Page 77 - BKT Annual Report 2023 EN

ANNUAL REPORT 2023 8
Notes to the Consolidated Financial Statements for the year ended 31 December 2023
(amounts in USD, unless otherwise stated)

On 3 September 2007 BKT opened its first branch outside of the territory of the Republic of Albania. The Administrative Office of
this branch was opened in Prishtina, Kosovo. Pursuant to the request of “Banka Kombetare Tregtare” Kosovo dated 14.02.2018, in
reference to the change of the transformation from a branch to a subsidiary, the Central Bank of Kosovo has approved on 30 April 2018
the transformation into subsidiary of Banka Kombetare Tregtare – Kosovo Branch. Under this decision, all the rights and obligations
deriving from BKT – Kosovo Branch shall remain rights and obligations of BKT Kosovo Sh.A as a subsidiary. The Spin Off date of BKT
Kosovo is effective as at 1 January 2019. The functional currency is the EURO. The effect of translating foreign operations into the
Bank’s functional currency is explained in note 3.(b).(ii) below.
BKT has established in 2022 the electronic money company “BKT Pay” investing EUR 2,300,000 into its share capital at a participation
rate of 100%. BKT Pay was legally registered on 26 September 2022, obtained the license from the Bank of Albania on 3 November
2023, and is expected to start the activity within 2024.

(ii) Transactions eliminated on consolidation
All intragroup assets and liabilities, equity, income, expenses and cash flows (except for foreign currency transaction gains or losses)
relating to transactions between members of the Group are eliminated in full on consolidation. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(iii) Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to
obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and
the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration
arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their
acquisition-date fair values.

(b) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated into the respective functional currency of the operation at the spot exchange rate at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into
the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference
between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during
the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets
and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot
exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in
profit or loss.
Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historic cost, are translated at the foreign
exchange rate ruling at the date of the transaction, with the exception of the share capital, which is issued and maintained in USD
as per the legislation in Albania as well as per Special Law No. 8634, dated 6 July 2000, between the Bank’s shareholders and the
Republic of Albania on the Bank’s privatisation. Furthermore, the Operating Policy Guidelines of the Bank require that the share capital
be hedged by USD assets, and it is therefore treated as a monetary item, with the revaluation difference being taken to profit or loss
together with the revaluation difference of the corresponding USD asset, which offset each other in a natural hedge.

(ii) Foreign operations
The assets and liabilities of foreign operations are translated into Lek at spot exchange rates at the reporting date. The income and
expenses of foreign operations are translated into Lek at spot exchange rates at the dates of the transactions. Foreign currency
differences on the translation of foreign operations are recognised directly in other comprehensive income. Such differences have been
recognised in the foreign currency translation reserve.