Page 78 - Annual Report 2022

Banka Kombëtare Tregtare Annual Report 2022 16

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)

(viii) Fair value measurement (continued)
The Bank calibrates valuation techniques and tests them for validity using prices from observable current market transactions in
the same instrument or based on other available observable market data.
When an asset is acquired or a liability is assumed in an exchange transaction for that asset or liability, the transaction price is the
price paid to acquire the asset or received to assume the liability (an entry price). In contrast, the fair value of the asset or liability
is the price that would be received to sell the asset or paid to transfer the liability (an exit price). In many cases the transaction
price equals the fair value (that might be the case when on the transaction date the transaction to buy an asset takes place in the
market in which the asset would be sold). When determining whether fair value at initial recognition equals the transaction price,
the Bank takes in account factors specific to the transaction and to the asset or liability.
When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at
the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently
recognised in profit or loss depending on the individual facts and circumstances of the transaction but not later than when the
valuation is supported wholly by observable market data or the transaction is closed out.

(ix) Impairment of financial assets
IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected
credit loss (ECL) model’.
Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised
cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some
financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers
a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current
conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
• financial instruments that have not deteriorated significantly in credit quality since initial
recognition or that have low credit risk (‘Stage 1’) and
• financial instruments that have deteriorated significantly in credit quality since initial recognition
and whose credit risk is not low (‘Stage 2’).
‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for
the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected
life of the financial instrument.
(x) Classification and measurement of financial liabilities
As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group’s financial
liabilities were not impacted by the adoption of IFRS 9. The Group’s financial liabilities include Customer deposits borrowings
from banks and other financial institutions, subordinated debt and other payables. Financial liabilities are initially measured at fair
value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through
profit or loss.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and
financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or
loss (other than derivative financial instruments that are designated and effective as hedging instruments). All interest-related
charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance
costs or finance income.