced through the
use of an allowance account and the amount of the loss is recog-
nized in the income statement.
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
(ie, on the basis of the Banks grading process that considers asset
type, industry, geographical location, collateral type, past-due sta-
tus and other relevant factors). Those characteristics are relevant to
the estimation of future cash flows for groups of such assets by be-
ing indicative of the debtors ability to pay all amounts due accord-
ing to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively
evaluated for impairment are estimated on the basis of the contrac-
tual cash flows of the assets in the Bank and historical loss experi-
ence for assets with credit risk characteristics similar to those in
the Bank. Historical loss experience is adjusted on the basis of cur-
rent observable data to reflect the effects of current conditions that
did not affect the period on which the historical loss experience is
based and to remove the effects of conditions in the historical pe-
riod that do not currently exist.
Estimates of changes in future cash flows for groups of assets
should reflect and be directionally consistent with changes in re-
lated observable data from period to period (for example, changes
in unemployment rates, property prices, payment status, or other
factors indicative of changes in the probability of losses in the Bank
and their magnitude). The methodology and assumptions used for
estimating future cash flows are reviewed regularly by the Bank to
reduce any differences between loss estimates and actual loss ex-
perience.
When a loan is uncollectible, it is written off against the related pro-
vision 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.
If, in a subsequent period, the amount of the impairment loss de-
creases and the decrease can be related objectively to an event
occurring after the impairment was recognized (such as an im-
provement in the debtors credit rating), the previously recognized
impairment loss is reversed by adjusting the allowance account.
The amount of the reversal is recognized in the income statement
in impairment charge for credit losses. Repayments of loans previ-
ously written off are recognised in other operating income.
(f) Impairment of financial assets available for sale
The Bank assesses at each balance sheet date whether there is ob-
jective evidence that a financial asset or a group of financial assets
is impaired. In the case of debt investments classified as available
for sale, a significant or prolonged decline in the fair value of the
security below its cost is considered in determining whether the
assets are impaired. If any such evidence exists for available-for-
sale financial assets, the cumulative loss measured as the dif-
ference between the acquisition cost and the current fair value,
less any impairment loss on that financial asset previously recog-
nised in profit or loss is removed from equity and recognised in
the income statement. 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 profit or loss, the impairment
loss is reversed through the income statement.
(g) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount re-
ported in the balance sheet when there is a legally enforceable
right to offset the recognized amounts and there is an intention to
settle on a net basis, or realize the asset and settle the liability si-
multaneously.
(h) Property and equipment
Items of property, plant and equipment are stated at cost less ac-
cumulated depreciation and impairment losses.
Subsequent costs are included in the assets carrying amount or
are recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will
flow to the Bank and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to other operating
expenses during the financial period in which they are incurred.
Depreciation is charged to profit or loss on a straight-line basis
over the estimated useful lives of each part of an item of property
and equipment to allocate their cost to their residual value. Lease-
hold improvements relate to expenditures on branch renovations
and are depreciated over the period of the lease. The following are
approximations of the annual rates used:
%
i. Computer and electronic equipment 33
ii. Vehicles 25
iii. Furniture and equipment 25
iv. Building 5
The residual value and useful lives are reassessed annually.
(i) Intangible assets
Intangible assets acquired by the Bank are stated at cost less ac-
cumulated amortisation and impairment losses.
Amortisation is charged to profit or loss on a straight-line basis at
an annual rate of 10% over the estimated useful lives of intangible
assets.
Annual Report 2008 50
(j) Impairment of non-financial assets
Assets that are subject to amortization and depreciation are re-
viewed for impairment whenever events or changes in circumstanc-
es indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the assets
carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an assets fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifi-
able cash flows (cash-generating units).
(k) Borrowings
Borrowings are recognised initially at fair value less attributable
transaction costs. Subsequent to initial recognition, borrowings
are stated at amortised cost with any difference between cost and
redemption value being recognised in profit or loss over the period
of the borrowings on an effective interest basis.
(l) Leases
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases.
The leases entered into by the Bank are primarily operating leases.
The total payments made under operating leases are charged to
other operating expenses in the income statement on a straight-line
basis over the period of the lease.
(m) Grants
Grants received for the purpose of acquiring property and equip-
ment are recorded as deferred revenue in the balance sheet and
released to the income statement on a systematic basis over the
useful life of the asset acquired.
(n) Interest income and expense
Interest income and expense for all interest-bearing financial instru-
ments are recognized within interest income and interest expense
in the income statement using the effective interest method.
The effective interest method is a method of calculating the amor-
tized cost of a financial asset or a financial liability and of allocating
the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of the fi-
nancial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When
calculating the effective interest rate, the Group estimates cash
flows considering all contractual terms of the financial instrument
but does not consider future credit losses. The calculation includes
all fees and points paid or received between parties to the contract
that are an integral part of the effective interest rate, transaction
costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been
written down as a result of an impairment loss, interest income is
recognized using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss.
(o) Fee and commission income
Fees and commissions are generally recognized on an accrual ba-
sis when the service has been provided. Loan commitment fees for
loans that are likely to be drawn down are deferred (together with
related direct costs) and recognized as an adjustment to the effec-
tive interest rate on the loan.
(p) Provisions
Provisions for legal claims are recognized when: the Group has a
present legal or constructive obligation as a result of past events;
it is more likely than not that an outflow of resources will be re-
quired to settle the obligation; and the amount has been reliably
estimated.
Where there are a number of similar obligations, the likelihood that
an outflow will be required in settlement is determined by consid-
ering the class of obligations as a whole. A provision is recognized
even if the likelihood of an outflow with respect to any item includ-
ed in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax rate
that reflects current market assessments of the time value of mon-
ey and the risks specific to the obligation. The increase in the provi-
sion due to passage of time is recognized as interest expense.
(q) Employee benefits
Compulsory social security contributions
The Bank makes only compulsory social security contributions that
provide pension benefits for employees upon retirement. The Gov-
ernment of Albania is responsible for providing the legally set mini-
mum threshold for pensions in Albania under a defined contribu-
tion pension plan. The Banks contributions to the benefit pension
plan are charged to the income statement as incurred.
Paid annual leave
The Bank recognises as a liability the undiscounted amount of the
estimated costs related to annual leave expected to be paid in ex-
change of the employees service for the period completed.
(r) Income tax
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly in
equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the
year, using tax rates enacted or substantially enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax
provided is based on the expected manner of realisation or set-
tlement of the carrying amount of assets and liabilities, using tax
rates enacted or substantially enacted at the balance sheet date
and are expected to apply when the related deferred income tax as-
set is realized or the deferred income tax liability is settled. A de-
ferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset
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.
Foreign currency transactions
(i) Functional and presentation currency
The financial statements are presented in Lek, which is the Banks
functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
Fi nanci al Stat e ment s 51
settlement of such transactions and from the translation at year-
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognized in the income statement.
The applicable rates of exchange (Lek to foreign currency unit) for
the principal currencies as at 31 December 2008 and 2007 were as
follows:
2008 2007
USD 87.91 82.89
EUR 123.80 121.78
(s) Non- current assets as held for sale
Non-current assets are classified as held for sale if their carrying
amount will be recovered principally through a sale transaction
rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset is avail-
able for immediate sale in its present condition. Management must
be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of
classification. Non-current assets consist of foreclosed collateral
which were initially recognised at fair value as determined by in-
dependent valuers. Subsequently, non-current assets classified as
held for sale are measured at the lower of their carrying amount and
fair value less costs to sell.
(t) Critical accounting estimates, and judgments in applying ac-
counting policies
The Bank makes estimates and assumptions that affect the report-
ed amounts of assets and liabilities within the next financial year.
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the cir-
cumstances.
Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment on a
monthly basis. In determining whether an impairment loss should
be recorded in the income statement, the Bank makes judgments
as to whether there is any observable data indicating that there
is a measurable decrease in the estimated future cash flows from
a portfolio of loans before the decrease can be identified with an
individual loan in that portfolio. This evidence may include observ-
able data indicating that there has been an adverse change in the
payment status of borrowers in a group, or national or local eco-
nomic conditions that correlate with defaults on assets in the Bank.
Management uses estimates based on historical loss experience
for assets with credit risk characteristics and objective evidence
of impairment similar to those in the portfolio when scheduling
its future cash flows. The methodology and assumptions used for
estimating both the amount and timing of future cash flows are re-
viewed regularly to reduce any differences between loss estimates
and actual loss experience.
A 10% increase or decrease in actual loss experience compared to
the loss estimates used would result in an increase or decrease
in loan impairment losses of LEK 569,816 thousand (2007: LEK
669,843 thousand), respectively. Impairment losses for individu-
ally significant loans are based on estimates of discounted future
cash flows of the individual loans, taking into account repayments
and realisation of any assets held as collateral against the loans. A
10% increase or decrease in the actual loss experience compared to
the estimated future discounted cash flows from individually sig-
nificant loans, which could arise from differences in amounts and
timing of the cash flows, would result in an increase or decrease
in loan impairment losses of LEK 109,553 thousand (2007: LEK
328,671 thousand), respectively.
Deferred income tax asset recognition. The recognised deferred tax
asset represents income taxes recoverable through future deduc-
tions from taxable profits and is recorded on the balance sheet. De-
ferred income tax assets are recorded to the extent that realisation
of the related tax benefit is probable.
Going concern. Management prepared these financial statements
on a going concern basis. In making this judgment management
considered the Groups financial position, current intentions, prof-
itability of operations and access to financial resources, and ana-
lysed the impact of the recent financial crisis on future operations
of the Group.
Impact of the ongoing global financial and economic crisis
The ongoing global financial and economic crisis that emerged out
of the severe reduction in global liquidity which commenced in the
middle of 2007 (often referred to as the Credit Crunch) has result-
ed in, among other things, a lower level of capital market funding,
lower liquidity levels across the banking sector and wider economy,
and, at times, higher interbank lending rates and very high volatil-
ity in stock and currency markets.
The uncertainties in the global financial markets have also led to
failures of banks and other corporates, and to bank rescues in the
United States of America, Western Europe, Russia and elsewhere.
The full extent of the impact of the ongoing financial crisis is prov-
ing to be difficult to anticipate or completely guard against.
The volume of wholesale financing has significantly reduced since
August 2007. Such circumstances may affect the ability of the Bank
to obtain new borrowings and re-finance its existing borrowings
at terms and conditions similar to those applied to earlier transac-
tions.
Borrowers of the Bank may be adversely affected by the financial
and economic environment, which could in turn impact their abil-
ity to repay the amounts owed. Deteriorating economic conditions
for borrowers may also have an impact on managements cash
flow forecasts and assessment of the impairment of financial and
non-financial assets. To the extent that information is available,
management has properly reflected revised estimates of expected
future cash flows in its impairment assessments.
The amount of provision for impaired loans is based on manage-
ments appraisals of these assets at the balance sheet date after
taking into consideration the cash flows that may result from fore-
closure less costs for obtaining and selling the collateral. The mar-
ket in Albania for many types of collateral, especially real estate,
has been affected in some extent by the recent volatility in global
financial markets resulting in there being a low level of liquidity for
certain types of assets. As a result, the actual realisable value on
foreclosure may differ from the value ascribed in estimating allow-
ances for impairment.
Management is unable to reliably determine the effects on the
Banks future financial position of any further deterioration in the
liquidity of the financial markets and the increased volatility in the
currency and equity markets. Management believes it is taking all
the necessary measures to support the sustainability and develop-
ment of the Banks business in the current circumstances.
(u) Comparatives
The comparative information is presented consistently applying
the Banks accounting policies. When necessary, comparative fig-
ures are reclassified for the purposes of comparability. Amounts
of reclassifications in balance sheet and income statement are as
follows:
Annual Report 2008 52
Reclassification of foreclosed collateral and current income tax
prepayment
A note was added with the split of Net Foreign exchange differences
of Lek 7,285 thousand between foreign exchange transaction gains
of Lek 23,378 thousand and foreign exchange translation losses of
Lek 30,663 thousand.
3. Cash and balances with Central Bank
Cash and balances with Central Bank consisted of the following:
31 Dec 2008 31 Dec 2007
Cash
Cash on hand 1,377,837 1,017,005
Current accounts
Resident 3,050 1,089
Non-resident 103,138 42,169
Central Bank
Current account 14,083 45,452
Subtotal included in cash
and cash equivalents
(note 29) 1,498,108 1,105,715
Statutory reserve 2,423,702 2,444,775
Total 3,921,810 3,550,490

