Page 76 - Annual Report 2022

Banka Kombëtare Tregtare Annual Report 2022 14

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

3. Significant accounting policies (continued)
(g) Financial assets and liabilities (continued)

(v) Reclassifications of financial assets (continued)
Considering the above, the Bank has reclassified a significantly high portion of its ALL (Albanian Lek) and FX securities from
AFS portfolio (‘Hold to collect and sell’ measured at Fair Value through Other Comprehensive Income) to HTM portfolio (‘Hold to
collect’ measured at Amortized cost), with the following exceptions:

For FX portfolio:
- Corporate bonds with composite credit rating lower than BB- and duration longer than 4 years;
- Corporate bonds with composite credit rating equal to or higher BB-, but with duration longer than 7.5 years;
- Financial Institutions and Sovereign bonds with composite credit rating less than BB- and duration longer than 4-years, and
- Financial Institutions and Sovereign bonds with composite credit rating equal or higher than BB-, but with duration longer than
7.5 years.

For ALL portfolio:
- T-bills, because they are discounted papers and they have maturity shorter than a year;
- Up to 20% of 3-years and 5-years benchmark ALL securities. This is to comply with requirements of Market Making mechanism
since BKT is Market Maker on these benchmark bonds.
The Bank’s objective is that securities with lower credit ratings and long-term maturities (with higher risk), as well as to have a
real-time Marked-to-Market assessment, should not be kept in Amortized Cost. Meanwhile, Turkish and Albanian government
bonds can be measured at Amortized Cost, since they represent the shareholder’s country of origin (Turkey) and the country
where BKT operates (Albania). The Bank has considered all the available information at the moment of decision for changing its
business model.
Accordingly, securities portfolio measured at FVOCI was more than halved in February-March 2022 by contracting the nominal
value at US$947mio, out of which US$615mio from Lek portfolio and US$332mio from FX portfolio. Following the change of
business model and the consequent reclassification of its financial assets, the nominal amount portion of investment securities
measured at amortized cost to total securities portfolio (excluding Treasury bills) on a consolidated basis reached to 62% as at
31 December 2022 (31 December 2021: 9%), while the portion of investment securities measured at fair value contracted to 38%
as at 31 December 2022 (31 December 2021: 91%).
Paragraph 4.4.1 requires an entity to reclassify financial assets if the entity changes its business model for managing those financial
assets. Such changes are expected to be very infrequent. Such changes are determined by the entity’s senior management as
a result of external or internal changes and must be significant to the entity’s operations and demonstrable to external parties.
Accordingly, based on the accounting requirements for asset reclassifications from FVOCI to Amortized Cost, any cumulative
gain or loss previously recognized in OCI has been removed from equity and applied against the fair value of the financial asset
at the reclassification date.
The reclassification of securities has been also performed in accordance with the requirements of financial reporting methodology
and accounting manual of the Bank of Albania, sections 3.2.2 and 3.2.3, by also meeting the liquidity requirements through the
eligibility criteria applied for these financial assets.
The nominal value and fair value gains or losses of the reclassified portfolio at the reclassification date and each reporting date
are presented as following: