Page 125 - Annual Report 2023

ANNUAL REPORT 2023 56
Notes to the Consolidated Financial Statements for the year ended 31 December 2023
(amounts in USD, unless otherwise stated)

• documentation of controls and procedures
• requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the
risks identified
• requirements for the reporting of operational losses and proposed remedial action
• development of contingency plans
• training and professional development
• ethical and business standards
• risk mitigation, including insurance where this is effective.
Compliance with internal standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of
Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the
Audit Committee and senior management of the Bank.

(f) Capital management
The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the
need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security
afforded by a sound capital position. There have been no material changes in the Bank’s management of capital during the period.

Regulatory capital
The Bank monitors the adequacy of its capital using, among other measures, the rules and ratios established by the Albanian regulator,
the Bank of Albania (“BoA”), which ultimately determines the statutory capital required to underpin its business. The new regulations
“On the capital adequacy ratio” and “On the regulatory capital” entered into force in 2015 are issued pursuant to Law No. 8269 date
23.12.1997 “On the Bank of Albania”, and Law No. 9662 date 18.12.2006 “On Banks in the Republic of Albania”.

Capital Adequacy Ratio
The Capital Adequacy Ratio is the proportion of the regulatory capital to risk weighted exposures, calculated as the sum of the risk-
weighted exposure amounts, on- and off-balance sheet for credit risk and for credit counterparty risk, capital requirement for market
and operational risk.
The minimum Regulatory Capital Ratio against the risk weighted exposures required by Bank of Albania is 12%. The minimum Tier 1
Capital Ratio is 6.0% and the minimum Common Equity Tier 1 Ratio is 4.5%.
In December 2023, BKT has reported the following consolidated ratios:
- Regulatory Capital Ratio 17.60% (December 2022: 17.22%);
- Tier 1 Capital Ratio 16.52% (December 2022: 15.87%);
- Common Equity Tier 1 Ratio 16.52% (December 2022: 15.87%).
Based on the regulation of BoA nr. 4/2017 “On the consolidated supervision” the Bank should also monitor its capital adequacy ratio
on a stand-alone basis. The same minimum regulatory ratios mentioned above are applied.
In December 2023, BKT has reported the following stand-alone ratios:
- Regulatory Capital Ratio 20.06% (December 2022: 19.60%);
- Tier 1 Capital Ratio 19.58% (December 2022: 18.86%);
- Common Equity Tier 1 Ratio 19.58% (December 2022: 18.86%).

Risk-Weighted Assets (RWAs)
For calculation of credit risk, exposures, on- and off-balance sheet are classified in 15 exposure classes. In general terms, client/
issuer type, loan destination and collateral are the main determinants of the exposure class. Each exposure class has its own specific
requirements on how to assess the appropriate risk weight and respective risk weighted exposures. For credit risk and counterparty
risk is applied the Standardised Approach. Market risk capital requirements are calculated in case the Bank has a Trading portfolio
that fulfils the requirements defined by the regulation and/ or a total net open currency position that is larger than the defined minimum
threshold. Operational risk capital requirement is calculated based on the Basic Indicator Approach.