Current 3,890,846 3,512,613
Non-current 30,964 37,877
In accordance with the Bank of Albanias requirement relating to
the deposit reserve, the Bank maintains a minimum of 10% of cus-
tomer deposits and of certificate of deposits with the Central Bank
of Albania as a reserve account, which during the month can be de-
creased up to 80% of its level, provided that the required monthly
average is maintained.
4. Loans and advances to banks and other financial institutions
Loans and advances to financial institutions are detailed as fol-
lows:
31 Dec 2008 31 Dec 2007
Deposit accounts
Resident 73,846
Non-resident 4,243,508 4,427,627
Loans 1,017,720 881,727
Other 18,660 14,111
Allowance for impairment
losses on placements with
non OECD countries (9,850)
Total 5,353,734 5,313,615
Current 5,335,074 5,299,504
Non-current 18,660 14,111

As originally Reclassification Reclassified Note
reported 2007 amounts 2007
Current income tax prepayment 36,790 36,790 10
Foreclosed collateral 40,031 40,031 11
Other assets 285,852 (76,822) 209,030 12
Loans and advances to banks and other financial institution includ-
ed in cash and cash equivalents (note 29) as at 31 December 2008
amounts to Lek 2,892,342 (31 December 2007: Lek 4,845,106).
Other accounts include deposits for letters of credit and guaran-
tees. As at 31 December 2008, 50.9% of deposits (31 December
2007: 77.1%) are held with banks of OECD countries, rated A-and
above, and have contractual maturities up to three months.
Loans to financial institutions as at 31 December 2008 can be fur-
ther detailed as follows:
LEK Maturity Interest
equivalent rate (p.a.)
Loans
(USD 4,875,000) 428,561 3 to 6 months 5.63%-7%
Accrued interest
(USD 96,235) 8,460
Loans
(EUR 4,450,000) 550,910 1 to 19 years 6.84%-9.44%
Accrued interest
(EUR 240,621) 29,789
Total 1,017,720
Loans to financial institutions as at 31 December 2007 can be fur-
ther detailed as follows:

LEK Maturity Interest
equivalent rate (p.a.)
Loans
in USD 7,463,000 618,608 3 to 12 months 4.99%-7%
Accrued interest
in USD 213,532 17,700
Loans
in EUR 2,000,000 243,560 12 months 6.94%-6.97%
Accrued interest
in EUR 15,263 1,859
Total 881,727

Loans are short-term and have been disbursed to banks from
non-OECD countries. In accordance with the policies of one of the
Banks shareholders (ProCredit Holding Group), these short-term
loans are extended to banks in which the ProCredit Holding Group
has share participation.
Fi nanci al Stat e ment s 53
Movements in the allowance for impairment losses on placements
with non OECD countries are as follows:
2008 2007
At 1 January 9,850 7,999
(Reversal)/ increase of
impairment provision (9,508) 2,899
Translation effect (342) (1,048)
At 31 December 9,850
5. Loans and advances to customers
Loans and advances consisted of the following:
31 Dec 2008 31 Dec 2007
Loans 15,640,069 13,482,152
Overdrafts 766,944 672,073
Credit Cards 56,947 45,286
Accrued interest 130,285 108,921
Gross outstanding loans
and advances 16,594,245 14,308,432
Allowance for impairment
losses on loans and advances (569,816) (669,843)
Net outstanding loans
and advances 16,024,429 13,638,589
Current 7,696,598 6,855,989
Non-current 8,327,831 6,782,600
Movements in the allowance for impairment losses on loans and
advances to customers are as follows:
2008 2007
At 1 January 669,843 645,399
Impairment charge for
the year (note 25) 76,457 153,271
Loans written off (183,579) (113,632)
Translation effect 7,095 (15,195)
At 31 December 569,816 669,843
6. Financial instruments available for sale
Financial instruments available for sale are comprised of treasury
bills and Government bonds of Albanian Government and are pre-
sented as follows:
31 Dec 2008 31 Dec 2007
Treasury bills 2,381,862 5,090,161
Government bonds 596,603 646,137
Total 2,978,465 5,736,298
Current 2,927,109 5,188,383
Non-current 51,356 547,915
Treasury bills
Details of available for sale treasury bills by contractual maturity
are presented as follows:
Gross amount Provisions 2008 Net amount
31 December 2008 31 December 2008
Banco ProCredit Ecuador 437,021 437,021
ProCredit Bank, Bulgaria 596,123 596,123
ProCredit Bank, Kosovo 710 710
Total 1,033,854 1,033,854
Gross amount Provisions 2007 Net amount
31 December 2007 31 December 2007
ProCredit Moldova 48,841 48,841
Banco ProCredit Ecuador 587,467 (4,060) 583,407
ProCredit Bank, Georgia 165,905 (1,658) 164,247
ProCredit Bank, Bulgaria 422,685 (4,128) 418,557
ProCredit Bank, Kosovo 422 (4) 418
Total 1,225,320 (9,850) 1,215,470
31 December 2008 31 December 2007
Maturity Principal Accrued interest Carrying value Principal Accrued interest Carrying value
6 months 257,814 6,530 264,344 2,774,159 108,516 2,882,675
12 months 2,033,175 84,343 2,117,518 2,159,656 47,830 2,207,486
2,290,989 90,873 2,381,862 4,933,815 156,346 5,090,161
The effective interest rates on treasury bills during the 2008 fluctu-
ated between 6.0% and 8.9% (2007: 5.7% and 8.4%).
Fair value for treasury bills and government bonds is determined by
using the price of the last auction of Bank of Albania.
Loans and advances to financial institutions include, among oth-
ers, the following inter-company balances with ProCredit Holding
Group:
Annual Report 2008 54
The movement in investments securities may be summarised as
follows:
2008 2007
At 1 January 5,736,298 7,253,513
Additions 3,880,176 5,579,113
Disposals (6,640,542) (7,114,457)
Change in accrued interest 1,384 13,136
Gains from changes in fair value 1,149 4,993
At 31 December 2,978,465 5,736,298
The movement in the revaluation reserve of available for sale in-
vestments may be summarised as follows:
2008 2007
At 1 January 18,740 28,661
Additions (11,835) (24,428)
Disposals 10,686 19,434
Gains/ (losses) from disposal of AFS (4,927)
At 31 December 17,591 18,740
Government bonds
During the year ended 31 December 2008, the Bank acquired one
bond denominated in LEK with a nominal value of LEK 50,000 thou-
sand.
The effective interest rates on Government Bonds during the 2008
fluctuated between 8.09% and 9.75% (2007: 7.65% and 11%).
Details of the bonds denominated in LEK outstanding as at 31 De-
cember 2008 are as follows:
31 December 2008
Maturity Expiry Nominal Quoted market Interest Carrying
date value price accrued value
36 months 5-Apr-2009 66,667 64,121 1,209 65,330
24 months 19-Feb-2009 80,218 78,995 2,421 81,416
24 months 19-Mar-2009 200,729 196,051 4,510 200,562
24 months 18-Jun-2009 200,000 197,308 631 197,939
24 months 18-Jan-2010 50,000 49,462 1,895 51,356
597,613 585,937 10,666 596,603
Details of the available for sale bonds outstanding as at 31 Decem-
ber 2007 are as follows:
31 December 2007
Maturity Expiry Nominal Quoted market Interest Carrying
date value price accrued value
24 months 19-Mar-2009 200,729 197,154 4,486 201,640
24 months 18-Jun-2009 200,000 198,415 627 199,042
24 months 19-Feb-2009 80,217 79,438 2,421 81,859
24 months 18-May-2008 50,102 47,982 387 48,369
24 months 18-Dec-2008 49,910 49,694 159 49,853
36 months 5-Apr-2009 66,667 64,172 1,202 65,374
647,625 636,855 9,282 646,137
Interest is received semi annually at a coupon rate ranging from
7.5 % to 8.35%.
Fi nanci al Stat e ment s 55
7. Property and equipment
Property and equipment consists of the following:
Land Computers Vehicles Furniture Leasehold Construction Total
and and electronic and improvements in progress
buildings equipment equipment
Cost
At 1 January 2007 48,506 580,431 22,770 210,097 220,183 19,398 1,101,385
Additions 113,240 2,907 39,916 78,688 495,773 730,524
Disposals (6,395) (17,271) (6,458) (4,623) (67,662) (102,409)
Transfer (160) 19,753 4,825 22,322 (46,740)
At 31 December 2007 41,951 696,153 24,044 267,712 231,209 468,431 1,729,500
Additions 187,822 40,427 54,598 70,343 403,871 757,061
Disposals (5,219) (2,169) (8,198) (58,547) (74,133)
Transfer 95,893 63,133 (159,026)
At 31 December 2008 41,951 974,650 62,302 377,245 243,005 713,276 2,412,428

Accumulated depreciation
At 1 January 2007 (2,425) (332,168) (13,024) (131,548) (124,744) (603,909)
Charge for the year (3,457) (136,425) (4,633) (38,173) (31,278) (213,966)
Disposals 944 15,284 6,360 4,543 67,169 94,300
At 31 December 2007 (4,938) (453,309) (11,297) (165,178) (88,853) (723,575)
Charge for the year (1,482) (174,552) (11,231) (51,333) (40,548) (279,146)
Disposals 5,195 2,170 7,880 56,330 71,575
At 31 December 2008 (6,420) (622,666) (20,358) (208,631) (73,071) (931,146)

Net book value
At 31 December 2007 37,013 242,844 12,747 102,534 142,356 468,431 1,005,925

At 31 December 2008 35,531 351,983 41,944 168,614 169,934 713,276 1,481,282
Leasehold improvements
Leasehold improvements relate to capital expenditures on the
branches.
Assets pledged as collaterals
There are no assets pledged as collateral as at 31 December 2008
(2007: Nil).
8. Intangible assets
Intangible assets as at 31 December 2008 are composed as follows:
Software
Cost
At 1 January 2007 80,470
Additions 10,019
At 31 December 2007 90,489
Additions 39,360
At 31 December 2008 129,849

Accumulated amortization
At 1 January 2007 (13,042)
Charge for the year (8,691)
At 31 December 2007 (21,733)
Charge for the year (10,829)
At 31 December 2008 (32,564)

Net book value
At 31 December 2007 68,756

At 31 December 2008 97,287
9. Deferred tax assets
The movement on the deferred income tax account is as follows:
31 Dec 2008 31 Dec 2007
Balance at the beginning
of the year 18,998 32,639
Deferred tax (expense)/credit
to income statement relating to
the origination and reversal of
temporary differences (note 28) 4,558 (15,086)
Credit to equity on available
for sale securities (115) 1,445
Balance at the end of the year 23,441 18,998
As at 31 December 2008 deferred tax assets and liabilities are at-
tributable to the following items:
31 Dec 2008 31 Dec 2007
Deferred tax asset
Accelerated accounting depreciation 23,352 18,177
Fair value adjustment to
available-for-sale securities 1,736 1,874
Other provisions 491 213
Deferred tax liability
Other provisions (1,239)
Allowance for impairment losses (2,138) (27)
Net deferred tax assets 23,441 18,998
The deferred tax assets have been recorded net of the deferred tax
liabilities as the amounts are due to the same tax authority and are
expected to be settled on a net basis.
Annual Report 2008 56
10. Current income tax prepayment
Current income tax prepayment is comprised of the following:
31 Dec 2008 31 Dec 2007
Income tax prepayments 273,554 637,092
Income tax payable (202,947) (600,301)
Net current income tax prepayment 70,607 36,791
11. Foreclosed collateral
The foreclosed collateral is obtained due to legal process include
land, building and business premises which are not used by the
Bank for its core operations. Collateral obtained due to legal proc-
ess are to be sold as soon as practicable and is comprised of the
following:
31 Dec 2008 31 Dec 2007
Foreclosed collateral 53,673 40,031
The non-current assets held for sale are initially recognised at fair
value as determined by independent valuers. Subsequently, non-
current assets classified as held for sale are measured at the lower
of their carrying amount and fair value less costs to sell.
12. Other assets
Other assets are comprised of the following:
31 Dec 2008 31 Dec 2007
Monetary value in transit 34 110,407
Agent transactions 34,508
Cash in transit for automatic
teller machines 15,159 14,638
Shares 12,374 12,371
Other debtors 29,699 4,185
Guarantee deposits paid 2,152 3,178
Clearing account 134
Cheques for collection 472
Other financial assets 60,024 179,287
Prepaid expenses 70,295 29,743
Total other assets 130,319 209,030
Current 117,945 182,146
Non-current 12,374 26,884
At present the Bank is operating as an agent for the Albanian gov-
ernment, by performing cash acceptance for payments to the State
budget.
13. Due to banks
Due to banks as at 31 December 2008 comprised of the usage of the
compulsory reserve at the Central Bank in the amount of 129,944
thousand.
Due to other banks as at 31 December 2007 are composed as follows:
LEK000 Maturity Rate of
equivalent interest (p.a.)
Borrowings from non resident bank
In EUR (400,000) 48,712 3 months 4.947%
Accrued interest 100
Total 48,812
The short term borrowings are obtained from banks in non-OECD
countries upon similar terms and conditions and in accordance with
the same shareholders policy as explained in note 4.
14. Due to customers
Customer accounts for enterprises, private entrepreneurs and indi-
viduals consisted of the following:
31 Dec 2008 31 Dec 2007
Current accounts
Foreign currency 2,058,027 2,748,922
Local currency 2,277,521 2,468,051
Savings accounts
Foreign currency 1,241,486 516,123
Local currency 737,966 285,916
Term deposits
Foreign currency 5,972,719 6,696,179
Local currency 11,589,613 12,374,472
Other customer account
Foreign currency 845,031 549,528
Accrued interest 511,175 399,423
Total 25,233,538 26,038,614
Current 24,668,767 25,219,130
Non-current 564,771 819,484
Current accounts are non-interest bearing. Savings accounts in LEK
bear interest at 4% per annum (2007: 2.5%), whilst those in for-
eign currencies bear interest varying from 1.8% to 3.1% per annum
(2007: 2% to 2.5% per annum).
For time deposits, the rates applied as of 31 December 2008 were
as follows:
in % 1 month 3-6 months 7-12 months 15- 60 months
LEK 2.5 5.0-6.5 6.5-7.2 7.2-8.0
USD 1.5 2.0-2.3 2.3-2.6 2.6-2.8
EUR 2.5 3.5-4.3 4.3-4.5 4.5-5.0
For time deposits, the rates applied as of 31 December 2007 were
as follows:
in % 1 month 3 months 6 months 1 year 2- 5 years
LEK 2.5 4.4 5.4 6.5 7.0
USD 2 3 3.2 3.8 3.8
EUR 2.5 3.3 3.6 4.1 4.2-5.0
Fi nanci al Stat e ment s 57
15. Other borrowed funds
Other borrowed funds are composed as follows:
31 Dec 2008 31 Dec 2007
World Bank 32,022 81,102
FEFAD Foundation 845,349 850,107
Total 877,371 931,209
Current 45,378 67,631
Non-current 831,993 863,578
The loan from the World Bank is denominated in LEK and bears
interest at a variable rate calculated as the average interest rate
applied by ProCredit Bank sh.a. to its 6-month term deposits, less
0.5%. The loan is repayable in eleven annual instalments, which
commenced on 30 June 2000.
The amount due to the FEFAD Foundation, a shareholder of the
Bank, comprises four loans each bearing fixed interest at 4% per
annum. The repayments of principal occur on a semi-annual basis
payable on 30 June and 30 December of each year.
The purpose of these loans was to finance lending to small and me-
dium sized companies in Albania. The specific terms and condi-
tions for each loan are as follows:
A DEM 10,000,000 (EUR 5,112,919 using the fixed exchange rate
as at 31 December 2001) loan, based on an agreement dated 31
March 1999. The loan is repayable in 60 equal semi-annual in-
stalments, commencing on 30 December 2008;
A DEM 1,625,000 (EUR 830,849 using the fixed exchange rate
as at 31 December 2001) loan based on an agreement dated 31
March 1999. DEM 32,000 (EUR 16,361 using the fixed exchange
rate as at 31 December 2001) is repayable on 30 December
2005 followed by 59 semi-annual instalments of DEM 27,000
each (EUR 13,805 using the fixed exchange rate as at 31 Decem-
ber 2001);
A DEM 1,500,000 (EUR 766,938 using the fixed exchange rate
as at 31 December 2001) loan based on an agreement dated 18
July 2000. DEM 30,000 (EUR 15,339 using the fixed exchange
rate as at 31 December 2001) is repayable on 30 December
2005 followed by 60 semi-annual instalments of DEM 24,500
each (EUR 12,527, using the fixed exchange rate as at 31 Decem-
ber 2001);
A EUR 447,380 loan based on an agreement signed on 13 Sep-
tember 2002. EUR 10,780 is repayable on 30 December 2005
followed by 60 semi-annual instalments of EUR 7,400 each.
The Bank obtains long term financing from institutions sponsored
by the governments of the OECD Countries at interest rates at which
such institutions ordinarily lend in Albania and other emerging
markets and which may be lower than rates at which the Bank could
source the funds from other local lenders. Management has consid-
ered whether gains or losses should arise on initial recognition of
such instruments. As the transactions are with unrelated parties,
managements judgment is that these funds and the related lend-
ing are at the market rates and no initial recognition gains or losses
should arise. In making this judgment management also consid-
ered that these instruments are a separate market segment.
16. Subordinated debt
The balance of subordinated debt at 31 December 2008 is as fol-
lows:
31 Dec 2008 31 Dec 2007
Subordinated debt 680,900
Accrued interest 64,899
Total - Subordinated debt 745,799

Current 64,899
Non-current 680,900
On 21 January 2008 the Board of Directors of the Bank approved
the issuance of a subordinated debt of EUR 5.5 million, bearing a
net interest of 10%, to be given to the Bank by its shareholder, the
ProCredit Holding AG. The first tranche of EUR 3 million was dis-
bursed on 30 January 2008 and the second tranche of EUR 2.5 mil-
lion was disbursed on 1 April 2008. The interest is payable each
January with annual instalments and the principal will be paid on
January 29, 2018, the maturity date.
17. Other liabilities
Other liabilities are comprised of the following:
31 Dec 2008 31 Dec 2007
Sundry creditors 170,548 107,626
Payments in transit 53,894 80,234
Tax and social charges 47,987 50,010
Dividend payable 5,480
Accrued expenses 42,786 31,646
Other provisions 4,921 29,954
Cheques for collection 219
Total 320,136 305,169

Current 315,215 303,043
Non-current 4,921 2,126
18. Share capital and legal reserves
At 31 December 2008, the authorised and issued share capital of
the Bank comprised of 214,125 shares or EUR 15,823,838 and is
summarized as follows (in LEK equivalent):
31 December 2008 31 December 2007
Number of shares Equivalent in LEK Number of shares Equivalent in LEK
FEFAD Foundation 40,000 383,832
IFC 18,000 172,725
ProCredit Holding 171,300 1,620,760 70,000 671,707
Commerzbank AG 42,825 405,189 32,000 307,065
214,125 2,025,949 160,000 1,535,329
Legal reserves
The legal reserves were created based on the decision of the Su-
pervisory Council of the Bank of Albania No. 51, dated 22 April
1999, which states that commercial banks operating in Albania
Annual Report 2008 58
should create general reserves at 20% of profit after taxes and be-
fore dividends.
Additionally, a legal reserve created as 5% of profit after taxes and
before dividend is required by Law No. 9901, dated 14 April 2008,
On entrepreneurs and commercial companies.
19. Interest and similar income
Interest income was earned on the following assets:
Year ended
31 Dec 2008 31 Dec 2007
Loans and advances
to customers 2,660,262 2,238,112
Financial instruments available
for sale 364,370 469,320
Loans and advances to
financial institutions 408,522 344,877
Other 3,270
Total 3,433,154 3,055,579
20. Interest and similar expense
Interest expense was incurred on the following liabilities:
Year ended
31 Dec 2008 31 Dec 2007
Due to customers 1,124,900 857,848
Interest expenses on
subordinated debts 64,440
Other borrowed funds 36,506 37,686
Other 13,224 11,071
Total 1,239,070 906,605
21. Fee and commission income
Fees and commissions income were comprised as follows:
Year ended
31 Dec 2008 31 Dec 2007
Lending activities 43,751 33,614
Money transfer and cheques 47,551 40,605
Account maintenance 85,131 14,177
Commission income on
early withdrawals 61,447 31,922
Card fees 20,033 21,096
Letter of Credit and Guaranties 899 237
Other 15,023 15,697
Total 273,835 157,348
22. Fee and commission expense
Fees and commissions expense were comprised as follows:
Year ended
31 Dec 2008 31 Dec 2007
Commission expenses with banks 25,826 21,680
Cards fees expense 9,831 6,515
Other 1,603 2,533
Total 37,260 30,728
23. Other operating income
Year ended
31 Dec 2008 31 Dec 2007
Grant released to other income 2,632
Repayment of loans
previously written off 32,760 65,476
Gain on sale of fixed assets 580 596
Gain from disposal of AFS securities 3,371
Reimbursement of expenses
from employees 4,763 5,300
Reversal of accrued for bonus 3,417 17,863
Other 15,847 976
Total 57,367 96,214
In other operating income are included all the reversal of accrued
expenses booked for the year 2007 and reversed in the actual year,
penalties received from suppliers, taxes of the execution office re-
ceived back from clients and other incomes.
24. Net foreign exchange result
Year ended
31 Dec 2008 31 Dec 2007
Foreign exchange
transactions gains 38,286 23,378
Foreign exchange translation
gains/ (losses) 27,665 (30,663)
Total 65,951 (7,285)
25. Impairment charge for credit losses
Year ended
31 Dec 2008 31 Dec 2007
Loans and advances
to banks (note 4) (9,508) 2,899
Loans and advances
to customers (note 5) 76,457 153,271
Total 66,949 156,170
26. Other operating expenses
Other operating expenses consisted of the following:
Year ended
31 Dec 2008 31 Dec2007
Personnel costs (note 27) 766,329 522,991
Rent-expense 178,412 133,561
Office supplies 51,140 37,268
Transportation and business
trip expenses 70,242 55,074
Consultancy, legal fees
and other services 199,059 201,232
Maintenance and repairs 87,009 91,512
Telephone and electricity 162,828 125,980
Security services 34,377 24,335
Insurance 5,572 5,181
Deposit insurance ASD 54,813 47,534
Advertising 192,671 107,480
Depreciation of fixed assets 279,146 213,966
Amortization of intangible assets 10,829 8,691
Other provision 8,875
Other operating expenses 22,907 25,026
Total 2,115,334 1,608,706
Fi nanci al Stat e ment s 59
27. Personnel expenses
Personnel expenses can be detailed as follows:
Year ended
31 Dec 2008 31 Dec 2007
Salaries 597,416 395,984
Social insurance 31,696 21,699
Defined contribution plan 84,169 57,623
Other 53,048 47,685
Total 766,329 522,991
28. Income tax expense
Income tax for the years ended 31 December 2008 is composed as
follows:

Year ended
31 Dec 2008 31 Dec 2007
Current tax 52,243 150,703
Deferred tax (expense)/benefit (4,558) 15,086
Adjustment of the balance,
AFS deferred tax reserve 3,748
Income tax expense 51,433 165,789
Income tax in Albania is assessed at the rate of 10% (2007:20%) of
taxable income. The following is a reconciliation of income taxes
calculated at the applicable tax rate to income tax expense.
Year ended
31 Dec 2008 31 Dec 2007
Profit before taxes 371,690 599,647
Theoretical tax
calculated at 10% (2007: 20%) 37,169 119,929
Non tax deductible expenses 14,264 45,860
Income tax expense 51,433 165,789
The average effective tax rate for the year is 13.8% (2007: 27.6%).
According to Albanian Tax legislation the Tax authorities have right
to examine tax returns in 5 years following submission of the re-
turn.
29. Cash and cash equivalents
Cash and cash equivalents consisted of the following:
31 Dec 2008 31 Dec 2007
Cash and cash equivalents
(note 3) 1,498,108 1,105,715
Loans and advances to banks
and other financial institutions
(note 4) 2,892,342 4,845,106
Total 4,390,450 5,950,821
The statutory reserve with the Central Bank is not a component of
cash and cash equivalents.
30. Commitments and contingencies
The balance of credit related commitments is comprised of the fol-
lowing:
31 Dec 2008 31 Dec 2007
Guarantees in favour of customers 90,342 37,717
Credit commitments in favour
of customers 653,712 509,544
Credit commitments in favour
of credit institutions 155,313
Total 899,367 547,261
Guarantees and letters of credit
The Bank issues guarantees and letters of credit in favour of its cus-
tomers. These instruments bear a credit risk similar to that of loans
granted. Based on managements estimate, no material losses re-
lated to guarantees outstanding at 31 December 2008 will be in-
curred and thus no provision for losses has been included in these
financial statements.
Commitments to extend credit in favour of customers and credit in-
stitutions represent contractual commitments to make loans and
revolving credits. Commitments generally have fixed expiration
dates, or other termination clauses.
Legal
In the normal course of business the Bank is presented with legal
claims; the Banks management is of the opinion that no material
losses will be incurred in relation to legal claims outstanding at 31
December 2008.
Lease commitments
Lease commitments are composed as follows:
31 Dec 2008 31 Dec 2007
Not later than 1 year 191,256 154,159
Later than 1 year and
not later than 5 years 588,771 514,144
Later than 5 years 298,095 318,517
Total 1,078,122 986,820
31. Financial risk management
The Banks activities expose it to a variety of financial risks and
those activities involve the analysis, evaluation, acceptance and
management of some degree of risk or combination of risks. Taking
risk is core to the financial business, and the operational risks are
an inevitable consequence of being in business. The Banks aim is
therefore to achieve an appropriate balance between risk and re-
turn and minimise potential adverse effects on the Banks financial
performance.
The Banks risk management policies are designed to identify and
analyse these risks, to set appropriate risk limits and controls, and
to monitor the risks and adherence to limits by means of reliable
and up-to-date information systems. The Bank regularly reviews its
risk management policies and systems to reflect changes in mar-
kets, products and emerging best practice.
Risk management is carried out by a risk division in the Bank under
policies approved by the Board of Directors. The Board provides
written principles for overall risk management, as well as written
policies covering specific areas, such as, credit risk, foreign ex-
change risk, interest rate risk and liquidity risk.
The most important types of risk are credit risk, liquidity risk, mar-
ket risk and other operational risk. Market risk includes currency
risk, interest rate and other price risk.
Annual Report 2008 60
1. Currency risk
The Bank is exposed to currency risk through transactions in for-
eign currencies. Currency risk is the risk that the value of finan-
cial instruments will fluctuate due to changes in foreign exchange
rates.
The Bank attempts to manage this risk by closing daily open for-
eign currency positions and by establishing and monitoring limits
on open positions and also ensuring that these positions remain in
compliance with the Bank of Albania guidelines.
The analysis of on and off balance sheet items as at 31 December
2007 by the foreign currencies in which they were denominated was
as follows:
31 December 2008 LEK EUR USD Total
Assets
Cash and balances with Central Bank 1,883,111 1,643,629 395,070 3,921,810
Loans and advances to banks and other financial institutions 4,031,747 1,321,987 5,353,734
Financial instruments available for sale 2,978,465 2,978,465
Loans and advances to customers 9,989,783 5,875,367 159,279 16,024,429
Other financial assets 13,507 35,035 11,482 60,024
Total Financial Assets 14,864,866 11,585,778 1,887,818 28,338,462

