Page 91 - Annual Report 2022

29 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
(a) Introduction and overview

The Bank has exposure to the following risks from financial instruments:
• credit risk
• liquidity risk
• market risks
• operational risks

This note presents information about the Bank’s exposure to each of the above risks, the Bank’s objectives, policies and
processes for measuring and managing risk, and the Bank’s management of capital.
A financial instrument is any contract that gives rise to the right to receive cash or another financial asset from another party
(financial asset) or the obligation to deliver cash or another financial asset to another party (financial liability).
Financial instruments result in certain risks to the Bank. The most significant risks facing the Bank are credit risk, liquidity risk and
market risk. Market risk includes foreign currency risk, interest rate risk and other price risks.

Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework.
The Board has established the Bank Risk Committee, Asset and Liability Committee (ALCO), Risk Management Group and Credit
Committees, which are responsible for developing and monitoring Bank risk management policies in their specified areas. All
these bodies report regularly to the Board of Directors on their activities.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions, products and services offered. The Bank, through its training and management standards
and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their
roles and obligations.
The Bank Audit Committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures,
and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank Audit
Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk
management controls and procedures, the results of which are reported to the Audit Committee.
(b) Credit Risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Bank’s Loans to customers and other banks and investment securities.
For risk management reporting purposes, the Bank considers all elements of credit risk exposure (such as individual obligor
default risk, country and sector risk). The Bank has formed a Credit Committee to oversee the approval of requests for credits.
Credit requests with amounts over EUR 2,000,000 are approved only upon decision of the Board of Directors of the Bank. There
is a continuous focus on the quality of credits extended both at the time of approval and throughout their lives.
Each business unit is required to comply with Bank credit policies and procedures. Regular audits of business units and Bank
Credit Risk Management Department processes are undertaken by Internal Audit.