Page 80 - Annual Report 2023

11 BANKA KOMBËTARE TREGTARE
Notes to the Consolidated Financial Statements for the year ended 31 December 2023
(amounts in USD, unless otherwise stated)

and the consideration paid and payable is recognised in profit or loss.
The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or
substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are
retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention
of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.
When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted
for as a secured financing transaction similar to repurchase transactions.

In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset,
it derecognises the asset if it does not retain control over the asset. The rights and obligations retained in the transfer are recognised
separately as assets and liabilities as appropriate. In transfers in which control over the asset is retained, the Bank continues to recognise
the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the
transferred asset.
In certain transactions the Bank retains the obligation to service the transferred financial asset for a fee. The transferred asset is
derecognised in its entirety if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract, depending
on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.
The Bank writes off certain loans and investment securities when they are determined to be uncollectible.

(iii) Classification and initial measurement of financial assets
All financial assets are initially measured at fair value adjusted for transaction costs (where applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

• amortised cost
• fair value through profit or loss (FVTPL)
• fair value through other comprehensive income (FVOCI).

The classification is determined by both:
• the entity’s business model for managing the financial asset
• the contractual cash flow characteristics of the financial asset.

All income and expenses relating to financial assets are recognised in profit or loss.

– Assessment of whether contractual cash flows are solely payments of principal and interest (SPPI)
As per the new standard, one of the conditions for financial assets to be classified either under ‘amortised cost’ or ‘Fair Value Through
Profit or Loss (“FVTPL”) category is that the contractual terms of the financial asset should give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding. The Bank has performed the SPPI test and has
determined the business models for its financial assets.

– Business model assessment
There are three business models under IFRS 9 – ‘Held to Collect (“HTC”)’, ‘Held to Collect and Sell (“HTCS”)’ and ‘Other (“Other BM”)’.
1. Under the HTC model, cash flows result from collecting contractual payments. If an SPPI product is HTC, it is measured at amortised
cost.
2. Under HTCS, cash flows result from contractual payments, as well as from selling the financial assets. If an SPPI product is HTCS,
it is measured at fair value though other comprehensive income (“FVOCI”).
3. Other BM are those that are neither HTC, nor HTCS. One example could be a model under which trading is the primary purpose
with contractual payment collection not constituting an integral part of the model. If a product (SPPI or not) is held under Other BM,
it is measured at fair value though profit or loss (“FVTPL”).