Liabilities
Due to banks 129,944 129,944
Due to customers 15,525,606 7,829,036 1,878,896 25,233,538
Other borrowed funds 32,022 845,349 877,371
Other financial liabilities 185,106 112,520 22,510 320,136
Subordinated Debt 745,799 745,799
Total Financial Liabilities 15,872,678 9,532,704 1,901,406 27,306,788
Net on-balance sheet currency position (1,007,812) 2,053,074 (13,588) 1,031,674
Off-balance sheet commitments and guarantees 397,560 494,320 7,487 899,367
31 December 2007 LEK EUR USD Total
Assets
Cash and balances with Central Bank 1,822,644 1,349,569 378,277 3,550,490
Loans and advances to banks and other financial institutions 3,626,729 1,686,886 5,313,615
Financial instruments available for sale 5,736,298 5,736,298
Loans and advances to customers 7,965,679 5,564,357 108,553 13,638,589
Other financial assets 29,908 131,256 18,123 179,287
Total Financial Assets 15,554,529 10,671,911 2,191,839 28,418,279

Liabilities
Due to banks 48,812 48,812
Due to customers 15,778,385 8,092,056 2,168,173 26,038,614
Other borrowed funds 81,102 850,107 931,209
Other financial liabilities 183,365 79,236 42,568 305,169
Total Financial Liabilities 16,042,852 9,070,211 2,210,741 27,323,804
Net on-balance sheet currency position (488,323) 1,601,700 (18,902) 1,094,475
Off-balance sheet commitments and guarantees 326,473 203,110 17,677 547,261
The Banks transactional exposures give rise to foreign currency
gains and losses that are recognized in the income statement.
These exposures comprise the monetary and non-monetary assets
and liabilities of the Bank.
The analysis of on and off balance sheet financial assets and liabili-
ties as at 31 December 2008 by the foreign currencies in which they
were denominated was as follows:
Foreign currency sensitivity analysis
The Bank is mainly exposed to the currency of EUR and USD. The
Banks sensitivity analysis has taken into consideration a 2% and
10 % increase and decrease in the Lek against the foreign curren-
cies EUR and USD, respectively. These are the sensitivity rates
used when reporting foreign currency risk internally to key man-
agement personnel and represents managements assessment of
the reasonably possible change in foreign exchange rates.
At 31 December 2008, if the Lek currency had weakened/strength-
ened by 2% against the EUR with all other variables held constant,
post-tax profit for the year would have been Lek 37,916 thousand
(2007: Lek 25,627 thousand) higher/lower, mainly as a result of
foreign exchange gains/losses on translation of EUR denominat-
ed cash and balances with Central Bank, Loans and advances to
banks and financial institutions, loans and advances to custom-
ers, due to customers, other borrowed funds and subordinated
debt.
At 31 December 2008, if the Lek currency had weakened/strength-
ened by 10% against the USD with all other variables held con-
stant, post-tax profit for the year would have been Lek 1,223 thou-
sand (2007: Lek 1,512 thousand) lower/higher, mainly as a result
of foreign exchange gains/losses on translation of USD denomi-
nated cash and balances with Central Bank, Loans and advances to
banks and financial institutions, loans and advances to customers
and due to customers.
Fi nanci al Stat e ment s 61
2. Interest rate risk
The Banks operations are subject to the risk of interest rate fluc-
tuations to the extent that interest-earning assets and interest-
bearing liabilities mature or reprice at different times or in differing
amounts. The Bank attempts to mitigate this risk by monitoring the
repricing dates of its assets and liabilities. In addition, the actual
effect will depend on a number of other factors, including the extent
to which repayments are made earlier or later than the contracted
dates and variations in interest rate sensitivity within repricing pe-
riods and among currencies.
Interest rate sensitivity analysis
The interest rate sensitivity analyse has been determined based on
the exposure to interest rates for all the financial assets and liabili-
ties at the balance sheet date. These rates are used when report-
ing interest rate risk internally to key management personnel and
represents managements assessment of the reasonably possible
change in interest rates.
At 31 December 2008, if Lek market interest rates had been 200
basis points higher/lower with all other variables held constant,
post-tax profit for the year would have been Lek 52,826 thousand
(2007: 19,078 thousand) lower/higher, mainly as a result of higher/
lower interest expense rates on customer deposits, compensated
by higher/lower interest income rates on financial instruments
available for sale and loans to customers.
31 December 2008 Up to 1 3 3 6 612 Over 1 Non-interest Total
1 month months months months year bearing
Assets
Cash and balances with Central Bank 1,174,458 323,292 303,180 591,808 30,964 1,498,108 3,921,810
Loans and advances to banks and
other financial institutions 3,423,237 1,361,063 260,447 251,963 57,024 5,353,734
Financial instruments available for sale 99,704 446,618 262,638 2,118,148 51,357 2,978,465
Loans and advances to customers 1,127,437 1,269,717 1,972,260 3,200,952 8,327,831 126,232 16,024,429
Other financial assets 60,024 60,024
Total Financial Assets 5,824,836 3,400,690 2,798,525 6,162,871 8,467,176 1,684,364 28,338,462
Liabilities
Due to banks 129,944 129,944
Due to customers 5,824,465 3,880,661 3,438,945 6,643,559 564,771 4,881,137 25,233,538
Other borrowed funds 14,683 30,695 831,993 877,371
Other liabilities 320,136 320,136
Subordinated debt 64,899 680,900 745,799
Total Financial Liabilities 5,824,465 3,880,661 3,518,527 6,674,254 2,077,664 5,331,217 27,306,788

Interest sensitivity gap 371 (479,971) (720,002) (511,383) 6,389,512 (3,646,853) 1,031,674
31 December 2007 Up to 1 3 3 6 612 Over 1 Non-interest Total
1 month months months months year bearing
Assets
Cash and balances with Central Bank 1,232,497 388,467 319,596 466,337 37,877 1,105,716 3,550,490
Loans and advances to banks
and other financial institutions 2,076,504 2,980,036 242,965 14,110 5,313,615
Financial instruments available for sale 896,370 759,876 1,226,429 2,305,708 547,915 5,736,298
Loans and advances to customers 806,688 1,235,208 1,827,196 2,942,063 6,782,600 44,834 13,638,589
Other financial assets 179,287 179,287
Total Financial Assets 5,012,059 5,363,587 3,373,221 5,957,073 7,382,502 1,329,837 28,418,279

Liabilities
Due to banks 48,812 48,812
Due to customers 4,725,465 4,886,386 4,136,666 5,704,113 819,484 5,766,500 26,038,614
Other borrowed funds 53,187 14,444 863,578 931,209
Other liabilities 305,169 305,169
Total Financial Liabilities 4,725,465 4,935,198 4,189,853 5,718,557 1,683,062 6,071,669 27,323,804

