Page 122 - Annual Report 2022

Banka Kombëtare Tregtare Annual Report 2022 60

Banka Kombëtare Tregtare Sh.a.
Notes to the Consolidated Financial Statements for the year ended
31 December 2022 (Amounts in USD, unless otherwise stated)

5. Financial risk management (continued)
(c) Liquidity risk (continued)

Exposure to liquidity risk
One of the key ratios used by the Bank for managing liquidity risk, which is required by Bank of Albania (BoA) at the same time,
is the ratio of total liquid assets to total short-term liabilities on a daily basis. Based on the regulation No.71 dated 14.10.2009
“Liquidity risk management policy” amended with decision No. 75 dated 26.10.2011 the total liquidity ratio should be at a
minimum of 25%, whereas the minimum of individual ratios for local and foreign currencies (FX) at 20%. Meanwhile, based on the
changes of this regulation effective 15 May 2013, the minimum of total liquidity ratio was decreased to 20% and that of individual
ratios to 15%. In addition, in March 2018 BoA has increased again the minimum of liquidity ratio for foreign currencies to 20%.
As per this regulation, article 19 point 4, liquid assets are considered: cash balance, current accounts with BoA including
mandatory reserve, T-bills and securities according to their remaining maturity and ability to turn into liquidity, where the non-
resident counterparties’ balances are discounted with the respective haircuts according to international credit rating. Short-term
liabilities are considered all liabilities with remaining maturity up to one year.
Details of the reported Bank ratio at the reporting dates were as follows:

31-Dec-2022 31-Dec-2021

Total Liquid Assets/Total Short Term Liabilities Ratio 40.38% 44.37%
Liquid Assets in local currency/Short Term Liabilities in local currency Ratio 62.56% 59.85%
Liquid Assets in foreign currency/Short Term Liabilities in foreign currency Ratio 27.39% 34.30%

(d) Market risk
1) Foreign currency risk
Foreign currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The
Bank manages this risk by establishing and monitoring limits on open positions and also ensuring that these positions remain in
compliance with the Bank of Albania guidelines and Bank’s internal operational covenants. The Bank has in place procedures for
the independent checking of open foreign currency positions.