Page 129 - Annual Report 2022

67 Banka Kombëtare Tregtare Annual Report 2022

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)
(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 2022, BKT has reported the following consolidated ratios:
– Regulatory Capital Ratio 17.17% (December 2021: 15.98%);
– Tier 1 Capital Ratio 15.83% (December 2021: 15.25%);
– Common Equity Tier 1 Ratio 15.83% (December 2021: 15.25%).
Starting from January 2019 the Bank has started to report on a stand-alone basis as well for statutory purposes, following
the conversion of BKT Kosovo into a subsidiary during 2018. 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 2022, BKT has reported the following stand-alone ratios:

– Regulatory Capital Ratio 19.53% (December 2021: 18.80%);
– Tier 1 Capital Ratio 18.79% (December 2021: 17.82%);
– Common Equity Tier 1 Ratio 18.79% (December 2021: 17.82%).
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.