Interest sensitivity gap 286,594 428,389 (816,632) 238,516 5,699,440 (4,741,832) 1,094,475
At 31 December 2008, if EUR market interest rates had been 200
basis points higher/lower with all other variables held constant,
post-tax profit for the year would have been Lek 21,784 thousand
higher/lower (2007: 5,550 thousand lower/higher), mainly as a re-
sult of higher/lower interest expense rates on customer deposits,
compensated by higher/lower interest income rates on cash and
balances with banks.
At 31 December 2008, if USD market interest rates had been 200
basis points higher/lower with all other variables held constant,
post-tax profit for the year would have been Lek 6,029 thousand
higher/lower (2007: 7,242 thousand lower/higher), mainly as a re-
sult of higher/lower interest expense rates on customer deposits,
compensated by higher/lower interest income rates on cash and
balances with banks.
Annual Report 2008 62
The interest rate sensitivity analysis include all variable interest
rate assets and liabilities and assumes that all short term fixed rate
assets and liabilities will be reinvested upon maturity.
3. 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 counter-
parties might default on their contractual obligations. The manage-
ment of the credit risk exposures to borrowers is conducted through
regular analysis of the borrowers credit worthiness and the assign-
ment of a rating grade. Exposure to credit risk is also managed in
part by obtaining collateral and guarantees.
The Banks primary exposure to credit risk arises through its loans
and advances. The amount of credit exposure in this regard is rep-
resented by the carrying amounts of the assets on the balance
sheet. In addition, the Bank is exposed to off-balance sheet credit
risk through commitments to extend credit and guarantees issued
(see note 30).
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 Banks investments,
loans and advances, commitments to extend credit and guarantees
issued.
3.1 Risk limit control and mitigation policies
The Bank manages, limits and controls concentrations of credit risk
wherever they are identified in particular, to individual counter-
parties and groups and to industries and countries.
The Bank structures the levels of credit risk it undertakes by placing
limits on the amount of risk accepted in relation to one borrower, or
group of borrowers, and to geographical and industry segments.
Such risks are monitored on a revolving basis and subject to an an-
nual or more frequent review, when considered necessary. Limits
on the level of credit risk by product and industry sector are ap-
proved by the Board of Directors.
Exposure to credit risk is also managed through regular analysis of
the ability of borrowers and potential borrowers to meet interest
and capital repayment obligations and by changing these lending
limits where appropriate.
Some other specific control and mitigation measures are outlined
below.
(a) Collateral
The Bank employs a range of policies and practices to mitigate
credit risk. The most traditional of these is the taking of security for
funds advances, which is common practice. The Bank implements
guidelines on the acceptability of specific classes of collateral or
credit risk mitigation. The principal collateral types for loans and
advances are:
Cash and bank guarantees;
Mortgages over residential properties;
Business assets such as premises, inventory and accounts
receivable.
Loans to corporate entities and individuals are generally secured.
In order to minimise the credit loss the Bank will seek additional
collateral from the counterparty as soon as impairment indicators
are noticed for the relevant individual loans and advances.
(b) Credit-related contingencies
The primary purpose of these instruments is to ensure that funds
are available to a customer as required. Guarantees and standby
letters of credit carry the same credit risk as loans and are secured
with same collateral as loans.
3.2 Impairment and provisioning policies
Impairment provisions are recognised for financial reporting pur-
poses only for losses that have been incurred at the balance sheet
date based on objective evidence of impairment (see Note 2.n).
The internal rating tool assists management to determine whether
objective evidence of impairment exists, based on the following cri-
teria set out by the Bank:
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower (e.g. equity
ratio, net income percentage of sales);
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrowers competitive position;
Deterioration in the value of collateral.
The Banks policy requires the review of individual financial as-
sets that are above materiality thresholds at least annually or more
regularly when individual circumstances require. Impairment al-
lowances on individually assessed accounts are determined by an
evaluation of the incurred loss at balance-sheet date on a case-by-
case basis, and are applied to all individually significant accounts.
The assessment normally encompasses collateral held (including
re-confirmation of its enforceability) and the anticipated receipts
for that individual account.
The collective assessment of the impairment of a group of finan-
cial assets is based on a quantitative analysis of historical default
rates for loan portfolios with similar risk characteristics. The quan-
titative default rates calculated in this manner were subjected to a
qualitative analysis (migration analysis).
According to internal methodology of the bank, classification is
done by applying the principle of the number of days in arrears in
repayment of the loan liabilities by clients. This principle of number
of days in arrears means the following classification set-up:
I class of loan and off balance receivables corresponds to loans
with no arrears or with arrears up to 7 days;
II class of loan and off balance receivables corresponds to loans
with arrears from 8 to 30 days;
III class of loan and off balance receivables corresponds to loans
with arrears from 31 to 90 days;
IV class of loan and off balance receivables corresponds to loans
with arrears from 91 to 180 days;
V class of loan and off balance receivables corresponds to loans
with arrears of over 180 days.
Number of days in arrears means the number of days in delay with
the payment of interest or principal from the due date until the day
of setting the risk classes. In this manner the risk classes are set
every month.
Fi nanci al Stat e ment s 63
The table below shows the percentage of the Banks on-balance
sheet items relating to loans and advances and the associated im-
pairment provision for each of the Banks categories:
3.3 Quality of the Loan Portfolio
Loans and advances are summarised as follows:
Banks rating 2008 2007
Loans Impairment Loans and Impairment
and advances (%) provision (%) advances (%) provision (%)
Specific Impairment 3.73 17.7 6.6 34.9
Arrears 0-7 days 93.44 1.0 91.4 1.0
Arrears 8-30 days 1.10 30.0 0.4 30.0
Arrears 31-90 days 0.53 60.0 0.5 60.0
Arrears 91-180 days 0.39 90.0 0.4 90.0
Above 180 days 0.82 100.0 0.7 100.0
100 3.5 100.0 4.7
31 December 2008 31 December 2007
Loans to Loans to Loans to Loans to
Customers Banks Customers Banks
Neither past due nor impaired 15,464,551 5,353,734 13,062,239 5,323,465
Past due but not impaired 379,303 210,382
Individually impaired 750,391 1,035,811
Gross 16,594,245 5,353,734 14,308,432 5,323,465
Less: allowance for impairment (569,816) (669,843) (9,850)
Net 16,024,429 5,353,734 13,638,589 5,313,615
The total impairment provision for loans and advances to custom-
ers as at 31 December 2008 is ALL 569,816 thousand (31 December
2007: ALL 669,843 thousand). Further information of the impair-
ment allowance for loans and advances to banks and to customers
is provided in Notes 4 and 5.
Individual significant loans are closely monitored by the Credit Risk
Committee of the Bank. If there is any objective evidence of dete-
rioration of an individual significant loan, the need for individual
impairment is assessed, taking into account:
a. any factors which might influence the customers ability to fulfil
his obligation (e.g. any specific information on the customers
business, changes in the customers market environment, gen-
eral economic situation);
b. the aggregate exposure to the client;
c. the realizable value of collateral held.
For the calculation of the individual impairment a Discounted Cash
Flow approach is applied.
(a) Loans and advances neither past due or impaired
The credit quality of the portfolio of loans and advances that were
neither past due nor impaired can be assessed by reference to the
internal rating system adopted by the Bank.
31 Dec 2008 31 Dec 2007
Business 11,609,329 10,072,443
Agricultural 1,393,609 969,853
Housing 1,633,354 1,071,460
Consumer 558,051 797,431
Other 70,208 151,052
Total 15,464,551 13,062,239
(b) Loans and advances past due but not impaired
Loans and advances less than 180 days past due are not considered
impaired, unless other information is available to indicate the con-
trary. Gross amount of loans and advances by class to customers
that were past due but not impaired were as follows:
31 December 2008 Business Agricultural Housing Consumer Total
Past due 1- 7 days 31,081 6,893 2,844 1,145 41,963
Past due 8 - 30 days 153,685 15,943 8,089 5,438 183,155
Past due 31 - 90 days 70,346 11,832 4,493 3,912 90,583
Past due 91 180 days 54,388 4,476 1,733 3,005 63,602
Total 309,500 39,144 17,159 13,500 379,303
Fair value of collateral 19,538,950 591,296 2,562,207 561,225 23,253,678
31 December 2007 Business Agricultural Housing Consumer Total
Past due 1- 7 days 22,347 1,143 2,830 2,224 28,544
Past due 8 - 30 days 43,096 2,356 7,776 4,196 57,424
Past due 31 - 90 days 60,375 2,945 4,836 4,226 72,382
Past due 91 180 days 41,965 1,914 4,718 3,435 52,032
Total 167,783 8,358 20,160 14,081 210,382

Fair value of collateral 14,072,239 567,201 3,397,313 1,496,743 19,533,496
Annual Report 2008 64
Disclosed amounts are gross values before impairment
(c) Loans and advances to customers individually impaired
The breakdown of the gross amount of individually impaired loans
and advances by class, along with the fair value of related collateral
held by the Bank as security, are as follows:
The disclosed fair value of collateral is determined by local certi-
fied valuers and represents value realisable by the legal owners of
the assets. Management considers the loans covered by collateral
as impaired because experience shows that a significant propor-
tion of the collateral cannot be enforced due to administrative and
legal difficulties. The impairment provisions reflect the probability
that management will not be able to enforce its rights and repos-
sess collateral on defaulted loans. Despite difficulties in enforcing
repossession of collateral, the Banks management will vigorously
pursue the outstanding debts with all possible means at their dis-
posal.
3.4 Maximum Exposure to Risk before Collateral Held
The following table shows exposure to credit risk on December 31,
2008 and 2007 indicating total exposure to credit risk without tak-
ing into consideration means of collateral. For on-balance-sheet
assets, the exposures set out above are based on net carrying
amounts as reported in the balance sheet. The table also includes
off balance items which might lead to credit risk.
31 December 2008 Business Agricultural Housing Consumer Other Total
Individually impaired loans 685,641 35,663 11,619 17,468 750,391
Fair value of collateral 4,050,095 56,293 4,106,388

31 December 2007 Business Agricultural Housing Consumer Other Total
Individually impaired loans 969,918 57,113 2,626 6,154 1,035,811
Fair value of collateral 5,293,264 165,442 3,380 23,669 5,485,755
Maximum exposure
2008 2007
Credit risk exposures relating to
on-balance sheet assets are as follows:
Cash and balances with Central Bank 3,921,810 3,550,490
Loans and advances to banks and
other financial institutions 5,353,734 5,313,615
Loans and advances to customers:
Business 12,136,796 10,638,004
Agricultural 1,422,119 983,250
Housing 1,627,118 1,071,254
Consumer 571,465 751,256
Other 266,931 194,825
16,024,429 13,638,589

Financial instruments available
for sale 2,978,465 5,736,298
Current income tax prepayments 70,607 36,791
Other financial assets 60,024 179,287

Credit risk exposures relating to
off-balance sheet items are as follows:
Loan commitments and other
credit related liabilities 809,025 509,544
Financial guarantees 90,342 37,717
Total 29,308,436 29,002,331
The structure of the loan portfolio is regularly reviewed within the
banks in order to identify potential events which could have an
impact on large areas of the loan portfolio (common risk factors)
and if necessary limit the exposure toward certain sectors of the
economy.
31 December 2008 Business Agricultural Housing Consumer Other Total
< 10,000 EUR 4,802,935 1,096,724 1,382,817 518,358 110,532 7,911,366
10,000 50,000 EUR 3,920,587 266,131 216,267 42,881 149,197 4,595,063
50,000 150,000 EUR 1,900,885 59,264 28,034 10,226 7,203 2,005,611
> 150,000 EUR 1,512,389 1,512,389
Total 12,136,796 1,422,119 1,627,118 571,465 266,931 16,024,429
31 December 2007 Business Agricultural Housing Consumer Other Total
< 10,000 EUR 4,041,089 739,934 805,851 735,807 107,158 6,429,839
10,000 50,000 EUR 3,499,679 243,316 253,599 15,449 87,667 4,099,710
50,000 150,000 EUR 1,546,479 11,804 1,558,283
> 150,000 EUR 1,550,757 1550,757
Total 10,638,004 983,250 1,071,254 751,256 194,825 13,638,589
Fi nanci al Stat e ment s 65
3.5 Loans and advances renegotiated
Restructuring activities include extended payment arrangements,
modification and deferral of payments. Following restructuring, a
previously overdue customer account is reset from to a normal sta-
tus and managed together with other similar accounts. Restructur-
ing policies and practices are based on indicators or criteria which,
in the judgment of bank management, indicate that payment will
most likely continue. These policies are kept under continuous re-
view. Renegotiated loans that would otherwise be past due or im-
paired totalled ALL 49,406 thousand (2007: ALL 8,302 thousand).
3.6 Repossessed collateral
Collateral obtained due to legal process include land, building and
business premises which are not used by the Bank for its core op-
erations. Collateral obtained due to legal process are to be sold as
soon as practicable. During 2008, the Bank obtained assets by tak-
ing possession of collateral in the amount of ALL 13,641 thousand
(2007: ALL 37,659 thousand).
3.7 Collateral policy
Collateral received from customers includes cash, mortgages,
inventory and other assets pledged in favour of the bank from its
borrowers and as at 31 December 2008 amount Lek 45,423,403
thousand (2007: Lek 46,436,703 thousand). Collateral is valued at
the date credit is extended and reassessed periodically for impair-
ment.
The following table presents the distribution of the Banks loans,
overdrafts and credit cards by primary guarantee type, excluding
accrued interest and disbursement fee from loans:
31 December 31 December
Primary guarantee type 2008 % 2007 %
Mortgages 492,772 3 587,767 4
Other collateral 8,425,116 51 6,826,881 48
Mixed (Mortgage
and other) 7,677,154 46 6,904,754 48
Unsecured 56,948 0 45,286
Total 16,651,990 100 14,364,688 100
3.8 Structure and diversification of the loan portfolio
The following table presents the distribution of the Banks loans,
overdrafts and credit cards by industry sector, excluding accrued
interest and disbursement fee from loans:
31 December 31 December
Industry sector 2008 % 2007 %
Trade 6,153,336 37 5,652,043 39
Industry and
other production 2,061,426 12 1,785,609 12
Construction 2,031,649 12 1,722,069 12
Transport 832,639 5 707,843 5
Other Services 1,570,087 9 1,388,122 10
Other 4,002,853 24 3,109,002 22
16,651,990 100 14,364,688 100
3.9 Credit related commitments
The primary purpose of these instruments is to ensure that funds
are available to a customer as required. Guarantees and standby
letters of credit, which represent irrevocable assurances that the
Bank will make payments in the event that a customer cannot meet
its obligations to third parties, carry the same credit risk as loans.
Guarantees or letters of credit are subjected to the same approval
mechanism as regular loans. This also implies that the same collat-
eral requirements apply for off balance commitments as for loans.
Moreover, the bank measures total client exposure and creditwor-
thiness by adding also off-balance commitments to him/her and by
taking into consideration the connected parties and their exposure
and creditworthiness.
4. Liquidity risk
Liquidity risk arises in the general funding of the Banks activities
and in the management of positions. It includes both the risk of be-
ing 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.
Funds are raised using a broad range of instruments including de-
posits, other liabilities evidenced by paper, 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 matu-
rity. The Bank continually assesses liquidity risk by identifying and
monitoring changes in funding required 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.
As at 31 December 2008 the fifty largest deposits from individual
corporate clients represent 10.71% of total balances due to custom-
ers (2007: 9.64 %).
The table below presents the cash flows payable by the Bank under
financial liabilities by remaining contractual maturities at the bal-
ance sheet date. The amounts disclosed in the table are the con-
tractual undiscounted cash flows, whereas the Bank manages the
inherent liquidity risk based on expected discounted cash inflows.

31 December 2008 Up to 1 1 3 3 6 6 12 Over 1 Total
month months months months year
Liabilities
Due to other banks 129,944 129,944
Due to customers 10,437,204 4,131,839 3,617,357 6,884,523 1,184,608 26,255,531
Other borrowed funds 14,683 53,141 1,320,426 1,388,250
Other liabilities 320,135 320,135
Total Liabilities (by contractual due dates) 10,887,283 4,131,839 3,632,040 6,937,664 2,505,034 28,093,860

Total Assets (by expected due dates) 7,311,222 5,830,783 4,165,522 7,411,447 12,163,984 36,882,958
Annual Report 2008 66
Credit commitments are disclosed in Note 30 and have a maturity
of up to one month.
5. Estimation and disclosure of fair value
Fair value estimates are based on existing balance sheet financial
instruments without attempting to estimate the value of anticipat-
ed future business and the value of assets and liabilities not con-
sidered financial instruments.
31 December 2007 Up to 1 1 3 3 6 6 12 Over 1 Total
month months months months year
Liabilities
Due to other banks 49,321 49,321
Due to customers 10,543,120 5,009,090 4,313,519 6,064,932 1,042,170 26,972,831
Other borrowed funds 58,412 31,820 1,351,781 1,442,013
Other liabilities 269,736 33,307 2,126 305,169
Total Liabilities (by contractual due dates) 10,812,856 5,091,718 4,371,931 6,096,752 2,396,077 28,769,334

Total Assets (by expected due dates) 7,027,388 5,707,921 3,897,349 7,009,187 9,204,835 32,846,680
Carrying value Fair value
2008 2007 2008 2007
Financial assets
Loans and advances to customers 16,024,429 13,638,589 15,751,061 13,693,858
Loans and advances to banks
and other financial institutions 5,353,734 5,313,615 5,353,734 5,313,615

Financial liabilities
Due to banks 129,944 48,812 129,944 48,812
Due to customers 25,233,538 26,038,614 25,260,298 26,007,081
Other borrowed funds 877,371 931,209 877,371 931,209
Subordinated debt 745,799 745,799
Loans and advances to banks and other financial institutions
Loans and advances to financial institutions include inter-bank
placements and items in the course of collection. As loans, advanc-
es and overnight deposits are short term their fair value is consid-
ered to approximate their carrying amount.
Loans and advances to customers
Loans and advances are net of allowances for impairment. The
Banks loan portfolio has an estimated fair value approximately
equal to its book value due to either their short-term nature or un-
derlying interest rates, which approximate market rates. The major-
ity of the loan portfolio is subject to re-pricing within a year.
The fair value of loans and advances to customers is their expected
cash flow discounted at current market rates. Current market rates
are interest rates we would charge at the moment (year end).
Due to banks and customers
The estimated fair value of deposits with no stated maturity, which
includes non-interest-bearing deposits, is the amount repayable on
demand. At 31 December 2008, the fair value of the time deposits
was LEK 21,135,487 thousand (31 December 2007: LEK 19,916,161
thousand), while its carrying value was LEK 20,139,154 thousand
(31 December 2007: LEK 19,947,694 thousand).
The estimated fair value of term deposits is calculated by discount-
ing the cash flows at agreed dates with end of the year rates on
deposit that have more than a six-month maturity and where actual
interest rate is not the same as the agreed for these deposits.
Other borrowed funds
At 31 December 2008, the estimated fair value of borrowed funds
approximate the carrying value due to the interest rate which ap-
proximates market rates (note 15).
Subordinated Debt
At 31 December 2008, the estimated fair value of subordinated
debt approximate the carrying value due to the interest rate which
approximates market rates (note 16).
32. Related party transactions
During 2008 the Bank entered into the following related party
transactions with several banks in the ProCredit Holding Group,
one of the shareholders of the Bank (refer to note 1). The ProCredit
Holding Group has a share participation in the related banks rang-
ing between 17 and 80%.
The ultimate parent of the Bank is ProCredit Holding AG.
In addition, the Bank has a management services agreement with
ProCredit Holding AG, for providing the Bank with personnel who
are the high level management of the Bank (currently the CEO and
one Deputy-CEO-s). During the year ended 31 December 2008,
ProCredit Holding AG invoiced to ProCredit Bank Sh.a an amount
of LEK 54,053 thousand (2007: LEK 94,222 thousand) as manage-
ment fees.
The entire Banks related party transactions are carried out on an
arms length basis.
Fi nanci al Stat e ment s 67
Year ended 31 December 2008 ProCredit Other subsidiaries of Total
Holding AG ProCredit Group
Loans:
Loans outstanding at beginning of the year 881,726 881,726
Loans issued during the year 1,784,906 1,784,906
Loans repaid during the year 1,705,833 1,705,833
Loans outstanding at end of the year 960,799 960,799

Deposits:
Deposits at beginning of the year 333,416 333,416
Deposits issued during the year 35,134,495 35,134,495
Deposits repaid during the year 35,395,586 35,395,586
Deposits at end of the year 72,325 72,325

Bank accounts at end of the year 18,400 18,400
Total cash and loans to financial institutions at end of the year 1,051,475 1,051,475
Other Assets outstanding at end of the year 24,878 8,037 32,915

Borrowing:
Borrowing outstanding at beginning of the year 48,808 48,808
Borrowing issued during the year 739,309 609,096 1,348,405
Borrowing repaid during the year 657,904 657,904
Borrowing outstanding at end of the year 739,309 739,309

Other Liabilities outstanding at end of the year 26,745 7,446 34,191
Income for year ending
Interest income 117,948 117,948
Expenses for the year ending
Interest expense 54,156 1,099 55,255
Other expense 68,297 25,112 93,408
Year ended 31 December 2007 ProCredit Other subsidiaries of Total
Holding AG ProCredit Group
Loans:
Loans outstanding at beginning of the year 732,408 732,408
Loans issued during the year 1,908,369 1,908,369
Loans repaid during the year 1,759,051 1,759,051
Loans outstanding at end of the year 881,726 881,726

Deposits:
Deposits at beginning of the year 564,443 564,443
Deposits issued during the year 17,780,151 17,780,151
Deposits repaid during the year 18,011,178 18,011,178
Deposits at end of the year 333,416 333,416

Bank accounts at end of the year 10,178 10,178
Total cash and loans to financial institutions at end of the year 1,225,320 1,225,320
Other Assets outstanding at end of the year 7,852 7,852

Borrowing:
Borrowing outstanding at beginning of the year 260,506 260,506
Borrowing issued during the year 701,835 701,835
Borrowing repaid during the year 913,533 913,533
Borrowing outstanding at end of the year 48,808 48,808

Other Liabilities outstanding at end of the year 9,348 3,388 12,735
Income for year ending
Interest income 78,823 78,823
Expenses for the year ending
Interest expense 8,689 8,689
Other expense 8,059 15,911 23,970
A summary of related party transactions are as follows:
Annual Report 2008 68
33. Presentation of Financial Instruments by Measurement
Category
The following table provides a reconciliation of classes of finan-
cial assets with these measurement categories as of 31 December
2008 and 31 December 2007:
2008 Loans and receivables Availableforsale assets Total
Cash and balances with Central Bank 3,921,810 3,921,810
Loans and advances to banks and other financial institutions 5,353,734 5,353,734
Available-for-sale financial assets 2,978,465 2,978,465
Loans and advances to customers 16,024,429 16,024,429
Other financial assets 60,004 60,004
Total financial assets 25,359,977 2,978,465 28,338,442
Non-financial assets 1,796,605
Total assets 30,135,047
2007 Loans and receivables Availableforsale assets Total
Cash and balances with Central Bank 3,550,490 3,550,490
Loans and advances to banks and other financial institutions 5,313,615 5,313,615
Available-for-sale financial assets 5,736,298 5,736,298
Loans and advances to customers 13,638,589 13,638,589
Other financial assets 179,287 179,287
Total financial assets 22,681,981 5,736,298 28,418,279
Non-financial assets 1,200,244
Total assets 29,618,523
As of 31 December 2008 and 31 December 2007 Bank had no as-
sets in trading assets and assets designated at FVTPL of HTM cat-
egories.
As of 31 December 2008 and 31 December 2007 all of the Banks
financial liabilities were carried at amortised cost.
34. Post balance sheet events
There are no events after the balance sheet date that would require
either adjustments or additional disclosures in the financial state-
ments.
Fi nanci al Stat e ment s 69
Contact Addresses
Head Office
ProCredit Bank sh.a
Rr. Sami Frashri, Tirana e Re
Pall. 11 katsh, kati 2-10-11
P.O. Box 2395
Tel. +355 (042) 271 272 / 73 / 74 /
75
Fax +355 (042) 271 276 / 7
Fax +355 (042) 233 481 (SWIFT)
Fax +355 (042) 221 568 (Payments)
Tel./Fax +355 (042) 230 499 (ATM)
Call Centre: +355 (042) 240 777
info@procreditbank.com.al
www.procreditbank.com.al
Branches
Berat
Blvd. Republika
Tel. +355 (0322) 363 44
Fax +355 (0322) 363 45
Bilisht
Unaza e qytetit Bilisht
Kryqzimi Bilisht-Miras
Tel. +355 (08112) 38 81/ 82
Fax +355 (08112) 20 86
Divjaka
Sheshi Santa Barbara
Tel. +355 (0442) 649 73
Durrs 1
Lagjia 4
Blvd. Kryesor
Tel. +355 (0522) 352 25 / 243 87 /
352 24
Fax +355 (0522) 276 38
Durrs 2
Lagjia 7
Rr. Aleksandr Goga
Tel. +355 (0522) 370 98 / 99
Fax +355 (0522) 370 97
Durrs 3
Lagjia 13, Hekurudha, Plazh
Durrs
Pran Hotel Adriatikut
Tel. +355 (0522) 352 25 / 243 87
Fax +355 (0522) 370 97
Durrs 4
Lagjia 3, Rr. Skndrbej
Pran Qendrs Monum Durrs
Tel. +355 (0522) 352 25
Fax +355 (0522) 276 38
Elbasan
Lagjia, Dyli Haxhire pll 10/1
Blvd. Qemal Stafa
Tel. +355 (0542) 532 17
Fax +355 (0542) 545 11
Fier 1
Lagjia 11 Janari
Rr. Ramis Aranitasi
Tel. +355 (0342) 200 21 / 284 33
Fax +355 (0342) 200 22
Fier 2
Lagjia Koferenca e Pezes
Rr. Jakov Xoxa
Tel. +355 (0342) 200 21 / 284 33
Fax +355 (0342) 200 22
Gjirokastr
Lagjia 18 Shtatori
Tel. +355 (0842) 686 41 / 2
Fax +355 (0842) 686 43
Kavaja
Lagja No. 2, Sallbeg
Blvd. Kryesor
Tel. +355 (05524) 78 50 / 51 / 52
Fax +355 (05524) 78 53
Koplik
Qendr Koplik, Malsi e Madhe
Tel. +355 (02224) 211 15/ 20 24
Kora 1
Rr. Shn Gjergji, No. 7
Tel. +355 (0822) 437 54 / 455 50
Fax +355 (0822) 423 99
Kora 2
Rr. Kio Greo, Lagjia 9
Tel. +355 (0822) 437 54
Fax +355 (0822) 423 99
Kuova
Lagjia Tafil Skendo
Tel. +355 (03112) 56 60
Kuks
Lagjia No. 2
Tel. +355 (02422) 247 99
Fax +355 (02422) 225 38
La
Lagjia 1, prball hotel Diplomat
Tel. +355 (0532) 28 00
Fax +355 (0532) 23 45
Lezha
Lagjia Beslidhja
Tel. +355 (02152) 21 00
Fax +355 (02152) 21 01
Lushnja
Lagjia Xhevdet Nepravishta
Shtitorja Kryesore
Tel. +355 (0352) 256 81 / 2
Fax +355 (0352) 256 83
Annual Report 2008 70
Pogradec 1
Rr. Rinia, Lagja 2
Tel. +355 (083) 222 055 / 225 577
Fax +355 (083) 225 566
Pogradec 2
Rr. Kajo Karafili, Lagja 3
Tel. +355 (083) 225 577
Fax +355 (083) 225 566
Saranda
Lagjia 1, Rr. Sknderbeu
Pran Limanit
Tel. +355 (0852) 261 56 / 7
Fax +355 (0852) 261 58
Shkodra
Lagjia Qemal Stafa
Blvd. Zogu i Par, Shkodr
Tel. +355 (02224) 21 15 / 20 24
Fax +355 (02224) 37 10
Tirana 1
Rr. Sami Frashri, Tirana e Re
Tel. +355 (042) 233 496 / 264 917
Fax +355 (042) 220 774
Tirana 2
Rr. Ferit Xhajko
Pran farmacis No. 10
Tel. + 355 (042) 376 174 / 717
Fax + 355 (042) 340 105
Tirana 3
Rr. Ded Gjo Luli
Pran Muzeut Kombtar
Tel. +355 (042) 234 671 / 80 / 81
Fax +355 (042) 234 670
Tirana 4
Laprak, Rr. e Durrsit
Blloku Coloseum Gintash
Tel. +355 (042) 256 237 / 256 314 /
264 972 / 264 973
Tirana 5
Rr. Sknderbej
Pran ambasadave
Tel. +355 (042) 234 671 / 80 / 81
Tirana 6
Rr. Reshit Petrela
Pran stacionit t trenit
Tel. +355 (042) 256 237 / 256 314 /
264 972 / 264 973
Tirana 7
Rr. Lambi Bonata 44
Kombinat
Tel. +355 (042) 256 237
Tirana 8
Rr. Komuna e Parisit
Tel. +355 (042) 233 496 / 264 917
Fax +355 (042) 220 774
Tirana 9
Kamza
Tel. +355 (042) 256 237 / 256 314 /
264 972 / 264 973
Vlora 1
Lagja Lef Sallata
Rr. Sadik Zotaj Bulevardi Vlor Skel
Tel. +355 (0332) 257 81 / 82
Fax +355 (0332) 257 83
Vlora 2
Lagjia Hajro akrri
Pran Sheshit t Flamurit
Tel. +355 (0332) 257 81 / 82
Fax +355 (0332) 257 83
Contac t Addre sse s 71
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
8
A
l
b
a
n
i
a

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